CONGRESSIONAL OVERSIGHT PANEL 

NOVEMBER OVERSIGHT REPORT * 

GUARANTEES AND CONTINGENT 

PAYMENTS IN TARP AND RELATED 

PROGRAMS 

NOVEMBER 6, 2009.—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 NOVEMBER OVERSIGHT REPORT 


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1 

53–348 2009

CONGRESSIONAL OVERSIGHT PANEL 

NOVEMBER OVERSIGHT REPORT * 

GUARANTEES AND CONTINGENT 

PAYMENTS IN TARP AND RELATED 

PROGRAMS 

NOVEMBER 6, 2009.—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

ELIZABETH WARREN, Chair 

REP. JEB HENSARLING

PAUL S. ATKINS

RICHARD H. NEIMAN

DAMON SILVERS


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(III) 

C O N T E N T S 

Page 

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

Section One: 

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

B. The Nature of a Guarantee ......................................................................... 6 

1. Legal Aspects of Guarantees ................................................................ 6 

2. How Guarantees Are Treated on Government Agencies’ Books ....... 8 

3. How Guarantees Are Treated on the Books of the Entity Benefitted ........................................................................................................ 10 

C. The Programs ............................................................................................... 11 

1. The Asset Guarantee Program ............................................................. 11 

2. Treasury’s Temporary Guarantee Program for Money Market 

Funds ...................................................................................................... 22 

3. FDIC Guarantees Under the Temporary Liquidity Guarantee Program ........................................................................................................ 29 

4. Other Programs That Have ‘‘Guarantee’’ Aspects .............................. 32 

D. Analysis of the Creation and Structure of the Guarantee Programs ...... 33 

1. AGP Guarantees for Citigroup and Bank of America ........................ 33 

2. TGPMMF ............................................................................................... 43 

3. FDIC Guarantee Program .................................................................... 48 

E. Cost/Benefit to Taxpayers of the Guarantee Programs ............................ 52 

1. Direct Cost/Benefit from the Programs ............................................... 53 

2. Moral Hazard Considerations .............................................................. 60 

F. Market Impact ............................................................................................. 62 

G. The Guarantee Programs as Part of Broader Stabilization Effort .......... 63 

1. The TARP and the Guarantee Programs ............................................ 63 

2. Interaction with Stress Tests ............................................................... 66 

3. The Guarantees and Exit from TARP ................................................. 67 

H. Transparency Issues ................................................................................... 68 

1. Asset Guarantee Program .................................................................... 68 

2. TGPMMF ............................................................................................... 69 

3. Temporary Liquidity Guarantee Program .......................................... 72 

I. Conclusions and Recommendations ............................................................. 73 

Annex to Section One .............................................................................................. 75 

Section Two: Additional Views ............................................................................... 80 

A. Damon Silvers .............................................................................................. 80 

B. Paul S. Atkins .............................................................................................. 80 

C. Rep. Jeb Hensarling .................................................................................... 81 

Section Three: TARP Updates Since Last Report ................................................. 89 

Section Four: Oversight Activities .......................................................................... 101 

Section Five: About the Congressional Oversight Panel ...................................... 102 

Appendices: 

APPENDIX I: LETTER FROM FEDERAL RESERVE BOARD CHAIRMAN BEN S. BERNANKE TO PANEL MEMBERS, RE: COMMENTARY ON JULY GAO REPORT ON FINANCIAL CRISIS, 

DATED OCTOBER 8, 2009 .......................................................................... 103 


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* The Panel adopted this report with a 5–0 vote on November 5, 2009. Additional views are 

available in Section Two of this report. 

NOVEMBER OVERSIGHT REPORT 

NOVEMBER 6, 2009.—Ordered to be printed 

EXECUTIVE SUMMARY * 

In creating the Troubled Asset Relief Program (TARP) in late 

2008, Congress provided Treasury with a wide range of tools to 

combat the financial crisis. In addition to purchasing assets directly from financial institutions, Treasury was also authorized to 

support the value of assets indirectly by issuing guarantees. 

In the legal sense, a guarantee is simply a promise by one party 

to stand behind a second party’s obligation to a third. For example, 

when a worker deposits his paychecks in an account at his local 

bank, his money is guaranteed by the U.S. government through the 

Federal Deposit Insurance Corporation (FDIC). If a bank fails— 

that is, if the bank cannot give the worker his money later, when 

he needs it—then the FDIC will step in to fill in the gap. The FDIC 

guarantees the bank’s debt to its customer. 

During the financial crisis of late 2008 and early 2009, the federal government dramatically expanded its role as a guarantor. 

Congress raised the maximum guaranteed value of FDIC-insured 

accounts from $100,000 to $250,000 per account, and the FDIC also 

established the Debt Guarantee Program (DGP), standing behind 

the debt that banks issued in order to raise funds that they could 

use to lend to customers. Treasury reassured anxious investors by 

guaranteeing that money market funds would not fall below $1.00 

per share, and Treasury, the FDIC, and the Federal Reserve Board 

together negotiated to secure hundreds of billions of dollars in assets belonging to Citigroup and Bank of America. All told, the federal government’s guarantees have exceeded the total value of 


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TARP, making guarantees the single largest element of the government’s response to the financial crisis. 

From the taxpayers’ perspective, guarantees carry several advantages over the direct purchases of bank assets. Most significantly, 

guarantees bear no upfront price tag. When government agencies 

agreed to guarantee $300 billion in Citigroup assets in late 2008, 

taxpayers paid no immediate price—and now appear likely to earn 

a profit from fees assuming economic conditions do not deteriorate 

further. 

The low upfront cost of guarantees also allowed Treasury, in coordination with other federal agencies, to leverage a limited pool of 

TARP resources to guarantee a much larger pool of assets. The 

enormous scale of these guarantees played a significant role in 

calming the financial markets last year. Lenders who were unwilling to risk their money in distressed and uncertain markets became much more willing to participate after the U.S. government 

promised to backstop any losses. 

Despite these advantages, guarantees also carry considerable 

risk to taxpayers. In many cases, the American taxpayer stood behind guarantees of high-risk assets held by potentially insolvent institutions. It was possible that, if the guaranteed assets had radically declined in value, taxpayers could have suffered enormous 

losses. 

At its high point, the federal government was guaranteeing or in- suring $4.3 trillion in face value of financial assets under the three 

guarantee programs discussed in this report. (The majority of that 

exposure came from Treasury’s guarantee of money market accounts that held high concentrations of government debt in the 

form of Treasury securities. Therefore, the total exposure is less 

than the full face value guaranteed because government debt is already backed by the full faith and credit of the United States.) Despite the likelihood that the U.S. government will receive more revenue in fees than will ultimately be paid out under the guarantees, 

the taxpayers bore a significant amount of risk. 

Just as significantly, guarantees carry moral hazard. By limiting 

how much money investors can lose in a deal, a guarantee creates 

price distortion and can lead lenders to engage in riskier behavior 

than they otherwise would. In addition to the explicit guarantees 

offered by Treasury, the FDIC, and the Federal Reserve, the government’s broader economic stabilization effort may have signaled 

an implicit guarantee to the marketplace: the American taxpayer 

would bear any price, and absorb any loss, to avert a financial 

meltdown. To the degree that lenders and borrowers believe that 

such an implicit guarantee remains in effect, moral hazard will 

continue to distort the market in the future. The cost of moral hazard is not as easily measured as the price of guarantee payouts or 

the income from guarantee fees, but it remains a real and significant force influencing the financial system today. As Treasury contemplates an exit strategy for TARP and similar financial stability 

efforts such as these explicit guarantees, unwinding the implicit 

guarantee of government support is critical to ensuring an efficiently functioning marketplace. 

After a wide-ranging review of TARP and related guarantees, the 

Panel has not identified significant flaws in Treasury’s implementation of the programs. To the contrary, the Panel has noted a 


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trend towards a more aggressive and commercial stance on the 

part of Treasury in safeguarding the taxpayers’ money. Nonetheless, in light of these guarantees’ extraordinary scale and their risk 

to taxpayers, the Panel believes that these programs should be subject to extraordinary transparency. The Panel urges Treasury to 

disclose greater detail about the rationale behind guarantee programs, the alternatives that may have been available and why they 

were not chosen, and whether these programs have achieved their 

objectives. 

Finally, the Panel recommends that Treasury provide regular 

disclosures relating to Citigroup’s asset guarantee—the single largest TARP guarantee offered to date. These disclosures should be 

detailed enough to provide a clear picture of what is happening, including information on the status of the final composition of the 

asset pool and total asset pool losses to date, as well as what the 

projected losses of the pool are and how they have been calculated. 

The following table summarizes the principal elements of the 

programs that the Panel has examined for the purposes of this report: 


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Agency Program Authority Who is protected? What is guaranteed? Sum currently guaranteed Fees earned Losses to date 

Treasury ........................... Asset Guarantee Program (AGP). Emergency Economic Stabilization Act of 

2008 (EESA).

Citigroup (Bank of 

America—never used).

Specified asset classes 

of Citigroup.

Up to $5 billion ........... $3.8 billion .................. $0 

Treasury ........................... Temporary Guarantee 

Program for Money Market Funds (TGPMMF).

Gold Reserve Act of 

1934, as amended EESA, § 131.

Money market fund investors. Investors’ holdings in participating funds 

as of September 19, 2008.

$0 (current) ($3.22 trillion peak commitment). $1.2 billion .................. $0 

Federal Reserve Board .... Asset Guarantee Program (AGP). Federal Reserve Act, § 13(3). Citigroup (Bank of America—never 

used).

Specified assets of 

Citigroup.

Undetermined; non-recourse loans to be 

made available.

$57 million .................. $0 

Federal Deposit Insurance 

Corporation (FDIC).

Temporary Liquidity 

Guarantee Program (TLGP)—includes Debt Guarantee Program (DGP).

Federal Deposit Insurance Act. Holders of debt issued by banks and other 

financial institutions issuing debt.

Debt issued by banks 

and other financial institutions.

$307 billion principal, 

plus interest.

$9.6 billion .................. $2 million 1

FDIC ................................. Asset Guarantee Program (AGP). Federal Deposit Insur- ance Act. Citigroup (Bank of America—never 

used).

Specified assets of 

Citigroup.

Up to $10 billion ......... $2.7 billion .................. $0 

1 According to the Federal Deposit Insurance Corporation, as of October 22, 2009, there has been one failure of a Temporary Liquidity Guarantee Program-participating institution, an affiliate of which had issued guaranteed debt. While the 

FDIC anticipates up to a $2 million loss on that issuance, no losses have been paid out yet with respect to the Debt Guarantee Program. 


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2See Emergency Economic Stabilization Act of 2008 (EESA), Pub. L. No. 110–343, § 101 (authorizing the Treasury Secretary to purchase troubled assets from financial institutions). 3See EESA § 102 (authorizing the Treasury Secretary to establish ‘‘a program to guarantee 

troubled assets originated or issued prior to March 14, 2008, including mortgage-backed securities’’ if a troubled asset purchase program is created). 4See EESA § 131(a) (stating that the required EESA reimbursement of the ESF for any funds 

that are used for the TGPMMF is to be made ‘‘from funds under this Act,’’ meaning that it is 

funded by EESA, but not out of the $700 billion appropriated to TARP). See Section D(2)(a), 

infra, for a discussion of issues relating to the legal authority for TGP. 5This raw number overstates the true amount at risk; a large proportion of money market 

funds are invested in Treasury securities. See discussion of the ‘‘real’’ amount at risk in Section 

E. 6See Federal Deposit Insurance Act of 1950, Pub. L. No. 81–797, § 13(c)(4)(G) (authorizing the 

FDIC, upon the determination of systemic risk, to take actions ‘‘to avoid or mitigate serious adverse effects on economic conditions or financial stability’’). 7The TLGP has a second program, the Transaction Guarantee Program, which provides temporary full guarantees for funds held at FDIC-insured depository institutions in noninterestbearing transaction accounts. This guarantee is in addition to and separate from the $250,000 

coverage provided under the FDIC’s general deposit insurance regulations through June 30, 

2010. Unless stated otherwise, discussion of TLGP in this report refers to the DGP aspect of 

the program. 

SECTION ONE: 

A. Overview 

Guarantees of the assets and liabilities of banks and bank holding companies (BHCs) form an essential part of the Troubled Asset 

Relief Program (TARP) and broader financial stabilization efforts. 

Unlike direct payments or purchases, guarantees do not require the 

immediate outlay of cash (and if the guarantees expire without 

having been triggered, cash may never be needed), but they expose 

taxpayer funds to potential risk—in some cases, a great deal of 

risk. This report examines the role played by guarantees and other 

contingent payments under TARP and related programs. 

The Emergency Economic Stabilization Act of 2008 (EESA), the 

legislation that established TARP, authorized Treasury not only to 

purchase assets of financial institutions,2 but also to guarantee existing troubled assets.3 Under EESA and TARP, Treasury participates with the Federal Reserve Board and the FDIC in the Asset 

Guarantee Program (AGP), which includes a three-way guarantee 

of Citigroup assets. In addition to $45 billion in direct investment 

under two separate TARP programs and an FDIC guarantee of 

$37.3 billion of Citigroup obligations, Treasury, the Federal Reserve Board, and the FDIC have guaranteed a pool of Citigroup assets valued at approximately $301 billion. A similar guarantee 

under the AGP was arranged for Bank of America but never finalized. 

EESA directed Treasury to reimburse the Exchange Stabilization 

Fund (ESF) for any funds that are used for Treasury’s guarantee 

of money market funds through the Temporary Guarantee Program 

for Money Market Funds (TGPMMF).4 At the program’s height, it 

guaranteed $3.2174 trillion in money market funds.5

The FDIC created its Temporary Liquidity Guarantee Program 

(TLGP) less than two weeks after the enactment of EESA, under 

authority of the Federal Deposit Insurance Act.6 The Debt Guarantee Program portion of the TLGP (DGP) guarantees debt issued 

by banks and BHCs.7 The FDIC currently guarantees approximately $307 billion in outstanding financial institution obligations, 

and has the authority to guarantee an additional $312 billion 


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8See Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the 

Temporary Liquidity Guarantee Program (as of Sept. 30, 2009) (online at www.fdic.gov/ 

regulations/resources/TLGP/total_issuance9_09.html) (hereinafter ‘‘FDIC, September Monthly 

TLGP Report’’) (while as of September 30, 2009, $307 billion was outstanding under the program, the FDIC’s current cap is $620 billion). 9 Congress has temporarily increased the deposit insurance program to insure accounts up to 

$250,000. In addition, banks that choose to participate in the TLGP’s Transaction Account Guarantee will have the entirety of their customers’ non-interest bearing deposit accounts insured. 

under the DGP.8 Through both the TLGP and its deposit insurance 

program, the FDIC has increased insurance for bank guarantees.9

Treasury has committed the vast majority of its EESA funds for 

purchases under Section 101, and the Panel’s reports to date have 

focused on that particular use of funds. Examining the relatively 

smaller amounts committed under Section 102, however, reveals 

several important findings. 

