CONGRESSIONAL OVERSIGHT PANEL 

AUGUST OVERSIGHT REPORT * 

THE GLOBAL CONTEXT AND INTERNATIONAL EFFECTS OF THE TARP 

AUGUST 12, 2010.—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 AUGUST OVERSIGHT REPORT 


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1 

57–731 2010

CONGRESSIONAL OVERSIGHT PANEL 

AUGUST OVERSIGHT REPORT * 

THE GLOBAL CONTEXT AND INTERNATIONAL EFFECTS OF THE TARP 

AUGUST 12, 2010.—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

ELIZABETH WARREN, Chair 

PAUL S. ATKINS

RICHARD H. NEIMAN

DAMON SILVERS

J. MARK MCWATTERS


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(III) 

C O N T E N T S 

Page 

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


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AUGUST OVERSIGHT REPORT 

AUGUST 12, 2010.—Ordered to be printed 

EXECUTIVE SUMMARY 


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to funding in dollar-denominated markets. When short-term lenders began to question the ability of banks to repay their obligations, markets froze, and the international financial system verged 

on chaos. 

Faced with the possible collapse of their most important financial 

institutions, many national governments intervened. One of the 

main components of the U.S. response was the $700 billion Troubled Assets Relief Program (TARP), which pumped capital into financial institutions, guaranteed billions of dollars in debt and troubled assets, and directly purchased assets. The U.S. Treasury and 

Federal Reserve offered further support by allowing banks to borrow cheaply from the government and by guaranteeing selected 

pools of assets. Other nations’ interventions used the same basic 

set of policy tools, but with a key difference: 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. As a result, it appears likely that America’s financial 

rescue had a much greater impact internationally than other nations’ programs had on the United States. This outcome was likely 

inevitable given the structure of the TARP, but if the U.S. government had gathered more information about which countries’ institutions would most benefit from some of its actions, it might have 

been able to ask those countries to share the pain of rescue. For 

example, banks in France and Germany were among the greatest 

beneficiaries of AIG’s rescue, yet the U.S. government bore the entire $70 billion risk of the AIG capital injection program. The U.S. 

share of this single rescue exceeded the size of France’s entire $35 

billion capital injection program and was nearly half the size of 

Germany’s $133 billion program. 

Even at this late date, it is 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. As a result, neither students of the current crisis 

nor those dealing with future rescue efforts will have access to 

much of the information that would help them make well-informed 

decisions. In the interests of transparency and completeness, and 

to help inform regulators’ actions in a world that is likely to become ever more financially integrated, the Panel strongly urges 

Treasury to start now to report more data about how TARP and 

other rescue funds flowed internationally and to document the impact that the U.S. rescue had overseas. Going forward, Treasury 

should create and maintain a database of this information and 

should urge foreign regulators and multinational organizations to 

collect and report similar data. 

The crisis also underscored the fact that the international community’s formal mechanisms to resolve potential financial crises 

are very limited. Even though the TARP legislation required Treasury to coordinate its programs with similar efforts by foreign governments, the global response to the financial crisis unfolded on an 

ad hoc, informal, country-by-country basis. Each individual government made its own decisions based on its evaluation of what was 

best for its own banking sector and for its own domestic economy. 

Even on the occasions when several governments worked together 


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to rescue specific ailing institutions, as in the rescues of European 

banks Dexia and Fortis, national interests often came to the fore. 

These ad hoc actions ultimately restored a measure of stability to 

the international system, but they underscored the fact that the 

internationalization of the financial system has outpaced the ability of national regulators to respond to global crises. 

In particular, the crisis revealed the need for an international 

plan to handle the collapse of major, globally significant financial 

institutions. A cross-border resolution regime could establish rules 

that would permit the orderly resolution of large international institutions, while also encouraging contingency planning and the development of resolution and recovery plans. Such a regime could 

help to avoid the chaos that followed the Lehman bankruptcy, in 

which foreign claimants struggled to secure priority in the bankruptcy process, and the struggles that preceded the AIG rescue, in 

which the uncertain effect of bankruptcy on international contracts 

put the U.S. government under enormous pressure to support the 

company. Additionally, the development of international regulatory 

regimes could help to discourage regulatory arbitrage, instead encouraging individual countries to compete in a ‘‘race to the top’’ by 

adopting more effective regimes at the national level. Such regimes 

would also provide a plan of action in the event that a financial crisis hit an internationally significant institution in a country that 

was too small to bear the cost of a bailout. In the most recent crisis, the Netherlands’ rescue efforts totaled 39 percent of its GDP, 

and Spain’s totaled 24 percent, raising the specter that a future crisis could swamp the ability of smaller nations with large banking 

sectors to respond in absence of an international regime. 

Moving forward, it is essential for the international community 

to gather information about the international financial system, to 

identify vulnerabilities, and to plan for emergency responses to a 

range of potential crises. The Panel recommends that U.S. regulators encourage regular crisis planning and ‘‘war gaming’’ for the 

international financial system. This recommendation complements 

the Panel’s repeated recommendations that Treasury should engage in greater crisis planning and stress testing for domestic 

banks. 

Financial crises have occurred many times in the past and will 

undoubtedly occur again in the future. Failure to plan ahead will 

only undermine efforts to safeguard the financial system. Careful 

policymakers would put plans in place before the next crisis, rather 

than responding on an ad hoc basis at the peak of the storm. 


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1 12 U.S.C. § 5222. 

2 Congressional Oversight Panel, April Oversight Report: Assessing Treasury’s Strategy: Six 

Months of TARP (Apr. 7, 2009) (online at cop.senate.gov/documents/cop-040709-report.pdf) (hereinafter ‘‘April Oversight Report’’). 

SECTION ONE: 

A. Overview 

The financial crisis that began in 2007 threw into relief two interesting facts about the international financial system. The first 

is well-known: the international financial system is integrated to 

the extent that in normal circumstances a bank’s national origin is 

irrelevant to the people doing business with it. One of the consequences of some aspects of international integration, as discussed 

below, is that a crisis in one part of the system rapidly spreads 

across national boundaries. When such a crisis occurs, though, another fact becomes clear: in a crisis, a bank’s national origin matters very much indeed. 

Although most countries followed one or more of the same general approaches described in this report, and although the governments affected by the crisis did coordinate effectively, responses to 

the crisis have tended to be ad hoc and country-specific. Thus, although many institutions operate across national borders and are 

sometimes not identified with their home countries, at the time of 

crisis their national origins became more evident, and global expectations are that institutions will be the responsibility of their home 

countries. 

This report examines the international aspects of the rescue of 

the financial system. In the United States, the Troubled Asset Relief Program (TARP) formed a large part of a coordinated government effort by various U.S. government agencies including the Federal Reserve Board, the FDIC, and Treasury. The report focuses on: 

• To what extent the TARP and related efforts in the United 

States had international implications; and 

• To what extent the programs instituted by other countries 

had repercussions in the United States or on U.S. institutions. 

The report also examines the degree to which the TARP and related U.S. financial rescue efforts were coordinated with foreign 

governments and central banks. Section 112 of the Emergency Economic Stabilization Act of 2008 (EESA) 1 requires the Secretary of 

the Treasury to coordinate with the financial authorities and central banks of foreign governments to establish TARP-like programs 

in other countries and permits the Secretary to purchase troubled 

assets held by foreign financial authorities or banks. The Panel has 

not previously analyzed Treasury’s performance, and the related 

performance of the Federal Reserve Board in this area, but the 

topic is clearly part of the Panel’s mandate. It implicates the use 

of the Secretary’s authority under EESA, the impact of Treasury’s 

actions on the financial markets, the TARP’s costs and benefits for 

the taxpayer, and transparency on the part of Treasury. 

The report builds on the Panel’s previous work, including its 

April 2009 report assessing Treasury’s TARP strategy in light of 

historical approaches and the crisis and responses to the crisis in 

Europe.2


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3 International Accounting Standards Board, Who We Are and What We Do (July 2010) (online 

at www.iasb.org/NR/rdonlyres/F9EC8205-E883-4A53-9972-AD95BD28E0B5/0/ 

WhoWeAreJULY2010.pdf) (hereinafter ‘‘IASB Background’’); Bank for International Settlements, The BIS in Profile (June 2010) (online at www.bis.org/about/profile.pdf). 4 IASB Background, supra note 3. 5Peter B. Kenen, The Benefits and Risks of Financial Globalization, Cato Journal, Vol. 27, 

No. 2, at 181–183 (Spring/Summer 2007) (online at www.cfr.org/content/publications/attachments/kenen.pdf); Matti Keloharju and Mervi Niskanen, Why Do Firms Raise Foreign Currency 

Denominated Debt? Evidence from Finland, European Financial Management, Vol. 7, No. 4 (Dec. 

2001). 

B. Financial Integration and the Crisis 

1. Globalization Prior to the Crisis 

The increasing interconnectedness of capital markets, the significant U.S. operations of foreign firms, and the rising predominance 

of large, global U.S.-based institutions would eventually help elevate the crisis that began in 2007 from one involving problematic 

subprime asset exposures at select institutions to one that provoked broader, systemic market fears of a financial and economic 

collapse. The pre-crisis organization of the international financial 

system was the path through which contagion spread; it also provided the veins into which rescue funds could be injected. This system was sprawling and not easily cordoned off by country. 

Numerous factors contributed to financial globalization over the 

past decade: increased liberalization of home country regulations, 

the appeal of geographic risk diversification, a growing stable of 

core multinational corporate clients, and rapidly developing capital 

markets in attractive, higher growth, emerging market economies.3

The U.S. banking sector is influenced by foreign markets in 

many ways, including: direct equity exposure to foreign investors, 

loans to foreign entities, deposits and other funding from overseas 

investors (including the interbank lending market), and credit risk 

transfer instruments (such as credit default swaps or CDSs) and 

other customized over-the-counter (OTC) contracts written on assets located in another country or entered into with a foreign 

counterparty. Other forms of integration are more regulatory in nature, such as increased uniformity in accounting and regulatory 

capital requirements.4 Markets and regulators also depend on 

internationally recognized credit rating agencies for verification of 

creditworthiness. Finally, sovereign debt allows governments to 

raise funds, exposing investors (including banks) to interest rate, 

currency, fiscal and political risks in various regions.5

The rising interconnectedness of global financial institutions and, 

ultimately, economies, is illustrated by a growing correlation between equity market returns in the United States and those in the 

rest of the world, particularly over the past decade (as shown in 

Figure 1 below). This trend may indicate that geographic diversification is a less effective risk management tool than it was in the 

past. 


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6MSCI Indices. These figures represent the percent change in the market index as compared 

to the first stated equity value of each decade. Michael Ehrmann, Marcel Fratzscher, and 

Arnaud Mehl, What Has Made the Financial Crisis Truly Global? (May 24, 2009) (online at 

www.hkimr.org/view_attachment.asp?type=2&id=329). 7 Nicola Cetorelli and Linda S. Goldberg, Banking Globalization and Monetary Transmission, 

Bank for International Settlements CGFS Paper, No. 40, at 92 (June 2008) (online at 

www.bis.org/publ/cgfs40.pdf) (hereinafter ‘‘Banking Globalization and Monetary Transmission’’). 8See Federal Deposit Insurance Corporation, FDIC Institution Directory (online at 

www2.fdic.gov/idasp/index.asp) (accessed Aug. 10, 2010); Federal Deposit Insurance Corporation, 

FDIC Statistics on Banking (online at www2.fdic.gov/SDI/SOB) (accessed Aug. 10, 2010). U.S. 

banks with over $100 billion in total assets in 2006 accounted for 49.8 percent of total bank 

assets. According to the FDIC, 14 institutions controlled $5.91 trillion of the $11.86 trillion in 

total bank assets in 2006. For concentration data on the European market, see European Commission, European Financial Integration Report 2007, at 64 (online at ec.europa.eu/internal_market/finances/docs/cross-sector/fin-integration/efir_report_2007_en.pdf). 

FIGURE 1: CORRELATION OF EQUITY MARKET RETURNS, UNITED STATES VS. REST OF 

THE WORLD (BY DECADE, 1970s–2000s) 6

The proportion of U.S. banking assets housed within globally oriented institutions has grown steadily over the years. U.S. banks 

with significant foreign operations rose from just over 50 percent 

of total U.S. bank assets in the early 1990s to nearly 70 percent 

on the eve of the financial crisis7 at which time the five largest 

U.S. firms (all global in nature), accounted for approximately 36 

percent of total bank assets.8


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9 Banking Globalization and Monetary Transmission, supra note 7, at 84. 10See Congressional Oversight Panel, June Oversight Report: The AIG Rescue, Its Impact on 

Markets, and the Government’s Exit Strategy, at 20–21 (June 10, 2010) (online at cop.senate.gov/ 

documents/cop-061010-report.pdf) (hereinafter ‘‘June Oversight Report’’). 

FIGURE 2: SHARE OF TOTAL U.S. BANK ASSETS IN GLOBALLY ORIENTED U.S. BANKS 9

Figure 3 below outlines international contributions to revenue at 

the leading U.S. and international banks in 2005 and 2006. On the 

eve of the crisis in 2006, eight of the largest global banking institutions headquartered in the United States generated $110 billion in 

net revenue from non-U.S. operations, accounting for 28 percent of 

these banks’ total net revenues. For many of the larger, more systemically important institutions, though, overseas operations were 

even more significant. For example, overseas revenue contributions 

for The Goldman Sachs Group, Inc. (Goldman Sachs) (46 percent), 

Citigroup Inc. (Citigroup) (44 percent), Lehman Brothers Holdings 

Inc. (Lehman) (37 percent), Merrill Lynch (36 percent), and Morgan 

Stanley (37 percent) were materially higher. (These figures exclude 

non-bank entities such as hedge funds and insurance companies. 

Insurer American International Group (AIG) generated approximately half of its 2004 to 2006 net revenue from overseas operations).10

A similar sample of eight leading European and Canadian banks 

shows that $67 billion, or approximately 34 percent of aggregate 

net revenue, came from the United States or all of North America, 

but outside their home market, in 2006. As with the U.S. banks, 

contributions from global, systemically important capital markets 

institutions were generally higher, led by Credit Suisse Group AG 

(Credit Suisse) (37 percent), HSBC Holdings plc (HSBC) (33 percent), UBS AG (UBS) (32 percent), and Deutsche Bank AG (Deutsche Bank) (28 percent). Across the U.S. securities industry, foreign-owned broker/dealers account for nearly one-third of U.S. securities revenue. Aggregate 2006 revenue data for the over 5,000 

U.S.-operated broker/dealers reveal that 29 percent of this U.S. revenue is reported by foreign-owned broker/dealer subsidiaries in the 


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11Financial Industry Regulatory Authority (FINRA) statistics in response to Panel data request. 458 of the 5,223 FINRA-member broker/dealers in operation for all four quarters of 2006 

cited a foreign country of origin or foreign ownership. In the aggregate, these firms reported 

$128.8 billion in 2006 revenue from their U.S. operations, 29.2 percent of the $441.6 billion in 

revenue reported by FINRA’s entire membership base, including both U.S. and foreign-owned 

broker/dealers. This compares to $60.1 billion in revenue from foreign-owned broker/dealers and 

$259.9 billion in overall net revenue from both U.S. and non-U.S. owned broker/dealers in the 

U.S. market in 2001. 13Data provided by Dealogic. 

U.S. (including Deutsche Bank, Credit Suisse, UBS, and many others), up from a 23 percent contribution in 2001.11

FIGURE 3: INTERNATIONAL NET REVENUE CONTRIBUTIONS, 2005–2006 12

U.S. Banks 

Non-U.S. Revenue 

(billions of dollars) 

Non-U.S. Revenue 

(Percentage of Total) 

2005 2006 2005 2006 

Bank of America ............................................................................ 4.2 8.2 7.5 11.3 

Bear Stearns .................................................................................. 0.9 1.2 12.5 13.2 

Citigroup ........................................................................................ 33.4 38.2 41.4 43.6 

Goldman Sachs .............................................................................. 10.6 17.3 42.0 45.9 

JPMorgan Chase ............................................................................. 11.5 16.1 21.4 26.2 

Lehman Brothers ............................................................................ 5.5 6.5 36.6 36.8 

Merrill Lynch .................................................................................. 8.5 12.0 33.7 35.5 

Morgan Stanley .............................................................................. 8.2 11.0 34.7 37.0 

Total ...................................................................................... 82.7 110.5 25.1 28.4 

Non-U.S. banks 

U.S./North America Revenue (billions of dollars) U.S./North America Revenue (Percentage of total) 

2005 2006 2005 2006 

CIBC ............................................................................................... 1.4 1.3 14.0 12.6 

Credit Suisse .................................................................................. 9.5 10.1 38.6 36.8 

Deutsche Bank ............................................................................... 7.2 10.5 24.1 27.7 

HSBC .............................................................................................. 21.6 23.6 34.5 33.0 

Royal Bank of Canada ................................................................... 3.8 4.0 23.8 21.8 

Socie ́te ́ Ge ́ne ́rale ............................................................................ 3.3 3.5 13.8 12.3 

TD Bank ......................................................................................... 2.2 2.3 21.9 19.4 

UBS ................................................................................................ 12.3 12.2 37.2 32.2 

Total ...................................................................................... 61.2 67.3 36.1 34.1 

12 Bloomberg data and company filings. Net Revenue for Deutsche Bank converted from Euros to USD based on average FX rates in 2005

and 2006, respectively. Firms that list net revenue specifically from the United States: Canadian Imperial Bank of Commerce (CIBC), Royal 

Bank of Canada, The Toronto-Dominion Bank (TD Bank), and UBS. Firms that list net revenue solely from North America: Credit Suisse, Deutsche Bank, HSBC, and Socie ́te ́ Ge ́ne ́rale. 

U.S. investment banks have long held a commanding position in 

European and Asian financial markets, and played a leading role 

in modernizing the equity markets in both regions, along with developing a more liquid debt market. The 2006 league table data 

(which measure investment bank performance) underscore the commanding market foothold of the top U.S. investment banks—Goldman Sachs, Morgan Stanley, Bank of America/Merrill Lynch, 

Citigroup and JPMorgan Chase & Co. (JPMorgan Chase). These 

firms accounted for five of the top eight league table slots in equity 

capital markets fees and all of the top-five positions in announced 

mergers and acquisitions volume in the region.13 In comparison, 

the leading European banks penetrated the U.S. market to a lesser 


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14Leading European banks gained a foothold in the U.S. market via an assortment of acquisitions: Credit Suisse acquired Donaldson, Lufkin & Jenrette in 2000 (after buying First Boston 

in 1988); Deutsche Bank purchased Bankers Trust in 1998 (which previously bought investment 

bank Alex Brown in 1997); and UBS purchased Paine Webber in 2000. 15Steven B. Kamin and Laurie Pounder DeMarco, How Did a Domestic Housing Slump Turn 

into a Global Financial Crisis?, Federal Reserve International Finance Discussion Papers, No. 

994 (Jan. 2010) (online at www.federalreserve.gov/pubs/ifdp/2010/994/ifdp994.pdf) (hereinafter 

‘‘How Did a Domestic Housing Slump Turn into a Global Financial Crisis?’’). 16 Id. at 6. 17See International Monetary Fund, Global Financial Stability Report: Navigating the Financial Challenges Ahead, at 87 (Oct. 2009) (online at www.imf.org/External/Pubs/FT/GFSR/2009/ 

02/pdf/text.pdf) (hereinafter ‘‘IMF Global Financial Stability Report’’). 

extent by 2006, with their footprints in many cases supplemented 

via acquisitions.14

2. Globalization of the Crisis 

The conventional wisdom in the pre-crisis years suggested that 

banks that operate across global markets should be more stable, 

given their ability to rely on a collection of geographically dispersed 

businesses. But the degree of interlinkages within the financial 

system and the globalized nature of the housing downturn created 

a backdrop that magnified, rather than diluted, the risk to globally 

interconnected financial institutions. The most harmful interlinkages were manifested primarily in (a) exposure to the housing crisis, particularly via holdings of U.S. mortgage-backed securities, 

and (b) funding mechanisms that relied on the ability of financial 

institutions to access overnight inter-bank funding markets, particularly in dollar-denominated markets, in many cases to fund assets linked to U.S. housing securities.15

A recent study by the Board of Governors of the Federal Reserve 

System cites the following factors as helping to globalize the crisis: 

• ‘‘a generalized run on global financial institutions, given 

lack of information as to who actually held toxic assets and 

how much; 

• the dependence of many financial systems on short-term 

funding (both in dollars and in other currencies); 

• a vicious cycle of mark-to-market losses driving fire sales 

of [asset-backed securities], which in turn triggered further 

losses; 

• the realization that financial firms around the world were 

pursuing similar (flawed) business models and were subject to 

similar risks; and 

• global swings in risk aversion supported by instantaneous 

worldwide communications and a shared business culture.’’ 16

Given that the U.S. subprime crisis—and the global housing 

market collapse more broadly—is generally acknowledged as 

ground zero for the financial crisis, a review of the mechanisms by 

which the residential mortgage crisis was transmitted to global financial institutions is perhaps illustrative. At its core, the increase 

in the securitization of mortgage loans broadened the exposure of 

the U.S. housing market collapse beyond the traditional relationship of borrowers and lenders, leading to what one study called a 

‘‘lengthening of the intermediation chains that increased the complexity and interconnectedness of the financial system, increasing 

the potential for disruptions to spread swiftly across markets and 

borders.’’ 17 Under this new framework, the old model of mortgage 


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18 Chart based on IMF publication. See id. at 93. Definitions of key terms: Asset-backed security (ABS); Collateralized debt obligation (CDO); Collateralized debt obligation-squared (CDO2); 

Mortgage-backed security (MBS); Structured investment vehicle (SIV). ‘‘Senior,’’ ‘‘Mezzanine,’’ 

and ‘‘Equity’’ tranches represent different classes of liabilities. The most junior tranche is equity, 

followed by the mezzanine tranche, which are below more senior tranches. As the most junior 

in the capital structure, equity tranches are the first to absorb losses on underperforming portfolios. 19 CDO and CDO2 represent securities backed by ABS or MBS, or in the case of CDO2, other 

CDOs. 20 IMF Global Financial Stability Report, supra note 17, at 84–88. It should be noted that figures for non-U.S. issuance may be overstated due to the issuance of U.S. debt from non-U.S. 

jurisdictions (e.g., Cayman Islands). Carol C. Bertaut et al., Understanding U.S. Cross-Border 

Securities Data, Federal Reserve Bulletin (Feb 5. 2009) (online at www.federalreserve.gov/pubs/ 

lending, originating and holding loans on a bank’s balance sheet, 

morphed into a new ‘‘originate to distribute’’ model. The economic 

incentives for the mortgage originator at the front-end of the transaction chain changed with the securitization and distribution of 

mortgage loans to investors. Because the loans’ originators did not 

bear all the risk associated with the loans, they had less incentive 

to ensure the quality of the loan and the creditworthiness of the 

borrower. 

FIGURE 4: SIMPLE BANK MORTGAGE LENDING EVOLVES INTO ‘‘RISK DIVERSIFICATION’’ 

(IMF ILLUSTRATION) 18

Problems in transparency as the transaction channel lengthened 

and product sophistication expanded reinforced the risks in the 

housing market. The manner in which these loans were repackaged 

into mortgage securities, tranches of which then served as reference entities for a host of other products—including collateralized 

debt obligations (CDOs) and CDO-squareds (as outlined below in 

Figure 5) 19—not only widely dispersed the exposure to the U.S. 

mortgage market but also greatly magnified the underlying risk in 

the initial mortgage loans.20 Further, the complexity and opacity of 

these products impeded the recognition of the risks they carried. 


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bulletin/2006/cross_border_securities.pdf) (hereinafter ‘‘Understanding U.S. Cross-Border Securities Data’’). 21 Understanding U.S. Cross-Border Securities Data, supra note 20. 22 ‘‘The magic of pooling and tranching was that, in the process, the risk distribution became 

more benign, while the underlying loans were riskier and riskier, thus providing sought-after 

higher returns.’’ See Carmine Di Noia et al., Keep It Simple: Policy Responses to the Financial 

Crisis, Center for European Policy Studies Paper, at 21 (Mar. 24, 2009) (online at papers.ssrn.com/sol3/papers.cfm?abstract_id=1368164). 23See IMF Global Financial Stability Report, supra note 17, at 85. 24See Franklin Allen, Michael K.F. Chui, and Angela Maddaloni, Financial Systems in Europe, the USA, and Asia, at 505–507, Oxford Review of Economic Policy (Nov. 4, 2004) (online 

at finance.wharton.upenn.edu/allenf/download/Vita/finsystemseurope.pdf) (‘‘[T]he European market for mortgage-related products is very small. MBS issuance accounts for around 50 percent 

of the overall European securitization market, but still represents a small portion of all funding 

supply for mortgages. Despite significant growth rates in issuance recorded over recent years, 

the European market for MBS is liquid only in the UK and the Netherlands.’’). 

In 2007, issuance of mortgage-related securities in Europe totaled EUR 307 billion, with more 

than EUR 246 billion of RMBS and CMBS issued in the United Kingdom, the Netherlands, and 

Spain. However, the amount of MBS issuance in Europe is just 21 percent of the total amount 

of agency and non-agency MBS issued in the United States in 2007, which was EUR 1,476 billion in the aggregate. European Securitization Forum, ESF Securitisation Data Report: Q1 2008 

(June 2008) (online at www.afme.eu/document.aspx?id=2878) (hereinafter ‘‘ESF Securitisation 

Data Report: Q1 2008’’). 

FIGURE 5: CDO & CDO-SQUARED ISSUANCE, 2000–2008 21

As became abundantly clear, the increased sophistication of 

mortgage products—backstopped by supportive credit ratings—did 

not necessarily dilute the risk from a regional, or much less a global, housing crisis.22 Rather, many banks continued to hold the troubled securities associated with these products, in addition to whole 

loans on similar collateral.23

Of course, securitization allowed non-U.S. institutions to gain exposure to the U.S. housing market via an assortment of investment 

vehicles. This was not necessarily a two-way street, as non-U.S. 

residential mortgage securities markets were comparatively less 

developed, and cross-border mortgage lending into these markets 

was limited.24 Securitization issuance volumes by geography underscore the predominant role of the U.S. asset-backed securitization 

market. From 1999 to 2009, the United States accounted for 80 

percent of global securitization volume, with the balance largely 

driven by Europe. As outlined in Section C.1.c below, a significant 

portion of these U.S. securities, and the CDOs that referenced 

them, ultimately wound up on the balance sheets of European inVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00017 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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25 Asset-backed securities and mortgage-backed securities originating from each respective region, including public and private placements. The data does not incorporate U.S. agency securities. Data provided by Dealogic. 26 Non-agency securities are private label securities (issued by banks, brokerages and other 

vehicles), and lack the support of agency-backed securities issued by the federal government 

housing agencies, Federal National Mortgage Association (Fannie Mae) and the Federal Home 

Loan Mortgage Corporation (Freddie Mac). Securities Industry and Financial Markets Association, SIFMA Research and Statistics (online at www.sifma.org/research/research.aspx?ID=10806) 

(accessed Aug. 10, 2010). 27 Includes fixed and adjustable-rate mortgage (ARM) securities. Data provided by J.P. Morgan Research (MBS). 

stitutions, resulting in substantial write-downs during the 2007– 

2009 period. 

FIGURE 6: SECURITIZATION ISSUANCE BY GEOGRAPHIC REGION, 1999–2009 25

[Billions of USD] 

At the end of 2007, $9.1 trillion in U.S. mortgage-related securities were outstanding. Of this amount, $2.4 trillion were non-agency residential mortgage-backed securities (RMBS), so-called private 

label securities as they lacked the guarantee of Fannie Mae or 

Freddie Mac, and $872 billion were commercial mortgage-backed 

securities (CMBS).26 Of the outstanding non-agency RMBS, $1.5 

trillion were subprime mortgage or Alt-A securities, which referenced loans to borrowers with lower credit scores or with respect 

to properties with a higher loan-to-value ratio, or were underwritten on the basis of more lax documentation standards than 

would be typical for prime borrowers.27 The total U.S. non-agency 

housing market was 2.5 times the size of the European RMBS market (see Figure 7 below). 

Residential securities exposures are outlined in the table below; 

regional loss tallies and specific financial institutions’ losses are detailed in Figures 10 and 11, below. 


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31 Between November 2007 and January 2008, SWFs invested approximately $38 billion in 

Citigroup, Merrill Lynch, and Morgan Stanley. Citigroup was the major recipient of these capital injections, receiving $7.5 billion from the Abu Dhabi Investment Authority in November 

2007 and $12.5 billion from a group of investors including the Government of Singapore Investment Corp. and the Kuwait Investment Authority in January 2008. Merrill Lynch received $5 

billion in capital from Singapore’s Temasek Holdings in December 2007 and $6.6 billion from 

a group of investors including the Korean Investment Corporation, the Kuwait Investment Authority, and the Mizuho Corporate Bank in January 2008. The China Investment Corporation 

invested $5.6 billion in Morgan Stanley in December 2007. U.S. Government Accountability Office, Sovereign Wealth Funds: Publicly Available Data on Sizes and Investments of Some Funds 

Are Limited, at 44–45 (Sept. 2008) (GAO–08–946) (online at www.gao.gov/new.items/ 

d08946.pdf). 32 New York Times, Korean Bank in Talks With Lehman Brothers (Sept. 2, 2008) (online at 

www.nytimes.com/2008/09/02/business/worldbusiness/02iht-kdb.15817700.html); Christine Harper, Morgan Stanley Said to Be in Talks With China’s CIC, Bloomberg (Sept. 18, 2008) (online 

at www.bloomberg.com/apps/news?pid=newsarchive&sid=aAQouiUZ6004). 

FIGURE 7: RESIDENTIAL MORTGAGE BACKED SECURITIES OUTSTANDING, 2007 

[Billions of USD] 

U.S. Balance 28

Agency MBS ............................................................................................................................................................. 4,188 

Non-Agency MBS 29 .................................................................................................................................................. 2,390 

Prime ............................................................................................................................................................... 581 

Alt-A ................................................................................................................................................................. 714 

Option ARM ...................................................................................................................................................... 304 

Subprime ......................................................................................................................................................... 790 

Total ......................................................................................................................................................................... 6,578 

Europe 30 .................................................................................................................................................................. 977 

28 Data provided by J.P. Morgan Research (MBS). 29 Includes fixed-rate and adjustable-rate mortgage (ARMs) securities. 30 European balance converted from euro to dollar based on euro-dollar exchange rate at the end of the fourth quarter 2007. ESF 

Securitisation Data Report: QI 2008, supra note 24, at 5. 

One offshoot of globalization, and of the increased importance 

and integration of emerging markets, was the higher profile of 

state-controlled investment arms, or Sovereign Wealth Funds 

(SWFs). SWFs were the first line of defense for many firms during 

the initial phase of the crisis: banks sought to plug holes in their 

balance sheets in late 2007 and early 2008, and SWFs were able 

to provide capital.31 Even near the peak of the crisis in August 

2008, a state-owned institution, Korea Development Bank (KDB), 

was seen as a potential buyer of Lehman Brothers. After the collapse of Lehman, there was significant speculation that China 

International Capital Corp (CICC), a Chinese government investment arm, would take a controlling stake in Morgan Stanley.32

3. Cross-Border Integration Within Financial Institutions 

While overseas operations generally presented attractive returns 

to the parent companies of financial institutions, the structure of 

these cross-border operations grew increasingly complex in order to 

comply with the legal, regulatory, and tax requirements of each 

country in which the banks operated. Complex internal procedures 

ultimately permitted funds to flow freely across national boundaries even within a specific institution. In addition to operating 

across multiple jurisdictions, the operations of the holding companies and their subsidiaries grew increasingly intertwined. These 

structures would pose challenges when the system unraveled. As 

the International Monetary Fund (IMF) noted, ‘‘legal frameworks 

for facilitating cross-border finance in stable periods are typically 


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33 International Monetary Fund, Resolution of Cross-Border Banks—A Proposed Framework 

for Enhanced Coordination, at 8 (June 11, 2010) (online at www.imf.org/external/np/pp/eng/2010/ 

061110.pdf) (hereinafter ‘‘IMF Proposed Framework for Enhanced Coordination’’). 34Lehman Brothers is an example of a failed cross-border institution that has been exceedingly difficult to resolve because of its complex structure and its extensive international operations. When Lehman Brothers Holdings filed for bankruptcy, contagion spread throughout the 

entire bank because the financial health of Lehman Brothers was inextricably intertwined with 

the financial health of the holding company and each of the 2,985 Lehman companies operating 

in 50 countries. U.S. and international regulators did not have a comprehensive plan on how 

to resolve such a complex institution, so regulators began wind-down proceedings in their respective jurisdictions, including Switzerland, Japan, Singapore, Hong Kong, Germany, Luxembourg, Australia, the Netherlands, and Bermuda. However, the resolution of Lehman has been 

neither orderly nor effective because regulators in each country have made little effort to communicate or coordinate their wind-down proceedings. See Bank for International Settlements, 

Basel Committee on Banking Supervision, Report and Recommendations of the Cross-border 

Bank Resolution Group, at 14–15 (Mar. 2010) (online at www.bis.org/publ/bcbs169.pdf) (hereinafter ‘‘Report and Recommendations of the Cross-border Bank Resolution Group’’). See also 

United States Bankruptcy Court, Southern District of New York, Report of Anton R. Valukas, 

Examiner, at 1482–1487 (Mar. 11, 2010) (online at lehmanreport.jenner.com/ 

VOLUME%204.pdf). 35See IMF Proposed Framework for Enhanced Coordination, supra note 33, at 8 (‘‘Certain 

branches or subsidiaries may, in economic terms, be comparatively insignificant to a group yet 

be of critical importance to their host country’s financial system.’’). 36See Report and Recommendations of the Cross-border Bank Resolution Group, supra note 

34, at 4–5, 29. See also Section E.3.b, infra. 37 IMF Proposed Framework for Enhanced Coordination, supra note 33, at 8. 38 ‘‘As [a] result of the interconnectedness of the financial group’s legal entities, weaknesses 

in one entity can adversely affect the entire group. In group structures where liquidity is centralized, any sudden and material downgrading of the central entity’s credit ratings or the opening of insolvency proceedings against it would lead to the immediate illiquidity of the other entities in the group. The triggering of cross default or cross guarantee arrangements for funding 

purposes as a result of rating downgrades or otherwise may also lead to financial distress in 

other parts of the group.’’ IMF Proposed Framework for Enhanced Coordination, supra note 33, 

at 8. 

more effective than cross-border resolution arrangements that are 

available in times of distress.’’ 33

When the financial crisis hit, and firms with significant operations outside their home countries experienced severe pressure or 

failed, there was a widespread assumption that the countries 

where they were headquartered would be responsible for any government rescue. Officials in the United States and across the world 

faced the difficult and costly task of resolving these highly complex 

corporate structures, including accounting for or unwinding internal and external business transactions across multiple jurisdictions.34 Depending on the relative importance and interconnectedness of a global firm’s operations in a particular host country, local 

regulators also faced challenges in containing the damage from a 

failing affiliate of a foreign-owned firm.35 U.S. and international 

regulators faced challenges in assisting these institutions in an effective and orderly fashion, largely because they were unprepared 

and ill-equipped to deal with such complex institutions operating 

across multiple jurisdictions.36

The crisis revealed that challenges in one area of the firm can 

quickly infect the entire organization.37 It is important to note that 

a bank’s ability—or the market’s perception of a bank’s ability—to 

honor its obligations is of the utmost importance in global finance. 

Regulatory capital at the parent level holds the entire institution 

together by backstopping the firm’s obligations and financing arrangements across its global operations.38 Thus, if the foreign parent of an institution is in trouble, this will impact the market’s assessment of the creditworthiness of an affiliate located in a different country. Credit ratings will come under pressure. Depositors, 

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39See Congressional Oversight Panel, December Oversight Report: Taking Stock: What Has the 

Troubled Asset Relief Program Achieved?, at 8–17 (Dec. 9, 2009) (online at cop.senate.gov/ 

documents/cop-120909-report.pdf) (hereinafter ‘‘December Oversight Report’’). 40 BNP Paribas, Background Information on Suspension and Reopening of ABS Funds in August (2007) (online at media-cms.bnpparibas.com/file/76/1/5761.pdf). 41 Exchanges from foreign currencies into U.S. dollars are noted in parentheticals throughout 

this report. All exchanges are calculated using interbank exchange rates in the relevant time 

period. Exchange rates are calculated using OANDA Corporation’s historical exchange rate database (online at www.oanda.com/currency/historical-rates). In some cases the abbreviation USD 

is used in order to distinguish U.S. dollars from Canadian and Australian dollars. 42 NIBC, NIBC Reports Preliminary 2007 Half Year Results (Aug. 9, 2007) (online at 

www.nibc.com/press/pressreleases/financialPress/Pages/pressrelease_1-2007-10.aspx). 43 Europa, State Aid: Commission Launches Probe into State Bail-Outs of IKB and Sachsen 

LB (Feb. 27, 2008) (online at europa.eu/rapid/pressReleasesAction.do?reference=IP/08/ 

314&format=HTML&aged=0&language=EN&guiLanguage=en) (hereinafter ‘‘Commission 

Launches Probe into State Bail-Outs’’). 44 Viral Acharya and Philipp Schnabl, Do Global Banks Spread Global Imbalances? The Case 

of Asset-Backed Commercial Paper During the Financial Crisis of 2007–09 (Oct. 15, 2009) (online 

at www.imf.org/external/np/res/seminars/2009/arc/pdf/acharya.pdf). 45 Hyun Song Shin, Reflections on Northern Rock: The Bank Run That Heralded the Global 

Financial Crisis, Journal of Economic Perspectives, Vol. 23, No. 1, at 101–109 (Winter 2009) (online at pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.101). 

suring the firm and its foreign branches, affiliates or subsidiaries. 

As the recent crisis demonstrated, this process is often swift and 

brutal. 

C. Description of the International Financial Crisis 

1. How the Crisis Developed 

a. Timeline of Crisis 

The global financial crisis grew out of problems in the U.S. 

subprime housing market. Those problems became widely apparent 

in the summer of 2007, when two hedge funds from The Bear 

Stearns Companies, Inc. (Bear Stearns) with heavy subprime exposure collapsed, and rating agencies began to downgrade scores of 

subprime securities.39 Numerous European banks had invested in 

U.S subprime securities, and their balance sheets experienced 

stress as those investments lost value. In a few instances, those 

losses popped into public view in 2007. On August 8, with the market for subprime securities cratering, French bank BNP Paribas 

suspended withdrawals from three investment funds that had exposure to subprime loans.40 On August 9, Dutch investment bank 

NIBC Bank N.V. (NIBC) announced that it lost Ö137 million ($189 

million) 41 in the first half of 2007 on investments with exposure 

to subprime loans.42 Also in the summer of 2007, two state-owned 

German banks with exposure to U.S. subprime loans, Sachsen 

Landesbank (Sachsen LB) and IKB Deutsche Industriebank AG 

(IKB), received assistance from other state-owned banks in Germany.43 The emerging problems in the U.S. housing market also 

began to affect commercial paper markets, since much of that 

paper, issued by banks as a source of short-term funding, was 

collateralized by U.S. housing-related securities.44

Amid the U.S.-centered market turmoil, Northern Rock plc 

(Northern Rock), a highly leveraged U.K. mortgage lender that 

held nearly one-fifth of all U.K. mortgages and relied heavily on 

short-term financing,45 was unable by September 2007 to continue 

funding its operations. The U.K. government lent an unspecified 

amount to Northern Rock and, with a bank run under way, guaranteed its deposits. In February 2008, after Northern Rock’s finanVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00021 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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46See National Audit Office, Her Majesty’s Treasury: The Nationalization of Northern Rock 

(Mar. 20, 2009) (online at www.nao.org.uk/publications/0809/northern_rock.aspx) (hereinafter 

‘‘The Nationalization of Northern Rock’’). 47See Ja ̄nis Malzubris, Ireland’s Housing Market: Bubble Trouble, ECFIN Country Focus 

(Sept. 26, 2008) (online at ec.europa.eu/economy_finance/publications/publication13187_en.pdf). 

See also Danske Bank, Denmark: House Prices Falling (Apr. 24, 2008) (online at 

mediaserver.fxstreet.com/Reports/ec9a150d-8773-45c5-988d-d8a08a4fb198/131bf1e5-826d-4d38- 

b23f-c33c11c201bb.pdf). 48France, Sweden, the Netherlands, and Italy also experienced large increases in housing 

prices between 1997 and 2007. Reuven Glick and Kevin J. Lansing, Global Household Leverage, 

House Prices, and Consumption, Federal Reserve Bank of San Francisco Economic Letter, No. 

2010–01, at 3 (Jan. 11, 2010) (online at www.frbsf.org/publications/economics/letter/2010/el2010- 

01.pdf). 49The Federal Reserve Bank of New York lent approximately $28.8 billion to a newly established, government-backed limited liability company, Maiden Lane LLC, to buy from Bear 

Stearns certain mortgage-related securities and loans, and associated hedges. The purpose of 

this transaction was to facilitate the merger of Bear Stearns with JPMorgan Chase. Federal Reserve Bank of New York, Maiden Lane Transactions (online at www.ny.frb.org/markets/ 

maidenlane.html) (accessed Aug. 10, 2010). 50This scheme allowed banks to swap illiquid assets—generally residential mortgage-related 

securities that were rated AAA and not backed by U.S. mortgages—for UK Treasury bills in 

exchange for a fee, and for a period of up to three years. Bank of England, Special Liquidity 

Scheme: Information (Apr. 21, 2008) (online at www.bankofengland.co.uk/markets/sls/slsinformation.pdf). 51The Federal Reserve established the Term Securities Lending Facility in March 2008. See 

Board of Governors of the Federal Reserve System, Term Securities Lending Facility (Feb. 5, 

2010) (online at www.federalreserve.gov/monetarypolicy/tslf.htm). 52On August 24, the Danish National Bank and the private association of banks began the 

liquidation of Roskilde Bank. See Letter from Neelie Kroes, commissioner for competition policy, 

European Commission, Aid for Liquidation of Roskilde Bank (Nov. 5, 2008) (online at 

ec.europa.eu/competition/state_aid/register/ii/doc/NN-39-2008-WLWL-en–05.11.2008.pdf). 53The U.S. government took a controlling equity stake in Fannie Mae, Freddie Mac, and AIG, 

and it made changes in the management of all three firms. While these steps are characteristics 

of nationalizations, there is no consensus on whether the rescues of these three firms should 

be counted as nationalizations. For a discussion of nationalizations abroad, see Section C.2.b, 

infra. For a more detailed description of the key events in the financial crisis from a U.S. perspective, see the Panel’s December 2009 report. December Oversight Report, supra note 39. 

cial condition deteriorated further, the U.K. government nationalized the firm.46 The collapse of Northern Rock presaged what 

would become more apparent in 2008 and beyond: not only did the 

United States experience a housing bubble, but so did the United 

Kingdom, Ireland, Spain, and Denmark,47 among other countries.48

March 2008 brought the collapse of Bear Stearns, which also was 

highly leveraged and had considerable exposure to subprime loans. 

Because the U.S. government facilitated a private purchase with 

government support,49 the immediate global repercussions of Bear 

Stearns’ demise were limited. Still, the crisis continued to intensify. 

On April 21, 2008, the Bank of England announced a liquidity 

scheme under which banks could swap certain mortgage-related securities for UK Treasury bills,50 following the introduction of a 

similar program in the United States.51 On July 11, 2008, the Danish National Bank granted an unlimited liquidity facility to 

Roskilde Bank, and a private association of nearly all the banks in 

Denmark provided a guarantee on losses of DKK 750 million ($158 

million) on the liquidity facility, with further losses guaranteed by 

the Danish government.52

The tremors that shook global financial markets between August 

2007 and August 2008 gave way in September 2008 to an enormously destructive earthquake. The epicenter was the United 

States, where the government took Fannie Mae and Freddie Mac 

into conservatorship and guaranteed their debts, allowed Lehman 

Brothers to enter bankruptcy, and authorized lending of up to $85 

billion to prevent the bankruptcy of AIG.53 But the reverberations 

were felt around the world, and especially in western Europe, 


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54See, e.g., Figure 3, supra, which shows that Credit Suisse, Deutsche Bank, HSBC, and UBS 

derived between 27.7 percent and 36.8 percent of their 2006 revenue from the United States. 55The sovereign debt crisis in Europe has caused spreads to increase in recent months. Data 

provided by SNL financial. 

where the largest banks are often more highly integrated with the 

rest of the global financial system than they are in other parts of 

the world.54

Fears of cascading failures across the financial landscape were 

stoked by not only legacy toxic asset and counterparty exposures, 

but also capitalization levels at major European institutions that 

offered little cushion to absorb market fears of more pronounced 

losses. Market and counterparty confidence collapsed, necessitating 

increased intervention by government entities across the globe to 

battle what had now become an international financial crisis. Interbank lending rates, which measure risk aversion and fears of bank 

insolvency, illustrated the viral nature of what began as a relatively localized U.S. subprime crisis. This played out across the 

European and U.S. interbank markets, creating a credit squeeze, 

given the dependence on short-term wholesale funding on both 

sides of the Atlantic. 

The widening in spreads shown in Figure 8 mirrors the key 

phases of the financial crisis, from the onset of the crisis in late 

summer 2007 to the collapse of Bear Stearns in March 2008, and 

later the bankruptcy of Lehman Brothers in September 2008, heralding the beginning of the most pronounced period of market 

stress. 

FIGURE 8: LIBOR OIS SPREAD THROUGHOUT THE CRISIS 55

Amid the market panic in September 2008, developed countries 

responded rapidly. The United States and European nations undertook numerous similar actions to stabilize financial markets. These 

actions included instituting recapitalization programs, nationalizing financial institutions, increasing deposit insurance, guaranteeing assets generally, purchasing toxic assets, and relaxing acVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00023 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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56Lehman Brothers filed for Chapter 11 on September 15, 2008. The next day, the United States agreed to lend up to $85 billion to AIG. See generally December Oversight Report, supra 

note 39, at 11, 15; June Oversight Report, supra note 10, at 58. 57 U.S. Securities and Exchange Commission, SEC Halts Short Selling of Financial Stocks to 

Protect Investors and Markets (Sept. 19, 2008) (online at www.sec.gov/news/press/2008/2008- 

211.htm). Financial Services Authority (U.K.), FSA Statement on Short Positions in Financial 

Stocks (Sept. 18, 2008) (online at www.fsa.gov.uk/pages/Library/Communication/PR/2008/ 

102.shtml). Canada and Germany were among countries that instituted similar bans. Ontario 

Securities Commission, OSC Issues Temporary Order Prohibiting Short Selling of Certain Financial Sector Issuers (Sept. 19, 2008) (online at www.osc.gov.on.ca/en/19317.htm); 

Bunderanstalt fu ̈ r Finanzdienstleistungsaufsicht, BaFin Bans Short Selling—Eleven Stocks Concerned (Sept. 19, 2008) (online at www.bafin.de/cln_109/nn_720788/SharedDocs/Mitteilungen/EN/ 

2008/pm_080919_leerv_en.html). 58See Section E.2, infra. See also Board of Governors of the Federal Reserve System, FOMC 

Statement: Federal Reserve and Other Central Banks Announce Reductions (Oct. 8, 2008) (online 

at www.federalreserve.gov/newsevents/press/monetary/20081008a.htm). 59See, e.g., the Federal Reserve Board’s decision to grant bank-holding company status to 

Goldman Sachs and Morgan Stanley on September 21, 2008. Board of Governors of the Federal 

Reserve System, Press Release (Sept. 21, 2008) (online at www.federalreserve.gov/newsevents/ 

press/bcreg/20080921a.htm). 60For a more detailed discussion of various governments’ responses to the crisis, see Section 

C.2, infra. 61The three banks were Kaupthing, Glitnir and Landsbanki. For further discussion of the Icelandic bank nationalizations, see Section C.2.b. 62 Abbey National plc (Abbey); Barclays plc (Barclays); Halifax Bank of Scotland Group plc 

(HBOS); HSBC Bank plc; Lloyds TSB; Nationwide Building Society (Nationwide); Royal Bank 

of Scotland; and Standard Chartered plc (Standard Chartered). HM Treasury, Financial Support 

to the Banking Industry (Oct. 8, 2008) (online at www.hm-treasury.gov.uk/press_100_08.htm) 

(hereinafter ‘‘Financial Support to the Banking Industry’’). A bank’s Tier 1 capital is its core 

capital, which consists predominantly of common stock and retained earnings. Bank for International Settlements, Instruments Eligible for Inclusion in Tier 1 Capital (Oct. 27, 1998) (online 

at www.bis.org/press/p981027.htm). 

counting standards. The United States took some steps in September 2008,56 but it also quickly began coordinating with other 

countries. On September 18, three days after Lehman Brothers 

filed for bankruptcy, the U.S. Securities and Exchange Commission 

(SEC) and the U.K.’s Financial Services Authority orchestrated a 

temporary ban on short selling financial companies.57 Over the 

course of the next month, the Federal Reserve also coordinated 

with other central banks to expand pre-existing currency swap 

agreements and cut interest rates by 0.5 percentage points.58 In 

late September, the U.S. government continued to respond on an 

ad hoc basis,59 and several of its counterparts across Europe organized rescues of specific banks.60 Iceland took the most extreme 

steps, nationalizing three of its largest banks, which were highly 

leveraged and unable to roll over their sources of funding.61

On October 4, the day after the U.S. government’s enactment of 

EESA, the leaders of Germany, France, the United Kingdom and 

Italy met to coordinate their responses to the crisis, and in the following days, Germany, France, and the United Kingdom all announced their own comprehensive responses. On October 8, the 

U.K. government announced the establishment of a scheme to 

guarantee bank debt. It also rolled out a plan to provide enough 

capital to eight large financial institutions so that each could raise 

its Tier 1 capital by £25 billion ($44 billion),62 though only Lloyds 

and Royal Bank of Scotland (RBS) took the funds. On October 13, 

the French government announced a Ö320 billion ($429 billion) 

fund to provide loans to financial institutions; among the French 

banks that eventually got assistance were BNP Paribas and Socie ́te ́

Ge ́ne ́rale. The same day, the German government announced a Ö70 

billion ($94 billion) fund for recapitalizing banks, whose eventual 

recipients included Commerzbank AG (Commerzbank) and WestLB 

AG (WestLB), and a Ö400 billion ($537 billion) scheme for guaranVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00024 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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63Federal Deposit Insurance Corporation, FDIC Announces Plan to Free Up Bank Liquidity 

(Oct. 14, 2008) (online at fdic.gov/news/news/press/2008/pr08100.html) (hereinafter ‘‘FDIC Announces Plan to Free Up Bank Liquidity’’). 64The first eight participants in the CPP were JPMorgan Chase, Goldman Sachs, Citigroup, 

Bank of America, Wells Fargo, Morgan Stanley, Bank of New York Mellon, and State Street 

Corporation (State Street). See U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for Period Ending August 4, 2010 (Aug. 6, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-6- 

10%20Transactions%20Report%20as%20of%208-4-10.pdf) (hereinafter ‘‘Treasury Transactions 

Report’’). 65 U.S. Department of the Treasury, U.S. Government Actions to Strengthen Market Stability 

(Oct. 14, 2008) (online at financialstability.gov/latest/hp1209.html). 66For further discussion of the G–20, see Sections C.3 and E.3.b, infra. 67 HM Treasury, The Asset Protection Scheme (APS) (online at www.hm-treasury.gov.uk/ 

apa_aps.htm) (accessed Aug. 10, 2010). 68For further information about the Asset Guarantee Program, see Congressional Oversight 

Panel, November Oversight Report: Guarantees and Contingent Payments in TARP and Related 

Programs, at 13–27 (Nov. 6, 2009) (online at cop.senate.gov/documents/cop-110609-report.pdf) 

(hereinafter ‘‘November Oversight Report’’). The Federal Reserve, Treasury, and the FDIC guaranteed a $301 billion pool of Citigroup assets at its inception, and Citigroup terminated its guarantee in December 2009. The U.S. government and Bank of America never agreed upon a finalized term sheet, and Bank of America ultimately paid $425 million to terminate the guarantee 

in September 2009. 69See Section C.2.a, infra, for a discussion of responses to the crisis by the U.K. and German 

governments, which were more systematic than the responses of several other European governments. 70For example, the Swiss government provided assistance to UBS, the Irish government took 

ownership of Anglo Irish Bank, the Netherlands provided assistance to ING and SNS Reaal 

N.V., the Belgian government took steps to stabilize Ethias Bank and KBC, and the Latvian 

government nationalized that nation’s largest independent bank, Parex Banka. 

teeing bank financing. The following day, the U.S. government announced its own plan for guaranteeing newly issued bank debt, the 

Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program; 63 its own program of capital injections, 

Treasury’s Capital Purchase Program (CPP), which initially included eight large financial institutions; 64 and a Federal Reserve 

program, the Commercial Paper Funding Facility, to purchase commercial paper and thereby provide a backstop to that market.65 In 

November 2008, the leaders of nations in the G–20 met in Washington, where they agreed on a five-point plan for financial reform.66

In January 2009, the British government announced another extraordinary assistance program, the Asset Protection Scheme 

(APS). Under this program, banks were able to buy protection from 

the government on a specified portfolio of assets. Again, only 

Lloyds and RBS agreed to participate.67 This program was similar 

in structure to the U.S. government’s Asset Guarantee Program 

(AGP), which preceded the British plan and had only two participants, Citigroup and Bank of America Corporation (Bank of America).68

Despite some efforts at a more comprehensive solution,69 the balance sheets of many European banks continued to suffer throughout late 2008 and early 2009, and smaller European governments 

responded with additional assistance on a piecemeal basis.70

b. Impact on Major Economies Outside the United 

States and Europe 

Because the financial crisis originated in domestic housing bubbles, and was transmitted by highly leveraged multinational financial firms, countries that were shielded from those forces fared 


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71This is not to suggest that financial integration between nations has negative effects on balance. Potential benefits from international financial integration include the increased ability of 

nations to diversify and hedge against certain risks, and increased competition in domestic 

banking sectors because of new foreign entrants, resulting in lower borrowing costs. Potential 

costs include increased volatility, such that a financial shock in one country can result in a similar shock in another country. See Pierre-Richard Agenor, Benefits and Costs of International Financial Integration: Theory and Facts (2003) (online at people.ucsc.edu/∼hutch/241B/Ec241b 

SYLLABUSWinter2010_files/Agenor_WorldEcon2003.pdf). 72Furthermore, countries that had significant economic integration with the major economies 

that were shielded from the financial crisis benefited from those ties. Examples include Australia and New Zealand, which are becoming increasingly economically integrated with China 

and India, and were not hit hard by the crisis. See Yan Sen, Potential Growth of Australia and 

New Zealand in the Aftermath of the Global Crisis, IMF Working Paper (May 2010) (WP/10/ 

127) (online at www.imf.org/external/pubs/ft/wp/2010/wp10127.pdf). 73 Brazil’s minimum capital-to-asset ratio is 11 percent, higher than the 8 percent risk-based 

capital ratio used under the Basel agreement, and Brazil’s largest banks exercised greater caution than was required, with capital-to-asset ratios averaging around 16 percent. This lower 

level of risk-taking provided Brazilian banks a larger cushion for losses than existed in large 

U.S. and European banks. See Jose ́ Roberto Mendonc ̧a de Barros, The Impact of the International Financial Crisis on Brazil, Real Instituto Elcano (Apr. 12, 2010) (online at 

www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/ 

elcano/elcano_in/zonas_in/international+economy/ari38-2010). 74 Id. 75 Rajiv Kumar and Pankaj Vashisht, The Global Economic Crisis: Impact on India and Policy 

Responses (Nov. 2009) (online at www.adbi.org/files/ 

2009.11.12.wp164.global.economic.crisis.india.pdf). 76See John P. Bonin and Yiping Huang, Dealing With the Bad Loans of the Chinese Banks, 

at 19 (Jan. 2001) (online at deepblue.lib.umich.edu/bitstream/2027.42/39741/3/wp357.pdf). Many 

Chinese banks were in need of capital at the height of the crisis in 2008, and one such bank 

did receive government funds, albeit for idiosyncratic reasons. Late in 2008, China’s sovereign 

wealth fund purchased $19 billion in securities from Agricultural Bank of China Limited (ABC) 

(AgBank). Although AgBank had a large book of bad loans, this action was as much designed 

to put the bank on the road to an eventual public offering as to provide financial stability. See 

comparatively well.71 Brazil, India, China, Australia, and Canada, 

for example, generally avoided the banking crises that plagued the 

United States and much of Europe; 72 nonetheless their economies 

felt many of the aftereffects of the global financial crisis. 

