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United States Government Accountability Office

GAO

Report to Congressional Committees

October 2009

TROUBLED ASSET
RELIEF PROGRAM
One Year Later,
Actions Are Needed to
Address Remaining
Transparency and
Accountability
Challenges

GAO-10-16

October 2009

TROUBLED ASSET RELIEF PROGRAM
Accountability Integrity Reliability

Highlights
Highlights of GAO-10-16, a report to
congressional committees

One Year Later, Actions Are Needed to Address
Remaining Transparency and Accountability
Challenges

Why GAO Did This Study

What GAO Found

GAO’s eighth report assesses the
Troubled Asset Relief Program’s
(TARP) impact over the last year.
Specifically, it addresses (1) the
evolution of TARP’s strategy and
the status of TARP programs as of
September 25, 2009; (2) the
Department of the Treasury’s
(Treasury) progress in creating an
effective management structure,
including hiring for the Office of
Financial Stability (OFS),
overseeing contractors, and
establishing a comprehensive
system of internal control; and (3)
indicators of TARP’s performance
that could help Treasury decide
whether to extend the program.
GAO reviewed relevant
documentation and met with
officials from OFS, contractors,
and financial regulators.

Over the last year, TARP in general, and the Capital Purchase Program (CPP)
in particular, along with other efforts by the Board of Governors of the
Federal Reserve System (Federal Reserve) and Federal Deposit Insurance
Corporation (FDIC), have made important contributions to helping stabilize
credit markets. To illustrate, figure 1 shows that while it is difficult to isolate
the impact of TARP, the TED spread—a key indicator of credit risk that
gauges the willingness of banks to lend to other banks—has narrowed to
levels not seen since market turmoil began in late 2007. However, TARP is still
a work in progress, and many uncertainties and challenges remain. For
example, while some CPP participants had repurchased over $70 billion in
preferred shares and warrants as of September 25, 2009, whether Treasury
will fully recoup TARP assistance to the automobile industry and American
International Group Inc., among others, remains uncertain. Moreover, other
programs, such as the Public-Private Investment Program and the Home
Affordable Modification Program (HAMP) are still in varying stages of
implementation.
Figure 1: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill Yield, as of September 29,
2009
Interest rates
BNP Paribas
6
freezes three
investment funds.

Major banks begin to write down
subprime mortgage losses.
Washington Mutual closed by
Office of Thrift Supervision.

5

What GAO Recommends
While Treasury has been generally
responsive to GAO’s prior 35
recommendations, GAO reiterates
the importance of fully
implementing several previous
recommendations. GAO also makes
three new recommendations.
Specifically, the Secretary should
(1) coordinate with the Federal
Reserve and FDIC to help ensure
that the decision to extend or
terminate TARP is considered in a
broader market context, (2)
document and communicate the
results of its determination, and (3)
update its projected use of funds.
Treasury agreed with the first two
recommendations. With the third, it
stated that Treasury regularly
re-evaluates its funding needs.
However, GAO found that a
thorough review of its estimates is
warranted.
View GAO-10-16 or key components.
For more information, contact Thomas J.
McCool, 202-512-2642, mccoolt@gao.gov.

CPP announced along
with Federal Reserve
and FDIC programs.

Lehman bankruptcy;
Merrill Lynch
purchase announced.

4

FDIC takes
over IndyMac.
3

Citigroup receives
additional government
assistance.
Bank of America receives
additional government
assistance.
Capital Assistance
Program Stress
Test results
released.

2
Bear Stearns receives emergency loan
from Federal Reserve through JPMorgan.
1
Fannie Mae and Freddie Mac
placed into conservatorship.

0
2007

2008

2009

Year
LIBOR

3-month Treasury

TED spread

Source: GAO analysis of data from Thomson Reuters Datastream.

Note: Rates and yields are daily percentages. The area between the LIBOR and Treasury yield is the
TED spread.

As of September 25, 2009, Treasury had disbursed almost $364 billion in TARP
funds; however, Treasury has yet to update its projected use of funds for most
programs in light of current market conditions, program participation rates,
and repurchases. Without more current estimates about expected uses of the
remaining funds, Treasury’s ability to plan for and effectively execute the next
steps of the program will be limited. Amid concerns about the direction and
transparency of TARP, the new administration has attempted to provide a
United States Government Accountability Office

Highlights of GAO-10-16 (continued)

more strategic direction for using the remaining funds.
TARP has moved from investment-based initiatives to
programs aimed at stabilizing the securitization
markets and preserving homeownership, and most
recently at providing assistance to community banks
and small businesses. While some programs, such as
the Term Asset-Backed Securities Loan Facility, appear
to have generated market interest, others, such as
HAMP, face ongoing implementation and operational
challenges. Related to transparency, Treasury has taken
a number of steps to improve communication with the
public and Congress, including launching a Web site
and preparing to hire a communications director for
OFS to support these efforts.
Treasury has also made significant progress in
establishing and staffing OFS; however, it must
continue to focus on filling critical leadership positions,
including the Chief Homeownership Preservation
Officer and Chief Investment Officer, with permanent
staff. Treasury’s network of contractors and financial
agents that support TARP administration and
operations has grown from 11 to 52. While Treasury has
an appropriate infrastructure in place, it must remain
vigilant in managing and monitoring conflicts of
interests that may arise with the use of private sector
sources.
GAO again notes that isolating and estimating the effect
of TARP programs remains a challenging endeavor. As
shown in table below, the indicators that GAO has been
monitoring over the last year suggest that there have

been broad improvements in credit markets since the
announcement of the first TARP program (CPP) and
that a number of anticipated effects of TARP have
materialized, although not necessarily due to TARP
actions alone. Specifically, the cost of credit and
perceptions of risk (as measured by premiums over
Treasury securities) have declined significantly in
interbank, corporate debt, and mortgage markets.
Further, our analysis of Treasury’s loan survey results
over most of the past year shows that collectively the
largest CPP participants have reported extending
almost $2.3 trillion in new loans since receiving $160
billion in CPP capital. While Treasury has not fully
developed a comprehensive framework for assessing
the need for additional actions and evaluating program
results in a transparent manner, in a recent report
Treasury began to lay the foundation for such a
framework and provided a number of financial
indicators. A framework that utilizes indicators or
measures of program effectiveness would help in
weighing the benefits of TARP programs against the
cost of employing additional taxpayer resources. Also,
as Treasury considers further action under TARP and
considers whether to extend the program beyond
December 31, 2009, it will need to evaluate TARP in the
broader context of efforts by the Federal Reserve and
FDIC to stabilize the financial system. Finally, Treasury
will need to document its analysis and effectively
communicate its reasoning to Congress and the
American people for its decisions to be viewed as
credible.

Changes in Select Credit Market Indicators, October 13, 2008, to September 30, 2009
Credit market rates and spreads
Indicator
LIBOR

Basis point change from October 13,
2008, to September 30, 2009
Down 446

TED Spread

Description
3-month London interbank offered rate (an average of interest rates
offered on dollar-denominated loans)
Spread between 3-month LIBOR and 3-month Treasury yield

Down 443

Aaa bond rate

Rate on highest-quality corporate bonds

Down 143

Aaa bond spread

Spread between Aaa bond rate and 10-year Treasury yield

Down 85

Baa bond rate

Rate on corporate bonds subject to moderate credit risk

Down 263

Baa bond spread

Spread between Baa bond rate and 10-year Treasury yield

Down 205

Mortgage rates

30-year conforming loans rate

Down 142

Mortgage spread

Spread between 30-year conforming loans rate and 10-year Treasury yield Down 83

Quarterly mortgage volume and defaults
Change from December 31, 2008 to
June 30, 2009

Indicator

Description

Mortgage originations

New mortgage loans

Up $290 billion to $550 billion

Foreclosure rate

Percentage of homes in foreclosure

Up 100 basis points to 4.30 percent

Source: GAO analysis of data from Global Insight, the Federal Reserve, Thomson Reuters Datastream, and Inside Mortgage Finance.

Note: Rates and yields are daily except mortgage rates, which are weekly. Higher spreads (measured
as premiums over Treasury securities of comparable maturity) represent higher perceived risk in lending
to certain borrowers. Higher rates represent increases in the cost of borrowing for relevant borrowers.
As a result, “Down” suggests improvement in market conditions for credit market rates and spreads.
Foreclosure rate and mortgage origination data are quarterly. See GAO-09-161, GAO-09-296, GAO-09504, and GAO-09-658.

United States Government Accountability Office

Contents

Letter

1
Scope and Methodology
Background
TARP Has Moved from Capitalizing Institutions to Stabilizing
Securitization Markets and Preserving Homeownership, but
Effective Communication Remains a Challenge
The Office of Financial Stability Has Made Progress in Developing
a Management Infrastructure and a Comprehensive System of
Internal Control
Conditions in Credit Markets Have Improved Since TARP Was
Implemented, but Treasury Needs to Establish a Basis for Future
TARP Actions
Conclusions and Recommendations
New Recommendations for Executive Action
Agency Comments and Our Analysis

33
47
50
51

Status of GAO Recommendations, as of
September 25, 2009

54

Appendix II

Capital Purchase Program

58

Appendix III

Capital Assistance Program

69

Appendix IV

Targeted Investment Program

73

Appendix V

Systemically Significant Failing Institutions
Program

75

Asset Guarantee Program

77

Appendix I

Appendix VI

Page i

2
7

11

26

GAO-10-16 Troubled Asset Relief Program

Appendix VII

Consumer and Business Lending Initiative

79

Appendix VIII

The Public-Private Investment Program

83

Appendix IX

Auto Industry Financing Program

86

Appendix X

Home Affordable Modification Program

91

Appendix XI

Comments from the Department of the Treasury

99

Appendix XII

GAO Contact and Staff Acknowledgments

Related GAO Products

100

101

Tables
Table 1: Status of TARP Funds, as of September 25, 2009
Table 2: Capital Purchase Program Repurchases, from TARP’s
Inception through September 25, 2009
Table 3: TARP Dividend Payments Received, as of September 25,
2009
Table 4: TARP Contracts, Financial Agency Agreements, and
Subcontracts with Minority-Owned, Women-Owned, and
Small Businesses, as of September 18, 2009
Table 5: Status of Treasury’s Actions to Renegotiate Existing
Vendor Mitigation Plans That Predated the January 2009
TARP Conflict-of-Interest Regulation, as of September 18,
2009
Table 6: Changes in Select Credit Market Indicators, October 13,
2008, to September 30, 2009

Page ii

12
14
16

29

30
37

GAO-10-16 Troubled Asset Relief Program

Table 7: Increase in Capital Adequacy among CPP Participants and
Nonparticipants (in percentage points), Fourth Quarter
2008 to First Quarter 2009
Table 8: New Lending at the 21 Largest Recipients of CPP, as of
July 31, 2009
Table 9: Capital Investments Made through the Capital Purchase
Program, as of September 25, 2009
Table 10: Treasury’s Actions in Response to GAO
Recommendations, as of September 25, 2009
Table 11: Federal Reserve’s Response to GAO’s Recommendation,
as of September 25, 2009
Table 12: Status of TIP Funds as of September 25, 2009
Table 13: Status of SSFI Funds, as of September 25, 2009
Table 14: Treasury’s Response to GAO’s Recommendation, as of
September 25, 2009
Table15: Status of Asset Guarantee Program Funding, as of
September 25, 2009
Table 16: Status of TARP Funds for the Consumer and Business
Lending Initiative, as of September 25, 2009
Table 17: Amount of TALF Loans Requested by Asset Class, from
March through September 2009
Table 18: Status of TARP Funds, as of September 25, 2009
Table 19: TARP Funding Authorized for the Auto Industry and
Payments Made, as of September 25, 2009
Table 20: Treasury’s Actions in Response to GAO
Recommendations

38
41
59
66
72
73
75
76
77
80
80
84
87
97

Figures
Figure 1: Timeline for the Implementation of TARP, October 3,
2008, through September 30, 2009
Figure 2: Number of Permanent Staff and Detailees, November 21,
2008, through September 15, 2009
Figure 3: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill
Yield, from January 1, 2007, to September 29, 2009
Figure 4: New Lending at the 21 Largest Recipients of CPP Capital,
from October 2008 to July 2009
Figure 5: Annual and Quarterly Asset-Backed Security Issuance

Page iii

8
26
35
40
43

GAO-10-16 Troubled Asset Relief Program

Abbeviations:
ABS
AGP
AIFP
AIG
ARRA
CAP
CDFI
CDS
CMBS
COP
CPP
FAR
FDIC
FinSOB
FRBNY
GM
GMAC
GSE
HAMP
HPDP
HPO
HUD
IAA
LIBOR
MBS
MHA
MLSA
OCC
OFS
OGE
OMB
OTS
PPIP
SBA
SCAP
SIGTARP
SSFI
TALF
TARP
TIP

Page iv

asset-backed securities
Asset Guarantee Program
Automotive Industry Financing Program
American International Group, Inc.
American Recovery and Reinvestment Act of 2009
Capital Assistance Program
Community Development Financial Institutions
credit default swap
commercial mortgage-backed securities
Congressional Oversight Panel
Capital Purchase Program
Federal Acquisition Regulation
Federal Deposit Insurance Corporation
Financial Stability Oversight Board
Federal Reserve Bank of New York
General Motors Company
GMAC LLP
government-sponsored enterprise
Home Affordable Modification Program
Home Price Decline Protection
Homeownership Preservation Office
Department of Housing and Urban Development
interagency agreements
London Interbank Offered Rate
mortgage-backed securities
Making Home Affordable
Master Loan and Security Agreement
Office of the Comptroller of the Currency
Office of Financial Stability
Office of Government Ethics
Office of Management and Budget
Office of Thrift Supervision
Public-Private Investment Program
Small Business Administration
Supervisory Capital Assessment Program
Special Inspector General for TARP
Systemically Significant Failing Institutions Program
Term Asset-backed Securities Loan Facility
Troubled Asset Relief Program
Targeted Investment Program

GAO-10-16 Troubled Asset Relief Program

This is a work of the U.S. government and is not subject to copyright protection in the
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Page v

GAO-10-16 Troubled Asset Relief Program

United States Government Accountability Office
Washington, DC 20548

October 8, 2009
Congressional Committees
About a year ago, when the Emergency Economic Stabilization Act of 2008
(the act) that authorized the Troubled Asset Relief Program (TARP) was
enacted, the U.S. financial system was facing the most severe financial
crisis since the Great Depression. 1 The crisis, which threatened the
stability of the financial system and the solvency of many financial
institutions, prompted the Department of the Treasury (Treasury) to
request and Congress to authorize Treasury to buy or guarantee up to $700
billion of the “troubled assets” that were deemed to be at the heart of the
crisis, including mortgages and mortgage-based securities, and any other
financial instrument Treasury determined it needed to purchase to help
stabilize the financial system. 2
When the act was signed on October 3, 2008, financial markets were in
significant turmoil. The dramatic correction in the U.S. housing market
had precipitated a decline in the price of financial assets associated with
housing, in particular mortgage assets based on subprime loans that lost
value as the housing boom ended and the market underwent a dramatic
correction. Some institutions found themselves so exposed that they were
threatened with failure—and some failed—because they were unable to
raise the necessary capital as the value of their portfolios declined. Other
institutions, ranging from government-sponsored enterprises (GSE) such
as Fannie Mae and Freddie Mac to Wall Street firms, were left holding
“toxic” or “legacy” assets that became increasingly difficult to value, were
illiquid, and potentially had little worth. Moreover, investors not only
stopped buying securities backed by mortgages but also became reluctant
to buy securities backed by many other types of assets. Because of

1
The Emergency Economic Stabilization Act of 2008 (the act), Pub. L. No. 110-343, 122 Stat.
3765 (2008), codified at 12 U.S.C. §§ 5201 et seq. The act originally authorized the
Department of the Treasury (Treasury) to purchase or guarantee up to $700 billion in
troubled assets. The Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22,
Div. A, 123 Stat. 1632 (2009), amended the act to reduce the maximum allowable amount of
outstanding troubled assets under the act by almost $1.3 billion, from $700 billion to
$698.741 billion.
2

Section 3(9) of the act, 12 U.S.C. § 5202(9). The act requires that the appropriate
committees of Congress be notified in writing that the Secretary of the Treasury, after
consultation with the Federal Reserve Chairman, has determined that it is necessary to
purchase other financial instruments to promote financial market stability.

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GAO-10-16 Troubled Asset Relief Program

uncertainty about the financial condition and solvency of financial entities,
the prices banks charged each other for funds rose dramatically, and
interbank lending effectively came to a halt. The resulting credit crunch
made the financing on which businesses and individuals depend
increasingly difficult to obtain as cash-strapped banks held on to their
assets. By late summer of 2008, the potential ramifications of the financial
crisis ranged from the continued failure of financial institutions to
increased losses of individual savings and corporate investments and
further tightening of credit that would exacerbate the emerging global
economic slowdown that was beginning to take shape.
The act requires GAO to report at least every 60 days on the status of
TARP. As the act required, our reports have focused on (1) findings
resulting from our oversight of TARP’s performance in meeting the
purposes of the act; (2) the financial condition and internal controls of
TARP, its representatives, and agents; (3) the characteristics of both asset
purchases and the disposition of assets acquired, including any related
commitments that are entered into; (4) TARP’s efficiency in using the
funds appropriated for the program’s operation; (5) TARP’s compliance
with applicable laws and regulations; (6) efforts to prevent, identify, and
minimize conflicts of interest of those involved in TARP’s operations; and
(7) the efficacy of contracting procedures. 3
This report assesses the program’s impact over the last year. Specifically,
it addresses (1) the evolution of the TARP strategy and the status of TARP
programs as of September 25, 2009; (2) the Department of the Treasury’s
(Treasury) progress in creating an effective management structure,
including hiring for the Office of Financial Stability (OFS), overseeing
contractors, and establishing a comprehensive system of internal control;
and (3) changes in the condition of financial markets as measured by
indicators of TARP’s performance that could help Treasury decide
whether to extend the program.

Scope and
Methodology

We took several steps to update information on the status of TARP funds,
including disbursements, dividend payments, repurchases, and warrant
liquidations, from October 3, 2008, through September 25, 2009 (unless
otherwise noted), and the status of Treasury’s actions taken in response to
recommendations from our TARP reports, including its progress in

3

Section 116 of the act, 12 U.S.C. § 5226.

Page 2

GAO-10-16 Troubled Asset Relief Program

developing a comprehensive system of internal control. 4 We reviewed
documents provided by OFS and conducted interviews with officials from
OFS, including the Chief Financial Officer, Deputy Chief Financial Officer,
Cash Management Officer, Director of Internal Controls, and their
representatives.
For the Capital Purchase Program (CPP), we reviewed documents from
OFS that described the amounts, types, and terms of Treasury’s purchases
of senior preferred stocks, subordinated debt, and warrants under CPP.
We also reviewed documentation and interviewed officials from OFS who
were responsible for approving financial institutions’ participation in CPP
and overseeing the repurchase process for CPP preferred stock and
warrants. Additionally, we 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 and Federal Reserve Banks
(Federal Reserve), and the Office of Thrift Supervision (OTS)—to obtain
information on their processes for reviewing CPP applications, the status
of pending applications, their processes for reviewing preferred stock and
warrant repurchase requests, and their examination processes for
reviewing recipients’ lending activities and compliance with TARP
requirements.
To update the status of the Capital Assistance Program (CAP), we
reviewed relevant documents and interviewed OFS officials about the
program. We also met with Federal Reserve officials to discuss the stress
test methodology and results for the 19 largest U.S. bank holding
companies and reviewed related documents relevant to CAP.

4

For our past 60-day reports, see GAO, Troubled Asset Relief Program: Additional Actions
Needed to Better Ensure Integrity, Accountability, and Transparency, GAO-09-161
(Washington, D.C.: Dec. 2, 2008); Troubled Asset Relief Program: Status of Efforts to
Address Transparency and Accountability Issues, GAO-09-296 (Washington, D.C.: Jan. 30,
2009); Troubled Asset Relief Program: March 2009 Status of Efforts to Address
Transparency and Accountability Issues, GAO-09-504 (Washington, D.C.: Mar. 31, 2009);
Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date,
GAO-09-553 (Washington, D.C.: Apr. 23, 2009); Troubled Asset Relief Program: June 2009
Status of Efforts to Address Transparency and Accountability Issues, GAO-09-658
(Washington, D.C.: June 17, 2009); Troubled Asset Relief Program: Treasury Actions
Needed to Make the Home Affordable Modification Program More Transparent and
Accountable, GAO-09-837 (Washington D.C.: July 23, 2009); and Troubled Asset Relief
Program: Status of Federal Assistance to AIG, GAO-09-975 (Washington, D.C.: Sept. 21,
2009).

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GAO-10-16 Troubled Asset Relief Program

To update our work on the Targeted Investment Program (TIP) and the
Asset Guarantee Program (AGP), we reviewed the Securities Purchase
Agreements that Citigroup Inc. (Citigroup) and Bank of America
Corporation (Bank of America) entered into with Treasury and the Master
Agreement signed by Citigroup, Treasury, FDIC, and the Federal Reserve
Bank of New York (FRBNY). In addition, we interviewed OFS officials,
including the acting Chief Investment Officer and the General Counsel, to
obtain information on the current status of TIP and AGP in terms of new
applicants for the programs, compliance with their requirements, and
possible exit strategies for unwinding the TIP investments.
For the Systemically Significant Failing Institutions (SSFI) program, we
reviewed relevant documents from Treasury, the Federal Reserve, and
American International Group, Inc. (AIG), including securities purchase
agreements, periodic reports provided to Treasury, and other relevant
documentation. We also met with officials from each organization and
relevant state insurance regulators.
To meet the report’s objectives with respect to the Consumer and
Business Lending Initiative, we reviewed announcements and other
publicly available information on the Term Asset-Backed Securities Loan
Facility (TALF) that were available on the FRBNY’s Web site, in OFS
internal reports, and in program design documents from Treasury and
FRBNY. We also interviewed officials from OFS, FRBNY, and the Federal
Reserve, as well as TALF investors, a securitization attorney, three
underwriters, two major credit rating agencies, an academic, a policy
analyst, and TALF issuers for commercial mortgage-backed securities
(CMBS) and asset-backed securities (ABS) backed by credit cards, auto
loans, student loans, and Small Business Administration (SBA) loans.
To meet the report’s objectives with respect to the Public-Private
Investment Program (PPIP), we reviewed PPIP-related announcements,
OFS internal reports, and program operation and design documents
published by Treasury and FDIC. We also interviewed officials from
Treasury and FDIC, as well as a policy analyst and an economist.
To determine the status of TARP assistance provided through the
Automotive Industry Financing Program (AIFP), we reviewed documents
related to the restructuring of General Motors Company (GM) and
Chrysler Group LLC (Chrysler), including the automakers’ bankruptcy
filings, credit agreements between the automakers and the federal
government, and TARP disbursements to the automakers. We also

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GAO-10-16 Troubled Asset Relief Program

interviewed Treasury officials, including officials from Treasury’s auto
team, and representatives from GM and Chrysler.
To determine the program status of the Home Affordable Modification
Program (HAMP) and the status of our previous recommendations related
to the program, we reviewed Treasury’s guidelines for each HAMP
component, published reports on servicer performance, and Treasury’s
written response to our July recommendations. In addition, we
interviewed Treasury officials and officials at Fannie Mae and Freddie
Mac—financial agents of Treasury for HAMP—about the status of program
implementation, including a comprehensive system of internal control. We
also reviewed documentation of Treasury’s recent communications with
servicers, such as draft servicer guidelines and letters sent to participating
servicers. Finally, we spoke with representatives of consumer groups,
housing counselors, and servicer associations to obtain their views on the
implementation of HAMP to date.
To determine Treasury’s progress in developing an overall
communications strategy for TARP, we interviewed individuals from OFS
and Treasury’s Office of Public Affairs and Office of Legislative Affairs to
determine what steps Treasury had taken to improve and coordinate
communications with the public and Congress.
To assess Treasury’s progress in hiring permanent staff for OFS, we met
with officials from the Human Resources Office and OFS to discuss hiring
efforts and reviewed various documents that OFS provided to us. In the
interviews, officials discussed their processes for recruiting individuals
with the skill sets and competencies needed to administer TARP, including
steps taken to find permanent replacements to fill key leadership
positions. To examine changes in the composition of staff since the office
was established, we reviewed past GAO reports on TARP and various
documents that OFS provided to us, including OFS’s updated
organizational chart. To gauge OFS’s mix of permanent and temporary
staff and the number of vacancies, we reviewed the totals for each type of
staff over time and within each OFS office.
To assess OFS’s use of contractors and financial agents to support TARP
administration and operations, we obtained information from Treasury on
contracting activity as of September 18, 2009—including task orders and
modifications—for the OFS-support financial agency agreements,
contracts, blanket purchase agreements, and interagency agreements
(IAA). We analyzed this information to identify each contract’s and
agreement’s purpose, period of performance, and potential value. To

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GAO-10-16 Troubled Asset Relief Program

assess OFS’s processes for (1) management and oversight of contractors’
and financial agents’ performance, and (2) managing conflicts of interest
of contractors and financial agents supporting TARP administration and
operations, we reviewed applicable documents that had become available
from OFS since our June 2009 report. We also communicated with
Treasury compliance officials and reviewed applicable documentation
concerning OFS’s progress in (1) completing reviews of vendor conflictsof-interest mitigation plans to conform with applicable TARP requirements
and (2) issuing guidance on OFS requirements and procedures for
documenting and resolving conflicts of interest.
As we noted in our initial report under the mandate, we identified a
preliminary set of indicators on the state of credit and financial markets
that might be suggestive of the performance and effectiveness of TARP. 5
We consulted Treasury officials and other experts and analyzed available
data sources and the academic literature. We selected a set of 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. 6 We assessed the reliability of the data upon
which the indicators were based and found that, despite certain
limitations, they were sufficiently reliable for our purposes. To update the
indicators in this report, we primarily used data from Thomson Reuters
Datastream, a financial statistics database. As these data are widely used,
we conducted only a limited review of the information but ensured that
the trends we found were consistent with other research. We also relied
on data from Inside Mortgage Finance, Treasury, the Federal Reserve, the
Chicago Board Options Exchange, the Securities Industry and Financial
Markets Association, and Global Insight. We have relied on data from
these sources for past reports and determined that, considered together,
they are sufficiently reliable for the purpose of presenting and analyzing
trends in financial markets. The data from Treasury’s survey of lending by
the largest CPP recipients (as of July 31, 2009, the latest available survey)
are based on internal reporting from participating institutions, and the
definitions of loan categories may vary across banks. Because these data

5

See GAO-09-161.