First, guaranteeing liabilities or backstopping losses on assets 

can play as important a role in establishing financial stability as 

purchasing assets. 

Second, despite the guarantees’ significant impact, the contingent 

nature of guarantees, coupled with the limited transparency in implementing these programs, means that the total amount of money 

that is being placed at risk is not always readily apparent. Some 

financial stabilization initiatives outside of TARP, such as the 

FDIC’s DGP and Treasury’s TGPMMF, carry greater potential for 

exposure of taxpayer funds than TARP itself. The U.S. government 

was at risk for a considerable amount of money while these programs were in full effect and some of that exposure continues. 

Finally, the programs examined in this report raise substantial 

moral hazard concerns. Explicit guarantees incentivize managers 

and investors to ignore or downplay risk. More broadly, stabilization initiatives as a whole risk implicitly signaling that the government will provide extraordinary support whenever economic conditions deteriorate in the future. 

This report will examine in detail the TARP programs that have 

guaranteed rather than purchased assets (the Citigroup and Bank 

of America guarantees under the AGP), as well as Treasury’s 

money market fund guarantee, the TGPMMF, and the FDIC’s 

DGP, which significantly benefited many of the financial institutions that were the recipients of TARP funds. 

Some of these guarantees will extend beyond the end of TARP 

and will continue to serve as government backstops to the financial 

system. By devoting a report to the way the guarantees work, the 

way they relate to the health of the financial institutions involved, 

and their potential cost, the Panel examines another important 

part of TARP strategy and implementation. This topic touches on 

the Panel’s mandate to examine the Secretary of the Treasury’s authority under the TARP, the impact of the TARP on the markets, 

the protection of taxpayers’ money and transparency issues. 

B. The Nature of a Guarantee 

1. Legal Aspects of Guarantees 

A guarantee is an agreement by one person to satisfy another 

person’s obligation if the latter person does not do so. A guarantee 

involves three parties: the person who owes the original obligation 


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10 A guarantee is a form of suretyship. The Restatement (Third) of Suretyship and Guaranty 

provides a formal description: 

1. [A] secondary obligor has suretyship status whenever: 

(a) pursuant to contract (the ‘‘secondary obligation’’), an obligee has recourse against a person 

(the ‘‘secondary obligor’’) or that person’s property with respect to the obligation (the ‘‘underlying 

obligation’’) of another person (the ‘‘principal obligor’’) to that obligee. 

2. An obligee has recourse against a secondary obligor or its property with respect to an underlying obligation: 

(a) whenever the principal obligor owes performance of the underlying obligation; and 

(b) pursuant to the secondary obligation, either: 

(i) the secondary obligor has a duty to effect, in whole or in part, the performance that is 

the subject of the underlying obligation; or 

(ii) the obligee has recourse against the secondary obligor or its property in the event of the 

failure of the principal obligor to perform the underlying obligation; or 

(iii) the obligee may subsequently require the secondary obligor to either purchase the underlying obligation from the obligee or incur the duties described in subparagraph (i) or (ii). 

Restatement (Third) of Suretyship and Guaranty § 1 (1996). 

11See Restatement (Third) of Suretyship and Guaranty § 1 cmt. k (1996). As indicated in the 

text, a guarantee may contain many additional conditions and limitations about triggers for the 

guarantor’s obligation and precise definitions of the liabilities to which that obligation applies. 

See id. at § 1 cmt. j. 12See Restatement (Third) of Suretyship and Guaranty § 5 (1996); Louis Dreyfus Energy Corp. v. MG Refining & Marketing, Inc., 812 N.E.2d 936, 939 (N.Y. 2004). 13 Restatement (Third) of Suretyship and Guaranty § 11 (1996). 14See, e.g., Restatement (Third) of Suretyship and Guaranty §§ 37–49 (1996). 15 Restatement (Third) of Suretyship and Guaranty § 27 (1996); see Chemical Bank v. Meltzer, 712 N.E.2d 656, 661 (N.Y. 1999) (explaining the guarantor is technically said to have been ‘‘subrogated’’ to the rights of the obligee). 16See Restatement (Third) of Suretyship and Guaranty § 6 (1996). 17 Again, more than one party may be involved on either side of such a direct agreement. For 

example, A, B, and C may promise directly to pay D (or D, E, and F) under certain conditions. 18The TGPMMF is perhaps better understood as an insurance program designed to protect 

MMF investors and, in so doing, support the commercial paper market. 

(the debtor or obligor), the person to whom that obligation is owed 

(the creditor), and the guarantor.10 Guarantees can be absolute— 

meaning that the guarantor is immediately liable—or they can require that other conditions are met before they take effect. Guarantees may also be limited to less than 100 percent of the original liability.11

General contract rules govern guarantees.12 For example, guarantees are usually required to be instruments,13 and are construed 

with the aid of a number of substantive rules protecting guarantors.14 A guarantor who makes good on a guarantee is normally entitled to collect the amount it paid (or whatever part it can) from 

the original debtor 15 unless the guarantor waived that right in the 

guarantee agreement.16 This is known as ‘‘subrogation.’’ 

A two-party agreement that one party will pay the other a defined amount under certain circumstances (e.g., if a pool of assets 

does not prove to be worth a defined amount) is not technically a 

guarantee contract. The party entitled to payment cannot look to 

a third party to obtain the promised amount, so no additional assets exist to protect the former’s ability to obtain what it is owed.17

All the same, such agreements are sometimes called guarantees. 

The FDIC’s obligations under its TLGP are true guarantees. 

Treasury’s TGPMMF, on the other hand, does not technically create a guarantee relationship, nor do the agreements between 

Treasury, the Federal Reserve, and the FDIC, in one regard, or 

Citigroup and Bank of America, respectively, in another.18 But 

these are minor distinctions, given the fact that the obligations of 

the three government agencies are backed by the full faith and 

credit of the United States. While the government agencies and 

the beneficiaries of the arrangements refer to the government supVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00013 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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19 Cf. Langdon Owen, Real Property Lender Security, Lease, and Other Downside Concerns 

(June 5, 2008) (online at www.bankerresource.com/articles/view.php?article_id=624#) (discussing 

lender security provisions for real property transactions). The list is non-exhaustive. 20 U.S. GAAP Codification of Accounting Standards: Codification Topic 460—Guarantees. 21 U.S. GAAP Codification of Accounting Standards: Codification Topic 450—Contingencies. 

port by several different terms, including ‘‘loss-sharing’’ and ‘‘ringfencing,’’ this report refers to these contingent arrangements as 

guarantees. 

Typical provisions in guarantee contracts include: 19

• the nature of the obligation; • the conditions for its performance (e.g., whether a guarantee can be enforced if payment obligations on the underlying 

debt are accelerated); • the proportionate obligations and rights of multiple parties 

(for example, whether obligations to pay are proportionate or 

any party can be required to pay the entire amount owed); • ongoing responsibilities of the obligor or obligors, including 

provision of security for performance; • whether the obligation is continuing or terminable; • the terms on which subrogation (in the case either of a 

true guarantee or a direct agreement) can occur; • the terms of any waivers, by one or more parties, of contract, statutes of limitation, or other defenses that might otherwise be asserted; • allocation of expenses (of enforcement, protecting collateral, etc.); and • costs of bankruptcy proceedings of one or more parties to 

the arrangement. 

2. How Guarantees Are Treated on Government Agencies’ 

Books 

a. Standard Accounting Treatment 

The Financial Accounting Standards Board (FASB) specifies accounting rules for guarantees issued by institutions that follow 

generally accepted accounting principles (GAAP) in the United 

States. FASB provides guidance on how to account for the initial 

liability that the guarantor (issuer) records to recognize fair value 

of the guarantee, as well as on how to address any liability exposure created over the course of the guarantee. 

The issuance of a guarantee obligates the guarantor in two respects: (1) the guarantor undertakes an obligation to stand ready 

to perform over the term of the guarantee in the event that the 

specified triggering events or conditions occur 20 and (2) the guarantor undertakes a contingent obligation to make future payments 

if those triggering events or conditions occur. 

According to the rules as part of accrual accounting,21 fees received and not yet earned are recorded as deferred revenue which 

is a liability and is reduced over the life of the guarantee as revenue is earned. This deferred revenue for guarantee purposes is 

called an ‘‘initial stand-ready liability,’’ which reflects the fair value 

of the guarantee (expected cash flows over the life of the guarantee). If losses are expected on the guaranteed assets, guarantee 

expense must be accrued as a charge to the guarantor’s income if 

both of the following conditions are met: (1) it is probable the asset 


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guaranteed is impaired or the liability guaranteed had been incurred; and (2) the amount of loss is estimable. 

The initial stand-ready liability for the fee received for the guarantee but not yet earned, reflecting the fair value of the guarantee 

of the loan, is recorded even when it is not probable that payments 

will be required under that guarantee, as that may change over the 

term of the loan. 

b. Accounting Practices of Federal Agencies 

The Federal Reserve and the FDIC follow GAAP accounting rules 

in preparing their accounting statements while Treasury follows 

similar Government Accounting Standards. FASB issues guidance 

for adapting GAAP for use by government agencies. Treasury and 

the FDIC submit audited financial statements to the Office of Management and Budget (OMB), and Treasury subsequently consolidates these statements into a government-wide financial report. 

While this report attempts to provide a balance sheet for the federal government, it is not the federal budget, and it is not a forecasting document. The financial report also includes a modified 

version of an income statement for the federal government. The 

federal budget is on a cash basis and thus provides cash flow information. 

From a consolidated, government-wide perspective, the federal 

budget treats the guarantee transactions of the three agencies in 

three different ways: 

• Treasury/TARP. Section 123 of EESA requires that TARP 

transactions, including asset guarantees undertaken pursuant to 

Section 102, be recorded on a ‘‘credit reform’’ basis. This means 

that the cost of the program measures the discounted present value 

of the cash flows involved. For most federal direct loan and guarantee programs, the discount rate used in the credit reform subsidy 

calculation is simply the government’s cost of funds. However, 

EESA requires that the discount rate used for TARP be the government cost of funds modified to reflect market risk. 

• Federal Reserve. The Federal Reserve is excluded from the federal budget except that its net earnings are paid to Treasury at the 

end of each year and are recorded as a budget receipt. Hence, the 

only impact of the Federal Reserve’s guarantee activities on the 

federal budget would be in reducing its net earnings should the 

Federal Reserve absorb any losses on its guarantees. 

• FDIC. Only the cash flows associated with the FDIC guarantees are reflected in the federal budget, not the discounted present 

value of those flows. This means that no ‘‘cost’’ is recorded for the 

FDIC guarantees under the AGP and the TLGP unless there is an 

actual default and payment of a guarantee claim, in which case the 

full, undiscounted amount of that claim is included in the budget. 

The following table shows the amounts that each individual 

agency and the federal budget have recorded so far for the three 

major guarantee programs. Note that the differences between the 

Congressional Budget Office (CBO) and OMB budget estimates for 

the AGP are not as large as they first appear because CBO does 

not include the guarantee fees received in the cash flows used to 

calculate the credit reform subsidy figure, whereas OMB does. 


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26See discussion of asset guarantees and liability guarantees supra Section B(1). 

FIGURE 1: SUMMARY OF AGENCY AND FEDERAL BUDGET TREATMENT OF GUARANTEE 

PROGRAMS 

Treasury/TARP Federal Reserve FDIC 

Agency 

accounts 

Federal 

budget 

Agency 

accounts 

Federal 

budget 

Agency 

accounts 

Federal 

budget 

AGP .................. Receipts of 

$1,028 million.22

Receipts of 

$1,028 million.23

Receipts of 

$57 million.

Not included ... Receipts of 

$2.7 billion.

Receipts of 

$2.7 billion. 

TGPMMF ........... Receipts of 

$1.2 billion.

Receipts of 

$1.2 billion.

— — — — 

TLGP ................. — — — — Receipts of 

$9.6 billion; 

2 million 

disbursement.24

Receipts of 9.6 

billion; $2 

million disbursement.25

22 Represents initial credit reform estimate of $752 million in receipts for the AGP transactions in FY 2009, which is subject to end of year 

reestimate, plus receipts for the Bank of America termination fee of $276 million. 23 Id. 24 According to the FDIC, as of October 22, 2009 there has been one failure of a TLGP-participating institution, an affiliate of which had 

issued guaranteed debt. While the FDIC anticipates up to a $2 million loss on that issuance, no losses have been paid out yet with respect 

to the DGP. 25 Id. 

3. How Guarantees Are Treated on the Books of the Entity 

Benefitted 

a. Guarantee of Assets 

For the institutions that receive a guarantee, the fair value of 

the guarantee (the fee paid) is recorded as an initial asset (as a 

prepaid expense equivalent to the initial liability recorded by the 

guarantor) adjusted (through the income statement as an other operating expense) over the life of the guarantee to reflect the reduced risk. If and when cumulative losses (impairment) based on 

GAAP for the covered assets exceed an agreed amount or deductible, an asset is recorded (reflecting expected receipt of payment for 

the claim) that is equal to the losses recorded in the relevant period. 

b. Guarantee of Liabilities 

When a bank issues debt (a liability to the bank) that has been 

guaranteed by a third party, the guarantee benefits the holder of 

the bank’s debt (the lender) rather than the bank. The bank pays 

a guarantee premium to the guarantor at the time of issuance of 

the debt which is carried as part of the carrying basis of the underlying debt. This premium is recognized as an asset and amortized 

over the life of the guaranteed debt as an interest expense. 