Brazil’s banks were subject to tighter leverage requirements than 

existed in Europe and the United States, the result of reforms implemented after Brazil’s 1990s-era banking crisis.73 Nonetheless, 

the Brazilian economy, which had been experiencing strong growth, 

contracted in the fourth quarter of 2008 and the first quarter of 

2009. The Brazilian government responded by cutting interest 

rates, providing a liquidity cushion to small Brazilian banks, and 

by enacting a fiscal stimulus program, among other steps. Growth 

returned to the economy in the second quarter of 2009, and according to one analyst, Brazil is one of the countries that has fared best 

during the global financial crisis.74

India also fared comparatively well. Its highly regulated banking 

sector had limited operations outside India, and therefore very little exposure to subprime lending in the United States. India did 

feel the follow-on effects of the crisis, though. Its export-driven 

economy suffered when global demand dropped; its financial sector 

suffered from the global liquidity squeeze, which led to a fall in 

lending; and its stock market lost roughly 50 percent of its value 

between June and December 2008. Although the Indian government did not provide capital to Indian banks, it did respond to the 

crisis with fiscal stimulus equal to about 2 percent of GDP, and it 

shifted from a tightening monetary policy to an expansionary 

one.75

China’s financial system also fared relatively well during the crisis, though it should be noted that China’s state-owned banks have 

benefited from repeated government rescues in the recent past.76


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Consulate-General of the People’s Republic of China in New York, Agricultural Bank of China to Get $19 Billion Capital Injection (Oct. 22, 2008) (online at www.nyconsulate.prchina.org/eng/ 

xw/t519094.htm). AgBank completed the Hong Kong portion of its offering on July 15, 2010. See 

Agricultural Bank of China Limited, Global Offering (June 30, 2010) (online at www.sfc.hk/ 

sfcCOPro/EN/displayFileServlet?refno=0608&fname=CoverEng_Jun3010.pdf). 77See Nicholas Lardy, Anthony M. Solomon Senior Fellow, Peterson Institute for International 

Economics, Lecture at New York University’s Stern School of Business, China’s Role in the Current Global Economic Crisis (Feb. 23, 2009) (hereinafter ‘‘China’s Role in the Current Global 

Economic Crisis’’). 78 In June 2008, foreign investors owned $1.46 trillion of long-term debt issued by Fannie 

Mae, Freddie Mac, other government-sponsored enterprises, and securities guaranteed by 

Ginnie Mae. The foreign-owned share was 21 percent of the $6.99 trillion of such debt outstanding at the time, up from 7.3 percent in 2000. China held 36 percent of the foreign-owned 

share in June 2008. See U.S. Department of the Treasury, Federal Reserve Bank of New York, 

and Board of Governors of the Federal Reserve System, Report on Foreign Portfolio Holdings 

of U.S. Securities as of June 30, 2008 at 5, 8 (Apr. 2009) (online at www.treas.gov/tic/ 

shla2008r.pdf). 79The U.S. government’s decision to take Fannie Mae and Freddie Mac into conservatorship 

provided greater assurance to investors that the government would stand behind their debt than 

previously existed in the marketplace, even though there was already a widespread belief that 

the U.S. government would not allow the two congressionally chartered mortgage firms to go 

bankrupt. When the conservatorship was announced, James B. Lockhart, director of the Federal 

Housing Finance Agency (FHFA), stated, ‘‘Monday morning, the businesses will open as normal, 

only with stronger backing for the holders of MBS, senior debt and subordinated debt.’’ Federal 

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

at www.fhfa.gov/webfiles/23/FHFAStatement9708final.pdf). Mark Zandi, chief economist at 

Moody’s Economy.com, wrote at the time: ‘‘The biggest winners are Fannie’s and Freddie’s debt 

holders. Indeed, it was the mounting evidence that central banks, sovereign wealth funds, and 

other global investors were growing reluctant to invest in the debt that was the catalyst for 

Treasury’s actions. Fannie and Freddie debt is now effectively U.S. Treasury debt, ensuring that 

debt holders will remain whole.’’ Mark Zandi, The Fannie-Freddie Takeover: A Latter-Day RTC 

(Sept. 7, 2008) (online at www.economy.com/dismal/article_free.asp?cid=108515). 80This rise in bank lending is today contributing to concerns that China has its own real estate bubble, which is prompting concerns about the Chinese banking sector and has led Chinese 

officials to conduct stress tests of Chinese banks. For further discussion, see Section E.1, infra. 81Of the nations in the G–20, only Saudi Arabia enacted a larger fiscal stimulus, calculated 

as a percentage of GDP, for 2009 and 2010 than China. International Monetary Fund, Group 

of Twenty, Meeting of the Deputies, January 31–February 1, 2009, London, U.K., Note by the 

Staff of the International Monetary Fund, at 18 (online at www.imf.org/external/np/g20/pdf/ 

020509.pdf). See generally Congressional Research Service, China and the Global Financial Crisis: Implications for the United States (June 3, 2009) (online at www.fas.org/sgp/crs/row/ 

RS22984.pdf); China’s Role in the Current Global Economic Crisis, supra note 77. 82 Reserve Bank of Australia, Statistical Tables (online at www.rba.gov.au/statistics/tables/ 

index.html#output_labour) (accessed Aug. 4, 2010). The country’s economic stability partially resulted from its large exports of iron ore and coal, which increased in price in early 2010 and 

were especially in demand as East Asian countries resumed their rapid pace of growth. See 

Glenn Stevens, governor of the Reserve Bank of Australia, Remarks before the Western Sydney 

Continued 

China maintains capital controls that limit foreign investment by 

individuals and businesses; these controls had beneficial effects 

during the crisis, since Chinese investors had little exposure to 

troubled parts of the U.S. and European financial systems.77 China’s banks had invested heavily in U.S. securities, but those investments were generally not in subprime securities, but rather in 

safer Treasury bonds and securities issued by Fannie Mae and 

Freddie Mac,78 which the U.S. government stepped in to backstop 

during the crisis.79 Therefore, China’s financial system, like Brazil’s and India’s, did not sustain major damage from the crisis. China’s export-driven economy did suffer, though, from the sharp 

downturn in global demand and the slowdown in foreign investment. China’s explosive growth slowed during the crisis, but the 

government countered the effects of the slowdown by increasing 

bank lending,80 lowering interest rates, and introducing fiscal stimulus spending that was among the largest in the world as a percentage of GDP.81

Australia also suffered relatively little from the crisis. Its only 

decline in GDP occurred in the fourth quarter of 2009,82 meaning 


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Business Connection (June 9, 2010) (online at www.rba.gov.au/speeches/2010/sp-gov090610.html). 83The Australian government’s large fiscal stimulus in February 2009—the $42 billion AUD ($26.5 billion) stimulus was equal to about 3 percent of GDP—and interest rate cuts from 7 percent in September 2008 to 3 percent in April 2009 likely helped sustain the domestic economy. 

Office of Australian Deputy Prime Minister and Treasurer Wayne Swan, Press Release—$42 Billion Nation Building and Jobs Plan (Feb. 3, 2009) (online at www.treasurer.gov.au/ 

DisplayDocs.aspx?doc=pressreleases/2009/ 

009.htm&pageID=003&min=wms&Year=2009&DocType=0); Reserve Bank of Australia, Statistical Tables (online at www.rba.gov.au/statistics/tables/index.html#interest_rates) (accessed Aug. 

4, 2010). 84Luci Ellis, head of the Reserve Bank of Australia Financial Stability Department, Remarks 

at Victoria University, The Global Crisis: Causes, Consequences, and Countermeasures (Apr. 15, 

2009) (online at www.rba.gov.au/speeches/2009/sp-so-150409.html) (hereinafter ‘‘Luci Ellis Remarks at Victoria University’’). 85Lyndal McFarland, Crisis on Wall Street: In Australia, ANZ and NAB Join Loan-Loss Chorus, Wall Street Journal (Eastern Edition), at C.2 (Dec. 19, 2008); Lyndal McFarland, Despite 

Calm, Risks Remain in Australian Banks Wall Street Journal (Eastern Edition), at C.7 (Sept. 

10, 2008). 86Luci Ellis Remarks at Victoria University, supra note 84. 87Luci Ellis Remarks at Victoria University, supra note 84. 88Data provided by Bloomberg. Close to 80 percent of Canada’s exports go to the United 

States. Central Intelligence Agency, The World Factbook (online at www.cia.gov/library/ 

publications/the-world-factbook/geos/ca.html) (accessed Aug. 10, 2010). 89Major Canadian banks had an asset-to-capital ratio of 18 to 1, compared to ratios of 25 to 

1 in the United States and 30+ to 1 in Europe. Mark Carney, governor of the Bank of Canada, 

Remarks at the Canadian Club of Montreal, Reflections of Recent International Economic Developments (Sept. 25, 2008) (online at www.bankofcanada.ca/en/speeches/2008/sp08-12.html). 90 Id. Canada’s banks lacked one of the incentives to securitize residential mortgages that existed elsewhere, which was the opportunity to hold less regulatory capital against the mortgages 

than would otherwise be required. Because Canadian mortgages must usually be fully insured 

by banks and homeowners, securitized mortgages and individual mortgages are usually assigned 

the same risk-weighted rate in regulatory capital rules. Don’t Blame Canada, The Economist, 

at 7 (May 16, 2010). 91Government of Canada, The Challenge: Canada’s Economic Action Plan (online at 

www.actionplan.gc.ca/eng/feature.asp?featureId=16) (accessed Aug. 4, 2010); Bank of Canada, 

Canadian Interest Rates (online at www.bankofcanada.ca/en/rates/interest-look.html) (accessed 

Aug. 4, 2010). 

that Australia did not enter into a recession.83 Australia’s banks 

for the most part remained healthy and profitable throughout the 

crisis,84 though the country’s banking system did suffer the collapse of two large Australian companies and one particularly large 

write-down on subprime mortgages.85 Australian banks maintained 

high capital levels and, because domestic opportunities for investment were plentiful, their balance sheets contained relatively few 

internationally tradable securities such as securitized loans.86 Australian banks also maintained high lending standards by issuing 

relatively few loans requiring minimal documentation or a minimal 

down payment.87

Although Canada’s GDP decreased for four straight quarters in 

late 2008 and early 2009, its recession was linked strongly to its 

reliance on the United States as a market for its exports.88 Its 

banking system remained healthy. Leverage in Canadian banks 

was limited.89 Canadian banks also sustained only modest losses 

on structured products, which include the mortgage-related securities that led to enormous losses at U.S. and European banks.90 To 

bolster the economy, the Canadian government passed a $62 billion 

CAD ($51 billion) stimulus package in January 2009 and gradually 

reduced interest rates from 3 percent in October 2008 to 0.25 percent in April 2009.91

c. Financial Institutions Most Affected 

The interconnections within the global financial marketplace and 

the significant cross-border operations of major U.S. and foreignVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00028 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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92 As of First Quarter 2010. Total write-downs and losses do not include losses related to loan 

charge-offs, increases in provisions for loan losses, and credit costs. Data provided by Bloomberg. 93Panel staff conversation with Simon Johnson, professor at MIT and former chief economist 

of the International Monetary Fund (July 30, 2010); Panel staff conversation with Roubini Global Economics Analysts Elisa Parisi and David Nowakowski (July 28, 2010). 

based firms widened the fallout of the crisis, requiring a multipronged response by a host of national regulators and central 

banks. The multinational nature of the largest global financial institutions contributed to both the direct losses on troubled securities assets and the cross-border panic that imperiled the functioning of global capital markets. Figure 9 shows those losses by 

banks based in the key regions impacted by the financial crisis. 

FIGURE 9: FINANCIAL CRISIS LOSSES ON SECURITIES HOLDINGS FOR BANKS LOCATED 

IN NORTH AMERICA, EUROPE AND ASIA 92

Comparatively weaker capitalization levels, illustrated by higher 

leverage (in many cases twice that of comparable U.S. peers), 

stoked fears among investors and market participants regarding 

the ability of the European banking sector to withstand incremental losses. (Comparisons of write-downs, leverage and Tier 1 

capital ratios are outlined below in Figure 11.) In the context of the 

relative importance of the banking system in Europe to economic 

growth (discussed below), there was growing fear among some market participants that European authorities were not taking sufficiently aggressive steps to shore up capital at key institutions.93


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94 Under U.S. GAAP, U.S. institutions may account for assets in different ways. For example, 

a commercial bank may record a mortgage-backed security (‘‘MBS’’) at amortized cost by 

classifying the security as held-to-maturity (‘‘HTM’’), whereas an investment bank may record 

a MBS at fair value by classifying the security as available-for-sale (AFS). Held-to-maturity 

(HTM) securities and held-for-investment (HFI) loans are recorded on the balance sheet at amortized cost rather than fair market value, whereas available-for-sale (AFS) securities are recorded on the balance sheet at fair market value. Only when a financial institution determines 

that the HTM security is impaired and the impairment is other-than-temporary (OTTI) will the 

institution record the value of the security at its fair market value. The institution has the discretion to determine whether an OTTI exists and will: (1) calculate the fair value of the asset; 

(2) determine if the decline in value is related to a credit event; and (3) determine if the investor 

is able or willing to hold the asset until it recovers its value. U.S. Securities and Exchange Commission, Report and Recommendations Pursuant to Section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-to-Market Accounting, at 26, 30 (Dec. 30, 2008) (online 

at www.sec.gov/news/studies/2008/marktomarket123008.pdf) (hereinafter ‘‘SEC Study on Markto-Market Accounting’’). 95 Id. at 47, 50, 104. The majority of commercial banks’ assets, including large loan books, are 

reported at amortized cost. Commercial banks limit their use of fair value accounting to securities and derivatives. So, for example, commercial banks report subprime loan portfolios at amortized costs, but report subprime mortgage-backed securities at fair market value. In contrast, 

investment banks report the majority of assets at fair value because these institutions are not 

holding large loan portfolios, but are instead actively trading securities and derivatives. 96For further discussion of fair value accounting, see Section C.2.f, infra. There are several 

important differences between IFRS and GAAP fair value accounting including: (1) guidance on 

accounting for assets at fair value is scattered throughout IFRS and is sometimes inconsistent; 

(2) IFRS does not distinguish between debt securities and loans, so debt securities can be recorded on balance sheets as loans; (3) IFRS has different standards for recognizing impairment, 

which results in differences in the timing of when an impairment charge is recorded on the balance sheet; and (4) HTM securities are only written down for incurred credit losses, whereas 

GAAP securities are written down to fair value. SEC Study on Mark-to-Market Accounting, 

supra note 94, at 23–24, 32–33. 97Financial Crisis Advisory Group, Report of the Financial Crisis Advisory Group, at 4 (July 

28, 2009) (online at www.ifrs.org/NR/rdonlyres/2D2862CC-BEFC-4A1E-8DDC-F159B78C2AA6/0/ 

FCAGReportJuly2009.pdf). 

To some degree, these fears were compounded by variations in 

the accounting treatment of balance sheet assets.94 95 Outside the 

United States, most countries permit companies to report under 

the International Financial Reporting Standards (IFRS). While 

there are similarities between the IFRS and U.S. Generally Accepted Accounting Principles (GAAP), there are important differences 

regarding fair value accounting that have created discrepancies 

when U.S. financial institutions and international financial institutions recognize losses arising from troubled assets.96 In the case of 

European banks, the majority of assets are valued at amortized 

cost rather than fair value, which delayed the recognition of losses 

and increased uncertainty during the crisis.97

Figure 10 below compares the write-downs that U.S. and European banks have taken on various asset classes through the duration of the crisis. 

FIGURE 10: ESTIMATED WRITE-DOWNS ON U.S. AND FOREIGN BANK-HELD SECURITIES 98

[Billions of USD] 

Estimated 

Holdings 

Estimated 

Write-downs 

Implied 

Cumulative 

Loss Rate 

Share of Total 

Regional 

Write-downs 

Share of Global 

Write-downs 

U.S. Banks 

Residential mortgage ............... 1,495 189 12.6 50.9% 20.6% 

Consumer ................................. 142 0 0.0 0.0% 0.0% 

Commercial mortgage .............. 196 63 32.1 17.0% 6.9% 

Corporate .................................. 1,115 48 4.3 12.9% 5.2% 

Governments ............................. 580 0 0.0 0.0% 0.0% 

Foreign ...................................... 975 71 7.3 19.1% 7.8% 

Total for U.S. Banks .......................... 4,503 371 8.2 – 40.5% 


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102 U.S. Securities and Exchange Commission, Alternative Net Capital Requirements for 

Broker-Dealers That Are Part of Consolidated Supervised Entities, 69 Fed. Reg. 34428 (June 21, 

2004). This rule applied to five investment banks: Goldman Sachs, Morgan Stanley, Merrill 

Lynch, Bear Stearns, and Lehman Brothers. 

FIGURE 10: ESTIMATED WRITE-DOWNS ON U.S. AND FOREIGN BANK-HELD SECURITIES 98— 

Continued 

[Billions of USD] 

Estimated 

Holdings 

Estimated 

Write-downs 

Implied 

Cumulative 

Loss Rate 

Share of Total 

Regional 

Write-downs 

Share of Global 

Write-downs 

European Banks 99

Residential mortgage ............... 1,191 157 13.2 33.0% 17.1% 

Consumer ................................. 329 9 2.7 1.9% 1.0% 

Commercial mortgage .............. 315 74 23.5 15.5% 8.1% 

Corporate .................................. 1,574 47 3.0 9.9% 5.1% 

Governments ............................. 2,506 0 0.0 0.0% 0.0% 

Foreign ...................................... 2,615 152 5.8 31.9% 16.6% 

Total for European Banks ................. 9,261 476 5.1 – 52.0% 

Asian Banks 100

Total for Asian Banks ....................... 1,728 69 4.0 – 7.5% 

Totals for All Bank-Held Securities 

(U.S., Europe & Asia) 101 ............. 15,492 916 5.9 – 100.0 

98 Data for U.S., Europe, and Asia bank losses on securities holdings only. Excludes write-down and losses related to bank holdings of 

loans. Estimated holdings based on Q1 2009 data. IMF Global Financial Stability Report, supra note 17, at 87. 99 European banks include the United Kingdom, the Euro Area, and other mature European markets (Denmark, Norway, Iceland, Sweden, and Switzerland). 100 Asian banks include Australia, Hong Kong SAR, Japan, New Zealand, and Singapore. Write-down data for Asian banks not categorized by 

asset type. 101 Total references preceding sums for banking institutions headquartered in the United States, Europe, and Asia only. 

Figure 11 below compares the write-downs during the crisis and 

key balance sheet metrics on the eve of the crisis among specific 

U.S. commercial banks, U.S. investment banks, and foreign banks. 

(Both U.S. commercial banks and European banks calculated and 

reported Tier 1 capital ratios under the Basel I framework during 

the crisis. In contrast, U.S. investment banks calculated and reported capital adequacy ratios under an alternative computation 

method created by the SEC, before beginning to report under the 

Basel II framework at the beginning of 2008.) 102

FIGURE 11: BALANCE SHEET MEASURES (YEAR-END 2006) AND WRITE-DOWNS (2007–2010) OF 

U.S. AND FOREIGN INSTITUTIONS 

[Billions of USD] 

Total Assets Total Equity 

Gross 

Leverage 

Ratio 103

Tier 1 

Risk-Based 

Capital 

Ratio 104

Write-downs & Losses 

3Q2007–1Q2010 105 Percent of 

2006 Equity 

U.S. Banks 106

Bank of America .......... 1,460 135 10.8x 8.6% 23.5 17.4 

Bear Stearns ................ 350 12 29.0x N/A 3.2 26.4 

Citigroup ...................... 1,884 122 15.4x 8.6% 68.2 55.8 

Goldman Sachs ............ 838 36 23.4x N/A 9.1 25.4 

JPMorgan Chase ........... 1,352 116 11.7x 8.7% 16.6 14.3 

Lehman Brothers ......... 504 19 26.2x N/A 16.2 84.4 

Merrill Lynch ................ 841 39 21.6x N/A 55.9 143.3 

Morgan Stanley ............ 1,121 35 31.7x N/A 23.4 66.1 

Foreign Banks 107

Banco Santander ......... 1,100 62 17.7x 7.4% 0.0 0.0 

Barclays ....................... 1,951 54 36.4x 7.7% 26.2 48.9 

BNP Paribas ................. 1,900 72 26.3x 7.4% 4.3 5.9 

CIBC ............................. 271 11 24.6x 10.4% 9.5 86.4 


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FIGURE 11: BALANCE SHEET MEASURES (YEAR-END 2006) AND WRITE-DOWNS (2007–2010) OF 

U.S. AND FOREIGN INSTITUTIONS—Continued 

[Billions of USD] 

Total Assets Total Equity 

Gross 

Leverage 

Ratio 103

Tier 1 

Risk-Based 

Capital 

Ratio 104

Write-downs & Losses 

3Q2007–1Q2010 105 Percent of 

2006 Equity 

Credit Suisse ................ 1,030 48 21.3x 13.9% 19.1 39.5 

Deutsche Bank ............. 2,090 44 47.3x 8.5% 17.0 38.5 

HBOS ............................ 930 32 29.3x 8.1% 15.2 47.9 

HSBC ............................ 1,861 115 16.2x 9.4% 26.6 23.2 

Royal Bank of Canada 411 21 19.4x 9.6% 5.9 27.8 

Royal Bank of Scotland 1,705 89 19.2x 7.5% 31.3 35.2 

Socie ́te ́ Ge ́ne ́rale .......... 1,262 44 28.6x 7.8% 12.8 29.0 

Toronto-Dominion Bank 350 21 17.1x 12.0% 0.9 4.4 

UBS .............................. 1,964 46 43.0x 11.9% 52.4 114.7 

103 Gross leverage ratio equals the ratio of total assets to total equity. 104 Goldman Sachs, Morgan Stanley, Bear Stearns, Merrill Lynch, and Lehman Brothers did not begin reporting Tier 1 risk-based capital ra- tios until 2008. 105 Included in the data are losses associated with the following: Non-mortgage ABS; Alt-A securities; Auction-rate securities; CDOs; CDS 

and other derivatives; CMBS; Subsidiaries, investments in other firms, and corporate debt; Leveraged loans and collateralized obligations; 

Monolines; Uncategorized mortgages and securities; Revaluation reserve and other comprehensive income; Prime mortgages and securities; 

Uncategorized residential mortgage asset write-downs; Structured Investment Vehicles and ABCP; Subprime RMBS; Trading losses. Write-downs and losses linked to credit costs associated with outstanding loans, loan charge-offs, and increases in provisions for loan losses were not in- cluded as these are to be expected as part of normal business operations. Data provided by Bloomberg. 106 2006 balance sheet data provided by SNL Financial. 107 Data provided by Bloomberg. 

As noted above, the European dimension to the crisis was magnified by the predominance of bank-intermediated credit in Europe, 

as opposed to other sources of credit. This raised the importance 

of European policy-makers stabilizing the banking system in order 

to contain further disruptions to the continent’s economies. However, at the onset of the crisis—in the context of the comparatively 

more lenient accounting treatment discussed above—the centrality 

of these institutions in credit intermediation may have contributed 

to less aggressive action in the wake of Bear Stearns and the leadup to the Lehman Brothers failure. As illustrated below, bank assets in the Eurozone area, including Denmark, Sweden, and the 

United Kingdom, were $48.5 trillion at the end of 2007, approximately three times the size of the region’s GDP. This compares to 

bank assets of $11.2 trillion in the United States, a level on par 

with GDP. While these disparities indicate that the U.S. economy 

was more reliant on the capital markets to raise equity and intermediate lending through the debt markets, both the U.S. and European financial systems were highly susceptible to the fallout from 

the financial crisis. However, the concentration within Europe’s 

banking sector raised the profile of a handful of multinational 

banks, relative to the region’s overall economy. Additionally, many 

European banks were comparatively more dependent on foreignsourced deposits, increasing their susceptibility to disruptions outside their home market. 


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FIGURE 12: BANK ASSETS AND CAPITAL MARKET VS. GDP, 2007 108

[billions of USD] 

Region GDP 

Total 

Bank 

Assets 109

Stock 

Market 

Capitalization 

Debt Securities As Percentage of GDP 

Public Private Total 

Total 

Bank 

Assets 

Stock 

Market 

Capitalization 

Total 

Debt 

Securities 

World ..................................................................................................................................................... 54,841 95,769 65,106 28,629 51,586 80,215 175 119 146 European Union 110 ............................................................................................................................... 15,741 48,462 14,731 8,778 19,432 28,211 308 94 179 

Euro Area ..................................................................................................................................... 12,221 35,097 10,040 7,606 15,398 23,004 287 82 188 

North America ....................................................................................................................................... 15,244 13,852 22,109 7,419 24,492 31,911 91 145 209 

United States ............................................................................................................................... 13,808 11,194 19,922 6,596 23,728 30,324 81 144 220 Canada ........................................................................................................................................ 1,436 2,658 2,187 823 764 1,587 185 152 111 

Japan ..................................................................................................................................................... 4,384 10,087 4,664 7,148 2,066 9,214 230 106 210 

108 International Monetary Fund, Global Financial Stability Report: Responding to the Financial Crisis and Measuring Systemic Risks, at 177 (Apr. 2009) (online at www.imf.org/External/Pubs/FT/GFSR/2009/01/pdf/text.pdf) (hereinafter ‘‘IMF 

2009 Global Financial Stability Report’’). 

109 Total assets of commercial banks, including subsidiaries. 110 Figures for the European Union include totals from the Euro Area, Denmark, Sweden, and the United Kingdom. 


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111These forms of intervention are discussed throughout Section C.2 and summarized by country in Annex I. See also the description of selected jurisdictions’ responses in the Panel’s April 

2009 report. April Oversight Report, supra note 2, at 60–70. 112For further discussion of the EU’s stress tests, see Section E.1.b, infra. 113For further discussion of Ireland’s expanded deposit insurance, see Section C.2.c, infra. 114 According to the IMF, ‘‘when the regulatory authorities are faced with the distress or failure of a financial institution within their territory, they tend to give primary consideration to 

the potential impact on their own stakeholders: namely, creditors to branches or subsidiaries 

located within their jurisdiction, depositors and, in the final analysis, local taxpayers.’’ IMF Proposed Framework for Enhanced Coordination, supra note 33, at 9. 

This context is important for understanding efforts by the United 

States and foreign governments. Actions by Treasury and the Federal Reserve to stabilize the U.S. financial system and its largest 

financial institutions helped supplement rescue efforts in other 

countries, just as overseas rescue efforts enhanced stability measures within the U.S. market. This is due to both the interconnectedness of global financial markets, and the multinational nature of 

the largest U.S. and European financial institutions. 

2. The Ad Hoc Nature of Government Responses 

The international responses to the crisis took various forms; 111

likewise, the way in which governments came to the choices they 

made was varied. In some cases, governments emulated others’ actions, as seen in the EU’s decision to follow the United States’ lead 

in stress-testing banks.112 In some cases, markets forced governments to take certain actions, as when Ireland’s move to increase 

deposit insurance led to a flow of U.K. deposits to Irish banks, 

prompting U.K. officials to increase their nation’s deposit insurance.113 And in some cases governments learned from past experience and adjusted their response accordingly, as when Ireland’s 

asset management agency drew lessons from the Nordic bank crisis 

in the 1990s. 

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 be targeted at 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 respond to potential fallout across a particular domestic 

market.114 The different conditions that nations placed on the 

banks they rescued offer a good illustration of the frequent lack of 

international coordination in many of the responses. For example, 

the United Kingdom and France imposed lending targets for rescued banks, while the United States did not. The United States 

took warrants in rescued banks, which allowed for the potential realization of gains on its investments, but other nations did not follow suit. Restrictions on executive compensation and pay for board 

members also varied significantly in different countries. 

These differences are not unexpected, given the speed with which 

the financial crisis spread and the volatility of markets at the time; 

the circumstances often did not permit measured cross-border cooperation, and while there was certainly a great deal of informal 

communication between countries, it did not necessarily lead to coordinated action. Furthermore, it is not clear that a more systemic 


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115Organisation for European Co-operation and Development, Glossary of Statistical Terms: 

Capital Injections (online at stats.oecd.org/glossary/detail.asp?ID=6233) (accessed Aug. 10, 2010). 116 Henry M. Paulson, Jr., On the Brink, at 337 (2010). 117The CPP has been discussed extensively in previous Panel reports, notably the Panel’s February 2009, July 2009, December 2009, January 2010, and July 2010 reports. 118See, e.g., Commission Launches Probe into State Bail-Outs, supra note 43. See also Frank 

Hornig, Lothar Pauly, and Christian Reiermann, Bad Debts: American Mortgage Crisis Rattles 

German Banking Sector, Der Speigel (Aug. 10, 2007) (online at www.spiegel.de/international/ 

business/0,1518,499160-2,00.html) (describing the capital injections into IKB by state-backed 

Kreditanstalt fu ̈ r Wiederaufbau (KFW). The four banks that were assisted between Aug. 2007 

and Aug. 2008 were IKB, WestLB, BayernLB, and SachenLB). 

global response to the crisis would have yielded better results, 

given how quickly some countries emulated other countries’ responses at the height of the crisis. There is also no reason to think 

that anything other than ad hoc, country-specific measures were 

feasible at the peak of the crisis, given that different countries 

have different interests, and they inevitably will seek to pursue 

their own interests during an emergency. Fortunately in this instance, the interests of the countries most affected tended to converge at the peak of the crisis—when a further meltdown of the 

global financial system would have had deleterious consequences 

for many nations—though they later began to diverge again. 

a. Capital Injections 

One of the most common government responses to the 2008 financial crisis was the direct purchase of securities from troubled 

banks in order to inject needed capital into these firms and the financial sector in general. Although the term ‘‘capital injections’’ 

most commonly refers to the purchase of common or preferred 

shares by a government, it can refer to a broad range of strategies.115 (When classifying such actions, among the many variables 

to be considered are whether there is a private capital component 

to the plan, the type of securities or other assets that are purchased, whether the government takes a minority or majority 

stake, whether the securities are purchased at market value, and 

the degree of government involvement in management, board membership, and operations.) The more extreme forms of capital injections fade into ‘‘nationalization,’’ discussed in the following section. 

Equity capital injections are an efficient method of assisting failing financial institutions with non-performing assets, compared to 

asset purchases for instance, since the new equity can be leveraged. Former Treasury Secretary Henry Paulson explained the advantage of this method in his recent book on the financial crisis: 

To oversimplify: assuming banks had a ten-to-one leverage ratio, injecting $70 billion in equity would give us as 

much impact as buying $700 billion in assets. This was the 

fastest way to get the most money into the banks, renew 

confidence in their strength and get them lending again.116

Although most capital injection programs followed and appear to 

have been inspired by the TARP and its Capital Purchase Program 

(CPP),117 some capital injections preceded the TARP, such as Germany’s purchases of equity in four major banks between August 

2007 and August 2008.118 The United Kingdom’s capital injection 


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119The relationship between the U.K. program and the CPP is discussed in Section E.1, infra. 120 International Monetary Fund, Updated Stocktaking of the G–20 Responses to the Global 

Crisis: A Review of Publicly Announced Programs for the Banking System, at 7 (Sept. 3, 2009) 

(online at www.imf.org/external/np/g20/pdf/090309b.pdf). 121See Federal Agency for Financial Market Stabilisation, Fund for the Stabilization of the 

Financial Market Starts Its Operations in Germany (Oct. 27, 2008) (online at www.soffin.de/en/ 

press/press-releases/2008/20081027_press_release_soffin.html). See also Federal Agency for Financial Market Stabilisation, The Formation (online at www.soffin.de/en/soffin/objectives/ 

the-formation/) (accessed Aug. 10, 2010); Federal Agency for Financial Market Stabilisation, Financing (online at www.soffin.de/en/soffin/financing/) (accessed Aug. 10, 2010). 122See Federal Agency for Financial Market Stabilisation, Stabilisierungsmabnahmen des 

SoFFin (June 30, 2010) (online at www.soffin.de/de/soffin/leistungen/massnahmen-aktuell/ 

index.html) (in German). See also Commerzbank, Term Sheet: SoFFin (Dec. 19, 2008) (online 

at www.commerzbank.com/media/aktionaere/vortrag/2008/081219_SoFFin_Term-Sheet.pdf). 

SoFFin’s investments typically took the form of interest bearing hybrid securities termed ‘‘silent 

participation,’’ as well as, in some cases, a stake in voting common equity. For example, 

Commerzbank received a total of Ö16.9 ($23 billion) billion in hybrid securities, in several 

tranches, bearing an interest rate of 9 percent, which the bank has so far been unable to pay. 

These securities were later made convertible to common equity. See Commerzbank, 

Commerzbank and SoFFin Agree on Loan Programme for Mittelstand (SME) (Dec. 18, 2008) (online at www.commerzbank.com/en/hauptnavigation/presse/archiv_/presse_mitteilungen/2008/ 

quartal_08_04/presselarchivldetail_08_04_4919.html). See also James Wilson, Commerzbank 

Prepares for Withdrawal of State Support, Financial Times (May 20, 2010) (online at 

program, discussed below, was also a likely inspiration for similar 

programs.119

Following the establishment of the TARP on October 3, 2008, 

many countries created similar stabilization funds that included a 

capital injection component. Figure 13 below shows the volume of 

capital injections implemented by G–20 countries between September 2008 and June 2009, with the bulk of capital injections occurring in November 2008. 

FIGURE 13: GOVERNMENT CAPITAL INJECTIONS BY G–20 NATIONS 120

Many EU nations, in particular, established capital injection programs. For instance, on October 17, 2008, the German parliament 

enacted the Financial Market Stability Act, which created a Ö480 

billion ($646 billion) stabilization fund known as the Sonderfonds 

Finanzmarktstabilisierung (SoFFin), which, among other things, 

authorized up to Ö80 billion ($107 billion) in capital injections.121

Ultimately, only Ö29 billion ($40 billion) was expended on capital 

injections into four banks, with more than half of that amount 

going to Commerzbank.122


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www.ft.com/cms/s/0/bc23dc62-63a6-11df-a32b-00144feab49a.html). The German government 

later purchased Ö1.8 billion ($2.4 billion) in common equity as well, giving it a 25 percent plus 

1 share stake in the bank. These shares were purchased at near market value and did not cause 

significant dilution of the bank’s private shareholders. Commerzbank, Annual General Meeting 

2009 Approves Capital Increase to Allow for SoFFin Participation (May 16, 2009) (online at 

www.commerzbank.com/en/hauptnavigation/presse/archivl/presselmitteilungen/2009/ 

quartal_09_02/presse_archiv_detail_09_02_5662.html). Conversion of the silent participation securities, however, which has been mentioned as a possible government exit strategy, would result in substantial dilution. SoFFin conditioned its investment on compensation limits for the 

Commerzbank’s board. This cap was recently renewed until the bank becomes current on its 

debt service on the government investment. Commerzbank, Commerzbank Invites for Annual 

General Meeting on May 19, 2010 (Mar. 31, 2010) (online at www.commerzbank.com/en/ 

hauptnavigation/presse/archivl/presselmitteilungen/2010/quartal_10_01/ 

presse_archiv_detail_10_01_6773.html). 123Officially the ‘‘Socie ́te ́ de Prise de Participation de l’Etat.’’ 124SPPE investments were deeply subordinated perpetual hybrid debt securities known as 

Titres Subordonne ́s Souscrits (TSS). TSS bear a two-phase interest rate—a fixed rate for the 

first 5 years, upon which the security converts to variable rate. In the case of Socie ́te ́ Generale, 

SPPE’s investment was in non-convertible preferred stock, which did not differ greatly in effect 

from the TSS. Because none of these investments were convertible, SPPE’s capital injections 

were not dilutive to common equity holders. The additional debt service burden created by the 

TSS put pressure on the participating banks’ profits, however. There is no evidence that the 

SPPE forced changes in the management or board membership of participating banks. See Letter from Neelie Kroes, commissioner for competition policy, European Commission, Capital-Injection Scheme for Banks, at 3, 4–6 (Dec. 8, 2008) (online at ec.europa.eu/competition/state_aid/ 

register/ii/doc/N-613-2008-WLWL-en-08.12.2008.pdf) (hereinafter ‘‘Capital-Injection Scheme for 

Banks’’). See also Mayer Brown, Summary of Government Interventions in Financial Markets: 

France, at 1–2 (Sept. 8, 2009) (online at www.mayerbrown.com/publications/ 

article.asp?id=7847&nid=6). 125 APE, the Agence de Participations de l’Etat, was formed in 2003. It was specifically designed to separate the conflicting roles the government assumes in its relationship with stateowned corporations, as a shareholder, a customer, and a regulator. As a purely shareholding 

entity, APE avoids the appearance of conflicts of interest and promotes transparency. See 

Agence De Participations De L’Etat, The Missions of the Government Shareholding Agency 

(APE) (online at www.ape.minefi.gouv.fr/sections/qu_est_ce_que_1_ape/) (accessed Aug. 10, 

2010). 126 Capital-Injection Scheme for Banks, supra note 124, at 8–10. 127Financial Support to the Banking Industry, supra note 62. 

Another, similar example is France’s State Shareholding Corporation (SPPE).123 Established on October 20, 2008, this government-owned entity purchased significant amounts of securities in 

large banks such as BNP Paribas, Socie ́te ́ Ge ́ne ́rale, and Credit 

Agricole S.A. (Credit Agricole), in two separate rounds of recapitalization.124 Unlike the CPP, where the shares were directly held by 

Treasury, SPPE was set up as a corporation (socie ́te ́ anonyme), 

with the government as the sole shareholder. SPPE was itself controlled by a preexisting government agency, the Government 

Shareholding Agency (APE), which also controls government investments in many other sectors of the French economy, such as 

telecom, airports, and defense.125 France’s long history with stateowned enterprises (entreprises publiques) made it possible for the 

government to use a preexisting framework to address the unprecedented situation of the 2008 financial crisis. SPPE imposed a number of ‘‘behavioral commitments’’ on participating banks, including 

lending targets and limits on severance payments for executives.126

The government of the United Kingdom was another notable 

user of capital injections through its Bank Recapitalisation Scheme 

(BRS), which was instituted on October 8, 2008 as part of a larger 

package of stability measures.127 This £50 billion ($87 billion) program was designed to boost Tier 1 capital at British banks. Unlike 

the CPP, however, the British government set a target for new capital to be raised by participating banks. Those banks could then either raise the capital on their own from private investors, or from 

funds provided by the government in exchange for preferred and 


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128Mayer Brown, Summary of Government Interventions in Financial Markets: United Kingdom, at 1 (Sept. 8, 2009) (online at www.mayerbrown.com/public_docs/0363finSummary_of_Government_Interventions_UK_2col.pdf). 129The eight large British financial institutions were: Abbey; Barclays; HBOS; HSBC Bank 

plc; Lloyds TSB; Nationwide; RBS; and Standard Chartered. 130 Arguably, three banks took government funds, since Lloyds’ funding was conditioned on 

a successful merger with HBOS. HBOS shareholders therefore indirectly benefited from the government funds provided to Lloyds. See Jodie Ginsberg and Steve Slater, UK Bank Bail-Out to 

Take Big Stakes in Top Banks, Reuters (Oct. 13, 2008) (online at www.reuters.com/article/ 

idUSTRE49C1LQ20081013). The nature of the government investments in these firms was unlike most other capital injection programs, such as the CPP. In the case of RBS, the Government 

acted as the underwriter for a £15 billion ($26 billion) common equity offering that would be 

made available to existing RBS Shareholders at a fixed price of 65.5 pence per share (RBS was 

trading at around 50–60 pence after a precipitous drop over the prior weeks). Only 0.24 percent 

of the new shares were purchased by shareholders, leaving the remainder to be purchased by 

the government at 65.5 pence per share. Additionally, the government subscribed for 5 billion 

($8.5 billion) in convertible preferred shares (‘‘preference shares’’ in British parlance) bearing a 

12 percent coupon. Both of these transactions were highly dilutive to existing shareholders. The 

Lloyds/HBOS investment was similarly structured to the RBS investment, and similarly dilutive 

to existing shareholders. See House of Commons, Treasury—Seventh Report Banking Crisis: 

Dealing With the Failure of the UK Banks, at Section 3, paragraphs 133–146 (Apr. 21, 2009) 

(online at www.parliament.the-stationery-office.co.uk/pa/cm200809/cmselect/cmtreasy/416/ 

41606.htm). 131Landon Thomas Jr. and Julia Werdigier, Britain Takes a Different Route to Rescue Its 

Banks, New York Times (Oct. 9, 2008) (online at www.nytimes.com/2008/10/09/business/ 

worldbusiness/09pound.html) (hereinafter ‘‘Britain Takes a Different Route to Rescue Its 

Banks’’). 132The Bank Recapitalization Scheme lending targets have not been successfully met. See, 

e.g., Kathryn Hopkins, Banks Fail to Meet Targets to Increase Lending to Small Business, The 

Guardian (Apr. 1, 2010) (online at www.guardian.co.uk/business/2010/apr/01/banks-fail-lendingbusiness-targets). Nevertheless, these targets were recently increased by the new coalition government. Jill Treanor, Coalition Plans New Lending Targets for Bailed-Out Banks, The Guardian (June 27, 2010) (online at www.guardian.co.uk/business/2010/jun/27/coalition-plans-banklending-targets). Lending targets of this sort, also employed by France, Austria, and the Netherlands, have been criticized by some, such as the Institute of International Finance, a global 

banking trade group, as being protectionist and destabilizing to credit flows. Peter Foster, Government Lending Targets for Bail-Out Banks Feed Protectionism, Warns IIF, The Telegraph 

(June 11, 2009) (online at www.telegraph.co.uk/finance/economics/5505726/Government-lendingtargets-for-bail-out-banks-feed-protectionism-warns-IIF.html). 133 International cooperation during the financial crisis is discussed in Section E, infra. 

common stock.128 Although this program, mentioned earlier in Section C.1.a, was open to all banks within the United Kingdom as 

well as U.K. subsidiaries of foreign banks, the government’s focus 

was on eight large and systemically significant banks.129 All eight 

of these banks participated in the program in the sense of raising 

the requisite capital. Only two of Britain’s largest banks, Royal 

Bank of Scotland and Lloyds TSB, actually took the government 

funds, totaling £37 billion ($65 billion).130

The British government emphasized that the Bank 

Recapitalisation Scheme was designed to provide maximum protection for the taxpayer. This was highlighted by the Prime Minister 

at the time, Gordon Brown, who contrasted the British approach 

with the initial TARP plan for asset purchases.131 Even after the 

United States switched to a strategy of capital injections, there 

were substantial differences between the countries’ approaches. 

Unlike the CPP, which was designed to be attractive to banks in 

order to maximize participation, the BRS imposed a number of rigorous conditions on participating banks, including, among other 

things, lending targets.132

Although most countries tended to focus on assisting their own 

domestic banks, in certain cases, several countries jointly contributed capital to a troubled bank.133 A notable example occurred on 

September 28, 2008 when the governments of Belgium, Netherlands, and Luxembourg purchased a 49 percent stake in Fortis 

N.V./S.A. (Fortis), a large bank and insurance company, for Ö16.4 


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134Fortis Bank, Annual Report 2008: Fortis Bank NV/SA, at 10 (Apr. 9, 2009) (online at 

www.fortisbank.com/en/press/media/UK_FBBE_Annual_report_2008_20042009.pdf). 135 IMF Proposed Framework for Enhanced Coordination, supra note 33, at 13. 136Mayer Brown, Summary of Government Interventions in Financial Markets: European Central Bank (and the Eurosystem), at 3 (May 26, 2009) (online at www.mayerbrown.com/ 

public_docs/ 0287fin-Interventions_ECB.pdf). 137This currency conversion uses the average historical exchange rate during the 420 days 

from the program’s inception to completion. 138See, e.g., European Central Bank, Monthly Report on the Eurosystem’s Covered Bond Purchase Programme, May 2010, at 1 (June 2010) (online at www.ecb.int/pub/pdf/other/monthly 

reporteurosystemcoveredbondpurchaseprogramme201006en.pdf). 139See also April Oversight Report, supra note 2, at 55–60. 140See, e.g., Heather Montgomery and Satoshi Shimizutani, The Effectiveness of Bank Recapitalizations in Japan, at 12 (June 2005) (online at hi-stat.ier.hit-u.ac.jp/research/discussion/2005/ 

pdf/D05-105.pdf). This research paper examines the effect of Japanese capital injections on international and regional bank behavior, specifically on regulatory capital strength, total lending, 

lending to small businesses, and loan write-offs. In summary, the authors found that the second 

round of capital injections (1998–99), which was more company specific in structure than the 

first, was particularly effective. The authors partially credit this to a requirement that participating banks submit a restructuring plan that outlined how the capital would be used. See also 

Richard Koo, The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can 

Learn from Japan 1990–2005 (Oct. 2009) (online at www.imf.org/external/am/2009/pdf/ 

APDKoo.pdf). 141See Mizuho Financial Group, Inc., Form 20–F for Fiscal Year Ended March 31, 2009, at 

33 (Aug. 19, 2009) (online at www.sec.gov/Archives/edgar/data/1335730/000119312509177855/ 

d20f.htm). 142Deposit Insurance Corporation of Japan, Capital Injection (online at www.dic.go.jp/english/ 

e_katsudou/e_katsudou3.html) (accessed Aug. 10, 2010); Deposit Insurance Corporation of 

Japan, List of Capital Injection Operations Pursuant to the Financial Functions Strengthening 

Act (online at www.dic.go.jp/english/e_katsudou/e_katsudou3-2.html) (accessed Aug. 10, 2010). 

billion ($23.9 billion).134 Despite a long history of cooperation between these three countries, the subsequent sale of Fortis to BNP 

Paribas was delayed and complicated by opposition from Belgian 

shareholders, highlighting the difficulties individual national concerns present in international rescue efforts.135

The EU, through the European Central Bank (ECB), used capital 

injections as one of the strategies it pursued to assist banks in 

member countries. On May 7, 2009, the European Central Bank 

began the Covered Bond Purchase Programme to purchase eligible 

Euro-denominated corporate bonds as a way of injecting additional 

capital into the financial system, particularly banks.136 This program concluded on June 30, 2010 after being used to purchase Ö60 

billion ($83.5 billion) in bonds.137 ECB documents indicate that the 

ECB believed the program helped reduce euro zone covered bond 

spreads significantly, and thus lowered the cost of capital raised 

using these instruments.138

Japan had considerable experience with capital injections over 

the past two decades, and brought this experience to bear in the 

recent financial crisis. Beginning in 1997, the Japanese government injected over ¥10 trillion ($116 billion in today’s dollars) in 

new capital into the Japanese banking system in two separate 

tranches. These injections were accomplished either by purchasing 

preferred shares or, more commonly, through subordinated debt.139

Some observers consider these actions to have been successful overall.140 In 2004, the Japanese government passed the Financial 

Functions Strengthening Act, which provided a procedure for future capital injections.141 The Deposit Insurance Corporation of 

Japan (DIC) began using this new authority in late 2006 with capital injections to two banks, Kiya Bank and Howa Bank Limited. 

Beginning in March 2009, DIC began a series of capital injections 

to 11 banks, in the form of convertible preferred shares.142 Due to 


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143During the summer of 2010, the Committee of European Banking Supervisors stress tested 

91 European banks. The tested banks comprised 65 percent of the European banking sector by 

assets. These tests used an approach similar to that used in the 2009 U.S stress tests, discussed 

in the Panel’s June 2009 Report. Congressional Oversight Panel, June Oversight Report: Stress 

Testing and Shoring Up Bank Capital, at 6–26 (June 9, 2009) (online at cop.senate.gov/ 

documents/cop-060909-report.pdf) (hereinafter ‘‘June Oversight Report’’). Results of the tests 

were announced on July 23, 2010, and are available online. See Committee of European Banking 

Supervisors, 2010 EU Wide Stress Testing (July 2010) (online at www.c-ebs.org/ 

EuWideStressTesting.aspx). These stress tests are also discussed in Section E.1.b, infra. 144Mark E. Ruquet, Greenberg Pans AIG ‘‘Nationalization’’, National Underwriter Life and 

Health (Sept. 18, 2008) (online at www.lifeandhealthinsurancenews.com/News/2008/9/Pages/ 

Greenberg-Pans-AIG-Nationalization-.aspx). For an extensive review of the AIG rescue, see June 

Oversight Report, supra note 10. 

their convertible nature, these capital injections were potentially 

dilutive to existing shareholders. 

