United States Government Accountability Office

GAO Report to Congressional Committees

TROUBLED ASSET 

RELIEF PROGRAM 

March 2009 Status of 

Efforts to Address 

Transparency and 

Accountability Issues 

March 2009 

GAO-09-504 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2009

TROUBLED ASSET RELIEF PROGRAM

March 2009 Status of Efforts to Address

Transparency and Accountability Issues

Highlights of GAO-09-504, a report to 

congressional committees 

As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700 billion

in TARP funds (see table). Most of the funds (almost $199 billion) went to 

purchase preferred shares of 532 financial institutions under the Capital 

Purchase Program (CPP), Treasury’s primary vehicle under TARP for 

stabilizing financial markets. Treasury has continued to improve the integrity, 

accountability and transparency of TARP. For example, it recently expanded 

monthly surveys of the largest institutions’ lending activity to cover all CPP 

participants, as GAO recommended. These surveys should provide additional 

important information about how the capital investments are impacting 

participants’ lending activities and capital levels. 

Status of TARP Funds as of March 27, 2009 (dollars in billions) 

Program 

Maximum announced

program funding levela

Projected use 

of funds Disbursed

Capital Purchase Program $250.0 $218.0 $198.8

Systemically Significant Failing Institutions 70.0 70.0 40.0

Targeted Investment Program 40.0 40.0 40.0

Automotive Industry Financing Program 24.9 24.9 24.5

Citigroup Asset Guarantee 5.0 5.0 0.0

Bank of America Asset Guarantee 7.5 7.5 0.0

Homeowner Affordability & Stability Plan 50.0 50.0 0.0

Term Asset-Backed Securities Loan Facility

(TALF)

 b 100.0 55.0 0.1

Unlocking Credit for Small Business 15.0 15.0 0.0

Auto Supplier Support Program 5.0 5.0 0.0

Public Private Investment Program 100.0 100.0 0.0

Capital Assistance Program TBDcTBD 0.0

Total $667.4 $590.4 $303.4

Source: Treasury OFS, unaudited. 

a

Some of Treasury’s announced transactions are not yet legal obligations and actual amounts will 

depend on participation. b

Treasury considers this program part of its Consumer & Business Lending initiative. c

Treasury has announced the Capital Assistance Program, but has not yet announced the funding 

level for that program. 

Treasury also continues to develop a process to monitor compliance with the 

terms of the agreements but has not yet hired asset managers. Treasury

officials told GAO that these managers will have a role in helping ensure that 

institutions were honoring dividend and stock repurchase requirements. In 

February 2009, Treasury announced its broad strategy for using the remaining 

TARP funds and in the following weeks provided details for its major 

components. While articulating its plan was an important step, Treasury 

continues to struggle with developing an effective overall communication 

strategy that is integrated into TARP operations. Without such a strategy, 

Treasury may face challenges should it need additional funding for the 

program. Finally, as Treasury finalizes the terms of the agreement with 

American International Group, Inc. (AIG) for $30 billion in additional 

assistance, it should require that AIG seek additional concessions from 

employees and existing derivatives counterparties, as appropriate. 

GAO’s third report on the Troubled 

Asset Relief Program (TARP)

follows up on recommendations 

from the January 28, 2009, report 

(GAO-09-296). It also reviews (1) 

the nature and purpose of activities 

that had been initiated under TARP 

as of March 27, 2009; (2) the

Department of Treasury’s Office of 

Financial Stability’s (OFS) hiring

efforts, use of contractors, and

progress in developing an internal

control system; and (3) TARP 

performance indicators. For this 

work, GAO reviewed signed

agreements and other relevant

documentation and met with 

officials from OFS, contractors, 

and federal agencies.

What GAO Recommends

This report has six new 

recommendations to Treasury, 

including to continue developing an 

integrated communication strategy;

require AIG to seek appropriate 

concessions from employees and

derivatives counterparties, among

others; update documentation of

certain internal control procedures 

and the public guidance on

determining warrant exercise

prices; publicly report monies, such

as dividends received from TARP 

participants; and finish reviewing 

existing conflict mitigation plans,

renegotiate them as appropriate, 

and improve associated conflicts

documentation. 

In written comments, Treasury 

described steps it had taken in the 

last 60 days to address the

extraordinary economic 

challenges. 

To view the full product, including the scope 

and methodology, click on GAO-09-504. 

For more information, contact Thomas 

McCool at (202) 512-2642 or 

mccoolt@gao.gov. To view the e-supplement 

online, click on GAO-09-522SP. 
United States Government Accountability Office

Highlights of GAO-09-504 (continued) 

Timeline of Programs and Selected Actions under TARP, January 30, 2009, to March 23, 2009

Source: GAO.

2/13: Treasury purchases about $429 

million in preferred stock and warrants

from 29 institutions under CPP.

2/20: Treasury 

purchases

about $365 

million in 

preferred stock 

and warrants

from 23 

institutions

under CPP.

2/27: Treasury 

announces plans to 

restructure assistance 

to Citigroup.

Treasury purchases

about $395 million in 

preferred stock and 

warrants from 28

institutions under CPP.

2/25: Treasury announces the terms and 

conditions for the Capital Assistance Program, 

part of the Financial Stability Plan.

3/4: The Administration announces the 

Making Home Affordable Program, part of the 

Homeowner Affordability and Stability Plan.

3/6:Treasury 

purchases

about $285 

million in 

preferred stock 

and warrants

from 22 

institutions

under CPP.

3/13:Treasury purchases about $1.5 

billion in preferred stock and warrants

from 19 institutions under CPP.

3/16:Treasury 

announces that it will 

begin purchasing 

securities backed by 

Small Business

Administration (SBA) 

loans, temporarily 

raise guarantees, 

and eliminate certain 

SBA loan fees.

3/23: Treasury, FDIC, 

and Federal Reserve 

announce details of the 

Public-Private Investment 

Program, part of the 

Financial Stability Plan.

3/3: Treasury and the 

Federal Reserve 

announce the launch 

of TALF.

2/17: Treasury 

loans an 

additional $4 

billion to GM.

2/18: Treasury announces

the Homeowner 

Affordability and Stability 

Plan.

2009

1/30: Treasury 

purchases about 

$1.2 billion in 

preferred stock 

and warrants from 

42 institutions

under the Capital 

Purchase 

Program (CPP). 

2/6: Treasury 

purchases

about $239 

million in 

preferred 

stock and 

warrants from 

28 institutions

under CPP.

2/10: Treasury 

announces the 

Financial 

Stability Plan.

February March

3/2: Treasury 

and the 

Federal 

Reserve 

announce 

plans to 

restructure 

assistance to 

AIG.

3/20: Treasury purchases

about $80.7 million in 

preferred stock and 

warrants from 10 financial 

institutions under CPP.

GAO’s January 2009 report also included 

recommendations about OFS’s management 

infrastructure, including hiring, contract oversight, and 

internal controls. Treasury has continued to take steps 

to address GAO’s recommendations. First, it has 

continued to hire additional permanent staff to address 

OFS’s long-term organizational needs. Second, Treasury 

has enhanced its capacity to manage vendors by using 

trained oversight personnel and looking for 

opportunities to use fixed-price arrangements. Further 

actions are needed to complete its review of existing 

vendor conflict-of-interest mitigation plans and to 

improve documentation of decisions relating to 

potential conflicts. Third, OFS continued to refine, 

develop, and document its internal control framework 

over financial reporting and compliance, including its 

risk assessment activities. However, GAO noted that 

certain internal control procedures and the guidance 

pertaining to determining warrant exercise prices had 

not been updated to be consistent with actual practice.

GAO also noted that Treasury had not publicly reported 

that through March 20, 2009, it had received dividends 

totaling almost $2.9 billion from TARP participants.

Further steps in these areas are needed to improve the 

program’s transparency and integrity.

GAO again notes the difficulty of measuring the effect 

of TARP’s activities. Developments in the credit 

markets have generally been mixed since the January 

2009 report. Some indicators revealed that the cost of 

credit has increased in interbank and corporate bond 

markets and decreased in mortgage markets, while

perceptions of risk (as measured by premiums over 

Treasury securities) have declined in interbank and 

mortgage markets and risen in corporate debt markets. 

In addition, although Federal Reserve survey data 

suggest that lending standards remained tight, the 

largest CPP recipients extended roughly $245 billion in 

new loans to consumers and businesses in both 

December 2008 and January 2009, according to the 

Treasury’s new loan survey. However, attributing any 

of these changes directly to TARP continues to be 

problematic because of the range of actions that have 

been and are being taken to address the current crisis. 

While these indicators may be suggestive of TARP’s

ongoing impact, no single indicator or set of indicators 

can provide a definitive determination of the program’s 

impact.
Contents 

Letter 1

Scope and Methodology 2

Background 5

Treasury’s Strategy for Deploying TARP Funds Continues to 

Evolve, Though CPP Remains the Key Effort to Stabilize the 

Financial Markets 8 

Treasury Continues to Make Progress in Establishing OFS 31 

Indicators Suggest Mixed Recent Developments in Credit Markets, 

but Isolating the Impact of TARP Continues to Present 

Challenges 49

Conclusions 59

Recommendations for Executive Action 64 

Agency Comments and Our Analysis 65 

Appendix I Comments from the Department of the Treasury 68 

Appendix II Status of GAO Recommendations (January 2009 

Report) 70 

Appendix III Treasury’s Actions in Response to Our January 

2009 Report Recommendations 71 

Appendix IV GAO Contact and Staff Acknowledgments 91 

Related GAO Products 92 

Tables 

Table 1: Status of TARP Funds as of March 27, 2009 9 

Table 2: Capital Investments Made through the Capital Purchase 

Program, as of March 27, 2009 10 

Table 3: TARP Dividends through March 20, 2009 28 

Table 4: Agencies Detailing Federal Employees to the Office of

Financial Stability 33 

Page i GAO-09-504 Troubled Asset Relief Program
Table 5: Services and Support Tasks Provided by Selected TARP 

Contractors and a Financial Agent 37 

Table 6: Key Positions for TARP Oversight of Contracts and 

Financial Agency Agreements, as of March 2009 39 

Table 7: OFS Actions Since January 2009 to Enhance Oversight of 

TARP Contractors’ and Financial Agents’ Performance 41 

Table 8: Changes in Selected Credit Market Indicators, January 22,

2008, and March 25, 2009 52 

Table 9: New Lending at 20 Largest Recipients of CPP, between 

October 1, 2008, and January 31, 2009 55 

Figures 

Figure 1: Timeline of Program Activities for TARP, October 2008-

March 2009 6 

Figure 2: Number of Permanent Staff and Detailees, November 

2008 through March 2009 32 

Figure 3: Number of and Expenses for OFS Financial Agency 

Agreements, Contracts, and Blanket Purchase 

Agreements, as of March 13, 2009 36 

Figure 4: New Lending at 20 Largest Recipients of CPP, between 

October 1, 2008, and January 31, 2009 54 

Figure 5: Net Percentages of Banks Tightening Lending Standards, 

Increasing Spreads, and Reporting Stronger Demand for 

Loans, by firm size, between October 1997 and March 

2009 57

Figure 6: Average Finance Rate for New Cars at Auto Finance 

Companies and Banks, February 2006 and January 2009 59 

Page ii GAO-09-504 Troubled Asset Relief Program
Abbreviations 

ABS asset-backed security 

AGP Asset Guarantee Program 

AIG American International Group Inc. 

CAP Capital Assistance Program 

CBOE Chicago Board Options Exchange

CDFI Community Development Financial Institutions Fund 

CMBS commercial mortgage-backed security

COP Congressional Oversight Panel 

COTR Contracting Officer’s Technical Representative 

CPP Capital Purchase Program 

FDIC Federal Deposit Insurance Corporation 

FHA Federal Housing Administration 

FHFA Federal Housing Finance Agency 

FinSOB Financial Stability Oversight Board 

GM General Motors Corporation 

GSE government-sponsored enterprise 

HAMP Home Affordable Modification Program 

HUD Department of Housing and Urban Development 

LIBOR London Interbank Offered Rate 

MBS mortgage-backed security

OCC Office of the Comptroller of the Currency 

OFS Office of Financial Stability 

OGE Office of Government Ethics 

OMB Office of Management and Budget 

OTS Office of Thrift Supervision 

SBA Small Business Administration 

SES Senior Executive Service 

SIGTARP Special Inspector General for TARP 

SSFI Systemically Significant Failing Institutions Program 

TALF Term Asset-Backed Securities Loan Facility 

TARP Troubled Asset Relief Program 

TIP Targeted Investment Program 

Page iii GAO-09-504 Troubled Asset Relief Program
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Page iv GAO-09-504 Troubled Asset Relief Program
United States Government Accountability Office

Washington, DC 20548 

 

March 31, 2009 

Congressional Committees 

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 

(the act) was signed into law. The act established the Office of Financial

Stability (OFS) within the Department of the Treasury (Treasury) and 

authorized the Troubled Asset Relief Program (TARP).1

 Among other 

things, the act provides Treasury with broad, flexible authorities to buy or

guarantee up to $700 billion in “troubled assets,” which include mortgages 

and mortgage-related instruments, and any other financial instrument 

whose purchase Treasury determines is needed to stabilize the financial 

markets.2

The act also created oversight mechanisms for the implementation and 

operations of TARP. Among other things, the U.S. Comptroller General is 

required to report at least every 60 days on findings resulting from GAO’s 

oversight of TARP’s performance in meeting the purposes of the act; the 

financial condition and internal controls of TARP, its representatives, and 

agents; the characteristics of both asset purchases and the disposition of 

assets acquired, including any related commitments that are entered into;

TARP’s efficiency in using the funds appropriated for the program’s 

operation; TARP’s compliance with applicable laws and regulations; 

efforts to prevent, identify, and minimize conflicts of interest among those 

involved in TARP’s operations; and the efficacy of contracting 

procedures.3

This report follows up on the status of recommendations from our 

December 2008 and January 2009 reports and addresses (1) the nature and 

purpose of activities that have been initiated under TARP from January 30, 

2009, through March 27, 2009, unless otherwise noted; (2) OFS’s progress 

 1

Pub. L. No. 110-343, 122 Stat. 3765 (2008), codified at 12 U.S.C. §§ 5201 et seq. 

2

Section 102 of the act, 12 U.S.C. § 5212, authorizes Treasury to guarantee troubled assets 

originated or issued prior to March 14, 2008, including mortgage-backed securities. 

3

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

Page 1 GAO-09-504 Troubled Asset Relief Program
 

in hiring, use of contractors, and developing a system of internal control; 

and (3) outcomes measured by indicators of TARP’s performance.4

To determine the nature and purpose of TARP activities from January 30, 

2009, through March 27, 2009, unless noted, and the status of actions taken 

in response to our recommendations from our prior reports, we reviewed 

documents from OFS that described the amounts, types, and terms of 

Treasury’s purchases of preferred stocks and warrants under the Capital 

Purchase Program (CPP), the Systemically Significant Failing Institutions 

Program (SSFI), the Automotive Industry Financing Program (AIFP), the 

Targeted Investment Program (TIP), the Capital Assistance Program 

(CAP), and the Term Asset-Backed Securities Loan Facility (TALF).5

 We 

also reviewed documentation and interviewed officials from OFS 

responsible for selecting financial institutions to participate in CPP. 

Additionally, we contacted officials from the four federal banking 

regulators—the Federal Deposit Insurance Corporation (FDIC), the Office 

of the Comptroller of the Currency (OCC), the Board of Governors of the 

Federal Reserve System (Federal Reserve), and the Office of Thrift 

Supervision (OTS)—to obtain information on their process for reviewing 

CPP applications, the status of pending applications, and their 

examination process for reviewing uses of CPP funds and compliance with

TARP requirements. Also, we have developed an approach to determine 

the extent to which the review and approval process for CPP applications

has been consistently applied across financial institutions. Specifically, we

have collected documentation supporting all funding decisions for the 

period covering October 28, 2008, through January 31, 2009, and are in the

process of reviewing these decisions. For SSFI and TALF, we reviewed 

program revisions and agreements, as appropriate, and contacted officials 

from OFS. 

Scope and 

Methodology 

To describe Treasury’s efforts to preserve homeownership, we reviewed 

announcements, fact sheets, and program guidelines issued by Treasury 

and held meetings to discuss these documents with OFS. To describe how 

Treasury estimated the cost of the loan modification program and the 

number of borrowers it expected to reach, we reviewed written 

 4

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

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

2008) and Troubled Asset Relief Program: Status of Efforts to Address Transparency and

Accountability Issues, GAO-09-296 (Washington, D.C.: Jan. 30, 2009).

5

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-09-504 Troubled Asset Relief Program
 

explanations of OFS’s projections. To discuss the cross-agency effort to 

design and plan the implementation of the loan modification program, we 

reviewed Financial Agent Agreements that Treasury executed with Fannie 

Mae and Freddie Mac, and met with representatives of Fannie Mae, 

Freddie Mac, and the Federal Housing Finance Agency (FHFA), Federal

Housing Administration (FHA), OCC, and OTS.

To assess the progress of OFS’s hiring efforts, we reviewed OFS’s 

workforce planning documents, updated organizational chart, and OFS job 

announcements posted on USAJOBS. To assess its performance, we 

reviewed our prior work on human capital flexibilities, organizational 

transformation, and strategic workforce planning. In addition, we met with 

a variety of Treasury and OFS officials to discuss their approach to staffing 

the office in the near and long terms and their strategies for recruiting 

qualified individuals. We also discussed Treasury’s efforts to coordinate its 

recruitment and hiring efforts, including its use of human capital 

flexibilities, with officials from the Office of Personnel Management 

(OPM). 

To assess OFS’s use of contractors and financial agents to support TARP 

administration and operation for the period of January 21 through March 

13, 2009, we reviewed information from Treasury for new 

(1) contracts and financial agency agreements and (2) task orders, 

modifications, and amendments involving ongoing contracts and financial 

agency agreements. We also identified any small and/or disadvantaged 

business contractors or subcontractors providing TARP services and 

supplies. To obtain information concerning (1) the progress of ongoing 

actions taken by OFS and Treasury in response to our recommendation to 

improve oversight of TARP contractors and financial agents and (2) OFS’s 

reliance on contractors and financial agents to perform a range of 

professional and financial services in support of key TARP programs, we

reviewed applicable documents and interviewed officials from Treasury 

and two TARP contractors and one financial agent. To assess OFS’s 

progress responding to our recommendation for addressing potential 

conflicts of interest for new contractors and financial agents, we reviewed 

solicitation and contract documentation describing organizational and 

personal conflicts-of-interest issues and mitigation plans to address those 

issues. We interviewed officials and senior managers from Treasury and 

the TARP contractors and financial agent to obtain information on OFS’s 

and contractor’s policies and processes to ensure compliance with TARP 

conflicts of interest requirements. 

To assess the status of internal controls related to TARP activities and the 

status of TARP’s consideration of accounting and reporting topics, we 

Page 3 GAO-09-504 Troubled Asset Relief Program
 

reviewed documents provided by OFS and conducted interviews and made

inquiries with officials from OFS, including the Chief Financial Officer, 

Deputy Chief Financial Officer, Cash Management Officer, Director of 

Internal Controls, and their representatives. Additionally, we made 

inquiries with contractor personnel, including PricewaterhouseCoopers. 

To evaluate selected internal control activities related to the CPP and SSFI 

programs, we designed tests using the OFS’s process flows, narratives, 

risk matrices, and high-level operational procedures. For CPP, we made a 

statistical selection of 45 unique transactions for the 4 months ending 

January 31, 2009, using a monetary unit sampling (probability 

proportionate to size) methodology. For this sample, we tested selected 

CPP control activities related to asset purchases and dividend receipts. 

For SSFI, we tested the only SSFI transaction completed as of March 27, 

2009, including selected control activities related to dividends. 