The guarantee in such a case is in effect a debt discount (i.e., it 

lowers the borrowing cost). If the bank defaults, a payment from 

the guarantor goes directly to the lender, bypassing the bank. Unlike an asset guarantee, in the case of a liability guarantee, the 

bank is not the guaranteed party and hence it does not record an 

asset if it defaults on the guaranteed debt. Rather, the guarantor 

is liable to the holder of the underlying debt of the bank.26

Though the accounting of the guaranteed party is similar to that 

of the guarantor in terms of the initial recording of the guarantees, 

there is significant difference in the treatment of guarantees of asVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00016 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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27 Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Merrill Lynch, State Street Corporation, and the Bank of New York Mellon were the nine 

initial financial institutions to receive the first government capital injections. Settlement with 

Merrill Lynch was deferred pending its merger with Bank of America. The purchase of Merrill 

Lynch by Bank of America was completed on January 1, 2009, and this transaction under the 

CPP was funded on January 9, 2009. U.S. Department of the Treasury, Troubled Asset Relief 

Program Transactions Report for Period Ending October 30, 2009, at 5 (Nov. 3, 2009) (online 

at www.financialstability.gov/docs/transaction-reports/11-3-09%20Transactions%20 

Report%20as%20of%2010-30-09.pdf) (hereinafter ‘‘October 30 TARP Transactions Report’’). 28 U.S. Department of the Treasury, Remarks by Secretary Henry M. Paulson, Jr. on Financial 

Rescue Package and Economic Update (Nov. 12, 2008) (online at www.financialstability.gov/latest/hp1265.html) (stating that ‘‘nine of the largest U.S. financial institutions, holding approximately 55 percent of U.S. banking assets . . . .’’). 29See U.S. Department of the Treasury, Statement by Secretary Henry M. Paulson, Jr., on Actions to Protect the U.S. Economy (Oct. 14, 2008) (online at www.treasury.gov/press/releases/ 

hp1205.htm) (stating that the financial institutions receiving emergency injections of capital, including Citigroup and Bank of America, were ‘‘healthy institutions,’’ and that they were accepting federal assistance ‘‘for the good of the U.S. economy’’). 30SIGTARP, Emergency Capital Injections Provided to Support the Viability of Bank of America, Other Major Banks, and the U.S. Financial System, at 1 (Oct. 5, 2009) (online at 

www.sigtarp.gov/reports/audit/ 2009/Emergency_Capital_Injections_Provided_to_Support 

_the_Viability_of_Bank_of_America..._100509.pdf ) (hereinafter ‘‘Emergency Capital Injections’’). 31 U.S. Department of the Treasury, Report to Congress Pursuant to Section 102 of the Emergency Economic Stabilization Act, at 2 (Dec. 31, 2008) (online at www.financialstability.gov/docs/ 

AGP/sec102ReportToCongress.pdf) (hereinafter ‘‘Treasury AGP Report’’). For practical purposes, 

the AGP was created when the government agreed, in November 2008, to guarantee certain 

Citigroup assets. See U.S. Department of the Treasury, U.S. Government Finalizes Terms of Citi 

Guarantee Announced In November (Jan. 16, 2009) (online at www.treas.gov/press/releases/ 

hp1358.htm) (hereinafter ‘‘Treasury AGP Terms Release’’). (announcing the federal government’s 

intention to guarantee Citigroup assets, without specifying AGP as the programmatic source of 

the guarantee). There is no evidence that AGP existed prior to that announcement as a program, but funds were allocated to Citigroup that were later attributed to AGP. It was not until 

Treasury issued its report to Congress in December 2008, however, that it formally linked the 

Continued 

sets versus guarantees of liabilities when a payment is due from 

the guarantor. For guarantees of assets, the guarantor pays the 

guaranteed party according to the loss agreement. For guarantees 

of liabilities, the guarantor pays the creditor directly (bypassing the 

obligor). 

C. The Programs 

1. The Asset Guarantee Program 

By the fall of 2008, financial markets were in significant turmoil. 

In October 2008, Treasury provided $125 billion in Capital Purchase Program (CPP) funds—half of the TARP funds then available—to nine financial institutions selected due to their perceived 

importance to the capital markets and the greater financial system.27 At the time, the nine financial institutions held, in aggregate, approximately 55 percent of all assets held by U.S.-owned 

banks.28 Treasury maintained that these institutions were 

‘‘healthy’’ and that the infusion of capital was intended primarily 

to restore market confidence and stimulate the economy by helping 

banks increase lending to consumers and businesses.29

The continuation of significant disruptions in the capital markets 

and the banking industry experiencing ‘‘one of the most financially 

devastating earnings quarters in recent history’’30 during the 

fourth quarter of 2008, meant that CPP infusions were not enough 

for some institutions. In a matter of weeks, two of the nine institutions—Citigroup and Bank of America—needed additional support. 

Some of this support was provided through the Asset Guarantee 

Program (AGP). On December 31, 2008, Treasury issued a report 

detailing its Asset Guarantee Program (AGP),31 which Treasury 


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agreement with Citigroup to the AGP. See Treasury AGP Report, supra note 31, at 1 (announcing that Treasury intended to ‘‘explor[e] use of the Asset Guarantee Program to address the 

guarantee provisions of the agreement with Citigroup announced on November 23, 2008’’). 32Treasury guarantees assets under the AGP by ‘‘assum[ing] a loss position with specified attachment and detachment points on certain assets held by [a] qualifying financial institution[.]’’ 

Treasury AGP Report, supra note 31, at 1. The insured assets are selected by the financial institution receiving the guarantee and reviewed for eligibility by Treasury. Id. 33Treasury AGP Report, supra note 31. Treasury regards a financial institution as ‘‘systemically significant’’ if its ‘‘failure would impose significant losses on creditors and counterparties, 

call into question the financial strength of other similarly situated financial institutions, disrupt 

financial markets, raise borrowing costs for households and businesses, and reduce household 

wealth.’’ U.S. Department of the Treasury, Decoder (Sept. 18, 2009) (online at 

www.financialstability.gov/roadtostability/decoder.htm) (hereinafter ‘‘Treasury Decoder’’). Treasury has stated that, in determining whether to provide aid under the AGP, it will consider the 

following factors, among others: 

1. The extent to which destabilization of the institution could threaten the viability of creditors and counterparties exposed to the institution, whether directly or indirectly; 

2. The extent to which an institution is at risk of a loss of confidence and the degree to which 

that stress is caused by a distressed or illiquid portfolio of assets; 

3. The number and size of financial institutions that are similarly situated, or that would be 

likely to be affected by destabilization of the institution being considered for the program; 

4. Whether the institution is sufficiently important to the nation’s financial and economic system that a loss of confidence in the firm’s financial position could potentially cause major disruptions to credit markets or payments and settlement systems, destabilize asset prices, significantly increase uncertainty, or lead to similar losses of confidence or financial market stability 

that could materially weaken overall economic performance; 

5. The extent to which the institution has access to alternative sources of capital and liquidity, whether from the private sector or from other sources of government funds. 

Treasury AGP Report, supra note 31. 34 U.S. Department of the Treasury, Asset Guarantee Program (Mar. 2, 2009) (online at 

www.financialstability.gov/roadtostability/assetguaranteeprogram.htm) (hereinafter ‘‘AGP Overview’’). 35Treasury AGP Report, supra note 31, at 1; see, e.g., Master Agreement Among Citigroup 

Inc., Certain Affiliates of Citigroup Inc. Identified Herein, Department of the Treasury, Federal 

Deposit Insurance Corporation and Federal Reserve Bank of New York at Exhibit B, Governance 

and Asset Management Guidelines (Jan. 15, 2009) (online at www.sec.gov/Archives/edgar/data/ 

831001/000095010309000098/dp12291_ex1001.htm) (hereinafter ‘‘Citigroup Master Agreement’’) 

(guidelines governing Citigroup’s management of the covered assets). 36Treasury stated that AGP and its Targeted Investment Program, discussed below, were 

components of a coordinated effort to counteract any potential systemic risks. Treasury conversations with Panel staff (Oct. 22, 2009). 37Treasury AGP Report, supra note 31, at 2. 38Treasury AGP Report, supra note 31, at 1. 39See, e.g., AGP Overview, supra note 34; U.S. Department of the Treasury, Joint Statement 

by Treasury, Federal Reserve and FDIC on Citigroup (Nov. 23, 2008) (online at 

created pursuant to Section 102 of EESA. Under the AGP, Treasury may guarantee 32 certain distressed or illiquid assets that are 

held by systemically significant financial institutions.33 In exchange, participating financial institutions pay premiums to Treasury, which are supposed to cover any losses under the program.34

Participating financial institutions also agree to manage the guaranteed assets according to certain guidelines.35 Treasury’s stated 

objective for the AGP is to bolster confidence in participating institutions and to stabilize financial markets,36 thereby strengthening 

the broader economy.37

From the beginning, Treasury stated that AGP assistance would 

not be ‘‘widely available.’’ 38 To date, Treasury has offered AGP assistance to only two institutions: Citigroup and Bank of America. 

In both cases, Treasury offered this assistance in coordination with 

the Federal Reserve and the FDIC, both of which, like Treasury, 

agreed to absorb certain losses arising from the guaranteed assets. 

Although the AGP program was jointly announced by Treasury, 

the Federal Reserve, and the FDIC, Treasury is the only agency 

that refers to this tripartite initiative as AGP. (The latter two 

agencies instead refer to this agreement as ‘‘a package of guarantees, liquidity access and capital.’’) 39 Treasury is also the only 


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financialstability.gov/latest/hp1287.html); Board of Governors of the Federal Reserve System, 

Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup (Nov. 23, 2008) (online 

at www.federalreserve.gov/newsevents/press/bcreg/20081123a.htm); Federal Deposit Insurance 

Corporation, Joint Statement by Treasury, Federal Reserve and the FDIC on Citigroup (Nov. 23, 

2008) (online at www.fdic.gov/news/news/press/2008/pr08125.html). 40The Federal Reserve states its authority derives from § 13(3) of the Federal Reserve Act of 

1913, Pub. L. No. 63–43, § 13(3); see also Board of Governors of the Federal Reserve System, 

Report Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Authorization to Provide Residual Financing to Bank of America Corporation Relating to a Designated 

Asset Pool (online at www.federalreserve.gov/monetarypolicy/files/129BofA.pdf) (accessed Nov. 2, 

2009) (referencing § 13(3) of the Federal Reserve Act as the source of the Federal Reserve’s authority to act). 41 U.S. Department of the Treasury, Capital Purchase Program Transaction Report (Nov. 17, 

2008) (online at www.financialstability.gov/docs/transaction-reports/TransactionReport11172008.pdf). 42 Notwithstanding these statements that the nine financial institutions were healthy, a recent SIGTARP audit suggests that there were concerns about the health of at least several of 

the institutions at that time, and that ‘‘their overall selection was far more a result of the officials’ belief in their importance to a system that was viewed as being vulnerable to collapse than 

concerns about their individual health and viability.’’ SIGTARP, SIGTARP Survey Demonstrates 

that Banks Can Provide Meaningful Information On Their Use of TARP Funds, at 17 (July 20, 

2009) (online at www.sigtarp.gov/reports/audit/2009/SIGTARP_Survey_ Demonstrates_That_ 

Banks_Can_Provide_Meaningfu_%20Information_On_ Their_Use_Of_TARP_Funds.pdf) (hereinafter ‘‘SIGTARP Bank Audit’’). 43See, e.g., Vikram Pandit, Chief Executive Officer of Citigroup, Citi Reports Fourth Quarter 

Net Loss of $8.29 Billion, Loss Per Share of $1.72 (Jan. 16, 2009) (online at www.citibank.com/ 

citi/press/2009/090116a.htm); Bradley Keoun & Mark Pittman, Citigroup’s Asset Guarantees to 

be Audited by TARP, Bloomberg (Aug. 19, 2009) (online at www.bloomberg.com/apps/ 

news?pid=20601087&sid=aiWZXE5RKSCc) (reporting that Citigroup’s shares fell below $5 in 

November 2008, raising concerns of a destabilizing run on the bank). 44 44 U.S. Department of the Treasury, Treasury Releases Guidelines for Targeted Investment 

Program (Jan. 2, 2009) (online at www.treasury.gov/press/releases/hp1338.htm) (hereinafter 

‘‘Treasury TIP Guidelines’’). The TIP ‘‘was created to stabilize the financial system by making 

investments in institutions that are critical to the functioning of the financial system. Investments made through the TIP seek to avoid significant market disruptions resulting from the 

deterioration of one financial institution that can threaten other financial institutions and impair broader financial markets and pose a threat to the overall economy.’’ U.S. Department of 

the Treasury, Decoder, supra note 34. As the Panel has before noted, there is no evidence that 

the TIP existed as a program prior to that announcement, but funds were disbursed to Citigroup 

that were later attributed to the TIP. See Congressional Oversight Panel, February Oversight 

Report:Valuing Treasury’s Acquisitions, at 5 (Feb. 6, 2009) (online at cop.senate.gov/documents/ 

cop-020609-report.pdf). 

Treasury states, ‘‘[t]his program description is required by Section 101(d) of the Emergency 

Economic Stabilization Act,’’ but does not provide the date TIP was created. TIP is not referred 

to by name in EESA. Treasury asserts its authority for this program arises from Section 101, 

which authorizes Treasury to purchase troubled assets. See Treasury TIP Guidelines, supra note 

44; see also EESA § 101. 

agency whose authority to participate in the initiative emanates 

from EESA40—an issue discussed in greater depth in section D of 

this report. 

a. Citigroup 

i. Background 

On October 28, 2008, Treasury purchased Citigroup preferred 

shares and warrants valued at $25 billion under its CPP.41 As discussed above, at the time, Treasury maintained that CPP recipients were ‘‘healthy.’’ 42

On Friday, November 21, 2008, Citigroup approached the federal 

government and requested assistance over and above the $25 billion direct capital infusion it had received in November under the 

CPP. In response to rapidly deteriorating market conditions and 

Citigroup’s position,43 the federal government announced that it 

would provide additional aid to Citigroup. 