Overall, capital injections were a common government response 

during the initial weeks and months of the financial crisis. The example of the TARP certainly encouraged the use of capital injections, although there were many variations both in the manner in 

which the capital was provided, and the consequences of the capital 

injection to the company and its investors.143

b. Nationalizations 

In certain instances, governments went beyond capital injections, 

completely or effectively nationalizing ailing financial institutions. 

The term ‘‘nationalization’’ can be used to cover a wide array of 

possible actions, from the government purchase of a majority stake 

in a private firm as a passive investor to putting a failed bank into 

receivership for liquidation. This section will generally disregard 

the latter, as this strategy is not a new response to the recent financial crisis, and is usually simply a mechanism for conducting an 

orderly bankruptcy, rather than an extraordinary government takeover of a private enterprise. In certain cases, however, it is difficult 

to draw a strict distinction between a bank liquidation and nationalization. 

The U.S. federal government’s placement of Fannie Mae and 

Freddie Mac into conservatorship on September 8, 2008, as well as 

the acquisition of 80 percent of insurance giant AIG on September 

16, 2008, have been termed ‘‘nationalization’’ by some, in the latter 

case notably by former AIG CEO Maurice ‘‘Hank’’ Greenberg.144

The federal government has not characterized these actions as nationalization, however, likely due to the negative connotations of 

the term in the United States. Other nations, including most European nations, had no such compunction about calling similar actions nationalization. 

The U.K. takeover of Northern Rock, one of the U.K.’s largest 

banks at the time, is perhaps the best known nationalization of a 

bank in the financial crisis. During the summer of 2007, ongoing 

problems with U.S. subprime mortgages caused a severe contraction in the money markets, as banks became increasingly wary of 

lending to one another. Beginning in September 2007, the Bank of 

England made loans and provided other assistance to Northern 

Rock, which had been unable to refinance its maturing debts. The 

news of this support prompted a brief run on the bank, which was 

only halted by promises of asset guarantees by the U.K. Treasury. 

Despite this assistance, the company’s need for capital kept growVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00040 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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145See The Nationalization of Northern Rock, supra note 46, at 23. This report contains numerous criticisms of the British government’s handling of the Northern Rock situation, and puts 

the estimated taxpayer losses at between £2 and £10 billion ($3 to $14 billion). 146Prior to nationalization, Northern Rock had over 190,000 shareholders. In 2008, the British 

Treasury appointed an independent ‘‘valuer’’ to determine what compensation these shareholders should receive. The valuer ultimately determined that Northern Rock shares were 

worthless if the £25 billion ($40 billion) government loan was subtracted from Northern Rock’s 

pre-nationalization value. This decision not to grant any compensation caused considerable controversy among former shareholders, many of whom disputed the valuer’s assumptions and 

methodology. Northern Rock, Independent Valuation Under the Northern Rock PLC Compensation Scheme Order 2008: Consultation Document December 2009 (Dec. 2009) (online at 

www.northernrockvaluer.org.uk/media/uploads/page_contents/downloadables/ 

Consultation%20Document%20December%202009.pdf). See generally Northern Rock, Northern 

Rock Valuer’s Website (online at www.northernrockvaluer.org.uk/default.aspx) (accessed Aug. 10, 

2010). 147See Northern Rock, Update on State Aid Approval Process for Northern Rock (June 26, 

2009) (online at companyinfo.northernrock.co.uk/investorRelations/news/ 

viewFeedarticle.aspx?id=169296873417676); BBC News, Northern Rock Confirms Split Plan 

(June 26, 2009) (online at news.bbc.co.uk/2/hi/business/8121517.stm). 148 Hypo Real Estate Group, Hypo Real Estate Shareholders Approve Capital Increase (June 

2, 2009) (online at www.hyporealestate.com/eng/pdf/02062009_PIHV_2009_Englisch_Endfassung.pdf). 149Mayer Brown, Summary of Government Interventions in Financial Markets: Germany, at 

1–3 (Sept. 8, 2009) (online at www.mayerbrown.com/publications/article.asp?id=7848&nid=6). 150 Id. at 5. 151 Hypo Real Estate Group, HRE General Meeting Passes Resolution on the Squeeze-Out of 

Minority Shareholders (Oct. 5, 2009) (online at www.hyporealestate.com/eng/pdf/PIaO_Hauptversammlung_englisch_Endfassung.pdf). For explanation of the J.C. Flowers dispute, 

see, e.g., Carter Dougherty, J.C. Flowers Has No Allies in Battle Over Hypo Real Estate, The 

New York Times (Apr. 27, 2009) (online at www.nytimes.com/2009/04/28/business/global/ 

28hypo.html). 

ing. By February 2008, the government’s potential liabilities from 

Northern Rock totaled more than £100 billion ($196 billion). 

Unable to find a buyer for Northern Rock, the government announced it was nationalizing the bank on February 17, 2008.145

After a lengthy arbitration process, it was determined that former 

Northern Rock shareholders should not be compensated.146 The nationalized Northern Rock shares were held by UK Financial Investments Ltd., a publicly owned firm that would allow the government 

to remain a passive investor. Nevertheless, sweeping changes were 

instituted at Northern Rock, including a new board of directors, 

many layoffs, a merger with another nationalized bank, a split into 

a ‘‘good bank’’ and a ‘‘bad bank,’’ and the sale or transfer of many 

assets, including much of the mortgage book. Although the nationalization was controversial, the company has recovered somewhat 

and expects to repay the government loan by the end of 2010.147

Another example of nationalization was Germany’s takeover of 

Hypo Real Estate AG (HRE), a major mortgage lender. After over 

Ö80 billion ($107 billion) in loan guarantees by the German government failed to solve HRE’s substantial financial problems, the government, through SoFFin, made a Ö2.9 billion ($4.1 billion) offer to 

purchase 90 percent of the firm, which was accepted on June 2, 

2009.148 This offer closely followed the passage of a new expropriation law on April 9, 2009.149 On June 8, 2009, using the provisions 

of the new law, SoFFin demanded that the remaining shares be 

turned over to it.150 After much dispute with the minority shareholders over this ‘‘squeeze-out,’’ particularly with the American private equity firm J.C. Flowers, HRE was finally fully acquired by 

SoFFin on October 5, 2009.151 The government did not remove the 

HRE’s CEO, presumably because he had joined HRE in October 


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152See Hypo Real Estate AG, Supervisory Board Appoints New Members to the Management 

Board of Hypo Real Estate Holding AG (Oct. 13, 2008) (online at www.hyporealestate.com/eng/ 

pdf/20081007_19.15_Ad.Hoc_eng.pdf). 153The European stress tests are discussed in Section E.1.b, infra. 154Tasneem Brogger and Helga Kristin Einarsdottir, Iceland Drops Glitnir Purchase; Bank in 

Receivership, Bloomberg (Oct. 8, 2008) (online at noir.bloomberg.com/apps/ 

news?pid=newsarchive&sid=a9KS9N9H_GLw&refer=home%5D). 155Ministry of Justice and Ecclesiastical Affairs (Iceland), Announcement: Decision of the Financial Supervisory Authority on the Appointment of a Receivership Committee for GlitnirmBank 

hf, The Legal Gazette (Oct. 7, 2008) (online at www.fme.is/lisalib/getfile.aspx?itemid=5671). 

156Financial Supervisory Authority of Iceland, Annual Report 2009, at 12 (June 11, 2010) (online at www.fme.is/lisalib/getfile.aspx?itemid=7294). 157Glitnir’s press release archive does not cover the period prior to October 2008. Several 

press accounts have mentioned that the CEO was requested to stay. See, e.g., David Teather, 

Banking Crisis: Iceland Takes Control of Glitnir, The Guardian (Sept. 29, 2008) (online at 

www.guardian.co.uk/business/2008/sep/29/icelandiceconomy.banking). In any event, the CEO remained at Glitnir for several months after nationalization. Though Glitnir did not announce his 

departure, a new CEO has since been appointed. See, e.g., Glitnir, New CEO of Glitnir Bank 

(Aug. 5, 2009) (online at www.glitnirbank.com/home/198-new-ceo-of-glitnir-bank.html). 

2008 and was not held responsible for the company’s condition.152

Although this takeover may have saved a major lender from bankruptcy, HRE remains an extremely weak company. Despite being 

under complete government ownership for over a year, HRE was 

the only German bank to fail the recent EU bank stress tests.153

The 2008 financial crisis had a greater impact on Iceland’s economy than that of any other nation. Following the collapse of Glitnir 

Bank (Glitnir), the Icelandic government announced on September 

28, 2008 that it would nationalize the bank through purchase of a 

75 percent equity stake for the equivalent of $875 million.154 Within days, however, the government decided to cancel the purchase 

and put the insolvent bank directly into receivership, as well as 

NBI hf (Landsbanki) and Kaupthing Bank (Kaupthing), the two 

other large banks in the country.155 These institutions were divided 

into ‘‘old’’ and ‘‘new’’ banks—essentially a bad bank-good bank 

strategy—with the latter designed to be viable businesses without 

the burden of the distressed assets of the former banks.156 The 

CEOs of Kaupthing and Landsbanki resigned upon takeover, presumably under government pressure. The CEO of Glitnir was 

asked to stay on, but has since resigned.157 Iceland is still in the 

process of resolving these and other banks in receivership. 

c. Expanded Deposit Insurance 

Deposit insurance schemes provide a safety net that maintains 

depositor confidence in the solvency of banks and discourages bank 

runs by small, uninformed depositors. Insured depositors are protected against the consequences associated with the failure of a 

bank, thereby relieving them of the difficult task of monitoring and 

assessing the health of their financial institution in order to ensure 

the security of their savings. Insurance levels are typically capped 

under the assumption that larger depositors are better informed 

and thus better able to exert discipline on banks. A trusted deposit 

insurance scheme can be particularly valuable in times of crisis 

when market participants of all sizes find it difficult to distinguish 

between illiquid and insolvent financial institutions or to gauge the 

level of implicit government support for the financial sector. In the 

fall of 2008, most developed economies expanded their deposit inVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00042 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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158Sebastian Schich, Financial Crisis: Deposit Insurance and Related Financial Safety Net Aspects, OECD Journal: Financial Market Trends, Vol. 2008/2, No. 95, at 12–21 (2008) (online at 

www.oecd.org/dataoecd/36/48/41894959.pdf). 159 International Association of Deposit Insurers, 2007/2008 Annual Report, at 15 (2008) (online at www.iadi.org/annual_reports/IADI_AnnualReport_low.pdf). In addition to the 99 deposit 

insurance schemes in operation, another 8 were pending, and 12 were planned or under study 

as of March 2008. 160 International Association of Deposit Insurers, 2008/2009 Annual Report: Charting a 

Course Through a Global Crisis, at 1 (2009) (online at www.iadi.org/annual_reports/ 

AnnualReport08_09.pdf). 161See 12 U.S.C. § 5241(a)(1). 162Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203, at 

§ 335 (2010) (hereinafter ‘‘Dodd-Frank Wall Street Reform and Consumer Protection Act’’). 163See November Oversight Report, supra note 68, at 27–35. 164See U.S. Department of the Treasury, The Next Phase of Government Financial Stabilization and Rehabilitation Policies, at 46 (Sept. 2009) (online at www.treas.gov/press/releases/docs/ 

Next%20Phase%20of%20Financial%20Policy,%20Final,%202009-09-14.pdf). 165 Credit Institutions (Financial Support) Act of 2008 (No. 18 of 2008) (Oct. 2, 2008) (online 

at www.irishstatutebook.ie/2008/en/act/pub/0018/print.html). 166The six banks covered by the guarantee were Allied Irish Bank, Bank of Ireland, Anglo 

Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society, and the Educational 

Building Society. Department of Finance (Ireland), Government Decision to Safeguard Irish 

Banking System (Sept. 30, 2008) (online at www.finance.gov.ie/documents/pressreleases/2008/ 

blo11.pdf) (hereinafter ‘‘Government Decision to Safeguard Irish Banking System’’). 167See Neelie Kroes, commissioner for competition policy, European Comission, Speech Before 

the Economic and Monetary Affairs Committee, European Parliament, Dealing with the Current 

Financial Crisis (Oct. 6, 2010) (online at europa.eu/rapid/ 

Continued 

surance schemes to avoid further destabilization as a result of bank 

runs.158

According to the International Association of Deposit Insurers, 99 

countries had explicit deposit insurance schemes in operation at 

the onset of the financial crisis.159 In the fall of 2008, ‘‘47 jurisdictions acted to strengthen their deposit insurance systems in response to the crisis.’’ 160

In the United States, language in EESA temporarily raised the ceiling on FDIC deposit insurance from $100,000 per depositor per 

bank to $250,000.161 The increase became permanent with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010.162 In addition, two weeks prior to the 

passage of EESA, Treasury responded to a broad-based run on 

money market mutual funds triggered by the collapse of Lehman 

Brothers by creating the Temporary Guarantee Program for Money 

Market Funds (TGPMMF). TGPMMF provided a guarantee to investors in all participating money market funds that the value of 

their investment would not drop below $1.00 per share.163 After 

two extensions, the TGPMMF expired on September 18, 2009.164

The first foreign government to expand its deposit insurance 

scheme was Ireland. On September 20, 2008, Ireland’s Minister of 

Finance announced that the Irish government would increase its 

insurance limit from Ö20,000 ($29,000) to Ö100,000 ($143,000).165

On September 30, only hours after the U.S. House of Representatives surprised financial markets by failing in its initial attempt to 

pass financial stability legislation, Ireland went a step further, 

passing an emergency law authorizing an unlimited temporary 

guarantee arrangement safeguarding all deposits and debts with 

its six major banks for two years.166

This unilateral decision to guarantee deposits of any size raised 

concerns among other EU countries and the European Commissioner for Competition Policy that Ireland was distorting the market by providing its banks with a competitive advantage.167 ReVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00043 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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pressReleasesAction.do?reference=SPEECH/08/ 

498&format=HTML&aged=0&language=EN&guiLanguage=en). 168Financial Services Authority (U.K.), Compensation Scheme to Cover Savers’ Claims Up to 

£50,000 (Oct. 3, 2008) (online at www.fsa.gov.uk/pages/Library/Communication/PR/2008/ 

114.shtml) (hereinafter ‘‘FSA Press Release—Compensation Scheme’’). 169Financial Services Authority (U.K.), Icesave—Statement to Customers (Oct. 8, 2010) (online 

at www.fsa.gov.uk/pages/consumerinformation/firmnews/2008/ 

icesavestatementcustomers_.shtml). 170Similar rescues of local subsidiaries of Icelandic banks were implemented by the Netherlands. See, e.g., Netherlands—De Nederlandsche Bank (DNB), Press Release: DNB Activates Deposit Guarantee Scheme for Savers at Icesave (Oct. 9, 2008) (online at www.dnb.nl/en/news-andpublications/news-and-archive/persberichten-2008/dnb189090.jsp). 171See, e.g., Larry Elliott, Miles Brignall, and Henry McDonald, Savers in Stampede to Safety, 

The Guardian (Oct. 2, 2008) (online at www.guardian.co.uk/politics/2008/oct/02/ 

alistairdarling.ireland); British Bankers Association, BBA Statement on Irish Guarantee (Oct. 1, 

2008) (online at www.bba.org.uk/bba/jsp/polopoly.jsp?d=1569&a=14580) (‘‘The extent of the guarantee has clear consequences for firms competing to win retail deposits and, while we support 

proposals aimed at re-introducing stability to the financial markets, we need fair play for financial institutions across Europe.’’). 172 European Parliament and the Council of the European Union, Directive 94/19/EC of the 

European Parliament and of the Council of 30 May 1994 on Deposit-Guarantee Schemes, at Art. 

4(1) (May 30, 1994) (online at eur-lex.europa.eu/LexUriServ/ 

LexUriServ.do?uri=CELEX:31994L0019:EN:HTML). Pursuant to Article 4(1) of 94/19/EC, 

‘‘[d]eposit-guarantee schemes introduced and officially recognized in a Member State in accordance with Article 3(1) shall cover the depositors at branches set up by credit institutions in other 

Member States.’’ Thus, for example, depositors in branches of Irish banks located in the United 

Kingdom are covered by the Irish deposit insurance scheme. In the event that the host country 

that the foreign branch is operating in has a higher coverage limit than that bank’s home country, the host country must allow the bank to buy into its insurance scheme in order to cover 

the difference. Id. at Art. 4(2). 173 Icesave was an internet branch of Landsbanki, an Icelandic bank with an EEA passport. 

Icesave had ‘‘topped up’’ into the U.K.’s Financial Services Compensation Scheme (FSCS), meanports of an exodus of deposits from U.K. banks to Irish banks led 

the U.K.’s Financial Services Authority (FSA), on October 3, to increase its compensation limit for bank deposits from £35,000 

($61,834) to £50,000 ($88,335) on individual claims and up to a 

maximum of £100,000 ($176,670) for joint accounts.168 The United 

Kingdom also found itself in the position of guaranteeing the deposits of Icesave, an online branch of the failed Icelandic bank 

Landsbanki, which catered to British citizens.169 The Icesave guarantee was an unusual case of a bank being rescued by a foreign 

government.170 It highlights the difficulties in effectively dealing 

with globalized financial institutions, especially those 

headquartered in small nations, such as Iceland, which lack the 

economic capacity to rescue large firms themselves. 

The lack of an initial coordinated EU approach to deposit insurance expansion underscored the potential adverse spillover effects 

of adjusting national deposit insurance in a globalized economy.171

This problem is magnified in the European Economic Area (EEA) 

where member states observe a ‘‘single passport’’ system that permits financial services operators legally established in one member 

state to operate in the other member states without further authorization requirements. Under a European Commission directive 

adopted in 1994 that sets minimum standards for deposit insurance, all EEA members must establish a deposit insurance scheme 

with minimum coverage of Ö20,000 ($27,000 in today’s dollars) per 

depositor. Deposits in banks that use the passport system to establish branches or subsidiaries in other EEA member states are covered by the deposit insurance scheme of the bank’s home state.172

As the United Kingdom found in the case of the Icelandic bank 

Landsbanki, this arrangement can cost the host state in the event 

that the bank’s home state deposit insurance scheme is unwilling 

or unable to protect depositors.173


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ing that Iceland’s Depositors’ and Investors’ Guarantee Fund (IDIGF) was liable for the first 

Ö20,887 ($28,765) of any claim, and the FSCS was liable for any amount above that up to the 

U.K. limit, of £50,000 ($87,805) at the time. See Financial Services Authority (U.K.), Financial 

Risk Outlook 2009, at 19 (Feb. 2009) (online at www.fsa.gov.uk/pubs/plan/financial_risk_outlook_2009.pdf). As discussed in Section C.1.b, on October 6, 2008, Iceland adopted 

emergency legislation authorizing the nationalization of its three largest banks, including 

Landsbanki, all of which had lost the ability to refinance their liabilities in international capital 

markets. The Icelandic government announced it would guarantee all domestic deposits at these 

institutions, but was non-committal as to how depositors in foreign branches would be treated. 

The United Kingdom stepped in to cover these deposits in order to maintain confidence in the 

British banking system. See United Kingdom Financial Services Compensation Scheme (FSCS), 

Determination: FSCS Accelerated Compensation for Depositors Instrument 2008 (Landsbanki Islands hf) (Nov. 4, 2008) (online at www.fscs.org.uk/industry/determinations/icesave/). The IDIGF 

agreed to reimburse the United Kingdom for the amounts paid out to eligible depositors of the 

Icesave accounts up to Ö20,887 ($28,765) per depositor, totaling approximately £2.4 billion ($4 

billion). However, as a result of the financial crisis, the IDIGF has limited resources at this 

time, so a loan agreement was reached to satisfy the IDIGF’s debt (guaranteed by the government of Iceland) to the United Kingdom. The terms of the loan are still awaiting approval from 

the Icelandic Parliament and President. See Prime Minister’s Office (Iceland), Press Release: Iceland Negotiations Concluded—Outcome Presented (Oct. 18, 2009) (online at 

eng.forsaetisraduneyti.is/news-and-articles/nr/4008); Acceptance and Amendment Agreement Relating to a Loan Agreement Dated 5 June 2009 Between The Depositors’ and Investors’ Guarantee 

Fund of Iceland and Iceland and The Commissioners of Her Majesty’s Treasury (Oct. 19, 2009) 

(online www.althingi.is/pdf/icesave/01-AAA-UK.pdf); IceNews, EFTA Extends Iceland Icesave 

Deadline (July, 24, 2010) (online www.icenews.is/index.php/2010/07/24/efta-extends-icelandicesave-deadline/). 174Office of the German Federal Chancellor, Confidence Must Be Restored in Financial Markets (Oct. 5, 2008) (online at www.bundeskanzlerin.de/nn_704284/Content/EN/Archiv16/Artikel/ 

2008/10/2008-10-04-g4-paris-finanzmarkt__en.html). 175 Id. (‘‘We tell all savings account holders that your deposits are safe. The federal government assures it.’’). 176 Council of the European Union, Press Release: 2894th Council Meeting, Economic and Financial Affairs (Oct. 7, 2008) (www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ 

ecofin/103250.pdf). 177 European Parliament and the Council of the European Union, Directive 2009/14/EC of the 

European Parliament and of the Council of 11 March 2009 Amending Directive 94/19/EC on 

Deposit Guarantee Schemes as Regards the Coverage Level and the Payout Delay, at Art. 1 (Mar. 

11, 2009) (online at ec.europa.eu/internal_market/bank/docs/guarantee/200914_en.pdf) (hereinafter ‘‘Amendment to Deposit Insurance Directive’’). 178The discrepancy in the euro-to-dollar conversions between the time of the announced agreement and formal adoption of the amendment results from a drop in the value of the euro relative to the dollar during this period. 

On October 4, 2008, French Prime Minister and then-acting EU 

President Nicolas Sarkozy hosted a summit with leaders from Germany, the United Kingdom, and Italy to discuss a coordinated response to the crisis. The four nations criticized Ireland for issuing 

a unilateral deposit guarantee without first consulting with its EU 

partners. A statement from the German Chancellor’s office stated 

that Ireland’s move ‘‘forced London in turn to raise its own bank 

guarantees to prevent a stampede to transfer savings from the 

United Kingdom to Ireland.’’ 174 A day later, German Chancellor 

Angela Merkel and Finance Minister Peer Steinbru ̈ ck provided a 

verbal guarantee of all private bank deposits in German banks.175

Numerous other EU member states, including Greece, Austria, 

Denmark, and Sweden, followed suit in the first week of October 

before the EU Economic and Financial Affairs Council announced 

an agreement among all EU members to raise the minimum level 

of deposit guarantee protection to Ö50,000 ($68,000) for an initial 

period of at least one year.176 The agreement was formalized by an 

amendment to the deposit insurance directive proposed by the European Commission in mid-October and passed by the European 

Parliament in March 2009.177 The amendment called for an increase of deposit insurance to Ö50,000 ($63,000) 178 by June 30, 


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179 Amendment to Deposit Insurance Directive, supra note 177, at Art. 1. 180Office of Australian Deputy Prime Minister and Treasurer Wayne Swan, Government Announces Details of Deposit and Wholesale Funding Guarantees (Oct. 24, 2008) (online at 

www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/ 

117.htm&pageID=003&min=wms&Year=&DocType=). 181 Reserve Bank of New Zealand, Deposit Guarantee Scheme Introduced (Oct. 12, 2008) (online at www.rbnz.govt.nz/news/2008/3462912.html). 182 Hong Kong Monetary Authority, Press Release: Financial Secretary Announces New Measures to Support Confidence in the Hong Kong Banking System (Oct. 14, 2008) (online at 

www.info.gov.hk/hkma/eng/press/2008/20081014e6_index.htm); Ministry of Finance and Monetary Authority of Singapore, Joint Press Statement (Oct. 16, 2008) (online at www.mas.gov.sg/ 

news_room/press_releases/2008/MOF_and_MAS_Joint_Press_Statement.html). 183For additional details on these programs, see Annex I, infra. 

2009 and harmonization of coverage levels at Ö100,000 ($126,000) 

by December 31, 2010.179

Outside Europe, the most significant deposit insurance policy responses to the crisis occurred in Australia and New Zealand. Before 

the crisis began, Australia and New Zealand were two of the only 

major developed economies with no deposit insurance schemes at 

all, instead favoring rigorous supervisory regimes to maintain confidence in their banking sectors. On October 12, 2008, the two 

countries made coordinated announcements of new deposit insurance policies. Australia introduced a guarantee of deposits of up to 

$1 million AUD ($644,000) in Australian-owned banks, locally incorporated subsidiaries of foreign banks, credit unions, and building societies for a period of three years.180 New Zealand introduced 

an opt-in deposit scheme covering retail deposits at banks and nonbank deposit taking entities for two years.181 Hong Kong and 

Singapore followed later that same week with two-year suspensions 

of the deposit coverage limit in their existing insurance schemes.182

d. Central Bank Liquidity and Other Programs 

Board of Governors of the Federal Reserve System 

The actions undertaken by the Federal Reserve can largely be 

classified into four groups: 183

• Provision of Short-term Liquidity to Banks. Through programs such as the Primary Dealer Credit Facility (PDCF), the 

Term Securities Lending Facility (TSLF), and the Term Auction Facility (TAF), which were established in late 2007 and 

early 2008, the Federal Reserve acted in its role as lender of 

last resort and to provide liquidity to banks and other depository institutions. 

• Provision of Liquidity to Borrowers and Investors. The 

Money Market Investor Funding Facility (MMIFF), the AssetBacked Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), and the Term Asset-Backed Securities Loan Facility (TALF), which were established in the fall of 2008, provided 

liquidity to market participants. 

• Purchase of Long-term Securities. As the liquidity facilities 

that had been established to face the crisis were wound down, 

the Federal Reserve expanded its facilities for purchasing 

mortgage related securities. The Federal Reserve purchased 

$175 billion of federal agency debt securities and $1.25 trillion 


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184 Board of Governors of the Federal Reserve System, Minutes of the Federal Open Market 

Committee, at 10 (Dec. 15–16, 2009) (online at www.federalreserve.gov/newsevents/press/ 

monetary/fomcminutes20091216.pdf) (‘‘[T]he Federal Reserve is in the process of purchasing 

$1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt.’’). 185This figure is composed of the $85 billion revolving credit facility and the maximum loans to Maiden Lane II and III of $22.5 billion and $30 billion, respectively. 186 As defined by Treasury, a ‘‘ring-fencing’’ is the segregation of certain assets from the rest 

of a financial institution’s balance sheet in order to address problems with the assets in isolation. U.S. Department of the Treasury, Decoder (Sept. 18, 2009) (online at 

www.financialstability.gov/roadtostability/decoder.htm). While a Provisional Term Sheet was 

drafted reflecting the outlines of Bank of America’s asset guarantee agreement, the parties 

never agreed upon a finalized term sheet. Even though no agreement had been memorialized 

in writing and the parties were still negotiating certain terms (i.e., there was no explicit guarantee), the parties negotiated a fee to compensate the government upon Bank of America’s decision to terminate ongoing negotiations surrounding the unfinalized guarantee. Pursuant to the 

Bank of America Termination Agreement, Bank of America made 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.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20- 

%20executed.pdf). 187 In the case of this agreement, Treasury, the FDIC, and the Federal Reserve placed guarantees, or assurances, against losses on pools of certain assets owned by Citigroup. As consideration for the guarantee, Citigroup issued Treasury with $4.034 billion face value of preferred 

stock and warrants to purchase 66,531,728 shares of common stock at a strike price of $10.61. 

The FDIC was issued $3.025 billion in preferred stock. 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 (Jan. 15, 2009) (online at 

www.financialstability.gov/docs/AGP/Citigroup_01152009.pdf). Upon the termination of the guar- antee, Citigroup canceled $1.8 billion of the $7 billion in AGP Preferred that Citigroup had 

issued to Treasury and the FDIC as consideration. The $5.259 billion in trust preferred securities retained reflects a $1.8 billion reduction since the loss-sharing agreement was terminated 

after one year. Treasury will incur the $1.8 billion haircut initially, but will receive up to $800 

million of the Citigroup trust preferred securities currently held by the FDIC, provided that 

Citigroup repays its outstanding debt issued under the FDIC’s TLGP. As part of the termination 

fee, Citigroup also paid $50 million to the Federal Reserve Bank of New York. U.S. Department 

of the Treasury, Citigroup Termination Agreement (Dec. 23, 2009) (online at 

www.financialstability.gov/docs/Citi%20AGP%20Termination%20Agreement%20- 

%20Fully%20Executed%20Version.pdf). 

of agency mortgage-backed securities by the end of March 

2010.184

• Institution-Specific Assistance. In March 2008, the Federal 

Reserve provided $28.8 billion in funding to Maiden Lane 

LLC—a special purpose vehicle (SPV) created to purchase 

mortgage-backed securities from Bear Stearns in order to facilitate the merger between that company and JPMorgan 

Chase. In the fall of 2008, through the creation of two additional SPVs—Maiden Lane II and III—as well as a revolving 

credit facility, the Federal Reserve committed up to $137.5 billion to AIG.185 Finally, in late 2008 and early 2009, the Federal Reserve, along with Treasury and the FDIC, participated 

in ring-fence guarantees of $118 billion for Bank of America 186

and $301 billion for Citigroup.187


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188 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: 

Factors Affecting Reserve Balances: Data Download Program (online at www.federalreserve.gov/ 

DataDownload/Choose.aspx?rel=CP) (accessed Aug. 10, 2010). 189 Jean-Claude Trichet, president, European Central Bank, Speech at the University of National and World Economy, The Financial Crisis and the Response of the EC (June 12, 2009) 

(online at www.ecb.int/press/key/date/2009/html/sp090612.en.html). 190 Jean-Claude Trichet, president, European Central Bank, and Lucas Papademos, vice president, European Central Bank, Introductory Statement with Q&A (May 7, 2009) (online at 

www.ecb.int/press/pressconf/2009/html/is090507.en.html). 191 Bank of England, News Release: Special Liquidity Scheme (Apr. 21, 2008) (online at 

www.bankofengland.co.uk/publications/news/2008/029.htm). 

FIGURE 14: FEDERAL RESERVE’S CRISIS RESPONSE 188

European Central Bank (ECB) 

The ECB has characterized its crisis response as being centered 

upon three building blocks. The first was the expansion of liquidity 

through the adaptation of the ECB’s regular refinancing operations. The ECB adopted what it called a ‘‘fixed rate full allotment’’ 

tender process. In normal times the ECB would auction a set 

amount of central bank credit with one-week maturity and let the 

market demand determine the price. Under the ‘‘fixed rate full allotment’’ method, the ECB was willing to fill any liquidity shortage 

at the interest rate it set itself for maturities up to six months. 

Therefore, the ECB acted as a ‘‘surrogate for the market in terms 

of both liquidity allocation and price-setting.’’ 189 The second building block of the ECB’s response was the expansion of the list of assets it took as collateral. The final building block was the inclusion 

of a large number of additional counterparties that were eligible to 

participate in the refinancing operations. Prior to the crisis, 1,700 

counterparties were eligible to participate; by April 2009, 2,200 

credit institutions in the Euro area met the criteria to refinance 

through the ECB. Finally, the ECB announced its intention to purchase $80.5 billion in euro-denominated covered bonds.190

Bank of England (BoE) 

On April 21, 2008 the BoE announced its Special Liquidity 

Scheme, which allowed banks to swap certain mortgage-backed and 

other securities for UK Treasury Bills.191 In October 2008, the BoE 


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192 HM Treasury, Statement on Financial Intervention to Support Lending in the Economy 

(Jan. 19, 2009) (online at www.hm-treasury.gov.uk/press_05_09.htm) (hereinafter ‘‘HM Treasury 

Statement on Financial Intervention’’). 193This currency conversion uses the average historical exchange rate during the 570 days 

from the program’s inception to its suspension. 194 Bank of Japan, Outright Purchases of Corporate Financing Instruments (Jan. 22, 2009) (online at www.boj.or.jp/en/type/release/adhoc09/un0901b.pdf). 195This was a continuation of a program that began in 2002. As of September 2008 the Bank 

of Japan held 1.27 trillion yen of bank stocks. Bank of Japan, The Bank of Japan to Resume 

Stock Purchases Held by Financial Institutions (Feb. 3, 2009) (online at www.boj.or.jp/en/type/ 

release/adhoc09/fss0902a.pdf). 196 Bank of Japan, Provision of Subordinated Loans to Banks (Mar. 17, 2009) (online at 

www.boj.or.jp/en/type/release/adhoc09/fsky0903a.htm). Each bank was limited to a maximum of 

350 billion yen and both loan amounts and interest rates for the loans were determined by a 

quarterly auction. The program ended new disbursements at the close of March 2010. Bank of 

Japan, Establishment of ‘‘Principal Terms and Conditions for Provision of Subordinated Loans’’ 

(Apr. 10, 2009) (online at www.boj.or.jp/en/type/release/adhoc09/fsky0904a.pdf). 197Swiss National Bank, Monetary Policy Assessment of 12 March 2009 (Mar. 12, 2009) (online 

at www.snb.ch/en/mmr/reference/pre_20090312/source/pre_20090312.en.pdf). 198Swiss Federal Department of Finance, Federal Council Takes Decision on Measure to 

Strengthen Switzerland’s Financial System (Oct. 16, 2008) (online at www.efd.admin.ch/ 

dokumentation/medieninformationen/00467/index.html?lang=en&msg-id=22019). 

established a permanent Discount Window Facility, providing 

banks with access to long-term liquidity. In response to the worsening financial conditions, the BoE announced the creation of an 

asset purchase facility on January 19, 2009. Under this program, 

which was similar to the U.S. Asset Guarantee Program, the BoE 

was initially authorized to make purchases of up to Ö50 billion ($66 

billion) of corporate bonds, syndicated loans, commercial paper, and 

certain types of ABS.192 The British central bank eventually purchased Ö200 billion ($276 billion) 193 in assets and, as of June 8, 

2010, has announced that the program will remain on hold. 

Bank of Japan 

The Bank of Japan responded to the financial crisis primarily 

through asset purchases. On January 22, 2009, the Bank of Japan 

announced its intention to purchase up to 3 trillion yen of commercial paper (including asset-backed commercial paper).194 The Bank 

of Japan resumed its purchases of bank stocks on February 3, 2009 

with the announcement that it had committed an additional 1 trillion yen to the program.195 The Japanese central bank also committed 1 trillion yen toward the creation of a subordinated loan 

program.196

Swiss National Bank (SNB) 

The SNB announced on October 15, 2008 that it would begin to 

issue its own debt—SNB Bills—in order to absorb excess liquidity 

in the financial system. On March 12, 2009, the SNB announced 

its intention to purchase foreign currency against the Swiss Franc 

and Swiss Franc bonds in order to halt its rapid appreciation.197

Finally, the SNB and the Swiss government financed an effort to 

rescue Switzerland-based bank UBS. Along with other steps taken 

by the Swiss government, the SNB provided financing of up to $54 

billion dollars against an equity contribution made by UBS of up 

to $6 billion to an entity created solely to purchase troubled assets 

from UBS.198

e. Guarantees and Purchases of Impaired Assets 

European governments both guaranteed and purchased impaired 

assets. In contrast, in the United States, guarantees of impaired 


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199 November Oversight Report, supra note 68. 200 Congressional Oversight Panel, Accountability for the Troubled Asset Relief Program: The 

Second Report of the Congressional Oversight Panel, at 15–16 (Jan. 9, 2009) (online at 

cop.senate.gov/documents/cop-010909-report.pdf). 201 November Oversight Report, supra note 68, at 13–40. 202 November Oversight Report, supra note 68, at 7. 203FDIC Announces Plan to Free Up Bank Liquidity, supra note 63. 204 November Oversight Report, supra note 68, at 6. 205Dexia SA, Annual Report 2008, at 10 (Apr. 20, 2008) (online at www.dexia.com/docs/2009/ 

2009_AG/annual_report/20090513_RA_corporate_UK.pdf); Hypo Real Estate Group, Annual Report 2008, at 37 (Apr. 24, 2009) (online at www.hyporealestate.com/eng/pdf/ 

AR2008_09_04_24_final_GL.pdf) (hereinafter ‘‘Annual Report 2008’’). 206 Id. at 220; Sullivan & Cromwell LLP, French Bank Relief Act (Oct. 20, 2008) (online at 

www.sullivanandcromwell.com/files/Publication/df0f1dd1-b716-40e9-bd9d-77f99c5cc3b9/Presenassets played a significant role in the rescue,199 but purchases of 

such assets did not, despite the fact that the TARP was initially 

envisioned as a purchase program.200 One problem with asset purchases is the difficulty of setting prices for the transactions. If the 

prices are set at market levels, then the purchases lock in bank 

losses, and are likely to reveal banks as unacceptably weak. If the 

purchases are made at par, they represent direct subsidies to the 

banks and their shareholders—subsidies potentially so large in the 

U.S. case as to exceed the scale of the TARP. 

i. Guarantees of Assets and Debt 

Liability guarantees quickly spread through Europe amidst concerns that banks covered by guarantees enjoyed a competitive advantage over banks without comparable resources. Beginning in 

September 2008, European and Canadian bank regulators introduced a series of liability guarantees aimed at preventing bank 

runs and managing threats to real estate prices caused by wounded 

financial services providers that were deemed too big to fail. The 

guarantees took various forms, ranging from highly targeted approaches tailored to support a few large banks (an approach taken 

in the United States) 201 to widespread measures pledging hundreds of billions of Euros for bank recapitalization plans and loan 

guarantee initiatives. Explicit guarantees, such as the backstops in 

the United States for the government sponsored enterprises and 

Citigroup, are associated with more risk than the implicit guarantees that helped other CPP recipients raise funds and repay TARP 

loans quickly.202

In the United States, the FDIC’s Temporary Liquidity Guarantee 

Program, announced in October 2008, introduced new debt and 

transaction account guarantee programs aimed at boosting interbank lending and safeguarding some accounts in excess of deposit 

limits.203 In late 2008, the Federal Reserve Board and the FDIC 

guaranteed more than $301 billion of Citigroup assets.204

The most extensive foreign guarantees were orchestrated by a 

handful of European countries and bore numerous similarities. 

From September 2008 to October 2008, Germany, France, and the 

United Kingdom introduced sizeable backstops for a handful of 

large financial institutions. Belgium, France, Luxembourg, and 

Germany collectively established Ö200 billion ($287 billion) of guarantees to support Dexia Group S.A. (Dexia) and HRE, respectively.205 These guarantees were introduced on a standalone basis 

and were kept separate from distinct plans that raised a combined 

total of Ö720 billion of far-reaching guarantees in both countries.206


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tation/PublicationAttachment/5d0a7d25-18f4-41c9-a019-7842c8dd4fdf/ 

SC_Publication_French_Bank_Relief_Act.pdf) (hereinafter ‘‘Summary of French Bank Relief 

Act’’). 207 Annual Report 2008, supra note 205, at 37. 208This currency conversion uses the average historical exchange rate during the 121 days 

between this period. 209 BayernLB, A New Direction for BayernLB: Bank to Concentrate on Core Activities (Dec. 1, 

2008) (online at www.bayernlb.de/internet/ln/ar/sc/Internet/en/Downloads/0100_CorporateCenter/ 

1323Presse_Politik/Pressemeldungen/2008/12Dezember/01122008NewBusinessmodel.pdf); IKB 

Deutsche Industriebank, Ad-hoc Announcement Pursuant to Sec. 15 of the German Securities 

Trading Act: IKB Receives Guarantees from the Special Fund for the Stabilization of the Financial Market (Dec. 22, 2008) (online at www.ikb.de/content/en/ir/news/ad_hoc_announcements/All/ 

081222_SoFFin_englisch.pdf); HSH Nordbank AG, SoFFin Approves HSH Nordbank Business 

Model (Mar. 7, 2009) (online at www.hsh-nordbank.com/en/presse/pressemitteilungen/ 

press_release_detail_194560.jsp). 210 Hypo Real Estate Holding AG, Annual Report for Year Ended 2009, at 24 (Mar. 26, 2010) 

(online at www.hyporealestate.com/eng/pdf/AR09_HRE_10_03_25_19_45_GL.pdf). 211 Canadian Department of Finance, Government of Canada Strengthens Canadian Advantage In Credit Markets (Oct. 23, 2008) (online at www.fin.gc.ca/n08/08-080-eng.asp). 212Lev Ratnovski Lev and Rocco Huang, Why Are Canadian Banks More Resilient?, International Monetary Fund Working Paper, at 3 (July 2009) (WP/09/152) (online at www.imf.org/ 

external/pubs/ft/wp/2009/wp09152.pdf). 213DLA Piper, Summary of the Italian Rescue Plan to Stabalise the Financial Markets (Jan. 

23, 2009) (online at www.dlapiper.com/files/upload/ 

Continued 

Germany arguably executed Europe’s most extensive deployment 

of guarantees. Its guarantees included short-term assurances for 

covered bonds and commitments to shore up vulnerable money 

market funds. Germany’s multifaceted approach also involved 

stalled initial efforts to broker a collaborative rescue effort between 

the public and private sector. HRE, Germany’s second-largest commercial property and commercial finance lender at the height of 

the crisis, received an initial Ö35 billion ($51 billion) emergency 

line of guaranteed financing in September 2008 and two separate 

Ö15 billion ($19 billion) financing guarantees the following 

month.207

SoFFin, the bank rescue fund established on October 17, 2008 by 

the German Financial Market Stabilisation Act, provided approximately Ö62 billion ($81 billion) 208 of guarantees for Bayerische 

Landesbank (BayernLB), IKB, HRE, and HSH Nordbank AG between November 2008 and March 2009.209 SoFFin later approved 

a one-year extention of Hypo’s rescue package starting in December 

2009. Hypo also received a Ö52 billion ($77 billion) extension on 

guarantees from SoFFin that was scheduled to end in June 

2010.210

Italy and Canada took a more concentrated approach that made 

guarantees available to their respective banking sectors without establishing guarantees for specific financial institutions. Implicit 

guarantees extended through the Canadian Lenders Assurance Facility, which provided insurance on wholesale term borrowing of 

federally regulated deposit-taking institutions for six months beginning October 23, 2008.211 The underlying stability of Canada’s 

banking system contributed to a climate in which commercial lending institutions neither recapitalized nor drew down on government 

bank funding guarantees.212 Italy took a different approach by enacting a series of laws between November 27, 2008 and January 

29, 2009. The legislation was aimed at creating new resources for 

oversight bodies, such as the Ministry for the Economy and Finance, which gained the ability to guarantee capital increases for 

banks identified as undercapitalized by the Bank of Italy.213


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%205087723_1_UKGROUPS(EMEA%20Govt%20Rescue%20Plan%20-%20Italy%20- 

%209%20Feb%2009).PDF). 214See discussion in Section C.1.a, supra. 215See HM Treasury, Revised Spring Supplementary Estimates, 2008–09 (Feb. 2009) (online 

at www.hm-treasury.gov.uk/d/springsupps0809_hmt.pdf); FSA Press Release—Compensation 

Scheme, supra note 168; Financial Support to the Banking Industry, supra note 62. 216Financial Support to the Banking Industry, supra note 62. 217 HM Treasury, Changes to Credit Guarantee Scheme (Dec. 15, 2008) (online at www.hmtreasury.gov.uk/press_138_08.htm). 218 HM Treasury Statement on Financial Intervention, supra note 192. 219 HM Treasury, Statement on the Government’s Asset Protection Scheme (Jan. 19, 2009) (online at www.hm-treasury.gov.uk/press_07_09.htm) (hereinafter ‘‘HM Treasury Statement on the 

Asset Protection Scheme’’). 220 HM Treasury, Implementation of Financial Stability Measures for Lloyds Banking Group 

and Royal Bank of Scotland (Nov. 3, 2009) (Notice 99/09) (online at www.hm-treasury.gov.uk/ 

In a combined public-private rescue not replicated in other jurisdictions, on July 11, 2008, the Danish National Bank granted an 

unlimited liquidity facility to Roskilde Bank, and a private association of nearly all the banks in Denmark provided a guarantee on 

losses of DKK 750 million ($158 million) on the liquidity facility, 

with further losses guaranteed by the Danish government.214

The United Kingdom also employed guarantees that took shape 

as targeted rescue efforts and broader stabilization measures. After 

providing a stream of liquidity facilities and guarantees beginning 

in November 2007 to Northern Rock, the U.K. introduced a credit 

guarantee scheme in October 2008.215 HM Treasury initially announced up to £250 billion ($437 billion) of guarantees for new 

short and medium-term debt issuance to help banks recapitalize in 

conjunction with a separate recapitalization scheme.216 This program initially offered guarantees to the entire range of extendedcollateral operations at banks that subscribed to the program. As 

the crisis deepened, in December 2008 HM Treasury extended the 

credit guarantee scheme’s deadline to 2014 from 2012 and lowered 

participation fees charged to banks.217 A few weeks later, the 

goverment extended the drawdown window of its credit guarantee 

scheme to December 31, 2009 from April 9.218 During the drawdown window, banks could issue new debt, and continue rolling all 

of it over until April 13, 2012, and up to a third of the total amount 

over the next two years. 

The UK introduced its Asset Protection Scheme (APS) in January 2009 to help banks protect capital from further erosion. The 

scheme guaranteed certain types of assets, such as commercial and 

residential property loans or structured credit assets from eligible 

banks with at least £25 billion ($37 billion) in assets in exchange 

for a fee.219 Lloyds entered into a relationship with APS in March 

2009 due to its previous purchase of Halifax Bank of Scotland 

Group Plc, which regulators believed held significant troubled assets. Lloyds placed £260 billion ($369 billion) with APS and negotiated a 4 percent fee that amounted to £10 billion ($14 billion). 

During this time Lloyds was careful to avoid handing British taxpayers a 60 percent stake, which could have occurred if the government’s £4 billion ($6 billion) of preference shares were converted 

into ordinary equity. To this end, Lloyds improved its position with 

a £13.5 billion ($22 billion) rights issue and raised an additional 

£7.5 billion ($12 billion) by swapping existing debt for contingent 

capital. The capital raise paid off and Lloyds was allowed to exit 

APS in November 2009.220 The exit relieved the British governVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00052 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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press_99_09.htm) (hereinafter ‘‘HM Treasury Notice—Lloyds Banking Group and Royal Bank of 

Scotland’’). 221Official Journal of the European Union, Procedures Relating to the Implementation of the 

Competition Policy, at 43 (Apr. 8, 2009) (online at www.eur-lex.europa.eu/LexUriServ/ 

LexUriServ.do?uri=OJ:C:2009:181:0042:0044:EN:PDF). 222Summary of French Bank Relief Act, supra note 206. 223Government Decision to Safeguard Irish Banking System, supra note 166. 224 U.S. Department of the Treasury, Treasury Department Releases Details on Public-Private 

Partnership Investment Program (Mar. 23, 2009) (online at www.ustreas.gov/press/releases/ 

tg65.htm). 225Treasury Transactions Report, supra note 64, at 22. 226 Congressional Oversight Panel, January Oversight Report: Exiting TARP and Unwinding 

Its Impact on the Financial Markets, at 105 (Jan. 13, 2010) (online at cop.senate.gov/documents/ 

cop-011410-report.pdf) (hereinafter ‘‘January Oversight Report’’). 

ment of a potential liability of up to 90 percent of £260 billion ($262 

billion). 

France participated in one of the largest guarantee programs targeting an individual bank by providing slightly more than 36 percent of a Ö150 billion ($204 billion) rescue for Dexia SA. Belgium 

and Luxembourg covered the remaining balance.221 On October 13, 

2008, French President Nicolas Sarkozy announced plans to provide up to Ö320 billion ($429 billion) of loan guarantees that were 

available through year end 2009.222 The guarantees covered loans 

for up to five years. 

Ireland employed a different variation that created guarantees 

for six of its largest banks at once. The initial offer, which applied 

to Allied Irish Banks plc (Allied Irish Bank), Bank of Ireland 

Group (Bank of Ireland), Anglo Irish Bank Corporation (Anglo Irish 

Bank), Irish Life and Permanent Plc (Irish Life and Permanent), 

Irish Nationwide Building Society and the Educational Building 

Society, was initially structured to wind down in two years.223

Japan was the only G–7 member that addressed its banking 

problems without implementing significant liability guarantees. 

ii. Asset Purchases 

Asset purchases were another tool that governments used during 

the crisis, both to deal with problematic assets on bank balance 

sheets and in some countries as a way to loosen the monetary supply. 

In the United States, the Public-Private Investment Program 

(PPIP), announced by Treasury in 2009,224 was initially designed 

to use up to $100 billion of TARP dollars and private capital to facilitate private purchases of legacy loans and securities. The program aimed to generate up to $500 million in purchasing power for 

legacy assets under a partnership between the government and private sectors. Some potential investors were also offered non-recourse loans as an incentive to purchase non-agency residential 

asset backed mortgage securities and commercial mortgage backed 

securities. Treasury’s August 6, 2010 TARP transaction report indicates a $22.4 billion final investment amount for PPIP.225 Treasury 

has scaled back the program’s scope from a larger initial budget.226

As discussed earlier in Section C.2.d, the Federal Reserve purchased roughly $1.25 trillion of agency mortgage-backed securities 

between January 2009 and March 2010. The Federal Reserve also 

purchased up to $300 billion of longer-term U.S. Treasury securities over a period of several months. In addition, Treasury purVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00053 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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227 U.S. Department of the Treasury, Treasury Issues Update on Status of Support for Housing 

Programs (Dec. 24, 2009) (online at www.ustreas.gov/press/releases/2009122415345924543.htm). 228 HM Treasury Statement on Financial Intervention, supra note 192. 229 Bank of England, Bank of England Reduces Bank Rate by 0.5 Percentage Points to 0.5% 

and Announces £75 Billion Asset Purchase Programme (Mar. 5, 2009) (online at 

www.bankofengland.co.uk/publications/news/2009/019.htm). 230 Bank of England, Bank of England Maintains Bank Rate at 0.5% and Increases Size of 

Asset Purchase Programme by £50 Billion to £125 Billion (May 7, 2009) (online at 

www.bankofengland.co.uk/publications/news/2009/037.htm). 231 Bank of England, Asset Purchase Facility: Secured Commercial Paper (June 8, 2009) (online at www.bankofengland.co.uk/markets/apf/securedcpf/index.htm). 232 Bank of England, Bank of England Maintains Bank Rate at 0.5% and Increases Size of 

Asset Purchase Programme by £25 Billion to £200 Billion (Nov. 5, 2009) (online at 

www.bankofengland.co.uk/publications/news/2009/081.htm). 233 James Benford et al., Quantitative Easing, Bank of England Quarterly Bulletin (Q2 2009) 

(www.bankofengland.co.uk/publications/quarterlybulletin/qb090201.pdf). 234 Id. 

chased approximately $220 billion in agency mortgage-backed securities under a program that ended December 31, 2009.227

The United Kingdom introduced a £50 billion ($73 billion) asset 

purchase plan on January 19, 2009,228 which was increased to £75 

billion ($106 billion) on March 5, 2009,229 and increased again to 

£125 billion ($188 billion) on May 7, 2009.230 U.K. officials soon 

added provisions within the facility to purchase commercial paper 

and corporate bonds as a means of injecting liquidity into the credit 

markets. Other purchases included medium and long-maturity conventional U.K. Treasury bonds traded on the secondary market. 

Regulators also added a secured working paper facility to help keep 

short-term borrowing options solvent.231 When output and other 

vital economic indicators failed to show signs of recovery, the program’s ceiling was raised to £200 billion ($330 billion) from £175 

billion ($289 billion) on November 5, 2009.232 The asset purchase 

program coincided with a decision of the United Kingdom’s Monetary Policy Committee on March 5, 2009 to engage in quantitative 

easing and reduce the Bank Rate to 0.50 percent. The asset purchase program was a critical part of this operation.233 To make the 

scheme work, the Bank of England provided liquidity to inject capital into commercial banks by purchasing various public and private sector assets. The purchases were an instrumental part of restoring liquidity to credit markets and assisting borrowers by pushing down interest rates tied to yields.234

Under the U.K. plan, various assets were purchased under different pricing schemes. As an example, the plan included a commercial paper facility that acquired assets directly from companies 

or market participants trading outstanding inventory. The latter 

group was charged an additional fee. Eligible commercial paper 

had a minimum maturity of three months, an investment-grade 

rating and issuance from non-bank companies. As of May 21, 2009 

the program had accumulated £2.25 billion ($3.6 billion) of commercial paper, roughly a third of the available stock. Corporate bonds 

were acquired through reverse auctions from financial institutions 

that functioned as market makers. The format was chosen to ensure banks would pay the lowest possible prices for assets. 

