TROUBLED ASSET 

RELIEF PROGRAM

Status of the Wind 

Down of the Capital 

Purchase Program

Report to Congressional Committees

April 2014

GAO-14-388

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-388, a report to 

congressional committees

April 2014

TROUBLED ASSET RELIEF PROGRAM

Status of the Wind Down of the Capital Purchase 

Program

Why GAO Did This Study

CPP was established as the primary 

means of restoring stability to the 

financial system under the Troubled 

Asset Relief Program (TARP). Under 

CPP, Treasury invested almost $205 

billion in 707 eligible financial 

institutions between October 2008 and 

December 2009. CPP recipients have 

made dividend and interest payments 

to Treasury on the investments. 

TARP’s authorizing legislation requires 

GAO to report every 60 days on TARP 

activities. This report examines (1) the 

status of CPP and (2) the financial 

condition of institutions remaining in 

the program. 

To assess the program’s status, GAO 

reviewed Treasury reports on the

status of CPP. GAO also used financial 

and regulatory data to compare the 

financial condition of institutions 

remaining in CPP with those that had 

exited the program and those that did 

not participate. GAO also obtained 

information through a questionnaire

from CPP participants as of November 

20, 2013, and former CPP participants 

that raised capital in calendar year 

2013. GAO received completed 

questionnaires from 72 of the 104

institutions. 

GAO provided a draft of this report to 

Treasury for its review and comment. 

Treasury generally concurred with

GAO’s findings.

What GAO Found

The Department of Treasury (Treasury) continues to make progress in winding 

down the Capital Purchase Program (CPP). As of January 31, 2014, Treasury’s 

data showed that 624 of the original 707 institutions, or about 88 percent, had 

exited CPP. Treasury had received about $225 billion from its CPP investments, 

exceeding the approximately $205 billion it had disbursed. Most institutions 

exited by repurchasing their preferred shares in full or by refinancing their 

investments through other federal programs. Treasury also continues to sell its 

investments in the institutions through auctions; a strategy first implemented in 

March 2012 to expedite the exit of a number of CPP participants. As of January 

31, 2014, Treasury has sold all or part of its CPP investment in 162 institutions 

through auctions, receiving a total of about 80 percent of the principal amount. A 

relatively small number of the remaining 83 institutions accounted for most of the 

outstanding investments. Specifically, 10 institutions accounted for $1.5 billion or 

about 73 percent of the $2.1 billion in outstanding investments. Treasury 

estimated a lifetime gain of $16.1 billion for CPP as of November 30, 2013.

Status of Capital Purchase Program Funds and Participants, as of January 31, 2014

GAO’s analysis of financial data found that the institutions remaining in CPP 

were generally less financially healthy than those that have exited or that never 

participated. In particular, the remaining CPP institutions tended to be less 

profitable, hold riskier assets, and have lower capital levels and reserves. Most 

remaining participants also have missed scheduled dividend or interest 

payments, with 60 missing their November 2013 payment. Further, 47 of the 

remaining CPP institutions were on the Federal Deposit Insurance Corporation’s 

problem bank list in December 2013—that is, they demonstrated financial, 

operational, or managerial weaknesses that threatened their continued financial 

viability. Institutions that continue to miss dividend payments or find themselves 

on the problem bank list may have difficulty fully repaying their CPP investments

because federal and state bank regulators may not allow these institutions to 

make dividend payments or repurchase outstanding CPP shares in an effort to 

preserve their capital and promote safety and soundness. 

View GAO-14-388. For more information, 

contact A. Nicole Clowers, 202-512-8678, 

clowersa@gao.gov.
Page i GAO-14-388 Capital Purchase Program Update 

Letter 1

Background 3

Treasury Continues to Make Progress in Winding Down the CPP 

Program 4

Remaining CPP Institutions Are Generally Less Financially 

Healthy Than Those That Have Exited 12

Agency Comments 19

Appendix I Objectives, Scope, and Methodology 22

Appendix II Comments from the Office of Financial Stability 25

Appendix III GAO Contact and Staff Acknowledgments 26

Table

Table 1: Aggregate Financial Information on Capital Purchase 

Program (CPP) Participants and Nonparticipants, as of 

December 31, 2013 13

Figures

Figure 1: Status of Institutions That Received Capital Purchase 

Program Investments, as of January 31, 2014 5

Figure 2: Status of the Capital Purchase Program, as of January 

31, 2014 6

Figure 3: Remaining Capital Purchase Program (CPP) 

