CAPITAL PURCHASE 

PROGRAM

Revenues Have 

Exceeded

Investments, but 

Concerns about 

Outstanding 

Investments Remain

Report to Congressional Committees

March 2012

GAO-12-301

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-301, a report to 

congressional committees 

March 2012 

CAPITAL PURCHASE PROGRAM 

Revenues Have Exceeded Investments, but Concerns 

about Outstanding Investments Remain 

Why GAO Did This Study

The Capital Purchase Program (CPP) 

was established as the primary means 

of restoring liquidity and stability to the 

financial system under the Troubled 

Asset Relief Program (TARP). Under 

CPP, the Department of the Treasury

(Treasury) invested almost $205 billion 

in 707 eligible financial institutions

between 2008 and December 2009. 

CPP recipients have made dividend 

and interest payments to Treasury on 

the investments. TARP’s authorizing 

legislation requires GAO to report 

every 60 days on TARP activities, 

including those of CPP. This report 

examines (1) the status of CPP and (2) 

the financial condition of institutions 

receiving CPP investments. 

GAO reviewed Treasury reports on the 

CPP program and participants and 

interviewed officials from Treasury and 

the financial regulators. Using financial 

and regulatory data, GAO compared 

the financial condition of institutions 

remaining in CPP with those that had 

exited the program and those that did 

not participate in CPP. 

What GAO Recommends

To provide Congress and the public

with more transparent and 

comprehensive information on 

institutions remaining in CPP and 

enhance its reporting, the Secretary of 

the Treasury should consider analyzing

and reporting on remaining and former 

CPP participants separately. Treasury 

stated that it would carefully consider 

our recommendation.

What GAO Found

While repayments, dividends, and interest from institutions participating in the 

Capital Purchase Program (CPP) have exceeded the program’s original 

investment disbursements, the number of missed payments has increased over

the life of the program. As of January 31, 2012, the Department of the Treasury 

(Treasury) had received $211.5 billion from its CPP investments, exceeding the 

$204.9 billion it had disbursed. Of that amount, $16.7 billion remains outstanding, 

and most of these investments were concentrated in a relatively small number of 

institutions. In particular, as of January 31, 2012, 25 institutions accounted for 

$11.2 billion, or 67 percent, of outstanding investments. As of November 30, 

2011, Treasury estimated that CPP would have a lifetime income of $13.5 billion 

after all institutions exited the program. As of January 31, 2012, 341 institutions 

had exited CPP, almost half by repaying CPP with funds from other federal 

programs. Institutions continue to exit CPP, but the number of institutions missing

scheduled dividend or interest payments has increased. For example, as of 

November 30, 2011, the number of institutions that had missed their quarterly 

payments rose to 158, a marked increase from 8 in February 2009, even though 

CPP had fewer participants. The number of CPP institutions designated as 

problem banks—that is, demonstrating financial, operational, or managerial 

weaknesses that threatened their continued financial viability—also rose from 47

in December 2009 to 130 in December 2011. Institutions that continue to miss 

payments and problem institutions may have difficulty ever fully repaying their 

CPP investments.

GAO’s analysis showed that the remaining CPP institutions were financially 

weaker than institutions that had exited the program and institutions that did not 

receive CPP capital. In particular, the remaining CPP institutions tended to be

less profitable and hold riskier assets than other institutions of similar asset size. 

Among other things, they had significantly lower returns on average assets and 

higher percentages of noncurrent loans than former CPP and non-CPP

institutions. They also held less regulatory capital and reserves for covering 

losses. Although GAO’s analysis found differences in the financial health of 

remaining and former CPP institutions, Treasury’s quarterly financial analysis of 

CPP institutions did not distinguish between them. In prior work, GAO has noted 

the importance of providing clear information to Congress and the public about 

the performance of the assistance provided through the various programs within 

the Troubled Asset Relief Program. By distinguishing between remaining and 

former CPP participants, Treasury could provide greater transparency about the 

financial health of institutions remaining in CPP. 

View GAO-12-301. For more information, 

contact A. Nicole Clowers at (202) 512-8678 

or clowersa@gao.gov. 
Page i GAO-12-301 Capital Purchase Program 

Letter 1 

Background 3

Treasury Estimates a Lifetime Gain for CPP, but Concerns about 

Some Investments Remain 8

Remaining CPP Institutions Are Financially Weaker than Former 

CPP and Non-CPP Institutions, but Treasury’s Analysis Does Not 

Show This Difference 19

Conclusions 29

Recommendation for Executive Action 30

Agency Comments and Our Evaluation 30

Appendix I Objectives, Scope, and Methodology 34 

Appendix II Comments from the Office of Financial Stability 37 

Appendix III GAO Contacts and Staff Acknowledgments 39

Table 

Table 1: Median Financial Information on Analysis Population, as 

of December 31, 2011 35

Figures 

Figure 1: Process for Accepting and Approving CPP Applications 7

Figure 2: Status of CPP, as of January 31, 2012 9

Figure 3: Remaining CPP Investments, as of January 31, 2012 10

Figure 4: Remaining Participation in CPP by State, as of 

January 31, 2012 11

Figure 5: Institutions That Received CPP Investments, as of 

January 31, 2012 12

Figure 6: Number of Institutions Missing Scheduled Dividend or 

Interest Payments and Number of Institutions 

Participating in CPP, by Quarter, February 2009 through 

November 2011 15

Figure 7: Number of CPP Institutions on FDIC’s Problem Bank List, 

December 2008 through December 2011 17

Contents 
Page ii GAO-12-301 Capital Purchase Program 

Figure 8: Quarterly Trend of Median Return on Average Assets by 

CPP Status, March 2008 through December 2011 20

Figure 9: Quarterly Trend of Median Net Interest Margin by CPP 

Status, March 2008 through December 2011 21

Figure 10: Quarterly Trend of Median Noncurrent Loan Percentage 

by CPP Status, March 2008 through December 2011 22

Figure 11: Median Loan Composition by CPP Status, as of 

December 31, 2011 23

Figure 12: Quarterly Trend of Median Tier 1 Risk-based Capital 

Ratio by CPP Status, March 2008 through December 2011 25

Figure 13: Quarterly Trend of Median Common Equity Tier 1 Ratio 

by CPP Status, March 2008 through December 2011 26

Figure 14: Quarterly Trend of Median Reserves to Nonperforming 

Loans by CPP Status, March 2008 through December 2011 27

Figure 15: Quarterly Trend of Median Texas Ratio by CPP Status, 

March 2008 through December 2011 28

Abbreviations

CDCI Community Development Capital Initiative

CPP Capital Purchase Program

EESA Emergency Economic Stabilization Act of 2008

FDIC Federal Deposit Insurance Corporation

Federal Reserve Board of Governors of the Federal Reserve System

OCC Office of the Comptroller of the Currency

OFS Office of Financial Stability

OTS Office of Thrift Supervision

SBLF Small Business Lending Fund

TARP Troubled Asset Relief Program

Treasury U.S. Department of the Treasury

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Page 1 GAO-12-301 Capital Purchase Program 

United States Government Accountability Office 

Washington, DC 20548

March 8, 2012

Congressional Committees

From October 2008 through December 2009, the U.S. Department of the 

Treasury (Treasury) invested almost $205 billion in 707 financial 

institutions as part of the government’s efforts to help stabilize U.S. 

financial markets and the economy. These investments were made 

through the Capital Purchase Program (CPP), which was the first and 

largest initiative under the Troubled Asset Relief Program (TARP).1

Specifically, Treasury’s authority under TARP enabled it to buy or 

guarantee up to almost $700 billion of the “troubled assets” that it deemed 

to be at the heart of the crisis, including mortgages, mortgage-backed 

securities, and any other financial instruments, such as equity 

investments.2 Treasury created CPP in October 2008 to provide capital to 

viable financial institutions by using its authority to purchase preferred 

shares and subordinated debt. In return for its investments, Treasury 

received dividend or interest payments and warrants.3

 

1

As authorized by the Emergency Economic Stabilization Act of 2008 (EESA), Pub. L. No. 