6

No indicator on its own provides a definitive perspective on the state of markets;
collectively, the indicators should provide a broad sense of the stability and liquidity of the
financial system and could be suggestive of the program’s impact. However, it is difficult to
draw conclusions about causality, because a variety of actions have been taken to address
the economic downturn.

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GAO-10-16 Troubled Asset Relief Program

are unique, we are not able to benchmark the origination levels against
historical lending or seasonal patterns at the institutions. Based on
discussions with Treasury and our review, we found that the data were
sufficiently reliable for the purpose of documenting trends in lending.
Lastly, we collected data on loan balances from the Consolidated Financial
Statements for Bank Holding Companies Y-9C Report Forms, the primary
analytical tool that regulators use to monitor financial institutions. We
verified that the input process did not result in data entry errors. Because
the Y-9C is the primary source for balance sheet data and can be
corroborated to some extent by audited financial statements, we
conducted only a limited review of this data.
We conducted this performance audit from July 2009 to October 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
TARP Is A Key Part of the
United States’ Response to
the Recent Financial Crisis

Before the act was passed, TARP was expected to be a program to
purchase mortgage-backed securities (MBS) and whole loans from
financial institutions to stabilize the financial system. Within 2 weeks of
enactment, however, following similar action by several foreign
governments and central banks, Treasury—through the newly established
OFS—announced that it would make $250 billion available to U.S.
financial institutions through purchases of preferred stock to provide
additional capital that would help enable the institutions to continue
lending. This effort was coordinated with a number of foreign
governments as part of a global effort to stabilize financial markets. In the
United States, the Federal Reserve and FDIC also announced concurrent
coordinated actions that were intended to increase confidence in the U.S.
financial system. Treasury’s decision to change its strategy raised
questions about TARP’s transparency, and the fact that the funds were
disbursed before a comprehensive system of internal control had been
established raised issues of accountability. Figure 1 provides an overview
of key dates for TARP implementation.

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GAO-10-16 Troubled Asset Relief Program

Figure 1: Timeline for the Implementation of TARP, October 3, 2008, through September 30, 2009
10/3: Congress passes P.L.
110-343, EESA (the act),
which authorized TARP.

12/19: Treasury announces plan for stabilizing the
automotive industry under the Automotive Industry
Financing Program (AIFP), including loans to Chrysler
and General Motors (GM).

10/14: Treasury announces
that it will purchase up to $250
billion in financial firms’
preferred stock under TARP
via the Capital Purchase
Program (CPP).
10/28: Under CPP, Treasury
purchases $115 billion in
preferred stock and
warrants from eight
financial institutions.

Oct.

Nov.

Dec.

2008

12/29: 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.
1/16: 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 in assets and the purchase of $20 billion
in preferred stock under TIP.

Jan.

Feb.

Mar.

April

5/7: Stress test results
are announced.

May

June

8/17: Treasury and the
Federal Reserve
announce extension of
TALF through March
2010 for all asset classes
except for new-issue
CMBS, which is extended
through June 2010.

July

Aug.

Sept.

2009
11/25: 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.
11/23: 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 under newly created
Targeted Investment Program (TIP).
11/10: Treasury announces that it will
purchase $40 billion in senior
preferred stock from AIG under SSFI.

3/23: Treasury, FDIC, and the
Federal Reserve announce the
details of the Public-Private
Investment Program (PPIP).
3/3: Treasury and the
Federal Reserve announce
the launch of TALF.
2/25: Treasury announces the
terms and conditions for the
Capital Assistance Program.
2/18: Treasury announces
the Homeowner Affordability
and Stability Plan.

6/17: Five of the eight largest
financial institutions to first
participate in CPP repurchase
their preferred stock from
Treasury.
6/1: Treasury releases its first
CPP Monthly Lending Report for
all CPP participants.

9/14:
Treasury
issues report
on status and
next phase of
financial
stabilization
efforts.
9/30: Treasury
announces that
two PPIP funds
have raised at
least the
minimum $500
million to invest
in legacy
securities.

2/10: Treasury announces the
Financial Stability Plan.
Source: GAO.

Overview of GAO
Recommendations

In the last year, GAO has made 35 recommendations to Treasury and one
to the Federal Reserve on a number of issues surrounding the
implementation of TARP and the need to improve its operations and
transparency. 7 Some of our recommendations applied to TARP in general,
while others, such as CPP and HAMP, were program specific. Our

7

Appendix I provides a complete list of the recommendations by report and their status as
of September 25, 2009.

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GAO-10-16 Troubled Asset Relief Program

recommendations to Treasury generally fell into three broad categories:
(1) transparency, reporting, and accountability; (2) management
infrastructure; and (3) communication. Other TARP oversight entities,
such as the Special Inspector General for TARP (SIGTARP) and the
Congressional Oversight Panel, have also made numerous
recommendations aimed at improving the implementation and oversight of
TARP.
Transparency, reporting, and accountability. We made a series of
recommendations aimed at improving the transparency and accountability
of TARP and its programs. Initially, we made a series of recommendations
aimed at improving the transparency of CPP. As a result, OFS now
requires all CPP participants to participate in some form of monthly
lending survey. We recommended that OFS report publicly the monies,
such as dividends, paid to Treasury by TARP participants, something OFS
started doing in June 2009. Similarly, Treasury took steps to implement
our recommendations aimed at making the warrant repurchase process
more transparent. Finally, we made a number of recommendations
addressing the basis and design of HAMP’s Home Price Decline Protection
program and the need to routinely review and update the key assumptions
that underlie Treasury’s projection of the number of borrowers likely to be
assisted. Treasury has started to address many of these recommendations.
Management infrastructure. To ensure that OFS established a robust
management structure, comprehensive system of internal control, and risk
assessment process, we made a series of recommendations aimed at
addressing challenges associated with establishing a federal program in a
short period of time including challenges associated with staffing,
contractor oversight, and internal controls. For example:
•

We recommended that Treasury expedite its hiring efforts to help ensure
that OFS had the needed personnel throughout the implementation phase
of the program and that key OFS leadership positions were filled during
and after the transition to the new administration. In certain areas,
challenges remain, and most recently we recommended that Treasury fully
staff vacant positions in the Homeownership Preservation Office—
including filling the position of Chief Homeownership Preservation Officer
with a permanent placement—and evaluate staffing levels and
competencies.

•

We recommended that OFS take a number of actions to ensure an
appropriate oversight infrastructure to manage contractors and address
conflicts of interest, including ensuring that sufficient personnel were

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GAO-10-16 Troubled Asset Relief Program

assigned and properly trained to oversee the performance of all
contractors. We recommended that OFS issue regulations on conflicts of
interest involving Treasury’s agents, contractors, and their employees and
related entities as expeditiously as possible. We also recommended issuing
guidance requiring that key communications and decisions concerning
potential or actual vendor-related conflicts of interest be documented.
•

More broadly, we recommended that Treasury continue to develop a
comprehensive system of internal control over TARP, including policies,
procedures, and guidance that were robust enough to protect taxpayers’
interests and ensure that the program objectives were being met. For
example, we recommended improvements in documenting certain internal
control procedures and in updating the guidance available to the public on
determining warrant exercise prices so that it was consistent with OFS’s
actual practices. Finally, we recommended that OFS expeditiously finalize
a comprehensive system of internal control over HAMP.

•

We also recommended that Treasury develop a process to monitor the
status of programs and identify any potential risk that announced
programs would not have adequate funding. Most recently, we also
recommended that OFS develop a means of systematically assessing
servicers’ capacity to meet HAMP requirements during program
admission.
Communication. In light of the backlash from Congress and others
regarding Treasury’s initial shift in the program from purchases of
mortgages and mortgage-backed securities to capitalization of financial
institutions, we made a series of recommendations over the past year
aimed at improving OFS’s communication with Congress and the public.
While the theme has been constant, the recommendations have attempted
to help ensure that Treasury develops a comprehensive communication
strategy and clearly articulated vision for the program that goes beyond
just providing information. We have recommended, for instance, that
Treasury develop a communication strategy that includes building an
understanding and support for the various components of the program.
Treasury continues to take steps to address these recommendations,
including hiring a communications officer, integrating communications
into TARP operations, scheduling regular and ongoing contact with
congressional committees and members, and attempting to leverage
technology.
We made one recommendation that was not directed to Treasury. To help
improve the transparency of CAP—in particular the stress test results—we

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GAO-10-16 Troubled Asset Relief Program

recommended that the Director of Supervision and Regulation of the
Federal Reserve consider periodically disclosing to the public the
aggregate performance of the 19 bank holding companies against the more
adverse scenario forecast for the duration of the 2-year forecast period
and decide whether the scenario needs to be revised. At a minimum, the
Federal Reserve should provide the aggregate performance data to OFS
program staff for the 19 institutions participating in CAP or CPP. We are
addressing these issues in ongoing work.

TARP Has Moved
from Capitalizing
Institutions to
Stabilizing
Securitization
Markets and
Preserving
Homeownership, but
Effective
Communication
Remains a Challenge

TARP is one of many programs and activities the federal government has
put in place over the past year to respond to the financial crisis. As of
September 25, 2009, it had disbursed almost $364 billion to participating
institutions. Participating institutions have in turn made billions in
dividends, interest, and principal payments on loans and some have
started to repurchase their preferred shares and warrants. With the
exception of CPP, which has hundreds of participants of various types and
sizes, most of the other investment-based programs have provided
substantial amounts of assistance to individual institutions. For example,
AIG has received assistance under SSFI and GM and Chrysler have
received support through AIFP. Amid concerns about the direction of the
program and lack of transparency, the new administration has attempted
to provide a more strategic direction for using the remaining funds and has
created a number of programs aimed at stabilizing the securitization
markets, preserving homeownership, and most recently at providing
assistance to community banks and small businesses. Some programs,
such as TALF—which is operated by FRBNY, with Treasury providing a
backstop against losses—appear to be achieving the intended results, if on
a reduced scale. Others, such as HAMP and PPIP, face ongoing
implementation or operational challenges. Finally, over the past year OFS
has also started to take steps to formalize its communication strategy and
improve the way it communicates with Congress and the public.

Over the Last Year,
Treasury Has Disbursed
Almost $364 Billion and
Had More Than $70 Billion
Returned From
Participants

In the past year, Treasury has implemented a range of TARP programs to
stabilize the financial system. As of September 25, 2009, OFS had
disbursed almost $364 billion for TARP loans and equity investments
(table 1). Disbursements represent amounts actually paid to make
troubled asset purchases or loans. Participating institutions have also paid
Treasury billions of dollars in repurchases of preferred shares and
warrants, dividend payments, and loan repayments. In general, Treasury’s
authority to purchase, commit to purchase, or commit to guarantee
troubled assets will expire on December 31, 2009. However, the Secretary

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GAO-10-16 Troubled Asset Relief Program

of the Treasury, upon submission of a written certification to Congress,
may extend these authorities to no later than October 3, 2010—2 years
from the date of enactment. 8 Based on the total prices of outstanding
troubled asset purchases and outstanding commitments to purchase and
the total face amount of outstanding guarantees as of September 25, 2009,
almost $329 billion remains available under the almost $700 billion limit on
Treasury’s authority to purchase or insure troubled assets; however, while
Treasury has updated its projected use of funds for AGP and AIFP, it has
not modified any of its estimates for the others despite changes in current
market conditions, program participation rates, and repurchases since
March 2009. For example, when Treasury updated its estimates in March
2009, it estimated that CPP participants’ repurchases would total about
$25 billion but almost three times that amount has been repurchased as of
September 25, 2009. Moreover, questions remain about the projected use
of funds associated with consumer and business lending initiatives and
PPIP. While Treasury officials acknowledge they are currently reviewing
potential changes to the projections for the future, they continue to
believe that these estimates are appropriate program funding allocations
given current market conditions. Without more meaningful estimates
about projected uses of the remaining funds, Treasury’s ability to plan for
and effectively execute the next phase of the program will be limited.
Table 1: Status of TARP Funds, as of September 25, 2009
Dollars in billions
Cash disbursed
and received

Asset purchase
pricea

Capital Purchase Program. To provide capital to viable banks through the purchase of
preferred shares and subordinated debentures.

$204.6

$204.6

Targeted Investment Program. To foster market stability and thereby strengthen the
economy by making case-by-case investments in institutions that Treasury deems are
critical to the functioning of the financial system.

Program and purpose

40.0

40.0

Capital Assistance Program. To restore confidence throughout the financial system that
the nation’s largest banking institutions have sufficient capital to cushion themselves
against larger-than-expected future losses, and to support lending to creditworthy
borrowers.

0.0

0.0

Systemically Significant Failing Institutions. To provide stability in financial markets and
avoid disruptions to the markets from the failure of a systemically significant institution.
Treasury determines participation in this program on a case-by-case basis.

43.2

69.8

8

Sections 106(e) and 120 of the act, 12 U.S.C. §§ 5216(e), 5230.

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GAO-10-16 Troubled Asset Relief Program

Dollars in billions
Cash disbursed
and received

Asset purchase
pricea

0.0

5.0

Automotive Industry Financing Program. To prevent a significant disruption of the
American automotive industry.

75.9

81.1

Home Affordable Modification Program. To offer assistance to homeowners through a
cost-sharing arrangement with mortgage holders and investors to reduce the monthly
mortgage payment amounts of homeowners at risk of foreclosure to affordable levels.

0.0

b

22.3

Consumer and Business Lending Initiative. To support consumer and business credit
markets by providing financing to private investors to issue new securitizations to help
unfreeze markets and lower interest rates for auto, student, and small business loans;
credit cards; commercial mortgages; and other consumer and business credit.

0.1

20.0

Public-Private Investment Program. To address the challenge of “legacy assets” as part
of Treasury’s efforts to repair balance sheets throughout the financial system and
increase the availability of credit to households and businesses.

0.0

0.0

$363.8

$442.8

70.7

70.7

Program and purpose
Asset Guarantee Program. To provide federal government assurances for assets held
by financial institutions that are viewed as critical to the functioning of the nation’s
financial system.

c

Total
Less repurchasesd
Less loan principal repayments

2.1

2.1

Less dividends and interest received

9.5

n/ae

Less repurchased warrants and preferred stock obtained through the exercise of
warrants

2.9

n/ae

$278.6

$370.0

Net disbursements and total troubled assets outstanding
Source: GAO presentation of OFS, Treasury, data (unaudited).
a

The Asset Purchase Price reflects the aggregate amount Treasury agreed to pay to purchase
outstanding troubled assets that are subject to the almost $700 billion purchase limit in section 115 of
the Emergency Economic Stabilization Act (the act). This amount includes signed contract amounts
not yet disbursed and the aggregate amount of outstanding guarantees made by Treasury, even
though Treasury has not disbursed any cash to honor a guarantee. For example, AGP’s asset
purchase price includes the $5 billion Citigroup guarantee, even though no cash has been disbursed
to Citigroup through this program. However, as required under section 102 of the act, it does not
include a subtraction from the outstanding guarantee amount to reflect the balance in the Troubled
Assets Insurance Financing Fund.
b

As of September 25, 2009, Treasury had disbursed almost $1 million in HAMP investor subsidies
and incentive payments to participating servicers.
c

The Consumer and Business Lending Initiative includes TALF and the former Small Business and
Community Lending Program.
d

Repurchases represent the amounts received from CPP participant institutions that bought back their
preferred shares from Treasury. Repurchases exclude any amounts relating to private institutions’
buybacks of their preferred shares obtained through the exercise of warrants and public institutions’
buybacks of their warrants.

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GAO-10-16 Troubled Asset Relief Program

e

Dividend payments and the amounts received from the repurchases of warrants and preferred stock
issued through the exercise of the warrants are not to be used to reduce the outstanding balance
under the almost $700 billion TARP limit. However, these amounts are deposited in the general fund
of the U.S. Treasury or the Troubled Asset Insurance Financing Fund, and they offset the amount of
Treasury’s disbursements.

As shown in table 1, repurchases of preferred stock and repayments of
loan principal have reduced the outstanding balance of the program.
Specifically, 41 institutions, including 10 of the largest bank holding
companies participating in TARP, had repurchased all or a portion of their
preferred stock from Treasury for a total of about $70.7 billion as of
September 25, 2009 (table 2). 9 While the decision to allow an institution to
repurchase its preferred shares rests with its primary federal regulator, we
continue to believe that Treasury, as administrator of CPP, has a
responsibility to help ensure that institutions are being treated
consistently and that the regulators are applying generally consistent
criteria when reviewing TARP participants’ requests to repurchase their
preferred shares. 10
Table 2: Capital Purchase Program Repurchases, from TARP’s Inception through
September 25, 2009
Dollars in millions

Institution type

Repurchase amount
for preferred stock
initially issued to
Treasury

Repurchase amount
for preferred stock
issued through
exercise of warrants

Private Institutions

Repurchase
amount for
warrants

$44.4

$1.6

n/a

Publicly held Institutions

$70,644.8

n/a

$2,897.9

Total

$70,689.2

$1.6

$2,897.9

Source: GAO presentation of OFS, Treasury, data (unaudited).

9

Under the terms of the CPP securities purchase agreement, CPP participants have a right
to repurchase their preferred or debt securities and warrants from Treasury. Our use of the
term “repurchases” is general and does not differentiate between repurchases and
redemptions of senior preferred stock. A redemption of senior preferred stock occurs
when an institution completes a qualified equity offering per the standard terms of the
preferred stock and subsequently exchanges cash for the senior preferred stock it
previously issued to Treasury. A repurchase occurs when the institution buys back its
senior preferred shares without having completed a qualified equity offering, as permitted
by American Recovery and Reinvestment Act, Pub. L. No. 111-5, div. B, § 7001, 123 Stat, 516
(2009), or another authority.

10

The primary federal regulators are FDIC, the Federal Reserve, OCC, and OTS.

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GAO-10-16 Troubled Asset Relief Program

A number of participants have also started to repurchase their warrants
and preferred stock obtained through the exercise of warrants. 11 However,
unlike preferred stock, these amounts are deposited in the general fund of
the U.S. Treasury and are not to be used to reduce the outstanding
troubled assets counted against the almost $700 billion limit, as required
by the act (see table 2). Specifically, as of September 25, 2009, 20 financial
institutions had repurchased their warrants, and 3 had repurchased their
warrant preferred stock from Treasury, at an aggregate cost of about $2.9
billion.
While the first warrants repurchased were valued using a valuation
process agreed to by Treasury, some in the industry have suggested that
an auction process may represent the best method for Treasury to realize
the market value of the warrants and provide a more transparent process.
Treasury announced in June 2009 that it would auction certain warrants
but has yet to establish guidelines for how the auction process will work.
Treasury and others have noted that an auction method may not
necessarily yield the best price for the federal government. As of
September 25, 2009, Treasury had not yet auctioned any securities.
As of September 25, 2009, Treasury had received approximately $9.2
billion in dividend payments on shares of preferred stock acquired through
CPP, TIP, AIFP, and AGP (table 3). Treasury’s agreements under these
programs entitled it to receive dividend payments on varying terms and at
varying rates. 12 The dividend payments to Treasury are contingent on each
institution declaring dividends. However, AIG—the sole participant in

11

In addition to preferred stock, Treasury also received from the privately held institutions
warrants to purchase a specified number of shares of preferred stock—called warrant
preferred stock—that pay quarterly dividends at a rate of 9 percent per year. The exercise
price for the warrant preferred stock is $0.01 per share unless the financial institution’s
charter requires otherwise. Treasury exercised these warrants immediately for privately
held institutions.

12

For example, according to the CPP terms for publicly held institutions, participating
institutions pay quarterly dividends at a rate of 5 percent per year for the first 5 years on
the initial preferred shares acquired by Treasury. After the first 5 years, the preferred
shares pay quarterly dividends at a rate of 9 percent per year. Any preferred shares
acquired through Treasury’s exercise of warrants pay quarterly dividends at a rate of 9
percent per year.

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GAO-10-16 Troubled Asset Relief Program

SSFI—had not declared dividends and therefore had not made any of its
three scheduled dividend payments as of September 25, 2009. 13
Table 3: TARP Dividend Payments Received, as of September 25, 2009
Dollars in millions

Program
Capital Purchase Programa

Dividend
payments
received

Cumulative
dividends not
declared and
not paid

Noncumulative
dividends not
declared and not
paid

$6,733.9

$74.1

$1.6

Targeted Investment Program

1,862.2

-

-

Automotive Industry Financing
Programb

430.6

-

-

Asset Guarantee Program

174.8

-

-

-

-

1,226.8

$9,201.5

$74.1

$1,228.4

Systemically Significant Failing
Institutions Programc
Total

Source: GAO presentation of OFS, Treasury, data (unaudited).
a

Dividend payments received includes interest received on subordinated debentures received under
the program.
b

AIFP participants that issued debt instruments to Treasury are not reflected on this table.

c

On April 17, 2009, AIG and Treasury restructured their November 25, 2008, agreement. Under the
restructuring, Treasury exchanged $40 billion of cumulative Series D preferred shares for $41.6 billion
of noncumulative Series E preferred shares. The amount of Series E preferred shares is equal to the
original $40 billion plus approximately $733 million in undeclared dividends as of February 1, 2009—
the scheduled quarterly dividend payment date—$15 million in dividends compounded on the
undeclared dividends, and an additional $855 million in dividends accrued from February 1, 2009, but
not paid as of April 17, 2009. The amount of dividends not declared and not paid in the table
represents unpaid dividends since the April 17, 2009, restructuring. The last scheduled dividend
payment date was August 1, 2009, and the next payment date is November 1, 2009.

Treasury borrows funds to finance the gap between the federal
government’s revenues and outlays and is subject to a statutory debt limit.
Because Treasury must borrow the funds disbursed, TARP and other
actions taken to stabilize the financial markets increase the federal debt
and result in related borrowing costs in the form of interest. Because
Treasury manages its cash position and debt issuances from a
governmentwide perspective, it is generally not possible to match TARP

13
See GAO-09-975. Treasury officials stated that, in accordance with the securities purchase
agreement, if AIG fails to make one more dividend payment, Treasury will be able to elect
at least three members to its board of directors.

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GAO-10-16 Troubled Asset Relief Program

disbursements with specific debt securities issued by Treasury and the
related borrowing costs. Moreover, Treasury typically does not calculate
the federal government’s borrowing cost related to specific disbursements,
including the net disbursements for TARP. However, Treasury provided us
with an unaudited estimate of approximately $2.3 billion in borrowing
costs based on certain assumptions relating to the net disbursements for
TARP from TARP’s inception through September 30, 2009. 14 Using
different assumptions would result in different estimated borrowing costs.
Treasury’s estimation of the federal government’s borrowing costs for
TARP does not represent the ultimate costs of TARP and does not
consider, among other things, the intra-governmental interest that TARP
incurs.