Investments, as of January 31, 2014 8

Figure 4: Remaining Participation in the Capital Purchase 

Program (CPP) by State, as of January 31, 2014 9

Figure 5: Total Sales Proceeds as a Percentage of Treasury’s 

Outstanding Investment by Auction, as of January 31, 

2014 (Excludes Income from Repurchases, Dividends, 

and Other Sources) 11

Figure 6: Number of Institutions Missing Scheduled Dividend or 

Interest Payments and Number of Institutions 

Contents
Page ii GAO-14-388 Capital Purchase Program Update 

Participating in the Capital Purchase Program by Quarter, 

February 2009 through November 2013 17

Figure 7: Number of Capital Purchase Program (CPP) Institutions 

on FDIC’s Problem Bank List, December 2008 through 

December 2014 18

Abbreviations

CDCI Community Development Capital Initiative

CPP Capital Purchase Program

EESA Emergency Economic Stabilization Act of 2008

FASB Financial Accounting Standards Board

FDIC Federal Deposit Insurance Corporation

GAAP Generally Accepted Accounting Principles

SBLF Small Business Lending Fund

TARP Troubled Asset Relief Program

Treasury U.S. Department of the Treasury

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Page 1 GAO-14-388 Capital Purchase Program Update 

441 G St. N.W.

Washington, DC 20548

April 7, 2014

Congressional Committees

From October 2008 through December 2009, the Department of the 

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

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

financial markets and the economy. These investments were made 

through the Capital Purchase Program (CPP), the first and largest 

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

Treasury the authority to buy or guarantee up to $700 billion of the 

“troubled assets” that were believed to be at the heart of the financial 

crisis, including mortgages, mortgage-backed securities, and any other

financial instruments deemed appropriate, such as equity investments.2

Under this authority, in October 2008 Treasury created CPP to provide 

capital to viable financial institutions by purchasing preferred shares and 

subordinated debt. In return for its investments, Treasury received 

dividend or interest payments and warrants.3

 1

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

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

signed into law on October 3, 2008, established the Office of Financial Stability within 

Treasury and provided it with broad, flexible authorities to buy or guarantee troubled 

mortgage-related assets or any other financial instruments necessary to stabilize the 

financial markets. 

The program was closed to 

new investments on December 31, 2009, and since then Treasury has 

continued to oversee and divest its CPP investments, collect dividend and 

interest payments, and sell warrants. As of January 31, 2014, 624 CPP 

participants had exited the program, many by repurchasing their preferred 

shares or subordinated debt after consultation with their primary bank 

regulators.

2

Section 3(9) of EESA, 12 U.S.C. § 5202(9). EESA required that the appropriate 

committees of Congress be notified in writing that the Secretary of the Treasury, after 

consultation with the Chairman of the Board of Governors of the Federal Reserve System, 

had determined that it was necessary to purchase other financial instruments to promote 

financial market stability. EESA originally authorized Treasury to purchase or guarantee 

up to $700 billion in troubled assets. The Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010), reduced Treasury’s authority 

to purchase or insure troubled assets to a maximum of $475 billion. 

3

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

predetermined price on or before a specified date. 
Page 2 GAO-14-388 Capital Purchase Program Update 

This report is based on our continuing analysis and monitoring of 

Treasury’s activities in implementing the Emergency Economic 

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

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

least every 60 days on TARP activities and performance.4 To fulfill our 

statutorily mandated responsibilities, we have been monitoring and 

providing updates on TARP programs, including CPP.5

To assess the status of CPP, we analyzed Treasury reports on 

outstanding CPP investments, dividends paid, and the number of 

institutions that made full repayments. We also sent a questionnaire to 

current CPP participants as of November 20, 2013, and former CPP 

participants that raised capital during calendar year 2013 asking if the 

upcoming increase in the interest or dividend rate on CPP securities had 

an impact on their efforts to exit the program and/or retire any outstanding

CPP securities.

This report 

examines (1) the status of CPP, including repayments and other 

proceeds, as well as investments outstanding; and (2) the financial 

condition of institutions remaining in CPP.

6

 4

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

We received completed questionnaires from 72 of the 

104 institutions. To assess the financial condition of institutions that 

received investments under CPP, we used financial and regulatory data 

from SNL Financial to compare CPP participants remaining in the 

program with those that had exited the program and those that had never 

participated. We have assessed the reliability of SNL Financial data as 

part of previous studies through interviews with SNL officials and testing 

of SNL data against filed regulatory documents. We determined that the 

financial information we used was sufficiently reliable for the purposes of 

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

5

See, for example, GAO, Capital Purchase Program; Status of the Program and Financial 

Health of Remaining Participants, GAO-13-458 (Washington, D.C.: May 7, 2013),

Troubled Asset Relief Program: Treasury Sees Some Returns as It Exits Programs and 

Continues to Fund Mortgage Programs, GAO-13-192 (Washington, D.C.: Jan. 7, 2013), 

Capital Purchase Program: Revenues Have Exceeded Investments, but Concerns about 

Outstanding Investments Remain, GAO-12-301 (Washington, D.C.: Mar. 8, 2012), and 

Troubled Asset Relief Program: Opportunities Exist to Apply Lessons Learned from the 

Capital Purchase Program to Similarly Designed Programs and to Improve the 

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

6

Throughout this report we use CPP securities to mean the senior preferred shares or 

subordinated debt Treasury received for its investments. 
Page 3 GAO-14-388 Capital Purchase Program Update 

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

has more information on our scope and methodology.

We conducted this performance audit from December 2013 to April 2014 

in accordance with generally accepted government auditing standards. 