110-343, 122 Stat. 3765 (2008), codified at 12 U.S.C. §§ 5201 et seq. EESA was signed 

into law on October 3, 2008, to help stem the worst financial crisis since the 1930s. EESA 

established the Office of Financial Stability within Treasury and provided it with broad, 

flexible authorities to buy or guarantee troubled mortgage-related assets or any other 

financial instruments necessary to stabilize the financial markets. 

The program was 

closed to new investments on December 31, 2009, and since then 

Treasury has continued to oversee its CPP investments and collect 

dividend and interest payments and sell warrants. Some participants have 

repurchased their preferred shares or subordinated debt and exited the 

program with the approval of their primary bank regulators.

2

Section 3(9) of the Emergency Economic Stabilization Act of 2008 (EESA), 12 U.S.C. § 

5202(9). EESA required that the appropriate committees of Congress be notified in writing 

that the Secretary of the Treasury, after consultation with the Chairman of the Board of 

Governors of the Federal Reserve System, had determined that it was necessary to 

purchase other financial instruments to promote financial market stability. EESA originally 

authorized Treasury to purchase or guarantee up to $700 billion in troubled assets. The 

Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, Div. A, 123 Stat. 

1632 (2009), amended EESA to reduce the maximum allowable amount of outstanding 

troubled assets under EESA by almost $1.3 billion, from $700 billion to $698.7 billion.

3

A warrant is an option to buy shares of common stock or preferred stock at a 

predetermined price on or before a specified date. 

 
 

Page 2 GAO-12-301 Capital Purchase Program 

Rather than purchasing troubled mortgage-backed securities and whole 

loans, as initially envisioned under TARP, Treasury used CPP 

investments to strengthen financial institutions’ capital levels. Treasury 

determined that strengthening capital levels was the more effective 

mechanism to help stabilize financial markets, encourage interbank 

lending, and increase confidence in lenders and investors. Treasury 

believed that strengthening the capital positions of viable financial 

institutions would enhance confidence in the institutions themselves and 

the financial system overall and increase the institutions’ capacity to 

undertake new lending and support the economy. Financial institutions 

interested in receiving CPP investments sent their applications directly to 

their primary federal banking regulators, which performed the initial 

evaluations. Institutions were evaluated to determine their long-term 

strength and viability, and weaker institutions were encouraged by their 

regulators to withdraw their applications. Treasury’s Office of Financial 

Stability (OFS), established to implement TARP, made the final decisions, 

although the regulators provided recommendations for approving or 

denying applications. In October 2010, we reported that while Treasury’s 

processes included multiple reviews of CPP applicants, certain 

operational control weaknesses offered “lessons learned” for similarly 

designed programs, such as the Small Business Lending Fund (SBLF).4

This report is based upon our continuing analysis and monitoring of 

Treasury’s activities in implementing the Emergency Economic 

Stabilization Act of 2008 (EESA), which provided us with broad oversight 

authorities for actions taken under TARP and required that we report at 

least every 60 days on TARP activities and performance.5

 

4

SBLF was a $30 billion fund separate from TARP that provided capital to qualified 

community banks and community development loan funds with assets of less than $10 

billion in an effort to encourage small business lending. SBLF provided an option for 

eligible institutions to refinance preferred stock issued to Treasury through CPP or the 

Community Development Capital Initiative under certain conditions. See GAO, Small 

Business Lending Fund: Additional Actions Needed to Improve Transparency and 

Accountability, 

To fulfill our 

statutorily mandated responsibilities, we have been monitoring and 

providing updates on TARP programs, including CPP, and this report 

GAO-12-183 (Washington, D.C.: Dec. 14, 2011).

5

Section 116 of EESA, 122 Stat. at 3783 (codified at 12 U.S.C. § 5226). 
 

Page 3 GAO-12-301 Capital Purchase Program 

expands on that work.6

To assess the status of CPP, we analyzed Treasury’s reports, which 

included the amount of investments outstanding, the number of 

institutions that had repaid their investments, and the amount of dividends 

paid, among other things. We also interviewed Treasury officials 

responsible for the program. To assess the financial condition of 

institutions that received investments under CPP, we used financial and 

regulatory data to compare the financial condition of institutions that 

received CPP investments with those that did not. We determined that the 

financial information we used was sufficiently reliable to assess the 

condition and status of CPP and institutions that participated in the 

program. We also leveraged our past reporting on TARP, as well as that 

of the Special Inspector General for TARP, as appropriate. Appendix I 

has more information on our scope and methodology.

This report examines (1) the status of CPP, 

including repayments and other proceeds, restructuring of investments, 

and timeliness of dividend payments, and (2) the financial condition of 

institutions that received investments under CPP compared with 

institutions that have exited CPP and those that did not participate in the 

program.

We conducted this performance audit from August 2011 to March 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and

conclusions based on our audit objectives.

Created in 2008, CPP was the primary initiative under TARP to help 

stabilize the financial markets and banking system by providing capital to 

qualifying regulated financial institutions through the purchase of senior 

 

6

See, for example, GAO, Troubled Asset Relief Program: Opportunities Exist to Apply 

Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and 

to Improve the Repayment Process, GAO-11-47 (Washington, D.C.: Oct. 4, 2010), and 

Troubled Asset Relief Program: As Treasury Continues to Exit Programs, Opportunities to 

Enhance Communication on Costs Exist, GAO-12-229 (Washington, D.C.: Jan. 9, 2012).

Background
 

Page 4 GAO-12-301 Capital Purchase Program 

preferred shares and subordinated debt.7

Under CPP, qualified financial institutions were eligible to receive an 

investment of between 1 and 3 percent of their risk-weighted assets, up to 

a maximum of $25 billion.

On October 14, 2008, Treasury 

allocated $250 billion of the original $700 billion in overall TARP funds for 

CPP. The allocation was subsequently reduced in March 2009 to reflect 

lower estimated funding needs, as evidenced by actual participation 

rates. The program was closed to new investments on December 31, 

2009.

8 In exchange for the investment, Treasury 

generally received senior preferred shares that would pay dividends at a 

rate of 5 percent annually for the first 5 years and 9 percent annually 

thereafter.9

While CPP was Treasury’s program, federal banking regulators played a 

key role in the application and approval process, receiving and reviewing 

CPP applications, and recommending approval or denial. The banking 

regulators that participated in CPP included:

EESA required that Treasury also receive warrants to 

purchase shares of common or preferred stock or a senior debt 

instrument to further protect taxpayers and help ensure returns on the 

investments. Institutions are allowed to repay CPP investments with the 

approval of their primary federal bank regulator and afterward to 

repurchase warrants at fair market value.

• Board of Governors of the Federal Reserve System (Federal 

Reserve), which supervised and regulated banks that were authorized 

to do business under state charters and that were members of the 

 

7

For purposes of CPP, qualifying financial institutions generally include stand-alone U.S.-

controlled banks and savings associations, as well as bank holding companies and most 

savings and loan holding companies. 