In our initial report under the mandate, we identified a preliminary set of 

indicators on the state of credit and financial markets that might be 

suggestive of the performance and effectiveness of TARP. We consulted 

Treasury officials and other experts and analyzed available data sources 

and the academic literature. We selected a set of preliminary indicators 

that offered perspectives on different facets of credit and financial 

markets, including perceptions of risk, cost of credit, and flows of credit to 

businesses and consumers.6

 We assessed the reliability of the data upon 

which the indicators are based and found that, despite certain limitations, 

they were sufficiently reliable for our purposes. To update the indicators 

in this report, we primarily used data from the Federal Reserve. As these 

data are widely used, including by GAO and the Federal Reserve, and are 

considered to be a reliable and often definitive source for banking sector 

data, we conducted only a limited review of the data but ensured that the 

trends we found were consistent with other research. We also relied on 

data from the Chicago Board Options Exchange (CBOE), Inside Mortgage

Finance, Treasury, and Global Insight. We have relied on CBOE and 

Global Insight data for past reports, and we determined that, considered 

together, these auxiliary data were sufficiently reliable for the purpose of 

presenting and analyzing trends in financial markets. The data from 

Treasury’s survey of lending at the top 20 CPP recipients (as of December 

31, 2008) are based on internal reporting from participating institutions, 

and the definitions of loan categories may vary across banks. Because the

 6

No indicator on its own provides a definitive perspective on the state of markets; 

collectively, the indicators should provide a broad sense of stability and liquidity in the 

financial system and could be suggestive of the program’s impact. However, it is difficult to 

draw conclusions about causality. 

Page 4 GAO-09-504 Troubled Asset Relief Program
 

data are unique, we are not able to benchmark the origination levels 

against historical lending or seasonal patterns at these institutions. Based 

on discussions with Treasury and our review of the data, we found that the 

data are sufficiently reliable for the purpose of documenting trends in 

lending. The survey data will prove valuable for more thorough analyses of 

lending activity in future reports. 

We plan to continue to monitor the issues highlighted in our prior reports, 

as well as future and ongoing capital purchases, other more recent 

transactions undertaken as part of TARP, and the status of other aspects 

of TARP. Together with the Special Inspector General for TARP, we also 

plan to review the payment of taxes by the recipients of TARP funds. 

We conducted this performance audit between February 2009 and March

2009 in accordance with generally accepted government auditing 

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

obtain sufficient, appropriate evidence to provide a reasonable basis for 

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

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

Treasury has engaged in a variety of activities to address instability in the 

financial markets (see fig. 1). Leading up to the transition to the new 

administration, Treasury made additional equity purchases in financial

institutions under CPP and invested in and announced future plans to 

support the automotive industry under AIFP. Following the transition to 

the new administration on January 20, 2009, Treasury continued to make 

additional equity investments in financial institutions under CPP, 

announced plans to restructure the assistance previously provided to 

Citigroup Inc. (Citigroup) and American International Group, Inc. (AIG), 

and launched TALF, a consumer lending facility established by the Federal 

Reserve Bank of New York for which Treasury originally pledged support 

in November 2008. In addition, the new administration announced its plan

to pursue new initiatives under the authority of the act. 

Background 

Page 5 GAO-09-504 Troubled Asset Relief Program
 

Figure 1: Timeline of Program Activities for TARP, October 2008-March 2009 

2008

12/5: Treasury 

purchases about 

$3.8 billion in 

preferred stock 

and warrants

from 35 financial 

institutions under 

CPP.

12/12: Treasury purchases about $2.5 

billion in preferred stock and warrants

from 28 financial institutions under CPP.

12/23: Treasury purchases about $1.9 billion in preferred 

stock and warrants from 43 financial institutions under CPP.

10/3: Congress passes P.L. 

110-343, Emergency 

Economic Stabilization Act 

(the act), which authorized 

the Troubled Assets Relief 

Program (TARP).

10/14: Treasury announces that it will purchase up to $250 billion in financial firms’ preferred 

stock under TARP via the Capital

Purchase Program (CPP).

10/28: Treasury purchases $115 billion in preferred 

stock and warrants from 8 national financial 

institutions under the first round of CPP.a

11/14: Treasury purchases about $33.6 billion in preferred 

stock and warrants from 21 financial institutions under CPP.

11/25: Treasury announces allocation of $20 billion to back Term 

Asset-Backed Securities Loan Facility (TALF).

Treasury purchases $40 billion in preferred stock and warrants from 

AIG under the Systemically Significant Failing Institutions Program 

(SSFI).

12/19: Treasury purchases about $2.8 billion in preferred 

stock and warrants from 49 financial institutions under CPP.

12/31: Treasury purchases about $15 

billion in preferred stock and warrants from 

7 financial institutions under CPP.

Treasury purchases $20 billion in preferred 

stock and warrants from Citigroup that 

were announced on November 23, 2008, 

under the newly created Targeted 

Investment Program (TIP).

Treasury loans $4 billion to GM.

11/23: Treasury, FDIC, and the Federal Reserve enter into an agreement with 

Citigroup to provide a package of guarantees, liquidity access, and capital.

11/21: Treasury purchases about $2.9 

billion in preferred stock and warrants

from 23 financial institutions under CPP.

12/29: Treasury 

announces purchase 

of $5 billion in senior 

preferred equity from 

GMAC LLC and 

agrees to loan $1 

billion to support its

reorganization as a

bank holding company.

Source: GAO.

October November December

2/13: Treasury 

purchases about 

$429 million in 

preferred stock 

and warrants

from 29 

institutions

under CPP.

2/20: Treasury 

purchases about $365 

million in preferred 

stock and warrants

from 23 institutions

under CPP.

2/27: Treasury announces

plans to restructure 

assistance to Citigroup.

Treasury purchases about 

$395 million in preferred 

stock and warrants from 28 

institutions under CPP.

2/25: Treasury 

announces the 

terms and 

conditions for 

the Capital 

Assistance 

Program, part 

of the Financial 

Stability Plan.

3/4: The 

Administration 

announces the 

Making Home 

Affordable 

Program, part of 

the Homeowner 

Affordability and 

Stability Plan.

3/6:Treasury purchases about $285 million in preferred 

stock and warrants from 22 institutions under CPP.

3/13:Treasury purchases about $1.5 

billion in preferred stock and warrants

from 19 institutions under CPP.

3/16:Treasury announces it will 

begin purchasing securities

backed by Small Business

Administration (SBA) loans, 

temporarily raise guarantees and 

eliminate certain SBA loan fees.

3/23: Treasury, FDIC, 

and Federal Reserve 

announce details of the 

Public-Private Investment 

Program, part of the 

Financial Stability Plan.

3/3: Treasury and the Federal Reserve announce the launch of TALF.

3/2: Treasury and the Federal Reserve announce plans to restructure assistance to AIG.

2/17: Treasury loans

an additional $4 

billion to GM.

2/18:

Treasury 

announces

the 

Homeowner 

Affordability 

and Stability 

Plan.

2009

1/2: Treasury 

completes $4 

billion loan 

transaction with 

Chrysler Holding 

LLC as part of 

Auto Industry 

Financing 

Program (AIFP).

1/9: Treasury 

purchases about 

$14.8 billion in 

preferred stock 

and warrants

from 43 financial 

institutions under 

CPP.b

1/16: Treasury announces that it will make a $1.5 

billion loan to a special purpose entity created by 

Chrysler Financial to finance the extension of new 

consumer auto loans as part of the AIFP.

Treasury, the Federal Reserve, and FDIC announce finalization of the terms of 

the guarantee agreement with Citigroup announced on November 23, 2008. 

Treasury, the Federal Reserve, and FDIC enter into an agreement with Bank of 

America to guarantee about $118 billion of assets and provide capital 

assistance via purchase of preferred stock under TIP.

Treasury purchases about $1.5 billion in preferred stock and warrants from 39 

institutions under CPP.

1/21:

Treasury 

loans an 

additional 

$5.4 

billion to 

GM.

3/20: Treasury purchases

about $80.7 million in 

preferred stock and 

warrants from 10 financial 

institutions under CPP.

1/30: Treasury purchases about $1.2 billion in 

preferred stock and warrants from 42 

institutions under CPP. 

2/6: Treasury 

purchases

about $239 

million in 

preferred 

stock and 

warrants from 

28 institutions

under CPP.

1/20: Inauguration Day: Transition to the 

new administration.

2/10: Treasury announces the Financial Stability Plan.

1/23: Treasury purchases about $386 

million in preferred stock and warrants from 

23 institutions under CPP.

January February March

a

The participation of a ninth institution was deferred to allow for completion of its merger with another 

institution. 

Page 6 GAO-09-504 Troubled Asset Relief Program
 

b

This includes purchases of preferred stock and warrants from the institution whose receipt of CPP 

funds was deferred pending the completion of a merger (see October 28, 2009 CPP transaction). The

merger was completed on January 1, 2009. 

As we described in our January 2009 report, the act created other 

oversight entities in addition to our oversight responsibilities, including 

the Congressional Oversight Panel (COP), the Special Inspector General

for TARP (SIGTARP), and the Financial Stability Oversight Board 

(FinSOB).7

 We are coordinating our work with COP, SIGTARP, and 

FinSOB, and are meeting with officials from these entities to share 

information and effectively make use of our combined resources. These 

meetings help to ensure that we collaborate appropriately and eliminate 

unnecessary duplication of effort. 

After we issued our January 2009 report on TARP, COP issued reports in 

February and March 2009.8

 COP’s February 2009 report focused on the 

methods Treasury used to make equity investments in financial 

institutions under the CPP and concluded that Treasury paid substantially 

more for the assets it purchased under TARP than their then-current 

market value. COP’s March 2009 report reviewed Treasury’s plans to 

mitigate foreclosures, in particular Treasury’s Homeowner Affordability 

and Stability Plan. While the report acknowledges Treasury’s progress in 

providing increased refinancing and loan modification opportunities to 

homeowners, it also raised questions about, for example, legal protection 

for loan servicers involved with voluntary loan modifications, the role of 

second mortgages in the foreclosure process, and the federal regulators’ 

enforcement of new industrywide standards for financial institutions 

receiving TARP funds. 

In addition, SIGTARP issued its first report to Congress in February 2009.9

The report covers TARP activities through January 23, 2009, and describes 

how financial institutions used TARP funds during that period. SIGTARP 

recommended that TARP managers take action to increase transparency 

and oversight through various means, such as acknowledging SIGTARP’s 

oversight authority in TARP agreements, developing and communicating 

 7

GAO-09-296. 

8

Congressional Oversight Panel, Valuing Treasury’s Acquisitions (Washington, D.C., 

Feb. 6, 2009) and The Foreclosure Crisis: Working Towards a Solution (Washington, D.C.,

Mar. 6, 2009). 

9

Special Inspector General for Troubled Asset Relief Program, Initial Report to the

Congress (Washington, D.C., Feb. 6, 2009).

Page 7 GAO-09-504 Troubled Asset Relief Program
 

methods used to value program investments, and taking steps to prevent 

fraud, waste, and abuse of funds provided. 

FinSOB issued its first quarterly report on December 31, 2008, on 

Treasury’s policies to implement TARP.10 We summarized FinSOB’s report 

in our January 2009 report. FinSOB plans to issue its next quarterly report 

in spring 2009. 

As of March 27, 2009, Treasury had announced several programs under 

TARP with a maximum announced total funding of $667.4 billion of its 

$700 billion. As shown in table 1, as of that date Treasury’s projected use 

of funds was $590.4 billion and it had disbursed about $303.4 billion in 

TARP funds, approximately $198.8 billion of it for CPP. Included in this 

amount was $24.5 billion for General Motors Corporation (GM), Chrysler 

Holdings LLC (Chrysler), GMAC LLC, and Chrysler Financial Services 

Americas LLC. We have initiated a separate effort to, among other things, 

discuss the impact of federal financial assistance on the viability of GM 

and Chrysler. Treasury has recently announced the Financial Stability 

Plan, which outlines a set of measures to address the financial crisis and 

hopefully restore confidence in the U.S. financial and housing markets and 

a Homeowner Affordability and Stability Plan to mitigate foreclosures and 

preserve homeownership. A key component of the Financial Stability Plan 

is CAP, for which Treasury recently announced standardized terms. 

Treasury’s Strategy 

for Deploying TARP 

Funds Continues to 

Evolve, Though CPP 

Remains the Key 

Effort to Stabilize the 

Financial Markets 

 10Financial Stability Oversight Board, First Quarterly Report to Congress Pursuant to 

Section 104(g) of the Emergency Economic Stabilization Act of 2008 (Washington, D.C., 

Dec. 31, 2008). 

Page 8 GAO-09-504 Troubled Asset Relief Program
 

Table 1: Status of TARP Funds as of March 27, 2009 

Dollars in billions 

Program 

Maximum 

announced program

funding levela

Projected use

of funds Apportioned

Asset 

purchase 

priceb

Disbursed

Capital Purchase Program $250.0 $218.0 $230.0 $198.8 $198.8

Systemically Significant Failing Institutions 70.0 70.0 70.0 40.0 40.0

Targeted Investment Program 40.0 40.0 40.0 40.0 40.0

Automotive Industry Financing Program 24.9 24.9 24.9 24.8 24.5

Citigroup Asset Guarantee 5.0 5.0 5.0 5.0 0.0

Bank of America Asset Guarantee 7.5 7.5 0.0 0.0 0.0

Homeowner Affordability & Stability Plan 50.0 50.0 32.5 0.0 0.0

Term Asset-Backed Securities Loan Facility 

(TALF)c

100.0 55.0 20.0 20.0 0.1

Unlocking Credit for Small Business 15.0 15.0 0.0 0.0 0.0

Auto Supplier Support Program 5.0 5.0 0.0 0.0 0.0

Public-Private Investment Program 100.0 100.0 0.0 0.0 0.0

Capital Assistance Program TBDdTBD 0.0 0.0 0.0

Total $667.4 $590.4 $422.4 $328.6 $303.4

Source: Treasury OFS, unaudited. 

a

Some of Treasury’s announced transactions are not yet legal obligations and actual amounts will 

depend on participation. 

b

The Asset Purchase Price reflects the aggregate purchase price amount of outstanding troubled 

assets purchased by Treasury that are subject to the $700 billion purchase limit in section 115 of the 

act. It also includes the aggregate amount of outstanding guaranteed obligations subject to the limit, 

but before subtracting the balance in the Troubled Assets Insurance Financing Fund required by

section 102. 

c

Treasury considers this program part of its Consumer & Business Lending Initiative. 

d

Treasury has announced CAP but has not yet announced its funding level. 

Officers and employees of Treasury may not obligate or expend 

appropriated funds in excess of the amount apportioned by the Office of

Management and Budget (OMB) on behalf of the President. Of the funding 

levels announced for TARP, Treasury stated that OMB had apportioned 

about $422.4 billion as of March 27, 2009. Based on this information, it 

appears that Treasury has not exceeded the troubled asset purchase limit 

or obligated funds in excess of those OMB has apportioned. We are 

continuing to obtain additional information from Treasury and to review 

the controls that Treasury has in place to help ensure compliance with 

these restrictions. We will discuss these issues in subsequent reports. 

Page 9 GAO-09-504 Troubled Asset Relief Program
 

Treasury has continued to use CPP as a primary vehicle under TARP as it 

attempts to stabilize financial markets. As of March 27, 2009, Treasury had 

disbursed about 80 percent of the $250 billion it had allocated for CPP to 

purchase almost $198.8 billion in preferred shares of 532 qualified financial 

institutions.11 These purchases ranged from about $300,000 to $25 billion 

per institution. About $4.6 billion in preferred stock shares of 215 financial 

institutions has been purchased since our January 2009 report. 

CPP Continued to Be a 

Primary Vehicle for

Stabilizing the Financial 

Markets 

Table 2: Capital Investments Made through the Capital Purchase Program, as of March 27, 2009

Closing date of 

transaction 

Amount of CPP capital

investment

Cumulative percentage of

allocated fund used for CPP 

capital investment

Number of qualified financial 

institutions receiving CPP capital

10/28/2008 $115,000,000,000 46.0 8

11/14/2008 33,561,409,000 59.4 21

11/21/2008 2,909,754,000 60.6 23

12/05/2008 3,835,635,000 62.1 35

12/12/2008 2,450,054,000 63.1 28

12/19/2008 2,791,950,000 64.2 49

12/23/2008 1,911,751,000 65.0 43

12/31/2008 15,078,947,000 71.0 7

1/09/2009 14,771,598,000 76.9 43

1/16/2009 1,479,938,000 77.5 39

1/23/2009 385,965,000 77.7 23

1/30/2009 1,151,218,000 78.1 42

2/06/2009 238,555,000 78.2 28

2/13/2009 429,069,000 78.4 29

2/20/2009 365,397,000 78.5 23

2/27/2009 394,906,000 78.7 28

3/06/2009 284,675,000 78.8 22

3/13/2009 1,455,160,000 79.4 19

3/20/2009 80,748,000 79.4 10

3/27/2009 192,958,000 79.5 14

Total $198,769,687,000 79.5% 532a

Source: Treasury and GAO. 

 11For purposes of CPP, financial institutions generally include qualifying U.S.-controlled

banks, savings associations, and both bank and savings and loan holding companies. 

Page 10 GAO-09-504 Troubled Asset Relief Program
 

a

The total number of financial institutions was reduced by two because SunTrust Banks, Inc. 

(SunTrust) and Bank of America Corporation (Bank of America) each received two capital 

investments under CPP. SunTrust received a partial capital investment of $3.5 billion on November

14, 2008, and another of $1.35 billion on December 31, 2008. Bank of America received $15 billion 

on October 28, 2008, and, after merging with Merrill Lynch & Co., Inc., an additional $10 billion on 

January 9, 2009.

As of March 27, 2009, the types of institutions that had received CPP 

capital included 272 publicly held institutions, 248 privately held 

institutions, and 12 community development financial institutions 

(CDFI).12 These purchases represented investments in state-chartered and 

national banks and bank holding companies located in 48 states, the 

District of Columbia, and Puerto Rico. For a detailed listing of banks that 

received CPP funds as of March 20, 2009, see the e-supplement to 

GAO-09-504, available electronically at GAO-09-522SP.

13

According to OFS and the bank regulators, over a thousand applications

for funding are under review. As of March 27, 2009, Treasury was in the 

process of reviewing approval recommendations from bank regulators for 

1,190 qualified financial institutions. Treasury also reported that the bank

regulators were reviewing applications from more than 750 institutions 

that had not yet been forwarded to Treasury. Qualified financial 

institutions generally have 30 calendar days after Treasury notifies them of 

preliminary approval for CPP funding to submit investment agreements 

and related documentation. OFS officials stated that over 250 financial

institutions that received preliminary approval had withdrawn their CPP 

applications as of March 27, 2009. Further, Treasury officials stated that 

some of these institutions had indicated that they were uncomfortable 

with the uncertainty surrounding future program requirements. As of 

March 27, 2009, Treasury had yet to deny an application. 

We are continuing to examine the process for accepting and approving 

CPP applications. Specifically, we have developed a methodology for 

reviewing CPP applications that had been funded from October 2008 

 12A CDFI is a specialized financial institution that works in market niches that are 

underserved by traditional financial institutions. CDFIs provide a range of financial 

products and services, such as mortgage financing for low-income and first-time 

homebuyers and not-for-profit developers; flexible underwriting and risk capital for needed

community facilities; and technical assistance, commercial loans, and investments to small 

start-up or expanding businesses in low-income areas. 

13GAO, Troubled Asset Relief Program: Capital Purchase Program Transactions for the

Period of October 28, 2008, through March 20, 2009, and Information on Financial 

Agency Agreement, Contract, and Blanket Purchase Agreements Awarded as of March 13,

2009, GAO-09-522SP (Washington, D.C.: Mar. 31, 2009).