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

sufficient, appropriate evidence to provide a reasonable basis for our 

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

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

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

stabilize the financial markets and banking system by providing capital to 

qualifying regulated financial institutions through the purchase of senior 

preferred shares and subordinated debt.7

Under CPP, qualified financial institutions were eligible to receive an 

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

Rather than purchasing 

troubled mortgage-backed securities and whole loans, as initially 

envisioned under TARP, Treasury used CPP investments to strengthen 

financial institutions’ capital levels. Treasury determined that 

strengthening capital levels was the more effective mechanism to help 

stabilize financial markets, encourage interbank lending, and increase 

confidence in lenders and investors. Treasury believed that strengthening 

the capital positions of viable financial institutions would enhance 

confidence in the institutions themselves and the financial system overall 

and increase the institutions’ capacity to undertake new lending and 

support the economy. On October 14, 2008, Treasury allocated $250 

billion of the original $700 billion in overall TARP funds for CPP. The 

allocation was subsequently reduced in March 2009 to reflect lower 

estimated funding needs, as evidenced by actual participation rates, and 

the program was closed to new investments on December 31, 2009.

 7

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

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

savings and loan holding companies. 

Background
Page 4 GAO-14-388 Capital Purchase Program Update 

a maximum of $25 billion.8 In exchange for the investment, Treasury 

generally received senior preferred shares that would pay dividends at a 

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

thereafter.9 CPP investments made in late 2008 began paying the higher 

dividend or interest rate in late 2013 whereas the remaining investments 

will see the increase begin sometime in 2014. EESA required that 

Treasury also receive warrants to purchase shares of common or 

preferred stock or a senior debt instrument to further protect taxpayers 

and help ensure returns on the investments. Institutions are allowed to 

repay CPP investments with the approval of their primary federal bank 

regulator and afterward to repurchase warrants.

As of January 31, 2014, a total of 624 of the 707 institutions that originally 

participated in CPP, about 88 percent, had exited the program. Of the 624 

institutions that exited CPP, 239 institutions repurchased their preferred 

shares or subordinated debentures in full (see fig. 1).10 Another 165 

institutions refinanced their shares through other federal programs: 28 

through the Community Development Capital Initiative (CDCI) and 137 

through the Small Business Lending Fund (SBLF).11

 8

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

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

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

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

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

An additional 162 

institutions had their investments sold through auction and 29 institutions 

9

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

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

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

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

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

10Additionally, 4 institutions have made partial repayments but remain in the program. 

11CDCI is a TARP program that provides capital to Community Development Financial 

Institutions that have a federal depository institution supervisor. Structured like CPP, the 

program also covered credit unions and provides more favorable capital terms than CPP. 

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

Stat. 2504 (2010) to encourage small business lending. SBLF was a $30 billion fund 

operated by Treasury but separate from TARP that provided capital to qualified 

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

billion. When SBLF closed on September 27, 2011, the program had approved $4 billion 

in disbursements to 332 institutions. Of the 332 institutions participating in SBLF, 137 

were originally TARP participants with combined investments of $2.2 billion. 

Treasury Continues to 

Make Progress in 

Winding Down the 

CPP Program
Page 5 GAO-14-388 Capital Purchase Program Update 

went into bankruptcy or receivership. The remaining 29 had their 

investments sold by Treasury (25), or merged with another institution (4).

Figure 1: Status of Institutions That Received Capital Purchase Program 

Investments, as of January 31, 2014

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

investments have exceeded the amounts originally disbursed. Treasury 

disbursed $204.9 billion to 707 financial institutions nationwide from 

October 2008 through December 2009. As of January 31, 2014, Treasury 

had received $225 billion in repayments and income from its CPP 

investments, exceeding the amount originally disbursed by $20.1 billion 

(see fig. 2).12

 12Treasury, Troubled Asset Relief Program (TARP) Monthly Report to Congress –

January 2014 (Feb. 10, 2014).

The repayments and income amount include $195.3 billion 

in repayments and $2.8 billion in auction sales of original CPP 

investments as well as $18.9 billion in dividends, interest, and other 

income and $8.0 billion in warrants sold. After accounting for write-offs 

and realized losses totaling $4.7 billion, CPP had $2.1 billion in 
Page 6 GAO-14-388 Capital Purchase Program Update 

outstanding investments as of January 31, 2014.13 Treasury estimated a 

lifetime gain of $16.1 billion for CPP as of November 30, 2013.14

Figure 2: Status of the Capital Purchase Program, as of January 31, 2014

a

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

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

Small Business Lending Fund.

About half of the institutions (37 of 72) that responded to our 

questionnaire about the impact of the upcoming or recent increase in the 

dividend or interest rate on CPP securities stated that it impacted or is 

impacting their efforts to exit the CPP program and/or retire any 

 13Write-offs and realized losses include losses sustained from investments in the 29 

institutions that have gone into bankruptcy or receivership and any losses sustained from 

Treasury selling its investment in CPP institutions. 

14Treasury estimates lifetime costs (or gains) on a quarterly basis using the aggregate 

value of investments at market prices in conjunction with the Office of Management and 

Budget and publishes them in its monthly reports to Congress. Estimated lifetime cost 

represents Treasury’s best estimate of what the program will ultimately cost the taxpayer.