8

Risk-weighted assets are all assets and off-balance-sheet items held by an institution, 

weighted for risk according to the federal banking agencies’ regulatory capital standards. 

In May 2009, Treasury increased the maximum amount of CPP funding that small 

financial institutions (qualifying financial institutions with total assets of less than $500 

million) could receive from 3 to 5 percent of risk-weighted assets. 

9

For S corporations, a federal business type that provides certain tax and other benefits, 

Treasury received subordinated debt rather than preferred shares in order to preserve 

these institutions’ special tax status. The U.S. Internal Revenue Code prohibits S 

corporations from having more than one class of stock outstanding. Interest rates for this 

debt are 7.7 percent for the first 5 years and 13.8 percent for the remaining years.
 

Page 5 GAO-12-301 Capital Purchase Program 

Federal Reserve System, as well as bank and financial holding 

companies;10

• Federal Deposit Insurance Corporation (FDIC), which provided 

primary federal oversight of any state-chartered banks that were not 

members of the Federal Reserve System;

• Office of the Comptroller of the Currency (OCC), which was 

responsible for chartering, regulating, and supervising commercial 

banks with national charters; and

• Office of Thrift Supervision (OTS), which chartered federal savings 

associations (thrifts) and regulated and supervised federal and state 

thrifts and savings and loan holding companies. OTS has since been 

eliminated.11

Treasury, in consultation with the federal banking regulators, developed a 

standardized framework for processing applications and disbursing CPP 

funds (see fig. 1). Treasury encouraged financial institutions that were 

considering applying to CPP to consult with their primary federal bank 

regulators.12

 

10Bank holding companies are entities that own or control one or more U.S. commercial 

banks. Financial holding companies are a subset of bank holding companies that may 

engage in a wider range of activities. 

Eligibility was based on the regulator’s assessment of 

applicants’ strength and viability—as measured by examination ratings, 

financial performance ratios, and other mitigating factors—without taking 

into account the potential impact of TARP funds. Institutions deemed to 

be the strongest, such as those with the highest examination ratings, 

received presumptive approval from the banking regulators, and their 

applications were forwarded to Treasury. Institutions with lower 

examination ratings or other concerns that required further review were 

11The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 

Title III, 124 Stat. 1376, 1520 (2010), eliminated OTS. Rulemaking authority previously 

vested in OTS was transferred to OCC for savings associations and to the Federal 

Reserve for savings and loan holding companies. Supervisory authority was transferred to 

OCC for federal savings associations, to FDIC for state savings associations, and to the 

Federal Reserve for savings and loan holding companies and their subsidiaries, other 

than depository institutions. The transfer of these powers was completed on July 21, 2011, 

and OTS was officially dissolved on October 19, 2011.

12The primary federal regulator is generally the regulator overseeing the lead bank. 

Primary federal regulators of bank holding companies also consult with the Federal 

Reserve.
 

Page 6 GAO-12-301 Capital Purchase Program 

referred to an interagency CPP Council composed of representatives 

from the four banking regulators, with Treasury officials as observers. The 

CPP Council evaluated and voted on the applicants, forwarding to 

Treasury applications that received “approval” recommendations from a 

majority of the council members. Treasury provided guidance to 

regulators and the CPP Council to use in assessing applicants that 

permitted consideration of factors such as signed merger agreements or 

confirmed investments of private capital, among other things, to offset low 

examination ratings or other attributes of weaknesses. Finally, institutions 

that the banking regulators determined to be the weakest and thus 

ineligible for a CPP investment, such as those with the lowest 

examination ratings, received a presumptive denial recommendation.13

The banking regulators or the CPP Council sent recommendations for 

approval to Treasury’s Investment Committee, which was composed of 

three to five senior Treasury officials, including OFS’s Chief Investment 

Officer (who served as the committee chair) and the assistant secretaries 

for financial markets, economic policy, financial institutions, and financial 

stability at Treasury. The Investment Committee could also request 

additional analysis or information in order to clear up any concerns before 

deciding on an applicant’s eligibility. After completing its review, the 

Investment Committee made recommendations to the Assistant Secretary 

for Financial Stability for final approval. Once the Investment Committee 

recommended preliminary approval, Treasury and the approved 

institution initiated the closing process to complete the investment and 

disburse the CPP funds.

 

13For a discussion of our assessment of the CPP approval process, see GAO-11-47. 
 

Page 7 GAO-12-301 Capital Purchase Program 

Figure 1: Process for Accepting and Approving CPP Applications

Note: If the applicant was a bank holding company, an application was submitted to both the 

applicant’s holding company regulator and the regulator of the largest insured depository institution 

controlled by the applicant. 

Nine major financial institutions were initially included in CPP.14

 

14The nine major financial institutions were Bank of America Corporation; Citigroup, Inc.; 

JPMorgan Chase & Co.; Wells Fargo & Company; Morgan Stanley; The Goldman Sachs 

Group, Inc.; The Bank of New York Mellon Corporation; State Street Corporation; and 

Merrill Lynch & Co., Inc. 

These 

institutions did not follow the application process that was ultimately 

developed but were included because Treasury and the federal banking 

regulators considered them essential to the operation of the financial 

system. At the time, these nine institutions held about 55 percent of U.S. 

banking assets and provided a variety of services, including retail, 

wholesale, and investment banking and custodial and processing 

services. According to Treasury officials, the nine financial institutions 

agreed to participate in CPP in part to signal the program’s importance to 

the stability of the financial system. Initially, Treasury approved $125 

billion in capital purchases for these institutions and completed the 
 

Page 8 GAO-12-301 Capital Purchase Program 

transactions with eight of them on October 28, 2008, for a total of $115 

billion. The remaining $10 billion was disbursed after the merger of Bank 

of America Corporation and Merrill Lynch & Co., Inc. was completed in 

January 2009.

Repayments and income from dividends, interest, and warrants from CPP 

investments have exceeded the amounts originally disbursed, but 

concerns remain about the financial strength of the remaining institutions 

and their ability to repay and exit the program. As we have reported, 

Treasury disbursed $204.9 billion to 707 financial institutions nationwide 

from October 2008 through December 2009.15 As of January 31, 2012, 

Treasury had received $211.5 billion in repayments and income from its 

CPP investments, exceeding the amount originally disbursed by $6.6 

billion (see fig. 2).16 The repayments and income amount included $185.5 

billion in repayments of original CPP investments as well as $11.4 billion 

in dividends, interest, and fees; $7.7 billion in warrants sold; and $6.9 

billion in gains from the sale of Citigroup common stock. After accounting 

for write-offs and realized losses totaling $2.7 billion, CPP had $16.7 

billion in outstanding investments as of January 31, 2012. Although this 

$16.7 billion is still potentially at risk, Treasury estimated a lifetime gain of 

$13.5 billion for CPP as of November 30, 2011.17

 

15See GAO-12-229. 

16Treasury, Troubled Asset Relief Program (TARP) Monthly 105(a) Report – January 

2012 (Feb. 10, 2012).

17Treasury estimates lifetime costs on a quarterly basis in conjunction with the Office of 

Management and Budget and publishes them in its monthly 105(a) reports.

Treasury Estimates a 

Lifetime Gain for CPP, 

but Concerns about 

Some Investments 

Remain
 

Page 9 GAO-12-301 Capital Purchase Program 

Figure 2: Status of CPP, as of January 31, 2012

a

The total amount of repayments includes $336 million from institutions that transferred to the 

Community Development Capital Initiative and $2.2 billion from institutions that transferred to the 

Small Business Lending Fund. 

