CONGRESSIONAL OVERSIGHT PANEL 

FEBRUARY OVERSIGHT REPORT * 

EXECUTIVE COMPENSATION RESTRICTIONS IN THE TROUBLED ASSET RELIEF PROGRAM 

FEBRUARY 10, 2011.—Ordered to be printed 

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

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


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CONGRESSIONAL OVERSIGHT PANEL FEBRUARY OVERSIGHT REPORT 

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1 

63–750 2011

CONGRESSIONAL OVERSIGHT PANEL 

FEBRUARY OVERSIGHT REPORT * 

EXECUTIVE COMPENSATION RESTRICTIONS IN THE TROUBLED ASSET RELIEF PROGRAM 

FEBRUARY 10, 2011.—Ordered to be printed 

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

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


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(II) 

CONGRESSIONAL OVERSIGHT PANEL 

PANEL MEMBERS

SEN. TED KAUFMAN, Chairman 

RICHARD H. NEIMAN

DAMON SILVERS

J. MARK MCWATTERS

KENNETH TROSKE

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(III) 

C O N T E N T S 

Page 

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

Section One: 

A. Overview ....................................................................................................... 5 

B. Background .................................................................................................. 7 

1. Overview ................................................................................................ 7 

2. The Statutes and Regulations that Govern Compensation Paid 

by TARP Recipients ............................................................................... 18 

C. Summary of the Special Master’s Determinations ................................... 25 

1. Overview ................................................................................................ 25 

2. Determinations ...................................................................................... 30 

3. Advisory Opinions ................................................................................. 39 

4. Look Back Review ................................................................................. 40 

5. Final Report ........................................................................................... 41 

D. Evaluation of Treasury’s Implementation of the Executive Compensation Restrictions ............................................................................................ 42 

1. The Interim Final Rule and the Special Master’s Implementation 

of the Rule .............................................................................................. 42 

2. Look Back Review ................................................................................. 45 

3. Transparency: The Office of the Special Master and the Office 

of Internal Review ................................................................................. 47 

4. Impact .................................................................................................... 56 

5. Missed Opportunities ............................................................................ 65 

E. Conclusions and Recommendations ........................................................... 66 

Annex I: Salary Tables ............................................................................................ 70 

Section Two: Additional Views 

A. Professor Kenneth R. Troske and J. Mark McWatters ............................. 73 

Section Three: TARP Updates Since Last Report ................................................. 75 

Section Four: Oversight Activities .......................................................................... 104 

Section Five: About the Congressional Oversight Panel ...................................... 105 

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*The Panel adopted this report with a 5–0 vote on February 9, 2011. 

FEBRUARY OVERSIGHT REPORT 

FEBRUARY 10, 2011.—Ordered to be printed 

EXECUTIVE SUMMARY* 

Executive compensation has been a subject of controversy and 

debate since long before the 2008 financial crisis. Academics, shareholders, and other experts have long agreed that an executive’s pay 

should accurately reflect his or her contributions to a business and 

should avoid creating incentives to pursue excessively risky business strategies. Debates have erupted, however, about what these 

standards mean in practice and about how to structure executive 

pay appropriately. For example, should corporations pay their executives primarily in stock in hopes of aligning their interests with 

those of other shareholders? Or would this approach encourage executives to take wild risks in order to increase the value of their 

own pay? Fault lines have also emerged over which stakeholders 

should play a role in determining executive pay, which metrics 

should be used to gauge an executive’s performance, and what 

timeframe should be used in evaluating an executive’s contributions, among many other points of contention. 

Congress entered this well-worn debate in dramatic fashion in 

late 2008 and early 2009, when it enacted the Troubled Asset Relief Program (TARP) and subsequently imposed sweeping restrictions on executive pay at institutions that accepted TARP funds. 

The restrictions generally reflected the notion that, when a company accepts taxpayer money, its compensation practices must 

shift to take into account factors beyond the customary elements of 

executive pay. In particular, compensation should reflect the need 

for taxpayers to recover their investment, should recognize public 

frustration about taxpayer funds being paid to executives at bailedout institutions, and should advance the public goal of stabilizing 

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the financial system. These concerns are especially acute at ‘‘too big 

to fail’’ firms, which survived due to taxpayers’’ reluctant intervention rather than the competence of the executives who led their 

companies astray. In keeping with these considerations, Congress 

banned TARP recipients from compensating executives in ways 

that encouraged unnecessary and excessive risks; required 

‘‘clawback’’ provisions to allow recovery of compensation paid based 

on inaccurate metrics; limited bonuses and other incentive compensation to one-third of total pay; and imposed several further restrictions. 

To implement this Congressional mandate, Treasury established 

two new offices: the Office of Internal Review (OIR) within the Office of Financial Stability, which reviews and certifies compliance 

with executive compensation restrictions by all TARP recipients; 

and the Office of the Special Master for Executive Compensation, 

which actively negotiates executive pay for the seven institutions 

that received ‘‘exceptional assistance’’: AIG, Bank of America, 

Citigroup, Chrysler, Chrysler Financial, General Motors, and 

GMAC/Ally Financial. 

Of the two offices, the OIR has attracted less public attention because it merely certifies compliance rather than actively setting 

pay. Even so, OIR has posed particular problems for oversight. Despite its far-reaching jurisdiction, it has not published a single document. Although OIR provided helpful responses to the Panel’s 

questions, the Panel remains troubled that a body with such significant scope has disclosed so little information to the public. The 

omission is particularly surprising given OIR’s determinations that 

the vast majority of the companies under its jurisdiction have been 

compliant with executive pay restrictions—information that would 

be valuable to the public. 

The Office of the Special Master has a far more limited jurisdiction, but it plays an active role in setting executive compensation 

at the institutions within its purview. In general, the Special Master has achieved significant changes in practices at these firms, including an average percentage decrease in overall compensation of 

54.8 percent (with a range between 24.2 percent and 85.6 percent) 

for the 25 highest-paid employees at each company from 2008 to 

2009. The Special Master generally limited cash compensation to 

$500,000 or less and required that, for the 25 highest-paid employees, stock received as salary should be redeemable only over four 

years. The Special Master also limited incentive payments to onethird of total compensation, as required by Congress, and tied these 

payments to specific, observable performance metrics. The Special 

Master accomplished these changes in a complex environment 

under a constant media spotlight. 

A key focus of the Special Master’s work was shifting companies 

away from guaranteed pay and toward stock-based compensation 

in an effort to better align the interests of executives with the longterm interests of the company. This shift is broadly in line with 

current academic thinking and corporate best practices for executive pay. Even so, stock-focused pay packages raise their own concerns. The payment of salary in the form of stock may encourage 

executives to take unnecessary or excessive risks, especially because the very low stock prices of distressed institutions serve to 

limit downside losses while still allowing tremendous upside gains. 

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Further, the four-year timeframe for the redemption of certain 

stock payments may be too short to determine whether an executive’s actions have truly created long-term value. Many executives 

in the early 2000s, for example, gambled on high-risk business 

strategies that proved unsustainable only when the financial crisis 

hit in 2008. Even if their firms had followed the pay principles subsequently laid out by the Special Master, these executives would 

have walked away with dramatically and inappropriately inflated 

pay packages—precisely the outcome that the Special Master 

sought to prevent. 

Also, pay packages approved by the Special Master have generally been quite uniform despite wide variations in the companies 

under the office’s review. It is unclear whether one size truly fits 

all and whether the same redemption schedule for salary stock 

should apply to employees of an automotive company and employees of a large bank. Similarly, a cash salary of $500,000 might have 

different ramifications for hiring and retention at an institution 

based in New York compared to one based in Michigan, given the 

widely varying costs of living. 

A separate concern involves the Special Master’s ‘‘Look Back Review’’ of payments to executives at TARP recipients prior to February 17, 2009. Congress instructed the Special Master to ‘‘seek to 

negotiate’’ with TARP recipients for ‘‘appropriate reimbursements’’ 

of any payments made prior to that date that were ‘‘contrary to the 

public interest.’’ At the conclusion of the review, the Special Master 

found that no payments had violated the ‘‘public interest,’’ and thus 

he did not attempt to claw back any pay. Even so, he labeled $1.7 

billion in payments as ‘‘disfavored’’ and ‘‘not necessarily appropriate.’’ The finding that pay was ‘‘disfavored’’ but not ‘‘contrary to 

the public interest’’ is troublesome for several reasons: it may appear to the public to be excessively legalistic, it may represent an 

end-run around Congress’ determination that the Special Master 

should make every effort to claw back wrongful payments, and it 

may give the impression that the government condoned inappropriate compensation to executives whose actions contributed to the 

financial crisis. 

The application of the ‘‘public interest’’ standard throughout the 

Special Master’s other work also raises questions. Treasury initially defined six factors—including risk, taxpayer return, and appropriate allocation of pay between cash and other forms of pay— 

that should be considered in determining whether a compensation 

package met the ‘‘public interest’’ standard. Unfortunately, Treasury provided no guidance on how the six factors should be balanced 

or prioritized when they conflict. Subsequent statements have provided little public explanation of how the Special Master managed 

contradictions, noting only that the process is a mixture of art and 

science. As a result, aspects of the Special Master’s work are essentially ‘‘black boxes’’ to the public, and it would be very difficult for 

any outside expert to replicate the Special Master’s efforts. 

The ‘‘black box’’ approach is especially troubling given the Special 

Master’s aspiration for his determinations to be used as a model for 

compensation structures. It is impossible for outside actors to replicate a process that they cannot fully understand. Experts have assessed the broader impact of the Special Master’s work as modest 

and have suggested that Wall Street’s pay practices have not 

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changed significantly since the financial crisis. So long as compensation experts on Wall Street and elsewhere lack the information needed to use the Special Master’s deliberations as a model, 

what seemed an opportunity for sweeping reform will be destined 

to leave a far more modest legacy. 

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1 Emergency Economic Stabilization Act of 2008, Pub. L. No. 110–343 (Oct. 3, 2008) (executive 

compensation and corporate governance restrictions codified as amended at 12 U.S.C. § 5221). 2For example, for the 2008 fiscal year, Merrill Lynch paid $3.6 billion in bonuses despite in- curring more than $15 billion in losses during the fourth quarter of 2008 and being acquired 

by Bank of America. See Letter from Andrew Cuomo, attorney general, State of New York, to 

Congressman Barney Frank, chairman, House Committee on Financial Services, Merrill Lynch 

2008 Bonuses (Feb. 10, 2009) (online at www.ag.ny.gov/media_center/2009/feb/ 

merrill%20letter.pdf). 3 American Recovery and Reinvestment Act of 2009, Pub. L. No. 111–5 (Feb. 17, 2009). 4 31 CFR § 30. The IFR defined ‘‘exceptional financial assistance’’ as ‘‘any financial assistance 

provided under the TARP programs for Systemically Significant Failing Institutions, the Targeted Investment Program, the Automotive Industry Financing Program, and any new TARP 

program designated by the Secretary as providing exceptional financial assistance.’’ 31 CFR 

§ 30.16. The Systemically Significant Failing Institutions program is now known as the American International Group, Inc. Investment Program (AIGIP). The seven institutions that participated in the three programs mentioned above were AIG, Bank of America, Citigroup, Chrysler, 

Chrysler Financial, General Motors, and GMAC/Ally Financial. For purposes of this report, an 

‘‘exceptional assistance recipient’’ is any institution that received such assistance. 5Letter from Timothy Geithner, Secretary, U.S. Department of the Treasury, to Elizabeth 

Warren, Chair, Congressional Oversight Panel, Re: Response to Questions on Executive Compensation (Feb. 16, 2010) (online at cop.senate.gov/documents/cop-031110-report-correspondence.pdf) (hereinafter ‘‘Geithner Response to Questions on Executive Compensation’’). This monitoring is performed by the compliance office within the Office of Internal Review, which is itself 

part of the Treasury’s Office of Financial Stability. Treasury conversations with Panel staff (Feb. 

7, 2011). As of January 28, 2011, OIR was responsible for monitoring compliance at the four 

remaining exceptional assistance companies as well as the other 660 remaining TARP recipients. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for 

the Period Ending January 28, 2011 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/finanContinued 

SECTION ONE: 

A. Overview 

Congress entered the executive compensation debate by including 

executive compensation restrictions for recipients of funds from the 

Troubled Asset Relief Program (TARP). The original restrictions 

were in Section 111 of the TARP’s authorizing legislation, the 

Emergency Economic Stabilization Act of 2008 (EESA).1 After a series of revelations about bonuses at several major TARP recipients,2 the American Recovery and Reinvestment Act of 2009 

(ARRA) subsequently amended EESA (EESA as amended) and put 

additional restrictions on pay practices at TARP recipients.3 In 

June 2009, Treasury issued the Interim Final Rule on TARP 

Standards for Compensation and Corporate Governance (IFR), 

which consolidated and superseded all prior guidance on compensation and corporate governance for TARP recipients. The IFR also 

created within Treasury an Office of the Special Master, which is 

charged with overseeing compensation practices at recipients of 

‘‘exceptional financial assistance’’ from the TARP in accordance 

with six prescribed principles.4

Since the Office of the Special Master was established in June 

2009, it has been the public face of the government’s efforts to 

guide compensation practices at TARP recipients. The Special Master’s mandate is at once broad and narrow: to determine the 

amount and structure of senior executive pay, but only for those 

firms deemed to be recipients of exceptional assistance. To date, 

the Special Master has issued 42 determinations setting compensation for 300 employees at the seven exceptional assistance recipients. Treasury’s Office of Internal Review (OIR) was responsible for 

monitoring compliance with, in total and at the peak, compensation 

rules at the seven exceptional assistance companies and the other 

760 TARP recipients that were subject to the compensation rules.5

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cial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1- 

11%20Transactions%20Report%20as%20of%201-28-11.pdf) (hereinafter ‘‘Treasury Transactions 

Report’’). 6 Congressional Oversight Panel, March Oversight Report: The Unique Treatment of GMAC 

Under the TARP, at 57 (Mar. 11, 2010) (online at cop.senate.gov/documents/cop-031110-report.pdf) (‘‘These [significant questions] include whether particular levels of compensation are 

either necessary or appropriate, the nature of the incentives the compensation creates, and the 

manner in which Treasury is exercising its authority under the EESA compensation restrictions 

as amended by the American Recovery and Reinvestment Act of 2009 (ARRA).’’). 7 Congressional Oversight Panel, June Oversight Report: The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy, at 229 (June 10, 2010) (online at cop.senate.gov/ 

documents/ cop-061010-report.pdf). In addition to its discussion of executive compensation restrictions for TARP recipients, in its January 2009 report on regulatory reform, the Panel noted 

that ‘‘[e]xecutive pay should be designed, regulated, and taxed to incentivize financial executives 

to prioritize long-term objectives, and to avoid both undertaking excessive, unnecessary risk and 

socializing losses with the help of the federal taxpayer.’’ Congressional Oversight Panel, Special 

Report on Regulatory Reform: Modernizing the American Financial Regulatory System: Recommendations for Improving Oversight, Protecting Consumers, and Ensuring Stability, at 38 

(Jan. 29, 2009) (online at cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf) 

(hereinafter ‘‘Special Report: Modernizing the American Financial Regulatory System’’). 8Other witnesses at the Panel’s hearing included Kevin Murphy, Kenneth L. Trefftzs Chair 

in Finance and professor of corporate finance, University of Southern California Marshall School 

of Business; Fred Tung, Howard Zhang Faculty Research Scholar and professor of law, Boston 

University School of Law; Rose Marie Orens, senior partner, Compensation Advisory Partners 

LLC; and Ted White, strategic advisor, Knight Vinke Asset Management. Other oversight bodies 

have also examined the issue of executive compensation for TARP recipients. The Special Inspector General for TARP (SIGTARP) has issued reports on institutions’ efforts to comply with 

compensation restrictions, compensation at AIG, and Treasury’s monitoring of compliance at exceptional assistance firms. Office of the Special Inspector General for the Troubled Asset Relief 

Program, Treasury’s Monitoring of Compliance with TARP Requirements by Companies Receiving Exceptional Assistance (June 29, 2010) (online at www.sigtarp.gov/reports/audit/2010/ 

Treasury’s%20Monitoring%20of%20Compliance %20with%20TARP%20 Requirements%20by%20 

Companies% 20Receiving%20 Exceptional%20Assistance%206_29_10.pdf) (hereinafter ‘‘Treasury’s Monitoring of Compliance for Companies Receiving Exceptional Assistance’’); Office of the 

Special Inspector General for the Troubled Asset Relief Program, Extent of Federal Agencies’ 

Oversight of AIG Compensation Varied, and Important Challenges Remain (Oct. 14, 2009) (online at www.sigtarp.gov/ reports/audit/2009/ Extent_of_ Federal_Agencies’_ Oversight_of_AIG_ Compensation_Varied_and_ Important_ Challenges_Remain_10_14_09.pdf); Office of the Special 

Inspector General for the Troubled Asset Relief Program, Despite Evolving Rules on Executive 

Compensation, SIGTARP Survey Provides Insights on Compliance (Aug. 19, 2009) (online at 

www.sigtarp.gov/ reports/audit/ 2009/Despite%20Evolving%20 Rules%20on%20 

Exec%20Comp..._8_19_09.pdf) (hereinafter ‘‘SIGTARP Survey Provides Insights on Compliance’’). The Government Accountability Office (GAO) has also analyzed compensation issues in 

several of its reports and in congressional testimony. U.S. Government Accountability Office, Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2010 and 2009 Financial 

Statements (Nov. 2010) (GAO–11–174) (online at www.gao.gov/new.items/d11174.pdf); U.S. Government Accountability Office, Financial Assistance: Ongoing Challenges and Guiding Principles 

Related to Government Assistance for Private Sector Companies (Aug. 2010) (GAO–10–719) (online at www.gao.gov/new.items/d10719.pdf); House Oversight and Government Reform, Subcommittee on Domestic Policy, Written Testimony of Orice Williams Brown, director, financial 

markets and community investment, and A. Nicole Clowers, acting director, physical infrastructure, U.S. Government Accountability Office, The Government as Dominant Shareholder: How 

Should the Taxpayers’ Ownership Rights Be Exercised? Day 1 (Dec. 16, 209) (online at 

www.gao.gov/new.items/d10325t.pdf). 

The Panel has examined executive compensation as it relates to 

the TARP in past reports, although none of its reports to date have 

focused exclusively on the issue. In its March 2010 report the Panel 

stated that the levels of compensation set for GMAC/Ally Financial’s CEO ‘‘raise significant questions, which the Panel will continue to study.’’ 6 In its June 2010 report, the Panel reiterated its 

concern that compensation levels ‘‘raise significant unanswered 

questions.’’ 7 Most recently, on October 21, 2010, the Panel held a 

hearing on executive compensation, which included testimony from 

the former Special Master, Kenneth Feinberg, among others.8

In this report, the Panel focuses on the work of the Office of the 

Special Master. It also evaluates the separate role of Treasury’s Office of Internal Review in monitoring compensation practices at 

TARP recipients. The Panel describes the legal landscape that provided the foundation for the government’s involvement in executive 

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9George T. Washington, The Corporation Executive’s Living Wage, Harvard Law Review, Vol. 

54, at 733 (1941). 10 Carola Frydman and Dirk Jenter, CEO Compensation, Rock Center for Corporate Governance at Stanford University Working Paper No. 77, at 4 (Nov. 2010) (online at ssrn.com/ 

abstract=1582232) (hereinafter ‘‘Frydman & Jenter on CEO Compensation’’). The average pay 

increase for the top three executives during that period was approximately 0.8 percent per year. 11 Id. at 4 (‘‘The increase in compensation was most dramatic in the 1990s, with annual 

growth rates that reached more than 10% by the end of the decade. CEO pay grew more rapidly 

than the pay of other top executives during the past 30 years, but not before. The median ratio 

of CEO compensation to that of the other highest-paid executives was stable at approximately 

1.4 prior to 1980 but has since then risen to almost 2.6 by 2000–2005.’’). On the other hand, 

it is possible that pay in the beginning of the period was too low, as the pay levels in the early 

1990s were just catching up to pre-Great Depression levels. Michael C. Jensen and Kevin J. 

Murphy, CEO Incentives: It’s Not How Much You Pay, But How, Harvard Business Review, No. 

3, at 2 (May-June 1990) (online at papers.ssrn.com/sol3/papers.cfm?abstract_id=146148&rec=1&srcabs=94009##) (hereinafter ‘‘Jensen & Murphy on CEO 

Incentives’’). 12 Economic Policy Institute, The State of Working America, CEOs See Big Raises: Ratio of Average CEO Average Production Worker to Compensation, 1965–2009 (online at 

www.stateofworkingamerica.org/charts/view/17) (accessed Feb. 8, 2011). 13The following institutions were included in this sample: American Express, BB&T, the Bank 

of New York Mellon, Capital One Financial, Fifth Third Bancorp, Goldman Sachs, JPMorgan 

Chase, KeyCorp, Morgan Stanley, PNC Financial Corp., Regions Financial, SunTrust Banks, 

State Street Corporation, U.S. Bancorp, and Wells Fargo. By 2009, their average total CEO compensation dropped to approximately $9 million, with some CEOs seeing a decrease of more than 

$40 million in total compensation. Despite the significant decrease in total compensation, base 

salaries either remained unchanged or increased slightly between 2007 and 2009. Panel calculaContinued 

compensation, including, but not limited to, the work of the Special 

Master. It summarizes the Special Master’s determinations. The 

Panel then examines the broader impact of the government’s approach to executive compensation at TARP recipients. This topic 

falls squarely within the Panel’s mandate to ‘‘review the current 

state of the financial markets and the regulatory system.’’ The 

Panel is tasked with reviewing the ‘‘use by the Secretary of authority’’ under EESA, authority that included the development of executive compensation standards. 

B. Background 

1. Overview 

a. Developments in Executive Compensation Prior to 

and Around the Financial Crisis 

Since well before the financial crisis, executive compensation has 

been a contentious issue. In 1941, an observer wrote that ‘‘executives have received compensation so large as to cause dissatisfaction among factory and office workers, and to lead stockholders to 

feel that they have been unjustly deprived of funds.’’ 9 From the 

early 1950s through the mid-1970s, executive pay remained at a 

fairly steady level in terms of real dollars.10 From the 1980s onward, however, executive compensation has generally increased, 

often swiftly.11 For instance, during the 1970s, the average pay for 

a chief executive officer (CEO) was approximately 30 times the average annual pay of a production worker. By 1991, however, this 

pay ratio climbed to over 100 to one. Just before the economic crisis 

in 2007, the average compensation for a CEO was nearly 300 times 

that of a production worker.12 The average total compensation for 

CEOs for some of the largest TARP recipients was approximately 

$21 million in 2007, prior to the crisis, with a range from $4.4 million to $54 million.13 At the same time, compensation for employees 

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tions based on 2007 and 2009 salary data. Salary data accessed through SNL Financial Data 

Service (Jan. 18, 2011). 14Thomas Philippon and Ariell Reshef, Wages and Human Capital in the U.S. Financial Industry: 1909–2006, NBER Working Paper No. 14644, at 27, figure 11 (Jan. 2009) (online at 

pages.stern.nyu.edu/∼tphilipp/papers/pr_rev15.pdf). However, though workers in the financial 

sector are paid more than their counterparts in other sectors, some commentators believe the 

discrepancy could be due to the demand and scarce resources for their specialized skills. Congressional Oversight Panel, Written Testimony of Kevin J. Murphy, Kenneth L. Trefftzs Chair 

in Finance, University of Southern California Marshall School of Business, COP Hearing on the 

TARP and Executive Compensation Restrictions, at 14 (Oct. 21, 2010) (online at cop.senate.gov/ 

documents/testimony-102110-murphy.pdf) (hereinafter ‘‘Murphy October 2010 Written Testimony’’) (‘‘The fact that pay is high does not, however, imply that pay is excessive in the sense 

of not being determined by competitive market forces . . . The highest-paid employees in financial services firms typically have scarce and highly specialized skills that are specific to their 

industry but not necessarily to their employer. As a result, employees in financial services are 

remarkably mobile both domestically and internationally when compared to employees in virtually any other sector in the economy.’’). 15Squam Lake Working Group on Financial Regulation, Regulation of Executive Compensation 

in Financial Services, at 2 (Feb. 2010) (online at i.cfr.org/content/publications/attachments/ 

Squam_Lake_Working_Paper8.pdf) (‘‘We have seen no convincing evidence that high levels of 

compensation in financial companies are inherently risky for the companies themselves or the 

overall economy.’’). See also Jensen & Murphy on CEO Incentives, supra note 11, at 1 (‘‘There 

are serious problems with CEO compensation, but ‘excessive’ pay is not the biggest issue. The 

relentless focus on how much CEOs are paid diverts public attention from the real problem— 

how CEOs are paid.’’). 16These received particular attention in the case of Dennis Kozlowski and Mark Swartz, executives at Tyco, Inc., whom the SEC and the state of New York accused of looting the company 

in order to enrich themselves. U.S. Securities and Exchange Commission, TYCO Former Executives L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick Sued for Fraud, Accounting 

and Auditing Enforcement (Sept. 12, 2002) (Release No. 1627) (online at www.sec.gov/litigation/ 

litreleases/lr17722.htm) (‘‘[Kozlowzki and Swartz] granted themselves hundreds of millions of 

dollars in secret low interest and interest-free loans from the company that they used for personal expenses. They then covertly caused the company to forgive tens of millions of dollars of 

those outstanding loans, again without disclosure to investors as required by the federal securities laws. In addition, they engaged in other undisclosed related party transactions that cost 

shareholders hundreds of thousands, if not millions of dollars . . . . Kozlowski and Swartz enjoyed numerous and extensive undisclosed perquisites that they bestowed upon themselves, all 

at the expense of Tyco shareholders. For example, Kozlowski lived rent-free in a $31 million 

Fifth Avenue apartment that Tyco purchased in his name while Swartz lived rent-free in a 

multi-million dollar apartment Tyco purchased in his name on New York City’s Upper East 

Side. Both used Tyco corporate jets for personal use at little or no cost. Moreover, Kozlowski 

directed millions of dollars of charitable contributions in his own name using Tyco funds.’’). 

After a nearly six-month jury trial in New York state court, on September 19, 2005, Kozlowski 

and Swartz were convicted of 12 counts of first degree grand larceny, eight counts of first degree 

falsifying business records, one count of fourth degree conspiracy and one Martin Act count of 

securities fraud. Kozlowski and Swartz were sentenced to prison terms of 8 and 1/3 to 25 years, 

and the court ordered joint restitution of $134,351,397 and imposed fines of $35 million and $70 

million on Swartz and Kozlowski, respectively. People v. Kozlowski, 11 N.Y.3d 223, 230–231, 237 

(Oct. 16, 2008). Kozlowski and Swartz have appealed their cases to various courts, and in 2009 

the U.S. Supreme Court declined to hear their case. Kozlowski v. New York, 129 S. Ct. 2775 

(U.S. 2009). On July 14, 2009, Kozlowski and Swartz settled with the SEC, and as part of that 

final judgment they will be permanently barred from serving as officers or directors of a public 

company. U.S. Securities and Exchange Commission, Former TYCO Executives L. Dennis 

Kozlowski and Mark H. Swartz Settle SEC Fraud Action, Accounting and Auditing Enforcement 

(July 14, 2009) (Release No. 3010) (online at www.sec.gov/litigation/litreleases/2009/ 

lr21129.htm). 

in the financial sector increased relative to their peer group in 

other industries. One study showed that those in the financial sector were paid a premium of about 40 percent compared with those 

with similar educations and backgrounds in other industries.14

However, some commentators emphasize that when assessing compensation, it is not the level or amount that should be analyzed but 

rather the structure of that compensation.15

Another factor that has spurred interest in executive compensation has been greater availability of comprehensive data. It is 

worth noting that compensation is not composed merely of annual 

salary and performance-based bonuses but also encompasses all 

benefits that flow to individuals based on their work, including perquisites, tax gross-ups, corporate loans at favorable rates,16 severance, and retirement benefit accruals. Although extensive data exmstockstill on DSKH9S0YB1PROD with HEARINGS

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17 Ian Dew-Becker, How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation, CESifo Working Paper No. 2379, at 5 (Aug. 2008) 

(online at www.ifo.de/portal/page/portal/DocBase_Content/WP/WP–CESifo_Working_Papers/wpcesifo-2008/wp-cesifo-2008–08/cesifo1_wp2379.pdf) (hereinafter ‘‘Dew-Becker’s Short History of 

Executive Compensation Regulation’’). See also Raghuram G. Rajan and Julie Wulf, Are Perks 

Purely Managerial Excess?, Journal of Financial Economics, Vol. 79, at 2 (2006) (online at people.hbs.edu/jwulf/Rajan_and_Wulf_2006_JFE.pdf) (‘‘In fact, the leading theory of perks in the 

corporate finance literature, following Grossman and Hart (1980), Jensen and Meckling (1976), 

and Jensen (1986), is that they are a way for managers to misappropriate some of the surplus 

the firm generates.’’). 18See U.S. Securities and Exchange Commission, Final Rule, Amended: Executive Compensation and Related Person Disclosure, at 71–78 (Sept. 8, 2006) (Release No. 33–8732A; 34–54302A) 

(online at www.sec.gov/rules/final/2006/33–8732a.pdf); Carola Frydman, Learning from the Past: 

Trends in Executive Compensation Over the Twentieth Century, CESifo Working Paper No. 2460, 

at 1 (Nov. 2008) (online at www.ifo.de/portal/page/portal/DocBase_Content/WP/WPCESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008–11/cesifo1_wp2460.pdf) (hereinafter 

‘‘Frydman’s Trends in Executive Compensation’’); Dew-Becker’s Short History of Executive Compensation Regulation, supra note 17, at 5. 19Kevin J. Murphy, Explaining Executive Compensation: Managerial Power Versus the Perceived Cost of Stock Options, University of Chicago Law Review, Vol. 69, at 847, 858–868 (2002) 

(hereinafter ‘‘Explaining Executive Compensation: Managerial Power Versus the Perceived Cost 

of Stock Options’’); Lucian Bebchuk and Yaniv Grinstein, The Growth of Executive Pay, Oxford 

Review of Economic Policy, Vol. 21, No. 2, at 283, 298–302 (2005) (online at 

www.law.harvard.edu/faculty/bebchuk/pdfs/Bebchuk-Grinstein.Growth-of-Pay.pdf) (hereinafter 

‘‘Growth of Executive Pay’’); Dew-Becker’s Short History of Executive Compensation Regulation, 

supra note 17. 20Frydman & Jenter on CEO Compensation, supra note 10, at 8 (‘‘From the mid-1970s to the 

end of the 1990s, all compensation components grew dramatically, and differences in pay across 

executives and firms widened. By far, the largest increase was in the form of stock options, 

which became the single largest component of CEO pay in the 1990s.’’). 21During the 1980s there was a belief that executive compensation was structured such that 

CEOs received higher pay for creating larger firms, but not necessarily more profitable ones. 

Therefore, the trend was to structure compensation packages to include more equity-based compensation with an aim to better align executive compensation with shareholder value. Michael 

C. Jensen, Kevin J. Murphy and Eric G. Wruck, Remuneration: Where We’ve Been, How We Got 

to Here, What are the Problems, and How to Fix Them, European Corporate Governance Institute—Finance Working Paper No. 44/2004, at 28 (July 12, 2004) (online at ssrn.com/ 

abstract=561305) (‘‘by the late 1980s, the renewed focus on creating shareholder value endured. 

It became apparent that traditional management incentives focused on company size, stability, 

Continued 

isted on salary amounts prior to 2006, there was more limited public information regarding perquisites and other personal benefits, 

including club memberships, housing allowances, and other similar 

benefits. This caused one commentator to note that ‘‘there were 

substantial opportunities to obfuscate the true cost of compensating 

executives.’’ 17 A series of disclosure requirements, however, culminating in Securities and Exchange Commission (SEC) regulations, 

adopted in 2006, requiring more extensive disclosure for perquisites 

and other personal benefits, made the process much more transparent.18

Though a good deal of research has centered on why executive 

pay has risen over the past three decades, there is still no real consensus. The availability of executive mobility, managerial bargaining power and control over boards of directors, the low values 

assigned to stock options along with the perception that stock options are a low-cost method to pay employees, the effects of the bull 

market, and government regulation and deregulation have all been 

cited as contributing to this phenomenon.19 In addition, during the 

period from the mid-1970s to the 1990s, equity-linked compensation not only became more widely used but also represented a larger portion of top executives’ total compensation packages.20 In part 

as a result of academics’ and practitioners’ commonly held belief 

that equity-linked compensation better aligned the interests of 

managers and shareholders, equity-based remuneration became the 

single largest component of executive pay.21 This shift did have 

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and accounting profitability destroyed rather than created value. By this time, shareholder activists and academics (including the first two authors of this report) were increasingly demanding that executive pay be tied more closely to company value through increases in share options 

and other forms of equity-based incentives. [ . . . ] cash remuneration continued to grow in real 

terms after the mid-1980s, but became a smaller part of the total compensation package.’’). See 

also Lucian A. Bebchuk, How to Fix Bankers’ Pay, at 4 (Fall 2010) (online at papers.ssrn.com/ 

sol3/papers.cfm?abstract_id=1673250) (hereinafter ‘‘Bebchuk’s Fix Banker’s Pay’’) (‘‘Equity-based 

compensation is the primary component of modern pay packages.’’). 22Growth of Executive Pay, supra note 19, at 283, 298–302; Frydman’s Trends in Executive 

Compensation, supra note 18, at 1; Explaining Executive Compensation: Managerial Power 

Versus the Perceived Cost of Stock Options, supra note 19, at 858. 23Growth of Executive Pay, supra note 19, at 283, 302. 24 Countrywide Financial Corporation, Schedule 14A: Definitive Notice & Proxy Statement, at 

35 (Apr. 27, 2007) (online at www.sec.gov/Archives/edgar/data/25191/000119312507093783/ 

ddef14a.htm). At the beginning of 2007, Countrywide Financial’s stock price was above $40 per 

share. The price per share plummeted to approximately $5 prior to Bank of America’s acquisition of the firm on January 11, 2008. Market data accessed through Bloomberg Data Service 

(accessed Jan. 18, 2011); Bank of America Corporation, Bank of America Agrees to Purchase 

Countrywide Financial Corp. (Jan. 11, 2008) (online at mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1389986&highlight=). 25See, e.g., Lucian Bebchuk and Jesse Fried, Pay Without Performance: The Unfulfilled Promise of Executive Compensation (2004) (hereinafter ‘‘Bebchuk & Fried: Pay Without Performance’’); Lynn A. Stout, The Mythical Benefits of Shareholder Control, UCLA School of Law, Law 

& Economics Research Paper Series, Research Paper No. 06–19 (2007) (online at papers.ssrn.com/sol3/papers.cfm?abstract_id=929530) (hereinafter ‘‘Stout Paper on Shareholder 

Control’’); Stephen M. Bainbridge, Executive Compensation: Who Decides?, Texas Law Review, 

Vol. 83, at 1615 (2005) (online at papers.ssrn.com/sol3/papers.cfm?abstract_id=653383) (hereinafter ‘‘Bainbridge:Executive Compensation’’). 

some unintended consequences, as commentators across the spectrum agree that changing the structure of pay to include stockbased compensation during a thriving stock market contributed to 

the dramatic increase in compensation.22 One commentator noted 

that payment in stocks and options also allowed for payments that 

would have been unpalatable to shareholders had they been in 

cash.23 For instance, Angelo Mozilo, the former chairman and CEO 

of Countrywide Financial Corporation, received over half his $48 

million in compensation for 2006 through some form of equity.24

The recent historical background has informed the debate about 

what an appropriate approach to executive compensation should 

be. This debate has typically revolved around two issues: first, the 

size of compensation, and second, the principal-agent problem that 

can arise in attempting to align the interests of managers who operate a company and the shareholders who own it.25 The unique 

situation of the TARP, where the government invested in and effectively acted as guarantor of several large faltering institutions, also 

created a new set of issues in the executive compensation debate 

beyond the traditional shareholder-manager tensions. 

b. Corporate Governance Scholarship and Prevailing 

Theories 

The academic debate around the evolution of pay practices has 

largely concentrated on whether common executive compensation 

practices sufficiently align the incentives of the executives with the 

interests of shareholders. Can managers ever be trusted to set 

their own pay in the interests of shareholders? Is there a form of 

‘‘capture,’’ whereby compensation committees come to serve executives and not the shareholders to whom they have a duty? Corporate governance scholars analyzing executive compensation generally follow one of two schools of thought in their responses to 

these questions: 

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26 Bebchuk & Fried: Pay Without Performance, supra note 25. Bebchuk and Fried elaborated 

on conflicts of interest inherent in the way corporate boards and their compensation committees 

are appointed and argued that increased shareholder control would likely lead to more performance-driven compensation practices. 27Professor Stephen M. Bainbridge, who teaches corporate law and finance at UCLA Law 

School, and Professor Lynn Stout, who teaches corporate and securities law also at UCLA Law 

School, question both the existence of the problem (i.e., that CEOs are overpaid) and the effectiveness of the proposed remedy (increased shareholder control) and argue that board governance, while worsening agency costs, also promotes efficient and informed decision making, thereby providing net benefits to shareholders. See Stout Paper on Shareholder Control, supra note 

25; Bainbridge:Executive Compensation, supra note 25, at 1615. Professor Bainbridge also argues that increased shareholder control would generally disproportionately favor one or two potentially opportunistic large shareholders to the detriment of the rest of the shareholders and 

therefore federal regulation of corporate governance is inappropriate and likely to misfire. Stephen M. Bainbridge, Is ‘Say on Pay’ Justified?, Regulation, Vol. 32, No. 1, at 42–47 (Spring 

2009) (online at SSRN: ssrn.com/abstract=1452761). 28Frederick Tung, Pay for Banker Performance: Structuring Executive Compensation for Risk 

Regulation, Boston University School of Law Working Paper No. 10–25, at 8 (Aug. 31, 2010) 

(online at www.bu.edu/law/faculty/scholarship/workingpapers/documents/TungF083110.pdf) 

(hereinafter ‘‘Tuck: Pay for Banker Performance’’) (‘‘The flip side of shareholders’ preference for 

risky bets at creditors’ expense is creditors’ preference for more conservative strategies. Creditors enjoy only a fixed upside—their interest payments and return of principal at a loan’s maturity—and they enjoy a priority over equity in terms of repayment: Creditors are repaid before 

equity receives any return. In practice, this means that a firm must be solvent in order for the 

firm to make any distribution to equity holders and that upon dissolution, creditors are repaid 

in full before equity holders receive any distribution. Creditors would therefore rather avoid the 

higher-risk, potentially higher-return bets that shareholders prefer.’’). 29 House Committee on Financial Services, Written Testimony of Joseph E. Stiglitz, University 

Professor, Columbia Business School, Compensation in the Financial Industry, at 2–3 (Jan. 22, 

2010) (online at financialservices.house.gov/media/file/hearings/111/stiglitz.pdf) (hereinafter 

Continued 

• The ‘‘Optimal Contracting’’ Camp. These scholars 

maintain that compensation practices result from arm’s-length 

negotiations between executives and board members, and serve 

the interests of shareholders, obviating direct shareholder participation or any government regulation that would make such 

participation easier; and • The ‘‘Managerial Power’’ School. These scholars maintain that corporate board members are ill-equipped and disinclined to negotiate with managers on behalf of the shareholders because they are appointed by and beholden to management, while shareholders have no meaningful influence on 

their selection, their pay, or their termination. This means that 

boards will more often than not go along with compensation arrangements that are disproportionately favorable to executives. 

Corporate governance scholars in both camps generally agree 

that executive compensation should be tied to performance. However, they disagree on the specifics of what the most appropriate 

metrics for measuring performance are, and who is in the best position to determine these metrics. Those subscribing to the managerial power theory believe that more direct shareholder involvement 

and effective shareholder control are necessary for effective performance-driven practices.26 Academics in the optimal contracting 

camp discount the importance of direct shareholder control and 

argue that corporate boards are best placed to negotiate executive 

pay in an efficient manner.27 Some academics argue that tying executive performance to the performance of the company’s debt is 

preferable because such compensation would create greater incentives for executives to safeguard the company’s long-term solvency.28 Other commentators argue that companies—and especially 

financial institutions—are best served by compensation practices 

that are in line with societal interests.29 The circumstances of the 

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‘‘Stiglitz Written Testimony on Compensation in the Financial Industry’’) (‘‘[F]inancial markets 

are a means to an end, not an end in themselves. If they allocate capital and manage risk well, 

then the economy prospers, and it is appropriate that they should garner for themselves some 

fraction of the resulting increases in productivity. But it is clear that pay was not connected 

with social returns—or even long-run profitability of the sector . . . Market economies work to 

produce growth and efficiency, but only when private rewards and social returns are aligned. 

