CONGRESSIONAL OVERSIGHT PANEL 

MARCH OVERSIGHT REPORT * 

THE FINAL REPORT OF THE 

CONGRESSIONAL OVERSIGHT PANEL 

MARCH 16, 2011.—Ordered to be printed 

* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic 

Stabilization Act of 2008, Pub. L. No. 110–343 


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CONGRESSIONAL OVERSIGHT PANEL MARCH OVERSIGHT REPORT 


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1 

64–832 2011

CONGRESSIONAL OVERSIGHT PANEL 

MARCH OVERSIGHT REPORT * 

THE FINAL REPORT OF THE 

CONGRESSIONAL OVERSIGHT PANEL 

MARCH 16, 2011.—Ordered to be printed 

* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic 

Stabilization Act of 2008, Pub. L. No. 110–343 


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(II) 

CONGRESSIONAL OVERSIGHT PANEL 

PANEL MEMBERS

SEN. TED KAUFMAN, Chairman 

RICHARD H. NEIMAN

DAMON SILVERS

J. MARK MCWATTERS

KENNETH TROSKE


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(III) 

C O N T E N T S 

Page 

Glossary of Terms .................................................................................................... vi 

Executive Summary ................................................................................................. 1 

Section One: 

I. Introduction .......................................................................................................... 5 

A. Key Events of the Financial Crisis ............................................................. 6 

1. Events Leading up to Enactment of EESA ......................................... 6 

2. Initial TARP Investments in the Largest Institutions ...................... 13 

B. Overview of Government Efforts ................................................................ 15 

1. Federal Reserve ..................................................................................... 15 

2. FDIC ....................................................................................................... 18 

3. Treasury Department ........................................................................... 19 

4. Coordinated Action ................................................................................ 21 

II. Banks ................................................................................................................... 25

A. Capital Infusions and Bank Balance Sheets ............................................. 25 

1. Summary of COP Reports and Findings ............................................. 25 

2. Panel Recommendations and Updates ................................................ 31 

3. Lessons Learned .................................................................................... 46 

B. Guarantees and Contingent Payments ...................................................... 48 

1. Background ............................................................................................ 49 

2. Summary of COP Report and Findings ............................................... 50 

3. Panel Recommendations and Updates ................................................ 50 

4. Lessons Learned .................................................................................... 51 

C. Global Context and International Effects of the TARP ............................ 52 

1. Background ............................................................................................ 52 

2. Summary of COP Report and Findings ............................................... 53 

3. Panel Recommendations and Updates ................................................ 54 

4. Lessons Learned .................................................................................... 55 

III. Credit Markets: Small Business and Consumer Lending .............................. 55 

A. Background .................................................................................................. 55 

1. Small Business Lending ....................................................................... 55 

2. Consumer Lending ................................................................................ 58 

3. Government Efforts to Stimulate Small Business and Consumer 

Lending ................................................................................................... 59 

B. Summary of COP Reports and Findings .................................................... 63 

C. Panel Recommendations and Updates ....................................................... 64 

1. Current State of Commercial and Industrial Lending ....................... 64 

2. Consideration of Alternatives ............................................................... 65 

3. Small Business Lending Fund ............................................................. 66 

D. Lessons Learned .......................................................................................... 67 

IV. Foreclosure Mitigation ...................................................................................... 68 

A. Background .................................................................................................. 68 

B. Summary of COP Reports and Findings .................................................... 72 

C. Panel Recommendations and Program Updates ....................................... 75 

1. Transparency ......................................................................................... 76 


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IV 

IV. Foreclosure Mitigation—Continued 

C. Panel Recommendations and Program Updates—Continued 

2. Compliance ............................................................................................ 78 

3. Goals ....................................................................................................... 78 

4. Streamlining .......................................................................................... 79 

5. Program Structure ................................................................................ 80 

6. Document Irregularities ....................................................................... 83 

D. Data Updates ............................................................................................... 84 

1. Treasury’s Foreclosure Mitigation Programs ...................................... 84 

2. Housing Market ..................................................................................... 88 

E. Lessons Learned .......................................................................................... 93 

V. Automotive Industry Assistance ........................................................................ 95 

A. Background .................................................................................................. 95 

1. Initial Treasury Action ......................................................................... 96 

2. Additional Initiatives and Actions ....................................................... 98 

B. Summary of COP Reports and Findings .................................................... 99 

C. Panel Recommendations and Updates ....................................................... 103 

1. Transparency ......................................................................................... 103 

2. Accountability ........................................................................................ 103 

3. Improved Balance among Treasury’s Roles ........................................ 105 

4. Continued Oversight ............................................................................. 105 

5. Updates .................................................................................................. 105 

D. Lessons Learned .......................................................................................... 106 

VI. AIG ..................................................................................................................... 107 

A. Background .................................................................................................. 107 

1. Government Assistance ........................................................................ 109 

B. Summary of COP Report and Findings ..................................................... 114 

1. AIG Changed a Fundamental Market Relationship .......................... 114 

2. The Powerful Role of Credit Rating Agencies ..................................... 115 

3. The Options Available to the Government .......................................... 115 

4. The Government’s Authorities in a Financial Crisis ......................... 116 

5. Conflicts ................................................................................................. 116 

C. Panel Recommendations ............................................................................. 117 

1. Government Exit Strategy/Equity Market Risk Mitigation .............. 117 

2. Status of COP Recommendations ........................................................ 118 

D. Updates ........................................................................................................ 118 

1. Recent Developments ............................................................................ 118 

2. Outlook ................................................................................................... 125 

E. Lessons Learned .......................................................................................... 129 

VII. Administration of the TARP ........................................................................... 130 

A. Treasury’s Use of Its Contracting Authority ............................................. 130 

1. Background ............................................................................................ 130 

2. Summary of COP Report and Findings ............................................... 131 

3. Panel Recommendations and Updates ................................................ 133 

4. Lessons Learned .................................................................................... 135 

B. Executive Compensation Restrictions in the TARP .................................. 135 

1. Background ............................................................................................ 135 

2. Summary of COP Report and Findings ............................................... 139 

3. Panel Recommendations and Updates ................................................ 140 

4. Lessons Learned .................................................................................... 141 

VIII. General TARP Assessment ............................................................................ 141 

A. Summary of COP Reports and Findings .................................................... 142 

B. Panel Recommendations ............................................................................. 144 

C. Financial Status of the TARP ..................................................................... 145 

IX. Conclusions and Lessons Learned ................................................................... 151 


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V 

IX. Conclusions and Lessons Learned—Continued 

A. ‘‘Too Big to Fail’’ and Moral Hazard .......................................................... 153 

B. Stigma ........................................................................................................... 155 

C. Transparency, Data Collection, and Accountability .................................. 156 

D. Other Obstacles Encountered by the TARP .............................................. 158 

E. On the Role of Oversight ............................................................................. 160 

Annex I: Federal Financial Stability Efforts ......................................................... 162 

Annex II: Additional CPP Data .............................................................................. 165 

Annex III: Endnotes ................................................................................................ 172 

Section Two: Oversight Activities ........................................................................... 180 

Section Three: About the Congressional Oversight Panel 

A. Members ....................................................................................................... 181 

B. Reports .......................................................................................................... 182 

C. Hearings ....................................................................................................... 187 

D. Staff .............................................................................................................. 188 

E. Budget ........................................................................................................... 188 

Appendices: 

APPENDIX I: LETTER TO SECRETARY TIMOTHY GEITHNER FROM 

CHAIRMAN TED KAUFMAN RE: REDESIGN OF WEBSITE, DATED 

MARCH 7, 2011 ................................................................................................... 190 

APPENDIX II: LETTER TO CHAIRMAN TED KAUFMAN FROM ACTING 

ASSISTANT SECRETARY TIMOTHY MASSAD RE: REDESIGN OF 

WEBSITE, DATED MARCH 14, 2011 ............................................................... 194 


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Glossary of Terms 

ABS ...................................... asset-backed securities 

AGP ..................................... Asset Guarantee Program 

AIA ....................................... American International Assurance Company, Limited 

AIFP .................................... Automobile Industry Financing Program 

AIG ...................................... American International Group 

AIGFP .................................. AIG Financial Products 

AIGIP/SSFI Program ......... American International Group Investment Program/ 

Systemically Significant Failing Institutions Program 

ALICO ................................. American Life Insurance Company 

AMLF .................................. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility 

ARRA ................................... American Recovery and Reinvestment Act 

ASSP .................................... Auto Supplier Support Program 

BHC ..................................... bank holding company 

C&I loans ............................ commercial and industrial loans 

CAP ...................................... Capital Assistance Program 

CBO ..................................... Congressional Budget Office 

CDCI .................................... Community Development Capital Initiative 

new Chrysler ....................... Chrysler Group LLC; Chrysler post bankruptcy 

Chrysler Holding LLC ........ Chrysler Holding Limited Liability Company 

CMBS .................................. commercial mortgage-backed securities 

CPFF ................................... Commercial Paper Funding Facility 

CPP ...................................... Capital Purchase Program 

CRE ..................................... commercial real estate 

DGP ..................................... Debt Guarantee Program 

Dodd-Frank Act .................. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 

EESA ................................... Emergency Economic Stabilization Act of 2008 

FDIC .................................... Federal Deposit Insurance Corporation 

FHA ..................................... Federal Housing Administration 

FHFA ................................... Federal Housing Finance Agency 

FOMC .................................. Federal Open Market Committee 

FRB ...................................... Federal Reserve Board 

FRBNY ................................ Federal Reserve Bank of New York 

GAO ..................................... Government Accountability Office 

GDP ..................................... gross domestic product 

new GM ............................... General Motors Company; GM post bankruptcy 

GM ....................................... General Motors Corporation 

GMAC .................................. General Motors Acceptance Corporation; now Ally Financial 

GMAC/Ally Financial ......... Ally Financial 

GSE ...................................... government sponsored enterprise 

GSE MBS Purchase Program.Government Sponsored Enterprises’ Mortgage Backed 

Securities Purchase Program 

HAMP .................................. Home Affordable Modification Program 

IFR–COI .............................. Interim Final Rule on TARP Conflicts of Interest 

IFR–Comp ........................... Interim Final Rule on TARP Standards for Compensation and Corporate Governance 

IPO ....................................... initial public offering 

IRR ....................................... internal rate of return 

LIBOR ................................. London Interbank Offered Rate 

LIBOR–OIS spread ............. measures the difference between the LIBOR and the 

OIS 

LLC ...................................... limited liability company 


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Glossary of Terms 

MBS ..................................... Mortgage Backed Securities Purchase 

MMF .................................... Money Market Fund 

OIS ....................................... Overnight Indexed Swaps rate 

OMB .................................... Office of Management and Budget 

PDCF ................................... Primary Dealer Credit Facility 

PPIP ..................................... Public-Private Investment Program 

RCF ...................................... revolving credit facility 

RMBS .................................. residential mortgage-backed security 

SBA ...................................... Small Business Administration 

SBA 504 ............................... a loan program of the Small Business Administration 

SBA 7(a) .............................. a loan program of the Small Business Administration 

SBLF .................................... Small Business Lending Fund program 

SCAP ................................... Supervisory Capital Assessment Program (the ‘‘stress 

tests’’) 

SEC ...................................... U.S. Securities and Exchange Commission 

SIGTARP ............................. Special Inspector General for the Troubled Asset Relief Program 

SPA ...................................... Securities Purchase Agreement 

SPV ...................................... special purpose vehicle 

SSFI program ..................... Systemically Significant Failing Institutions program 

(solely for AIG) 

TAF ...................................... Term Auction Facility 

TAG ..................................... Transaction Account Guarantee 

TALF ................................... Term Asset-Backed Securities Loan Facility 

TALF LLC ........................... Term Asset-Backed Securities Loan Facility Limited 

Liability Company 

TARP ................................... Troubled Asset Relief Program 

TGPMMF ............................ Temporary Guarantee Program for Money Market 

Funds 

TIP ....................................... Targeted Investment Program 

TLGP ................................... Temporary Liquidity Guarantee Program 

Trust .................................... AIG Credit Facility Trust 

TSLF .................................... Term Securities Lending Facility 


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* The Panel adopted this report with a 5–0 vote on March 15, 2011. 

MARCH OVERSIGHT REPORT 

MARCH 16, 2011.—Ordered to be printed 

EXECUTIVE SUMMARY * 

On October 3, 2008, in response to rapidly deteriorating financial 

market conditions, Congress and the President created the Troubled Asset Relief Program (TARP) to ‘‘immediately provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability to the financial system of the United 

States.’’ The same law also established the Congressional Oversight 

Panel and charged it with providing public accountability for 

Treasury’s use of its TARP authority. By statute, the Panel terminates six months after the expiration of TARP authority, which 

ended on October 3, 2010. Thus, the Panel’s work concludes with 

this report. 

For its final report, the Panel summarizes and updates its comprehensive body of oversight work. The report describes the financial crisis and the broad array of federal initiatives undertaken in 

response. The Panel also provides a summary of its key findings 

and recommendations, along with updates since the Panel’s prior 

work. 

In order to evaluate the TARP’s impact, one must first recall the 

extreme fear and uncertainty that infected the financial system in 

late 2008. The stock market had endured triple-digit swings. Major 

financial institutions, including Bear Stearns, Fannie Mae, Freddie 

Mac, and Lehman Brothers, had collapsed, sowing panic throughout the financial markets. The economy was hemorrhaging jobs, 

and foreclosures were escalating with no end in sight. Federal Reserve Chairman Ben Bernanke has said that the nation was on 

course for ‘‘a cataclysm that could have rivaled or surpassed the 

Great Depression.’’ 


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It is now clear that, although America has endured a wrenching 

recession, it has not experienced a second Great Depression. The 

TARP does not deserve full credit for this outcome, but it provided 

critical support to markets at a moment of profound uncertainty. 

It achieved this effect in part by providing capital to banks but, 

more significantly, by demonstrating that the United States would 

take any action necessary to prevent the collapse of its financial 

system. 

The Cost of the TARP. The Congressional Budget Office (CBO) today estimates that the TARP will cost taxpayers $25 billion—an 

enormous sum, but vastly less than the $356 billion that CBO initially estimated. Although this much-reduced cost estimate is encouraging, it does not necessarily validate Treasury’s administration of the TARP. Treasury deserves credit for lowering costs 

through its diligent management of TARP assets and, in particular, 

its careful restructuring of AIG, Chrysler, and GM. However, a separate reason for the TARP’s falling cost is that Treasury’s foreclosure prevention programs, which could have cost $50 billion, 

have largely failed to get off the ground. Viewed from this perspective, the TARP will cost less than expected in part because it will 

accomplish far less than envisioned for American homeowners. In 

addition, non-TARP government programs, including efforts by the 

FDIC and the Federal Reserve, have shifted some of the costs of 

the financial rescue away from the TARP’s balance sheet. Further, 

accounting for the TARP from today’s vantage point—at a time 

when the financial system has made great strides toward recovery—obscures the risk that existed in the depths of the financial 

crisis. At one point, the federal government guaranteed or insured 

$4.4 trillion in face value of financial assets. If the financial system 

had suffered another shock on the road to recovery, taxpayers 

would have faced staggering losses. 

‘‘Too Big to Fail.’’ The Panel has always emphasized that the 

TARP’s cost cannot be measured merely in dollars. Other costs include its distortion of the financial marketplace through its implicit 

guarantee of ‘‘too big to fail’’ banks. At the height of the financial 

crisis, 18 very large financial institutions received $208.6 billion in 

TARP funding almost overnight, in many cases without having to 

apply for funding or to demonstrate an ability to repay taxpayers. 

In light of these events, it is not surprising that markets have assumed that ‘‘too big to fail’’ banks are safer than their ‘‘small 

enough to fail’’ counterparts. Credit rating agencies continue to adjust the credit ratings of very large banks to reflect their implicit 

government guarantee. Smaller banks receive no such adjustment, 

and as a result, they pay more to borrow relative to very large 

banks. 

By protecting very large banks from insolvency and collapse, the 

TARP also created moral hazard: very large financial institutions 

may now rationally decide to take inflated risks because they expect that, if their gamble fails, taxpayers will bear the loss. Ironically, these inflated risks may create even greater systemic risk 

and increase the likelihood of future crises and bailouts. 

In addition, Treasury’s intervention in the automotive industry, 

rescuing companies that were not banks and were not particularly 

interconnected within the financial system, extended the ‘‘too big to 

fail’’ guarantee and its associated moral hazard to non-financial 


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firms. The implication may seem to be that any company in America can receive a government backstop, so long as its collapse would 

cost enough jobs or deal enough economic damage. 

Stigma. As the TARP evolved, Treasury found its options increasingly constrained by public anger about the program. The 

TARP is now widely perceived as having restored stability to the 

financial sector by bailing out Wall Street banks and domestic 

automotive manufacturers while doing little for the 13.9 million 

workers who are unemployed, the 2.4 million homeowners who are 

at immediate risk of foreclosure, or the countless families otherwise 

struggling to make ends meet. As a result of this perception, the 

TARP is now burdened by a public ‘‘stigma.’’ 

Because the TARP was designed for an inherently unpopular 

purpose—rescuing Wall Street banks from the consequences of 

their own actions—stigmatization was likely inevitable. Treasury’s 

implementation of the program has, however, made this stigma 

worse. For example, many senior managers of TARP-recipient 

banks maintained their jobs and their high salaries, and although 

shareholders suffered dilution of their stock, they were not wiped 

out. To the public, this may appear to be evidence that Wall Street 

banks and bankers can retain their profits in boom years but shift 

their losses to taxpayers during a bust—an arrangement that undermines the market discipline necessary to a free economy. 

Transparency, Data Collection, and Accountability. Beginning with its very first report, the Panel has expressed concerns 

about the lack of transparency in the TARP. In perhaps the most 

profound violation of the principle of transparency, Treasury decided in the TARP’s earliest days to push tens of billions of dollars 

out the door to very large financial institutions without requiring 

banks to reveal how the money was used. As a result, the public 

will never know to what purpose its money was put. 

In some cases, public understanding of the TARP has suffered 

not because Treasury refused to reveal useful information but because relevant data were never collected in the first place. Without 

adequate data collection, Treasury has flown blind; it has lacked 

the information needed to spot trends, determine which programs 

are succeeding and which are failing, and make necessary changes. 

A related concern is Treasury’s failure to articulate clear goals for 

many of its TARP programs or to update its goals as programs 

have evolved. For example, when the President announced the 

Home Affordable Modification Program in early 2009, he asserted 

that it would prevent three to four million foreclosures. The program now appears on track to help only 700,000 to 800,000 homeowners, yet Treasury has never formally announced a new target. 

Absent meaningful goals, the public has no meaningful way to hold 

Treasury accountable, and Treasury has no clear target to strive 

toward in its own deliberations. 

On the Role of Oversight. Between the efforts of the Congressional Oversight Panel, SIGTARP, the GAO, the U.S. Congress, 

and many journalists and private citizens, the TARP has become 

one of the most thoroughly scrutinized government programs in 

U.S. history. Such close scrutiny inevitably begets criticism, and in 

the case of the TARP—a program born out of ugly necessity—the 

criticism was always likely to be harsh. After all, in the midst of 

a crisis, perfect solutions do not exist; every possible action carries 


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regrettable consequences, and even the best decisions will be subject to critiques and second-guessing. 

Yet there can be no question that oversight has improved the 

TARP and increased taxpayer returns. For example, in July 2009, 

the Panel reported that Treasury’s method for selling stock options 

gained through the CPP appeared to be recovering only 66 percent 

of the warrants’ estimated worth. Due in part to pressure generated by the Panel’s work, Treasury changed its approach, and 

subsequent sales recovered 103 cents on the dollar, contributing to 

$8.6 billion in returns to taxpayers. Other substantial improvements in the TARP—such as Treasury’s heightened focus on the 

threat to HAMP posed by second liens, the increased transparency 

of the TARP contracting process, and the greater disclosure of 

TARP-related data—are all partly the result of pressure exerted by 

the Panel and other oversight bodies. 

Thus, an enduring lesson of the TARP is that extraordinary government programs can benefit from, and indeed may require, extraordinary oversight. This lesson remains relevant in the context 

of the government’s extraordinary actions in the 2008 financial crisis: The public will continue to benefit from intensive, coordinated 

efforts by public and private organizations to oversee Treasury, the 

FDIC, the Federal Reserve, and other government actors. Careful, 

skeptical review of the government’s actions and their consequences—even when this review is uncomfortable—is an indispensable step toward preserving the public trust and ensuring the 

effective use of taxpayer money. 


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SECTION ONE 

I. Introduction 

In response to rapidly deteriorating financial market conditions, 

Congress passed and the President signed into law the Emergency 

Economic Stabilization Act of 2008 (EESA) on October 3, 2008, creating the Troubled Asset Relief Program (TARP). The Act was intended to ‘‘immediately provide authority and facilities that the 

Secretary of the Treasury can use to restore liquidity and stability 

to the financial system of the United States’’ and ‘‘to ensure that 

such authority and such facilities are used in a manner that protects home values, college funds, retirement accounts, and life savings; preserves homeownership and promotes jobs and economic 

growth; maximizes overall returns to the taxpayers of the United 

States; and provides public accountability for the exercise of such 

authority.’’ 

In order to provide the intended public accountability, EESA designated multiple oversight bodies. In particular, Section 125 established the Congressional Oversight Panel (the Panel) and charged 

it with reviewing the current state of the financial markets and 

regulatory system. In addition to one special report on regulatory 

reform, the Act required monthly reports, including oversight of 

‘‘the use by the Secretary of authority under this Act, including 

with respect to the use of contracting authority and administration 

of the program; the impact of purchases made under the Act on the 

financial markets and financial institutions; the extent to which 

the information made available on transactions under the program 

has contributed to market transparency; and the effectiveness of 

foreclosure mitigation efforts, and the effectiveness of the program 

from the standpoint of minimizing long-term costs to the taxpayers 

and maximizing the benefits for taxpayers.’’ In meeting this mandate the Panel has issued 27 monthly oversight reports, as well as 

the special report on regulatory reform and a subsequently required special report on farm credit. 

Under EESA, the Panel terminates six months after the expiration of TARP authority, which ended on October 3, 2010. Thus, the 

Panel’s work will conclude with this report. For its final report the 

Panel summarizes and revisits its comprehensive body of monthly 

oversight work. To provide a context for understanding and evaluating the TARP, the report first describes the major events of the 

financial crisis in the fall of 2008 and the economic conditions prevailing during the crisis and response, as well as the broad array 

of federal initiatives undertaken to promote financial stability and 

liquidity as a result of the crisis. For each area in which it has 

done oversight work, the Panel then provides a summary of its key 

findings and recommendations, along with an update since the 

Panel’s prior work and the current status of the Panel’s recommendations. 

The Panel’s body of work reveals a number of clear and consistent themes. In closing, the report summarizes these key ‘‘lessons learned’’ in order to guide policymakers as they continue to 

unwind the TARP, but more important, to inform policymakers 

should they find it necessary to respond to financial crises in the 

future. 


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1For a more expansive listing of the events prior to and during the financial crisis, see Federal 

Reserve Bank of St. Louis, The Financial Crisis: A Timeline of Events and Policy Actions (online 

at timeline.stlouisfed.org/) (accessed Mar. 3, 2011). 2The S&P Case/Shiller home price index, a measure of home values in the United States, 

reached its peak level of 206.5 in April 2006, representing a 105 percent increase from January 

2000. Standard & Poor’s, S&P/Case-Shiller Home Price Index (Instrument Used: Home Price 

Index Levels, Seasonally adjusted, Composite 20-city Index) (online at 

www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusacashpidff--p-us----) (accessed Mar. 11, 2011) (hereinafter ‘‘S&P/Case-Shiller Home Price Index’’). 

An alternative measure of home prices, the Federal Housing Finance Agency’s quarterly Purchase Only Index increased for 49 consecutive quarters beginning in the first quarter of 1995 

until the second quarter of 2007. Federal Housing Finance Agency, Purchase Only Indexes: U.S. 

Summary Through Q4 2010 (Instrument Used: HPI % Change Over Previous Quarter) (online 

at www.fhfa.gov/Default.aspx?Page=87) (accessed Mar. 11, 2011). 

Total mortgage debt outstanding for one to four family homes increased from $4.8 trillion at 

the end of 1999 to $10.4 trillion in the beginning of 2007. Board of Governors of the Federal 

Reserve System, Statistical Supplement to the Federal Reserve Bulletin: Mortgage Debt Outstanding (Jan. 2004) (online at www.federalreserve.gov/pubs/supplement/2004/01/table1_54.htm); 

Board of Governors of the Federal Reserve System, Mortgage Debt Outstanding (Dec. 2010) (online at www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm). 3From 2001 to 2005, Americans extracted an average of $646.3 billion of equity from their 

homes each year. In the ten years prior, the average amount of equity extracted per year was 

$272.0 billion. Board of Governors of the Federal Reserve System, Sources and Uses of Equity 

Extracted from Homes, at 21 (Mar. 2007) (online at www.econ.jku.at/members/Riese/files/SS08/ 

239315/topic2lwealthleffect/greenspanlkennedy.pdf). 4S&P Case Shiller index reached its peak of 206.5 in April 2006. Also, delinquencies as a percentage of loans rose from 4.39 percent at the end of Q2 2006 to 5.12 percent at the end of 

Q2 2007. Mortgage Bankers Association, National Delinquency Survey—2010 4th Quarter, at 4 

(Feb. 17, 2011) (hereinafter ‘‘National Delinquency Survey—2010 4th Quarter’’). 5 Case-Shiller values are indexed to 100 in January 2000. As of December 2010, national home 

prices, as measured by the S&P Case-Shiller Home Price Index, have declined 30.2 percent since 

January 2007 and declined 9.1 percent since the enactment of EESA in October 2008. S&P/ 

Case-Shiller Home Price Index, supra note 2. Subprime delinquencies reached their highest level 

during the first quarter of 2010 when delinquencies reached 27.2 percent. National Delinquency 

Survey—2010 4th Quarter, supra note 4, at 4. 

A. Key Events of the Financial Crisis 

1. Events Leading up to Enactment of EESA 1

The first tremors of the impending financial crisis and the severe 

recession that followed were seen in the American housing market. 

During the years from 2000 until 2007 home prices more than doubled and the amount of mortgage debt outstanding increased nearly 80 percent.2 The rapid appreciation in home prices, which increased every month from January 2000 to their peak in April 

2006, helped fuel housing speculation and a boom in mortgage refinancing and home equity loans.3

The Housing Bubble Bursts 

In late 2006, home prices began to decline and delinquencies on 

home mortgages, particularly those taken out by subprime borrowers, began to rise significantly.4 Figure 1 illustrates the dramatic increase in subprime mortgage delinquencies, which reached 

13.3 percent by the end of 2006, and the corresponding beginning 

of a relative decline in home values that continues to this day.5


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6 National Delinquency Survey—2010 4th Quarter, supra note 4, at 4; S&P/Case-Shiller Home 

Price Index, supra note 2. 7 U.S. Securities and Exchange Commission, American Home Mortgage Investment Corp. Files 

for Chapter 11 Bankruptcy (Aug. 6, 2007) (online at www.sec.gov/Archives/edgar/data/1256536/ 

000091412107001892/am9746838-99l1.txt); U.S. Securities and Exchange Commission, New 

Century Financial Corporation Files for Chapter 11; Announces Agreement to Sell Servicing Operations (Apr. 2, 2007) (online at www.sec.gov/Archives/edgar/data/1287286/ 

000129993307002129/exhibit1.htm). 8 Viral V. Acharya and Ouarda Merrouche, Precautionary Hoarding of Liquidity and InterBank Markets: Evidence from the Sub-prime Crisis, at 2 (July 3, 2009) (online at 

pages.stern.nyu.edu/∼sternfin/vacharya/public_html/acharya_merrouche.pdf). 

FIGURE 1: PERCENTAGE OF DELINQUENT HOME LOANS BY TYPE AS COMPARED TO 

HOME PRICES 6

The subprime mortgage crisis grew in 2007, and during the period from April to the end of August the credit rating agencies 

downgraded hundreds of bonds backed by such mortgages. Later 

that summer, Bear Stearns closed two mortgage-backed securities 

(MBS) focused hedge funds, and two of the largest subprime mortgage originators and securitizers—New Century Financial and 

American Home Mortgage—filed for bankruptcy.7 On August 9, 

2007, BNP Paribas, the largest bank in France, suspended redemptions in three investment funds due to their exposure to the U.S. 

subprime mortgage market.8 These events contributed to the significant stress in the housing and mortgage finance market which 

then began to spread into the broader financial sector. 

Beginning of the Financial Crisis 

The uncertainty and fear that gripped the financial markets during this period can be seen in critical credit market indicators such 

as the closely watched LIBOR–OIS spread. This spread measures 

the difference between the London Interbank Offered Rate 

(LIBOR), which shows quarterly borrowing costs for banks, and the 

Overnight Indexed Swaps rate (OIS), which measures the cost of 

extremely short-term borrowing by financial institutions. An increase in the LIBOR–OIS spread indicates that market participants have growing fears about whether major financial instituVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00017 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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9Federal Reserve Bank of St. Louis, What the Libor-OIS Spread Says (2009) (online at research.stlouisfed.org/publications/es/09/ES0924.pdf). 10SNL Financial (accessed Mar. 1, 2011). 11SNL Financial (accessed Mar. 1, 2011). 12The interest rate for overnight AA Asset-backed Commercial Paper increased from 5.39 percent on August 8, 2007 to 5.75 percent on August 9, 2007. This was the highest level this measure reached since its January 31, 2001 level of 5.78 percent. The interest rate for overnight financial AA Financial Commercial Paper increased from 5.31 percent on August 8, 2007 to 5.39 

percent on August 9, 2007. This was the highest level this measure reached since its March 

30, 2001 level of 5.44 percent. Board of Governors of the Federal Reserve System, Data 

Download Program: Commercial Paper (Instruments Used: Rates; Overnight AA Asset-backed 

Commercial Paper, Overnight AA Financial Commercial Paper) (online at 

www.federalreserve.gov/datadownload/Choose.aspx?rel=CP) (accessed Mar. 1, 2011). 13 Board of Governors of the Federal Reserve System, FOMC Statement (Aug. 17, 2007) (online 

at www.federalreserve.gov/newsevents/press/monetary/20070817b.htm). 14 HM Treasury, Liquidity Support Facility for Northern Rock plc (Sept. 14, 2007) (online at 

webarchive.nationalarchives.gov.uk/+/www.hm-treasury.gov.uk/press_94_07.htm). 

tions will be able to deliver on their obligations.9 Figure 2 illustrates the spikes in the LIBOR–OIS spread as key events in the 

ensuing financial crisis unfolded. 

FIGURE 2: LIBOR–OIS SPREAD AND SELECTED EVENTS 10

For the first seven months of 2007, the LIBOR–OIS spread averaged 8.7 basis points, reflecting relative calm in the financial markets. Following the announcement by BNP Paribas on August 9, 

2007, however, this measure increased nearly 200 percent, settling 

at 39.9 basis points.11 On the same date, the rate for overnight 

commercial paper, a mechanism of short-term credit for enterprises, increased to levels not seen since early 2001.12 The summer 

of 2007 ended with the Federal Open Market Committee (FOMC) 

of the Federal Reserve System concluding that financial market 

conditions had worsened, credit availability had decreased, and 

‘‘downside risks to growth [had] increased appreciably.’’ 13

Initial Government and Industry Responses 

Among the first direct actions taken by governments to stem the 

effects of the growing financial crisis was the creation by the British Government of a liquidity facility to support Northern Rock, the 

fifth largest bank in the United Kingdom.14 In the United States, 


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15On September 18, 2007, the FOMC reduced its target for the federal funds rate from 5.25 

percent to 4.75 percent. In conjunction with that decision, the Federal Reserve stated that, ‘‘the 

tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the 

adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.’’ Board of Governors of the Federal 

Reserve System, FOMC Statement and Board Approval of Discount Rate Requests of the Federal 

Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San 

Francisco (Sept. 18, 2007) (online at www.federalreserve.gov/newsevents/press/monetary/ 

20070918a.htm) (hereinafter ‘‘FOMC Statement and Board Approval of Discount Rate Requests’’). On October 31, 2007, the FOMC reduced its target for the federal funds rate from 4.75 

percent to 4.25 percent. Board of Governors of the Federal Reserve System, FOMC Statement 

and Board Approval of Discount Rate Requests of the Federal Reserve Banks of Boston, New 

York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco (Oct. 31, 2007) (online 

at www.federalreserve.gov/newsevents/press/monetary/20071031a.htm). 16 HOPE NOW Alliance, HOPE NOW Alliance Created to Help Distressed Homeowners (Oct. 

10, 2007) (online at www.fsround.org/hope_now/pdfs/AllianceRelease.pdf). 17 Bank of America Corporation, Global Banks Announce Plans for Major Liquidity Facility 

to Bolster Asset-Backed Commercial Paper Markets (Oct. 15, 2007) (online at 

mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irolnewsArticle&ID=1389929&highlight=). 18 Bank of America Corporation, Consortium Provides Update on Master Liquidity Enhancement Conduit (Dec. 21, 2007) (online at mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1389982&highlight=). 19See Bank of America Corporation, Bank of America Agrees to Purchase Countrywide Financial Corp. (Jan. 11, 2008) (online at mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1389986&highlight=). This purchase followed a $2 

billion investment by Bank of America in Countrywide in return for 16 percent of the company 

on August 22, 2007. See Bank of America Corporation, Bank of America Makes Investment in 

Countrywide Financial (Aug. 22, 2007) (online at mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1389904&highlight=). 20For further details on the purchase of Bear Stearns by JPMorgan, as well as the government assistance provided to facilitate the agreement, see Section I.B.1, infra. 

the Board of Governors of the Federal Reserve System, or Federal 

Reserve Board (FRB or Federal Reserve) lowered its target interest 

rate twice in the fall of 2007, signaling the Federal Reserve’s growing concern regarding the tightening credit markets and worsening 

housing conditions.15 On October 10, 2007, the HOPE NOW Alliance—a private sector initiative promoted by Treasury and the Department of Housing and Urban Development and aimed at bringing together mortgage market participants to encourage counseling 

and other foreclosure mitigation options—was announced.16 Finally, on October 15, 2007, a consortium of banks agreed, after discussions facilitated by Treasury, to create a pooling mechanism to 

facilitate liquidity in the asset-backed commercial paper market.17

Within a couple of months, however, the leading banks involved in 

this effort—Bank of America, JPMorgan Chase, and Citigroup—announced that the initiative had collapsed.18

The Financial Crisis Widens 

As housing fundamentals continued to weaken and financial fear 

spread, some of the nation’s largest financial firms began to teeter 

on the edge of failure. On January 11, 2008, Bank of America announced its purchase of a major mortgage originator, Countrywide 

Financial.19 Then on March 14, the Federal Reserve intervened to 

rescue Bear Stearns by helping to arrange for and assisting with 

its purchase by JPMorgan.20 During this period the impacts of the 

crisis in the housing and financial sectors began to be felt in the 

broader economy. The nation’s gross domestic product (GDP), a 

measure of this country’s economic activity, suffered its first quarterly decline since 2001 in the first quarter of 2008. Following a 


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21The National Bureau of Economic Research, the body responsible for determining when 

shifts in the U.S. business cycle occur, stated on September 20, 2010 that the most recent recession—commonly referred to as the ‘‘Great Recession’’—began in December 2007 and ended in 

June 2009, a period corresponding to the decline in GDP mentioned here. National Bureau of 

Economic Research, US Business Cycle Expansions and Contractions (online at www.nber.org/ 

cycles/cyclesmain.html) (accessed Mar. 3, 2011) (hereinafter ‘‘NBER: US Business Cycle’’). Bureau of Economic Analysis, Gross Domestic Product (Instruments used: Current-dollar and ‘‘real’’ 

GDP, Percent change from preceding period) (online at www.bea.gov/national/index.htm) 

(accessed Mar. 3, 2011) (hereinafter ‘‘Gross Domestic Product’’). 22 Amounts are in constant 2005 dollars. Gross Domestic Product, supra note 21. 

slight increase of 0.6 percent in the next quarter, GDP contracted 

for four consecutive quarters through June 2009.21

FIGURE 3: GDP SINCE 2006 22

Similarly, unemployment rose sharply in 2008 and early 2009. 

The unemployment rate rose from a low of 4.6 percent in January 

2007 to 6.2 percent by September 2008 and 10.1 percent by October 

2009. Figure 4 shows not only the rise in the unemployment rate, 

but also the concurrent increase in the median duration of unemployment, and the sharp increase in underemployment, a measure 

that includes people who are unemployed as well as those who are 

working fewer hours than they want to work and those who have 

become discouraged and stopped looking for a job. 


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23 Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey: Unemployment Rate (online at data.bls.gov/pdq/ 

SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000) (accessed Mar. 4, 

2011) (hereinafter ‘‘BLS: Unemployment Rate’’); Bureau of Labor Statistics, Alternative Measures of Labor Underutilization (Instrument Used: U–6) (online at www.bls.gov/news.release/ 

empsit.t15.htm) (accessed Mar. 4, 2011); Federal Reserve Bank of St. Louis, Median Duration 

of Unemployment (online at research.stlouisfed.org/fred2/series/UEMPMED) (accessed Mar. 4, 

2011). 24Office of Thrift Supervision, OTS Closes IndyMac Bank and Transfers Operations to FDIC 

(July 11, 2008) (online at www.ots.treas.gov/ 

index.cfm?p=PressReleases&ContentRecordlid=37f10b00-1e0b-8562-ebddd5d38f67934c&ContentTypelid=4c12f337-b5b6-4c87-b45c838958422bf3&MonthDisplay=7&YearDisplay=2008). 25 U.S. Department of the Treasury, Paulson Announces GSE Initiatives (July 13, 2008) (online at www.treasury.gov/press-center/press-releases/Pages/hp1079.aspx). Also, the Federal Reserve announced that it would supplement the Treasury credit line by providing its own credit 

line if necessary. Board of Governors of the Federal Reserve System, Board Grants Federal Reserve Bank of New York the Authority to Lend to Fannie Mae and Freddie Mac Should Such 

Lending Prove Necessary (July 13, 2008) (online at www.federalreserve.gov/newsevents/press/ 

other/20080713a.htm). 

FIGURE 4: UNEMPLOYMENT, UNDEREMPLOYMENT, AND DURATION OF UNEMPLOYMENT 23

Second Half of 2008 Brings Extraordinary Government Intervention 

As the effects of the crisis spread to the wider market, the summer of 2008 brought further concerns about financial institutions 

which specialized in mortgage finance. IndyMac Bank, one of the 

nation’s largest savings and loans and the second largest mortgage 

lender in the country, came under pressure as fear spread about 

its potential insolvency. Over an eleven day period, depositors withdrew over $1.3 billion of the $19 billion it held in deposits and the 

institution was subsequently taken over by the Federal Deposit Insurance Corporation (FDIC).24 Also in July 2008, the Federal Reserve and Treasury took coordinated action to provide increased 

credit support to Fannie Mae and Freddie Mac, two critical players 

in the secondary mortgage market which had begun experiencing 

difficulty in financing their operations.25 Then on July 30, the 

Housing and Economic Recovery Act of 2008 (HERA) was signed 

into law. Among its provisions, HERA reorganized the government 

sponsored enterprise’s (GSE) regulatory framework, placing them 

under the supervision of the newly created Federal Housing FiVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00021 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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26 Housing and Economic Recovery Act of 2008, Pub. L. No. 110–289, §§ 1101, 1117 (2008) 

(codified at 12 U.S.C. §§ 4511, 1716 et seq., 1451 et seq.). 27Treasury took Fannie Mae and Freddie Mac into conservatorship on September 7, 2008. 

Lehman Brothers failed on September 14. The next day, Bank of America announced it was buying Merrill Lynch. The day after that, the government announced its bailout of AIG. Also, on 

September 16, the assets of a money-market mutual fund fell below $1 per share, exposing investors to losses, an occurrence known as ‘‘breaking the buck’’ that had not happened in the 

industry for 14 years. On September 20, the Federal Reserve announced that it was allowing 

Goldman Sachs and Morgan Stanley, the nation’s only two remaining large investment banks, 

to become bank holding companies, giving them access to a key source of low-cost borrowing 

from the Federal Reserve. On September 25, the FDIC took Washington Mutual, the nation’s 

largest savings and loan, into receivership and sold many of its assets to JPMorgan Chase. Congressional Oversight Panel, December Oversight Report: Taking Stock: What Has the Troubled 

Asset Relief Program Achieved?, at 11 (Dec. 9, 2009) (online at cop.senate.gov/documents/cop120909-report.pdf) (hereinafter ‘‘2009 December Oversight Report’’). The size of the money market funds (MMFs) was $3.66 trillion in June 2009. Institutional Money Market Funds Association, Frequently Asked Questions (online at www.immfa.org/about/faq/default.asp) (accessed Mar. 

3, 2011) (hereinafter ‘‘IMMFA: Frequently Asked Questions’’). 28The value of the S&P 500 Index is used here as a proxy for the broader market. SNL Financial (accessed Mar. 3, 2011). 29SNL Financial (accessed Mar. 3, 2011). 30 2009 December Oversight Report, supra note 27, at 16. 31 2009 December Oversight Report, supra note 27, at 16. 

nance Agency (FHFA) and providing Treasury with the ability to 

invest taxpayer funds in Fannie Mae and Freddie Mac.26

In September, the housing bubble, the liquidity crunch, and the 

financial crisis culminated in a string of unprecedented events and 

government interventions that took place over a 19-day stretch. 

During this period, Fannie Mae and Freddie Mac were placed into 

conservatorship, Lehman Brothers filed for bankruptcy, the Federal Reserve initiated an $85 billion government rescue of American International Group (AIG), Treasury announced a temporary 

guarantee of the $3.7 trillion money market funds (MMFs), and the 

FDIC steered Washington Mutual through the largest bank failure 

in U.S. history.27 By the beginning of October 2008, the value of 

the stock market had declined by nearly 20 percent from its level 

in January of that year, losing 10 percent in September alone.28

Figure 2 illustrates the effect these events had on the credit markets. The LIBOR–OIS spread reached a record high of 364 basis 

points, or 3.64 percentage points, in October 2008.29

As a result of these events and the continuing rapid deterioration 

in the condition of the credit markets, Chairman of the Board of 

Governors of the Federal Reserve System Ben S. Bernanke and 

Secretary of the Treasury Henry M. Paulson, Jr. concluded on September 18th that their only realistic option to contain the rapidly 

spreading financial crisis was to convince Congress to authorize an 

overwhelming fiscal response by the federal government. On September 20th, Treasury sent Congress a three-page legislative proposal giving Treasury the authority to spend up to $700 billion to 

purchase ‘‘troubled assets,’’ particularly ‘‘residential and commercial mortgage-related assets.’’ 30

Over the following two weeks, the proposal was defeated once in 

the House of Representatives and subsequently modified and expanded prior to being signed into law on October 3, 2008. The 

law—EESA—authorized the Treasury Secretary to purchase not 

only mortgage-related securities under the TARP, but also ‘‘any 

other financial instrument’’ the purchase of which the Secretary determined to be ‘‘necessary to promote financial market stability.’’ 31

Although the federal government has intervened to rescue financial 

institutions and prevent bank runs on several previous occasions in 


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32For example, the savings and loan crisis of the late 1980s and early 1990s was the last significant previous disruption in financial markets that involved government intervention. At the 

time, the total cost of government assistance provided over the course of this crisis was estimated at $160 billion ($230 billion in 2005 dollars). Federal Deposit Insurance Corporation, The 

Cost of the Savings and Loan Crisis: Truth and Consequences, at 29 (Dec. 2000) (online at 

www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf). Dollars adjusted for inflation 

using the Gross Domestic Product Implicit Price Deflator. Federal Reserve Bank of St. Louis, 

Gross Domestic Product: Implicit Price Deflator (online at research.stlouisfed.org/fred2/data/ 

GDPDEF.txt) (accessed Mar. 1, 2011). 33Less than two weeks after EESA was signed into law, Secretary Paulson announced that 

Treasury would ‘‘purchase equity stakes in a wide array of banks and thrifts.’’ U.S. Department 

of the Treasury, Statement by Secretary Henry M. Paulson, Jr. on Actions to Protect the U.S. 

Economy (Oct. 14, 2008) (online at www.treasury.gov/press-center/press-releases/Pages/ 

hp1205.aspx) (hereinafter ‘‘Statement by Secretary Paulson on Actions to Protect the U.S. Economy’’). 

In response to questions posed by this Panel regarding the shift from asset purchases to injecting capital, Treasury stated: ‘‘Given such market conditions, Secretary Paulson and Chairman Bernanke recognized that Treasury needed to use the authority and flexibility granted 

under the EESA as aggressively as possible to help stabilize the financial system. They determined the fastest, most direct way was to increase capital in the system by buying equity in 

healthy banks of all sizes. Illiquid asset purchases, in contrast, require much longer to execute.’’ 

U.S. Department of the Treasury, Responses to Questions of the First Report of the Congressional 

Oversight Panel for Economic Stabilization, at 56 (Dec. 30, 2008) (online at cop.senate.gov/documents/cop-010909-report.pdf). 34 2009 December Oversight Report, supra note 27, at 17–18. 35 Amount of assets held by each of these institutions was as of the third quarter 2008. Total 

amount of assets in the banking system were accessed through the FDIC’s Quarterly Banking 

profile as of the third quarter 2008. SNL Financial (accessed Mar. 3, 2011); Federal Deposit Insurance Corporation, Quarterly Banking Profile: Balance Sheet—Excel (online at www2.fdic.gov/ 

qbp/timeseries/BalanceSheet.xls) (accessed Mar. 3, 2011). 36On October 14, 2008, then Secretary Paulson stated that the nine initial Troubled Asset 

Relief Program (TARP) recipients ‘‘are healthy institutions, and they have taken this step for 

the good of the U.S. economy. As these healthy institutions increase their capital base, they will 

be able to increase their funding to U.S. consumers and businesses.’’ Statement by Secretary 

Paulson on Actions to Protect the U.S. Economy, supra note 33; U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending March 8, 2011 (Mar. 

10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarptransactions/DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203- 

8-11.pdf) (hereinafter ‘‘Treasury Transactions Report’’). 

U.S. history, the scale and breadth of the financial rescue authorized in EESA was unprecedented.32

Secretary Paulson and Chairman Bernanke had initially proposed using TARP funds to buy troubled assets on the books of the 

largest U.S. financial institutions; however, they soon decided that 

this was impractical given the need for quick action and the difficulty of structuring an auction process for purchasing such assets.33 On October 14, 2008, Secretary Paulson met with the heads 

of the nine largest U.S. banks to Washington and told them that 

Treasury would instead make direct capital injections into each of 

their institutions.34

2. Initial TARP Investments in the Largest Institutions 

The nine institutions that were the recipients of the initial round 

of TARP investments included the four largest U.S. commercial 

banks (JPMorgan, Bank of America, Citigroup, and Wells Fargo), 

the three largest investment banks (Goldman Sachs, Morgan Stanley, and Merrill Lynch), and the two largest custodian banks (State 

Street and BNY Mellon). At that time, these banks held $10.3 trillion in assets, representing more than 75 percent of all the assets 

in the American banking system.35 On October 28, 2008, Treasury 

purchased $125 billion of preferred stock in these nine institutions 

and by the end of 2008, Treasury had invested approximately 

$177.6 billion in banks through the Capital Purchase Program 

(CPP).36


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37 U.S. Department of the Treasury, Joint Statement by Treasury, Federal Reserve and the 

FDIC on Citigroup (Nov. 23, 2008) (online at www.treasury.gov/press-center/press-releases/ 

Pages/hp1287.aspx) (hereinafter ‘‘Statement by Treasury, Federal Reserve and the FDIC on 

Citigroup’’); Treasury Transactions Report, supra note 36; Board of Governors of the Federal Reserve System, Regulatory Reform: Citigroup (online at www.federalreserve.gov/newsevents/reformlciti.htm) (accessed Mar. 11, 2011); Board of Governors of the Federal Reserve System, 

Regulatory Reform: Bank of America (online at www.federalreserve.gov/newsevents/reformlboa.htm) (accessed Mar. 11, 2011) (hereinafter ‘‘Regulatory Reform: Bank of America’’). 38On November 23, 2008, the Treasury, Federal Reserve, and FDIC announced in a joint 

statement that they would provide further assistance to Citigroup in the form of an asset guarantee and an additional $20 billion preferred investment. The funds were disbursed to Citigroup 

on December 31, 2010 under a program first introduced on that day named the Targeted Investment Program (TIP). Similarly, the asset guarantee announced in November was not a part of 

a specific TARP initiative until the agreement was finalized on January 16, 2010 under the 

newly designated Asset Guarantee Program (AGP). Statement by Treasury, Federal Reserve and 

the FDIC on Citigroup, supra note 37; Treasury Transactions Report, supra note 36. 39 Regulatory Reform: Bank of America, supra note 37; U.S. Department of the Treasury, 

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and 

Bank of America Corporation, Termination Agreement, at 1–2 (Sept. 21, 2009) (online at 

www.treasury.gov/initiatives/financial-stability/investment-programs/agp/Documents/BofA%20- 

%20Termination%20Agreement%20-%20executed.pdf) (hereinafter ‘‘BofA Termination Agreement’’). 40Two Special Purpose Vehicles (SPVs), Maiden Lane II and Maiden Lane III, were created 

on December 12, 2008 as part of the federal government’s restructuring of its original assistance 

to AIG. These facilities were funded with loans from the Federal Reserve of $19.5 and $24.3 

billion respectively. Board of Governors of the Federal Reserve System, Regulatory Reform: 

American International Group (AIG), Maiden Lane II and III (online at www.federalreserve.gov/ 

newsevents/reformlaig.htm) (accessed Mar. 11, 2011) (hereinafter ‘‘Fed Regulatory Reform: 

AIG, Maiden Lane II and III’’). These TARP funds were later supplemented with a commitment 

of an additional $30 billion TARP commitment to AIG in April 2009. Treasury Transactions Report, supra note 36, at 21. 41 In total, $301 billion was outstanding under the TARP with $195.3 billion outstanding under the Capital Purchase Program (CPP), $40 billion outstanding under the TIP, $20.8 billion 

outstanding under the automotive portion of the program, $40 billion outstanding to AIG, and 

$5 billion in funds committed to the Citigroup asset guarantee. All but $70.3 billion of the $301 

billion outstanding was provided to thirteen institutions: Citigroup, Bank of America, 

JPMorgan, Wells Fargo, Goldman Sachs, Merrill Lynch, Morgan Stanley, Bank of New York, 

State Street, General Motors, GMAC, Chrysler, and Chrysler Financial. U.S. Department of the 

Treasury, Troubled Asset Relief Program Transaction Report for Period Ending January 30, 

2009 (Feb. 2, 2009) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/transactionlreportl02–02–09.pdf) (hereinafter ‘‘Treasury Transactions Report—January 2009’’). 

In addition to the initial capital investments made in the nation’s 

largest banks, Treasury undertook additional steps to ensure the 

stability of Citigroup and Bank of America in November and December 2008 by purchasing an additional $20 billion of preferred 

shares from both institutions under the Targeted Investment Program (TIP), a program that was utilized only for those two banks.37

Furthermore, in November, Treasury, in conjunction with the Federal Reserve and the FDIC, put together a hastily crafted $301 billion guarantee of Citigroup assets.38 A similar guarantee of $118 

billion of Bank of America assets was announced as well, although 

it was never legally finalized.39

Also in November, the federal government supplemented the 

original $85 billion loan to AIG and initiated a second round of assistance to AIG in which the TARP purchased $40 billion of preferred equity and the Federal Reserve provided $44 billion to create 

two special purpose vehicles (SPVs) to take ownership of certain 

AIG financial assets.40 Treasury also made its first investments in 

the automotive industry in late 2008 with loans and preferred 

stock purchases for General Motors, GMAC, Chrysler, and Chrysler 

Financial. By the end of January 2009, TARP assistance outstanding amounted to $301 billion with over 75 percent having 

been provided to only a few firms: the nation’s biggest banks, the 

automotive industry, and AIG.41


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42FOMC Statement and Board Approval of Discount Rate Requests, supra note 15; Board of 

Governors of the Federal Reserve System, FOMC Statement and Board Approval of Discount 

Rate Requests of Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco (Dec. 16, 2008) (online at www.federalreserve.gov/newsevents/press/ 

monetary/20081216b.htm). 43 Its level prior to the reduction was 100 basis points above the federal funds target rate. 

Board of Governors of the Federal Reserve System, Federal Reserve Board Discount Rate Action 

(Aug. 17, 2007) (online at www.federalreserve.gov/newsevents/press/monetary/20070817a.htm). 

The Federal Reserve subsequently lowered this interest rate to 25 basis points above the federal 

funds target rate in March 2008. See, e.g., Board of Governors of the Federal Reserve System, 

FOMC Statement and Board Approval of Discount Rate Requests of the Federal Reserve Banks 

of Boston, New York, and San Francisco (Mar. 18, 2008) (online at www.federalreserve.gov/ 

newsevents/press/monetary/20080318a.htm). The discount window ‘‘functions as a safety valve 

in relieving pressures in reserve markets; extensions of credit can help relieve liquidity strains 

Continued 

It was in this climate that the Panel began its oversight work. 

The unprecedented financial crisis and the corresponding government intervention left many questions. What steps would be taken 

to ensure accountability from TARP recipients? How would Treasury make certain that its actions were transparent and that the 

taxpayer be fairly compensated for the risk they were taking? What 

steps would Treasury take to stem the tide of foreclosures that was 

having a debilitating effect on American families and neighborhoods? The Panel laid out these central concerns in its first two reports and, throughout its existence, has consistently used its oversight authorities to focus attention on these questions. 

B. Overview of Government Efforts 

In response to the financial crisis, Congress, the Federal Reserve, 

Treasury, and the FDIC worked both independently and in concert 

with other agencies to implement a variety of policies and initiatives aimed at ensuring financial stability. In addition to the direct 

expenditures Treasury made through the TARP, the federal government also engaged in a broad array of programs directed at stabilizing the economy. Many of these programs explicitly augmented 

Treasury’s TARP initiatives, like asset guarantees for Citigroup 

and Bank of America, or relied on cooperation, such as the Federal 

Reserve and Treasury working in tandem to create programs such 

as the Term Asset-Backed Securities Loan Facility (TALF). Other 

programs, like the Federal Reserve’s extension of credit through its 

section 13(3) facilities and SPVs or the FDIC’s Temporary Liquidity 

Guarantee Program (TLGP), stood independent of the TARP and 

sought to accomplish different, but related, goals. Given that all of 

these programs provided support to the largest banks, they had an 

interactive effect and clearly affected the performance of each separate program. Figure 6 illustrates the interconnectedness of certain 

financial stability programs. 

1. Federal Reserve 

The policy response to the financial crisis ran the gamut from the 

use of traditional monetary policy to the creation of unprecedented 

credit and liquidity measures. From September 2007 to December 

2008, the Federal Reserve steadily lowered the federal funds rate 

from 5.25 percent to its December 2008 target of 0 to 0.25 percent.42 Furthermore, in August 2007 the Federal Reserve lowered 

the interest rate it charged banks for loans through its discount 

window above the federal funds target rate to 50 basis points.43 It 


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in a depository institution and in the banking system as a whole. The Window also helps ensure 

the basic stability of the payment system more generally by supplying liquidity during times 

of systemic stress.’’ Board of Governors of the Federal Reserve System, The Federal Reserve Discount Window (Feb. 19, 2010) (online at www.frbdiscountwindow.org/ 

discountwindowbook.cfm?hdrID=14&dtlID=43). 44 Chairman Bernanke stated that, ‘‘In August 2007 . . . banks were reluctant to rely on discount window credit to address their funding needs. The banks’ concern was that their recourse 

to the discount window, if it became known, might lead market participants to infer weakness— 

the so-called stigma problem.’’ Federal Reserve Bank of New York, Stigma in Financial Markets: 

Evidence from Liquidity Auctions and Discount Window Borrowing During the Crisis, at 1 (Jan. 

2011) (online at www.newyorkfed.org/research/staff_reports/sr483.pdf). 45 Board of Governors of the Federal Reserve System, Regulatory Reform: Usage of Federal Reserve Credit and Liquidity Facilities (online at www.federalreserve.gov/newsevents/reformltransaction.htm) (accessed Mar. 11, 2011). 46 Board of Governors of the Federal Reserve System, Regulatory Reform: Commercial Paper 

Funding Facility (online at www.federalreserve.gov/newsevents/reformlcpff.htm) (accessed Mar. 

11, 2011) (hereinafter ‘‘Fed Regulatory Reform: Commercial Paper Funding Facility’’); Board of 

Governors of the Federal Reserve System, Loans to CPFF LLC (Instrument Used: CPFF commercial paper holdings, net) (online at www.federalreserve.gov/newsevents/files/cpff.xls) 

(accessed Mar. 11, 2011). 47Primary Dealers are banks and securities firms that serve as counterparties for FRBNY in 

the management of its open market operations. Fed Regulatory Reform: Commercial Paper 

Funding Facility, supra note 46; Board of Governors of the Federal Reserve System, Regulatory 

Reform: Glossary of Terms (online at www.federalreserve.gov/newsevents/reform_glossary.htm#primarydealers) (accessed Mar. 11, 2011). 48The Federal Reserve also introduced the Money Market Investor Funding Facility on October 21, 2008. However, this facility was never used and closed on October 30, 2009. See Board 

of Governors of the Federal Reserve System, Regulatory Reform: Money Market Investor Funding Facility (online at www.federalreserve.gov/newsevents/reformlmmiff.htm) (accessed Mar. 

11, 2011). 

also expanded the list of securities banks could post to draw down 

these loans through the discount window. While the discount window is an important monetary tool in normal economic conditions, 

there were two problems that limited its effectiveness in late 2007: 

(1) There was a fear in the market that companies accessing the 

discount window would have a stigma attached to them,44 and (2) 

only banks could access the discount window. 

The Federal Reserve took actions to solve both of these issues. 

First, the Term Auction Facility (TAF) was created in order to 

allow banks to access funding anonymously through a bidding process. Second, the Federal Reserve created a number of new programs under section 13(3) of the Federal Reserve Act aimed at expanding access to liquidity beyond banks.45 These programs included: 

• The Commercial Paper Funding Facility (CPFF)—a facility for 

corporations to roll over their maturing commercial paper debt. 

At its maximum, nearly $350 billion was outstanding under 

the facility.46

• Support for Primary Dealers through the Primary Dealer Credit Facility (PDCF), an overnight loan facility for Primary Dealers, and the Term Securities Lending Facility (TSLF), a program that loaned Primary Dealers relatively liquid securities 

such as U.S. Treasury bonds in exchange for less liquid securities such as residential mortgage-backed security (RMBS).47

• Support for the money market mutual funds through the 

Asset-Backed Commercial Paper Money Market Mutual Fund 

Liquidity Facility (AMLF).48 During the crisis, withdrawals 

from money market mutual funds caused the funds to sell the 

asset-backed commercial paper they held at discounted levels 

to meet liquidity needs. Under the AMLF, the Federal Reserve 

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49To offset some of the impact of the Federal Reserve’s liquidity programs, Treasury announced on September 17, 2008, the Supplementary Financing Program—a program expected 

to be temporary in nature but that would allow Treasury to auction bills to various financial 

institutions with relationships with the Federal Reserve. The program consisted of a series of 

Treasury bill auctions, separate and distinct from Treasury’s standard borrowing operations. 

The proceeds from these auctions were maintained in a Treasury account held at the Federal 

Reserve Bank of New York. As a result, funds would flow from a particular bank’s account with 

the Fed to Treasury’s account with the Fed. The program was created in order to help the Federal Reserve manage the significant increase in the size of its balance sheet due to its newly 

created liquidity programs. U.S. Department of the Treasury, Treasury Announces Supplementary Financing Program (Sept. 17, 2008) (online at www.treasury.gov/press-center/press-releases/Pages/hp1144.aspx); Federal Reserve Bank of Cleveland, The Supplemental Financing 

Program (Sept 28, 2009) (online at www.clevelandfed.org/research/trends/2009/1009/ 

03monpol.cfm). 50 Bear Stearns was unable to fulfill its liquidity needs, and in response, the Federal Reserve authorized a $12.9 billion loan to the company. Although the loan was repaid in full with interest, continued pressure on the firm made it clear that without either a large infusion of capital 

or a sale, the firm would likely fail. Board of Governors of the Federal Reserve System, Regulatory Reform: Bear Stearns, JPMorgan Chase, and Maiden Lane LLC (online at 

www.federalreserve.gov/newsevents/reformlbearstearns.htm) (accessed Mar. 11, 2011) (hereinafter ‘‘Fed Regulatory Reform: Bear Stearns, JPMorgan Chase, and Maiden Lane LLC’’). 51The Maiden Lane facilities were named for the street behind the FRBNY building in Manhattan, New York. As of March 3, 2011, the net portfolio holdings of the Maiden Lane vehicles 

are $26.1 billion while the amount due to FRBNY, including accrued interest, is $24.7 billion. 

Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) 

(Mar. 3, 2011) (online at www.federalreserve.gov/releases/h41/20110303/); Fed Regulatory Reform: Bear Stearns, JPMorgan Chase, and Maiden Lane LLC, supra note 50. 52The Federal Reserve Act of 1913 provides for the central bank to take broad action in the 

face of financial or economic crisis. Section 13, paragraph 3 of the Act states that ‘‘[i]n unusual 

and exigent circumstances, the Board of Governors of the Federal Reserve System’’ may lend 

to any individuals, partnerships or corporations, given that certain conditions are met. On 

March 16, 2008, the Federal Reserve Board announced that it would use its authority under 

section 13(3) of the Federal Reserve Act to help facilitate the acquisition of Bear Stearns by 

JPMorgan Chase. The Federal Reserve provided this assistance by creating a Limited Liability 

Company (LLC) named Maiden Lane that then received a $28.8 billion loan from FRBNY to 

purchase troubled assets from Bear Stearns. Subsequently, in September 2008, the Federal Reserve used its authority under section 13(3) of the Act to assist AIG. This assistance came in 

the form of a $85 billion credit facility for AIG and the creation as well as funding of two more 

Maiden Lane SPVs dedicated to purchasing troubled assets from the company. Federal Reserve 

Bank of Minneapolis, The History of a Powerful Paragraph (June 2008) (online at 

www.minneapolisfed.org/publicationslpapers/publdisplay.cfm?id=3485); Federal Reserve Bank 

of New York, Maiden Lane Transactions: Introduction (online at www.newyorkfed.org/markets/ 

maidenlane.html) (accessed Mar. 8, 2011). 

backed commercial paper, thereby fostering liquidity in the 

market. • Support for the securitization market through the TALF. 

Under the TALF, the Federal Reserve provided holders of eligible asset-backed securities (ABS) with loans, using the ABS as 

collateral. The intent of the program was to use TALF borrowers as conduits for enhanced liquidity by providing loans to 

those entities that served as issuers and sponsors of ABS. At its height, $1.7 trillion was outstanding under the Federal Reserve’s liquidity facilities.49

As noted earlier, in March 2008, the financial condition of Bear 

Stearns, an investment bank with assets of $400 billion, began to 

worsen rapidly and the Federal Reserve intervened to facilitate the 

purchase of Bear Stearns by JPMorgan Chase.50 The Federal Reserve did so by creating a limited liability company (LLC) named 

Maiden Lane that acquired a portion of Bear Stearns’ assets.51 The 

Federal Reserve Bank of New York (FRBNY) extended approximately $30 billion of credit to the Maiden Lane vehicle to purchase 

the securities.52

The Federal Reserve also undertook considerable asset purchases 

in response to the crisis. Between November 2008 and March 2010, 

the Federal Reserve purchased $1.25 trillion of MBS with government agency guarantees in an attempt to drive down mortgage 


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53See Congressional Oversight Panel, September Oversight Report: Assessing the TARP on the 

Eve of Its Expiration, at 99–100 (Sept. 16, 2010) (online at cop.senate.gov/documents/cop-091610- 

report.pdf) (hereinafter ‘‘2010 September Oversight Report’’); Board of Governors of the Federal 

Reserve System, Data Download Program (Instrument Used: Mortgage-Backed Securities Held 

by the Federal Reserve) (online at www.federalreserve.gov/datadownload/) (accessed Mar. 3, 

2011). 54 At its height, on March 31, 2010, the Federal Reserve owned $169 billion of GSE debt. 

Board of Governors of the Federal Reserve System, Data Download Program (Instrument Used: 

Federal agency debt securities: week average) (online at www.federalreserve.gov/datadownload/ 

) (accessed Mar. 3, 2011). 55Federal Reserve Liquidity Facilities are comprised of Term auction credit, Secondary credit, 

Seasonal credit, Term Asset-Backed Securities Loan Facility, Other credit extensions, Net portfolio holdings of Commercial Paper Funding Facility LLC, Central bank liquidity swaps, Primary dealer and other broker-dealer credit, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Term facility. The Federal Reserve Mortgage Asset Purchases are 

comprised of federal agency debt securities and mortgage-backed securities held by the Federal 

Reserve. Board of Governors of the Federal Reserve System, Data Download Program (online 

at www.federalreserve.gov/datadownload/) (accessed Mar. 3, 2011). 56Federal Deposit Insurance Corporation, FDIC Mission, Vision, and Values (online at 

www.fdic.gov/about/mission/index.html) (accessed Mar. 3, 2011). 57This figure includes the $307 billion of assets Washington Mutual held when it was seized 

by regulators on September 25, 2008. The institution’s banking assets were purchased by 

JPMorgan Chase the following day in a deal facilitated by the FDIC. Federal Deposit Insurance 

Corporation, Failures and Assistance Transactions (online at www2.fdic.gov/hsob/ 

SelectRpt.asp?EntryTyp=30) (accessed Mar. 4, 2011); Federal Deposit Insurance Corporation, 

rates and by doing so provided additional liquidity to financial institutions, including TARP participants.53 The Federal Reserve also 

purchased nearly $175 billion of GSE debt.54 As Figure 5 below illustrates, the purchase of agency MBS and GSE debt steadily increased as the liquidity facilities established at the height of the 

crisis were wound down, thus signaling a shift from crisis response 

to economic stimulus. 

FIGURE 5: FEDERAL RESERVE LIQUIDITY FACILITIES AS COMPARED TO ASSET 

PURCHASES 55

2. FDIC 

In keeping with its mission to ‘‘maintain stability and public confidence in the nation’s financial system,’’ the FDIC undertook a 

number of measures in response to the financial crisis.56 The FDIC 

experienced significant losses to its Deposit Insurance Fund during 

the crisis due to the high number of bank failures. From the third 

quarter of 2008 through 2010, 318 banks failed in the United 

States with total assets of $631.7 billion.57 During that same peVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00028 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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JPMorgan Chase Acquires Banking Operations of Washington Mutual (Sept. 25, 2008) (online 

at www.fdic.gov/news/news/press/2008/pr08085.html). 58This figure only reflects information provided through the third quarter of 2010. Federal 

Deposit Insurance Corporation, DIF Income Statement (Instrument Used: Provision for insurance losses, Q3 2008 through Q3 2010) (online at www.fdic.gov/about/strategic/corporate/ 

index.html) (hereinafter ‘‘FDIC: DIF Income Statement’’). 59Federal Deposit Insurance Corporation, Emergency Economic Stabilization Act of 2008 Temporarily Increases Basic FDIC Insurance Coverage from $100,000 to $250,000 Per Depositor (Oct. 

7, 2008) (online at www.fdic.gov/news/news/press/2008/pr08093.html). 60 Congressional Oversight Panel, November Oversight Report: Guarantees and Contingent 

Payments in TARP and Related Programs, at 38 (Nov. 6, 2009) (online at cop.senate.gov/ 

documents/cop-110609-report.pdf) (hereinafter ‘‘2009 November Oversight Report’’). 61The maximum amount outstanding under this program was in May 2009. The current 

amount outstanding is as of January 31, 2011. Federal Deposit Insurance Corporation, Monthly 

Reports Related to the Temporary Liquidity Guarantee Program (Instrument Used: Debt 

Issuance Under Guarantee Program) (accessed Mar. 3, 2011) (online at www.fdic.gov/ 

regulations/resources/tlgp/reports.html) (hereinafter ‘‘FDIC: Monthly Reports Related to the 

TLGP’’). 62 U.S. Department of the Treasury, Fact Sheet: GSE Mortgage Backed Securities Purchase 

Program (Sept. 7, 2008) (online at www.treasury.gov/press-center/press-releases/Documents/ 

mbs_factsheet_090708.pdf). 63 U.S. Department of the Treasury, Agency MBS Purchase Program (Instrument Used: 

Trades by Month) (www.treasury.gov/resource-center/data-chart-center/Documents/ 

Final%20Trades%20by%20month.pdf). As of February 2011, Treasury has received $84.0 billion 

in principal repayments and $16.7 billion in interest payments from the securities it holds as 

part of this program. U.S. Department of the Treasury, MBS Purchase Program Principal and 

Interest Received (online at www.treasury.gov/resource-center/data-chart-center/Documents/ 

February%202011%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf) 

(accessed Mar. 11, 2011). 

riod, the FDIC set aside provisions for deposit insurance fund 

losses totaling $185.7 billion.58 In addition, the enactment of EESA 

in October 2008 raised the basic limit on federal deposit insurance 

coverage from $100,000 per borrower to $250,000.59

The FDIC created its TLGP less than two weeks after the enactment of EESA, under the authority of the Federal Deposit Insurance Act. The TLGP had two parts. First, the Debt Guarantee Program (DGP) portion of the TLGP guarantees debt issued by banks. 

Second, the Transaction Account Guarantee Program (TAG) guaranteed certain noninterest-bearing transaction accounts at insured 

depository institutions.60 Though it covered all depository accounts, 

the TAG program was intended to benefit business payment processing accounts, such as payroll accounts. The FDIC currently 

guarantees approximately $264.6 billion in outstanding financial 

institution obligations, and at its maximum $345.8 billion was 

guaranteed under the program.61 Through both the TLGP and the 

expansion of deposit insurance, the FDIC provided significant additional support for the banking system at the peak of the crisis. 

3. Treasury Department 

In addition to the TARP, Treasury undertook several other highly important initiatives in response to the financial crisis. On September 7, 2008, Treasury announced that it would purchase government sponsored enterprises’ mortgage backed securities (GSE 

MBS) in an attempt to promote both market stability and lower interest rates.62 At its maximum, Treasury owned $220.8 billion in 

MBS under this program.63 Furthermore, on September 29, 2008, 

Treasury announced a temporary guarantee for MMFs. While the 

total size of the money market at that point in time was $3.7 trillion, no losses were incurred and the program was closed on SepVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00029 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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64The size of the MMFs was $3.66 trillion in June 2009. IMMFA: Frequently Asked Questions, supra note 27; U.S. Department of the Treasury, Treasury Announces Expiration of Guarantee Program for Money Market Funds (Sept. 18, 2009) (online at www.treasury.gov/presscenter/press-releases/Pages/tg293.aspx) (hereinafter ‘‘Treasury’s Guarantee Program for Money 

Market Funds Expires’’). 65 Conservatorship is the legal process by which an entity establishes control and oversight 

of a company to put it in a sound and solvent condition. Congressional Budget Office, CBO’s 

Budgetary Treatment of Fannie Mae and Freddie Mac (Jan. 2010) (online at www.cbo.gov/ 

ftpdocs/108xx/doc10878/01-13-FannieFreddie.pdf) (hereinafter ‘‘CBO: Fannie Mae and Freddie 

Mac’’). 66 At the end of the third quarter 2008, Fannie Mae’s mortgage credit exposure was $3.1 trillion, and Freddie Mac’s exposure was $2.2 trillion. Federal National Mortgage Association, Form 

10–Q for the Quarterly Period Ended September 30, 2008, at 110–111 (Instrument Used: Mortgage credit book of business) (Nov. 10, 2008) (online at www.sec.gov/Archives/edgar/data/310522/ 

000095013308003686/w71392e10vq.htm#131); Federal Home Loan Mortgage Corporation, Form 

10–Q for the Quarterly Period Ended September 30, 2008, at 99 (Instrument Used: Total mortgage portfolio) (Nov. 14, 2008) (online at www.sec.gov/Archives/edgar/data/1026214/ 

000102621408000043/f65508e10vq.htm). 67 U.S. Department of the Treasury, Fact Sheet: Treasury Senior Preferred Stock Purchase 

Agreement (Sept. 7, 2008) (online at www.treasury.gov/press-center/press-releases/Documents/ 

pspa_factsheet_090708%20.pdf) (hereinafter ‘‘Treasury Fact Sheet on Senior Preferred Stock’’). 68 House Financial Services, Subcommittee on Capital Markets, Insurance, and GovernmentSponsored Enterprises, Written Testimony of Edward J. DeMarco, acting director, Federal Housing Finance Agency, The Future of Housing Finance: A Progress Update on the GSEs, at 2 (Sept. 