As of January 31, 2012, 52 percent (366) of the original 707 institutions 

remained in CPP. These institutions accounted for $16.7 billion in 

outstanding investments, or 8 percent of the original amount disbursed. 

About two-thirds of the outstanding investments were concentrated in a 

relatively small number of institutions (see fig. 3). Specifically, 25 

remaining CPP investments accounted for $11.2 billion, or 67 percent of 

outstanding investments. In contrast, the remaining $5.5 billion (33 

percent) was spread among 341 institutions.
 

Page 10 GAO-12-301 Capital Purchase Program 

Figure 3: Remaining CPP Investments, as of January 31, 2012

On a geographical basis, outstanding CPP investments were relatively 

widely disbursed throughout the United States as of January 31, 2012. All 

but 3 states and the District of Columbia had at least 1 institution with 

CPP investments outstanding, and 25 states had at least 5 such 

institutions (see fig. 4). California had the highest number of remaining 

CPP institutions with 33, followed by Illinois with 24. These states also 

had the highest number of original CPP recipients (72 and 45, 

respectively). In terms of total CPP investments outstanding, however, 

Alabama had the largest amount ($3.6 billion), followed by Utah ($1.4 

billion), Georgia ($1.4 billion), and Puerto Rico ($1.3 billion).
 

Page 11 GAO-12-301 Capital Purchase Program 

Figure 4: Remaining Participation in CPP by State, as of January 31, 2012

Nearly half (341) of the 707 institutions that originally participated in CPP 

had exited the program as of January 31, 2012. Of the 341 institutions 

that exited CPP, 43 percent, or 146 institutions, exited by fully repaying 

their investments.18

 

18Additionally, 11 institutions have made partial repayments but remain in the program.

Another 48 percent, or 165 institutions, exited CPP by 

exchanging their investments under other federal programs: 28 through 

the Community Development Capital Initiative (CDCI) and 137 through 

Institutions Continue to 

Exit CPP, with Many Using 

SBLF
 

Page 12 GAO-12-301 Capital Purchase Program 

the SBLF program (see fig. 5).19

Figure 5: Institutions That Received CPP Investments, as of January 31, 2012

Finally, of the remaining 9 percent of 

CPP recipients that exited the program, 15 went into bankruptcy or 

receivership, 12 had investments sold by Treasury, and 3 merged with 

another institution.

 

19CDCI is a TARP program that provides capital to Community Development Financial 

Institutions that have a federal depository institution supervisor. The program is structured 

like CPP but expands to credit unions and provides more favorable capital terms. SBLF 

was created by the Small Business Jobs Act of 2010, Pub. L. No. 111-240, 124 Stat. 2504 

(2010), enacted on September 27, 2010. SBLF is a $30 billion capital support program, 

separate from TARP, that encourages small and midsize banks and community 

development loan funds to lend to small businesses. When SBLF closed on September 

27, 2011, the program had approved $4 billion in disbursements to 332 institutions. Of the 

332 institutions participating in SBLF, 137 institutions were originally TARP participants 

with combined investments of $2.2 billion.
 

Page 13 GAO-12-301 Capital Purchase Program 

The number of institutions remaining in the program continues to 

decrease as CPP investments are repaid. However, a growing number of 

the remaining institutions have missed scheduled dividend or interest 

payments or appeared on FDIC’s problem bank list. As a result, there is 

increased concern regarding the speed at which institutions will be able to 

repay remaining funds and how much of these funds Treasury will 

ultimately recover.

The cumulative number of financial institutions that had missed at least 

one scheduled dividend or interest payment by the end of the month in 

which the payments were due rose from 164 as of November 30, 2010, to 

226 as of November 30, 2011.20

The 226 institutions that had missed at least one payment had missed a 

cumulative total of 1,170 payments.

Dividend or interest payments are due 

on a quarterly basis, but institutions can elect whether to pay dividends 

and may choose not to pay for a variety of reasons. For example, the 

institution or its federal and state regulators may decide not to pay 

dividends to conserve cash and maintain (or increase) capital levels. 

Further, institutions are required to pay dividends only if they declare 

dividends, although unpaid cumulative dividends generally accrue and the 

institution must pay them before making payments to other types of 

shareholders, such as holders of common stock. However, investors view 

a company’s ability to pay dividends as an indicator of its financial 

strength and may see failure to pay full dividends as a sign of financial 

weakening.

21

 

20Under CPP terms, institutions pay cumulative dividends on their preferred shares, 

except for banks that are not subsidiaries of holding companies, which pay noncumulative 

dividends. Some other types of institutions, such as S corporations, received their CPP 

investments in the form of subordinated debt and pay Treasury interest rather than 

dividends.

As of November 30, 2011, 184 

institutions had missed 3 or more payments, and 97 of these institutions 

had missed 6 or more. The total amount of missed dividend and interest 

payments was $429 million, although some of these payments were later 

made prior to the end of the reporting month. On a quarterly basis, the 

21CPP dividend and interest payments are due on February 15, May 15, August 15, and 

November 15 of each year, or the first business day subsequent to those dates. The 

reporting period ends on the last day of the calendar month in which the dividend or 

interest payment is due.

An Increasing Number of 

Remaining CPP 

Participants Have Missed 

Dividend or Interest 

Payments and Appeared 

on FDIC’s Problem Bank 

List

The Number of Remaining CPP 

Participants That Have Missed 

Dividend or Interest Payments 

Has Increased 
 

Page 14 GAO-12-301 Capital Purchase Program 

number of institutions missing dividend or interest payments due on their 

CPP investments increased steadily from 8 in February 2009 to 158 in 

November 2011, or about 42 percent of institutions still in the program 

(see fig. 6).22

 

22In its dividend and interest reports, Treasury no longer considers a payment to be 

missed or unpaid once the institution (1) repays its investment amount and exits CPP, (2) 

repays dividends by way of capitalization at the time of exchange, or (3) enters bankruptcy 

or has its bank subsidiary placed into receivership; however, we included such institutions 

in our counts.

This increase has occurred while program participation has 

declined, and the proportion of those missing scheduled payments has 

risen accordingly. The number of institutions missing payments has 

stabilized since February 2011, but most of these institutions continued to 

miss them. In particular, 119 of the 158 institutions that missed payments 

in November 2011 had also missed payments in each of the previous 

three quarters. Moreover, only 7 of the 158 institutions had never missed 

a previous payment.
 

Page 15 GAO-12-301 Capital Purchase Program 

Figure 6: Number of Institutions Missing Scheduled Dividend or Interest Payments 

and Number of Institutions Participating in CPP, by Quarter, February 2009 through 

November 2011

Note: Dividend and interest payments are due on a quarterly basis. The number of participating 

institutions in any given quarter did not reach 707 (that is, the total number of institutions that 

participated in CPP) because institutions entered and exited the programs at different times. Also, 

379 institutions remained in CPP as of November 30, 2011, but as of January 31, 2012, that number 

had decreased to 366. 

On July 19, 2011, Treasury announced that it had, for the first time, 

exercised its right to elect members to the boards of directors of two of 

the remaining CPP institutions.23

 

23According to the standard terms of CPP, after participants have missed six dividend 

payments—consecutive or not—Treasury can exercise its right to appoint two members to 

the board of directors for that institution.