Ireland introduced an innovative asset purchase scheme that enabled its largest banks to transfer up to Ö90 billion ($119.1 billion) 

into a newly created entity known as the National Asset ManageVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00054 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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235 National Asset Management Agency, Annex I—Questions and Answers in Relation to the 

National Asset Management Agency (NAMA) Initiative, at 14 (2009) (online at www.nama.ie/ 

Publications/2009/NAMAFrequentlyAskedQuestions.pdf). 236 Id. at 10. 237 National Asset Management Agency, National Asset Management Agency—First AIB Loans 

Transfer (Apr. 6, 2010) (online at www.nama.ie/Publications/2010/ 

NAMAFirstAIBLoansTransfer.pdf). 238Fair value accounting focuses on the exit price of a transaction, valuing it from the seller’s 

perspective, as opposed to the entry price required to purchase the asset or received for assuming the liability. See Financial Accounting Standards Board, Fair Value Measurements and Disclosures—Exit Price, Topic 820–10–20 (online at asc.fasb.org/glossarysection&trid= 

2155951%26analyticsAssetName=subtopic_page_section%26nav_type=subtopic_page) (hereinafter ‘‘Fair Value Measurements and Disclosures’’) (accessed Aug. 10, 2010) (Exit Price is defined as ‘‘[t]he price that would be received to sell an asset or paid to transfer a liability.’’). 

ment Agency (NAMA).235 NAMA stated that Ireland’s banks ‘‘will 

be cleansed of risky categories of loans at a price that is less than 

their current value on the banks’ balance sheets.’’ 236 The transactions were financed by the issuance of government bonds. NAMA 

announced the transfer of its first tranche of loans from Allied 

Irish Banks on April 6, 2010. In the transaction NAMA acquired 

loans with a face value of Ö3.29 billion ($4.44 billion) in exchange 

for NAMA securities valued at Ö1.9 billion ($2.56 billion), resulting 

in a 42 percent discount after taking account of foreign exchange 

movements.237 The initial transfers also included a Ö670 million 

($903.8 million) purchase of loans from Irish Nationwide Building 

Society for Ö280 million ($377.7 million) of NAMA securities, a 58 

percent discount. 

f. Changes in Accounting Rules 

Government assistance to financial firms was not limited to outside sources of capital or guarantees; another tool involved the 

amendment of existing fair value accounting rules, which sometimes require changes to an institution’s reported financial statement position without a corresponding change in actual assets or 

liabilities. The use of this tool proved to be politically charged and 

resulted in intense and continuing debates between regulatory authorities and accounting standard-setters in both the United States 

and Europe. 

The goal of fair value accounting is to estimate the value of assets and liabilities on the balance sheet at their market value; in 

other words, the amount a seller would receive for an asset or 

would have to pay to offload a liability in the current market.238

When market values are readily determinable through actively 

traded securities and the prices at which debt is issued, fair value 

accounting may aid in the presentation of some reported assets and 

liabilities, although the extent to which fair value accounting adds 

to the understanding of an institution’s balance sheet may also depend on the nature of the institution’s business. When market values become opaque due to lack of market activity, more subjective 

methods are used to determine the value of financial instruments. 

The SEC, through securities regulations, has empowered the Financial Accounting Standards Board (FASB) to establish accounting standards for the purpose of providing investors with the disclosure of meaningful financial information in a way that is accuVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00055 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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239 U.S. Securities and Exchange Commission, Policy Statement: Reaffirming the Status of the 

FASB as a Designated Private-Sector Standard Setter (Apr. 25, 2003) (online at www.sec.gov/ 

rules/policy/33-8221.htm). 240Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 2: 

Qualitative Characteristics of Accounting Information, at 2–4 (May 1980) (online at 

www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable 

=MungoBlobs&blobkey=id&blobwhere=1175820900526&blob 

header=application%2Fpdf). 241On July 1, 2009, U.S. generally accepted accounting principles was replaced by the FASB 

with the issuance of FASB Accounting Standards Codification (the Codification). SFAS 157 is 

now referred to as Fair Value Measurement and Disclosures (Topic 820). Topic 820 did not 

change the contents of SFAS 157. 242SFAS 115 creates three classification categories: held-to-maturity, trading, and availablefor-sale. A debt security is considered held-to-maturity if the enterprise has the positive intent 

and ability to hold to maturity. These securities are reported at amortized cost and thus, experience no fair value adjustments. Trading securities are debt and equity securities bought and 

held primarily for the purpose of selling them in the near term. These securities are reported 

at fair value, with unrealized gains and losses included in earnings. Available-for-sale securities 

are debt and equity securities not classified in the other two categories. They are reported at 

fair value, with unrealized gains and losses excluded from earnings and reported in a separate 

component of shareholders’ equity (Accumulated Other Comprehensive Income). While SFAS 

115 does not apply to unsecuritized loans, it does apply to mortgage-backed securities. See Financial Accounting Standards Board, Summary of Statement No. 115: Accounting for Certain Investments in Debt and Equity Securities (May 1993) (online at www.fasb.org/summary/ 

stsum115.shtml); Financial Accounting Standards Board, Accounting Standards Codification 

320–10–25–1 (online at asc.fasb.org/section&trid=2196939%26analyticsAssetName=subtopic_ page_subsection%26nav_type=subtopic_page#d3e22050-111558). 243SFAS 157 (now referred to as Topic 820) establishes three levels of valuation. Level 1 applies to securities actively trading in an open market (e.g., stocks, active bonds), and requires 

valuation based on quoted prices in active markets for identical instruments. Level 2 valuation 

is based on observable, and thus auditable, inputs used to estimate an exit value (e.g., OTC interest-rate swap for which the fair value is based on observable data such as the contract terms 

and current LIBOR forward rate curve). The final valuation method is Level 3, which applies 

to securities for which markets do not exist or are illiquid (e.g., CDOs, many derivatives, and 

stock in unlisted companies), and is based on unobservable inputs and assumptions that usually 

are employed in a company’s internal model to develop a valuation. See Fair Value Measurements and Disclosures, supra note 238; Financial Accounting Standards Board, Subsequent 

Measurement—Fair Value Hierarchy, Topic 820–10–35–37 (online at asc.fasb.org/ 

section&trid=2155956%26analyticsAssetName=subtopic_page_section%26nav_type=subtopic _page) (accessed Aug. 10, 2010). 

rate and effective.239 The users, preparers, and auditors of financial reports are all in the business of decision making: investing or 

not investing in a company based on the financials, determining 

the best method of presenting the financial information, and ensuring the accuracy and reliability of the information. To meet the decision-making needs of all users of financial information, FASB established a hierarchy of qualities for accounting information: usefulness, relevance, reliability, comparability, and consistency, countered by the constraints of cost and materiality.240 Thus, information needs to be both timely and verifiable while also consistent 

across organizations and without the benefit exceeding the cost of 

providing the information; therefore, a constant tension exists between requiring too much or too little in a company’s disclosures. 

Accounting rules have continually expanded in recent years to require fair value reporting for debt and equity securities and derivative transactions, but uniformity in the application and valuation 

methodology was not established until 2007 with the issuance of 

Statement of Financial Accounting Standards 157 (SFAS 157).241

At the time of the financial crisis, fair value accounting in the 

United States was governed by SFAS 115, which required the classification and reporting of debt securities and equity securities with 

a readily determinable fair market value,242 and SFAS 157, which 

established a hierarchy of fair value measurements to account for 

assets and liabilities with active markets and those with none.243

Shortly after the implementation of SFAS 157, however, the finanVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00056 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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244 At S&P 500 financial sector companies as of Q1 2008, approximately 44 percent and 13 

percent of assets and liabilities, respectively, were recorded at fair value for accounting purposes 

on the balance sheet. Of these assets and liabilities, approximately 81 percent and 74 percent, 

respectively, were valued using Level 2 or Level 3 valuation methodology, which are described 

in note 243, supra. See Analysis Group, Fair Value Accounting: What Lawyers Need to Know 

(Oct. 1, 2009) (online at www.securitiesdocket.com/wp-content/uploads/2009/10/Final-Oct1-FairValue.pdf) (hereinafter ‘‘Analysis Group Presentation on Fair Value Accounting’’). 245This creates a sort of fair value spiral in which asset prices fall. In turn, financial institutions make fair value write-downs and as a consequence balance sheets weaken and regulatory 

requirements are violated or loan covenants breached. The institution must de-lever by selling 

assets or raising new equity. Unfortunately, new equity markets dry up, so asset sales becomes 

the only option. As investment positions are highly correlated across global institutions, the 

market is imbalanced by a flood of sellers and prices drop further. Due to the supply and demand imbalance, investors with liquidity then step in to buy the assets at bargain prices, and 

the spiral ends. Analysis Group Presentation on Fair Value Accounting, supra note 244. 246SEC Study on Mark-to-Market Accounting, supra note 94. 247Financial Accounting Standards Board, FASB Staff Position: Determining Fair Value When 

the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and 

Identifying Transactions That Are Not Orderly, at 4–5 (Apr. 9, 2009) (FSP FAS 157–4) (online 

at www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere= 

1175820922722&blobheader=application%2Fpdf). The FASB Staff Position establishes the following eight factors for determining whether a market is not active enough to require markto-mark accounting: 

1. There are few recent transactions. 

2. Price quotations are not based on current information. 

3. Price quotations vary substantially either over time or among market makers. 

4. Indexes that previously were highly correlated with the fair values of the asset or liability 

are demonstrably uncorrelated with recent indications of fair value for that asset or liability. 

5. There is a significant increase in implied liquidity risk premiums, yields, or performance 

indicators (such as delinquency rates or loss severities) for observed transactions or quoted 

prices when compared with the reporting entity’s estimate of expected cash flows, considering 

all available market data about credit and other nonperformance risk for the asset or liability. 

Continued 

cial crisis caused markets to freeze and much activity to cease, 

which presented a significant problem for a valuation methodology 

that relies on an open, active, liquid market. Instead, companies relied more strongly on their own assumptions and models, which allowed for greater subjectivity, less comparability across organizations, and the potential for manipulation by the firms’ management. In aggregate, as of the first quarter of 2008, S&P 500 financial sector institutions carried 44 percent of their assets at fair 

value and 13 percent of their liabilities at fair value.244 For institutions such as commercial banks, the deposit base makes up a substantial portion of the firm’s liabilities. Capital market-oriented 

firms carried approximately 30 percent of their liabilities at fair 

value. While obtaining readily available market values was complicated by frozen markets, allowing managers to use more judgment in reported losses and write-downs through the use of modeling, it is also possible that managers used market uncertainty as 

an excuse to avoid a write-down. Fair value accounting required 

companies to take significant write-downs on assets that, in many 

cases, triggered regulatory and capital adequacy requirements.245

Section 133 of EESA mandated that the SEC, in consultation with 

other regulatory bodies, conduct a study on mark-to-market accounting standards as provided by FASB. After holding public 

hearings and conducting its own analysis, the SEC ultimately declared that fair value accounting was neither a cause of the financial crisis nor an issue with troubled banks, but that it did need 

some minor revisions.246

Amid pressure from U.S. lawmakers and financial companies 

such as Citigroup and Wells Fargo & Co, in April 2009 FASB voted 

to ease fair-value accounting rules during ‘‘illiquid’’ or ‘‘inactive’’ 

markets.247 The changes permit companies to use ‘‘significant’’ 


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6. There is a wide bid-ask spread or significant increase in the bid-ask spread. 

7. There is a significant decline or absence of a market for new issuances for the asset or 

liability or similar assets or liabilities. 

8. Little information is released publicly. 

Pressure on the FASB mounted when U.S. House Financial Services Committee members 

urged FASB Chairman Robert Herz at a March 12 hearing to reconsider fair-value methodologies. Less than a week later, FASB’s March proposal received further criticism from investor 

advocates and accounting-industry groups. 248 Ian Katz, FASB Eases Fair-Value Rules Amid Lawmaker Pressure, Bloomberg (Apr. 2, 

2009) (online at www.bloomberg.com/apps/news?pid=newsarchive&sid=aMG.2SUJ3Rz4). 249 Id. 250Michael J. Moore, FASB Plan Would Force Banks to Report Loan Fair Value, Bloomberg 

Businessweek (May 27, 2010) (online at www.businessweek.com/news/2010-05-27/fasb-planwould-force-banks-to-report-loan-fair-value-update1-.html) (hereinafter ‘‘FASB Plan Would Force 

Banks to Report Loan Fair Value’’). 251Dakin Campbell, FASB Plan is ‘‘Destructive Idea,’’ Ex-FDIC Chief Says, Bloomberg 

Businessweek (May 28, 2010) (online at www.businessweek.com/news/2010-05-28/fasb-plan-isdestructive-idea-ex-fdic-chief-says-update1-.html). 252FASB Plan Would Force Banks to Report Loan Fair Value, supra note 250. 

judgment when valuing certain investments in their investment 

portfolios, which allows for more flexibility in valuing impaired securities. The proposal would apply only to equity and debt securities, though, and FASB staff said that banks should elect to disregard only transactions that are not orderly, i.e., those that occur 

under distressed circumstances. At the time, some market analysts 

commented that going forward write-ups could be expected, and 

these adjustments would ultimately boost bank earnings.248

Arthur Levitt, a former SEC Chairman, was critical of the 

changes. He commented that fair value ‘‘provides the kind of transparency essential to restoring public confidence in U.S. markets,’’ 

and stated that he was deeply concerned about FASB succumbing 

to political pressures.249 That said, FASB did not acquiesce to all 

of the lobbying pressure. The organization rejected a request from 

banks that would have enabled them to apply fair-value changes 

retroactively to their 2008 year-end financial statements. 

More recently, FASB has sought public comment on a proposal 

that would require banks to report the fair value of loans on their 

books, in addition to carrying or book values. Currently, public financial institutions report the fair value of their loans only in footnotes to the quarterly reports to regulators. The American Bankers 

Association (ABA) has come out against the proposal, arguing that 

doing so would increase ‘‘pro-cyclicality’’ and ultimately inject volatility into the financial system. Edward Yingling, chief executive officer of the American Bankers Association, said in a statement, 

‘‘The proposal would greatly undermine the availability of credit by 

making it difficult to make many long-term loans, the value of 

which, even if performing perfectly, would likely be reduced on the 

day a loan is made.’’ 250 Former FDIC Chairman William Isaac has 

also criticized the proposal, saying that ‘‘just by making the proposal, the FASB will lead banks to quit making loans without easily discernable market values and keep the ones they do make to 

shorter maturities.’’ 251 On the other hand, Sandy Peters, head of 

the financial reporting policy group at the CFA Institute, an association of investment professionals, commented: ‘‘The pro-cyclicality 

argument is that when you give people information, they act on it. 

Banks don’t like the volatility it presents and what it might do to 

the share price, but it’s still relevant information.’’ 252

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253 Approximately 120 nations and reporting jurisdictions permit or require International Financial Reporting Standards (IFRS), which are promulgated by IASB, for domestic listed companies, with approximately 90 of those countries fully conformed with IFRS, including the EU. 

Canada and South Korea are expected to transition to IFRS by 2011; Mexico will require transition for all listed companies in 2012; and Japan is currently debating full adoption of IFRS with 

potential conversion in 2015 or 2016. American Institute of Certified Public Accountants, International Financial Reporting Standards FAQs (online at www.ifrs.com/ifrs_faqs.html) (accessed 

Aug. 10, 2010). Since 2002, with the support and monitoring of the SEC, FASB and IASB have 

formally worked towards the mutual goal of convergence of U.S. GAAP and IFRS into a single 

set of high-quality global accounting standards. Under its current work plan, the SEC plans to 

make a convergence decision about incorporating IFRS in the financial reporting requirements 

of U.S. issuers in 2011. See U.S. Securities and Exchange Commission, Commission Statement 

in Support of Convergence and Global Accounting Standards (online at www.sec.gov/rules/other/ 

2010/33-9109.pdf) (Release Nos. 33–9109; 34–61578) (accessed Aug. 10, 2010). 254The EU has adopted nearly all IFRSs, with limited modifications, or ‘‘carve outs.’’ While 

the EC typically waits on new standards or modifications to come from IASB and then votes 

on their inclusion in current regulations, in 2008, at the height of the financial crisis, the EC 

proposed an amendment to IAS 39 (fair value accounting standards) that would allow for the 

reclassification of assets from trading to held-to-maturity. The EC made this move in case the 

IASB decided against any changes to the current fair value standard at the time, but the knowledge that an additional ‘‘carve out’’ by the EU would create even more discrepancies within 

international standards and impede the convergence process put added pressure on the IASB 

to acquiesce to the EC’s proposal. See European Commission, International Accounting Standards and Interpretations Endorsement Process in the EU (online at ec.europa.eu/internal_market/accounting/docs/ias/endorsement_process.pdf) (accessed Aug. 10, 2010); Huw Jones, 

EU Executive to Ease Fair Value on Banks, Reuters (Oct. 10, 2008) (online at www.reuters.com/ 

article/idUSLA68354320081010). 255 In the United States, the Securities and Exchange Commission issued a report on this 

topic. See U.S. Securities and Exchange Commission, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by 

U.S. Issuers (Nov. 14, 2008) (online at www.sec.gov/rules/proposed/2008/33-8982.pdf). See also 

Accountancy Age, Tweedie Nearly Quit After Fair Value Change (Nov. 12, 2008) (online at 

www.accountancyage.com/accountancyage/news/2230424/tweedie-nearly-quit-fair-value). 256SFAS 115 allowed a security to be reclassified out of the trading category in rare circumstances. SFAS 65 allowed for a loan to be reclassified out of the held-for-sale category if 

the institution has the intention and ability to hold the loan for the foreseeable future or until 

maturity. International Accounting Standards Board, Reclassification of Financial Assets: 

Amendments to IAS 39 and IFRS 7, at 10–12 (Oct. 2008) (online at www.iasb.org/NR/rdonlyres/ 

BE8B72FB-B7B8-49D9-95A3-CE2BDCFB915F/0/AmdmentsIAS39andIFRS7.pdf) (hereinafter 

‘‘Reclassification of Financial Assets: Amendments to IAS 39 and IFRS 7’’). The FASB standards 

have since been codified into a set of standards that allows for more simplified reference and 

use but did not materially change any prior standards. U.S. standards have remained fairly 

similar since October 2008, with transfers of assets from held-to-maturity allowed in certain circumstances and those into or from the trading category allowed in rare instances. Sale or transfer of a held-to-maturity security due to the following reasons is not considered inconsistent with 

the security’s original classification: evidence of a significant deterioration in the issuer’s creditContinued 

ing.253 In October 2008, IASB published educational guidance on 

the application of fair value measurement when markets become 

inactive, and, in the face of political pressure from the European 

Commission (EC),254 allowed banks to reclassify certain securities 

as held-to-maturity to allow for reporting at historical, or amortized, cost. The EC effectively forced IASB’s hand with this decision, threatening that either asset reclassification be allowed or 

that the EC would create another ‘‘carve out’’ for international accounting rules. That is, all IASB standards are scrutinized by the 

European Financial Reporting Advisory Group (EFRAG) established by the EC in 2001. As the aforementioned body would have 

hindered the potential for an eventual convergence of accounting 

standards, IASB allowed the asset reclassification, which provided 

international institutions temporary relief from potential writedowns.255

Part of the EU’s argument in pushing the IASB to make this 

change was to better align IFRS with U.S. GAAP. SFAS 115 and 

SFAS 65 within U.S. GAAP allowed for asset reclassification in 

specific instances, allowances that have carried over to the current 

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worthiness, tax law change that reduces or eliminates the tax-exempt status of interest on the 

debt security, major business combination or disposition that requires the sale or transfer of 

held-to-maturity securities to maintain the entity’s interest rate or credit rate risk positions, 

change in statutory or regulatory requirements significantly modifying what constitutes a permissible investment or maximum number of investments, a significant increase in the industry’s 

capital requirements by the regulator that requires asset divestiture, or a significant increase 

in the risk weights of debt securities used for regulatory risk-based capital. Financial Accounting Standards Board, Accounting Standards Codification 320–10–35 (online at asc.fasb.org/ 

section&trid=2196945%26analytics AssetName=subtopic_page_ 

subsection%26nav_type=subtopic_ page#d3e24816-111560) (accessed Aug. 10, 2010); Financial 

Accounting Standards Board, Accounting Standards Codification 320–10–25–6 (online at 

asc.fasb.org/link&sourceid=SL2247003-111560&objid= 6871231) (accessed Aug. 10, 2010). 257 Reclassification of Financial Assets: Amendments to IAS 39 and IFRS 7, supra note 256. 

U.S. GAAP differs from IFRS in its explicit use of three levels of valuation techniques, while 

IAS 39 emphasizes using market inputs over internal, firm specific inputs, GAAP recognizes day 

one profit or loss on fair value even if based on unobservable inputs, whereas IFRS defers day 

one recognition if fair value measurement is not based on observable inputs. U.S. GAAP and 

IFRS also differ in slight ways on their fair value treatment of liabilities and equity instruments, as well as disclosure requirements. International Accounting Standards Board and Financial Accounting Standards Board, Fair Value Measurement Project Update (Agenda Paper 8) 

(Mar. 2009) (online at www.iasb.org/NR/rdonlyres/7E90DA08-C957-4B4E-9950-594B57E6D1A5/ 

0/FVM0903joint8obs.pdf). 258 International Accounting Standards Board, IASB Expert Advisory Panel: Measuring and 

Disclosing the Fair Value of Financial Instruments in Markets That are No Longer Active, at 

10 (Oct. 2008) (online at www.iasb.org/NR/rdonlyres/0E37D59C-1C74-4D61-A984- 

8FAC61915010/0/IASB_ Expert_Advisory_ Panel_October_2008.pdf). 259See Group of Twenty, About G–20 (online at www.g20.org/about_what_is_g20.aspx) 

(accessed Aug. 10, 2010). G–20 members are: Argentina, Australia, Brazil, Canada, China, 

France, Germany, India, Indonesia, Italy, Japan, Mexico, the Republic of Korea, Russia, Saudi 

Arabia, South Africa, Turkey, the United Kingdom, and the United States. 

counting Standard (IAS) 39 disallowed any reclassifications for financial assets classified as held for trading. Although IASB is cognizant that a reclassification under SFAS 115 is extremely rare, it 

allowed for the amendment to IAS 39 due to the fact that though 

it is not used in practice, reclassification is at least an option under 

U.S. GAAP. Thus, the amended IAS 39 allows for reclassifications 

in similar instances as those allowed under U.S. GAAP. In a dissenting opinion to this amendment, however, IASB members James 

J. Leisenring and John T. Smith noted that though the playing 

field may have been leveled in regards to asset reclassification, 

they believed the original IFRS reclassification rules to be superior 

to U.S. GAAP and U.S. GAAP to be superior to IFRS in terms of 

timing and measurement of asset impairment.257

Similar to FASB’s allowance for more judgment in the use of fair 

value methodology, IASB issued guidance on measuring fair value 

in inactive markets, specifically the use of broker or pricing service 

quotes as inputs as well as internal modeling. Both standard setters have continued to require the use of fair value accounting but 

emphasize that the objective of fair value measurement is to determine the price at which an orderly transaction would take place, 

not the price of a distressed sale or liquidation.258

3. International Organizations 

International organizations—from the G–20 to the IMF to the Financial Stability Board—used their different core competencies to 

exert significant influence over national policy responses to the financial crisis. The G–20, a forum of finance ministers and central 

bank governors from 20 systemically significant economies, promotes international economic stability and development through 

cooperative action between industrial and emerging-market countries.259 The G–20 was created as a response to the financial crises 

of the late 1990s and amid a growing understanding that emergVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00060 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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260See id. 261See id. 262See Group of Twenty Washington Summit, Declaration Summit on Financial Markets and 

the World Economy, at 1 (Nov. 15, 2008) (online at www.g20.org/Documents/ 

g20_summit_declaration.pdf). 263See id. at 1. 264See id. at 1. 265See Group of Twenty London Summit, Declaration on Strengthening the Financial System, 

at 1–2 (Apr. 2, 2009) (online at www.g20.utoronto.ca/2009/2009ifi.pdf) (hereinafter ‘‘G–20 London 

Summit Declaration’’). 266 Id. See also International Monetary Fund, Fact Sheet: Special Drawing Rights (SDRs) (Jan. 

31, 2010) (online at www.imf.org/external/np/exr/facts/sdr.HTM) (‘‘The SDR is an international 

reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. 

Its value is based on a basket of four key international currencies, and SDRs can be exchanged 

for freely usable currencies.’’). 267The FSB has a broader mandate and a larger membership than the FSF, which was created in February 1999. See Financial Stability Board, Financial Stability Board Charter, at 1– 

2 (Sept. 13, 2009) (online at www.financialstabilityboard.org/publications/r_090925d.pdf) (hereinafter ‘‘FSB Charter’’). See also G–20 London Summit Declaration, supra note 265, at 1. 

ing-market countries were not sufficiently represented in global 

economic discussion and governance.260 G–20 members are drawn 

from six continents, and their countries collectively represent approximately 90 percent of the world’s gross national product.261

In November 2008, the G–20 held the Summit on Financial Markets and the World Economy in Washington, D.C., to ‘‘achieve 

needed reforms in the world’s financial system.’’ 262 The G–20 diagnosed the ‘‘root causes’’ of the global crisis, assessed systemic ramifications, and formulated the Action Plan to Implement Principles 

of Reform.263 The Plan is based on five ‘‘common principles’’ for reforming financial markets—strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation, and reforming international financial institutions—and 47 short- and mediumterm actions that leverage the core competencies of international 

organizations to achieve financial reform.264

In April 2009, the G–20 held a London summit to further advance the Action Plan by crafting a declaration that authorized additional measures to promote global financial system reform, including: stronger international frameworks for prudential regulation; greater transparency; more effective regulation of credit rating agencies; and more rigorous regulation and oversight of systemically important financial institutions, markets, and instruments.265 The G–20 also agreed to support the ability of emerging 

markets and developing countries to access capital by making significant resource commitments to strengthen global financial institutions, including: tripling the IMF’s resources to $750 billion; creating a new Special Drawing Rights allocation of $250 billion that 

serves as an international reserve asset that supplements countries’ official reserves; increasing support for Multilateral Development Bank lending by $100 billion; and providing $250 billion of 

support for trade finance.266

The G–20 also created the Financial Stability Board (FSB) at the 

April 2009 Summit, as the successor to the Financial Stability 

Forum (FSF), in order to support the G–20’s vision for financial 

system reform.267 The FSB’s core purpose is to promote international financial reform and stability by coordinating the regulations and policies of national financial authorities and international 


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268See FSB Charter, supra note 267, at 1–2. 269FSB Charter, supra note 267. The FSB has taken several steps to attempt to make its operations transparent, but in certain key areas, it remains somewhat opaque. Its charter discloses the general process for determining the membership of its plenary committee, for instance, but the FSB does not list the names and titles of individual representatives. It also 

states that the ‘‘number of seats in the Plenary assigned to Member jurisdictions reflects the 

size of the national economy, financial market activity and national financial stability arrangements of the corresponding Member jurisdiction,’’ but it fails to provide specific information on 

the process for making these determinations, nor does it identify the number of seats that were 

assigned to each member. The charter also provides for standing committees and working 

groups, but the membership and activities of these entities have not been disclosed. Id. at 4. 

In addition, the FSB provides limited information about the content of plenary committee meetings. It issues press releases after plenary meetings that describe discussion topics and areas 

of agreement in general terms. See, e.g., Financial Stability Board, Financial Stability Board 

Meets on the Financial Reform Agenda (Jan. 9, 2010) (online at www.financialstabilityboard.org/ 

press/pr_100109a.pdf). However, these press releases are not in the form of minutes, and they 

include few details about particular issues and concerns raised by specific member countries. 

Moreover, the FSB does not publish specific agendas in advance of its plenary meetings. The 

FSB has not yet issued a press release for the plenary committee meeting that occurred on June 

14, 2010 in Toronto, even though the meeting occurred approximately two months ago. 270See Financial Stability Board, Improving Financial Regulation: Report of the Financial Stability Board to G–20 Leaders (Sept. 25, 2009) (online at www.financialstabilityboard.org/publications/r_090925b.pdf). 271The G–20 has relied on the IMF to provide research and analysis during the crisis. See 

generally Group of Twenty, Progress Report on the Economic and Financial Actions of the London, Washington, and Pittsburgh G–20 Summits Prepared by Korea, Chair of the G–20 (July 20, 

2010) (online at www.g20.org/Documents2010/07/July_2010_G20_Progress_Grid.pdf). 272 International Monetary Fund, Annual Report 2009 (2009) (online at www.imf.org/external/ 

pubs/ft/ar/2009/eng/pdf/ar09_eng.pdf) (hereinafter ‘‘IMF Annual Report’’); International Monetary Fund, About the IMF: Overview (online at www.imf.org/external/about/overview.htm) 

(accessed Aug. 10, 2010). 273See id. at 41–44. 274See id. at 42. 

standard-setting bodies.268 The FSB seeks to diagnose the weaknesses of the financial system and devise remedies to address 

them; promote coordination and information exchange among financial authorities; provide regulatory policy advice and counsel; 

conduct strategic reviews of the policy development work of the 

international standard setting bodies; set guidelines for supervisory 

colleges; support contingency planning for cross-border crisis management for systemically important firms; and collaborate with the 

IMF to conduct Early Warning Exercises.269 In its September 2009 

report, Improving Financial Regulation, the FSB issued a comprehensive financial reform program that included guidelines for: 

strengthening the global capital and liquidity framework for banks; 

making global liquidity more robust; reducing the moral hazard 

posed by systemically important financial institutions; strengthening accounting standards; improving compensation practices; and 

expanding oversight of the financial system.270

The IMF has forged a close collaborative relationship with the 

G–20 and the FSB.271 The IMF has 187 member countries, and its 

primary purpose is to ‘‘safeguard the stability of the international 

monetary system.’’ 272 The IMF has assumed an important role in 

identifying lessons learned from the financial crisis and is relied 

upon to provide early warning, financial vulnerability, financial 

soundness, and macro-prudential indicators by gathering and analyzing data through surveillance of individual countries, regions, 

and the entire world.273

As a result of the financial crisis, the IMF has revised its surveillance priorities to increase domestic and cross-border regulation of 

major financial centers and deepened its analysis of linkages between markets, institutions, exchange rates, and external stability 

risks.274 The IMF also created and chaired an interagency group 


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275 Id. at 12–13. 276See International Monetary Fund and Financial Stability Board, The Financial Crisis and 

Information Gaps: Report to the G–20 Finance Ministers and Central Bank Governors (Oct. 29, 

2009) (online at www.financialstabilityboard.org/publications/r_091107e.pdf). 277See International Monetary Fund, Bank for International Settlements, and Financial Stability Board, Guidance to Assess the Systemic Importance of Financial Institutions, Markets and 

Instruments: Initial Considerations (Oct. 2009) (online at www.bis.org/publ/othp07.pdf). 278 IMF Annual Report, supra note 272, at 25. By contrast, at the very beginning of the crisis, 

the IMF had focused more on addressing food and fuel price shocks than on addressing failed 

financial institutions. See id. at 22–23. 279The biggest IMF emergency loans in 2009 were issued to Mexico, the Ukraine, and Hungary. IMF Annual Report, supra note 272, at 32. 280See Bank for International Settlements, 80th Annual Report, at 1–5 (June 28, 2010) (online 

at www.bis.org/publ/arpdf/ar2010e.pdf?noframes=1). 281See id. at 107. 282See id. at 114–118. 283See G–20 London Summit Declaration, supra note 265, at 2. See also Group of Twenty, 

Progress Report on the Immediate Actions of the Washington Action Plan, at 2, 4–6 (Mar. 14, 

2009) (online at www.g20.org/Documents/g20_washington_actionplan_progress_140309.pdf). Progressive adoption implies that implementation schedules may differ across and within countries. 

The United States, the European Union, Australia, and India have already implemented Basel 

II. See Office of the Comptroller of the Currency, OCC Approves Basel II Capital Rule (Nov. 1, 

2007) (online at www.occ.gov/ftp/release/2007-123.htm); Official Journal of the European Union, 

Directive 2006/49/EC of the European Parliament and of the Council on the Capital Adequacy 

of Investment Firms and Credit Institutions (June 14, 2006) (online at eur-lex.europa.eu/ 

LexUriServ/site/en/oj/2006/l_177/l_17720060630en02010255.pdf); Susan Bultitude, Commercial 

and Regulatory Response to Current Financial System Turbulence: Regulatory Responses to Financial Market Turbulence, at 3 (2008); Reserve Bank of India, Monetary Policy Statement 

2010–11, at 25 (2010) (online at rbidocs.rbi.org.in/rdocs/notification/PDFs/MPSA200410.pdf). 

that collects, analyzes, and promulgates financial sector data on 

the G–20 economies.275 In September 2009, the group issued a 

joint advisory report with the FSB explaining the role that financial information gaps played in the financial crisis, proposing best 

practices for data collection, identifying financial network connections across economies, and monitoring the susceptibility of domestic economies to shocks.276 In October 2009, the FSB, IMF, and BIS 

issued a collaborative report offering guidelines and analytical 

frameworks for assessing the systematic importance of financial institutions, markets, and instruments across countries.277 The IMF 

has also helped developing countries to manage their economies effectively by offering training and by designing macroeconomic, financial, and structural policies. Additionally, the IMF began increasing the amount of funds available for lending and made it 

easier for countries with good credit to access loans quickly in early 

2009.278 The eventual recipients of these loans, however, were developing countries with only a marginal impact on the international financial system.279 By contrast, developed countries preferred to finance their capital injection and asset guarantee programs themselves rather than apply for IMF funds. 

The Bank for International Settlements (BIS) is another international institution is working toward financial stability and reform.280 The BIS’s mission is to ‘‘serve central banks and financial 

authorities in their pursuit of monetary and financial stability, to 

foster international cooperation in those areas and to act as a bank 

for central banks.’’ 281 The BIS houses the Basel Committee on 

Banking Supervision, which recommends financial reforms and 

issues macro-prudential guidelines and supervisory policies for central banks to mitigate systemic risk.282 The G–20 has charged the 

Basel Committee with increasing transparency, strengthening capital requirements, and developing enhanced guidance to improve 

central banks’ risk management practices.283 All G–20 members 


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284See Group of Twenty Toronto Summit, Declaration, at 16 (June 26–27, 2010) (online at 

www.g20.org/Documents/g20_declaration_en.pdf). 285See Bank for International Settlements, Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards: A Revised Framework, at 

6 (June 2006) (online at www.bis.org/publ/bcbs128.pdf). 286See Bank for International Settlements, Basel Committee on Banking Supervision, Principles for Sound Liquidity Risk Management and Supervision (Sept. 2008) (online at 

www.bis.org/publ/bcbs144.pdf). (‘‘Liquidity is the ability of banks to fund increases in assets and 

meet obligations as they come due, without incurring unacceptable losses.’’). 287See Bank for International Settlements, Basel Committee on Banking Supervision, Consultative Document: Strengthening the Resilience of the Banking Sector, at 2–3 (Dec. 2009) (online at www.bis.org/publ/bcbs164.pdf). 288 Id. at 3. 

have agreed to adopt and phase-in the Basel II capital framework, 

which was initially published in 2004, by the end of 2010.284 Basel 

II measures and sets minimum standards for capital adequacy 

based on credit risk, operational risk, and market risk and aligns 

regulatory capital requirements closely with these underlying risks 

to help banks better identify and manage capital risks.285 In June 

2008, the Basel Committee issued Principles for Sound Liquidity 

Risk Management and Supervision, which emphasized that banks 

should have a ‘‘robust liquidity risk management framework’’ and 

sufficient loss-absorbing capital to withstand stress events, and detailed best practices for achieving these ends.286

In December 2009, the Basel Committee issued a reform proposal—commonly referred to as Basel III—that aims to strengthen 

global capital and liquidity regulations and to increase resiliency 

within the banking sector.287 The proposal has been endorsed by 

the FSB and the G–20 leadership and contains five core reforms 

that would apply to all countries that adopt it: First, it raises the 

quality, consistency, and transparency of capital bases by imposing 

new, more rigorous Tier I capital requirements. For example, it requires common shares and retained earnings to be the ‘‘predominant’’ form of Tier I capital and limits the remainder to instruments that are subordinated with fully discretionary or non-cumulative dividends or coupons without a maturity date or an incentive 

to redeem. The plan also phases out hybrid capital instruments, 

which are now capped at 15 percent of Tier I capital. Second, the 

proposal strengthens the risk coverage of the capital framework by 

raising capital requirements for trading book and complex 

securitization exposures and resecuritization. It also incorporates a 

‘‘stressed value-at-risk capital requirement’’ based on a 12-month 

period of ‘‘significant financial stress’’ and raises the standards of 

the supervisory review and disclosure processes. Third, it introduces a leverage ratio as a supplement to the Basel II risk-based 

framework to protect against excessive leverage in the banking system. Fourth, it contains requirements for a capital buffer that can 

be used during periods of stress. Finally, it employs a global ‘‘minimum liquidity standard’’ for international banks.288

4. The International Financial Landscape in the Aftermath 

of the Crisis 

The aftermath of the most severe stages of the global financial 

crisis brought stark changes in management practices within 

banks, unprecedented government intervention within the financial 

sector, and modifications to the international financial system. The 


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289 IMF 2009 Global Financial Stability Report, supra note 108, at xv. A recent IMF Report puts this figure at $2.3 trillion. These figures ($4 trillion and $2.3 trillion) are global estimates 

of banks losses on all bank loans and bank securities for the period 2007–2010. See International Monetary Fund, Global Financial Stability Report: Meeting New Challenges to Stability 

and Building a Safer System, at 12 (Apr. 2010) (online at www.imf.org/external/pubs/ft/gfsr/ 

2010/01/pdf/text.pdf). 290Other major international examples include ING in the Netherlands (recapitalized, asset 

guarantees); UBS AG, Switzerland (capital injections); and Anglo-Irish Bank, Republic of Ireland (nationalized). In the United States, the major example is Citigroup (recapitalized). 291See Section C.2.f, supra. 292Many banks kept a low advances to deposits ratio to significantly diminish risk and several, such as HSBC, which kept its ratio at around 100 percent. HSBC Holdings, Annual Report 

and Accounts 2009, at 246 (Mar. 1, 2010) (online at www.hsbc.com/1/PA_1_1_S5/content/assets/ 

investor_relations/hsbc2009ara0.pdf). 

dramatic crisis produced enormous financial losses whose impact 

was felt throughout the entire world. 

The sheer amount of capital lost due to the crisis had the most 

pervasive effects in altering the international financial landscape. 

By the spring of 2009, the International Monetary Fund (IMF) was 

estimating that financial institutions worldwide would lose approximately $4 trillion on their loans and security holdings from 

2007 to 2010.289 Three of the five large, independent U.S. investment banks—Bear Stearns, Lehman Brothers, and Merrill Lynch— 

had either ceased to exist or were bought up by another bank. The 

two remaining independent U.S. investment banks, Goldman Sachs 

and Morgan Stanley, had converted to bank holding companies 

(BHCs), thereby gaining permanent access to the Federal Reserve 

discount window. In Europe, Iceland’s three major banks, as well 

as ABN AMRO Bank N.V. (ABN AMRO) and Fortis in the Netherlands, Northern Rock in the United Kingdom, and the Anglo Irish 

Bank in Ireland had all been nationalized. 

Perhaps the most striking feature of the financial landscape after 

the crisis was unprecedented government intervention. As a result 

of the losses they suffered, many banks needed to raise new equity 

from shareholders and/or their home-country governments. 

Governments continue to fund a number of major financial institutions. While many of the large banks in the United States that 

were propped up by government intervention have succeeded in 

paying back a majority of their loans, banks like the Royal Bank 

of Scotland and Northern Rock continue to rely upon British government funding as a source of bank capital.290

As noted above,291 disparities between the accounting standards 

of American and international banks were also highlighted in the 

wake of the crisis. In particular, fair value accounting rules remain 

a source of international regulatory friction. 

Individual banks also altered their own management practices in 

the wake of the financial crisis. Prior to the crisis, very few large 

financial firms with international operations had risk management 

structures capable of assessing the large risks to which they were 

in fact exposed. An October 2009 report of the Financial Stability 

Board notes that firms have undertaken a number of changes in 

risk management practices in the aftermath of the crisis. Among 

the most significant are engaging board and senior management in 

risk management, increased use of and improvements to stress 

testing, and improving funding and liquidity risk management programs.292


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293 HM Treasury Notice—Lloyds Banking Group and Royal Bank of Scotland, supra note 220. 294 HM Treasury Statement on the Asset Protection Scheme, supra note 219. 295 HM Treasury, Statement on the Government’s Asset Protection Scheme, at 3 (Feb. 26, 2009) 

(online at webarchive.nationalarchives.gov.uk/20100407010852/www.hm-treasury.gov.uk/d/ 

press_18_09.pdf). 296On October 6, 2009, Socie ́te ́ Ge ́ne ́rale announced a Ö4.8 billion ($7 billion) rights offer slated to reimburse the government for Ö3.4 billion ($5 billion), which was apportioned in equal 

measures of subordinated debt and preferred shares. The cost of that government support was 

expected to reach Ö185 million ($270 million). Nearly two weeks earlier, BNP Paribas announced a plan to raise Ö4.3 billion ($6.3 billion) through its own rights offer. The deal was intended to help BNP repay the French government for Ö5.1 billion ($7.5 billion) plus Ö226 million 

($330.6 million) in interest. Both BNP and Socie ́te ́ Ge ́ne ́rale agreed to increase household loan 

volumes over the coming year by 3 percent. 297 Europa, State Aid: EU Authorises Extension of Bank Support Scheme in Ireland, Spain, 

Denmark and Hungary (June 29, 2010) (online at europa.eu/rapid/ 

pressReleasesAction.do?reference=IP/10/854&type=HTML). 

5. Winding Down Rescue Efforts 

Buoyed by a rising market and a dramatic turnaround in the fortunes of global banks beginning in 2009, several significant rescue 

efforts extended by foreign governmental agencies were curtailed or 

wound down altogether. 

Between September 2009 and January 2010, numerous banks in 

G–7 countries rallied to extricate themselves from various government support programs. In early November 2009 Lloyds Banking 

Group completed its exit from the United Kingdom’s Asset Protection Scheme (APS) and paid a £2.5 billion ($4.1 billion) fee that 

helped recoup the taxpayers’ investments.293 Formed in February 

2009, the APS insured banks against the risk of losses stemming 

from backlogs of shaky assets, such as corporate and leveraged 

loans, commercial property loans and structured credit assets.294

Royal Bank of Scotland, which positioned assets originally valued 

at £325 billion ($471 billion) with APS under an agreement that its 

liability was reduced to £19.5 billion ($28.2 billion) of potential 

losses, is still covered by the plan.295 RBS reportedly agreed to fees 

that amount to £6.5 billion ($9.4 billion), or 2 percent of the assets 

covered by the plan, and issued non-voting B shares to HM Treasury to cover the costs. 

In the fall of 2009, France’s Socie ́te ́ Ge ́ne ́rale and BNP Paribas 

both completed separate capital raises to repay government assistance and strengthen their capital positions.296

Earlier this year, a number of bank support schemes in healthier 

economies were shuttered. On March 31, Australia ended a program that backstopped lenders and warned banks against using 

the situation as an excuse to increase interest rates above national 

levels. A separate guarantee for depositors with up to $1 million 

AUD ($920,000) per account will be held in place for at least one 

more year. Australian regulators said the program enabled banks 

to raise more than $32 billion AUD ($29 billion) from international 

credit markets since its inception. Participating banks paid more 

than $1 billion AUD ($920 million) for the service. 

Bank guarantee programs in the United States, Canada, France 

and South Korea had shut down by late 2009, and other programs 

in the United Kingdom, Sweden, Germany, Spain, Ireland and 

Denmark were slated to close this year after numerous extensions. 

In addition, the European Commission approved an extension of 

guarantee schemes for banks in Ireland, Spain, and Denmark and 

a liquidity scheme in Hungary until December 31, 2010.297


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298Dodd-Frank Wall Street Reform and Consumer Protection Act, supra note 162, at § 171. 299Office of Senator Ted Kaufman, Banking Conference Should Agree to Strong Financial Reforms to Bolster International Bank Capital Standards (June 17, 2010) (online at 

www.kaufman.senate.gov/press/press_releases/release/?id=C328F9F2-7628-43FC-BD70- 

D06BA22C89D6). 300 John C. Dugan, comptroller of the currency, Remarks before the Institute of International 

Bankers (Mar. 1, 2010) (online at www.occ.gov/ftp/release/2010-26a.pdf). 301For further discussion concerning globalization and cross-border integration within financial institutions, see Section B, supra. 302The Panel emphasized this point in its December oversight report. December Oversight Report, supra note 39, at 111 (‘‘[I]t is difficult to establish, in many cases, whether any TARP 

funds ended up outside the United States.’’). 

As some banking systems regain strength and regulators wind 

down emergency assistance programs, governments are shifting 

their focus to preventive measures. The recently enacted Wall 

Street Reform and Consumer Protection Act of 2010 appears likely 

to result in tougher banking regulations in the United States. Some 

advocates of the United States’ taking a leadership role have 

pushed for a stronger version of a provision in the Dodd-Frank 

Wall Street Reform and Consumer Protection Act that sets limited 

conditions on the content of Tier 1 capital at large banks 298 and 

stated officials at the Basel Committee on Banking Supervision had 

failed the international community. These ideas were expressed by 

Senator Ted Kaufman (D–DE), who called Basel I and II ‘‘colossal 

failures’’ and criticized the direction of Basel III on the Senate 

floor. As an alternative to relying on an international rules committee, Senator Kaufman specifically pressed for legislation that 

provided strict guidelines to define Tier 1 capital.299 Despite this 

criticism, the new law mainly calls for tougher capital requirements and leaves the final details open to interpretation by regulators and industry experts. Future regulations in the United 

States will also depend on the final form of the Basel III accords, 

which will establish international capital and leverage standards 

for banks. Months before President Obama signed the financial reform bill into law, Comptroller of the Currency John C. Dugan took 

the opposite side of Senator Kaufman’s argument and urged Congress to collaborate on capital standards with the international 

community.300 Even though the Dodd-Frank bill was signed by 

President Obama there are still questions about whether regulators 

will use powers granted by the law to take a lead role on banking 

standards or adopt a wait-and-see approach concerning the talks in 

Switzerland. 

D. International Impact of Rescue Funds 

The interconnectedness of the financial system, the increasing 

fluidity of borders with respect to financial transactions and the 

flow of capital,301 and several decisions concerning the allocation of 

TARP funds mean that U.S. rescue programs likely had international ramifications and also that international rescue programs 

likely assisted U.S. institutions. As discussed in more detail below, 

however, the flow of funds from the United States is likely to have 

exceeded the flow of funds into it (both in absolute and relative 

terms). 

Despite the methodological challenges that make it difficult to 

pinpoint the precise movement of funds,302 it is very likely that a 

meaningful portion of TARP funds had an international impact, as 


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303 12 U.S.C. § 5201(2)(C). See also 12 U.S.C. § 5233(b)(1)(A)(iv) (requiring the Congressional 

Oversight Panel to submit ‘‘regular reports’’ on the ‘‘effectiveness of the program from the standpoint of minimizing long-term costs to the taxpayers and maximizing the benefits for taxpayers.’’). 304General Motors’ sales in China in the first half of 2010 outpaced sales for the same period 

in 2009 by 48.5 percent. General Motors Corp., GM Sets New June, First Half Sales Records 

in China (July 2, 2010) (online at media.gm.com/content/media/cn/en/news/ news_detail.brand_gm.html/content/Pages/news/cn/en/2010/June/0702) (hereinafter ‘‘GM Sets 

New June, First Half Sales Records in China’’). According to Stephen J. Girsky, the vice chairman for corporate strategy and business development, ‘‘China’s a big piece of the value of the 

company, and since we pull cash out of China, it helps fund investments in other parts of the 

company as well.’’ David Barboza and Nick Bunkley, G.M., Eclipsed at Home, Soars to Top in 

China, New York Times (July 21, 2010) (online at www.nytimes.com/2010/07/22/business/global/ 

22auto.html?hp=&pagewanted=all). 

demonstrated in more detail below. There may have been both 

positive and negative consequences of this cross-border flow of 

funds. EESA requires the Secretary to take steps to maximize taxpayer return,303 and an investor is likely to benefit from a company’s ability to pursue the best possible business opportunities. In 

some cases, permitting a company to bolster international sales 

through international investments may generate revenues that 

allow it to repay the taxpayer in full within a reasonable period of 

time. General Motors Company (General Motors), for example, has 

invested in its China operations and has seen sales there increase 

dramatically.304 Limiting General Motors’ ability to take advantage 

of its opportunities in Asia might have weakened the taxpayer’s investment in the company. 

Enabling the cross-border flow of funds may also benefit companies over the long term. If the government had permitted AIG to 

compensate domestic counterparties in return for the termination 

of certain credit default swap contracts but had required the company to abrogate similar contracts with foreign counterparties, 

AIG’s ability to conduct international transactions in the future 

would have been compromised. The U.S. government might have 

been in an awkward negotiating position vis-a`-vis foreign governments if TARP recipients had been required to abrogate foreign 

contracts while simultaneously honoring domestic contracts. 

On the other hand, there may be several drawbacks to using domestic rescue funds to finance foreign operations. It may encourage 

free riders, as foreign governments that expect their counterparts 

to initiate large rescue operations may be less likely to take action 

themselves. If the costs of financial rescue efforts are realized by 

home countries but benefits are distributed among foreign economies, countries may engage in a ‘‘race to inaction.’’ 

The cross-border flow of rescue funds may also encourage regulatory arbitrage. Companies may be incentivized to locate their 

headquarters in countries that are likely to initiate prompt, extensive rescue efforts in the event of a crisis, while shifting their operations—and potentially the most risky operations—to countries 

with less stringent regulation. Such offshore movements could reduce the capacity of U.S. regulators to monitor the institution and 

could negatively affect the U.S. labor market, which might result 

in U.S. taxpayers realizing a reduced percentage of the economic 

benefits of the institution’s operations while bearing a substantial 

portion of the costs of a rescue. 

Ultimately, basic governance principles may be disrupted when 

the government of one country asks its citizens to subsidize the 


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305See, e.g., Federalist No. 30 (online at www2.hn.psu.edu/faculty/jmanis/poldocs/fedpapers.pdf) (‘‘[T]wo considerations will serve to quiet all apprehension on this head: one is, that 

we are sure the resources of the community, in their full extent, will be brought into activity 

for the benefit of the Union.’’). 306See U.S. Department of the Treasury, Securities Purchase Agreement for Public Institutions 

(online at www.financialstability.gov/docs/CPP/spa.pdf) (hereinafter ‘‘Securities Purchase Agreement for Public Institutions’’) (accessed Aug. 10, 2010). December Oversight Report, supra note 

39, at 108–09 & n.435 (‘‘Added to the fact that there are no specific restrictions on use of funds 

or requirements with respect to the reporting of such use, the SPAs seem to be a missed opportunity for monitoring the use of taxpayers’ funds.’’). Several other Panel reports discuss the absence of use of funds reports. See, e.g., Congressional Oversight Panel, May Oversight Report: 

The Small Business Credit Crunch and the Impact of the TARP, at 26 n.65 (May 13, 2010) (online at cop.senate.gov/documents/cop-051310-report.pdf); Congressional Oversight Panel, Questions About the $700 Billion Emergency Economic Stabilization Funds, at 4–5 (Dec. 10, 2008) 

(online at frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_ 

cong_senate_committee_prints&docid=f:45840.pdf) (noting the need for the companies that received TARP funds to explain how they were using those funds). 307Office 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, at 5–13 (July 20, 2009) (online at www.sigtarp.gov/reports/audit/2009/ 

SIGTARP_Survey_Demonstrates_That_Banks_Can_Provide_Meaningful_Information_ 

On_Their_Use_Of_TARP_Funds.pdf). Citigroup presents a notable exception. Citigroup established a Special TARP Committee, which set up guidelines consistent with the objectives and 

spirit of the program, and internal controls to ensure that TARP funds would only be used for 

lending and mortgage activities. It also separately publishes regular reports summarizing its 

Continued 

economy of another country. The authority of a government to tax 

its citizens derives in part from the assumption that money taken 

from individual citizens will be used for the collective good of that 

nation’s citizenry.305 To tax one nation’s citizens to benefit those of 

another may be contrary to that fundamental principle. Regarding 

the TARP, it is conceivable that in some cases TARP funds could 

be used for purposes that are contrary to the interests of U.S. citizens if, for example, the outsourcing of U.S. economic activities facilitated domestic job losses. 

