Troubled Asset Relief Program
Status of Efforts to Address Transparency and Accountability Issues Gao ID: GAO-09-296 January 30, 2009This is the second GAO report on the Troubled Asset Relief Program (TARP). It follows up on the nine recommendations from the December 2, 2008, report (GAO-09-161). It also reviews (1) the nature and purpose of activities that had been initiated under TARP as of January 23, 2009; (2) Treasury's Office of Financial Stability (OFS) hiring and transition efforts, use of contractors, and progress in developing a system of internal control; and (3) preliminary indicators of TARP's performance. To do this work, GAO reviewed signed agreements and other relevant documentation and met with officials from OFS, contractors, federal agencies, and some participating institutions.
As of January 23, 2009, Treasury had disbursed about $293.7 billion of the $700 billion in program funds. Most of the funds (about $194.2 billion) went to purchase preferred shares of 317 financial institutions under the Capital Purchase Program--Treasury's primary vehicle under TARP for stabilizing financial markets. GAO's previous report emphasized the lack of monitoring and reporting for CPP investments and recommended stronger measures for ensuring that participating institutions use the funds to meet the program's purpose and comply with CPP requirements on, for example, executive compensation and dividend payments. In response to our recommendation, Treasury developed plans to survey the largest twenty institutions monthly to monitor lending and other activities and analyze quarterly monitoring data for all institutions. While the monthly survey is a step toward greater transparency and accountability for the largest institutions, we continue to believe that additional action is needed to better ensure that all participating institutions are accountable for their use of program funds. Treasury has continued to develop a system for detecting noncompliance with key requirements of the program but has not yet finalized its plans. Further, Treasury has made limited progress in formatting articulating and communicating an overall strategy for TARP, continuing to respond to institution- and industry-specific needs by, for example, making further capital purchases and offering loans to the automobile industry. GAO's previous report also included recommendations about OFS's management infrastructure, including hiring, contract oversight, and internal controls. Treasury has taken steps to address our recommendations, but still faces several challenges. First, it took proactive steps to help ensure a smooth transition to the new administration by keeping positions filled and using an expedited hiring process, including direct hire authority. Moreover, after losing some potential candidates because of conflicts of interest, Treasury is asking candidates to address potential conflicts earlier in the recruitment process to avoid unnecessary delays in finalizing employment offers. However, it continues to face difficulty providing competitive salaries to attract skilled employees. OFS continues to rely on detailees and contractors to carry out program functions. Second, consistent with our recommendation about contracting oversight, Treasury has enhanced such oversight by tracking costs, schedules, and performance and addressing the training requirements of personnel who oversee the contracts. As we previously recommended, Treasury needs to continue to identify and mitigate conflicts of interest in contracting. Similarly, OFS has adopted a framework for organizing the development and implementation of its system of internal control for TARP activities, which is consistent with our recommendation. However, it has yet to implement a disciplined risk-assessment process.Given the recency of program actions and time lags in the reporting of available data, GAO continues to believe that it is too early in the program's implementation to see measurable results in many areas. However, while perceptions of risk have declined in interbank markets, they changed very little in corporate bond and mortgage markets. Finally, as GAO also noted in December, these indicators may be suggestive of TARP's ongoing impact, but no single indicator or set of indicators can provide a definitive determination of the program's effects because of the range of actions that have been and are being taken to address the current crisis. GAO will continue to refine and monitor the indicators going forward.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
January 2009:
Troubled Asset Relief Program:
Status of Efforts to Address Transparency and Accountability Issues:
GAO-09-296:
GAO Highlights:
Highlights of GAO-09-296, a report to congressional committees.
Why GAO Did This Study:
This is the second GAO report on the Troubled Asset Relief Program
(TARP). It follows up on the nine recommendations from the December 2,
2008, report (GAO-09-161). It also reviews (1) the nature and purpose
of activities that had been initiated under TARP as of January 23,
2009; (2) Treasury‘s Office of Financial Stability (OFS) hiring and
transition efforts, use of contractors, and progress in developing a
system of internal control; and (3) preliminary indicators of TARP‘s
performance. To do this work, GAO reviewed signed agreements and other
relevant documentation and met with officials from OFS, contractors,
federal agencies, and some participating institutions.
What GAO Found:
As of January 23, 2009, Treasury had disbursed about $293.7 billion of
the $700 billion in program funds (see table). Most of the funds (about
$194.2 billion) went to purchase preferred shares of 317 financial
institutions under the Capital Purchase Program (CPP)”Treasury‘s
primary vehicle under TARP for stabilizing financial markets. GAO‘s
previous report emphasized the lack of monitoring and reporting for CPP
investments and recommended stronger measures for ensuring that
participating institutions use the funds to meet the program‘s purpose
and comply with CPP requirements on, for example, executive
compensation and dividend payments. In response to our recommendation,
Treasury developed plans to survey the largest twenty institutions
monthly to monitor lending and other activities and analyze quarterly
monitoring data (call reports) for all institutions. While the monthly
survey is a step toward greater transparency and accountability for the
largest institutions, we continue to believe that additional action is
needed to better ensure that all participating institutions are
accountable for their use of program funds.
Table: Status of TARP Funds as of January 23, 2009 (dollars in
billions):
Program: Capital Purchase Program;
Disbursed: $194.2.
Program: Systemically Significant Failing Institutions;
Disbursed:
$40.0.
Program: Targeted Investment Program;
Disbursed: $40.0.
Program: Term Asset-backed Securities Loan Facility;
Disbursed: 0.0.
Program: Automotive Industry Financing Program;
Disbursed: $19.5
Program: Citigroup Asset Guarantee;
Disbursed: 0.0.
Program: Bank of America Asset Guarantee;
Disbursed: 0.0.
Program: Totals;
Disbursed: $293.7.
Source: Treasury OFS, unaudited.
[End of table]
Treasury has continued to develop a system for detecting noncompliance
with key requirements of the program but has not yet finalized its
plans. Further, Treasury has made limited progress in formatting
articulating and communicating an overall strategy for TARP, continuing
to respond to institution- and industry-specific needs by, for example,
making further capital purchases and offering loans to the automobile
industry. In addition, it has not yet developed a strategic approach to
explain how its various programs work together to fulfill TARP‘s
purposes or how it will use the remaining TARP funds. While GAO does
not question the need for swift responses in the current economic
environment, the lack of a clearly articulated vision has complicated
Treasury‘s ability to effectively communicate to Congress, the
financial markets, and the public on the benefits of TARP and has
limited its ability to identify personnel needs.
Figure: Timeline of Programs and Selected Actions under TARP, October
2008–January 2009:
[Refer to PDF for image]
10/3/08: Congress passes P.L. 110-343, Emergency Economic Stabilization
Act (the act), which authorized TARP.
10/14/08: Treasury announces that it will purchase up to $250 billion
in financial firms‘ preferred stock under TARP via CPP. Nine major
financial institutions agree to participate in CPP. Treasury issues
executive compensation guidelines for three TARP program areas: CPP,
Troubled Asset Auction Program, and Systemically Significant Failing
Institutions (SSFI).
10/20/08: Treasury, the Federal Reserve, the Office of the Comptroller
of the Currency, the Office of Thrift Supervision, and the Federal
Deposit Insurance Corporation (FDIC) issue application guidelines and
other documents for all banks wishing to participate in CPP.
10/28/08: Treasury disburses capital injections to 8 of the 9 banks
slated to participate in the first round of the CPP, resulting in the
purchase of $115 billion in preferred stock and warrants from 8
national financial institutions.
11/10/08: Treasury announces that it will purchase $40 billion in
senior preferred stock from the American International Group (AIG)
under SSFI.
11/14/08: Treasury purchases about $33.6 billion in preferred stock and
warrants from 21 financial institutions under CPP.
11/21/08: Treasury purchases about $2.9 billion in preferred stock and
warrants from 23 financial institutions under CPP.
11/23/08: Treasury, FDIC, and the Federal Reserve enter into an
agreement with Citigroup to provide a package of guarantees, liquidity
access, and capital, including equity investment of $20 billion in
Citigroup.
11/25/08: Treasury announces allocation of $20 billion to back Term
Asset-backed Securities Loan Facility (TALF), a $200 billion lending
facility for the consumer asset-backed securities market established by
the Federal Reserve Bank of New York. Treasury purchases $40 billion in
preferred stock and warrants from AIG under SSFI, as announced on
November 10, 2008.
12/5/08: Treasury purchases about $3.8 billion in preferred stock and
warrants from 35 financial institutions under CPP.
12/12/08: Treasury purchases about $2.5 billion in preferred stock and
warrants from 28 financial institutions under CPP.
12/19/08: Treasury purchases about $2.8 billion in preferred stock and
warrants from 49 financial institutions under CPP. Treasury announces
plan for stabilizing the automotive industry under the Automotive
Industry Financing Program (AIFP).
12/29/08: Treasury announces purchase of $5 billion in senior preferred
equity from GMAC LLC and agrees to loan $1 billion to support its
reorganization as a bank holding company.
12/31/08: Treasury purchases about $15 billion in preferred stock and
warrants from seven financial institutions under CPP. Treasury
purchases $20 billion in preferred stock and warrants from Citigroup
that it announced on November 23, 2008, under the newly created
Targeted Investment Program (TIP). Treasury loans $4 billion to GM and
commits to loan $5.4 billion on January 16, 2009. Treasury provides
Congress with report on AGP, a program to guarantee troubled assets
mandated under Section 102 of the act.
1/2/09: Treasury provides program description for the TIP. Treasury
completes $4 billion loan transaction with Chrysler Holding LLC as part
of AIFP.
1/9/09: Treasury purchases about $14.8 billion in preferred stock and
warrants from 43 financial institutions under CPP.
1/16/09: Treasury announces that it will make a $1.5 billion loan to a
special purpose entity created by Chrysler Financial to finance the
extension of new consumer auto loans as part of AIFP. Treasury, the
Federal Reserve, and FDIC announce the terms of the guarantee agreement
with Citigroup announced on November 23, 2008, providing protection
against the possible losses on an asset pool of approximately $301
billion of loans and securities. Treasury, the Federal Reserve, and
FDIC enter into an agreement with Bank of America to provide
guarantees, liquidity access, and capital, including protection against
possible losses on approximately $118 billion assets and purchase of
$20 billion in preferred stock under TIP. Treasury purchases about $1.5
billion in preferred stock and warrants from 39 institutions under CPP.
1/21/09: Treasury loans an additional $5.4 billion to GM.
1/23/09: Treasury purchases about $386 million in preferred stock and
warrants from 23 institutions under CPP.
Source: GAO.
[End of figure]
GAO‘s previous report also included recommendations about OFS‘s
management infrastructure, including hiring, contract oversight, and
internal controls. Treasury has taken steps to address our
recommendations, but still faces several challenges. First, it took
proactive steps to help ensure a smooth transition to the new
administration by keeping positions filled and using an expedited
hiring process, including direct hire authority. Moreover, after losing
some potential candidates because of conflicts of interest, Treasury is
asking candidates to address potential conflicts earlier in the
recruitment process to avoid unnecessary delays in finalizing
employment offers. However, it continues to face difficulty providing
competitive salaries to attract skilled employees. Also, given the
program‘s evolving nature and the likelihood of changes under the new
administration, Treasury will need to identify OFS‘s long-term
organizational needs. OFS continues to rely on detailees and
contractors to carry out program functions. Second, consistent with our
recommendation about contracting oversight, Treasury has enhanced such
oversight by tracking costs, schedules, and performance and addressing
the training requirements of personnel who oversee the contracts. As we
previously recommended, Treasury needs to continue to identify and
mitigate conflicts of interest in contracting. Similarly, OFS has
adopted a framework for organizing the development and implementation
of its system of internal control for TARP activities, which is
consistent with our recommendation. OFS plans to use this framework to
develop specific standards and policies, drive communications on
expectations, and measure effectiveness of internal control policies
and procedures. However, it has yet to implement a disciplined risk-
assessment process.
Given the recency of program actions and time lags in the reporting of
available data, GAO continues to believe that it is too early in the
program‘s implementation to see measurable results in many areas. Even
with more time and better data, it will remain difficult to separate
the impact of TARP activities from the effect of other economic forces.
Some indicators suggest that the cost of credit has declined in
interbank, mortgage, and corporate debt markets since the December
report. However, while perceptions of risk (as measured by premiums
over Treasury securities) have declined in interbank markets, they
changed very little in corporate bond and mortgage markets. Finally, as
GAO also noted in December, these indicators may be suggestive of
TARP‘s ongoing impact, but no single indicator or set of indicators can
provide a definitive determination of the program‘s effects because of
the range of actions that have been and are being taken to address the
current crisis. GAO will continue to refine and monitor the indicators
going forward.
What GAO Recommends:
Treasury has taken important steps to implement all nine previous
recommendations, but has yet to fully address eight. This report
includes recommendations that Treasury further expand its efforts to
monitor how CPP recipients are using program funds and more clearly
articulate and communicate a strategic vision for the program.
Addressing these and other recommendations would help ensure greater
accountability and transparency and better enable Treasury to
effectively manage TARP. Treasury generally agreed with the contents of
the report and noted that while progress has been made in overseeing
the program, it agreed that more work needs to be done.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-296]. For more
information, contact Thomas McCool at (202) 512-2642 or
mccoolt@gao.gov.
[End of section]
Contents:
Letter:
Scope and Methodology:
Background:
Treasury Continued to Focus on CPP, but a Variety of Other Programs
Have Been Created or Are in Progress:
Efforts to Establish the Office of Financial Stability Are Ongoing:
Measuring the Impact of TARP on Credit Markets and the Economy
Continues to Be Challenging:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Analysis:
Appendix I: Comments from the Department of the Treasury:
Appendix II: CPP Transactions as of January 23, 2009:
Appendix III: Examples of Programs to Preserve Homeownership:
Appendix IV: Treasury's Summary Response to Prior Recommendations:
Appendix V: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Status of TARP Funds as of January 23, 2009:
Table 2: Capital Investments Made through the Capital Purchase Program,
as of January 23, 2009:
Table 3: Number of Treasury and Other Federal Employees Assigned to
OFS:
Table 4: Financial Agency Agreement, Contracts, and Blanket Purchase
Agreements Awarded, as of January 20, 2009:
Table 5: GAO's Standards for Internal Control in the Federal
Government:
Figures:
Figure 1: Timeline of Program Activities for TARP, October 2008-January
2009:
Figure 2: OFS's Framework for Internal Control:
Figure 3: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill Yield,
as of January 22, 2009:
Figure 4: Yields on Corporate Bonds (Aaa and Baa) Relative to 10-year
Treasury, as of January 16, 2009:
Figure 5: Mortgage Rates (30-Year Fixed Rate, Conforming), Mortgage
Applications Index, and Treasury Yields, as of January 16, 2009:
Figure 6: Mortgage Originations and Mortgage Applications Index, as of
September 30, 2008:
Figure 7: Percentage of Loans in Foreclosure, as of September 30, 2008:
Abbreviations:
ABS: asset-backed security:
AIG: American International Group, Inc.
AGP: Asset Guarantee Program:
AIFP: Automotive Industry Financing Program:
CBOE: Chicago Board Options Exchange:
CDFI: Community Development Financial Institutions Fund:
CICA: The Competition in Contracting Act:
COP: Congressional Oversight Panel:
COTR: Contracting Officer's Technical Representatives:
CPP: Capital Purchase Program:
FDIC: Federal Deposit Insurance Corporation:
FAR: Federal Acquisition Regulation:
FHFA: Federal Housing Finance Agency:
FHA: Federal Housing Administration:
FinSOB: Financial Stability Oversight Board:
FRBNY: Federal Reserve Bank of New York:
GAO: Government Accountability Office:
GSA: General Services Administration:
GSE: government-sponsored enterprise:
GM: General Motors Corporation:
HUD: Department of Housing and Urban Development:
IDIQ: indefinite delivery indefinite quantity:
LIBOR: London Interbank Offered Rate:
MBS: mortgage-backed security:
OCC: Office of the Comptroller of the Currency:
OFS: Office of Financial Stability:
OMB: Office of Management and Budget:
OPM: Office of Personnel Management:
OTS: Office of Thrift Supervision:
PEO: principal executive officer:
QFI: qualified financial institution:
SEO: senior executive officer:
SES: Senior Executive Service:
SSFI: Systemically Significant Failing Institutions:
TARP: Troubled Asset Relief Program:
TALF: Term Asset-backed Securities Loan Facility:
TIP: Targeted Investment Program:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 30, 2009:
Congressional Committees:
On October 3, 2008, the Emergency Economic Stabilization Act of 2008
(the act) was signed into law. The act established the Office of
Financial Stability (OFS) within the Department of the Treasury
(Treasury) and authorized the Troubled Asset Relief Program (TARP).
[Footnote 1] Among other things, the act provides Treasury with broad,
flexible authorities to buy or guarantee up to $700 billion in
"troubled assets," which include mortgages and mortgage-related
instruments, and any other financial instrument whose purchase Treasury
determines is needed to stabilize the financial markets.[Footnote 2]
The act also created a number of mechanisms to oversee the
implementation and operations of TARP. The U.S. Comptroller General is
required to report at least every 60 days on findings resulting from
oversight of TARP's performance in meeting the purposes of the act; the
financial condition and internal controls of TARP, its representatives,
and agents; the characteristics of both asset purchases and the
disposition of assets acquired, including any related commitments that
are entered into; TARP's efficiency in using the funds appropriated for
the program's operation; TARP's compliance with applicable laws and
regulations; efforts to prevent, identify, and minimize conflicts of
interest of those involved in TARP's operations; and the efficacy of
contracting procedures.[Footnote 3]
Since December 2, 2008, when we issued our first 60-day report on TARP,
OFS has continued to take actions intended to stabilize the U.S.
financial markets, such as purchasing equity in financial institutions
and providing loans to the automobile industry.[Footnote 4] This
report, the second in response to this mandate, follows up on the nine
recommendations we made in our December 2008 report and addresses (1)
the nature and purpose of activities that have been initiated under
TARP as of January 23, 2009; (2) the status of the transition to the
new administration at OFS and its hiring efforts, use of contractors,
and system of internal controls; and (3) preliminary indicators of
TARP's performance.
Scope and Methodology:
To determine the nature and purpose of TARP activities from December 2,
2008, through January 23, 2009, we reviewed documents from OFS that
described the amounts, types, and terms of Treasury's purchases of
preferred stocks and warrants under the Capital Purchase Program (CPP),
the Systemically Significant Failing Institutions Program (SSFI), the
Automotive Industry Financing Program (AIFP), and the Targeted
Investment Program (TIP).[Footnote 5] We reviewed documentation and
interviewed officials from OFS responsible for selecting financial
institutions to participate in CPP. We also contacted officials from
the four federal banking regulators--the Federal Deposit Insurance
Corporation (FDIC), the Office of the Comptroller of the Currency
(OCC), the Board of Governors of the Federal Reserve System (the
Federal Reserve), and the Office of Thrift Supervision (OTS)--to
identify any changes in their procedures for reviewing CPP applications
and determine their plans for assessing participating institutions'
compliance with TARP requirements. For the first eight institutions
that received CPP funds, we followed up with senior officials to
identify any changes in how they planned to use the capital injections
and whether they intended to report separately on their activities
associated with the capital investments. The institutions included in
this review were the Bank of America Corporation (Bank of America),
Bank of New York Mellon Corporation (Bank of New York Mellon),
Citigroup, Inc. (Citigroup), The Goldman Sachs Group, Inc., JPMorgan
Chase & Company, Morgan Stanley, State Street Corporation, and Wells
Fargo & Company. We discussed with OFS and regulatory officials their
plans for ensuring compliance with the requirements of the agreements
between Treasury and CPP participants, including those limiting
executive compensation and restricting CPP participants from increasing
dividend payments or repurchasing common stock. We reviewed Treasury's
proposed interim final rule and notices implementing the act's
executive compensation rules. We coordinated with the Special Inspector
General for TARP to discuss his planned work in this area and
participated in Interagency Taskforce meetings and met with FDIC's
Inspector General about relevant work.[Footnote 6] For SSFI and TIP, we
reviewed program terms and closing documentation and contacted
officials from OFS.
To describe the status of Treasury's efforts to identify and implement
a homeownership prevention strategy, we reviewed relevant sections of
the act, reviewed reports by the Congressional Oversight Panel for
Economic Stabilization and Treasury's response to the panel's first
report, and gathered testimonial and documentary information from OFS's
Office of Homeownership Preservation.[Footnote 7] We reviewed proposals
and inquiries submitted to Treasury related to the development of a
homeownership preservation strategy. We also obtained documents from
and held meetings with representatives of the following organizations:
the Federal Housing Administration (FHA), Federal Housing Finance
Agency (FHFA), Fannie Mae, Freddie Mac, FDIC, OCC, OTS, American
Securitization Forum, Bank of America, JPMorgan Chase, Citigroup, Wells
Fargo, HOPE NOW Alliance, NeighborWorks, Moody's Investors Service,
Standard & Poor's, and Conference of State Bank Supervisors.[Footnote
8] To determine OFS's progress in establishing a program to guarantee
troubled assets--a program that Treasury was required to establish
under section 102 of the act and has chosen to implement through OFS in
conjunction with TARP--we reviewed OFS's request for public comments on
potential program design and analyzed comments Treasury received from
various industry stakeholders. In addition, we reviewed and summarized
Treasury's mandated report on establishing a program to guarantee
troubled assets and discussed the program's potential use with OFS
officials. Finally, we reviewed documentation relevant to OFS's AIFP
and interviewed appropriate OFS officials.
To determine the status of OFS's hiring and transition efforts, we
reviewed interagency agreements on detailees, OFS's updated
organizational chart, and a sample of position descriptions used by
Treasury to recruit permanent new hires to OFS. We used our prior work
on human capital flexibilities, organizational transformation, and
strategic workforce planning to assess OFS's performance. In addition,
we met with a variety of Treasury and OFS officials to discuss their
approach to staffing the office in the short term, as well as any
strategies used to recruit individuals with the set of skills and
competencies needed to administer TARP. We also discussed any recent
actions taken to help ensure a smooth transition to the new
administration.
To assess Treasury's approaches to acquiring services in support of
TARP, we reviewed the contracts Treasury awarded since our last report
and all new task orders awarded under all contracts and other
agreements, as well as related amendments and modifications. In
addition, we reviewed Treasury's solicitations and other agency
documents related to those actions. We reviewed the steps Treasury has
taken to enhance oversight of contractors and move toward a greater
reliance on fixed-price arrangements. We also reviewed steps Treasury
has taken to promote the use of small business concerns--including
those owned and controlled by women, minorities, veterans, and socially
and economically disadvantaged individuals--in carrying out TARP. In
addition, we examined documentation outlining actual and potential
conflicts of interest identified by the contractors, as well as their
proposed plans for mitigation of conflicts. We also reviewed Treasury's
guidelines and interim regulation on conflicts of interest related to
the authorities granted under the act and the steps Treasury has taken
to enhance management and monitoring of conflicts of interest.
To assess the status of internal controls related to TARP activities,
we conducted interviews with and made inquiries to officials from OFS,
including the Chief Financial Officer, Deputy Chief Financial Officer,
Deputy Cash Management Officer, and their representatives. We also
reviewed documents provided by Treasury and those publicly available on
Treasury's Web site. Finally, we conducted interviews with and reviewed
documents provided by contractors, including PricewaterhouseCoopers and
Ernst & Young. For this report, our work was limited to the review of
OFS's documentation related to internal controls. In future, we plan to
evaluate the design of the controls and their operating effectiveness.
To identify a preliminary set of indicators on the state of credit and
financial markets that might be suggestive of the performance and
effectiveness of TARP, we consulted Treasury officials and other
experts and analyzed available data sources and the academic
literature. We selected a set of preliminary indicators that offered
perspectives on different facets of credit and financial markets,
including perceptions of risk, cost of credit, and flows of credit to
businesses and consumers.[Footnote 9] We assessed the reliability of
the data upon which the indicators are based and found that, despite
certain limitations, they were sufficiently reliable for our purposes.
The data used to construct the indicators in this report came largely
from the Federal Reserve. As these data are widely used, including by
GAO and the Federal Reserve, and are considered to be a reliable and
often definitive source for banking sector data, we conducted only a
limited review of the data but ensured that the trends we found were
consistent with other research. We also relied on data from the Chicago
Board Options Exchange (CBOE), Inside Mortgage Finance, and Global
Insight. We have relied on CBOE and Global Insight data for past
reports, and we determined that considered together, these auxiliary
data were sufficiently reliable for the purpose of presenting and
analyzing trends in financial markets.
We conducted this performance audit in December 2008 and January 2009
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions, based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
Background:
This section provides general information about the structure and roles
of the entities that oversee TARP. In addition, figure 1 provides a
timeline of the evolution of the various programs created under TARP,
which are discussed in detail in the first section of this report.
Congressional Oversight Panel:
Section 125 of the act established the Congressional Oversight Panel
(COP) as a legislative branch entity to help provide broad oversight of
the financial markets and financial regulatory system and to provide
various reports to Congress on these matters.[Footnote 10] More
specifically, the act requires that COP submit regular reports to
Congress on TARP every 30 days.
In its first regular report submitted on December 10, 2008, COP posed a
series of questions to Treasury on the events that had taken place
since the adoption of the act. Topics covered in these questions
included the reason for Treasury's shift in strategy from purchasing
mortgage-backed securities to providing capital injections to banks;
the extent to which Treasury's strategies helped stabilize the markets
and reduce home foreclosures; the funds spent to date and whether they
were used as intended; the criteria used to determine CPP
participation; and any reforms imposed by Treasury on financial
institutions receiving TARP funds. On December 30, 2008, Treasury
responded to COP's first report, but COP said that Treasury did not
provide complete answers to several of its questions and failed to
address others.
Consequently, in its second report of January 9, 2009, the panel asked
Treasury to supplement its earlier responses, highlighting four areas
that required additional detail. First, the panel asked Treasury to
provide more information on CPP participants' use of TARP funds. The
panel said that Treasury needs to make the banks receiving TARP funds
accountable in order to restore investor and taxpayer confidence in the
markets. COP encouraged Treasury to use its authority to make funding
conditional upon banks reporting their use of funds and use of
reporting to create performance benchmarks. COP said that Treasury
should either establish formal procedures for voluntary reporting or
create guidelines for participating institutions' use of funds. Second,
the panel addressed the transparency of information that would indicate
the health of banks receiving TARP funds. Third, it asked about
Treasury's plans to address foreclosure mitigation. Fourth, the panel
addressed the viability of Treasury's strategy to stabilize the
financial markets and the broader economy.
COP recommended that Treasury (1) provide an analysis of the origin of
the credit crisis; (2) establish a set of metrics for evaluating the
success of the TARP strategy; and (3) explain the rationale for making
TARP funds available to all healthy banks, regardless of their lending
practices or systemic significance. Moreover, COP said that it did not
believe that Treasury had made significant efforts to minimize
foreclosures and that it would provide recommendations on how to
address this issue in an upcoming report. COP plans to submit its next
report on February 10, 2009.
Financial Stability Oversight Board:
Section 104 of the act created the Financial Stability Oversight Board
(FinSOB), which consists of the Chairman of the Federal Reserve (who
has been elected board chairman), the Secretary of the Treasury, the
Director of FHFA, the Chairman of the Securities and Exchange
Commission (SEC), and the Secretary of HUD.[Footnote 11] FinSOB's
purpose is to review Treasury's exercise of authority under the act,
including the appointment of financial agents, assets to be purchased,
and the structure of vehicles used to purchase troubled assets. FinSOB
is to make recommendations to Treasury about use of its authority and
report any suspected fraud, waste, or abuse to the Special Inspector
General for TARP or the Attorney General of the United States, as
appropriate. In addition, FinSOB must report quarterly on its oversight
of Treasury's exercise of authority.
FinSOB's first report covered Treasury's policies to implement TARP as
of December 31, 2008. FinSOB stated that the actions Treasury took to
implement TARP improved the ability of financial institutions to avoid
severe funding market pressures that could have led to an escalation of
stresses and disorderly failures. More generally, FinSOB reported that
Treasury's actions taken under TARP and the authorities granted by the
act helped promote confidence in the financial markets and in U.S.
financial institutions, which it noted was a critical first step to the
restoration of more normal financial market and economic activity.
However, FinSOB noted that significant challenges lay ahead for TARP,
particularly in light of the continuing stresses in the financial
sector and the weakened outlook for the U.S. economy. Given the
disproportionate consequences that instability in the nation's
financial institutions and markets may have for the broader economy,
the board stated that it will be important for Treasury to continue to
take actions under TARP to stabilize financial markets, help strengthen
financial institutions, improve the functioning of the credit markets,
and address systemic risks. Moreover, as additional resources become
available it will be important for TARP to pursue effective strategies
for providing resources in support of reducing preventable
foreclosures, due to the harm that foreclosures may have on the
affected borrowers, communities, the housing market, and the financial
system and broader economy. Finally, FinSOB stated that as the program
evolves, it will be important for TARP to pursue strategies designed to
allow it to exit from its financial interests in a timely manner
consistent with the objectives of the act.
Special Inspector General for TARP:
Section 121 of the act created the Office of the Special Inspector
General for TARP. The Special Inspector General's responsibilities
include conducting audits and investigations of the purchase,
management, and sale of assets under TARP, as well as of the management
of the asset guarantee program mandated under Section 102 of the act.
Additionally, the Special Inspector General must submit quarterly
reports to Congress summarizing purchases, obligations, and revenues
associated with the various TARP activities authorized under the act.
The first report is due no later than 60 days after the confirmation of
the Special Inspector General, which occurred on December 8, 2008.
Therefore, the first report is due to Congress by February 6, 2009.
Summary of Program Activities under TARP:
The figure below summarizes program activity under TARP for programs
such as CPP, as well as newer programs such as AIFP. As noted earlier,
we examine these activities in greater detail in the first section of
this report.
Figure 1: Timeline of Program Activities for TARP, October 2008-January
2009:
[Refer to PDF for image]
10/3/08: Congress passes P.L. 110-343, Emergency Economic Stabilization
Act (the act), which authorized TARP.
10/14/08: Treasury announces that it will purchase up to $250 billion
in financial firms‘ preferred stock under TARP via CPP. Nine major
financial institutions agree to participate in CPP. Treasury issues
executive compensation guidelines for three TARP program areas: CPP,
Troubled Asset Auction Program, and Systemically Significant Failing
Institutions (SSFI).
10/20/08: Treasury, the Federal Reserve, the Office of the Comptroller
of the Currency, the Office of Thrift Supervision, and the Federal
Deposit Insurance Corporation (FDIC) issue application guidelines and
other documents for all banks wishing to participate in CPP.
10/28/08: Treasury disburses capital injections to 8 of the 9 banks[A]
slated to participate in the first round of the CPP, resulting in the
purchase of $115 billion in preferred stock and warrants from 8
national financial institutions.
11/10/08: Treasury announces that it will purchase $40 billion in
senior preferred stock from the American International Group (AIG)
under SSFI.
11/14/08: Treasury purchases about $33.6 billion in preferred stock and
warrants from 21 financial institutions under CPP.
11/21/08: Treasury purchases about $2.9 billion in preferred stock and
warrants from 23 financial institutions under CPP.
11/23/08: Treasury, FDIC, and the Federal Reserve enter into an
agreement with Citigroup to provide a package of guarantees, liquidity
access, and capital, including equity investment of $20 billion in
Citigroup.
11/25/08: Treasury announces allocation of $20 billion to back Term
Asset-backed Securities Loan Facility (TALF), a $200 billion lending
facility for the consumer asset-backed securities market established by
the Federal Reserve Bank of New York. Treasury purchases $40 billion in
preferred stock and warrants from AIG under SSFI, as announced on
November 10, 2008.
12/5/08: Treasury purchases about $3.8 billion in preferred stock and
warrants from 35 financial institutions under CPP.
12/12/08: Treasury purchases about $2.5 billion in preferred stock and
warrants from 28 financial institutions under CPP.
12/19/08: Treasury purchases about $2.8 billion in preferred stock and
warrants from 49 financial institutions under CPP. Treasury announces
plan for stabilizing the automotive industry under the Automotive
Industry Financing Program (AIFP).
12/29/08: Treasury announces purchase of $5 billion in senior preferred
equity from GMAC LLC and agrees to loan $1 billion to support its
reorganization as a bank holding company.
12/31/08: Treasury purchases about $15 billion in preferred stock and
warrants from seven financial institutions under CPP. Treasury
purchases $20 billion in preferred stock and warrants from Citigroup
that it announced on November 23, 2008, under the newly created
Targeted Investment Program (TIP). Treasury loans $4 billion to GM and
commits to loan $5.4 billion on January 16, 2009. Treasury provides
Congress with report on AGP, a program to guarantee troubled assets
mandated under Section 102 of the act.
1/2/09: Treasury provides program description for the TIP. Treasury
completes $4 billion loan transaction with Chrysler Holding LLC as part
of AIFP.
1/9/09: Treasury purchases about $14.8 billion in preferred stock and
warrants from 43 financial institutions under CPP[B].
1/16/09: Treasury announces that it will make a $1.5 billion loan to a
special purpose entity created by Chrysler Financial to finance the
extension of new consumer auto loans as part of AIFP. Treasury, the
Federal Reserve, and FDIC announce the terms of the guarantee agreement
with Citigroup announced on November 23, 2008, providing protection
against the possible losses on an asset pool of approximately $301
billion of loans and securities. Treasury, the Federal Reserve, and
FDIC enter into an agreement with Bank of America to provide
guarantees, liquidity access, and capital, including protection against
possible losses on approximately $118 billion assets and purchase of
$20 billion in preferred stock under TIP. Treasury purchases about $1.5
billion in preferred stock and warrants from 39 institutions under CPP.
1/21/09: Treasury loans an additional $5.4 billion to GM.
1/23/09: Treasury purchases about $386 million in preferred stock and
warrants from 23 institutions under CPP.
Source: GAO.
[A] The participation of the ninth institution was deferred to allow
for completion of its merger with another institution.
[B] This includes funding of the institution who's funding was
initially deferred pending completion of a merger. The merger was
completed on January 1, 2009.
[End of figure]
Treasury Continued to Focus on CPP, but a Variety of Other Programs
Have Been Created or Are in Progress:
As of January 23, 2009, Treasury had announced several programs under
TARP with a projected total funding level of $387.4 billion. As shown
in table 1, although the dollar amount of announced initiatives
exceeded the $350 billion limit initially set by Congress, in fact
Treasury has reported entering into agreements legally obligating it to
purchase or guarantee troubled assets totaling only $300
billion.[Footnote 12] In addition, Treasury reported making actual
disbursements for completed purchases of about $293.7 billion. Officers
and employees of Treasury may not obligate[Footnote 13] or expend
appropriated funds in excess of the amount apportioned by the Office of
Management and Budget (OMB) on behalf of the President.[Footnote 14] Of
the funding levels announced for TARP, Treasury stated that OMB had
apportioned about $339.9 billion as of January 23, 2009. Based on this
information, it appears Treasury has not exceeded the troubled asset
purchase limit or obligated funds in excess of those OMB has
apportioned.[Footnote 15] We are continuing to obtain additional
information from Treasury as well as to review the controls that
Treasury has in place to ensure that it complies with these
restrictions. We will discuss these issues in subsequent reports.
Table 1: Status of TARP Funds as of January 23, 2009 (Dollars in
billions):
Program: Capital Purchase Program;
Announced Program Funding Level[A]: $250.0;
Apportioned: $230.0;
Asset Purchase Price: $194.2;
Disbursed: $194.2.
Program: Systemically Significant Failing Institutions;
Announced Program Funding Level[A]: $40.0;
Apportioned: $40.0;
Asset Purchase Price: $40.0;
Disbursed: $40.0.
Program: Targeted Investment Program;
Announced Program Funding Level[A]: $40.0;
Apportioned: $40.0;
Asset Purchase Price: $40.0;
Disbursed: $40.0.
Program: Term Asset-backed Securities Loan Facility;
Announced Program Funding Level[A]: $20.0;
Apportioned: 0.0;
Asset Purchase Price: 0.0;
Disbursed: 0.0.
Program: Automotive Industry Financing Program;
Announced Program Funding Level[A]: $24.9;
Apportioned: $24.9;
Asset Purchase Price: $20.8;
Disbursed: $19.5.
Program: Citigroup Asset Guarantee;
Announced Program Funding Level[A]: $5.0;
Apportioned: $5.0;
Asset Purchase Price: $5.0;
Disbursed: 0.0.