Page 11 GAO-09-504 Troubled Asset Relief Program
 

through January 2009 to determine the extent to which the regulators and

OFS were consistently applying established criteria and adequately 

documenting the regulators’ recommendations and OFS’s final decisions.

As part of this review, we have collected relevant case decision memos 

and other supporting documentation from Treasury and the regulators. We 

will also continue to coordinate and leverage the work of other agencies 

and offices involved in the oversight of CPP, including the COP, the 

Offices of the Inspector General of FDIC, Federal Reserve, Treasury, and 

SIGTARP, all of which have work under way on their review of CPP’s 

implementation at their respective agencies. In coordination with the 

other oversight agencies and offices, we plan to focus our initial review on

the final phases of the CPP application process—from the point at which 

the regulators transmit their recommendations to Treasury to the final 

approval by OFS’s Interim Assistant Secretary. 

OFS Has Started 

Monitoring All 

Participants’ Use of CPP 

Funds but Has Not Yet 

Hired Asset Managers to 

Help Ensure Compliance 

with Purchase Agreements 

Treasury has taken a number of important steps toward better reporting 

and monitoring of CPP. These steps are consistent with our prior 

recommendations that Treasury bolster its ability to determine whether all 

institutions are using CPP proceeds in ways that are consistent with the 

act’s purposes. Treasury has completed the first 2 monthly surveys of the

20 largest institutions to monitor their lending and issued its first report in 

February 2009.14 In our January 2009 report, we recommended that 

Treasury expand these surveys to include all CPP participants. In 

response, Treasury expanded the monthly survey to all CPP participants 

as of March 2009. In addition, it plans to release its analysis of quarterly 

monitoring data (call reports) for all reporting institutions by June 30, 

2009.

15 Treasury is also requiring that, starting in April 2009, the monthly 

surveys of the large CPP recipients collect information on lending to small 

businesses. Taken together, these monthly surveys are a step toward 

greater transparency and accountability for institutions of all sizes. Survey 

results will allow Treasury’s newly created team of analysts to understand 

how institutions are using CPP funds and will help in measuring the 

program’s effectiveness. We will continue to monitor Treasury’s oversight 

efforts, including implementation of its new survey of smaller institutions. 

 14See Treasury Department Monthly Lending and Intermediation Snapshot: Summary 

Analysis for October-December 2008, http://www.ustreas.gov/press/releases/tg30.htm. 

15Call reports are quarterly reports that collect basic financial data of commercial banks in 

the form of a balance sheet and income statement (formally known as Report of Condition 

and Income). 

Page 12 GAO-09-504 Troubled Asset Relief Program
 

Also consistent with our prior recommendations, Treasury has continued 

to take steps to increase its oversight of compliance with terms of the CPP 

agreements, including limitations on executive compensation, dividends,

and stock repurchases. Participating institutions are required to comply 

with the terms of these agreements, and we recommended that Treasury 

develop a process to monitor and enforce them. Treasury has named an 

Interim Chief Compliance Officer and uses information sources such as 

Bloomberg, SEC filings, press releases, and other information sources to 

monitor dividend payments and stock repurchases. Treasury officials told

us that they still plan to hire asset managers, whose primary role will be to 

provide market advice about the portfolio, but also will help monitor 

dividends and stock purchase limitations. They noted that asset managers 

will have a limited role in the area of executive compensation. To date, 

they had not yet hired any asset managers. Without a more structured 

mechanism in place, and with a growing number of institutions 

participating in the program, ensuring compliance with these important 

aspects of the program will become increasingly challenging. While the 

institutions are obligated to comply with the terms of the agreement, 

Treasury has not developed a process to help ensure this compliance and 

to verify that any required certifications are accurate. 

On February 4, 2009, Treasury issued a press release announcing a new set 

of guidelines on executive pay for financial institutions that receive

government assistance. However, the Emergency Economic Stabilization

Act, as amended by the American Recovery and Reinvestment Act of 2009, 

imposed additional standards. Specifically, it generally prohibits (1) bonus 

and incentive compensation payments to certain employees, depending on

the amount of TARP assistance received, (2) certain golden parachutes, 

and (3) compensation that encourages risk-taking that would threaten the

value of the institution. The new law also requires (1) reimbursement 

(clawback) of certain bonus or incentive compensation based on 

materially inaccurate criteria, (2) compensation tax deduction limits, (3) 

compliance certification, (4) establishment of a policy on excessive or 

luxury expenditures, (5) creation of a board compensation committee, and 

(6) permission to conduct a nonbinding shareholder vote on pay. 

According to Treasury, it is planning to implement its guidelines and the 

new law. We will be monitoring these efforts. 

Page 13 GAO-09-504 Troubled Asset Relief Program
 

On February 27, 2009, Treasury announced that Citigroup had asked it to 

participate in an exchange of preferred shares for common stock so that 

the institution could strengthen its capital structure by increasing tangible

common equity. According to Citigroup, this would help remove 

uncertainty and help restore confidence in the company. But the 

conversion potentially increases risks to the government and taxpayers, 

because common stockholders are lower in the ownership structure than 

preferred shareholders.16 Terms of the transaction were also announced, 

but the exchange offering had not occurred as of March 27, 2009. Treasury

noted that it was willing to participate in Citigroup’s exchange offering on 

the following conditions: 

Treasury Agrees to 

Participate in Citigroup’s 

Proposed Exchange 

Offering If Certain 

Conditions Are Met 

• Treasury would convert its preferred shares only in an amount equal to

the amount of preferred stock converted by other preferred 

shareholders and would only participate if at least $11.5 billion in 

privately held preferred stock was converted. 

• Up to $25 billion of Treasury’s CPP senior preferred shares would be 

converted to common stock in the exchange offering. 

• The $20 billion in Treasury’s preferred shares issued under TIP and the 

$4 billion in preferred shares issued under the Asset Guarantee 

Program (AGP) to Treasury would be converted into a trust preferred 

security of greater seniority that would have the same 8 percent 

dividend rate as the existing preferred stock.17

• Treasury would receive the most favorable terms and price offered 

through the exchange offering. 

 16Tangible common equity equals shareholder’s equity minus preferred shares minus

intangible assets. 

17FDIC will also receive $3 billion in preferred stock, for a total of $7 billion. 

Page 14 GAO-09-504 Troubled Asset Relief Program
 

On March 2, 2009, the Federal Reserve and Treasury announced plans to 

restructure and expand AIG’s assistance.18 Under the announced plans, 

Treasury is to receive noncumulative preferred stock equal to the sum of 

the $40 billion in cumulative preferred stock previously issued to Treasury 

on November 25, 2008, plus any accrued and unpaid dividends related to 

those shares.19 According to OFS officials, this conversion will not increase 

the amount of money the government has invested in AIG but will help 

AIG maintain its credit rating, because credit rating agencies generally

weight noncumulative preferred stock as 75 percent equity when 

calculating capital, compared with 25 percent for cumulative preferred 

stock.20 This change will result in a more favorable treatment of Treasury’s 

investment in AIG by the credit rating agencies. In addition, the 

restructuring plan creates an equity capital facility that will enable AIG to 

issue to Treasury up to $30 billion in new preferred shares that generally

will have the same terms as the planned $40 billion preferred stock 

restructuring. The equity capital facility had not been funded as of March 

27, 2009, and negotiations are ongoing. 

Treasury’s Recently 

Announced Assistance to 

AIG Provides an 

Opportunity to Encourage 

AIG to Renegotiate 

Contracts as Appropriate 

In reviewing government assistance to the private sector in the past, we 

found that it was essential to establish mechanisms, structures, and 

protections to help ensure prudent use of taxpayer resources and to 

manage the government’s risk, consistent with the congressional goals and 

objectives of any federal financial assistance program such as SSFI.21

Further, because assistance programs pose significant financial risk to the

federal government, consistent with Treasury’s announced executive 

compensation guidelines, appropriate mechanisms are needed to help 

protect the government and taxpayers from excessive or unnecessary 

risks. 

 18See GAO, Federal Financial Assistance: Preliminary Observations on Assistance

Provided to AIG, GAO-09-490T (Washington, D.C.: Mar. 18, 2009) for discussion on the 

Federal Reserve’s restructuring of AIG’s debt.

19Dividends do not accumulate on noncumulative preferred stock. 

20This statement reflects the market’s view that cumulative preferred stock is generally 

viewed as more akin to debt than equity. 

21GAO, Troubled Financial Institutions: Solutions to the Thrift Industry Problem 

(GAO/GGD-89-47, Feb. 21, 1989), Resolving the Savings and Loan Crisis

(GAO/T-GGD-89-3, Jan. 26, 1989), Guidelines for Rescuing Large Failing Firms and

Municipalities (GAO/GGD-84-34, Mar. 29, 1984), and Commercial Aviation: A Framework

for Considering Federal Financial Assistance (GAO-01-1163T, Sept. 20, 2001). 

Page 15 GAO-09-504 Troubled Asset Relief Program
 

There are a number of actions that have been taken in the past that could 

be considered as Treasury completes its negotiations with AIG and any 

future SSFI recipients. But one in particular—obtaining concessions from

others with an interest in the outcome—seems most relevant in light of 

AIG’s recent payment of $165 million in retention bonuses to employees of 

its Financial Products division. In past crises, and when asked in 

December 2008 about providing assistance to the automakers as part of 

the government’s response to the current crisis, we have stated that the 

government should require concessions from those with a stake in the 

outcome. In AIG’s case, those with such a stake would include

management, employees, derivatives counterparties, and creditors. For 

example, concessions could include requiring AIG to seek to renegotiate

existing employee bonus contracts and derivatives contracts, as 

appropriate. Consistent with this view, the Treasury Secretary also noted 

the need for “strong conditions to protect the taxpayers” when providing 

exceptional assistance when he announced the Financial Stability Plan. As

we have stated in the past, the concessions are not meant to extract 

penalties for past actions, but to ensure cooperation and flexibility in 

securing a successful future outcome. Treasury has an opportunity to 

negotiate additional requirements into its latest agreement, including that

AIG seek additional concessions from others for the up to $30 billion in 

additional federal assistance. While the purchase of preferred shares in 

AIG differs from previous cases of federal assistance, which were usually 

loans or loan guarantees, the fundamentals are the same in terms of the 

need to protect the government’s interests. If such concessions are not 

considered to be in the government’s interest, the reasons should be 

clearly articulated and explained. 

Treasury Has Taken Steps 

to More Clearly Articulate 

Its Strategy for Stabilizing 

Financial Markets and 

Continued to Finalize the 

Details 

In our January 2009 report, we recommended that Treasury articulate a 

clear strategy for TARP. In response to such calls for greater transparency 

and a clear strategy, Treasury announced the Financial Stability Plan in 

February that outlined a comprehensive set of measures to help address 

the financial crisis and restore confidence in our financial markets. 

Treasury described the plan as a comprehensive approach designed to 

resolve the credit crisis by restarting the flow of credit to consumers and 

businesses, strengthening financial institutions, and providing aid to 

homeowners and small businesses. The plan established six components: 

Capital Assistance Program; Public-Private Investment Fund; Consumer 

and Business Lending Initiative; Small Business and Community Lending 

Initiative; Affordable Housing Support and Foreclosure Prevention Plan 

(Housing Affordability and Modification Plan); and Transparency and 

Accountability Agenda. 

Page 16 GAO-09-504 Troubled Asset Relief Program
 

CAP is designed to help ensure that qualified financial institutions have 

sufficient capital to withstand severe economic challenges. These 

institutions must meet eligibility requirements, which will be substantially 

similar to those used for CPP. A key component of CAP is a forwardlooking supervisory assessment (“stress test”) of the 19 largest institutions 

(those with risk-weighted assets of $100 billion or more).22 Bank regulators 

will use the results of this stress test, along with their specific knowledge 

of the institutions’ portfolios and management strategies, to assess 

whether they have the capital necessary to continue lending and to absorb

the potential losses that could result from a more severe decline in the 

economy than currently projected by professional economic forecasters. 

Currently, the 19 largest institutions are undergoing comprehensive stress 

tests that are expected to be completed by the end of April 2009. 

Regulators will use the stress test results to determine whether the 

institutions have enough capital to absorb losses from a severe economic 

downturn and continue lending. Institutions that do not will have 6 months 

to raise private capital or to access capital through CAP. Institutions with 

less than $100 billion in risk-weighted assets do not have to complete a 

stress test but are also eligible to obtain capital under CAP. In a process 

similar to the one used for CPP, institutions interested in CAP must submit 

their CAP applications to their primary banking regulators by May 25, 

2009. The regulators are to submit recommendations to Treasury regarding

an applicant’s viability. CAP is currently available only to publicly traded 

institutions, but Treasury is developing terms for privately held

institutions, subchapter S-corporations, and mutuals.23

The Capital Assistance 

Program Has Been Launched 

All approved institutions will have 6 months to raise capital from the 

private sector, or Treasury will purchase convertible preferred shares to 

help the institution absorb losses and raise private capital.24 Any capital 

investments made by Treasury under CAP will be managed by a separate 

entity—the Financial Stability Trust. Under CAP, an institution can receive 

an investment of 1 to 2 percent of its risk-weighted assets. These 

institutions can also receive additional capital to redeem senior preferred 

 22Risk-weighted assets are the total assets and off balance sheet items held by an institution 

that are weighted for risk according to regulation by the Federal Reserve. 

23An S corporation makes a valid election to be taxed under Subchapter S of Chapter 1 of 

the Internal Revenue Code and, thus, does not pay any income taxes. Instead, the 

corporation’s income or losses are divided among and passed through to its shareholders.

A mutual organization is a company that is owned by its customers, rather than by a

separate group of stockholders. Many thrifts and insurance companies (for example, 

Metropolitan and Prudential) are mutuals. 

24These preferred shares will be convertible to common shares.

Page 17 GAO-09-504 Troubled Asset Relief Program
 

shares issued under CPP, enabling them to replace the existing preferred 

shares with convertible preferred shares.25 If applicable, the proceeds from 

the sale of the convertible preferred also may be used to redeem the 

preferred stock sold to Treasury under TIP. Issuance of the convertible 

preferred stock to Treasury under CAP is considered Tier 1 regulatory 

capital for holding companies and a “qualified equity offering” for CPP 

purposes.26 In addition, the issuance of convertible preferred stock in 

excess of 1 to 2 percent of the institution’s risk-weighted assets may be 

available on a case-by-case basis and will constitute “exceptional 

assistance” requiring additional terms and conditions. CAP convertible 

preferred stock shares will carry a 9 percent dividend yield that may 

increase to 20 percent if the necessary shareholder approvals are not 

received by the 6-month anniversary after issuance. Subject to the 

approval of the primary bank regulator, such shares can be redeemed at 

their face value, plus any accrued and unpaid dividends prior to 2 years.27

These shares are convertible into common stock at a price equal to 90

percent of the average closing price for the 20 trading-day period ending 

February 9, 2009.

28 The convertible preferred stock mandatorily converts 

to common equity after 7 years, and after the mandatory conversion date, 

Treasury must make reasonable efforts to sell, on an annual basis, an 

amount of common stock equal to at least 20 percent of the amount of 

stock owned on the mandatory conversion date. 

Under CAP, Treasury will also receive warrants to purchase a number of 

shares of common stock of the financial institution equaling 20 percent of

the convertible preferred stock amount on the date of the investment.29 If 

 25While the CAP term sheet and application includes TIP participants, according to

Treasury officials, CAP will be limited to CPP participants. 

26Tier 1 capital is the core measure of a bank’s financial strength from a regulator’s point of 

view. It is considered the most stable and readily available capital for supporting a bank’s

operations. A “qualified equity offering” under CPP is the sale and issuance of Tier 1

qualifying perpetual preferred stock, common stock, or a combination of such stock for 

cash. CPP senior preferred may be redeemed prior to 3 years from the date of investment

only if the proceeds of “qualified equity offerings” results in aggregate gross proceeds to 

the financial institutions of not less than 25 percent of the issue price of the senior 

preferred.

27Such shares are redeemable with the proceeds of a cash sale of common stock, provided

that the gross proceeds from the stock sale are at least 25 percent of the CAP convertible

preferred issuance price or additions to retained earnings. 

28This date is one day before the Treasury announced its Financial Stability Plan. 

29The date of the investment is the date that Treasury provides capital assistance to a 

financial institution.

Page 18 GAO-09-504 Troubled Asset Relief Program
 

any necessary shareholder approvals are not received, the exercise price 

will be reduced by 15 percent of the original exercise price on each 6-

month anniversary of the issue date of the warrants,30 subject to a 

maximum reduction of 45 percent of the original exercise price. Treasury 

requires that participants be subject to restrictions on executive 

compensation, payment of common stock dividends, repurchase of shares, 

and cash acquisitions. Institutions also must comply with Treasury rules, 

regulations, and guidance regarding executive compensation, 

transparency, accountability, and monitoring, as published and in effect at 

the time of the investment closing. In addition, as part of the application

process institutions must submit a plan showing how they intend to use 

this capital to support their lending activities and how lending will 

increase over what would have been possible without government 

assistance. Collecting this information from CAP applicants addresses 

concerns we raised in our January report about the need to ensure an 

appropriate level of accountability and transparency for those institutions 

receiving TARP funds. Participating institutions under CAP will be 

required to submit to Treasury monthly reports—similar to those for 

CPP—on their lending activities. 

On March 23, 2009, the Federal Reserve, FDIC, and Treasury released the 

details of the Public-Private Investment Plan. The plan is designed to help

reduce the liquidity discounts currently observed in the prices of legacy 

assets—troubled assets on banks’ books—and protect taxpayers by 

ensuring that the government is not paying more for assets than their longrun value, as determined by private investors. The plan consists of two key 

elements: the Legacy Loans Program and the Legacy Securities Program. 

TARP funds will be used to invest alongside private capital on similar 

terms, reducing the likelihood taxpayers will be overpaying for assets. 

Public-Private Partnership 

Investment Fund Programs 

Have Been Established 

Through an auction process, the Legacy Loans Program will purchase 

troubled and illiquid loans and other assets in “substantially sized” pools 

from insured banks and thrifts. FDIC and Treasury launched this program 

to attract private capital to purchase eligible legacy loans from

participating banks through the provision of FDIC debt guarantees and 

Treasury equity co-investment. The funds will have asset managers for 

asset management and servicing within parameters established by FDIC 

and Treasury and are designed to facilitate buy-and-hold strategies. FDIC 

 30If the institution does not have sufficient available authorized shares of common stock to

reserve for the conversion of the convertible preferred and the exercise of the warrants

and stockholder approval is required for issuance, the institution is to call a meeting of its

stockholders to increase the number of authorized shares of common stock.

Page 19 GAO-09-504 Troubled Asset Relief Program
 

will oversee the formation, funding, and operation of the new funds that 

will purchase the debt, and private sector investors and Treasury will 

provide equity to the funds. The funds will finance their purchases with 

FDIC-guaranteed debt. FDIC, in conjunction with participating banks, 

Treasury, private investors, and contractors, will administer the auctions 

of the asset pools. With input from a third-party valuation firm, FDIC will 

establish financing terms and leverage ratios for each fund and disclose 

these terms to potential investors as part of the auction process. Banks 

that sell the pools get cash and FDIC-guaranteed debt issued by the funds. 

Treasury and the private sector investors will share profits and losses in 

proportion to their investment; FDIC’s guarantee of the public-private 

investment funds’ debt will be secured by the eligible assets purchased by 

the funds. FDIC and Treasury will establish governance procedures. 