15, 2010) (online at financialservices.house.gov/Media/file/hearings/111/DeMarco091510.pdf). 69Treasury Fact Sheet on Senior Preferred Stock, supra note 67. 70Treasury Fact Sheet on Senior Preferred Stock, supra note 67. 71 U.S. Department of the Treasury, Statement by Secretary Tim Geithner on Treasury’s Commitment to Fannie Mae and Freddie Mac (Feb. 2, 2009) (online at www.treasury.gov/ 

press-center/press-releases/Pages/tg32.aspx); U.S. Department of the Treasury, Treasury Issues 

tember 18, 2009, with Treasury having earned $1.2 billion in participation fees.64

In early September 2008, the FHFA, using authority it had been 

provided in law only six weeks earlier, placed the two large GSEs, 

Fannie Mae and Freddie Mac, in conservatorship, and Treasury 

agreed to provide capital infusions to these mortgage giants.65 At 

that time, these two GSEs owned or guaranteed approximately 

$5.3 trillion in mortgage assets.66 The FHFA placed Fannie Mae 

and Freddie Mac into conservatorship on September 7, 2008, in 

order to preserve each company’s assets and to restore them to 

sound and solvent condition. Secretary Paulson announced Treasury’s intention to make capital injections (through the purchase of 

preferred interests) in the GSEs in order to preserve their positive 

net worth.67 Due to these coordinated actions, Treasury had guaranteed the GSE’s debts, and FHFA had all the powers of the management, board, and shareholders of the enterprises.68 In sum, 

these actions had the effect of changing the previously implicit government guarantee of these institutions into an explicit government guarantee. Initially, Treasury acquired $1 billion in preferred stock from 

both Fannie Mae and Freddie Mac. Subsequently both entities 

drew upon this assistance by providing preferred stock with a dividend rate of 10 percent (double the initial dividend rate for participation in the CPP) in exchange for cash investments from Treasury. Furthermore, Treasury received warrants to purchase common 

stock in the GSEs, representing 79.9 percent of the common ownership when exercised.69 The preliminary ceiling for the amount of 

preferred stock Treasury would purchase was $100 billion for each 

of the GSEs.70 In February 2009, the ceiling for preferred stock 

purchases was raised to $200 billion for each GSE, and in December 2009, Treasury removed the cap on possible purchases entirely.71 As of February 2011, the GSEs had drawn $153.9 billion 


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Update on Status of Support for Housing Programs (Dec. 24, 2009) (online at www.treasury.gov/ 

press-center/press-releases/Pages/2009122415345924543.aspx) (hereinafter ‘‘Treasury Update on 

Housing Programs’’). 72This figure excludes the $2 billion in preferred stock given to Treasury by the GSEs upon 

the creation of these facilities. Fannie Mae had drawn $90.2 billion and Freddie Mac had drawn 

$63.7 billion under their respective facilities. Thus far, Fannie Mae has paid $10.2 billion and 

Freddie Mac has paid $10.0 billion in dividends for their draws from the preferred facilities. 

Federal Housing Finance Agency, Treasury and Federal Reserve Purchase Programs for GSE 

and Mortgage-Related Securities, at 2–3 (Feb. 25, 2011) (online at www.fhfa.gov/webfiles/19854/ 

TreasFED02252011%20pdf%20-%20Adobe%20Acrobat%20Pro.pdf) (hereinafter ‘‘Treasury & Federal Reserve Purchase Programs for GSE and Mortgage-Related Securities’’). 73 CBO: Fannie Mae and Freddie Mac, supra note 65, at 8–9. 74 Absent government intervention, the GSEs would have been unable to honor their MBS 

guarantees, and therefore the value of these MBS securities would have plummeted. Treasury 

Update on Housing Programs, supra note 71. 75The TARP is currently only responsible for losses up to $4.3 billion. Treasury Transactions 

Report—January 2009, supra note 41. 76 Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America 

regarding a Guarantee similar to the one provided to Citigroup, the parties never reached an 

agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee had been in place during the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to the Federal Reserve, and 

$92 million to the FDIC. BofA Termination Agreement, supra note 39, at 1–2. 

under the Treasury preferred facility and paid $20.2 billion in dividends.72 Earlier, in January 2010, the Congressional Budget Office 

(CBO) had estimated the total cost to the government for assistance to Fannie Mae and Freddie Mac to be $389 billion, a figure 

which included ‘‘the recognition of substantial losses on the entire 

outstanding stock of mortgages held or guaranteed by Fannie Mae 

and Freddie Mac’’ at the time the estimate was made in August 

2009.73

From a larger perspective, TARP-assisted institutions were also 

among the many beneficiaries of the federal government’s rescue of 

the GSEs themselves. Given the large holdings of GSE securities 

at the largest TARP-assisted institutions, the federal government’s 

rescue of Fannie Mae and Freddie Mac effectively served to prevent 

additional major losses at these institutions. As noted above, one 

result of the federal government’s intervention to place Fannie Mae 

and Freddie Mac in conservatorship in September 2008 was that 

their MBS and debt issues now enjoyed the effective guarantee of 

the federal government.74 By first making explicit the federal support for these GSE securities and subsequently buying up to $1.25 

trillion of the same securities, Treasury and the Federal Reserve 

effectively provided substantial economic benefit to the TARP-assisted banks that went well beyond the amounts reflected in the accounting for the TARP itself. 

4. Coordinated Action 

As mentioned above, there were a number of initiatives that 

called for cooperative action between government actors. Figure 6 

below illustrates this interaction. For example, the TALF was a cooperative program between Treasury and the Federal Reserve in 

which the TARP took a first-loss position on any losses associated 

with TALF loans, originally up to $20 billion, with the Federal Reserve responsible for losses above that level.75 Similarly, Citigroup 

and Bank of America benefitted from an asset guarantee in which 

Treasury, the FDIC, and the Federal Reserve all accepted risk liability for losses above a certain level.76 Additionally, as discussed 

in Section VI of this report, AIG was the beneficiary of a coordiVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00031 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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77This figure does not reflect that Fannie Mae and Freddie Mac were placed into conservatorship by their regulator, the Federal Housing Finance Agency, on September 7, 2008. Federal 

Housing Finance Agency, Statement of FHFA Director James B. Lockhart (Sept. 7, 2008) (online 

at www.fhfa.gov/webfiles/23/FHFAStatement9708final.pdf); Congressional Research Service, 

Government Interventions in Response to Financial Turmoil (Dec. 16, 2010). 78 Board of Governors of the Federal Reserve System, Federal Reserve, OCC, and FDIC Release Results of the Supervisory Capital Assessment Program (May 7, 2009) (online at 

www.federalreserve.gov/newsevents/press/bcreg/20090507a.htm). 79 Board of Governors of the Federal Reserve System, Federal Reserve Board Makes Announcement Regarding the Supervisory Capital Assessment Program (SCAP) (Nov. 9, 2009) (online at 

www.federalreserve.gov/newsevents/press/bcreg/20091109a.htm) (hereinafter ‘‘Federal Reserve 

Announcement on the Supervisory Capital Assessment Program’’). 

nated effort between the TARP and the Federal Reserve, with $182 

billion of funds being committed at the height of assistance. 

FIGURE 6: GOVERNMENT RESPONSE TO FINANCIAL CRISIS BY ORGANIZATION 77

Finally, the Federal Reserve, the FDIC, and the Comptroller of 

the Currency released the Supervisory Capital Assessment Program (SCAP), more commonly known as the ‘‘stress tests,’’ on May 

7, 2009. This forward-looking analysis was intended to determine 

whether or not the nation’s 19 largest bank holding companies 

(BHCs) could withstand adverse economic conditions.78 Under the 

SCAP, only one institution, GMAC/Ally Financial, was found to be 

in need of additional government-provided capital, which was provided under the automotive portion of the TARP. The review, however, did note that roughly half of the firms needed to take steps, 

including raising capital, to be more adequately prepared for possible losses.79


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FIGURE 7: TOTAL FEDERAL GOVERNMENT EXPOSURE TO SCAP BANK HOLDING COMPANIES 

[Dollars in billions] 

TARP i FDIC Federal Reserve 

Total Federal 

Exposure CPP AGP TIP AIFP TLGP Debt Issuance ii AGP iii Liquidity Programsiv PDCF CPFF TAF TSLF vi AGP v

Bank of America .................... $25.0 $5.0 $20.0 — $68.6 $5.0 $9.3 $14.9 $88.0 $13.1 $87.2 $336.1 Citigroup ................................. 25.0 5.0 20.0 — 66.4 $10.0 21.3 24.9 25.0 34.0 244.5 476.2 JPMorgan Chase ..................... 25.0 — — — 40.6 — vii 3.0 — 48.0 13.0 .................... 129.6 

Wells Fargo ............................. 25.0 — — — 9.7 — — — 72.5 — .................... 107.2 American Express ................... 3.4 — — — 5.9 — — 4.5 — — .................... 13.8 Bank of New York Mellon ....... 3.0 — — — 0.6 — — — — — .................... 3.6 BB&T Financial ...................... 3.1 — — — — — — — 8.5 — .................... 11.6 Capital One Financial ............ 3.6 — — — — — — — — — .................... 3.6 Regions Financial ................... 3.5 — — — 3.8 — — — 13.0 — .................... 20.3 KeyCorp ................................... 2.5 — — — 1.9 — — — 9.5 — .................... 13.9 State Street ............................ 2.0 — — — 4.1 — — 8.5 10.0 — .................... 24.6 SunTrust ................................. 4.9 — — — 3.6 — — — 3.5 — .................... 11.9 PNC Financial Services .......... 7.6 — — — 3.9 — — 0.4 2.0 — .................... 13.9 Goldman Sachs ...................... 10.0 — — — 28.6 — 16.5 * — 34.5 .................... 89.6 Morgan Stanley ...................... 10.0 — — — 24.5 — 60.2 4.3 — 36.0 .................... 135.0 US Bancorp ............................ 6.6 — — — 3.9 — — — — — .................... 10.5 Fifth Third Bancorp ................ 3.4 — — — — — — 0.3 7.3 — .................... 11.0 Ally Financial/GMAC ............... — — — 17.2 7.4 — — 7.9 5.0 — .................... 37.5 MetLife viii .............................. — — — — 0.4 — — 1.6 2.8 — .................... 4.8 

Total .............................. $163.5 $10.0 $40.0 $17.2 $273.8 $15.0 $110.2 $67.4 $295.1 $130.6 $331.7 $1,454.6 

*Amount less than $50 million. See endnote references in Annex III: Endnotes 


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80 At its peak, the Federal Reserve had purchased $1.1 trillion of Fannie Mae and Freddie 

Mac MBS. These MBS are guaranteed by Fannie Mae and Freddie Mac and those two institutions in turn have been placed into conservatorship and had the entirety of their debts guaranteed by Treasury. Hence, while this graph represents the federal government’s financial exposure to the MBS held by the Federal Reserve as part of the Federal Reserve’s balance sheet, 

there is an open question as to what agency of the federal government is ultimately bearing 

the risk entailed in holding these securities. In a May 2010 Report, as part of a larger review 

of the Federal Reserve’s actions during the financial crisis, CBO concluded that ‘‘Direct Purchases of Securities’’ (including MBS) of the Federal Reserve that had been made up to that 

time did not expose the federal government to any subsidy cost. This analysis was done on a 

risk-adjusted basis and implies that there was no risk of loss to the Federal Reserve from these 

MBS purchases. Treasury & Federal Reserve Purchase Programs for GSE and Mortgage-Related 

Securities, supra note 72, at 2–3; Congressional Budget Office, The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis (May 2010) (www.cbo.gov/ 

doc.cfm?index=11524&zzz=40793). 81The Federal Reserve total is comprised of the following: Term auction credit, Secondary 

credit, Seasonal credit, Term Asset-Backed Securities Loan Facility, Other credit extensions, Net 

portfolio holdings of Commercial Paper Funding Facility LLC, Central bank liquidity swaps, Primary dealer and other broker-dealer credit, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Term facility, federal agency debt securities, mortgage-backed securities held by the Federal Reserve, Credit extended to American International Group, Inc., Net 

portfolio holdings of Maiden Lane II LLC, Net portfolio holdings of Maiden Lane III LLC, and 

Preferred interests in AIA Aurora LLC and ALICO Holdings LLC. Board of Governors of the 

Federal Reserve System, Data Download Program: Factors Affecting Reserve Balances (H.4.1) 

(Instrument Used: Weekly Average) (Mar. 3, 2011) (online at www.federalreserve.gov/releases/ 

h41/20110203/). The TARP total uses the amounts outstanding at the end of each month as reported on Treasury’s Monthly 105(a) Reports to Congress. The total amount committed under 

the HAMP and the SSFI/AIGIP is used rather than the outstanding amount in order to reflect 

more accurately the TARP’s assistance. U.S. Department of the Treasury, Monthly 105(a) Reports to Congress (Dec. 5, 2008–Feb. 10, 2011) (online at www.treasury.gov/initiatives/financialstability/briefing-room/reports/105/Pages/default.aspx). The FDIC total is comprised of the 

amounts outstanding under the Temporary Liquidity Guarantee Program (TLGP), the quarterly 

amounts outstanding on the Deposit Insurance Fund’s balance sheet for ‘‘liabilities due to resolutions’’ and ‘‘contingent liabilities: future failures,’’ and the FDIC’s exposure to the Bank of 

America and Citigroup asset guarantees. This figure represents the FDIC’s actual balance sheet 

holdings for ‘‘liabilities due to resolutions’’ and ‘‘contingent liabilities: future failures’’ in the 

third and fourth quarters of 2008; the first, second, third, and fourth quarters of 2009; and the 

In conjunction with its oversight mandate, the Panel has done its 

own accounting of the total resources that the federal government 

has devoted to stabilizing the economy through the programs and 

initiatives outlined above. A complete accounting of the government’s current maximum exposure from these financial stability efforts can be found in Annex I. 

FIGURE 8: GOVERNMENT EXPOSURE TO FINANCIAL STABILITY EFFORTS 80

Figure 8 81 above shows the actual monthly amounts outstanding 

for all three agencies’ (TARP, FDIC, and the Federal Reserve) staVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00034 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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first, second, and third quarters of 2010. FDIC: DIF Income Statement, supra note 58; FDIC: 

Monthly Reports Related to the TLGP, supra note 61. 82For example, reports on small business lending and foreclosures and housing have important implications for banks’ health and the stability of the financial system in general. 83 In Sections II.B and II.C, infra, this report discusses additional types of Treasury actions 

intended to foster bank stability. 84 Congressional Oversight Panel, February Oversight Report: Valuing Treasury’s Acquisitions, 

at 2–11 (Feb. 6, 2009) (online at cop.senate.gov/documents/cop-020609-report.pdf) (hereinafter 

‘‘2009 February Oversight Report’’). 85The Duff & Phelps analysis was done for the ten largest TARP transactions and compared 

the amount of the government’s investment with the value of the preferred stock and the warrants it received in return in each transaction. Since these were not publicly traded securities, 

the valuation had to make a variety of assumptions and make comparisons with a specific set 

of private deals. The study concluded that every time Treasury spent $100, it took back assets 

that were worth, on average, $66. This difference would equal a $78 billion shortfall for the $254 

billion spent on these deals. See Section II.A.2 below for further analysis. 

bilization efforts since November 2008. At its height, $2.4 trillion 

was outstanding under the financial rescue programs conducted by 

these agencies. While significant, TARP funds outstanding never 

represented more than 19 percent of the total government stability 

efforts. 

II. Banks 

A. Capital Infusions and Bank Balance Sheets 

1. Summary of COP Reports and Findings 

Since banks are the principal actors in most financial systems 

and were at the center of many of Treasury’s TARP interventions, 

a substantial majority of the Panel’s reports addressed the banking 

sector in some fashion.82 The six reports discussed in this section 

(II.A), however, predominantly addressed issues arising out of one 

of Treasury’s central strategies for the banking sector during the 

crisis: Treasury’s (and, as applicable, the Federal Reserve’s) focus 

on the health of bank balance sheets and Treasury’s attempts to 

foster bank stability through capital infusions in the form of equity 

investments.83 The questions that the Panel raised in its first two 

reports, including the means for ensuring accountability and transparency from TARP recipients (such as the tracking of TARP 

funds) and the methods for the taxpayer to be fairly compensated 

for the risk they were taking, run solidly through the Panel’s reports on banks. 

a. Treasury as Investor and Recovery for the Taxpayer 

The Panel’s reports on the banking sector have consistently focused on returns to the taxpayer from Treasury’s investments and 

the valuation of the assets received by Treasury for the equity investments it made. Prior to the first CPP repayments, the Panel 

addressed the problem of valuation broadly and published a report 

assessing Treasury’s investment to determine whether the taxpayers had received a fair deal.84 The February 2009 report provided a financial valuation and legal analysis of the terms of Treasury’s investment in the participating financial institutions and concluded that, partially because all investments were made on the 

same terms, Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value.85

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86The legal analysis study, performed by Timothy Massad and Catherina Celosse, found that 

the standardized documentation used by Treasury likely contributed to Treasury’s ability to obtain speed of execution and wide participation, both important program goals. 2009 February 

Oversight Report, supra note 84, at 40–50. At the time of this report, Mr. Massad was a corporate lawyer at a New York-based law firm. He took a leave of absence from the law firm in 

order to serve as special advisor to the Panel on a pro bono basis. Ms. Celosse acted as counsel 

for the Panel. 87The Panel’s ongoing concerns with respect to Treasury’s ‘‘one size fits all’’ approach are discussed further in Section II.A.2 below. 88 Congressional Oversight Panel, April Oversight Report: Assessing Treasury’s Strategy: Six 

Months of TARP, at 7 (Apr. 7, 2009) (online at cop.senate.gov/documents/cop-040709-report.pdf) 

(hereinafter ‘‘2009 April Oversight Report’’). 89 Id. at 75–76. 90 2009 February Oversight Report, supra note 84, at 7. Note that Merrill Lynch was not included in the Duff & Phelps analysis because it did not exist as a standalone entity by February 

2009. 91 CPP recipients may only repay their funds if their regulator determines that the repayment 

will not jeopardize the entity’s capital position, and thus repayments must be approved. 

all terms aided speed and participation rates for the program,86 the 

program design meant that Treasury could not address differences 

in credit quality or risk among institutions, or differences in their 

need for capital, by varying the terms of each investment. Insofar 

as the standard terms were set for strong institutions, they may 

have been too lenient for weaker institutions.87 In its April 2009 

report, the Panel continued to emphasize the need for a clear and 

well-explained strategy and transparent execution for Treasury’s 

TARP investments to improve public confidence in the program,88

and broadly discussed valuations for the distressed assets in the financial sector and their relationship to government options.89

FIGURE 9: ESTIMATED VALUE AND SUBSIDY RATES OF CERTAIN TARP INVESTMENTS AS OF COP’S 

FEBRUARY 2009 REPORT 90

Purchase Program Participant Valuation 

Date 

Face 

Value 

Total Estimated Value 

Value 

Subsidy 

Percent $ 

Capital Purchase Program: 

Bank of America Corporation ....................... 10/14/08 $15.0 $12.5 17% $2.6 

Citigroup, Inc. .............................................. 10/14/08 25.0 15.5 38% 9.5 

JPMorgan Chase & Co. ................................ 10/14/08 25.0 20.6 18% 4.4 

Morgan Stanley ............................................ 10/14/08 10.0 5.8 42% 4.2 

Goldman Sachs Group ................................. 10/14/08 10.0 7.5 25% 2.5 

PNC Financial Services ................................ 10/24/08 7.6 5.5 27% 2.1 

U.S. Bancorp ................................................ 11/3/08 6.6 6.3 5% 0.3 

Wells Fargo & Company ............................... 10/14/08 25.0 23.2 7% 1.8 

Subtotal ........................................................ .................... 124.2 96.9 22% 27.3 

311 Other Transactions ....................................... .................... 70.0 54.6 22% 15.4 

SSFI & TIP: 

American International Group, Inc. .............. 11/10/08 40.0 14.8 63% 25.2 

Citigroup, Inc. .............................................. 11/24/08 20.0 10.0 50% 10.0 

Subtotal ........................................................ .................... 60.0 24.8 59% 35.2 

Total .................................................... .................... $254.2 $176.2 31% $78.0 

In June 2009, Treasury permitted (with the Federal Reserve’s 

approval), ten of the nation’s largest BHCs—representing more 

than one-third of the nation’s banking assets—to repay the financial assistance they received in October 2008.91 The Panel’s July 

2009 report on TARP repayments (including the repurchase of 


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92 Congressional Oversight Panel, July Oversight Report: TARP Repayments, Including the Repurchase of Stock Warrants, at 3–4 (July 10, 2009) (online at cop.senate.gov/documents/cop071009-report.pdf) (hereinafter ‘‘2009 July Oversight Report’’). The Panel noted, however, that 

its own valuations did not include the liquidity discounts and other adjustments contemplated 

by Treasury. 93 Id. at 7. 94 Id. at 23. 95 Congressional Oversight Panel, June Oversight Report: Stress Testing and Shoring Up Bank 

Capital, at 3–5 (June 9, 2009) (online at cop.senate.gov/documents/cop-060909-report.pdf) (hereinafter ‘‘2009 June Oversight Report’’). Treasury and the Federal Reserve Board had announced 

in early February 2009 that they would conduct comprehensive and simultaneous reviews of the 

nation’s largest BHCs—those with more than $100 billion in assets—to determine their ability 

to remain well capitalized if the recession were to lead to deeper than expected losses. The effort, called the Supervisory Capital Assessment Program (SCAP), has been referred to more informally as the ‘‘stress tests.’’ 

stock warrants) accordingly focused on whether the taxpayer was 

receiving maximum benefit from its investment in the TARP.92

As part of its analysis, the Panel determined that because the 

warrants that accompanied the CPP funds represented the only opportunity for the taxpayer to participate directly in the increase in 

the share prices of banks made possible by public money, the price 

at which the warrants were sold was critical. As of July 2, 2009, 

11 small banks had repurchased their warrants from Treasury for 

a total amount that the Panel estimated to be only 66 percent of 

its best estimate of their market value.93 However, at the time of 

this valuation, Treasury was just beginning its warrant repurchase 

program, and the Panel acknowledged that the prices paid might 

not be representative of future repurchases. Building on its February 2009 report, the Panel’s July 2009 report analyzed the contractual constraints governing Treasury’s TARP investments in the 

banks.94 As in prior reports, the Panel emphasized that it was critical that Treasury make the repayment process—the reason for its 

decisions, the way it arrived at its figures, and the exit strategy 

from or future use of the TARP—absolutely transparent. 

b. Stability of the Banking System 

The health—or possible lack thereof—of a variety of banks, small 

and large, lay at the center of the financial crisis and significantly 

informed Treasury’s approach under the TARP. Thus, in a number 

of reports, the Panel focused on actions Treasury took to assess the 

health of financial institutions participating in the TARP, the impact of those actions on financial stability in general, and whether 

they contributed to market transparency. The Panel particularly focused on these issues in its June 2009 and August 2009 reports on 

the Federal Reserve’s and Treasury’s ‘‘stress tests’’ and on the impact of troubled assets on bank balance sheets, respectively. 

As described above in Section I, in the first quarter of 2009 

Treasury and the Federal Reserve announced that they would conduct stress tests of the 19 largest BHCs in the country, the vast 

majority of which were TARP recipients and which received the 

lion’s share of the CPP funds. Upon completion of the stress tests 

in May 2009, BHCs found to be in need of an additional capital 

buffer were given six months to raise the necessary capital. Accordingly, the Panel’s June 2009 report examined the first stress tests 

conducted by banking regulators on these BHCs.95 The report focused on how effectively Treasury and the Federal Reserve conducted the stress tests, specifically reviewing the government’s ecoVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00037 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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96To help make these assessments of the stress tests and review the stress test methodology, 

the Panel engaged two internationally renowned experts in risk analysis, University of California at Berkeley Professors Eric Talley and Johan Walden. 97 2009 June Oversight Report, supra note 95, at 50. 98 2009 June Oversight Report, supra note 95, at 43. 99 2009 June Oversight Report, supra note 95, at 50. 100 Congressional Oversight Panel, August Oversight Report: The Continued Risk of Troubled 

Assets, at 6 (Aug. 11, 2009) (online at cop.senate.gov/documents/cop-081109-report.pdf) (hereinafter ‘‘2009 August Oversight Report’’). 101 Id. at 62. 102For details regarding the Public-Private Investment Program (PPIP), see U.S. Department 

of the Treasury, Legacy Securities Public-Private Investment Program: Program Update—Quarter Ended December 31, 2010, at 3 (Jan. 24, 2011) (online at www.treasury.gov/initiatives/ financial-stability/investment-programs/ppip/s-ppip/Documents/ppip-%2012-10%20vFinal.pdf) (hereinafter ‘‘Treasury’s Legacy Securities Public-Private Investment Program: Program Update’’). The 

PPIP, announced on March 23, 2009, was designed to allow banks and other financial institutions to shore up their capital by removing troubled assets from their balance sheets by creating 

public-private investment funds financed by private investors, whose capital contributions were 

to be matched dollar-for-dollar by Treasury using TARP funds. Treasury initially pledged up to 

nomic assumptions, their methods of calculating bank capitalization, their release of information to the public, and whether the 

stress tests should be repeated in the future.96

The Panel asked independent experts to review and evaluate the 

stress tests. These experts found the economic modeling used to 

conduct them to be generally soundly conceived and conservative 

based on the limited information available to them.97 However, the 

experts cautioned that the stress tests did not model BHC performance under ‘‘worst case’’ scenarios, and as a result did not project 

the capital necessary to prevent banks from being stressed to near 

the breaking point. Most important, the expert study stated that 

the primary issue with the stress test process was the program’s 

lack of ‘‘transparency to outsiders and replicability of its results.’’ 98

In the report, the Panel concluded that while the stress tests had 

a positive short-term effect on the markets, they did not address 

the question as to whether the values shown on bank balance 

sheets for certain classes of assets were too high; by restricting 

themselves to a two-year timeframe, their conclusions did not take 

into account the possibility that the asset values assumed (particularly for so-called troubled assets), may overvalue bank assets to 

the extent that those liabilities result in losses after 2010.99 Thus, 

although the release of these stress test results had a positive effect on the market, it was not clear that the banks were fully 

healthy. 

In its August 2009 report, the Panel revisited bank balance 

sheets in analyzing the potential risks troubled assets may present 

in the future and assessed Treasury’s strategy for removing these 

assets from bank balance sheets.100 In this context, the Panel has 

noted that a continuing uncertainty in the financial markets was 

whether the troubled assets that remain on banks’ balance sheets 

could again become the trigger for instability.101 The Panel found 

that ten months after the TARP was signed into law, substantial 

troubled assets remained on banks’ balance sheets but that it was 

difficult to assess the full scope of the problem because of insufficient disclosure by the banks. In light of this finding, the Panel 

analyzed Treasury’s program to remove these assets from banks’ 

balance sheets, which was the Public-Private Investment Program 

(PPIP), and concluded that there was much uncertainty as to 

whether the PPIP would jump-start the market for troubled securities.102 The Panel concluded that the future performance of the 


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$30 billion for the PPIP, but the fund managers did not raise sufficient private sector capital 

for Treasury’s combination of matching funds and debt financing to reach that amount. Therefore, Treasury’s total obligation is limited to $22.4 billion (which includes $22.1 billion for active 

public-private investment funds and $356.3 million disbursed to TCW, which has been repaid). 

For an update on the PPIP as of December 31, 2010, see id. at 5. 103 As noted in the discussion of the Panel’s small business lending report, Section III.A.3.d, 

infra, the PPIP can therefore be assumed to have had very little effect on small business lending 

since it had little effect on the balance sheets of the banks that are disproportionately engaged 

in such lending. 104 Congressional Oversight Panel, February Oversight Report: Commercial Real Estate Losses 

and the Risk to Financial Stability, at 2 (Feb. 10, 2010) (online at cop.senate.gov/documents/cop021110-report.pdf) (hereinafter ‘‘2010 February Oversight Report’’). 

economy and the performance of the underlying loans, as well as 

the method of valuation of the assets, were critical to the continued 

operation of the banks. 

The August 2009 report also addressed differences between 

smaller and larger banks, discussed more fully below: in particular, 

the Panel was concerned about the impact of troubled assets on 

small banks, whose troubled assets are generally whole loans that 

could not be sold under the PPIP’s terms.103 In addition, the report 

noted that small banks were and remain far more exposed to commercial real estate (CRE) loans and, unlike the larger financial institutions, are not stress tested by Treasury and the Federal Reserve. 

c. Ongoing Risks for Smaller Banks 

One of the recurring themes in the Panel’s reports has been the 

different effects of Treasury’s TARP programs on banks of different 

sizes. Smaller and larger banks have different types of exposures 

and focus on different assets in the banking sector. Accordingly, 

one-size-fits-all programs do not always have comparable effects on 

smaller and larger banks. 

As an example, smaller banks lend to CRE ventures at much 

greater rates than larger banks. Smaller banks are therefore significantly exposed to one of the sectors in the economy that has 

been very hard-hit during and since the crisis. In this context, the 

Panel examined the effects of CRE loans on smaller banks in detail 

in its February 2010 report. The Panel expressed concern that a 

wave of CRE loan losses over the next four years could jeopardize 

the stability of many banks, particularly community banks.104 CRE 

loans made over the last decade—for retail properties, office space, 

industrial facilities, hotels and apartments—totaling $1.4 trillion 

will require refinancing in the period 2011 through 2014. The report noted that nearly half of those CRE loans are ‘‘underwater,’’ 

meaning the borrower owes more on the loan than the underlying 

property is worth. While these problems have no single cause, the 

loans made at the peak of the real estate market are most likely 

to fail. 

In its evaluation of the effect of CRE exposures, the Panel stated 

that ‘‘a significant wave of commercial mortgage defaults would 

trigger economic damage that could touch the lives of nearly every 

American.’’ The failure of commercial properties creates a downward spiral of economic contraction: job losses; deteriorating store 

fronts, office buildings and apartments; as well as the failure of the 

banks serving those communities. Acknowledging that not every 

bank can or should be saved, the Panel noted that because commuVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00039 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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105 Congressional Oversight Panel, July Oversight Report: Small Banks in the Capital Purchase Program, at 3 (July 14, 2010) (online at cop.senate.gov/documents/cop-071410-report.pdf) 

(hereinafter ‘‘2010 July Oversight Report’’). 106 Id. at 3. 107 Id. at 56 (‘‘This increase in concentration could potentially have the ancillary, and likely 

unpopular, effect of reducing competition and giving the remaining banks a freer hand in setting 

terms for their depositors, possibly resulting in higher fees and more restrictions on account 

holders. Individuals and families with smaller accounts may receive diminished customer service, and smaller businesses are likely to suffer as well. Moreover, the limited systemic effect of 

small banks belies the critical role they can play in local economies.’’). 

nity banks play a critical role in financing the small businesses 

that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession. 

In July 2010, continuing its examination of stresses on smaller 

banks, and emphasizing problems with one-size-fits-all programs, 

the Panel published a comprehensive report on small banks in the 

CPP and addressed issues beyond the continued risk posed by CRE 

assets. The Panel’s main conclusion was that because of the CPP’s 

‘‘one-size-fits-all’’ repayment terms, large banks had been much 

better served by the program than smaller institutions. In fact, the 

Panel concluded that small banks might find it difficult or impossible to exit the program, particularly if the banking sector remained weak.105 As discussed earlier, Treasury provided capital to 

banks participating in the CPP under a single set of repayment 

terms designed at the outset of the program. Of the 19 American 

banks with more than $100 billion in assets, 17 participated in the 

CPP, receiving 81 percent of the total CPP funds. Money was made 

available to many of these large banks in only a matter of weeks, 

in some cases even before the banks applied for the funds. As of 

July 2010, 76 percent of these large banks had already repaid taxpayers, and the healthier banks were reporting record profits. However, the July 2010 report noted that by contrast, of the 7,891 

banks with assets of less than $100 billion, only 690 received funds 

from CPP, and less than 10 percent of those banks had repaid their 

loans. Those banks experienced a longer and more stringent evaluation to receive the funds, and many are still struggling to meet 

their obligations to the taxpayer.106 The Panel also stated that the 

CPP could have the potential to contribute to an already ongoing 

trend towards concentration in the financial sector and analyzed 

the potential negative consequences of such a trend.107


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108Data compiled using the FDIC’s Statistics on Depository Institutions. Four asset categories 

were created in order to facilitate a snapshot of the industry at the end of each financial quarter. Federal Deposit Insurance Corporation, Statistics on Depository Institutions (Instrument: 

Total Assets) (online at www3.fdic.gov/sdi/) (accessed Mar. 3, 2011). 109See Section III for additional discussions on the consequences of these ongoing problems 

for small businesses and the economy. 110 Congressional Oversight Panel, May Oversight Report: The Small Business Credit Crunch 

and the Impact of the TARP, at 3 (May 13, 2010) (online at cop.senate.gov/documents/cop051310-report.pdf) (hereinafter ‘‘2010 May Oversight Report’’). In addition, the Panel noted in 

its July report that ‘‘neither Treasury nor federal financial regulators have pushed big banks 

to deploy their TARP funds in lending to consumers, small businesses, and smaller banks to 

‘unfreeze’ the financial markets the way they have pushed small banks. This may be in part 

because the larger institutions have largely exited, and therefore are not subject to the public 

pressure arising from the lingering credit crunch.’’ 2010 July Oversight Report, supra note 105, 

at 48. 

FIGURE 10: CONCENTRATION OF BANK ASSETS, BY SIZE (2007–2010) 108

In its conclusions, the Panel questioned whether the participation of small banks in the CPP had advanced Treasury’s broader 

aims for the program. These CPP-participant small banks comprised too small a share of the banking sector to be systemically 

significant, and therefore their participation was and remains unlikely to contribute to financial stability. In addition, the Panel 

stated that there was very little evidence to suggest that the CPP 

led small banks to increase lending, which was the other initial 

goal of the program.109 According to the Panel’s May 2010 report 

on small businesses, the inability of smaller banks to provide credit 

was also problematic because between 2008 and 2009 Wall Street 

banks’ small business loan portfolios fell by 9.0 percent, more than 

double the 4.1 percent decline in their entire lending portfolios.110

2. Panel Recommendations and Updates 

Over the course of the last two years, in evaluating Treasury’s 

capital infusion programs and approaches to bank balance sheets, 

the Panel has provided Treasury with a series of specific recommendations targeted towards particular programs. These recommendations are detailed below, and as individual and detailed 

as they may be, the recommendations share common themes. The 

Panel’s recommendations have constantly included calls for greater 


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111 In connection with its evaluation of Treasury’s investments in banks, the Panel has also 

expressed continuing concerns with moral hazard associated with the TARP investments, which 

are detailed in Section IX, below. 112 2009 June Oversight Report, supra note 95, at 48–49; 2009 August Oversight Report, supra 

note 100, at 61–62. 113The adverse economic assumptions for the unemployment rate were 8.9 percent for 2009 

and 10.3 percent for 2010. The actual unemployment rates for those years were 9.3 percent for 

2009 and 9.6 percent for 2010. 2009 June Oversight Report, supra note 95, at 5, 17; BLS: Unemployment Rate, supra note 23. After the June 2009 report, the Panel questioned Secretary 

Geithner at a hearing and engaged in correspondence with him regarding the assumptions (including the unemployment assumptions) and the relative weight of the assumptions used in the 

stress tests without, however, receiving substantial additional clarity. See Congressional Oversight Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, 

Transcript: COP Hearing with Treasury Secretary Timothy Geithner, at 33 (Sept. 10, 2009) (online at cop.senate.gov/documents/transcript-091009-geithner.pdf); Letter from Elizabeth Warren, 

chair, Congressional Oversight Panel to Timothy F. Geithner, secretary, U.S. Department of the 

Treasury (Sept. 15, 2009) (online at cop.senate.gov/documents/cop-100909-report-correspondence.pdf); Letter from Timothy F. Geithner, secretary, U.S. Department of the Treasury to Elizabeth Warren, chair, Congressional Oversight Panel (Dec. 10, 2009) (online at cop.senate.gov/documents/cop-011410-report-correspondence.pdf). 114 2009 June Oversight Report, supra note 95, at 48–49. 115 2009 June Oversight Report, supra note 95, at 48–49. 116 2009 June Oversight Report, supra note 95, at 48–49. 117 Board of Governors of the Federal Reserve System, Revised Temporary Addendum to SR 

Letter 09–4: Dividend Increases and Other Capital Distributions for the 19 Supervisory Capital 

Assessment Program Bank Holding Companies (Nov. 17, 2010) (online at 

www.federalreserve.gov/newsevents/press/bcreg/bcreg20101117b1.pdf) (hereinafter ‘‘Fed Addendum to SR Letter 09–4’’). 

transparency and accountability as well as suggested program 

changes that would improve the government’s financial stabilization effort and protect the taxpayer’s investments in the banking 

sector.111

a. Risk Assessments/Stress Tests 

Accurately assessing the economic viability of the banks was critical to instilling public trust in our financial markets. Accordingly, 

the Panel recommended several steps that were geared towards reducing the risk of the banks’ returning to instability and improving 

market confidence. In both the June 2009 and August 2009 reports, 

the Panel advocated that Treasury and the Federal Reserve repeat 

the stress tests if the adverse scenario assumptions (unemployment, GDP, and housing prices) of the original stress tests had 

been exceeded.112 Specifically, the Panel noted the possibility that 

the actual unemployment rate average for 2009 would exceed the 

one used in the more adverse scenario.113 The Panel also suggested 

that stress testing should be a regular feature of the 19 largest 

BHCs’ examination cycle as long as an appreciable amount of troubled assets remain on their books, economic conditions do not substantially improve, or both.114 In addition, the Panel stated that 

between supervisory stress tests, the 19 stress-tested BHCs should 

be required to run internal stress tests, according to supervisory 

guidance, and to submit those results as part of their ongoing supervisory examinations.115 Finally, the Panel encouraged regulators to use stress tests on an ad hoc basis for all banks or BHCs 

as circumstances, including the banks’ business mix, dictated.116

Although the stress tests are being repeated,117 not all of the 

Panel’s concerns regarding bank stability have been assuaged. For 

instance, neither Treasury nor the banking regulators have made 

stress testing a regular part of the bank examination process yet, 

although under the Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 (Dodd-Frank Act) the Federal Reserve must 


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118 12 U.S.C. § 5365(i). The Federal Reserve has yet to implement this regulation or to release 

information on the extent to which it will disclose the results of the latest round of stress tests 

or those tests which will be performed in accordance with the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Federal Reserve lists the 

stress requirements under the Dodd-Frank Act as initiative that it plans to implement between 

April and June of 2011. See Board of Governors of the Federal Reserve System, Implementing 

the Dodd-Frank Act: The Federal Reserve Board’s Role: Initiatives Planned: April to June 2011 

(online at www.federalreserve.gov/newsevents/reform_milestones201104.htm) (accessed Mar. 11, 

2011). 119 Congressional Oversight Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, Transcript: COP Hearing with Treasury Secretary Timothy Geithner (Dec. 

16, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-121610- 

geithner.cfm) (hereinafter ‘‘Geithner Testimony to the Panel’’) (‘‘I am very confident that a regular part of risk management and supervision in the future for our system will be regular public 

disclosure of stress tests by major institutions.’’). 120 12 U.S.C. § 5371. The question of the level of capital leverage requirements remains a 

much debated issue among policymakers and academics. At the Panel’s March 4, 2011 hearing, 

there was a consensus among economists across the political spectrum that the capital requirements should be more stringent than those required under Basel III and those that could be 

required under the Dodd-Frank Act. However, the economists still disagreed on the exact level 

that a bank should hold, with one economist suggesting that it should start at 10 percent and 

increase towards 20 percent based on the size of the bank and another economist indicating that 

a 40 or 50 percent capital requirement would not be unreasonable. Congressional Oversight 

Panel, Testimony of Allan H. Meltzer, Allan H. Meltzer University Professor of Political Economy, Carnegie Mellon University, COP Hearing on the TARP’s Impact on Financial Stability 

(Mar. 4, 2011) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing030411-final.cfm) (‘‘I would raise the requirement to say that for every—that after a minimum 

size to protect community banks, you start to phase in capital requirements which start at 10 

percent and increase as the size of the bank increases so that it’s 11, 12, 13, going up toward 

20, so that the largest banks will be paying what they were paying in the 1920’s.’’); Congressional Oversight Panel, Testimony of Simon Johnson, Ronald A. Kurtz (1954) Professor of Entrepreneurship, MIT Sloan School of Management, and senior fellow, Peterson Institute for International Economics, COP Hearing on the TARP’s Impact on Financial Stability (Mar. 4, 2011) 

(publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-030411-final.cfm) 

(hereinafter ‘‘Simon Johnson Testimony to the Panel’’) (‘‘Gene Fama suggests, and I actually 

agree with him, we should be looking at capital requirements closer to 40 or 50 percent. This 

is—this is just the percent of the assets financed with equity. . . . ’’). 121 2009 August Oversight Report, supra note 100, at 62. 122During a discussion of Treasury’s ability to exit CPP at the Panel’s March 4, 2011 hearing, 

Acting Assistant Secretary for Financial Stability Timothy Massad indicated that Treasury was 

Continued 

conduct and publish a summary of the results of annual stress 

tests for systemically important financial institutions.118 Furthermore, Secretary of the Treasury Timothy F. Geithner has stated 

that he expects public disclosure of stress testing will become a regular part of bank supervision.119 The Dodd-Frank Act has also 

made broader changes to the regulatory landscape, including requiring that regulators establish minimum capital leverage levels 

for the banks and other relevant financial institutions.120

b. Program Changes 

For several of its program-centered recommendations, the Panel 

focused on stresses particular to smaller banks. In the August 2009 

report, the Panel noted that Treasury must be prepared to turn its 

attention to small banks in crafting solutions to the growing problem of troubled whole loans. As discussed above, those banks also 

face special risks with respect to problems in the CRE loan sector. 

The Panel believed that Treasury should implement programs to 

ensure the viability of smaller banks. One such example was for 

Treasury and the banking regulators to extend the methodology 

and capital buffering involved in the stress tests to the nation’s 

smaller banks on a forward-looking basis.121

Similarly, in the July 2010 report, the Panel’s recommendations 

focused on the potentially long timeframe and the increased uncertainty of CPP investments in smaller banks.122 Banks with more 


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concerned with small banks and there was still work to be done to help their recovery. Congressional Oversight Panel, Testimony of Timothy G. Massad, acting assistant secretary for the Office of Financial Stability, U.S. Department of the Treasury, Transcript: COP Hearing on the 

TARP’s Impact on Financial Stability (Mar. 4, 2011) (publication forthcoming) (online at 

cop.senate.gov/hearings/library/hearing-030411-final.cfm) (hereinafter ‘‘Massad Testimony to the 

Panel’’) (‘‘We’ve made a lot of progress, but we still have more work to do. And in particular 

with respect to our small banks, their path to recovery has been a little harder. And we need 

to continue to work with them on that.’’). In discussing stresses on smaller banks in the context 

of the CPP, however, the Panel noted that economic stability and a strengthened banking sector 

would help alleviate some of the difficulties facing various TARP recipients and Treasury. For 

example, if the banking sector strengthens and becomes a more attractive investment, all banks, 

but particularly smaller banks, may have an easier time repaying their CPP funds. If the economy recovers more generally, then commercial real estate (CRE) may weigh less on bank balance sheets and smaller banks may experience healthier balance sheets as a result. Similarly, 

if Treasury holds CPP-related warrants in a company, and the common stock value of that institution is greater than the strike price of its warrants, those warrants have a greater value since 

they can be exercised and immediately reap a profit. The strike price, or the fixed price that 

a holder must pay to exercise their option (warrant) to purchase a company’s stock, for the warrants Treasury received as part of its TARP investment, were established by averaging the common stock price during the twenty days prior to TARP assistance being provided. U.S. Department of the Treasury, Warrant Disposition Report, at 3 (June 30, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/other/DocumentsOther/ 

TARP_WRRTDISP_80310.pdf) (hereinafter ‘‘June 2010 Warrant Disposition Report’’). 123 2010 July Oversight Report, supra note 105, at 5, 33. Of the smaller banks in the CPP, 

approximately 16 percent have repaid their CPP funds. Many have no clear path for repaying 

their CPP investment and exiting the program in the near future, if at all. 124 2010 July Oversight Report, supra note 105, at 61. 125 2010 July Oversight Report, supra note 105, at 61. 126 2010 July Oversight Report, supra note 105, at 61. 127See Section II.A.2.d for a more detailed description of the board observers. 128Specifically, the Panel has held three hearings and released one report specifically dedicated to CRE issues. See 2010 February Oversight Report, supra note 104; Congressional Oversight Panel, COP Hearing on Commercial Real Estate’s Impact on Bank Stability (Feb. 4, 2011) 

(online at cop.senate.gov/hearings/library/hearing-020411-cre.cfm); Congressional Oversight 

Panel, COP Atlanta Field Hearing on Commercial Real Estate (Jan. 27, 2010) (online at 

cop.senate.gov/hearings/library/hearing-012710-atlanta.cfm); Congressional Oversight Panel, 

than $100 billion in assets have returned to profitability while 

smaller banks, which (among other things) have more significant 

CRE exposure, continue to struggle financially and are now struggling to meet their obligations to taxpayers.123 To deal with CPP 

investments in smaller banks, the Panel’s July 2010 report recommended that Treasury articulate and determine options for the 

illiquid portions of its portfolio, such as warrants that are too small 

to be listed on an exchange, including bundling or pooling investments if that makes them more attractive to investors.124 The 

Panel went on to suggest that Treasury both articulate clear measures for risk-testing its own portfolio and aggressively exercise its 

shareholder rights, such as appointing directors in those banks 

that have missed the requisite number of dividends or payments, 

in order to protect the taxpayers’ investment and maintain market 

discipline.125 In addition, the Panel recommended that for the 

banks that Treasury’s asset manager believed were in need of additional capital, Treasury should retain or create a workout team 

that will swiftly negotiate a deal.126 Treasury has announced that 

it has exercised some of its shareholder rights and has observers 

attending board meetings at 31 banks; however, if Treasury has 

adopted any of these other recommendations, it has not announced 

them publicly.127

c. Particular Stresses on Smaller Banks 

In connection with its concerns about the risks that distressed 

CRE loans pose to smaller banks, the Panel has continued to monitor the sector.128 In its most comprehensive discussion of the probVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00044 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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COP Field Hearing in New York City on Corporate and Commercial Real Estate Lending (May 

28, 2009) (online at cop.senate.gov/hearings/library/hearing-052809-newyork.cfm). 129 2010 February Oversight Report, supra note 104, at 138. 130 Congressional Oversight Panel, Written Testimony of Patrick M. Parkinson, director, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, 

COP Hearing on Commercial Real Estate’s Impact on Bank Stability, at 3–5 (Feb. 4, 2011) (online at cop.senate.gov/documents/testimony-020411-parkinson.pdf) (hereinafter ‘‘2011 COP Hearing on CRE Impact on Bank Stability’’) (‘‘Notably, CRE concentrations are not a significant issue 

at the largest banks. Among banks with total assets of $10 billion or more, 10 percent had CRE 

concentrations. In contrast, one-third of all banks with assets between $1 billion and $10 billion 

had CRE concentrations. For banks with less than $1 billion in assets, approximately 17 percent 

had CRE concentrations.’’). See also Congressional Oversight Panel, Written Testimony of Matthew Anderson, managing director, Foresight Analytics, COP Hearing on Commercial Real Estate’s Impact on Bank Stability, at 1, 3 (Feb. 4, 2011) (online at cop.senate.gov/documents/testimony-020411-anderson.pdf) (‘‘Approximately two-thirds of CRE debt is held by banks with less 

than $100 billion in total assets.’’). 131 2011 COP Hearing on CRE Impact on Bank Stability, supra note 130, at 5 (‘‘Approximately one-third of all CRE loans (both bank and non-bank), totaling more than $1 trillion, are scheduled to mature over the next two year’’). See also Morgan Stanley, CMBS Market Insights CRE 

Debt Markets: Challenges and Opportunities, at 1 (Dec. 6, 2010) (online at cop.senate.gov/docu- ments/testimony-020411-parkus.pdf) (‘‘nearly $1.4 trillion of commercial real estate loans maturing over the next three years’’). 132 2010 February Oversight Report, supra note 104, at 2, 38, 102. 133Senate Committee on Banking, Housing, and Urban Affairs, Testimony of Ben S. 

Bernanke, chairman, Board of Governors of the Federal Reserve System, Transcript: The Semiannual Monetary Policy Report to the Congress (Mar. 1, 2011) (publication forthcoming) (online 

at banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=9ff8158efc56-495b-aa5b-e957b981da96) (‘‘I would say overall that some of the worst fears about commercial real estate seem not to be coming true, that there is some stabilization of vacancy rates 

and prices and so on in this—in this market. That being said, there’s still a lot of, as you say, 

a lot of properties that are going to have to be refinanced and probably some losses the banks 

are still going to have to take. So it’s still certainly a risk to the financial system, but it does 

seem to be looking at least marginally better than we were fearing six months ago.’’). 134 Congressional Oversight Panel, Testimony of Patrick M. Parkinson, director, Division of 

Banking Supervision and Regulation, Board of Governors of the Federal Reserve, Transcript: 

COP Hearing on Commercial Real Estate’s Impact on Bank Stability (Feb. 4, 2011) (publication 

forthcoming) (online at cop.senate.gov/hearings/library/hearing-020411-cre.cfm) (‘‘CRE-related 

issues also present ongoing problems for the banking industry, particularly for community and 

regional banking organizations. Losses associated with CRE, particularly residential construcContinued 

lem, the February 2010 report, the Panel noted that there were no 

easy solutions to the risks CRE may pose to the financial system. 

Although it endorsed no specific proposals, the Panel identified a 

number of possible interventions to contain the problem until the 

CRE market could return to health. The Panel indicated that government cannot and should not keep every bank afloat, but neither 

should it turn a blind eye to the dangers of unnecessary bank failures and their impact on communities.129

Since the release of the February 2010 report, CRE continues to 

threaten the economic viability of banks, particularly smaller 

banks. There is approximately $3.2 trillion of outstanding debt associated with CRE loans, with a significant concentration of that 

debt centered in smaller banks.130 Over the next two years over $1 

trillion of that debt will come to maturity.131 In February 2010, the 

Panel reported that losses on these loans for commercial banks 

alone could total $200 billion to $300 billion for 2011 and beyond.132 However, Chairman Bernanke recently indicated that 

many of the worst fears about the CRE market do not seem to be 

coming to fruition.133 In pursuit of information as to the degree of 

risk that the CRE market poses to economic recovery, the Panel 

held a hearing on February 4, 2011. The hearing focused in particular on CRE’s impact on bank stability. Though there were indicators of price stabilization in some key markets, issues related to 

commercial real estate continue to cause problems for the banking 

sector and are the main reason for recent bank failures.134 Sandra 


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tion and land development lending, have been the dominant reason for the high number of bank 

failures since the beginning of 2008.’’). 135 Congressional Oversight Panel, Testimony of Sandra Thompson, director, Division of Supervision and Consumer Protection, Federal Deposit Insurance Corporation, Transcript: COP 

Hearing on Commercial Real Estate’s Impact on Bank Stability (Feb. 4, 2011) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-020411-cre.cfm) (‘‘Distressed CRE 

loan exposures take time to work out, and in some cases require restructuring to establish a 

more realistic and sustainable repayment program. Some loans may not be able to be modified 

and must be written off. This process of prompt loss recognition and restructuring, painful as 

it may be, is needed to lay the foundation for recovery in CRE market. At the same time, it 

must be recognized that many institutions with CRE concentrations have weathered the financial crisis.’’). 136 2010 February Oversight Report, supra note 104, at 139. 137 2010 July Oversight Report, supra note 105, at 24–25. 138 Congressional Oversight Panel, December Oversight Report: Questions About the $700 Billion Emergency Economic Stabilization Funds, at 11–12 (Dec. 10, 2008) (online at 

frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_senate_committee_ 

prints&docid=f:45840.pdf) (‘‘If the funds committed under TARP have an intended purpose and 

are not merely no-strings-attached subsidies to financial institutions, then it seems essential for 

Treasury to monitor whether the funds are used for those intended purposes. Without that oversight, it is impossible to determine whether taxpayer money is used in accordance with Treasury’s overall economic stabilization strategy. Treasury cannot simply trust that the financial institutions will act in the desired ways; it must verify.’’). 

Thompson, director of the Division of Supervision and Consumer 

Protection at the FDIC, indicated that it could take time to sort out 

the CRE market through restructuring and for loans that cannot 

be modified, ‘‘prompt loss recognition and restructuring, painful as 

it may be, is needed to lay the foundation for recovery in CRE market.’’ 135 The Panel stated that until Treasury and the bank supervisors address forthrightly and transparently the threats facing the 

CRE markets—and the potential impact that a breakdown in those 

markets could have on local communities, small businesses, and individuals—the financial crisis will not end.136

As summarized in the July 2010 report, many smaller banks face 

balance sheet pressures in what remains a pervasively uncertain 

market. Faced with these pressures, however, smaller banks do not 

necessarily have the options for capital-raising available to larger 

banks. In particular, smaller banks have more difficulty accessing 

capital than larger banks for many reasons, among them that equity capital markets are more costly for smaller banks due to fixed 

costs associated with transactions; they are often too small to interest private equity funds; and their traditional investors, who tend 

to be locally based, might be unwilling to part with capital during 

difficult economic times.137

d. Transparency and Accountability 

Transparency is essential because it facilitates accountability and 

instills confidence in and increases credibility of the decisions of 

Treasury and the Federal Reserve—all of which are necessary and 

critical for proper management of the taxpayers’ involvement in the 

financial sector rescue. The Panel has emphasized the need for 

transparency in the operation and administration of the TARP 

since its first report. In that report, the Panel first asked whether 

Treasury knew what TARP recipients were doing with the money 

they had received from the government.138 In the context of Treasury’s bank capital programs, the Panel stressed the need for transparency in the administration of both the stress tests and the CPP 

and has made calls more generally for release of additional data 

from recipients of TARP funds. 


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139 2009 June Oversight Report, supra note 95, at 49. 140 2009 June Oversight Report, supra note 95, at 48–49. 141 In November, the Federal Reserve announced that nine of the ten bank holding companies 

that needed to raise or improve the quality of their capital under the stress tests had done so 

and at the time they had sufficient capital to meet their capital requirements under the stress 

tests. Federal Reserve Announcement on the Supervisory Capital Assessment Program, supra 

note 79 (‘‘The Federal Reserve Board on Monday said that 9 of the 10 Bank Holding Companies 

(BHCs) that were determined in the Supervisory Capital Assessment Program (SCAP) earlier 

this year to need to raise capital or improve the quality of their capital to withstand a worsethan-expected economic scenario now have increased their capital sufficiently to meet or exceed 

their required capital buffers. The one exception, GMAC, is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program, and is in discussions 

with the U.S. Treasury on the structure of its investment.’’); Fed Addendum to SR Letter 09– 

4, supra note 117. 142Fed Addendum to SR Letter 09–4, supra note 117. 143Geithner Testimony to the Panel, supra note 119 (stating that disclosure is a ‘‘remarkably 

effective approach, because it allowed these firms to go out and raise a lot of capital much earlier’’). 144 In addition, under the Dodd-Frank Act, financial institution regulators will be required to perform stress tests for financial companies with over $10 billion in assets for which they are 

the primary regulator. Those findings will then be reported to the Federal Reserve. The DoddFrank Act will not cover any financial institution with assets of below $10 billion or which is 

a state chartered institution. Under rules to be accepted within 18 months of the enactment of 

the Dodd-Frank Act, any financial company with a primary federal regulator that has over $10 

billion in assets must conduct an annual stress test and report the results to the Federal Reserve. In addition, BHCs and non-bank financial Companies with assets in excess of $50 billion 

must conduct semi-annual stress tests. At systemically important BHCs and non-bank financial 

companies, the Federal Reserve must conduct annual stress tests using at least three scenarios 

of increasing adversity. 12 U.S.C. § 5365(i). 145 2009 August Oversight Report, supra note 100, at 61–62. 

Stress Tests. In the June 2009 report, the Panel suggested that 

additional information on the results of the stress tests needed to 

be in the public domain, including the results under the ‘‘baseline’’ 

economic scenario, or at least an explanation if Treasury and the 

Federal Reserve decided not to release that data. Furthermore, the 

Panel advocated for the release of more extensive data on the 

stress test results, for instance, more granular details on estimated 

losses by sub-categories. The Panel noted that this additional information would improve the transparency of the process and increase 

confidence in the robustness of the tests.139 The Panel also recommended that Treasury and the Federal Reserve publicly track 

the status of its stress tests’ macro-economic assumptions, including unemployment, GDP, and housing price assumptions.140

Since the June 2009 report, there has not been significantly more 

information released regarding the results of the May 2009 stress 

tests. In November 2010, the Federal Reserve announced a second 

round of stress testing for SCAP banks.141 The Federal Reserve requested that by January 7, 2011 these banks file a comprehensive 

capital plan detailing their ability to absorb losses over the next 

two years and to comply with new banking industry capital 

rules.142 Although Secretary Geithner stated that disclosure of 

stress test results is an effective supervisory approach,143 unlike 

the May 2009 stress tests the results of the Federal Reserve’s regulatory review will not be made public.144 Similarly, in August 2009, 

the Panel suggested that Treasury and relevant government agencies work together to move financial institutions toward sufficient 

disclosure of the terms and volume of troubled assets on banks’ 

books so that markets can function more effectively.145 To date, 

this has not occurred. 

CPP. The Panel has continually advanced recommendations 

aimed at fostering transparency in the CPP. In the June 2009 report, the Panel urged Treasury to increase transparency in the 


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146 2009 June Oversight Report, supra note 95, at 48–49. 147 2009 July Oversight Report, supra note 92, at 44–45. 148 2009 July Oversight Report, supra note 92, at 44–45; 2009 June Oversight Report, supra 

note 95, at 49. 149 2009 July Oversight Report, supra note 92, at 44–45. 150 2009 December Oversight Report, supra note 27, at 108. 151 2010 May Oversight Report, supra note 110, at 26. 152 2010 February Oversight Report, supra note 104, at 149–152; U.S. Department of the 

Treasury, Warrant Disposition Report (Jan. 20, 2010) (online at www.treasury.gov/ 

initiatives/financial-stability/briefing-room/reports/other/DocumentsOther/ 

TARP%20Warrant%20Disposition%20Report%20v4.pdf); June 2010 Warrant Disposition Report, 

supra note 122; U.S. Department of the Treasury, Warrant Disposition Report (Dec. 31, 2010) 

(online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/other/ 

DocumentsOther/TARP%20Warrant%20 Disposition%20Report%2012.31.2010%20Update.pdf) 

(hereinafter ‘‘December 2010 Warrant Disposition Report’’). 

CPP repayment process; including a recommendation that Treasury disclose information on the criteria for repayment eligibility, 

the approval process, and the process for valuation and repurchase 

of warrants. The Panel further suggested that the relationship of 

the stress test results to CPP repurchases should be completely 

transparent.146 The Panel reiterated many of these recommendations in the July 2009 report about warrant dispositions, emphasizing that Treasury should negotiate the disposition of the warrants in a manner that is as transparent and fully accountable as 

possible.147 The Panel noted that Treasury and the Federal Reserve must explain fully and clearly to the public the reasons for 

approval for repayment of financial assistance. The Panel also stated that Treasury must be transparent about the way warrants are 

valued, and clearly set forth the exit strategy for, or future use of, 

the TARP, including how it proposed to use repaid TARP funds.148

Specifically, the Panel recommended that Treasury promptly provide written reports to the American taxpayer analyzing the fair 

market value determinations for any warrants either repurchased 

by a TARP recipient from Treasury or sold by Treasury through an 

auction, and that Treasury disclose the rationale for its choice of 

an auction or private sale.149 Furthermore, in December 2009, the 

Panel suggested that Treasury disclose the precise number of warrants it holds for each financial institution within CPP.150 Similarly, the Panel made several calls for additional transparency for 

the use of TARP funds, and noted in May 2010 that Treasury had 

failed to track TARP funds or require certain kinds of longitudinal 

lending data from TARP recipients, both of which hampered the 

Panel in its efforts to determine the effectiveness of CPP.151

Since the Panel made its recommendations for increased transparency, Treasury and the other banking regulators have released 

significantly more information; however, there is still room for improvement. For instance, even though federal regulators have established approval processes for CPP repayments, Treasury has not 

publicly issued uniform guidelines or documentation needed for 

meaningful oversight or to achieve transparency regarding these 

repayments. Additionally, while Treasury has issued some general 

statements on its overall repayment policy, it has not provided 

more detailed, case-by-case explanations for approval of financial 

assistance repayments. Furthermore, even though Treasury described its approach to CPP warrant dispositions in three Warrant 

Disposition Reports, Treasury’s negotiations with the banks to repurchase the warrants are still not transparent.152 Treasury never 


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153 2010 May Oversight Report, supra note 110, at 26. When asked how institutions used the 

TARP funds they were given, Treasury raised the difficulty in tracking individual dollars 

through an institution in response—in essence, that because money is fungible, it is not useful 

to track particular funds. Nevertheless, as the Panel and the Special Inspector General for the 

Troubled Asset Relief Program (SIGTARP) have noted, Treasury could have conditioned receipt 

of TARP assistance upon requirements to report the usage of those funds and the overall lending activities of the institutions in question. See Congressional Oversight Panel, January Oversight Report: Taking Stock: Accountability for the Troubled Asset Relief Program, at 3–4 (Jan. 

9, 2009) (online at cop.senate.gov/documents/cop-010909-report.pdf); 2009 December Oversight 

Report, supra note 27, at 108–111. See also Congressional Oversight Panel, January Oversight 

Report: Exiting TARP and Unwinding Its Impact on the Financial Markets, at 5 (Jan. 14, 2010) 

(online at cop.senate.gov/documents/cop-011410-report.pdf) (hereinafter ‘‘2010 January Oversight 

Report’’); Office of the Special Inspector General for the Troubled Asset Relief Program, 

SIGTARP Survey Demonstrates that Banks Can Provide Meaningful Information on Their Use 

of TARP Funds (July 20, 2009) (online at sigtarp.gov/reports/audit/2009/SIGTARPl SurveylDemonstrateslThatlBankslCanlProvidelMeaningfull%20InformationlOnlTheirl UselOflTARPlFunds.pdf). Further, banking industry witnesses at the Panel’s Field hearing 

in Phoenix stated that they would support a tracking requirement for capital infusion programs. 

See Congressional Oversight Panel, Testimony of Candace Wiest, president and chief executive 

officer, West Valley National Bank, Transcript: Phoenix Field Hearing on Small Business Lending (Apr. 27, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing042710-phoenix.cfm) (hereinafter ‘‘Wiest Testimony to the Panel’’). 154 2010 July Oversight Report, supra note 105, at 61. 155 In these documents released in August 2010, Treasury indicated that director nominations 

would be a two-step process based on the number of missed dividend or interest payments. After 

five missed payments, Treasury may request permission to send qualified members of its staff 

to observe board meetings of the institution. Then, once an institution misses six payments, 

Treasury will evaluate whether to nominate up to two board members. Such determinations will 

be based on Treasury’s evaluation of the condition and health of the institution as well as the 

functioning of its board of directors. U.S. Department of the Treasury, Frequently Asked Questions: Capital Purchase Program (CPP), Related to Missed Dividend (or Interest) Payments and 

Director Nomination (Aug. 2010) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/cpp/Documents/CPP%20Directors%20FAQs.pdf); U.S. Department of the 

Treasury, Factsheet: Capital Purchase Program, Nomination of Board Observers & Directors 

(Aug. 2010) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/cpp/ 

Documents/CPP%20 Directors%20-%20Observer%20Fact%20Sheet.pdf). See also U.S. Government Accountability Office, Report to Congressional Addressees, Troubled Asset Relief Program: 

Status of Programs and Implementation of GAO Recommendations, at 18–19 (Jan. 2011) (GAO– 

11–74) (online at www.gao.gov/new.items/d1174.pdf). Treasury has elected two members to 

AIG’s board of directors under the AIG Investment Program. Id. at 18. 156 U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report 

as of February 28, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/dividends-interest/DocumentsDividends Interest/ 

February%202011%20Dividends%20Interest%20Report.pdf) (hereinafter ‘‘Treasury’s Dividends 

& Interest Report’’). 157 Id. Based on information as of February 28, 2011. 

required the tracking of funds and has not collected the lending 

data that the Panel thought was essential for effective oversight.153

The Panel’s calls for transparency have also focused on Treasury’s activities as a shareholder. In the July 2010 report, the Panel 

requested that Treasury explain its process for appointing board 

members to banks that are in arrears, including the way in which 

it will identify board members for those banks. The Panel added 

that Treasury should clearly articulate its restructuring policy and 

indicate to CPP participants that it will protect the priority of its 

investments.154 Since the July 2010 report, Treasury has publicly 

released a ‘‘fact sheet’’ and ‘‘frequently asked questions’’ regarding 

the nomination of directors.155 Although Treasury has not yet exercised its right to nominate board members for banks that have 

missed six dividend or interest payments, as of February 28, 2011, 

31 banks have agreed to have Treasury observers attend board of 

directors meetings.156 To date, 32 banks have missed at least six 

payments.157 To the extent that Treasury has implemented the 

Panel’s other recommendations, it has not announced these 

changes publicly. 

Data Gathering and Disclosure. In pursuit of greater accountability, the Panel has called for data gathering to help review the 


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158 2010 July Oversight Report, supra note 105, at 61. 159 2010 July Oversight Report, supra note 105, at 52–57. The Panel noted that although concerns about bank consolidation may not have informed the program at the outset, increasing 

concentration in the banking sector could have adverse effects on competition and services offered to customers, and, potentially, on systemic stability. 160Treasury Transactions Report, supra note 36. 161Treasury Transactions Report, supra note 36. 162 In a pamphlet designed for community banks, Treasury explains the eligibility requirements for refinancing outstanding CPP or CDCI securities through the Small Business Lending 

Fund (SBLF). U.S. Department of the Treasury, SBLF: Small Business Lending Fund—Getting 

Started Guide For Community Banks, at 4–5 (online at www.treasury.gov/resource-center/ 

sb-programs/Documents/SBLF_GettinglStarted_Guide_Final.pdf). 163 U.S. Department of the Treasury, Capital Purchase Program (online at www.treasury.gov/ 

initiatives/financial-stability/investment-programs/cpp/Pages/capitalpurchaseprogram.aspx) 

(accessed Mar. 11, 2011). For preferred shares issued under the TIP, Treasury received a dividend of 8 percent per year. U.S. Department of the Treasury, Targeted Investment Program (online at www.treasury.gov/initiatives/financial-stability/investment-programs/tip/Pages/ 

targetedinvestmentprogram.aspx) (accessed Mar. 11, 2011). 

effectiveness of Treasury’s programs. In the July 2010 report, the 

Panel recommended that Treasury analyze the characteristics of 

the smaller banks that took CPP funds and the data on the smaller 

banks that have repaid CPP funds in order to determine commonalities among them. The Panel further urged Treasury to use 

those commonalities to create a strategy for exit, to help anticipate 

risks in the portfolio, and to evaluate the effectiveness of capital infusions for stabilizing smaller banks, given the program design of 

the CPP.158 The Panel also requested that Treasury review the 

CPP’s impact on bank consolidations and concentration in the 

banking sector generally.159 While the Panel acknowledges improvements in data disclosure, many of the specific recommendations of the Panel, such as a review of the CPP’s impact on bank 

consolidation and concentrations, have not been implemented, or at 

least not announced publicly. 

e. CPP Profits and Accountability 

Accountability and program effectiveness are of particular import 

with respect to returns under the CPP. The CPP was the largest 

of three capital injection programs under the TARP, providing 707 

banks with capital injections totaling nearly $205 billion.160 The 

program has to date generated returns for the government: the current CBO and Office of Management and Budget (OMB) subsidy 

costs for CPP are actually savings of $15 billion and $12 billion, respectively, which represents a positive rate of return. These returns come from redemptions, warrant repurchases, and dividend 

payments. As of March 8, 2011, 145 of the 707 banks that participated in the CPP have fully redeemed their preferred shares either 

through capital repayment or exchanges for investments under 

other government programs, including the Community Development Capital Initiative (CDCI).161 Currently, banks can apply to 

the Small Business Lending Fund (SBLF) as a means of refinancing their preferred shares issued through CPP and CDCI.162

In addition, Treasury receives dividend payments on the preferred 

shares it holds under the CPP, 5 percent per year for the first five 

years and 9 percent per year thereafter.163 In total, Treasury has 

received approximately $30 billion in net income from warrant repurchases, dividends, interest payments, profit from the sale of 

stock, and other proceeds deriving from TARP investments, after 


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164This number is calculated including only the CPP and CDCI. Treasury’s Dividends & Interest Report, supra note 156; Treasury Transactions Report, supra note 36. Treasury also received an additional $1.2 billion in participation fees from its Guarantee Program for MMFs. Treasury’s Guarantee Program for Money Market Funds Expires, supra note 64. 165For its CPP investments in privately held financial institutions, Treasury also received 

warrants to purchase additional shares of preferred stock, which it exercised immediately. Similarly, Treasury received warrants to purchase additional subordinated debt that were immediately exercised along with its CPP investments in subchapter S corporations. 166 As discussed in its July 2009 report, the Panel uses a Black-Scholes model to calculate low, 

high, and best valuation estimates of outstanding TARP warrants. For more details on the Panel’s warrant valuation methods and inputs used in the Black-Scholes model, see 2009 July Oversight Report, supra note 92, at 20–28 and Annex A/B. 167 In addition, nine CPP participants have missed at least one interest payment, representing $5.6 million in cumulative unpaid interest payments. Treasury’s total investments in these nonpublic institutions represent less than $100 million in CPP funding. Treasury’s Dividends & Interest Report, supra note 156. 168There are also 19 institutions that no longer have outstanding unpaid dividends, after previously deferring their quarterly payments. Fourteen banks have failed to make six dividend 

payments, eleven banks have missed seven quarterly payments, six banks have missed eight 

quarterly payments, and one bank has missed all nine quarterly payments. These institutions 

received a total of $1.07 billion in CPP funding. Treasury’s Dividends & Interest Report, supra 

note 156. 

deducting losses.164 As noted above, in conjunction with its preferred stock investments under the CPP and the TIP, Treasury 

generally received warrants to purchase common equity.165 As of 

July 2009, the Panel reported that Treasury’s method for selling 

stock options gained through the CPP appeared to be recovering 

only 66 percent of the warrants’ estimated worth. Treasury has 

subsequently changed its approach and subsequent sales recovered 

103 cents on the dollar compared to the Panel’s best estimate. As 

of March 8, 2011, 51 institutions have repurchased their warrants 

from Treasury at an agreed-upon price and Treasury has also sold 

warrants for 18 other institutions at auction. To date, income from 

warrant dispositions totals $8.6 billion. Treasury still holds warrants in 211 TARP recipients. The Panel’s best estimate for the 

total value of all outstanding warrants is $2.3 billion as of March 

3, 2011.166 Figure 38 in the Annex provides further detail on the 

income from warrant dispositions for financial institutions that 

have fully repaid CPP funds and Figure 39 in the Annex breaks 

down the value of Treasury’s current holdings of warrants by financial institution. 

That CPP has had an overall rate of return that is positive is not 

to say that all CPP investments have been profitable. As of February 28, 2011, 161 institutions have missed at least one dividend 

payment on outstanding preferred stock issued under the CPP. 

Among these institutions, 131 are not current on cumulative dividends, amounting to $187.4 million in missed payments. Another 

30 banks have not paid $11.3 million in non-cumulative dividends.167 Of the $30.9 billion currently outstanding in CPP funding, Treasury’s investments in banks with non-current dividend 

and interest payments total $7.3 billion. A majority of the banks 

that are not current on dividend payments have under $1 billion 

in total assets on their balance sheets.168 Under the terms of the 

CPP, after a bank fails to pay dividends for six periods, Treasury 

has the right to elect two individuals to the company’s board of directors. Figure 35 in the Annex provides further details on the distribution and the number of institutions that have missed dividend 

payments. 