Program: Bank of America Asset Guarantee;
Announced Program Funding Level[A]: $7.5;
Apportioned: 0.0;
Asset Purchase Price: 0.0;
Disbursed: 0.0.
Program: Total;
Announced Program Funding Level[A]: $387.4;
Apportioned: $339.9;
Asset Purchase Price: $300.0;
Disbursed: $293.7.
Source: Treasury OFS, unaudited.
[A] Some of Treasury's announced transactions are not yet legal
obligations.
[End of table]
As Treasury has continued to create programs in an effort to craft an
effective response to challenging institution-specific developments,
many observers believe that it has not effectively communicated its
overall strategy or explained how the various programs work together to
meet TARP's goals. For example, we noted in our December report that
the shift in focus from buying troubled mortgage-related assets to
making investments in financial institutions underscored the need for
an effective communication strategy that would explain the reasoning
behind this change. Similarly, the programs that have been created to
address specific developments often have similar guidelines and terms
that can make it difficult for Congress, the markets, and the public to
understand the differences between programs and the rationale for each.
Further, Treasury has not yet implemented a program for homeownership
preservation, but according to Treasury officials, they have been in
discussions with the transition team. These issues continue to
highlight the importance of effective communication with participants,
the Congress, and the general public.
CPP Continues to Be the Primary Vehicle under TARP for Attempting to
Stabilize Financial Markets:
Treasury has continued to rely on CPP as the primary vehicle under TARP
for attempting to stabilize financial markets. As of January 23, 2009,
Treasury had disbursed more than 75 percent of the $250 billion it had
allocated for CPP to purchase more than $194 billion in preferred
shares of 317 qualified financial institutions (see table 2).[Footnote
16] These purchases ranged from about $1 million to $25 billion per
institution. About $42.7 billion in preferred stock shares of 265
financial institutions has been purchased since our December report.
Appendix II gives a detailed listing of banks that have received funds
as of January 23, 2009.
Table 2: Capital Investments Made through the Capital Purchase Program,
as of January 23, 2009:
Closing date of transaction: 10/28/2008;
Amount of CPP capital investment: $115,000,000,000;
Cumulative percent of allocated fund used for CPP capital investment:
46.0%;
Number of qualified financial institutions receiving CPP capital: 8.
Closing date of transaction: 11/14/2008;
Amount of CPP capital investment: $33,561,409,000;
Cumulative percent of allocated fund used for CPP capital investment:
59.4%;
Number of qualified financial institutions receiving CPP capital: 21.
Closing date of transaction: 11/21/2008;
Amount of CPP capital investment: $2,909,754,000;
Cumulative percent of allocated fund used for CPP capital investment:
60.6%;
Number of qualified financial institutions receiving CPP capital: 23.
Closing date of transaction: 12/5/2008;
Amount of CPP capital investment: $3,835,635,000;
Cumulative percent of allocated fund used for CPP capital investment:
62.1%;
Number of qualified financial institutions receiving CPP capital: 35.
Closing date of transaction: 12/12/2008;
Amount of CPP capital investment: $2,450,054,000;
Cumulative percent of allocated fund used for CPP capital investment:
63.1%;
Number of qualified financial institutions receiving CPP capital: 28.
Closing date of transaction: 12/19/2008;
Amount of CPP capital investment: $2,791,950,000;
Cumulative percent of allocated fund used for CPP capital investment:
64.2%;
Number of qualified financial institutions receiving CPP capital: 49.
Closing date of transaction: 12/23/2008;
Amount of CPP capital investment: $1,911,751,000;
Cumulative percent of allocated fund used for CPP capital investment:
65.0%;
Number of qualified financial institutions receiving CPP capital: 43.
Closing date of transaction: 12/31/2008;
Amount of CPP capital investment: $15,078,947,000;
Cumulative percent of allocated fund used for CPP capital investment:
71.0%;
Number of qualified financial institutions receiving CPP capital: 7.
Closing date of transaction: 1/9/2009;
Amount of CPP capital investment: $14,771,598,000;
Cumulative percent of allocated fund used for CPP capital investment:
76.9%;
Number of qualified financial institutions receiving CPP capital: 43.
Closing date of transaction: 1/16/2009;
Amount of CPP capital investment: $1,479,938,000;
Cumulative percent of allocated fund used for CPP capital investment:
77.5%;
Number of qualified financial institutions receiving CPP capital: 39.
Closing date of transaction: 1/23/2009;
Amount of CPP capital investment: $385,965,000;
Cumulative percent of allocated fund used for CPP capital investment:
77.7%;
Number of qualified financial institutions receiving CPP capital: 23.
Closing date of transaction: Total;
Amount of CPP capital investment: $194,177,001,000;
Cumulative percent of allocated fund used for CPP capital investment:
77.7%;
Number of qualified financial institutions receiving CPP capital:
317[A].
Source: Treasury and GAO.
[A] The total number of financial institutions was reduced by two
because SunTrust Banks, Inc. (SunTrust) and Bank of America both
received two capital investments under CPP. SunTrust received a partial
capital investment of $3.5 billion on November 14, 2008, and another of
$1.35 billion on December 31, 2008. Bank of America received $15
billion on October 28, 2008, and, after merging with Merrill Lynch &
Co., Inc. (Merrill Lynch), an additional $10 billion on January 9,
2008. As discussed later in this report, Treasury has made an
additional purchase of $20 billion in preferred shares under TIP.
[End of table]
Initially, Treasury approved $125 billion in capital purchases for nine
of the largest public financial institutions that federal banking
regulators and Treasury considered to be systemically significant to
the operation of the financial system.[Footnote 17] At the time, these
nine institutions held about 55 percent of U.S. banking assets.
Subsequent purchases were made in qualified institutions of various
sizes (in terms of total assets) and types. Total assets of
participating qualified institutions ranged from about $8 million to
more than $2 trillion (see appendix I). As of January 23, 2009, the
types of institutions that received CPP capital included 226 publicly
held institutions, 83 privately held institutions, and 8 community
development financial institutions (CDFI).[Footnote 18] These purchases
represented investments in state-chartered and national banks and bank
holding companies located in 43 states and Puerto Rico.
According to OFS and the bank regulators, thousands of applications are
under review. As of January 16, 2009, Treasury was in the process of
reviewing approval recommendations from bank regulators for less than
150 qualified financial institutions.[Footnote 19] The bank regulators
reported that they are reviewing applications from more than 2,000
institutions that have not yet been forwarded to Treasury. Qualified
financial institutions generally have 30 calendar days after Treasury
notifies them of preliminary approval for CPP funding to submit
investment agreements and related documentation. According to OFS
officials, there is a backlog of pending closings, largely because of
the time required for institutions to obtain approval from their
shareholders and boards of directors or finalize closing documents. OFS
stated that more than 50 financial institutions that received
preliminary approval have withdrawn their CPP applications. Moreover,
according to OFS officials, some of the institutions said that their
boards of directors had elected not to participate in the program for
various reasons, including the cost of closing and concerns over what
they viewed as onerous reporting and compliance requirements that may
be imposed on participants. OFS officials also stated that some
institutions want to show that they qualified for CPP funds but did not
need the funds. As of January 23, 2009, Treasury had not denied an
application. Institutions that are not likely to meet the requirements
for funding under the CPP are encouraged not to apply by their
appropriate bank regulator. In the coming months, OFS staff resources
will be further strained as they continue to review and approve
recommendations from the banking regulators for more than 2,000
applications that the regulators have not forwarded to OFS and, as
discussed later in this report, new applications for CPP funds from
other types of financial institutions, such as S corporations and
mutual organizations (mutuals).[Footnote 20]
Treasury Developed Additional Standard Terms to Reflect Different
Ownership Structures of Financial Institutions:
Early on, Treasury created standardized terms for the publicly held
institutions that received CPP funds. Treasury has finalized or begun
work on terms for other types of financial institutions, including
privately held institutions, S corporations, and mutuals. On November
17, 2008, Treasury established standardized terms for making capital
investments in privately held financial institutions, which were
required to submit applications for CPP funds by December 8, 2008. The
terms for privately held institutions are generally similar to those
for publicly held institutions.[Footnote 21] Like the terms for
publicly held institutions, those for privately held institutions
stipulate that:
* the preferred shares pay dividends at a rate of 5 percent annually
for the first 5 years and 9 percent annually thereafter;
* such shares be nonvoting, except with respect to protecting
investors' rights;
* financial institutions may redeem their shares at their face value
after 3 years and earlier if the financial institution has received a
minimum amount from "qualified equity offerings" of any Tier 1
perpetual preferred or common stock;[Footnote 22] and:
* Treasury generally may transfer the preferred shares to a third party
at any time.
The terms of the warrants, however, differ for publicly and privately
held institutions.[Footnote 23] Treasury receives warrants to purchase
common stock in publicly held financial institutions. But for privately
held institutions, Treasury receives warrants to purchase a specified
number of shares of preferred stock, called warrant preferred, that pay
dividends at 9 percent annually.[Footnote 24] The exercise price for
the warrants is $0.01 per share unless the financial institution's
charter requires otherwise. Unlike for publicly held institutions,
Treasury exercised these warrants immediately for warrant preferred
because there were no downside risks to exercising the warrants
immediately and it can begin receiving dividends, according to OFS
officials.
On January 14, 2009, Treasury established standardized terms for making
capital investments in S corporations but was still crafting terms for
mutuals. The deadline for S corporations to submit applications to
Treasury for CPP funds is February 13, 2009. The terms for S
corporations are generally similar to those for publicly held
institutions, with the exception that debt (senior securities) is being
issued instead of preferred stock.[Footnote 25] Treasury structured the
terms this way to preserve the tax status of these corporations, which
would lose their tax status if they issued a second class of stock,
such as preferred stock, to Treasury. In addition, the senior
securities will count as Tier 1 capital when held at the holding
company level and Tier 2 capital when held by a bank or savings
association. Before Treasury invests in the senior securities issued by
a holding company, it will be necessary for bank regulators to issue an
interim final rule designating the senior securities as Tier 1 capital.
The senior securities will pay interest at a rate of 7.7 percent
annually for 5 years and 13.8 percent thereafter.[Footnote 26] Holding
companies may defer interest on the senior securities for up to 5
years, but any unpaid interest will accumulate and compound at the then-
applicable interest rate in effect. In addition, these companies cannot
pay dividends on shares of equity or trust preferred securities as long
as any interest is deferred. Treasury is developing standardized terms
for mutuals, but OFS officials noted that there are challenges
associated with structuring terms for these types of organizations and
they do not have an expected date for releasing final terms. While
credit unions also are covered under the act, Treasury has not yet
created a program that would enable them to participate in CPP.
Treasury Continues to Rely on Regulators' Recommendations for Approving
CPP Applications:
Qualified financial institutions seeking CPP capital continue to be
directed to send their applications directly to their primary federal
bank regulators, and Treasury continues to rely extensively on these
regulators' recommendations in its decision to allow an institution to
participate in CPP.[Footnote 27] Because the program is intended to
provide capital to those institutions that can demonstrate overall
financial strength and long-term viability, OFS is relying on the
banking regulators' examinations and experience with these institutions
in making a final determination regarding their financial condition and
participation.
As we noted in our December 2008 report, Treasury and the banking
regulators developed a standardized process for evaluating the
financial strength and viability of applicants. Banking regulators
evaluate applications based on factors such as examination ratings and
selected performance ratios. The regulators give presumptive approval
to institutions with the higher examination ratings and recommend these
institutions to OFS's Investment Committee, which makes recommendations
to the Treasury Assistant Secretary for Financial Stability for final
approval.[Footnote 28] Institutions with lower examination ratings or
other considerations requiring further review are referred to the CPP
Council, which may consider other factors, such as confirmed private
equity investment, that may offset the effect of lower examination
ratings.[Footnote 29] These institutions may also be recommended to the
Investment Committee. Finally, those institutions with the lowest
examination ratings receive presumptive denials and may be encouraged
to withdraw their applications.
In December 2008, we also reported that differences exist in the extent
to which bank regulators provided internal guidance (in addition to
Treasury's guidance) on processing CPP applications that might not be
approved. For example, three bank regulators provided additional
written guidance to staff on how to handle applications that were not
likely to be recommended for approval, while one bank regulator did not
provide any additional guidance. The bank regulators we contacted
stated that no new additional guidance had been developed since our
December report.
We are continuing to examine the process for accepting and approving
CPP applications. Specifically, we are developing a methodology to
sample CPP applications that have been funded from October 2008 through
January 2009 to determine the extent to which the regulators and OFS
are consistently applying established criteria for reviewing
applications and adequately documenting the regulators' recommendations
and OFS's final decisions. We will also continue to coordinate and
leverage the work of other agencies and offices involved in the
oversight of CPP, including the Congressional Oversight Panel, FDIC's
Office of the Inspector General, Treasury's Office of the Inspector
General, and the Office of the Special Inspector General for TARP, all
of which have work underway in monitoring the implementation of CPP.
In addition, we will be examining FDIC's recent requirement that state
nonmember banks implement a process to monitor their use of capital
injections, liquidity support or financing guarantees obtained through
financial stability programs established by Treasury, FDIC, and the
Federal Reserve.[Footnote 30] The monitoring process is intended to
show how participation in these federal programs has assisted
institutions in supporting prudent lending and efforts to work with
existing borrowers to avoid unnecessary foreclosures. FDIC indicated
that institutions should include a summary of this information in
shareholder and public reports, annual reports, and financial
statements, as applicable. While we are encouraged by FDIC's
initiative, CPP would benefit from the four federal bank regulators, in
collaboration with Treasury, developing a common approach to ensure
that participants are treated the same. As part of our ongoing review
of this program, we will leverage work of FDIC's Office of the
Inspector General, which has work underway on this issue, and
coordinate our activities with the Special Inspector General for TARP.
We will report our results in subsequent reports.
Treasury Has Made Some Progress in Monitoring Banks' Use of CPP Funds
and Ensuring Compliance with Purchase Agreements but Has Not Finalized
Its Plans:
Our December 2008 report recommended that Treasury work with bank
regulators to establish a systematic means of monitoring and reporting
on financial institutions' activities to ensure that they are
consistent with the goals of the CPP standard agreement, including
expansion of the flow of credit and the modification of the terms of
residential mortgages. Treasury has made some progress in responding to
the recommendation, but more needs to be done to ensure an appropriate
level of accountability and transparency.[Footnote 31] Specifically,
Treasury has taken several steps in responding to our recommendation:
* Treasury has worked with the regulators and CPP participants to
develop a survey for the 20 largest institutions that will collect
monthly data on loan balances, new loan originations by different
categories (that is, consumer and commercial lending), and purchases of
mortgage-backed and asset-backed securities. The survey will also
require institutions to provide a narrative discussion of trends in
their lending activities and changes in their lending standards and
terms. OFS officials said that they have begun surveying these
institutions.
* Working with the bank regulators, Treasury announced that it was
developing an approach to analyzing quarterly call report data for all
financial institutions that received CPP funds to gauge changes in
lending activity and compare them with changes at nonparticipating
financial institutions.
* Treasury has also taken steps to establish a team focused on
monitoring and reporting issues.
Treasury's efforts will provide some useful insights on lending
activities of the participating institutions, but because only the 20
largest participants will be surveyed, analysis for most of the
participants will come from quarterly data submitted by the
institutions and will have a significant reporting lag, thereby
limiting its usefulness as a monitoring mechanism for the vast majority
of CPP participants. Depending on the results of the call report and
survey analysis, Treasury said that it will also work with the
regulators as they develop examination procedures to collect
information about how the funds are being used by participating
institutions.
During this period, we again contacted representatives of the eight
large institutions that initially received funds under CPP to discuss
any changes in their strategy for using and tracking CPP funds. One of
the two institutions that track CPP funds reported that it had used the
funds to increase interbank lending and purchase mortgage-backed
securities and provided us with a report on its planned use of funds.
The other institution stated that it would use CPP funds primarily to
support consumer banking (for example, credit cards and mortgages) and
also to purchase mortgages in the secondary market to increase market
liquidity. This institution will be providing us with a management
report detailing the status of the use of CPP funds. Officials from all
eight institutions discussed using the funds in a manner that they
viewed as generally consistent with the goals of CPP, such as
increasing the flow of credit to consumers and businesses and modifying
the terms of existing residential mortgages. However, as we reported
previously, six of these institutions did not intend to track or report
CPP capital separately. Further, the institutions continued to note
that CPP capital would not be viewed any differently from other
capital--that is, the additional capital would be used to strengthen
the institutions' capital bases, make business investments and
acquisitions, and lend to individuals and businesses--and all of the
institutions stated this is what they have done. For example, officials
described and have publicly reported that the additional funds have
enabled them to increase or maintain lending, invest in projects (such
as housing projects), increase capital base, and support secondary
market activities.
Treasury also has made some progress in addressing our recommendation
that it should develop a way to ensure that institutions participating
in CPP are complying with key requirements of program agreements,
including limitations on executive compensation, dividend payments, and
repurchase of stock. OFS officials told us that certification by senior
executives will be a key part of ensuring compliance. Specifically,
Treasury proposed interim regulations establishing reporting and
recordkeeping procedures that will require that the principal executive
officers (PEO) of participating institutions certify compliance with
the compensation restrictions and that the certification be provided to
the TARP Chief Compliance Officer. According to Treasury officials,
they have identified options for detecting noncompliance and taking
enforcement actions but have not finalized their plans in this regard.
In addition, Treasury is implementing a plan to ensure that financial
institutions are making accurate and timely dividend payments to
Treasury by reconciling anticipated dividend payments with actual
amounts received from the institution. However, Treasury has not
selected equity asset managers that could be responsible for monitoring
these other aspects of compliance. Each of the four federal bank
regulators also is developing procedures for bank examiners to monitor
and assess compliance with program requirements, such as limitations
and restrictions on executive compensation and dividend payments,
through their bank examination process. These procedures are still in
the development phase, and one of the regulators expects to complete
its work before the end of the first quarter of 2009.
As noted previously, Treasury has made some progress in establishing
specific guidance on executive compensation. Treasury plans to issue
additional interim final rules on executive compensation that provide a
technical amendment and two clarifications to the interim final rules
issued in October and provide new reporting and recordkeeping
requirements for the CPP executive compensation standards.[Footnote 32]
The new rules will require that the PEO of the financial institution
provide certifications to the TARP Chief Compliance Officer regarding
compliance with the CPP executive compensation restrictions applicable
to senior executive officers (SEO),[Footnote 33] as follows:
* Within 120 days of the purchase of securities by Treasury, the PEO
must certify that the compensation committee has reviewed the SEOs'
incentive compensation arrangements with the senior risk officers to
ensure that these arrangements do not encourage unnecessary risk-taking
that could threaten the value of the institution.
* Within 135 days of the end of each fiscal year, the PEO must certify
that (1) the compensation committee has met at least once during the
year with the senior risk officers to review the relationship between
risk management policies and practices and the SEOs' incentive
compensation arrangements, and the compensation committee has certified
to this review; (2) the financial institution has complied with the
requirements of the interim regulations for recovery or "clawback" of
SEOs' bonus or incentive compensation based on earnings, gains, or
other measures that are later proven to be based on materially
inaccurate performance metric criteria; (3) the financial institution
has prohibited "golden parachute" payments to SEOs; and (4) the
financial institution has instituted procedures to limit the income tax
deduction for payments to each senior executive officer to $500,000.
The PEO must also provide the names of individuals who are the
financial institution's SEOs for the current fiscal year.
* Within 135 days of the completion of each annual fiscal year, the PEO
must certify that the income tax deduction for payments to each SEO was
in fact limited to $500,000.
If the PEO is unable to provide any of these certifications in a timely
manner, the PEO must provide an explanation to the TARP Chief
Compliance Officer. Financial institutions must preserve appropriate
documentation and records to substantiate each certification for at
least 6 years after the certification, and for the first 2 years these
documents must be in an easily accessible place. Any individual
providing false information or certifications to Treasury relating to a
purchase under the act's executive compensation restrictions or
required under the interim final rules is subject to criminal
penalties.
Treasury Has Established the Auto Industry Financing Program to
Stabilize Auto Makers and Auto Financing Companies:
Treasury established the Auto Industry Financing Program in December
2008 to prevent a disruption of the domestic automotive industry that
would pose systemic risk to the nation's economy. Treasury established
the program in response to business plans that General Motors
Corporation (GM) and Chrysler Holding LLC (Chrysler) submitted to
congressional committees and public statements made by GM and Chrysler
officials indicating that their companies needed immediate federal
financial assistance to remain solvent.[Footnote 34] On December 19,
2008, Treasury announced it had agreed to lend up to $18.4 billion
under this program--including $13.4 billion to GM and $4 billion to
Chrysler.[Footnote 35]
According to program guidelines, eligibility for AIFP is determined on
a case-by-case basis and takes into account the following factors:
* the importance of the institution to production by, or financing of,
the American automotive industry;
* the likelihood that a major disruption of the institution's
operations would have a materially adverse effect on employment and
produce negative spillover effects to the overall economy;
* the likelihood that the institution is important enough to the
nation's financial and economic system that a major disruption of its
operations could cause major disruptions to credit markets and
significantly increase uncertainty or cause a loss of confidence that
would materially weaken overall economic performance; and:
* the extent and probability of the institution's ability to access
alternative sources of capital and liquidity.
Treasury's loan agreements with GM and Chrysler include a number of
provisions to protect taxpayers' interests and put the companies on the
path to financial viability. For example, the agreements limit
executive compensation; require concessions from parties including
management, labor, and debt holders; subject the companies to periodic
reviews by government entities including GAO; require collateral for
the loans; and subject business and other transactions of more than
$100 million to government approval.
In addition, the agreements call for the appointment of a "President's
Designee" to oversee the restructuring of the American auto
manufacturers (an appointment not yet made). As a condition of
receiving the loans, GM and Chrysler must submit restructuring plans
and term sheets to the President's Designee by February 17, 2009. The
restructuring plans must include a business plan for repaying the
loans, evidence of the companies' ability to comply with federal
corporate average fuel economy standards, evidence of a new product mix
and cost structure that is competitive in the U.S. marketplace, and
evidence that the companies can become financially viable. The terms
sheets must include agreements between the companies and their unions,
public debt holders, and voluntary employees' benefit associations on
labor modifications, debt restructuring, and benefit modifications,
respectively. By March 31, 2009, GM and Chrysler must report to the
President's Designee on their progress in implementing these
restructuring plans, including showing final agreements with union and
other stakeholders. The President's Designee will then determine
whether the companies have made sufficient progress in implementing the
restructuring plans; if they have not, the loans are automatically
accelerated and become due 30 days later.
As part of our responsibilities for providing oversight of TARP, we
plan to monitor Treasury's implementation and oversight of AIFP,
including the auto manufacturers' use of federal funds and development
of the required restructuring plans. We plan to issue a separate report
on the program early this spring.
AIFP Loans Related to GMAC:
On December 29, 2008, after the Federal Reserve approved an application
by GMAC LLC to become a bank holding company, Treasury committed to
lend up to $1 billion of TARP funds to GM (one of GMAC's owners), to
enable GM to participate in GMAC's new rights offering related to its
reorganization as a bank holding company. [Footnote 36] The actual
level of TARP funding to GM was to depend on the level of current
investor participation in GMAC's offering, and on January 22, 2009,
Treasury announced the final loan amount to GM of $884,024,131. At
Treasury's option, this loan can be exchanged at any time for the GMAC
ownership interests acquired by GM in the new rights offering.
On December 29, 2008, Treasury purchased $5 billion of senior preferred
membership interests from GMAC with an annual 8 percent dividend,
payable quarterly. Under the agreement, GMAC issued warrants to
Treasury to purchase, for a nominal price, additional preferred
interests in an amount equal to 5 percent of the preferred interests
purchased. The warrant preferred shares provide an annual 9 percent
dividend payable quarterly. According to Treasury, because the exercise
price for the warrants is equal to one cent per $1,000 ownership unit
(equivalent to a share) and there were no downside risks to exercising
the warrants immediately, Treasury exercised the warrants at closing so
that it could begin receiving the dividends.[Footnote 37] Under the
funding agreement, GMAC must comply with all executive compensation
restrictions applicable to qualifying financial institutions under CPP,
except that the definition of a "golden parachute" payment is broader:
it generally means any payment to an SEO on account of severance from
employment. GMAC also must comply with enhanced restrictions as long as
Treasury owns any preferred interests or warrant interests. In
particular, GMAC:
* must reduce by about 40 percent the aggregate amount of bonus
compensation that may be paid to SEOs or senior employees in 2008 and
2009 from the 2007 bonus level;[Footnote 38]
* cannot adopt or maintain any compensation plan that would encourage
manipulation of its reported earnings to enhance the compensation of
any of its employees; and:
* must maintain all suspensions and other restrictions of contributions
to benefit plans that are in place or initiated as of the closing date
of the transaction.
Treasury also has the right to require GMAC to clawback any bonuses or
other compensation (including golden parachutes) that are paid in
violation of the agreement. Finally, GMAC must certify in writing to
the TARP Chief Compliance Officer that the compensation committee has
reviewed the compensation arrangements of the SEOs with its senior risk
officers and determined that the compensation arrangements do not
encourage these officers to take unnecessary and excessive risks that
threaten the value of the company.
AIFP Loans to Chrysler:
On January 16, 2009, as part of a broader program to assist the
domestic automotive industry in becoming financially viable, Treasury
announced that it would make a $1.5 billion loan to a special purpose
entity created by Chrysler Financial Services Americas LLC (Chrysler
Financial) to finance the extension of new consumer automotive loans.
The loan will be payable over 5 years and will be secured by a senior
secured interest in a pool of newly originated consumer automotive
loans, with Chrysler serving as guarantor for certain covenants of
Chrysler Financial.[Footnote 39]
Under the agreement, Chrysler Financial must be in compliance with the
executive compensation and corporate governance requirements of Section
111 of the act, as well as enhanced restrictions on executive
compensation.[Footnote 40] In lieu of warrants, the special purpose
entity created by Chrysler Financial will issue additional notes to
Treasury in an amount equal to 5 percent of the total size of the loan.
The additional notes will vest 20 percent on the closing date and 20
percent on each anniversary of the closing date and will have other
terms similar to the loan terms.
Treasury Has Established Programs to Address Problems at Specific
Financial Institutions:
Although CPP has remained the primary vehicle under TARP to assist
financial institutions, Treasury has several other programs that target
specific types of financial institutions in response to changing
conditions in the markets. However, Treasury has yet to clearly
articulate and communicate a vision for TARP, which has adversely
affected its ability to communicate with Congress, financial markets,
and the public. For example, a number of the programs established under
TARP have similar guidelines and terms, which highlights the need to
effectively articulate and communicate the overall strategy behind
creating each program and show how the programs will work together to
achieve TARP's goals.
Systemically Significant Failing Institutions Program:
As we previously reported, on November 25, 2008, Treasury issued
guidelines for the SSFI Program. According to Treasury, this program is
designed to provide stability in financial markets and prevent
disruption caused by the failure of an institution of significant size
that is deemed to be important to the financial system. Unlike CPP,
SSFI has no deadlines for participation, which is determined on a case-
by-case basis, and terms are generally more stringent. Treasury
considers a variety of factors when assessing an institution for
participation in SSFI, including:
* the extent to which the institution's failure could threaten the
viability of its creditors and counterparties because of their direct
exposure to the institution;
* the number and size of financial institutions that investors or
counterparties see as situated similarly to the failing institution, or
that they believe would otherwise be likely to experience indirect
contagion effects from the institution's failure;
* the institution's importance to the nation's financial and economic
system--for example, whether a disorderly failure would, with a high
probability, cause major disruptions to credit markets or payments and
settlement systems, seriously destabilize key asset prices, and
significantly increase uncertainty or losses of confidence, thereby
materially weakening overall economic performance; and:
* the extent and probability of the institution's ability to access
alternative sources of capital and liquidity from either the private
sector or other sources.
In November 2008, American International Group, Inc. (AIG) became the
first institution assisted under this program. Treasury's concerns
about AIG predated the establishment of TARP. In mid-September 2008,
the Federal Reserve Board, the Federal Reserve Bank of New York
(FRBNY), and Treasury agreed that the failure of AIG--a diversified
financial services company that provides asset management, general
insurance, life insurance and retirement services through its
subsidiaries--would pose a systemic risk to the global financial
markets and the economy. On September 22, 2008, FRBNY and AIG entered
into a credit agreement and a guarantee and pledge agreement. Under
these agreements, FRBNY established a 2-year revolving credit facility
that could lend AIG up to an aggregate of $85 billion outstanding at
any one time. All outstanding balances under the credit agreement were
secured by a pledge of a substantial portion of the assets of AIG and
its primary nonregulated subsidiaries, including its ownership in its
regulated U.S. and foreign subsidiaries. AIG's obligations under the
credit facility also are guaranteed by certain of AIG's domestic
subsidiaries. AIG also agreed to issue 100,000 shares of a new series
of convertible preferred stock to a trust that will hold the stock for
FRBNY, with Treasury designated as the ultimate beneficiary. The
preferred stock was originally to be convertible into 79.9 percent of
the shares of AIG's common stock, later reduced to 77.9 percent.
Outstanding advances made to AIG under the credit facility bore
interest at a quarterly rate equal to 3-month LIBOR plus 8.5 percent.
[Footnote 41] On October 6, 2008, the Federal Reserve Board also
authorized FRBNY to engage in securities borrowing transactions with
AIG through which FRBNY could lend up to $37.8 billion to AIG in
exchange for collateral in the form of investment-grade debt
obligations.
On November 10, 2008, the Federal Reserve Board, acting in conjunction
with Treasury, announced the restructuring of these AIG credit
facilities. FRBNY restructured the credit facility established in
September in three ways: by increasing the loan maturity from 2 to 5
years; by reducing the interest rate payable on outstanding advances to
3-month LIBOR plus 3 percent; and by reducing the maximum credit that
AIG could have outstanding to $60 billion. The reductions went into
effect after the Treasury's investment of $40 billion in TARP funds to
pay down the credit facility.
The investment was made pursuant to Treasury's agreement to purchase
$40 billion in perpetual senior preferred shares from AIG as part of
SSFI. The senior preferred shares will accrue dividends at an annual
rate of 10 percent and the dividends are payable quarterly in arrears.
Treasury also will receive a warrant to purchase a number of shares of
common stock equal to 2 percent of the AIG common stock on the date of
Treasury's purchase. The warrant has a 10-year term and an initial
exercise price of $2.50 per share. Treasury's consent will be required
for increases in dividends on common stock and repurchases of certain
securities until 5 years after the date of purchase. The senior
preferred stock is nonvoting except for class-voting rights on certain
corporate actions that may affect the value of the stock or the
investors' rights. Additional restrictions include AIG's agreement to:
* limit any golden parachute payments to employees of AIG and
subsidiaries who participate in AIG's senior partners plan to the
amounts permitted under the restrictions for CPP;
* forego increases to the annual bonus pools payable to SEOs and senior
partners for 2008 and 2009 beyond the average of the 2006 and 2007
annual bonus pools, with certain exclusions;
* confirm that none of the proceeds of the purchase of preferred stock
will be used to pay annual bonuses or other future cash performance
awards to executives or senior partners (Treasury and AIG agreed that
this confirmation should be auditable);[Footnote 42]
* ensure that none of the proceeds of the purchase price will be used
to pay any electively deferred compensation resulting from termination
of the certain deferred compensation plans by AIG;
* maintain and implement a comprehensive written policy on lobbying,
government ethics, and political activity; and:
* give Treasury the right to consent to material amendments to AIG's
written policies on corporate expenses.
We will continue to monitor implementation of this agreement between
Treasury and AIG in subsequent reports. We have recently initiated an
effort to, among other things, assess any impact of the assistance to
AIG on insurance markets and to determine, to the extent possible,
whether the rescue package has achieved its desired goals.
Targeted Investment Program:
On January 2, 2009, Treasury released the program description,
eligibility considerations, and justification for TIP. According to
Treasury's announcement, the program is designed to prevent a loss of
confidence in financial institutions that could result in significant
market disruptions, threaten the financial strength of similarly
situated financial institutions, impair broader financial markets, and
undermine the overall economy. Treasury will determine the forms,
terms, and conditions of any investments made under this program and
will consider institutions for approval on a case-by-case basis based
on the threats posed by the potential destabilization of the
institution, the risks caused by a loss of confidence in the
institution, and the institution's importance to the nation's economy.
In evaluating applications, Treasury will obtain and consider
information from a variety of sources and take into account
recommendations from the institution's primary federal regulator, other
regulatory bodies, and private parties that could provide insight into
the potential consequences if confidence in a particular institution
deteriorated.
TIP Transactions with Citigroup:
On January 2, 2009, Treasury stated that the previously announced
purchase of senior preferred shares of Citigroup would fall under TIP.
As we previously reported, on November 23, 2008, Treasury had announced
that it would invest $20 billion in senior preferred shares of
Citigroup. Citigroup, which already had received $25 billion on October
28, 2008, under CPP, was the first participant in this program. This
investment was part of a multi-pronged federal approach to stabilizing
the financial markets. Treasury also indicated that it guaranteed
qualified assets under AGP as discussed later in this report. Treasury
and Citigroup signed the final agreement on January 15, 2009. We are in
the process of reviewing that agreement and will report on its terms
and conditions in our next report.
Treasury will require any institution participating in TIP 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 the act. Treasury also will require any institution
participating in the program to adhere to more rigorous executive
compensation standards than those required under CPP. In addition,
Treasury will consider other measures to protect the taxpayers'
interests, including limitations on the institution's expenditures or
other corporate governance requirements. As the agreement requires,
under TIP Citigroup:
* will pay dividends at an annual rate of 8 percent, payable quarterly;
* can redeem shares only after the preferred shares received in the
October CPP purchase have been redeemed; and:
* will provide warrants to Treasury to purchase shares of common stock
equal to 10 percent of the total preferred shares issued.
Citigroup also agrees to use its reasonable best efforts to account for
use of the $20 billion purchase price and to report to Treasury on a
quarterly basis until use of all of the purchase price has been
accounted for. In addition, Citigroup will be subject to executive
compensation requirements that are more stringent than those under CPP.
The additional executive compensation standards include the following:
* Limits on bonus compensation. Unless all debt and equity securities
owned by Treasury are redeemed, Citigroup must implement a bonus pool
cap for SEOs and employees who are members of the Senior Leadership
Committee for fiscal years 2008 and 2009 that may not exceed 60 percent
of the prior year's bonus compensation.[Footnote 43] For 2009, the
bonus pool cap may be increased with Treasury's approval.[Footnote 44]
* Limits on golden parachutes payable to senior leadership members. The
limits on golden parachute payments that apply under CPP will apply to
members of the Senior Leadership Committee.
* Clawback requirements. If any senior executive officer or senior
leadership member receives a payment in contravention of the
restrictions on executive compensation, Citigroup promptly must provide
the individual with written notice that payment must be repaid within
15 business days and inform Treasury of the repayment.
* Restrictions on lobbying. Citigroup is required to maintain and
implement a comprehensive lobbying policy that is distributed to and
implemented by all company employees and lobbying firms doing business
with the institution.[Footnote 45]
* Restrictions on expenses. Citigroup is required to implement and
maintain a policy on corporate expenses and a wide range of company
expenditures that is distributed to all employees.[Footnote 46]
* Compliance certifications. Citigroup is required to submit a
certification on the last day of each fiscal quarter stipulating that
it has complied with and is in compliance with the executive
compensation provisions set forth in the agreement. The certification
will be issued to the TARP Compliance Officer by a senior executive
officer of Citigroup and will commence on the last day of the first
fiscal quarter of 2009.
TIP Transactions with Bank of America:
On January 16, 2009, Treasury announced that Bank of America would
receive $20 billion under TIP. Under CPP, Bank of America had
previously received $15 billion on October 28, 2008, and $10 billion on
January 9, 2009.[Footnote 47] Similar to the terms for the Citigroup
transaction under TIP, Bank of America will make dividend payments of 8
percent to Treasury and will comply with enhanced executive
compensation restrictions.[Footnote 48] We plan to provide more
information on the terms of this transaction in our next report, once
we obtain and review executed closing documents.