Eligible private investors must be prequalified by FDIC and are expected 

to include, but are not limited to, financial institutions, individuals, 

publicly managed investment funds, and pension funds. According to an 

OFS official, participating banks will initially include the 19 banks that are 

undergoing the stress test under CAP. Interested banks are to work with 

their primary regulators to identify and evaluate eligible asset pools to be 

sold and the corresponding impact on the bank from the sale. Once 

potential pools are identified, the banks and regulators are to contact 

FDIC. The banks must demonstrate to the satisfaction of Treasury and 

FDIC that the contemplated loan pools qualify, based upon Treasury and 

FDIC agreed-upon minimum requirements. The goal is to restore 

maximum confidence for depositors, creditors, investors, and other 

counterparties. OFS officials noted that the program is anticipated to 

expand to include other insured institutions not participating in the stress 

test. 

The Legacy Securities Program consists of two related parts designed to 

draw private capital into these markets: first, by providing debt financing 

from the Federal Reserve under TALF; second, through Treasury’s 

partnering side-by-side with private investors in legacy securities 

investment funds. The goal of the Legacy Securities Program is to restart 

the market for legacy securities, allowing banks and other financial 

institutions to free up capital and stimulate the extension of new credit. 

Treasury and FDIC encourage small, veteran-, minority- and womenowned private managers to partner with others that meet minimum 

bidding criteria. 

Through TALF, nonrecourse loans will be made available to investors to 

fund purchases of legacy securitization assets. Eligible assets are expected 

to include certain nonagency residential mortgage-backed securities that 

Page 20 GAO-09-504 Troubled Asset Relief Program
 

were originally rated Aaa, outstanding commercial mortgage-backed 

securities (CMBS), and asset-backed securities (ABS) that are rated Aaa. 

Borrowers must meet eligibility criteria. Haircuts—a percentage reduction 

of collateral valuation—minimum loan sizes, loan durations, and interest 

rates have not been determined for eligible assets. 

In the new program that will have Treasury partnering with private fund 

managers to support the market for legacy securities, public-private 

investment funds raise equity capital from private investors and receive 

matching equity funds and leverage from Treasury. The investment 

objective of the funds will be to generate attractive returns for both the 

Treasury and the private investors, predominantly by following a longterm buy-and-hold strategy, but Treasury will consider other strategies 

involving limited trading. 

Treasury has published criteria for potential fund managers and is 

accepting applications until April 10, 2009. The criteria include a 

demonstrable historical track record in the targeted asset classes, a 

minimum amount of assets under management in the targeted asset 

classes, and detailed structural proposals for the proposed legacy 

securities public-private investment fund. Treasury currently expects to 

approve approximately five fund managers, although more may be added, 

depending on the quality of applications received. Approved fund 

managers for the public-private investment funds will raise the private 

equity capital and make control decisions, including asset selection, 

pricing, liquidation, trading, and disposition. Applicants will have a limited 

period of time from preliminary approval to raise at least $500 million in 

private capital and demonstrate committed capital before receiving final 

approval from Treasury. 

Treasury equity capital will be invested on a fully side-by-side basis with 

private investors in each public-private investment fund. Moreover, 

subject to certain restrictions, fund managers will have the option to 

obtain secured nonrecourse loans from Treasury (up to 50 percent of a 

fund’s total equity capital), an amount that could rise to 100 percent, 

subject to additional restrictions. Treasury debt financing will be secured

by the eligible assets held by the applicable fund. Loans made by Treasury 

to any public-private investment fund will accrue interest at an annual rate 

to be determined by Treasury and will be payable in full on the date of 

termination. As required by the act, Treasury will take warrants, whose 

terms and amounts will be determined, in part, on the amount of Treasury 

debt financing taken. Additionally, fund managers may charge private 

investor fees at their discretion, and Treasury will accept proposals for 

Page 21 GAO-09-504 Troubled Asset Relief Program
 

fixed management fees, to apply as a percentage of equity capital 

contributions for invested equity capital. 

This initiative builds on previous efforts of the Federal Reserve and 

Treasury to establish TALF, which was announced in November 2008. 

TALF is intended to increase the availability of credit for consumers and 

businesses. Originally, TALF was set up as a $200 billion program to 

support consumer finance securitization markets—specifically, credit 

cards, auto loans, student loans, and small business loans—and would be 

partially supported by $20 billion in TARP funds. In February 2009, as part 

of the Financial Stability Plan, the Federal Reserve and Treasury 

announced an expansion of TALF to include increasing the funding size up

to $1 trillion, with Treasury providing up to $100 billion in TARP funds. On 

March 19, 2009, the Federal Reserve extended the range of eligible 

collateral to include ABS backed by mortgage servicing advances, 

business equipment loans or leases, floorplan loans, and leases of business 

fleets. The Federal Reserve noted that the objective in expanding TALF 

would be to provide additional assistance to financial markets and 

institutions to meet the credit needs of households and businesses and 

thus, to support overall economic growth in the current period of severe 

financial strains. 

Federal Reserve and Treasury 

Launch Consumer and 

Business Lending Initiative 

Under TALF, the Federal Reserve will make nonrecourse loans to certain 

holders of Aaa-rated ABS secured by newly and recently originated 

consumer and small business loans. These will be 3-year loans, secured by 

eligible collateral. Haircuts will be determined based on the level of risk 

for each type of eligible collateral and the maturity of the pledged 

collateral. 

On March 3, 2009, Treasury and Federal Reserve launched TALF. Funding 

requests were accepted on March 19, 2009, and on March 25, 2009, the new

securitizations were funded by the program. Since our January 2009 

report, the Federal Reserve has released revised terms and conditions for 

the facility and revised sets of frequently asked questions. The revisions 

include (1) a reduction in the interest rate and collateral haircuts for loans 

secured by the Small Business Administration (SBA) or backed by 

government-guaranteed student loans; (2) a statement that executive

compensation restrictions will not apply to TALF sponsors, underwriters, 

and borrowers as a result of their participation; and (3) a requirement that 

participating sponsors certify that the ABS are eligible under TALF and 

include an attestation by an independent accounting firm of the securities’ 

eligibility. TALF fundings will be held monthly and will cease at the end of 

2009, unless the Federal Reserve extends the program. As described 

previously, on March 23, 2009, Treasury and the Federal Reserve 

Page 22 GAO-09-504 Troubled Asset Relief Program
 

announced that TALF would be broadened to include certain legacy 

securities. 

Treasury announced that, working together with the Federal Reserve, it 

would establish a lending facility to increase lending in the secondary 

markets, reduce borrowing costs, and unfreeze the credit markets to get 

credit flowing again to small businesses and consumers. Originally, this 

lending facility was to be structured like TALF—Treasury providing 

capital and the Federal Reserve providing financing—but, instead, it was 

rolled into TALF. Treasury also announced that it would commit up to $15 

billion to purchase securities backed by the guaranteed portion of loans 

made under SBA’s 7(a) and the first-lien mortgages of the 504 Community

Development Loan Program.31 In addition to these activities under TARP, 

SBA will take several steps to make it easier for small businesses to obtain 

credit from community and large banks, including increasing the federally 

guaranteed portion of loans, eliminating or reducing fees for SBA loans, 

and expediting approval of loans. 

Small Business and Community 

Lending Facility Was Rolled 

Into TALF 

On March 4, 2009, Treasury unveiled the structure and key components of 

its Making Home Affordable program. One of its components—the Home 

Affordable Modification Program (HAMP)—will use $50 billion in TARP 

funds to modify mortgages. According to OFS officials, Fannie Mae and 

Freddie Mac will provide an additional $25 billion, for a total of $75 billion, 

to help up to 3 million to 4 million homeowners avoid potential 

foreclosure.32 The goal of modifying these mortgages is to reduce 

participants’ monthly mortgage payments to affordable levels (a mortgage 

debt-to-income ratio of 31 percent).33 Treasury will share the cost of 

restructuring the mortgages with lenders (if financial institutions hold the 

A Mortgage Modification 

Program Has Been Announced, 

but Significant Program 

Components and Controls Are 

under Development 

 31SBA’s 7(a) program guarantees loans made by commercial lenders—mostly banks—to 

small businesses for working capital and other general purposes. The guarantee assures the 

lender that if a borrower defaults on a loan, the lender will receive an agreed-upon portion 

(generally between 50 percent and 85 percent) of the outstanding balance. The 504 

program provides long-term, fixed-rate financing for major fixed assets, such as land and 

buildings, through a loan backed by an SBA-guaranteed debenture from a community 

development company. These purchases will include securities packaged on or after July 1, 

2008. 

32According to Treasury officials, TARP funds will be used to modify mortgages that 

financial institutions own and hold in their portfolios (whole loans) and private-label 

securitized loans (loans not insured or guaranteed by Fannie Mae, Freddie Mac, HUD’s 

FHA, the Department of Veterans Affairs, and rural housing loans). 

33Treasury’s HAMP guidelines, issued on March 4, 2009, specify the use of a ratio of 

principal, interest, taxes, insurance, and any association fees to monthly gross income for 

the debt-to-income calculation. 

Page 23 GAO-09-504 Troubled Asset Relief Program
 

whole loans) or investors (if the loans have been securitized). The lender 

or investor must first reduce the borrower’s monthly mortgage payment 

down to 38 percent of income. For these mortgages, Treasury will then 

match further reductions on a dollar-for-dollar basis down to the target of

31 percent. For eligible loans where the borrower’s monthly mortgage 

payment is already below 38 percent, Treasury matches reductions in 

mortgage payments from the borrower’s current monthly payment. 

According to Treasury, loan servicers could begin modifying mortgages 

consistent with HAMP guidelines as of March 4, 2009. However, Treasury 

will not make payments under HAMP until it has executed contracts, 

which are currently in draft form, with the servicers. Treasury has 

announced a series of financial incentives for loan servicers, mortgage 

holders/investors, and borrowers that are intended to encourage servicers 

to modify loans, borrowers to continue paying on time under the modified 

loans, and servicers and mortgage holders/investors to modify at-risk loans 

before borrowers miss payments. Within OFS, the Office of 

Homeownership Preservation is responsible for administering HAMP and 

is led by a new interim chief. The structure and initial hiring for this office 

are in progress, and its efforts are supported by other personnel within 

OFS and Treasury. The Making Home Affordable program also includes a 

non-TARP funded initiative to help up to 4 million to 5 million 

homeowners refinance loans owned or guaranteed by Freddie Mac and 

Fannie Mae at current market rates. According to Treasury, this initiative

could help homeowners save thousands of dollars in annual mortgage 

payments. 

Treasury worked with other agencies to estimate the cost and number of 

borrowers who would be eligible for loan modifications under HAMP and 

to design program parameters. Treasury stated that it used data from 

commercial vendors, Fannie Mae, and Freddie Mac to estimate the 

potential universe of homeowners who were in default or likely to be in

imminent danger of default from April 2009 to March 2012 and the number 

of homeowners eligible and likely to participate in HAMP during the 

program’s 3-year application period. Treasury then estimated the cost of 

the key parameters of HAMP, including the monthly payment subsidy, 

incentive payments, and other payments—for example, payments to 

homeowners for signing over deeds instead of going through foreclosure 

proceedings, and payments to lenders for eliminating second liens for 

HAMP participants. According to Treasury officials, HAMP parameters 

were designed to provide incentives to servicers, investors, and borrowers

to modify mortgage payments quickly and efficiently without using 

government funds to pay for modifications that servicers would already 

complete without government assistance. Treasury officials told us that 

the principal goal of HAMP was to get mortgage payments to an affordable

Page 24 GAO-09-504 Troubled Asset Relief Program
 

level and avoid foreclosures. Treasury officials said that they recognized 

that, for some borrowers, an affordable mortgage payment was not the 

only concern and that negative equity was also an issue.34 Treasury’s 

HAMP guidelines allow servicers to reduce the amount of mortgage 

principal, in addition to reducing interest rates to reach an affordable 

payment. To reach borrowers, Treasury launched its Making Home 

Affordable Web site on March 19, 2009, that, among other things, provides 

program, eligibility, and housing counseling information.35

As we have previously stated, some of the challenges that loan

modification programs face include making transparent to investors the 

analysis supporting the value of modification over foreclosure, designing 

the program to limit the likelihood of redefault, and ensuring that the 

program does not encourage borrowers who otherwise would not default

to fall behind on their mortgage payments. Treasury pointed to a number 

of HAMP features designed to address these challenges. According to 

Treasury, requiring the use of a standardized net present value test will 

provide greater transparency to investors about the value of modification 

over foreclosure. Treasury officials stated that HAMP contained features

designed to limit the likelihood of redefault, including a 90-day trial 

modification period, the reduced monthly payment, and incentives to keep 

borrowers current on their modified loan payments. Treasury stated that

the likelihood that performing borrowers would intentionally default on 

their mortgages to access HAMP (e.g., moral hazard) was limited. For 

instance, servicers are required to obtain information on borrowers’ 

current income to verify that the debt-to-income ratio without loan 

modification is greater than 31 percent, and borrowers must also represent 

and warrant that they do not have sufficient liquid assets to make their 

monthly mortgage payments. To reduce adverse selection (the risk that 

servicers would selectively choose loans for HAMP), Treasury requires 

that servicers consider all the loans that they service for participation in its 

loan modification program, unless prohibited by the rules of the applicable

servicing agreements. Treasury has begun developing a data reporting 

system that will be used, among other things, to monitor servicers’ 

compliance with HAMP requirements, as well as the performance of loans 

that have been modified.

 34Having negative equity or being “under water” means that the current market value of the

home is less than the outstanding mortgage balance. 

35See http://makinghomeaffordable.gov/. 

Page 25 GAO-09-504 Troubled Asset Relief Program
 

While the basic structure of HAMP has been announced, Treasury has not 

specified several critical components—including a system of internal 

control over TARP funds used for loan modification—as of March 23,

2009.

36 Treasury officials said that they plan to have a system of internal 

control in place when the first payments are due to servicers. As we noted 

in our first TARP report, the absence of appropriate internal control 

heightens the risk that the interests of the government and taxpayers may

not be adequately protected and that the program objectives may not be 

achieved in an efficient and effective manner.37 Treasury’s loan

modification proposal calls for payments to be made to offset probable 

losses from home price declines in the event of failed modifications. 

However, Treasury officials told us that the specifics of how this HAMP 

feature would work were still being developed as of March 20, 2009. 

Additionally, incentive payments to servicers and mortgage 

holders/investors to offer alternatives to foreclosure to homeowners who

fail to qualify for or default under HAMP had not been specified as of 

March 20, 2009. Treasury has selected Fannie Mae to administer, maintain 

records for, and serve as the paying agent for its homeowner assistance 

programs, including HAMP, and Freddie Mac as the compliance agent to

oversee servicers’ modifications. Fannie Mae’s responsibilities include 

developing and implementing a marketing plan, call center for borrowers, 

standard agreements with servicers, standardized modification 

documentation, modification reporting systems, processes for servicer 

data reporting and collection of data, and fraud monitoring and detection. 

Freddie Mac’s compliance responsibilities include conducting 

examinations, reviewing servicer compliance with HAMP’s published 

rules, and reporting the results of the examinations to Treasury. According

to representatives of Fannie Mae and Freddie Mac, the governmentsponsored enterprises (GSE) are establishing separate internal 

organizations and firewalls, as well as appropriate procedures and 

controls—all of which must be approved by Treasury—to avoid conflicts 

of interest in carrying out their compliance responsibilities. We will 

continue to monitor the design and implementation of this program, with a 

particular focus on the empirical basis for HAMP and the structure and 

effectiveness of its internal control system. 

 36Internal control is an integral component of an organization’s management that provides 

reasonable assurance that the following objectives are being achieved: effectiveness and 

efficiency of operations, reliability of financial reporting, and compliance with applicable 

laws and regulations. Internal control comprises the plans, methods, and procedures used

to meet missions, goals, and objectives. See GAO, Standards for Internal Control in the 

Federal Government, GAO/AIMD-00.21.3.1 (Washington, D.C.: November 1999). 

37GAO-09-161. 

Page 26 GAO-09-504 Troubled Asset Relief Program
 

In response to concerns raised by Congress, GAO, and, subsequently, COP 

and the SIGTARP about oversight, the Financial Stability Plan also calls 

for a new transparency and accountability agenda that is to consist of a 

framework of corporate governance and oversight to help ensure that 

banks receiving government funds are held responsible for the appropriate

use of those funds through stronger requirements on acquisitions, 

dividend payments, executive compensation, and enhanced public 

reporting including reporting on lending activity. The new standards apply 

to future participants and are not retroactive. 

New Framework of Corporate 

Governance, Oversight, and 

Transparency 

TARP Has Received 

Approximately $2.9 Billion 

in Dividend Payments, 

Representing About 80 

Percent of Possible

Dividends 

TARP had received approximately $2.9 billion in dividend payments 

through March 20, 2009. But dividends were not declared and not paid to

Treasury for $733 million of cumulative dividends from AIG under the 

SSFI program and about $150,000 of noncumulative dividends from eight 

institutions under CPP. The undeclared dividends, approximately 20 

percent of possible dividends during the period, were identified by TARP 

through a process that it implemented to identify possible dividends and 

determine whether they were declared and received when due. 

The approximately $2.9 billion TARP received in dividends related to 

shares of preferred stock were acquired through CPP, TIP, AIFP, and AGP. 

Treasury’s agreements under these programs entitled it to receive dividend

payments on varying terms and at varying rates.38 Table 3 summarizes the 

dividends received and those not declared and not paid under each 

program. 

 38For example, according to the CPP terms for publicly held institutions, participating 

institutions pay quarterly dividends at a rate of 5 percent per year for the first 5 years on 

the initial preferred shares acquired by Treasury. After the first 5 years, the preferred 

shares pay dividends quarterly at a rate of 9 percent per year. Any preferred shares 

acquired through Treasury’s exercise of warrants pay quarterly dividends at a rate of 9 

percent per year. 

Page 27 GAO-09-504 Troubled Asset Relief Program
 

Table 3: TARP Dividends through March 20, 2009 

Dollars in thousands 

Program 

Dividend 

payments 

received

Cumulative 

dividends not 

declared and

not paid

Noncumulative

dividends not 

declared and

not paid

Capital Purchase Program $2,473,019 - $150

Targeted Investment Program 328,889 - -

Automotive Industry Financing

Program 

53,986 - -

Asset Guarantee Program 26,893 - -

Systemically Significant Failing

Institutions Program - $733,333a

-

Total $2,882,787 $733,333 $150

Source: Treasury OFS, unaudited. 

a

The AIG Board of Directors did not declare a dividend for the February 1, 2009, dividend payment 

date. However, the dividends are cumulative, and Treasury has announced plans to restructure and 

expand AIG’s assistance. Under the announced plans, Treasury is to receive noncumulative 

preferred stock equal to the sum of the $40 billion in cumulative preferred stock previously issued to 

Treasury on November 25, 2008, plus any accrued and unpaid dividends related to those shares. 

For the above-listed programs, the dividend payments to Treasury are 

contingent on each institution declaring dividends. Generally, in the event 

that an institution does not declare a dividend for cumulative preferred 

stock during the dividend period, the unpaid dividends accumulate, and 

the institution must pay the cumulative accrued dividends before making 

dividend payments to other classes of shareholders. But if the institution 

does not declare a dividend for noncumulative preferred stock during the 

dividend period, the noncumulative preferred shareholders generally have 

no right to receive any dividend for the period, and the issuer has no 

obligation to pay a dividend for the period, whether or not dividends are 

declared for any subsequent dividend period. 

