the department 

of the treasury 

office of financial 

stability 

troubled 

asset 

relief 

program 

agency 

financial 

report 

fiscal year 2010 
AbbreviAtions And Acronyms 

ABS	 Asset-backed	Securities 

AGP	 Asset	Guarantee	Program 

AIFP	 Automotive	Industry	Financing	Program 

AIG	 American	International	Group,	Inc. 

BofA	 Bank	of	America	Corporation 

CBLI	 Consumer	and	Business	Lending	Initiative 

	CBO	 Congressional	Budget	Office 

CDFI	 	Community	Development	Financial	 

Institution 

CMBS	 Commercial	Mortgage-backed	Securities 

CP			 Commercial	Paper 

COP	 Congressional	Oversight	Panel 

CPP	 Capital	Purchase	Program 

CDCI	 Community	Development	Capital	Initiative 

EESA	 	Emergency	Economic	Stabilization	Act	of	 

2008 

FCRA	 Federal	Credit	Reform	Act	of	1990 

FHA	 Federal	Housing	Administration 

FRBNY	 Federal	Reserve	Bank	of	New	York 

GAO	 Government	Accountability	Office 

GSE	 Government-sponsored	enterprise 

HAFA	 Home	Affordable	Foreclosure	Alternatives 

HHF	 Hardest	Hit	Fund 

HAMP	 Home	Affordable	Modification	Program 

HPDP	 Home	Price	Decline	Protection 

IPO		 Initial	Public	Offering 

LIBOR	 London	Interbank	Offered	Rate 

LTV	 Loan-to-value	Ratio 

MBS	 Mortgage-backed	Security 

MHA	 Making	Home	Affordable	Program 

NPV	 Net	Present	Value 

OFS	 Office	of	Financial	Stability 

OMB	 Office	of	Management	and	Budget 

PPIF	 Public-Private	Investment	Fund 

PPIP	 Public-Private	Investment	Program 

PRA	 Principal	Reduction	Alternative 

QFI		 Qualifying	Financial	Institution 

RMBS	 Residential	Mortgage-backed	Securities 

SIGTARP	 	Special	Inspector	General	for	the	Troubled	 

Asset	Relief	Program 

SPV	 Special	Purpose	Vehicle 

TALF	 Term	Asset-Backed	Securities	Loan	Facility 

TARP	 Troubled	Asset	Relief	Program 

TIP	 	 Targeted	Investment	Program 
TABLE	OF	CONTENTS 

Message from the Assistant Secretary iii 

Executive Summary v 

Part 1: Management’s Discussion and Analysis 

Background, Mission and Organizational Structure 3 

Overview of TARP for Fiscal Year 2010 5 

Key Trends/Factors Affecting TARP Future Activities and Ultimate Cost 12 

Systems, Controls, and Legal Compliance 16 

Limitations of the Financial Statements 19 

Operational Goals 20 

Operational Goal One: Ensure the Overall Stability and Liquidity of the Financial System 20 

Capital Purchase Program (CPP) 20 

Community Development Capital Initiative (CDCI) 22 

Targeted Investment Program (TIP) 23 

AIG Investment Program (AIG) 23 

Asset Guarantee Program (AGP) 26 

Automotive Industry Financing Program (AIFP) 27 

Consumer and Business Lending Initiative (CBLI) 30 

Term Asset-Backed Securities Loan Facility (TALF) 30 

Public-Private Investment Program (PPIP) 31 

Small Business and Community Lending Initiatives (SBA Initiative) 33 

Operational Goal Two: Prevent Avoidable Foreclosures and Preserve Homeownership 34 

Operational Goal Three: Protect Taxpayers’ Interests 37 

Operational Goal Four: Promote Transparency 39 

Part 2: Financial Section 

Message from the Chief Financial Officer (CFO) 44 

Government Accountability Office Auditor’s Report 45 

Appendix I: Management’s Report on Internal Control over Financial Reporting 54 

Appendix II: OFS Response to Auditor’s Report 55 

Financial Statements 56 

Notes to the Financial Statements 61 

Required Supplementary Information 95 

Appendices 

A Oversight Entities 98 

B TARP Glossary 101 

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I	am	pleased	to	present	the	Office	of	Financial	Stability’s	(OFS)	Agency	Financial	Report	for	FY	 

2010.		This	report	describes	our	financial	results	for	the	Troubled	Asset	Relief	Program	(TARP)	 

during	the	second	year	of	the	OFS.		The	report	contains	the	financial	statements	for	TARP	and	the	 

Government	Accountability	Office’s	audit	opinion	on	those	financial	statements,	a	separate	opinion	 

on	OFS’	internal	controls	over	financial	reporting,	and	results	of	tests	of	OFS’	compliance	with	 

selected	laws	and	regulations. 

The	Emergency	Economic	Stabilization	Act	of	2008	(EESA)	established	the	Office	of	Financial	 

Stability	(Treasury-OFS)	within	the	Office	of	Domestic	Finance	of	the	Treasury	to	implement	TARP.		 

The	OFS	carries	out	the	mission	and	objectives	of	the	TARP:		ensuring	the	overall	stability	and	 

liquidity	of	the	financial	system;	preventing	avoidable	foreclosures	and	helping	preserve	homeownership;	protecting	taxpayers’	interests;	and	promoting	transparency.						 

On	October	3,	2010,	the	second	anniversary	of	the	enactment	of	TARP,	the	authority	to	make	new	purchase	commitments	expired.			 

This	date	is	also	an	appropriate	time	to	reflect	on	what	the	program	has	accomplished.		 

The	TARP	was,	and	is,	an	enormous	commitment	of	taxpayer	money.		And	it	has	been	unpopular	for	good	reason—no	one	likes	 

using	tax	dollars	to	rescue	financial	institutions.		However,	by	objective	standards,	TARP	worked.		It	helped	stop	the	widespread	 

financial	panic	we	faced	in	the	fall	of	2008	and	helped	prevent	what	could	have	been	a	devastating	collapse	of	our	financial	system.			 

Moreover,	it	did	so	at	a	cost	that	is	far	less	than	what	most	people	expected	at	the	time	the	law	was	passed.		 

Of	course,	TARP	was	not	the	answer	to	all	of	America’s	challenges,	and	we	have	many	still	ahead.		The	U.S.	economy	is	healing	but	 

at	a	slower	pace	than	we	need.		Millions	of	Americans	are	still	out	of	work	and	at	risk	of	losing	their	homes.		We	still	have	much	work	 

to	do	to	repair	the	damage	from	this	crisis. 

Our	results	to	date	reflect	the	following: 

•	 Treasury-OFS	will	use	up	to	$475	billion	of	the	original	$700	billion	authorized.	A	total	of	$388	billion	has	been	disbursed	from	 

inception	through	September	30,	2010.						 

•	 Treasury-OFS	has	already	recovered	a	total	of	about	$204	billion	of	those	funds.	This	includes	approximately	three-fourths	of	 

the	$245	billion	investment	in	banking	institutions.	In	addition,	we	have	received	about	$28	billion	from	TARP	recipients	 

from	inception	through	September	30,	2010,	including	interest,	dividends	and	repurchase	of	warrants.	 

•	 The	lifetime	cost	of	TARP	will	not	be	known	for	some	time	and	will	depend	on	many	factors,	including	how	financial	 

markets	and	the	economy	perform	in	the	future.	But	assuming	the	recently	announced	AIG	restructuring	plan	is	implemented	 

as	announced,	and	subject	to	the	assumptions	discussed	herein	as	to	the	valuation	of	the	AIG	investment	in	light	of	the	 

restructuring,	the	cost	of	TARP	would	be	around	$50	billion.	These	costs	are	expected	to	come	primarily	from	losses	related	 

to	TARP	investments	in	auto	companies	and	the	initiatives	to	help	responsible	homeowners	avoid	foreclosure.	Please	see	the	 

detailed	information	in	this	report	on	these	estimates	and	the	methodology	used	to	make	them. 

MESSAGE	FROM	THE	ASSISTANT	SECRETARY 

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Going	forward,	our	focus	is	to	manage	the	investments	prudently	while	working	to	recover	as	much	of	the	taxpayers’	funds	as	possible.	 

We	will	also	continue	our	efforts	to	help	distressed	homeowners.		And	we	will	take	these	steps	while	maintaining	comprehensive	 

accountability	and	transparency	standards.			 

The	financial	data	included	in	this	report	are	reliable	and	complete.		For	the	second	consecutive	year,	the	OFS	has	earned	“clean”	 

opinions	on	its	financial	statements	and	its	internal	control	over	financial	reporting	from	the	Government	Accountability	Office. 

Sincerely, 

Acting	Assistant	Secretary	
 

Office	of	Financial	Stability
 

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EXECUTIVE	SUMMARY 

Treasury-OFS	is	pleased	to	present	the	Fiscal	Year	2010	Agency	Financial	Report	(AFR)	for	the	Troubled	Asset	Relief	Program	 

(TARP),	established	by	the	Department	of	the	Treasury	pursuant	to	the	Emergency	Economic	Stabilization	Act	of	2008	(EESA).	 

There	have	been	a	number	of	important	milestones	for	TARP	in	recent	months.	First,	the	President	signed	the	Dodd-Frank	Wall	 

Street	Reform	and	Consumer	Protection	Act	(Dodd-Frank	Act)	on	July	21,	2010,	which	limited	TARP	cumulative	purchase	authority	to	$475	billion.	Second,	October	3,	2010	marked	the	second	anniversary	of	the	passage	of	EESA	and	the	end	of	the	authority	to	 

make	new	financial	commitments.	Therefore,	it	is	an	appropriate	time	to	reflect	on	what	TARP	has	accomplished. 

TARP,	in	conjunction	with	other	federal	government	actions,	helped	to	unfreeze	the	markets	for	credit	and	capital,	bringing	down	 

the	cost	of	borrowing	for	businesses,	individuals,	and	state	and	local	governments,	restoring	confidence	in	the	financial	system	and	 

restarting	economic	growth.	TARP	did	so	faster,	and	at	a	much	lower	cost,	than	many	anticipated. 

•	 At	the	peak	of	the	financial	crisis,	many	banks	were	not	making	new	loans	to	businesses,	or	even	to	one	another.	Many	 

businesses	could	not	get	financing	in	capital	markets.	Numerous	municipalities	and	state	governments	could	not	issue	bonds	 

at	reasonable	rates.	The	securitization	markets	—	which	provide	financing	for	credit	cards,	student	loans,	auto	loans	and	other	 

consumer	financing	—	had	basically	stopped	functioning.	The	economy	was	contracting	at	an	accelerating	rate,	with	millions	 

of	Americans	losing	their	jobs.	 

•	 By	the	middle	of	2009,	assisted	by	the	combined	impact	of	the	federal	government’s	financial	programs,	borrowing	rates	had	 

fallen	sharply	for	businesses,	individuals,	and	state	and	local	governments.	More	companies	could	fund	themselves	in	private	 

markets	by	issuing	equity	and	long-term	debt.	Housing	prices	began	to	stabilize.	The	value	of	the	savings	of	American	workers	 

had	begun	to	recover.	Economic	growth	turned	from	negative	to	positive. 

	 

EESA	provided	the	Secretary	of	the	Treasury	with	the	authority	to	purchase	or	guarantee	$700	billion	but	it	has	been	clear	for	some	 

time	that	TARP	will	cost	taxpayers	substantially	less	than	$700	billion.		In	December	2009,	the	Secretary	of	the	Treasury	announced	 

that	no	more	than	$550	billion	of	the	authority	would	be	used.		In	July	2010,	the	Dodd-Frank	Act	reduced	the	cumulative	authority	 

to	$475	billion,	in	line	with	expected	investment	amounts.		Finally,	many	of	the	investments	under	the	program,	particularly	those	 

aimed	at	stabilizing	banks,	have	thus	far	delivered	positive	returns	for	taxpayers. 

As	a	result	of	improved	market	conditions,	lower	utilization	of	the	program,	and	careful	stewardship,	the	estimated	cost	of	TARP	 

over	its	lifetime	continues	to	decline.	In	the	August	2009	Midsession	Review	of	the	President’s	2010	Budget,	the	lifetime	cost	of	 

TARP,	based	on	budget	scoring	conventions,	was	projected	to	be	$341	billion	(assuming	the	full	$700	billion	of	TARP	authority	was	 

utilized).	By	the	February	2011	President’s	Budget,	the	lifetime	cost	of	TARP	had	decreased	to	$117	billion	(assuming	$546	billion	of	 

the	$700	billion	TARP	authority	was	utilized).	 

Our	most	recent	analysis	of	the	potential	lifetime	cost	of	TARP	suggests	that	if	the	proposed	restructuring	of	AIG	is	completed	as	 

announced,	the	lifetime	cost	of	TARP	could	be	less	than	$50	billion.	Under	the	proposed	restructuring	of	AIG,	Treasury-OFS	would	 

receive	1.1	billion	shares	of	AIG	common	stock	in	exchange	for	its	TARP	investment.	While	this	cost	is	based	on	the	October	1,	 

2010	market	price,	it	should	be	noted	that	the	proceeds	that	would	actually	be	received	by	Treasury-OFS	from	the	future	sale	of	such	 

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stock	would	be	based	on	the	market	price	at	the	time	of	sale,	which	may	differ	materially	from	the	October	1,	2010	market	price.		 

Of	course,	the	final	lifetime	cost	of	TARP	will	depend	on	how	financial	conditions	evolve	in	the	future,	including	the	price	of	AIG	 

shares,	and	other	common	stock	held	by	TARP. 

The	estimated	lifetime	cost	of	TARP	reflects	several	factors,	including	the	cost	of	the	initiatives	to	help	responsible	homeowners	 

avoid	foreclosure,	for	which	$45.1	billion	is	budgeted	which	has	not	yet	been	spent.	All	funds	disbursed	for	housing	programs	result	in	 

a	cost	because	these	funds	will	not	be	returned.	It	also	reflects	losses	on	investments	in	the	auto	companies	and	AIG.		These	losses	are	 

largely	offset	in	part	by	gains	on	TARP	investments	in	banks	and	gains	in	other	programs. 

Because	the	restructuring	has	not	occurred	and	its	completion	is	subject	to	contingencies,	the	value	of	the	AIG	investment	in	the	 

fiscal	year	2010	financial	statements	does	not	reflect	any	potential	from	the	restructuring.	The	effects	of	the	proposed	restructuring	of	 

AIG	on	the	lifetime	cost	of	TARP	are	presented	in	more	detail	later	in	Management’s	Discussion	and	Analysis. 

Note	that	the	lifetime	cost	of	TARP,	based	on	budget	scoring	conventions,	differs	from	the	cost	included	in	the	Treasury-OFS	financial	statements.	Estimates	of	lifetime	costs	assume	that	all	planned	expenditures	are	made.		By	contrast,	the	TARP	financial	statement	 

costs	are	based	on	transactions	through	September	30,	2010. 

The	reported	cost	of	TARP	activities	from	inception,	October	3,	2008,	through	September	30,	2010	based	on	the	Treasury-OFS	 

financial	statements	was	$18.5	billion.	Unlike	the	federal	budget	cost	estimate,	this	reflects	only	transactions	through	September	30,	 

2010.	Thus,	it	does	not	include	the	committed	but	undisbursed	funds	for	housing	programs	as	well	as	other	programs	all	of	which	 

are	included	in	the	expected	lifetime	cost	for	budget	purposes.	The	$18.5	billion	cost	consists	of	$23.1	billion	of	reported	TARP	net	 

income	in	the	Treasury-OFS	financial	statements	for	fiscal	year	2010	and	the	$41.6	billion	of	reported	TARP	net	cost	for	the	period	 

ended	September	30,	2009.	The	change	since	last	year	is	primarily	due	to	the	early	repayment	of	TARP	investments	by	the	larger	 

banks	and	an	improvement	in	the	financial	markets	and	the	economy. 

Since	its	inception,	TARP	has	disbursed	$387.7	billion	in	direct	loans	and	equity	investments,	collected	$204.1	billion	in	repayments,	and	reported	$16.7	billion	in	dividends,	interest	and	fees,	and	$10.9	billion	in	net	proceeds	from	the	sale	and	repurchase	of	 

assets	in	excess	of	cost.	As	of	September	30,	2010,	TARP	had	$179.2	billion	in	gross	outstanding	direct	loans	and	equity	investments,	 

which	are	valued	at	$142.4	billion.	In	addition,	from	inception	through	September	30,	2010,	TARP	incurred	costs	related	to	Treasury	 

Housing	programs	of	$0.8	billion	and	administrative	costs	of	$0.5	billion. 

The	cost	estimates	for	budget	and	financial	statement	purposes	are	only	estimates.	They	are	based	on	current	market	prices	where	 

available.	Because	market	prices	change,	such	estimates	will	change.	The	ultimate	cost	of	the	outstanding	TARP	investments	 

is	therefore	subject	to	significant	uncertainty	and	will	depend	on,	among	other	things,	how	the	economy,	financial	markets	and	 

particular	companies	perform. 

Treasury-OFS	is	moving	quickly	to	recover	the	federal	government’s	investments	and	to	withdraw	from	the	financial	system.	 

Treasury-OFS	aims	to	dispose	of	its	investments	as	quickly	as	practicable,	in	a	timely	and	orderly	manner	consistent	with	the	duty	to	 

promote	financial	stability	and	protect	taxpayers’	interests. 

•	 Treasury-OFS	continues	to	carefully	manage	the	TARP	assets	and	has	recovered	more	than	75	percent	of	the	TARP	funds	 

provided	to	banks,	principally	through	the	Capital	Purchase	Program	(CPP),	and	expects	these	capital	support	programs	for	 

banks	to	provide	an	overall	positive	return	for	taxpayers. 

•	 Treasury-OFS	is	beginning	to	recover	investments	in	the	auto	industry.	GM	has	repaid	the	assistance	it	received	that	remained	 

outstanding	as	a	loan	and	has	recently	agreed	to	repurchase	the	preferred	stock	issued	to	Treasury.	The	ultimate	loss	estimate	on	 

investments	in	Chrysler	and	Ally	Financial,	Inc.	(formerly	GMAC)	is	expected	to	be	less	than	last	year	as	well	due	to	financial	 

improvements	in	both	firms. 

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•	 The	restructuring	plan	announced	by	AIG,	assuming	it	is	completed	as	announced,	will	accelerate	the	timeline	for	repaying	 

the	federal	government	and	put	taxpayers	in	a	considerably	stronger	position	to	recoup	the	Treasury-OFS	investment	in	the	 

company.	As	noted	earlier,	the	AIG	restructuring	is	not	yet	completed	and	its	closing	is	subject	to	contingencies. 

Treasury-OFS	also	expanded	the	Treasury	Housing	Programs	under	TARP.		Treasury-OFS	launched	the	Housing	Finance	Agency	 

(HFA)	Innovation	Fund	for	the	Hardest	Hit	Housing	Markets	(HFA	Hardest	Hit	Fund,	or	HHF)	to	help	state	housing	finance	 

agencies	provide	additional	relief	to	homeowners	in	the	states	hit	hardest	by	unemployment	and	house	price	declines.		In	addition,	 

Treasury-OFS	and	the	Department	of	Housing	and	Urban	Development	(HUD)	enhanced	the	FHA-Refinance	program	to	enable	 

homeowners	whose	mortgages	exceed	the	value	of	their	homes	to	refinance	into	more	affordable	mortgages	if	their	lenders	agree	to	 

reduce	the	unpaid	principal	balance	by	at	least	10	percent. 

•	 Final	authority	to	make	commitments	within	the	reduced	TARP	authorization	expired	on	October	3,	2010.		Servicers	that	 

participate	in	the	Making	Home	Affordable	Program	(MHA)	can	continue	to	make	mortgage	modifications	through	the	end	 

of	calendar	year	2012.		The	HFA	Hardest	Hit	Fund	permits	participating	state	housing	agencies	to	provide	support	through	 

their	programs	until	as	late	as	calendar	year	2017,	depending	on	available	funding.		The	FHA-Refinance	program	is	designed	to	 

enable	homeowners	to	refinance	their	mortgage	loans	and	reduce	their	overall	mortgage	debt	through	the	end	of	calendar	year	 

2012. 

Treasury-OFS	continues	to	provide	detailed	information	about	TARP	to	insure	transparency.		Treasury-OFS	published	a	Two-Year	 

Retrospective	Report	on	the	Troubled	Asset	Relief	Program	on	October	5,	2010.		This	report	includes	information	on	TARP	 

programs	and	the	effects	of	TARP	and	other	federal	government	actions	to	address	the	financial	crisis.		Readers	are	invited	to	refer	to	 

this	document	at	www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf 

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and analysis 

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BACKGROUND,	MISSION	AND		 

ORGANIzATION	STRUCTURE 

In	order	to	appreciate	the	effects	of	TARP	and	the	concentrated	 

efforts	of	the	Administration	to	combat	the	financial	crisis,	it	is	 

useful	to	examine	the	origin	and	causes	of	the	crisis.	 

In	September	2008,	the	nation	was	in	the	midst	of	one	of	the	 

worst	financial	crises	in	our	history.	The	financial	institutions	 

and	markets	that	Americans	rely	upon	to	protect	their	savings,	 

help	finance	their	children’s	education,	and	help	pay	their	bills,	 

and	that	businesses	rely	upon	to	make	payroll,	build	inventories,	 

fund	new	investments,	and	create	new	jobs,	were	threatened	 

unlike	at	any	time	since	the	Great	Depression.	Across	the	 

country,	people	were	rapidly	losing	confidence	in	our	financial	 

system	and	in	the	federal	government’s	ability	to	safeguard	their	 

economic	future.	 

The	causes	of	the	crisis	will	be	studied	for	years,	and	this	report	 

is	not	meant	to	provide	a	comprehensive	analysis	of	why	the	 

crisis	occurred.	But	some	reasons	are	clear.	Over	the	two	decades	 

preceding	the	crisis,	the	financial	system	had	grown	rapidly	in	 

an	environment	of	economic	growth	and	stability.	Risks	grew	 

in	the	system	without	adequate	transparency.	Lax	regulations	 

and	loopholes	in	supervision	let	firms	become	highly	leveraged	 

and	take	on	too	much	risk.	Ample	credit	around	the	world	 

fueled	an	unsustainable	housing	boom	in	the	first	half	of	the	 

last	decade.	When	the	housing	market	inevitably	turned	down,	 

starting	in	2006,	the	pace	of	mortgage	defaults	accelerated	at	an	 

unprecedented	rate.	By	mid­2007,	rising	mortgage	defaults	were	 

undermining	the	performance	of	many	investments	held	by	 

major	financial	institutions.	 

The	crisis	began	in	the	summer	of	2007	and	gradually	increased	 

in	intensity	and	momentum	over	the	course	of	the	following	year.	A	series	of	major	financial	institutions,	including	 

Countrywide	Financial,	Bear	Stearns,	and	IndyMac,	failed;	 

and	Fannie	Mae	and	Freddie	Mac,	the	largest	purchasers	and	 

guarantors	of	home	loans	in	the	mortgage	market,	came	under	 

severe	stress.	 

By	September	2008,	for	the	first	time	in	80	years,	the	U.S.	financial	system	was	at	risk	of	collapse.	A	growing	sense	of	panic	was	 

producing	the	classic	signs	of	a	generalized	run	on	the	banks.	 

Peoples’	trust	and	confidence	in	the	stability	of	major	institutions,	and	the	capacity	of	the	federal	government	to	contain	the	 

damage,	were	vanishing.	 

Our	system	of	regulation	and	supervision	had	failed	to	constrain	the	excessive	use	of	leverage	and	the	level	of	risk	in	 

the	financial	system,	and	the	United	States	entered	this	crisis	 

without	adequate	tools	to	manage	it.	The	Executive	Branch	did	 

not	have	existing	options	for	managing	failures	of	systemically	 

important	non-bank	financial	institutions.	 

The	Treasury	Department,	the	Federal	Reserve,	the	FDIC,	and	 

other	federal	government	bodies	undertook	an	array	of	emergency	actions	to	prevent	a	collapse	and	the	dangers	posed	to	 

consumers,	businesses,	and	the	broader	economy.	However,	the	 

severe	conditions	our	nation	faced	required	additional	resources	 

and	authorities.	Therefore,	the	Bush	Administration	proposed	 

EESA	in	late	September,	and	with	the	support	of	Democrats	and	 

Republicans	in	Congress,	it	was	enacted	into	law	on	October	3,	 

2008.	 

EESA	established	the	Office	of	Financial	Stability	(OFS)	within	 

the	Office	of	Domestic	Finance	of	the	Treasury	Department	 

to	implement	the	TARP.		The	mission	of	Treasury-OFS	is	to	 

carry	out	the	authorities	given	to	the	Secretary	of	the	Treasury	 

to	implement	the	Troubled	Asset	Relief	Program	(TARP).		 

Section	101	of	EESA	authorized	the	Secretary	of	the	Treasury	 

to	establish	the	TARP	to	“purchase,	and	to	make	and	fund	 

commitments	to	purchase,	troubled	assets	from	any	financial	 

institution,	on	terms	and	conditions	as	are	determined	by	the	 

Secretary”.			EESA	defines	the	terms	“troubled	assets”	and	 

“financial	institution”	and	provides	other	requirements	that	 

must	be	met	for	any	such	purchase.		Section	102	of	EESA	also	 

provides	authority	for	a	guarantee	program	for	troubled	assets.		 

Section	109	of	EESA	provides	authority	to	maximize	assistance	 

for	homeowners.		The	enactment	of	the	Dodd-Frank	Act	in	July	 

2010	subsequently	reduced	total	TARP	purchase	authority	from	 

$700	billion	to	a	cumulative	$475	billion. 

Final	purchase	authority	to	make	new	commitments	under	 

TARP	expired	on	October	3,	2010.		This	means	no	new	commitments	to	invest	funds	can	be	made.		There	is,	however,	still	 

significant	work	to	be	done	to	implement	commitments	made	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

4 

by	prior	to	the	October	3	deadline	but	not	yet	fully	funded.		For	 

those	assets	already	purchased,	Treasury-OFS	will	continue	to	 

wind	down	TARP	and	manage	the	remaining	TARP	investments	 

in	order	to	recover	as	much	of	taxpayers’	funds	as	possible. 

Treasury-OFS	is	headed	by	the	Assistant	Secretary	for	Financial	 

Stability,	appointed	by	the	President	with	the	advice	and	consent	 

of	the	Senate.		Reporting	to	the	Assistant	Secretary	for	Financial	 

Stability	are	six	major	organizations:	the	Chief	Investment	 

Officer,	the	Chief	Financial	Officer,	the	Chief	of	Operations,	 

the	Chief	of	Homeownership	Preservation,	the	Chief	Reporting	 

Officer,	and	the	Chief	of	OFS	Internal	Review.		A	Chief	 

Counsel’s	Office	reports	to	the	Assistant	Secretary	and	to	the	 

Office	of	the	General	Counsel	in	the	Department	of	Treasury.			 

The	Treasury-OFS	organization	chart	is	shown	below: 

Assistant Secretary 

for 

Financial Stability

Chief Counsel

Chief 

Investment 

Officer

Chief

Financial 

Officer

Chief of 

Operations

Chief of

Home

Ownership 

Preservation 

Chief of OFS 

Internal

Review

Chief 

Reporting

Officer

The	Office	of	the	Chief	Investment	Officer	(CIO)	is	responsible	 

for	program	development	and	the	execution	and	management	of	 

all	investments	made	by	either	purchasing	or	insuring	“troubled	 

assets”	pursuant	to	EESA,	other	than	TARP	housing	programs.			 

The	Office	of	the	Chief	Financial	Officer	(CFO)	has	lead	 

responsibility	within	Treasury-OFS	for	budget	formulation	and	 

execution,	cash	management,	accounting,	financial	systems,	 

financial	reporting,	program	and	internal	metrics	analytics,	 

modeling	cash	flows,	and	internal	controls.	 

The	Office	of	the	Chief	of	Homeownership	Preservation	is	 

responsible	for	identifying	opportunities	to	help	homeowners	 

and	overseeing	homeownership	programs	while	also	protecting	 

taxpayers.	 

The	Office	of	the	Chief	of	Operations	is	responsible	for	developing	the	operating	infrastructure	and	managing	internal	operations	in	Treasury-OFS.	 

The	Office	of	the	Chief	Reporting	Officer	is	responsible	for	 

coordinating	Treasury-OFS’	work	with	the	external	oversight	 

entities	including	the	Government	Accountability	Office	 

(GAO),	the	Special	Inspector	General	for	TARP,	the	Financial	 

Stability	Oversight	Board	and	the	Congressional	Oversight	 

Panel.		The	Office	also	prepares	periodic	reports	to	the	Congress	 

as	required	by	EESA. 

The	Office	of	Internal	Review	(OIR)	is	responsible	for	identifying	the	most	significant	risks	that	the	TARP	faces,	both	 

internally	and	externally.		In	addition,	OIR	is	responsible	for	 

validating	internal	controls	are	present	and	functioning	correctly	and	for	monitoring	TARP	recipient	and	external	entity	 

compliance	with	various	statutory	and	regulatory	requirements.		 

The	Office	of	the	Chief	Counsel	reports	functionally	to	the	 

Office	of	General	Counsel	at	the	Department	of	the	Treasury	 

and	provides	legal	advice	to	the	Assistant	Secretary.	The	Office	 

is	involved	in	the	structuring	of	OFS	programs	and	activities	 

to	ensure	compliance	with	EESA	and	with	other	laws	and	 

regulations.	 

Treasury-OFS	is	not	envisioned	as	a	permanent	organization,	so	 

to	the	maximum	extent	possible	when	economically	efficient	 

and	appropriate,	Treasury-OFS	utilizes	private	sector	expertise	 

in	support	of	the	execution	of	TARP	programs.		Fannie	Mae	 

and	Freddie	Mac	accounted	for	over	sixty	percent	of	the	fiscal	 

year	2010	non-personnel	services	costs	($149	million	of	$247	 

million)	to	assist	in	the	administration	and	compliance	oversight,	respectively,	of	the	Making	Home	Affordable	Program.		 

Additionally,	asset	managers	were	hired	to	serve	as	financial	 

agents	in	assisting	with	managing	the	portfolio	of	assets	 

associated	with	several	TARP	programs.		The	balance	of	the	 

non-personnel,	private	sector	firms	were	engaged	to	assist	with	 

the	significant	volume	of	work	associated	with	the	TARP	in	the	 

areas	of	accounting	and	internal	controls,	administrative	support,	facilities,	legal	advisory,	financial	advisory,	and	information	 

technology. 

management’s discussion and analysis 

part 1: management s discussion and analysis 
agency financial report | fiscal year 2010 

5 

OVERVIEW	OF	TARP	FOR	FISCAL	YEAR	2010 

Brief Statement of ofS Strategic 

and operational goalS 

The	purpose	of	EESA	is	to	provide	the	Secretary	of	the	Treasury	 

with	the	authorities	and	facilities	necessary	to	restore	liquidity	 

and	stability	to	the	U.S.	financial	system.		In	addition,	the	 

Secretary	is	directed	to	ensure	that	such	authorities	are	used	in	 

a	manner	that	protects	home	values,	college	funds,	retirement	 

accounts,	and	life	savings;	preserves	homeownership;	promotes	 

jobs	and	economic	growth;	maximizes	overall	returns	to	taxpayers;	and	provides	public	accountability.		EESA	also	provided	 

specific	authority	to	take	certain	actions	to	prevent	avoidable	 

foreclosures. 

In	light	of	this	statutory	direction,	Treasury-OFS	established	the	 

following	as	its	operational	goals:	 

1.	 Ensure	the	overall	stability	and	liquidity	of	the	financial	 

system. 

a.	Make	capital	available	to	viable	institutions. 

b.	Provide	targeted	assistance	as	needed. 

c.	Increase	liquidity	and	volume	in	securitization	 

markets. 

2.	 Prevent	avoidable	foreclosures	and	help	preserve	 

homeownership.	 

3.	 Protect	taxpayer	interests.	 

4.	 Promote	transparency. 

1.	 	Ensure	the	Overall	Stability	and	 

Liquidity	of	the	Financial	System 

To	ensure	the	overall	stability	and	liquidity	of	the	financial	system,	Treasury-OFS	developed	several	programs	under	the	TARP	 

that	were	broadly	available	to	financial	institutions.	Under	the	 

Capital	Purchase	Program	(CPP),	Treasury-OFS	provided	capital	infusions	directly	to	banks	and	insurance	companies	deemed	 

viable	by	their	regulators	but	in	need	of	a	stronger	asset	base	to	 

weather	the	crisis.	The	Capital	Assistance	Program	(CAP)	was	 

developed	to	supplement	the	Supervisory	Capital	Assessment	 

Program	(SCAP),	or	“stress	test”	of	the	largest	U.S.	financial	 

institutions.	If	these	institutions	were	unable	to	raise	adequate	 

private	funds	to	meet	the	SCAP	requirements,	Treasury-OFS	 

stood	ready	to	provide	additional	capital.	 

In	addition,	Treasury-OFS	provided	direct	aid	to	certain	 

financial	industry	participants	through	the	Targeted	Investment	 

Program	(TIP),	the	Asset	Guarantee	Program	(AGP),	and	the	 

AIG	Investment	Program.	These	programs	were	designed	to	 

mitigate	the	potential	risks	to	the	system	as	a	whole	from	the	 

difficulties	facing	these	firms.	 

Similarly,	the	Automotive	Industry	Financing	Program	(AIFP)	 

provided	funding	for	General	Motors	Corporation	(GM)	and	 

Chrysler	LLC	(Chrysler),	as	well	as	their	financing	affiliates	 

in	order	to	prevent	a	significant	disruption	of	the	automotive	 

industry	that	would	have	posed	a	systemic	risk	to	financial	 

markets	and	negatively	affected	economic	growth	and	employment.	Treasury-OFS’	actions	helped	GM	and	Chrysler	undertake	massive	and	orderly	restructurings	through	the	bankruptcy	 

courts	that	have	resulted	in	leaner	and	stronger	companies.	 

The	Public-Private	Investment	Program	(PPIP)	was	established	 

to	facilitate	price	discovery	and	liquidity	in	the	markets	for	 

troubled	real	estate-related	assets	as	well	as	the	removal	of	 

such	assets	from	the	balance	sheets	of	financial	institutions.	In	 

addition	to	these	initiatives,	Treasury-OFS	implemented	the	 

Consumer	and	Business	Lending	Initiative	(CBLI)	to	enhance	 

liquidity	and	restore	the	flow	of	credit	to	consumers	and	small	 

businesses.	Treasury-OFS	developed	programs	to	revitalize	 

asset-backed	securities	markets	critical	to	restoring	the	flow	of	 

credit	to	consumers	and	small	businesses.	CBLI	is	composed	of	 

the	Term	Asset-Backed	Securities	Loan	Facility,	the	SBA	7a	 

Securities	Purchase	Program	and	the	Community	Development	 

Capital	Initiative. 

Details	on	all	of	these	efforts,	including	program-specific	 

results,	can	be	found	later	in	this	Management’s	Discussion	and	 

Analysis	under	Operational	Goals. 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

6 

2.	 	Prevent	Avoidable	Foreclosures	and	 

Preserve	Homeownership	 

To	prevent	avoidable	foreclosures	and	preserve	home	ownership,	 

Treasury-OFS	launched	the	Making	Home	Affordable	Program	 

(MHA),	which	includes	the	Home	Affordable	Modification	 

Program	(HAMP).	Under	this	program,	Treasury-OFS	pays	the	 

cost	of	modifications	of	loans	not	held	by	government-sponsored	 

enterprises	(GSEs)	while	the	GSEs	pay	the	cost	of	modifications	of	loans	held	by	the	GSEs.	After	18	months,	more	than	 

1.3	million	homeowners	participating	in	HAMP	have	entered	 

into	trial	modifications	that	reduced	their	mortgage	payments	to	 

more	affordable	levels.	This	includes	619,000	homeowners	with	 

non-GSE	loans.	Nearly	500,000	homeowners	participating	in	the	 

HAMP	Program	have	had	their	mortgage	terms	modified	permanently,	with	over	220,000	of	these	participants	in	non-GSE-loans	 

that	would	be	funded	by	Treasury-OFS.	HAMP	participants	(both	 

GSE	and	non-GSE	loans)	collectively	have	experienced	a	36	percent	median	reduction	in	their	mortgage	payments—more	than	 

$500	per	month—amounting	to	a	total,	program-wide	anticipated	 

savings	for	homeowners	of	more	than	$3.2	billion.	MHA	has	also	 

spurred	the	mortgage	industry	to	adopt	similar	programs	that	have	 

helped	millions	more	at	no	cost	to	the	taxpayer.	 

In	addition,	Treasury-OFS	launched	the	Housing	Finance	 

Agency	(HFA)	Innovation	Fund	for	the	Hardest	Hit	Housing	 

Markets	(HFA	Hardest	Hit	Fund,	or	HHF)	to	help	state	housing	 

finance	agencies	provide	additional	relief	to	homeowners	in	the	 

states	hit	hardest	by	unemployment	and	house	price	declines,	 

and	Treasury-OFS	and	the	Department	of	Housing	and	Urban	 

Development	(HUD)	enhanced	the	FHA-Refinance	Program	 

in	creating	the	FHA	Short	Refinance	option	to	enable	more	 

homeowners	whose	mortgages	exceed	the	value	of	their	homes	 

to	refinance	into	more	affordable	mortgages	if	their	lenders	agree	 

to	reduce	principal	by	at	least	10	percent. 

MHA	operations	and	program	detail	can	be	found	later	in	this	 

Management	Discussion	and	Analysis	under	Operational	Goals. 

3.	Protect	Taxpayer	Interests 

Federal	government	financial	programs,	including	TARP,	helped	 

prevent	the	U.S.	financial	system	from	collapse,	which	could	 

have	resulted	in	a	much	more	severe	contraction	in	employment	 

and	production.		The	manner	in	which	TARP	was	implemented	 

is	also	designed	to	protect	taxpayers	and	to	compensate	them	for	 

risk.		For	example,	in	exchange	for	capital	injections,	recipients	 

of	TARP	funds	have	to	adhere	to	corporate	governance	standards,	limit	executive	pay,	and	provide	additional	reporting	on	 

lending	activity.	In	addition,	Treasury-OFS	generally	received	 

preferred	equity,	which	provides	dividends.	The	dividend	rates	 

increase	over	time	to	encourage	repayment. 

Further,	EESA	stipulated	that	the	taxpayer	benefit	as	the	 

institutions	which	received	TARP	funds	recovered.	In	connection	with	most	investments,	Treasury-OFS	also	received	 

warrants	for	additional	securities	in	the	institutions.	Under	the	 

broad	programs	described	above,	Treasury-OFS	has	priority	over	 

existing	shareholders	of	TARP	recipients	for	which	TARP	holds	 

equity	investments.	This	gives	taxpayers	the	ability	to	share	in	 

the	potential	upside	along	with	existing	shareholders.	 

Finally,	Treasury-OFS	seeks	to	achieve	the	goal	of	protecting	the	 

taxpayer	through	the	effective	management	and	disposition	of	 

all	TARP	investments,	as	detailed	under	Operational	Goals. 

4.	 Promote	Transparency 

EESA	requires	transparency	and	accountability.	Specifically,	 

EESA	requires	Treasury-OFS	to	provide	Congress	with	a	variety	 

of	reports.	These	include	a	monthly	report	to	Congress	on	 

TARP	activity	and	transaction	reports	posted	within	two	days	 

detailing	every	TARP	transaction.	In	carrying	out	its	operations,	Treasury-OFS	has	sought	to	not	only	meet	the	statutory	 

requirements	but	also	to	be	creative	and	flexible	with	respect	to	 

additional	transparency	initiatives.	Treasury-OFS	proactively	 

provides	to	the	public	monthly	Dividends	and	Interest	Reports	 

reflecting	dividends	and	interest	paid	to	Treasury-OFS	from	 

TARP	investments,	loans,	and	asset	guarantees,	as	well	as	 

monthly	reports	detailing	the	lending	activity	of	participants	in	 

the	Capital	Purchase	Program.	 

EESA	also	provided	for	extensive	oversight	of	the	TARP,	 

including	by	the	Congressional	Oversight	Panel,	the	Special	 

Inspector	General	for	the	TARP,	the	Financial	Stability	 

Oversight	Board	(FSOB),	and	the	Government	Accountability	 

Office.	In	addition,	Treasury-OFS	officials	frequently	testify	 

before	Congress	on	the	progress	of	TARP	programs,	and	 

Treasury-OFS	staff	provide	briefings	to	Congressional	staff	on	 

programmatic	developments.	 

Further	details	on	these	efforts	can	be	found	in	this	 

Management’s	Discussion	and	Analysis	under	Operational	 

Goals.		 

	 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

7 

fiScal Year 2010 financial 

SummarY 

EESA	provided	authority	for	the	TARP	to	purchase	or	guarantee	up	to	$700	billion	in	troubled	assets.1

				Treasury-OFS	used	 

this	authority	to	help	strengthen	the	U.S.	financial	system,	 

restore	health	and	liquidity	to	credit	markets	to	facilitate	 

borrowing	by	consumers	and	businesses,	and	prevent	avoidable	 

foreclosures	in	the	housing	market.		EESA	spending	authority	 

would	terminate	December	30,	2009,	unless	extended	upon	submission	of	a	written	certification	to	Congress	by	the	Secretary	of	 

the	Treasury,	pursuant	to	Section	120(b)	of	EESA. 

In	December	2009,	the	Secretary	of	the	Treasury	certified	the	 

extension	of	TARP	authority	until	October	3,	2010.		The	 

Secretary	identified	two	principal	objectives	for	the	extension	of	 

TARP	—	to	preserve	capacity	to	respond	to	unforeseen	threats	 

to	financial	stability	and	to	address	continuing	challenges	in	the	 

areas	of	home	foreclosures	and	credit	for	small	business	lending	 

and	consumers.		He	also	indicated	that	Treasury-OFS	did	not	 

expect	to	use	more	than	$550	billion	of	the	approximately	$700	 

billion	authorized	by	Congress. 

The	Dodd-Frank	Wall	Street	Reform	and	Consumer	Protection	 

Act2

		(the	Dodd-Frank	Act)	amended	EESA,	as	follows: 

•	 Total	purchase	and	guarantee	authority	under	TARP	was	 

capped	at	a	cumulative	$475	billion; 

•	 The	amount	of	TARP	investments	that	have	been	repaid	 

could	not	be	used	to	increase	spending;	and 

•	 Obligations	could	not	be	incurred	for	programs	or	initiatives	that	were	not	initiated	prior	to	June	25,	2010. 

Treasury-OFS	reduced	the	TARP	program	allocations	to	conform	to	these	limitations.	As	of	September	30,	2010,	TreasuryOFS	had	cumulative	purchases	and	guarantees	(as	defined	in	the	 

Dodd-Frank	Act)	amounting	to	$474.8	billion. 

Based	on	operations	for	the	year	ended	September	30,	2010,	 

Treasury-OFS	reports	the	following	key	results: 

1	 The	Helping	Families	Save	Their	Homes	Act	of	2009,	Pub.	L.	No.	 

111-22,	Div.	A,	amended	the	act	and	reduced	the	maximum	allowable	 

amount	of	outstanding	troubled	assets	under	the	act	by	almost	$1.3	 

billion,	from	$700	billion	to	$698.7	billion. 

2	 Pub.	L.	111-203. 

•	 In	fiscal	year	2010,	Treasury-OFS	disbursed	$23.4	billion	 

in	TARP	funds	to	make	loans	and	equity	investments,	and	 

reported	net	income	from	operations	of	$23.1	billion. 

•	 During	fiscal	year	2010,	Treasury-OFS	received	$131.3	 

billion	of	repayments	on	certain	investments	and	loans	 

and	$8.2	billion	in	net	proceeds	from	the	sale/repurchase	 

of	assets	in	excess	of	cost. 

•	 As	of	September	30,	2010,	Treasury-OFS	reported	$145.5	 

billion	for	the	value	of	loans,	equity	investments,	and	the	 

asset	guarantee	program. 

net income of tarp operationS 

(fiScal Year 2010 and fiScal Year 

2009) 

Treasury-OFS’	fiscal	year	2010	net	income	from	operations	of	 

$23.1	billion	includes	the	estimated	net	cost	related	to	loans,	 

equity	investments,	and	the	asset	guarantee	program.	For	the	 

fiscal	year	ended	September	30,	2010,	Treasury-OFS	reported	 

net	subsidy	income	for	five	programs	–	the	Targeted	Investment	 

Program,	the	Asset	Guarantee	Program,	PPIP,	the	AIG	 

Investment	Program	and	the	Automotive	Industry	Financing	 

Program	(AIFP).	These	programs	collectively	reported	net	 

subsidy	income	of	$28.4	billion.	Also,	for	the	fiscal	year	ended	 

September	30,	2010,	Treasury-OFS	experienced	net	subsidy	 

cost	for	two	programs	–	CPP	and	the	Consumer	and	Business	 

Lending	Initiative	had	reported	net	subsidy	cost	of	$4.2	billion.	 

Fiscal	year	2010	expenses	for	the	Treasury	Housing	Programs	 

under	TARP	of	$825	million	and	administrative	expenses	of	 

$296	million	bring	the	total	reported	fiscal	year	net	income	from	 

operations	to	$23.1	billion,	as	shown	in	Table	1.	For	the	period	 

ending	September	30,	2009,	the	net	cost	of	operations	was	 

$41.6	billion	as	shown	in	Table	1.	These	net	income	and	net	 

cost	amounts	reported	in	the	financial	statements	reflect	only	 

transactions	through	September	30,	2010	and	September	30,	 

2009,	respectively	and	therefore	are	different	than	lifetime	cost	 

estimates	made	for	budgetary	purposes.	See	the	discussion	in	the	 

Executive	Summary. 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

8 

Table 1: Net Income (Cost) of TARP Operations 

Dollars in millions 

TARP Program 

For the 

Year Ended 

September 

30, 2010 

For the 

Period Ended 

September 

30, 2009 

From TARP’s 

Inception 

through 

September 

30, 2010 

Capital	Purchase	Program $ (	3,861) $ 15,033 $ 11,172 

Targeted	Investment	Program 1,879 1,927 	3,806 

Asset	Guarantee	Program 1,505 2,201 	3,706 

Consumer	and	Business	Lending	 

Initiative (306) 339 	33 

Public	Private	Investment	Program 704 704 

American	International	Group	 

Investment	Program 7,668 (30,427) (22,759) 

Automotive	Industry	Financing	Program 16,614 (30,477) (13,863) 

Total	Net	Subsidy	Income	(Cost) $ 24,203 $ (41,404) $ (17,201) 

Additional TARP (Costs) 

Treasury	Housing	Programs	under	TARP	 

Program (825) (2) $(827) 

Administrative	Costs (296) (167) 	(463) 

Total Net (Cost of) Income from 

TARP Operations $ 23,082 $ (41,573) $ (18,491) 

part 1: management s discussion and analysis 

Over	time	the	cost	of	the	TARP	programs	will	change.	As	 

described	later	in	this	MD&A,	and	in	the	Treasury-OFS	audited	 

financial	statements,	these	estimates	are	based	in	part	on	 

currently	projected	economic	factors.	These	economic	factors	will	 

likely	change,	either	increasing	or	decreasing	the	lifetime	cost	of	 

the	TARP. 

tarp program SummarY 

Table	2	provides	a	financial	summary	for	TARP	programs	since	 

TARP	inception	on	October	3,	2008,	through	September	 

30,	2010.		For	each	program,	the	table	gives	the	face	value	of	 

the	amount	obligated	for	each	program,	the	amount	actually	 

disbursed,	repayments	to	Treasury-OFS	from	program	participants,	net	outstanding	balance	as	of	September	30,	2010,	and	 

cash	inflows	on	the	investments	for	each	program	in	the	form	 

of	dividends,	interest	or	other	fees.		As	of	fiscal	year	end	2010,	 

$230	million	of	the	$475	billion	in	purchase	and	guarantee	 

authority	remained	unused.	3 

3	 Treasury-OFS	tracks	costs	in	accordance	with	Federal	budget	procedures.		 

First,	Treasury-OFS	enters	into	legally	binding	“obligations”	to	invest	or	 

spend	the	funds	for	TARP	programs.		Then,	funds	are	disbursed	over	time	 

pursuant	to	the	obligations.		In	any	given	case,	it	is	possible	that	amount	 

obligated	will	not	be	disbursed. 

Table 2: TARP Summary1 

From TARP Inception through September 30, 2010 

Dollars in billions 

Purchase 

Guaran- tee 

Amounts 

Price or 

Total 

Dis- bursed 

Invest- ment 

Repay- ments 

Out 

standing 

Balance2 

Received 

from 

Invest- ments 

Capital Purchase Program3 204.9$ 204.9$ 152.54 $ $ 49.8 $ 19.8 

Targeted Investment 

Program 40.0 40.0 40.0 0.0 4.2 

Asset Guarantee Program 5.0 0.0 0.0 0.0 0.7 

American International 

Group Investment Program5 69.8 47.6 0.0 47.6 0.0 

Consumer and Business 

Lending Initiative 5.3 0.94 --- 0.9 ---

Public Private Investment 

Program 22.4 14.1 0.4 13.7 0.2 

Automotive Industry 

Financing Program 81.8 79.7 11.2 67.2 2.9 

Treasury Housing Programs 

Under TARP 45.6 0.5 N/A N/A N/A 

Totals 474.8$ $ 387.7 $ 204.1 $ 179.2 27.8$ 

1/	This	table	shows	the	TARP	activity	for	the	period	from	inception	through	 

September	30,	2010,	on	a	cash	basis.	Received	from	investments	includes	 

dividends	and	interest	income	reported	in	the	Statement	of	Net	Cost,	and	 

Proceeds	from	sale	and	repurchases	of	assets	in	excess	of	costs. 

2/	Total	disbursements	less	repayments	do	not	equal	the	outstanding	balance.		 

Other	transactions	affecting	the	outstanding	balance	include	Treasury	housing	 

program	funding	of	$0.5	billion	as	repayments	are	not	required	(or	expected).		 

Also,	the	outstanding	balance	is	affected	by	certain	non-cash	items	including	 

capitalized	interest	of	$0.3	billion,	write-offs	totaling	$3.9	billion	and	losses	on	 

two	preferred	stock	transactions	of	$0.2	billion. 

3/	Treasury-OFS	received	$16.1	billion	in	proceeds	from	sales	of	Citigroup	common	 

stock,	of	which	$13.1	billion	is	included	at	cost	in	investment	repayments,	 

and	$3.0	billion	of	net	proceeds	in	excess	of	cost	is	included	in	Received	from	 

Investments. 

4/	Includes	Community	Development	Capital	Initiative	exchange	from	CPP	of	$363	 

million. 

5/	The	disbursed	amount	is	lower	than	purchase	price	because	of	the	$29.8	billion	 

facility	available	to	AIG.		During	the	periods	ended	September	30,	2010	and	 

September	30,	2009,	AIG	drew	$4.3	billion	and	$3.2	billion	respectively	from	the	 

facility,	leaving	an	undrawn	amount	of	$22.3	under	this	facility.	 

	 

Most	of	the	TARP	funds	have	been	used	to	make	investments	 

in	preferred	stock	or	make	loans.		Treasury-OFS	has	generally	received	dividends	on	the	preferred	stock	and	interest	 

payments	on	the	loans	from	the	institutions	participating	in	 

TARP	programs.		These	payments	are	a	return	on	Treasury’s	 

TARP	investments.		For	the	two-year	period	ended	September	 

30,	2010,	Treasury-OFS	received	a	total	of	$16.7	billion	in	 

dividends,	interest	and	fees.		Table	3	shows	the	breakdown	of	 

receipts	for	the	period	ended	September	30,	2010	and	2009	for	 

all	TARP	programs	combined	as	well	as	totals	for	the	period	 

from	inception	through	September	30,	2010.		 

management’s discussion and analysis 
management’s discussion and analysis 9 

agency financial report | fiscal year 2010 

Table 3: TARP Receipts and Repayments 

on Investments/Loans 1 

(Dollars in billions) 

Dividends, Interest, Fees and Warrants 

Repurchases 

For the 

Year Ended 

September 

30, 2010 

For the 

Period 

Ended 

September 

30, 2009 

From 

TARP’s 

Inception 

through 

September 

30, 2010 

Dividends	and	Fees $ 5.9 $ 9.6	 $ 15.5 

Interest 1.0 	0.2 1.2 

Sales/Repurchases	of	Warrants	and	Warrant	 

Preferred	Stock	and	Additional	Notes 5.2 2.9	 8.1 

Proceeds	from	Sales	of	Citigroup	Common	 

Stock	in	Excess	of	Cost 3.0 	0.0 3.0 

Subtotal	 $ 15.1 $ 12.7 $ 27.8 

Investment/Loan Repayments 

Sales/Repurchases/Repayments		 

on	preferred	stock $ 122.0 $ 70.7	 $ 192.7 

Loan	Principal	Repaid 9.3 2.1	 11.4 

Subtotal	 $ 131.3 $ 72.8	 $ 204.1 

GRAND	TOTAL $ 146.4 $ 85.5	 $ 231.9 

1/	This	table	shows	TARP	activity	on	a	cash	basis.				 