CPP Is Treasury’s Largest
Program for Capitalizing
Institutions and Stabilizing
the Financial System

Over the past year, CPP—the largest and most widely used program under
Treasury’s TARP authority for stabilizing the financial markets—made
investments in large publicly held financial institutions quickly but faced
challenges and delays in developing standard terms for investing in
smaller, nonpublic institutions. 15 As of September 25, 2009, Treasury had
provided capital to 685 financial institutions through CPP. Treasury has
extended the CPP application deadline for small banks and increased the
amount of investment they can receive to encourage participation, but the
number of CPP disbursements has decreased dramatically. Investments
that are being made are going to relatively small banks. For example, the
average investment size for the 9 institutions funded in August 2009 was
$14.4 million, compared with the average investment size of $121 million
for the 147 institutions funded in January 2009.
According to Treasury, over 430 institutions have withdrawn their
applications to CPP after receiving approval for funding. Also, federal
banking regulators’ data show that over 1,800 applications have been
withdrawn since the start of the program. The number of approved
institutions withdrawing increased earlier this year, in part because of
uncertainties about program requirements (e.g., changes to executive
compensation). Anecdotally, some of the reasons cited have included

14
According to Treasury, it estimated the borrowing costs for TARP as a proportion of total
monthly borrowing costs on a rolling basis since TARP’s inception. These borrowing costs
included refinancing TARP when initial financing matured as well as the reduction of
financing costs due to repurchases.
15

For a detailed discussion of CPP, see appendix II.

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GAO-10-16 Troubled Asset Relief Program

increased confidence in the financial condition of banks and, for smaller
institutions, the relatively high cost of closing CPP transactions. We are
continuing to review the process used to assess applications for CPP
funding to determine the extent to which Treasury consistently applied
established criteria and adequately documented the regulators’
recommendations and its final decisions. The results of this review will be
discussed in a subsequent report.
Over the last year, and consistent with our recommendation that Treasury
bolster its ability to determine whether institutions’ activities are generally
consistent with the act’s purposes, Treasury and federal banking
regulators have made progress in monitoring the activities of CPP
participants. Specifically:
•

Using its new monthly lending surveys, in February 2009 Treasury began
to publish detailed information for the 20 largest CPP institutions. In April
2009, it added questions addressing their small business lending activity to
the survey. 16 In June Treasury began to publish basic information from all
CPP participating institutions. 17 The monthly surveys are an important step
toward greater transparency and accountability for institutions of all sizes.
In August 2009, Treasury and the bank regulators began publishing a
quarterly analysis of regulatory financial data for CPP and non-CPP
institutions that focuses on three broad categories: on- and off-balance
sheet items, performance ratios, and asset quality measures. 18 Moreover,
the largest CPP institutions that have repurchased their preferred shares
and warrants have agreed to voluntarily provide lending information
through 2009. These data will enable Treasury and others to monitor the
institutions’ lending activities following the repurchase of their shares.

•

In the past year, the federal banking regulators have taken steps to help
ensure compliance with the CPP agreements and other TARP
requirements, as we recommended. All of the federal banking regulators
have issued or are finalizing examiner guidance and procedures for
assessing institutions’ compliance with CPP and other TARP

16
The name of the survey report is Monthly Lending and Intermediation Snapshot. The
original 20 institutions were expanded to 22 when American Express Company was added
in March 2009, and Hartford Financial Services Group, Inc. was added in July 2009.
17

The CPP Monthly Lending Report.

18

The Quarterly Capital Purchase Program Report.

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requirements. 19 For example, in March 2009 OCC issued a supervisory
memorandum to all examination staff that provided specific forms,
checklists, and guidance for assessing compliance with CPP and TARP
requirements. They plan to examine institutions’ compliance with TARP
requirements on executive compensation, dividend payments, and stock
repurchases as part of routine examinations. Three of the four banking
regulators had conducted 351 examinations as of September 2009, that
included checking for compliance with CPP and TARP requirements.
According to these regulators, the institutions examined were generally in
compliance with the requirements.
•

The Level of Participation
in the Capital Assistance
Program Remains
Uncertain

Treasury also has hired three asset management firms to provide market
advice about its portfolio of investments in financial institutions
participating in various TARP programs. Consistent with our
recommendation that Treasury increase its oversight of compliance with
terms of the CPP agreements, including limits on dividends and stock
repurchases, these managers are responsible for helping OFS monitor
compliance with these terms. However, Treasury has yet to finalize the
specific guidance and performance measures for the asset managers’
oversight responsibilities or identify the process for monitoring the asset
managers’ performance. We plan to continue monitoring this area.

As of September 25, 2009, no funds had been expended under CAP. 20 The
Federal Reserve’s stress tests of the 19 largest bank holding companies in
May 2009 identified 10 bank holding companies that needed to raise
approximately $75 billion in additional capital. According to FinSOB, this
result was better than the markets anticipated and helped boost the
markets’ confidence in the largest banks. 21 By September 25, 2009, these 10
institutions had raised about $79 billion in capital, and 9 institutions had

19

OTS, Monitoring and Documenting the Use of Funds from Federal Financial Stability
and Guaranty Programs (Mar. 18, 2009). OCC, Examination Guidance for Institutions
Participating in the Treasury’s TARP Capital Purchase Program, (Mar. 26, 2009). FDIC,
Monitoring the Use of Funding from Federal Financial Stability and Guaranty
Programs, (Jan. 12, 2009). FDIC, Examination Guidelines for Financial Institutions
Receiving Subscriptions from U.S. Department of the Treasury’s TARP CPP Program,
(Feb. 9, 2009). Federal Reserve, Applying Supervisory Guidance and Regulations on the
Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding
Companies, (Mar. 27, 2009).

20

For a detailed discussion of this program, see appendix III.

21

Financial Stability Oversight Board, Financial Stability Oversight Board Quarterly
Report to Congress for the quarter ending June 30, 2009.

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successfully raised the full amount required by the stress test. While the
program is open to other institutions that did not participate in the stress
test, the extent to which these other institutions will choose to participate
in the program appears limited. Treasury extended the CAP application
deadline from May 25, 2009, to November 9, 2009. As of September 25,
2009, Treasury had not received any CAP applications. However,
regulators said that they had begun to receive CAP applications.

Overseeing Investments in
Programs That Targeted
Certain Critically
Important Institutions
Presents Challenges

Early in the implementation of TARP, Treasury announced that it was
providing what it refers to as “exceptional assistance” to three institutions
deemed to be critically important to financial markets and subsequently
created three programs—TIP, SSFI, and AGP—to provide that
assistance. 22 TIP investments in Bank of America and Citigroup, Inc. in
January 2009 and December 2008, respectively, followed the institutions’
participation in CPP. In addition, OFS provided assistance to AIG under
SSFI. Treasury officials said that they did not expect to have to use these
programs again if economic conditions and market stability continued to
improve.
Treasury has yet to develop exit strategies for unwinding these
investments but has said that it intends to sell the federal government’s
ownership interest as soon as practicable. Bank of America and Citigroup
have yet to announce any plans to repurchase outstanding shares or
warrants under CPP or TIP in the near term. Treasury, the Federal
Reserve, FDIC, and Citigroup have yet to finalize the segregation of assets
or the valuation process for the assets that will remain on Citigroup’s
books but will be guaranteed by the government under AGP. Conversely,
Bank of America withdrew from AGP before an agreement was finalized
and recently negotiated and paid FDIC, the Federal Reserve, and Treasury
a total of $425 million in termination fees to cover the benefit it received
from the announcement of the federal government guarantee. AIG
continues to rely on federal assistance to maintain its investment grade
rating, and whether the federal government will fully recoup its investment
in AIG in the long term remains unclear. 23

22

For a detailed discussion of TIP, AGP, and SSFI, see appendixes IV through VI,
respectively.
23

GAO-09-975.

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Treasury’s capital investments in these three companies totaled more than
$100 billion as of September 25, 2009, and are a significant portion of
TARP disbursements. Given the three financial institutions’ ongoing
participation in TARP, oversight and management of these large
investments continues to be a challenge, especially managing the
government’s investment and developing an appropriate exit strategy.
According to OFS, TIP investments in Citigroup and Bank of America are
monitored through the same process as CPP investments, as the interests
are incremental to the CPP investments in these institutions. OFS has also
put in place dedicated teams charged with monitoring and managing its
investments in AIG and the Citigroup asset guarantee. These investments
also raise broader questions about how Treasury is managing its
investments in institutions that have received what Treasury refers to as
an exceptional level of assistance. To respond to these concerns, we and
SIGTARP are conducting a coordinated review of how the federal
government is monitoring and managing its investments.

Programs Aimed at
Restarting Secondary
Markets Have Had Mixed
Success

The Consumer and Business Lending Initiative announced in February as
part of the Financial Stability Plan consists of two programs, including the
Federal Reserve’s TALF, operated primarily by FRBNY, and a program to
directly purchase securities backed by SBA-guaranteed small business
loans that has yet to materialize. A separate program, PPIP, which is being
implemented in cooperation with the Federal Reserve and FDIC, is
intended to invest in funds that provide a market for the legacy loans and
securities that currently burden the financial system.
Term Asset-Backed Securities Loan Facility. The Federal Reserve
extended TALF into 2010. This program has been used to finance a variety
of ABS, but as of September 17, 2009, the bulk of the loans have been
collateralized by credit card and auto ABS—the largest asset classes
historically according to Federal Reserve officials. 24 Some market
participants for SBA-related securities noted that TALF, even without high
transaction volumes of SBA-backed securities, had benefited small
businesses by helping to restore confidence in the SBA market, and some
thought that it had helped unfreeze the market. Overall, participation has
been lower than expected for all assets, and officials cite recent
improvements in securitization and credit markets as a reason. Some

24

For a detailed discussion of the Federal Reserve’s TALF and Treasury’s role, see appendix
VII.

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TALF participants and market observers also told us that TALF financing
terms had become less favorable as credit markets stabilized, making
TALF less appealing.
Small Business Lending. Treasury has yet to begin purchasing securities
backed by SBA-guaranteed small business loans as part of the Consumer
and Business Lending Initiative. Initially, Treasury anticipated purchasing
securities backed by SBA section 7(a) guaranteed loans by the end of
March 2009 and securities backed by SBA section 504 loan guarantees by
the end of May 2009; however, no purchases had been made as of
September 21, 2009. Several factors have been cited to explain this delay.
First, a Treasury official told us that some participants in the SBA loan
markets said they did not want to sell SBA-guaranteed securities to
Treasury if doing so would require them to provide warrants to Treasury
and to comply with executive compensation restrictions. 25 Second, some
market participants said that this program might not be as helpful to the
SBA loan market as initiatives by SBA, because SBA efforts included
reductions in fees and increases in guarantees for the 7(a) program that
had been helpful. One major market participant also noted that high
participation in Treasury’s direct purchase program was unlikely, in part
because of the requirements of the act noted above.
Public-Private Investment Program. Treasury announced PPIP in
March 2009 to help add liquidity to the market for legacy assets (both
securities and loans), to allow banks and other financial institutions to
free up capital, and to stimulate the extension of new credit. 26 Treasury
continues to take steps to implement the Legacy Securities Program, and
FDIC has continued to develop the Legacy Loans Program by conducting a
pilot sale of receivership assets to test the funding mechanism
contemplated for this program. Some market participants and observers
we spoke with in the summer of 2009 told us that while the problem of
toxic assets remained, there have been delays in launching PPIP. These
individuals, Treasury, and FDIC cited rising investor confidence following
the stress test results and successful capital-raising by financial
institutions as one of the main reasons. In addition, banks have had
increasing incentives to hold troubled assets in the short term, rather than
selling them and taking losses now, in the hopes that such assets will

25

Conversely, CPP participants may be willing to participate in the program, because they
already must comply with the requirements of the act.
26

For a detailed discussion of PPIP, see appendix VIII.

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perform better in the future. Treasury officials also noted the difficulty of
measuring the impact of the program announcement on markets.
Nevertheless, Treasury officials noted the financial market’s positive
reaction when the program was announced and said that they continued to
believe that the program is important to further bolstering financial
markets. Treasury officials stated that as of October 5, 2009, five of the
nine pre-qualified funds have raised at least the minimum $500 million to
qualify to invest in two legacy securities. The first two legacy securities
PPIP funds closed on September 30, 2009.

The Automotive Industry
Benefited from about $80
Billion in TARP Funding,
but the Future Viability of
Chrysler and GM Remains
Uncertain

AIFP has provided assistance to Chrysler, GM, auto suppliers, and auto
finance companies in an effort to assist the failing domestic automotive
industry. Over the past year, Chrysler and GM underwent bankruptcy
reorganization and streamlined their operations by closing factories and
reducing the number of dealerships. However, whether the reorganized
Chrysler and GM will achieve long-term financial viability remains unclear.
In addition to funding provided under AIFP, the federal government has
launched other programs to help the automotive industry. In particular,
the Department of Transportation’s Car Allowance Rebate System
program (“Cash for Clunkers”) provided nearly $3 billion in rebates to
consumers who purchased more fuel-efficient vehicles, and the
Department of Energy’s Advanced Technology Vehicles Manufacturing
Incentive Program has provided loans for the development of motors and
components that use advanced technologies. 27 Automotive and financial
experts we spoke with as part of our ongoing monitoring of AIFP agree
that the federal government-provided funding likely increased Chrysler’s
and GM’s odds of attaining financial success but said that other factors
would affect the outcome, including consumer preferences, the strength of
the economy, and the success of the companies in continuing to increase
their profitability. 28 We are continuing to evaluate Treasury’s exit strategy
for AIFP and the impact of the assistance on pensions and plan to report
on these issues in future reports.

27

GAO plans to report separately on this program in 2010.

28

For additional information on AIFP see appendix IX.

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Home Affordable
Modification Program
Continues to Face Ongoing
Challenges

HAMP faces a significant challenge that centers on uncertainty over the
number of homeowners it will ultimately help. Residential mortgage
defaults and foreclosures are at historic highs, and Treasury officials and
others have identified reducing the number of unnecessary foreclosures as
critical to the current economic recovery. In our July 2009 report, we
noted that Treasury’s estimate that it would likely help 3 to 4 million
homeowners under the HAMP loan modification program may have been
overstated. 29 Further, we and others have raised concerns about the
capacity and consistency of servicers participating in HAMP in offering
loan modifications to qualified homeowners facing potential foreclosure.
Treasury has taken some actions to encourage servicers to increase the
number of modifications made, including sending a letter to participating
HAMP servicers and meeting with them to discuss challenges to making
modifications. However, the ultimate result of Treasury’s actions to
increase the number of HAMP loan modifications and the corresponding
impact on stabilizing the housing market remains to be seen. 30
Treasury faces a number of other challenges in implementing HAMP,
including ensuring that decisions to deny or approve a loan modification
are transparent to borrowers and establishing an effective system of
operational controls to oversee the compliance of participating servicers
with HAMP guidelines. In July 2009, we made several recommendations to
Treasury concerning HAMP. Among other things, we recommended
actions to monitor particular program requirements, re-evaluate and
review certain program components and assumptions, and finalize a
comprehensive system of internal control over HAMP. Treasury noted that
it would take various actions in response to our recommendations, such as
exploring options to monitor counseling requirements and working to
refine its internal controls over the program. We plan to continue to
monitor Treasury’s responses to our recommendations as part of our
ongoing work on HAMP.
In our July report, we also noted that Treasury lacked a way to assess,
during the admission process, the capacity of servicers to meet program
requirements. Recently, Treasury reported significant variations across
participating servicers in the number of trial modifications started as a
percent of estimated eligible loans (those delinquent by at least 60 days).
To encourage servicers to increase the number of modifications they were

29

GAO-09-837.

30

For additional information about HAMP see appendix X.

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making, Treasury and the Department of Housing and Urban Development
sent a letter to participating HAMP servicers in July 2009 asking them to
expand their capacity to make modifications. Treasury also subsequently
held a meeting with servicers to discuss challenges to making
modifications and strategies to improve the program’s effectiveness.

Treasury Has Taken Steps
to Improve
Communication with the
Public and Congress

Since Treasury’s unexpected shift soon after the act was passed toward
making capital investments in financial institutions rather than purchasing
the mortgages and mortgage-related assets on their books, Treasury has
struggled to improve the transparency of the program and effectively
communicate a strategic vision for TARP. Over the last year, Treasury has
posted information on its Web site; announced decisions in press releases,
press conferences, and speeches; and testified at congressional hearings.
But these efforts, although intended to help ensure that TARP programs
and decisions are transparent, have not always been effective in
communicating Treasury’s rationale for certain decisions or in addressing
confusion and concerns about the program. As discussed previously, we
made a series of recommendations aimed at improving the transparency of
TARP, including establishing more effective communication with
Congress and the public and developing a clearly articulated strategy for
the program, among other things.
Over the last several months, Treasury has taken steps to improve its
communication efforts, including releasing the Financial Stability Plan in
February 2009; launching its FinancialStability.gov Web site in March 2009;
and, in August 2009, adding a usability survey on its FinancialStability.gov
Web site to gauge user satisfaction and gather input on the quality of users’
experience navigating the site. Moreover, OFS has formed a working
group to help ensure that Treasury’s communication strategy addresses
both internal and external communications and that appropriate staff are
being hired to support the strategy. Treasury officials told us that key
components of the strategy included (1) coordinating communication
among OFS and Treasury’s Office of Public Affairs and Office of
Legislative Affairs to help ensure that congressional and other external
stakeholders received timely information, (2) continuously improving the
financial stability Web site, and (3) conducting outreach across the
country on the homeownership preservation programs. To support these
efforts, Treasury is planning to hire a communications director for OFS
once it completes a position description of duties and responsibilities.
Treasury has already hired a communications director and four staff
members to support its efforts to communicate with the public and
Congress on the homeownership programs. These ongoing efforts should

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GAO-10-16 Troubled Asset Relief Program

help address the concerns about Treasury’s communication on TARP
issues that we noted in earlier reports.

The Office of
Financial Stability
Has Made Progress in
Developing a
Management
Infrastructure and a
Comprehensive
System of Internal
Control

As we recommended in our December 2008 report, Treasury has
expeditiously hired OFS staff to administer TARP duties. Over the last
year, the total number of OFS staff has quadrupled, rising from 48 in
November 2008 to 196 as of September 15, 2009 (see fig. 2). Moreover, OFS
has relied increasingly on permanent staff rather than detailees. For
example, OFS increased the number of permanent staff from 5 in
November 2008 to 184 as of September 15, 2009, while the number of
detailees fell from 43 in November 2008 to 12 as of September 15, 2009.
Figure 2: Number of Permanent Staff and Detailees, November 21, 2008, through
September 15, 2009
Number of employees
196
12

200

166

184

29
150
137
113
36
100

90
52
77

50

48
43

38

5

0

Nov. 21,
2008
Date

Jan. 26,
2009

Mar. 16,
2009

June 8,
2009

Sept. 15,
2009

Staff detailed to OFS from other areas of Treasury and other federal agencies (temporary)
Permanent staff (including limited-term appointments)
Source: GAO analysis of Treasury data.

While Treasury has made progress in establishing OFS and filling many
positions, it continues to face hiring challenges. Treasury officials said that
the direct-hire authority authorized by TARP had been helpful in bringing
staff on board expeditiously. OFS has increased its estimate of the number
of full-time staff that it needs based on changes to TARP and currently

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GAO-10-16 Troubled Asset Relief Program

estimates that it will need 283 full-time equivalents for fiscal year 2010 to
operate at full capacity. Most of the increase in the estimate of full
capacity is attributable to anticipated needs in the Homeownership
Preservation, Investment, and Compliance offices and staff for the
Director of Internal Review. In addition, the Assistant Secretary for
Financial Stability has continued to develop OFS’s organizational
structure. For example, the Assistant Secretary is considering establishing
a Director of OFS Internal Review who will help oversee internal control
and compliance procedures and liaise with oversight entities.
OFS has experienced challenges finding permanent staff for some of its
key senior positions, specifically the Chief Homeownership Preservation
Officer and the Chief Investment Officer. The Chief Homeownership
Preservation Officer position has been filled by two successive interim
appointments, and the Director of Operations is currently serving as the
acting chief. Similarly, the Director of Investments has been serving as the
acting Chief Investment Officer since the interim chief left in June 2009. In
our July report, we emphasized that the lack of a permanent head of the
Homeownership Preservation Office (along with the number of vacancies
in the office itself) could impact Treasury’s ability to effectively monitor
HAMP and recommended that these staffing needs be given high priority. 31
Treasury has hired an executive search firm to recruit candidates for these
leadership positions, potentially facilitating the process of identifying
qualified applicants but also adding additional time to the hiring process.
The Assistant Secretary is reassessing the duties of the Chief Operating
Officer and the need for the position, which is currently vacant, to bring
them in line with TARP’s current needs before filling the position.

31

GAO-09-837.

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Treasury Has Strengthened
Management and
Oversight of Contracting
and Vendor-Related
Conflicts of Interest

After nearly a year, the number of private contracts and financial agency
agreements Treasury uses as part of OFS’s management infrastructure has
grown from 11 to 52. Treasury has primarily used two mechanisms for
engaging private sector firms. First, as of September 18, 2009, Treasury has
exercised its statutory authority to retain seven financial agents to provide
services such as managing TARP’s public assets. 32 Second, Treasury has
entered into contracts and blanket purchase agreements under the Federal
Acquisition Regulation (FAR) for a variety of legal and accounting
services, investment consulting, and other services and supplies. In some
cases, interagency agreements (IAA) are also used in support of OFS’s
administration and operations for TARP to engage vendors that have
existing contracts with other Treasury offices or bureaus or other federal
agencies. As of September 18, 2009, Treasury had 39 contracts and blanket
purchase agreements and six IAAs. Legal services contracts and financial
agency agreements accounted for 57 percent of the service providers
directly supporting OFS’s administration of TARP. For contracts and
agreements in place through August 31, 2009, Treasury reports incurring a
total of $110.2 million in expenses. The potential value of all 52 TARP
support agreements and contracts—some completed and some scheduled
to run until June 2014—totals about $601.6 million. 33
The share of work by small businesses—including minority- and womenowned businesses—under TARP contracts and financial agency
agreements has grown substantially since November 2008, when only one
of Treasury’s prime contracts was with a small business and only one
minority small business firm was a subcontractor with a large business
contractor. From the outset, Treasury has encouraged small businesses to
pursue procurement opportunities for TARP contracts and financial
agency agreements. As shown in table 4, eight of Treasury’s prime
contracts and financial agency agreements are with small and/or minority-

32

To implement TARP, Treasury is using its authorities to enter into agreements that
designate financial institutions as financial agents for Treasury. Section 101(c)(3) of the
act; see also 31 C.F.R. pt 202. The financial agency agreements, which are completed
through Treasury’s Office of the Fiscal Assistant Secretary and are not subject to the
Federal Acquisition Regulation, are used to hire asset managers, custodial agents, and
financial advisors, among others, and to manage troubled assets purchased under TARP,
including revenues and portfolio risks.
33

The total for Treasury’s reported incurred expenses as of August 31, 2009, is for 40
contracts and agreements. As of September 18, 2009, 13 of the 52 TARP support contracts
and IAAs were completed. For detailed information on all TARP financial agency
agreements, contracts, and blanket purchase agreements, and services obtained through
IAAs, see GAO-10-24SP.

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and women-owned businesses. The majority of these businesses are
subcontractors to TARP prime contractors.
Table 4: TARP Contracts, Financial Agency Agreements, and Subcontracts with
Minority-Owned, Women-Owned, and Small Businesses, as of September 18, 2009
Socioeconomic business
category
Minority-owned

Prime contracts and
financial agency
agreements Subcontractsa

b

Women-owned

Total

c

3

9

12

2

14

16

Other small

3

15

18

Total

8

38

46

Source: GAO presentation of OFS, Treasury, data (unaudited).
a

As of September 18, 2009, TARP prime contractors and financial agents had awarded 80
subcontracts.
b

ncludes both small and non-small minority-owned businesses and minority/women-owned
businesses.
c

Since our June 2009 report, Treasury has reclassified one reported minority-owned contract as an
interagency agreement, reducing the number of reported minority-owned prime contracts for this
report. Treasury does not provide the socioeconomic status of entities contracted through interagency
agreements.

