Troubled Asset Relief Program
Status of Efforts to Address Transparency and Accountability Issues Gao ID: GAO-09-474T March 11, 2009This testimony discusses our work on the Troubled Asset Relief Program (TARP), under which the Department of the Treasury (Treasury) has the authority to purchase and insure up to $700 billion in troubled assets held by financial institutions through its Office of Financial Stability (OFS). As Congress may know, Treasury was granted this authority in response to the financial crisis that has threatened the stability of the U.S. banking system and the solvency of numerous financial institutions. The Emergency Economic Stabilization Act (the act) that authorized TARP on October 3, 2008, requires GAO to report at least every 60 days on findings resulting from our oversight of the actions taken under TARP. This testimony is based primarily on our January 30, 2009 report, the second under the act's mandate, which covers the actions taken as part of TARP through January 23, 2009, and follows up on the nine recommendations we made in our December 2, 2008 report. This testomony also provides additional information on some recent developments related to TARP, including Treasury's new financial stability plan.
Treasury has made progress in establishing a management structure for TARP, including adopting a framework for developing and implementing its system of internal control for TARP activities that is consistent with our recommendation. However, as of our January report, OFS had yet to implement a disciplined risk-assessment process. Treasury has taken steps to help ensure a smooth transition to a new administration by keeping positions filled and using an expedited hiring process. However, it continues to face difficulty providing competitive salaries to attract skilled employees. Also, given the TARP's evolving nature and the changes under the new administration, Treasury needs to identify OFS's long-term organizational needs. Additionally, consistent with our recommendation on contracting oversight, Treasury has enhanced such oversight by tracking costs, schedules, and performance and addressing the training requirements of personnel who oversee the contracts. However, as we previously recommended, Treasury needs to continue to identify and mitigate conflicts of interest in contracting.
GAO-09-474T, Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability
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Testimony:
Before the Subcommittee on Domestic Policy, Committee on Oversight and
Government Reform, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 A.M. EDT:
Wednesday, March 11, 2009:
Troubled Asset Relief Program:
Status of Efforts to Address Transparency and Accountability Issues:
Statement of Richard J. Hillman, Managing Director:
Financial Markets and Community Investment:
GAO-09-474T:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss our work on the Troubled Asset
Relief Program (TARP), under which the Department of the Treasury
(Treasury) has the authority to purchase and insure up to $700 billion
in troubled assets held by financial institutions through its Office of
Financial Stability (OFS).[Footnote 1] As you know, Treasury was
granted this authority in response to the financial crisis that has
threatened the stability of the U.S. banking system and the solvency of
numerous financial institutions. The Emergency Economic Stabilization
Act (the act) that authorized TARP on October 3, 2008, requires GAO to
report at least every 60 days on findings resulting from our oversight
of the actions taken under TARP.[Footnote 2] We are also responsible
for auditing OFS's annual financial statements and for producing
special reports on any issues that emerge from our oversight. To carry
out these oversight responsibilities, we have assembled
interdisciplinary teams with a wide range of technical skills,
including financial market and public policy analysts, accountants,
lawyers, and economists who represent combined resources from across
GAO. In addition, we are building on our in-house technical expertise
with targeted new hires, re-employed annuitants with related expertise,
and outside experts. The act also created additional oversight
entities--the Congressional Oversight Panel (COP) and the Special
Inspector General for TARP (SIGTARP)--that also have reporting
responsibilities. We are coordinating our work with COP and SIGTARP and
are meeting with officials from both entities to share information and
coordinate our oversight efforts. These meetings help to ensure that we
are collaborating as appropriate and not duplicating efforts.