Treasury’s methodology for estimating lifetime costs includes the requirement to use a 

discount rate that reflects market risk as required by EESA for future cash flows. 

Impact of Increasing 

Dividend or Interest Rate 

on CPP Securities Varies
Page 7 GAO-14-388 Capital Purchase Program Update 

outstanding CPP securities.15 These respondents’ comments indicated 

that the institutions are taking a range of actions. Some institutions 

indicated that the increase led them to raise alternative capital. For 

example, one institution completed a public offering of common stock and 

used the proceeds to redeem its CPP shares. Others indicated that they 

are working with Treasury to participate in a future auction or attempting 

to negotiate with Treasury to restructure the CPP debt. Still others 

commented that the increase in the interest or dividend rate will increase 

the burden on the institution, make it more difficult to raise alternative 

capital, and further reduce their ability to exit the program. Thirty-three 

institutions responded that the increase did not or is not impacting their 

efforts to exit the program or retire CPP securities.

As of January 31, 2014, the 83 remaining institutions accounted for the 

$2.1 billion in outstanding investments or about 1 percent of the original 

investment. The outstanding investments were concentrated in a 

relatively small number of institutions. Specifically, the 10 largest 

remaining CPP investments accounted for $1.5 billion (73 percent) of 

outstanding investments and 2 institutions accounted for more than half of 

this amount (see fig. 3). In contrast, the remaining $557 million (24 

percent) was spread among the other 73 institutions.

 15Under CPP terms, CPP securities will pay a dividend or interest rate of 5 percent per 

annum until the fifth anniversary of the date of the investment and thereafter a rate of 9 

percent per annum. The dividend and interest rate on CPP investments made in late 2008 

increased in late 2013 whereas the remaining investments will see the increase begin 

sometime in 2014. For nonpublic institutions, Treasury immediately exercised its warrants 

and received preferred shares paying dividends of 9 percent per annum. 

Remaining Capital 

Purchase Program 

Investment Concentrated 

in a Few Institutions
Page 8 GAO-14-388 Capital Purchase Program Update 

Figure 3: Remaining Capital Purchase Program (CPP) Investments, as of January 31, 2014

a

Original investment has been converted at a discount to common stock in the institution. Amount 

shown is original.

As of January 31, 2014, the number of states with at least one institution 

with CPP investments outstanding was 28, and the number of states with 

at least 5 such institutions was 7 (see fig. 4). California had the highest 

number of remaining CPP institutions with 8, followed by Illinois with 7. In 

terms of total CPP investments outstanding, Puerto Rico had the largest 

amount ($1.2 billion), followed by North Carolina ($108 million), Virginia 

($91 million), and Florida ($74 million).
Page 9 GAO-14-388 Capital Purchase Program Update 

Figure 4: Remaining Participation in the Capital Purchase Program (CPP) by State, as of January 31, 2014
Page 10 GAO-14-388 Capital Purchase Program Update 

Treasury began selling its investments in banks through auctions 

beginning in March 2012 as a way to balance the speed of exiting the 

investments with maximizing returns for taxpayers.16 As of January 31, 

2014, Treasury had conducted a total of 23 auctions and received a total 

of about 80 percent of the principal amount (see fig. 5).17

 16We reported on Treasury’s auction process in a previous report. See GAO, Troubled 

Asset Relief Program: Treasury’s Use of Auctions to Exit the Capital Purchase Program, 

As figure 5 

shows, the total proceeds from selling securities do not include any 

income received from repurchases, dividends, or other sources or any 

missed dividend or interest payments, the rights to which are sold with the 

securities. For example, if an institution whose securities were being sold 

by Treasury at auction had missed $100,000 worth of dividend payments, 

the purchaser of the securities would own the right to receive those pastdue dividends if the institution can pay them. As of January 31, 2014, 

Treasury has sold all or part of its investments in 162 institutions, through 

the auction process, including the rights to approximately $207 million in 

missed dividends and interest payments.

GAO-13-630 (Washington, D.C.: July 8, 2013).

17On March 7, 2014, Treasury announced $45.1 million in proceeds from priced of 

auctions of preferred stock of four institutions. In addition, on March 31, 2014 Treasury 

announced that it was commencing auctions for its preferred stock and subordinated debt 

in an additional four institutions. 