Treasury and Federal Reserve Established a Program to Improve
Availability of Consumer Credit:
As we previously reported, on November 25, 2008, Treasury and FRBNY
announced the creation of the Term Asset-backed Securities Loan
Facility (TALF) program. TALF is intended to increase the availability
of credit for consumers. The Federal Reserve is setting up a $200
billion program to support consumer finance securitization markets--
specifically, credit cards, auto loans, student loans, and small
business loans--and Treasury would provide $20 billion of TARP funds to
this facility. FRBNY believes this facility will enable a broad range
of institutions to increase their lending and will give borrowers
access to lower-cost consumer and small business loans. The credit
facility is intended to support consumer credit by providing liquidity
to issuers of asset-backed securities so that they can issue new
consumer credit-driven securities. The credit facility may expand to
include other asset classes, such as commercial and certain residential
mortgage-backed assets.
Treasury and the Federal Reserve continue to develop the specific
structure and terms of TALF. The program consists of two related but
distinct parts: a lending facility and an asset disposition facility.
Both will be established and operated by FRBNY, and through its TARP
authority, Treasury will participate only in the asset disposition
facility. Under the lending facility, FRBNY will make available up to
$200 billion for nonrecourse loans secured by consumer asset-backed
securities.[Footnote 49] Borrowers will be required to pay monthly
interest on loans and to repay the outstanding principal balance at the
end of the loan term. If the borrower makes all interest payments and
repays the loan, FRBNY will release its lien on the asset-back
securities and return them to the borrower. If the borrower defaults,
FRBNY will foreclose on the asset-back securities. Treasury will have
no role in any of the transactions under the TALF lending facility.
The asset disposition facility is intended to purchase, hold, and
ultimately liquidate asset-backed securities that were posted as
collateral under the loan facility but were later foreclosed on by
FRBNY. Following foreclosure, FRBNY can sell the asset-backed
securities to a special purpose vehicle owned and managed by FRBNY.
Treasury will make a subordinated loan to the special purpose vehicle
for up to $20 billion in TARP funds, but will not have any ownership
interest in it. If purchases of foreclosed assets exceed $20 billion,
FRBNY will make a senior loan to the special purpose vehicle to fund
the additional purchases. All cash flows from special purpose vehicle-
owned assets will be used first to repay FRBNY's senior loan and then
Treasury's subordinated loans.
FRBNY has agreed to impose executive compensation requirements under
TALF that are comparable to those imposed on financial institutions
that receive CPP investment. The requirements will be imposed on
sponsors of asset-backed securities as a condition of allowing their
securities to be pledged as collateral for loans made by FRBNY.
Further, Treasury will require that the business records and management
of the special purpose vehicle be available to Treasury and its agents,
to the Comptroller of the Currency, and to the Special Inspector
General for TARP. Treasury expects to have the program operational in
February 2009. Unless otherwise extended, the facility will cease
making new loans on December 31, 2009.
Treasury Deferred Action on a Program to Preserve Homeownership until
the Incoming Administration:
One of the stated purposes of the act is to ensure that the authorities
and facilities provided by the act are used in a manner that, among
other things, preserves homeownership. While OFS has taken steps to
identify and implement a homeownership preservation strategy, as of
January 20, 2009, Treasury had neither specified its strategy for
preserving homeownership nor announced any specific program. According
to Treasury officials, Treasury has deferred taking action on a program
until the new administration was in place. The act authorized the
Secretary of the Treasury to purchase and insure troubled mortgage-
related assets held by financial institutions and to the extent that
such assets were acquired, required Treasury to implement a plan that
sought to "maximize assistance for homeowners." When recently asked by
COP to describe its strategy under TARP to reduce foreclosures,
Treasury pointed to actions it has taken in collaboration with other
entities outside of the TARP program--for example, working with the
Federal Reserve and FHFA to prevent the failure of Fannie Mae and
Freddie Mac; helping to establish the HOPE NOW Alliance, a coalition of
mortgage market participants and housing counselors; and working with
the HOPE NOW Alliance, FHFA, Fannie Mae, and Freddie Mac to develop the
Streamlined Loan Modification Program, through which servicers can
modify existing loans into a Fannie Mae or Freddie Mac loan.[Footnote
50] Examples of these and other programs to preserve homeownership are
described in Appendix III.
As we previously reported, OFS has established the Office of
Homeownership Preservation, and efforts to hire permanent staff are
ongoing.[Footnote 51] Currently, the Office of Homeownership
Preservation operates with an interim chief and interim staff in all
but one administrative position. According to its chief, the office has
received and evaluated more than 70 proposals and inquiries related to
TARP-sponsored homeownership preservation strategies or actions from
private-sector, nonprofit, and governmental organizations and
individuals. These proposals have covered a range of suggested
approaches, including direct federal purchase of residential whole
loans held by financial institutions, an insurance program to provide
credit support for community development loans and securities, a
proposal to identify troubled mortgages before they default, direct
payments to borrowers to pay down mortgages to an affordable rate, and
a federally sponsored loan modification program. According to Treasury
officials, they have discussed homeownership preservation options with
the transition team. The transition team has mentioned a variety of
proposed actions involving homeownership preservation, including
setting aside from $50 billion to $100 billion for this program. We
plan to continue to monitor Treasury's actions related to homeownership
preservation under TARP in subsequent reports.
Treasury Has Established the Asset Guarantee Program but Plans to Limit
Its Use:
As the act requires, Treasury has taken steps to establish an insurance
program--AGP--to guarantee troubled assets.[Footnote 52] Treasury has
flexibility in structuring the insurance program but must meet several
specific requirements. For example, Treasury must collect premiums from
any participating financial institution and use actuarial analysis to
set premium rates to ensure that the expected value of the premium is
no less than the expected value of the losses to TARP from the
guarantee and that taxpayers will be fully protected. The act also
requires that Treasury adjust its purchase authority under TARP to
reflect use of the guarantee program.[Footnote 53] As required by the
act, on December 31, 2008, Treasury provided a report to Congress on
the establishment of its insurance program. The report includes a
proposal for the AGP's structure, including program objectives and
eligibility considerations, but does not define specific terms of how a
guarantee would be structured and other aspects of the program.
Based on Treasury's December 2008 report, the program appears to be
limited in scope. Specifically, Treasury plans to limit participation
to systemically significant institutions and other select institutions
chosen to participate on a case-by-case basis. In determining which
institutions will be eligible, Treasury plans to consider a variety of
factors, including (1) the extent to which destabilization of the
institutions could present counterparty risks; (2) whether an
institution is at risk of a loss of confidence and the extent to which
such stress might be caused by a portfolio of troubled assets; (3) the
number and size of institutions that would likely by affected by
destabilization of the institution; (4) whether the institution is
sufficiently important to the nation's financial and economic system;
and (5) the extent to which the institution has access to alternative
forms of capital. Treasury also plans to coordinate with the
institution's primary federal regulator in determining eligibility for
program participation. Treasury also stated that guarantees provided
under AGP may be used in coordination with other programs or with a
broader guarantee involving one or more agencies of the U. S.
government.
Prior to issuing its December 2008 report, Treasury sought input from
the general public on how to structure the insurance program. On
October 10, 2008, Treasury posted a notice inviting the general public
to provide comments on the program by October 28, 2008. The notice
listed specific issues on which Treasury sought comment, including what
types of assets it should insure under the program, how to structure
premiums, and what administrative and operational challenges the
program might create. According to Treasury, it received 85 comments
from a wide variety of individuals, academics, financial institutions,
municipalities, and trade groups. While most respondents suggested that
Treasury use the program primarily to guarantee existing individual
whole loans, mortgage-backed securities, or both, other respondents
suggested including asset-backed securities (including those backed by
student loans, auto loans, and credit card receivables), collateralized
debt obligations, auction rate securities, municipal bonds,
reinsurance, and transit leasing agreements in the program.
Many respondents suggested that Treasury consider assets for the
guarantee program that differed from those assets purchased under
section 101 of the act (thus far, primarily capital purchases from
financial institutions) and that the guarantee program could be more
efficient than asset purchases under some circumstances. For example,
one industry group commented that some assets that might be purchased
under TARP would not be suitable for guarantees, such as loans that
lack good collateral, adding that the guarantee should be used to
increase confidence in the markets for buying and selling assets that
generally are performing well. Also, several respondents commented that
a guarantee program could offer more flexibility than an asset purchase
program because it could limit the risk taken on by Treasury, such as
by incorporating loss-sharing into guarantees.
Several respondents acknowledged a variety of challenges that Treasury
would encounter in setting up the program. For example, while the
majority of respondents recommended that Treasury set the premiums to
reflect the risk assumed by insuring each asset, many stated that
determining risk and pricing premiums based on risk would be very
difficult. Moreover, respondents acknowledged that managing the program
would itself be challenging, including the selection and monitoring of
institutions and assets to be guaranteed.
Treasury used AGP for the first time to guarantee certain Citigroup
assets as part of an agreement it announced on November 23, 2008. The
guarantee agreement, finalized in January 2009, provides protection
against the possibility of unusually large losses on an asset pool of
approximately $301 billion in loans and securities backed by
residential and commercial real estate and other such assets, which
will remain on Citigroup's balance sheet. On January 16, 2009, Treasury
announced its development of a similar agreement with Bank of America
for providing protection against approximately $118 billion in loans,
securities and other assets. We plan to discuss the final terms of
these agreements more fully in our next report.
Efforts to Establish the Office of Financial Stability Are Ongoing:
Treasury has made efforts to ensure that key leadership positions
remain filled after the transition to the new administration. In our
last 60-day report, we noted that soon after establishing OFS and
appointing an Interim Assistant Secretary of Financial Stability as its
head in October 2008, Treasury created several functional areas within
the office and hired interim chiefs from across government and the
private sector to manage each of the major OFS functions.[Footnote 54]
We recommended that Treasury develop a definitive transition plan,
including steps to ensure that key OFS leadership positions remain
filled during and after the transition to the new administration. In
general, Treasury has taken steps either to (1) confirm that the
interim chief will stay for a period covering the transition to the new
administration; or (2) in cases where a leader was unlikely to stay
beyond the transition, to work with the interim chief to find potential
candidates to serve in the role on a permanent basis. As of January 16,
2009, Treasury confirmed the following:
* The Interim Chief Investment Officer will serve in this role until
the new administration identifies a permanent successor. According to
Treasury, the transition team asked the Interim Chief Investment
Officer to remain in his post for up to 2 months, or until Treasury
hires sufficient permanent staff to help run the office. Treasury
anticipates that the permanent successor may be a political appointee.
* The Interim Chief Homeownership Officer will serve in this role
through the transition.[Footnote 55] Treasury anticipates that the new
administration will identify a permanent successor who may be a
political appointee.
* The Deputy Chief Compliance Officer, who is on detail from Treasury's
Bureau of the Public Debt, temporarily has assumed the role and
responsibilities of the Interim Chief Compliance Officer until Treasury
identifies a permanent successor.
* The Interim Chief Risk Officer may not stay in this role until a
permanent successor is found. OFS has interviewed potential
replacements for the Chief Risk Officer position but has not made a
selection. While aggressively searching for a permanent successor,
Treasury anticipates that it will take time to find a candidate with
the right balance of public-and private-sector expertise to serve in
this position. According to Treasury, the transition team agreed with
this approach and agreed that OFS could administer risk-management
functions sufficiently if the position were unfilled for a brief
period, because a permanent Deputy Risk Officer has been appointed.
* The Interim Chief Financial Officer recently was replaced by an
individual who will serve as the Chief Financial Officer on a permanent
basis.
Treasury has facilitated continuity of operations through the
transition for a number of other key positions. In particular, Treasury
said that the Interim Assistant Secretary for Financial Stability has
agreed to the transition team's request to stay on in the position
until a successor is in place. Also, when Treasury replaced the interim
manager for CPP with a permanent successor in early January, it was
able to keep the interim manager for a short time to ensure seamless
administration of the program. Treasury also identified individuals to
fill a number of other senior positions within OFS. In our prior work,
we have noted that key practices of successful organizations include
taking steps to ensure continuity of leadership and sustain a learning
environment that drives continuous improvement in performance.[Footnote
56] We will continue to monitor OFS's leadership positions and OFS's
efforts to establish a performance-oriented culture.
As another approach to help ensure continuity in operations, OFS
continues to use staff and other existing resources from other parts of
Treasury and the federal government, as well as from the private
sector. In our last 60-day report, we described how Treasury employed a
short-term strategy for staffing high-level officials in OFS by
identifying government employees within Treasury and other federal
agencies who could fill senior positions on a temporary basis. As of
January 26, 2009, OFS had approximately 52 detailees and 38 permanent
staff on board, indicating significant growth in the number of OFS
positions filled since our last report (see table 3). Current detailees
include staff from Treasury departmental offices and bureaus, including
the U.S. Mint, the Bureau of the Public Debt, the Internal Revenue
Service, OTS, OCC, and the Office of Domestic Finance. Also, Treasury
arranged for several employees from other federal agencies--including
SEC, FDIC, Federal Reserve, HUD, and the Overseas Private Investment
Corporation--to serve as detailees to OFS. According to Treasury, some
detailees served short-term organizational needs while others filled
longer-term needs until permanent staff replaced them. According to
Treasury, these staff exhibit a high level of competence in performing
the work required of them and, in some cases, have accepted offers to
stay in OFS permanently. Treasury officials also noted that detailees
may be especially appropriate for certain OFS positions because TARP is
not a permanent Treasury function and that its program activities are
still evolving.
Table 3: Number of Treasury and Other Federal Employees Assigned to
OFS:
Type of Staff: Staff detailed to OFS from other areas of Treasury and
other federal agencies (temporary)[A];
Approximate number of positions filled as of November 21, 2008: 43;
Approximate number of positions filled as of January 26, 2009: 52.
Type of Staff: Permanent staff (includes limited-term appointments);
Approximate number of positions filled as of November 21, 2008: 5;
Approximate number of positions filled as of January 26, 2009: 38.
Type of Staff: Total;
Approximate number of positions filled as of November 21, 2008: 48;
Approximate number of positions filled as of January 26, 2009: 90.
Source: Treasury.
[A] As of January 16, 2009, Treasury reported that it had finalized
interagency agreements with SEC, HUD, and OTS that provide for four
employees from these agencies to support OFS for periods ranging from
30 days to 2 years. Treasury officials said that the agreements address
how Treasury will reimburse the agencies for detailed employees.
[End of table]
In addition to detailees, numerous other Treasury employees support OFS
by taking on responsibilities to help administer TARP. According to
Treasury, these staff dedicate significant portions of their time to
OFS activities. For example, personnel providing assistance in human
resources administration, legal support, financial reporting and
budgeting, and information technology spend varying amounts of time
supporting OFS's day-to-day operations. While Treasury officials said
that OFS is becoming more self-reliant, certain staff always will
provide part-time assistance to OFS (in such areas as human resources),
as they do for every office within Treasury.
OFS's financial agents and contractors also have remained in place
throughout the transition, providing institutional knowledge of past
practices, continuity of operations, and expertise needed to carry out
OFS policies and operations. For example, Treasury awarded a contract
to PricewaterhouseCoopers to help establish a comprehensive set of
internal controls, and the firm will continue to support this effort.
Treasury has taken a variety of other measures to support the
transition to the new administration. In our last 60-day report, we
recommended that Treasury facilitate a smooth transition to the new
administration by building on and formalizing ongoing activities.
According to Treasury, since our last report, Treasury has continued to
provide updates to the transition team on TARP developments, and the
team has met with key leaders, including each of the Interim Chiefs
described above. An official from the new administration's transition
team confirmed that OFS officials have briefed transition team members
regularly on operational and policy issues in an effective manner. In
addition, and as discussed in more detail below, OFS continues to
establish processes and document internal controls used to carry out
the various new programs established under TARP and the associated
financial transactions. Specifically, Treasury documented processes
used to administer CPP and established program guidelines for TARP
investments to guide the next administration's use of TARP funds. OFS
management is still in the preliminary stages of developing and
implementing a comprehensive set of policies and procedures to manage
TARP activities.
Treasury Has Used Hiring Flexibilities to Staff the Organization, but
the Hiring Process Still Presents Challenges:
Although Treasury has used hiring flexibilities to expedite the process
for finding permanent employees for OFS, Treasury still faces
challenges in hiring the full complement of staff needed to administer
the office. In our last report, we recommended that Treasury expedite
OFS's hiring efforts to ensure that the office has the personnel needed
to carry out and oversee TARP.
OFS officials stated that they continue to aggressively hire additional
permanent staff at the highest levels of the organization to provide a
corporate culture and stabilize leadership within OFS. As of January
26, 2009, Treasury had brought 38 permanent staff on board through a
variety of mechanisms, including direct-hire authority, merit promotion
appointments, limited-term Senior Executive Service (SES), and Schedule
A appointments, and reassignments.[Footnote 57] This level of staffing
is a substantial increase from the five permanent hires that were in
place approximately at the time of our last report. Nonetheless,
according to Treasury's January 8, 2009, organizational chart for OFS,
Treasury estimates that OFS will need approximately 131 staff on board
to operate at full capacity, although hiring for some aspects of the
projected organization will be dependent upon further program
developments. Treasury may be able to fill several of these positions
with detailees; however, in its organizational chart, Treasury
identified a number of unfilled positions best suited for permanent
staff. In order to continue to fill key vacancies within the
organization, OFS has used its direct-hire authority in coordination
with OPM, which Congress explicitly authorized for TARP under section
101(c) of the act.[Footnote 58] Such direct-hire authority helps to
expedite the hiring process by exempting OFS from certain competitive
examination requirements. While Treasury is required to publicly
announce all jobs for which it uses direct-hire authority, the
department may interview and hire candidates without conducting a
formal rating and ranking process normally required for competitive
service appointments. Also, Treasury has worked with OPM to obtain
specific Schedule A authority to make appointments exempt from
examination requirements for positions requiring unique or highly
specialized qualifications. According to Treasury, direct-hire and
Schedule A authorities have permitted the department to recruit
individuals from a pool of candidates who have submitted their resumes
directly to Treasury via e-mail, as discussed below, as well as in
response to specific vacancy announcements. In addition, Treasury has
used other tools to enhance its recruitment efforts, such as its
existing automated recruitment system, and is working with information
technology staff to automate categorization of candidates who have
submitted resumes.
Despite making use of these human capital flexibilities, Treasury
continues to face challenges in hiring. First, conflict-of-interest
considerations have increased the time needed to recruit and hire
individuals for OFS, and, in some cases, have caused qualified
candidates to withdraw their names from consideration for positions
within the organization. According to Treasury, it requires all senior
executives and senior-level staff to complete a form listing their
financial interests to identify potential conflicts of interest.
Treasury also requires all general schedule-level positions, with the
exception of administrative support staff, to complete a similar form.
Some qualified candidates were unaware when they applied for an OFS
position that their financial investments could pose conflicts and
subsequently made the decision not to pursue employment with OFS.
According to Treasury, ethics reviews of this information can add
substantial time to the hiring process. To avoid unnecessary delays and
complications in finalizing offers of employment, Treasury is obtaining
information on potential conflicts as early as possible in the
recruitment process.
Second, Treasury said that candidates with the right skills and
abilities to fill positions in OFS often work for a financial regulator
that can offer a more competitive salary than OFS.[Footnote 59] OFS may
be competing for the same candidates as the financial regulators
because these organizations recruit individuals with skills and
experience similar to those needed to administer TARP. For example,
regulatory agencies recruit financial economists with expertise in risk
measurement and quantitative analysis. Treasury's Human Resources
division continues to consider other hiring flexibilities that may help
them offer enhancements needed to recruit the right talent for OFS, but
officials said they are limited by the terms of current law and OPM
regulations.
Furthermore, Treasury has hired a contractor to provide human capital
support to the organization and has used a variety of methods to
recruit talent to the organization, but it is unclear when Treasury
will begin to develop a more formal human capital plan for OFS. In
prior work, we have noted that aligning an organization's human capital
program with its mission and programmatic goals requires identification
of the critical skills and competencies needed to achieve current and
future programmatic results.[Footnote 60] Thus far, Treasury's main
strategy for identifying these skills has been to write position
descriptions for key OFS vacancies, and the primary work of the human
capital services contractor most recently has been writing such
position descriptions for OFS. As of January 26, 2009, Treasury
finalized 28 position descriptions. Treasury noted that it previously
drafted other position descriptions, but because of the evolution of
strategies under TARP, it determined that several of the positions were
no longer relevant.
In addition, to help recruit talented individuals before position
descriptions are finalized, Treasury posted information on its
Emergency Economic Stabilization Act Web page requesting that
individuals interested in working for OFS transmit their resumes
directly to Treasury at a specific e-mail address, without having to
respond to job announcements through OPM's Web site.[Footnote 61]
Treasury later refined this strategy by creating a series of e-mail
boxes organized by area of expertise--such as compliance, risk
management, and economic analysis--and asked individuals to transmit
resumes by using the addresses that best aligned with their background
and experience. Treasury officials said that this approach enhanced
Treasury's recruitment efforts, but that it still did not eliminate the
submission of resumes by individuals that were not qualified. They
still required time to review the resumes and identify those that
reflect the needed skills and abilities for OFS.
Although it is likely that OFS will continue to need both temporary and
permanent staff to administer TARP, Treasury has not yet developed a
formal workforce plan that balances the need for long-and short-term
assistance because the program is still evolving. As noted above, some
temporary staff will serve the short-term needs of the organization,
while others may continue to serve long-term needs until permanent
hires can replace them. As described in table 3, of the 90 staff
working in OFS as of January 26, 2009, 52, or 58 percent, have been
detailed to OFS from other areas of Treasury and the federal
government. In addition, Treasury has relied on a number of financial
agents and contractors to conduct the day-to-day operations of OFS. In
prior work, we have found that temporary employees can provide the
flexibility needed to effectively manage an agency's workforce by
fulfilling the short-term needs of the organization.[Footnote 62]
Because TARP has added many new programs since it was first established
in October 2008 and that the number and types of program activities may
expand or change under the new administration, we recognize that
Treasury may find it difficult to determine OFS's long-term
organizational needs at this time. For example, it is not clear how
many staff will be needed to work on CPP efforts once the transactions
are all completed. However, such considerations will be vital to
retaining institutional knowledge within the organization as programs
evolve. We will continue to track OFS efforts to engage in workforce
planning, including any workforce planning efforts undertaken by OFS's
contractor.
Treasury Has Continued to Rely on Contractor Support, While Taking
Steps to Improve Contracting Practices and Enhance Oversight:
Treasury has continued to award contracts in support of TARP and has
taken steps to improve its contracting practices and enhance its
oversight of contractors. In one recent case, Treasury awarded a
contract using other than full and open competition procedures, as
permitted by the Federal Acquisition Regulation (FAR), but it took
steps to promote competition and received multiple offers as a result.
Treasury also continues to use contract structures and pricing
arrangements, such as time-and-materials pricing, that allow for
flexibility in ordering the services it requires. In part because these
pricing arrangements are inherently risky, Treasury has taken measures
to enhance contract oversight. In addition, Treasury has continued its
efforts to promote small business participation in TARP.
Additional Contracts Have Been Awarded to Help Implement TARP:
Since TARP was established, Treasury has entered into one financial
agency agreement and awarded a total of 14 contracts and blanket
purchase agreements. It has issued a total of 10 task orders under
those instruments. Since November 25, 2008, the cut-off date for our
last report, Treasury has awarded a contract for legal services related
to TALF,[Footnote 63] one to advertise for TARP position openings, and
two leases for space.[Footnote 64] In addition, since November 25,
Treasury issued three task orders for a range of services related to
the implementation of TARP, and has modified existing contracts and
task orders. Details of the agreement and all contracts, task orders,
and modifications are summarized in table 4. As of December 31, 2008,
Treasury had expended $8,987,153 for the financial agency agreement and
contract actions.[Footnote 65]
Table 4: Financial Agency Agreement, Contracts, and Blanket Purchase
Agreements Awarded, as of January 20, 2009:
Financial Agency Agreement.
Bank of New York Mellon:
Action: Financial Agency Agreement[A];
Purpose: Custodian and cash management;
Date of Action: 10/14/2008;
Value/Obligation: Estimated $20 million over 3 years;
Period of Performance: 10/14/2008 - 10/14/2011;
Pricing Structure: Flat fee and fixed percentage of asset values.
Contracts and Blanket Purchase Agreements:
Simpson, Thacher & Bartlett, LLP:
Action: Indefinite Delivery Indefinite Quantity (IDIQ) Contract[B]
TOS09007;
Purpose: Legal services for the implementation of TARP;
Date of Action: 10/10/2008;
Value/Obligation: Maximum value of $500,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: Time and materials[C] or fixed-price task orders.
Simpson, Thacher & Bartlett, LLP:
Action: Task Order 0001;
Purpose: To initiate work[D];
Date of Action: 10/10/2008;
Value/Obligation: $300,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: Time and materials.
Simpson, Thacher & Bartlett, LLP:
Action: 1st Modification to Task Order 0001;
Purpose: To add funds;
Date of Action: 11/26/2008;
Value/Obligation: Net increase: $200,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: N/A.
Simpson, Thacher & Bartlett, LLP:
Action: 1st Modification to Contract TOS09007;
Purpose: To increase contract ceiling;
Date of Action: 12/19/2008;
Value/Obligation: Net increase: $400,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: N/A.
Simpson, Thacher & Bartlett, LLP:
Action: 2nd Modification to Task Order 0001;
Purpose: To add funds;
Date of Action: 12/19/2008;
Value/Obligation: $400,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: N/A.
Simpson, Thacher & Bartlett, LLP:
Action: 2nd Modification to Contract TOS09007;
Purpose: To increase contract ceiling;
Date of Action: 01/09/2009;
Value/Obligation: $125,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: N/A.
Simpson, Thacher & Bartlett, LLP:
Action: 3rd Modification to Task Order 0001;
Purpose: To add funds;
Date of Action: 01/09/2009;
Value/Obligation: $125,000.00;
Period of Performance: 10/10/2008 - 04/09/2009;
Pricing Structure: N/A.
EnnisKnupp & Assoc., Inc.:
Action: Indefinite Delivery Indefinite Quantity (IDIQ) Contract;
T0S09008;
Purpose: Investment and advisory services;
Date of Action: 10/11/2008;
Value/Obligation: $2,495,190.00;
Period of Performance: 10/11/2008 - 10/11/2009;
Pricing Structure: Fixed-price task orders.
EnnisKnupp & Assoc., Inc.:
Action: Task Order 0001;
Purpose: To initiate work;
Date of Action: 10/11/2008;
Value/Obligation: $227,387.30;
Period of Performance: 10/11/2008 - 10/25/2008;
Pricing Structure: Fixed price.
EnnisKnupp & Assoc., Inc.:
Action: 1st Modification to Task Order 0001;
Purpose: To extend the period of performance and add funds;
Date of Action: 10/26/2008;
Value/Obligation: Net increase: $356,831.00;
Period of Performance: Extended period of performance: 10/11/2008 -
11/30/2008;
Pricing Structure: Fixed price.
EnnisKnupp & Assoc., Inc.:
Action: 2nd Modification to Task Order 0001;
Purpose: To extend the period of performance and add funds;
Date of Action: 12/01/2008;
Value/Obligation: Net increase: $356,831.00;
Period of Performance: Extended period of performance: 10/11/2008 -
12/31/2008;
Pricing Structure: Fixed price.
EnnisKnupp & Assoc., Inc.:
Action: 3rd Modification to Task Order 0001;
Purpose: To extend the period of performance and add funds;
Date of Action: 12/31/2008;
Value/Obligation: Net increase: $178,416.00;
Period of Performance: Extended period of performance through
1//31/2009;
Pricing Structure: Fixed price.
Pricewaterhouse-Coopers, LLP:
Action: Blanket Purchase Agreement[E]; BPA-2009-TARP-0001;
Purpose: Internal control services;
Date of Action: 10/16/2008;
Value/Obligation: N/A;
Period of Performance: 10/16/2008 - 09/30/2011;
Pricing Structure: Time and materials or fixed-price task orders.
Pricewaterhouse-Coopers, LLP:
Action: Task Order 1;
Purpose: To initiate work;
Date of Action: 10/16/2008;
Value/Obligation: $191,469.00;
Period of Performance: 10/16/2008 - 02/01/2009;
Pricing Structure: Time and materials.
Pricewaterhouse-Coopers, LLP:
Action: 1st Modification to Task Order 1;
Purpose: To add funds and modify period of performance;
Date of Action: 11/02/2008;
Value/Obligation: Net increase: $384,894.00;
Period of Performance: 10/16/2008 - 11/14/2008;
Pricing Structure: Time and materials.
Pricewaterhouse-Coopers, LLP:
Action: 2nd Modification to Task Order 1;
Purpose: To extend the period of performance;
Date of Action: 11/17/2008;
Value/Obligation: N/A;
Period of Performance: Extended period of performance: 10/16/2008 -
12/05/2008;
Pricing Structure: Time and materials.
Pricewaterhouse-Coopers, LLP:
Action: Task Order 0002;
Purpose: To continue work;
Date of Action: 12/01/2008;
Value/Obligation: $930,133.98;
Period of Performance: 12/01/2008 - 01/31/2009;
Pricing Structure: Time and materials.
Pricewaterhouse-Coopers, LLP:
Action: Modification to Task Order 0002;
Purpose: For additional services and funding;
Date of Action: 01/08/2009;
Value/Obligation: $57,490.40;
Period of Performance: 12/01/2008 - 01/31/2009;
Pricing Structure: N/A.
Ernst & Young, LLP:
Action: Blanket Purchase Agreement; BPA-2009-TARP-0002;
Purpose: Accounting services;
Date of Action: 10/18/2008;
Value/Obligation: N/A;
Period of Performance: 10/18/2008 - 09/30/2011;
Pricing Structure: Time and materials or fixed-price task orders.
Ernst & Young, LLP:
Action: Task Order 1;
Purpose: To initiate work;
Date of Action: 10/18/2008;
Value/Obligation: $492,006.95;
Period of Performance: 10/18/2008 - 01/17/2009;
Pricing Structure: Time and materials.
Ernst & Young, LLP:
Action: Task Order 2;
Purpose: To continue work;
Date of Action: 01/02/2009;
Value/Obligation: $1,476,005.33;
Period of Performance: 01/02/2009 - 09/30/2009;
Pricing Structure: Time and materials.
Regus:
Action: Lease; GS-11B-02059;
Purpose: Property lease;
Date of Action: 10/23/2008;
Value/Obligation: $168,308 (negotiated settlement agreement)[F];
Period of Performance: 10/27/2008 - 12/10/2008;
Pricing Structure: [Empty].
Turner Consulting Group, Inc.:
Action: Interagency Agreement with General Services Administration
(GSA) 08PA224;
Purpose: For process mapping consultant services;
Date of Action: 10/23/2008;
Value/Obligation: $9,000.00;
Period of Performance: 10/24/2008 - 11/07/2008;
Pricing Structure: Time and materials.
Hughes Hubbard & Reed, LLP:
Action: Blanket Purchase Agreement; 09BPA002;
Purpose: Legal services;
Date of Action: 10/29/2008;
Value/Obligation: $5,645,161.75;
Period of Performance: 10/29/2008 - 04/28/2009;
Pricing Structure: Time and materials or fixed-price task orders.
Hughes Hubbard & Reed, LLP:
Action: Task Order 01;
Purpose: To initiate work;
Date of Action: 10/29/2008;
Value/Obligation: $1,411,300.00;
Period of Performance: 10/29/2008 - 04/28/2009;
Pricing Structure: Time and materials.
Squire Sanders & Dempsey, LLP:
Action: Blanket Purchase Agreement; 09BPA001;
Purpose: Legal services for the Capital Purchase Program;
Date of Action: 10/29/2008;
Value/Obligation: $5,520,000.00;
Period of Performance: 10/29/2008 - 04/28/2009;
Pricing Structure: Time and materials or fixed-price task orders.
Squire Sanders & Dempsey, LLP:
Action: Task Order 01;
Purpose: To initiate work;
Date of Action: 10/29/2008;
Value/Obligation: $1,380,000.00;
Period of Performance: 10/29/2008 - 04/28/2009;
Pricing Structure: Time and materials.
Lindholm & Associates:
Action: DO-TARP-2009-0003, under; GS-15F-0056M;
Purpose: Human resources services;
Date of Action: 10/31/2008;
Value/Obligation: $710,528.00 total value including options;
Period of Performance: 10/31/2008 - 09/30/2010;
Pricing Structure: Labor hours.
Lindholm & Associates:
Action: Task Order; DO-TARP-2009-0003;
Purpose: Base period;
Date of Action: 10/31/2008;
Value/Obligation: $174,720.00;
Period of Performance: 10/31/2008 - 04/29/2009;
Pricing Structure: Labor hours.
Sonnenschein, Nath & Rosenthal, LLP I:
Action: Contract; TOS09010;
Purpose: Legal services related to auto industry loans;
Date of Action: 11/07/2008;
Value/Obligation: $233,662.84;
Period of Performance: 11/07/2008 - 02/28/2009;
Pricing Structure: Labor hours.
Sonnenschein, Nath & Rosenthal, LLP I:
Action: 1st Modification to TOS09010;
Purpose: To incorporate statement of work and contractor's proposal
into contract and to add funds;
Date of Action: 12/10/2008;
Value/Obligation: Net increase: $223,662.84;
Period of Performance: 12/10/2008 - 02/28/2009;
Pricing Structure: N/A.
Sonnenschein, Nath & Rosenthal, LLP I:
Action: 2nd Modification to TOS09010;
Purpose: To clarify language in Modification 1 to increase contract
ceiling price;
Date of Action: 12/11/2008;
Value/Obligation: Increase in contract ceiling price to: $457,325.68;
Period of Performance: N/A;
Pricing Structure: N/A.
Sonnenschein, Nath & Rosenthal, LLP I:
Action: 3rd Modification to TOS09010;
Purpose: Increase contract ceiling amount;
Date of Action: 12/31/2008;
Value/Obligation: Increase in contract ceiling price to: $1,457,325.68;
Period of Performance: N/A;
Pricing Structure: N/A.
Washington Post:
Action: Purchase Order TD009040;
Purpose: Human resources advertisement;
Date of Action: 12/05/2008;
Value/Obligation: $395.00;
Period of Performance: 12/07/2008 - 01/07/2009;
Pricing Structure: Fixed price.
Sonnenschein, Nath & Rosenthal, LLP II:
Action: IDIQ contract; TOS09014B;
Purpose: Legal services for the purchase of asset-backed securities;
Date of Action: 12/12/2008;
Value/Obligation: 1,300 hours ceiling;
Period of Performance: 12/10/2008 - 06/09/2009;
Pricing Structure: Time and materials or fixed-price task orders.
Sonnenschein, Nath & Rosenthal, LLP II:
Action: Task Order 0001;
Purpose: To initiate work;
Date of Action: 12/12/2008;
Value/Obligation: $249,999.00;
Period of Performance: 12/10/2008 - 03/10/2009;
Pricing Structure: Time and materials.
Sonnenschein, Nath & Rosenthal, LLP II:
Action: 1st Modification to TOS09014B;
Purpose: To incorporate novation agreement and new conflict-of-interest
disclosures;
Date of Action: 12/31/2008;
Value/Obligation: N/A;
Period of Performance: N/A;
Pricing Structure: N/A.
Eleven Eighteen LLP c/o Cushman & Wakefield:
Action: GSA Lease, GS-11B-02075;
Purpose: Property lease, 9-month term;
Date of Action: 12/16/2008;
Value/Obligation: $1,047,672;
Period of Performance: 12/30/2008-09/30/2009;
Pricing Structure: Fixed price.
Eleven Eighteen LLP c/o Cushman & Wakefield:
Action: GSA Lease, GS-11B-02075;
Purpose: Property lease for expanded space, 1-year term;
Date of Action: 12/16/2008;
Value/Obligation: $3,028,642;
Period of Performance: 10/01/2009 - 09/30/2010;
Pricing Structure: Fixed price per annum plus annual operating costs.
Colonial Parking:
Action: Contract with Options, TOS09017;
Purpose: Lease of parking spaces;
Date of Action: 01/07/2009;
Value/Obligation: $75,850.00;
Period of Performance: 01/02/2009 - 09/30/2009;
Pricing Structure: Fixed price.
Source: GAO analysis of Treasury documents.
[A] This agreement has been amended five times to add additional
responsibilities as the different TARP programs, such as CPP, SSFI,
TALF, TIP, and AIFP, were established.
[B] Indefinite-delivery/indefinite-quantity contracts provide for an
indefinite quantity, within stated limits, of supplies or services
during a fixed period. These contracts establish the basic terms of the
contracts in advance, enabling agency personnel to issue subsequent
task or delivery orders for specific services or goods expeditiously.