My statement today is based primarily on our January 30, 2009 report,
the second under the act's mandate, which covers the actions taken as
part of TARP through January 23, 2009, and follows up on the nine
recommendations we made in our December 2, 2008 report.[Footnote 3]
This statement also provides additional information on some recent
developments related to TARP, including Treasury's new financial
stability plan. Our oversight work under the act is ongoing, and our
next report is due to be issued by March 31, 2009, as required. This
statement focuses on (1) the nature and purpose of activities that have
been initiated under TARP; and (2) Treasury's efforts to establish a
management structure for TARP, including a system of internal controls
over the use of TARP funds. To do this work, we reviewed documents
related to TARP, including contracts, agreements, guidance, and rules.
We also met with OFS, contractors, federal agencies, and officials from
all eight of the first large institutions to receive disbursements. We
plan to continue to monitor the issues highlighted in the report, as
well as future and ongoing capital purchases, other more recent
transactions undertaken as part of TARP (for example, guarantees on
assets of Citigroup and Bank of America), and the status of other
aspects of TARP. We conducted this performance audit between December
2008 and March 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.
Summary:
Treasury has announced a number of new programs to try to stabilize
financial markets, but most of its activities during this period have
continued to fall under its Capital Purchase Program (CPP). As of March
5, 2009, Treasury had disbursed approximately $300 billion in TARP
funds, about $197 billion of it for CPP. Treasury has recently
announced the Financial Stability Plan, which outlines a set of
measures to address the financial crisis and restore confidence in the
U.S. financial and housing markets, and a Homeowner Affordability and
Stability Plan to mitigate foreclosures and preserve homeownership.
Treasury also has taken important steps since our first report to
implement all nine of our recommendations. However, due in part to the
short time that has elapsed since our first report, we continued to
identify a number of areas that warrant Treasury's ongoing attention.
We recommended in our latest report that Treasury continue to take
action to further improve TARP's transparency and accountability and
more clearly articulate and communicate a strategic vision for TARP.
Specifically, we recommended that Treasury:
* expand the scope of the monthly CPP surveys for the 20 largest banks
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 that incorporates
actions to preserve homeownership and describes how all individual
programs are intended to work in concert to achieve that vision; and
once this vision is clearly articulated, document the skills and
competencies needed within the department to carry it out;
* develop a comprehensive system of internal controls over TARP,
including policies, procedures, and guidance for program activities
that are robust enough to ensure that the program's objectives and
requirements are met;
* 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 requirements are
better defined over time;
* develop and implement a well-defined and disciplined risk-assessment
process, which is essential to monitoring the status of programs and
identifying any risks that previously announced programs will not be
adequately funded; and:
* review and renegotiate existing conflict-of-interest mitigation
plans, as necessary, to enhance specificity and conformity with the new
interim conflict-of-interest regulation and take continued steps to
manage and monitor conflicts of interest and enforce mitigation plans.
Consistent with our recommendations, the recently announced Financial
Stability Plan outlines some steps that Treasury is taking to improve
the transparency and accountability of new programs going forward. But
Treasury still faces several challenges. First, our initial report
emphasized the lack of monitoring and reporting for CPP investments and
recommended stronger measures for ensuring that participating
institutions used 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
completed its initial survey of the 20 largest institutions to monitor
lending and other activities and announced plans to analyze quarterly
monitoring data (call reports) for all reporting institutions.[Footnote
4] 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 TARP funds.
Second, Treasury has continued to develop a system to ensure compliance
with CPP requirements, including executive compensation, dividend
payments, and repurchase of stocks, but it has not yet finalized its
plans for detecting noncompliance and taking enforcement actions.
Third, we noted that Treasury had made limited progress in articulating
and communicating an overall strategic vision for TARP and continued to
respond to institution-and industry-specific needs. This lack of
clarity has complicated Treasury's ability to effectively communicate
to Congress, the financial markets, and the public. As Treasury
provides more details on its new Financial Stability Plan, its
strategic approach to addressing the financial crisis may become
clearer.
Treasury has made progress in establishing a management structure for
TARP, including adopting a framework for developing and implementing
its system of internal control for TARP activities that is consistent
with our recommendation. However, as of our January report, OFS had yet
to implement a disciplined risk-assessment process. Treasury has taken
steps to help ensure a smooth transition to a new administration by
keeping positions filled and using an expedited hiring process.