Treasury Continues to 

Utilize Auctions as a 

Means of Winding Down 

the Program
Page 11 GAO-14-388 Capital Purchase Program Update 

Figure 5: Total Sales Proceeds as a Percentage of Treasury’s Outstanding Investment by Auction, as of January 31, 2014 

(Excludes Income from Repurchases, Dividends, and Other Sources)

In 2013, we reported that according to Treasury officials, the auction 

results reflected the potential risk associated with the liquidity of the 

investments, the credit quality of the financial institutions (including their 

ability to make future dividend or interest payments), and the prospect of 

receiving previous missed payments that had accrued.18

 18

For example, 

later auctions have tended to include smaller institutions with more 

cumulative missed payments. In a few cases, the prospect of recouping 

these missed payments made the institutions particularly attractive to 

investors and helped raise the sale price of those securities above their 

par value. Although Treasury has not generally recouped its full 

investment in individual institutions through the auctions, in 2013, 

Treasury officials told us that accepting a discount and transferring 

ownership of these institutions to the private sector was in the best 

interest of the taxpayer. Because of the inherent risk factors of these 

institutions, Treasury officials did not anticipate that they would be able to 

make full repayments in the near future. The officials added that had they 

GAO-13-630.
Page 12 GAO-14-388 Capital Purchase Program Update 

chosen not to auction these positions, their values could have decreased 

later. Treasury officials also said that while auctions were generally priced 

at a discount to the principal amount, the prices were generally equal to 

or above Treasury’s internal valuations.

Institutions that remain in CPP tend to be financially weaker than 

institutions that have exited the program and institutions that did not 

receive CPP capital. Our analysis considered various measures that 

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

and ability to cover losses. We analyzed financial data on the 83 

institutions remaining in CPP as of January 31, 2014, and 482 former 

CPP institutions, which we split into three groups: (1) those that repaid 

their investments, (2) those that exited through an auction, and (3) those 

that refinanced their investments through SBLF.19

Table 1 provides the results of our analysis of these measures, including 

the following.

The current and former 

CPP institutions in our analysis accounted for 565 of the 707 institutions 

that participated in CPP. We compared the 565 institutions to a non-CPP 

group (i.e., institutions that have not participated in CPP) of 7,177 active 

financial institutions for which financial information was available. All 

financial information generally reflects quarterly regulatory filings on 

December 31, 2013.

• Mostly smaller institutions remain in the program and larger 

institutions tended to exit through repayment. For example, institutions 

that exited through repayment had a median asset size of $1.7 billion, 

compared with $548 million for those that refinanced through SBLF 

and $385 million for those that exited through an auction.

• In the aggregate, the remaining institutions were noticeably less 

financially healthy than each of the groups of former CPP participants.

• As a group, institutions that exited through auctions were significantly 

less financially healthy than the group of institutions that repaid their 

investments or refinanced through SBLF.

 19We pulled data from SNL Financial on March 4, 2013.

Remaining CPP 

Institutions Are 

Generally Less 

Financially Healthy 

Than Those That 

Have Exited
Page 13 GAO-14-388 Capital Purchase Program Update 

• Overall, the institutions that remain in CPP are less financially healthy 

than both the group of institutions that never participated in CPP and 

the aggregate group that had exited CPP.

Table 1: Aggregate Financial Information on Capital Purchase Program (CPP) Participants and Nonparticipants, as of 

December 31, 2013 

Former CPP Remaining CPP Non-CPP

Repaid Auctioned SBLF Total

Number of institutions 224 130 128 482 83 7,177

Assets (thousands) 1,654,556 384,723 547,828 715,688 285,118 187,022

Texas Ratio 17.18 a 33.90 15.03 19.58 53.21 12.37

Return on average assets (percent) .86 0.56 0.76 0.77 0.30 0.75

Noncurrent loan percentage 1.35 2.02 .99 1.33 2.83 1.05

Net charge-offs to average loans ratio 0.20 0.36 0.12 0.20 0.18 0.09

Tier 1 risk-based capital ratio 13.14 b 13.31 13.35 13.30 11.97 15.61

Common equity Tier 1 ratio 12.21 11.79 11.01 11.76 10.48 15.48

Reserves to nonperforming loans ratio 77.34 55.35 84.06 70.37 41.92 76.16

Source: GAO analysis of SNL Financial data.

Note: The figures in the table represent median values for all institutions in the particular population. 

We analyzed financial data on the 83 institutions remaining in CPP as of January 31, 2014, and 482 

former CPP institutions, accounting for 565 of the 707 institutions that participated in CPP. Financial 

data were available from SNL Financial for 440 of the 565 institutions, and we accounted for the 

remaining 125 institutions using SNL Financial information for the holding company or its largest 

subsidiary. The 142 CPP institutions our analysis excluded had no data available in SNL Financial, 

had been acquired, or were defunct.

a

The Texas Ratio is defined as nonperforming assets plus loans 90 or more days past due divided by 

tangible equity and reserves.

b

The Tier 1 risk-based capital ratio measures Tier 1 capital as a share of risk-weighted assets

In particular, remaining CPP institutions had noticeably higher median 

Texas Ratios than each group of former CPP institutions as well as the 

non-CPP group. The Texas Ratio helps determine a bank’s likelihood of 

failure by comparing its troubled loans to its capital.20

 20The Texas Ratio is defined as nonperforming assets plus loans 90 or more days past 

due divided by tangible equity and reserves. 

The higher the ratio, 

the more likely the institution is to fail. As of December 31, 2013, 

remaining CPP institutions had a median Texas Ratio of 53.21, compared 

with 19.58 for former CPP institutions and 12.37 for the non-CPP group. 