Orders must be within the contract's scope, issued within the period of
performance, and be within the contract's maximum value.
[C] A time-and-material pricing mechanism provides for payments to the
contractors based on set labor rates and the number of hours worked,
plus the cost of any materials. Our prior work on such contracts
recognized both the inherent flexibility of such arrangements and the
need for close government supervision to ensure that costs are
contained. Specifically, time-and-materials contracts are considered
high-risk for the government because they provide no positive incentive
to the contractor for cost control or labor efficiency. Thus, the onus
is on the government to monitor contractors to ensure that they are
performing the work efficiently and controlling costs.
[D] The initial task order initiates the contract work.
[E] A blanket purchase agreement is a method of filling anticipated
repetitive needs for supplies or services by establishing charge
accounts with qualified sources of supply. The agreement contains the
basic terms and conditions governing the types of services the firms
will provide. As specific needs arise, blanket purchase agreements
allow Treasury to issue task orders to the firms describing the
specific services required, establishing time frames, and setting
pricing arrangements.
[F] This contract has been terminated. The Government has agreed to a
one-time lease termination settlement of $168,308.
[End of table]
Treasury Has Continued to Use Expedited Contract Award Procedures and
Has Taken Steps to Ensure Competition:
The Competition in Contracting Act (CICA) requires, with certain
limited exceptions, that contracting officers shall promote and provide
for full and open competition in soliciting offers and awarding
government contracts.[Footnote 66] The process is intended to permit
the government to rely on competitive market forces to obtain needed
goods and services at fair and reasonable prices. Treasury has
continued to expedite the award of contracts using other than full and
open competition based on one of the limited exceptions provided for by
statute. The statutory exception Treasury generally utilizes is
"unusual and compelling urgency." Since our last report, it cited this
authority as a basis for awarding a contract for legal services.
CICA and FAR provide that, even when agencies meet the requirements for
other than full and open competition, such as in the case of unusual
and compelling urgency, they nonetheless are required to request offers
from as many potential sources as is practicable under the
circumstances.[Footnote 67] To aid in the solicitation of offers,
agencies conduct market research to identify potential sources.
[Footnote 68] Treasury has conducted market research to identify
potential vendors to solicit, which resulted in the receipt of multiple
offers for each solicitation, including the most recent solicitation
for legal services. In addition, Treasury generally used a best-value
approach for evaluating offers received, based on a number of technical
evaluation factors such as experience, management and staffing plans,
small business utilization, and mitigation of identified conflicts of
interest. These factors were reviewed by technical evaluation panels
and, taken together, were considered by Treasury as more important than
price. Treasury also generally sought and received from its contractors
discounts from their standard commercial prices. Furthermore, where it
has awarded contracts using other than full-and-open competition
procedures, Treasury has stated its intention to procure future
requirements using full and open competition. Treasury intends to
transition ongoing services to more competitively awarded contracts, if
feasible, within 3-6 months after award.
Treasury Has Continued to Use Flexible Contract Arrangements:
Treasury has continued to use contract structures and pricing
arrangements designed to allow for flexibility in ordering the services
required. For example, Treasury awarded an indefinite delivery/
indefinite quantity contract for legal services, allowing it to issue
task orders as specific needs arise. In addition, Treasury has
continued to use time-and-materials pricing arrangements for most of
the task orders it awards. Because of the inherent risk in such pricing
arrangements, we recommended in our prior report that Treasury move
toward greater reliance on fixed-price arrangements, whenever possible,
as program requirements were better defined over time. A Treasury
procurement official stated that Treasury plans to convert work
requirements to fixed-priced orders where appropriate and when the
extent of the work involved becomes more predictable. Since our last
report, Treasury has yet to issue any new task orders on a fixed-price
basis.
Treasury Has Taken Initial Steps to Enhance Contract Management:
In part because of Treasury's use of time-and-materials pricing
arrangements, we recommended in our last report that Treasury ensure
that sufficient personnel were assigned and appropriately trained to
oversee contractor performance. In addition to a number of planned
hiring actions, ranging from contracting officer to senior management
positions, Treasury has taken steps to improve its oversight of
contractors during the implementation of TARP. For example, Treasury
convened a Procurement Summit in early December 2008 on a number of
contract management issues, including training requirements and the
initiation of contract management reviews to address the use of time-
and-materials pricing arrangements.
Treasury originally assigned a number of its executive-level officials
as Contracting Officer's Technical Representatives (COTR).[Footnote 69]
In addition to their other responsibilities, Treasury's internal
guidance requires that COTRs be trained in their acquisition-related
responsibilities prior to their appointment, with certain limited
exceptions. While not all of the COTRs have received formal training
(certification), given the limited time frame for executing the
program, a Treasury procurement official believes the current COTRs
have the experience necessary to perform their duties. Treasury has
begun to replace the executive-level COTRs with certified COTRs, and we
plan to continue to monitor Treasury's efforts in this area.
To facilitate the COTRs' oversight of contracts, Treasury developed and
has begun to use a Contract Management Reporting Form to track the
cost, schedule, and performance of the contracts awarded under TARP.
The forms are prepared by the COTRs and submitted to the contracting
officers at the middle and end of each month. These forms cover a
number of issues we raised in the last report, including the status of
COTR certification, the use of fixed-price pricing arrangements, and
the review of contractor conflicts of interest. At the end of the
second contract management reporting period, which ran through December
31, 2008, Treasury determined that the majority of contracts were
performing on schedule and within budget, but it identified COTR
certification, the move toward fixed-price requirements, and higher-
than-anticipated costs on two contracts as issues in need of additional
attention by Treasury.
Treasury Has Continued Efforts to Promote Small Business Participation:
As we noted in our previous report, for its financial agency agreement
and some of its contracts, Treasury considered offerors' efforts to
utilize small businesses as part of its contract award selection
criteria in an effort to promote the use of small businesses in
carrying out TARP. As of January 20, 2009, Treasury has contracted
directly with two small businesses--one for human resources support and
another for a budget formulation model--while other entities have
become involved through subcontracting opportunities with Treasury
contractors and its financial agent. Specifically, Treasury's financial
agent engaged the support of two individual consultants to provide
advice on asset purchase protocols, and one of Treasury's legal
services contractors subcontracted legal support to a minority-and
women-owned small disadvantaged business. Treasury's financial agent
also has identified several disadvantaged or minority-owned small
businesses to provide temporary services if necessary.
Treasury currently is reviewing proposals from the firms that responded
to its solicitation for equity asset managers. Treasury officials noted
that they developed an inclusive approach to acquiring the services of
equity asset managers to allow both large and small firms to compete
for business, including minority-and women-owned firms. Specifically,
Treasury's solicitation requires prospective asset managers to have an
existing portfolio of at least $100 million in assets under management,
a threshold that Treasury officials say is high enough to ensure that
an asset manager can handle a large portfolio, but not so high as to
preclude participation by institutions of modest size. Treasury also
announced that in connection with its original solicitations for
managers of troubled mortgage-backed securities and whole loans, it may
decide to issue separate notices targeted at smaller institutions that
would serve as submanagers within a portfolio of assets.
Treasury Has Been Addressing Conflicts of Interest Issues and Plans to
Continue That Effort:
In our prior report, we noted that Treasury had issued guidelines on
conflicts of interest but had not yet issued a related regulation. We
recommended that Treasury issue regulations on conflicts of interest
involving its agents, contractors, and their employees and related
entities as expeditiously as possible. On January 21, 2009, Treasury
issued an interim regulation on TARP conflicts of interest, which was
effective immediately.[Footnote 70] The notice in the Federal Register
solicits public comments by March 23, 2009, and says that Treasury will
consider all comments before issuing a final regulation.
Treasury's interim regulation outlines the process for reviewing and
addressing actual or potential conflicts of interest reported by the
entities retained to perform services in connection with the act. The
interim regulation covers only contractors and financial agents. Among
various other issues, the regulation addresses the following:
* organizational conflicts of interest, which can arise when, for
example, an entity has a business relationship potentially inconsistent
with the entity's obligations to Treasury or that calls into question
the entity's objectivity or judgment;
* personal conflicts of interest, which can be triggered by stock
ownership or other financial interests on the part of an entity's
management officials, key individuals, or certain immediate family
members, and which could adversely affect an individual's objectivity
or judgment;
* limitations on the conduct of entities retained by Treasury, which
include restrictions on giving and accepting gifts, making unauthorized
promises, and improper uses of government property;
* the obligation to keep nonpublic information confidential;
* the applicability of conflict-of-interest requirements to
subcontractors;
* the criteria for granting waivers of the application of the conflict-
of-interest restrictions where a conflict cannot be adequately
mitigated; and:
* measures available to Treasury to enforce the regulation, including
default terminations, debarments, and referrals for criminal
prosecution.
The interim regulation establishes a continuing obligation to monitor
and report conflicts should they arise during the performance of a
contract or agreement. We plan to monitor Treasury's implementation of
this regulation.
The interim regulation became effective on January 21, 2009, and will
apply to all actions occurring on or after that date. In our first
report, we recommended that Treasury review and renegotiate as
necessary existing mitigation plans to ensure conformity with the new
regulation once issued. We continue to believe that such a review and
renegotiation would be appropriate, and Treasury officials informed us
that they intend to conduct such a review.
The regulation does not cover some administrative services, as
identified by the TARP Chief Compliance Officer, because they do not
involve "substantial decision-making authority." The Chief Compliance
Officer said such administrative services include, for example, the
design of office space for OFS. In addition, as noted in Treasury's
supplemental information to the interim regulation, the regulation does
not address post-employment restrictions on Treasury employees because
Treasury believes this issue is already adequately covered by existing
law.[Footnote 71] We note that section 207 of title 18 of the U.S. Code
imposes restrictions on post-federal employment for certain former
federal employees.[Footnote 72] These restrictions apply to all covered
federal employees, including those formerly employed by Treasury or
detailed to Treasury from other agencies to work on TARP.[Footnote 73]
In response to another recommendation from our prior report, Treasury
has taken some steps to institute a system to manage and monitor
conflicts of interest. Treasury has focused many of its efforts to date
on preventing potential conflicts from becoming actual conflicts
requiring mitigation. For example, Treasury contracted with two legal
firms to conduct closings under CPP. If one legal firm has a potential
conflict related to the institution involved in the closing, Treasury
may assign the other legal firm to conduct the closing. If both legal
firms have a potential conflict of interest with the institution
involved, Treasury may assign a third legal firm to conduct the
closing. In addition, the TARP Chief Compliance Officer has assigned
staff to review TARP contracts with all legal firms to ensure that
confidentiality agreements and conflict-of-interest disclosures are in
place, and ensure that required ethics training is being delivered. As
it brings new staff on board, Treasury intends to perform the same
review for other contracted services. Treasury also is developing a set
of internal procedures for its compliance personnel to apply if
conflicts arise as contractors or agents are carrying out their
responsibilities.
OFS's Internal Control System Continues to Evolve:
Since our last report, OFS has taken some important steps toward
developing a system of internal control over TARP activities. Effective
internal control is a major part of managing any organization to
achieve desired outcomes and manage risk. Internal controls include the
program's policies, procedures, and guidance that help management
ensure effective and efficient use of resources; compliance with laws
and regulations; prevention and detection of fraud, waste, and abuse;
and the reliability of financial reporting. Using GAO's standards for
internal control and the guidance in OMB Circular No. A-123,
Management's Responsibility for Internal Control, OFS has adopted a
framework for organizing the development and implementation of its
system of internal control for TARP activities.[Footnote 74] OFS
anticipates that this framework will continue to evolve as new programs
are added and as its internal control infrastructure matures. OFS plans
to use this framework to develop specific policies, drive
communications on expectations, and measure compliance with internal
control standards and policies. As shown in figure 2, this framework
currently includes three identified business functions and five support
functions. Figure 2 also depicts how the OFS framework incorporates the
five key elements of internal control that are defined in GAO's
standards for internal control: control environment, risk assessment,
control activities, information and communication, and monitoring.
Figure 2: OFS's Framework for Internal Control:
[Refer to PDF for image]
This figure is an illustration of OFS's Framework for Internal Control,
as follows:
Senior management committee:
* Establish control environment;
* Execute senior management control activities;
* Internal governance activities.
Deputy-level assessment team:
* Conduct risk assessments.
Perform control activities by function:
Asset purchases/Gtys: Business function;
Asset management: Business function;
Asset sales: Business function;
Potential new functions: Business function;
Procurement: Support function;
Budget/Accounting: Support function;
Reporting/Compliance: Support function;
Information technology: Support function;
Human resources: Support function.
Monitoring:
* Support entire control framework and organization.
Information and communication:
* Support entire control framework and organization.
Source: Treasury.
[End of figure]
Table 5 defines these five key elements of internal control. The
progress OFS has made in each of these elements of internal control is
discussed below.
Table 5: GAO's Standards for Internal Control in the Federal
Government:
Control environment: creating a culture of accountability by
establishing a positive and supportive attitude toward improvement and
the achievement of established program outcomes.
Risk assessment: performing comprehensive reviews and analyses of
program operations to determine if risks exist and the nature and
extent of risks have been identified.
Control activities: taking actions to address identified risk areas and
help ensure that management's decisions and plans are carried out and
program objectives are met.
Information and communication: using and sharing relevant, reliable,
and timely financial and nonfinancial information in managing programs.
Monitoring: tracking improvement initiatives over time and identifying
additional actions needed to further improve program efficiency and
effectiveness.
Source: GAO.
[End of table]
Control environment: OFS has developed an organizational structure that
defines lines of authority and hired permanent staff to fill most of
its key management positions, including a permanent Chief Financial
Officer, who has experience with government internal controls and
credit reform accounting. At the recommendation of
PricewaterhouseCoopers, contracted by OFS to assist in the design and
implementation of a system of internal control for TARP, OFS is
creating a Middle Office function (under the Chief Operating Officer)
to segregate important reconciliation controls.[Footnote 75] OFS
believes this separation will enhance the current control environment
for the different types of investment program transactions (for
example, CPP, SSFI, TIP). Middle Office responsibilities include
validating transaction approvals, reconciling daily transaction
activities, and monitoring Bank of New York Mellon activities
concerning the securing of the government's shares of stock and related
warrants. OFS officials told us an informal Middle Office function has
been in place and maturing since the initial CPP transaction was
completed on October 28, 2008. OFS acknowledges that a key action item
for OFS senior management will be to develop and implement
comprehensive policies and procedures for the office that will include
provisions for training and periodic assessment.
Risk assessment: OFS officials told us that they recognize the need for
an effective risk-management process, but that the process has not yet
been documented. OFS has established an Office of the Chief Risk
Officer and has begun to fill the senior-level positions in that
office. As shown in figure 2, OFS also has established a Senior
Management Committee and the Deputy-level Senior Assessment Team (OFS
indicated that the name of this group will likely change). The
management committee includes the Assistant Secretary for Financial
Stability and all chiefs (and others as deemed appropriate). OFS
officials stated that they anticipate establishing responsibilities and
authorities for the committee more formally in the coming months. The
Deputy-level Assessment Team will include all deputy chiefs and others
if deemed appropriate. This team is charged with planning and executing
OFS's A-123 review process. OFS stated that this working group will be
formalized with a charter and will become active in the next few months
as more deputy positions are filled and the A-123 process gets
underway. If properly structured and implemented, these two groups will
be essential to establishing a disciplined approach to TARP's overall
risk-assessment process and will complement the activities of its
Office of the Chief Risk Officer. Since OFS recently adopted its
framework for organizing the development and implementation of its
system of internal control, it is still too early to assess whether
OFS's risk assessment process for using TARP funds include
consideration of all significant interactions between OFS and other
parties (including banks receiving funds under CPP and the custodian
for TARP activities), as well as internal factors that increase risk,
which were concerns we raised in our last report.
A key component to managing risk within TARP is determining how to
implement Treasury's $700 billion troubled asset purchase authority and
ensure that the department does not exceed the authorized amount. OFS
officials told us that they have mechanisms to ensure that TARP
purchases do not exceed the $700 billion limit. One mechanism that OFS
officials provided to us was a tracking spreadsheet that, they
asserted, maintains current data of the status of TARP funds. One
aspect of an effective risk assessment process would be to establish
and re-evaluate, as needed, the original estimates and funding levels
for the various programs. Early on, OFS decided to apply $250 billion
of the initially authorized $350 billion to CPP, but there was no
documented methodology followed to establish that targeted amount, and
no subsequent estimates or updates to address whether that amount will
be sufficient to achieve the objectives of CPP. OFS officials told us
that the combination of applications submitted from several large
insurance and bank holding companies, S corporations and mutuals may
require additional funding that exceeds the $250 billion already
estimated and allocated to CPP. It is important that OFS develop and
implement a well-defined and disciplined risk-assessment process
because such a process is essential to monitoring program status and
identifying any risks of potentially inadequate funding of announced
programs. We will begin evaluation and testing of key elements needed
in OFS's risk-assessment process, including controls and procedures
that OFS has in place to help ensure that OFS programs do not exceed
their authorized funding amounts.
Control activities: OFS initially identified three business functions
and five support functions that constitute TARP's control activities.
The business functions include asset purchases/guarantees, asset
management, and asset sales. An OFS official told us that, given the
quick time frames associated with TARP initiatives, one of OFS's goals
and challenges in establishing and implementing internal controls is
working in a just-in-time environment as business decisions are made
and implemented. Consequently, because the business functions are at
various stages of activity, so is the development of control activities
for each of these business functions. For example, most of OFS's
activity to date has occurred in the asset purchase/guarantee function
and control activities associated with the asset purchase/guarantee
function are the most developed. Although OFS still needs to develop
written policies and procedures governing asset purchases, OFS
officials informed us that they have established alternative mechanisms
or controls over the purchases until such policies and procedures can
be developed. For example, OFS, in close coordination with
PricewaterhouseCoopers, has developed or is developing desk procedures,
key control points, risk matrixes, and process flows for CPP
acquisition activity and the monitoring and receipt of dividends. OFS
officials told us they were confident that internal controls over the
asset purchase transactions have been identified and documented. OFS
officials also told us that for asset purchases, OMB has approved the
cash flow models for all credit reform initiatives to date, and
Investment Committee decisions, such as approving institutions and the
equity purchase amounts in CPP, have been reconciled to completed
transactions.[Footnote 76] OFS officials noted they are addressing
other activities related to the asset purchases, including developing
budget and accounting controls, coordinating with Treasury on internal
control requirements under OMB Circular No. A-123, and filling
management and staff Middle Office positions.
Ernst & Young, contracted by OFS to perform accounting support
functions, is preparing position papers on the accounting methodology
and policies for equity investments in financial institutions and other
entities and on credit reform accounting. Accounting position papers
are a first step in assisting OFS in determining accounting policies
that will govern financial reporting for TARP. For the functional areas
of asset management, OFS officials told us that they are hiring asset
managers and are drafting or have drafted the corporate actions and
dividend process flows and controls. OFS is scheduled to receive
significant dividend payments in February 2009. We plan to evaluate and
test OFS's controls and procedures for this process as part of our next
review. As the asset manager positions are filled, it will be important
that the valuation of previous transactions be completed promptly and
future transactions valued on a timely basis. At this time, there has
been no activity related to the business function pertaining to asset
sales. Accordingly, OFS has deemed this area a lower priority and has
not addressed it. OFS currently is relying primarily on Treasury's
departmental offices for the support functions of procurement, budget/
accounting, reporting/compliance, human resources, and information
technology.
Information and communication: OFS has put in place mechanisms for
communicating internal control matters and the ongoing development of
internal control policies. For example, internally, OFS conducts
informal weekly meetings with PricewaterhouseCoopers and Ernst & Young
to discuss progress in establishing and documenting internal controls
and financial accounting processes. Externally, OFS officials told us
they are in constant communication with OMB and Treasury officials on
the availability of TARP funds prior to incurring an obligation. OFS
also has met with officials from FinSOB on various topics including
internal controls. In addition, OFS posts information on Treasury's Web
site, speaks at industry events, and testifies at congressional
hearings. According to OFS, as of January 23, 2009, they have issued
all reports required under the act.
Monitoring: OFS officials stated they are in the planning stage of
developing and implementing comprehensive policies and procedures for
monitoring. OFS plans to include provisions for periodic assessments by
management to determine if the policies, procedures, and established
controls are operating effectively. They expect this will occur
formally through the A-123 review and assurance statement process and
informally on an ongoing basis through information provided during the
course of normal business operations. In addition, OFS officials told
us they are continuing to leverage the work of PricewaterhouseCoopers
to actively monitor the execution of controls by OFS in relation to
each CPP transaction. OFS believes such active monitoring results in a
regular evaluation of control design and effectiveness, which is
necessary to ensure controls are appropriate and working as intended.
Continuing to develop a comprehensive system of internal control is a
key challenge facing OFS because it has had to develop internal
controls while simultaneously reacting quickly to financial market
events and implementing TARP initiatives. OFS recognizes there may be
situations in which the organization will be unable to fully execute
the controls as designed. Therefore, OFS plans for its internal control
design to include compensating controls for such situations. By
adopting a framework for organizing the development and implementation
of its system of internal control, OFS has made an important start to
providing a common understanding of, and clear structure for, that
system. This framework, although still evolving, should provide OFS
with the ability to communicate expectations and measure performance on
internal controls and develop mechanisms for compliance with internal
control standards. Our ongoing monitoring efforts will focus on the
steps OFS is taking to develop and implement an effective internal
control structure. We also plan to test the design, implementation, and
operating effectiveness of internal controls over TARP activities, such
as the approval and recording of CPP transactions and the receipt of
dividends on preferred stock.
Measuring the Impact of TARP on Credit Markets and the Economy
Continues to Be Challenging:
TARP's activities could improve market confidence in banks that choose
to participate and have beneficial effects on credit markets, but
several factors will complicate efforts to measure any impact. If TARP
is having its intended effect, a number of developments might be
observed in credit and other markets over time, such as reduced risk
spreads, declining borrowing costs, and lending activity higher than it
would have been in the absence of TARP. Credit market indicators we
have identified suggest that the cost of credit has declined since our
last report in interbank, mortgage, and corporate debt markets, while
perceptions of risk (as measured by premiums over Treasury securities)
have declined in interbank markets, but changed very little in
corporate debt and mortgage markets. Several factors will make
isolating and measuring the impact of TARP challenging, including
changes in monetary and fiscal policy, other programs introduced by
Treasury, the Federal Reserve, FDIC, and FHFA, and general market
forces. For example, the Federal Reserve's announcement that it will
purchase mortgage-backed securities has been associated with a large
drop in mortgage rates. As a result, any changes in capital markets
cannot be attributed solely to TARP. Similarly, slow recovery does not
necessarily reflect its failure because of the effects of market forces
and economic conditions. We have identified a number of other
indicators that we are monitoring and may include in future reports.
TARP Could Have a Number of Effects on Credit Markets and the Economy:
TARP activities as of January 22, 2009--specifically CPP--could
continue to improve market confidence in participating banks by
improving their balance sheets, cash flows, and capital positions;
reducing their perceived risk; and allowing them to borrow and raise
capital at more favorable rates. To the extent that confidence in
participating banks improves, the banks should be able to pass on some
of their lower funding costs to their own customers in the form of
lower rates. Moreover, the capital infusions also could increase the
willingness and ability of participating banks to increase lending to
creditworthy businesses and consumers rather than hoarding the capital
or using it to purchase low-risk assets.
Some tension exists between the goals of improving banks' capital
positions and promoting lending--that is, the more capital banks use
for lending, the less their overall capital positions will improve. The
current crisis involves issues of liquidity and solvency and it is
difficult to determine which factor most challenges the viability of a
given financial institution, especially since the values of the
underlying mortgage-related securities at the root of the turmoil are
unknown. A financial institution experiencing liquidity problems may
have adequate capital (the value of its assets significantly outweighs
liabilities) and therefore might be expected to use CPP capital to
increase lending. Some institutions likely would use CPP capital to
improve their capital ratios by holding the additional capital as
Treasuries or other safe assets, rather than leveraging new capital to
support additional lending. Using the capital in this manner could
allow institutions to absorb losses or write down troubled assets.
Since the onset of the crisis, it appears that banks have experienced
liquidity and capital adequacy problems, complicating expectations
about the immediate impact of TARP on lending. While Treasury has
stated that CPP funds are intended for healthy institutions, continued
uncertainty in financial markets, deteriorating economic conditions,
and difficulty determining solvency suggest that some apparently
healthy institutions may not leverage new capital at the expense of
their own capital adequacy. For example, while Citigroup received $25
billion in CPP funds in October 2008, Treasury, the Federal Reserve,
and FDIC provided additional capital in November 2008 and insured a
pool of approximately $300 billion in assets against large losses,
amidst concerns about Citigroup's viability. Similarly, it was
announced on January 16, 2009, that Bank of America would receive an
additional $20 billion in TARP funds as well as additional insurance
assistance from Treasury and FDIC on an asset pool of $118 billion.
However, if CPP funds contribute to improving solvency rather than
increasing lending, overall financial stability likely still would
improve in the near term, as systemic or disruptive institutional
failures could be prevented.
As discussed in our last report, if TARP does have its intended impact,
a number of effects should appear in credit and other markets over
time, including declining risk premiums (the difference between risky
and risk-free interest rates, such as rates on U.S. Treasury
securities) for interbank lending and bank debt and lower borrowing
costs for business and consumers. While these developments may raise
volumes of consumer and business lending and permit some households to
avoid foreclosures, the impact on overall lending could be diminished
by the decline in the creditworthiness of borrowers or a tightening of
lending standards. Given that credit quality in the economy is
deteriorating and confidence remains low, banks may remain cautious
about extending credit, lending only to low-risk borrowers and
converting the additional funds into low-yield, safe assets. Similarly,
with confidence low, consumers and business will remain cautious about
taking on new loans. Under these circumstances, low interest rates and
lower premiums may not translate into increased lending. Additionally,
as Treasury has acknowledged, it may take more time before the
injections have the desired effect. According to a Treasury statement
on January 13, 2009, $189 billion of the initial $250 billion allocated
to CPP has been invested. Because the economy is experiencing a
downturn, during which lending and borrowing levels normally drop,
lending may not occur immediately but may occur faster than would be
the case if the equity injections had not taken place. Overall,
determining the specific effect of TARP will be a challenge, because no
one can know with confidence what would have happened in its absence.
Changes in credit market conditions may not provide conclusive evidence
of TARP's effectiveness, as other important policies and interventions
can influence these markets. We discussed the collaborative efforts
government agencies have undertaken to restore financial stability, as
well as the general market forces that also will complicate a
determination of TARP's specific effectiveness. Both factors continue
to affect markets. For example, since our last report the Federal
Reserve lowered the federal funds target and the discount rate
partially in response to strained financial markets and tight credit
conditions. Additionally, on November 25, 2008, the Federal Reserve
announced that it would begin to purchase up to $500 billion in
mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and
Ginnie Mae and $100 billion in government-sponsored enterprise debt to
support the mortgage and housing markets and foster improved conditions
in financial markets more generally.[Footnote 77] Moreover, FHFA, in
partnership with Treasury, continues to implement a supplemental loan
modification program for at-risk borrowers to prevent foreclosures and
mitigate default-related losses. To these ends, Fannie Mae and Freddie
Mac--under FHFA conservatorship--announced that they would extend the
suspension of foreclosure sales and evictions from some single-family
properties through January 31, 2009.[Footnote 78] Moreover, housing
values may continue to fall to levels consistent with incomes and rents
in local areas, possibly leading to additional foreclosures, asset
write-downs, and an increase in the perceived risk of banks and other
financial institutions with exposure to mortgage assets.
Changes in Select Indicators Suggest Improvement in Credit Market
Conditions, but These Changes Cannot Be Attributed Exclusively to TARP:
We considered a number of indicators that, although imperfect, may be
suggestive of TARP's impact on credit and other markets. Currently, we
have identified preliminary indicators that are likely to capture
interbank, mortgage, and nonbank lending activity as well as financial
market risk perceptions and variables that are predictive of future
real economic activity. At the very least, improvements in these
measures would indicate improving conditions in credit markets.
Further, given that CPP's goal is to improve the capital position of
banks and promote lending, we expect to monitor indicators that can
provide some insight into the potential effects of the plan on capital
ratios, the structure of liabilities, and net changes in lending at
participating institutions. We continue to consider a variety of
additional indicators, and as more data become available and economic
and credit conditions evolve, we plan to include them in future
reports.
Treasury-London Interbank Offered Rate Spread:
As noted in our last report, the TED spread is the difference between
an average of LIBOR and the interest rate on U.S Treasury bills with
the same maturity. It is considered a key indicator of credit risk that
gauges the willingness of banks to lend to other banks. Increases in
the TED spread imply a bigger aversion to risk. That is, investors have
a preference for safe investments (such as Treasury securities) and
charge a higher premium for loans to other institutions to compensate
for greater perceived default risk. Figure 3 shows the 3-month LIBOR, 3-
month Treasury, and TED spread. The daily TED spread peaked at more
than 450 basis points on October 10, 2008.[Footnote 79]Between October
13, 2008 (the day before the announcement of the creation of CPP), and
January 20, 2009, the spread declined by more than 350 basis points to
its lowest level since August 2008. Decreases in the TED spread could
reflect that banks are more willing to lend to other banks on terms
that reflect greater confidence in the banking system (that is, without
demanding a large interest rate premium) for the time being. LIBOR
itself has declined to levels not seen since 2004. These declines could
be attributed to TARP, the collaborative efforts government agencies
have undertaken to restore financial stability, or both. Since falling
below 100 basis points on January 20, the TED spread has begun to rise
somewhat reaching 1.06 percent as of January 22, 2009.
Figure 3: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill Yield,
as of January 22, 2009:
[Refer to PDF for image]
This figure is a multiple line graph depicting the following data:
Selected dates in 2008:
LIBOR Interest rate: 4.68;
3-month Treasury Interest rate: 3.26;
TED spread: 1.42.
LIBOR Interest rate: 3.93;
3-month Treasury Interest rate: 3.07;
TED spread: 0.86.
LIBOR Interest rate: 3.09;
3-month Treasury Interest rate: 2.1;
TED spread: 0.99.
LIBOR Interest rate: 3.07;
3-month Treasury Interest rate: 2.28;
TED spread: 0.79.
LIBOR Interest rate: 2.99;
3-month Treasury Interest rate: 1.39;
TED spread: 1.60.
LIBOR Interest rate: 2.65;
3-month Treasury Interest rate: 1.29;
TED spread: 1.36.
LIBOR Interest rate: 2.71;
3-month Treasury Interest rate: 1.27;
TED spread: 1.34.
LIBOR Interest rate: 2.91;
3-month Treasury Interest rate: 1.34;
TED spread: 1.57.
LIBOR Interest rate: 2.67;
3-month Treasury Interest rate: 1.83;
TED spread: 0.84.
LIBOR Interest rate: 2.68;
3-month Treasury Interest rate: 1.89;
TED spread: 0.79.
LIBOR Interest rate: 2.81;
3-month Treasury Interest rate: 1.99;
TED spread: 0.82.
LIBOR Interest rate: 2.79;
3-month Treasury Interest rate: 1.86;
TED spread: 0.93.
LIBOR Interest rate: 2.79;
3-month Treasury Interest rate: 1.72;
TED spread: 1.07.
LIBOR Interest rate: 2.82;
3-month Treasury Interest rate: 1.66;
TED spread: 1.16.
LIBOR Interest rate: 3.76;
3-month Treasury Interest rate: 0.87;
TED spread: 2.89.
LIBOR Interest rate: 4.82;
3-month Treasury Interest rate: 0.25;
TED spread: 4.57.
LIBOR Interest rate: 3.19;
3-month Treasury Interest rate: 0.41;
TED spread: 2.78.
LIBOR Interest rate: 2.15;
3-month Treasury Interest rate: 0.03;
TED spread: 2.12.
LIBOR Interest rate: 2.09;
3-month Treasury Interest rate: 0;
TED spread: 2.09.
2009:
LIBOR Interest rate: 1.4;
3-month Treasury Interest rate: 0.08;
TED spread: 1.32.
LIBOR Interest rate: 1.26;
3-month Treasury Interest rate: 0.07;
TED spread: 1.19.
LIBOR Interest rate: 1.09;
3-month Treasury Interest rate: 0.11;
TED spread: 0.98.
LIBOR Interest rate: 1.13;
3-month Treasury Interest rate: 0.11;
TED spread: 1.02.
LIBOR Interest rate: 1.16;
3-month Treasury Interest rate: 0.1;
TED spread: 1.15.
Federal Reserve interest rate reductions: (10/29/08, 12/16/08).
CPP injections: (10/28/08, 11/14/08, 11/21/08, 12/5/08, 12/12/08,
12/19/08, 12/23/08, 12/31/08, 1/9/09, 1/16/09).
10/14/2008: Treasury Capital Purchase Program (CPP) and FDIC and
Federal Reserve programs announced.
11/23/2008: Treasury, FDIC and Federal Reserve announce agreement to
provide capital and protect against large losses at Citigroup.
11/25/2008: Federal Reserve program to purchase mortgage-backed
securities (MBS) and government sponsored enterprise (GSE) debt
announced.
Source: Global Insight and Federal Reserve System.
Note: Rates and yields are daily percentages. Area between LIBOR and
Treasury yield is the TED spread. The Federal Reserve announced an
early January start for MBS and GSE debt purchases on December 30,
2008.
[End of figure]
Corporate Spreads:
The economy-wide risk premium is measured in a number of ways, most
commonly as the spread between Moody's Investors Service (Moody's) Baa
bond rate and Moody's Aaa rate or between these rates and the relevant
government bond yield.[Footnote 80] These spreads represent a premium
lenders demand for taking on risk--that is, when spreads are high,
market participants perceive more risk, warranting a higher rate of
return. When credit market conditions improve, some narrowing of these
spreads would be expected.[Footnote 81] Moody's describes Aaa bonds as
"of the highest quality, with minimal credit risk" and Baa bonds as
"subject to moderate credit risk" that "may possess certain speculative
characteristics." As shown in figure 4, the various interest rate
spreads show a common pattern--an increase in negative perceptions
about risk, resulting in increasing spreads as seen over the past year.
Declines in these spreads would be indicative of improving credit
conditions, but because these spreads may have been too narrow during
the period leading up to the credit market turmoil (risk was
underpriced), it is not clear that these premiums would decline to
those previous levels. Since our last report, which reported data as of
the week of November 21, 2008, perceptions of risk (represented by the
Aaa-and Baa-Treasury spreads) in corporate debt markets have declined
modestly (roughly 10-35 basis points), while the cost of credit has
fallen more markedly (roughly 90-115 basis points).
Figure 4: Yields on Corporate Bonds (Aaa and Baa) Relative to 10-year
Treasury, as of January 16, 2009:
[Refer to PDF for image]
This figure is a multiple line graph depicting the following data:
2008:
Interest rate, Moody's Aaa: 5.35;
Interest rate, Moody's Baa: 6.49;
Interest rate, 10-year Treasury: 3.94;
Aaa/Baa-Treasury spread: 2.55.
Interest rate, Moody's Aaa: 5.4;
Interest rate, Moody's Baa: 6.69;
Interest rate, 10-year Treasury: 3.66;
Aaa/Baa-Treasury spread: 3.03.
Interest rate, Moody's Aaa: 5.53;
Interest rate, Moody's Baa: 6.91;
Interest rate, 10-year Treasury: 3.51;
Aaa/Baa-Treasury spread: 3.40.
Interest rate, Moody's Aaa: 5.6;
Interest rate, Moody's Baa: 7.03;
Interest rate, 10-year Treasury: 3.67;
Aaa/Baa-Treasury spread: 3.36.
Interest rate, Moody's Aaa: 5.53;
Interest rate, Moody's Baa: 6.91;
Interest rate, 10-year Treasury: 3.84;
Aaa/Baa-Treasury spread: 3.07.
Interest rate, Moody's Aaa: 5.67;
Interest rate, Moody's Baa: 7.08;
Interest rate, 10-year Treasury: 4.09;
Aaa/Baa-Treasury spread: 2.99.
Interest rate, Moody's Aaa: 5.73;
Interest rate, Moody's Baa: 7.21;
Interest rate, 10-year Treasury: 4.04;
Aaa/Baa-Treasury spread: 3.17.
Interest rate, Moody's Aaa: 5.49;
Interest rate, Moody's Baa: 7.04;
Interest rate, 10-year Treasury: 3.69;
Aaa/Baa-Treasury spread: 3.45.