However, it continues to face difficulty providing competitive salaries
to attract skilled employees. Also, given the TARP's evolving nature
and the changes under the new administration, Treasury needs to
identify OFS's long-term organizational needs. Additionally, consistent
with our recommendation on contracting oversight, Treasury has enhanced
such oversight by tracking costs, schedules, and performance and
addressing the training requirements of personnel who oversee the
contracts. However, as we previously recommended, Treasury needs to
continue to identify and mitigate conflicts of interest in contracting.
Treasury Has Continued to Focus on CPP, but a Variety of Other Programs
Have Been Created or Are Being Planned:
Treasury has continued to focus on CPP, but a variety of other programs
have been created or are in progress, as shown in table 1. As of March
5, 2009, Treasury had disbursed almost 80 percent of the $250 billion
it had allocated for CPP to purchase almost $197 billion in preferred
shares of 467 qualified financial institutions (table 1).[Footnote 5]
Treasury has begun to receive dividend payments relating to capital
purchases under CPP and other programs. According to Treasury, as of
February 17, 2009, it had received about $2.4 billion.
Table 1: Status of TARP Funds as of March 5, 2009:
Program: Capital Purchase Program;
Disbursed: $196.8 billion.
Program: Systemically Significant Failing Institutions;
Disbursed: $40.0 billion.
Program: Targeted Investment Program;
Disbursed: $40.0 billion.
Program: Automotive Industry Financing Program;
Disbursed: $23.7 billion.
Program: Citigroup Asset Guarantee;
Disbursed: 0.0.
Program: Bank of America Asset Guarantee;
Disbursed: 0.0.
Program: Making Home Affordable Program;
Disbursed: 0.0.
Program: Term Asset-backed Securities Loan Facility - 1;
Disbursed: 0.0.
Program: Consumer & Business Lending Initiative;
Disbursed: 0.0.
Program: Totals;
Disbursed: $300.5 billion.
[End of table]
Source: Treasury OFS, unaudited.
[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 6] At the time, these
nine institutions held about 55 percent of U.S. banking assets.
Subsequent purchases were made for qualified institutions of various
sizes (in terms of total assets) and types. As we noted in our January
report, most of the institutions that received CPP capital were
publicly held institutions, although a limited number of privately held
institutions and community development financial institutions (CDFI)
also received funds.[Footnote 7]
Treasury has taken a number of important steps toward better reporting
on and monitoring of CPP. These steps are in keeping with our prior
recommendations that Treasury bolster its ability to determine whether
institutions are using CPP proceeds in ways that are consistent with
the act's purposes and establish mechanisms to monitor compliance with
program requirements. However, Treasury needs to take further steps in
this area. Treasury has done an initial survey of the largest
institutions to monitor their lending and other activities and
announced plans to analyze quarterly monitoring data (call reports) for
all reporting institutions. While the monthly survey is a step toward
greater transparency and accountability for the largest institutions,
we continue to believe that additional actions are needed to better
ensure that all participating institutions are held accountable for
their use of the funds. Without more frequent information on all
participants, Treasury will have little timely information about the
changing financial condition of participating institutions, potentially
limiting the ability of its newly created team of analysts to
understand how the institutions are using CPP funds and whether the
program is having the desired effect. In addition, without ensuring
that future CPP agreements include a mechanism that enables Treasury to
track the use of capital infusions and that existing CPP participants
provide similar information, Treasury may have difficulty determining
whether an institution has used the funds in a manner consistent with
TARP's purposes. Therefore, we recommended that Treasury expand the
scope of planned monthly CPP surveys to include collecting at least
some information from all participating institutions. We also
recommended that future CPP agreements include a mechanism that enables
Treasury to track the use of capital infusions and that Treasury seek
to obtain similar information from existing CPP participants. We will
continue to monitor Treasury's oversight efforts as well as the
consistency of the approval process in future work.