In considering whether to nominate 

directors, Treasury said that it proceeds in two steps. First, after an 

institution misses five dividend or interest payments, Treasury sends OFS 

staff members to observe board meetings. Second, once an institution 

has missed six dividend payments, Treasury decides whether to 

nominate a board member based on a variety of considerations, including 

what it learns from the board meetings, the institution’s financial condition, 
 

Page 16 GAO-12-301 Capital Purchase Program 

the function of its board of directors, and the size of its investment.24

At the same time that the number of institutions missing dividend 

payments has risen, the number of CPP institutions on FDIC’s problem 

bank list has generally increased. FDIC compiles a list of banks with 

demonstrated financial, operational, or managerial weaknesses that 

threaten their continued financial viability and publicly reports the number 

of such institutions on a quarterly basis. While some CPP funds were 

disbursed to bank holding companies, FDIC’s problem bank list does not 

include them. FDIC accounted for bank holding companies participating in 

CPP when their subsidiary depositories were designated as problem 

banks. It is possible that a bank holding company CPP recipient 

downstreamed CPP funds to a subsidiary depository that appeared on 

the problem bank list. However, it is unclear the extent to which this 

downstreaming occurred and thus the extent to which subsidiaries on the 

list may have benefitted from CPP funds.

As of 

January 31, 2012, Treasury had elected 12 board members to 7 CPP 

institutions.

25

 

24Treasury reported that it might not nominate directors immediately after an institution 

missed six payments but would develop a pool of candidates screened by executive 

search firms it engaged. Board members whom Treasury nominates cannot be 

government employees and must have the same fiduciary duties and obligations to the 

institution’s shareholders as any other member of the board and receive the same 

compensation from the institution. 

As of December 31, 2009, 47 

CPP institutions were on the problem bank list (see fig. 7). This number 

had grown to 120 institutions by December 31, 2010, and to 130 by 

December 31, 2011. The number of these institutions increased every 

quarter from March 2009 to June 2011 and rose even as the number of 

institutions participating in CPP declined. As figure 7 shows, the number 

of problem banks fell slightly for the first time in the third quarter of 2011. 

Federal and state bank regulators may not allow such institutions to make 

dividend payments in an effort to preserve their capital and promote 

safety and soundness.

25Multiple subsidiary depositories of the same CPP bank holding company that were 

designated as problem banks were counted separately.

The Number of Remaining CPP 

Institutions on FDIC’s Problem

Bank List Has Also Increased 
 

Page 17 GAO-12-301 Capital Purchase Program 

Figure 7: Number of CPP Institutions on FDIC’s Problem Bank List, December 2008 through December 2011

Note: The numbers presented in figure 7 were compiled by FDIC in response to our request and are 

not otherwise maintained or published by FDIC. FDIC’s problem bank list does not include bank 

holding companies. Bank holding company recipients of CPP funds were accounted for if one or more 

of their subsidiary depositories were designated as problem banks. Each subsidiary depository 

appearing on the list was counted separately. 

The financial strength of the participating institutions will largely determine 

the speed at which they repay their investments and exit CPP and thus is 

a key factor in the program’s total lifetime income. Institutions will have to 

demonstrate that they are financially strong enough to repay their CPP 

investments in order to receive regulatory approval to exit the program. 

The institutions’ financial strength will also be a primary factor in whether 

they make dividend payments, and institutions that continue to miss 

payments may have difficulty exiting CPP. Financial institutions that are

on the problem bank list because of their financial weaknesses, as 

identified by their regulators, may also face challenges exiting the 

program. In late 2013, CPP dividend and interest rates will begin 

increasing (as described earlier), and the increase may prompt 

institutions to repay their investments more quickly. If broader interest 

rates are low, especially approaching the date that the dividend resets, 

banks could have a further incentive to redeem their preferred shares. 

The Financial Strength of 

CPP Participants is a Key 

Consideration in Exiting 

the Program
 

Page 18 GAO-12-301 Capital Purchase Program 

However, the increased dividend rate could make exiting even more 

difficult for problem banks and those that have missed payments.

As we have previously reported, in unwinding TARP programs, Treasury 

has stated that it strives to protect taxpayer investment and maximize 

overall investment returns with competing constraints, promote the 

stability of financial markets and the economy by preventing disruptions, 

bolster markets’ confidence to increase private capital investment, and 

dispose of the investments as soon as it is practicable.26 As we and 

others have noted, these goals at times conflict—that is, maximizing 

returns on investments may require Treasury to hold the assets until their 

value increases, creating a conflict with the goal of exiting as soon as 

practicable.27 Treasury officials told us that Treasury’s practice was 

generally to hold rather than sell its CPP investments.28 As a result, 

Treasury’s ability to exit the program would depend on the ability of 

institutions to repay their investments. However, Treasury officials noted 

that, if warranted, Treasury could change its practice in the future and sell 

more of its investments to third parties.

 

26See GAO-12-229. 

27See GAO, TARP: Treasury’s Exit from GM and Chrysler Highlights Competing Goals, 

and Results of Support to Auto Communities Are Unclear, GAO-11-471 (Washington, 

D.C.: May 10, 2011). The Congressional Oversight Panel also noted these competing 

goals. See Congressional Oversight Panel, January Oversight Report: Exiting TARP and 

Unwinding Its Impact on the Financial Markets (Washington, D.C.: Jan. 14, 2010).

28Treasury has already sold some CPP investments. According to its Section 105(a) 

reports, Treasury may sell its holdings or exchange CPP securities on a limited basis to 

protect taxpayers’ interest and further EESA’s objectives. 
 

Page 19 GAO-12-301 Capital Purchase Program 

Institutions that remain in CPP tend to be financially weaker than 

institutions that have exited the program and institutions that did not 

receive CPP capital. Our analysis considered various measures that 

describe banking institutions’ profitability, asset quality, capital adequacy, 

and ability to cover losses. The analysis focused on institutions with under 

$10 billion in assets, a group that constituted nearly all of the remaining 

institutions.29 We analyzed financial data on 352 remaining CPP 

institutions and 256 former CPP institutions that exited CPP through full 

repayments or conversion to CDCI or SBLF.30 These two groups 

accounted for 608 of the 707 institutions that participated in CPP.31 We 

compared these two groups to a non-CPP group (i.e., institutions that 

have not participated in CPP and have less than $10 billion in assets) of 

8,040 active financial institutions for which financial information was 

available. All financial information generally reflects quarterly regulatory 

filings on December 31, 2011.32

Profitability measures for remaining CPP institutions were lower than 

those for former CPP participants and the non-CPP group. From March 

2008 to December 2011, the remaining CPP institutions consistently had 

lower quarterly return on average assets values than the other groups 

(see fig. 8). This measure shows how profitable a company is relative to 

its total assets and how efficient management is at using its assets to 

generate earnings. For the quarter ending December 31, 2011, remaining 

CPP institutions had a median return on average assets of 0.25, 

compared with 0.74 for former CPP institutions and 0.69 for the non-CPP 

group.33

 

29We also compared institutions with less than $1 billion in assets to those with between 

$1 billion and $10 billion in assets. The relationships and trends were relatively similar, so 

we combined them for the purposes of our discussion.

The return on average equity measure, which shows the profit a 

30Financial data were available from SNL Financial for 427 of the 608 CPP institutions, 

and we accounted for the remaining 181 institutions using SNL Financial information for 

the holding company’s largest subsidiary.

31Of the 99 CPP institutions our analysis excluded, 11 were active participants with more 

than $10 billion in assets, 37 were former participants with more than $10 billion in assets, 

and 51 had no data available in SNL Financial, had been acquired, or were defunct.

32We chose to present median values, but we also analyzed weighted averages and 

found the results to be similar.

33Return on average assets is net income divided by average total assets.

