The U.S. government has entered into an agreement with Bank of America to provide a package of guarantees, liquidity access and capital, including a $20 billion investment by the Treasury under the Troubled Asset Relief Program (TARP).
The Treasury and the Federal Deposit Insurance Corp. will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value.
The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch, and the assets will remain on Bank of America's balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC.
The Treasury's $20 billion investment is in exchange for preferred stock, with an 8% dividend to the Treasury. Bank of America will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program.