Treasury has also continued to take steps to increase its planned
oversight of compliance with terms of the CPP agreements, including
limitations on executive compensation, dividends, and stock
repurchases. Among these steps, Treasury has named an Interim Chief
Compliance Officer. However, Treasury has not finalized its plans for
detecting noncompliance with CPP requirements or for taking enforcement
actions. Without a more structured mechanism in place to ensure
compliance and with a growing number of institutions participating in
the program, ensuring compliance with these important aspects of the
program will become increasingly challenging. In its recently announced
Financial Stability Plan, Treasury called for banks receiving
government funds in the future to be held responsible for appropriate
use of those funds through (1) stronger restrictions on dividend
payment and executive compensation, and (2) enhanced reporting to the
public, including reporting on lending activity. In addition, Treasury
is in the process of drafting new regulations to implement the
executive compensation requirements in the American Recovery and
Reinvestment Act of 2009, which amended the requirements in the
Emergency Economic Stabilization Act related to executive compensation
and corporate governance of TARP fund recipients.[Footnote 8] Among
these amendments is a requirement for the boards of directors of any
TARP fund recipient to have in place a company-wide policy regarding
excessive or luxury expenditures, as identified by Treasury. These may
include excessive expenditures on entertainment or events, office and
facility renovations, aviation or other transportation services, or
other activities or events that are deemed unreasonable. We plan to
monitor how Treasury defines excessive or luxury expenditures and how
Treasury assures that TARP fund recipients adopt reasonable policies
and practices to control against such expenditures. We will also
continue to monitor both the system that Treasury develops to ensure
compliance with the agreements and the implementation of additional
oversight and accountability efforts under its new plan.
Treasury has also continued to make some progress in improving the
transparency of TARP and a few weeks ago announced its plans for the
remaining TARP funds. In our December 2008 report, we first 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 the COP's January report, which
raised similar 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, we
found that Treasury's strategic vision for TARP remained unclear. For
example, Treasury initially outlined a strategy to purchase whole loans
and mortgage-backed securities from financial institutions, but changed
direction to make capital investments in qualifying financial
institutions as the global community opted to move in this direction.
However, once Treasury determined that capital infusions were
preferable to purchasing whole mortgages and mortgage-backed
securities, it did not clearly articulate how the various programs--
including CPP, the Systemically Significant Failing Institutions
Program (SSFI), and the Targeted Investment Program (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. Treasury
also created 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 and provided loans to two
auto companies and two financing companies that, among other business
lines, provide consumer automotive loans. Further, the same institution
may be eligible for multiple programs. At least two institutions
(Citigroup and Bank of America) currently participate in more than one
program, adding to the confusion about Treasury's strategy and vision
for implementing TARP. Other actions also have raised additional
questions about Treasury's strategy. For example, Treasury announced
the first institution under TIP 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, but many of the details of the program have yet to be worked
out.
Since our January report, Treasury has taken three key actions related
to our recommendation about the need for a clearly articulated vision
for the program. First, on February 10, Treasury announced the
Financial Stability Plan, which outlined a set of measures to address
the financial crisis and restore confidence in U.S. financial and
housing markets. The plan appears to be an approach designed to resolve
the credit crisis by restarting the flow of credit to consumers and
businesses, strengthening financial institutions, and providing aid to
homeowners and small businesses. Next, on February 25, Treasury
provided the standardized terms and conditions for eligible financial
institutions participating in the Capital Assistance Program (CAP).