Further, of the institutions that exited CPP, those that exited through 
Page 14 GAO-14-388 Capital Purchase Program Update 

auctions had the highest median Texas Ratio (33.90), compared with 

those that exited through full repayments (17.18) or by refinancing to 

SBLF (15.03).

Profitability measures for remaining CPP institutions were lower than 

those for former CPP participants and the non-CPP group. For example, 

the median return on average assets measure shows how profitable a 

company is relative to its total assets and how efficient management is at 

using its assets to generate earnings. For the quarter ending December 

31, 2013, remaining CPP institutions had a median return on average 

assets of 0.30, compared with 0.77 for former CPP institutions and 0.75 

for the non-CPP group.21

Remaining CPP institutions also held relatively more poorly performing 

assets. For example, remaining CPP institutions had a higher median 

percentage of noncurrent loans than former CPP institutions and the nonCPP group. As of December 31, 2013, a median of 2.83 percent of loans 

for remaining CPP institutions were noncurrent, compared with 1.33

percent for former CPP institutions and 1.05 percent for the non-CPP 

group. Remaining CPP institutions had a median ratio of net charge-offs 

to average loans (0.18) about equal to that of former CPP institutions 

(0.20), but a higher median ratio than the non-CPP group (0.09), as of 

December 31, 2013.

Further, among the institutions that had exited 

CPP, those that participated in Treasury’s auctions had the lowest return 

on average assets at 0.56, compared with 0.86 for those that repaid their 

investments and 0.76 for those that refinanced to SBLF.

22

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

remaining CPP institutions held less regulatory capital as a percentage of 

assets. Regulators require minimum amounts of capital to lessen an 

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

losses. Regulatory capital can be measured in several ways, but we 

focused on Tier 1 capital, which includes both a common-equity capital 

ratio and a Tier 1 capital ratio, because it is the most stable form of 

For both of these ratios, the auction participants 

had higher values than institutions that made full repayments or 

refinanced to SBLF.

 21Return on average assets is net income divided by average total assets. 

22A charge-off occurs when a bank recognizes that a particular asset or loan will not be 

collectible and must be written off. 
Page 15 GAO-14-388 Capital Purchase Program Update 

regulatory capital.23

Finally, remaining CPP institutions had significantly lower reserves for 

covering losses compared with former CPP institutions and the non-CPP 

group. As of December 31, 2013, the median ratio of reserves to 

nonperforming loans was lower for remaining CPP institutions (41.92) 

than for former CPP participants (70.37) and the non-CPP group (76.16). 

Of those institutions that have exited the program, auction participants 

had the lowest ratio (55.35), compared with 77.34 for those that repaid 

their investments and 84.06 for those that refinanced to SBLF.

The Tier 1 risk-based capital ratio measures Tier 1 

capital as a share of risk-weighted assets, and the common equity Tier 1 

ratio measures common equity Tier 1 as a share of risk-weighted assets, 

which generally does not include TARP funds. Using these measures, the 

remaining CPP institutions had lower median Tier 1 capital levels than 

former CPP institutions and the non-CPP group. The remaining CPP 

institutions also had a median common equity Tier 1 capital ratio below 

that of the former CPP institutions and the non-CPP group. As of 

December 31, 2013, the median common equity Tier 1 capital ratio for 

remaining CPP institutions was 10.48 percent of risk-weighted assets, 

compared with 11.76 percent for former CPP institutions and 15.48 

percent for the non-CPP group.

 23In October 2013, the Office of the Comptroller of the Currency and the Board of 

Governors of the Federal Reserve System adopted final rules that established new 

minimum regulatory capital requirements for U.S. banking organizations. The new 

minimum risk-based capital ratios include a common equity Tier 1 capital ratio, a Tier 1 

capital ratio, and a total capital ratio. Common equity Tier 1 capital generally includes

retained earnings and common stock that meets certain criteria after making certain 

capital deductions and adjustments. Additional Tier 1 capital generally includes certain 

noncumulative perpetual preferred stock, related surplus and minority interests that are 

not included in common equity Tier 1 capital, and preferred stock and other instruments 

issued under EESA. 78 Fed. Reg. 62018. 
Page 16 GAO-14-388 Capital Purchase Program Update 

The number of CPP participating institutions missing dividend or interest 

payments in a given quarter increased steadily from 8 in February 2009 to 

159 in August 2011 and has since declined each quarter to 60 in 

November 2013 (see fig. 6).24 Almost 84 percent, or 75 of the 89 financial 

institutions remaining in CPP as of November 30, 2013, have missed a 

dividend payment.25

 24In its dividend and interest reports, Treasury no longer considers a payment to be 

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

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

or has its bank subsidiary placed into receivership. However, we included such institutions 

in our counts. 

Most of the institutions with missed payments have 

missed them in several quarters. In particular, all but one of the 

institutions that missed payments in November 2013 had also missed 

payments in each of the previous three quarters. Moreover, the 60 

institutions that missed payments in November 2013 had an average of 

13 missed payments.

