On May 13, 2009, Secretary Geithner announced that Treasury plans to re-open the application window for participation in the TARP Capital Purchase Program banks with total assets under $500 million, and to increase the amount that can be invested from 3% of risk-weighted assets to 5% of risk-weighted assets.

Using the proceeds of the repayments we expect to receive from some of the largest banks, we plan to re-open the application window for banks with total assets under $500 million under the Capital Purchase Program, and raise from 3% of risk-weighted assets to 5% the amount for which qualifying institutions can apply. This applies to all term sheets – public and private corporations, Subchapter S corporations, and mutual institutions. Current CPP participants will be allowed to reapply, and will have an expedited approval process.

In addition, we will extend the deadline for small banks to form a holding company for the purposes of CPP.  Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months.

Tying this expansion of the TARP Capital Purchase Program to the repayments made by the largest banks is likely only political, as the dollar amounts involved to provide capital to these smaller institutions is (a) available under the existing $250 billion reserved for the TARP Capital Purchase Program, and (b) is likely to be less in the aggregate than the amount received by any one of the largest banks.

Geithner’s remarks do not include any assessment as to whether the standards for participation will be modified, or whether the application process will be accelerated.  Without these two modifications, especially in light of negative stigma attached to TARP, this extension may be nothing more than an opportunity for the Treasury Department to demonstrate that they made an offer targeted specifically to helping community banks (even if no community banks take them up on that offer).