Under CAP, an eligible institution that is found by its primary banking
regulator to need additional capital to continue lending and absorb
losses in a severe economic downturn will be eligible to participate in
CAP.[Footnote 9] Such institutions will be eligible to receive a
capital investment from Treasury in the form of preferred securities
that can be converted into common equity to help absorb losses and
serve as a bridge to receiving private capital. A key element of
Treasury's Financial Stability Plan, CAP is designed to ensure that, in
severe economic conditions, the largest U.S. bank holding companies
have sufficient capital to support lending to creditworthy homeowners
and businesses. As part of this effort, the federal banking regulators-
-the Board of Governors of the Federal Reserve System, Office of the
Comptroller of the Currency, Federal Deposit Insurance Corporation, and
Office of Thrift Supervision--announced that they will begin conducting
a one-time forward-looking capital assessment (or stress test) of the
balance sheets of the 19 largest bank holding companies with assets
exceeding $100 billion. These institutions are required to participate
in the coordinated supervisory capital assessment and may obtain
additional capital from CAP if necessary.[Footnote 10] Regulators noted
that the capital assessment process for all eligible institutions was
expected to be completed by April 30, 2009.
In addition, on March 4, 2009, Treasury unveiled its Making Home
Affordable program, which is based in part on the use of TARP funds.
Among other things, the plan is designed to do the following:
* It will use $75 billion to modify the loans of up to 3-4 million
homeowners to avoid potential foreclosure. The goal of modifying the
mortgages of these homeowners is to reduce the amount owed per month to
sustainable levels (a mortgage debt-to-income ratio of 31 percent).
Treasury will share the cost of restructuring the mortgages with the
other stakeholders (e.g., financial institutions holding whole loans or
investors if loans have been securitized). Treasury announced a series
of financial incentives for the loan servicers, mortgage holders/
investors, and borrowers that are intended to "pay for success,"
encourage borrowers to continue paying on time under the modified loan,
and encourage servicers and mortgage holders/investors to modify at-
risk loans before the borrower falls behind on a payment.
* It includes an initiative to help up to 4-5 million homeowners to
refinance loans that are owned or guaranteed by Freddie Mac and Fannie
Mae at current market rates. According to Treasury, these homeowners
would not otherwise be able to refinance their loans at the conforming
loan rates because the declining value of their homes has left them
with little or no equity. Refinancing at current mortgage rates could
help homeowners save thousands of dollars in their annual mortgage
payments.
* It increases Treasury's funding commitment to Fannie Mae and Freddie
Mac to ensure the strength and security of the mortgage market and to
help maintain mortgage affordability. The $200 billion funding
commitment is based on authority granted to Treasury under the Housing
and Economic Recovery Act of 2008.[Footnote 11]
We will continue to monitor the development and implementation of
Treasury's plan, including how its actions address the challenges we
have previously identified.[Footnote 12]
Efforts to Establish a Management Structure for TARP, including a
System of Internal Control, Are Ongoing:
Treasury has made progress in establishing its management
infrastructure for TARP. However, its development of a system of
internal control is still evolving, hiring for OFS is still ongoing,
and Treasury is working to improve its oversight of contractors.
* OFS has adopted a framework for developing and implementing 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, OFS has yet to develop comprehensive written
policies and procedures governing TARP activities or implement a
disciplined risk-assessment process.
* In the hiring area, Treasury took steps to help maintain continuity
of leadership within OFS during and after the transition to the new
administration. Specifically, Treasury ensured that interim chief
positions would be filled to ensure a smooth transition and used direct-
hire authority and various other appointments to bring a number of
career staff on board quickly. OFS has increased its overall staff
since our December 2008 report from 48 to 90 employees as of January
26, which includes an increase of permanent staff from 5 to 38.
Treasury officials recently told us that the number of permanent staff
had increased to 60. While progress has been made since our last
report, 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 program activities are changing 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 in the organization.
* 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 that
government dollars will be wasted unless adequate mechanisms are in
place to oversee contractor performance. Although Treasury has improved
its oversight of contractors, the department itself has identified both
certification of its Contracting Officer Technical Representatives and
its use of time-and-materials pricing as 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 existing
contracts or agreements to ensure conformity with the new regulation.
We believe this step is a necessary component of a comprehensive and
complete system to ensure that all conflicts are fully identified and
appropriately addressed.
In each of these areas, we made additional recommendations.