Interest rate, Moody's Aaa: 6.47;
Interest rate, Moody's Baa: 9.09;
Interest rate, 10-year Treasury: 4.02;
Aaa/Baa-Treasury spread: 5.07.
Interest rate, Moody's Aaa: 5.99;
Interest rate, Moody's Baa: 9.14;
Interest rate, 10-year Treasury: 3.38;
Aaa/Baa-Treasury spread: 5.76.
Interest rate, Moody's Aaa: 4.71;
Interest rate, Moody's Baa: 8.09;
Interest rate, 10-year Treasury: 2.18;
Aaa/Baa-Treasury spread: 5.91.
2009:
Interest rate, Moody's Aaa: 4.74;
Interest rate, Moody's Baa: 8.07;
Interest rate, 10-year Treasury: 2.24;
Aaa/Baa-Treasury spread: 5.83.
Interest rate, Moody's Aaa: 5.04;
Interest rate, Moody's Baa: 8.23;
Interest rate, 10-year Treasury: 2.48;
Aaa/Baa-Treasury spread: 5.75.
Interest rate, Moody's Aaa: 4.89;
Interest rate, Moody's Baa: 7.97;
Interest rate, 10-year Treasury: 2.3;
Aaa/Baa-Treasury spread: 5.67.
Sources: Federal Reserve System.
Note: Rates and yields are weekly percentages.
[End of figure]
Mortgage Rates:
The credit turmoil has raised concern about consumers' abilities to
obtain funds, including mortgages, at rates consistent with economic
fundamentals and individual risk characteristics. One of TARP's
explicit goals is to enhance liquidity and promote lending to
consumers, but high spreads between mortgage rates and Treasury yields
indicate relatively high risk and low liquidity. Therefore, to the
extent that credit and economic conditions improve, these spreads would
narrow. Figure 5 shows that since our last report, which reported data
as of the week of November 21, 2008, perceptions of risk (represented
by the mortgage-Treasury spread) in mortgage markets are unchanged.
However, conforming mortgage rates have fallen dramatically--by more
than 90 basis points.[Footnote 82] As figure 5 shows, a significant
drop in mortgage rates occurred shortly after the Federal Reserve's
announcement that it would purchase mortgage-backed securities,
suggesting that stabilization policies outside of TARP may have been an
important force behind this significant decline. The figure also
illustrates that mortgage applications increased significantly after
mortgage rates declined. However, the biggest increase in applications
was for borrowers attempting to refinance existing properties rather
than purchase new homes. Although not illustrated here, the refinance
application index grew roughly 418 percent from November 21, 2008, to
January 16, 2009, while the purchase application index rose by
approximately 16 percent.
Figure 5: Mortgage Rates (30-Year Fixed Rate, Conforming), Mortgage
Applications Index, and Treasury Yields, as of January 16, 2009:
[Refer to PDF for image]
This figure is a multiple line graph depicting the following data:
2008:
Interest rate, 30-year fixed rate mortgage: 6.07;
Interest rate, 10 year Treasury: 3.94;
Mortgage-Treasury spread: 2.17;
Mortgage application index: 507.5.
Interest rate, 30-year fixed rate mortgage: 5.87;
Interest rate, 10 year Treasury: 3.85;
Mortgage-Treasury spread: 2.02;
Mortgage application index: 836.4.
Interest rate, 30-year fixed rate mortgage: 5.69;
Interest rate, 10 year Treasury: 3.72;
Mortgage-Treasury spread: 1.97;
Mortgage application index: 928.2.
Interest rate, 30-year fixed rate mortgage: 5.48;
Interest rate, 10 year Treasury: 3.58;
Mortgage-Treasury spread: 1.09;
Mortgage application index: 1025.4.
Interest rate, 30-year fixed rate mortgage: 5.68;
Interest rate, 10 year Treasury: 3.67;
Mortgage-Treasury spread: 2.01;
Mortgage application index: 1071.
Interest rate, 30-year fixed rate mortgage: 5.67;
Interest rate, 10 year Treasury: 3.66;
Mortgage-Treasury spread: 2.01;
Mortgage application index: 1066.5.
Interest rate, 30-year fixed rate mortgage: 5.72
Interest rate, 10 year Treasury: 3.72;
Mortgage-Treasury spread: 2.00;
Mortgage application index: 840.2.
Interest rate, 30-year fixed rate mortgage: 6.04;
Interest rate, 10 year Treasury: 3.85;
Mortgage-Treasury spread: 2.19;
Mortgage application index: 623.7.
Interest rate, 30-year fixed rate mortgage: 6.24;
Interest rate, 10 year Treasury: 3.78;
Mortgage-Treasury spread: 2.46;
Mortgage application index: 719.4.
Interest rate, 30-year fixed rate mortgage: 6.03;
Interest rate, 10 year Treasury: 3.61;
Mortgage-Treasury spread: 2.52;
Mortgage application index: 709.5.
Interest rate, 30-year fixed rate mortgage: 6.13;
Interest rate, 10 year Treasury: 3.51;
Mortgage-Treasury spread: 2.62;
Mortgage application index: 689.6.
Interest rate, 30-year fixed rate mortgage: 5.87;
Interest rate, 10 year Treasury: 3.39;
Mortgage-Treasury spread: 2.48;
Mortgage application index: 1007.3.
Interest rate, 30-year fixed rate mortgage: 5.85;
Interest rate, 10 year Treasury: 3.52;
Mortgage-Treasury spread: 2.33;
Mortgage application index: 724.6.
Interest rate, 30-year fixed rate mortgage: 5.88;
Interest rate, 10 year Treasury: 3.55;
Mortgage-Treasury spread: 2.33;
Mortgage application index: 765.7.
Interest rate, 30-year fixed rate mortgage: 5.88;
Interest rate, 10 year Treasury: 3.54;
Mortgage-Treasury spread: 2.34;
Mortgage application index: 786.
Interest rate, 30-year fixed rate mortgage: 5.88;
Interest rate, 10 year Treasury: 3.67;
Mortgage-Treasury spread: 2.21;
Mortgage application index: 681.
Interest rate, 30-year fixed rate mortgage: 6.03;
Interest rate, 10 year Treasury: 3.81;
Mortgage-Treasury spread: 2.22;
Mortgage application index: 611.7.
Interest rate, 30-year fixed rate mortgage: 6.06;
Interest rate, 10 year Treasury: 3.83;
Mortgage-Treasury spread: 2.23;
Mortgage application index: 708.9.
Interest rate, 30-year fixed rate mortgage: 6.05;
Interest rate, 10 year Treasury: 3.85;
Mortgage-Treasury spread: 2.20;
Mortgage application index: 729.5.
Interest rate, 30-year fixed rate mortgage: 6.01;
Interest rate, 10 year Treasury: 3.86;
Mortgage-Treasury spread: 2.15;
Mortgage application index: 672.5.
Interest rate, 30-year fixed rate mortgage: 5.98;
Interest rate, 10 year Treasury: 3.84;
Mortgage-Treasury spread: 2.14;
Mortgage application index: 641.3.
Interest rate, 30-year fixed rate mortgage: 6.08;
Interest rate, 10 year Treasury: 4.03;
Mortgage-Treasury spread: 2.05;
Mortgage application index: 486.
Interest rate, 30-year fixed rate mortgage: 6.09;
Interest rate, 10 year Treasury: 3.98;
Mortgage-Treasury spread: 2.11;
Mortgage application index: 597.6.
Interest rate, 30-year fixed rate mortgage: 6.32;
Interest rate, 10 year Treasury: 4.15;
Mortgage-Treasury spread: 2.17;
Mortgage application index: 540.1.
Interest rate, 30-year fixed rate mortgage: 6.42;
Interest rate, 10 year Treasury: 4.2;
Mortgage-Treasury spread: 2.22;
Mortgage application index: 490.
Interest rate, 30-year fixed rate mortgage: 6.45;
Interest rate, 10 year Treasury: 4.09;
Mortgage-Treasury spread: 2.36;
Mortgage application index: 505.5.
Interest rate, 30-year fixed rate mortgage: 6.35;
Interest rate, 10 year Treasury: 4;
Mortgage-Treasury spread: 2.35;
Mortgage application index: 434.2.
Interest rate, 30-year fixed rate mortgage: 6.37;
Interest rate, 10 year Treasury: 3.9;
Mortgage-Treasury spread: 2.47;
Mortgage application index: 551.5.
Interest rate, 30-year fixed rate mortgage: 6.26;
Interest rate, 10 year Treasury: 3.98;
Mortgage-Treasury spread: 2.28;
Mortgage application index: 518.1.
Interest rate, 30-year fixed rate mortgage: 6.63;
Interest rate, 10 year Treasury: 4.11;
Mortgage-Treasury spread: 2.52;
Mortgage application index: 447.3.
Interest rate, 30-year fixed rate mortgage: 6.52;
Interest rate, 10 year Treasury: 4.04;
Mortgage-Treasury spread: 2.48;
Mortgage application index: 458.2.
Interest rate, 30-year fixed rate mortgage: 6.52;
Interest rate, 10 year Treasury: 3.99;
Mortgage-Treasury spread: 2.53;
Mortgage application index: 448.3.
Interest rate, 30-year fixed rate mortgage: 6.52;
Interest rate, 10 year Treasury: 3.91;
Mortgage-Treasury spread: 2.59;
Mortgage application index: 436.5.
Interest rate, 30-year fixed rate mortgage: 6.47;
Interest rate, 10 year Treasury: 3.83;
Mortgage-Treasury spread: 2.64;
Mortgage application index: 432.5.
Interest rate, 30-year fixed rate mortgage: 6.4;
Interest rate, 10 year Treasury: 3.79;
Mortgage-Treasury spread: 2.61;
Mortgage application index: 457.8.
Interest rate, 30-year fixed rate mortgage: 6.35;
Interest rate, 10 year Treasury: 3.69;
Mortgage-Treasury spread: 2.66;
Mortgage application index: 395.4.
Interest rate, 30-year fixed rate mortgage: 5.93;
Interest rate, 10 year Treasury: 3.66;
Mortgage-Treasury spread: 2.27;
Mortgage application index: 653.6.
Interest rate, 30-year fixed rate mortgage: 5.78;
Interest rate, 10 year Treasury: 3.54;
Mortgage-Treasury spread: 2.24;
Mortgage application index: 581.1.
Interest rate, 30-year fixed rate mortgage: 6.09;
Interest rate, 10 year Treasury: 3.84;
Mortgage-Treasury spread: 2.25.
Mortgage application index: 445.
Interest rate, 30-year fixed rate mortgage: 6.1;
Interest rate, 10 year Treasury: 3.7;
Mortgage-Treasury spread: 2.4;
Mortgage application index: 454.6
.
Interest rate, 30-year fixed rate mortgage: 5.94;
Interest rate, 10 year Treasury: 3.69;
Mortgage-Treasury spread: 2.25;
Mortgage application index: 479.1.
Interest rate, 30-year fixed rate mortgage: 6.46;
Interest rate, 10 year Treasury: 4.02;
Mortgage-Treasury spread: 2.44;
Mortgage application index: 359.4.
Interest rate, 30-year fixed rate mortgage: 6.04;
Interest rate, 10 year Treasury: 3.74;
Mortgage-Treasury spread: 2.30;
Mortgage application index: 465.7.
Interest rate, 30-year fixed rate mortgage: 6.46;
Interest rate, 10 year Treasury: 3.92;
Mortgage-Treasury spread: 2.54;
Mortgage application index: 367.6.
Interest rate, 30-year fixed rate mortgage: 6.2;
Interest rate, 10 year Treasury: 3.82;
Mortgage-Treasury spread: 2.38;
Mortgage application index: 406.2.
Interest rate, 30-year fixed rate mortgage: 6.14;
Interest rate, 10 year Treasury: 3.78;
Mortgage-Treasury spread: 2.36;
Mortgage application index: 376.9.
Interest rate, 30-year fixed rate mortgage: 6.04;
Interest rate, 10 year Treasury: 3.38;
Mortgage-Treasury spread: 2.66;
Mortgage application index: 373.3.
Interest rate, 30-year fixed rate mortgage: 5.97;
Interest rate, 10 year Treasury: 3.1;
Mortgage-Treasury spread: 2.87;
Mortgage application index: 565.1.
Interest rate, 30-year fixed rate mortgage: 5.53;
Interest rate, 10 year Treasury: 2.66;
Mortgage-Treasury spread: 2.97;
Mortgage application index: 770.6.
Interest rate, 30-year fixed rate mortgage: 5.47;
Interest rate, 10 year Treasury: 2.67;
Mortgage-Treasury spread: 2.80;
Mortgage application index: 793.1.
Interest rate, 30-year fixed rate mortgage: 5.19;
Interest rate, 10 year Treasury: 2.26;
Mortgage-Treasury spread: 2.93;
Mortgage application index: 1191.
Interest rate, 30-year fixed rate mortgage: 5.14;
Interest rate, 10 year Treasury: 2.18;
Mortgage-Treasury spread: 2.96;
Mortgage application index: 714.6.
2009:
Interest rate, 30-year fixed rate mortgage: 5.1;
Interest rate, 10 year Treasury: 2.24;
Mortgage-Treasury spread: 2.86;
Mortgage application index: 651.2.
Interest rate, 30-year fixed rate mortgage: 5.01;
Interest rate, 10 year Treasury: 2.48;
Mortgage-Treasury spread: 2.53;
Mortgage application index: 1324.8.
Interest rate, 30-year fixed rate mortgage: 4.96;
Interest rate, 10 year Treasury: 2.3;
Mortgage-Treasury spread: 2.66;
Mortgage application index: 1195.3.
Federal Reserve interest rate reductions: (10/29/08, 12/16/08).
CPP injections: (10/28/08, 11/14/08, 11/21/08, 12/5/08, 12/12/08,
12/19/08, 12/23/08, 12/31/08, 1/9/09, 1/16/09).
10/14/2008: Treasury Capital Purchase Program (CPP) and FDIC and
Federal Reserve programs announced.
11/23/2008: Treasury, FDIC and Federal Reserve announce agreement to
provide capital and protect against large losses at Citigroup.
11/25/2008: Federal Reserve program to purchase mortgage-backed
securities (MBS) and government sponsored enterprise (GSE) debt
announced.
Sources: Federal Reserve System and Global Insight.
Note: Rates and yields are weekly percentages. The Federal Reserve
announced an early January start for MBS and GSE debt purchases on
December 30, 2008.
[End of figure]
Mortgage Originations:
Like other bank interest rates, mortgage rates may reflect the
customers to whom banks choose to lend, rather than the cost of credit
for all potential customers. As such, the volume of new mortgage
lending also may indicate the availability of credit, changes in credit
risk, or demand for credit. As shown in figure 6, quarterly mortgage
originations in the United States have fallen by more than 50 percent
since 2005.[Footnote 83] While mortgage interest rates have fallen,
mortgage lending has decreased. To the extent that credit and economic
conditions improve over time and interest rates remain stable, we would
expect mortgage originations to stop declining and eventually rise,
although it is not clear that this measure would or should return to
the level seen in the period leading up to the credit market turmoil.
As figure 6 shows, the decline in origination was associated with a
decline in mortgage applications--from the first quarter to the third
quarter of 2008 both the average applications index and mortgage
originations declined by 39 percent. While mortgage applications
increased significantly during the fourth quarter of 2008, we do not
have recent data on originations for comparative purposes. In
subsequent reports, we will provide an update on mortgage originations
as the quarterly data become available.[Footnote 84]
Figure 6: Mortgage Originations and Mortgage Applications Index, as of
September 30, 2008:
[Refer to PDF for image]
This figure is a combination vertical bar and line graph depicting the
following data:
Date: 2004, Q1;
Mortgage originations: $647 billion;
Mortgage applications index: 859.7.
Date: 2004, Q2;
Mortgage originations: $847 billion;
Mortgage applications index: 742.3.
Date: 2004, Q3;
Mortgage originations: $707 billion;
Mortgage applications index: 655.4.
Date: 2004, Q4;
Mortgage originations: $718 billion;
Mortgage applications index: 598.5.
Date: 2005, Q1;
Mortgage originations: $665 billion;
Mortgage applications index: 683.9.
Date: 2005, Q2;
Mortgage originations: $790 billion;
Mortgage applications index: 781.1.
Date: 2005, Q3;
Mortgage originations: $875 billion;
Mortgage applications index: 762.1.
Date: 2005, Q4;
Mortgage originations: $790 billion;
Mortgage applications index: 547.1.
Date: 2006, Q1;
Mortgage originations: $705 billion;
Mortgage applications index: 581.3.
Date: 2006, Q2;
Mortgage originations: $800 billion;
Mortgage applications index: 604.6.
Date: 2006, Q3;
Mortgage originations: $755 billion;
Mortgage applications index: 562.4.
Date: 2006, Q4;
Mortgage originations: $720 billion;
Mortgage applications index: 541.8.
Date: 2007, Q1;
Mortgage originations: $680 billion;
Mortgage applications index: 637.6.
Date: 2007, Q2;
Mortgage originations: $730 billion;
Mortgage applications index: 694.3.
Date: 2007, Q3;
Mortgage originations: $570 billion;
Mortgage applications index: 634.8.
Date: 2007, Q4;
Mortgage originations: $450 billion;
Mortgage applications index: 601.
Date: 2008, Q1;
Mortgage originations: $490 billion;
Mortgage applications index: 826.9.
Date: 2008, Q2;
Mortgage originations: $445 billion;
Mortgage applications index: 632.
Date: 2008, Q3;
Mortgage originations: $300 billion;
Mortgage applications index: 481.5.
Sources: Inside Mortgage Finance estimates and Global Insight.
Note: Estimates of originations are based on information from the
Federal Housing Administration, Veterans Administration, and mortgage-
backed securities and lenders and include refinances.
[End of figure]
Mortgage Foreclosures and Defaults:
We will continue to report on trends in foreclosures and delinquencies.
As we have testified, foreclosures not only affect those losing their
homes but also their neighborhoods, and have contributed to increased
volatility in the financial markets.[Footnote 85] Treasury officials
have urged banks to modify and restructure loans whenever reasonable to
avoid preventable foreclosures.[Footnote 86] Moreover, if TARP is
effective, banks may be more able to refinance mortgage loans for
creditworthy borrowers to keep monthly payments affordable. While it is
too early to expect material changes in foreclosures, and the most
recent data preclude an assessment of trends since TARP began, figure 7
establishes the historical context for continued monitoring. As the
figure shows, the percentage of total loan foreclosures reached 2.97
percent at the end of the third quarter of 2008--a level unseen in the
29 years for which complete data on defaults and foreclosures have been
kept. As noted earlier, a variety of parties outside of TARP are taking
actions to address the rising foreclosure rate.
Figure 7: Percentage of Loans in Foreclosure, as of September 30, 2008:
[Refer to PDF for image]
This figure contains a line graph and a sub-graph, depicting the
following data:
Percentage of Loans in Foreclosure:
Date: Q1 1979
Foreclosure rate: 0.31%.
Date: Q2 1979
Foreclosure rate: 0.3%.
Date: Q3 1979
Foreclosure rate: 0.27%.
Date: Q4 1979
Foreclosure rate: 0.29%.
Date: Q1 1980
Foreclosure rate: 0.32%.
Date: Q2 1980
Foreclosure rate: 0.32%.
Date: Q3 1980
Foreclosure rate: 0.33%.
Date: Q4 1980
Foreclosure rate: 0.38%.
Date: Q1 1981
Foreclosure rate: 0.44%.
Date: Q2 1981
Foreclosure rate: 0.41%.
Date: Q3 1981
Foreclosure rate: 0.41%.
Date: Q4 1981
Foreclosure rate: 0.44%.
Date: Q1 1982
Foreclosure rate: 0.53%.
Date: Q2 1982
Foreclosure rate: 0.55%.
Date: Q3 1982
Foreclosure rate: 0.62%.
Date: Q4 1982
Foreclosure rate: 0.67%.
Date: Q1 1983
Foreclosure rate: 0.71%.
Date: Q2 1983
Foreclosure rate: 0.66%.
Date: Q3 1983
Foreclosure rate: 0.66%.
Date: Q4 1983
Foreclosure rate: 0.67%.
Date: Q1 1984
Foreclosure rate: 0.68%.
Date: Q2 1984
Foreclosure rate: 0.63%.
Date: Q3 1984
Foreclosure rate: 0.68%.
Date: Q4 1984
Foreclosure rate: 0.73%.
Date: Q1 1985
Foreclosure rate: 0.79%.
Date: Q2 1985
Foreclosure rate: 0.76%.
Date: Q3 1985
Foreclosure rate: 0.75%.
Date: Q4 1985
Foreclosure rate: 0.81%.
Date: Q1 1986
Foreclosure rate: 0.87%.
Date: Q2 1986
Foreclosure rate: 0.92%.
Date: Q3 1986
Foreclosure rate: 0.92%.
Date: Q4 1986
Foreclosure rate: 0.98%.
Date: Q1 1987
Foreclosure rate: 1.09%.
Date: Q2 1987
Foreclosure rate: 1.12%.
Date: Q3 1987
Foreclosure rate: 1.03%.
Date: Q4 1987
Foreclosure rate: 1.06%.
Date: Q1 1988
Foreclosure rate: 1.07%.
Date: Q2 1988
Foreclosure rate: 1.03%.
Date: Q3 1988
Foreclosure rate: 1%.
Date: Q4 1988
Foreclosure rate: 0.95%.
Date: Q1 1989
Foreclosure rate: 0.95%.
Date: Q2 1989
Foreclosure rate: 1.06%.
Date: Q3 1989
Foreclosure rate: 0.99%.
Date: Q4 1989
Foreclosure rate: 0.98%.
Date: Q1 1990
Foreclosure rate: 0.97%.
Date: Q2 1990
Foreclosure rate: 0.93%.
Date: Q3 1990
Foreclosure rate: 0.93%.
Date: Q4 1990
Foreclosure rate: 0.94%.
Date: Q1 1991
Foreclosure rate: 0.97%.
Date: Q2 1991
Foreclosure rate: 0.96%.
Date: Q3 1991
Foreclosure rate: 0.98%.
Date: Q4 1991
Foreclosure rate: 1.04%.
Date: Q1 1992
Foreclosure rate: 1.04%.
Date: Q2 1992
Foreclosure rate: 1.04%.
Date: Q3 1992
Foreclosure rate: 1.04%.
Date: Q4 1992
Foreclosure rate: 1.02%.
Date: Q1 1993
Foreclosure rate: 1%.
Date: Q2 1993
Foreclosure rate: 1.02%.
Date: Q3 1993
Foreclosure rate: 1.01%.
Date: Q4 1993
Foreclosure rate: 0.96%.
Date: Q1 1994
Foreclosure rate: 0.94%.
Date: Q2 1994
Foreclosure rate: 1.03%.
Date: Q3 1994
Foreclosure rate: 0.92%.
Date: Q4 1994
Foreclosure rate: 0.86%.
Date: Q1 1995
Foreclosure rate: 0.86%.
Date: Q2 1995
Foreclosure rate: 0.88%.
Date: Q3 1995
Foreclosure rate: 0.91%.
Date: Q4 1995
Foreclosure rate: 0.87%.
Date: Q1 1996
Foreclosure rate: 0.95%.
Date: Q2 1996
Foreclosure rate: 0.96%.
Date: Q3 1996
Foreclosure rate: 1%.
Date: Q4 1996
Foreclosure rate: 1.03%.
Date: Q1 1997
Foreclosure rate: 1.08%.
Date: Q2 1997
Foreclosure rate: 1.08%.
Date: Q3 1997
Foreclosure rate: 1.09%.
Date: Q4 1997
Foreclosure rate: 1.11%.
Date: Q1 1998
Foreclosure rate: 1.17%.
Date: Q2 1998
Foreclosure rate: 1.12%.
Date: Q3 1998
Foreclosure rate: 1.17%.
Date: Q4 1998
Foreclosure rate: 1.17%.
Date: Q1 1999
Foreclosure rate: 1.22%.
Date: Q2 1999
Foreclosure rate: 1.18%.
Date: Q3 1999
Foreclosure rate: 1.11%.
Date: Q4 1999
Foreclosure rate: 1.17%.
Date: Q1 2000
Foreclosure rate: 1.17%.
Date: Q2 2000
Foreclosure rate: 1.03%.
Date: Q3 2000
Foreclosure rate: 1.09%.
Date: Q4 2000
Foreclosure rate: 1.16%.
Date: Q1 2001
Foreclosure rate: 1.24%.
Date: Q2 2001
Foreclosure rate: 1.29%.
Date: Q3 2001
Foreclosure rate: 1.34%.
Date: Q4 2001
Foreclosure rate: 1.46%.
Date: Q1 2002
Foreclosure rate: 1.51%.
Date: Q2 2002
Foreclosure rate: 1.46%.
Date: Q3 2002
Foreclosure rate: 1.49%.
Date: Q4 2002
Foreclosure rate: 1.46%.
Date: Q1 2003
Foreclosure rate: 1.43%.
Date: Q2 2003
Foreclosure rate: 1.35%.
Date: Q3 2003
Foreclosure rate: 1.24%.
Date: Q4 2003
Foreclosure rate: 1.29%.
Date: Q1 2004
Foreclosure rate: 1.29%.
Date: Q2 2004
Foreclosure rate: 1.18%.
Date: Q3 2004
Foreclosure rate: 1.16%.
Date: Q4 2004
Foreclosure rate: 1.15%.
Date: Q1 2005
Foreclosure rate: 1.08%.
Date: Q2 2005
Foreclosure rate: 1%.
Date: Q3 2005
Foreclosure rate: 0.97%.
Date: Q4 2005
Foreclosure rate: 0.99%.
Date: Q1 2006
Foreclosure rate: 0.98%.
Date: Q2 2006
Foreclosure rate: 0.99%.
Date: Q3 2006
Foreclosure rate: 1.05%.
Date: Q4 2006
Foreclosure rate: 1.19%.
Date: Q1 2007
Foreclosure rate: 1.28%.
Date: Q2 2007
Foreclosure rate: 1.4%.
Date: Q3 2007
Foreclosure rate: 1.69%.
Date: Q4 2007
Foreclosure rate: 2.04%.
Date: Q1 2008
Foreclosure rate: 2.47%.
Date: Q2 2008
Foreclosure rate: 2.75%.
Source: GAO analysis of Global Insight data.
[End of figure]
In addition to the preliminary indicators previously identified, we
continue to evaluate the potential usefulness of other indicators. This
list is not definitive or exhaustive, and we expect to add new
indicators and modify or drop others as we engage with Treasury, the
Federal Reserve, and other informed market participants. Moreover, some
measures included may become more appropriate indicators as time
progresses. The indicators we are monitoring include the federal funds
and prime lending rates, the Federal Reserve's survey of lending
standards, commercial paper interest rates, changes in assets held by
commercial banks, changes in household and business debt, stock prices
and volatility, and housing prices. Many data sources are updated only
on a quarterly basis and with a lag (for example, the Federal Reserve's
flow of funds); thus, we are not yet able to assess the impact of TARP
from many of these sources.
Conclusions:
Treasury has taken important steps to implement all nine
recommendations in our previous report. In particular, our
recommendation calling for Treasury to facilitate a smooth transition
to the new administration largely has been completed. However, due in
part to the short time frame since our last report, continued action is
needed to fully address the remaining eight. Appendix IV provides a
high-level summary prepared by Treasury of the progress it has made on
each recommendation since our last report as well as some planned next
steps.
During this period, Treasury has begun to take a number of important
steps toward better reporting and monitoring of CPP, in accordance with
our prior recommendations that Treasury bolster its ability to
determine whether institutions were using the proceeds consistent with
the purposes of the act and that it establish mechanisms to monitor
compliance with program requirements, but more needs to be done. First,
while Treasury has announced plans to survey the largest institutions
monthly to monitor their lending and other activities by collecting
qualitative and quantitative information, Treasury plans to rely on
quarterly financial (call report) data from the other participating
institutions. While the monthly survey is a step toward greater
transparency and accountability for the largest institutions, we
continue to believe that additional action is needed to better ensure
that all participating institutions are accountable for their use of
the funds. Without more frequent information on all participants,
Treasury will have little timely information about the effectiveness of
the overall program and the changing condition of the institutions and
may limit the ability of its newly created team of analysts to analyze
how the infusions are being used by the institutions and the
effectiveness of the program. In addition, without ensuring that future
CPP agreements include a mechanism that will better enable Treasury to
track the use of capital infusions and seeking to obtain similar
information from existing CPP participants, Treasury may have
difficulty taking action should it later determine that an institution
has not used the funds in a manner consistent with the intent of the
program.
Second, Treasury has continued to take steps to increase its planned
oversight of compliance with terms of agreements such as executive
compensation and limitations on dividends and stock repurchases,
including plans to issue new interim final rules that amend and clarify
the past interim rules on executive compensation and naming an Interim
Chief Compliance Officer. However, Treasury has not yet finalized these
plans. Without a more structured mechanism in place to ensure
compliance with all CPP requirements, including limitations on
dividends and stock repurchases--and as more institutions continue to
participate in the program--ensuring compliance with these aspects of
the program will become increasingly important and challenging.
Treasury has made less progress in improving the transparency of the
program and has not yet articulated a clear strategic vision for TARP.
In our December 2008 report, we raised questions about the
effectiveness of Treasury's communication strategy for TARP with
Congress, the financial markets, and the public. These questions were
further heightened in COP's January report, which also raised questions
about Treasury's strategy for TARP. In response to our recommendation
about its communication strategy, Treasury noted numerous publicly
available reports, testimonies, and speeches. However, even after
reviewing these items collectively, Treasury's strategic vision for
TARP remains unclear. For example, early on Treasury outlined a
strategy and approach to purchase whole loans and mortgage-backed
securities from financial institutions, but changed direction to making
capital investments in qualifying financial institutions as the global
community opted to move in this direction. Moreover, once Treasury
determined that capital infusions were preferable to purchasing whole
mortgages and mortgage-backed securities, Treasury did not clearly
articulate how the various programs (such CPP, SSFI, and TIP) would
work collectively to help stabilize financial markets. For instance,
Treasury has used similar approaches--capital infusions--to stabilize
healthy institutions under CPP as well as SSFI and TIP, albeit with
more stringent requirements. Moreover, with the exception of
institutions selected for TIP being viewed as able to raise private
capital, both SSFI and TIP share similar selection criteria. Finally,
the same institution may be eligible for multiple programs--at least
two institutions currently participate in more than one program--and
this has added to confusion about Treasury's strategy and vision for
the implementation of TARP.
Other actions have raised additional questions about Treasury's
strategy. First, the funding of the first institution to receive
funding under TIP was announced weeks before the program was
established. Similarly, the Asset Guarantee Program was established
after Treasury announced that it would guarantee assets under such a
program, and many of the details of the program have yet to be worked
out. Second, Treasury's efforts to mitigate residential foreclosures,
which have contributed to increased volatility in financial markets,
remain in the design phase with no clearly articulated strategy.
Finally, while Treasury has continued to publicly report on individual
issues, testify, and make speeches about the program, it continues to
struggle to convey a clearly articulated and overarching message about
its efforts, potentially hampering TARP's effectiveness and
underscoring ongoing questions about its communication strategy.
Without a clearly articulated strategic vision, Treasury's
effectiveness in helping to stabilize markets may be hampered.
Treasury also has made progress in establishing its management
infrastructure, which included hiring, contracting oversight, and
internal controls.
* In the hiring area, Treasury took steps to help maintain leadership
within OFS during and after the transition to the new administration,
one of the areas we highlighted in our first report. Specifically,
Treasury ensured that interim chief positions would be filled to ensure
a smooth transition and used direct-hire and various other appointments
to bring a number of career staff on board quickly. While making
progress since our last report in establishing the TARP organization,
the number of temporary and contract staff who will be needed to serve
long-term organizational needs remains unknown. Because TARP has added
many new programs since it was first established in October and the
number and types of program activities may expand or change under the
new administration, we recognize that Treasury may find it difficult to
determine OFS's long-term organizational needs at this time. However,
such considerations will be vital to retaining institutional knowledge
within the organization as programs evolve.
* Treasury's use of existing contract flexibilities has enabled it to
enter into agreements and award contracts quickly in support of TARP.
However, Treasury's use of time-and-materials contracts, although
authorized when flexibility is needed, can increase the risk of wasted
government dollars without adequate oversight of contractor
performance. Although Treasury has improved its oversight of
contractors, the department itself has identified COTR certification
and the use of time-and-materials pricing to be high-risk issues that
still need attention. In addition, while Treasury has taken the
important step of recently issuing an interim regulation outlining the
process for reviewing and addressing conflicts of interest among new
contractors and financial agents, it is still reviewing contracts or
agreements that existed prior to issuance to ensure conformity with the
new regulation. We believe this is a necessary component of a
comprehensive and complete system to ensure that all conflicts are
fully identified and appropriately addressed.
* In the area of internal controls, Treasury has taken some important
steps, including OFS adopting a framework for organizing the
development and implementation of its system of internal control for
TARP activities. OFS plans to use this framework to develop specific
policies, drive communications on expectations, and measure compliance
with internal control standards and policies. However, it has yet to
develop comprehensive written policies and procedures governing TARP
activities or implement a disciplined risk-assessment process.
Finally, because TARP is still in the early stages of implementation as
well as other complicating factors, isolating its impact on credit
markets continues to be difficult. However, some indicators demonstrate
that since our last report, the cost of credit has declined in
interbank, mortgage, and corporate debt markets. Conversely, while
perceptions of risk (as measured by premiums over Treasury bonds) have
declined in interbank markets, they appear to have changed little in
the corporate bond and mortgage markets. Attributing any of these
changes directly to TARP continues to be problematic because of the
range of actions that have been and are being taken to address the
current crisis. For example, a large drop in mortgage rates occurred
shortly after the Federal Reserve announced it would purchase up to
$500 billion in mortgage-backed securities, highlighting that policies
outside of TARP may have important effects on credit markets. While
these indicators may be suggestive of TARP's ongoing impact, no single
indicator or set of indicators will provide a definitive determination
of the program's impact.
Recommendations for Executive Action:
As with our previous 60-day report, we continue to identify a number of
areas that warrant Treasury's ongoing attention concerning TARP.
Therefore, we recommend that Treasury take the following nine actions
to further improve the integrity, transparency, and accountability of
the program and more clearly articulate and communicate a strategic
vision:
* Expand the scope of planned monthly CPP surveys to include collecting
at least some information from all institutions participating in the
program.
* Ensure that future CPP agreements include a mechanism that will
better enable Treasury to track the use of the capital infusions and
seek to obtain similar information from existing CPP participants.
* Establish a process to ensure compliance with all CPP requirements,
including those associated with limitations on dividends and stock
repurchase restrictions.
* Communicate a clearly articulated vision for TARP and how all
individual programs are intended to work in concert to achieve that
vision. This vision should incorporate actions to preserve
homeownership. Once this vision is clearly articulated, Treasury should
document needed skills and competencies.
* Continue to expeditiously hire personnel needed to carry out and
oversee TARP.
* Expedite efforts to ensure that sufficient personnel are assigned and
properly trained to oversee the performance of all contractors,
especially for contracts priced on a time-and-materials basis, and move
toward fixed-price arrangements whenever possible as program
requirements are better defined over time.
* Develop a comprehensive system of internal control over TARP
activities, including policies, procedures, and guidance that are
robust enough to ensure that the program's objectives and requirements
are met.
* Develop and implement a well-defined and disciplined risk-assessment
process, as such a process is essential to monitoring program status
and identifying any risks of potential inadequate funding of announced
programs.
* Review and renegotiate existing conflict-of-interest mitigation
plans, as necessary, to enhance specificity and conformity with the new
interim conflicts of interest regulation, and take continued steps to
manage and monitor conflicts of interest and enforce mitigation plans.
Agency Comments and Our Analysis:
We provided a draft of this report to the Department of the Treasury
for review and comment. We also provided segments of the draft to the
Federal Reserve, FDIC, OCC, and OTS for review and comment. In written
comments, Treasury generally agreed with the report and noted that the
recommendations were constructive (see appendix I). They also noted
that while TARP has only been in existence for 120 days, Treasury had
made significant progress implementing internal controls, promulgating
regulations, hiring staff, and communicating its activities to the
public. Moreover, they noted that Treasury has taken steps to measure
lending activities of the banks that have received TARP capital.