Regardless of the policy merits of permitting the cross-border 

flow of U.S. rescue funds or allowing more rescue funds to flow out 

of the United States than back into it—and the Panel takes no position on that issue—it is not easy to disentangle the cross-border 

flow of TARP funds. The difficulty of assessing the size and scope 

of the cross-border movement of rescue money makes it challenging 

to evaluate the impact of those movements on both U.S. and foreign economies. 

As the Panel has described in several prior reports, two factors 

make it difficult to track the flow of TARP funds. First, the TARP 

did not require recipient institutions to use the funds for specific 

purposes or to submit reports on their use of the funds, a problem 

that was due in part to the terms and structure of the Securities 

Purchase Agreements (SPAs) signed by TARP recipients. Although 

the SPAs included a list of the goals of the TARP, they did not 

specify how these goals would be met, measured, or reported. They 

also included the goals as part of the precatory opening clauses of 

the agreement, as opposed to situating them in the binding language that followed. As a result, the SPAs did not impose specific 

obligations on TARP recipients to track the funds they received.306

The absence of these data impedes the process of following the 

money. Despite the Special Inspector General for TARP’s 

(SIGTARP) assessment that financial institutions may in fact be 

capable of providing ‘‘meaningful information’’ on their use of 

TARP funds, few institutions have done so.307


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TARP spending initiatives. See generally Citigroup, TARP Progress and Updates (online at 

www.citigroup.com/ citi/corporategovernance/tarp.htm) (accessed Aug. 10, 2010). 308December Oversight Report, supra note 39, at 109. 309For further discussion concerning globalization and cross-border integration within financial institutions, see Section B.3, supra. 310Treasury Transactions Report, supra note 64. 311 Additionally, where the U.S. rescue addressed the needs of individual institutions in supplemental TARP programs such as the TIP and the SSFI, the recipients were institutions with 

extensive international operations such as AIG, Bank of America, and Citigroup. See January 

Oversight Report, supra note 226, at 27–28. 312 However, as discussed in Section B.2 above, it merits mention that many European banks 

made substantial investments in U.S.-based assets with significant exposure to the U.S. housing 

market. 

Second, because money is fungible, it is not possible to isolate a 

dollar of government spending on a rescue program and connect it 

to a dollar of spending by a financial institution.308 Without careful 

safeguards, there is no guarantee that money allocated for one purpose is not used for another. 

In addition, as mentioned above, regulatory barriers and tax implications may impede the movement of money across borders.309

This creates complications for following the money because it 

means that money does not necessarily move in direct proportion 

to the size of an institution’s overseas business operations. For instance, if Bank X received $100 million from the TARP and conducts 10 percent of its operations in Brazil, there is no certainty 

that $10 million of the government’s investment would be employed 

for its Brazilian operations. 

One interesting distinction between U.S. and non-U.S. rescue efforts may be noted, however. The CPP, the primary tool used in the 

TARP rescue of the U.S. banking system, was a systemic program: 

it focused on the banking industry as a whole. In doing so, it injected $163.5 billion into the 17 of the 19 largest U.S. banks.310

Those largest banks are, as discussed in more detail below, the 

banks with the largest international operations.311 In contrast, European rescue programs tended in the main to focus more on specific troubled institutions; even the U.K. capital injection program 

was only taken up by two institutions. The operations of many of 

the largest non-U.S. recipients of rescue funds were, as seen below, 

either concentrated on their home markets, such as Hypo Real Estate in Germany, or extended over only one national border (as 

seen with the Irish and Icelandic banks operating in the United 

Kingdom).312 The logical inference is that the U.S. banking rescue 

may well have had significantly more international impact than 

non-U.S. rescue efforts had on the United States. 

1. U.S. Rescue Funds that May Have Benefited Foreign 

Economies 

Figure 15 details the potential international dimension of U.S. 

rescue programs. The figure shows the funds that U.S.-based institutions received from the U.S. government and the revenue those 

institutions derived from their operations outside of the United 

States. Although the size of an institution’s international operations cannot serve as a perfect proxy for the percentage of rescue 

funds that it used internationally, it may provide a rough guide. 

Companies with more sizeable international operations are likely 

to allocate a greater percentage of rescue funds to international 

purposes. 


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328See note 306, supra. 

FIGURE 15: U.S. RESCUE PROGRAMS WITH INTERNATIONAL DIMENSIONS 

U.S. Firms 

Federal 

Funds 

Received 

($millions) 313

Non-U.S. Revenue 

($millions) 

Non-U.S. Revenue 

(% Total) 

2005 2006 2005–2006 

American Express 314 ................................................. 3,389 8,180 8,760 33 

AIG 315 ........................................................................ 69,835 49,685 55,899 48 

Bank of America 316 ................................................... 35,000 5,178 10,699 12 

Bank of New York-Mellon 317 ..................................... 3,000 1,810 2,063 30 

Capital One 318 ........................................................... 3,555 1,088 997 8 

Chrysler 319 ................................................................. 14,310 NA NA NA 

Citigroup 320 ............................................................... 50,000 33,414 38,211 41 

General Motors 321 ...................................................... 50,745 54,557 63,310 35 

GMAC 322 .................................................................... 16,290 2,170 2,091 11 

Goldman Sachs 323 ..................................................... 10,000 10,599 17,304 44 

JPMorgan Chase 324 ................................................... 25,000 11,480 16,091 24 

Merrill Lynch 325 ......................................................... 10,000 8,518 12,056 34 

Morgan Stanley 326 ..................................................... 10,000 9,540 13,511 38 

State Street 327 ........................................................... 2,000 2,130 2,741 41 

313 Unless otherwise noted, Federal Funds Received are calculated using TARP transactions report. U.S. Department of the Treasury, Troubled 

Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as% 20of%207-30-10.pdf) (hereinafter ‘‘Treasury 

Transactions Report’’). 314 U.S. net revenue. American Express, Annual Report 2006 (Mar. 8, 2007) (online at library.corporate-ir.net/library/64/644/64467/items/235025/Amex_06AR_03_8_07.pdf). 315 U.S. total revenue. U.S. revenues calculated by subtracting Canadian revenues from domestic. American International Group, Inc., Form 

10–K for the Fiscal Year Ended December 31, 2006 (Mar. 1, 2007), at 24, 124 (online at 

www.sec.gov/Archives/edgar/data/5272/000095012307003026/y27490e10vk.htm). 316 TARP funds received by institution through the Capital Purchase Program (CPP) and through the Targeted Investment Program (TIP). 

Does not include the $10 billion acquired with the acquisition of Merrill Lynch in January 2009. U.S. revenue. U.S. revenues calculated by 

subtracting Canadian revenues from North American revenues. Bank of America, Annual Report 2006, at 150 (Mar. 1, 2007) (online at 

media.corporate-ir.net/media_files/irol/71/71595/reports/2006_AR.pdf). 317 Domestic revenue. Bank of New York-Mellon, Form 10–K for the Fiscal Year Ended December 31, 2006, at 31 (Mar. 2007) (online at 

www.bnymellon.com/investorrelations/financialreports/archive/bankofnewyork/10K2006.pdf). 318 Domestic total revenue. Capital One, Annual Report 2006, at 54, 130 (Mar. 2007) (online at 

media.corporate-ir.net/media_files/irol/70/70667/AR2006.pdf). 319While Chrysler Group LLC (Chrysler) was a non-public subsidiary of DaimlerChrysler in 2005–2006, an average of 23 percent of Chrys- ler’s revenue from 1995–1996 was foreign. Chrysler Corp., Form 10–K for the Fiscal Year Ended December 31, 1996 (Jan. 21, 1997) (online at 

www.sec.gov/Archives/edgar/data/791269/0000950124-97-000176.txt). 320 Treasury made three separate investments in Citigroup Inc. (Citigroup) under the CPP, Targeted Investment Program (TIP), and Asset 

Guarantee Program (AGP) for a total of $50 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange up to $25 

billion of Treasury’s investment in Fixed Rate Cumulative Perpetual Preferred Stock, Series H (CPP Shares) ‘‘dollar for dollar’’ in Citigroup’s 

Private and Public Exchange Offerings. On 7/23/2009 and 7/30/2009, Treasury exchanged a total of $25 billion of the CPP shares for Series 

M Common Stock Equivalent (‘‘Series M’’) and a warrant to purchase shares of Series M. On 9/11/2009, Series M automatically converted to 

7,692,307,692 shares of common stock and the associated warrant terminated on receipt of certain shareholder approvals. North America 

total revenues, net of interest expense. Citigroup, Inc., Form 10–K for the Fiscal Year Ended December 31, 2006, at 104 (Feb. 23, 2007) (online at www.sec.gov/Archives/edgar/data/ 831001/000119312507038505/d10k.htm). Regional revenue numbers from Bloomberg (accessed August 5, 2010). 321 General Motors Corp., Form 10–K for the Fiscal Year Ended December 31, 2006, at 61–65 (Mar. 15, 2007) (online at 

www.sec.gov/Archives/edgar/data/40730/000095012407001502/k11916e10vk.htm). 322 Total net financing revenue and other income. GMAC LLC, Form 10–K for the Fiscal Year Ended December 31, 2006 (Mar. 13, 2007) (online at www.sec.gov/Archives/edgar/data/40729/000095012407001471/k12221e10vk.htm). 323 Total net revenues, listed for ‘‘Americas’’ although footnote states that ‘‘substantially all relates to the United States.’’ Goldman Sachs, 

2006 Annual Report, at 118 (Mar. 2007) (online at 

www2.goldmansachs.com/our-firm/investors/financials/archived/annual-reports/attachments/2006-gs-annual-report.pdf). 324 JPMorgan Chase, 2006 Consolidated Financial Statements (Feb. 21, 2007) (online at files.shareholder.com/downloads/ONE/ 

986211036x0x86653/f71d68a8-37bb-4c6a-80dc-e733557ff685/Consolidated_financial_statements_and_Notes.pdf). 325 Net Revenue, United States. Originally $10 billion was set aside for Merrill Lynch under the CPP. However, settlement was deferred 

pending merger. The purchase of Merrill Lynch by Bank of America was completed on 1/1/2009, and this transaction under the CPP was 

funded on 1/9/2009. Merrill Lynch, Complete Financials 2006, at 93 (online at 

www.ml.com/annualmeetingmaterials/2006/ar/pdfs/annual_report_2006_financials.pdf) (accessed Aug. 11, 2010). 326 Net Revenue, United States. Morgan Stanley, Form 10–K for the Fiscal Year Ended December 31, 2006, at 32, 157 (Feb. 13, 2007) (online at www.sec.gov/Archives/edgar/data/895421/000119312507027693/d10k.htm). 327 Total revenue. State Street, Annual Report 2007, at 24, 124 (online at library.corporate-ir.net/library/78/782/78261/items/284296/STT_AR.pdf) (accessed Aug. 11, 2010). 

As shown in the figure above, several institutions that received 

U.S. rescue funds had substantial international operations. The 

amount of funding—as well as the terms—varied from institution 

to institution. In addition, because the TARP imposed few restrictions on the use of the funds,328 each institution used the funds for 

different purposes. Many of these large institutions had extensive 

non-U.S. operations. As discussed above, the percentage of an institution’s revenue derived from foreign operations may serve as a 


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329 As noted in the Panel’s June 2010 report, one-third of AIG’s revenues are derived from 

East Asia. See June Oversight Report, supra note 10, at 104. 330Of the 61.6 billion that went to foreign institutions and governments, $4.4 billion went to foreign life insurance subsidiaries, $28.7 billion to securities lending counterparties, $17.2 billion 

to Maiden Lane III counterparties, and $11.3 billion to CDS counterparties for additional collateral postings. 331 It is important to note, also, that some of these foreign-based institutions have subsidiaries 

in the United States, so the potential existed for funds to flow through to them. 332The following foreign-based securities lending counterparties received U.S. rescue funds: Barclays ($7.0 billion), Deutsche Bank ($6.4 billion), BNP Paribas ($4.9 billion), HSBC ($3.3 billion), Dresdner Kleinwort ($2.2 billion), UBS ($1.7 billion), ING ($1.5 billion), Socie ́te ́ Ge ́ne ́rale 

($0.9 billion), Credit Suisse ($0.4 billion), Paloma Securities ($0.2 billion), and Citadel Securities 

($0.2 billion). The following foreign-based AIGFP CDS counterparties received government funds 

through either additional collateral postings or Maiden Lane III: Deutsche Bank ($5.4 billion), 

Landesbank Baden-Wuerttemberg ($0.1 billion), Coo ̈peratieve Centrale RaiffeisenBoerenleenbank B.A. (Rabobank) ($0.8 billion), Socie ́te ́ Ge ́ne ́rale ($11.0 billion), The Royal Bank 

of Scotland ($0.7 billion), Deutsche Zentral-Genossenschaftsbank ($1.0 billion), Dresdner Bank 

AG ($0.4 billion), UBS ($3.3 billion), Barclays ($1.5 billion), Bank of Montreal Financial Group 

(Bank of Montreal) ($1.1 billion), Calyon ($2.3 billion), Deutsche Zentralgenossenschaftbank AG 

(DZ Bank) ($0.7 billion), KFW ($0.5 billion), Banco Santander ($0.3 billion), Danske ($0.2 billion), and HSBC Bank ($0.2 billion). See American International Group, Inc., AIG Discloses 

Counterparties to CDS, GIA, and Securities Lending Transactions (Mar. 15, 2009) (online at 

media.corporate-ir.net/media_files/irol/76/76115/ releases/031509.pdf). 333Many European banks entered into CDSs with a France-based subsidiary of AIGFP in 

order to decrease the amount of regulatory capital they were required to hold. As these swaps 

were not terminated as part of the government rescue, the benefits that the counterparties received came not in the form of cash but rather in the continuation of contracts that led to more 

favorable regulatory treatment in the counterparties’ home countries. See June Oversight Report, supra note 10, at 111–114. 334The counterparties to AIG’s regulatory capital swaps included the following top seven swap-holders: Dutch bank ABN AMRO ($56.2 billion notional exposure), Danish bank Danske 

($32.2 billion notional exposure), German bank KFW ($30 billion notional exposure), and French 

banks Credit Logement ($29.3 notional exposure), Calyon ($24.3 billion notional exposure), BNP 

Paribas ($23.3 billion notional exposure) and Socie ́te ́ Ge ́ne ́rale ($15.6 billion notional exposure). 

See Reg Capital Arb, E-mail from Paul Whynott, Federal Reserve Bank of New York, to 

Alejandro LaTorre, vice president, Federal Reserve Bank of New York (Nov. 4, 2008) (FRBNY– 

TOWNS–R1–188408). For further data on the impact an AIG bankruptcy would have had on 

these counterparties, see June Oversight Report, supra note 10, at 112–114. 

rough—but imperfect—approximation of the cross-border flow of 

rescue funds, or at least the potential overseas benefit that such 

funds might have provided. The examples below provide some additional context on the ways in which institutions have employed 

government assistance for cross-border purposes. • AIG. As discussed in more detail in the Panel’s June 2010 report, due to the international nature of AIG’s business,329 approxi- mately $61.6 billion of TARP and other government funds received 

by the company went to foreign institutions and governments.330

More than half of the money AIG paid to credit default swap (CDS) 

counterparties on multi-sector collateralized debt obligations 

(CDOs) went to foreign institutions ($40.2 billion of the $62.2 billion in notional value).331

—AIG’s foreign subsidiaries received some funds through 

capital contributions. Life insurance subsidiary Nan Shan as 

well as others in Taiwan, Japan, and Hong Kong received $4.4 

billion. 

—Foreign counterparties of AIG received government funds 

from AIG’s payments through its securities lending program. 

AIG’s foreign-based securities lending counterparties received 

$28.7 billion.332

—TARP and government funds also benefited foreign banks 

through AIG’s regulatory capital swaps.333 Although the full 

list of these counterparties is unknown, the top seven counterparties to these swaps held a combined $210.9 billion in notional exposure.334


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335See June Oversight Report, supra note 10, at 93. 336 According to recently released documents, there were 32 Goldman CDS counterparties that 

benefited directly from government assistance provided through the Maiden Lane III facility, 

and 31 of these entities are foreign. Each of the foreign entities listed below held a CDO for 

which Goldman had written CDS protection and entered into contracts with AIG laying off that 

risk. While Goldman was required to perform under its contracts whether or not AIG performed, 

when the government made the decision to pay AIG’s counterparties at par—including Goldman—the following foreign entities were direct beneficiaries: DZ Bank, Banco Santander Central Hispano SA, Rabobank Nederland-London Branch, Zurcher Kantonalbank, Dexia Bank S.A., 

BGI INV FDS GSI AG, Calyon-Cedex Branch, The Hongkong & Shanghai Banking Corp., Depfa 

Bank Plc, Skandinaviska Enskilda Bankensweden, Sierra Finance plc (Sierra Finance), PGGM 

Pensioenfonds (PGGM), Natixis, Zulma Finance Plc (Zulma Finance), Stoneheath Re CRDV G 

(Stoneheath), Hospitals of Ontario Pension Plan, Venice Finance plc (Venice Finance), KBC 

Asset Management, NVD Star Finance, MNGD Pension Funds LTD, Shackleton Re Limited 

(Shackleton), Infiniti Finance plc, Legal & General Assurance, Barclays, Signum Platinum, Lion 

Capital Global Credit I LTD, Kommunalkredit Int Bank, Credit Linked Notes LTD, Ocelot CDO 

I PLC, Hoogovens PSF ST, Hypo Public Finance Bank, and The Royal Bank of Scotland. It merits mention that it is not possible to develop a perfect correlation between funds provided to 

Goldman and funds that went to foreign entities. Since Goldman was making payments to its 

counterparties on the CDS contracts even before the government created the Maiden Lane III 

facility, it is difficult to track the precise flow of government funds that were provided as part 

of the AIG rescue. See Senate Committee on Finance, Grassley Submits Questions for Committee 

Record About Taxpayer Dollars for AIG, Goldman Sachs Counterparties (July 23, 2010) (online 

at finance.senate.gov/newsroom/ ranking/release/?id=cb2c54ae-fb8b-43e0-abeb-9d12a422810c) 

(see ‘‘Attachment 2’’). Please see Annex II, infra, for a discussion of the indirect beneficiaries 

of the government’s assistance to AIG. 337Treasury Transactions Report, supra note 64, at 18; GM Sets New June, First Half Sales 

Records in China, supra note 304. 338 Nick Bunkley, G.M., Eclipsed at Home, Soars to Top in China, New York Times (July 21, 

2010) (online at www.nytimes.com/2010/07/22/business/ global/22auto.html?pagewanted=all) 

(Phone interview between Nick Bunkley and Steve Girsky, VP of Corporate Strategy and Business Development at GM). 

—AIGFP’s foreign CDS counterparties received $17.2 billion through Maiden Lane III payments and $11.3 billion from additional collateral postings. Further foreign counterparties benefited from the creation of the Maiden Lane III facility.335

In addition to direct payments to foreign counterparties, some of 

a domestic counterparty’s own counterparties may be located overseas, which may result in further cross-border payments. Conversely, money paid to a foreign counterparty may return to the 

United States via its own counterparty relationships with U.S. institutions. The dealings of Goldman Sachs with respect to the 

CDSs on CDOs that were eventually acquired by Maiden Lane III 

provide a compelling example of the effect of counterparty relationships on the flow of funds across borders, as 96.9 percent of the 

cash received by Goldman effectively flowed to non-U.S. institutions.336 (These institutions, as well as other indirect foreign beneficiaries of the AIG rescue—entities that sold hedges on AIG to 

Goldman and benefited from not having to make good on that protection—are listed in Annex II.) • General Motors. GM, which received a total of $50.7 billion 

from Treasury amid challenges in the domestic market, increased sales in China by 48.5 percent, and sold more vehicles 

in China than it did in the United States in the past year.337

While GM has stated that no taxpayer money has been used 

to further operations in China, the Chinese government stimulus package strengthened demand amongst Chinese citizens 

by encouraging sales of fuel-efficient vehicles and assisting 

farmers with purchases of cars.338 It can be inferred that assets held as a result of capital injection programs by the U.S. 

government strengthened GM’s capabilities abroad. As shown 

in Figure 16 below, while capital injections helped subsidize 

GM’s losses in North America and Europe, GM generated posiVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00073 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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340Daimler AG, Annual Report 2008, at 53 (Feb. 17, 2009) (online www.daimler.com/Projects/ 

c2c/channel/documents/1677323_DAI_2008_Annual_Report.pdf) (hereinafter ‘‘Daimler Annual 

Report’’). 341 U.S. Department of the Treasury, Troubled Asset Relief Program Report to Congress for 

the Period January 1, 2009 to January 31, 2009 (Feb. 3, 2009) (online at 

www.financialstability.gov/docs/105CongressionalReports/ 105aReport_02032009.pdf). 342 Chrysler Group, Chrysler Group LLC Reports December 2009 Sales Outside North America 

(Jan. 6, 2010) (online at www.media.chrysler.com/ 

newsrelease.do;jsessionid=5191A83AE4AF64CD206BD16D25AD3636?&id=8815). 343Treasury Transactions Report, supra note 64, at 18. 344Data accessed through Bloomberg data service on July 22, 2010. 345Data accessed through Bloomberg data service on July 22, 2010. 

tive earnings in both Latin America and the Asia Pacific region 

leading up to its financial rescue by the U.S. government. 

FIGURE 16: GENERAL MOTORS INCOME (LOSS) FROM CONTINUING OPERATIONS, PRE-TAX (NINE 

MONTHS ENDED SEPTEMBER 30) 339

[Dollars in millions] 

2007 2008 

GM North America .......................................................................................................................... $(2,062) $(10,553) 

GM Latin America .......................................................................................................................... 924 1,476 

GM Europe ...................................................................................................................................... (79) (908) 

GM Asia Pacific .............................................................................................................................. 609 117 

339 General Motors Corp., Form 10–Q for the Quarterly Period Ended September 30, 2008, at 54 (Nov. 10, 2008) (online at 

www.sec.gov/Archives/ edgar/data/40730/000095015208009040/k46806e10vq.htm). 

• Chrysler. Chrysler last reported earnings in the fall of 2007 

prior to being taken private by Cerberus Capital Management. 

Representatives from the company did communicate that 

Chrysler lost $431 million in the first quarter of 2008.340

Chrysler, which has received upwards of $14.3 billion from 

Treasury, has seen its operations expand in select international markets but falter in the aggregate.341 The Italian 

automaker Fiat benefited from U.S. government rescue efforts, 

as Fiat assumed a 35 percent stake in Chrysler without committing to make future cash injections into the company. More 

recently, Chrysler has announced that its sales increased by 92 

percent in the United Kingdom, and by 75 percent in China in 

December 2009. Nevertheless, international sales fell by 34 

percent for all of 2009.342

• GMAC/Ally Financial. GMAC, which recently renamed itself 

Ally Financial, received $16.3 billion from Treasury.343 Its net 

revenue expanded from 2006 to 2007, but the company experienced no significant changes in terms of geographic sources of 

that revenue. In 2006, GMAC’s international net revenue hovered around 22 percent of its total net revenue.344 This is similar to 2007, when 24 percent of its net revenue was foreign, 

and the company seemed to be expanding throughout Latin 

America and Canada.345 The majority of the company’s 2007 

foreign net revenue was attributed to Europe and Latin America. Undoubtedly, the rescue of GMAC enabled the company to 

continue operating its profitable international and insurance 

operations, whereas its domestic auto finance operations and 

Residential Capital LLC (ResCap), whose mortgage assets are 

both foreign and domestic, continued to generate losses for 

GMAC leading up to the fall of 2008. In fact, in the first nine 

months of 2008, GMAC’s North American operations lost $950 


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346December Oversight Report, supra note 39, at 20. This figure ($50 billion) includes $45 bil- lion in capital injections and the TARP’s $5 billion exposure to losses under the Asset Guarantee 

Program. 347See, e.g., Citigroup, TARP Progress Report Fourth Quarter 2009 (Mar. 2, 2010) (online at 

www.citibank.com/citi/corporategovernance/data/tarp/tarp_ pr_4q09.pdf?ieNocache=929). 348See id. 349 Citigroup, Inc., Form 10–K for the Fiscal Year Ended December 31, 2008, at 26 (Feb. 27, 

2009) (online at www.sec.gov/Archives/edgar/data/ 831001/000119312509041237/ 

d10k.htm#fin30906_13). 350See Section E.2, infra. 

million, and ResCap lost $4.6 billion. In April 2010, ResCap 

announced that it had agreed to sell the majority of its European mortgage assets to funds affiliated with the Fortress 

Group. • Citigroup. Citigroup received $50 billion in TARP funds 

through three investments by Treasury.346 Citigroup has published quarterly reports specifying the uses to which it has put 

its TARP funds.347 These reports detail an entirely domestic 

use of capital, making funds available to U.S. consumers and 

commercial borrowers. Additionally, Citigroup used funds to 

help mortgage holders avoid foreclosure and to help credit card 

holders manage their card debt.348 While approximately 45 

percent of Citigroup’s income in 2005 and 2006 came from nonU.S. sources, the company’s losses were predominately from 

domestic businesses. Of the $32.1 billion in losses Citigroup 

suffered in 2008, $2.1 billion, or nearly 8 percent, of the losses 

stemmed from the company’s overseas operations.349 Citigroup posted $1.7 billion in losses in Europe, the Middle East, and 

Africa as well as $2 billion in losses from its Latin American 

businesses. These losses were countered by $1.6 billion in profits from the company’s operations in Asia. The assistance provided by the American taxpayer through the TARP was used 

for a number of purposes, including increasing liquidity and 

bolstering the company’s balance sheet against mounting 

losses both domestically and abroad. 

U.S. rescue efforts impacted foreign institutions in several other 

ways. For instance, foreign institutions benefited from the Federal 

Reserve’s liquidity facilities, such as the currency swaps it negotiated with foreign central banks that allowed them to provide U.S. 

dollar funding to foreign institutions.350 In addition, some foreign 

institutions were able to take advantage of the FDIC’s Temporary 

Liquidity Guarantee Program (TLGP), so long as they owned commercial banks in the United States: HSBC, BNP Paribas, Banco 

Santander, and Mitsubishi Tokyo Financial Group all issued debt 


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351The TLGP included two components: the Debt Guarantee Program (DGP) and the Transaction Account Guarantee program (TAG). See, e.g., November Oversight Report, supra note 68, 

at 35. The foreign entities listed below issued debt under the DGP. In addition, approximately 

60 foreign institutions participated in the TAG. 

DEBT ISSUED BY FOREIGN BANKS UNDER THE TLGP PROGRAM 

[Dollars in millions] 

Parent Company Name Amount Issued 

BNP Paribas SA 1,000 

Banco Bilbao Vizcaya Argentaria SA 470 

Mitsubishi UFJ Finl Grp Inc 1,000 

Banco Santander S.A. 1,600 

HSBC Holdings plc 2,675 

Total 6,745 

Source: SNL Financial, TLGP Debt Issued (Aug. 3, 2010) (online at www.snl.com/interactive/TDGPParticipants.aspx). These figures include debt issued both by parent companies and by their subsidiaries. 352See Daniel K. Tarullo, member, Board of Governors of the Federal Reserve System, Remarks at the Symposium on Building the Financial System of the 21st Century, Armonk, New 

York, Toward an Effective Resolution Regime for Large Financial Institutions (Mar. 18, 2010) 

(online at www.federalreserve.gov/newsevents/speech/tarullo20100318a.htm) (hereinafter ‘‘Toward an Effective Resolution Regime for Large Financial Institutions’’) (‘‘Entrenching too-bigto-fail status obviously . . . undermines market discipline, competitive equality among financial 

institutions of different sizes, and normal regulatory and supervisory expectations.’’). 

of $1 billion or more through the TLGP’s Debt Guarantee Program.351 One key effect of U.S. rescue programs was the competitive advantages they may have provided to U.S. financial institutions. Signaling the government’s implicit guarantee of institutions 

it deemed to be ‘‘too big to fail’’ may have given U.S. institutions 

funding advantages over their foreign counterparts.352 Additionally, when the U.S. government provided support to U.S. firms that 

might have failed otherwise, foreign firms lost the opportunity to 

expand their market share. 

2. International Rescue Funds That May Have Benefited the 

United States 

The benefits of rescue efforts flowed not only from the United 

States to other countries, the U.S. economy also benefited both directly and indirectly from rescue efforts that originated outside its 

borders. As discussed above, however, because the major non-U.S. 

rescue efforts were institution-focused as opposed to systemic, and 

because most of the failing institutions were not, in general, international operators, there was less potential for cash to flow to the 

United States from those rescues. Figure 17 details the potential 

extent of foreign rescue programs on the U.S. economy. As stated 

above, the size of an institution’s foreign operations does not necessarily match the exact percentage of rescue funds that it directed 

abroad. Nonetheless, the table below illustrates the presence that 

major foreign financial institutions have in the United States or 

the Americas, and it is likely that the impact of the foreign rescue 

programs on the U.S. economy is roughly commensurate with that 

presence. 


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FIGURE 17: FOREIGN GOVERNMENT ASSISTANCE WITH INTERNATIONAL IMPLICATIONS 

Non-U.S. Firms 

Government Aid 353

(millions of euros) 

Total Revenue 354

(millions of euros) 

U.S./Americas 

Revenue 

(2005–06% Total) 

Type 355 Amount 2005 2006 U.S./N.A.*/ 

Americas** 

ABN AMRO (Netherlands) 356 .................... C 2,600 22,334 27,641 N/A 

AEGON (Netherlands) 357 ........................... C 3,000 31,478 28,025 **52.5 

Agricultural Bank of China (China) 358 .... C 14,868 14,301 19,335 N/A 

A 94,754 

Anglo Irish Bank (Ireland) 359 ................... C 4,000 1,105 1,431 14.8 

N 

Allied Irish Bank (Ireland) 360 ................... G + C 3,500 3,784 4,486 2.8 

Bank of Ireland (Ireland) 361 ..................... G + C 3,500 3,562 3,596 N/A 

BNP Paribas (France) 362 .......................... C 5,100 26,219 32,429 **12.5 

Commerzbank (Germany) 363 ..................... G + C 8,200 7,311 9,419 **4.5 

15,000 

Credit Agricole (France) 364 ....................... C 3,000 17,504 21,083 *6.4 

Dexia (France/Belgium) 365 ....................... G + C 6,400 6,112 7,163 N/A 

150,000 

Erste Bank (Austria) 366 ............................ C 2,700 4,577 5,551 N/A 

Fortis (Benelux) 367 .................................... C 11,300 90,419 96,602 *3.9 

N 12,800 

Glitnir (Iceland) ......................................... N .................... 481 870 N/A 

HRE (Germany) 368 .................................... G 52,000 970 1,141 **16.5 

IKB (Germany) 369 ...................................... C 3,500 754 685 **4.7 

G 12,000 

ING Groep (Netherlands) 370 ...................... C 10,000 70,143 73,621 *38.4 

G 35,100 

Lloyds/HBOS (U.K.) 371 ............................... C 19,000 43,711 43,138 N/A 

Northern Rock (U.K.) ................................. N N/A 1,331 1,554 N/A 

Kaupthing (Iceland) 372 ............................. N N/A 1,301 1,940 N/A 

KBC (Belgium) 373 ..................................... C 7,000 9,242 10,763 N/A 

G 14,800 

Landsbanki (Iceland) 374 ........................... N N/A 809 1,021 N/A 

Raiffeisen Zentralbank (Austria) 375 ......... C 1,750 2,069 3,298 N/A 

Royal Bank of Scotland (U.K.) 376 ............. C 45,500 34,108 37,075 19.0 

Socie ́te ́ Ge ́ne ́rale (France) 377 .................... C 3,400 21,236 24,849 **11.7 

UBS (Switzerland) 378 ................................ C 7,200 28,042 32,571 38.0 

A 72,900 

353 Data from the IMF unless otherwise noted. 354 Data from Bloomberg, L.P. unless otherwise noted. 355 A = Asset Purchase, C = Capital Injection or Loan, G = Liability Guarantee, N = Nationalization. 356 Fortis’s share of ABN AMRO was purchased by the Dutch Government in October 2008 as part of their nationalization of the Dutch 

branch of Fortis. The Dutch government provided funding to ABN AMRO of Ö2.6 billion ($3.7 billion) in mid-2009. ABN AMRO, 

ABNÖAMRO—Fortis, 2007–2009 (online at www.abnamro.com/nl/images/020_About_ABN_ AMRO/020_History/020_Downloads/ABN_AMRO_ 

Fortis_2007_2010.pdf) (accessed Aug. 10, 2010) (in Dutch). Note: net and total revenue not available geographically for ABN AMRO: however, 

15.9 percent of operating income in the 2005–2006 period came from the United States. ABN AMRO, 2006 20–F, at F–27 (online at 

files.shareholder.com/downloads/ABN/984734423x0x145141/3741deb3–e6cb-4d27-9279-043b411b13fe/aa_20f_2006.pdf) (accessed Aug. 10, 

2010). 357 AEGON, Annual Report, 2008 (online at www.aegon.com/Documents/aegon-com/Sitewide/Publications/Annual-reports/ 

Archive/2008-Annual-report.pdf) (accessed Aug. 10, 2010). The Americas is AEGON’s largest market (online at 

www.aegon.com/Documents/aegon-com/Media/Fact-sheets/Fact-sheet-Americas.pdf). Total revenues based upon U.S. GAAP. Americas revenues 

includes AEGON USA and AEGON Canada. AEGON, 20–F 2006 (online at www.aegon.com/Documents/aegon-com/Sitewide/ 

Publications/SEC-filings/2006-SEC-filings-20-f.pdf). 358 Yuan translated to euros on respective transaction dates of October 29, 2008 (capital injection RMB 130,000 million, or R19.1 billion) 

and November 21, 2008 (removal of RMB 815,695 million, or $120 billion, of bad assets). Daimler Annual Report, supra note 340, at 16. 

Total Revenue calculated as Interest Income + Fee and Commission Income + Other Operating Income + Investment Income + Subsidy Income + Non Operating Income. Agricultural Bank of China, Annual Report 2006, at 51 (online at www.abchina.com/en/about-us/ 

annual-report/2006/default.htm) (accessed Aug. 10, 2010). 359 There was no monetary cap on the Irish government’s guarantee. Department of Finance (Ireland), Credit Institutions (Financial Support) 

Scheme 2008, Frequently Asked Questions (Dec. 16, 2008) (online at www.finance.gov.ie/documents/publications/other/faqbankguar.pdf). Department of Finance (Ireland), Minister’s Statement (Mar. 31, 2009) (online at www.finance.gov.ie/viewdoc.asp?DocID=5803); Department of Finance (Ireland), Minister’s Statement (Jan. 15, 2009) (online at www.finance.gov.ie/viewdoc.asp?DocID=5627&CatID= 

1&StartDate=01+January+2009&m=); Anglo Irish Bank, Annual Report 2006, at 65 (2007) (online at edgar.sec.gov/Archives/ 

edgar/vprr/07/9999999997-07-022766) (hereinafter ‘‘Anglo Irish Bank Annual Report’’). 360 AIB Group, Allied Irish Banks, P.L.C. Capital Update (Feb. 12, 2009) (online at www.aib.ie/servlet/ContentServer?pagename= PressOffice/ 

AIB_Press_Releas/aib_po_d_press_releases-0_08&cid=1233740850586&poSection=AR&poSubSection=paDA&position=notfirst&rank=top&month= 

02&year=2009); Anglo Irish Bank Annual Report, supra note 359, at 65. 361 Net revenue not available geographically for Bank of Ireland, but 2.9 percent of total operating income was U.S.-based over 2005–2006. 

Bank of Ireland, 2006 Form 20–F (Mar. 2007) (online at www.secinfo.com/ d14D5a.u3qF3.htm#_tx94774_51). 362 BNP Paribas, Communiques de Press (Mar. 31, 2009) (online at www.bnpparibas.com/fr/actualites/communiques-presse.asp?Code= 

LPOI-7QNPDY&Key=Emission%20de%205,1%20milliards%20d’euros%20d’action%20de%20pr%C3%A9f%C3%A9rence%20dans%20le%20cadre% 

20du%20Plan%20fran%C3%A7ais%20de%20soutien% 20%C3%A0%20l’%C3%A9conomie). 


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363 Commerzbank Aktiengesellschaft, Credit Linked Note Programme (Aug. 1, 2008) (online at www.commerzbank.com/media/aktionaere/ 

emissionsprogramme/cln_programme/Nachtrag_20090512.pdf). 364 Europa, Press Release: State Authorizes Modification (Jan. 28, 2009) (online at europa.eu/rapid/pressReleasesAction.do?reference=IP/ 

09/158&format=HTML&aged=0&language=EN&guiLanguage=fr). 365 Dexia’s capital increase of Ö6.4 billion ($8.7 billion) was contributed by Belgium (Ö3 billion or $4.1 billion), France (Ö3 billion or $4.1 

billion) and Luxembourg (Ö376 million or $513 million). Europa, ‘‘State Aid: Commission approves joint aid from Belgium, France and Luxembourg to rescue Dexia’’ (online at europa.eu/rapid/ pressReleasesAction.do?reference=IP/08/1745&format=HTML&aged=0&language). Note: net 

revenue not available geographically for Dexia SA, but 18.3 percent of net income was U.S.-based over 2005–2006. Dexia S.A., Annual Report 

2006 (online at www.dexia.com/docs/2007/20070509_AG/annual_ report/en/ra2006en.htm) (accessed Aug. 11, 2010). 366 Erste Group, Investor Information (Oct. 30, 2008) (online at www.erstegroup.com/sPortal/download?document Path=ebgroup_ en_0196_ACTIVE%2FDownloads%2FInvestor_ Relations%2FIR_News_2008eng%2FIR_ News_081030en.pdf). The Erste Group (Erste Bank) states 

that it operates in a single business segment, and a single geographical segment: the provision of banking services in the Republic of Cro- atia. Erste Bank, Annual Report 2006 (online at www.erstebank.hr/godisnja_izvjesca/ annual_report_2006.pdf) (accessed Aug. 11, 2010). 367 On September 28, 2008, the Netherlands invested Ö4.0 billion ($5.8 billion), Belgium invested Ö4.7 billion ($6.9 billion), and Luxembourg invested Ö2.5 billion ($3.7 billion), and each acquired a 49.9 percent stake in their respective country’s sector of Fortis. On October 3, 

2008, the Dutch government fully acquired their share of Fortis, including its stake in ABN AMRO, for a total of Ö16.8 billion ($23.4 billion) 

and nationalized it. The Belgian government purchased the remainder of its portion on October 5, 2008, and immediately sold 75 percent of 

Fortis Bank SA/NV and 16 percent of Fortis Banque Luxembourg to BNP Paribas, as well as 100 percent of Fortis Insurance Belgium for 

Ö5.73 billion ($7.86 billion). Letter from Nathan J. Greene, partner, Shearman & Sterling, to Douglas J. Scheidt, associate director and chief 

counsel, U.S. Securities and Exchange Commission, Fortis Investment Management SA—No-Action Request (Jan. 27, 2009) (online at 

www.sec.gov/divisions/investment/noaction/2009/ fortisgroup012709-incoming.pdf); Government of the Netherlands, Dutch State Acquires Fortis 

Nederland (Oct. 3, 2008) (online at government.nl/News/Press_releases_and_ news_items/2008/October/Dutch_State_ acquires_Fortis_Nederland); Europa, State Aid: Commission Clears State Aid to Rescue and Restructure Fortis Bank and Fortis Bank Luxemburg 

(Dec. 3, 2008) (online at europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1884). Net Revenue is only available for the Banking segment 

and is Ö10,166 million ($12.8 billion) for 2006 and Ö8,782 million ($10.9 billion) in 2005. Fortis, Annual Report 2006, at 138 (online at 

www.ageas.com/Documents/Financial _Statements_2006_UK_lrs.pdf) (accessed Aug. 11, 2010). 368 Additionally, on March 28, 2009, SoFFin recapitalized Hypo Real Estate Group by subscribing 20 million shares. Hypo Real Estate, Press Release (Apr. 14, 2009) (online at www.hyporealestate.com/eng/pdf/PI-Verlaengerung _SoFFingarantien_final_engl.pdf); Bank for International 

Settlements, An Assessment of Financial Sector Rescue Programmes, BIS Papers No. 48 (July 2009) (online at www.bis.org/publ/bppdf 

/bispap48.pdf). 369 Deutsche Industriebank, Annual Report 2007/2008 (online at www.ikb.de/content/en/ir/financial_ reports/annual_report_2007_ 2008/Konzern_englisch_080814_sicher.pdf) (accessed Aug. 10, 2010). 370 Netherlands Ministry of Finance, Press Release (Oct. 19, 2008) (online at www.minfin.nl/english/News/Newsreleases/2008/10/Government 

_reinforces_ING’s_core_capital_by_EUR_10_billion). 371While detailed information on segmented revenue was not available for 2005 and 2006, Lloyds did detail their foreign loans and advances to banks and customers by region. From 2005 to 2006, foreign loans to banks and customers in the United States accounted for 40.3 

percent of all their foreign loans and advances. Lloyds TSB, 2006 Form 20F, at 45 (June 8, 2007) (online at 

www.lloydsbankinggroup.com/media/pdfs/investors/2006/2006_LTSB_Form_20F.pdf). 372 Kaupthing specifically says that their four major areas of operation are Iceland, the United Kingdom, Scandinavia, and Luxembourg. 

Therefore, it can be inferred that they do not derive much (if any) revenue from their operations in the United States. Kaupthing, 2006 Annual 

Report, at 144 (2006) (online at www.kaupthing.com/library/7493). 373 In its 2006 Annual Report, KBC Bank notes that faced over Ö4 billion ($5 billion) in risk exposure in North America, but fails to divide 

its revenues by geographic segment. KBC, KBC Annual Report 2006, at 67 (2006) (online at tools.euroland.com/arinhtml/ 

bkbc/2006/ar_eng_2006/index.htm). 374 Net operating revenues for 2005 of 60,978 million kronor ($972 million) translated to EUR. Landsbanki, 2006 Annual Report (online at 

www.landsbanki.is/Uploads/documents/ArsskyrslurOgUppgjor/Landsbanki_Annual_Report_2006.pdf) (accessed Aug. 11, 2010). 375 Raffeisen Zentralbank Austria AG, Press Release (2009) (online at www.rzb.at/eBusiness/rzb_template1/10232967115041023296711595 _1024688700058_525822672865827658-554881300075676209-NA-NA-DE.html). 376 The Royal Bank of Scotland received £13 billion ($19 billion) in cash, £6.5 billion ($9.4 billion) in fees and exchange, and an additional £25.5 billion ($36.8 billion) in 2009. See Royal Bank of Scotland Group, 2008 Annual Results: Analysts Presentation (Feb. 26, 2009) 

(online at files.shareholder.com/downloads/RBS/973615354x0x285293/ 04846b7d-2923-4886845ffc617b8aeb02/2008_ Annual_Results _ 

26_February_2009_Transcript.pdf); BBC News, UK Banks Receive £37bn Bailout (Oct. 13, 2008) (online at 

news.bbc.co.uk/2/hi/business/7666570.stm); Royal Bank of Scotland Group, Royal Bank of Scotland Group PLC—General Meeting Statement 

(Dec. 15, 2009) (online at files.shareholder.com/downloads/RBS/973615354x0x338886/ 22510ae8-2685-4173-b7e26d6b71f1f1eb/RBS_ 

News_2009_ 12_15_General_announcements.pdf). 377 These funds came in two rounds: December 2008 and May 2009. David Gauthuer-Villars, Socie ́te ́ Ge ́ne ́rale Looks to Repay France’s Aid, 

Wall Street Journal (Oct. 7, 2009) (online at wsj.com/article/SB1254806353 21166897.html). 378 UBS capitalized a fund with $6 billion of equity in addition to $54 billion from the Swiss National Bank to create a fund to buy risky 

assets off UBS’s books. UBS, Financial Reporting: Fourth Quarter 2008 (Feb. 10, 2009) (online at 

www.ubs.com/1/ShowMedia/investors/quarterly_ reporting?contentId=160658&name=q4report.pdf) (hereinafter ‘‘UBS Financial Reporting: Fourth 

Quarter 2008’’); UBS, Quarterly Reporting: Changes in 2008 (online at www2.ubs.com/1/e/investors/08q3/0003.html) (accessed Aug. 10, 2010). 

As the table above suggests, the benefits of rescue efforts did not 

flow only from the United States to other countries—the U.S. economy also benefited both directly and indirectly from rescue efforts 

that originated outside its borders. As with rescue efforts originated in the United States, foreign rescue efforts may produce a 

two-way flow of funds: on the one hand, counterparty relationships 

may mean that foreign governments provide money to domestic institutions that then flows out of the country, but on the other hand, 

counterparty relationships may mean that funds provided to foreign institutions may flow back into the domestic economy. In contrast to the U.S. institutions listed in Figure 15 above, many of the 

institutions that benefited from the largest non-U.S. rescues had 

limited foreign operations (or at least limited operations in the 

United States). The following list highlights some of the effects that 

may have been felt in the United States as a result of the rescue 

efforts undertaken by foreign governments. 


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379 Royal Bank of Scotland Group, Annual Report for Foreign Private Issuers (20F), at 245 

(Apr. 29, 2009) (online at www.investors.rbs.com/our_performance/secfiling.cfm?filingID= 

950103_09_966). 380 Id. at 256. 381See id. at 265 (‘‘Under current Federal Reserve policy, the Group is required to act as a 

source of financial strength for its U.S. bank subsidiaries. Among other things, this source of 

strength obligation could require the Group to inject capital into any of its U.S. bank subsidiaries if any of them became undercapitalised.’’). 382 UBS also acquired the asset management firm PaineWebber (now known as UBS Financial Services, Inc.) in 2000. In 2006, UBS Financial Services, Inc. had $62.7 billion in assets under 

management. SNL Financial. 383 UBS Financial Reporting: Fourth Quarter 2008, supra note 378, at 73. 384 UBS, UBS Further Materially De-risks Balance Sheet through Transaction with Swiss National Bank (Oct. 16, 2008) (online at www.ubs.com/1/e/investors/releases?newsId=154213). 385Swiss National Bank, SNB StabFund Concludes Transfer of UBS Assets (Apr. 3, 2009) (online at www.snb.ch/en/mmr/reference/pre_20090403/source/pre_20090403.en.pdf). 386 ING Group, Transactions With the Dutch State (Mar. 26, 2010) (online at www.ing.com/ 

group/showdoc.jsp?docid=363620_ EN&menopt=ivr1|fis); ING Group, 2009 Annual Report, at 193 

(2009) (online at www.ing.com/cms/idc_cgi_isapi.dll?IdcService=GET_FILE&dDocName= 

440367_EN&RevisionSelectionMethod=latestReleased). 

• Royal Bank of Scotland. RBS operates in the United States 

primarily through its subsidiary Citizens Financial Group 

(Citizens), which is a large commercial bank with retail and 

corporate banking operations in several regions of the United 

States.379 At the end of 2008, the company’s U.S. operations 

consisted of £126.2 billion ($183 billion) in loans and advances 

to customers.380 RBS received £45.5 billion ($71 billion) in government assistance. In light of its U.S. operations, it is possible 

that a portion of this assistance helped to recapitalize Citizens, 

which in turn would have provided meaningful support to U.S. 

customers.381

• UBS. UBS operates a large institutional securities and investment banking operation in the United States.382 In 2007 and 

2008, UBS recorded a loss of $34 billion associated with its exposure to the U.S. residential mortgage market.383 On October 

16, 2008, UBS reached an agreement with the Swiss National 

Bank (SNB) to transfer up to $60 billion of illiquid securities 

and other assets off of UBS’s balance sheet and into a fund 

managed by the SNB. SNB financed the fund with a loan of 

up to 90 percent of the purchase price, while the remaining 10 

percent was provided by UBS through equity contributions. 

The transfer included $31 billion of primarily cash securities in 

U.S. RMBS, U.S. CMBS, U.S. student loan auction rate certificates and other student loan-backed securities, and a U.S. reference-linked note program.384 Approximately $8 billion in 

U.S. subprime and Alt-A MBS was transferred into the 

fund.385 This close link between U.S.-based assets and the 

Swiss government’s rescue program make it very likely that 

the program benefited the U.S. economy by providing a market 

for otherwise illiquid U.S.-based securities. 

• ING. The Dutch company Internationale Nederlanden Groep 

(ING) operates in the United States as a commercial investment bank, a life insurance and retirement services provider, 

and an internet bank. ING, which received over Ö10 billion 

($12.8 billion) from the Dutch government in October 2008, 

saw its revenue decrease dramatically in the United States 

and North America between 2008 and 2009.386 ING’s U.S. operations had more than Ö25 billion ($35.5 billion) in exposures 


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387 ING Group, 2008 Annual Report, at 260 (2008) (online at www.ing.com/group/ 

showdoc.jsp?docid=372285_EN&menopt=ivr1|pub1|arp&lang=en). 388 Bloomberg Financial. 389 Credit Agricole S.A., Registration Document and Annual Report 2009 (2009) (online at 

www.credit-agricole.com/en/content/download/1900/16498/version/1/file/ 

2009_Registration_Document.pdf); Daimler Annual Report, supra note 340. 390Office of the Premier of Ontario, Government Support to the Auto Industry (Dec. 20, 2008) 

(online at www.news.ontario.ca/opo/en/2008/12/government-support-to-the-auto-industry.html). 

to the U.S. residential market.387 These substantial exposures 

to the U.S. housing market make it likely that rescue funds 

provided to the parent company may have indirectly benefited 

the U.S. economy. • Credit Agricole. Credit Agricole, Europe’s largest retail bank, 

received Ö3 billion ($3.8 billion) in subordinated debt from the 

French government in November 2008. In their North American asset management, private bank, and investment bank 

branches, they employ 1,800 workers. During the 2005–2006 

period, an average of 8 percent of Credit Agricole’s revenue derived from its operations in North America.388 Additionally, as 

of December 2008, 11 percent of its commercial lending exposures to non-bank customers were in the United States.389

Certain U.S. companies that had operations abroad also benefited from rescue programs by other nations. For instance, in 2008 

and 2009, the governments of Canada and Ontario announced loan 

programs totaling over $5 billion to assist GM and Chrysler. The 

loans, repayable in three separate installments over eight years, 

put stringent limitations on dividend payments as well as executive 

privileges and compensation.390

3. The Largest, Systemically Significant Institutions and the 

International Flow of Rescue Funding 

U.S. bank-owned assets abroad, which total $3.8 trillion, account 

for approximately 20 percent of all U.S.-owned assets abroad at the 

end of 2007. Likewise, as shown in Figure 18 below, foreign bankowned assets in the United States, which total $4.0 trillion, account for roughly 20 percent of all foreign-owned holdings in the 

United States. 

FIGURE 18: CROSS-BORDER ASSET HOLDINGS, YEAR-END 2007 391

[Dollars in trillions] 

Total Financial 

Derivatives 

Securities 

(non-U.S. 

Treasury) 

Claims/Liabilities 

of U.S. Banks 

Financial 

Sub-Total 

U.S.-Owned Assets Abroad ....................... 18.3 2.6 6.8 3.8 13.2 

Foreign-Owned Assets in the United 

States ................................................... 20.4 2.5 6.2 4.0 12.7 

391 U.S. Bureau of Economic Analysis, Table G.1, International Investment Position of the United States at Year-End 2007 and 2008 (June 

2010) (online at www.bea.gov/scb/pdf/2010/06%20June/D%20Pages/0610dpg_g.pdf) (accessed Aug. 10, 2010). 

Importantly, 80 percent of these bank assets represent cross-border holdings owned by the bank, with the remaining 20 percent reflecting positions held on behalf of customers, such as short-term 

securities (assets) and deposits (liabilities). Of this 80 percent—the 

positions owned by the bank—more than two-thirds are between 

foreign affiliates of a U.S.-owned institution, or U.S. affiliates of a 

foreign-owned institution (i.e., a multinational bank’s intercompany 


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392Gross cross-border positions of U.S. and European-owned banks in the United States approximate one another, whereas the balance (less than 10 percent) reflects positions for banks 

with headquarters in Asia, Canada, and Australia. Carol C. Bertaut and Laurie Pounder, The 

Financial Crisis and U.S. Cross-Border Financial Flows, at A156 (Nov. 2009) (online at 

www.federalreserve.gov/pubs/bulletin/2009/pdf/bulletin_article_november_2009a1.pdf). 393 Id. at A147, A160. 

claims).392 By definition, the institutions included in these data 

represent the largest, most systemically important banks and securities firms in both the United States and Europe. 