Treasury’s Processes for
Managing and Monitoring
Conflicts of Interest among
Contractors and Financial
Agents Continue to Mature

Treasury’s reliance on private sector resources to assist OFS with
implementing TARP underscores the importance of addressing conflictsof-interest issues. As required by the act, in January 2009 Treasury issued
an interim regulation on TARP conflicts of interest, which was effective
immediately. 34 With this action, Treasury put in place a set of clear
requirements to address actual or potential conflicts that may arise during
the selection of retained entities seeking a contract or financial agency

34
TARP Conflicts of Interest, 74 Fed. Reg. 3431-3436 (Jan. 21, 2009) (codified at 31 C.F.R.
Part 31). Treasury issued this regulation as an interim rule pursuant to 41 U.S.C. § 418b and
5 U.S.C. § 553(b)(3)(B) based on a determination that urgent and compelling circumstances
and good cause existed that justified the promulgation of the interim rule without public
comment. Treasury found it essential to issue conflict-of-interest regulations without delay
so that anyone participating in the TARP program would have clear information as soon as
possible on avoiding conflicts of interest. 74 Fed. Reg. 3432. Treasury received public
comments on the interim rule and anticipates that the process of developing a final rule
will take more time. Treasury’s action to issue this regulation as an interim rule, effective
immediately, is responsive to our December 2008 recommendation to issue regulations as
expeditiously as possible.

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agreement with the Treasury, particularly those involved in the
acquisition, valuation, management, and disposition of troubled assets. 35
Since January 2009, OFS’s Chief Risk and Compliance Office has been
actively renegotiating several contracts that predated the TARP conflictsof-interest rulemaking to enhance specificity and conformity with the
regulations. To date, conflicts-of-interest provisions and approved
mitigation plans have been renegotiated for three of the six contracts, as
shown in table 5. According to Treasury, the complex nature of these
contracts and business relations with other firms means that significant
time is required to develop mitigation plans that appropriately meet the
provisions of the regulations, and as a result these plans are in various
stages of renegotiation.
Table 5: Status of Treasury’s Actions to Renegotiate Existing Vendor Mitigation
Plans That Predated the January 2009 TARP Conflict-of-Interest Regulation, as of
September 18, 2009
Contractor or financial agent

Status of renegotiated conflict-of-interest
a
mitigation plan

Bank of New York Mellon

Pending

Ennis Knupp & Associates, Inc.

Completed April 2009

Ernst & Young, LLP

Pending

Hughes, Hubbard, & Reed, LLP

Completed May 2009

PricewaterhouseCoopers, LLP

Pending

Squire Sanders & Dempsey, LLP

Completed July 2009

Source: GAO analysis of Treasury information.
a

As of March 2009, Treasury was also reviewing for renegotiation mitigation plans for two more
contractors—-Simpson Thacher & Bartlett (I) and Sonnenschein Nath & Rosenthal (II). According to
Treasury however, the renegotiations stopped when these contracts were found to be close to
completion and the performance of services was ending. Separate ongoing contracts awarded to both
companies after January 2009 for other services have contract provisions and mitigation plans in
conformance with the TARP conflict of interest regulations.

35

Under Treasury’s regulations, retained entities are contractors, financial agents, and their
subcontractors. Treasury’s regulations also address conflicts and other matters that may
arise in the course of TARP services. The scope of the regulation does not include
administrative services identified by the TARP Chief Risk and Compliance Officer. 31
C.F.R. § 31.200(b). OFS determined that because some administrative services (e.g.,
temporary services for document production) do not have substantial decision-making
authority, those contractors are unlikely to have conflicts of interest and do not warrant
the burden imposed by the regulatory requirements. 74 Fed. Reg. 3432. See our eSupplement at GAO-10-24SP, which identifies the contractors and financial agents covered
by TARP conflict-of-interest requirements under 31 C.F.R. Part 31.

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Since March 2009, and consistent with our recommendation, Treasury has
strengthened guidance and procedures requiring that key communications
and decisions concerning potential or actual vendor-related conflicts of
interest be documented. In an effort to improve the monitoring of
contracts and formally document conflict-of-interest processes, Treasury
has taken several steps. For example, it has developed and implemented
conflicts-of-interest procedures and distributed guidance documents to
Treasury contracting staff and TARP contractors and financial agents that
include detailed workflow charts depicting the standardized processes for
the review and disposition of conflict-of-interest inquiries. 36 Also, Treasury
has finished implementing an improved internal reporting database for
documenting and tracking all conflict-of-interest inquiries and requests for
conflicts-of-interest waivers. 37 Treasury’s guidance was sent to contractors
and financial agents in early July, along with a request that all inquiries
related to conflicts of interest be submitted via email to the “TARP.COI”
mailbox created in April 2009 for contractors and financial agents to
document communications to Treasury. Although Treasury has an
appropriate management infrastructure in place, it must remain vigilant in
managing and monitoring conflicts of interest that may arise with the use
of private sector resources.

OFS Has Continued
Developing a Financial
Reporting System and
Related Internal Controls

As required by the act, Treasury must annually prepare and submit to
Congress and the public audited fiscal year financial statements for TARP
that are prepared in accordance with generally accepted accounting
principles. 38 Moreover, the act requires Treasury to establish and maintain
an effective system of internal control over TARP that provides reasonable

36
As part of issuing guidance requiring that key conflict-of-interest communications and
decisions be documented, in July 2009 OFS e-mailed a complete set of workflow charts to
Treasury contracting staff and officials from TARP contractors and financial agents. The
conflicts-of-interest workflow charts reflect standard procedures for reviews of conflicts of
interest raised by (1) new solicitations or competitive task orders, (2) work done under
existing contracts, (3) financial agent selection, (4) work done under existing financial
agency agreements, (5) initial and reviews of initial and subsequent conflict-of-interest
certifications, (6) conflicts-of-interest inquiries from TARP contractors and financial
agents, and (7) conflict-of-interest waiver requests from TARP contractors and financial
agents.
37
Treasury also developed a separate internal reporting system for documenting and
tracking all conflicts-of-interest certifications required of TARP contractors and financial
agents. According to Treasury, an improved internal conflicts-of-interest certification
database will be implemented in the near future.
38

Section 116(b) of the act, 12 U.S.C. § 5226(b).

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assurance of achieving three objectives: (1) reliable financial reporting,
including financial statements and other reports for internal and external
use; 39 (2) compliance with applicable laws and regulations; 40 and (3)
effective and efficient operations, including the use of TARP resources. 41
Accordingly, OFS continues to develop a comprehensive system of
internal control for TARP. 42
The fiscal year ending September 30, 2009, will be the first period for
which Treasury prepares financial statements for TARP. 43 The act requires
that Treasury assess and report annually on the effectiveness of TARP’s
internal controls over financial reporting. 44 The act also requires GAO to
audit TARP’s financial statements annually in accordance with generally
accepted auditing standards. 45
We are currently performing an audit of TARP’s financial statements and
the related internal controls. Our objectives are to render opinions on (1)
the financial statements as of and for the period ending September 30,
2009; and (2) internal controls over both financial reporting and

39
An entity’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and disposition of the assets of the entity; (2)
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the entity are being made only in
accordance with authorizations of management and those charged with governance; and
(3) provide reasonable assurance regarding prevention or timely detection and correction
of any unauthorized acquisition, use, or disposition of the entity’s assets that could have a
material effect on the financial statements.
40
Internal controls over compliance with laws and regulations should provide reasonable
assurance that transactions are executed in accordance with laws governing the use of
budget authority and with other laws and regulations that could have a direct and material
effect on the financial statements and, as applicable, any other laws, regulations, and
governmentwide policies identified in the Office of Management and Budget’s audit
guidance.
41

Section 116(c) of the act, 12 U.S.C. § 5226(c).

42

Section 101 of the act, 12 U.S.C. § 5211, established OFS within the Department of the
Treasury to implement TARP.

43

The TARP financial statements will include an estimate of the value of the TARP’s
investments as of September 30, 2009.
44

Section 116(c) of the act, 12 U.S.C. § 5226 (c).

45

Section 116(b) of the act, 12 U.S.C. § 5226(b).

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GAO-10-16 Troubled Asset Relief Program

compliance with applicable laws and regulations as of September 30, 2009.
We will also be reporting on the results of our tests of TARP’s compliance
with selected provisions of laws and regulations related to financial
reporting. The results of our financial statement audit will be published in
a separate report.

Conditions in Credit
Markets Have
Improved Since TARP
Was Implemented, but
•
Treasury Needs to
Establish a Basis for
Future TARP Actions •

Although isolating and estimating the effect of TARP programs remains a
challenging endeavor, the indicators that we have been monitoring over
the last year suggest that there have been broad improvements in credit
markets since the announcement of CPP, the first TARP program.
Specifically, we found that:

•

institutions that received CPP funds in the first quarter of 2009 saw more
improvement in their capital positions than banks outside the program.

the cost of credit and perceptions of risk declined significantly in
interbank, corporate debt, and mortgage markets;
the decline in perceptions of risk (as measured by premiums over
Treasury securities) in the interbank market could be attributed in part to
several federal programs aimed at stabilizing markets that were
announced on October 14, 2008, including CPP; and

Acting on GAO’s recommendation that Treasury collect information about
the impact of its investments on participants’ lending activities, Treasury
implemented a monthly survey. Our analysis of the surveys, which cover
October 2008 through July 2009, show that collectively the 21 largest
participants reported extending almost $2.3 trillion in new loans since
receiving $160 billion in CPP capital from the Treasury. Although lending
standards remained tight, new lending by these institutions increased from
$240 billion a month during the fourth quarter of 2008 to roughly $287
billion a month in the second quarter of 2009. Because loan origination
data is not available for most banking institutions—including CPP
recipients outside of the largest institutions—the ability to perform more
rigorous analysis to determine the extent to which the increased lending
could be attributed to TARP is limited. 46 Consistent with the intent of

46
Loan originations are new loans by banks. Some analysts have argued for using changes
in loan balances to compare banks, but our analysis suggests that using such measures as a
proxy for originations may lead to invalid conclusions.

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GAO-10-16 Troubled Asset Relief Program

TALF, asset-backed security issuance has recently shown signs of a slight
recovery. While foreclosures continued to increase, it is too soon to judge
the effects of the HAMP program. Treasury recently released a report that
discusses the next phase of its stabilization and rehabilitation efforts.
Treasury’s report also begins to establish a framework that could provide
a basis for deciding whether any further actions will be necessary to assist
in financial stabilization after its authority to purchase or insure additional
troubled assets expires on December 31, 2009 (unless it is extended
through October 3, 2010). As it decides the future of TARP, Treasury will
need to document and communicate its reasoning to Congress and the
American people in order for its decisions to be viewed as credible.
Continuing to develop its quantitative indicators of market conditions to
benchmark TARP programs and its measures of program effectiveness
would support Treasury in this process.

Some Anticipated Effects
of TARP on Credit Markets
and the Economy Have
Materialized, but Not
Necessarily Due to TARP
Actions Alone

In our reports since December 2008, we have highlighted the intended
effects of several broad-based TARP programs, including CPP, CAP, TALF,
PPIP, and HAMP. Chief among these intended effects was to stabilize and
return confidence to the financial system. We paid particular attention to
developments in the interbank market by monitoring the London
Interbank Offered Rate (LIBOR), which is the cost of interbank credit, and
the TED spread, which captures the risk perceived in interbank markets
and gauges the willingness of banks to lend to other banks (see fig. 3). 47 As
figure 3 shows, LIBOR increased significantly in September 2008, and
more importantly banks began to pay an even higher premium for loans to
compensate for the perceived increase in default risk. After widening
somewhat after the first major subprime mortgage write-down and the
Bear Stearns rescue, the TED spread increased significantly in the days
following the bankruptcy of Lehman Brothers and other adverse events,
exceeding 4.5 percent at its highest point (450 basis points). However,
since the announcement of CPP and other interventions in October 2008,
the 3-month LIBOR and TED spread have fallen by more than 430 basis
points. 48 About 60 basis points of that decline occurred after the
announcement of the stress test results associated with CAP in May 2009.

47
In our reports, the TED-spread is the spread between the 3-month LIBOR and 3-month
Treasury yield. Increases in the TED spread imply a greater aversion to risk.
48

A basis point is a common measure used in quoting yields on bills, notes, and bonds and
represents 1/100 of a percent of yield. An increase from 4.35 percent to 4.45 would be an
increase of 10 basis points.

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GAO-10-16 Troubled Asset Relief Program

Figure 3: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill Yield, from January 1, 2007, to September 29, 2009
Interest rates
BNP Paribas freezes
three investment
funds.

6

Major banks begin to write down subprime mortgage losses.
Washington Mutual closed by
Office of Thrift Supervision.

5

CPP announced along
with Federal Reserve
and FDIC programs.

Lehman bankruptcy;
Merrill Lynch
purchase announced.

4

FDIC takes
over IndyMac.
3

Citigroup receives
additional government
assistance.
Bank of America
receives additional
government assistance.
Capital Assistance
Program Stress Test
results released.

2
Bear Stearns receives emergency loan
from Federal Reserve through JPMorgan.

1

Fannie Mae and
Freddie Mac placed
into conservatorship.

0
2007

2008

2009

Year
LIBOR
3-month Treasury
TED spread
Source: GAO analysis of data from Thomson Reuters Datastream.

Note: Rates and yields are daily percentages. The area between the LIBOR and Treasury yield is the
TED spread.

To examine whether the decline in the TED spread could be attributed in
part to TARP, we conducted additional analysis using a simple
econometric model, which took into account the possibility that the
spread would have narrowed without the intervention. 49 We did not
attempt to account for all the important factors that might influence the

49

The model used changes in the TED spread as the dependent variable regressed on a CPP
indicator variable, a time trend, lagged values of changes in the S&P 500, the term spread
(structure), and the default risk premium, an indicator variable that denoted whether the
TED spread exceeded 200 basis points, as well as a counter variable that indicated the
number of consecutive days (including the day in question) that the TED spread had taken
on an extreme value. However, the results were robust to a number of different
econometric specifications, including a two-stage approach that first generated the
unexpected value of the TED spread (as well as the other spreads) by extracting the
predictable component from the variables using an autoregression model fit to each series.
Similar to our primary regressions modeling changes in the TED spread, the CPP indicator
variable had a statistically significant impact on the unexpected level of the TED spread,
even when we controlled for other potentially confounding factors.

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GAO-10-16 Troubled Asset Relief Program

TED spread. 50 Because the TED spread reached extreme values leading up
to the CPP announcement (more than 450 basis points), it could have
declined even in the absence of CPP, simply because extreme values have
a tendency to return to normal levels. 51 Even when we accounted for this
possibility and for other factors that might influence the interbank market,
we found that the October 14, 2008, announcement of the CPP had a
statistically significant impact on changes in the TED spread.
Nevertheless, the associated improvement in the TED spread (or LIBOR)
cannot be attributed solely to TARP because the October 14, 2008,
announcement was a joint announcement that also introduced the Federal
Reserve’s Commercial Paper Funding Facility program and FDIC’s
Temporary Liquidity Guarantee Program.
More broadly, the programs established under TARP, if effective, should
have jointly resulted in improvements in general credit market conditions,
including declining risk premiums and lower borrowing costs for nonbank
businesses and consumers. In the month leading up to the CPP
announcement, market interest rates and spreads reflected a significant
tightening in credit conditions as investors, worried about the health of the
economy, became increasingly risk averse. The indicators that we have
been monitoring illustrate that since mid-October 2008 the cost of credit
and perceptions of risk (measured by premiums over Treasury securities)
have declined significantly, not only in interbank markets but also in
corporate debt and mortgage markets (see table 6). 52 Recent trends in
these measures are consistent with those for other indicators that we and
other researchers have monitored. For example, stock market volatility
has fallen considerably, and the credit default swap index for the banking

50

See our June 2009 report (GAO-09-658) for additional information on the model and the
limitations.

51

This phenomenon is often referred to as “regression to the mean” or “regression
artifacts.” Failure to acknowledge this phenomenon can lead to invalid inferences about a
program’s impact when analyzing time series data. We found that since 1982 the TED
spread had exceeded 200 basis points only 3.2 percent of the time, underscoring the fact
that 450 basis points is quite extreme and indicating that significant stress was present in
the interbank market at the time of the CPP announcement.
52

Our December 2008 and January 2009 reports (GAO-09-161 and GAO-09-296) provide a
more detailed description of the indicators.

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GAO-10-16 Troubled Asset Relief Program

sector has declined significantly since TARP actions began. 53 Even taken
collectively, though, changes in these indicators are an imperfect way to
measure TARP’s impact, as they may also be influenced by general market
forces and cannot be exclusively linked to any one program or action. 54
Table 6: Changes in Select Credit Market Indicators, October 13, 2008, to September 30, 2009
Indicator

Description

Basis point change from October
13, 2008 to September 30, 2009

Credit market rates and spreads
LIBOR

3-month London interbank offered rate (an average Down 446
of interest rates offered on dollar-denominated
loans)

TED spread

Spread between 3-month LIBOR and 3-month
Treasury yield

Down 434

Aaa bond rate

Rate on highest-quality corporate bonds

Down 143

Aaa bond spread

Spread between Aaa bond rate and 10-year
Treasury yield

Down 85

Baa bond rate

Rate on corporate bonds subject to moderate credit Down 263
risk

Baa bond spread

Spread between Baa bond rate and 10-year
Treasury yield

Down 205

Mortgage rates

30-year conforming loans rate

Down 142

Mortgage spread

Spread between 30-year conforming loans rate and Down 83
10-year Treasury yield

53

The credit default swap (CDS) index provides an indicator of the credit risk associated
with U.S. banks, as judged by the market. Therefore, declines in this index suggest lower
perceived risk in the U.S. banking sector. Thomson Reuters Datastream data shows that
the 5-year CDS index dropped significantly after the initial passage of the Emergency
Economic Stabilization Act and again after the announcement of the CPP before trending
up again. However, from the end of March 2009 to September 15, 2009, the bank CDS index
fell by roughly 69 percent. Similarly, the Chicago Board of Option Exchange VIX index,
which measures expected stock market volatility, has fallen considerably since late
November 2008.
54
For example, a significant drop in mortgage rates occurred shortly after the Federal
Reserve’s announcement in November 2008 that it would purchase mortgage-backed
securities.

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GAO-10-16 Troubled Asset Relief Program

Quarterly mortgage volume and defaults
Indicator

Description

Change from December 31, 2008 to
June 30, 2009

Mortgage originations

New mortgage loans

Up $290 billion to $550 billion

Foreclosure rate

Percentage of homes in foreclosure

Up 100 basis points to 4.30 percent

Source: GAO analysis of data from Global Insight, the Federal Reserve, Thomson Reuters Datastream, and Inside Mortgage Finance.

Note: Rates and yields are daily except mortgage rates, which are weekly. Higher spreads (measured
as premiums over Treasury securities of comparable maturity) represent higher perceived risk in
lending to certain borrowers. Higher rates represent increases in the cost of borrowing for relevant
borrowers. As a result, “down” suggests improvement in market conditions for credit market rates and
spreads. Foreclosure rate and mortgage origination data are quarterly. See GAO-09-161,
GAO-09-296, GAO-09-504, and GAO-09-658.

Changes in Capital Ratios and
Bank Lending are Consistent
with the Intended Effects of
TARP but Cannot Be Attributed
Solely to TARP Programs

One of the intentions of TARP, and specifically of CPP, was to improve
banks’ balance sheets, enhance lenders’ ability to borrow, raise capital,
and lend to creditworthy borrowers. Capital ratios at institutions that
received CPP capital in the first quarter of 2009 rose more than capital
ratios at non-CPP institutions between December 31, 2008, and March 31,
2009. This difference holds across several measures of capital adequacy
(see table 7). Improved confidence in the interbank market may to some
degree reflect the increased capital ratios at institutions that received CPP
funding, as these ratios are important indicators of solvency—that is, the
higher the ratio, the more solvent the institution. As we have discussed in
previous reports, tension exists between promoting lending and improving
banks’ capital position. We noted that 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 it to support
additional lending. Using the capital in this manner could allow
institutions to absorb losses or write down troubled assets.
Table 7: Increase in Capital Adequacy among CPP Participants and Nonparticipants
(in percentage points), Fourth Quarter 2008 to First Quarter 2009
Increase in capital adequacy, fourth quarter 2008 to
first quarter 2009
Measure of capital
adequacy

Bank holding companies
receiving CPP in first
quarter 2009

Bank holding companies
not participating in CPP

Tier 1 leverage ratio

2.9

0.6

3

0.4

2.9

0.4

Tier 1 risk-based capital
ratio
Total risk-based capital
ratio
Source: GAO analysis of Federal Reserve data.

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GAO-10-16 Troubled Asset Relief Program

Note: The tier 1 leverage ratio is defined as tier 1 capital—what regulators consider to be the highestquality capital—over total average on balance sheet assets. The tier 1 risk-based capital ratio is
defined as tier 1 capital over risk-weighted assets, where risk-weighted assets is a measure of assets
adjusted for risk. The total risk-based capital ratio is defined as total capital (including tier 1 and other
sources of capital) over risk-weighted assets.

Recent trends in lending suggest that CPP capital infusions may have
made participating banks somewhat more willing and able to increase
lending to creditworthy businesses and consumers, although lending
standards for consumer and business credit remain tight. 55 Our analysis of
Treasury’s loan surveys showed that these CPP recipients reported an
increase in new lending to consumers and businesses to, on average, $287
billion a month in the second quarter of 2009, up $47 billion from $240
billion a month in the fourth quarter of 2008 (see fig. 4). 56 These findings
are consistent with the trends in aggregate mortgage originations, which
more than doubled between the fourth quarter of 2008 and the end of the
second quarter of 2009 to $550 billion.

55
According to the Federal Reserve’s Senior Loan Officer Survey, commercial bank lending
standards for consumer and business loans dramatically tightened in the year leading up to
the fourth quarter of 2008. Although the net percentages of banks reporting that they had
tightened their business lending policies declined over the first two quarters of 2009,
standards remain elevated.
56

New lending includes new home equity lines of credit; mortgage, credit card, and other
consumer originations; new or renewed commercial and industrial loans; and commercial
real estate loans, but not other important activities that these institutions may undertake to
facilitate credit intermediation, including underwriting and purchasing MBS and ABS.
Because the origination data collected by Treasury are unique, we were not able to
benchmark the origination levels against historical lending or seasonal patterns at these
institutions. New lending in July for the top CPP recipients was similar to the second
quarter, at $282 billion.

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Figure 4: New Lending at the 21 Largest Recipients of CPP Capital, from October
2008 to July 2009
Dollars in billions
350

300

250

200

150

100

50

0
Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

June

July

Month
Source: GAO analysis of Treasury loan survey.

Note: Lending levels may be affected by merger activity. Hartford is not included in the totals because
Treasury’s loan survey includes data for Hartford starting in April of 2009.

Table 8 documents the total amount of new consumer and business
lending for each institution that received CPP funds. Despite tight lending
standards and the usual drop in credit flows during recessions, collectively
the top 21 institutions participating in CPP have reported extending almost
$2.3 trillion in new loans since receiving CPP capital totaling $160 billion.
While lending typically falls during a recession, recent research by the
Federal Reserve concluded that through the first quarter of 2009, the
contraction in commercial mortgages, nonfinancial business credit, and
consumer credit did not appear to be particularly severe relative to
contractions in these types of lending in other downturns. However, the
contraction in residential mortgage lending has exceeded past downturns.

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GAO-10-16 Troubled Asset Relief Program

Table 8: New Lending at the 21 Largest Recipients of CPP, as of July 31, 2009
Dollars in billions
Institution

Date of CPP

Citigroup

10/28/2008

Size of CPP

New lending since
receiving CPP

$25.0

$173.1

a

JPMorgan Chase

10/28/2008

25.0

449.9

Wells Fargo Bank

10/28/2008

25.0

502.4

Bank of America

10/28/2008

15.0

579.0

a

Goldman Sachs

10/28/2008

10.0

20.8

Morgan Stanleya

10/28/2008

10.0

32.9

10/28/2008

3.0

5.2

a

Bank of New York Mellon
State Street

a

10/28/2008

2.0

9.8

U.S. Bancorpa

11/14/2008

6.6

127.4

Capital Onea

11/14/2008

3.6

18.3

Regions

11/14/2008

3.5

45.6

SunTrust

11/14/2008

3.5

66.1

BB&T

a

11/14/2008

3.1

54.8

KeyCorp

11/14/2008

2.5

23.6

Comerica

11/14/2008

2.3

23.2

Marshall & Ilsley

11/14/2008

1.7

8.4

Northern Trusta

11/14/2008

1.6

12.2

PNC

12/31/2008

7.6

65.8

Fifth Third Bancorp

12/31/2008

3.4

45.1

CIT

12/31/2008

2.3

24.3

American Express

a

1/9/2009

Total

3.4

6.8

$160.0

$2,294.6

Source: GAO analysis of Treasury loan survey.

Note: The table features the 21 largest of the 22 recipients of CPP funds as of July 31, 2009. We did
not include Hartford, which received CPP funds on June 26, 2009. New lending begins with the
month after the institution received CPP capital (e.g., December for institutions receiving CPP on
Nov. 14, 2008). As such, the measure is likely to understate the amount of new lending. In addition,
lending levels may be affected by merger activity during the time period presented. Date and size of
CPP refer to the initial infusion of CPP funds. Citigroup and Bank of America have received additional
TARP funds.
a

These institutions repaid CPP capital on June 17, 2009, but have voluntarily agreed to continue to
provide information through the end of 2009.