However, they agreed that more work remains to be done in each of the
areas highlighted in the report. Treasury also mentioned its recent
actions involving the auto industry and additional investments in
Citigroup and Bank of America. While we describe the programs
established to make these investments, we have not evaluated the need
for any of the programs. In subsequent reports we plan to focus on the
process used to make the decisions to establish those programs, whether
Treasury has systems in place to ensure that the institutions are
complying with the terms and conditions of the agreements, and whether
the programs are achieving their stated goals. Treasury and three of
the federal regulators also provided technical comments that we
incorporated, as appropriate.
We are sending copies of this report to the Special Inspector General
for TARP and interested congressional committees and members, Treasury,
the federal banking regulators, and others. The report also is
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact Richard J. Hillman at (202) 512-8678 or hillmanr@gao.gov,
Thomas J. McCool at (202) 512-2642 or mccoolt@gao.gov, or Orice M.
Williams at (202) 512-8678 or williamso@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix V.
Signed by:
Gene L. Dodaro:
Acting Comptroller General of the United States:
List of Congressional Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Christopher J. Dodd:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Kent Conrad:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Committee on the Budget:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable David R. Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable John M. Spratt, Jr.
Chairman:
The Honorable Paul Ryan:
Ranking Member:
Committee on the Budget:
House of Representatives:
The Honorable Barney Frank:
Chairman:
The Honorable Spencer Bachus:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Charles B. Rangel:
Chairman:
The Honorable Dave Camp:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: Comments from the Department of the Treasury:
Assistant Secretary:
Department Of The Treasury:
Washington, D.C.
January 28, 2009:
Mr. Thomas J. McCool:
Director, Center for Economics, Applied Research and Methods:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. McCool:
Thank you for the opportunity to review GAO's draft report on the
Treasury Department's Troubled Assets Relief Program (TARP).
In its previous report, GAO made nine recommendations for building this
very young program into a mature and highly effective organization. The
program is still very young - less than 120 days old - and we therefore
welcome GAO's conclusion that "Treasury has taken important steps to
implement all nine recommendations in the previous report." As
described in our Summary Response to Recommendations in the December
2008 GAO Report, included in your latest report, Treasury has made
significant progress implementing internal controls, promulgating
regulations, hiring staff, and communicating its activities to the
public. The Treasury Department has also initiated a program to measure
the lending activities of the banks that have received TARP capital.
GAO's latest report tells us that we are on the right path. We agree
that more work remains to be done in each of these areas, and
Treasury's dedicated team will continue to move the program forward
rapidly.
The Treasury Department made important progress in addressing GAO's
recommendations while taking extraordinary actions to stabilize the
financial system. Since its inception in October 2008, the Capital
Purchase Program (CPP) has strengthened regional, small and large
financial institutions, as well as Community Development Financial
Institutions, through total investments of $194.2 billion in 317
institutions in 43 states and Puerto Rico. To date, the largest
investment is $25 billion and the smallest investment is approximately
$1 million. With additional capital, banks are better able to meet the
lending needs of their customers and businesses have greater access to
the credit they need to keep operating and growing.
When faced with imminent, disorderly bankruptcies of major auto
companies, the Treasury Department made emergency loans under the TARP,
stabilizing the sector to put the companies on a path to achieve long-
term viability. Treasury also made significant necessary investments in
Citigroup and Bank of America. GAO's thoughtful and very constructive
report does not question the necessity for these investments. It does
recommend better communication about Treasury's strategy and better
information about how financial institutions are using taxpayer funds.
Treasury made progress in both areas since GAO's last report, and more
will be done in the coming months.
Thank you for the opportunity to comment on this draft report and for
its very constructive recommendations. We look forward to continuing
our active dialogue with the GAO's team.
Sincerely,
Signed by:
Neel Kashkari:
Interim Assistant Secretary for Financial Stability:
[End of section]
Appendix II: CPP Transactions as of January 23, 2009:
Date: 10/28/08;
Bank: Bank of America Corporation;
State: NC;
Capital Purchase: $15,000,000,000;
Total assets as of 9/30/08: $1,831,000,000,000.
Date: 10/28/08;
Bank: Bank of New York Mellon Corporation;
State: NY;
Capital Purchase: 3,000,000,000;
Total assets as of 9/30/08: 268,000,000,000.
Date: 10/28/08;
Bank: Citigroup Inc.;
State: NY;
Capital Purchase: 25,000,000,000;
Total assets as of 9/30/08: 2,050,000,000,000.
Date: 10/28/08;
Bank: JPMorgan Chase & Co.;
State: NY;
Capital Purchase: 25,000,000,000;
Total assets as of 9/30/08: 2,251,000,000,000.
Date: 10/28/08;
Bank: Morgan Stanley;
State: NY;
Capital Purchase: 10,000,000,000;
Total assets as of 9/30/08: 987,000,000,000.
Date: 10/28/08;
Bank: State Street Corporation;
State: MA;
Capital Purchase: 2,000,000,000;
Total assets as of 9/30/08: 286,000,000,000.
Date: 10/28/08;
Bank: The Goldman Sachs Group, Inc.;
State: NY;
Capital Purchase: 10,000,000,000;
Total assets as of 9/30/08: 1,082,000,000,000.
Date: 10/28/08;
Bank: Wells Fargo & Company;
State: CA;
Capital Purchase: 25,000,000,000;
Total assets as of 9/30/08: 1,371,000,000,000.
Subtotal:
Capital Purchase: 115,000,000,000;
Total assets as of 9/30/08: 10,126,000,000,000.
Date: 11/14/08;
Bank: 1st FS Corporation;
State: NC;
Capital Purchase: 16,369,000;
Total assets as of 9/30/08: 670,000,000.
Date: 11/14/08;
Bank: Bank of Commerce Holdings;
State: CA;
Capital Purchase: 17,000,000;
Total assets as of 9/30/08: 651,000,000.
Date: 11/14/08;
Bank: BB&T Corp.;
State: NC;
Capital Purchase: 3,133,640,000;
Total assets as of 9/30/08: 137,041,000,000.
Date: 11/14/08;
Bank: Broadway Financial Corporation;
State: CA;
Capital Purchase: 9,000,000;
Total assets as of 9/30/08: $404,000,000.
Date: 11/14/08;
Bank: Capital One Financial Corporation;
State: VA;
Capital Purchase: 3,555,199,000;
Total assets as of 9/30/08: 154,803,000,000.
Date: 11/14/08;
Bank: Comerica Inc.;
State: TX;
Capital Purchase: 2,250,000,000;
Total assets as of 9/30/08: 65,153,000,000.
Date: 11/14/08;
Bank: First Horizon National Corporation;
State: TN;
Capital Purchase: 866,540,000;
Total assets as of 9/30/08: 32,804,000,000.
Date: 11/14/08;
Bank: Huntington Bancshares;
State: OH;
Capital Purchase: 1,398,071,000;
Total assets as of 9/30/08: 54,661,000,000.
Date: 11/14/08;
Bank: KeyCorp;
State: OH;
Capital Purchase: 2,500,000,000;
Total assets as of 9/30/08: 101,290,000,000.
Date: 11/14/08;
Bank: Marshall & Ilsley Corporation;
State: WI;
Capital Purchase: 1,715,000,000;
Total assets as of 9/30/08: 63,501,000,000.
Date: 11/14/08;
Bank: Northern Trust Corporation;
State: IL;
Capital Purchase: 1,576,000,000;
Total assets as of 9/30/08: 79,244,000,000.
Date: 11/14/08;
Bank: Provident Bancshares Corp.;
State: MD;
Capital Purchase: 151,500,000;
Total assets as of 9/30/08: 6,410,000,000.
Date: 11/14/08;
Bank: Regions Financial Corp.;
State: AL;
Capital Purchase: 3,500,000,000;
Total assets as of 9/30/08: 144,292,000,000.
Date: 11/14/08;
Bank: SunTrust Banks, Inc.;
State: GA;
Capital Purchase: 3,500,000,000;
Total assets as of 9/30/08: 174,777,000,000.
Date: 11/14/08;
Bank: TCF Financial Corporation;
State: MN;
Capital Purchase: 361,172,000;
Total assets as of 9/30/08: 16,511,000,000.
Date: 11/14/08;
Bank: U.S. Bancorp;
State: MN;
Capital Purchase: 6,599,000,000;
Total assets as of 9/30/08: 247,055,000,000.
Date: 11/14/08;
Bank: UCBH Holdings, Inc.;
State: CA;
Capital Purchase: 298,737,000;
Total assets as of 9/30/08: 13,044,000,000.
Date: 11/14/08;
Bank: Umpqua Holdings Corp.;
State: OR;
Capital Purchase: 214,181,000;
Total assets as of 9/30/08: 8,328,000,000.
Date: 11/14/08;
Bank: Valley National Bancorp;
State: NJ;
Capital Purchase: 300,000,000;
Total assets as of 9/30/08: 14,288,000,000.
Date: 11/14/08;
Bank: Washington Federal Inc.;
State: WA;
Capital Purchase: 200,000,000;
Total assets as of 9/30/08: 11,795,000,000.
Date: 11/14/08;
Bank: Zions Bancorporation;
State: UT;
Capital Purchase: 1,400,000,000;
Total assets as of 9/30/08: 53,974,000,000.
Subtotal:
Capital Purchase: 33,561,409,000;
Total assets as of 9/30/08: 1,380,696,000,000.
Date: 11/21/08;
Bank: Ameris Bancorp;
State: GA;
Capital Purchase: 52,000,000;
Total assets as of 9/30/08: 2,258,000,000.
Date: 11/21/08;
Bank: Associated Banc-Corp;
State: WI;
Capital Purchase: 525,000,000;
Total assets as of 9/30/08: 22,487,000,000.
Date: 11/21/08;
Bank: Banner Corporation;
State: WA;
Capital Purchase: 124,000,000;
Total assets as of 9/30/08: 4,650,000,000.
Date: 11/21/08;
Bank: Boston Private Financial Holdings, Inc.;
State: MA;
Capital Purchase: 154,000,000;
Total assets as of 9/30/08: 7,022,000,000.
Date: 11/21/08;
Bank: Cascade Financial Corporation;
State: WA;
Capital Purchase: 38,970,000;
Total assets as of 9/30/08: 1,552,000,000.
Date: 11/21/08;
Bank: Centerstate Banks of Florida Inc.;
State: FL;
Capital Purchase: 27,875,000;
Total assets as of 9/30/08: 1,235,000,000.
Date: 11/21/08;
Bank: City National Corporation;
State: CA;
Capital Purchase: 400,000,000;
Total assets as of 9/30/08: 16,331,000,000.
Date: 11/21/08;
Bank: Columbia Banking System, Inc.;
State: WA;
Capital Purchase: 76,898,000;
Total assets as of 9/30/08: 3,105,000,000.
Date: 11/21/08;
Bank: First Community Bankshares Inc.;
State: VA;
Capital Purchase: 41,500,000;
Total assets as of 9/30/08: 1,967,000,000.
Date: 11/21/08;
Bank: First Community Corporation;
State: SC;
Capital Purchase: 11,350,000;
Total assets as of 9/30/08: 634,000,000.
Date: 11/21/08;
Bank: First Niagara Financial Group;
State: NY;
Capital Purchase: 184,011,000;
Total assets as of 9/30/08: 9,008,000,000.
Date: 11/21/08;
Bank: First PacTrust Bancorp, Inc.;
State: CA;
Capital Purchase: 19,300,000;
Total assets as of 9/30/08: 846,000,000.
Date: 11/21/08;
Bank: Heritage Commerce Corp.;
State: CA;
Capital Purchase: 40,000,000;
Total assets as of 9/30/08: 1,512,000,000.
Date: 11/21/08;
Bank: Heritage Financial Corporation;
State: WA;
Capital Purchase: 24,000,000;
Total assets as of 9/30/08: 905,000,000.
Date: 11/21/08;
Bank: HF Financial Corp.;
State: SD;
Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 1,128,000,000.
Date: 11/21/08;
Bank: Nara Bancorp, Inc.;
State: CA;
Capital Purchase: 67,000,000;
Total assets as of 9/30/08: 2,598,000,000.
Date: 11/21/08;
Bank: Pacific Capital Bancorp;
State: CA;
Capital Purchase: 180,634,000;
Total assets as of 9/30/08: 7,689,000,000.
Date: 11/21/08;
Bank: Porter Bancorp Inc.;
State: KY;
Capital Purchase: 35,000,000;
Total assets as of 9/30/08: 1,596,000,000.
Date: 11/21/08;
Bank: Severn Bancorp, Inc.;
State: MD;
Capital Purchase: 23,393,000;
Total assets as of 9/30/08: 964,000,000.
Date: 11/21/08;
Bank: Taylor Capital Group;
State: IL;
Capital Purchase: 104,823,000;
Total assets as of 9/30/08: 4,075,000,000.
Date: 11/21/08;
Bank: Trustmark Corporation;
State: MS;
Capital Purchase: 215,000,000;
Total assets as of 9/30/08: 9,086,000,000.
Date: 11/21/08;
Bank: Webster Financial Corporation;
State: CT;
Capital Purchase: 400,000,000;
Total assets as of 9/30/08: 17,516,000,000.
Date: 11/21/08;
Bank: Western Alliance Bancorporation;
State: NV;
Capital Purchase: 140,000,000;
Total assets as of 9/30/08: 5,229,000,000.
Subtotal:
Capital Purchase: 2,909,754,000;
Total assets as of 9/30/08: 123,393,000,000.
Date: 12/5/08;
Bank: Bank of Marin Bancorp;
State: CA;
Capital Purchase: 28,000,000;
Total assets as of 9/30/08: 985,000,000.
Date: 12/5/08;
Bank: Bank of North Carolina;
State: NC;
Capital Purchase: 31,260,000;
Total assets as of 9/30/08: 1,263,000,000.
Date: 12/5/08;
Bank: Blue Valley Ban Corp.;
State: KS;
Capital Purchase: 21,750,000;
Total assets as of 9/30/08: 788,000,000.
Date: 12/5/08;
Bank: Cathay General Bancorp;
State: CA;
Capital Purchase: 258,000,000;
Total assets as of 9/30/08: 11,055,000,000.
Date: 12/5/08;
Bank: Central Bancorp, Inc.;
State: MA;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 542,000,000.
Date: 12/5/08;
Bank: Central Federal Corporation;
State: OH;
Capital Purchase: 7,225,000;
Total assets as of 9/30/08: 281,000,000.
Date: 12/5/08;
Bank: Coastal Banking Company, Inc.;
State: FL;
Capital Purchase: 9,950,000;
Total assets as of 9/30/08: 441,000,000.
Date: 12/5/08;
Bank: CVB Financial Corp.;
State: CA;
Capital Purchase: 130,000,000;
Total assets as of 9/30/08: 6,422,000,000.
Date: 12/5/08;
Bank: Eagle Bancorp, Inc.;
State: MD;
Capital Purchase: 38,235,000;
Total assets as of 9/30/08: 1,458,000,000.
Date: 12/5/08;
Bank: East West Bancorp, Inc.;
State: CA;
Capital Purchase: 306,546,000;
Total assets as of 9/30/08: 11,722,000,000.
Date: 12/5/08;
Bank: Encore Bancshares, Inc.;
State: TX;
Capital Purchase: 34,000,000;
Total assets as of 9/30/08: 1,478,000,000.
Date: 12/5/08;
Bank: First Defiance Financial Corp.;
State: OH;
Capital Purchase: 37,000,000;
Total assets as of 9/30/08: 1,922,000,000.
Date: 12/5/08;
Bank: First Financial Holdings, Inc.;
State: SC;
Capital Purchase: 65,000,000;
Total assets as of 9/30/08: 2,974,000,000.
Date: 12/5/08;
Bank: First Midwest Bancorp, Inc.;
State: IL;
Capital Purchase: 193,000,000;
Total assets as of 9/30/08: 8,247,000,000.
Date: 12/5/08;
Bank: FPB Bancorp, Inc.;
State: FL;
Capital Purchase: 5,800,000;
Total assets as of 9/30/08: 231,000,000.
Date: 12/5/08;
Bank: Great Southern Bancorp, Inc.;
State: MO;
Capital Purchase: 58,000,000;
Total assets as of 9/30/08: 2,528,000,000.
Date: 12/5/08;
Bank: IBERIABANK Corporation;
State: LA;
Capital Purchase: 90,000,000;
Total assets as of 9/30/08: 5,351,000,000.
Date: 12/5/08;
Bank: Manhattan Bancorp;
State: CA;
Capital Purchase: 1,700,000;
Total assets as of 9/30/08: 72,000,000.
Date: 12/5/08;
Bank: MB Financial, Inc.;
State: IL;
Capital Purchase: 196,000,000;
Total assets as of 9/30/08: 8,359,000,000.
Date: 12/5/08;
Bank: Midwest Banc Holdings, Inc.;
State: IL;
Capital Purchase: 84,784,000;
Total assets as of 9/30/08: 3,583,000,000.
Date: 12/5/08;
Bank: Oak Valley Bancorp;
State: CA;
Capital Purchase: 13,500,000;
Total assets as of 9/30/08: 490,000,000.
Date: 12/5/08;
Bank: Old Line Bancshares, Inc.;
State: MD;
Capital Purchase: 7,000,000;
Total assets as of 9/30/08: 286,000,000.
Date: 12/5/08;
Bank: Popular, Inc.;
State: PR;
Capital Purchase: 935,000,000;
Total assets as of 9/30/08: 40,390,000,000.
Date: 12/5/08;
Bank: Sandy Spring Bancorp, Inc.;
State: MD;
Capital Purchase: 83,094,000;
Total assets as of 9/30/08: 3,195,000,000.
Date: 12/5/08;
Bank: Southern Community Financial Corporation;
State: NC;
Capital Purchase: 42,750,000;
Total assets as of 9/30/08: 1,798,000,000.
Date: 12/5/08;
Bank: Southern Missouri Bancorp, Inc.;
State: MO;
Capital Purchase: 9,550,000;
Total assets as of 9/30/08: 429,000,000.
Date: 12/5/08;
Bank: Southwest Bancorp, Inc.;
State: OK;
Capital Purchase: 70,000,000;
Total assets as of 9/30/08: 2,832,000,000.
Date: 12/5/08;
Bank: State Bancorp, Inc.;
State: NY;
Capital Purchase: 36,842,000;
Total assets as of 9/30/08: 1,593,000,000.
Date: 12/5/08;
Bank: Sterling Financial Corporation;
State: WA;
Capital Purchase: 303,000,000;
Total assets as of 9/30/08: 12,623,000,000.
Date: 12/5/08;
Bank: Superior Bancorp Inc.;
State: AL;
Capital Purchase: 69,000,000;
Total assets as of 9/30/08: 3,104,000,000.
Date: 12/5/08;
Bank: The South Financial Group, Inc.;
State: SC;
Capital Purchase: 347,000,000;
Total assets as of 9/30/08: 13,695,000,000.
Date: 12/5/08;
Bank: TIB Financial Corp.;
State: FL;
Capital Purchase: 37,000,000;
Total assets as of 9/30/08: 1,563,000,000.
Date: 12/5/08;
Bank: United Community Banks, Inc.;
State: GA;
Capital Purchase: 180,000,000;
Total assets as of 9/30/08: 8,073,000,000.
Date: 12/5/08;
Bank: Unity Bancorp, Inc.;
State: NJ;
Capital Purchase: 20,649,000;
Total assets as of 9/30/08: 864,000,000.
Date: 12/5/08;
Bank: Wesbanco Bank Inc.;
State: WV;
Capital Purchase: 75,000,000;
Total assets as of 9/30/08: 5,150,000,000.
Subtotal:
Capital Purchase: 3,835,635,000;
Total assets as of 9/30/08: 165,787,000,000.
Date: 12/12/08;
Bank: Bank of the Ozarks, Inc.;
State: AR;
Capital Purchase: 75,000,000;
Total assets as of 9/30/08: 3,071,000,000.
Date: 12/12/08;
Bank: Capital Bank Corporation;
State: NC;
Capital Purchase: 41,279,000;
Total assets as of 9/30/08: 1,594,000,000.
Date: 12/12/08;
Bank: Center Financial Corporation;
State: CA;
Capital Purchase: 55,000,000;
Total assets as of 9/30/08: 2,035,000,000.
Date: 12/12/08;
Bank: Citizens Republic Bancorp, Inc.;
State: MI;
Capital Purchase: 300,000,000;
Total assets as of 9/30/08: 13,116,000,000.
Date: 12/12/08;
Bank: Citizens South Banking Corporation;
State: NC;
Capital Purchase: 20,500,000;
Total assets as of 9/30/08: 823,000,000.
Date: 12/12/08;
Bank: Fidelity Bancorp, Inc.;
State: PA;
Capital Purchase: 7,000,000;
Total assets as of 9/30/08: 727,000,000.
Date: 12/12/08;
Bank: First Litchfield Financial Corporation;
State: CT;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 507,000,000.
Date: 12/12/08;
Bank: HopFed Bancorp;
State: KY;
Capital Purchase: 18,400,000;
Total assets as of 9/30/08: 843,000,000.
Date: 12/12/08;
Bank: Independent Bank Corporation;
State: MI;
Capital Purchase: 72,000,000;
Total assets as of 9/30/08: 3,139,000,000.
Date: 12/12/08;
Bank: Indiana Community Bancorp;
State: IN;
Capital Purchase: 21,500,000;
Total assets as of 9/30/08: 943,000,000.
Date: 12/12/08;
Bank: LNB Bancorp Inc.;
State: OH;
Capital Purchase: 25,223,000;
Total assets as of 9/30/08: 1,110,000,000.
Date: 12/12/08;
Bank: LSB Corporation;
State: MA;
Capital Purchase: 15,000,000;
Total assets as of 9/30/08: 729,000,000.
Date: 12/12/08;
Bank: National Penn Bancshares, Inc.;
State: PA;
Capital Purchase: 150,000,000;
Total assets as of 9/30/08: 9,317,000,000.
Date: 12/12/08;
Bank: NewBridge Bancorp;
State: NC;
Capital Purchase: 52,372,000;
Total assets as of 9/30/08: 2,108,000,000.
Date: 12/12/08;
Bank: Northeast Bancorp;
State: ME;
Capital Purchase: 4,227,000;
Total assets as of 9/30/08: 605,000,000.
Date: 12/12/08;
Bank: Old National Bancorp;
State: IN;
Capital Purchase: 100,000,000;
Total assets as of 9/30/08: 7,568,000,000.
Date: 12/12/08;
Bank: Pacific International Bancorp;
State: WA;
Capital Purchase: 6,500,000;
Total assets as of 9/30/08: 247,000,000.
Date: 12/12/08;
Bank: Pinnacle Financial Partners, Inc.;
State: TN;
Capital Purchase: 95,000,000;
Total assets as of 9/30/08: 4,338,000,000.
Date: 12/12/08;
Bank: Signature Bank;
State: NY;
Capital Purchase: 120,000,000;
Total assets as of 9/30/08: 6,699,000,000.
Date: 12/12/08;
Bank: Sterling Bancshares, Inc.;
State: TX;
Capital Purchase: 125,198,000;
Total assets as of 9/30/08: 4,947,000,000.
Date: 12/12/08;
Bank: Susquehanna Bancshares, Inc.;
State: PA;
Capital Purchase: 300,000,000;
Total assets as of 9/30/08: 13,636,000,000.
Date: 12/12/08;
Bank: SVB Financial Group;
State: CA;
Capital Purchase: 235,000,000;
Total assets as of 9/30/08: 8,071,000,000.
Date: 12/12/08;
Bank: The Bancorp, Inc.;
State: DE;
Capital Purchase: 45,220,000;
Total assets as of 9/30/08: 1,781,000,000.
Date: 12/12/08;
Bank: TowneBank;
State: VA;
Capital Purchase: 76,458,000;
Total assets as of 9/30/08: 3,016,000,000.
Date: 12/12/08;
Bank: Valley Financial Corporation;
State: VA;
Capital Purchase: 16,019,000;
Total assets as of 9/30/08: 643,000,000.
Date: 12/12/08;
Bank: Virginia Commerce Bancorp;
State: VA;
Capital Purchase: 71,000,000;
Total assets as of 9/30/08: 2,662,000,000.
Date: 12/12/08;
Bank: Wilmington Trust Corporation;
State: DE;
Capital Purchase: 330,000,000;
Total assets as of 9/30/08: 12,134,000,000.
Date: 12/12/08;
Bank: Wilshire Bancorp, Inc.;
State: CA;
Capital Purchase: 62,158,000;
Total assets as of 9/30/08: 2,387,000,000.
Subtotal:
Capital Purchase: 2,450,054,000;
Total assets as of 9/30/08: 108,796,000,000.
Date: 12/19/08;
Bank: Alliance Financial Corporation;
State: NY;
Capital Purchase: 26,918,000;
Total assets as of 9/30/08: 1,347,000,000.
Date: 12/19/08;
Bank: AmeriServ Financial, Inc.;
State: PA;
Capital Purchase: 21,000,000;
Total assets as of 9/30/08: 911,000,000.
Date: 12/19/08;
Bank: Bancorp Rhode Island, Inc.;
State: RI;
Capital Purchase: 30,000,000;
Total assets as of 9/30/08: 1,490,000,000.
Date: 12/19/08;
Bank: BancTrust Financial Group, Inc.;
State: AL;
Capital Purchase: 50,000,000;
Total assets as of 9/30/08: 2,089,000,000.
Date: 12/19/08;
Bank: Berkshire Hills Bancorp, Inc.;
State: MA;
Capital Purchase: 40,000,000;
Total assets as of 9/30/08: 2,566,000,000.
Date: 12/19/08;
Bank: Bridgeview Bancorp, Inc.;
State: IL;
Capital Purchase: 38,000,000;
Total assets as of 9/30/08: 1,428,000,000.
Date: 12/19/08;
Bank: Citizens First Corporation;
State: KY;
Capital Purchase: 8,779,000;
Total assets as of 9/30/08: 360,000,000.
Date: 12/19/08;
Bank: CoBiz Financial Inc.;
State: CO; Capital Purchase: 64,450,000;
Total assets as of 9/30/08: 2,606,000,000.
Date: 12/19/08;
Bank: Community Bankers Trust Corporation;
State: VA;
Capital Purchase: 17,680,000;
Total assets as of 9/30/08: 695,000,000.
Date: 12/19/08;
Bank: Community Financial Corporation;
State: VA;
Capital Purchase: 12,643,000;
Total assets as of 9/30/08: 491,000,000.
Date: 12/19/08;
Bank: Community West Bancshares;
State: CA;
Capital Purchase: 15,600,000;
Total assets as of 9/30/08: 640,000,000.
Date: 12/19/08;
Bank: Enterprise Financial Services Corp.;
State: MO;
Capital Purchase: 35,000,000;
Total assets as of 9/30/08: 2,236,000,000.
Date: 12/19/08;
Bank: Exchange Bank;
State: CA;
Capital Purchase: 43,000,000;
Total assets as of 9/30/08: 1,666,000,000.
Date: 12/19/08;
Bank: FCB Bancorp, Inc.;
State: KY;
Capital Purchase: 9,294,000;
Total assets as of 9/30/08: 353,000,000.
Date: 12/19/08;
Bank: FFW Corporation;
State: IN;
Capital Purchase: 7,289,000;
Total assets as of 9/30/08: 316,000,000.
Date: 12/19/08;
Bank: Fidelity Financial Corporation;
State: KS;
Capital Purchase: 36,282,000;
Total assets as of 9/30/08: 1,854,000,000.
Date: 12/19/08;
Bank: Fidelity Southern Corporation;
State: GA;
Capital Purchase: 48,200,000;
Total assets as of 9/30/08: 1,760,000,000.
Date: 12/19/08;
Bank: First California Financial Group, Inc;
State: CA;
Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 1,125,000,000.
Date: 12/19/08;
Bank: Flushing Financial Corporation;
State: NY;
Capital Purchase: 70,000,000;
Total assets as of 9/30/08: 3,617,000,000.
Date: 12/19/08;
Bank: Hawthorn Bancshares, Inc.;
State: MO;
Capital Purchase: 30,255,000;
Total assets as of 9/30/08: 1,285,000,000.
Date: 12/19/08;
Bank: Heartland Financial USA, Inc.;
State: IA;
Capital Purchase: 81,698,000;
Total assets as of 9/30/08: 3,446,000,000.
Date: 12/19/08;
Bank: Horizon Bancorp;
State: IN;
Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 1,189,000,000.
Date: 12/19/08;
Bank: Intermountain Community Bancorp;
State: ID;
Capital Purchase: 27,000,000;
Total assets as of 9/30/08: 1,049,000,000.
Date: 12/19/08;
Bank: Marquette National Corporation;
State: IL;
Capital Purchase: 35,500,000;
Total assets as of 9/30/08: 1,644,000,000.
Date: 12/19/08;
Bank: Mid Penn Bancorp, Inc.;
State: PA;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 552,000,000.
Date: 12/19/08;
Bank: Monadnock Bancorp, Inc.;
State: NH;
Capital Purchase: 1,834,000;
Total assets as of 9/30/08: 111,000,000.
Date: 12/19/08;
Bank: Monarch Financial Holdings, Inc.;
State: VA;
Capital Purchase: 14,700,000;
Total assets as of 9/30/08: 595,000,000.
Date: 12/19/08;
Bank: NCAL Bancorp[A];
State: CA;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 407,000,000.
Date: 12/19/08;
Bank: OneUnited Bank;
State: MA;
Capital Purchase: 12,063,000;
Total assets as of 9/30/08: 625,000,000.
Date: 12/19/08;
Bank: Pacific City Financial Corporation;
State: CA; Capital Purchase: 16,200,000;
Total assets as of 9/30/08: 566,000,000.
Date: 12/19/08;
Bank: Patapsco Bancorp, Inc.;
State: MD;
Capital Purchase: 6,000,000;
Total assets as of 9/30/08: 262,000,000.
Date: 12/19/08;
Bank: Patriot Bancshares, Inc.;
State: TX;
Capital Purchase: 26,038,000;
Total assets as of 9/30/08: 934,000,000.
Date: 12/19/08;
Bank: Plains Capital Corporation;
State: TX;
Capital Purchase: 87,631,000;
Total assets as of 9/30/08: 3,343,000,000.
Date: 12/19/08;
Bank: Santa Lucia Bancorp;
State: CA;
Capital Purchase: 4,000,000;
Total assets as of 9/30/08: 254,000,000.
Date: 12/19/08;
Bank: Seacoast Banking Corporation of Florida;
State: FL;
Capital Purchase: 50,000,000;
Total assets as of 9/30/08: 2,225,000,000.
Date: 12/19/08;
Bank: Security Federal Corporation;
State: SC;
Capital Purchase: 18,000,000;
Total assets as of 9/30/08: 905,000,000.
Date: 12/19/08;
Bank: StellarOne Corporation;
State: VA;
Capital Purchase: 30,000,000;
Total assets as of 9/30/08: 2,986,000,000.
Date: 12/19/08;
Bank: Summit State Bank;
State: CA; Capital Purchase: 8,500,000;
Total assets as of 9/30/08: 350,000,000.
Date: 12/19/08;
Bank: Synovus Financial Corp.;
State: GA;
Capital Purchase: 967,870,000;
Total assets as of 9/30/08: 34,339,000,000.
Date: 12/19/08;
Bank: Tennessee Commerce Bancorp, Inc.;
State: TN;
Capital Purchase: 30,000,000;
Total assets as of 9/30/08: 1,106,000,000.
Date: 12/19/08;
Bank: The Connecticut Bank and Trust Company;
State: CT;
Capital Purchase: 5,448,000;
Total assets as of 9/30/08: 223,000,000.
Date: 12/19/08;
Bank: The Elmira Savings Bank, FSB;
State: NY;
Capital Purchase: 9,090,000;
Total assets as of 9/30/08: 463,000,000.
Date: 12/19/08;
Bank: Tidelands Bancshares, Inc.;
State: SC;
Capital Purchase: 14,448,000;
Total assets as of 9/30/08: 668,000,000.
Date: 12/19/08;
Bank: Tri-County Financial Corporation;
State: MD;
Capital Purchase: 15,540,000;
Total assets as of 9/30/08: 677,000,000.
Date: 12/19/08;
Bank: Union Bankshares Corporation;
State: VA;
Capital Purchase: 59,000,000;
Total assets as of 9/30/08: 2,448,000,000.
Date: 12/19/08;
Bank: VIST Financial Corp.;
State: PA; Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 1,182,000,000.
Date: 12/19/08;
Bank: Wainwright Bank & Trust Company;
State: MA;
Capital Purchase: 22,000,000;
Total assets as of 9/30/08: 980,000,000.
Date: 12/19/08;
Bank: Whitney Holding Corporation;
State: LA;
Capital Purchase: 300,000,000;
Total assets as of 9/30/08: 10,987,000,000.
Date: 12/19/08;
Bank: Wintrust Financial Corporation[A];
State: IL;
Capital Purchase: 250,000,000;
Total assets as of 9/30/08: 9,865,000,000.
Subtotal:
Capital Purchase: 2,791,950,000;
Total assets as of 9/30/08: 113,216,000,000.
Date: 12/23/08;
Bank: 1st Constitution Bancorp;
State: NJ;
Capital Purchase: 12,000,000;
Total assets as of 9/30/08: 514,000,000.
Date: 12/23/08;
Bank: BCSB Bancorp, Inc.;
State: MD;
Capital Purchase: 10,800,000;
Total assets as of 9/30/08: 567,000,000.
Date: 12/23/08;
Bank: Bridge Capital Holdings;
State: CA;
Capital Purchase: 23,864,000;
Total assets as of 9/30/08: 855,000,000.
Date: 12/23/08;
Bank: Cache Valley Banking Company[A];
State: UT;
Capital Purchase: 4,767,000;
Total assets as of 9/30/08: 200,000,000.
Date: 12/23/08;
Bank: Capital Bancorp, Inc.[A];
State: MD;
Capital Purchase: 4,700,000;
Total assets as of 9/30/08: 198,000,000.
Date: 12/23/08;
Bank: Capital Pacific Bancorp[A];
State: OR;
Capital Purchase: 4,000,000;
Total assets as of 9/30/08: 136,000,000.
Date: 12/23/08;
Bank: Cecil Bancorp, Inc.;
State: MD;
Capital Purchase: 11,560,000;
Total assets as of 9/30/08: 457,000,000.
Date: 12/23/08;
Bank: Central Jersey Bancorp;
State: NJ;
Capital Purchase: 11,300,000;
Total assets as of 9/30/08: 555,000,000.
Date: 12/23/08;
Bank: Citizens Bancorp[A];
State: CA;
Capital Purchase: 10,400,000;
Total assets as of 9/30/08: 366,000,000.
Date: 12/23/08;
Bank: Citizens Community Bank;
State: VA;
Capital Purchase: 3,000,000;
Total assets as of 9/30/08: 150,000,000.
Date: 12/23/08;
Bank: Community Investors Bancorp, Inc.[A];
State: OH;
Capital Purchase: 2,600,000;
Total assets as of 9/30/08: 143,000,000.
Date: 12/23/08;
Bank: Emclaire Financial Corp.;
State: PA;
Capital Purchase: 7,500,000;
Total assets as of 9/30/08: 357,000,000.
Date: 12/23/08;
Bank: Financial Institutions, Inc.;
State: NY;
Capital Purchase: 37,515,000;
Total assets as of 9/30/08: 1,946,000,000.
Date: 12/23/08;
Bank: First Community Bank Corporation of America;
State: FL;
Capital Purchase: 10,685,000;
Total assets as of 9/30/08: 476,000,000.
Date: 12/23/08;
Bank: First Financial Bancorp;
State: OH; Capital Purchase: 80,000,000;
Total assets as of 9/30/08: 3,512,000,000.
Date: 12/23/08;
Bank: First Sound Bank;
State: WA;
Capital Purchase: 7,400,000;
Total assets as of 9/30/08: 267,000,000.
Date: 12/23/08;
Bank: Fulton Financial Corporation;
State: PA;
Capital Purchase: 376,500,000;
Total assets as of 9/30/08: 16,136,000,000.
Date: 12/23/08;
Bank: Green Bankshares, Inc.;
State: TN;
Capital Purchase: 72,278,000;
Total assets as of 9/30/08: 3,012,000,000.
Date: 12/23/08;
Bank: HMN Financial, Inc.;
State: MN;
Capital Purchase: 26,000,000;
Total assets as of 9/30/08: 1,129,000,000.
Date: 12/23/08;
Bank: International Bancshares Corporation;
State: TX;
Capital Purchase: 216,000,000;
Total assets as of 9/30/08: 11,545,000,000.