Remaining CPP 

Institutions Are 

Financially Weaker 

than Former CPP and 

Non-CPP Institutions, 

but Treasury’s 

Analysis Does Not 

Show This Difference

Remaining CPP 

Institutions Are Generally 

Less Profitable and Hold 

Riskier Assets
 

Page 20 GAO-12-301 Capital Purchase Program 

company generates with the money shareholders have invested, showed 

a similar but more pronounced relationship. The median return on 

average equity was 2.71 for remaining CPP institutions, compared with 

7.15 for former CPP institutions and 6.22 for the non-CPP group.34

Figure 8: Quarterly Trend of Median Return on Average Assets by CPP Status, March 2008 through December 2011

Further, the median net interest margin—another important measure of 

profitability—was consistently lower for remaining CPP institutions than 

for the other groups, but the differences were less pronounced, 

particularly in recent quarters (see fig. 9).35

 

34Return on average equity is net income divided by average total equity.

The net interest margin 

measures a company’s investment decisions by comparing its investment 

returns to its interest expenses. A higher margin indicates a more 

successful business strategy. For the quarter ending December 31, 2011, 

the median net interest margin was lowest (3.74) for the remaining CPP 

institutions. However the medians were not significantly higher for the 

other two groups—3.90 for former CPP institutions and 3.79 for the nonCPP group.

35Net interest margin is net interest income divided by average earning assets.
 

Page 21 GAO-12-301 Capital Purchase Program 

Figure 9: Quarterly Trend of Median Net Interest Margin by CPP Status, March 2008 through December 2011

Note: Since 2000, the net interest margin for all banks has generally ranged between 3 and 4 

percent. We have adjusted the scale in figure 9 accordingly to more clearly show the differences 

between the three groups. 

Not only were remaining CPP institutions less profitable than former CPP 

institutions and the non-CPP group, but they also held relatively more 

poorly performing assets, as measured by several financial indicators. 

First, remaining CPP institutions had a consistently higher percentage of 

noncurrent loans than former CPP institutions and the non-CPP group 

from March 2008 to December 2011 (see fig. 10). While the median 

noncurrent loan percentage increased over time for each group before 

leveling off, the rate of growth was steeper and the period of growth 

lasted longer for the remaining CPP institutions. As of December 31, 

2011, a median of 4.18 percent of loans for remaining CPP institutions 

were noncurrent, compared with 1.68 percent for former CPP institutions 

and 1.70 percent for the non-CPP group. Second, remaining CPP 

institutions had a higher median ratio of net charge-offs to average loans 
 

Page 22 GAO-12-301 Capital Purchase Program 

(1.22) than both former CPP institutions (0.47) and the non-CPP group 

(0.30), as of December 31, 2011.36

Figure 10: Quarterly Trend of Median Noncurrent Loan Percentage by CPP Status, March 2008 through December 2011

Finally, both remaining and former CPP institutions tended to hold loans 

that were more concentrated in risky business lines than those held by 

the non-CPP group, although the differences, and the overall percentages 

of these loans, were relatively small for one loan category. Both 

remaining and former CPP institutions had higher proportions of 

commercial real estate and construction and land development loans 

compared with the non-CPP group (see fig. 11). As we have reported, 

delinquencies on commercial real estate loans have more than doubled 

since the onset of the financial crisis in 2008, and such loans are prone to 

volatility because of high transaction costs, rigid and constrained supply, 

and a number of other factors.37

 

36A charge-off occurs when a bank recognizes that a particular asset or loan will not be 

collectible and must be written off.

While remaining CPP institutions had 

37See GAO, Banking Regulation: Enhanced Guidance on Commercial Real Estate Risks 

Needed, GAO-11-489 (Washington, D.C.: May 19, 2011).
 

Page 23 GAO-12-301 Capital Purchase Program 

about the same proportion of commercial real estate loans overall as the 

former CPP institutions (about 35 percent), they had a noticeably higher 

proportion of construction and land development loans compared to the 

non-CPP group. Although these loans made up only about 4 to 8 percent 

of the banks’ overall portfolios, construction and land development loans 

are generally considered to be particularly risky. For example, they often 

have long development times and can include properties that are built 

without firm commitments from buyers or lessees.

Figure 11: Median Loan Composition by CPP Status, as of December 31, 2011
 

Page 24 GAO-12-301 Capital Purchase Program 

Compared with former CPP institutions and the non-CPP group, 

remaining CPP institutions held less regulatory capital as a percentage of 

assets. Regulators require minimum amounts of capital to lessen an 

institution’s risk of default and improve its ability to sustain operating 

losses. Capital can be measured in several ways, but we focused on Tier 

1 capital, which includes both risk-based and common risk-based 

measures, because it is the most stable form of regulatory capital.38

Remaining CPP institutions had lower Tier 1 capital levels than former 

CPP institutions and the non-CPP group. On a quarterly basis, for 

example, the Tier 1 risk-based capital ratio for remaining CPP participants 

generally remained well below those for the former CPP institutions and 

the non-CPP group from March 2008 to December 2011 (see fig. 12). 

While Tier 1 capital levels of the remaining institutions have trended 

slightly upward since December 2009, levels for the other two groups 

rose at a slightly higher rate, increasing the gap between the groups. As 

of December 31, 2011, Tier 1 capital accounted for 12.38 percent of riskweighted assets for remaining CPP institutions compared with 14.09 

percent for former CPP institutions and 14.81 percent for the non-CPP 

group.

The 

Tier 1 risk-based capital ratio measures Tier 1 capital as a share of riskweighted assets, and the common equity Tier 1 ratio measures common 

equity Tier 1 as a share of risk-weighted assets.

 

38Tier 1 capital includes the core capital elements that are considered the most reliable 

and stable such as common stock, noncumulative perpetual preferred stock, and minority 

interests in consolidated subsidiaries. Total capital includes Tier 1 capital and Tier 2 

capital, or supplementary capital. Risk-weighted assets are on- and off-balance sheet 

assets adjusted for their risk characteristics.

Remaining CPP 

Institutions Hold Less 

Regulatory Capital and 

Reserves for Covering 

Losses Compared to 

Institutions That Exited 

CPP or Never Participated
 

Page 25 GAO-12-301 Capital Purchase Program 

Figure 12: Quarterly Trend of Median Tier 1 Risk-based Capital Ratio by CPP Status, March 2008 through December 2011

Because Tier 1 capital for the remaining institutions includes funds 

received through TARP, ratios using common equity Tier 1—which 

generally does not include TARP funds—may better illustrate these 

institutions’ capital adequacy. For the remaining CPP institutions, TARP 

funds comprised a median of 25 percent of the institution’s Tier 1 capital. 

As was the case with the Tier 1 risk-based capital ratio, the common 

equity Tier 1 ratio for remaining CPP institutions generally remained well 

below those for the former CPP institutions and the non-CPP group from 

March 2008 to December 2011 (see fig. 12). However, the differences 

between both CPP groups and the non-CPP group were more 

pronounced possibly because common equity Tier 1 generally does not 

include TARP funds.39

 

39As of January 31, 2012, Treasury had converted its original investment into shares of 

common stock for six institutions.

While the ratio for remaining CPP institutions 

stayed relatively stable from March 2008 to December 2010, it has since 

begun increasing slightly. As of December 31, 2011, the common equity 

Tier 1 ratio was lower for remaining CPP institutions than the other two 

groups. In particular, common equity Tier 1 for remaining CPP institutions 
 

Page 26 GAO-12-301 Capital Purchase Program 

comprised a median of 10.53 percent of risk-weighted assets, compared 

with 12.09 percent for former CPP institutions and 14.68 percent for the 

non-CPP group.