A review of the international operations of major TARP recipients as well as leading foreign firms helps illustrate the far-reaching benefits from the U.S. government’s assistance. As discussed in 

greater detail in Section B, firms such as Citigroup, JPMorgan 

Chase, Goldman Sachs, and Morgan Stanley have significant operations overseas, not just as core components in the international financial market plumbing, but also through global treasury services 

for investors and corporations (Citigroup and JPMorgan Chase), 

and significant retail banking operations in Asia and Latin America (Citigroup). Other U.S. firms, such as State Street (43 percent 

non-U.S. revenue in 2006) and Bank of New York Mellon (30 percent non-U.S. revenue in 2006), provide trust bank and global custodial services for corporations and investment managers throughout the world. Even American Express, a financial institution associated primarily with the U.S. retail market, has significant nonU.S. operations (31 percent), reflecting global transaction and payment operations that serve international commercial and retail customers. 

This is a two-way street, as foreign-headquartered banks also 

rely heavily on the U.S. institutional and retail market. Credit 

Suisse, Deutsche Bank, and UBS boast significant operations in 

the U.S. capital markets, via their investment banking, trading, 

and prime brokerage arms. Additionally, UBS and HSBC have 

meaningful retail operations in the United States—UBS via the 

high-net-worth Paine Webber platform, and HSBC through its 

more mainstream banking and consumer finance operations. 

While useful data on intercompany capital flows during the crisis 

are limited, the Federal Reserve publishes aggregate data on flows 

from U.S. banks to their foreign parents and from foreign banks to 

their U.S. parents. The Federal Reserve cited ‘‘unusual flows’’ during the crisis, reflecting overseas demand to fund dollar assets and 

a pronounced pullback in cross-border positions based on heightened risk aversion, in the context of a concerted effort aimed at 

‘‘channeling liquidity home to protect the parent bank.’’ 393 These 

cross-border, intercompany flows, including much smaller flows to 

non-affiliates, are categorized into three distinct stages of the crisis. (Net shifts of U.S.-owned, Europe-owned and other foreignowned institutions during these stages are illustrated in Figure 19 

below.) • Initial Phase, August 2007 to August 2008: A $380 billion increase in net lending abroad was driven by U.S. affiliates of 

European institutions, which as a group accounted for a $450 

billion increase in overseas lending. Foreign affiliates of U.S. 

parents also channeled funds back to the United States, although in a much smaller amount ($36 billion), presumably to 

shore up the parent’s liquidity base. 


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394 A positive value indicates a net financial inflow to the United States, and a negative value 

indicates a net financial outflow from the United States. Id. at A158, A160. 

• Crisis Peak, September 2008 to December 2008: There was a 

reversal of $346 billion in net lending, as U.S. firms hoarded 

dollars and short-term funding markets collapsed, whereas European parents of U.S. affiliates took advantage of new dollar 

funding from their central banks (via swap lines with the Federal Reserve), easing the pressure on U.S. affiliates to send 

dollars home, resulting in $288 billion in net inflows to European-owned banks in the United States. 

• Final Phase, January 2009 to June 2009: There was a resumption of net lending abroad, with a $436 billion increase in net 

outflows as dollar interbank lending markets improved, replacing a reliance on foreign central bank dollar liquidity programs. 

FIGURE 19: NET FLOWS OF U.S.-OWNED AND EUROPE-OWNED BANKS, AUGUST 2007– 

JUNE 2009 394

While the Federal Reserve data outlined above provide a broad 

overview of cross-border financial transactions involving U.S. affiliates and their foreign parents, and involving foreign affiliates and 

their U.S. parents, these data should not be viewed as a monolithic 

representation of intercompany flows within individual institutions 

during the crisis. Financial disclosures of U.S.-owned and foreignowned banks offer limited insight into inter-company flows during 

the crisis (or any period for that matter), limiting the ability to 

track the flow of TARP funds to overseas operations and international rescue funding to U.S. operations. However, in some instances a reconstruction of rescue funds is possible, as with AIG 

and to a lesser extent General Motors and Chrysler. Given that 

many of the firms that received government assistance were interconnected with the global financial framework, just as AIG was, it 

is reasonable to assume that U.S. and foreign taxpayer assistance 

to systemically important multinational financial firms benefited 

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395 Ben S. Bernanke, chairman, Board of Governors of the Federal Reserve System, The 

Stamp Lecture at the London School of Economics, The Crisis and the Policy Response (Jan. 13, 

2009) (online at www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm). 396 12 U.S.C. § 5222. Section 101 of EESA authorized the Secretary to establish the TARP ‘‘to 

purchase and to make and fund commitments to purchase, troubled assets from any financial 

institution, on such terms and conditions as are determined by the Secretary, and in accordance 

with this Act and the policies and procedures developed and published by the Secretary.’’ 

With respect to the latter provision of Section 112 (the authorization for Treasury to purchase 

troubled assets from foreign financial authorities or banks acquired by extending financing to 

subsidiaries of U.S.-based financial institutions that have failed or defaulted on the financing 

arrangement), Treasury states that no such purchases have been made. Treasury conversations 

with Panel staff (July 22, 2010). 

During the Congressional debates surrounding the passage of EESA, several members of Congress voiced concern with the latter portion of this statutory provision, arguing that the language was very expansive and open-ended. On October 1, 2008, Senator Richard Shelby (R–AL) 

noted that ‘‘[u]nder a provision hidden deep in the legislation, the Treasury Secretary also has 

the authority to purchase troubled assets from foreign central banks and governments.’’ Statement of Sen. Shelby, Congressional Record, S10240 (Oct. 1, 2008). On the same day, Senator 

Arlen Specter (then-R–PA) stated that ‘‘[t]he legislation contains authority for the Treasury Secretary to compensate foreign central banks under some conditions. It provides that troubled assets held by foreign financial authorities and banks are eligible for the TARP program if the 

banks hold such assets as a result of having extended financing to financial institutions that 

have failed or defaulted. Had there been an opportunity for floor debate, that provision might 

have been sufficiently unpopular to be rejected or at least sharply circumscribed with conditions.’’ Statement of Sen. Specter, Congressional Record, S10279 (Oct. 1, 2008). 

Continued 

try. In the case of the largest U.S. and foreign investment banks 

(such as Morgan Stanley, Citigroup, and Deutsche Bank), their operations were far more intertwined and of much greater scale globally than Lehman Brothers’ were. 

E. Cooperation and Conflict in the Different Government 

Responses to the Crisis 

Throughout the financial crisis, the Federal Reserve and Treasury have taken a number of actions to support financial stabilization internationally. Federal Reserve Chairman Ben S. Bernanke 

has commented that ‘‘a clear lesson of the recent period is that the 

world is too interconnected for nations to go it alone in their economic, financial, and regulatory policies. International cooperation 

is thus essential if we are to address the crisis successfully and 

provide the basis for a healthy, sustained recovery.’’ 395

In this section of the report, the Panel evaluates the extent of 

international cooperation with respect to financial stabilization 

since the emergence of the financial crisis in the summer of 2007 

and assesses whether anything could have been done differently. 

1. International Coordination and Treasury’s Role in Supporting Financial Stabilization Internationally 

a. Legal Authority 

Section 112 of EESA provides a legal authority and framework 

for Treasury’s role in supporting financial stabilization internationally during the financial crisis. Section 112 requires the Secretary 

of the Treasury to ‘‘coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To 

the extent that such foreign financial authorities or banks hold 

troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.’’ 396


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On October 2, 2008, however, Representative Roy Blunt (R–MO) introduced a letter from Secretary Paulson in which Paulson pledged to limit Treasury’s role in dealing with foreign financial institutions, in accord with the requirements of EESA, so that Treasury’s actions would be 

limited to foreign entities with assets acquired from U.S. institutions. Secretary Paulson reminded members of Congress that ‘‘[t]he Act requires that eligible financial institutions must 

be established and regulated and have significant operations in the United States’’ [in accord 

with the definition of ‘‘financial institution’’ in Section 3(5) of EESA] and that ‘‘it is the intention 

of the Department of the Treasury that all mortgages or mortgage-related assets purchased in 

the Troubled Asset Relief Program will be based on or related to properties in the United 

States.’’ Statement of Rep. Blunt, Congressional Record, H10757 (Oct. 3, 2008). 397Treasury conversations with Panel staff (July 22, 2010); Clay Lowery, assistant secretary 

of the Treasury for international affairs (Nov. 2005–Jan. 2009), conversations with Panel staff 

(July 23, 2010). 

Treasury states that it has coordinated extensively with its foreign counterparts throughout the financial crisis, and that this particular statutory provision neither added to Treasury’s mandate 

nor changed its approach with respect to international affairs.397

Treasury’s view is that the inclusion of this provision, therefore, resulted in no different behavior on the part of Treasury than what 

it was already doing in the international realm. 

While this particular statutory provision is relatively short in 

comparison to other key EESA provisions, its substance and inclusion are telling for several reasons. 

First, given the Federal Reserve’s role as the U.S. central bank 

and the plethora of actions it has taken during the financial crisis, 

it is perplexing that the statute does not direct the Secretary of the 

Treasury to consult with the Federal Reserve when coordinating 

with foreign financial authorities and central banks. While the Federal Reserve and Treasury have very different roles (the TARP was 

established to give Treasury the ability to purchase equity in a financial institution, and the Federal Reserve is limited to making 

loans), given the complementary relationship between these roles, 

it seems important that they coordinate their actions. It is unclear 

whether this omission was deliberate (i.e., Congress expected that 

Treasury and the Federal Reserve would collaborate closely but 

wanted one voice to represent U.S. interests) or due simply to a 

drafting error. 

Second, since the financial crisis developed into a global problem, 

Congress intended for Treasury to coordinate with its foreign counterparts and likely thought that a collaborative effort would both 

minimize the likelihood that one country would be advantaged over 

others and send a strong signal to the markets. 

Third, Treasury’s authority to coordinate with foreign finance 

ministers and central banks is broad and expansive, and is not limited to the design of programs that are exact replicas of the TARP 

as implemented in the United States. While the statute authorizes 

Treasury to coordinate with foreign financial authorities and central banks to establish TARP-like programs in other countries, the 

Panel notes that the U.S. approach allows for a number of different 

policy and programmatic responses, such as asset purchases, capital injections, increased deposit insurance, and government guarantees. 

Fourth, Congress’ authorization for the Treasury Secretary to 

purchase troubled assets from foreign financial authorities or 

banks acquired as a result of extending financing to subsidiaries of 

U.S.-based financial institutions that have failed or defaulted on 

the financing arrangement seems to have been included under the 


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398Treasury conversations with Panel staff (July 22, 2010). 399Treasury conversations with Panel staff (July 22, 2010); Clay Lowery, assistant secretary 

of the Treasury for international affairs (Nov. 2005–Jan. 2009), conversations with Panel staff 

(July 23, 2010); Dr. C. Fred Bergsten, director of the Peterson Institute for International Economics and former assistant secretary of the Treasury for international affairs, conversations 

with Panel staff (July 29, 2010); Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship 

at the Sloan School of Management at MIT and former chief economist at the IMF, conversations with Panel staff (July 30, 2010). For further discussion on the interventions taken by countries across the globe, see Sections C.1 and C.2, supra. 400For a comprehensive discussion and analysis of the government’s rescue of AIG, see June 

Oversight Report, supra note 10. 

assumption that Treasury would conduct an asset purchase program (as it originally contemplated and as described in Sections 

101 and 113 of EESA), rather than capital injections, since asset 

purchases work better under a reverse auction mechanism. In Congress’ view, having more sellers in an asset pool under a reverse 

auction-type mechanism might have produced better results. The 

greater the participation in an auction, the better odds there are 

for lower pricing, which protects the interests of the taxpayer. The 

significance and relevance of this provision, however, were diminished once Treasury made the strategic decision to pursue capital 

injections instead of purchasing troubled assets.398

Finally, while the inclusion of this section is explicit evidence of 

Congress’ desire for Treasury to play a pivotal role in supporting 

financial stabilization internationally, Congress did not provide any 

content to the term ‘‘coordinate,’’ so the provision does not impose 

any meaningful obligation on the part of Treasury. This may in 

part explain Treasury officials’ particular interpretation of this provision, as discussed above. 

b. Coordination Concerning the Creation of TARP-like 

Programs and Support for Banking Industry 

During the latter part of 2008, various finance ministers and central bank governors focused almost exclusively on emergency rescues of their respective banking systems. 

As discussed above (and as confirmed in Panel staff conversations with experts and policymakers), countries generally responded to the financial crisis by developing rescue packages focused on systemic issues within their jurisdictions rather than focusing heavily on specific institutions.399 There were, however, several exceptions. Beginning in early 2008 and continuing through 

mid-September, the United States acted largely on a case-by-case 

basis in response to the increasing stresses on financial institutions 

including Bear Stearns, Lehman Brothers, and AIG. In March 

2008, the Federal Reserve Bank of New York (FRBNY) extended 

credit to Maiden Lane LLC in order to facilitate the merger of Bear 

Stearns and JPMorgan Chase. In mid-September 2008, the Federal 

Reserve and Treasury had to face the failure of Lehman Brothers 

(after the United Kingdom’s Financial Services Authority (FSA), 

the regulator of all providers of financial services in the United 

Kingdom, declined to approve Barclays’ acquisition of Lehman), 

and the rescue of AIG in light of the systemic risks they believed 

its failure would impose.400 According to then-Treasury Secretary 

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401Senate Committee on Banking, Housing, and Urban Affairs, Written Testimony of Henry 

M. Paulson, Jr., secretary, U.S. Department of the Treasury, Turmoil in U.S. Credit Markets: 

Recent Actions regarding Government Sponsored Entities, Investment Banks and other Financial 

Institutions, 110th Cong. (Sept. 23, 2008) (online at banking.senate.gov/public/ 

index.cfm?FuseAction=Files.View&FileStore_id=04ba224a-4cee-463e-b1d8-0cd771e85bd4). 402 Id. 403David H. McCormick, undersecretary for international affairs, U.S. Department of the 

Treasury, Prepared Statement in Advance of G–7 Finance Ministers and Central Bank Governors Meeting (Oct. 8, 2008) (online at www.treas.gov/press/releases/hp1190.htm). 404Treasury conversations with Panel staff (July 22, 2010). 405 Clay Lowery conversations with Panel staff (July 23, 2010); Sabina Dewan, associate director of international economic policy, and Lauren D. Bazel, associate director of government affairs, Center for American Progress, conversations with Panel staff (July 26, 2010); Adam Posen, 

senior fellow at the Peterson Institute for International Economics (PIIE) and member of the 

Monetary Policy Committee of the Bank of England, conversations with Panel staff (July 27, 

2010); Vincent Reinhart, former director of the Federal Reserve Board’s Division of Monetary 

Affairs and resident scholar at the American Enterprise Institute for Public Policy Research, 

conversations with Panel staff (July 19, 2010). Mr. Reinhart held a number of senior positions 

in the Divisions of Monetary Affairs and International Finance at the Federal Reserve Board 

and served for the last six years of his Federal Reserve career as secretary and economist of 

the Federal Open Market Committee. For further discussion concerning the role of the TARP 

in international negotiations, see Section E.3.c, infra. 

cient,’’ 401 prompting his joint decision with Chairman Bernanke to 

shift gears and focus on formulating a comprehensive approach to 

resolve financial market stresses. On September 20, 2008, Secretary Paulson and Chairman Bernanke asked Congress ‘‘to take 

further, decisive action to fundamentally and comprehensively address the root cause of this turmoil’’ 402 by submitting legislation 

requesting authority to purchase troubled assets from financial institutions in order to promote market stability. On October 3, 2008, 

after approval from both houses of Congress, President George W. 

Bush signed EESA into law. 

In a display of international partnership at a time when global 

finance markets were severely strained, the G–7 finance ministers 

and central bank governors held a meeting at the U.S. Department 

of the Treasury during the weekend of October 10–12, 2008 (one 

week after the passage of EESA and amidst the IMF and World 

Bank annual meetings), to discuss economic conditions, financial 

market developments, and individual and collective policy responses. According to then Undersecretary of the Treasury for 

International Affairs David H. McCormick, one of the central messages for the weekend was that ‘‘the turmoil is a global phenomena.’’ 403 At this time, Mr. McCormick referenced the recent 

passage of EESA, stated that other countries were ‘‘considering appropriate programs given their national circumstances,’’ and said 

that Treasury looked forward ‘‘to working with them as they move 

forward with their plans.’’ During the meeting, then-Secretary 

Paulson briefed his foreign counterparts on the U.S. financial rescue efforts, including strategies to use the EESA authority to purchase and insure mortgage assets and purchase equity in financial 

institutions. Secretary Paulson and Undersecretary McCormick 

maintained regular contact with their G–7 and other international 

counterparts in order to strengthen international collaboration efforts to stabilize financial markets and restore confidence in the 

global economy.404 It appears that the existence of the TARP, 

therefore, might have served to enhance the negotiating position of 

the U.S. government (at least in a limited way) as it demonstrated 

the willingness of U.S. officials to be aggressive and forceful in 

committing a significant amount of resources to confront a deepening crisis.405


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According to Mr. Reinhart, while the TARP (and the stress tests in particular) signaled to 

the world that the United States was aggressive and organized enough to commit significant 

resources to confront the financial crisis (which enhanced the U.S. negotiating position), over 

time, the U.S. negotiating position was diminished as the TARP was implemented, and U.S. officials became less willing to commit additional resources. 406 U.S. Department of the Treasury, G–7 Finance Ministers and Central Bank Governors Plan 

of Action (Oct. 10, 2008) (online at www.treas.gov/press/releases/hp1195.htm). The G–7 also 

agreed to: 

1. Ensure that our respective national deposit insurance and guarantee programs are robust 

and consistent so that our retail depositors will continue to have confidence in the safety of their 

deposits. 

2. Take action, where appropriate, to restart the secondary markets for mortgages and other 

securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary. 407 U.S. Department of the Treasury, Statement by Secretary Henry M. Paulson, Jr. Following 

Meeting of the G7 Finance Ministers and Central Bank Governors (Oct. 10, 2008) (online at 

www.treas.gov/press/releases/hp1194.htm) (hereinafter ‘‘Paulson October 2008 Statement’’). 408 Anthony Faiola and Neil Irwin, World Leaders Offer Unity But No Steps to Ease Crisis, 

Washington Post (Oct. 12, 2008) (online at www.washingtonpost.com/wp-dyn/content/story/2008/ 

10/11/ST2008101102372.html) (hereinafter ‘‘World Leaders Offer Unity But No Steps to Ease 

Crisis’’) (including remarks from an interview with Professor Johnson). 

At the meeting, the G–7 finance ministers and central bank governors endorsed an aggressive five-part plan to guide individual 

and collective policy steps to provide liquidity and strengthen the 

capital base of financial institutions. This plan included, among 

other items, agreements to ‘‘[t]ake decisive action and use all available tools to support systemically important financial institutions 

and prevent their failure,’’ ‘‘[t]ake all necessary steps to unfreeze 

credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding,’’ and 

‘‘[e]nsure that our banks and other major financial intermediaries, 

as needed, can raise capital from public as well as private sources, 

in sufficient amounts to re-establish confidence and permit them to 

continue lending to households and businesses.’’ 406 Then-Secretary 

Paulson also referenced the need to ‘‘continue to closely coordinate 

our actions and work within a common framework so that the action of one country does not come at the expense of others or the 

stability of the system as a whole,’’ and noted how it has never 

‘‘been more essential to find collective solutions to ensure stable 

and efficient financial markets and restore the health of the world 

economy.’’ 407 Perhaps most importantly, this meeting presented a 

platform through which the G–7 finance ministers and central 

bank governors could present a common front and stand behind a 

common strategy at a time when aggressive and forceful action 

could help calm the financial markets. 

While endorsing a coordinated approach to the financial crisis 

and outlining a broad set of principles, the G–7 leaders, however, 

failed to announce any concrete steps, underscoring the challenge 

of crafting a global plan to address turmoil in the financial markets. On the one hand, the lack of specificity has garnered some 

criticism from those who argue that these types of vague piecemeal 

responses fail to provide certainty to the markets. Simon Johnson, 

the Ronald A. Kurtz Professor of Entrepreneurship at the Sloan 

School of Management at MIT and former chief economist at the 

IMF, argues that ‘‘[y]ou need specific, concrete steps, not a list of 

principles that are obvious and everyone can easily agree to.’’ 408 In 

addition, Federal Reserve Vice Chairman Donald L. Kohn commented that ‘‘[a]lthough most countries wound up in a similar 

place, the process was not well coordinated, with action by one 


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409Donald L. Kohn, vice chairman, Board of Governors of the Federal Reserve System, Remarks at the Federal Reserve Bank of Boston 54th Economic Conference, Chatham, Massachusetts, International Perspective on the Crisis and Response (Oct. 23, 2009) (online at 

www.federalreserve.gov/newsevents/speech/kohn20091023a.htm) (hereinafter ‘‘Donald Kohn Remarks at the Federal Reserve Bank of Boston’’). 410World Leaders Offer Unity But No Steps to Ease Crisis, supra note 408 (including remarks 

from an interview with Mr. Nakagawa). 411For further discussion on the interventions taken by countries across the globe, see Sections C.1 and C.2, supra. 412The purpose of the CPFF was to enhance the liquidity of the commercial paper market 

by increasing the availability of term commercial paper funding to issuers and by providing 

greater assurance to both issuers and investors that firms will be able to roll over their maturing commercial paper. The TLGP was designed to unlock inter-bank credit markets and restore 

rationality to credit spread. 413 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.treas.gov/press/releases/hp1205.htm). 414 Henry M. Paulson, Jr., secretary of the Treasury (2006—2009), conversations with Panel 

staff (Aug. 5, 2010); U.S. Department of the Treasury, Remarks by Secretary Henry M. Paulson, 

Jr. on Financial Rescue Package and Economic Update (Nov. 12, 2008) (online at www.treas.gov/ 

press/releases/hp1265.htm) (stating that the decision to purchase equity directly from financial 

institutions was ‘‘the fastest and most productive means of using our new authorities to stabilize 

our financial system.’’). 

country sometimes forcing responses by others.’’ 409 On the other 

hand, the flexibility contained within the broad set of principles 

outlined by the G–7 provided each country with the discretion to 

implement solutions to the crisis based upon their evaluation of 

what was best for their own banking sector and their domestic 

economy. According to Shoichi Nakagawa, the former Japanese finance minister, ‘‘[e]ach of the G–7 nations knows what has to be 

done, what the government needs to do. Each country understands 

what needs to be done.’’ 410

Given that many countries had banking systems with different 

levels of impairment, a single coordinated response may have hindered their ability to formulate targeted responses to their unique 

economic challenges and limited the amount of experimenting and 

learning that occurred in the process. Furthermore, as discussed 

above, despite the lack of specificity contained in the G–7 communique, most countries generally intervened in similar ways using 

the same basic set of policy tools.411

While not all issues were resolved, since the G–7 agreement provided each nation with the discretion and flexibility to formulate 

how to safeguard its own banking system, many countries decided 

to provide broad support to their banking systems. As discussed 

above, the rescue plans in different countries, while they each have 

some unique features, contained similar elements: expanded deposit insurance, guarantees on non-deposit liabilities, purchases of 

impaired assets, and capital injections for financial institutions. 

On October 14, 2008—less than two weeks after EESA was 

signed into law—then-Secretary Paulson formally announced that, 

alongside the Federal Reserve’s establishment of a Commercial 

Paper Funding Facility (CPFF) and the FDIC’s creation of the 

Temporary Liquidity Program (TLGP),412 Treasury would ‘‘purchase equity stakes in a wide array of banks and thrifts.’’ 413 Treasury concluded that while it is easy to make direct capital injections, 

setting up a structure to buy particular assets or groups of assets 

in the absence of liquid trading markets was more difficult. 

Although Treasury officials have explained that the change in 

strategy with respect to capital injections rather than asset purchases was motivated both by the severity of the crisis and the 

need for prompt action,414 as discussed above, its decision may 


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For further discussion concerning the flexibility that EESA gives Treasury in terms of dealing 

with troubled assets (i.e., Treasury could either buy real estate-related troubled assets directly 

from the institutions that held them or instead put capital directly into those institutions by 

buying their preferred stock) and Treasury’s ultimate decision to provide financial institutions 

with capital injections rather than asset purchases, see Congressional Oversight Panel, August 

Oversight Report: The Continued Risk of Troubled Assets, at 7–10 (Aug. 11, 2009) (online at 

cop.senate.gov/documents/cop-081109-report.pdf). 415Treasury conversations with Panel staff (July 22, 2010); Clay Lowery, assistant secretary 

of the Treasury for international affairs (Nov. 2005–Jan. 2009), conversation with Panel staff 

(July 23, 2010); Senate Committee on Finance, Testimony of Neil M. Barofsky, Special Inspector 

General for the Troubled Asset Relief Program, Transcript: An Update on the TARP Program 

(July 21, 2010) (publication forthcoming); Vincent Reinhart conversation with Panel staff (July 

19, 2010) (supporting the proposition that the TARP so quickly transitioned into capital injections in part because of the similar actions taken by the United Kingdom). 

During a conversation with Panel staff, then-Secretary Paulson stated that while he and 

President Bush had a conversation with then-Prime Minister Gordon Brown about capital injections, ‘‘the decision to make capital injections was a response to a rapidly changing situation, 

including a rapidly deteriorating market and the need for prompt and effective responsive action.’’ In Mr. Paulson’s view, the U.S. decision to inject capital into the banks was dictated by 

the need to prevent a meltdown of the U.S. financial system, and was not impacted by the U.K.’s 

capital program. Mr. Paulson also referenced how the design and implementation of the CPP 

in the United States wound up being very different from the capital injection programs done 

throughout Europe, including the United Kingdom. According to Mr. Paulson, ‘‘the U.K.’s capital 

program involved more government control than our program and had terms that were more 

punitive. Its effect was to nationalize two banks on the brink of failure, and no others participated.’’ While only two banks participated in the United Kingdom’s capital injection program, 

707 financial institutions of all sizes participated in the CPP. Henry M. Paulson, Jr., secretary 

of the Treasury (2006–2009), conversation with Panel staff (Aug. 5, 2010). 416 Britain Takes a Different Route to Rescue Its Banks, supra note 131; Robert Hutton and 

Rebecca Christie, Brown Bank Rescue Takes U.K. Beyond Paulson Debt Plan, Bloomberg (Oct. 

9, 2008) (online at www.bloomberg.com/apps/news?pid=new 

sarchive&sid=aiNQKy3bayK0&refer=uk). 417 U.S. Department of the Treasury, Statement by Secretary Henry M. Paulson, Jr. on Financial Markets Update (Oct. 8, 2008) (online at www.treas.gov/press/releases/hp1189.htm) (stating 

that ‘‘the EESA adds broad, flexible authorities for Treasury to buy or insure troubled assets, 

provide guarantees, and inject capital.’’). 

have also been influenced by similar actions taken across the globe, 

particularly the United Kingdom under the leadership of thenPrime Minister Gordon Brown. While such actions were not dispositive, it is possible that they might have played a role in the actions Treasury decided to take domestically.415

During an interview after announcing his government’s financial 

rescue on October 8, 2008, Mr. Brown implied that the United 

Kingdom’s plan was a faster and more efficient solution to the financial crisis than buying troubled real estate-related assets from 

financial institutions (as was initially proposed under the U.S. financial rescue plan). He remarked that ‘‘[t]his is not the American 

plan. The American plan is to buy up these bad assets by a state 

fund. Our plan is to buy shares in the banks themselves and therefore we will have a stake in the banks. We know that the taxpayers’ interest had got to be protected at all times, and that is 

why we are ensuring that it is an investment stake in the banks. 

We are not just simply giving money.’’ Mr. Brown also commented 

that the time for purchasing impaired assets had since come and 

gone, and he hoped that other countries would follow his lead. On 

the same day, Mr. Brown wrote to EU leaders to urge them to follow the United Kingdom as a model ‘‘where a concerted international approach could have a very powerful effect.’’ 416 At a press 

briefing held after the United Kingdom’s rescue announcement, 

then-Secretary Paulson signaled that Treasury was considering a 

rescue plan through which the government would provide capital 

injections to financial institutions in exchange for ownership 

stakes.417 This marked the first occasion in which Treasury indiVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00089 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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418Federal Deposit Insurance Corporation, Statement by Federal Deposit Insurance Corporation Chairman Sheila Bair: U.S. Treasury, Federal Reserve, FDIC Joint Press Conference (Oct. 

14, 2008) (online at www.fdic.gov/news/news/press/2008/pr08100a.html). 419Treasury conversations with Panel staff (July 22, 2010); Clay Lowery, assistant secretary 

of the Treasury for international affairs (Nov. 2005–Jan. 2009), conversation with Panel staff 

(July 23, 2010). 420For further discussion of the AGP, see Section E.1.b, supra. 421Treasury conversation with Panel staff (July 22, 2010). 422 U.S. Department of the Treasury, Fact Sheet: Financial Stability Plan (Feb. 10, 2009) (online at www.financialstability.gov/docs/fact-sheet.pdf). 423For further discussion and analysis of the stress tests, see June Oversight Report, supra 

note 143. 

cated publicly that it was contemplating capital injections instead 

of asset purchases. 

Furthermore, the influence of the actions of foreign countries 

(such as the U.K. bank debt guarantees) upon the U.S. response 

was displayed in FDIC Chairman Sheila Bair’s remarks at the joint 

Treasury, Federal Reserve, and FDIC press conference on October 

14, 2008. Chairman Bair noted that ‘‘[o]ur efforts also parallel 

those by European and Asian nations. Their guarantees for bank 

debt and increases in deposit insurance would put U.S. banks on 

an uneven playing field unless we acted as we are today.’’ 418 As 

U.S. officials worked to implement the FDIC’s Temporary Liquidity 

Guarantee Program (TLGP), they consulted closely with foreign financial authorities to ensure that actions taken in the United 

States would not cause problems for other countries, while also 

safeguarding the interests of U.S. institutions.419

Further evidence of the close coordination or emulation between 

U.S. and U.K. policymaking is displayed in the United Kingdom’s 

particular interest in the Asset Guarantee Program (AGP), created 

pursuant to Section 102 of EESA and through which the Federal 

Reserve, Treasury, and the FDIC placed guarantees, or assurances, 

against distressed or illiquid assets held by Citigroup and Bank of 

America.420 In the days and weeks immediately after the announcement of the AGP, U.S. and U.K. officials held periodic discussions about the structure of this program and the challenges the 

Federal Reserve, Treasury, and the FDIC were facing with respect 

to implementation.421 Ultimately, as discussed above, the United 

Kingdom established its own asset protection scheme. 

On February 10, 2009, the Obama Administration announced its 

Financial Stability Plan—a broad framework for financial recovery 

and stability that included a combination of stress tests for the nation’s largest BHCs (formally known as the Supervisory Capital Assistance Program, or SCAP), a public-private investment program 

to help remove impaired assets from the balance sheets of financial 

institutions, a comprehensive foreclosure mitigation plan, and initiatives designed to spearhead consumer and business lending.422

Between February and May 2009, the Federal Reserve, the Office 

of the Comptroller of the Currency (OCC), and the FDIC worked 

collaboratively to conduct stress tests of the 19 largest BHCs in the 

United States and to identify the potential losses across select categories of loans, resources available to absorb those losses, and any 

shortfalls in capital buffers.423

Certain U.S. responses to the crisis, and especially the stress 

tests, have informed foreign responses. In 2009, as discussed above, 

the European Union conducted an aggregated stress test of its 22 

biggest cross-border lenders. This round of tests was superficially 


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424Transcript: Merkel Q&A, Wall Street Journal (June 24, 2010) (online at online.wsj.com/ 

article/NA_WSJ_PUB:SB10001424052748704629804575324913545117850.html) (stating that 

‘‘building trust will only work if every country also shows how it will handle the results, for 

example by recapitalizing its banks if necessary’’). 

According to the results announced on July 23, 2010, seven out of 91 European banks failed 

the stress tests. At this point, however, there remains no clear path for recapitalization for 

banks found to be capital-deficient. While Greece, Spain, and Germany have bank bailout funds 

that firms might be able to access if they cannot raise funds privately, the CEBS continues to 

emphasize that ‘‘it is the responsibility of the national supervisory authority to require and take 

supervisory actions toward a bank.’’ Committee of European Banking Supervisors, CEBS’s Press 

Release on the Results of the 2010 EU-Wide Stress Testing Exercise (July 23, 2010) (online at 

stress-test.c-ebs.org/documents/CEBSPressRelease.pdf) (hereinafter ‘‘CEBS Press Release on the 

Results of the EU-Wide Stress Tests’’). The idea of recapitalizing banks, if necessary, is very 

similar to, and an emulation of, Treasury’s commitment to recapitalize any of the 19 stress tested bank holding companies that needed additional capital. U.S. Department of the Treasury, 

Secretary Geithner Introduces Financial Stability Plan (Feb. 10, 2009) (online at www.treas.gov/ 

press/releases/tg18.htm) (stating that ‘‘[t]hose institutions that need additional capital will be 

able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital.’’). 

similar to the U.S. stress tests. Like the U.S. tests, the EU stress 

tests were guided by two scenarios: a baseline scenario and an adverse scenario. However, the EU tests differed from the U.S. tests 

in several important ways. Unlike the U.S. stress tests, which assessed the condition of individual institutions, the outcomes of the 

EU tests were aggregated to show the health of the overall EU 

banking sector (i.e., bank-by-bank results were not released), and 

the exercise was not used to determine which banks needed to be 

recapitalized. In addition, whereas the U.S. stress tests were centrally coordinated, the EU tests were applied by the relevant national supervisory authority, meaning that the stress test application could have conceivably varied on a country-by-country basis. 

Recently, the European Union decided to conduct another round 

of stress tests on 91 banks. While there still are some differences 

in approach between the United States and the European Union, 

this latest round appears to resemble more closely the U.S. stress 

tests in both form and substance. In contrast to its 2009 predecessor and the U.S. tests, which did not assess smaller banks, the 

scope of the 2010 Committee of European Banking Supervisors 

(CEBS) tests went beyond the EU’s largest banking organizations. 

Like the U.S. stress tests, this latest round was guided by both 

baseline and adverse scenarios to determine whether banks are 

sufficiently capitalized to deal with severe economic shocks, and at 

least some European governments appear inclined to recapitalize 

their banks if necessary.424 Relative to the 2009 test, the 2010 

CEBS test was much more transparent. Most importantly, the 

2010 CEBS test released bank-by-bank results rather than results 

in the EU aggregate. Additionally, the process for how the stress 

tests were applied was disclosed. However, it is unclear whether 

transparency was increased because: (1) the U.S. test was widely 

regarded as more successful than the 2009 CEBS test; (2) the EU’s 

sovereign debt crisis prompted a crisis of confidence among banks’ 

investors that could be cleared up only by increasing transparency; 

or (3) some combination of these two factors. As the Panel has 

noted previously, the U.S. stress tests helped to restore confidence 

in the nation’s largest banking organizations by looking ahead and 

providing clear statements of the prospective condition of each of 


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425 June Oversight Report, supra note 143, at 27–29. The Panel cautions, however, that the 

stress tests should neither be dismissed nor assigned greater value than they merit. 426See CEBS Press Release on the Results of the EU-Wide Stress Tests, supra note 424 (stating that the ‘‘overall objective of the 2010 exercise is to provide policy information for assessing 

the resilience of the EU banking system to possible adverse economic developments and to assess the ability of banks in the exercise to absorb possible shocks on credit and market risks, 

including sovereign risks’’); Committee of European Banking Supervisors, CEBS’s Statement on 

Key Features of the Extended EU-Wide Stress Test (July 7, 2010) (online at www.c-ebs.org/ 

CMSPages/GetFile.aspx?nodeguid=357173cf-0b06-4831-abcd-4ea90c64a960) (stating that ‘‘[t]he 

objective of the extended stress test exercise is to assess the overall resilience of the EU banking 

sector and the banks’ ability to absorb further possible shocks on credit and market risks, including sovereign risks . . . ’’). 427For further discussion of the impact of the global financial crisis on major economies outside the United States and Europe, including China, see Section C.1.b, supra. 428 Congressional Oversight Panel, Questions for the Record from Assistant Secretary Herbert 

M. Allison, Jr., at 11 (Mar. 4, 2010) (online at cop.senate.gov/documents/testimony-030410 

-allison-qfr.pdf) (hereinafter ‘‘Questions for the Record from Assistant Secretary Herbert M. Allison, Jr.’’). 429For further discussion of the increasing relevance and role of the G–20 during the financial 

crisis, see Section C.3, supra. 430Questions for the Record from Assistant Secretary Herbert M. Allison, Jr., supra note 428, 

at 11. 

the BHCs tested.425 It appears that the European regulators have 

learned this lesson, as one of their primary objectives was to reassure investors that banks are sufficiently capitalized.426 While a 

bank’s national origin is significant for purposes of the stress tests 

(within the United States, Treasury committed to recapitalize any 

of the 19 stress-tested BHCs, if necessary), the stress test results 

have international implications because investors are more prone 

to invest in an institution that has been found to be adequately 

capitalized. 

The China Banking Regulatory Commission has also conducted 

stress tests on its banks over the past year (assuming residential 

real estate price declines of as much as 60 percent in the hardest 

hit markets). It is difficult, though, to determine the extent to 

which, if any, this response was informed by the U.S. stress tests 

because the Chinese economy, as discussed above, has generally 

avoided the banking crises that impacted the United States and 

much of Europe (as demonstrated by the record issuance of $1.4 

trillion in new loans by Chinese banks in 2009).427

According to Assistant Secretary for Financial Stability Herbert 

M. Allison, Jr., the Administration continues to work through multilateral institutions and through direct bilateral engagement to 

foster financial regulatory reform and improve the stability of the 

global economy.428 The G–7/G–8 members’ finance ministers and 

central bank governors continued to meet and coordinate actions 

into 2009, emphasizing a commitment to reestablish full confidence 

in the global financial system. From November 2008 through April 

2009, the G–20 Leaders process became increasingly relevant (as 

noted by the increasing frequency of meetings and communique ́s) 

as it focused intensively on rescue efforts.429 Mr. Allison stated further that the G–20 Leaders process is the ‘‘key channel for international cooperation to strengthen the framework for supervising 

and regulating the financial markets.’’ 430

2. Role of Central Banks at the Height of the Crisis 

As Federal Reserve Vice Chairman Donald L. Kohn stated, ‘‘[t]he 

financial and economic crisis that started in 2007 tested central 

banks as they had not been tested for many decades,’’ and the Federal Reserve and other central banks have had to make innovative 


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431Donald L. Kohn, vice chairman, Board of Governors of the Federal Reserve System, Speech 

at the Carleton University, Ottawa, Canada, The Federal Reserve’s Policy Actions During the 

Financial Crisis and Lessons for the Future (May 13, 2010) (online at www.federalreserve.gov/ 

newsevents/speech/kohn20100513a.htm). 432For example, in December 2007, several central banks jointly announced measures to address elevated pressures in short-term funding markets. The Federal Reserve created the Term 

Auction Facility (TAF) to auction term funds to depository institutions against the wide variety 

of collateral that can be used to secure loans at the discount window, the Bank of Canada entered into term purchase and resale agreements, and the Bank of England expanded the total 

amount of reserves offered and expanded the range of collateral accepted for short-term funding 

in its repo open market operations. In March 2008, the Federal Reserve established the Term 

Securities Lending Facility (TSLF), which allowed primary dealers to swap a range of less liquid 

assets for Treasury securities in the Federal Reserve’s portfolio for terms of about one month, 

and the Bank of England introduced a similar type of facility (a plan to swap securities backed 

by mortgages for government bonds for a period of up to three years) in April 2008. 433 Ben S. Bernanke, chairman, Board of Governors of the Federal Reserve System, Remarks 

at the Fifth European Central Banking Conference, Frankfurt, Germany, Policy Coordination 

Among Central Banks (Nov. 14, 2008) (online at www.federalreserve.gov/newsevents/speech/ 

bernanke20081214a.htm). 

(and sometimes unprecedented) changes to traditional policy tools 

as the crisis played out.431 At the height of the financial crisis, the 

central banks worked together closely in focusing their efforts 

largely on addressing liquidity pressures and resolving disruptions 

in funding markets. 

a. Focus on Liquidity Pressures 

Starting in late 2007, central banks generally responded to funding problems with significant expansions of their liquidity facilities. 

Such actions typically included lengthening lending maturities, 

pumping large amounts of funds into overnight markets, broadening acceptable collateral, and sometimes initiating new auction 

techniques. Starting in September 2007, the Federal Reserve conducted several large operations in the federal funds market (such 

as reducing the spread of the discount rate over the target federal 

funds rate), and the Bank of Canada, the Bank of Japan, the ECB, 

and other central banks conducted special operations to inject overnight liquidity at the same time. In addition, on October 8, 2008, 

the Federal Reserve announced a reduction in its policy interest 

rate jointly with five other major central banks—the Bank of Canada, the Bank of England, the ECB, the Swedish National Bank, 

and the Swiss National Bank—with the Bank of Japan expressing 

support. The Federal Reserve also created a number of emergency 

liquidity facilities at the height of the crisis to meet the funding 

needs of key non-bank market participants, including primary securities dealers, money market mutual funds, and other users of 

short-term funding markets, such as purchasers of securitized 

loans.432

b. Reciprocal Currency Arrangements (‘‘Swap Lines’’) 

i. Background 

The credit and liquidity constraints seen at the height of the financial crisis disrupted U.S. dollar funding markets not only domestically but also overseas. While some foreign financial institutions have relied on dollars acquired through their U.S. affiliates, 

‘‘many others relied on interbank and other wholesale markets to 

obtain dollars.’’ 433 Normally, these borrowers can obtain dollar 

funding at the same interest rates as U.S. banks, depending upon 


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434Michael J. Fleming and Nicholas J. Klagge, The Federal Reserve’s Foreign Exchange Swap 

Lines, Current Issues in Economics and Finance, Vol. 16, No. 4, at 2 (Apr. 2010) (online at 

www.newyorkfed.org/research/current_issues/ci16-4.pdf) (hereinafter ‘‘The Federal Reserve’s Foreign Exchange Swap Lines’’). 435 Id. at 1. 436 Id. at 2. 437 Between December 2007 and April 2009, the Federal Reserve established swap lines with 

the following foreign central banks: European Central Bank (ECB), Swiss National Bank (SNB), 

Bank of Japan, Bank of England, Bank of Canada, Reserve Bank of Australia, Sveriges 

Riksbank (Sweden), Danmarks Nationalbank (Denmark), Norges Bank (Norway), Reserve Bank 

of New Zealand, Banco Central do Brasil, Banco de Mexico, Bank of Korea, and Monetary Authority of Singapore. The ECB also established swap lines with the central banks of Denmark 

and Hungary to provide euro liquidity in those countries. For further details concerning the 

swap lines, see Annex I, infra. 

On April 6, 2009, the Federal Reserve, the Bank of England, the European Central Bank, the 

Bank of Japan and the Swiss National Bank announced swap arrangements that would enable 

the provision of foreign currency liquidity by the Federal Reserve to U.S. financial institutions. 

If drawn upon, these arrangements were designed to provide liquidity in sterling in amounts 

of up to £30 billion ($44.5 billion), in euro in amounts of up to Ö80 billion ($107.9 billion), in 

yen in amounts of up to ¥10 trillion ($100 billion), and in Swiss francs in amounts of up to CHF 40 billion ($35 billion). While these foreign currency liquidity swap lines were initially authorized through October 30, 2009 and were later extended through February 1, 2010, the Federal 

Reserve did not make any draw downs on these swap lines. 438See The Federal Reserve’s Foreign Exchange Swap Lines, supra note 434, at 2. 

According to Federal Reserve Governor Daniel K. Tarullo, ‘‘the existence of these facilities can 

reassure market participants that funds will be available in case of need, and thus help forestall 

hoarding of liquidity, a feature that exacerbated stresses during the global financial crisis.’’ 

House Financial Services, Subcommittee on International Monetary Policy and Trade and Subcommittee on Domestic Monetary Policy and Technology, Written Testimony of Daniel K. 

Tarullo, member, Board of Governors of the Federal Reserve System, The Role of the Intertheir level of credit risk.434 Beginning in August 2007, however, the 

interbank lending market experienced significant disruptions. As 

stated by Michael J. Fleming, a vice president in the Capital Markets Function of FRBNY’s Research and Statistics Group, and 

Nicholas Klagge, an economic analyst in the Risk Analytics Function of FRBNY’s Credit and Payment Risk Group, ‘‘[c]oncerns about 

credit risk and higher demand for liquidity placed extraordinary 

strains on the global market for interbank funding in U.S. dollars,’’ 

as ‘‘[i]nterbank interest rates denominated in dollars increased 

sharply, and market participants reported little or no interbank 

lending at maturities longer than overnight.’’ 435 The increased 

spread between the London Interbank Rate (LIBOR) and the overnight indexed swap (OIS)—a measure of illiquidity in financial 

markets that is used as a proxy for fears of bank bankruptcy—signaled that interbank lending at longer maturities was perceived to 

be especially risky.436 These market conditions signaled a sharp reduction in the general availability of credit, which was driven 

largely by fears over credit risk and lender uncertainty about their 

own liquidity needs. 

ii. Summary of Swap Line Programs 

In response to these market disruptions, the Federal Reserve and 

other central banks established reciprocal currency arrangements, 

or swap lines, starting in late 2007.437 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, along 

with interest.438 Fluctuations in exchange rates or interest rates, 


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national Monetary Fund and Federal Reserve in Stabilizing Europe, at 7–8 (May 20, 2010) (online at www.house.gov/apps/list/hearing/financialsvcs_dem/tarullo_testimony_5.20.10.pdf). 439The Federal Reserve’s Foreign Exchange Swap Lines, supra note 434, at 5. 440The Panel notes that in response to the European sovereign debt crisis, the Federal Reserve reestablished its swap line facilities by entering into agreements with the ECB and other 

major central banks (the Bank of England, the Swiss National Bank, the Bank of Canada, and 

the Bank of Japan) in order to counteract a shortage of dollar liquidity. The Federal Reserve 

also agreed to disclose information regarding the use of the swap lines (along with the total 

amount of swaps outstanding by individual central bank) by each of the counterparty central 

banks on a weekly basis. These swaps were authorized through January 2011. Board of Governors of the Federal Reserve System, Federal Reserve Releases Agreements with Foreign Central 

Banks to Reestablish Temporary Dollar Swap Facilities (May 11, 2010) (online at 

www.federalreserve.gov/newsevents/press/monetary/20100511a.htm). 441For further discussion of how the events of late 2008 fostered an environment of uncertainty that made the cost of borrowing impractical for financial institutions, see Section C.1.a, 

supra. 442The Federal Reserve’s Foreign Exchange Swap Lines, supra note 434, at 1. 443The Federal Reserve’s Foreign Exchange Swap Lines, supra note 434, at 6. 

therefore, have no effect on the payments made at the end of the 

transaction, meaning that the Federal Reserve bears no market 

pricing risk as a result of its swap lines. The borrowing central 

bank will then lend the dollars at variable or fixed rates to entities 

in its country. 

In the immediate aftermath of the Lehman Brothers bankruptcy 

in September 2008, the Federal Reserve rapidly expanded the size 

and scope of its swap line program, increasing the total amount of 

dollars made available to central banks under the program from 

$67 billion to $620 billion. In December 2008—the peak of the Federal Reserve’s swap program—swaps outstanding totaled more 

than $580 billion, accounting for over 25 percent of the Federal Reserve’s total assets.439 During 2009, however, foreign demand for 

dollar liquidity through swap lines decreased, primarily for two 

reasons: (1) funding market conditions improved; and (2) banks 

were able to secure funds elsewhere at lower costs. (Since the loans 

provided by the borrowing central banks to financial institutions in 

their jurisdictions are offered at rates that would be above market 

rates in normal times, demand typically decreases when market 

conditions improve, and market alternatives become more attractive.) 

The swap line programs established by the Federal Reserve, 

which ended on February 1, 2010,440 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.441 According to Messrs. Fleming and Klagge, the 

swaps ‘‘potentially improve[d] conditions in the global funding and 

credit markets more generally.’’ 442 Overall, they conclude that ‘‘the 

evolution of funding pressures during the crisis suggests that swap 

line program announcements and operations were effective at easing strains in dollar funding markets.’’ 443 All of the swaps established from December 2007 to February 2010 were repaid in full, 

and the Federal Reserve earned $5.8 billion in interest. 

3. Assessment of Degree of Cooperation vs. Competition/ 

Conflict 

There are numerous examples of effective coordination efforts, 

which are documented in more detail above: unified interest rate 

cuts, currency swaps, and the use of the G–20 are evidence of sucVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00095 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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444See Sections C.3 and E.2, supra. Lael Brainard, undersecretary for international affairs, 

U.S. Department of the Treasury, Remarks As Prepared for Delivery at the Peterson Institute 

for International Economics (July 26, 2010) (online at treasury.gov/press/releases/tg789.htm) 

(‘‘[I]n response to the most globally synchronized recession the world has seen, we have mounted 

the most globally coordinated response the world has attempted.’’); Paulson October 2008 Statement, supra note 407 (‘‘Governments around the world have taken actions to address financial 

market developments, and international cooperation and coordination has [sic] been robust.’’); 

U.S. Department of the Treasury, Under Secretary for International Affairs David H. McCormick 

Remarks to the Better Hong Kong Foundation (Oct. 22, 2008) (online at www.ustreas.gov/press/ 

releases/hp1230.htm) (hereinafter ‘‘David H. McCormick Remarks to the Better Hong Kong 

Foundation’’) (‘‘Over the past two weeks, we have witnessed an unprecedented international response to this financial turmoil. The Group of Seven industrialized countries have announced 

and are implementing a coordinated action plan to stabilize financial markets and restore the 

flow of credit . . . [C]entral banks from around the world have acted together in recent months 

to provide additional liquidity for financial institutions.’’); David H. McCormick, under secretary 

for international affairs, U.S. Department of the Treasury, Remarks before the Barclays Asia 

Forum, Our Economy, A Global Challenge (Nov. 12, 2008) (online at www.ustreas.gov/press/releases/hp1276.htm) (hereinafter ‘‘David H. McCormick Remarks before the Barclays Asia 

Forum’’) (‘‘We should take confidence from the fact that countries around the world have responded with comprehensive actions to help stem the crisis. The Group of Seven (G–7) industrialized countries announced and are implementing a coordinated action plan to stabilize financial 

markets, restore the flow of credit, and support global economic growth. Others throughout Europe, Asia, and Latin America have adopted similar approaches.’’); Adam Posen, senior fellow 

at the Peterson Institute for International Economics and member of the Monetary Policy Committee of the Bank of England, conversation with Panel staff (July 27, 2010) (discussing the 

quality of international coordination efforts during the crisis); C. Fred Bergsten, director, Peterson Institute of International Economics, conversations with Panel staff (July 29, 2010) (referring to the quality of coordination as one of the defining elements of the crisis); International 

Monetary Fund, United States: Financial System Stability Assessment, at 43 (July 2010) (online 

at www.imf.org/external/pubs/ft/scr/2010/cr10247.pdf) (hereinafter ‘‘IMF Financial System Stability Assessment’’) (‘‘U.S. agencies appear to have managed to achieve a high level of coordination with counterparts abroad during the recent crisis, building on longstanding relationships’’). 445See Donald Kohn Remarks at the Federal Reserve Bank of Boston, supra note 409 (‘‘[T]he 

process was not well coordinated, with action by one country sometimes forcing responses by 

others.’’). Other examples include the U.K. dispute with Iceland regarding deposits in 

Landsbanki; U.K. and EU fears regarding Ireland’s blanket bank liability guarantee; variances 

in timing and substance of short-selling and deposit insurance rules; and the cumbersome bailouts of Fortis and Dexia by the failing banks’ multiple home country regulators. The IMF described the Fortis bailout as illustrative of ‘‘the tendency for national interests to come to the 

fore in a crisis and the difficulty in such circumstances of achieving a cross-border consensus, 

even between jurisdictions whose financial regulators have a long tradition of co-operation and 

whose legal frameworks are considerably harmonized.’’ IMF Proposed Framework for Enhanced 

Coordination, supra note 33, at 13. 446See generally Financial Stability Board and International Monetary Fund, The Financial 

Crisis and Information Gaps (Oct. 29, 2009) (online www.imf.org/external/np/g20/pdf/ 

102909.pdf). See also Clay Lowery, assistant secretary of international affairs (2005–2009), conversations with Panel staff (July 23, 2010). 447See International Monetary Fund, A Fair and Substantial Contribution by the Financial 

Sector, at 35–36 (June 2010) (online at www.imf.org/external/np/g20/pdf/062710b.pdf). 

cessful coordination.444 There are also numerous examples of insufficient coordination.445 For instance, neither central banks nor ministries of finance maintained a global database of information, and 

as a result, policymakers occasionally found themselves without 

key data as the crisis unfolded.446 This lack of centralized publicly 

available data on governmental financial rescue efforts continues to 

this day, as there is no consistent and reliable single source for this 

information. In addition, the wide range of transparency levels 

amongst governments makes comparison between countries difficult. The Panel understands that the IMF has collected this data 

from various governmental authorities,447 but that this data was 

provided on a confidential basis. This is the type of information 

that should be publicly available for use in policymaker analysis. 