Treasury did not receive all possible dividend payments under two 

programs. First, the sole participant in SSFI—AIG—notified Treasury that 

the board of directors did not declare a dividend of approximately $733 

million for the February 1, 2009, dividend payment date. The agreement 

detailing the terms of Treasury’s November 25, 2008, $40 billion 

investment in AIG’s senior preferred stock states that dividends will be 

payable at an annual rate of 10 percent when and if declared by the AIG 

Board of Directors. Under this agreement, accrued but unpaid dividends 

compound quarterly. The agreement further states that if dividends on the 

senior preferred stock are not paid in full for four dividend periods, 

Page 28 GAO-09-504 Troubled Asset Relief Program
 

whether or not consecutive, the senior preferred stockholders have the 

right to appoint at least two directors to the board. As discussed earlier in

our report, on March 2, 2009, the Federal Reserve and Treasury announced 

plans to restructure and expand AIG’s assistance. Under the announced 

plans, Treasury is to receive noncumulative preferred stock equal to the 

sum of the $40 billion in cumulative preferred stock previously issued to 

Treasury on November 25, 2008, plus any accrued and unpaid dividends 

related to those shares. 

Second, Treasury did not receive approximately $150,000 in possible 

noncumulative dividends related to eight CPP participants. According to 

Treasury officials, these eight banks informed Treasury that they lacked 

the necessary regulatory or shareholder approvals to declare dividends on 

their preferred stock. Federal banking laws and regulations include 

minimum capital requirements and limitations on the use of capital to pay 

dividends.39 In addition, some state laws impose similar limitations and 

require shareholder approval for certain reductions of capital.40

OFS officials told us they consulted with Treasury’s Office of the General 

Counsel to address these CPP dividends that were not declared. Since the 

$150,000 in undeclared dividends are noncumulative and were not 

declared during the dividend period, these institutions are not obligated to

pay, and Treasury has no right to receive the dividends for the period. 

According to the standard terms of CPP, after six nonpayments by a CPP

institution (whether or not consecutive), Treasury and other holders of 

preferred securities equivalent to Treasury’s can exercise their right to 

appoint two members to the board of directors for that institution at the 

institution’s first annual meeting of stockholders subsequent to the sixth 

nonpayment. Although OFS indicated that they were aware of the dividend

restrictions for certain banks, Treasury officials told us that Treasury had 

not directly suggested to any institution that it seek the approvals 

necessary to declare dividends. These officials said that they had 

contacted all eight banks regarding the undeclared dividends. Six of the 

eight banks that did not declare dividends have formally communicated to

Treasury their intentions to seek necessary approvals for future dividend 

payments. 

 39For example, see 12 U.S.C. §§ 59 (national banks) and 1831o (FDIC insured banks) and 

12 C.F.R. § 208.5(d). 

40For example, see the State of California’s Financial Code, Section 644. 

Page 29 GAO-09-504 Troubled Asset Relief Program
 

As part of our audit work, we noted that Treasury has not report to the 

Congress and the public the amount of dividends received or other 

receipts from TARP participants. Disclosing amounts received by Treasury 

from these participants would improve the overall transparency of TARP. 

By not sharing this information, Treasury is missing an opportunity to 

provide information about the return it is receiving on its investments. 

Treasury officials acknowledged the benefits of such disclosures and have

agreed to consider establishing a mechanism for publicly reporting monies 

received under TARP, such as dividends. 

OFS Has Yet to Develop an 

Integrated Communication 

Strategy for TARP 

Treasury has taken a number of steps to address the ongoing crisis, 

creating new programs, and expanding existing initiatives. However, 

Treasury continues to be hampered with questions about TARP and what 

it is doing, which raises questions about the effectiveness of its existing 

communication strategy. The Financial Stability Plan represents an 

important step in clarifying Treasury’s strategy for addressing the financial 

and housing crisis using its authorities under TARP, consistent with our 

January 2009 recommendation. But Treasury’s strategy has otherwise 

largely been one of posting information to its Web site, issuing press 

releases, speeches, testimonies, and engaging in ad hoc outreach to 

Congress, and it continues to face ongoing communication challenges. The 

complexity of the issues involved and the heightened public scrutiny make 

an effective communication strategy critical going forward. Treasury has 

yet to develop a communication strategy for regularly and routinely 

communicating its activities to relevant congressional committees, 

members, the public, and other critical stakeholders. An effective 

communication strategy may consist of any number of elements, such as 

building understanding and support for the program (regular and routine 

outreach, including confidential member briefings), integrating 

communications and operations (making communication integral to the 

program), and increasing the impact of communication tools (print and 

video). Without a mechanism for regular and ongoing dialogue about plans 

for the program and its progress, TARP continues to be poorly understood 

by Congress and the public. If a communication strategy that includes 

regular and routine communication with Congress is not established, any 

request for additional funding, as contemplated in the President’s budget,

could be severely hampered. 

Page 30 GAO-09-504 Troubled Asset Relief Program
 

Since our January 2009 report, Treasury has made progress in its hiring 

efforts and now has a more stable workforce. Previously, we 

recommended that Treasury expedite hiring to ensure that OFS had the 

personnel it needed to administer TARP.41 Since our last report, Treasury 

has continued to use a variety of hiring mechanisms to bring staff on board 

to carry out and oversee TARP, including direct-hire authority, merit 

promotion appointments, limited-term Senior Executive Service (SES) 

appointments, and reassignments.42 As of March 20, 2009, OFS had 113 

total staff, with the number of permanent staff increasing substantially—

from 38 to 77—since our last report and the number of detailees 

decreasing from 52 to 36 (see fig. 2). Treasury anticipates that OFS will 

need 196 full-time employees to operate at full capacity, an increase of 65

from its January 2009 estimate of 131. 

Treasury Continues to 

Make Progress in 

Establishing OFS 

 41GAO-09-161. 

42Under authorization by OPM, agencies may make appointments for positions that are not 

of a confidential or policy-determining character, not in the SES, and not practical to 

examine. These are referred to as Schedule A appointments and are exempt from the

examination requirements typically required for competitive service positions. Although

Treasury has not used Schedule A authority since our last report, it anticipates doing so in 

the future. See 5 C.F.R. §§ 213.3101-3102. 

Page 31 GAO-09-504 Troubled Asset Relief Program
 

Figure 2: Number of Permanent Staff and Detailees, November 2008 through March 

2009 

urrently working in OFS, 50 have come from other 

RP

0

20

40

60

80

100

120

Mar. 16,

2009

Jan. 26,

2009

Nov. 21,

2008

Number of employees

Staff detailed to OFS from other areas of Treasury and other federal agencies (temporary)

Permanent staff (included limited-term appointments)

Source: GAO analysis of Treasury data.

5

43

48

38

52

90

77

36

113

Of the permanent staff c

parts of Treasury and the federal government and 27 from the private 

sector. In addition, detailees from several Treasury and non-Treasury 

offices, bureaus, and agencies currently support OFS (see table 4). As 

discussed later in this report, OFS also obtains services from financial

agents and contractors to provide a variety of services in support of TA

programs. 

Page 32 GAO-09-504 Troubled Asset Relief Program
 

Table 4: Agencies Detailing Federal Employees to the Office of Financial Stability

Treasury Departmental Offices and Bureaus Number of employees

Alcohol and Tobacco Tax and Trade Bureau 1

Bureau of Public Debt 2

Community Development Financial Institution Fund 1

Internal Revenue Service 4

Office of the Comptroller of the Currency 1

Office of Thrift Supervision 3

Treasury Departmental Offices 4

Total Treasury 16

Non-Treasury Departments and Agencies

Department of Housing and Urban Development 3

Department of State 1

Export-Import Bank 1

Federal Deposit Insurance Corporation 2

Board of Governors of the Federal Reserve System 10

Securities and Exchange Commission 3

Total Non-Treasury 20

Source: Treasury data, as of March 12, 2009.

In prior work, we stated that it was important for agencies developing a 

workforce planning strategy to implement all of the appropriate 

administrative authorities to build and maintain the workforce needed for

the future.43 According to Treasury, as of March 20, 2009, 12 detailees had

been converted to permanent staff. Treasury expects that permanent staff 

will be largely tasked with long-term responsibilities, but as the TARP 

strategy continues to develop, detailees will continue to play a critical role

in supporting the flexibility of OFS operations. Having a mix of detailees, 

permanent staff, and financial agents and contractors on board helps 

ensure that OFS can fulfill its short- and long-term organizational needs. 

Treasury may use detailees to perform long-term tasks when no 

permanent staff are available or when Treasury expects the work to wind 

down. For example, Treasury arranged for detailees to review financial 

institution applications for CPP and CAP. 

 43GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 2, 2003). 

Page 33 GAO-09-504 Troubled Asset Relief Program
 

Recent changes to OFS’s organizational structure have affected Treasury’s 

efforts to identify its short- and long-term organizational needs and, 

therefore, engage in more formal workforce planning efforts. Following 

the transition to the new administration and pursuant to the introduction 

of new initiatives under its Financial Stability Plan, Treasury consolidated 

OFS’s chief risk and chief compliance offices into a single functional area, 

the Office of the Chief Risk and Compliance Officer. Treasury said that it

consolidated these functions in order to reduce unnecessary duplication,

as the offices shared some responsibilities and performed some of the 

same tasks.

Treasury said that it planned to start formal workforce planning efforts 

soon, given that the organizational structure had been more clearly 

defined and the new administration had articulated further details of its 

Financial Stability Plan. In preparation, OFS has updated descriptions of 

its various functional areas (e.g., Office of the Chief Financial Officer and 

Office of the Chief Risk and Compliance Officer) to better assess the skills 

and abilities needed by the organization. Treasury also has prepared a 

draft workforce planning document and anticipates conducting bimonthly 

reviews of OFS’s workforce operations, during which the Office of the

Chief Operating Officer will consider, among other things, organizational 

hierarchies and position classifications; short-, medium- and long-range 

business requirements; and skills gaps within OFS. 

While Treasury has not documented information on qualified candidates’ 

reasons for declining offers of employment at OFS, Treasury said that, as 

mentioned in our last report, compensation and conflict-of-interest issues 

continued to affect their ability to recruit individuals with the appropriate 

backgrounds, experience, and skills to administer TARP.44 In our ongoing 

monitoring, we plan to review more detailed information on Treasury’s 

efforts to (1) fill gaps in critical skills and abilities within the organization 

and (2) address conflicts of interest that may be relevant to current OFS 

employees and any steps taken to mitigate such conflicts. We will discuss 

the findings resulting from this analysis and Treasury’s progress in OFS 

workforce planning in future reports. 

 44GAO-09-296. 

Page 34 GAO-09-504 Troubled Asset Relief Program
 

Since our January 2009 report, Treasury has awarded seven new contracts 

and two new financial agency agreements, bringing to 25 the total number 

of TARP financial agency agreements, contracts, and blanket purchase 

agreements as of March 13, 2009. Four new contracts are for a variety of 

legal services; others are for management consulting, document 

production, and program support services; and the two new financial

agency agreements are to support the new homeownership preservation 

program.45 Of these new contracts, one is with a woman-owned small 

business. In addition, Treasury issued a new task order, valued at 

approximately $5 million, to the internal control services contractor for 

expanded OFS support.46 For detailed status information on new, ongoing,

and completed Treasury contracts and financial agency agreements, as of 

March 13, see our e-Supplement at http://www.gao.gov/cgibin/getrpt?GAO-09-522SP.

47

Treasury Has Made 

Additional Progress In 

Managing Contractor 

Support and Addressing 

Conflicts Of Interest

As of March 13, 2009, legal services contractors and financial agents 

accounted for two-thirds of the 18 service providers directly supporting 

OFS’s administration of TARP, as shown in figure 3. As of the same date,

Treasury had expended about $12 million for actions related to contractsand financial agency agreements. The largest share of the total (39 

percent) was for financial services with one financial agent (Bank of New 

York Mellon) while the second largest share (35 percent) was for legal 

services divided among four law firms (fig. 3). 

 45In addition, Treasury issued a delivery order to a small business for office equipment. 

Treasury awarded another financial agency agreement on March 16, 2009, designating 

EARNEST Partners as the asset manager for the small business assistance program.

EARNEST is a minority-owned firm. We will provide additional details on this agreement 

in our next report. 

46Treasury also modified several other existing task orders to obligate more funds and

extend the performance periods. 

47GAO-09-522SP. 

Page 35 GAO-09-504 Troubled Asset Relief Program
 

Figure 3: Number of and Expenses for OFS Financial Agency Agreements, Contracts, and Blanket Purchase Agreements, as

of March 13, 2009 

5.6%

39%

35%

19%

7% 5.6%

11.1%

11.1%

16.7%

50.0%

Source: GAO analysis of Treasury data.

1

1

2

2

3

9

Investment/advisory services

Human resource services

Accounting/internal control services

Miscellaneous program support

Financial agency services

Legal services

Number of contracts Expenses

0.5%

$59,052

$801,298

$2,227,461

0.07%

$8,096

$4,622,926

$4,099,625

Note: This figure reflects 18 contracts and financial agency agreements that directly support OFS’s 

administration of TARP; it does not reflect one contract for management consulting services. It also 

does not reflect contracts for, among other things, property leases, a human resources 

advertisement, and the purchase of office equipment. 

Budget officials in OFS’s Office of the Chief Financial Officer told us that 

they anticipated modest increases in the volume and cost of TARP 

contract and financial agency agreement activity for the remainder of 

fiscal year 2009. Overall, Treasury has budgeted about $175 million to 

cover anticipated OFS costs in fiscal year 2009 for the use of contractors 

and financial agents, as well as for OFS interagency agreement obligations

to pay, among other things, personnel costs of employees detailed from 

other agencies. 

Page 36 GAO-09-504 Troubled Asset Relief Program
 

As discussed in the previous section on OFS’s hiring status, a key factor in

Treasury’s ongoing efforts to quickly establish the new organization to 

operate and administer TARP was the use of a mix of private contractors 

and financial agents to fill short- and long-term needs. OFS relies on this 

private sector workforce to help implement TARP. According to OFS 

preliminary data, about 30 percent of the employees of TARP contractors 

and financial agents are on site at Treasury working with OFS employees

in various program offices, primarily to perform accounting services and 

support human resources, and temporary documentation activities. The 

remaining 70 percent work off site at their respective offices.

OFS Relies on Contractors and 

Financial Agents to Help 

Implement TARP 

OFS officials responsible for several aspects of TARP, including asset 

management and legal services support of CPP and AIFP, noted that TARP 

contractors and financial agents play important roles in the administration 

and operations of these programs. In discussing the roles of contractors 

and financial agents in TARP operations and administration, OFS program 

managers we spoke with generally characterized contractors’ involvement

as providing technical and operational input into program execution. 

Table 5 provides a summary of the types of services provided, based on 

our analysis of selected TARP contracts and a financial agency agreement. 

Table 5: Services and Support Tasks Provided by Selected TARP Contractors and a 

Financial Agent

TARP contractor or

financial agent Types of services provided

Ennis Knupp and 

Associates 

This investment advisory firm assists OFS program offices with 

the evaluation of potential CPP asset manager proposals by: 

• designing asset manager compensation plans and 

investment policies for the request for proposals, 

• developing evaluation criteria, 

• providing a structured analysis of proposal submissions, 

• supporting follow-up interviews, and 

• evaluating potential asset manager conflicts of interest. 

Page 37 GAO-09-504 Troubled Asset Relief Program
 

TARP contractor or

financial agent Types of services provided

Bank of New York 

Mellon 

As custodian for the TARP program, this financial agent conducts 

the necessary tasks to complete weekly closings of CPP deals 

negotiated by the OFS program office, including: 

• taking possession of certificates, 

• monitoring CPP assets, 

• tracking receipt of dividends, 

• maintaining storage of all CPP documentation, and 

• generating reports to track CPP closings and dividend 

payments. 

Bank of New York Mellon also provides expert advice to OFS

program offices regarding the feasibility and structure of new 

TARP programs, for example, preparing various analyses on the 

potential performance of asset-backed securities for TALF. 

Cadwalader, 

Wickhersham & Taft 

LLP 

This firm provides a range of legal advisory and support services 

to OFS’s chief counsel and program offices on the AIFP by: 

• producing memos and discussing legal options, and 

• providing advice and expertise on bankruptcies and 

restructurings.

Source: GAO analysis of Treasury information. 

OFS officials told us that the use of contractors and financial agents for 

the above professional services was critically important given the 

technical nature of the tasks, the need for expertise, and the speed with 

which OFS must act regarding TARP. OFS officials believe they retain

control over the direction of TARP and have sufficient management 

oversight of the advice and assistance provided by TARP contractors and 

financial agents.48 For example, an OFS program manager noted that the

advice provided by the Bank of New York Mellon did not equate to a 

policy decision but rather supported OFS officials’ development and 

execution of policy decisions. 

 48We have previously reported that contractor services that include expert advice, opinions,

and other types of consulting require an enhanced degree of management oversight to 

ensure that agency officials retain control over and remain accountable for policy decisions

that may be based, in part, on a contractor’s performance and work products. See GAO,

Department of Homeland Security: Improved Assessment and Oversight Needed to 

Manage Risk of Contracting for Selected Services, GAO-07-990 (Washington, D.C.: Sept. 17, 

2007). 

Page 38 GAO-09-504 Troubled Asset Relief Program
 

In response to the recommendation in our January 2009 report that 

Treasury improve its oversight of contractors, Treasury has taken steps to

help ensure that sufficient personnel are assigned to facilitate effective 

management and oversight of TARP contracts and financial agency

agreements. As shown in table 6, except for one key position that is to be 

filled as Treasury enters into financial agency agreements for asset 

managers, key contract staffing positions were filled through new hiring 

and reassignment actions. 

OFS Has Made Progress in 

Strengthening Oversight of 

Contractors and Financial 

Agents 

Table 6: Key Positions for TARP Oversight of Contracts and Financial Agency Agreements, as of March 2009 

Position Office How Filled Oversight role 

Contract Administration Manager Chief Operating Officer, 

OFS 

New Hire Oversees long-range requirements planning; 

improves management practices; provides 

leadership and guidance to OFS staff 

overseeing contractors and financial agents 

Director for Financial Agents Chief Investment Officer, 

OFS 

Reassignment Supervises Custodian/Infrastructure

Program Manager and Manager of Asset 

Managers 

Custodian/Infrastructure Program 

Manager 

Chief Investment Officer, 

OFS 

Reassignment Supervises Vendor Managers

Manager of Asset Managers Chief Investment Officer, 

OFS 

PendingaSupervises Vendor Managers

Vendor Manager Chief Investment Officer, 

OFS 

New Hire Manages Financial Agents 

Chief, Programs Branch Procurement Services 

Division, Treasury 

New Hire Provides full-time procurement support to 

OFS 

TARP Team Lead Procurement Services 

Division, Treasury 

New Hire Provides full-time procurement support to 

OFS 

Source: GAO analysis of Treasury information. 

a

This role is currently being filled by the Custodian/Infrastructure Program Manager.

OFS also made progress responding to our recommendation to help 

ensure that staff were appropriately trained to oversee contractors’ 

technical performance. In particular, it made progress on certifications 

and formal training for OFS’s roster of Contracting Officers’ Technical 

Representatives (COTR). OFS has now replaced all the executive-level 

COTRs who earlier had been assigned COTR responsibilities without 

receiving requisite formal training and certifications in their acquisitionrelated responsibilities. Consistent with Treasury’s internal guidance and 

our prior recommendation, OFS ensured that the replacement COTRs 

received the appropriate formal training and certification. 

Page 39 GAO-09-504 Troubled Asset Relief Program
 

Given the constantly evolving and financially complex TARP program 

requirements, we reviewed OFS’s technical oversight of contractors’ 

performance. We found that OFS exercises oversight consistent with good

practices we have identified when using contractors for more complex 

professional services.49 Specifically, information discussed with COTRs, 

OFS program officials, and senior contractor officials responsible for three 

key TARP areas demonstrated that an interactive working environment 

exists between OFS and its TARP contractors and financial agents. For 

example, OFS officials, as well as Bank of New York Mellon managers, 

told us that they talk daily, and often many times a day, regarding the 

execution of the end-of-week closings on capital investments through 

CPP—a complex undertaking that involves many transactions that can 

total in the billions of dollars.50 According to Treasury officials, this level of 

interaction provides frequent opportunities for oversight and helps them 

to ensure that their needs are met. 

