In a strongly worded letter to Treasury Secretary Henry Paulson, the American Bankers Association (ABA) has requested that the government quickly define exactly what purpose the Capital Purchase Program (CPP) is supposed to serve. The bank trade group has also requested that its members be given more time to decide whether to participate.

The CPP “is not a program the banking industry sought,” ABA declared in its letter. Although the Emergency Economic Stabilization Act (EESA) authorized the purchase of equity in financial institutions, that was not “in any way the primary focus of the bill,” ABA declared. Rather, the main focus when ESSA was enacted was asset purchases.

“Apparently everything completely changed when the Europeans quickly adopted an equity purchase program,” ABA noted. “Virtually overnight the CPP was created, and nine banks were ‘invited’ to participate.” Since then, many U.S. banks have been contacted by regulators and urged, “sometimes forcefully,” to participate in the CPP, ABA said.

Why should they? ABA asked. “There are thousands of banks … that never made one toxic subprime loan, that are strongly capitalized, and that are making loans today.”

If banks do join, ABA noted, they may open themselves to onerous regulation. “Proposals to stop dividends, restrict [executive] compensation, and require certain types of lending can have a devastating impact” on a sound bank, ABA warned. “Indeed, if any of these proposals were certain to be imposed, it is doubtful that many banks would participate.”

“Bankers across the country are extremely upset about the manner in which the CPP program is rolling out,” ABA said. “Again these are strongly capitalized, profitable banks that never made one subprime loan. These bankers believe they are being asked — in some cases pressured — to participate in a program they did not seek and do not need.”