Unfortunately, in the financial sector, both individual and institutional incentives were misaligned.’’). 30See Lucian A. Bebchuk and Holger Spamann, Regulating Bankers’ Pay, Georgetown Law 

Journal, Vol. 98, at 252–253 (Jan. 2010) (online at www.georgetownlawjournal.com/issues/pdf/ 

98–2/Bebchuk%20&%20Spamann.PDF) (hereinafter ‘‘Bebchuk & Spamann: Regulating Bankers’ 

Pay’’). 31Treasury conversations with the Panel (Jan. 18, 2011). Separately, and as further described 

below, the Special Master established rules that would eliminate ‘‘excessive’’ cash payments, 

among other things. 32The Aspen Institute, Long-Term Value Creation: Guiding Principles for Corporations and 

Investors, at 4 (June 2007) (online at www.aspeninstitute.org/sites/default/files/content/docs/ 

pubs/Aspen_Principles_with_signers_April_09.pdf) (‘‘Corporations and society both benefit when 

the public has a high degree of trust in the fairness and integrity of business. To maintain that 

trust, the board of directors . . . (a) Ensures that the total value of compensation, including severance payments, is fair, rational and effective given the pay scales within the organization, as 

well as the firm’s size, strategic position, and industry. (b) Remains sensitive to the practical 

reality that compensation packages can create reputation risk and reduce trust among key constituencies and the investing public.’’). The list was originally published in June 2007; however, 

the list of subscribers is current as of April 2009. 33See House Committee on Financial Services, Written Testimony of Lucian Bebchuk, William 

J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance, and director of the program on corporate governance, Harvard Law School, Compensation in the Financial Industry, at 2–3 (Jan. 22, 2010) (online at financialservices.house.gov/media/file/hearings/111/bebchuk.pdf) (‘‘To better link equity compensation to performance, it is desirable to separate the time that equity-based compensation can be cashed out from the time in which it 

vests. [ . . . ] As soon as an executive has completed an additional year at the firm, the equity 

incentives promised as compensation for that year’s work should vest, and should belong to the 

executive even if he or she immediately leaves the firm. But the cashing out of these vested 

equity incentives should be ‘‘blocked’’ for a specified period after vesting—say, five years after 

the vesting.’’). For more on the importance of long-term performance-based compensation, see 

TARP have added another layer to the discussion, and some academics and commentators have focused on the additional question 

of what are appropriate compensation structures for firms that 

enjoy implicit or explicit government guarantees, or government 

guarantees of some portion of their debts.30 The Office of the Special Master informed the Panel that it has not taken a position on 

whose interests compensation practices should serve because the 

Office’s mandate was narrowly defined by EESA as amended and 

the IFR.31

The choice regarding appropriate performance metrics to a large 

extent determines how these scholars analyze executive pay structures. The three key issues are the level and composition of compensation, whether the compensation provides recipients with both 

the opportunity to benefit from upside growth and exposure to 

downside risk, and the compensation’s time horizon. Time horizon, 

generally, addresses when the executive can walk away with his or 

her pay: for example, cash provides immediate payment to the executive, while stock-based compensation typically takes some period to vest or become liquid. Academics generally do not propose 

caps on compensation levels or make concrete recommendations on 

amounts, although several companies, investors, corporate governance professionals, and other stakeholders signed onto the Aspen 

Institute’s list of principles to foster long-term value creation at 

corporations. One of the suggestions included on this list was a proposal to keep executive compensation at ‘‘fair’’ and ‘‘rational’’ levels 

as a general matter.32 Most scholars in the managerial power camp 

recommend relatively low levels of cash compensation and higher 

long-term stock compensation.33 Members of the optimal conmstockstill on DSKH9S0YB1PROD with HEARINGS

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also House Committee on Financial Services, Written Testimony of Nell Minow, editor, The Corporate Library, Compensation in the Financial Industry, at 5 (Jan. 22, 2010) (online at 

financialservices.house.gov/media/file/hearings/111/minow.pdf) (‘‘Long-term performance-based 

compensation should always make up the majority of total realizable compensation for the most 

senior executives at the company. We like to see non-performance-based compensation play a 

fairly small role in total compensation. Many of the companies that do best for long-term investors pay executives below-median base salaries. And they are careful about what their performance goals are. It works well to base performance pay on some form of return on capital measure—often a better measure of value growth than earnings—and, in many cases, these return 

measures also take into account the cost of capital, rendering the metric an even more efficient 

measure of value growth. There is no one best practice for the form of long-term incentive practice. Some companies opt solely for stock options, some for time and/or performance-restricted 

stock, and some for other performance-related long-term incentives.’’). 34 House Committee on Financial Services, Written Testimony of Kevin J. Murphy, Kenneth 

L. Trefftzs Chair in Finance, University of Southern California Marshall School of Business, 

Compensation Structure and Systemic Risk, at 7 (June 11, 2009) (online at 

financialservices.house.gov/media/file/hearings/111/kevin_murphy.pdf) (hereinafter ‘‘Murphy 

Written Testimony on Compensation Structure and Systemic Risk’’). (‘‘Bonus plans in financial 

services can also be improved by ensuring that bonuses are based on value creation rather than 

on the volume of transactions without regard to the quality of transactions. Measuring value 

creation is inherently subjective, and such plans will necessarily involve discretionary payments 

based on subjective assessments of performance . . . it is highly unlikely that compensation 

practices can be improved through increased government rules and regulations.’’) 35See note 33, supra, for Lucian Bebchuk’s testimony detailing the benefits of a five-year deferral period for the vesting of stock compensation. See also Treasury conversations with the 

Panel (Jan. 18, 2011). 36 House Committee on Financial Services, Written Testimony of Scott G. Alvarez, General 

Counsel, Board of Governors of the Federal Reserve System, Compensation in the Financial Industry—Government Perspectives, at 7 (Feb. 25, 2010) (online at financialservices.house.gov/ 

media/file/hearings/111/2–25–2010_alvarez_statement_- -_incentive_compensation_- -_hfsc.pdf) 

(‘‘For example, incentive compensation arrangements for senior executives at large, complex organizations are likely to be better balanced if they involve deferral of a substantial portion of 

the executives’ incentive compensation over a multiyear period, with payment made in the form 

of stock or other equity-based instruments and with the number of instruments ultimately received dependent on the performance of the firm during the deferral period. Deferral, however, 

may not be effective in constraining the incentives of employees who may have the ability to 

expose the firm to long-term or ‘‘bad tail’’ risks, as these risks are unlikely to be realized during 

a reasonable deferral period.’’). 37Professor Bebchuk is a noted corporate finance and governance expert at Harvard Law 

School and the author of Pay Without Performance, an extensive overview and critique of prevailing executive compensation practices. In Pay Without Performance, Mr. Bebchuk and his coauthor, Jesse Fried, argued that executive pay has become economically meaningful as a share 

of public companies’ earnings over the previous decade and that this pay growth cannot be adequately explained by changes in firm size, performance, or industry mix. See Bebchuk & Fried: 

Pay Without Performance, supra note 25. 

tracting camp tend to agree with the need for long-term performance measures; however, they maintain that excessive restrictions 

imposed from outside the company and its board, such as regulation, are unnecessary.34 Academics and commentators differ in 

their interpretation of what ‘‘long-term’’ should mean. As discussed 

below in more detail, the Office of the Special Master told the 

Panel that they determined that a three-year period qualifies as 

‘‘long-term,’’ while some academics argue that a five-year vesting 

period would be more appropriate.35 According to one official at the 

Federal Reserve, in some cases even multi-year vesting periods for 

stock compensation or other forms of significantly deferred compensation will not address all the risks certain important employees may be able to expose their companies to, and therefore compensation schemes should be tailored to companies and individuals.36

The Special Master consulted with academics from each camp in 

making determinations about executive compensation at exceptional assistance recipients: Lucian Bebchuk, William J. Friedman 

and Alicia Townsend Friedman Professor of Law, Economics, and 

Finance, and director of the program on corporate governance, Harvard Law School, who espouses the ‘‘managerial power’’ theory,37

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38Professor Murphy is a widely published expert on executive compensation. He argues that 

compensation levels—especially equity-based compensation—were inefficiently low in the beginning of the 1990s, and shareholders would have been better served by higher levels of equity 

compensation that would have provided important incentives for executives to increase value. 

Equity-based compensation packages typically have a high payoff in the event of success. Thus, 

he argues that shareholders were better served as such pay became increasingly more accepted 

during the economic boom of the 1990s. 39See, e.g., Lucian A. Bebchuk, Alma Cohen, and Holger Spamann, The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008, John M. Olin Center for Law, 

Economics, and Business, Harvard Law School, Discussion Paper No. 657 (Feb. 2010) (online 

at papers.ssrn.com/sol3/papers.cfm?abstract_id=1513522). The Panel discussed the role of misaligned incentives on risk-taking in its Special Report on Regulatory Reform. See Special Report: 

Modernizing the American Financial Regulatory System, supra note 7, at 37–40. 40 Board of Governors of the Federal Reserve System, Press Release (Oct. 22, 2009) (online at 

www.federalreserve.gov/newsevents/press/bcreg/20091022a.htm) (hereinafter ‘‘Federal Reserve 

Press Release on Compensation’’). 

and Kevin Murphy, Kenneth L. Trefftzs chair in finance and professor of corporate finance, University of Southern California Marshall School of Business, who argues that the ‘‘optimal contracting’’ 

theory is appropriate.38 That said, although the Special Master 

consulted with academics who ascribe to both theories, the Office 

of the Special Master stated that its mandate derived from EESA 

and ARRA, as interpreted by the IFR, and according to the Office, 

any approach to executive compensation had to be consistent with 

those sources. In response to a question about the appropriate 

weight to give the various considerations that animate the optimal 

contracting and managerial power camps, such as whether executive compensation should be structured with an eye to shareholder 

value, company solvency, return to creditors, or the public interest, 

the Office of the Special Master responded that they acted within 

statutory and regulatory limits, which did not address these particular concepts. Rather, according to the Office of the Special Master, they were required to maximize overall returns to taxpayers 

and market stability and to minimize market disruption, as required by EESA and ARRA, and to make their determinations in 

accordance with the ‘‘public interest standard’’ established by the 

principles in Treasury’s IFR. Accordingly, the considerations that 

animate regular participants in executive compensation debates 

are not necessarily identical to those that the Special Master used, 

although there is overlap—such as evaluating the links between 

compensation and excessive risk—between the two. 

Since the onset of the financial crisis, much attention has focused 

on how executive compensation practices contributed to corporate 

risk-taking. Some have argued that compensation packages created 

incentives for executives to focus on short-term results, even at the 

cost of taking excessively large risks of later catastrophe.39 Many 

commentators have a particular interest in the effect of 

mismatches between executive compensation and the time horizon 

for assessments of risk. Chairman of the Board of Governors of the 

Federal Reserve System Ben Bernanke stated that compensation 

practices ‘‘led to misaligned incentives and excessive risk taking, 

contributing to bank losses and financial instability.’’ 40 On the 

other hand, this link between compensation and risk taking has 

been contested by some scholars who note that the value of executives’ stock holdings fell precipitously during the crisis. Given this 

potential for loss, they argue, there is no reason compensation 

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41Murphy Written Testimony on Compensation Structure and Systemic Risk, supra note 34, 

at 6. 42 Joseph E. Stiglitz, The Financial Crisis of 2007/2008 and its Macroeconomic Consequences, 

at 1 (online at unpan1.un.org/intradoc/groups/public/documents/apcity/unpan033508.pdf) 

(accessed Feb. 8, 2011). See also Financial Crisis Inquiry Commission, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, at 

63 (Jan. 2011) (online at www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf) (‘‘Stock options 

had potentially unlimited upside, while the downside was simply to receive nothing if the stock 

didn’t rise to the predetermined price. The same applied to plans that tied pay to return on equity: they meant that executives could win more than they could lose. These pay structures had 

the unintended consequence of creating incentives to increase both risk and leverage, which 

could lead to larger jumps in a company’s stock price.’’). These distortions can be further magnified for ‘‘too-big-to-fail’’ entities, as further discussed below. 43 House Committee on Financial Services, Testimony of Lucian Bebchuk, professor of law, economics, and finance, and director of the program on corporate governance, Harvard Law 

School, Compensation Structure and Systemic Risk, at 56 (June 11, 2009) (online at 

financialservices.house.gov/Media/file/hearings/111/Printed%20Hearings/111-42.pdf). 44 Congressional Oversight Panel, Testimony of Timothy F. Geithner, secretary, U.S. Department of the Treasury, Transcript: COP Hearing with Treasury Secretary Timothy Geithner (Dec. 

16, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-121610- 

geithner.cfm) (hereinafter ‘‘Geithner Oral Testimony before the Panel’’). 45 Christopher Phelan and Douglas Clement, Incentive Compensation in the Banking Industry: 

Insights from Economic Theory, Economic Policy Paper 09–1, Federal Reserve Bank of Minneapolis, at 8–9 (Dec. 2009) (www.minneapolisfed.org/publications_papers/ 

pub_display.cfm?id=4344) (hereinafter ‘‘Incentive Compensation in the Banking Industry’’) 

(‘‘[P]romises to pay the employee in the event of default are a way of shifting the bank’s wage 

bill onto the government. Government guarantees of financial institution debt may perversely 

encourage dangerous levels of risk taking and the offloading of employee compensation to the 

government.’’). See also Stiglitz Written Testimony on Compensation in the Financial Industry, 

supra note 29, at 7 (‘‘But in some critical ways, incentives are actually worse now than they 

Continued 

structures would lead to excessive risk taking.41 Some commentators note, however, that stock options in particular do not necessarily create an exposure to losses for executives symmetric with 

that of ordinary shareholders. As one of these commentators puts 

it, ‘‘stock options—where executives only participate in the gains, 

but not the losses—and even more so, analogous bonus schemes 

prevalent in financial markets, provide strong incentives for excessive risk taking.’’ 42 Although there is no academic consensus on 

the relationship between compensation practices and risk, or 

whether compensation practices contributed to the financial crisis,43 Treasury’s view is that compensation practices did in fact 

contribute to the crisis. Treasury Secretary Timothy Geithner has 

stated that executive compensation played a ‘‘material role’’ in 

causing the crisis because it encouraged excessive risk taking.44

In the aftermath of the financial crisis and the large-scale government intervention, academics and others have examined the impact of government support for banks—ranging from deposit insurance to an implicit ‘‘too big to fail’’ guarantee—on compensation. As 

a result of providing a ‘‘too-big-to-fail’’ backstop, the government 

may have eliminated certain disincentives for pay arrangements 

that encourage excessive risk taking. Too-big-to-fail status permits 

shareholders and executives to accept substantial amounts of risk, 

since they can reap the benefits but will not suffer the consequences if the gambles are unsuccessful. Accordingly, some commentators have speculated that government guarantees could spur 

higher wages for bank employees, as guarantees may have the effect of minimizing the costs to bank shareholders and bondholders 

of awarding higher compensation to employees, which in turn could 

skew incentives for executives toward projects that are riskier and 

produce higher expected returns even if the associated risks ultimately turn out to be excessive.45 The idea that government inmstockstill on DSKH9S0YB1PROD with HEARINGS

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were before the crisis. The way the bank bailout was managed—with money flowing to the big 

banks while the smaller banks were allowed to fail (140 failed in 2009 alone)—has led to a more 

concentrated banking system. Incentives have been worsened too by the exacerbation of the 

problem of moral hazard. A new concept—with little basis in economic theory or historical experience—was introduced: the largest financial institutions were judged to be too big to be resolved.’’). 46See, e.g., Justin Rood, Don’t Call it a Bonus: Bailout Banks Still Generous to Execs, ABC 

News (Jan. 13, 2008) (online at abcnews.go.com/Blotter/Economy/story?id=6631288&page=1) 

(hereinafter ‘‘Don’t Call it a Bonus’’) (Congressman Elijah Cummings of Maryland stating ‘‘When 

folks come to the government for money, I want them understanding they have to live by new 

rules, or don’t come at all. This is a time when all of America must come together to sacrifice 

. . . Everybody, all of us, needs to be a part of that sacrifice.’’); Office of Congressman Sam 

Johnson, Sam Johnson Livid at AIG Bonus News (Mar. 17, 2009) (online at 

www.samjohnson.house.gov/news/DocumentSingle.aspx?DocumentID=114841) (hereinafter ‘‘Sam 

Johnson Livid at AIG Bonus’’) (‘‘AIG asserts it can not risk a lawsuit if the company demands 

the money back. Johnson vehemently disagrees and believes that once the taxpayers own 80% 

of a company, the company no longer has the right to offer multi-million dollar bonuses to employees, especially those who sparked such extreme economic turmoil.’’). 47 Bebchuk & Spamann: Regulating Bankers’ Pay, supra note 30, at 253. 48 Bebchuk & Spamann: Regulating Bankers’ Pay, supra note 30, at 253. (‘‘[T]o the extent that 

executives receive bonus compensation based on accounting measures, such bonuses could be 

based not on metrics that exclusively reflect the interests of common shareholders, such as earnings per share, but rather on broader metrics that also reflect the interests of preferred shareholders, bondholders, and the government as guarantor of deposits. Such changes in compensation structures would induce executives to take into account the effects of their decisions on preferred shareholders, bondholders, depositors, and taxpayers, and consequently, would curtail incentives to take excessive risks.’’). 49Federal Reserve Press Release, supra note 40 (‘‘[S]upervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process. These reviews will be tailored to 

take account of the size, complexity, and other characteristics of the banking organization.’’). In 

response to the release, Federal Reserve Governor Daniel Tarullo added, ‘‘In customizing the 

implementation of our compensation principles to the specific activities and risks of banking organizations, we advance our goal of an effective, efficient regulatory system.’’ Id. 50 12 U.S.C. § 5381 et seq. 51See Section B.2.c.ii, infra, regarding the SEC’s ‘‘say on pay’’ regulations. On February 4, 

2011, the OCC, Federal Reserve, FDIC, OTS, National Credit Union Administration, SEC, and 

the Federal Housing Finance Authority proposed rules implementing Section 956 of DoddFrank. The proposed rule would: prohibit incentive-based compensation arrangements at covered institutions that encourage various employees, executives, and directors (covered persons) 

volvement in an entity can further distort executive compensation 

practices has led some lawmakers to argue that recipients of TARP 

funds should not be held to ordinary standards.46 In response to 

these concerns, some academics have argued that for systemically 

significant financial institutions ‘‘[r]ather than tying executive pay 

to a specified percentage of the value of the common shares of the 

bank holding company, compensation could be tied to a specified 

percentage of the aggregate value of the common shares, the preferred shares, and the bonds issued by either the bank holding 

company or the bank.’’ 47 According to these commentators, such 

measures could encourage the executive to take into account the effects of their decisions on a broad group of stakeholders, including 

the government as a deposit guarantor.48 In 2009, the Federal Reserve conducted two supervisory initiatives to review compensation 

practices: one for large, complex banking organizations and a separate one for smaller institutions.49 Under the Dodd-Frank Wall 

Street Reform and Consumer Protection Act of 2010 (signed into 

law on July 21, 2010) (Dodd-Frank), agencies are required to adopt 

regulations on executive compensation. Furthermore, Dodd-Frank 

created a new resolution authority for the FDIC, which is aimed at 

the orderly liquidation of failed systemically important companies 

or in other words was designed to mitigate, if not eliminate, ‘‘too 

big to fail.’’ 50 Since most of the future regulations of executive compensation to be enacted pursuant to Dodd-Frank have yet to be finalized,51 it is it is difficult to assess whether such rules will take 

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to expose the institution to excessive risks by providing covered persons with excessive compensation; prohibit incentive-based compensation that would encourage inappropriate risks that 

could lead to a material financial loss; require deferral of a portion of incentive-based compensation for executive officers of larger covered financial institutions (what constitutes a ‘‘larger financial institution’’ depends on the type of institution); require the board of directors of a larger 

covered financial institution to identify covered persons that have the ability to expose the institution to substantial possible losses and would require the board to approve such compensation 

and document such approval; require covered financial institutions to maintain relevant policies 

and procedures; and provide information regarding incentive compensation to their regulator(s). 

See Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union 

Administration, U.S. Securities and Exchange Commission, and the Federal Housing Finance 

Authority, Proposed Rule re: Incentive-Based Compensation Arrangements (Feb. 4, 2011) (online 

at www.fdic.gov/news/board/2011rule2.pdf). Because the rule will be subject to public comment, 

its final form may differ from the proposal. 52 12 U.S.C. § 5381 et seq. 53 U.S. Department of the Treasury, Treasury Announces New Restrictions on Executive Compensation (Feb. 4, 2009) (available at www.treasury.gov/press-center/press-releases/Pages/ 

tg15.aspx) (mandating, among other things, that senior executives at exceptional financial recovery assistance firms limit senior executives to $500,000 in annual compensation, aside from restricted stock, which was not capped). 54For a more complete discussion of ARRA’s requirements, see Section B.1.b, supra. 55Office of the Special Master for TARP Executive Compensation, Final Report of Special 

Master Kenneth R. Feinberg, at 2 (Sept. 10, 2010) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/Final Report of Kenneth Feinberg-FINAL.PDF) (hereinafter ‘‘Final Report from Special Master Kenneth R. 

Feinberg’’); U.S. Department of the Treasury, Interim Final Rule on TARP Standards for Compensation and Corporate Governance (June 10, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

Interim%20Final%20Rule%20on%20Compensation%20and%20Corporate%20Governance.pdf) 

(hereinafter ‘‘Interim Final Rule on TARP Standards for Compensation and Corporate Governance’’); U.S. Department of the Treasury, Statement by Secretary Tim Geithner on Compensation 

(June 10, 2009) (online at www.treasury.gov/press-center/press-releases/Pages/tg163.aspx). 

into account these concerns. In addition, Dodd-Frank, which establishes a bankruptcy-like system for resolving large financial companies, intends to help eliminate or diminish ‘‘too big to fail,’’ but that 

resolution authority remains untested.52

c. Passage of Legislation and the Interim Final Rule 

Congress included executive compensation restrictions in the 

TARP’s authorizing legislation, the Emergency Economic Stabilization Act of 2008 (EESA), signed on October 3, 2008. On October 20, 

2008, Treasury issued an interim final rule implementing these 

standards for participants in the TARP’s Capital Purchase Program. On February 4, 2009, President Obama announced revised 

Treasury guidelines that set forth additional corporate governance 

requirements and restrictions.53

On February 17, 2009, however, before Treasury had implemented these guidelines, Congress passed the American Recovery 

and Reinvestment Act of 2009 (ARRA), which amended EESA and 

added additional, more stringent restrictions on pay practices at 

TARP recipients. These included a prohibition on the payment or 

accrual of any bonus or retention award to certain highly compensated employees, a requirement that firms establish compensation committees composed entirely of independent directors, and an 

annual, non-binding ‘‘say on pay’’ shareholder vote on executive 

compensation packages.54

In accordance with ARRA’s requirement that the Secretary of the 

Treasury issue implementing regulations, on June 10, 2009, Treasury released the IFR.55 The IFR became effective on June 15, 2009. 

It established a distinction between exceptional assistance companies and other TARP recipients that had not been required by 

ARRA. In addition, the IFR created the Office of the Special Master 

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56Gross-ups are arrangements in which an institution reimburses an individual for a tax he 

or she owes on compensation received from the institution. Under the IFR, tax ‘‘gross-ups’’ are 

defined as ‘‘any reimbursement of taxes owed with respect to any compensation, provided that 

a gross-up does not include a payment under a tax equalization agreement.’’ 31 CFR § 30.1. 

Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 2–3. 57 31 CFR § 30.16. See also Murphy October 2010 Written Testimony, supra note 14, at 8– 

9. 58Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 2; 31 CFR § 30.16; 

12 U.S.C. § 5221(f)(1). 59 Interim Final Rule on TARP Standards for Compensation and Corporate Governance, supra 

note 55; Final Report from Special Master Kenneth R. Feinberg, supra note 55, at iv. 60Final Report from Special Master Kenneth R. Feinberg, supra note 55, at iv; Congressional 

Oversight Panel, Written Testimony of Kenneth R. Feinberg, former special master for TARP 

executive compensation, COP Hearing on the TARP and Executive Compensation Restrictions, 

at 1 (Oct. 21, 2010) (online at cop.senate.gov/documents/testimony-102110-feinberg.pdf) (hereinafter ‘‘Feinberg October 2010 Written Testimony’’). 61 A ‘‘TARP recipient’’ is ‘‘any entity that has received or will receive financial assistance 

under the financial assistance provided under the TARP.’’ 12 U.S.C. § 5221(a)(3). TARP recipients include Bank of America, Goldman Sachs, and JPMorgan Chase. A complete list of all 

TARP recipients can be found on Treasury’s weekly transactions reports. Treasury Transactions 

Report, supra note 5. 

and mandated a number of specific restrictions, such as prohibiting 

companies from paying tax ‘‘gross-ups’’ to the 25 highest-paid executives.56

d. Brief Overview of the Office of the Special Master 

As discussed in more detail below, in Section B.2.b, the IFR 

charged the Special Master with setting compensation for the 25 

highest-paid employees, and the compensation structures, rather 

than the actual amounts, for the 26th–100th highest-paid employees at the exceptional assistance recipients.57 In addition, the Special Master was required by the IFR to conduct a review of bonuses, retention awards, and other compensation paid to each 

TARP recipient’s 25 highest-paid employees before February 17, 

2009, the date of ARRA’s passage, to determine whether any of the 

payments were contrary to the public interest or were inconsistent 

with the purposes of EESA or the TARP.58

On June 15, 2009, Secretary Geithner appointed Kenneth 

Feinberg to be the Special Master.59 Mr. Feinberg served as Special Master until September 10, 2010, when Patricia Geoghegan replaced him.60

2. The Statutes and Regulations that Govern Compensation 

Paid by TARP Recipients 

There are two relevant legal frameworks that govern executive 

compensation paid by TARP recipients: Section 111 of EESA as 

amended and the IFR, which implemented Section 111. The IFR 

created two sets of restrictions, one governing all TARP recipients 

and another for exceptional assistance recipients.61

a. EESA and ARRA 

Section 111 of EESA as amended requires Treasury to issue regulations applying the following compensation standards to all 

TARP recipients: 

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62 A senior executive officer is defined as ‘‘an individual who is 1 of the top 5 most highly paid 

executives of a public company, whose compensation is required to be disclosed pursuant to the 

Securities Exchange Act of 1934, and any regulations issued thereunder, and non-public company counterparts.’’ 12 U.S.C. § 5221(a)(1). 63 12 U.S.C. § 5221(b)(3)(A). 64 12 U.S.C. § 5221(b)(3)(B). In general, a ‘‘clawback’’ provision in an employment contract is 

a provision that allows a company to recoup performance-based compensation, if such compensation is later determined to be excessive in accordance with the terms of the employment contract. 65 12 U.S.C. § 5221(b)(3)(C). 66February 11, 2009 was the day after the Senate originally voted for the passage of ARRA. 

U.S. Senate, Roll Call Vote on Agreeing to H.R. 1 (Feb. 10, 2009) (61 yeas, 0 nays) (online at 

www.senate.gov/legislative/LIS/roll_call_lists/ 

roll_call_vote_cfm.cfm?congress=111&session=1&vote=00061). 67 12 U.S.C. § 5221(b)(3)(D). 68 12 U.S.C. § 5221(b)(3)(E). 69 Companies that are not registered with the Securities and Exchange Commission and re- ceived less than $25 million of TARP assistance have less stringent requirements. 12 U.S.C. 

§ 5221(b)(3)(F) and 12 U.S.C. § 5221(c). 70 12 U.S.C. § 5221(d). 71 12 U.S.C. § 5221(e). 72 If the government holds only warrants to purchase common stock of the entity, that entity 

is no longer subject to the compensation provisions of EESA as amended. 12 U.S.C. § 5221(a)(5). 73The number of employees covered by these limitations ranges from one to 25 or more depending on the amount of TARP assistance received. For example, for a financial institution receiving less than $25 million in assistance, the prohibition applies to only the most highly compensated employee. On the opposite end of the scale, for a financial institution receiving more 

than $500 million, the prohibition applies to the senior executive officers and the 20 next most 

highly compensated employees, or such other number as determined by Treasury. 12 U.S.C. 

§ 5221(b)(3)(D)(ii). 74 12 U.S.C. § 5221(b)(4). 

• Limitations on compensation that creates incentives for 

‘‘senior executive officers’’ 62 and other employees to take unnecessary and excessive risks; 63

• ‘‘Clawback’’ provisions, which permit recovery of bonus 

amounts paid on account of earnings or other metrics that are 

later found to be materially inaccurate; 64

• Prohibitions on golden parachute payments and other 

forms of individualized deferred compensation; 65

• Limitations on bonuses, incentive compensation, and retention awards (paid under post-February 11, 2009 agreements)66 to one-third of total compensation, paid only in stock 

that cannot immediately vest or be sold (‘‘restricted stock’’); 67

• Prohibitions on compensation plans that would encourage 

manipulation of reported earnings; 68

• Establishment of independent board compensation committees that meet at least semiannually to review employee compensation plans; 69

• Adoption of compensation committee-approved policies 

against ‘‘excessive or luxury expenditures;’’ 70 and 

• Establishment of non-binding ‘‘say-on-pay’’ shareholder 

votes on compensation of executives.71

These standards apply to all institutions that received TARP assistance until that assistance is repaid.72 The number of executives 

subject to the standards depends on the particular restriction and 

the amount of TARP funds an institution received.73 To demonstrate compliance, each TARP recipient must provide a written 

certification to Treasury or the SEC stating that it has abided by 

the provisions.74

The statute also required Treasury to conduct a review of payments (Look Back Review) to executives of TARP recipients made 

before February 17, 2009, to determine whether the payments were 

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75 12 U.S.C. § 5221(f)(1). 76 In addition to providing additional guidance on the compensation requirements, the IFR 

clarified the definition of ‘‘TARP recipient.’’ Under the revised definition, third parties, such as 

TARP contractors or financial agents that benefited from the TARP but did not receive the 

funds as prescribed under the regulation, are not TARP recipients and are therefore not subject 

to the compensation restrictions. Under the regulation, TARP recipients are entities that directly received funds from Treasury or certain related entities of TARP recipients (including parents and subsidiaries of TARP recipients that meet certain thresholds). 31 CFR § 30.1 (defining 

the term ‘‘TARP recipient’’). 77 As discussed in Section A, supra, exceptional assistance recipients include any participants 

in the Targeted Investment Program, the Automotive Industry Financing Program, and the 

American International Group, Inc. Investment Program. 78 In a memorandum provided by the Department of Justice to Treasury, the Office of Legal 

Counsel concluded that the Special Master is not a principal officer under the appointments 

clause and therefore does not need to be confirmed by the Senate. Furthermore, the memo 

opined that though the Special Master is given the ability to make ‘‘final and binding’’ determinations, those decisions can still be reviewed and reversed by Treasury. Office of the Special 

Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress, at 309– 

316 (Jan. 26, 2011) (online at www.sigtarp.gov/reports/congress/2011/ 

January2011_Quarterly_Report_to_Congress.pdf). 79 31 CFR § 30.4–30.7. See footnote 56, supra, for the definition of gross-ups. 80Perquisites are benefits with a personal aspect, such as company-provided vehicles (aircraft, 

cars, etc.), travel accommodations, or office furniture that is not generally available to all employees. Companies are required to provide a narrative description of the amount and nature 

of the perquisite, the recipient(s), and the justification for providing the perquisite. 31 CFR 

§ 30.11(b). 81 31 CFR § 30.11(c). 82 31 CFR § 30.4(a)(4). 83 31 CFR § 30.4(a)(4). 

inconsistent with the purposes of EESA as amended, or otherwise 

contrary to the public interest. In the event that a payment was 

found to be inconsistent with the public interest, Treasury was authorized to negotiate with the TARP recipient and the relevant employee for appropriate reimbursement.75

b. The Interim Final Rule and the Creation of the Office of the Special Master 

On June 15, 2009, Treasury issued the IFR. Written in the form 

of questions and answers, the IFR was created to both supplement 

and explain the employee compensation statutes of EESA as 

amended.76 The IFR also created an additional set of rules for exceptional assistance recipients.77 Not only did exceptional assistance recipients have to comply with the compensation restrictions 

contained in EESA as amended, but they were also subjected to the 

oversight of the Special Master.78

i. Provisions Applicable to All TARP Recipients 

In addition to the requirements of EESA as amended, the IFR 

required all TARP recipients to meet the following standards: • Prohibition on paying tax gross-ups to senior executive officers and the 20 next most highly compensated employees; 79

• Disclosure of perquisites that exceed $25,000 for relevant 

executives; 80

• Disclosure of whether the company or its compensation 

committee engaged a compensation consultant; 81

• Semiannual discussions, evaluations, and reviews of any 

risks that could threaten the TARP recipient’s value; 82 and • Disclosure on compensation plans, including a description 

of how these plans are structured to avoid creating incentives 

for ‘‘excessive’’ risk taking.83

Each TARP recipient must file an annual written certification, 

indicating that it is in compliance with the TARP’s executive commstockstill on DSKH9S0YB1PROD with HEARINGS

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84The next round of CEO and CFO annual certifications are due to Treasury on March 31, 

2011. Treasury conversations with Panel staff (Oct. 6, 2010). 85The independent board compensation committee reports for 2010 are due on April 30, 2011. 

Treasury conversations with Panel staff (Oct. 6, 2010). 86Treasury conversations with the Panel (Jan. 21, 2011). 87Treasury conversations with Panel staff (Oct. 6, 2010). 88 31 CFR § 30.16. 89 31 CFR § 30.16. The exceptional assistance recipients were not classified according to the 

size of their institution or the amount of TARP money they received. Instead they were classified based on whether they participated in any of the following three programs: the American 

International Group, Inc. Investment Program, the Targeted Investment Program, or the Automotive Industry Financing Program. See note 4, supra, for the definition of exceptional assistance recipients. 90 31 CFR § 30.11(a). 91 31 CFR § 30.11(a). Under the Rule, a ‘‘compensation structure’’ is generally the combination 

of the amount and characteristics of the various forms of compensation an individual may receive and their respective relationship to each other and to the total amount of the individual’s 

compensation. The Rule provides examples of the characteristics that can make up a compensation structure; those include the nature of the compensation (salary or short- or long-term incentive compensation), cash or equity compensation, and current or deferred compensation. 74 FR 

28405 § 30.1. 92 31 CFR § 30.16(a)(3). 

pensation standards.84 In addition, the independent board compensation committee of each TARP recipient must file an annual 

report attesting that the recipient is in compliance.85 Treasury’s 

Office of Internal Review is responsible for ensuring that the information in these reports is accurate and that the reports are filed 

in a timely manner.86 According to Treasury, some of the smaller 

TARP institutions have failed to meet their reporting deadlines or 

to provide complete information in their annual reports. In such an 

event, it is the responsibility of the Office of Internal Review to 

work with these recipients to ensure that these reports are eventually filed and that all information is accurate.87

ii. Provisions Applicable to Exceptional Assistance Recipients 

In addition to the provisions applicable to all TARP recipients, 

exceptional assistance recipients were made subject to the jurisdiction of the Special Master, a position created by the IFR.88 As 

noted above, exceptional assistance recipients were the seven institutions that received money under any one of the three enumerated 

TARP programs.89 Those recipients were AIG, Bank of America, 

Citigroup, Chrysler, Chrysler Financial, General Motors, and 

GMAC/Ally Financial. Those recipients were required to obtain the 

approval of the Special Master for: (1) any payment of compensation to the five senior executive officers and the 20 next most highly paid employees; 90 and (2) the structure of compensation for all 

senior executive officers, as well as the 100 most highly compensated employees.91

The IFR required the Special Master to determine whether a 

payment or compensation structure could ‘‘result in payments that 

are inconsistent with the purposes of Section 111 of EESA or the 

TARP, or are otherwise contrary to the public interest.’’ 92 EESA 

and ARRA do not set forth a specific definition of the ‘‘public interest,’’ and the text of ARRA leaves the determination to the discretion of the Secretary of the Treasury. In floor debate prior to the 

passage of ARRA, Senator Christopher Dodd (D–CT) stated that 

strong and certain regulation of executive compensation was a key 

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93Statement of Senator Christopher Dodd, Congressional Record, S1652 (Feb. 5, 2009) (online 

at www.gpo.gov/fdsys/pkg/CREC-2009-02-05/pdf/CREC-2009-02-05-pt1-PgS1617-2.pdf#page=36) 

(‘‘The problem is, if you don’t do something about this, we are never going to be able to build 

the confidence and optimism people need to feel about the larger part of this program. . . . 

There will be those who think these are excessive, but unfortunately, what we have seen is excessive. If we are going to convince the American public that what we are trying to do is in 

their interest, then we have to be certain when it comes to these matters.’’). 94 House Committee on Oversight and Government Reform, Transcript: Executive Compensation: How Much is Too Much?, at 12, 191 (Oct. 28, 2009) (online at www.gpo.gov/fdsys/pkg/ 

CHRG-111hhrg54553/pdf/CHRG-111hhrg54553.pdf). In fact, neither Treasury nor the Special 

Master required shareholder approval for compensation packages set by the Special Master. A 

related but distinct concept—‘‘say on pay’’—is discussed in more detail below. See Section 

B.2.c.ii., infra. 95 31 CFR § 30.16(b). 96 31 CFR § 30.16(b). 97See Section C.1.b, infra. 

component of the public interest standard.93 Similarly, Representative Darrell Issa (R–CA), questioning Mr. Feinberg in a subsequent 

congressional hearing, asked whether it would be appropriate to 

hold ‘‘a vote of the stockholders or some kind of affirmation by the 

long-term stockholders of these companies that in fact they agree 

with the pay packages we are setting as in the best interest.’’ 94

The IFR stipulated six principles that the Special Master must 

apply to each decision in order to enforce this ‘‘public interest’’ 

standard: • Risk: compensation should avoid incentives that reward 

employees for taking unnecessary or excessive risks, including 

those that create short-term or temporary increases in value 

that may not ultimately result in an increase in the long-term 

value of the TARP recipient; • Taxpayer Return: compensation should reflect the need for 

the TARP recipient to remain a competitive enterprise and ultimately repay TARP obligations; • Appropriate Allocation: compensation should be appropriately allocated among each element of pay (for example, salary, short- and long-term incentive pay, and current and deferred compensation or retirement pay); • Performance-based Compensation: an appropriate portion 

of the compensation should be performance-based, and determined through tailored metrics that encompass individual performance and/or the performance of the TARP recipient or relevant business unit; • Comparable Payments: compensation should be consistent 

with, and not excessive in comparison to, pay for those in similar roles at similar entities; and • Employee Contribution: compensation should reflect the 

current or prospective contributions of the employee of the 

TARP recipient.95

The IFR did not specify how to resolve conflicts between the principles when they arose. Instead, it granted to the Special Master 

the ‘‘discretion to determine the appropriate weight or relevance of 

a particular principle depending on the facts and circumstances 

surrounding the compensation structure or payment under consideration.’’ 96 As discussed in more detail below, however, the Special 

Master employed the six principles as the basis of his determination for what constituted the public interest.97 In testimony before 

Congress, Mr. Feinberg elaborated on additional factors that he 

considered components of serving the ‘‘public interest,’’ including 

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98 House Committee on Oversight and Government Reform, Testimony of Kenneth R. 

Feinberg, special master for TARP executive compensation, Transcript: Executive Compensation: 

How Much is Too Much?, at 12, 191 (Oct. 28, 2009) (online at www.gpo.gov/fdsys/pkg/CHRG111hhrg54553/pdf/CHRG-111hhrg54553.pdf). 99The safe harbor provision covers employees who receive less than $500,000 in cash salary 

and stock salary, excluding long-term restricted stock. 31 CFR 30.16(a)(3)(ii); Interim Final Rule 

on TARP Standards for Compensation and Corporate Governance, supra note 55. 100 31 CFR § 30.16(a)(1). 101 31 CFR § 30.16(a)(2). 102 12 U.S.C. § 5221(a)(5). However, entities in which the federal government only holds warrants to purchase common stock are not subject to the TARP compensation restrictions. 103Feinberg October 2010 Written Testimony, supra note 60, at 1. Bank of America, Citigroup, 

and Chrysler Financial are no longer deemed to be recipients of exceptional assistance. See 

Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 4. 104Treasury expects to receive the data from the companies by February 1, 2010 and release 

its determinations by the end of the first quarter of 2011. Treasury conversations with the Panel 

(Jan. 18, 2011). 105Treasury conversations with Panel staff (Oct. 6, 2010). 

emphasizing performance-based compensation, imposing limits on 

guaranteed cash and perks, and imposing ‘‘rational compensation 

limits’’ on companies that received government assistance.98

The regulations also created a ‘‘safe harbor’’ for employees who 

received less than $500,000 in annual compensation. Institutions 

are not required to receive approval of compensation structures 

from the Special Master for employees who fall within this safe 

harbor.99 In addition to approving specified compensation payments and structures for those entities that received exceptional financial assistance, the IFR gave the Special Master several additional responsibilities. The Special Master is authorized to interpret and issue non-binding advisory opinions on Section 111 of 

EESA as amended, and the IFR.100 Furthermore, the IFR authorized the Special Master to review compensation paid by TARP recipients prior to February 17, 2009, to determine if such payments 

were inconsistent with the purposes of Section 111 of EESA as 

amended, and TARP or contrary to the public interest.101

c. Dodd-Frank and the Future of the Office of the Special Master 

i. The Future of the Office of the Special Master 

The TARP expired on October 3, 2010, but the executive compensation standards under EESA as amended will continue to bind 

TARP recipients for as long as they hold TARP funding.102 The 

Special Master remains responsible for approving the compensation 

of the top employees at the exceptional assistance recipients. The 

four remaining exceptional assistance recipients are AIG, Chrysler, 

General Motors, and GMAC/Ally Financial.103 The Office of the 

Special Master will continue to issue advisory opinions on TARP 

compensation at its discretion or at the request of a TARP institution. 

The Special Master intends to determine the compensation for 

the top employees at the four remaining exceptional assistance 

companies for 2011. It plans to release these determinations in the 

first quarter of 2011.104 Treasury has indicated that it has no intention of disbanding the Office of the Special Master or changing 

its responsibilities.105

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106 15 U.S.C. § 78j–4(b)(2). The clawback provision under Dodd-Frank is triggered by an accounting restatement that results from material noncompliance with any financial reporting requirements under relevant securities laws. 15 U.S.C. § 78j–3. 107 15 U.S.C. § 78n(i); Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 

No. 111–203, § 953(b) (2010). 108These institutions include depository institutions and holding companies regulated by the 

FDIC, SEC registered broker-dealers, credit unions regulated by the Board of Governors of the 

Federal Reserve, Fannie Mae, Freddie Mac, and certain other financial institutions. 12 U.S.C. 

§ 5641(e)(2). However, the rules are not applicable to covered financial institutions with less 

than $1 billion in assets. 12 U.S.C. § 5641(f). 109There have also been efforts to address compensation issues at the international level. In 

April 2009, a working group of the G–20 released ‘‘Principles for Sound Compensation Practices,’’ and in September 2009, the Financial Stability Board released implementation standards 

for those principles. Financial Stability Board, FSB Principles for Sound Compensation Practices—Implementation Standards (Sept. 25, 2009) (online at www.financialstabilityboard.org/ 

publications/r_090925c.pdf). These principles included effective governance of compensation, effective alignment of compensation with prudent risk taking, and effective supervisory oversight 

and engagement by stakeholders. Financial Stability Forum, FSF Principles for Sound Compensation Practices, at 2–3 (Apr. 2, 2009) (online at www.financialstabilityboard.org/publications/ r_0904b.pdf). In March 2010, the Financial Stability Forum released a peer review of the implementation of these principles. Financial Stability Forum, Thematic Review on Compensation 

Peer Review Report, at 23–24 (Mar. 30, 2010) (online at www.financialstabilityboard.org/publications/r_100330a.pdf). Taking into account the principles and implementation standards set forth 

by the Financial Stability Board, on December 27, 2010 the Basel Committee on Banking Supervision issued a consultive document containing proposed compensation disclosure requirements. 

This consultive document is open for comment until February 25, 2011. Basel Committee on 

Banking Supervision, Consultative Document—Pillar 3 Disclosure Requirements for Remuneration (Dec. 2010) (online at www.bis.org/publ/bcbs191.pdf). 110 Board of Governors of the Federal Reserve System et al., Guidance on Sound Incentive 

Compensation Policies, at 24 (online at www.federalreserve.gov/newsevents/press/bcreg/ 

bcreg20100621a1.pdf) (accessed Feb. 8, 2011). 

ii. Dodd-Frank and Agency Rulemaking 

Signed into law on July 21, 2010, the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010 (Dodd-Frank) includes several provisions that will govern executive compensation 

at financial institutions in the future. It includes a provision permitting clawbacks in certain situations, and it imposes more stringent requirements with respect to independent compensation committees.106 It also requires disclosure of a wide range of information, including the relationship between compensation and performance and the ratio of the CEO’s compensation to median employee 

pay.107 Furthermore, Dodd-Frank requires a number of agencies, 

such as the Federal Deposit Insurance Corporation (FDIC) and the 

Board of Governors of the Federal Reserve System (Federal Reserve), to work together to prescribe regulations or guidelines on 

incentive compensation applicable to ‘‘covered financial institutions.’’ 108 ARRA and IFR restrictions will remain applicable to 

TARP recipients, without respect to whether Dodd-Frank also applies. 

As required under Dodd-Frank, several agencies have already 

begun developing guidance on executive compensation.109 On June 

21, 2010, the Office of the Comptroller of the Currency (OCC), Federal Reserve, FDIC, and Office of Thrift Supervision (OTS) adopted 

final guidance on incentive compensation for banking organizations.110 The guidance released by the OCC, Federal Reserve, 

FDIC, and OTS is centered on three core principles, which are 

aimed at maintaining the safety and soundness of the banking organization while discouraging ‘‘imprudent’’ risk taking. According 

to the guidance, incentive compensation should (1) provide incentives that ‘‘appropriately balance risk and reward,’’ (2) ‘‘be compatible with effective controls and risk management,’’ and (3) ‘‘be supmstockstill on DSKH9S0YB1PROD with HEARINGS

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111 Id. at 24 (‘‘Provide employees incentives that appropriately balance risk and reward; [b]e 

compatible with effective controls and risk-management; and [b]e supported by strong corporate 

governance, including active and effective oversight by the organization’s board of directors.’’). 