Other CPP investments have been losses. As of March 8, 2011, 

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169 CIT Group Inc. and Pacific Coast National Bancorp both completed bankruptcy proceedings, and the preferred stock and warrants issued by the South Financial Group, TIB Financial Corp., the Bank of Currituck, Treaty Oak Bancorp, and Cadence Financial Corp. were 

sold to third-party institutions at a discount. Excluded from Treasury’s total losses are investments in institutions that have pending receivership or bankruptcy proceedings, as well as an 

institution that is currently the target of an acquisition. Treasury Transactions Report, supra 

note 36, at 14. Settlement of these transactions and proceedings would increase total losses in 

the CPP to $2.8 billion. 170The internal rate of return (IRR) is the annualized effective compounded return rate that 

can be earned on invested capital. 171That said, however, as the Panel noted in its September report, many of the banks that 

have yet to repay may be in weaker capital positions, and the ultimate overall returns may be 

less favorable. 2010 September Oversight Report, supra note 53, at 28 (‘‘[B]anks that have not 

repaid their TARP funds may be under or could come under greater stress. Some banks that 

remain in the CPP may find it difficult or impossible to raise the capital necessary to meet their 

obligations to the taxpayers, and Treasury’s rate of return may therefore decline over the life 

of the program.’’). 172 In an opinion piece for The New York Times titled ‘‘Welcome to the Recovery,’’ Secretary Geithner wrote that ‘‘[t]he government’s investment in banks has already earned more than $20 

billion in profits for taxpayers, and the TARP program will be out of business earlier than expected—and costing nearly a quarter of a trillion dollars less than projected last year.’’ Timothy 

F. Geithner, Welcome to the Recovery, New York Times (Aug. 2, 2010) (online at 

www.nytimes.com/2010/08/03/opinion/03geithner.html?_r=2&dbk). See also U.S. Department of 

the Treasury, Treasury Department Announces TARP Milestone: Repayments to Taxpayers Surpass TARP Funds Outstanding (June 11, 2010) (online at www.treasury.gov/press-center/pressreleases/Pages/tg742.aspx) (quoting Assistant Secretary Herbert Allison as saying that ‘‘TARP 

repayments have continued to exceed expectations, substantially reducing the projected cost of 

this program to taxpayers . . . This milestone is further evidence that TARP is achieving its 

intended objectives: stabilizing our financial system and laying the groundwork for economic recovery.’’). 173Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy, Harvard University, Written 

Answers to Questions Posed by the Congressional Oversight Panel (Aug. 2010); 2010 September 

Oversight Report, supra note 53, at 123. Professor Joseph E. Stiglitz echoed the same opinion 

stating that Treasury should have demanded appropriate compensation for the risk borne and 

that a proper evaluation should be done ex ante and take into account the risks at the time. 

Congressional Oversight Panel, Written Testimony of Joseph E. Stiglitz, Nobel Laureate and 

University Professor, Columbia Business School, Graduate School of Arts and Sciences Department of Economics and the School of International and Public Affairs, COP Hearing on the 

TARP’s Impact on Financial Stability, at 3 (Mar. 4, 2011) (online at cop.senate.gov/documents/ 

testimony-030411-stiglitz.pdf) (‘‘The fairness of the terms is to be judged ex ante, not ex post, 

taking into account the risks at the time.’’). 174 2010 September Oversight Report, supra note 53, at 93. 

ments in seven CPP participants.169 Figure 37 in the Annex details 

settled and unsettled investment losses from CPP participants that 

have declared bankruptcy, been placed into receivership, or renegotiated the terms of their CPP contracts. As of March 9, 2011, however, the average internal rate of return (IRR) 170 for all public financial institutions that participated in the CPP and TIP and fully 

repaid the U.S. government (including preferred shares, dividends, 

and warrants) was at 10 percent. 

CPP Profits and the Risk of the Investments in 2008. As described above, the overall rate of return for CPP and TIP is 10 percent,171 and Treasury often points to this positive rate of return.172

As Harvard professor and economist Kenneth Rogoff noted to the 

Panel in connection with the September 2010 report, however, that 

should not be the end of the inquiry. In his words, a proper cost 

benefit analysis ‘‘needs to price the risk the taxpayer took on during financial crisis.’’ Ex post accounting (how much did the government actually earn or lose after the fact) can yield an extremely 

misguided measure of the true cost of the bailout, especially as a 

guide to future policy responses.’’ 173 Therefore the simple question 

of whether the program ends with a negative or positive balance 

does not provide a complete answer to whether the program was 

necessary or properly designed and implemented.174

The Panel first addressed the question of whether, given the risk 

involved, Treasury had paid a premium for the assets purchased 


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175The February 2009 report also addressed the Systemically Significant Failing Institutions 

(SSFI) program, but this discussion focuses primarily on the CPP and the TIP. 176 As noted above, the Panel addressed the effect this had on smaller banks in the CPP in 

July of 2010. See 2010 July Oversight Report, supra note 105, at 3. 177 2009 February Oversight Report, supra note 84, at 5 (‘‘This program was intended for 

healthy banks: those that are sound and not in need of government subsidization. While a total 

of 317 financial institutions have received a total of $194 billion under the CPP as of January 

23, 2009, eight large early investments represent $124 billion, or 64 percent of the total. The 

eight were: Bank of America Corporation, Citigroup, Inc., JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs Group, Inc., PNC Financial Services Group, U.S. Bancorp, and Wells Fargo 

& Company.’’). 178 2009 February Oversight Report, supra note 84, at 5. 179 Assistant Secretary Allison added that, ‘‘Citi [ . . . ] could have difficulty funding themselves at that time. Their debt spreads had widened considerably, and so, in the opinion of their 

management, they were facing a very serious situation.’’ Congressional Oversight Panel, Testimony of Herbert M. Allison, Jr., assistant secretary for financial stability, U.S. Department of 

the Treasury, Transcript: COP Hearing on Assistance Provided to Citigroup Under TARP, at 27 

(Mar. 4, 2010) (online at cop.senate.gov/documents/transcript-030410-citi.pdf). 180See Email from Christopher J. Spoth to Sheila C. Bair (Nov. 21, 2008) (online at 

c0181567.cdn1.cloudfiles.rackspacecloud.com/2008-11-21%20FDIC%20Richardson% 

20Email%20re%2011-21-08%20Citi%20Liquidity%20Call%20Notes.pdf). See also Federal Deposit 

Insurance Corporation, Transcript of the Minutes of the Meeting of the Board of Directors, at 

4 (Nov. 23, 2008) (online at c0181567.cdn1.cloudfiles.rackspacecloud.com/2008-11- 

23%20Transcript%20of%20FDIC%20 

Board%20of%20Directors%20meeting,%20closed%20session.pdf); Federal Reserve Bank of New 

York, Memorandum to Citigroup Board of Directors (Jan. 14, 2009) (online at 

c0181567.cdn1.cloudfiles.rackspacecloud.com/2009-01-14%20FRBNY%20Summary%20 

of%20Supervisory%20Activity%20 and%20Findings%20on%20Citi.pdf). 181Federal Deposit Insurance Corporation, Transcript: Board of Directors Meeting (Jan. 15, 

2009) (online at c0181567.cdn1.cloudfiles.rackspacecloud.com/2009-01- 

15%20FDIC%20Board%20Meeting%20Transcript.pdf) (hereinafter ‘‘FDIC Transcript on Board of 

Directors Meeting’’). 

under the CPP in February of 2009. At that time, there had been 

no CPP repayments: the first repayment took place in March 2009, 

and thus the analysis performed was made without the benefit of 

knowing the current CPP returns.175 As noted above, while all of 

the investments under the CPP carry the same terms,176 the first 

investments in the CPP were made before Treasury instituted an 

application process, on the publicly stated grounds that all recipients were healthy—an assertion that came into question very rapidly.177

Shortly after the initial CPP investments, it became clear that 

the health of some of these initial recipients—particularly Bank of 

America and Citigroup—was less certain when soon after the initial CPP investments, these institutions received additional infusions through the TIP.178 Testifying in front of the Panel, Assistant 

Secretary of the Treasury for Financial Stability Herb Allison stated that, ‘‘I think that Citi, and a number of other banks, many 

banks, would have been on the brink of failure had the system not 

been underpinned by actions of the government—including the 

Federal Reserve and the U.S. Treasury.’’ 179 Subsequent emails 

made public in connection with the Financial Crisis Inquiry Commission’s work made it clear that within weeks after the initial 

CPP investments, the regulators in various banking agencies, including the FDIC and FRBNY, were aware that Citigroup was in 

a ‘‘negative and deteriorating’’ situation and that its financial condition was ‘‘marginal.’’ 180 Similarly, in mid-January 2009, minutes 

of a board meeting indicate that the FDIC was significantly concerned about Bank of America’s health, describing that entity’s capital situation as ‘‘strained’’ and expressing concern about a systemic 

event that disclosure of Bank of America’s operating results might 

cause.181


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182 2009 February Oversight Report, supra note 84, at 2. 

Nor was the market unaware of these differences among the big 

banks: an examination of the stock prices in the fall of 2008 of 

these nine banks shows that the market had a fairly accurate perception of their relative health—or lack thereof. Figure 11 details 

the percent change in stock prices of the nine banks from December 2005. Specifically, in February 2009 the monthly stock prices 

of Bank of America and Citigroup were below their December 2005 

levels by 91 percent and 97 percent, respectively. While all of the 

first nine banks to enter the CPP clearly saw dipping stock prices, 

two banks, Citigroup and Bank of America, consistently tracked 

the bottom of the group after December 2008. 

FIGURE 11: STOCK PRICE CHANGE OF THE FIRST NINE CPP BANKS (DECEMBER 2005– 

DECEMBER 2009) (RELATIVE TO DECEMBER 2005 LEVELS) 

Accordingly, even assuming that the other large banks that received the initial CPP infusions were equally healthy, by virtue of 

being made on the same one-size-fits-all terms, at a minimum the 

Bank of America and Citigroup CPP investments appear not to 

have properly priced the risk of investing in those entities. As the 

Panel warned in its February 2009 report, when the initial CPP returns were unknown, using a one-size-fits-all investment policy, 

rather than using risk-based pricing more commonly used in market transactions, meant that Treasury made its investments at a 

substantial premium to the market value of the assets purchased 

under the CPP.182 As the Panel stated: 

Treasury’s emphasis on uniformity, marketability, and 

use of call options in structuring TARP investments helped 

produce a situation in which Treasury paid substantially 

more for its TARP investments than their then-current 

market value. The decision to model the far riskier investments under the TIP . . . closely on the CPP transactions 

also effectively guaranteed that a substantial subsidy 


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183 2009 February Oversight Report, supra note 84, at 8. 184Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance and the 

David G. Booth Faculty Fellow, Booth School of Business, University of Chicago. Pietro 

Veronesi, Roman Family Professor of Finance, Booth School of Business, University of Chicago. 185Zingales and Veronesi note, however, that if the goal of the plan was to get full participation and avoid signaling effects, more stringent terms might have interfered. Pietro Veronesi 

and Luigi Zingales, Paulson’s Gift, Journal of Financial Economics, Vol. 97, No. 3, at 364 (Sept. 

2010) (hereinafter ‘‘Zingales & Veronesi: Paulson’s Gift’’). At the time of the initial CPP infusion, 

Wells Fargo had already reached an agreement to purchase Wachovia. The Panel’s reports have 

therefore consistently referred to the first nine banks: Professors Zingales and Veronesi refer 

in their paper both to the first nine and the first ten banks. 186 Id. at 364. 187 In the February report, the Panel noted that it appeared that private investors who made 

investments at around the same time received better terms and thus better valuations than 

Treasury. Two of the private transactions compared received assets worth more than their investment, and one received assets worth less than the investment, but still of greater worth 

than Treasury’s assets (these ranged from securities worth $123 on a $100 investment to $91 

on a $100 investment, as compared to Treasury’s average $66 on a $100 investment). 2009 February Oversight Report, supra note 84, at 4, 8. 188Zingales & Veronesi: Paulson’s Gift, supra note 185, at 364. 189These analyses are ex-ante, and not ex-post, and it is important to note that—to the best 

of the Panel’s knowledge—there is no current academic effort to value the private investments 

under discussion in this section. Further, since the private investments are ongoing, it is impossible to determine what their ultimate value will be, and an unforeseen shock to Goldman could 

impair Mr. Buffet’s returns in the future. 

would exist for these riskier institutions. Because Treasury 

decided to make all healthy bank purchases on precisely 

the same terms, stronger institutions received a smaller 

subsidy, while weaker institutions received more substantial subsidies.183

Professors Luigi Zingales and Pietro Veronesi came to a similar 

conclusion in their evaluation of the redistributive effects of Treasury’s initial investments into the first and largest banks.184 Examining the TARP interventions on an ex-ante basis, they found that 

the initial CPP terms provided these banks’ shareholders with a 

subsidy—or, as the authors put it, a gift—which they estimated to 

be between $21 and $44 billion. According to this study, the subsidy to the banks’ bondholders was even larger: $121 billion.185 The 

general effect of the intervention on enterprise value also differed: 

stronger institutions received lower and sometimes negative increases in enterprise value from the announcement of the TARP 

interventions, while weaker institutions received more.186

The subsequent positive returns on investment in the larger CPP 

banks—including Citigroup and Bank of America—should not obscure this point. Had Treasury more accurately priced the risk— 

and calibrated it to each investment, as a private investor would 

have done 187—Treasury’s upside returns would have been greater. 

In illustrating this principle, Professors Zingales and Veronesi compared Treasury’s returns using the terms of the CPP as implemented to Warren Buffet’s investment in Goldman at around the 

same time. Professors Zingales and Veronesi concluded that if 

Treasury had demanded Mr. Buffet’s terms, Treasury would in 

most cases have captured significant gains.188 Thus, if this analysis 

is correct, and although Mr. Buffet remains currently invested in 

Goldman and his ultimate returns are unknown, it is likely that 

Mr. Buffet will realize more on his investment in Goldman than 

Treasury realized for its similar TARP investment in that institution.189

Treasury was not, of course, acting as a normal private investor. 

Secretary Geithner recently stated that, ‘‘you can’t say because we 


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190Geithner Testimony to the Panel, supra note 119. 191 U.S. Department of the Treasury, Interim Assistant Secretary for Financial Stability Neel 

Kashkari Remarks on Financial Markets and TARP Update (Dec. 5, 2008) (online at 

www.treasury.gov/press-center/press-releases/Pages/hp1314.aspx). 192For example, in FDIC board minutes from the time, the FDIC board acknowledged that 

while the market was sensitive to Bank of America’s losses and liabilities from Countrywide and 

Merrill Lynch, the extent of the losses to which it was exposed would still be a surprise. See, 

e.g., FDIC Transcript on Board of Directors Meeting, supra note 181, at 22–23 (‘‘DIRECTOR 

REICH: Yes, I think there’s been the perception that B of A has been sort of—well, certainly 

their acquisitions of Countrywide and Merrill Lynch has given them greater exposure to losses, 

but there nevertheless has been the perception that they are among the strongest of institutions, 

and I think this is going to be a surprise to the market. . . . DIRECTOR DUGAN: . . . . My 

only comment would be, it would be a lot more surprise if it came out with a loss in November 

[unclear]....I mean, I think it will be a very big surprise, indeed, the size of the loss. That’s exactly the shock that I think we’re all fearful of and will generate the systemic risk that can 

have such harmful effects and the idea is that this will counteract that perception as much as 

possible.’’); Id. at 5 (‘‘MR. NEWBURY: The market reaction to Bank of America Corporation’s 

operating results may have systemic consequences given the size of the institution and the volume of counterparty transactions involved.’’). See also Email from Jennifer Burns, Federal Reserve Bank of Richmond, to Richard Cox, FDIC, and Morgan Morris, Office of the Comptroller 

of the Currency, discussing Bank of America (online at 

c0181567.cdn1.cloudfiles.rackspacecloud.com /2009-01- 

11%20FDIC%20Cox%20Email%20to%20Corston,%20Hoyer%20- 

%20FW%20Funding%20Vulnerabilities%20Memo.pdf). 193 In testimony before the Panel, Secretary Geithner stated that Professor Rogoff’s approach 

was fundamentally right. Geithner Testimony to the Panel, supra note 119 (stating that ‘‘what 

[Professor Rogoff] says is fundamentally right. You have to measure, as any investor would do, 

you have to measure return against risk.’’). 

priced our investments below the cost of credit that was available 

in the market in a time of a financial panic that we underpriced 

those investments. That would not be a fair way to evaluate it or 

a sensible way to run a financial emergency.’’ 190 In the early days 

of the CPP, Treasury said that its primary goal for the program 

was to stabilize the financial system.191 Thus, Treasury was acting 

as a government body with the goal not only of returns to taxpayers, but also of market stability. In an atmosphere of profound 

uncertainty as to the health of banks in general, the regulators 

questioned whether the market was fully prepared for the details 

of what the regulators knew to be true—that not all of the largest 

banks were alike and healthy, and that some were indeed very 

fragile.192 Accordingly, the fact that Treasury’s returns likely differ 

from those of a private investor is not, and should not, be the end 

of the inquiry or dispositive of future policy responses to a crisis. 

Nonetheless, Professor Rogoff’s cautions—with which Secretary 

Geithner has said he agrees 193—are not satisfied by observations 

that Treasury has since made money without recognizing that 

Treasury did not necessarily price the risk of its investments in all 

of the CPP recipients. 

3. Lessons Learned 

As noted above, between February 2009 and July 2010, the Panel 

examined questions about the policy, strategy, and execution of the 

TARP’s approach to bank assistance, how Treasury and the Federal Reserve allowed banks to repay TARP assistance, the financial 

stability of banks in the context of troubled assets and CRE losses, 

and small banks’ ability to exit Treasury’s CPP. From the Panel’s 

recommendations common themes emerged: transparency and accountability, forward-looking risk assessment, and the fact that one 

size does not necessarily fit all banks. These themes are discussed 

below. 


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194 2010 September Oversight Report, supra note 53, at 95–96. 195 2010 September Oversight Report, supra note 53, at 107. 196The Pew Research Center, Few Aware of TARP Repayment, Inflation Rate: Public Knows 

Basic Facts About Politics, Economics but Struggle with Specifics, at 1–2 (Nov. 18, 2010) (online 

at people-press.org/reports/pdf/677.pdf) (‘‘But the public continues to struggle with questions 

about the bank bailout program known as the TARP: Just 16 percent say, correctly, that more 

than half of loans made to banks under the TARP have been paid back; an identical percentage 

says that none has been paid back.’’). 

a. Transparency and Accountability 

In the reports on banking, the Panel has been consistent in its 

call for greater transparency. Fuller disclosure to the public instills 

confidence that the steps that Treasury has implemented to buttress the financial system are being executed in a prudent and fair 

manner. Accountability and transparency go hand in hand: there 

can be no accountability without transparency in decision-making. 

The taxpayers are only able to assess Treasury’s choices meaningfully if they get a complete picture of how those choices were made 

and why Treasury deemed those to be the most appropriate to recover the public’s investment, stabilize financial markets, and 

maximize return. Such disclosure would prevent the appearance of 

ad hoc decision-making and give Treasury an opportunity to take 

credit for any positive outcomes. The Panel recognizes that occasionally there are statutory and supervisory reasons to limit transparency about certain data; however, except in those limited circumstances, Treasury should always err on the side of greater disclosure. 

In some cases, and as mentioned above, this lack of transparency 

has made Treasury the target of criticism that it could have avoided had it been more open. Some economists believe that the TARP 

was the most visible of the government’s actions in addressing the 

financial crisis, and that being the public face of the intervention 

has contributed to its negative reputation 194—a difficulty that additional transparency might have alleviated. The Panel has pointed 

out on numerous occasions that a major source of the TARP’s 

unpopularity was insufficient transparency and inadequate communication. For instance, in the implementation of the CPP, Treasury 

initially indicated it was only infusing money into healthy banks. 

Later, when it became apparent that some participating banks 

were on the brink of failure, this not only tainted all participating 

banks (including healthy banks), but also diminished Treasury’s 

credibility with the public.195 Furthermore, with regard to TARP 

repayments by financial institutions small and large, Treasury has 

only issued some general statements on its overall repayment policy, instead of more detailed, case-by-case explanations for its approval of these repayments. Given the vast amounts of money involved, the public has a right to expect transparency and to hold 

Treasury accountable for its decisions. In addition, the lack of 

transparency may have contributed to the general misperceptions 

that exist about the TARP. Despite, for example, Treasury’s recovery of much of the money taxpayers initially invested, there is the 

lingering belief that the TARP was an extremely costly program.196

The transparency and accountability of Treasury’s various choices 

in the TARP may thus have significant implications not only for 


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197 2009 June Oversight Report, supra note 95, at 3–5. 198 2010 July Oversight Report, supra note 105, at 3. 199 Created by the FDIC less than two weeks after the enactment of EESA, the TLGP was 

intended to promote liquidity in the interbank lending market and confidence in financial instithe policies chosen during this crisis, but also for policymakers facing difficult questions in the future. 

b. Forward-Looking Risk Assessment 

Stress testing of banks was designed to assess whether banks on 

a forward-looking basis could withstand a variety of worst-case scenarios of economic events and still continue to be financially viable. 

Banking regulators have used these tests to require capital buffers 

to be built in advance of any problem, based on projections about 

the economy and its impact on banks’ operating results. While it 

would be unwise to think that stress testing could diagnose all of 

potential weaknesses of the banking system, it does determine the 

extent of problems in the market that are reasonably foreseeable.197 For example, although it is not known to what degree the 

current stress tests will take into account the effect on bank balance sheets of mortgage documentation irregularities, the Panel 

has urged the regulators to do so. 

c. One Size Does Not Necessarily Fit All 

Treasury provided capital to banks participating in the CPP 

under a single set of repayment terms designed at the outset of the 

program. However, the result has been that large banks have been 

much better served by the program than smaller banks. For the 

stress-tested banks, the CPP proved to be a short-term investment. 

They entered early, and most have exited early—beneficiaries of 

capital market confidence resulting, in part, from their ‘‘too big to 

fail’’ status. For smaller banks, by contrast, the CPP is a long-term 

investment, subject to market uncertainty, stigma, and pressure. 

Additionally, the purchase agreements between Treasury and the 

banks did not address differences in credit quality among various 

capital-infusion recipients through variations in contractual terms 

governing the investments. Nor did the purchase agreements impose specific requirements on a particular recipient that might 

have helped insure stability and soundness. 

The CPP had a different impact on large and small banks in part 

because these banks vary in a number of fundamental ways. Small 

banks are often privately held or thinly traded and have limited access to capital markets.198 Also, small banks are disproportionately 

exposed to CRE, where there remains substantial uncertainty 

about future performance. In addition, and finally, as small banks 

do not benefit from any ‘‘too big to fail’’ guarantee, their regulators 

have been quite willing to close them down. Therefore, designing 

a standardized program may be the quicker answer, but speed may 

not address differences among participants in a program. 

B. Guarantees and Contingent Payments 

Capital infusions were not the only tool that Treasury employed 

under the TARP to stabilize the banking sector. In fact, during the 

financial crisis of late 2008 and early 2009, the federal government 

dramatically expanded its role as a guarantor.199 All told, the fedVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00058 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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tutions. The U.S. government also developed two other initiatives with guarantee-like aspects. 

First, through the TALF, FRBNY served as a quasi-guarantor of the newly issued ABS by permitting participating ABS owners to default on their TALF loans without further recourse from 

the lender (the government). Second, the PPIP provides a quasi-guarantee to the markets by 

demonstrating the U.S. government’s willingness to subsidize private investments and implement measures to encourage market liquidity. 200 2009 November Oversight Report, supra note 60, at 13–14. 201 2009 November Oversight Report, supra note 60, at 43–44. 202 2009 November Oversight Report, supra note 60, at 43. 203 2009 November Oversight Report, supra note 60, at 43. 204See Section II.A.1.a, supra. As noted above, in FDIC board minutes from the time, the 

FDIC board acknowledged that the market was sensitive to Bank of America’s losses and liabilities from Countrywide and Merrill Lynch, although the extent of the losses to which it was 

exposed would still be a surprise. See, e.g., FDIC Transcript on Board of Directors Meeting, 

supra note 181, at 22–23. 205 2009 November Oversight Report, supra note 60, at 45. 206 2009 November Oversight Report, supra note 60, at 14, 40. Section 102 of EESA required 

the Secretary of the Treasury, if he created the TARP, also to ‘‘establish a program to guarantee 

troubled assets originated or issued prior to March 14, 2008, including mortgage-backed securities.’’ 

eral government’s guarantees have exceeded the total value of the 

TARP, making guarantees the single largest element of the government’s response to the financial crisis. 

1. Background 

As noted above, CPP infusions were not enough for some institutions. In a matter of weeks, two of the first nine institutions to receive CPP funds—Citigroup and Bank of America—needed additional support.200 Citigroup faced widening credit default swap 

spreads and losses due to write-downs on leveraged finance investments and securities, particularly in residential real estate. 

Citigroup’s stock price, which had been volatile, fell below $4 per 

share on November 21, 2008, from a high of over $14 per share just 

three weeks earlier. This constituted a loss of more than two-thirds 

of Citigroup’s market capitalization during those three weeks.201

Citigroup ultimately incurred a loss of $8.29 billion for the fourth 

quarter of 2008.202 For its part, Bank of America incurred its first 

quarterly loss in more than 17 years in the fourth quarter of 2008. 

These losses were largely due to escalating credit costs (including 

additions to reserves), and significant write-downs and trading 

losses in the capital markets businesses.203 In addition, the market 

feared Bank of America’s liability from its purchases of Merrill 

Lynch and Countrywide.204

Treasury, the Federal Reserve, and the FDIC stated that providing additional assistance to both institutions was necessary not 

only to keep them afloat, but also ‘‘to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.’’ Noting that 

at the end of 2008 no one knew what might happen to the economy 

next, Treasury stated that a driving force behind the decision to 

provide additional assistance was a fear that either institution’s 

failure would cause the same deep, systemic damage as had Lehman Brothers’ collapse.205

Part of the government’s additional assistance to Citigroup and 

Bank of America was provided through the Asset Guarantee Program (AGP), which Treasury created pursuant to Section 102 of 

EESA to guarantee certain distressed or illiquid assets that were 

held by systemically significant financial institutions.206 In Treasury’s view, asset guarantees would ‘‘calm market fears about really 

large losses,’’ thereby encouraging investors to keep funds in 


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207 2009 November Oversight Report, supra note 60, at 24–25, 46. As discussed above, while 

a provisional term sheet was drafted reflecting the outlines of Bank of America’s asset guarantee agreement (which was intended to resemble the Citigroup guarantee), the parties never 

agreed upon a finalized term sheet. 208 2009 November Oversight Report, supra note 60, at 54. 209 2009 November Oversight Report, supra note 60, at 6. 

Citigroup and Bank of America.207 Citigroup’s guarantee under the 

AGP ended in December 2009, following the partial repayment of 

its TARP assistance. 

In addition to the AGP, on September 19, 2008, two weeks before 

EESA was signed into law, Treasury announced the Temporary 

Guarantee Program for Money Market Funds (TGPMMF), which 

was designed to alleviate investors’ concerns that MMFs would 

drop below a $1.00 net asset value, an occurrence known as ‘‘breaking the buck.’’ 208 At the program’s height, it guaranteed $3.2174 

trillion in MMFs.209 The TGPMMF ended in September 2009. Similarly, the FDIC’s DGP, part of the TLGP, discussed in greater detail in Section I, placed the FDIC’s guarantee behind the debt that 

banks issued in order to raise funds that they could use to lend to 

customers. The DGP closed to new issuances of debt on October 31, 

2009. The FDIC will continue to guarantee debt issued prior to 

that date until the earlier of its maturity or June 30, 2012. 

2. Summary of COP Report and Findings 

The Panel’s November 2009 oversight report found that the income of several government-backed guarantee programs would 

likely exceed their direct expenditures, and that guarantees had 

played a major role in calming financial markets. These same programs, however, exposed American taxpayers to trillions of dollars 

in guarantees and created significant moral hazard that distorted 

the marketplace. Despite the guarantees’ significant impact, the 

contingent nature of guarantees, coupled with the limited transparency with which the guarantee programs were implemented, obscured the total amount of money that was being placed at risk. 

Some financial stabilization initiatives outside of the TARP, such 

as the FDIC’s DGP and Treasury’s TGPMMF, carried greater potential for exposure of taxpayer funds than the TARP itself. 

3. Panel Recommendations and Updates 

The extraordinary scale of these guarantees, the significant risk 

to taxpayers, and the corresponding moral hazard led the Panel to 

conclude that these programs should be subject to extraordinary 

transparency. The Panel strongly urged Treasury to provide regular, detailed disclosures about the status of the assets backing up 

the Citigroup AGP guarantee, the largest single guarantee offered. 

The Panel called upon Treasury to disclose greater detail about the 

rationale behind guarantee programs, the alternatives that might 

have been available and why they were not chosen, and whether 

these programs had achieved their objectives, including an analysis 

of why Citigroup and Bank of America were selected for the AGP 

and not others. The Panel also asked Treasury to provide a legal 

justification for its use of the Exchange Stabilization Fund to create the TGPMMF and to provide reports of the total number of 

MMFs participating in the program (or the total dollar value guaranteed), for each month that the program was in existence. 


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210 A recent SIGTARP audit provides some key disclosures relating to the AGP and the government’s decision to provide additional assistance to Citigroup. Not only does this audit detail 

Citigroup’s initial proposal for additional government assistance, but it also discusses several 

alternatives that were floated besides guarantees to address the lack of market confidence in 

Citigroup. These included the possibility of creating a conservatorship for Citigroup or creating 

a SPV or public-private investment fund to purchase troubled assets from Citigroup with government funds. Office of the Special Inspector General for the Troubled Asset Relief Program, 

Extraordinary Financial Assistance Provided to Citigroup, Inc., at 17–21 (Jan. 13, 2011) (online 

at www.sigtarp.gov/reports/audit/2011/Extraordinary%20Financial%20Assistance%20Provided 

%20to%20Citigroup,%20Inc.pdf). 211This figure includes the entirety of the governments exposure to the Citigroup and Bank 

of America guarantees, $259 billion and $97 billion respectively, as well as the maximum 

amount outstanding under the TLGP ($346 billion in May 2009), and the size of the money market fund at the time Treasury enacted its guarantee ($3.7 trillion). Federal Deposit Insurance 

Corporation, Monthly Reports on the Temporary Liquidity Guarantee Program (Instrument 

Used: Debt Issuance under Guarantee Program, Debt Outstanding) (May 31, 2009) (online at 

www.fdic.gov/regulations/resources/tlgp/total_issuance5-09.html). For details regarding the loss 

exposure for Treasury, the FDIC, and the Federal Reserve to Citigroup and Bank of America 

guarantees, see U.S. Department of the Treasury, Master Agreement Among Citigroup Inc., Certain Affiliates of Citigroup Inc. Identified Herein, Department of the Treasury, Federal Deposit 

Insurance Corporation and Federal Reserve Bank of New York, at 6–8, 13 (Jan. 15, 2009) (online 

at www.treasury.gov/initiatives/financial-stability/investment-programs/agp/Documents/ 

Citigroup_01152009.pdf); Federal Deposit Insurance Corporation, Summary of Terms (Jan. 15, 

2009) (online at www.fdic.gov/news/news/press/2009/pr09004a.pdf). IMMFA: Frequently Asked 

Questions, supra note 27. 212 2009 November Oversight Report, supra note 60, at 85. 

To date, Treasury has not disclosed any of the information the 

Panel requested concerning the various guarantee programs it 

launched during the financial crisis, although a SIGTARP audit recently disclosed information germane to the Panel’s requests.210 As 

noted above, the temporary guarantee program for MMFs terminated in September 2009 and the Citigroup AGP terminated in December 2009. 

4. Lessons Learned 

As the Panel pointed out in its November 2009 oversight report, 

it is impossible to attribute specific results to a particular initiative 

given that so many stabilization initiatives have been in use. The 

guarantees provided by Treasury, the Federal Reserve, and the 

FDIC helped restore confidence in financial institutions, and did so 

without significant expenditure, initially at least, of taxpayer 

money. Moreover, as the market has stabilized and the scope of the 

programs has decreased, the likelihood diminishes that any such 

expenditure will be necessary. Additionally, the U.S. government— 

and thus the taxpayers—have benefited financially from the fees 

charged for guarantees. 

This apparently positive outcome, however, was achieved at the 

price of a significant amount of risk. A significant element of moral 

hazard was injected into the financial system at that time and a 

very large amount of money was at risk. At its high point, the federal government guaranteed or insured $4.4 trillion in face value 

of financial assets under the three major guarantee programs.211 In 

addition, while circumstances may have led the government into 

ad-hoc reactions to the financial crisis, rather than permitting it to 

develop clear and transparent principles, the result is that government intervention has caused confusion and muddled expectations.212


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213 Congressional Oversight Panel, August Oversight Report: The Global Context and International Effects of the TARP, at 3–4 (Aug. 12, 2010) (online at cop.senate.gov/documents/cop081210-report.pdf) (hereinafter ‘‘2010 August Oversight Report’’). 214 Id. at 29. 

C. Global Context and International Effects of the TARP 

Many of the banks at the center of the TARP interventions had 

substantial global operations. Similarly, the U.S. banking sector 

contains multiple financial institutions headquartered elsewhere, 

but active in the U.S. economy. The crisis showed that these sorts 

of cross-border links within the financial system could magnify 

rather than reduce risks. In order to examine the effects of these 

links on financial stability, the Panel’s August 2010 report addressed the international effects of the TARP. 

1. Background 

In an earlier era, a mortgage crisis that started in a few regions 

in the United States might have ended there as well. But by 2008, 

the global financial system had become deeply internationalized 

and interconnected. Mortgages signed in Florida, California, and 

Arizona were securitized, repackaged, and sold to banks and other 

investors in Europe, Asia, and around the world. At the same time, 

other countries experienced their own housing booms fueled by new 

financial products. 

The conventional wisdom in the years immediately before the crisis held that banks that operated across global markets were more 

stable, given their ability to rely on a collection of geographically 

dispersed businesses. The conventional wisdom, however, was 

proved wrong. Using short-term liabilities (funding from the overnight and other short-term markets, often dollar-denominated) to 

purchase long-term assets such as RMBS, many firms simply recreated the classic problem faced by commercial banks prior to the 

securitization of mortgages, creating a mismatch in the length of 

liabilities and assets. When subprime borrowers began to default 

on their mortgages, banks around the world discovered that their 

balance sheets held the same deteriorating investments. The danger was amplified by the high leverage created by layers of financial products based on the same underlying assets. When shortterm lenders began to question the ability of banks to repay their 

obligations, markets froze, and the international financial system 

verged on chaos.213 The result was a truly global financial crisis, 

and the interconnections within the global financial marketplace 

and the significant cross-border operations of major U.S. and foreign-based firms widened the fallout of the crisis, requiring a 

multi-pronged response by a host of national regulators and central 

banks.214

For the most part, governments across the globe responded to the 

crisis on an ad hoc basis as it unfolded. What this meant was that 

most of the responses were tailored to address immediate problems 

and they tended to target specific institutions or specific markets, 

rather than the entire financial system. Home country regulators 

generally took responsibility for banks headquartered in their jurisdictions, and the evidence suggests that assistance was doled out 

less to stabilize the international financial landscape than to reVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00062 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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215 Id. at 35. 216 Id. at 3–4. Treasury also stated that it coordinated extensively with its foreign counterparts throughout the financial crisis. Id. at 96. 217 A swap line functions as follows: as the borrowing central bank draws down on its swap 

line, it sells a specified quantity of its currency to the lending central bank in exchange for the 

lending central bank’s currency at the prevailing market exchange rate. The two central banks 

simultaneously enter into an agreement that obligates the borrowing central bank to buy back 

its currency at a future date at the same exchange rate that prevailed at the time of the initial 

draw, plus interest. The borrowing central bank then lends the dollars at variable or fixed rates 

to entities in its country. Id. at 107–108. The majority of the swap line programs established 

by the Federal Reserve terminated on February 1, 2010, but in response to the European sovereign debt crisis, the Federal Reserve reestablished its swap line facilities by entering into 

agreements with the European Central Bank and other major central banks (the Bank of England, the Swiss National Bank, the Bank of Canada, and the Bank of Japan) in May 2010 in 

order to counteract a shortage of dollar liquidity. These swaps were authorized through January 

2011. In addition, on December 21, 2010, the Federal Reserve Board authorized an extension 

through August 1, 2011, of its temporary U.S. dollar liquidity swap arrangements with the Bank 

of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss 

National Bank. See Board of Governors of the Federal Reserve System, Credit and Liquidity 

Programs and the Balance Sheet, at 8–9 (Feb. 2011) (online at www.federalreserve.gov/ 

monetarypolicy/files/monthlyclbsreport201102.pdf). 218 2010 August Oversight Report, supra note 213, at 117. 219 2010 August Oversight Report, supra note 213, at 3–5. 

spond to potential fallout across a particular domestic market.215

There was, however, substantial cross-border coordination between 

financial authorities and central banks of foreign governments to 

establish TARP-like programs.216 For example, in response to market disruptions, the Federal Reserve and other central banks established reciprocal currency arrangements, or swap lines, starting in 

late 2007.217 The Federal Reserve’s swap line programs enhanced 

the ability of foreign central banks to provide U.S. dollar funding 

to financial institutions in their jurisdictions at a time when interbank lending was effectively frozen. Most countries ultimately intervened in similar ways and used the same basic set of policy 

tools: capital injections to financial institutions, guarantees of debt 

or troubled assets, asset purchases, and expanded deposit insurance.218

2. Summary of COP Report and Findings 

The Panel’s August 2010 oversight report examined the TARP in 

an international context, describing how the financial crisis that 

began in 2007 exposed the interconnectedness of the global financial system. By 2008, the global financial system had become deeply internationalized and interconnected. Although the crisis began 

with subprime mortgage defaults in the United States, its damage 

spread rapidly overseas and it quickly evolved into a global financial crisis. Faced with the possible collapse of their most important 

financial institutions, many national governments intervened. 

While the United States attempted to stabilize the system by flooding money into as many banks as possible—including those that 

had significant overseas operations—most other nations targeted 

their efforts more narrowly toward institutions that in many cases 

had no major U.S. operations. While it was difficult to assess the 

precise international impact of the TARP or other U.S. rescue programs because Treasury gathered very little data on how TARP 

funds flowed overseas, it appeared likely that America’s financial 

rescue had a much greater impact internationally than other nations’ programs had on the United States.219


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220See Sullivan & Cromwell LLP, Basel III and FSB Proposals (Nov. 15, 2010) 

(www.sullcrom.com/files/Publication/27b4dd5f-05fd-4f6b-b49e-21caae447eee/Presentation/ 

PublicationAttachment/6cdbbb2e-1103-4c89-b0d5-23f7341d2b4c/ 

SClPublicationlBasellIIIlandlFSBlProposals.pdf). 221Federal Deposit Insurance Corporation, Statement of John Corston, Acting Deputy Director, 

Complex Financial Institution Branch, Division of Supervision and Consumer Protection, Federal 

Deposit Insurance Corporation on Systemically Important Institutions and the Issue of ‘‘Too Big 

to Fail’’ (Sept. 1, 2010) (online at www.fdic.gov/news/news/speeches/archives/2010/ 

spsep0110.html). 222See Simon Johnson Testimony to the Panel, supra note 120. See also Jeffrey N. Gordon, 

The Dangers of Dodd-Frank (Oct. 15, 2010) (online at www.law.com/jsp/nylj/ 

PubArticleNY.jsp?id=1202473381266). 

3. Panel Recommendations and Updates 

Improved Data Collection and Reporting. In its August 2010 

Oversight Report, the Panel called upon Treasury to collect and report more data about how the TARP and other rescue funds flowed 

internationally, to document the impact that the U.S. rescue had 

overseas, to create and maintain a database of this information, to 

urge foreign regulators to collect and report similar data, and to 

make international regulatory bodies and their interactions with 

U.S. regulators open and transparent. The Panel also urged U.S. 

regulators to make clear to policymakers the impact that such 

international regulatory bodies have on the U.S. banking industry 

and broader economy. It does not appear that Treasury has acted 

upon this recommendation. 

‘‘War gaming’’ Exercises. The Panel also recommended that 

the international community gather information about the international financial system, identify vulnerabilities, and plan for 

emergency responses to a wide range of potential future crises. The 

Panel called upon U.S. regulators to encourage regular crisis planning and financial ‘‘war gaming.’’ 

Though no regulatory body has yet reported results from financial ‘‘war gaming,’’ a broad array of international standard-setting 

bodies, including the Basel Committee on Banking Supervision and 

national authorities, under the coordination of the Financial Stability Board, are in the midst of quantifying and finalizing key elements of regulatory reform. The Financial Stability Board, which 

includes the G20 (a group of 20 nations consisting of both industrialized and emerging economies), will assess financial system 

vulnerabilities, promote coordination and information exchange 

among authorities, advise and monitor best practices to meet regulatory standards, set guidelines for and support the establishment 

of supervisory colleges, and support cross-border crisis management and contingency planning. At the Seoul Summit in November 

2010, the G20 leaders endorsed the Financial Stability Board policy 

framework, including its work processes and timelines, for reducing 

the moral hazard of systemically important financial institutions.220 Regulators are also working with international bodies to 

coordinate responses in the event of a large cross-border bank failure.221 U.S. regulators do not have the authority to resolve foreign 

parents of U.S. subsidiary firms that fail in the United States and 

only have authority over the U.S. parent companies and U.S. subsidiaries of U.S. entities,222 making international cooperation helpful for the successful resolution of large, transnational banks. 


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223 2010 August Oversight Report, supra note 213, at 116–117. 224 2010 August Oversight Report, supra note 213, at 116. 225 2010 August Oversight Report, supra note 213, at 117. 226 2010 May Oversight Report, supra note 110, at 3; Congressional Oversight Panel, Written 

Testimony of Paul Smiley, president, Sonoran Technology and Professional Services, Phoenix 

Field Hearing on Small Business Lending, at 2 (Apr. 27, 2010) (online at cop.senate.gov/documents/testimony-042710-smiley.pdf). 227 Congressional Oversight Panel, May Oversight Report: Reviving Lending to Small Businesses and Families and the Impact of the TALF, at 12 (May 7, 2009) (online at cop.senate.gov/ 

documents/cop-050709-report.pdf) (hereinafter ‘‘2009 May Oversight Report’’). 

4. Lessons Learned 

As the Panel highlighted in its August 2010 oversight report, the 

international response to the crisis that started in 2007 developed 

on an ad hoc, informal, jurisdiction-by-jurisdiction basis. Despite 

the limitations of international coordination, macro-economic responses taken by central banks, which had broader discretion to 

design liquidity facilities, were the most coordinated.223 Governments ultimately made their decisions, however, based on an evaluation of what was best for their own banking sector and their domestic economy: consideration of the specific impact of their actions 

on the financial institutions, banking sector, or economies of other 

jurisdictions was not a high priority. This was due to both the 

rapid and brutal pace of the crisis as well as the absence of effective cross-border crisis response structures. Ultimately, this meant 

that the assistance that was provided to specific troubled institutions depended very much on where they were headquartered.224

Although these ad hoc actions ultimately restored a measure of 

stability to the international system, there is no doubt that international cooperation could be improved. The internationalization of 

the financial system has, in short, outpaced the ability of national 

regulators to respond to global crises.225

III. Credit Markets: Small Business and Consumer Lending 

As noted above, the majority of the Panel’s reports have addressed topics relevant to the banking sector. Bank health and 

credit markets are opposite sides of the same coin, because a 

healthy bank with a solid balance sheet is in a better position to 

respond to demand for credit. Accordingly, this section discusses 

the impact of the financial crisis and subsequently the TARP on 

credit markets. 

A. Background 

1. Small Business Lending 

Credit is critical to the ability of all businesses to purchase new 

equipment or new properties, expand their workforce, and fund 

their day-to-day operations. If credit is unavailable, businesses may 

be unable to meet current business demands or to take advantage 

of opportunities for growth.226 In contrast to large corporations, 

small businesses are generally less able to access the capital markets directly and thus are more vulnerable to a credit crunch. The 

result of reduced access to credit can be that too few small businesses start and too many stall—a combination that can hinder 

economic growth and prolong an economic downturn.227


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228 Board of Governors of the Federal Reserve System, U.S. Credit Cycles: Past and Present, 

at 4 (online at www.treasury.gov/initiatives/financial-stability/results/cpp/cpp-report/Documents/ 

Fed%20US%20Credit%20Cycles%20072409.pdf) (accessed Mar. 11, 2011) (‘‘. . . credit growth 

typically declines prior to and during economic downturns’’). 229The National Bureau of Economic Research, the body responsible for determining when 

shifts in the business cycle occur, stated that the most recent recession began in December 2007 

and ended in June 2009. NBER: US Business Cycle, supra note 21. The sharp jump in loans and leases to $7.0 trillion in the spring of 2010 is predominantly due to the implementation of 

FAS 166/167, which required institutions to bring all loans held in variable interest entities onto 

their balance sheets. Since then, outstanding loans and leases have steadily decreased. 230 It is difficult to isolate new lending due to reporting standards of banks. As part of the 

TARP, banks that received assistance were required to report on their lending. Treasury used 

those data to publish a survey of the top 22 CPP recipients. However, Treasury did not require 

TARP recipients that repaid their funds to continue reporting, thereby leaving a deficiency of 

data on new lending by the nation’s largest banks. Treasury continued publishing the Capital 

Purchase Program Monthly Lending Report, which measures only three metrics of the 26 measured by the survey of the top 22 CPP recipients. 2010 May Oversight Report, supra note 110, 

at 28. 

During the financial crisis, bank lending to individuals and businesses decreased across the board due to market uncertainty and 

continued credit quality deterioration.228 As Figure 12 shows, the 

amount of loans and leases outstanding at commercial banks 

dropped to $6.5 trillion in the spring of 2010 from its level of $7.3 

trillion outstanding in October 2008.229 As loans and leases outstanding have declined, the amount of cash assets held as a portion 

of total loans and leases has increased. Following the government’s 

initial $125 billion investment in the first nine TARP participants 

in October 2008, the cash to loans ratio more than doubled, from 

7 percent to its December 2010 level of 16 percent.230 While an increased cash to loan ratio is not necessarily a negative sign, as it 

conveys a desire to ensure adequate cash reserves, the continued 

decrease in loans outstanding shows that there continues to be a 

decrease in the amount of credit in the market. 


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231The considerable increase in loans and leases outstanding in this graphic in early 2010 is 

due to the adoption of the Financial Accounting Standards Board’s Financial Accounting Statements No. 166 and No. 167 as of the week ending March 31, 2010. These rules changed the 

accounting standards for financial assets and led to domestically chartered commercial banks 

consolidating approximately $377.8 billion in assets and liabilities on their balance sheets at the 

end of the first quarter 2010. Financial Accounting Standards Board, FASB Issues Statements 

166 and 167 Pertaining to Securitizations and Special Purpose Entities (June 16, 2009) (online 

at www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_C/ 

NewsPage&cid=1176156240834); Board of Governors of the Federal Reserve System, Assets and 

Liabilities of Commercial Banks in the United States—Notes on the Data (Apr. 9, 2010) (online 

at www.federalreserve.gov/releases/h8/h8notes.htm#notes_20100409); Treasury Transactions Report, supra note 36. 232 A source of information on trends is the Federal Reserve’s Senior Loan Officer Opinion 

Survey on Bank Lending Practices, which is based on quarterly data reported by the Survey 

of Senior Loan Officers respondents and addresses changes in the supply of and demand for 

loans to businesses and households. See Board of Governors of the Federal Reserve System, January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, at 7 (Jan. 31, 2011) 

(online at www.federalreserve.gov/boarddocs/snloansurvey/201102/fullreport.pdf) (hereinafter 

‘‘January 2011 Senior Loan Officer Survey’’). 233 2010 May Oversight Report, supra note 110, at 17. 234 2010 May Oversight Report, supra note 110, at 3. 

FIGURE 12: LENDING AND CASH ASSETS AT COMMERCIAL BANKS 231

While it is difficult to gather data specifically about small business credit or to generalize across small business market participants, credit began to tighten for small businesses in early 2008 

and worsened over the course of 2009.232 For loans to small businesses, in the first quarter of 2008, 51.8 percent of the Federal Reserve’s Survey of Senior Loan Officers respondents reported that 

they had tightened credit standards. By the fourth quarter of that 

year, that percentage had risen to 69.2 percent. Credit remained 

tight during the first part of 2009: in the first quarter, 42.3 percent 

of the Survey of Senior Loan Officers respondents reported that 

they had tightened credit standards. The numbers of Senior Loan 

Officers reporting tightening credit eventually leveled off, reflecting 

the fact that most banks had already tightened their lending standards.233 Unable to find credit, many small businesses shut their 

doors, and some of the survivors are still struggling to find adequate financing.234 At an acute phase of the crisis, the Panel found 

compelling reports of slowed lending at its April 2009 field hearing 

in Milwaukee, Wisconsin. On the one hand, small business owners 

discussed their lack of access to credit at that hearing. Anecdotally, 


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235 2009 May Oversight Report, supra note 227, at 13–14; Congressional Oversight Panel, 

Hearing on the Credit Crisis and Small Business Lending (Apr. 29, 2009) (online at 

cop.senate.gov/hearings/library/hearing-042909-milwaukee.cfm) (full audio recording). 236 2010 May Oversight Report, supra note 110, at 62–63. 237The withdrawal of consumer and small business loans because of a disproportionate exposure to commercial real estate capital creates a ‘‘negative feedback loop’’ that suppresses economic recovery. See Section II. 238 2009 May Oversight Report, supra note 227, at 4, 12–13. According to the Federal Reserve 

Board’s January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, a small 

fraction of banks reported they were continuing to ease standards for commercial and industrial 

(C&I) loans over the fourth quarter of 2010 to large and medium-size firms, but few reported 

changing standards on such loans to small businesses. January 2011 Senior Loan Officer Survey, supra note 232, at 4, 13. While the respondents reported a moderate increase in demand 

for C&I loans, there was little if any change in demand for other types of loans. Reports of 

strengthened demand for C&I loans were more widespread than in the previous survey. Approximately 5 percent of banks reported increased demand from small businesses. Id. 239 2009 May Oversight Report, supra note 227, at 19–20. 

small business owners who testified suggested that their banks, 

which had received TARP injections, had been unable to fulfill 

their credit needs, which ranged from additional loans to restructuring or even sustaining existing lines of credit. On the other 

hand, the community bankers who testified at the field hearing 

highlighted their efforts to extend credit to their small business 

customers. Two witnesses representing community banks emphasized that they were continuing to lend throughout the crisis, while 

acknowledging that they had no choice but to pursue new opportunities cautiously.235

During the crisis, many larger banks pulled back from the small 

lending market.236 Some borrowers looked to community banks to 

pick up the slack, but smaller banks remained strained by both 

their exposure to CRE, which continued to pose a risk to the economic viability of banks, and other liabilities.237 In addition, many 

of the government programs aimed at banks were arguably designed more to provide relief for the kinds of assets held by larger 

banks, and have had little effect on the smaller banks now bearing 

a greater share of small business lending. Even now, with a cautious recovery under way in many sectors, standards for small 

business lending have remained tight, easing only very slightly by 

the fourth quarter of 2010.238

2. Consumer Lending 

Leading into the financial crisis, families were deep in debt, including mortgages, auto loans, credit cards and student loans. 

Families were left with little savings, while declines in the value 

of housing and in the stock market further shrunk household net 

worth. As wages stagnated and unemployment rose, the ability of 

households to manage ever-larger debt loads became increasingly 

difficult. 

During late 2008 and into 2009, consumer credit indicators 

showed the tightening of the credit markets and the effect on 

household borrowing. This reduction in credit availability can be 

seen through rising interest rates and higher lending standards, as 

well as through reductions in the rate and overall volume of lending. In the fourth quarter of 2008, consumer spending on goods and 

services fell 4.3 percent—a decline responsible for nearly half of the 

reported 6.2 percent annualized contraction in GDP. This was the 

largest spending decrease in 29 years.239 At the same time, the recession impacted demand for borrowing, as households paid down 


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240 2009 May Oversight Report, supra note 227, at 25–30. 241 In April 2010, Treasury reduced its planned investment commitments for the Consumer 

and Business Lending Initiative from $60 billion to $52 billion. The $52 billion of the Consumer 

and Business Lending Initiative was comprised of $20 billion for the TALF, $30 billion reserved 

for the SBLF (separate from the TARP through legislation), not more than $1 billion for the 

CDCI Program, and not more than $1 billion for the SBA 7(a) Securities Purchase Program. 

U.S. Department of the Treasury, Troubled Asset Relief Program Monthly 105(a) Report—March 

2010, at 7 (Apr. 12, 2010) (online at www.treasury.gov/initiatives/financial-stability/briefingroom/reports/105/Documents105/March%202010%20105(a)%20monthly%20report_final.pdf). 

Before and after passage of the Dodd-Frank Act, Treasury announced changes in the planned 

commitments under the TARP, including changes to its small business-related initiatives. Treasury reserved $5.48 billion for the Consumer and Business Lending Initiative in July 2010, of 

which (i) $4.3 billion was allocated to TALF, (ii) $337 million was disbursed from the $400 million allocated for SBA 7(a) securities purchases, and (iii) $570 million was disbursed from the 

$780 million allocated for the CDCI. See U.S. Department of the Treasury, Troubled Asset Relief 

Program Monthly 105(a) Report—July 2010, at 4–6 (Aug. 10, 2010) (online at www.treasury.gov/ 

initiatives/financial-stability/briefing-room/reports/105/Documents105/ 

July%202010%20105(a)%20Report_Final.pdf). As of the expiration of Treasury’s authority to 

make new financial commitments under the TARP on October 3, 2010, its Consumer and Business Lending Initiative commitment stood at approximately $5.2 billion. See U.S. Department 

of the Treasury, Troubled Asset Relief Program Monthly 105(a) Report—December 2010, at 3 

(Jan. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/ 

105/Documents105/December105(a)%20report_FINAL_v4.pdf) (hereinafter ‘‘TARP Monthly 

105(a) Report—December 2010’’). 

debts built up during the boom years, which contributed to the economic contraction. Overall, the trend across the sector was one of 

debt reduction, credit limit decreases, rising delinquencies, and 

tightening lending standards.240 The aggregate decline in consumer 

lending was likely due to a combination of deleveraging by households and reduced access to credit. 

3. Government Efforts to Stimulate Small Business and Consumer Lending 

Since the onset of the financial crisis, the federal government has 

instituted a series of programs designed to support lending and liquidity in the consumer and small business credit markets. Since 

the TARP’s inception, Treasury has announced almost $60 billion 

in funding for TARP programs for small business-related initiatives, but it has reduced that commitment to approximately $5.2 

billion over the past year.241 The government initiatives predominantly included additional support for Small Business Administration (SBA) programs, capital infusions for smaller banks, and various efforts to stimulate secondary markets for bank assets in 

hopes of easing the stresses on bank balance sheets and freeing 

banks to make more loans. 

a. SBA Programs 

In stable credit markets, the government’s effort to facilitate 

small business lending relies chiefly on programs run by the SBA. 

The SBA acts as direct lender or, more often, guarantor in the 

small business lending sector. Guarantees, which comprise the bulk 

of the SBA’s outstanding loan portfolio, derive from the agency’s 

7(a) and 504 loan programs and its Small Business Investment 

Company Program. Under its 7(a) program, the SBA is authorized 

to guarantee loans for working capital. Under its 504 program, the 

SBA is authorized to guarantee loans for the development of small 

assets such as land, buildings, and equipment that will benefit 

local communities. Direct loans originate from the SBA’s microloan 

and disaster loan programs. While SBA programs have helped proVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00069 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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242 2010 May Oversight Report, supra note 110, at 42. 243 2009 May Oversight Report, supra note 227, at 14, 30–42. 244 2010 May Oversight Report, supra note 110, at 45. 245Moreover, ARRA temporarily eliminated up-front fees that the SBA charges on 7(a) loans 

that increase the cost of credit for small businesses, and temporarily eliminated certain processing fees typically charged on 504 loans. ARRA also included a Business Stabilization Program 

that allowed the SBA to guarantee fully loans to ‘‘viable’’ small businesses experiencing shortterm financial difficulty (up to $35,000). 

Pursuant to H.R. 5297, the Small Business Jobs Act of 2010, the SBA loan guarantee enhancement provisions relating to guarantees and fees were extended through December 31, 

2010. 246 U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, 

at 33 (Oct. 5, 2010) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/agencylreports/Documents/TARP%20Two%20Year%20Retrospectivel10%2005%2010l 

transmittal%20letter.pdf) (hereinafter ‘‘TARP: Two Year Retrospective’’). 247Small Business Jobs and Credit Act of 2010, Pub. L. No. 111–240 (2010). 

mote lending to small businesses, SBA-guaranteed loans constitute 

only a small percentage of total small business lending.242

During the financial crisis, however, SBA lending declined considerably, even though those loans can be a fallback for business 

owners who fail to obtain conventional loans. The tightening of 

credit in the SBA lending markets mirrored the tightening of credit 

in conventional markets for small business loans, with loan volume 

decreasing over the course of 2008. In the fall of 2008, the secondary market for SBA 7(a) loans froze altogether. Unable to shed 

the associated risk from their books and free up capital to make 

new loans through securitization, commercial lenders significantly 

curtailed both their SBA lending and other lending activities. The 

decline in SBA lending became even more pronounced in the early 

months of 2009 while commercial lending remained very constricted, thus leading to few sources of credit for small businesses.243

In an effort to increase SBA lending, the American Recovery and 

Reinvestment Act (ARRA) included a provision that reduced the 

risk to private lenders by temporarily increasing the government 

guarantee on loans issued through the SBA’s 7(a) loan program to 

as much as 90 percent.244 The SBA began implementing the increased guarantee program in March 2009.245

b. Capital Infusions 

i. CDCI 

On October 21, 2009, the White House announced a small business lending initiative under the TARP, the CDCI, to invest lower 

cost capital in community development financial institutions 

(CDFIs). As of the CDCI’s close in September 2010, Treasury had 

provided to 84 community development financial institutions approximately $570.1 million (approximately $363.3 million of this 

amount was a result of exchanges from CPP by 28 institutions) of 

the $780.2 million it originally allocated for this program.246 Treasury did not require community development financial institutions 

to use the capital to increase small business lending as a condition 

of participating in CDCI. 

ii. SBLF 

On September 27, 2010, President Barack Obama signed the 

Small Business Jobs and Credit Act of 2010 into law.247 This legislation created the SBLF, which was created outside the TARP and 


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248For further discussion concerning the SBLF, see Section III, infra. On December 20, 2010, 

Treasury issued guidance under which CDCI recipients can refinance into the SBLF. Banks that 

participate in the SBLF will not be able to continue to participate in the CDCI, must be in compliance with all the terms, conditions, and covenants of the CDCI in order to refinance, and 

must be current in their dividend payments owed to Treasury under the CDCI. U.S. Department 

of the Treasury, Resource Center—Small Business Lending Fund (Dec. 20, 2010) (online at 

www.treasury.gov/resource-center/sb-programs/Pages/Small-Business-Lending-Fund.aspx) (hereinafter ‘‘Treasury Resource Center—SBLF’’). 249 H.R. 5297 § 4103(d)(4), 111th Cong. (2010); H.R. 5297 § 4103(d)(7)(B), 111th Cong. (2010). 

Banks may be put on the Problem Bank List for a number of reasons, including failure to 

achieve certain capital ratios, the issuance of cease and desist orders, and other regulatory actions. 250Generally, only SBA-guaranteed loans are securitized, and they constitute only a small 

fraction of small business lending. 2010 May Oversight Report, supra note 110, at 42; 2009 May 

Oversight Report, supra note 227, at 50–58. 

aims to stimulate small business lending by providing capital to 

participating community banks at interest rates keyed to small 

business lending levels.248 The capital is in the form of a preferred 

stock investment with a variable dividend rate: it starts at 5 percent and can be reduced to as low as 1 percent or increased to as 

high as 7 percent, depending on small business lending levels. As 

small business lending increases, a bank will receive a reduced dividend rate on the funds borrowed. If small business lending fails 

to increase, the bank will pay increased dividend rates on the funds 

borrowed. After four and a half years, the dividend rate will increase to 9 percent regardless of the change in small business lending levels. The SBLF will be open to banks that received funds 

from the TARP’s CPP as well as those that did not. The legislation 

limits participation in the SBLF to banks with under $10 billion 

in assets, and it prohibits participation by institutions on the 

FDIC’s Problem Bank List and by TARP recipients that have 

missed more than one dividend payment.249 Generally speaking, 

the SBLF will provide capital on terms that are more favorable 

than the CPP offered. 

c. Supporting Secondary Markets 

Starting in November 2008, Treasury and the FRB emphasized 

revival of the securitization markets, not simply basic bank lending, to restore the flow of credit to small businesses and families. 

The government developed numerous initiatives for supporting secondary lending markets. Secondary markets allow depository institutions either to sell or securitize loans, converting potentially illiquid assets into cash and shifting assets off their balance sheets. 

From the outset, however, this approach raised a variety of issues, 

including whether the program would meaningfully affect access to 

credit for small businesses because only a small fraction of small 

business loans are securitized, limiting the effectiveness of secondary market-driven programs for small business loans.250

i. TALF 

Driven by the ABS market freeze in the fall of 2008, the Federal 

Reserve and Treasury announced the creation of the TALF in late 

November 2008. The TALF was designed to promote renewed 

issuance of consumer and business ABS at more normal interest 

rate spreads. As demonstrated in Figure 13 below, the majority of 

TALF ABS issuances were consumer lending-related, but only a 

small percentage of transactions occurred in the small business secVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00071 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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251Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms 

and Conditions (July 21, 2010) (online at www.newyorkfed.org/markets/talf_terms.html); Board 

of Governors of the Federal Reserve System, Press Release (July 20, 2010) (online at 

www.federalreserve.gov/newsevents/press/monetary/20100720a.htm). 252The TALF provided investors with non-recourse loans secured by certain types of ABS, including credit card receivables, auto loans, equipment loans, student loans, floor plan loans, insurance-premium finance loans, loans guaranteed by the SBA, residential mortgage servicing 

advances, and commercial mortgage-backed securities (CMBS). The chart reflects all TALF ABS 

issuances, but does not reflect CMBS issuances. 253 2010 May Oversight Report, supra note 110, at 41. 254 2010 September Oversight Report, supra note 53, at 53–54. 255TARP: Two Year Retrospective, supra note 246, at 43. 

Securities purchased by Treasury comprised approximately 700 loans ranging across approximately 17 industries including retail, food services, manufacturing, scientific and technical services, health care, and educational services. The program supported loans from 39 of the 50 

states. 

tor. When the TALF program was closed on June 30, 2010, there 

were $43 billion in loans outstanding. Accordingly, on July 20, 

2010, Treasury reduced the credit protection provided for the TALF 

from $20 billion to $4.3 billion, constituting 10 percent of the total 

outstanding TALF loans.251

FIGURE 13: TALF ABS ISSUANCES BY SECTOR 252

ii. SBA 7(a) and 504 Securities Purchase Programs 

In addition to the TALF, Treasury created a program to make direct purchases of securities backed by the government-guaranteed 

portion of SBA 7(a) loans and the non-government-guaranteed first 

lien mortgage loans affiliated with the SBA’s 504 loan program in 

hopes of unlocking the small business loan market. Treasury announced its SBA 7(a) initiative in March 2009 to help restart small 

business credit markets and provide an additional source of liquidity designed to foster new lending. Despite stating that 7(a) and 

504 purchases would begin by May 2009, Treasury did not implement the program until March 19, 2010.253 Treasury initially allocated $15 billion in TARP funds for the purchases, but this was revised to just $1 billion, and was again reduced to $400 million.254

As of the program’s close in September 2010, Treasury had made 

31 purchases of SBA 7(a) securities totaling about $357 million.255


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256 2010 May Oversight Report, supra note 110, at 46–47, Annex II. 

Treasury never purchased any 504 securities through this initiative. 

d. Other Government Programs 

Some programs, like the PPIP, discussed above in Section 

II.A.1.b, were initially expected to help stimulate small business 

and consumer lending but ultimately did not. The PPIP was designed to allow banks and other financial institutions to shore up 

their capital by removing troubled assets from their balance sheets. 

Since the PPIP did not ultimately purchase the whole loans that 

many smaller banks hold on their books, it had little effect on the 

banks responsible for a disproportionate amount of small business 

lending. Many state and local entities also have programs to support small business lending within their geographic boundaries. 

These programs generally mirror, on a smaller scale, tools employed by SBA, including both direct lending and loan guarantees.256

B. Summary of COP Reports and Findings 

In May 2009, the Panel addressed small business lending and 

evaluated the impact of FRBNY’s and Treasury’s TALF. The report 

examined the design of the TALF, which was intended to restart 

securitization markets, and questioned whether any securitization 

program could help meet the credit needs of small businesses. The 

report also examined other sources of small business credit, including credit cards and informal credit sources, such as angel investors, family, and friends. The report noted Treasury’s assertion that 

restoring access to credit has multiplier effects throughout the 

economy and examined the difficulties that small businesses were 

having in obtaining credit of any kind. 

The Panel’s examination of small business credit at the beginning of 2009 showed credit terms tightening and loan volume dropping, based on the limited data available. Small businesses found 

themselves in a contradictory position: they needed credit to operate, but the drop in demand for their products or services as a result of the country’s economic difficulties likely made lenders unwilling to give them that credit except on terms that small businesses could not accept. While noting that the TALF, if successful, 

could improve access to lending for families and small businesses, 

the Panel found that there was reason for caution in predicting the 

ultimate impact of the TALF, though the program could succeed in 

improving investor demand for ABS. 

In May 2010, the Panel re-examined the contraction in small 

business lending and noted that although Treasury had launched 

several programs aimed, in whole or in part, at improving small 

business credit availability, it was not clear that they had had any 

significant impact on small business lending, which remained severely constricted. Numerous factors—bank strength or weakness, 

number of creditworthy borrowers, soft demand for goods and services, and deleveraging, among other things—can all cause low lending levels, and the relative importance of these factors in the overall mix can shift over time. As demand and supply shift and interVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00073 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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257 2010 May Oversight Report, supra note 110, at 47–57. 258Wiest Testimony to the Panel, supra note 153. 259 Congressional Oversight Panel, Written Testimony of Candace Wiest, president and chief 

executive officer, West Valley National Bank, Phoenix Field Hearing on Small Business Lending, 

at 61–62 (Apr. 27, 2010) (online at cop.senate.gov/documents/transcript-042710-phoenix.pdf). 260 Congressional Oversight Panel, Testimony of Stan Ivie, San Francisco regional director, 

Federal Deposit Insurance Corporation, Transcript: Phoenix Field Hearing on Small Business 

Lending (Apr. 27, 2010) (online at cop.senate.gov/documents/transcript-042710-phoenix.pdf). 261On May 7, 2010, the Administration provided Congress with revised proposed legislation 

for the SBLF program, and the discussion of the SBLF in the Panel’s May 2010 oversight report 

was based upon that proposal. This revised proposed legislation modified the Administration’s 

original proposal in some respects, and is different from the version that ultimately was passed 

by both houses of Congress and signed into law by President Obama in September 2010. For 

further discussion of the final SBLF legislation, see Section III.A.3.b.ii, supra. 262 Board of Governors of the Federal Reserve System, Monetary Policy Report to Congress, 

at 12 (Mar. 1, 2011) (online at www.federalreserve.gov/monetarypolicy/files/ 

20110301lmprfullreport.pdf). 263 Board of Governors of the Federal Reserve System, H.8 Assets and Liabilities of Commercial Banks in the United States: Data Download Program (Instruments: Large Domestically 

Chartered Banks, Small Domestically Chartered Banks; Frequency: Weekly; Seasonally-Adact, low lending levels can be difficult to analyze.257 For example, 

at the Panel’s April 2010 field hearing in Phoenix, Arizona, 

Candace Wiest, President and CEO of the West Valley National 

Bank, noted that ‘‘we want to loan’’ 258 but ‘‘it is difficult to find 

anyone who has not been impacted [by the recession] and remains 

creditworthy.’’ 259 FDIC San Francisco Regional Director Stan Ivie 

noted, however, that ‘‘many banks have financial difficulties right 

now with their credit quality and they need to reserve their capital 

for losses and future losses which results in less capital and liquidity to lend . . . to borrowers.’’ 260 In focusing on measures to increase the supply of small business loans, the Panel’s report noted 

that Treasury’s actions may ultimately be ineffective if the demand 

for small business loans fails to keep pace. While government intervention in the form of capital infusions, for example, might foster 

additional lending if the recipient institutions are facing depleted 

capital, a bank might not necessarily use an unrestricted capital 

infusion to increase leverage if low lending volume is in fact the result of constrictions in demand. 

The Panel also evaluated the proposed SBLF,261 which the Administration sent to Congress shortly before publication of the Panel’s May report. The Panel found that even if enacted by Congress 

the prospects of the SBLF in its draft form were far from certain. 

Not only would the program require legislative approval (and even 

if Congress had acted immediately, the program would not be fully 

operational for some time), but the Panel also noted the possibility 

that banks could shun the program for fear of being stigmatized by 

its association with the TARP, or avoid taking on SBLF liabilities 

in such troubled economic times. 

C. Panel Recommendations and Updates 

1. Current State of Commercial and Industrial Lending 

After declining or stagnating consistently through 2008 and 

2009, commercial and industrial (C&I) lending at domestic commercial banks began to increase slightly towards the end of 

2010.262 As of February 23, 2011, there were approximately $620 

billion in outstanding C&I loans at large banks, while small banks 

had $374 billion in outstanding C&I loans.263 Figure 14 below illustrates the level of outstanding C&I loans from 2000 to 2011. 


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justed) (online at www.federalreserve.gov/datadownload/Choose.aspx?rel=H.8) (accessed Mar. 10, 

2011) (hereinafter ‘‘Federal Reserve H.8’’). Large banks are defined as the top 25 domestically 

chartered commercial banks. As of December 2009, these banks had more than $65 billion in 

total assets. Board of Governors of the Federal Reserve System, Assets and Liabilities of Commercial Banks in the United States—H.8: About the Release (Apr. 9, 2010) (online at 

www.federalreserve.gov/releases/h8/about.htm) (hereinafter ‘‘Federal Reserve H.8: About the Release’’). 264Federal Reserve H.8, supra note 263. Large banks are defined as the top 25 domestically chartered commercial banks. As of December 2009, these banks had more than $65 billion in 

total assets. Federal Reserve H.8: About the Release, supra note 263. 265The Senior Loan Officer Opinion Survey on Bank Lending Practices reviews changes in 

lending terms and standards, as well as demand for loans to businesses and households at approximately 60 domestic banks and 22 U.S. branches and agencies of foreign banks. The survey 

defines large and middle-market firms as firms with more than $50 million in annual sales. 

Also, large banks are defined as banks with at least $20 billion in total assets as of October 

31, 2010. January 2011 Senior Loan Officer Survey, supra note 232, at 3–5. For measures of 

C&I loan standards and demand, see id. at 12–13, 24. 

FIGURE 14: COMMERCIAL AND INDUSTRIAL LOANS OUTSTANDING AT DOMESTIC 

COMMERCIAL BANKS (2000–2011) 264

Despite the slight increase in loans, data from the January 2011 

Senior Loan Officer Opinion Survey offered mixed responses from 

banks regarding the state of C&I lending over the fourth quarter 

in 2010. More large banks were reporting easing standards for both 

large/middle-market and small firms, while responses from small 

banks show that loan standards remained largely unchanged for all 

firms. Respondents cited increased competition from other banks 

and nonbank lenders, as well as ‘‘a more favorable or less uncertain’’ economic horizon, as reasons for easing lending standards. 

With regard to loan demand, the net percentage of large banks reporting stronger demand for C&I loans from large/middle-market 

firms was 53 percent. However, a lesser percentage indicated 

stronger demand from small firms. Small banks, on the other hand, 

reported weaker overall demand for C&I loans.265

2. Consideration of Alternatives 

In its May 2009 Oversight Report, the Panel recommended that 

if Treasury’s efforts to revive securitization failed to expand small 

business access to credit, then the administration should consider: 

(1) reviving SBA direct loans without going through bank intermediaries; and/or (2) devoting more funds directly to business lending rather than securitization, given that secondary markets may 


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266 2009 May Oversight Report, supra note 227, at 58. 267See the Small Business Jobs and Credit Act of 2010, Pub. L. No. 111–240 (2010). President 

Obama signed the law on September 27, 2010. Although the SBLF evolved from a 2009 administration proposal to use $30 billion in TARP funds to spur small business lending, the latest incarnation of the SBLF is separate from the TARP. 268 H.R. 5297 § 4103(d)(10), 111th Cong. (2010). 269 H.R. 5297 § 4103(3), 111th Cong. (2010). 270The ‘‘small business lending plan’’ must detail how the institution would use the SBLF 

funds to increase small business lending in their community, their expected increase in small 

business lending after receipt of SBLF funds, and proposed outreach efforts to inform community members about how to apply for small business loans. Treasury Resource Center—SBLF, 

supra note 248. 271Data provided by Treasury (Mar. 9, 2011). 

have limited impact on the financing of small and medium-sized 

firms.266 Treasury’s new programs, the CDCI and the SBLF, however, while not dependent on the SBA or securitization, still focused on bank intermediaries and capital infusions. The Panel also 

recommended that Treasury and relevant federal regulators establish a rigorous data collection system or survey that examines 

small business finance that would include demand- and supply-side 

data along with data from banks of different sizes (both TARP recipients and non-TARP recipients). The Panel also recommended 

that Treasury require reporting obligations as part of any future 

capital infusion program, some of which were addressed through 

the SBLF. 