Treasury-OFS	also	receives	warrants	in	connection	with	most	of	 

its	investments,	which	provides	an	opportunity	for	taxpayers	to	 

realize	an	upside	on	investments.		Since	the	program’s	inception,	 

Treasury-OFS	has	received	$8.0	billion	in	gross	proceeds	from	 

the	disposition	of	warrants	consisting	of	(i)	$3.1	billion	from	 

issuer	repurchases	at	agreed	upon	values	and	(ii)	$4.9	billion	from	 

auctions.		TARP’s	Warrant	Disposition	Report	is	posted	on	the	 

OFS	website	at	the	following	link:	www.financialstability.gov/latest/ 

reportsanddocs.html 

SummarY of tarp direct loanS 

and equitY inveStmentS 

Table	4	provides	information	on	the	estimated	values	of	the	 

TARP	direct	loan	and	equity	investments	by	program,	as	of	the	 

end	of	fiscal	year	2010	and	the	end	of	fiscal	year	2009.		(Treasury	 

Housing	Programs	under	TARP	are	excluded	from	the	chart	 

because	no	repayments	are	required).		The	Outstanding	Balance	 

column	represents	the	amounts	disbursed	by	Treasury-OFS	 

relating	to	the	loans	and	equity	investments	that	were	outstanding	as	of	September	30,	2010	and	2009.		The	Estimated	Value	 

of	the	Investment	column	represents	the	present	value	of	net	 

cash	inflows	that	Treasury-OFS	estimates	it	will	receive	from	the	 

loans	and	equity	investments.			For	equity	securities,	this	amount	 

management’s discussion and analysis 

represents	fair	value.		The	total	difference	of	$36.8	billion	(2010)	 

and	$53.1	billion	(2009)	between	the	two	columns	is	considered	 

the	“subsidy	cost	allowance”	under	the	Federal	Credit	Reform	 

Act	methods	Treasury-OFS	follows	for	budget	and	accounting	 

purposes	(see	Note	6	in	the	financial	statements	for	further	 

discussion)4

.			The	chart	does	not	give	effect	to	the	proposed	 

restructuring	of	AIG.		The	AIG	restructuring	plan	is	still	subject	 

to	a	number	of	conditions	and	much	work	remains	to	be	done	to	 

close	the	transactions.	 

Table 4: Summary of TARP Direct Loans and Equity Investments 

(Dollars in billions) 

Program 

Outstanding 

Balance as 

of September 

30, 2010 1 

Estimated 

Value of 

Investment as 

of September 

30, 2010 

Outstanding 

Balance as 

of September 

30, 2009 1 

Estimated 

Value of 

Investment as 

of September 

30, 2009 

Capital	Purchase	 

Program 

Targeted	Investment	 

Program 

AIG	Investment	Program 

Automotive	Industry	 

Financing	Program 

Consumer	Business	 

Lending	Initiative	(TALF	 

only	2009) 

Public-Private	 

Investment	Program 

$ 	49.8 

---

47.6 

67.2 

	0.9 

13.7 

$ 48.2 

---

26.12 

52.7 

1.0 

14.4 

$ 133.9 

40.0 

43.2 

73.8 

0.1 

--

$ 141.7 

40.3 

13.2 

42.3 

0.4 

--

Total $ 179.2 $ 142.4 $ 291.0 $ 237.9 

1/	Before	subsidy	cost	allowance.		 

2/	Does	not	give	effect	to	proposed	restructuring.	See	discussion	concerning	“The	 

AIG	Restructuring	Plan	and	Taxpayer	Exit”	later	in	this	Management’s	Discussion	 

and	Analysis. 

4	 The	subsidy	cost	in	Table	1	and	on	the	Statement	of	Net	Cost,	is	 

composed	of	(1)	the	change	in	the	subsidy	cost	allowance,	net	of	writeoffs,	(2)	net	intragovernmental	interest	cost,	(3)	certain	inflows	from	 

the	direct	loans	and	equity	investments	(e.g.,	dividends,	interest,	net	 

proceeds	from	sales	and	repurchases	of	assets	in	excess	of	cost,	and	other	 

realized	fees),	and	(4)	the	change	in	the	estimated	discounted	net	cash	 

flows	related	to	the	asset	guarantee	program. 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

10
 

Table	5	below	shows	the	estimated	net	asset	value	for	the	top	 

ten	CPP	investments	held	as	of	September	30,	2010.	 

Table 5: Top Ten CPP Investments 

Dollars in billions 

Institution 

Outstanding 

Investment 1 

Estimated Net Asset 

Value (excluding 

warrants) as of 

September 30, 2010 

Citigroup	(Common	Shares) $ 	11.90 $ 14.31 

SunTrust 4.85 4.84 

Regions 3.50 3.49 

Fifth	Third 3.41 3.34 

Keycorp 2.50 2.50 

Marshall	&	Ilsley 1.72 1.47 

Zions 1.40 1.22 

Huntington 1.40 1.39 

Synovus 	0.97 0.79 

Popular 0.94 0.79 

Total $ 32.59 $ 34.14 

1/	Outstanding	investment	for	Citigroup	common	equals	the	remaining	number	 

of	common	shares	multiplied	by	the	per	share	cost	basis	of	$3.25. 

. 

The	ultimate	cost	of	the	TARP	will	not	be	known	for	some	 

time.		The	financial	performance	of	the	programs	will	depend	 

on	many	factors	such	as	future	economic	and	financial	conditions,	and	the	business	prospects	of	specific	institutions.		The	 

estimates	are	sensitive	to	slight	changes	in	model	assumptions,	 

such	as	general	economic	conditions,	specific	stock	price	 

volatility	of	the	entities	in	which	Treasury-OFS	has	an	equity	 

interest,	estimates	of	expected	defaults,	and	prepayments.		If	 

Treasury-OFS	experiences	higher	than	currently	projected	 

early	repayments	and	fewer	defaults,	TARP’s	ultimate	cost	of	 

these	investments	may	be	lower	than	estimated.		Wherever	 

possible,	Treasury-OFS	uses	market	prices	of	tradable	securities	 

to	estimate	the	fair	value	of	TARP	investments.	Use	of	market	 

prices	was	possible	for	TARP	investments	that	are	standard	 

financial	instruments	that	trade	in	public	markets	or	are	closely	 

related	to	tradable	securities.	For	those	TARP	investments	that	 

do	not	have	direct	analogs	in	private	markets,	Treasury-OFS	 

uses	internal	market-based	models	to	estimate	the	market	value	 

of	these	investments.	All	cash	flows	are	adjusted	for	market	risk.		 

Further	details	on	asset	valuation	can	be	found	in	Note	6	of	the	 

Financial	Statements. 

compariSon of eStimated lifetime 

tarp coStS over time 

Market	conditions	and	the	performance	of	specific	financial	 

institutions	will	be	critical	determinants	of	the	TARP’s	lifetime	 

cost.		The	changes	in	the	Treasury-OFS	estimates	since	TARP’s	 

inception	through	September	30,	2010	provide	a	good	illustration	of	this	impact.		In	the	Fiscal	Year	2011	President’s	Budget,	 

Treasury-OFS	projected	the	cost	for	TARP	to	be	$117	billion	 

(assuming	$546	billion	utilized),	down	substantially	from	the	 

previous	estimate	of	$341	billion	(based	on	the	entire	$700	 

billion	utilized)	reflected	in	the	Midsession	Review	in	August	 

2009,	which	is	reflective	of	the	improved	economy	and	financial	 

markets.		An	August	2010	report	of	the	Congressional	Budget	 

Office	estimated	the	total	cost	of	TARP	as	$66	billion.5

	 

Table	6	provides	information	on	how	Treasury-OFS’	estimated	 

lifetime	cost	of	TARP	has	changed	over	time.	This	table	 

assumes	that	all	expected	investments	(e.g.	AIG,	PPIP)	and	disbursements	for	Treasury	housing	programs	under	TARP	are	completed,	and	adheres	to	government	budgeting	guidance.	This	 

table	will	not	tie	to	the	financial	statements	since	it		includes	 

investments	and	other	disbursements	expected	to	be	made	in	 

the	future.	Table	6	is	consistent	with	the	estimated	lifetime	cost	 

disclosures	on	the	TARP	web	site	at	www.financialstability.gov.	 

The	cost	amounts	in	Table	6	are	based	on	assumptions	regarding	 

future	events,	which	are	inherently	uncertain. 

5	 The	Budget	and	Economic	Outlook:	An	Update.	August	2010.	Available	 

at	www.cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf. 

management’s discussion and analysis
�
management’s discussion and analysis 

agency financial report | fiscal year 2010 

11 

Table 6: Estimated TARP Lifetime Costs (Income)1 

Dollars in billions 

Program 

Estimated 

Lifetime 

Cost on 

March 31, 

2010 

Estimated 

Lifetime Cost 

on May 31, 

2010 

Estimated 

Lifetime 

Cost on 

September 

30, 2010 

Pro-forma 

Lifetime Cost 

Assuming AIG 

Restructuring 

and October 

1, 2010 

Market Price 

Capital	Purchase	Program 

Targeted	Investment	 

Program 

Asset	Guarantee	 

Program2 

AIG	Investment	Program 

Auto	Industry	Financing	 

Program4 

Consumer	and	Business	 

Lending	Initiative 

Public	Private	Investment	 

Program 

Subtotal 

Treasury	Housing	 

Programs	under	TARP 

$ 	(	9.8) 

(	3.8) 

(	3.1) 

45.2 

24.6 

3.0 

0.5 

	56.6 

48.8 

$ (	9.4) 

(	3.8) 

(	3.0) 

44.9 

26.9 

(	0.4) 

0.5 

55.7 

45.6 

$ (11.2) 

(	3.8) 

(	3.7) 

36.9 

14.7 

(	0.1) 

(	0.7) 

32.1 

45.6 

$ (11.2) 

(	3.8) 

(	3.7) 

5.13 

14.7 

(	0.1) 

(	0.7) 

0.3 

45.6 

Total $ 105.4 $ 101.3 $ $77.7 $ 45.9 

1/	Estimated	program	costs	(+)	or	savings	(in	parentheses)	over	the	life	of	the	 

program,	including	interest	on	re-estimates	and	excluding	administrative	costs. 

2/	Prior	to	the	termination	of	the	guarantee	agreement,	Treasury	guaranteed	up	to	 

$5	billion	of	potential	losses	on	a	$301	billion	portfolio	of	loans. 

3/	The	pro-forma	lifetime	cost	for	the	AIG	Investment	Program	assumes	that:		(i)	the	 

outstanding	preferred	stock	investment	is	exchanged	for	1.1	billion	shares	of	AIG	 

common	stock	and	valued	at	the	market	price	of	$38.86	at	October	1,	2010,	and	(ii)	 

the	undrawn	commitment	is	disbursed	and	is	valued	consistent	with	Treasury-OFS	 

methodology	for	valuing	its	non-traded	securities.		Under	this	methodology,	 

Treasury-OFS	estimates	that	it	will	not	incur	any	loss	on	the	additional	 

disbursements	because	the	aggregate	value	of	the	assets	underlying	the	preferred	 

interests	in	the	Special	Purpose	Vehicles	that	Treasury-OFS	will	receive	for	the	 

disbursements	exceeds	the	liquidation	preference	of	the	preferred	interests.		The	 

restructuring	is	subject	to	contingencies	and	has	not	been	completed.		In	addition,	 

market	prices	will	change	which	will	result	in	changes	to	the	cost	estimate	over	 

time.		The	pro-forma	lifetime	cost	does	not	include	any	recovery	from	the	shares	 

of	AIG	common	stock	to	be	received	by	Treasury	from	the	AIG	Credit	Facility	Trust	 

that	are	in	addition	to	Treasury-OFS	shares.			See	“The	AIG	Restructuring	Plan	and	 

Taxpayer	Exit”	discussion	later	in	this	Management’s	Discussion	and	Analysis. 

4/	GM	has	filed	a	registration	statement	for	an	initial	public	offering	(IPO).		If	the	 

IPO	is	completed,	Treasury-OFS	will	use	the	market	price	for	GM	common	stock	 

to	value	its	investment	in	the	future.		Because	there	is	no	market	price	today,	 

Treasury-OFS	cannot	value	its	investment	in	this	manner	and	instead	uses	its	 

methodology	for	non-traded	securities.		The	actual	price	that	would	be	obtained	 

from	the	IPO	is	uncertain	and	will	vary,	perhaps	significantly,	from	the	September	 

30,	2010	valuation.			However,	if	Treasury-OFS	were	to	value	its	investment	at	the	 

IPO	range	of	$26	to	$29	per	share	announced	by	GM	in	the	preliminary	prospectus	 

dated	November	3,	2010,	Treasury-OFS’	estimated	cost	for	the	AIFP	would	 

increase	by	$3	billion	to	$6	billion.	Although	not	given	effect	in	this	column	either,	 

GM	has	also	agreed,	subject	to	the	closing	of	the	IPO,	to	repurchase	$2.1	billion	of	 

preferred	shares	issued	to	Treasury-OFS	at	102	percent	of	par	value. 

. 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

12 

KEY	TRENDS/FACTORS	AFFECTING	TARP	FUTURE	 

ACTIVITIES	AND	ULTIMATE	COST 

This	section	provides	additional	TARP	analytic	information	 

and	enhanced	sensitivity	analysis	focusing	on	the	remaining	 

TARP	dollars/continued	taxpayer	exposure	and	what	is	likely	 

to	affect	the	expected	future	return.	Five	TARP	programs,	the	 

Capital	Purchase	Program,	the	AIG	Investment	Program,	the	 

Automotive	Industry	Financing	Program,	the	Public-Private	 

Investment	Program	and	the	Treasury	Housing	Programs	under	 

TARP,	have	$10	billion	or	more	still	committed.	The	recoveries	 

or	costs	from	CPP,	AIG,	AIFP,	and	PPIP	and	the	expenditures	 

for	Treasury	Housing	programs	going	forward	will	most	significantly	affect	the	lifetime	cost	of	the	TARP.		 

cpp and Banking induStrY 

information 

As	of	September	30,	2010,	Treasury-OFS	had	CPP	investments	with	an	outstanding	balance	of	$49.8	billion.	Of	these	 

investments	$11.9	billion	is	the	Treasury-OFS	investment	in	 

Citigroup	common	stock,	$26.5	billion	is	in	financial	institutions	with	assets	greater	than	$10	billion	(25	institutions),	and	 

$11.4	billion	is	in	financial	institutions	with	assets	less	than	$10	 

billion	(565	institutions).	As	of	September	30,	2010,	5	CPP	 

recipients	had	failed:	4	were	banks	and	one	was	CIT	Group,	a	 

non-bank	financial	institution	with	a	bank	subsidiary.	As	noted	 

earlier	in	this	report,	the	largest	institutions	in	the	CPP	have	 

repaid	their	investments	to	Treasury-OFS.	 

Treasury-OFS’	actual	recoveries	on	the	outstanding	CPP	 

investments	will	depend	on	a	number	of	factors,	including	the	 

asset	quality,	capital	position,	reserve	ratios	and	capital	positions	 

of	financial	institutions	participating	in	CPP	as	well	as	whether	 

these	institutions	have	a	business	focus	in	areas	hit	hard	by	the	 

housing	downturn	or	difficulties	in	commercial	real	estate.	It	 

is	also	anticipated	that	a	certain	number	of	these	institutions	 

will	elect	to	convert	their	CPP	investments	into	investments	 

made	by	the	Small	Business	Lending	Fund	which	was	created	by	 

Congress	pursuant	to	the	Small	Business	Jobs	and	Credit	Act	of	 

2010	(Public	Law	111-240).	 

Throughout	the	life	of	the	program,	118	CPP	recipients	have	 

not	declared	and	paid	one	or	more	dividends	to	Treasury-OFS.		 

Of	these	recipients,	six	have	missed	six	payments,	which	gives	 

Treasury-OFS	the	right	to	place	members	on	the	institutions’	 

boards	of	directors.	 

auto induStrY information 

As	of	September	30,	2010,	Treasury-OFS	held	$67.2	billion	in	 

AIFP	investments,	with	an	estimated	value	of	$52.7	billion.		 

Over	the	past	several	months,	conditions	in	the	U.S.	automotive	industry	have	improved	as	has	Treasury-OFS’	estimate	of	 

the	recovery	on	the	AIFP	investment. 

The	competitiveness	of	U.S.	manufacturers,	both	domestically	 

and	internationally	will	affect	the	value	of	Treasury-OFS’	 

investment.		In	addition,	the	macroeconomic	conditions	 

(unemployment,	Gross	Domestic	Product	(GDP)	growth,	etc.)	 

will	affect	the	overall	trends	in	auto	sales	and	thus	TreasuryOFS’	recoveries.		 

Treasury-OFS	has	recovered	all	amounts	invested	under	the	 

Auto	Supplier	Support	Program	(ASSP)	and	the	Auto	Warranty	 

Commitment	Program	(AWCP).		With	the	emergence	of	 

General	Motors	Company	and	Chrysler	Group	LLC	from	 

bankruptcy	proceedings	and	with	the	threat	of	liquidation	greatly	 

reduced,	credit	market	access	for	suppliers	improved.		The	ASSP	 

closed	in	April	2010	after	full	repayment	of	all	loans,	which	had	 

totaled	$413	million,	plus	interest.		The	AWCP	was	terminated	 

in	2009,	and	the	$640	million	advanced	under	the	program	was	 

assumed	and/or	repaid	in	the	bankruptcy	sale	transactions	by	 

General	Motors	Company	and	Chrysler	Group	LLC. 

The	outlook	for	the	domestic	auto	industry	has	improved	and	 

the	estimated	value	of	Treasury-OFS’	investments	has	increased.	 

The	cost	of	AIFP	from	inception	through	September	30,	2010	 

was	$13.9	billion,	as	compared	to	the	cost	through	September	 

30,	2009	of	$30.5	billion.	 

General	Motors	Company	repaid	$7	billion	to	Treasury-OFS,	 

and	is	currently	preparing	for	an	initial	public	offering	in	which	 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

13 

Treasury-OFS	may	elect	to	sell	shares.		GM	has	also	agreed,	 

subject	to	the	closing	of	the	initial	public	offering,	to	repurchase	 

$2.1	billion	of	preferred	stock	issued	to	Treasury-OFS.	In	the	 

first	six	months	of	2010,	General	Motors	Company	reported	two	 

consecutive	quarters	of	positive	operating	profit	and	net	income	 

–	its	first	quarterly	profits	since	2007. 

Likewise,	after	taking	one-time	charges	last	year	associated	with	 

its	restructuring,	Chrysler	posted	two	consecutive	quarters	of	 

operating	profit.		With	respect	to	Old	Chrysler,	Treasury-OFS	 

was	repaid	$1.9	billion,	which	was	more	than	Treasury-OFS	 

had	previously	estimated	to	recover	and	under	the	terms	of	the	 

settlement	agreement,	the	$1.6	billion	remaining	face	value	was	 

written	off. 

Each	of	Ally	(formerly	GMAC)	Financial’s	four	operating	businesses	has	reported	a	profit	so	far	this	year.	 

aig inveStment program 

As	of	September	30,	2010,	Treasury-OFS	held	$47.6	billion	in	the	 

AIG	Investment	Program,	with	an	estimated	value	of	$26.1	billion.		 

On	September	30,	2010	AIG	announced	that	it	had	entered	 

into	an	agreement-in-principle	which,	if	completed	as	 

announced,	will	accelerate	the	timeline	for	AIG’s	repayment	of	 

the	federal	government	and	put	taxpayers	in	a	stronger	position	 

to	recoup	most	of	the	Treasury-OFS	investment	in	the	company.	 

In	addition,	under	the	restructuring,	up	to	all	of	the	remaining	 

$22.3	billion	available	under	the	AIG	capital	facility	would	be	 

drawn	from	Treasury-OFS. 

The	basic	terms	of	the	restructuring	plan	are	to:	(i)	sell	sufficient	 

assets	to	pay	off	AIG’s	obligations	to	the	FRBNY,	(ii)	streamline	 

AIG’s	business	portfolio,	and	(iii)	recapitalize	AIG’s	balance	 

sheet	to	support	investment	grade	status	without	the	need	for	 

ongoing	federal	government	support.	See	the	discussion	under	 

Operational	Goal	One,	Subgoal	1B. 

puBlic-private inveStment 

program 

Thus	far,	each	of	the	eight	PPIFs	has	generated	positive	investment	returns	for	Treasury.	Because	the	PPIFs	are	still	in	the	early	 

stages	of	their	investment	life	cycles,	it	would	be	premature	 

to	draw	any	meaningful	long-term	conclusions	regarding	the	 

performance	of	individual	PPIFs	or	the	program	in	general.	 

However,	Treasury-OFS	has	been	encouraged	by	the	performance	of	the	PPIP	fund	managers	to	date	with	net	internal	rates	 

of	return	on	equity	since	inception	ranging	from	19	percent	to	 

52	percent	as	of	September	30,	2010.	The	PPIFs	have	generated	 

cumulative	gross	unrealized	equity	gains	in	excess	of	funded	 

capital	contributions	of	more	than	$1.5	billion	as	of	September	 

30,	2010	to	all	investors	(Treasury-OFS	and	private	investors).	 

In	addition	to	its	equity	investment,	Treasury-OFS	has	made	 

loans	in	the	PPIFs	equal	to	the	total	equity	invested	by	TreasuryOFS	and	private	investors	which	earns	interest	at	a	rate	of	1	 

Month	LIBOR	plus	1	percent	(approximately	1.26	percent	as	of	 

September	30,	2010).	As	of	September	30,	2010,	the	PPIFs	also	 

have	made	approximately	$228	million	of	interest	and	dividend	 

payments	and	distributions	to	Treasury. 

The	PPIFs	are	still	in	their	first	year	of	investing	and	are	 

expected	to	continue	deploying	and	reinvesting	their	capital	in	 

eligible	assets	through	2012. 

SenSitivitY analYSiS 

The	ultimate	value	of	TARP	investments	will	only	be	known	 

in	time.		Realized	values	will	vary	from	current	estimates	in	part	 

because	economic	and	financial	conditions	will	change.		Many	 

TARP	investments	do	not	have	readily	observable	values	and	 

their	values	can	only	be	estimated	by	Treasury-OFS.				 

Sensitivity	analysis	is	one	way	to	get	some	feel	for	the	degree	of	 

uncertainty	around	the	Treasury-OFS	estimates.		In	the	analysis	 

reported	here,	Treasury-OFS	focuses	on	the	largest	components	 

of	the	TARP6

,	the	assets	held	under	the	Capital	Purchase	 

Program	(CPP),	the	Automotive	Industry	Financing	Program	 

(AIFP),	and	the	Public	Private	Investment	Program	(PPIP). 

For	CPP	the	most	important	inputs	to	the	valuation	are	the	 

market	prices	of	publicly-traded	preferred	stock	used	to	calibrate	 

6	 See	further	discussion	of	AIG	under	Part	II,	Subgoal	1B.	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

14 

the	model	derived	pricing	of	the	preferred	stock	held	in	the	 

TARP	and	the	current	market	price	of	the	Citigroup	common	 

stock.		The	valuation	procedure	entails	observing	the	market	 

price	of	publicly-traded	preferred	stock	and	calibrating	the	 

model	(in	particular	the	risk	premium)	to	match	those	prices.	 

The	calibrated	model	is	then	used	to	price	the	non-publicly	 

traded	preferred	stock	held	by	the	TARP.	The	benchmark	 

preferred	stock	consists	of	a	portfolio	of	claims	issued	by	some	of	 

the	same	institutions	with	TARP	preferred	stock.	It	is	generally	 

the	larger	institutions	that	have	issued	preferred	stock.	The	 

TARP	preferred	stock	for	smaller	institutions	may	not	be	exactly	 

comparable,	but	the	bulk	of	TARP	investments,	as	measured	 

on	a	dollar	basis,	are	in	large	institutions.		This	calibration	 

influences	the	asset-to-liability	ratio	of	the	banks	and	consequently	the	default	and	prepayment	estimates	predicted	by	the	 

model7

.		The	current	market	price	of	the	Citigroup	common	 

stock	is	used	to	value	the	Citigroup	shares	held	in	CPP	and	 

consequently	impacts	the	cost	of	the	program.		As	a	sensitivity	 

analysis,	Treasury-OFS	increased	and	decreased	the	value	of	 

the	benchmark	preferred	stock	in	the	CPP	by	10	percent.		As	 

an	additional	sensitivity	analysis,	Treasury-OFS	increased	and	 

decreased	the	value	of	the	Citigroup	September	30,	2010	closing	 

price	10	percent.		Table	7	shows	the	impact	on	the	value	of	 

Treasury-OFS’	outstanding	investment	under	CPP	as	a	result	of	 

a	10	percent	increase	and	a	10	percent	decrease	in	the	value	of	 

the	calibration	securities,	the	10	percent	increase	and	decrease	 

in	the	Citigroup	stock	price	as	well	as	the	combined	impact	of	 

both	increases	and	decreases.		The	combined	analysis	shows	the	 

impact	on	the	estimated	value	of	Treasury-OFS’	CPP	investment	with	a	combined	increase	or	decrease	of	the	benchmark	 

preferred	stock	as	well	as	the	Citigroup	common	stock. 

Table 7: Impact on CPP Valuation 

(Dollars in Billions) 

September 

30, 2010 

Reported 

Value for 

CPP 

Effect of 10% 

Increase 

Effect of 10% 

Decrease 

CPP	-	No	Citigroup $ 33.92 $ 35.57 $ 31.06 

%	change	from	current N/A 4.3% (8.4)% 

CPP	-	Citigroup $ 14.31 $ 15.74 $ 12.88 

%	change	from	current N/A 10.0% (10.0)% 

Combined $ 48.23 $ 51.11 $ 43.94 

%	change	from	current N/A 5.97% (8.89)% 

To	put	this	sensitivity	analysis	in	perspective	it	is	useful	to	 

consider	the	range	over	which	actual	securities	have	moved	 

over	the	past	year.	Figure	A	shows	the	monthly	average	price	of	 

the	benchmark	preferred	as	a	percentage	of	par	(the	CPP	–	no	 

Citigroup	value	as	of	September	30,	2010,	represents	approximately	88	percent	of	par,	excluding	the	warrants	held	by	TreasuryOFS).	The	dashed	lines	indicate	the	upper	and	lower	bound	price	 

used	for	the	sensitivity	analysis.	Similarly,	Figure	B	shows	the	 

monthly	average	closing	price	of	the	Citigroup	common	stock	 

(closing	price	on	September	30,	2010,	was	$3.91)	with	the	dashed	 

lines	representing	the	prices	used	in	the	sensitivity	analysis.	Figure	 

B	shows	that	the	securities	have	been	trading	within	the	range	 

used	in	the	analysis	as	well	as	outside	of	this	range.	This	helps	to	 

illustrate	the	uncertainty	around	the	cost	estimates. 

Figure A:

Price Chart of

Benchmark

Preferred

Stock

1.00 

0.90 

0.80 

0.70 

0.60 

0.50 

0.40 

0.30 

0.20 

0.10 

0.00 Jul­09

Aug­09

Sep­09

Oct­09

Nov­09Dec­09

Jan­10

Feb­10

Mar­10

Apr­10

May­10

Jun­10

Jul­10

Aug­10

Sep­10 

Market V alue Increase 10% Decrease 10% 

Figure B:

Price Chart of

Citigroup

Common Stock

6.00 

5.00 

4.00 

3.00 

2.00 

1.00 

0.00 Sep­09

Oct­09

Nov­09Dec­09

Jan­10

Feb­10

Mar­10

Apr­10

May­10

Jun­10

Jul­10

Aug­10

Sep­10 

Avg. Monthly Closing Price Increase 10% Decrease 10% 

$ Price

Similar	to	the	CPP,	the	most	important	inputs	to	the	valuation	 

of	Treasury-OFS’	outstanding	investments	under	the	AIFP	are	 

the	market	prices	of	certain	traded	defaulted	bonds	of	the	Old	 

GM	and	the	change	in	the	estimated	value	of	Ally	Financial	 

(formerly	GMAC)	common	stock,	which	is	driven	by	certain	 

pricing	metrics	of	comparable	public	financial	institutions.	 

The	bonds	of	Old	GM	are	used	to	estimate	the	value	of	GM	 

7	 See	discussion	of	valuation	methodology	in	Note	6	of	the	Financial	 common	stock	held	by	Treasury-OFS	because	the	bondholders	 

Statements. 

management’s discussion and analysis 
management’s discussion and analysis 

agency financial report | fiscal year 2010 

15 

are	entitled	to	receive	GM	stock	and	warrants	upon	liquidation	of	Old	GM.	Table	8	shows	the	change	in	estimated	value	 

of	Treasury-OFS	outstanding	AIFP	investments	based	on	a	10	 

percent	increase	and	10	percent	decrease	in	the	trading	price	of	 

the	Old	GM	bonds	and	separately	a	10	percent	increase	and	10	 

percent	decrease	in	the	estimated	value	of	the	Ally	Financial	 

(formerly	GMAC)	common	stock	price.	Figure	C	shows	that	 

the	securities	have	been	trading	within	the	range	used	in	the	 

analysis	as	well	as	outside	of	this	range,	illustrating	the	uncertainty	around	the	cost	estimates8

. 

Table 8: Impact on AIFP Valuation 

(Dollars in Billions) 

September 

30, 2010 

Reported 

Value for 

AIFP 

Effect of 10% 

Increase 

Effect of 10% 

Decrease 

Impact	of	Old	GM	Bond	Price	 

Change	on	AIFP $ 52.71 $ 55.29 $ 50.13 

%	change	from	current N/A 4.9% (4.9)% 

Impact	of	Ally	(Formerly	GMAC)	 

Price	Change	on	AIFP $ 52.71 $ 54.00 $ 51.42 

%	change	from	current N/A 2.4% (2.4)% 

Figure	C	shows	the	daily	prices	of	the	Old	GM	Bonds	for	the	 

previous	year.		The	dashed	lines	represent	the	high	and	low	 

price	used	in	the	sensitivity	analysis. 

Figure C:

Daily Price of

Old GM Bonds

5.00 

10.00 

15.00 

20.00 

25.00 

30.00 

35.00 

40.00 

0.00

Sep­09

Oct­09

Nov­09Dec­09

Jan­10

Feb­10

Mar­10

Apr­10

May­10

Jun­10

July­10

Aug­10

Sep­10 

Median Bond Price Increase 10% Decrease 10% 

$ Price as a Percent of Par

To	estimate	the	value	of	Treasury-OFS	outstanding	investments	 

under	the	PPIP,	Treasury-OFS	first	estimates	the	cash	flows	 

of	the	portfolio	held	by	the	various	funds.	Treasury-OFS	uses	 

a	stochastic	process	to	generate	300	potential	cash	flow	out8	 On	November	3,	2010,	GM	issued	a	preliminary	prospectus	for	an	initial	public	 

offering	of	stock	with	an	estimated	price	range	between	$26	and	$29	per	share.	 

Due	to	the	uncertainty	as	to	the	market	price	that	would	results	from	the	initial	 

public	offering,	the	potential	effect	on	the	value	of	Treasury-OFS’	investment	in	 

GM	is	unknown	and	could	be	significantly	different	from	the	September	30,	2010	 

financial	statement	valuation. 

comes,	based	on	the	characteristics	of	the	loans	underlying	the	 

securities	and	their	behavior	under	simulated	macro	economic	 

variables,	such	as	unemployment,	mortgage	interest	rates,	 

short-term	rates	and	home	price	appreciation.	The	cash	flows	 

are	then	applied	to	the	waterfall	established	for	the	funds	to	 

estimate	the	cash	flows	to	Treasury-OFS.	The	aggregate	of	these	 

cash	flows	(each	scenario	is	equally	weighted)	is	discounted	to	 

estimate	the	value	of	the	program.	Table	9	shows	the	change	 

in	the	value	of	the	Treasury-OFS	outstanding	PPIP	investment	 

using	the	scenario	which	produces	the	minimum	amount	of	cash	 

flows	to	Treasury-OFS	and	the	maximum	amount	of	cash	flows	 

to	Treasury-OFS.			 

Table 9: Impact on PPIP Valuation 

(Dollars in Billions) 

September 30, 

2010 Reported 

Value for PPIP 

Maximum 

Cash Flows 

Minimum Cash 

Flows 

Dollars $ 14.40 $ 14.79 $ 13.90 

%	change	from	current N/A 2.7% (3.5)% 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

16
 

SYSTEMS,	CONTROLS,	AND	LEGAL	COMPLIANCE
 

part 1: management s discussion and analysis 

MAnAgEMEnT	ASSurAncE	STATEMEnT 

The	Office	of	Financial	Stability’s	(OFS)	management	is	responsible	for	establishing	and	maintaining	effective	internal	 

control	and	financial	management	systems	that	meet	the	objectives	of	the	Federal	Managers’	Financial	Integrity	Act	 

(FMFIA),	31	U.S.C.	3512(c),	(d).		OFS	has	evaluated	its	management	controls,	internal	controls	over	financial	reporting,	 

and	compliance	with	the	federal	financial	systems	standards.		As	part	of	the	evaluation	process,	we	considered	the	results	of	 

extensive	documentation,	assessment	and	testing	of	controls	across	OFS,	as	well	as	the	results	of	independent	audits.		We	 

conducted	our	reviews	of	internal	controls	in	accordance	with	FMFIA	and	OMB	Circular	A-123. 

As	a	result	of	our	reviews,	management	concludes	that	the	management	control	objectives	described	below,	taken	as	a	 

whole,	were	achieved	as	of	September	30,	2010.		Specifically,	this	assurance	is	provided	relative	to	Sections	2	(internal	 

controls)	and	4	(systems	controls)	of	FMFIA.		OFS	further	assures	that	the	financial	management	systems	relied	upon	by	 

OFS	are	in	substantial	compliance	with	the	requirements	imposed	by	the	Federal	Financial	Management	Improvement	 

Act	(FFMIA).	 

OFS’	internal	controls	are	designed	to	meet	the	management	objectives	established	by	Treasury	and	listed	below: 

a.	 Programs	achieve	their	intended	results; 

b.	 Resources	are	used	consistent	with	the	overall	mission; 

c.	 	Program	and	resources	are	free	from	waste,	fraud,	and	mismanagement;	 

d.	 Laws	and	regulations	are	followed; 

e.	 Controls	are	sufficient	to	minimize	any	improper	or	erroneous	payments; 

f.	 Performance	information	is	reliable; 

g.	 Systems	security	is	in	substantial	compliance	with	all	relevant	requirements; 

h.	 Continuity	of	operations	planning	in	critical	areas	is	sufficient	to	reduce	risk	to	reasonable	levels;		and	 

i.	 	Financial	management	systems	are	in	compliance	with	federal	financial	systems	standards,	i.e.,	FMFIA	Section	 

4/FFMIA. 

In	addition,	OFS	management	conducted	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	 

which	includes	safeguarding	of	assets	and	compliance	with	applicable	laws	and	regulations,	in	accordance	with	OMB	Circular	 

A-123,	Management’s	Responsibility	for	Internal	Control,	Appendix	A,	Internal	Control	over	Financial	Reporting.		Based	 

on	the	results	of	this	evaluation,	OFS	provides	unqualified	assurance	that	internal	control	over	financial	reporting	is	appropriately	designed	and	operating	effectively	as	of	September	30,	2010,	with	no	related	material	weaknesses	noted. 

	 

	 Timothy	G.	Massad 

	 Acting	Assistant	Secretary	for	Financial	Stability 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

17 

internal control program 

Effective	internal	controls	in	safeguarding	taxpayer	dollars	 

while	providing	financial	stability	through	the	Troubled	Asset	 

Relief	Program	(TARP)	remains	a	top	priority	of	Treasury-OFS	 

management.		During	fiscal	year	2010,	Treasury-OFS	made	 

significant	progress	in	effectively	deploying	new	TARP	programs	 

and	maturing	its	internal	control	environment.	 

•	 Treasury-OFS	continued	to	define	and	deploy	new	 

programs	as	the	focus	of	TARP	activities	migrated	from	 

stabilizing	the	financial	markets	to	assisting	the	taxpayer	 

through	the	Treasury	Housing	Programs	Under	TARP.		For	 

the	Housing	Programs	Under	TARP	and	other	new	TARP	 

programs,	Treasury-OFS	maintained	its	focus	on	establishing	an	initial	operating	capability	for	operational	processes	 

and	implementing	effective	internal	controls. 

•	 Business	processes	supporting	existing	programs,	including	 

internal	control	activities,	matured	through	well-defined	 

roles	and	responsibilities	and	policies	and	procedures.		 

Treasury-OFS	performed	monitoring	activities	that	demonstrated	that	control	procedures	were	performed	consistently	 

and	as	designed. 

•	 Treasury-OFS	made	significant	progress	in	addressing	areas	 

for	improvement	in	the	internal	control	environment	 

identified	through	Treasury-OFS’	self	assessment	processes	 

(e.g.,	OMB	A-123	internal	controls	over	financial	reporting	assessment,	annual	assurance	statement	process)	and	 

through	work	performed	by	the	oversight	bodies	(e.g.,	 

GAO,	SIGTARP,	and	COP).		This	remains	a	top	priority	 

for	Treasury-OFS	senior	management. 

•	 Treasury-OFS	made	investments	in	information	technology	(IT)	in	fiscal	year	2010	to	drive	efficiencies	through	 

automation	of	the	operational	and	accounting	environment	 

and	to	reduce	the	overall	cost	of	maintaining	TARP.	 

Treasury-OFS	is	committed	to	maintaining	an	effective	Internal	 

Control	Program	and	has	a	Senior	Assessment	Team	(SAT)	to	 

guide	the	office’s	efforts	to	meet	the	statutory	and	regulatory	requirements	surrounding	a	sound	system	of	internal	control.		The	 

SAT	is	chaired	by	the	Deputy	Chief	Financial	Officer	(DCFO)	 

and	includes	representatives	from	all	Treasury-OFS	program	 

and	support	areas.		Furthermore,	Treasury-OFS	has	an	internal	 

control	framework	in	place	that	is	based	on	the	principles	of	 

the	Committee	of	Sponsoring	Organizations	of	the	Treadway	 

Commission	(COSO).		The	SAT	leverages	this	framework	in	

communicating	control	objectives	across	the	organization	and	 

its	third	party	service	providers.			 

Treasury-OFS’	Internal	Control	Program	Office	(ICPO)	operates	under	the	direction	of	the	CFO	and	is	guided	by	the	SAT.		 

ICPO	monitors	the	implementation	of	the	internal	control	 

framework	and	is	responsible	for	assessing	the	achievement	of	 

management	control	objectives.		ICPO	monitors	Treasury-OFS	 

activities	to	promote	the	achievement	of	management	control	 

objectives	by:		 

•	 Integrating	management	controls	into	Treasury-OFS	 

business	processes	through:	 

•	 Developing	internal	control	documentation,	 

•	 Reviewing	internal	control	responsibilities	with	 

process	owners	before	major	program	execution	events,	 

and, 

•	 Real-time	monitoring	of	key	control	effectiveness	 

during	and	after	significant	program	execution	events; 

•	 Conducting	“lessons	learned”	sessions	to	identify	and	 

remediate	areas	requiring	improvement;	 

•	 Periodic	testing	of	key	controls;	and,	 

•	 Monitoring	feedback	from	third	party	oversight	bodies. 

In	addition,	the	internal	control	environment	supporting	TARP	 

undergoes	continuous	improvement	to	remain	effective	and	is	 

subject	to	significant	third	party	oversight	by	the	Government	 

Accountability	Office	(GAO),	the	Special	Inspector	General	 

for	the	Troubled	Asset	Relief	Program	(SIGTARP),	and	the	 

Congressional	Oversight	Panel	(COP).			 

The	Assistant	Secretary	for	Financial	Stability	reports	annually	 

to	the	Under	Secretary	for	Domestic	Finance	on	the	adequacy	 

of	the	various	internal	controls	throughout	the	Office	of	 

Financial	Stability,	to	include	financial	management	systems	 

compliance.		This	assurance	statement	covers	Treasury-OFS	 

compliance	with	the	Federal	Managers’	Financial	Integrity	Act	 

(FMFIA),	the	Federal	Financial	Management	Improvement	 

Act	(FFMIA),	the	Government	Performance	and	Results	 

Act	(GPRA),	and	Office	of	Management	and	Budget	(OMB)	 

Circular	A-123,	Management’s	Responsibility	for	Internal	 

Control.		In	order	to	support	the	Assistant	Secretary’s	letter	 

of	assurance,	the	respective	Treasury-OFS	divisions	prepare	 

individual	statements	of	assurance.		These	individual	statements	 

of	assurance	provide	evidence	supporting	the	achievement	of	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
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18 

Treasury-OFS	internal	control	objectives	and	disclose	any	noted	 

internal	control	weaknesses. 

information technologY SYStemS 

For	fiscal	year	2010,	Treasury-OFS	developed	the	Core	 

Investment	Transaction	Flow	(CITF),	TARP’s	system	of	record	 

and	accounting	translation	engine.		CITF	automated	important	 

operational	and	financial	activities,	a	major	improvement	from	 

last	year’s	largely	manual	financial	reporting	process.	 

Other	IT	systems	are	supported	by	financial	agents	who	provide	 

services	to	the	Department	of	the	Treasury.		The	Financial	 

Agency	Agreements	maintained	by	the	Treasury	Office	of	the	 

Fiscal	Assistant	Secretary	in	support	of	Treasury-OFS	require	 

the	financial	agents	to	design	and	implement	suitably	robust	IT	 

security	plans	and	internal	control	programs,	to	be	reviewed	and	 

approved	by	Treasury	at	least	annually.		 

In	addition,	Treasury-OFS	utilizes	financial	systems	maintained	 

by	Treasury	Departmental	Offices	and	different	Treasury	 

bureaus.		These	systems	are	in	compliance	with	federal	financial	 

systems	standards	and	undergo	regular	independent	audits 

compliance with the improper 

paYmentS information act (ipia) 

The	elimination	of	improper	payments	is	a	major	focus	of	 

Treasury-OFS	senior	management.		Managers	are	held	accountable	for	developing	and	strengthening	financial	management	 

controls	to	detect	and	prevent	improper	payments,	and	thereby	 

better	safeguard	taxpayer	dollars.		 

Treasury-OFS	carried	out	its	fiscal	year	2010	IPIA	review	per	 

Treasury-wide	guidance	and	did	not	assess	any	programs	or	 

activities	as	susceptible	to	significant	erroneous	payments.			 

However,	management	did	identify	a	small	number	of	HAMP	 

investor	cost	share	payments	the	amounts	of	which	were	 

incorrect	due	to	unclear	guidelines	related	to	escrow	payments	 

and	data	integrity	issues	from	servicers	related	to	determinations	of	homeowner	income.		While	the	overall	impact	of	these	 

improper	payments	was	immaterial	to	the	financial	statements,	 

Treasury-OFS	management	is	in	the	process	of	implementing	 

corrective	actions	at	the	servicer-level	to	remedy	this	issue.		 

Treasury-OFS	will	continue	to	monitor	this	issue	closely	 

through	resolution. 

areaS for improvement 

Over	the	next	year,	Treasury-OFS	management	will	focus	on	 

maturing	its	internal	control	environment	in	several	key	areas	 

as	follows: 

•	 As	operational	and	accounting	processes	evolve	over	time,	 

there	is	a	continued	need	for	Treasury-OFS	to	develop	 

and	update	policies	and	procedures	and	internal	control	 

documentation	to	detail	the	controls	in	place	to	mitigate	 

the	risks	identified.		 

•	 Treasury-OFS	relies	on	financial	agents	to	provide	many	of	 

the	business	processes	and	controls	supporting	its	programs.		 

The	Housing	programs,	in	particular,	have	grown	in	 

number,	scale	and	complexity	over	the	last	year.		TreasuryOFS	continues	to	assess	the	adequacy	of	internal	controls	 

provided	by	third	parties	as	they	develop	their	program	 

capabilities.		However,	Treasury-OFS	will	need	to	heighten	 

its	oversight	practices	to	monitor	controls	as	these	programs	 

grow	and	mature.		For	example,	Treasury-OFS	will	work	to	 

provide	clarity	on	certain	Home	Affordable	Modification	 

Program	(HAMP)	policy	guidelines,	enhance	monitoring	 

controls	over	Housing	program	financial	agents,	and	assess	 

the	adequacy	of	staffing	and	systems	at	financial	agents.			 

•	 Over	the	past	year,	Treasury-OFS	developed	information	 

technology	capabilities	to	increase	efficiency	and	automate	 

some	of	Treasury-OFS’	manual	processes.		Treasury-OFS	 

IT	management	will	continue	to	mature	the	information	 

technology	control	environment	in	areas	such	as	privileged	 

access	and	monitoring	procedures	where	operating	effectiveness	issues	were	identified. 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

19 

LIMITATIONS	OF	THE	FINANCIAL	STATEMENTS 

The	principal	financial	statements	have	been	prepared	to	 

report	the	financial	position	and	results	of	operations	of	the	 

Treasury-OFS’	Troubled	Asset	Relief	Program,	consistent	with	 

the	requirements	of	31	U.S.C.	3515(b).		While	the	statements	 

have	been	prepared	from	the	books	and	records	of	the	Office	 

of	Financial	Stability	and	the	Department	of	the	Treasury	in	 

accordance	with	section	116	of	EESA	and	Generally	Accepted	 

Accounting	Principles	(GAAP)	for	Federal	entities	and	the	 

formats	prescribed	by	OMB,	the	statements	are	in	addition	to	 

the	financial	reports	used	to	monitor	and	control	budgetary	 

resources	which	are	prepared	from	the	same	books	and	records.	 

The	statements	should	be	read	with	the	realization	that	they	are	 

for	a	component	of	the	U.S.	Government,	a	sovereign	entity. 

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the department of the treasury | office of financial stability 

20 

OPERATIONAL	GOALS
 

operational goal one: enSure 

the overall StaBilitY and 

liquiditY of the financial SYStem 

Subgoal	1a:		 

Make	capital	available	to	viable	 

institutions.	 

Through	the	Capital	Purchase	Program,	Treasury-OFS	provided	 

capital	infusions	directly	to	banks	and	thrifts	deemed	viable	by	 

their	regulators. 

Capital Purchase Program 

1.	 Program	and	goals 

Treasury-OFS	launched	the	Capital	Purchase	Program	(CPP),	 

the	largest	and	most	significant	program	under	EESA,	on	 

October	14,	2008.		At	the	close	of	the	program,	Treasury-OFS	 

had	invested	approximately	$205	billion	under	the	Capital	 

Purchase	Program. 

The	Capital	Purchase	Program	was	designed	to	bolster	the	capital	 

position	of	viable	institutions	of	all	sizes	and,	in	doing	so,	to	build	 

confidence	in	these	institutions	and	the	financial	system	as	a	 

whole.	With	the	additional	capital,	CPP	participants	were	better	 

equipped	to	undertake	new	lending	and	continue	to	provide	 

other	services	to	consumers	and	businesses,	even	while	absorbing	 

write-downs	and	charge-offs	on	loans	that	were	not	performing. 

Of	the	originally	planned	$250	billion	in	total	possible	commitments	to	CPP,	Treasury-OFS	invested	$125	billion	in	eight	of	 

the	country’s	largest	financial	institutions.	The	remaining	$125	 

billion	was	made	available	to	qualifying	financial	institutions	 

(QFIs)	of	all	sizes	and	types	across	the	country,	including	banks,	 

savings	and	loan	associations,	bank	holding	companies	and	savings	and	loan	holding	companies.		QFIs	interested	in	participating	in	the	program	had	to	submit	an	application	to	their	primary	 

federal	banking	regulator.		The	minimum	subscription	amount	 

available	to	a	participating	institution	was	one	percent	of	riskweighted	assets.		The	maximum	subscription	amount	was	the	 

lesser	of	$25	billion	or	three	percent	of	risk-weighted	assets.	 

In	the	period	following	announcement	of	the	Capital	Purchase	 

Program,	Treasury-OFS	provided	$205	billion	in	capital	to	707	 

institutions	in	48	states,	including	more	than	450	small	and	 

community	banks	and	22	certified	community	development	 

financial	institutions	(CDFIs)	(see	Table	10	below).		The	largest	 

investment	was	$25	billion	and	the	smallest	was	$301,000.		The	 

final	investment	under	the	CPP	was	made	in	December	2009. 

Table 10 

CPP Initial Investment Profile 

(Dollars in billions) 

CPP Participants Investment 

Asset	Range Number Percent Amount Percent 

<$1billion 473 66.9% 3.8 1.8% 

$1	billion	-	$10	billion 177 25.0% 10.0 4.9% 

>$10	billion 57 8.1% 191.1 93.3% 

Total 707 100% 204.9 100% 

Treasury-OFS	received	preferred	stock	or	debt	securities	in	exchange	for	these	investments.		There	is	no	fixed	date	on	which	 

the	financial	institutions	must	redeem	the	preferred	stock—or	 

repay	Treasury-OFS.		This	is	necessary	for	the	investment	 

to	qualify	as	“Tier	1”	capital	under	regulatory	requirements.		 

However,	there	are	incentives	for	the	financial	institutions	to	 

repay.	Institutions	may	repay	Treasury-OFS	after	consultation	 

with	the	appropriate	federal	regulator.		To	date,	Treasury-OFS	 

has	received	approximately	$153	billion	in	CPP	repayments. 

Most	financial	institutions	participating	in	the	Capital	Purchase	 

Program	pay	Treasury-OFS	a	dividend	rate	of	five	percent	per	 

year,	which	will	increase	to	nine	percent	a	year	after	the	first	 

five	years.		In	the	case	of	Subchapter	S-corporations,	TreasuryOFS	acquires	subordinated	debentures.		The	subordinated	 

debenture	interest	rate	is	7.7	percent	per	year	for	the	first	five	 

years	and	13.8	percent	thereafter;	however,	the	total	amount	 

of	S-corporation	dividends	payable	per	year	is	less	than	$40	 

million.		To	date,	Treasury-OFS	has	received	approximately	 

$10	billion	in	CPP	dividends	and	interest	and	$3	billion	in	net	 

proceeds	received	from	the	sale	of	Citigroup	common	stock	in	 

excess	of	cost. 

Treasury-OFS	also	received	warrants	to	purchase	common	shares	 

or	other	securities	from	the	financial	institutions	at	the	time	of	 

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agency financial report | fiscal year 2010 

21 

the	CPP	investment.		The	purpose	of	the	additional	securities	is	 

to	provide	opportunities	for	taxpayers	to	reap	additional	returns	 

on	their	investments	as	CPP	participants	recover.		To	date,	 

Treasury-OFS	has	received	more	than	$8	billion	in	proceeds	 

from	the	sale/repurchase	of	CPP	and	TIP	warrants.	 

a.	Small	institutions 

Smaller	financial	institutions	make	up	the	vast	majority	of	 

participants	in	the	CPP.		Of	the	707	applications	approved	and	 

funded	by	Treasury-OFS	through	the	Capital	Purchase	Program	 

by	the	time	it	closed	on	December	31,	2009,	473	or	67	percent	 

were	institutions	with	less	than	$1	billion	in	assets. 

In	May	2009,	after	many	larger	institutions	started	raising	 

capital	from	the	private	debt	and	equity	markets,	Treasury-OFS	 

re-opened	the	CPP	application	window	for	institutions	with	less	 

than	$500	million	in	assets.		This	initiative	gave	smaller	institutions,	which	did	not	have	the	same	access	to	the	capital	markets	 

as	larger	institutions,	an	opportunity	to	receive	additional	CPP	 

investments,	and	Treasury-OFS	increased	the	amount	of	capital	 

available	to	smaller	institutions	under	the	program.		Originally,	 

institutions	were	eligible	for	a	CPP	capital	investment	that	 

represented	up	to	three	percent	of	risk-weighted	assets.		Upon	 

re-opening	the	CPP	for	smaller	institutions,	Treasury-OFS	raised	 

the	amount	of	funds	available	to	five	percent	of	risk-weighted	 

assets,	and	did	not	require	additional	warrants	for	the	incremental	investment. 

b.	 TARP	CPP	investments	were	structured	as	 

non-voting	preferred	stock,	which	provided	 

crucial	capital	support	without	creating	 

government	control 

In	2008	Treasury-OFS	decided	that	the	most	effective	way	to	try	 

to	stabilize	the	nation’s	financial	system	was	to	provide	capital	 

to	QFIs.		The	majority	of	TARP	investments	were	made	in	the	 

form	of	non-voting	preferred	stock.		In	order	to	achieve	the	 

objective	of	providing	capital	support,	and	meet	bank	regulatory	 

requirements	for	Tier	1	capital,	TARP	could	not	require	that	 

a	CPP	participant	repay	Treasury-OFS	at	a	fixed	date,	as	one	 

would	with	a	loan.		 

Preferred	stock	generally	is	nonvoting	(except	in	limited	 

circumstances),	while	common	stock	has	full	voting	rights.		 

Therefore,	most	TARP	investments	are	nonvoting.		The	 

preferred	stock	does	not	entitle	Treasury-OFS	to	board	seats	or	 

board	observers,	except	in	the	event	dividends	are	not	paid	for	 

six	quarters,	in	which	case	Treasury-OFS	has	the	right	to	elect	 

two	directors	to	the	board.	 

2.	 Status	as	of	September	2010 

a.	Repayments	–	getting	TARP	funds	back 

CPP	participants	may	repay	Treasury-OFS	under	the	conditions	established	in	the	purchase	agreements	as	amended	by	 

the	American	Recovery	and	Reinvestment	Act	(ARRA).		 

Treasury-OFS	also	has	the	right	to	sell	the	securities.		However,	 

Treasury-OFS	does	not	have	the	right	to	require	repayment.		 

The	repayment	price	is	equal	to	what	Treasury-OFS	paid	for	the	 

shares,	plus	any	unpaid	dividends	or	interest.		 