The guidance then goes on to describe methods to implement each of the principles. For instance, under the first principle (balanced risk taking incentives), the guidance describes four 

methods for achieving this goal, including: (i) the modification time horizons of incentive compensation schemes; (ii) the addition or modification features of current schemes to better reflect 

risk; (iii) the tailoring of schemes between different levels of employees (i.e., a senior executive 

might have a different risk profile than a trader); and (iv) a requirement for the carefully consideration when using ‘‘golden parachutes’’ and accelerated vesting for departing employees. In addition, the banking institution needs to communicate effectively to employees that the incentive 

structure is designed to minimize risk, and that the amount of compensation they may receive 

will be dependent on risk associated with an activity. Id. At 30–34. The guidance also goes into 

further detail on the factors that should be considered and evaluated when modifying and designing internal controls and risk management to successfully monitor and implement incentive 

compensation schemes as well as elements to be considered in a strong corporate governance 

structure. Id. at 35–41. 112 Id. at 26–27. The determination is based on specific facts and circumstances; however, the 

guidance is applicable to both executive officers and non-executive officers who are able to expose the bank to material amounts of risk and could pose a threat to the organization’s safety 

and soundness. Id. at 26–27. 113 In the coming months, the FDIC and the other federal banking agencies will contribute 

to a Federal Reserve Board report on trends and developments in compensation. House Committee on Financial Services, Written Testimony of Marc Steckel, associate director, Division of 

Insurance and Research, Federal Deposit Insurance Corporation, Executive Compensation Oversight after the Dodd-Frank Wall Street Reform and Consumer Protection Act (Sept. 24, 2010) (online at financialservices.house.gov/Media/file/hearings/111/09242010/Steckel%209_24_10.pdf). See 

also note 51, supra, for a discussion of the FDIC-led interagency proposal. 114 U.S. Securities and Exchange Commission, SEC Adopts Rules for Say-on-Pay and Golden 

Parachute Compensation as Required Under Dodd-Frank Act (Jan. 25, 2011) (proposed rule) (online at www.sec.gov/news/press/2011/2011–25.htm); U.S. Securities and Exchange Commission, 

Reporting of Proxy Votes on Executive Compensation and Other Matters, 75 Fed. Reg. 66622 

(Oct. 18, 2010) (proposed rule) (online at www.sec.gov/rules/proposed/2010/34-63123.pdf). 115Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 8. Once the Special Master declared the company’s submission substantially complete, the Special Master was 

required to issue a determination within 60 days. Final Report from Special Master Kenneth 

R. Feinberg, supra note 55, at 8. 

ported by strong corporate governance.’’ 111 Unlike the bonus restrictions in EESA as amended, and the IFR, which apply only to 

a specified number of ‘‘highly-compensated’’ executives, this guidance applies to any employees who have the ability to expose their 

organizations to ‘‘material amounts of risk.’’ 112

The FDIC is also developing enhanced examination procedures to 

use in evaluating incentive compensation at institutions under its 

supervision.113 Furthermore, the SEC recently adopted regulations 

that require shareholder approval of executive compensation and 

‘‘golden parachute’’ compensation arrangements, and the SEC is in 

the process of formulating regulations that require institutional investment managers to disclose how they voted on these compensation arrangements.114

C. Summary of the Special Master’s Determinations 

1. Overview 

a. Process 

To make each determination, the Special Master first formally 

requested data from each exceptional assistance recipient on its 

historical compensation practices. The companies also submitted 

proposed compensation packages to the Special Master for each 

covered employee. To the extent necessary, the Special Master 

would request additional data or hold follow-up conversations with 

the exceptional assistance companies.115

Upon receiving the information, the Office of the Special Master 

would perform legal due diligence as well as market and historical 

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116Treasury conversations with the Panel (Jan. 18, 2011). 117 In describing the organization and administration of the office, Mr. Feinberg lists Professors Bebchuk and Murphy in the staffing section. Final Report from Special Master Kenneth 

R. Feinberg, supra note 55, at 6–7. 118Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 8–9. 119See U.S. Department of the Treasury, Special Master for Executive Compensation (online 

at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Pages/spcMaster.aspx) (accessed Feb. 8, 2011) (hereinafter ‘‘Special Master for Executive 

Compensation’’). 120See, e.g., Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Robert Benmosche, president and chief executive officer, American International Group, 

Inc., Proposed Compensation Payments and Structures for Senior Executive Officers and Most 

Highly Compensated Employees, at 3–4 (Oct. 22, 2009) (online at www.treasury.gov/initiatives/ 

financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091022%20AIG%202009%20Top%2025%20Determination.pdf) (hereinafter ‘‘October 2009 

Feinberg Determination Letter to AIG’’); Letter from Kenneth R. Feinberg, special master for 

analysis of the proposed compensation structures. During this process, the Office of the Special Master used data provided by the 

companies and data on compensation practices at comparable 

firms. At the height of its oversight of seven companies, the Office 

of the Special Master employed two executive compensation specialists with over 15 years of experience each, two compensation 

analysts, three full-time attorneys with compensation experience, 

and one part-time attorney in addition to the Special Master. Currently, the staff includes the Special Master, one executive compensation specialist, one analyst, and two full-time attorneys.116

The Special Master also formally consulted with officials from 

Treasury, the Federal Reserve, and other agencies, as well as two 

academic experts, Professors Bebchuk and Murphy.117 Following 

this review, the Special Master developed proposed compensation 

packages. These proposals were then debated within the Office of 

the Special Master and with the exceptional assistance companies. 

At this point, the Special Master drafted final compensation determinations. These determinations were presented in letters to the 

exceptional assistance companies.118

To date, the Special Master has released compensation determinations for 2009 and 2010, as well as a number of supplemental 

determinations. The first round of determinations was released on 

October 22, 2009 and established 2009 pay for the 25 highest-paid 

employees at the exceptional assistance companies. On December 

11, 2009, the Special Master released his determinations for the 

26th–100th highest-paid employees. The determinations for the top 

25 employees’ 2010 compensation were released on March 23, 2010, 

and the determinations for the 26th–100th employees’ 2010 compensation were released on April 16, 2010. Supplemental determinations were made at various points in response to specific developments at the companies.119

b. Principles and Recurrent Determinations 

The IFR required the Special Master to make determinations according to the six principles described above in Section B.2.b.ii, 

which the Special Master referred to as the ‘‘Public Interest Standard.’’ In many determinations, the Special Master noted that three 

of these principles were of particular importance: that compensation be performance-based, that compensation be competitive 

enough to maximize taxpayer return, and that the compensation be 

appropriately allocated between types of compensation and between 

the long and short term.120 In the Special Master’s judgment, an 

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TARP executive compensation, to Gregory E. Lau, executive director—global compensation, General Motors Company, Proposed Compensation Structures for Certain Executive Officers and 

Most Highly Compensated Employees (‘‘Covered Employees 26–100’’), at 3 (Dec. 11, 2009) (online 

at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/2091210%20General%20Motors%20Determination%20Letter.pdf) (hereinafter 

‘‘December 2009 Feinberg Determination Letter to GM’’). 121Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 10. See also Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Gregory E. 

Lau, executive director—global compensation, General Motors Company, Proposed Compensation 

Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees, 

at E1 (Oct. 22, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091022%20GM%202009%20Top%2025%20Determination.pdf) (hereinafter ‘‘October 2009 

Feinberg Determination Letter to GM’’). The Office of the Special Master stated that three years 

was appropriately long-term. Treasury conversations with the Panel (Jan. 18, 2011). For more 

information, see Sections B.1.b, D.3, and C.1.b. 122Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 10. 123Salary stock was not prohibited by EESA or the IFR. In fact, the IFR specifically permitted 

‘‘an arrangement under which an employee receives salary or another permissible payment in 

property, such as TARP recipient stock.’’ 31 CFR § 30.1. The Special Master’s use of salary stock 

permitted him to provide additional compensation to executives without providing that compensation in cash. ARRA’s amendments to EESA prohibited incentive payments—including the 

payment of long-term restricted stock—that exceeded one-third of total compensation, but did 

not restrict the amount of ‘‘base salary.’’ Accordingly, the use of salary stock allowed the Special 

Master to increase the portion of overall compensation paid in the form of stock without running 

afoul of EESA’s prohibitions. See Murphy October 2010 Written Testimony, supra note 14. 124Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 9. 

allocation was ‘‘appropriate’’ if it heavily favored long-term structures.121

Though the specific compensation for each employee was calculated on an employee-by-employee, company-by-company basis, 

the Special Master applied four standards to implement the Public 

Interest Standard across all determinations: 

• Strict Limits on Guaranteed Cash Compensation: The cash 

portion of an employee’s salary generally was not to be excessive, and cash incentives were not to be guaranteed under any 

circumstances. Additional salary was instead to be composed of 

vested stock with extended holding requirements. 

• Achievement of Objective Performance Goals: Incentive 

compensation was to be based on measurable and enforceable 

performance metrics. When the goals were not met, they were 

to be enforced fully, and no incentive compensation was to be 

paid. 

• Long-term Structures: A significant amount of compensation was to reflect the company’s long-term performance and 

value, often using grants of company stock. A large proportion 

of compensation was to be held or deferred for a period of at 

least three years. 

• Minimization of Indirect and Ancillary Compensation: 

Compensation structures not aligned with shareholder and taxpayer interests in the firm were to be minimized or eliminated.122

The Special Master principally divided compensation between 

cash payments, salary stock (stock given regardless of performance 

and therefore a component of base pay),123 and incentive payments. 

The Special Master’s four standards led to several concrete policies 

for each type of compensation: 

• Cash Compensation: In most cases, the Special Master 

limited cash compensation to $500,000 or less.124 For the 26th– 

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125See, e.g., Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Michael S. Helfer, general counsel & corporate secretary, Citigroup Inc., Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees 

(‘‘Covered Employees 26–100’’), at A5 (Dec. 11, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091210%20Citigroup%20Determination.pdf) (hereinafter ‘‘December 2009 Feinberg Determination Letter to Citigroup’’). 126See, e.g., October 2009 Feinberg Determination Letter to GM, supra note 121, at A7. 127See, e.g., Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Robert Benmosche, president and chief executive officer, American International Group, 

Inc., Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’), at A6–A7 (Dec. 11, 2009) (online at 

www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/20091210%20AIG%20Determination.pdf) (hereinafter ‘‘December 2009 Feinberg 

Determination Letter to AIG’’). 128Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Nancy A. Rae, executive vice president—human resources, Chrysler Group, LLC, Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees, at 

A8, A10–A11 (Oct. 22, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091022%20Chrysler%202009%20Top%2025%20Determination.pdf) (hereinafter ‘‘October 2009 

Feinberg Determination Letter to Chrysler’’); 12 U.S.C. § 5221(b)(3)(D)(i). 129October 2009 Feinberg Determination Letter to Chrysler, supra note 128, at A8–A10, A12; 

December 2009 Feinberg Determination Letter to Citigroup, supra note 125, at A8–A9, A11. 

100th highest-paid employees, cash compensation was limited, 

at most, to 45 percent of total compensation.125

• Salary Stock: The Special Master required that, for the 25 

highest-paid employees, salary stock be redeemable only in 

three equal, annual installments beginning on the second anniversary of the grant.126 For the 26th–100th highest-paid employees, salary stock was redeemable after at least one year.127

• Incentive Payments: For the top 25 employees, the Special 

Master generally required incentive payments to be paid to the 

top 25 employees only if the employees remained with the company for three years following the grant and only in 25 percent 

installments for each 25 percent of the company’s TARP obligations that are repaid.128 For the 26th–100th highest-paid employees, generally at least 50 percent of incentive payments 

had to be in stock redeemable only after a minimum of three 

years. If any cash incentive payments were awarded to employees 26–100, at least 50 percent of the cash award had to be deferred a year. The Special Master limited total incentive payments to no more than a third of all compensation, as required 

by EESA, and also required that they be paid only if specific 

observable performance metrics were met. Generally, the Special Master obliged the company’s compensation committee to 

develop these metrics and judge whether employees met their 

metrics. 

• Other forms of compensation: Some of the exceptional assistance companies proposed non-qualified deferred compensation, severance plans (such as golden parachutes), and other 

forms of compensation. The Special Master generally prohibited non-qualified deferred compensation, severance payments, 

and ‘‘bonus’’ or ‘‘retention’’ awards. He limited all other compensation to $25,000 and prohibited tax gross-ups.129

Accordingly, top 25 employees had the potential to receive cash, 

stock salary (fully redeemable in four years), and incentive payments (in stock redeemable after a minimum of three years). Employees 26–100 also had the potential to receive cash, stock salary 

(fully redeemable after at least one year), and incentive payments 

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130See, e.g., October 2009 Feinberg Determination Letter to Chrysler, supra note 128, at 2. 131See, e.g., Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 6. 132 12 U.S.C. § 5221(b)(3)(D). 133See, e.g., December 2009 Feinberg Determination Letter to GM, supra note 120. 134See, e.g., Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to J. Steele Alphin, chief administrative officer, Bank of America Corporation, Proposed 

Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees, at A12 (Oct. 22, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091022%20BofA%202009%20Top%2025%20Determination.pdf) (hereinafter ‘‘October 2009 

Feinberg Determination Letter to Bank of America’’). As a result, the Special Master did not 

issue individualized compensation determinations for each of the top 25 employees at several 

of the institutions he supervised. For example, at Bank of America and AIG in 2009, he made 

such pay determinations for only 13 employees. In total, in 2009 he made individual compensation determinations only for 136 employees, which is 23 percent fewer than if he had covered 

the full 25 at each firm. Although the numbers increased in his 2010 determinations, he still 

made individual compensation decisions for fewer than 25 employees at several institutions. Letter from Patricia Geoghegan, special master for TARP executive compensation, to Ted Kaufman, 

chairman, Congressional Oversight Panel, Re: Data Request, at 5 (Nov. 18, 2010) (online at 

cop.senate.gov/documents/cop-121410-report-correspondence.pdf) (hereinafter ‘‘Re: Data Request’’). 

The Office of the Special Master states that the most workable interpretation of the IFR requires including departed employees in the list of and approach to the top 25 employees rather 

than attempting to replace employees who had departed with the next most highly compensated 

employees. Treasury conversations with the Panel (Jan. 27, 2011). Question 3 of the IFR identifies the top 25 employees by reference to the previous year’s salary. 31 CFR § 30.03. As a result, 

according to the Office of the Special Master, the list of the top 25 employees is fixed as of January 1 for the entire year, even if some of those employees then leave during the course of the 

year. Moreover, according to the Office of the Special Master, attempting to replace employees 

who had departed would not have been practical. For example, according to the Office of the 

Special Master, because the treatment of the top 25 employees differed from the treatment of 

the top 26–100 employees, moving an employee from the category of 26–100 into the top 25 

would alter their compensation packages and subject them to additional restrictions during the 

course of the year. In the view of the Office of the Special Master, this would cause significant 

difficulties for covered employees at the companies. In addition, the Office of the Special Master 

noted that post-severance pay also came within the Office of the Special Master’s jurisdiction 

for the top 25, and that it was therefore important to keep the list intact as of January 1. Treasury conversations with the Panel (Jan. 27, 2011). 

Alternatively, the Special Master could have chosen to set pay amounts for more than just 

the top 25 employees. Question 16 of the IFR authorizes the Special Master to set compensation 

amounts for the five senior executive officers and at least the twenty next most highly compensated employees. 31 CFR § 30.16. As a result, the Special Master could theoretically have 

Continued 

(at least 50 percent in stock, which was redeemable after three 

years, and no more than 50 percent in cash, of which 50 percent 

was to be deferred at least one year). 

The Special Master, when determining the amount to award, 

generally targeted the 50th percentile of compensation for comparable employees at comparable companies, stating that this level 

was in line with the Public Interest Standard’s principles of competitive and comparable pay.130 The compensation structures of employees who had total compensation below $500,000 were automatically approved.131 There were no set upper limits on total compensation, though EESA as amended required that for the top 25 

employees, no more than one-third of their compensation could be 

from incentive payments.132 In addition, for the 26th–100th highest-paid employees, at least 50 percent of total compensation had 

to be redeemable no earlier than three years from the date of the 

award.133

In a number of determinations, some employees who were in the 

top 25 had either already left the company or were leaving before 

the end of the year. In most such cases, these employees were allowed either their cash salary or both cash and stock salary 

through their termination date and $25,000 in other payments, but 

no other payments of any kind, such as severance or incentive payments.134 In addition, the Special Master compelled some of the exmstockstill on DSKH9S0YB1PROD with HEARINGS

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set compensation amounts for more than just the top 25 most highly compensated employees 

at the exceptional assistance companies. The Office of the Special Master explained to the Panel 

that they never considered setting compensation amounts for more than the top 25 employees. 

Treasury conversations with the Panel (Jan. 27, 2011). 135See, e.g., October 2009 Feinberg Determination Letter to AIG, supra note 120, at 3, A13. 136The remaining 12 employees in the ‘‘top 25’’ were those employees that had already left 

AIG by the time of the Special Master’s determination. At most of the exceptional assistance 

companies, some of the top 25 employees had left the company before the Special Master made 

his determination for that year. As noted above, the Special Master determined the list of the 

‘‘top 25’’ for each company as of January 1 of the relevant year and did not alter the list to 

replace employees that left the company with the next most highly compensated employees. 

Thus, departed employees were still considered part of the ‘‘top 25’’ by the Special Master. However, they were not individually covered. Instead, they were generally treated as a group, with 

the Special Master authorizing the payments made to them through the date of termination 

plus up to $25,000 in perquisites, but no other payments of any kind. Thus, despite being called 

the determinations for the 25 highest-paid employees, the Special Master made individual compensation determinations for the full 25 employees at only one of the institutions he supervised 

in 2009 and at only one institution in 2010. Instead, the Special Master made individual compensation determinations for only those employees who were with the institution on January 

1 and remained with the institution on the date he reached his determinations. Treasury conversations with the Panel (Jan. 27, 2011); October 2009 Feinberg Determination Letter to AIG, 

supra note 120, at A5–A15, E1. 

The Special Master explained this choice to treat departed employees as part of the top 25 

as being the result of the most workable interpretation of the IFR. For a more complete discussion of the Special Master’s rationale, see footnote 134, supra. 137Prior to this top 25 employee determination, on October 2, 2009, the Special Master released a supplemental determination approving AIG’s proposed compensation for the incoming 

president and chief executive officer, Robert Benmosche. The approved annual compensation 

provided for $3,000,000 in cash, $4,000,000 in salary stock in AIG not transferable for five years, 

and $3,500,000 in incentive pay. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Compensation and Management Resources Committee, American International Group, Inc., Proposed Compensation Payments and Structure for Robert H. Benmosche, 

at 4 (Oct. 2, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/RobertBenmoscheDeterminationLetter.pdf) 

(hereinafter ‘‘Proposed Compensation Payments and Structure for Robert H. Benmosche’’). 138During the submission process, AIG changed CEOs and business strategy, which affected 

the negotiations with the Special Master. Treasury conversations with the Panel (Jan. 27, 2011). 139One employee’s compensation package was initially proposed as under $500,000 based on 

the expectation that the employee was going to leave AIG before the end of 2009. The employee 

later decided to stay, and AIG requested that the employee’s pay be increased beyond the 

$500,000 threshold. The proposed compensation package requested that, in addition to the previously approved cash compensation, the Special Master approve $3,258,333 in salary stock (valued as of the grant date) and $1,000,000 in incentive payments. The Special Master approved 

the request. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, 

to Robert Benmosche, president and chief executive officer, American International Group, Inc., 

Reconsideration Request and Supplemental Determination Regarding 2009 Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees, 

ceptional assistance companies to ensure that employees were prohibited from engaging in any derivative or other hedging transactions with regard to company stock, stating that this could blunt 

the effect of the long-term performance incentives.135

2. Determinations 

a. AIG 

i. 2009 

The Special Master’s 2009 determinations for AIG’s 25 highestpaid employees made individual compensation determinations for 

13 employees,136 and reduced total compensation by 58 percent 

compared to 2008.137 AIG had proposed to increase cash salaries, pay retention awards between $1,500,000 and $2,400,000, pay salary stock between $250,000 and $4,600,000, and award considerable ‘‘other’’ compensation in the form, for example, of perquisites, 

retirement income, and severance plans. AIG did not propose any 

incentive payments.138 The Special Master automatically accepted 

any compensation package with total direct compensation of less 

than $500,000.139 For five covered employees who worked at AIG 

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at 2–3 (Dec. 21, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091221%20AIG%20Supplemental%20Determination%20Letter.pdf) (hereinafter ‘‘Reconsideration Request and Determination on 2009 Compensation Payments and Structures for AIG Officers’’). 140October 2009 Feinberg Determination Letter to AIG, supra note 120, at A5–A15, E1. Unless otherwise noted, these discussions of compensation for 2009 absent the special master set 

forth the comparison between what the covered entity was paying the executive prior to the Special Master’s determination, assuming that the entity would have continued to pay those 

amounts for the rest of the year, and what the covered entity paid the executive after the Special Master’s determination on an annualized basis. 141Salary stock was given in units reflecting the value of a ‘‘basket’’ of four AIG subsidiaries 

that AIG, the Federal Reserve Bank of New York, and the Treasury determined were critical 

to the future of the company. October 2009 Feinberg Determination Letter to AIG, supra note 

120, at 2, A9. Subsequently, AIG requested that salary stock instead be paid in AIG common 

stock. The Special Master reviewed the proposal and allowed salary stock to include common 

stock. Reconsideration Request and Determination on 2009 Compensation Payments and Structures for AIG Officers, supra note 139, at 4. 142October 2009 Feinberg Determination Letter to AIG, supra note 120, at A5–A15, E1. 143See Section C.1.b, supra; December 2009 Feinberg Determination Letter to AIG, supra note 

127. 144December 2009 Feinberg Determination Letter to AIG, supra note 127. The Special Master 

did not provide the ranges of approved salaries for the 26th–100th highest-paid employees because he set only compensation structures for these employees, not actual amounts. 

Financial Products, a division that was at the center of AIG’s collapse in 2008, he awarded no additional compensation beyond what 

they had already been paid in 2009. Compared to what the employees would have received in 2009 absent the Special Master, cash 

salaries remained unchanged for 10 employees and decreased for 

three employees.140 In total, the Special Master granted cash compensation, salary stock,141 and incentive payments worth between $100,000 and $10,500,000. In addition, he demanded that those 

AIG employees who had pledged to return previously awarded 2009 

bonuses actually return them.142

For its 26th–100th highest-paid employees in 2009, AIG proposed 

compensation structures divided between cash, stock, and previously existing cash retention agreements. Stock was the largest 

component, divided between salary stock and long-term restricted 

stock, and cash represented approximately 40 percent of total compensation. The Special Master, though approving AIG’s proposal 

for stock salary, adjusted all of AIG’s proposals to accord with his 

general timing, amount, and allocation requirements for compensation structures.143 In addition, he required that cash awards be reduced by the amount of any previously existing cash retention 

agreement.144

ii. 2010 

In 2010, AIG proposed that its 25th highest-paid employees be paid cash salaries of between $350,000 and $1,500,000; salary stock 

worth between $200,000 and $7,740,000; incentive awards worth 

10 percent of their total compensation; and additional ‘‘other’’ compensation. The Special Master made individual compensation determinations for 22 employees, limited cash salaries to a maximum 

of $500,000, reduced the amount of salary stock payments, increased the proportion of total compensation that was given as incentive payments, and capped other forms of compensation at 

$25,000 compared to AIG’s proposal. In addition, with one exception, the Special Master froze cash compensation at 2008 levels for 

covered employees at AIG Financial Products. The Special Master 

did, however, approve additional non-cash compensation for AIG 

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145Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Robert Benmosche, president and chief executive officer, American International Group, Inc., Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated 

Employees (‘‘Covered Employees 1–25’’) (Mar. 23, 2010) (online at www.treasury.gov/initiatives/ 

financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100323%20AIG%202010%20Top%2025%20Determination%20(3-23-10).pdf) (hereinafter 

‘‘March 2010 Feinberg Determination Letter to AIG’’). Subsequent to this determination, AIG 

identified two employees who had mistakenly been omitted from the 2010 determinations. AIG 

proposed and the Special Master approved compensation plans for these employees similar to 

the Special Master’s other determinations. In another instance, AIG sought to increase compensation for two employees. These increases were approved, in one case because of expanded 

responsibilities and in the other because the increases were due to the employee earning greater 

than expected commissions. AIG also sought to hire three employees for which the Special Master’s approval was needed on compensation. For two employees, their compensation structures 

and amounts were consistent with the Special Master’s 2010 determination and were approved. 

Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Jeffrey 

J. Hurd, senior vice president—human resources and communications, American International 

Group, Inc., Supplemental Determination Regarding 2010 Compensation Payments and Structures for Most Highly Compensated Employees (May 18, 2010) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100518+AIG+Letter.PDF); Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Jeffrey J. Hurd, senior vice president—human resources and communications, American International Group, Inc., Supplemental Determination Regarding 2010 Compensation Payments and Structures for Most Highly Compensated Employees (Aug. 3, 2010) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_ Guidance/executive-compensation/Documents/20100803%20AIG%20Supplemental%20Determination.pdf); Letter from 

Kenneth R. Feinberg, special master for TARP executive compensation, to Jeffrey J. Hurd, senior vice president—human resources and communications, American International Group, Inc., 

Supplemental Determination Regarding Proposed Compensation Structure for Chief Risk Officer 

(Nov. 8, 2010) (online at www.treasury.gov/initiatives/ financial-stability/about/Recipient_Guidance/executive-compensation/Documents/Signed%20Letter%20to%20AIG%20re%20 

Supplemental%20Determination%20of%20CRO%20Comp.%20(Exhibit%20I%20attached).pdf). 

For the last potential employee, Peter Hancock, AIG proposed for 2010 a cash salary of 

$1,500,000; stock salary of $2,400,000; and incentive pay of $3,600,000. The Special Master approved this proposal and agreed in principle to a substantial raise in 2011. Letter from Kenneth 

R. Feinberg, special master for TARP executive compensation, to Robert Benmosche, president 

and chief executive officer, American International Group, Inc., Supplemental Determination Regarding Proposed Compensation Structure for Peter Hancock (Feb. 5, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executivecompensation/Documents/exec_comp20100208AIGLetter.pdf). 146Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Robert Benmosche, president and chief executive officer, American International Group, Inc., Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated 

Employees (‘‘Covered Employees 26–100’’), at 1 (Apr. 16, 2010) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100416%20AIG%2026-100%20Determination.pdf). 

Financial Products employees after noting that AIG had informed 

him that all of the 2009 bonuses that had been pledged to be returned had actually been repaid. Total compensation for all individual employees ranged from $312,500 to $10,500,000.145

The Special Master largely reaffirmed for 2010 the compensation 

structures for the 26th–100th highest-paid employees that were authorized in 2009. AIG’s proposed compensation for these employees 

largely adhered to these same 2009 guidelines and was approved 

with only minor modifications.146

b. Bank of America 

The Special Master’s determinations for Bank of America’s 25 

highest-paid employees 2009 compensation made individual compensation determinations for 13 employees and reduced total compensation by 62 percent from 2008 levels. Bank of America initially 

proposed cash compensation of either $700,000 or $950,000; stock 

salary of between $1,966,667 and $19,050,000; incentive payments 

ranging from $1,333,334 to $10,000,000; and additional ‘‘other’’ 

compensation in the form, for example, of perquisites, retirement 

income, and severance plans. The Special Master, in general, reduced these amounts and adjusted the awards to match his standmstockstill on DSKH9S0YB1PROD with HEARINGS

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147See Section C.1.b, supra; October 2009 Feinberg Determination Letter to Bank of America, 

supra note 134. 148October 2009 Feinberg Determination Letter to Bank of America, supra note 134, at E1. 149See October 2009 Feinberg Determination Letter to Bank of America, supra note 134. 150Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to J. 

Steele Alphin, chief administrative officer, Bank of America Corporation, Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’) (Dec. 11, 2009) (online at www.treasury.gov/initiatives/financialstability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091210%20Bank%20of%20America%20Determination.pdf) (hereinafter ‘‘December 2009 

Feinberg Determination Letter to Bank of America’’). For information on Bank of America’s compensation practices after leaving the Special Master’s jurisdiction, see Section D.4, infra. 151October 2009 Feinberg Determination Letter to Chrysler, supra note 128. 152The amount of incentive payments was later increased in response to a request by Chrysler. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Nancy A. Rae, executive vice president—human resources, Chrysler Group, LLC, Supplemental 

Determination Regarding 2009 Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees (Mar. 12, 2010) (online at www.treasury.gov/ 

initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

Chrysler%20Supplemental%20Determination%20(3–12–10).pdf). 153October 2009 Feinberg Determination Letter to Chrysler, supra note 128. 154October 2009 Feinberg Determination Letter to Chrysler, supra note 128, at A5. This was 

subsequently altered with the Special Master’s approval to provide $600,000 in company stock 

redeemable on the third anniversary of the stock grant or the date of full repayment of Chrysler’s TARP obligations, whichever was later. Letter from Kenneth R. Feinberg, special master 

for TARP executive compensation, to Nancy A. Rae, executive vice president—human resources, 

Continued 

ard structure for timing, allocation, and amount.147 Compared to 

what the employees would have received in 2009 absent the Special 

Master, cash salaries increased for nine employees, remained unchanged for two, and decreased for two.148 Total compensation ap- proved ranged, with one exception, from $3,318,750 to $9,900,000. 

The lone exception to these structures was Bank of America’s CEO 

Kenneth Lewis, who was retiring and who all parties agreed would 

take $0 in compensation.149

Bank of America repaid its TARP obligations on December 9, 

2009, removing itself from the Special Master’s jurisdiction. 

Though Bank of America agreed to be bound by the top 25 employee restrictions through the end of 2009, it was not subject to 

any further Special Master determinations, including the 2009 determinations for the 26th–100th highest-paid employees.150

c. Chrysler 

For its 25 highest-paid employees in 2009, Chrysler proposed cash salaries of between $276,672 and $603,000, salary stock ranging from $56,000 to $122,000, incentive payments of $56,001 to 

$122,002, and additional ‘‘other’’ compensation. The Special Master 

made individual compensation determinations for 25 employees 

and automatically approved compensation packages that totaled 

less than $500,000. The Special Master capped cash compensation 

at that level for all other top 25 employees. Compared to what the 

employees would have received in 2009 absent the Special Master, 

cash salaries increased for 21 employees, remained unchanged for 

one, and decreased for three.151 The Special Master approved the 

amounts of salary stock and incentive payments proposed,152 but 

adjusted the awards to match the standard structure for the timing 

and allocation of the compensation.153 Total compensation ranged, with one exception, from $334,018 to $2,150,000. The exception to 

these structures was the CEO, who was paid through Fiat, and 

who all parties agreed would take $0 in compensation from Chrysler.154

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Chrysler Group, LLC, Supplemental Determination Regarding 2009 Compensation Payments for 

the Chief Executive Officer (‘‘CEO’’) (Dec. 23, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/20091223%20 

Chrysler%20 Supplemental%20Determination%20Letter.pdf). 155 Chrysler’s CEO, who received $0 compensation from Chrysler because he was being paid 

by Fiat, is excluded from this range. Letter from Kenneth R. Feinberg, special master for TARP 

executive compensation, to Nancy A. Rae, executive vice president—human resources, Chrysler 

Group LLC, Proposed Compensation Structures for Certain Executive Officers and Most Highly 

Compensated Employees (‘‘Covered Employees 1–25’’) (Mar. 23, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/20100323%20Chrysler%202010%20Top%2025%20Determination%20(3–23– 

10).pdf) (hereinafter ‘‘March 2010 Feinberg Determination Letter to Chrysler’’). 156Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Nancy A. Rae, executive vice president—human resources, Chrysler Group LLC, Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees 

(‘‘Covered Employees 26–100’’) (Dec. 11, 2009) (online at www.treasury.gov/initiatives/ financialstability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091210%20Chrysler%20Determination.pdf); Letter from Kenneth R. Feinberg, special master 

for TARP executive compensation, to Nancy A. Rae, executive vice president—human resources, 

Chrysler Group LLC, Proposed Compensation Structures for Certain Executive Officers and Most 

Highly Compensated Employees (‘‘Covered Employees 26–100’’) (Apr. 16, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/about/Recipient_ Guidance/executive-compensation/Documents/20100416%20Chrysler%2026-100%20Letter.pdf). 157 Congressional Oversight Panel, January Oversight Report: An Update on TARP Support 

for the Domestic Automotive Industry, at 15–16 (Jan. 13, 2011) (online at cop.senate.gov/ 

documents/cop-011311-report.pdf). 158Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Tracy Hackman, vice president, general counsel and secretary, Chrysler Financial, Proposed 

Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees (Oct. 22, 2009) (online at www.treasury.gov/initiatives/financial-stability/ 

In 2010, Chrysler’s proposals for the top 25 highest-paid employees were largely consistent with the Special Master’s determinations for 2009. Chrysler proposed cash salaries frozen at 2009 levels: stock salary of up to $180,000; incentive payments of up to 

$340,000; and additional ‘‘other’’ compensation. The Special Master 

made individual compensation determinations for 24 employees. 

The Special Master reduced ‘‘other’’ compensation to no more than 

$25,000 but approved all other proposed compensation. Total compensation ranged from $280,008 to $1,020,000.155

In both 2009 and 2010, Chrysler proposed compensation packages for its 26th–100th highest-paid employees that were all below 

$500,000 in total compensation. As a result, the Special Master 

automatically approved them.156

d. Chrysler Financial 

The Special Master’s determinations for Chrysler Financial are 

unique because the company seemed to be winding down its operations until it was bought by Toronto Dominion Bank and repaid 

its exceptional assistance.157 As a result, the Special Master concluded that the traditional business metrics used to determine compensation were inappropriate. 

For its top 25 employees’ 2009 compensation, Chrysler Financial 

requested cash salaries ranging from $175,872 to $1,500,000 and 

additional ‘‘other’’ compensation. It did not request any stock salary 

or incentive payments. The Special Master made individual compensation determinations for 22 employees and approved the cash 

salaries, noting that long-term incentives are not appropriate for a 

company that is winding down. Compared to what the employees 

would have received in 2009 absent the Special Master, cash salaries increased for all 22 covered employees. Consistent with the 

other determinations, though, the Special Master limited ‘‘other’’ 

compensation to $25,000.158

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about/Recipient_Guidance/executive-compensation/Documents/ 

20091022%20Chrysler%20Financial%202009%20Top%2025%20Determination.pdf) (hereinafter 

‘‘October 2009 Feinberg Determination Letter to Chrysler Financial’’). 159Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Tracy Hackman, vice president, general counsel and secretary, Chrysler Financial, Proposed 

Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 1–25’’) (Mar. 23, 2010) (online at www.treasury.gov/initiatives/financialstability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100323%20Chrysler%20Financial%202010%20Top%2025%20Determination%20(3-23-10).pdf). 160Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Tracy Hackman, vice president, general counsel and secretary, Chrysler Financial, Proposed 

Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’) (Dec. 11, 2009) (online at www.treasury.gov/initiatives/ 

financial-stability/about/Recipient_Guidance/executivecompensation/Documents/ 

20091210%20Chrysler%20Financial%20Determination%20Letter.pdf); Letter from Kenneth R. 

Feinberg, special master for TARP executive compensation, to Tracy Hackman, vice president, 

general counsel and secretary, Chrysler Financial, Proposed Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’) 

(Apr. 16, 2010) (online at www.treasury.gov/initiatives/financial-stability/ about/Recipient_ Guidance/executive-compensation/Documents/20100416%20Chrysler%20Financial%2026- 

100%20Letter.pdf). 161Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Michael S. Helfer, general counsel & corporate secretary, Citigroup Inc., Proposed Compensation 

Structures for Certain Executive Officers and Most Highly Compensated Employees (Oct. 22, 

2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/ 

Continued 

In 2010, Chrysler Financial’s proposals for its 25 highest-paid 

employees were largely consistent with the Special Master’s 2009 

determinations. Chrysler Financial proposed increasing cash salaries 20 percent over 2009 and some additional ‘‘other’’ compensation. The Special Master allowed an increase in cash salaries of 10 

percent and accepted Chrysler Financial’s justifications for ‘‘other’’ 

compensation. The Special Master made individual compensation 

determinations for 25 employees. Total compensation ranged from 

$237,600 to $1,650,000.159

In both 2009 and 2010, Chrysler Financial proposed compensation packages for its 26th–100th highest-paid employees that were 

all below $500,000 in total compensation. As a result, the Special 

Master automatically approved them.160

e. Citigroup 

In 2009, the Special Master’s determinations for Citigroup’s 25 

highest-paid employees’ compensation made individual compensation determinations for 21 employees and reduced total compensation by 70 percent from 2008 levels. Citigroup had initially proposed cash salaries of up to $800,000; stock salary of between 

$2,311,667 and $5,525,000; incentive payments ranging from 

$1,393,333 to $3,000,000; and additional ‘‘other’’ compensation. In 

addition, Citigroup proposed that some stock salary be immediately 

transferable. According to the Special Master, Citigroup’s proposal 

represented a reduction in total compensation, and in almost all 

cases, the Special Master accepted the proposed amounts. The Special Master did, however, reject Citigroup’s proposed immediate 

stock salary transferability and adjusted the awards to match the 

timing used in other determinations. Compared to what the employees would have received in 2009 absent the Special Master, 

cash salaries increased for 18 employees, remained unchanged for 

three, and decreased for none. Citigroup proposed and was authorized to award its CEO $1 in 2009 base salary. Other than the CEO, 

total compensation as approved ranged from $712,500 to 

$9,000,000.161

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36 

executive-compensation/Documents/ 

20091022%20Citigroup%202009%20Top%2025%20Determination.pdf) (hereinafter ‘‘October 2009 

Feinberg Determination Letter to Citigroup’’). 162December 2009 Feinberg Determination Letter to Citigroup, supra note 125. 163Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Michael S. Helfer, general counsel & corporate secretary, Citigroup Inc., Compensation Structures 

for Executive Officers and Certain Most Highly Compensated Employees (Dec. 23, 2009) (online 

at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executivecompensation/Documents/ 

20091223%20Citigroup%20Supplemental%20Determination%20Letter.pdf). Unlike Bank of 

America, which also repaid its exceptional assistance funds, the later timing of Citigroup’s repayment meant that Citigroup was bound by the Special Master’s determinations for the 26th– 

100th highest-paid employees as well as the top 25 highest-paid employees. For information on 

Citigroup’s compensation practices after leaving the Special Master’s jurisdiction, see Section 

D.4, infra. 164GM later requested and was authorized to replace these payments with salary stock for 

some employees in consideration for their unique skills. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Gregory E. Lau, executive director—global 

compensation, General Motors Company, Supplemental Determination Regarding 2009 Compensation Structures for Senior Executive Officers and Most Highly Compensated Employees 

(Dec. 23, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/ 

Recipient_Guidance/executive-compensation/Documents/ 

20091223%20GM%20Supplemental%20Determination%20Letter%20 

(Technical%20Corrections).pdf) (hereinafter ‘‘Supplemental Determination Regarding 2009 Compensation Structures for GM Officers’’). 165October 2009 Feinberg Determination Letter to GM, supra note 121. 166The Special Master subsequently approved a GM request to allow some employees to re- ceive ‘‘other’’ compensation in personal security awards and up to $350,000 in expatriate payments. Supplemental Determination Regarding 2009 Compensation Structures for GM Officers, 

supra note 164. 167October 2009 Feinberg Determination Letter to GM, supra note 121. Subsequently, GM 

sought to hire a new chief financial officer and requested approval of compensation totaling 

$6,200,000. The Special Master approved this proposal. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Gregory E. Lau, executive director—global 

For its 26th-100th highest-paid employees in 2009, Citigroup proposed compensation with stock as the largest component, divided 

between salary stock and long-term restricted stock. Cash represented approximately 10 to 20 percent of total compensation. The 

Special Master altered these arrangements to match his standard 

structures for compensation and divided payments between cash 

compensation (limited to, at most, 45 percent of total compensation 

and capped at $500,000), salary stock, and incentive payments.162

On December 23, 2009, Citigroup repaid its obligations under the 

Targeted Investment Program (TIP), removing itself from the Special Master’s jurisdiction. Citigroup agreed to abide by the Special 

Master’s determinations for the remainder of 2009.163

f. General Motors 

i. 2009 

For GM’s 25 highest-paid employees in 2009, total direct compensation declined 20.4 percent from 2008 levels. GM proposed 

cash salaries of up to $1,800,000; stock salary of up to $2,235,000; 

incentive payments of up to $1,815,000; 164 and additional ‘‘other’’ 

compensation. The Special Master made individual compensation 

determinations for 20 employees and restructured the awards to 

match his standard timing, amounts, and allocation.165 In addition, 

the Special Master limited cash compensation to $500,000; approved GM’s proposed stock salary amounts; and limited ‘‘other’’ 

compensation amounts to $25,000.166 Compared to what the employees would have received in 2009 absent the Special Master, 

cash salaries increased for 15 employees, remained unchanged for 

one, and decreased for four. Total direct compensation ranged from 

$437,200 to $5,445,000.167

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compensation, General Motors Company, Proposed Compensation Payments and Structure for 

Christopher Liddell (Dec. 23, 2009) (online at www.treasury.gov/initiatives/financial-stability/ 

about/Recipient_Guidance/executive-compensation/Documents/ 

20091223%20GM%20Supplemental%20Determination%20Letter.pdf). 168December 2009 Feinberg Determination Letter to GM, supra note 120. 169Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Gregory E. Lau, executive director—global compensation, General Motors Company, Proposed 

Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 1–25’’) (Mar. 23, 2010) (online at www.treasury.gov/initiatives/financialstability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100323%20GM%202010%20Top%2025%20Determination%20(3-23-10).pdf) (hereinafter 

‘‘March 2010 Feinberg Determination Letter to GM’’). Subsequently, GM requested and the Special Master approved an increase in compensation amounts of approximately 13 percent for two 

top 25 employees because of increased responsibilities. The identity of these employees was not 

disclosed, so the Panel cannot determine if the range of total compensation was affected. Letter 

from Kenneth R. Feinberg, special master for TARP executive compensation, to Gregory E. Lau, 

executive director—global compensation, General Motors Company, Supplemental Determination 

Regarding 2010 Compensation Payments and Structures for Senior Executive Officers and Most 

Highly Compensated Employees (June 23, 2010) (online at www.treasury.gov/initiatives/ 

financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

Supplemental%202010%20GM%20Determination%20(6-23-10).pdf). In addition, GM also later 

hired a new chief executive officer, whose $9,000,000 proposed compensation was approved. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Gregory E. 

