April 16, 2009Hon. Timothy F. GeithnerSecretary of the TreasuryUnited States Department of the Treasury1500 Pennsylvania Avenue, NW, Room 3330Washington, DC 20220Dear Secretary Geithner:I am writing on behalf of the American Bankers Association to requestthat Treasury address two serious inequities that have developed in theimplementation of the Capital Purchase Program (CPP).

Inequitable tier 2 capital treatment under CPP

We would appreciate you addressing the inequitable capital treatment of the Treasury investments for certain banks participating in the CPP. For allcompanies other than stand-alone insured depository institutions organized as Scorporations (S corporation banks) or mutual institutions (mutual banks), theinvestments are treated as Tier 1 capital; however, for S corporation banks andmutual banks the investments are treated as Tier 2 capital. We reiterate ourconcerns, first expressed when the term sheet for S corporations was released,about the inequitable treatment of certain classes of institutions. While Tier 2capital improves an institution’s total risk-based capital, it does nothing to helpother measures of an institution’s capital position that often are scrutinized moreclosely by investors, analysts, and bank customers.We appreciate that there are differences between the capital instrumentsprovided by the various types of entities that are participating in the CPP.However, the investments are designed to be economically comparable. Each hasa stated duration that likely will far exceed the actual life of Treasury’sinvestment in any given institution. Each has incentives for the recipient to repayTreasury by the end of the 5

year. Each pays dividends or interest in an amountthat, after taxes, is designed to be comparable. And each has comparablerestrictions that apply to the recipient as long as Treasury’s investment remainsoutstanding. Given these similarities, it is unfair to single out S corporation banksand mutual banks for a different treatment. Accordingly, we urge you to work with the bank regulators to achieve consistent treatment of Treasury’s CPPinvestments as Tier 1 capital for any company that participates in the program.

Diane Casey-Landry

Chief Operating Officer &Sr. Executive Vice President Tel: 202-663-5110Fax: 202-663-7533dcasey@aba.com

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Advocacy Since 1875

1120 Connecticut Avenue, NW Washington, DC 200361-800-BANKERS www.aba.com

We note that mutual banks operating as stand-alone institutions have been particularlydisadvantaged. First, the path to form a mutual holding company is much more complex and timeconsuming than that for formation of other bank holding companies. This is because theunderlying mutual bank has to be converted to a stock bank held by a new mutual ownershipinterest, requiring time-consuming mutual stakeholder votes and other considerations. As a result,while other stand-alone banks have had feasible options to form holding companies to participatein CPP, mutual banks effectively do not. Second, and partly a reflection of the unique factors thataffect the ability of mutual banks to raise capital, only mutuals have statutory provisions to raisecapital through issuance of mutual capital certificates. The American Bankers Association andothers have recommended that CPP investments be permitted through this instrument, but by allappearances there has been no serious consideration of this option by Treasury staff. We stronglyrecommend that mutual capital certificates be permitted as an investment option under CPP.We also strongly recommend that you extend the deadlines by which holding companyapplications must have been approved in order for a holding company to be eligible to participatein the CPP. Providing interested S corporation banks and mutual banks sufficient time to formholding companies and apply for an investment in the newly formed holding companies wouldlessen the inequities otherwise created by the differing capital treatments.

Onerous prepayment penalty for short-term CPP investments

We request that you permit companies to withdraw from the CPP without having to paywhat amounts to a prepayment penalty. The American Recovery and Reinvestment Act of 2009(ARRA) authorizes companies to withdraw from the CPP without waiting a specified length of time or raising capital from third parties. Section 7001 of the ARRA states, in relevant part:(g) NO IMPEDIMENT TO WITHDRAWAL BY TARP

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RECIPIENTS.—Subject toconsultation with the appropriate Federal banking agency (as that term is defined insection 3 of the Federal Deposit Insurance Act), if any, the Secretary shall permit a TARPrecipient to repay any assistance previously provided under the TARP to such financialinstitution, without regard to whether the financial institution has replaced such fundsfrom any other source or to any waiting period, and when such assistance is repaid, theSecretary shall liquidate warrants associated with such assistance at the current marketprice.Participating institutions may be divided into two categories for purposes of thisdiscussion.

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The first consists of publicly traded institutions, which issued preferred stock plus warrants entitling Treasury (or the current holder) to acquire common stock of the issuer in an amount equal to 15% of Treasury’s initial investment. Thesewarrants are immediately exercisable although, as far as we know, none haveyet been exercised.

The CPP has been implemented under the authority of Title 1 of the Emergency Economic StabilizationAct, captioned “Troubled Assets Relief Program” (commonly referred to as TARP).