As	of	September	30,	2010,	Treasury-OFS	has	received	over	$152	 

billion	in	CPP	repayments.		Of	that	amount,	approximately	 

$13.1	billion	(excluding	net	proceeds	from	sale	of	common	 

stock	in	excess	of	cost	–	see	below)	is	from	the	sales	of	Citigroup	 

common	stock	through	September	30,	2010. 

b.	 Returns	for	taxpayers 

1)	 Dividend	and	interest	payments 

As	is	typical	for	a	preferred	stock	investment,	financial	institutions	must	decide	whether	to	pay	the	dividends;	they	can	elect	 

instead	to	conserve	their	capital.		In	some	instances,	TreasuryOFS	received	“cumulative”	dividends.		That	is,	if	the	dividends	 

are	not	paid	in	any	quarter,	they	are	added	to	the	liquidation	 

preference,	thus	increasing	the	claim	of	the	holder	of	the	 

preferred.		In	other	cases,	the	dividends	were	“noncumulative”.		 

If	a	financial	institution	fails	to	pay	dividends	for	six	quarterly	 

periods,	Treasury-OFS	has	the	right	to	appoint	two	directors	to	 

the	bank’s	board. 

From	inception	through	September	30,	2010,	total	dividends	and	 

interest	received	from	Capital	Purchase	Program	investments	is	 

approximately	$10	billion.		In	addition,	the	sales	of	Citigroup	 

common	stock	through	September	30,	2010	have	generated	$3	 

billion	of	gains	(amounts	in	excess	of	the	recovered	principal	 

amount	of	the	Citigroup	investment	referred	to	above). 

2)	Overall	returns 

The	CPP	is	expected	to	generate	a	positive	return	to	taxpayers,	 

as	are	the	other	bank	support	programs	(Targeted	Investment	 

Program	and	Asset	Guarantee	Program)	taken	as	a	whole.	The	 

ultimate	return	will	depend	on	several	factors,	including	market	 

conditions	and	performance	of	individual	companies.	 

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22 

citigroup 

Under	the	CPP,	Treasury-OFS	purchased	$25	billion	in	preferred	stock	from	Citigroup	in	October	2008.		This	preferred	 

stock	had	a	dividend	rate	of	5	percent	per	annum.		Under	the	 

TIP,	Treasury-OFS	purchased	$20	billion	in	additional	preferred	 

stock	from	Citigroup	in	December	2008.		That	preferred	stock	 

had	a	dividend	rate	of	8	percent	per	annum.		Treasury-OFS	also	 

received	warrants	in	both	transactions.		As	part	of	an	exchange	 

offer	designed	to	strengthen	Citigroup’s	capital,	Treasury-OFS	 

exchanged	all	of	its	preferred	stock	in	Citigroup	for	a	combination	of	common	stock	and	trust	preferred	securities. 

citigroup	common	Stock	Disposition 

•	 Pursuant	to	the	June	2009	Exchange	Agreement	between	 

Treasury-OFS	and	Citigroup,	which	was	part	of	a	series	of	 

exchange	offers	conducted	by	Citigroup	to	strengthen	its	 

capital	base,	Treasury-OFS	exchanged	the	$25	billion	in	 

preferred	stock	it	received	in	connection	with	Citigroup’s	 

participation	in	the	Capital	Purchase	Program	for	approximately	7.7	billion	shares	of	common	stock	at	a	price	of	 

$3.25	per	share. 

•	 During	fiscal	year	2010,	Treasury-OFS	entered	into	three	 

pre-arranged	written	trading	plans	with	Morgan	Stanley	&	 

Co.	Incorporated	as	its	sales	agent:	in	April,	June,	and	July.			 

Under	the	agreement,	the	agent	was	provided	discretionary	 

authority	to	sell	shares	of	Citigroup	common	stock	held	by	 

Treasury-OFS	under	certain	parameters.			 

•	 As	of	September	30,	2010,	Treasury-OFS	had	sold	approximately	4.0	billion	shares	of	Citigroup	common	stock	for	total	 

gross	proceeds	of	$16.1	billion,	resulting	in	$3.0	billion	in	net	 

proceeds	from	the	sale	of	common	stock	in	excess	of	cost. 

cPP	Quarterly	report 

An	interagency	group	consisting	of	representatives	from	 

Treasury,	the	Federal	Reserve	Board,	and	other	Federal	banking	agencies	conducts	periodic	analysis	of	the	effect	of	TARP	 

programs	on	banking	organizations	and	their	activities,	and	publishes	the	results	in	reports	available	at	www.FinancialStability. 

gov/impact/CPPreport.html.	 

Annual	use	of	capital	Survey 

Treasury-OFS	has	also	conducted	an	annual	Use	of	Capital	 

Survey	to	obtain	insight	into	the	lending,	financial	intermediation,	and	capital	building	activities	of	all	recipients	of	government	investment	through	CPP	funds.		Collection	of	the	Use	of	 

Capital	survey	data	began	during	March	2010.	Data	and	survey	 

results	are	available	at	www.FinancialStability.gov/useofcapital.	 

The	overwhelming	majority	of	respondents	(85	percent)	 

indicated	that	after	the	receipt	of	CPP	capital	their	institutions	 

increased	lending	or	reduced	lending	less	than	otherwise	would	 

have	occurred.		About	half	of	the	respondents	(53	percent)	 

indicated	that	their	institutions	increased	reserves	for	nonperforming	assets	after	the	receipt	of	CPP	capital.		Nearly	half	of	 

the	respondents	(46	percent)	noted	that	their	institutions	held	 

the	CPP	capital	as	a	non-leveraged	increase	to	total	capital.	 

Community Development Capital 

Initiative 

Communities	underserved	by	traditional	banks	and	financial	 

services	providers	have	found	it	more	difficult	to	obtain	credit	in	 

the	current	economic	environment.		Community	Development	 

Financial	Institutions	(CDFIs)	exist	to	provide	financing	to	 

these	communities.		CDFIs	offer	a	wide	range	of	traditional	and	 

innovative	financial	products	and	services	designed	to	help	their	 

customers	access	the	financial	system,	build	wealth	and	improve	 

their	lives	and	the	communities	in	which	they	live.		In	particular,	 

CDFIs	focus	on	providing	financial	services	to	low-	and	moderate-	income,	minority,	and	other	underserved	communities.	 

1.	 Program	and	goals 

Most	CDFIs	have	been	adversely	affected	by	the	financial	crisis.		 

Treasury-OFS	launched	the	Community	Development	Capital	 

Initiative	to	help	viable	certified	CDFIs	and	the	communities	 

they	serve	cope	with	effects	of	the	financial	crisis.		 

Under	this	program,	CDFI	banks	and	thrifts	received	investments	of	capital	with	an	initial	dividend	or	interest	rate	of	 

2	percent,	compared	to	the	5	percent	rate	offered	under	the	 

Capital	Purchase	Program.		CDFI	banks	and	thrifts	applied	to	 

receive	capital	up	to	5	percent	of	risk-weighted	assets.		To	encourage	repayment	while	recognizing	the	unique	circumstances	 

facing	CDFIs,	the	dividend	rate	will	increase	to	9	percent	after	 

eight	years,	compared	to	five	years	under	CPP.	 

CDFI	credit	unions	could	also	apply	to	receive	secondary	capital	 

investments	at	rates	equivalent	to	those	offered	to	CDFI	banks	 

and	thrifts	and	with	similar	terms.		These	institutions	could	 

apply	for	up	to	3.5	percent	of	total	assets,	which	is	an	amount	 

approximately	equivalent	to	the	5	percent	of	risk-weighted	 

assets	available	to	banks	and	thrifts.		 

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23 

Treasury-OFS	established	a	process	for	reviewing	CDCI	applications	that	relied	on	the	appropriate	federal	regulators.		For	this	 

program,	viability	was	determined	by	the	CDFI’s	federal	regulator	on	a	pro-forma	basis.		In	addition,	CDFIs	that	participated	in	 

CPP	and	were	in	good	standing	could	exchange	securities	issued	 

under	CPP	for	securities	under	this	program. 

2.	 Status	as	of	September	2010 

Treasury-OFS	completed	funding	under	this	program	in	 

September	2010.		The	total	investment	amount	for	the	CDCI	 

program	under	TARP	is	$570	million	for	84	institutions.		Of	 

this	amount,	$363.3	million	from	28	banks	was	exchanged	 

from	investments	under	the	Capital	Purchase	Program	into	the	 

CDCI. 

Subgoal	1b:	 

Provide	targeted	assistance	as	needed.	 

Through	the	Targeted	Investment	Program,	Asset	Guarantee	 

Program,	AIG	Investment	Program,	and	the	Automotive	 

Industry	Financing	Program,	Treasury-OFS	provided	direct	aid	 

to	certain	institutions	in	order	to	mitigate	the	potential	risks	 

to	the	financial	system	and	the	economy	as	a	whole	from	the	 

difficulties	facing	these	firms.	 

Targeted Investment Program 

Treasury-OFS	established	the	Targeted	Investment	Program	 

(TIP)	in	December	2008.	The	program	gave	Treasury-OFS	the	 

necessary	flexibility	to	provide	additional	or	new	funding	to	 

financial	institutions	that	were	critical	to	the	functioning	of	 

the	financial	system.		The	TIP	was	considered	“exceptional	assistance”	for	purposes	of	executive	compensation	requirements. 

1.	 Program	and	goals 

Through	the	Targeted	Investment	Program,	Treasury-OFS	 

sought	to	prevent	a	loss	of	confidence	in	critical	financial	 

institutions,	which	could	result	in	significant	financial	market	 

disruptions,	threaten	the	financial	strength	of	similarly	situated	financial	institutions,	impair	broader	financial	markets,	 

and	undermine	the	overall	economy.		Treasury-OFS	invested	 

$20	billion	in	each	of	Bank	of	America	and	Citigroup	under	 

the	Targeted	Investment	Program,	which	investments	were	 

in	addition	to	those	that	the	banks	received	under	the	CPP.		 

Like	the	CPP,	Treasury-OFS	invested	in	preferred	stock,	and	 

received	warrants	to	purchase	common	stock	in	the	institutions.	 

However,	the	TIP	investments	provided	for	annual	dividends	 

of	eight	percent,	which	was	higher	than	the	CPP	rate,	and	 

also	imposed	greater	reporting	requirements	and	more	onerous	 

terms	on	the	companies	than	under	the	CPP	terms,	including	 

restricting	dividends	to	$0.01	per	share	per	quarter,	restrictions	 

on	executive	compensation,	restrictions	on	corporate	expenses,	 

and	other	measures. 

2.	 Status	as	of	September	2010 

In	December	2009,	both	participating	institutions	repaid	 

their	TIP	investments	in	full,	with	dividends.		Total	dividends	 

received	from	Targeted	Investment	Program	investments	were	 

about	$3	billion	during	the	life	of	the	program.		Treasury-OFS	 

also	received	warrants	from	each	bank	which	provide	the	 

taxpayer	with	additional	gain	on	the	investments.		TreasuryOFS	sold	the	BofA	warrants	and	continues	to	hold	Citigroup	 

warrants.	TIP	is	closed	and	will	result	in	a	positive	return	for	 

taxpayers 

American International Group, Inc. 

(AIG) Investment Program

In	September	of	2008,	panic	in	the	financial	system	was	deep	 

and	widespread	as	previously	discussed.		Amidst	these	events,	 

on	Friday,	September	12,	American	International	Group	 

(AIG)	officials	informed	the	Federal	Reserve	and	Treasury	that	 

the	company	was	facing	potentially	fatal	liquidity	problems.		 

Although	it	was	neither	AIG’s	regulator	nor	supervisor,	the	 

Federal	Reserve	Bank	of	New	York	(FRBNY)	immediately	 

brought	together	a	team	of	people	from	the	Federal	Reserve,	 

the	New	York	State	Insurance	Department,	and	other	experts	 

to	consider	how	to	respond	to	AIG’s	problems.		The	Federal	 

Reserve	Act	authorizes	the	Federal	Reserve	to	provide	liquidity	 

to	the	financial	system	in	times	of	severe	stress,	and	it	acted	to	 

fulfill	that	responsibility. 

At	the	time,	AIG	was	the	largest	provider	of	conventional	 

insurance	in	the	world,	with	approximately	75	million	individual	and	corporate	customers	in	over	130	countries.		AIG’s	 

assets	exceeded	$1	trillion.		It	was	significantly	larger	than	 

Lehman	Brothers.		It	insured	180,000	businesses	and	other	 

entities	employing	over	100	million	people	in	the	U.S.		It	was	a	 

large	issuer	of	commercial	paper	and	the	second	largest	holder	of	 

U.S.	municipal	bonds.		AIG’s	parent	holding	company	engaged	 

in	financial	activities	that	were	well	beyond	the	business	of	life	 

insurance	and	property	and	casualty	insurance.		Its	financial	 

products	unit	was	a	significant	participant	in	some	of	the	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

24 

newest,	riskiest,	and	most	complex	transactions	of	the	financial	 

system.		 

In	the	chaotic	environment	of	September	2008,	the	Federal	 

Reserve	and	Treasury	concluded	that	AIG’s	failure	could	be	 

catastrophic.		Among	other	things,	if	AIG	had	failed,	the	crisis	 

would	have	almost	certainly	spread	to	the	entire	insurance	 

industry,	and	its	failure	would	have	directly	affected	the	savings	 

of	millions	of	Americans.		Therefore,	the	federal	government	 

took	action	to	protect	the	financial	system.		 

AIG	needed	a	durable	restructuring	of	both	its	balance	sheet	 

and	its	business	operations.		Falling	asset	prices	generated	 

substantial	losses	on	the	company’s	balance	sheet.		They	also	 

increased	the	payments	to	counterparties	that	AIG	was	required	 

to	make	under	the	terms	of	credit	protection	contracts	it	had	 

sold.		AIG’s	insurance	subsidiaries	experienced	significant	cash	 

outflows	related	to	a	securities	lending	program,	as	the	value	of	 

residential	mortgage-backed	securities	that	they	had	purchased	 

and	loaned	against	cash	collateral	continued	to	fall.		 

The	federal	government	faced	escalating	and	unprecedented	 

challenges	on	many	different	fronts	of	the	financial	crisis	during	 

September,	October,	and	November	2008.		During	that	time,	 

the	Federal	Reserve	and	Treasury-OFS	took	a	series	of	steps	to	 

prevent	AIG’s	disorderly	failure	and	mitigate	systemic	risks.	 

1.	 Program	and	goals 

The	initial	assistance	to	AIG	was	provided	by	the	FRBNY	 

before	the	passage	of	EESA	and	the	creation	of	TARP.		The	 

FRBNY	provided	loans	to	AIG	under	the	section	13(3)	authority	of	the	Federal	Reserve	Act	to	lend	on	a	secured	basis	under	 

“unusual	and	exigent”	circumstances	to	companies	that	are	not	 

depository	institutions: 

•	 In	September	2008,	the	FRBNY	provided	an	$85	billion	 

credit	facility	to	AIG,	and	received	preferred	shares	which	 

currently	have	approximately	79.8	percent	of	the	voting	 

rights	of	AIG’s	common	stock	(known	as	Series	C).		The	 

FRBNY	created	the	AIG	Credit	Facility	Trust	(the	Trust)	 

to	hold	the	shares	for	the	benefit	of	the	U.S.	Treasury	but	 

the	Department	of	the	Treasury	does	not	control	the	Trust	 

and	cannot	direct	its	trustees. 

After	TARP	was	enacted,	the	Treasury-OFS	and	the	Federal	 

Reserve	continued	to	work	together	to	address	the	challenges	 

posed	by	AIG: 

•	 In	November	2008,	the	Federal	Reserve	and	Treasury-OFS	 

jointly	announced	a	package	of	actions	designed	to	address	 

the	continuing	vulnerabilities	in	AIG’s	balance	sheet	that	 

threatened	its	viability	and	its	credit	ratings.		Treasury-OFS	 

invested	$40	billion	in	senior	preferred	stock	of	AIG	under	 

the	authority	granted	by	EESA	(the	preferred	stock	was	 

subsequently	exchanged	in	April	2009,	for	face	value	plus	 

accrued	dividends,	into	$41.6	billion	of	a	different	series	of	 

preferred	stock),	and	it	also	received	warrants	to	purchase	 

common	shares	in	the	firm.		The	funds	were	used	immediately	to	reduce	the	loans	provided	by	the	FRBNY.		As	 

part	of	the	restructuring,	the	FRBNY	also	agreed	to	lend	up	 

to	$22.5	billion	to	a	newly	created	entity,	Maiden	Lane	II	 

LLC,	to	fund	the	purchase	of	residential	mortgage-backed	 

securities	from	the	securities	lending	portfolio	of	several	 

of	AIG’s	regulated	U.S.	insurance	subsidiaries,	and	up	to	 

$30	billion	to	a	second	newly	created	entity,	Maiden	Lane	 

III	LLC,	to	fund	the	purchase	of	multi-sector	collateralized	debt	obligations	from	certain	counterparties	of	AIG	 

Financial	Products	Corp	(AIGFP). 

•	 In	April	2009,	Treasury-OFS	created	an	equity	capital	 

facility,	under	which	AIG	may	draw	up	to	$29.8	billion	 

as	needed	in	exchange	for	issuing	additional	shares	of	 

preferred	stock	to	Treasury-OFS.		As	of	September	30,	 

2010,	AIG	has	drawn	$7.5	billion	from	the	facility	and	the	 

remainder	is	expected	to	be	used	in	connection	with	the	 

restructuring	plan	discussed	below. 

•	 In	December	2009,	the	Federal	Reserve	received	preferred	 

equity	interests	in	two	special	purpose	vehicles	(SPVs)	 

formed	to	hold	the	outstanding	stock	of	AIG’s	largest	 

foreign	insurance	subsidiaries,	American	International	 

Assurance	Company	(AIA)	and	American	Life	Insurance	 

Company	(ALICO),	in	exchange	for	a	$25	billion	reduction	in	the	balance	outstanding	and	maximum	credit	 

available	under	AIG’s	revolving	credit	facility	with	the	 

FRBNY.		The	transactions	positioned	AIA	and	ALICO	for	 

initial	public	offerings	or	sale. 

2.	 	The	AIg	restructuring	Plan	and	Taxpayer	Exit 

On	September	30,	2010,	AIG	announced	that	it	had	entered	 

into	an	agreement-in-principle	with	the	U.S.	Department	of	 

the	Treasury,	the	FRBNY,	and	the	Trust.	The	restructuring	plan,	 

if	completed	as	announced,	will	accelerate	the	timeline	for	the	 

federal	government’s	recovery	of	its	investment	in	AIG	and	will	 

put	Treasury-OFS	in	a	considerably	stronger	position	to	recoup	 

Treasury-OFS’	investment	in	the	company.	Giving	effect	to	 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

25 

the	proposed	restructuring,	the	lifetime	cost	of	Treasury-OFS’	 

investment	in	AIG	would	be	$5	billion.	This	lifetime	cost	 

reflects	the	effects	of	restructuring	when	valued	at	October	1,	 

2010	including	principally	the	following:	(i)	the	outstanding	 

preferred	stock	investment	is	exchanged	for	common	stock	 

and	valued	at	the	market	price	of	$38.86	at	October	1,	2010,	 

and	(ii)	the	undrawn	commitment	of	$22.3	billion	is	disbursed	 

and	is	valued	consistent	with	Treasury-OFS’	methodology	for	 

valuing	its	non-traded	securities.	Under	this	methodology,	 

Treasury-OFS	estimates	that	it	will	not	incur	any	loss	on	the	 

additional	disbursements	because	the	aggregate	value	of	the	 

assets	supporting	the	preferred	interests	in	the	Special	Purpose	 

Vehicles	that	Treasury-OFS	will	receive	for	the	disbursements	 

exceeds	the	liquidation	preference	of	the	preferred	interests.	 

The	common	stock	price	will	vary	over	time,	and	the	price	realized	by	Treasury-OFS	in	disposing	of	common	shares	will	likely	 

not	be	the	same	as	this	price,	which	would	result	in	changes,	 

possibly	material,	to	this	lifetime	cost.	 

a.	Repaying	and	terminating	the	FRBNY	Credit	 

Facility	with	AIG 

As	of	September	30,	2010,	AIG	owed	the	FRBNY	approximately	$21	billion	in	senior	secured	debt	under	the	FRBNY	credit	 

facility.		Under	the	plan,	AIG	will	repay	this	entire	amount	and	 

terminate	the	FRBNY	senior	secured	credit	facility.		Funding	 

for	this	is	expected	to	come	primarily	from	the	proceeds	of	the	 

initial	public	offering	of	the	company’s	Asian	life	insurance	 

business	(AIA)	and	the	pending	sale	of	its	foreign	life	insurance	 

company	(ALICO)	to	MetLife.	As	of	November	5,	2010,	AIG	 

completed	an	IPO	of	AIA	selling	approximately	67	percent	for	 

total	proceeds	of	$20.5	billion	and	closed	the	sale	of	ALICO	 

for	total	proceeds	of	$16.2	billion,	approximately	$7.2	billion	of	 

which	is	cash.	 

b.	 Facilitating	the	orderly	exit	of	the	U.S.	 

Government’s	interests	in	two	special	purpose	 

vehicles	(SPVs)	that	hold	AIA	and	ALICO 

As	of	September	30,	2010,	the	FRBNY	holds	preferred	interests	 

in	two	AIG-related	SPVs	totaling	approximately	$26	billion.	 

Under	the	plan,	AIG	will	draw	up	to	all	of	the	remaining	 

$22.3	billion	of	TARP	funds	available	to	it	(under	the	Series	F	 

preferred	stock	facility	provided	in	April	2009)	and	TreasuryOFS	will	receive	an	equal	amount	of	the	FRBNY’s	preferred	 

interests	in	the	SPVs.	Over	time,	AIG	is	expected	to	repay	the	 

FRBNY	and	Treasury-OFS	for	these	preferred	interests	through	 

proceeds	from	the	sales	of	AIG	Star	Life	Insurance	and	AIG	 

Edison	Life	Insurance,	the	monetization	of	the	remaining	equity	 

stake	in	AIA,	the	sale	of	MetLife	equity	securities	that	AIG	will	 

own	after	the	close	of	the	ALICO	sale,	and	the	monetization	 

of	certain	other	designated	assets.	The	aggregate	value	of	the	 

assets	underlying	the	preferred	interests	in	the	SPVs	exceeds	the	 

liquidation	preference	of	the	preferred	interests.	As	a	result,	the	 

net	cost	associated	with	the	$22.3	billion	of	draws	is	assumed	to	 

be	zero	if	the	restructuring	plan	is	completed	as	announced.	See	 

also	footnote	3	to	Table	6	in	Part	I.	 

c.	 Retiring	AIG’s	remaining	TARP	support 

To	date,	Treasury-OFS	has	invested	approximately	$47.5	 

billion	of	TARP	funds	in	AIG.	Under	the	plan,	Treasury-OFS	 

is	expected	to	receive	approximately	1.1	billion	shares	of	AIG	 

common	stock	in	exchange	for	its	existing	TARP	investments	 

in	AIG.	The	Department	of	the	Treasury	is	also	expected	to	 

receive	an	additional	563	million	shares	of	common	stock	from	 

the	exchange	of	the	Series	C	preferred	shares	held	by	the	Trust	 

on	behalf	of	the	United	States	taxpayers.	After	the	exchange	 

is	completed,	it	is	expected	that	Treasury-OFS’	shares	will	be	 

sold	into	the	public	markets	over	time.	The	lifetime	cost	of	the	 

TARP	investment	in	AIG	after	giving	effect	to	the	restructuring	(as	shown	in	Table	6)	does	not	include	any	recovery	from	 

the	sale	of	the	shares	of	AIG	common	stock	to	be	received	by	 

Treasury	from	the	Trust	that	are	in	addition	to	Treasury-OFS’	 

shares. 

The	plan	is	still	subject	to	a	number	of	contingencies,	and	 

much	work	remains	to	be	done	to	close	the	transactions.		 

Nevertheless,	the	plan	reflects	the	substantial	progress	that	AIG	 

and	the	federal	government	have	made	in	restructuring	the	 

company	and	reducing	the	systemic	risk	that	it	once	posed.		The	 

plan	also	represents	a	significant	step	towards	ending	the	federal	 

government’s	role	in	providing	assistance	to	the	company. 

Over	the	past	two	years,	AIG	has	recruited	a	new	CEO,	a	 

new	Chief	Risk	Officer,	a	new	General	Counsel,	a	new	Chief	 

Administrative	Officer,	and	an	almost	entirely	new	Board	of	 

Directors.		All	of	these	executives	and	directors	are	committed	 

to	the	objective	of	executing	the	restructuring	plan	and	paying	 

back	taxpayers	as	promptly	as	practicable.		In	addition,	the	 

profitability	of	the	AIG’s	core	business	–	its	insurance	subsidiaries	–	has	been	steadily	improving,	as	has	the	market’s	perception	 

of	the	value	of	these	subsidiaries.		The	improvement	in	the	 

value	of	these	businesses	and	their	ultimate	sale	are	central	to	 

the	AIG	restructuring	plan.	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

26 

Upon	completion	of	the	restructuring	plan,	AIG	is	expected	to	 

be	a	simplified	life,	property	and	casualty	insurer	with	solidly	 

capitalized	insurance	subsidiaries,	adequate	liquidity,	and	a	 

stable	balance	sheet. 

Asset Guarantee Program 

1.	 Program	and	goals 

Under	the	Asset	Guarantee	Program	(AGP),	Treasury-OFS	 

acted	to	support	the	value	of	certain	assets	held	by	qualifying	 

financial	institutions,	by	agreeing	to	absorb	a	portion	of	the	 

losses	on	those	assets.		The	program	was	conducted	jointly	by	 

Treasury,	the	Federal	Reserve	and	the	FDIC.		Like	the	Targeted	 

Investment	Program,	it	was	designed	for	financial	institutions	 

whose	failure	could	harm	the	financial	system	and	reduce	the	 

potential	for	“spillover”	to	the	broader	financial	system	and	 

economy.	 

a.	Bank	of	America 

In	January	2009,	Treasury-OFS,	the	Federal	Reserve	and	the	 

FDIC	agreed	in	principle	to	share	potential	losses	on	a	$118	 

billion	pool	of	financial	instruments	owned	by	Bank	of	America,	 

consisting	of	securities	backed	by	residential	and	commercial	 

real	estate	loans	and	corporate	debt	and	derivative	transactions	 

that	reference	such	securities,	loans	and	associated	hedges.		If	 

the	arrangement	had	been	finalized,	Treasury-OFS	and	the	 

FDIC	would	have	received	preferred	stock	and	warrants	as	a	 

premium	for	the	guarantee.		The	announcement	of	the	transaction	(and	the	Citigroup	transaction	discussed	below)	was	 

widely	welcomed	by	the	markets	and	contributed	immediately	 

to	helping	restore	investor	confidence	in	the	financial	institution	and	the	banking	system	generally.		In	May	2009,	before	 

the	transaction	was	finalized,	Bank	of	America	announced	 

its	intention	to	terminate	negotiations	with	respect	to	the	 

loss-sharing	arrangement	and	in	September	2009,	the	federal	 

government	and	Bank	of	America	entered	into	a	termination	 

agreement.		Bank	of	America	agreed	to	pay	a	termination	fee	of	 

$425	million	to	the	federal	government	parties,	$276	million	of	 

which	went	to	Treasury-OFS.		The	fee	compensated	the	federal	 

government	for	the	value	that	Bank	of	America	had	received	 

from	the	announcement	of	the	federal	government’s	willingness	 

to	guarantee	and	share	losses	on	the	pool	of	assets	from	and	after	 

the	date	of	the	term	sheet.		The	termination	fee	was	determined	 

by	reference	to	the	fees	that	would	have	been	payable	had	the	 

guarantee	been	finalized.		No	claims	for	loss	payments	were	 

made	to	the	federal	government,	nor	was	any	TARP	or	other	 

funds	spent.	Thus,	the	fee	was	a	net	gain	for	taxpayers. 

b.	 Citigroup 

In	January	2009,	Treasury,	the	Federal	Reserve	and	the	FDIC	 

similarly	agreed	to	share	potential	losses	on	a	$301	billion	pool	 

of	Citigroup’s	covered	assets.		The	arrangement	was	finalized	 

and,	as	a	premium	for	the	guarantee,	Treasury-OFS	and	the	 

FDIC	received	$7.0	billion	of	preferred	stock,	with	terms	that	 

were	similar	to	those	in	the	TIP	investment	and	more	onerous	 

than	in	the	CPP,	including	a	dividend	rate	of	eight	percent.		 

Treasury-OFS	also	received	warrants	to	purchase	66.5	million	 

shares	of	common	stock.		Although	the	guarantee	was	originally	 

designed	to	be	in	place	for	five	to	ten	years,	Citigroup	requested	 

that	it	be	terminated	in	December	2009	in	conjunction	with	 

Citigroup’s	repayment	of	the	$20	billion	TIP	investment.		This	 

was	because	Citigroup‘s	financial	condition	had	improved	and	 

the	bank	raised	over	$20	billion	of	private	capital.		The	banking	 

regulators	approved	this	request. 

In	connection	with	the	termination,	Treasury-OFS	and	the	 

FDIC	kept	most	of	the	premium	paid.		That	is,	these	parties	 

retained	a	total	of	$5.3	billion	of	the	$7.0	billion	of	preferred	 

stock	(which	had	since	been	converted	to	trust	preferred	securities).		Of	this	amount,	Treasury-OFS	retained	$2.23	billion,	and	 

the	FDIC	and	Treasury-OFS	agreed	that,	subject	to	certain	conditions,	the	FDIC	would	transfer	to	Treasury-OFS	$800	million	 

of	their	Citigroup	trust	preferred	stock	holding	plus	dividends	 

thereon	contingent	on	Citigroup	repaying	its	previously-issued	 

FDIC	debt	under	the	FDIC’s	Temporary	Liquidity	Guarantee	 

Program	which	expires	on	December	31,	2012.		 

For	the	period	that	the	Citigroup	asset	guarantee	was	outstanding	prior	to	termination	in	December	2009,	Citigroup	made	no	 

claims	for	loss	payments	to	the	federal	government,	and	consequently	Treasury-OFS	made	no	guarantee	payments	of	TARP	 

funds	to	Citigroup.		Thus,	all	payments	received	to	date,	and	the	 

income	received	from	the	sale	of	the	securities	described	above,	 

will	constitute	a	net	gain	for	the	taxpayer.		The	cumulative	 

total	dividends	received	through	September	30,	2010	from	the	 

securities	totaled	approximately	$440	million.		On	September	 

30,	2010,	Treasury-OFS	agreed	to	sell	the	trust	preferred	securities	for	approximately	$2.25	billion	and	on	October	5,	2010,	 

the	transaction	was	consummated.		Treasury-OFS	still	holds	its	 

Citigroup	warrants	which	should	provide	an	additional	return	 

for	taxpayers. 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

27 

2.	 Status	as	of	September	2010 

The	Asset	Guarantee	Program	is	now	closed.		No	Treasury-OFS	 

payments	were	made.		The	fee	from	Bank	of	America,	and	 

securities	and	dividends	received	from	Citigroup,	represents	a	 

positive	return	for	taxpayers. 

Automotive Industry Financing 

Program 

The	Automotive	Industry	Financing	Program	(AIFP)	was	begun	 

in	December	2008	to	prevent	a	significant	disruption	of	the	U.S.	 

automotive	industry,	because	the	potential	for	such	a	disruption	 

posed	a	systemic	risk	to	financial	market	stability	and	would	 

have	had	a	negative	effect	on	the	economy.		 

Recognizing	both	GM	and	Chrysler	were	on	the	verge	of	 

disorderly	liquidations,	Treasury-OFS	extended	temporary	loans	 

to	GM	and	Chrysler	in	December	2008.		After	the	Obama	 

Administration	took	office,	it	agreed	to	provide	additional	 

investments	conditioned	on	each	company	and	its	stakeholders	 

participating	in	a	fundamental	restructuring.		Sacrifices	were	 

made	by	unions,	dealers,	creditors	and	other	stakeholders,	 

and	the	restructurings	were	achieved	through	bankruptcy	 

court	proceedings	in	record	time.		As	a	result,	General	Motors	 

Company	and	Chrysler	Group	LLC	are	more	competitive	and	 

viable	companies,	supporting	American	jobs	and	the	economy.		 

Operating	results	have	improved,	the	industry	has	added	jobs,	 

and	the	TARP	investments	have	begun	to	be	repaid.	 

1.	 Programs	and	goals 

a.	Automotive	companies 

Short-term	funding	was	initially	provided	to	General	Motors	 

(GM)	and	Chrysler	on	the	condition	that	they	develop	plans	 

to	achieve	long-term	viability.		In	the	spring	and	summer	of	 

2009,	GM	and	Chrysler	developed	satisfactory	viability	plans	 

and	successfully	conducted	sales	of	their	assets	to	new	entities	in	 

bankruptcy	proceedings.		Chrysler	completed	its	sale	process	in	 

42	days	and	GM	in	40	days.		Treasury-OFS	provided	additional	 

assistance	during	these	periods.		 

In	total,	Treasury-OFS	has	provided	approximately	$80	billion	 

in	loans	and	equity	investments	to	GM,	GMAC	(now	known	as	 

Ally	Financial),	Chrysler,	and	Chrysler	Financial.		The	terms	of	 

Treasury’s	assistance	impose	a	number	of	restrictions	including	 

rigorous	executive	compensation	standards,	limits	on	luxury	 

expenditures,	and	other	corporate	governance	requirements. 

While	some	have	questioned	why	TARP	was	used	to	support	the	automotive	industry,	both	the	Bush	and	Obama	 

Administrations	determined	that	Treasury’s	investments	in	the	 

auto	companies	were	consistent	with	the	purpose	and	specific	 

requirements	of	EESA.		Among	other	things,	Treasury-OFS	 

determined	that	the	auto	companies	were	and	are	interrelated	 

with	entities	extending	credit	to	consumers	and	dealers	because	 

of	their	financing	subsidiaries	and	other	operations,	and	that	a	 

disruption	in	the	industry	or	an	uncontrolled	liquidation	would	 

have	had	serious	effects	on	financial	market	stability,	employment	and	the	economy	as	a	whole. 

b.	 Supplier	and	warranty	support	programs 

In	the	related	Auto	Supplier	Support	Program	(ASSP),	 

Treasury-OFS	provided	loans	to	ensure	that	auto	suppliers	 

receive	compensation	for	their	services	and	products,	regardless	of	the	condition	of	the	auto	companies	that	purchase	 

their	products.		In	the	Auto	Warranty	Commitment	Program	 

(AWCP),	Treasury-OFS	provided	loans	to	protect	warranties	 

on	new	vehicles	purchased	from	GM	and	Chrysler	during	their	 

restructuring	periods.		 

In	early	2009,	auto	suppliers	faced	the	risk	of	uncontrolled	 

liquidations	across	the	sector.	Fifty-four	(54)	supplier-related	 

bankruptcies	occurred	in	2009	as	the	industry	went	through	a	 

painful	restructuring.		Today,	in	part	due	to	the	support	provided	 

by	Automotive	Supplier	Support	Program	(ASSP),	the	auto	 

supply	base	appears	to	have	stabilized.		Suppliers	are	now	breaking	even	at	a	lower	level	of	North	American	production. 

2.	 general	Motors 

Treasury-OFS	provided	$50	billion	under	TARP	to	General	 

Motors.		This	began	in	December	2008,	with	a	$13.4	billion	 

loan	to	General	Motors	Corporation	(GM	or	Old	GM)	to	fund	 

working	capital.		Under	the	loan	agreement,	GM	was	required	 

to	submit	a	viable	restructuring	plan.		The	first	plan	GM	 

submitted	failed	to	establish	a	credible	path	to	viability,	and	 

the	deadline	was	extended	to	June	2009	for	GM	to	develop	an	 

amended	plan.		Treasury-OFS	loaned	an	additional	$6	billion	to	 

fund	GM	during	this	period. 

To	achieve	an	orderly	restructuring,	GM	filed	for	bankruptcy	 

on	June	1,	2009.		Treasury-OFS	provided	$30.1	billion	under	a	 

debtor-in-possession	financing	agreement	to	assist	GM	during	 

the	restructuring.		A	newly	formed	entity,	General	Motors	 

Company	purchased	most	of	the	assets	of	Old	GM	under	a	sale	

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

28 

pursuant	to	Section	363	of	the	bankruptcy	code	(363	Sale).		 

When	the	sale	to	General	Motors	Company	was	completed	 

on	July	10,	Treasury-OFS	converted	most	of	its	loans	to	60.8	 

percent	of	the	common	equity	in	the	General	Motors	Company	 

and	$2.1	billion	in	preferred	stock.		At	that	time,	Treasury-OFS	 

held	$6.7	billion	in	outstanding	loans.		 

Approximately	$986	million	remained	with	Old	GM	(now	 

known	as	Motors	Liquidation	Company)	for	wind-down	costs	 

associated	with	its	liquidation. 

a.	Repayments 

General	Motors	Company	repaid	the	$6.7	billion	loan	in	full	 

on	April	21,	2010.		(The	rest	of	the	investment	is	equity	which	 

Treasury-OFS	expects	to	sell	as	described	below.) 

Ownership	structure 

General	Motors	Company	currently	has	the	following	ownership:	 

Treasury-OFS	(60.8	percent),	GM	Voluntary	Employee	Benefit	 

Association	(VEBA)	(17.5	percent),	the	Canadian	Government	 

(11.7	percent),	and	Old	GM’s	unsecured	bondholders	(10	percent).		As	part	of	the	restructuring,	GM	issued	warrants	to	acquire	 

additional	shares	of	common	stock	to	VEBA	and	Old	GM	(for	 

distribution	to	the	creditors	of	Old	GM	following	confirmation	of	 

a	plan	of	liquidation	by	the	bankruptcy	court).	 

b.	 General	Motors	Company	initial	public	
 

offering
 

Treasury-OFS’	most	likely	exit	strategy	for	the	AIFP	equity	investments	is	a	gradual	sale	beginning	with	an	initial	public	offering	of	 

General	Motors	Company.		In	June	2010,	Treasury-OFS	provided	 

guidance	on	its	role	in	the	exploration	of	an	IPO	by	General	 

Motors	Company.		Consistent	with	this	guidance:		 

•	 The	timing	of	the	offering	is	being	determined	by	General	 

Motors	Company	and	the	IPO	process	is	being	managed	by	 

General	Motors	Company.		Treasury-OFS	will	determine	 

whether	to	sell	shares	and	the	price	at	which	it	will	sell	shares.	 

•	 The	selection	of	the	lead	underwriters	was	made	by	General	 

Motors	Company,	subject	to	Treasury-OFS’	agreement	that	 

the	selection	was	reasonable.	Treasury-OFS	will	determine	 

the	fees	to	be	paid	to	the	underwriters.	 

In	August	2010,	General	Motors	Company	filed	a	registration	 

statement	on	Form	S-1	with	the	U.S.	Securities	and	Exchange	 

Commission	(SEC)	for	a	proposed	IPO	consisting	of	common	stock	to	be	sold	by	certain	of	its	stockholders,	including	 

Treasury,	and	the	issuance	by	the	company	of	its	Series	B	 

mandatory	convertible	junior	preferred	stock.		GM	has	filed	a	 

registration	statement	for	an	initial	public	offering	(IPO).		If	 

the	IPO	is	completed,	Treasury-OFS	will	use	the	market	price	 

for	GM	common	stock	to	value	its	investment	in	the	future.		 

Because	there	is	no	market	price	today,	Treasury-OFS	cannot	 

value	its	investment	in	this	manner	and	instead	uses	its	methodology	for	non-traded	securities.		The	actual	price	that	would	 

be	obtained	from	the	IPO	is	uncertain	and	will	vary,	perhaps	 

significantly,	from	the	September	30,	2010	valuation.			However,	 

if	Treasury-OFS	were	to	value	its	investment	at	the	IPO	range	 

of	$26	to	$29	per	share	announced	by	GM	in	the	preliminary	 

prospectus	dated	November	3,	2010,	Treasury-OFS’	estimated	 

cost	for	the	AIFP	would	increase	by	$3	billion	to	$6	billion.	GM	 

has	also	agreed,	subject	to	the	closing	of	the	IPO,	to	repurchase	 

$2.1	billion	of	preferred	shares	issued	to	Treasury-OFS	at	102	 

percent	of	par	value.	 

3.	 chrysler 

Treasury-OFS	has	provided	a	total	commitment	of	approximately	$14	billion	to	Chrysler	and	Chrysler	Financial	of	which	 

more	than	$12	billion	has	been	utilized.		In	January	2009,	 

Treasury-OFS	loaned	$4	billion	to	Chrysler	Holding	(the	parent	 

of	Chrysler	Financial	and	Old	Chrysler).		Under	the	loan	agreement,	Chrysler	was	required	to	implement	a	viable	restructuring	 

plan.		In	March	2009,	the	Administration	determined	that	 

the	business	plan	submitted	by	Chrysler	failed	to	demonstrate	 

viability	and	concluded	that	Chrysler	was	not	viable	as	a	standalone	company. 

The	Administration	subsequently	laid	out	a	framework	for	 

Chrysler	to	achieve	viability	by	partnering	with	the	international	car	company	Fiat.		As	part	of	the	planned	restructuring,	 

in	April	2009,	Chrysler	filed	for	bankruptcy	protection.		In	May	 

2009,	Treasury-OFS	provided	$1.9	billion	to	Chrysler	(Old	 

Chrysler)	under	a	debtor-in-possession	financing	agreement	for	 

assistance	during	its	bankruptcy	proceeding. 

a.	Chrysler	Group	LLC 

In	June	2009,	a	newly	formed	entity,	Chrysler	Group	LLC,	 

purchased	most	of	the	assets	of	Old	Chrysler	under	a	363	 

(bankruptcy)	Sale.		Treasury-OFS	provided	a	$6.6	billion	loan	 

commitment	to	Chrysler	Group	LLC	(as	of	September	30,	 

2010,	and	2009,	$2.1	billion	remained	undrawn),	and	received	 

a	9.9	percent	equity	ownership	in	Chrysler	Group	LLC.		Fiat	 

transferred	valuable	technology	to	Chrysler	and,	after	extensive	 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

29 

consultation	with	the	Administration,	committed	to	building	 

new	fuel	efficient	cars	and	engines	in	U.S.	factories.		 

As	of	September	30,	2010,	Treasury-OFS’	investments	in	 

Chrysler	Group	LLC	consist	of	9.9	percent	of	common	equity	 

and	a	$7.1	billion	loan	(including	$2.1	billion	of	undrawn	commitments	and	$500	million	assumed	from	Chrysler	Holding).		 

Chrysler	Group	LLC	currently	has	the	following	ownership:	 

Chrysler	Voluntary	Employee	Benefit	Association	(VEBA)	 

(67.7	percent),	Fiat	(20	percent),	Treasury-OFS	(9.9	percent),	 

and	the	Government	of	Canada	(2.5	percent). 

b.	 Old	Chrysler 

In	April	2010,	the	bankruptcy	court	approved	Old	Chrysler’s	 

Plan	of	Liquidation.	As	a	result,	the	$1.9	billion	debtor-in-possession	loan	provided	to	Old	Chrysler	in	May	2009	was	extinguished	and	the	assets	remaining	with	Old	Chrysler,	including	 

collateral	security	attached	to	the	loan,	were	transferred	to	a	 

liquidation	trust.		Treasury-OFS	retained	the	right	to	recover	 

the	proceeds	from	the	liquidation	of	the	specified	collateral,	 

but	does	not	expect	a	significant	recovery	from	the	liquidation	 

proceeds.	 

c.	 Settlement	with	Chrysler	Holding

The	original	$4	billion	loan	made	to	Chrysler	Holding	in	 

January	2009	went	into	default	when	Old	Chrysler	filed	for	 

bankruptcy.		In	July	2009,	$500	million	of	that	loan	was	 

assumed	by	Chrysler	Group	LLC.	As	a	result	of	a	settlement	 

agreement	in	May	2010,	Treasury-OFS	accepted	a	settlement	 

payment	of	$1.9	billion	as	satisfaction	in	full	of	the	remaining	 

debt	obligations	($3.5	billion)	associated	with	the	original	loan.		 

The	final	repayment,	while	less	than	face	value,	was	more	than	 

Treasury-OFS	had	previously	estimated	to	recover	following	 

the	bankruptcy	and	greater	than	an	independent	valuation	 

provided	by	Keefe,	Bruyette	and	Woods,	Treasury’s	adviser	for	 

the	transaction.	 

d.	Chrysler	Financial 

In	January	2009,	Treasury-OFS	announced	that	it	would	lend	 

up	to	$1.5	billion	to	a	special	purpose	vehicle	(SPV)	created	by	 

Chrysler	Financial	to	enable	the	company	to	finance	the	purchase	of	Chrysler	vehicles	by	consumers.		In	July	2009,	Chrysler	 

Financial	fully	repaid	the	loan,	including	the	additional	notes	 

that	were	issued	to	satisfy	the	EESA	warrant	requirement,	 

together	with	interest.	 

4.	 Ally	Financial	(formerly	gMAc) 

Through	September	30,	2010,	Treasury-OFS	had	invested	 

approximately	$17	billion	in	Ally	Financial.		This	began	with	 

an	investment	of	$5	billion	in	December	2008.		Treasury-OFS	 

also	lent	$884	million	of	TARP	funds	to	GM	(one	of	GMAC’s	 

owners)	for	the	purchase	of	additional	ownership	interests	 

in	a	rights	offering	by	GMAC.		In	May	2009,	federal	banking	regulators	required	GMAC	to	raise	additional	capital	by	 

November	2009	in	connection	with	the	SCAP/stress	test.		 

Treasury-OFS	exercised	its	option	to	exchange	the	loan	with	 

GM	for	35.4	percent	of	common	membership	interests	in	 

GMAC.		Treasury-OFS	also	purchased	$7.5	billion	of	convertible	preferred	shares	from	GMAC	in	May	2009,	which	enabled	 

GMAC	to	partially	meet	the	SCAP	requirements.		Additional	 

Treasury-OFS	investments	in	GMAC	were	contemplated	to	 

enable	GMAC	to	satisfy	the	SCAP	requirements.		These	were	 

completed	in	December	2009,	when	Treasury-OFS	invested	an	 

additional	$3.8	billion	in	GMAC,	increasing	the	percentage	of	 

ownership.		As	of	September	30,	2010,	Treasury’s	investment	 

in	Ally	Financial	consists	of	56.3	percent	of	the	common	stock,	 

$11.4	billion	of	mandatorily	convertible	preferred	securities	 

(which	may	be	converted	into	common	stock	at	a	later	date)	 

and	$2.7	billion	of	trust	preferred	securities.		If	the	mandatorily	 

convertible	preferred	securities	were	converted,	Treasury-OFS	 

ownership	would	increase	to	80.48	percent 

5.	 Status	as	of	September	2010 

a.	Outlook	on	automotive	industry	following	 

restructurings	and	repayments 

As	the	outlook	for	the	domestic	auto	industry	has	improved	and	 

the	estimated	value	of	Treasury’s	investments	has	increased,	the	 

projected	cost	to	taxpayers	of	AIFP	has	decreased.	The	cost	of	 

AIFP	from	inception	through	September	30,	2010	was	$13.9	 

billion,	as	compared	to	the	cost	through	September	30,	2009	of	 

$30.5	billion. 

Subgoal	1c:	 

Increase	liquidity	and	volume	in	 

securitization	markets.	 

The	Community	Development	Capital	Initiative,	the	Term	 

Asset-Backed	Securities	Loan	Facility,	the	SBA	7a	Securities	 

Purchase	Program	and	the	Public-Private	Investment	Program	 

were	developed	by	Treasury-OFS	to	help	restore	the	flow	of	 

credit	to	consumers	and	small	businesses.	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

30 

Consumer and Business Lending 

Initiative 

part 1: management s discussion and analysis 

Community	Development	Capital	Initiative 

CDCI	contributed	to	this	subgoal,	but	is	discussed	in	detail	 

above	following	the	Capital	Purchase	Program	because	of	the	 

link	between	the	two	programs.	 

Term Asset-Backed Securities Loan 

Facility 

The	Term	Asset-Backed	Securities	Loan	Facility	(TALF)	is	a	 

key	part	of	the	Financial	Stability	Plan	and	the	major	initiative	 

under	the	TARP’s	Consumer	and	Business	Lending	Initiative	 

(CBLI).		TALF	is	a	joint	Federal	Reserve-Treasury-OFS	program	 

that	was	designed	to	restart	the	asset-backed	securitization	 

markets	that	had	ground	to	a	virtual	standstill	during	the	early	 

months	of	this	financial	crisis.		The	ABS	markets	historically	 

have	helped	to	fund	a	substantial	share	of	credit	to	consumers	 

and	businesses.		The	effects	of	this	issuance	standstill	were	 

many:	limited	availability	of	credit	to	households	and	businesses	 

of	all	sizes,	an	unprecedented	widening	of	interest	rate	spreads,	 

sharply	contracting	liquidity	in	the	capital	markets	and	a	 

potential	to	further	weaken	U.S.	economic	activity.	 

1.		Program	and	goals 

a.	Program	design 

Pursuant	to	its	Federal	Reserve	Act	Section	13(3)	authority,	the	 

Federal	Reserve	Bank	of	New	York	(FRBNY)	agreed	to	extend	 

up	to	$200	billion	in	non-recourse	loans	to	borrowers	to	enable	 

the	purchase	of	newly	issued	asset-backed	securities	(including	 

newly	issued	CMBS	and	legacy	CMBS)	AAA-rated	securities	 

including	those	backed	by	consumer	loans,	student	loans,	small	 

business	loans,	and	commercial	real	estate	loans.		In	return,	the	 

borrowers	pledged	the	eligible	collateral	with	a	risk	premium	 

(“haircut”)	as	security	for	the	loans.		Should	a	borrower	default	 

upon	its	TALF	loan	or	voluntarily	surrender	the	collateral,	 

the	collateral	would	be	seized	and	sold	to	TALF	LLC,	a	special	 

purpose	vehicle	created	by	FRBNY	to	purchase	and	hold	seized	 

or	surrendered	collateral.		Through	September	30,	2010,	TALF	 

LLC	has	not	purchased	any	collateral	from	the	FRBNY. 

Treasury-OFS’	role	in	TALF	is	to	provide	credit	protection	 

for	the	program	through	the	purchase	of	subordinated	debt	in	 

TALF	LLC.		The	funds	would	be	used	to	purchase	the	underlying	collateral	associated	with	the	FRBNY	TALF	loans	in	the	 

Figure D: 

Total Consumer 

and TALF ABS 

Issuance from 

June 2008 

through 

March 2010 

(Dollars in 

billions) 

0 

5 

10 

15 

20 

25 

2007 Average

Jun 2008

Jul 2008

Aug 2008

Sep 2008

Oct 2008

Nov 2008Dec 2008

Jan 2009

Feb 2009

Mar 2009

Apr 2009

May 2009

Jun 2009

Jul 2009

Aug 2009

Sep 2009

Oct 2009

Nov 2009

Dec 2009

Jan 2010

Feb 2010

Mar 2010 

Dollars in billions 

18.5 18.2 

8.2 8.1 

3.6 

0.4 0.5 

1.9 1.3 1.6 

2.0 

8.3 

5.2 

2.9 

5.8 

16.5 

4.4 

16.8 

4.3 

6.6 

6.6 

6.0 

7.4 

1.5 

3.9 

4.2 

2.0 

12.6 

1.2 

13.6 

0.1 

9.1 

4.1 

3.8 

0.5 

7.2 

T ALF Issuance 

Non­T ALF Issuance 

Source: FRBNY TALF Subscription Report

event	the	borrower	surrendered	the	collateral	or	defaulted	upon	 

its	loan.		Treasury-OFS	originally	committed	to	purchase	$20	 

billion	in	subordinated	debt	from	TALF	LLC,	or	10	percent	 

of	the	maximum	amount	of	loans	that	could	be	issued.		This	 

commitment	was	later	reduced	to	$4.3	billion	after	the	program	 

closed	to	new	lending	in	June	2010	with	$43	billion	in	loans	 

outstanding,	so	that	the	commitment	remained	at	10	percent	of	 

the	outstanding	loans.	 

Although	TALF	was	designed	to	provide	up	to	$200	billion	 

in	loans	secured	by	eligible	collateral,	the	positive	effects	of	 

TALF	on	liquidity	and	interest	rate	spreads	resulting	from	the	 

announcement	of	TALF	made	utilization	of	the	full	amount	 

unnecessary.		As	TALF	positively	impacted	the	market	for	 

asset-backed	securities,	investors	became	able	to	access	cheaper	 

funds	in	the	restarted	capital	markets.		The	program	was	at	 

first	extended	past	the	original	termination	date	of	December	 

2009	to	March	2010,	for	non-mortgage-backed	ABS	and	legacy	 

CMBS	collateral,	and	to	June	2010,	for	newly	issued	CMBS	 

collateral.		Given	the	improvements	in	the	markets,	at	the	 

time	of	the	closing	of	the	program	in	June	2010,	the	FRBNY	 

had	disbursed	approximately	$70	billion	in	loans	under	TALF.		 

Of	that	amount,	$29.7	billion	(or	47	percent)	in	TALF	loans	 

remained	outstanding	as	of	September	30,	2010.	 

b.	 Protection	of	taxpayer	interests 

TALF	was	designed	to	provide	borrowers	with	term	loans	of	up	 

to	five	years	against	highly	rated	securities,	which	are	forfeited	 

in	the	event	a	loan	is	not	repaid.		TALF	employs	a	number	of	 

other	safeguards	to	protect	taxpayers’	interests	including	the	 

following:	 

•	 TALF	borrowers	bear	the	first	loss	risk	in	all	securities	 

pledged	as	collateral	for	TALF	loans	due	to	the	substantial	 

haircuts	(set	by	reference	to	borrower’s	equity	in	the	securities)	required	of	those	borrowers.		Haircuts	ranged	from	5	 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

31 

percent	to	20	percent	based	on	asset	quality	thereby	further	 

limiting	risk.	 