Lau, executive director—global compensation, General Motors Company, Proposed Compensation 

Payments and Structure for Daniel F. Akerson (Sept. 10, 2010) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

Supplemental%202010%20 GM%20New%20CEO%20Determination%20(09-10-10).pdf). In a recent speech, GM’s chief executive officer stated that he would like the Special Master to relax 

the pay restrictions in order to retain top employees. Daniel Akerson, chief executive officer, 

General Motors, Future of General Motors (Dec. 10, 2010) (online at www.c-spanarchives.org/program/GeneralMot). It should also be noted that due to its initial public offering, GM must abide 

by the same regulatory reporting standards set by the SEC as all other publicly traded companies. 170Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Gregory E. Lau, executive director—global compensation, General Motors Company, Proposed 

Compensation Structures for Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’), at 1 (Apr. 16, 2010) (online at www.treasury.gov/initiatives/ 

financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100416%20GM%2026-100%20Determination.pdf). GM did subsequently request that, based on 

GM’s first quarter earnings report, the Special Master reconsider the timing of incentive payments. The Special Master denied the request. Letter from Kenneth R. Feinberg, special master 

for TARP executive compensation, to Mary T. Barra, vice president—human resources, General 

Continued 

For GM’s 26th–100th highest-paid employees in 2009, among 

those who were in its automotive business, GM proposed compensation based mainly on stock. For employees who managed GM’s pension fund, the proposed payments were mostly cash salary and 

short- and long-term bonuses. The Special Master largely approved 

GM’s proposed structures, modifying them as needed to match the 

standard timing, amount, and allocation structures.168

ii. 2010 

GM’s 2010 proposals for its 25 highest-paid employees were 

largely consistent with the structure of the Special Master’s 2009 

determinations. GM requested an increase in cash salaries; stock 

salaries of up to $5,300,000; incentive payments of up to 

$2,000,000; and additional ‘‘other’’ payments. The Special Master 

made individual compensation determinations for 24 employees 

and reduced the proposed cash salaries, but otherwise approved 

GM’s proposals. Total approved compensation ranged from 

$550,000 to $9,000,000.169

The Special Master largely reaffirmed for 2010 the compensation 

structures for the 26th–100th highest-paid employees that were authorized in 2009. GM’s proposed compensation for these employees 

largely adhered to these same 2009 guidelines and was approved 

with only minor modifications.170

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Motors Company, Reconsideration Request Regarding Proposed Compensation Structures for 

Certain Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26– 

100’’) (June 10, 2010) (online at www.treasury.gov/ initiatives/financial-stability/about/ 

Recipient_Guidance/executive-compensation/Documents/Response%20to%20GM 

%20Reconsideration%20Request%20(6-10-10).pdf). As noted above, the Special Master did not 

provide the ranges of approved salaries for the 26th–100th highest-paid employees because he 

set only compensation structures for these employees, not actual amounts. 171Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to Al 

de Molina, chief executive officer, GMAC Financial Services, Proposed Compensation Structures 

for Certain Executive Officers and Most Highly Compensated Employees (Oct. 22, 2009) (online 

at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executivecompensation/Documents/20091022%20GMAC%202009%20Top%2025%20Determination.pdf). 

Subsequently, GMAC/Ally Financial hired a new chief executive officer and proposed that he receive total compensation of $9,500,000. The Special Master approved the award. Letter from 

Kenneth R. Feinberg, special master for TARP executive compensation, to Drema M. Kalajian, 

GMAC Financial Services, Supplemental Determination Regarding 2009 Compensation Payments for the Chief Executive Officer (the ‘‘CEO’’) (Dec. 23, 2009) (online at www.treasury.gov/ 

initiatives/ 

financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20091223%20GMAC%20Supplemental%20Determination%20Letter.pdf). 172Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Drema M. Kalajian, GMAC Financial Services, Proposed Compensation Structures for Certain 

Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’) (Dec. 

11, 2009) (online at www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/ 

executive-compensation/Documents/20091211%20GMAC%202009%2026%20- 

%20100%20Determination.pdf). 

g. GMAC/Ally Financial 

i. 2009 

For its 25 highest-paid employees in 2009, GMAC/Ally Financial proposed cash salaries ranging from $380,000 to $1,000,000; stock 

salary of between $400,000 and $5,330,000; incentive payments 

ranging from $400,000 to $3,170,000; and additional ‘‘other’’ compensation. The Special Master made individual compensation determinations for 22 employees, reduced the amounts of the awards, 

and restructured them to match his standard allocation, amounts, 

and timing. Compared to what the employees would have received 

in 2009 absent the Special Master, cash salaries increased for 16 

employees, remained unchanged for three, and decreased for three. 

Total direct compensation was reduced by 86 percent from 2008 

levels, to between $1,200,000 and $8,450,000.171

GMAC/Ally Financial’s 2009 proposal for its 26th–100th highestpaid employees included cash salaries comprising between 20 and 

50 percent of total compensation. Additional short-term bonuses 

would be awarded at the discretion of GMAC/Ally Financial’s Compensation Committee based on individual unit performance. The 

Special Master determined that this proposal was inconsistent with 

the Public Interest Standard and required GMAC/Ally Financial to 

conform to the standard compensation structure.172

ii. 2010 

The proposals for GMAC/Ally Financial’s 25 highest-paid employees in 2010 were largely consistent with the structure of the Special Master’s 2009 determinations. GMAC/Ally Financial requested 

cash salaries of between $400,000 and $500,000, freezing returning 

top 25 employees’ cash salaries at 2009 levels. GMAC/Ally Financial also proposed stock salaries ranging from $900,000 to 

$4,937,500, incentive payments of up to one-third of total compensation, and additional ‘‘other’’ payments. The Special Master 

made individual compensation determinations for 24 employees 

and approved GMAC/Ally Financial’s cash salaries, but reduced 

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173 Notably, GMAC/Ally Financial’s CEO, Michael Carpenter, received no cash compensation. 

He received $8 million in stock salary alone. Letter from Kenneth R. Feinberg, special master 

for TARP executive compensation, to Drema M. Kalajian, GMAC Financial Services, Proposed 

Compensation Payments and Structures for Senior Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 1–25’’) (Mar. 23, 2010) (online at www.treasury.gov/ 

initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100323%20GMAC%202010%20Top%2025%20Determination%20(3–23–10).pdf). 174 Id. GMAC/Ally Financial subsequently requested the Special Master’s approval to enter 

into agreements with even longer redemption periods. The Special Master agreed after requiring 

certain minimum provisions. Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to James J. Duffy, Ally Financial Inc., Supplemental Determination Regarding 2010 Compensation Payments and Structures (Aug. 3, 2010) (online at www.treasury.gov/ 

initiatives/financial-stability/about/Recipient_Guidance/executive-compensation/Documents/ 

20100803%20Ally%20Supplemental%20Determination.pdf). 175Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to 

Drema M. Kalajian, GMAC Financial Services, Proposed Compensation Structures for Certain 

Executive Officers and Most Highly Compensated Employees (‘‘Covered Employees 26–100’’), at 

1 (Apr. 16, 2010) (online at www.treasury.gov/initiatives/financial-stability/about/ 

Recipient_Guidance/executive-compensation/Documents/20100416%20GMAC%2026- 

100%20Determination.pdf). 176 31 CFR § 30.16(a). 177Letter from Kenneth R. Feinberg, special master for TARP executive compensation, to P. 

Nicholas Kourides, deputy general counsel, American International Group, Inc., and Ralph R. 

Gonzalez, senior vice president and general counsel, American Life Insurance Company, 

MetLife’s Purchase of American Life Insurance Company (Mar. 5, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/about/Recipient_Guidance/executivecompensation/Documents/20100305%20Letter%20re%20ALICO%20transaction.pdf). 

stock salaries and incentive payments. Total compensation ranged 

from $1,252,278 to $8,000,000.173 GMAC/Ally Financial had also 

proposed that stock salary be redeemable in five equal annual installments beginning on the first anniversary of the grant, rather 

than the Special Master’s standard four-year redemption period for 

stock salary of the top 25 employees. The Special Master approved 

the change.174

The Special Master largely reaffirmed for 2010 the compensation 

structures for the 26th–100th highest-paid employees that were authorized in 2009. GMAC/Ally Financial’s proposed compensation for 

these employees largely adhered to these same 2009 guidelines and 

was approved with only minor modifications.175

3. Advisory Opinions 

In addition to setting compensation for exceptional assistance 

companies, the Special Master is responsible for interpreting the 

executive compensation provisions of ARRA and the IFR and determining how they apply to particular facts and circumstances. This 

includes the authority to initiate and issue an advisory opinion to 

any TARP recipient about its compliance with the compensation 

rules. If the Special Master issues an adverse advisory opinion, the 

Special Master had the authority to seek to negotiate with the 

TARP recipient for appropriate reimbursements.176

To date, the Special Master has issued only one advisory opinion. 

On March 3, 2010, AIG wrote the Special Master requesting an 

opinion on the implications of AIG’s sale of American Life Insurance Company (ALICO) to MetLife, Inc. AIG asserted that, upon its 

sale, ALICO would no longer be considered a TARP recipient, since 

it would no longer be majority-owned by a TARP recipient. In addition, AIG asserted that MetLife would not be a TARP recipient as 

a result of the transaction. The Special Master concurred with this 

assessment.177

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178 12 U.S.C. § 5221(f). 179 31 CFR § 30.16. 180Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 12–13. 181 U.S. Department of the Treasury, The Special Master for TARP Executive Compensation 

Concludes the Review of Prior Payments, at 1 (July 23, 2010) (online at www.treasury.gov/presscenter/press-releases/Pages/tg786.aspx) (hereinafter ‘‘Special Master Concludes Review of Prior 

Payments’’). 182The Special Master’s review examined a number of factors, including payment structure 

and allocation, aggregate amounts relative to peer firms and TARP funds received, payment 

timing, whether the company had repaid the TARP funds, and descriptions of incentive payments. Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 12. 183Special Master Concludes Review of Prior Payments, supra note 181, at 2. 184One hundred and twenty-six companies made at least some payments in these categories. 

However, $1.6 billion of the $1.7 billion was paid by just 17 institutions. Those 17 institutions 

were American Express Company, American International Group, Inc., Bank of America Corporation, Boston Private Financial Holdings, Inc., Capital One Financial Corporation, CIT 

Group Inc., Citigroup Inc., JPMorgan Chase & Co., M&T Bank Corporation, Morgan Stanley, 

Regions Financial Corporation, SunTrust Banks, Inc., The Bank of New York Mellon Corpora4. Look Back Review 

Section 111(f) of EESA as amended by ARRA required the Secretary of the Treasury to ‘‘review bonuses, retention awards, and 

other compensation’’ paid to the 25 highest-paid employees of any 

TARP recipient from the day the company first received TARP 

funding to the date of ARRA’s enactment, February 17, 2009. The 

Secretary was to determine whether any such compensation was 

not in the public interest, and if so, to seek to negotiate with the 

TARP recipient for its reimbursement to the federal government. 

The Secretary, however, was not authorized to require that the 

payments be returned.178 In the IFR, the Secretary delegated this 

‘‘Look Back Review’’ authority to the Special Master. The Special 

Master was required to follow the Public Interest Standard in making his determinations, but was given the discretion to determine 

the scope of the review, including factors such as the payment 

amount, the type of payment, the total compensation, or other factors.179

On March 23, 2010, the Special Master issued requests for information from all 419 TARP recipients covered by the Look Back Review. For each covered employee the Special Master sought the 

name, title, historical annual compensation information from 2007, 

2008, and 2009, any applicable employment termination date, and 

an accounting of all compensation paid to the employee during the 

relevant period.180 The Special Master, judging that any package 

of less than $500,000 in total annual compensation would not be 

against the public interest, exempted all employees with compensation below that threshold from the data request. Of the 419 reviewed companies, 240 did not have any employees with compensation in excess of $500,000.181

Once the remaining 179 companies had completed their data 

submissions, the Special Master examined the information on an 

employee-by-employee and company-by-company basis.182 The Special Master focused his review on employees who had received the 

type of payments that were later restricted by ARRA and the IFR, 

such as cash bonuses, retention awards, stock grants, golden parachutes, and tax gross-ups.183 He referred to these types of payments as ‘‘disfavored.’’ 

In total, the 179 companies reviewed paid $2.3 billion in compensation payments during the relevant period. Of that, $1.7 billion fell into the disfavored categories,184 but the Special Master 

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tion, The Goldman Sachs Group, Inc., The PNC Financial Services Group, Inc., U.S. Bancorp, 

and Wells Fargo & Company. Final Report from Special Master Kenneth R. Feinberg, supra 

note 55, at 13, 21 n.106. 185 As further discussed below, at a hearing before the Panel Mr. Feinberg nonetheless described the payments as ‘‘inappropriate,’’ and in his final report did not conclude that the payments were appropriate or advisable. Final Report from Special Master Kenneth R. Feinberg, 

supra note 55, at 13; Congressional Oversight Panel, Testimony of Kenneth R. Feinberg, former 

special master for TARP executive compensation, Transcript: COP Hearing on the TARP and 

Executive Compensation Restrictions (Oct. 21, 2010) (publication forthcoming) (online at 

cop.senate.gov/hearings/library/hearing-102110-compensation.cfm) (hereinafter ‘‘Feinberg Oral 

Testimony before the Panel’’). 186Special Master Concludes Review of Prior Payments, supra note 181, at 2–3. For further 

discussion of the look-back review, see Section D.2, infra. 187Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 13–14. 188The Goldman Sachs Group, Inc., Form 8–K for the Period Ended December 17, 2010: Exhibit 10.4, at 3–4 (Dec. 23, 2010) (online at www.sec.gov/Archives/edgar/data/886982/ 

000095012310116277/y88643exv10w4.htm). 189Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 15. 

did not determine that the payments were inconsistent with the 

public interest.185 He explained this decision by noting that they 

were legal at the time and that most of the disfavored payments 

were made by firms that have since repaid their TARP funds.186

As a result of this finding, the Special Master did not negotiate 

with the companies for possible reimbursement of the offending 

payments. However, the Special Master proposed a ‘‘brake’’ policy 

that any company could voluntarily adopt. Under the proposed policy, the compensation committee at the company would be given 

the authority to restructure, reduce, or cancel pending payments to 

executives if the board of directors identified extraordinarily adverse circumstances that posed a threat to the company’s financial 

viability.187 To date, of the 17 firms responsible for the majority of 

the disfavored payments in the look-back review, only Goldman 

Sachs has publicly announced that it has adopted such a ‘‘brake’’ 

policy.188

5. Final Report 

Before stepping down, Mr. Feinberg issued a final report in 

which he summarized his actions as Special Master and provided 

his recommendations as to how the operations of the Office of the 

Special Master should proceed going forward. In particular, he observed that ‘‘a more permanent Treasury official should be appointed to lead the Office [of the Special Master].’’ With respect to 

how this more permanent official should lead the Office, he made 

two recommendations: (1) the person should retain the core set of 

standards that have been applied so far such as limited cash salaries, a performance component for most compensation, a focus on 

long-term value creation, and a halt to excessive perquisites and 

other giveaways; and (2) the person should continue the constructive dialogue with the leadership, advisors, and directors of the affected firms.189

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190See Section B.2.b.ii, supra. 191The language in the IFR rule is vague. For example, the IFR uses the term ‘‘appropriate’’ 

23 times, a term that invites subjective interpretation. See generally 31 CFR § 30. See also Murphy October 2010 Written Testimony, supra note 14, at 13 (‘‘In my opinion, the ‘public interest 

standard’ is not an objective function, but a[n] ill-defined concept that allows too much discretion and destroys accountability for those exercising the discretion.’’). 192 As discussed in more detail in Section D.3, infra, the Special Master did not disclose information sufficient to evaluate the extent to which he tailored his decisions. 193Feinberg October 2010 Written Testimony, supra note 60, at 3 (‘‘Under the regulations, I 

had discretion to determine the appropriate weight or relevance of a particular principle depending on the facts and circumstances surrounding the compensation structure or payment for a 

particular executive, which I often exercised when two or more principles were in conflict in a 

particular situation.’’). 194See Murphy October 2010 Written Testimony, supra note 14, at 15 (‘‘While the IFR require 

compensation committees to ‘identify and limit the features’ in pay plans that could lead executives to take excessive risks, the law stops short of defining ‘excessive risk’ or providing guidance 

on how one might distinguish excessive risk from the normal risks inherent in all successful 

business ventures.’’). 195The Panel raised a parallel concern in its January 2010 report on Treasury’s exit strategy. 

In that report, the Panel noted its concerns that the three principles Treasury adopted to guide 

its exit strategy were overly broad such that ‘‘there is effectively no metric to determine whether 

Treasury’s actions met its stated goals.’’ Congressional Oversight Panel, January Oversight Report: Exiting TARP and Unwinding Its Impact on the Financial Markets, at 5 (Jan. 13, 2010) 

(online at cop.senate.gov/documents/cop-011410-report.pdf). 

D. Evaluation of Treasury’s Implementation of the 

Executive Compensation Restrictions 

1. The Interim Final Rule and the Special Master’s Implementation of the Rule 

a. Terms of the Interim Final Rule 

As described above, the IFR laid out six principles for the Special 

Master to use in reaching compensation determinations: (1) minimize excessive risk; (2) maximize the capacity to repay TARP obligations; (3) appropriately allocate compensation; (4) use performance-based compensation; (5) make payments that are consistent 

with compensation for similar employees at similar entities; and (6) 

base compensation on an employee’s contributions.190

Although these principles touch upon many of the issues covered 

under EESA as amended, such as the relationship between performance-based compensation and excessive risk, the IFR includes 

few specifics on how the rule should be implemented. As one commentator notes, this leaves a significant amount of discretion in the 

hands of the Special Master.191 On the one hand, this discretion allowed the Special Master to tailor his determinations to the particular factual situations at specific institutions.192 According to 

Mr. Feinberg, it also provided him with room to develop his own 

principles for implementing ARRA and the IFR.193

On the other hand, giving the Special Master such discretion obscured the decision-making process in individual determinations. 

As one commentator implied in testimony to the Panel, the breadth 

of the principles makes it difficult for the public to assess whether 

the Special Master has acted in accordance with the mandate.194

In effect, Treasury’s compensation principles are so amorphous that 

they could support a very wide range of disparate decisions.195 In 

one case, the Special Master could have been acting to minimize 

excessive risk taking. In another, the Special Master might have 

aimed to provide a competitive salary. The IFR does not shine a 

light on how these principles should be weighed against each other. 

Second, making the six principles operational is complicated, as 

there may be tensions between them in individual cases. For exammstockstill on DSKH9S0YB1PROD with HEARINGS

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196Feinberg October 2010 Written Testimony, supra note 60, at 3 (‘‘When making compensation determinations, these principles demanded that I strike a balance between prohibiting excessive compensation and permitting the appropriate competitive compensation to attract talented executives capable of maximizing shareholder value.’’). See also House Committee on Financial Services, Written Testimony of Kenneth R. Feinberg, special master for TARP Executive 

Compensation, Compensation in the Financial Industry—Government Perspectives, at 2 (Feb. 25, 

2010) (online at www.house.gov/apps/list/hearing/financialsvcs_dem/ 

20100224_feinberg_hfsc_testimony_(final).pdf) (hereinafter ‘‘Feinberg Testimony on Government 

Perspectives’’) (‘‘The tension between reining in excessive compensation and allowing necessary 

compensation is, of course, a very real difficulty that I have faced and continue to face in making individual compensation determinations.’’). 197See Feinberg Testimony on Government Perspectives, supra note 196, at 4. 198Feinberg Testimony on Government Perspectives, supra note 196, at 2 (‘‘Because achieving 

this balance is a fundamental component of the Public Interest Standard, it has played a determinative role in each of the rulings issued by the Office of the Special Master.’’). In his final 

report, Mr. Feinberg stated that, in general, he does not believe that his determinations have 

led to recruiting and retention problems at the firms under his jurisdiction. Final Report from 

Special Master Kenneth R. Feinberg, supra note 55, at 15. 199Treasury conversations with the Panel (Jan. 18, 2011). For further discussion on how the 

Special Master resolved conflicts between the six principles, see Section D.3, infra. 

ple, the Special Master was charged with the competing objectives 

of reining in excessive risk-taking to protect the public good, while 

simultaneously permitting compensation sufficient to attract and 

retain executives who could maximize the public’s investment in 

the exceptional assistance institutions.196 Zealously restricting 

compensation in the name of prudent risk management could have 

the unintended impact of inhibiting the firm’s growth potential and 

decreasing long-term shareholder value. At the same time, if the 

determinations were not restrictive enough, they could permit compensation that would contribute to excessive risk taking, which is 

precisely the problem the rules were designed to prevent. Likewise, 

for employees who perform outside the average, it requires particular care to ensure that payments are both performance-based 

and comparable to others at comparable firms. 

The IFR provides essentially no guidance on how the Special 

Master should attempt to navigate these types of tensions.197 Mr. 

Feinberg has stated in congressional testimony that striking a balance between ‘‘reining in excessive compensation’’ and maximizing 

the public’s return on its investment played a determinative role in 

each of his rulings.198 Yet he has offered relatively little insight to 

the public into how he reconciled these principles when they conflicted. In conversations with the Panel, the Office of the Special 

Master has noted that they had an obligation to give equal weight 

to all six principles primarily with a view to maximizing return for 

the taxpayers and preserving financial stability, as required by 

EESA.199

b. Did the Special Master Successfully Implement the 

Interim Final Rule? 

Because the IFR endowed the Special Master with a tremendous 

amount of discretion in approving pay packages and structures, he 

was able to create metrics and processes for the implementation of 

the rule that were instrumental in the determinations he made. 

One of those decisions merits particular attention: he emphasized 

stock compensation relative to cash compensation. 

The Special Master interpreted his mandate under the Public Interest Standard to be consistent with allocating a greater portion 

of compensation in stock rather than cash, so as to align the interests of the employee with the long-term interests of the institumstockstill on DSKH9S0YB1PROD with HEARINGS

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200See, e.g., October 2009 Feinberg Determination Letter to AIG, supra note 120, at 2 (‘‘Rather than cash, the majority of each individual’s base salary will be paid in the form of stock units 

. . . .’’). 201 Johnson Associates (a boutique compensation consulting firm), for instance, included such 

a recommendation in their 2002 recommendations on compensation. Johnson Associates, Inc., 

Executive and Professional Compensation: Issues and Potential Directions, at 2 (June 25, 2002) 

(online at www.johnsonassociates.com/2002%20Exec%20Comp%201.pdf) (hereinafter ‘‘Johnson 

Associates: Executive Compensation’’) (‘‘Significant [stock] ownership continues to be the single 

best remedy for a host of executive compensation issues.’’). 202See 31 CFR § 30.16(b)(1). 203Murphy October 2010 Written Testimony, supra note 14, at 21. 204 Council of Institutional Investors, Wall Street Pay: Size, Structure, and Significance for 

Shareholders, at 2 (Nov. 2010) (online at www.cii.org/UserFiles/file/CII%20White%20Paper%20- 

%20Wall%20Street%20Pay%20FINAL%20Nov%202010.pdf) (hereinafter ‘‘Wall Street Pay’’); 

Congressional Oversight Panel, Written Testimony of Rose Marie Orens, senior partner, Compensation Advisory Partners, COP Hearing on the TARP and Executive Compensation Restrictions, at 2 (Oct. 21, 2010) (online at cop.senate.gov/documents/testimony-102110-orens.pdf) (hereinafter ‘‘Orens October 2010 Written Testimony’’) (‘‘As a result of the limitations in the Interim 

Rules, only a modest amount (at most one-third) of each employee’s compensation was actually 

based on performance—the portion that was provided in restricted stock. Existing pay programs 

would have had a far larger amount conditioned on performance.’’). Professor Murphy questioned whether the use of salarized stock was consistent with the ‘‘intentions’’ of Congress. Murphy October 2010 Written Testimony, supra note 14, at 2. 205See Johnson Associates: Executive Compensation, supra note 201, at 2 (‘‘Longer vesting periods (i.e., 5+ years) would help link stockholder and executive interests across volatile markets 

and business cycles. Modest vesting periods make little sense given the size of today’s awards 

and volatile markets.’’). 206 Bebchuk & Spamann: Regulating Bankers’ Pay, supra note 30, at 247 (‘‘Equity-based 

awards, coupled with the capital structure of banks, tie executives’’ compensation to a highly 

levered bet on the value of banks’ assets.’’). 207Treasury conversations with the Panel (Jan. 18, 2011). The Special Master said that for 

AIG, the only reason he used a ‘‘basket’’ of stock representing four subsidiaries was because the 

company requested this arrangement since it was generally believed that AIG’s common stock 

was worthless, while there was value in the stock of the subsidiaries. 

tion.200 Some consultants have suggested that larger stock allocation rewards employees for creating long-term value, as opposed to 

short-term gains.201

There may be some circumstances, however, in which allocating 

a greater portion of compensation in the form of stock, even when 

it is not redeemable for years, is not consistent with the principles 

set forth in the IFR, including minimizing ‘‘unnecessary or excessive risks.’’ 202 While the Special Master’s use of ‘‘salarized stock’’ 

has been commended as a ‘‘brilliant idea’’ by some,203 others questioned it for ‘‘sharply boost[ing] fixed compensation at many 

banks.’’ 204 The Special Master has noted, however, that he was required by the IFR to allocate two-thirds of total compensation as 

‘‘fixed salary,’’ and he deemed it preferable to allocate much of that 

fixed compensation as stock compensation rather than cash. Nonetheless, unless employees are prohibited from receiving their stock 

for a significant period of time, they may be able to cash in before 

the impact of their activities is fully realized. A full redemption period of four years, the length selected by the Special Master for 

stock salary for the top 25 employees, may not provide a delay sufficient to determine whether an employee’s contributions have resulted in long-term value.205 Others have critiqued equity awards 

at banks more generally for incentivizing risky practices.206 In response to Panel questions, the Office of the Special Master stated 

that it did not consider anything other than common stock as the 

optimal form of stock to use for stock salary because that was what 

most companies did.207

In addition, when companies are in the midst of financial duress, 

as several of the exceptional assistance firms were during much of 

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208See Orens October 2010 Written Testimony, supra note 204, at 2 (‘‘While delivering compensation in stock reinforces a long term focus, it does not guarantee the existence of a payfor-performance program or a culture that properly evaluates individual risk-taking.’’); Bebchuk 

& Spamann: Regulating Bankers’ Pay, supra note 30, at 247 (‘‘Equity-based awards, coupled 

with the capital structure of banks, tie executives’’ compensation to a highly levered bet on the 

value of banks’ assets.’’); Tuck: Pay for Banker Performance, supra note 28 (‘‘[E]quity compensation tends to induce greater risk taking by aligning managers’’ risk preferences with those of 

equity holders.’’). See also Congressional Oversight Panel, Written Testimony of Ted White, strategic advisor, Knight Vinke Asset Management, and co-chair of the executive remuneration committee, International Corporate Governance Network, COP Hearing on the TARP and Executive 

Compensation Restrictions, at 4–5 (Oct. 21, 2010) (online at cop.senate.gov/documents/testimony102110-white.pdf) (‘‘[M]any companies use equity with associated vesting periods as a form of 

long-term alignment, and articulate that it satisfies investors’ desire for performance. While I 

believe investors generally support the use of equity, and recognize certainly the retention aspects of this tool, there is less agreement on pure incentive characteristics.’’). 209See Murphy October 2010 Written Testimony, supra note 14, at 16 (‘‘When executives receive rewards for upside risk, but are not penalized for downside risk, they will naturally take 

greater risks than if they faced symmetric consequences in both directions.’’). 210 12 U.S.C. § 5221(f). 211See Section C.4, supra. See also 12 U.S.C. § 5221(f). 212See 12 U.S.C. § 5221(f)(2); Special Master Concludes Review of Prior Payments, supra note 

181, at 1 (‘‘Statutory authority to review payments, but no authority to require reimbursement.’’); Feinberg Oral Testimony before the Panel, supra note 185 (‘‘I also recognized I had no 

authority to force that money back.’’). 213Feinberg Oral Testimony before the Panel, supra note 185. 214See Section C.2, supra. 

centive to engage in risky behavior.208 Low stock prices can fall 

only to zero, but there is no upper limit on the amount they can 

increase. In other words, there is tremendous upside potential but 

little downside risk.209 Furthermore, CEOs who have received a 

substantial portion of their compensation in stock may be reluctant 

to lead their institutions into bankruptcy, as a declaration of bankruptcy would wipe out the value of any stock they hold. Senior executives with substantial stock holdings therefore may exhibit a 

disinclination to consider filing for bankruptcy, even when doing so 

might be in the company’s best interest. 

2. Look Back Review 

As discussed above, ARRA and the IFR obligated the Special 

Master to conduct a Look Back Review to determine if any payments made to TARP recipients from the day the company first received TARP funding to February 17, 2009—the date ARRA was 

passed—were ‘‘inconsistent with the purposes’’ of ARRA or ‘‘otherwise contrary to the public interest.’’ 210 If he found any payments 

that met this standard, then he was required to ‘‘seek to negotiate’’ 

with the offending TARP recipient for ‘‘appropriate reimbursements.’’ 211 Although the compensation rules required the Special 

Master to conduct this review and required him to negotiate with 

any TARP recipients that he found to have violated the standard, 

they gave him no power to demand repayment.212 In the words of 

Mr. Feinberg, ‘‘[a]ll I could do under the statute was seek, beseech, 

request, urge.’’ 213

As noted above, at the conclusion of his review, the Special Mas- ter found that TARP recipients had made $1.7 billion in 

‘‘disfavored’’ payments, but he concluded that these payments did 

not violate the Public Interest Standard.214 In the Final Report of 

Special Master Feinberg, the Special Master notes that not finding 

the payments to be contrary to the Public Interest Standard ‘‘does 

not express a conclusion that these payments were appropriate or 

advisable, particularly in light of the circumstances facing the financial system generally, and some institutions specifically, in late 

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215Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 13–14. 216Feinberg Oral Testimony before the Panel, supra note 185. 217Feinberg Oral Testimony before the Panel, supra note 185 (‘‘Mr. Feinberg: It was inappropriate because they were taking taxpayer money and feathering their own nest. ... Damon Silvers, COP Panelist: [I]t can’t be true that feathering your own nest, when you’re a—when you’re 

holding the public’s money, is in the public’s interest. That can’t be true. It seems to me, what 

you just said is the key thing, that you felt that it was not in the public’s interest to have an 

accurate finding here, because it would trigger a process of recapture that you felt was not in 

the public interest to trigger. . . . Mr. Feinberg: You say it well. You say it well. But . . . I 

also recognized I had no authority to force that money back.’’). 218Treasury conversations with the Panel (Jan. 27, 2011). While Citigroup remained one of 

the reviewed institutions with TARP funds outstanding, at that point the government stake had 

been converted into common equity, complicating the process of seeking clawbacks. The Office 

of the Special Master noted continually in its discussions with the Panel that all internal discussions about clawbacks were hypothetical, as the Special Master never deemed them to be necessary. 219 12 U.S.C. § 5221(f)(2) (‘‘[T]he Secretary shall seek to negotiate with the TARP recipient and 

the subject employee for appropriate reimbursements to the Federal Government with respect 

to compensation or bonuses.’’). 220For instance, taxpayers may recognize that the payments could have violated ARRA if they 

had been made five months later. 

2008 and early 2009.’’ 215 At the Panel’s hearing with Mr. Feinberg, 

however, he conceded that the payments were ‘‘inappropriate’’ because they amounted to TARP recipients ‘‘taking taxpayer money 

and feathering their own nest.’’ He also acknowledged that determining whether the payments contradicted the Public Interest 

Standard was a ‘‘very close question,’’ but that he thought that it 

was ‘‘overkill’’ to hold recipients accountable when they ‘‘hadn’t violated any regulation at the time’’ they made the payments.216

He also implied that concluding that the payments were contrary 

to the public interest could trigger a futile negotiation process that 

would require the government to seek reimbursement from Wall 

Street banks that had no obligation to comply with government demands. According to the Special Master, a futile negotiation process could itself be contrary to the public interest.217 The Office of 

the Special Master also emphasized that at the time of the review, 

11 of the 17 reviewed TARP institutions had repaid the government, specifically the larger institutions, so according to the Office 

of the Special Master, there was very little to actually claw back 

at that point. In addition, according to the Office of the Special 

Master, seeking a clawback from companies that were shortly to 

pay back the taxpayers could have had the potential to disrupt 

those repayments by diverting funds designated for TARP repayments. In the view of the Office of the Special Master, disrupting 

those repayments would not have served the public interest.218

The Special Master’s description of the payments as ‘‘inappropriate’’—or his refusal to describe them as appropriate or advisable, although not contrary to the public interest—raises at least 

two concerns. First, this decision may have been at odds with Congress’ determination that he should make every effort to seek to 

claw back the payments, even if he lacked the authority to compel 

reimbursement.219 Second, the fine distinctions drawn by Mr. 

Feinberg and the Office of the Special Master between the public 

interest and the appropriateness of the payment may appear excessively legalistic, and the public may view the payments as contrary 

to the public interest, even though the Special Master concluded 

that they were not. Fundamentally, the distinction between the 

public interest and ‘‘inappropriate’’—or not necessarily appropriate—is difficult to describe.220 Nor is the explanation that funds 

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221See Special Master for Executive Compensation, supra note 119. 222 31 CFR § 30.16(d)(2). 223Treasury conversations with Panel staff (Dec. 22, 2010). 224Proposed Compensation Payments and Structure for Robert H. Benmosche, supra note 137. 225For a description of the six principles see Section B.1.c, supra. 226See Section B.2.b, supra. 

might have been diverted from TARP repayments entirely satisfactory if the concern is that executives were unjustly enriched—and 

feathering their own nests—with taxpayer funds. Thus, the Special 

Master’s finding may leave the impression that the government 

condoned the payments despite their being inappropriate, a finding 

that could set an undesirable precedent. 

3. Transparency: The Office of the Special Master and the 

Office of Internal Review 

a. The Office of the Special Master 

The Special Master has disclosed virtually all the official documents produced by his office to date. This includes all 23 general 

compensation determinations, 18 supplemental determinations, one 

advisory opinion, five fact sheets on compensation decisions, and a 

final report summarizing the Office’s activities. In addition, the Office of the Special Master’s website has all of the laws and rules 

governing the Special Master’s activities, relevant statements and 

congressional testimony by the Special Master, and documents 

used in the Look Back Review.221 Moreover, all materials submitted to the Office of the Special Master are subject to disclosure 

under the Freedom of Information Act.222 This repository is important to the public’s understanding of the Special Master’s actions, 

and it is to the Special Master’s credit that these documents are 

in the public record. 

This extensive disclosure has not, however, publicly presented a 

transparent process capable of replication. In conversations with 

Panel staff, the Office of the Special Master said that there was no 

formula for its determinations, but that they were part art and 

part science.223 As a result, aspects of Special Master’s process are 

essentially black boxes. For example, in one determination, the 

Special Master simply stated that ‘‘I have reviewed the Letter 

Agreement in light of the [Public Interest Standard] . . . I hereby 

determine that the compensation structure set forth in the Letter 

Agreement . . . will not result in payments that are inconsistent 

with the purposes of section 111 of EESA or TARP, or are otherwise contrary to the public interest.’’ 224 Despite the many posted 

documents and because of the Special Master’s wide discretion in 

interpreting the Public Interest Standard, it is difficult to get insight into fundamental questions about the Special Master’s efforts. 

How, exactly, did the Special Master pick compensation amounts 

and structures? Did his determinations cause employees to leave? 

And did he permit companies to pay their employees too much? 

The Special Master is required by the IFR to make determinations in accordance with the six principles of the Public Interest 

Standard.225 As discussed above, though, the principles are potentially in conflict with one another.226 For example, it may not always be possible to both reduce excessive pay and offer compensation comparable to compensation at peer firms. Aware of this pomstockstill on DSKH9S0YB1PROD with HEARINGS

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227 31 CFR § 30.16(b). In testimony before the Panel, Mr. Feinberg noted, ‘‘Under the regulations, I had discretion to determine the appropriate weight or relevance of a particular principle 

depending on the facts and circumstances surrounding the compensation structure or payment 

for a particular executive, which I often exercised when two or more principles were in conflict 

in a particular situation.’’ Feinberg October 2010 Written Testimony, supra note 60, at 1. 228Treasury conversations with the Panel (Jan. 18, 2011). 229See, e.g., December 2009 Feinberg Determination Letter to Bank of America, supra note 

150. 230Treasury conversations with Panel staff (Feb. 3, 2011). Thus, for example, the requirement 

that the top 25 receive no more than 1/3 of their pay in incentive payments addressed the considerations of excessive risk as well as allocation under the principles. Similarly, employee contribution was viewed in tandem with taxpayer return. 231See, e.g., March 2010 Feinberg Determination Letter to Chrysler, supra note 155, at 1–2; 

October 2009 Feinberg Determination Letter to Citigroup, supra note 161, at 2. For a more complete listing of these general rules, see Section C.2, supra. 232Feinberg Testimony on Government Perspectives, supra note 196, at 6 (‘‘Not only has my 

office promulgated generally applicable compensation principles and prescriptions, but we have 

shown that these principles can work in practice by calculating individual compensation packages for officials in these companies. I believe this is the most ‘unique’ aspect of my work and 

will hopefully have the most permanent impact.’’). 233See, e.g., October 2009 Feinberg Determination Letter to Chrysler, supra note 128, at A7– 

A8 (‘‘The Rule requires that the Special Master consider whether an appropriate portion of an 

employee’s compensation is allocated to long-term incentives. Stock salary that can be liquidated 

too soon would not be performance-based over the relevant period to provide such a long-term 

tential, the IFR also gave the Special Master discretion to determine the appropriate weight to give a particular principle depending on the circumstances.227 The Office of the Special Master stated that the principles were generally of equal importance. The Office of the Special Master also emphasized, however, that all determinations proceeded on a case-by-case basis.228 In many determinations, the Special Master would list some of the principles that 

were of particular importance in that particular instance. Often the 

principles cited were: (1) performance-based compensation; (2) taxpayer return; and (3) appropriate allocation.229 The Office of the 

Special Master has explained to Panel staff that in its view, for the 

top 25 employees, the other principles were largely addressed by 

the compensation structures mandated by EESA as amended and 

the IFR. According to the Office of the Special Master, the remaining principles helped guide the Special Master in the use of his discretion and so were particularly important.230

Additionally, the Special Master crafted a number of specific 

rules to translate these principles into the individual determinations he was required to make. These included provisions that total 

compensation for the top 25 highest-paid employees would be targeted at the 50th percentile of comparable employees at peer firms, 

that for the top 25 employees stock salary would be redeemable in 

equal annual installments from the second anniversary of the 

grant, with each installment redeemable a year earlier if the company repays all of its TARP obligations, and that cash salaries 

would generally be limited to $500,000.231

These rules were the core of the Special Master’s work, and they 

were specifically formulated by the Special Master. They form the 

basis of virtually all of the Special Master’s determinations, and 

the Special Master used them to judge almost all of the companies’ 

proposals. Mr. Feinberg himself stated that the area of his work 

that will ‘‘hopefully have the most permanent impact’’ was the creation and application of these general rules.232 That said, the Office of the Special Master provides no explanation or background 

to the public for how he crafted these specific rules to satisfy the 

Public Interest Standard principles.233

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incentive. Instead, such stock salary could incentivize employees to pursue short-term results 

instead of long-term value creation by paying excessive benefits to employees for short-term increases in share price. Under the Company’s proposal, 50% of stock salary would be redeemable 

by the employee after two years and the remaining 50% of stock salary would be redeemable 

after three years, which the Special Master has concluded is insufficient holding period to provide an appropriate long-term incentive and could result in payments that would be inconsistent 

with the Public Interest Standard.’’) (citations omitted). 234See 31 CFR § 30.16; Feinberg Oral Testimony before the Panel, supra note 185. 235Feinberg October 2010 Written Testimony, supra note 60, at 3 (‘‘When making compensation determinations, these principles demanded that I strike a balance between prohibiting excessive compensation and permitting the appropriate competitive compensation to attract talented executives capable of maximizing shareholder value.’’). 236See, e.g., October 2009 Feinberg Determination Letter to Citigroup, supra note 161, at 2, 

A7. 237Treasury conversations with Panel staff (Jan. 7, 2011). 238October 2009 Feinberg Determination Letter to Bank of America, supra note 134, at A9. 239December 2009 Feinberg Determination Letter to GM, supra note 120, at 3. 

The Special Master had the discretion to craft these rules,234 and 

stated that he did so only after carefully balancing the competing 

principles and pressures.235 But it is insufficient for the Office of 

the Special Master to conduct that balancing and then simply 

present the results. The Office of the Special Master should publicly explain the steps they took to go from principle to rule if they 

wish the determinations to become a widely used model. 

The 50th percentile rule provides a specific example of the questions that remain. The rule states that for the top 25 employees, 

the Special Master will target compensation at the 50th percentile 

of comparable employees at comparable firms and that it is designed to accord with the Public Interest Standard principles that 

compensation be comparable and be competitive enough to ensure 

the company maximizes return to the taxpayer.236 Though the 50th 

percentile is an intuitively appealing middle ground, the Special 

Master presents no evidence that it is the appropriate level of pay 

for a firm to remain competitive. When asked about the logic behind choosing the 50th percentile, the Office of the Special Master 

stated that the 50th percentile seemed appropriate on the basis of 

the staff’s experience with setting executive compensation.237 It is 

possible that the target is ideal, controlling salaries while still attracting talent. It is also conceivable, though, that the best employees, those who will make the firm the most competitive, will be 

paid at a higher than median level and so would not be attracted 

to a salary at the 50th percentile. Without more information, it is 

impossible to determine which of these possibilities is accurate. 

Moreover, the Panel cannot tell if the Special Master acted arbitrarily in choosing the 50th percentile. 

Similarly, for stock salary, the Special Master appealed to the 

Public Interest Standard principle that compensation be performance-based over the relevant performance period. The Special Master decided that for the top 25 employees, stock salary would be redeemable only in three equal annual installments from the second 

anniversary of the grant, with each installment redeemable a year 

earlier if the company repaid all of its TARP obligations.238 But for 

the 26th–100th highest-paid employees, stock salary was redeemable after at least a single year.239 The Office of the Special Master 

stated in conversations with Panel staff that three years was an 

appropriate time period for long-term compensation, but the reasoning remains opaque and, in the public record, unsupported by 

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240See Section B.1.b, supra. 241The ‘‘one size fits all’’ nature of the rules is particularly worth questioning given the history of different pay practices at banks and other firms. For further discussion of these differences, see Section B.1.a, supra. 242For example, housing in New York is approximately two and a half times more expensive 

than in Detroit. Standard and Poor’s, S&P/Case-Shiller Home Prices Indices: Home Price Index 

Levels (Oct. 2010) (online at www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff- -p-us- - - -). Similarly, the Consumer Price Index was 17 percent higher in New York than in Detroit. Bureau of Labor Statistics, Consumer Price Index Detailed Report: Data for October 2010, at 44 (Nov. 17, 2010) (online at www.bls.gov/ro5/ 

cpidet.htm). In total, the cost of living for Detroit is just 1 percent above the national average, 

while New York’s cost of living is 116 percent above the national average. PayScale, Cost of Living in New York, New York by Expense Category (online at www.payscale.com/cost-of-living-calculator/New-York-New-York) (accessed Feb. 8, 2011); PayScale, Cost of Living in Detroit, Michigan by Expense Category (online at www.payscale.com/cost-of-living-calculator/Michigan-Detroit) 

(accessed Feb. 8, 2011). 243 As further described below, the Special Master relied on a variety of comparators and jobs 

within those comparators in order to inform the determinations, and according to the Office of 

the Special Master, the variety in the comparators contributed to the differences in awards. 244 31 CFR § 30.16(b)(v). 

data, particularly given the wide range of opinions on what is an 

appropriate time period.240

Moreover, the Special Master did not alter his set of core rules 

for specific types of firms. For example, should a four-year redemption schedule for the stock salary of the top 25 employees apply 

equally to employees of an automotive company and employees of 

a large bank? 241 Similarly, a presumption that cash salaries should not exceed $500,000 might have different ramifications for 

hiring and retention at an institution based in New York compared 

to one based in Michigan: $500,000 goes a great deal farther in Detroit than it does in New York, and therefore presents a more attractive compensation package in Detroit.242 In addition, it is not 

clear that these rules should be immutable; allowing them to be 

flexible over time may allow them to be more closely tailored to 

specific circumstances at specific institutions. 

Equally important to the Special Master’s derivation of these 

rules, however, is the application of the rules to the individual facts 

and circumstances of each exceptional assistance company. In this 

respect as well, the Special Master has not provided critical information to the public, and the Panel cannot determine precisely why 

the particular dollar amounts were awarded and why those awards 

varied so significantly between companies.243 The rules, though 

much more concrete than the principles of the Public Interest 

Standard, still require the Special Master to make active choices in 

how to apply them. These choices were often critical to the outcomes he reached, but were never publicly explained. Even if the 

Special Master had been unwilling to provide detailed explanations 

for each individual, a few illustrative examples would have greatly 

improved the public’s understanding. Instead, at points, the Special 

Master’s determination letters did not note that he had made a 

choice at all. 