Figure 13: Quarterly Trend of Median Common Equity Tier 1 Ratio by CPP Status, March 2008 through December 2011

In addition to holding less regulatory capital than former CPP institutions 

and the non-CPP group, remaining CPP institutions also had significantly 

lower reserves for covering losses. On a quarterly basis, the median ratio 

of reserves to nonperforming loans was consistently lower for remaining 

CPP institutions than for the other groups from March 2008 to December 

2011 (see fig. 14). The ratio for all three groups declined in 2008 and 

2009, and while it began to stabilize for the non-CPP group in 2010, it 

continued to decline for remaining CPP institutions. As of December 31, 

2011, the ratio of reserves to nonperforming loans was lower for 

remaining CPP institutions (40.87) than for former CPP participants 

(70.93) and the non-CPP group (59.56). We also compared loan loss 

provisions to net charge-offs and found that the remaining CPP 

institutions had lower ratios (74.48) than former CPP institutions (92.47) 

but higher than the non-CPP group (72.78).
 

Page 27 GAO-12-301 Capital Purchase Program 

Figure 14: Quarterly Trend of Median Reserves to Nonperforming Loans by CPP Status, March 2008 through December 2011

Remaining CPP institutions also had noticeably higher Texas Ratios than 

former CPP institutions and the non-CPP group. The Texas Ratio helps 

determine a bank’s likelihood of failure by comparing its troubled loans to 

its capital.40

 

40The Texas Ratio is defined as nonperforming assets plus loans 90 or more days past 

due divided by tangible equity and reserves.

The higher the ratio, the more likely the institution is to fail. 

On a quarterly basis, median Texas Ratios for remaining CPP institutions 

remained consistently above those for former CPP institutions and the 

non-CPP group from March 2008 to December 2011 and rose at a faster 

rate (see fig. 15). Since December 2010, median Texas Ratios for 

remaining CPP institutions have stabilized, while those for former CPP 

and the non-CPP group have shown slight decreases. As of December 

31, 2011, remaining CPP institutions had a median Texas Ratio of 51.14, 

compared with 20.06 for former CPP institutions and 17.20 for the nonCPP group. Moreover, about 19 percent (66) of the 352 remaining CPP 

institutions had a Texas Ratio of more than 100 percent, indicating an 

elevated likelihood of failure, compared with only about 1 percent (3) of 

the 256 former CPP institutions.
 

Page 28 GAO-12-301 Capital Purchase Program 

Figure 15: Quarterly Trend of Median Texas Ratio by CPP Status, March 2008 through December 2011

To assess CPP’s effect on lending by depository institutions, Treasury 

began publishing a quarterly analysis of CPP institutions.41

However, Treasury did not compare remaining CPP institutions to former 

CPP institutions. While Treasury’s analysis is intended to measure CPP’s 

effect on the financial institutions that participated, its analysis could also 

provide useful information about the relative likelihood of remaining 

institutions to repay their investments and exit the program. Our analysis 

found differences in the financial condition of remaining and former CPP 

institutions, suggesting that the remaining CPP institutions could face 

challenges in repaying CPP funds and exiting the program. Treasury said 

The analysis 

included financial data in three categories: balance sheet and off-balance 

sheet items, performance ratios, and asset quality measures. Treasury 

grouped the institutions by asset size and separated institutions that 

received CPP funds from those that did not.

 

41Department of the Treasury, Quarterly Analysis of Institutions in the Capital Purchase 

Program, Fourth Quarter 2010.

Treasury’s Quarterly CPP 

Analysis Could Better 

Distinguish between the 

Remaining CPP 

Institutions and Former 

Participants
 

Page 29 GAO-12-301 Capital Purchase Program 

that it did not perform this analysis because the quarterly CPP report was 

designed only to group banks into categories based on asset size and to 

analyze the differences between CPP and non-CPP institutions.

In our prior work, we noted that Treasury should ensure transparency in 

providing financial assistance to private market participants, especially 

given the unprecedented government assistance it provided to the 

banking industry during the recent financial crisis.42 We also 

recommended that Treasury ensure that external stakeholders, including 

Congress and the public, are informed about the program’s current 

strategy.43

Treasury’s quarterly CPP analysis is a useful tool in providing 

transparency about the public’s investment in financial institutions. In 

addition, Treasury makes public a variety of products on its website—

including transaction reports, dividend and interest reports, and monthly 

105(a) reports—that account for all investments and provide programlevel summaries for all TARP programs. However, the usefulness and 

transparency of Treasury’s quarterly CPP analysis—which includes 

detailed bank financial measures—could be enhanced by distinguishing 

between former and remaining CPP institutions because the financial 

characteristics of these two groups differ. As a result, Congress and the 

public would benefit from a more complete and meaningful picture of the 

condition of the remaining institutions.

CPP repayments and other income surpassed the program’s original 

investment disbursements, and as institutions continue to exit CPP, this 

surplus continues to grow. Furthermore, Treasury’s latest estimate 

(November 30, 2011) projects CPP’s lifetime income to be $13.5 billion. 

However, a growing number of the remaining institutions have missed 

scheduled dividend or interest payments or appeared on FDIC’s problem 

bank list. As a result, there is increased concern regarding the speed at 

which institutions will be able to repay remaining funds and how much of 

 

42GAO, Financial Assistance: Ongoing Challenges and Guiding Principles Related to 

Government Assistance for Private Sector Companies, GAO-10-719 (Washington, D.C.: 

Aug. 3, 2010).

43GAO, Troubled Asset Relief Program: Additional Actions Needed to Better Ensure 

Integrity, Accountability, and Transparency, GAO-09-161 (Washington, D.C.: Dec. 2, 

2008).

Conclusions
 

Page 30 GAO-12-301 Capital Purchase Program 

these funds Treasury will ultimately recover. In particular, our analysis 

showed that institutions remaining in CPP were generally less profitable, 

held riskier assets and less regulatory capital, and had lower reserves for 

covering losses compared with institutions that repaid their CPP 

investment and those that never participated in the program. Despite the 

noticeably different financial profiles for remaining and former CPP 

institutions, Treasury’s quarterly analysis of CPP institutions does not 

distinguish between these two groups. As we have indicated in past 

reports on TARP, transparency remains a critical element in the 

government’s unprecedented assistance to the financial sector. Such 

transparency helps clarify to policymakers and the public the costs of 

TARP assistance and the government’s intervention in various markets. 

Enhancing the quarterly CPP analysis by distinguishing between 

remaining and former CPP participants will help Treasury provide 

Congress and the public with a more transparent and comprehensive 

understanding of the status of CPP and the institutions that participate 

in it.

To provide Congress and the public with more transparent and 

comprehensive information on remaining CPP institutions and enhance 

its reporting, the Secretary of the Treasury should consider analyzing and 

reporting on remaining and former CPP participants separately.

We provided a draft of this report to Treasury for its review and comment. 

Treasury provided written comments that we have reprinted in 

appendix II.

In its written comments, Treasury stated that it would carefully consider 

our recommendation to further enhance transparency by analyzing and 

reporting on remaining and former CPP participants separately. Treasury 

emphasized its ongoing commitment to keep the public informed of its 

progress in winding down CPP. We believe that implementation of our 

recommendation would further strengthen Treasury’s reporting to the 

Congress and the public on the status of CPP.