Since January 2009, the Office of the Chief Operating Officer has hired an

executive-level contract administration manager, another action 

responsive to and consistent with our prior recommendation.51 His job, in 

part, is to apply contract management best practices to TARP contracts 

and financial agency agreements, and provide leadership and guidance to

COTRs and financial agent managers. Based on information we reviewed 

from the contract administration manager, as well as COTRs and financial 

agent managers in three program offices, these efforts should better 

 49GAO-07-990 and GAO, Highlights of a GAO Forum: Federal Acquisition Challenges and 

Opportunities in the 21st Century, GAO-07-45SP (Washington, D.C.: Oct. 6, 2006).

50Other examples concern OFS’s investment advisory contractor and a legal services

contractor. According to the Office of the Chief Investment Officer’s COTR and Ennis 

Knupp’s Chief Executive Officer, communications is primarily by phone two to three times

per week and sometimes several times per day. These frequent phone conferences are to

discuss upcoming contract support tasks to follow up questions on completed assignments, 

or to review and resolve matters concerning emerging organizational or personal conflicts 

of interest. On Cadwalader, Wickersham, and Taft’s legal services contract to support OFS,

the Chief Counsel’s COTR and the law firm’s leading partner for the contract interact 

frequently with each other through document sharing, e-mail exchange, teleconferences, 

and in-person meetings in order to submit the contracted legal advice concerning the 

structure of the TARP automotive industry program. 

51A mid-March update to OFS’s organization chart indicates additional staffing to support 

the contract administration manager position, including government positions for 

procurement, program, and reports analysts and an acquisition program manager. 

Page 40 GAO-09-504 Troubled Asset Relief Program
 

position OFS to strengthen contract management.52 Other OFS actions to 

facilitate the oversight of TARP contractor and financial agent

performance are listed in table 7. 

Table 7: OFS Actions Since January 2009 to Enhance Oversight of TARP Contractors’ and Financial Agents’ Performance 

Action Purpose Status

Contracting Agreement Review

Board 

Treasury and OFS executive-level group meets monthly and as needed to 

review TARP contractors’ and financial agents’ performance and to 

examine issues with planned TARP acquisitions. 

Implemented 

COTR online filing system Standardizes and centralizes in a data repository key COTR recordkeeping

requirements, including contractors’ and financial agents’ invoices; 

correspondence with contractors; and documentation of TARP contractors’

and financial agents’ conflict-of-interest issues. This system is intended to 

enhance collaboration across OFS offices and assist in the transfer of 

records between COTR appointment transitions. 

In development

COTR roundtable Weekly discussions with all TARP COTRs led by OFS and Treasury 

contract and procurement services managers. The roundtable provides an

opportunity for COTRs to discuss oversight issues they experience across 

all TARP contracts and financial agency agreements. 

Implemented 

Supplemental COTR training Annual refresher training program intended to supplement the formal 

training and certification required prior to COTR appointment. OFS Office 

of the Chief Operating Officer plans to initiate this annual training to further 

enhance skills development for COTRs assigned to TARP contracts and 

financial agency agreements. 

Planned 

Outside expert speaker series OFS’s Contract Administration Manager plans to bring in outside, 

executive-level experts from government, the private sector, and academia

to discuss lessons learned working in high-profile environments with 

COTRs and other OFS staff responsible for TARP programs. 

Planned 

Source: GAO analysis of Treasury information. 

Finally, in response to and consistent with our recommendation, Treasury 

has made further progress in using fixed-price contracting arrangements 

when the parties possess sufficient knowledge of the requirements. 

Although Treasury has awarded new time-and-materials contracts since 

January, it also converted work under two time-and-materials task orders 

for legal services to fixed-price arrangements after determining that there 

were clearly defined requirements (i.e., transactional legal services for 

which the parties could estimate accurately the level of performance 

 52These latest actions build on earlier practices put in place as of January, such as the biweekly Contract Management Reporting Forms submitted by COTRs to track cost, 

schedule, and performance of contracts and financial agency agreements awarded under 

TARP. 

Page 41 GAO-09-504 Troubled Asset Relief Program
 

required).53 In addition, in response to GAO’s recommendation, Treasury 

negotiated a firm fixed price for two workstreams making up about 20 

percent of the new $5 million task order for internal control services 

performed by a contractor. Treasury and OFS officials have worked 

closely to analyze the use of time-and-materials arrangements for followon requirements to ensure such arrangements are only used when other 

contract types are not suitable. Treasury officials said that their reviews 

indicate that, given the nature of the services OFS is procuring, 

opportunities may be limited for the foreseeable future to use fixed-price 

mechanisms when placing orders for follow-on work or awarding future 

contracts.54 According to these officials, fixed-price arrangements may not 

be appropriate for many TARP contracts. Considering the still-evolving 

nature of TARP’s requirements, the ability of the parties to accurately 

anticipate the performance requirements and estimate costs, as required 

for fixed-price arrangements, is limited. This limitation places Treasury at 

risk of paying a higher fixed price for the services than it might otherwise 

pay under a time-and-materials contract. Treasury is gathering cost data 

from existing time-and-materials and labor-hour contracts to identify costs 

of recurring transactions to support the future negotiation of reasonable 

fixed pricing for follow-on work where appropriate. In our view, 

Treasury’s actions since January in response to our recommendation 

generally indicate it is placing a high priority on making individualized 

assessments of the nature of each requirement in order to identify those 

requirements that may effectively utilize a fixed-price contract. 

 53This type of fixed price arrangement is called a firm fixed-price, level of effort term

contract. These contracts require the contractor to provide a certain level of effort, over a 

stated period of time, on work that can be stated only in general terms. Under these 

contract types, the government pays the contractor a fixed dollar amount. 48 C.F.R. §

16.207-1. 

54According to TARP contract managers, other services being procured through time-andmaterials contracts that are unlikely to be suitable for conversion to fixed pricing are the

contracts with law firms and accounting firms. According to these officials, it is standard

practice for such firms to bill commercial and government customers on an hourly basis 

for each attorney and accountant involved in the work, consistent with their time-andmaterials pricing arrangements for TARP. 

Page 42 GAO-09-504 Troubled Asset Relief Program
 

Since issuing an interim conflicts-of-interest rule in January 2009, and 

consistent with our prior recommendation, OFS continued to make 

progress implementing a system of compliance for conflicts of interest 

that may arise with vendors seeking or performing work under TARP. 55

Consistent with the framework the interim rule provides, OFS is 

formalizing its process for reviewing and addressing potential or actual 

organizational and personal conflicts of interest disclosed by contractors 

and financial agents.56 Specifically, OFS is making progress (1) developing

and applying its compliance system under the interim rule, and (2) 

reviewing existing contracts that predate the interim rule to determine 

what changes may be needed. 

OFS Has Made Further 

Progress Implementing a 

Compliance System for 

Potential Conflicts of Interest 

Among Contractors and 

Financial Agents 

Regarding OFS’s progress in further developing and applying its conflictsof-interest compliance system, discussions with OFS program and 

compliance officials, two TARP contractors, and a financial agent’s senior

contracts manager indicate that a mutual environment for sustained 

attention and control is taking root. Specifically, our discussions with OFS

and TARP contractor officials indicate that all parties have a range of 

formal and informal processes in place, under which TARP contractors are 

expected to detect potential conflicts of interest. Once detected, the 

interim rule requires that potential conflicts be disclosed to Treasury 

within 5 business days. A disclosure can trigger a formal review by the 

OFS compliance officer, who is responsible for making a final 

determination.57 The processes include an ongoing dialogue among OFS 

officials and officials from TARP contractors and financial agents about 

new potential conflicts and, as needed, discussions about changes to 

 5574 Fed. Reg. 3431-3436 (Jan. 21, 2009). Public comments on the TARP conflicts-of-interest 

interim rule were due March 23, 2009. 

56Under the interim rule, for some administrative service providers (e.g. temporary services

for document production), OFS has decided that those contractors are unlikely to have 

conflicts of interest and do not warrant the burden imposed by the requirements. 

57Under the interim rule, in making the required determination there are three 

possibilities—i.e., OFS must conclude that (1) no conflict exists; (2) no conflict exists that 

has not been adequately mitigated; or (3) if a conflict exists that cannot be adequately 

mitigated, OFS has expressly waived it. 

Page 43 GAO-09-504 Troubled Asset Relief Program
 

contractors’ mitigation plans to increase their effectiveness and conform 

with the interim rule.58

We note, however, that OFS does not have fully developed procedures for 

capturing its decisions on potential conflicts of interest. For example, 

concerning the regular discussions of new potential conflicts that may 

arise and require OFS’s compliance review, it is not clear that all 

discussions are documented, or that all information is captured, such as 

information supporting OFS’s determination that a conflict does not exist 

or has been satisfactorily mitigated. TARP contractors told us that they did 

not routinely retain records from their discussions with OFS officials 

about potential conflict disclosures and mitigations. These discussions 

frequently entail phone conferences but do not always result in formal 

correspondence addressing the matter. In the absence of documentation, 

there is no record of how issues were addressed and resolved, should the 

need to revisit those issues arise in the future. OFS compliance officials 

acknowledged that they needed to enhance the procedures for 

documenting conflicts discussions in order to better demonstrate 

compliance with the interim rule. OFS officials stated they were drafting 

new policy and procedure instructions to do so. As conflict disclosures 

and proposed mitigations involving TARP contractors and financial agents 

continue to emerge, we will need to revisit OFS procedures to ensure that 

it maintains appropriate documentation. 

OFS has made progress since January, in response to our recommendation 

that it review its existing contracts to determine whether changes are 

needed in light of the interim rule.59 Specifically, OFS has reviewed six 

contracts that predate the interim rule. As of March 13, 2009, this process 

has resulted in the renegotiation of two contractors’ mitigation plans. OFS 

compliance officials expect to finish reviewing the remaining four 

mitigation plans within the next several months. We plan to continue 

 58For example, consistent with the interim rule’s personal conflicts-of-interest disclosure 

procedures, one TARP contractor told us about recently disclosing to the TARP program 

manager a potential personal conflict of interest involving a new employee. Rather than 

disqualifying this person from being hired, the contractor discussed the matter with OFS

officials who were satisfied that the contractor’s mitigation measures (which involved

establishing an ethical screen to prevent the employee from speaking with staff engaged on 

the TARP work or accessing related files) had neutralized the conflict. 

59According to Treasury and OFS procurement and compliance officials, three existing 

legal services contracts that predate the TARP conflicts-of-interest rule are not in need of 

mitigation plan reviews and renegotiation to conform, because their performance periods 

are to end in April 2009. 

Page 44 GAO-09-504 Troubled Asset Relief Program
 

monitoring OFS’s progress to ensure that it fully implements our prior 

recommendation. 

Although the above efforts indicate that progress is being made related to

potential conflicts of interest, there may be an opportunity, going forward, 

for streamlining OFS oversight in this area. For example, the portion of the 

interim rule focusing on personal conflicts of interest requires that certain

contractors obtain financial disclosures in writing from management 

officials and key individuals working on TARP that are no less extensive 

than those that are required of new high-level federal government 

officials.60 Specifically, the interim rule requires that before working on a 

TARP matter, management officials and key individuals at firms involved 

with the acquisition, valuation, management, or disposition of troubled 

assets must disclose information, in writing, on their and their family’s 

personal, business, and financial relationships.61 We recognize the 

importance of collecting such information to detect and deter conflicts of 

interest. However, the selected use of a more streamlined approach, in 

appropriate circumstances, could reduce the burden of providing this 

information and promote compliance.62 Treasury officials acknowledged 

that an alternative financial disclosure process could offer a less 

burdensome way for TARP contractors to obtain required written 

disclosures from employees but said that any consideration of an 

alternative would occur only in the context of evaluating public comments 

on the interim conflicts rule. In finalizing the TARP conflicts-of-interest 

rule, OFS officials told us that they would be reviewing various options to 

the current requirement in the interest of striking a balance between 

 60Section 31.212(b) requires that the information to be obtained in writing be no less 

extensive than that required under Office of Government Ethics (OGE) Form 278, 

Executive Branch Personnel Public Financial Disclosure Report. Among the very highlevel federal officials required to annually file this report are the President, vice president, 

presidential nominees to positions requiring Senate confirmation, military general and flag

officers, and senior executives. 

61According to OGE Form 278, the basic premise of the financial disclosure requirement is

that those having responsibility for review of the reports must be given sufficient 

information by reporting individuals concerning the nature of any outside interests and 

activities so that an informed judgment can be made with respect to compliance with 

applicable conflicts-of-interest requirements. 

62For example, there is an alternative financial disclosure report currently required of 

certain other federal employees: OGE Form 450, Confidential Financial Disclosure Report 

(Executive Branch). Unlike the longer Form 278 required of very high-level officials, the 

Form 450 does not require a detailed breakout of the valuation of listed assets and sources

of investment or other income by dollar amount and type. 

Page 45 GAO-09-504 Troubled Asset Relief Program
 

Treasury’s need to protect the government’s interests and the burden the

requirement placed on TARP contractors and financial agents.

OFS Is in the Process of 

Building TARP’s Financial 

Reporting Structure 

Treasury must annually prepare and submit to Congress and the public 

audited fiscal year financial statements for TARP that are prepared in 

accordance with generally accepted accounting principles.63 Moreover, the 

act requires Treasury to establish and maintain an effective system of 

internal control over TARP that includes providing reasonable assurance

of the reliability of its financial reporting64 and compliance with applicable

laws and regulations.65 It further, requires Treasury to annually report on 

its assessment of the effectiveness of internal control over financial 

reporting. The act also requires GAO to audit TARP’s financial statements 

annually in accordance with generally accepted auditing standards.66

The fiscal year ending September 30, 2009, will be the first year for which 

Treasury prepares financial statements for TARP. OFS has begun to build

a financial reporting structure for preparing the financial statements. OFS 

officials told us that they were continuing to address key accounting and 

reporting topics, such as defining the reporting entity; determining the 

types of revenues and expenses to be included in TARP; determining the 

appropriate valuation methods for assets and liabilities; determining the 

accounting for administrative expenses, dividends, and interest; and 

defining the form and content of TARP’s financial statements. In addition, 

OFS continues to refine, develop, and document its internal control 

 63Section 116(b) of the act, 12 U.S.C. §5226(b). 

64Section 116(c) of the act, 12 U.S.C. § 5226(c). An entity’s internal control over financial 

reporting includes those policies and procedures that (1) pertain to the maintenance of 

records that, in reasonable detail, accurately and fairly reflect the transactions and 

disposition of the assets of the entity; (2) provide reasonable assurance that transactions 

are recorded, as necessary, to permit preparation of financial statements in accordance 

with generally accepted accounting principles and that receipts and expenditures of the

entity are being made only in accordance with authorizations of management and those 

charged with governance; and (3) provide reasonable assurance regarding prevention or

timely detection and correction of unauthorized acquisition, use, or disposition of the

entity’s assets that could have a material effect on the financial statements. 

65Internal controls over compliance with laws and regulations should provide reasonable 

assurance that transactions are executed in accordance with laws governing the use of

budget authority and with other laws and regulations that could have a direct and material 

effect on the financial statements, and, as applicable, other laws and regulations identified 

in OMB’s audit guidance. 

66Section 116(b) of the act, 12 U.S.C. § 5226(b). 

Page 46 GAO-09-504 Troubled Asset Relief Program
 

framework over financial reporting and compliance, including its risk 

assessment activities. The implementation of a well-defined internal 

control framework and the decisions involving key accounting and 

reporting issues are critical to enabling OFS to prepare its fiscal year-end 

financial statements and to OFS’s reporting on its assessment of the 

effectiveness of TARP’s system of internal control. 

As part of GAO’s responsibilities under the act, we have begun our audit of 

TARP’s financial statements and the related internal controls. Our 

objectives will be to render opinions on (1) the financial statements as of 

and for the period ending September 30, 2009, and (2) internal control over 

financial reporting and compliance with applicable laws and regulations as 

of September 30, 2009. We will also be reporting on the results of our test 

of TARP’s compliance with selected provisions of laws and regulations 

related to financial reporting. 

Documentation of Certain 

Internal Control 

Procedures and Guidance 

Is Not Consistent With 

Actual Practice 

We noted two areas in which OFS’s documentation of certain internal 

control procedures and guidance pertaining to determining warrant 

exercise prices were not updated to be consistent with actual practice.

While these issues do not significantly affect OFS’s financial reporting, 

they, nevertheless, merit the attention of OFS management to decrease the 

risk that the transactions will not be recorded completely, properly, or 

consistently and that guidance available to the public on determining 

warrant exercise prices will create confusion about the actual terms and 

conditions executed by Treasury for its investments. 

As part of its internal control framework, OFS plans to develop formal 

written policies and procedures governing OFS’s operations and expects

to have these policies and procedures finalized by September 30, 2009. In 

the interim, OFS has developed and documented process flows and 

narratives describing internal control processes for TARP transactions. 

Our audit of selected control activities for CPP and SSFI transactions 

found that OFS had applied adequate financial reporting controls over the 

transactions we tested. However, we found that the actual control 

processes and procedures performed for some of the transactions we 

tested were inconsistent with the documented flows and descriptions. 

Inconsistencies in the application of a control procedure complicate the

review of the transactions and increase the risk that the transactions will 

not be recorded completely, properly, or consistently. According to 

Treasury officials, these inconsistencies arose from the removal of certain

control activities that were no longer relevant and the implementation of 

more effective controls without the simultaneous updating of the 

documented process flows or narratives to reflect these changes. The 

Documentation of Certain 

Internal Control Processes Is 

Not Consistent with the 

Controls Applied 

Page 47 GAO-09-504 Troubled Asset Relief Program
 

officials told us that TARP control processes were continually evolving as 

management gained more experience with processing TARP transactions. 

Under CPP, Treasury receives warrants to purchase shares of stock of 

qualified financial institutions. The date selected as the basis for 

determining the warrant exercise price impacts the exercise price and the 

number of shares included in the warrants. Treasury consistently applied 

its preliminary approval date as the basis for determining the warrant 

exercise prices. However, Treasury has not established guidance, 

consistent with its procedures, regarding the date to be used as a basis for 

determining the warrant exercise prices. We found four Treasury 

documents that each had a different description of the date to use as the 

basis for determining the warrant exercise prices. For example, the 

announced CPP terms and conditions specify, among other things, the use 

of the investment date as the basis for determining the warrant exercise 

price, but the term “investment date” is not specifically defined. The CPP 

program description on Treasury’s Web site, the CPP Application 

Guidelines, and the Security Purchase Agreement each provide different

guidance on which date to use as a basis for determining the warrant 

exercise prices. Inconsistencies in guidance available to the public for 

warrant exercise price determinations may create confusion about the 

actual terms and conditions executed by Treasury for its investments. 

Guidance for Determining CPP 

Warrant Exercise Prices Is Not 

Consistent with the Procedures 

Applied 

The eight institutions comprising the first group of CPP transactions, 

amounting to $115 billion, signed Participation Commitment documents 

stating that the financial institutions are to issue preferred shares to the 

Treasury under the terms and conditions announced for CPP.67 Treasury 

used October 13, 2008, the date the institutions signed the Participation 

Commitment documents, as the basis for determining the warrant exercise

prices. OFS officials told us they considered the date the institutions 

signed the Participation Commitment documents to be Treasury’s 

preliminary approval date. 

According to OFS, for the second and subsequent group of CPP 

transactions, Treasury’s preliminary approval date is the date the 

Investment Committee recommends that the Assistant Secretary for 

 67In addition to the eight institutions funded in the first group, Merrill Lynch & Co., Inc.

(Merrill Lynch) signed a participation commitment on October 13, 2008. Following Merrill 

Lynch’s merger with Bank of America, on January 9, 2009, Bank of America received the 

$10 billion specified in Merrill Lynch’s Participation Commitment with Treasury. 