This second wave of aid took two forms. First, Treasury agreed 

to purchase an additional $20 billion in Citigroup preferred stock 

under its Targeted Investment Program (TIP).44 Second, three govVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00019 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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45Generally speaking, the assets in the guarantee pool are loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. U.S. Dept. of the Treasury, Press Release, Joint Statement by Treasury, Federal Reserve and the FDIC on Citigroup (Nov. 23, 2008) (online at www.treas.gov/press/releases/ 

hp1287.htm) (hereinafter ‘‘Treasury Citigroup Press Release’’). For a more detailed breakdown 

of the asset pool, see Figure 2, infra. Citigroup, Treasury and the Federal Reserve have indicated that the assets were valued at the amounts shown on Citigroup’s books at the date of 

the agreement (or January 15, 2009 for assets added later). The whole loans within the asset 

pool are carried at face value and adjusted for permanent impairments (write-downs) and any 

repayments of principal. The securities within the asset pool are carried at their mark-to-market 

value. This was confirmed by Citigroup. (In the notes to its financial statements, Citigroup, as 

a BHC, is required to show the market value of these assets, which includes mark-to-market 

valuation.) As shown in Figure 2, most of the assets covered were in the form of whole loans. 

Citigroup uses the same valuation principles it uses in its financial statements for the calculation of losses under the guarantee. See Congressional Oversight Panel, August Oversight Report, 

The Continued Risk of Troubled Assets at Section B (Aug. 11, 2009) (hereinafter ‘‘COP August 

Oversight Report’’) (online at financialservices.house.gov/cop-081109-report.pdf ) (discussing the 

changes in accounting rules that move away from mark-to-market accounting). 46The terms of the asset guarantee agreement were finalized in January 2009, at which time 

the size of the guaranteed pool was reduced to $301 billion. Treasury AGP Terms Release, supra 

note 31. The reason for this reduction was largely the result of certain accounting corrections 

as well as the exclusion from the pool of certain asset-backed collateralized debt obligations. As 

discussed below, the asset pool has since shrunk even further due to sales of assets, principal 

amortization, and charge-offs. It now stands at approximately $266 billion. 47 Citigroup Master Agreement, supra note 35 (setting forth the agreement by Treasury, the 

FDIC, and FRBNY to protect Citigroup and certain of its affiliates from certain losses on an 

asset pool, as originally announced on November 23, 2008). 48 Citigroup Master Agreement, supra note 35, at 2, 28. Citigroup’s so-called ‘‘deductible’’ was 

‘‘determined using (i) an agreed-upon $29 billion of first losses [on the asset pool], (ii) Citigroup’s 

then-existing reserve with respect to the portfolio of approximately $9.5 billion, and (iii) an additional $1.0 billion as an agreed-upon amount in exchange for excluding the effects of certain 

hedge positions from the portfolio.’’ U.S. Securities and Exchange Commission, Quarterly Report 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for Citigroup Inc. (Aug. 

7, 2009), at 35 (online at www.sec.gov/Archives/edgar/data/831001/000104746909007400/ 

a2193853z10-q.htm) (hereinafter ‘‘Citigroup Second Quarter 2009 Report’’). When the guarantee 

was first announced on November 23, 2008, it was announced that the deductible would be $29 

billion ‘‘plus reserves.’’ When these reserves and the $1 billion for the hedge position are 

factored in, the amount becomes the $39.5 billion reflected in the final agreement signed in January. 

During a call with Panel staff, Citigroup stated there was disagreement between the federal 

government and Citigroup as to the value of certain hedge positions during negotiations of the 

deductible. Since determining which assets were a hedge for other assets to some degree of precision was extremely difficult, if at all possible, Citigroup and the government settled on the 

figure of $1 billion to account for the existence of these hedges in calculating the deductible. 

Citigroup conversations with Panel staff (Oct. 26, 2009). 49 Citigroup Master Agreement, supra note 35, at 6–8, 28–30; see also U.S. Department of the 

Treasury, The Next Phase of Government Financial Stabilization and Rehabilitation Policies, at 

44 (Sept. 2009) (online at www.treas.gov/press/releases/docs/ 

Next%20Phase%20of%20Financial%20Policy,%20Final,%202009-09-14.pdf) (hereinafter ‘‘Next 

Phase Report’’). 

ernment agencies (Treasury, the Federal Reserve, and the FDIC) 

agreed to share with Citigroup potential losses on a pool of 

Citigroup assets that Citigroup identified as some of its riskiest 

and most high-profile assets.45 Initially, that pool was valued at up 

to $306 billion.46

ii. Structure of the Guarantee 

The structure of Citigroup’s asset guarantee is relatively simple. 

According to the Citigroup Master Agreement,47 Citigroup will absorb initial losses arising from the covered pool up to $39.5 billion.48 Citigroup will then absorb 10 percent of any losses in excess 

of that amount, while the federal government will absorb the remainder of the losses. Treasury will absorb the first $5 billion in 

federal liability, the FDIC will absorb the second $10 billion in federal liability, and the Federal Reserve will cover any further federal liability by way of a non-recourse loan to Citigroup.49 The 


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50Federal Reserve conversations with Panel staff (Oct. 22, 2009); Citigroup Master Agreement, supra note 35, at 20–21. 51 As the FDIC has noted, ‘‘the specific requirements for claims under the agreement result 

in some differences between GAAP charge-offs and recognition of losses under the agreement 

which would be covered (first going against Citigroup’s deductible and then as an allowed 

claim).’’ Federal Deposit Insurance Corporation, Responses to Panel Questions on AGP (Oct. 30, 

2009). 52 Citigroup accounts for the loss-sharing program as an indemnification agreement; it was recorded on Citigroup’s Consolidated Financial Statements as follows: Per U.S. Generally Accepted Accounting Principles (GAAP), an asset of $3.617 billion (equal 

to the initial fair value of the consideration issued to Treasury) was recorded as ‘‘Other Assets’’ 

on the Consolidated Balance Sheet and, correspondingly, the issuance of preferred stock and 

warrants resulted in an increase of stockholder’s equity by $3.617 billion during the first quarter 

of 2009. 

During the 3rd quarter of 2009, the preferred stock was subsequently exchanged for ‘‘Trust 

Preferred Securities’’ as part of the ‘‘Exchange Offer.’’ Accordingly, the ‘‘Trust Preferred Securities’’ were classified as debt and the Preferred Stock issued in Q1 2009 was derecognized. 

The initially recorded asset will be amortized as an ‘‘Other Operating Expense’’ in the Consolidated Income Statement on a straight-line basis over the coverage periods (i.e., 10 years for residential assets and 5 years for non-residential assets) based on the initial principal amounts of 

each group. If cumulative losses in the covered asset pool exceed $39.5 billion, any recoveries on the guarantee will be recorded as an asset (on the loss sharing program) equal to the losses recorded 

in the relevant period. 

U.S. Securities and Exchange Commission, Citigroup Inc, Form 10-Q for the Quarterly Period 

Ended March 31, 2009 (online at www.sec.gov/Archives/edgar/data/831001/000104746909005290/ 

a2192899z10-q.htm) (accessed Nov. 2, 2009). 53 U.S. Securities and Exchange Commission, Summary of Terms of USG/Citigroup Loss 

Sharing Program at 1–2 (Jan. 15, 2009) (hereinafter ‘‘Citigroup Summary’’) (online at 

Continued 

guarantee runs for up to ten years for residential assets and five 

years for non-residential assets. 

On a quarterly basis, Citigroup is required to calculate a number 

of figures, including the adjusted baseline value of each asset, the 

aggregate losses incurred by asset class, and the aggregate recoveries and gains recognized by the ring-fenced portfolio.50 The losses 

reported are equal to the amount of any charge-offs or other realized losses (such as sales at a loss) taken on covered assets over 

the quarterly period. These losses generally count against 

Citigroup’s deductible under the agreement.51 If assets in the pool 

have increased in value, then upon their sale or disposition gain 

offsets the losses, and the amount the federal government is liable 

for decreases. On a monthly basis, Citigroup prepares an AGP report for senior management and the audit committee that includes 

updates on the current value of the ring-fenced assets and provides 

a month-to-month change as well as a year-to-date change (since 

the inception of the AGP). These monthly reports also describe the 

drivers of the change in the value of the ring-fenced assets and include Citigroup’s stress test on these assets projecting the expected 

losses over the life of the guarantee. Citigroup submits this report 

to Treasury. Net losses, if any, on the portfolio after Citigroup’s 

losses exceed its deductible will be paid out by the U.S. government 

in a specified manner. If Citigroup’s recoveries or gains on the 

asset pool exceed its losses, then certain clawback provisions within 

the Master Agreement require it to reimburse the U.S. government 

for any outstanding advances on a quarterly basis. 

As consideration for this asset guarantee, Citigroup agreed to issue to Treasury $4.034 billion of perpetual preferred stock, which 

pays dividends at 8 percent, and warrants to purchase 66,531,728 

shares of common stock at a strike price of $10.61.52 Citigroup also issued to the FDIC $3.025 billion of the same perpetual preferred 

stock issued to Treasury.53 (Citigroup was required to reimburse 


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www.sec.gov/Archives/edgar/data/831001/000095010309000098/dp12291_8k.htm). Should 

Citigroup draw on the Federal Reserve’s non-recourse loan facility, the funds will be subject to 

a floating Overnight Index Swap Rate plus 300 basis points. Id. 

According to Citigroup, ‘‘the approximately $7.1 billion of preferred stock issued to the [Treasury] and FDIC in consideration for the loss-sharing agreement was [subsequently] exchanged 

for newly issued 8 percent trust preferred securities.’’ Citigroup Second Quarter 2009 Report, 

supra note 48, at 35. 54Treasury has informed the Panel that no such expenses were incurred by TARP. However, 

the Federal Reserve Bank of New York did incur expenses in connection with the Citigroup ring 

fence, including contracts for outside legal counsel and financial advisory services. See Federal 

Reserve Bank of New York, Citigroup Ringfencing Arrangement, Blackrock Contract (Dec. 14, 

2008) (online at www.newyorkfed.org/aboutthefed/Blackrock_Redacted.PDF); Federal Reserve 

Bank of New York, ‘‘Citigroup Ringfencing Arrangement,’’ PricewaterhouseCoopers Contract (online at www.newyorkfed.org/aboutthefed/pricewaterhousecoopers_redacted.pdf); Federal Reserve 

Bank of New York, ‘‘Citigroup Ringfencing Arrangement,’’ Cleary Gottlieb Stein & Hamilton 

Contract, at 13–21 (online at www.newyorkfed.org/aboutthefed/ 

ClearlyGottliebSteinHamilton_LLP.pdf). According to the FRBNY, Citigroup has repaid all expenses incurred by these contracts in connection with the Citigroup AGP. 55 Citigroup Summary, supra note 53, at 1–2. 56See Citigroup Master Agreement, supra note 35, at 30, Exhibit B, Governance and Asset 

Management Guidelines, Exhibit C, Executive Compensation; Section D of this report below, 

which discusses the creation and structure of the guarantee programs. 57The requirements include: (1) that each asset was owned by a Citigroup affiliate and included on its balance sheet as of the agreement date (January 15, 2009); (2) that no foreign 

assets are to be included; (3) that no equity securities or derivatives of such equity securities 

are to be included; (4) that all assets in the pool must have been issued or originated prior to 

March 14, 2008; (5) that Citigroup or any of its affiliates would not serve as an obligor of any 

of the assets; and (6) that the assets are not guaranteed by any governmental authority pursuant to another agreement. The Panel has confirmed with Treasury and Citigroup that all assets 

were originally on the balance sheet of Citigroup. 

Citigroup stated during a conversation with Panel staff that in determining the assets to be 

guaranteed, it included mainly ‘‘high headline exposure’’ categories of assets, not necessarily the 

technically riskiest, but the types of assets that the markets were most worried about and the 

guarantee of which would attract the most market attention. Citigroup also stated that it included in its initial proposal all of the assets in each of these categories in an effort to demonstrate it was not ‘‘cherry-picking’’ assets and to reflect moral hazard concerns. Citigroup conversations with Panel staff, October 26, 2009. 58See Citigroup Master Agreement, supra note 35, at 17. 59See Citigroup Master Agreement, supra note 35, at 17. 60See Citigroup Master Agreement, supra note 35, at 17. 

the government for expenses incurred in negotiating the guarantees.) 54 Should Citigroup draw on the Federal Reserve’s non-recourse loan facility, the funds will be subject to a floating Overnight Index Swap Rate plus 300 basis points.55

The Citigroup Master Agreement also addresses certain governance issues. For example, it provides that Citigroup may not pay 

common stock dividends in excess of $.01 per share per quarter 

until November 20, 2011, except with the government’s consent; 

that Citigroup will follow certain government-approved executive 

compensation guidelines; that Citigroup will follow certain government-approved asset management guidelines for the covered pool; 

and that the federal government may demand a change in management of the pool if losses in the pool exceed $27 billion.56

iii. The Guaranteed Pool 

The Master Agreement does not specify the precise value or composition of the guaranteed asset pool; rather, it sets forth the criteria for covered assets 57 and a post-signing process for negotiating 

and finalizing those details. 

Pursuant to the terms of the Master Agreement, the composition 

of the asset pool is subject to final confirmation by the U.S. government.58 Citigroup submitted its proposed asset pool to the U.S. government on April 15, 2009 in compliance with the Master Agreement,59 and the three agencies had 120 days—until August 13, 

2009—to complete their review.60 Treasury, the Federal Reserve, 


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61See Citigroup Master Agreement, supra note 35, at 17. 62 Citigroup Master Agreement, supra note 35, at 36. For further discussion on the criteria 

for assets in the covered pool, see Section C(a)(ii), infra. 63The FRBNY, along with PricewaterhouseCoopers (PwC) and Blackrock, analyzed Citigroup’s 

books (not available to the market) including the models and assumptions used to value these 

assets. FRBNY looked at non-public information relating to Citigroup’s assets. The valuation 

question also requires the assumption of discount rates and interest rate levels (on which the 

value of many of the pool assets are likely, in part, to depend). 64 Citigroup conversations with Panel staff (Oct. 22, 2009); Treasury conversations with Panel 

staff (Oct. 19, 2009); Federal Reserve Bank of New York conversations with Panel staff (Oct. 