Data limitations may prevent a reliable comparison of lending volumes
across institutions of different sizes and between CPP and non-CPP
participants. For the hundreds of smaller financial institutions receiving

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GAO-10-16 Troubled Asset Relief Program

CPP funds, the only lending information provided was based on the value
of loan balances and thus was not comparable to the more detailed data
for large CPP recipients. Similarly, only comparative balance sheet data is
available for non-CPP institutions. Although balance sheet data—which is
available for all banking institutions—could be useful for comparing
capital ratios, our quantitative work suggests that loan balances may not
be a good proxy for lending activity, at least for the third quarter of 2008 to
the first quarter of 2009. Specifically, we found the correlations between
new lending and changes in loan balances to be relatively low over this
period. 57 A number of factors can affect loan balances that are unrelated to
new lending, including merger activity, changes in the value of existing
loans (e.g., realizing losses on a loan portfolio), and loan payoffs as
borrowers attempt to reduce debt burdens. Banks could, for example,
undertake significant origination activity and still see a drop in the total
value of loans that they held. As a result, it is difficult to determine CPP’s
specific impact on lending activity in a more rigorous way.

Securitization Markets Have
Shown Some Signs of Recovery
for TALF-Eligible Securities

The primary goal of TALF, as designed and operated by the Federal
Reserve, is to make credit more readily available to households and small
businesses by increasing liquidity and improving conditions in ABS
markets. Investors requested $51.7 billion in TALF loans between the start
of the program in March of 2009 and September 2009. As figure 5 indicates,
ABS activity has begun to rebound somewhat after reaching zero for
several types of issuances in the fourth quarter of 2008. While aggregate
issuance is still down significantly from 2007, non-mortgage-related ABS
issuance rose to $47.9 billion in the second quarter of 2009 from $3.3
billion in the fourth quarter of 2008. ABS backed by home equity loans,
which are not eligible for TALF assistance, increased to just $71 million
from $17 million over the same period, although whether a significant

57

We collected data on quarterly loan balances for the top 21 CPP recipients from third
quarter of 2008 to the first quarter of 2009 and compared it to the data on originations from
the Treasury’s loan survey. Data on loan balances are from the Consolidated Financial
Statements for Bank Holding Companies Y-9C Report Form. We aggregated the monthly
loan origination figures up to the quarterly level in order to compare the data to changes in
quarterly loan balances for each institution. The correlation between total originations and
changes in total loan balances was just 0.14. Across the various disaggregated loan
categories, the correlations ranged from 0.29 for mortgages to negative 0.21 for credit
cards, suggesting that any attempt to gauge the effectiveness of CPP on lending activity
using changes in loan balances would likely lead to invalid conclusions. Correlations are
somewhat higher for the change in loan balances for the quarter ending December 31, 2008,
to the quarter ending March 31, 2009. Nevertheless, they are still relatively low.

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increase would be expected given the turmoil in mortgage markets is not
clear.
Figure 5: Annual and Quarterly Asset-Backed Security Issuance
Dollars in billions
600

25

Quarterly data (second quarter of 2008
through second quarter of 2009)

20
500

15
10

400

5
0
Q2
2008

300

Q3

Q4

Q1
2009

Q2

200

100

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Home equity
Student loans
Auto
Credit cards
Source: GAO presentation of Securities Industry and Financial Markets Association data.

Note: Annual figures are adjusted for inflation.

As we discussed in previous reports, TALF support to securitization
markets should, if effective, increase the availability of new credit to
consumers and businesses, lowering rates on credit card, automobile,
small business, student, commercial mortgage, and other types of loans
traditionally facilitated by securitization. From November 2008 to May
2009, the average rate on automobile loans from finance companies
declined significantly (296 basis points) to 3.5 percent, well below the
bank rate, which fell only 26 basis points to 6.8 percent. 58 While these
declines correlate with the launching of TALF, the federal government’s
support of GM and Chrysler also likely played a role in alleviating liquidity

58

The bank rate reflects 48-month loans, while the average maturity for the finance rate was
roughly 63 months for November 2008 and May 2009.

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constraints at finance companies. Because stand-alone auto finance
companies rely more heavily on securitization than commercial banks, the
differences in the trends in their automobile loan rates could partially
reflect the issues in securitization markets that TALF was intended to
address. After initially providing funding to certain holders of AAA-rated
ABS backed by newly and recently originated consumer and small
business loans, TALF has been expanded to other assets, including
commercial MBS. We will continue to monitor ABS activity, interest rates
on consumer and business loans and other TALF-eligible securities, as
well as ABS spreads.

It Is Too Soon to Expect
Results from More Recently
Implemented TARP Programs

In future reports, we will address the effectiveness of the more recently
initiated financial stability programs, using indicators and auxiliary
quantitative work. These programs are intended to address rising
foreclosures and the condition of the housing market (HAMP) as well as
the legacy loans and securities that are widely held to be the root cause of
the deteriorating conditions of many financial institutions (PPIP).
Foreclosure data, although also influenced by general market forces such
as falling housing prices and unemployment, should provide an indication
of the effectiveness of HAMP. Although it is too soon to expect any HAMPrelated improvements, because HAMP was only recently implemented, we
have monitored foreclosure rates over the past year. While the average
foreclosure rate from 1979 to 2006 was less than 1 percent, the percentage
of loans in foreclosure reached an unprecedented high of 4.3 percent at
the end of the second quarter of 2009, up from 3.3 percent in the fourth
quarter of 2008 (see table 6). Over the same period, the foreclosure rate on
subprime loans rose to 15.1 percent from 13.7 percent (the rate for
adjustable-rate subprime loans is now more than 24 percent).
As discussed in our March 2009 report, Treasury introduced PPIP to
facilitate the purchase of legacy loans and securities. PPIP’s impact will
depend largely on the pricing of the purchased assets. Sufficiently high
prices will allow financial institutions to sell assets, deleverage, and
improve their capital adequacy, but overpaying for these assets could have

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negative implications for taxpayers. 59 In addition to providing more
transparent pricing for assets, PPIP—if it is effective—should improve
solvency at participating institutions and others holding those assets,
reduce uncertainty about their balance sheets, and improve investor
confidence. If it does, the institutions will be able to borrow and lend at
lower rates and raise additional capital from the private sector. But PPIP is
in the initial stages of implementation, and it is too early to expect effects
on related markets.

Challenges to Assessing
TARP’s Effect on the
Economy Remain

While TARP’s activities could improve market confidence in participating
banks and have other beneficial effects on credit markets, we have also
noted in our previous reports that several factors will complicate efforts to
measure any impact. For example, any changes attributed to TARP could
well be changes that:
•

would have occurred anyway;

•

can be attributed to other policy interventions, such as the actions of
FDIC, the Federal Reserve, or other financial regulators; or

•

were enhanced or counteracted by other market forces, such as the
correction in housing markets and revaluation of mortgage-related assets.
Consideration of market forces is particularly important when using bank
lending as a measure of CPP’s and CAP’s success, because it is not clear
what would have happened in the absence of TARP. Weaknesses in the
balance sheets of financial intermediaries, a decline in the demand for
credit, reduced creditworthiness among borrowers, and other market
fundamentals suggest lower lending activity than would be expected.
Similarly, nonbank financial institutions, which have accounted for a
significant portion of lending activity over the last two decades, have been

59

Prices at or below the values financial institutions are currently assigning to these loans
or securities would provide a limited incentive to sell. To the extent that nonrecourse
funding and FDIC-guaranteed debt provide an implicit subsidy (e.g., through offering
below-market loan terms) to potential buyers of legacy loans and securities, buyers would
likely be willing to pay higher prices for these assets. To the extent that markets are
underpricing such assets or prices are suppressed due to illiquidity, higher prices may be
more reflective of the underlying value or cash flows associated with the assets (and
therefore aid in price discovery). However, all other things being equal, higher prices
impose certain risks on Treasury, FDIC, and the Federal Reserve if prices paid are too high,
as these agencies will absorb losses beyond the equity supplied by investors.

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constrained due to weak securitization markets. Lastly, because the
extension of credit to less-than-creditworthy borrowers appears to have
been an important factor in the current financial crisis, it is not clear that
lending should return to precrisis levels. Similar difficulties arise in using
foreclosure data as a measure of HAMP’s success, especially given the
rising unemployment rate and the number of homeowners who may have
taken on mortgage-related debt beyond prudent levels.

Treasury Should Consider
a Number of Indicators
and Measures to Provide a
Basis for Future TARP
Actions

While Treasury is beginning to establish a case for exiting from some
emergency programs and maintaining others, it has not fully established a
comprehensive framework that will provide a basis for making transparent
decisions about which TARP-specific actions are necessary or how those
programs will be evaluated. Treasury’s authority to purchase or insure
additional troubled assets will expire on December 31, 2009, unless the
Secretary submits a written certification to Congress explaining why an
extension is necessary and how much it is expected to cost. For this
reason, Treasury will need to make decisions about providing new funding
and maintaining existing funding for TARP programs in the next few
months. It will need to do this in light of current and expected market
conditions, and it will need to communicate its determinations to
Congress and the American people.
Treasury has recently released a report that begins to discuss the next
phase of its stabilization and rehabilitation efforts—a discussion that may
be a starting point for deciding whether any further actions are necessary
to stabilize financial markets and the first step in establishing a framework
for such actions. 60 The report describes the drop in utilization of some
programs as financial conditions normalize and confidence in financial
markets improves and identifies a number of financial market indicators.
Treasury also notes that it will need to ensure the continuation of some
policies and programs that it believes are needed for financial and
economic recovery. However, Treasury has yet to take all the steps needed
to provide a basis for deciding whether or not to provide new funding for
TARP. For example, while some rationale is provided for continued HAMP
and TALF action, none is provided for PPIP. Without a robust analytic
framework, Treasury may be challenged in effectively carrying out the
next phase of its programs.

60

“The Next Phase of Government Financial Stabilization and Rehabilitation Policies,”
Department of the Treasury (September 2009).

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GAO-10-16 Troubled Asset Relief Program

For the decision-making process to be viewed as credible, Treasury will
need to document and communicate the basis for its decisions. Although
qualitative factors should be given serious consideration, to the extent that
Treasury can relate its decision making to a set of quantitative measures or
indicators, its case can be more convincing. In addition, Treasury would
add further credibility to the process by announcing ahead of time the
indicators or measures it plans to use. Doing so would help to disarm
potential criticism that it had selectively chosen indicators or measures to
justify its decisions after the fact. While indicators of credit market
conditions can suggest the extent to which, for example, credit costs and
lending have returned to levels consistent with the stability of financial
markets, measures of program effectiveness can offer insight into the
potential benefits of additional TARP expenditures. The Office of
Management and Budget (OMB) guidance for cost-benefit and regulatory
analyses suggests, among other things, making assumptions explicit,
characterizing the uncertainties involved, varying assumptions to
determine the sensitivity of estimated outcomes (sensitivity analysis), and
considering alternative approaches. 61 If Treasury adopts a more formal
cost-benefit framework, additional principles may also be applicable,
including the use of net present value measures, an enumeration of
benefits and costs, and the quantifying of benefits and costs whenever
possible.

Conclusions and
Recommendations

In establishing this new program, Treasury faced a number of operational
challenges. Not only did it have to implement the program in the midst of
the greatest financial crisis since the Great Depression, but Treasury also
had to adjust the program as events continued to unfold. As TARP’s focus
shifted from making a number of capital purchases as investments in
individual institutions to one geared toward restarting securitization
markets and preserving homeownership, its management infrastructure
had to change as well.
While progress has been made in establishing TARP, much remains
uncertain about the program, including whether it will pay for itself or
prove to be a cost to the taxpayers. The reasons for the uncertainty
include the following:

61

The Office of Management and Budget (OMB) guidance includes circulars A-4 “Regulatory
Analysis” and A-94 “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal
Programs.”

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•

Some programs remain in their infancy, while others are winding down.
Therefore, determining the overall impact and costs of the programs will
take time.

•

TARP funds were invested in a variety of institutions, some of which were
less risky than others.

•

Some TARP programs may generate some returns for Treasury through
interest and dividend payments and sales of warrants, while others—such
as HAMP—are expenditure programs aimed at helping homeowners
modify their mortgages.
To help Treasury meet the challenges associated with implementing a
program while concurrently establishing a comprehensive system of
internal control, we have made 35 recommendations to Treasury aimed at
improving the accountability, integrity, and transparency of TARP. As
discussed in appendix I, Treasury has taken action to address most of
them. And while much important progress has been made, a number of
areas warrant ongoing attention as Treasury moves into the next phase of
the program and contemplates a possible extension.

•

First, we continue to believe that Treasury should work with the Chairmen
of the FDIC and Federal Reserve, the Comptroller of the Currency, and the
Acting Director of OTS to help ensure that the primary federal regulators
use generally consistent criteria when considering repurchase decisions
under TARP. While we understand that the final repurchase decision rests
with a participant’s primary federal regulator, Treasury has a responsibility
to ensure that these regulators are applying generally consistent criteria
when reviewing TARP participants’ requests to repurchase their preferred
shares.

•

Second, Treasury has yet to finalize its implementation of an oversight
program for asset managers covering CPP and the other capital-based
programs, such as TIP and AGP. While Treasury now has asset managers
to help manage its equity investments, it must also ensure that the federal
government’s interests are protected and that the asset managers are
performing as agreed.

•

Third, Treasury has yet to implement our recommendation aimed at
strengthening its efforts to help preserve homeownership and protect
home values. As we previously recommended, Treasury should routinely
update projections of the number of homeowners who can be helped
under HAMP by reviewing key assumptions about the housing market and
the behavior of mortgage holders, borrowers, and servicers. In addition,

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GAO-10-16 Troubled Asset Relief Program

Treasury should develop a means of systematically assessing servicers’
capacity to make HAMP modifications and meet program requirements, so
that Treasury can understand and address any risks associated with
individual servicers’ ability to fulfill program requirements.
•

Fourth, in the area of management infrastructure, OFS has continued to
make progress in establishing a management infrastructure to administer
TARP and oversee contractors and financial agents, but some challenges
remain. Though OFS now has close to 200 staff, some key senior positions
have not been permanently filled, such as the Chief Homeownership
Preservation Officer and Chief Investment Officer. Bringing on board
permanent staff for these key positions is important in helping Treasury
effectively administer TARP activities and ensuring accountability for
program outcomes. Treasury has strengthened its management and
oversight of contractors as its reliance on them to support TARP has
grown over the past year. OFS continues to make progress in developing a
comprehensive system of internal control. As we complete our first audit
of OFS’s annual financial statements for TARP, we will be able to provide
a more definitive view of TARP’s internal controls over financial reporting.

•

Fifth, in the area of communication, the program has evolved and
continues to evolve. Treasury viewed its initial shift toward capital
investments in the first weeks of the program as a more effective way to
stabilize fragile financial markets. This shift in strategy, however, caught
Congress and the public by surprise, and has created long-term challenges
for the program, and, some would argue, ultimately impacted the
effectiveness of the program. Concerns about this shift in structure
highlight the communication challenges that continue to confront the
program. And as Treasury continues to improve its communication efforts
and formalize its communication strategy, Treasury must ensure that its
ongoing efforts include keeping Congress adequately informed about
TARP and its strategy, including its exit strategy for the various programs
created under TARP. Furthermore, formalizing the communication
strategy and hiring a communications director will help ensure that
communication is given sufficient attention on an ongoing basis.

•

Finally, because TARP has been part of a broader effort that has included
the Federal Reserve and FDIC, measuring the effectiveness of TARP’s
programs has been an ongoing challenge. We developed a set of indicators
that we used to track conditions of financial markets over the past year.
These indicators show that a number of the anticipated effects of TARP
have materialized. However, changes in these metrics are an imperfect
way to measure TARP’s impact, as they may also be influenced by general
market forces and cannot be exclusively linked to any one program or

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GAO-10-16 Troubled Asset Relief Program

action. As a result, isolating and assessing TARP’s effect on the economy
remains a challenging endeavor.
Treasury has not fully established a comprehensive analytic framework for
assessing the need for additional actions and evaluating program results in
a transparent manner. In a recent report on the next phase of the federal
government’s stabilization efforts, Treasury began to lay the foundation for
an analytic framework for determining whether to extend TARP and also
provided a number of financial indicators. Although TARP expires on
December 31, 2009, the Secretary of the Treasury may extend the program
to October 3, 2010, and Treasury will need to make a determination
regarding such an extension. As Treasury considers whether to extend the
program, the Secretary’s determination must be made in light of actions
taken and planned by the Federal Reserve and FDIC and their winding
down of certain programs and continuation of others that were also
established to help stabilize markets. In addition, any continued action
under TARP should be based in part on quantitative measures of program
effectiveness, such as performance indicators, in order to weigh the
benefits of TARP programs against the cost of using additional taxpayer
resources. However, Treasury has not fully established a comprehensive
analytic framework for assessing the future direction of the programs or
determining whether additional actions are warranted. Moreover, as it
finalizes the next phase of the program, Treasury will need to document its
decision-making process and communicate its reasoning to Congress and
the American people in order for its decisions to be viewed as credible.
Finally, with the exception of AGP and AIFP, Treasury has not updated its
projected use of funds for the TARP programs in light of current market
conditions and program participation rates since March 2009. Based on
changes in the markets, repurchases, participation levels in certain
programs, and the implementation status of others, a thorough review of
Treasury’s existing estimates of its projected use of TARP funds is
warranted in light of the need to make a determination about whether to
extend the program. Without more current and meaningful estimates
about projected uses of the remaining funds, Treasury’s ability to plan for
and effectively execute the next phase of the program will be limited.

New
Recommendations for
Executive Action

As it enters the next phase of the program, Treasury will likely face
ongoing challenges. Building on our prior recommendations, we are
making three new recommendations aimed at improving Treasury’s ability
to effectively manage the next phase of the program. Specifically, we
recommend that the Secretary of the Treasury

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GAO-10-16 Troubled Asset Relief Program

•

•

Document its analytical decision-making process and clearly communicate
the results to Congress and the American people for determining whether
an extension is needed; and

•

Agency Comments
and Our Analysis

Consider TARP in a broad market context and as part of determining
whether to extend TARP, work with the Chairmen of the Federal Reserve
and FDIC to develop a coordinated framework and analytical basis to
determine whether an extension is needed. If it is, the Secretary should
clearly spell out what the objectives and measures of any extended
programs would be, along with anticipated costs and safeguards;

Update its projected use of funds and, if the program is extended, continue
to re-evaluate them on a periodic basis.

We provided a draft of this report to Treasury for its review and comment.
We also provided excerpts of the draft report to the Federal Reserve and
FDIC for their review. Treasury provided written comments that we have
reprinted in appendix XI. Treasury, the Federal Reserve, and FDIC also
provided technical comments that have been incorporated as appropriate.
In its comments, Treasury noted that “there is important work ahead” and
that our recommendations were constructive as Treasury works to
implement its financial stability programs and enhance OFS’s
performance. In particular, the Assistant Secretary noted in response to
our recommendations that the Secretary in deciding whether to extend
TARP authority beyond December 31, 2009, “will coordinate with
appropriate officials to ensure that the determination is considered in a
broad market context that takes account of relevant objectives, costs, and
measures” and that Treasury will communicate the reasons for the
decision when it is made. Concerning our recommendation that Treasury
update its projected use of funds estimates and if the program is extended,
regularly re-evaluate them, Treasury commented that it regularly evaluates
funding needs for TARP programs and announces revisions as decisions
are made. However, with the exception of AGP and AIFP, Treasury had
not publicly affirmed its projected use estimates since March 2009. As it
continues to evaluate these estimates, Treasury should disclose this
information periodically, including reconciling estimates to actual results.
For example, in March Treasury estimated that it had $135 billion
remaining under TARP. This included $25 billion in estimated repurchases,
yet as of September 25, 2009, actual repurchases totaled almost three
times that amount.

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GAO-10-16 Troubled Asset Relief Program

We are sending copies of this report to the Congressional Oversight Panel,
Financial Stability Oversight Board, Special Inspector General for TARP,
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 http://www.gao.gov.
If you or your staffs 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 Williams Brown 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 XII.

Gene L. Dodaro
Acting Comptroller General
of the United States

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GAO-10-16 Troubled Asset Relief Program

List of 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

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GAO-10-16 Troubled Asset Relief Program

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

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GAO-10-16 Troubled Asset Relief Program

Appendix I: Status of GAO Recommendations,
as of September 25, 2009

Appendix I: Status of GAO
Recommendations, as of September 25, 2009

GAO recommendations

Status

December 2, 2008, report:
Work with the bank regulators to establish a systematic means of determining and reporting in a timely Implemented
manner whether financial institutions’ activities are generally consistent with the purposes of Capital
Purchase Program (CPP) and help ensure an appropriate level of accountability and transparency.
Develop a means to ensure that institutions participating in CPP comply with key program
Partially implemented
requirements (for example, executive compensation, dividend payments, and the repurchase of stock).
Formalize the existing communication strategy to ensure that external stakeholders, including
Congress, are informed about the program’s current strategy and activities and understand the
rationale for changes in this strategy to avoid information gaps and surprises.

Partially implemented

Facilitate a smooth transition to the new administration by building on and formalizing ongoing
activities, including ensuring that key Office of Financial Stability (OFS) leadership positions are filled
during and after the transition.

Implemented

Expedite OFS’s hiring efforts to ensure that the Department of the Treasury (Treasury) has the
personnel needed to carry out and oversee the Troubled Asset Relief Program (TARP).

Implemented

Ensure that sufficient personnel are assigned and properly trained to oversee the performance of all
Implemented
contractors, especially for contracts priced on a time-and-materials basis, and move toward fixed-price
arrangements whenever possible.
Continue to develop a comprehensive system of internal control over TARP, including policies,
procedures, and guidance that are robust enough to protect taxpayers’ interests and ensure that
program objectives are being met.

Partially implemented

Issue 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.

Implemented

Institute a system to effectively manage and monitor the mitigation of conflicts of interest.

Implemented

January 30, 2009, report:
Expand the scope of planned monthly CPP surveys to include collecting at least some information
from all institutions participating in the program.

Implemented

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.

Implemented

Establish a process to ensure compliance with all CPP requirements, including those associated with
limitations on dividends and stock repurchase restrictions.

Partially implemented

Communicate a clearly articulated vision for TARP and show 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.

Implemented

Continue to expeditiously hire personnel needed to carry out and oversee TARP.

Implemented

Expedite efforts to ensure that sufficient personnel are assigned and properly trained to oversee the
Implemented
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.

Page 55

Partially implemented

GAO-10-16 Troubled Asset Relief Program

Appendix I: Status of GAO Recommendations,
as of September 25, 2009

GAO recommendations

Status

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.

Implemented

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.

Partially implemented

March 31, 2009, report:
Develop a communication strategy that includes building an understanding and support for the various
components of the program. Specific actions could include hiring a communications officer, integrating
communications into TARP operations, scheduling regular and ongoing contact with congressional
committees and members, holding town hall meetings with the public across the country, establishing
a counsel of advisors, and leveraging available technology.

Partially implemented

Require that American International Group, Inc. (AIG) seek concessions from stakeholders, such as
management, employees, and counterparties, including seeking to renegotiate existing contracts, as
appropriate, as it finalizes the agreement for additional assistance.

Closed, not implemented

Update OFS documentation of certain internal control procedures and the guidance available to the
public on determining warrant exercise prices to be consistent with actual practices applied by OFS.

Partially implemented

Improve transparency pertaining to TARP program activities by reporting publicly the monies, such as
dividends, paid to Treasury by TARP participants.

Implemented

Complete the review of, and as necessary renegotiate, the four existing vendor conflicts-of-interest
mitigation plans to enhance specificity and conformity with the new interim conflicts-of-interest rule.

Partially implemented

Issue guidance requiring that key communications and decisions concerning potential or actual
vendor-related conflicts of interest be documented.

Implemented

June 17, 2009, report:
Ensure that the warrant valuation process maximizes benefits to taxpayers and consider publicly
disclosing additional details regarding the warrant repurchase process, such as the initial price offered
by the issuing entity and Treasury’s independent valuations, to demonstrate Treasury’s attempts to
maximize the benefit received for the warrants on behalf of the taxpayer.

Partially implemented

In consultation with the Chairmen of the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System, the Comptroller of the Currency, and the Acting Director of
the Office of Thrift Supervision, ensure consideration of generally consistent criteria by the primary
federal regulators when considering repurchase decisions under TARP.

Not implemented

Fully implement a communication strategy that ensures that all key congressional stakeholders are
adequately informed and kept up to date about TARP.