3. Small Business Lending Fund 

In its May 2010 report, the Panel evaluated a proposed draft of 

the SBLF and made multiple recommendations about aspects of 

the program, many of which appear to have informed the final legislation. The Panel recommended that Treasury consider mandating minimum standards for underwriting SBLF loans in order 

to ensure that the incentives embedded in any program do not spur 

imprudent lending; and evaluate whether the SBLF could be implemented quickly enough to make any difference at all in small business lending. The SBLF as enacted,267 several months after the 

Panel’s May 2010 report, contains some key provisions relating to 

several of the Panel’s recommendations. It mandates minimum 

standards for underwriting SBLF loans to ensure that the incentives embedded in any program do not spur imprudent lending.268

The SBLF as enacted also improved tracking and reporting over 

the draft reviewed by the Panel. It requires the Secretary of the 

Treasury to report to the appropriate congressional committees on 

key SBLF metrics, including the duty to provide a written report 

detailing how SBLF participants have used the funds they received 

within seven days after the end of each calendar quarter in which 

transactions are made under the SBLF.269 Similarly, as part of 

their application form, prospective SBLF participants must submit 

a ‘‘small business lending plan’’ of approximately two pages to their 

primary federal regulator and to their state regulator, if applicable.270

The terms for the SBLF have been made available, and the application deadline is March 31, 2011. As of March 8, 2011, Treasury had received 336 applications.271


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272 2009 May Oversight Report, supra note 227, at 62–63. 273 2009 May Oversight Report, supra note 227, at 62–63. 274 2010 May Oversight Report, supra note 110, at 81–82. 275 2010 May Oversight Report, supra note 110, at 82–83. 276These definitions depend on sector, assets, number of employees, and revenue. 2010 May 

Oversight Report, supra note 110, at 8–9. 

D. Lessons Learned 

Several important lessons can be identified through the Panel’s 

examinations of Treasury’s efforts to support small business and 

consumer lending. 

First, FRB and Treasury’s emphasis on the securitization markets as an avenue to restore small business and consumer credit 

and creation of the TALF to regenerate investor interest in those 

markets illustrate the complexities and difficulties of making predominant use of any single approach to reviving credit for small 

businesses and families.272 While the revival of the securitization 

markets, which are an important part of the nation’s financial sector, can be a part of any effective strategy for restarting the credit 

markets, this cannot be the primary means to stimulate credit for 

small business lending because of the relatively small number of 

small business loans that are securitized. Therefore, it is also critical to consider bank lending without regard to securitization. Ultimately, keeping the credit markets open in a fair—and economically healthy—manner to small businesses requires a mix of policies that reflect the realities that borrowers face.273

Second, while it is easier and arguably more efficient for Treasury and other government actors to use regulated entities like 

banks as conduits to small businesses since small businesses are 

so heterogeneous, this does not come without cost. Not only are the 

intermediary’s incentives and challenges not identical to the government’s in this approach, but also the form of the government’s 

involvement depends entirely upon the assets the intermediary 

holds. For example, the government can use an intermediary to 

help provide guarantees and secondary market support only if that 

intermediary holds assets that can be securitized or guaranteed.274

Third, when adopting any particular small business and consumer lending program, the government should consider whether 

approaches that are less dependent on healthy bank balance sheets 

(i.e., state-level consortia and programs in which banks take first 

losses and first profits with a public backstop), might more likely 

effectuate Treasury’s stated objectives.275

Finally, the lack of aggregated, timely, and consistent data collection regarding small business lending undermines the development 

of sound policy and fails to reflect the importance of small business 

to the economy. One problem in trying to analyze small business 

lending, or in identifying and designing programs for spurring 

small business lending, arises from the heterogeneity of small businesses (which makes it difficult to determine what, precisely, constitutes a small business). ‘‘Small business’’ has been variously defined by Congress and several agencies, including the SBA, the 

Federal Reserve, and others.276 The myriad definitions not only 

complicate any discussion of small business but also make it difficult to compare data and results across studies and surveys in a 

field in which, as an added complication, data are notoriously hard 


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277The Panel has looked at the disincentives for servicers to employ HAMP modifications in 

several reports. See, e.g., Congressional Oversight Panel, April Oversight Report: Evaluating 

Progress on TARP Foreclosure Mitigation Programs, at 70–76 (Apr. 14, 2010) (online at 

cop.senate.gov/documents/cop-041410-report.pdf) (hereinafter ‘‘2010 April Oversight Report’’). 

Some of the more notable of these include: misalignment of servicer and investor interests, including lack of servicer funds at risk and servicing fees that are not tied to investment performance; impediments to loan modification in pooling and servicing agreements that, even if they 

can be overcome, create additional cost and complication for servicers; lack of investor supervision of servicers to encourage financially beneficial modifications; and the possible negative assessment of modifications by credit rating agencies. 

to obtain. The wide variety among small businesses also makes it 

difficult to collect data, target individual trends, and effectively 

stimulate small business lending. Furthermore, in the absence of 

a rigorous data collection system or survey that examines small 

business finance and includes timely and consistent data, the federal government’s efforts to develop sound policies to address small 

business lending will remain significantly hampered. 

IV. Foreclosure Mitigation 

Given the importance of foreclosure mitigation to families and 

communities and the impact of foreclosures on bank balance sheets 

and financial stability, the Panel has devoted more attention to 

this topic than any other single area under the TARP. The Panel 

issued its first foreclosure mitigation report in March 2009, coinciding with the announcement of Treasury’s Making Home Affordable initiative, and released three update reports, approximately 

every six months after the initial program announcement and report. The Panel produced a fifth foreclosure mitigation report in 

November 2010, focusing specifically on the foreclosure irregularities that had come to light. The body of foreclosure mitigation 

work was shaped by information obtained at field hearings held in 

Clark County, Nevada, Prince George’s County, Maryland, and 

Philadelphia, as well as a hearing in Washington, DC. 

A. Background 

As the housing boom peaked and began its long downward slide 

in 2006, millions of families began entering foreclosure, with serious implications for the housing markets and broader financial stability. Policymakers appeared to take for granted that the housing 

market would not require government intervention. Theoretically, 

loan modifications should be in the self-interest of lenders, since 

they are typically less costly than foreclosure, and should therefore 

need no inducement. But lenders did not engage in the anticipated 

number of modifications due to a number of factors that the Panel 

has examined in its reports. In particular, incentives built into the 

mortgage servicing system often make foreclosure more attractive 

than modification.277

As millions of borrowers continued moving into foreclosure, the 

federal government made several attempts to address the foreclosure problem, generally with minimal impact. In the wake of the 

financial crisis of late 2008, and incorporating lessons from these 

unsuccessful foreclosure mitigation efforts, Treasury developed the 

Home Affordable Modification Program (HAMP) to fulfill the foreclosure prevention mandate in TARP’s authorizing legislation, 


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278See Emergency Economic Stabilization Act of 2008 (EESA), Pub. L. No. 110–343, at § 109 

(2008) (online at thomas.loc.gov/cgi-bin/query/z?c110:H.R.1424.enr:). 279See U.S. Department of the Treasury, Statement by Secretary Henry M. Paulson, Jr. on 

Announcement of New Private Sector Alliance—HOPE NOW (Oct. 10, 2007) (online at 

www.treasury.gov/press-center/press- releases/Pages/hp599.aspx). 280 HOPE NOW Alliance, HOPE NOW: Mortgage Servicers Completed 1.76 million Loan Modifications for Homeowners in 2010 (Feb. 2, 2011) (online at www.hopenow.com/presslrelease/ 

files/HN%202010%20Full%20DatalFINAL.pdf). 281 Congressional Oversight Panel, March Oversight Report: Foreclosure Crisis: Working Toward a Solution, at 35 (Mar. 6, 2009) (online at cop.senate.gov/documents/cop-030609-report.pdf) 

(hereinafter ‘‘2009 March Oversight Report’’). 282See id. at 36. 283For more discussion of the FDIC’s IndyMac program, see Congressional Oversight Panel, 

December Oversight Report: A Review of Treasury’s Foreclosure Prevention Programs, at 92 (Dec. 

14, 2010) (online at cop.senate.gov/documents/cop-121410-report.pdf) (hereinafter ‘‘2010 December Oversight Report’’). 

EESA.278 At the time, policymakers were concerned about both the 

social and economic effects of mass foreclosures and the systemic 

risk to the banking system caused by non-performing mortgages. 

Prior to the introduction of HAMP in March 2009, there were 

several federal foreclosure mitigation initiatives, but they met with 

little success. One of the earliest of these initiatives was endorsement of the HOPE NOW Alliance, a voluntary coalition of mortgage companies and industry organizations designed to centralize 

and coordinate private foreclosure mitigation efforts. Although both 

Treasury and the Department of Housing and Urban Development 

were consulted and strongly promoted the effort, the federal government is not an official sponsor.279 HOPE NOW reports that it 

has modified over 3 million loans to date,280 but little information 

is available about the monthly savings those modifications provide 

to homeowners. 

The outcome of several federal programs influenced the design of 

HAMP. The first official federal government foreclosure mitigation 

program was FHA Secure, announced in August 2007, which refinanced adjustable-rate mortgages into fixed-rate mortgages insured 

by the Federal Housing Administration (FHA). FHA Secure ended 

in late 2008. Although the program refinanced nearly half a million 

loans, only about 4,000 of these were delinquent at the time of refinancing. The Panel has previously attributed FHA Secure’s failure 

to its restrictive borrower criteria.281

HOPE for Homeowners was established by Congress in July 

2008 to permit the FHA to insure refinanced distressed mortgages. 

HOPE for Homeowners was initially expected to help 400,000 

homeowners, but it managed to refinance only a handful of loans. 

This was likely due to the program’s poor initial design, lack of 

flexibility, and its reliance on voluntary principal write-downs, 

which lenders were very reluctant to make, a pattern also seen in 

HAMP.282

Also in July 2008, the FDIC took over IndyMac, one of the nation’s largest subprime lenders. Soon afterward, the FDIC announced a loan modification program to assist the 65,000 delinquent borrowers with loans in IndyMac’s non-securitized portfolio. 

The FDIC instituted a number of similar efforts for loans owned by 

other, smaller failed banks, which have been moderately successful 

in mitigating foreclosures at those particular lenders.283

Figure 15 below shows a timeline of foreclosure mitigation efforts 

and the number of new foreclosure actions each month from January 2007 to the present. It is important to note that although foreVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00079 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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284For statistics on how many borrowers Treasury’s programs have helped to date, see Figure 

19 and footnote 336. 

closure actions have declined in recent months, this likely is due 

to voluntary foreclosure suspensions put in place in the fall of 2010 

in response to the documentation irregularities situation. At that 

time many of the government initiatives were still relatively new 

and would not reasonably be expected to cause a significant decline 

in the foreclosure rate.284


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286 HAMP is designed to provide a path to modifying mortgages and provides subsidies to 

lenders, servicers, and homeowners to encourage such modifications. Once approved for assistance through HAMP, a borrower must successfully complete a trial period, typically three 

months, during which the borrower makes payments on the modified mortgage. A borrower who 

remains current through the trial period becomes eligible for a permanent modification, under 

which the terms of the trial modification remain in effect for a period of five years. After the 

five-year term is up, the interest rate on the loan can increase by a maximum of 1 percent per 

year until it reaches the prevailing Freddie Mac average interest rate at the time the HAMP 

modification was made. 287These criteria were considerably influenced by the testimony of foreclosure prevention experts and borrowers facing foreclosure in the Panel’s field hearings on foreclosures in Clark 

County, Nevada, and Prince George’s County, Maryland. See Congressional Oversight Panel, 

COP Field Hearing: Clark County, NV: Ground Zero of the Housing and Financial Crisis (Dec. 

16, 2008) (online at cop.senate.gov/hearings/library/hearing-121608-firsthearing.cfm); Congressional Oversight Panel, Coping with the Foreclosure Crisis: State and Local Efforts to Combat 

Foreclosures in Prince George’s County, MD (Feb. 27, 2009) (online at cop.senate.gov/hearings/ 

library/hearing-022709-housing.cfm). 

B. Summary of COP Reports and Findings 

The Panel’s first report on foreclosures was published in March 

2009, roughly concurrent with the announcement of HAMP.286 The 

report, Foreclosure Crisis: Working Toward a Solution, described 

major impediments to mortgage modifications, including the presence of second liens and incentive problems for mortgage servicers 

caused by the securitization process. The report called for the collection and public dissemination of more nationwide mortgage performance data. And it established eight questions on which to 

evaluate a foreclosure mitigation program:287

• Will the plan result in modifications that create affordable 

monthly payments? • Does the plan deal with negative equity? 

• Does the plan address junior mortgages? 

• Does the plan overcome obstacles in existing pooling and servicing agreements that may prevent modifications? 

• Does the plan counteract mortgage servicer incentives not to 

engage in modifications? 

• Does the plan provide adequate outreach to homeowners? 

• Can the plan be scaled up quickly to deal with millions of 

mortgages? 

• And finally, will the plan have widespread participation by 

lenders and servicers? 

The report did not specifically evaluate the administration’s initial foreclosure-prevention plan, since Treasury announced it shortly before the Panel’s report went to press, and it had not yet become operational. 

The Panel’s October 2009 report, An Assessment of Foreclosure 

Mitigation Efforts After Six Months, provided a preliminary evaluation of HAMP, which at the time was still in its early stages. The 

report expressed concern that HAMP was not designed to deal with 

the evolving nature of the foreclosure crisis; in particular, the report raised questions about the ability of HAMP to prevent foreclosures caused by unemployment or negative equity. The report 

questioned whether HAMP would be able to attain the scale necessary to deal with the millions of foreclosures that were expected. 

Finally, the report questioned whether or not HAMP would merely 

forestall foreclosure for many homeowners, since only a small percentage of HAMP trial modifications had converted into five-year, 

so-called permanent modifications, and also because even those 


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288See 2010 April Oversight Report, supra note 277, at 18–20, 134–139. 

that became permanent modifications carried the risk that the 

homeowner would redefault. 

The Panel again assessed HAMP in April 2010. The report applauded Treasury for beginning to address the problems that the 

Panel highlighted during the previous year and in particular for 

taking steps to address the ways in which unemployment, second 

liens, and negative equity may lead to foreclosure. Foreclosures 

continued at a rapid pace, however, and the report found that 

Treasury’s response continued to lag well behind the pace of the 

crisis. The April 2010 report highlighted in particular the role of 

unemployment as a driver of delinquencies and foreclosures. However, the program as structured at that time did not meet the 

needs of the unemployed. First, many unemployed individuals were 

unable to qualify for HAMP because they could not pass the net 

present value test for program admittance. Second, borrowers who 

have lost their jobs and have no income are rarely able to pay their 

mortgages for long, even if they receive favorable concessions from 

their lender; therefore, a program premised on moderate, long term 

payment relief did not provide the deep, short term relief necessary 

to keep unemployed borrowers temporarily without income in their 

homes. Finally, the unemployed are also often forced to move to 

take advantage of better job opportunities. This can undermine 

many loan modifications designed to prevent foreclosure, since 

these modifications are generally based on an assumption that the 

borrower will stay in place for several years. The Panel stated the 

best foreclosure mitigation initiative would be a sound economy 

with low unemployment.288

The Panel articulated three major concerns with HAMP in the 

April 2010 report: (1) its failure to deal with the foreclosure crisis 

in a timely way; (2) the unsustainable nature of many HAMP modifications, given the large debt burdens and negative equity that 

many participating homeowners continued to carry; and (3) the 

need for greater accountability in HAMP, particularly with regard 

to the activities of participating servicers. 

Following the release of the Panel’s April 2010 report, Treasury 

implemented certain previously announced changes to HAMP, but 

the Panel remained concerned that the choices made by Treasury 

in terms of program structure, transparency, and data collection 

did not leave borrowers well served. In a December 2010 report, 

the Panel estimated that HAMP would prevent only 700,000 to 

800,000 foreclosures if it continues on its current trajectory—far 

fewer than the three to four million foreclosures that Treasury initially aimed to prevent, and vastly fewer than the eight to 13 million foreclosures expected by 2012. The Panel attributed many of 

the problems plaguing HAMP to the program’s design, including its 

failure to address adequately the incentive structures for loan 

servicers and the obstacles to modifications created by second liens. 

Because Treasury’s authority to restructure HAMP ended on October 3, 2010, the Panel noted that HAMP’s prospects were unlikely 

to improve substantially in the future. 

In the December 2010 report, the Panel again raised concerns 

that Treasury refused to specify meaningful goals by which to 


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289See 2010 December Oversight Report, supra note 283, at 42–48. For an example of Treasury’s articulation of HAMP goals and expectations in the early months of the program, see Congressional Oversight Panel, Transcript: Hearing with Herbert M. Allison, Jr., Assistant Secretary 

of the Treasury for Financial Stability, at 30–33 (Oct. 22, 2009) (online at cop.senate. gov/ 

documents/transcript-102209-allison.pdf). 290 U.S. Department of the Treasury, Making Home Affordable Program: Servicer Performance 

Through January 2011, at 2 (Jan. 31, 2011) (online at www.treasury.gov/initiatives/financial 

-stability/results/MHA-Reports/Documents/Janl2011lMHAlReportlFINAL.PDF) (hereinafter ‘‘MHA Program: Servicer Performance January 2011’’). 291 2010 December Oversight Report, supra note 283, at 5. 

measure HAMP’s progress. The program’s sole initial goal—to prevent 3 to 4 million foreclosures—had been repeatedly redefined and 

watered down.289 When the stated objectives of a program are limited or not meaningful, the scope of oversight and analysis is narrowed. However, as of the publication of this report, with fewer 

than 1.5 million total trial modifications started and only about 

540,000 permanent modifications in place, it is clear that Treasury 

is going to fall well short of its initial goal, no matter how that goal 

is defined.290

The Panel further noted in December 2010 that the problem of 

evaluating HAMP was exacerbated by Treasury’s failure to collect 

and analyze data that would explain its shortcomings. Absent a 

dramatic and unexpected increase in HAMP enrollment, it appears 

that many billions of dollars set aside for foreclosure mitigation 

will be left unused. Yet Treasury continues to state that $30 billion 

in TARP funding will be expended under HAMP. Because Treasury’s authority to restructure HAMP ended, the Panel noted in December 2010 that it was too late for Treasury to revamp its foreclosure prevention strategy, but that meaningful steps could be 

taken to wring every possible benefit from the program. 

The Panel also focused on possible conflicts of interest and their 

impact on servicer compliance in the December 2010 report. Treasury has essentially outsourced the responsibility for overseeing 

servicers to Fannie Mae and Freddie Mac, but both companies have 

critical business relationships with the very same servicers, calling 

into question their willingness to conduct stringent oversight. 

Freddie Mac in particular has hesitated to enforce some of its contractual rights related to the foreclosure process, arguing that 

doing so ‘‘may negatively impact our relationships with these seller/ 

servicers, some of which are among our largest sources of mortgage 

loans.’’ 291

A complex group of issues that came to light in the summer and 

fall of 2010 related to documentation ‘‘irregularities’’ in recent foreclosure actions added further to the factors impeding HAMP success and recovery of the housing market. These widely reported 

problems include improper mass ‘‘robo-signing’’ of mortgage documents by servicers, lost promissory notes and other documents that 

call into question the proper legal ownership of mortgage loans, 

and related securitization issues. The Panel’s November 2010 report examined these issues and considered their implications for 

HAMP, the housing market, and the stability of the economy and 

the banking system. As of the date of publication, a group comprised of Treasury, bank regulators, and attorneys general of all 50 

states and the District of Columbia are engaged in negotiations 

over resolution of the documentation irregularity situation with a 

group representing servicers and lenders. 


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292 Congressional Oversight Panel, November Oversight Report: Examining the Consequences 

of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation, at 83 (Nov. 16, 

2010) (online at cop.senate.gov/documents/cop-111610-report.pdf) (hereinafter ‘‘2010 November 

Oversight Report’’). 293 Id. at 84. 294 Id. at 84. 295SIGTARP released a report in January 2011 that echoed many of the Panel’s recommendations for HAMP, particularly in the fields of transparency, servicer accountability, and goals. 

See Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress, at 10–13 (Jan. 26, 2011) (online at www.sigtarp.gov/reports/congress/2011/ 

January2011lQuarterlylReportltolCongress.pdf). 

Although the ultimate implications of these irregularities remain 

unclear, it is possible that the irregularities may conceal deeper 

problems in the mortgage market that could potentially threaten financial stability and undermine foreclosure prevention efforts.292

The Panel observed that in the coming years, in the best-case 

scenario, mortgage documentation irregularities may prove to be 

relatively rare paperwork errors that can be easily corrected, and 

have little impact on the housing and financial markets. However, 

the Panel also found that if future revelations show that documentation problems are pervasive, investors and others will have 

reason to doubt the legal ownership of pooled mortgages, which 

could have severe consequences. In this scenario, borrowers may be 

unable to determine whether they are sending their monthly payments to the right people. Judges may block any effort to foreclose, 

even in cases where borrowers have failed to make regular payments. Multiple banks may attempt to foreclose on the same property. Borrowers who suffered foreclosure may seek to regain title 

to their homes and force any new owners to move out. Would-be 

buyers and sellers could find themselves in limbo, uncertain about 

whether they can safely buy or sell a home.293

Should foreclosure irregularities cause such wide-scale disruptions in the housing market, financial institutions may suffer significant harm, and the stability of the financial system may be at 

risk. For example, if a bank were to discover that, due to shoddily 

executed paperwork, it still owns many defaulted mortgages that 

it thought it sold off years ago, it could face substantial unexpected 

losses. This could disrupt foreclosure prevention efforts such as 

HAMP. This situation has the potential to reduce public trust substantially in the entire real estate industry, especially in the legitimacy of important legal documents and the good faith of other 

market participants, particularly if foreclosure irregularities prove 

to be very common or to involve deliberate fraud.294

C. Panel Recommendations and Program Updates 

After examining various issues related to the foreclosure crisis 

and Treasury’s response throughout the last two years, the Panel 

provided a series of specific recommendations designed to improve 

the modification process, the structure of Treasury’s foreclosure 

programs, their transparency, and their accountability.295 Treasury’s response to these recommendations has been mixed. Treasury 

followed some suggestions, ignored some, and partially or unsuccessfully followed others. Overall, Treasury’s response thus far has 

been disappointing. 


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296Treasury officials have predicted that upcoming ‘‘dramatic’’ changes in the servicing industry will lead to a comprehensive database of mortgages in foreclosure, but have provided no indication of when these changes will occur, or whether Treasury will take any specific actions on 

this front. Congressional Oversight Panel, Transcript: COP Hearing on TARP’s Impact on Financial Stability (Mar. 4, 2011) (publication forthcoming) (online at cop.senate.gov/hearings/ library/hearing-030411-final.cfm) (hereinafter ‘‘COP Transcript: Hearing on TARP’s Impact on Financial Stability’’). 297 2010 December Oversight Report, supra note 283, at 107. 298 2010 April Oversight Report, supra note 277, at 88. 

1. Transparency 

In order to provide a source of comprehensive information about 

loan performance and foreclosure mitigation initiatives, the Panel 

concluded in its March 2009 report that Congress should create a 

national mortgage loan performance reporting requirement applicable to banking institutions and other mortgage servicers. In subsequent reports, the Panel repeatedly recommended that Treasury 

collect more loan-level data on borrowers facing foreclosure.296 In 

particular, the Panel stated that Treasury does not collect sufficient information to determine why loans are moving to foreclosure 

rather than workouts, nor does it monitor closely enough any loan 

modifications performed outside of HAMP.297 Since the Panel published those recommendations, federal banking regulators have not 

implemented a national mortgage loan performance reporting requirement. After being surveyed by the Panel, the OCC and OTS 

did create a quarterly report that contains a limited amount of aggregate information about mortgage performance across the country, but this information falls far short of the loan-level data that 

is needed. 

In April 2010, the Panel recommended that Treasury commit to 

providing regular and publicly available data reports on all HAMP 

modifications through the end of their five-year modification period. 

In addition, the Panel called on Treasury to release more data collected by its program administrator, Fannie Mae, and its compliance agent, Freddie Mac, so that Congress, the TARP oversight 

bodies, and the public can better evaluate the effectiveness of 

HAMP.298 In late January 2011, Treasury for the first time released loan-level data on HAMP participants, fulfilling the Panel’s 

recommendation. This information provides a great deal of raw 

data that could reveal insights that could then be used to improve 

HAMP. The data include information on the gross income of applicants, the loan balances of HAMP participants after they receive 

permanent modifications, the credit scores of HAMP participants, 

and the race and ethnicity of HAMP participants, as well as other 

information. However, the timing of the data release provides limited time for oversight bodies or academics to draw any conclusions 

from the data before HAMP expires at the end of 2012. 

The Panel expressed concern about the impact of redefaults of 

HAMP permanent modifications on the program’s ultimate success, 

and the related need for the collection of better data specifically on 

redefaults. At the Panel’s October 2010 hearing, Guy Cecala, publisher of Inside Mortgage Finance, emphasized the danger that redefaults pose to the housing market as a whole. ‘‘Even a re-default 

rate at the lower end of estimates would put more than 600,000 additional distressed properties into the housing market at time when 

it is struggling to unload an already high inventory,’’ Cecala statVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00086 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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299 Congressional Oversight Panel, Written Testimony of Guy Cecala, chief executive officer 

and publisher, Inside Mortgage Finance Publications, Inc., COP Hearing on TARP Foreclosure 

Mitigation Programs (Oct. 27, 2010) (online at cop.senate.gov/documents/testimony-102710- 

cecala.pdf). 300 Congressional Oversight Panel, October Oversight Report: An Assessment of Foreclosure 

Mitigation Efforts After Six Months, at 112 (Oct. 9, 2009) (online at cop.senate.gov/documents/ 

cop-100909-report.pdf) (hereinafter ‘‘2009 October Oversight Report’’); 2010 April Oversight Report, supra note 277, at 90. 301 2009 October Oversight Report, supra note 300, at 47. HAMP relies on a net present value 

calculation performed by the loan servicer to determine whether or not a modification is warranted. This consists of a comparison of the net present value of an unmodified delinquent loan 

to the net present value of a modification of that same delinquent loan. If the net present value 

of the modified loan is greater than the net present value of the unmodified loan, then a modification is value maximizing for the investors in the loan. The Panel’s October 2009 report examined Treasury’s model and models used by similar programs. Id. at 45–47, 83, 106, 113–116, 

129–131. 302 2010 December Oversight Report, supra note 283, at 109–110. 303 2010 April Oversight Report, supra note 277, at 78. 

ed.299 In order to understand which HAMP participants are most 

at risk of redefault and thereby improve the program’s success 

rate, the Panel believes that Treasury should focus its data analysis on identifying borrower characteristics that positively correlate 

to a higher risk of redefault. To maximize the effectiveness of their 

data collection efforts, Treasury’s metrics should be comprehensive, 

and the results should be disaggregated by lenders and servicers 

and made publicly available.300 Treasury has begun to release a 

limited amount of aggregate data on HAMP redefaults, but despite 

the Panel’s urging, it has not made public any analysis that identifies borrower characteristics that positively correlate to a higher 

risk of redefault. Nor has Treasury made public data on redefaults 

that is disaggregated by servicer, or that shows redefault rates for 

more than 12 months after the permanent modification begins. 

Such information is crucial for evaluating the extent to which redefaults are undermining HAMP’s performance. 

The Panel made a number of specific recommendations related to 

publicly available information. In October 2009, the Panel called on 

Treasury to provide borrowers and housing counselors with access 

to its net present value model.301 Contrary to the Panel’s recommendations, Treasury has never made the net present value 

model fully or even substantially public. Treasury has provided 

borrowers and housing counselors with greater access to its net 

present value model, but the model remains less than fully transparent. 

In December 2010, the Panel urged Treasury to determine which 

sorts of modifications have proven to be most successful in practice. 

Treasury could then encourage servicers to make more of these 

types of modifications and fewer of the types of modifications that 

tend to end in redefault.302 Treasury has thus far shown no indication that it has studied or understands which types of loan modifications tend to be most effective and sustainable. Without this 

knowledge, it is impossible for Treasury to press servicers to favor 

more effective types of modifications over others. 

The Panel also called on Treasury to provide detailed public information related to its selection and use of Fannie Mae as a financial agent and HAMP administrator and Freddie Mac as compliance agent.303 Treasury has not provided this information. In January 2010, the Panel recommended that Treasury release a legal 


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304 2010 January Oversight Report, supra note 153, at 12. 305 Congressional Oversight Panel, Testimony of Katherine Porter, professor of law, University 

of Iowa College of Law, Transcript: COP Hearing on TARP Foreclosure Mitigation Programs 

(Oct. 27, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing102710-foreclosure.cfm). 306 2009 October Oversight Report, supra note 300, at 9, 96. 307 2010 December Oversight Report, supra note 283, at 109. 308 2010 April Oversight Report, supra note 277, at 53. 

opinion on its HAMP authority.304 Although Treasury did provide 

a legal opinion on its HAMP authority to the Panel and allowed the 

Panel to quote from the document, it objected to the Panel making 

the entire document public. 

2. Compliance 

Treasury has struggled to ensure that HAMP servicers comply 

with the program’s rules. In describing the ineffectiveness of the 

current system, which provides few real ‘‘sticks’’ to punish noncompliance, Professor Katherine Porter, University of Iowa College 

of Law, testified before the Panel that, ‘‘servicers . . . have gorged 

themselves at a buffet of carrots, and they’re still not doing what 

we want them to do.’’ 305 In October 2009, the Panel stressed that 

Treasury needed an appropriate monitoring mechanism to ensure 

that servicers were accurately reporting the reasons for denial or 

cancellation and that those who did not received meaningful sanctions for noncompliance.306 The Panel stated that these sanctions 

should include the use of Treasury’s authority to withhold or claw 

back incentive payments.307 Following the Panel’s recommendations, Treasury has not permanently withheld or clawed back any 

incentive payments as a result of noncompliance. 

In addition to meaningful monetary penalties for noncompliance, 

the Panel stated that foreclosures should be stayed until an independent analysis of the application or trial could be performed, 

with the servicer paying the cost of the evaluation.308 The Panel 

also stressed that information on eligibility and denials should be 

clearly and promptly communicated to borrowers, and that denial 

information should be reported to the public. The Panel reiterated 

these recommendations in April 2010 and again in December 2010, 

stressing that denials should be subject to a meaningful, independent appeals process managed by either the Office of Homeowner Advocate or an ombudsman. While Treasury made progress 

in ensuring that HAMP applicants receive clear and prompt notice 

on why they are being denied a modification, it has not stayed any 

foreclosures until an independent analysis of the application has 

been performed. Furthermore, Treasury has not implemented the 

Panel’s recommendation that HAMP denial be made subject to a 

meaningful, independent appeals process. And while Treasury collects data on why modifications are being denied or cancelled, it 

still lacks a monitoring mechanism to ensure that those reasons 

are being reported accurately, and that servicers that make inaccurate reports face meaningful sanctions. 

3. Goals 

The Panel repeatedly requested that Treasury announce firmer 

goals for HAMP. Specifically, the Panel recommended that Treasury produce a clear metric of how many foreclosures it expects 


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309 2010 December Oversight Report, supra note 283, at 106. 310 2010 December Oversight Report, supra note 283, at 106. See also Congressional Oversight 

Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, Transcript: COP Hearing with Treasury Secretary Timothy Geithner, at 55 (June 22, 2010) (online 

at cop.senate.gov/documents/transcript-062210-geithner.pdf) (‘‘Well, again, what HAMP does and 

what HAMP is designed to do—it was not designed to prevent all foreclosures. It could not be 

designed to do that. . . . What HAMP is designed to try to do is to make sure that a set of 

people facing the risk of foreclosure have the chance of being able to afford the challenges of 

staying in their home.’’). 311 Congressional Oversight Panel, Written Testimony of Timothy G. Massad, acting assistant 

secretary for the Office of Financial Stability, U.S. Department of the Treasury, COP Hearing 

on the TARP’s Impact on Financial Stability, at 8 (Mar. 4, 2011) (online at cop.senate.gov/documents/testimony-030411-massad.pdf) (hereinafter ‘‘COP Hearing on the TARP’s Impact on Financial Stability’’) (‘‘Moreover, many more homeowners have been helped indirectly as a result 

of the standards that HAMP has catalyzed across mortgage modifications industry-wide.’’). The 

Panel has encouraged Treasury to collect and release information on non-HAMP proprietary 

loan modifications. Treasury has stated that it has suggested to several servicers that they submit such information, but it has made no commitments to the Panel. COP Transcript: Hearing 

on TARP’s Impact on Financial Stability, supra note 296. 312 2010 April Oversight Report, supra note 277, at 5. 313 As of February 25, 2011 Treasury has expended $1.038 billion under HAMP. 314 2009 October Oversight Report, supra note 300, at 112. 315 2009 October Oversight Report, supra note 300, at 111. 

HAMP to prevent, since foreclosures prevented is the only real 

measure of the program’s success.309 To date, Treasury has not released any goals or estimates for how many foreclosures will be ultimately prevented by HAMP since its original goal of 3 to 4 million.310 Although Treasury has made some additional data on the 

program available to the public, and also asserts that HAMP has 

yielded indirect benefits by establishing industry-wide standards 

for mortgage modifications,311 the lack of clearly articulated goals 

still hampers evaluation of the program. 

In addition, the Panel recommended that Treasury be clearer 

about exactly how much TARP money it intends to spend on 

HAMP.312 Treasury has not provided a realistic estimate of how 

much it expects to spend. Treasury continues to insist that it will 

use the entire $30 billion allocated to HAMP, a highly unlikely outcome considering the program’s meager performance to date and 

the looming expiration of HAMP in December 2012, after which no 

new trial modifications can begin.313 More realistically, CBO esti- mated that Treasury will spend a total of $12 billion among Treasury’s three foreclosure-prevention programs—HAMP, the Hardest 

Hit Fund, and the FHA Short Refinance Program. The Panel further estimated that as little as $4 billion may be spent on HAMP. 

4. Streamlining 

The Panel repeatedly urged Treasury to improve and streamline 

communications with borrowers, and to make it easier for them to 

apply for HAMP assistance. For instance, the Panel recommended 

that Treasury establish an ombudsman and dedicated case staff to 

help borrowers cut through red tape and resolve servicer problems.314 Treasury did not implement this recommendation. The 

Panel also requested that Treasury standardize the paperwork that 

HAMP applicants must submit in order to document their income.315 The shift in June 2010 to requiring that servicers verify 

borrower income upfront for all trial modifications was an important step in this direction, but it would not be accurate to call the 

current system ‘‘standardized.’’ 

The Panel focused on the slow rollout of the HAMP borrower web 

portal, which allows borrowers to apply for modifications and to 


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316The web portal, officially the HOPE LoanPort, is operated by the HOPE Alliance, a consortium of private lenders and other mortgage industry firms. 2009 October Oversight Report, 

supra note 300, at 111; 2010 April Oversight Report, supra note 277, at 96; 2010 December 

Oversight Report, supra note 283, at 78, 198. 317 2010 April Oversight Report, supra note 277, at 96. 318 2009 March Oversight Report, supra note 281, at 38–39. See also 2010 April Oversight Report, supra note 277, at 16, 126; 2010 December Oversight Report, supra note 283, at 109. 

track their application status online. The Panel repeatedly encouraged Treasury to get the portal operational, ensure that it is userfriendly, and press servicers to use it as the primary point of entry 

for applications.316 The Panel also called on Treasury to enforce 

borrower outreach and communication standards and timelines.317

Although the servicer portion of the HOPE LoanPort web portal finally rolled out in November 2010, a development the Panel applauded, the ‘‘borrower portal’’ portion, which would allow borrowers to interact directly with the LoanPort system by uploading 

documents and information without working through housing counselors, has not been implemented due to cost reasons. The Panel 

sees this as a significant problem. 

Overall, Treasury made some progress in making the program 

more accessible and understandable to borrowers, improving communications with HAMP participants, and streamlining the HAMP 

process. For example, Treasury instituted a campaign of televised 

public service announcements. Treasury implemented firmer 

timelines and standards for the servicers, although as discussed 

above, servicer compliance remains a major challenge. But there 

are several indications that Treasury has more work to do in this 

area: the low number of new trial modifications in recent months; 

the long average time that it takes for a trial modification to convert into a permanent modification; the still considerable, though 

much reduced number of trial modifications that remain in the conversion pipeline for many months; and anecdotal evidence that 

many borrowers remain confused and frustrated. 

5. Program Structure 

Since the inception of HAMP, the Panel made numerous recommendations regarding the structure of the program, in order to 

address problems that became apparent during the program’s implementation. Although Treasury made some modest progress in 

increasing participation and reducing the redefault rate, it adopted 

relatively few of the Panel’s recommendations thus far. 

The Panel repeatedly called on Treasury to modify the program 

to address three areas of major concern: second lien mortgages, unemployed borrowers, and borrowers with negative equity. In response to criticisms by the Panel and other observers, Treasury developed several new HAMP-related programs intended to deal with 

these issues directly, which the Panel applauded. Unfortunately, as 

of the publication of this report, these efforts have not demonstrated a track record of success. 

The Panel addressed the problems caused by second-lien mortgages in each of its reports on HAMP. The Panel encouraged Treasury to investigate and find a solution to the obstacles that second 

liens often present to first-lien mortgage modifications.318 The 

Panel recommended that Treasury explore the implications of adding borrower-specific junior lien information directly into HAMP’s 


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319 2010 April Oversight Report, supra note 277, at 16; 2010 December Oversight Report, 

supra note 283, at 109. 320 2009 October Oversight Report, supra note 300, at 89–90; 2010 April Oversight Report, 

supra note 277, at 20. 

net present value model, which is a key tool that servicers use to 

determine whether applicants are eligible for the program. The 

Panel also recommended that Treasury consider the effect these 

additional debts have on the number of borrowers served by HAMP 

and the impact they have on the sustainability of HAMP modifications.319

On April 28, 2009, Treasury announced the Second Lien Modification Program to address the problem of second liens. The program went into effect on August 14, 2009. Borrowers are eligible 

after their corresponding first liens have been modified under 

HAMP. Although servicer participation is voluntary, once they sign 

a participation agreement, servicers must modify or extinguish the 

second liens of all eligible borrowers. Servicers, borrowers, and second-lien investors all receive incentive payments for their participation. Although the second lien modification program is a welcome 

development, the program has so far seen relatively little use. 

The Panel repeatedly urged Treasury to find a way to provide assistance to unemployed borrowers, and Treasury attempted to do so 

by instituting several new programs. The Panel commends Treasury for creating the Home Affordable Unemployment Program. 

This program, announced on March 26, 2010, and effective July 1, 

2010, assists unemployed homeowners by granting temporary forbearance of a portion of their monthly mortgage payments. During 

the forbearance period, which lasts a minimum of three months, 

unless the homeowner finds a job, payments fall to no more than 

31 percent of the borrower’s gross monthly income, including unemployment benefits. Once borrowers are in the program, the forbearance ends when they find work. 

Another Treasury program designed in part to deal with the 

problem of unemployed homeowners is the Hardest Hit Fund. This 

program, announced on February 19, 2010, provides TARP money 

to state-run foreclosure mitigation programs in specific states hit 

hardest by home value decreases and unemployment. Eighteen 

states and the District of Columbia are eligible for funding. Before 

receiving the funds, eligible states must submit and receive approval for their plans to use the money. Many of the proposed 

Hardest Hit Fund programs aim to help low- to moderate-income 

families. Some states, such as Arizona, developed programs intended to help any struggling homeowner with a demonstrated 

hardship who meets certain qualifications. To date, Treasury allocated $7.6 billion to the states in four rounds of funding. All states 

receiving these funds are using at least a portion of the money to 

aid unemployed homeowners. 

The Panel also suggested that Pennsylvania’s successful Homeowners’ Emergency Mortgage Assistance Program, which provides 

short-term loans to unemployed homeowners, could serve as a 

model for a nationwide program.320 Although it is not part of 

HAMP, Congress authorized and the Department of Housing and 

Urban Development is implementing the Emergency Homeowners’ 

Loan Program, which will assist unemployed borrowers. Despite 


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321 In September 2009, the Panel visited Philadelphia’s Mortgage Foreclosure Diversion Pilot 

Program, a court sponsored mediation program for borrowers in foreclosure created by Judge 

Annette Rizzo of the Philadelphia Court of Common Pleas. This program, instituted in April 

2008, requires ‘‘conciliation conferences’’ in all foreclosure cases involving residential properties 

with up to four units that were used as the owner’s primary residence, based on the idea that 

bringing borrowers into the same room with lenders’ representatives will foster a compromise 

that is in both parties’ best interests. The program was also discussed in the Panel’s September 

Field Hearing. See Congressional Oversight Panel, Written Testimony of Judge Annette M. 

Rizzo, Court of Common Pleas, First Judicial District, Philadelphia County, Philadelphia Mortgage Foreclosure Diversion Program, Philadelphia Field Hearing on Mortgage Foreclosures 

(Sept. 24, 2009) (online at cop.senate.gov/documents/testimony-092409-rizzo.pdf); Congressional 

Oversight Panel, Testimony of Judge Annette M. Rizzo, Court of Common Pleas, First Judicial 

District, Philadelphia County, Philadelphia Mortgage Foreclosure Diversion Program, Transcript: Philadelphia Field Hearing on Mortgage Foreclosures, at 46–47, 103–105 (Sep. 24, 2009) 

(online at cop.senate.gov/documents/transcript-092409-philadelphia.pdf). 322See First American CoreLogic, Underwater Mortgages On the Rise According to First American CoreLogic Q4 2009 Negative Equity Data (Feb. 23, 2010) (online at www.corelogic.com/ 

uploadedFiles/Pages/AboutlUs/ResearchTrends/Q4l2009lNegativelEquitylFINAL.pdf). 323 2010 December Oversight Report, supra note 283, at 67. 324 2010 December Oversight Report, supra note 283, at 109. 

these new programs, however, unemployed borrowers continue to 

account for many foreclosures.321

Negative equity constituted another longstanding area of concern 

for the Panel, since there is a correlation between negative equity, 

or owing more on your mortgage than your home is worth, and delinquency.322 In December 2009, the Panel encouraged Treasury to 

consider incentivizing servicers to use principal reduction to deal 

with these ‘‘underwater’’ borrowers.323 Since then, Treasury has attempted to deal with negative equity in several ways. 

Treasury created the HAMP Principal Reduction Alternative, 

which attempts to incentivize servicers to write down underwater 

loans voluntarily. The program was announced on June 3, 2010, 

and went into effect on October 1, 2010. The Principal Reduction 

Alternative operates much like HAMP, except that instead of postponing payments on a portion of the mortgage, the program forgives that portion altogether. Servicers are required to consider 

loans that are HAMP-eligible and have loan-to-value ratios greater 

than 115 percent. This evaluation involves comparing the amount 

of money that a modification involving principal reduction would 

generate to the amount generated by a modification that does not 

involve principal reduction. The final decision on whether to grant 

a principal reduction is ultimately up to the servicer. Participating 

investors receive standard incentive payments as well as a percentage of each dollar forgiven. 

The Principal Reduction Alternative also includes an equity sharing option, in which the investor may be able to share the benefits 

of a subsequent appreciation in the home’s value. Based on this option, the Panel suggested that Treasury monitor the Principal Reduction Alternative to determine whether equity sharing increased 

program participation. If so, the Panel suggested that Treasury 

should consider authorizing equity sharing arrangements in other 

programs.324 Although the Principal Reduction Alternative program allows equity sharing, it is not required, and it is unclear at 

this time if this feature will be extensively used or will significantly 

boost overall program performance. Treasury has not implemented 

any additional equity sharing arrangements. Although the Principal Reduction Alternative is a welcome additional tool to prevent 

foreclosures, it does not yet have a demonstrated track record of 


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325 2009 October Oversight Report, supra note 300, at 112. 326 Congressional Oversight Panel, Written Testimony of Faith Schwartz, senior advisor, 

HOPE NOW Alliance, COP Hearing on TARP Foreclosure Mitigation Programs, at 7 (Oct. 27, 

2010) (online at cop.senate.gov/documents/testimony-102710-schwartz.pdf). 327 2010 November Oversight Report, supra note 292, at 6, 83–84; Congressional Oversight 

Panel, COP Hearing on TARP Foreclosure Mitigation Programs (Oct. 27, 2010) (online at 

cop.senate.gov/hearings/library/hearing-102710-foreclosure.cfm). 

success, and Treasury has not made much data available on its 

performance. 

Treasury’s Home Affordable Foreclosure Alternative and the 

FHA Short Refinance Program are also intended to address problems caused by negative equity. The Home Affordable Foreclosure 

Alternative program, announced on November 30, 2009, but not effective until April 5, 2010, seeks to encourage the use of short sales 

and deeds-in-lieu of foreclosure for HAMP-eligible borrowers who 

are underwater and unable to qualify for modifications. Servicers 

agree to forfeit the ability to seek a deficiency judgment in exchange for allowing borrowers to make short sales or issue a deedin-lieu. Essentially, a servicer agrees to accept the property itself 

in satisfaction of a borrower’s mortgage obligation. All parties receive TARP financial incentives. 

The FHA Short Refinance Program, which was announced on 

March 26, 2010 and went into effect on September 7, 2010, offers 

a similar option. This TARP-funded program allows for the refinancing of non-FHA-insured underwater mortgages into positive 

equity, FHA-insured mortgages. Program participation is voluntary 

for servicers on a case-by-case basis. As with the Principal Reduction Alternative, both the Home Affordable Foreclosure Alternative 

program and the FHA Short Refinance program are relatively new 

and have not been used extensively so far. 

The Panel also recommended that Treasury consider allowing 

borrowers whose monthly mortgage payments are currently less 

than 31 percent of their monthly incomes to enter HAMP, thereby 

capturing additional at-risk borrowers, especially those who owe 

large amounts in overdue payments.325 In the Panel’s October 2010 

hearing on foreclosures, Faith Schwartz, senior adviser for the 

HOPE NOW Alliance, testified that HAMP’s 31 percent minimum 

eligibility standard was considered ‘‘aggressive’’ when HAMP was 

first rolled out, but that even this level of mortgage payment to income is too high for many homeowners who wind up in foreclosure.326 Treasury has not taken action on this suggestion. 

6. Document Irregularities 

The Panel’s November 2010 report on foreclosure irregularities 

included several recommendations for Treasury. Treasury stated at 

the Panel’s October 2010 hearing that based on the information it 

had at the time, foreclosure irregularities posed no systemic threat 

to the financial system. The Panel challenged this view and asked 

Treasury to explain why it saw no danger. The Panel also encouraged Treasury to monitor closely the impact of foreclosure irregularities and publicly report its findings. Further, the Panel’s November 2010 report stated that Treasury should develop contingency plans to prepare for the potential worst-case scenario.327

Treasury indicated that as of the publication of this report, it has 

not found evidence of a systemic threat. However, the 11 member 


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328 Information provided by Treasury (Mar. 9, 2011). 329Senate Committee on Banking, Housing, and Urban Affairs, Written Testimony of John 

Walsh, acting comptroller of the currency, Office of the Comptroller of the Currency, Oversight 

of Dodd-Frank Implementation: A Progress Report by the Regulators at the Half-Year Mark, at 

13–15 (Feb. 17, 2011) (online at banking.senate.gov/public/index.cfm? FuseAction=Files. 

View&FileStore_id=99d7b6a8-d834-46e6-a088-f463fb740cf0). 

federal agency working group, of which Treasury is a member, continues to investigate. Rather than conducting an independent monitoring effort, Treasury has chosen to monitor the situation through 

its participation with the interagency working group and updates 

from various regulators. Finally, Treasury has not yet prepared 

any contingency plans for a worst case scenario, but is awaiting the 

findings of the interagency investigations to decide what action, if 

any, it should take.328

So far, the most comprehensive federal response to the Panel’s 

concerns came from the OCC, which, along with other federal 

banking regulators, conducted examinations of foreclosure processing at the 14 largest federal regulated servicers during the 

fourth quarter of 2010. These examinations found ‘‘critical deficiencies and shortcomings in foreclosure governance process, foreclosure document preparation process, and oversight and monitoring of third party law firms and vendors’’ that ‘‘have resulted in 

violations of state and local foreclosure laws, regulations, or rules 

that have had an adverse effect on the functioning of the mortgage 

markets and the U.S. economy as a whole.’’ The examinations also 

found ‘‘[a] small number of foreclosure sales’’ that ‘‘should not have 

proceeded’’ for various reasons, but also that ‘‘servicers maintained 

documentation of ownership and had a perfected interest in the 

mortgage to support their legal standing to foreclose.’’ 329

D. Data Updates 

1. Treasury’s Foreclosure Mitigation Programs 

Treasury announced its broad foreclosure mitigation initiative, 

headlined by HAMP, more than two years ago. Since that time, 

what results has the effort produced? HAMP began in 2009 with 

a major push to get at-risk homeowners into trial modifications. As 

early enrollees either converted into permanent modifications or 

dropped out of the program, the number of new trial modifications 

began to fall. As a result, the pipeline of new trial modifications 

has slowed considerably since 2009. Unless this trend reverses, 

which appears unlikely, the program will fall far short of Treasury’s initial goal of 3 million to 4 million foreclosures prevented. 

Figure 16 shows the number of trial modifications started each 

month since the program’s inception. 


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330Trial modifications are categorized by the month in which homeowners made their first reduced trial payment. Data provided by Treasury (Feb. 28, 2011). 331 2010 December Oversight Report, supra note 283, at 20. 332Office of the Comptroller of the Currency and Office of Thrift Supervision, Mortgage 

Metrics Report, Second Quarter 2010, at 22 (Sept. 2010) (online at www.ots.treas.gov/_files/ 

490019.pdf). See also Fitch Ratings, U.S. RMBS: Still Under a Shadow, at 5 (Nov. 1, 2010) (noting that ‘‘the number of remaining borrowers eligible for a loan modification appears to be declining, as new loan modification activity has declined from its peak in 2009’’). 

FIGURE 16: NUMBER OF NEW TRIAL MODIFICATIONS SINCE HAMP’S INCEPTION BY 

MONTH 330

According to Treasury, most of the decline in new trial modifications has been due to Treasury’s decision, instituted in June 2010, 

to require that servicers verify upfront the income of HAMP applicants. Prior to June 2010, homeowners were able to qualify for trial 

modifications by verbally providing their incomes to servicers over 

the phone. As the Panel observed in the December 2010 report, 

however, this change cannot completely explain the decrease, since 

the number of new trial modifications began dropping off long before the upfront verified documentation standard was implemented. 

The Panel also considered the possibility that HAMP has already 

reached the majority of eligible borrowers who can be helped.331 In 

the early months of the program, there was a large pool of borrowers awaiting help. Once many of these homeowners entered 

HAMP or other programs, there were simply fewer potential applicants who met HAMP criteria.332

While new trials are an important metric for determining the 

maximum number of borrowers the program may be able to assist, 

a trial modification that fails to convert to a permanent modification can hardly be called a success. The pipeline of new permanent 

modifications expanded in late 2009 and early 2010 as Treasury 

made a major push to convert trial modifications into permanent 

ones. Between January and June 2010, Treasury recorded an average of about 55,000 new permanent modifications each month. But 

since then, the numbers have fallen, as Figure 17 shows, to an average of around 30,000 new permanent modifications per month. 


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333From May 2009 to September 2009, new permanent modifications totaled 4,742. Monthly 

new permanent modifications are derived from ‘‘All Permanent Modifications Started’’ levels 

from October 2009 to January 2011, which are recorded in the Making Home Affordable Program’s monthly Servicer Performance Reports. For these monthly reports, see U.S. Department 

of the Treasury, Program Results, Making Home Affordable Reports (online at 

www.treasury.gov/initiatives/financial-stability/results/MHA-Reports/Pages/default.aspx) 

(accessed Mar. 3, 2011) (hereinafter ‘‘MHA: Program Results’’). 

FIGURE 17: NUMBER OF NEW PERMANENT MODIFICATIONS SINCE HAMP’S INCEPTION 

BY MONTH 333

The number of permanent modifications is not a complete indicator of program success either, since HAMP participants who redefault after conversion to permanent modifications not only face 

foreclosure once again, but also represent an unsuccessful expenditure of taxpayer dollars. The Panel in its December 2010 report expressed concern about HAMP redefaults, since they have the potential to undermine the program’s success. As Figure 18 illustrates, 

the gap between the number of redefaults and the new monthly 

permanent modifications narrowed in recent months. 


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334 ‘‘Monthly Active Permanent Modifications’’ and ‘‘Monthly Permanent Modification Redefaults’’ are derived from cumulative ‘‘Active Permanent Modifications’’ and ‘‘Permanent Modifications Canceled’’ (excluding loans paid off) from February 2010 to January 2011, as recorded 

in the Making Home Affordable Program’s monthly Servicer Performance Reports. For these 

monthly reports, see MHA: Program Results, supra note 333. 

FIGURE 18: MONTHLY HAMP PERMANENT MODIFICATIONS AND REDEFAULTS 334

As noted earlier, Treasury set a goal in March 2009 of assisting 

3–4 million homeowners avoid foreclosure through HAMP, although Treasury’s definition of ‘‘assist’’ has been somewhat unclear. 

Figure 19 shows the number of households currently being assisted 

by HAMP, as measured by active trial and permanent modifications, along with the number of households currently being assisted 

by the other TARP foreclosure prevention programs. It is important 

to note that some HAMP trial modifications will not convert to permanent modifications and some permanent modifications will end 

in redefaults; therefore, not all of these households will avoid foreclosures. 


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339Treasury estimates that over time each HAMP permanent modification will cost the federal government $20,000. Massad Testimony to the Panel, supra note 122. 340 Although HAMP expires on December 31, 2012, and new trial modifications after that date 

are prohibited, existing trial modifications can continue to convert. Considering the five-year 

term of HAMP assistance, the program should continue to expend funds into 2018. 341 Congressional Budget Office, Report on the Troubled Asset Relief Program—November 

2010, at 4 (Nov. 29, 2010) (online at www.cbo.gov/ftpdocs/119xx/doc11980/11-29-TARP.pdf) 

(‘‘CBO Report on TARP—November 2010’’). 

FIGURE 19: NUMBER OF HOUSEHOLDS CURRENTLY BEING ASSISTED BY TARP FORECLOSURE 

PREVENTION PROGRAMS 335

Program Households Receiving 

Assistance 

HAMP 336 ..................................................................................................................................... 684,753 

FHA Short Refinance Program337 .............................................................................................. 64 

Hardest Hit Fund 338 ................................................................................................................... 757 

Total .................................................................................................................................. 685,574 

335 In light of the number of households assisted to date by Treasury’s foreclosure prevention programs, some members of Congress have 

introduced legislation proposing the repeal of various TARP foreclosure prevention programs. See H.R. 430, The HAMP Repeal and Deficit Reduction Act of 2011, 112th Cong. (online at www.gpo.gov/fdsys/pkg/BILLS-112hr430ih/pdf/BILLS-112hr430ih.pdf) (accessed March 11, 2011); 

H.R. 839, The HAMP Termination Act of 2011, 112th Cong. (online at www.gpo.gov/fdsys/pkg/BILLS-108hr839ih/pdf/BILLS-108hr839ih.pdf) 

(accessed March 11, 2011). 

Treasury has stated that it is ‘‘very concerned’’ about HAMP repeal legislation, and believes that if the program was terminated, ‘‘many, 

many Americans who otherwise could be helped into an affordable mortgage will not have that opportunity to do so.’’ Massad Testimony to 

the Panel, supra note 122. The Panel has taken no position on this issue. 

336 This figure is the sum of 539,493 active permanent modifications and 145,260 active trial modifications. Both numbers are as of Jan. 

31, 2011. MHA Program: Servicer Performance January 2011, supra note 290, at 2. Treasury also reports that 21,043 households have received assistance through HAMP’s Principal Reduction Alternative, HAMP’s Unemployment Program, HAMP’s Second Lien Program, the Home Affordable Foreclosure Alternatives Program, and the Home Price Decline Protection Program. It is likely, however, that at least some of these 

households are among those in active HAMP trial and permanent modifications, and that some of the households are not currently receiving 

assistance. Treasury data provided to the Panel (Feb. 28, 2011). 337 Data provided by Treasury (Mar. 10, 2011). 338 The Hardest Hit Fund data show the number of applications approved through December 31, 2010. The data is sourced from seven of

the 19 states participating in the program. Treasury data provided to the Panel (Feb. 28, 2011). 

To achieve these results, Treasury has spent $1.2 billion out of 

the $45.6 billion in TARP funds allocated for foreclosure mitigation 

programs, or 2.6 percent of the funds available.339 Spending on 

these programs will continue until 2018, but given the current pace 

of outlays, Treasury seems unlikely to spend anywhere near $45.6 

billion.340 CBO estimates that Treasury will ultimately spend only 

about $12 billion on these programs.341 Figure 20 shows Treasury’s 

expenditures to date for its TARP foreclosure mitigation programs. 

FIGURE 20: EXPENDITURES FOR TARP FORECLOSURE MITIGATION PROGRAMS 342

Program Expenditures 

HAMP .......................................................................................................................................... $1.0 billion 

FHA Short Refinance Program .................................................................................................... 53.9 million 

Hardest Hit Fund ........................................................................................................................ 125.1 million 

Total .................................................................................................................................. $1.2 billion 

342 The HAMP expenditures are as of February 25, 2011, while the expenditures for the other two programs are as of February 28, 2011. Treasury data provided to the Panel (Feb. 28, 2011). 

2. Housing Market 

Treasury introduced the foreclosure mitigation programs in an 

effort to prevent foreclosures and stabilize the housing markets. 

Yet, foreclosures have remained at very high levels over the last 

two years. In December 2010, there were 232,000 foreclosure 

starts, while there were 56,000 foreclosure sales. This compares to 

282,000 foreclosure starts and 51,000 foreclosure sales in March 

2009, when HAMP was introduced. (Foreclosure sales dipped in 


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343 HOPE NOW Alliance, Appendix—Mortgage Loss Mitigation Statistics: Industry Extrapolations (Quarterly from Q1–2007 to Q1–2009), at 4 (online at www.hopenow.com/industry-data/ 

HOPE%20NOW%20National%20Data%20July07%20to%20April09.pdf) (accessed Mar. 11, 2011); 

HOPE NOW Alliance, Appendix—Mortgage Loss Mitigation Statistics: Industry Extrapolations 

(Monthly for Dec 2008 to Nov 2009), at 2 (online at www.hopenow.com/industry-data/ 

HOPE%20NOW%20National%20Data%20July07%20to%20Nov09%20v2%20(2).pdf) (accessed 

Mar. 11, 2011); HOPE NOW Alliance, Industry Extrapolations and Metrics (May 2010), at 8 

(June 28, 2010) (online at www.hopenow.com/industry-data/ 

HOPE%20NOW%20Data%20Report%20(May)%2006-21-2010.pdf); HOPE NOW Alliance, Industry Extrapolations and Metrics (September 2010), at 8 (Oct. 31, 2010) (online at hopenow.com/ 

industry-data/HOPE%20NOW%20Data%20Report%20(September)%2010-31-2010%20v2.pdf); 

HOPE NOW Alliance, Industry Extrapolations and Metrics (December 2010), at 8 (Feb. 2, 2011) 

(online at www.hopenow.com/industry-data/ 

HOPE%20NOW%20Data%20Report%20(December)%2002-01-2011%20v2.pdf). 344S&P/Case Shiller Index data, which runs through December 2010, accessed through 

Bloomberg Financial Data Service (accessed Mar. 4, 2011). 345 At the Panel’s March 4, 2011, hearing, Assistant Secretary Massad noted that foreclosures 

put downward pressure on the prices of neighboring homes. ‘‘A foreclosure for any family that 

Continued 

late 2010 as a result of a number of large mortgage servicers suspending foreclosures in order to review their internal foreclosure 

procedures, but these numbers will likely increase in the coming 

months as these servicers resume their foreclosures.) Figure 21 

shows foreclosure starts and completions by month since March 

2009. The 685,574 households currently receiving TARP housing 

assistance—shown in Figure 19—represent roughly the same number of households that move into foreclosure proceedings every 

three months, based on the current rate. 

FIGURE 21: FORECLOSURE STARTS AND COMPLETIONS 343

As foreclosure starts and completions have remained at a persistently high level, home prices have continued to fall. The S&P/Case 

Shiller index, which measures residential real estate prices nationwide, began declining in 2007, and the index’s fall continued 

through the financial crisis of 2008 and beyond. After stabilizing in 

early 2010, home prices continued their decline in the second half 

of last year. Since the TARP was enacted in October 2008, nationwide home prices have declined by 9.1 percent. Since their peak in 

February 2007, nationwide home prices have fallen by 30.2 percent.344 Figure 22 shows that this decline in home prices has happened simultaneous with the rise in foreclosures.345


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goes through it is obviously a terrible economic loss,’’ he stated. ‘‘It’s also a great social and— 

or great psychological and emotional loss. It’s a loss to the community. The community suffers 

from it because neighboring house prices fall. Particularly where you have a vacant home that 

can then be subject to vandalism. . . . So you know this situation is a drag on our economy 

as a whole.’’ Massad Testimony to the Panel, supra note 122. Patrick Lawler, the FHFA’s chief 

economist, made a related point, noting that foreclosures can result in additional losses for government sponsored enterprises Fannie Mae and Freddie Mac. Speaking about HAMP and other 

foreclosure-prevention programs, he stated: ‘‘These programs have benefited the enterprises by 

mitigating risks and reducing both direct losses on loans where foreclosure is avoided and indirect losses on properties where housing markets are stabilized, which reduces defaults on other 

loans.’’ Congressional Oversight Panel, Testimony of Patrick Lawler, chief economist and head 

of the Office of Policy Analysis and Research, Federal Housing Finance Agency, Transcript: COP 

Hearing on the TARP’s Impact on Financial Stability (Mar. 4, 2011) (publication forthcoming) 

(online at cop.senate.gov/hearings/library/hearing-030411-final.cfm). 346The metric ‘‘foreclosure actions,’’ as used by RealtyTrac, encompasses default notices, 

scheduled auctions and bank repossessions. RealtyTrac: Foreclosures in February, supra note 

285. S&P/Case Shiller Index data accessed through Bloomberg Financial Data Service (accessed 

Mar. 4, 2011). 347Data provided by CoreLogic (Feb.16, 2011). 348 Even though the pending nationwide inventory increased only from 3.4 million in January 

2006 to 3.9 million in November 2010, the rate at which the inventory was clearing slowed 

down, which explains why the rate at which the pending inventory is expected to clear has more 

than doubled during the same nearly five-year period. Data provided by CoreLogic (Feb. 15, 

2011). 

FIGURE 22: FORECLOSURE ACTIONS AND HOME PRICES 346

Putting additional pressure on housing prices is a glut of unsold 

homes. According to one estimate, there are currently more than 

six million unsold housing units in the United States, as compared 

to a pre-crisis level of 3.8 million.347 Figure 23 shows the overhang 

of housing inventory in the market. The chart distinguishes between visible inventory and pending inventory, which is a measure 

of potential additions to the sales inventory from homes that are 

in the foreclosure process or have mortgages that are seriously delinquent. There are currently 16 months of visible housing supply, 

as compared to an average of 7.3 months of visible inventory in 

2006.348


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349Data provided by CoreLogic (Feb.16, 2011). 350 National Delinquency Survey—2010 4th Quarter, supra note 4. 

FIGURE 23: VISIBLE AND PENDING HOUSING INVENTORY 349

Because borrowers entering foreclosure have been delinquent on 

their mortgage payments for several months, delinquencies are an 

indicator of likely future trends in foreclosures. HAMP’s declining 

trial modification production is therefore troubling in relation to 

the current high level of delinquencies. While mortgage delinquencies have declined over the past three quarters, they remain 

near historically high levels. At the end of 2010, loans that were 

30, 60, or 90 or more days delinquent represented approximately 

8.2 percent of all outstanding loans—down from 10.1 percent during the first quarter of 2010, which was the peak during the current crisis, but still above 7.8 percent rate in the fourth quarter of 

2008. Mortgages in the foreclosure inventory, meaning those currently in the foreclosure process, represent 4.6 percent of outstanding loans—which equals the highest level since 2006 and is 

well above the 3.3 percent rate in the fourth quarter of 2008. The 

delinquency rate remains 18 percent above its level at the time the 

TARP was enacted, and the foreclosure inventory rate is 56 percent 

above its level from that period.350 Figure 24 shows delinquency 

and foreclosure inventory rates since before the foreclosure crisis 

began. 


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351 National Delinquency Survey—2010 4th Quarter, supra note 4. 352Data accessed through Bloomberg Financial Data Service (accessed Mar. 4, 2011). 

FIGURE 24: DELINQUENCY AND FORECLOSURE INVENTORY RATES 351

Unemployment rates remain problematic as well, given the link 

between joblessness and mortgage delinquency. Figure 25 shows 

that the nationwide delinquency rate and the U.S. unemployment 

rate have followed similar trends since early 2006. 

FIGURE 25: UNEMPLOYMENT AND DELINQUENCY RATES 352


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353Data provided by Zillow.com (Feb. 18, 2011). 

Negative equity, a situation in which homeowners owe more than 

their homes are worth, is another factor that may contribute to 

foreclosures. Figure 26 shows that the percentage of homeowners 

who are underwater has risen by more than 10 percentage points 

since the second quarter of 2008. 

FIGURE 26: PERCENTAGE OF HOMEOWNERS WHO ARE UNDERWATER 353

While we cannot know what the state of the housing market 

would be in the absence of HAMP, we do know that despite the implementation of HAMP and other foreclosure mitigation efforts, 

foreclosures remain high, and the housing market shows continuing signs of stress. 

E. Lessons Learned 

The first step in crafting a successful mortgage modification program is to have an accurate empirical picture of the mortgage market. As the Panel has noted with other TARP programs, insufficient data collection undermines the development of good policies. 

The lack of comprehensive, reliable data also makes it difficult for 

policymakers to identify successful loan modifications or make apples-to-apples comparisons among programs. This information is 

crucial for understanding the changing nature of the mortgage 

market and crafting informed, targeted policy responses. 

It is important to ensure that modified mortgages be affordable 

to borrowers. Because the HAMP requirement that homeowners 

spend 31 percent of their monthly income on their first-lien mortgage payments does not take into account local conditions, overdue 

payments, second liens, and other borrower debt, the Panel has 

questions about the sustainability of many HAMP modifications. 

Future mortgage modification programs should consider the best 

way to measure overall affordability. 

The problems that Treasury has encountered with HAMP underscore the importance of a timely, decisive response to any future 

foreclosure crisis. When HAMP was introduced in early 2009, the 

foreclosure crisis was already well under way, and HAMP was not 


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well designed to address the coming waves of foreclosures, which 

were increasingly driven by unemployment and negative equity. 

Over the next two years, Treasury provided increasingly generous 

incentives to participating borrowers, lenders, and servicers, which 

gave them reason to hold out for a better offer. While the constant 

flux of new programs, new standards, and new requirements reflected Treasury’s efforts to respond to recommendations made by 

oversight bodies, the shifting ground also led to confusion among 

servicers and borrowers. Any future foreclosure mitigation programs should be forward-looking and attempt to address new and 

emerging problems before they reach crisis proportions. 

Future policymakers should be mindful that the incentives of 

mortgage servicers are different from those of the government, and 

design any foreclosure mitigation program with that reality in 

mind. Borrower eligibility must depend on criteria set forth in the 

foreclosure mitigation program, rather than on the willingness of 

servicers or lenders to participate. If incentive payments are used 

to drive servicer participation, those payments must be sufficient 

to offset the financial incentives for servicers to push for foreclosure. Modification programs should also include an appropriate 

monitoring mechanism to ensure that servicers are accurately reporting the reasons for denials and cancellations, and there should 

be meaningful sanctions for noncompliance. 

The need for better communication with homeowners is another 

important lesson to be drawn from HAMP. Because servicers generally first contact borrowers in a debt-collection role, any future 

foreclosure mitigation program that relies on servicers would benefit from a government-run outreach campaign designed to inform 

borrowers of their options for preventing foreclosure. A uniform 

and streamlined modification process would allow housing counselors to be more effective and allow borrowers and servicers to 

navigate the system more easily. Foreclosure mitigation efforts that 

rely on servicers should also make increasing servicer capacity an 

early priority. 

It is also important that policymakers focus on ensuring good 

outcomes for homeowners, rather than becoming bogged down in 

process-related concerns. HAMP has a dizzying number of rules. In 

its oversight of Fannie Mae, HAMP’s administrator, and Freddie 

Mac, HAMP’s compliance agent, Treasury has seemed to focus 

more on ensuring that its rules are followed than on addressing the 

individual concerns of the people that the program is supposed to 

help. 

Finally, the current crisis shows how closely foreclosure prevention is intertwined with efforts to ensure bank solvency. Delinquent 

mortgages continue to weigh on the U.S. banking system, and government efforts to remedy either the debt facing homeowners or 

the weakness of the banking system can have significant effects on 

the other problem. Principal write-downs on a large scale, for example, would help homeowners but hurt the banks. Over the last 

two years, Treasury has designed housing programs that aim to 

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354See, e.g., Congressional Oversight Panel, Written Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, COP Hearing with Treasury Secretary Timothy 

Geithner, at 6 (Apr. 21, 2009) (online at cop.senate.gov/documents/testimony-042109- 

geithner.pdf) (‘‘Falling home prices are a major financial challenge for many families. At the 

same time, financial losses related to the housing sector adjustment continue to be a significant 

headwind for banks and other financial institutions. Foreclosures are particularly problematic 

because they not only impose significant financial and emotional burdens on families, they are 

also costly for communities and banks. For all these reasons, addressing the housing crisis and 

reducing foreclosures is an important objective.’’). 355 Bureau of Economic Analysis, National Income and Product Accounts Table: Table 1.5.5— 

Gross Domestic Product, Expanded Detail (online at www.bea.gov/national/nipaweb/ 

TableView.asp? SelectedTable=35&ViewSeries=NO&Java= no&Request3Place=N 

&3Place=N&FromView=YES&Freq= Year&FirstYear=1990&LastYear=2008&3Place= 

N&Update=Update&JavaBox=no) (accessed Mar. 11, 2011). 356 Bureau of Labor Statistics, Automotive Industry: Employment, Earnings, and Hours (online 

at data.bls.gov/pdq/SurveyOutputServlet?serieslid=CEU3133600101&dataltool=XGtable) 

(accessed Mar. 11, 2011). 357 IHS Global Insights, U.S. Executive Summary (Aug. 2009). 358Senate Committee on Banking, Housing, and Urban Affairs, Written Testimony of Ron 

Bloom, senior advisor, U.S. Department of the Treasury, The State of the Domestic Automobile 

Industry: Impact of Federal Assistance (June 10, 2009) (online at banking.senate.gov/public/ 

index.cfm?FuseAction =Files.View&FileStorelid=40341601-355c-4e6f-b67f-b9707ac88e32). As of 

December 2009, 26 percent of all retail automobile purchases were cash transactions. This figure 

Continued 

owners without restructuring bank balance sheets.354 The limitations of that approach are apparent in the problems that Treasury 

has encountered. 

V. Automotive Industry Assistance 

A. Background 

The automotive industry has traditionally accounted for a significant portion of U.S. domestic output and employment. As recently 

as 2004, the industry produced nearly 4 percent of U.S. GDP.355

Even prior to the financial crisis, the industry had begun to experience severe strain. Foreign competitors were steadily increasing 

market share at the expense of domestic manufacturers. Legacy 

costs and poor strategic decisions added to the problems of General 

Motors Corporation (GM) and Chrysler. Between 2000 and 2008, 

employment in the industry fell by roughly 34 percent, from a high 

of 1,254,900 in February 2001 to 822,900 in October 2008.356

In the fall of 2008, a combination of rising gasoline prices, tightening credit markets, eroding consumer confidence, high unemployment, and a decline in consumer discretionary spending led to a 

significant downturn in automobile sales in the United States and 

abroad. U.S. automobile sales fell to a 26-year low.357 By early December 2008, GM and Chrysler were struggling to secure the credit 

they needed to conduct their day-to-day operations. 

Additionally, the freeze in credit markets in late 2008 resulted 

in lenders experiencing increased difficulty in raising capital to finance auto loans. At that time, GMAC/Ally Financial had already 

suffered third quarter losses and was facing even greater fourth 

quarter losses, due largely to their hemorrhaging residential mortgage unit, ResCap. The contraction of the credit markets and the 

shaky financial condition of the companies had an especially severe 

impact on their automotive lending businesses. Since substantially 

all wholesale purchases by automobile dealers and about three 

quarters of retail consumer purchases are financed with borrowed 

funds,358 GM and Chrysler faced additional losses in sales due to 

potential customers’ inability to find credit. 