22, 2009). 65The definitions of ‘‘covered assets’’ and ‘‘replacement covered assets’’ are both included in 

the definitions section of the Master Agreement. Section 5 of the agreement sets forth detailed 

guidelines for how each of the assets must be ‘‘mutually agreed to by each of the U.S. Federal 

Parties.’’ In particular, Section 5.1(d) sets out the swapping process. See Citigroup Master 

Agreement, supra note 35, at 17 (‘‘Citigroup shall have the right to substitute or add, as the 

case may be, new assets that qualify as Covered Assets up to the amount of any such decrease; 

provided such assets are acceptable to the U.S. Federal Parties acting in good faith . . . following any such substitution or addition of new assets, such assets shall be subject to this Master Agreement and shall be deemed to be ‘Covered Assets’ in all respects.’’). On July 23, 2009 

SIGTARP announced it is initiating an audit of the Citigroup asset guarantee to determine: ‘‘(1) 

the basis on which the decision was made to provide asset guarantees to Citigroup, and the 

process for selecting the loans and securities to be guaranteed; (2) what were the characteristics 

of the assets deemed to be eligible to be ‘ring-fenced’, i.e., covered under the program, how do 

they compare with other such assets on Citigroup’s books, and what risk assessment measures 

were considered in their acquisition; (3) whether effective risk management and internal controls and related oversight processes and procedures are in place to mitigate risks to the government under this guarantee program with Citigroup; and (4) what safeguards exist to protect the 

taxpayer’s [sic] interests in the government’s investment in the asset guarantees provided to 

Citigroup, and the extent of losses to date.’’ See SIGTARP, Engagement Memo—Review of 

Citigroup’s Participation in the Asset Guarantee Program (July 23, 2009) (online at 

www.sigtarp.gov/reports/audit/2009/ 

EM_Review_of_Citigroup’s_Participation_in_the_Asset_Guarantee_Program.pdf). 

and the FDIC have 90 days after completing their review of the 

asset pool (i.e., until November 11, 2009) to finalize the pool’s composition.61 Treasury expects that the asset pool will be finalized by 

early November, after the review of the remaining $2 billion, or 

roughly one percent of covered assets, is completed. 

According to Citigroup, the covered asset pool currently includes 

approximately $99 billion of assets considered ‘‘replacement’’ assets—that is, assets that were added to the pool to replace assets 

that were determined not to meet the criteria set forth in the Master Agreement.62 When the idea of a guarantee of assets was first 

proposed, the government agencies agreed to the guarantee in principle, but required that the assets meet specified criteria. The parties agreed to these criteria, also referred to as ‘‘filters,’’ and started a due diligence review 63 to ascertain whether the initial assets 

proposed for the pool passed the filters. Many of the assets in the 

initial pool were rejected as a result of the filtering process. As a 

result of this process (as well as voluntary exclusions, accounting 

corrections, and confirmation of covered asset balances), the total 

value of the asset pool fell below the $306 (adjusted to $301) billion 

amount that was agreed to initially. Thus, new asset classes (not 

among the asset classes initially proposed) were added, such as certain corporate loans.64 This ‘‘swapping’’ process is governed by the 

terms of the Master Agreement.65

The most recent description of the asset pool appears in 

Citigroup’s second quarter 2009 earnings report. According to that 

report, the value of assets in the guaranteed pool has declined from 

$301 billion to $266.4 billion as a result of principal repayments 

and charge-offs. The following table describes the composition of 

the asset pool (as of June 30, 2009), including replacement assets, 


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66See Citigroup Second Quarter 2009 Report, supra note 48, at 10, 36; see also Section E, 

infra, which discusses financial projections for Citigroup made by the Federal Reserve and 

Citigroup. 

and reflects decreases by reason of amortization, charge-offs or 

asset sales. 

FIGURE 2: ASSETS COVERED BY CITIGROUP AGP 

[Dollars in billions] 

June 30, 2009 November 21, 2008 

Loans: 

First mortgages .............................................................................................. $ 86 .0 $ 98 .0 

Second mortgages .......................................................................................... 52 .0 55 .4 

Retail auto loans ............................................................................................ 12 .9 16 .2 

Other consumer loans .................................................................................... 18 .4 19 .7 

Total consumer loans .............................................................................................. 169 .3 189 .3

Commercial real estate loans ........................................................................ 11 .4 12 .0 

Highly leveraged loans ................................................................................... 1 .3 2 .0 

Other corporate loans ..................................................................................... 12 .2 14 .0 

Total corporate loans ............................................................................................... 24 .9 28 .0

Securities: 

‘‘Alt-A’’ mortgage securities ........................................................................... 9 .5 11 .4 

Special investment vehicles ........................................................................... 5 .9 6 .1 

Commercial real estate .................................................................................. 1 .6 1 .4 

Other ............................................................................................................... 9 .0 11 .2 

Total securities ........................................................................................................ 26 .0 30 .1 

Unfunded Lending Commitments: 

Second mortgages .......................................................................................... 19 .6 22 .4 

Other consumer loans .................................................................................... 2 .6 3 .6 

Highly leveraged finance ................................................................................ 0 0 .1 

Commercial real estate .................................................................................. 4 .2 5 .5 

Other commitments ........................................................................................ 19 .8 22 .0 

Total unfunded lending commitments .................................................................... 46 .2 53 .6 

Total covered assets ................................................................................................ 266 .4 301 .0 

As of June 30, 2009, Citigroup had announced approximately 

$5.3 billion in losses on the guaranteed asset pool—far short of the 

$39.5 billion in losses required to trigger any obligation on the part 

of the government.66 Even though the final composition of the pool 

has not yet been determined, the government considers itself committed to cover any losses specified by the agreement that occurred 

after November 23, 2008. Whether a specific loss would be eligible 

for coverage, however, cannot be determined until the asset pool is 

finalized. 

While the size of the asset pool will diminish over time as the 

assets are amortized or sold, the ‘‘deductible’’ means that losses on 

the pool will not result in losses to Treasury, if at all, until later 

in the term of the guarantee. 

b. Bank of America 

i. Background 

Like Citigroup, Bank of America was one of the first financial institutions to receive substantial infusions of government capital. 

Treasury invested $15 billion in the company under the CPP on 


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67See October 30 TARP Transactions Report, supra note 27. 68See Emergency Capital Injections, supra note 30, at 7–8. 69Public Broadcasting Service, Interview: John Thain (Apr. 17, 2009) (online at www.pbs.org/ 

wgbh/pages/frontline/breakingthebank/interviews/thain.html) (former CEO of Merrill Lynch stating Merrill’s ‘‘operating losses were almost entirely from existing positions and from the market 

dislocations that were occurring in that environment.’’). 70On December 17, 2008, Bank of America CEO Kenneth Lewis informed Treasury and the 

Federal Reserve that, in his view, the substantial losses suffered by Merrill Lynch could justify 

invocation of the ‘‘material adverse change’’ clause in the merger agreement between Bank of 

America and Merrill Lynch. In response, federal officials told Mr. Lewis that such action would 

be ‘‘ill advised, would likely be unsuccessful, and could potentially destabilize Merrill Lynch, 

Bank of America, and the broader financial markets.’’ Then-Treasury Secretary Paulson asked 

Mr. Lewis to take no action immediately and to allow the government to consider its options. 

On December 21, 2008, Mr. Lewis reiterated his view that Bank of America would be justified 

in invoking the material adverse change clause. House Oversight and Government Reform Committee, Subcommittee on Domestic Policy. Testimony of Mr. Kenneth D. Lewis, Bank of America 

and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout?, 111th Cong., (June 

11, 2009) (online at oversight.house.gov/story.asp?ID=2474); Emergency Capital Injections, supra 

note 30. 

The Panel notes that there has been widespread speculation as to the possibility of a ‘‘deal’’ 

between Bank of America and the U.S. government, under which the bank would acquire Merrill Lynch and instead receive the opportunity to obtain the guarantee. This speculation also 

includes numerous questions about the acquisition and whether government officials exerted 

pressure on Bank of America to complete the acquisition. While they raise interesting policy 

questions, these issues are beyond the scope of the Panel’s report. These issues are, however, 

the subject of investigations by the House Oversight and Government Reform Committee, the 

Securities and Exchange Commission, and the Office of New York State Attorney General Andrew Cuomo. On Thursday, April 23, 2009, Attorney General Cuomo sent a letter to congressional leaders, including Chair Elizabeth Warren of the Congressional Oversight Panel, discussing legal issues relating to corporate governance and disclosure practices at Bank of America. In addition, SIGTARP released a recent audit discussing the basis for the decision by Treasury, the Federal Reserve Board, and FDIC to provide Bank of America with additional assistance. See Emergency Capital Injections, supra note 30. 71See Emergency Capital Injections, supra note 30, at 26–28. 72See Emergency Capital Injections, supra note 30, at 30 (reporting that federal officials decided to offer additional assistance to Bank of America to ‘‘help ensure that the bank remained 

a viable financial institution after the merger and to avert what they thought could be another 

market-destabilizing event’’). 73 Board of Governors of the Federal Reserve System, Treasury, Federal Reserve, and the FDIC 

Provide Assistance to Bank of America (Jan. 16, 2009) (online at www.federalreserve.gov/ 

newsevents/press/bcreg/20090116a.htm). 74 Id. In contrast to the Citigroup pool of assets, much of Bank of America’s asset pool was 

derivatives, a different type of security which was very difficult to value and which made efforts 

to reach a definitive agreement more challenging. 

October 28, 2008 and another $10 billion under the same program 

on January 9, 2009.67

On September 15, 2008, Bank of America announced plans to 

buy Merrill Lynch. At the time, Merrill Lynch was already experiencing significant losses.68 Those losses continued to mount, largely 

due to declining asset prices.69

Despite apparent misgivings,70 Bank of America chose to complete the merger, which was finalized in January 2009. Soon thereafter, CEO Kenneth Lewis requested further federal assistance in 

order to cope with larger-than-expected losses at both Merrill 

Lynch and Bank of America.71 Federal officials agreed and, as they 

had done with Citigroup, they decided to offer Bank of America two 

additional forms of aid.72 First, Treasury agreed to purchase $20 

billion of preferred stock from Bank of America under the TIP.73

Second, Treasury, the Federal Reserve, and the FDIC agreed to 

guarantee ‘‘an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, 

and other such assets[.]’’ 74 Most of these assets were acquired by 

Bank of America in the Merrill Lynch acquisition. 


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75See generally U.S. Department of the Treasury, Summary of Terms: Eligible Asset Guar- antee (Jan. 15, 2009) (online at www.treas.gov/press/releases/reports/011508BofAtermsheet.pdf) 

(hereinafter ‘‘Bank of America Provisional Term Sheet’’). 76This is different from the Citigroup guarantee structure. In particular, Citibank must first absorb $39.5 billion in losses compared to $10 billion by Bank of America. 77See Bank of America Provisional Term Sheet, supra note 75, at 2; see also Congressional 

Oversight Panel, June Oversight Report: Stress Testing and Shoring Up Bank Capital, at 15 

n.41 (June 9, 2009) (hereinafter ‘‘COP June Oversight Report’’). 78 Bank of America Provisional Term Sheet, supra note 75, at 1. 79The Bank of America Provisional Term Sheet also appeared to contemplate that Bank of 

America, like Citigroup, would be subject to guidelines related to corporate governance, asset 

management, dividend disbursement and executive compensation. See Bank of America Provisional Term Sheet, supra note 75, at 2–3. 80See Bank of America Provisional Term Sheet, supra note 75, at 3. 81Treasury conversations with Panel staff (Oct. 22, 2009). 

ii. Structure of the Guarantee 

A Provisional Term Sheet was drafted reflecting the outlines of 

Bank of America’s asset guarantee agreement.75 The Bank of 

America guarantee resembled the Citigroup guarantee in many 

ways and the parties acknowledge that this was the intention. According to the Provisional Term Sheet, Bank of America would absorb initial losses in the guaranteed pool up to $10 billion. Bank 

of America would then absorb 10 percent of any losses in excess of 

that amount, while the federal government would absorb the remainder of the losses.76 Specifically, Treasury’s AGP Program and the FDIC would absorb the first $10 billion in federal liability (with 

Treasury absorbing 75 percent and the FDIC absorbing 25 percent 

of that $10 billion loss), while the Federal Reserve would cover any 

further federal liability by way of a non-recourse loan to Bank of 

America.77 The guarantee would run for up to 10 years for residential assets and five years for non-residential assets. Bank of America, however, could terminate the guarantee at any time subject 

only to the consent of the government and ‘‘an appropriate fee or 

rebate in connection with any permitted termination.’’ 78

In exchange for this guarantee, the Federal Reserve would receive a commitment fee, while Treasury and the FDIC collectively 

would receive (1) $4 billion of preferred stock paying dividends at 

8 percent; and (2) warrants to purchase Bank of America stock in 

an amount equal to 10 percent of the total amount of preferred 

shares (i.e., $400 million).79 The Provisional Term Sheet explicitly 

acknowledged that this fee arrangement could be revised in light 

of any later modifications to the guaranteed pool.80

The parties never agreed upon a finalized term sheet. 

iii. The Guaranteed Pool 

According to Treasury, the pool of Bank of America assets that 

the federal government agreed in principle to guarantee consisted 

primarily of derivatives—specifically, credit default swaps—most of 

which Bank of America acquired when it merged with Merrill 

Lynch. Bank of America proposed a list of assets to be covered by 

the guarantee, and the agencies and Pacific Investment Management Company (PIMCO) performed an initial loss estimate on the 

assets. The Federal Reserve Board hired Ernst & Young to ‘‘filter’’ 

the assets. The asset pool also included (in descending order of 

value) commercial real estate loans, corporate loans, residential 

loans, certain investment securities, and collateralized debt obligations.81 Treasury estimated on a preliminary basis that the asset 


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82 Id. 83 Bank of America Provisional Term Sheet, supra note 75, at 1 (describing the eligible assets 

as ‘‘financial instruments consisting of securities backed by residential and commercial real estate loans and corporate debt, derivative transactions that reference such securities, loans, and 

associated hedges, as agreed, and such other financial instruments as the U.S. government has 

agreed to guarantee or lend against (the Pool)’’). 84See House Committee on Oversight and Government Reform, Testimony of Federal Reserve 

Chairman Ben S. Bernanke, Acquisition of Merrill Lynch by Bank of America, at 3 (June 25, 