Similarly, the fact that stress tests were neither global nor uniform 

suggests that there is room for substantial improvement. 

A comprehensive and definitive evaluation of the degree of coordination that occurred during the financial crisis will be possible 

only with the benefit of historical perspective. Only time will tell 

whether the degree of coordination was appropriate and whether 


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448See Donald Kohn Remarks at the Federal Reserve Bank of Boston, supra note 409 

(‘‘[R]egulations must be passed and implemented nationally. On one level, this type of action 

is simply what is required under existing legal structures. On another level, it reflects the reality that taxpayers in individual countries end up bearing much of the cost when home-country 

institutions need to be stabilized.’’); Domenico Lombardi, president of The Oxford Institute for 

Economic Policy and Nonresident Senior Fellow at the Brookings Institution, conversations with 

Panel staff (Aug. 2, 2010) (stating that in spite of the increasing globalization of finance, the 

policy framework remains local). See also John Lipsky, first deputy managing director, International Monetary Fund, Remarks at the ECB and its Watchers Conference XII, Towards an 

International Framework for Cross Border Resolution (July 9, 2010) (online at www.imf.org/external/np/speeches/2010/070910.htm) (hereinafter ‘‘John Lipsky Remarks at the ECB and its 

Watchers Conference XII’’) (‘‘As has been noted widely, major financial firms today live globally 

but die locally.’’). Other analysts have discussed the importance of home countries in terms of 

market perceptions of rescue capacity. Countries perceived as unable to provide sufficient rescue 

assistance to their institutions may find that perception reflected in the capital markets. RGE 

Monitor staff conversations with Panel staff (July 28, 2010). 449Simon Johnson, professor at MIT and former chief economist of the International Monetary 

Fund, conversations with Panel staff (July 30, 2010). 450See IMF Proposed Framework for Enhanced Coordination, supra note 33, at 13 (discussing 

‘‘the tendency for national interests to come to the fore in a crisis and the difficulty in such 

circumstances of achieving a cross-border consensus, even between jurisdictions whose financial 

regulators have a long tradition of co-operation and whose legal frameworks are considerably 

harmonized’’). 

countries focused too much on their own narrow national interests 

at the expense of the global economy. Yet even if reaching a definitive conclusion is not possible, the nature of coordination during 

the financial crisis raises several key issues. 

a. Complete Coordination may not Always be Desirable 

Ideally, international rescue efforts would include a mixture of 

uniform collective action and individuated, country-specific action 

tailored to address the specific needs of specific countries. As detailed above and in prior Panel reports, the financial crisis is littered with numerous examples of coordinated and isolated approaches. Acting in concert, several central banks took the unprecedented step of announcing a coordinated reduction in interest rates 

in the fall of 2008. Acting alone, the U.S. government designed 

stress tests specific to U.S. institutions and to the U.S. economy, 

intending to restore confidence in its largest financial institutions. 

b. The Importance of Coordinating Before a Crisis 

The financial crisis demonstrated that no matter how globally integrated the economy may be, borders still matter: ultimately each 

individual nation is called upon to bear the costs of assisting and 

restoring its own economy and suffers the consequences if it does 

not.448 In part because they will bear these costs, countries tend to 

act in their own self-interest. Sometimes the self-interest of one 

country aligns with the interests of the international community, 

as it did during many phases of the financial crisis. When central 

banks agreed to coordinate a cut in interest rates, for example, the 

interests of individual nations were in alignment with the broader 

needs of the economic system. In other situations, however, it is 

less clear that these interests are in alignment. These misalignments of interests may produce weaknesses in international supervision (pre-crisis) or may weaken the scope and scale of reform efforts (post-crisis).449 It is also uncertain whether these interests 

would align in a future crisis.450 For example, Brookings Institution fellow Douglas J. Elliott maintains that as institutions become 

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451Douglas J. Elliott, fellow, Brookings Institution, conversations with Panel staff (July 30, 

2010). See also John Lipsky Remarks at the ECB and its Watchers Conference XII, supra note 

448 (‘‘Indeed, recent experience demonstrates that the more interconnected and integrated international financial institutions and groups have become, the more disruptive and value-destroying uncoordinated local resolution actions are likely to be.’’). 452Of course, some countries may perceive that there are risks in placing too much emphasis 

on ex ante coordination. Taking steps in advance of a crisis requires officials to make certain 

assumptions about the form the next crisis will take. If those assumptions turn out to be false, 

then countries may find themselves locked into certain regimes that limit their flexibility in responding to challenges they face. For this reason, when dealing with certain issues, some countries may believe that it is preferable to defer certain types of coordinating efforts until a crisis 

actually arises. Simon Johnson, professor at MIT and former chief economist of the International Monetary Fund, conversations with Panel staff (July 30, 2010). 453 IMF Financial System Stability Assessment, supra note 444, at 40. Former Secretary 

Paulson stated that the United States conducted ‘‘war games’’ with the U.K. prior to the crisis. 

In this context, the term ‘‘war games’’ refers to efforts to plan for potential economic emergencies, rather than military exercises. Henry M. Paulson, secretary of the Treasury (2006– 

2009), conversations with Panel staff (Aug. 5, 2010). It does not appear that similar exercises 

were conducted at an international scale. 454Simon Johnson, professor at MIT and former chief economist of the International Monetary 

Fund, conversations with Panel staff; Toward an Effective Resolution Regime for Large Financial Institutions, supra note 352 (‘‘[T]he high legal and political hurdles to harmonized crossborder resolution processes suggest that, for the foreseeable future, the effectiveness of those 

processes will largely depend on supervisory requirements and cooperation undertaken before 

distress appears on the horizon.’’). 455See John Lipsky Remarks at the ECB and its Watchers Conference XII, supra note 448 

(‘‘[W]hen faced with the potential failure of a large international financial institution, national 

authorities will be willing to cooperate fully only if they trust each other.’’). 456See David H. McCormick Remarks before the Barclays Asia Forum, supra note 444 (‘‘We 

can also foster international cooperation by making it easier and more efficient for countries to 

interact across national regulatory regimes.’’). 457While the recently enacted Dodd-Frank legislation provides for resolution authority within 

the United States, it makes no provision for cross-border resolution authority. The IMF has advocated for the creation of an international resolution framework. John Lipsky Remarks at the 

ECB and its Watchers Conference XII, supra note 448. See also IMF Financial System Stability 

Assessment, supra note 444, at 50 (‘‘[C]ross-border issues in the event of the future failure of 

a systemic international group would remain a challenge.’’). 

print in one specific country, home country governments may be 

more reluctant to accept the full bill for rescuing the company.451

Making an effort to coordinate in advance of a crisis could help 

to minimize the likelihood and effect of misaligned national interests at moments when alignment is most critical.452 The IMF has 

advocated this approach, asserting that it is ‘‘essential’’ to initiate 

‘‘[e]x ante information gathering, preparation, and ‘war gaming.’ ’’ 453 Ex ante coordination permits countries to establish rules, 

expectations, and purposes during the periods when it is easiest to 

do so—as one economist noted, coordinating during a crisis is a 

‘‘scramble.’’ 454 Advance coordination allows countries to consider a 

complex interplay of factors—domestic needs, concerns about maintaining competitiveness, and arbitrage opportunities—at a time 

when sustained, thoughtful consideration is possible. It also helps 

government officials to develop relationships with each other that 

may prove useful when they are forced to interact during a crisis.455 Finally, ex ante coordination may enable governments to develop processes for working across a diverse array of national regulatory regimes.456

There are a number of ex ante mechanisms that could help to facilitate coordination during a crisis. A cross-border resolution regime could establish rules that would permit the orderly resolution 

of large international institutions, while also encouraging contingency planning and the development of resolution and recovery 

plans.457 Such a regime could help to avoid the chaos that followed 

the Lehman bankruptcy, in which foreign claimants struggled to 


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458 John Lipsky Remarks at the ECB and its Watchers Conference XII, supra note 448; IMF 

Financial System Stability Assessment, supra note 444, at 44; C. Fred Bergsten, director, Peterson Institute of International Economics, conversations with Panel staff (July 29, 2010). 459See generally June Oversight Report, supra note 10. 460To address the problem of regulatory arbitrage, the January 2009 Special Report recommended that the State Department and U.S. financial regulators work together with other 

countries to assure that a regulatory floor be created. The report also recommends the United 

States participate in international organizations that promote coordination between national 

regulators. The Basel Committee on Bank Supervision, the Senior Supervisors Group, and the 

International Organization of Securities Commissions are mentioned specifically. Congressional 

Oversight Panel, Special Report on Regulatory Reform, at 45–46 (Jan. 2009) (online at 

cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf). See also IMF Financial System Stability Assessment, supra note 444, at 5, 43 (‘‘Every effort should be taken to coordinate 

these efforts internationally, to ensure they encourage a ‘race to the top’ rather than inconsistent approaches that could widen the scope for regulatory arbitrage . . . The growth in transactions booked in offshore tax havens illustrates the channels that have opened for regulatory 

and tax arbitrage and underscore the importance of U.S. participation in international efforts 

toward coordinated and consistent supervisory and regulatory policies.’’). 461 Atlantic Council, Dodd: G20 Has Taken Over (Aug. 4, 2010) (online at www.acus.org/ 

new_atlanticist/dodd-g20-has-taken-over). 462See David H. McCormick Remarks to the Better Hong Kong Foundation, supra note 444 

(‘‘[T]he recent crisis has highlighted the importance of continued cooperation among major 

economies through such forays as the G–20, the Financial Stability Forum, and the International Monetary Fund.’’). 463Domenico Lombardi, president of the Oxford Institute for Economic Policy and nonresident 

senior fellow at the Brookings Institution, conversations with Panel staff (Aug. 2, 2010); Douglas 

J. Elliott, fellow, Brookings Institution, conversations with Panel staff (July 30, 2010). 

secure priority in the bankruptcy process,458 and that preceded the 

AIG rescue, in which the uncertain effect of bankruptcy on international contracts pressured the U.S. government to support the 

company.459 Additionally, the development of international regulatory regimes could help to discourage regulatory arbitrage and 

pressure individual countries to compete in a ‘‘race to the top’’ by 

adopting more effective regimes at the national level.460 Senator 

Christopher Dodd (D–CT) has argued that routine meetings between senior regulators of G–20 countries—including meetings of a 

‘‘Principals Group’’ prior to G–20 summits—would help to ensure 

that regulations are consistent across borders.461

Finally, ex ante coordination could help to establish robust institutions that could provide a framework for resolving issues during 

the crisis itself. Regular meetings of the G–20 and FSB, for example, establish a setting and mode of communication that could become a convenient default during a crisis.462 Facilitating the 

growth of such institutions also helps government officials to develop working relationships with each other that would promote efficiency in crisis response efforts. For instance, involving international institutions at G–20 meetings places the institution side 

by side with heads of state and finance ministers.463 Strengthening 

such institutions has a more subtle normative effect as well: it adds 

legitimacy to the notion that economic policy is an international endeavor in addition to a national one. 

There are also less formal coordinating mechanisms that could be 

developed prior to a crisis. For instance, an international information database could provide details on international markets and 

on multinational companies’ cross-border exposures that could assist both national governments and international bodies in coordinating rescue efforts during a crisis. According to the IMF, some 


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464See IMF Financial System Stability Assessment, supra note 444, at 43 (‘‘The United States 

has embraced efforts to improve information sharing and cooperation in the supervision of internationally active financial firms.’’). 465 Clay Lowery, assistant secretary of international affairs (2005–2009), conversation with 

Panel staff (July 23, 2010); Vincent Reinhart, resident scholar, American Enterprise Institute, 

conversation with Panel staff (July 19, 2010). 466See Treasury Transactions Report, supra note 64. 467 Clay Lowery, assistant secretary of international affairs (2005–2009), conversation with 

Panel staff (July 23, 2010); David H. McCormick Remarks to the Better Hong Kong Foundation, 

supra note 444 (‘‘These actions demonstrate to market participants around the world that the 

United States is committed to taking all necessary steps to unlock our credit markets, minimize 

the impact of the current instability on the U.S. economy, and restore the health of the global 

financial system.’’). 468Domenico Lombardi, president of the Oxford Institute for Economic Policy and nonresident 

senior fellow at the Brookings Institution, conversations with Panel staff (Aug. 2, 2010). 469 C. Fred Bergsten, director, Peterson Institute of International Economics, conversations 

with Panel staff (July 29, 2010). 470 Vincent Reinhart, resident scholar, American Enterprise Institute, conversation with Panel 

staff (July 19, 2010). 471 Adam Posen, senior fellow at the Peterson Institute for International Economics and member of the Monetary Policy Committee of the Bank of England, conversation with Panel staff 

(July 27, 2010); Sabina Dewan, associate director of international economic policy, the Center 

for American Progress, conversation with Panel staff (July 26, 2010). 

countries have already begun taking steps to make such information accessible.464

c. The Role of the TARP in Multilateral Negotiations 

According to Administration officials who were working closely 

with their foreign counterparts during the fall and early winter of 

2008, the existence of the TARP enhanced the ability of the United 

States to convince other countries to enact measures to combat the 

financial crisis.465 When the United States hosted the G–20 summit in Washington, DC in November 2008, the TARP had been in 

effect for more than a month, and several U.S. financial institutions had already received TARP funds. By the time of the next 

summit, in London in April 2009, hundreds of institutions had received TARP funds.466 The existence of the TARP evidenced the 

willingness of the United States to address its own economic challenges and signaled to the international community that the country recognized the seriousness of the financial crisis. The TARP 

also thrust the United States into a position of ‘‘demonstrable leadership,’’ 467 according to one former Treasury official, and provided 

credibility at a time when the United States was trying to convince 

other countries to join it in developing a robust crisis response.468

Without the TARP, the United States would have had little credibility in these negotiations.469

At the same time, Vincent Reinhart, a resident scholar at the 

American Enterprise Institute, maintains that the TARP eventually became perceived as a liability for the U.S. government in its 

interactions with foreign governments. Whereas initially it had 

been viewed as a bold, early step to address the financial crisis, as 

time progressed it was viewed less as a systematic response and 

more as a reflection of a disjointed, ad hoc effort. This perception 

of the program decreased its usefulness in enhancing U.S. credibility.470 In addition, the government’s ability to use the existence 

of the TARP to bolster its negotiating position was blunted by the 

perception that the United States was responsible for causing the 

financial crisis.471


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472 Henry M. Paulson, secretary of the Treasury (2006–2009), conversation with Panel staff 

(Aug. 5, 2010); Treasury conversations with Panel staff (July 22, 2010); Simon Johnson, professor at MIT and former chief economist of the International Monetary Fund, conversation with 

Panel staff (July 30, 2010). 473 Henry M. Paulson, secretary of the Treasury (2006–2009), conversations with Panel staff 

(Aug. 5, 2010). 474See Section C.2.c, supra. 475See Section C.2, supra. 476 Vincent Reinhart, resident scholar, American Enterprise Institute, conversation with Panel 

staff (July 19, 2010); Sabina Dewan, associate director of international economic policy, the Center for American Progress, conversation with Panel staff (July 26, 2010); Simon Johnson, professor at MIT and former chief economist of the International Monetary Fund, conversation with 

Panel staff (July 30, 2010). 477 Clay Lowery, assistant secretary of international affairs (2005–2009), conversation with 

Panel staff (July 23, 2010). 478Treasury conversations with Panel staff (July 22, 2010). 

d. The Power of Informal Coordination Networks 

Much of the coordination that occurred during the crisis took the 

form of informal communications.472 In some situations, Treasury 

officials picked up a phone to call their foreign counterparts; in others, small groups of countries gathered to share information. Informal communication helped officials to stay informed as to what 

their counterparts were doing, which was particularly important 

because of the speed at which the crisis unfolded. For example, according to then-Secretary Paulson, Treasury officials communicated 

regularly with foreign governments about a variety of subjects, including Fannie Mae and Freddie Mac. In addition, Secretary 

Paulson himself would occasionally talk to very senior foreign officials during critical times.473

In other cases, without any direct communication, one country’s 

action on a particular issue inspired another country to act.474 In 

some cases, these parallel actions were due to competitive pressures—in this manner, competition fostered outcomes that looked 

from a distance as though they had been the product of collaboration. In other cases, such as the stress tests, one country’s actions 

served as a best practices template that other countries could employ when they faced similar challenges.475 Some experts maintain 

that few examples of real coordination exist—in most cases, one 

country simply emulated the rescue efforts of another.476

It is also possible that as the crisis developed, informal coordination efforts hardened into more formal processes. The G–20 supplanted the G–8 as the primary international economic negotiating 

body, possibly in part because the large volume of information 

being communicated between G–8 participants and other countries 

made it easier to bring those countries directly to the negotiating 

table. The expansion served the purpose of raising the views of 

countries with emerging markets,477 and also permitted policymakers to resolve many issues within the context of a single negotiating body. 

The emergence of the G–20 also reflects the importance of symbolism and tone in crisis response.478 Regardless of the number of 

concrete measures that have been implemented as a direct result 

of G–20 summits, the meetings facilitated aggressive action by governments across the globe by setting a tone that the international 

community supported timely, substantial economic interventions. 


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479Treasury conversations with Panel staff (July 22, 2010). 

As one Treasury official stated, the goal was to use a ‘‘show of 

force’’ to present a common front in fighting the financial crisis.479

F. Conclusions and Recommendations 

The international response to the crisis that started in 2007 developed on an ad hoc, informal, jurisdiction-by-jurisdiction basis. 

The G–7/G–8, G–20, and multinational organizations such as the 

IMF all played a significant role in the rescue and an even larger 

role in the subsequent reform efforts. The international response 

was by no means uncoordinated; however, governments ultimately 

made their decisions based on an evaluation of what was best for 

their own banking sector and their domestic economy, and consideration of the specific impact of their actions on either the financial 

institutions or banking sector or the economies of other jurisdictions was not a high priority. This owed 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. 

Despite the limitations of international coordination, most countries ultimately intervened in similar ways, using the same basic 

set of policy tools: capital injections to financial institutions, guarantees of debt or troubled assets, asset purchases, and expanded 

deposit insurance. As the report illustrates, macro-economic responses taken by central banks, which had a broader discretion to 

design liquidity facilities, were the most coordinated. 

Although these ad hoc actions ultimately restored a measure of 

stability to the international system, and the role of the capital injection programs adopted by the governments of both the United 

Kingdom and the United States was key to that stability, there is 

no doubt that international cooperation could be improved. Even 

when several governments came together to rescue a specific ailing 

institution over a short period, as in the rescues of Dexia and 

Fortis, national interests came to the fore. Instances of effective 

collaboration to orchestrate broader, market-wide interventions occurred on a more limited basis. The internationalization of the financial system has, in short, outpaced the ability of national regulators to respond to global crises. 

In light of the international integration of markets, and in light 

of the fact that some of the recipients of rescue funds were large 

international institutions, it was inevitable that rescue funds would 

flow across borders. In the absence of reliable data, however, it is 

possible to say only that it seems likely that U.S. money had more 

impact on non-U.S. institutions and economies than non-U.S. rescue funds had on the United States, even after adjusting for the 

relative size of the various jurisdictions’ rescues. Because Treasury 

has gathered very little data on how bailout funds flowed overseas, 

however, neither students of the current crisis nor those dealing 

with future rescue efforts will have access to all the information 

needed to make well-informed decisions. One of the most crucial 

problems in the crisis was the lack of transparency about which 

parties were exposed and to whom they were exposed, and where 


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cash flowed could be helpful in informing future estimates of exposure. 

In the interests of transparency and completeness, and to help 

inform regulators’ actions in a world that is likely to become ever 

more financially integrated, the Panel strongly urges Treasury to 

collect and report more data about how TARP and other rescue 

funds flowed internationally, and to document the impact that the 

U.S. rescue had overseas. Treasury should create and maintain a 

database of this information and should urge foreign regulators to 

collect and report similar data. Information of this type would have 

enabled regulators in all jurisdictions to formulate a more tailored 

and coordinated response, to know with whom they should have coordinated those responses, and to anticipate better the effects of 

any actions taken. 

In enacting the TARP, Congress explicitly required Treasury to 

coordinate its financial stability efforts with those of other nations. 

The crisis underscored the fact that the international community’s 

formal mechanism to plan in advance for potential financial crises 

is limited. Financial crises have occurred many times in the past 

and will occur again in the future, and policymakers would do well 

to have plans in place before they happen, rather than responding, 

however well, on an ad hoc basis at the peak of the storm. Moving 

forward, it is essential for the international community to gather 

information about the international financial system, identify 

vulnerabilities, and plan for emergency responses to a wide range 

of potential future crises. U.S. regulators should encourage regular 

crisis planning and financial ‘‘war gaming.’’ Without this kind of 

cross-national forward planning, efforts in the United States to 

limit exposure and to address the impact of ‘‘too big to fail’’ institutions will be undermined. 

Finally, international bodies such as the FSB and the BIS are 

likely to become ever more important in crisis response and regulation. For this reason, it is crucial that their dealings, and the interaction of U.S. regulators with them, are open and transparent and 

that U.S. regulators make clear to policymakers the impact that 

such bodies have on the U.S. banking industry and broader economy. The FSB especially should be sensitive to the transparency of 

its processes. 


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ANNEX I: TABLES 

FIGURE 20: GLOBAL FINANCIAL RESCUE EFFORTS BY COUNTRY (AS OF MAY 2010) i

[Billions of USD] ii

GDP iii Bank 

Assetsiv

Commitments Outlays 

2007 2007 

Percent 

of 

GDP 

Percent 

Bank 

Assets 

Percent 

of 

GDP 

Percent 

Bank 

Assets 

Australia ........... Commitments ... 826.2 950 1,680 86.9 49.2 ................ ................

Outlays ............. 162.8 ................ ................ ................ ................ 17.1 9.7 

Belgium ............ Commitments ... NA 459 2,324 NA NA ................ ................

Outlays ............. 221.6 ................ ................ ................ ................ 48.3 9.5 

France ............... Commitments ... 468.0 2,594 10,230 18.0 4.6 ................ ................

Outlays ............. 199.7 ................ ................ ................ ................ 7.7 2.0 

Germany ........... Commitments ... 658.8 3,321 6,600 19.8 10.0 ................ ................

Outlays ............. 406.6 ................ ................ ................ ................ 12.2 6.2 

Iceland v ........... Commitment vi .. 13.5 20 47 66.2 28.8 ................ ................

Outlaysvii ......... 1.4 ................ ................ ................ ................ 6.9 3.0 

Ireland .............. Commitments ... 802.9 261 1,631 307.4 49.2 ................ ................

Outlays ............. 137.0 ................ ................ ................ ................ 52.4 8.4 

Italy .................. Commitments ... 85.1 2,118 4,336 4.0 2.0 ................ ................

Outlays ............. 5.6 ................ ................ ................ ................ 0.3 0.1 

Japan ................ Commitmentsviii 54.6 4,384 10,087 1.2 0.5 ................ ................

Outlaysix .......... 54.6 ................ ................ ................ ................ 1.2 0.5 

Luxembourg ...... Commitments ... NA 50 1,348 NA NA ................ ................

Outlays ............. 13.0 ................ ................ ................ ................ 26.2 1.0 

Netherlands ...... Commitments ... 301.9 777 3,869 38.8 7.8 ................ ................

Outlays ............. 209.4 ................ ................ ................ ................ 26.9 5.4 

Spain ................ Commitments ... 341.7 1,440 2,979 23.7 11.5 ................ ................

Outlays ............. 136.6 ................ ................ ................ ................ 9.5 4.6 

Switzerland ....... Commitments ... 61.8 434 3,620 14.2 1.7 ................ ................

Outlays ............. 56.5 ................ ................ ................ ................ 13.0 1.6 

United Kingdom Commitments ... 487.2 2,803 11,655 17.4 4.2 ................ ................

Outlays ............. 610.0 ................ ................ ................ ................ 21.8 5.2 

United Statesx Commitments ... 2,995.2 13,807 11,194 21.7 26.8 ................ ................

Outlays ............. 1,630.6 ................ ................ ................ ................ 11.8 14.6 

i Commitment and outlay data for all countries compiled from the European Central Bank (ECB) unless noted otherwise. European Central 

Bank, Extraordinary Measures in Extraordinary Times: Public Measures in Support of the Financial Sector in the EU and the United States (July 

2010) (online at www.ecb.int/pub/pdf/scpops/ecbocp117.pdf). Government support programs include capital injection, liability guarantees, and 

asset support unless noted otherwise. Commitment data not available for all forms of assistance and may be understated. iiForeign currency values were converted to USD using an average of daily EUR–USD exchange rates between 10/1/2008 and 5/31/2010.

Averages computed using Bloomberg data service (accessed Aug. 11, 2010). iii International Monetary Fund, Global Financial Stability Report: Responding to the Financial Crisis and Measuring Systemic Risks, at 177 

(Apr. 2009) (online at www.imf.org/External/Pubs/FT/GFSR/2009/01/pdf/text.pdf); International Monetary Fund, World Economic Outlook Database 

(Apr. 2010) (online at www.imf.org/external/pubs/ft/weo/2010/01/weodata/download.aspx). Bank assets for Australia, Iceland, and India compiled using Bloomberg data service (accessed Aug. 11, 2010). iv Id. 

v For the reasons outlined in note vi, infra, this percentage is substantially understated and should not be directly compared those of other 

nations on this table. Special Investigative Commission, Report of the Special Investigative Commission: Depositors’ and Investors’ Guarantee 

Fund and Deposit Guarantees in General, at 65 (Apr. 12, 2010) (online at sic.althingi.is/pdf/RNAvefKafli17Enska.pdf); Mayer Brown, Summary 

of Government Interventions in Financial Markets: Iceland, at 3–4 (Sept. 8, 2009) (online at 

www.mayerbrown.com/publications/article.asp?id=7850&nid=6). viThe $13.5 billion in commitments shown here consists only of direct capital injections to banks and guarantees of domestic bank deposits. It does not include other assistance, including guarantees of certain foreign deposits, central bank liquidity support, or a $10 billion IMF 

rescue package for the Icelandic government. Total commitments of government assistance exceed $13.5 billion and almost certainly exceed 

GDP, but are difficult to quantify given the scale of problems Iceland experienced and the confusion caused by the crisis. For example, the 

Icelandic central bank has not published detailed statistics on the banking system since 2007. Central Bank of Iceland (Sedlabanki), Monetary Statistics (May 2009) (online at 

www.sedlabanki.is/?pageid=552&itemid=5a037662-26ea-477d-bda8-d71a6017cc05&nextday=21&nextmonth=2). Other aspects of the Icelandic 

crisis are discussed in Sections C.1.b and C.1.c, and in Figure 17, supra. vii Includes direct capital injections only. Iceland’s outlays considerably exceeded this amount, as explained in note vi, supra. viii Deposit Insurance Corporation of Japan, List of Capital Injection Operations Pursuant to the Financial Functions Strengthening Act (online 

at www.dic.go.jp/english/e_katsudou/e_katsudou3-5.html) (accessed Aug. 10, 2010); Bank of Japan, Outright Purchases of Corporate Financing 

Instruments (Jan. 22, 2009) (online at www.boj.or.jp/en/type/release/adhoc09/un0901b.pdf); Bank of Japan, The Bank of Japan to Resume Stock 

Purchases Held by Financial Institutions (Feb. 3, 2009) (online at www.boj.or.jp/en/type/release/adhoc09/fss0902a.pdf); Bank of Japan, Provision of Subordinated Loans to Banks (Mar. 17, 2009) (online at www.boj.or.jp/en/type/release/adhoc09/fsky0903a.htm). See also Takafumi Sato, 

Global Financial Crisis—Japan’s Experience and Policy Response (Oct. 20, 2009) (online at 

www.frbsf.org/economics/conferences/aepc/2009/09_Sato.pdf). ix Id. 

x U.S. financial support totals include Federal Reserve liquidity facilities. Congressional Oversight Panel, June Oversight Report: The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy, at 318–319 (June 10, 2010) (online at 

cop.senate.gov/documents/cop-061010-report.pdf). 


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FIGURE 21: FEDERAL RESERVE LIQUIDITY PROGRAMS 

Start 

Date 

End 

Date Description Maximum Commitment 

Final 

Disposition 

Term Asset-Backed Securities Loan Facility (TALF) 

June 30, 

2010.

FRBNY makes loans on a collateralized 

basis to holders of eligible asset-backed 

securities (ABS) and commercial 

mortgage-backed securities (CMBS).

Term Auction Facility (TAF) 

December 

12, 2007.

March 8, 

2010.

The TAF provided credit through an auction 

mechanism to depository institutions in 

generally sound financial condition. The 

TAF offered 28-day and, beginning in August 2008, 84-day loans.

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

September 

18, 2008.

February 1, 

2010.

The AMLF was a lending facility that financed the purchase of high-quality 

asset-backed commercial paper from 

money market mutual funds (MMMFs) by 

U.S. depository institutions and bank 

holding companies.

Commercial Paper Funding Facility (CPFF) 

October 7, 

2008.

February 1, 

2010.

The CPFF provided a liquidity backstop to 

U.S. issuers of commercial paper through 

a specially created limited liability company (LLC) called CPFF LLC. This LLC 

purchased three-month unsecured and 

asset-backed commercial paper directly 

from eligible issuers.

The CPFF’s holdings 

of commercial 

paper peaked at 

$350 billion in January 2009.

The CPFF incurred no 

losses on its commercial paper holdings, and accumulated nearly $5 billion in earnings, 

primarily from interest income, 

credit enhancement 

fees, and registration fees. 

Primary Dealer Credit Facility (PDCF) 

March 16, 

2008.

February 1, 

2010.

An overnight loan facility that provided 

funding to primary dealers.

Term Securities Lending Facility (TSLF) 

March 11, 

2008.

February 1, 

2010.

FRBNY lent Treasury securities to primary 

dealers for 28 days against eligible collateral in two types of auctions.

Money Market Investor Funding Facility (MMIFF) 

October 21, 

2008.

.................. FRBNY provided senior secured funding to 

SPVs to facilitate a private-sector initiative to finance the purchase of eligible 

assets from eligible investors.


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FIGURE 22: RECIPROCAL FOREIGN EXCHANGE SWAP LINES WITH THE UNITED STATES, 2007– 

2009 480

[Dollars in millions] 

Country Agreement Date 

Original 

Amount 

Changes to Original 

Agreement 

Total 

Amount 

Expiration 

of Swap 

Line 481

European Union ............ 12/12/2007 $20,000 Swap line extended and increased 

7 times until the Fed removed 

the cap on 10/13/2008.

482 Full allotment.

2/1/2010 

Switzerland ................... 12/12/2007 4,000 Swap line increased 6 times until 

the Fed removed the cap on 

10/13/2008.

483 Full allotment.

2/1/2010 

Japan ............................ 9/18/2008 60,000 Swap line increased twice before 

the Fed removed the cap on 

10/14/2008.

484 Full allotment.

2/1/2010 

United Kingdom ........... 9/18/2008 40,000 Swap line increased twice before 

the Fed removed the cap on 

10/13/2008.

485 Full allotment.

2/1/2010 

Canada ......................... 9/18/2008 10,000 Swap line increased once on 

9/29/2008.

$30,000 .... 2/1/2010 

Australia ....................... 9/24/2008 10,000 Swap line increased once on 

9/29/2008.

$30,000 .... 2/1/2010 

Sweden ......................... 9/24/2008 10,000 Swap line increased once on 

9/29/2008.

$30,000 .... 2/1/2010 

Denmark ....................... 9/24/2008 5,000 Swap line increased once on 

9/29/2008.

$15,000 .... 2/1/2010 

Norway .......................... 9/24/2008 5,000 Swap line increased once on 

9/29/2008.

$15,000 .... 2/1/2010 

New Zealand ................ 10/28/2008 15,000 None ................................................ $15,000 .... 2/1/2010 

Brazil ............................ 10/29/2008 30,000 None ................................................ $30,000 .... 2/1/2010 

Mexico .......................... 10/29/2008 30,000 None ................................................ $30,000 .... 2/1/2010 

South Korea .................. 10/29/2008 30,000 None ................................................ $30,000 .... 2/1/2010 

Singapore ..................... 10/29/2008 30,000 None ................................................ $30,000 .... 2/1/2010 

480 Source: Board of Governors of the Federal Reserve System. 

As reflected in the chart, the swap lines expired on February 1, 2010; however, as a result of U.S. dollar short-term funding problems in Europe, in May 2010 the Federal Reserve reestablished swap lines with the European Union, Switzerland, the United Kingdom, Canada, and 

Japan. Each swap line will expire in January 2011. Board of Governors of the Federal Reserve System, Press Release (May 10, 2010) (online 

at www.federalreserve.gov/newsevents/press/monetary/20100510a.htm); Board of Governors of the Federal Reserve System, Press Release (May 

9, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100509a.htm). 481 The Federal Reserve extended the swap lines with each country multiple times. On June 25, 2009, it extended the swap lines with all central banks until February 1, 2010. Board of Governors of the Federal Reserve System, Press Release (June 25, 2009) (online at 

www.federalreserve.gov/newsevents/press/monetary/20090625a.htm). 482 On October 13, 2008 the Federal Reserve removed the cap on the amount the European Central Bank (ECB) could draw on the swap 

line. Board of Governors of the Federal Reserve System, Press Release (Oct. 13, 2008) (online at 

www.federalreserve.gov/newsevents/press/monetary/20081013a.htm) (hereinafter ‘‘Oct. 13 Federal Reserve Press Release’’). Prior to removing the 

cap, the ECB was authorized to draw up to $240 billion. Board of Governors of the Federal Reserve System, Press Release (Sept. 29, 2008) 

(online at www.federalreserve.gov/newsevents/press/monetary/20080929a.htm) (hereinafter ‘‘Sept. 29 Federal Reserve Press Release’’). 483 On October 13, 2008 the Federal Reserve removed the cap on the amount the Swiss National Bank (SNB) could draw on the swap line. Sept. 29 Federal Reserve Press Release, supra note 482. Prior to removing the cap, the SNB was authorized to draw up to $60 billion. Sept. 

29 Federal Reserve Press Release, supra note 482. 484 On October 14, 2008 the Federal Reserve removed the cap on the amount the Bank of Japan (BOJ) could draw on the swap line. Board of Governors of the Federal Reserve System, Press Release (Oct. 14, 2008) (online at 

www.federalreserve.gov/newsevents/press/monetary/20081014d.htm). Prior to removing the cap, the BOJ was authorized to draw up to $120 billion. Sept. 29 Federal Reserve Press Release, supra note 482. 485 On October 13, 2008, the Federal Reserve removed the cap on the amount the Bank of England (BOE) could draw on the swap line. 

Sept. 29 Federal Reserve Press Release, supra note 482. Prior to removing the cap, the BOE was authorized to draw up to $80 billion. Sept. 

29 Federal Reserve Press Release, supra note 482. 


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486 June Oversight Report, supra note 10, at 110–11, 174 n.668 (discussing that detailed information was not available on the topic of ‘‘counterparties’ counterparties’’ as beneficiaries of the 

government rescue). 

ANNEX II: CASE STUDY: THE FOREIGN BENEFICIARIES 

OF PAYMENTS MADE TO ONE OF AIG’S DOMESTIC 

COUNTERPARTIES 

The interconnected nature of the international financial system 

and the ease with which cash flows across national boundaries 

have been noted throughout this report. Although the Panel cannot 

obtain information about the ultimate recipients of all TARP payments, the Panel now has a more complete picture of the dealings 

between AIG, recipient of one of the largest U.S. rescue packages, 

and Goldman Sachs. These dealings provide a useful example of 

the way in which a payment to a U.S. company, which fulfills its 

contractual obligations to its U.S. counterparties, ultimately ends 

up in the hands of institutions all around the world. While the information below relates exclusively to Goldman and its relationships with foreign counterparties, it is likely that many other beneficiaries of government rescue efforts had similar counterparty relationships. Accordingly, it is also likely that these relationships produced significant indirect benefits for foreign institutions. 

As the following data make clear, taxpayer aid to AIG became 

aid to Goldman, and aid to Goldman became aid to a number of 

domestic and foreign investors. In some cases, the aid was in the 

form of repayment in full of obligations that, without government 

help, could have ended in default. In other cases, the aid was in 

the form of guarantees that other parties did not have to pay because the government prevented any defaults. 

AIG provided credit default swap (CDS) protection on a number 

of collateralized debt obligations (CDOs), which were the source of 

continuing collateral demands on AIG. As part of the AIG rescue, 

the CDOs underlying the CDSs were acquired by a special-purpose 

vehicle primarily funded by the government, Maiden Lane III. The 

entities set out in the table below held CDSs written by Goldman 

against the CDOs that were eventually acquired by Maiden Lane 

III. In order to sell those CDOs to Maiden Lane III, in most cases 

Goldman had to obtain them from these counterparties, so the 

Maiden Lane III funds effectively flowed to Goldman’s counterparties.486 Nearly all of these second-level counterparties, both by 

number and dollar amount, were non-U.S. institutions, with European banks making up by far the largest contingent. 

FIGURE 23: GOLDMAN’S COUNTERPARTIES TO MAIDEN LANE III CDOs 

[Dollars in millions] 

Institution 

Total Funds 

Received from 

ML3 

DZ Bank .......................................................................................................................................................... $2,504 

Banco Santander Central Hispano SA ........................................................................................................... 1,544 

Rabobank Nederland-London Branch ............................................................................................................. 852 

ZurcherKantonalbank ...................................................................................................................................... 998 

Dexia Bank SA ................................................................................................................................................ 865 

BGI INV FDS GSI AG ....................................................................................................................................... 633 

Calyon-Cedex Branch ..................................................................................................................................... 663 

The Hongkong & Shanghai Banking Corporation .......................................................................................... 631 


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487 June Oversight Report, supra note 10, at 111, 174 n.669 (discussing that detailed information was not available on the topic of hedge providers as ‘‘indirect beneficiaries’’ of the government rescue). 

FIGURE 23: GOLDMAN’S COUNTERPARTIES TO MAIDEN LANE III CDOs—Continued 

[Dollars in millions] 

Institution 

Total Funds 

Received from 

ML3 

Depfa Bank Plc .............................................................................................................................................. 692 

Skandinaviska Enskilda Bankensweden ........................................................................................................ 365 

Sierra Finance ................................................................................................................................................ 322 

PGGM .............................................................................................................................................................. 440 

Natixis ............................................................................................................................................................. 399 

Zulma Finance ................................................................................................................................................ 661 

Stoneheath ...................................................................................................................................................... 300 

Hospitals of Ontario Pension Plan ................................................................................................................. 273 

Venice Finance ............................................................................................................................................... 363 

KBC Asset Management NVD Star Finance ................................................................................................... 308 

MNGD Pension Funds LTD .............................................................................................................................. 244 

Shackleton Re Limited ................................................................................................................................... 128 

Infinity finance plc ......................................................................................................................................... 375 

Legal & General Assurance ............................................................................................................................ 87 

Barclays .......................................................................................................................................................... 102 

GSAM Credit CDO LTD .................................................................................................................................... 84 

Signum Platinum ............................................................................................................................................ 102 

Lion Capital Global Credit I LTD .................................................................................................................... 16 

Kommunalkredit Int Bank .............................................................................................................................. 24 

Credit Linked Notes LTD ................................................................................................................................. 14 

Ocelot CDO I PLC ........................................................................................................................................... 9 

Hoogovens PSF ST .......................................................................................................................................... 46 

Hypo Public Finance Bank ............................................................................................................................. 10 

Royal Bank of Scotland .................................................................................................................................. 5 

Total ...................................................................................................................................................... 14,059 

The table below identifies 87 entities that benefited indirectly 

from government assistance provided to AIG. Each of these entities 

wrote credit default swap protection on AIG for Goldman. Of these 

87 entities, 43 are foreign. When the government intervened to prevent AIG from failing, these foreign entities were not required to 

make payments on that protection, which they would have been obligated to do in the event of an AIG default.487 Foreign hedge providers made up 43.4 percent of the total, by dollar amount, with 

European banks and other financial institutions being most heavily 

represented. 

FIGURE 24: GOLDMAN COUNTERPARTIES’ EXPOSURE TO AN AIG DEFAULT 

Institution 

Net Exposure 

to Goldman on AIG CDSs 

Citibank, N.A. ................................................................................................................................................. $402,246,000 

Credit Suisse International ............................................................................................................................ 309,730,000 

Morgan Stanley Capital Services Inc. ............................................................................................................ 242,500,000 

JPMorgan Chase Bank N.A. London Branch .................................................................................................. 216,040,000 

Lehman Brothers Special Financing, Inc. ...................................................................................................... 174,780,082 

Swiss Re Financial Products Corporation ...................................................................................................... 132,100,000 

PIMCO Funds Total Return Fund .................................................................................................................... 120,000,000 

Deutsche Bank AG London Branch ................................................................................................................ 87,246,700 

KBC Financial Products Cayman Islands Ltd. ............................................................................................... 84,650,000 

Royal Bank of Canada London Branch .......................................................................................................... 76,000,000 

PIMCO Funds Low Duration Fund .................................................................................................................. 70,200,000 


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FIGURE 24: GOLDMAN COUNTERPARTIES’ EXPOSURE TO AN AIG DEFAULT—Continued 

Institution 

Net Exposure 

to Goldman on 

AIG CDSs 

Socie ́te ́ Ge ́ne ́rale ............................................................................................................................................. 62,280,000 

Wachovia Bank, National Association ............................................................................................................ 60,214,000 

Natixis Financial Products Inc. ...................................................................................................................... 56,345,000 

Merrill Lynch International ............................................................................................................................. 41,435,000 

Natixis ............................................................................................................................................................. 37,064,400 

Bank of Nova Scotia, The .............................................................................................................................. 36,165,000 

Credit Agricole Corporate and Investment Bank ........................................................................................... 34,800,000 

BNP Paribas ................................................................................................................................................... 31,500,000 

Dresdner Bank AG London Branch ................................................................................................................. 29,110,000 

Alphadyne International Master Fund, Ltd. ................................................................................................... 27,771,000 

Bank of America, National Association ......................................................................................................... 25,070,000 

MBIA INC. ....................................................................................................................................................... 25,000,000 

Bank of Montreal London Branch .................................................................................................................. 25,000,000 

Commerzbank Aktiengesellschaft ................................................................................................................... 25,000,000 

Lyxor Starway SPC Lyxor Starway PFLO ......................................................................................................... 22,729,000 

Unicredit Bank AG .......................................................................................................................................... 20,000,000 

Government of Singapore Investment Corporation PTE Ltd .......................................................................... 20,000,000 

Banco Finantia SA .......................................................................................................................................... 20,000,000 

Bank of Montreal Chicago Branch ................................................................................................................. 18,000,000 

Wicker Park CDO I, Ltd. ................................................................................................................................. 17,500,000 

Bluecorr Fund, LLC ......................................................................................................................................... 15,600,000 

Suttonbrook Capital Portfolio LP .................................................................................................................... 15,000,000 

Citibank, N.A. London Branch ........................................................................................................................ 12,500,000 

BlueMountain Timberline Ltd. ........................................................................................................................ 12,000,000 

PIMCO Global Credit Opportunity Master Fund LDC PIMCO .......................................................................... 12,000,000 

AQR Absolute Return Master Account L.P. .................................................................................................... 11,750,000 

Moore Macro Fund, L.P. .................................................................................................................................. 10,000,000 

Norges Bank ................................................................................................................................................... 10,000,000 

JPMorgan Chase Bank, National Association ................................................................................................ 9,246,000 

Fortis Bank ..................................................................................................................................................... 8,000,000 

PIMCO Combined Alpha Strategies Master Fund LDC PIMCO ....................................................................... 8,000,000 

WestLB AG London Branch ............................................................................................................................. 8,000,000 

AQR Global Asset Allocation Master Account, L.P. ........................................................................................ 7,750,000 

Citadel Equity Fund Ltd. ................................................................................................................................ 7,400,000 

Allianz Global Investors KAG Allianz PIMCO Mobil Fonds ............................................................................. 7,000,000 

Barclay’s Bank plc ......................................................................................................................................... 6,090,000 

PIMCO Combined Alpha Strategies Master Fund LDC PIMCO ....................................................................... 6,000,000 

Arrowgrass Master Fund Ltd .......................................................................................................................... 5,500,000 

Mizuho International plc ................................................................................................................................ 5,400,000 

Rabobank International London Branch ........................................................................................................ 5,000,000 

Standard Chartered Bank Singapore Branch ................................................................................................ 5,000,000 

Millennium Park CDO I, Ltd. .......................................................................................................................... 5,000,000 

III Relative Value Credit Strategies Hub Fund Ltd. ....................................................................................... 5,000,000 

Internationale KAG mbH INKA B .................................................................................................................... 4,500,000 

Goldentree Master Fund, Ltd. ......................................................................................................................... 4,480,000 

National Bank of Canada .............................................................................................................................. 3,000,000 

Loomis Sayles Multistrategy Master Alpha, Ltd. ........................................................................................... 3,000,000 

PIMCO Variable Insurance Trust Low Duration Bond Portfolio ...................................................................... 2,700,000 

Tiden Destiny Master Fund Limited ............................................................................................................... 2,500,000 

Stichting Pensioenfonds Oce .......................................................................................................................... 2,450,000 

Intesa Sanpaolo SpA ...................................................................................................................................... 2,000,000 

PIMCO Global Credit Opportunity Master Fund LDC PIMCO .......................................................................... 2,000,000 

DCI Umbrella Fund plc Diversified Cred Investments FD Three ................................................................... 2,000,000 

Halbis Distressed Opportunities Master Fund LTD. ....................................................................................... 2,000,000 

UBS Funds, The, UBS Dynamic Alpha Fund .................................................................................................. 1,250,000 

Goldentree Master Fund II, Ltd. ..................................................................................................................... 1,180,000 

RP Rendite Plus Multi Strategie Investment Grade MSIG ............................................................................. 1,100,000 

Cairn Capital Structured Credit Master Fund Limited .................................................................................. 1,000,000 

Allianz Global Inv KAG mbH DBI PIMCO Global Corp Bd Fds ....................................................................... 1,000,000 

PIMCO Funds: Pacific Investment Mgmt Serfloating Income Fd ................................................................... 800,000 

UBS Dynamic Alpha Strategies Master Fund Ltd. ......................................................................................... 750,000 

Allianz Global Investors KAG mbH DIT FDS Victoria DFS .............................................................................. 600,000 

PIMCO Funds: Global Investors Series plc Low Ave Duration Fd .................................................................. 600,000 


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FIGURE 24: GOLDMAN COUNTERPARTIES’ EXPOSURE TO AN AIG DEFAULT—Continued 

Institution 

Net Exposure 

to Goldman on AIG CDSs 

Internationale Kapitalanlagegesellschaft mbH PKMF INKA ........................................................................... 550,000 

BFT Vol 2 ........................................................................................................................................................ 500,000 

PIMCO Funds Low Duration Fund II ............................................................................................................... 500,000 

Goldentree Credit Opportunities Master Fund, Ltd. ....................................................................................... 340,000 

Embarq Savings Plan Master Trust ............................................................................................................... 300,000 

Russell Investment Company Russell Short Duration Bond Fund ................................................................ 300,000 

PIMCO Funds Low Duration Fund III .............................................................................................................. 300,000 

Equity Trustees Limited PIMCO Australian Bond Fund ................................................................................. 300,000 

Public Education Employee Retirement System of Missouri ......................................................................... 200,000 

PIMCO Bermuda Trust II PIMCO JGB Floater Foreign Strategy Fd ................................................................ 200,000 

D.B. Zwirn Special Opportunities Fund, Ltd. ................................................................................................. 101,500 

PIMCO Bermuda Trust II PIMCO Bermuda JGB Floater US Stra Fd .............................................................. 100,000 

Frank Russell Investment Company Fixed Income II Fund ............................................................................ 100,000 

Total ...................................................................................................................................................... $2,790,413,682 


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SECTION TWO: TARP UPDATES SINCE LAST REPORT 

A. TARP Repayments 

In July 2010, Fulton Financial Corporation and Green City Bancshares, Inc. fully repurchased their preferred shares under CPP. 

Treasury received $377 million in repayments from these two companies. On July 14, 2010, Green City Bancshares also repurchased 

$33,000 in preferred shares that Treasury held from warrants that 

were already exercised. A total of 20 banks have fully repaid $16.5 

billion in preferred equity CPP investments in 2010. As of July 30, 

2010, 78 institutions have redeemed their CPP investments. 

B. CPP Warrant Dispositions 

As part of its investment in senior preferred stock of certain 

banks under the CPP, Treasury received warrants to purchase 

shares of common stock or other securities in those institutions. In 

July, Discover Financial Services and Bar Harbor Bancshares repurchased their warrants from Treasury for $172.3 million in total 

proceeds. The Panel’s best valuation estimate at repurchase date 

for Discover and Bar Harbor warrants were $166 million and 

$518,511 respectively. As of July 30, 2010, the warrants from 52 

banks have been liquidated. Of these banks, 39 have repurchased 

their warrants; Treasury sold the warrants for 13 institutions at 

auction. 

C. Conference on the Future of Housing Finance Reform 

On July 27, 2010, President Obama announced plans to hold the 

‘‘Conference on the Future of Housing Finance’’ on August 17, 

2010. The conference will be the culmination of a series of events 

meant to gather public input on a housing finance reform proposal, 

which is planned to be sent to Congress in January 2011. In April 

2010, Treasury and the U.S. Department of Housing and Urban 

Development issued a series of questions for public comment regarding plans for a more stable housing financing system. Among 

the topics addressed in the questions were federal housing finance 

objectives in the context of broader housing policy objectives, the 

role of the federal government in a housing financing system, and 

suggested improvements to the current financing system. 

D. Community Development Capital Initiative 

On July 30, 2010, two companies exchanged their CPP investments for equivalent investments under the Community Development Capital Initiative (CDCI). These were the first two transactions under the program. University Financial Corp., Inc., which 

received $11.9 million for subordinated debentures from CPP, received an additional $10.2 million from CDCI upon its entrance 

into the program. Guaranty Financial Corporation received $14 

million for subordinated debentures from CPP; however, Treasury 

did not make an additional investment in this bank as part of the 

exchange. As of July 30, 2010, the total CDCI investment amount 

was $36.1 million. 


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488Federal Reserve Bank of St. Louis, Series STLFSI: Business/Fiscal: Other Economic Indi- cators (Instrument: St. Louis Financial Stress Index, Frequency: Weekly) (online at research.stlouisfed.org/fred2/categories/98) (accessed Aug. 5, 2010). The index includes 18 weekly 

data series, beginning in December 1993 to the present. The series are: effective federal funds 

rate, 2-year Treasury, 10-year Treasury, 30-year-Treasury, Baa-rated corporate, Merrill Lynch 

High Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-rated, 10-year 

Treasury minus 3-month Treasury, Corporate Baa-rated bond minus 10-year Treasury, Merrill 

Lynch High Yield Corporate Master II Index minus 10-year Treasury, 3-month LIBOR–OIS 

spread, 3-month TED spread, 3-month commercial paper minus 3-month Treasury, the J.P. Morgan Emerging Markets Bond Index Plus, Chicago Board Options Exchange Market Volatility 

Index, Merrill Lynch Bond Market Volatility Index (1-month), 10-year nominal Treasury yield 

minus 10-year Treasury Inflation Protected Security yield, and Vanguard Financials ExchangeTraded Fund (equities). The index is constructed using principal components analysis after the 

data series are de-meaned and divided by their respective standard deviations to make them 

comparable units. The standard deviation of the index is set to 1. For more details on the conThe CDCI was announced on February 3, 2010 as a means of 

providing lower-cost capital to Community Development Financial 

Institutions (CDFIs) that lend to small businesses in the country’s 

economically hard-hit areas. As participating CDFIs, Guaranty Financial and University Financial receive capital investments at a 

2 percent initial dividend rate. The rate will increase to 9 percent 

after eight years if there are any outstanding investments in the 

participating institution. Under the CPP, banks pay an initial 5 

percent dividend rate, which increases to 9 percent after only five 

years. 