25Under CPP terms, institutions pay cumulative dividends on their preferred shares, 

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

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

investments in the form of subordinated debt and pay interest rather than dividends. CPP 

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

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

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

interest payment is due. The first dividend payments were due in February 2009, and 

since then, 246 of the 707 participants had missed at least one payment, accounting for a 

cumulative total of 2,137 missed payments. The November 30, 2013, Dividend and 

Interest Report is the most recent data available for a month in which dividends are due. 

Most Remaining CPP 

Participants Have Missed 

Dividend or Interest 

Payments
Page 17 GAO-14-388 Capital Purchase Program Update 

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

the Capital Purchase Program by Quarter, February 2009 through November 2013

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

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

participated in CPP) because institutions entered and exited the programs at different times. Also, 89 

institutions remained in CPP as of November 30, 2013, but as of January 31, 2014, that number had 

decreased to 83.

Institutions can elect whether to pay dividends and may choose not to pay 

for a variety of reasons, including decisions that they or their federal and 

state regulators make to conserve cash and maintain (or increase) capital 

levels. Institutions are required to pay dividends only if they declare 

dividends, although unpaid cumulative dividends generally accrue and the 

institution must pay them before making payments to other types of 

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

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

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

weakness.

Showing a similar trend to missed dividend or interest payments, the 

number of CPP institutions on the Federal Deposit Insurance 

Corporation’s (FDIC) “problem bank list” has decreased in recent months 

after months of steady increases. This list is a compilation of banks with 

demonstrated financial, operational, or managerial weaknesses that 

The Number of Remaining 

CPP Institutions on FDIC’s 

Problem Bank List Has 

Declined
Page 18 GAO-14-388 Capital Purchase Program Update 

threaten their continued financial viability and is publicly reported on a 

quarterly basis.26

Figure 7: Number of Capital Purchase Program (CPP) Institutions on FDIC’s Problem Bank List, December 2008 through 

December 2014

As of December 31, 2013, 47 CPP institutions were on 

the problem bank list (see fig. 7). The number of these institutions 

increased every quarter beginning in March 2009, hitting a high of 134 in 

June 2011, even as the number of institutions participating in CPP 

declined. As figure 7 shows, the number of problem banks fell slightly for 

the first time in the third quarter of 2011 and has declined to 47 as of 

December 31, 2013. Federal and state bank regulators may not allow 

institutions on the problem bank list to make dividend payments in an 

effort to preserve their capital and promote safety and soundness.

 26While some CPP funds were disbursed to bank holding companies, FDIC’s problem 

bank list does not include them. FDIC accounted for bank holding companies participating 

in CPP when their subsidiary depositories were designated as problem banks. It is 

possible that a bank holding company CPP recipient downstreamed CPP funds to a 

subsidiary depository that appeared on the problem bank list. However, it is unclear the 

extent to which this downstreaming occurred and thus the extent to which subsidiaries on 

the list may have benefitted from CPP funds. Multiple subsidiary depositories of the same 

CPP bank holding company that were designated as problem banks were counted 

separately.
Page 19 GAO-14-388 Capital Purchase Program Update 

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

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

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

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

appearing on the list was counted separately.

These observations are consistent with the analysis in our May 2013 and 

March 2012 reports, which also showed that the remaining CPP 

institutions were financially weaker than institutions that had exited the 

program and institutions that did not receive CPP capital.27

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

Treasury provided written comments that we have reprinted in appendix II.

In its written comments, Treasury generally concurred with our findings. 

Treasury noted that it had realized a positive return of $20.19 billion as of 

April1, 2014, and that 71 institutions remained in the program representing 

a remaining investment of $1.96 billion. Treasury also emphasized its 

commitment to keeping the public informed of its progress in winding down 

CPP. 

We are sending copies of this report to the Special Inspector General for 

TARP, interested congressional committees and members, and Treasury. 

The report also is available at no charge on the GAO website at 

http://www.gao.gov.

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

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

points for our Offices of Congressional Relations and Public Affairs may 

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

contributions to this report are listed in appendix III.

A. Nicole Clowers

Director

Financial Markets and Community Investment

 27See GAO-12-301, GAO-13-458. 

Agency Comments 
Page 20 GAO-14-388 Capital Purchase Program Update 

List of Committees

The Honorable Barbara Mikulski

Chairwoman

The Honorable Richard C. Shelby

Vice Chairman

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Mike Crapo

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Patty Murray

Chairman

The Honorable Jeff Sessions

Ranking Member

Committee on the Budget

United States Senate

The Honorable Ron Wyden

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Hal Rogers

Chairman

The Honorable Nita Lowey

Ranking Member

Committee on Appropriations

House of Representatives

The Honorable Paul Ryan

Chairman

The Honorable Chris Van Hollen

Ranking Member

Committee on the Budget

House of Representatives
Page 21 GAO-14-388 Capital Purchase Program Update 

The Honorable Jeb Hensarling

Chairman

The Honorable Maxine Waters

Ranking Member

Committee on Financial Services

House of Representatives

The Honorable Dave Camp

Chairman

The Honorable Sander Levin

Ranking Member

Committee on Ways and Means

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 22 GAO-14-388 Capital Purchase Program Update 

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

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

well as investments outstanding; and (2) the financial condition of 

institutions remaining in CPP. To assess the status of CPP at the 

program level, we analyzed data from the Department of the Treasury 

(Treasury). In particular, we used Treasury’s January 2014 Monthly 

Report to Congress to determine the dollar amounts of outstanding 

investments, the number of remaining and former participants, and the 

geographical distribution of each as of January 31, 2014.