2009) (online at oversight.house.gov/documents/20090624185603.pdf) (explaining that Bank of 

America chose to terminate the guarantee agreement because ‘‘Bank of America now believes 

that, in light of the general improvement in the markets, this protection is no longer needed’’). 85 Even though no agreement had been memorialized in writing and the parties were still negotiating certain terms (i.e., there was no explicit guarantee) both Bank of America and the government issued press releases stating the intent to enter such agreement. 86Treasury conversations with Panel staff (Sept. 30, 2009). 87The pool was reduced for two reasons. First, the parties agreed to reduce the pool by $14 

billion after the Provisional Term Sheet was signed to account for assets that were already insured and which Bank of America believed were being undervalued. Treasury conversations 

with Panel staff (Oct. 19, 2009). Second, at the time Bank of America decided to terminate, the 

parties had not yet reached agreement regarding the eligibility of losses on other assets worth 

approximately $42 billion. Thus, the parties accounted for the uncertainty surrounding the latter assets by reducing the size of the pool by an additional $21 billion (that is, 50 percent of 

$42 billion). As a result, for purposes of the Termination Agreement, the parties agreed that 

the guaranteed asset pool stood at $83 billion ($118 billion¥$14 billion¥$21 billion = $83 billion). See Termination Agreement By and Among Bank of America Corporation, the United 

States Department of the Treasury, the Board of Governors of the Federal Reserve System, On 

its Own Behalf and on Behalf of the Federal Reserve System, and the Federal Deposit Insurance 

Corporation, Schedule A, at 2 (Sept. 21, 2009) (hereinafter ‘‘Termination Agreement’’) (online at 

online.wsj.com/public/resources/documents/BofA092109.pdf). 

pool comprised 72 percent derivatives (including credit default 

swaps), 15 percent loans and 13 percent securities.82 This pool conforms to the description of eligible assets as contained in the January 15, 2009 term sheet.83

iv. Termination of the Guarantee 

On May 6, 2009, Bank of America notified the federal government that it wished to terminate ongoing negotiations surrounding 

the as-yet-unfinalized guarantee, stating the market conditions had 

improved such that the guarantee agreement was no longer necessary.84 The parties proceeded to negotiate a fee to compensate 

the government.85

Initially, Bank of America maintained that it owed the government only its fees and expenses because the government suffered 

no losses, Bank of America received no quantifiable benefit, and 

the agreement was never finalized. The government disagreed, asserting that it should be reimbursed for the fees contemplated by 

the Provisional Term Sheet, including the value of the preferred 

shares, the warrants, the dividends, and the commitment fee.86

The government conceded, however, that the fee should be adjusted 

to reflect (1) the parties’ agreement to set the value of the guaranteed asset pool at $83 billion as opposed to $118 billion; 87 and (2) 

the abbreviated time period between the announcement of the 

guarantee and Bank of America’s decision to terminate the guarantee. 

One key issue in determining the amount of the fee was determining what would constitute the full duration of the anticipated 

guarantee, since it would have run 10 years for residential assets 

and five years for non-residential assets. The parties eventually 

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88Treasury stated it anticipated losses would increase during the later part of the program, 

thereby increasing its risk exposure over time. Thus, Treasury believes that 5.7 years was a fair 

term for the time based proration. Treasury conversations with Panel staff (Oct. 22, 2009). 89Termination Agreement, supra note 87, at 2. 90Termination Agreement, supra note 87, at 2. 91The value of the warrants was calculated using the Black-Scholes method on the basis of 

a $13.30 strike price, which was the price of Bank of America shares on the day it received 

TIP funds. Termination Agreement, supra note 87, at 2. 92Termination Agreement, supra note 87, at 2. 93Termination Agreement, supra note 87, at 1. 94 According to SEC regulations, MMFs may invest in debt instruments including government 

securities, certificates of deposit, commercial paper of companies, Eurodollar deposits, and repurchase agreements. 17 C.F.R. 270.2a–7 (2008) (SEC Rule 2a–7). 95To preserve its business interests, a fund’s sponsor may seek SEC approval to purchase 

underperforming securities at par or provide guarantees agreeing to cover that security at par. 

This is sometimes referred to as ‘‘parental support.’’ Since July 2007, around one-third of the 

top U.S. MMFs have received sponsor support to shore up their operations. See Bank for International Settlements, US Dollar Money Market Funds and Non-US Banks, BIS Quarterly Review, at 68–69 (Mar. 2009) (hereinafter ‘‘BIS, US Dollar Money Market Funds and Non-US 

Banks’’) (online at www.bis.org/publ/qtrpdf/r_qt0903.pdf); see also Mercer Bullard, Federally Insured Money Market Funds and Narrow Banks the Path of Least Insurance (Mar. 2, 2009) (online at papers.ssrn.com/sol3/papers.cfm?abstract_id=1351987 ) (hereinafter ‘‘Bullard, FederallyInsured Money Market Funds’’). 96 U.S. Securities and Exchange Commission, Net Asset Value (Mar. 26, 2009) (online at 

www.sec.gov/answers/nav.htm). 

antee,88 reflecting the fact that a large proportion of the asset pool 

was non-residential assets. 

Ultimately, Bank of America agreed to pay $425 million to terminate the guarantee,89 broken down as follows: 

• $159 million for the preferred shares, $119 million of which 

was allocated to Treasury and $40 million of which was allocated 

to the FDIC.90

• $140 million for the warrants, $105 million of which was allocated to Treasury and $35 million of which was allocated to the 

FDIC.91

• $69 million for foregone dividends on the preferred shares, $52 

million of which was allocated to Treasury and $17 million of which 

was allocated to the FDIC.92

• $57 million to the Federal Reserve for the commitment fee contemplated by the Provisional Term Sheet.93

All told, Treasury received $276 million, the Federal Reserve received $57 million, and the FDIC received $92 million from Bank 

of America. 

2. Treasury’s Temporary Guarantee Program for Money 

Market Funds 

a. Background 

A money market fund (MMF) is a type of mutual fund that invests only in highly-rated, short-term debt instruments.94 Government funds invest primarily in government securities such as U.S. 

Treasuries, while prime funds invest primarily in non-government 

securities such as the commercial paper (i.e., short-term debt) of 

businesses. Investors use MMFs as a safe place to hold short-term 

funds that may pay higher interest rates than a bank account. Unlike bank deposits, however, MMFs traditionally have not been insured, nor is a fund’s sponsor legally obligated to provide support.95

MMFs are structured to be highly liquid and protect principal by 

maintaining a stable net asset value (NAV) of $1.00 per share.96

If the securities that a fund holds decrease in value, the MMF’s 


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97See Bullard, Federally-Insured Money Market Funds, supra note 95, at 8 (‘‘A decline of 0.51 

percent in the value of an MMF’s holdings lowers its per share value to $0.9949, which rounds 

down to a per share price of $0.99.’’). 98See Emergency Capital Injections, supra note 30. Sponsor support has historically prevented 

MMFs from ‘‘breaking the buck.’’ Prior to the Reserve Primary Fund event discussed infra, only 

one other fund in 30 years had done so. See, e.g., BIS, US Dollar Money Market Funds and 

Non-US Banks, supra note 95. In 1994, the Community Bankers US Government Fund (US 

Government Fund) became the first MMF in history to ‘‘break the buck.’’ See Investment Company Institute, Report of the Money Market Working Group, at 39 (Mar. 17, 2009) (online at 

www.ici.org/pdf/ppr_09_mmwg.pdf) (hereinafter ‘‘ICI Money Market Working Group Report’’). 

US Government Fund had invested a large percentage of its assets in risky derivatives. See Saul 

S. Cohen, The Challenge of Derivatives, 63 Fordham L. Rev. 1993, 1995 n.15 (1995) (internal 

citations omitted). The fund’s ‘‘breaking the buck’’ caused widespread concern by anxious investors. Sharon R. King, After Fund’s Death, Managers Reassure Municipal Investors (Oct. 3, 1994) 

(online at www.americanbanker.com/issues/159_115/-47018-1.html). Many fund executives took 

defensive measures such as sending investors flyers explaining the company’s guidelines on 

monitoring derivatives investments and education brochures on derivatives. Id. Although they 

assured investors US Government Fund was an ‘‘isolated incident,’’ executives nevertheless declined to comment on the record for fear of publicity causing heightened concern among investors. Investors ultimately received $0.96 per share. Id. 99See ICI Money Market Working Group Report, supra note 98 (this partly reflects industry 

trends whereby, ‘‘institutional share classes of money market funds typically see strong inflows 

when the Federal Reserve lowers short-term interest rates, as they did after July 2007.’’). 100 ICI Money Market Working Group Report, supra note 98. 101See BIS, US Dollar Money Market Funds and Non-US Banks, supra note 95, at 70. 102See BIS, US Dollar Money Market Funds and Non-US Banks, supra note 95, at 70. 103See ICI Money Market Working Group Report, supra note 98, at 50. 104See Emergency Capital Injections, supra note 30, at 9; BIS, US Dollar Money Market 

Funds and Non-US Banks, supra note 95. Primary held $785 million in Lehman short-term 

debt, meaning that 1.2 percent of its assets were in Lehman debt. 105See BIS, US Dollar Money Market Funds and Non-US Banks, supra note 95, at 72 (reflecting the events set off ‘‘broad-based but selective shareholder redemptions, like a bank run . . .’’). 

NAV may drop below $1.00.97 In this case, the MMF is said to have 

‘‘broken the buck,’’ a ‘‘rare and significant event’’ given the widespread perception of the safety of these funds.98

Leading into July 2007, as the credit crisis intensified, investment managers reallocated their portfolios away from riskier 

pooled investment funds and into MMFs.99 Between July 2007 and 

August 2008, more than $800 billion in new capital poured into 

MMFs.100 Inflows largely came from institutional investors who favored government funds over prime funds.101 Both prime funds and 

government funds generally shifted their holdings away from higher risk investments (e.g., commercial paper) and into lower risk investments, (e.g., Treasury and agency securities).102

Stress in the money markets began to emerge by mid-2007 as indicated by spreads between yields on one-month commercial paper 

of financial companies and Treasury bills. These spreads widened 

substantially, climbing to nearly 400 basis points at one time.103

Despite those strains, MMFs continued to maintain stable NAVs of 

$1.00 per share and honor redemption requests within the seven 

days in which they must return funds to investors. That changed 

on September 16, 2008, when the Reserve Primary Fund broke the 

buck. A day earlier, Lehman Brothers had filed for bankruptcy. Because of the Reserve Primary Fund’s exposure to Lehman’s shortterm debt, its NAV fell to $0.97 per share.104 This event quickly 

triggered a broad-based run of investor redemptions in prime funds 

and the reinvestment of capital into government funds.105 On September 15, 2008, redemption orders for the Reserve Primary Fund 

totaled $25 billion. Over the next two days, contagion spread. Although no other fund’s NAV dipped below $1.00 per share, investors liquidated $169 billion from prime funds and reinvested $89 


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106See Appendix, Figure 12; see BIS, US Dollar Money Market Funds and Non-US Banks, 

supra note 95, at 72. 107Securities and Exchange Commission, In the Matter of The Reserve Fund, On Behalf of 

Two of Its Series, the Primary Fund and the U.S. Government Fund (Sept. 22, 2008) (online at 

www.sec.gov/rules/ic/2008/ic-28386.pdf). 108 Collectively, MMFs carry a concentrated share of the commercial paper market. Consequently, when MMFs shift away from these securities and into safer ones (as discussed infra), 

funding liquidity for commercial paper issuers can be affected and their cost of capital can rise. 

See BIS, US Dollar Money Market Funds and Non-US Banks, supra note 95, at 69 ( ‘‘MMFs 

held nearly 40% of the outstanding volume of CP in the first half of 2008.’’); see also Senior 

Supervisors Group, Risk Management Lessons from the Global Banking Crisis of 2008, at 13 

(Oct. 2009) (hereinafter ‘‘Senior Supervisors Group’’) (online at www.occ.treas.gov/ftp/release/ 

2009-125b.pdf) (‘‘Firms indicated that most of the [MMF] sector would not invest in unsecured 

commercial paper of financial institutions and would provide funds only rarely, on an overnight 

basis and at extremely high cost.’’). 109See Appendix, Figure 14. 110See Senior Supervisors Group, supra note 108, at 12–13. 111The ESF, which is controlled by the Secretary of the Treasury, holds U.S. dollars, foreign 

currencies, and Special Drawing Rights (SDR). It is typically used to purchase or sell foreign 

currencies, to hold U.S. foreign exchange and SDR assets, and to provide financing to foreign 

governments pursuant to the requirements of 31 U.S.C. § 5302. See U.S. Department of the 

Treasury, Exchange Stabilization Fund: Introduction (Aug. 6, 2007) (online at www.treas.gov/ 

offices/international-affairs/esf/). Treasury’s legal authority to use the ESF in this way is discussed supra in section H. 112 Next Phase Report, supra note 49, at 46. 113 Next Phase Report, supra note 49, at 46. 114See Next Phase Report, supra note 49, at 46; U.S. Department of the Treasury, Treasury 

Announces Extension of Temporary Guarantee Program for Money Market Funds (Nov. 24, 2008) 

(online at www.treas.gov/press/releases/hp1290.htm); U.S. Department of the Treasury, Treasury 

Announces Extension of Temporary Guarantee Program for Money Market Funds (Mar. 31, 2009) 

(online at www.treas.gov/press/releases/tg76.htm). 

billion into government funds.106 By September 19, 2008, withdrawal requests had climbed to 95 percent of the Reserve Primary 

Fund’s $62 billion portfolio, necessitating approval from the SEC to 

delay redemption payments beyond the seven-day requirement.107

In normal markets, MMFs can liquidate their holdings to meet 

investors’ withdrawal requests. The events of the previous days, 

however, had brought the commercial paper market to a virtual 

standstill.108 Credit spreads on commercial paper relative to U.S. 