E. HFA Hardest Hit Fund Program 

On March 29, 2010, Treasury announced a second round of HFA 

Hardest Hit Fund assistance with a focus on the states with large 

concentrations of people living in economically distressed areas. On 

August 3, 2010, the Administration approved the use of $600 million in ‘‘Hardest Hit Fund’’ foreclosure-prevention funding by the 

Housing Finance Agencies (HFAs). The state HFAs will receive the 

following amounts from the HFA Hardest Hit Fund: North Carolina ($159 million), Ohio ($172 million), Oregon ($88 million), 

Rhode Island ($43 million), and South Carolina ($138 million). Programs in these states aim to provide mortgage assistance for the 

unemployed or underemployed, as well as to assist in reduction or 

settlement of second liens, payment for arrearages, and facilitation 

of short sales and/or deeds-in-lieu to avoid foreclosure. Last month, 

the Administration approved $1.5 billion in HFA funding for the 

top five states most affected by the decline in housing prices. 

F. Metrics 

Each month, the Panel’s report highlights a number of metrics 

that the Panel and others, including Treasury, the Government Accountability Office (GAO), Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and the Financial Stability 

Oversight Board, consider useful in assessing the effectiveness of 

the Administration’s efforts to restore financial stability and accomplish the goals of EESA. This section discusses changes that have 

occurred in several indicators since the release of the Panel’s July 

report and includes two additional indicators that aid in understanding the international aspects of the financial crisis. • Financial Indices. Since its post-crisis trough in April 2010, 

the St. Louis Financial Stress Index has increased over elevenfold, 

although it has fallen by a third since the Panel’s July report.488


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struction of this index, see Federal Reserve Bank of St. Louis, National Economic Trends Appendix: The St. Louis Fed’s Financial Stress Index (Jan. 2010) (online at research.stlouisfed.org/publications/net/NETJan2010Appendix.pdf) (accessed Aug. 5, 2010). 489Data accessed through Bloomberg data service on August 5, 2010. 

The recent trend suggests that financial stress continues moving 

towards its long-run norm. The index has decreased over three 

standard deviations from the starting date of EESA in October 

2008, indicating better overall financial health since the initiation 

of TARP. 

FIGURE 25: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX 

Volatility has decreased of late. The Chicago Board Options Exchange Volatility Index (VIX) has fallen about 25 percent since the 

COP July report, although the level is still higher than its post-crisis low on April 12, 2010. 

FIGURE 26: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX 489


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490Data accessed through Bloomberg data service on August 3, 2010. 493 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release 

H.15: Selected Interest Rates: Historical Data (Instrument: Conventional Mortgages, Frequency: 

Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/ 

H15_MORTG_NA.txt) (hereinafter ‘‘Federal Reserve Statistical Release H.15’’) (accessed Aug. 5, 

2010). 494Federal Reserve Bank of Minneapolis, Measuring Perceived Risk—The TED Spread (Dec. 

2008) (online at www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4120). 495Data accessed through Bloomberg data service on Aug. 5, 2010. 

1. Interest Rates and Spreads 

• LIBOR Rates. As of August 6, 2010, the 3-month and 1- 

month London Interbank Offer Rates (LIBOR), the prices at 

which banks lend and borrow from each other, were 0.411 and 

0.293, respectively. Although they had increased significantly 

in the three preceding months, there has been a slight easing 

in these rates since the Panel’s July Report. This may reflect 

the results of the European bank stress test. Over the longer 

term, rates remain heightened relative to pre-crisis levels.490

FIGURE 27: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF AUGUST 6, 2010) 

Indicator Current Rates 

(as of 8/6/2010) 

Percent Change from Data 

Available at Time of Last Report (6/24/2010) 

3-Month LIBOR 491 ......................................................................... .411 (15.5) 

1-Month LIBOR 492 ......................................................................... .293 (23.4) 

491 Data accessed through Bloomberg data service on August 3, 2010. 492 Data accessed through Bloomberg data service on August 3, 2010. 

Since the Panel’s July report, interest rate spreads have generally fallen slightly. Thirty-year mortgage interest rates and 10- 

year Treasury bond yields have both declined recently and the conventional mortgage spread, which measures the 30-year mortgage 

rate over 10-year Treasury bond yields, has fallen very slightly 

since late June as well.493

The TED spread, which serves as an indicator for perceived risk 

in the financial markets, fell slightly since June as compared to 

nearly doubling over the month of May.494 The LIBOR–OIS spread 

reflects the health of the banking system. While it increased over 

threefold from early April to July, it has fallen by almost a third 

since peaking in mid-July.495 Decreases in the LIBOR–OIS spread 

and the TED spread suggest that hesitation among banks to lend 

to counterparties is receding. 

The interest rate spread for AA asset-backed commercial paper, 

which is considered mid-investment grade, has fallen by about 

fourteen percent since the Panel’s July report. The interest rate 

spread on A2/P2 commercial paper, a lower grade investment than 

AA asset-backed commercial paper, has fallen by over a quarter 

since the Panel’s July report. 


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FIGURE 28: INTEREST RATE SPREADS 

Indicator Current Spread 

(as of 7/31/2010) 

Percent Change 

Since Last Report 

(7/1/2010) 

Conventional mortgage rate spread 496 .......................................................... 1.52 (1.9) 

TED Spread (basis points) .............................................................................. 26.41 (27.3) 

Overnight AA asset-backed commercial paper interest rate spread 497 ........ 0.11 (14.1) 

Overnight A2/P2 nonfinancial commercial paper interest rate spread 498 .... 0.19 (28.1) 

496 Federal Reserve Statistical Release H.15, supra note 493; Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.15: Selected Interest Rates: Historical Data (Instrument: U.S. Government Securities/Treasury Constant Maturities/Nominal 10-Year, 

Frequency: Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt) (accessed Aug. 5, 2010). 497 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: AA Asset-Backed Discount Rate, Frequency: Daily) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Aug. 5, 2010); Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: AA Nonfinancial Discount Rate, 

Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Aug. 5, 2010). In order to provide a more complete comparison, this metric utilizes the average of the interest rate spread for the last five days of the month. 498 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: A2/P2 Nonfinancial Discount Rate, Frequency: Daily) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Aug. 5, 2010). In order to provide a more complete comparison, this metric utilizes the average of the interest rate spread for the last five days of the month. 


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499Data accessed through Bloomberg data service on Aug. 3, 2010. 500Data accessed through Bloomberg data service on Aug. 6, 2010. 

FIGURE 29: TED SPREAD 499

FIGURE 30: LIBOR-OIS SPREAD 500

• Corporate Bond Spread. The spread between Moody’s Baa 

Corporate Bond Yield Index and 30-year constant maturity 

U.S. Treasury Bond yields doubled from late April to mid-June. 

However, since mid-June, the trend has reversed and the 

spread has fallen about fifteen percent. This spread indicates 

the difference in perceived risk between corporate and government bonds, and a declining spread could indicate waning concerns about the riskiness of corporate bonds. 


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501Federal Reserve Bank of St. Louis, Series DGS30: Selected Interest Rates (Instrument: 30- 

Year Treasury Constant Maturity Rate, Frequency: Daily) (online at research.stlouisfed.org/ 

fred2/) (accessed June 28, 2010). Corporate Baa rate data accessed through Bloomberg data 

service on June 25, 2010. 502 RealtyTrac, Foreclosure Activity Press Releases (Nov. 13 2008) (online at 

www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=5420). 503 RealtyTrac, Foreclosure Activity Press Releases (June 30, 2010) (online at 

www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=9438). 504Sales of new homes in May were 276,000, the lowest rate since 1963. U.S. Census Bureau 

and U.S. Department of Housing and Urban Development, New Residential Sales in June 2010 

(July 26, 2010) (online at www.census.gov/const/newressales.pdf); U.S. Census Bureau, New Residential Sales—New One-Family Houses Sold (online at www.census.gov/ftp/pub/const/ 

sold_cust.xls) (accessed Aug. 10, 2010). 505Most recent data available for May 2010. See Standard and Poor’s, S&P/Case-Shiller 

Home Price Indices, (Instrument: Case-Shiller 20-City Composite Seasonally Adjusted, Frequency: Monthly) (online at www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff-p-us---) (hereinafter ‘‘S&P/Case-Shiller Home Price Indices’’) 

(accessed Aug. 5, 2010); Federal Housing Finance Agency, U.S. and Census Division Monthly 

Purchase Only Index (Instrument: USA, Seasonally Adjusted) (online at www.fhfa.gov/webfiles/ 

15669/MonthlyIndex_Jan1991_to_Latest.xls) (accessed Aug. 5, 2010) (hereinafter ‘‘FHFA Housing Price Index Data’’). S&P has cautioned that the seasonal adjustment is probably being distorted by irregular factors. These distortions could include distressed sales and the various government programs. See Standard and Poor’s, S&P/Case-Shiller Home Price Indices and Seasonal Adjustment, S&P Indices: Index Analysis (Apr. 2010). 

FIGURE 31: MOODY’S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY 

YIELD 501

• Housing Indicators. Foreclosure actions, which consist of default notices, scheduled auctions, and bank repossessions, 

dropped 2 percent in May to 313,841. This metric is over 12 

percent above the foreclosure action level at the time of the 

EESA enactment.502 Foreclosure sales accounted for 31 percent 

of all residential sales in the first quarter of 2010.503 Sales of 

new homes rose slightly to 330,000, but remain extremely 

low.504 Both the Case-Shiller Composite 20-City Composite as 

well as the FHFA Housing Price Index increased slightly in 

May 2010. The Case-Shiller and FHFA indices are 6 percent 

and 3 percent, respectively, below their levels of October 

2008.505

Additionally, Case-Shiller futures prices indicate a market expectation that home-price values will stay constant or decrease 


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506Data accessed through Bloomberg data service on Aug. 5, 2010. The Case-Shiller Futures 

contract is traded on the CME and is settled to the Case-Shiller Index two months after the 

previous calendar quarter. For example, the February contract will be settled against the spot 

value of the S&P Case-Shiller Home Price Index values representing the fourth calendar quarter 

of the previous year, which is released in February one day after the settlement of the contract. 

Note that most close observers believe that the accuracy of these futures contracts as forecasts 

diminishes the farther out one looks. 510 All data normalized to 100 at January 2000. Futures data accessed through Bloomberg 

data service on August 6, 2010. S&P/Case-Shiller Home Price Indices, supra note 505. 

through the end of 2010.506 These futures are cash-settled to a 

weighted composite index of U.S. housing prices, as well as to specific markets in 10 major U.S. cities, and are used both to hedge, 

by businesses whose profits and losses are related to any area of 

the housing industry, and to balance portfolios by businesses seeking exposure to an uncorrelated asset class. As such, futures prices 

are a composite indicator of market information known to date and 

can be used to indicate market expectations for home prices. 

FIGURE 32: HOUSING INDICATORS 

Indicator Most Recent 

Monthly Data 

Percent Change 

from Data Available 

at Time of Last 

Report 

Percent 

Change Since 

October 2008 

Monthly foreclosure actions 507 ...................................... 313,841 (1.9) 12.3 

S&P/Case-Shiller Composite 20 Index 508 ...................... 147.3 1.1 (5.7) 

FHFA Housing Price Index 509 ......................................... 196.0 0.5 (3.0) 

507 RealtyTrac, Foreclosures (online at www.realtytrac.com/home/) (accessed Aug. 6, 2010). Most recent data available for June 2010. 508 S&P/Case-Shiller Home Price Indices, supra note 505. Most recent data available for May 2010. 509 FHFA Housing Price Index Data, supra note 505. Most recent data available for May 2010. 

FIGURE 33: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES 510

• International Indicators. The crisis, while originating in the 

U.S. housing market, spread rapidly through the international 

financial system and resulted in recessions of varying degrees 

worldwide. While developing countries’ growth rates fell steeply but never dropped below zero, the U.S. contraction was of 

less depth and less duration than those of the Euro area, 

United Kingdom, and Japan. 


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511 International Monetary Fund, WEO Database: April 2010 (Instrument: Gross Domestic 

Product, Constant Prices, Percent Change, Frequency: Annual) (online at www.imf.org/external/ 

pubs/ft/weo/2010/01/weodata/index.aspx) (accessed Aug. 10, 2010). 512Federal Reserve Bank of St. Louis, Series BOPIN: Foreign Assets in the U.S.: Net, Capital 

Inflow {+} (Instrument: U.S. International Transactions, Frequency: Quarterly) (online at 

www.research.stlouisfed.org) (accessed Aug. 10, 2010). 

FIGURE 34: PERCENT CHANGE IN GDP, CONSTANT PRICES 511

Foreign investment in the United States was at historically high 

levels pre-crisis. However, as the risk associated with U.S. 

subprime assets became known in the summer of 2007, this reversed drastically, with record outflow numbers being reached in 

Q1 2009. 

FIGURE 35: FOREIGN ASSETS IN THE UNITED STATES, NET CAPITAL FLOW 512

G. Financial Update 

Each month, the Panel summarizes the resources that the federal government has committed to economic stabilization. The following financial update provides: (1) an updated accounting of the 

TARP, including a tally of dividend income, repayments and warrant dispositions that the program has received as of June 30, 


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513Treasury Transactions Report, supra note 313; U.S. Department of the Treasury, Cumulative Dividends and Interest Report as of June 30, 2010 (July 15, 2010) (online at 

financialstability.gov/docs/dividends-interest-reports/ 

June%202010%20Dividends%20and%20Interest%20Report.pdf) (hereinafter ‘‘Treasury Cumulative Dividends and Interest Report’’). 514The original $700 billion TARP ceiling was reduced by $1.3 billion as part of the ‘‘Helping 

Families Save Their Homes Act of 2009.’’ The authorized total commitment level was later reduced to $475 billion as part of the Frank-Dodd Financial Reform Bill that was signed into law 

on July 21, 2010. 12 U.S.C. § 5225(a)–(b); Helping Families Save Their Homes Act of 2009, Pub. 

L. No. 111–22, § 402(f) (reducing by $1.26 billion the authority for the TARP originally set under 

EESA at $700 billion). On June 30, 2010, the House & Senate Conference Committee agreed 

to reduce the amount authorized under the TARP from $700 billion to $475 billion as part of 

the Dodd-Frank Wall Street Reform and Consumer Protection Act. See Dodd-Frank Wall Street 

Reform and Consumer Protection Act, supra note 162, at § 1302. On July 21, 2010, President 

Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. White 

House, Remarks by the President at Signing of Dodd-Frank Wall Street Reform and Consumer 

Protection Act (online at www.whitehouse.gov/the-press-office/remarks-president-signing-doddfrank-wall-street-reform-and-consumer-protection-act). 

2010; and (2) an updated accounting of the full federal resource 

commitment as of July 28, 2010. 

1. The TARP 

a. Program Snapshot 513

As of July 30, 2010, Treasury was committed to spend up to $475 

billion of TARP funds through an assortment of programs. Of this 

amount, $393.8 billion had been spent under the $475 billion 514

ceiling and $203.9 billion in TARP funds have been repaid. There 

have also been $5.8 billion in losses, leaving $184.1 billion in TARP 

funds currently outstanding. 

During the month of July, Treasury received $377.1 million in 

full repayments from Fulton Financial Corporation and Green City 

Bancshares for its CPP investments. To date, a total of 78 institutions have fully repurchased their CPP preferred shares. Of the institutions that have fully repaid, 39 repurchased their warrants for 

common shares that Treasury received in conjunction with its preferred stock investments. Treasury sold the warrants for common 

shares for 13 other institutions at auction. 

In total, $22.9 billion in income has been earned by the TARP 

through warrant repurchases, additional notes, dividends and interest paid on investments. For further information on TARP profit 

and loss, please see Figure 37. 

b. Program Updates 

Dodd-Frank Wall Street Reform and Consumer Protection Act 

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. As part of this legislation, the ceiling on the amount of TARP funds that can be allocated 

to programs was reduced from $698.7 billion to $475 billion. While 

a large portion of the savings can be taken from unallocated funds, 

there were several notable program changes. The Small Business 

Lending Fund (SBLF), a proposed $30 billion TARP program that 

was never launched, was eliminated. The Term Asset-Backed Securities Loan Facility (TALF) program was reduced $15.7 billion from 

the $20 billion committed, leaving $4.3 billion in TARP funds comVerDate Mar 15 2010 22:17 Aug 25, 2010 Jkt 057731 PO 00000 Frm 00120 Fmt 6602 Sfmt 6602 E:\HR\OC\A731.XXX A731

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515The TARP’s commitment to the TALF program has been 1:10 ratio of the Federal Reserve 

obligation. The Treasury is responsible for reimbursing the Federal Reserve for loan-losses associated with the program. At the time of the TARP program reductions, $43 billion in loans were 

outstanding under the TALF program. Therefore, as of August 10, 2010 the TARP commitment 

to the TALF program was $4.3 billion. 516The $4.4 billion reduction from the $50 billion previously available to HAMP includes $1.3 

billion in funds allocated for the ‘‘Helping Families Save Their Homes Act of 2009’’ (a reduction 

taken in May 2009 which also reduced the TARP ceiling from $700 billion to $698.7 billion) and 

$3.1 billion in HAMP taken in July 2010 in conjunction with the Dodd-Frank Wall Street Reform and Consumer Protection Act’s imposition of a new $475 billion TARP ceiling. 517 As of July 30, 2010, 2.6 million shares of Treasury’s Citigroup stock have been sold with 

net proceeds of $2.03 billion as compared to the $8.5 billion cost to Treasury for these shares. 

Treasury Transactions Report, supra note 313. 518See, e.g., Securities Purchase Agreement for Public Institutions, supra note 306. 

mitted to the TALF.515 The ceiling for the Public-Private Investment Program (PPIP) was reduced by $8 billion, leaving $22.4 billion in TARP funds committed to the program. Treasury also reduced the $48.8 billion in TARP funds dedicated to foreclosure 

mitigation efforts by $3.2 billion. For further detail on TARP reductions, please see Figure 36 below. 

TARP Foreclosure Mitigation Efforts 

Treasury has reduced its intended total allocation for the foreclosure mitigation programs by only $3.2 billion, from $48.8 billion 

to $45.6 billion. The revised program total of $45.6 billion is comprised of $11 billion for the FHA Refinance Program, $4.1 billion 

for the HFA Hardest Hit Fund and $30.6 billion for the remaining 

Making Home Affordable (MHA) programs.516

Citigroup Stock Sale 

On July 23, 2010, the Treasury Department authorized Morgan 

Stanley, as its sales agent, to sell another block of up to 1.5 billion 

shares of Citigroup stock that Treasury received through its CPP 

investment in Citigroup. Treasury first sold 1.5 billion shares of 

Citigroup stock between April 26 and May 26, 2010 at a weighted 

price of $4.12. During the second sale period, May 26 to June 30, 

2010, only 1.1 billion of the 1.5 billion shares authorized for sale 

were sold at a weighted price of $3.90. A third selling period 

opened on July 23, 2010. Treasury intends to sell another 1.5 billion shares by September 30, 2010. Thus far, Treasury has earned 

a 24 percent premium on the Citigroup shares it has sold at market.517

c. Income: Dividends, Interest, Repayments, and Warrant Sales 

As of July 30, 2010, a total of 78 institutions have completely repurchased their CPP preferred shares. Of these institutions, 39 

have repurchased their warrants for common shares that Treasury 

received in conjunction with its preferred stock investments; Treasury sold the warrants for common shares for 13 other institutions 

at auction. Bar Harbor Bancshares and Discover Financial Services 

repurchased their warrants for $250,000 and $172 million, respectively. In addition, Treasury receives dividend payments on the 

preferred shares that it holds, usually five percent per annum for 

the first five years and nine percent per annum thereafter.518 To 

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519Treasury Cumulative Dividends and Interest Report, supra note 513; Treasury Transactions Report, supra note 313. Treasury also received an additional $1.2 billion in participation 

fees from its Guarantee Program for Money Market Funds. 

come from warrant repurchases, dividends, interest payments and 

other considerations deriving from TARP investments.519

d. TARP Accounting 

FIGURE 36: TARP ACCOUNTING (AS OF JULY 30, 2010) 

[Dollars in billions] xi

Program 

Original 

Program 

Commitment 

Dodd-Frank 

Program 

Adjustments 

Current 

Maximum 

Amount 

Available 

Actual 

Funding 

Total Repayments/ 

Reduced 

Exposure 

Total 

Losses 

Funding 

Currently 

Outstanding 

Funding 

Available 

Capital Purchase 

Program (CPP) $204.9 $0 $204.9 $204.9 xii ($147.3) xiii ($2.3) $55.3 $0 

Targeted Investment Program 

(TIP) ............... 40.0 0 40.0 40.0 (40.0) 0 0 0 

Asset Guarantee 

Program (AGP) 5.0 0 5.0 5.0 xiv (5.0) 0 0 0 

AIG Investment 

Program 

(AIGIP) ............ 69.8 0 69.8 xv 49.1 0 0 49.1 20.7 

Auto Industry Financing Program (AIFP) .... 81.3 0.1 81.4 81.3 (10.8) xvi (3.5) 67 0 

Auto Supplier 

Support Program 

(ASSP) xvii ...... 3.5 (3.1) 0.4 0.4 (0.4) 0 0 0 

Term 

Asset-Backed 

Securities Loan 

Facility (TALF) 20.0 (15.7) xviii 4.3 xix 0.1 0 0 0.1 4.2 

Public-Private Investment Program (PPIP) xx 30.4 (8.0) 22.4 11.0 xxi (0.4) 0 10.6 11.8 

Small Business 

Lending Fund 

(SBLF) ............ 30.0 xxii (30.0) N/A N/A N/A N/A N/A N/A 

SBA 7(a) Securities Purchase 1 (0.6) xxiii 0.4 0.23 0 0 0.23 0.17 

Home Affordable 

Modification 

Program 

(HAMP) ........... xxiv 46.7 xxv (16.2) 30.5 0.25 0 0 0.25 30.25 

Hardest Hit Fund 

(HHF) .............. 2.1 2.0 xxvi 4.1 1.5 0 0 1.5 2.6 

FHA Refinance 

Program ......... 0 xxvii 11.0 11.0 0 0 0 0 11 

Community Development 

Capital Initiative (CDCI) ..... 0.8 0 xxviii 0.8 0.04 0 0 0.04 0.76 

Total .......... xxix 535.5 ($60.5) $475 393.82 (203.9) (5.8) 184.12 81.48 

xi U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending July 30, 2010 (Aug. 3, 2010) (online at www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xiiTotal amount repaid under CPP includes $8.5 billion Treasury received as part of its sales of Citigroup common stock. As of July 30, 

2010, Treasury has sold 2.6 billion Citigroup common shares for $10.5 billion in gross proceeds. 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. Therefore, Treasury received $2 billion 

in net proceeds from the sale of Citigroup common stock. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report 

for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). Total CPP repayments also 

includes amounts repaid by institutions that exchanged their CPP investments for investments under the Community Development Capital Initiative. For more details on the companies who are now participating in the CDCI, see footnote xviii. 


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xiiiTreasury has classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 

million), as losses on the Transactions Report. Therefore, Treasury’s net current CPP investment is $55.3 billion due to the $2.3 billion in 

losses thus far. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 

3, 2010) (online at www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xiv Although this $5 billion is no longer exposed as part of the AGP and is accounted for as available, 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 36. xv AIG has completely utilized the $40 billion made available on November 25, 2008 and drawn down $7.54 billion of the $29.8 billion 

made available on April 17, 2009. This figure also reflects $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. American International Group, Inc., Form 

10–K for the Fiscal Year Ending December 31, 2009, at 45 (Feb. 26, 2010) (online at 

www.sec.gov/Archives/edgar/data/5272/000104746910001465/a2196553z10-k.htm); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending July 30, 2010, at 20 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xviThe $1.9 billion settlement payment represents a $1.6 billion loss on Treasury’s Chrysler Holding Investment. This amount is in addition 

to losses connected to the $1.9 billion loss from the $4.1 billion debtor-in-possession credit facility, or Chrysler DIP Loan. 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.financialstability.gov/latest/pr_05172010c.html). xvii On April 5, 2010 and April 7, 2010, Treasury’s commitment to lend to the GM SPV and the Chrysler SPV respectively under the ASSP 

ended. 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 Period Ending July 30, 2010, at 19 (Aug. 3, 2010) (online 

at www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xviiiThe TARP’s commitment to the TALF program has been 1:10 ratio of the Federal Reserve obligation. The program was originally 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 is 

incrementally funded. At the time of the TARP program reductions, $43 billion in loans was outstanding under the TALF program. Therefore, 

as of July 30, 2010, the TARP commitment to the TALF program was $4.3 billion, representing 10 percent of the total program size. The Federal Reserve Board of Governors agreed that it was appropriate for Treasury to reduce TALF credit protection 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). xix As of July 28, 2010, Treasury provided $105 million to TALF LLC. This total includes accrued payable interest. Federal Reserve Bank of 

New York, Factors Affecting Reserve Balances (H.4.1) (July 29, 2010) (online at www.federalreserve.gov/releases/h41/). xx On July 19, 2010, Treasury released its third quarterly report on the Legacy Securities Public-Private Investment Partnership. As of June 

30, 2010, the total value of assets held by the PPIP managers was $16 billion. Of this total, 85 percent was non-agency Residential 

Mortgage-Backed Securities and the remaining 15 percent was Commercial Mortgage-Backed Securities. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, Program Update—Quarter Ended March 31, 2010 (Apr. 20, 2010) (online at 

www.financialstability.gov/docs/External%20Report%20-%2003-10%20Final.pdf). xxi As of July 30, 2010, $368 million in capital repayments had been made by PPIP participants. U.S. Department of the Treasury, Troubled 

Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxii As part of the TARP commitment reductions detailed by Treasury, the full $30 billion dedicated to the SBLF was eliminated and the 

program no longer exists under the TARP. Panel staff discussions with Treasury staff. xxiii In July, Treasury made $41 million in additional purchases under the SBA 7(a) Securities Purchase Program. As of July 30, 2010,

Treasury’s purchases totaled $206 million. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending July 30, 2010, at 19 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxiv The original funding amount allotted for the Home Affordable Modification Program (HAMP) was $50 billion. In May 2009, this amount 

was reduced by $1.3 billion as part of the ‘‘Helping Families Save Their Homes Act of 2009.’’ Panel staff discussions with Treasury staff. xxv The overall reduction in HAMP funding reflects $11 billion in funds redirected towards the FHA refinance program, $2 billion in funds 

that will be used as part of the Hardest Hit Fund (HHF) expansion for unemployed borrowers, $1.3 billion in spending authority that was reallocated as part of the ‘‘Helping Families Save Their Homes Act of 2009,’’ (see footnote xiv) and $3.1 billion in general program reductions. 

Panel staff discussions with Treasury staff. xxvi As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, an additional $2 billion in TARP funds was committed to 

mortgage assistance for unemployed borrowers. Panel staff discussions with Treasury staff. xxvii Panel staff discussions with Treasury staff. xxviii On July 30, 2010, Guaranty Capital Corporation and University Financial Corp, Inc. exchanged their subordinated debenture investments from the CPP for an equivalent investment amount under the Community Development Capital Initiative (CDCI). Treasury made an additional $10.2 million investment in University Financial Corp, Inc. as part of the company’s exchange. As of July 30, 2010, Treasury’s total 

current investment under the CDCI is $36.1 million. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

Period Ending July 30, 2010, at 19 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxix Last month, the Panel reported that committed funds under TARP were $520.3 billion. Treasury’s accounting for ‘‘total planned investments’’ as of June 30, 2010 was $536.6 billion. These two totals differ because the Panel’s accounting of Treasury commitments for Consumer and Business Lending Initiative programs included $20 billion for TALF, $15 billion for Unlocking SBA Lending, and $780 million for 

the CDCI. Treasury recorded $20 billion for TALF, $30 billion for the Small Business Lending Fund, and $1 billion each for the CDCI and the 

SBA 7(a) securities purchase program. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—June 2010 

(July 12, 2010) (online at financialstability.gov/docs/105CongressionalReports/June%202010%20105(a)%20Report_Final.pdf); Congressional 

Oversight Panel, July Oversight Report: Small Banks in the Capital Purchase Program, at 112 (July 14, 2010) (online at 

cop.senate.gov/documents/cop-071410-report.pdf). 


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FIGURE 37: TARP PROFIT AND LOSS 

[Dollars in millions] 

TARP Initiative 

Dividendsxxx

(as of 

6/30/10) 

Interest xxi

(as of 

6/30/10) 

Warrant Repurchasesxxii

(as of 

7/30/10) 

Other 

Proceeds 

(as of 

6/30/10) 

Lossesxxiii

(as of 

7/30/10) 

Total 

Total .................................... $15,858 $884 $7,214 $4,719 ($5,822) $22,853 

CPP ..................................... 9,428 38 5,943 xxxiv 2,026 (2,334) 15,101 

TIP ....................................... 3,004 – 1,256 – .................... 4,260 

AIFP ..................................... xxxv 3,060 802 15 – (3,488) 389 

ASSP ................................... – 15 – xxvi 101 .................... 116 

AGP ..................................... 366 – 0 xxxvii 2,234 .................... 2,600 

PPIP .................................... – 29 – xxxviii 82 .................... 110 

Bank of America Guarantee – – – xxxix 276 .................... 276 

xxx U.S. Department of the Treasury, Cumulative Dividends and Interest Report as of June 30, 2010 (July 15, 2010) (online at 

financialstability.gov/docs/dividends-interest-reports/June%202010%20Dividends%20and%20Interest%20Report.pdf). xxxi Id. xxxii U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) 

(online at www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxxiiiTreasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 mil- lion), as losses on the Transactions Report. A third institution, UCBH Holdings, Inc., received $299 million in TARP funds and is currently in 

bankruptcy proceedings. Finally, as of May 26, 2010, the banking subsidiary of TARP recipient Midwest Banc Holdings, Inc. ($89.4 million) 

was in receivership. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending July 30, 2010 

(Aug. 3, 2010) (online at www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxxiv This figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. The net proceeds account for Treas- ury’s exchange in June 2009 of $25 billion in Citigroup preferred shares for 7.7 billion shares of the company’s common stock at $3.25 per 

share. On May 26, 2010, Treasury completed the sale of 1.5 billion shares of Citigroup common stock at an average weighted price of $4.12 

per share. On June 30, 2010, Treasury announced the sale of 1,108,971,857 additional shares of Citigroup stock at an average weighted price 

of $3.90 per share. Treasury opened a third selling period on July 23, 2010, with plans to sell another 1.5 billion shares by September 30, 

2010. As of July 30, 2010, Treasury has received $10.5 billion in gross proceeds from these sales. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxxv This figure includes $815 million in dividends from GMAC preferred stock, trust preferred securities, and mandatory convertible preferred 

shares. The dividend total also includes a $748.6 million senior unsecured note from Treasury’s investment in General Motors. Information provided by Treasury. xxxviThis represents the total proceeds from additional notes. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxxvii As a fee for taking a second-loss position 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, Treasury cancelled $1.8 billion of the trust preferred securities, leaving 

Treasury with a $2.23 billion investment in Citigroup trust preferred securities in exchange for the guarantee. At the end of Citigroup’s participation in the FDIC’s TLGP, the FDIC may transfer $800 million of $3.02 billion in Citigroup Trust Preferred Securities it received in consid- eration for its role in the AGP to Treasury. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period 

Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxxviii As of June 30, 2010, Treasury has earned $61.1 million in membership interest distributions from the PPIP. Additionally, Treasury has 

earned $20.6 million in total proceeds following the termination of the TCW fund. U.S. Department of the Treasury, Cumulative Dividends and Interest Report as of June 30, 2010 (July 15, 2010) (online at 

financialstability.gov/docs/dividends-interest-reports/June%202010%20Dividends%20and%20Interest%20Report.pdf); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xxxix 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.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-%20executed.pdf). 

e. Rate of Return 

As of August 4, 2010, the average internal rate of return for all 

public financial institutions that participated in the CPP and fully 

repaid the U.S. government (including preferred shares, dividends, 

and warrants) was 9.9 percent. The internal rate of return is the 

annualized effective compounded return rate that can be earned on 

invested capital. 


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f. Warrant Disposition 

FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY 

REPAID CPP FUNDS AS OF AUGUST 4, 2010 

Institution Investment Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/Sale 

Amount 

Panel’s Best 

Valuation 

Estimate at Repurchase 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 

JP Morgan 

Chase & Co. 10/28/2008 12/10/2009 950,318,243 1,006,587,697 0.944 10.9 


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FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY 

REPAID CPP FUNDS AS OF AUGUST 4, 2010—Continued 

Institution Investment Date 

Warrant 

Repurchase Date 

Warrant Repurchase/Sale Amount 

Panel’s Best 

Valuation Estimate at Repur- chase Date 

Price/ 

Estimate 

Ratio 

IRR 

Percent 

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 .............. 520 10/28/2008; 

521 1/9/2009; 522 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 


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FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY 

REPAID CPP FUNDS AS OF AUGUST 4, 2010—Continued 

Institution Investment Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/Sale 

Amount 

Panel’s Best 

Valuation 

Estimate at Repurchase Date 

Price/ 

Estimate 

Ratio 

IRR 

Percent 

Sterling Bancshares, Inc./ 

Sterling 

Bank ........... 12/12/2008 6/9/2010 3,007,891 5,287,665 0.569 10.8 

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 

Total ...... .............................. .................... $7,198,328,217 $7,314,904,102 0.984 9.9 

520 Investment date for Bank of America in CPP. 521 Investment date for Merrill Lynch in CPP. 522 Investment date for Bank of America in TIP. 

FIGURE 39: VALUATION OF CURRENT HOLDINGS OF WARRANTS AS OF AUGUST 4, 2010 

[Dollars in millions] 

Stress Test Financial Institutions with Warrants Outstanding 

Warrant Valuation 

Low 

Estimate 

High 

Estimate 

Best 

Estimate 

Citigroup ................................................................................................................. $18.37 $1,132.91 $121.87 

SunTrust Banks, Inc. .............................................................................................. 18.17 357.33 133.59 

Regions Financial Corporation ................................................................................ 14.04 227.13 83.66

Fifth Third Bancorp ................................................................................................. 105.62 404.39 195.68 

Hartford Financial Services Group, Inc. ................................................................. 418.43 768.39 514.10 

KeyCorp ................................................................................................................... 24.13 178.94 76.01 

AIG ........................................................................................................................... 303.91 1,873.31 1,093.38 

All Other Banks ....................................................................................................... 738.31 1,860.14 1,158.34 

Total ............................................................................................................... $1,640.98 $6,802.54 $3,376.62 

2. Federal Financial Stability Efforts 

a. Federal Reserve and FDIC Programs 

In addition to the direct expenditures Treasury has undertaken 

through the TARP, the federal government has engaged in a much 

broader program directed at stabilizing the U.S. financial system. 

Many of these initiatives explicitly augment funds allocated by 

Treasury under specific TARP initiatives, such as FDIC and Federal Reserve asset guarantees for Citigroup, or operate in tandem 

with Treasury programs, such as the interaction between PPIP and 

TALF. Other programs, like the Federal Reserve’s extension of 

credit through its Section 13(3) facilities and SPVs and the FDIC’s 

Temporary Liquidity Guarantee Program, operate independently of 

the TARP. 

b. Total Financial Stability Resources 

Beginning in its April 2009 report, the Panel broadly classified 

the resources that the federal government has devoted to stabilizing the economy through myriad new programs and initiatives as 

outlays, loans, or guarantees. With the reductions in funding for 


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523 November Oversight Report, supra note 68, at 36. 

certain TARP programs, the Panel calculates the total value of 

these resources to be over $2.6 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. 

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 report, the 

FDIC assesses a premium of up to 100 basis points on TLGP debt 

guarantees.523 In contrast, the Federal Reserve’s liquidity programs are generally available only to borrowers with good credit, 

and the loans are over-collateralized 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. The only 

loan currently ‘‘underwater’’—where the outstanding principal loan 

amount exceeds the current market value of the collateral—is the 

loan to Maiden Lane LLC, which was formed to purchase certain 

Bear Stearns assets. 

FIGURE 40: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF JULY 28, 2010) i

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Total ............................................................................... $475 $1,475.7 $702.9 $2,653.6 

Outlays xli .............................................................. 237.6 1,302.6 188.4 1,728.6 

Loans ..................................................................... 24.2 173.1 0 197.2 

Guarantees xlii ....................................................... 4.3 0 514.5 518.8 

Repaid and Unavailable TARP Funds ................... 208.9 0 0 208.9 

AIG xliii ........................................................................... 69.8 89.3 0 159.1 

Outlays .................................................................. xliv 69.8 xlv 25.7 0 95.5 

Loans ..................................................................... 0 xlvi 63.6 0 63.6 

Guarantees ............................................................ 0 0 0 0 

Citigroup ........................................................................ 25 0 0 25 

Outlays .................................................................. xlvii 25 0 0 25 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Purchase Program (Other) .............................. 30.3 0 0 30.3 

Outlays .................................................................. xlviii 30.3 0 0 30.3 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Assistance Program ......................................... N/A 0 0 xlix N/A 

TALF ................................................................................ 4.3 38.7 0 43 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 li 38.7 0 38.7 

Guarantees ............................................................ 1 4.3 0 0 4.3 

PPIP (Loans) lii .............................................................. 0 0 0 0 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 


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FIGURE 40: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF JULY 28, 2010) i— 

Continued 

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

PPIP (Securities) ........................................................... liii 22.4 0 0 22.4 

Outlays .................................................................. 7.5 0 0 7.5 

Loans ..................................................................... 14.9 0 0 14.9 

Guarantees ............................................................ 0 0 0 0 

Making Home Affordable Program/Foreclosure Mitigation ........................................................................ 45.6 0 0 45.6 

Outlays .................................................................. liv 45.6 0 0 45.6 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Automotive Industry Financing Program ..................... lv 67.1 0 0 67.1 

Outlays .................................................................. 59.0 0 0 59.0 

Loans ..................................................................... 8/1 0 0 8.1 

Guarantees ............................................................ 0 0 0 0 

Auto Supplier Support Program ................................... 0.4 0 0 0.4 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... lvi 0.4 0 0 0.4 

Guarantees ............................................................ 0 0 0 0 

SBA 7(a) Securities Purchase ...................................... lvii 0.4 0 0 0.4 

Outlays .................................................................. 0.4 0 0 0.4 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Community Development Capital Initiative ................. lviii 0.78 0 0 0.78 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0.78 0 0 0.78 

Guarantees ............................................................ 0 0 0 0 

Temporary Liquidity Guarantee Program .................... 0 0 514.5 514.5 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 lix 514.5 514.5 

Deposit Insurance Fund ............................................... 0 0 188.4 188.4 

Outlays .................................................................. 0 0 lx 188.4 188.4 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Other Federal Reserve Credit Expansion .................... 0 1,347.7 0 1,347.7 

Outlays .................................................................. 0 lxi 1,276.9 0 1,276.9 

Loans ..................................................................... 0 lxii 70.8 0 70.8 

Guarantees ............................................................ 0 0 0 0 

Repaid TARP Funds ....................................................... lxiii 208.9 0 0 208.9 

xl All data in this figure is as of July 28, 2010, except for information regarding the FDIC’s Temporary Liquidity Guarantee Program (TLGP). 

That data is as of June 30, 2010. xliThe 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 investment 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. xlii Although many of the guarantees may never be exercised or exercised only partially, the guarantee figures included here represent the federal government’s greatest possible financial exposure. xliiiAIG received an $85 billion credit facility from the Federal Reserve Bank of New York (FRBNY) (reduced to $60 billion in November 

2008, to $35 billion in December 2009, and then to $34 billion in May 2010). A Treasury trust received Series C preferred convertible stock in 

exchange for the facility and $0.5 million. The Series C shares amount to 79.9 percent ownership of common stock, minus the percentage 

common shares acquired through warrants. In November 2008, Treasury received a warrant to purchase shares amounting to 2 percent ownership of AIG common stock in connection with its Series D stock purchase (exchanged for Series E noncumulative preferred shares on 

4/17/2009). Treasury also received a warrant to purchase 3,000 Series F common shares in May 2009. Warrants for Series D and Series F 

shares represent 2 percent equity ownership, and would convert Series C shares into 77.9 percent of common stock. However, in May 2009, 

AIG carried out a 20:1 reverse stock split, which allows warrants held by Treasury to become convertible into 0.1 percent common equity. 

Therefore, the total benefit to the Treasury would be a 79.8 percent voting majority in AIG in connection with its ownership of Series C convertible shares. U.S. Government Accountability Office, Troubled Asset Relief Program: Status of Government Assistance Provided to AIG (Sept. 

2009) (GAO–09–975) (online at www.gao.gov/new.items/d09975.pdf). Additional information was also provided by Treasury in response to Panel 

inquiry. xliv This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November 25, 2008, and a $30 billion investment made on April 17, 2009 (less a reduction of $165 million representing bonuses paid to AIG Financial Products employees). As 

of July 12, 2010, AIG had utilized $47.5 billion of the available $69.8 billion under the AIGIP/SSFI. U.S. Department of the Treasury, Troubled 

Assets Relief Program Monthly 105(a) Report—June 2010 (July 12, 2010) (online at 

www.financialstability.gov/docs/105CongressionalReports/June%202010%20105(a)%20Report_Final.pdf). 


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xlv 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 special purpose vehicles, AIA 

Aurora LLC and ALICO Holdings LLC. These SPVs were established to hold the common stock of two AIG subsidiaries: American International 

Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). As of July 28, 2010, the book value of the Federal Reserve 

Bank of New York’s holdings in AIA Aurora LLC and ALICO Holdings LLC was $16.5 billion and $9.3 billion in preferred equity, respectively. 

Hence, the book value of these securities is $25.7 billion, which is reflected in the corresponding table. Federal Reserve Bank of New York, 

Factors Affecting Reserve Balances (H.4.1) (July 29, 2010) (online at www.federalreserve.gov/releases/h41/). xlviThis number represents the full $34 billion that is available to AIG through its revolving credit facility with the FRBNY ($25.1 billion 

had been drawn down as of July 28, 2010) and the outstanding principal of the loans extended to the Maiden Lane II and III SPVs to buy 

AIG assets (as of July 28, 2010, $14.1 billion and $15.5 billion, respectively). The amounts outstanding under the ML2 and ML3 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 taxpayers’ exposure to losses over time. Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (July 29, 2010) (online at www.federalreserve.gov/releases/h41/); Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on 

Credit and Liquidity Programs and the Balance Sheet, at 17 (Oct. 2009) (online at 

www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200910.pdf). On December 1, 2009, AIG entered into an agreement with FRBNY to 

reduce the debt AIG owes FRBNY by $25 billion. In exchange, FRBNY received preferred equity interests in two AIG subsidiaries. This also reduced the debt ceiling on the loan facility from $60 billion to $35 billion. American International Group, Inc., AIG Closes Two Transactions 

That Reduce Debt AIG Owes Federal Reserve Bank of New York by $25 billion (Dec. 1, 2009) (online at 

phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjE4ODl8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1). The maximum available amount from the 

credit facility was reduced from $34.1 billion to $34 billion on May 6, 2010, as a result of the sale of HighStar Port Partners, L.P. Board of 

Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 

17 (May 2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201005.pdf). xlviiTreasury is currently in the process of selling its 7.7 billion shares of Citigroup common shares. See Endnote xxiv, supra (discussing 

the details of the sales of Citigroup common stock to date). U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xlviiiThis figure represents the $204.9 billion Treasury disbursed under the CPP, minus the $25 billion investment in Citigroup identified 

above, $147.3 billion in repayments that are in ‘‘repaid and unavailable’’ TARP funds, and losses under the program. This figure does not 

account for future repayments of CPP investments and dividend payments from CPP investments. U.S. Department of the Treasury, Troubled 

Asset Relief Program Transactions Report for the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). xlix On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC, was in need of further capital from Treasury. GMAC, however, received further funding through the AIFP. Therefore, the Panel considers CAP unused and closed. U.S. Department of the Treasury, Treasury Announcement Regarding the Capital Assistance Program (Nov. 9, 2009) (online at 

www.financialstability.gov/latest/tg_11092009.html). lThis figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of July 28, 2010, TALF LLC had drawn only $105 

million of the available $4.3 billion. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (July 29, 

2010) (online at www.federalreserve.gov/releases/h41/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). On June 30, 2010, the Federal Reserve ceased issuing loans collateralized by newly issued CMBS. As of this date, investors had requested a total of $73.3 billion in 

TALF loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been settled ($12 billion in CMBS and 

$59 billion in non-CMBS). Earlier, it ended its issues of loans collateralized by other TALF-eligible newly issued and legacy ABS on March 31, 

2010. Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and Conditions (online at 

www.newyorkfed.org/markets/talf_terms.html) (accessed Aug. 10, 2010); Term Asset-Backed Securities Loan Facility: CMBS (online at 

www.newyorkfed.org/markets/cmbs_operations.html) (accessed Aug. 10, 2010); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/talf_operations.html) (accessed Aug. 10, 2010). liThis 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 (Feb. 10, 2009) (online at 

www.financialstability.gov/docs/fact-sheet.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 there was only $43 billion in TALF loans outstanding when the program closed, Treasury is currently responsible for reimbursing the Federal Reserve Board up to $4.3 billion in losses from these loans. Thus, the Federal Reserve’s maximum potential exposure under the TALF is $38.7 billion. lii It is unlikely that resources will be expended under the PPIP Legacy Loans Program in its original design as a joint Treasury-FDIC program to purchase troubled assets from solvent banks. See also Federal Deposit Insurance Corporation, FDIC Statement on the Status of the 

Legacy Loans Program (June 3, 2009) (online at www.fdic.gov/news/news/press/2009/pr09084.html); Federal Deposit Insurance Corporation, 

Legacy Loans Program—Test of Funding Mechanism (July 31, 2009) (online at www.fdic.gov/news/news/press/2009/pr09131.html). The sales 

described in these statements do not involve any Treasury participation, and FDIC activity is accounted for here as a component of the FDIC’s 

Deposit Insurance Fund outlays. liii This figure represents Treasury’s final adjusted investment amount in PPIP. As of July 30, 2010, Treasury reported commitments of 

$14.9 billion in loans and $7.5 billion in membership interest associated with PPIP. On January 4, 2010, Treasury and one of the nine fund 

managers, TCW Senior Management Securities Fund, L.P. (TCW), entered into a ‘‘Winding-Up and Liquidation Agreement.’’ Treasury’s final investment amount in TCW totaled $356 million. Following the liquidation of the fund, Treasury’s initial $3.33 billion obligation to TCW was reallocated among the eight remaining funds on March 22, 2010. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). liv Of the $30.5 billion in TARP funding for HAMP, $28.8 billion has been allocated as of July 30, 2010. However, as of June 30, 2010, only 

$247.5 million in non-GSE payments have been disbursed under HAMP. See Endnotes xiv and xv, supra (discussing the details of adjustments 

to TARP funding for HAMP). Disbursement information provided by Treasury staff in response to a Panel inquiry; U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). lv A substantial portion of the total $81.3 billion in loans extended under the AIFP have 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). This figure ($67.1 billion) represents Treasury’s current obligation under the AIFP after repayments and losses. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). lviThis figure represents Treasury’s total adjusted investment amount in the ASSP. U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for Period Ending July 30, 2010 (Aug. 3, 2010) (online at 

www.financialstability.gov/docs/transaction-reports/8-3-10%20Transactions%20Report%20as%20of%207-30-10.pdf). lviiTreasury conversations with Panel staff (July 21, 2010). lviiiThis information was provided by Treasury staff in response to a Panel inquiry. lix This 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. $304.1 billion of debt subject to the guarantee is currently outstanding, 

which represents approximately 59.1 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance 

Under the Temporary Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (June 30, 2010) (online at 

www.fdic.gov/regulations/resources/tlgp/total_issuance06-10.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 TLGP Debt Program (June 30, 2010) (online at www.fdic.gov/regulations/resources/tlgp/fees.html). 


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lx This figure represents the FDIC’s provision for losses to its deposit insurance fund attributable to bank failures in the third and fourth 

quarters of 2008, the first, second, third, and fourth quarters of 2009, and the first quarter of 2010. Federal Deposit Insurance Corporation, 

Chief Financial Officer’s (CFO) Report to the Board: DIF Income Statement (Fourth Quarter 2008) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_4qtr_08/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (Third Quarter 2008) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_08/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (First Quarter 2009) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (Second Quarter 2009) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_2ndqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s 

(CFO) Report to the Board: DIF Income Statement (Third Quarter 2009) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (Fourth Quarter 2009) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_4thqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (First Quarter 2010) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_10/income.html);. This figure includes the FDIC’s estimates of its future losses under 

loss-sharing agreements that it has entered into with banks acquiring assets of insolvent banks during these seven quarters. Under a 

loss-sharing agreement, as a condition of an acquiring bank’s agreement to purchase the assets of an insolvent bank, the FDIC typically 

agrees to cover 80 percent of an acquiring bank’s future losses on an initial portion of these assets and 95 percent of losses of another portion of assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assumption Agreement—Whole Bank, All Deposits—Among 

FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and Compass Bank, at 65–66 (Aug. 21, 2009) (online 

at www.fdic.gov/bank/individual/failed/guaranty-tx_p_and_a_w_addendum.pdf). In information provided to Panel staff, the FDIC disclosed that 

there were approximately $132 billion in assets covered under loss-sharing agreements as of December 18, 2009. Furthermore, the FDIC estimates the total cost of a payout under these agreements to be $59.3 billion. Since there is a published loss estimate for these agreements, 

the Panel continues to reflect them as outlays rather than as guarantees. lxi Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet accounts for these facilities 

under Federal agency debt securities and mortgage-backed securities held by the Federal Reserve. Board of Governors of the Federal Reserve 

System, Factors Affecting Reserve Balances (H.4.1) (online at www.federalreserve.gov/releases/h41/) (accessed Aug. 3, 2010). Although the 

Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting clearly separates its mortgage-related purchasing programs from its liquidity programs. See Board of Governors of the Federal Reserve, Credit and Liquidity Programs and the Balance 

Sheet, at 2 (Nov. 2009) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200911.pdf). 

On September 7, 2008, Treasury announced the GSE Mortgage Backed Securities Purchase Program (Treasury MBS Purchase Program). The 

Housing and Economic Recovery Act of 2008 provided Treasury the authority to purchase Government Sponsored Enterprise (GSE) MBS. Under 

this program, Treasury purchased approximately $214.4 billion in GSE MBS before the program ended on December 31, 2009. As of June 

2010, there was $170.5 billion still outstanding under this program. U.S. Department of the Treasury, MBS Purchase Program: Portfolio by 

Month (online at www.financialstability.gov/docs/June%202010%20Portfolio%20by%20month.pdf) (accessed Aug. 3, 2010). Treasury has received $50.1 billion in principal repayments and $11.8 billion in interest payments from these securities. U.S. Department of the Treasury, 

MBS Purchase Program Principal and Interest Received (online at 

www.financialstability.gov/docs/June%202010%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf) (accessed August 3, 

2010). lxii Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary credit, central bank liquidity 

swaps, primary dealer and other broker-dealer credit, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, net portfolio holdings of Commercial Paper Funding Facility LLC, seasonal credit, term auction credit, and the Term Asset-Backed Securities Loan Facility. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (July 29, 2010) (online at 

www.federalreserve.gov/releases/h41/). lxiii Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, TARP resources cannot be allocated to programs that 

were not established prior to June 25, 2010. Also, any TARP funds that have been repaid may not be used to fund additional TARP commitments. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203, at § 1302 (2010). 


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SECTION THREE: OVERSIGHT ACTIVITIES 

The Congressional Oversight Panel was established as part of 

the Emergency Economic Stabilization Act (EESA) and formed on 

November 26, 2008. Since then, the Panel has produced 21 oversight reports, as well as a special report on regulatory reform, 

issued on January 29, 2009, and a special report on farm credit, 

issued on July 21, 2009. No hearings have been held since the release of the Panel’s July 2010 report. 

Upcoming Reports and Hearings 

The Panel will release its next oversight report in September. 

With the Dodd-Frank financial regulatory overhaul signed into law 

in late July, Treasury’s authority to commit new funds or to establish new programs under the TARP has expired. To accompany this 

official ‘‘end’’ of the TARP, the Panel’s September report will provide a summary view of the TARP’s accomplishments, and shortcomings, since its inception in October 2008, and discuss Treasury’s 

plan for the program in the coming months and years. The Panel’s 

last report to take a broad view of the TARP as a whole was published in December 2009. 


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SECTION FOUR: 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 (OFS) 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 is 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 must oversee Treasury’s actions, assess the impact 

of spending to stabilize the economy, evaluate market transparency, ensure effective foreclosure mitigation efforts, and guarantee that Treasury’s actions are 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. 

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, Sturgill 

Professor of Economics at the University of Kentucky, to fill the vacancy created by the resignation of Paul Atkins on May 21, 2010. 


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