For example, applying the 50th percentile rule requires the Special Master to determine which firms were comparable. In fact, the 

IFR specifically mentions that the Special Master could consider 

employees at a wide variety of types of firms, including firms that 

are ‘‘financially distressed or that are contemplating or undergoing 

reorganization.’’ 244 The Special Master’s determinations demonstrate that he sought input from a variety of sources, as each of 

the determinations lists a variety of sources consulted. The sources 

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245See, e.g., March 2010 Feinberg Determination Letter to GM, supra note 169. 246Treasury conversations with Panel staff (Jan. 7, 2011). See also Feinberg Oral Testimony 

before the Panel, supra note 185. 247Treasury conversations with the Panel (Jan. 18, 2011). 248Feinberg Oral Testimony before the Panel, supra note 185; Treasury conversations with 

the Panel (Jan. 18, 2011). See also October 2009 Feinberg Determination Letter to AIG, supra 

note 120, at A9; Steven Brill, What’s a Bailed-Out Banker Really Worth?, New York Times (Jan. 

3, 2010) (online at www.nytimes.com/2010/01/03/magazine/03Compensation-t.html). 

range from professors like Lucian Bebchuk to competitive market 

data provided by the institution, to compensation databases, such 

as Equilar’s Executive Insight database.245

While these lists provide some insight into the Special Master’s 

decision-making process, the Special Master does not disclose information that is critical to evaluating the mechanisms used to select 

comparators. For example, the Office of the Special Master has 

generally said to the Panel that they looked at distressed firms, 

specifically other TARP recipients,246 but did not consider market 

data on pay for turnaround specialists generally.247 However, it is 

unclear how many distressed firms were considered or what impact 

they had on the Special Master’s calculations. Similarly, there is no 

information in the determination letters on whether the Special 

Master dealt with situations in which few comparators were available or in which the Special Master supervised two firms that 

might be considered similarly situated, such as GM and Chrysler. 

The Office of the Special Master has explained to Panel staff that 

they used a wide variety of comparators and job descriptions within 

those comparators to come to their determinations. Where the Special Master dealt with companies with few clear peers under the 

circumstances—such as Chrysler or GM—the Special Master used 

other auto companies and multinationals. For an outsider, however, given the subjectivity of the process the Office of the Special 

Master employed, it would be difficult if not impossible to replicate 

the process and to assess whether the Office of the Special Master 

chose appropriate comparators. 

For stock salary, the Special Master had to determine which 

stocks the employees would receive. In general, the Special Master 

provided common stock in the company, but provided no public explanation of why common stock is the optimal form of stock to give. 

The Office of the Special Master informed the Panel, however, that 

the decision to use common stock was based on the use of common 

stock by companies as the predominant form of equity compensation. For AIG, the Special Master mandated that stock be given in 

units representing a ‘‘basket’’ of four AIG subsidiaries. Mr. 

Feinberg explained in testimony to the Panel that AIG requested 

this arrangement because of its unique situation and that the ‘‘basket’’ was a compromise between the Special Master, the Federal 

Reserve, Treasury officials, and AIG.248 This answer is not, however, apparent from the determination letter. The Office of the Special Master and the public could have benefited from more detailed 

and prompter explanations on this point. 

In one instance, the Special Master did explicitly and publicly 

provide at least some reasoning. Chrysler Financial was in the 

process of winding down its business, making long-term incentives 

inappropriate. As a result, the Special Master decided to award primstockstill on DSKH9S0YB1PROD with HEARINGS

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249See, e.g., October 2009 Feinberg Determination Letter to Chrysler Financial, supra note 

158, at A6. 250Feinberg Oral Testimony before the Panel, supra note 185 (‘‘[E]very company has a culture 

and a [sic] environment that is different. I’m not sure you can answer that very legitimate question by saying that GM and automobile companies should have the same prescriptions as AIG 

or Bank of America. I think they’re very different.’’). 251See, e.g., October 2009 Feinberg Determination Letter to Bank of America, supra note 134. 252See, e.g., March 2010 Feinberg Determination Letter to AIG, supra note 145, at A4–A5. 253See Annex I, infra. 254 House Committee on Financial Services, Written Testimony of Vikram Pandit, chief executive officer, Citigroup, TARP Accountability: Use of Federal Assistance by the First TARP Recipients (Feb. 11, 2009) (online at frwebgate.access.gpo.gov/cgi-bin/ 

getdoc.cgi?dbname=111_house_hearings&docid=f:48675.pdf) (‘‘My goal is to return Citi to profitability as soon as possible, and I have told my board of directors that my salary should be $1 

per year with no bonus until we return to profitability.’’). 

marily cash compensation to Chrysler Financial employees.249 This 

accommodation and several others, as well as the Special Master’s 

statements,250 demonstrate that the Special Master was considering the circumstances at each company. This consideration, however, only emphasizes that the same rules were used across many 

companies despite the fact that it is uncertain whether the same 

incentive structures will be optimal for companies as different as 

Bank of America and General Motors. The Special Master did not 

explain these choices. 

It should be noted, however, that the Special Master’s determination letters do provide important information, not least of which is 

compensation structures, types, and amounts for each individual 

top 25 employee. A considerable portion of that compensation is 

usually provided in the form of incentive payments for performance. The performance goals are typically set by the company subject to the Special Master’s approval.251 The Special Master, however, has not released these goals to the public (to the extent permitted by applicable laws). Such information is vital both to understand how executives’ incentives are actually aligned and to allow 

the public to ensure that the goals are being rigorously enforced. 

Similarly, the public’s understanding depends on the Special 

Master’s determination letters, which generally frame his decisions 

in terms of whether a company’s proposed compensation package 

is consistent with the public interest. In each determination letter, 

the Special Master provides a brief summary of the company’s proposals, but does not provide detailed information.252 To the Panel, 

the Office of the Special Master provided the employee-by-employee 

percentage change in cash and total direct compensation between 

the initial company proposal and the final determination.253 However, benchmarking the Special Master’s determinations to initial 

company proposals is potentially problematic, as the exceptional assistance companies would have had an incentive to propose high 

salaries as the first step in a negotiation. Moreover, some of the 

changes from the initial company proposals could have been driven 

by factors external to the Special Master, as may have been the 

case with Citigroup’s CEO’s decision in 2009 to accept only $1 in 

salary.254 Instead of just the summaries in the determination letters, the Office of the Special Master should, consistent with applicable laws, disclose information on the compensation negotiations, 

as it would allow the public much greater insight into the Special 

Master’s actual impact. 

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255 Exceptional assistance recipients were required to comply with the IFR during this period, 

and the Special Master was permitted to take payments made during this period into consideration when he issued determinations. See 31 CFR § 30(a)(3)(iii) (‘‘For the period from June 15, 

2009 through the date of the Special Master’s final determination, the TARP recipient will be 

treated as complying with this section if, with respect to employees covered by paragraph 

(a)(3)(i) of this section, the TARP recipient continues to pay compensation to such employees 

in accordance with the terms of employment as of June 14, 2009 to the extent otherwise permissible under this Interim Final Rule (for example, continued salary payments but not any bonus 

payments) and if, with respect to employees covered by paragraph (a)(3)(ii) of this section, the 

TARP recipient continues to pay compensation to such employees under the compensation structure established as of June 14, 2009, and if in addition the TARP recipient promptly complies 

with any modifications that may be required by the Special Master’s final determination. However, the Special Master may take into account the amounts paid to an employee during such 

period in determining the appropriate compensation amounts and compensation structures, as 

applicable, for the remainder of the year.’’). 256Treasury conversations with the Panel (Jan. 21, 2011). 257For example, in the 2009 determinations, the Special Master included only aggregate comparison between 2008 and 2009 compensation. See, e.g., October 2009 Feinberg Determination 

Letter to AIG, supra note 120, at E1 (noting that 2009 compensation decreased by 57.8 percent 

compared to 2008 and by 55.7 percent compared to 2007). The Special Master did not include 

comparisons at an individual employee level, and this information has not yet been posted on 

Treasury’s website. In response to a Panel request, the Office of the Special Master provided 

information on individual percentage changes in compensation between 2007 and 2009 and between 2008 and 2009. This information is included as Annex I, infra. 258Feinberg October 2010 Written Testimony, supra note 60, at 3–4. See also House Committee on Oversight and Government Reform, Written Testimony of Kenneth R. Feinberg, special master for TARP executive compensation, Executive Compensation: How Much Is Too 

Much?, at 7 (Oct. 28, 2009) (online at oversight.house.gov/images/stories/Hearings/pdfs/ 

20091028Feinberg.pdf) (hereinafter ‘‘Feinberg October 2009 Written Testimony’’) (‘‘Hopefully, 

the individual final compensation determinations I make may yet be used, in whole or in part, 

by other companies in modifying their individual compensation practices. I believe the final compensation determinations I make and discuss in my Report are a useful model to guide others 

in the private marketplace.’’). 

Further, Treasury has released no information to the public on 

whether exceptional assistance recipients complied with the IFR 

between its issuance in June 2009 and the release of the Special 

Master’s first determinations in October.255 In conversations with 

the Panel, Treasury stated that the exceptional assistance companies submitted certifications of their compliance for this period.256

Without knowing more about the compensation practices of exceptional assistance recipients during this period, though, it is difficult 

to develop an accurate assessment of the impact of the restrictions. 

The Office of the Special Master has made less information public than it could, subject to applicable laws. By contrast, the Office 

of the Special Master has been responsive to the Panel and has 

provided considerable new information that helps explain its decision-making process.257 This information could have been included 

in the Special Master’s public determination letters or on Treasury’s website and, going forward, it should be. The Special Master’s 

reticence in explaining his actions to the public has significantly affected the public’s ability to evaluate the Special Master’s actions. 

Moreover, the Special Master’s general lack of detail in the determination letters and other publications also limits the future impact of his model, as it is difficult for an outside observer to mimic 

the Special Master’s work. The Special Master aspired to make his 

work a model for others.258 Without more transparency, though, it 

is unlikely that it will be. 

b. Office of Internal Review 

Although the Office of the Special Master has received considerable attention, it is only responsible for executive compensation at 

exceptional assistance companies. The executive compensation provisions of ARRA applied in total and at the peak to 760 other 

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259Treasury conversations with Panel staff (Feb. 7, 2011). As of the date of this report, the 

Office of Internal Review oversees the compensation practices of four exceptional assistance recipients and 660 other TARP recipients. Treasury Transactions Report, supra note 5. See note 

5, supra, for more information about the monitoring performed by OIR. 260Geithner Response to Questions on Executive Compensation, supra note 5. 261Treasury conversations with the Panel (Jan. 21, 2011). 262Treasury conversations with the Panel (Jan. 21, 2011). 

TARP recipients 259 whose practices are overseen by Treasury’s Office of Internal Review (OIR), including several large institutions 

like Morgan Stanley, JPMorgan Chase, Wells Fargo, and Goldman 

Sachs.260

Despite OIR’s significantly more far-reaching jurisdiction, OIR 

has not published a single document to the public record. To date, 

they have not publicly disclosed any information about their activities, and their record is completely opaque. To the Panel, OIR has 

indicated that, for non-exceptional assistance companies, its activities are focused on reviewing the companies’ annual certifications 

for completeness and generally bringing companies into compliance. If, as has happened a few times, a certification is not complete, OIR informed the Panel that its primary duty is to bring the 

company into compliance rather than make a public record of its 

actions. If OIR had difficulties bringing a company into compliance, 

the next step would be to consult Treasury’s legal department before taking further action, but OIR has not yet required such assistance from the legal department. OIR is currently working with 

two or three companies that it states are making good progress toward full compliance.261

OIR also stated to the Panel that, for exceptional assistance companies, it performs on-site reviews of payroll documentation and internal audit documentation to ensure that the companies have actually paid their employees in accordance with the Special Master’s 

determinations. To date, OIR has concurred with the companies’ 

assessments of their own compliance. OIR has informed the Panel 

that in the future, it plans to expand the scope of its reviews to 

examine other aspects of the Special Master’s determinations, such 

as ensuring that the anti-hedging provisions are being followed.262

The Panel is troubled that a body with such significant scope has 

disclosed so little information to the public. Though OIR’s responses to the Panel’s questions are helpful, the public would benefit from more widespread disclosure of OIR’s activities. Nor does 

OIR’s stated primary objective of bringing companies into compliance provide an adequate explanation for its practice of not releasing information publicly. The omission is particularly startling 

given OIR’s determinations that the vast majority of the companies 

under its jurisdiction have been compliant, information that would 

be of significant value to the public. OIR should publish specific information on its activities to date and should continue to do so 

going forward. 

Furthermore, it is notable that some of OIR’s reviews are still 

quite limited almost two years after the passage of ARRA and more 

than a year after the Special Master’s first determinations, raising 

questions as to whether its enforcement of compliance with a variety of provisions under the IFR has been effective. OIR should 

promptly expand its oversight activities to incorporate reviews of 

all relevant provisions. 

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263 Re: Data Request, supra note 134, at 1. The 175 employees are all of those covered by the 

Special Master, and not only those for which he made individual compensation determinations. 

There were seven exceptional assistance firms on October 22, 2009, but only five were covered 

in the 2010 determinations due to the exit from the TARP of Bank of America and Citigroup. 264Some experts have speculated that turnover may increase at TARP recipients as the economy improves and a greater percentage of executives at TARP recipients are able to find alternative employment. Orens October 2010 Written Testimony, supra note 204, at 3. 265 According to a SIGTARP audit, as of June 29, 2010, the Office of Internal Review had not 

reviewed institutions’ compliance with the executive compensation restrictions. The audit states 

that the Office of Internal Review delayed this review until 2010 because the Special Master 

was working with exceptional assistance institutions in the latter half of 2009. The report also 

states that the office planned to review executive compensation compliance in 2010, but it has 

not yet released results of that review. In addition, the Office elected to terminate its reviews 

of Bank of America and Citigroup since those institutions repaid their ‘‘exceptional assistance.’’ 

See Treasury’s Monitoring of Compliance for Companies Receiving Exceptional Assistance, supra 

note 8, at 7–8. It is impossible, of course, to evaluate the work of the Office of Internal Review 

when it has not completed its review or released any of the information about the results of 

that review. Nonetheless, the Panel shares SIGTARP’s concern that prior reviews have relied 

heavily on disclosures by institutions, rather than independent fact-finding by the Office of Internal Review. Id. at 13–14 (‘‘Treasury should promptly take steps to verify TARP participants’ 

conformance to their obligations, not only by ensuring that they have adequate compliance procedures but also by independently testing participants’ compliance.’’). It would be troubling if 

the office’s review of executive compensation were to rely similarly on disclosure by financial 

institutions rather than independent data-gathering and monitoring. 266 Cf. Bebchuk’s Fix Bankers’ Pay, supra note 21 (‘‘Monitoring and encouraging such compensation structures should be an important instrument in the toolkit of financial regulators.’’). 

c. Additional Data Necessary to Evaluate the Government’s Work on Executive Compensation 

Given that data are critical tools for evaluation, the Office of the 

Special Master and the Office of Internal Review should release 

key data that would enable the public to evaluate the impact of 

their work. For example, the Special Master was tasked with balancing talent retention with reasonable pay, yet when he released 

his 2009 determinations, he included no information on turnover at 

the firms he supervised. Without this information, it is essentially 

impossible to evaluate whether his pay determinations were too 

stringent or too lenient, because their effect on talent retention is 

not clear. The Office of the Special Master released some turnover 

data in response to a request from the Panel. The letter states that 

40 of the 175 total top 25 employees left exceptional assistance 

firms between January 1 and October 22, 2009, and another 17 left 

between the 2009 determination and the 2010 submissions.263 The 

Office of the Special Master still has not released information on 

the number of employees who left exceptional assistance firms after 

March 23, 2010, when the Special Master released the 2010 determinations.264 In addition, the Office of Internal Review has released essentially no information on the impact of its work. Despite 

the Office’s supervision of more than 700 TARP recipients, there is 

no record of the impact of executive compensation regulations on 

those firms.265 The absence of these data will make it very difficult 

for government agencies or other observers involved in monitoring 

compensation, such as pension funds like the California Public Employees’ Retirement System (CALPERS) and other entities such as 

the Investment Company Institute, to implement best practices for 

monitoring and enforcement derived from the work of the Special 

Master and the Office of Internal Review.266

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267 In a study by the Council of Institutional Investors, all of the domestic banks examined, 

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells 

Fargo, strengthened or expanded existing clawback policies, such as by moving from a fraudbased policy to a performance-based policy and requiring clawbacks if executives operate outside 

the firm’s risk parameters. Bank of America, Goldman Sachs, JPMorgan Chase, and Wells 

Fargo also increased incentive equity vesting and deferral or retention periods. At the time of 

the survey, only Morgan Stanley and Wells Fargo had introduced long-term performance incentives. Wall Street Pay, supra note 204, at 2. 268Feinberg October 2009 Written Testimony, supra note 258, at 5 (‘‘I succeeded in almost 

all cases in getting the companies to agree to restructure guaranteed contracts and other forms 

of guaranteed compensation into prospective, performance-based compensation packages.’’). Although stock salary could obviously fluctuate based on the value of the company’s shares and 

could theoretically fall to zero, it also has some characteristics of guaranteed compensation. It 

vests immediately and is therefore not subject to forfeiture. 269Treasury conversations with Panel staff (Feb. 3, 2011). 270Treasury conversations with Panel staff (Feb. 3, 2011). Compared to what the exceptional 

assistance companies were already scheduled to pay in base cash in 2009, the Special Master 

often increased cash compensation. In other words, he raised the cash salary that most employees were being paid in 2009. Among the institutions subject to the Special Master’s determinations, excluding AIG, 12 employees’ cash base salary decreased, 10 employees’ cash base salary 

4. Impact 

a. Evaluation of the Special Master’s Work 

The Special Master had an impact at the firms under his jurisdiction and potentially at institutions closely linked to those firms, 

but he did not have a broad enough mandate directly to alter compensation practices across the board. A measure of his potential effect on firms outside his narrow jurisdiction is the use of his recommendations as a model. Some companies have altered their pay 

practices in the wake of the financial crisis and ARRA’s compensation provisions. At some firms, compensation levels declined, and 

institutions adopted a range of practices designed to address and 

control executive compensation: stronger clawback provisions, 

longer deferral periods, a greater use of stock compensation, and 

the use of variable pay as a means of mitigating risk tasking.267

The Special Master also presided over a restructuring of compensation that generally provided employees with a lower percentage of 

guaranteed pay: his emphasis on stock compensation and performance-based compensation made pay more dependent on the performance of the individual and the institution.268

In evaluating the Special Master’s work, it is important to note 

the historical structure of compensation on Wall Street. Typically, 

large financial institutions provided employees with a low cash 

base salary relative to their total compensation, with the bulk of 

their pay bundled in a year-end bonus comprised of both cash and 

stock-based compensation. According to the Office of the Special 

Master, this year-end bonus was often considered guaranteed compensation, regardless of actual employee performance.269 The Special Master’s work on compensation therefore took place in the context of compensation structured towards a proportionately significantly large cash incentive payment. In most instances, for the exceptional assistance recipients, the Special Master reduced total 

compensation, primarily through the elimination of bonuses, which, 

as noted above, the Office of the Special Master viewed as being 

functionally guaranteed rather than performance-based. But, according to the Office of the Special Master, in order to assist with 

employee retention and thus company viability, in many cases the 

Special Master increased cash base salary relative to the prior year 

cash base salary.270 However, total cash compensation generally 

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remained the same, and 101 employees’ cash base salary increased from 2008 to the Special 

Master’s determination. 271For certain employees at AIG’s Financial Products unit, total cash compensation in 2009 

included certain ‘‘grandfathered’’ payments, potentially causing total 2009 cash compensation for 

those employees to be larger than their 2008 cash compensation. Treasury conversations with 

Panel staff (Feb. 3, 2011). 272 Awards granted under Goldman Sachs’ Long-Term Performance Incentive Plan may include equity, cash, and other securities of Goldman Sachs and may be conditioned wholly or in 

part on meeting one or more performance measures relating to the firm. Awards may also include clawback provisions. The Goldman Sachs Group, Inc., Form 8–K for the Period Ended Dec. 

17, 2010 (Dec. 23, 2010) (online at sec.gov/Archives/edgar/data/886982/000095012310116277/ 

y88643e8vk.htm). 273 Equilar, Inc., Equilar Study: Value of CEO Perks Drops 28.3 Percent in 2009 (June 30, 

2010) (online at www.equilar.com/company/press-release/press-release-2010/equilar-study-valueof-ceo-perks-drops-28-percent-in-2009.html). 274Feinberg October 2010 Written Testimony, supra note 60, at 3. This statistic is relevant, 

but it is worth noting that many employees left exceptional assistance recipients between January 1, 2009 and March 23, 2010, the date of the Special Master’s 2010 determinations. The time 

period between the 2009 determinations and the 2010 determinations was only five months. In 

addition, low turnover may have reflected other factors, such as poor employment opportunities 

in a constrained market. 275See Section B.2.c, supra. Federal Reserve staff communications with Panel staff (Jan. 27, 

2011). The Federal Reserve staff noted, however, that TARP executive compensation restrictions 

related to a particular circumstance—the government as an equity holder in an institution— 

while the Federal Reserve focused on the threat to a supervised institution’s safety and soundness posed by poorly balanced incentive compensation arrangements. Further, the TARP executive compensation restrictions applied only to certain individuals, while the Federal Reserve 

guidance focused on all individuals who could expose the institution to material amounts of risk. 

Federal Reserve staff communications with Panel staff (Jan. 27, 2011). 

decreased, as the compensation structure no longer included a 

large cash bonus.271 The limits on cash bonuses were designed to 

increase the relevant executives’ interest in longer-term performance, as the firm would have to thrive through more than three 

years that some of the stock compensation would take to become 

liquid in order for the executive to realize their full compensation— 

although, as noted above, stock compensation might also create a 

significant incentive for risk. 

As an example of potential after-effects of the Special Master’s 

determinations, Goldman Sachs recently adopted a long-term performance incentive plan with the intention of aligning compensation with long-term performance ‘‘in a manner that does not encourage imprudent risk taking.’’ 272 Equilar, an executive compensation research firm, found that 34 percent of Fortune 100 companies eliminated some perquisites for CEOs in 2009 and 2010 and 

that total ‘‘other’’ compensation decreased 28.3 percent from 2008 

to 2009.273 According to Mr. Feinberg, his determinations did not 

result in an exodus of employees, as 84 percent of the top 25 employees covered in his 2009 compensations stayed at the institutions through his 2010 determinations.274 Also, other government 

agencies like the Federal Reserve have considered the Special Master’s work in developing their own guidance on executive compensation.275

Firms have begun to take the link between risk-taking and compensation more seriously. According to executive compensation consultant Rose Marie Orens in testimony before the Panel, 

‘‘[c]ompanies have responded to TARP, SEC, Treasury guidance 

and current Federal Reserve/regulatory reviews by developing processes that integrate risk management with human resources and 

finance in incentive compensation design and retrospective reviews.’’ Institutions have introduced measures that give them more 

control over the balance between risk and pay, such as clawback 

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276Orens October 2010 Written Testimony, supra note 204, at 1. 277Wall Street Pay, supra note 204, at 2. 278Murphy October 2010 Written Testimony, supra note 14, at 21–22. 279Wall Street Pay, supra note 204, at 2. 280Orens October 2010 Written Testimony, supra note 204, at 3. See also Sharon Terlep and 

Josh Mitchell, GM Seeks More Leeway on Pay, Wall Street Journal (Dec. 11, 2010) (online at 

online.wsj.com/article/SB10001424052748704457604576011314012028354.html) (‘‘Mr. Akerson 

said the auto maker has been able to attract quality executives despite the pay limits, ‘but we’re 

starting to lose them now . . . . We sold half the government position in the company. There 

ought to be a new perspective . . . . We have to be competitive. We have to be able to attract 

good people.’ ’’). 281 Congressional Oversight Panel, Testimony of Fred Tung, Howard Zhang Faculty Research 

Scholar and Professor of Law, Boston University School of Law, Transcript: COP Hearing on 

the TARP and Executive Compensation Restrictions (Oct. 21, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-102110-compensation.cfm) (‘‘I think that the salary-stock approach was a useful way to generate a longer-term perspective than what came before.’’). 282Wall Street Pay, supra note 204, at 19. 283See discussion in Section D.1.b, supra. 284Wall Street Pay, supra note 204, at 16. 

provisions. Ms. Orens views this development as a ‘‘relatively new, 

but essential, component of the pay design process.’’ 276

Despite these achievements, the overall decline in pay has been 

‘‘modest,’’ according to the Council of Institutional Investors.277

Professor Murphy stated in testimony before the Panel that he was 

‘‘not aware that the Special Master’s determinations have been 

adopted by any companies that were not subject to his oversight.’’ 278 According to a study by the Council of Institutional Investors, ‘‘[m]ore vigorous federal oversight of Wall Street does not 

appear to have changed compensation on the Street for the better.’’ 

The study also found that some institutions enacted ‘‘excessive’’ increases in levels of fixed pay, which executives receive regardless 

of whether their leadership generates large profits or huge losses. 

None of the banks in the study ‘‘addressed adequately the importance of tying compensation to long-term value growth.’’ The study 

also concluded that the government’s involvement may have been 

even worse than ineffectual: it may have actually had a negative 

effect, as the ‘‘new rules resulted in a less performance-related 

compensation structure.’’ 279 According to some commentators, recruitment and retention problems are a concern as well. Ms. Orens 

noted that for TARP firms, ‘‘the possibility of recruiting new talent 

at the highest levels in the firm was viewed as virtually impossible’’ due to the ‘‘the relatively inflexible pay programs.’’ 280 Even 

at the exceptional assistance recipients, however, it is difficult to 

determine whether the Special Master’s determinations were likely 

to have an effect on risk taking, performance-based compensation, 

employee contribution, and other elements of executive compensation. For example, while the Special Master’s use of salarized stock 

to separate vesting and transferability was innovative in some respects,281 it also had the effect of ‘‘sharply’’ increasing fixed compensation at certain institutions,282 and could have the effect of encouraging executives to take excessive risks in hopes of capturing 

the upside gains in the then low-priced stock.283

Regardless of the effect of the Special Master’s determinations on 

individual TARP recipients, it is clear that his determinations have 

not had a broad impact on executive compensation in the United 

States. The Council of Institutional Investors concluded that ‘‘very 

little of any real import has changed; on balance, pay practices 

have worsened.’’ 284 There are other indications that the Special 

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285Wall Street Pay, supra note 204, at 19 (‘‘These incentive packages, which afforded big gains 

in pay for small increases in short-term performance, also appear to have encouraged excessively risky behavior in two other sectors where they were common: residential construction and 

financial services more broadly.’’). 286Thomas M. Hoenig, president, Federal Reserve Bank of Kansas City, Too Big To Succeed, 

New York Times (Dec. 1, 2010) (online at www.nytimes.com/2010/12/02/opinion/ 

02hoenig.html?_r=1&ref=todayspaper). 287William D. Cohan, Make Wall Street Risk It All, New York Times (Oct. 7, 2010) (online 

at opinionator.blogs.nytimes.com/2010/10/07/make-wall-street-risk-it-all/). 288Wall Street Pay, supra note 204, at 15. 289Wall Street Pay, supra note 204, at 15. See also Bank of America Corporation, Schedule 

14A: Definitive Notice & Proxy Statement, at 33 (Mar. 17, 2010) (online at www.sec.gov/Archives/ 

edgar/data/70858/000119312510059187/ddef14a.htm) (hereinafter ‘‘Schedule 14A’’). 290See Schedule 14A, supra note 289, at 33. Of course, deviating from the course set by the 

Special Master may not necessarily mean that a financial institution has rejected all of the principles underlying the TARP’s compensation regime. For example, despite Bank of America’s insistence that it would employ its own compensation policies rather than employing the Special 

Master’s, it emphasized its efforts to tie employee compensation to the institution’s performance. 

Id. at 30 (‘‘Our year-end compensation decisions over the last several years most clearly illustrate the direct linkage between our executive officers’ pay and our company’s performance.’’). 291See, e.g., Associated Press, Bank of America to Repay TARP, Raise Cash (Dec. 2, 2009) (online at www.msnbc.msn.com/id/34245560/ns/business-us_business/); See also Stephen Gandel, 

Citi’s TARP Repayment: The Downside for a Troubled Bank, Time (Dec. 15, 2009) (online at 

www.time.com/time/business/article/0,8599,1947625,00.html). In its TARP repayment, Bank of 

America used a combination of $19.3 billion raised from a common stock offering and $25.7 billion from excess liquidity to redeem its CPP Preferred. Debt proceeds may have comprised a 

portion of the ‘‘excess liquidity,’’ although precise usage of debt proceeds is difficult to track. See 

Bank of America Corporation, Form 10–K for the Fiscal Year Ended December 31, 2009, at 18 

(Feb 26, 2010) (online at www.sec.gov/Archives/edgar/data/70858/000119312510041666/ 

d10k.htm). 

Master failed to constrain excessive risk-taking.285 According to 

Thomas Hoenig, president of the Federal Reserve Bank of Kansas 

City, ‘‘little has changed on Wall Street,’’ and ‘‘[t]wo years later, the 

largest firms are again operating with bonus and compensation 

schemes that reflect success, not the reality of recent failures.’’ 286

William Cohan, writing in The New York Times said, ‘‘the incentives on Wall Street have not been changed one iota.’’ 287

The Council of Institutional Investors maintains that the work of 

the Special Master is ‘‘likely to be short-lived.’’ 288 As evidence, it 

cites Bank of America’s 2009 statement that ‘‘[g]iven that the bank 

has fully repaid all TARP financing, the Compensation and Benefits Committee expects that for 2010 it will apply the principled, 

structured compensation framework described above under ‘Overview of Our Executive Compensation Program,’ consistent with our 

Global Compensation Principles, rather than continuing with the 

forms of compensation required by the Special Master.’’ 289 This 

statement suggested that as soon as Bank of America was no 

longer obligated to follow the determinations of the Special Master, 

it would revert to its own compensation policies. This impression 

appears to be confirmed by the company’s behavior. Bank of America dropped salarized stock as part of its compensation packages 

and elected to increase cash compensation for several of its senior 

executive officers. It claimed that greater levels of cash salary ‘‘better reflect the size and scope of the jobs and are more competitive 

with broader market practices.’’ 290 At the time of the TARP repayments by Bank of America and Citigroup, many commentators 

speculated that the rush to repay TARP funds was driven by the 

companies’ desire to be out from under the Special Master’s thumb 

and increase compensation.291 However, in testimony before the 

Panel, Mr. Feinberg noted that Congress, Secretary Geithner, and 

the Administration made clear ‘‘that the single most important 

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292Feinberg Oral Testimony before the Panel, supra note 185. 293Standard & Poor’s, S&P MidCap 400, at 2 (online at www2.standardandpoors.com/spf/pdf/ 

index/SP_MidCap_400_Factsheet.pdf). 294 Equilar, Inc., Bucking Trend, S&P 400 CEO Compensation Rises in Equilar Pay Study 

(May 12, 2010) (online at www.equilar.com/company/press-release/press-release-2010/buckingtrend-sp-400-ceo-compensation-rises-in-equilar-pay-study.html) (hereinafter ‘‘CEO Compensation 

Rises in Equilar Pay Study’’) (‘‘Median S&P 400 CEO compensation rose slightly from 2008 to 

2009, increasing 1.7 percent. The median CEO’s pay was $3.76 million in 2009, compared to 

$3.7 million in 2008.’’). 295 Id. (‘‘Bonus payouts surged from a median of $656,531 in 2008 to a median of $732,331 

in 2009, an 11.6 percent increase. 25.4 percent of CEOs received no bonus this year, compared 

to 27.8 percent last year.’’). 296 Equilar, Inc., Overall CEO Compensation Falls, But Bonuses Surge in S&P 500 Pay Study 

(May 5, 2010) (online at www.equilar.com/company/press-release/press-release-2010/overall-ceocompensation-falls-bonuses-surge-in-sp-500-pay-study.html) (hereinafter ‘‘Compensation Falls, 

But Bonuses Surge’’). See also Devin Leonard, Bargain Rates for a C.E.O.?, New York Times 

(Apr. 3, 2010) (online at www.nytimes.com/2010/04/04/business/04comp.html?pagewanted=all) 

(hereinafter ‘‘Bargain Rates for a C.E.O.?’’) (stating that according to a study prepared for it by 

Equilar, the median pay package of CEOs at the largest companies for which data was available 

fell 13 percent, although the median cash payout increased 1 percent, the average cash payout 

fell 5 percent). 297 CEO Compensation Rises in Equilar Pay Study, supra note 294; Compensation Falls, But 

Bonuses Surge, supra note 296. 298 Bargain Rates for a C.E.O.?, supra note 296. 299 New York Times, The Pay at the Top (Apr. 3, 2010) (online at projects.nytimes.com/executive_compensation?ref=business). 300Data accessed through SNL Financial Data Service (accessed Feb. 8, 2011). It is important 

to note that these compensation figures represent total compensation and benefits for all employees at Goldman Sachs and Bank of America, and therefore are affected by the inclusion of 

the lowest- and the highest-paid employees at the firm. 

Unlike Bank of America, Citigroup (which is also no longer under the supervision of the Special Master) lowered compensation and benefits approximately 4 percent, even though it saw 

payer’’ and that those stakeholders viewed repayment as a good 

thing, no matter the motivation behind it.292

b. Compensation Trends 

The data collected to date do not indicate that compensation levels have been altered significantly. CEO pay at companies in the 

S&P 400, which is made up of firms with an average market capitalization of around $2 billion,293 increased between 2008 and 

2009, despite the widespread turmoil in financial markets.294

Bonus pay increased 11.6 percent, and a higher percentage of 

CEOs received a bonus in 2009 than in 2008.295 At S&P 500 companies, which comprise many of the largest publicly traded firms 

in the United States, CEO compensation fell, but bonus compensation ‘‘surged.’’ 296 Strikingly, among both S&P 400 and S&P 500 

firms, more stock options were granted in 2009 than in 2008, as 

companies increased the number of options they granted to their 

employees so as to account for lower share values.297

Overall, in 2009, the median pay for 12 CEOs at TARP recipients 

surveyed by The New York Times decreased 34 percent, although 

median cash compensation rose 20 percent.298 Wells Fargo, a TARP 

recipient that was not subject to direct oversight by the Special 

Master, gave its CEO a 107 percent raise and increased his base 

salary by $4.7 million (an increase of 537 percent).299 In 2010, pay 

at many TARP recipients increased, even when revenues did not. 

At Goldman Sachs, compensation increased by $3.7 billion, even 

though revenue decreased 13.3 percent. A similar disconnect between revenue and compensation occurred at Bank of America, one 

of the firms formerly supervised by the Special Master, where compensation as a percentage of total revenue increased by 5 percent.300

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a 7 percent increase in revenues in 2010. Compensation as a percentage of total revenue decreased by 3 percent. 301 It is important to note that compensation costs should not necessarily follow revenue 

growth, as revenue does not take into consideration the net profitability of a company, but compensation compared to revenue is a metric often employed when analyzing pay practices. Liz 

Rappaport, Aaron Lucchetti, and Stephen Grocer, Wall Street Pay: A Record $144 Billion, Wall 

Street Journal (Oct. 11, 2010) (online at online.wsj.com/article/ 

SB10001424052748704518104575546542463746562.html) (stating that revenues are expected to 

increase 3 percent at the surveyed firms in 2010 in comparison to 2009). 302This group of executive officers excludes Citigroup CEO Vikram Pandit, who did not re- ceive a stock salary for 2010, and whose annual salary was $1 per year. Citigroup, Inc., Form 

8–K for the Period Ended September 21, 2010 (Sept. 24, 2010) (online at sec.gov/Archives/edgar/ 

data/831001/000114420410050767/v197421_8k.htm); Citigroup Inc., Citi Files Disclosure Regarding 2010 Compensation (Sept. 24, 2010) (online at www.citigroup.com/citi/press/2010/ 

100924a.htm). 303 Common stock awards may be subject to certain vesting and/or transfer restrictions. Value based on the company’s closing stock price on January 18, 2011 ($4.80). Staff compilation from 

SEC Form 4 disclosures for 15 top Citi executives. See Citigroup, Inc., Form 4: Shirish Apte 

(CEO, Asia Pacific) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004505/xslF345X03/rrd297989.xml); Citigroup, Inc., Form 4: Don Callahan (Chief 

Administration Officer) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004507/xslF345X03/rrd297992.xml); Citigroup, Inc., Form 4: John C. Gerspach 

(Chief Financial Officer) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004509/xslF345X03/rrd297996.xml); Citigroup, Inc., Form 4: Michael S. Helfer 

(General Counsel) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004512/xslF345X03/rrd297999.xml); Citigroup, Inc., Form 4: Edward J. Kelly III 

(Vice Chairman) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004514/xslF345X03/rrd298002.xml); Citigroup, Inc., Form 4: Eugene M. McQuade 

(CEO, Citibank, N.A.) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004517/xslF345X03/rrd298004.xml); Citigroup, Inc., Form 4: William Mills (CEO 

Europe, Middle East, Africa) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004520/xslF345X03/rrd298006.xml); Citigroup, Inc., Form 4: Jeffrey R. Walsh 

(Controller) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004523/xslF345X03/rrd298009.xml); Citigroup, Inc., Form 4: Stephen Bird (CEO 

Asia Pacific) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004506/xslF345X03/rrd297991.xml); Citigroup, Inc., Form 4: Michael Corbat 

(CEO, Citi Holdings) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004508/xslF345X03/rrd297995.xml); Citigroup, Inc., Form 4: John P. Havens 

(President and Chief Operating Officer) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/ 

data/831001/000118143111004510/xslF345X03/rrd297998.xml); Citigroup, Inc., Form 4: Lewis B. 

Kaden (Vice Chairman) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004513/xslF345X03/rrd298001.xml); Citigroup, Inc., Form 4: Brian Leach (Chief 

Risk Officer) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/ 

000118143111004515/xslF345X03/rrd298003.xml); Citigroup, Inc., Form 4: Manuel Medina-Mora 

(CEO Consumer Banking for the Americas) (Jan. 20, 2011) (online at www.sec.gov/Archives/ 

edgar/data/831001/000118143111004518/xslF345X03/rrd298005.xml); Citigroup, Inc., Form 4: 

Alberto J. Verme (CEO, Europe, Middle East, Africa) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/000118143111004521/xslF345X03/rrd298007.xml). 304 Bank of America Corporation, Form 8–K for the Period Ended January 27, 2010 (Feb. 2, 

2010) (online at sec.gov/Archives/edgar/data/70858/000119312510019661/d8k.htm). 

A Wall Street Journal study on pay at top financial firms in 2010 

found that pay would increase 4 percent overall in 2010; of the 

firms surveyed, 74 percent were expected to increase their compensation in 2010.301 Several exceptional assistance recipients, including Citigroup and Bank of America, enacted significant compensation increases after they exited from under the Special Master’s oversight. In September 2010, Citigroup decided to pay stock 

salary to its top 25 employees, following the construct developed by 

the former Special Master. Based on this plan, the annual stock 

salary for Citigroup’s named officers ranged from $4.2 million to $9 

million.302 The company has also recently disclosed that it has awarded approximately $50 million in stock bonuses to its 15 top 

executives.303 In 2010, Bank of America increased its CEO’s annual 

base salary from $800,000 to $950,000, also increasing the annual 

rates for two other officers.304 According to recent filings, Bank of 

America did not grant cash bonuses in 2010 for its executive officers. However, the company did issue long-term incentive awards 

totaling $35.7 million for four of its named executive officers, which 

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305Of the amount granted in long-term incentive awards, $33.0 million came in the form of performance contingent restricted stock units (PRSUs), and $2.7 million were cash-settled stock 

units. One-twelfth of the total cash-settled stock units will vest and become payable on the 15th 

day of each month beginning in March 2011 and ending in February 2012. PRSUs will be 

awarded based on whether Bank of America’s return on assets (ROA) from the first quarter of 

2011 to the fourth quarter of 2015 exceeds certain percentage benchmarks. Bank of America 

Corporation, Form 8–K for the Period Ended January 25, 2011 (Jan. 31, 2011) (online at sec.gov/ 

Archives/edgar/data/70858/000095012311007348/g25940e8vk.htm) (hereinafter ‘‘BofA Form 8–K 

January 25, 2011’’); Bank of America Corporation, Form 8–K: Exhibit 10.1 (Jan. 31, 2011) (online at sec.gov/Archives/edgar/data/70858/000095012311007348/g25940exv10w1.htm). 306Wall Street Pay, supra note 204, at 15. 307 Citigroup, Inc., Form 8–K for the Period Ended January 18, 2011 (Jan. 21, 2011) (online 

at sec.gov/Archives/edgar/data/831001/000114420411003391/v208667_8k.htm). 308 BofA Form 8–K January 25, 2011, supra note 305. The previous base salary for the three 

individuals was $800,000. 309The Goldman Sachs Group, Inc., Schedule 14A: Definitive Proxy Statement, at 20 (Apr. 7, 

2010) (online at www.sec.gov/Archives/edgar/data/886982/000119312510078005/ddef14a.htm); 

The Goldman Sachs Group, Inc., Form 8–K for the Period Ended January 26, 2011 (Jan. 28, 

2011) (online at sec.gov/Archives/edgar/data/886982/000095012311006686/y89310e8vk.htm). 310Wall Street Pay, supra note 204, at 15. However, although in many cases pay has rebounded to pre-crisis levels—or surpassed them—the structure of that pay may have changed. 

Mercer, Organizations are Focusing on Measuring Performance Aligned with Pay, Mercer survey 

shows (Jan. 19, 2011) (online at www.mercer.com/press-releases/1405765) (‘‘In response to the 

ongoing legislative and regulatory demands regarding executive compensation, organizations are 

focusing efforts on measuring performance and aligning it with pay. Nearly two-thirds of companies are introducing new financial performance measures in their annual incentive programs, 

according to a new survey by Mercer.’’). 311For example, Morgan Stanley—which was a TARP recipient but not an exceptional assistance recipient—significantly altered its compensation practices in April 2009, but it is not apparent that those changes were related to the Special Master’s work. Its 10-page report on the 

new plan never once mentioned the Special Master, even though it contains certain elements 

that mimic core elements in the design of the Special Master’s determinations. Despite containing many elements that are similar to the government’s compensation regime, Morgan Stanley stated that the plan was derived from the institution’s ‘‘clear and well-defined ‘pay-for-perwill be granted based on the company’s future performance.305

Other TARP recipients enacted increases as well, with salaries at 

Wells Fargo rising to between $3.3 million and $5.6 million for four 

officers, increases of more than 500 percent.306

Beyond disclosing details on compensation plans for 2010, several companies have already begun to report changes in 2011 base 

salary rates for some of their senior executive officers. For example, 

Citigroup’s CEO will have an annual base salary rate of $1.75 million for 2011, after accepting only a $1 salary in 2009 and 2010.307

Bank of America raised the base salary for three of its named executive officers to $850,000, although its CEO, Brian Moynihan, will 

maintain his previous annual base salary rate of $900,000.308 At 

Goldman Sachs, CEO Lloyd Blankfein’s base salary for 2011 will 

increase more than threefold, from $600,000 to $2 million. The 

company also stated that it would increase the individual base salary for four other officers from $600,000 to $1.85 million.309 The 

Council of Institutional Investors referred to post-crisis compensation increases as the ‘‘unintended consequences’’ of the government’s compensation regime, which created a ‘‘loophole’’ by not imposing salary caps.310 The Special Master’s full impact may be unknown at this point, but Wall Street pay shows no signs of slowing. 

c. Challenges of Evaluating Impact 

Despite this data suggesting that the Special Master’s impact 

has been limited, it is difficult to develop a precise assessment of 

the Special Master’s impact because in cases where institutions 

changed their pay practices, it is difficult to ascribe plainly the 

changes to the Special Master, because there are few, if any, clear 

links.311 In other cases, it may be that the Special Master’s impact 

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formance’ philosophy that pervades the Firm’s culture and motivates its employees.’’ At the 

same time, it is evident that the new policy was developed with the government’s compensation 

standards in mind. The report states that its clawback provision ‘‘exceeds TARP requirements’’ 

and that in light of ‘‘recent amendments’’ to EESA and ARRA, it would be ‘‘reviewed’’ and ‘‘modified if necessary to comply with applicable law.’’ See Morgan Stanley, 2009 Compensation Report: Adapting Employee Compensation to the Current Environment, at 3, 7 (Apr. 2009) (online 

at www.morganstanley.com/about/ir/pdf/comp_report042009.pdf). 312This scenario may have occurred in several of the Special Master’s 2009 determinations. 

