Without fanfare, the Treasury Department posted to its Web site Tuesday details of a new, second program to rescue struggling financial institutions -- the “Systemically Significant Failing Institutions Program” -- then disclosed it also has created a third, unnamed program to provide them with government cash.

A Treasury spokesperson said the department’s infusion of an additional $20 billion into Citigroup (C) this week was completed not under the Systemically Significant Failing Institutions Program -- but under the new, third program. She indicated Treasury will post details of that additional program soon.

The Treasury’s first program to help stabilize the financial system, the Capital Purchase Program, or CPP, was launched in mid-October, two weeks after President Bush signed the Emergency Economic Stabilization Act, or EESA, into law. The legislation authorized the Treasury to spend up to $700 billion on efforts to strengthen the nation’s struggling financial system. 

Under the CPP, Treasury is investing $250 billion into banks. Citigroup was one of nine institutions that received the first $125 billion in funding from the CPP. Citigroup received $25 billion, the maximum under the CPP, as did JPMorgan Chase (JPM) and Wells Fargo (WFC). The Treasury receives preferred stock in companies it invests in under the CPP, as well as warrants for common shares in each company.

According to a transaction report posted to the Treasury Web site on Tuesday, Treasury has invested $161.5 billion in 53 institutions through November 21. The new list of the transactions is here: http://www.treasury.gov/initiatives/eesa/docs/TransactionReport-11252008.pdf.

In the restructuring of the Federal Reserve’s rescue of insurance giant American International Group (AIG) two weeks ago, Treasury invested $40 billion in AIG. When asked late Tuesday under what program Treasury had made the investment in AIG -- it exceed the maximum of the CPP program -- and under what program Treasury had made the subsequent additional investment in Citigroup, Treasury spokesperson Brookly McLaughlin said the AIG investment had been completed under a new Treasury program. For details, she referred Fox Business to the Treasury Web site, where the department had posted earlier in the day the guidelines for the Systemically Significant Failing Institutions Program. The guidelines can be found here: http://www.treasury.gov/initiatives/eesa/program-descriptions/ssfip.shtml.

“We released today the program description for the AIG transaction,” McLaughlin said in an email.

When asked about the Citigroup investment this week, McLaughlin indicated it had been made under a new, third program to assist financial institutions yet to be publicized. “It's a separate program -- neither the capital purchase program or the program AIG was under,” she wrote in an email. When asked for details on the third program, McLaughlin said, “The law requires reporting on all that after the transaction closes.”

She did not respond to further requests for information on the third program or offer any explanation why Treasury created it. Based on the timing of disclosure of the program that AIG was assisted under -- the Systemically Significant Failing Institutions Program -- Treasury could post details on the third program within two weeks or so.

Treasury did not issue a press release or make a public announcement Tuesday about the Systemically Significant Failing Institutions Program. As part of its standard operating procedures, the department does not issue releases or make announcements on all updates to its EESA efforts. Treasury does issue email alerts to subscribers when new information is posted to its Web site about EESA programs, but does not identify the nature of the new information in its emails. (An Internet search found that several law firms that deal with executive compensation practices referred to the program in recent client materials.) 

“It just creates a very bad perception,” said Jaret Seiberg, a financial services analyst in Washington with Stanford Group. “The public already had questions about this program.  The key to keeping investors involved, and the public on board, is disclosure and transparency.  And even when something slips through the cracks, it's not good for the political support the program needs.”

Seiberg said that from a policy standpoint, Treasury may have good reasons to create a third program based on the Citigroup rescue plan.  

“There are institutions that fall in between the normal (capital investment) program and a failure,” he said. “The great example would be Citigroup. Clearly, Citigroup needed help. They (policymakers) needed a way to do that and it seems like they want to codify what they did for Citigroup, in case they need to use it again.”

In the Citigroup plan, Treasury joined with the Federal Reserve and the Federal Deposit Insurance Corporation in a “ring fencing” deal to guarantee up to $306 billion in troubled Citi assets. The plan also included Treasury’s purchase of another $20 billion in Citi preferred stock.

In its guidelines for the Systemically Significant Failing Institutions Program posted Tuesday, Treasury said financial institutions will be considered for government assistance under the program “on a case-by-case basis.”

“The primary objective of this program is to provide stability and prevent disruption to financial markets in order to limit the impact on the economy and protect American jobs, savings, and retirement security from the failure of a systemically significant institution,” Treasury said in the description. “In an environment of substantially reduced confidence, severe strains, and high volatility in financial markets, the disorderly failure of a systemically significant institution could impose significant losses on creditors and counterparties, call into question the financial strength of other similarly situated financial institutions, disrupt financial markets, raise borrowing costs for households and businesses, and reduce household wealth.  The resulting financial strains could threaten the viability of otherwise financially sound businesses, institutions, and municipalities, resulting in adverse spillovers on employment, output, and income.”

In determining whether an institution is “systemically significant” and “at substantial risk of failure,” Treasury said it may consider, among other things:

1.      The extent to which the failure of an institution could threaten the viability of its creditors and counterparties because of their direct exposures to the institution

2.      The number and size of financial institutions that are seen by investors or counterparties as similarly situated to the failing institution, or that would otherwise be likely to experience indirect contagion effects from the failure of the institution

3.      Whether the institution is sufficiently important to the nation’s financial and economic system that a disorderly failure would, with a high probability, cause major disruptions to credit markets or  payments and settlement systems, seriously destabilize key asset prices, significantly increase uncertainty or losses of confidence thereby materially weakening overall economic performance or 

4.      The extent and probability of the institution’s ability to access alternative sources of capital and liquidity, whether from the private sector or other sources of government funds.

Treasury said it will determine “the form, terms, and conditions of any investment made pursuant to this program on a case-by-case basis in accordance with the considerations mandated in EESA.  Treasury may invest in any financial instrument, including debt, equity, or warrants, that the Secretary of the Treasury determines to be a troubled asset, after consultation with the Chairman of the Board of Governors of the Federal Reserve System and notice to Congress.  Treasury will require any institution participating in this program to provide Treasury with warrants or alternative consideration, as necessary, to minimize the long-term costs and maximize the benefits to the taxpayers in accordance with EESA.”

Treasury said will also require any institution participating in the program to comply with its restrictions on executive compensation. In addition, Treasury said that in assisting struggling institutions, it will consider other measures, including “limitations on the institution’s expenditures or bonuses, or any corporate governance requirements, to protect the taxpayers’ interests or reduce ongoing risks to the financial system.” 

EESA gives the Treasury department broad authority to assist financial institutions. Treasury Secretary Henry Paulson and his team have considered various proposals to help them.  Last week, Paulson announced Treasury would not proceed -- for now -- with one of the specific programs included in the legislation -- the purchase of trouble assets from banks and other companies.

Critics have accused Paulson of failing for formulate a consistent, strategic approach for dealing with the financial crisis. For his part, Paulson says he and his team are responding nimbly to changing circumstances.  “There was no playbook for responding to a once or twice in a hundred year event,” he said in a speech last week. Among his guiding principles” for addressing the financial crisis, he said: “Be pragmatic enough to change plans when facts and conditions change. “