Date: 12/23/08;
Bank: Intervest Bancshares Corporation;
State: NY;
Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 2,181,000,000.
Date: 12/23/08;
Bank: Leader Bancorp, Inc.[A];
State: MA;
Capital Purchase: 5,830,000;
Total assets as of 9/30/08: 240,000,000.
Date: 12/23/08;
Bank: M&T Bank Corporation;
State: NY;
Capital Purchase: 600,000,000;
Total assets as of 9/30/08: 65,247,000,000.
Date: 12/23/08;
Bank: Magna Bank;
State: TN;
Capital Purchase: 13,795,000;
Total assets as of 9/30/08: 530,000,000.
Date: 12/23/08;
Bank: Mission Valley Bancorp[A];
State: CA;
Capital Purchase: 5,500,000;
Total assets as of 9/30/08: 220,000,000.
Date: 12/23/08;
Bank: MutualFirst Financial, Inc.;
State: IN;
Capital Purchase: 32,382,000;
Total assets as of 9/30/08: 1,399,000,000.
Date: 12/23/08;
Bank: Nicolet Bankshares, Inc.;
State: WI;
Capital Purchase: 14,964,000;
Total assets as of 9/30/08: 641,000,000.
Date: 12/23/08;
Bank: Pacific Coast Bankers' Bancshares;
State: CA;
Capital Purchase: 11,600,000;
Total assets as of 9/30/08: 555,000,000.
Date: 12/23/08;
Bank: Pacific Commerce Bank;
State: CA;
Capital Purchase: 4,060,000;
Total assets as of 9/30/08: 165,000,000.
Date: 12/23/08;
Bank: Park National Corporation;
State: OH;
Capital Purchase: 100,000,000;
Total assets as of 9/30/08: 6,800,000,000.
Date: 12/23/08;
Bank: Parkvale Financial Corporation;
State: PA;
Capital Purchase: 31,762,000;
Total assets as of 9/30/08: 1,828,000,000.
Date: 12/23/08;
Bank: Peoples Bancorp of North Carolina, Inc.;
State: NC;
Capital Purchase: 25,054,000;
Total assets as of 9/30/08: 964,000,000.
Date: 12/23/08;
Bank: Saigon National Bank;
State: CA;
Capital Purchase: 1,549,000;
Total assets as of 9/30/08: 55,000,000.
Date: 12/23/08;
Bank: Seacoast Commerce Bank;
State: CA;
Capital Purchase: 1,800,000;
Total assets as of 9/30/08: 75,000,000.
Date: 12/23/08;
Bank: Sterling Bancorp;
State: NY;
Capital Purchase: 42,000,000;
Total assets as of 9/30/08: 2,117,000,000.
Date: 12/23/08;
Bank: TCNB Financial Corp.[A];
State: OH;
Capital Purchase: 2,000,000;
Total assets as of 9/30/08: 96,000,000.
Date: 12/23/08;
Bank: Tennessee Valley Financial Holdings, Inc.;
State: TN;
Capital Purchase: 3,000,000;
Total assets as of 9/30/08: 204,000,000.
Date: 12/23/08;
Bank: The Little Bank, Incorporated;
State: NC;
Capital Purchase: 7,500,000;
Total assets as of 9/30/08: 317,000,000.
Date: 12/23/08;
Bank: Timberland Bancorp, Inc.;
State: WA;
Capital Purchase: 16,641,000;
Total assets as of 9/30/08: 682,000,000.
Date: 12/23/08;
Bank: United Bancorporation of Alabama, Inc.;
State: AL;
Capital Purchase: 10,300,000;
Total assets as of 9/30/08: 464,000,000.
Date: 12/23/08;
Bank: Uwharrie Capital Corp.;
State: NC;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 425,000,000.
Date: 12/23/08;
Bank: Western Community Bancshares, Inc.[A];
State: CA;
Capital Purchase: 7,290,000;
Total assets as of 9/30/08: 323,000,000.
Date: 12/23/08;
Bank: Western Illinois Bancshares Inc.[A];
State: IL;
Capital Purchase: 6,855,000;
Total assets as of 9/30/08: 346,000,000.
Subtotal:
Capital Purchase: 1,911,751,000;
Total assets as of 9/30/08: 128,395,000,000.
Date: 12/31/08;
Bank: CIT Group Inc.;
State: NY;
Capital Purchase: 2,330,000,000;
Total assets as of 9/30/08: 80,845,000,000.
Date: 12/31/08;
Bank: Fifth Third Bancorp;
State: OH;
Capital Purchase: 3,408,000,000;
Total assets as of 9/30/08: 116,294,000,000.
Date: 12/31/08;
Bank: First Banks, Inc.;
State: MO;
Capital Purchase: 295,400,000;
Total assets as of 9/30/08: 10,833,000,000.
Date: 12/31/08;
Bank: Hampton Roads Bankshares, Inc.;
State: VA;
Capital Purchase: 80,347,000;
Total assets as of 9/30/08: 918,000,000.
Date: 12/31/08;
Bank: SunTrust Banks, Inc.;
State: GA;
Capital Purchase: 1,350,000,000;
Total assets as of 9/30/08: 174,777,000,000.
Date: 12/31/08;
Bank: The PNC Financial Services Group Inc.;
State: PA;
Capital Purchase: 7,579,200,000;
Total assets as of 9/30/08: 145,610,000,000.
Date: 12/31/08;
Bank: West Bancorporation, Inc.;
State: IA;
Capital Purchase: 36,000,000;
Total assets as of 9/30/08: 1,464,000,000.
Subtotal:
Capital Purchase: 15,078,947,000;
Total assets as of 9/30/08: 530,741,000,000.
Date: 1/9/09;
Bank: American Express Company;
State: NY;
Capital Purchase: 3,388,890,000; Total assets as of 9/30/08:
127,218,000,000.
Date: 1/9/09;
Bank: American State Bancshares, Inc.;
State: KS;
Capital Purchase: 6,000,000;
Total assets as of 9/30/08: 271,000,000.
Date: 1/9/09;
Bank: Bank of America Corporation;
State: NC;
Capital Purchase: 10,000,000,000;
Total assets as of 9/30/08: 1,831,177,000,000.
Date: 1/9/09;
Bank: C&F Financial Corporation;
State: VA;
Capital Purchase: 20,000,000;
Total assets as of 9/30/08: 846,000,000.
Date: 1/9/09;
Bank: Cadence Financial Corporation;
State: MS;
Capital Purchase: 44,000,000;
Total assets as of 9/30/08: 1,985,000,000.
Date: 1/9/09;
Bank: Carolina Bank Holdings, Inc.;
State: NC;
Capital Purchase: 16,000,000;
Total assets as of 9/30/08: 591,000,000.
Date: 1/9/09;
Bank: Center Bancorp, Inc.;
State: NJ;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 1,043,000,000.
Date: 1/9/09;
Bank: Central Pacific Financial Corp.;
State: HI;
Capital Purchase: 135,000,000;
Total assets as of 9/30/08: 5,504,000,000.
Date: 1/9/09;
Bank: Centrue Financial Corporation;
State: MO;
Capital Purchase: 32,668,000;
Total assets as of 9/30/08: 1,342,000,000.
Date: 1/9/09;
Bank: Codorus Valley Bancorp, Inc.;
State: PA;
Capital Purchase: 16,500,000;
Total assets as of 9/30/08: 650,000,000.
Date: 1/9/09;
Bank: Colony Bankcorp, Inc.;
State: GA;
Capital Purchase: 28,000,000;
Total assets as of 9/30/08: 1,215,000,000.
Date: 1/9/09;
Bank: Commerce National Bank;
State: CA;
Capital Purchase: 5,000,000;
Total assets as of 9/30/08: 639,000,000.
Date: 1/9/09;
Bank: Community Trust Financial Corporation;
State: LA;
Capital Purchase: 24,000,000;
Total assets as of 9/30/08: 945,000,000.
Date: 1/9/09;
Bank: Congaree Bancshares, Inc.;
State: SC;
Capital Purchase: 3,285,000;
Total assets as of 9/30/08: 131,000,000.
Date: 1/9/09;
Bank: Crescent Financial Corporation;
State: NC;
Capital Purchase: 24,900,000;
Total assets as of 9/30/08: 956,000,000.
Date: 1/9/09;
Bank: Eastern Virginia Bankshares, Inc.;
State: VA;
Capital Purchase: 24,000,000;
Total assets as of 9/30/08: 1,031,000,000.
Date: 1/9/09;
Bank: F.N.B. Corporation;
State: PA;
Capital Purchase: 100,000,000;
Total assets as of 9/30/08: 8,457,000,000.
Date: 1/9/09;
Bank: Farmers Capital Bank Corporation;
State: KY;
Capital Purchase: 30,000,000;
Total assets as of 9/30/08: 2,154,000,000.
Date: 1/9/09;
Bank: First Bancorp;
State: NC;
Capital Purchase: 65,000,000;
Total assets as of 9/30/08: 2,701,000,000.
Date: 1/9/09;
Bank: First Financial Service Corporation;
State: KY;
Capital Purchase: 20,000,000;
Total assets as of 9/30/08: 991,000,000.
Date: 1/9/09;
Bank: First Security Group, Inc.;
State: TN;
Capital Purchase: 33,000,000;
Total assets as of 9/30/08: 1,282,000,000.
Date: 1/9/09;
Bank: FirstMerit Corporation;
State: OH;
Capital Purchase: 125,000,000;
Total assets as of 9/30/08: 10,685,000,000.
Date: 1/9/09;
Bank: GrandSouth Bancorporation;
State: SC;
Capital Purchase: 9,000,000;
Total assets as of 9/30/08: 377,000,000.
Date: 1/9/09;
Bank: Independence Bank;
State: RI;
Capital Purchase: 1,065,000;
Total assets as of 9/30/08: 66,000,000.
Date: 1/9/09;
Bank: Independent Bank Corp.;
State: MA;
Capital Purchase: 78,158,000;
Total assets as of 9/30/08: 3,477,000,000.
Date: 1/9/09;
Bank: LCNB Corp.;
State: OH;
Capital Purchase: 13,400,000;
Total assets as of 9/30/08: 667,000,000.
Date: 1/9/09;
Bank: MidSouth Bancorp, Inc.;
State: LA;
Capital Purchase: 20,000,000;
Total assets as of 9/30/08: 917,000,000.
Date: 1/9/09;
Bank: Mission Community Bancorp;
State: CA;
Capital Purchase: 5,116,000;
Total assets as of 9/30/08: 219,000,000.
Date: 1/9/09;
Bank: New York Private Bank & Trust Corporation;
State: NY;
Capital Purchase: 267,274,000;
Total assets as of 9/30/08: 13,693,000,000.
Date: 1/9/09;
Bank: North Central Bancshares, Inc.;
State: IA;
Capital Purchase: 10,200,000;
Total assets as of 9/30/08: 475,000,000.
Date: 1/9/09;
Bank: Peapack-Gladstone Financial Corporation;
State: NJ;
Capital Purchase: 28,685,000;
Total assets as of 9/30/08: 1,369,000,000.
Date: 1/9/09;
Bank: Redwood Financial Inc.;
State: MN;
Capital Purchase: 2,995,000;
Total assets as of 9/30/08: 141,000,000.
Date: 1/9/09;
Bank: Rising Sun Bancorp;
State: MD;
Capital Purchase: 5,983,000;
Total assets as of 9/30/08: 236,000,000.
Date: 1/9/09;
Bank: Security Business Bancorp;
State: CA;
Capital Purchase: 5,803,000;
Total assets as of 9/30/08: 215,000,000.
Date: 1/9/09;
Bank: Security California Bancorp;
State: CA;
Capital Purchase: 6,815,000;
Total assets as of 9/30/08: 238,000,000.
Date: 1/9/09;
Bank: Shore Bancshares, Inc.;
State: MD;
Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 1,037,000,000.
Date: 1/9/09;
Bank: Sound Banking Company;
State: NC;
Capital Purchase: 3,070,000;
Total assets as of 9/30/08: 127,000,000.
Date: 1/9/09;
Bank: Sun Bancorp, Inc.;
State: NJ;
Capital Purchase: 89,310,000;
Total assets as of 9/30/08: 3,425,000,000.
Date: 1/9/09;
Bank: Surrey Bancorp;
State: NC;
Capital Purchase: 2,000,000;
Total assets as of 9/30/08: 206,000,000.
Date: 1/9/09;
Bank: Texas National Bancorporation;
State: TX;
Capital Purchase: 3,981,000;
Total assets as of 9/30/08: 166,000,000.
Date: 1/9/09;
Bank: The First Bancorp, Inc.;
State: ME;
Capital Purchase: 25,000,000;
Total assets as of 9/30/08: 1,311,000,000.
Date: 1/9/09;
Bank: The Queensborough Company;
State: GA;
Capital Purchase: 12,000,000;
Total assets as of 9/30/08: 848,000,000.
Date: 1/9/09;
Bank: Valley Community Bank;
State: CA;
Capital Purchase: 5,500,000;
Total assets as of 9/30/08: 211,000,000.
Subtotal:
Capital Purchase: 14,771,598,000;
Total assets as of 9/30/08: 2,031,235,000,000.
Date: 1/16/2009;
Bank: Bank of Commerce;
State: NC;
Capital Purchase: 3,000,000;
Total assets as of 9/30/08: 125,000,000.
Date: 1/16/2009;
Bank: Bar Harbor Bankshares/Bar Harbor Bank & Trust;
State: ME;
Capital Purchase: 18,751,000;
Total assets as of 9/30/08: 942,000,000.
Date: 1/16/2009;
Bank: BNCCORP, Inc.;
State: ND;
Capital Purchase: 20,093,000;
Total assets as of 9/30/08: 838,000,000.
Date: 1/16/2009;
Bank: Carver Bancorp, Inc.;
State: NY;
Capital Purchase: 18,980,000;
Total assets as of 9/30/08: 791,000,000.
Date: 1/16/2009;
Bank: Centra Financial Holdings, Inc./Centra Bank, Inc.;
State: WV;
Capital Purchase: 15,000,000;
Total assets as of 9/30/08: 1,204,000,000.
Date: 1/16/2009;
Bank: Citizens & Northern Corporation;
State: PA;
Capital Purchase: 26,440,000;
Total assets as of 9/30/08: 1,289,000,000.
Date: 1/16/2009;
Bank: Community 1st Bank;
State: CA;
Capital Purchase: 2,550,000;
Total assets as of 9/30/08: 97,000,000.
Date: 1/16/2009;
Bank: Community Bank of the Bay;
State: CA;
Capital Purchase: 1,747,000;
Total assets as of 9/30/08: 69,000,000.
Date: 1/16/2009;
Bank: Dickinson Financial Corporation II;
State: MO;
Capital Purchase: 146,053,000;
Total assets as of 9/30/08: 5,602,000,000.
Date: 1/16/2009;
Bank: ECB Bancorp, Inc./East Carolina Bank;
State: NC;
Capital Purchase: 17,949,000;
Total assets as of 9/30/08: 768,000,000.
Date: 1/16/2009;
Bank: First BanCorp;
State: PR;
Capital Purchase: 400,000,000;
Total assets as of 9/30/08: 19,304,000,000.
Date: 1/16/2009;
Bank: First Bankers Trustshares, Inc.;
State: IL;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 489,000,000.
Date: 1/16/2009;
Bank: First Manitowoc Bancorp, Inc.;
State: WI;
Capital Purchase: 12,000,000;
Total assets as of 9/30/08: 768,000,000.
Date: 1/16/2009;
Bank: Home Bancshares, Inc.;
State: AR;
Capital Purchase: 50,000,000;
Total assets as of 9/30/08: 2,651,000,000.
Date: 1/16/2009;
Bank: Idaho Bancorp;
State: ID; Capital Purchase: 6,900,000;
Total assets as of 9/30/08: 239,000,000.
Date: 1/16/2009;
Bank: MainSource Financial Group, Inc.;
State: IN;
Capital Purchase: 57,000,000;
Total assets as of 9/30/08: 2,867,000,000.
Date: 1/16/2009;
Bank: MetroCorp Bancshares, Inc.;
State: TX;
Capital Purchase: 45,000,000;
Total assets as of 9/30/08: 1,594,000,000.
Date: 1/16/2009;
Bank: Morrill Bancshares, Inc.;
State: KS;
Capital Purchase: 13,000,000;
Total assets as of 9/30/08: 660,000,000.
Date: 1/16/2009;
Bank: New Hampshire Thrift Bancshares, Inc.;
State: NH;
Capital Purchase: 10,000,000;
Total assets as of 9/30/08: 829,000,000.
Date: 1/16/2009;
Bank: OceanFirst Financial Corp.;
State: NJ;
Capital Purchase: 38,263,000;
Total assets as of 9/30/08: 1,876,000,000.
Date: 1/16/2009;
Bank: Old Second Bancorp, Inc.;
State: IL;
Capital Purchase: 73,000,000;
Total assets as of 9/30/08: 2,950,000,000.
Date: 1/16/2009;
Bank: Pacific Coast National Bancorp;
State: CA;
Capital Purchase: 4,120,000;
Total assets as of 9/30/08: 138,000,000.
Date: 1/16/2009;
Bank: Puget Sound Bank;
State: WA;
Capital Purchase: 4,500,000;
Total assets as of 9/30/08: 154,000,000.
Date: 1/16/2009;
Bank: Pulaski Financial Corp;
State: MO;
Capital Purchase: 32,538,000;
Total assets as of 9/30/08: 1,304,000,000.
Date: 1/16/2009;
Bank: Redwood Capital Bancorp;
State: CA;
Capital Purchase: 3,800,000;
Total assets as of 9/30/08: 147,000,000.
Date: 1/16/2009;
Bank: S&T Bancorp, Inc.;
State: PA;
Capital Purchase: 108,676,000;
Total assets as of 9/30/08: 4,461,000,000.
Date: 1/16/2009;
Bank: SCBT Financial Corporation;
State: SC;
Capital Purchase: 64,779,000;
Total assets as of 9/30/08: 2,767,000,000.
Date: 1/16/2009;
Bank: Somerset Hills Bancorp;
State: NJ;
Capital Purchase: 7,414,000;
Total assets as of 9/30/08: 287,000,000.
Date: 1/16/2009;
Bank: Southern Bancorp, Inc.;
State: AR;
Capital Purchase: 11,000,000;
Total assets as of 9/30/08: 586,000,000.
Date: 1/16/2009;
Bank: State Bankshares, Inc.;
State: ND;
Capital Purchase: 50,000,000;
Total assets as of 9/30/08: 1,969,000,000.
Date: 1/16/2009;
Bank: Syringa Bancorp;
State: ID;
Capital Purchase: 8,000,000;
Total assets as of 9/30/08: 293,000,000.
Date: 1/16/2009;
Bank: TCB Holding Company, Texas Community Bank;
State: TX;
Capital Purchase: 11,730,000;
Total assets as of 9/30/08: 432,000,000.
Date: 1/16/2009;
Bank: Texas Capital Bancshares, Inc.;
State: TX;
Capital Purchase: 75,000,000;
Total assets as of 9/30/08: 4,743,000,000.
Date: 1/16/2009;
Bank: The Baraboo Bancorporation;
State: WI;
Capital Purchase: 20,749,000;
Total assets as of 9/30/08: 781,000,000.
Date: 1/16/2009;
Bank: Treaty Oak Bancorp, Inc.;
State: TX;
Capital Purchase: 3,268,000;
Total assets as of 9/30/08: 122,000,000.
Date: 1/16/2009;
Bank: United Bancorp, Inc.;
State: MI;
Capital Purchase: 20,600,000;
Total assets as of 9/30/08: 815,000,000.
Date: 1/16/2009;
Bank: United Financial Banking Companies, Inc.;
State: VA;
Capital Purchase: 5,658,000;
Total assets as of 9/30/08: 227,000,000.
Date: 1/16/2009;
Bank: Washington Banking Company/Whidbey Island Bank;
State: WA;
Capital Purchase: 26,380,000;
Total assets as of 9/30/08: 912,000,000.
Date: 1/16/2009;
Bank: Yadkin Valley Financial Corporation;
State: NC;
Capital Purchase: 36,000,000;
Total assets as of 9/30/08: 1,469,000,000.
Subtotal:
Capital Purchase: 1,479,938,000;
Total assets as of 9/30/08: 67,559,000,000.
Date: 1/23/2009;
Bank: 1st Source Corporation;
State: IN;
Capital Purchase: 111,000,000;
Total assets as of 9/30/08: 4,410,000,000.
Date: 1/23/2009;
Bank: AB&T Financial Corporation;
State: NC;
Capital Purchase: 3,500,000;
Total assets as of 9/30/08: 174,000,000.
Date: 1/23/2009;
Bank: Alarion Financial Services, Inc.;
State: FL;
Capital Purchase: 6,514,000;
Total assets as of 9/30/08: 254,000,000.
Date: 1/23/2009;
Bank: BankFirst Capital Corporation;
State: MS;
Capital Purchase: 15,500,000;
Total assets as of 9/30/08: 672,000,000.
Date: 1/23/2009;
Bank: California Oaks State Bank;
State: CA;
Capital Purchase: 3,300,000;
Total assets as of 9/30/08: 123,000,000.
Date: 1/23/2009;
Bank: Calvert Financial Corporation[A];
State: MO;
Capital Purchase: 1,037,000;
Total assets as of 9/30/08: 47,000,000.
Date: 1/23/2009;
Bank: CalWest Bancorp Rancho[A];
State: CA;
Capital Purchase: 4,656,000;
Total assets as of 9/30/08: 208,000,000.
Date: 1/23/2009;
Bank: Commonwealth Business Bank;
State: CA;
Capital Purchase: 7,701,000;
Total assets as of 9/30/08: 296,000,000.
Date: 1/23/2009;
Bank: Crosstown Holding Company;
State: MN;
Capital Purchase: 10,650,000;
Total assets as of 9/30/08: N/A.
Date: 1/23/2009;
Bank: Farmers Bank;
State: VA;
Capital Purchase: 8,752,000;
Total assets as of 9/30/08: 345,000,000.
Date: 1/23/2009;
Bank: First Citizens Banc Corp.;
State: OH;
Capital Purchase: 23,184,000;
Total assets as of 9/30/08: 1,100,000,000.
Date: 1/23/2009;
Bank: First ULB Corp.;
State: CA;
Capital Purchase: 4,900,000;
Total assets as of 9/30/08: 247,000,000.
Date: 1/23/2009;
Bank: FPB Financial Corp.[A];
State: LA;
Capital Purchase: 3,240,000;
Total assets as of 9/30/08: 155,000,000.
Date: 1/23/2009;
Bank: Fresno First Bank;
State: CA;
Capital Purchase: 1,968,000;
Total assets as of 9/30/08: 96,000,000.
Date: 1/23/2009;
Bank: Liberty Bancshares, Inc.;
State: AR;
Capital Purchase: 57,500,000;
Total assets as of 9/30/08: 2,573,000,000.
Date: 1/23/2009;
Bank: Midland States Bancorp, Inc.;
State: IL;
Capital Purchase: 10,189,000;
Total assets as of 9/30/08: 409,000,000.
Date: 1/23/2009;
Bank: Moscow Bancshares, Inc.[A];
State: TN;
Capital Purchase: 6,216,000;
Total assets as of 9/30/08: 248,000,000.
Date: 1/23/2009;
Bank: Pierce County Bancorp;
State: WA;
Capital Purchase: 6,800,000;
Total assets as of 9/30/08: 272,000,000.
Date: 1/23/2009;
Bank: Princeton National Bancorp, Inc.;
State: IL;
Capital Purchase: 25,083,000;
Total assets as of 9/30/08: 1,124,000,000.
Date: 1/23/2009;
Bank: Seaside National Bank & Trust;
State: FL;
Capital Purchase: 5,677,000;
Total assets as of 9/30/08: 243,000,000.
Date: 1/23/2009;
Bank: Southern Illinois Bancorp, Inc.[A];
State: IL;
Capital Purchase: 5,000,000;
Total assets as of 9/30/08: 233,000,000.
Date: 1/23/2009;
Bank: Stonebridge Financial Corp.;
State: PA;
Capital Purchase: 10,973,000;
Total assets as of 9/30/08: 493,000,000.
Date: 1/23/2009;
Bank: WSFS Financial Corporation;
State: DE;
Capital Purchase: 52,625,000;
Total assets as of 9/30/08: 3,255,000,000.
Subtotal:
Capital Purchase: 385,965,000;
Total assets as of 9/30/08: 16,977,000,000.
Grand total: State:
Capital Purchase: $194,177,001,000;
Total assets as of 9/30/08: $14,792,795,000,000.
Sources: Treasury, SEC (10-Qs, 10-Ks), iBanknet.com (Call Reports) and
company press releases.
[A] Total assets were reported from the related bank rather than the
banking holding company.
[End of table]
[End of section]
Appendix III: Examples of Programs to Preserve Homeownership:
Federal Government:
Institution: Federal Deposit Insurance Corporation (FDIC);
Program or Effort: IndyMac Loan Modification Program[A];
Selected Program Characteristics: Eligible borrowers are those with
loans owned or serviced by IndyMac Federal Bank;
* Affordable mortgage payment achieved for the seriously delinquent or
in default borrower through interest rate reduction, amortization term
extension, and principal forbearance;
* Payment must be no more than 38 percent of the borrower's monthly
gross income;
* Losses to investor minimized through a net present value test that
confirms that the modification will cost the investor less than
foreclosure.
Institution: Federal Deposit Insurance Corporation (FDIC);
Program or Effort: FDIC Loss Sharing Proposal;
Selected Program Characteristics: Proposal is designed to promote wider
adoption of a systematic loan modification program by paying servicers
$1,000 to cover expenses for each loan modified according to the
required standards; and sharing up to 50 percent of losses incurred if
a modified loan should subsequently default again;
* Eligible borrowers need to have loans secured by owner-occupied
properties;
* Government loss sharing would be available only after the borrower
has made six payments on the modified mortgage;
* Affordability standards are provided based on a 31 percent borrower
mortgage debt-to-income ratio;
* For loan-to-values (LTV) above 100 percent, the government loss share
will be progressively reduced from 50 percent to 20 percent as the
current LTV rises. If the LTV for the first lien exceeds 150 percent,
no loss sharing would be provided;
* The loss sharing guarantee ends 8 years after the modification.
Institution: Federal Housing Administration (FHA);
Program or Effort: Hope for Homeowners;
Selected Program Characteristics: Borrowers can refinance into an
affordable loan insured by FHA;
* Eligible borrowers are homeowners who did not intentionally default,
do not have an ownership interest in other residential real estate,
have not been convicted of fraud in the last 10 years under federal and
state law, and have not provided false information to obtain the
mortgage;
* Eligible borrowers are those who, as of March 2008, had total monthly
mortgage payments due of more than 31 percent of their gross monthly
income;
* New insured mortgages cannot exceed 96.5 percent of the current LTV
for borrowers whose mortgage payments do not exceed 31 percent of their
monthly gross income and total household debt not to exceed 43 percent;
alternatively, the program allows for a 90 percent LTV for borrowers
with debt-to-income ratios as high as 38 (mortgage payment) and 50
percent (total household debt);
* Requires lenders to write down the existing mortgage amounts to
either of the two LTV options mentioned above;
* Simplifying the process to remove subordinate liens by permitting up-
front payments to lien holders;
* Allowing lenders to extend mortgage terms from 30 to 40 years.
Institution: Federal Housing Administration (FHA);
Program or Effort: FHASecure;
Selected Program Characteristics: FHASecure is a refinancing option
that gives homeowners with non-FHA adjustable rate mortgages (ARM),
current or delinquent and regardless of reset status, the ability to
refinance into a FHA-insured mortgage;
* If the borrower is delinquent, the default must have been due to the
payment shock of an interest rate reset or, in the case of an option
ARM, the recasting of the mortgage to fully amortizing;
* Program ended December 31, 2008.
Institution: Federal Housing Finance Agency (FHFA);
Program or Effort: Streamlined Loan Modification Program[B];
Selected Program Characteristics: Eligible borrowers are those who have
missed three payments or more, own and occupy their property as a
primary residence, and are not in active bankruptcy;
* Servicers can modify existing loans into a Freddie Mae or Fannie Mac
loan, or a portfolio loan with a participating investor;
* An affordable mortgage payment, of no more than 38 percent of the
borrower's monthly gross income, is achieved for the borrower through
reducing the mortgage interest rate, extending the life of the loan, or
deferring payment on part of the principal;
* The borrower will be required to remit the proposed affordable
payment for a three-payment trial period prior to the modification of
the mortgage, to demonstrate his or her capacity and desire to sustain
those payments under the modified mortgage.
Private Sector:
Institution: HOPE NOW Alliance;
Program or Effort: Foreclosure prevention assistance programs;
Selected Program Characteristics: HOPE NOW is an alliance between
Department of Housing and Urban Development (HUD) certified-counseling
agents, servicers, investors, and other mortgage market participants
that provides free assistance for foreclosure prevention;
* Forms of assistance include hotline services to provide information
on foreclosure prevention, and access to HUD approved housing
counselors for debt management, credit, and overall foreclosure
counseling. According to HOPE NOW, the hotline receives an average of
more than 8,000 calls per day;
* Coordinates a nationwide outreach campaign to at-risk borrowers and
states that it has sent nearly 3 million outreach letters;
* According to HOPE NOW, since March 2008, it has hosted workshops in
27 cities involving homeowners, lenders, and HUD-certified counselors.
Source: Publicly available information from agencies and organizations
listed above.
[A] On December 31, 2008, FDIC signed a letter of intent to sell the
banking operations of IndyMac Federal Bank to a thrift holding company
controlled by IMB Management Holdings LP.
[B] This program was created in consultation with Fannie Mae, Freddie
Mac, HOPE NOW and its 27 servicer partners, the Department of the
Treasury, FHA, and FHFA.
[End of table]
[End of section]
Appendix IV Treasury's Summary Response to Prior Recommendations:
The U.S. Treasury Department:
Summary Response to Recommendations in the December 2008 GAO Report:
January 16, 2008:
Introduction: The Treasury Department (Treasury) welcomes the 9
recommendations on the TARP made by the GAO in its December 2008
report. Treasury has attempted to keep the GAO apprised of all of its
progress on these recommendations. The goal of this report is to
provide a written, high level summary of Treasury's progress on the GAO
recommendations and to identify the next steps that Treasury is taking
in these areas.
The report is structured as follows:
* Identification of the GAO recommendation;
* Summary of Treasury's status on that issue at the time of the
report's issuance;
* High level illustration of Treasury's progress on the issue;
* Identification of next steps Treasury will take.
GAO Recommendation 1: Work with bank regulators to establish a
systematic means of monitoring and reporting on whether financial
institutions' activities are consistent with the purposes of CPP and
help ensure an appropriate level of accountability and transparency.
Status at first GAO report:
* No regular processes were in place to capture and analyze data from
financial institutions participating in the CPP.
High Level Summary of Progress since First GAO Report:
* Treasury has been working constructively with the banking regulators
to design a program to monitor the activities of banks that have
received TARP capital. Treasury plans to use quarterly call report data
to analyze changes in the balance sheets, loan provisioning, and
intermediation activities of institutions we have invested in, and
compare their activities to a comparable set of institutions that have
not received TARP capital investments. Because call report data is
infrequent, Treasury will augment that analysis with a monthly survey
of the 20 largest recipients of Capital Purchase Program (CCP) capital.
This monthly survey, which Treasury sent on January 16, 2009, focused
on lending and intermediation activities and included both financial
data and commentary from the banks.
* Treasury has received clearance from OMB on its survey for the 20
largest investments and distributed the survey to those institutions on
January 16, 2009. Treasury will collect data through December 31, 2008.
The initial responses are due January 31, 2009. Going forward, each
survey will be due to Treasury within 30 days of the end of each
reporting period.
* Depending on the results of the monthly survey and call report
analysis, Treasury may also ask the four bank regulators to gather
information directly from CPP-recipient banks during their periodic on-
site examinations. The FDIC has recently initiated its own monitoring
program covering state non-member banks use of TARP capital injections,
Fed liquidity support and FDIC financing guarantees. It may make sense
for the four banking agencies to collaborate with Treasury on a
developing a common approach.
* Treasury has explored commissioning research from the banking
agencies on bank lending patterns during previous recessions. This
analysis might provide an historical perspective and would help provide
a context for the lending results coming out of the surveys described
above.
* The Office of Financial Stability (OFS) has continued to fill key
positions related to monitoring and reporting. A financial analyst has
been hired to analyze call report data on a quarterly basis as well as
analyze the monthly survey of the 20 largest CPP participants. In
addition, the OFS has created a position for a Director of Analytics
and Mission Metrics and is currently interviewing candidates.
Next steps:
* Treasury is continuing to design appropriate metrics to measure the
effectiveness of the various programs under TARP. This includes
coordinating with the banking regulatory agencies to determine how
Treasury can leverage information that is already collected as well as
designing new data and tracking mechanisms.
* The OFS is building its capacity to design and track performance
measures.
Recommendation 2: Develop a means to ensure that institutions
participating in CPP comply with key requirements of program
agreements, including those covering limitations on executive
compensation, dividend payments, and the repurchase of stock.
Status at first GAO report:
* At the time GAO issued its first report under section 116(a) of EESA,
Treasury had put in place an Interim Chief Compliance Officer (CCO) to
lead the compliance function within the OFS and had started recruiting
individuals to support the Office of the CCO. Additionally, Treasury
had issued an interim final rule in Part 31 CFR 30, providing guidance
on the executive compensation limitations applicable to participants in
the CPP. Treasury had also issued guidance on the executive
compensation restrictions applicable to institutions participating in
the program for Systemically Significant Failing Institutions (Notice
2008-PSSFI) and to institutions whose troubled assets might be
purchased by Treasury through an auction purchase (Notice 2008-TAAP).
High Level Summary of Progress since First GAO Report:
* Since the first GAO report, the Office of the CCO has hired a
Director of Compliance and two Compliance Analysts. Treasury reviewed
public comments on its interim final rule for executive compensation
and prepared a second interim rule that was published on Treasury's web
site on January 16, 2009. This interim final rule provides further
guidance on the executive compensation limitations applicable to CPP
participants and includes reporting and recordkeeping requirements for
participating institutions, requiring an institution's primary
executive officer to certify annually to Treasury regarding compliance
with compensation restrictions. The Office of the CCO is in the early
stages of developing a program to oversee and enforce compliance with
the executive compensation restrictions set forth in EESA, Treasury
guidance, and contracts. The first certifications pertaining to
executive compensation for CPP participants are due in mid-February.
Next steps:
* The Office of the CCO will continue to develop and will implement a
rigorous compliance program for the TARP. With regard to executive
compensation by CPP participants, the program will include receipt,
review, and necessary follow-up of executive compensation
certifications, including those certifications required by the interim
final rule for the CPP, which was released on January 16, 2009. In
appropriate cases, Treasury will also consider the use of other
mechanisms to oversee and enforce compliance with the executive
compensation requirements, including in depth reviews of compensation
practices by individual institutions receiving CPP funds, litigation to
enforce the securities purchase agreements and the regulations,
referrals to the Special Inspector General, and publicizing the
identity of institutions who violate executive compensation
restrictions. In addition, the Office of the CCO is continuing to focus
on recruiting and interviewing highly qualified candidates to fill
positions within the compliance program.
Recommendation 3: Formalize the existing communication strategy to
ensure that external stakeholders, including Congress and the public,
are informed about the program's current strategy and activities as
well as the rationale for changes in this strategy to avoid information
gaps and shocks.
Status at first GAO report:
* Treasury had used reports to Congress, Congressional testimony, and
speeches and interviews by senior Treasury officials as a means to keep
all stakeholders informed of the program's status and strategy.
High Level Summary of Progress since First GAO Report:
* Treasury has continued to meet all of its reporting requirements on
time, and has posted all reports, speeches and testimony on the EESA
website: [hyperlink, http://www.treas.gov/initiatives/eesa/]. Treasury
has increased its outreach to ensure that all stakeholders are informed
of TARP program developments as they occur.