Page 48 GAO-09-504 Troubled Asset Relief Program
 

Financial Stability approve the application.68 Our tests of selected CPP 

transactions beyond the first group showed that Treasury consistently 

utilized the Investment Committee’s recommendation date as the basis for 

determining the warrant exercise prices. In addition, the executed 

agreements between the financial institutions and Treasury detail, for each

warrant, the number of shares of stock Treasury may purchase at the 

specific exercise price. As such, these parties are aware of and consent to

the specific terms of the warrants. 

Although indicators of the cost of credit and perceptions of risk in credit 

markets suggest mixed developments since our last report, TARP’s 

activities could improve market confidence in participating banks and 

have other beneficial effects on credit markets. However, several factors 

will complicate efforts to measure any impact, including contemporaneous 

changes in monetary and fiscal policy; other programs introduced by

Treasury, the Federal Reserve, FDIC, and FHFA, and general market 

forces. As a result, any changes in credit markets cannot be attributed 

solely to TARP. Similarly, slow recovery does not necessarily reflect its 

failure. However, if TARP is having its intended effect, a number of 

developments might be observed in credit and other markets over time, 

such as reduced risk spreads, declining borrowing costs, and more lending 

activity than there would have been in the absence of TARP. Credit market 

indicators we have been monitoring suggest the cost of nonmortgage 

credit has risen, and perceptions of risk (as measured by premiums over 

Treasury securities) have declined in mortgage and interbank markets, 

while rising in corporate debt markets. While lending standards remained 

tight, according to Federal Reserve data, the largest CPP recipients 

continued to extend loans to consumers and businesses of at least $200 

billion a month since October, based on our analysis of Treasury’s new 

loan survey. As TARP has evolved, we have also initiated tracking of 

foreclosure data and consumer credit measures, such as auto loan and

credit card rates, to provide indicators relevant to the new programs. 

Indicators Suggest 

Mixed Recent 

Developments in 

Credit Markets, but 

Isolating the Impact 

of TARP Continues to 

Present Challenges 

 68As part of the process of determining eligibility in CPP, Treasury established an 

investment committee to evaluate each financial institution’s application. The investment 

committee either recommends that the Assistant Secretary for Financial Stability approve

the application or requests additional analysis or information. According to Treasury, the

investment committee was created after October 13, 2008. 

Page 49 GAO-09-504 Troubled Asset Relief Program
 

TARP’s activities could improve market confidence in participating banks

and have other beneficial effects on credit markets, but several factors will 

complicate efforts to measure any impact. In our previous reports we 

focused on CPP, detailing the expected effects, as well as the tension 

between promoting lending and improving the capital position of banks. 

As indicated above, CAP, as proposed by the new administration, aims to 

eliminate uncertainty about the solvency of financial institutions through 

stress tests and by infusing capital into the financial system to the point 

where participating banks can absorb losses even worse than expected

scenarios. The intent is to improve confidence in financial institutions, 

allowing the banks to borrow on more favorable terms, attract private 

capital and continue lending to creditworthy businesses and households. 

Like CPP, if CAP is effective we should also see improvement in credit 

market conditions, including declining risk premiums (the difference 

between risky and risk-free interest rates, such as rates on U.S. Treasury 

securities) for interbank lending and bank debt and lower borrowing costs 

for business and consumers. Improved market conditions may permit 

some borrowers to avoid foreclosures by enhancing the capacity and 

willingness of banks to refinance loans or modify others. HAMP is 

intended to reduce foreclosures by directly modifying and refinancing 

mortgages and, therefore, may also indirectly improve the balance sheets 

of banks by restoring value to mortgage-related securities. However, as we 

discussed in our December 2008 and January 2009 reports, to the extent 

that credit quality in the economy is deteriorating, confidence remains low 

and the economy continues to experience a downturn, during which 

lending and borrowing levels normally drop. Low interest rates and lower 

premiums may not translate into increased lending immediately. 

Nevertheless, lending may still be higher than it would have been if the 

equity injections had not taken place. Similarly, market forces may 

continue to force a correction in housing prices and result in additional 

foreclosures, albeit fewer than would have occurred in the absence of 

TARP. 

TARP Programs Could 

Have a Number of Effects 

on Credit Markets and the 

Economy 

Similarly, TARP activities could improve credit market conditions by 

supporting securitization markets through the expansion of TALF. As 

indicated above, TALF will provide funding to certain holders of Aaa-rated 

ABS backed by newly and recently originated small business, student, 

automobile, and credit card loans. By increasing demand and prices for 

these securities, TALF should reduce the rates faced by borrowers in the 

associated loan categories and increase the availability of new credit to 

Page 50 GAO-09-504 Troubled Asset Relief Program
 

consumers and businesses.69 Moreover, by providing support to 

securitization markets, TALF may encourage private investors to return to 

asset-backed securities, thereby increasing liquidity and improving general 

market conditions. However, as we discussed in our previous reports, 

other important policies and interventions by government agencies (some 

collaborative efforts) that are undertaken to restore financial stability, as 

well as general market forces, will complicate a determination of TARP’s 

specific effectiveness. TALF, as a joint program with the bulk of the 

funding provided by the Federal Reserve, highlights the difficulty of 

attributing changes in credit market conditions exclusively to TARP. 

Changes in Select 

Indicators Suggest Mixed 

Recent Development in 

Credit Markets, although 

These Changes Are Not 

Necessarily Attributable to 

TARP 

While it is difficult to isolate one program’s effects, given the numerous 

actions being undertaken, we considered a number of indicators that, 

although imperfect, may be suggestive of TARP’s impact on credit and 

other markets. Improvements in these measures would indicate improving 

conditions, even though those changes cannot be exclusively linked to any 

one program. Table 8 lists the indicators we have reported on in previous 

reports, as well as the changes since the last report and the changes since 

the announcement of CPP, the first TARP program. In general, the 

indicators illustrate that the cost of nonmortgage credit has risen and that

perceptions of risk have declined in mortgage and interbank markets, 

while rising in corporate debt markets since January 2009. For example, 

while the cost of interbank credit (LIBOR) has risen slightly since our 

January 2009 report, the TED spread, which captures the risk perceived in

interbank markets, has declined. Since the announcement of CPP, the TED 

spread has fallen 350 basis points.70 Since the announcement of CPP, 

corporate bond spreads are up, and there have been increases of 38 and 27 

basis points for high quality (Aaa) and moderate quality (Baa) corporate 

spreads, respectively, since our January 2009 report, indicating heightened 

risk perceptions. Like the LIBOR, Aaa and Baa bond rates have increased,

indicating an increase in the cost of credit for businesses. However, the 

improvement in the mortgage market is consistent across rates and 

spreads. Mortgage rates were down 9 basis points, and the mortgage 

 69The Federal Reserve Bank of New York will initially provide $200 billion in funding for 

TALF, while Treasury’s initial $20 billion will fund, in part, a special purpose vehicle that

will manage the collateral taken by the Federal Reserve Bank of New York if a borrower 

defaults. TALF is similar in many ways to the Federal Reserve program to buy Fannie Mae 

and Freddie Mac mortgage-backed securities (MBS). 

70A basis point is a common measure used in quoting yield on bills, notes, and bonds and 

represents 1/100 of a percent of yield. An increase from 4.35 percent to 4.45 would be an 

increase of 10 basis points. 

Page 51 GAO-09-504 Troubled Asset Relief Program
 

spread is down 45 basis points. (See our December and January reports 

for a more detailed description and motivation for the indicators.) As 

discussed above, changes in credit market conditions may not provide 

conclusive evidence of TARP’s effectiveness, as other important policies, 

interventions, and changes in underlying economic conditions can 

influence these markets. Recently, the Federal Reserve announced—in 

addition to further interventions in the GSE mortgage-backed security and

debt market—that it intended to improve conditions in private credit 

markets by purchasing up to $300 billion of longer-term Treasury 

securities over the next 6 months. This activity could result in lower costs 

for borrowing activities whose rates tend to move with the Treasury 

yield.71

Table 8: Changes in Selected Credit Market Indicators, January 22, 2008, and March 25, 2009 

Credit market rates and spreads 

Indicator Description

Change since January 

report 

Change since October 13, 

2008 

LIBOR 3-month London interbank offered rate 

(an average of interest rates offered 

dollar-denominated loans) 

Up 6 basis points Down 353 basis points 

TED Spread Spread between 3-month LIBOR and 

3-month Treasury yield 

Down 6 basis points Down 350 basis points 

Aaa bond rate Rate on highest quality corporate 

bonds 

Up 38 basis points Down 84 basis points 

Aaa bond spread Spread between Aaa bond rate and 

10-year Treasury yield 

Up 35 basis points Up 40 basis points 

Baa bond rate Rate on corporate bonds subject to 

moderate credit risk 

Up 27 basis points Down 24 basis points 

Baa bond spread Spread between Baa bond rate and 

10-year Treasury yield 

Up 24 basis points Up 100 basis points 

Mortgage rates 30-year conforming loans rate Down 9 basis points Down 143 basis points 

Mortgage spread Spread between 30-year conforming 

loans rate and 10-year Treasury yield 

Down 45 basis points Down 33 basis points 

 71As we noted in our last report, mortgage rates fell by 90 basis points shortly after the

Federal Reserve announced it would intervene in the GSE MBS and debt markets. 

Page 52 GAO-09-504 Troubled Asset Relief Program
 

Credit market rates and spreads 

Indicator Description

Change since January 

report 

Change since October 13, 

2008 

Quarterly mortgage volume and defaults 

Indicator Description Change since January 

report 

Change from September 30, 

to December 31, 2008 

Foreclosure rate Percentage of homes in foreclosure - Up 0.33 percentage points to

3.3% 

Mortgage originations New mortgage loans - Down $50 billion to $250 

billion 

Source: GAO analysis of data from Global Insight, Federal Reserve Bank of St. Louis, and Inside Mortgage Finance. (Daily and weekly

data will be updated 4-5 days before the release of March report.) 

Note: Rates and yields are daily except mortgage rates, which are weekly. Higher spreads (measured 

as premiums over Treasury securities of comparable maturity) represent higher perceived risk in 

lending to certain borrowers. Higher rates represent increases in the cost of borrowing for relevant 

borrowers. As a result, “down” suggests improvement in market conditions for credit market rates and 

spreads. Foreclosure rate and mortgage origination data are quarterly. See previous TARP reports 

for a more detailed discussion. 

Other indicators that may become better measures of TARP’s 

effectiveness over time are mortgage originations and foreclosures. While 

the volume of new mortgage lending may reflect changes in credit risk or 

the demand for credit, it may also indicate the availability of credit as 

well.72 As table 9 indicates, mortgage originations fell from $300 billion in 

the third quarter to $250 billion in the fourth quarter of 2008. To the extent 

that credit and economic conditions improve over time, we would expect 

mortgage originations to stop declining and eventually rise, although it is 

not clear that this measure would or should return to the level seen in the 

period leading up to the credit market turmoil. Similarly, foreclosure data

should provide an indication of the effectiveness of the recently 

implemented HAMP program going forward. The percentage of loans in 

foreclosure had reached an unprecedented high of 3.3 percent at the end

of the fourth quarter of 2008, up from 2.97 percent the previous quarter. As 

stated above, general market forces, including falling housing prices, rising 

unemployment, and other programs outside of TARP that are being 

undertaken to address the rising foreclosure rate will complicate efforts to 

determine the effectiveness of HAMP. 

The largest CPP recipients continued to extend loans to consumers and 

businesses, over $200 billion a month since October, based on our analysis New Lending at the 20 Largest 

Participants in CPP 

 72Like other bank interest rates, mortgage rates may reflect the customers to whom banks 

choose to lend, rather than the cost of credit for all potential customers.

Page 53 GAO-09-504 Troubled Asset Relief Program
 

of Treasury’s new loan survey. Because these data are unique, we were not 

able to benchmark the origination levels against historical lending or 

seasonal patterns at these institutions. As illustrated in figure 4, while total 

mortgage originations fell in the fourth quarter of 2008, these data suggest 

that new lending at the 20 largest institutions participating in CPP (as of 

December 31, 2008), after dropping by about 21 percent from October to 

November, rose roughly 18 percent from November to December.73 

Figure 4: New Lending at 20 Largest Recipients of CPP, between October 1, 2008, 

and January 31, 2009 

analysis of the survey, aggregate new lending by these institutions in 

ecember amounted to roughly $245 billion (table 9). Total new lending in

 

0

50

100

150

200

250

300

October November December January

Dollars in billions

Source: GAO analysis of Treasury loan survey data.

2008 2009

Although lending normally drops during a recession, according to our 

D

January increased slightly. The reporting institutions generally received

CPP funds on October 28, 2008, or November 14, 2008, with a few 

institutions receiving funds on December 31, 2008. In figure 4, we present 

new lending by month. Although we recognize the limitations inherent in

73New lending includes new mortgage, home equity lines of credit, credit card and other

consumer originations, and new or renewed commercial and industrial, and commercial 

real estate loans. 

Page 54 GAO-09-504 Troubled Asset Relief Program
 

these data, the survey data will prove valuable for more thorough analyses

of lending activity in future reports. 

Table 9: New Lending at 20 Largest Recipients of CPP, between October 1, 2008, and January 31, 2009 

Dollars in millions 

New Lending

Institution Date of CPP Size of CPP October November December January

Citigroup 10/28/2008 $25,000 $19,373 $17,854 $22,864 $18,814 

JP Morgan Chase & Co. 10/28/2008 25,000 61,192 51,178 52,376 46,785

Wells Fargo Bank 10/28/2008 25,000 35,073 26,709 31,063 50,560

Bank of America 10/28/2008 15,000 70,569 48,864 61,427 60,624 

Goldman Sachs & Co. 10/28/2008 10,000 1,490 1,666 2,551 6,487 

Morgan Stanley 10/28/2008 10,000 1,787 6,302 3,170 3,551 

Bank of New York Mellon Corp 10/28/2008 3,000 879 800 849 730 

State Street 10/28/2008 2,000 1,404 749 1,403 289 

U.S. Bancorp 11/14/2008 6,599 13,371 11,244 17,262 13,866

Capital One Financial Corporation 11/14/2008 3,555 3,477 2,825 3,024 2,531 

SunTrust Banks, Inc. 11/14/2008 3,500 7,612 4,827 6,514 6,511 

Regions 11/14/2008 3,500 5,994 4,664 5,832 4,983

BB&T Corp. 11/14/2008 3,134 5,929 4,901 6,197 5,976

KeyCorp 11/14/2008 2,500 3,238 2,671 4,518 3,065 

Comerica Inc. 11/14/2008 2,250 3,830 2,300 3,242 1,425

Marshall & Ilsley 11/14/2008 1,715 1,331 1,181 1,206 960 

Northern Trust 11/14/2008 1,576 1,985 1,364 1,810 1,270

PNC Financial Services Group Inc. 12/31/2008 7,579 11,273 6,313 8,076 8,170 

Fifth Third Bancorp 12/31/2008 3,408 7,025 6,414 7,119 5,070

CIT Group Inc. 12/31/2008 2,330 5,317 4,232 4,182 3,429 

Total $156, 646 $262,149 $207,059 $244,686 $245,095

Source: GAO analysis of Tr an survey data. 

Note: The table features the 20 largest recipients of CPP funds who had received funds, as of 

e American Express, which received CPP funds in January. 

r

ve 

easury lo

December 31, 2008, and does not includ

New lending includes new mortgage, home equity lines of credit, credit card and other consume

originations, new or renewed commercial and industrial loans, and commercial real estate loans. 

However, new lending does not include other important activities that these institutions may 

undertake to facilitate credit intermediation, including underwriting and purchasing MBS and ABS.

Date and size of CPP refers to the initial infusion of CPP funds. Citigroup and Bank of America ha

received additional TARP funds.

Page 55 GAO-09-504 Troubled Asset Relief Program
 

The Federal Reserve Loan Officer survey asks senior loan officers at U.S. 

ains

er

h

ht

n

s 

ined

 

banks about changes in lending standards, lending terms, and the state of

business and household demand for loans.74 The most recent survey 

suggests that although the percentage of banks tightening credit rem

above previous peaks, fewer banks have tightened credit standards in 

approving applications for loans since the October 2008 survey.

75 For 

example, the net percentage of banks tightening credit standards for 

commercial and industrial loans fell from roughly 84 percent in Octob

2008 to approximately 64 percent in January 2009 for large firms, althoug

the drop for small firms was somewhat less significant, 75 percent and 70

percent, respectively (fig. 5). Although not reported here, similar patterns 

emerged for subprime and prime residential mortgage loans and other 

consumer loans. However, lending standards in January remained as tig

as they were in October for credit card lending. As figure 5 shows, the 

results of the survey also suggest weaker demand for commercial and 

industrial loans by both smaller and larger firms and a slight decrease i

the percentage of banks indicating increased spreads (loan rate charged 

firms over the cost of funds), although spreads remain well above previou

highs. However, the percentage of banks reporting stronger demand for 

both prime and subprime loans has increased significantly since the 

October survey, while the demand for other consumer loans has rema

roughly the same. 

Federal Reserve Senior Loan 

Officer Opinion Survey 

74The results are based on a survey of approximately 60 banks, accounting for more than 75

percent of the real estate loans originated by banks in the U.S. The sample is selected from 

among the largest banks in each Federal Reserve District. See 

http://www.federalreserve.gov/boarddocs/snloansurvey/. 

75Respondent banks received the January survey on or after December 30, 2008, and their 

responses were due January 13, 2009. Banks received the October survey on or after

October 2, and their responses were due on October 16.

Page 56 GAO-09-504 Troubled Asset Relief Program
 

Figure 5: Net Percentages of Banks Tightening Lending Standards, Increasing Spreads, and Reporting Stronger Demand for 

Loans, by firm size, between October 1997 and March 2009 

tage implies, for example, that the percentage of firms loosening standards

xceeds the percentage tightening standards. Large and medium-size firms are those with annual 

sales of $50 million or more. 

Source: GAO analysis of Federal Reserve data.

-80

-60

-40

-20

0

20

40

60

80

100

120

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Net percentage tightening lending standards for commercial and industrial loans

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Standards

-80

-60

-40

-20

0

20

40

60

80

100

120

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Net percentage reporting stronger demand for commercial and industrial loans

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Demand

-80

-60

-40

-20

0

20

40

60

80

100

120

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Net percentage increasing spreads of loan rates over banks’ cost of funds for commercial and industrial loans

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Spreads

Large and medium firms

Small firms

Note: Negative percen

e

Page 57 GAO-09-504 Troubled Asset Relief Program
 

In addition to the indicators previously identified, we continue to evaluat

the potential usefulness of other indicators and expect to add new 

e

F. As

in

BS

to

nts

 

indicators and modify or drop others. Among these are measures of 

lending activity in consumer loan markets that may become more 

appropriate indicators as time progresses, given the initiation of TAL

stated above, TALF support to securitization markets should result

lower rates and increased availability of credit for the businesses and 

households that receive the underlying loans. The primary consumer-A

markets include ABS backed by auto loans, credit card receivables and

student loans. Although the TALF program was initiated only recently, 

figure 6 establishes the historical context for continued monitoring of au

loan rates. As the figure shows, until recently, average finance company

auto rates were consistently below commercial bank auto rates. However, 

from August to November of 2008, finance company rates increased 

significantly (132 basis points), while bank rates increased just slightly (13

basis points). Finance company rates increased another 180 basis poi

from November 2008 to January 2009.

76 Because stand-alone auto finance

companies are more heavily reliant on securitization than commercial 

banks, the difference in these trends (or the spread between the two rates)

could partially reflect the issues in securitization markets that TALF is 

intended to address.77 We continue to monitor this spread, as well as other 

measures of consumer loan activity. 