•	 Eligible	securities	must	have	received	two	AAA	ratings	 

from	a	major	rating	agency,	and	have	never	been	rated	 

below	AAA	or	placed	on	watch	for	downgrade	by	a	major	 

rating	agency.		 

•	 Protection	is	provided	by	the	risk	premium	included	in	the	 

TALF	loan	rates.	The	interest	rate	spread	provides	accumulated	excess	interest	in	TALF	LLC	as	a	first	loss	position.		 

The	available	excess	spread	to	fund	forfeited	loans	is	$501	 

million	as	of	September	30,	2010.	 

•	 Each	ABS	issuer	must	engage	an	external	auditor	to	offer	 

an	opinion	that	supports	management’s	assertion	that	the	 

ABS	is	TALF	eligible.		Further	protection	is	provided	by	 

FRBNY	and	their	collateral	monitors	responsible	for	assessing	the	risk	associated	with	ABS	and	CMBS	collateral	and	 

performing	due	diligence. 

2.	 Status	as	of	September	2010 

TALF	helped	encourage	lending	to	consumers	and	businesses	 

while	operating	under	a	conservative	structure	that	protects	 

taxpayer	interests.		The	facility	has	ceased	making	new	loans	 

as	noted	above.		By	improving	credit	market	functioning	and	 

adding	liquidity	to	the	system,	TALF	has	provided	critical	support	to	the	financial	system.		This	has	allowed	lenders	to	meet	 

the	credit	needs	of	consumers	and	small	businesses,	and	has	 

strengthened	the	overall	economy. 

Specifically,	TALF	helped	increase	credit	availability	and	 

liquidity	in	the	securitization	markets	and	reduced	interest	rate	 

spreads.		Secondary	spreads	narrowed	significantly	across	all	eligible	asset	classes	by	60	percent	or	more.		For	instance,	spreads	 

on	AAA-rated	auto	receivables	fell	sharply	from	a	peak	of	600	 

basis	points	in	the	fourth	quarter	of	2008	to	27	basis	points	 

over	their	benchmarks	on	September	30,	2010.		Spreads	in	the	 

secondary	market	for	CMBS	have	declined	from	1500	basis	 

points	over	its	benchmark	to	210	basis	points	as	of	September	 

30,	2010. 

Moreover,	the	improvements	in	the	secondary	credit	market	 

contributed	to	the	re-start	of	the	new-issue	market.		According	 

to	the	Federal	Reserve	Bank	of	New	York,	issuance	of	nonmortgage	asset-backed	securities	jumped	to	$35	billion	in	the	 

first	three	months	of	TALF	lending	in	2009,	after	having	slowed	 

to	less	than	$1	billion	per	month	in	late	2008. 

In	November	2009,	TALF	funds	also	facilitated	the	first	issuance	 

of	commercial	mortgage-backed	securities	since	June	2008.		This	 

helped	re-open	the	market	for	such	securities.		Following	that	 

transaction,	there	have	been	additional	commercial	mortgagebacked	transactions	funded	without	assistance	from	TALF.	 

Treasury-OFS	loaned	TALF	LLC	$100	million	of	the	original	 

$20	billion	committed.		The	maturity	date	on	the	TreasuryOFS	loan	to	the	TALF	LLC	is	March	2019.		The	loans	made	 

by	TALF	mature	at	the	latest	by	March	2015.		To	date,	the	 

TALF	program	has	experienced	no	losses	and	all	outstanding	 

TALF	loans	are	well	collateralized.		Treasury-OFS	and	FRBNY	 

continue	to	see	it	as	highly	likely	that	the	accumulated	excess	 

interest	spread	will	cover	any	loan	losses	that	may	occur	 

without	recourse	to	the	dedicated	TARP	funds.		Therefore,	 

Treasury-OFS	does	not	expect	any	cost	to	the	taxpayers	from	 

this	program. 

Public-Private Investment Program 

The	Legacy	Securities	Public	Private	Investment	Program	 

(PPIP)	was	designed	to	purchase	troubled	legacy	securities	(i.e.,	 

non-agency	residential	mortgage-backed	securities	(“RMBS”)	 

and	commercial	mortgage-backed	securities	(“CMBS”))	that	 

were	central	to	the	problems	facing	the	U.S.	financial	system,	 

and	thereby	help	ensure	that	credit	is	available	to	households	 

and	businesses	and	ultimately	drive	the	U.S.	toward	economic	 

recovery. 

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32 

1.	 Program	goals	and	Design 

a.	The	Goal:	Unlock	credit	markets	for	legacy	 

securities	to	allow	financial	institutions	to	 

repair	their	balance	sheets	and	extend	new	 

credit 

During	the	crisis,	many	financial	institutions	and	investors	were	 

under	extreme	pressure	to	reduce	indebtedness.		This	de-leveraging	process	pushed	down	the	market	prices	for	many	financial	 

assets,	including	troubled	legacy	RMBS	and	CMBS,	below	their	 

fundamental	value.		Institutions	and	investors	were	trapped	 

with	hard-to-value	assets,	marked	at	distressed	prices	on	their	 

balance	sheets,	which	constrained	liquidity	and	the	availability	 

of	credit	in	these	markets.		 

The	purpose	of	PPIP	was	to	draw	new	private	capital	into	the	 

market	for	legacy	RMBS	and	CMBS	by	providing	financing	 

on	attractive	terms	as	well	as	a	matching	equity	investment	 

made	by	Treasury-OFS.		By	providing	this	financing,	PPIP	was	 

designed	to	help	restart	the	market	for	these	securities,	thereby	 

helping	financial	institutions	begin	to	remove	these	assets	from	 

their	balance	sheets	and	allowing	for	a	general	increase	in	credit	 

availability	to	consumers	and	small	businesses.	 

The	key	objectives	of	the	Public	Private	Investment	Program	 

include: 

•	 Support	market	functioning	by	acting	as	a	catalyst	to	bring	 

private	capital	back	to	the	market	for	legacy	RMBS	and	 

CMBS; 

•	 Facilitate	price	discovery	in	the	markets	for	mortgagebacked	securities,	thereby	reducing	the	uncertainty	 

regarding	the	value	of	such	securities	among	the	banks	and	 

other	financial	institutions	holding	them	and	enabling	 

these	financial	institutions	to	sell	such	assets	and	raise	new	 

private	capital;	 

•	 Restore	confidence	in	and	create	an	environment	conducive	to	new	issuance	of	new	credit;	and 

•	 Protect	taxpayer	interests	and	generate	returns	through	 

long-term	investments	in	eligible	assets	by	following	 

predominantly	a	buy	and	hold	strategy.	 

b.	 Program	Design 

Following	the	completion	of	obtaining	commitments	from	 

private	investors,	Treasury-OFS	has	committed	approximately	 

$22	billion	of	equity	and	debt	financing	to	eight	Public	Private	 

Investment	Funds	(PPIFs).		Treasury-OFS	matches	equity	 

dollar-for-dollar	and	will	loan	up	to	the	amount	of	equity	raised	 

by	the	PPIFs.		These	funds	were	established	by	private	sector	 

fund	managers	for	the	purpose	of	purchasing	eligible	RMBS	and	 

CMBS	from	eligible	financial	institutions	under	EESA.		This	 

represented	a	reduction	from	Treasury’s	initial	allocation	of	 

$30	billion	(for	nine	PPIFs)	in	potential	capital	commitments,	 

because	there	was	less	aggregate	demand	from	private	sector	 

investors	due	to	improved	market	conditions	for	legacy	nonagency	RMBS	and	CMBS.			 

The	equity	capital	raised	from	private	investors	by	the	PPIP	 

fund	managers	has	been	matched	by	Treasury.		Treasury-OFS	has	 

also	provided	debt	financing	up	to	100	percent	of	the	total	equity	committed	to	each	PPIF.		PPIFs	have	the	ability	to	invest	in	 

eligible	assets	over	a	three-year	investment	period.		They	then	 

have	up	to	five	additional	years,	which	may	be	extended	for	up	 

to	two	more	years,	to	manage	these	investments	and	return	the	 

proceeds	to	Treasury-OFS	and	the	other	PPIF	investors.		PPIP	 

fund	managers	retain	control	of	asset	selection,	purchasing,	 

trading,	and	disposition	of	investments.		 

The	profits	generated	by	a	PPIF,	net	of	expenses,	will	be	 

distributed	to	the	investors,	including	Treasury,	in	proportion	 

to	their	equity	capital	investments.		Treasury-OFS	also	receives	 

warrants	from	the	PPIFs,	which	gives	Treasury-OFS	the	right	 

to	receive	a	percentage	of	the	profits	that	would	otherwise	be	 

distributed	to	the	private	partners	that	are	in	excess	of	their	 

contributed	capital.		The	program	structure	allows	for	risk	to	be	 

spread	between	the	private	investors	and	Treasury,	and	provides	 

taxpayers	with	the	opportunity	for	positive	returns. 

The	following	fund	managers	currently	participate	in	PPIP: 

•	 AllianceBernstein,	LP	and	its	sub-advisors	Greenfield	
 

Partners,	LLC	and	Rialto	Capital	Management,	LLC;
 

•	 Angelo,	Gordon	&	Co.,	L.P.	and	GE	Capital	Real	Estate;	 

•	 BlackRock,	Inc.;	 

•	 Invesco	Ltd.; 

•	 Marathon	Asset	Management,	L.P.;	 

•	 Oaktree	Capital	Management,	L.P.;	 

•	 RLJ	Western	Asset	Management,	LP.;	and	 

management’s discussion and analysis 
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33 

•	 Wellington	Management	Company,	LLP 

In	addition,	PPIP	fund	managers	have	established	meaningful	 

partnership	roles	for	small,	minority-,	and	women-owned	businesses.	These	roles	include,	among	others,	asset	management,	 

capital	raising,	broker-dealer,	investment	sourcing,	research,	 

advisory,	cash	management	and	fund	administration	services.	 

Collectively,	PPIP	fund	managers	have	established	relationships	 

with	ten	leading	small-,	minority-,	and	women-owned	firms,	 

located	in	five	different	states. 

2.	 Status	as	of	September	2010 

a.	 PPIF	status 

Through	September	30,	2010,	the	PPIFs	have	completed	funding	commitments	from	private	investors	for	approximately	$7.4	 

billion	of	private	sector	equity	capital,	which	was	matched	100	 

percent	by	Treasury,	representing	$14.7	billion	of	total	equity	 

capital.		Treasury-OFS	also	committed	to	provide	$14.7	billion	 

of	direct	loans,	representing	$29.4	billion	of	total	purchasing	 

power	to	the	program.		As	of	September	30,	2010,	PPIFs	have	 

drawn-down	approximately	$18.6	billion	of	total	capital	(63	 

percent	of	total	purchasing	power)9

,	which	has	been	invested	in 	 

eligible	assets	and	cash	equivalents	pending	investment.	After	 

the	announcement	of	the	program	contributed	to	improved	 

market	conditions,	Treasury-OFS	reduced	its	maximum	commitment	from	$30	billion	to	$22.4	billion	which	allowed	TreasuryOFS	to	accomplish	certain	of	its	objectives	with	a	reduced	 

amount	of	taxpayer	funds. 

b.	 Support	market	functioning 

The	announcement	and	subsequent	implementation	of	PPIP	 

were	considered	keys	to	reducing	the	illiquidity	discount	embedded	in	these	legacy	securities	and	the	uncertainty	associated	 

with	their	value,	which	created	an	environment	conducive	for	 

financial	institutions	to	begin	trading	and	selling	their	holdings	 

of	such	assets.		According	to	the	National	Information	Center,	 

the	non-agency	RMBS	and	CMBS	holdings	of	the	top	50	bank	 

holding	companies	holdings	were	$237	billion	as	of	June	30,	 

2010,	approximately	$47	billion	or	17	percent	lower	than	levels	 

from	a	year	earlier.		PPIP	played	a	role	in	helping	restart	the	 

market	for	such	securities,	thereby	allowing	banks	and	other	 

financial	institutions	to	begin	reducing	their	holdings	in	such	 

assets	at	more	normalized	prices. 

c.	 Facilitate	price	discovery 

Since	the	announcement	of	PPIP	in	March	2009,	prices	for	 

representative	legacy	securities	have	increased	by	as	much	as	75	 

percent	for	RMBS	and	CMBS.	 

d.	Extending	New	Credit 

Since	the	announcement	of	the	program	in	March	2009,	 

approximately	ten	new	CMBS	and	RMBS	transactions	have	 

been	brought	to	market,	collectively	representing	approximately	 

$5	billion	in	new	issuance	to	date.		Although	smaller	than	the	 

annual	issuance	prior	to	the	financial	crisis,	these	transactions,	 

particularly	in	CMBS,	represent	meaningful	steps	toward	new	 

credit	formation	in	the	marketplace.	 

Small Business and Community 

Lending Initiatives - SBA 7a Securities 

Purchase Program 

Small	businesses	have	played	an	important	role	in	generating	 

new	jobs	and	growth	in	our	economy.			The	Small	Business	 

Administration’s	(SBA)	7(a)	Loan	Guarantee	Program	assists	 

start-up	and	existing	small	businesses	that	face	difficulty	in	obtaining	loans	through	traditional	lending	channels.		SBA	7(a)	 

loans	help	finance	a	wide	variety	of	business	needs,	including	 

working	capital,	machinery,	equipment,	furniture	and	fixtures.	 

1.	 Program	and	goals 

To	ensure	that	credit	flows	to	entrepreneurs	and	small	business	 

owners,	Treasury-OFS	developed	the	SBA	7(a)	Securities	 

Purchase	Program	to	purchase	SBA	guaranteed	securities	from	 

pool	assemblers.		By	purchasing	in	the	open	market,	TreasuryOFS	injected	liquidity	-	providing	cash	to	pool	assemblers	 

-	enabling	those	entities	to	purchase	additional	loans	from	loan	 

originators.		In	this	manner,	Treasury-OFS	acted	as	a	patient	 

provider	of	incremental	liquidity	to	foster	a	fluid	secondary	 

market,	which	in	turn	benefits	small	business	lending. 

Since	the	launch	of	the	program	Treasury-OFS	has	conducted	 

transactions	with	two	pool	assemblers.		An	external	asset	 

manager	purchases	the	SBA	7(a)	securities	on	behalf	of	 

Treasury-OFS	directly	from	those	pool	assemblers	(sellers)	in	 

the	open	market.		Treasury-OFS	utilized	independent	valuation	 

service	providers	to	gain	additional	market	insight	in	order	to	 

make	informed	purchases. 

9	 Includes	$13.8	billion	of	Treasury-OFS	loans	and	equity,	net	of	$336	 

million	of	amounts	returned	from	a	wound-down	PPIF. 

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part 1: management s discussion and analysis 

2.	 Status	as	of	September	2010 

Securities	purchased	by	Treasury-OFS	comprised	about	700	 

loans	ranging	across	approximately	17	diverse	industries	including:	retail,	food	services,	manufacturing,	scientific	and	technical	 

services,	health	care	and	educational	services.		The	program	 

has	supported	loans	from	39	of	the	50	states	in	the	country,	 

indicating	a	broad	geographic	impact.			As	of	September	30,	 

2010,	Treasury-OFS	has	conducted	31	transactions	totaling	 

approximately	$357	million.		All	securities	were	purchased	at	a	 

premium. 

Indicators	of	Impact	for	Subgoal	1c: 

During	the	financial	crisis,	interbank	lending	froze.		The	LIBOR	 

(spreads	of	the	term	London	interbank	offered	rate)	from	mid2007	to	mid-2008	widened	from	a	range	of	100	basis	points	to	 

200	basis	points	for	a	specific	three-month	LIBOR	spread	rate.	 

In	the	fall	of	2008,	the	LIBOR	spread	rose	to	a	peak	of	nearly	 

360	basis	points.		 

LIBOR OIS
 

Spread

Basis Points

250

200

150

100

50

0 Jan­07 Jul­07 Jan­08 Jul­08 Jan­09 Jul­09 Jan­10 Jul­10

Source: Bloomberg

TARP	actions	stimulated	confidence	in	the	financial	system,	 

and	combined	with	the	expansion	of	lending	facilities	by	the	 

Federal	Reserve,	helped	to	lower	the	LIBOR	spread	rate	to	100	 

basis	points	by	January	2009.		TARP	is	commonly	credited	with	 

helping	tighten	spreads	because	the	Federal	Reserve’s	actions	 

alone	(before	TARP)	were	not	sufficient	to	ease	the	credit	crisis.	 

The	ability	of	financial	institutions	to	address	their	losses	and	 

balance	sheet	capitalization,	both	through	the	TARP,	provided	 

elements	for	a	rebound	in	bank	valuations	and	a	further	narrowing	in	the	LIBOR	spread	rate	to	the	under	40	basis	point	 

pre-crisis	level. 

operational goal two: prevent 

avoidaBle forecloSureS and 

preServe homeownerShip 

Through	the	Treasury	Housing	Programs	Under	TARP,	 

Treasury-OFS	created	a	mortgage	modification	program	that	 

provides	incentives	to	mortgage	servicers,	investors,	and	 

homeowners	to	work	together	to	reduce	eligible	homeowners’	 

monthly	payments	to	affordable	levels	based	on	the	 

homeowner’s	current	income.	 

Housing	Programs 

Making Home Affordable 

In	January	2009,	the	nation’s	housing	market	had	been	in	broad	 

decline	for	18	months.		EESA	authorities	enabled	Treasury-OFS	 

to	develop	a	voluntary	program	that	would	support	servicers’	 

efforts	to	modify	mortgages,	consistent	with	the	protection	 

of	taxpayers.		While	the	serious	effects	of	the	recession	and	 

financial	crisis	on	the	housing	market	and	foreclosures	persist,	 

this	Administration	has	taken	aggressive	action	on	many	fronts,	 

including	under	TARP,	and	has	made	considerable	progress	in	 

helping	to	stabilize	the	housing	market 

•	 Treasury-OFS	launched	the	Making	Home	Affordable	 

(MHA)	program,	which	includes	the	Home	Affordable	 

Modification	Program	(HAMP),	under	TARP.		Under	 

this	program,	Treasury-OFS	pays	the	cost	of	modifications	 

of	loans	not	held	by	government-sponsored	enterprises	 

(GSEs)	while	the	GSEs	pay	the	cost	of	modifications	 

of	loans	held	by	GSEs.		HAMP	has	helped	hundreds	of	 

thousands	of	responsible	homeowners	reduce	their	mortgage	payments	by	an	average	of	$500	per	month	and	avoid	 

foreclosure.		MHA	has	also	spurred	the	mortgage	industry	 

to	adopt	similar	programs	that	have	helped	millions	more	 

at	no	cost	to	the	taxpayer	 

As	the	housing	crisis	has	evolved,	Treasury-OFS	has	responded	 

to	the	unemployment	and	negative	equity	problems	by	adjusting	 

HAMP	and	instituting	additional	programs.		For	example: 

•	 Treasury-OFS	launched	the	Housing	Finance	Agency	 

(HFA)	Hardest	Hit	Fund	to	help	state	housing	finance	 

agencies	provide	additional	relief	to	homeowners	in	the	 

states	hit	hardest	by	unemployment	and	house	price	 

declines. 

400
 

350
 

1 Month
 300 3 Month

34
 management’s discussion and analysis 
agency financial report | fiscal year 2010 

35 

•	 Treasury-OFS	and	the	Department	of	Housing	and	Urban	 

Development	(HUD)	enhanced	the	FHA-	Refinance	 

program	to	enable	more	homeowners	whose	mortgages	 

exceed	the	value	of	their	homes	to	refinance	into	more	 

affordable	mortgages. 

To	protect	taxpayers,	MHA	housing	initiatives	have	pay-forsuccess	incentives:	funds	are	spent	only	when	transactions	are	 

completed	and	thereafter	only	as	long	as	those	contracts	remain	 

in	place.		Therefore,	funds	will	be	disbursed	over	many	years.		 

The	total	cost	of	the	housing	programs	cannot	exceed—and	 

may	be	less	than—$46	billion,	which	is	the	amount	committed	 

to	that	purpose.		Making	Home	Affordable	is	a	collection	of	 

multiple	initiatives.	The	individual	programs	and	their	purposes	 

are	detailed	below. 

Making Home Affordable Program 

(MHA) 

Home	Affordable	Modification	Program	(HAMP)	 

The	Home	Affordable	Modification	Program	(HAMP)	is	the	 

largest	program	within	MHA	and	includes	several	additional	 

components	to	complement	first	lien	modifications.		HAMP	 

provides	eligible	homeowners	the	opportunity	to	reduce	their	 

monthly	first	lien	mortgage	payments	to	31	percent	of	their	 

gross	(pre-tax)	income. 

To	qualify	for	HAMP,	a	borrower	must: 

•	 Own	a	one-	to	four-unit	home	that	is	a	primary	residence; 

•	 Have	received	a	mortgage	on	or	before	January	1,	2009; 

•	 Have	a	mortgage	payment	(including	principal,	interest,	 

taxes,	insurance,	and	homeowners	association	dues)	that	is	 

more	than	31	percent	of	the	homeowner’s		gross	monthly	 

income;	and 

•	 Owe	not	more	than	$729,750	on	a	first	mortgage	for	a	one– 

unit	property	(there	are	higher	limits	for	two–	to	four–	unit	 

properties). 

To	create	an	affordable	payment,	a	participating	servicer	applies	 

a	series	of	modification	steps	in	the	following	order:	rate	reduction	to	as	low	as	two	percent;	term	extension	up	to	40	years;	 

and	principal	deferral	(or	forgiveness,	at	the	servicer’s	option).	 

The	modified	interest	rate	is	fixed	for	a	minimum	of	five	years.		 

Beginning	in	year	six,	the	rate	may	increase	no	more	than	one	 

percentage	point	per	year	until	it	reaches	the	Freddie	Mac	 

Primary	Mortgage	Market	Survey	rate	(essentially	the	market	 

interest	rate)	at	the	time	the	permanent	modification	agreement	 

was	prepared.		 

Before	a	mortgage	is	permanently	modified,	the	homeowner	 

must	make	the	new,	reduced	monthly	mortgage	payment	on	 

time	and	in	full	during	a	trial	period	of	three	or	four	months.		 

Homeowners	who	make	payments	on	permanently	modified	 

loans	on	time	accrue	an	incentive	of	$1,000	per	year	for	five	 

years	to	reduce	the	amount	of	principal	they	owe	up	to	$5,000 

Home	Price	Decline	Protection	Program	(HPDP) 

The	HPDP	provides,	an	additional	component	of	HAMP,	 

incentives	to	investors	to	partially	offset	losses	from	home	price	 

declines.	 

Principal	Reduction	Alternative	(PRA) 

Under	the	Principal	Reduction	Alternative	(PRA),	an	additional	component	of	HAMP,	servicers	are	required	to	evaluate	 

the	benefit	of	principal	reduction	and	are	encouraged	to	offer	 

principal	reduction	whenever	the	NPV	result	of	a	HAMP	 

modification	using	PRA	is	greater	than	the	NPV	result	without	 

considering	principal	reduction.		Incentives	are	paid	based	on	 

the	dollar	value	of	the	principal	reduced. 

The	Unemployment	Program	(UP)	 

The	Unemployment	Program	(UP),	an	additional	component	 

of	HAMP,	requires	participating	servicers	to	grant	qualified	 

unemployed	borrowers	a	forbearance	period	during	which	their	 

mortgage	payments	are	temporarily	reduced	for	a	minimum	of	 

three	months,	and	up	to	six	months	for	some	borrowers,	while	 

they	look	for	new	jobs.		If	a	homeowner	does	not	find	a	job	 

before	the	temporary	assistance	period	is	over	or	finds	a	job	 

with	a	reduced	income,	the	homeowner	will	be	evaluated	for	a	 

permanent	HAMP	modification	or	may	be	eligible	for	certain	 

alternatives	to	the	modification	program	under	MHA.		No	 

incentives	are	paid	by	Treasury-OFS. 

Home	Affordable	Foreclosure	Alternatives	(HAFA)	 

Program 

Under	the	Home	Affordable	Foreclosure	Alternatives	(HAFA)	 

Program,	an	additional	component	of	HAMP,	Treasury-OFS	 

provides	incentives	for	short	sales	and	deeds-in-lieu	of	foreclosure	for	circumstances	in	which	borrowers	are	unable	or	unwilling	to	complete	the	HAMP	modification	process.	Borrowers	are	 

eligible	for	relocation	assistance	of	$3,000	and	servicers	receive	 

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the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

36 

a	$1,500	incentive	for	completing	a	short	sale	or	deed-in-lieu	 

of	foreclosure.		In	addition,	investors	are	paid	up	to	$2,000	for	 

allowing	short	sale	proceeds	to	be	distributed	to	subordinate	lien	 

holders. 

FHA-HAMP	Program 

The	FHA-HAMP	Program,	an	additional	component	of	MHA,	 

provides	the	same	incentives	as	HAMP	for	Federal	Housing	 

administration	(FHA)	guaranteed	loans. 

Second	Lien	Modification	Program	(2MP) 

Under	the	Second	Lien	Modification	Program	(2MP),	an	additional	component	of	MHA,	Treasury-OFS	provides	incentives	 

for	second-lien	holders	to	modify	or	extinguish	a	second-lien	 

mortgage	when	a	modification	has	been	initiated	on	the	first	 

lien	mortgage	for	the	same	property	under	HAMP.		Under	2MP,	 

when	a	borrower’s	first	lien	is	modified	under	HAMP	and	the	 

servicer	of	the	second	lien	is	a	2MP	participant,	that	servicer	 

must	offer	to	modify	the	borrower’s	second	lien	according	to	a	 

defined	protocol,	which	provides	for	a	lump	sum	payment	from	 

Treasury-OFS	in	exchange	for	full	extinguishment	of	the	second	 

lien,	or	a	reduced	lump	sum	payment	from	Treasury-OFS	in	 

exchange	for	a	partial	extinguishment	and	modification	of	the	 

borrower’s	remaining	second	lien. 

Treasury/FHA	Second	Lien	Program	(2LP) 

The	Treasury/FHA	Second	Lien	Program	(2LP),	an	additional	 

component	of	MHA,	provides	for	incentives	to	servicers	for	 

extinguishment	of	second	liens	for	borrowers	who	refinance	 

their	first	lien	mortgages	under	the	FHA-Refinance	Program. 

Rural	Development	(RD)	HAMP	Program 

The	RD-HAMP	Program	provides	incentives	for	modified	 

United	States	Department	of	Agriculture	(USDA)	guaranteed	 

mortgages. 

The	PRA,	RD-HAMP,	and	2LP	programs	were	announced	late	 

in	the	fiscal	year	and	no	activity	has	occurred	in	these	programs. 

Housing Finance Agency Innovation 

Fund for the Hardest Hit Housing 

Markets (HFA Hardest Hit Fund, or HHF) 

In	February	2010,	the	Obama	Administration	announced	the	 

Housing	Finance	Agency	Innovation	Fund	for	the	Hardest	Hit	 

Housing	Markets	(HFA	Hardest	Hit	Fund,	or	HHF),	allowing	 

state	housing	finance	agencies	(HFAs)	in	the	nation’s	Hardest	 

Hit	housing	markets	and	high	unemployment	to	design	innovative,	locally	targeted	foreclosure	prevention	programs.		States	included	those	which	have	had	average	home	price	declines	greater	 

than	20	percent	since	the	housing	market	downturn,	accounting	 

for	the	majority	of	“underwater”	mortgages	in	the	country	or	have	 

concentrated	areas	of	economic	distress	due	to	unemployment	or	 

had	an	unemployment	rate	at	or	above	the	national	average	for	 

the	past	year.	 

A	total	of	$7.6	billion	is	being	made	available	to	18	states	 

and	the	District	of	Columbia.		These	states	include	Alabama,	 

Arizona,	California,	Florida,	Georgia,	Illinois,	Indiana,	 

Kentucky,	Michigan,	Mississippi,	Nevada,	New	Jersey,	North	 

Carolina,	Ohio,	Oregon,	Rhode	Island,	South	Carolina,	and	 

Tennessee.		As	of	September	30,	2010,	$56.1	million	has	been	 

disbursed	to	states	participating	in	HHF	–	largely	for	administrative	and	startup	expenses.	 

To	receive	funding,	programs	must	satisfy	the	requirements	 

for	funding	under	EESA.	These	requirements	include	that	 

the	recipient	of	funds	must	be	an	eligible	financial	institution	 

and	that	the	funds	must	be	used	to	pay	for	programs	designed	 

to	prevent	avoidable	foreclosures	and	other	permitted	uses	 

under	EESA.		HFAs	designed	the	state	programs,	tailoring	the	 

housing	assistance	to	their	local	needs.		Further	information	on	 

the	funded	programs	is	available	at	www.FinancialStability.gov/ 

roadtostability/hardesthitfund.html. 

Support for the FHA Refinance 

Program 

In	March	2010,	the	Administration	announced	enhancements	 

to	an	existing	FHA	program	that	will	permit	lenders	to	provide	 

additional	refinancing	options	to	homeowners	who	owe	more	 

than	their	homes	are	worth	because	of	large	declines	in	home	 

prices	in	their	local	markets.		This	program,	known	as	the	FHA	 

Short	Refinance	program,	will	provide	more	opportunities	for	 

qualifying	mortgage	loans	to	be	restructured	and	refinanced	into	 

FHA-insured	loans.	 

Among	other	requirements:		 

•	 The	homeowner	must	be	current	on	the	existing	first	lien	 

mortgage; 

•	 The	homeowner	must	occupy	the	home	as	a	primary	
 

residence	and	have	a	qualifying	credit	score;
 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

37 

	 

•	 The	mortgage	investor	must	reduce	the	amount	owed	on	 

the	original	loan	by	at	least	ten	percent;	 

•	 The	new	FHA	loan	must	have	a	balance	less	than	the	 

current	value	of	the	home;	and 

•	 Total	mortgage	debt	for	the	borrower	after	the	refinancing,	 

including	both	the	first	lien	mortgage	and	any	other	junior	 

liens,	cannot	be	greater	than	115	percent	of	the	current	 

value	of	the	home	–	giving	homeowners	a	path	to	regain	 

equity	in	their	homes	and	an	affordable	monthly	payment	 

TARP	funds	will	be	made	available	up	to	approximately	$8	 

billion	in	the	aggregate	to	provide	additional	coverage	to	lenders	for	a	share	of	potential	losses	on	these	loans	and	to	provide	 

incentives	to	support	the	write-downs	of	second	liens	and	 

encourage	participation	by	servicers. 

HAMP	results 

The	incentives	offered	under	HAMP	are	helping	American	 

homeowners	and	assisting	in	stabilizing	the	housing	market.	The	 

HAMP	Program	is	designed	to	help	make	housing	affordable	to	 

American	homeowners	who	are	strained	by	the	double	impact	 

of	high	mortgage	payments	and	a	significantly	reduced	home	 

value.		The	program	has	reached	out	to	these	borrowers	and	 

provided	an	industry-leading	solution	for	servicers	to	negotiate	 

lower	mortgage	payments	with	qualifying	homeowners	which	allows	those	homeowners	to	make	continued	mortgage	payments	 

through	a	trial	program	and	remain	in	their	homes.		 

Through	September	30,	2010,	144	active	servicers	have	signed	 

up	for	MHA.	Between	loans	covered	by	these	servicers	and	 

loans	owned	or	guaranteed	by	the	GSEs,	more	than	85	percent	 

of	first-lien	residential	mortgage	loans	in	the	country	are	 

now	held	by	servicers	participating	in	the	program.	Through	 

September	30,	2010,	Treasury-OFS	has	made	commitments	to	 

fund	up	to	$29.9	billion	in	HAMP	payments. 

After	18	months,	more	than	1.3	million	homeowners	participating	in	HAMP	have	entered	into	trial	modifications	that	reduced	 

their	mortgage	payments	to	more	affordable	levels.		This	 

includes	619,000	homeowners	with	non-GSE	loans.		Nearly	 

500,000	homeowners	participating	in	the	HAMP	have	had	 

their	mortgage	terms	modified	permanently,	with	over	220,000	 

of	those	participants	in	non-GSE	loans	that	would	be	funded	by	 

Treasury-OFS 

management’s discussion and analysis 

Housing	Scorecard

On	June	21,	2010,	the	U.S.	Department	of	Housing	and	Urban	 

Development	(HUD)	and	the	Treasury-OFS	introduced	a	 

Monthly	Housing	Scorecard	on	the	nation’s	housing	market.		 

Each	month	the	scorecard	presents	key	housing	market	indicators	and	highlights	the	impact	of	the	Administration’s	housing	 

recovery	efforts,	including	assistance	to	homeowners	through	 

the	Federal	Housing	Administration	(FHA)	and	the	Home	 

Affordable	Modification	Program.	The	Housing	Scorecard	is	 

available	at	www.hud.gov/scorecard. 

operational goal three: protect 

taxpaYerS’ intereStS 

Treasury-OFS	manages	TARP	investments	to	minimize	costs	to	 

taxpayers	and	receives	income	on	its	holdings	of	preferred	equity	 

and	other	TARP	investments	in	the	form	of	interest,	dividends	 

and	fees.		Treasury-OFS	also	takes	steps	to	ensure	that	TARP	 

recipients	comply	with	any	TARP-related	statutory	or	contractual	obligations	such	as	executive	compensation	requirements	 

and	restrictions	on	dividend	payments. 

Consistent	with	the	statutory	requirements,	Treasury-OFS’	four	 

overarching	portfolio	management	guiding	principles	are	as	 

follows: 

•	 Protect	taxpayer	investments	and	maximize	overall	investment	returns	within	competing	constraints, 

•	 Promote	stability	for	and	prevent	disruption	of	financial	 

markets	and	the	economy, 

•	 Bolster	market	confidence	to	increase	private	capital	 

investment,	and 

•	 Dispose	of	investments	as	soon	as	practicable,	in	a	timely	 

and	orderly	manner	that	minimizes	financial	market	and	 

economic	impact. 

Treasury-OFS’	asset	management	approach	is	designed	to	implement	the	guiding	principles.		Treasury-OFS	protects	taxpayer	 

investments	and	promotes	stability	through	evaluating	systemic	 

and	individual	risk	from	standardized	reporting	and	proactive	 

monitoring	and	ensuring	adherence	to	EESA	and	compliance	 

with	contractual	agreements.		By	avoiding	involvement	in	 

day	to	day	company	management	decisions	and	exercising	its	 

rights	as	a	common	shareholder	only	on	core	governance	issues,

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

part 1: management s discussion and analysis 

38 

Treasury-OFS	seeks	to	bolster	market	confidence	to	increase	private	capital	investment.		Treasury-OFS	also	adheres	to	certain	 

principles	in	connection	with	restructurings	or	exchange	offers	 

involving	TARP	recipients,	including	minimizing	taxpayer	 

loss,	enhancing	and	preserving	institutional	viability,	treating	 

like	investments	across	programs	consistently,	and	minimizing	 

negative	governmental	impact.		Such	efforts	help	to	prevent	 

disruption	of	financial	markets	and	the	economy.		 

Treasury-OFS	seeks	to	exit	investments	as	soon	as	practicable	 

to	remove	Treasury-OFS	as	a	shareholder,	eliminate	or	reduce	 

Treasury-OFS	exposure,	return	TARP	funds	to	reduce	the	 

federal	debt,	and	encourage	private	capital	formation	to	 

replace	federal	government	investment.	The	desire	to	achieve	 

such	objectives	must	be	balanced	against	a	variety	of	other	 

objectives,	including	avoiding	further	financial	market	and/or	 

economic	disruption,	and	the	potentially	negative	impact	to	the	 

issuer’s	health	and/or	capital	raising	plans	from	Treasury-OFS’	 

disposition.		Treasury-OFS	must	also	consider	the	limited	ability	 

to	sell	an	investment	to	a	third	party	due	to	the	absence	of	a	 

trading	market	or	lack	of	investor	demand,	and	the	possibility	of	 

achieving	potentially	higher	returns	through	a	later	disposition.		 

An	issuer	typically	needs	the	approval	of	its	primary	federal	 

regulator	in	order	to	repay	Treasury-OFS	and	therefore	regulatory	approvals	also	affect	how	quickly	an	institution	can	repay.	 

Because	of	the	size	of	certain	positions	as	well	as	the	overall	 

portfolio,	successful	disposition	will	take	time,	as	well	as	expertise.		In	addition,	information	about	Treasury-OFS’	intentions	 

with	respect	to	its	investments	could	be	material	information	 

and	premature	release	of	such	information	could	adversely	affect	 

the	ability	of	Treasury-OFS	to	achieve	its	objectives.		Therefore,	 

Treasury-OFS	will	make	public	announcements	of	its	disposition	 

plans	when	it	is	appropriate	to	do	so	in	light	of	these	objectives	 

and	constraints.		 

Treasury-OFS	tracks	the	fair	value	of	the	assets	in	the	TARP	 

portfolio.		The	value	of	publicly	traded	common	stock	can	be	 

measured	by	market	quotations.			Most	of	Treasury-OFS’	investments,	however,	consist	of	securities	and	instruments	for	which	 

no	market	value	exists.		Such	securities	include	preferred	stocks,	 

warrants,	loans,	and	other	debt	securities,	as	well	as	common	 

stock	of	private	companies.		As	a	result,	Treasury-OFS	has	developed	internal	market-based	valuation	models	in	consultation	 

with	Treasury-OFS’	external	asset	managers	and	in	compliance	 

with	EESA.		For	purposes	of	its	financial	statements,	TreasuryOFS	calculates	valuations	in	accordance	with	the	Federal	Credit	 

Reform	Act	of	1990,	as	well	as	OMB	guidelines. 

Portfolio	Management	Approach 

In	managing	the	TARP	investments,	Treasury-OFS	takes	 

a	disciplined	portfolio	approach	with	a	review	down	to	the	 

individual	investment	level.	Treasury-OFS	aims	to	monitor	 

risk	and	performance	at	both	the	overall	portfolio	level	and	 

the	individual	investment	level.	Given	the	unique	nature	and	 

the	size	of	the	portfolio,	risk	and	performance	are	linked	to	the	 

overall	financial	system	and	the	economy.	 

In	conducting	the	portfolio	management	activities,	Treasury-OFS	 

employs	a	mix	of	dedicated	professionals	and	external	asset	managers.	These	external	asset	managers	provide	market	specific	information	such	as	market	prices	and	valuations	as	well	as	detailed	credit	 

analysis	using	public	information	on	a	periodic	basis.	 

Risk Assessment 

Treasury-OFS	has	developed	procedures	to	identify	and	mitigate	 

investment	risk.	These	procedures	are	designed	to	identify	TARP	 

recipients	that	are	in	a	significantly	challenged	financial	condition	to	ensure	heightened	monitoring	and	additional	diligence	 

and	to	determine	appropriate	responses	by	Treasury-OFS	to	 

preserve	the	taxpayers’	investment	and	minimize	loss	as	well	as	to	 

maintain	financial	stability.	Specifically,	Treasury-OFS’	external	 

asset	managers	review	publicly	available	information	to	identify	 

recipients	for	which	pre-tax,	pre-provision	earnings	and	capital	 

may	be	insufficient	to	offset	future	losses	and	maintain	required	 

capital.	For	certain	institutions,	Treasury-OFS	and	its	external	asset	managers	engage	in	heightened	monitoring	and	due	diligence	 

that	reflects	the	severity	and	timing	of	the	challenges.	 

Although	Treasury-OFS	relies	on	the	recommendations	of	 

federal	banking	regulators	in	connection	with	reviewing	and	approving	applications	for	assistance,	Treasury-OFS	does	not	have	 

access	to	non-public	information	collected	by	federal	banking	 

regulators	on	the	financial	condition	of	TARP	recipients.	To	 

the	contrary,	there	is	a	separation	between	the	responsibilities	 

of	Treasury-OFS	as	an	investor	and	the	duties	of	the	federal	 

government	as	regulator.	 

The	data	gathered	through	this	process	is	used	by	Treasury-OFS	 

in	consultation	with	its	external	managers	and	legal	advisors	to	 

determine	a	proper	course	of	action.	This	may	include	making	 

recommendations	to	management	or	working	with	management	 

management’s discussion and analysis 
agency financial report | fiscal year 2010 

39 

and	other	security	holders	to	improve	the	financial	condition	 

of	the	company,	including	through	recapitalizations	or	other	 

restructurings.	These	actions	are	similar	to	those	taken	by	large	 

private	investors	in	dealing	with	troubled	investments.	TreasuryOFS	does	not	seek	to	influence	the	management	of	TARP	 

recipients	for	non-financial	purposes. 

Exchanges	and	restructurings 

TARP	recipients	may	also	seek	Treasury-OFS’	approval	for	 

exchange	offers,	recapitalizations	or	other	restructuring	actions	 

to	improve	their	financial	condition.	Treasury-OFS	evaluates	 

each	such	proposal	based	on	its	unique	facts	and	circumstances,	 

and	takes	into	account	the	following	principles	in	all	cases: 

•	 Pro	forma	capital	position	of	the	institution, 

•	 Pro	forma	position	of	Treasury-OFS	investment	in	the	 

capital	structure, 

•	 Overall	economic	impact	of	the	transaction	to	the	federal	 

government, 

•	 Guidance	of	the	institution’s	primary	federal	supervisor,	and 

•	 Consistent	pricing	with	comparable	marketplace	 

transactions. 

compliance	 

Treasury-OFS	also	takes	steps	to	ensure	that	TARP	recipients	 

comply	with	their	TARP-related	statutory	and	contractual	 

obligations.		Statutory	obligations	include	executive	compensation	restrictions.		Contractual	obligations	vary	by	investment	 

type.		For	most	of	Treasury-OFS’	preferred	stock	investments,	 

TARP	recipients	must	comply	with	restrictions	on	payment	of	 

dividends	and	on	repurchases	of	junior	securities,	so	that	funds	 

are	not	distributed	to	junior	security	holders	prior	to	repayment	 

of	the	federal	government.		Recipients	of	exceptional	assistance	 

must	comply	with	additional	restrictions	on	executive	compensation,	lobbying,	corporate	expenses	and	internal	controls	and	 

must	provide	quarterly	compliance	reports.		For	AIFP	loans,	 

additional	restrictions	and	enhanced	reporting	requirements	are	 

imposed,	which	is	typical	with	debt	investments	compared	to	 

equity	investments.		 

All	servicers	voluntarily	participating	in	MHA	have	contractually	agreed	to	follow	the	MHA	program	guidelines,	 

which	require	the	servicer	to	offer	a	MHA	modification	to	 

all	eligible	borrowers	and	to	have	systems	that	can	process	all	 

MHA-eligible	loans.		Servicers	are	subject	to	periodic,	on-site	 

compliance	reviews	performed	by	Treasury-OFS’s	compliance	 

agent,	Making	Home	Affordable-Compliance	(MHA-C),	a	 

separate,	independent	division	of	Freddie	Mac,	to	ensure	that	 

servicers	satisfy	their	obligations	under	MHA	requirements	 

in	order	to	provide	a	well-controlled	program	that	assists	as	 

many	deserving	homeowners	as	possible	to	retain	their	homes	 

while	taking	reasonable	steps	to	prevent	fraud,	waste	and	abuse.	 

Treasury-OFS	works	closely	with	MHA-C	to	design	and	refine	 

the	compliance	program	and	conducts	quality	assessments	of	the	 

activities	performed	by	MHA-C. 

Warrant	Sales	results 

Treasury-OFS	adheres	to	a	consistent	process	for	evaluating	bids	 

from	institutions	to	repurchase	their	warrants.	Upon	receiving	 

a	bid	for	a	warrant	repurchase,	Treasury-OFS	utilizes	(i)	market	 

quotes,	(ii)	independent,	third	party	valuations,	and	(iii)	 

model	valuations	to	assess	the	bid.	Treasury-OFS	began	selling	 

warrants	back	to	banks	that	had	repaid	the	TARP	investment	in	 

May	2009.	 

For	the	50	fully	repaid	CPP	investments	representing	$131.8	 

billion	in	capital,	Treasury-OFS	has	received	a	return	of	4.2	 

percent	from	dividends	and	an	added	4.4	percent	return	from	 

the	sale	of	the	warrants	for	a	total	return	of	8.6	percent.		For	the	 

$20	billion	TIP	investment	in	Bank	of	America	Corporation,	 

Treasury-OFS	received	a	return	of	7.2	percent	from	dividends	 

and	an	added	6.3	percent	return	from	the	sale	of	the	warrants	for	 

a	total	return	of	13.5	percent.		These	returns	are	not	predictive	 

of	the	eventual	returns	on	the	entire	CPP	and	TIP	portfolios.	 

On	August	4,	2010,	Treasury-OFS	released	the	second	Warrant	 

Disposition	Report.		Through	September	30,	2010,	TreasuryOFS	has	received	over	$8	billion	in	warrant	repurchases	by	 

and	sales	to	64	institutions.		For	the	full	report,	please	visit								 

www.FinancialStability.gov/docs/TARP_WRRTDISP_80310.pdf 

operational goal four: promote 

tranSparencY 

Treasury-OFS	is	committed	to	transparency	and	accountability	 

in	all	of	its	programs	and	policies,	including	all	programs	 

established	under	EESA.		To	protect	taxpayers	and	ensure	that	 

every	dollar	is	directed	toward	promoting	financial	stability,	 

management’s discussion and analysis 

part 1: management s discussion and analysis 
the department of the treasury | office of financial stability 

40 

Treasury-OFS	established	comprehensive	accountability	and	 

transparency	measures.	 

A.	comprehensive	Measures 

Treasury-OFS	publishes	hundreds	of	reports	other	information	 

about	TARP	so	that	the	public	knows	how	the	money	was	 

spent,	who	received	it	and	on	what	terms.		This	includes	all	 

contracts	governing	any	investment	or	expenditure	of	TARP	 

funds,	and	more	than	275	reports	over	two	years.		All	of	these	 

reports	and	information	are	posted	on	the	Treasury-OFS	 

website,	www.FinancialStability.gov,	including:	 

•	 Lists	of	all	the	institutions	participating	in	TARP	programs,	 

and	all	of	the	investments	Treasury-OFS	has	made;	 

•	 All	investment	contracts	defining	the	terms	of	those	investments	within	five	to	ten	business	days	of	a	transaction’s	 

closing;	 

•	 All	contracts	with	Treasury-OFS	service	providers	involved	 

with	TARP	programs;	 

•	 A	report	of	each	transaction	within	two	business	days	of	 

completing	the	transaction; 

•	 Monthly	reports	of	dividend	and	interest	received,	which	 

allow	the	American	people	to	see	and	evaluate	the	investment	income	they	are	receiving	from	these	investments;	 

•	 Monthly	reports	to	Congress,	which	present	updates	on	 

Treasury-OFS	investments	and	programs	in	a	clear,	concise	 

manner,	and	answer	basic	questions	that	many	Americans	 

have,	such	as	how	TARP	funds	are	invested;	 

•	 Monthly	reports	detailing	the	progress	of	modifications	 

under	the	Making	Home	Affordable	program;		 

•	 All	program	guidelines,	within	two	business	days	of	any	 

program	launch;	and 

•	 A	monthly	lending	survey,	and	an	annual	use	of	capital	 

survey,	which	contains	detailed	information	on	the	lending	 

and	other	activities	of	banks	that	have	received	TARP	 

funds	to	help	the	public	understand	what	banks	are	doing	 

with	their	TARP	funds. 

Treasury-OFS	has	worked	to	maximize	the	transparency	of	the	 

housing	program	to	borrowers	and	ensure	that	servicers	are	held	 

accountable.		Every	borrower	is	entitled	to	a	clear	explanation	if	he	or	she	is	determined	to	be	ineligible	for	a	HAMP	 

modification.	Treasury-OFS	has	established	denial	codes	that	 

require	servicers	to	report	the	reason	for	modification	denials	 

in	writing	to	Treasury-OFS.	Servicers	are	required	to	use	those	 

denial	codes	as	a	uniform	basis	for	sending	letters	to	borrowers	 

who	are	evaluated	for	HAMP	but	denied	a	modification.	In	 

those	letters,	borrowers	will	be	provided	with	a	phone	number	 

to	contact	their	servicers	as	well	as	the	phone	number	of	the	 

HOPE	hotline,	which	has	counselors	who	are	trained	to	work	 

with	borrowers	to	help	them	understand	reasons	they	may	have	 

been	denied	modifications	and	explain	other	modification	or	 

foreclosure	prevention	options	that	may	be	available	to	them.	 

Treasury-OFS	increased	transparency	and	public	access	to	the	 

Net	Present	Value	(NPV)	model	–	a	key	component	of	the	 

eligibility	test	for	HAMP	–	in	releasing	the	NPV	white	paper,	 

which	explains	the	methodology	used	in	the	NPV	model.		To	 

ensure	accuracy	and	reliability,	Freddie	Mac,	Treasury-OFS’s	 

compliance	agent,	conducts	periodic	audits	of	servicers’	implementation	of	the	model	and	requires	servicers	to	use	models	 

which	meet	Treasury-OFS’s	NPV	specifications	or	to		revert	 

back	to	Treasury-OFS’	NPV	application.	As	required	by	the	 

Dodd-Frank	Act,	Treasury-OFS	is	preparing	to	establish	a	web	 

portal	that	borrowers	can	access	to	run	a	NPV	analysis	on	their	 

own	mortgages,	and	that	borrowers	who	are	turned	down	for	a	 

HAMP	modification	can	use. 

B.	 Audited	Financial	Statements	 

Treasury-OFS	prepares	separate	financial	statements	for	TARP	 

on	an	annual	basis.		This	is	the	second	audited	Treasury-OFS	 

Agency	Financial	Report,	presented	for	the	fiscal	year	ended	 

September	30,	2010	and	for	the	period	ended	September	30,	 

2009.		The	initial	AFR	for	the	period	ended	September	30,	 

2009	was	released	in	December	2009.			Both	reports	are	available	at	www.FinancialStability.gov. 

In	its	first	year	of	operations,	TARP’s	financial	statements	 

received	an	unqualified	(“clean”)	audit	opinion	from	its	auditors,	the	Government	Accountability	Office,	and	a	separate	 

“clean”	report	on	internal	control	over	financial	reporting	found	 

no	material	weaknesses	--	unprecedented	achievements	for	a	 

start-up	operation	with	an	extraordinary	emergency	mission.		 

As	a	result	of	these	efforts,	Treasury-OFS	received	a	Certificate	 

of	Excellence	in	Accountability	Reporting	(CEAR)	from	the	 

Association	of	Government	Accountants. 

management’s discussion and analysis 

part 1: management s discussion and analysis 
agency financial report | fiscal year 2010 

41 

c.	 TArP	retrospective	report 

In	October	2010,	Treasury-OFS	published	the	TARP	TwoYear	Retrospective.		This	report	includes	information	on	 

TARP	programs	and	the	effects	of	TARP	and	other	federal	 

government	actions	to	address	the	financial	crisis.		Readers	are	 

invited	to	refer	to	this	document	at	www.FinancialStability.gov/ 

docs/TARP%20Two%20Year%20Retrospective_10%2005%20 

10_transmittal%20letter.pdf. 

D.	 Oversight	by	Four	Separate	Agencies 

Congress	also	established	four	avenues	of	oversight	for	TARP: 

•	 The	Financial	Stability	Oversight	Board,	established	by	 

EESA	§104; 

•	 Specific	responsibilities	for	the	Government	Accountability	 

Office	as	set	out	in	EESA	§116; 

•	 The	Special	Inspector	General	for	TARP,	established	by	 

EESA	§121;	and 

•	 The	Congressional	Oversight	Panel,	established	by	EESA	 

§125. 

Treasury-OFS	has	productive	working	relationships	with	all	of	 

these	bodies,	and	cooperates	with	each	oversight	agency’s	effort	 

to	produce	periodic	audits	and	reports	that	focus	on	the	many	 

aspects	of	TARP.		Individually	and	collectively,	the	oversight	 

bodies’	audits	and	reports	have	made	and	continue	to	make	 

important	contributions	to	the	development,	strengthening,	and	 

transparency	of	TARP	programs. 

E.	 congressional	Hearings	and	Testimony 

Treasury-OFS	officials	have	testified	in	numerous	Congressional	 

hearings	since	TARP	was	created.		Copies	of	the	written	 

testimony	are	prepared	for	those	hearings	and	are	available	at		 

www.FinancialStability.gov/latest/pressreleases.html. 

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management’s discussion and analysis 

part 1: management s discussion and analysis 
part 2: 

financial 

section 
44 

MESSAGE	FROM	THE	CHIEF	FINANCIAL	OFFICER
 

I	am	pleased	to	provide	the	Office	of	Financial	Stability’s	(OFS)	Agency	Financial	Report	for	fiscal	year	2010.		This	report	provides	 

readers	information	on	financial	results	relating	to	the	Troubled	Asset	Relief	Program	(TARP)	as	required	by	the	Emergency	 

Economic	Stabilization	Act	(EESA)	and	other	laws. 

For	fiscal	year	2010,	the	Government	Accountability	Office	(GAO)	provided	Treasury-OFS	unqualified	audit	opinions	on	the	 

fair	presentation	of	our	financial	statements	and	the	effectiveness	of	our	internal	control	over	financial	reporting.		The	auditors	 

determined	that	we	had	no	material	weaknesses	and	concluded	that	Treasury-OFS	successfully	addressed	one	of	the	significant	 

deficiencies	identified	in	the	prior	year’s	audit	relating	to	internal	control	over	financial	reporting.		However,	GAO	continued	to	 

report	a	significant	deficiency	in	internal	control	over	our	accounting	and	financial	reporting	processes.			 