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has been relatively constant over the past five years, fluctuating between 22 and 32 percent. 

Data provided to the Panel by J.D. Power and Associates. 359The President and Chief Executive Officer of Ford Motor Company also testified at this 

hearing. Senate Committee on Banking, Housing, and Urban Affairs, Written Testimony of 

Richard Nardelli, chairman and chief executive officer, Chrysler LLC, State of the Domestic 

Automobile Industry: Part II (Dec. 4, 2008) (online at banking.senate.gov/public/index.cfm 

?FuseAction=Files.View&FileStorelid=c41857b2-7253-4253-95e3-5cfd7ea81393). 360The money would have been re-allocated from a pre-existing Department of Energy program for advanced vehicle technology. H.R. 7321, Auto Industry Financing and Restructuring 

Act, 110th Cong. (2008). The Senate failed to invoke cloture on the proposed legislation by a 

vote of 52 to 35. U.S. Senate, Roll Call Vote on the Motion to Invoke Cloture on the Motion 

to Proceed to Consider H.R. 7005 (Dec. 11, 2008) (online at www.senate.gov/legislative/LIS/ 

rolllcallllists/rolllcalllvotelcfm.cfm ?congress=110&session=2&vote=00215) (52 yeas, 35 

nays). 361The George W. Bush White House Office of the Press Secretary, Fact Sheet: Financing Assistance to Facilitate the Restructuring of Auto Manufacturers to Attain Financial Viability (Dec. 

19, 2008) (online at georgewbush-whitehouse.archives.gov/news/releases/2008/12/20081219- 

6.html) (hereinafter ‘‘White House Fact Sheet: Assistance to Auto Manufacturers’’). 362GMAC, LLC, GMAC Files Application With Federal Reserve to Become Bank Holding Company (Nov. 20, 2008) (online at media.gmacfs.com/index.php?s=43&item=288). 363 Board of Governors of the Federal Reserve System, Order Approving Formation of Bank 

Holding Companies and Notice to Engage in Certain Nonbanking Activities, at 2, 15 (Dec. 24, 

2008) (online at www.federalreserve.gov/newsevents/press/orders/orders20081224a1.pdf). 

The CEOs of Chrysler and GM appeared before Congress in December of 2008 to plead for government assistance to keep them 

from going under.359 The House of Representatives responded on 

December 10 by passing legislation that would have provided a 

total of $14 billion in loans to Chrysler and GM, but the bill was 

blocked in the Senate on December 11.360 The Bush administration 

then reversed its previous stance that had precluded TARP funding 

for the auto industry, and on December 19 announced that Chrysler and GM would both be provided TARP assistance. This was justified in part on the basis that allowing them to fail would result 

in a more than 1 percent reduction in real GDP growth and about 

1.1 million workers losing their jobs.361

Meanwhile, on November 20, 2008, GMAC/Ally Financial requested the approval of FRB to become a BHC, contingent on the 

conversion of GMAC Bank to a commercial bank.362 Becoming a 

BHC would make GMAC/Ally Financial eligible for access to both 

the FDIC’s TLGP and the TARP’s CPP. GMAC/Ally Financial’s 

management also maintained that conversion to a BHC addressed 

a weakness in the company’s business model by providing it with 

access to deposits for liquidity. FRB expedited GMAC/Ally Financial’s BHC application, citing ‘‘emergency conditions,’’ although the 

4–1 split in the vote of FRB was unusual for these kinds of actions.363

1. Initial Treasury Action 

The Automobile Industry Financing Program (AIFP) was announced on December 19, 2008. Its first acts were to provide 

Chrysler and GM with bridge loans of $4 billion and $13.4 billion, 

respectively, under separate loan and security agreements. Treasury, asserting that GM and Chrysler could not survive without access to GMAC/Ally Financial’s and Chrysler Financial’s financial 

underpinning, further provided GMAC/Ally Financial with $5 billion in emergency funding under the AIFP on December 29, 2008. 

Another $887 million lent to GM was used to buy GMAC/Ally Financial shares in a $2 billion equity rights offering to current 

shareholders. Additionally, Chrysler Financial was provided with a 

$1.5 billion loan on January 16, 2009. 


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364 ‘‘Financial viability’’ was defined as ‘‘positive net value, taking into account all current and 

future costs, and [the ability to] fully repay the government loan.’’ White House Fact Sheet: Assistance to Auto Manufacturers, supra note 361. 365The George W. Bush White House Office of the Press Secretary, President Bush Discusses 

Administration’s Plan to Assist Automakers (Dec. 19, 2008) (online at georgewbushwhitehouse.archives.gov/news/releases/2008/12/20081219.html). 366The missions and personnel of the Presidential Task Force on the Auto Industry and 

Treasury auto team—a joint Treasury-National Economic Council team that staffs the Task 

Force—overlap considerably; therefore, these entities are often cited interchangeably. 367 U.S. Department of the Treasury, GM February 17 Plan: Viability Determination (Mar. 30, 

2009) (online at www.whitehouse.gov/assets/documents/GMlViabilitylAssessment.pdf). 368The White House, Obama Administration New Path to Viability for GM & Chrysler (Mar. 

30, 2009) (online at www.whitehouse.gov/assets/documents/ 

FactlSheetlGMlChryslerlFIN.pdf). 369Treasury Transactions Report, supra note 36, at 18. 370The White House, Remarks by the President on General Motors Restructuring (June 1, 

2009) (online at www.whitehouse.gov/thelpressloffice/Remarks-by-the-President-on-GeneralMotors-Restructuring/); Treasury Transactions Report, supra note 36, at 18. 

A key component of the receipt of this federal aid required each 

company to demonstrate that the assistance would allow it to 

achieve ‘‘financial viability.’’ 364 Both companies were required to 

submit viability plans incorporating ‘‘meaningful concessions from 

all involved in the automotive industry.’’ 365 These plans were submitted to the Obama administration in February 2009, and on February 15, 2009, President Obama announced the creation of the 

interagency Presidential Task Force on the Auto Industry, to assume responsibility for reviewing the Chrysler and GM viability 

plans. In addition, the President named two advisors, Ron Bloom 

and Steven Rattner, to lead the Treasury auto team in reviewing 

the viability plans and negotiating the terms of any further assistance.366

The results of the auto team’s review were announced by President Obama on March 30, 2009. The team found GM’s plan ‘‘not 

viable as it is currently structured’’ due largely to overly optimistic 

assumptions about prospects for the macroeconomy and GM’s ability to generate sales. GM was provided 60 days of working capital 

in order to submit a substantially more aggressive plan.367 The 

team found that Chrysler had an even poorer outlook than GM and 

concluded that Chrysler was not viable outside of a partnership 

with another automotive company. Chrysler was offered working 

capital for 30 more days in order to seek an agreement with 

Fiat.368

Unable to reach agreement in 30 days, Chrysler filed for bankruptcy on April 30. Forty-two days later, the sale of the majority 

of its assets to a newly formed entity, Chrysler Group LLC (new 

Chrysler), closed. Treasury provided a total of $8.5 billion in working capital and exit financing to support Chrysler through the 

bankruptcy and restructuring process.369

GM followed Chrysler into bankruptcy on June 1, 2009. On July 

5, 2009, the sale of the ‘‘good’’ assets of GM to the new governmentowned General Motors Company (new GM) closed. Treasury provided $30.1 billion of financing to facilitate an expedited Chapter 

11 proceeding and restructuring.370

GMAC/Ally Financial, in the interim, one of the 19 large entities 

subject to stress tests, had failed the stress test and was unable to 

raise capital in the private markets. Accordingly, Treasury extended a further $7.5 billion in TARP financing in May of 2009, 

and another $3.8 billion in December 2009. 


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371For more discussion of how Treasury potentially left money on the table in the Chrysler 

Financial deal, see Congressional Oversight Panel, January Oversight Report: An Update on 

TARP Support for the Domestic Automotive Industry, at 15–16 (Jan. 13, 2011) (online at 

cop.senate.gov/documents/cop-011311-report.pdf) (hereinafter ‘‘2011 January Oversight Report’’). 372Treasury Transactions Report, supra note 36. 373 U.S. Department of Energy, President Obama Announces $2.4 Billion for Electric Vehicles 

(Mar. 19, 2009) (online at apps1.eere.energy.gov/news/daily.cfm/hplnewslid=159). 

Meanwhile, in July 2009, Chrysler Financial repaid its $1.5 bil- lion loan in full with all interest and an additional $15 million 

note. GMAC/Ally Financial had taken over its floor plan business 

in May 2009. The remaining platform of Chrysler Financial was 

owned by Chrysler Holding LLC, which was in turn owned by Cerberus Management. Through Treasury’s investment in Chrysler 

Holding LLC, Treasury remained entitled to proceeds Chrysler 

Holding LLC received from Chrysler Financial: the greater of either $1.375 billion, or 40 percent of the equity value of Chrysler Financial.371

2. Additional Initiatives and Actions 

In addition to the assistance provided to the automotive industry 

described above, several other initiatives were undertaken to support the industry, both within and outside of the TARP. 

On March 19, 2009, Treasury announced the Auto Supplier Support Program (ASSP), a TARP initiative. At the time it was announced, Treasury stated that up to $5 billion in financing would 

be available to auto suppliers, to be funded through participating 

automotive companies. Under this program, auto suppliers could 

obtain government-backed protection on receivables to provide a 

safety net for those who may not receive payment for their shipments. Auto suppliers were also able to sell their receivables into 

the program at a discount to provide immediate liquidity for suppliers in need of cash to continue operations. This facility was reduced to $3.5 billion, and ultimately only $413 million was used.372

On the same day, as part of ARRA, the Obama administration announced a grant of up to $2 billion for competitively awarded costshared agreements for manufacturing of advanced batteries and related drive components, plus another $400 million for transportation electrification demonstration and deployment projects.373

To help spur automotive sales, Congress created the Car Allowance Rebate System (nicknamed ‘‘cash for clunkers’’) to be administered through the Department of Transportation. The program, announced on July 27, 2009, offered rebates for new car buyers who 

were trading in older cars for newer, more efficient models. The 

program attracted interest and resulted in a brief surge in sales in 

the summer of 2009, with federal disbursements of $2.9 billion. 

The Energy Independence and Security Act of 2007 established 

a $25 billion loan program to encourage the development of advanced technology vehicles—primarily those that meet certain energy efficiency criteria—and associated components in the United 

States. The program, administered by the Department of Energy, 

had completed a little over $2 billion in loans as of the end of 2010. 

Before declaring bankruptcy, GM applied for a loan under this program and was rejected. The new GM later resubmitted the old 

GM’s applications but ultimately withdrew these, saying it had 

enough liquidity of its own to modernize its facilities and build 


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374General Motors Company, GM Withdraws Federal Loan Application (Jan. 27, 2011) (online 

at www.gm.com/news-article.jsp?id=/content/Pages/news/us/en/2011/Jan/ 

0127lfederallloan.html). 375 Congressional Oversight Panel, September Oversight Report: The Use of TARP Funds in 

the Support and Reorganization of the Domestic Automotive Industry (Sept. 9, 2009) (online at 

cop.senate.gov/documents/cop-090909-report.pdf). 

fuel-efficient vehicles.374 Chrysler is still awaiting a determination on its application for a total of $3 billion in loans to be disbursed 

over three years. 

B. Summary of COP Reports and Findings 

In September 2009, the Panel issued its first report on the use 

of TARP funds in supporting the domestic automotive industry.375

In that report, the Panel examined several key considerations relating to the commitment of $85 billion in TARP funds, including: 

Treasury’s justification for extending TARP funds to the automotive sector, how exactly this money had been used, and whether 

Treasury had properly and publicly articulated its objectives and 

taken action in furtherance of those objectives. The report also examined Treasury’s role in the bankruptcy of Chrysler Holding LLC 

(Chrysler) and (GM, how Treasury planned to protect taxpayers’ interests while the government controlled these companies, and how 

Treasury intended to maximize taxpayers’ returns when the government divested itself of ownership. 

The Panel compared Treasury’s dealings with the automotive 

companies with its dealings with banks under the CPP and similar 

programs, and found that Treasury’s financial assistance to the 

automotive industry differed significantly from its assistance to the 

banking industry. In particular, assistance provided to the banks 

carried less stringent conditions, and money was made readily 

available without a review of business plans and without any demands that shareholders forfeit their stake in the company, or that 

top management lose their jobs. By contrast, the Panel found that 

Treasury was a tough negotiator as it invested taxpayer funds in 

the automotive industry, requiring the companies to file for bankruptcy, wiping out their old shareholders, cutting their labor costs, 

reducing their debt obligations and replacing some top management. While this stance may have provided better protection for 

Treasury’s investment, the Panel noted that it may have raised 

other issues related to the government’s role as shareholder in private companies. The report recommended that Treasury consider 

placing the government’s shares in a trust that could be managed 

in a more hands-off manner, effectively removing the concern that 

direct management by Treasury itself could have undesirable consequences. 

The Panel also examined the bankruptcy processes each of the 

companies underwent and concluded, with the assistance of outside 

bankruptcy experts, that the government’s intervention in the 

bankruptcies raised questions about the long-term effects of such 

intervention on credit markets, but that it was too early to determine what those effects might be. Although the Panel also discussed the legal justification for using the TARP to support the 

automotive industry, the Panel took no position on whether this 

use was authorized by EESA. 


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376 Id. at 5. 377 Congressional Oversight Panel, March Oversight Report: The Unique Treatment of GMAC 

Under the TARP (Mar. 11, 2010) (online at cop.senate.gov/documents/cop-031110-report.pdf) 

(hereinafter ‘‘2010 March Oversight Report’’). 378 Ron Bloom, senior advisor to the Secretary of the Treasury, testified that the administration considered bankruptcy in April and May 2009. He did not state whether bankruptcy was 

considered before Treasury made the December 2008 investment. Congressional Oversight 

Panel, Testimony of Ron Bloom, senior advisor, U.S. Department of the Treasury, Transcript: 

COP Hearing on GMAC Financial Services, at 23–24 (Feb. 25, 2010) (online at cop.senate.gov/ 

documents/transcript-022510-gmac.pdf). 379 2010 March Oversight Report, supra note 377, at 5. 

At the time of the Panel’s 2009 report, the prospects for a return of the $85 billion invested in the automotive industry were not favorable. Projected losses on TARP investments in the auto industry 

at that time varied from Treasury’s estimate that approximately 

$23 billion of the initial loans made would be subject to ‘‘much 

lower recoveries’’ to an estimate of $40 billion in losses from 

CBO.376 Although Treasury at times stated its definition of success 

was whether taxpayers saw a return of their money, at other times 

it defined success in terms of preserving jobs or preventing the disorganized bankruptcy of systemically significant institutions that 

could potentially destabilize all or a sector of the fragile economy. 

Treasury’s inability to articulate a clear objective, the Panel noted, 

made it difficult to determine whether the program had been a success even by Treasury’s own standards. 

In March 2010, the Panel examined Treasury’s use of TARP 

funds to rescue GMAC/Ally Financial.377 Although the Panel took 

no position on whether Treasury should have rescued GMAC/Ally 

Financial, it found that Treasury missed opportunities to increase 

accountability and better protect taxpayers’ money. Treasury did 

not, for example, condition access to TARP money on the same 

kinds of sweeping changes that it required from GM and Chrysler: 

it did not wipe out GMAC/Ally Financial’s equity holders; it did not 

require GMAC/Ally Financial to create a viable plan for returning 

to profitability; nor did it require a detailed, public explanation of 

how the company would use taxpayer funds to increase consumer 

lending. Treasury’s explanations for the need to rescue GMAC/Ally 

Financial were also at times inconsistent, casting the decision 

sometimes as a part of the wider automotive industry rescue and 

at other times as a part of the stress tests, and therefore a part 

of the effort to backstop the nation’s financial sector. If the rescue 

of GMAC/Ally Financial was necessitated by its inclusion in the 

stress tests, it was not clear why Treasury turned to the AIFP, a 

program intended to support the automotive sector, for financing 

instead of using the Capital Assistance Program (CAP), which was 

devised specifically to provide additional capital to those BHCs that 

did not pass the stress tests. 

Whatever the reason for rescuing GMAC/Ally Financial, the report questioned Treasury’s assertion that bankruptcy was not a 

viable option in 2008.378 The report concluded that, in connection 

with the Chrysler and GM bankruptcies, Treasury might have been 

able to orchestrate a strategic bankruptcy for GMAC/Ally Financial.379 This bankruptcy could have preserved GMAC/Ally Financial’s automotive lending functions while winding down its other, 

less significant operations, dealing with the ongoing liabilities of 

the mortgage lending operations, and putting the company on more 


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380 2010 March Oversight Report, supra note 377, at 5. 381 2010 March Oversight Report, supra note 377, at 5. 382 2010 March Oversight Report, supra note 377, at 121. 383 2010 March Oversight Report, supra note 377, at 122. 384 2011 January Oversight Report, supra note 371, at 15–16. 

sound economic footing. The Panel also expressed concern that 

Treasury had not given due consideration to the possibility of 

merging GMAC/Ally Financial back into GM, a step which would 

have restored GM’s financing operations to the model generally 

shared by other automotive manufacturers, thus strengthening GM 

and eliminating other money-losing operations.380 The Panel expressed no doubt that Treasury’s actions to preserve GMAC/Ally 

Financial played a major role in supporting the domestic automotive industry.381 These same actions, however, reinforced 

GMAC/Ally Financial’s dominance in automotive floor plan financing, perhaps obstructing the growth of a more competitive lending 

market. The report also examined the great public expense incurred by this rescue, noting that the federal government had 

spent $17.2 billion to bail out GMAC/Ally Financial and now owned 

56.3 percent of the company. At the time, OMB estimated that $6.3 

billion or more may never be repaid. 

The Panel also noted that Treasury’s avowed hands-off approach 

to managing its sizeable stake in the company could have unintended consequences, such as creating a power vacuum that would 

allow smaller shareholders a disproportionate influence.382 Because 

both GM and GMAC/Ally Financial were at the time majorityowned by Treasury and subject to its hands-off policy, the potential 

for a governance vacuum was amplified. This meant that the parties who wished to operate GMAC/Ally Financial in GM’s interests 

had the potential to become proportionately more powerful, inasmuch as GM has extraordinary commercial influence over GMAC/ 

Ally Financial, and there may not have been countervailing pressure from involved shareholders. The report repeated the suggestion made in the September 2009 report that Treasury consider 

placing the government’s shares in a trust to help alleviate this 

concern. The Panel concluded, however, that although the rescue of 

GMAC/Ally Financial appeared to be one of the more baffling decisions made under the TARP, since the company itself posed no systemic risk, when viewed as a piece of either the automotive industry or the group of banks involved in the stress tests, Treasury’s 

objectives become clearer.383

In its oversight report for January 2011, the Panel revisited 

Treasury’s support of the domestic automotive industry as Treasury began the process of unwinding its stakes in GM, Chrysler, and 

GMAC/Ally Financial.384 Of those companies, GM is furthest along 

in the process of repaying taxpayers. It conducted an initial public 

offering (IPO) on November 18, 2010, and Treasury used the occasion to sell a portion of its GM holdings for $13.5 billion. This sale 

represents a major recovery of taxpayer funds, but it is important 

to note that Treasury received a price of $33.00 per share—well 

below the $44.59 needed to be on track to recover fully taxpayers’ 

money. Pricing the GM IPO below the break-even price likely had 

the effect of greatly reducing the likelihood that taxpayers will be 

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385 2011 January Oversight Report, supra note 371, at 47. 386 2011 January Oversight Report, supra note 371, at 5. 387 2011 January Oversight Report, supra note 371, at 115. 

ernment is able to sell its remaining shares at a far higher price. 

However, it is impossible to know if a longer-term investment horizon by the government (via an IPO at a later date) would have allowed Treasury to sell its shares at a more favorable price, closer 

to its breakeven cost basis. The Panel recognized that delaying the 

IPO would have exposed Treasury to the risk that the price that 

buyers were willing to pay for GM stock would fall. Moreover, such 

a delay would have run contrary to the government’s stated objective of disposing of its shares ‘‘as soon as practicable.’’ 385

The report also discussed the status of Treasury’s investments in 

Chrysler, Chrysler Financial, and GMAC/Ally Financial. The report 

noted that Treasury will likely require an IPO to redeem its investment in Chrysler. The need for an IPO presents a challenge since 

Treasury does not have a controlling stake in Chrysler and, even 

if it did, it is unlikely given Treasury’s hands-off management approach that it would use this leverage. Meanwhile, it appears that 

GMAC/Ally Financial is moving closer to an IPO and Treasury has 

had significant leverage over the IPO’s timing due to its preferred 

stock holdings. Regrettably, however, Treasury has been inconsistent in acknowledging this leverage. Treasury’s reluctance to 

recognize its own influence may represent an effort to claim a coherent hands-off shareholder approach, despite the unique circumstances that apply to GMAC/Ally Financial.386 Finally, another 

source of concern explored in this report was Treasury’s unwinding 

of its position in Chrysler Financial, in which taxpayer returns appear to have been sacrificed in favor of an accelerated exit, further 

compounded by apparently incomplete due diligence. Although 

Treasury’s hands-off approach may have reassured market participants about the limited scope of government intervention, it may 

also have forced Treasury to leave unexplored options that would 

have benefited the public. 

While the Panel had previously questioned the government’s perception of its policy choices during various stages of the crisis, 

there is little doubt that in the absence of massive government assistance, GM, Chrysler, and GMAC/Ally Financial faced the prospect of bankruptcies and potential liquidation, given the apparent 

dearth of available financing from the private sector.387 The Panel 

noted that in the context of a fragile economy and the financial crisis (which severely restricted both corporate and consumer credit), 

the failure of these companies could have had significant near-term 

consequences in terms of job losses and the performance of the 

broader U.S. economy. Further, although the assets of GM and 

Chrysler (plants and equipment, employees, brand recognition) 

would have had value to other firms over the longer term, it was 

in the context of these adverse near-term consequences that both 

the Bush and Obama administrations provided assistance to the 

auto sector. As in its September 2009 report, the Panel took no position on the decision to support the auto industry. Despite the recent GM IPO and improving financials at the other companies, the 

Panel noted that there is still a long road ahead, particularly for 


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GMAC/Ally Financial and Chrysler, before the final outcome of 

these programs can be determined. 

C. Panel Recommendations and Updates 

The Panel’s recommendations in its three reports on the automotive industry and GMAC/Ally Financial focused on four key 

areas in need of improvement: • Transparency on the part of Treasury and the companies’ 

management; • Accountability; • Improved balance among Treasury’s roles as shareholder 

in private enterprise and government policymaker; and • Continuing oversight to ensure that the American people 

are not again called upon to rescue the automotive industry. 

To date, only a handful of recommendations made by the Panel 

have been implemented and even those have been implemented 

only partially. 

1. Transparency 

The Panel consistently requested that Treasury and the automotive companies provide detailed information about Treasury’s investments and the companies’ management and strategic planning 

but has received only a partial response to these requests. In September 2009, the Panel recommended that Treasury ensure that 

the automotive companies’ bylaws and policies provide for full disclosure of all dealings with significant shareholders, including the 

government, and that the two new companies, when filing their 

planned periodic reports with the U.S. Securities and Exchange 

Commission (SEC), ensure that these reports conform to the standards of disclosure required for SEC reporting companies. While GM 

and GMAC/Ally Financial have released such reports, Chrysler has 

reported only its consolidated financial statement and notes. In 

March 2010 and again in January 2011, the Panel also recommended that the administration enhance disclosure in the budget and financial statement for the TARP by reporting on the valuation assumptions for the individual companies. The Panel’s recommendations in March 2010 focused on the specific lack of transparency with regard to the government’s investment in GMAC/Ally 

Financial, encouraging Treasury to go to greater lengths to explain 

its approach to the treatment of legacy shareholders. Treasury has 

provided no such additional explanation. Finally, the Panel requested that Treasury provide a legal opinion justifying the use of 

TARP funds for the automotive industry rescue. In response, Treasury directed the Panel to certain materials associated with the 

automotive companies’ bankruptcies. These materials did not provide a sufficiently robust analysis of Treasury’s legal justification 

and so constitute, at most, only a partial response to the Panel’s 

recommendation. 

2. Accountability 

In each of its three reports on the industry, the Panel called for 

Treasury to articulate clear goals and benchmarks by which 

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388 Congressional Oversight Panel, Testimony of Herbert M. Allison, Jr., assistant secretary 

for financial stability, U.S. Department of the Treasury, Transcript: COP Hearing with Assistant 

Treasury Secretary Herb Allison, at 23 (June 24, 2009) (online at cop.senate.gov/documents/ 

transcript-062409-allison.pdf). 389 Id. at 24. 390 Congressional Oversight Panel, Testimony of Ron Bloom, senior advisor, U.S. Department 

of the Treasury, Transcript: COP Field Hearing on the Auto Industry, at 38 (July 27, 2009) (online at cop.senate.gov/documents/transcript-072709-detroithearing.pdf). 

lated a clear set of goals for these programs. Instead, it has articulated a number of goals at different times, many of which may ultimately be conflicting. For example, at a Panel hearing in June 

2009, then-Panel Chair Elizabeth Warren asked Assistant Secretary Allison, ‘‘Can you explain in some general strokes, the strategic thinking on the part of your team in terms of what we are 

trying to accomplish with the auto industry?’’ 388 Assistant Secretary Allison responded: 

What we’re trying to do is to allow the automobile industry and encourage the automobile industry to restructure 

so that it is again a highly-competitive sector of our economy and can grow and create more jobs over time and 

that’s the reason why the Administration—actually, they 

were asked to take part in this. That’s the reason why 

they’ve decided it was necessary to do so. The outlook here 

is very important to the whole economy and I think that’s 

been the underlying reason why the Administration has 

acted in the way it has.389

In a later hearing on the automotive industry, senior Treasury advisor Ron Bloom defined success as primarily a question of return 

on investment: ‘‘the greater percentage of the money that we invested that we get back, the greater success.’’ 390 These differing 

and potentially conflicting goals make it difficult to determine 

whether the TARP’s interventions in the auto industry should be 

judged to be successful. Instead, the articulation of multiple goals, 

without specification of their priority, allows Treasury to claim success if the program achieves any one of these goals. 

The Panel also called on Treasury to provide a detailed plan for 

exiting its position in each company. In particular, in its March 

2010 report, the Panel urged Treasury to require greater accountability on the part of GMAC/Ally Financial by insisting that the 

company produce a viable business plan showing a path toward 

profitability. Given that a GMAC/Ally Financial IPO, which is likely to occur later this year, would provide an opportunity for Treasury to sell its GMAC/Ally Financial holdings, Treasury should 

clearly outline its proposed strategy for divesting itself of some or 

all of its position as the IPO approaches. There remain, in addition, 

certain obstacles that Treasury must overcome before it can successfully and fully exit its position in all of these companies and, 

as discussed in the Panel’s January 2011 report, Treasury has yet 

to articulate a clear plan for addressing these challenges. The 

Panel also recommended that Treasury require that any entity receiving TARP funds be subject to more stringent criteria and due 

diligence to establish that it would become a profitable concern, 

and that any such entity be subject to use of funds disclosure requirements. Specifically, the Panel suggested that Treasury take 


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these steps retroactively with regard to its investment in GMAC/ 

Ally Financial. Treasury has never acted to implement this recommendation. 

3. Improved Balance among Treasury’s Roles 

While Treasury has insisted that it adheres to a hands-off policy 

in managing its TARP investments to assuage concerns about government intervention in private enterprise, the Panel warned 

against an unduly rigid policy that could jeopardize both taxpayers’ 

investment and the longer-term goals of the TARP. In September 

2009, the Panel recommended that Treasury provide more detail 

about its corporate governance policies, including how the government would deal with conflicts of interest between its role as an 

equity holder or creditor and as regulator. The Panel also suggested that Treasury establish policies prohibiting Treasury employees from accepting employment with the automotive companies 

for a period of at least one year following termination of their employment with Treasury. The Panel is not aware that Treasury has 

acted on any of these recommendations. The Panel also recommended that Treasury consider placing its holdings in a trust 

that could be managed by an independent trustee whose actions 

would not raise the same concerns that similar actions by Treasury 

might raise. There has not been any indication that Treasury seriously considered creating such a trust. In March 2010, the Panel 

recommended that Treasury consider affirmatively promoting a 

merger between GM and GMAC, a step that Treasury may have 

been unwilling to consider in light of its hands-off management policy. There has been no indication that Treasury has altered its 

stance on this issue. 

While the Panel recommended in each of its reports that Treasury unwind its positions in the companies quickly, the Panel also 

cautioned against an exit that would be unduly detrimental to the 

value of the taxpayers’ investment. Based on the steps it has taken 

thus far to sell portions of its holdings, it appears that Treasury 

has been mindful of this concern but, because of its avowed ‘‘handsoff’’ stance, may not have fully considered all options that would 

provide the best return. 

4. Continued Oversight 

In its last report on the industry in January 2011, the Panel recommended, in order to prevent the need for a future government 

rescue, that Congress commission independent researchers to periodically assess the long-term fallout from the collapse of the auto 

industry and the subsequent government intervention, including 

the risk to taxpayers stemming from future disruptions to the auto 

market from economic, credit market or other potential threats. 

5. Updates 

Since the Panel’s most recent report on the industry in January 

2011, Treasury announced on March 1, 2011, that it was planning 

a public offering of its trust preferred securities holdings in GMAC/ 


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391 U.S. Department of the Treasury, Treasury Announces Public Offering of Ally Financial, 

Inc., TruPS (Mar. 1, 2011) (online at www.treasury.gov/press-center/press-releases/Pages/ 

tg1081.aspx). 392 U.S. Department of the Treasury, Treasury Announces Pricing of $2.7 billion of Ally TruPS 

(Mar. 2, 2011) (online at www.treasury.gov/press-center/press-releases/Pages/tg1086.aspx). 393General Motors Company, Form 10–K for the Fiscal Year Ended December 31, 2010, at 142 

(Mar. 1, 2011) (online at www.sec.gov/Archives/edgar/data/1467858/000119312511051462/ 

d10k.htm). 

Ally Financial.391 The offering is not to include any of Treasury’s $5.9 billion of mandatory convertible preferred stock in Ally nor 

does it include any of Treasury’s current holdings of 74 percent of 

the shares of Ally’s common stock. On March 2, 2011, Treasury announced the pricing of the offering, stating that the securities 

would be offered at par, for a total of $2.7 billion.392 This offering 

closed on March 7, 2011. 

Also on March 1, 2011, GM released its annual report, showing 

the company made meaningful gains in 2010, posting a profit of 

$4.7 billion for the year.393

D. Lessons Learned 

It is clear that GM and Chrysler were in dire straits in late 2008. 

Although it is difficult to say whether government intervention was 

the best option, the TARP funds the companies received provided 

them with at least some short-term stability. Whether the programs aimed at helping the automotive industry can be called ‘‘successful’’ will be difficult to determine since Treasury has never 

clearly stated its goals in assisting the companies. To the extent 

that success is defined as a return of taxpayer money, it remains 

somewhat unlikely that all TARP funds invested will be returned. 

Although the outlook is currently much better than it was when 

the Panel released its first report on the industry in late 2009, certain factors, including the loss locked in by the GM IPO price, must 

be overcome before taxpayers see a complete return of the money 

invested. 

Even if TARP funds are fully repaid, the government’s intervention in this industry may have lasting effects. In an effort to reduce 

the impact of its intervention in private industry, Treasury has 

consistently stated that it is acting as a ‘‘reluctant shareholder’’ 

and has committed to maintaining a hands-off approach to management of the companies. This position, however, may have served 

principally to highlight the difficult role Treasury occupied as 

shareholder, creditor, and regulator of the companies. Furthermore, 

Treasury’s unwillingness to influence management even in its role 

as a large shareholder may ultimately have put the government’s 

investment at greater risk than was necessary. Finally, it is too 

soon to say what the TARP’s ultimate impact on the automotive industry, and these companies in particular, will be. The domestic 

automotive industry was trending downward before the financial 

crisis hit and it is unclear whether the TARP will ultimately reverse that trend in the long term. 

Even if these companies were to become extremely successful in 

the coming years, paying back the funds invested by Treasury and 

creating jobs and revenue for the American people, there may be 

lingering and potentially harmful effects from the programs. The 

Panel has frequently cited the potential moral hazard if large comVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00116 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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394 Unlike AIG, Fannie Mae and Freddie Mac were not TARP participants. See Section II.B 

for further discussion of the combined federal efforts. 395See Congressional Oversight Panel, June Oversight Report: The AIG Rescue, Its Impact on 

Markets, and the Government’s Exit Strategy (June 10, 2010) (online at cop.senate.gov/documents/cop-061010-report.pdf) (hereinafter ‘‘2010 June Oversight Report’’); Congressional Oversight Panel, Transcript: COP Hearing on TARP and Other Assistance to AIG (May 26, 2010) 

(online at cop.senate.gov/documents/transcript-052610-aig.pdf). 396 AIG’s product and regional diversity was predicated on maintaining an exceptional credit 

rating, which helped bolster its insurance operations and allowed the company to use its low 

cost of funds as leverage to boost non-insurance business lines, including aircraft leasing and 

consumer finance. AIG’s longtime AAA credit rating also increased its attractiveness as a 

counterparty in the capital markets, helping the company further expand its product base in 

the United States and around the world. The product and geographic breadth of AIG’s operations, however, were not matched by a coherent regulatory structure to oversee its business. 

The Office of Thrift Supervision (OTS), a federal agency that regulates the U.S. thrift industry, 

was specifically charged with overseeing the parent and it failed to do so. Whether the OTS or 

a more coherent regulatory framework could have prevented the build-up in risks that the company’s own management team failed to recognize or understand is unlikely, but this does not 

obscure the point that AIG’s holding company regulator had the power and the duty to spot and 

require the company to curtail its risk. 2010 June Oversight Report, supra note 395, at 21–24. 

panies, and the markets in which they operate, believe that they 

will be rescued by the government if they falter. Although the 

TARP seemed originally to target only those companies whose financial operations made them a potential risk to systemic stability, 

the use of the TARP to support the automotive industry suggests 

that a company may be considered ‘‘systemically significant’’ merely because it employs a certain number of workers. Whether and 

to what extent these issues become manifest can only be determined as future events unfold. 

VI. AIG 

The magnitude of AIG’s operations and the company’s far-flung 

linkages across the global financial system led to multiple rounds 

of exceptional assistance from the government. Only Fannie Mae 

and Freddie Mac, institutions in government conservatorship, received more assistance during this period.394 Accordingly, AIG’s 

unique position in the financial system and the significant investment of taxpayer dollars required to avert the company’s collapse 

warranted particular scrutiny from the Panel relative to other recipients of TARP assistance. In addition to the Panel’s June 2010 

report, which focused solely on AIG, the Panel also held a hearing 

to explore the rescue of AIG, its impact on the markets, and the 

outlook for the government’s significant investment in the company.395

A. Background 

At its peak, AIG was one of the largest and most successful companies in the world. With over $1 trillion in assets and a AAA credit rating, AIG generated over $100 billion in annual revenues, serving 76 million customers in more than 130 countries. However, the 

scale of and linkages across AIG’s operations posed unique managerial and regulatory challenges. Accordingly, a poor risk management structure, combined with a lack of regulatory oversight, led 

AIG to accumulate staggering amounts of risk, especially in its Financial Products subsidiary, AIG Financial Products (AIGFP).396

Among its other operations, AIGFP sold credit default swaps to investors, instruments that would pay off if certain financial securities, particularly those made up of subprime mortgages, defaulted. 


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397Securities lending normally provides a low-risk mechanism for insurance companies and 

other long-term investors in the financial markets to earn modest sums of money on assets that 

would otherwise be sitting idle. However, rather than investing the cash collateral from borrowers in low-risk short-term securities in order to generate a modest yield, AIG invested in 

more speculative securities tied to the RMBS market. Consequently, these investments posed 

a duration mismatch (securities lending counterparties could demand a return of their collateral 

with very little notice) that was exacerbated by valuation losses and illiquidity in the mortgage 

markets that impaired AIG’s ability to return cash to its securities lending counterparties. 2010 

June Oversight Report, supra note 395, at 7, 271–272. 398 Assessment of Marshall Huebner of Davis Polk & Wardwell (a law firm that represented 

FRBNY). FRBNY and Treasury briefing with the Panel and Panel staff (Apr. 12, 2010). 399These problems did not arrive out of the blue in mid-September. AIGFP had recognized $11.1 billion in unrealized losses on CDS contracts as early as the fourth quarter of 2007. This 

was followed by an effort to raise capital on May 21, 2008, and an announcement on June 15, 

2008 that CEO Martin Sullivan was being replaced. A further $13.5 billion in unrealized losses 

on RMBS and other structured securities investments was recognized in late June, and on July 

29, the new CEO, Robert Willumstad, spoke with then-FRBNY President Timothy Geithner 

about the possibility of getting access to the Federal Reserve’s discount window, an idea which 

was dismissed by Mr. Geithner on the premise that this would only induce further panic among 

AIG’s creditors. Various efforts to raise capital in other ways ensued. In late August, AIG contracted with JPMorgan Chase to help develop alternatives as the market and the company’s condition worsened rapidly. A detailed timeline of the events leading up to the collapse of AIG is 

available in Annex II of COP’s June 2010 AIG report. 2010 June Oversight Report, supra note 

395, at 58, 238–250. 

As long as the mortgage market remained sound and AIG’s credit 

rating remained stellar, these instruments did not threaten the 

company’s financial stability. 

The financial crisis, however, fundamentally changed this equation. As subprime mortgages began to default, the complex securities based on those loans threatened to topple both AIG and other 

long-established institutions. During the summer of 2008, AIG 

faced increasing demands from its credit default swap customers 

for cash security—known as collateral calls—totaling tens of billions of dollars. These costs put AIG’s credit rating under pressure, 

which in turn led to even greater collateral calls, creating even 

greater pressure on AIG’s credit. 

The trigger and primary cause of AIG’s collapse came from inside 

AIGFP. This business unit was responsible for unrealized valuation 

losses and collateral calls that ultimately engulfed AIG. While the 

risk overhang in this business would have likely been sufficient to 

bring down the firm on its own, AIG’s securities lending operations,397 which involved securities pooled from AIG’s domestic life 

insurance subsidiaries, contributed to a ‘‘double death spiral.’’ 398

The problems in AIGFP exacerbated the problems in securities 

lending, and vice versa, as collateral demands from both sets of 

counterparties quickly imperiled the company’s liquidity position as 

it struggled to meet its cash demands. Meanwhile, the company’s 

insurance operations were incapable of generating the requisite 

cash either through normal operations or asset sales to fund the 

parent company. The threats within both of these businesses emanated from outsized exposure to the deteriorating mortgage markets, owing to grossly inadequate valuation and risk controls, including insufficient capital buffers as losses and collateral calls 

mounted. 

By early September 2008 AIG had reached a crisis point.399 AIG 

sought more capital in a desperate attempt to avoid bankruptcy. 

When the company could not arrange its own funding, thenFRBNY President Timothy Geithner told AIG that the government 

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400 Revolving Credit Facility (RCF) is a credit facility that allows the company to draw and 

repay loans to meet its funding requirements. As a part of a broader restructuring of the Government’s assistance to AIG, on November 10, 2008, the RCF ceiling was lowered to $60.0 billion and the TARP made its initial investment of $40.0 billion in preferred stock. Fed Regulatory 

Reform: AIG, Maiden Lane II and III, supra note 40. 401The announced assistance to AIG exceeded the cost of the EU’s sovereign bailouts of 

Greece (Ö110 billion) and Ireland (Ö85 billion). International Monetary Fund, Europe and IMF 

Agree Ö110 Billion Financing Plan With Greece (May 2, 2010) (online at www.imf.org/external/ 

pubs/ft/survey/so/2010/car050210a.htm); International Monetary Fund, IMF Reaches Staff-level 

Agreement with Ireland on Ö22.5 Billion Extended Fund Facility Arrangement (Nov. 28, 2010) 

(online at www.imf.org/external/np/sec/pr/2010/pr10462.htm). See also 2010 August Oversight 

Report, supra note 213. 402The Federal Reserve’s ability to act was dependent upon the Board’s authorization to invoke Section 13(3) of the Federal Reserve Act, which was provided on September 16, 2008. For 

further discussion of the legal options available to AIG in September 2008, see 2010 June Oversight Report, supra note 395, at 79–83. 403 At the time FRBNY provided AIG with the $85 billion RCF, Treasury only provided a very 

short statement, with then-Secretary Paulson noting that ‘‘[t]hese are challenging times for our 

financial markets. We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy. I support the steps taken by the Federal Reserve tonight to assist AIG 

in continuing to meet its obligations, mitigate broader disruptions and at the same time protect 

the taxpayers.’’ U.S. Department of the Treasury, Statement by Secretary Henry M. Paulson, Jr., 

on Federal Reserve Actions Surrounding AIG (Sept. 16, 2008) (online at www.treasury.gov/presscenter/press-releases/Pages/hp1143.aspx). In a subsequent letter to Timothy F. Geithner, thenpresident and CEO of FRBNY, Secretary Paulson stressed that ‘‘the situation at AIG presented 

a substantial and systemic threat’’ to our financial markets, and that the government’s decision 

to assist AIG ‘‘was necessary to prevent the substantial disruption to financial markets and the 

economy that could well have occurred from a disorderly wind-down of AIG.’’ Letter from Henry 

M. Paulson, Jr., secretary, U.S. Department of the Treasury, to Timothy F. Geithner, president 

and chief executive officer, Federal Reserve Bank of New York (Oct. 8, 2008) (online at 

www.federalreserve.gov/monetarypolicy/files/letter_aig.pdf). 

nation with JPMorgan Chase and Goldman Sachs. However, this 

approach failed to materialize, forcing the government’s hand. 

1. Government Assistance 

In the wake of the collapse of Lehman Brothers, FRBNY abandoned its effort at a private solution, announcing an $85.0 billion 

taxpayer-backed Revolving Credit Facility (RCF) for AIG on September 16, 2008.400 These funds would later be supplemented by 

$49.1 billion from Treasury under the TARP, as well as additional 

funds from FRBNY, aggregating to total assistance of $133.3 billion. At the height of the government support, AIG and its affiliates 

received $89.5 billion in loans from the Federal Reserve, $49.1 billion from Treasury, and $43.8 billion from the Federal Reserve to 

capitalize two SPVs for AIG asset purchases (i.e., Maiden Lane II 

and III), totaling $182.4 billion.401 As discussed below, FRBNY 

underwrote the initial two rounds of government assistance (September and November 2008) before Treasury provided TARP funds 

for subsequent efforts by the government (November 2008 and 

April 2009). 

The rescue of AIG was initially led by FRBNY, acting on behalf 

of FRB and in close consultation with Treasury. While FRB had no 

role in supervising or regulating AIG and was also not lending to 

the company, it was the only governmental entity at the time with 

the legal authority to provide liquidity to the financial system in 

emergency and exigent circumstances.402 Treasury had little if any 

authority to provide funds to AIG at the time given that EESA was 

not enacted until October 3, 2008.403 Similarly, other AIG regulatory bodies, such as state insurance regulators and the OTS, posVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00119 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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404 It is similarly worth noting that OTS, although it was AIG’s primary regulatory, approached AIG from a bottom-up perspective, focused primarily on ensuring that no harm would 

be done to AIG’s relatively small thrift institution, as opposed to taking a top-down approach 

that reviewed the overall safety and soundness of the holding company. Given that AIG’s thrift 

represented well under 1 percent of the holding company’s assets, this approach seems misguided at best and raises questions about whether this is the most effective way to regulate 

complex companies and monitor their systemic risks. 2010 June Oversight Report, supra note 

395, at 23. 405FRBNY and Treasury briefing with Panel and Panel staff (Apr. 12, 2010). 406 Board of Governors of the Federal Reserve System, Press Release (Sept. 16, 2008) (online 

at www.federalreserve.gov/newsevents/press/other/20080916a.htm) (hereinafter ‘‘Fed Press Release on AIG Assistance’’). 407 House Committee on Oversight and Government Reform, Written Testimony of Timothy 

F. Geithner, secretary, U.S. Department of the Treasury, The Federal Bailout of AIG, at 3 (Jan. 

27, 2010) (online at oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/TESTIMONY–Geithner.pdf) (hereinafter ‘‘Geithner Written Testimony before House Committee on 

Oversight’’). 408Senate Committee on Banking, Housing, and Urban Affairs, Written Testimony of Ben S. 

Bernanke, chairman, Board of Governors of the Federal Reserve System, Turmoil in U.S. Credit 

Markets: Recent Actions Regarding Government Sponsored Entities, Investment Banks and Other 

Financial Institutions, at 2 (Sept. 23, 2008) (online at banking.senate.gov/public/ 

index.cfm?FuseAction=Files.View&FileStore_id=bbba8289-b8fa-46a2-a542-b65065b623a1). 409 Ben S. Bernanke, chairman, Board of Governors of the Federal Reserve System, Remarks 

at the National Association for Business Economics, 50th Annual Meeting, Washington, DC, 

Current Economic and Financial Conditions (Oct. 7, 2008) (online at www.federalreserve.gov/ 

newsevents/speech/bernanke20081007a.htm). 410 Ben S. Bernanke, chairman, Board of Governors of the Federal Reserve System, Speech 

at the Morehouse College, Atlanta, GA, Four Questions About the Financial Crisis (Apr. 14, 

2009) (online at www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm). 411The Federal Reserve Act, enacted December 23, 1919, created the Federal Reserve System. 

Section 13(3) of the Act gives the Board of Governors of the Federal Reserve the power to authorize any regional Federal Reserve bank to provide funding in unusual or exigent cirsessed oversight authority but lacked any legal authority to step in 

and provide funds to the parent company.404

Through internal discussions and a dialogue with AIG and its 

state insurance regulators, FRB and FRBNY, with input from 

Treasury, ultimately chose to provide AIG with assistance after 

identifying the systemic risks associated with the company and 

contemplating the consequences of an AIG bankruptcy or partial 

rescue.405 FRB determined that, in the then-existing environment, 

‘‘a disorderly failure of AIG could add to already significant levels 

of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker 

economic performance.’’ 406

Secretary Geithner has stated that ‘‘[t]he decision to rescue AIG 

was exceptionally difficult and enormously consequential.’’ 407

Chairman Bernanke noted that the Federal Reserve’s decisionmaking was driven by the ‘‘prevailing market conditions and the 

size and composition of AIG’s obligations,’’ 408 as well as ‘‘AIG’s central role in a number of markets other firms use to manage risks, 

and the size and composition of AIG’s balance sheet.’’ 409 The Federal Reserve’s actions, with the support of Treasury, were also informed by its judgment that an AIG collapse would have been 

much more severe than that of Lehman Brothers because of its 

global operations, substantial and varied retail and institutional 

customer base, and the various types of financial services it provided.410

a. Initial Government Assistance (Non-TARP Initiatives) 

As noted, on September 16, 2008, the FRB, with the full support 

of Treasury, announced that, using its authority under Section 

13(3) of the Federal Reserve Act,411 it had authorized FRBNY to 


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cumstances, provided that evidence is obtained that a participant is unable to secure adequate 

credit accommodations from other banking institutions. Board of Governors of the Federal Reserve System, Federal Reserve Act: Section 13. Powers of Federal Reserve Banks (online at 

www.federalreserve.gov/aboutthefed/section13.htm (accessed Mar. 11, 2011). 412Fed Press Release on AIG Assistance, supra note 406. See also Henry M. Paulson, Jr., On 

the Brink (2010). 413 Board of Governors of the Federal Reserve System, Report Pursuant to Section 129 of the 

Emergency Economic Stabilization Act of 2008: Securities Borrowing Facility for American International Group, at 2 (Oct. 14, 2008) (online at www.federalreserve.gov/monetarypolicy/files/ 

129aigsecborrowfacility.pdf) (hereinafter ‘‘Fed Report Pursuant to Section 129 of the EESA’’). 414 Id. at 2. 415 AIG used these funds for the following: $35.3 billion to cover loans to AIGFP for collateral 

postings, Guaranteed Investment Agreements, and other maturities; $13.3 billion in capital contributions for insurance subsidiaries; $3.1 billion to repay securities lending obligations; $2.7 billion for AIG funding commercial paper maturities; $1.5 billion for intercompany loan repayment; 

$1.0 billion each in contributions for AIG Consumer Finance Group’s subsidiaries and debt repayments; and $2.7 billion in additional borrowing. Including paid in kind interest and fees on 

the amount borrowed, AIG’s total balance outstanding on the facility was $62.96 billion at the 

end of September 2008. American International Group, Inc., Form 10–Q for the Quarterly Period 

Ended September 30, 2008, at 52 (Nov. 10, 2008) (online at www.sec.gov/Archives/edgar/data/ 

5272/000095012308014821/y72212e10vq.htm). 416Fed Report Pursuant to Section 129 of the EESA, supra note 413, at 2. 417Fed Report Pursuant to Section 129 of the EESA, supra note 413, at 2. The Federal Reserve Board publicly announced the Securities Borrowing Facility on October 8, 2008, the day 

that FRBNY established it. See Board of Governors of the Federal Reserve System, Press Release (Oct. 8, 2008) (online at www.federalreserve.gov/newsevents/press/other/20081008a.htm). 418These securities were previously lent by AIG’s insurance subsidiaries to third parties. The 

maximum amount of credit that FRBNY could extend at any one time was $37.8 billion. The 

Board made this authorization under Section 13(3) of the Federal Reserve Act. Fed Regulatory 

Reform: AIG, Maiden Lane II and III, supra note 40. 

establish an $85.0 billion RCF for AIG.412 This facility would be secured by AIG’s assets and ‘‘assist AIG in meeting its obligations as 

they come due and facilitate a process under which AIG will sell 

certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.’’ 413 In exchange for the 

provision of the credit facility by the federal government, AIG provided Treasury with preferred shares and warrants that, if exercised, would give the government a 79.9 percent ownership stake 

in AIG.414

By September 30, 2008, just 14 days after FRB approved the $85.0 billion RCF, AIG had already drawn down approximately 

$61.3 billion of that money.415 It became apparent that the facility 

would be inadequate to meet all of AIG’s obligations.416 FRB and 

FRBNY worried about further ratings downgrades, which would— 

among other adverse effects—trigger more collateral calls on 

AIGFP. 

On October 6, 2008, FRB approved an additional Securities Bor- rowing Facility to allow FRBNY to lend up to $37.8 billion to 

AIG.417 The lending would occur on an overnight basis, with 

FRBNY borrowing investment-grade fixed income securities from 

AIG’s life insurance subsidiaries in return for cash collateral.418

The facility allowed AIG to replenish liquidity to its securities lending program—by extending its then-outstanding lending obligations 

where those obligations were not rolled over or replaced by transactions with other private market participants—while giving 

FRBNY possession and control of the securities. 

b. Additional Government Assistance (Treasury Action) 

As discussed above, Treasury’s participation in the initial rescue 

of AIG was limited to an advisory role. It is clear, however, that 

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419Of which $19 billion was due to the securities lending program and AIGFP’s CDS exposure. 

Board of Governors of the Federal Reserve System, Report Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Restructuring of the Government’s Financial Support 

to the American International Group, Inc. on November 10, 2008, at 4 (Nov. 10, 2008) (online 

at federalreserve.gov/monetarypolicy/files/129aigrestructure.pdf). 420 House Committee on Oversight and Government Reform, Written Testimony of Thomas C. 

Baxter, executive vice president and general counsel, Federal Reserve Bank of New York, The 

Federal Bailout of AIG, at 8–9 (Jan. 27, 2010) (online at oversight.house.gov/images/stories/ 

Hearings/pdfs/20100127baxter.pdf); FRBNY and Treasury briefing with Panel and Panel staff 

(Apr. 12, 2010). 421 Congressional Oversight Panel, Joint Written Testimony of Thomas C. Baxter, Jr., general 

counsel and executive vice president of the legal group, and Sarah Dahlgren, executive vice 

president of special investments management and AIG monitoring, Federal Reserve Bank of 

New York, COP Hearing on TARP and Other Assistance to AIG, at 9 (May 26, 2010) (online 

at cop.senate.gov/documents/testimony-052610-baxter.pdf). 422 Board of Governors of the Federal Reserve System, Federal Reserve Board and Treasury 

Department Announce Restructuring of Financial Support to AIG (Nov. 10, 2008) (online at 

www.federalreserve.gov/newsevents/press/other/20081110a.htm). 423FRBNY and Treasury briefing with Panel and Panel staff (Apr. 12, 2010). 424Geithner Written Testimony before House Committee on Oversight, supra note 407, at 8. 425The perpetual preferred shares were also known as the Series D Preferred Stock Purchase 

Agreement. American International Group, Inc., U.S. Treasury, Federal Reserve and AIG Establish Comprehensive Solution for AIG, at 1 (Nov. 10, 2008) (online at media.corporate-ir.net/ 

media_files/irol/76/76115/reports/Restructuring10Nov08LTR.PDF) (hereinafter ‘‘U.S. Treasury & 

Federal Reserve Craft Solution for AIG’’). 

ury. After passage of EESA in October 2008, Treasury took on a 

greater role in the AIG rescue as the government expanded and restructured its aid to the company. Additional assistance was necessitated by an ongoing decline in asset values and AIG’s mounting 

debt burden, both of which raised concern with credit rating agencies. 

The credit rating agencies advised AIG that the company’s upcoming November 10 report of third quarter earnings results— 

which would reveal a loss of $24.5 billion 419—would likely trigger 

a ratings downgrade in the absence of a ‘‘parallel announcement of 

solutions to its liquidity problems.’’ 420 AIG was having difficulty 

selling assets to pay down debt from the RCF and meet anticipated 

liquidity needs, particularly in light of continuing collateral calls 

under its credit default swap contracts.421 Consequently, in the 

days leading up to AIG’s earnings announcement, the Federal Reserve and Treasury hurried to put together additional financial assistance from the federal government that would address AIG’s 

growing debt burden. 

This resulted in the November 10, 2008 announcement by 

FRBNY and Treasury of a comprehensive multi-pronged plan to 

address AIG’s liquidity issues, create a ‘‘more durable capital structure,’’ and provide AIG with more time and increased flexibility to 

sell assets and repay the government.422 Significantly, Treasury’s 

TARP equity facilities allowed AIG to access capital without drawing on credit lines, avoiding an increase in the company’s outstanding debt (and thus further pressure on its credit ratings).423

As Secretary Geithner later stated, ‘‘[a]voiding any downgrade of 

AIG’s credit rating was absolutely essential to sustaining the firm’s 

viability and protecting the taxpayers’ investment.’’ 424

As part of the announcement, Treasury said it planned to use 

$40 billion of TARP money to purchase newly issued AIG perpetual 

preferred shares and warrants to purchase AIG common stock;425

this initiative was known as the Systemically Significant Failing 

Institutions program (SSFI), and AIG was its only beneficiary. At 

the same time, FRBNY reduced AIG’s line of credit under the RCF 


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426See Fed Regulatory Reform: AIG, Maiden Lane II and III, supra note 40. 427 Initially $22.5 billion was authorized, of which $19.5 billion was lent in order to purchase $39.3 billion (at par value) of RMBS at the then-current market price of $20.8 billion. See 2010 

June Oversight Report, supra note 395, at 87–88; Board of Governors of the Federal Reserve 

System, Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 22 (Jan. 

2011) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201101.pdf) 

(hereinafter ‘‘Fed Monthly Report on Credit, Liquidity Programs, and Balance Sheet’’). 428See 2010 June Oversight Report, supra note 395, at 91; Fed Monthly Report on Credit, 

Liquidity Programs, and Balance Sheet, supra note 427, at 23. 429The company reported a net loss of $61.7 billion for the fourth quarter of 2008 on March 

2, 2009, capping off a year in which AIG incurred approximately $99 billion in total net losses. 

2010 June Oversight Report, supra note 395, at 94. 430See U.S. Department of the Treasury, U.S. Treasury and Federal Reserve Board Announce 

Participation in AIG Restructuring Plan (Mar. 2, 2009) (online at www.treasury.gov/press-center/press-releases/Pages/tg44.aspx). See also House Committee on Financial Services, Written 

Testimony of William C. Dudley, president and chief executive officer, Federal Reserve Bank of 

New York, Oversight of the Federal Government’s Intervention at American International Group, 

at 5 (Mar. 24, 2009) (online at www.house.gov/apps/list/hearing/financialsvcsldem/ 

hr03240923.shtml). 431FRBNY also took several actions at this time with respect to the terms and structure of 

the RCF. First, it announced the creation of SPVs for American International Assurance Company, Limited (AIA) and American Life Insurance Company (ALICO), two of AIG’s foreign insurance company subsidiaries, through which AIG would contribute the equity of AIA and ALICO 

in exchange for preferred and common interests in the SPVs. FRBNY received preferred interests of $16 billion in the AIA SPV and $9 billion in the ALICO SPV. AIG would then transfer 

the preferred interests in the SPVs to FRBNY in exchange for a $25 billion reduction in the 

outstanding balance of the RCF, to $35 billion. 2010 June Oversight Report, supra note 395, 

at 95, 97. 432The total amount of credit made available under the second TARP intervention was $30.0 

billion, which included $165 million dedicated for retention bonuses of AIGFP employees. See 

2010 June Oversight Report, supra note 395, at 95; Treasury Transactions Report, supra note 

36. 

to $60 billion from $85 billion. FRBNY also announced that it was 

restructuring the facility by extending the loan from two to five 

years and lowering the interest rate and fees charged.426

Also on that day, Treasury and FRB announced a major initiative to increase and restructure federal assistance to AIG; FRBNY 

would be authorized to create two SPVs—Maiden Lane II and 

Maiden Lane III—to purchase troubled assets from AIG and its 

subsidiaries. Maiden Lane II was designed to address AIG’s liquidity problems by purchasing RMBS assets from its securities lending 

collateral portfolio.427 Maiden Lane III was authorized to provide 

up to $30.0 billion ($24.3 billion from FRBNY and $5.0 billion from 

AIG) to purchase the collateralized debt obligations (held by the 

firm’s counterparties) underlying AIG’s credit swap contracts.428

Although Maiden Lane II, Maiden Lane III, and Treasury’s initial TARP capital infusion helped relieve AIG’s financial pressures, 

asset valuations continued to decline, and AIG’s losses increased 

through the end of 2008.429 These losses raised the prospect of another round of rating agency downgrades and collateral calls that 

would require further cash postings from AIG. In response, the 

Federal Reserve and Treasury announced on March 2, 2009, that 

they would again restructure their existing aid to AIG and provide 

additional assistance in order to stabilize AIG and protect financial 

markets and the existing investment.430

Under the March 2009 restructuring, Treasury substantially increased its involvement in AIG, with the goal of reducing AIG’s leverage, or debt load.431 Treasury announced a new five-year standby $29.8 billion TARP preferred stock facility, which would allow 

AIG to make draw-downs as needed.432 Treasury also exchanged 

its November 2008 cumulative preferred stock interest for noncumulative preferred stock, which more closely resembles common 


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433 Non-cumulative preferred stock is more like common stock largely because its dividends 

are non-cumulative, which means missed dividend payments do not accumulate for later payment. At the time, the $1.6 billion in dividends AIG did not pay were capitalized and added 

as an obligation to be repaid prior to the company redeeming the newly issued Series E preferred stock. U.S. Treasury & Federal Reserve Craft Solution for AIG, supra note 425, at 1; 

Treasury Transactions Report, supra note 36. 434For a more complete discussion of the Panel’s findings, see Section K and the conclusions 

of the Panel’s June 2010 oversight report. 2010 June Oversight Report, supra note 395, at 230– 

235. 435The Commodities Futures Modernization Act was passed by Congress and signed into law 

by President Bill Clinton in December 2000. For a further discussion of AIG’s regulatory 

scheme, see 2010 June Oversight Report, supra note 395, at 19–24. 

stock and is, therefore, viewed more favorably as a source of funding by the credit rating agencies.433

These March 2009 announcements represented the final round of 

government support prior to the publication of the Panel’s June 

2010 report on AIG. 

B. Summary of COP Report and Findings 434

1. AIG Changed a Fundamental Market Relationship 

By providing a complete bailout that called for no shared sacrifice among AIG and its creditors, FRBNY and Treasury fundamentally changed the rules of America’s financial marketplace. 

U.S. policy has long drawn a distinction between two different 

types of investments. The first type is ‘‘safe’’ products, such as 

checking accounts, which are highly regulated and are intended to 

be accessible and relatively risk free to even unsophisticated investors. Banks that offer checking accounts must accept a substantial 

degree of regulatory scrutiny, offer standardized features, and pay 

for FDIC insurance on their deposits. In return, the bank and its 

customers benefit from an explicit government guarantee: within 

certain limitations, no checking account in the United States will 

be allowed to lose even a penny of value. 

By contrast, ‘‘risky’’ products, which are more loosely regulated, 

are aimed at more sophisticated players. These products often offer 

much higher profit margins for banks and much higher potential 

returns to investors, but they have never benefited from any government guarantee. 

Before the AIG bailout, the derivatives market appeared to fall 

cleanly in the second category. Yet by bailing out AIG and its 

counterparties, the federal government signaled that the entire derivatives market—which had been explicitly and completely deregulated by Congress through the Commodities Futures Modernization Act 435—would now benefit from the same government 

safety net provided to fully regulated financial products. In essence, 

the government distorted the marketplace by transforming highly 

risky derivative bets into fully guaranteed transactions, with the 

American taxpayer standing as guarantor. 

The Panel believes that the moral hazard problem unleashed by 

making whole AIG’s counterparties in unregulated, unguaranteed 

transactions undermined the credibility of specific efforts at addressing the financial crisis that followed, including the entirety of 

the TARP, as well as America’s system of financial regulation. 


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436See 2010 June Oversight Report, supra note 395, at 52–53, 150, and 230–231. 437 Credit rating agencies are private companies subject to the appropriate registration and 

approval of the SEC as nationally recognized statistical rating organizations (NRSROs). A complete list of NRSROs—including Moody’s Investor Services, Standard & Poor’s Ratings Services, 

and Fitch—can be found on the SEC’s website. See U.S. Securities and Exchange Commission, 

Commission Orders Granting NRSRO Registration (online at www.sec.gov/divisions/marketreg/ 

ratingagency.htm#nrsroorders) (accessed March 4, 2011). 438For a more complete discussion of the Panel’s findings, see Section F.1.b of the Panel’s 

June 2010 oversight report. 2010 June Oversight Report, supra note 395, at 139–164. 439 According to Thomas Baxter Jr., FRBNY’s general counsel, the government officials faced 

‘‘a binary choice to either let AIG file for bankruptcy or to provide it with liquidity.’’ 2010 June 

Oversight Report, supra note 395, at 69. 440 2010 June Oversight Report, supra note 395, at 74–75. 

2. The Powerful Role of Credit Rating Agencies 

Considerations about credit rating agencies were central to 

FRBNY’s, and later Treasury’s, decision to assist AIG, and shaped 

many of the decisions that had to be made during the course of the 

rescue.436 Indeed, it is no exaggeration to say that concerns about 

rating downgrades drove government policy in regard to AIG. 

As the market’s most widely followed judges of financial soundness, credit rating agencies wield immense power, whether they 

consciously use it or not. In this case, government decision makers 

felt compelled to follow a particular course of action out of a fear 

of what credit rating agencies might do if they acted otherwise. The 

fact that this small group of private firms was able to command 

such deference from the federal government raises questions about 

their role within the marketplace and how effectively and accountably they have wielded their power.437

3. The Options Available to the Government 438

FRBNY and Treasury justify AIG’s extraordinary bailout by saying that they faced a ‘‘binary choice’’ between allowing AIG to fail, 

which would have resulted in chaos, or rescuing the entire institution, including all of its business partners.439 The Panel was skeptical of this reasoning. The evidence suggested that government 

had more than two options at its disposal, and that some of the alternatives would not have involved payment in full of the counterparties and other AIG creditors. 

In interviews and meetings with participants on all sides in 

these events, the Panel identified a key decision point: the period 

between Sunday afternoon, September 14, 2008, and Tuesday 

morning, September 16, 2008. This was the period during which 

FRBNY sought to encourage a private effort to lend sufficient funds 

to AIG to address its liquidity crisis, while at the same time trying 

to determine what the consequences would be of the bankruptcy of 

AIG’s holding company. 

The Panel is concerned that the government put the effort to organize a private AIG rescue in the hands of only two banks—banks 

with severe conflicts of interest given that they would have been 

among the largest beneficiaries of a taxpayer bailout.440 By failing 

to bring in other players, the government neglected to use all of its 

negotiating leverage. There is no doubt that a private rescue would 

have been difficult, perhaps impossible, to arrange, but the Panel 

concluded that if the effort had succeeded, the impact on market 

confidence would have been extraordinary, particularly for a solution that avoided putting taxpayer dollars at risk. 


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441See Congressional Oversight Panel, Written Testimony of Martin J. Bienenstock, partner 

and chair of business solutions and government department, Dewey & LeBoeuf, COP Hearing 

on TARP and Other Assistance to AIG, at 1, 3 (May 26, 2010) (online at cop.senate.gov/documents/testimony-052610-bienenstock.pdf). 442See Section B.2 of the Panel’s June 2010 oversight report for an overview of the company’s 

operations and regulatory framework. See 2010 June Oversight Report, supra note 395, at 19– 

24. 443See 2010 June Oversight Report, supra note 395, at 72–76. 

Further, even after the Federal Reserve and Treasury had decided that a public rescue was the only choice, they still could have 

pursued options other than paying every creditor and every 

counterparty at 100 cents on the dollar. Arrangements in which 

different creditors accept varying degrees of loss are common in 

bankruptcy proceedings or other negotiations when a distressed 

company is involved, and in this case the government failed to use 

its significant negotiating leverage to extract such compromises. As 

Martin Bienenstock of Dewey & LeBoeuf testified to the Panel, 

‘‘FRBNY was saving AIG with taxpayer funds due to the losses 

sustained by the business divisions transacting business with these 

creditor groups, and a fundamental principle of workouts is shared 

sacrifice, especially when creditors are being made better off than 

they would be if AIG were left to file bankruptcy.’’ As such, ‘‘it was 

very plausible to have obtained material creditor discounts from 

some creditor groups as part of that process without undermining 

its overarching goal of preventing systemic impairment of the financial system and without compromising the Federal Reserve 

Board’s principles.’’ 441

Ultimately, it is impossible to stand in the shoes of those who 

had to make decisions during those hours, to weigh the risks of accelerated systemic collapse against the profound need for AIG and 

its counterparties to share in the costs and the risks of that rescue, 

and to weigh those considerations not today in an atmosphere of 

relative calm, but in the middle of the night in the midst of a financial collapse. All the Panel can do is observe the costs to the 

public’s confidence in our public institutions from the failure to require that AIG’s counterparties in the financial sector share the 

burden of the AIG rescue. 

4. The Government’s Authorities in a Financial Crisis 

The Federal Reserve and Treasury have explained the haphazard 

nature of the AIG rescue by noting that they lacked specific tools 

to handle the collapse of such a complex, multisector, multinational 

financial corporation.442 To some extent this argument is a red herring: the relevant authorities should have monitored AIG more 

closely, discovered its vulnerability earlier, and sought any needed 

new authorities from Congress in advance of the crisis. Even after 

AIG began to unravel, the Federal Reserve and Treasury could 

have used their existing authority more aggressively. 

5. Conflicts 

The AIG rescue illustrated the tangled nature of relationships on 

Wall Street. People from the same small group of law firms, investment banks, and regulators appear in the AIG saga (and many 

other aspects of the financial crisis) in many roles, and sometimes 

representing different and conflicting interests.443 The lawyers who 


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444 Congressional Oversight Panel, Testimony of Thomas C. Baxter, Jr., general counsel and 

executive vice president of the legal group, Federal Reserve Bank of New York, COP Hearing 

on TARP and Other Assistance to AIG, at 102 (May 26, 2010) (online at cop.senate.gov/documents/transcript-052610-aig.pdf). 445 2010 June Oversight Report, supra note 395, at 202. 

represented banks trying to put together a rescue package for AIG 

became the lawyers to FRBNY, shifting sides in a matter of minutes. Those same banks appear first as advisors, then potential rescuers, then as counterparties to several different kinds of agreements with AIG, and thereby as the direct and indirect beneficiaries of the government rescue. Many of the regulators and government officials (in both administrations) are former employees of 

the entities they oversee or that benefited from the rescue. 

The government justified its decision to draw from a limited pool 

of lawyers and advisors by citing the need for expertise from Wall 

Street insiders familiar with AIG. Even so, the government entities 

should have recognized that at a time when the American taxpayer 

was being asked to bear extraordinary burdens, they had a special 

responsibility to ensure that their actions did not undermine public 

trust by failing to address all potential conflicts and the appearance of conflicts that could arise. The need to address conflicts and 

the appearance of conflicts by government actors, counterparties, 

lawyers, and all other agents involved in this drama was wrongly 

treated largely as a detail that could be subjugated to the primary 

goal of keeping the financial system up and running. 

Even setting aside concerns about actual or apparent conflicts of 

interest, the limited pool of people involved in AIG’s rescue raises 

a broader concern. Everyone involved in AIG’s rescue had the 

mindset of either a banker or a banking regulator. The discussions 

did not include other voices that might have brought different ideas 

and a broader view of the national interest. It is unsurprising, 

then, that the American public remains convinced that the rescue 

was designed by Wall Street to help fellow Wall Streeters, with less 

emphasis given to protecting the public trust. 

The Panel recognized that government officials were confronting 

an immediate crisis and had to act in haste. Yet it is at moments 

of crisis that the government has its most acute obligation to protect the public interest by avoiding even the appearance of impropriety. As Mr. Baxter of FRBNY told the Panel, ‘‘[i]f we should go 

through this again, we [would] need to be more mindful of how our 

actions can be perceived. The lesson learned for me personally here 

is that we need to be mindful of that and perhaps change our behavior as a result of the perception, not the actuality.’’ 444

C. Panel Recommendations 

1. Government Exit Strategy/Equity Market Risk Mitigation 

In its June 2010 report, the Panel recommended that Treasury 

should explore options aimed at accelerated sales of smaller portions of its stake in AIG sooner rather than later, to help mitigate 

longer term equity market risks, and transfer some of the risk from 

the taxpayer to the public markets.445 While the Panel recognized 

the danger in a prolonged investment strategy, political expediency 

should not trump the opportunity for taxpayers to realize as much 

value as possible from their investment. Thus, the Panel cautioned 


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446 2010 June Oversight Report, supra note 395, at 170. 447 American International Group, Inc., AIG Announces Plan To Repay U.S. Government (Sept. 

30, 2010) (online at www.aigcorporate.com/newsroom/2010lSeptember/ 

AIGAnnouncesPlantoRepay30Sept2010.pdf). This agreement was supplemented by a master 

transaction agreement on December 8, 2010. American International Group, Inc., AIG Files 

Master Agreement on Recapitalization Plan (Dec. 8, 2010) (online at ir.aigcorporate.com/External.File?t =2&item=g7rqBLVLuv81UAmrh20Mp 3rr7lYtG5aXEd/NUIhOaDRM1TgAKUfc 

NQqWGNGO+veYq18TQTV4xM1BjE/CQAuJPw==). While largely similar to the recapitalization 

plan released on September 30, it contains two new pieces of material information. First, the 

terms of Treasury’s role as a selling shareholder have been somewhat clarified. Treasury has 

the right to participate in any registered stock offering and can demand twice in a year that 

AIG effect a registered market offering of shares after the earlier of August 15, 2011 or AIG’s 

completion of a primary equity offering. Treasury can also dictate the terms and frequency of 

any sales of new AIG shares until the government’s ownership falls to under 33 percent. Finally, 

the agreement provides additional clarity on future AIG capital raises. AIG may raise up to $3 

billion of common equity by August 15, 2011 (and can raise an additional $4 billion with Treasury’s consent, for a total of $7 billion in additional equity). 

against a rapid exit in the absence of clearly defined parameters 

for achieving the maximum risk-adjusted return to the taxpayer. 

Nonetheless, given the significant equity market and company execution risks involved in a long-term, back-end-loaded exit strategy, 

the Panel noted that the government’s exposure to AIG should be 

minimized (and shifted to private shareholders) where possible via 

accelerated sales of a small minority of the government’s holdings, 

provided this could be done with limited harm to the share price. 

In this sense, the interests of AIG’s government and private shareholders would be aligned, as the taxpayer would be best served by 

enhancing value before a broader exit strategy via the public markets could be executed. 