Recommendation for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 31 GAO-12-301 Capital Purchase Program 

We are sending copies of this report to the Financial Stability Oversight 

Board, Special Inspector General for TARP, interested congressional 

committees and members, and Treasury. The report also is available at 

no charge on the GAO website at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov, or Daniel 

Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov. Contact points 

for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this report. GAO staff who made major 

contributions to this report are listed in appendix III.

A. Nicole Clowers

Director

Financial Markets and Community Investment
 

Page 32 GAO-12-301 Capital Purchase Program 

List of Committees

The Honorable Daniel K. Inouye

Chairman

The Honorable Thad Cochran

Vice Chairman

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Richard C. Shelby

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Kent Conrad

Chairman

The Honorable Jeff Sessions

Ranking Member

Committee on the Budget

United States Senate

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Hal Rogers

Chairman

The Honorable Norm Dicks

Ranking Member

Committee on Appropriations

House of Representatives

The Honorable Paul Ryan

Chairman

The Honorable Chris Van Hollen

Ranking Member

Committee on the Budget

House of Representatives
 

Page 33 GAO-12-301 Capital Purchase Program 

The Honorable Spencer Bachus

Chairman

The Honorable Barney Frank

Ranking Member

Committee on Financial Services

House of Representatives

The Honorable Dave Camp

Chairman

The Honorable Sandy Levin

Ranking Member

Committee on Ways and Means

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-12-301 Capital Purchase Program 

The objectives of our report were to examine (1) the status of the Capital 

Purchase Program (CPP), including repayments and other proceeds to 

date, restructuring of investments, and timeliness of dividend payments, 

and (2) the financial condition of institutions that received investments 

under CPP compared with institutions that exited CPP and those that did 

not participate in the program.

To assess the status of CPP at the program level, we analyzed data from 

a number of sources including the Department of the Treasury (Treasury) 

and the Federal Deposit Insurance Corporation (FDIC). In particular, we 

used Treasury’s January 2012 Monthly 105(a) Report to Congress to 

determine the dollar amounts of outstanding investments, the number of 

remaining and former participants, and the geographical distribution of 

each as of January 31, 2012. We also used data from Treasury’s 

Dividends and Interest reports from February 2009 through November 

2011 to determine the extent to which participants had missed payments 

throughout the life of the program. We interviewed Treasury officials to 

compare our missed payment counts with theirs and noted the reasons 

for any differences. Finally, we obtained from FDIC summary information 

on its quarterly problem bank list to show the trend of CPP institutions 

appearing on the list from December 2008 through December 2011.

To assess the financial condition of institutions that received investments 

under CPP, we reviewed industry documents—including summaries of 

monitoring data used by banking regulators and Treasury—to identify 

commonly used financial measures for depository institutions. These 

measures help demonstrate an institution’s financial health related to a 

number of categories including profitability, asset quality, capital 

adequacy, and loss coverage. We obtained such financial data for all 

depository institutions using SNL Financial—a private financial database 

that contains publicly filed regulatory and financial reports. We merged 

the data with SNL Financial’s CPP participant list to create the three 

comparison groups—remaining CPP institutions, former CPP institutions, 

and a non-CPP group comprised of all institutions that did not participate 

in CPP. We analyzed financial data on 352 remaining CPP institutions 

and 256 former CPP institutions that exited CPP through full repayments 

or conversion to the Community Development Capital Initiative or the 

Small Business Lending Fund, accounting for 608 of the 707 CPP 

participants (see table 1). Our analysis focused on institutions with less 

than $10 billion in assets, which constituted nearly all of the remaining 

CPP institutions. Of the 99 CPP institutions excluded from our analysis, 

11 were active participants with more than $10 billion in assets; 37 were 

former participants with more than $10 billion in assets; and 51 had no 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-12-301 Capital Purchase Program 

data available in SNL Financial, had been acquired, or were defunct. We 

compared the remaining and former CPP institutions to a non-CPP group 

of 8,040 active financial institutions for which financial information was 

available. We chose to present median values, but we also analyzed 

weighted averages and found the results to be similar. Financial data 

were available from SNL Financial for 427 of the 608 CPP institutions, 

and we accounted for an additional 181 institutions using the financial 

information of the holding company’s largest subsidiary from SNL 

Financial. All financial information reflects quarterly regulatory filings on 

December 31, 2011, unless otherwise noted. We downloaded all financial 

data from SNL Financial on February 20, 2012. Finally, we compared our 

analysis with Treasury’s quarterly analysis of CPP institutions, and we 

also leveraged our past reporting on the Troubled Asset Relief Program 

(TARP), as well as that of the Special Inspector General for TARP, as 

appropriate.

Table 1: Median Financial Information on Analysis Population, as of December 31, 2011

Dollars in millions 

All CPP Remaining CPP Former CPP Non-CPP

Number of institutions 608 352 256 8,040 

TARP funds received Not applicable $12.9 $15.0 Not applicable

TARP funds outstanding Not applicable $12.6 Not applicable Not applicable

Assets $493.4 $395.7 $617.7 $176.8 

Loans and leases $320.2 $270.6 $405.9 $108.5 

Reserves $6.2 $6.2 $6.2 $1.8 

Securities $74.2 $53.3 $120.3 $33.5 

Liabilities $440.9 $359.6 $547.4 $157.6 

Deposits $384.9 $318.4 $497.4 $148.4 

Tier 1 capital $42.1 $32.5 $61.3 $17.3 

Common equity Tier 1 $32.3 $24.4 $43.6 $17.1 

Net income $0.4 $0.1 $1.0 $0.2 

Source: GAO analysis of SNL Financial data.

We determined that the financial information used in this report, including 

CPP program data from Treasury and financial data on institutions from 

SNL Financial, was sufficiently reliable to assess the condition and status 

of CPP and institutions that participated in the program. For example, we 

tested the Office of Financial Stability’s internal controls over financial 

reporting as it relates to our annual audit of the office’s financial 

statements and found the information to be sufficiently reliable based on 
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-12-301 Capital Purchase Program 

the results of our audits of fiscal years 2009, 2010, and 2011 financial 

statements for TARP.1

We conducted this performance audit from August 2011 to March 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

We have assessed the reliability of SNL Financial 

data—which is obtained from financial statements submitted to the 

banking regulators—as part of previous studies and found the data to be 

reliable for the purposes of our review. We verified that no changes had 

been made that would affect its reliability.

 

1

See GAO, Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) 

Fiscal Years 2011 and 2010 Financial Statements, GAO-12-169 (Washington, D.C.: 

Nov.10, 2011); Financial Audit: Office of Financial Stability (Troubled Asset Relief 

Program) Fiscal Years 2010 and 2009 Financial Statements, GAO-11-174 (Washington, 

D.C.: Nov.15, 2010); and Financial Audit: Office of Financial Stability (Troubled Asset 

Relief Program) Fiscal Year 2009 Financial Statements, GAO-10-301 (Washington, D.C.: 

Dec. 9, 2009).
Appendix II: Comments from the Office of 

Financial Stability 

Page 37 GAO-12-301 Capital Purchase Program 

Appendix II: Comments from the Office of 

Financial Stability
Appendix II: Comments from the Office of 

Financial Stability 

Page 38 GAO-12-301 Capital Purchase Program 
Appendix III: GAO Contacts and Staff 

Acknowledgments

Page 39 GAO-12-301 Capital Purchase Program 

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov

In addition to the contacts named above, Christopher Forys, Emily 

Chalmers, William Chatlos, Rachel DeMarcus, Michael Hoffman, Marc 

Molino, Tim Mooney, and Patricia Moye made significant contributions to 

this report.

Appendix III: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts

Staff 

Acknowledgments

(250591)
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