As	a	second	year	organization	executing	large	and	complicated	programs,	we	are	extremely	proud	of	these	audit	results.		I	would	like	 

to	acknowledge	senior	management’s	commitment	to	good	governance	as	well	as	the	discipline,	transparency,	and	care	exhibited	by	 

Treasury-OFS	employees	in	the	creation	and	execution	of	our	organization’s	policies	and	procedures.		 

For	fiscal	year	2010,	net	income	from	operations	was	$23.1	billion	resulting	in	a	cumulative	net	cost	of	operations	of	$18.5	billion	 

since	inception.		The	reduction	in	cost	is	primarily	due	to	the	early	repurchase	of	TARP	investments	by	the	larger	banks	and	an	 

improvement	in	the	financial	markets	and	the	economy.	 

During	the	past	year,	Treasury-OFS	focused	on	further	strengthening	its	rigorous	internal	control	processes	around	obligations,	 

transaction	processing,	disbursement,	collections,	and	financial	reporting.		While	our	processes	continue	to	mature,	the	audit	opinions	 

evidence	successes	surrounding	internal	controls	over	financial	reporting	implementation	across	the	organization.		In	fiscal	year	2010,	 

Treasury-OFS	developed	a	subsidiary	ledger	for	tracking	TARP	equity	investments	and	loans	and	the	supporting	accounting	data.		This	 

new	ledger	will	provide	automated	controls	over	reporting	financial	information	with	appropriate	separation	of	duties.			In	addition,	we	 

implemented	credit	model	enhancements	to	reduce	the	possibility	of	human	error	in	loading	assumption	data. 

On	October	3,	2010,	authority	to	make	new	commitments	to	purchase	troubled	assets	expired	under	the	EESA.		While	new	 

obligations	are	prohibited,	funding	under	our	existing	commitments	for	housing	and	other	programs	will	continue	to	be	disbursed	 

and	many	assets	in	our	investment	program	are	currently	outstanding.		As	a	result,	the	organization	will	primarily	focus	on	managing	 

current	investment	assets	and	implementing	the	housing	programs.	 

I	feel	fortunate	to	have	had	the	chance	to	play	a	role	in	the	continuing	tradition	of	sound	fiscal	stewardship	at	Treasury-OFS.		This	 

organization	recognizes	the	importance	of	a	proper	control	environment	and	will	continue	to	uphold	the	highest	standards	of	 

integrity	as	we	carry	out	our	fiduciary	responsibilities	to	the	American	public.		Moving	forward,	we	will	continue	to	strengthen	our	 

financial	management	capacity.		In	particular,	we	will	continue	to	enhance	our	procedures,	documentation,	and	controls	over	systems	 

in	order	to	protect	taxpayer	interests	and	ensure	transparency	in	our	activities. 

	 

message from the chief financial officer (cfo) 

part 2: financial section
agency financial report | fiscal year 2010 

45 

GOVERNMENT	ACCOUNTABILITY	OFFICE	 

AUDITOR’S	REPORT 

United States Government Accountability Office 

Washington, D.C. 20548 

Page 7 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

A

To the Acting Assistant Secretary for Financial Stability 

In accordance with the Emergency Economic Stabilization Act of 2008 

(EESA),1 we are required to audit the financial statements of the Troubled 

Asset Relief Program (TARP), which is implemented by the Office of 

Financial Stability (OFS).2 In our audit of OFS’s financial statements for 

TARP for fiscal years 2010 and 2009,3 we found 

• the financial statements are presented fairly, in all material respects, in 

conformity with U.S. generally accepted accounting principles; 

• although internal controls could be improved, OFS maintained, in all 

material respects, effective internal control over financial reporting as 

of September 30, 2010; and 

• no reportable noncompliance in fiscal year 2010 with provisions of laws 

and regulations we tested. 

The following sections discuss in more detail (1) these conclusions; (2) our 

conclusion on Management’s Discussion and Analysis (MD&A) and other 

required supplementary and other accompanying information; (3) our audit 

objectives, scope, and methodology; and (4) OFS’s comments on a draft of 

this report. In addition to our responsibility to audit OFS’s annual financial 

statements for TARP, we also are required under EESA to report at least 

every 60 days on the findings resulting from our oversight of the actions 

1

Section 116(b) of EESA, 12 U.S.C. § 5226(b), requires that the Department of the Treasury 

(Treasury) 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. Section 116(b) further requires that GAO audit TARP’s financial 

statements annually in accordance with generally accepted auditing standards. 

2

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

3

Fiscal year 2009 for TARP covers the period October 3, 2008 (date of the Office of Financial 

Stability’s inception) through September 30, 2009. 

Page 7 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements 

Auditor’s report 

part 2: financial section
46 

taken under TARP.4 This report responds to both of these requirements. We 

have issued numerous other reports on TARP in connection with this 60­

day reporting responsibility which can be found on GAO’s Web site at 

http://www.gao.gov. 

Opinion on Financial 

Statements 

OFS’s financial statements for TARP, including the accompanying notes, 

present fairly, in all material respects, in conformity with U.S. generally 

accepted accounting principles, OFS’s assets, liabilities, and net position as 

of September 30, 2010, and 2009, and its net cost, changes in net position, 

and budgetary resources for fiscal years 2010 and 2009. 

As discussed in notes 2 and 6 to OFS’s financial statements for TARP, the 

valuation of TARP direct loans, equity investments, and asset guarantee 

program is based on estimates using economic and financial credit subsidy 

models. The estimates use entity­specific as well as relevant market data as 

the basis for assumptions about future performance, and incorporate an 

adjustment for market risk to reflect the variability around any unexpected 

losses. In valuing the direct loans, equity investments, and asset guarantee 

program, OFS management considered and selected assumptions and data 

that it believed provided a reasonable basis for the estimated subsidy 

allowance and related subsidy income/costs reported in the financial 

statements;5 however, there are a large number of factors that affect these 

assumptions and estimates, which are inherently subject to substantial 

uncertainty arising from the likelihood of future changes in general 

economic, regulatory, and market conditions. The estimates have an added 

uncertainty resulting from the unique nature of transactions associated 

with the multiple initiatives undertaken for TARP and the lack of historical 

4

Section 116 of EESA, 12 U.S.C. § 5226, requires the Comptroller General to report at least 

every 60 days, as appropriate, on findings resulting from oversight of TARP’s performance in 

meeting the act’s purposes; the financial condition and internal controls of TARP, its 

representatives, and agents; the characteristics of asset purchases and the disposition of 

acquired assets, including any related commitments entered into; TARP’s efficiency in using 

the funds appropriated for its operations; its compliance with applicable laws and 

regulations; and its efforts to prevent, identify, and minimize conflicts of interest among 

those involved in its operations. 

5

The subsidy income/cost is composed of (1) the change in the subsidy cost allowance, net 

of write­offs; (2) net intragovernmental interest cost; (3) certain inflows from the direct 

loans and equity investments (e.g., dividends, interest, net proceeds from sales and 

repurchases of assets in excess of cost, and other realized fees), and (4) the change in the 

estimated discounted net cash flows related to the asset guarantee program. 

Page 8 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

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47 

Page 9 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

program experience upon which to base the estimates. In addition, there 

are significant uncertainties related to the potential effect of proposed 

transactions, such as the restructuring of American International Group, 

Inc., on the amounts that OFS will realize from its investments. As such, 

there will be differences between the net estimated values of the direct 

loans, equity investments, and asset guarantee program as of September 30, 

2010, and 2009, that totaled $145.5 billion and $239.7 billion respectively, 

and the amounts that OFS will ultimately realize from these assets, and 

such differences may be material. These differences will also affect the 

ultimate cost of TARP. Further, the ultimate cost will change as OFS 

continues to acquire assets under obligations that existed as of October 3, 

2010, and incur related subsidy costs as well as incur costs under other 

TARP initiatives relating to Treasury Housing Programs under TARP.6 

As discussed in note 1 to the financial statements, while OFS’s financial 

statements for TARP reflect activity of OFS in implementing TARP, 

including providing resources to various entities to help stabilize the 

financial markets, the statements do not include the assets, liabilities, or 

results of operations of commercial entities in which OFS has a significant 

equity interest. According to OFS officials, OFS’s investments were not 

made to engage in the business activities of the respective entities and OFS 

has determined that none of these entities meet the criteria for a federal 

entity. 

Opinion on Internal 

Control 

Although certain internal controls could be improved, OFS maintained, in 

all material respects, effective internal control over financial reporting as 

of September 30, 2010, that provided reasonable assurance that 

misstatements, losses, or noncompliance material in relation to the 

financial statements would be prevented or detected and corrected on a 

timely basis. Our opinion on internal control is based on criteria 

6

Section 120 of EESA, 12 U.S.C. § 5230, established that the authorities under sections 

101(a), excluding Section 101(a)(3), and Section 102, shall terminate on December 31, 2009. 

Section 120 of EESA further established that the Secretary of the Treasury, upon submission 

of a written certification to Congress, may extend the authority provided under these 

sections of EESA to expire no later than 2 years from the date of the enactment of EESA 

(Oct. 3, 2008). On December, 9, 2009, the Secretary provided the written certification to 

extend EESA to October 3, 2010. However, the Dodd­Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. No. 111­203, 124 Stat. 1376 (July 21, 2010), (1) reduced 

Treasury’s authority to purchase or insure troubled assets to a maximum of $475 billion and 

(2) prohibited Treasury, under EESA, from incurring any obligations for a program or 

initiative unless the program or initiative had already been initiated prior to June 25, 2010. 

part 2: financial section
the department of the treasury | office of financial stability 

48 

established under 31 U.S.C. § 3512 (c), (d), commonly known as the 

Federal Managers’ Financial Integrity Act (FMFIA). 

During fiscal year 2010, OFS addressed one significant deficiency and made 

progress in addressing the other significant deficiency that we reported for 

fiscal year 2009.7 Specifically, OFS sufficiently addressed the issues that 

resulted in a significant deficiency in fiscal year 2009 regarding OFS’s 

verification procedures over the data used for asset valuations such that we 

no longer consider this to be a significant deficiency as of September 30, 

2010. In addition, OFS addressed many of the issues related to the other 

significant deficiency we reported for fiscal year 2009 concerning its 

accounting and financial reporting processes. However, the remaining 

control issues along with other control deficiencies in this area that we 

identified in fiscal year 2010 collectively represent a continuing significant 

deficiency in OFS’s internal control over its accounting and financial 

reporting processes. Specifically, we found the following: 

• While improvements were noted in OFS’s review and approval process 

for preparing its financial statements, notes, and MD&A for TARP from 

what we had found for fiscal year 2009, we continued to identify 

incorrect amounts and inconsistent disclosures in OFS’s draft financial 

statements, notes, and MD&A that were significant, but not material, 

and that were not detected by OFS. 

• For fiscal year 2009, we reported that OFS had not finalized its 

procedures related to its process for accounting for certain program 

transactions, preparing its September 30, 2009, financial statements, and 

its oversight and monitoring of financial­related services provided to 

OFS by asset managers and certain financial agents. During fiscal year 

2010, we found that most of these procedures were finalized. However, 

we identified instances where OFS’s procedures were not always 

followed or effectively implemented. 

7

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control 

that is less severe than a material weakness, yet important enough to merit attention by 

those charged with governance. A material weakness is a deficiency, or a combination of 

deficiencies, in internal controls such that there is a reasonable possibility that a material 

misstatement of the entity’s financial statements will not be prevented, or detected and 

corrected on a timely basis. A deficiency in internal control exists when the design or 

operation of a control does not allow management or employees, in the normal course of 

performing their assigned functions, to prevent or detect and correct misstatements on a 

timely basis. 

Page 10 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

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Page 11 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

• OFS’s documentation was incomplete for certain areas of its asset 

valuation process. Specifically, some valuation methodology changes 

and the basis for certain assumptions derived from informed opinion 

that were used in valuing TARP’s assets were not included in its written 

documentation.8 After we notified OFS that the documentation was 

incomplete, it was able to provide adequate additional information 

about its asset valuation process. 

• OFS did not have adequate procedures to determine whether the tool 

and related guidance it used properly calculated valuations for certain 

TARP assets with projected future disbursements.9 OFS’s use of the tool 

and related guidance resulted in errors in the valuation of such assets. 

OFS had other controls over TARP transactions and activities that reduced 

the risk of misstatements resulting from these deficiencies. For significant 

errors and issues that were identified, OFS revised the financial statements, 

notes, and MD&A, as appropriate. Properly designed and implemented 

controls over the accounting and financial reporting processes are key to 

providing reasonable assurance regarding the reliability of the balances 

and disclosures reported in the financial statements and related notes in 

conformity with generally accepted accounting principles. Misstatements 

may occur in other financial information reported by OFS and not be 

prevented or detected because of this significant deficiency. 

We reported on the two significant deficiencies identified last year and 

provided OFS recommendations to address these and other less significant 

issues.10 The significant deficiency identified for fiscal year 2010, although 

not considered to be a material weakness, is important enough to merit 

management’s attention. We will be reporting additional details concerning 

this significant deficiency separately to OFS management, along with some 

recommendations for corrective actions. During our fiscal year 2010 audit, 

8

Informed opinion refers to the judgment of agency staff or others who make subsidy 

estimates based on their programmatic knowledge, experience, or both. Informed opinion is 

considered an acceptable approach under Federal Accounting Standards Advisory Board 

Technical Release 6 when adequate historical data does not exist. 

9

The tool and related guidance used by OFS in its TARP asset valuation process is provided 

to federal agencies for performing valuations under the Federal Credit Reform Act of 1990. 

10GAO, Management Report: Improvements Are Needed in Internal Control Over 

Financial Reporting for the Troubled Asset Relief Program, GAO­10­743R (Washington, 

D.C.: June 30, 2010). 

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50 

we also identified other deficiencies in OFS’s system of internal control 

that we consider not to be material weaknesses or significant deficiencies. 

We have communicated these matters to management and, where 

appropriate, will report on them separately. We will follow up in our fiscal 

year 2011 audit on OFS’s progress in implementing our recommendations. 

Compliance with Laws 

and Regulations 

Our tests of OFS’s compliance with selected provisions of laws and 

regulations for fiscal year 2010 disclosed no instances of noncompliance 

that would be reportable under U.S. generally accepted government 

auditing standards. The objective of our audit was not to provide an 

opinion on overall compliance with laws and regulations. Accordingly, we 

do not express such an opinion. 

Consistency of Other 

Information 

OFS’s MD&A, other required supplementary information, and other 

accompanying information contain a wide range of information, some of 

which is not directly related to the financial statements. We did not audit 

and we do not express an opinion on this information. However, we 

compared this information for consistency with the financial statements 

and discussed the methods of measurement and presentation with OFS 

officials. On the basis of this limited work, we found no material 

inconsistencies with the financial statements, U.S. generally accepted 

accounting principles, or the form and content guidance in Office of 

Management and Budget Circular No. A­136, Financial Reporting 

Requirements.

Objectives, Scope, and 

Methodology 

OFS management is responsible for (1) preparing the financial statements 

in conformity with U.S. generally accepted accounting principles; (2) 

establishing and maintaining effective internal control over financial 

reporting, and evaluating its effectiveness; and (3) complying with 

applicable laws and regulations. OFS management evaluated the 

effectiveness of OFS’s internal control over financial reporting as of 

September 30, 2010, based on the criteria established under FMFIA. OFS 

management’s assertion based on its evaluation is included in appendix I. 

We are responsible for planning and performing the audit to obtain 

reasonable assurance and provide our opinion about whether (1) OFS’s 

financial statements are presented fairly, in all material respects, in 

conformity with U.S. generally accepted accounting principles; and (2) OFS 

Page 12 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

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management maintained, in all material respects, effective internal control 

over financial reporting as of September 30, 2010. We are also responsible 

for (1) testing compliance with selected provisions of laws and regulations 

that have a direct and material effect on the financial statements, and (2) 

performing limited procedures with respect to certain other information 

accompanying the financial statements. 

In order to fulfill these responsibilities, we 

• examined, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements; 

• assessed the accounting principles used and significant estimates made 

by management; 

• evaluated the overall presentation of the financial statements; 

• obtained an understanding of the entity and its operations, including its 

internal control over financial reporting; 

• considered OFS’s process for evaluating and reporting on internal 

control over financial reporting that OFS is required to perform by 

FMFIA and Section 116(c) of EESA; 

• assessed the risk that a material misstatement exists in the financial 

statements and the risk that a material weakness exists in internal 

control over financial reporting; 

• evaluated the design and operating effectiveness of internal control over 

financial reporting based on the assessed risk; 

• tested relevant internal control over financial reporting; 

• with selected provisions of the following laws and 

regulations: EESA, as amended; the Antideficiency Act; the Federal 

Credit Reform Act of 1990; the Dodd­Frank Wall Street Reform and 

Consumer Protection Act; and the Purpose Statute; and 

tested compliance 

• performed such other procedures as we considered necessary in the 

circumstances. 

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An entity’s internal control over financial reporting is a process effected by 

those charged with governance, management, and other personnel, the 

objectives of which are to provide reasonable assurance that (1) 

transactions are properly recorded, processed, and summarized to permit 

the preparation of financial statements in conformity with U.S. generally 

accepted accounting principles, and assets are safeguarded against loss 

from unauthorized acquisition, use, or disposition; and (2) transactions are 

executed in accordance with the laws governing the use of budget 

authority and other laws and regulations that could have a direct and 

material effect on the financial statements. 

We did not evaluate all internal controls relevant to operating objectives as 

broadly established under FMFIA, such as those controls relevant to 

preparing statistical reports and ensuring efficient operations. We limited 

our internal control testing to testing controls over financial reporting. Our 

internal control testing was for the purpose of expressing an opinion on the 

effectiveness of internal control over financial reporting and may not be 

sufficient for other purposes. Consequently, our audit may not identify all 

deficiencies in internal control over financial reporting that are less severe 

than a material weakness. Because of inherent limitations, internal control 

may not prevent or detect and correct misstatements due to error or fraud, 

losses, or noncompliance. We also caution that projecting any evaluation of 

effectiveness to future periods is subject to the risk that controls may 

become inadequate because of changes in conditions, or that the degree of 

compliance with the policies or procedures may deteriorate. 

We did not test compliance with all laws and regulations applicable to OFS. 

We limited our tests of compliance to selected provisions of laws and 

regulations that have a direct and material effect on the financial 

statements for fiscal year 2010. We caution that noncompliance may occur 

and not be detected by these tests and that such testing may not be 

sufficient for other purposes. 

We performed our audit in accordance with U.S. generally accepted 

government auditing standards. We believe our audit provides a reasonable 

basis for our opinions and other conclusions. 

Agency Comments In commenting on a draft of this report, the Acting Assistant Secretary, 

Office of Financial Stability, stated OFS concurred with the significant 

deficiency in its internal control over financial reporting that GAO 

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53 

identified. He also stated that OFS is committed to correcting the 

deficiency. The complete text of OFS’s comments is reprinted in appendix 

II. 

Gary T. Engel 

Director 

Financial Management and Assurance 

November 5, 2010 

Page 15 GAO­11­179 OFS’s Fiscal Years 2010 and 2009 Financial Statements

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54
�

appendix i 

Management’s	Report	on	Internal	Control	over	 

Financial	Reporting 

part 2: financial section
agency financial report | fiscal year 2010 

55 

appendix ii 

OFS	Response	to	Auditor’s	Report 

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56 

FINANCIAL	STATEMENTS	 

The	Office	of	Financial	Stability	(OFS)	prepares	financial	statements	for	the	Troubled	Asset	Relief	Program	(TARP)	as	a	critical	 

aspect	of	ensuring	the	accountability	and	stewardship	for	the	public	resources	entrusted	to	it	and	as	required	by	Section	116	of	the	 

Emergency	Economic	Stabilization	Act	of	2008	(EESA).	Preparation	of	these	statements	is	also	an	important	part	of	the	OFS’s	 

financial	management	goal	of	providing	accurate	and	reliable	information	that	may	be	used	to	assess	performance	and	allocate	 

resources.	The	OFS	management	is	responsible	for	the	accuracy	and	propriety	of	the	information	contained	in	the	financial	 

statements	and	the	quality	of	internal	controls.	The	statements	are,	in	addition	to	other	financial	reports,	used	to	monitor	and	control	 

budgetary	resources.	The	OFS	prepares	these	financial	statements	from	its	books	and	records	in	conformity	with	the	accounting	 

principles	generally	accepted	in	the	United	States	for	federal	entities	and	the	formats	prescribed	by	the	Office	of	Management	and	 

Budget	(OMB). 

While	these	financial	statements	reflect	activity	of	the	OFS	in	executing	its	programs,	including	providing	resources	to	various	 

entities	to	help	stabilize	the	financial	markets,	they	do	not	include,	as	more	fully	discussed	in	Note	1,	the	assets,	liabilities,	or	results	 

of	operations	of	commercial	entities	in	which	the	OFS	has	a	significant	equity	interest.	 

The	statements	presented	are	for	the	year	ended	September	30,	2010	and	for	the	period	from	October	3,	2008	(the	inception	of	OFS)	 

through	September	30,	2009. 

The	Balance	Sheet	summarizes	the	OFS	assets,	liabilities	and	net	position	as	of	the	reporting	date.	Intragovernmental	assets	and	 

liabilities	resulting	from	transactions	between	federal	agencies	are	presented	separately	from	assets	and	liabilities	from	transactions	 

with	the	public. 

The	Statement	of	Net	Cost	shows	the	net	cost	of	operations	for	the	reporting	period. 

The	Statement	of	Changes	in	Net	Position	presents	the	OFS	ending	net	position	by	two	components	-	Cumulative	Results	of	 

Operations	and	Unexpended	Appropriations.	It	summarizes	the	change	in	net	position.	The	ending	balances	of	both	components	of	 

net	position	are	also	reported	on	the	Balance	Sheet. 

The	Statement	of	Budgetary	Resources	provides	information	about	funding	and	availability	of	budgetary	resources	and	the	status	of	 

those	resources	at	the	end	of	the	reporting	period.	 

financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

57 

Office of Financial Stability (Troubled Asset Relief Program) 

BALANCE SHEET 

As	of	September	30,	2010	and	2009 

Dollars in Millions 2010 2009 

ASSETS

Intragovernmental Assets: 

Fund	Balance	with	Treasury	(Note	4) $ 	98,664	 $ 	97,733	 

Asset	Guarantee	Program	(Note	6) 815	 -

Total Intragovernmental Assets 99,479 97,733 

Accounts Receivable 4	 -

Troubled Asset Relief Program: 

Direct	Loans	and	Equity	Investments,	Net	(Note	6) 142,452	 237,892	 

Asset	Guarantee	Program	(Note	6) 2,240	 1,765	 

Total Assets $ 244,175 $ 337,390 

LIABILITIES 

Intragovernmental Liabilities: 

Accounts	Payable	and	Other	Liabilities $ 	5	 $ 	5	 

Principal	Payable	to	the	Bureau	of	the	Public	Debt	(Note	8) 140,404	 143,335	 

Due	to	the	General	Fund	(Note	3) 25,112	 109,748	 

Total Intragovernmental Liabilities 165,521 253,088 

Accounts Payable and Other Liabilities 134	 73	 

Liability for Treasury Housing Programs under TARP (Note 5) 283	 1	 

Total Liabilities $ 165,938 $ 253,162 

Commitments and Contingencies (Note 7) - -

NET POSITION 

Unexpended	Appropriations	 $ 	79,783	 $ 	84,229	 

Cumulative	Results	of	Operations (1,546) (1) 

Total Net Position $ 78,237 $ 84,228 

Total Liabilities and Net Position $ 244,175 $ 337,390 

The accompanying notes are an integral part of these financial statements. 

part 2: financial section
58 

2009 

the department of the treasury | office of financial stability 

Office of Financial Stability (Troubled Asset Relief Program)
�

STATEMENT OF NET COST
�

For	the	Year	Ended	September	30,	2010	
 

And	the	Period	Ended	September	30,	2009
 

Dollars in Millions 2010 

Gross Cost: 

Subsidy Cost (Income) (Note 6) 

Direct	Loan	and	Equity	Investment	Programs	(Including	$8,013	in	2010	and	$2,916	 

			in	2009	of	Net	Proceeds	from	Sales	and	Repurchases	of	Assets	in	Excess	of	Cost) $ (22,698) $ 43,605 

Asset	Guarantee	Program (1,505) (2,201) 

Total Program Subsidy Cost (Income) (24,203) 41,404 

Interest	Expense	on	Borrowings	from	the	Bureau	of	the	Public	Debt	(Note	9) 5,913 6,436 

Treasury	Housing	Programs	Under	TARP	(Note	5) 825 2 

Administrative	Cost 296 167 

Total Gross Cost (Income) $ (17,169) $ 48,009 

Less Earned Revenue: 

Dividend	and	Interest	Income	-	Programs	(Note	6) (7,242) (9,503) 

Interest	Income	on	Financing	Account	(Note	9) (1,173) (3,649) 

Subsidy	Allowance	Amortization	(Note	9) 2,502 6,716 

Net Earned Revenue $ (5,913) $ (6,436) 

Total Net Cost of (Income from) Operations $ (23,082) $ 41,573 

The accompanying notes are an integral part of these financial statements. 

financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

59 

Office of Financial Stability (Troubled Asset Relief Program) 

STATEMENT OF CHANGES IN NET POSITION 

For	the	Year	Ended	September	30,	2010	 

And	the	Period	Ended	September	30,	2009 

2010 2009 

Dollars in Millions 

Unexpended 

Appropriations

Cumulative 

Results of 

Operations 

Unexpended 

Appropriations

Cumulative 

Results of 

Operations 

Beginning Balances $ 84,229	 $ (1) $ -	 $ -	 

Budgetary Financing Sources 

Appropriations	Received 5,151	 -	 238,268	 -	 

Appropriations	Used 	(9,597) 	9,597	 	(154,039) 154,039	 

Other Financing Sources - (34,224) - (112,467) 

Total Financing Sources (4,446) (24,627) 84,229 41,572 

Net (Cost of) Income from Operations - 23,082 - (41,573) 

Net Change (4,446) (1,545) 84,229 (1) 

Ending Balances $ 79,783 $ (1,546) $ 84,229 $ (1) 

The accompanying notes are an integral part of these financial statements. 

part 2: financial section
the department of the treasury | office of financial stability 

60 

Office of Financial Stability (Troubled Asset Relief Program) 

STATEMENT OF BUDGETARY RESOURCES 

For	the	Year	Ended	September	30,	2010	 

And	the	Period	Ended	September	30,	2009 

2010 2009 

Dollars in Millions 

Budgetary 

Accounts 

Nonbudgetary 

Financing 

Accounts 

Budgetary 

Accounts 

Nonbudgetary 

Financing 

Accounts 

BUDGETARY RESOURCES 

Unobligated	Balances	Brought	Forward $ 	28,156	 $ 8,945	 $ -	 $ -	 

Recoveries	of	Prior	Year	Unpaid	Obligations 1,173	 39,364	 - -

Budget	Authority: 

Appropriations 5,151	 -	 238,268	 -	 

Borrowing	Authority -	 69,440	 -	 309,971	 

Spending	Authority	from	Offsetting	Collections 

Earned:	Collected -	 156,112	 -	 243,072	 

Change	in	Unfilled	Orders	Without	Advance -	 (5,111) -	 28,927	 

Total	Budget	Authority 

Permanently	Not	Available 

TOTAL BUDGETARY RESOURCES (Note 10) $ 

34,480	 

-	 

34,480 $ 

268,750	 

(107,976) 

160,774 $ 

238,268	 

-	 

238,268 $

581,970	 

(120,841) 

461,129 

STATUS OF BUDGETARY RESOURCES 

Obligations	Incurred	-	Direct 

Unobligated	Balance: 

Apportioned	and	Available 

Not	Available 

TOTAL STATUS OF BUDGETARY RESOURCES 

$ 

$ 

23,405	 

142	 

10,933	 

34,480 

$ 

$ 

150,226	 

7,692	 

	2,856	 

160,774 

$ 

$ 

210,112	 

28,156	 

	-	 

238,268 

$ 

$

452,184	 

7,009	 

1,936	 

461,129 

CHANGE IN OBLIGATED BALANCES 

Obligated	Balance	Brought	Forward: 

Unpaid	Obligations 

Uncollected	Customer	Payments	from	Federal	Sources 

$ 	56,151	 

-	 

$ 	79,202	 

	(28,927) 

$ -	 

	-	 

$ -	 

	-	 

Obligated	Balance,	Net,	Brought	Forward 56,151	 50,275	 -	 -	 

Obligations	Incurred 23,405	 150,226	 210,112	 452,184	 

Gross	Outlays (9,255) (148,146) (153,961) (372,982) 

Recoveries	of	Prior	Year	Unpaid	Obligations (1,173) (39,364) -	 -	 

Change	in	Uncollected	Customer	Payments	from	Federal	Sources -	 5,111	 -	 (28,927) 

Obligated	Balance,	Net,	End	of	Period: 

Unpaid	Obligations 69,128	 41,918	 56,151	 79,202	 

Uncollected	Customer	Payments	from	Federal	Sources -	 (23,816) -	 (28,927) 

Obligated	Balance,	Net,	End	of	Period $ 69,128	 $ 18,102	 $ 56,151	 $ 	50,275	 

NET OUTLAYS 

Gross	Outlays 

Offsetting	Collections 

Distributed	Offsetting	Receipts 

NET OUTLAYS 

$ 

$

9,255	 

	-	 

	(118,860) 

(109,605) 

$ 

$ 

148,146	 

	(156,112) 

-

(7,966) 

$ 

$ 

153,961	 

	-	 

	(2,720) 

151,241 

$ 	372,982	 

	(243,072) 

	-	 

$ 129,910 

The accompanying notes are an integral part of these financial statements. 

financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

61 

NOTES	TO	THE	FINANCIAL	STATEMENTS 

note 1. reporting entitY 

The	Troubled	Asset	Relief	Program	(TARP)	was	authorized	by	the	Emergency	Economic	Stabilization	Act	of	2008	(EESA	or	“the	 

Act”).	The	Act	gave	the	Secretary	of	the	Treasury	(the	Secretary)	broad	and	flexible	authority	to	establish	the	TARP	to	purchase	and	 

insure	mortgages	and	other	troubled	assets,	which	permits	the	Secretary	to	inject	capital	into	banks	and	other	commercial	companies	 

by	taking	equity	positions	in	those	entities,	if	needed,	to	stabilize	the	financial	markets. 

The	EESA	established	certain	criteria	under	which	the	TARP	would	operate,	including	provisions	that	impact	the	budgeting,	 

accounting,	and	reporting	of	troubled	assets	acquired	under	the	Act.	Section	101(a)	of	the	EESA	provided	the	authority	for	the	 

Secretary	to	purchase	troubled	assets,	and	Section	101(a)(3)	of	the	EESA	established	the	Office	of	Financial	Stability	(OFS)	to	 

implement	the	TARP.	Section	102	of	the	EESA	required	the	Secretary	to	establish	a	program	to	guarantee	troubled	assets	originated	 

or	issued	prior	to	March	14,	2008,	including	mortgage-backed	securities.	Section	115	of	the	EESA	limited	the	authority	of	the	 

Secretary	to	purchase	troubled	assets	up	to	$700.0	billion	outstanding	at	any	one	time,	calculated	at	the	aggregate	purchase	prices	of	 

all	troubled	assets	held.		Amendments	to	Section	115	of	EESA	during	the	period	ended	September	30,	2009	reduced	that	authority	 

by	$1.3	billion,	from	$700	billion	to	$698.7	billion.		Section	120	of	the	EESA	established	that	the	authorities	under	Sections	101(a),	 

excluding	Section	101(a)(3)	and	Section	102	of	the	EESA	would	terminate	December	31,	2009	unless	extended	upon	submission	 

of	a	written	certification	to	Congress	by	the	Secretary	of	the	Treasury.	On	December	9,	2009,	the	Secretary	extended	the	program	 

authorities	through	October	3,	2010.	In	July,	2010,	the	Dodd-Frank	Wall	Street	Reform	and	Consumer	Protection	Act	amended	 

Section	115	of	EESA,	limiting	the	TARP’s	authority	to	a	total	of	$475	billion	cumulative	obligations	(i.e.	purchases	and	guarantees)	 

and	prohibiting	any	new	obligations	for	programs	or	initiatives	that	had	not	been	publically	announced	prior	to	June	25,	2010.	There	 

was	$474.77	billion	of	obligations	outstanding	against	the	Section	115	authority	as	of	September	30,	2010	and	$381.3	billion	of	 

obligations	outstanding	as	of	September	30,	2009. 

Under	the	provisions	of	the	EESA,	the	OFS	implemented	the	TARP	which	resulted	in	the	development	of	the	following	programs:	 

the	Capital	Purchase	Program	(CPP);	American	International	Group,	Inc.	Investment	Program	(AIG,	formerly	known	as	the	 

Systemically	Significant	Failing	Institutions	Program);	the	Targeted	Investment	Program	(TIP);	the	Automotive	Industry	Financing	 

Program	(AIFP);	the	Consumer	and	Business	Lending	Initiative	(CBLI);	the	Public-Private	Investment	Program	(PPIP);	and	the	 

Asset	Guarantee	Program	(AGP);	(see	Note	6	for	details	regarding	all	of	these	programs);	as	well	as	the	Treasury	Housing	Programs	 

Under	the	TARP	(see	Note	5). 

While	these	financial	statements	reflect	the	activity	of	the	OFS	in	executing	its	programs,	including	providing	resources	to	various	 

entities	to	help	stabilize	the	financial	markets,	they	do	not	include	the	assets,	liabilities,	or	results	of	operations	of	commercial	entities	 

in	which	the	OFS	has	a	significant	equity	interest.	Through	the	purchase	of	troubled	assets,	the	OFS	has	entered	into	several	different	 

types	of	direct	loan,	equity	investment,	and	asset	guarantee	program	arrangements	with	private	entities.	These	direct	loans,	equity	 

investments,	and	asset	guarantees	were	made	with	the	intent	of	helping	to	stabilize	the	financial	markets	and	mitigating,	as	best	as	 

possible,	any	adverse	impact	on	the	economy.	These	direct	loans,	equity	investments,	and	asset	guarantees	were	not	made	to	engage	 

in	the	business	activities	of	the	respective	private	entities.	Based	on	this	intent,	the	OFS	has	concluded	that	such	direct	loans,	equity	 

investments,	and	asset	guarantees	are	considered	“bail	outs”,	under	the	provisions	of	paragraph	50	of	Statement	of	Federal	Financial	 

Accounting	Concepts	(SFFAC)	No.	2,	Entity and Display.	In	addition,	these	entities	are	not	included	in	the	Federal	budget,	and	 

therefore,	do	not	meet	the	conclusive	criteria	in	SFFAC	No.	2.	As	such,	the	OFS	determined	that	none	of	these	entities	meet	the	 

criteria	to	be	classified	as	a	federal	entity.	Consequently,	their	assets,	liabilities,	and	results	of	operations	are	not	consolidated	in	these	 

OFS	financial	statements. 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

62 

In	addition,	the	OFS	has	made	loans	and	investments	in	certain	Special	Purpose	Vehicles10	(SPV).	SFFAC	No.	2,	paragraphs	43	and	 

44,	reference	indicative	criteria	such	as	ownership	and	control	over	an	SPV	to	carry	out	government	powers	and	missions,	as	criteria	 

in	the	determination	about	whether	the	SPV	should	be	classified	as	a	federal	entity.	The	OFS	has	concluded	that	none	of	the	SPVs	 

meet	the	conclusive	or	indicative	criteria	to	be	classified	as	a	federal	entity.	As	a	result,	the	assets,	liabilities	and	results	of	operations	 

of	the	SPVs	are	not	included	in	these	OFS	financial	statements.	The	OFS	has	recorded	the	loans	and	investments	in	private	entities	 

and	investments	in	SPVs	in	accordance	with	Credit	Reform	Accounting,	as	discussed	below.	Additional	disclosures	regarding	these	 

SPV	investments	are	included	in	Note	6,	see	Automotive	Industry	Financing	Program,	Term	Asset-Backed	Loan	Facility	and	the	 

Public-Private	Investment	Program. 

The	EESA	established	the	OFS	within	the	Office	of	Domestic	Finance	of	the	Department	of	the	Treasury	(Treasury).	The	OFS	 

prepares	stand-alone	financial	statements	to	satisfy	EESA’s	requirement	for	the	TARP	to	prepare	annual	financial	statements.	 

Additionally,	as	an	office	of	the	Treasury,	its	financial	statements	are	consolidated	into	Treasury’s	annual	Performance	and	 

Accountability	Report. 

10	 The	OFS	invested	in	SPVs	under	the	Consumer	and	Business	Lending	Initiative,	the	Automotive	Industry	Financing	Program	and	the	Public-Private	 

Investment	Program. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

63 

note 2. SummarY of Significant accounting policieS 

Basis	of	Accounting	and	Presentation 

The	accompanying	financial	statements	include	the	operations	of	the	OFS	and	have	been	prepared	from	the	accounting	records	 

of	the	OFS	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	for	federal	entities	(Federal	GAAP),	 

and	the	OMB	Circular	A-136,	Financial Reporting Requirements,	as	amended.	Federal	GAAP	includes	the	standards	issued	by	the	 

Federal	Accounting	Standards	Advisory	Board	(FASAB).	The	FASAB	is	recognized	by	the	American	Institute	of	Certified	Public	 

Accountants	(AICPA)	as	the	official	accounting	standards-setting	body	for	the	U.S.	Government.	As	such,	the	FASAB	is	responsible	 

for	establishing	Federal	GAAP	for	Federal	reporting	entities. 

The	FASAB	issued	the	Statement	of	Federal	Financial	Accounting	Standards	(SFFAS)	No.	34,	The Hierarchy of Generally Accepted 

Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board in	July,	2009.	SFFAS	 

No.	34	identifies	the	sources	of	accounting	principles	and	the	framework	for	selecting	the	principles	used	in	the	preparation	of	general	 

purpose	financial	reports	of	federal	reporting	entities	that	are	presented	in	conformity	with	Federal	GAAP. 

In	addition	to	the	above,	Section	123(a)	of	the	EESA	requires	that	the	budgetary	cost	of	purchases	of	troubled	assets	and	guarantees	 

of	troubled	assets,	and	any	cash	flows	associated	with	authorized	activities,	be	determined	in	accordance	with	the	Federal	Credit	 

Reform	Act	of	1990	(FCRA).	Section	123(b)	(1)	of	the	EESA	requires	that	the	budgetary	costs	of	troubled	assets	and	guarantees	 

of	troubled	assets	be	calculated	by	adjusting	the	discount	rate	for	market	risks.	As	a	result	of	this	requirement,	the	OFS	considered	 

market	risk	in	its	calculation	and	determination	of	the	estimated	net	present	value	of	its	direct	loans,	equity	investments	and	asset	 

guarantee	program	for	budgetary	purposes.	Similarly,	market	risk	is	considered	in	the	valuations	for	financial	reporting	purposes	(see	 

Note	6	for	further	discussion). 

Consistent	with	the	accounting	policy	for	equity	investments	made	by	Treasury	in	private	entities,	the	OFS	accounts	for	its	equity	 

investments	at	fair	value,	defined	as	the	estimated	amount	of	proceeds	the	OFS	would	receive	if	the	equity	investments	were	sold	to	a	 

market	participant.	The	OFS	uses	the	present	value	accounting	concepts	embedded	in	SFFAS	No.	2,	Accounting for Direct Loans and 

Loan Guarantees,	as	amended	(SFFAS	No.	2),	to	derive	fair	value	measurements.	The	OFS	concluded	that	the	equity	investments	 

were	similar	to	direct	loans	in	that	there	is	a	stated	rate	and	a	redemption	feature	which,	if	elected,	requires	repayment	of	the	amount	 

invested.	Furthermore,	consideration	of	market	risk	provides	a	basis	to	arrive	at	a	fair	value	measurement.	Therefore,	the	OFS	uses	 

SFFAS	No.	2	(as	more	fully	discussed	below)	for	reporting	and	disclosure	requirements	of	its	equity	investments.	 

Federal	loans	and	loan	guarantees	are	governed	by	FCRA	for	budgetary	accounting	and	the	associated	FASAB	accounting	standard	 

SFFAS	No.	2	for	financial	reporting.	The	OFS	applies	the	provisions	of	the	SFFAS	No.	2	when	accounting	and	reporting	for	direct	 

loans,	equity	investments,	asset	guarantee	program	and	the	Federal	Housing	Administration	(FHA)-Refinance	Program.	Direct	loans	 

and	equity	investments	disbursed	and	outstanding	are	recognized	as	assets	at	the	net	present	value	of	their	estimated	future	cash	 

flows.	Outstanding	asset	guarantees	are	recognized	as	liabilities	or	assets	at	the	net	present	value	of	their	estimated	future	cash	flows.	 

Liabilities	under	the	FHA-Refinance	Program	are	recognized	at	the	net	present	value	of	their	estimated	future	cash	flows	when	the	 

guaranteed	loans	are	disbursed.		For	direct	loans	and	equity	investments,	the	subsidy	allowance	account	represents	the	difference	 

between	the	face	value	of	the	outstanding	direct	loan	and	equity	investment	balance	and	the	net	present	value	of	the	expected	future	 

cash	flows,	and	is	reported	as	an	adjustment	to	the	face	value	of	the	direct	loan	or	equity	investment.	 

The	OFS	recognizes	dividend	income	associated	with	equity	investments	when	declared	by	the	entity	in	which	the	OFS	has	invested	 

and	when	received	in	relation	to	any	repurchases,	exchanges	and	restructurings.	The	OFS	recognizes	interest	income	when	earned	 

on	performing	loans.	The	OFS	reflects	changes,	referred	to	as	reestimates,	in	the	value	of	direct	loans,	equity	investments,	and	 

asset	guarantee	program	in	the	subsidy	cost	on	the	Statement	of	Net	Cost	annually.	The	OFS	has	received	common	stock	warrants,	 

additional	preferred	stock	(referred	to	as	warrant	preferred	stock)	or	additional	notes,	as	additional	consideration	for	providing	direct	 

loans	and	equity	investments	made	and	the	asset	guarantee	program.	The	OFS	accounts	for	the	warrants	and	warrant	preferred	stock	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

64 

received	under	Section	113	of	EESA	as	fees	under	SFFAS	No.	2,	and,	as	such,	the	value	of	the	warrants,	warrant	preferred	stock	and	 

additional	notes,	when	the	assets	are	sold,	is	a	reduction	of	the	subsidy	allowance. 

use	of	Estimates 

The	OFS	has	made	certain	estimates	and	assumptions	relating	to	the	reporting	of	assets,	liabilities,	revenues,	and	cost	to	prepare	these	 

financial	statements.	Actual	results	could	significantly	differ	from	these	estimates.	Major	financial	statement	line	items	that	include	 

estimates	are	TARP	Direct	Loans	and	Equity	Investments,	Net	and	the	Asset	Guarantee	Program	on	the	Balance	Sheet,	and	related	 

subsidy	cost	on	the	Statement	of	Net	Cost	(see	Note	6). 

The	most	significant	differences	between	actual	results	and	estimates	may	occur	in	the	valuation	of	direct	loans,	equity	investments,	 

and	the	asset	guarantee	program.	The	forecasted	future	cash	flows	used	to	determine	these	amounts	as	of	fiscal	year	end	are	sensitive	 

to	slight	changes	in	model	assumptions,	such	as	general	economic	conditions,	specific	stock	price	volatility	of	the	entities	which	the	 

OFS	has	an	equity	interest,	estimates	of	expected	default,	and	prepayment	rates.	Forecasts	of	future	financial	results	have	inherent	 

uncertainty	and	the	OFS’s	TARP	Direct	Loans	and	Equity	Investments,	Net	and	Asset	Guarantee	Program	line	items	as	of	fiscal	 

year	end	are	reflective	of	relatively	illiquid,	troubled	assets	whose	values	are	particularly	sensitive	to	future	economic	conditions	and	 

other	assumptions.	Additional	discussion	related	to	sensitivity	analysis	of	factors	affecting	estimates	can	be	found	in	the	Management	 

Discussion	and	Analysis	section	of	the	Agency	Financial	Report. 

Credit Reform Accounting 

The	FCRA	provides	for	the	use	of	program,	financing,	and	general	fund	receipt	accounts	to	separately	account	for	activity	related	to	 

direct	loans	and	loan	guarantees.	These	accounts	are	classified	as	either	budgetary	or	non-budgetary	in	the	Statement	of	Budgetary	 

Resources.	The	budgetary	accounts	include	the	program	and	general	fund	receipt	accounts,	and	the	non-budgetary	accounts	consist	 

of	the	credit	reform	financing	accounts.	 

As	discussed	previously,	the	OFS	accounts	for	the	cost	of	direct	loans,	equity	investments,	the	asset	guarantee	program	and	the	FHARefinance	Program	in	accordance	with	Section	123(a)	of	the	EESA	and	the	FCRA	for	budgetary	accounting	and	SFFAS	No.	2	for	 

financial	reporting. 

The	authoritative	guidance	for	financial	reporting	is	primarily	contained	in	the	SFFAS	No.	2,	as	amended	by	the	SFFAS	No.	 

18,	Amendments to Accounting Standards for Direct Loans and Loan Guarantees,	and	the	SFFAS	No.	19,	Technical Amendments to 

Accounting Standards for Direct Loans and Loan Guarantees. 

In	accordance	with	SFFAS	No.	2,	the	OFS	maintains	program	accounts	which	receive	appropriations	and	obligate	funds	to	cover	the	 

subsidy	cost	of	direct	loans,	equity	investments,	asset	guarantee	program	and	the	FHA-Refinance	Program	and	disburses	the	subsidy	 

cost	to	the	OFS	financing	accounts.	The	financing	accounts	are	non-budgetary	accounts	that	are	used	to	record	all	of	the	cash	flows	 

resulting	from	the	OFS	direct	loans,	equity	investments	and	asset	guarantee	program11.	Cash	flows	include	disbursements,	repayments,	 

repurchases,	fees,	recoveries,	interest,	dividends,	proceeds	from	the	sale	of	stock	and	warrants,	borrowings	from	Treasury,	negative	 

subsidy	and	the	subsidy	cost	received	from	the	program	accounts.	 

The	financing	arrangements	specifically	for	the	TARP	activities	are	provided	for	in	the	EESA	as	follows:	(1)	Borrowing	for	program	 

funds	under	Section	118	that	constitute	appropriations	when	obligated	or	spent,	which	are	reported	as	“appropriations”	in	these	 

financial	statements;	(2)	borrowing	by	financing	accounts	for	non-subsidy	cost	under	the	FCRA	and	Section	123;	and	(3)	the	 

Troubled	Assets	Insurance	Financing	Fund	(TAIFF)	under	Section	102(d). 

11	 For	the	Asset	Guarantee	Program,	OFS	has	established	the	Troubled	Assets	Insurance	Financing	Fund,	which	is	the	program’s	financing	account	under	the	 

FCRA,	as	required	by	Section	102(d)	of	the	EESA. 

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The	OFS	uses	general	fund	receipt	accounts	to	record	the	receipt	of	amounts	paid	from	the	financing	accounts	when	there	is	a	 

negative	subsidy	or	negative	modification	(a	reduction	in	subsidy	cost	due	to	changes	in	program	policy	or	terms	that	change	 

estimated	future	cash	flows)	from	the	original	estimate	or	a	downward	reestimate.	Amounts	in	the	general	fund	receipt	accounts	 

are	available	for	appropriations	only	in	the	sense	that	all	general	fund	receipts	are	available	for	appropriations.	Any	assets	in	 

these	accounts	are	non-entity	assets	and	are	offset	by	intragovernmental	liabilities.	At	the	end	of	the	fiscal	year,	the	fund	balance	 

transferred	to	the	U.S.	Treasury	through	the	general	fund	receipt	account	is	no	longer	included	in	the	OFS’s	fund	balance	reporting. 

The	SFFAS	No.	2	requires	that	the	actual	and	expected	costs	of	federal	credit	programs	be	fully	recognized	in	financial	reporting.	The	 

OFS	calculated	and	recorded	an	initial	estimate	of	the	future	performance	of	direct	loans,	equity	investments,	and	asset	guarantee	 

program.	The	data	used	for	these	estimates	were	reestimated	at	the	fiscal	year-end	to	reflect	adjustments	for	market	risk,	asset	 

performance,	and	other	key	variables	and	economic	factors.	The	reestimate	data	was	then	used	to	estimate	and	report	the	“Subsidy	 

Cost”	in	the	Statement	of	Net	Cost.	A	detailed	discussion	of	the	OFS	subsidy	calculation	and	reestimate	assumptions,	process	and	 

results	is	provided	in	Note	6. 

Fund	Balance	with	Treasury 

The	Fund	Balance	with	Treasury	includes	general,	financing	and	other	funds	available	to	pay	current	liabilities	and	finance	authorized	 

purchases.	Cash	receipts	and	disbursements	are	processed	by	the	Treasury,	and	the	OFS’s	records	are	reconciled	with	those	of	the	 

Treasury	on	a	regular	basis. 

Available	unobligated	balances	represent	amounts	that	are	apportioned	for	obligation	in	the	current	fiscal	year.	Unavailable	 

unobligated	balances	represent	unanticipated	collections	in	excess	of	the	amounts	apportioned	which	are	unavailable.	Obligated	 

balances	not	yet	disbursed	include	undelivered	orders	and	unpaid	expended	authority.	 

Troubled	Asset	relief	Program	Direct	Loans	and	Equity	Investments,	net 

Troubled	Asset	Relief	Program	Direct	Loans	and	Equity	Investments,	Net	represents	the	estimated	net	outstanding	amount	of	the	 

OFS	direct	loans	and	equity	investments,	exclusive	of	the	Treasury	Housing	Programs	Under	TARP.	The	direct	loan	and	equity	 

investment	balances	have	been	determined	in	accordance	with	the	provisions	of	SFFAS	No.	2	(see	Note	6).	Writeoffs	of	gross	direct	 

loan	and	equity	investment	balances	(presented	in	Note	6	table)	are	recorded	when	a	legal	event,	such	as	a	bankruptcy	with	no	 

further	chance	of	recovery,	or	extinguishment	of	a	debt	instrument	by	agreement,	occurs.	Under	SFFAS	2,	writeoffs	do	not	affect	 

the	Statement	of	Net	Cost	because	the	written-off	asset	is	fully	reserved.	Therefore,	the	write-off	removes	the	asset	balance	and	the	 

associated	subsidy	allowance.	 

Asset	guarantee	Program 

The	Asset	Guarantee	Program	line	item	on	the	Balance	Sheet	as	of	September	30,	2009	represents	the	asset	value	resulting	from	the	 

net	present	value	of	the	estimated	cash	inflows	that	were	in	excess	of	the	estimated	future	claim	payments.	During	fiscal	year	2010,	 

the	OFS	and	the	Federal	Deposit	Insurance	Corporation	(FDIC)	entered	into	a	termination	agreement	with	the	program’s	remaining	 

participant,	Citigroup.	As	a	result,	the	Asset	Guarantee	Program	line	item	(non-intragovernmental	asset)	represents	the	net	present	 

value	of	the	estimated	cash	inflows	from	Citigroup	trust	preferred	securities	that	OFS	held	after	the	guarantee	was	terminated.	The	 

intragovernmental	Asset	Guarantee	Program	line	item	is	the	estimated	value	of	certain	Citigroup	trust	preferred	securities	currently	 

held	by	the	FDIC.	Under	the	termination	agreement,	the	FDIC	has	agreed	to	transfer	to	the	OFS	these	securities	less	any	losses	on	 

FDIC’s	guarantee	of	Citigroup	debt.	See	Note	6. 

general	Property	and	Equipment 

Equipment	with	a	cost	of	$50,000	or	more	per	unit	and	a	useful	life	of	two	years	or	more	is	capitalized	at	full	cost	and	depreciated	 

using	the	straight-line	method	over	the	equipment’s	useful	life.	Other	equipment	not	meeting	the	capitalization	criteria	is	expensed	 

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when	purchased.	Software	developed	for	internal	use	is	capitalized	and	amortized	over	the	estimated	useful	life	of	the	software	if	the	 

cost	per	project	is	greater	than	$250,000.	However,	OFS	may	expense	such	software	if	management	concludes	that	total	period	costs	 

would	not	be	materially	distorted	and	the	cost	of	capitalization	is	not	economically	prudent.	Based	upon	these	criteria,	the	OFS	 

reports	no	capitalized	property,	equipment	or	software	on	its	Balance	Sheet	as	of	September	30,	2010	and	2009. 

Accounts	Payable	and	Other	Liabilities 

Accounts	Payable	and	Other	Liabilities	are	amounts	due	to	intragovernmental	or	public	entities	that	will	generally	be	liquidated	 

during	the	next	operating	cycle	(within	one	year	from	the	balance	sheet	date). 

Principal	Payable	to	the	Bureau	of	the	Public	Debt 

Principal	Payable	to	the	Bureau	of	the	Public	Debt	(BPD)	represents	the	net	amount	due	for	equity	investments,	direct	loans,	and	 

asset	guarantee	program	funded	by	borrowings	from	the	BPD	as	of	the	end	of	the	fiscal	year.	Additionally,	OFS	borrows	from	the	BPD	 

for	payment	of	intragovernmental	interest	and	payment	of	negative	subsidy	cost	to	the	general	fund,	as	necessary.	See	Note	8. 