Partially implemented

Expedite efforts to conduct usability testing to measure the quality of users’ experiences with the
financial stability Web site and measure customer satisfaction with the site, using appropriate tools
such as online surveys, focus groups, and e-mail feedback forms.

Implemented

Explore options for providing the public with more detailed information on the costs of TARP contracts
and agreements, such as a dollar breakdown of obligations and/or expenses.

Implemented

Finally, to help improve the transparency of Capital Assistance Program (CAP)—in particular the stress Not implemented
tests results—we recommend that the Director of Supervision and Regulation of the Federal Reserve
consider periodically disclosing to the public the aggregate performance of the 19 bank holding
companies against the more adverse scenario forecast numbers for the duration of the 2-year forecast
period and whether or not the scenario needs to be revised. At a minimum, the Federal Reserve
should provide the aggregate performance data to OFS program staff for any of the 19 institutions
participating in CAP or CPP.

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Appendix I: Status of GAO Recommendations,
as of September 25, 2009

GAO recommendations

Status

July 23, 2009, report:
Consider methods of (1) monitoring whether borrowers with total household debt of more than 55
percent of their income who have been told that they must obtain HUD-approved housing counseling
do so, and (2) assessing how this counseling affects the performance of modified loans to see if the
requirement is having its intended effect of limiting redefaults.

(1) Partially implemented
(2) Not implemented

Reevaluate the basis and design of Home Price Decline Protection (HPDP) program to ensure that the Partially implemented
Home Affordable Modification Program (HAMP) funds are being used efficiently to maximize the
number of borrowers who are helped under HAMP and to maximize overall benefits of utilizing
taxpayer dollars.
Institute a system to routinely review and update key assumptions and projections about the housing
market and the behavior of mortgage holders, borrowers, and servicers that underlie Treasury’s
projection of the number of borrowers whose loans are likely to be modified under HAMP and revise
the projection as necessary in order to assess the program’s effectiveness and structure.

Partially implemented

Place a high priority on fully staffing vacant positions in Homeownership Preservation Office (HPO)—
including filling the position of Chief Homeownership Preservation Officer with a permanent
placement—and evaluate HPO’s staffing levels and competencies to determine whether they are
sufficient and appropriate to effectively fulfill its HAMP governance responsibilities.

Partially implemented

Expeditiously finalize a comprehensive system of internal control over HAMP—including policies,
Partially implemented
procedures, and guidance for program Activities—to ensure that the interests of both the government
and taxpayer are protected and that the program objectives and requirements are being met once loan
modifications and incentive payments begin.
Expeditiously develop a means of systematically assessing servicers’ capacity to meet program
requirements during program admission so that Treasury can understand and address any risks
associated with individual servicers’ abilities to fulfill program requirements, including those related to
data reporting and collection.

Not implemented

Source: GAO and analysis of OFS, Treasury information.

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GAO-10-16 Troubled Asset Relief Program

Appendix II: Capital Purchase Program

Appendix II: Capital Purchase Program

Program Overview

The Capital Purchase Program (CPP) has been the primary initiative under
the Troubled Asset Relief Program (TARP) for stabilizing the financial
markets and banking system. The Department of the Treasury (Treasury)
created CPP in October 2008 to stabilize the financial system by providing
capital to qualifying regulated financial institutions through the purchase
of senior preferred shares and subordinated debentures. 1 In return for its
investment, Treasury was to receive dividend or interest payments and
warrants. 2 Treasury has stated that by building capital, CPP should help
increase the flow of financing to U.S. businesses and consumers and
support the U.S. economy. At the time of the program’s announced
establishment, nine major financial institutions—considered by federal
banking regulators and Treasury to be essential to the operation of the
financial system—agreed to participate in CPP. 3 Together, these
institutions held about 55 percent of U.S. banking assets. Banking
regulators recommend program participants, which Treasury selects,
based on examination ratings and performance and may accept or reject
applications based on these factors and on mitigating circumstances, such
as confirmed private investment.

Funding

On October 14, 2008, Treasury allocated $250 billion of the almost $700
billion for CPP but adjusted its allocation to $218 billion in March 2009.
According to Treasury officials, this downward adjustment reflected the
estimated funding needs of the program based on participation to date and
the money it expected to receive from participants repurchasing their
preferred shares and subordinated debt. As of September 25, 2009,
Treasury had disbursed more than $204.6 billion (see table 9) and had
received about $70.7 billion from repurchases of preferred shares leaving
$84.1 billion available for future CPP funding, according to Tresaury.

1

For purposes of CPP, qualifying financial institutions generally include stand-alone U.S.controlled banks and savings associations, as well as bank holding companies and most
savings and loan holding companies.

2

A warrant is an option to buy shares of common stock or preferred stock at a
predetermined price on or before a specified date.

3

The nine major financial institutions were Bank of American Corporation; Citigroup, Inc.;
JP Morgan Chase & Co.; Wells Fargo & Company; Morgan Stanley; The Goldman Sachs
Group, Inc.; The Bank of New York Mellon Corporation; State Street Corporation; and
Merrill Lynch & Co., Inc.

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GAO-10-16 Troubled Asset Relief Program

Appendix II: Capital Purchase Program

Table 9: Capital Investments Made through the Capital Purchase Program, as of
September 25, 2009

Closing date of
transaction

Amount of CPP
capital investment

Number of
Cumulative percentage qualified financial
institutions
of allocated funds used
receiving CPP
for CPP capital
capital
investment

10/28/2008

$115,000,000,000

52.75%

8

11/14/2008

33,561,409,000

68.15

21

11/21/2008

2,909,754,000

69.48

23

12/5/2008

3,835,635,000

71.24

35

12/12/2008

2,450,054,000

72.37

28

12/19/2008

2,791,950,000

73.65

49

12/23/2008

1,911,751,000

74.52

43

12/31/2008

15,078,947,000

81.44

7

1/9/2009

14,771,598,000

88.22

43

1/16/2009

1,479,938,000

88.89

39

1/23/2009

385,965,000

89.07

23

1/30/2009

1,151,218,000

89.6

42

2/6/2009

238,555,000

89.71

28

2/13/2009

429,069,000

89.91

29

2/20/2009

365,397,000

90.07

23

2/27/2009

394,906,000

90.26

28

3/6/2009

284,675,000

90.39

22

3/13/2009

1,455,160,000

91.05

19

3/20/2009

80,748,000

91.09

10

3/27/2009

192,958,000

91.18

14

4/3/2009

54,826,000

91.2

10

4/10/2009

22,790,000

91.21

5

4/17/2009

40,945,000

91.23

6

4/24/2009

121,846,000

91.29

12

5/1/2009

45,532,000

91.31

7

5/8/2009

42,019,000

91.33

7

5/15/2009

107,623,000

91.38

14

5/22/2009

108,333,000

91.43

12

5/29/2009

89,207,000

91.47

8

6/5/2009

40,269,000

91.49

3

6/12/2009

39,108,000

91.51

7

6/19/2009

84,705,000

91.54

10

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Appendix II: Capital Purchase Program

Closing date of
transaction
6/26/2009

Amount of CPP
capital investment

Number of
Cumulative percentage qualified financial
of allocated funds used
institutions
receiving CPP
for CPP capital
investment
capital

3,626,311,000

93.21

16

0

93.21

0

7/3/2009
7/10/2009

963,669,000

93.65

2

7/17/2009

91,600,000

93.69

6

7/24/2009

87,655,000

93.73

4

7/31/2009

10,742,000

93.74

2

8/7/2009

70,236,000

93.77

2

8/14/2009

1,004,000

93.77

1

8/21/2009

9,000,000

93.77

2

8/28/2009

49,657,000

93.8

4

9/4/2009

1,697,000

93.8

1

9/11/2009

74,771,000

93.83

5

9/18/2009

15,976,000

93.84

2

9/25/2009

48,365,320

93.86

6

$204,617,573,320

93.86%

685a

Total

Sources: GAO analysis of Treasury and SEC (10Q) data.
a

The total number of financial institutions was reduced by three because SunTrust Banks, Inc.
(SunTrust), Bank of America Corporation, and Yadkin Valley Financial Corporation 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
Corporation received $15 billion on October 28, 2008, and, after merging with Merrill Lynch & Co.,
Inc. on January 1, 2009, an additional $10 billion on January 9, 2008. Yadkin Valley Financial
Corporation received $36 million on January 16, 2009, and another $13.3 million on July 24, 2009,
after merging with American Community Bancshares, Inc on April 17, 2009.

Status of Efforts

Through CPP, Treasury had provided more than $204 billion in capital to
685 institutions as of September 25, 2009. These purchases ranged from
$301,000 to $25 billion per institution and represented about 94 percent of
the $218 billion Treasury allocated for CPP. As of September 25, 2009, the
types of institutions that received CPP capital varied in size and included
280 publicly held institutions, 337 privately held institutions, 1 mutual
institution, 45 S-corporations, and 22 community development financial

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institutions. 4 These purchases represented investments in state-chartered
and national banks and bank holding companies located in the District of
Columbia, Puerto Rico, and every state except Montana and Vermont. For
a detailed listing of financial institutions that received CPP funds as of
September 25, 2009, see GAO-10-24SP. 5 While the last application deadline
was May 14, 2009, for mutual institutions, on May 13, 2009, the Secretary of
the Treasury extended the CPP program to November 21, 2009, for all
types of small banks. The program is starting to wind down, with fewer
than 115 applications under consideration by regulators and fewer than 30
applications by Treasury as of September 18, 2009.
Treasury and the federal bank regulators continue to review applications
for CPP. According to Treasury, as of September 25, 2009, it had received
over 1,300 CPP applications (including approximately 10 under the small
bank program) from the banking regulators, with fewer than 30 awaiting
decision by OFS’s Investment Committee. For many applications in this
category, Treasury is awaiting updated information from the regulators
before taking the application to the Investment Committee for a vote. The
bank regulators also reported that they were reviewing applications of
fewer than 115 institutions plus more than 50 under the small bank
program that had 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. OFS officials stated that more than 430
financial institutions that received preliminary approval had withdrawn
their CPP applications as of September 25, 2009. Institutions withdrew
their applications for a variety of reasons, including the uncertainty

4

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,
Boston Mutual and New York Life) are mutuals. A Community Development Financial
Institutions (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.
5

GAO, Troubled Asset Relief Program: Capital Purchase Program Transactions for
October 28, 2008, through September 25, 2009, and Information on Financial Agency
Agreement, Contract, Blanket Purchase Agreements, and Interagency Agreements
Awarded as of September 18, 2009, GAO-10-24SP (Washington, D.C.: October 8, 2009).

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surrounding future program requirements, the legal cost to close
transactions (for small institutions), cost of warrants, and improving
confidence in the banking system that allowed them to raise capital in the
private markets.
In addition to outflows, Treasury had received about $6.7 billion in
dividend payments and interest payments from CPP participants as of
September 25, 2009. CPP participants repurchased about $70.7 billion in
preferred shares and paid another $2.9 billion to repurchase their warrants
and preferred stock received through the exercise of warrants.

Key Activities Under
CPP

•

October 13, 2008: Consistent with conditions prescribed by the
Emergency Economic Stabilization Act of 2008 (the act), Treasury notifies
Congress that Treasury officials have determined that it would be more
efficient to purchase preferred shares issued by certain financial
institutions instead of purchasing mortgage-related assets.

•

October 14, 2008: Treasury announces that it will make direct capital
investments in a broad array of qualifying financial institutions in
exchange for preferred stock and warrants through CPP. Also, Treasury
allocates $125 billion in purchases for the first nine financial institutions
deemed systemically significant by federal bank regulators and Treasury.
The nine large financial institutions agree to participate in CPP, in part, to
signal the importance of the program for the system.

•

October 14, 2008: Treasury provides a description of CPP terms for
investments in public financial institutions and issues the term sheet for
public institutions. The deadline for public institutions to submit
applications to their primary federal bank regulator is November 14, 2008.

•

October 20, 2008: Treasury published in the Federal Register an interim
final rule to provide guidance on the executive compensation provisions
applicable to CPP participants.

•

October 20, 2008: Treasury and the four federal banking agencies—the
Board of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, the Office of Thrift Supervision, and the
Federal Deposit Insurance Corporation—issue application guidelines,
frequently asked questions, and standardized terms for making capital
investments in public financial institutions. The deadline for public
institutions to submit applications to their primary federal bank regulator
is November 14, 2008.

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•

October 28, 2008: Treasury settles the capital purchase transactions with
eight of the nine institutions participating in the first round of CPP for a
total of $115 billion. 6

•

November 17, 2008: Treasury issues standardized terms for making capital
investments in privately held financial institutions. December 8, 2008, is
the deadline for privately held institution to submit applications to their
primary federal bank regulator for CPP funds.

•

January 14, 2009: Treasury issues standardized terms for making capital
investments in S-corporations and answers to frequently asked questions
for qualified financial institutions applying to CPP that are S-corporations.
The term sheet provides for issuances of debt instead of preferred stock
issued by certain other CPP participants. The deadline for S-corporations
to submit applications to their primary federal bank regulator is February
17, 2009.

•

February 17, 2009: Treasury publishes its first Monthly Lending and
Intermediation Snapshot with information from the top 21 financial
institutions participating in CPP.

•

February 17, 2009: The American Recovery and Reinvestment Act of 2009
(ARRA) amends the Emergency Economic Stabilization Act of 2008 by
allowing financial institutions to repurchase or buy back their preferred
shares and warrants from Treasury at any time with the approval of their
primary federal regulator. Under the original terms of CPP, financial
institutions are prohibited from repurchasing in the first 3 years unless
they had completed a qualified equity offering.

•

February 26, 2009: Treasury publishes frequently asked questions
addressing changes to CPP under ARRA.

•

March 31, 2009: The first financial institutions begin repaying their CPP
capital investments (that is, repurchasing preferred shares) after receiving
approval from their primary federal banking regulator. Five institutions
pay $353 million to Treasury.

•

April 7, 2009: Treasury issues three term sheets for qualifying financial
institutions applying to CPP that are mutual holding companies. The

6

According to Treasury, the remaining $10 billion would be settled by the end of January
2009, by which time the merger of Bank of America Corporation and Merrill Lynch & Co.,
Inc. would be complete.

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deadline for mutual institutions to submit applications to their primary
federal bank regulator is May 7, 2009.
•

April 14, 2009: Treasury releases term sheet for mutual banks applying to
CPP that do not have holding companies. The deadline for mutual
institutions to submit applications to their primary federal bank regulator
is May 14, 2009.

•

April 22, 2009: Treasury announces the selection of three firms
(AllianceBernstein LP; FSI Group, LLC; and Piedmont Investment
Advisors, LLC) to serve as asset managers for CPP and other programs.
Treasury officials state that these managers would have a role in helping
ensure that institutions are honoring dividend payments and stock
repurchases requirements.

•

May 13, 2009: The Treasury Secretary announces in a speech that
Treasury has taken additional actions under CPP to ensure that small
community banks and holding companies (qualifying financial institutions
with total assets less than $500 million) will have the capital they needed
to lend to creditworthy borrowers. Small banks have until November 21,
2009, to apply to CPP under all term sheets.

•

May 14, 2009: Treasury notifies six insurance companies that they have
received preliminary CPP funding approval. All insurance companies
complied with the requirements to participate in CPP under existing term
sheets, as these companies are organized as bank or thrift holding
companies and filed their CPP applications by the deadline date. As of
September 25, 2009, two of the six had been funded.

•

June 1, 2009: Treasury releases its first CPP Monthly Lending Report,
which includes information on outstanding balances on consumer loans,
commercial loans, and total loans of all CPP participants.

•

June 9, 2009: Treasury announces that 10 of the largest U.S. financial
institutions participating in CPP are eligible to complete the repurchase
process and repay about $68 billion, having obtained regulatory consent to
their repayment requests.

•

June 10, 2009: Treasury adopts an interim rule to implement the
executive compensation and corporate governance provisions of the act,
as amended by ARRA.

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•

June 17, 2009: Ten of the largest U.S. bank holding companies—all but
one of which participated in the Supervisory Capital Assessment Program
exercise—repay about $68 billion in CPP capital investments to Treasury.

•

June 26, 2009: Treasury announces its policy with respect to warrant
repurchases and the disposition of warrants received in connection with
investments made under CPP. Also, frequently asked questions about
warrants and CPP are published.

•

August 17, 2009: Treasury, in conjunction with bank regulators, publishes
the first Quarterly Capital Purchase Report of regulatory financial data for
CPP and non-CPP banks, thrifts, and bank holding companies. It focuses
on three broad categories: on- and off-balance sheet items, performance
ratios, and asset quality measures.

•

December 31, 2009: Deadline for Treasury to end the approval process for
the additional funding of institutions under CPP and TARP unless the
Treasury Secretary extends it.

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GAO’s Recommendations
and Treasury’s Response
Table 10: Treasury’s Actions in Response to GAO Recommendations, as of September 25, 2009
Treasury actions responding to
recommendations

GAO recommendations

GAO assessment of
Treasury’s response

Recommendations from the December 2, 2008, report:
Work with the bank regulators to establish a systematic
means of determining and reporting in a timely manner
whether financial institutions’ activities are generally
consistent with the purposes of CPP and help ensure
an appropriate level of accountability and transparency.

•

•

•

•

Develop a means to ensure that institutions participating
in CPP comply with key program requirements (e.g.,
executive compensation, dividend payments, and the
repurchase of stock).

•

•

•

Page 66

Publishes a monthly bank lending survey of
the 22 largest CPP institutions to monitor
their lending (including small business) and
intermediation activities; includes both
financial data and commentaries.
In conjunction with federal bank regulators,
Treasury publishes a quarterly analysis of
regulatory data for banks (call reports),
thrifts (thrift financial reports) and bank
holding companies (Y-9C) for all CPP
reporting institutions.
All federal bank regulators, except the
Federal Reserve, have developed
examination polices and procedures to
monitor CPP participants for compliance
with CPP agreements and TARP
requirements.
All reports are posted on Treasury’s
FinancialStability.gov Web site.

Implemented

Named a permanent Chief Risk and
Partially implemented
Compliance Officer and uses information
sources such as Bloomberg, Securities and
Exchange Commission filings, press
releases, and other information sources to
monitor dividend payments and stock
repurchases.
Hired three asset management firms to
provide market advice about investments in
financial institutions and corporations
participating in TARP programs, and help
monitor compliance with limitations on
dividend payments and stock repurchases;
is also exploring software solutions and
other data resources to improve compliance
monitoring.
Publishes a monthly dividends and interest
report detailing monthly and cumulative
dividends and interest payments received on
TARP investments, including CPP.

GAO-10-16 Troubled Asset Relief Program

Appendix II: Capital Purchase Program

Treasury actions responding to
recommendations

GAO recommendations

GAO assessment of
Treasury’s response

Recommendations from the January 30, 2009, report:
Publishes a monthly survey of lending at all
CPP institutions includes data on loans
outstanding to consumers and commercial
entities and total loans outstanding.

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.

See responses above to implemented
recommendations.

Establish a process to ensure compliance with all CPP
requirements, including those associated with
limitations on dividends and stock repurchase
restrictions.

•

•

•

•

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Implemented

Implemented

Treasury uses its custodian bank—Bank of Partially implemented
New York Mellon—to collect information
from a variety of informal sources, such as
Securities and Exchange Commission filings
and press releases, Bloomberg, and
information provided by CPP participants
and refer instances of noncompliance to the
Chief Risk and Compliance Office for action.
New executive compensation rule requires
the establishment of the Office of the Special
Master for TARP Executive Compensation
(Special Master) to review compensation
plans for the most highly compensated
employees of recipients of exceptional
assistance under TARP and review
payments of bonuses, retention awards, and
other compensation for the senior executive
officers and 20 next highly compensated
employees of TARP recipients before
February 17, 2009, and where applicable,
negotiate reimbursements (interim rule).
The interim rule also establishes compliance
reporting and record-keeping requirements
for executive compensation and corporate
governance standards.
All federal bank regulators, except the
Federal Reserve, have developed
examination polices and procedures to
monitor CPP participants for compliance
with CPP and TARP requirements.

GAO-10-16 Troubled Asset Relief Program

Appendix II: Capital Purchase Program

Treasury actions responding to
recommendations

GAO recommendations

GAO assessment of
Treasury’s response

Believes it is unable to implement
recommendation because Treasury cannot
dictate criteria that federal bank regulators
should apply in making repurchase decisions
under TARP.

Not implemented, we
continue to believe that
Treasury should work
with the Chairmen of the
FDIC and Federal
Reserve, the Comptroller
of the Currency, and the
Acting Director of the
OTS to ensure
consideration of
generally consistent
criteria by the primary
federal regulators when
considering repurchase
decisions under TARP.
While we understand that
the final repurchase
decision rests with a
participant’s primary
federal regulator,
Treasury has a
responsibility to ensure
that these regulators are
applying generally
consistent criteria when
reviewing TARP
participants requests to
repurchase their
preferred shares. Rather
than dictating criteria, we
are recommending that
Treasury engage in a
dialogue to help ensure
that the criteria being
used are generally
consistent.

Recommendations from June 17, 2009, report:
In consultation with the Chairmen of the Federal
Deposit Insurance Corporation and the Federal
Reserve, the Comptroller of the Currency, and the
Acting Director of the Office of Thrift Supervision,
ensure consideration of generally consistent criteria by
the primary federal regulators when considering
repurchase decisions under TARP.

Source: GAO and analysis of OFS, Treasury, information.

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Appendix III: Capital Assistance Program

Appendix III: Capital Assistance Program

Program Overview

In February 2009, the Department of the Treasury (Treasury) announced
the Financial Stability Plan, which outlined a set of measures to help
address the financial crisis and restore confidence in our financial and
housing markets by restarting the flow of credit to consumers and
businesses, strengthening financial institutions, and providing aid to
homeowners and small businesses. The plan announced six key
components, one of which was the Capital Assistance Program (CAP).
CAP is designed to help ensure that qualified financial institutions have
sufficient capital to withstand severe economic challenges. These
institutions must meet eligibility requirements that will be substantially
similar to those used for Capital Purchase Program (CPP). A key
component of CAP is the Supervisory Capital Assessment Program
(SCAP), which the 19 largest U.S. bank holding companies (those with
risk-weighted assets of $100 billion or more as of December 31, 2008) were
required to participate in. 1 Specifically, federal bank regulators, led by the
Board of Governors of the Federal Reserve System, conducted capital
assessments or “stress tests” to determine whether the largest bank
holding companies have enough capital to absorb losses and continue
lending even if conditions were worse than expected between December
2008 and December 2010. 2 Institutions deemed not to have sufficient
capital were given 6 months to raise private capital or to access capital
through CAP. Institutions with less than $100 billion in risk-weighted
assets were not required to complete a stress test but are also eligible to
obtain capital under CAP. In a process similar to the one used for CPP,
institutions interested in CAP must submit applications to their primary
federal banking regulators by November 9, 2009. 3 The regulators are to
submit recommendations to Treasury regarding an applicant’s viability.
In addition, as part of the application process, institutions must submit a
plan showing how they intend to use this capital to support their lending
activities and how the assistance will impact their lending compared to
what would have been possible without it. Participating institutions under

1

Risk-weighted assets are the total assets and off-balance sheet items held by an institution
that are weighted for risk according to Federal Reserve regulations.

2

Federal bank regulators that conducted the stress test included the Board of Governors of
the Federal Reserve System and Federal Reserve Banks (Federal Reserve), the Federal
Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency
(OCC).

3

The application deadline was extended by Treasury from May 25, 2009, to November 9,
2009.

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CAP will be required to submit to Treasury monthly reports—similar to
those for CPP—on their lending activities.

Funding

To date, Treasury has not allocated any funding to CAP.

Status of Efforts

The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC),
and the Office of the Comptroller of the Currency (OCC) conducted the
stress test in the spring of 2009. More than 150 examiners, supervisors,
accountants, economists, and other specialists from these banking
agencies participated in the supervisory process. On May 7, 2009, the
Federal Reserve announced the results of SCAP. SCAP results showed that
10 of the 19 bank holding companies needed to raise approximately $75
billion in additional capital. The 10 institutions that needed to raise
additional capital filed their capital plans with the Federal Reserve by the
June 8, 2009, deadline.
Federal banking regulators said that as of September 18, 2009, they had
received 6 CAP applications from institutions wanting to participate in the
program. Regulators noted that they had forwarded no applications to
Treasury for funding consideration. Therefore, no funds have been
disbursed under CAP, according to Treasury officials.

Key Activities under
CAP

•

February 10, 2009: CAP was announced as a key component of
Treasury’s Financial Stability Plan.

•

February 25, 2009: Treasury announces the terms and conditions for
CAP.

•

February 25, 2009: Federal bank regulatory agencies announce that they
would start conducting forward-looking economic assessments of large
U.S. banking holding companies. Also, the three economic assumptions
underlying the stress test are published.