2. Status of COP Recommendations 

The Panel’s recommendation that Treasury should explore options aimed at reducing its equity market exposure to AIG remains 

something of a work in progress.446 In September 2010, AIG and 

Treasury reached an agreement to restructure AIG’s obligations 

under the TARP, in which Treasury exchanged its preferred stock 

for 1.1 billion shares of AIG common stock on January 14, 2011 

(discussed in more detail below). While AIG’s improving outlook facilitated this announcement, these actions have not mitigated longterm equity market risk from Treasury’s holdings. Although this 

recapitalization temporarily increases Treasury’s equity market exposure to AIG (given the conversion of its preferred equity stake 

to common equity), the transaction does provide a path for the government to pursue share sales in the public markets that would reduce its exposure, potentially as soon as the second quarter of 

2011. The assumption of FRBNY’s preferred interest in AIG SPVs 

serves to increase Treasury’s overall exposure to AIG, but via a 

mechanism that fully collateralizes this exposure, without assuming additional equity market risks. 

D. Updates 

1. Recent Developments 

On September 30, 2010, AIG, Treasury, FRBNY, and the AIG 

Credit Facility Trust (Trust) announced their intent to enter into 

a series of transactions that would ultimately allow the government to exit AIG.447 The timing and substance of this announcement clarifying the government’s exit strategy was generally conVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00128 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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448 2010 June Oversight Report, supra note 395, at 222. 449 American International Group, Inc., AIG Executes Plan to Repay U.S. Government (Jan. 

14, 2011) (online at ir.aigcorporate.com/External.File? t=2&item=g7rqBLVLuv81UAmrh20Mp 

31WhknkljlRVwaPlA8x40UnwpUYeTWq NeJMSo+ju5ThNwA5rr5tEDobelzmAXWiow==); U.S. 

Department of the Treasury, Treasury Announces Completion of the American International 

Group Recapitalization Transaction (Jan. 14, 2011) (online at www.treasury.gov/press-center/ 

press-releases/Pages/tg1024.aspx); Federal Reserve Board of New York, New York Fed Ends AIG 

Assistance with Full Repayment (Jan. 14, 2011) (online at www.newyorkfed.org/newsevents/ 

news/aboutthefed/2011/oa110114.html). 450 As described in a regulatory filing AIG made with the SEC on January 14, 2011: ‘‘[a]t the Closing, AIG repaid FRBNY approximately $21 billion in cash, representing complete repayment 

of all amounts owing under the Credit Agreement (as amended, the ‘‘FRBNY Credit Facility’’), 

dated as of September 22, 2008, and the FRBNY Credit Facility was terminated. The funds for 

the repayment came from the net cash proceeds from AIG’s sale of 67 percent of the ordinary 

shares of AIA Group Limited (‘‘AIA’’) in its initial public offering and from AIG’s sale of American Life Insurance Company (‘‘ALICO’’). These funds were loaned to AIG, in the form of secured 

limited recourse debt (the ‘‘SPV Intercompany Loans’’), from the SPVs that hold the proceeds 

of the AIA IPO and the ALICO sale. The SPV Intercompany Loans are secured by pledges by 

AIG and certain of its subsidiaries of, among other collateral, certain of their equity interests 

in Nan Shan Life Insurance Company, Ltd. (‘‘Nan Shan’’), AIG Star Life Insurance Co. Ltd. 

(‘‘AIG Star’’), AIG Edison Life Insurance Company (‘‘AIG Edison’’) and International Lease Finance Corporation (collectively with Nan Shan, AIG Star and AIG Edison, the ‘‘Designated Entities’’), as well as the remaining AIA ordinary shares held by the AIA SPV and certain of the 

MetLife, Inc. securities received from the sale of ALICO held by the ALICO SPV. The proceeds 

from any sale or disposition of the equity of such Designated Entities and such other assets will 

be used to repay the SPV Intercompany Loans and the recourse on the SPV Intercompany Loans 

is generally limited to foreclosing on the pledged collateral, except to the extent of the fair market value of equity interests of the Designated Entities that cannot be pledged because of regulatory or tax considerations.’’ American International Group, Inc., Form 8–K for the Period 

Ended January 14, 2011 (Jan. 14, 2011) (online at www.sec.gov/Archives/edgar/data/5272/ 

000095012311003061/y88987e8vk.htm) (hereinafter ‘‘AIG: Form 8–K Period Ended January 14, 

2011’’). 451 As outlined in a company filing on January 14, 2011: ‘‘[a]t the Closing, AIG drew down approximately $20 billion (the ‘‘Series F Closing Drawdown Amount’’) under the Treasury Department’s commitment (the ‘‘Treasury Department Commitment’’) pursuant to the Securities 

Purchase Agreement, dated as of April 17, 2009 (the ‘‘Series F SPA’’), between AIG and the 

Treasury Department relating to AIG’s Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the ‘‘Series F Preferred Stock’’). The Series F Closing 

Drawdown Amount was the full amount remaining under the Treasury Department Commitment, less $2 billion that AIG designated to be available after the Closing for general corporate 

purposes under a commitment relating to AIG’s Series G Cumulative Mandatory Convertible 

Preferred Stock, par value $5.00 per share (the ‘‘Series G Preferred Stock’’), described below (the 

Continued 

sistent with the expectations outlined in the Panel’s June report.448

The aggregate effect of this agreement, which was subsequently executed, was to repay all outstanding obligations to FRBNY, consolidate AIG’s government ownership with Treasury, and provide the 

government with a pathway to monetize its holdings. The integrated steps involved in the execution of AIG’s recapitalization plan 

on January 14, 2011—the most significant being the repayment of 

FRBNY in full and Treasury exchanging its preferred equity interests for common stock—are outlined below.449

• Repayment and Termination of the FRBNY Credit Facility: 

FRBNY, which has repayment priority over Treasury, received 

approximately $21 billion in cash to redeem its outstanding 

balance and accrued interest and fees. AIG used funds from 

asset sales—the IPO of American International Assurance 

Company (AIA) and sale of American Life Insurance Company 

(ALICO)—to facilitate the repayment of amounts owed under 

the FRBNY Credit Facility.450

• Repurchase and Exchange of SPV Preferred Interests: AIG 

drew down an additional $20.3 billion in TARP funds (Series 

F) towards the repurchase of SPV interests from FRBNY. In 

consideration for this new funding, AIG transferred $20.3 billion of FRBNY’s former SPV Preferred interests to Treasury.451


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‘‘Series G Drawdown Right’’). The right of AIG to draw on the Treasury Department Commitment (other than the Series G Drawdown Right) was terminated. 

AIG applied certain proceeds from asset sales to retire a portion of FRBNY’s preferred interests in the ALICO SPV and used the Series F Closing Drawdown Amount to repurchase the 

remainder of FRBNY’s preferred interests in the ALICO SPV and all of FRBNY’s preferred interests in the AIA SPV (‘‘SPV Preferred Interests’’). AIG transferred the SPV Preferred Interests 

to the Treasury Department as part of the consideration for the exchange of the Series F Preferred Stock, described below. 

Under the Master Transaction Agreement, the Treasury Department, so long as it holds SPV 

Preferred Interests, will have the right, subject to existing contractual restrictions, to require 

AIG to dispose of the remaining AIA ordinary shares held by the AIA SPV and certain of the 

MetLife, Inc. securities received from the sale of ALICO held by the ALICO SPV. The consent 

of the Treasury Department, so long as it holds SPV Preferred Interests, will also be required 

for AIG to take specified significant actions with respect to the Designated Entities, including 

initial public offerings, sales, significant acquisitions or dispositions and incurrence of significant 

levels of indebtedness. If any SPV Preferred Interests are outstanding on May 1, 2013, the 

Treasury Department will have the right to compel the sale of all or a portion of one or more 

of the Designated Entities on terms that it will determine. 

As a result of these transactions, the SPV Preferred Interests will no longer be considered 

permanent equity on AIG’s balance sheet, and will be classified as redeemable noncontrolling 

interests in partially owned consolidated subsidiaries.’’ AIG: Form 8–K Period Ended January 

14, 2011, supra note 450. 452This figure includes $40.0 billion of Series E preferred stock converted to equity and $7.5 

billion of Series F preferred stock converted to equity. Treasury Transactions Report, supra note 

36. 

As outlined in a company filing on January 14, 2011: ‘‘[a]t the Closing, AIG and the Treasury 

Department amended and restated the Series F SPA to provide for the issuance of 20,000 shares 

of Series G Preferred Stock by AIG to the Treasury Department. The Series G Preferred Stock 

initially has a liquidation preference of zero, which will increase by the amount of any funds 

drawn down by AIG under the Series G Drawdown Right from the Closing until March 31, 2012 

(or the earlier termination of the Series G Drawdown Right). 

At the Closing (i) the shares of AIG’s Series C Perpetual, Convertible, Participating Preferred Stock, par value $5.00 per share (the ‘‘Series C Preferred Stock’’), held by the Trust were exchanged for 562,868,096 shares of AIG common stock, par value $2.50 per share (‘‘AIG Common 

Stock’’), which were subsequently transferred by the Trust to the Treasury Department; (ii) the 

shares of AIG’s Series E Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 

per share (the ‘‘Series E Preferred Stock’’), held by the Treasury Department were exchanged 

for 924,546,133 shares of AIG Common Stock; and (iii) the shares of the Series F Preferred 

Stock held by the Treasury Department were exchanged for (a) the SPV Preferred Interests, (b) 

20,000 shares of the Series G Preferred Stock, and (c) 167,623,733 shares of AIG Common Stock. 

As a result of the Recapitalization, the Treasury Department holds 1,655,037,962 shares of 

newly issued AIG Common Stock, representing ownership of approximately 92 percent of the 

outstanding AIG Common Stock, and 20,000 shares of Series G Preferred Stock. After this share 

exchange and distribution were completed, the Trust terminated pursuant to the terms and conditions of the Trust Agreement. 

The issuance of AIG Common Stock in connection with the exchange for the Series C Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock will significantly 

affect the determination of net income attributable to common shareholders and the weighted 

average shares outstanding, both of which are used to compute earnings per share.’’ AIG: Form 

8–K Period Ended January 14, 2011, supra note 450. 453 As described in a company filing on January 14, 2011: ‘‘[a]s part of the Recapitalization, 

on January 19, 2011, AIG will distribute to the holders of record of AIG Common Stock on January 13, 2010, by means of a dividend, 10-year warrants to purchase a total of up to 75 million 

shares of AIG Common Stock at an exercise price of $45.00 per share. None of the Trust, the 

Treasury Department or the FRBNY will receive these warrants. For more information on these 

• Exchange of AIG Preferred for Common Stock: In the aggregate, Treasury converted $47.5 billion in TARP preferred stock 

at $45 per share for an equivalent amount of equity (representing approximately 1.1 billion shares).452 Additionally, 

the Trust’s Series C preferred shares were converted into approximately 563 million shares of AIG common equity. These 

conversions resulted in Treasury holding a 92.1 percent equity 

stake in AIG. 

• Warrants to Purchase Common Stock: AIG distributed 10-year 

warrants on 75 million shares of AIG common stock with an 

exercise price of $45.00 per share to the existing public shareholders. These warrants, aimed at softening the significant dilution from the government’s common share conversion, were 

not provided to Treasury or other government shareholders.453


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warrants, see AIG’s Current Reports on Form 8–K dated January 7, 2011 and January 12, 

2011.’’ AIG: Form 8–K Period Ended January 14, 2011, supra note 450. 

Figure 27 below provides a timeline of recent AIG-related announcements following the publication of our June 2010 report. 


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The composition of the government’s assistance to AIG has 

evolved from debt to equity as the company’s financial condition 

has changed. Initially, the Federal Reserve was the only government entity to provide assistance to AIG, which was limited to 

large lines of credit. Following the enactment of EESA, Treasury 

authorized $70 billion of preferred equity facilities for AIG. Since 

TARP assistance was in the form of preferred equity, it did not 

count against the company’s outstanding debt, thereby providing a 

more attractive form of capital which helped improve AIG’s leverage, or risk levels, in the eyes of the rating agencies. Currently, the 

only debt instruments outstanding as part of the government rescue of AIG are the loans to the Maiden Lane II and Maiden Lane 

III SPVs, which are not AIG liabilities. At present, Treasury holds 

exclusively common or preferred equity interests in AIG. 

FIGURE 28: GOVERNMENT ASSISTANCE TO AIG OUTSTANDING 

[Dollars in millions] 

November 5, 2008 June 24, 

2010 454

March 8, 

2011 455

FRBNY 

Revolving Credit Facility 456 ....................................................................... $80,257 $25,756 $0 

Maiden Lane II 457 ...................................................................................... N/A 14,668 12,832 

Maiden Lane III 458 ..................................................................................... N/A 16,290 13,008 

Preferred interest in AIA Aurora LLC .......................................................... N/A 16,453 0 

Preferred interest in ALICO SPV ................................................................. N/A 9,255 0 

Total FRBNY ....................................................................................... 80,257 82,422 25,840 

TARP 

Series E Non-Cumulative Preferred Stock (converted to common equity) 459 ................................................................................................... N/A 40,000 40,000 

Series F Non-Cumulative Preferred Stock 460 ............................................. N/A 461 7,543 462 18,763 

Total TARP ......................................................................................... N/A 47,543 58,763 

Total Assistance ......................................................................................... $80,257 $129,965 $84,609 

454 See Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.4.1: Factors Affecting Reserve Balances 

(June 24, 2010) (online at www.federalreserve.gov/releases/h41/20100624/) (hereinafter ‘‘June 2010 Fed Statistical Release H.4.1’’). 455 Treasury Transactions Report, supra note 36. 456 Board of Governors of the Federal Reserve System, Data Download Program (Instrument Used: Factors Affecting Reserve Balances, Credit 

extended to American International Group, Inc., Net: week average) (online at www.federalreserve.gov/datadownload/). 457 Outstanding principal amount of loan extended by FRBNY (including accrued and payable interest to FRBNY). Board of Governors of the 

Federal Reserve System, Federal Reserve Statistical Release H.4.1: Factors Affecting Reserve Balances (June 24, 2010 and Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/). On March 11, 2011, FRBNY announced that AIG had formally offered to purchase the assets in 

Maiden Lane II. There was no further news regarding the offer at the time this report was published. See Federal Reserve Bank of New York, 

Statement Related to Offer by AIG to Purchase Maiden Lane II LLC (Mar. 11, 2011) (online at 

www.newyorkfed.org/newsevents/news/markets/2011/an110311.html). 458 Outstanding principal amount of loan extended by FRBNY (including accrued and payable interest to FRBNY). June 2010 Fed Statistical 

Release H.4.1, supra note 454; Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.4.1: Factors Affecting 

Reserve Balances (Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/20110310/) (hereinafter ‘‘March 2011 Fed Statistical Release 

H.4.1’’). 459 The initial direct TARP assistance was the $40 billion purchase of Series D (cumulative) preferred stock. AIG missed $1.6 billion of dividend payments on this investment. Consequently, when the Series D preferred stock was converted to Series E non-cumulative preferred stock 

in April 2009, the missed dividends were capitalized as part of the newly issued Series E preferred shares. Prior to the conversion to equity, 

the Series E shares could not be redeemed by AIG until the $1.6 billion in capitalized dividends were repaid. Following the conversion of the 

preferred interests to equity, however, the claims to the capitalized interest were also exchanged, thereby eliminating the potential for a payment from the missed dividends. Treasury Transactions Report, supra note 36. 460 The funds available under the Series F stock facility were reduced by $165 million in March 2009 in order to pay retention bonuses to 

AIGFP employees, thus leaving $29.8 billion available. Immediately following the recapitalization, the components of the $29.8 billion of TARP 

Series F preferred stock were: the newly created $2.0 billion of Series G preferred credit facility (available but currently undrawn by AIG to 

date), a $16.9 billion investment in AIA preferred units, a $3.8 billion investment in ALICO junior preferred units, and the $7.5 billion from 

the Series F preferred stock facility that were subsequently converted into 167,623,733 common equity shares. As of March 8, 2011, $9.1 billion of Treasury’s holdings in the AIA and ALICO SPVs had been redeemed. Treasury Transactions Report, supra note 36. 461 American International Group, Inc., Form 10–Q for the Quarterly Period Ended June 30, 2010, at 107 (Aug. 6, 2010) (online at 

www.sec.gov/Archives/edgar/data/5272/000104746910007097/a2199624z10-q.htm). 462 This figure is comprised of the $7.5 billion in Series F preferred stock that was converted to common stock and the $11.2 billion in- vested in the AIA SPV holdings. This figure does not reflect the $2.0 billion Series G preferred stock credit facility, which is available to AIG, 

but has yet to be drawn. Treasury Transactions Report, supra note 36. 

As summarized above, with the execution of AIG’s recapitalization plan, FRBNY retired its claims on the company, centralizing 

the remaining government holdings in AIG with Treasury in the 


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463The total number of shares owned is comprised of 924,546,133 shares exchanged from the 

Series E preferred stock and the associated unpaid dividends, 167,623,733 shares of common 

stock exchanged from the Series F preferred stock, and 562,868,096 common shares that are 

connected to FRBNY’s original assistance. Although the common shares derived from the 

FRBNY credit facility are not directly connected to the TARP assistance, they are included here 

as part of the total Treasury holdings in AIG. In total, Treasury holds 1,655,037,962 shares of 

AIG common stock. Treasury Transactions Report, supra note 36. 466Treasury’s investment in the AIA SPV is $11.2 billion, although the current value of this holding is $11.3 billion due to the payment of accrued interest. As outlined in Section IV.D.1, 

AIG opted to exercise its right to classify $2.0 billion of funds into the newly created Series G 

preferred stock. This facility is not accounted for here because although the funds are available 

to AIG, the company has not drawn on the facility to date. On March 8, 2011, Treasury announced that its interests in the ALICO SPV, which were $3.4 billion following the recapitalization, had been fully redeemed by AIG. Treasury Transactions Report, supra note 36; U.S. Department of the Treasury, Treasury: With $6.9 Billion Repayment Today from AIG, 70 Percent 

of TARP Disbursements Now Recovered (Mar. 8, 2011) (online at www.treasury.gov/press-center/ press-releases/Pages/tg1096.aspx) (hereinafter ‘‘Treasury: $6.9 Billion Repayment from AIG’’). 467 Between September 30, 2010 and January 19, 2011, AIG shares traded within a dividend- adjusted range of $34.22 and $51.25. Bloomberg Data Service (Mar. 8, 2011); AIG: Form 8–K 

Period Ended January 14, 2011, supra note 450. 

form of AIG common stock and preferred interests in certain AIG 

assets through SPVs. While Treasury increased its assistance to 

AIG, the incremental commitment to each SPV is fully secured, 

putting the government ahead of other creditors in the (unlikely) 

event of a default on these obligations. More broadly, a key hurdle 

to the ultimate government exit has been removed as a result of 

the conversion of its claims to more liquid, but higher risk common 

stock, paving the way for an eventual exit via share sales in the 

public equity market. The government’s exit is expected to parallel 

the emergence of AIG as a standalone A-rated credit, no longer reliant on government support to sustain its credit rating at a level 

sufficient for independent access to private capital market funding. 

Treasury now owns 1.655 billion shares of AIG’s common stock, 

representing 92 percent of the company’s outstanding shares.463

FIGURE 29: OWNERSHIP PROFILE OF AMERICAN INTERNATIONAL GROUP 464

Outstanding 

Shares of AIG 

Common Stock 

(in millions) 

Percentage of 

Outstanding 

Shares 

(Percent) 

Series C Preferred Stock .............................................................................................. 562.9 31.3 

Series E Preferred Stock .............................................................................................. 924.5 51.4 

Series F Preferred Stock .............................................................................................. 167.6 9.3

Subtotal .............................................................................................................. 1,655.0 92.0 

Non-Government AIG Common Stock Holders 465 ........................................................ 143.3 8.0 

Total .................................................................................................................... 1,798.4 100.0 

464 Figures affected by rounding. Treasury Transactions Report, supra note 36; U.S. Department of the Treasury, AIG Recapitalization: Summary of Terms September 30, 2010, at 2 (Sept. 30, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/investment-programs/AIG/Documents/Recapitalization.Summary.Terms.Executed.pdf) (hereinafter 

‘‘AIG Recapitalization Summary’’); Treasury conversations with Panel staff (Mar. 7, 2011). 465 This figure assumes that 2,854,069 additional shares will be converted and held by non-Treasury participants stemming from a conversion of equity units to common shares. American International Group, Inc., Financial Supplement: Fourth Quarter 2010, at 15 (Feb. 25, 2011) 

(online at www.aigcorporate.com/investors/2011lFebruary/FinanciallSupplementl4Q10l Revisedl2-24-11.pdf) (hereinafter ‘‘AIG Financial 

Supplement: 4Q 2010’’); AIG Recapitalization Summary, supra note 464, at 2. 

In addition to this equity—valued at $61.9 billion based on the stock’s current price of $37.39—Treasury has also invested approximately $11.2 billion in AIG-related preferred interests.466 While 

the price of AIG common equity shares has fluctuated significantly 

since the recapitalization plan was announced on September 30, 

2010, taxpayers are poised to recognize a gain on the government’s 

assistance to AIG at current market prices.467 The total value of 

Treasury’s equity and preferred interests in AIG is currently $73.2 


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468 Based on a March 4, 2011 closing stock price of $37.39 per share. Bloomberg Data Service 

(Mar. 8, 2011). This includes the current market price of the common equity as well as the value 

of Treasury’s holdings in the AIA SPV. Treasury’s investment in the AIA SPV is $11.2 billion; 

this figure references the current value of $11.3 billion, which includes accrued interest. 

Bloomberg Data Service (Mar. 8, 2011); Treasury Transactions Report, supra note 36; Treasury: $6.9 Billion Repayment from AIG, supra note 466. 469The breakeven price assumes the following cost basis for the 1,655,037,962 common shares Treasury holds: $40.0 billion investment in Series E preferred shares and $7.5 billion in Series 

F preferred stock draws. Treasury Transactions Report, supra note 36. 471 AIG’s market capitalization is based on a March 4, 2011 closing price of $37.39 and a total 

of 1,798,357,785 common shares outstanding. Bloomberg Data Service (Mar. 9, 2011); This figure assumes that 2,854,069 additional shares will be converted and held by non-Treasury participants stemming from a conversion of equity units to common shares. AIG Financial Supplement: 4Q 2010, supra note 465, at 15. 472This calculation uses dividend-adjusted stock prices for AIG on January 5, 2010 and March 

4, 2011. Bloomberg Data Service (Mar. 9, 2011). 

billion.468 This equates to a $14.3 billion net gain based on Treas- ury’s $58.8 billion cost-basis, or the amount of TARP funds spent 

to secure the government’s current outstanding common and preferred equity interests. Of note, the Series C shares—representing 

a current market value of $21.0 billion—were obtained at no cost 

to the taxpayer (or Treasury), and reflect consideration provided by 

AIG for FRBNY’s initial lending facility in September 2008. Thus, 

based on current valuations, this stake, which is now held for the 

benefit of Treasury, is offsetting a current loss on the direct TARP 

assistance provided by Treasury. The break-even threshold for the 

value of the government’s stake, including the common stock derived from the Series C shares, is approximately $28.73 per share, 

which means that should the share price drop below this level, representing a 23 percent decline versus its current share price, Treasury’s holdings in AIG would imply a net loss to the government.469

FIGURE 30: VALUATION OF TREASURY’S COMMON STOCK HOLDINGS IN AIG 470

[In billions] 

TARP Series C 

Total Treasury 

Position 

(TARP + Series C) 

Funds Provided ......................................................................... $47.5 N/A $47.5 

Common Equity: 

No. of Shares ................................................................... 1.1 0.6 1.7 

Implied Value ................................................................... $40.8 $21.0 $61.9 

Implied Net Gain on Common Stock ........................................ $(6.7) $21.0 $14.3 

470 This figure reflects Treasury’s common stock position only, and does not account for Treasury’s other holdings in AIG: $11.2 billion in- terest in the AIA SPV, the $2 billion Series G preferred stock credit facility (available but undrawn). Similarly, it does not account for the $9.1 

billion in repayments Treasury has received on its preferred holdings. Bloomberg Data Service (Mar. 9, 2011). Based on a March 4, 2011 closing stock price of $37.39 per share. Treasury Transactions Report, supra note 36. 

2. Outlook 

a. Key Swing Factor: AIG’s Execution of Strategy 

Based on a share price of $37.39, the equity market currently 

values AIG at $67.2 billion.471 While down considerably from the 

firm’s peak split-adjusted share price of $1,456, the stock is trading 

significantly above the lows witnessed in late 2008 and early 2009, 

and has gained 52 percent in value since the beginning of 2010.472

Not surprisingly, this rebound has coincided with increased optimism concerning the potential for the government to recoup a significant portion of its investment. (The recent spike and subsequent 

decline in AIG shares corresponded with the September 30, 2010 

recapitalization announcement and January 19, 2011 issuance of 


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473 Analysis of Bloomberg adjusted vs. unadjusted share price data. Bloomberg Data Service 

(Mar. 9, 2011). See also Andrew Kligerman, UBS Investment Research, American International 

Group: Staying Neutral, but with Short-term Buy (Oct. 18, 2010). 474Geithner Testimony to the Panel, supra note 119. 475 COP Hearing on the TARP’s Impact on Financial Stability, supra note 311, at 7. 476 AIG ‘‘announced today that, following completion of its annual comprehensive loss reserve review, it expects to record a $4.1 billion charge, net of $446 million in discount and loss sensitive business premium adjustments, for the fourth quarter of 2010 to strengthen loss reserves 

in its Chartis property and casualty insurance subsidiaries.’’ American International Group, 

Inc., AIG Expects to Record $4.1 Billion Net Charge in Fourth Quarter 2010 to Strengthen Loss 

Reserves Associated with Long-Tail Lines in P&C Business (Feb. 9, 2011) (online at 

ir.aigcorporate.com/External.File?t=2&item= g7rqBLVLuv81UAmrh 20Mpz0DS1SXuRN3Wmk 

CRzUb5ppzF78O70yv CeQf98uqlxnez 2NAoHFPnDPDhNydgIxz0w==). The actual charge reported on February 24, 2011 was $4.2 billion. American International Group, AIG Reports Fourth Quarter Net Income of $11.2 billion (Feb. 24, 2011) (online at www.aigcorporate.com/investors/2011_February/4Q2010PR02242010LTR.pdf). 477Treasury’s investment in the AIA SPV is $11.2 billion; however, its current holdings in this 

SPV are $11.3 billion due to the payment of accrued interest. American International Group, 

Inc., Form 8–K for the Period Ended February 8, 2011 (Feb. 9, 2011) (online at www.sec.gov/ 

Archives/edgar/data/5272/000095012311010653/y89586e8vk.htm); Treasury Transactions Report, 

supra note 36. 

10-year warrants to non-government shareholders. Market analysts 

estimated that these warrants equated to a value of approximately 

$8–10/share.) 473

In this context, both AIG and Treasury continue to express varying degrees of optimism on repayment prospects. AIG expects to 

repay fully its obligations to the government, while Treasury is increasingly confident on the outlook for a return of the taxpayer’s 

investment. Secretary Geithner noted in a December 2010 appearance before the Panel that AIG’s recapitalization plan ‘‘will accelerate the government’s exit on terms that are likely to lead to an 

overall profit on the government’s support for AIG, including the 

value of Treasury’s interests in AIG held outside of the TARP.’’ 474

Acting Assistant Secretary of the Treasury for the Office of Financial Stability Timothy Massad noted in a March 2011 appearance 

before the Panel that the government is ‘‘potentially in position to 

recover every dollar we invested.’’ 475

The outlook for the taxpayer is dependent on the successful execution of AIG’s strategy, which will inform the public market’s assessment of AIG’s valuation over the next 12–18 months. This relationship was evidenced by the recent announcement by AIG of a 

$4.1 billion charge to cover increased loss reserves in its insurance 

operations.476 This charge could have weakened the company’s capital position. In response, Treasury agreed to waive the right to 

$2.0 billion or proceeds from the sale of Star Life and Edison Life 

insurance subsidiaries for use in AIG’s reserve strengthening, 

thereby delaying the payment of proceeds from asset sales Treasury was entitled to as collateral for its SPV Preferred Interests.477

This allowed AIG to stabilize its capital ratios in a cost-effective 

manner (e.g., without relying on market funding). Importantly, this 

agreement does not represent a direct loss to Treasury. The only 

‘‘concession’’ by the government was the nominal forfeiture of interest income that it would have otherwise earned on the sale proceeds. However, this is more than offset by the 5 percent dividend 

on the government’s preferred interest in the SPVs. Further, since 

Treasury’s preferred equity investment is over-collateralized (the 

value of Treasury’s claims on AIG’s assets is in excess to the value 

of the funds provided by Treasury), the government remains wellpositioned to be paid in full as AIG transfers payments received 


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478Treasury Transactions Report, supra note 36; Treasury: $6.9 Billion Repayment from AIG, 

supra note 466. 479 In the wake of the government’s rescue in the fall of 2008, the math simply did not provide 

a way forward for the company (and, as became evident in subsequent months, for the government). Market conditions and the terms of the government’s rescue provided little hope of a full 

recovery, beyond seeking to mitigate the magnitude of expected losses on the government’s assistance and to reduce the systemic risk posed by the company. Potential buyers in the insurance sector suffered through significant valuation declines, dampening their appetite for acquisitions of AIG’s most marketable assets. Cash purchases were problematic during this period, 

owing to the dearth of available funding, even to highly rated borrowers. In this environment, 

core operating fundamentals of key insurance businesses suffered amidst the deteriorating market, further clouding the mergers and acquisitions outlook. 480These businesses include General Insurance (Chartis), Domestic Life Insurance & Retirement Services, and Foreign Life Insurance & Retirement Services. 

Additionally, the company must continue to make progress on streamlining its operations and 

untangling the cross-linkages throughout its vast operations. In turn, greater transparency into 

individual business lines will help facilitate more beneficial terms from the capital markets for 

financing core operations as well as advancing the prospects for the sale of non-core businesses 

at more attractive valuations. 481See, e.g., Serena Ng, AIG to Start Marketing ‘‘Re-IPO’’ in May, Wall Street Journal (Feb. 

25, 2011) (online at online.wsj.com/article/SB1000142405274870415 

0604576166360234955504.html) (by subscription only). 

from subsequent asset sales to Treasury. In fact, this process continues, with the recent sale of AIG equity in MetLife conducted 

ahead of schedule, netting Treasury $6.9 billion in proceeds, reducing the outstanding amount of Treasury’s preferred interests in 

AIG assets to $11.2 billion from $20.3 billion immediately following 

the recapitalization.478

Thus, AIG’s financial health remains dependent on the government, the company’s dominant shareholder, while the outlook for 

the government’s investment is to a large degree dependent on 

AIG’s successful execution of its business strategy. AIG is seeking 

to balance asset sales and risk reduction with a credible and focused ongoing business strategy. This strategy has been some time 

in the making, as difficult market conditions and management 

turnover may have frustrated earlier efforts at charting a course 

for repaying the taxpayer prior to CEO Robert Benmosche’s arrival 

at the firm in August of 2009.479 Thus, a greatly improved market 

backdrop and a longer-term investment mentality on the part of 

AIG’s principal shareholder have facilitated a strategy aimed at repaying the government and cultivating a sustainable independent 

business strategy. 

Specifically, in addition to asset sales, the firm is focused on 

strengthening its global property and casualty franchise and its domestic life insurance and retirement services operations, while continuing to reduce the firm’s legacy exposure within AIGFP. After 

the company’s restructuring and asset sales are complete, the vast 

majority of AIG’s businesses will be housed within its global property and casualty and commercial insurance operation, which has 

been rebranded as Chartis, and its domestic life insurance and retirement services segment, rebranded as SunAmerica.480

b. Exit Strategy and Timing 

The government is unlikely to wait for the successful execution 

of this strategy. According to press reports, Treasury intends to 

commence the sale of an initial stake in AIG via a secondary share 

offering after AIG’s 1Q 2011 earnings are released in May 2011.481

Media reports indicate the government could sell up to $20 billion 

worth of stock, representing approximately one-third of the government’s holdings in AIG. The balance of the government’s stake in 


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482Treasury employed both methods to dispose of its Citigroup holdings—large secondary offerings were supplemented by smaller and more frequent automated sales of stock in the marketplace. 483The differences between the AIG rescue and the government’s investment in Citigroup and 

the subsequent exit strategy is discussed in Section F.8 of the Panel’s June 2010 oversight report. See 2010 June Oversight Report, supra note 395, at 181. In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the company’s common 

stock at $3.25 per share. As of February 8, 2011, Treasury had sold the entirety of its Citigroup 

common shares and warrants for $31.91 billion in gross proceeds. The Panel’s January 2010 

oversight report contains a discussion of the government’s since-executed Citigroup exit strategy, 

including the monetization of the preferred shares under the CPP. See 2010 January Oversight 

Report, supra note 153, at 34–64. 484The value of AIG’s public float is based on the closing price of the common shares on 

March 4, 2011 of $37.39 and 143,319,823 shares held by non-government investors. This assumes 2,854,069 shares will be converted from equity units to common shares. AIG Financial 

Supplement: 4Q 2010, supra note 465, at 15; AIG Recapitalization Summary, supra note 464, 

at 2. 485Few actively managed investment funds own sizable long positions in AIG shares. The top 

five shareholders, outside of the U.S. government are: Fairholme Capital Management, which 

owns approximately 2.5 percent of AIG shares; Starr International, Hank Greenberg’s company, 

which owns 0.8 percent; two index funds, Vanguard Group Inc. and State Street Corp., which 

own 0.7 percent in the aggregate; and Blackrock Institutional Trust, which owns 0.2 percent. 

These five shareholders account for over half the 8 percent of AIG’s shares not owned by the 

U.S. government. Fairholme Capital Management, LLC, Schedule 13D Statement of Acquisition 

of Beneficial Ownership by Individuals (Jan. 14, 2011) (online at www.sec.gov/Archives/edgar/ 

data/5272/000091957411000237/d1164162_13d-a.htm); American International Group, Inc., 

Form 4 Statement of Changes in Beneficial Ownership of Securities (Jan. 20, 2011) (online at 

www.sec.gov/Archives/edgar/data/5272/000114036111003441/xslF345X03/doc1.xml); Vanguard 

Group Inc., Form 13F for Quarterly Period Ending December 31, 2010 (Dec. 31, 2010) (online 

at www.sec.gov/Archives/edgar/data/102909/000093247111000241/dec2010vgi13f1.txt); State 

Street Corp., Form 13F for Quarterly Period Ending December 31, 2010 (Dec. 31, 2010) (online 

at www.sec.gov/Archives/edgar/data/93751/000119312511032288/d13fhr.txt); Blackrock Institutional Trust, Form 13F for Quarterly Period Ending December 31, 2010 (Dec. 31, 2010) (online 

at www.sec.gov/Archives/edgar/data/913414/000108636411004275/blkinsttrustco.txt); Data 

accessed through Bloomberg Data Service. 486Oversight briefing on AIG recapitalization (Oct. 6, 2010). 487See Andrew Frye and Hugh Son, AIG Repays Fed, Swaps Treasury Investment for Common 

as U.S. Unwinds Stake, Bloomberg News (Jan. 14, 2011) (online at www.bloomberg.com/news/ 

2011–01–14/aig-repays-fed-swaps-treasury-investment-for-common-stock.html) (‘‘Treasury may 

need 18 months to divest its stake, Benmosche told CNBC today.’’). 

AIG would then likely be sold through additional secondary offerings, automated sales through a prearranged written trading plan, 

or some combination of both.482

The government’s disposition of its shares in Citigroup is likely 

to be the model for AIG.483 However, the AIG disposition may 

prove more difficult for Treasury to execute, given the value of 

AIG’s publicly traded float of $5.4 billion and a government equity 

stake that currently amounts to approximately $61.9 billion.484 Institutional investor ownership in AIG is relatively limited, whereas 

Citigroup enjoyed broad institutional ownership prior to the government’s share sales.485 Thus, absent a capital raise by AIG to 

repay Treasury directly, a protracted wind-down of Treasury’s 

stake seems inevitable. 

In a briefing for TARP oversight bodies, Jim Millstein, Treasury’s 

chief restructuring officer, noted that the government’s exit from 

AIG could take anywhere from six months to two years, following 

the execution of the recapitalization plan.486 In any case, as the 

Panel has noted previously in the case of other asset dispositions, 

Treasury is likely to do what it can to accelerate the timetable for 

its exit. While six months may be overly aggressive, a two-year 

time horizon is probably overly cautious, assuming a normalized 

market backdrop. For his part, Mr. Benmosche believes the government may not fully exit AIG until mid-year 2012.487

This exit timeline, of course, involves substantial equity market 

risk and will rely heavily on AIG building a sustainable franchise 


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488 2010 June Oversight Report, supra note 395, at 105. 

value over the medium term in order to support the placement of 

a significant supply of additional shares (at relatively attractive 

valuations) on the market. As noted, based on the stock’s current 

valuation, taxpayers would see a positive return on their investment in AIG. However, near-term paper gains do not always 

equate to longer-term realized gains. Accordingly, the long-term horizon for a full government exit, with attendant equity market and 

company operating risks, still presents potential downside risks to 

the taxpayer. 

E. Lessons Learned 

The Panel noted that the government has no well-defined legal 

process to wind down a company like AIG in the same way that 

it winds down banks through the FDIC resolution process or nonfinancial companies through bankruptcy. As a result, the Federal 

Reserve and Treasury had to repurpose powers that were originally 

intended for other circumstances, leading to a bailout that was improvised, imperfect, and in many ways deeply unfair. 

While issues surrounding AIG’s failure provide an exhaustive list 

of lessons for regulators, Congress and the financial industry (‘‘toobig-to-fail,’’ moral hazard, systemic risk oversight, over-the-counter 

transparency/centralized clearing, risk management, etc.), the government’s (both Treasury and FRBNY) management of its AIG engagement offers a host of specific lessons. These include: 

• Transparency: Decisions made by government officials behind 

closed doors that put taxpayer dollars at risk must be subject to 

elevated transparency to assure fair dealing on behalf of the taxpayer. FRBNY’s failure to be more sensitive with respect to potential conflicts of interest and the way in which the public and members of Congress would view its actions has colored all the dealings 

between the government and AIG in the eyes of the public.488

• Reluctant Shareholder versus Maximizing Taxpayer Value: As 

the Panel has previously noted, particularly in conjunction with accelerated exits of the government’s other assets (e.g., GM and 

Chrysler Financial), Treasury should be careful not to sacrifice its 

mandate to maximize the value of its investment in favor of an expedited exit strategy consistent with its ‘‘reluctant shareholder’’ 

philosophy. AIG represents a notable example of Treasury successfully taking a longer-term view on its investment horizon to provide the greatest opportunity to realize a meaningful return. 

• Moral Hazard: Given the absence of a resolution authority to 

assist with a controlled liquidation of the firm, AIG’s vast interconnectedness across the financial landscape served as a mechanism to broaden the risk of moral hazard to the firm’s creditors and 

counterparties. The absence of shared sacrifice by private parties 

undermined the government’s ability to respond to the financial crisis, while also seeding longer-term risks for the effective functioning of the financial markets. 


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489 Congressional Oversight Panel, October Oversight Report: Examining Treasury’s Use of Financial Crisis Contracting Authority, at 10 (Oct. 14, 2010) (online at cop.senate.gov/documents/ 

cop-101410-report.pdf) (hereinafter ‘‘2010 October Oversight Report’’). 490 12 U.S.C. § 5211(c)(3). For a definition of ‘‘financial institutions,’’ see 2010 October Oversight Report, supra note 489, at 39 n.143. 491 Congressional Oversight Panel, Joint Written Testimony of Gary Grippo, deputy assistant 

secretary for fiscal operations and policy, and Ronald W. Backes, director of procurement services, U.S. Department of the Treasury, COP Hearing on Treasury’s Use of Private Contractors, 

at 2–3 (Sept. 22, 2010) (online at cop.senate.gov/documents/testimony-092210-treasury.pdf). For 

a discussion comparing contracting to financial agency agreements, see 2010 October Oversight 

Report, supra note 489, at 42. 492 2010 October Oversight Report, supra note 489, at 11. 493 2010 October Oversight Report, supra note 489, at 24. 494 2010 October Oversight Report, supra note 489, at 24–25. 

VII. Administration of the TARP 

A. Treasury’s Use of Its Contracting Authority 

1. Background 

The TARP was an unprecedented intervention into the markets 

and as a result, Treasury did not always have the in-house capabilities needed to implement the programs it wished to establish. 

To meet these needs, Treasury employed outside contractors and 

agents. 

Treasury is authorized by EESA and pre-existing law to employ 

private parties to provide goods and services using two separate 

mechanisms. First, the Secretary may enter into contracts, which 

are used to acquire goods and services from the market. This process is governed by the Federal Acquisition Regulation, and though 

EESA authorizes the Secretary to waive specific provisions of the 

regulation if needed, Treasury has not done so.489 Second, the Secretary may designate ‘‘financial institutions’’ as financial agents to 

perform ‘‘all such reasonable duties related to this Act . . . as may 

be required.’’ 490 Financial agents ‘‘serve as an extension of Treasury to act on behalf of the Government.’’ 491 Historically, financial 

agents could be employed to perform only ‘‘inherently governmental’’ functions, although it may be the case that EESA eliminated this limitation. Treasury is not bound by the Federal Acquisition Regulation when it hires a financial agent. As a result, there 

are essentially no restrictions on the process Treasury may use for 

selecting financial agents. Once selected, however, a financial agent 

must abide by the principles of agency law.492

a. Treasury Action 

At the time of the Panel’s October 2010 report, Examining Treasury’s Use of Financial Crisis Contracting Authority, Treasury had 

awarded 81 TARP-related procurement contracts and 15 financial 

agency agreements. Under these arrangements, there were a total 

of 98 subcontracts, 40 from procurement contracts and 58 from financial agency agreements.493

The obligated value of these contracts and agreements was $436.7 million, with $109.3 million attributable to procurement 

contracts and $327.4 million attributable to financial agency agreements. The expended value under these contracts and agreements 

totaled $363.0 million, with procurement contracts accounting for 

$87.0 million and financial agency agreements accounting for the 

remaining $276.0 million.494


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495 2010 October Oversight Report, supra note 489, at 25, 31. 496The IFR defines an organizational conflict of interest as ‘‘a situation in which the retained 

entity has an interest or relationship that could cause a reasonable person with knowledge of 

the relevant facts to question the retained entity’s objectivity or judgment to perform under the 

arrangement, or its ability to represent the Treasury.’’ 31 CFR § 31.201. Organizational conflicts 

of interest are prohibited unless they are disclosed to Treasury and either mitigated under a 

Treasury-approved plan or waived by Treasury. 497The rule defines a personal conflict of interest as a ‘‘personal, business, or financial interest 

of an individual, his or her spouse, minor child, or other family member with whom the individual has a close personal relationship, that could adversely affect the individual’s ability to 

perform under the arrangement, his or her objectivity or judgment in such performance, or his 

or her ability to represent the interests of the Treasury.’’ 31 CFR § 31.201. A retained entity 

must ensure that ‘‘all management officials’’ working on the contract or agreement not have personal conflicts of interest unless the conflict has been either neutralized by mitigation measures 

or waived by Treasury. 2010 October Oversight Report, supra note 489, at 13–14, 62–63. 498 2010 October Oversight Report, supra note 489, at 15. 499 Congressional Oversight Panel, Testimony of Steven Schooner, professor of law and co-director of the government procurement law program, The George Washington University School 

of Law, Transcript: COP Hearing on Treasury’s Use of Private Contractors (Sept. 22, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-092210-contracting.cfm); 

2010 October Oversight Report, supra note 489, at 5. 500 2010 October Oversight Report, supra note 489, at 5. 

In terms of obligated value, Fannie Mae was the largest financial 

agent, with $126.7 million, while PricewaterhouseCoopers LLP was 

the largest contractor, with $25.8 million. Seven categories of work 

were performed under the TARP procurement contracts, the largest 

of which was legal advisory. Legal advisory work accounted for 35 

contracts as well as for the largest obligated and potential contract 

values of $55.6 million and $203.4 million, respectively.495

In addition, to govern potential conflicts of interest arising from 

these contracts and agreements, Treasury issued an Interim Final 

Rule on TARP Conflicts of Interest (IFR–COI) on January 21, 2009. 

The rule establishes two separate schemes to govern two different 

types of conflicts: organizational conflicts of interest,496 and personal conflicts of interest.497 The IFR–COI also regulates many traditional ethical issues, such as acceptance of gifts and other sorts 

of ‘‘bribes’’ during the contract solicitation process and the handling 

of nonpublic information.498

2. Summary of COP Report and Findings 

The Panel’s October 2010 report, Examining Treasury’s Use of Financial Crisis Contracting Authority, applauded Treasury’s significant efforts to ensure that it used contractors and agents appropriately, noting that in testimony to the Panel, some outside experts had praised Treasury for going above and beyond the usual 

standards for government contracting.499 However, the report cautioned that there still remained important areas of concern.500

For example, the Panel was concerned that while Treasury had 

disclosed some information, such as the texts of the contracts and 

agreements, the date each contract was awarded, and the value of 

the arrangements, material information still had not been released. 

Specifically, the report noted that Treasury does not release task 

orders to the public, despite the fact that for many arrangements 

critical specifics typically appear in task orders, rather than in the 

contracts themselves. Similarly, Treasury does not publicly disclose 

detailed information with respect to the names and duties of subcontractors, nor does it publish the subcontracts themselves. In addition, Treasury publishes almost no information on the performVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00141 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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501 2010 October Oversight Report, supra note 489, at 55–59. 502 2010 October Oversight Report, supra note 489, at 47, 49. 503 2010 October Oversight Report, supra note 489, at 49–50. 504For further discussion of these potential conflicts of interest, see 2010 October Oversight 

Report, supra note 489, at 63–70. 505 2010 October Oversight Report, supra note 489, at 82–86. 

ance of contractors and financial agents during the life of the arrangement.501

The report expressed further concern with regard to Treasury’s 

post-award management of its contracts and agreements. The 

Panel acknowledged that the procedures for post-award management of contracts followed well-established government contracting 

norms. By contrast, however, the Panel observed that the procedures for financial agent management had failed to detect at least 

one serious failing by an agent.502

More troublingly, the report noted that although Treasury’s consent was required before any contractor or financial agent could engage a subcontractor, Treasury had limited oversight ability after 

the subcontract was awarded and instead relied upon the prime 

contractor or the financial agent to ensure their subcontractors’ 

compliance. As a result, Treasury lacked critical basic information 

about subcontractors, such as the text of the subcontracts themselves and the dates on which they were awarded. Furthermore, 

the Panel found that Treasury would have difficulty both ensuring 

they received the best value from subcontractors and detecting violations of contract terms not related to work product, such as 

whether or not a subcontractor has maintained the confidentiality 

of information or that there are no conflicts of interest.503

The Panel was also concerned about the scope of Treasury’s conflict of interest rules. Though the IFR–COI took a robust approach 

to organizational conflicts of interest, personal conflicts of interest, 

and the traditional ethical issues, the Panel noted that the regulations did not address all situations in which conflicts of interest 

could arise. In particular, the report noted with concern the potential that a conflict of interest could develop in the following situations: • Treasury treats a retained entity differently in Treasury’s exercise of its public responsibilities; • A retained entity carries out its assignments in a manner that 

serves its interest and not the public interest; • A retained entity carries out its assignments in a manner that 

serves the interest of the entity’s other clients; • A retained entity uses information it obtains from its work for 

the TARP in a manner that benefits itself or its other clients.504

The Panel was especially concerned with the potential conflicts 

of interest arising from Treasury’s financial agency agreements 

with Fannie Mae and Freddie Mac to administer and to enforce 

compliance with HAMP, respectively. The report noted that because the majority of modifications involved mortgages that the 

GSEs held or guaranteed, the GSEs were in the position of both 

overseeing the program and using it to modify mortgages at the 

same time.505 In addition, Freddie Mac had indicated that it may 

not attempt to enforce its contractual rights against servicers who 

violated their contracts by using ‘‘robo-signers’’ because doing so 


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506 2010 December Oversight Report, supra note 283, at 82. 507For a more complete discussion of the mitigating factors, see 2010 October Oversight Report, supra note 489, at 82–86. 508 2010 October Oversight Report, supra note 489, at 82–86. 509Treasury conversations with Panel staff (Feb. 24, 2011). 

would jeopardize their relationships with these servicers. The 

Panel noted that if Freddie Mac was hesitant to jeopardize their relationships with servicers to enforce its rights in its own book of 

business, it was reasonable to worry that it may be similarly unwilling to risk these relationships on Treasury’s behalf by aggressively overseeing HAMP servicers.506 It is worth noting that the 

GSEs and Treasury took a number of measures to mitigate these 

conflicts, such as establishing a fiduciary relationship, placing a 

firewall around material non-public information, and creating separate entities in the GSEs to handle all HAMP work.507 Despite 

these efforts, the Panel remained deeply concerned about the significant potential conflicts of interest that spring from using Fannie 

Mae and Freddie Mac as financial agents.508

3. Panel Recommendations and Updates 

The Panel recommended that Treasury publish more information, including its rationale in selecting contractors and agents, 

contract and agreement task orders, the results of monitoring efforts, and descriptions of its plans to hold contractors and agents 

accountable. The Panel further recommended that Treasury require 

all contractors to disclose the names and duties of all subcontractors, the values of the subcontracts, and the subcontracts themselves. The Panel released some of this information, such as the 

names of all subcontractors and the values of the subcontracts, in 

the October report. Finally, the Panel recommended that Treasury 

adopt a final rule on conflicts of interest, disclose ongoing conflictsof-interest findings and compliance costs, and consider alternatives 

that would make it less reliant on the retained entities for factual 

information, such as conducting intensive spot checks on individual 

entities. 

Since the Panel made these recommendations, Treasury has 

begun on-site reviews of financial agents’ conflict-of-interest regimes, making it less reliant on self-reporting by retained entities. 

To date, Treasury has done one such review and plans to complete 

three to five more in 2011. The examinations focus on agents’ conflict-of-interest controls, such as their policies and procedures, the 

information firewalls around confidential information, and the nondisclosure agreements. In addition, Treasury has been working to 

finalize the IFR–COI, including doing a high-level review of a possible final rule, though there is no timeline for publishing the final 

rule.509 Outside of these two areas, Treasury has not acted on the 

Panel’s other recommendations. 

Since it last provided data to the Panel for its October report, 

Treasury has awarded 13 more contracts worth $1.8 million in obligated value and $265,637 in expended value. Eight of these contracts have been to Management Concepts for administrative support. The other five contracts are with the Association of Government Accountants, Reed Elselvier, Inc., Addx Corporation, MITRE 


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510Data provided by Treasury (Mar. 1, 2011). Data on procurement contracts is current 

through January 31, 2011. 511Data provided by Treasury (Mar. 1, 2011). Data on financial agency agreements is current 

through January 31, 2011. 512Treasury conversations with Panel staff (Feb. 17, 2011). 513 Base contracts, novations, modifications, and task orders all count as a single contract. 

However, task orders under Treasury contracts for Phacil Inc. and the MITRE Corporation were 

counted as separate contracts. There were two novations, a contract with the law firm Thacher 

Proffitt & Wood was novated to a contract with Sonnenschein Nath & Rosenthal LLP, and a 

contract with McKee Nelson LLP was novated to Bingham McCutchen LLP. For the purposes 

of this analysis, the novations count as a single contract. The total number of procurement contracts includes eight contracts, which were awarded by other branches within the Procurement 

Services Division pursuant to a common Treasury service level and subject to a reimbursable 

agreement with the Office of Financial Stability, or were awarded by other agencies on behalf 

of the Office of Financial Stability and not administered by the Procurement Services Division. 514Data provided by Treasury (Mar. 1, 2011). The majority of the total growth in both obligated value and expended value is due to increases in the financial agency agreements with 

Fannie Mae and Freddie Mac. The obligated and expended values of the agreements with the 

GSEs have grown by $192.7 million and $61.5 million, respectively, since the Panel’s October 

report. Data provided by Treasury (Mar. 1, 2011). 515Treasury conversations with Panel staff (Feb. 17, 2011). 

Corporation, and the Hispanic Association of Colleges & Universities.510

Treasury has also awarded two additional financial agency agreements to Greenhill & Co., LLC and Perella Weinberg Partners & 

Co. on November 18, 2010 and January 18, 2011, respectively. The 

agreements were for structuring and disposition services and have 

a combined obligated value of $13,050,000 and expended value of 

$1,400,000.511 In addition, two agreements, with Morgan Stanley 

and with KBW Asset Management, have been successfully completed.512

In total, Treasury has now awarded 94 TARP-related procurement contracts and 17 financial agency agreements.513 The total 

obligated value of these arrangements, including both new arrangements and new expenses under existing arrangements, is $697.5 

million, with procurement contracts accounting for $134.2 million 

and financial agency agreements accounting for the remaining 

$563.3 million. The total expended value of these arrangements is 

$454.5 million, with $96.7 million attributable to procurement contracts and $357.8 million attributable to financial agency agreements.514

In addition, since the Panel’s October report, Treasury’s conflictof-interest monitoring regime has been changed. Previously, the Office of Financial Stability-Compliance was primarily responsible for 

such monitoring. Since October, the Contract and Agreement Review Board and the contracting officer technical representatives 

have also been tasked with reviewing conflict-of-interest issues. 

Finally, Treasury is in the process of consolidating Procurement 

Services with the corresponding body in the Internal Revenue Service (IRS). All Procurement Services employees are scheduled to become employees of the IRS on March 13, 2011. Procurement Services employees working in the Office of Financial Stability are 

scheduled to move physically to the IRS facility on Oxon Hill on 

June 30, 2011. As a result of this consolidation, Procurement Services is in the process of reviewing their policies and procedures and 

will update them as needed once this review is completed.515


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516 Congressional Oversight Panel, February Oversight Report: Executive Compensation Restrictions in the Troubled Asset Relief Program, at 10 (Feb. 10, 2011) (online at cop.senate.gov/ 

documents/cop-021011-report.pdf) (hereinafter ‘‘2011 February Oversight Report’’). 517 Id. at 13. 

4. Lessons Learned 

In general, Treasury has taken significant steps to ensure that 

it has used private contractors appropriately, and indeed some experts have praised Treasury for going above and beyond the usual 

standards for government contracting. This praise must be viewed 

in context, however. The government contracting process is notoriously nontransparent, and although Treasury appears to have performed well on a comparative basis, significant improvements can 

still be made. 

In particular, the Panel noted the need for increased transparency. For example, contractors may hire subcontractors, and 

those subcontracts are not disclosed to the public. Important aspects of a contractor’s work may be buried in work orders that are 

never published in any form. As work moves farther and farther 

from Treasury’s direct control, it becomes less and less transparent 

and thus impedes accountability. 

B. Executive Compensation Restrictions in the TARP 

1. Background 

a. Overview 

Since well before the financial crisis, executive compensation has 

been a contentious issue. From the early 1950s through the mid1970s, executive pay remained at a fairly steady level in terms of 

real dollars. From the 1980s onward, however, executive compensation has generally increased, often swiftly. For instance, during the 

1970s, the average pay for a CEO was approximately 30 times the 

average annual pay of a production worker. Just before the economic crisis in 2007, the average compensation for a CEO was approximately $21 million, nearly 300 times that of a production 

worker.516

Though a good deal of research has been done on why executive 

pay has risen over the past three decades, there is still no real consensus. Executive mobility, managerial bargaining power, executive 

control over boards of directors, the low values assigned to stock 

options along with the perception that stock options are a low-cost 

method to pay employees, the effects of the bull market and government regulation, and deregulation have all been cited as contributing to this phenomenon. Commentators across the spectrum 

do agree that changing the structure of pay to include stock-based 

compensation during a thriving stock market contributed to the increase in compensation.517

Since the onset of the financial crisis, much attention has focused 

on how executive compensation practices contributed to corporate 

risk-taking. Some have argued that compensation packages created 

incentives for executives to focus on short-term results, even at the 

cost of taking excessively large risks of later catastrophe. Many 

commentators have a particular interest in the effect of 

mismatches between executive compensation and the time horizon 


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518 Id. at 17–18. The Panel discussed the role of misaligned incentives on risk-taking in its 

Special Report on Regulatory Reform. The Panel noted ‘‘the unnecessary risk that many compensation schemes introduce into the financial sector,’’ and stated that ‘‘[a]ltering the incentives 

that encourage this risk . . . will help mitigate systemic risk in future crises. . . . Executive 

pay should . . . incentivize financial executives to prioritize long-term objectives, and to avoid 

both undertaking excessive, unnecessary risk and socializing losses with the help of the federal 

taxpayer.’’ Congressional Oversight Panel, Special Report on Regulatory Reform: Modernizing 

the American Financial Regulatory System: Recommendations for Improving Oversight, Protecting Consumers, and Ensuring Stability, at 37–40 (Jan. 29, 2009) (online at cop.senate.gov/ 

documents/cop-012909-report-regulatoryreform.pdf) (hereinafter ‘‘COP: Special Report on Regulatory Reform’’). 519 Board of Governors of the Federal Reserve System, Press Release (Oct. 22, 2009) (online 

at www.federalreserve.gov/newsevents/press/bcreg/20091022a.htm). 520 2011 February Oversight Report, supra note 516, at 17–18. 521 Joseph E. Stiglitz, The Financial Crisis of 2007/2008 and its Macroeconomic Consequences, 

at 1 (online at unpan1.un.org/intradoc/groups/public/documents/apcity/unpan033508.pdf) 

(accessed Feb. 8, 2011). See also Financial Crisis Inquiry Commission, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, at 

63 (Jan. 2011) (online at www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf) (‘‘Stock options 

had potentially unlimited upside, while the downside was simply to receive nothing if the stock 

didn’t rise to the predetermined price. The same applied to plans that tied pay to return on equity: they meant that executives could win more than they could lose. These pay structures had 

the unintended consequence of creating incentives to increase both risk and leverage, which 

could lead to larger jumps in a company’s stock price.’’). 522 2011 February Oversight Report, supra note 516, at 17–18. 523Geithner Testimony to the Panel, supra note 119. 524 2011 February Oversight Report, supra note 516, at 19–20, 89–91. 

for assessments of risk.518 Chairman Bernanke stated that compensation practices ‘‘led to misaligned incentives and excessive risk 

taking, contributing to bank losses and financial instability.’’ 519 On 

the other hand, this link between compensation and risk taking 

has been contested by some scholars who note that the value of executives’ stock holdings fell precipitously during the crisis. Given 

this potential for loss, they argue, there is no reason compensation 

structures would lead to excessive risk taking. Some commentators 

note, however, that stock options in particular do not necessarily 

create an exposure to losses for executives symmetric with that of 

ordinary shareholders.520 As one of these commentators puts it, 

‘‘stock options—where executives only participate in the gains, but 

not the losses—and even more so, analogous bonus schemes prevalent in financial markets, provide strong incentives for excessive 

risk taking.’’ 521 Although there is no academic consensus on the relationship between compensation practices and risk, or whether 

compensation practices contributed to the financial crisis,522 Treasury’s view is that compensation practices did in fact contribute to 

the crisis. Secretary Geithner has stated that executive compensation played a ‘‘material role’’ in causing the crisis because it encouraged excessive risk taking.523

In addition, commentators have also examined how the government’s implicit ‘‘too big to fail’’ guarantee may further distort executive compensation practices. As a result of providing a ‘‘too-big-tofail’’ backstop, the government may have eliminated certain disincentives for pay arrangements that encourage excessive risk taking. Too-big-to-fail status permits shareholders and executives to 

accept substantial amounts of risk, since they can reap the benefits 

but will not suffer the consequences if the gambles are unsuccessful.524

b. Treasury’s Legal Framework 

Congress entered the executive compensation debate with the 

passage of EESA. After a series of revelations about bonuses at 


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525 2011 February Oversight Report, supra note 516, at 23. 526 2011 February Oversight Report, supra note 516, at 26. 527 2011 February Oversight Report, supra note 516, at 22. 528 2011 February Oversight Report, supra note 516, at 34. 

several major TARP recipients, ARRA subsequently amended 

EESA (EESA as amended) and put additional restrictions on pay 

practices at TARP recipients. These included, among others, a prohibition on golden parachutes, the requirement that TARP recipients establish compensation committees composed entirely of independent directors, the adoption of ‘‘clawback’’ provisions, and annual ‘‘say on pay’’ votes, and a requirement that bonuses not exceed 

one-third of total compensation.525 EESA as amended required the 

Secretary of the Treasury to issue implementing regulations, which 

resulted in the Interim Final Rule on TARP Standards for Compensation and Corporate Governance (IFR–Comp) in June 2009. 

For all TARP recipients, the IFR–Comp includes a number of specific limitations, such as prohibiting paying tax gross-ups to the top 

25 most highly compensated employees, and then requiring them 

annually to certify their compliance with the IFR–Comp. Treasury’s Office of Internal Review monitors these certifications for 

completeness. Some of the smaller TARP institutions have failed to 

meet their reporting deadlines or to provide complete information. 

The Office of Internal Review works with these recipients to ensure 

that these reports are eventually filed and that all information is 

accurate.526

In addition to the provisions applicable to all TARP recipients, 

the IFR–Comp created the Office of the Special Master and placed 

seven exceptional assistance recipients under its jurisdiction. These 

exceptional assistance recipients were AIG, Bank of America, 

Citigroup, Chrysler, Chrysler Financial, General Motors, and 

GMAC/Ally Financial. The Special Master determined the compensation packages for the 25 most highly paid employees at these 

companies and the structure of compensation for the 26th-100th 

most highly compensated employees.527

c. Special Master’s Determinations 

To date, the Special Master has released compensation determinations for 2009 and 2010, as well as a number of supplemental 

determinations. 

In general, the Special Master awarded compensation to executives in the form of cash, stock salary, and incentive payments, and 

generally targeted total compensation amounts at the 50th percentile of compensation for comparable employees at comparable 

companies. Cash compensation was typically limited to $500,000. 

The amount of stock salary was not restricted but it was not immediately redeemable. Incentive payments were also not immediately 

redeemable. In addition, the Special Master limited incentive payments to no more than one-third of total compensation and required that they be paid only if specific observable performance 

metrics were met. All other types of compensation, such as severance plans or perquisites, were limited to a maximum of 

$25,000.528

In making these determinations, the Special Master is required 

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529 2011 February Oversight Report, supra note 516, at 28. 530 2011 February Oversight Report, supra note 516, at 36–48. 531 2011 February Oversight Report, supra note 516, at 36–48. 532 Congressional Oversight Panel, Testimony of Kenneth R. Feinberg, former special master 

for TARP executive compensation, Transcript: COP Hearing on the TARP and Executive Compensation Restrictions (Oct. 21, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-102110-compensation.cfm). 533 2011 February Oversight Report, supra note 516, at 6. 534 2011 February Oversight Report, supra note 516, at 31. 

sive risk; (2) maximize the capacity to repay TARP obligations; (3) 

appropriately allocate compensation between types of compensation; (4) use performance-based compensation; (5) award pay that 

is consistent with compensation for similar employees at similar 

entities; and (6) base compensation on an employee’s contributions. 

The IFR–Comp also created a ‘‘safe harbor’’ for employees who will 

receive less than $500,000 in annual compensation. Institutions are 

not required to obtain approval of compensation structures from 

the Special Master for employees who fall within this safe harbor.529

For a detailed description of the specific determinations made for 

each of the seven exceptional assistance recipients, see the Panel’s 

February 2011 report.530

In addition to approving specified compensation payments and 

structures, the Special Master is authorized to interpret and issue 

non-binding advisory opinions on Section 111 of EESA as amended 

and the IFR–Comp. Furthermore, the IFR–Comp authorized the 

Special Master to review compensation paid by each TARP recipient from the day it first received TARP funding to February 17, 

2009, the date of ARRA’s passage, to determine whether such payments were contrary to the public interest. If any payments met 

this standard, the Special Master was required to seek to negotiate 

with the offending company for reimbursement.531 The Special Master found that TARP recipients had paid $1.7 billion in 

‘‘disfavored’’ compensation that was ‘‘inappropriate,’’ 532 but not 

contrary to the public interest.533

d. Non-TARP Initiatives 

Although Treasury has not regulated executive compensation 

outside of the TARP, a number of other agencies have begun developing guidance on executive compensation. For example, on June 

21, 2010, the Office of the Comptroller of the Currency, the Federal 

Reserve, the FDIC, and the Office of Thrift Supervision adopted 

final guidance that establishes three core principles for executive 

compensation designed to maintain the safety and soundness of 

banking organizations. In addition, the FDIC is developing enhanced examination procedures to use in evaluating incentive compensation at institutions under its supervision. Furthermore, the 

SEC recently adopted regulations that require shareholder approval of executive compensation and ‘‘golden parachute’’ compensation arrangements, and is in the process of formulating regulations that require institutional investment managers to disclose 

how they vote on these compensation arrangements.534

Moreover, Congress took further action on executive compensation. Signed into law on July 21, 2010, the Dodd-Frank Act includes several provisions that will govern executive compensation 

at financial institutions in the future. For example, it includes proVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00148 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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535 2011 February Oversight Report, supra note 516, at 29. 536 COP: Special Report on Regulatory Reform, supra note 518, at 38. 537 2010 March Oversight Report, supra note 377, at 57 (‘‘These [significant questions] include 

whether particular levels of compensation are either necessary or appropriate, the nature of the 

incentives the compensation creates, and the manner in which Treasury is exercising its authority under the EESA compensation restrictions as amended by the American Recovery and Reinvestment Act of 2009 (ARRA).’’). 538 2010 June Oversight Report, supra note 395, at 229. 539Other witnesses at the Panel’s hearing included Kevin Murphy, Kenneth L. Trefftzs Chair 

in Finance and professor of corporate finance, University of Southern California Marshall School 

of Business; Fred Tung, Howard Zhang Faculty Research Scholar and professor of law, Boston 

University School of Law; Rose Marie Orens, senior partner, Compensation Advisory Partners 

LLC; and Ted White, strategic advisor, Knight Vinke Asset Management. Congressional Oversight Panel, COP Hearing on the TARP and Executive Compensation Restrictions (Oct. 21, 2010) 

(online at cop.senate.gov/hearings/library/hearing-102110-compensation.cfm). 540 2011 February Oversight Report, supra note 516, at 5. 

visions that permit clawbacks in certain situations, require increased disclosures, and impose more stringent requirements with 

respect to independent compensation committees.535

2. Summary of COP Report and Findings 

The Panel first considered executive compensation in its January 

2009 report when it noted that executive pay should ‘‘incentivize financial executives to prioritize long-term objectives, and to avoid 

both undertaking excessive, unnecessary risk and socializing losses 

with the help of the federal taxpayer.’’ 536 The Panel again examined compensation practices in March 2010, when it stated that the 

levels of compensation set for GMAC/Ally Financial’s CEO ‘‘raise 

significant questions, which the Panel will continue to study.’’ 537 In 

its June 2010 report, the Panel reiterated its concern that compensation levels ‘‘raise significant unanswered questions.’’ 538 In addition, on October 21, 2010, the Panel held a hearing on executive 

compensation, which included testimony from former Special Master for TARP Executive Compensation Kenneth Feinberg, among 

others.539

The Panel’s primary study of executive compensation, though, 

was in its February 2011 report, Executive Compensation Restrictions in the Troubled Asset Relief Program, which primarily examined the Office of Internal Review and the Office of the Special 

Master. The report expressed concern that the Office of Internal 

Review had not released a single document to the public, despite 

having far-reaching jurisdiction to monitor compliance with executive compensation restrictions at all TARP recipients. In addition, 

the Panel was troubled that the Office did not review compliance 

with all relevant compensation restrictions.540

With regard to the Special Master, the Panel praised the changes 

the Special Master had made to compensation practices at the 

seven exceptional assistance companies. In particular, the Panel 

noted that in 2009 the Special Master reduced total direct compensation by 55 percent overall and had altered the form of compensation executives received. Nevertheless, the Panel concluded 

that the Special Master’s impact was likely to be limited, noting rebounding pay on Wall Street, including at some of the institutions 

that had previously been under the Special Master’s jurisdiction. 

However, the report acknowledged that it is difficult to develop a 

precise assessment of the Special Master’s impact because there 


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541 2011 February Oversight Report, supra note 516, at 79. 542 2011 February Oversight Report, supra note 516, at 6. 543 2011 February Oversight Report, supra note 516, at 59 & n. 241. 544 2011 February Oversight Report, supra note 516, at 6. 545 2011 February Oversight Report, supra note 516, at 81. 

are so many different factors that contribute to setting executive 

pay.541

The Panel also expressed concern with the Special Master’s level 

of transparency. The report described the Special Master’s process 

for making determinations as a ‘‘black box’’ that was not capable 

of replication by any interested outsider. In particular, the report 

noted that the Special Master had not explained how he resolved 

conflicts between the six principles of the public interest standard, 

how he crafted the general rules he used, and how he applied these 

rules to specific circumstances. This lack of transparency, the Panel 

stated, helped prevent the Special Master’s work from becoming a 

model for compensation in the future.542

The Panel was also troubled by the general uniformity of the 

Special Master’s determinations. The report questioned whether 

one size truly fits all and, for example, whether the same redemption schedule for salary stock should apply to both employees of an 

automotive company and employees of a large bank.543

A separate concern in the February 2011 report was the Special 

Master’s aforementioned ‘‘Look Back Review’’ of payments to executives at TARP recipients prior to February 17, 2009. Because the 

Special Master concluded that payments totaling $1.7 billion were 

‘‘inappropriate’’ but not ‘‘contrary to the public interest,’’ he did not 

attempt to claw back the payments. The Panel found the Special 

Master’s conclusion troublesome for several reasons: it may have 

appeared to the public to be excessively legalistic, it may have represented an end-run around Congress’ determination that the Special Master should make every effort to claw back wrongful payments, and it may have given the impression that the government 

condoned inappropriate compensation to executives whose actions 

contributed to the financial crisis.544

3. Panel Recommendations and Updates 

In its February 2011 report, the Panel recommended that both 

the Office of Internal Review and the Office of the Special Master 

provide more information to the public. In particular, the report 

called for the Office of the Special Master to publish the specific rationales that led to individual determinations. In addition, the report suggested publishing executive turnover data, the companies’ 

compensation proposals, and specific information on the performance goals set for incentive compensation. For the Office of Internal 

Review, the Panel recommended that it issue a report on compensation at non-exceptional assistance companies and also publish 

information on its monitoring activities. The Office of Internal Review was also called upon to expand its monitoring activities to encompass all of the compensation restrictions set by EESA as 

amended, the IFR–Comp, and the Special Master. Finally, the 

Panel recommended that Treasury release a guide outlining best 

practices for executive compensation.545


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546For example, J.P. Morgan CEO James Dimon received a 22 percent increase in restricted 

stock payout. J.P. Morgan Chase & Co., Form 4: Statement of Change in Beneficial Ownership 

(Feb. 17, 2011) (online at sec.gov/Archives/edgar/data/19617/000122520811006335/xslF345X03/ 

doc4.xml). 547Office of the New York State Comptroller Thomas P. DiNapoli, DiNapoli: Wall Street Bonuses Declined in 2010 (Feb. 23, 2011) (online at www.osc.state.ny.us/press/releases/feb11/ 

022311a.htm). Though applauding the changes to compensation that have occurred to date, a 

Moody’s report expressed pessimism that such changes would last. See Moody’s Investor Service, 

Bank Compensation Reform: Short-Term Improvements, Long-Term Questions (Mar. 9, 2011). 548 Citigroup, Inc., Schedule 14(a), at 56 (Feb. 28, 2011) (online at sec.gov/Archives/edgar/data/ 

831001/000119312511050132/dpre14a.htm). 549 U.S. Securities and Exchange Commission, SEC Proposes Rules on Disclosure of IncentiveBased Compensation Arrangements at Financial Institutions (Mar. 2, 2011) (online at 

www.sec.gov/news/press/2011/2011-57.htm). 

Since the Panel’s February 2011 report, several companies have 

released their 2010 compensation data, which showed that executive compensation increased.546 In total, the New York State Comptroller calculated that overall compensation increased by 6 percent 

in 2010. The structure of this compensation has changed, however. 

Base salaries and deferred compensation increased while cash bonuses declined by 8 percent.547 Also, in a step away from the structures established by the Special Master, Citigroup stated that ‘‘it 

does not intend to award salary stock in 2011 or future years, as 

it is no longer a TARP company.’’ 548

In addition, on March 2, 2011, the SEC proposed a new rule requiring certain financial institutions to disclose the structure of 

their incentive compensation and prohibiting pay arrangements 

that encourage excessive risk-taking. The rule is now open for public comment and therefore may change before becoming final.549

4. Lessons Learned 

The Panel’s recommendations from its February 2011 report focused on a common theme: transparency. In the more than two 

years since EESA was passed, exceptional assistance institutions 

have altered their cash compensation and their compensation 

structures. The Office of the Special Master has been at the center 

of these two reforms. But despite these achievements, the public 

knows very little about how the government has implemented the 

compensation rules or about the impact of these measures. The Office of Internal Review has not published a single document to the 

public and aspects of the Special Master’s work are ‘‘black boxes.’’ 