Due	to	the	general	Fund 

Due	to	the	General	Fund	represents	the	amount	of	accrued	downward	reestimates	and,	for	fiscal	year	2010,	one	downward	 

modification	not	yet	funded,	related	to	direct	loans,	equity	investments	and	asset	guarantee	programs	as	of	September	30,	2010	and	 

2009.	See	Notes	3	and	6. 

Liabilities	for	the	Treasury	Housing	Programs	under	TArP 

There	are	three	initiatives	in	the	Treasury	Housing	Programs:	the	Making	Home	Affordable	Program,	the	Housing	Finance	Agency	 

Hardest	Hit	Fund	and	the	Federal	Housing	Administration	Refinance	Program	(see	Note	5).	The	OFS	has	determined	that	credit	 

reform	accounting	is	not	applicable	to	the	Treasury	Housing	Programs	Under	TARP	except	the	FHA-Refinance	Program,	since	 

there	are	no	incoming	cash	flows	to	be	valued.	Therefore,	liabilities	for	the	Making	Home	Affordable	Program	and	Housing	 

Finance	Agency	Hardest	Hit	Fund	for	payments	to	servicers	and	investors,	including	principal	balance	reduction	payments	for	the	 

accounts	of	borrowers	are	accounted	for	in	accordance	with	SFFAS	No.	5,	Accounting for Liabilities of the Federal Government.	A	 

liability	is	recognized	for	any	unpaid	amounts	due	as	of	the	reporting	date.	The	liability	estimate	is	based	on	information	about	loan	 

modifications	reported	by	participating	servicers	for	the	Making	Home	Affordable	Program	and	participating	states	for	the	Housing	 

Finance	Agency	Hardest	Hit	Fund. 

unexpended	Appropriations 

Unexpended	Appropriations	represents	the	OFS	undelivered	orders	and	unobligated	balances	in	budgetary	appropriated	funds	as	of	 

September	30,	2010	and	2009. 

cumulative	results	of	Operations 

Cumulative	Results	of	Operations,	presented	on	the	Balance	Sheet	and	on	the	Statement	of	Changes	in	Net	Position,	represents	the	 

net	results	of	the	OFS	operations	not	funded	by	appropriations	or	some	other	source,	such	as	borrowing	authority,	from	inception	 

through	fiscal	year	end.	For	fiscal	year	2010,	there	were	$1.5	billion	of	unfunded	upward	reestimates	that	increased	subsidy	cost.		The	 

appropriations	for	this	increase	in	cost	will	be	received	next	fiscal	year.		Until	then,	the	cost	is	recorded	as	negative	Cumulative	 

Results	of	Operations.	The	Other	Financing	Sources	line	in	the	Statement	of	Changes	in	Net	Position	for	each	year	consists	 

primarily	of	transfers	due	to	the	Treasury	General	Fund	relating	to	downward	reestimates.	Each	program’s	reestimates,	upward	and	 

downward,	are	recorded	separately,	not	netted	together. 

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67 

Leave 

A	liability	for	OFS	employees’	annual	leave	is	accrued	as	it	is	earned	and	reduced	as	leave	is	taken.	Each	year	the	balance	of	accrued	 

annual	leave	is	adjusted	to	reflect	current	pay	rates	as	well	as	forfeited	“use	or	lose”	leave.	Amounts	are	unfunded	to	the	extent	 

current	or	prior	year	appropriations	are	not	available	to	fund	annual	leave	earned	but	not	taken.	Sick	leave	and	other	types	of nonvested	leave	are	expensed	as	taken. 

Employee	Health	and	Life	Insurance	and	Workers’	compensation	Benefits 

The	OFS	employees	may	choose	to	participate	in	the	contributory	Federal	Employees	Health	Benefit	and	the	Federal	Employees	 

Group	Life	Insurance	Programs.	The	OFS	matches	a	portion	of	the	employee	contributions	to	each	program.	Matching	contributions	 

are	recognized	as	current	operating	expenses. 

The	Federal	Employees’	Compensation	Act	(FECA)	provides	income	and	medical	cost	protection	to	covered	Federal	civilian	 

employees	injured	on	the	job,	and	employees	who	have	incurred	a	work-related	injury	or	occupational	disease.	Future	workers’	 

compensation	estimates	are	generated	from	an	application	of	actuarial	procedures	developed	to	estimate	the	liability	for	FECA	 

benefits.	The	actuarial	liability	estimates	for	FECA	benefits	include	the	expected	liability	for	death,	disability,	medical,	and	 

miscellaneous	costs	for	approved	compensation	cases.	 

Employee	Pension	Benefits 

The	OFS	employees	participate	in	either	the	Civil	Service	Retirement	System	(CSRS)	or	the	Federal	Employees’	Retirement	System	 

(FERS)	and	Social	Security.	These	systems	provide	benefits	upon	retirement	and	in	the	event	of	death,	disability	or	other	termination	 

of	employment	and	may	also	provide	pre-retirement	benefits.	They	may	also	include	benefits	to	survivors	and	their	dependents,	and	 

may	contain	early	retirement	or	other	special	features.	The	OFS	contributions	to	retirement	plans	and	Social	Security,	as	well	as	 

imputed	costs	for	pension	and	other	retirement	benefit	costs	administered	by	the	Office	of	Personnel	Management,	are	recognized	 

on	the	Statement	of	Net	Cost	as	Administrative	Costs.	Federal	employee	benefits	also	include	the	Thrift	Savings	Plan	(TSP).	For	 

FERS	employees,	a	TSP	account	is	automatically	established	and	the	OFS	matches	employee	contributions	to	the	plan,	subject	to	 

limitations.	The	matching	contributions	are	also	recognized	as	Administrative	Costs	on	the	Statement	of	Net	Cost.	 

related	Parties 

The	nature	of	related	parties	and	descriptions	of	related	party	transactions	are	discussed	within	Notes	1	and	6. 

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note 3. due to the general fund 

As	of	September	30,	2010,	the	OFS	accrued	$25.1	billion	of	downward	reestimates	and	one	downward	modification	payable	to	the	 

General	Fund	(See	Note	6).	Due	to	the	General	Fund	is	a	Non-Entity	liability	on	the	Balance	Sheet.	At	September	30,	2009,	Due	to	 

the	General	Fund	payable	was	$109.7	billion	for	downward	reestimates. 

note 4. fund BalanceS with treaSurY 

Fund	Balances	with	Treasury,	by	fund	type	and	status,	are	presented	in	the	following	table	as	of	September	30,	2010	and	2009: 

(Dollars in Millions) 2010 

Fund Balances: 

General	Funds $ 	45,438 $ 	45,650 

Program	Funds 34,766 38,658 

Financing	Funds 18,460 13,425 

Total	Fund	Balances $ 	98,664 $ 	97,733 

Status	of	Fund	Balances: 

Unobligated	Balances 

Available $ 7,834 $ 	35,165 

Unavailable 13,790 1,936 

Obligated	Balances	Not	Yet	Disbursed 77,040 60,632 

Total Status of Fund Balances $ 98,664 $ 97,733 

2009

Included	in	the	OFS	Financing	Funds	balance	are	premium	collections	of	$265.2	million	during	fiscal	year	2010	and	$174.8	million	 

for	the	period	ended	September	30,	2009	related	to	the	AGP	that	are	required	by	the	EESA	Section	102(d)	to	be	maintained	in	the	 

Troubled	Asset	Insurance	Financing	Fund	(see	Note	6). 

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note 5. the treaSurY houSing programS under tarp 

Fiscal	year	2010	has	seen	an	expansion	of	programs	designed	to	provide	stability	for	both	the	housing	market	and	homeowners.		 

These	programs	assist	homeowners	who	are	experiencing	financial	hardships	to	remain	in	their	homes	while	they	get	back	on	their	 

feet	or	relocate	to	a	more	sustainable	living	situation.		These	programs	fall	into	three	initiatives:	 

1)	 Making	Home	Affordable	Program	(MHA);	 

2)	 Housing	Finance	Agency	(HFA)	Hardest	Hit	Fund;	and	 

3)	 Federal	Housing	Administration	(FHA)-Refinance	Program.		 

Under	MHA,	the	initial	programs	rolled	out	in	the	period	ended	September	30,	2009	were	the	Home	Affordable	Modification	 

Program	(HAMP)	including	the	Home	Price	Decline	Protection	Program	(HPDP).	 

MHA	includes	HAMP,	FHA-HAMP,	Second	Lien	Program	(2MP),	Treasury/FHA	Second	Lien	Program	(FHA	2LP)	 

(extinguishment	of	2nd	lien	portion	of	the	program),	and	Rural	Development	(RD-HAMP).		The	HAMP	includes	first	lien	 

modifications,	the	HPDP,	the	Principal	Reduction	Alternative	Waterfall	Program	(PRA),	the	Unemployment	Program	(UP),	and	 

the	Home	Affordable	Foreclosure	Alternatives	Program	(HAFA).		The	HAMP	first	lien	modification	program	provides	for	onetime,	monthly	and	annual	incentives	to	servicers,	borrowers,	and	investors	who	participate	in	the	program	whereby	the	investor	 

and	OFS	share	the	costs	of	modifying	qualified	first	liens.		The	HPDP	provides	incentives	to	investors	to	partially	offset	losses	from	 

home	price	declines.		In	fiscal	year	2010,	additional	programs	have	been	introduced	under	HAMP	to	complement	the	first	lien	 

modification	program	and	HPDP.		The	Principal	Reduction	Alternative	Waterfall	Program	(PRA)	offers	mortgage	relief	to	eligible	 

homeowners	whose	homes	are	worth	significantly	less	than	the	remaining	amounts	outstanding	under	their	first-lien	mortgage.		The	 

Unemployment	Program	(UP)	offers	assistance	to	unemployed	homeowners	through	temporary	forbearance	of	a	portion	of	their	 

mortgage	payments.		The	UP	will	not	have	a	financial	impact	on	the	OFS	because	no	incentives	are	paid	by	OFS.	Finally,	the	Home	 

Affordable	Foreclosure	Alternatives	Program	(HAFA)	is	designed	to	assist	eligible	borrowers	unable	to	retain	their	homes	through	a	 

HAMP	modification	by	simplifying	and	streamlining	the	short	sale	and	deed	in	lieu	of	foreclosure	processes	and	providing	incentives	 

to	borrowers,	servicers	and	investors	to	pursue	short	sales	and	deeds	in	lieu.		 

Fiscal	year	2010	has	also	seen	the	introduction	of	additional	programs	under	MHA.		These	programs	include	the	FHA-HAMP	which	 

provides	the	same	incentives	as	HAMP	for	Federal	Housing	Administration	(FHA)	guaranteed	loans.		The	2MP	provides	additional	 

incentives	to	servicers	to	extinguish	second	liens	on	first	lien	loans	modified	under	HAMP.		The	FHA	2LP	provides	for	incentives	 

to	servicers	for	extinguishment	of	second	liens	for	borrowers	who	refinance	their	FHA-insured	first	lien	mortgages	under	the	FHARefinance	Program.		The	RD-HAMP	Program	provides	HAMP	incentives	for	USDA	guaranteed	mortgages.		 

All	MHA	disbursements	are	made	to	servicers	either	for	themselves	or	for	the	benefit	of	borrowers	and	investors.	Furthermore,	all	 

payments	are	contingent	on	borrowers	remaining	current	on	their	mortgage	payments.	Servicers	have	until	December	31,	2012	to	 

enter	into	mortgage	modifications	with	borrowers. 

Included	in	administrative	costs	are	fees	paid	to	Fannie	Mae	and	Freddie	Mac.	Fannie	Mae	provides	direct	programmatic	support	as	a	 

third	party	agent	on	behalf	of	the	OFS.		Freddie	Mac	provides	compliance	oversight	as	a	third	party	agent	on	behalf	of	the	OFS,	and	 

the	servicers	work	directly	with	the	borrowers	to	modify	and	service	the	borrowers’	loans. 

The	Housing	Finance	Agency	(HFA)	Hardest	Hit	Fund	was	implemented	in	2010	and	provides	targeted	aid	to	families	in	the	states	 

hit	hardest	by	the	housing	market	downturn	and	unemployment.		States	that	meet	the	criteria	for	this	program	consist	of	Alabama,	 

Arizona,	California,	Florida,	Georgia,	Illinois,	Indiana,	Kentucky,	Michigan,	Mississippi,	Nevada,	New	Jersey,	North	Carolina,	Ohio,	 

Oregon,	Rhode	Island,	South	Carolina,	Tennessee,	and	Washington	D.C.		Approved	states	develop	and	roll	out	their	own	programs	 

with	timing	and	types	of	programs	offered	targeted	to	address	the	specific	needs	and	economic	conditions	of	their	state.	States	have	 

until	December	31,	2017	to	enter	into	agreements	with	borrowers. 

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The	FHA-Refinance	Program	is	a	joint	initiative	with	the	Department	of	Housing	and	Urban	Development	(HUD)	which	is	 

intended	to	encourage	refinancing	of	existing	underwater	(i.e.	the	borrower	owes	more	than	the	home	is	worth)	mortgage	loans	not	 

currently	insured	by	FHA	into	FHA-insured	mortgages.		HUD	will	pay	a	portion	of	the	amount	refinanced	to	the	investor	and	OFS	 

will	pay	incentives	to	encourage	the	extinguishment	of	second	liens	associated	with	the	refinanced	mortgages.		OFS	established	a	 

Letter	of	Credit	to	fund	the	OFS	portion	of	any	claims	associated	with	the	FHA-insured	mortgages.	Homeowners	can	refinance	into	 

FHA-guaranteed	mortgages	through	December	31,	2012	and	OFS	will	honor	its	share	of	claims	against	the	Letter	of	Credit	through	 

2020.	As	of	September	30,	2010,	no	loans	had	been	refinanced	under	this	program	as	the	joint	initiative	was	entered	into	late	in	the	 

fiscal	year.		However,	in	fiscal	year	2010,	OFS	paid	$3	million	to	establish	the	Letter	of	Credit. 

The	table	below	recaps	payments	and	accruals	as	of	September	30,	2010	and	September	30,	2009.	As	noted	above,	the	UP	is	 

structured	so	that	there	is	no	financial	impact	on	the	OFS.	Although	in	operation	on	September	30,	2010	the	PRA,	FHA-HAMP,	 

2LP	and	RD-HAMP	had	not	been	in	operation	for	a	period	long	enough	to	have	fiscal	year	2010	financial	activity. 

TREASURY HOUSING PROGRAMS UNDER TARP 

(Dollars in 

Billions) (Dollars in Thousands) (Dollars in Thousands) 

Commitments Payments Accruals 

9/30/2010 9/30/2010 9/30/2009 9/30/2010 9/30/2009 

MHA $ 29.9 

HAMP	(1st	Lien) - $ 473,592 $ 946 $ 175,415 $ 1,361 

		HPDP - 8,755 - 107,914 -

		PRA1 - - - - -

		UP2 - N/A N/A N/A N/A 

		HAFA3 - 1,627 - N/A -

FHA	HAMP - - - 24 -

2MP - 11 - 5 -

2LP1 - - - - -

RD-HAMP1 - - - - -

HFA Hardest Hit Fund 7.6 56,120 - - -

FHA-Refinance 8.1 3,015 - - -

TOTALS $ 45.6 $ 543,120 $ 946 $ 283,358 $ 1,361 

1

	No	FY2010	activity	with	financial	impact.
 

2	No	financial	impact.
 

3

	HAFA	payments	are	made	in	the	month	earned	and	not	accrued.
 

For	fiscal	year	2010,	cost	for	Treasury	Housing	Programs	Under	TARP	totaled	$825	million;	for	the	period	ending	September	30,	 

2009,	cost	totaled	$2	million. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

71 

note 6. trouBled aSSet relief program direct loanS and equitY 

inveStmentS, net and aSSet guarantee program 

Direct	Loan,	Equity	Investments	and	Asset	guarantee	Program 

The	OFS	administers	a	number	of	programs	designed	to	help	stabilize	the	financial	system	and	restore	the	flow	of	credit	to	consumers	 

and	businesses.		The	OFS	has	made	direct	loans,		equity	investments	and	entered	into	asset	guarantees.		The	table	below	recaps	OFS	 

programs	by	title	and	type:	 

Program Program Type 

Capital	Purchase	Program Equity	Investment/	Subordinated	Debentures 

American	International	Group,	Inc.	Investment	Program	 Equity	Investment 

Targeted	Investment	Program Equity	Investment 

Automotive	Industry	Financing	Program Equity	Investment	and	Direct	Loan 

Consumer	and	Business	Lending	Initiative: 

•	 Term	Asset-Backed	Securities	Loan	Facility 

•	 SBA	7(a)	Security	Purchase	Program 

•	 Community	Development	Capital	Initiative 

Subordinated	Debentures	 

Direct	Loan	 

Equity	Investment 

Public-Private	Investment	Program Equity	Investment	and	Direct	Loan 

Asset	Guarantee	Program Asset	Guarantee 

The	OFS	applies	the	provisions	of	SFFAS	No.	2	to	account	for	direct	loans,	equity	investments	and	the	asset	guarantee	program.	This	 

standard	requires	measurement	of	the	asset	or	liability	at	the	net	present	value	of	the	estimated	future	cash	flows.	The	cash-flow	estimates	 

for	each	transaction	reflect	the	actual	structure	of	the	instruments.	For	each	of	these	instruments,	analytical	cash	flow	models	generate	 

estimated	cash	flows	to	and	from	the	OFS	over	the	estimated	term	of	the	instrument.	Further,	each	cash-flow	model	reflects	the	specific	 

terms	and	conditions	of	the	program,	technical	assumptions	regarding	the	underlying	assets,	risk	of	default	or	other	losses,	and	other	 

factors	as	appropriate.	The	models	also	incorporate	an	adjustment	for	market	risk	to	reflect	the	additional	return	required	by	the	market	 

to	compensate	for	variability	around	the	expected	losses	reflected	in	the	cash	flows	(the	“unexpected	loss”). 

The	adjustment	for	market	risk	requires	the	OFS	to	determine	the	return	that	would	be	required	by	market	participants	to	enter	into	 

similar	transactions	or	to	purchase	the	assets	held	by	OFS.	Accordingly,	the	measurement	of	the	assets	attempts	to	represent	the	proceeds	 

expected	to	be	received	if	the	assets	were	sold	to	a	market	participant.	The	methodology	employed	for	determining	market	risk	for	equity	 

investments	generally	involves	a	calibration	to	market	prices	of	similar	securities	that	results	in	measuring	equity	investments	at	fair	value.	 

The	adjustment	for	market	risk	for	loans	is	intended	to	capture	the	risk	of	unexpected	losses,	but	not	intended	to	represent	fair	value,	i.e.	 

the	proceeds	that	would	be	expected	to	be	received	if	the	loans	were	sold	to	a	market	participant.	The	OFS	uses	market	observable	inputs,	 

when	available,	in	developing	cash	flows	and	incorporating	the	adjustment	required	for	market	risk.	For	purposes	of	this	disclosure,	the	OFS	 

has	classified	the	various	investments	as	follows,	based	on	the	observability	of	inputs	that	are	significant	to	the	measurement	of	the	asset: 

Quoted prices for Identical Assets:	The	measurement	of	assets	in	this	classification	is	based	on	direct	market	quotes	for	the	specific	 

asset,	e.g.	quoted	prices	of	common	stock. 

Significant Observable Inputs:	The	measurement	of	assets	in	this	classification	is	primarily	derived	from	market	observable	data,	other	 

than	a	direct	market	quote,	for	the	asset.	This	data	could	be	market	quotes	for	similar	assets	for	the	same	entity. 

Significant Unobservable Inputs:	The	measurement	of	assets	in	this	classification	is	primarily	derived	from	inputs	which	generally	 

represent	management’s	best	estimate	of	how	a	market	participant	would	assess	the	risk	inherent	in	the	asset.	These	unobservable	inputs	are	used	because	there	is	little	to	no	direct	market	activity. 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

72 

The	table	below	displays	the	assets	held	by	the	observability	of	inputs	significant	to	the	measurement	of	each	value: 

(Dollars in Millions) As of September 30, 2010 

Quoted Prices Significant Significant 

for Identical Observable Unobservable 

Program Assets Inputs Inputs Total 

Capital	Purchase	Program $ 14,899 $ - $ 33,334	 $ 48,233	 

American	International	Group	Investment	Program1

	 - - 	26,138	 26,138	 

Targeted	Investment	Program	 - - 	1	 1	 

Automotive	Industry	Financing	Program	 - - 	52,709	 52,709	 

Consumer	and	Business	Lending	Initiative,	which	includes	TALF,	SBA	7(a)	securities		 

and	CDCI - - 	966	 966	 

Public-Private	Investment	Program - - 	14,405	 14,405	 

Asset	Guarantee	Program	 2,240 	815	 - 3,055	 

Total TARP Program $ 17,139 $ 815 $ 127,553 $ 145,507 

(Dollars in Millions) As of September 30, 2009 

Quoted Prices Significant Significant 

for Identical Observable Unobservable 

Program Assets Inputs Inputs Total 

Capital	Purchase	Program $ 37,231	 $ - $ 104,440	 $ 141,671	 

American	International	Group	Investment	Program1 - - 	13,152	 13,152	 

Targeted	Investment	Program - 	40,341	 - 40,341	 

Automotive	Industry	Financing	Program	 - - 	42,284	 42,284	 

Consumer	and	Business	Lending	Initiative,	which	includes	TALF	 - - 444	 444	 

Asset	Guarantee	Program	 - 	-	 	1,765	 1,765	 

Total TARP Program $ 37,231 $ 40,341 $ 162,085 $ 239,657 

1		Does	not	give	effect	to	the	proposed	restructuring	as	discussed	under	American	International	Group,	Inc.	Investment	Program	in	this	note. 

	 

The	following	provides	a	description	of	the	methodology	used	to	develop	the	cash	flows	and	incorporate	the	market	risk	into	the	 

measurement	of	the	OFS	assets. 

Financial	Institution	Equity	Investments12 

The	estimated	values	of	preferred	equity	investments	are	the	net	present	values	of	the	expected	dividend	payments	and	repurchases.	 

The	model	assumes	that	the	key	decisions	affecting	whether	or	not	institutions	pay	their	preferred	dividends	are	made	by	each	 

institution	based	on	the	strength	of	their	balance	sheet.	The	model	assumes	a	probabilistic	evolution	of	each	institution’s	asset-toliability	ratio	(the	asset-to-liability	ratio	is	based	on	the	estimated	fair	value	of	the	institution’s	assets	against	its	liabilities).	Each	 

institution’s	assets	are	subject	to	uncertain	returns	and	institutions	are	assumed	to	manage	their	asset	to	liability	ratio	in	such	a	way	 

that	it	reverts	over	time	to	a	target	level.	Historical	volatility	is	used	to	scale	the	likely	evolution	of	each	institution’s	asset-to-liability	 

ratio. 

In	the	model,	when	equity	decreases,	i.e.	the	asset-to-liability	ratio	falls,	institutions	are	increasingly	likely	to	default,	either	because	 

they	enter	bankruptcy	or	are	closed	by	regulators.	The	probability	of	default	is	estimated	based	on	the	performance	of	a	large	sample	 

of	US	banks	over	the	period	1990-2009.	At	the	other	end	of	the	spectrum,	institutions	call	their	preferred	shares	when	the	present	 

value	of	expected	future	dividends	exceeds	the	call	price;	this	occurs	when	equity	is	high	and	interest	rates	are	low.	Inputs	to	the	 

model	include	institution	specific	accounting	data	obtained	from	regulatory	filings,	an	institution’s	stock	price	volatility,	historical	 

12	 This	consists	of		equity	investments	made	under	CPP,	CDCI,	and	TIP. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

73 

13	 See	further	discussion	of	sale	under	Asset	Guarantee	Program	below. 

bank	failure	information,	as	well	as	market	prices	of	comparable	securities	trading	in	the	market.	The	market	risk	adjustment	is	 

obtained	through	a	calibration	process	to	the	market	value	of	certain	trading	securities	of	financial	institutions	within	the	TARP	 

programs.	The	OFS	estimates	the	values	and	projects	the	cash	flows	of	warrants	using	an	option-pricing	approach	based	on	the	 

current	stock	price	and	its	volatility.	Investments	in	common	stock	which	are	exchange	traded	are	valued	at	the	quoted	market	price.	 

AIG	Investment 

The	method	used	to	measure	AIG	preferred	shares	is	broadly	analogous	to	the	approach	used	to	measure	financial	institution	 

preferred	shares.	However,	greater	uncertainty	exists	for	the	valuation	of	preferred	shares	for	AIG.	First,	the	size	of	OFS’s	holding	 

of	preferred	shares	relative	to	AIG’s	total	balance	sheet	makes	the	valuation	extremely	sensitive	to	assumptions	about	the	recovery	 

ratio	for	preferred	shares	should	AIG	enter	default.	Second,	no	comparable	traded	preferred	shares	exist.	Therefore,	OFS	based	the	 

AIG	valuation	on	the	observed	market	values	of	publicly	traded	junior	subordinated	debt,	adjusted	for	OFS’s	position	in	the	capital	 

structure.	Further,	based	on	certain	publicly	available	third	party	sources,	assumptions	about	payouts	in	different	outcomes	and	the	 

probability	of	some	outcomes	were	made.	Finally,	an	external	asset	manager	provided	estimated	fair	value	amounts,	premised	on	 

public	information,	which	also	assisted	OFS	in	its	measurement.	These	different	factors	were	all	used	in	determining	the	best	estimate	 

for	the	AIG	assets.	The	adjustment	for	market	risk	is	incorporated	in	the	data	points	the	OFS	uses	to	determine	the	measurement	for	 

AIG	as	all	points	rely	on	market	data. 

Asset	Guarantee	Program 

As	of	September	30,	2009,	the	value	of	the	asset	guarantee	program	reflected	the	net	present	value	of	estimated	default-claim	 

payments	by	the	OFS,	net	of	income	from	recoveries	on	defaults,	fees	(including	equity	received),	or	other	income.		Default-claim	 

payments	were	based	on	estimated	losses	on	the	guaranteed	assets.	Key	inputs	into	these	estimates	are	forecasted	gross	domestic	 

product,	unemployment	rates	and	home	price	depreciation,	in	a	base	scenario	and	a	stress	scenario.	During	fiscal	year	2010,	an	 

agreement	was	entered	into	to	terminate	the	guarantee	of	OFS	to	pay	for	any	defaults.	After	the	termination,	the	OFS	still	held	 

some	of	the	trust	preferred	securities	(initially	received	as	the	guarantee	fee)	issued	by	Citigroup	and	the	potential	to	receive	$800	 

million	(liquidation	preference)	of	additional	Citigroup	trust	preferred	securities	from	the	FDIC,	see	further	discussion	below	under	 

the	heading	of	Asset	Guarantee	Program.	As	such,	as	of	September	30,	2010,	the	value	of	the	instruments	within	the	AGP	is	the	 

value	of	the	trust	preferred	securities	held	and	the	estimated	cash	flows	associated	with	the	contingent	right	to	receive	additional	trust	 

preferred	securities.	On	September	30,	2010,	the	OFS	entered	into	an	agreement	to	sell13	the	trust	preferred	securities	held	within	 

AGP,	and	the	value	of	the	trust	preferred	securities	is	approximately	the	sales	price	and	the	contingent	right	is	valued	in	a	similar	 

manner	as	the	financial	institutions	preferred	equity	investments	noted	above.	 

Investments	in	Special	Purpose	Vehicles 

The	OFS	has	made	certain	investments	in	financial	instruments	issued	by	special	purpose	vehicles	(SPVs).	Generally,	the	OFS	 

estimates	the	cash	flows	of	the	SPV	and	then	applies	those	cash	flows	to	the	waterfall	governing	the	priority	of	payments	out	of	the	 

SPV. 

For	the	loan	associated	with	the	Term	Asset-Backed	Securities	Loan	Facility	(TALF),	the	OFS	model	derives	the	cash	flows	to	the	 

SPV,	and	ultimately	the	OFS,	by	simulating	the	performance	of	underlying	collateral.		Loss	probabilities	on	the	underlying	collateral	 

are	calculated	based	on	analysis	of	historical	loan	loss	and	charge	off	experience	by	credit	sector	and	subsector.	Historical	mean	loss	 

rates	and	volatilities	are	significantly	stressed	to	reflect	recent	and	projected	performance.		Simulated	losses	are	run	through	cash	 

flow	models	to	project	impairment	to	the	TALF-eligible	securities.		Impaired	securities	are	projected	to	be	purchased	by	the	SPV,	 

requiring	additional	OFS	funding.		Simulation	outcomes	consisting	of	a	range	of	loss	scenarios	are	probability-weighted	to	generate	 

the	expected	net	present	value	of	future	cash	flows.	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

For	the	PPIP	investments	and	loans	made	in	the	Public	Private	Investment	Funds	(PPIF),	the	OFS	model	derives	cash	flows	to	the	SPV	 

by	simulating	the	performance	of	the	collateral	supporting	the	residential	mortgage-backed	securities	(RMBS)	and	commercial	mortgage	 

backed	securities	(CMBS)	held	by	the	PPIF	(i.e.	performance	of	the	residential	and	commercial	mortgages).	The	simulated	cash	flows	 

are	then	run	through	the	waterfall	of	the	RMBS/CMBS	to	determine	the	cash	flows	to	the	SPV.	Once	determined,	the	cash	flows	are	run	 

through	the	waterfall	of	the	PPIF	to	determine	the	expected	cash	flows	to	the	OFS	through	both	the	equity	investments	and	loans.	Inputs	 

used	to	simulate	the	cash	flows	are	unemployment	forecast,	home	price	appreciation/depreciation	forecast,	the	current	term	structure	of	 

interest	rates,	historical	pool	performance	as	well	as	estimates	of	the	net	income	and	value	of	commercial	real	estate	supporting	the	CMBS. 

SBA	7(a)	Securities 

The	valuation	of	SBA	7(a)	securities	is	based	on	the	discounted	estimated	cash-flows	of	the	securities. 

Auto	Industry	Financing	Program	(AIFP)	Investments	and	Loans 

The	valuation	of	equity	investments	was	performed	in	a	manner	that	is	broadly	analogous	to	the	methodology	used	for	financial	 

institution	equity	investments,	with	reliance	on	publicly	traded	securities	to	benchmark	the	assumptions	of	the	valuation	exercise.	 

AIFP	loans	with	potential	value	are	valued	using	rating	agency	default	probabilities. 

As	part	of	the	General	Motors	(GM)	bankruptcy	proceedings,	OFS	received	a	60.8	percent	stake	in	the	common	equity	of	General	 

Motors	Company	(New	GM).	Because	the	unsecured	bond	holders	in	General	Motors	Corporation	(Old	GM)	received	10	percent	 

of	the	common	equity	ownership	and	warrants	in	New	GM,	the	expected	recovery	rate	implied	by	the	current	trading	prices	of	the	 

Old	GM	bonds	provides	the	implied	value	of	the	New	GM	equity.	OFS	used	this	implied	equity	value	to	account	for	its	common	 

stock	ownership	in	New	GM.	The	adjustment	for	market	risk	is	incorporated	in	the	data	points	the	OFS	uses	to	determine	the	 

measurement	for	GM	as	all	points	rely	on	market	data. 

For	GMAC,	Inc	(GMAC	–	currently	known	as	Ally	Financial)	trust	preferred	equity	instruments,	OFS	estimates	the	value	based	 

on	comparable	publicly	traded	securities	adjusted	for	factors	specific	to	GMAC,	such	as	credit	rating.	For	investments	in	GMAC’s	 

common	equity	and	mandatorily	convertible	preferred	stock,	which	is	valued	on	an	“if-converted”	basis,	the	OFS	uses	certain	 

valuation	multiples	such	as	price-to-earnings	and	price-to-tangible	book	value	to	estimate	the	value	of	the	shares.	The	multiples	are	 

based	on	those	of	comparable	publicly-traded	entities.	The	adjustment	for	market	risk	is	incorporated	in	the	data	points	the	OFS	uses	 

to	determine	the	measurement	for	GMAC	as	all	points	rely	on	market	data. 

OFS	values	direct	loans	using	an	analytical	model	that	estimates	the	net	present	value	of	the	expected	principal,	interest,	and	other	 

scheduled	payments	taking	into	account	potential	defaults.	In	the	event	of	an	institution’s	default,	these	models	include	estimates	 

of	recoveries,	incorporating	the	effects	of	any	collateral	provided	by	the	contract.	The	probability	of	default	and	losses	given	default	 

are	estimated	by	using	historical	data	when	available,	or	publicly	available	proxy	data,	including	credit	rating	agencies	historical	 

performance	data.	The	models	also	incorporate	an	adjustment	for	market	risk	to	reflect	the	additional	return	on	capital	that	would	be	 

required	by	a	market	participant. 

Subsidy	Cost 

The	recorded	subsidy	cost	of	a	direct	loan,	equity	investment	or	asset	guarantee	is	based	on	the	estimated	future	cash	flows	calculated	 

as	discussed	above.	The	OFS	actions,	as	well	as	changes	in	legislation,	that	change	these	estimated	future	cash	flows	change	subsidy	 

costs	and	are	recorded	as	modifications.	The	cost	of	a	modification	is	recognized	as	a	modification	expense,	included	in	subsidy	cost,	 

when	the	direct	loan,	equity	investment,	or	asset	guarantee	is	modified.	During	fiscal	year	2010,	modifications	occurred	within	the	 

Capital	Purchase	Program,	the	Asset	Guarantee	Program	and	the	Automotive	Industry	Financing	Program.	During	the	period	ended	 

September	30,	2009,	modifications	occurred	within	the	Capital	Purchase	Program;	Consumer	and	Business	Lending	Initiative;	the	 

American	International	Group,	Inc.	Investment	Program;	and	the	Automotive	Industry	Financing	Program.	See	detailed	discussion	 

74 notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

75 

related	to	each	program	and	related	modifications	below.	Total	net	modification	cost	for	the	year	ended	September	30,	2010	was	 

$47.9	million.	For	the	period	ended	September	30,	2009,	net	modification	costs	were	$412.1	million. 

The	following	table	recaps	gross	loan	or	equity	investment,	subsidy	allowance,	and	net	loan	or	equity	investment	by	TARP	program.	 

Detailed	tables	providing	the	net	composition,	subsidy	cost,	modifications	and	reestimates,	along	with	a	reconciliation	of	subsidy	cost	 

allowances	as	of	and	for	the	year	ended	September	30,	2010	and	the	period	ended	September	30,	2009,	are	provided	at	the	end	of	this	 

Note	for	Direct	Loans	and	Equity	Investments,	detailed	by	program,	and	for	the	Asset	Guarantee	Program	separately. 

Descriptions	and	chronology	of	significant	events	by	program	are	after	the	summary	table. 

(Dollars in Millions) As of September 30, 2010 

Program

Gross Direct 

Loan or Equity 

Investment 

Subsidy 

Allowance 

Net Direct Loan or 

Equity Investment 

Capital	Purchase	Program	 $ 49,779	 $ (1,546) $ 	48,233	 

American	International	Group	Investment	Program1 47,543	 (21,405) 26,138	 

Targeted	Investment	Program	 -	 	1	 1	 

Automotive	Industry	Financing	Program	 67,238	 (14,529) 52,709	 

Consumer	and	Business	Lending	Initiative,		 

					which	includes	TALF,	SBA	7(a)	securities	and	CDCI 908	 58	 966	 

Public-Private	Investment	Program	 13,729	 676	 14,405	 

Total TARP Program $ 179,197 $ (36,745) $ 142,452 

(Dollars in Millions) As of September 30, 2009 

Program

Gross Direct 

Loan or Equity 

Investment 

Subsidy 

Allowance 

Net Direct Loan or 

Equity Investment 

Capital	Purchase	Program	 $ 133,901	 $ 7,770	 $ 141,671	 

American	International	Group	Investment	Program1

	 43,206	 (30,054) 13,152	 

Targeted	Investment	Program	 40,000	 341	 40,341	 

Automotive	Industry	Financing	Program	 73,762	 (31,478) 42,284	 

Consumer	and	Business	Lending	Initiative,	which	includes	TALF 100	 344	 444	 

Public-Private	Investment	Program	 -	 	-	 	-	 

Total TARP Program $ 290,969 $ (53,077) $ 237,892 

1/	Does	not	give	effect	to	the	proposed	restructuring	as	discussed	under	American	International	Group,	Inc.	Investment	Program	in	this	note. 

capital	Purchase	Program 

In	October	2008,	the	OFS	began	implementation	of	the	TARP	with	the	Capital	Purchase	Program	(CPP),	designed	to	help	stabilize	 

the	financial	system	by	assisting	in	building	the	capital	base	of	certain	viable	U.S.	financial	institutions	to	increase	the	capacity	of	 

those	institutions	to	lend	to	businesses	and	consumers	and	support	the	economy.	Under	this	program,	the	OFS	purchased	senior	 

perpetual	preferred	stock	from	qualifying	U.S.	controlled	banks,	savings	associations,	and	certain	bank	and	savings	and	loan	holding	 

companies	(Qualified	Financial	Institution	or	QFI).	The	senior	preferred	stock	has	a	stated	dividend	rate	of	5.0%	through	year	five,	 

increasing	to	9.0%	in	subsequent	years.	The	dividends	are	cumulative	for	bank	holding	companies	and	subsidiaries	of	bank	holding	 

companies	and	non-cumulative	for	others	and	payable	when	and	if	declared	by	the	institution’s	board	of	directors.	Under	the	original	 

terms	of	the	senior	preferred	stock	the	QFI	may	not	redeem	the	shares	within	the	first	three	years	of	the	date	of	the	investment,	unless	 

it	had	received	the	proceeds	of	one	or	more	Qualified	Equity	Offerings	(QEO)14	which	results	in	aggregate	gross	proceeds	to	the	QFI	 

of	not	less	than	25.0%	of	the	issue	price	of	the	senior	preferred	stock.	QFIs	that	are	Sub-chapter	S	corporations	issued	subordinated	 

14	 A	Qualified	Equity	Offering	is	defined	as	the	sale	by	the	QFI	after	the	date	of	the	senior	preferred	stock	investment	of	Tier	1	perpetual	preferred	stock	or	 

common	stock	for	cash. 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

76 

debentures	in	order	to	maintain	compliance	with	the	Internal	Revenue	Code.	The	maturity	of	the	subordinated	debentures	is	30	 

years	and	interest	rates	are	7.7%	for	the	first	5	years	and	13.8%	for	the	remaining	years.	 

In	February	2009	and	May	2009,	the	United	States	Congress	passed	the	American	Recovery	and	Reinvestment	Act	of	2009	and	the	 

Helping	Families	Save	Their	Homes	Act	of	2009,	respectively.	These	acts	contained	amendments	to	the	EESA	(EESA	Amendments)	 

which	require	the	Secretary	to	allow	QFIs	to	repay	at	any	time,	subject	to	regulatory	approval,	regardless	of	whether	the	25.0%	or	 

greater	QEO	was	accomplished.	The	ability	of	a	QFI	to	repay	the	OFS	investment	prior	to	year	3	or	a	25.0%	QEO	was	not	considered	 

in	the	original	subsidy	cost	estimate.	Therefore,	a	modification	cost	of	$77.7	million	was	recorded	for	the	period	ended	September	30,	 

2009	as	a	result	of	these	amendments. 

In	addition	to	the	senior	preferred	stock,	the	OFS	received	warrants,	as	required	by	section	113(d)	of	EESA,	from	public	QFIs	to	 

purchase	a	number	of	shares	of	common	stock.	The	warrants	have	an	aggregate	exercise	price	equal	to	15.0%	of	the	total	senior	 

preferred	stock	investment.	The	exercise	price	per	share	used	to	determine	the	number	of	shares	of	common	stock	subject	to	the	warrant	 

was	calculated	based	on	the	average	closing	prices	of	the	common	stock	on	the	20	trading	days	ending	on	the	last	day	prior	to	the	 

date	the	QFI’s	application	was	preliminarily	approved	for	participation	in	the	program.	The	warrants	include	customary	anti-dilution	 

provisions.	Prior	to	December	31,	2009,	in	the	event	a	public	QFI	completed	one	or	more	QEOs	with	aggregate	gross	proceeds	of	not	 

less	than	100.0%	(100.0%	QEO)	of	the	senior	perpetual	preferred	stock	investment,	the	number	of	shares	subject	to	the	warrants	was	 

reduced	by	50.0%.	As	of	September	30,	2009,	19	QFIs	had	reduced	shares	pursuant	to	the	provision.	As	of	December	31,	2009,	a	total	 

of	38	QFIs	reduced	the	number	of	shares	available	under	the	warrants	as	a	result	of	this	provision.	The	warrants	have	a	10	year	term.	 

Subsequent	to	December	31,	2009,	the	OFS	may	exercise	any	warrants	held	in	whole	or	in	part	at	any	time. 

The	OFS	received	warrants	from	non-public	QFIs	for	the	purchase	of	additional	senior	preferred	stock	(or	subordinated	debentures	if	 

appropriate)	with	a	stated	dividend	rate	of	9.0%	(13.8%	interest	rate	for	subordinate	debentures)	and	a	liquidation	preference	equal	to	5.0%	 

of	the	total	senior	preferred	stock	(additional	subordinate	debenture)	investment.	These	warrants	were	immediately	exercised	and	resulted	 

in	the	OFS	holding	additional	senior	preferred	stock	(subordinated	debentures)	(collectively	referred	to	as	“warrant	preferred	stock”)	of	 

non-public	QFIs.	The	OFS	did	not	receive	warrants	from	financial	institutions	considered	Community	Development	Financial	Institutions	 

(CDFIs).	A	total	of	35	and	20	institutions	considered	CDFIs	were	in	the	CPP	portfolio	as	of	September	30,	2010,	and	2009,	respectively.	 

The	EESA	Amendments	previously	discussed	also	allow	the	Secretary	to	liquidate	warrants	associated	with	repurchased	senior	 

preferred	stock	at	the	market	price.	In	addition,	a	QFI,	upon	the	repurchase	of	its	senior	preferred	stock,	also	has	the	contractual	right	 

to	repurchase	the	common	stock	warrants	at	the	market	price. 

The	following	table	provides	key	data	points	related	to	the	CPP.	In	addition,	106	and	38	QFIs	have	not	declared	and	paid	one	or	 

more	dividends	to	the	OFS	under	CPP	as	of	September	30,	2010	and	September	30,	2009,	respectively: 

CPP INvESTMENT 

Fiscal Year Period Ended 

(Dollars in Billions) 2010 September 30, 2009 

Number	of	Institutions	Participating 707	 685	 

Outstanding	Beginning	Balance,	Investment	in	CPP	Institutions $ 133.9	 $ 0.0	 

Purchase	Price,	Current	Year	Investments 0.3	 204.6	 

Repayments	and	Sales	of	Investments (81.4) (70.7) 

Write-offs	and	Losses (2.6) -	 

Transfers	to	CDCI (0.4) -

Outstanding Ending Balance, Investment in CPP Institutions $ 49.8 $ 133.9 

Interest	and	Dividends	Collections $ 3.1	 $ 6.8	 

Net	Proceeds	from	Sales	and	Repurchases	of	Assets	in	Excess	of	Cost $ 6.7	 $ 2.9 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

77 

The	task	of	managing	the	investments	in	CPP	banks	may	require	that	the	OFS	enter	into	certain	agreements	to	exchange	and/or	 

convert	existing	investments	in	order	to	achieve	the	best	possible	return	for	taxpayers.	In	the	period	ended	September	30,	2009,	the	 

OFS	entered	into	an	exchange	agreement	with	Citigroup	under	which	the	OFS	exchanged	$25.0	billion,	at	$3.25	per	share,	of	its	 

investment	in	senior	preferred	stock	for	7.7	billion	common	shares	of	Citigroup.	This	exchange	transaction	was	not	considered	in	the	 

original	subsidy	cost	estimate	for	CPP.	As	a	result,	the	OFS	recorded	a	modification	cost	of	$1.8	billion	for	the	period	ended	September	 

30,	2009.	In	April	2010,	the	OFS	began	a	process	of	selling	the	Citigroup	common	stock.	As	of	September	30,	2010,	the	OFS	had	sold	 

approximately	4.0	billion	shares	for	total	proceeds	of	$16.1	billion	resulting	in	proceeds	from	sales	in	excess	of	cost	of	$3.0	billion.	As	of	 

September	30,	2010,	the	OFS	continues	to	hold	approximately	3.7	billion	shares	of	Citigroup	common	stock	with	an	estimated	fair	value	 

of	$14.3	billion,	based	on	the	September	30,	2010	closing	price	of	$3.91	per	share.	Included	in	shares	held	as	of	September	30,	2010,	is	 

approximately	77.2	million	shares	which	were	sold	prior	to	or	on	September	30,	2010,	but	did	not	settle	until	October	2010.	Proceeds	 

from	these	sales	were	$302.7	million	resulting	in	proceeds	from	sales	in	excess	of	cost	of	$51.9	million. 

In	addition	to	the	above	transaction,	the	OFS	has	entered	into	other	transactions	with	various	financial	institutions	including,	 

exchanging	existing	preferred	shares	for	a	like	amount	of	non	tax-deductible	Trust	Preferred	Securities,	shares	of	mandatorily	 

convertible	preferred	securities	and	selling	preferred	shares	to	acquiring	financial	institutions.	Generally	the	transactions	are	entered	 

into	with	financial	institutions	in	poor	financial	condition	with	a	high	likelihood	of	failure.	As	such,	in	accordance	with	SFFAS	 

No.	2,	these	transactions	are	considered	workouts	and	not	modifications.	The	changes	in	cost	associated	with	these	transactions	are	 

captured	in	the	year-end	reestimates.	 

During	fiscal	year	2010,	certain	financial	institutions	participating	in	CPP	which	are	in	good	standing	became	eligible	to	exchange	 

their	OFS-held	stock	investments	to	preferred	stock	under	the	Community	Development	Capital	Initiative	(CDCI)	of	the	Consumer	 

and	Business	Lending	Initiative	Program	(CBLI).	The	exchange	of	stock	is	treated	as	a	repayment	of	CPP	investments	from	the	 

participating	financial	institution	and	a	distribution	for	the	CDCI.	See	further	discussion	of	the	CBLI	and	CDCI	below.	This	was	not	 

considered	in	the	formulation	estimate	for	the	CPP	program.	As	a	result,	OFS	recorded	a	modification	cost	savings	of	$31.9	million	in	 

the	CPP	program	for	this	option	during	fiscal	year	2010.	 

Failed	institutions 

In	November	2009,	a	CPP	participant,	CIT	Group,	filed	for	Chapter	11	Bankruptcy.	The	OFS	had	invested	$2.3	billion	in	senior	 

preferred	stock	of	CIT	Group	and	received	a	warrant	for	the	purchase	of	common	stock.	In	fiscal	year	2010,	as	a	result	of	the	 

bankruptcy	proceedings,	the	OFS	wrote	off	the	$2.3	billion	investment	in	CIT	Group	and	will	not	recover	any	amounts	associated	 

with	it.	In	addition,	during	fiscal	year	2010,	four	other	financial	institutions	within	the	CPP	portfolio	either	filed	for	bankruptcy	 

or	were	closed	by	their	regulators.	The	OFS	had	invested	approximately	$396.3	million	into	these	institutions.	The	OFS	does	not	 

anticipate	recovery	on	these	investments	and	therefore	the	value	of	these	shares	are	reflected	at	zero	as	of	September	30,	2010.	The	 

ultimate	amount	received,	if	any,	from	the	investments	in	institutions	that	filed	for	bankruptcy	and	institutions	closed	by	regulators	 

will	depend	primarily	on	the	outcome	of	the	bankruptcy	proceedings	and	of	the	receivership. 

American	International	group,	Inc.	Investment	Program	(AIg) 

The	OFS	provided	assistance	to	certain	systemically	significant	financial	institutions	on	a	case	by	case	basis	in	order	to	provide	 

stability	to	institutions	that	are	critical	to	a	functioning	financial	system	and	are	at	substantial	risk	of	failure	as	well	as	to	prevent	 

broader	disruption	to	financial	markets.	 

In	November	2008,	the	OFS	invested	$40.0	billion	in	AIG’s	cumulative	Series	D	perpetual	cumulative	preferred	stock	with	a	 

dividend	rate	of	10.0%	compounded	quarterly.	The	OFS	also	received	a	warrant	for	the	purchase	of	approximately	53.8	million	 

shares	(adjusted	to	2.7	million	shares	after	a	20:1	reverse	stock	split)	of	AIG	common	stock.	On	April	17,	2009,	AIG	and	the	OFS	 

restructured	their	November	2008	agreement.	Under	the	restructuring,	the	OFS	exchanged	$40.0	billion	of	cumulative	Series	D	 

preferred	stock	for	$41.6	billion	of	non-cumulative	10.0%	Series	E	preferred	stock.	The	amount	of	Series	E	preferred	stock	is	equal	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

78 

to	the	original	$40.0	billion,	plus	approximately	$733.0	million	in	undeclared	dividends	as	of	the	February	1,	2009,	scheduled	 

quarterly	dividend	payment	date,	$15.0	million	in	dividends	compounded	on	the	undeclared	dividends,	and	an	additional	$855.0	 

million	in	dividends	from	February	1,	2009,	but	not	paid	as	of	April	17,	2009.	AIG’s	restructured	agreement	kept	the	quarterly	 

dividend	payment	dates	of	May	1,	August	1,	November	1,	and	February	1,	as	established	by	the	original	November	2008	agreement.	 

The	original	subsidy	cost	estimate	did	not	consider	this	restructuring,	which	resulted	in	a	modification	cost	of	$127.2	million	being	 

recorded.	The	OFS	requested	and	received	an	appropriation	for	this	additional	cost	in	the	period	ended	September	30,	2009. 

In	addition	to	the	exchange,	the	OFS	agreed	to	make	available	an	additional	$29.8	billion	capital	facility	to	allow	AIG	to	draw	 

additional	funds	if	needed	to	assist	in	AIG’s	restructuring.	The	OFS	investment	related	to	the	capital	facility	consists	of	Series	F	noncumulative	perpetual	preferred	stock	with	no	initial	liquidation	preference,	and	a	warrant	for	the	purchase	of	3,000	shares	(adjusted	 

to	150	shares	after	a	20:1	reverse	stock	split	of	AIG	common	stock).	This	liquidation	preference	increases	with	any	draw	down	by	 

AIG	on	the	facility.	The	dividend	rate	applicable	to	these	shares	is	10.0%	and	is	payable	quarterly,	if	declared,	on	the	outstanding	 

liquidation	preference.	For	the	fiscal	year	ended	September	30,	2010	and	the	period	ended	September	30,	2009,	$4.3	billion	and	$3.2	 

billion,	respectively,	has	been	funded	by	the	OFS	to	AIG	under	this	additional	capital	facility.	Consistent	with	SFFAS	No.2,	the	 

unused	portion	of	the	AIG	capital	facility	is	not	recognized	as	an	asset	as	of	September	30,	2010	and	2009. 

According	to	the	terms	of	the	preferred	stock,	if	AIG	misses	four	dividend	payments,	the	OFS	may	appoint	to	the	AIG	board	of	 

directors,	the	greater	of	two	members	or	20.0%	of	the	total	number	of	directors	of	the	Company.	The	ability	to	appoint	such	directors	 

shall	remain	in	place	until	dividends	payable	on	all	outstanding	shares	of	the	Series	E	Preferred	Stock	have	been	declared	and	paid	in	 

full	for	four	consecutive	quarterly	dividend	periods,	subject	to	revesting	for	each	and	every	subsequent	missed	dividend	payment.	On	 

April	1,	2010,	the	OFS	appointed	two	directors	to	the	Company’s	board	as	a	result	of	non-payments	of	dividends.	The	additional	two	 

directors	increased	the	total	number	of	AIG	directors	to	twelve. 

On	September	30,	2010,	the	Treasury,	Federal	Reserve	Bank	of	New	York	and	AIG	announced	plans	for	a	restructuring	of	the	Federal	 

Government’s	investments	in	AIG.	The	restructuring	plan	provides	for,	among	other	items,	the	conversion	of	currently	outstanding	 

Series	E	&	F	preferred	stock	to	1.092	billion	shares	of	AIG	common	stock.	Under	the	plan,	the	current	undrawn	portion	of	Series	 

F	will	be	available	to	AIG	for	the	repayment	of	certain	amounts	owed	to	the	Federal	Reserve	Bank	of	New	York	and	for	general	 

corporate	liquidity.	The	plan	is	still	subject	to	a	number	of	conditions	which	must	be	met	in	order	to	close.	OFS	management	 

believes	that	the	implementation	of	this	plan	would	not	result	in	additional	losses	on	the	AIG	investment.		See	additional	discussion	 

regarding	the	proposed	restructuring	plan	within	the	Management’s	Discussion	and	Analysis	section	of	the	Agency	Financial	Report. 

Targeted	Investment	Program 

The	Targeted	Investment	Program	(TIP)	was	designed	to	prevent	a	loss	of	confidence	in	financial	institutions	that	could	result	 

in	significant	market	disruptions,	threatening	the	financial	strength	of	similarly	situated	financial	institutions,	impairing	broader	 

financial	markets,	and	undermining	the	overall	economy.		The	OFS	considered	institutions	as	candidates	for	the	TIP	on	a	case-bycase	basis,	based	on	a	number	of	factors	including	the	threats	posed	by	destabilization	of	the	institution,	the	risks	caused	by	a	loss	of	 

confidence	in	the	institution,	and	the	institution’s	importance	to	the	nation’s	economy.		 

In	the	period	ended	September	30,	2009,	the	OFS	invested	$20.0	billion	in	each	of	Bank	of	America	and	Citigroup	under	TIP.		 

Under	each	agreement,	the	OFS	purchased	$20.0	billion	of	perpetual	preferred	stock	with	an	annual	cumulative	dividend	rate	of	8%	 

and	received	a	warrant	for	the	purchase	of	common	stock.	In	December	2009,	Bank	of	America	and	Citigroup	repaid	the	amounts	 

invested	by	OFS	along	with	dividends	through	the	date	of	repayment.	The	amounts	remaining	within	the	TIP	subsidy	cost	allowance	 

represent	the	estimated	value	of	the	Citigroup	warrant	still	held	by	the	program. 