•

April 24, 2009: The Federal Reserve publishes details of the stress test
process and methodologies employed by the federal banking supervisors
in their forward-looking capital assessment of large U.S. bank holding
companies.

•

May 7, 2009: The Federal Reserve and Treasury announce the results of
the stress test under CAP. Also, the Treasury Secretary releases a

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statement announcing his hopes that the release of the results will lead to
increased bank lending.
•

May 7, 2009: Treasury publishes frequently asked questions on CPP
repayment and CAP.

•

June 1, 2009: The Federal Reserve announces the criteria it plans to use
to evaluate applications to repurchase Treasury’s capital investments of
the 19 institutions that underwent stress tests.

•

June 8, 2009: The deadline for bank holding companies that need to raise
capital under the stress test to file their capital plan with the Federal
Reserve.

•

November 9, 2009: The deadline for bank holding companies to
implement their capital plans and to apply for and fund transactions.

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GAO’s Recommendation
and the Federal Reserve’s
Response
Table 11: Federal Reserve’s Response to GAO’s Recommendation, as of September 25, 2009
GAO recommendation

Federal Reserve’s response to
recommendation

GAO assessment of Federal
Reserve’s response

Recommendations from June 17, 2009, report:
To help improve the transparency of
CAP—in particular the stress tests
results—we recommend that the Director
of Supervision and Regulation of the
Federal Reserve consider periodically
disclosing to the public the aggregate
performance of the 19 bank holding
companies against the more adverse
scenario forecast numbers for the duration
of the 2-year forecast period and whether
or not the scenario needs to be revised. At
a minimum, the Federal Reserve should
provide the aggregate performance data
to the Office of Financial Stability (OFS)
program staff for any of the 19 institutions
participating in CAP or CPP.

The Senior Advisor to the Director of the
Division of Banking Supervision and
Regulation expressed concern that our
recommendation to consider periodically
disclosing aggregate information to the public
on the performance of the 19 U.S. bank
holding companies against the more adverse
scenario would be operationally difficult and
potentially misleading. Specifically, the official
said the SCAP loss estimates were developed
as aggregate 2-year estimates, without
attempting to forecast the quarter-to-quarter
path of such losses over the 2009 to 2010
period. Further, the official expressed concern
that the size and character of the bank holding
companies’ on- and off-balance sheet
exposures may change materially over the 2year period and that the Federal Reserve
never intended that the one-time SCAP
estimates be used as a tool for measuring U.S.
bank holding company performance during the
2009 to 2010 period.

Not implemented. We recognize that
updating the capital assessment would
pose some operational challenges for
the Federal Reserve. Nonetheless, given
the dynamic economic environment, we
see great value in periodically measuring
and reporting U.S. bank holding
company performance against the
adverse scenario and the extent to which
actual economic conditions compared to
assumptions made under the
assessment’s “adverse scenario.”
Although this would periodically require
additional calculations, we believe this
analysis would provide useful trend
information on the aggregate health of
these important institutions. As we
previously stated, without such analysis,
the public will not have reliable
information that can be used to gauge
the accuracy of the stress test
projections on a more detailed basis than
what has been disclosed in the SCAP
papers. Further, it could counter any
adverse affect of any selective reporting
by individual institutions. Finally, such
periodic reporting would be useful in the
measurement of the effectiveness of
SCAP and CAP.

Source: GAO and analysis of OFS, Treasury, information.

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Appendix IV: Targeted Investment Program

Appendix IV: Targeted Investment Program

Program Overview

The Targeted Investment Program (TIP) was designed to prevent a loss of
confidence in financial institutions that could (1) result in significant
market disruptions, (2) threatened the financial strength of similarly
situated financial institutions, (3) impair broader financial markets, and
(4) undermine the overall economy. The Department of the Treasury
(Treasury) determines the forms, terms, and conditions of any investments
made under this program and considers institutions for approval on a
case-by-case basis based on the threats posed by the potential
destabilization of the institution, the risk caused by a loss of confidence in
the institutions, and the institution’s importance to the nation’s economy.
Treasury may, on a case-by-case basis, use this program in coordination
with a broader guarantee involving other agencies of the federal
government. Treasury requires any institution participating in this program
to provide Treasury with warrants or alternative considerations, as
necessary, to minimize the long-term costs and maximize the benefits to
the taxpayers in accordance with the Emergency Economic Stabilization
Act of 2008 (the act). Institutions that participate in TIP are subject to
stringent regulations regarding executive compensation, lobbying
expenses, and other corporate governance requirements. Only two
institutions have participated in the TIP program: Bank of America and
Citigroup.

Funding

Table 12: Status of TIP Funds as of September 25, 2009
Dollars in billions
Institution

Apportioned

Amount disbursed

$20

$20

20

20

$40

$40

Bank of America
Citigroup
Total
Source: GAO presentation of OFS, Treasury, data (unaudited).

Status of Efforts

No new applicants have applied for TIP assistance since Bank of America
received TIP assistance in early 2009. As of September 25, 2009, Bank of
America and Citigroup have not repurchased their preferred shares or
warrants. On July 30, 2009, Citigroup exchanged its fixed-rate cumulative
perpetual stock ($20 billion) for trust preferred securities. This exchange
was part of Citigroup’s overall agreement with Treasury to exchange all of
Treasury’s investments in Citigroup. It included the exchange of the
Capital Purchase Program’s preferred shares of $25 billion for common

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stock in Citigroup, which essentially gave Treasury a common equity
interest in the bank holding company.

Key Activities

•

December 31, 2008: Treasury enters into an agreement with Citigroup to
purchase $20 billion in Fixed Rate Cumulative Perpetual Preferred Stock
and a warrant to purchase common stock.

•

January 15, 2009: Treasury enters into an agreement with Bank of
America Corporation to purchase $20 billion in preferred stock and a
warrant to purchase common stock.

•

February 27, 2009: Citigroup announces plans to undertake a series of
transactions, involving the exchange of privately and publicly held
preferred securities and trust securities for common stock and the
exchange of up to $25 billion of Treasury CPP senior preferred.

•

May 7, 2009: Citigroup announces that it would expand its planned
exchange of preferred securities and trust preferred securities held by
public and private investors (other than Treasury) for common stock from
$27.5 billon to $33 billion following the results of the stress test.

•

June 9, 2009: Treasury and Citigroup finalize their exchange agreement
and Treasury agree to convert up to $25 billion of the Treasury CPP senior
preferred shares for interim securities and warrants and its remaining
preferred securities acquired in connection with assistance provided to
Citigroup under the TIP and AGP programs for trust preferred securities
so that the institution could strengthen its capital structure by increasing
tangible common equity.

•

July 23, 2009: Citigroup announces completion of the exchange of $12.5
billion of the Treasury CPP senior preferred and $12.5 billion of privately
held convertible preferred securities for interim securities and warrants.

•

July 30, 2009: Treasury announces the final results of its offer to
exchange publicly held preferred securities and trust securities, as well as
the exchange by Treasury of its remaining $12.5 billion of Treasury CPP
senior preferred shares outstanding for interim securities and warrants.

•

September 3, 2009: Citigroup announces the mandatory conservation of
the interim securities issued in the exchange offers into common stock,
and cancellation of the warrants, in accordance with the terms of the
exchange offers.

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Appendix V: Systemically Significant Failing
Institutions Program

Appendix V: Systemically Significant Failing
Institutions Program
Program Overview

The Systemically Significant Failing Institutions (SSFI) program was
established to provide stability and prevent disruptions to financial
markets from the failure of institutions that are critical to the functioning
of the U.S. financial system.

Funding

Table 13: Status of SSFI Funds, as of September 25, 2009
Dollars in billions
Institution
American International Group, Inc.

Apportioned

Amount disbursed

$70

$43

Source: GAO presentation of OFS, Treasury, data (unaudited).

The only participating institution was American International Group, Inc.
(AIG). Federal assistance to AIG is a joint effort by the Department of the
Treasury (Treasury) and the Board of Governors of the Federal Reserve
System and Federal Reserve Banks (Federal Reserve). We recently issued
a report on the status of this assistance. 1

Status of Efforts

Key Activities under
SSFI

•

November 10, 2008: Treasury announces plans to use its SSFI program to
purchase $40 billion in AIG preferred shares.

•

November 25, 2008: AIG enters into an agreement with Treasury, which
agrees to purchase $40 billion of AIG’s fixed-rate cumulative perpetual
preferred stock (Series D) and a warrant to purchase approximately 2
percent of the then issued shares of AIG’s common stock to Treasury.

•

April 17, 2009: AIG and Treasury enter into an agreement in which
Treasury agrees to exchange its $40 billion of AIG’s Series D fixed-rate
cumulative perpetual preferred stock for $41.6 billion of AIG’s Series E
fixed-rate noncumulative perpetual preferred shares. Also, Treasury
provided a $29.8 billion equity capital facility to AIG, which then issued to
Treasury 300,000 shares of fixed-rate noncumulative perpetual preferred
stock (Series F) and a warrant to purchase up to 3,000 shares of AIG’s
common stock.

1

See GAO, Troubled Asset Relief Program: Status of Government Assistance to AIG,
GAO-09-975 (Washington, D.C.: Sept. 21, 2009)

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Appendix V: Systemically Significant Failing
Institutions Program

GAO’s Recommendations
and Treasury’s Response
Table 14: Treasury’s Response to GAO’s Recommendation, as of September 25, 2009
Treasury’s response to
recommendation

GAO recommendation

GAO assessment of
Treasury’s response

Recommendations from March 31, 2009, report:
Require that American International Group, Inc. (AIG) seek
concessions from stakeholders, such as management,
employees, and counterparties, including seeking to renegotiate
existing contracts, as appropriate, as it finalizes the agreement
for additional assistance.

Closed, not implemented

Source: GAO and analysis of OFS, Treasury, information.

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Appendix VI: Asset Guarantee Program

Appendix VI: Asset Guarantee Program

Program Overview

Under the Asset Guarantee Program (AGP), the Department of the
Treasury (Treasury) provides federal government assurances for assets
held by financial institutions that are deemed critical to the functioning of
the U.S. financial system. The goal of AGP is to encourage investors to
keep funds in the institutions. According to Treasury, placing guarantees,
or assurances, against distressed or illiquid assets was viewed as another
way to help stabilize the financial system.
In implementing AGP, Treasury collects a premium, deliverable in a form
deemed appropriate by the Treasury Secretary. As required by the statute,
an actuarial analysis is used to ensure that the expected value of the
premium is no less than the expected value of the losses to TARP from the
guarantee. The U.S. government would also provide a set of portfolio
management guidelines to which the institution must adhere for the
guaranteed portfolio.

Funding

Table15: Status of Asset Guarantee Program Funding, as of September 25, 2009
Institution

Apportioned

Guarantee Limit

Citigroup

n/a

$5 billion

Source: GAO presentation of OFS, Treasury, data (unaudited).

Status of Efforts

The set of insured assets was first designated by Citigroup and submitted
to Treasury for approval. In accordance with section 102(a), assets to be
guaranteed must have been originated before March 14, 2008. The program
is meant only for systemically significant institutions and can be used in
coordination with other programs.
Since early 2009, no new participants have applied to the AGP program.
Bank of America withdrew from the program and in September 2009
negotiated a termination fee of $425 million that was paid to the Federal
Reserve, the Federal Deposit Insurance Corporation, and Treasury. Thus,
as of October 1, 2009, Citigroup is the only institution participating in AGP.
On January 15, 2009, Citigroup issued preferred shares to the Treasury and
the Federal Deposit Insurance Corporation (FDIC), and a warrant to
Treasury in exchange for $301 billion of loss protection on a specified pool
of Citigroup assets. As a result of receipt of principal repayments and
charge-offs, the total asset pool has declined by approximately $35 billion
from the original $301 billion to approximately $266.4 billion. As part of a
series of exchange offers undertaken by Citigroup in July 2009, the

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Appendix VI: Asset Guarantee Program

preferred shares issued to Treasury and FDIC for Citigroup’s participation
in AGP were exchanged for new Citigroup trust preferred securities.

Key Activities under
AGP

•

January 15, 2009: Citigroup enters into an agreement with the Treasury,
FDIC and the FRBNY to guarantee losses arising on a $301 billion portfolio
of Citigroup assets. As consideration for the loss-sharing agreement,
Citigroup issues non-voting perpetual, cumulative preferred stock and a
warrant to the Treasury.

•

January 16, 2009: Bank of America Corporation enters into a term sheet
(Term Sheet) with the Treasury, FDIC, and the Board of Governors of the
Federal Reserve System, in which the agencies agreed in principle to
guarantee losses arising on a $118 billion portfolio of Bank of America
Corporation assets.

•

May 6, 2009: Bank of America Corporation notifies the Treasury, FDIC,
and the Federal Reserve of its plan to terminate negotiations with respect
to the loss sharing guarantee program.

•

July 30, 2009: Treasury exchanges all of its Fixed Rate Cumulative
Perpetual Stock received as premium under the Citigroup AGP agreement,
“dollar for dollar’ for Trust Preferred Securities.
September 21, 2009: Bank of America announces that it has reached an
agreement to pay a total of $425 million to the USG in connection with the
termination of the Term Sheet, which is equal to: (a) the out-of-pocket
expenses of the USG in negotiating and entering into the Term Sheet and
the negotiations concerning the definitive documentation, consisting of
the expenses of its advisors; and (b) the fee that would have been payable
under the Term Sheet but pro-rated for the period commencing on January
16, 2009, and ending on May 6, 2009, and adjusted for certain exclusions
from the asset pool.

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Appendix VII: Consumer and Business
Lending Initiative

Appendix VII: Consumer and Business
Lending Initiative
Program Overview

The Consumer and Business Lending Initiative includes the Department of
the Treasury’s (Treasury) role in the Board of Governors of the Federal
Reserve System’s and the Federal Reserve Bank of New York’s (Federal
Reserve) Term Asset-Backed Securities Loan Facility (TALF) and
Treasury’s plan to directly purchase securities backed by SBA-guaranteed
small business loans. 1 TALF—a Federal Reserve Bank of New York
(FRBNY) credit facility supported by a backstop of $20 billion in the
Troubled Asset Relief Program (TARP) funds from Treasury—was
announced by the Federal Reserve in November 2008. 2 The goal of the
program is to provide up to $200 billion in low-cost financing for investors
to purchase a variety of consumer, small business, and commercial
mortgage securitizations with the goal of unfreezing securitization markets
and increasing credit access for consumers and small businesses. 3 Also
under the initiative, Treasury anticipates purchasing securities backed by
SBA 7(a) guaranteed loans and securities backed by SBA 504 loan
guarantees to jumpstart securitization and credit markets for small
businesses though it had not purchased any SBA-backed securities as of
September 2009. 4

1

Treasury folded the SBA securities initiative (formerly known as the Small Business and
Community Lending Initiative) into the Consumer and Business Lending Initiative, as
originally reported in GAO-09-658.

2

In February 2009, the Federal Reserve announced that it would consider expanding the
size of TALF to as much as $1 trillion. Although Treasury and Federal Reserve officials
suggest that such an expansion is unlikely, any expansion of the facility’s limits would
include an increased commitment from Treasury from the current $20 billion limit to as
much as $100 billion.

3

The Federal Banking Agency Audit Act limits GAO’s authority to audit actions taken by the
Federal Reserve with respect to TALF. TALF is included in the TARP because Treasury
provides $20 billion in support to TALF and, under the new administration, TALF is
included in the Consumer and Business Lending Initiative category in Treasury’s Financial
Stability Plan.

4

SBA has two principal loan guarantee programs, the 7(a) and 504 programs, which aim to
facilitate the accessibility and affordability of financing to small businesses. Under the 7(a)
program, SBA generally provides lenders guarantees on up to 85 percent of the value of
loans to qualifying small businesses in exchange for fees to help offset the costs of the
program. Under the 504 program, which generally applies to small business real estate and
other fixed assets, SBA also provides certified development companies with a guarantee on
up to 40 percent of the financing of the projects’ costs in exchange for fees, while the small
business borrowers and other lenders provide the remaining 60 percent of the financing
with no guarantee. For additional information, see GAO-09-507R.

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Appendix VII: Consumer and Business
Lending Initiative

Funding

Table 16: Status of TARP Funds for the Consumer and Business Lending Initiative,
as of September 25, 2009
Program

Apportioned

Disbursed

$20.00

$0.10a

3.09

0.00

TALF
Small Business 7(a) loansb
Small Business 504 loans

0

0

$23.09

Total

$0.1

Source: GAO presentation of OFS, Treasury, data (unaudited).
a

Initial funding of $100 million on March 25, 2009.

b

Treasury allocated $15 billion of TARP funds to directly purchase securities based on 7(a) and 504
small business loans guaranteed by SBA.

Status of Efforts

Between March 2009 and September 2009, approximately $51.7 billion in
TALF funds were requested. Table 17 provides a summary of monthly loan
requests by asset class.

Table 17: Amount of TALF Loans Requested by Asset Class, from March through September 2009
Dollars in millions
Loan Type

March

April

May

June

Auto

$1,902

$811

$2,185

$3,307

$2,831

2,805

897

5,525

6,223

1,459

Credit card

September

Total by
loan type

$555

$1,160

$12,751

2,575

4,399

23,882

July August

Student loan

0

0

2,347

228

987

2,450

180

6,192

Small business

0

0

86

81

102

149

162

581

Equipment

0

0

456

591

0

0

111

1,157

Insurance premium finance

0

0

0

529

0

0

530

1,058

Floorplan

0

0

0

0

0

1,039

0

1,039

Servicing advances

0

0

0

495

34

107

0

636

0

668

2,283

1402

4,354

$11,453

$6,081

$9,160

$7,943

$51,652

Commercial mortgage-backed
a
securities
Total

$4,707

$1,708

$10,600

Source: GAO analysis of information available on FRBNY’s Web site.

Note: Numbers may not add due to rounding.
a

This total reflects loan requests against legacy CMBS collateral, no newly issued CMBS collateral
has yet been pledged.

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Appendix VII: Consumer and Business
Lending Initiative

Key Activities under
Consumer and
Business Lending
Initiative

•

November 25, 2008: The Federal Reserve announces TALF, agreeing to
lend up to $200 billion on a nonrecourse basis to holders of newly issued
AAA-rated asset-backed securities (ABS) backed by credit cards, auto
loans, student loans, and small business loans guaranteed by the SBA.

•

February 10, 2009: As part of the Financial Stability Plan, the Federal
Reserve, FRBNY, and Treasury announce a willingness to consider
expanding the size of the TALF to $1 trillion over the life of the program.

•

March 3, 2009: The agencies launch the TALF program, and the first
subscription occurs.

•

March 19, 2009: The agencies expand the range of eligible collateral to
include asset-backed securities backed by mortgage servicing advances,
business equipment loans or leases, floorplan loans, and leases of vehicle
fleets. They also announce an intention to expand the list of eligible
collateral to include previously issued securities—so called “legacy
securities”—as a complement to the Public-Private Investment Program
(PPIP).

•

May 1, 2009: The Federal Reserve announces that two new asset classes
are eligible for TALF funding: newly-issued commercial mortgage-backed
securities (CMBS) and ABS backed by insurance premium finance loans.

•

May 19, 2009: The Federal Reserve announces that certain high-quality
legacy CMBS are eligible for TALF funding.

•

June 2, 2009: Aggregate loan requests for the program reach peak levels
for consumer and business ABS.

•

July 16, 2009: The first legacy CMBS loan requests are submitted to
TALF.

•

August 17, 2009: The Federal Reserve and Treasury jointly announce
TALF’s extension for ABS and legacy CMBS collateral through March
2010, and through June 2010 for newly-issued CMBS collateral. Also, the
Federal Reserve states that it does not anticipate further additions to the
eligible asset classes.

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Appendix VII: Consumer and Business
Lending Initiative

•

September 1, 2009: FRBNY approves four non-primary dealers to
supplement the 18 primary dealers that interface between FRBNY and
TALF borrowers. 5

5

The roles and responsibilities of TALF agents are governed by the Master Loan and
Security Agreement (MLSA), which is available on the FRBNY Web site.

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Appendix VIII: The Public-Private Investment
Program

Appendix VIII: The Public-Private Investment
Program
Program Overview

The Department of the Treasury (Treasury)—with assistance from the
Board of Governors of the Federal Reserve System and the Federal
Reserve Bank of New York (Federal Reserve) and the Federal Deposit
Insurance Corporation (FDIC)—designed the Public-Private Investment
Program (PPIP) to lessen the impact of legacy assets on balance sheets
and thereby improve consumer and business lending. PPIP has two
distinct components: the Legacy Securities Program and the Legacy Loans
Program. Under the Legacy Securities Program, commercial mortgagebacked securities and non-agency residential mortgage-backed securities
will be purchased and managed by fund managers overseeing publicprivate investment funds. According to Treasury, in the course of
prequalifying nine fund managers, Treasury vetted each of them for their
investment strategy—primarily long-term buy and hold. Public-private
investment funds will raise equity capital from private sector investors and
receive matching equity funds and secured nonrecourse loans from
Treasury. 1 The Legacy Loans Program is designed to encourage the
purchase of troubled and illiquid loans from FDIC-insured banks and
thrifts. FDIC will provide debt guarantees and Treasury will provide equity
co-investment to private funds purchasing such loans through an auction.
FDIC will oversee the new funds. FDIC held a pilot sale of receivership
assets to test the funding mechanism contemplated by the Legacy Loans
Program, and continues to develop the program should it be needed in the
future.

Funding

PPIP has not disbursed any of its $100 billion TARP allocation as of
September 25, 2009, (see table 18).

1

As we detailed in previous TARP reports, Treasury’s Legacy Securities Program debt
financing will range from 50 to 100 percent of a fund’s total equity capital. The financing
will be secured by the eligible assets of the public-private investment funds, and each loan
will accrue interest at an annual rate to be determined by Treasury, fully payable at
termination. As required by the Emergency Economic Stabilization Act of 2008, Treasury
will take warrants, the terms and amounts of which will be determined by the amount of
Treasury debt financing. Additionally, fund managers may charge private investor fees at
their discretion, and Treasury will accept proposals for fixed management fees to apply as
a percentage of equity capital contributions for invested equity capital.

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Appendix VIII: The Public-Private Investment
Program

Table 18: Status of TARP Funds, as of September 25, 2009
Dollars in billions
Program

Apportioned

Disbursed

Public-Private Investment Program

$32.0

$0.0

Total

$32.0

$0.0

Source: GAO presentation of OFS, Treasury, data (unaudited).

For the Legacy Securities Program, nine fund managers have been
prequalified, and as of October 5, 2009, Treasury officials stated that five
fund mangers had raised the requisite capital to receive matching funds
and leverage from Treasury—though no investments have yet been made.
FDIC recently tested a funding mechanism based on the legacy loan
program model, but agency officials are still assessing the outcome.
Treasury, in consultation with the Federal Reserve, needs to make a
systemic risk determination for the legacy loans program to be
implemented, according to FDIC officials.

Status of Efforts

Key Activities

•

March 23, 2009: Treasury and FDIC officials release the initial outlines of
PPIP.

•

March 26, 2009: FDIC announces a comment period for the Legacy Loan
Program.

•

April 24, 2009: Private asset managers submit applications to Treasury as
part of the Legacy Securities Program selection process.

•

June 3, 2009: FDIC announces that the Legacy Loan Program is put on
hold. FDIC officials state that financial institutions have been able to raise
capital without selling troubled assets through the Legacy Loan Program.

•

July 8, 2009: Treasury preapproves nine fund managers to operate publicprivate investment funds for the Legacy Securities Program. Fund
managers select ten small-, veteran-, minority-, and women-owned
businesses as partners.

•

July 31, 2009: FDIC announces a model funding mechanism based on the
Legacy Loan Program for a test sale of receivership assets.

•

September 25, 2009: Treasury officials state that two of the nine
prequalified fund managers have raised at least the required minimum of

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Appendix VIII: The Public-Private Investment
Program

$500 million each to begin investing in legacy securities, though no
investments have yet been made.
•

October 5, 2009: Treasury officials state that an additional three of the
nine prequalified fund managers have raised at least the required minimum
of $500 million each to begin investing in legacy securities, though no
investments have yet been made.

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Appendix IX: Auto Industry Financing
Program

Appendix IX: Auto Industry Financing
Program
The Department of the Treasury (Treasury) established the Automotive
Industry Financing Program (AIFP) in December 2008 to help stabilize the
U.S. automotive industry and avoid disruptions that would pose systemic
risk to the nation’s economy. Under this program, Treasury has authorized
a total of about $81.1 billion of Troubled Asset Relief Program (TARP)
funds to help support automakers, automotive suppliers, consumers, and
automobile finance companies as of September 25, 2009. 1 A sizeable
amount of funding has been to support the restructuring of Chrysler Group
LLC (Chrysler) and General Motors Company (GM). 2 The AIFP consists of
the following four components:

Program Overview

•

Funding to Support Automakers during Restructuring. Treasury has
provided financial assistance to Chrysler and GM to support their
restructuring in an attempt to return to profitability. The assistance was
provided in loans and equity investments in the companies.