This lack of transparency limits the impact of the executive compensation restrictions. It makes it very difficult, if not impossible, 

for any board of directors, shareholder, or government agency to 

use the Special Master’s public determination letters as the basis 

for mimicking those decisions. So long as compensation experts on 

Wall Street and elsewhere lack the information needed to use the 

Special Master’s deliberations as a model, what seemed an opportunity for sweeping reform will be destined to leave a far more 

modest legacy. 

VIII. General TARP Assessment 

The preceding sections have provided an issue-specific look at the 

various pieces of the TARP. But this program, an unprecedented 

$700 billion response to a panic in the financial markets, is more 

than just the sum of its parts. In four of its previous reports, the 

Panel evaluated the TARP as a whole. This section includes a reVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00151 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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550 2009 April Oversight Report, supra note 88. 551The Panel also explored these questions in an associated hearing. See generally Congressional Oversight Panel, Transcript: Learning from the Past: Lessons from the Banking Crises of 

the 20th Century (Mar. 19, 2009) (online at cop.senate.gov/documents/transcript-031909- 

bankingcrises.pdf). 552 Congressional Oversight Panel, Written Testimony Charles Calomiris, Henry Kaufman 

Professor of Financial Institutions, Columbia Business School, Taking Stock: Independent Views 

on TARP’s Effectiveness, at 4 (Nov. 19, 2009) (online at cop.senate.gov/documents/testimony111909-calomiris.pdf). 553 2010 January Oversight Report, supra note 153. 554TARP funds had to be legally obligated to a program by October 3, 2010, but they could 

continue to be disbursed after that date. 

view of the findings in those reports, as well as an update on the 

current status of the TARP. 

A. Summary of COP Reports and Findings 

The Panel’s April 2009 report, Assessing Treasury’s Strategy: Six 

Months of TARP, provided a framework for evaluating the TARP’s 

success.550 The report gave an overview of past banking crises in 

the United States and in other countries, as well as the responses 

of other countries to the current crisis. It concluded that each successful resolution of a financial crisis involved: (1) swift action to 

ensure the integrity of bank accounting; (2) a willingness to take 

aggressive action to address failing institutions; (3) a willingness to 

hold management accountable either by firing them or, where appropriate, prosecuting them; and (4) transparency in the reporting 

of the use of public sector funds. The report also stated that if a 

future course change proved necessary, Treasury might consider 

liquidation or conservatorship of distressed banks as an alternative 

to subsidizing them through the TARP.551

The Panel’s December 2009 report, Taking Stock: What Has the 

Troubled Asset Relief Program Achieved?, evaluated the TARP a little more than one year after its enactment. The report noted that 

the TARP should be judged as part of a larger series of extraordinary actions taken by the federal government to stem the panic 

in the financial markets in the fall of 2008, and stated that there 

is a consensus that these programs stabilized the U.S. financial 

system by renewing the flow of credit and averting a more acute 

crisis. The report also found, though, that credit availability remained low, questions remained about the capitalization of many 

banks, the foreclosure crisis continued to grow, CRE remained a 

looming problem, and the government’s actions resulted in implicit 

guarantees of financial institutions, which posed the most difficult 

long-term problem to emerge from the crisis. As Columbia University economist Charles Calomiris stated in testimony before the 

Panel, ‘‘If financial institutions know that the government is there 

to share losses, risk-taking becomes a one-sided bet, and so more 

risk is preferred to less.’’ 552

In its January 2010 report, Exiting TARP and Unwinding Its Impact on the Financial Markets, the Panel focused on Treasury’s 

strategy for exiting the TARP.553 The report was released following 

Secretary Geithner’s December 9, 2009, exercise of his authority to 

extend the TARP until October 3, 2010.554 Secretary Geithner had 

recently explained this decision in testimony before the Panel, stating: ‘‘We need to continue to find ways to help mitigate foreclosures 

for responsible homeowners and to get credit to small business. We 


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555 Congressional Oversight Panel, Written Testimony of Timothy F. Geithner, secretary, U.S. 

Department of the Treasury, COP Hearing with Treasury Secretary Timothy Geithner (Dec. 10, 

2009) (online at cop.senate.gov/documents/testimony-121009-geithner.pdf). 556 EESA provided the Treasury Secretary with the authority to ‘‘hold the assets to maturity 

or for resale for and until such time as the Secretary determines that the market is optimal 

for selling such assets, in order to maximize the value for taxpayers’’ and ‘‘sell such assets at 

a price that the Secretary determines, based on available financial analysis, will maximize return on investment for the Federal Government.’’ 12 U.S.C. § 5223(a)(2). 557 Alan Blinder, Written Answers to Questions Posed by the Congressional Oversight Panel 

(Aug. 2010). See 2010 September Oversight Report, supra note 53, at 96, 112–114. 

also must maintain the capacity to address potential threats to our 

financial system, which could undermine the recovery we have seen 

to date.’’ 555 The Panel noted that while Treasury’s formal cutoff 

from further TARP commitments was October 3, 2010, its final exit 

from the TARP and divestiture of all TARP-related holdings, potentially worth billions of dollars, would be an ongoing process that 

would extend well into the future.556 Treasury’s exit strategy 

sought to balance an emphasis on maintaining the stability of the 

financial system, preserving the stability of individual financial institutions, and maximizing the return on the taxpayers’ investment. The Panel concluded that Treasury’s three goals were potentially conflicting and sufficiently broad to justify any strategy. The 

report also focused on the continuing market effects created by the 

TARP, specifically the implicit guarantee that has created the perception that certain institutions will be protected by the government. The Panel noted two means of counteracting the effects of 

implicit guarantees: regulation of implicitly guaranteed institutions 

and the creation of a financial system in which those institutions 

could be liquidated or reorganized to allow for failure. 

The Panel’s September 2010 report, Assessing the TARP on the 

Eve of Its Expiration, provided a summation of Treasury’s use of 

TARP funds and how its TARP programs have performed. The 

Panel noted that while Secretary Geithner’s extension of the TARP 

in December 2009 was meant to allow for continued use of TARP 

funds and preserve Treasury’s authority to intervene swiftly should 

financial markets exhibit signs of another meltdown, Treasury provided no further funding to address the areas it highlighted at the 

time the extension occurred. Thus, the report noted, the extension 

of the TARP functioned as a means to extend the government’s implicit guarantee of the financial system. The report also noted that 

over time a public stigma has attached to the TARP, which is seen 

as a bailout of Wall Street banks and domestic auto manufacturers 

that had little impact on the unemployed and homeowners at risk 

of foreclosure. Alan Blinder, a Princeton economist, told the Panel 

that ‘‘in the near term, the extreme unpopularity of TARP will 

make it hard to do anything even remotely like it again, should the 

need arise.’’ 557 The Panel’s report noted that Treasury did little to 

remove this stigma, as it struggled with transparency and communications and failed to collect key data that would have allowed for 

greater understanding of the use and impact of TARP funds. The 

Panel consulted with outside economic experts who, while disagreeing on various points, generally agreed that the TARP was 

necessary to stabilize the financial system, but that it created significant moral hazard. The report noted that any evaluation of the 

TARP ultimately must take into account the goals stated in EESA: 

protecting home values, college funds, retirement accounts, and life 


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558 2010 September Oversight Report, supra note 53, at 106. 559 2010 January Oversight Report, supra note 153. 560TARP: Two Year Retrospective, supra note 246. 561For instance as of December 7, 2009, Treasury began releasing the Transaction reports in 

excel format. See, e.g., U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 3, 2009 (Dec. 7, 2009) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/Pages/default.aspx?page=8). 562 2010 January Oversight Report, supra note 153, at 32, 142. 563 COP: Special Report on Regulatory Reform, supra note 518, at 76 (‘‘We should all know 

by now that whenever government subsidizes risk, either by immunizing parties from the consequences of their behavior or allowing them to shift risk to others at no cost, we produce a 

savings; preserving homeownership and promoting jobs and economic growth; and maximizing overall returns to U.S. taxpayers.558

B. Panel Recommendations 

In its reports evaluating the TARP as a whole, several of the 

Panel’s recommendations have focused on transparency. Specifically, the Panel has encouraged Treasury to provide more detailed, 

useful information in its TARP accounting statements, in order to 

show how it has managed TARP resources. The Panel has encouraged Treasury to produce quarterly TARP financial statements 

with an improved Management’s Discussion and Analysis section. 

The Panel also recommended that Treasury disclose to the public 

more information about its plans for disposing of TARP assets. And 

in January 2010 the Panel urged Treasury to require any future 

TARP recipients to be more transparent about their use of taxpayer funds.559

Treasury has made some progress in this area, but the Panel believes that Treasury can and should be more transparent. Treasury 

has produced annual financial statements and a TARP Two Year 

Retrospective that more clearly articulated the metrics by which 

Treasury was evaluating the TARP’s effectiveness;560 these have 

been useful for oversight of the program. Treasury now provides 

daily updates on its financial positions and releases some of its 

data in a spreadsheet format, making it more easily analyzed and 

evaluated.561 Treasury released a semi-annual TARP financial 

statement in early 2010 and has been providing more frequent accounting for the status of TARP resources, but it has not adopted 

the Panel’s recommendation of producing quarterly financial reports. Treasury did not take meaningful steps to require more 

transparency by new TARP recipients. 

In light of the government’s dual roles as investor in and overseer of the financial industry, the Panel recommended that Treasury consider holding its TARP assets in a trust that is insulated 

from political pressure and government interference, as long as 

care is taken to ensure that the trust assets are managed in the 

best interests of taxpayers. Treasury has maintained that the 

drawbacks of such a trust outweigh the benefits. One drawback 

that Treasury has cited is that the trust structure would make it 

difficult to balance Treasury’s goal of maximizing the benefit to 

taxpayers with the goal of maintaining financial stability.562

Finally, the Panel, both in its January 2009 Special Report on 

Regulatory Reform and in subsequent reports, recommended that 

Treasury take steps to resolve the problem of an implicit government guarantee of too-big-to-fail financial institutions.563 The 


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clear moral hazard that furthers risky behavior, usually with disastrous consequences.’’); 2010 

January Oversight Report, supra note 153, at 142 (‘‘There are multiple options available and 

there is broad agreement that a new approach to systemic risk regulation is necessary so that 

businesses are not insulated from the effects of their own bad decisions.’’). See also Congressional Oversight Panel, Written Testimony of Sarah Bloom Raskin, commissioner, Maryland Office of Financial Regulation, Modernizing America’s Financial Regulatory Structure, at 6 (Jan. 

14, 2009) (online at cop.senate.gov/documents/testimony-011409-raskin.pdf) (‘‘While this crisis 

has demanded a dramatic response from the federal government, the short-term result of many 

of these programs, including the TARP, has been to create even larger and more complex institutions and greater systemic risk. These responses have created extreme disparity in the treatment of financial institutions, with the government protecting those deemed to be too big or too 

complex to fail at the expense of smaller institutions, and perhaps of the diversity of our financial system.’’). 564 2010 September Oversight Report, supra note 53, at 11–12. The four economists who testified at the Panel’s March 4th hearing—Prof. Joseph E. Stiglitz, Prof. Simon Johnson, Prof. Allan 

H. Meltzer, and Prof. Luigi Zingales—were all skeptical as to whether the Dodd-Frank Act will 

prove effective in limiting the too-big-to-fail guarantee that TARP has served to strengthen. See 

generally Congressional Oversight Panel, COP Hearing on Assessing the TARP (Mar. 4, 2011) 

(online at cop.senate.gov/hearings/library/hearing-030411-cre.cfm). 565Office of Management and Budget, A New Era of Responsibility: Renewing America’s Promise, at 37 (Feb. 26, 2009) (online at www.whitehouse.gov/sites/default/files/omb/assets/ 

fy2010lnewlera/AlNewlEraloflResponsibility2.pdf) (‘‘Although the Administration is not 

requesting additional funds from the Congress at this point and although it is not yet possible 

to provide a precise estimate of how much additional Federal action may be involved should the 

Administration need to request such funds, the President’s Budget nonetheless includes a $250 

billion contingent reserve for further efforts to stabilize the financial system. . . . The $250 billion reserve would support $750 billion in asset purchases.’’). 566See the discussion of GMAC’s participation in the SCAP in Section V.A.1, supra. 567 2009 May Oversight Report, supra note 227, at 72–73; 2011 February Oversight Report, 

supra note 516, at 107. 

Dodd-Frank Act takes a variety of approaches to address this problem. The law empowers the FDIC to resolve financial institutions 

whose failure poses a risk to the nation’s financial stability. The 

law also requires systemically significant institutions with more 

than $50 billion in assets to submit so-called ‘‘living wills,’’ or plans 

for their resolution in times of severe financial distress. And the 

law creates a Financial Stability Oversight Council charged with 

identifying and responding to systemic risks in the U.S. economy. 

In recent months, federal regulatory agencies have begun the process of implementing these provisions. Nonetheless, the implicit 

guarantee of the TARP is proving difficult to unwind.564

C. Financial Status of the TARP 

EESA authorized the expenditure of up to $700 billion under the TARP, and by the end of 2008 Treasury had used roughly $250 billion of that sum, mostly in assistance to banks. In February 2009, 

the Obama administration proposed a budget that raised the possibility that as much as $750 billion more would be needed.565 Those 

additional funds were never requested. As 2009 continued, it became clear that unless Treasury expanded TARP programs or introduced new ones, it would not spend the entire $700 billion that 

Congress had authorized in October 2008. The stress tests, which 

raised the possibility of substantial additional TARP funds going to 

the banking sector, ultimately resulted in a TARP expenditure of 

only $3.8 billion.566 Treasury initially announced that it would spend $100 billion in TARP funds on the PPIP, but later lowered 

the program’s ceiling to $22.4 billion. Likewise, the ceiling for 

TARP spending on the TALF was dropped from $55 billion to $4.3 

billion.567 On the eve of the TARP’s potential expiration in Decem- ber 2009, nearly $300 billion of the original $700 billion in TARP 

funds was still available. Then on December 9, 2009, Secretary 

Geithner exercised his statutory authority to extend the TARP for 


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568 U.S. Department of the Treasury, Treasury Department Releases Text of Letter from Secretary Geithner to Hill Leadership on Administration’s Exit Strategy for TARP (Dec. 9, 2009) 

(online at www.treasury.gov/press-center/press-releases/Pages/tg433.aspx). 569The main reason for the difference between CBO’s estimate and the Administration’s estimate is that CBO projects a total of $12 billion in expenditures on HAMP, the Hardest Hit 

Fund, and the FHA Short Refinance Program, while the Administration projects $45.6 billion 

in spending on those programs. The Panel believes that CBO’s assumption is more realistic. 

CBO Report on TARP—November 2010, supra note 341, at 5; Office of Management and Budget, 

FY 2012 Budget, Economic and Budget Analyses, at 47 (Feb. 14, 2011) (online at 

www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/econlanalyses.pdf). 

roughly nine more months. Secretary Geithner explained at the 

time that barring an immediate and substantial threat to the economy stemming from financial instability, Treasury would limit new 

TARP commitments to mitigating home foreclosures, providing capital to small and community banks, along with other efforts aimed 

at facilitating small business lending, and potentially increasing 

Treasury’s commitment to the TALF.568 In the end Treasury did 

not allocate any additional TARP funds beyond those it had allocated in December 2009. In the summer of 2010, Congress reduced 

the TARP’s ceiling—or the amount that Treasury could spend before accounting for repayments—to $475 billion. Treasury’s spending authority under the TARP expired on October 3, 2010. 

Over the life of the TARP, final loss estimates have sharply decreased. In March 2009, CBO estimated that the TARP would end 

up costing $356 billion. By January 2011, that latest loss estimate 

for the TARP is $25 billion, while OMB’s latest estimate is $48 billion.569 OMB’s cost estimates reflect the Administration’s policy on 

HAMP and other programs, have similarly declined sharply since 

2009. Figure 31 illustrates three trends: the total TARP funds outstanding, which rose over the early months of the program before 

falling in 2010; CBO’s loss estimates, which rose sharply in early 

2009 before declining; and OMB’s loss estimates, which also rose 

precipitously before falling off. 


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570For current and past CBO cost estimates of TARP, see Congressional Budget Office, Report 

on the Troubled Asset Relief Program, at 2 (Jan. 16, 2009) (online at cbo.gov/ftpdocs/99xx/ 

doc9961/01-16-TARP.pdf); Congressional Budget Office, Report on the Troubled Asset Relief Program, at 7 (June 2009) (online at www.cbo.gov/ftpdocs/100xx/doc10056/06-29-TARP.pdf); Douglas 

Elmendorf, Troubled Asset Relief Program, Congressional Budget Office Director’s Blog (Apr. 17, 

2009) (online at cboblog.cbo.gov/?p=231); Congressional Budget Office, Report on the Troubled 

Asset Relief Program, at 2 (June 2009) (online at www.cbo.gov/ftpdocs/100xx/doc10056/06-29- 

TARP.pdf); Congressional Budget Office, The Budget and Economic Outlook: An Update, at 18 

(Aug. 2009) (online at www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf); Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, at 104 (Jan. 

2010) (online at www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf); Congressional Budget 

Office, Report on the Troubled Asset Relief Program, at 3 (Mar. 2010) (online at cbo.gov/ftpdocs/ 

112xx/doc11227/03-17-TARP.pdf); Douglas Elmendorf, CBO’s Latest Projections for the TARP, 

Congressional Budget Office Director’s Blog (Aug. 20, 2010) (online at cboblog.cbo.gov/?p=1322); 

Congressional Budget Office, Report on the Troubled Asset Relief Program, at 5 (Nov. 2010) (online at cbo.gov/ftpdocs/119xx/doc11980/11-29-TARP.pdf); Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, at 67 (Jan. 2011) (online at cbo.gov/ftpdocs/ 

120xx/doc12039/01-26_FY2011Outlook.pdf). 

For current and past OMB cost estimates of TARP, see Office of Management and Budget, 

OMB Report Under the Emergency Economic Stabilization Act, Section 202, at 4 (Dec. 5, 2008) 

(online at www.whitehouse.gov/sites/default/files/omb/assets/omb/legislative/eesa_120508.pdf); 

Office of Management and Budget, Analytical Perspectives: Budget of the U.S. Government—Fiscal Year 2010, at 66 (Feb. 26, 2009) (online at www.gpoaccess.gov/usbudget/fy10/pdf/spec.pdf); 

Office of Management and Budget, Analytical Perspectives: Budget of the U.S. Government—Fiscal Year 2011, at 40 (Feb. 1, 2010) (online at www.gpoaccess.gov/usbudget/fy11/pdf/spec.pdf); Office of Management and Budget, OMB Report Under the Emergency Economic Stabilization Act, 

Section 202, at 3 (Oct. 15, 2010) (online at www.whitehouse.gov/sites/default/files/ 

OMB212Sharplombleoplgov_20101015_175127.pdf); Office of Management and Budget, Analytical Perspectives: Budget of the U.S. Government—Fiscal Year 2012, at 45 (Feb. 14, 2011) (online at www.gpoaccess.gov/usbudget/fy12/pdf/BUDGET-2012-PER.pdf). 

FIGURE 31: TARP FUNDS OUTSTANDING VS. CBO AND OMB SUBSIDY COST 

ESTIMATES 570

Figure 32 shows the current status of the government’s investments for the 13 programs that have used TARP funds. This table 

only shows the status of principal invested by Treasury. Any dividends, interest payments, and other proceeds that may allow 

Treasury to earn a return on its TARP investments are accounted 

for separately in Figure 33. 

The first five programs listed in Figure 32—CPP, TIP, AGP, 

AIGIP, and CDCI—collectively represent the TARP’s direct assistance to financial institutions. Out of $320 billion provided to these 

firms, about $92.3 billion remains outstanding, including $30.9 billion in the CPP and $60.9 billion to AIG. The Panel believes that 

the eventual losses in the CPP are likely to be relatively small. 

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571The Series C shares—discussed in Section VI.F.1, supra—were provided by AIG to the U.S. 

Treasury in consideration for FRBNY’s $85 billion lending facility. This happened in September 

2008, prior to the TARP investments in AIG. 572This category includes assistance to GMAC/Ally Financial, which Treasury chose to fund 

as part of AIFP due to the companies’ interconnectedness to the future viability of the automotive manufacturers. 

ments in financial institutions involves AIG. The outcome of the 

AIG investment will depend on the price that Treasury can eventually obtain for its common stock, including its Series C shares, 

which were not actually received as part of any TARP initiative.571

The next two programs listed in the table—AIFP and ASSP— 

represent the TARP’s assistance to automotive companies.572 About 

60 percent of the $81.3 billion that Treasury provided to automotive companies remains outstanding, including large investments in GM, Chrysler, and GMAC/Ally Financial. There is still 

uncertainty about the outcome of each of those investments. The 

next three TARP programs listed in the table—TALF, PPIP, and 

the SBA 7(a) Securities Purchase Program—represent targeted efforts to revive lending. Though very little of this money has been 

repaid, the Panel expects losses on these programs to be minimal. 

Finally, the last three programs listed in the table—HAMP, 

HHF, and the FHA Short Refinance Program—represent the 

TARP’s foreclosure-prevention efforts. By design, all three of these 

programs will result in net losses to the TARP, since the funds are 

being used to provide financial incentives to prevent foreclosures, 

and are not meant to be repaid. So the size of the eventual losses 

will be negatively correlated with the success of the programs. In 

other words, the more foreclosures that the program prevents, the 

greater the losses to the TARP. The Panel expects the eventual 

losses to be far smaller than the $45.6 billion allocated for the programs, because usage of the programs to date is far below initial 

projections. Overall, Treasury has spent $419.9 billion of the $475 billion 

that it is currently authorized to spend. Of the total amount spent, 

$255.9 billion has been repaid. Roughly $6 billion in losses have 

been recorded. For particular TARP programs, those losses on principal may be partially or fully offset by dividends, interest payments, and other proceeds collected by Treasury. Since the TARP 

expired in October 2010, Treasury has no longer been able to make 

new funding commitments, but it can continue to provide funding 

for TARP programs for which it has existing contracts and previous 

legal commitments. As Figure 32 shows, $55.1 billion in TARP 

funding is still available to Treasury, reserved mostly for the three 

TARP foreclosure-prevention programs. 


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573These figures do not include the amount currently outstanding of $157.9 billion. Treasury 

Transactions Report, supra note 36. 574On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion 

loan to Chrysler Holding. The payment represented a $1.6 billion loss from the termination of 

the debt obligation. See U.S. Department of the Treasury, Chrysler Financial Parent Company 

Repays $1.9 Billion in Settlement of Original Chrysler Loan (May 17, 2010) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg700.aspx); Treasury Transactions Report, 

supra note 36. 575Following the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion 

debtor-in-possession loan provided to Old Chrysler, Treasury retained the right to recover the 

proceeds from the liquidation of specified collateral. Although Treasury does not expect a significant recovery from the liquidation proceeds, Treasury is not yet reporting this loan as a loss 

Continued 

FIGURE 32: TARP ACCOUNTING (AS OF MARCH 10, 2011) 

[Dollars in billions] ix

Program 

Maximum 

Amount 

Allotted x

Actual 

Funding 

Total 

Repayments/ 

Reduced 

Exposure 

Total 

Losses 

Funding 

Currently 

Outstanding 

Funding 

Available xi

Capital Purchase Program (CPP) $204.9 $204.9 xii $(171.5) xiii $(2.6) $30.8 $0 

Targeted Invest-ment Program 

(TIP) .......................................... 40.0 40.0 (40.0) 0 0 0 

Asset Guarantee Program (AGP) .. 5.0 xiv 5.0 xv (5.0) 0 0 0 

AIG Investment Program (AIGIP) .. xvi 70.0 70.0 xvii (9.1) 0 60.9 0 

Community Development Capital 

Initiative (CDCI) ....................... 0.6 xviii 0.6 0 0 0.6 0 

Auto Industry Financing Program 

(AIFP) ........................................ 81.3 81.3 xix (29.0) xx (3.4) 48.9 0 

Auto Supplier Support Program 

(ASSP) xxi ................................. 0.4 0.4 (0.4) 0 0 0 

Term Asset-Backed Securities 

Loan Facility (TALF) ................. xxii 4.3 xxiii 0.1 0 0 0.1 4.2 

Public-Private Investment Program (PPIP) xxiv ....................... 22.4 xxv 15.9 xxvi (0.7) 0 15.2 6.5 

SBA 7(a) Securities Purchase Program ......................................... 0.4 xxvii 0.4 xxviii 0 0 0.4 0 

Home Affordable Modification 

Program (HAMP) ....................... 29.9 xxix 1.0 0 0 1.0 28.9 

Hardest Hit Fund (HHF) ................ xxx 7.6 xxxi 0.1 0 0 0.1 7.5 

FHA Short Refinance Program ...... 8.1 xxxii 0.1 0 0 0.1 8.1 

Total .................................... $475.0 $419.9 $(255.8) $(6.0) $158.1 $55.1 

See endnote references in Annex III: Endnotes 

A quantitative assessment of the TARP must also include any 

profit earned or loss incurred on actual fund outlays. The terms of 

TARP transactions created the possibility for Treasury to profit 

from its investments after repayment, but Treasury has also suffered losses related to both investments that are unrecoverable and 

those never intended for repayment. 

Most of the TARP programs hold at least the potential for the 

taxpayers to make a profit. So far, those programs have earned a 

profit, net of losses, of $30.3 billion.573 The losses to date include 

$2.6 billion from CPP investments and $3.4 billion from the AIFP. 

The CPP losses relate to the bankruptcies of CIT Group and Pacific 

Coast National Bank and the sales of the preferred stock (and any 

related warrants) of South Financial Group, TIB Financial Corporation, the Bank of Currituck, Treaty Oak Bancorp, and Cadence 

Financial Corporation. The AIFP losses were derived from a $1.9 

billion settlement payment for Treasury’s $3.5 billion loan to 

Chrysler Holding 574 and the net loss from the $1.9 billion debtorin-possession loan provided to Old Chrysler.575 Figure 33 shows the 


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in the TARP Transactions Report. As of March 8, 2011, Treasury had collected $48.1 million 

in proceeds from the sale of collateral. Treasury included these proceeds as part of the funds 

repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief Program 

Monthly 105(a) Report—September 2010 (Oct. 12, 2010) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/105/Documents105/ 

September%20105(a)%20reportlFINAL.pdf); Treasury conversations with Panel staff (Aug. 19, 

2010 and Nov. 29, 2010); Treasury Transactions Report, supra note 36. 576 CBO Report on TARP—November 2010, supra note 341, at 5. 577One criticism of the IRR approach is that it assumes reinvestment of the earnings and repaid principal at the same rate as that calculated for the overall IRR for the program. See e.g., 

John S. Walker, Henry F. Check, and Karen L. Randall, Does the Internal Rate of Return Calculation Require a Reinvestment Rate Assumption?—There Is Still No Consensus (online at 

www.abe.sju.edu/check.pdf) (accessed Mar. 11, 2011). In the case of Treasury, the more appropriate assumption may be that Treasury’s return covers only its cost of issuing new debt for 

the comparable period. 

profits and losses for each TARP program. It is important to note 

that this table represents a snapshot in time, and shows only recorded profits and losses; the TARP’s net profit or loss changes 

with the finalization of each transaction. Additional profits and 

losses are inevitable. As noted earlier, CBO currently estimates a 

final net loss of $25 billion, although this represents a discounted 

present value estimate rather than a simple accounting summation 

of net profits and losses as discussed here.576

FIGURE 33: TARP PROFIT AND LOSS 

[Dollars in millions] 

TARP 

Initiative xxxiii

Dividends xxxiv

(as of 

2/28/2011) 

Interest xxxv

(as of 

2/28/2011) 

Warrant 

Disposition 

Proceeds xxxvi

(as of 

3/8/2011) 

Other 

Proceeds 

(as of 

2/28/2011) 

Losses xxxvii

(as of 

3/8/2011) 

Total 

Total ..................... $16,482 $1,256 $8,681 $10,014 ($6,018) $30,415 

CPP ....................... 10,570 68 7,069 xxxviii 6,852 (2,578) 21,981 

TIP ......................... 3,004 – 1,446 – – 4,450 

AIGIP ..................... – – – xxxix 18 – 18 

AIFP ....................... 2,461 1,061 xl 99 xli 43 xlii (3,440) 224 

ASSP ..................... – 15 – xliii 101 – 116 

AGP ....................... 443 – 67 xliv 2,246 – 2,756 

PPIP ...................... – 107 – xlv 477 – 583 

SBA 7(a) ............... – 5 – xlvi 0 – 5 

Bank of America 

Guarantee ......... – – – xlvii 276 – 276 

CDCI ...................... 3 2 – – – 5 

See endnote references in Annex III: Endnotes 

Beyond the basic profit and loss calculation, an additional determination of the profitability of investments is the investment’s return. As mentioned above, some TARP programs were not designed 

to create a return, and thus it would not make sense to calculate 

one for those expenditures. But for the other TARP programs, the 

return offers one way to assess their effectiveness. The Panel has 

consistently employed the IRR as a measure of profitability, as it 

incorporates cash outflows and inflows while taking into consideration the time value of money. Treasury, in contrast, has utilized 

several measures to assess the government’s return on particular 

TARP programs as well as the TARP as a whole.577

For the warrants associated with the CPP investment, Treasury 

utilizes a non-annualized absolute return, which is calculated simply as money in divided by money out, without any consideration 


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578Treasury notes that this method was chosen because at the time they first issued a CPP 

return, most of the investments and disposed warrants had only been held for a year or less, 

which would have inflated an annualized return. They have continued with this calculation for 

consistency. Treasury conversations with Panel staff (Mar. 7, 2011). 579December 2010 Warrant Disposition Report, supra note 152, at 1. 580The 8.4 percent return calculated by the Panel also includes the additional warrants received from Treasury’s investment in Bank of America through the TIP. The Panel calculates 

a return of 10.0 percent on CPP investments as of March 9, 2011. 581 According to Treasury, their rationale for using a return on only equity is because under 

the terms of the PPIP agreement, only the equity financing was truly at risk. Treasury conversations with Panel staff (Feb. 11, 2011). Also, the debt portion of the PPIP investment carries 

a financing rate of LIBOR plus 1 percent. U.S. Department of the Treasury, Letter of Intent, 

at Exhibit A (July 8, 2009) (online at www.treasury.gov/initiatives/financial-stability/investmentprograms/ppip/s-ppip/Documents/S-PPIPlLOIlTerm-Sheets.pdf). 582Treasury’s Legacy Securities Public-Private Investment Program: Program Update, supra 

note 102, at 8. 583 Ben Protess, Bad Asset Purchase Program Turning a Profit, The New York Times Dealbook 

Blog (Jan. 24, 2011) (online at dealbook.nytimes.com/2011/01/24/toxic-asset-purchase-programturning-a-profit/). 

for the timing of cash flows.578 The Panel’s calculation includes a 

consideration for the time value of money. Further, Treasury includes only CPP and TIP investments that have been fully repaid, 

and excludes investments lost due to bankruptcy or partial repayment. The Panel, however, includes all CPP and TIP investments 

that have been repaid or in which Treasury has concluded it will 

take a loss, ensuring that the total return is not inflated by exclusion of known losses. As of December 31, 2010, Treasury measured 

the return on CPP investments fully repaid to be 9.8 percent, including both dividends and warrants.579 The Panel, by comparison, 

calculates a return of 8.4 percent on CPP investments as of January 3, 2011.580

Neither Treasury nor the Panel have calculated an overall rate 

of return for TARP as a whole, given the disparate nature of the 

separate programs involved—including housing programs for which 

no return was expected—and the fact that most have not been completely closed out. The only other TARP program for which Treasury calculates a rate of return is the PPIP, for which Treasury calculates a return on equity alone, excluding the debt portion.581

While calculating a return on equity is standard industry practice 

in the private sector, for the purpose of a return on taxpayer dollars, this practice does not reflect the government’s true financial 

exposure. While Treasury makes clear that its PPIP return is for 

equity only, and is useful for private investors in the program, the 

total return on debt and equity would be lower than the return on 

equity alone. Based on its method of calculating a return for PPIP, 

Treasury currently shows a return of 27.0 percent.582 When calculated as a blended return on both equity and debt, the total return is only 9.7 percent.583

IX. Conclusions and Lessons Learned 

In order to evaluate the TARP’s impact, one must first recall the 

extreme fear and uncertainty that infected the financial system in 

late 2008. The stock market had endured triple-digit swings. Major 

financial institutions, including Bear Stearns, Fannie Mae, Freddie 

Mac, and Lehman Brothers, had collapsed, sowing panic throughout the financial markets. The economy was hemorrhaging jobs, 

and foreclosures were escalating with no end in sight. Chairman 

Bernanke, looking back on the events of late 2008, has said that 


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the nation was on course for ‘‘a cataclysm that could have rivaled 

or surpassed the Great Depression.’’ 

It is now clear that, although America has endured a wrenching 

recession, it has not experienced a second Great Depression. America’s financial system has survived. Its economy is recovering. 

The TARP does not deserve full credit for preventing a depression; indeed, the TARP in isolation may have been insufficient to 

make much of a difference to the broader economy. But the TARP 

provided critical support at a moment of profound uncertainty. At 

the peak of the 2008 financial crisis, when the markets questioned 

the stability of virtually every bank in the country, the TARP restored a measure of calm and stability. It achieved this effect in 

part by providing capital to banks but, more significantly, by demonstrating that the United States would take any action necessary 

to prevent the collapse of its financial system. Through a combined 

display of political resolve and financial force, the TARP quelled 

the immediate panic and helped to avert an even more severe crisis. 

At the time that Congress established the TARP in October 2008, 

CBO declined to provide a cost estimate, saying that the program’s 

extremely broad and vague mandates rendered its final cost unknowable. One number, however, caught the public imagination: 

$700 billion, the total amount of money that Treasury requested 

and Congress authorized to bail out the financial system. As the 

New York Times reported following Treasury’s initial TARP proposal, ‘‘A $700 billion expenditure on distressed mortgage-related 

assets would roughly be what the country has spent so far in direct 

costs on the Iraq war and more than the Pentagon’s total yearly 

budget appropriation. Divided across the population, it would 

amount to more than $2,000 for every man, woman and child in 

the United States.’’ It is important to note, however, that even at 

the time the TARP was created, CBO considered it unlikely that 

the program would cost taxpayers $700 billion, as Treasury always 

stood to recover at least some portion of its investments. Nonetheless, $700 billion was the most precise figure available to the public 

as the TARP was enacted, and it remains the figure indelibly associated with the program. 

Several months after the TARP’s creation, in April 2009, CBO finally had enough information to estimate what the TARP would ultimately cost taxpayers: $356 billion, or roughly half of the oft-cited 

$700 billion figure. Since then, CBO’s estimates have grown progressively less grim as the economy has recovered and TARP investments have been repaid. CBO today estimates that the TARP 

will cost $25 billion—an enormous sum, but vastly less than anyone expected in the dark days of late 2008 and early 2009. 

Although CBO’s falling cost estimates are in many ways encouraging, they do not necessarily validate Treasury’s administration of 

the TARP. To be sure, Treasury deserves credit for lowering costs 

to taxpayers through its diligent management of TARP assets and, 

in particular, its careful restructuring of AIG, Chrysler, and GM. 

However, a separate reason for the TARP’s falling costs is that 

Treasury’s foreclosure prevention programs, which could have cost 

$50 billion, have largely failed to get off the ground. Viewed from 

this perspective, the TARP will cost less than expected in part beVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00162 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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cause it will accomplish far less than envisioned for American 

homeowners. Another reason for the TARP’s falling costs is that 

non-TARP government programs, such as the FDIC’s efforts to 

allow banks to borrow at below-market rates and the Federal Reserve’s efforts to support the RMBS market, have shifted some of 

the costs of the financial rescue off of the TARP’s balance sheet and 

onto the balance sheets of other programs that are subject to significantly less oversight. Still another reason that costs have fallen 

is that the value of the government’s stock holdings in the financial 

sector have sharply rebounded—a rebound that has, unfortunately, 

not been accompanied by increased lending to consumers and small 

businesses, nor by increased hiring in the broader economy, both 

of which were among the TARP’s explicit goals. 

Further, the Panel has always emphasized that the TARP’s cost 

cannot be measured merely in dollars. The TARP’s implicit guarantee of ‘‘too big to fail’’ financial firms has entrenched moral hazard in the financial system, and the TARP’s unpopularity in the 

public eye has created a lingering stigma that may hinder future 

rescue efforts. Further, accounting for the TARP from today’s vantage point—at a time when the financial system has made great 

strides toward recovery—obscures the risk that existed in the 

depths of the financial crisis. At one point, the federal government 

guaranteed or insured $4.4 trillion in face value of financial assets. 

If the financial system had suffered another shock on the road to 

recovery, taxpayers would have faced staggering losses. 

Finally, the TARP’s incomplete transparency creates a real cost 

as well: an enduring public suspicion that taxpayers’ money was 

not managed as effectively and accountably as possible. 

A. ‘‘Too Big to Fail’’ and Moral Hazard 

The TARP did not create the idea of ‘‘too big to fail.’’ Commentators had suggested for years that the U.S. government would intervene to prevent the collapse of any sufficiently large and interconnected financial institution. The government had even demonstrated a willingness in the past—for example, in the 1998 Federal Reserve-supervised bailout of Long Term Capital Management, 

a hedge fund whose failure the government believed would threaten financial stability—to play at least a limited role in preventing 

a panic. It is possible that these relatively small-scale interventions 

created a market expectation that the government would intervene 

in a more sweeping manner in the event of a crisis. 

Yet although the notion of ‘‘too big to fail’’ had existed for years, 

the TARP and other extraordinary government interventions in 

2008 transformed it into stark reality. At the height of the financial crisis, 18 very large financial institutions received $208.6 billion in TARP funding almost overnight, in many cases without having to apply for funding or to demonstrate any ability to repay taxpayers. Three particularly weak and systemically significant 

firms—Citigroup, Bank of America, and AIG—received even greater amounts of assistance under improvised programs that were not 

available to smaller, less significant institutions. The AIG rescue 

was particularly extraordinary in that it appears to have extended 

the ‘‘too big to fail’’ guarantee beyond AIG itself and into the broader derivatives market in which the company was entrenched. In esVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00163 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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sence, by bailing out AIG and its counterparties, the government 

transformed highly risky derivative bets into fully guaranteed 

transactions, with the American taxpayer standing as guarantor. 

The parameters of ‘‘too big to fail’’ gained greater clarity in early 

2009, when Treasury and the Federal Reserve announced that the 

nation’s 19 largest banks would undergo stress tests and that, if 

any of these banks were found to be potentially insolvent, it would 

receive further TARP capital as needed. In essence, the federal government announced that taxpayers would bear any burden and pay 

any price to prevent the collapse of any very large or very interconnected U.S. bank. Indeed, it was this implicit guarantee, more 

than any explicit government action, that played the greatest role 

in calming markets and halting the financial panic. 

Even as Treasury took drastic steps to rescue a handful of very 

large banks, smaller banks continued to collapse across the country. A total of 334 small and medium-sized banks have failed since 

the TARP’s creation. Partly due to Treasury’s decision to rescue 

very large banks while allowing smaller banks to collapse, America’s largest banks today manage an even greater fraction of the 

nation’s wealth than before the crisis. Banks that were ‘‘too big to 

fail’’ in 2008 are even bigger today. 

In light of these events, it is not surprising that markets have 

incorporated the notion that ‘‘too big to fail’’ banks are safer than 

their ‘‘small enough to fail’’ counterparts. Credit rating agencies 

continue to adjust the credit ratings of very large banks to reflect 

their implicit government guarantee. Smaller banks receive no 

such adjustment, and as a result, they face higher costs of funds 

relative to very large banks. 

By protecting very large banks from insolvency and collapse, the 

TARP also created classic moral hazard: that is, very large financial institutions may now rationally decide to take inflated risks because they expect that, if their gamble fails, taxpayers will bear the 

loss. Ironically, these inflated risks may create even greater systemic risk and increase the likelihood of future crises and bailouts. 

It is difficult to determine the degree to which moral hazard continues to infect the financial system. Treasury believes that the recent Dodd-Frank Act reined in the problem by establishing a plausible resolution authority for very large banks, but that authority 

has yet to be tested. 

It is important to note that much of the moral hazard created by 

the TARP was inherent in any large-scale government intervention 

in the financial sector. That is, once Congress and the administration decided to rescue too-big-to-fail firms from the natural consequences of their own errors, a hefty dose of moral hazard was 

guaranteed. Yet Treasury likely exacerbated moral hazard in late 

2008 and early 2009 by choosing not to impose tough consequences 

on TARP-recipient banks. For example, if banks had been forced as 

a condition of TARP assistance to use TARP funds to increase lending, fire their top management, or endure other severe penalties, 

they would be less willing to repeat the experience, reducing moral 

hazard. 

Treasury’s interventions in the automotive industry, in particular, raise moral hazard concerns. In some ways, Treasury actually mitigated moral hazard through its very strict approach to 


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these companies: it forced GM and Chrysler to enter bankruptcy, 

a step not required of other major TARP-recipient institutions. 

However, the mere fact that Treasury intervened in the automotive 

industry, rescuing companies that were not banks and were not 

particularly interconnected within the financial system, extended 

the ‘‘too big to fail’’ guarantee and its associated moral hazard to 

non-financial firms. The implication may seem to be that any company in America can receive a government backstop, so long as its 

collapse would cost enough jobs or deal enough economic damage. 

B. Stigma 

As the TARP evolved, Treasury found its policy choices increasingly constrained by public anger about the program. The TARP is 

now widely perceived as having restored stability to the financial 

sector by bailing out Wall Street banks and domestic automotive 

manufacturers while doing little for the 13.9 million workers who 

are unemployed, the 2.4 million homeowners who are at immediate 

risk of foreclosure, or the countless families otherwise struggling to 

make ends meet. Treasury acknowledges that, as a result of this 

perception, the TARP and its programs are now burdened by a 

public ‘‘stigma.’’ 

Because the TARP was designed for an inherently unpopular 

purpose—rescuing Wall Street banks from the consequences of 

their own actions—stigmatization was likely inevitable. Treasury’s 

implementation of the program has, however, made this stigma 

worse. For example, Treasury initially insisted that only healthy 

banks would be eligible for capital infusions under the CPP. When 

it later became clear that some TARP-recipient banks were in fact 

on the brink of failure, all participating banks, even those in comparatively strong condition, became tainted in the public eye. Further, many senior managers of TARP-recipient institutions maintained their jobs and their substantial salaries, and although 

shareholders often suffered meaningful dilution, they were not 

wiped out. To the public, this may appear to be evidence that Wall 

Street banks and bankers can retain their profits in boom years 

and shift their losses to taxpayers during a bust—an arrangement 

that is anathema to market discipline in a free economy. 

Another factor contributing to stigmatization was the haphazard, 

constantly shifting, and in some ways misleading manner in which 

the TARP was sold to the public. Treasury initially proposed the 

TARP in a three-page bill that would have provided the Secretary 

of the Treasury with nearly unlimited, unilateral authority to buy 

troubled mortgage-backed assets off of bank balance sheets, absent 

any oversight or review. Although the legislation authorizing the 

TARP later grew in length and complexity (and added several layers of oversight, including the Panel), Treasury continued to assert 

that the TARP would function mainly by purchasing troubled assets. Mere days after the legislation authorizing the program was 

signed into law, however, Treasury changed course and decided to 

implement the TARP mainly as a bank capitalization program. The 

shift may have been made for sound policy reasons, but it helped 

to create a public distrust of the TARP: a sense that the government was treating honest and forthright communication to the 

public as secondary to Wall Street’s needs. Further, the program’s 


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architects in many ways oversold its potential. Congress authorized 

the TARP to be used in a manner that ‘‘protects home values, college funds, retirement accounts, and life savings’’ and ‘‘preserves 

homeownership and promotes jobs and economic growth.’’ Notwithstanding these stated goals, the TARP was always intended by 

Congress and Treasury primarily to recapitalize banks. By citing 

the other goals as part of the rationale for the TARP, Congress and 

the administration may have laid the groundwork for some of the 

public disillusionment and anger that followed. 

Yet another source of stigma is that the TARP and other government rescue efforts were generally coordinated by the very regulators, bankers, and public officials who failed to anticipate or prevent the crisis, and that the boundaries between public and private 

actors were not always clear. To give a concrete example, in the 

rescue of AIG, people from the same small group of law firms, investment banks, and regulators appeared in many roles, sometimes 

representing conflicting interests. More broadly, the individuals 

who orchestrated the TARP and other rescue efforts almost all had 

the perspectives of either a banker or a banking regulator. This 

problem may be insurmountable—after all, who other than financial experts would coordinate a financial rescue? Nonetheless, the 

fact that the same people who contributed to the crisis were 

charged with ending it contributed to a perception that the government was quietly helping banking insiders at the expense of accountability and transparency. 

Whatever the reasons for the TARP’s stigmatization, the program eventually became so detested that some smaller banks refused to participate in the CPP, while the legislation proposing the 

SBLF, a TARP-like bank capitalization program, attempted to escape the program’s unpopularity by providing explicit assurances 

that the fund was not affiliated with the TARP. 

Stigma is difficult to quantify, but opinion polling is suggestive. 

A Bloomberg poll conducted in October 2010 found that 60 percent 

of respondents believe that most of the TARP funds provided to the 

banks would be lost; only 33 percent believed that most of the 

funds would be recovered. This overwhelming public belief stands 

at odds with projections released by the administration and CBO, 

which indicate that these programs may in fact turn a profit. In 

other words, the public’s broad fury about the TARP may leave 

many Americans ready to believe only the worst about the program—a sentiment that creates real obstacles to any future government effort to intervene in a financial crisis. 

C. Transparency, Data Collection, and Accountability 

Transparency. Beginning with its very first report, the Panel 

has repeatedly expressed concerns about the lack of transparency 

in the TARP. In too many cases, especially in late 2008 and early 

2009, Treasury either declined to release information that it possessed about the program or declined to require TARP-recipient institutions to reveal information about their use of taxpayer funds. 

In perhaps the most profound violation of the principle of transparency, Treasury decided in the TARP’s earliest days to push tens 

of billions of dollars out the door to very large financial institutions 

without requiring banks to use the funds in any particular way or 


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even reveal how the money was used. As a result, the public will 

never know to what purpose its money was put. Other transparency problems include Treasury’s refusal to explain how it valued the stock warrants it received in exchange for its TARP investments and the joint failure of Treasury and the Federal Reserve to 

disclose enough details of the 2009 stress tests to permit the results to be duplicated or challenged by outside parties. 

To Treasury’s credit, its transparency and disclosure practices 

have improved over the lifetime of the TARP. For example, Treasury has recently begun to release loan-level information on its foreclosure mitigation programs—a far greater level of detail than was 

available in the program’s early days. Further, Treasury has made 

an admirable commitment to posting TARP contracts online, and 

it has even disclosed the identity of TARP subcontractors—an unusual degree of transparency within the government contracting 

arena. 

Data Collection and Analysis. In some cases, public understanding of the TARP has suffered not because Treasury refused to 

reveal useful data but because these data were never collected in 

the first place. For example, despite repeated urgings from the 

Panel, Treasury still does not collect sufficient information about 

why loans are moving to foreclosure, nor does it monitor closely 

enough any loan modifications performed outside of HAMP. Additionally, Treasury stopped collecting lending data from CPP-recipient banks after larger banks repaid TARP funds, rendering it difficult for observers to measure that program’s continuing impact. 

Without adequate data collection, Treasury has flown blind; it 

has lacked the information needed to spot trends, determine which 

programs are succeeding and which programs are failing, and 

make changes necessary for better implementation. The collection 

and analysis of data were especially important because so many of 

the TARP’s programs were unprecedented, creating the possibility 

that data could reveal surprising and unexpected results. For example, Treasury took for granted that recapitalizing banks through 

the CPP would spur lending, yet when the Panel analyzed banklevel lending data, it was unable to find any correlation between 

the receipt of CPP funds and new lending. Similarly, it may seem 

intuitively obvious that homeowners who are burdened by significant car loan and credit card payments would be more likely to default on their mortgages than similar homeowners unburdened by 

such payments—yet surprisingly, HAMP data revealed that this 

was not the case. To the extent that comprehensive, usable data 

were not collected for all TARP programs, or to the extent that 

data were collected but not analyzed or released for public review, 

other surprising and important correlations were likely never uncovered. 

Goals and Accountability. A related concern is Treasury’s failure to articulate clear, meaningful goals for many of its TARP programs or to update its goals as programs have evolved. For example, when the President announced HAMP in early 2009, he asserted that the program would prevent three to four million foreclosures. The program has fallen far short of that goal and now appears on track to help only 700,000 to 800,000 homeowners—yet 


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Treasury has never formally announced a new target for the program. 

Even in cases in which Treasury’s decisions have been clearly 

disclosed, the justifications have often remained obscure. For example, Treasury has often stated numerous goals for a single TARP 

program, such as to maintain systemic stability, to protect the stability of a particular institution, and to ensure the best possible return on taxpayer money. These goals have, unfortunately, frequently come into conflict, and Treasury has never adequately explained how it balanced conflicting obligations or prioritized conflicting aims. Because virtually any course of action could be justified as meeting one or another of Treasury’s goals, the public has 

had no meaningful way to hold Treasury accountable—and Treasury has had no clear target to strive toward in its own internal deliberations. 

D. Other Obstacles Encountered by the TARP 

In addition to the broad problems laid out above, Treasury has 

encountered other recurring difficulties in its administration of the 

TARP. • Treasury often found greater success in TARP programs 

that had only a few participants than in programs that required coordinating hundreds or thousands of participants. 

In the case of the CPP, Treasury achieved the vast majority of the 

program’s effect by quickly pumping tens of billions of dollars into 

a handful of very large banks. Treasury needed a much longer 

timeframe to recapitalize hundreds of local and regional banks, and 

Treasury’s investments in these banks were simply too small and 

too late to have a meaningful effect on financial stability. Along 

similar lines, the TARP program that directly reached the most 

participants—HAMP—was also one of the least effective, in part 

because Treasury found the task of coordinating hundreds of banks 

and loan servicers and millions of homeowners to be nearly overwhelming. 

Although Treasury found it easier and often more effective to 

stabilize the financial system by supporting ‘‘too big to fail’’ institutions rather than smaller banks or individual homeowners, it is 

critically important that the government consider the effects of its 

actions on the overall financial system. Rescuing large banks may 

have averted the immediate crisis, but it also provided these banks 

a competitive advantage, exacerbating concentration and potentially destabilizing the financial system. Further, the fact that 

large banks received such quick and dramatic support even as foreclosures continued unabated has contributed to the TARP’s stigmatization, which has undermined the program’s effectiveness. 

• Treasury often encountered difficulty in attracting active, widespread participation in voluntary programs. The 

TARP’s most effective programs were those in which participants 

had little choice but to follow Treasury’s guidance. In particular, 

the investments that most dramatically stabilized the financial system were the CPP’s investments in very large banks (which, at the 

peak of the financial crisis, received intense political and market 

pressure to participate in the TARP) and AIG, GM, and Chrysler 

(which would have suffered catastrophic, uncontrolled bankruptcies 


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had they refused government support). In cases in which Treasury 

relied on voluntary participation, as in the involvement of small 

banks in the CPP or of investors and loan servicers in HAMP, 

many would-be participants refused to join, and Treasury found 

that it had little leverage to enforce program terms on the participants that did enroll. These problems persisted even though the 

terms of HAMP and the CPP were quite generous. 

Of course, mandatory programs present their own problems, including the specter of unrestrained government intervention into 

private institutions. The fact that voluntary TARP programs 

worked relatively poorly does not necessarily mean that future programs should be made mandatory; rather, it means that future administrations should carefully weigh the trade-offs of a program 

that relies purely on voluntary participation. • Treasury often found that hastily designed programs 

could backfire. For example, in the foreclosure arena, Treasury 

found that HAMP’s initial design attracted only limited interest 

from loan servicers, prompting it to launch half a dozen increasingly generous foreclosure-related efforts in 2009 and early 2010. 

Unfortunately, the pattern of providing ever more generous incentives may have backfired, as lenders and servicers may have opted 

to delay modifications in hopes of eventually receiving a better 

deal. In addition, loan servicers expressed confusion about the constant flux of new programs, new standards, and new requirements 

that made implementation more complex. A similar problem arose 

in the CPP, in which Treasury and Congress imposed additional restrictions on CPP-recipient banks—particularly as related to executive compensation—long after those banks had accepted taxpayer 

money. Once financial institutions recognized that their CPP participation entailed a risk of being forced to accept additional, unilaterally imposed restrictions at a later date, they became less willing to participate in future TARP programs. 

In a crisis, government agencies may feel forced to launch a response—any response—as quickly as possible with the expectation 

that, if their first effort should fail, they can always revise and improve the program later. The experience of the TARP, however, 

suggests that poorly designed first efforts may create enduring 

problems. Government actors should weigh this risk carefully when 

choosing whether to launch an immediate, haphazard response or 

to take more time to design an effective program. 

• Treasury’s programs often focused on addressing the 

immediate crisis, potentially giving short shrift to longerterm risks. For example, the Panel highlighted potential threats 

to the financial system in its oversight reports on the CRE market 

and on the potential hazards posed by mortgage irregularities. 

Treasury had not established specific programs to deal with these 

potential systemic threats, and its existing programs in some cases 

relied upon these threats not materializing (for example, HAMP’s 

contracts with loan servicers take for granted that those servicers 

have a legal right to conduct loan modifications, notwithstanding 

widespread concern about mortgage documentation irregularities). 

It is understandable that, while dealing with threats that could 

impair the financial system tomorrow, Treasury may pay less attention to threats that could damage the system months or years 


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in the future. Even so, failure to pay attention to threats at their 

earliest stages could allow risks to magnify and may force more 

costly interventions down the road. 

E. On the Role of Oversight 

In establishing the TARP, Congress assigned oversight roles to 

no fewer than three government bodies: the Congressional Oversight Panel, the Special Inspector General for TARP (SIGTARP), 

and the Government Accountability Office (GAO). Although this 

document is the Panel’s final report, SIGTARP and GAO will continue to monitor the TARP and issue public reports on their findings, and further oversight work will be performed by committees 

of the U.S. House of Representatives and the U.S. Senate. Academics, journalists, and watchdog groups also have played and will 

continue to play an important role in evaluating the TARP. 

Because so many organizations have examined Treasury’s efforts, 

the TARP has become one of the most thoroughly scrutinized government programs in U.S. history. Such close scrutiny inevitably 

begets criticism, and in the case of the TARP—a program born out 

of ugly necessity—the criticism was always likely to be harsh. After 

all, in the midst of a crisis, perfect solutions do not exist; every possible action carries regrettable consequences, and even the best 

possible decisions will be subject to critiques and second-guessing. 

For these reasons the TARP was likely doomed to be unpopular, 

and because close scrutiny from oversight bodies drew attention to 

the program’s faults—both the faults resulting from Treasury’s decisions and the faults beyond anyone’s control—the oversight process itself may have magnified the TARP’s unpopularity. 

This fact creates an unfortunate tension. In a democracy in 

which a government’s legitimacy depends upon public approval for 

its actions, political logic may argue for conducting only loose oversight of unpopular programs in hopes of shielding such programs 

from public criticism. It is to the credit of Congress, Treasury, and 

the administration that the TARP has not been hidden: that despite the much-discussed gaps in the program’s transparency, it 

has been thoroughly and systematically scrutinized and debated. 

There can be no question that this oversight has improved the 

TARP and increased taxpayer returns. For example, in July 2009, 

the Panel reported that Treasury’s method for selling stock options 

gained through the CPP appeared to be recovering only 66 percent 

of the warrants’ estimated worth. Due in part to pressure generated by the Panel’s work, Treasury changed its approach, and 

subsequent sales recovered 103 cents on the dollar, contributing to 

$8.6 billion in returns to taxpayers. Other substantial improvements in the TARP—such as Treasury’s heightened focus on the 

threat to HAMP posed by second liens and its greater disclosure of 

TARP-related data—are all partly the result of pressure exerted by 

the Panel and other oversight bodies. 

Thus, an enduring lesson of the TARP is that extraordinary government programs can benefit from, and indeed may require, extraordinary oversight. This lesson remains relevant in the context 

of the government’s extraordinary actions in the 2008 financial crisis: the public will continue to benefit from intensive, coordinated 

efforts by public and private organizations to oversee Treasury, the 


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FDIC, the Federal Reserve, and other government actors. Careful, 

skeptical review of the government’s actions and their consequences—even when this review is uncomfortable—is an indispensable step toward preserving the public trust and ensuring the 

effective use of taxpayer money. 


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584 2009 November Oversight Report, supra note 60, at 36. 

ANNEX I: FEDERAL FINANCIAL STABILITY EFFORTS 

Beginning in its April 2009 report, the Panel broadly classified 

the resources that the federal government has devoted to stabilizing the economy in the aftermath of the financial crisis through 

myriad programs and initiatives such as outlays, loans, or guarantees. The Panel calculates the total current value of these Treasury, FDIC, and Federal Reserve resources to be approximately $1.9 

trillion. However, this would translate into the ultimate ‘‘cost’’ of 

the stabilization effort only if: (1) assets do not appreciate; (2) no 

dividends are received, no warrants are exercised, and no TARP 

funds are repaid; (3) all loans default and are written off; and (4) 

all guarantees are exercised and subsequently written off. The $1.9 

trillion total current value does not include Treasury’s exposure to 

Fannie Mae and Freddie Mac, which the Panel consistently has 

treated as a separate issue. It also excludes efforts by the Federal 

Reserve that are primarily monetary policy initiatives, rather than 

financial stability efforts. These efforts are discussed separately 

below. 

With respect to the FDIC and Federal Reserve programs, the 

risk of loss varies significantly across the programs considered 

here, as do the mechanisms providing protection for the taxpayer 

against such risk. As discussed in the Panel’s November 2009 report, the FDIC assesses a premium of up to 100 basis points, or 

1 percentage point, on TLGP debt guarantees.584 In contrast, the 

Federal Reserve’s liquidity programs, classified here as loans under 

‘‘Other Federal Reserve Credit Expansion,’’ are generally available 

only to borrowers with good credit, and the loans are overcollateralized and with recourse to other assets of the borrower. If 

the assets securing a Federal Reserve loan realize a decline in 

value greater than the ‘‘haircut,’’ the Federal Reserve is able to demand more collateral from the borrower. Similarly, should a borrower default on a recourse loan, the Federal Reserve can turn to 

the borrower’s other assets to make the Federal Reserve whole. In 

this way, the risk to the taxpayer on recourse loans only materializes if the borrower enters bankruptcy. 

FIGURE 34: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORTS (AS OF MARCH 8, 2011) 

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Total ............................................................................... $213.2 $1,156.9 558.3 1,928.3 

Outlays xlviii .......................................................... 186.4 1,092.2 64.1 1,342.7 

Loans xlix ............................................................... 22.4 64.7 0 87.1 

Guaranteesl .......................................................... 4.3 0 494.2 498.5 

AIG li ............................................................................... 60.0 24.8 0 85.7 

Outlays .................................................................. lii 60.9 liii 0 0 60.9 

Loans ..................................................................... 0 liv 24.8 0 24.8 

Guarantees ............................................................ 0 0 0 0 

Citigroup ........................................................................ 0 0 0 0 

Outlays .................................................................. lv 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Bank of America ........................................................... 0 0 0 0 

Outlays .................................................................. lvi 0 0 0 0 


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FIGURE 34: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORTS (AS OF MARCH 8, 2011)— 

Continued 

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Loans .............................................................................. 0 0 0 0 

Guarantees ..................................................................... 0 0 0 0 

Capital Purchase Program (Other) .............................. 30.8 0 0 30.8 

Outlays .................................................................. lvii 30.8 0 0 30.8 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Assistance Program ......................................... N/A 0 0 lviii N/A 

TALF ................................................................................ 4.3 15.9 0 20.2 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 lx 15.9 0 15.9 

Guarantees ............................................................ lix 4.3 0 0 4.3 

PPIP (Loans) lxi ............................................................. 0 0 0 0 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

PPIP (Securities) ........................................................... lxii 21.7 0 0 21.7 

Outlays .................................................................. 7.4 0 0 7.4 

Loans ..................................................................... 14.3 0 0 14.3 

Guarantees ............................................................ 0 0 0 0 

Making Home Affordable Program/Foreclosure Mitigation ........................................................................ 45.6 0 0 0 

Outlays .................................................................. lxiii 45.6 0 0 45.6 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Automotive Industry Financing Program ..................... lxiv 48.9 0 0 48.9 

Outlays .................................................................. 40.8 0 0 40.8 

Loans ..................................................................... 8.1 0 0 8.1 

Guarantees ............................................................ 0 0 0 0 

Automotive Supplier Support Program ........................ 0 0 0 0 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... lxv 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

SBA 7(a) Securities Purchase ...................................... lxvi 0.37 0 0 0.37 

Outlays .................................................................. 0.37 0 0 0.37 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Community Development Capital Initiative ................. lxvii 0.57 0 0 0.57 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0.57 0 0 0.57 

Guarantees ............................................................ 0 0 0 0 

Temporary Liquidity Guarantee Program .................... 0 0 494.2 494.2 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 lxviii 494.2 494.2 

Deposit Insurance Fund ............................................... 0 0 64.1 64.1 

Outlays .................................................................. 0 0 lxix 64.1 64.1 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Other Federal Reserve Credit Expansion .................... 0 1,116.2 0 1,116.2 

Outlays .................................................................. 0 lxx 1,092.2 0 1,092.2 

Loans ..................................................................... 0 lxxi 24.0 0 24.0 

Guarantees ............................................................ 0 0 0 0 

See endnote references in Annex III: Endnotes 

Treasury’s Exposure to Fannie Mae and Freddie Mac 

In July 2008, the Federal Reserve and Treasury began to provide 

increased credit support to Fannie Mae and Freddie Mac. On September 7, 2008, the FHFA, using authority it had been provided 

through the Housing and Economic Recovery Act of 2008, placed 


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585Fannie Mae had $3.0 trillion of guaranteed debt on its books in 2008, and had $3.1 trillion 

in 2010. Freddie Mac had $2.2 trillion of MBS on its books in 2008 and had $2.2 trillion in 

2010. Federal National Mortgage Association, Form 10–K for the Fiscal Year Ended December 

31, 2010, at 74 (Feb. 24, 2011) (online at www.sec.gov/Archives/edgar/data/310522/ 

000095012311017972/w81665e10vk.htm); Federal Home Loan Mortgage Corporation, Form 10– 

K for the Fiscal Year Ended December 31, 2010, at 81 (Feb. 24, 2011) (online at www.sec.gov/ 

Archives/edgar/data/1026214/000102621411000005/f71542e10vk.htm). 586 U.S. Department of the Treasury, FY2011 Budget in Brief, at 138 (Feb. 2010) (online at 

www.treasury.gov/about/budget-performance/budget-in-brief/Documents/ 

FY%202011%20BIB%20(2).pdf). 587 U.S. Department of the Treasury, MBS Purchase Program: Portfolio by Month (online at 

www.treasury.gov/resource-center/data-chart-center/Pages/mbs-purchase-program.aspx) 

(accessed Mar. 11, 2011). Treasury has received $80.7 billion in principal repayments and $16.2 

billion in interest payments from these securities. See U.S. Department of the Treasury, MBS 

Purchase Program Principal and Interest Received (online at www.treasury.gov/resource-center/ 

data-chart-center/Pages/mbs-purchase-program.aspx) (accessed Mar. 11, 2011). 588 U.S. Department of the Treasury, Housing Government Sponsored Enterprise Programs: 

Program Summary by Budget Activity (Feb. 14, 2011) (online at www.treasury.gov/about/budgetperformance/budget-in-brief/Documents/FY2012lGSEl508.pdf). 589On August 10, 2010, the Federal Reserve began reinvesting principal payments on agency 

debt and agency MBS holdings in longer-term Treasury securities in order to keep the amount 

of their securities holdings in their System Open Market Account portfolio at their then-current 

level. Board of Governors of the Federal Reserve System, FOMC Statement (Aug. 10, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100810a.htm). 590Federal Reserve Bank of New York, FAQs: Purchases of Longer-term Treasury Securities 

(Nov. 3, 2010) (online at www.newyorkfed.org/markets/lttreaslfaq.html). 591March 2011 Fed Statistical Release H.4.1, supra note 458. 

Fannie Mae and Freddie Mac in conservatorship, thereby explicitly 

guaranteeing the $5.2 trillion in debt and MBS guaranteed by the 

GSEs in 2008.585 As part of this action, Treasury initiated agreements to recapitalize the GSEs, and additionally established two 

programs to aid them: the Government Sponsored Enterprises’ 

Mortgage Backed Securities Purchase Program (GSE MBS Purchase Program) and the GSE Credit Facility. 

Under the GSE MBS Purchase Program, Treasury purchased ap- proximately $225 billion in GSE MBS by the time its authority expired.586 As of February 2011, there was approximately $136.3 billion in MBS still outstanding under this program.587 No loans were 

needed or issued under the GSE Credit Facility. 

On May 6, 2009, Treasury doubled its recapitalization (stock purchase) commitment to each enterprise. In December 2009, Treasury 

announced amendments to the Senior Preferred stock purchase 

agreements that removed any limits on such stock purchases of 

each GSE through the end of 2012. As of the end of fiscal year 

2010, Treasury held $52.6 billion in preferred stock, a number that 

was predicted to fall to $47.5 billion in fiscal year 2011.588

Other Federal Reserve Actions 

On November 3, 2010, the FOMC announced that it had directed 

FRBNY to begin purchasing $600 billion in longer-term Treasury 

securities. In addition, FRBNY will reinvest $250 billion to $300 

billion in principal payments from agency debt and agency MBS in 

Treasury securities.589 The additional purchases and reinvestments 

will be conducted through the end of the second quarter of 2011, 

meaning the pace of purchases will be approximately $110 billion 

per month. In order to facilitate these purchases, FRBNY will temporarily lift its System Open Market Account per-issue limit, which 

prohibits the Federal Reserve’s holdings of an individual security 

from surpassing 35 percent of the outstanding amount.590 As of 

March 9, 2011, the Federal Reserve held $1.27 trillion in Treasury 

securities.591


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ANNEX II: ADDITIONAL CPP DATA 

The CPP is discussed at length in Section II.A above. This annex 

provides additional data about the current state of the CPP. Figure 

35 shows the number of CPP recipients that have missed dividend 

payments to Treasury by bank size, type of dividend owed, and 

number of payments missed. 

FIGURE 35: CPP MISSED DIVIDEND PAYMENTS (AS OF FEBRUARY 28, 2011) 592

Number of Missed Payments 1 2 3 4 5 6 7 8 9 Total 

Cumulative Dividends: 

Number of Banks, by asset size ......................................................... 26 18 26 20 17 13 8 3 0 131 

Under $1B .................................................................................. 16 11 19 17 13 8 5 1 0 90 

$1B–$10B .................................................................................. 9 7 6 3 4 5 3 2 0 39 

Over $10B ........................................................................................... 1 0 1 0 0 0 0 0 0 2 

Non-Cumulative Dividends: 

Number of Banks, by asset size ......................................................... 3 5 2 6 6 1 3 3 1 30 

Under $1B .................................................................................. 2 5 2 6 5 1 3 3 1 28 

$1B–$10B ........................................................................................... 1 0 0 0 1 0 0 0 0 2 

Over $10B ........................................................................................... 0 0 0 0 0 0 0 0 0 0 

Total Banks Missing Payments ................................................ .... .... .... .... .... .... .... .... .... 161 

Total Missed Payments ............................................................. .... .... .... .... .... .... .... .... .... 596 

592 Additionally, two banks in the CDCI program have missed one payment and one has missed two payments, as of February 28, 2011. All 

three banks have less than $1 billion in assets. Treasury’s Dividends & Interest Report, supra note 156. Data on total bank assets compiled using SNL Financial data service (accessed Mar. 11, 2011). 

Figure 36 identifies CPP recipients to whose board meetings 

Treasury currently sends an observer, as a result of multiple 

missed dividend payments. 

FIGURE 36: INSTITUTIONS WHERE TREASURY OBSERVERS NOW ATTEND BOARD MEETINGS 593

Institution 

CPP 

Investment 

Amount 

Non-Current 

Dividends/ 

Interest 

No. of 

Missed 

Payments 

Anchor BanCorp Wisconsin, Inc. ..................................................... $110,000,000 $11,229,167 8 

Blue Valley Ban Corp ...................................................................... 21,750,000 2,175,000 8 

Cascade Financial Corporation ....................................................... 38,970,000 2,922,750 6 

Central Pacific Financial Corp.594 .................................................. 135,000,000 N/A 0 

Centrue Financial Corporation ........................................................ 32,668,000 2,858,450 7 

Citizens Bancorp ............................................................................. 10,400,000 991,900 7 

Citizens Commerce Bancshares, Inc. ............................................. 6,300,000 515,025 6 

Dickinson Financial Corporation II ................................................. 146,053,000 13,929,860 7 

FC Holdings, Inc. ............................................................................ 21,042,000 1,720,170 6 

First BanCorp (PR) 595 .................................................................... 400,000,000 12,077,176 3 

First Banks, Inc. ............................................................................. 295,400,000 28,173,775 7 

Grand Mountain Bancshares, Inc. .................................................. 3,076,000 286,885 7 

Heritage Commerce Corp ................................................................ 40,000,000 3,000,000 6 

Idaho Bancorp ................................................................................. 6,900,000 658,088 7 

Integra Bank Corporation ............................................................... 83,586,000 6,268,950 6 

Northern States Financial Corporation ........................................... 17,211,000 1,290,825 6 

Pacific Capital Bancorp 596 ............................................................ 180,634,000 0 0 

Pacific City Financial Corporation .................................................. 16,200,000 1,545,075 7 

Pathway Bancorp ............................................................................ 3,727,000 304,635 6 

Premierwest Bancorp ...................................................................... 41,400,000 3,105,000 6 

Ridgestone Financial Services, Inc. ................................................ 10,900,000 891,075 6 

Rogers Bancshares, Inc. ................................................................. 25,000,000 2,043,750 6 

Royal Bancshares of Pennsylvania, Inc. ........................................ 30,407,000 2,660,613 7 

Seacoast Banking Corporation of Florida ....................................... 50,000,000 5,000,000 8 

Syringa Bancorp .............................................................................. 8,000,000 654,000 6 

Georgia Primary Bank ..................................................................... 4,500,000 438,725 7 

Lone Star Bank ............................................................................... 3,072,000 339,107 8 


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FIGURE 36: INSTITUTIONS WHERE TREASURY OBSERVERS NOW ATTEND BOARD MEETINGS 593— 

Continued 

Institution 

CPP Investment 

Amount 

Non-Current 

Dividends/ 

Interest 

No. of 

Missed 

Payments 

One Georgia Bank ........................................................................... 5,500,000 530,391 7 

OneUnited Bank .............................................................................. 12,063,000 1,206,300 8 

Premier Service Bank ...................................................................... 4,000,000 378,472 7 

United American Bank .................................................................... 8,700,000 941,715 8 

Total ....................................................................................... $1,772,459,000 $108,136,877 194 

593 Treasury’s Dividends & Interest Report, supra note 156. 594 On February 18, 2011, Treasury completed the exchange of its $135,000,000 of Preferred Stock (including accrued and unpaid dividends thereon) in Central Pacific Financial Corp. for 5,620,117 shares of common stock, pursuant to an exchange agreement dated February 17, 

2011. Treasury’s Dividends & Interest Report, supra note 156. 595 On July 20, 2010, Treasury completed the exchange of its $400,000,000 of Preferred Stock in First BanCorp for $424,174,000 of 

Mandatorily Convertible Preferred Stock (MCP), which is equivalent to the initial investment amount of $400,000,000, plus $24,174,000 of 

capitalized previously accrued and unpaid dividends. Subject to the fulfillment by First BanCorp of certain conditions, including those related 

to its capital plan, the MCP may be converted to common stock. Since that point, two additional dividend payments have been missed. Treasury’s Dividends & Interest Report, supra note 156. 596 On August 31, 2010, following the completion of the conditions related to Pacific Capital Bancorp’s capital plan, Treasury exchanged its 

$180,634,000 of Preferred Stock in Pacific Capital for $195,045,000 of Mandatorily Convertible Preferred Stock, which is equivalent to the ini- tial investment amount of $180,634,000, plus $14,411,000 of capitalized previously accrued and unpaid dividends. On September 27, 2010, 

following the completion of the conversion conditions set forth in the Certificate of Designations for the MCP, all of Treasury’s MCP was con- verted into 360,833,250 shares of common stock of Pacific Capital. No dividends have been missed since this point. Treasury’s Dividends & Interest Report, supra note 156. 

Figure 37 details the losses to Treasury to date, both settled and 

unsettled, from the CPP. 