During	fiscal	year	2010,	the	OFS	received	$1.1	billion	in	dividends	under	the	TIP	and	proceeds	of	$1.2	billion	from	the	auction	of	the	 

Bank	of	America	warrants.	In	the	period	ended	September	30,	2009,	the	OFS	received	$1.9	billion	in	dividends	under	this	program. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

79 

Automotive	Industry	Financing	Program 

The	Automotive	Industry	Financing	Program	(AIFP)	was	designed	to	prevent	a	significant	disruption	of	the	American	automotive	 

industry,	which	could	have	had	a	negative	effect	on	the	economy	of	the	United	States.	 

general	Motors	(gM) 

In	the	period	ended	September	30,	2009,	the	OFS	provided	$49.5	billion	to	GM	through	various	loan	agreements	including	the	 

initial	loan	for	general	and	working	capital	purposes	and	the	final	loan	for	debtor	in	possession	(DIP)	financing	while	GM	was	 

in	bankruptcy.	The	OFS	assigned	its	rights	in	these	loans	(with	the	exception	of	$986.0	million	which	remained	in	GM	for	wind	 

down	purposes	and	$7.1	billion	that	would	be	assumed)	and	previously	received	common	stock	warrants	to	a	newly	created	entity	 

(General	Motors	Company).	General	Motors	Company	used	the	assigned	loans	and	warrants	to	credit	bid	for	substantially	all	of	the	 

assets	of	GM	in	a	sale	pursuant	to	Section	363	of	the	Bankruptcy	Code.	Upon	closing	of	the	Section	363	sale,	the	credit	bid	loans	 

and	warrants	were	extinguished	and	the	OFS	received	$2.1	billion	in	9.0%	cumulative	perpetual	preferred	stock	and	60.8%	of	the	 

common	equity	interest	in	General	Motors	Company.	In	addition,	General	Motors	Company	assumed	$7.1	billion	of	the	DIP	loan,	 

simultaneously	paying	$0.4	billion	(return	of	warranty	program	funds),	resulting	in	a	balance	of	$6.7	billion.	The	assets	received	by	 

the	OFS	as	a	result	of	the	assignment	and	Section	363	sale	are	considered	recoveries	of	the	original	loans	for	subsidy	cost	estimation	 

purposes.	Recovery	of	the	$986.0	million	remaining	in	GM	is	subject	to	the	final	outcome	of	the	bankruptcy	proceedings.	During	 

fiscal	year	2010,	the	OFS	had	received	the	remaining	$6.7	billion	as	full	repayment	of	the	DIP	loan	assumed.	In	addition	as	of	 

September	30,	2010	the	OFS	had	received	$188.8	million	in	dividends	and	$343.1	million	in	interest	on	General	Motors	Company	 

preferred	stock	and	the	loan	prior	to	repayment,	respectively.	The	OFS	received	$34.1	million	in	dividends	on	the	preferred	stock	and	 

no	interest	on	the	loan	during	the	period	ended	September	30,	2009.		On	October	27,	2010,	the	OFS	signed	a	Letter	Agreement	with	 

GM	agreeing	to	sell	the	preferred	stock	to	GM.		GM	will	repurchase	the	preferred	stock	for	102%	of	the	liquidation	amount. 

OFS	has	not	yet	determined	whether	to	sell	any	of	its	shares	of	General	Motors	Company	common	stock	in	connection	with	the	 

company’s	proposed	initial	public	offering.	Due	to	the	uncertainty	as	to	the	market	price	that	would	result	from	the	initial	public	 

offering,	the	potential	effect	on	the	value	of	OFS’s	investment	in	General	Motors	Company	is	unknown	and	could	be	significantly	 

different	from	the	September	30,	2010	financial	statement	value. 

gMAc	LLc	rights	Offering 

In	December	2008,	the	OFS	agreed,	in	principal,	to	lend	up	to	$1.0	billion	to	GM	for	participation	in	a	rights	offering	by	GMAC	 

(now	known	as	Ally	Financial,	Inc.)	in	support	of	GMAC’s	reorganization	as	a	bank	holding	company.	The	loan	was	secured	by	 

the	GMAC	common	interest	acquired	in	the	rights	offering.	The	loan	agreement	specified	that	at	any	time,	at	the	option	of	the	 

lender	(OFS),	the	unpaid	principal	and	accrued	interest	was	exchangeable	for	the	membership	interest	purchased	by	GM	during	 

the	rights	offering.	The	loan	was	funded	for	$884.0	million.	In	May	2009,	the	OFS	exercised	its	exchange	option	under	the	loan	 

and	received	190,921	membership	interests,	representing	approximately	35.36%	of	the	voting	interest	at	the	time,	in	GMAC	in	full	 

satisfaction	of	the	loan.	In	addition,	during	the	period	ended	September	30,	2009,	the	OFS	received	$9.1	million	in	interest	while	the	 

loan	was	outstanding.	The	conversion	to	GMAC	shares	was	not	considered	in	the	original	subsidy	cost.	As	a	result,	a	modification	 

was	recorded	reducing	the	estimated	subsidy	cost	by	approximately	$1.6	billion	for	the	period	ended	September	30,	2009.	As	of	 

September	30,	2010	the	OFS	continues	to	hold	the	GMAC	shares	obtained	in	this	transaction	(see	further	discussion	of	OFS’s	 

GMAC	holdings	under	GMAC,	Inc.	in	this	note.). 

chrysler	Holding	LLc	(chrysler) 

In	the	period	ended	September	30,	2009,	the	OFS	invested	approximately	$5.9	billion	in	Chrysler.	Specifically,	$4.0	billion	was	 

for	general	and	working	capital	purposes	(General	Purpose	Loan)	and	$1.9	billion	was	for	DIP	financing	while	Chrysler	was	in	 

bankruptcy	(DIP	Loan).	Upon	entering	bankruptcy,	a	portion	of	Chrysler	was	sold	to	a	newly	created	entity	(New	Chrysler).	Under	 

the	terms	of	the	bankruptcy	agreement,	$500.0	million	of	the	general	purpose	loan	was	assumed	by	the	New	Chrysler	(see	discussion	 

under	Chrysler	Exit	for	discussion	of	note	terms).			In	fiscal	year	2010,	the	OFS	received	approximately	$1.9	billion	and	subsequently	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

80 

wrote-off	the	remaining	$1.6	billon	of	the	General	Purpose	Loan.	Recovery	of	the	DIP	Loan	is	subject	to	the	bankruptcy	process	 

associated	with	the	Chrysler	assets	remaining	after	the	sale	to	New	Chrysler.	During	fiscal	year	2010	the	OFS	received	$40.2	million	 

in	recoveries	on	the	DIP	loan.	OFS	did	not	receive	any	interest	on	these	loans	during	the	fiscal	year	2010.	During	the	period	ended	 

September	30,	2009,	the	OFS	had	received	$52.1	million	in	interest	payments	from	these	loans. 

chrysler	Exit 

In	May	2009,	the	OFS	committed	to	make	a	loan	to	New	CarCo	Acquisition	LLC	(Chrysler	Group	LLC),	the	company	that	 

purchased	certain	assets	of	Chrysler.	The	final	terms	of	the	credit	agreement	resulted	in	a	loan	to	New	Chrysler	for	approximately	 

$7.1	billion.	This	amount	consists	of	a	commitment	to	fund	up	to	$6.6	billion	of	new	funding	and	$500.0	million	of	assumed	debt15	 

from	the	OFS	January	2,	2009	General	Purpose	Loan	with	Chrysler,	described	above.	The	loan	was	secured	by	a	first	priority	lien	on	 

the	assets	of	Chrysler	Group	LLC.	Funding	of	the	loan	was	available	in	two	installments	or	tranches	(B	and	C),	each	with	varying	 

availability	and	terms.	The	following	describes	the	terms	of	Tranches	B	and	C. 

The	maximum	funding	under	Tranche	B	was	$2.0	billion	and	was	funded	on	the	closing	date	of	the	agreement.	Interest	on	Tranche	B	 

is	generally16	3	Month	Eurodollar	plus	5.0%	margin.	Tranche	B	is	due	and	payable	on	December	10,	2011,	provided	that	the	Chrysler	 

Group	LLC	may	elect	to	extend	the	maturity	of	up	to	$400.0	million	of	Tranche	B	to	the	Tranche	C	maturity	date.	If	so	elected,	the	 

applicable	margin	will	increase	from	5.0%	to	6.5%. 

The	maximum	funding	under	Tranche	C	is	approximately	$4.64	billion,	of	which	approximately	$2.58	billion	was	funded	on	the	closing	 

date.	Interest	on	Tranche	C	is	3	Month	Eurodollar	plus	7.91%	margin.	On	June	10,	2016,	the	Tranche	C	loan	is	due	to	be	prepaid	to	the	 

extent	the	funded	amount	is	greater	than	50.0%	of	the	closing	date	commitment	amount,	taking	into	consideration	amounts	previously	 

prepaid	as	a	voluntary	prepayment.	The	remaining	balance	of	the	Tranche	C	loan	is	due	and	payable	on	June	10,	2017. 

Interest	on	both	the	Tranche	B	and	Tranche	C	was	payable	in-kind	through	December	2009	and	added	to	the	principal	balance	of	 

the	respective	Tranche.	Subsequently,	interest	is	paid	quarterly	beginning	on	March	31,	2010.	In	addition,	additional	in-kind	interest	 

is	being	accrued	in	the	amount	of	$17.0	million	per	quarter.	Such	amount	will	be	added	to	the	Tranche	C	loan	balance	subject	to	 

interest	at	the	appropriate	rate. 

The	OFS	also	obtained	other	consideration,	including	a	9.85%	equity	interest	in	Chrysler	Group	LLC	and	additional	notes17	with	 

principal	balances	of	$288.0	million	and	$100.0	million18.	As	of	September	30,	2009,	the	OFS	had	funded	approximately	$4.6	 

billion	under	this	facility,	which	was	outstanding	as	of	September	30,	2010	and	2009.	During	fiscal	year	2010,	the	OFS	received	 

$381.8	million	in	interest	payments.	No	interest	was	due	for	payment	in	the	period	ended	September	30,	2009.	For	the	year	ended	 

September	30,	2010,	the	OFS	has	recognized	$344.4	million	of	in-kind	interest	that	has	been	capitalized.	No	in-kind	interest	was	 

recognized	in	the	period	ended	September	30,	2009. 

chrysler	Financial 

In	January	2009,	the	OFS	loaned	$1.5	billion	to	Chrysler	LB	Receivables	Trust	(Chrysler	Trust),	a	special	purpose	entity	created	 

by	Chrysler	Financial,	to	finance	the	extension	of	new	consumer	auto	loans.	On	July	14,	2009,	the	loan	and	additional	note	of	 

$15.0	million	were	paid	in	full.	In	addition,	during	the	period	ended	September	30,	2009,	the	OFS	received	$7.4	million	in	interest	 

payments	while	this	loan	was	outstanding. 

15	 The	assumed	debt	contains	the	same	terms	as	the	Tranche	C	loan	with	respect	to	mandatory	prepayment,	interest	and	maturity. 

16	 For	both	Tranche	B	and	C,	an	Alternative	Base	Rate	(defined	in	agreement)	is	available	at	the	option	of	the	OFS	in	certain	situations	defined	in	the	 

agreement. 

17	 The	additional	notes	bear	the	same	interest	rate	and	maturity	as	the	Tranche	C	loan. 

18	 Interest	begins	to	accrue	on	this	note	after	certain	events,	defined	in	the	credit	agreement,	have	taken	place. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

81 

Auto	Supplier	Support	Program 

In	April	2009,	under	the	Auto	Supplier	Support	Program,	OFS	committed	$5.0	billion	in	financing	for	the	Auto	Supplier	Program	 

as	follows:	$3.5	billion	for	GM	suppliers	and	$1.5	billion	for	Chrysler	suppliers.	These	commitments	were	subsequently	reduced	to	 

$2.5	billion	for	GM	suppliers	and	$1.0	billion	for	Chrysler	suppliers	per	the	loan	agreements.	Under	the	program,	suppliers	were	 

able	to	sell	their	receivable	to	a	SPV,	created	by	the	respective	automaker,	at	a	discount.	The	OFS	provided	approximately	$413.1	 

million	of	funding	to	this	program	during	the	period	ended	September	30,	2009.	The	bankruptcy	of	Chrysler	and	GM	did	not	impact	 

this	program,	as	both	companies	were	allowed	to	continue	paying	suppliers	while	in	bankruptcy.	The	OFS	received	$5.9	million	in	 

interest	during	the	period	ended	September	30,	2009.	The	$413.1	million	was	repaid	in	fiscal	year	2010	along	with	approximately	 

$9.0	million	in	interest	and	$101.1	million	in	fees	and	other	income.	 

Auto	Warranty	Program 

In	April	2009	and	May	2009,	the	OFS	loaned	approximately	$280.0	million	to	Chrysler	and	$360.6	million	to	GM,	respectively,	to	 

capitalize	SPVs	created	by	Chrysler	and	GM	to	finance	participation	in	the	Warranty	Commitment	Program	(warranty	program).	 

The	OFS	also	received	additional	notes	as	consideration	for	its	loans	in	an	amount	equal	to	6.67%	of	the	funded	amounts.	The	 

warranty	program	covered	all	warranties	on	new	vehicles	purchased	from	Chrysler	and	GM	during	the	period	in	which	Chrysler	and	 

GM	were	restructuring.	In	the	period	ended	September	30,	2009,	the	OFS	received	all	principal	amounts	due	on	the	Auto	Warranty	 

Program	loans	from	both	GM	and	Chrysler	and	terminated	the	warranty	program.	Interest	in	the	amount	of	$3.1	million	was	 

received	by	the	OFS	from	Chrysler	during	the	period	ended	September	30,	2009.	No	interest	was	received	in	connection	with	the	 

GM	repayment.	The	GM	additional	note	was	assigned	to	the	General	Motors	Company	as	part	of	the	bankruptcy	proceedings	and	 

extinguished	as	part	of	the	credit	bid	for	the	assets	of	old	GM.	In	fiscal	year	2010,	the	Chrysler	additional	note	was	written	off	with	 

the	remaining	portion	of	the	Chrysler	General	Purpose	Loan.	 

gMAc	Inc.	(gMAc-currently	known	as	Ally	Financial) 

In	December	2008,	the	OFS	purchased	preferred	membership	interests	for	$5.0	billion	that	were	converted	to	senior	preferred	 

stock	with	an	8.0%	annual	distribution	right	(dividends)	from	GMAC.	Under	the	agreement,	GMAC	issued	warrants	to	the	 

OFS	to	purchase,	for	a	nominal	price,	additional	preferred	equity	in	an	amount	equal	to	5.0%	of	the	preferred	equity	purchased.	 

These	warrants	were	exercised	at	closing	of	the	investment	transaction.	The	additional	preferred	stock	provided	for	a	9.0%	annual	 

distribution	right.	During	the	period	ended	September	30,	2009,	the	OFS	received	$265.2	million	in	dividends	associated	with	these	 

preferred	and	warrant	preferred	shares.	On	December	30,	2009,	this	preferred	stock	(including	the	warrant	preferred	shares)	was	 

exchanged	for	105.0	million	shares	of	GMAC’s	Series	F-2	Fixed	Rate	Cumulative	Mandatorily	Convertible	Preferred	Stock	(Series	 

F-2)	shares	(described	below).	This	exchange	was	not	considered	in	the	original	subsidy	estimate	for	GMAC;	therefore	OFS	recorded	 

a	modification	cost	of	$1.5	billion	in	fiscal	year	2010. 

In	May	2009,	the	OFS	published	a	non-binding	term	sheet	to	invest	$13.1	billion	to	support	GMAC,	subject	to	definitive	 

documentation	and	GMAC’s	capital	needs.	In	the	period	ended	September	30,	2009,	OFS	invested	$7.5	billion	(150.0	million	shares)	in	 

9.0%	Mandatorily	Convertible	Preferred	Stock	in	GMAC	to	support	its	ability	to	originate	new	loans	to	Chrysler	dealers	and	consumers,	 

and	help	address	GMAC’s	capital	needs.	The	preferred	stock	have	a	liquidation	preference	of	$50	per	share	and	are	convertible	in	whole	 

or	in	part,	at	any	time,	at	the	option	of	GMAC,	subject	to	the	approval	of	the	Federal	Reserve.		In	addition,	the	OFS	received	warrants	 

to	purchase	an	additional	7.5	million	shares	of	Mandatorily	Convertible	Preferred	Stock,	which	were	exercised	upon	closing	of	the	 

transaction.	In	December	2009,	97.5	million	shares	(which	include	the	warrant	preferred	shares)	were	exchanged	for	GMAC’s	Series	F-2	 

shares	(discussed	below)	and	the	remaining	60	million	were	converted	to	259,200	shares	of	GMAC	common	stock.	 

In	addition	to	the	exchanges	and	conversions	discussed	above,	on	December	30,	2009,	the	OFS	entered	into	the	following	transactions	 

with	GMAC	to	assist	it	in	complying	with	the	requirements	of	the	Federal	Reserve	Board’s	Supervisory	Capital	Assessment	Program: 

1.	 Purchased	$2.54	billion	(2.54	million	shares	with	a	face	value	of	$1,000)	of	8.0%	Trust	Preferred	Securities	and	received	 

a	warrant	for	an	additional	$127	million	of	the	Trust	Preferred	Securities,	which	was	immediately	exercised.	GMAC	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

82 

issued	$2.747	billion	of	subordinate	debentures	to	a	trust,	established	by	GMAC,	which	in	turn	issued	the	trust	preferred	 

securities.	The	trust	preferred	securities	pay	cumulative	cash	distributions	of	8%.	GMAC	may	defer	payments	on	the	 

debentures	(and	the	trust	may	defer	distributions	on	the	trust	preferred	securities)	for	a	period	of	up	to	20	consecutive	 

quarters,	but	such	distributions	will	continue	to	accrue	through	any	such	deferral	period.	GMAC	has	not	elected	to	defer	 

payments.	The	Trust	Preferred	Securities	have	no	stated	maturity	date,	but	must	be	redeemed	upon	the	redemption	or	 

maturity	of	the	debentures	(February	15,	2040). 

2.	 Purchased	$1.25	billion	(25	million	shares)	of	GMAC’s	Series	F-2,	$50	liquidation	preference	per	share.	The	Series	F-2	 

is	convertible	into	GMAC	common	stock	at	the	option	of	GMAC	subject	to	the	approval	of	the	Federal	Reserve	and	 

consent	by	the	OFS	or	pursuant	to	an	order	by	the	Federal	Reserve	compelling	such	conversion.	The	Series	F-2	is	also	 

convertible	at	the	option	of	the	OFS	upon	certain	specified	corporate	events.	Absent	an	optional	conversion,	the	Series	 

F-2	will	automatically	convert	to	common	stock	after	7	years	from	the	issuance	date.	The	initial	conversion	rate	is	.00432	 

and	is	subject	to	a	“reset”	such	that	the	conversion	price	will	be	adjusted	in	2011,	if	beneficial	to	OFS,	based	on	the	 

market	price	of	private	capital	transactions	occurring	in	2010	and	certain	anti-dilution	provisions.	The	Series	F-2	have	 

a	stated	dividend	rate	of	9%,	payable	when	and	if	declared	by	the	board	of	directors.	The	Series	F-2	may	be	redeemed	by	 

GMAC,	subject	to	certain	limitations	and	restrictions.	The	OFS	also	received	a	warrant	to	purchase	$62.5	million	(1.25	 

million	shares)	of	additional	Series	F-2,	which	was	immediately	exercised. 

As	a	result,	after	the	December	30,	2009	transaction,	the	OFS	had	the	following	investments	in	GMAC	as	of	September	30,	2010: 

Number of Investment amount / % ownership 

Shares (dollars in millions) 

8%	Trust	Preferred	Securities 

Purchased 2,540,000 $ 		2,540 

Received	from	warrant	exercise 127,000 127 

Total	Trust	Preferred	Securities 2,667,000 $ 	2,667 

Series	F-2	Mandatorily	Convertible	Securities 

Purchased	/exchanged	for 227,500,000 $ 	11,375 

Received	from	warrant	exercise 1,250,000 63 

Total	Series	F-210 228,750,000 $ 	11,438 

Common	Stock11 450,121 56.3% 

In	fiscal	year	2010,	the	OFS	received	$1.2	billion	in	dividends	from	GMAC.	In	the	period	ended	September	30,	2009,	the	OFS	 

received	$430.6	million	in	dividends	from	GMAC. 

consumer	and	Business	Lending	Initiative	(cBLI) 

The	Consumer	and	Business	Lending	Initiative	is	intended	to	help	unlock	the	flow	of	credit	to	consumers	and	small	businesses.	Three	 

programs	were	established	to	help	accomplish	this.	The	Term	Asset-Backed	Securities	Loan	Facility	was	created	to	help	jump	start	 

the	market	for	securitized	consumer	and	small	business	loans.		The	SBA	7(a)	Securities	Purchase	Program	was	created	to	provide	 

additional	liquidity	to	the	SBA	7(a)	market	so	that	banks	are	able	to	make	more	small	business	loans.	The	Community	Development	 

Capital	Initiative	was	created	to	provide	additional	low	cost	capital	to	small	banks	to	encourage	more	lending	to	small	businesses.	 

Each	program	is	discussed	in	more	detail	below. 

19	 These	shares	are	convertible	into	988,200	shares	of	GMAC	common	stock,	which	if	combined	with	common	stock	currently	held	by	OFS	would	represent	 

approximately	80.5%	ownership	of	GMAC. 

20	 Includes	shares	received	upon	conversion	of	GMAC	Rights	Loan	discussed	above. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

83 

Term	Asset-Backed	Securities	Loan	Facility 

The	Term	Asset-Backed	Securities	Loan	Facility	(TALF)	was	created	by	the	Federal	Reserve	Board	(FRB)	to	provide	low	cost	funding	 

to	investors	in	certain	classes	of	Asset	Backed	Securities	(ABS).	The	OFS	agreed	to	participate	in	the	program	by	providing	liquidity	 

and	credit	protection	to	the	FRB. 

Under	the	TALF,	the	Federal	Reserve	Bank	of	New	York	(FRBNY),	as	implementer	of	the	TALF	program,	originated	loans	on	a	nonrecourse	basis	to	purchasers	of	certain	AAA	rated	ABS	secured	by	consumer	and	commercial	loans	and	commercial	mortgage	backed	 

securities.	Generally	ABS	issued	after	January	1,	2009	are	eligible	collateral	under	the	TALF	program.	In	addition,	SBA	securities	 

issued	after	January	1,	2008	and	CMBS	issued	prior	to	January	2009	and	originally	AAA	rated	are	eligible	collateral.		TALF	loans	 

have	a	term	of	3	or	5	years	and	are	secured	solely	by	eligible	collateral.		Haircuts	(a	percentage	reduction	used	for	collateral	valuation)	 

are	determined	based	on	the	riskiness	of	each	type	of	eligible	collateral	and	the	maturity	of	the	eligible	collateral	pledged	to	the	 

FRBNY.		The	“haircuts”	provide	additional	protection	to	the	OFS	by	exposing	the	TALF	borrowers	to	some	risk	of	loss.	Interest	 

rates	charged	on	the	TALF	loans	depend	on	the	weighted	average	maturity	of	the	pledged	collateral,	the	collateral	type	and	whether	 

the	collateral	pays	fixed	or	variable	interest.	The	program	ceased	issuing	new	loans	on	June	30,	2010.	As	of	September	30,	2010,	 

approximately	$29.7	billion	of	loans	due	to	the	FRBNY	remained	outstanding. 

As	part	of	the	program,	the	FRBNY	has	entered	into	a	put	agreement	with	the	TALF,	LLC,	a	special	purpose	vehicle	created	by	 

the	FRBNY.	In	the	event	of	a	TALF	borrower	default,	the	FRBNY	will	seize	the	collateral	and	sell	it	to	the	TALF,	LLC	under	this	 

agreement.	The	TALF,	LLC	receives	a	monthly	fee	equal	to	the	difference	between	the	TALF	loan	rate	and	the	FRBNY’s	fee	(spread)	 

as	compensation	for	entering	into	the	put	agreement.	The	accumulation	of	this	fee	will	be	used	to	fund	purchases.	In	the	event	 

there	are	insufficient	funds	to	purchase	the	collateral,	the	OFS	originally	committed	to	invest	up	to	$20.0	billion	in	non-recourse	 

subordinated	notes	issued	by	the	TALF,	LLC.	On	July	19,	2010,	the	OFS’s	commitment	was	reduced	to	$4.3	billion.	The	subordinated	 

notes	bear	interest	at	1	Month	LIBOR	plus	3.0%	and	mature	10	years	from	the	closing	date,	subject	to	extension.	The	OFS	disbursed	 

$100.0	million	upon	creation	of	the	TALF,	LLC	and	the	remainder	can	be	drawn	to	purchase	collateral	in	the	event	the	spread	is	not	 

sufficient	to	cover	purchases.	Any	amounts	needed	in	excess	of	the	OFS	commitment	and	the	fee	would	be	provided	through	a	loan	 

from	the	FRBNY.	Upon	wind-down	of	the	TALF,	LLC	(collateral	defaults,	reaches	final	maturity	or	is	sold),	the	cash	balance	will	be	 

disbursed	according	to	the	following	payment	priority: 

1.	 FRBNY	principal	balance 

2.	 OFS	principal	balance 

3.	 FRBNY	interest	 

4.	 OFS	interest	 

5.	 Remaining	cash	balance	–	90.0%	to	the	OFS,	10.0%	to	the	FRBNY 

During	the	period	ended	September	30,	2009,	subsequent	to	the	initial	cost	estimates	prepared	for	the	TALF,	certain	changes	were	made	to	 

the	terms	of	the	program,	including	increasing	the	term	to	5	years	and	the	addition	of	different	types	of	acceptable	collateral.	These	program	 

changes	resulted	in	a	modification	for	the	period	ended	September	30,	2009,	increasing	the	original	cost	estimate	by	$8.0	million. 

The	TALF,	LLC	is	owned,	controlled	and	consolidated	by	the	FRBNY.		The	credit	agreement	between	the	OFS	and	the	TALF,	LLC	 

provides	the	OFS	with	certain	rights	consistent	with	a	creditor	but	would	not	constitute	control.		As	such,	TALF,	LLC	is	not	a	federal	 

entity	and	the	assets,	liabilities,	revenue	and	cost	of	TALF,	LLC	are	not	included	in	the	OFS	financial	statements. 

As	of	September	30,	2010	and	2009,	no	TALF	loans	were	in	default	and	consequently	no	collateral	was	purchased	by	the	TALF,	LLC. 

SBA	7(a)	Security	Purchase	Program 

In	March	2010,	the	OFS	began	the	purchase	of	securities	backed	by	Small	Business	Administration	7(a)	loans	(7(a)	Securities)	as	 

part	of	the	Unlocking	Credit	for	Small	Business	Initiative.	Under	this	program	OFS	purchases	7(a)	Securities	collateralized	with	7(a)	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

84 

loans	(these	loans	are	guaranteed	by	the	full	faith	and	credit	of	the	United	States	Government)	packaged	on	or	after	July	1,	2008.	 

Generally,	the	OFS	entered	into	a	trade	to	purchase	7(a)	Securities	with	actual	settlement	and	delivery	to	occur	one	to	three	months	 

in	the	future.	As	of	September	30,	2010,	OFS	has	entered	into	trades	to	purchase	$356.3	million	(excluding	purchased	accrued	 

interest)	of	these	securities.	Of	this	amount,	$240.7	million	has	settled	with	the	remaining	trades	to	be	settled	by	December	30,	2010.	 

During	fiscal	year	2010,	the	OFS	received	$3.5	million	in	interest	and	principal	payments	on	these	securities. 

community	Development	capital	Initiative 

In	February	2010,	the	OFS	announced	the	Community	Development	Capital	Initiative	(CDCI)	to	invest	lower	cost	capital	in	 

Community	Development	Financial	Institutions	(CDFIs).	Under	the	terms	of	the	program,	the	OFS	purchases	senior	preferred	stock	 

(or	subordinated	debt)	from	eligible	CDFI	financial	institutions.	The	senior	preferred	stock	has	an	initial	dividend	rate	of	2	percent.	 

CDFIs	may	apply	to	receive	capital	up	to	5	percent	of	risk-weighted	assets.	To	encourage	repayment	while	recognizing	the	unique	 

circumstances	facing	CDFIs,	the	dividend	rate	will	increase	to	9	percent	after	eight	years. 

For	CDFI	credit	unions,	the	OFS	purchased	subordinated	debt	at	rates	equivalent	to	those	offered	to	CDFI	financial	institutions	and	 

with	similar	terms.	These	institutions	may	apply	for	up	to	3.5	percent	of	total	assets	-	an	amount	approximately	equivalent	to	the	5	 

percent	of	risk-weighted	assets	available	to	banks	and	thrifts. 

CDFIs	participating	in	the	CPP,	subject	to	certain	criteria,	were	eligible	to	exchange,	through	September	30,	2010,	their	current	CPP	 

preferred	shares	(subordinated	debt)	for	CDCI	preferred	shares	(subordinated	debt).	These	exchanges	were	treated	as	a	disbursement	 

from	CDCI	and	a	repayment	to	CPP.	 

As	of	September	30,	2010,	the	OFS	has	invested	$570.1	million	($363.3	million	was	a	result	of	exchanges	from	CPP)	in	84	 

institutions	under	the	CDCI.	 

Public-Private	Investment	Program 

The	PPIP	is	part	of	the	OFS’s	efforts	to	help	restart	the	market	and	provide	liquidity	for	legacy	assets.	Under	this	program,	the	OFS	 

made	equity	investment	in	and	loans	to	investment	vehicles	(referred	to	as	Public	Private	Investment	Funds	or	“PPIFs”)	established	 

by	private	investment	managers.	The	equity	investment	was	used	to	match	private	capital	and	equaled	approximately	50.0%	of	the	 

total	equity	invested.	The	loan	is,	at	the	option	of	the	investment	manager,	equal	to	50.0%	or	100.0%	of	the	total	equity	(including	 

private	equity).	As	of	September	30,	2010,	all	PPIFs	have	elected	to	receive	loans	up	to	100%	of	total	equity.	The	loans	bear	interest	 

at	1	Month	LIBOR,	plus	1.0%,	which	accrues	monthly	and	is	payable	on	the	tenth	business	day	of	the	month	following	the	accrual	 

period.	The	maturity	date	of	the	loan	is	the	earlier	of	10	years	or	the	termination	of	the	PPIF.	The	loan	can	be	prepaid,	subject	to	 

compliance	with	the	priority	of	payments	discussed	below,	without	penalty.	The	PPIF	will	terminate	in	8	years	from	the	commencement	of	the	fund.	The	governing	documents	of	the	funds	allow	for	2	one	year	extensions,	subject	to	approval	of	the	OFS.	The	loan	 

agreements	also	require	purchased	security	cash	flows	from	securities	received	by	the	PPIFs	to	be	distributed	in	accordance	with	a	 

priority	of	payments	schedule	(waterfall)	designed	to	help	ensure	secured	parties	are	paid	before	equity	holders.	Specifically,	security	 

cash	flows	collected	are	disbursed	as	follows	(steps	7	through	10	are	at	the	discretion	of	the	PPIF), 

1.	 To	pay	administrative	expenses,	excluding	certain	tax	expenses	of	the	Partnership; 

2.	 To	pay	interest	or	margin	due	on	permitted	interest	rate	hedges; 

3.	 To	pay	current	period	interest	due	to	the	Lender21; 

4.	 To	pay	amounts	due	to	an	interest	reserve	account	if	the	total	deposit	in	the	interest	reserve	account	is	less	than	the	 

required	interest	reserve	account; 

5.	 To	pay	principal	on	the	Loan	required	when	the	minimum	Asset	Coverage	Ratio	Test	is	not	satisfied	as	of	the	prior	month	 

end; 

21	 The	Lender	is	OFS 

notes to the financial statements 

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agency financial report | fiscal year 2010 

85 

6.	 To	pay	other	amounts	due	on	permitted	interest	rate	hedges	not	paid	in	accordance	with	step	2.	above; 

7.	 For	investment	in	Temporary	Investments,	prepayments	of	the	Loan	and/or	investment	in	eligible	Assets	during	the	 

investment	period,	which	is	three	years	from	the	Initial	Closing	Date	(the	“Investment	Period”); 

8.	 For	distribution	to	partners	after	step	1	through	7	not	to	exceed	the	lesser	of:	(a)	cumulative	consolidated	net	interest	 

income	for	the	preceding	twelve	months	or	(b)	8%	on	the	funded	capital	commitments,	so	long	as	no	event	of	default	is	 

then	continuing	and	the	appropriate	Asset	Coverage	Ratio	Requirement	is	satisfied; 

9.	 To	pay	the	Loan	not	to	exceed	the	lesser	of	(a)	prepayment	on	the	Loan	as	scheduled	or	(b)	an	amount	which	reduces	 

the	Loan	to	zero,	provided	that	dollar	for	dollar	credit	is	given	for	any	optional	prepayments	of	the	Loan	made	during	the	 

related	collection	period	on	any	date	prior	to	the	applicable	determination	date;	and 

10.	Remaining	amounts	to	be	used	or	distributed	in	accordance	with	the	limited	partnership	agreement	after	repayment	of	 

the	Loan. 

The	loan	is	subject	to	certain	affirmative	and	negative	covenants	as	well	as	a	financial	covenant,	the	Asset	Coverage	Test.	The	Asset	 

Coverage	Test	generally	requires	that	the	Asset	Coverage	Ratio	be	equal	to	or	greater	than	150%.	The	Asset	Coverage	Ratio	is	a	 

percentage	obtained	by	dividing	total	assets	of	the	PPIF	by	the	principal	amount	of	the	loan	and	accrued	and	unpaid	interest	on	the	 

loan.	Failure	to	comply	with	the	test	could	require	accelerated	repayment	of	loan	principal	(see	step	7	above)	and	prohibit	the	PPIF	 

from	borrowing	additional	funds	under	the	loan	agreement. 

As	a	condition	of	its	investment,	the	OFS	also	received	a	warrant	from	the	PPIFs	entitling	the	OFS	to	2.5%	of	investment	proceeds	 

(excluding	those	from	temporary	investments)	otherwise	allocable	to	the	non-OFS	partners.	The	warrant	payment	will	be	distributed	 

by	the	PPIF	to	the	OFS	following	the	return	of	100%	of	the	non-OFS	partner’s	capital	contributions	to	the	PPIF.	 

The	PPIFs	pay	a	management	fee	to	the	fund	manager	from	the	OFS’s	share	of	investment	proceeds.	During	the	Investment	Period,	 

the	management	fee	is	equal	to	0.20%	per	annum	of	the	OFS’s	capital	commitment	as	of	the	last	day	of	the	applicable	quarter.	 

Thereafter,	the	management	fee	will	be	equal	to	0.20%	per	annum	of	the	lesser	of	(a)	the	OFS’s	capital	commitment	as	of	the	last	day	 

of	the	applicable	quarter	and	(b)	the	OFS	Interest	Value	as	of	the	last	day	of	the	quarter.	 

The	PPIFs	are	allowed	to	purchase	commercial	mortgage-backed	securities	(CMBS)	and	non-agency	residential	mortgage-backed	 

securities	(RMBS)	issued	prior	to	January	1,	2009	that	were	originally	rated	AAA	or	an	equivalent	rating	by	two	or	more	nationally	 

recognized	statistical	rating	organizations	without	external	credit	enhancement	and	that	are	secured	directly	by	the	actual	mortgage	 

loans,	leases	or	other	assets	(eligible	assets)	and	not	other	securities.	The	PPIFs	may	invest	in	the	aforementioned	securities	for	a	 

period	of	3	years	using	proceeds	from	capital	contribution,	loans	and	amounts	generated	by	previously	purchased	investments	(subject	 

to	the	requirements	of	the	waterfall).		The	PPIFs	are	also	permitted	to	invest	in	certain	temporary	securities,	including	bank	deposits,	 

U.S.	Treasury	securities,	and	certain	money	market	mutual	funds.	At	least	90	percent	of	the	assets	underlying	any	eligible	asset	must	 

be	situated	in	the	United	States. 

As	of	September	30,	2010	the	total	market	value	of	the	eligible	assets	held	by	all	PPIFs	was	approximately	$19.3	billion.	The	 

approximate	split	between	RMBS	and	CMBS	was	82%	RMBS	and	18%	CMBS. 

On	January	4,	2010,	the	OFS	entered	into	a	Winding-up	and	Liquidation	Agreement	with	one	of	the	PPIFs.	Prior	to	the	signing	of	 

the	agreement,	the	OFS	had	invested	$356.3	million	($156.3	million	equity	investment	and	$200.0	million	loan)	in	the	fund.	Upon	 

final	liquidation,	the	OFS	received	$377.4	million	representing	return	of	the	original	investment,	interest	on	the	loan	and	return	on	 

the	equity	investment	and	warrant. 

As	of	September	30,	2010,	the	OFS	had	signed	definitive	limited	partnership	and	loan	agreements	with	eight	investment	managers,	 

committing	to	disburse	up	to	$22.1	billion.	During	fiscal	year	2010,	OFS	disbursed	$4.9	billion	as	equity	investment	and	$9.2	billion	 

as	loans	to	PPIFs.	As	of	September	30,	2009,	no	investment	managers	had	made	any	investments	under	PPIP	and	the	OFS	had	not	 

disbursed	any	funds.	During	fiscal	year	2010,	the	OFS	received	(excluding	amounts	repaid	in	liquidation	discussed	above)	$56.0	 

notes to the financial statements 

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86 

million	in	interest	on	loans	and	$151.8	million	(net	of	management	fees	of	$7.2	million)	of	income	on	the	equity	investments.	In	 

addition,	the	OFS	received	$72.0	million	in	loan	principal	repayments. 

Asset	guarantee	Program 

The	Asset	Guarantee	Program	(AGP)	provided	guarantees	for	assets	held	by	systemically	significant	financial	institutions	that	faced	 

a	risk	of	losing	market	confidence	due	in	large	part	to	a	portfolio	of	distressed	or	illiquid	assets.	The	AGP	was	applied	with	extreme	 

discretion	in	order	to	improve	market	confidence	in	the	systemically	significant	institution	and	in	financial	markets	broadly. 

Section	102	of	the	EESA	required	the	Secretary	to	establish	the	AGP	to	guarantee	troubled	assets	originated	or	issued	prior	to	 

March	14,	2008,	including	mortgage-backed	securities,	and	established	the	Troubled	Assets	Insurance	Financing	Fund	(TAIFF).	In	 

accordance	with	Section	102(c)	and	(d)	of	the	EESA,	premiums	from	financial	institutions,	are	collected	and	all	fees	are	recorded	 

by	the	OFS	in	the	TAIFF.	In	addition,	Section	102(c)	(3)	of	the	EESA	requires	that	the	original	premiums	assessed	are	“set”	at	a	 

minimum	level	necessary	to	create	reserves	sufficient	to	meet	anticipated	claims.	 

The	OFS	completed	its	first	transaction	under	the	AGP	in	January	2009,	when	it	finalized	the	terms	of	a	guarantee	agreement	with	 

Citigroup.		Under	the	agreement,	the	OFS,	the	Federal	Deposit	Insurance	Corporation	(FDIC),	and	the	Federal	Reserve	Bank	of	 

New	York	(FRBNY)	(collectively	the	USG	Parties)	provided	protection	against	the	possibility	of	large	losses	on	an	asset	pool	of	 

approximately	$301.0	billion	of	loans	and	securities	backed	by	residential	and	commercial	real	estate	and	other	such	assets,	which	 

remained	on	Citigroup’s	balance	sheet.	The	OFS’s	guarantee	was	limited	to	$5.0	billion.	 

As	a	premium	for	the	guarantee,	Citigroup	issued	$7.0	billion	of	cumulative	perpetual	preferred	stock	(subsequently	converted	to	 

Trust	Preferred	Securities	with	similar	terms)	with	an	8.0%	stated	dividend	rate	and	a	warrant	for	the	purchase	of	common	stock;	 

$4.0	billion	and	the	warrant	were	issued	to	the	OFS,	and	$3.0	billion	was	issued	to	the	FDIC.		The	OFS	received	$265.2	million	and	 

$174.8	million	during	the	periods	ending	September	30,	2010	and	September	30,	2009,	respectively,	in	dividends	on	the	preferred	 

stock	received	as	compensation	for	this	arrangement.	These	dividends	have	been	deposited	into	the	TAIFF.		The	OFS	had	also	 

invested	in	Citigroup	through	CPP	and	the	TIP. 

As	of	September	30,	2009,	the	net	present	value	of	the	estimated	cash	inflows	from	the	preferred	stock	and	warrant	received	by	the	 

OFS	from	Citigroup	as	a	premium	was	greater	than	the	estimated	net	present	value	of	future	claims	payments,	resulting	in	an	asset	of	 

$1.765	billion,	after	reestimates.	 

In	December	2009,	the	USG	Parties	and	Citigroup	agreed	to	terminate	the	guarantee	agreement.	Under	the	terms	of	the	termination	 

agreement	the	OFS	cancelled	$1.8	billion	of	the	preferred	stock	previously	issued	to	OFS.	In	addition,	the	FDIC	agreed	to	transfer	to	 

the	OFS	$800	million	of	their	trust	preferred	stock	holding	plus	dividends	thereon	contingent	on	Citigroup	repaying	its	previously	 

issued	FDIC	guaranteed	debt.	The	contingent	receipt	of	additional	preferred	shares	from	the	FDIC	is	included	in	the	subsidy	 

calculation	for	AGP,	based	on	the	expected	value.	Termination	of	the	agreement	was	not	considered	in	the	formulation	estimates	of	 

the	guarantee	and	therefore	the	termination	resulted	in	a	negative	modification	cost	(reduction	of	cost)	of	$1.4	billion	recorded	in	 

fiscal	year	2010.	On	September	29,	2010,	the	OFS	exchanged	its	existing	Trust	Preferred	Securities	for	securities	containing	market	 

terms	to	facilitate	a	sale.		On	September	30,	2010,	the	OFS	agreed	to	sell	its	Trust	Preferred	Securities	it	holds	for	$2.246	billion.	The	 

Trust	Preferred	Securities	are	valued	at	approximately	the	sales	price	in	the	financial	statements.	The	sale	settled	on	October	5,	2010. 

In	January	2009,	the	USG	Parties	and	Bank	of	America	signed	a	Summary	of	Terms	(Term	Sheet)	pursuant	to	which	the	USG	 

Parties	agreed	to	guarantee	or	lend	against	a	pool	of	up	to	$118.0	billion	of	financial	instruments	consisting	of	securities	backed	by	 

residential	and	commercial	real	estate	loans	and	corporate	debt	and	related	derivatives.	In	May	2009,	prior	to	completing	definitive	 

documentation,	Bank	of	America	notified	the	USG	Parties	of	its	desire	to	terminate	negotiations	with	respect	to	the	guarantee	 

contemplated	in	the	Term	Sheet.	All	parties	agreed	that	Bank	of	America	received	value	for	entering	into	the	Term	Sheet	with	the	 

USG	Parties	and	that	the	USG	Parties	should	be	compensated	for	out-of-pocket	expenses	and	a	fee	equal	to	the	amount	Bank	of	 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

87 

America	would	have	paid	for	the	guarantee	from	the	date	of	the	signing	of	the	Term	Sheet	through	the	termination	date.	Under	the	 

terms	of	the	settlement,	the	U.S.	Treasury	received	$276.0	million	for	its	role	in	the	guarantee	agreement	through	the	OFS.	All	the	 

OFS	funds	received	for	the	settlement	were	deposited	in	the	TAIFF	and	subsequently	paid	to	the	Treasury	General	Fund.	The	$276	 

million	received	by	the	OFS	pursuant	to	the	settlement	is	reflected	in	the	OFS	Statement	of	Net	Cost	as	a	reduction	of	the	AGP	 

subsidy	cost	in	the	period	ended	September	30,	2009. 

Subsidy	reestimates 

The	purpose	of	reestimates	is	to	update	original	program	subsidy	cost	estimates	to	reflect	actual	cash	flow	experience	as	well	as	 

changes	in	forecasts	of	future	cash	flows.	Forecasts	of	future	cash	flows	are	updated	based	on	actual	program	performance	to	date,	 

additional	information	about	the	portfolio,	additional	publicly	available	relevant	historical	market	data	on	securities	performance,	 

revised	expectations	for	future	economic	conditions,	and	enhancements	to	cash	flow	projection	methods.	Financial	statement	 

reestimates	for	all	programs	were	performed	using	actual	financial	transaction	data	through	September	30,	2010	and	2009.		Market	 

and	security	specific	data	publicly	available	as	of	September	30,	2010,	was	used	for	the	CPP,	AGP,	TIP,	AIG,	CDCI,	AIFP	and	SBA	 

programs	in	the	reestimate	calculations	for	fiscal	year	2010.		Security	specific	data	through	June	30,	2010,	with	market	prices	through	 

September	30,	2010,	was	used	for	the	PPIP	and	TALF	programs	in	the	reestimate	calculations	for	fiscal	year	2010.		Market	and	 

security	specific	data	publicly	available	as	of	September	30,	2009,	was	used	for	the	CPP,	AGP,	TIP	and	AIFP	direct	loans	and	data	 

through	August	31,	2009,	was	used	for	the	equity	portion	of	AIFP,	AIG	and	TALF	programs	in	the	reestimate	calculations	for	the	 

period	ending	September	30,	2009.		 

The	OFS	assessed	using	security	specific	data	available	as	of	September	30,	2010	and,	in	its	determination,	there	were	no	significant	changes	to	 

the	portfolio	characteristics	or	performance	of	the	PPIP	and	TALF	programs	that	would	require	a	revision	to	the	reestimates	for	fiscal	year	2010. 

For	the	period	ending	September	30,	2009,	the	OFS	assessed	the	key	inputs	of	the	reestimates	using	data	publically	available	as	of	 

September	30,	2009,	and	in	its	determination,	there	were	no	significant	changes	to	the	key	inputs	for	the	three	programs	for	which	 

August	31,	2009,	data	was	used	that	required	a	revision	to	the	reestimates.	 

Net	downward	reestimates	for	the	year	ended	September	30,	2010	and	the	period	ended	September	30,	2009	totaled	$30.3	billion	 

and	$109.7	billion,	respectively.		Descriptions	of	the	reestimates,	by	OFS	Program,	are	as	follows: 

cPP 

The	net	upward	reestimate	for	the	CPP	of	$3.9	billion	for	the	year	ended	September	30,	2010	is	the	net	result	of	a	decrease	in	the	 

price	of	Citigroup	common	stock	that	was	partially	offset	by	an	increase	in	the	estimated	value	of	the	other	investments	within	the	 

CPP,	due	to	improved	market	conditions	during	the	period.		 

The	$70.7	billion	in	repurchases	during	the	period	ended	September	30,	2009	accounted	for	$9.7	billion	of	the	$72.4	billion	 

in	downward	reestimates	in	the	CPP	for	the	period.		Projected	repurchases	of	$30.0	billion	for	fiscal	year	2010	accounted	for	 

approximately	$5.4	billion,	with	the	$57.3	billion	balance	in	downward	reestimates	in	the	CPP	for	the	period	ended	September	30,	 

2009	primarily	due	to	improved	market	conditions	from	when	the	original	estimate	was	made	in	December	2008. 

AIg 

The	$12.0	billion	in	downward	reestimates	for	the	AIG	Investment	Program	for	the	year	ended	September	30,	2010	are	due	to	an	 

increase	in	the	estimated	value	of	AIG	assets	and	subordinated	debt	and	improvements	in	market	conditions	over	the	period. 

The	$1.1	billion	in	downward	reestimates	for	the	AIG	Investment	Program	in	the	period	ended	September	30,	2009	was	primarily	 

due	to	improvements	in	market	conditions	from	when	the	equities	were	purchased	resulting	in	a	reduction	in	the	projected	costs	of	 

the	programs. 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

88 

TIP 

The	$1.9	billion	in	net	downward	reestimates	in	the	TIP	in	fiscal	year	2010	included	$2.2	billion	in	downward	reestimates	due	to	the	 

repurchase	of	the	program’s	investments	by	the	two	institutions	participating	in	the	program.		That	downward	reestimate	amount	was	 

partially	offset	by	a	$0.3	billion	upward	reestimate	from	a	slight	reduction	in	the	estimated	value	of	outstanding	warrants. 

The	$21.5	billion	in	downward	reestimates	in	the	TIP	in	the	period	ended	September	30,	2009	was	primarily	due	to	improved	market	 

conditions	from	when	the	original	estimates	were	made	in	December	2008	and	January	2009.		Approximately	$2.3	billion	was	due	to	 

a	$20.0	billion	repurchase	forecast	for	fiscal	year	2010. 

AIFP 

The	$19.3	billion	in	downward	reestimates	for	the	AIFP	direct	loan	and	equity	investments	for	the	year	ended	September	30,	2010	 

was	due	to	$1.8	billion	in	payments	exceeding	projections,	a	reduction	in	estimated	defaults	due	to	improvements	in	the	domestic	 

automotive	industry,	and	an	increase	in	the	bond	prices	and	valuations	used	to	estimate	the	cost	of	the	remaining	AIFP	investments.		 

The	approximately	$10.6	billion	in	downward	reestimates	for	the	direct	loans-AIFP	in	the	period	ended	September	30,	2009	was	 

primarily	the	result	of	the	post	bankruptcy	improved	financial	position	of	one	of	the	major	companies	participating	in	the	program.		 

The	$2.7	billion	in	downward	reestimates	for	the	AIFP	equity	programs	in	the	period	ended	September	30,	2009	were	primarily	due	 

to	improvements	in	market	conditions	from	when	the	equities	were	purchased	resulting	in	a	reduction	in	the	projected	costs	of	the	 

programs. 

cBLI 

The	TALF	and	SBA	programs	within	the	CBLI	had	a	total	upward	reestimate	of	less	than	$0.1	billion	for	the	year	ended	September	 

30,	2010.	The	TALF	program	had	a	$23	million	upward	reestimate	mostly	due	to	a	projected	reduction	in	the	size	of	the	portfolio	 

and	higher	than	projected	repayments.		The	SBA	program	had	an	upward	reestimate	of	less	than	$1	million	due	to	an	increase	in	 

projected	interest	rates	and	a	reduction	in	market	risks.	The	CDCI	program	had	$7.3	million	in	upward	reestimates	for	the	period. 

The	$0.2	billion	in	downward	reestimates	for	the	TALF	in	the	period	ended	September	30,	2009	was	due	to	projected	improved	 

performance	of	the	securities	within	the	program	versus	the	original	estimate.		 

PPIP 

The	$1.0	billion	in	downward	reestimates	for	the	PPIP	debt	and	equity	programs	for	the	year	ended	September	30,	2010	was	the	net	 

of	a	$1.2	billion	upward	reestimate	in	the	PPIP	debt	program	and	$2.2	billion	in	downward	reestimates	for	the	PPIP	equity	programs	 

mostly	due	to	the	use	of	actual	portfolio	data	for	reestimates	rather	than	the	proxy	data	used	in	developing	the	baseline	estimates	and	 

changes	in	market	risks.		 

AgP 

The	AGP	had	a	net	$0.1	billion	downward	reestimate	for	the	year	ended	September	30,	2010.	The	reestimate	amounts	exclude	an	 

estimated	cost	savings	of	$1.4	billion	that	resulted	from	the	cancellation	of	the	$5.0	billion	guarantee	because	this	transaction	was	 

reflected	in	the	subsidy	modifications	during	fiscal	year	2010.		 