Specifically, we recommended that Treasury, in addition to developing a
comprehensive system of internal controls, develop and implement a well-
defined and disciplined risk-assessment process, because such a process
is essential to monitoring the status of TARP programs and identifying
any risks that announced programs will not be adequately funded. We
also recommended that Treasury continue to expeditiously hire personnel
needed to carry out and oversee TARP. For contracting oversight, we
recommended that Treasury 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. We also
recommended that Treasury 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
that it take continued steps to manage and monitor conflicts-of-
interest and enforce mitigation plans. We will continue to monitor
OFS's implementation of the internal control framework and hiring and
contracting practices, both of which are vital to TARP's effectiveness.
Mr. Chairman and Members of the Subcommittee, I appreciate the
opportunity to discuss these critically important issues and would be
happy to answer any questions that you may have.
Contact:
For further information on this testimony, please contact Richard J.
Hillman on (202) 512-8678 or hillmanr@gao.gov.
[End of section]
Footnotes:
[1] GAO, Troubled Asset Relief Program: Status of Efforts to Address
Transparency and Accountability Issues, [hyperlink,
http://www.gao.gov/products/GAO-09-296] (Washington D.C.: Jan. 30,
2009) and 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).
[2] Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343,
122 Stat. 3765. The act requires the U.S. Comptroller General to report
at least every 60 days, as appropriate, on findings resulting from
oversight of TARP's performance in meeting the act's purposes; the
financial condition and internal controls of TARP, its representatives,
and agents; the characteristics of asset purchases and the disposition
of acquired assets, including any related commitments entered into;
TARP's efficiency in using the funds appropriated for its operations;
its compliance with applicable laws and regulations; and its efforts to
prevent, identify, and minimize conflicts of interest among those
involved in its operations.
[3] Information is current as of January 23, 2009, unless otherwise
noted in the statement.
[4] Call reports are quarterly reports that collect basic financial
data of commercial banks in the form of a balance sheet and income
statement (formally known as Report of Condition and Income).
[5] Through December 31, 2008, TARP capital purchases and loans totaled
$247 billion. The Congressional Budget Office (CBO) estimated the
subsidy cost for these transactions at $64 billion, or 26 percent,
using valuation procedures similar to those specified in the Federal
Credit Reform Act and adjusted for market risk as specified in the
Emergency Economic Stabilization Act. See Congressional Budget Office,
The Troubled Asset Relief Program: Report on Transactions Through
December 31, 2008 (Jan. 2009). COP estimated the subsidy cost at $78
billion, or 31 percent, using multiple valuation methods and an
evaluation of similar private transactions. See Congressional Oversight
Panel, February Oversight Report: Valuing Treasury's Acquisitions (Feb.
6, 2009). In connection with our audit of TARP's financial statements,
we will be evaluating and testing the credit subsidy model that TARP
uses to value capital purchases and loans for financial reporting
purposes.
[6] While Treasury approved $125 billion to the nine largest
institutions, it initially disbursed funds to eight. The $10 billion to
Merrill Lynch was not disbursed until January 9, 2009, after its merger
with Bank of America was completed.
[7] CDFIs are specialized financial institution working 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.
[8] Pub. L. No. 111-5, div. B, title VII, § 7001 (Feb. 17, 2009)
(amending section 111 of EESA).
[9] According to Treasury and the federal banking regulators,
eligibility will be consistent with the criteria and deliberative
process that has been established for identifying qualified financial
institutions in the existing CPP.
[10] Eligible institutions with less than $100 billion in risk-weighted
assets are also eligible to participate in CAP. Risk-weighted assets
are the total of all assets held by the bank that are weighted for
credit risk according to a formula established in regulation by the
Federal Reserve.
[111] Pub. L. No. 110-289, 122 Stat. 2654 (2008).
[12] See GAO, Troubled Asset Relief Program: Status of Efforts to
Address Defaults and Foreclosures in Home Mortages, [hyperlink,
http://www.gao.gov/products/GAO-09-231T] (Washington, D.C.: Dec. 4,
2008) for a discussion of challenges facing loan modification programs.
[End of section]
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