Treasuries rose significantly.109 In the distressed market, MMFs 

could not sell their commercial paper to meet investor redemptions, 

nor could corporations and financial institutions easily access the 

market for their financing needs.110

On September 19, 2008, two weeks before EESA was signed into 

law, Treasury announced the TGPMMF. Treasury relied on the Exchange Stabilization Fund (ESF) to fund the TGPMMF.111 The program’s stated purpose was to ‘‘enhance market confidence by alleviating investors’ concerns about the ability of money market mutual funds to absorb losses.’’ 112 According to Treasury, the 

TGPMMF was intended specifically to ‘‘stop a run on money market mutual funds in the wake of the failure of Lehman Brothers’’ 

and to alleviate concerns regarding the industry because MMFs 

‘‘are an important investment vehicle for many Americans and a 

fundamental source of financing for our capital markets and financial institutions. Maintaining confidence in the money market mutual fund industry is critical to protecting the integrity and stability of the global financial system.’’ 113

After two extensions, the TGPMMF expired on September 18, 

2009.114

Treasury’s launch of the TGPMMF was coordinated with Federal 

Reserve Board initiatives focused on preventing the collapse of, and 

restoring health to, the commercial paper market. These efforts inVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00030 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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115 Board of Governors of the Federal Reserve System, Asset-Backed Commercial Paper Money 

Market Mutual Fund Liquidity Facility (Sept. 2, 2009) (online at www.federalreserve.gov/ 

monetarypolicy/abcpmmmf.htm). 116Federal Reserve Board of New York, Commercial Paper Funding Facility (online at 

www.federalreserve.gov/monetarypolicy/20081021a.htm) (accessed Oct. 29, 2009). The Federal 

Reserve also announced the creation of the Money Market Investor Funding Facility (MMIFF), 

which was designed to provide senior secured funding to facilitate the private-sector purchase 

of eligible assets from eligible investors, but was never used and terminated on October 30, 

2009. See Federal Reserve Bank of New York, Money Market Investor Funding Facility: Program 

Terms and Conditions (online at www.newyorkfed.org/markets/mmiff_terms.html) (accessed Oct. 

29, 2009); Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release 

(online at www.federalreserve.gov/releases/h41/) (accessed Oct. 29, 2009) (weekly H.4.1 releases 

showing zero balances for MMIFF). 117Treasury’s position with respect to this point is discussed below. See infra note 2(c). 118 U.S. Department of the Treasury, Treasury Enters Into Agreement To Assist the Reserve 

Fund’s US Government Money Market Fund (Nov. 20, 2008) (online at www.treas.gov/press/releases/hp1286.htm) (hereinafter ‘‘Treasury Reserve Fund Release’’). 119See Diya Gullapalli, Treasury Will Help Liquidate Reserve Fund, Wall Street Journal (Nov. 

21, 2008) (online at online.wsj.com/article/SB122722728577846211.html). 120See U.S. Securities and Exchange Commission, Investment Company Act of 1940 Release 

No. 28386 (Sept. 22, 2008) (online at www.sec.gov/rules/ic/2008/ic-28386.pdf). 121See Treasury Reserve Fund Release, supra note 118. 122See id. 123See U.S. Department of the Treasury, Letter Agreement Relating to the Guarantee Agreement, Dated as of September 19, 2008, Between the Treasury and The Reserve Fund, at 25–26 

(Nov. 19, 2008) (online at www.treas.gov/press/releases/reports/reservefundletteragreement.pdf) 

(hereinafter ‘‘Treasury-Reserve Fund Letter Agreement’’) (listing USGF portfolio investments in 

Fannie Mae, Federal Farm Credit Bank, Federal Home Loan Bank, and Federal Home Mortgage 

Corp.). 124See Diya Gullapalli, Treasury Will Help Liquidate Reserve Fund (Nov. 21, 2008) (online at 

online.wsj.com/article/SB122722728577846211.html). The presence of a substantial number of illiquid assets with relatively long maturities in a government MMF is attributable to an SEC 

provision that allows a fund to use the interest rate reset date of variable- and floating-rate 

securities (VROs), rather than the security’s final maturity or demand date in calculating a 

fund’s maximum dollar-weighted average portfolio maturity (WAM), which must be less than 

Continued 

cluded the launch of the Asset-Backed Commercial Paper Money 

Market Mutual Fund Liquidity Facility (AMLF), which grants nonrecourse loans to financial institutions to purchase asset-backed 

commercial paper from MMFs,115 and the Commercial Paper Funding Facility (CPFF), which purchases three-month unsecured commercial paper directly from eligible issuers.116

One Treasury intervention in the MMF market occurred outside 

the TGPMMF.117 On November 20, 2008, Treasury announced that 

it would serve as the buyer of last resort to facilitate an ‘‘orderly 

and timely’’ liquidation of the Reserve Fund’s U.S. Government 

Fund (USGF).118 Contagion caused by the Reserve Primary Fund 

led investors to request redemptions equaling 60 percent of USGF’s 

$10 billion portfolio.119 The SEC had permitted Reserve Fund to 

suspend share redemptions in the USGF.120 A November 19, 2008 

letter agreement between Treasury and Reserve Fund granted 

USGF a 45-day window to continue to sell its assets, at or above 

their amortized cost, to raise capital for investor redemptions.121 At 

the conclusion of this period, Treasury agreed to purchase from its 

ESF ‘‘any remaining securities at amortized cost, up to an amount 

required to ensure that each shareholder receives $1 for every 

share they own.’’ 122 A sizeable portion of USGF’s assets consisted 

of variable- and floating-rate agency securities,123 which compounded the difficulty in meeting investor redemption requests. In 

the constrained market, ‘‘borrowings with variable interest rates 

[were] particularly unattractive’’ to investors, and Treasury was reportedly concerned that the problems with the USGF ‘‘could tip the 

market for agency debt into an even worse condition if it sold its 

assets at steep discounts.’’ 124


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90 days. SEC Rule 2a–7(c)(2) & (d)(1). The SEC has proposed amendments to this rule. See 

Money Market Fund Reform, 74 Fed. Reg. 32688 at 32701, 32738–39 (proposed July 8, 2009) 

(to be codified at 17 C.F.R. pts. 270 & 274) (online at www.sec.gov/rules/proposed/2009/ic28807fr.pdf) (hereinafter ‘‘SEC Proposed Money Market Fund Reform Rule’’) (applying maturity/ 

demand date for long-term (397 days or less) variable and long-term floating rate securities but 

preserving reset date rule for comparable short-term securities). 125See also U.S. Department of the Treasury, Department of Treasury Fiscal Year 2010 Budget 

Request, at 975–76 (online at www.whitehouse.gov/omb/budget/fy2010/assets/tre.pdf) (accessed 

Oct. 22, 2009); U.S. Department of the Treasury, Exchange Stabilization Fund Policy and Operations Statements Fiscal Year 2008, at 27 (online at www.treas.gov/offices/international-affairs/ 

esf/congress_reports/final_22509wdc_combined_esf_auditreports.pdf) (accessed Nov. 2, 2009). 126Treasury has provided Panel staff with a list of the securities purchased by Treasury from 

the USGF, which includes their market value ($3,618,533,450), amortized cost ($3,625,000,000), 

and purchase price as of January 14, 2009 ($3,629,795,815). See Treasury-Reserve Fund Letter 

Agreement, supra note 123, at 25 (showing similar narrow spreads (about 0.2 percent) as of November 14, 2008, between market value and amortized cost for a pool of USGF securities including securities later purchased by Treasury). The difference between the purchase price and amortized cost is attributable to $4.795 million of interest received on the securities as of that date. 127Specifically, the TGP was open to all money market funds: (1) registered under the Investment Company Act of 1940; (2) offering securities registered under the Securities Act of 1933; 

(3) operating under a policy of maintaining a stable NAV or share price of $1.00 per share; and 

(4) operating in compliance with Rule 2a–7 under the Investment Company Act of 1940. In addition, any MMF wishing to participate in the Program was required to have a market-based NAV 

of at least $0.995 per share on September 19, 2008. U.S. Department of the Treasury, Summary 

of Terms for the Temporary Guaranty Program for Money Market Funds, at 1 (online at 

www.treas.gov/offices/domestic-finance/key-initiatives/money-market-docs/TermSheet.pdf) 

(accessed Nov. 2, 2009) (hereinafter ‘‘TGP Term Sheet’’). 128See TGP Term Sheet, supra note 127 at 1; U.S. Department of Treasury, Guarantee Agreement, at 4 (Sept. 19, 2008) (hereinafter ‘‘Treasury Guarantee Form Agreement’’) (accessed Nov. 

2, 2009) (online at www.treas.gov/offices/domestic-finance/key-initiatives/money-market-docs/ 

Guarantee-Agreement_form.pdf). 129See Section D; see generally TGP Term Sheet, supra note 127. 130See generally TGP Term Sheet, supra note 127. 

On January 15, 2009, Treasury purchased the remaining $3.6 

billion of securities from the USGF pursuant to the letter agreement.125 Although the USGF participated in the TGPMMF, and, 

while this asset purchase did not represent a claim under the 

TGPMMF, it appears Treasury provided support to this fund in 

order to prevent a TGPMMF claim. At the time Treasury purchased USGF securities in January, the market value was below 

the purchase price due to market illiquidity.126 Because Treasury 

likely purchased the USGF assets at an amount above their market value, it provided a subsidy to the Reserve Fund equivalent to 

the difference. Treasury has informed Panel staff that the assets 

were all highly-rated GSE securities, posing a very low risk of default, and that the last of the assets are expected to reach maturity 

in November 2009 without incurring any losses to Treasury. 

b. Structure of the Guarantee 

The TGPMMF was a voluntary program; Treasury allowed all 

publicly offered MMFs meeting certain criteria to participate.127

Participating MMFs were required to sign guarantee agreements 

with the federal government and to pay fees, as discussed below. 

Under the guarantee, payments would be triggered by a ‘‘guarantee 

event,’’ which occurred if the NAV of an MMF fell below $0.995, 

unless promptly cured.128 If a guarantee event did occur, Treasury 

would use the ESF to ensure that investors in that MMF would receive $1.00 per covered MMF share up to the extent of their holdings in that MMF on September 19, 2008.129 A guarantee event 

would result in the liquidation of the MMF. 

Coverage under the TGPMMF was capped at an investor’s holding in a participating MMF account on September 19, 2008.130

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131See U.S. Department of the Treasury, Frequently Asked Questions About Treasury’s Temporary Guarantee Program for Money Market Funds (Sept. 29, 2009) (online at www.ustreas.gov/ 

press/releases/hp1163.htm) (hereinafter, ‘‘Treasury TGP FAQ’’). The MMF trade association, the 

Investment Company Institute (ICI), stated that Treasury originally proposed to impose a broader guarantee of the industry, and the ICI successfully urged Treasury to limit coverage to the 

amount in investors’ shareholder accounts as of September 19, 2008 to reduce opportunities for 

arbitrage and to prevent the possibility of large flows in and out of MMFs upon implementation 

and expiration of the TGP. See Paul Schott Stevens, President and CEO, ICI, Remarks at ICI’s 

2008 Equity, Fixed-Income & Derivatives Markets Conference (Oct. 6, 2008) (online at 

www.ici.org/policy/regulation/products/mutual/08_equity_stevens_spch); Investment Company Institute, 2009 Annual Report to Members (forthcoming). 132See Treasury TGP FAQ, supra note 131. Treasury’s implementation of the TGP goes beyond the scope of any insurance offered by the private market for MMFs. In 1998, the ICI Mutual Insurance Company, a captive insurance company, offered its members a limited insurance 

product designed to protect participating funds against default risk arising from issuer payment 

default, insolvencies, and other credit-related events but not against interest rate risk or market 

illiquidity. See U.S. Securities and Exchange Commission, Division of Investment Management 

(July 27, 1998), Ref No. 98–441–CC, ICI Mutual Insurance Company, File No. 132–3 (online at 

www.sec.gov/divisions/investment/noaction/1998/icimutual072798.pdf). According to an industry 

source, its insurance coverage was limited to $50 million with premiums set by portfolio risk, 

and a similar limited insurance product was offered by non-captive insurance providers. Industry participation in private insurance arrangements was never extensive, and the products were 

discontinued after several years because relatively high premiums in a low interest rate environment made use economically unattractive. 133See TGP Term Sheet, supra note 127; see Section D, infra. Because the balance of the ESF 

hovered around $50 billion, a relatively large cascading set of fund failures—precisely the sort 

that the program was designed to prevent—would have to occur before otherwise eligible claimants would be subject to pro-rationing of claims. And this possibility was further mitigated when 

Section 131 of EESA compelled Treasury to replenish the ESF when it was depleted by program 

claims. EESA § 131(a). According to Treasury, it would not have been permitted to replenish 

the ESF with TARP funds because TARP funds can only be used to purchase or guarantee ‘‘troubled assets.’’ COP August Oversight Report, supra note 45, at 127–129 (reprinting ‘‘Letter from 

Treasury Secretary Timothy Geithner to COP Chair Elizabeth Warren’’ dated July 21, 2009 

(hereinafter ‘‘Geithner Letter to Warren’’)); EESA § 115. Thus, according to Treasury, had it 

been required to replenish ESF funds, it would have had to do so pursuant to Section 118 of 

EESA, which authorizes Treasury to sell ‘‘any securities issued under chapter 31 of title 31’’ for 

the purpose of carrying out ‘‘the authorities granted in this Act.’’ EESA § 118. Thus, in Treasury’s view, the TGP could not and did not involve the use of TARP funds; rather, it involved 

ESF funds backstopped by other, non-TARP Treasury funds, which were available as ‘‘in effect 

a permanent, indefinite appropriation.’’ Geithner Letter to Warren, supra note 133 at 129. 134 U.S. Department of the Treasury, Summary of Terms for the Temporary Guaranty Program 

for Money Market Funds (online at www.treas.gov/offices/domestic-finance/key-initiatives/moneymarket-docs/TermSheet.pdf) (accessed Nov. 3, 2009). 135 Id. 

pating MMF after September 19, 2008, those interests would not 

be insured by the MMF.131 Similarly, if an investor subsequently 

sold shares in a participating MMF and owned a lesser amount at 

the time of a guarantee event, the lesser amount would be covered.132

Additionally, the guarantee agreements specifically limited aggregate coverage to the amount of funds available in the ESF on 

the date of a guarantee event, with investor claims in excess of 

available funds subject to pro-ration.133

c. Participation Fees 

Funds participating in the program paid fees based on their NAV 

as of September 19, 2008. • For the period between September 19, 2008 and December 18, 

2008, funds whose NAV per share was greater than or equal to 

$0.9975 paid a fee equal to the number of outstanding shares multiplied by 0.00010.134 For funds whose NAV per share was less than $0.9975, the fee was the number of outstanding shares multiplied by 0.00015.135

• For the period between December 19, 2008 and April 30, 2009, 

the fee for funds with NAV per share greater than or equal to 

$0.9975 equaled the number of outstanding shares multiplied by 


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136 U.S. Department of the Treasury, Temporary Money Market Fund Guarantee Program Extension Announcement, at 1 (online at treas.gov/press/releases/reports/ 

moneymarketextension.pdf) (accessed Nov. 3, 2009). 137 Id. 138 U.S. Department of the Treasury, Temporary Money Market Fund Guarantee Program Extension Announcement, at 1 (online at www.treas.gov/press/releases/reports/ 

03312009ExtensionAnnouncement.pdf). 139 Id. 140Treasury information provided to Panel staff (Nov. 2, 2009). Treasury staff explained that 

agency officials involved in the initial fee setting were no longer available, and that they were 

unaware of any memoranda on the topic. See id. 141See Next Phase Report, supra note 49, at 46. 142See Treasury TGP FAQ, supra note 131. 143 Id. 