The	$1.2	billion	in	downward	reestimates	for	the	AGP	in	the	period	ended	September	30,	2009	was	primarily	due	to	improvements	 

in	market	conditions	from	when	the	guarantee	was	committed	in	January	2009.		The	improved	market	conditions	resulted	in	an	 

increase	in	the	projected	AGP	asset	due	to	the	net	present	value	of	the	estimated	cash	inflows	from	the	preferred	stock	and	warrants	 

received	by	the	OFS	from	Citigroup	as	a	premium	being	greater	than	the	estimated	value	of	future	claim	payments	associated	with	 

the	$5.0	billion	asset	guarantee. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

89 

Summary	Tables 

The	following	detailed	tables	provide	the	net	composition,	subsidy	cost,	modifications	and	reestimates,	a	reconciliation	of	subsidy	 

cost	allowance	and	budget	subsidy	rates	and	subsidy	by	component	for	each	TARP	direct	loan,	equity	investment	or	asset	guarantee		 

program	for	the	year	ended	September	30,	2010	and	the	period	ended	September	30,	2009: 

TROUBLED ASSET RELIEF PROGRAM LOANS AND EqUITY INVESTMENTS 

(Dollars in Millions) TOTAL CPP AIG TIP AIFP CBLI PPIP 

As of September 30, 2010 

Direct Loans and Equity Investment Programs: 

Direct	Loans	and	Equity	Investments	Outstanding,	Gross $ 179,197	 $ 49,779	 $ 47,543	 $ -	 $ 67,238	 $ 908	 $ 13,729	 

Subsidy	Cost	Allowance (36,745) 	(1,546) 	(21,405) 	1	 (14,529) 	58	 	676	 

Direct	Loans	and	Equity	Investments	Outstanding,	Net $ 142,452	 $ 48,233	 $ 26,138	 $ 1	 $ 52,709	 $ 966	 $ 14,405	 

New	Loans	or	Investments	Disbursed $ 	23,373 $ 277 $ 4,338 $ -	 $ 3,790 $ 811 	$ 14,157 

Obligations	for	Loans	and	Investments	not	yet	Disbursed $ 	36,947	 $ -	 $ 22,292	 $ -	 $ 2,066	 $ 4,339	 	$ 8,250	 

			 

Reconciliation of Subsidy Cost Allowance: 

Balance,	Beginning	of	Period $ 	53,077	 $ 	(7,770) $ 30,054	 $ (341) $ 31,478	 $ (344) $ -	 

Subsidy	Cost	for	Disbursements	and	Modifications 7,533	 	(16) 	4,293	 	-	 	2,644	 	275	 	337	 

Interest	and	Dividend	Revenue 6,977	 	3,131	 	-	 	1,143	 	2,475	 	-	 	228	 

Net	Proceeds	from	Sales	and	Repurchases	of	Assets	 

in	Excess	of	Cost 8,013	 	6,676	 	-	 	1,237	 	99	 	-	 	1	 

Net	Interest	Expense	on	Borrowings	from	BPD		 

and	Financing	Account	Balance (4,690) 	(2,018) 	(981) 	(161) 	(1,309) 	(20) 	(201) 

Writeoffs (3,934) 	(2,334) 	-	 	-	 	(1,600) - -

Balance,	End	of	Period,	Before	Reestimates 66,976	 	(2,331) 	33,366	 	1,878	 	33,787	 	(89) 	365	 

Subsidy	Reestimates	 (30,231) 	3,877	 	(11,961) 	(1,879) 	(19,258) 	31	 (1,041) 

Balance,	End	of	Period $ 36,745	 $ 1,546	 $ 21,405	 $ (1) $ 	14,529	 $ (58) $ (676) 

Reconciliation of Subsidy Cost: 

Subsidy	Cost	for	Disbursements	 $ 	6,067	 $ 16	 $ 4,293	 $ -	 $ 1,146	 $ 275	 $ 	337	 

Subsidy	Cost	for	Modifications 1,466	 	(32) 	-	 	-	 	1,498	 	-	 	-	 

Subsidy	Reestimates	 (30,231) 	3,877	 	(11,961) 	(1,879) 	(19,258) 	31	 	(1,041) 

Total	Direct	Loan	and	Equity	Investment	Programs		 

Subsidy	Cost	(Income) $ (22,698) $ 3,861	 $ (7,668) $ (1,879) $ (16,614) $ 306	 $ (704) 

TROUBLED ASSET RELIEF PROGRAM LOANS, EqUITY INVESTMENTS AND ASSET GUARANTEE PROGRAM BUDGET SUBSIDY RATES: 

(Dollars in Millions) AGP CPP AIG TIP AIFP CBLI PPIP 

Budget Subsidy Rates, Excluding Modifications and Reestimates (see Note below): 

As of September 30, 2010 

Interest	Differential -25.62% 37.70% 30.39% 11.72% 

Defaults 16.36% 13.78% 3.93% 0.00% 

Fees	and	Other	Collections -3.00% -0.38% 0.00% -0.41% 

Other 18.03% -20.85% -0.41% -10.34% 

Total	Budget	Subsidy	Rate	(See	Note	below) N/A 5.77% N/A N/A 30.25% 33.91% 0.97% 

Subsidy Cost by Component: 

Interest	Differential $ (71) $ 1,415 $ 	1,429	 $ 	246	 $ 	1,880	 

Defaults 45	 2,907 	522	 	32	 	-	 

Fees	and	Other	Collections (8) - 	(15) 	-	 	(55) 

Other 50	 (29) 	(790) 	(3) 	(1,488) 

Total	Subsidy	Cost,	Excluding	Modifications	and	Reestimates N/A $ 	16	 $ 4,293 N/A $ 	1,146	 $ 	275	 $ 	337	 

“Note:	The	rates	reflected	in	the	table	above	are	FY	2010	budget	execution	rates	by	program.	The	subsidy	rates	disclosed	pertain	only	to	the	current	year’s	cohorts.	These	 

rates	cannot	be	applied	to	the	direct	loans	disbursed	during	the	current	reporting	year	to	yield	the	subsidy	expense.	The	subsidy	cost	(income)	for	new	loans	reported	in	 

the	current	year	could	result	from	disbursements	of	loans	from	both	current	year	cohorts	and	prior	year	cohorts.	The	subsidy	cost	(income)	reported	in	the	current	year	 

also	includes	modifications	and	re-estimates.Therefore,	the	Total Subsidy Cost Excluding Modifications and Reestimates	will	not	equal	the	New Loans or Investments 

Disbursed	multiplied	by	the	Budget Subsidy Rate.	 	 	 	 	 	 	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

90 

TROUBLED ASSET RELIEF PROGRAM LOANS AND EqUITY INVESTMENTS 

(Dollars in Millions) TOTAL CPP AIG TIP AIFP CBLI PPIP 

As of September 30, 2009 

Direct Loans and Equity Investment Programs: 

Direct	Loans	and	Equity	Investments	Outstanding,	Gross 

Subsidy	Cost	Allowance 

Direct	Loans	and	Equity	Investments	Outstanding,	Net 

$ 290,969	 

(53,077) 

$ 237,892	 

$ 133,901	 

	7,770	 

$ 141,671	 

$ 43,206	 

(30,054) 

$ 13,152	 

$ 40,000	 

	341	 

$ 40,341	 

$ 73,762	 

(31,478) 

$ 42,284	 

$ 100	 

	344	 

$ 444	 

$ 

$ 

-	 

	-	 

-	 

New	Loans	or	Investments	Disbursed $ 363,826	 $ 204,618	 $ 43,206	 $ 40,000	 $ 75,902	 $ 100	 $ -	 

Obligations	for	Loans	and	Investments	not	yet	Disbursed $ 51,681	 $ -	 $ 26,629	 $ -	 $ 5,152	 $ 19,900	 $ -	 

Reconciliation of Subsidy Cost Allowance: 

Balance,	Beginning	of	Period $ -	 $ -	 $ -	 $ -	 $ -	 $ -	 $ -	 

Subsidy	Cost	for	Disbursements	and	Modifications 152,179	 	57,386	 	31,552	 	19,540	 	43,797	 	(96) 	-	 

Interest	and	Dividend	Collections 9,329	 	6,790	 	-	 	1,862	 	677	 	-	 	-	 

Net	Proceeds	from	Sales	and	Repurchases	of	Assets	 

in	Excess	of	Cost 2,916	 	2,901	 	-	 	-	 	15	 	-	 	-	 

Net	Interest	Income	(Expense)	on	Borrowings	from	BPD		 

and	Financing	Account	Balance 	(2,773) 	(2,428) 	(373) 	(276) 	309	 	(5) 	-	 

Balance,	End	of	Period,	Before	Reestimates 	161,651	 	64,649	 	31,179	 	21,126	 	44,798	 	(101) 	-	 

Subsidy	Reestimates	 (108,574) 	(72,419) 	(1,125) (21,467) 	(13,320) 	(243) 	-	 

Balance,	End	of	Period $ 53,077	 $ (7,770) $ 30,054	 $ (341) $ 31,478	 $ (344) $ -	 

Reconciliation of Subsidy Cost: 

Subsidy	Cost	(Income)	for	Disbursements	 $ 151,767	 $ 55,520	 $ 31,425	 $ 19,540	 $ 45,386	 $ (104) $ -	 

Subsidy	Cost	(Income)	for	Modifications 	412	 	1,866	 	127	 	-	 	(1,589) 	8	 	-	 

Subsidy	Reestimates	 (108,574) 	(72,419) 	(1,125) 	(21,467) 	(13,320) 	(243) 	-	 

Total	Direct	Loan	and	Equity	Investment	Programs		 

Subsidy	Cost	(Income) $ 43,605	 $ (15,033) $ 30,427	 $ (1,927) $ 30,477	 $ 	(339) $ -	 

TROUBLED ASSET RELIEF PROGRAM LOANS, EqUITY INVESTMENTS AND ASSET GUARANTEE PROGRAM BUDGET SUBSIDY RATES: 

(Dollars in Millions) AGP CPP AIG TIP AIFP CBLI PPIP 

Budget Subsidy Rates, Excluding Modifications and Reestimates (see Note below): 

As of September 30, 2009 

Interest	Differential 	0.00%	 5.97% -45.52% 9.31% 6.97% 5.87% 

Defaults 43.62%	 25.60% 123.56% 48.38% 54.21% 0.00% 

Fees	and	Other	Collections 	-53.23% 0.00% 0.00% 0.00% 0.00% 0.00% 

Other 	-5.37% -4.58% 4.74% -8.84% -3.13% -110.10% 

Total	Budget	Subsidy	Rate	(See	Note	below) 	-14.98% 26.99% 82.78% 48.85% 58.05% -104.23% N/A 

Subsidy Cost (Income) by Component: 

Interest	Differential $ $ 	12,279	 $ 	(17,280) $ 	3,724	 $ 	5,446	 $ 	6	 

Defaults 	2,181	 	52,655	 	46,906	 	19,352	 	42,384	 	-	 

Fees	and	Other	Collections 	(2,662) - - - - -

Other 	(270) 	(9,414) 	1,799	 	(3,536) 	(2,444) 	(110) 

Total	Subsidy	Cost	(Income),	Excluding	Modifications		 

and	Reestimates $ 	(751) $ 

	 

$55,520	 $ 	$31,425	 $ 	19,540	 $ 	45,386	 $ 	(104) N/A 

Note:	The	rates	reflected	in	the	“Budget	Subsidy	Rate”	table	above	are	weighted	rates	for	the	program.	To	compensate	for	the	weighting	of	the	various	risk	category	subsidy	 

rates,	the	“by	component”	dollar	amounts	reflected	were	computed	as	a	ratio	of	the	component	rate	to	the	total	weighted	subsidy	rate	multiplied	by	the	subsidy	cost	 

(income)	for	the	program.		Therefore,	the	Total Subsidy Cost (Income) Excluding Modifications and Reestimates	will	not	equal	the	New Loans or Investments Disbursed	 

multiplied	by	the	Budget Subsidy Rate. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

91 

TROUBLED ASSET RELIEF PROGRAM ASSET GUARANTEE PROGRAM 

(Dollars in Millions) 

As	of	September	30, 

2010 2009 

Asset Guarantees Outstanding: 

Outstanding	Principal	Amount	of	Guaranteed	Loans,	Face	Value $ -	 $ 301,000	 

Amount	of	Outstanding	Principal	Guaranteed -	 5,000	 

Asset Guarantee Program: 

Intragovernmental	Portion	(See	Note) 815	 -

Portion	held	by	OFS,	net 2,240	 1,765	 

Total Asset Guarantee Program $ 3,055 $ 1,765 

Reconciliation of Asset Guarantee Program 

Balance,	Beginning	of	Period $ (1,765) $ -	 

Subsidy	Income	for	Disbursements	and	Modifications (1,418) (751) 

Dividend	Revenue 265	 175	 

Net	Interest	Income	on	Borrowings	from	BPD	and	Financing	Account	Balance (50) (15) 

Balance,	End	of	Period,	Before	Reestimates (2,968) (591) 

Subsidy	Reestimates (87) (1,174) 

Balance,	End	of	Period $ (3,055) $ (1,765) 

Reconciliation of Subsidy Cost (Income) 

Subsidy	Income	for	Disbursements	 $ -	 $ 	(751) 

Subsidy	Income	for	Modifications (1,418) -	 

Subsidy	Reestimates	 (87) (1,174) 

Cancellation	Fees	Collected - (276) 

Total	Asset	Guarantee	Program	Subsidy	Income $ (1,505) $ (2,201) 

Note:	The	net	present	value	of	the	future	cash	flows	for	the	Asset	Guarantee	Program	consists	of	(i)	$800	million	of	Citigroup	trust	preferred	securities,	plus	dividends	thereon,	 

that	the	FDIC	agreed	to	transfer	to	OFS	contingent	on	Citigroup	repaying	previously	issued	FDIC	guaranteed	debt	and	(ii)	additional	Citigroup	trust	preferred	securities	valued	 

at	$2,240,	for	a	total	of	$3,055. 

note 7. commitmentS and contingencieS 

The	OFS	is	party	to	various	legal	actions	and	claims	brought	by	or	against	it.	In	the	opinion	of	management	and	the	Chief	Counsel,	 

the	ultimate	resolution	of	these	legal	actions	and	claims	will	not	have	a	material	effect	on	the	OFS	financial	statements.	The	OFS	 

has	not	incurred	any	loss	contingencies	that	would	be	considered	probable	or	reasonably	possible	for	these	cases.	Refer	to	Note	6	for	 

additional	commitments	relating	to	the	TARP’s	Direct	Loan	and	Equity	Investments	and	Asset	Guarantee	Program. 

note 8. principal paYaBle to the Bureau of the puBlic deBt (Bpd) 

Equity	investments,	direct	loans,	and	the	asset	guarantee	program	accounted	for	under	credit	reform	accounting	are	funded	by	 

subsidy	appropriations	and	borrowings	from	the	BPD.	The	OFS	also	borrows	funds	to	pay	the	Treasury	General	Fund	for	negative	 

subsidy	costs	and	downward	reestimates	in	advance	of	receiving	the	expected	cash	flows	that	cause	the	negative	subsidy	or	downward	 

reestimate.	The	OFS	makes	periodic	principal	repayments	to	the	BPD	based	on	the	analysis	of	its	cash	balances	and	future	 

disbursement	needs.		All	debt	is	intragovernmental	and	covered	by	budgetary	resources.	See	additional	details	on	borrowing	authority	 

in	Note	10,	Statement	of	Budgetary	Resources. 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

92 

Debt	transactions	for	the	year	ended	September	30,	2010	and	the	period	ended	September	30,	2009	were	as	follows:	 

(Dollars in Millions) 2010 2009 

Beginning	Balance,	Principal	Payable	to	the	BPD $ 143,335 $ 								-

New	Borrowings 49,025 215,593 

Repayments (51,956) (72,258) 

Ending Balance, Principal Payable to the BPD $ 140,404 $ 143,335 

Borrowings	from	the	BPD	by	the	TARP	program,	outstanding	as	of	September	30,	2010	and	2009,	were	as	follows: 

(Dollars in Millions) 2010 2009 

Capital	Purchase	Program $ 49,503 $ 77,232 

American	International	Group,	Inc.	Investment	Program 23,061 12,531 

Targeted	Investment	Program 710 20,460 

Automotive	Industry	Financing	Program 45,706 32,134 

Consumer	&	Business	Lending	Initiative 1,073 204 

Public-Private	Investment	Program 17,918 -

Asset	Guarantee	Program 2,433 774 

Total Borrowings Outstanding $ 140,404 $ 143,335 

Borrowings	are	payable	to	the	BPD	as	collections	are	available.	As	of	September	30,	2010,	borrowings	carried	terms	ranging	from	5	 

to	31	years.		Interest	rates	on	borrowings	ranged	from	2.2%	to	4.7%.		At	September	30,	2009,	borrowing	terms	ranged	from	2	to	30	 

years,	and	interest	rates	were	from	1.0%	to	4.5%. 

note 9. Statement of net coSt 

The	Statement	of	Net	Cost	(SNC)	presents	the	net	cost	of	operations	for	the	OFS	under	the	Department	of	the	Treasury’s	strategic	 

goal	of	ensuring	that	U.S.	and	World	economies	perform	at	full	economic	potential.	The	OFS	has	determined	that	all	initiatives	and	 

programs	under	the	TARP	fall	within	this	strategic	goal. 

The	OFS	SNC	reports	the	accumulated	full	cost	of	the	TARP’s	output,	including	both	direct	and	indirect	costs	of	the	program	 

services	and	output	identifiable	to	TARP,	in	accordance	with	SFFAS	No.	4,	Managerial Cost Accounting Concepts and Standards. 

The	OFS	SNC	for	fiscal	year	2010	includes	$5.9	billion	of	intragovernmental	costs	relating	to	interest	expense	on	borrowings	from	 

the	BPD	and	$1.2	billion	in	intragovernmental	revenues	relating	to	interest	income	on	financing	account	balances.	The	SNC	for	the	 

period	ended	September	30,	2009	included	$6.4	billion	of	cost	and	$3.6	billion	of	revenues	for	intragovernmental	borrowings	and	 

interest	income. 

Subsidy	allowance	amortization	on	the	SNC	is	the	difference	between	interest	income	on	financing	fund	account	balances,	dividends	 

and	interest	income	on	direct	loans,	equity	investments,	and	the	asset	guarantee	program	from	TARP	participants,	and	interest	 

expense	on	borrowings	from	the	BPD.	Credit	reform	accounting	requires	that	only	subsidy	cost,	not	the	net	of	other	costs	(interest	 

expense	and	dividend	and	interest	income),	be	reflected	in	the	SNC.	The	subsidy	allowance	account	is	used	to	present	the	loan	or	 

equity	investment	at	the	estimated	net	present	value	of	future	cash	flows. 

notes to the financial statements 

part 2: financial section
agency financial report | fiscal year 2010 

93 

note 10. Statement of BudgetarY reSourceS 

The	Statement	of	Budgetary	Resources	(SBR)	presents	information	about	total	budgetary	resources	available	to	the	OFS	and	the	 

status	of	those	resources.	For	the	year	ended	September	30,	2010,	the	OFS’s	total	resources	in	budgetary	accounts	were	$34.5	billion	 

and	resources	in	non-budgetary	financing	accounts,	including	borrowing	authority	and	spending	authority	from	collections	of	 

loan	principal,	liquidation	of	equity	investments,	interest	and	fees,	were	$160.8	billion.	For	the	period	ended	September	30,	2009,	 

budgetary	resources	totaled	$238.3	billion	and	resources	in	non-budgetary	financing	accounts	totaled	$461.1	billion. 

Permanent	Indefinite	Appropriations 

The	OFS	receives	permanent	indefinite	appropriations	annually,	if	necessary,	to	fund	increases	in	the	projected	subsidy	costs	of	direct	 

loans,	equity	investment	and	asset	guarantee	programs	as	determined	by	the	reestimation	process	required	by	the	FCRA.	 

Additionally,	Section	118	of	the	EESA	states	that	the	Secretary	may	issue	public	debt	securities	and	use	the	resulting	funds	to	carry	 

out	the	Act	and	that	any	such	funds	expended	or	obligated	by	the	Secretary	for	actions	authorized	by	this	Act,	including	the	payment	 

of	administrative	expenses,	shall	be	deemed	appropriated	at	the	time	of	such	expenditure	or	obligation. 

Borrowing	Authority	 

The	OFS	is	authorized	to	borrow	from	the	BPD	when	funds	needed	to	disburse	direct	loans	and	equity	investments,	and	to	enter	 

into	asset	guarantee	arrangements,	exceed	subsidy	costs	and	collections	in	the	non-budgetary	financing	accounts.	For	the	year	ended	 

September	30,	2010,	the	OFS	had	borrowing	authority	of	$69.4	billion.	Of	this	total,	$10.2	billion	was	available	as	of	September	30,	 

2010.	For	the	period	ended	September	30,	2009,	the	OFS	had	borrowing	authority	of	$310.0	billion,	and	of	that,	$45.8	billion	was	 

available. 

The	OFS	uses	dividends	and	interest	received	as	well	as	principal	repayments	on	direct	loans	and	liquidation	of	equity	investments	 

to	repay	debt	in	the	non-budgetary	direct	loan,	equity	investment	and	asset	guarantee	program	financing	accounts.	These	receipts	are	 

not	available	for	any	other	use	per	credit	reform	accounting	guidance. 

Apportionment	categories	of	Obligations	Incurred:	Direct	versus	reimbursable	 

Obligations 

All	of	the	OFS	apportionments	are	Direct	and	are	Category	B.	Category	B	apportionments	typically	distribute	budgetary	resources	on	 

a	basis	other	than	calendar	quarters,	such	as	by	activities,	projects,	objects	or	a	combination	of	these	categories.	The	OFS	obligations	 

incurred	are	direct	obligations	(obligations	not	financed	from	intragovernmental	reimbursable	agreements). 

undelivered	Orders 

Undelivered	orders	as	of	September	30,	2010	were	$68.7	billion	in	budgetary	accounts,	and	$41.9	billion	in	non-budgetary	financing	 

accounts.	At	September	30,	2009,	undelivered	orders	were	$56.1	billion	in	budgetary	accounts,	and	$79.2	billion	in	non-budgetary	 

financing	accounts. 

Explanation	of	Differences	Between	the	Statement	of	Budgetary	resources	and	the	 

Budget	of	the	united	States	government 

Federal	agencies	and	entities	are	required	to	explain	material	differences	between	amounts	reported	in	the	Statement	of	Budgetary	 

Resources	and	the	actual	amounts	reported	in	the	Budget	of	the	U.	S.	Government	(the	President’s	Budget).	 

notes to the financial statements 

part 2: financial section
the department of the treasury | office of financial stability 

94 

The	President’s	Budget	for	2012,	with	the	“Actual”	column	completed	for	fiscal	year	2010,	has	not	yet	been	published	as	of	the	date	 

of	these	financial	statements.	The	Budget	is	currently	expected	to	be	published	and	delivered	to	Congress	in	early	February	2011.	The	 

Budget	will	be	available	from	the	Government	Printing	Office. 

The	2011	Budget	of	the	U.	S.	Government,	with	the	“Actual”	column	completed	for	for	the	period	ended	September	30,	2009,	was	 

published	in	February	2010	and	reconciled	to	the	SBR.	The	only	differences	between	the	two	documents	were	due	to	rounding. 

note 11. reconciliation of oBligationS incurred to net coSt of 

(income from) operationS 

The	OFS	presents	the	SNC	using	the	accrual	basis	of	accounting.	This	differs	from	the	obligation-based	measurement	of	total	 

resources	supplied,	both	budgetary	and	from	other	sources,	on	the	SBR.	The	reconciliation	of	obligations	incurred	to	net	cost	of	 

operations	shown	below	categorizes	the	differences	between	the	two,	and	illustrates	that	the	OFS	maintains	reconcilable	consistency	 

between	the	two	types	of	reporting. 

The	Reconciliation	of	Obligations	Incurred	to	Net	Cost	of	(Income	from)	Operations	for	the	Year	Ended	September	30,	2010	and	 

the	Period	Ended	September	30,	2009	is	as	follows: 

Dollars	in	Millions 2010 2009 

Resources Used to Finance Activities: 

Budgetary Resources Obligated 

Obligations	Incurred $ 173,631	 $ 	662,296	 

Spending	Authority	from	Offsetting	Collections	and	Recoveries 	(191,538) 	(271,999) 

Offsetting	Receipts 	(118,860) 	(2,720) 

Net obligations (136,767) 387,577 

Other	Resources 1 	-	 

Total Resources Used to Finance Activities (136,766) 387,577 

	 

Resources Used to Finance Items Not Part of Net Cost (Income from) Operations: 

Net	Obligations	in	Direct	Loan,	Equity	Investment	and	Asset	Guarantee	Financing	Funds	 	40,139	 	(180,185) 

Increase	in	Resources	Obligated	for	Goods,	Services	and	Benefits	Ordered	but	not	yet	Provided 	(12,639) 	(56,073) 

Resources	that	Fund	Prior	Period	Expenses		and	Downward	Reestimates 	109,747	 	-	 

Total Resources Used to Finance Items Not Part of Net Cost of (Income from) Operations 137, 247 (236,258) 

Total Resources Used to Finance the Net Cost of (Income from) Operations 481 151,319 

Components of Net Cost of (Income from) Operations that Will Not Require or Generate Resources in the 

Current Period: 

Accrued	Downward	Reestimate	and	Modification	of	Subsidy	Cost,	Net	of	Unfunded	Upward	Reestimates 	(23,563) 	(109,748) 

Other 	-	 	2	 

Total Components of Net Cost of (Income from) Operations that Will Not Require or Generate Resources 

in the Current Period (23,563) (109,746) 

Net Cost of (Income from) Operations $ (23,082) $ 41,573 

notes to the financial statements 

part 2: financial section
REQUIRED SUPPLEMENTARY INFORMATION
�

OFFICE OF FINANCIAL STABILITY (TROUBLED ASSET RELIEF PROGRAM) COMBINED STATEMENT OF BUDGETARY RESOURCES
�

FOR THE YEAR ENDED SEPTEMBER 30, 2010 

(UNAUDITED) 

2010 

Combined TARP Programs TARP Administrative 

Dollars in Millions 

Budgetary 

Accounts 

Nonbudgetary 

Financing 

Accounts 

Budgetary 

Accounts 

Nonbudgetary 

Financing 

Accounts 

Budgetary 

Accounts 

Nonbudgetary 

Financing 

Accounts 

BUDGETARY RESOURCES 

Unobligated	Balances	Brought	Forward $ 28,156 $ 8,945 $ 28,126 $ 8,945 $ 30 $ -

Recoveries	of	Prior	Year	Unpaid	Obligations 1,173 39,364 1,118 39,364 55 -

Budget	Authority: 

Appropriations 5,151 - 4,745 - 406 -

Borrowing	Authority - 69,440 - 69,440 - -

Spending	Authority	from	Offsetting	Collections 

Earned:	Collected - 156,112 - 156,112 - -

Change	in	Unfilled	Orders	Without	Advance - (5,111) - (5,111) - -

Total	Budget	Authority

Permanently	Not	Available

TOTAL BUDGETARY RESOURCES (Note 10) $ 

34,480 

-

34,480 $ 

268,750 

(107,976)

160,774 $ 

33,989 

-

33,989 $ 

268,750 

(107,976)

160,774 $ 

491 

-

491 $ 

-

-

-

STATUS OF BUDGETARY RESOURCES 

Obligations	Incurred	-	Direct 

Unobligated	Balance: 

Apportioned	and	Available

Not	Available

TOTAL STATUS OF BUDGETARY RESOURCES 

$ 

$ 

23,405 

142 

10,933 

34,480 

$ 

$ 

150,226 

7,692 

2,856 

160,774 

$ 

$ 

23,040 

101 

10,848 

33,989 

$ 

$ 

150,226 

7,692 

2,856 

160,774 

$ 

$ 

365 

41 

85 

491 

$ 

$ 

-

-

-

-

CHANGE IN OBLIGATED BALANCES 

Obligated Balance Brought Forward: 

Unpaid	Obligations 

Uncollected	Customer	Payments	from	Federal	 

Sources

Obligated Balance, Net, Brought Forward

$ 56,151 

-

56,151 

$ 79,202 

(28,927)

 50,275 

$ 55,992 

-

55,992 

$ 79,202 

(28,927)

 50,275 

$ 159 

-

159 

$ -

-

-

Obligations	Incurred

Gross	Outlays

Recoveries	of	Prior	Year	Unpaid	Obligations

Change	in	Uncollected	Customer	Payments	from	 

Federal	Sources

 23,405 

(9,255)

 (1,173)

 -

150,226 

(148,146)

 (39,364)

 5,111 

23,040 

(9,016) 

(1,118)

 -

150,226 

(148,146)

 (39,364)

 5,111 

365 

(239)

 (55)

 -

-

-

-

-

Obligated Balance, Net, End of Period: 

Unpaid	Obligations

Uncollected	Customer	Payments	from	Federal	 

Sources

Obligated Balance, Net, End of Period $ 

69,128 

-

69,128 $ 

41,918 

(23,816)

18,102 $ 

68,898 

-

68,898 $ 

41,918 

(23,816)

18,102 $ 

230 

-

230 $ 

-

-

-

NET OUTLAYS 

Gross	Outlays $ 9,255 $ 148,146 $ 9,016 $ 148,146 $ 239 $ -

Offsetting	Collections - (156,112) - (156,112) - -

Distributed	Offsetting	Receipts (118,860) - (118,860) - - -

NET OUTLAYS $ (109,605) $ (7,966) $ (109,844) $ (7,966) $ 239 $ -

part 2: financial section
REQUIRED SUPPLEMENTARY INFORMATION 

OFFICE OF FINANCIAL STABILITY (TROUBLED ASSET RELIEF PROGRAM) 

COMBINED STATEMENT OF BUDGETARY RESOURCES 

FOR THE PERIOD ENDED SEPTEMBER 30, 2009 

(UNAUDITED) 

2009 

Combined TARP Programs TARP Administrative Fund 

Nonbudgetary Nonbudgetary Nonbudgetary 

Budgetary Financing Budgetary Financing Budgetary Financing 

Dollars in Millions Accounts Accounts Accounts Accounts Accounts Accounts 

BUDGETARY RESOURCES 

Unobligated	Balances	Brought	Forward $ - $ - $ - $ - $ - $ -

Recoveries	of	Prior	Year	Unpaid	Obligations - - - - - -

Budget	Authority: 

Appropriations 238,268 - 237,989 - 279 -

Borrowing	Authority - 309,971 - 309,971 - -

Spending	Authority	from	Offsetting	Collections -

Earned:	Collected - 243,072 - 243,072 - -

Change	in	Unfilled	Orders	Without	 

Advance - 28,927 - 28,927 - -

Total	Budget	Authority 238,268 581,970 237,989 581,970 279 -

Permanently	Not	Available - (120,841) - (120,841) - -

TOTAL BUDGETARY RESOURCES (Note 10) $ 238,268 $ 461,129 $ 237,989 $ 461,129 $ 279 $ -

STATUS OF BUDGETARY RESOURCES 

Obligations	Incurred	-	Direct $ 210,112 $ 452,184 $ 209,863 $ 452,184 $ 249 $ -

Unobligated	Balance: 

Apportioned	and	Available 28,156 7,009 28,126 7,009 30 -

Not	Available - 1,936 - 1,936 - -

TOTAL STATUS OF BUDGETARY RESOURCES $ 238,268 $ 461,129 $ 237,989 $ 461,129 $ 279 $ -

CHANGE IN OBLIGATED BALANCES 

Obligated Balance Brought Forward: 

Unpaid	Obligations $ - $ - $ - $ - $ - $ -

Uncollected	Customer	Payments	from	Federal	 

Sources - - - - - -

Obligated Balance, Net, Brought Forward - - - - - -

Obligations	Incurred 210,112 452,184 209,863 452,184 249 -

Gross	Outlays (153,961) (372,982) (153,871) (372,982) (90) -

Recoveries	of	Prior	Year	Unpaid	Obligations - - - - - -

Change	in	Uncollected	Customer	Payments	from	 

Federal	Sources - (28,927) - (28,927) - -

Obligated	Balance,	Net,	End	of	Period: 

Unpaid	Obligations 56,151 79,202 55,992 79,202 159 -

Uncollected	Customer	Payments	from	Federal	 

Sources - (28,927) - (28,927) - -

Obligated	Balance,	Net,	End	of	Period $ 56,151 $ 50,275 $ 55,992 $ 50,275 $ 159 $ -

NET OUTLAYS 

Gross	Outlays $ 153,961 $ 372,982 $ 153,871 $ 372,982 $ 90 $ -

Offsetting	Collections - (243,072) - (243,072) - -

Distributed	Offsetting	Receipts (2,720) - (2,720) - - -

NET OUTLAYS $ 151,241 $ 129,910 $ 151,151 $ 129,910 $ 90 $ -

part 2: financial section
appendices 
the department of the treasury | office of financial stability 

98 

appendix a: 

oversight entities 

appendices 

Per	the	EESA	requirements,	Treasury-OFS	has	four	oversight	entities	with	specific	responsibilities	with	regard	to	TARP,	which	 

are	the	Financial	Stability	Oversight	Board,	the	Government	Accountability	Office,	the	Office	of	the	Special	Inspector	General	 

for	TARP,	and	the	Congressional	Oversight	Panel.	A	summary	of	the	responsibilities	and	activities	of	each	of	these	entities	is	 

provided	below. 

financial StaBilitY overSight Board
	

The	Oversight	Board	was	established	by	section	104	of	EESA	to	help	oversee	TARP	and	other	emergency	authorities	and	facilities	granted	to	the	Secretary	of	the	Treasury	under	EESA.		The	Oversight	Board	is	composed	of	the	Secretary	of	the	Treasury,	the	 

Chairman	of	the	Board	of	Governors	of	the	Federal	Reserve	System,	the	Director	of	the	Federal	Housing	Finance	Agency,	the	 

Chairman	of	the	Securities	and	Exchange	Commission,	and	the	Secretary	of	the	Department	of	Housing	and	Urban	Development.			 

Through	Oversight	Board	meetings	and	consultations	between	the	staffs	of	the	agencies	represented	by	each	Member	of	the	 

Oversight	Board,	the	Oversight	Board	reviews	and	monitors	the	development	and	ongoing	implementation	of	the	policies	and	 

programs	under	TARP	to	restore	liquidity	and	stability	to	the	U.S.	financial	system.		The	Oversight	Board	meets	each	month,	 

and	receives	presentations	and	briefings	from	Treasury-OFS	officials	and,	where	appropriate,	other	government	officials,	including	 

officials	from	the	other	agencies	represented	on	the	Oversight	Board,	concerning	the	implementation	and	the	effects	of	the	programs	 

established	under	TARP.		 

The	Oversight	Board	also	monitors	Treasury’s	responses	to	the	recommendations	made	by	SIGTARP	and	the	GAO.		Throughout	 

fiscal	year	2010,	the	Oversight	Board	received	updates	on	Treasury’s	progress	in	addressing	the	issues	raised	by	these	oversight	bodies	 

with	respect	to	transparency,	the	establishment	of	internal	controls,	compliance	and	risk	monitoring,	staffing	and	Treasury’s	communication	strategy.		In	addition,	staff	of	the	Oversight	Board	and	of	the	agencies	represented	by	each	Member	of	the	Oversight	Board	 

continued	to	have	regular	discussions	with	representatives	from	the	SIGTARP	and	GAO	to	discuss	recent	and	upcoming	activities	of	 

the	oversight	bodies.		These	efforts	continued	to	help	facilitate	coordinated	oversight	and	minimize	the	potential	for	duplication.	 

Based	on	this	dialogue	and	analysis,	the	Oversight	Board	issues	a	Quarterly	Report	for	each	three-month	period	that	describes	its	 

activities	for	that	quarter,	its	assessment	of	the	effects	of	TARP	programs	on	financial	stability	and	housing	markets	in	the	quarter,	 

and	developments	in	TARP	programs	and	administration	during	the	quarter.		Copies	of	approved	minutes	of	the	Oversight	Board’s	 

meetings	and	the	Quarterly	Reports	are	made	available	on	the	internet	at:	http://www.financialstability.gov/about/oversight.html. 

appendix a: oversight entities 
agency financial report | fiscal year 2010 

appendix a: oversight entities 99 

government accountaBilitY 

office (gao) 

Section	116(a)(3)	of	EESA	stipulates	that	“the	Comptroller	 

General	[who	heads	the	GAO]	shall	submit	reports	of	findings	 

...	regularly	and	no	less	frequently	than	once	every	60	days,	to	 

the	appropriate	committees	of	Congress.”		“The	Comptroller	 

may	also	submit	special	reports	...	as	warranted	by	the	findings	 

of	its	oversight	activities.”			Section	116(b)(1)	provides	for	 

the	Comptroller	General	to	conduct	an	annual	audit	of	TARP	 

financial	statements	in	accordance	with	generally	accepted	 

auditing	standards. 

Treasury-OFS	has	a	statutory	obligation	under	Section	116(b) 

(3)	of	EESA	to	take	corrective	actions	in	response	to	audit	 

deficiencies	identified	by	the	Comptroller	General	or	other	 

auditor	engaged	by	the	TARP	or	certify	to	the	appropriate	committees	of	Congress	that	no	action	is	necessary	or	appropriate.		 

In	addition,	under	Section	236	of	the	Legislative	Reorganization	 

Act	of	1970,	Treasury-OFS	is	required	to	respond	in	writing	to	 

Congress	within	60	days	of	the	issuance	date	of	a	GAO	report.		 

Currently,	the	GAO	is	engaged	in	10	audits	related	to	TARP.		 

Treasury-OFS	responds	to	information	requests	from	the	GAO	 

by	providing	responsive	documents	and	other	information	and	 

facilitating	comprehensive	briefings	on	TARP	programs	with	senior	Treasury-OFS	staff.		In	addition,	Treasury-OFS	apprises	the	 

GAO	of	key	developments	in	current	and	proposed	programs	 

and	policies	under	EESA.		 

Between	December	2008	and	September	2010,	the	GAO	issued	 

74	recommendations	in	its	20	published	reports.		The	topics	 

addressed	by	GAO’s	recommendations	are	(1)	transparency,	 

reporting,	and	accountability;	(2)	management	infrastructure;	 

and	(3)	communication.		In	response	to	the	recommendations,	 

the	Treasury-OFS	has	developed	remediation	plans	and	regularly	 

communicates	the	status	of	its	remediation	efforts	to	the	GAO	 

and	will	continue	to	do	so	in	fiscal	year	2011.		Treasury-OFS	has	 

fully	or	partially	implemented	72	of	the	recommendations	and	 

the	remaining	recommendations	have	been	deemed	closed	by	 

the	GAO	and/or	Treasury-OFS	has	taken	no	action 

. 

the office of the Special 

inSpector general for tarp 

(Sigtarp) 

Section	121	of	EESA	created	the	SIGTARP.		The	objectives	of	 

SIGTARP	are	to	investigate	and	prevent	fraud,	waste	and	abuse	 

in	TARP	programs,	while	promoting	transparency	in	TARP	 

programs.		 

SIGTARP	must	report	to	Congress	each	quarter	certain	 

information	about	TARP	regarding	the	preceding	quarter.		As	 

of	September	30,	2010,	SIGTARP	has	issued	seven	quarterly	 

reports.		SIGTARP	also	has	a	duty	under	EESA	to	conduct	 

audits	and	investigations	of	the	purchase,	management,	and	 

sale	of	assets	under	any	TARP	program,	and	with	certain	 

limitations,	any	other	action	under	EESA.		As	of	September	30,	 

2010,	SIGTARP	had	published	11	audit	reports	and	is	currently	 

conducting	ten	audits	that	are	at	various	stages.		 

Treasury-OFS	has	worked	closely	with	SIGTARP	and	maintains	 

open	lines	of	communications	with	audit	staff	and	investigations	 

of	TARP	programs.		Treasury-OFS	staff	also	regularly	provides	 

updates	to	SIGTARP	about	program	design	and	implementation.		Treasury-OFS	has	benefited	from	SIGTARP’s	involvement	 

in	the	development	of	TARP	programs	and	policies	as	TreasuryOFS	pursues	our	common	goal	of	carrying	out	the	objectives	of	 

EESA,	which	are	to	promote	financial	stability	and	protect	the	 

interests	of	the	taxpayers.		 

As	of	September	30,	2010,	SIGTARP	has	issued	64	recommendations	in	its	reports.		General	topics	addressed	by	 

SIGTARP’s	recommendations	include	establishing	goals,	 

metrics,	costs	and	expected	participation	for	the	TARP	housing	 

programs;	documenting	communications	with	TARP	recipients	 

concerning	the	warrant	repurchase	process;	and	conducting	 

independent	testing	of	TARP	recipients’	compliance	with	 

TARP	contractual	requirements.			Treasury-OFS	has	carefully	 

considered	SIGTARP’s	recommendations	in	prior	reports,	and	 

has	submitted	responses	describing	the	actions	Treasury-OFS	has	 

taken	or	will	take	to	address	them.		Treasury-OFS’	policies	and	 

programs	currently	address	many	of	the	issues	SIGTARP	raised	 

in	its	recommendations.		Treasury	has	implemented	or	is	in	the	 

process	of	implementing	53	of	the	64	SIGTARP	recommendations	and	has	declined	to	implement	nine	of	the	recommendations.		Additionally,	SIGTARP	has	concurred	with	Treasury’s	 

assessment	that	two	of	SIGTARP’s	64	recommendations	are	no	 

longer	applicable	due	to	subsequent	events

appendices 
the department of the treasury | office of financial stability 

appendices 

congreSSional overSight panel 

(cop) 

The	COP	consists	of	five	panel	members	appointed	as	follows:	one	member	appointed	by	the	Speaker	of	the	House	of	 

Representatives;	one	member	appointed	by	the	minority	leader	 

of	the	House	of	Representatives;	one	member	appointed	by	the	 

majority	leader	of	the	Senate;	one	member	appointed	by	the	 

minority	leader	of	the	Senate;	and	one	member	appointed	by	 

the	Speaker	of	the	House	of	Representatives	and	the	majority	leader	of	the	Senate,	after	consultation	with	the	minority	 

leader	of	the	Senate	and	the	minority	leader	of	the	House	of	 

Representatives.		In	October	2010,	Senator	Ted	Kaufman	of	 

Delaware	was	appointed	to	replace	Elizabeth	Warren	on	the	 

panel.		He	was	elected	by	his	fellow	members	to	serve	as	the	 

Chair	of	this	panel.		The	COP	also	employs	a	professional	staff,	 

numbering	approximately	27,	who	are	responsible	for	carrying	 

out	the	day-to-day	work	of	the	Panel.		The	COP	also	reaches	 

out	to	experts,	primarily	academics,	to	conduct	analyses	in	 

support	of	their	work.	 

The	COP’s	mandate	includes	assessing	the	impact	of	TreasuryOFS’	spending	to	stabilize	the	economy,	evaluating	market	 

transparency,	ensuring	effective	foreclosure	mitigation	efforts,	 

and	guaranteeing	that	Treasury-OFS’	actions	are	in	the	best	 

interest	of	the	American	people.		Unlike	the	other	oversight	 

bodies,	EESA	mandated	that	COP’s	work	would	end	six	months	 

after	the	expiration	of	the	TARP	spending	authority	which	 

means	that	it	will	cease	to	exist	on	April	3,	2011. 

EESA	requires	the	COP	to	produce	a	report	every	30	days	 

examining	Treasury’s	efforts	and	the	impact	on	the	economy	 

of	those	efforts.		The	statute	grants	the	COP	the	authority	to	 

hold	hearings,	review	official	data,	and	write	reports	on	actions	 

taken	by	Treasury-OFS	and	financial	institutions	and	their	effect	 

on	the	economy.		Generally,	the	COP	focuses	on	one	program	 

or	topic	each	month	and	produces	a	report	that	describes	the	 

program,	assesses	its	design	and	implementation	and,	in	some	 

instances,	presents	recommendations.		Many	of	its	recommendations	have	focused	on	issues	of	transparency	and	what	COP	 

views	as	the	need	to	be	clearer	on	goals	and	metrics	so	that	 

taxpayers	can	better	understand	whether	their	monies	are	being	 

effectively	utilized.				 

The	COP	staff	uses	public	information	to	develop	the	outlines	 

of	their	reports,	then	follows	up	with	requests	of	information,	 

documents,	and	data	from	Treasury-OFS.		Treasury-OFS	engages	 

with	COP	on	a	regular	basis,	offering	briefings	on	the	topic	of	 

their	current	focus,	as	well	as	any	new	initiatives	or	changes	in	 

Treasury-OFS	programs.	 

The	COP	holds	semi-regular	hearings	on	Capitol	Hill,	often	 

timed	to	coincide	with	its	work	on	a	particular	report.		TreasuryOFS	makes	its	senior	staff	available	to	appear	before	the	COP	as	 

witnesses;	the	Secretary	of	the	Treasury	appears	before	the	COP	 

on	a	quarterly	basis,	and	the	Assistant	Secretary	for	Financial	 

Stability	is	made	available	as	requested	for	other	hearings.		 

Other	Treasury-OFS	officials	have	also	appeared	before	the	COP	 

as	requested. 

100 appendix a: oversight entities 
agency financial report | fiscal year 2010 

appendix b: tarp glossary 101 

appendix b: 

tArP glossAry 

Asset-Backed	Security	(ABS):	A	financial	instrument	representing	an	interest	in	a	pool	of	other	assets,	typically	consumer	 

loans.		Most	ABS	are	backed	by	credit	card	receivables,	auto	 

loans,	student	loans,	or	other	loan	and	lease	obligations. 

Asset	guarantee	Program	(AgP):	A	TARP	program	under	 

which	Treasury,	together	with	the	Federal	Reserve	and	the	 

FDIC,	agreed	to	share	losses	on	certain	pools	of	assets	held	by	 

systemically	significant	financial	institutions	that	faced	a	high	 

risk	of	losing	market	confidence	due	in	large	part	to	a	portfolio	 

of	distressed	or	illiquid	assets. 

Automotive	Industry	Financing	Program	(AIFP):	A	TARP	 

program	under	which	Treasury-OFS	provided		loans	or	equity	 

investments	in	order	to	avoid	a	disorderly	bankruptcy	of	one	or	 

more	auto	companies	that	would	have	posed	a	systemic	risk	to	 

the	country’s	financial	system. 

capital	Purchase	Program	(cPP):	A	TARP	program	pursuant	 

to	which	Treasury-OFS	invested	in	preferred	equity	securities	 

and	other	securities	issued	by	financial	institutions. 

commercial	Mortgage-Backed	Securities	(cMBS):	A	financial	instrument	representing	an	interest	in	a	commercial	real	 

estate	mortgage	or	a	group	of	commercial	real	estate	mortgages. 

commercial	Paper	(cP):		An	unsecured	debt	instrument	with	a	 

short	maturity	period,	270	days	or	less,	typically	issued	by	large	 

financial	institutions	or	other	large	commercial	firms. 

community	Development	capital	Initiative	(cDcI):		A	 

TARP	program	that	provides	low-cost	capital	to	CDFIs	to	 

encourage	lending	to	small	businesses	and	help	facilitate	the	 

flow	of	credit	to	individuals	in	underserved	communities. 

community	Development	Financial	Institution	(cDFI):		 

A	financial	institution	that	focuses	on	providing	financial	 

services	to	low-	and	moderate-	income,	minority	and	other	 

underserved	communities,	and	is	certified	by	the	CDFI	Fund,	 

an	office	within	Treasury-OFS	that	promotes	economic	 

revitalization	and	community	development. 

consumer	and	Business	Lending	Initiative	(cBLI):	A	series	 

of	programs	created	under	TARP	which	included	the	TALF,	 

the	CDCI,	and	the	SBA	7(a)	Securities	Purchase	Program.		 

These	were	designed	to	jump	start	the	credit	markets	that	 

provide	financing	to	consumers	and	businesses	and	otherwise	 

support	small	banks. 

Emergency	Economic	Stabilization	Act	(EESA):	The	law	 

that	created	the	Troubled	Asset	Relief	Program	(TARP). 

government-Sponsored	Enterprises	(gSEs):	Private	 

corporations	created	by	the	U.S.	Government.		Fannie	Mae	 

and	Freddie	Mac	are	GSEs. 

Home	Affordable	Modification	Program	(HAMP):		A	TARP	 

program	Treasury-OFS	established	to	help	responsible	but	 

struggling	homeowners	reduce	their	mortgage	payments	to	 

affordable	levels	and	avoid	foreclosure. 

Legacy	Securities:	CMBS	and	non-agency	RMBS	issued	prior	to	 

2009	that	were	originally	rated	AAA	or	an	equivalent	rating	 

by	two	or	more	NRSROs	without	ratings	enhancement	and	 

that	are	secured	directly	by	actual	mortgage	loans,	leases	or	 

other	assets	and	not	other	securities. 

Making	Home	Affordable	(MHA):	A	comprehensive	plan	to	 

stabilize	the	U.S.	housing	market	and	help	responsible,	but	 

struggling,	homeowners	reduce	their	monthly	mortgage	payments	to	more	affordable	levels	and	avoid	foreclosure.		HAMP	 

is	part	of	MHA. 

Mortgage-Backed	Securities	(MBS):	A	type	of	ABS	representing	an	interest	in	a	pool	of	similar	mortgages	bundled	together	 

by	a	financial	institution. 

nationally	recognized	Statistical	rating	Organization	 

(nrSrO):		A	credit	rating	agency	which	issues	credit	ratings	 

that	the	U.S.	Securities	and	Exchange	Commission	permits	 

other	financial	firms	to	use	for	certain	regulatory	purposes.	 

non-Agency	residential	Mortgage-Backed	Securities:		 

RMBS	that	are	not	guaranteed	or	issued	by	Freddie	Mac,	 

Fannie	Mae,	any	other	GSE,	Ginnie	Mae,	or	a	U.S.	federal	 

government	agency. 

Preferred	Stock:	Equity	ownership	that	usually	pays	a	fixed	 

dividend	and	gives	the	holder	a	claim	on	corporate	earnings	 

superior	to	common	stock	owners.	Preferred	stock	also	has	 

priority	in	the	distribution	of	assets	in	the	case	of	liquidation	of	 

a	bankrupt	company.

appendices 
the department of the treasury | office of financial stability 

appendices 

102 

Public-Private	Investment	Fund	(PPIF):	An	investment	 

fund	established	to	purchase	Legacy	Securities	from	financial	 

institutions	under	PPIP. 

Public-Private	Investment	Program	(PPIP):	A	TARP	program	 

designed	to	improve	the	health	of	financial	institutions	 

holding	real	estate-related	assets.	The	program	is	designed	to	 

increase	the	flow	of	credit	throughout	the	economy	by	partnering	with	private	investors	to	purchase	Legacy	Securities	from	 

financial	institutions. 

Qualifying	Financial	Institution	(QFI):	Private	and	public	 

U.S.-controlled	banks,	savings	associations,	bank	holding	 

companies,	certain	savings	and	loan	holding	companies,	and	 

mutual	organizations. 

residential	Mortgage-Backed	Securities	(rMBS):	A	 

financial	instrument	representing	an	interest	in	a	group	of	 

residential	real	estate	mortgages. 

SBA:	U.S.	Small	Business	Administration. 

SBA	7(a)	Securities	Purchase	Program:		A	TARP	program	 

under	which	Treasury-OFS	purchases	securities	backed	by	the	 

guaranteed	portions	of	the	SBA	7(a)	loans. 

Servicer:	An	administrative	party	that	collects	payments	and	generates	reports	regarding	mortgage	payments. 

Targeted	Investment	Program	(TIP):	A	TARP	program	that	 

was	created	to	stabilize	the	financial	system	by	making	investments	in	institutions	that	are	critical	to	the	functioning	of	the	 

financial	system.		 

Term	Asset-Backed	Securities	Loan	Facility	(TALF):	A	 

program	under	which	the	Federal	Reserve	Bank	of	New	York	 

makes	term	non-recourse	loans	to	buyers	of	AAA-rated	AssetBacked	Securities	in	order	to	stimulate	consumer	and	business	 

lending	by	the	issuers	of	those	securities.		Treasury-OFS	used	 

TARP	funds	to	provide	credit	support	for	the	TALF	as	part	of	 

its	Consumer	and	Business	Lending	Initiative. 

Tier	1	capital	or	“core	capital”:	A	measure	of	a	bank’s	assets	 

and	liabilities	that	includes	primarily	common	equity	(including	retained	earnings),	limited	types	and	amounts	of	preferred	 

equity,	certain	minority	interests,	and	limited	types	and	 

amounts	of	trust	preferred	securities,	but	excludes	goodwill,	 

certain	other	intangibles	and	certain	other	assets.	It	is	used	by	 

banking	regulators	as	a	measure	of	a	bank’s	ability	to	sustain	 

future	losses	and	still	meet	depositor’s	demands. 

Tier	1	common	(also	known	as	Tangible	common	Equity	 

or	TcE):	A	measure	of	a	bank’s	assets	and	liabilities	calculated	 

by	removing	all	non-common	elements	from	Tier	1	Capital,	 

e.g.,	preferred	equity,	minority	interests,	and	trust	preferred	 

securities.	It	can	be	thought	of	as	the	amount	that	would	be	 

left	over	if	the	bank	were	dissolved	and	all	creditors	and	higher	 

levels	of	stock,	such	as	preferred	stock,	were	paid	off.	Tier	1	 

Common	is	the	highest	“quality”	of	capital	in	the	sense	of	 

providing	a	buffer	against	loss	by	claimants	on	the	bank.	Tier	 

1	Common	is	used	in	calculating	the	Tier	1	Common	Ratio	 

which	determines	the	percentage	of	a	bank’s	total	assets	that	 

is	categorized	as	Tier	1	Common.	Generally,	the	higher	the	 

percentage,	the	better	capitalized	the	bank.	Preferred	stock	is	 

an	example	of	capital	that	is	counted	in	Tier	1	Capital,	but	not	 

in	Tier	1	Common.	 

Troubled	Asset	relief	Program	(TArP):	The	Troubled	Asset	 

Relief	Program,	which	was	established	under	EESA	to	stabilize	 

the	financial	system	and	prevent	a	systemic	collapse. 

Trust	Preferred	Security:	A	security	that	has	both	equity	and	 

debt	characteristics,	created	by	establishing	a	trust	and	issuing	 

debt	to	it.	A	company	may	create	a	trust	preferred	security	to	 

realize	tax	benefits,	since	the	trust	is	tax	deductible. 

Warrant:	A	financial	instrument	that	represents	the	right,	but	not	 

the	obligation,	to	purchase	a	certain	number	of	shares	of	common	stock	of	a	company	at	a	fixed	price. 

appendix b: tarp glossary 
office of finAnciAl stAbility 

Websites:

www.FinancialStability.gov 

www.MAKINGHOMEAFFORDABLE.gov

Documents	Referenced	in	the	AFR: 

Two-Year	Retrospective:		 

http://www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%20 

05%2010_transmittal%20letter.pdf 

Housing	Scorecard: 

www.hud.gov/scorecard 

Warrant	Disposition	Report: 

www.financialstability.gov/latest/reportsanddocs.html 

U.	S.	Budget	and	Economic	Outlook: 

www.cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf 

Housing	Finance	Agency	Hardest	Hit	Fund: 

www.financialstability.gov/roadtostability/hardesthitfund.html 

Congressional	Hearings	and	Testimony: 

www.financialstability.gov/latest/speeches-testimony.html
www.finAnciAlstAbility.gov