To assess the financial condition of institutions that received investments 

under CPP, we used data from Treasury’s Dividends and Interest reports 

from February 2009 through November 2013 to determine the extent to 

which participants had missed payments throughout the life of the 

program. To assess whether the upcoming 2014 increase in the dividend 

or interest rate on CPP securities was impacting CPP participants’ efforts 

to exit the program and/or retire CPP securities, we sent an email 

containing two questions to all current CPP participants (89) and any past 

CPP participants that raised capital in calendar year 2013. The first 

question asked if the increase had impacted them (Yes or No) and, if yes, 

to describe actions taken. We sent the questionnaire to 104 institutions 

and received responses from 72. We used the “actions taken” responses 

to provide examples of how the increase in the dividend or interest rate 

on CPP securities is impacting CPP participants. We defined current CPP 

participants to be those institutions that Treasury classifies as “full 

investment outstanding; warrants outstanding,” “full investment 

outstanding; warrants not outstanding,” and “sold in part, warrants 

outstanding” in its November 20, 2013 TARP transaction report. We 

identified those CPP participants that raised capital in calendar year 2013 

using the SNL database.

We also obtained from the Federal Deposit Insurance Corporation (FDIC) 

summary information on its quarterly problem bank list to show the trend 

of CPP institutions appearing on the list from December 2008 through 

December 2013. We used financial measures for depository institutions 

that we had identified in our previous reporting on CPP. These measures 

help demonstrate an institution’s financial health as it relates to a number 

of categories, including profitability, asset quality, capital adequacy, and 

loss coverage. We obtained such financial data for depository institutions 

using a private financial database provided by SNL Financial that 

contains publicly filed regulatory and financial reports. We merged the 

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

comparison groups—remaining CPP institutions, former CPP institutions, 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 23 GAO-14-388 Capital Purchase Program Update 

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

in CPP.

We analyzed financial data on the 83 institutions remaining in CPP as of 

January 31, 2014, and 482 former CPP institutions that exited CPP 

through full repayments, conversion to the Small Business Lending Fund, 

or Treasury’s sale of its investments through an auction, accounting for 

565 of the 707 CPP participants. We identified the 83 institutions 

remaining in CPP as of January 31, 2014, using Treasury’s January 2014 

Monthly Report to Congress. The 142 CPP institutions our analysis 

excluded had no data available in SNL Financial, had been acquired, or 

were defunct. We compared the remaining and former CPP institutions to 

a non-CPP group of 7,177 active financial institutions for which financial 

information was available. We chose to present median values. Financial 

data were available from SNL Financial for 440 of the 565 CPP 

institutions, and we accounted for the remaining 125 institutions using 

SNL Financial information for the holding company or its largest 

subsidiary. Although this approach has limitations such as excluding other 

financial subsidiaries, we deemed it to be sufficient for the purpose of our 

work. All financial information reflects quarterly regulatory filings on 

December 31, 2013, unless otherwise noted. We downloaded all financial 

data from SNL Financial on March 4, 2014. Finally, we leveraged our past 

reporting on the Troubled Asset Relief Program (TARP), as well as that of 

the Special Inspector General for TARP, as appropriate.

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

CPP program data from Treasury and financial data on institutions from 

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

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

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

reporting as they relate to our annual audit of the office’s financial 

statements and found the information to be sufficiently reliable based on 

the results of our audits of fiscal years 2009, 2010, 2011, and 2012 
Appendix I: Objectives, Scope, and 

Methodology

Page 24 GAO-14-388 Capital Purchase Program Update 

financial statements for TARP.1

We conducted this performance audit from December 2013 to April 2014 

in accordance with generally accepted government auditing standards. 

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

sufficient, appropriate evidence to provide a reasonable basis for our 

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

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

We have assessed the reliability of SNL 

Financial data—which are obtained from financial statements submitted 

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

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

had been made that would affect the data’s reliability.

 1

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

Fiscal Years 2012 and 2011 Financial Statements, GAO-13-126R (Washington, D.C.: 

Nov. 9, 2012); Financial Audit: Office of Financial Stability (Troubled Asset Relief 

Program) Fiscal Years 2011 and 2010 Financial Statements, GAO-12-169 (Washington, 

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

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

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

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

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

Financial Stability

Page 25 GAO-14-388 Capital Purchase Program Update 

Appendix II: Comments from the Office of 

Financial Stability
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 26 GAO-14-388 Capital Purchase Program Update 

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

In addition to the contact named above, Karen Tremba (Assistant 

Director), Emily Chalmers, William Chatlos, Chris Forys, Matthew Keeler, 

Risto Laboski, Marc Molino, and Patricia Moye made significant 

contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250758)
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