Because the Special Master’s cash compensation determinations applied to only two months— 

November and December 2009—he was in the position of reviewing a pre-existing payment plan 

and determining whether that plan should continue or should be altered. He had two options: 

he could use the final two months of 2009 to balance compensation paid in prior months, or 

he could leave the rate intact. See Sections C.2. and D.4.a, supra. 313See, e.g., International Business Machines Company, Schedule 14A: Definitive Proxy Statement (Mar. 8, 2010) (online at www.sec.gov/Archives/edgar/data/51143/000110465910012758/a09- 

36376l1def14a.htm) (describing the Compensation Committee’s approach to benchmarks, strategic objectives and performance-based compensation, contributions by the employee, and other 

similar factors). 

cannot be distinguished from the effect of other government policies. For example, an institution may have set a certain compensation package as a result of ARRA, and this level was left unaltered 

by the Special Master.312 Further, there are numerous factors that 

go into executive pay that are difficult to capture in a consistent 

way, and it is difficult to establish causation between compensation 

and multiple possible influences on that compensation. 

The amounts determined by firms that are establishing pay for 

a particular executive in a given year may reflect concerns that 

that executive may leave and will be difficult to replace, returns to 

the firm from the department requiring the executive’s area of expertise, pay at prior employers, the overall health of the firm, concerns with public relations, general trends, and any number of 

similar influences, in addition to the work of the Special Master. 

Determining the extent of the influence of the Special Master, particularly on firms that were not within the Special Master’s jurisdiction, is very difficult. 

Finally, even beyond the difficulties in establishing causation between the Special Master’s work and larger compensation trends or 

influences, and as noted above, the Special Master’s governing concerns were not necessarily identical to those common in the academic and policy literature. The Special Master had statutory and 

regulatory instructions that included themes common to the academic and policy debate, but were not necessarily identical. Risk, 

return, and performance are clearly germane to the debate, but 

many of the agency problems that animate the ‘‘managerial power’’ 

and ‘‘optimal contracting’’ theories are less relevant, because there 

was an agent with the ability to review and affect compensation: 

the Special Master. Further, of returns to taxpayers, market stability, and market disruption, cited by the Office of the Special 

Master as its primary concerns, only the first has a clear analog 

to more typical, non-crisis, non-TARP executive compensation discussions, in the form of returns accruing to shareholders or creditors. Although market stability has been a thread in the executive 

compensation debate generally, it has little role in a typical board’s 

determination of what to pay a CEO.313 Finally, although the IFR 

conferred significant discretion on the Office of the Special Master, 

the IFR still created limitations: for example, the Special Master 

could only examine structure, not dollar amounts, for employees 

26–100, among other similar requirements. Such limitations mean 

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314Treasury conversations with the Panel (Jan. 18, 2011). It is also worth noting that there 

may be unintended consequences from the Special Master’s work that have yet to be determined: as discussed above, efforts to align more closely executive compensation and company 

performance contributed substantially to the increase in executive pay over the 1980s and 

1990s. See Section B.1.a, supra. 315Wall Street Pay, supra note 204, at 15. 316SIGTARP Survey Provides Insights on Compliance, supra note 8, at 9. These data should 

be considered in light of the fact that in both cases, the bulk of the remaining respondents did 

not specifically address compliance with the provision. In other words, no institutions reported 

that they choose not to comply with the provisions. 

that the Special Master is not perfectly comparable to a compensation committee on a corporate board. Those committees would typically be bound by a variety of regulations and principles but would 

nonetheless have the capacity to be creative and would not have 

the additional concerns conferred by a taxpayer investment weighing upon their decisions. 

As a result, although the Special Master stated that he hoped to 

affect compensation in the market generally, it is unclear whether 

this was in fact a realistic goal: it is possible that the unique elements of the Special Master’s involvement will outweigh the more 

universal concerns that contributed to his determinations. The Office of the Special Master has stated that it is, at this point, too 

early to tell what their contribution to the debate will be.314 As the 

financial markets have only recently emerged from the acute crisis, 

it may take some time before some form of equilibrium appears in 

executive compensation practices, at which point it may be possible 

to evaluate the Special Master’s contribution more clearly. 

d. Compliance 

There have also been reports that some firms did not comply 

with their obligations under EESA as amended and the IFR. According to the Council of Institutional Investors study, ‘‘[s]ome 

banks found ways around prohibitions that were explicit, namely 

the ban on golden parachutes.’’ The study found that at least three 

TARP recipients paid ‘‘golden parachutes,’’ which included a payment to a chief operating officer in the form of a ‘‘non-compete’’ 

payment that ‘‘was clearly a golden parachute by another 

name.’’ 315 According to a 2009 SIGTARP report based on self-reported data, nearly 83 percent of surveyed institutions reported 

that they complied with the golden parachute provisions, and 80 

percent reported that they complied with the clawback requirements.316

While these reports suggest that at least some institutions—either intentionally or negligently—opted not to comply with the government’s compensation rules, it is impossible to determine the 

scope of noncompliance without more extensive reporting by the Office of the Special Master and Treasury. Current public disclosures 

by the Special Master include a substantial amount of critical information, but they do not detail the Office’s ongoing monitoring efforts and findings. Treasury’s Office of Internal Review has not 

made any information on its actions or findings available to the 

public. To the Panel, OIR noted that it reviews non-exceptional assistance recipients only for the completeness of their self-certifications. For exceptional assistance recipients, OIR does conduct onsite audits of payroll and internal audit information to ensure compliance with the Special Master’s pay amounts. This review, howmstockstill on DSKH9S0YB1PROD with HEARINGS

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317Steve Eder, U.S. ‘‘Pay Czar’’ Feinberg Using Formulas, Not Caps, Reuters (Sept. 25, 2009) 

(online at www.reuters.com/article/idUSTRE58O3KP20090925). 318Feinberg October 2010 Written Testimony, supra note 60, at 3–4. See also Feinberg October 2009 Written Testimony, supra note 258, at 7 (‘‘Hopefully, the individual final compensation 

determinations I make may yet be used, in whole or in part, by other companies in modifying 

their individual compensation practices. I believe the final compensation determinations I make 

and discuss in my Report are a useful model to guide others in the private marketplace.’’). 319Treasury conversations with Panel staff (June 8, 2009). 320See Orens October 2010 Written Testimony, supra note 204, at 3 (‘‘The Special Master’s 

actions may have supported the public interest and attempted to lower the tension between Wall 

Street and Main Street, but most companies would not view them as a model for effective incentive compensation.’’). 321Feinberg Oral Testimony before the Panel, supra note 185. 322Geithner Oral Testimony before the Panel, supra note 44. 323Treasury conversations with the Panel (Jan. 18, 2011). 

ever, examines only the amounts paid, and does not examine 

whether the companies complied with other provisions of the Special Master’s determinations, such as the requirement that employees not engage in any derivative or other hedging transactions with 

regard to company stock. Without this information, the Panel cannot assess whether other institutions failed to abide by the rules 

or whether the rules had any impact at all at the non-exceptional 

assistance TARP recipients. 

5. Missed Opportunities 

In the early days of his tenure, the Special Master told Reuters 

that he anticipated that his pay scheme could be used as a ‘‘model’’ 

for pay rules used by other government agencies in the future.317

He made similar statements in his testimony before the Panel: ‘‘I 

believe that these standards could help lay the groundwork for appropriate compensation structures at all financial institutions, regardless of whether those institutions are receiving financial assistance from the government.’’ 318 In statements to Panel staff, Treasury echoed this sentiment, expressing its view that it hoped to use 

publicly available advisory opinions to create a body of best practices that would serve as non-binding precedents for financial 

firms.319

Measured against the initial expectations that executive compensation practices for TARP recipients might have a long-term effect on a broad swath of institutions, the data suggest that the Special Master’s ambitious aspirations are unlikely to be fulfilled.320 In 

his response to a question at the Panel’s executive compensation 

hearing in October 2010, Mr. Feinberg said that if the culture of 

pay on Wall Street has not changed, ‘‘I think that our work has not 

been successful and it’s not being followed and it is a problem.’’ 321

Similarly, when probed by the Panel, Secretary Geithner concurred, adding that ‘‘I would not claim that we’ve seen enough 

change in the structure of compensation.’’ 322 As noted above, it is 

possible that in the future the Special Master’s work will be seen 

to have a more broad-ranging impact, but at present, that does not 

appear to be the case. In conversations with Panel staff, the Office 

of the Special Master stated that it is too early to tell.323

The Special Master himself has cautioned against extending the 

Office’s jurisdiction to other TARP recipients and emphasized the 

uniqueness of his situation and the narrowness of his determinations. In the Final Report, he stated that he might have created a 

‘‘useful model’’ for future determinations made by future Special 

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324Final Report from Special Master Kenneth R. Feinberg, supra note 55, at 15. It is worth 

noting in this context that in communications with Panel staff, Federal Reserve staff explained 

that they had included the Special Master’s work as a source for their executive compensation 

guidance, but kept the particular context for the Special Master’s work in mind as they did so. 

See note 275, supra. 

Masters, but he cautioned against extending the Office’s jurisdiction.324

Despite the many observers—ranging from government agencies 

to corporate compensation committees to pension funds—who 

might be interested in using the Special Master’s work on compensation as a data point for developing their own compensation 

policies, it will be difficult for them to do so. In the absence of more 

disclosure about the Special Master’s decision-making process and 

more data on the impact of the Special Master’s work on the companies he supervised, the work of the Office will not serve as a detailed guide to best practices on executive compensation, as was 

once hoped. What seemed an opportunity for sweeping reform now 

seems likely to leave a far more modest legacy. 

E. Conclusions and Recommendations 

In the more than two years since EESA was passed, exceptional 

assistance institutions have altered their cash compensation and 

their compensation structures. The Office of the Special Master has 

been at the center of these two reforms. In 2009, the year of the 

Special Master’s first determinations the average percentage decrease in overall compensation was 54.8 percent (with a range between 24.2 percent and 85.6 percent) for the top 25 employees. The 

Special Master also restructured compensation at several of the institutions he supervised, as stock compensation came to play a 

more significant role in their compensation packages, and employees generally received a lower percentage of their pay in the form 

of guaranteed compensation. Furthermore, the Special Master demanded that AIG repay certain bonuses paid to its employees, and 

when certain employees pledged to do so, the Special Master ensured that AIG returned all of the money it pledged to return. The 

Special Master achieved these changes in a complex environment 

in which he was constantly operating in the media’s spotlight. 

Furthermore, the Special Master’s Look Back Review of payments made by TARP recipients prior to February 17, 2009 covered 

419 firms and analyzed $2.3 billion in payments. In the Final Report, Mr. Feinberg offered a set of recommendations that could be 

adopted by compensation committees, including a recommendation 

that firms restructure existing payment agreements in the event of 

a crisis situation. In the wake of Dodd-Frank, as agencies like the 

Federal Reserve and the FDIC begin the work of drafting rules on 

executive compensation, these recommendations may prove useful. 

Despite these achievements, the public knows very little about 

how the government has implemented the compensation rules or 

about the impact of these measures. The public has been deprived 

of this information because Treasury has neglected to disclose critical information about its implementation of the compensation 

rules. Of particular concern are the unanswered questions about 

monitoring of the 767 TARP recipients that were covered by the 

compensation rules and overseen by the OIR, including several 

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large institutions like Morgan Stanley and Goldman Sachs. How 

many employees have been covered by the government’s oversight? 

How many employees have had their pay altered as a result of the 

government’s involvement? How has the government’s involvement 

affected compensation at these institutions? Has it affected the 

structure of compensation in addition to the level of compensation? 

How many employees have left TARP recipients as a result of the 

compensation rules? 

Unlike the Office of Internal Review, the Special Master has 

made a substantial amount of summary information on his determinations publicly available. The Office of the Special Master also 

provided considerable additional information to the Panel, though 

the information could, and should, have been included in public determination letters or on Treasury’s website. Important information 

still remains obscured from public view, such as the specific comparators used as the basis of his determinations. Due to the lack 

of disclosure, it would be very difficult, if not impossible, for any 

board of directors, shareholder, or government agency to use the 

Special Master’s public determination letters as the basis for mimicking those decisions. 

While a comprehensive assessment of the government’s work will 

not be possible until more information is released, recent data suggest that the government’s intervention in executive compensation 

through the TARP ultimately may have little effect on executive 

compensation practices. Pay has rebounded at many Wall Street 

firms although the structure of compensation has changed in some 

cases. Although the Special Master may have successfully achieved 

a key set of goals—including following the specific guidelines set 

forth in the IFR and reducing cash compensation at the companies 

supervised during the relevant period—the Special Master’s effect 

on long-term compensation practices seems likely to be more limited than initially hoped. 

Regardless, the government’s work is not done. Ms. Geoghegan 

will continue to oversee compensation determinations at exceptional assistance firms that have not yet repaid their TARP assistance. While she will continue to oversee four institutions, 660 

TARP institutions that were subject to the compensation rules remain subject to ongoing government oversight by Treasury’s Office 

of Internal Review, and bank regulators will continue to oversee 

pay at still more institutions. 

The Office of the Special Master and the Office of Internal Review have opportunities to incorporate lessons learned from the 

past two years. As the new Special Master, Ms. Geoghegan has the 

opportunity to issue strong, thoughtful determinations for employees at the institutions she continues to supervise. The Office of the 

Special Master can also become more transparent, so that more 

companies and individuals can gain an understanding of its decision-making process. Similarly, the Office of Internal Review has 

an opportunity to share data on its efforts to ensure that TARP recipients comply with compensation rules. Improved transparency 

will enable taxpayers to reach a more informed view of the successes and failures of the government’s regulation of compensation 

and will increase the likelihood that other institutions will employ 

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the Special Master’s prescriptions and principles as a model for 

compensation practices in the future. 

The Panel recommends that Treasury, and the Office of the Special Master specifically, address the following issues: 

• Transparency and Accountability 

— Non-exceptional assistance institutions: Treasury’s Office 

of Internal Review should issue a report on the compensation 

practices of TARP recipients who did not fall under the Special 

Master’s purview. The report should include details on pay 

practices at these institutions since the IFR was issued, including the number of employees covered, the number of employees 

who have had their compensation altered as a result of the Office’s involvement, the impact on cash compensation, the impact on compensation structure, and employee turnover. It 

should also note instances in which the Office of Internal Review discovered violations of the IFR and steps that the Office 

took to remedy to these situations. 

— Release of information on compensation paid between the 

passage of the IFR and the Special Master’s release of his first 

determinations: The Office of the Special Master should release 

data on compensation paid to exceptional assistance recipients 

during this four-month period. The Special Master, in consultation with the Office of Internal Review, should release a statement on whether the exceptional assistance institutions complied with the provisions of the IFR during this period. 

— Turnover data: Given that part of the Special Master’s 

mandate was to balance reasonable pay levels with talent retention, the Office of the Special Master should release data on 

employee turnover at exceptional assistance recipients. These 

data should include turnover data for exceptional assistance 

firms for 2009 and 2010, as well as comparative data for prior 

years. It should also include turnover data for other similar 

firms. 

— Individual pay comparison data: In response to a Panel 

request, the Office of the Special Master provided the Panel 

with data on compensation changes for covered employees between 2008 and 2009 and between 2007 and 2009. The Office 

of the Special Master should make individual pay data available for several years prior to 2007 as well, and should also 

post this information on Treasury’s website, including the data 

in terms of values and percentages. 

— Detailed information on performance incentives: Consistent with applicable laws, the Special Master should release 

more information to the public about the performance targets 

used as the basis for performance-based compensation. Without this information, it is impossible to determine whether institutions are adequately linking employee performance to employee compensation. The Special Master should also release 

information on whether any performance-based compensation 

was improperly provided to employees who did not meet performance targets. 

— Company proposals: When the Special Master publishes a 

determination letter, the letter should also include detailed inmstockstill on DSKH9S0YB1PROD with HEARINGS

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formation on what the exceptional assistance companies proposed compensation packages contained. 

— Specific rationales for determination decisions: The determination letters often do not explain how the Special Master 

arrived at or applied the compensation structures used to 

evaluate companies’ proposals. Further discussion of the Special Master’s decision-making process beyond boilerplate language is necessary to determine the appropriateness of compensation. In addition, award amounts above certain amounts 

required the Special Master’s specific authorization, which was 

occasionally given. However, the rationale for these outlier decisions was not provided. 

— The future of the Office of the Special Master: Treasury 

should make a formal public announcement of its plans for the 

Office of the Special Master, including the anticipated release 

date of its 2011 determinations. 

— Office of Internal Review monitoring: The Office of Internal Review should publicly disclose specific information on its 

activities in monitoring both exceptional and non-exceptional 

assistance institutions, including the frequency of such monitoring, whether it initiates independent investigations into a 

company’s pay practices or relies solely on factual information 

provided by the TARP recipient, its process for communicating 

its findings to the institutions, and enforcement mechanisms it 

pursues to ensure that the institutions comply with ARRA and 

the IFR. Finally, the Office should disclose its plans for monitoring compensation at these institutions in the future. 

— Expand scope of Office of Internal Review monitoring: The 

Office of Internal Review should promptly expand its oversight 

activities to incorporate reviews of all relevant provisions of 

EESA as amended, the IFR, and the Special Master’s determinations. 

— Lessons Learned and Best Practices: The extraordinary 

legislation and regulations enacted during the financial crisis 

provided Treasury with unprecedented authority to intervene 

with private institutions’ compensation practices. Given these 

circumstances, it is important that Treasury make publicly 

available a guide on the lessons it has learned during this 

process, including best practices for executive compensation. 

— Publish a summary report: Treasury should release a report on executive compensation at all TARP recipients, akin to 

the Special Master’s Final Report, including information on 

compensation changes at non-exceptional assistance institutions 

and comparative data on institutions that did not receive 

TARP assistance. 

— Publish a follow-up report: The Office of the Special Master should release a follow-up to the Final Report of Special 

Master Feinberg that discusses the Office of the Special Master’s decision-making process. The report should discuss how 

he responded to different circumstances at the companies and 

how the Special Master balanced competing principles. 

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ANNEX I: SALARY TABLES 

FIGURE 1: AMERICAN INTERNATIONAL GROUP, INC. 2009 PROPOSAL v. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in 

Total Direct 

Compensation from 

Proposal to Exhibit I 

AIGa ................................................................................................. (89 .5) (96 .6) 

AIGb ................................................................................................. (86 .8) (95 .8) 

AIGc .................................................................................................. (84 .8) (95 .1) 

AIGd ................................................................................................. (47 .4) (94 .0) 

AIGe .................................................................................................. (56 .1) (91 .1) 

AIGf .................................................................................................. (77 .5) (91 .0) 

AIGg ................................................................................................. (57 .5) (87 .9) 

AIGh ................................................................................................. (65 .1) (80 .8) 

AIGi .................................................................................................. (46 .2) (25 .0) 

AIGj .................................................................................................. 0 .0 0 .0 

AIGk .................................................................................................. (73 .1) 9 .2 

AIGl .................................................................................................. (75 .0) 18 .8 

AIGm ................................................................................................ (74 .6) 32 .8 

FIGURE 2: BANK OF AMERICA 2009 PROPOSAL v. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in Total Direct Compensation from 

Proposal to Exhibit I 

BoAa ................................................................................................. (100 .0) (100 .0) 

BoAb ................................................................................................. (47 .4) (67 .0) 

BoAc ................................................................................................. (41 .1) (59 .4) 

BoAd ................................................................................................. (42 .3) (52 .5) 

BoAe ................................................................................................. (28 .6) (51 .8) 

BoAf ................................................................................................. (28 .6) (50 .0) 

BoAg ................................................................................................. (57 .1) (38 .7) 

BoAh ................................................................................................. (49 .6) (36 .8) 

BoAi .................................................................................................. (47 .4) (33 .3) 

BoAj .................................................................................................. (47 .4) (32 .9) 

BoAk ................................................................................................. (41 .1) (27 .6) 

BoAl .................................................................................................. (42 .3) (18 .3) 

BoAm ................................................................................................ (41 .1) (17 .0) 

FIGURE 3: CHRYSLER 2009 PROPOSAL v. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in 

Total Direct 

Compensation from 

Proposal to Exhibit I 

ChryslerA .......................................................................................... (100 .0) (16 .8) 

ChryslerB .......................................................................................... 3 .5 (13 .6) 

ChryslerC .......................................................................................... 2 .3 (8 .8) 

ChryslerD .......................................................................................... 2 .6 (7 .9) 

ChryslerE .......................................................................................... 2 .2 (7 .5) 

ChryslerF .......................................................................................... (6 .4) (5 .2) 

ChryslerG .......................................................................................... (13 .7) (4 .1) 

ChryslerH .......................................................................................... 2 .2 (4 .0) 

ChryslerI ........................................................................................... 8 .5 (2 .5) 

ChryslerJ ........................................................................................... (8 .5) (2 .1) 

ChryslerK .......................................................................................... 3 .2 (0 .8) 

ChryslerL .......................................................................................... 2 .0 (0 .4) 

ChryslerM ......................................................................................... 1 .7 (0 .3) 

ChryslerN .......................................................................................... 1 .7 (0 .3) 

ChryslerO .......................................................................................... 1 .2 (0 .2) 

ChryslerP .......................................................................................... 1 .2 (0 .2) 

ChryslerQ .......................................................................................... 0 .9 (0 .2) 

ChryslerR .......................................................................................... 1 .1 (0 .2) 

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FIGURE 3: CHRYSLER 2009 PROPOSAL v. EXHIBIT I—Continued 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in 

Total Direct 

Compensation from 

Proposal to Exhibit I 

ChryslerS .......................................................................................... 1 .1 (0 .2) 

ChryslerT .......................................................................................... 1 .1 (0 .2) 

ChryslerU .......................................................................................... 0 .8 (0 .2) 

ChryslerV .......................................................................................... 0 .0 0 .0 

ChryslerW ......................................................................................... 11 .1 8 .8 

ChryslerX .......................................................................................... 56 .9 41 .7 

ChryslerY .......................................................................................... 115 .3 54 .7 

FIGURE 4: CHRYSLER FINANCIAL 2009 PROPOSAL v. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in 

Total Direct 

Compensation from 

Proposal to Exhibit I 

ChryslerFinA ............................................................................................. 0.0 (50.8) 

ChryslerFinB ............................................................................................. 0.0 (48.3) 

ChryslerFinC ............................................................................................. 0.0 (48.2) 

ChryslerFinD ............................................................................................. 0.0 (47.7) 

ChryslerFinE ............................................................................................. 0.0 (47.0) 

ChryslerFinF ............................................................................................. 0.0 (46.7) 

ChryslerFinG ............................................................................................. 0.0 (46.3) 

ChryslerFinH ............................................................................................. 0.0 (45.4) 

ChryslerFinI .............................................................................................. 0.0 (42.9) 

ChryslerFinJ .............................................................................................. 0.0 (42.4) 

ChryslerFinK ............................................................................................. 0.0 (42.1) 

ChryslerFinL ............................................................................................. 0.0 (41.3) 

ChryslerFinM ............................................................................................ 0.0 (41.3) 

ChryslerFinN ............................................................................................. 0.0 (41.0) 

ChryslerFinO ............................................................................................. 0.0 (40.1) 

ChryslerFinP ............................................................................................. 0.0 (35.2) 

ChryslerFinQ ............................................................................................. 0.0 (5.5) 

ChryslerFinR ............................................................................................. 0.0 (5.3) 

ChryslerFinS ............................................................................................. 0.0 (5.0) 

ChryslerFinT ............................................................................................. 0.0 (4.5) 

ChryslerFinU ............................................................................................. 0.0 (4.5) 

ChryslerFinV ............................................................................................. 0.0 (2.0) 

FIGURE 5: CITIGROUP INC. 2009 PROPOSAL v. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in Total 

Direct Compensation from 

Proposal to Exhibit I 

CitiA ................................................................................................. (100 .0) (100 .0) 

CitiB ................................................................................................. 35 .7 (40 .7) 

CitiC ................................................................................................. 0 .0 0 .0 

CitiD ................................................................................................. 0 .0 0 .0 

CitiE ................................................................................................. (37 .5) 0 .0 

CitiF ................................................................................................. 0 .0 0 .0 

CitiG ................................................................................................. 0 .0 0 .0 

CitiH ................................................................................................. 0 .0 0 .0 

CitiI .................................................................................................. 0 .0 0 .0 

CitiJ .................................................................................................. 0 .0 0 .0 

CitiK ................................................................................................. 0 .0 0 .0 

CitiL ................................................................................................. 0 .0 0 .0 

CitiM ................................................................................................ 0 .0 0 .0 

CitiN ................................................................................................. 0 .0 0 .0 

CitiO ................................................................................................. 0 .0 0 .0 

CitiP ................................................................................................. 0 .0 0 .0 

CitiQ ................................................................................................. 0 .0 0 .0 

CitiR ................................................................................................. 0 .0 0 .0 

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FIGURE 5: CITIGROUP INC. 2009 PROPOSAL v. EXHIBIT I—Continued 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in Total 

Direct Compensation from 

Proposal to Exhibit I 

CitiS ................................................................................................. (37 .5) 0 .0 

CitiT ................................................................................................. (37 .5) 0 .0 

CitiU ................................................................................................. 0 .0 0 .0 

FIGURE 6: GENERAL MOTORS 2009 PROPOSAL V. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in Total Direct Compensation from 

Proposal to Exhibit I 

GMa .................................................................................................. 26 .8 (23 .4) 

GMb .................................................................................................. 8 .0 (5 .9) 

GMc .................................................................................................. 5 .8 (4 .6) 

GMd .................................................................................................. 6 .1 (3 .8) 

GMe .................................................................................................. 8 .4 (3 .3) 

GMf .................................................................................................. 22 .3 (3 .2) 

GMi ................................................................................................... (34 .6) (0 .5) 

GMh .................................................................................................. 21 .9 0 .0 

GMj ................................................................................................... 32 .8 0 .0 

GMk .................................................................................................. 36 .8 0 .0 

GMl ................................................................................................... 14 .5 0 .0 

GMo .................................................................................................. 15 .4 0 .0 

GMp .................................................................................................. (27 .0) 0 .0 

GMq .................................................................................................. (31 .9) 0 .0 

GMr .................................................................................................. (10 .0) 0 .0 

GMs .................................................................................................. 15 .4 4 .5 

GMt .................................................................................................. 4 .1 4 .6 

GMu .................................................................................................. 38 .6 6 .5 

GMv .................................................................................................. 46 .4 10 .5 

GMw ................................................................................................. 22 .8 13 .7 

FIGURE 7: GMAC 2009 PROPOSAL V. EXHIBIT I 

Employee ID 

Percentage Change in 

Cash Salary from 

Proposal to Exhibit I 

Percentage Change in 

Total Direct 

Compensation from 

Proposal to Exhibit I 

GMACa ............................................................................................. (38 .5) (25 .8) 

GMACb ............................................................................................. (15 .0) (11 .1) 

GMACc .............................................................................................. (33 .3) (10 .3) 

GMACd ............................................................................................. (26 .2) (9 .8) 

GMACe .............................................................................................. (47 .4) (6 .3) 

GMACf .............................................................................................. (44 .4) (3 .1) 

GMACg ............................................................................................. (41 .2) (2 .7) 

GMACh ............................................................................................. (33 .3) (1 .9) 

GMACi .............................................................................................. (40 .0) (1 .4) 

GMACj .............................................................................................. (43 .8) (1 .2) 

GMACk .............................................................................................. (25 .0) (1 .1) 

GMACl .............................................................................................. (27 .3) (1 .1) 

GMACm ............................................................................................ (30 .8) (1 .0) 

GMACn ............................................................................................. (25 .0) (0 .3) 

GMACo .............................................................................................. (6 .3) 0 .0 

GMACp ............................................................................................. (27 .0) 0 .0 

GMACq ............................................................................................. 0 .0 0 .8 

GMACr .............................................................................................. (10 .0) 2 .0 

GMACs .............................................................................................. (16 .7) 2 .3 

GMACt .............................................................................................. (33 .3) 3 .0 

GMACu ............................................................................................. (20 .0) 3 .5 

GMACv .............................................................................................. 0 .0 5 .6 

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325 Incentive Compensation in the Banking Industry, supra note 45, at 8–9 (‘‘[P]romises to pay 

the employee in the event of default are a way of shifting the bank’s wage bill onto the government. Government guarantees of financial institution debt may perversely encourage dangerous 

levels of risk taking and the offloading of employee compensation to the government.’’). See also 

Stiglitz Written Testimony on Compensation in the Financial Industry, supra note 29, at 7 (‘‘But 

in some critical ways, incentives are actually worse now than they were before the crisis. The 

way the bank bailout was managed—with money flowing to the big banks while the smaller 

banks were allowed to fail (140 failed in 2009 alone)—has led to a more concentrated banking 

system. Incentives have been worsened too by the exacerbation of the problem of moral hazard. 

A new concept—with little basis in economic theory or historical experience—was introduced: 

the largest financial institutions were judged to be too big to be resolved.’’). 326See, e.g., Don’t Call it a Bonus, supra note 46 (Congressman Elijah Cummings of Maryland 

stating ‘‘When folks come to the government for money, I want them understanding they have 

to live by new rules, or don’t come at all. This is a time when all of America must come together 

to sacrifice ... Everybody, all of us, needs to be a part of that sacrifice.’’); Sam Johnson Livid 

at AIG Bonus, supra note 46 (‘‘AIG asserts it can not risk a lawsuit if the company demands 

the money back. Johnson vehemently disagrees and believes that once the taxpayers own 80% 

of a company, the company no longer has the right to offer multi-million dollar bonuses to employees, especially those who sparked such extreme economic turmoil.’’). 

SECTION TWO: ADDITIONAL VIEWS 

A. Professor Kenneth R. Troske and J. Mark McWatters 

We concur with the issuance of the February report and offer the 

additional observations below. We appreciate the efforts the Panel 

staff made incorporating our suggestions offered during the drafting of the report. 

In these additional views we want to expand on the following 

passage in the report: 

As a result of providing a ‘‘too-big-to-fail’’ backstop, the 

government may have eliminated certain disincentives for 

pay arrangements that encourage excessive risk taking. 

Too-big-to-fail status permits shareholders and executives 

to accept substantial amounts of risk, since they can reap 

the benefits but will not suffer the consequences if the 

gambles are unsuccessful. Accordingly, some commentators 

have speculated that government guarantees could spur 

higher wages for bank employees, as guarantees may have 

the effect of minimizing the costs to bank shareholders and 

bondholders of awarding higher compensation to employees, which in turn could skew incentives for executives toward projects that are riskier and produce higher expected 

returns even if the associated risks ultimately turn out to 

be excessive.325 The idea that government involvement in 

an entity can further distort executive compensation practices has led some lawmakers to argue that recipients of 

TARP funds should not be held to ordinary standards.326

In our view this is a key point for understanding the current 

state of executive compensation and the potential for future 

changes in the way executives are paid. 

As the report points out, there currently exist two main views 

about executive compensation—those who believe that shareholders 

have sufficient power to design compensation schemes that will 

maximize their wealth, and those who believe that executives are 

able to capture boards of directors allowing them to design compensation schemes that benefit managers at the expense of shareholders. However, as the above passage makes clear, in the presence of a ‘‘too-big-to-fail’’ (TBTF) guarantee provided by the governmstockstill on DSKH9S0YB1PROD with HEARINGS

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327Standard & Poor’s, Banks: Rating Methodology, at 16, 48–59 (Jan. 6, 2011) (online at 

www2.standardandpoors.com/spf/pdf/media/ 

CriteriaFinancialInstitutionsRequestforCommentBanksRatingMethodology.pdf). 

ment, both shareholders and executives have an incentive to design 

compensation schemes that reward executives for investing in risky 

projects. 

In a well-functioning competitive market, both shareholders and 

creditors have significant incentives to monitor the behavior of executives to prevent them from pursuing projects that expose the 

firm to excessive risk. However, once the government provides a 

guarantee that it will step in and bail out creditors and employees 

if the firm becomes insolvent, then creditors no longer have any incentive to pay attention to the risk the firm is absorbing. In fact, 

the presence of this government guarantee means that creditors 

are willing to lend money to the firm at a lower rate than they 

would charge to a similar firm without the TBTF guarantee. 

This lower price for credit causes the firm to rely more on debt 

to finance projects. In addition, the TBTF guarantee means that 

shareholders want managers to focus on riskier, higher return 

projects since shareholders will reap the gains from these higher 

returns projects but will be protected from the full extent of the 

loss if projects go bad. Shareholders incentivize managers to pursue 

riskier projects by compensating them for doing so through the use 

of bonuses and stock options that reward short-term gains. Firm 

managers are willing to go along with these plans because they 

know that the government will protect their pay in the event that 

the risky projects blow up and the firm begins teetering on the 

brink of bankruptcy. In addition, in order to encourage managers 

to invest in high-risk, high-return projects, shareholders are also 

willing to pay managers upfront bonuses so that, in the event the 

project turns bad, managers have already received hefty bonuses 

and are more than happy to ‘‘retire’’ from the firm. The key point 

is that in the presence of a TBTF guarantee provided by the federal 

government, the incentives of firm shareholders and executives are 

aligned—both want compensation schemes that encourage managers to invest in riskier projects. 

Recently, Standard & Poor’s announced that it believed the market will experience another banking crisis and, in this crisis, the 

federal government will once again step in and bail out TBTF 

firms. Consequently, S&P will explicitly account for this TBTF 

guarantee in their credit ratings.327 This is a clear sign that the 

market remains convinced the TBTF guarantee remains in effect 

and goes a long way towards explaining why there has been very 

little change in the way Wall Street executives are paid. This also 

demonstrates why reforms such as say-on-pay and independent 

compensation committees that are part of the recently enacted 

Dodd-Frank legislation will have little, if any, impact. As long as 

the government is willing to guarantee the survival of large financial firms, both shareholders and executives will continue to push 

for compensation plans that reward executives for focusing on risky 

projects. It seems clear to us that if policymakers want to reform 

the way Wall Street executives are compensated, then they need to 

start by having the government stop guaranteeing the survival of 

‘‘too-big-to-fail’’ financial firms. 

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SECTION THREE: TARP UPDATES SINCE LAST REPORT 

A. Fifth Third Repays TARP Funds 

Fifth Third Bancorp of Cincinnati, Ohio fully repaid its $3.4 billion in outstanding TARP funds on February 2, 2011. Fifth Third 

was one of the five remaining stress-tested banks to have still outstanding TARP funds. 

B. Sale of Citigroup Warrants 

Treasury recorded gross proceeds of $312.2 million from its sale 

on January 25, 2011 of the final 465.1 million warrants to purchase 

Citigroup common stock. 

C. AIG Repays FRBNY, Converts Stock, Issues Warrants— 

Treasury Stake Jumps to 92.1 Percent 

On January 14, 2011, AIG closed its previously announced recapitalization. Treasury converted its preferred shares in AIG to 

1.655 billion shares of common stock, giving Treasury a 92.1 percent stake in AIG. Monies from various asset sales were used to 

repay fully the remaining $21 billion outstanding under the Federal Reserve Bank of New York’s revolving credit facility. Warrants 

were distributed on January 19, 2011, entitling AIG’s common 

shareholders prior to the issuance of Treasury’s common stock to 

purchase AIG common stock at $45 per share. 

Additionally, AIG announced a plan to sell its Taiwan life insurance business, Nan Shan Life, to a Taiwanese consortium for $2.16 

billion. The sale could face regulatory hurdles. 

D. New Stress Tests 

The Federal Reserve is holding two rounds of stress tests for the 

19 largest U.S. banks, with the groupings dependent on when the 

lenders want to increase their 2011 dividend. Banks planning to increase dividends in the second half of 2011 will have their test results released later than banks planning to raise dividends before 

mid-2011. 

E. Metrics 

Each month, the Panel’s report highlights a number of metrics 

that the Panel and others, including Treasury, the Government Accountability Office (GAO), the Special Inspector General for the 

Troubled Asset Relief Program (SIGTARP), and the Financial Stability Oversight Board, consider useful in assessing the effectiveness of the administration’s efforts to restore financial stability and 

accomplish the goals of EESA. This section discusses changes that 

have occurred in several indicators since the release of the Panel’s 

January 2011 report. 

1. Financial Indices 

Financial Stress. The St. Louis Financial Stress Index, a proxy 

for financial stress in the U.S. economy, remains at a relatively low 

level of 0.05 as of February 1, 2011. The index has decreased approximately 95 percent since its post-crisis peak in June 2010. Furmstockstill on DSKH9S0YB1PROD with HEARINGS

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328Federal Reserve Bank of St. Louis, Series STLFSI: Business/Fiscal: Other Economic Indi- cators (Instrument: St. Louis Financial Stress Index, Frequency: Weekly) (online at research.stlouisfed.org/fred2/series/STLFSI) (accessed Feb. 8, 2011). The index includes 18 weekly 

data series, beginning in December 1993 to the present. The series are: effective federal funds 

rate, 2-year Treasury, 10-year Treasury, 30-year Treasury, Baa-rated corporate, Merrill Lynch 

High Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-rated, 10-year 

Treasury minus 3-month Treasury, Corporate Baa-rated bond minus 10-year Treasury, Merrill 

Lynch High Yield Corporate Master II Index minus 10-year Treasury, 3-month LIBOR–OIS 

spread, 3-month TED spread, 3-month commercial paper minus 3-month Treasury, the J.P. Morgan Emerging Markets Bond Index Plus, Chicago Board Options Exchange Market Volatility 

Index, Merrill Lynch Bond Market Volatility Index (1-month), 10-year nominal Treasury yield 

minus 10-year Treasury Inflation Protected Security yield, and Vanguard Financials ExchangeTraded Fund (equities). The index is constructed using principal components analysis after the 

data series are de-meaned and divided by their respective standard deviations to make them 

comparable units. The standard deviation of the index is set to 1. For more details on the construction of this index, see Federal Reserve Bank of St. Louis, National Economic Trends Appendix: The St. Louis Fed’s Financial Stress Index (Jan. 2010) (online at research.stlouisfed.org/publications/net/NETJan2010Appendix.pdf). 

thermore, the recent trend in the index suggests that financial 

stress continues moving toward its long-run norm. The index has 

decreased by more than five standard deviations since EESA was 

enacted in October 2008. 

FIGURE 8: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX 328

Stock Market Volatility. Stock market volatility, as measured 

by the Chicago Board Options Exchange Volatility Index (VIX) on 

February 1, 2011, has remained flat since the Panel’s January 

2011 report. The VIX has fallen by more than sixty percent since 

its post-crisis peak in May 2010, although it remains higher than 

its post-crisis low on April 12, 2010. 


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329Data accessed through Bloomberg Data Service (Feb. 1, 2011). The CBOE VIX is a key 

measure of market expectations of near-term volatility. Chicago Board Options Exchange, The 

CBOE Volatility Index—VIX, 2009 (online at www.cboe.com/micro/vix/vixwhite.pdf) (accessed 

Feb. 1, 2011). 330Data accessed through Bloomberg Data Service (Feb. 1, 2011). 333 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release 

H.15: Selected Interest Rates: Historical Data (Instrument: Conventional Mortgages, Frequency: 

Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/ 

H15_MORTG_NA.txt) (accessed Feb. 8, 2011) (hereinafter ‘‘Federal Reserve Statistical Release 

H.15’’); Federal Reserve Bank of St. Louis, Series DGS10: Interest Rates: Treasury Constant Maturity (Instrument: 10-Year Treasury Constant Maturity Rate, Frequency: Daily) (online at research.stlouisfed.org/fred2/series/DGS10) (accessed Feb. 8, 2011). 334Federal Reserve Bank of Minneapolis, Measuring Perceived Risk—The TED Spread (Dec. 

2008) (online at www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4120). 

FIGURE 9: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX 329

Interest Rates. Since the Panel’s January 2011 report, the 3- 

month LIBOR has increased by approximately 2.5 percent, while 

the 1-month LIBOR decreased by less than a percentage point. 

Both rates remain below their post-crisis highs in June 2010.330

Over the longer term, interest rates remain extremely low relative 

to pre-crisis levels, reflecting the impact of the actions of central 

banks and institutions’ perceptions of reduced risk in lending to 

other banks. 

FIGURE 10: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF FEBRUARY 1, 2011) 

Indicator Current Rates 

Percent Change from Data 

Available at Time of Last 

Report (1/3/2011) 

3-Month LIBOR 331 ........................................................................... 0.31 2.5 

1-Month LIBOR 332 ........................................................................... 0.26 (0.1) 

331 Data accessed through Bloomberg Data Service (Feb. 1, 2011). 332 Data accessed through Bloomberg Data Service (Feb. 1, 2011). 

Interest Rate Spreads. As of February 1, 2011, the conventional mortgage rate spread, which measures the difference between 30-year mortgage rates and 10-year Treasury bond yields, 

had decreased by 4 percent since the Panel’s January 2011 report.333 The TED spread, which captures the difference between 

the 3-month LIBOR and the 3-month Treasury bill rates, serves as 

an indicator for perceived risk in the financial markets.334 As of 


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335Federal Reserve Bank of St. Louis, What the LIBOR–OIS Spread Says (May 11, 2009) (online at research.stlouisfed.org/publications/es/09/ES0924.pdf). 336Data accessed through Bloomberg Data Service (Feb. 1, 2011). 337Data accessed through Bloomberg Data Service (Feb. 1, 2011). 

February 1, 2011, the spread was 16.6 basis points, decreasing by 

over 9 percent in January. 

The LIBOR–OIS (Overnight Index Swap) spread serves as a metric for the health of the banking system, reflecting what banks believe to be the risk of default associated with interbank lending.335

The spread increased over threefold from early April to July 2010, 

before falling in mid-July.336 The LIBOR–OIS spread grew by more 

than 26 percent since the Panel’s January 2011 report. As shown 

in Figures 11 and 12 below, these spreads remain below pre-crisis 

levels. The decrease in both the LIBOR–OIS spread and the TED 

spread from the middle of 2010 suggests that hesitation among 

banks to lend to counterparties has receded. 

FIGURE 11: TED SPREAD 337


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338Data accessed through Bloomberg Data Service (Feb. 1, 2011). 

FIGURE 12: LIBOR–OIS SPREAD 338

The interest rate spread on AA asset-backed commercial paper, 

which is considered mid-investment grade, has increased by more 

than 65 percent since the Panel’s January 2011 report. The interest 

rate spread on A2/P2 commercial paper, a lower grade investment 

than AA asset-backed commercial paper, increased by approximately 9 percent. Both interest rate spreads remain below pre-crisis levels. 