•

Auto Supplier Support Program. Under this component of the program,
Chrysler and GM received funding for the purpose of ensuring payment to
suppliers. The program is designed to ensure that automakers receive the
parts and components they need to manufacture vehicles and that
suppliers have access to credit from lenders. The funding provided to
Chrysler and GM in this program is in the form of a debt obligation.

•

Warranty Commitment Program. The program was designed to mitigate
consumer uncertainty about purchasing vehicles from the restructuring
automakers by providing funding to guarantee the warranties on new
vehicles purchased from participating manufacturers that were
undergoing restructuring. The funds provided to the companies ultimately
were not needed, because both companies were able to continue to honor
consumer warranties.

•

Funding to Support Automotive Finance Companies. Treasury has
provided funding to support Chrysler Financial and GMAC Inc. (GMAC),
financial services companies whose business includes providing consumer
financing for vehicle purchases and dealer financing for inventory.
Treasury provided Chrysler Financial with a term loan to support retail
loan originations. Chrysler Financial is essentially winding down its
operations, and GMAC has agreed to provide Chrysler customers and
dealers with financing for retail and wholesale purchases. Treasury

1

We reported previously on this program. See GAO-09-553.

2

Ford Motor Company did not seek assistance from AIFP.

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Appendix IX: Auto Industry Financing
Program

purchased preferred membership stock with warrants and common equity
interest in GMAC—which includes funding to help support retail and
wholesale purchases for Chrysler. To provide strategic guidance for AIFP
and to advise the President and the Secretary of the Treasury on issues
impacting the financial health of the industry, the White House established
the Presidential Task Force on the Auto Industry. Treasury also hired staff
with expertise in the financial industry to help oversee the assistance.

Funding
Table 19: TARP Funding Authorized for the Auto Industry and Payments Made, as of September 25, 2009
Dollars in billions
Company
Chrysler

Description of
funding

Authorized
amount

Loans to Chrysler for
general business
purposes

Payments

Amount and form of future repayments

a

$7.1 billion will be repaid as a term loan,
including $5.1 billion to be repaid within 8
years and $2 billion to be repaid within 2.5
years. Treasury also received a 9.85
percent equity share in the new company.

$12.5

$0.055

Supplier Support
Program

1.0

0.002b

Warranty Commitment
Program

0.3

0.3

13.8

0.36

Loans to GM for
general business
purposes

49.5

0.144c

$6.7 will be repaid as a term loan.
Treasury also received $2.1 billion in
preferred stock, and 61 percent equity in
the new company. Treasury also has
$986 million debt in the old GM (Motors
Liquidation Corp.), which it does not
expect to be repaid.

Supplier Support
Program

2.5

0.001d

Amounts provided to GM are due to be
repaid by April 2010.

Warranty Commitment
Program

0.4

0.4

0.884

0

Subtotals
General Motors

Loan to participate in
GMAC rights offering

Page 87

Amounts provided to Chrysler are due to
be repaid by April 2010.
All funds have been repaid.

All funds have been repaid.
Treasury exchanged this loan for a
portion of GM’s equity in GMAC. As a
result, Treasury holds a 35.4 percent
common equity interest in GMAC. The
GM loan was terminated.

GAO-10-16 Troubled Asset Relief Program

Appendix IX: Auto Industry Financing
Program

Dollars in billions
Company

Description of
funding

Authorized
amount

Payments

53.3

Subtotals

0.55

Amount and form of future repayments

Chrysler Financial

Loan funded through
Chrysler LB
Receivables Trust

1.5

1.51

Loan repaid in full plus $7.4 million in
interest.

GMAC

Preferred stock with
exercised warrants

12.5

0.16e

Treasury may convert its preferred shares
to common shares upon specific events
such as public offerings.

$81.1

$2.57

Totals

Source: GAO presentation of OFS, Treasury, data (unaudited).
a

Chrysler has paid $55.2 million in interest on the loans.

b

Chrysler has paid $2.3 million in interest on the amount it borrowed under the Supplier Support
Program.
c

GM has paid $144 million in interest on the loans.

d

GM has paid $1 million in interest on the amount it borrowed under the Supplier Support Program.

e

GMAC has paid $160 million in dividends.

Since December 2008, about $81.1 billion in AIFP funds have been
authorized. 3 Below are key developments in the program.

Key Activities under
AIFP
•

December 19, 2008: Treasury announces the creation of AIFP using TARP
funds to stabilize the U.S. automotive industry and avoid disruptions that
would pose systemic risk to the nation’s economy.

•

December 29, 2008: Treasury purchases $5 billion in preferred stock with
exercised warrants in GMAC LLC.

•

December 31, 2008: Treasury provides a $13.4 billion loan to GM to assist
the company’s restructuring.

•

January 2, 2009: Treasury provides a $4 billion loan to Chrysler and a
$1.5 billion loan to Chrysler Financial Services Americas LLC.

•

February 17, 2009: Chrysler and GM submit restructuring plans to
Treasury as required by the terms of their loan agreements.

3

For details on the total funds committed, see table 19.

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Appendix IX: Auto Industry Financing
Program

•

March 19, 2009: Treasury announces the Auto Supplier Support Program
to ensure payments to automotive suppliers.

•

March 30, 2009: The White House announces that Chrysler and GM’s
restructuring plans do not establish a credible path to viability or merit
additional federal government investment. The companies are given
additional time to show greater progress.

•

March 30, 2009: Treasury announces the Warranty Commitment Program
to guarantee the warranties on new vehicles purchased from participating
auto manufacturers.

•

April 3, 2009: GM receives loans of $2.5 billion, under the Auto Supplier
Support Program. 4

•

April 7, 2009: Chrysler receives loans of $1 billion, under the Auto
Supplier Support Program. 5

•

April 29, 2009: Treasury commits to providing a loan of up to $500 million
to Chrysler under the Warranty Commitment Program.

•

April 30, 2009: The White House announces it will provide an additional
$8.5 billion to support Chrysler’s restructuring.

•

May 20, 2009: Treasury provides GM with an additional $4 billion for
restructuring.

•

May 21, 2009: Treasury purchases $7.5 billion in preferred stock with
exercised warrants in GMAC LLC.

•

May 27, 2009: Treasury provides a $360 million loan for the Warranty
Commitment Program.

•

June 1, 2009: Treasury announces it will provide GM with up to an
additional $30.1 billion to support the company’s bankruptcy proceeding
and transition through restructuring.
After emerging from bankruptcy in June 2009, Chrysler has seen the
appointment of several new senior officials, including its chief executive

4

GM is initially awarded $3.5 billion, but this amount was subsequently reduced.

5

Chrysler is initially awarded $1.5 billion, but this amount was subsequently reduced.

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Appendix IX: Auto Industry Financing
Program

officer and chief financial officer, as well as a newly constituted board of
directors, which Chrysler officials said met for the first time in July 2009. 6
When we met with Chrysler in September 2009, officials told us that the
company was focused on developing a new business plan, with assistance
from Fiat in the areas of product development, distribution, and sales and
marketing.
GM has continued to take steps to restructure, funded by the $30.1 billion
in financing that Treasury provided in June. On July 5, 2009, a bankruptcy
judge approved GM’s motion to sell its assets to a new company in which
the federal government would have a majority share. On July 10, 2009, the
asset sale was finalized, and Treasury executed a loan agreement with the
restructured GM, under which the company is required to repay Treasury
$7.1 billion. The remainder of the funding that Treasury provided to GM
was converted to 60.8 percent ownership in the new company and $2.1
billion in preferred stock. Other stakeholders also received equity in GM.
In consideration of their ownership stakes, GM’s shareholders—including
Treasury—received the right to appoint directors to GM’s board. The new
members of GM’s board have been appointed, and the board held its first
in-person meeting in August.

6

See GAO-09-658.

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Appendix X: Home Affordable Modification
Program

Appendix X: Home Affordable Modification
Program
Program Overview

The Department of the Treasury’s (Treasury) Office of Financial Stability
(OFS) developed the Home Affordable Modification Program (HAMP) to
address two of the stated purposes of the Emergency Economic
Stabilization Act (the act)—preserving homeownership and protecting
home values. According to Treasury, HAMP’s primary goal is to help up to
three to four million borrowers who are struggling to make their mortgage
payments by reducing their monthly payments to an affordable level (loan
modification), thereby preventing unnecessary foreclosures and helping to
stabilize home prices in the neighborhoods hit hardest by foreclosures. To
implement the program, Treasury has delegated significant responsibilities
to its financial agents, Fannie Mae and Freddie Mac, to act as the program
administrator and compliance agent for HAMP, respectively. Under HAMP,
Treasury will use Troubled Asset Relief Program (TARP) funds to share
the cost of reducing monthly payments on first-lien mortgages with
mortgage holders and investors, and provide financial incentives to
servicers, borrowers, and mortgage holders and investors for loans
modified under the program. 1 Under HAMP, Treasury also plans to (1)
provide additional incentives to mortgage holders/investors to modify,
rather than foreclose on, loans in areas where home price declines have
been most severe; (2) provide incentives to modify or pay off second-lien
loans of borrowers whose first mortgages were modified under HAMP;
and (3) provide incentives to servicers and borrowers to pursue
alternatives to foreclosure (short sales and deeds-in-lieu) to homeowners
who do not qualify for a HAMP modification or cannot maintain payments
during the trial period or modification. As of September 25, 2009, 63
servicers have signed up to participate in the program, covering
approximately 85 percent of U.S. mortgage loans. 2

Funding

Treasury has announced that up to $50 billion of funds from TARP may be
used for HAMP. Most of these funds are directed to the modification of
first-lien mortgages held by borrowers in danger of foreclosure (first-lien
modification program). To monitor HAMP’s funding needs, Treasury has
estimated the funding requirements, or caps, for each participating

1

According to program guidelines, payment of these matching and incentive payments is
contingent on completion of a 3-month trial modification period.

2

Loans covered under HAMP include privately held loans that are serviced by HAMP
participating servicers and all loans held by Fannie Mae or Freddie Mac, both governmentsponsored enterprises (GSE). For loans held by Fannie Mae and Freddie Mac, the GSEs are
expected to provide up to an additional $25 billion to encourage servicers and borrowers to
modify eligible loans.

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Appendix X: Home Affordable Modification
Program

servicer based on the number of modifications they are expected to
perform during the entire duration of the program. The caps include
maximum payable incentives associated with modifying borrowers’ firstlien mortgages, including incentive payments to borrowers, servicers, and
mortgage holders and investors. According to Treasury, cap allocations
are initially set based on publicly available information and are updated
using more complete data on the servicers’ mortgage portfolios. Treasury
has been reassessing each servicer’s cap on a quarterly basis, using data
on the actual number of modifications made by the servicer under the
program. As of September 25, 2009, Treasury had allocated a total of $22.3
billion through the caps on its 63 participating servicers, of which about
$946,000 has been paid out in servicer and investor incentive payments.

Most of Treasury’s efforts to develop HAMP have been directed to the
first-lien modification program. Treasury has designed the first-lien
program to target borrowers in default (defined as 60 days or more
delinquent on their mortgage payments) or in imminent danger of default
(borrowers that are current on their mortgages but facing hardships such
as job loss or interest rate increases on their adjustable rate mortgages).
Treasury has established several eligibility requirements for borrower
participation in HAMP, including that the property be an owner-occupied,
single-family residence (one to four units) that is the borrower’s primary
residence and that the mortgage loan amount not exceed specified dollar
thresholds. Additionally, borrowers cannot participate in HAMP if they
have non-GSE loans unless their servicers have signed participation
agreements with Fannie Mae—Treasury’s administrator for the program.
According to Treasury, as of September 25, 2009, the following HAMP
progress has been made related to loans not owned or guaranteed by
Fannie Mae and Freddie Mac:

Status of Efforts

•

63 servicers had signed participation agreements for the first-lien
modification program;

•

More than 1.3 million solicitation letters for HAMP loan modifications to
borrowers;

•

More than 328,000 HAMP trial modification offers to borrowers;

•

More than 209,000 HAMP trial modifications had started; and

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Appendix X: Home Affordable Modification
Program

•

1,080 borrowers had successfully completed the trial period and received
HAMP modifications.
Of the three other subprograms that were announced as part of HAMP in
the March 4, 2009, program guidelines, Treasury has recently begun to
implement the Home Price Decline Prevention (HPDP) program but has
not implemented the other two. Treasury issued official guidance on
HPDP in late July 2009 and began implementing the program on
September 1, 2009. As of that date, the net present value model used to
calculate borrowers’ eligibility for HAMP took into account the additional
incentive payments available through HPDP to investors in areas of the
country where price declines had been large. However, the extent to
which HPDP will increase the number of modifications made remains
unclear. In our July 2009 report, we recommended that Treasury reevaluate the basis and design of the HPDP program to ensure that HAMP
funds are being used effectively. 3 Treasury released detailed guidelines on
the second-lien modification component of HAMP on August 13, 2009.
However, these guidelines require that servicers sign participation
agreements with Fannie Mae on or before December 31, 2009, to be
eligible for the program. As of September 25, 2009, no servicers have
signed such participation agreements. Finally, Treasury had not released
any detailed guidelines on the foreclosure alternatives component of
HAMP.
We previously reported that although the central program—the first-lien
modification program—had been implemented, many of its administrative
processes and its internal control policies and procedures were not yet
finalized. Fannie Mae, as HAMP administrator, has mapped operational
processes and identified points of control for multiple aspects of HAMP,
such as servicer registration and servicer set-up in HAMP’s electronic
system, servicer data reporting, trial and official modifications, and the
steps of the payment process administered by Fannie Mae. Fannie Mae has
also drafted procedures to carry out many of these processes and internal
controls. According to Fannie Mae, processes, controls and procedures
have not been finalized for a planned servicer call center, and the
budgeting and billing of Fannie Mae’s work under the HAMP financial
agent agreement. Processes and controls designed by Fannie Mae to date
were to be tested by September 30, 2009, according to Fannie Mae
officials. In addition, Freddie Mac, as HAMP compliance agent, has

3

See GAO-09-837.

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Appendix X: Home Affordable Modification
Program

mapped out the overall compliance program, working with OFS and
PricewaterhouseCoopers LLP, and is developing policies and procedures
to carry it out. In a related effort, Freddie Mac has described to us its
methods for testing compliance for 233 program requirements. In addition,
according to Treasury, Treasury and its financial agents have formalized a
charter for a HAMP Compliance Committee. Treasury also noted that the
Committee is finalizing a policy for addressing remedies for identified
instances of noncompliance among servicers. However, while Treasury
has drafted performance measures to evaluate HAMP, these measures
have not been fully developed and have yet to be implemented.
On August 4, 2009, Treasury released its first report on the performance of
participating servicers under HAMP. The Monthly Servicer Performance
Report showed significant variations among the servicers in the
percentage of delinquent borrowers in their servicing portfolios that had
been offered or received trial modifications. For example, for servicers
that had signed up to participate in the program before May 31, 2009, the
percentage of delinquent borrowers who had been offered HAMP trial
modifications ranged from 0 percent to 45 percent, and the percentage of
their delinquent borrowers who had started HAMP trial modifications
ranged from 0 percent to 25 percent. Such variations have highlighted
potential issues with servicers’ capacity to implement HAMP. In our July
2009 report, we expressed concern that Treasury was not fully vetting
servicers signing HAMP loan modification participation agreements and
recommended that Treasury develop a means of systematically assessing
servicers’ capacity to meet program requirements during program
admission. 4 As compliance agent for HAMP, Freddie Mac has developed
several different types of reviews intended to be conducted after a servicer
has signed up to participate in the program that touch on issues of servicer
capacity. Freddie Mac is currently working with Treasury to refine these
procedures, which include:
•

“full” on-site reviews, which are 1-week reviews that include a detailed
management interview about all HAMP processes, walk-throughs of each
of these processes, and file reviews of a sample of the servicer’s loan files;

4

GAO-09-837.

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Appendix X: Home Affordable Modification
Program

•

•

Key activities under
HAMP

walk-through reviews, which are 1- to 2-day reviews that can occur sooner
than a “full” review and that go into less detail on loss mitigation,
collections, and investor accounting processes; and
“second look” reviews, which are off-site loan file reviews that look for
servicer errors in evaluating borrowers for HAMP.

•

February 18, 2009: Treasury announced HAMP, a national loan
modification program intended to offer assistance to up to three to four
million homeowners by reducing monthly payments to sustainable levels.

•

March 4, 2009: Treasury issued official guidance for loan modifications
under HAMP and announced that servicers could begin conducting
modifications that conform to the guidelines. These initial guidelines
largely focused on the first-lien modification subprogram. Treasury also
issued updated guidance on completing first-lien modifications on April 6,
2009.

•

March 19, 2009: Treasury launched its Making Home Affordable (MHA)
Web site for borrowers to provide information on the program, including
eligibility requirements and housing counseling options, among other
things.

•

April 13, 2009: The first six servicers signed participation agreements
under HAMP.

•

April 15, 2009: Treasury launched an administrative Web site for
mortgage servicers to provide them with the information and tools needed
to participate in HAMP.

•

July 28, 2009: Treasury and the Department of Housing and Urban
Development (HUD) officials held a meeting with all participating
servicers at which they asked the servicers to ramp up their efforts to
increase trial modifications, with a goal of starting 500,000 trial
modifications by November 1, 2009.

•

July 31, 2009: Treasury issued official guidance on the HPDP component
of HAMP.

•

August 4, 2009: Treasury released its first monthly Servicer Performance
Report detailing servicers’ progress to date with HAMP. According to
Treasury, the purpose of the report is to document the number of

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Appendix X: Home Affordable Modification
Program

struggling homeowners already helped under the program, provide
information on servicer performance, and increase the program’s
transparency.
•

August 13, 2009: Treasury announced details of the second-lien
modification component of HAMP, which allows second liens with
corresponding first liens that have been modified under HAMP to be
modified or extinguished. While Treasury estimates that between one and
one-and-a-half million borrowers may be eligible to receive a second-lien
modification, servicer participation in the second-lien modification
subprogram is unclear, as servicers who had previously signed
participation agreements must sign amended agreements in order to
participate in the program. As of September 25, 2009, no servicers had
signed participation agreements for the second-lien program.

•

August 27, 2009: Treasury conducted its first disbursement of $276,000 to
one servicer for payment of servicer incentives related to 276 non-GSE
loans modified under HAMP. No payments were disbursed for monthly
mortgage payment reductions or associated incentive payments to
investors or borrowers, and no payments were made to other servicers.

•

September 25, 2009: Treasury conducted its second disbursement of
about $670,000 to three servicers for payment of servicer incentives and
investor subsidies.

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Program

GAO’s Recommendations
and Treasury’s Response
Table 20: Treasury’s Actions in Response to GAO Recommendations
Treasury actions responding to
recommendations to date

GAO recommendations

GAO assessment of
Treasury’s response

Recommendations from the July 23, 2009, report:
According to Treasury, it is exploring options
for monitoring what proportion of such
borrowers is obtaining counseling.
To date, Treasury has not specified if it plans
to use information from monitoring borrowers
with total household debt of more than 55
percent of their income to assess how
required counseling affects the performance
of modified loans.

1) Partially implemented
2) Not implemented

•

On July 31, 2009, Treasury announced
detailed guidance on HPDP that included
changes to the program’s design that,
according to Treasury, improve the targeting
of incentive payments to mortgages that are
at greater risk because of home price
declines. GAO is in the process of
determining if these changes to the program
have helped to maximize overall benefits of
utilizing taxpayer dollars.

Partially Implemented

Institute a system to routinely review and update
key assumptions and projections about the
housing market and the behavior of mortgageholders, borrowers, and servicers that underlie
Treasury’s projection of the number of borrowers
whose loans are likely to be modified under HAMP
and revise the projection as necessary in order to
assess the program’s effectiveness and structure.

•

Place a high priority on fully staffing vacant
positions in the Homeownership Preservation
Office (HPO)—including filling the position of Chief
Homeownership Preservation Officer with a
permanent placement—and evaluate HPO’s
staffing levels and competencies to determine
whether they are sufficient and appropriate to
effectively fulfill its HAMP governance
responsibilities.

•

According to Treasury, it plans to actively
Partially implemented
evaluate the program as it progresses,
including testing key assumptions and
updating participation estimates. Treasury
has not stated, however, when it plans to
perform such evaluations or updates to its
HAMP participation estimates.
Treasury is gathering data on servicer
performance in HAMP and housing market
conditions in order to improve and build upon
the assumptions underlying projections about
mortgage market behavior.
Between July 16, 2009, and September 21,
Partially implemented
2009, HPO increased its permanent staff by
twelve. According to Treasury, 7 positions
remain vacant out of 31.
According to Treasury, it is making progress
in filling the position including interviewing
prospective candidates.
According to Treasury, it will conduct the first
bimonthly workforce needs assessment for
HPO at the end of October 2009.

Consider methods of (1) monitoring whether
borrowers with total household debt of more than
55 percent of their income who have been told
that they must obtain HUD-approved housing
counseling do so, and (2) assessing how this
counseling affects the performance of modified
loans to see if the requirement is having its
intended effect of limiting redefaults.

•

Re-evaluate the basis and design of the HPDP
program to ensure that HAMP funds are being
used efficiently to maximize the number of
borrowers who are helped under HAMP and to
maximize overall benefits of utilizing taxpayer
dollars.

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•

•

•

•

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Appendix X: Home Affordable Modification
Program

GAO recommendations
Expeditiously finalize a comprehensive system of
internal control over HAMP, including policies,
procedures, and guidance for program activities,
to ensure that the interests of both the
government and taxpayer are protected and that
the program objectives and requirements are
being met once loan modifications and incentive
payments begin.

Expeditiously develop a means of systematically
assessing servicers’ capacity to meet program
requirements during program admission so that
Treasury can understand and address any risks
associated with individual servicers’ abilities to
fulfill program requirements, including those
related to data reporting and collection.

Treasury actions responding to
GAO assessment of
recommendations to date
Treasury’s response
•
Treasury continues to refine the internal
Partially implemented
control environment for HAMP. Fannie Mae,
as HAMP administrator, has mapped
operational processes and identified points of
control for multiple steps in its HAMP
operations, including servicer set-up in
HAMP’s electronic system, servicer data
reporting, trial modification, and the steps of
the payment process administered by Fannie
Mae. However, controls and procedures have
not been completed for all areas of the
program.
•
According to Treasury, it will work with Fannie
Mae and Freddie Mac to build and refine the
internal controls within these financial agents’
operations as new program components are
implemented.
•

Treasury has stated that it does not believe
Not implemented
that assessments of servicers’ capacity need
to occur during program admission.
According to Treasury, such assessments are
unnecessary because, upon admission, a
servicer becomes contractually obligated to
review a borrower for eligibility for HAMP
before beginning any foreclosure actions.

Source: GAO and analysis of OFS, Treasury, information.

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Appendix XI: Comments from the Department
of the Treasury

Appendix XI: Comments from the
Department of the Treasury

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Appendix XII: GAO Contact and Staff
Acknowledgments

Appendix XII: GAO Contact and Staff
Acknowledgments
GAO Contact

Richard J. Hillman, (202) 512-8678 or hillmanr@gao.gov
Thomas J. McCool, (202) 512-2642 or mccoolt@gao.gov
Orice Williams Brown, (202) 512-8678 or williamso@gao.gov

Staff
Acknowledgments

In addition to the contacts named above, A. Nicole Clowers, Gary Engel,
Mathew Scirè, and William T. Woods (lead Directors); Cheryl Clark,
Lawrance Evans Jr., Dan Garcia-Diaz, Carolyn Kirby, Barbara Keller, Kay
Kuhlman, Harry Medina, Raymond Sendejas, Karen Tremba (lead Assistant
Directors); Judith Ambrose, Timothy Carr, Tania Calhoun, Emily
Chalmers, Brent Corby, Rachel DeMarcus, M’Baye Diagne, Nancy Eibeck,
Sarah Farkas, Alice Feldesman, Heather Halliwell, Michael Hoffman, Joe
Hunter, Tyrone Hutchins, John Karikari, Amber Keyser, Steven Koons,
Robert Lee, Sarah McGrath, Joseph O’Neill, Rebecca Riklin, Susan MichalSmith, Maria Soriano, Cynthia Taylor, Angela D. Thomas, Julie Trinder,
Marc Molino, Winnie Tsen , Jim Vitarello, Yun Wang, and Heather
Whitehead have made significant contributions to this report.

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(250433)

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