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FIGURE 37: CPP SETTLED AND UNSETTLED LOSSES 597

Institution Investment Amount Investment Disposition Amount Warrant Disposition Amount Dividends & Interest Possible Losses/ Reduced Exposure Action 

Cadence Financial Corporation* ................................................ $44,000,000 $38,000,000 .................... $2,970,000 $(6,000,000) 3/4/2011: Treasury completed the sale of the preferred stock 

and warrants issued by Cadence Financial to Community Bancorp LLC for $38 million plus accrued and unpaid dividends. 

CIT Group Inc.* .......................................................................... 2,330,000,000 ...................... .................... 43,687,500 (2,330,000,000) 12/10/2009: Bankruptcy reorganization plan for CIT Group 

Inc. became effective. CPP preferred shares and warrants were extinguished and replaced with contingent value rights. On Feb. 8, 2010, the contingent value rights expired without value. 

Midwest Banc Holdings, Inc ...................................................... 89,388,000 ...................... .................... 824,289 (89,388,000) 5/14/2010: Midwest Banc Holdings, Inc. subsidiary, Midwest 

Bank and Trust, Co., placed into receivership. Midwest Banc Holdings is currently in bankruptcy proceedings. 

Pacific Coast National Bancorp * .............................................. 4,120,000 ...................... .................... 18,088 (4,120,000) 2/11/2010: Pacific Coast National Bancorp dismissed its 

bankruptcy proceedings without recovery to creditors or investors. Investments, including Treasury’s CPP investments, were extinguished. 

Pierce County Bancorp ............................................................... 6,800,000 ...................... .................... 207,948 (6,800,000) 11/5/2010: Pierce County Bancorp subsidiary, Pierce Commercial Bank, placed into receivership. 

Sonoma Valley Bancorp ............................................................. 8,653,000 ...................... .................... 347,164 (8,653,000) 8/20/2010: Sonoma Valley Bancorp subsidiary, Sonoma Valley 

Bank, placed into receivership. 

South Financial Group * ............................................................. 347,000,000 130,179,219 $400,000 16,386,111 (216,820,781) 9/30/2010: Preferred stock and warrants sold to 

Toronto-Dominion Bank. 

The Bank of Currituck * ............................................................. 4,021,000 1,742,850 .................... 169,834 (2,278,150) 12/3/2010: The Bank of Currituck completed its repurchase 

of all preferred stock (including preferred stock received upon exercise of warrants) issued to Treasury. 

TIB Financial Corp.* .................................................................. 37,000,000 12,119,637 40,000 1,284,722 (24,880,363) 9/30/2010: Preferred stock and warrants sold to North American Financial Holdings. 

Tifton Banking Company ............................................................ 3,800,000 ...................... .................... 223,208 (3,800,000) 11/12/2010: Tifton Banking Company placed into receivership. 

Treaty Oak Bancorp * ................................................................. 3,268,000 500,000 .................... 192,415 (2,768,000) 1/26/2011: Treaty Oak shareholders approve Carlile 

Bankshares’ purchase plan. 


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FIGURE 37: CPP SETTLED AND UNSETTLED LOSSES 597—Continued 

Institution Investment Amount Investment Disposition Amount Warrant Disposition Amount Dividends & Interest Possible Losses/ Reduced Exposure Action 

UCBH Holdings, Inc .................................................................... 298,737,000 ...................... .................... 7,509,920 (298,737,000) 11/6/2009: United Commercial Bank, a wholly owned subsidiary of UCBH Holdings, Inc., was placed into receivership. UCBH Holdings is currently in bankruptcy proceedings. 

Total .................................................................................. $3,176,787,000 $182,541,706 440,000 73,821,199 $(2,994,245,294) 

597 Treasury Transactions Report, supra note 36, at 14. The asterisk (‘‘*’’) denotes recognized losses on Treasury’s Transactions Report. 


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FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP FUNDS (AS OF MARCH 9, 2011) 

Institution Investment 

Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition 

Date 

Price/ 

Estimate 

Ratio 

IRR 

(Percent) 

Old National Bancorp ................. 12/12/2008 5/8/2009 $1,200,000 $2,150,000 0 .558 9 .3 

Iberiabank Corporation ............... 12/5/2008 5/20/2009 1,200,000 2,010,000 0 .597 9 .4 

Firstmerit Corporation ................. 1/9/2009 5/27/2009 5,025,000 4,260,000 1 .180 20 .3 

Sun Bancorp, Inc. ....................... 1/9/2009 5/27/2009 2,100,000 5,580,000 0 .376 15 .3 

Independent Bank Corp. ............. 1/9/2009 5/27/2009 2,200,000 3,870,000 0 .568 15 .6 

Alliance Financial Corporation .... 12/19/2008 6/17/2009 900,000 1,580,000 0 .570 13 .8 

First Niagara Financial Group .... 11/21/2008 6/24/2009 2,700,000 3,050,000 0 .885 8 .0 

Berkshire Hills Bancorp, Inc. ...... 12/19/2008 6/24/2009 1,040,000 1,620,000 0 .642 11 .3 

Somerset Hills Bancorp .............. 1/16/2009 6/24/2009 275,000 580,000 0 .474 16 .6 

SCBT Financial Corporation ........ 1/16/2009 6/24/2009 1,400,000 2,290,000 0 .611 11 .7 

HF Financial Corp. ...................... 11/21/2008 6/30/2009 650,000 1,240,000 0 .524 10 .1 

State Street ................................. 10/28/2008 7/8/2009 60,000,000 54,200,000 1 .107 9 .9 

U.S. Bancorp ............................... 11/14/2008 7/15/2009 139,000,000 135,100,000 1 .029 8 .7 

The Goldman Sachs Group, Inc. 10/28/2008 7/22/2009 1,100,000,000 1,128,400,000 0 .975 22 .8 

BB&T Corp. ................................. 11/14/2008 7/22/2009 67,010,402 68,200,000 0 .983 8 .7 

American Express Company ........ 1/9/2009 7/29/2009 340,000,000 391,200,000 0 .869 29 .5 

Bank of New York Mellon Corp ... 10/28/2008 8/5/2009 136,000,000 155,700,000 0 .873 12 .3 

Morgan Stanley ........................... 10/28/2008 8/12/2009 950,000,000 1,039,800,000 0 .914 20 .2 

Northern Trust Corporation ......... 11/14/2008 8/26/2009 87,000,000 89,800,000 0 .969 14 .5 

Old Line Bancshares Inc. ........... 12/5/2008 9/2/2009 225,000 500,000 0 .450 10 .4 

Bancorp Rhode Island, Inc. ........ 12/19/2008 9/30/2009 1,400,000 1,400,000 1 .000 12 .6 

Centerstate Banks of Florida Inc. 11/21/2008 10/28/2009 212,000 220,000 0 .964 5 .9 

Manhattan Bancorp .................... 12/5/2008 10/14/2009 63,364 140,000 0 .453 9 .8 

CVB Financial Corp ..................... 12/5/2008 10/28/2009 1,307,000 3,522,198 0 .371 6 .4 

Bank of the Ozarks ..................... 12/12/2008 11/24/2009 2,650,000 3,500,000 0 .757 9 .0 

Capital One Financial ................. 11/14/2008 12/3/2009 148,731,030 232,000,000 0 .641 12 .0 

JPMorgan Chase & Co. ............... 10/28/2008 12/10/2009 950,318,243 1,006,587,697 0 .944 10 .9 

CIT Group Inc. ............................. 12/31/2008 .................... ............................ 562,541 ............... (97 .2) 

TCF Financial Corp ..................... 1/16/2009 12/16/2009 9,599,964 11,825,830 0 .812 11 .0 

LSB Corporation .......................... 12/12/2008 12/16/2009 560,000 535,202 1 .046 9 .0 

Wainwright Bank & Trust Company ........................................ 12/19/2008 12/16/2009 568,700 1,071,494 0 .531 7 .8 

Wesbanco Bank, Inc. .................. 12/5/2008 12/23/2009 950,000 2,387,617 0 .398 6 .7 

Union First Market Bankshares 

Corporation (Union 

Bankshares Corporation) ........ 12/19/2008 12/23/2009 450,000 1,130,418 0 .398 5 .8 

Trustmark Corporation ................ 11/21/2008 12/30/2009 10,000,000 11,573,699 0 .864 9 .4 

Flushing Financial Corporation ... 12/19/2008 12/30/2009 900,000 2,861,919 0 .314 6 .5 

OceanFirst Financial Corporation 1/16/2009 2/3/2010 430,797 279,359 1 .542 6 .2 

Monarch Financial Holdings, Inc. 12/19/2008 2/10/2010 260,000 623,434 0 .417 6 .7 

Bank of America 598 .................... 599 10/28/2008 

600 1/9/2009 601 1/14/2009 

3/3/2010 1,566,210,714 1,006,416,684 1 .533 6 .5 

Washington Federal 

Inc./Washington Federal Savings & Loan Association ........ 11/14/2008 3/9/2010 15,623,222 10,166,404 1 .537 18 .6 

Signature Bank ........................... 12/12/2008 3/10/2010 11,320,751 11,458,577 0 .988 32 .4 

Texas Capital Bancshares, Inc. .. 1/16/2009 3/11/2010 6,709,061 8,316,604 0 .807 30 .1 

Umpqua Holdings Corp. .............. 11/14/2008 3/31/2010 4,500,000 5,162,400 0 .872 6 .6 

City National Corporation ........... 11/21/2008 4/7/2010 18,500,000 24,376,448 0 .759 8 .5 

First Litchfield Financial Corporation .................................. 12/12/2008 4/7/2010 1,488,046 1,863,158 0 .799 15 .9 

PNC Financial Services Group 

Inc. .......................................... 12/31/2008 4/29/2010 324,195,686 346,800,388 0 .935 8 .7 

Comerica Inc. .............................. 11/14/2008 5/4/2010 183,673,472 276,426,071 0 .664 10 .8 

Valley National Bancorp ............. 11/14/2008 5/18/2010 5,571,592 5,955,884 0 .935 8 .3 

Wells Fargo Bank ........................ 10/28/2008 5/20/2010 849,014,998 1,064,247,725 0 .798 7 .8 

First Financial Bancorp .............. 12/23/2008 6/2/2010 3,116,284 3,051,431 1 .021 8 .2 

Sterling Bancshares, Inc./Sterling 

Bank ....................................... 12/12/2008 6/9/2010 3,007,891 5,287,665 0 .569 10 .8 


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FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP FUNDS (AS OF MARCH 9, 2011)—Continued 

Institution Investment Date 

Warrant 

Repurchase Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition Date 

Price/ 

Estimate 

Ratio 

IRR (Percent) 

SVB Financial Group ................... 12/12/2008 6/16/2010 6,820,000 7,884,633 0 .865 7 .7 

Discover Financial Services ........ 3/13/2009 7/7/2010 172,000,000 166,182,652 1 .035 17 .1 

Bar Harbor Bancshares .............. 1/16/2009 7/28/2010 250,000 518,511 0 .482 6 .2 

Citizens & Northern Corporation 1/16/2009 9/1/2010 400,000 468,164 0 .854 5 .9 

Columbia Banking System, Inc. 11/21/2008 9/1/2010 3,301,647 3,291,329 1 .003 7 .3 

Hartford Financial Services 

Group, Inc. .............................. 6/26/2009 9/21/2010 713,687,430 472,221,996 1 .511 30 .3 

Lincoln National Corporation ...... 7/10/2009 9/16/2010 216,620,887 181,431,183 1 .194 27 .1 

Fulton Financial Corporation ...... 12/23/2008 9/8/2010 10,800,000 15,616,013 0 .692 6 .7 

The Bancorp, Inc./The Bancorp 

Bank ....................................... 12/12/2008 9/8/2010 4,753,985 9,947,683 0 .478 12 .8 

South Financial Group, 

Inc./Carolina First Bank ......... 12/5/2008 9/30/2010 400,000 1,164,486 0 .343 (34 .2) 

TIB Financial Corp/TIB Bank ...... 12/5/2008 9/30/2010 40,000 235,757 0 .170 (38 .0) 

Central Jersey Bancorp ............... 12/23/2008 12/1/2010 319,659 1,554,457 0 .206 6 .3 

Huntington Bancshares .............. 11/14/2008 1/19/2011 49,100,000 45,180,929 1 .087 6 .4 

First PacTrust Bancorp, Inc. ....... 11/21/2008 1/5/2011 1,033,227 1,750,518 0 .590 7 .3 

East West Bancorp ..................... 12/5/2008 1/26/2011 14,500,000 32,726,663 0 .443 7 .0 

Susquehanna Bancshares, Inc ... 12/12/2008 1/19/2011 5,269,179 14,708,811 0 .358 6 .2 

Citigroup 602 ................................ 603 10/25/2008 604 12/31/2008 

1/25/2011 245,008,277 136,161,499 1 .799 13 .4 

Boston Private Financial Holdings, Inc. ................................ 11/21/2008 2/1/2011 6,352,500 10,150,607 0 .626 7 .4 

Sandy Spring Bancorp, Inc. ........ 12/5/2008 2/23/2011 4,450,000 4,452,306 0 .999 7 .3 

Wintrust Financial Corporation ... 12/19/2008 2/8/2011 25,694,061 30,185,219 0 .860 9 .6 

Washington Banking Company ... 1/16/2009 3/2/2011 1,625,000 3,792,179 0 .429 7 .8 

Cadence Financial Corporation ... 1/9/2009 3/4/2011 ............................ 881,230 ............... (2 .2) 

First Horizon National Corporation ......................................... 11/14/2008 3/9/2011 79,700,000 43,387,200 1 .837 8 .9 

1st Source Corporation ............... 1/13/2009 3/9/2011 3,750,000 4,494,175 0 .834 6 .5 

Total ................................... ........................ .................... $8,585,404,069 $8,329,269,048 1 .031 10 .0 

598 Calculation of the IRR for Bank of America does not include fees received by Treasury as part of an agreement to terminate that

bank’s participation under the AGP. TARP Monthly 105(a) Report—December 2010, supra note 241, at A–3. 599 Investment date for Bank of America in the CPP. 600 Investment date for Merrill Lynch in the CPP. 601 Investment date for Bank of America in the TIP. 602 Calculations for the IRR of Citigroup do not include dividends or warrant proceeds earned from the Asset Guarantee Program (AGP). 

This IRR also does not incorporate proceeds received from Treasury’s sale of Citigroup’s trust preferred securities, given as a premium for 

Treasury’s guarantee under the AGP. It is important to note that subject to the AGP termination agreement with Citigroup, Treasury could receive $800 million in trust preferred securities held by the FDIC upon the company’s exit from the FDIC’s TLGP. As of March 11, 2011, the 

company and its subsidiaries had $58.2 billion in long-term debt outstanding, which is guaranteed under the TLGP. Treasury Transactions Report, supra note 36, at 20. Data on Citigroup debt guaranteed by the TLGP accessed through SNL Financial(Mar. 11, 2011). 603 Investment date for Citigroup in the CPP. 604 Investment date for Citigroup in the TIP. 


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Figure 39 shows the Panel’s estimates of the value of Treasury’s 

current holdings of warrants in CPP recipients as well as in AIG. 

FIGURE 39: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF MARCH 3, 2011) 

Financial Institutions with 

Warrants Outstanding 

Warrant Valuation (millions of dollars) 

Low 

Estimate 

High 

Estimate 

Best 

Estimate 

SunTrust Banks, Inc. .............................................................................................. $44.75 $305.37 $128.99 

Regions Financial Corporation ................................................................................ 13.62 203.30 111.40 

Fifth Third Bancorp ................................................................................................. 134.47 427.64 189.77 

KeyCorp ................................................................................................................... 34.51 179.69 87.17 

AIG ........................................................................................................................... 247.75 1,708.06 787.49 

All Other Banks ....................................................................................................... 554.97 1,371.69 964.56 

Total ............................................................................................................... $1,030.07 $4,195.74 $2,269.38 


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ANNEX III: ENDNOTES 

i U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). iiFigures represent TLGP debt outstanding at the end of the month for which the amount of 

debt outstanding reached its peak. BB&T Financial, Capital One Financial, and Fifth Third 

Bancorp did not issue debt guaranteed under the TLGP. Data provided by FDIC staff (Feb. 25, 

2011). iiiFor further discussion on the FDIC’s loss exposure to Bank of America and Citigroup under 

the AGP, see Section II.B.1. ivFigures represent the outstanding loan amount at the end of the month for which the 

amount loaned to each company reached its peak, and include loans to companies that were acquired by a SCAP bank. Data provided by Federal Reserve staff (Mar. 4, 2011). For more information on the credit and liquidity programs, see Board of Governors of the Federal Reserve System, Regulatory Reform—Usage of Federal Reserve Credit and Liquidity Facilities (online at 

www.federalreserve.gov/newsevents/reform_transaction.htm) (accessed Mar. 14, 2011). 

Does not include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity 

Facility (AMLF). Under the AMLF, the Federal Reserve provided loans to banks, which served 

as conduits to purchase asset-backed commercial paper from money market mutual funds. At 

its height, the facility had $146 billion in outstanding loans to participating banks. Although 

the data released by the Federal Reserve in December 2010 indicate that some of the SCAP 

banks acted as sponsors for money market mutual funds, it is difficult to determine the extent 

to which these banks were the ultimate beneficiaries of this facility. As a result, loans extended 

under the AMLF are not included in this table. vFor discussion on the Federal Reserve’s loss exposure to Bank of America and Citigroup 

under the AGP, see Section II.B.1. vi Under the TSLF, the Federal Reserve loaned Treasury securities in exchange for eligible collateral rather than extending credit. Figures represent the par value of Treasury securities 

loaned to participating institutions. See Board of Governors of the Federal Reserve System, Regulatory Reform—Term Securities Lending Facility (TSLF) and TSLF Options Program (TOP) 

(online at www.federalreserve.gov/newsevents/reform_tslf.htm) (accessed Mar. 11, 2011). vii JPMorgan Chase did not have any outstanding loans from the Primary Dealer Credit Facil- ity at month end. However, the company’s maximum amount drawn from the facility was $3 

billion in September 2008. Data provided by Federal Reserve staff (Mar. 4, 2011). viiiMetLife was not a TARP recipient. ixFigures affected by rounding. Unless otherwise noted, data in this table are from the following sources: U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for Period Ending March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf); U.S. Department of the Treasury, 

Daily TARP Update (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/ 

briefing-room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/ 

Daily%20TARP%20Update%20-%2003.10.2011.pdf). x Unless otherwise noted, figures reference the adjusted TARP commitments following the enactment of the Dodd-Frank Act. The automotive sector programs (AIFP and ASSP) as well as 

the housing programs (HAMP, HHF, FHA Short Refi) have been broken out in the above table 

in order to provide more detail. U.S. Department of the Treasury, Troubled Assets Relief Program (TARP) Monthly 105(a) Report—July 2010, at 5 (July 2010) (online at www.treasury.gov/ 

initiatives/financial-stability/briefing-room/reports/105/Documents105/ 

July%202010%20105(a)%20Report_Final.pdf). xiTreasury will not make additional purchases pursuant to the expiration of its purchasing 

authority under EESA. Any funds still accounted for as available were committed to programs 

prior to the expiration of Treasury’s purchasing authority. U.S. Department of the Treasury, 

Troubled Asset Relief Program: Two-Year Retrospective, at 43 (Oct. 2010) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/agency_reports/Documents/ 

TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). xiiThe total CPP repayment figure includes the principal repayment from the sale of Citigroup 

common stock as well as amounts repaid by institutions that exchanged their CPP investments 

for investments under the CDCI. See U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for Period Ending March 8, 2011, at 2, 7, 13–15 (Mar. 10, 2011) 

(online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf); 

U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 

(Oct. 2010) (online at www.treasury.gov/press-center/news/Documents/TARP%20Two% 

20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf); U.S. Department of the 

Treasury, Treasury Commences Plan to Sell Citigroup Common Stock (Apr. 26, 2010) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg660.aspx). xiii In the TARP Transactions Report, Treasury has classified the entirety of investments it 

made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold its preferred ownership interests, along with warrants, in South Financial Group, Inc., TIB Financial Corp., the Bank of Currituck, Treaty Oak 

Bancorp, and Cadence Financial Corp. to non-TARP participating institutions. These shares 

were sold at prices below the value of the initial CPP investment, and represent losses of $252.7 

million. Therefore, Treasury’s net current CPP investment is $30.8 billion due to the $2.6 billion 

in losses thus far. See U.S. Department of the Treasury, Troubled Asset Relief Program TransVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00182 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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actions Report for the Period Ending March 8, 2011, at 1–14 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). xivThe $5.0 billion AGP guarantee for Citigroup was unused since Treasury was not required 

to make any guarantee payments during the life of the program. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 31 (Oct. 2010) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/agency_reports/Documents/ 

TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). xv Although this $5.0 billion is no longer exposed as part of the AGP, Treasury did not receive 

a repayment in the same sense as with other investments. Treasury did receive other income 

as consideration for the guarantee, which is not a repayment and is accounted for in Figure 32. 

See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending March 8, 2011, at 20 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xvi AIG completely utilized the $40 billion that was made available on November 25, 2008, in 

exchange for the company’s preferred stock. U.S. Department of the Treasury, Troubled Asset 

Relief Program Transactions Report for the Period Ending March 8, 2011 (Mar. 10, 2011) (online 

at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). It 

has also drawn down the entirety of the $30 billion made available on April 17, 2009. Of this 

$30 billion investment, $165 million was a reduction of available funds used for retention payments and the remainder was exchanged or used in the execution of AIG’s recapitalization plan. 

In total $29.8 billion was drawn by AIG. The $7.5 billion that was outstanding under the facility 

at the time AIG executed its recapitalization plan was converted to 167.6 million shares of AIG 

common stock. Upon the closing of the recapitalization plan, $16.9 billion of the funds drawndown by AIG from the Series F TARP investment was exchanged for a corresponding liquidation 

preference of preferred stock in the AIA Aurora LLC, $3.4 billion was exchanged for junior preferred stock interest in the ALICO Holdings LLC, and $2 billion was designated as Series G 

preferred stock, which provides AIG with an equity capital facility they can draw on for general 

corporate purposes. This figure does not include $1.6 billion in accumulated but unpaid dividends owed by AIG to Treasury due to the restructuring of Treasury’s investment from cumulative preferred shares to non-cumulative shares. Id. at 21. For a full discussion of AIG’s recapitalization plan, see American International Group, Inc., Form 8–K for the Period Ending January 14, 2011 (Jan. 14, 2011) (online at www.sec.gov/Archives/edgar/data/5272/ 

000095012311003061/y88987e8vk.htm). xvii As of March 8, 2011, Treasury received $9.1 billion in proceeds from its preferred interests 

in AIG-related SPVs. The funds used by AIG to redeem these preferred shares came from AIG 

asset sales. On February 14, 2011, AIG paid Treasury $2.2 billion using funds from the sale 

of AIG Star Life Insurance Co., Ltd. and AIG Edison Life Insurance Company. On March 8, 

2011, Treasury received a further $6.9 billion pursuant to AIG’s sales of the MetLife equity 

units it acquired when it sold its subsidiary, ALICO, to MetLife. This fully closes Treasury’s 

stake in the ALICO SPV. Treasury’s remaining investment is comprised of $11.2 billion in AIA 

Preferred Units, 92 percent of AIG’s common stock, and $2.0 billion preferred stock credit facility for AIG’s benefit (available but undrawn). AIG is also still required to pay the remaining 

$110 million it owes stemming from the $165 million reduction to the Series F TARP investment. These funds were used to pay AIGFP retention bonuses and, as of March 8, 2011, $55 

million had been repaid. American International Group, Inc., Form 8–K for the Period Ending 

February 8, 2011 (Feb. 9, 2011) (online at www.sec.gov/Archives/edgar/data/5272/ 

000095012311010653/y89586e8vk.htm); U.S. Department of the Treasury, Treasury: With $6.9 

Billion Repayment Today from AIG, 70 Percent of TARP Disbursements Now Recovered (Mar. 

8, 2011) (online at www.treasury.gov/press-center/press-releases/Pages/tg1096.aspx); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period 

Ending March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/ 

briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf); Treasury conversations with Panel 

staff (Mar. 11, 2011). xviiiTreasury closed the program on September 30, 2010, after investing $570 million in 84 community development financial institutions. Including additional investments, $464 million of 

the CDCI program funds were provided to banks that previously received assistance under the 

TARP’s Capital Purchase Program. U.S. Department of the Treasury, Treasury Announces Special Financial Stabilization Initiative Investments of $570 Million in 84 Community Development 

Financial Institutions in Underserved Areas (Sept. 30, 2010) (online at www.treasury.gov/presscenter/press-releases/Pages/tg885.aspx); U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for the Period Ending March 8, 2011, at 18–19 (Mar. 10, 2011) 

(online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). xixThis figure includes $2,540,000,000 of repayment Treasury received from the sale of 

GMAC\Ally Financial’s TruPs. U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending March 8, 2011, at 18–19 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxOn May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion 

loan to Chrysler Holding. The payment represented a $1.6 billion loss from the termination of 

the debt obligation. See U.S. Department of the Treasury, Chrysler Financial Parent Company 

Repays $1.9 Billion in Settlement of Original Chrysler Loan (May 17, 2010) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg700.aspx); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 2011, 


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at 18–19 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/ 

reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). Also, following the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion DIP loan provided to Old Chrysler, Treasury retained the right to recover the proceeds from 

the liquidation of specified collateral. Although Treasury does not expect a significant recovery 

from the liquidation proceeds, Treasury is not yet reporting this loan as a loss in the TARP 

Transactions Report. To date, Treasury has collected $48.1 million in proceeds from the sale of 

collateral. Treasury includes these proceeds as part of the $26.4 billion repaid under the AIFP. 

U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—September 2010 (Oct. 12, 2010) (online at www.treasury.gov/initiatives/financial-stability/briefingroom/reports/105/Documents105/September%20105(a)%20report_FINAL.pdf); Treasury conversations with Panel staff (Aug. 19, 2010 and Nov. 29, 2010); U.S. Department of the Treasury, 

Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 2011, at 18 

(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/ 

tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxiOn April 5, 2010, Treasury terminated its commitment to lend to the GM special purpose 

vehicle (SPV) under the ASSP. On April 7, 2010, it terminated its commitment to lend to the 

Chrysler SPV. In total, Treasury received $413 million in repayments from loans provided by 

this program ($290 million from the GM SPV and $123 million from the Chrysler SPV). Further, 

Treasury received $101 million in proceeds from additional notes associated with this program. 

U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 2011, at 19 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxiiFor the TALF, $1 of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The program was intended to be a $200 billion initiative, and the TARP was 

responsible for the first $20 billion in loan-losses, if any were incurred. The loan was incrementally funded. When the program closed in June 2010, a total of $43 billion in loans was outstanding under the TALF, and the TARP’s commitments constituted $4.3 billion. The Federal 

Reserve Board of Governors agreed that it was appropriate for Treasury to reduce TALF credit 

protection from the TARP to $4.3 billion. Board of Governors of the Federal Reserve System, 

Federal Reserve Announces Agreement with the Treasury Department Regarding a Reduction of 

Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 

2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100720a.htm). xxiii As of March 9, 2011, Treasury had provided $107 million to TALF LLC. This total is net 

of accrued interest payable to Treasury. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Mar. 10, 2010) (online at www.federalreserve.gov/releases/h41/20110310/). xxiv As of December 31, 2010, the total value of securities held by the PPIP fund managers was $21.5 billion. Non-agency residential mortgage-backed securities represented 81 percent of 

the total; commercial mortgage-backed securities represented the balance. U.S. Department of 

the Treasury, Legacy Securities Public-Private Investment Program, Program Update—Quarter 

Ended December 31, 2010, at 5 (Jan. 24, 2011) (online at www.treasury.gov/initiatives/financialstability/investment-programs/ppip/s-ppip/Documents/ppip-12-10vFinal.pdf). xxvThis number is calculated as the sum of the disbursed equity and disbursed debt on the 

Daily Tarp Update. U.S. Department of the Treasury, Daily TARP Update (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summaryreport/TARP%20Cash%20Summary/Daily%20TARP%20Update%20-%2003.10.2011.pdf). xxvi As of March 2, 2011, Treasury has received $713 million in capital repayments from two 

PPIP fund managers. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 2011, at 24 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxvii As of March 2, 2011, Treasury’s purchases under the SBA 7(a) Securities Purchase Pro- gram totaled $368.1 million. U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending March 8, 2011, at 23 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxviiiTreasury has received to date $12.2 million in principal repayments through this program. U.S. Department of the Treasury, Cumulative Dividends, Interest, and Distributions Report as of February 28, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financialstability/briefing-room/reports/dividends-interest/DocumentsDividendsInterest/ 

February%202011%20Dividends%20Interest%20Report.pdf). xxix As of March 10, 2011, $1.04 billion was disbursed under this program. U.S. Department 

of the Treasury, Daily TARP Update (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/ 

Daily%20TARP%20Update%20-%2003.10.2011.pdf). xxxOn June 23, 2010, $1.5 billion was allocated to mortgage assistance through the Hardest 

Hit Fund (HHF). Another $600 million was approved on August 3, 2010. U.S. Department of 

the Treasury, Obama Administration Approves State Plans for $600 Million of ‘Hardest Hit 

Fund’ Foreclosure Prevention Assistance (Aug. 4, 2010) (online at www.treasury.gov/press-center/ 

press-releases/Pages/tg813.aspx). As part of its revisions to TARP allocations upon enactment 

of the Dodd-Frank Act, Treasury allocated an additional $2 billion in TARP funds to mortgage 

assistance for unemployed borrowers through the HHF. U.S. Department of the Treasury, 

Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners Struggling with Unemployment (Aug. 11, 2010) (online at 


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www.treasury.gov/press-center/press-releases/Pages/tg1042.aspx). In October 2010, another $3.5 

billion was allocated among the 18 states and the District of Columbia currently participating 

in HHF. The amount each state received during this round of funding is proportional to its population. U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 72 (Oct. 2010) (online at www.treasury.gov/press-center/news/Documents/ 

TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf). xxxi As of February 28, 2011, $125.1 million has been disbursed to fourteen states and the Dis- trict of Columbia: Alabama ($8.0 million), Arizona ($6.3 million), California ($17.5 million), Florida ($10.5 million), Georgia ($8.5 million), Kentucky ($4.0 million), Michigan ($7.7 million), Nevada ($2.6 million), North Carolina ($15.0 million), Ohio ($11.6 million), Oregon ($15.5 million), 

Rhode Island ($3.0 million), South Carolina ($7.5 million), Tennessee ($6.3 million), and the District of Columbia ($1.1 million). Data provided by Treasury (Feb. 28, 2011). xxxiiThis figure represents the amount Treasury disbursed to fund the advance purchase ac- count of the Letter of Credit issued under the FHA Short Refinance Program. The $53.8 million 

in the FHA Short Refinance Program is broken down as follows: $50 million for a deposit into 

an advance purchase account as collateral to the initial $50 million Letter of Credit, $2.9 million 

for the closing and funding of the Letter of Credit, $115,000 in trustee fees, $175,000 in claims 

processor fees, $11,500 for a letter of credit fee, and $663,472 for an unused commitment fee 

for the Letter of Credit. Data provided by Treasury (Feb. 28, 2011). xxxiii HAMP is not listed in this table because HAMP is a 100 percent subsidy program, and 

no profit is expected. xxxiv U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of February 28, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financialstability/briefing-room/reports/dividends-interest/DocumentsDividendsInterest/ 

February%202011%20Dividends%20Interest%20Report.pdf). xxxv U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report 

as of February 28, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/dividends-interest/DocumentsDividendsInterest/ 

February%202011%20Dividends%20Interest%20Report.pdf). xxxvi U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxxvii In the TARP Transactions Report, Treasury classified the investments it made in two in- stitutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. 

Treasury has also sold its preferred ownership interests and warrants from South Financial 

Group, Inc., TIB Financial Corp the Bank of Currituck, Treaty Oak Bancorp, and Cadence Financial Corp. This represents a $252.7 million loss on its CPP investments in these five banks. 

See Figure 37, CPP Settled and Unsettled Losses, for details on other banks likely to result in 

losses. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxxviiiThis figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion 

shares of the company’s common stock at $3.25 per share. Treasury completed the sale of its 

Citigroup common shares on December 6, 2010. The gross proceeds of the common stock sale 

were $31.85 billion and the amount repaid under CPP was $25 billion. The difference between 

these two numbers represents the $6.85 billion in net profit Treasury has received from the sale 

of Citigroup common stock. U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending March 8, 2011, at 15 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). xxxixOn March 8, 2011, Treasury received full payment for its share of the ALICO Junior Pre- ferred Interests, which resulted in an associated payment of $18.5 million of accrued preferred 

returns since the recapitalization date (Jan. 14, 2011) on this segment of the AIG investment. 

This payment reflects a profit on a particular portion of Treasury’s remaining investment, and 

does not account for the remaining ownership positions in the company or related SPVs. xlThis represents the cash received for the warrants related to the GMAC/Ally sale of trust 

preferred securities that closed on March 7, 2011. U.S. Department of the Treasury, Troubled 

Asset Relief Program Transactions Report for the Period Ending March 8, 2011, at 19 (Mar. 10, 

2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8- 

11.pdf). xliThis represents a distribution fee of $28.2 million received in connection with the sale of 

GMAC/Ally trust preferred securities, as well as the additional note of $15.0 million received 

upon repayment of the Chrysler Financial investment. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 2011, at 19 (Mar. 

10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarptransactions/DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203- 

8-11.pdf). xliiLosses on the AIFP do not include projected losses on the GM stock sale as reported on 

the Daily TARP Update. U.S. Department of the Treasury, Daily TARP Update (Mar. 10, 2011) 

(online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/Daily%20TARP%20Update%20-%2003.10.2011.pdf). 

See endnote xx above for further details on the AIFP losses. xliiiThis represents the total proceeds from additional notes connected with Treasury’s investments in GM Supplier Receivables LLC and Chrysler Receivables SPV LLC. U.S. Department 


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of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending 

March 8, 2011, at 19 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/ 

briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xliv As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring- fenced Citigroup assets as part of the AGP, Treasury received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred securities in June 2009. Following the early termination of the guarantee in December 2009, Treasury 

cancelled $1.8 billion of the trust preferred securities, leaving Treasury with $2.23 billion in 

Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securities for 

$2.25 billion in total proceeds. At the end of Citigroup’s participation in the FDIC’s Temporary 

Liquidity Guarantee Program (TLGP), the FDIC may transfer $800 million of $3.02 billion in 

Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to Treasury. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending March 8, 2011, at 20 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf); U.S. Department of the Treasury, 

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and 

Citigroup Inc., Termination Agreement, at 1 (Dec. 23, 2009) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/agp/Documents/ 

Citi%20AGP%20Termination%20Agreement%20-%20Fully%20Executed%20Version.pdf); U.S. 

Department of the Treasury, Treasury Announces Further Sales of Citigroup Securities and Cu- mulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (online at www.treasury.gov/ 

press-center/press-releases/Pages/tg887.aspx); Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 2010) (online at www.fdic.gov/about/strategic/report/ 

2009annualreport/AR09final.pdf). xlv As of January 31, 2011, Treasury has earned $456.1 million in membership interest dis- tributions from the PPIP. Additionally, Treasury has earned $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative 

Dividends, Interest and Distributions Report as of February 28, 2011, at 14 (Mar. 10, 2010) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/dividends-interest/ 

DocumentsDividendsInterest/February%202011%20Dividends%20Interest%20Report.pdf); U.S. 

Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period 

Ending March 8, 2011, at 24 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financialstability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). xlviTreasury has received approximately $183,555 in proceeds from senior indebtedness instruments associated with its investments in SBA 7(a) securities. U.S. Department of the Treasury, 

Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 2011 (Mar. 

10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarptransactions/DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203- 

8-11.pdf). xlvii Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America 

regarding a similar guarantee, the parties never reached an agreement. In September 2009, 

Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee 

had been in place during the negotiations period. This agreement resulted in payments of $276 

million to Treasury, $57 million to the Federal Reserve, and $92 million to the FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit 

Insurance Corporation, and Bank of America Corporation, Termination Agreement, at 1–2 (Sept. 

21, 2009) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/agp/ 

Documents/BofA%20-%20Termination%20Agreement%20-%20executed.pdf). xlviiiThe term ‘‘outlays’’ is used here to describe the use of Treasury funds under the TARP, 

which are broadly classifiable as purchases of debt or equity securities (e.g., debentures, preferred stock, exercised warrants, etc.). These values were calculated using (1) Treasury’s actual 

reported expenditures, and (2) Treasury’s anticipated funding levels as estimated by a variety 

of sources, including Treasury statements and GAO estimates. Anticipated funding levels are 

set at Treasury’s discretion, have changed from initial announcements, and are subject to further change. Outlays used here represent investments and asset purchases—as well as commitments to make investments and asset purchases—and are not the same as budget outlays, 

which under section 123 of EESA are recorded on a ‘‘credit reform’’ basis. xlixFigures affected by rounding. All figures are as of March 8, 2010 unless otherwise noted. l Although many of the guarantees may never be exercised or will be exercised only partially, 

the guarantee figures included here represent the federal government’s greatest possible financial exposure. liSee U.S. Department of the Treasury, Treasury Update on AIG Investment Valuation (Nov. 

1, 2010) (online at www.treasury.gov/press-center/press-releases/Pages/pr_11012010.aspx). AIG 

values exclude accrued dividends on preferred interests in the AIA and ALICO SPVs and accrued interest payable to FRBNY on the Maiden Lane LLCs. liiThis number is comprised of the investments under the AIGIP/SSFI Program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending 

March 8, 2011, at 21 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/ 

briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). liii As part of the restructuring of the U.S. government’s investment in AIG announced on 

March 2, 2009, the amount available to AIG through the Revolving Credit Facility was reduced 

by $25 billion in exchange for preferred equity interests in two SPVs, AIA Aurora LLC and 

ALICO Holdings LLC. These SPVs were established to hold the common stock of two AIG subsidiaries: AIA and ALICO. This interest was exchanged as part of the AIG recapitalization plan 


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and is now consolidated under the Treasury holdings. Board of Governors of the Federal Reserve 

System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 18 (Dec. 2010) (online at www.federalreserve.gov/monetarypolicy/files/ 

monthlyclbsreport201012.pdf). 

Upon the completion of AIG’s recapitalization plan, FRBNY no longer held an interest in the 

AIA and ALICO SPVs. The remaining holdings in these vehicles were consolidated under Treasury. After the March 2, 2011 sale of these MetLife equity units, Treasury, through the TARP, 

currently holds $11.3 billion in liquidation preference of preferred stock in the AIA Aurora LLC 

and no longer holds an interest in the ALICO SPV. U.S. Department of the Treasury, Troubled 

Asset Relief Program Transactions Report for the Period Ending March 8, 2011, at 21 (Mar. 10, 

2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8- 

11.pdf). livThis number represents the outstanding principal of the loans extended to the Maiden Lane 

II and III SPVs to buy AIG assets (as of March 10, 2011, $12.4 billion for each of the SPVs). 

Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Mar. 10, 2011) 

(online at www.federalreserve.gov/releases/h41/20110310/); Board of Governors of the Federal 

Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and 

the Balance Sheet (Nov. 2010) (online at www.federalreserve.gov/monetarypolicy/files/ 

monthlyclbsreport201011.pdf). The amounts outstanding under the Maiden Lane II and III facilities do not reflect the accrued interest payable to FRBNY. Income from the purchased assets 

is used to pay down the loans to the SPVs, reducing the taxpayer’s exposure to losses over time. 

Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on 

Credit and Liquidity Programs and the Balance Sheet, at 15 (Nov. 2010) (online at 

www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201011.pdf). 

On March 11, 2011, FRBNY announced that AIG had formally offered to purchase the assets 

in Maiden Lane II. There was no further news regarding the offer at the time this report was 

published. Federal Reserve Bank of New York, Statement Related to Offer by AIG to Purchase 

Maiden Lane II LLC (Mar. 11, 2011) (online at www.newyorkfed.org/newsevents/news/markets/ 

2011/an110311.html). lvThe final sale of Treasury’s Citigroup common stock resulted in full repayment of Treasury’s 

investment of $25 billion. See endnote xxxviii, supra, for further details of the sales of Citigroup 

common stock. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for the Period Ending March 8, 2011, at 1, 13 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). lvi Bank of America repaid the $45 billion in assistance it had received through TARP programs on December 9, 2009. U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending March 8, 2011, at 1 (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/3-10-11%20Transactions%20Report%20as%20of%203-8-11.pdf). lvii U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending March 8, 2011, at 13 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). lviiiOn November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC/Ally Financial, was in need of further capital from Treasury. GMAC/Ally Financial, however, received further funding through the AIFP. Therefore, the Panel considers the 

CAP unused. U.S. Department of the Treasury, Treasury Announcement Regarding the Capital 

Assistance Program (Nov. 9, 2009) (online at www.treasury.gov/press-center/press-releases/ 

Pages/tg359.aspx). lixThis figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as 

of March 3, 2011, TALF LLC had drawn only $107 million of the available $4.3 billion. Board 

of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Mar. 

10, 2011) (online at www.federalreserve.gov/releases/h41/20110310/); U.S. Department of the 

Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending March 8, 

2011, at 22 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefingroom/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). lxThis number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value of Federal Reserve loans under the TALF. U.S. Department of the Treasury, 

Fact Sheet: Financial Stability Plan, at 4 (Feb. 10, 2009) (online at banking.senate.gov/public/ _files/GeithnerFINALfinancial stabilityfactsheet2.pdf) (describing the initial $20 billion Treasury 

contribution tied to $200 billion in Federal Reserve loans and announcing potential expansion 

to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Since only 

$43 billion in TALF loans remained outstanding when the program closed, Treasury is currently 

responsible for reimbursing the Federal Reserve Board only up to $4.3 billion in losses from 

these loans. Thus, since the outstanding TALF Federal Reserve loans currently total $20.2 billion, the Federal Reserve’s maximum potential exposure under the TALF is $15.9 billion. See 

Board of Governors of the Federal Reserve System, Federal Reserve Announces Agreement with 

Treasury Regarding Reduction of Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at www.federalreserve.gov/newsevents /press/ 

monetary /20100720a.htm); Board of Governors of the Federal Reserve System, Factors Affecting 

Reserve Balances (H.4.1) (Instrument Used: Term Asset-Backed Securities Loan Facility, 

Wednesday Level) (Mar. 3, 2011) (online at www.federalreserve.gov/releases/h41/20110303/). lxi No TARP resources were expended under the PPIP Legacy Loans Program, a TARP program that was announced in March 2009 but never launched. 


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lxiiThese numbers are a staff calculation, subtracting the amount repaid from the funds obligated to find the maximum current commitment. U.S. Department of the Treasury, Daily TARP 

Update (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/ 

reports/tarp-daily-summary-report/TARP%20Cash%20Summary/Daily%20TARP%20Update%20- 

%2003.10.2011.pdf). On January 24, 2010, Treasury released its fifth quarterly report on PPIP. 

The report indicates that as of December 31, 2010, all eight investment funds had realized an 

internal rate of return (on equity) since inception (net of any management fees or expenses owed 

to Treasury) of at least 27 percent. The highest performing fund, thus far, is AG GECC PPIF 

Master Fund, L.P., which has a net internal rate of return (on equity) of 59.7 percent. These 

figures do not include the taxpayer’s additional exposure under PPIP for credit extended to 

these investment funds. As noted in Section VIII.C of this report, when calculated as a (blended) 

return on both equity and debt, the total return is only 9.7 percent. U.S. Department of the 

Treasury, Legacy Securities Public-Private Investment Program, at 8 (Jan. 24, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/investment-programs/ppip/s-ppip/Documents/ 

ppip-12-10 vFinal.pdf). lxiiiThe total amount of TARP funds committed to HAMP is $29.9 billion. U.S. Department 

of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—November 2010, at 4 

(Dec. 10, 2010) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/ 

105/Documents105/December105(a)%20report_FINAL_v4.pdf). However, as of March 4, 2011, only $1.04 billion in non-GSE payments have been disbursed under HAMP. U.S. Department 

of the Treasury, Daily TARP Update (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/ 

Daily%20TARP%20Update%20-%2003.10.2011.pdf). lxiv A substantial portion of the total $81.3 billion in debt instruments extended under the 

AIFP has since been converted to common equity and preferred shares in restructured companies. $8.1 billion has been retained as first-lien debt (with $1 billion committed to Old GM and 

$7.1 billion to Chrysler). $48.8 billion represents Treasury’s current obligation under the AIFP 

after accounting for repayments, an additional note payment, and losses. U.S. Department of 

the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending March 

8, 2011, at 18 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability /briefingroom/reports/tarp-transactions/DocumentsTARPTransactions/3-10-11%20 

Transactions%20Report%20as%20of%203-8-11.pdf). lxxv At its maximum, $400 million was outstanding under the ASSP. These funds were fully repaid and Treasury earned $101 million in proceeds from additional notes associated with the 

program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report 

for the Period Ending March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20Report%20as%20of%203-8-11.pdf). lxvi U.S. Department of the Treasury, Daily TARP Update (Mar. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/ 

TARP%20Cash%20Summary/Daily%20TARP%20Update%20-%2003.10.2011.pdf). lxvii U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending March 8, 2011, at 17 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10- 

11%20Transactions%20 Report%20as%20of%203-8-11.pdf). lxviiiThis figure represents the current maximum aggregate debt guarantees that could be 

made under the program, which is a function of the number and size of individual financial institutions participating. $264.6 billion of debt subject to the guarantee is currently outstanding, 

which represents approximately 53.5 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Debt 

Issuance Under Guarantee Program (Feb. 23, 2011) (online at www.fdic.gov/regulations/resources/TLGP/total_issuance01-11.html). The FDIC has collected $10.4 billion in fees and surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: 

Fees Under Temporary Liquidity Guarantee Debt Program (Feb. 23, 2011) (online at 

www.fdic.gov/regulations/resources/TLGP/fees.html). lxixThis figure represents the amount of funds on the FDIC’s balance sheet at the end of the 

third quarter of 2010 dedicated to the resolution of bank failures. These metrics are ‘‘liabilities 

due to resolutions’’ as well as ‘‘contingent liabilities: future failures.’’ As of Q3 2010, $42.8 billion 

was earmarked as ‘‘liabilities due to resolutions’’ and $21.3 billion was marked as ‘‘contingent 

liabilities: future failures.’’ Federal Deposit Insurance Corporation, Chief Financial Officer’s 

(CFO) Report to the Board (Instrument Used: DIF Balance Sheet, Third Quarter 2010) (online 

at www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_10/balance.html) (accessed Mar. 11, 

2011). lxxOutlays are comprised of the Federal Reserve Mortgage Related Facilities. On November 

25, 2008, the Federal Reserve announced that it would purchase $100 billion of debt and $500 

billion of MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Federal Housing Finance Agency, Mortgage Market Note 10–1 (Jan. 20, 2010) (online at www.fhfa.gov/webfiles/ 

15362/MMNote_10-1_revision_of_MMN_09-1A_01192010.pdf). In March 2009, these amounts 

were increased to $1.25 trillion of MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie 

Mae, and $200 billion of agency debt securities from Fannie Mae, Freddie Mac, and the Federal 

Home Loan Banks. The intended purchase amount for agency debt securities was subsequently 

decreased to $175 billion. Board of Governors of the Federal Reserve System, Federal Reserve 

System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 5 (Dec. 

2010) (online at federalreserve.gov/monetarypolicy/files/monthlyclbsreport201012.pdf). As of 

March 2, 2011, the Federal Reserve held $949 billion of agency MBS and $143 billion of agency 

debt. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances 

(H.4.1) (Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/20110310/). 


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lxxiFederal Reserve Liquidity Facilities classified in this table as loans include primary credit, 

secondary credit, central bank liquidity swaps, loans outstanding to Commercial Paper Funding 

Facility LLC, seasonal credit, term auction credit, and loans outstanding to Bear Stearns (Maiden Lane LLC). Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/20110310/) 

(accessed Mar. 4, 2011). For further information, see the data that the Federal Reserve recently 

disclosed on these programs pursuant to its obligations under the Dodd-Frank Act. Board of 

Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance 

Sheet: Overview (May 11, 2010) (online at www.federalreserve.gov/monetarypolicy/bst.htm); 

Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance Sheet: Reports and Disclosures (Aug. 24, 2010) (online at www.federalreserve.gov/ 

monetarypolicy/bst_reports.htm); Board of Governors of the Federal Reserve System, Usage of 

Federal Reserve Credit and Liquidity Facilities (Dec. 3, 2010) (online at www.federalreserve.gov/ 

newsevents/reform_transaction.htm). 


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605See Appendix I of this report, infra. 606See Appendix II of this report, infra. 

SECTION TWO: OVERSIGHT ACTIVITIES 

Recent Hearings 

The Panel held its final hearing on March 4, 2011 in Washington, DC. The top official in Treasury’s Office of Financial Stability answered questions about the overall effectiveness of the 

TARP in meeting its statutory goals and also provided insight into 

the future strategy for the TARP as it continues to wind down in 

the coming years. Officials from the FDIC, the FHFA, and the Federal Reserve offered testimony about their respective agencies’ 

credit, liquidity, and housing initiatives that worked in concert 

with the TARP in the government’s broader efforts to stabilize the 

financial system. Finally, four academic economists each offered 

their overall assessment of the effectiveness of the TARP and the 

government’s other financial stability efforts. 

Correspondence With Treasury 

The Panel’s Chairman, Senator Ted Kaufman, sent a letter to the 

Secretary of the Treasury, Timothy F. Geithner, on March 7, 

2011.605 The letter raised concerns about transparency with respect 

to Treasury’s recent redesign of its Office of Financial Stability 

website. 

In response to this letter, Timothy Massad, the Acting Assistant 

Secretary for Financial Stability, sent a letter to Senator Kaufman 

on March 14, 2011.606 The letter outlined the steps Treasury has 

taken to address the issues raised by the Panel and promised future steps to ensure TARP transparency via Treasury’s website. 


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SECTION THREE: ABOUT THE CONGRESSIONAL 

OVERSIGHT PANEL 

In response to the escalating financial crisis, on October 3, 2008, 

Congress provided Treasury with the authority to spend $700 billion to stabilize the U.S. economy, preserve home ownership, and 

promote economic growth. Congress created the Office of Financial 

Stability within Treasury to implement the TARP. At the same 

time, Congress created the Congressional Oversight Panel to ‘‘review the current state of financial markets and the regulatory system.’’ The Panel was empowered to hold hearings, review official 

data, and write reports on actions taken by Treasury and financial 

institutions and their effect on the economy. Through regular reports, the Panel was charged with overseeing Treasury’s actions, 

assessing the impact of spending to stabilize the economy, evaluating market transparency, ensuring effective foreclosure mitigation efforts, and guaranteeing that Treasury acted in the best interests of the American people. In addition, Congress instructed the 

Panel to produce a special report on regulatory reform that analyzes ‘‘the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers.’’ The Panel issued this report in January 2009. 

Congress subsequently expanded the Panel’s mandate by directing 

it to produce a special report on the availability of credit in the agricultural sector. The report was issued on July 21, 2009. 

A. Members 

On November 14, 2008, Senate Majority Leader Harry Reid and 

the Speaker of the House Nancy Pelosi appointed Richard H. 

Neiman, Superintendent of Banks for the State of New York, 

Damon Silvers, Director of Policy and Special Counsel of the American Federation of Labor and Congress of Industrial Organizations 

(AFL–CIO), and Elizabeth Warren, Leo Gottlieb, Professor of Law 

at Harvard Law School, to the Panel. With the appointment on November 19, 2008, of Congressman Jeb Hensarling to the Panel by 

House Minority Leader John Boehner, the Panel had a quorum and 

met for the first time on November 26, 2008, electing Professor 

Warren as its chair. On December 16, 2008, Senate Minority Leader Mitch McConnell named Senator John E. Sununu to the Panel. 

Effective August 10, 2009, Senator Sununu resigned from the 

Panel, and on August 20, 2009, Senator McConnell announced the 

appointment of Paul Atkins, former Commissioner of the U.S. Securities and Exchange Commission, to fill the vacant seat. Effective 

December 9, 2009, Congressman Jeb Hensarling resigned from the 

Panel, and House Minority Leader John Boehner announced the 

appointment of J. Mark McWatters to fill the vacant seat. Senate 

Minority Leader Mitch McConnell appointed Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky, to fill the vacancy created by the resignation of Paul Atkins 

on May 21, 2010. Effective September 17, 2010, Elizabeth Warren 

resigned from the Panel, and on September 30, 2010, Senate Majority Leader Harry Reid announced the appointment of Senator 

Ted Kaufman to fill the vacant seat. On October 4, 2010, the Panel 

elected Senator Kaufman as its chair. 


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B. Reports 

12/10/2008 Questions About the $700 Billion Emergency Economic 

Stabilization Funds 

This report offered an initial impression of Treasury’s use of authority under EESA. In order to set the agenda for the Panel’s future work, the Panel posed ten primary questions regarding Treasury’s goals and methods for the TARP. Among these questions: 

What is the scope of Treasury’s authority? What is Treasury’s 

strategy and is it working to stabilize markets and help reduce 

foreclosures? What have financial institutions done with taxpayers’ 

money? Is the public receiving a fair deal? 

1/9/2009 Accountability for the Troubled Asset Relief Program 

The report documented the efforts to get answers to the questions posed in the Panel’s first report. It detailed both the answers 

received from Treasury and the many questions that remained 

unaddressed or unanswered. It specifically highlighted four key 

areas of concern: The rising tide of foreclosures, insufficient bank 

accountability, poor transparency in the use of TARP funds, and a 

lack of clarity in Treasury’s overall strategy. 

1/29/2009 Special Report on Regulatory Reform 

Fulfilling a mandate from Congress, this special report discussed 

how shortcomings in the financial regulatory regime contributed to 

the financial crisis by failing to effectively manage risk, require 

transparency, and ensure fair dealings. The report identified eight 

specific areas most urgently in need of reform and three key areas 

of risk management, concluding that financial regulation requires 

good risk management, transparency, and fairness. 

2/6/2009 February Oversight Report: Valuing Treasury’s Acquisitions 

This report presented the results of a detailed, technical analysis 

of the value of Treasury’s largest transactions under the TARP in 

an effort to determine whether taxpayers were receiving fair value. 

The Panel determined that, in the ten largest transactions made 

with TARP funds, for every $100 spent by Treasury, it received assets worth, on average, only $66. This disparity translated into a 

$78 billion shortfall for the first $254 billion in TARP funds spent. 

3/6/2009 Foreclosure Crisis: Working Toward a Solution 

The Panel examined the causes of the foreclosure crisis and developed a checklist providing a roadmap for foreclosure mitigation 

program success. Among the questions on the Panel’s checklist: 

Will the plan result in modifications that create affordable monthly 

payments? Does the plan deal with negative equity? Does the plan 

address junior mortgages? Will the plan have widespread participation by lenders and servicers? 

4/7/2009 Assessing Treasury’s Strategy: Six Months of TARP 

In this report, the Panel looked back on the first six months of 

Treasury’s TARP efforts and offered a comparative analysis of previous efforts to combat banking crises in the past. The Panel found 

that the successful resolution of past financial crises involved four 

critical elements: Transparency of bank accounting, particularly 

with respect to the value of bank assets; assertiveness, including 


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taking early aggressive action to improve salvageable banks and 

shut down insolvent institutions; accountability, including willingness to replace failed management; and clarity in the government 

response. 

5/7/2009 Reviving Lending to Small Businesses and Families and 

the Impact of the TALF 

This report surveyed the state of lending for small businesses 

and families and examined the TALF. The report raised concerns 

about whether TALF was well-designed to help market participants meet the credit needs of households and small businesses. It 

also raised serious doubts about whether the program would have 

a significant impact on access to credit. 

6/9/2009 Stress Testing and Shoring Up Bank Capital 

The Panel examined how effectively Treasury and the Federal 

Reserve conducted stress tests of America’s 19 largest banks. The 

Panel found that, on the whole, the stress tests were based on a 

solidly designed working model, but that serious concerns remained, including the possibility that economic conditions could deteriorate beyond the worst-case scenario considered in the tests. 

The Panel recommended that, if the economy continued to worsen, 

stress testing should be repeated. 

7/10/2009 TARP Repayments, Including the Repurchase of Stock 

Warrants 

The July report examined the repayment of TARP funds and the 

repurchase of stock warrants. At that time, 11 banks had repurchased their warrants from Treasury. The Panel’s analysis indicated that the taxpayers had received only 66 percent of the Panel’s best estimate of the value of the warrants. In order to ensure 

that taxpayers received the maximum values as banks exited the 

TARP, the Panel urged Treasury to make its process, reasoning, 

methodology, and exit strategy absolutely transparent. 

7/21/2009 Special Report on Farm Loan Restructuring 

This special report fulfilled a mandate under the Helping Families Save Their Homes Act of 2009 to issue a report that ‘‘analyzes 

the state of the commercial farm credit markets and the use of loan 

restructuring as an alternative to foreclosure by recipients of financial assistance under the Troubled Asset Relief Program (TARP).’’ 

8/11/2009 The Continued Risk of Troubled Assets 

The August report found that substantial troubled assets backed 

by residential mortgages remained on banks’ balance sheets and 

presented a potentially serious obstacle to economic stability. The 

risk to the health of small and mid-sized banks was especially 

high. The Panel recommended that Treasury and the bank supervisors carefully monitor the condition of the troubled assets held by 

financial institutions and that Treasury should move forward with 

one or more initiatives aimed at removing troubled whole loans 

from bank balance sheets. 

9/9/2009 The Use of TARP Funds in Support and Reorganization 

of the Domestic Automotive Industry 

In this report, the Panel examined the use of TARP funds to assist the domestic automotive industry. The Panel recommended 

that Treasury provide a legal analysis justifying the use of TARP 


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funds in the domestic automotive industry. The Panel further recommended that, in order to limit the impact of conflicts of interest 

and to facilitate an effective exit strategy from ownership, Treasury 

should consider placing its Chrysler and GM shares in an independent trust. 

10/9/2009 An Assessment of Foreclosure Mitigation Efforts After 

Six Months 

The Panel’s October report examined Treasury’s efforts to prevent home foreclosures. The Panel expressed concern about the limited scope and scale of the Making Home Affordable program and 

questioned whether Treasury’s strategy would lead to permanent 

mortgage modifications for many homeowners. 

11/6/2009 Guarantees and Contingent Payments in TARP and Related Programs 

The November oversight report found that the income of several 

government-backed guarantee programs will likely exceed their direct expenditures, and that guarantees played a major role in 

calming financial markets. At their height, these same programs, 

however, exposed American taxpayers to trillions of dollars in guarantees and created significant moral hazard that can distort the 

marketplace. 

12/9/2009 Taking Stock: What Has the Troubled Asset Relief Program Achieved? 

The Panel’s December oversight report concluded that the TARP 

was an important part of a broader government strategy that stabilized the U.S. financial system. It was apparent after 14 months 

that significant underlying weaknesses remained, including a foreclosure crisis that showed no signs of abating and record unemployment, as well as market distortions caused by moral hazard. 

1/14/2010 Exiting TARP and Unwinding Its Impact on the Financial Markets 

Even after Treasury’s authority to make new TARP commitments expires in October 2010, taxpayers will hold a diverse collection of assets worth many billions of dollars. The Panel’s January 

oversight report expressed concern that the stated principles guiding Treasury’s divestment strategy may frequently conflict and are 

broad enough to justify a wide range of actions. Furthermore, any 

effective exit strategy must help to unwind the implicit guarantee 

created by the TARP. 

2/11/2010 Commercial Real Estate Losses and the Risk to Financial Stability 

The Panel expressed concern that, over the next several years, 

a wave of CRE loan failures could jeopardize the stability of many 

banks, particularly community banks. Because community banks 

play a critical role in financing the small businesses that help the 

American economy create new jobs, their widespread failure could 

disrupt local communities, threaten America’s weakened financial 

system, and extend an already painful recession. 

3/11/2010 The Unique Treatment of GMAC Under the TARP 

The Panel examined the ways the TARP was used to support 

GMAC with funds from the Auto Industry Financing Program. The 

Panel found the government’s early decisions to rescue GMAC reVerDate Mar 15 2010 00:44 Mar 26, 2011 Jkt 064832 PO 00000 Frm 00194 Fmt 6602 Sfmt 6602 E:\HR\OC\A832.XXX A832

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sulted in missed opportunities to increase accountability and to better protect taxpayers’ money. 

4/14/2010 Evaluating Progress on TARP Foreclosure Mitigation 

Programs 

The Panel applauded recent changes to the mortgage modification program, but found that Treasury’s response lagged behind the 

pace of the crisis, Treasury’s programs would not reach the overwhelming majority of homeowners in trouble, and even families 

who navigate all the way through these programs will have a precarious hold on their homes. 

5/13/2010 The Small Business Credit Crunch and the Impact of 

the TARP 

The May report found little evidence that the TARP had successfully spurred small business lending, and it raised questions about 

whether the program helped to restore stability to the smaller 

banks that provide substantial amounts of small business credit. 

The Panel also evaluated the proposed SBL) and found that, even 

if approved by Congress, its prospects were far from certain. The 

program might not be fully operational for some time, may not be 

embraced by banks, and may not address the root causes of the 

small business credit crunch. 

6/10/2010 The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy 

This report found that the Federal Reserve and Treasury failed 

to exhaust all other options before undertaking their unprecedented, taxpayer-backed rescue of American International Group 

(AIG) and its creditors. This rescue resulted in extraordinary risk 

to taxpayers and a fundamental redefinition of the relationship between the government and the country’s most sophisticated financial institutions. 

7/14/2010 Small Banks in the Capital Purchase Program 

The July report found that the CPP’s ‘‘one-size-fits-all’’ design 

served Wall Street banks much better than smaller banks. Moving 

forward, small banks may find it difficult to repay their TARP 

funds because the capital they need is difficult to obtain. If so, they 

are at risk of being unable to raise enough money to exit the program, even as many continue to struggle to pay their TARP dividends. If this leads smaller banks to consolidate or collapse, one 

lasting effect of the TARP could be an even more concentrated 

banking sector. 

8/12/2010 The Global Context and International Effects of the 

TARP 

This report found that America targeted its bailouts very differently than other nations. While most nations targeted their 

funds to save individual banks, America simply flooded the markets with money to stabilize the system. As a result, it appeared 

that America’s bailouts had much greater impact internationally 

than other nations’ bailouts had on America. Additionally, the crisis revealed the need for an international plan to handle the collapse of major, globally significant financial institutions. The Panel 

recommended that U.S. regulators encourage regular crisis planning and ‘‘war gaming’’ for the international financial system. 


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9/16/2010 Assessing the TARP on the Eve of Its Expiration 

The September report found that, although the TARP quelled the 

financial panic in the fall of 2008, it was less successful in fulfilling 

its broader statutory goals. After the TARP’s extension, Treasury’s 

policy choices were increasingly constrained by public anger about 

the TARP. The Panel concluded that this stigma proved an obstacle 

to future financial stability efforts. In addition, in preparing the report, the Panel consulted a variety of prominent economists, who 

cited significant concerns about moral hazard. 

10/14/2010 Examining Treasury’s Use of Financial Crisis Contracting Authority 

This report found that Treasury’s extensive use of private contractors in TARP programs created significant concerns about 

transparency and potential conflicts of interest. Private businesses 

performed many of the TARP’s most critical functions, operating 

under 91 different contracts worth up to $434 million. They may 

have had conflicts of interest, were not directly responsible to the 

public, and were not subject to the same disclosure requirements 

as government actors. Although Treasury took significant steps to 

ensure the appropriate use of private contractors, the Panel recommended further improvements. 

11/16/2010 Examining the Consequences of Mortgage Irregularities 

for Financial Stability and Foreclosure Mitigation 

The November report reviewed allegations that companies servicing $6.4 trillion in American mortgages may in some cases have 

bypassed legally required steps to foreclose on a home. The implications of these irregularities were unclear, but the Panel expressed 

concerns about the possibility that ‘‘robo-signing’’ may have concealed deeper problems in the mortgage market that potentially 

threatened financial stability and put foreclosure prevention efforts 

at risk. 

12/14/2010 A Review of Treasury’s Foreclosure Prevention Programs 

This report found that Treasury’s main foreclosure mitigation effort, HAMP, would not make a significant dent in the foreclosure 

crisis. The Panel estimated that, if current trends held, HAMP 

would prevent only 700,000 foreclosures—far fewer than the three 

to four million foreclosures that Treasury initially aimed to stop. 

While Treasury intended to devote $30 billion to the program, it 

appeared that only $4 billion would be spent. Since the TARP had 

already expired, it was too late for Treasury to revamp its foreclosure prevention strategy, but Treasury could still have taken 

steps to wring every possible benefit from its programs. 

1/13/2011 An Update on TARP Support for the Domestic Automotive Industry 

The January report found that, although it remained too early to 

tell whether Treasury’s intervention in the U.S. automotive industry would prove successful, the government’s ambitious actions appeared to be on a promising course. Even so, the companies that 

received automotive bailout funds continued to face uncertain futures, taxpayers remained at financial risk, concerns remained 

about the transparency and accountability of Treasury’s efforts, 


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and moral hazard lingered as a long-run threat to the automotive 

industry and the broader economy. 

2/10/2011 Executive Compensation Restrictions in the Troubled 

Asset Relief Program 

This report examined Treasury’s efforts to implement restrictions 

on executive pay at TARP-recipient institutions and, in particular, 

examined the work of the Special Master for Executive Compensation. The Panel found that, amidst intense media scrutiny and in 

a time of deep public anger, the Special Master achieved significant 

changes at the institutions under his review. Overall compensation 

at the companies under the Special Master’s jurisdiction fell by an 

average of 55 percent, and cash salaries were generally limited to 

$500,000. Unfortunately, the Special Master fell short in his far 

broader goal of permanently changing Wall Street’s pay practices. 

3/16/2011 The Final Report of the Congressional Oversight Panel 

For its final report the Panel summarized and revisited its comprehensive body of monthly oversight work. To provide a context 

for understanding and evaluating the TARP, the report described 

the major events of the financial crisis in the fall of 2008 and the 

economic conditions prevailing during the crisis and response, as 

well as the broad array of federal initiatives undertaken to promote 

financial stability and liquidity as a result of the crisis. For each 

area in which it has done oversight work, the Panel provided a 

summary of its key findings and recommendations, along with an 

update since the Panel’s prior work and the current status of the 

Panel’s recommendations. The report concluded with a summation 

of the key lessons learned in order to guide policymakers should 

they find it necessary to respond to financial crises in the future. 

C. Hearings 

Date Hearing 

12/16/2008 Clark County, NV: Ground Zero of the Housing and Financial Crises 

1/14/2009 Modernizing America’s Financial Regulatory Structure 

2/27/2009 COP Field Hearing: Coping with the Foreclosure Crisis: State and Local Efforts 

to Combat Foreclosures in Prince George’s County, Maryland 

3/19/2009 Learning from the Past: Lessons from the Banking Crises of the 20th Century 

4/21/2009 COP Hearing with Treasury Secretary Timothy F. Geithner 

5/28/2009 COP Field Hearing in New York City: The Impact of Economic Recovery Efforts 

on Corporate and Commercial Real Estate Lending 

6/24/2009 COP Hearing with Herb Allison, Assistant Secretary of the Treasury for Financial Stability 

7/7/2009 COP Field Hearing in Greeley, CO on Farm Credit 

7/27/2009 Oversight of TARP Assistance to the Automobile Industry 

9/10/2009 COP Hearing with Treasury Secretary Timothy F. Geithner 

9/24/2009 COP Field Hearing in Philadelphia: Foreclosure Mitigation Under the Troubled 

Asset Relief Program 

10/22/2009 COP Hearing with Herbert M. Allison, Jr., Assistant Secretary of the Treasury 

Secretary for Financial Stability 

11/19/2009 Taking Stock: Independent Views on TARP’s Effectiveness 

12/10/2009 COP Hearing with Treasury Secretary Timothy Geithner 

1/27/2010 COP Field Hearing in Atlanta on Commercial Real Estate 

2/25/2010 GMAC Financial Services and the Troubled Asset Relief Program 

3/4/2010 Citigroup and the Troubled Asset Relief Program 

4/27/2010 COP Field Hearing in Phoenix on Small Business Lending 

5/26/2010 TARP and Other Government Assistance for AIG 

6/22/2010 COP Hearing with Treasury Secretary Timothy Geithner 

9/22/2010 Treasury’s Use of Contracting Authority Under the TARP 

10/21/2010 COP Hearing on the TARP and Executive Compensation Restrictions 


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Date Hearing 

10/27/2010 COP Hearing on TARP Foreclosure Mitigation Programs 

12/16/2010 COP Hearing with Treasury Secretary Timothy Geithner 

2/4/2011 COP Hearing on Commercial Real Estate 

3/4/2011 COP Hearing on the TARP’s Impact on Financial Stability 

D. Staff 

Naomi Baum, Executive Director 

Tewana Wilkerson, Deputy Executive Director 

Elizabeth MacDonald, General Counsel Alan Rhinesmith, Senior Policy Advisor 

Wilson Abney, Ethics Counsel 

Felicia Battista, Counsel/Senior Financial 

Analyst 

Adam Berkland, Staff Assistant/Dir. of 

Correspondence 

Isaac Boltansky, Research Analyst 

Katherine Brandon, Press Assistant 

Elizabeth Brennan, Financial Analyst 

Nicole Callan, Scheduler/Research Assistant 

Ellen Campbell, Research Analyst 

Joe Cwiklinski, Policy Advisor 

Beth Davidson, Investigative Counsel 

Elizabeth Davis, Chief Clerk 

Neal Desai, Counsel 

Joan Evans, Chief Clerk 

Dan Geldon, Counsel 

Marc Geller, Professional Staff Member 

Shanan Guinn, Communications Director 

Sara Hanks, General Counsel 

Aslynn Hogue, Counsel 

Charles Honig, Senior Counsel 

Peter Jackson, Communications Director 

Thaya Knight, Investigative Counsel 

Fanni Koszeg, Counsel 

Steve Kroll, Deputy Executive Director/ 

General Counsel 

Patrick McGreevy, Professional Staff Member 

Eamonn Moran, Counsel 

Michael Negron, Counsel 

Marcus Newman, Financial Analyst 

Jamie Ostrow, Counsel 

Joe Otchin, Legislative Fellow 

Patrick Pangan, Research Assistant 

Matt Perault, Counsel 

Brian Phillips, Research Analyst and Dir. of 

Correspondence 

Patrick Pinschmidt, Financial Markets Policy 

Advisor 

Caroline Read, Press Assistant 

Thomas Seay, Communications Director 

William Shen, Policy Advisor 

Ryan Spear, Legislative Fellow 

Marianne Spraggins, Senior Counsel 

Jonathan Vogan, Fellow 

Kevin Wack, Policy Analyst/Senior Editor 

Graham Ward, Financial Analyst 

Caleb Weaver, Senior Advisor 

DETAILEES 

Jayne Copley 

Jean Paffenback 

Pamela Williams 

INTERNS 

Michael Abelson 

Daniel Arking 

Eric Baum 

Shirley Dai 

Anthony DeLuise, Jr. 

Paul Dumaine 

Cory Ellenson 

George Everly III 

Michael Gallagher 

Reid Johnson 

Sean Kelly 

Arthur Kimball-Stanley 

Heather Klein 

Paul Laliberte-Tipple 

Benjamin Levine 

Eric Levine 

Dan O’Brien 

Jared Policicchio 

Joshua Ruby 

Matthew Schoenfeld 

Elyse Schneiderman 

Steven Syverud 

Thomas Smith 

Nick Smyth 

Don Snyder 

Benjamin Steiner 

Alexa Strear 

Wei Xiang 

E. Budget 

Section 125(g)(2) of EESA required that Panel expenses be paid 

equally from the contingent fund of the Senate and an ‘‘applicable’’ 

fund of the House of Representatives. Such expenses were then to 


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be reimbursed to the House and Senate by the Treasury Department from funds made available to the Secretary of the Treasury 

pursuant to the Act. Congressional leadership designated the Senate as the ‘‘administrating entity’’ for the Panel. All contracts entered into by the Panel received written approval from the Senate 

Committee on Rules and Administration and adhered to all Senate 

policies and procedures. 

Projected Total Panel Expenses through April 3, 2011 

Compensation and Benefits .................................................................. $8,738,630 

Office Space Rental ................................................................................ 619,000 

Office Equipment and Expenses ........................................................... 358,904 

Printing Costs for Hearings and Reports ............................................ 768,851 

Hearings and Travel .............................................................................. 199,037 

Total ................................................................................................ $10,684,422 


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APPENDIX I: LETTER TO SECRETARY TIMOTHY 

GEITHNER FROM CHAIRMAN TED KAUFMAN RE: REDESIGN OF WEBSITE, DATED MARCH 7, 2011 


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APPENDIX II: LETTER TO CHAIRMAN TED KAUFMAN 

FROM ACTING ASSISTANT SECRETARY TIMOTHY 

MASSAD RE: REDESIGN OF WEBSITE, DATED MARCH 

14, 2011 


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