FIGURE 13: INTEREST RATE SPREADS (AS OF FEBRUARY 1, 2011) 

Indicator Current 

Spread 

Percent Change 

Since Last Report 

(1/3/2011) 

Conventional mortgage rate spread 339 .................................................................. 1.38 (4 .2) 

TED Spread (basis points) ...................................................................................... 16.55 (9 .5) 

Overnight AA asset-backed commercial paper interest rate spread 340 ................ 0.10 65 .5 

Overnight A2/P2 nonfinancial commercial paper interest rate spread 341 ............ 0.15 8 .8 

339 Federal Reserve Statistical Release H.15, supra note 333; Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.15: Selected Interest Rates: Historical Data (Instrument: U.S. Government Securities/Treasury Constant Maturities/Nominal 10-Year, 

Frequency: Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt) (accessed Feb. 8, 2011). 340 The overnight AA asset-backed commercial paper interest rate spread reflects the difference between the AA asset-backed commercial 

paper discount rate and the AA nonfinancial commercial paper discount rate. Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instruments: AA Asset-Backed Discount Rate, 

AA Nonfinancial Discount Rate; Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Feb. 8, 2011). 

In order to provide a more complete comparison, this metric utilizes the average of the interest rate spread for the last five days of January. 341 The overnight A2/P2 nonfinancial commercial paper interest rate spread reflects the difference between the A2/P2 nonfinancial commer- cial paper discount rate and the AA nonfinancial commercial paper discount rate. Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instruments: A2/P2 Nonfinancial Discount 

Rate, AA Nonfinancial Discount Rate; Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Feb. 8, 

2011). In order to provide a more complete comparison, this metric utilizes the average of the interest rate spread for the last five days of 

January. 

Corporate Bonds. The spread between Moody’s Baa Corporate 

Bond Yield Index and 30-year constant maturity U.S. Treasury 

Bond, which indicates the difference in perceived risk between corporate and government bonds, doubled from late April to mid-June 

2010. During January, the spread declined slightly, and has fallen 

almost 30 percent since its post-crisis peak in mid-June. The declining spread could indicate waning concerns about the riskiness 

of corporate bonds. 


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342Federal Reserve Bank of St. Louis, Series DGS30: Selected Interest Rates (Instrument: 30- 

Year Treasury Constant Maturity Rate, Frequency: Daily) (online at research.stlouisfed.org/ 

fred2/release?rid=18) (accessed Feb. 8, 2011). Corporate Baa rate data accessed through 

Bloomberg data service (Feb. 1, 2011). 343 Board of Governors of the Federal Reserve System, The January 2011 Senior Loan Officer 

Opinion Survey on Bank Lending Practices, at 1–5 (Jan. 31, 2011) (online at 

www.federalreserve.gov/boarddocs/snloansurvey/201102/fullreport.pdf). 

FIGURE 14: MOODY’S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY 

YIELD 342

2. Bank Conditions 

Senior Loan Officer Opinion Survey. The January 2011 

‘‘Senior Loan Officer Opinion Survey on Bank Lending Practices’’ 

details lending conditions at 57 domestic banks and 22 branches of 

foreign banks during the fourth quarter of 2010. According to the 

survey, banks continued to ease standards and terms for commercial and industrial (C&I) loans, particularly to large and mediumsized firms. Respondents attributed these changes to increasing 

competition from other banks and nonbank lenders, a ‘‘more favorable or less uncertain’’ economic horizon, as well as growth in demand for C&I loans during the fourth quarter of 2010. Banks also 

reported no changes in standards on commercial real estate (CRE) 

loans. Approximately 20 percent of banks surveyed indicated a reduction in lines of credit for commercial construction. The net percentage of domestic banks reporting increased demand for CRE 

loans grew to approximately 12.6 percent, the highest since the second quarter of 2006.343


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344 Board of Governors of the Federal Reserve System, Senior Loan Officer Opinion Survey on 

Bank Lending Practices Chart Data (Jan. 31, 2011) (online at www.federalreserve.gov/boarddocs/ 

snloansurvey/201102/chartdata.htm). 345 Id. 

FIGURE 15: NET PERCENTAGE OF DOMESTIC RESPONDENTS REPORTING STRONGER DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (2004–2010) 344

FIGURE 16: NET PERCENTAGE OF DOMESTIC RESPONDENTS REPORTING STRONGER DEMAND FOR COMMERCIAL REAL ESTATE LOANS (2004–2010) 345

3. Housing Indices 

Home Sales. Both new and existing home sales experienced a 

significant month-over-month increase in December 2010. New 

home sales, as measured by the U.S. Census Bureau, increased 

17.5 percent to 329,000 during the month. With respect to existing 

home sales, the National Association of Realtors estimates a 12 

percent month-over-month increase in December, to an annual rate 

of 5.3 million homes sold. Despite the recent increase in December 

2010, new and existing home sales remain below their December 


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346Data accessed through Bloomberg Data Service (Feb. 1, 2011). Spikes in both new and existing home sales in January 2009 and November 2009 correlate with the tax credits extended 

to first-time and repeat home buyers during these periods. After both tax credits were extinguished on April 30, 2010, existing home sales dropped to 3.8 million homes in July, their lowest 

level in a decade. National Association of Realtors, July Existing-Home Sales Fall as Expected 

but Prices Rise (Aug. 24, 2010) (online at www.realtor.org/press_room/news_releases/2010/08/ 

ehs_fall). 347 RealtyTrac, Record 2.9 Million U.S. Properties Receive Foreclosure Filings in 2010 Despite 

30-Month Low in December (Jan. 13, 2011) (online at www.realtytrac.com/content/press-releases/ 

record-29-million-us-properties-receive-foreclosure-filings-in-2010-despite-30-month-low-in-december-6309) (hereinafter ‘‘2.9 Million U.S. Properties Receive Foreclosure Filings in 2010’’). The 

most recent data available are for December 2010. 348For more information on foreclosure irregularities, see Congressional Oversight Panel, November Oversight Report: Examining the Consequences of Mortgage Irregularities for Financial 

Stability and Foreclosure Mitigation (Nov. 16, 2010) (online at cop.senate.gov/documents/cop111610-report.pdf). 349Data accessed through Bloomberg Data Service (Feb. 1, 2011). 350The most recent data available are for November 2010. See Standard and Poor’s, S&P/ 

Case-Shiller Home Price Indices (Instrument: Case-Shiller 20-City Composite Seasonally Adjusted, Frequency: Monthly) (online at www.standardandpoors.com/indices/sp-case-shiller-homeprice-indices/en/us/?indexId=spusa-cashpidff- -p-us- - - -) (accessed Feb. 1, 2011) (hereinafter 

2009 levels, when the new home sales estimate was 356,000 and 

the annual rate of existing home sales was 5.4 million homes. 

FIGURE 17: NEW AND EXISTING HOME SALES (2000–2010) 346

Foreclosures. Foreclosure actions, which consist of default notices, scheduled auctions, and bank repossessions, decreased by 

nearly 2 percent in December 2010 to 257,747.347 During the fourth 

quarter, 799,064 foreclosure actions were taken, representing a 14 

percent decrease from the previous quarter, and a total of 3.8 million were reported for the year. The significant decline between the 

third and the fourth quarter of 2010 is primarily attributable to 

foreclosure suspensions in the fall of 2010 as large loan servicers 

conducted internal reviews of their foreclosure procedures.348 Since 

the enactment of EESA, there have been approximately 8.4 million 

foreclosure actions.349

Home Prices. With respect to housing price indices, both the 

Case-Shiller Composite 20-City Composite Home Price Index and 

the FHFA Housing Price Index decreased by less than 1 percent in 

November 2010. The Case-Shiller and FHFA indices are approximately 9 percent and 6 percent, respectively, below their respective 

October 2008 levels.350


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‘‘S&P/Case-Shiller Home Price Indices’’); Federal Housing Finance Agency, U.S. and Census Division Monthly Purchase Only Index (Instrument: USA, Seasonally Adjusted) (online at 

www.fhfa.gov/Default.aspx?Page=87) (accessed Feb. 1, 2011) (hereinafter ‘‘U.S. and Census Division Monthly Purchase Only Index’’). S&P has cautioned that the seasonal adjustment is probably being distorted by irregular factors. These factors could include distressed sales and the 

various government programs. See Standard and Poor’s, S&P/Case-Shiller Home Price Indices 

and Seasonal Adjustment (Apr. 2010) (online at www.standardandpoors.com/servlet/ 

BlobServer?blobheadername3= MDT-Type&blobcol= urldata&blobtable= 

MungoBlobs&blobheadervalue2 =inline;+ filename%3DCaseShiller _Seasonal Adjustment2,0.pdf 

&blobheadername2=Content-Disposition&blobheadervalue1=application/ pdf&blobkey=id& 

blobheadername1=content-type&blobwhere=1243679046081&blobheadervalue3=UTF-8). For a 

discussion of the differences between the Case-Shiller Index and the FHFA Index, see Congressional Oversight Panel, April Oversight Report: Evaluating Progress on TARP Foreclosure Mitigation Programs, at 98 (Apr. 14, 2010) (online at cop.senate.gov/documents/cop-041410-report.pdf). 351Data accessed through Bloomberg Data Service (Feb. 1, 2011). The Case-Shiller Futures 

contract is traded on the Chicago Mercantile Exchange (CME) and is settled to the Case-Shiller 

Index two months after the previous calendar quarter. For example, the February contract will 

be settled against the spot value of the S&P Case-Shiller Home Price Index values representing 

the fourth calendar quarter of the previous year, which is released in February one day after 

the settlement of the contract. Note that most close observers believe that the accuracy of these 

futures contracts as forecasts diminishes the further out one looks. 

A Metropolitan Statistical Area is defined as a core area containing a substantial population 

nucleus, together with adjacent communities having a high degree of economic and social integration with the core. U.S. Census Bureau, About Metropolitan and Micropolitan Statistical 

Areas (online at www.census.gov/population/www/metroareas/aboutmetro.html) (accessed Feb. 1, 

2011). 

Case-Shiller futures prices indicate a market expectation that 

home-price values for the major Metropolitan Statistical Areas 

(MSAs) will decrease through 2011.351 These futures are cash-settled to a weighted composite index of U.S. housing prices in the top 

ten MSAs, as well as to those specific markets. They are used as 

a hedge by businesses whose profits and losses are related to a specific area of the housing industry, and to balance portfolios by businesses seeking exposure to an uncorrelated asset class. As such, futures prices are a composite indicator of market information known 

to date and can be used to indicate market expectations for home 

prices. 

FIGURE 18: HOUSING INDICATORS 

Indicator Most Recent Monthly 

Data 

Percent Change from Data 

Available at Time of Last 

Report 

Percent Change 

Since October 2008 

Monthly foreclosure actions 352 .................................... 257,747 (1.8) (7.8) 

S&P/Case-Shiller Composite 20 Index 353 .................... 142 .70 (0.5) (8.7) 

FHFA Housing Price Index 354 ....................................... 189 .96 (0.4) (5.8) 

352 2.9 Million U.S. Properties Receive Foreclosure Filings in 2010, supra note 347. The most recent data available are for December 2010. 353 S&P/Case-Shiller Home Price Indices, supra note 350. The most recent data available are for November 2010. 354 U.S. and Census Division Monthly Purchase Only Index, supra note 350. The most recent data available are for November 2010. 

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355 All data normalized to 100 in January 2000. Futures data accessed through Bloomberg 

Data Service (Feb. 1, 2011). S&P/Case-Shiller Home Price Indices, supra note 350. 356 U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report 

as of December 31, 2010 (Jan. 10, 2011) (online at www.treasury.gov/initiatives/financialstability/briefing-room/reports/dividends-interest/DocumentsDividendsInterest/ 

December%202010%20Dividends%20Interest%20Report.pdf) (hereinafter ‘‘Treasury Dividends, 

Interest and Distributions Report’’); Treasury Transactions Report, supra note 5. 357The original $700 billion TARP ceiling was reduced by $1.26 billion as part of the Helping 

Families Save Their Homes Act of 2009. 12 U.S.C. § 5225(a)–(b); Helping Families Save Their 

Homes Act of 2009, Pub. L. No. 111–22 § 202(b) (2009). On June 30, 2010, the House-Senate 

Conference Committee agreed to reduce the amount authorized under the TARP from $700 billion to $475 billion as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

that was signed into law on July 21, 2010. See Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. No. 111–203 (2010); The White House, Remarks by the President at Signing of Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010) (online at 

www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-frank-wall-street-reformand-consumer-protection-act). 358This figure is comprised of the $4.2 billion in net proceeds from the sale of Citigroup common stock between April 26 and December 6, 2010 as well as $2.7 billion in proceeds from the 

December 6 equity underwriting. 

FIGURE 19: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES 355

F. Financial Update 

Each month, the Panel summarizes the resources that the federal government has committed to the rescue and recovery of the 

financial system. The following financial update provides: (1) an 

updated accounting of the TARP, including a tally of income, repayments, and warrant dispositions that the program has received as 

of January 28, 2011; and (2) an updated accounting of the full federal resource commitment as of January 28, 2011. 

1. The TARP 

a. Program Updates 356

Treasury’s spending authority under the TARP officially expired 

on October 3, 2010. Though it can no longer make new funding 

commitments, Treasury can continue to provide funding for programs for which it has existing contracts and previous commitments. To date, $419.2 billion has been spent under the TARP’s 

$475 billion ceiling.357 Of the total amount disbursed, $240.4 bilVerDate Mar 15 2010 22:07 Feb 25, 2011 Jkt 063750 PO 00000 Frm 00090 Fmt 6602 Sfmt 6602 E:\HR\OC\A750.XXX A750

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358This figure is comprised of the $4.2 billion in net proceeds from the sale of Citigroup com- mon stock between April 26 and December 6, 2010 as well as $2.7 billion in proceeds from the 

December 6 equity underwriting. 360The $34.35 billion currently outstanding is net of the $2.6 billion in announced losses associated with the program. See Figure 22 for further details on losses associated with programs. 361For its CPP investments in privately held financial institutions, Treasury also received 

warrants to purchase additional shares of preferred stock, which it exercised immediately. Similarly, Treasury also received warrants to purchase additional subordinated debt that were immediately exercised along with its CPP investments in subchapter S corporations. Treasury 

Transactions Report, supra note 5, at 14. 362This total is only for the TIP and CPP programs and does not include the $67.2 million 

received pursuant to the AGP. 

lion has been repaid. Treasury has also incurred $6.1 billion in 

losses associated with its Capital Purchase Program (CPP) and 

Automotive Industry Financing Program (AIFP) investments. Over 

two-thirds of the $172.8 billion in TARP funds currently outstanding relates to Treasury’s investments in AIG and assistance 

provided to the automotive industry. For further information, see 

Figure 21 below. 

CPP Repayments 

As of January 28, 2011, 135 of the 707 banks that participated 

in the CPP have fully redeemed their preferred shares either 

through capital repayment or exchanges for investments under the 

Community Development Capital Initiative (CDCI). During January 2011, Treasury received funds from the sale of the Citigroup 

warrants, adding an additional $312.2 million in profit onto the 

$6.9 billion in profit from the sale of shares, and fully ending 

Treasury’s investment in Citigroup.358 An additional four banks 

fully repaid their remaining CPP capital during January 2011, returning $80.3 million in principal to Treasury. See Figure 20 below 

for repayment amounts. 

FIGURE 20: BANKS THAT FULLY REPAID THEIR CPP LOANS IN JANUARY 2011 359

Bank Amount Repaid Remaining 

Investment 

Capital Bank Corporation ................................................................................... $41,279,000 None. 

BCSB Bancorp, Inc. ............................................................................................. 10,800,000 Warrants. 

Washington Banking Company ........................................................................... 26,380,000 Warrants. 

American Premier Bancorp ................................................................................. 1,800,000 None. 

Total ........................................................................................................... $80,259,000 

359 Treasury Transactions Report, supra note 5. Treasury received $90,000 from American Premier Bancorp for additional preferred stock, as 

the warrants in the company were immediately exercised at investment date. 

Additionally, during January 2011, Stockmens Financial Cor- poration made a partial repayment of $4 million. A total of $168.01 

billion has been repaid under the program, leaving $34.35 billion 

in funds currently outstanding.360

b. Income: Dividends, Interest, and Warrant Sales 

In conjunction with its preferred stock investments under the 

CPP and the Targeted Investment Program (TIP), Treasury generally received warrants to purchase common equity.361 As of January 28, 2011, 50 institutions have repurchased their warrants from 

Treasury at an agreed-upon price. Treasury has also sold warrants 

for 16 other institutions at auction. To date, income from warrant 

dispositions totals $8.5 billion.362

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363 U.S. Department of the Treasury, Capital Purchase Program (Oct. 3, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/investment-programs/cpp/Pages/ 

capitalpurchaseprogram.aspx). 364 Congressional Oversight Panel, Written Testimony of Herbert M. Allison, Jr., assistant secretary for financial stability, U.S. Department of the Treasury, COP Hearing on Assistance Provided to Citigroup Under TARP (Mar. 4, 2010) (online at cop.senate.gov/documents/testimony030410-allison.pdf). 365Treasury Dividends, Interest and Distributions Report, supra note 356; Treasury Transactions Report, supra note 5. Treasury also received an additional $1.2 billion in participation 

fees from its Guarantee Program for Money Market Funds. U.S. Department of the Treasury, 

Treasury Announces Expiration of Guarantee Program for Money Market Funds (Sept. 18, 2009) 

(online at 205.168.45.55/latest/tg_09182009.html). 

In addition to warrant proceeds, Treasury also receives dividend 

payments on the preferred shares that it holds under the CPP, 5 

percent per year for the first five years and 9 percent per year 

thereafter.363 For preferred shares issued under the TIP, Treasury 

received a dividend of 8 percent per year.364 In total, Treasury has received approximately $31.0 billion in net income from warrant 

repurchases, dividends, interest payments, profit from the sale of 

stock, and other proceeds deriving from TARP investments, after 

deducting losses.365 For further information on TARP profit and 

loss, see Figure 22. 

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c. TARP Accounting 

FIGURE 21: TARP ACCOUNTING (AS OF JANUARY 28, 2011) 

[Dollars in billions] i

Program 

Maximum 

Amount 

Allotted 

Actual 

Funding 

Total 

Repayments/ 

Reduced 

Exposure 

Total 

Losses 

Funding 

Currently 

Outstanding 

Funding 

Available 

Capital Purchase Program 

(CPP) .................................... $204.9 $204.9 ii $(168 .0) iii $(2 .6) $34 .4 $0 

Targeted Investment Program 

(TIP) ...................................... 40.0 40.0 (40 .0) 0 0 0 

Asset Guarantee Program (AGP) 5.0 iv 5.0 v (5 .0) 0 0 0 

AIG Investment Program (AIGIP) 70.0 vi 70.0 0 0 70 .0 0 

Auto Industry Financing Program (AIFP) .......................... 81.3 81.3 (26 .4) vii (3 .4) viii 51 .5 0 

Auto Supplier Support Program 

(ASSP) ix ................................ 0.4 0.4 (0 .4) 0 0 0 

Term Asset-Backed Securities 

Loan Facility (TALF) ............. x 4.3 xi 0.1 0 0 0 .1 4 .2 

Public-Private Investment Program (PPIP) xii ...................... 22.4 xiii 15.6 xiv (0 .6) 0 15 .0 6 .8 

SBA 7(a) Securities Purchase 

Program ................................ 0.4 xv 0.4 0 0 0 .4 xvi 0 

Home Affordable Modification 

Program (HAMP) ................... 29.9 0.8 0 0 0 .8 29 .1 

Hardest Hit Fund (HHF) ............ xvii 7.6 xviii 0.1 0 0 0 .1 7 .5 

FHA Refinance Program ........... 8.1 xix 0.1 0 0 0 .1 8 .0 

Community Development Capital Initiative (CDCI) ............ xx 0.8 xxi 0.6 0 0 0 .6 0 

Total ................................ $475.0 $419.2 $(240 .4) $(6 .0) $172 .8 $55 .7 

iFigures affected by rounding. Unless otherwise noted, data in this table are from the following sources: U.S. Department of the Treasury, 

Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 Transactions%20Report%20as%20of%201-28-11.pdf); U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) 

Report—December 2010 (Jan. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Documents105/December105(a) report_FINAL_v4.pdf). ii In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the company’s common stock at $3.25 

per share. As of January 28, 2011, Treasury had sold the entirety of its Citigroup common shares for $31.85 billion in gross proceeds. The 

amount repaid under CPP includes $25 billion Treasury received as part of its sales of Citigroup common stock. The difference between these 

two numbers represents the $6.85 billion in net profit Treasury has received from the sale of Citigroup common stock. 

Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for investments under the CDCI, 

as well as proceeds earned from the sale of preferred stock issued by South Financial Group, Inc., TIB Financial Corp, and The Bank of 

Currituck. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, 2, 

7, 13–15 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/

DocumentsTARPTransactions/ 2-1-11%20Transactions%20 Report%20as%20of%201-28-11.pdf); U.S. Department of the Treasury, Troubled 

Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at www.financialstability.gov/docs/ TARP%20Two%20Year%20 Retrospective_10%2005%2010_transmittal%20letter.pdf); U.S. Department of the Treasury, Treasury Commences Plan to Sell Citigroup Common 

Stock (Apr. 26, 2010) (online at ustreas.tpaq.treasury.gov/press/releases/tg660.htm). iii In the TARP Transactions Report, Treasury has classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold its preferred ownership interests, along with warrants, in South Financial Group, Inc., TIB Financial Corp., and the Bank of Currituck to non-TARP participating institutions. These shares were sold at prices 

below the value of the original CPP investment, at respective losses of $217 million, $25 million, and $2.3 million. Therefore, Treasury’s net 

current CPP investment is $34.4 billion due to the $2.6 billion in losses thus far. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 1–14 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). iv The $5.0 billion AGP guarantee for Citigroup was unused since Treasury was not required to make any guarantee payments during the 

life of the program. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 31 (Oct. 2010) (online at 

www.treasury.gov/initiatives/ financial-stability/ briefing-room/reports/ agency_reports/Documents/ TARP%20Two%20Year%20 Retrospective_ 

10%2005%2010_transmittal%20letter.pdf). v Although this $5.0 billion is no longer exposed as part of the AGP, Treasury did not receive a repayment in the same sense as with other 

investments. Treasury did receive other income as consideration for the guarantee, which is not a repayment and is accounted for in Figure 

22. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 20 

(Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/tarp-transactions/ DocumentsTARPTransactions/ 

2-1-11%20Transactions%20 Report%20as%20of%201-28-11.pdf). 

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vi AIG has completely utilized the $40 billion that was made available on November 25, 2008, in exchange for the company’s preferred 

stock. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 21 

(Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/briefing-room/ reports/tarp-transactions/ DocumentsTARPTransactions/ 

2-1-11%20Transactions%20 Report%20as%20of%201-28-11.pdf). It has also drawn down the entirety of the $30 billion made available on 

April 17, 2009. Of this $30 billion investment, $165 million was used for retention payments and the remainder was exchanged or used in 

the execution of AIG’s recapitalization plan. In total $29.8 billion was drawn by AIG. The $7.5 billion that was outstanding under the facility 

at the time AIG executed its recapitalization plan was converted to 167.6 million shares of AIG common stock. Upon the closing of the recapitalization plan, $16.9 billion of the funds drawn-down from the Series F TARP investment was exchanged for a corresponding liquidation 

preference of preferred stock in the AIA Aurora LLC, $3. 4 billion was exchanged for junior preferred stock interest in the ALICO Holdings LLC, 

and $2 billion was designated as Series G preferred stock, which provides AIG with an equity capital facility they can draw on for general 

corporate purposes. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 

2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/ briefing-room/ reports/ tarp-transactions/ 

DocumentsTARPTransactions/ 2-1-11%20Transactions%20 Report%20as%20of%201-28-11.pdf). This figure does not include $1.6 billion in accumulated but unpaid dividends owed by AIG to Treasury due to the restructuring of Treasury’s investment from cumulative preferred shares 

to non-cumulative shares. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/ 

DocumentsTARPTransactions/ 2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf); For a full discussion of AIG’s recapitalization 

plan, see American International Group, Inc., Form 8–K (Jan. 14, 2011) (online at phx.corporate-ir.net/phoenix.zhtml?c =76115&p=irol 

-SECText&TEXT=aHR0cDovL2lyLm ludC53ZXN0bGF3Y nVzaW5lc3MuY29tL2RvY3V tZW50L3YxLzAwMDA5NTAxMjMtMTEt MDAzMDYxL3htbA%3d%3d). vii On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler Holding. The payment represented a $1.6 billion loss from the termination of the debt obligation. See U.S. Department of the Treasury, Chrysler Financial Parent Company Repays $1.9 Billion in Settlement of Original Chrysler Loan (May 17, 2010) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg700.aspx); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for the Period Ending January 28, 2011, at 18–19 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/ 

briefing-room/reports/ tarp-transactions/ Documents TARPTransactions/2-1-11%20 Transactions%20 Report%20as%20of%201-28-11.pdf).

Also, following the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion debtor-in-possession (DIP) loan provided to 

Old Chrysler, Treasury retained the right to recover the proceeds from the liquidation of specified collateral. Although Treasury does not expect 

a significant recovery from the liquidation proceeds, Treasury is not yet reporting this loan as a loss in the TARP Transactions Report. To 

date, Treasury has collected $48.1 million in proceeds from the sale of collateral. Treasury includes these proceeds as part of the $26.4 billion repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—September 2010 (Oct. 12, 

2010) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Documents105/September%20105(a)%20report_FINAL.pdf); Treasury conversations with Panel staff (Aug. 19, 2010 and Nov. 29, 2010); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions 

Report for the Period Ending January 28, 2011, at 18 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 Transactions%20 

Report%20as%20of%201-28-11.pdf). viii In the TARP Transactions Report, the $1.9 billion Chrysler debtor-in-possession loan, which was extinguished April 30, 2010, was deducted from Treasury’s current AIFP investment amount. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report 

for the Period Ending January 28, 2011, at 18 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ 

reports/tarp-transactions/ DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). See endnote vii, supra, 

for details on losses from Treasury’s investment in Chrysler. ix On April 5, 2010, Treasury terminated its commitment to lend to the GM special purpose vehicle (SPV) under the ASSP. On April 7, 2010, 

it terminated its commitment to lend to the Chrysler SPV. In total, Treasury received $413 million in repayments from loans provided by this 

program ($290 million from the GM SPV and $123 million from the Chrysler SPV). Further, Treasury received $101 million in proceeds from additional notes associated with this program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 19 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ 

financial-stability/briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/2-1-11%20Transactions%20 

Report%20as%20of%201-28-11.pdf). xFor the TALF, $1 of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The program was intended to be a $200 billion initiative, and the TARP was responsible for the first $20 billion in loan-losses, if any were incurred. The loan was incremen- tally funded. When the program closed in June 2010, a total of $43 billion in loans was outstanding under the TALF, and the TARP’s commit- ments constituted $4.3 billion. The Federal Reserve Board of Governors agreed that it was appropriate for Treasury to reduce TALF credit protection from the TARP to $4.3 billion. Board of Governors of the Federal Reserve System, Federal Reserve Announces Agreement with the 

Treasury Department Regarding a Reduction of Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 

2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100720a.htm). xi As of February 3, 2011, Treasury had provided $106 million to TALF LLC. This total is net of accrued interest payable to Treasury. Board 

of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Feb. 3, 2010) (online at 

www.federalreserve.gov/releases/h41/20110203/). xii As of September 30, 2010, the total value of securities held by the PPIP fund managers was $19.3 billion. Non-agency residential 

mortgage-backed securities represented 82 percent of the total; commercial mortgage-backed securities represented the balance. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, Program Update—Quarter Ended September 30, 2010, at 4 (Oct. 

20, 2010) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/ppip/s-ppip/Documents/ppip-%2012-10%20vFinal.pdf). xiii U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—December 2010, at 3 (Jan. 10, 2011) (online at 

www.treasury.gov/initiatives/ financial-stability/briefing-room/ reports/105/Documents105/December105(a) report_FINAL_v4.pdf). xiv As of January 28, 2011, Treasury has received $620 million in capital repayments from two PPIP fund managers. U.S. Department of the 

Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 24 (Feb. 1, 2011) (online at 

financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20 Report%20as%20of%2012-30-10.pdf). xv As of January 28, 2011, Treasury’s purchases under the SBA 7(a) Securities Purchase Program totaled $368.1 million. U.S. Department of 

the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 23 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 Transactions%20 

Report%20as%20of%201-28-11.pdf). xviTreasury will not make additional purchases pursuant to the expiration of its purchasing authority under EESA. U.S. Department of the 

Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 43 (Oct. 2010) (online at www.treasury.gov/initiatives/ financial-stability/ 

briefing-room/ reports/ agency_reports/ Documents/ TARP%20Two%20Year%20 Retrospective_ 10%2005%2010_transmittal%20letter.pdf). xvii On June 23, 2010, $1.5 billion was allocated to mortgage assistance through the Hardest Hit Fund (HHF). Another $600 million was ap- proved on August 3, 2010. U.S. Department of the Treasury, Obama Administration Approves State Plans for $600 million of ‘Hardest Hit Fund’ Foreclosure Prevention Assistance (Aug. 4, 2010) (online at www.treasury.gov/press-center/press-releases/Pages/tg813.aspx). As part of 

its revisions to TARP allocations upon enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury allocated an additional $2 billion in TARP funds to mortgage assistance for unemployed borrowers through the HHF. U.S. Department of the Treasury, 

Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners Struggling with Unemployment (Aug. 11, 2010) (online at www.treasury.gov/press-center/press-releases/Pages/tg1042.aspx). In October 2010, another $3.5 billion 

was allocated among the 18 states and the District of Columbia currently participating in HHF. The amount each state received during this 

round of funding is proportional to its population. U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 

72 (Oct. 2010) (online at www.financialstability.gov/ docs/ TARP%20 Two%20Year%20 Retrospective_10%2005%2010_ 

transmittal%20letter.pdf). xviii As of December 31, 2010, a total of $103.6 million has been disbursed to 12 state Housing Finance Agencies (HFAs). Treasury conversations with Panel staff (Jan. 6, 2011). 

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xixThis figure represents the amount Treasury disbursed to fund the advance purchase account of the Letter of Credit issued under the FHA 

Short Refinance Program. The $53.3 million in the FHA Short Refinance program is broken down as follows: $50 million for a deposit into an 

advance purchase account as collateral to the initial $50 million Letter of Credit, $2.9 million for the closing and funding of the Letter of 

Credit, $115,000 in trustee fees, $175,000 in claims processor fees, and $156,000 for an unused commitment fee for the Letter of Credit. 

Data provided by Treasury (Dec. 2, 2010). xx U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—November 2010, at 4 (Dec. 10, 2010) (online at 

www.treasury.gov/initiatives /financial-stability/briefing-room/reports/105/Documents105/November%20105(a)%20FINAL.pdf). xxi U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 16–17 

(Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/ DocumentsTARPTransactions/ 

2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). Treasury closed the program on September 30, 2010, after investing $570 

million in 84 CDFIs. U.S. Department of the Treasury, Treasury Announces Special Financial Stabilization Initiative Investments of $570 Million 

in 84 Community Development Financial Institutions in Underserved Areas (Sept. 30, 2010) (online at www.treasury.gov/press-center/ 

press-releases/ Pages/tg885.aspx). 

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FIGURE 22: TARP PROFIT AND LOSS 

[Dollars in millions] 

TARP Initiative xxii

Dividendsxxiii

(as of 

12/31/2010) 

Interest xxiv

(as of 

12/31/2010) 

Warrant 

Disposition 

Proceedsxxv

(as of 

1/28/2011) 

Other 

Proceeds 

(as of 

12/31/2010) 

Lossesxxvi

(as of 

1/28/2011) 

Total 

Total ......................... $16,013 $1,223 $8,476 $9,835 ($6,018) $29,530 

CPP ........................... 10,290 59 7,030 xxvii 6,852 (2,578) 21,653 

TIP ............................. 3,004 — 1,446 — — 4,450 

AIFP ........................... 2,274 1,061 — xxviii 15 (3,440) (90) 

ASSP ......................... — 15 — xxix 101 — 116 

AGP ........................... 443 — — xxx 2,246 — 2,689 

PPIP .......................... — 85 — xxxi 345 — 430 

SBA 7(a) ................... — 4 — — — 4 

Bank of America 

Guarantee ............. — — — xxxii 276 — 276 

CDCI .......................... 1 1 — — — 2 

xxii AIG is not listed in this table because no profit or loss has been recorded to date for AIG. Its missed dividends were capitalized as part 

of the issuance to Treasury of Series E preferred shares. Following the closing of AIG’s recapitalization, the $1.6 billion in missed and capitalized dividends were exchanged along with the $40 billion Series E TARP preferred investment for 924.5 million AIG common stock shares. Therefore, no profit or loss has been realized on Treasury’s AIG investment to date. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/ 

initiatives/financial-stability/ briefing-room/reports/tarp-transactions/Documents 

TARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). 

HAMP is not listed in this table because HAMP is a 100 percent subsidy program, and no profit is expected. 

xxiii U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of December 31, 2010 (Jan. 10, 2011) (online at www.treasury.gov/ initiatives/financial-stability/briefing-room/reports/dividends- interest/Documents 

DividendsInterest/December%202010%20Dividends %20Interest%20Report.pdf). xxiv U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of December 31, 2010 (Jan. 10, 2011) (online at www.treasury.gov/initiatives/ financial-stability/briefing-room/reports/ dividends-interest/DocumentsDividendsInterest/

December%202010%20Dividends%20Interest%20Report.pdf). xxv U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011 (Feb. 1, 

2011) (online at www.treasury.gov/ initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1-11% 20Transactions%20Report%20as%20of%201-28-11.pdf). xxvi In the TARP Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. Treasury has also sold its preferred ownership interests and warrants from South Financial Group, Inc., TIB Financial Corp, and the Bank of Currituck. This represents a $244.0 million loss on its CPP investments in these three banks. Two TARP recipients, UCBH Holdings, Inc. ($298.7 million) and a banking subsidiary of Midwest Banc Holdings, Inc. ($89.4 million), are currently in bankruptcy proceedings. As of January 28, 2011, three TARP recipients, Pierce County Bancorp, Sonoma Valley Bancorp, and Tifton Banking Company, had entered receivership. Cumulatively, these three had received $19.3 million in TARP funding. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1-11% 

20Transactions%20Report%20as%20of%201-28-11.pdf). xxviiThis figure also reflects net proceeds to Treasury from the sale of Citigroup common stock to date. For details on Treasury’s sales of 

Citigroup common stock, see endnote ii, supra. See also U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report 

for the Period Ending January 28, 2011, at 15 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1-11%20 

Transactions%20Report%20as%20of%201-28-11.pdf). xxviiiTreasury received proceeds from an additional note connected with the loan made to Chrysler Financial on January 16, 2009. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 18 (Feb. 1, 2011) 

(online at www.treasury.gov/initiatives/ financial-stability/briefing-room/reports/ tarp-transactions/DocumentsTARPTransactions/2-1-11%20 

Transactions%20Report%20as%20of%201-28-11.pdf). xxixThis represents the total proceeds from additional notes connected with Treasury’s investments in GM Supplier Receivables LLC and 

Chrysler Receivables SPV LLC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 19 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/ 2-1-11%20Transactions% 

20Report%20as%20of%201-28-11.pdf). xxx As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the AGP, 

Treasury received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred securities in June 2009. Following the early termination of the guarantee in December 2009, Treasury cancelled $1.8 billion of the trust preferred 

securities, leaving Treasury with $2.23 billion in Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securities for 

$2.25 billion in total proceeds. At the end of Citigroup’s participation in the FDIC’s Temporary Liquidity Guarantee Program (TLGP), the FDIC 

may transfer $800 million of $3.02 billion in Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to Treasury. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 20 (Feb. 

1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/briefing-room/ reports/tarp-transactions/ 

DocumentsTARPTransactions/2-1-11%20Transactions% 20Report%20as%20of%201-28-11.pdf); U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Citigroup Inc., Termination Agreement, at 1 (Dec. 23, 2009) 

(online at www.treasury.gov/ initiatives/financial-stability/ investment-programs/agp/ Documents/Citi%20AGP%20Termination% 

20Agreement%20-%20Fully%20Executed% 20Version.pdf); U.S. Department of the Treasury, Treasury Announces Further Sales of Citigroup Securities and Cumulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (online at 

www.treasury.gov/press-center/press-releases/Pages/tg887.aspx); Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 

2010) (online at www.fdic.gov/about/strategic/report/2009annualreport/AR09final.pdf). xxxi As of December 31, 2010, Treasury has earned $324.0 million in membership interest distributions from the PPIP. Additionally, Treasury 

has earned $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of December 31, 2010, at 14 (Jan. 10, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/dividends-interest/Documents 

DividendsInterest/December%202010%20Dividends% 20Interest%20Report.pdf); U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending January 28, 2011, at 23 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1-11% 

20Transactions%20Report%20as%20of%201-28-11.pdf). 

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366Treasury Dividends, Interest and Distributions Report, supra note 356, at 20. 367This figure does not include banks with missed dividend payments that have either repaid 

all delinquent dividends, exited the TARP, gone into receivership, or filed for bankruptcy. 368Fifteen of these institutions made payments later. The 21 institutions also include those 

that have either (a) fully repaid their CPP investment and exited the program, or (b) entered 

bankruptcy or their subsidiary was placed into receivership. Treasury Dividends, Interest and 

Distributions Report, supra note 356, at 20. 369 U.S. Department of the Treasury, Fact Sheet Capital Purchase Program Nomination of 

Board Observers & Directors (online at www.treasury.gov/ initiatives/financial-stability/ investment-programs/cpp/Documents/ CPP%20 Directors%20-%20Observer% 20 Fact%20Sheet.pdf) 

(accessed Feb. 8, 2011). 

xxxii Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a guarantee similar to that received 

by Citigroup through the AGP, the parties never reached an agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee had been in place during the negotiations period. This agreement resulted in payments of 

$276 million to Treasury, $57 million to the Federal Reserve, and $92 million to the FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Bank of America Corporation, Termination Agreement, at 1–2 

(Sept. 21, 2009) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/agp/Documents/BofA%20-% 

20Termination%20Agreement%20-%20executed.pdf). 

d. CPP Unpaid Dividend and Interest Payments 366

As of December 31, 2010, 140 institutions have missed at least 

one dividend payment on outstanding preferred stock issued under 

the CPP.367 Among these institutions, 111 institutions are not current on cumulative dividends, amounting to $151.5 million in 

missed payments. Another 29 banks have not paid $9.5 million in 

non-cumulative dividends. Of the $34.4 billion currently outstanding in CPP funding, Treasury’s investments in banks with 

non-current dividend payments total $4.1 billion. A majority of the 

banks that remain delinquent on dividend payments have under $1 

billion in total assets on their balance sheets. Also, there are 21 institutions that no longer have outstanding unpaid dividends, after 

previously deferring their quarterly payments.368

Twelve banks have failed to make six dividend payments, six 

banks have missed seven quarterly payments, and one bank has 

missed all eight quarterly payments. These institutions have received a total of $897.2 million in CPP funding. Under the terms 

of the CPP, after a bank fails to pay dividends for six periods, 

Treasury has the right to elect two individuals to the company’s 

board of directors.369

As of December 31, 2010, multiple institutions with missed dividends have agreed to have Treasury observers attend Board of Directors meetings. 

FIGURE 23: INSTITUTIONS WHERE TREASURY OBSERVERS NOW ATTEND BOARD MEETINGS xxxiii

Institution 

CPP 

Investment 

Amount 

Non-Current 

Dividends/ 

Interest 

No. of 

Missed 

Payments 

Anchor BanCorp Wisconsin, Inc. ......................................................... $110,000,000 9,854,167 7 

Blue Valley Ban Corp .......................................................................... 21,750,000 1,903,125 7 

Central Pacific Financial Corp. .......................................................... 135,000,000 10,125,000 6 

Centrue Financial Corporation ............................................................ 32,668,000 2,450,100 6 

Citizens Bancorp ................................................................................. 10,400,000 850,200 6 

Citizens Commerce Bancshares, Inc. ................................................. 6,300,000 429,188 5 

Dickinson Financial Corporation II ..................................................... 146,053,000 11,939,880 6 

First BanCorp (PR) xxxiv ....................................................................... 400,000,000 6,775,001 2 

First Banks, Inc. ................................................................................. 295,400,000 24,148,950 6 

Grand Mountain Bancshares, Inc. ...................................................... 3,076,000 244,970 6 

Heritage Commerce Corp .................................................................... 40,000,000 2,500,000 5 

Idaho Bancorp ..................................................................................... 6,900,000 564,075 6 

Integra Bank Corporation ................................................................... 83,586,000 5,224,125 5 

Pacific Capital Bancorp xxxv ................................................................ 180,634,000 – 0 

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FIGURE 23: INSTITUTIONS WHERE TREASURY OBSERVERS NOW ATTEND BOARD MEETINGS xxxiii— 

Continued 

Institution 

CPP 

Investment 

Amount 

Non-Current 

Dividends/ 

Interest 

No. of 

Missed 

Payments 

Pacific City Financial Corporation ...................................................... 16,200,000 1,324,350 6 

Pathway Bancorp ................................................................................ 3,727,000 253,863 5 

Premierwest Bancorp .......................................................................... 41,400,000 2,587,500 5 

Rogers Bancshares, Inc. ..................................................................... 25,000,000 1,703,125 5 

Royal Bancshares of Pennsylvania, Inc. ............................................ 30,407,000 2,280,525 6 

Seacoast Banking Corporation of Florida ........................................... 50,000,000 4,375,000 7 

Georgia Primary Bank ......................................................................... 4,500,000 377,413 6 

Lone Star Bank ................................................................................... 3,072,000 297,242 7 

One Georgia Bank ............................................................................... 5,500,000 455,453 6 

OneUnited Bank .................................................................................. 12,063,000 1,055,513 7 

Premier Service Bank .......................................................................... 4,000,000 323,972 6 

United American Bank ........................................................................ 8,700,000 823,177 7 

Total ........................................................................................... $1,676,336,000 $92,865,912 146 

xxxiii U.S. Department of the Treasury, Cumulative Dividends, Interest, and Distributions Report as of January 31, 2010 (Feb. 10, 2011) (online at www.www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/ dividends-interest/ Documents DividendsInterest/ 

January%202011%20Dividends%20Interest%20Report.pdf). xxxiv On July 20, 2010, Treasury completed the exchange of its $400,000,000 of Preferred Stock in First BanCorp for $424,174,000 of 

Mandatorily Convertible Preferred Stock (MCP), which is equivalent to the initial investment amount of $400,000,000, plus $24,174,000 of 

capitalized previously accrued and unpaid dividends. Subject to the fulfillment by First BanCorp of certain conditions, including those related 

to its capital plan, the MCP may be converted to common stock. This institution has agreed to have Treasury observers attend board of direc- tors meetings. xxxv On August 31, 2010, following the completion of the conditions related to Pacific Capital Bancorp’s (Pacific Capital) capital plan, 

Treasury exchanged its $180,634,000 of Preferred Stock in Pacific Capital for $195,045,000 of Mandatorily Convertible Preferred Stock (MCP), 

which is equivalent to the initial investment amount of $180,634,000, plus $14,411,000 of capitalized previously accrued and unpaid dividends. On September 27, 2010, following the completion of the conversion conditions set forth in the Certificate of Designations for the MCP, 

all of Treasury’s MCP was converted into 360,833,250 shares of common stock of Pacific Capital. This institution has agreed to have Treasury 

observers attend board of directors meetings. 

Figure 24 below provides further details on the distribution and 

the number of institutions that have missed dividend payments. 

