Moody’s Views Financial Stability Plan Positively
Moody’s has joined Standard & Poor’s and CreditSights in issuing a generally positive reaction to the Financial Stability Plan, but suggests it may be of more benefit to large banks than to smaller ones.
“Despite the lack of specifics about the terms of the initiatives announced by the U.S. Treasury Secretary on February 10, 2009, Moody’s views the Financial Stability Plan (FSP) positively for major banks’ depositors and debt holders, as it reflects the U.S. Government’s commitment to providing bridge capital and liquidity support to these institutions until the economy and capital markets recover.”
The benefits of the FSP are less clear for the creditors of the smaller regional and community banks, defined as those with less than $100 billion in assets. Nevertheless, the government is clear in its desire to re-start the flow of credit, and regional and community banks play an important role as providers of credit.
“The Public-Private Investment Fund component of the FSP encourages the realization of losses on distressed assets, which will reduce the firms’ common equity base, but this will be compensated by an infusion of convertible preferred stock under the Capital Assistance Program. It is this inflow of convertible preferred stock that would be immediately supportive to creditors. Combined, these components provide the banks with a process to rid themselves of troubled assets while maintaining the appropriate level of regulatory capital, which is supportive of creditors. This also improves the chances of regaining confidence in the system, and therefore attracting private capital in the future.”
For details see Moody’s Special Comment Moody’s views the U.S. Government’s Financial Stability Plan positively for major banks’ depositors and debt holders.
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