Automobile Lending and Credit 

Card Rates 

76January and February data were unavailable for commercial bank auto rates for inclusion 

in this report. 

77However, differences in these trends could also reflect the success of CPP (or CAP) in 

lowering, or preventing a rise, in bank auto rates. 

Page 58 GAO-09-504 Troubled Asset Relief Program
 

Figure 6: Average Finance Rate for New Cars at Auto Finance Companies and Banks, February 2006 and January 2009 

0

4

5

6

7

8

9

Feb. May Aug. Nov. Feb. May Aug. Nov. Feb. May Aug. Nov. Jan.

Percent

Source: GAO analysis of Federal Reserve data.

2006 2007 2008 2009

Bank auto rate

Finance company auto rate

Treasury has continued to take significant steps to address all the 

ecommendations from our December 2008 and January 2009 reports. In 

ly CPP

g 

ther areas, 

ations

Conclusions 

r

particular, Treasury has recently expanded the scope of the month

surveys of the 20 largest institutions to include all institutions participatin

in the program. This change should provide Treasury with the information

necessary to begin to track the effectiveness of the program and 

effectively implement our recommendation. Treasury also has expedited

efforts to ensure that trained and certified personnel oversee the 

performance of all contracts and moved toward fixed-price arrangements,

when appropriate. These actions were consistent with our 

recommendations for improved contractor oversight in these areas. 

Moreover, Treasury continued to make progress in several o

including ensuring that future agreements entered into under its new

programs better enable it to determine what institutions plan to do with

any capital infusions and to track the resulting lending activity of 

participating institutions on a regular basis. Appendix II provides our 

assessment of Treasury’s implementation of our open recommend

from our January 2009 report, and appendix III provides a high-level 

Page 59 GAO-09-504 Troubled Asset Relief Program
 

Page 60 GAO-09-504 Troubled Asset Relief Program 

summary, prepared by Treasury, of the progress it has made on each 

recommendation since our last report and some planned next steps. 

During this period, Treasury has also continued to improve its monitoring 

of compliance with the terms of its existing agreements. Treasury officials 

told us that asset managers are to play a role in monitoring the 

participating institutions’ compliance with the agreements. In the interim, 

Treasury has taken some steps to help ensure that institutions are 

complying with dividend, stock repurchase, and executive compensation 

restrictions. Treasury relies on participants’ representations and 

warranties in the agreements, and if it finds reason to believe that these 

representations can not be relied upon, it can pursue the available 

remedies for any false representations. At this point, Treasury has not 

taken steps to verify the information or require the institutions to provide 

any additional documentation. As recommended in our December 2008 

report, we continue to believe that Treasury should develop a formal 

system to help ensure compliance with the agreements. For example, 

leverage the oversight activities of the bank regulators by having them 

include compliance with the agreements as part of their ongoing 

examinations. This type of compliance activity is generally consistent with 

ensuring the safety and soundness of institutions. The regulators 

previously told us that they were taking steps to build such oversight into 

their examination procedures. However, without a consistent oversight 

approach, Treasury runs the risk of receiving inconsistent or incomplete 

information from the regulators. 

Treasury has also continued to take steps to articulate a more clearly 

defined vision for TARP, and in February 2009, provided its strategy for 

using its remaining funds. This strategy defined the existing problems and 

how the various programs would begin to address them. While the initial 

plan provided a broad vision and strategy, in the subsequent weeks, 

Treasury provided additional details for the various components of the 

program. In particular, it announced its plans to participate in the 

purchase of troubled assets through public-private partnerships and 

launched a homeownership protection program, activities that are 

consistent with the original plans for TARP. Given that only 60 days have 

passed since our last report, we acknowledge the significance of these 

accomplishments. Yet, Treasury continues to be hampered by questions 

about its overall strategy and OFS’s activities, raising questions about the 

effectiveness of its existing communication strategy. Treasury’s strategy 

has largely been one of posting information to its Web site; issuing press 

releases, speeches, and testimonies; and reaching out to Congress on an ad 

hoc basis; and it continues to face ongoing communication challenges. 
 

Page 61 GAO-09-504 Troubled Asset Relief Program 

Given the complexity of the issues involved and the heightened public 

scrutiny, an effective communication strategy continues to be critical, but 

Treasury has yet to develop a means of regularly and routinely 

communicating its activities to relevant congressional committees and 

members, the public, and other critical stakeholders. For example, TARP 

had received approximately $2.9 billion in dividend payments through 

March 20, 2009, but this information has not been reported to the Congress 

and the public. To improve transparency, Treasury should publicly 

announce the amounts, such as dividends, it has received from TARP 

participants. By not sharing this information, Treasury is missing an 

important opportunity to provide information about the returns it is 

receiving on its investments. An effective communication strategy should, 

among other things, build understanding and support for the program 

through regular and routine outreach, including confidential member 

briefings; integrate communications and operations by making 

communication integral to the program; and increase the impact of 

communication tools such as electronic and print media and video. Given 

that the President’s proposed budget contemplates additional funding, an 

effective communication strategy is critical for ensuring the support 

necessary to obtain such funding. 

Treasury has taken appropriate actions to bolster the conditions or 

requirements for assistance that is deemed exceptional, but certain 

assistance may require that it go farther to repair damage caused to the 

program. Controversies about the actions of some TARP participants 

continue to surround the program, in general, and AIG, in particular. While 

Treasury announced $70 billion dollars in assistance to AIG—more 

assistance than has been provided to any other single institution to date—

it has yet to disperse the up to $30 billion of additional assistance 

announced on March 2, 2009, or finalize the agreement. Therefore, 

Treasury has an opportunity to further improve the integrity and 

accountability associated with this additional assistance. Based on our 

previous work on government assistance to the private sector, as well as 

the Treasury Secretary’s position, as articulated in the Financial Stability 

Plan that government support must come with strong conditions, Treasury 

has an opportunity to take additional steps to strengthen its agreement 

with AIG by requiring AIG seek to negotiate concessions from 

management, employees, and counterparties, as appropriate, before the 

agreement is finalized. For example, Treasury could require that AIG seek 

to renegotiate contracts with its employees, such as existing contracts 

similar to the contract for retention bonuses with AIG Financial Products’ 

employees, and with existing counterparties that would face substantial 

losses were AIG to have its credit downgraded or fail. While we 
 

understand that Treasury is making an investment in AIG, Treasu

failure to act in this instance could cause additional harm to its reputa

and impair its ability to seek additional funding for TARP that might be 

needed in the future. 

ry’s

tion

Next, Treasury has also made progress in establishing its management 

t

• In the hiring area, Treasury has continued to make progress in 

re staff.

.

mine

the

o

aft

ritical

• reasury has continued to build a network of contractors and financial

at

ry

s

view

infrastructure and has responded to our five open recommendations tha

are related to hiring, contracting, and establishing its internal controls. 

establishing its management infrastructure, including hiring mo

In accordance with our prior recommendation that it expeditiously hire 

personnel to OFS, Treasury continued to use direct-hire and various 

other appointments to bring a number of career staff on board quickly

Since our January 2009 report, Treasury has increased the total number

of OFS staff overall and the balance has shifted from mostly detailees 

to more permanent staff, indicating that the workforce has become 

more stable over time. In our last report, we recognized that the 

changing nature of OFS had made it difficult for officials to deter

its long-term organizational needs but that such considerations 

continued to be vital to retaining institutional knowledge within

organization as programs evolved. Treasury has taken further steps t

align OFS’s human capital program with its current and emerging 

mission and programmatic goals. For example, as outlined in its dr

workforce plan, Treasury has taken steps to identify the critical skills 

and competencies needed to operate OFS and plans to develop 

strategies to address gaps in these areas. These actions will be c

to OFS’s ability to monitor its progress in building and developing the 

OFS workforce. 

T

agents to support TARP administration and operations. At the same 

time, Treasury has continued to build its capacity to manage these 

vendors by putting into place the people and processes necessary to

enhance its oversight of contractor and financial agent performance. 

Given the still-evolving nature of TARP requirements, we recognize th

opportunities for using fixed-price arrangements may be limited. 

Nonetheless, Treasury has a process that should help it determine

where those opportunities exist. In developing this process, Treasu

has addressed our prior recommendation in this area, and we will 

monitor continued progress. In addition, Treasury could enhance it

efforts to safeguard the TARP program from conflicts of interest 

involving its contractors and financial agents by completing its re

of mitigation plans to ensure conformity with the new conflicts-ofPage 62 GAO-09-504 Troubled Asset Relief Program
 

interest rule and by requiring that decisions on potential conflicts b

documented.

O

e

• FS has begun to build a financial reporting structure, including 

ssary

with our

d plans for

for

nd

re

tly.

sury

inally, we again note that while isolating the effect of TARP’s activities 

rs

ies)

d 

loan

impact.

addressing the key accounting and financial reporting issues nece

to enable it to prepare financial statements and to assess the 

effectiveness of TARP’s system of internal control. Consistent

previous recommendations, OFS is continuing to develop a 

comprehensive system of internal control and has establishe

finalizing formal policies and procedures to govern TARP activities and 

assess its risks. In the interim, OFS has developed and documented 

process flows and narratives describing internal control procedures

TARP transactions. While OFS applied adequate control procedures 

over selected CPP and SSFI transactions we tested, it has not taken 

steps to provide consistency between the documented descriptions a

the actual procedures for certain controls that were applied to the 

transactions. Inconsistencies in the application of a control procedu

complicate review of the transactions and increase the risk that the 

transactions may not be recorded completely, properly, or consisten

Similarly, OFS needs to address inconsistencies in guidance pertaining 

to determining warrant exercise prices. Inconsistencies in guidance 

available to the public for these price determinations may create 

confusion about the actual terms and conditions executed by Trea

for its investments. 

F

continues to be difficult, developments in the credit markets have 

generally been mixed since our January 2009 report. Some indicato

demonstrate that the cost of credit has increased in interbank and 

corporate bond markets and decreased in mortgage markets, while

perceptions of risk (as measured by premiums over Treasury securit

have declined in interbank and mortgage markets and risen in corporate 

debt markets. In addition, although Federal Reserve survey data suggest 

that lending standards remained tight, the largest CPP recipients extende

over $240 billion in new loans to consumers and business in both 

December 2008 and January 2009, according to the Treasury’s new

survey. Attributing any of these changes directly to TARP continues to be

problematic because of the range of actions that have been and are being

taken to address the current crisis. While these indicators may be 

suggestive of TARP’s ongoing impact, no single indicator or set of 

indicators will provide a definitive determination of the program’s

Page 63 GAO-09-504 Troubled Asset Relief Program
 

While Treasury continues to take action to address our recommendations 

and has begun to make progress in many areas, we identified new areas 

that warrant ongoing attention and focus. Therefore, we recommend that 

Treasury take the following actions as it continues to improve the 

integrity, accountability, and transparency of the program. 

Recommendations for 

Executive Action 

We recommend that Treasury take the following six actions:

• Develop a communication strategy that includes building an 

understanding and support for the various components of the program. 

Specific actions could include hiring a communications officer, 

integrating communications into TARP operations, scheduling regular 

and ongoing contact with congressional committees and members, 

holding town hall meetings with the public across the country, 

establishing a counsel of advisors, and leveraging available technology. 

• Require that AIG seek concessions from stakeholders, such as

management, employees, and counterparties, including seeking to 

renegotiate existing contracts, as appropriate, as it finalizes the 

agreement for additional assistance. 

• Update OFS documentation of certain internal control procedures and 

the guidance available to the public on determining warrant exercise 

prices to be consistent with actual practices applied by OFS. 

• Improve transparency pertaining to TARP program activities by 

reporting publicly the monies, such as dividends, paid to Treasury by 

TARP participants. 

• Complete the review of, and as necessary renegotiate, the four existing 

vendor conflicts-of-interest mitigation plans to enhance specificity and

conformity with the new interim conflicts-of-interest rule. 

• Issue guidance requiring that key communications and decisions 

concerning potential or actual vendor-related conflicts of interest be 

documented.

Page 64 GAO-09-504 Troubled Asset Relief Program
 

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

received written comments from Treasury that are reprinted in 

Appendix I. We also received technical comments from Treasury, that we 

incorporated, as appropriate. In its comments, Treasury described steps it 

had taken in the last 60 days to address extraordinary economic 

challenges and noted that recommendations in our latest report presented 

a thoughtful way forward.

We are sending copies of this report to the Special Inspector General for 

TARP and interested congressional committees and members, Treasury, 

the federal banking regulators, and others. The report also is available at 

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

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

Richard J. Hillman at (202) 512-8678 or hillmanr@gao.gov, Thomas J. 

McCool at (202) 512-2642 or mccoolt@gao.gov, or Orice M. Williams at 

(202) 512-8678 or williamso@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

Gene L. Dodaro 

listed in appendix IV. 

tates

Agency Comments 

and Our Analysis

Acting Comptroller General 

 of the United S

Page 65 GAO-09-504 Troubled Asset Relief Program
 

List of Congressional Committees

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Thad Cochran 

Vice Chairman 

Committee on Appropriations 

United States Senate 

The Honorable Christopher J. Dodd 

Chairman 

The Honorable Richard C. Shelby 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Kent Conrad 

Chairman 

The Honorable Judd Gregg 

Ranking Member 

Committee on the Budget 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable David R. Obey 

Chairman 

The Honorable Jerry Lewis 

Ranking Member 

Committee on Appropriations 

House of Representatives 

The Honorable John M. Spratt, Jr. 

Chairman 

The Honorable Paul Ryan 

Ranking Member 

Committee on the Budget 

House of Representatives 

Page 66 GAO-09-504 Troubled Asset Relief Program
 

The Honorable Barney Frank 

Chairman 

The Honorable Spencer Bachus 

Ranking Member 

Committee on Financial Services 

House of Representatives 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Dave Camp 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

Page 67 GAO-09-504 Troubled Asset Relief Program
Appendix I: Comments from the Department Appendix I: Comments from the Department of the Treasury 

of the Treasury 

Page 68 GAO-09-504 Troubled Asset Relief Program
Appendix I: Comments from the Department 

of the Treasury 

Page 69 GAO-09-504 Troubled Asset Relief Program
Appendix II: Status of GAO Recommen

(January 2009 Report) 

dations

Page 70 GAO-09-504 

Appendix II: Status of GAO 

Recommendations (January 2009 Report) 

GAO Recommendation Status 

Expand the scope of planned monthly CPP surveys to include collecting at least some information 

from all institutions participating in the program. 

Implemented 

Ensure that future CPP agreements include a mechanism that will better enable Treasury to track the 

use of the capital infusions and seek to obtain similar information from existing CPP participants. 

Partially Implemented 

Establish a process to ensure compliance with all CPP requirements, including those associated with

limitations on dividends and stock repurchase restrictions. 

Partially implemented 

Communicate a clearly articulated vision for TARP and how all individual programs are intended to 

work in concert to achieve that vision. This vision should incorporate actions to preserve 

homeownership. Once this vision is clearly articulated, Treasury should document needed skills and 

competencies.

Partially implemented 

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

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

performance of all contractors, especially for contracts priced on a time-and-materials basis, and 

move toward fixed-price arrangements whenever possible as program requirements are better 

defined over time. 

Implemented 

Develop a comprehensive system of internal control over TARP activities, including policies, 

procedures, and guidance that are robust enough to ensure that the program’s objectives and 

requirements are met. 

Partially implemented 

Develop and implement a well-defined and disciplined risk-assessment process, as such a process is 

essential to monitoring program status and identifying any risks of potential inadequate funding of 

announced programs. 

Partially implemented 

Review and renegotiate existing conflicts-of-interest mitigation plans, as necessary, to enhance 

specificity and conformity with the new interim conflicts-of-interest regulation, and take continued 

steps to manage and monitor conflicts of interest and enforce mitigation plans. 

Partially implemented 

Source: GAO. 

Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report Appendix III: Tr

Recommendations easury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 71 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 72 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 73 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 74 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 75 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 76 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 77 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 78 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 79 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 80 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 81 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 82 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 83 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 84 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 85 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 86 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 87 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 88 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 89 GAO-09-504 Troubled Asset Relief Program
Appendix III: Treasury’s Actions in Response 

to Our January 2009 Report 

Recommendations 

Page 90 GAO-09-504 Troubled Asset Relief Program
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 91 GAO-09-504 

Appendix IV: GAO Contact and Staff 

Acknowledgments 

Richard J. Hillman at (202) 512-8678 or hillmanr@gao.gov

Thomas J. McCool at (202) 512-2642 or mccoolt@gao.gov

Orice M. Williams at (202) 512-8678 or williamso@gao.gov

In addition to the contacts named above; Gary Engel, Mathew Scire, and

William Woods (Lead Directors); Cheryl Clark, Lawrence Evans Jr., Daniel 

Garcia-Diaz, Carolyn Kirby, Kay Kuhlman, and Harry Medina, (Lead 

Assistant Directors); and Marianne Anderson, Kevin Averyt, Noah 

Bleicher, Patrick Breiding, Emily Chalmers, Clayton Clark, Bob Dacey,

Rachel DeMarcus, Matt Drerup, Abe Dymond, Nancy Eibeck, Katherine 

Eikel, Gena Evans, Karin Fangman, Jeanette Franzel, Ryan Gottschall, 

Brenna Guarneros, Michael Hoffman, Chir-Jen Huang, Joe Hunter, Tyrone

Hutchins, Elizabeth Jimenez, Jason Kirwan, Christopher Klisch, Steven 

Koons, John Krump, J. Andrew Long, John Lord, Lisa Mavrogianis, 

Stephanie May, Marc Molino, Diane Monticchio, Susan Offutt, Akiko 

Ohnuma, Joseph O’Neill, Rebecca Riklin, LaSonya Roberts, Susan 

Sawtelle, Maria Soriano, Cynthia Taylor, John Treanor, Katherine Trimble, 

Julie Trinder, James Vitarello, and Seyda Wentworth made contributions 

to this report. 

GAO Contact 

Staff 

Acknowledgments 

Troubled Asset Relief Program
Related GAO Products Related GAO Products 

Troubled Asset Relief Program: Status of Efforts to Address 

Transparency and Accountability Issues. GAO-09-484T. Washington, 

D.C.: March 19, 2009. 

Federal Financial Assistance: Preliminary Observations on Assistance

Provided to AIG. GAO-09-490T. Washington, D.C.: March 18, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 

Transparency and Accountability Issues. GAO-09-474T. Washington, 

D.C.: March, 11, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address Transparency 

and Accountability Issues. GAO-09-417T. Washington, D.C.: February 24, 

2009. 

Troubled Asset Relief Program: Status of Efforts to Address 

Transparency and Accountability Issues. GAO-09-359T. Washington, 

D.C.: February 5, 2009. 

Troubled Asset Relief Program: Status of Efforts to Address 

Transparency and Accountability Issues. GAO-09-296. Washington, D.C.: 

January 30, 2009. 

High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 22,

2009. 

Troubled Asset Relief Program: Additional Actions Needed to Better 

Ensure Integrity, Accountability, and Transparency. GAO-09-266T. 

Washington, D.C.: December 10, 2008. 

Auto Industry: A Framework for Considering Federal Financial 

Assistance. GAO-09-247T. Washington, D.C.: December, 5, 2008. 

Auto Industry: A Framework for Considering Federal Financial 

Assistance. GAO-09-242T. Washington, D.C.: December 4, 2008. 

Troubled Asset Relief Program: Status of Efforts to Address Defaults and 

Foreclosures on Home Mortgages. GAO-09-231T. Washington, D.C.: 

December 4, 2008. 

Troubled Asset Relief Program: Additional Actions Needed to Better 

Ensure Integrity, Accountability, and Transparency. GAO-09-161. 

Washington, D.C.: December 2, 2008.

(250431) Page 92 GAO-09-504 Troubled Asset Relief Program
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