FIGURE 24: CPP MISSED DIVIDEND PAYMENTS (AS OF DECEMBER 31, 2010) 370

Number of Missed Payments 1 2 3 4 5 6 7 8 Total 

Cumulative Dividends: 

Number of Banks, by asset size ........................................................... 17 28 20 20 14 9 3 0 111 

Under $1B ..................................................................................... 10 21 17 16 9 6 1 0 80 

$1B-$10B ...................................................................................... 6 6 3 3 5 3 2 0 28 

Over $10B ..................................................................................... 1 1 0 1 0 0 0 0 3 

Non-Cumulative Dividends: 

Number of Banks, by asset size ........................................................... 6 1 6 6 3 3 3 1 29 

Under $1B ..................................................................................... 5 1 6 5 3 3 3 1 27 

$1B-$10B ...................................................................................... 0 0 0 1 0 0 0 0 1 

Over $10B ..................................................................................... 1 0 0 0 0 0 0 0 1 

Total Banks Missing Payments ............................................................ .... .... .... .... .... .... .... .... 140 

Total Missed Payments ......................................................................... .... .... .... .... .... .... .... .... 470 

370 Treasury Dividends, Interest and Distributions Report, supra note 356, at 17–20. Data on total bank assets compiled using SNL Financial data service (accessed Feb. 2, 2011). 

In addition, eight CPP participants have missed at least one interest payment, representing $4.0 million in cumulative unpaid interest payments. Treasury’s total investments in these non-public 

institutions represent less than $1 billion in CPP funding. 

e. CPP Losses 

As of January 28, 2011, Treasury has realized a total of $2.6 billion in losses from investments in five CPP participants. CIT Group 

Inc. and Pacific Coast National Bancorp have both completed bankruptcy proceedings and there was no monetary recovery to the 

TARP, and the preferred stock and warrants issued by the South 

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371Treasury Transactions Report, supra note 5, at 13. 

Financial Group, TIB Financial Corp., and the Bank of Currituck 

were sold to third-party institutions at a discount. Excluded from 

Treasury’s total losses are investments in institutions that have 

pending receivership or bankruptcy proceedings, as well as an institution that is currently the target of an acquisition.371 Settlement of these transactions and proceedings would increase total 

losses in the CPP to $3.0 billion. Figure 25 below details settled 

and unsettled investment losses from CPP participants that have 

declared bankruptcy, been placed into receivership, or renegotiated 

the terms of their CPP contracts. 

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FIGURE 25: CPP SETTLED AND UNSETTLED LOSSES 372

Institution Investment Amount Investment Disposition Amount Warrant Disposition Amount Dividends & Interest Possible Losses/ Reduced Exposure Action 

Cadence Financial Corporation .................................. $44,000,000 $38,000,000 – $2,970,000 $(6,000,000) 10/29/2010: Treasury agreed to sell preferred stock 

and warrants issued by Cadence Financial to Community Bancorp LLC for $38 million plus accrued and unpaid dividends. Completion of the sale subject to fulfillment of certain closing conditions. 

CIT Group Inc.* .......................................................... 2,330,000,000 — — 43,687,500 (2,330,000,000) 12/10/2009: Bankruptcy reorganization plan for CIT 

Group Inc. became effective. CPP preferred shares and warrants were extinguished and replaced with contingent value rights (CVR). On Feb. 8, 2010, the CVRs expired without value. 

Midwest Banc Holdings, Inc. ..................................... 89,388,000 — — 824,289 (89,388,000) 5/14/2010: Midwest Banc Holdings, Inc. subsidiary, 

Midwest Bank and Trust, Co., placed into receivership. Midwest Banc Holdings is currently in bankruptcy proceedings. 

Pacific Coast National Bancorp* ............................... 4,120,000 — — 18,088 (4,120,000) 2/11/2010: Pacific Coast National Bancorp dismissed its bankruptcy proceedings without recovery to creditors or investors. Investments, including Treasury’s CPP investments, were extinguished. 

Pierce County Bancorp ............................................... 6,800,000 — — 207,948 (6,800,000) 11/5/2010: Pierce County Bancorp subsidiary, 

Pierce Commercial Bank, placed into receivership. 

Sonoma Valley Bancorp .............................................. 8,653,000 — — 347,164 (8,653,000) 8/20/2010: Sonoma Valley Bancorp subsidiary, 

Sonoma Valley Bank, placed into receivership. 

South Financial Group* .............................................. 347,000,000 130,179,219 $400,000 16,386,111 (216,820,781) 9/30/2010: Preferred stock and warrants sold to 

Toronto-Dominion Bank. 

The Bank of Currituck* .............................................. 4,021,000 1,742,850 — 169,834 (2,278,150) 12/3/2010: The Bank of Currituck completed its repurchase of all preferred stock (including preferred stock received upon exercise of warrants) 

issued to Treasury. 

TIB Financial Corp.* ................................................... 37,000,000 12,119,637 40,000 1,284,722 (24,880,363) 9/30/2010: Preferred stock and warrants sold to 

North American Financial Holdings. 

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Tifton Banking Company ............................................ 3,800,000 — — 223,208 (3,800,000) 11/12/2010: Tifton Banking Company placed into 

receivership. 

UCBH Holdings, Inc. ................................................... 298,737,000 — — 7,509,920 (298,737,000) 11/6/2009: United Commercial Bank, a wholly 

owned subsidiary of UCBH Holdings, Inc., was placed into receivership. UCBH Holdings is currently in bankruptcy proceedings. 

Total .................................................................. $3,173,519,000 $182,041,706 $440,000 $73,628,784 $(2,991,477,294) 

372 Treasury Transactions Report, supra note 5, at 14. The asterisk (‘‘*’’) denotes recognized losses on Treasury’s Transactions Report. 

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373 Calculation of the internal rate of return (IRR) also includes CPP investments in public 

institutions not repaid in full (for reasons such as acquisition by another institution), such as 

The South Financial Group and TIB Financial Corporation. The Panel’s total IRR calculation 

now includes CPP investments in public institutions recorded as a loss on the TARP Transactions Report due to bankruptcy, such as CIT Group Inc. Going forward, the Panel will continue to include losses due to bankruptcy when Treasury determines that any associated contingent value rights have expired without value. When excluding CPP investments that have resulted in losses from the calculation, the resulting IRR is 11.4 percent. Treasury Transactions 

Report, supra note 5. 

f. Rate of Return 

As of February 2, 2011, the average internal rate of return for 

all public financial institutions that participated in the CPP and 

fully repaid the U.S. government (including preferred shares, dividends, and warrants) rose to 10.1 percent.373 During January 2011, 

Huntington Bancshares, First PacTrust Bancorp, Inc., East West 

Bancorp, and Susquehanna Bancshares, Inc. repurchased their 

warrants, while Citigroup’s warrants were sold at auction. The internal rate of return is the annualized effective compounded return 

rate that can be earned on invested capital. 

g. Warrant Disposition 

FIGURE 26: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP AND TIP FUNDS (AS OF FEBRUARY 2, 2011) 

Institution Investment 

Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition 

Date 

Price/ 

Estimate 

Ratio 

IRR 

(Percent) 

Old National Bancorp ......... 12/12/2008 5/8/2009 $1,200,000 $2,150,000 0 .558 9 .3 

Iberiabank Corporation ....... 12/5/2008 5/20/2009 1,200,000 2,010,000 0 .597 9 .4 

Firstmerit Corporation ......... 1/9/2009 5/27/2009 5,025,000 4,260,000 1 .180 20 .3 

Sun Bancorp, Inc. ............... 1/9/2009 5/27/2009 2,100,000 5,580,000 0 .376 15 .3 

Independent Bank Corp. ..... 1/9/2009 5/27/2009 2,200,000 3,870,000 0 .568 15 .6 

Alliance Financial Corporation ................................. 12/19/2008 6/17/2009 900,000 1,580,000 0 .570 13 .8 

First Niagara Financial 

Group .............................. 11/21/2008 6/24/2009 2,700,000 3,050,000 0 .885 8 .0 

Berkshire Hills Bancorp, Inc. 12/19/2008 6/24/2009 1,040,000 1,620,000 0 .642 11 .3 

Somerset Hills Bancorp ...... 1/16/2009 6/24/2009 275,000 580,000 0 .474 16 .6 

SCBT Financial Corporation 1/16/2009 6/24/2009 1,400,000 2,290,000 0 .611 11 .7 

HF Financial Corp. .............. 11/21/2008 6/30/2009 650,000 1,240,000 0 .524 10 .1 

State Street ......................... 10/28/2008 7/8/2009 60,000,000 54,200,000 1 .107 9 .9 

U.S. Bancorp ....................... 11/14/2008 7/15/2009 139,000,000 135,100,000 1 .029 8 .7 

The Goldman Sachs Group, 

Inc. .................................. 10/28/2008 7/22/2009 1,100,000,000 1,128,400,000 0 .975 22 .8 

BB&T Corp. ......................... 11/14/2008 7/22/2009 67,010,402 68,200,000 0 .983 8 .7 

American Express Company 1/9/2009 7/29/2009 340,000,000 391,200,000 0 .869 29 .5 

Bank of New York Mellon 

Corp ................................ 10/28/2008 8/5/2009 136,000,000 155,700,000 0 .873 12 .3 

Morgan Stanley ................... 10/28/2008 8/12/2009 950,000,000 1,039,800,000 0 .914 20 .2 

Northern Trust Corporation 11/14/2008 8/26/2009 87,000,000 89,800,000 0 .969 14 .5 

Old Line Bancshares Inc. ... 12/5/2008 9/2/2009 225,000 500,000 0 .450 10 .4 

Bancorp Rhode Island, Inc. 12/19/2008 9/30/2009 1,400,000 1,400,000 1 .000 12 .6 

Centerstate Banks of Florida Inc. ........................... 11/21/2008 10/28/2009 212,000 220,000 0 .964 5 .9 

Manhattan Bancorp ............ 12/5/2008 10/14/2009 63,364 140,000 0 .453 9 .8 

CVB Financial Corp ............. 12/5/2008 10/28/2009 1,307,000 3,522,198 0 .371 6 .4 

Bank of the Ozarks ............. 12/12/2008 11/24/2009 2,650,000 3,500,000 0 .757 9 .0 

Capital One Financial ......... 11/14/2008 12/3/2009 148,731,030 232,000,000 0 .641 12 .0 

JPMorgan Chase & Co. ....... 10/28/2008 12/10/2009 950,318,243 1,006,587,697 0 .944 10 .9 

CIT Group Inc. ..................... 12/31/2008 – – 562,541 – (97 .2) 

TCF Financial Corp ............. 1/16/2009 12/16/2009 9,599,964 11,825,830 0 .812 11 .0 

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FIGURE 26: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP AND TIP FUNDS (AS OF FEBRUARY 2, 2011)—Continued 

Institution Investment 

Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition 

Date 

Price/ 

Estimate 

Ratio 

IRR 

(Percent) 

LSB Corporation .................. 12/12/2008 12/16/2009 560,000 535,202 1 .046 9 .0 

Wainwright Bank & Trust 

Company ......................... 12/19/2008 12/16/2009 568,700 1,071,494 0 .531 7 .8 

Wesbanco Bank, Inc. .......... 12/5/2008 12/23/2009 950,000 2,387,617 0 .398 6 .7 

Union First Market 

Bankshares Corporation 

(Union Bankshares Corporation) ......................... 12/19/2008 12/23/2009 450,000 1,130,418 0 .398 5 .8 

Trustmark Corporation ........ 11/21/2008 12/30/2009 10,000,000 11,573,699 0 .864 9 .4 

Flushing Financial Corporation ................................. 12/19/2008 12/30/2009 900,000 2,861,919 0 .314 6 .5 

OceanFirst Financial Corporation .......................... 1/16/2009 2/3/2010 430,797 279,359 1 .542 6 .2 

Monarch Financial Holdings, 

Inc. .................................. 12/19/2008 2/10/2010 260,000 623,434 0 .417 6 .7 

Bank of America 374 ............ 10/28/2008 375

1/9/2009 376

1/14/2009 377

3/3/2010 1,566,210,714 1,006,416,684 1 .533 6 .5 

Washington Federal 

Inc./Washington Federal 

Savings & Loan Association ................................. 11/14/2008 3/9/2010 15,623,222 10,166,404 1 .537 18 .6 

Signature Bank ................... 12/12/2008 3/10/2010 11,320,751 11,458,577 0 .988 32 .4 

Texas Capital Bancshares, 

Inc. .................................. 1/16/2009 3/11/2010 6,709,061 8,316,604 0 .807 30 .1 

Umpqua Holdings Corp. ...... 11/14/2008 3/31/2010 4,500,000 5,162,400 0 .872 6 .6 

City National Corporation ... 11/21/2008 4/7/2010 18,500,000 24,376,448 0 .759 8 .5 

First Litchfield Financial 

Corporation ..................... 12/12/2008 4/7/2010 1,488,046 1,863,158 0 .799 15 .9 

PNC Financial Services 

Group Inc. ....................... 12/31/2008 4/29/2010 324,195,686 346,800,388 0 .935 8 .7 

Comerica Inc. ...................... 11/14/2008 5/4/2010 183,673,472 276,426,071 0 .664 10 .8 

Valley National Bancorp ..... 11/14/2008 5/18/2010 5,571,592 5,955,884 0 .935 8 .3 

Wells Fargo Bank ................ 10/28/2008 5/20/2010 849,014,998 1,064,247,725 0 .798 7 .8 

First Financial Bancorp ...... 12/23/2008 6/2/2010 3,116,284 3,051,431 1 .021 8 .2 

Sterling Bancshares, 

Inc./Sterling Bank ........... 12/12/2008 6/9/2010 3,007,891 5,287,665 0 .569 10 .8 

SVB Financial Group ........... 12/12/2008 6/16/2010 6,820,000 7,884,633 0 .865 7 .7 

Discover Financial Services 3/13/2009 7/7/2010 172,000,000 166,182,652 1 .035 17 .1 

Bar Harbor Bancshares ...... 1/16/2009 7/28/2010 250,000 518,511 0 .482 6 .2 

Citizens & Northern Corporation .......................... 1/16/2009 8/4/2010 400,000 468,164 0 .854 5 .9 

Columbia Banking System, 

Inc. .................................. 11/21/2008 8/11/2010 3,301,647 3,291,329 1 .003 7 .3 

Hartford Financial Services 

Group, Inc. ...................... 6/26/2009 9/21/2010 713,687,430 472,221,996 1 .511 30 .3 

Lincoln National Corporation 7/10/2009 9/16/2010 216,620,887 181,431,183 1 .194 27 .1 

Fulton Financial Corporation 12/23/2008 9/8/2010 10,800,000 15,616,013 0 .692 6 .7 

The Bancorp, Inc./The 

Bancorp Bank ................. 12/12/2008 9/8/2010 4,753,985 9,947,683 0 .478 12 .8 

South Financial Group, 

Inc./Carolina First Bank 12/5/2008 9/30/2010 400,000 1,164,486 0 .343 (34 .2) 

TIB Financial Corp/TIB Bank 12/5/2008 9/30/2010 40,000 235,757 0 .170 (38 .0) 

Central Jersey Bancorp ....... 12/23/2008 12/1/2010 319,659 1,554,457 0 .206 6 .3 

Huntington Bancshares ...... 11/14/2008 1/19/2011 49,100,000 45,180,929 1 .087 6 .4 

First PacTrust Bancorp, Inc. 11/21/2008 1/5/2011 1,033,227 1,750,518 0 .590 7 .3 

East West Bancorp ............. 12/5/2008 1/26/2011 14,500,000 32,726,663 0 .443 7 .0 

Susquehanna Bancshares, 

Inc ................................... 12/12/2008 1/19/2011 5,269,179 14,708,811 0 .358 6 .2 

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FIGURE 26: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY 

REPAID CPP AND TIP FUNDS (AS OF FEBRUARY 2, 2011)—Continued 

Institution Investment 

Date 

Warrant 

Repurchase 

Date 

Warrant 

Repurchase/ 

Sale Amount 

Panel’s Best 

Valuation 

Estimate at 

Disposition 

Date 

Price/ 

Estimate 

Ratio 

IRR 

(Percent) 

Citigroup 378 ........................ 379 10/25/2008 380 12/31/2008 

1/25/2011 245,008,277 136,161,499 1 .799 13 .4 

Total ........................... .................................... .................... $8,463,562,508 $8,231,926,132 1 .028 10 .1 

374 Calculation of the IRR for Bank of America does not include fees received by Treasury as part of an agreement to terminate that

bank’s participation under the AGP. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—December 2010, 

at A–3 (Jan. 10, 2010) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Documents105/December105(a)%20report_FINAL_v4.pdf). 375 Investment date for Bank of America in the CPP. 376 Investment date for Merrill Lynch in the CPP. 377 Investment date for Bank of America in the TIP. 378 Calculations for the IRR of Citigroup do not include dividends or warrant proceeds earned from the Asset Guarantee Program (AGP). 

This IRR also does not incorporate proceeds received from Treasury’s sale of Citigroup’s trust preferred securities, given as a premium for 

Treasury’s guarantee under the AGP. It is important to note that subject to the AGP termination agreement with Citigroup, Treasury could receive $800 million in trust preferred securities held by the FDIC upon the company’s exit from the FDIC’s Temporary Liquidity Guarantee Program (TLGP). As of February 3, 2010, the company and its subsidiaries had $58.3 billion in long-term debt outstanding, which is guaranteed 

under the TLGP. Treasury Transactions Report, supra note 5, at 20. Data on Citigroup debt guaranteed by the TLGP accessed through SNL Financial Data Service. 379 Investment date for Citigroup in the CPP. 380 Investment date for Citigroup in the TIP. 

FIGURE 27: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF FEBRUARY 2, 2011) 

[Dollars in millions] 

Financial Institutions with 

Warrants Outstanding 

Warrant Valuation 

Low 

Estimate 

High 

Estimate 

Best 

Estimate 

SunTrust Banks, Inc. .............................................................................................. $57.98 $328.46 $149.21 

Regions Financial Corporation ................................................................................ 13.18 195.09 109.36 

Fifth Third Bancorp ................................................................................................. 174.07 469.56 230.85 

KeyCorp ................................................................................................................... 36.57 180.59 90.27 

AIG ........................................................................................................................... 384.03 1,892.92 973.39 

All Other Banks ....................................................................................................... 615.05 1421.37 1052.02 

Total ............................................................................................................... $1,280.88 $4,487.99 $2,605.10 

2. Federal Financial Stability Efforts 

a. Federal Reserve and FDIC Programs 

In addition to the direct expenditures Treasury has undertaken 

through the TARP, the federal government has engaged in a much 

broader program directed at stabilizing the U.S. financial system. 

Many of these initiatives explicitly augment funds allocated by 

Treasury under specific TARP initiatives, such as FDIC and Federal Reserve asset guarantees for Citigroup, or operate in tandem 

with Treasury programs. Other programs, like the Federal Reserve’s extension of credit through its Section 13(3) facilities and 

special purpose vehicles (SPVs) and the FDIC’s Temporary Liquidity Guarantee Program (TLGP), operate independently of the 

TARP. 

b. Total Financial Stability Resources 

Beginning in its April 2009 report, the Panel broadly classified 

the resources that the federal government has devoted to stabilizing the economy in the aftermath of the financial crisis through 

myriad programs and initiatives such as outlays, loans, or guarantees. With the reductions in funding for certain TARP programs, 

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381 Congressional Oversight Panel, November Oversight Report: Guarantees and Contingent 

Payments in TARP and Related Programs, at 36 (Nov. 6, 2009) (online at cop.senate.gov/documents/cop-110609-report.pdf). 382 U.S. Department of the Treasury, FY2011 Budget in Brief, at 138 (Feb. 2010) (online at 

www.treasury.gov/about/budget-performance/budget-in-brief/Documents/ 

FY%202011%20BIB%20(2).pdf). 383 U.S. Department of the Treasury, MBS Purchase Program: Portfolio by Month (online at 

www.treasury.gov/resource-center/data-chart-center/Documents/ 

January%202011%20Portfolio%20by%20month.pdf). Treasury has received $80.7 billion in principal repayments and $16.2 billion in interest payments from these securities. See U.S. Department of the Treasury, MBS Purchase Program Principal and Interest Received (online at 

www.treasury.gov/resource-center/data-chart-center/Documents/ 

January%202011%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf). 384 Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report 

on Credit and Liquidity Programs and the Balance Sheet, at 5 (Dec. 2010) (online at 

federalreserve.gov/monetarypolicy/files/monthlyclbsreport201012.pdf). 385 Id. at 5. 

the Panel calculates the total value of these resources to be approximately $2.5 trillion. However, this would translate into the ultimate ‘‘cost’’ of the stabilization effort only if: (1) assets do not appreciate; (2) no dividends are received, no warrants are exercised, 

and no TARP funds are repaid; (3) all loans default and are written 

off; and (4) all guarantees are exercised and subsequently written 

off. 

With respect to the FDIC and Federal Reserve programs, the 

risk of loss varies significantly across the programs considered 

here, as do the mechanisms providing protection for the taxpayer 

against such risk. As discussed in the Panel’s November 2009 report, the FDIC assesses a premium of up to 100 basis points, or 

1 percentage point, on TLGP debt guarantees.381 In contrast, the 

Federal Reserve’s liquidity programs are generally available only to 

borrowers with good credit, and the loans are over-collateralized 

and with recourse to other assets of the borrower. If the assets securing a Federal Reserve loan realize a decline in value greater 

than the ‘‘haircut,’’ the Federal Reserve is able to demand more collateral from the borrower. Similarly, should a borrower default on 

a recourse loan, the Federal Reserve can turn to the borrower’s 

other assets to make the Federal Reserve whole. In this way, the 

risk to the taxpayer on recourse loans only materializes if the borrower enters bankruptcy. 

c. Mortgage Purchase Programs 

On September 7, 2008, Treasury announced the GSE Mortgage 

Backed Securities Purchase (MBS) Program. The Housing and Economic Recovery Act of 2008 provided Treasury with the authority 

to purchase MBS guaranteed by government-sponsored enterprises 

(GSEs) through December 31, 2009. Treasury purchased approximately $225 billion in GSE MBS by the time its authority expired.382 As of January 2011, there was approximately $139.6 billion in MBS still outstanding under this program.383

In March 2009, the Federal Reserve authorized purchases of 

$1.25 trillion MBS guaranteed by Fannie Mae, Freddie Mac, and 

Ginnie Mae, and $200 billion of agency debt securities from Fannie 

Mae, Freddie Mac, and the Federal Home Loan Banks.384 The intended purchase amount for agency debt securities was subsequently decreased to $175 billion.385 All purchasing activity was 

completed on March 31, 2010. As of February 3, 2011, the Federal 

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386 Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances 

(H.4.1) (Feb. 3, 2011) (online at www.federalreserve.gov/releases/h41/20110203/) (hereinafter 

‘‘Factors Affecting Reserve Balances (H.4.1)’’). 387 Board of Governors of the Federal Reserve System, Press Release—FOMC Statement (Nov. 

3, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20101103a.htm); Federal 

Reserve Bank of New York, Statement Regarding Purchases of Treasury Securities (Nov. 3, 2010) 

(online at www.federalreserve.gov/newsevents/press/monetary/monetary20101103a1.pdf). 388On August 10, 2010, the Federal Reserve began reinvesting principal payments on agency 

debt and agency MBS holdings in longer-term Treasury securities in order to keep the amount 

of their securities holdings in their System Open Market Account portfolio at their then-current 

level. Board of Governors of the Federal Reserve System, FOMC Statement (Aug. 10, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100810a.htm). 389Federal Reserve Bank of New York, FAQs: Purchases of Longer-term Treasury Securities 

(Nov. 3, 2010) (online at www.newyorkfed.org/markets/lttreas_faq.html). 390Factors Affecting Reserve Balances (H.4.1), supra note 386. 

Reserve held $965 billion of agency MBS and $145 billion of agency 

debt.386

d. Federal Reserve Treasury Securities Purchases 387

On November 3, 2010, the Federal Open Market Committee 

(FOMC) announced that it has directed the Federal Reserve Bank 

of New York (FRBNY) to begin purchasing an additional $600 billion in longer-term Treasury securities. In addition, FRBNY will reinvest $250 billion to $300 billion in principal payments from agency debt and agency MBS in Treasury securities.388 The additional 

purchases and reinvestments will be conducted through the end of 

the second quarter of 2011, meaning the pace of purchases will be 

approximately $110 billion per month. In order to facilitate these 

purchases, FRBNY will temporarily lift its System Open Market 

Account per-issue limit, which prohibits the Federal Reserve’s holdings of an individual security from surpassing 35 percent of the 

outstanding amount.389 As of February 3, 2010, the Federal Re- serve held $1.11 trillion in Treasury securities.390

FIGURE 28: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF JANUARY 28, 2011) xxxvi

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

reserve FDIC Total 

Total ............................................................................... $475.1 $1,200.4 $683.1 $2,358.5 

Outlaysxxxvii ........................................................... 201.5 1,109.7 188.9 1,500.1 

Loans ..................................................................... 23.2 90.7 0 113.9 

Guaranteesxxxviii .................................................... 4.3 0 494.2 498.5 

Repaid and Unavailable TARP Funds ................... 246.0 0 0 246.0 

AIG xxxix ........................................................................... 70.0 25.2 0 95.2 

Outlays .................................................................. xl 70.0 xli 0 0 70.0 

Loans ..................................................................... 0 xlii 25.2 0 25.2 

Guarantees ............................................................ 0 0 0 0 

Citigroup ........................................................................ 0 0 0 0 

Outlays .................................................................. xliii 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Purchase Program (Other) .............................. 34.4 0 0 34.4 

Outlays .................................................................. xliv 34.4 0 0 34.4 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Capital Assistance Program ................................ N/A 0 0 xlv N/A 

TALF ................................................................................ 4.3 18.3 0 22.6 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 xlvii 18.3 0 18.3 

Guarantees ............................................................ xlvi 4.3 0 0 4.3 

PPIP (Loans) xlviii ........................................................... 0 0 0 0 

Outlays .................................................................. 0 0 0 0 

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FIGURE 28: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF JANUARY 28, 

2011) xxxvi—Continued 

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

reserve FDIC Total 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

PPIP (Securities) ........................................................... xlix 22.1 0 0 22.1 

Outlays .................................................................. 7.4 0 0 7.4 

Loans ..................................................................... 14.7 0 0 14.7 

Guarantees ............................................................ 0 0 0 0 

Making Home Affordable Program/Foreclosure Mitigation ........................................................................ 45.6 0 0 45.6 

Outlays .................................................................. 1 45.6 0 0 45.6 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Automotive Industry Financing Program ..................... li 51.4 0 0 51.4 

Outlays .................................................................. 43.3 0 0 43.3 

Loans ..................................................................... 8.1 0 0 8.1 

Guarantees ............................................................ 0 0 0 0 

Automotive Supplier Support Program ........................ 0.4 0 0 0.4 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... lii 0.4 0 0 0.4 

Guarantees ............................................................ 0 0 0 0 

SBA 7(a) Securities Purchase ...................................... liii 0.37 0 0 0.37 

Outlays .................................................................. 0.37 0 0 0.37 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Community Development Capital Initiative ................. liv 0.57 0 0.57 0.57 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0.57 0 0 0.57 

Guarantees ............................................................ 0 0 0 0 

Temporary Liquidity Guarantee Program .................... 0 0 494.2 494.2 

Outlays .................................................................. 0 0 0 0 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 lv 494.2 494.2 

Deposit Insurance Fund ............................................... 0 0 188.9 188.9 

Outlays .................................................................. 0 0 lvi 188.9 188.9 

Loans ..................................................................... 0 0 0 0 

Guarantees ............................................................ 0 0 0 0 

Other Federal Reserve Credit Expansion .................... 0 1,157.0 0 1,157.0 

Outlays .................................................................. 0 lvii 1,109.7 0 1,109.7 

Loans ..................................................................... 0 lviii 47.3 0 47.3 

Guarantees ............................................................ 0 0 0 0 

xxxvi Unless otherwise noted, all data in this figure are as of January 28, 2011. xxxviiThe term ‘‘outlays’’ is used here to describe the use of Treasury funds under the TARP, which are broadly classifiable as purchases of debt or equity securities (e.g., debentures, preferred stock, exercised warrants, etc.). These values were calculated using (1) Treasury’s actual 

reported expenditures, and (2) Treasury’s anticipated funding levels as estimated by a variety of sources, including Treasury statements and GAO estimates. Anticipated funding levels are set at Treasury’s discretion, have changed from initial announcements, and are subject to further change. Outlays used here represent investment and asset purchases—as well as commitments to make investments and asset 

purchases—and are not the same as budget outlays, which under section 123 of EESA are recorded on a ‘‘credit reform’’ basis. xxxviii Although many of the guarantees may never be exercised or will be exercised only partially, the guarantee figures included here represent the federal government’s greatest possible financial exposure at this point in time. xxxix U.S. Department of the Treasury, Treasury Update on AIG Investment Valuation (Nov. 1, 2010) 

(www.treasury.gov/press-center/press-releases/Pages/pr_11012010.aspx). AIG values exclude accrued interest payable to FRBNY on the Maiden Lane LLCs. xlThis number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November 25, 2008, and a $30 billion 

investment made on April 17, 2009 (less a reduction of $165 million representing bonuses paid to AIG Financial Products employees). As of 

January 28, 2011, AIG had utilized all $70 billion available under the AIGIP/SSFI in the recapitalization process. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at 

www.treasury.gov/ initiatives/financial-stability/briefing-room/reports/tarp-transactions/ 

DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). xli As part of the restructuring of the U.S. government’s investment in AIG announced on March 2, 2009, the amount available to AIG

through the Revolving Credit Facility was reduced by $25 billion in exchange for preferred equity interests in two special purpose vehicles, AIA 

Aurora LLC and ALICO Holdings LLC. These SPVs were established to hold the common stock of two AIG subsidiaries: American International 

Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). This interest was exchanged as part of the AIG recapitalization 

plan. Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the 

Balance Sheet, at 18 (Nov. 2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201011.pdf). 

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Upon the completion of AIG’s recapitalization plan, FRBNY no longer held an interest in the AIA and ALICO SPVs. The remaining holdings in 

these vehicles is consolidated under Treasury. Treasury, through TARP, currently holds $16.9 billion in liquidation preference of preferred stock 

in the AIA Aurora LLC and $3.8 billion in junior preferred stock interest in ALICO Holdings LLC. U.S. Department of the Treasury, Troubled 

Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/ 

initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 

Transactions%20Report%20as%20of%201-28-11.pdf). xliiThis number represents the outstanding principal of the loans extended to the Maiden Lane II and III SPVs to buy AIG assets (as of 

February 3, 2011, $12.6 billion and $12.7 billion, respectively). Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) 

(Feb. 3, 2011) (online at www.federalreserve.gov/ releases/h41/20110203/); Board of Governors of the Federal Reserve System, Federal Reserve 

System Monthly Report on Credit and Liquidity Programs and the Balance Sheet (Nov. 2010) (online at www.federalreserve.gov/ 

monetarypolicy/files/ monthlyclbsreport201011.pdf). The amounts outstanding under the Maiden Lane II and III facilities do not reflect the accrued interest payable to FRBNY. Income from the purchased assets is used to pay down the loans to the SPVs, reducing the taxpayers’ exposure to losses over time. Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity 

Programs and the Balance Sheet, at 15 (Nov. 2010) (online at www.federalreserve.gov/ monetarypolicy /files/ monthlyclbsreport201011.pdf). xliiiThe final sale of Treasury’s Citigroup common stock resulted in full repayment of Treasury’s investment of $25 billion. See endnote ii, 

supra. For further details concerning the sales of Citigroup common stock, see U.S. Department of the Treasury, Troubled Asset Relief Program 

Transactions Report for the Period Ending January 28, 2011, at 15 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ 

briefing-room/ reports/tarp-transactions/ DocumentsTARPTransactions/ 2–1–11%20 Transactions%20Report%20as%20of%201–28–11.pdf). xliv U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 13 (Feb. 

1, 2011) (online at www.treasury.gov/ initiatives/financial-stability/ briefing-room/reports/tarp-transactions/DocumentsTARP 

Transactions/2-1-11%20Transactions% 20Report%20as%20of%201-28-11.pdf). xlv On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC/Ally Financial, was in need of fur- ther capital. GMAC/Ally Financial, however, received further funding through the AIFP. U.S. Department of the Treasury, Treasury Announcement 

Regarding the Capital Assistance Program (Nov. 9, 2009) (online at www.treasury.gov/ press-center/ press-releases/Pages/tg359.aspx). xlviThis figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of February 3, 2011, TALF LLC had drawn only 

$106 million of the available $4.3 billion. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Feb. 

8, 2011) (online at www.federalreserve.gov/releases/h41 /20110203/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 22 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/ 

briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). On June 

30, 2010, the Federal Reserve ceased issuing loans collateralized by newly issued CMBS. As of this date, investors had requested a total of 

$73.3 billion in TALF loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been settled ($12 billion 

in CMBS and $59 billion in non-CMBS). It ended its issues of loans collateralized by other TALF-eligible newly issued and legacy ABS 

(non-CMBS) on March 31, 2010. Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and Conditions (online 

at www.newyorkfed.org/ markets/ talf_terms.html) (accessed Feb. 8, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities 

Loan Facility: CMBS (online at www.newyorkfed.org/ markets/ cmbs_operations.html) (accessed Feb. 8, 2011); Federal Reserve Bank of New 

York, Term Asset-Backed Securities Loan Facility: CMBS (online at www.newyorkfed.org/ markets/CMBS_recent_operations.html) (accessed Feb. 

8, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org /markets/ 

talf_operations.html) (accessed Feb. 8, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/TALF_recent_operations.html) (accessed Feb. 8, 2011). xlviiThis number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value of Federal Reserve loans 

under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability Plan, at 4 (Feb.10, 2009) (online at 

financialstability.gov/docs/fact-sheet.pdf). Since only $43 billion in TALF loans remained outstanding when the program closed, Treasury is currently responsible for reimbursing the Federal Reserve Board for only up to $4.3 billion in losses from these loans. Thus, since the outstanding TALF Federal Reserve loans currently total $22.6 billion, the Federal Reserve’s maximum potential exposure under the TALF is $18.3 

billion. See Board of Governors of the Federal Reserve System, Federal Reserve Announces Agreement with Treasury Regarding Reduction of 

Credit Protection Provided for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at 

www.federalreserve.gov/newsevents/press/monetary/20100720a.htm); Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Feb. 3, 2011) (online at www.federalreserve.gov /releases/h41/20110203/). xlviii No TARP resources were expended under the PPIP Legacy Loans Program, a TARP program that was announced in March 2009 but 

never launched. Since no TARP funds were allocated for the program by the time the TARP expired in October 2010, this or a similar program 

cannot be implemented unless another source of funding is available. xlix On January 24, 2011, Treasury released its fifth quarterly report on PPIP. The report indicates that as of December 31, 2010, all eight 

investment funds have realized an internal rate of return since inception (net of any management fees or expenses owed to Treasury) of at 

least 23 percent. Thus far, the highest performing fund is AG GECC PPIF Master Fund, L.P., which has a net internal rate of return of 59.7 

percent. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program: Program Update—Quarter Ended December 31, 

2010, at 8 (Jan. 24, 2011) (online at www.treasury.gov/initiatives/financial-stability/investment-programs/ppip/s-ppip/Documents/ppip- 12-10 

vFinal.pdf). l As of January 28, 2011, the total amount of TARP funds committed to HAMP is $29.9 billion. However, as of January 28, 2011, only 

$840.1 million in non-GSE payments has been disbursed under HAMP. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 45 (Feb. 1, 2011) (online at 

www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/ DocumentsTARP Transactions/ 

2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). li A substantial portion of the total $81.3 billion in debt instruments extended under the AIFP has since been converted to common equity 

and preferred shares in restructured companies. $8.1 billion has been retained as first-lien debt (with $1 billion committed to Old GM and 

$7.1 billion to Chrysler). This figure ($51.4 billion) represents Treasury’s current obligation under the AIFP after repayments and losses. U.S. 

Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 18 (Feb. 1, 2011) 

(online at www.treasury.gov/ initiatives/financial-stability /briefing-room/ reports/ tarp-transactions/ 

DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). liiThis figure represents Treasury’s total adjusted investment amount in the ASSP. U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for the Period Ending January 28, 2011, at 19 (Feb. 1, 2011) (online at www.treasury.gov/ 

initiatives/financial-stability/ briefing-room/reports/tarp-transactions/Documents 

TARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). liii U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 42–43 (Oct. 2010) (online at 

www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/ agency_reports/ Documents/ TARP%20Two%20Year%20 Retrospec- tive_10%2005%2010_ transmittal%20letter.pdf). liv U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 17 (Feb. 

1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/tarp-transactions/Documents 

TARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). lv This figure represents the current maximum aggregate debt guarantees that could be made under the program, which is a function of 

the number and size of individual financial institutions participating. $267.1 billion of debt subject to the guarantee is currently outstanding, 

which represents approximately 54.0 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (Dec. 31, 2010) (online at 

www.fdic.gov/regulations/resources/TLGP/total_issuance12-10.html). The FDIC has collected $10.4 billion in fees and surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity Guarantee Program: Fees Under Temporary Liquidity Guarantee Debt Program (Dec. 31, 2010) (online at 

www.fdic.gov/regulations/resources/tlgp/fees.html). 

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lviThis figure represents the FDIC’s provision for losses to its deposit insurance fund attributable to bank failures in the third and fourth 

quarters of 2008; the first, second, third, and fourth quarters of 2009; and the first, second, and third quarters of 2010. Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) Report to the Board: DIF Income Statement—Third Quarter 2010 (Nov. 12, 2010) (online 

at www.fdic.gov/about /strategic/corporate/ cfo_report_3rdqtr_10/income.html). For earlier reports, see Federal Deposit Insurance Corporation, 

Chief Financial Officer’s (CFO) Report to the Board (Sept. 23, 2010) (online at www.fdic.gov/about/strategic/corporate/index.html). This figure 

includes the FDIC’s estimates of its future losses under loss-sharing agreements that it has entered into with banks acquiring assets of insolvent banks during these eight quarters. Under a loss-sharing agreement, as a condition of an acquiring bank’s agreement to purchase the 

assets of an insolvent bank, the FDIC typically agrees to cover 80 percent of an acquiring bank’s future losses on an initial portion of these 

assets and 95 percent of losses on another portion of assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assumption 

Agreement—Whole Bank, All Deposits—Among FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and 

Compass Bank, at 65–66 (Aug. 21, 2009) (online at www.fdic.gov/ bank/ individual/failed/ guaranty- tx_p_and_a_w_ addendum.pdf). lvii Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet accounts for these facilities 

under federal agency debt securities and mortgage-backed securities held by the Federal Reserve. Board of Governors of the Federal Reserve 

System, Factors Affecting Reserve Balances (H.4.1) (Feb. 3, 2011) (online at www.federalreserve.gov/releases/h41/20110203/) (accessed Feb. 8, 

2011). Although the Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting clearly separates its 

mortgage-related purchasing programs from its liquidity programs. See, e.g., Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1), at 2 (Feb. 3, 2011) (online at www.federalreserve.gov/ releases/h41/20110203/) (accessed Feb. 8, 2011). lviiiFederal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary credit, central bank liquidity 

swaps, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, loans outstanding to Commercial Paper Funding Facility 

LLC, seasonal credit, term auction credit, the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane 

LLC). Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Feb. 3, 2011) (online at 

www.federalreserve.gov/ releases/h41/20110203/) (accessed Feb. 8, 2011). For further information, see the data that the Federal Reserve disclosed on these programs pursuant to its obligations under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance Sheet: Overview (May 11, 2010) (online at 

www.federalreserve.gov/monetarypolicy/bst.htm); Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance Sheet: Reports and Disclosures (Aug. 24, 2010) (online at www.federalreserve.gov/monetarypolicy/bst_reports.htm); Board of Governors of 

the Federal Reserve System, Usage of Federal Reserve Credit and Liquidity Facilities (Dec. 3, 2010) (online at www.federalreserve.gov 

/newsevents/reform_transaction.htm). 

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SECTION FOUR: OVERSIGHT ACTIVITIES 

The Congressional Oversight Panel was established as part of 

the Emergency Economic Stabilization Act (EESA) and formed on 

November 26, 2008. Since then, the Panel has produced 27 oversight reports as well as a special report on regulatory reform, 

issued on January 29, 2009, and a special report on farm credit, 

issued on July 21, 2009. Since the release of the Panel’s January 

oversight report, the following developments pertaining to the Panel’s oversight of the TARP took place: 

• The Panel held a hearing in Washington, DC on February 

4, 2011. Industry experts and regulators from the FDIC, the 

OCC, and the Federal Reserve each provided testimony with 

an update on the current state of the commercial real estate 

market and its continued implications for financial stability, 

the health of small and medium-sized banks, and repayment of 

CPP funds under the TARP. The hearing was the Panel’s third 

on commercial real estate and came a year after the publication of its February 2010 report on the topic. 

Upcoming Reports and Hearings 

The Panel will release its next report in March. This final oversight report will summarize and update the Panel’s work in each 

of its past reports, revisiting the broad array of topics covered 

throughout its oversight of the TARP. 

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SECTION FIVE: ABOUT THE CONGRESSIONAL 

OVERSIGHT PANEL 

In response to the escalating financial crisis, on October 3, 2008, 

Congress provided Treasury with the authority to spend $700 billion to stabilize the U.S. economy, preserve home ownership, and 

promote economic growth. Congress created the Office of Financial 

Stability (OFS) within Treasury to implement the TARP. At the 

same time, Congress created the Congressional Oversight Panel to 

‘‘review the current state of financial markets and the regulatory 

system.’’ The Panel is empowered to hold hearings, review official 

data, and write reports on actions taken by Treasury and financial 

institutions and their effect on the economy. Through regular reports, the Panel must oversee Treasury’s actions, assess the impact 

of spending to stabilize the economy, evaluate market transparency, ensure effective foreclosure mitigation efforts, and guarantee that Treasury’s actions are in the best interests of the American people. In addition, Congress instructed the Panel to produce 

a special report on regulatory reform that analyzes ‘‘the current 

state of the regulatory system and its effectiveness at overseeing 

the participants in the financial system and protecting consumers.’’ 

The Panel issued this report in January 2009. Congress subsequently expanded the Panel’s mandate by directing it to produce a 

special report on the availability of credit in the agricultural sector. 

The report was issued on July 21, 2009. 

On November 14, 2008, Senate Majority Leader Harry Reid and 

the Speaker of the House Nancy Pelosi appointed Richard H. 

Neiman, Superintendent of Banks for the State of New York, 

Damon Silvers, Director of Policy and Special Counsel of the American Federation of Labor and Congress of Industrial Organizations 

(AFL–CIO), and Elizabeth Warren, Leo Gottlieb Professor of Law 

at Harvard Law School, to the Panel. With the appointment on November 19, 2008, of Congressman Jeb Hensarling to the Panel by 

House Minority Leader John Boehner, the Panel had a quorum and 

met for the first time on November 26, 2008, electing Professor 

Warren as its chair. On December 16, 2008, Senate Minority Leader Mitch McConnell named Senator John E. Sununu to the Panel. 

Effective August 10, 2009, Senator Sununu resigned from the 

Panel, and on August 20, 2009, Senator McConnell announced the 

appointment of Paul Atkins, former Commissioner of the U.S. Securities and Exchange Commission, to fill the vacant seat. Effective 

December 9, 2009, Congressman Jeb Hensarling resigned from the 

Panel, and House Minority Leader John Boehner announced the 

appointment of J. Mark McWatters to fill the vacant seat. Senate 

Minority Leader Mitch McConnell appointed Kenneth Troske, 

Sturgill Professor of Economics at the University of Kentucky, to 

fill the vacancy created by the resignation of Paul Atkins on May 

21, 2010. Effective September 17, 2010, Elizabeth Warren resigned 

from the Panel, and on September 30, 2010, Senate Majority Leader Harry Reid announced the appointment of Senator Ted Kaufman 

to fill the vacant seat. On October 4, 2010, the Panel elected Senator Kaufman as its chair. 

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