* Since the December 2008 GAO report, Treasury has issued the following
reports:
- 8 transaction reports: [hyperlink,
http://www.treas.gov/initiatives/eesa/transactions.shtml];
- 2 tranche reports: [hyperlink,
http://www.treas.gov/initiatives/eesa/tranche-reports.shtml];
- 2 section 105 reports: [hyperlink,
http://www.treas.gov/initiatives/eesa/congressionalreports.shtml];
- 1 section 102 report: [hyperlink,
http://www.treas.gov/initiatives/eesa/congressionalreports102.shtml];
- 1 response to questions from the Congressional Oversight Panel:
[hyperlink, http://www.treas.gov/press/releases/hp1336.htm];
* Treasury officials also participated in Congressional hearings
regarding the TARP on December 4 and December 10:
- [hyperlink, http://www.treas.gov/press/releaseslhpI312.htm];
- [hyperlink, http://www.treas.gov/press/releases/hpI322.htm];
* Treasury officials also made public remarks on the program's status
on 6 occasions:
- [hyperlink, http://www.treas.gov/press/releases/hp1301.htm];
- [hyperlink, http://www.treas.gov/press/releases/hpl314.htm];
- [hyperlink, http://www.treas.gov/press/releases/hp1321.htm];
- [hyperlink, http://www.treas.gov/press/releases/hp1332.htm];
- [hyperlink, http://www.treas.gov/press/releases/hp1347.htm];
- [hyperlink, http://www.treas.gov/press/releases/hpI349.htm].
Next steps:
* OFS leadership will work closely with the new Administration to
develop a coordinated and effective communications strategy for the
program to ensure all stakeholders are informed of program
developments.
Recommendation 4: Develop a definitive transition plan by building on
and formalizing ongoing activities to facilitate a smooth transition to
the new administration, including ensuring that key OFS leadership
positions are filled during and after the transition to the new
administration.
Status at first GAO report:
* Immediately after the election, Treasury began updating and
consulting with the Transition team to keep them informed of our
actions and progress. The Transition team responded by encouraging
Treasury to continue executing our programs and building our
operations, while keeping them informed.
High level summary of progress since first GAO report:
* Since the GAO report, Treasury has continued to post the Transition
team on TARP developments, including new programs and operational
progress. The Transition team has met with TARP leadership, including
each of the Chiefs.
* TARP leadership has been very focused on making sure the transition
to the next Administration is seamless, especially due to the on-going
program execution requirements, such as weekly CPP investments. The
most effective way to ensure a seamless transition is to ensure that
the staff running the program is in place throughout the Transition.
* TARP leadership worked hard to find long-term leaders to run the
program throughout the Transition and beyond. For example, TARP's
interim Chief Financial Officer (CFO) was scheduled to return to his
agency in early January. Treasury believed it was a high priority to
identify a permanent CFO and provide time for the two to overlap to
ensure continuity of operations and a seamless transition. Treasury
hired a new, permanent CFO who overlapped with the interim CFO and has
now successfully transitioned into the new position.
* Similarly, our interim CPP program manager was due to return to
Chicago in early January. We identified a permanent CPP program manager
who joined in early January, providing an opportunity for overlap with
the interim manager and a smooth hand-off of a critical and complex
operation.
* The Assistant Secretary role and possibly the role of CIO are
political positions. As such, it was difficult for the current Treasury
leadership to identify long-term leaders for those positions.
Recognizing the importance of continuity, the Transition team asked the
current Interim Assistant Secretary and Interim CIO to remain in their
posts for some time after inauguration. Both have agreed, providing
strong continuity in these roles to ensure a smooth transition.
* The only leadership posts that are not currently occupied by people
who plan to remain after inauguration are the Chief Risk Officer (CRO)
and Chief of Homeownership Preservation. In both cases, very strong
teams have been assembled in those offices. The Homeownership
Preservation role may end-up being a political position given the
likely foreclosure mitigation policies that will be developed. In
addition, the CRO role is an important role, but the Transition team
has encouraged us to take our time to find the right candidate, ideally
with a mix of public and private sector expertise. Given the strong
team in the Risk Office, and the strong leadership of the other Chiefs,
the current Treasury and the Transition team agreed that a brief period
potentially between CROs would be manageable.
High Level Summary of Progress since First GAO Report:
* We are aggressively continuing our search for a permanent CRO. In
addition, we continue to post the Transition team on program
developments. Given that virtually the entire TARP team will now remain
in place for some time beyond inauguration, we are confident the
Transition will be seamless.
Recommendation 5: Continue OFS hiring efforts in an expeditious manner
to ensure that Treasury has the personnel needed to carry out and
oversee TARP.
Status at first GAO report:
* Treasury was in the process of recruiting and hiring well-qualified
career staff that will be able to stay on in their positions on a long-
term basis. The OFS had about 48 employees, including 5 permanent
employees, assigned to TARP as of November 21, 2008. Treasury was
prioritizing its hiring process by filling senior career positions
first.
High Level Summary of Progress since First GAO Report:
* The OFS has filled or selected candidates for key leadership
positions, including Chief Operating Officer, Chief Financial Officer,
Director of Compliance Program, Equity Program Director, Deputy Chief
Risk Officer, Director of Financial Agents, and Contracts
Administration Manager. Other senior appointments have included the
Executive Secretariat, the Internal Controls Program Leader, and Deputy
Director for the Equity Program. Appointments are pending for the
Middle Office Manager and a senior position in the Risk Office.
* Treasury has been operating TARP with a staff of approximately 140
people, including long-term TARP employees, detailees, and other
Treasury employees. Over time, TARP is shifting from reliance on
Treasury staff to long term OFS staff, and we have a robust pipeline of
outstanding new people joining OFS each week. As of January 15, the OFS
had a staff of 88 employees, including 28 long-term staff. By the end
of January, the OFS will have a staff of approximately 100 employees,
including 40 long-term staff. In addition, the OFS continues to benefit
from broad support across the Department of the Treasury. Finally, a
number of individuals detailed to the OFS from within Treasury or other
federal organizations have expressed interest in staying with the
program. These detailees are expected to remain with the program until
they transition into OFS positions or until permanent staff is
identified.
* While the OFS has moved quickly to add staff, Treasury has exercised
appropriate caution to ensure a thorough and rigorous ethics vetting
process. This has marginally increased the time it takes to on-board
employees after selection.
Next steps:
* The OFS continues to attract interest from excellent private and
public sector candidates. The OFS has established effective processes
for reviewing applications and there is broad involvement of the OFS
staff in the recruitment and interviewing process. The OFS is
continuing to interview candidates for leadership and staff positions
and expects to increase the hiring rate, while remaining mindful that
TARP is a program created to fill a temporary need.
Recommendation 6. Ensure that sufficient personnel are assigned and
appropriately trained to oversee the performance of all contractors,
especially those performing under contracts priced on a time and
materials basis, and move toward greater reliance on fixed price
arrangements, whenever possible, as program requirements are better
defined over time.
Status at first GAO report:
* Treasury had exercised its authority under the act to retain
financial agents to provide services on its behalf, as well as entering
into a variety of contracts and blanket purchase agreements under the
Federal Acquisition Regulation for legal, investment consulting,
accounting, and other services that are generally available in the
commercial sector.
High Level Summary of Progress since First GAO Report:
* The OFS has been adding additional procurement management,
procurement services, and financial agent management personnel to
effectively manage TARP contracts and financial agents.
* The OFS has created a new SES Contracts Administration Manager
position, which the department expects to fill by the end of January.
The contract administration manager will report to the TARP Chief
Operating Officer and will oversee TARP's long range requirements
planning, apply contract management best practices to TARP's contracts
and financial agent agreement, and provide contract management
leadership and guidance to TARP's Contracting Officer Technical
Representatives (COTRs) and financial agent management personnel.
* The OFS also has created an SES Director for Financial Agents to help
oversee a Manager of the Custodian/Infrastructure Provider and a
Manager of the Asset Managers, both of whom will in turn supervise a
team of staff-level vendor managers. Two of these three management
positions should be filled in January, and an experienced vendor
manager will start on January 31. In addition, after the asset managers
are selected, Treasury's investment consultant, Ennis Knupp, will have
an ongoing responsibility to provide advice and assistance in ensuring
proper performance by the asset managers.
* Treasury's Procurement Services Division is currently reviewing over
40 applicants for two high level Supervisory Contract Specialists
positions that will form the leadership core of the procurement team to
support OFS full time.
* The TARP has continued to recruit a number of experienced COTRs into
the OFS to ensure effective contract management at the staff level. In
the meantime, executives in the OFS and the Office of the General
Counsel continue to carefully manage our contracts.
* In addition, contracting staff continues to work closely with
requirements owners to identify opportunities for greater use of firm
fixed price contracts, where such contracts will maximize value for the
taxpayer, as well as minority- and women-owned small business
participation.
* Finally, while the transition to permanent and more experienced COTRs
has been underway, the Procurement Services Division (PSD) has
instituted a twice per month contract performance report requirement
for each OFS procurement. These reports facilitate contract cost and
quality control. PSD analyzes these reports and prepares a COTR Reports
Analysis for OFS, which is discussed in a bi-weekly meeting with the
Chief Operating Officer. The COTR Reports Analysis report helps to
identify and resolve contract performance and compliance issues at an
early stage. The OFS also has carefully monitored its financial agent
agreements, through monthly meetings with the financial agent's senior
management and regular analysis of scope and performance.
* In addition, the OFS continues to host periodic "procurement summit"
meetings that include broad representation from employees across the
Treasury Department with a role in OFS procurement and financial agent
agreements. The summits facilitate communication and coordination with
respect to requirements planning and contract management. PSD also has
provided interim training, support and recommendations to the OFS with
respect to OFS contracts.
Next steps:
* The OFS will complete these planned hiring actions, and add to the
staff of vendor managers as additional firms are selected as asset
managers over time.
Recommendation 7: Continue to develop a comprehensive system of
internal control over TARP, including policies, procedures, and
guidance, for program activities that are robust enough to ensure that
program 's objectives and requirements are being met.
Status at first GAO report:
* When GAO completed its first report, the OFS had hired external
support (PricewaterhouseCoopers) to support the development of internal
controls. A number of key controls had been established for the program
active at that time - the CPP.
High Level Summary of Progress since First GAO Report:
* The OFS has approached the development of internal controls with both
a short term and long term vision. The short term vision is to have
controls in place for the highest financial risk activities first. To
this end, the OFS has developed core controls for the programs
currently operating: CPP, SSFI, TIP and AIFP. The weekly CPP deal
closings have been completely documented. The OFS is relying on
existing Treasury operations and controls for many of the support
functions (e.g. budget, human resources and procurement), but has also
made progress developing controls for OFS specific functions. A
document provided to GAO by OFS this past week- "OFS Internal Control
Status as of 1/14/09"- provides a list of controls and control related
activity to date.
* The OFS has also made progress on developing a long term vision for
internal controls. An Internal Control Framework (previously provided
by the OFS) has been created and the management team is using it to
focus discussions on a range of organizational issues including
internal controls. We anticipate the framework will continue to evolve
as the organization continues to grow and mature.
Next Steps:
* The OFS will develop an implementation plan for the Internal Control
Framework. An area of initial focus will be financial reporting as the
OFS develops its financial statement processes and prepares for the
financial statement audit GAO will be conducting this year
Recommendation 8: Issue final regulations on conflicts of interest
involving Treasury's agents, contractors, and their employees and
related entities as expeditiously as possible, and review and
renegotiate mitigation plans, as necessary, to enhance specificity and
compliance with the new regulations once they are issued.
Status at first GAO report:
* When GAO published its first report on the TARP, Treasury had in
place several measures to address conflicts of interest. Treasury had
published and was implementing interim guidelines for addressing
conflicts of interest that may arise with vendors seeking work under
the Troubled Asset Relief Program. These guidelines supplemented the
conflicts provisions applicable through the Federal Acquisition
Regulation. Treasury was also drafting interim final regulations on
conflicts of interest.
High Level Summary of Progress since First GAO Report:
* After an extensive review process within Treasury and interested
agencies, Treasury has completed interim final conflicts regulations
and sent them to the Federal Register on January 14 for publication.
The regulations describe information that Treasury will require vendors
to provide when bidding for contracts, the conflicts reviews they must
undertake during the life of the contract, and the certifications they
must provide to demonstrate compliance, among other measures. A copy
has been sent to GAO under separate cover.
* While these regulations were being finalized, Treasury continued to
apply the interim guidelines and to scrutinize its vendors for
conflicts. As part of the process for hiring asset managers, for
example, Treasury has obtained and is reviewing very detailed
information about potential conflicts, mitigation strategies, codes of
ethics, and other compliance policies and practices from each
candidate. Treasury has also obtained guidance from its consultant,
Ennis Knupp, on evaluating the potential for conflicts and possible
mitigation measures in the asset manager program.
Next steps:
* Treasury has already begun a review of its contracts to determine
whether changes or additional requirements are necessary in light of
the new conflicts regulations, and this work will continue. Because
Treasury has been implementing conflicts requirements under its interim
guidelines and the Federal Acquisition Regulation, we do not anticipate
that this review will reveal the need for fundamental changes in our
contracts.
Recommendation 9: Institute a system to effectively manage and monitor
the mitigation of conflicts of interest going forward.
Status at first GAO report:
* When GAO issued its first report, Treasury was taking several
measures to address conflicts of interest for TARP vendors. As
mentioned above, Treasury routinely considered conflicts as part of its
procurement process, based on requirements in Treasury's interim
guidelines and the Federal Acquisition Regulation. Through these
measures, Treasury was able to identify vendors who may have conflicts,
obtain information about those conflicts, and impose contractual
requirements relating to conflicts. Among these vendors are law firms
whose lawyers are bound by professional codes of ethics, enforced by
state bars, to identify, manage, and prevent conflicts of interest.
These measures - regulatory, contractual, and professional codes - have
been part of Treasury's system for managing potential conflicts among
is vendors.
* Also at the time of GAO's first report, Treasury was implementing a
system for managing potential conflicts with the law firms that handle
CPP closings. Treasury regularly used two law firms to handle these
closings. Before a firm was assigned to close a transaction, Treasury
would send both firms a list of approved institutions as part of a
conflicts review process. If a firm had a conflict, the pertinent
transaction was assigned to the other law firm for closing. If both
firms had a conflict, the work would be assigned to a third firm. This
system prevented conflicts from arising, thereby avoiding the need for
mitigation measures.
High Level Summary of Progress since First GAO Report:
* As discussed above, Treasury has sent interim final regulations on
conflicts of interest to the Federal Register. These regulations
describe more formal processes for identifying, monitoring, and
mitigating conflicts of interest during procurement and the contract
term. For law firms handling CPP closings, Treasury continues to
implement its system for addressing potential conflicts at law firms
handling CPP closings. Treasury evaluates potential conflicts at law
firms handling other transactions before hiring, and imposes conflicts
requirements in their contracts as well. In general, Treasury has
avoided the need to design and monitor mitigation programs by hiring
vendors who do not have conflicts.
Next steps:
* Treasury will implement the conflicts regulations for new vendors and
review existing contracts to determine what changes are needed.
Treasury is currently designing conflicts provisions for the asset
manager agreements, and when these are finalized, will be designing and
implementing systems to monitor conflicts in this important area. As
new staff is hired for the Office of the CCO, Treasury will design and
implement additional measures to monitor existing vendors for
conflicts.
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Richard J. Hillman, (202) 512-8678 Thomas J. McCool, (202) 512-2642
Orice M. Williams, (202) 512-8678:
Staff Acknowledgments:
In addition to the contacts named above; Susan Fleming, Jeanette
Franzel, Mathew Scire, and William Woods (Lead Directors); Cheryl
Clark, Nikki Clowers, Daniel Garcia-Diaz, Lawrence Evans, Jr., Kay
Kuhlman, Kimberly McGatlin, Harry Medina, Carol Dawn Petersen (Lead
Assistant Directors); and Alison Abrams, Marianne Anderson, Benjamin
Bolitzer, Patrick Breiding, Angela Burriesci, Mason Calhoun, Emily
Chalmers, Clayton Clark, Rachel DeMarcus, Matt Drerup, Abe Dymond, Gary
Engel, Heather Halliwell, Michael Hoffman, Joe Hunter, Elizabeth
Jimenez, Casey Keplinger, Christopher Klisch, Steven Koons, John Krump,
J. Andrew Long, Robert Lunsford, Sean Merrill, Susan Michal-Smith, Marc
Molino, Susan Offutt, LaSonya Roberts, Barbara Roesmann, Susan
Sawtelle, Jennifer Schwartz, Raymond Sendajas, John Treanor, Katherine
Trimble, Julie Trinder, James Vitarello and Charles Wilson, Jr.
[End of section]
Footnotes:
[1] Pub. L. No. 110-343, 122 Stat. 3765 (2008), codified at 12 U.S.C.
§§ 5201 et seq.
[2] Section 102 of the act, 12 U.S.C. § 5212, authorizes Treasury to
guarantee troubled assets originated or issued prior to March 14, 2008,
including mortgage-backed securities.
[3] Section 116 of the act, 12 U.S.C. § 5226.
[4] GAO, Troubled Asset Relief Program: Additional Actions Needed to
Better Ensure Integrity, Accountability, and Transparency, [hyperlink,
http://www.gao.gov/products/GAO-09-161] (Washington, D.C.: Dec. 2,
2008).
[5] A warrant is an option to buy shares of common stock or preferred
stock at a predetermined price on or before a specified date.
[6] As discussed below, section 121 of the act, 12 U.S.C. § 5231,
established the Office of the Special Inspector General for TARP. The
Special Inspector General has established an Interagency Taskforce
consisting of representatives from the Offices of Inspector General at
FDIC, the Federal Reserve, OCC, OTS, and Treasury, and a representative
from GAO.
[7] As discussed later, section 125 of the act, 12 U.S.C. § 5233,
established the Congressional Oversight Panel.
[8] HOPE NOW is an alliance between Department of Housing and Urban
Development (HUD)-certified counseling agents, servicers, investors,
and other mortgage market participants. It provides free assistance to
prevent foreclosures. NeighborWorks is a national nonprofit
organization created by Congress to provide financial support,
technical assistance, and training for community-based revitalization
efforts.
[9] No indicator on its own provides a definitive perspective on the
state of markets; collectively, the indicators should provide a broad
sense of stability and liquidity in the financial system and could be
suggestive of the program's impact. However, it is difficult to draw
conclusions about causality.
[10] The Congressional Oversight Panel consists of five members, with
the Speaker of the House, the House Republican Leader, the Senate
Majority Leader, and the Senate Republican Leader each selecting one
member. The Speaker of the House and the Senate Majority Leader select
the fifth member jointly. The current members are Richard H. Neiman,
Superintendent of Banks in New York (appointed by the Speaker of the
House); Representative Jeb Hensarling (appointed by the House
Republican Leader); Elizabeth Warren (Chair), Harvard Law School
(appointed by the Senate Majority Leader); former Senator John Sununu
(appointed by the Senate Republican Leader); and Damon Silvers, AFL-CIO
Associate General Counsel (jointly appointed by the Speaker of the
House and the Senate Majority Leader). Others with oversight
responsibilities include the Congressional Budget Office and the Office
of Management and Budget.
[11] 12 U.S.C. § 5214.
[12] Section 115(a)(1) and (2) of the act, 12 U.S.C. §§ 5225(a)(1),
(a)(2), set an initial limit of $350 billion on the amount of troubled
asset purchases Treasury was authorized to make. That limit has
increased to $700 billion under section 115(a)(3) of the act because
the President has requested the remainder of the TARP funds from
Congress and Congress has not enacted specific legislation within the
specified time required by the act to disapprove the President's
request.
[13] An obligation is a definite commitment that creates a legal
liability of the government, such as an agreement to purchase troubled
assets.
[14] 31 U.S.C. §§ 1513, 1517. Under section 118 of the act, 12 U.S.C. §
5228, Treasury is authorized to issue Treasury securities and use the
proceeds to pay for TARP program and administrative expenses, and the
funds obligated or expended for such expenses are deemed to be
appropriated. Apportionment is an action by which OMB distributes
amounts available for obligation in an appropriation or fund account.
[15] The total of the asset purchase prices may not be the same as the
amount of obligations.
[16] For purposes of CPP, financial institutions generally include
qualifying U.S.-controlled banks, savings associations, and bank
holding companies and savings and loan holding companies.
[17] While Treasury approved $125 billion to the nine largest
institutions, as table 2 shows, it initially disbursed funds to eight
of the nine institutions. The $10 billion to Merrill Lynch was not
disbursed until January 9, 2009, after its merger with Bank of America
was completed.
[18] A CDFI is a specialized financial institution that works in market
niches that are underserved by traditional financial institutions.
CDFIs provide a range of financial products and services such as
mortgage financing for low-income and first-time homebuyers and not-
for-profit developers; flexible underwriting and risk capital for
needed community facilities; and technical assistance, commercial loans
and investments to small start-up or expanding businesses in low-income
areas.
[19] This figure excludes applications that were withdrawn by the
financial institution, were referred to the bank regulators for further
consideration, or were for institutions for which term sheets have not
yet been issued.
[20] An S corporation makes a valid election to be taxed under
Subchapter S of Chapter 1 of the Internal Revenue Code and thus does
not pay any income taxes. Instead, the corporation's income or losses
are divided among and passed through to its shareholders. A mutual
organization is a company that is owned by its customers rather than by
a separate group of stockholders. Many thrifts and insurance companies
(for example, Metropolitan and Prudential) are mutuals.
[21] For a detailed discussion of the CPP terms for publicly held
institutions, see [hyperlink, http://www.gao.gov/products/GAO-09-161],
21-22. The terms relating to dividends and rankings, as well as the
limitations on executive compensation, are similar to those for
publicly traded financial institutions. However, the limitations on
common dividends and repurchases are generally extended until the tenth
anniversary of the date of issuance. Private financial institutions are
also prohibited from paying any common dividends or repurchasing any
equity securities or trust-preferred securities after the tenth
anniversary, unless the preferred stock has been redeemed or
transferred to a third party.
[22] Tier 1 capital is the core measure of a bank's financial strength
from a regulator's point of view. It consists of the types of capital
considered the most reliable and liquid, primarily common stock and
preferred stock. A "qualified equity offering" is the sale and issuance
of Tier 1 qualifying perpetual preferred stock, common stock, or a
combination of such stock for cash. The preferred stock may be redeemed
before 3 years has elapsed only if the institution's aggregate gross
proceeds from "qualified equity offerings" are at least 25 percent of
the stock's issue price.
[23] If Treasury purchases troubled assets under the act from a
publicly traded financial institution, section 113(d) of the act, 12
U.S.C. § 5223(d), requires that it receive a warrant giving Treasury
the right to receive nonvoting common stock or preferred stock, or
voting stock for which Treasury agrees not to exercise voting power. In
the case of any other financial institution, Treasury must receive a
warrant for common or preferred stock or a senior debt instrument. The
act requires that the warrant or senior debt instrument be designed to
provide for the reasonable participation in equity appreciation (in the
case of a warrant) or a reasonable interest rate (in the case of a debt
instrument). The warrant is also to provide additional protection for
taxpayers against losses from the sale of assets by Treasury and the
administrative expenses of TARP. Section 113 of the act contains
additional requirements that apply to conversion of warrants, required
protections of the value of the securities, and requirements concerning
the exercise price and the shares authorized by the financial
institution to fulfill its obligations with respect the warrants.
Treasury is required to establish de minimis exceptions to the
requirements applicable to warrants and to establish appropriate
alternative requirements for institutions that are legally prohibited
from issuing securities or debt instruments.
[24] The warrant preferred shares have a 9 percent return compared to 5
percent on the preferred shares. Also, to promote participation of
CDFIs in CPP, Treasury does not require those institutions to provide
warrants if the size of the investment is $50 million or less. Treasury
has established this exception under section 113(d)(3) of the act, 12
U.S.C. § 5223(d)(3).
[25] The term sheet for S corporations specifies that the senior
securities are to be senior to the institution's common stock and that
senior securities issued by a bank or savings association must be
expressly subordinated to claims of depositors and to the institution's
other debt obligations to its general and secured creditors, unless the
debt obligations are explicitly made equal to or subordinated to the
senior securities. Senior securities issued by a holding company must
be subordinated to senior indebtedness in accordance with holding
company regulation, unless the senior indebtedness is explicitly made
equal to or subordinated to the senior securities.
[26] According to the term sheet, S corporations' senior securities
have 7.7 percent and 13.8 percent interest rates. The higher rates will
equate to after-tax effective rates (assuming a 35 percent tax rate) of
5 percent and 9 percent, respectively--the same rates applied to
securities issued by other classes of institutions participating in
CPP.
[27] The primary federal regulator is generally the regulator
overseeing the lead bank of the institution. Where the institution is a
bank holding company, the primary federal regulator also consults with
the Federal Reserve. For a more thorough discussion of the approval
process, see [hyperlink, http://www.gao.gov/products/GAO-09-161], 22-
24.
[28] The committee membership includes the OFS's Chief Investment
Officer (committee chair) and the Treasury Assistant Secretaries for
Financial Markets, Economic Policy, Financial Institutions, and
Financial Stability.
[29] The CPP Council is made up of representatives from the four
federal bank regulators, with Treasury officials as observers.
[30] See FDIC, "Monitoring the Use of Funding from Federal Financial
Stability and Guaranty Programs," FIL-1-2009, January 12, 2009.
[31] The standard terms of the CPP Securities Purchase Agreement
between Treasury and participating institutions include provisions in
the "recitals" section stating "the Company agrees to expand the flow
of credit to U.S. consumers and businesses on competitive terms" and
"agrees to work diligently, under existing programs, to modify the
terms of residential mortgages."
[32] The new interim final rule will amend the October rule to mandate
that the required compensation committee certifications be provided in
a different section of an institution's SEC filing. The new rule also
will clarify that for purposes of the "clawback" or recovery
requirements, bonus and incentive compensation is considered paid to a
senior executive officer when the officer obtains a legally binding
right to the payment, even if the payment is not made during a period
when Treasury holds an interest in the financial institution. Finally,
the new rule will clarify the comparison of the act's and Treasury's
rules on the clawback provisions with the clawback provisions in
section 304 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7243.
[33] Senior executive officers are generally the PEO, the chief
financial officer, and the three most highly compensated executive
officers.
[34] GM, Chrysler, and Ford Motor Company (Ford) officials testified
before the Senate Committee on Banking, Housing, and Urban Affairs on
December 4, 2008, and before the House Committee on Financial Services
on December 5, 2008. In the testimony statements and business plans
submitted to the committees, the GM, Chrysler, and Ford CEOs reported
that their companies needed $18 billion, $7 billion, and $9 billion,
respectively, in federal assistance. Ford subsequently determined that
it would not request assistance from Treasury at this time.
[35] Specifically, Treasury agreed to purchase GM and Chrysler debt
securities--TARP "troubled assets" under section 3(9) of the act, 12
U.S.C. § 5202(9).
[36] GMAC specializes in automotive finance, real estate finance,
insurance, commercial finance, and online banking. As of September 30,
2008, GMAC had $211 billion in total assets. This loan commitment is in
addition to the $13.4 billion loan announced on December 19, 2008.
[37] GMAC is a limited liability corporation, and its warrants are not
publicly traded and have no ready markets.
[38] Senior employees are the 20 most highly compensated employees,
other than the SEOs.
[39] Accrued interests will be payable by the end of the five-year term
on January 16, 2014. The loan's interest rate will be equal to the one-
month LIBOR plus 100 basis points for the first year and one-month
LIBOR plus 150 basis points for the remaining four years. LIBOR is the
interest rate offered for dollar deposits in the London interbank
market for 3-month, dollar-denominated loans.
[40] 12 U.S.C. § 5221.
[41] LIBOR is the interest rate offered for dollar deposits in the
London interbank market for 3-month, dollar-denominated loans.
[42] The agreement requires that no funds from the stock purchase
agreement or the Federal Reserve Bank of New York Credit Agreement be
used to pay annual bonuses or other performance awards, and establishes
a methodology for auditing and confirming compliance with this
requirement, whereby the dividends from subsidiaries or net income to
the company must exceed the bonus payment amounts.
[43] The Senior Leadership Committee includes anyone who is a member of
the policy committee composed of senior officers from various Citigroup
subsidiaries (covering 52 senior executives) and the SEOs.
[44] Citigroup must submit a written detailed recommendation to
Treasury's Assistant Secretary for Financial Stability describing the
basis for any proposed change in the bonus pool cap.
[45] The lobbying policy will be applied to Citigroup and its
subsidiaries and will relate to the provision of items of value to U.S.
government officials, lobbying of U.S. government officials, U.S.
political activities, and contributions. The policy must provide for
internal reporting, oversight, and enforcement mechanisms for non-
compliance. Any material amendments to the policy require Treasury's
written approval.
[46] The expense policy will be applied to Citigroup and its
subsidiaries and will govern the hosting and sponsoring of or payment
for conferences and events, the use of corporate aircraft, travel
accommodations and expenditures, consulting arrangements with outside
service providers, any new lease or acquisition of real estate,
expenses relating to office or facility renovations or relocations, and
expenses relating to entertainment or holiday parties. The policy must
provide for internal reporting, oversight, and enforcement mechanisms
for noncompliance.
[47] Bank of America received the additional $10 billion once its
merger with Merrill Lynch was completed on January 1, 2009.
[48] In addition, Treasury announced that Bank of America's pool of
specific assets (including residential mortgages) would be protected
against unusually large losses. We discuss the announced guarantee
program in a later section of this report.
[49] A nonrecourse loan is one in which, in the event the loan is not
repaid, the lender is repaid by taking the collateral. The unpaid
balance on the loan must be absorbed by the lender.
[50] Department of the Treasury, Responses to Questions of the First
Report of the Congressional Oversight Panel for Economic Stabilization
(Washington, D.C.: December 30, 2008).
[51] See [hyperlink, http://www.gao.gov/products/GAO-09-161].
[52] Section 102 of the act, 12 U.S.C. § 5212, requires Treasury to
create an insurance program to guarantee the timely payment of
principal and interest for troubled assets originated or issued prior
to March 14, 2008, including mortgage-backed securities. The
requirement for a program to guarantee troubled assets is contingent on
Treasury establishing a program to purchase troubled assets.
[53] Specifically, Treasury's purchase authority would be reduced by
the total value of the outstanding guaranteed assets minus the balance
of the Troubled Asset Insurance Financing Fund, or any cash premiums
received. The act requires that Treasury establish this fund to collect
premiums for the program. The Secretary must invest the amounts
collected in Treasury securities or keep cash on hand or on deposit.
[54] See [hyperlink, http://www.gao.gov/products/GAO-09-161], 32-34.
[55] According to Treasury officials, they were able to retain this
individual in the position partly because she was already a Treasury
official.
[56] GAO, Securities and Exchange Commission: Some Progress Made in
Strategic Human Capital Management, [hyperlink,
http://www.gao.gov/products/GAO-06-86] (Washington, D.C.: Jan. 10,
2006).
[57] [1] Under authorization by the Office of Personnel Management
(OPM), agencies may make appointments for positions which are not of a
confidential or policy-determining character, not in the SES, and not
practical to examine. These are referred to as Schedule A appointments,
and are exempt from examination requirements typically required for
competitive service positions. See 5 C.F.R. §§ 213.3101-3102.
[58] 12 U.S.C. § 5211(c).
[59] The financial regulatory agencies have authority to establish
their own compensation programs without regard to statutory
requirements on classification and pay applicable to executive branch
agencies under Title 5 of the U.S. Code. See GAO, Financial Regulators:
Agencies Have Implemented Key Performance Management Practices, but
Opportunities for Improvement Exist, GAO-07-678 (Washington, D.C.: Jun.
18, 2007).
[60] GAO, Human Capital: Key Principles for Effective Strategic
Workforce Planning, [hyperlink, http://www.gao.gov/products/GAO-04-39]
(Washington, D.C.: Dec. 11, 2003).
[61] See [hyperlink, http://www.treas.gov/initiatives/eesa/jobs.shtml],
last visited on January 24, 2009.
[62] GAO, Human Capital: Effective Use of Flexibilities Can Assist
Agencies in Managing Their Workforces, [hyperlink,
http://www.gao.gov/products/GAO-03-2] (Washington, D.C.: Dec. 6, 2002).
[63] As a result of this contract award, Treasury had two contracts for
legal services with the same law firm (Thacher, Profitt & Wood). The
first contract was for legal services related to providing TARP funds
to companies in the auto industry, and the second was for services in
connection with TALF. It is not unusual for the government to have
multiple contracts for different purposes with the same entity. In
January, 2009, Thacher, Proffitt, & Wood dissolved and its
responsibilities under existing contracts were transferred to another
firm (Sonnenschein, Nath & Rosenthal). Treasury agreed to this transfer
through a novation agreement.
[64] Additionally, Treasury has entered into agreements with other
agencies for a variety of other services, such as personnel detailees,
and awarded a contract for the painting of leased space.
[65] This total excludes the interagency agreements for such services
as personnel detailees and the contract for the painting of leased
space.
[66] CICA authorizes agencies to limit competition when an unusual and
compelling urgency precludes the use of full and open competition and
delaying the contract would result in serious financial or other harm
to the government. 10 U.S.C. § 2304; 41 U.S.C. § 253.
[67] 41 U.S.C. § 253(c)(2); 48 C.F.R. § 6.302-2(c)(2) (2008).
[68] 48 C.F.R. § 10.001 (2008).
[69] COTRs act as the contracting officer's technical experts and
representatives in the administration and monitoring of contracts.
[70] 74 Fed. Reg. 3431 (Jan. 21, 2009) (to be codified in 31 C.F.R.
Part 31).
[71] 74 Fed. Reg. 3431 (Jan. 21, 2009).
[72] GAO, Defense Contracting: Post-Government Employment of Former DOD
Officials Needs Greater Transparency, [hyperlink,
http://www.gao.gov/products/GAO-08-485] (Washington, D.C.: May 21,
2008).
[73] These and other restrictions that apply to federal employees do
not apply to contractor employees. See GAO, Defense Contracting:
Additional Personal Conflict of Interest Safeguards Needed for Certain
DOD Contractor Employees, [hyperlink,
http://www.gao.gov/products/GAO-08-169] (Washington, D.C.: Mar. 7,
2008). Nevertheless, Treasury's TARP contracts impose post-employment
restrictions on contractor employees in areas such as nondisclosure of
nonpublic information.
[74] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[75] According to PricewaterhouseCoopers, it is using the Committee of
Sponsoring Organizations of the Treadway Commission's--Enterprise Risk
Management-Integrated Framework as the basis for providing assistance
in developing the internal control model. The committee is a voluntary
private-sector organization whose purpose is to help businesses and
other entities assess and enhance their internal control systems. As of
January 24, 2009, this framework was consistent with GAO's Standards
for Internal Control.
[76] Accounting for troubled assets under the Federal Credit Reform
Act, 2 U.S.C. § 661c, involves the estimation of cash flows over time.
[77] The relevant government-sponsored enterprises are Fannie Mae,
Freddie Mac, and the Federal Home Loan Banks.
[78] The original announcement occurred on November 20, 2008,
suspending foreclosures and evictions through January 9, 2009.
[79] A basis point is a common measure used in quoting yield on bills,
notes, and bonds and represents 1/100 of a percent of yield. It should
be noted that while the spread is large, the actual LIBOR rate is lower
than the average rate from 2005 through mid-2007.
[80] Moody's Investors Service performs financial research and analysis
on commercial and government entities. It also ranks the
creditworthiness of borrowers using a standardized rating scale. These
spreads also can reflect a liquidity or prepayment premium.
[81] Moreover, economic research also suggests that such interest rate
spreads have predictive power for several real economy variables, such
as industrial production, durable orders, the unemployment rate,
personal income, capacity utilization, and consumption.
[82] Conforming mortgages are mortgage loans that can be purchased by
Fannie Mae and Freddie Mac.
[83] This dropoff is consistent with the change in household mortgage
debt as measured by the Federal Reserve's flow of funds data.
[84] The mortgage application index is not seasonally adjusted here to
provide a more appropriate comparison to the unadjusted mortgage
origination data. Because the seasonal patterns in the data might be
different for each series, we also analyzed year-over-year changes.
Originations were roughly 47 percent lower in the third quarter of 2008
than in the third quarter of 2007, while the average mortgage
application index fell 24 percent.
[85] GAO, Troubled Asset Relief Program: Status of Efforts to Address
Defaults and Foreclosures on Home Mortgages, [hyperlink,
http://www.gao.gov/products/GAO-09-231T] (Washington D.C.: Dec. 4,
2008).
[86] FDIC, Treasury, and the Federal Reserve have stated that lenders
and servicers should (1) determine whether a loan modification would
enhance the net present value of the loan before proceeding to
foreclosure; and (2) ensure that loans currently in foreclosure have
been subject to such analysis.
[End of section]
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