0.00015.136 For funds with NAV per share less than $0.9975, the 

fee was the number of outstanding shares multiplied by 0.00022.137

• For the period between May 1, 2009 and September 18, 2009, 

the fee was the number of outstanding shares multiplied by 

0.00015 for funds whose NAV was greater than or equal to 

$0.9975.138 For funds with NAV per share less than $0.9975, the 

fee was the number of outstanding shares multiplied by 0.00023.139

Treasury has explained that the two-tiered fee structure reflects 

the higher risk of MMFs with NAVs below $0.9975 triggering a 

TGPMMF claim and that the variation in basis points among program periods indicates a stable fee of 4 or 6 basis points on an 

annualized basis, the nominal differences of fees reflecting the unequal lengths of the program periods.140

d. Scope of the Program 

In the initial phase of the TGPMMF, 1,486 MMFs participated, 

representing over $3.2 trillion or 93 percent of the assets in the 

MMF market as of September 19, 2008.141 As liquidity returned to 

the market and MMFs held less risky commercial paper, fewer 

funds chose to participate. These figures, however, inflate Treasury’s true exposure under the TGPMMF in each program phase because the guarantee is specific to investor accounts in participating 

funds as of September 19, 2008. There is no exact correlation between a MMF’s participation in the TPGMMF and the coverage of 

its assets by TPGMMF. If an investor sold its shares in the MMF 

to a new investor (or even transferred his shares between accounts) 

after September 19, 2008, Treasury was not obligated to guarantee 

the NAV of the new shareholder’s shares even if the MMF continued to participate in the program.142 It is unclear whether later investors truly understood this important coverage limitation despite 

a Treasury FAQ on point.143 Given the cycling in and out of MMF 

accounts, it is possible that Treasury’s exposure was well under $2 

trillion by the second extension. Finally, Treasury’s practical exposure was even more limited because a majority of the assets in covered accounts were not subject to real credit risk, including Treasury securities and GSE securities, which both had implicit or explicit federal government backing. 


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146Final Rule: Temporary Liquidity Guarantee Program, 12 C.F.R. § 370, 73 Fed. Reg. 72244 

(Nov. 26, 2008) (online at www.fdic.gov/news/board/08BODtlgp.pdf) (hereinafter ‘‘TLGP Final 

Rule’’). 147See Federal Deposit Insurance Act of 1950, Pub. L. No. 81–797, § 13(c)(4)(G); TLGP Final 

Rule, supra note 146. Though the statute can be read as only authorizing assistance to a single 

institution, the FDIC believes that it is drafted broadly and supports the TLGP. 148 12 C.F.R. § 370.2(a)(1). The statutory authority of the program is broad, allowing it to provide guarantees to non-bank financial institutions that are affiliates of insured depository institutions, with the approval of the FDIC. 149 12 C.F.R. § 370.3(a). 150Federal Deposit Insurance Corporation, Master Agreement, at Annex A (online at 

www.fdic.gov/regulations/resources/TLGP/master.pdf) (accessed Nov. 2, 2009). 

FIGURE 3: TGPMMF PARTICIPATION AND PREMIUMS 144

[Dollars in billions] 

Program phase 

Participating 

investment 

companies 145

Assets of 

participating 

funds 

Participating funds’ 

assets as % of MMF 

market 

Premiums collected 

Initial phase (9/19/08–12/18/08) ......... 366 $3,217.4 93 $0.3316 

First extension (12/19/08–4/30/09) ...... 352 3,118.0 83 0.4817 

Second extension (5/1/09–9/18/09) ...... 296 2,470.0 68 0.3865 

144 This chart is based on information provided by Treasury to Panel staff and the Next Phase Report, supra note 49, at 46. 145 1,486 individual funds participated in the initial phase with many investment companies enrolling multiple MMFs. See Next Phase Report, supra note 49, at 46. 

3. FDIC Guarantees Under the Temporary Liquidity Guarantee Program 

The TLGP is an FDIC program intended to promote liquidity in 

the interbank lending market and confidence in financial institutions. It has two aspects. The DGP guarantees newly issued senior 

unsecured debt of insured depository institutions and most U.S. 

holding companies, and the Transaction Account Guarantee Program (TAG) guarantees certain noninterest-bearing transaction accounts at insured depository institutions.146

Announced on October 14, 2008, the program was authorized by 

Section 13(c)(4)(G) of the Federal Deposit Insurance Act, which 

gives the FDIC the authority to provide assistance following the determination of systemic risk by the Secretary of the Treasury (in 

consultation with the President), with the recommendation of the 

Board of Directors of the FDIC and the Federal Reserve Board of 

Governors.147

The DGP automatically enrolled all institutions that were eligible to participate. Institutions had until December 5, 2008 to opt 

out if they did not want to participate. ‘‘Eligible institutions’’ are 

FDIC-insured depository institutions, U.S. bank holding companies, 

U.S. financial holding companies, U.S. savings and loan holding 

companies, and affiliates of insured depository institutions. The 

FDIC-insured branches of foreign banks were not included.148

Under the terms of the DGP, on the uncured failure of a participating institution to make a scheduled payment of principal or interest, the FDIC will pay the unpaid amount.149 The FDIC will 

then make the scheduled payments of principal and interest 

through maturity. Under the terms of the DGP Master Agreement, 

the FDIC is subrogated to the rights of the debt holders in any 

claims against the issuer.150

Fees for the program vary by the term of the debt: 

• Debt with a maturity of 31 to 80 days carries a fee of 50 basis 

points annualized. 


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151Debt maturing after June 30, 2012 was considered long-term non-guaranteed debt. Institutions issuing such debt during the program were required to pay a fee of 37.5 basis points on 

the maximum debt limit. The FDIC explained that it needed to limit non-guaranteed debt because, ‘‘[f]irst, and most importantly, limiting a participating entity’s ability to issue non-guaranteed debt reduces the risk of adverse selection—the risk that the participating entity will 

issue only the riskiest debt with the guarantee . . . [In addition,] limiting a participating entity’s ability to issue non-guaranteed debt reduces the possibility of confusion over whether debt 

is, or is not, guaranteed.’’ TLGP Final Rule, supra note 146, at 72255. 152See 12 C.F.R. § 370.3(b)(1). In general, the cap is set at 125 percent of the institution’s unsecured debt outstanding on September 30, 2008 that will mature before June 30, 2009. See id. 153 A guarantee premium is paid each time debt issued by the bank is guaranteed under the 

TLGP program. The guarantee premium is recorded as a prepaid expense and amortized over 

the life of the debt into interest expense. Unlike the loss-sharing agreement discussed, infra, 

if the bank defaults on TLGP guaranteed debt, the bank will not record an asset on its books 

because the FDIC will send the funds for the default amount directly to the holder of the underlying debt (i.e., the creditor to which the debt was issued). Financial Accounting Standards 

Board, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect 

Guarantees of Indebtedness of Others, FASB Interpretation No. 45 (Nov. 2002) (online at 

www.fasb.org/cs/ BlobServer?blobcol= urldata&blobtable= MungoBlobs&blobkey= id&blobwhere= 

1175818750722&blobheader= application%2Fpdf). 154See FDIC, September Monthly TLGP Report, supra note 8. 155See Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the 

Temporary Liquidity Guarantee Program (May 31, 2009) (online at www.fdic.gov/regulations/resources/tlgp/total_issuance5-09.html). See list of issuers using DGP at Annex A of this report. 156Smaller banks do not typically issue debt, so they would have less interest in the program. 

See, e.g., Federal Deposit Insurance Corporation, List of Entities Opting Out of the Debt Guarantee Program (online at www.fdic.gov/regulations/resources/TLGP/optout.html) (accessed on 

Nov. 2, 2009). 157See FDIC, September Monthly TLGP Report, supra note 8; FDIC written responses to 

Panel questions (Oct. 30, 2009). 158See Matt Herb, Turning off the TLGP Tap: FDIC Says ‘Last Call’ For Cheap Debt; SNL 

Financial (Sept. 18, 2009) (hereinafter ‘‘Last Call for TLGP Debt’’) (online at www2.snl.com/ 

Interactivex/article.aspx?CDID=A-10036796-12080). 

• Debt with a maturity of 181 to 364 days carries a fee of 75 

basis points annualized. • Debt maturing in more than one year carries a fee of 100 basis 

points. 

The program did not guarantee debt of less than 30 days’ maturity or debt maturing after June 30, 2012.151 Debt issued after 

April 1, 2009 carries an annualized surcharge of 10 basis points for 

insured depository institutions and 20 basis points for other participating entities. There was a cap on the amount of guaranteed debt 

that an institution could issue.152

The program was designed such that it would be funded entirely 

from its own fees 153 and would require no expenditure of the FDIC 

or other government funds. As of September 30, 2009, the FDIC 

had collected $9.64 billion in fees.154

The DGP has proved popular among larger financial institutions.155 Approximately 6,500 institutions, mostly smaller institutions, chose to opt-out.156 As of September 30, 2009, a total of 89 institutions have $307 billion in outstanding debt under the program.157 Six issuers raised almost 82 percent of this debt: General 

Electric Capital, Citigroup, Bank of America, J.P. Morgan, Morgan 

Stanley, and Goldman Sachs. The research firm SNL Financial 

(SNL) also found that the DGP saved issuers 39 percent in interest 

costs: non-TLGP debt carried a weighted average coupon of 3.9 percent, compared to 2.374 percent for TLGP debt.158 These savings 

of approximately 1.53 percent, on average, or 153 basis points, are 

greater than even the highest fees under the current program, 120 

basis points. This study evaluated senior debt issued between November 21, 2008 and November 4, 2009. During this time period, 

$7.1 billion of non-DGP debt was issued, compared to $303.8 billion 

of DGP debt. All of this non-DGP debt was issued by DGP particiVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00036 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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159See id. 160See id. 161 Compared to the approximately $308 billion of medium and long term debt issued from 

4Q 2008 through 3Q 2009, DGP participants issued: 

Time period Medium and long term debt Medium term debt 

4Q 2004 through 3Q 2005 $196 billion $36 billion 

4Q 2005 through 3Q 2006 $243 billion $55 billion 

4Q 2006 through 3Q 2007 $227 billion $108 billion 

4Q 2007 through 3Q 2008 $242 billion $84 billion 

These figures are slightly over inclusive, as they include senior debt issued by subsidiaries 

that would not have been eligible for the TLGP DGP. 162The DGP was originally set to expire on June 30, 2009, but the FDIC extended it to October 31, 2009. See Federal Deposit Insurance Corporation, Extension of Temporary Liquidity 

Guarantee Program (Mar. 18, 2009) (hereinafter ‘‘TLGP Extension Notice’’) (online at 

www.fdic.gov/news/news/financial/2009/fil09014.html); Federal Deposit Insurance Corporation, 

Expiration of the Issuance Period for the Debt Guarantee Program, Establishment of Emergency 

Guarantee Facility (hereinafter ‘‘DGP Expiration Notice’’) (online at www.fdic.gov/news/board/ 

NoticeSept9no6.pdf) (accessed Nov. 2, 2009). 163See DGP Expiration Notice, supra note 162. 164 EESA increased the insured limit through December 31, 2009. EESA § 136(a). The increase 

has since been extended through December 31, 2013. Helping Families Save Their Homes Act 

of 2009, Pub. L. No. 111–22, § 204. 165 House Committee on Financial Services, Testimony of Sheila Bair, Chairman, Federal Deposit Insurance Corporation, Oversight of Implementation of the Emergency Economic Stabilization Act of 2008 and Of Government Lending and Insurance Facilities, 110th Cong. (Nov. 18, 

2008) (online at www.fdic.gov/news/news/speeches/archives/2008/chairman/spnov1808.html). 166 12 C.F.R. § 370.4(a). 167See Federal Deposit Insurance Corporation, Interim Rule, Temporary Liquidity Guarantee 

Program (Oct. 29, 2008) (hereinafter ‘‘TLGP Interim Rule’’) (online at www.fdic.gov/news/board/ 

TLGPreg.pdf) (‘‘The FDIC anticipates that these accounts will include payment-processing accounts, such as payroll accounts, frequently used by an insured depository institution’s business 

customers, and further anticipates that the Transaction Account Guarantee Program will stabilize these and other similar accounts.’’). 

pants.159 According to SNL, no debt was issued by eligible institutions that did not participate in the DGP.160 Debt issued under the 

DGP is heavily weighted towards medium term debt. Of the $307 

billion currently outstanding under the program, $304 billion has 

a term of one to three years. Participating institutions issued more 

medium term and less long term debt than in prior periods, reflecting the attractiveness of the guarantee and the difficulty of raising 

capital, through either debt or equity, during this time period.161

The DGP closed to new issuances of debt on October 31, 2009. 

The FDIC will continue to guarantee debt issued prior to that date 

until the earlier of its maturity or June 30, 2012. As discussed in 

further detail below, the FDIC has established a six-month emergency guarantee facility to be made available to insured institutions and other participants in the DGP.162 This facility will be 

available only to institutions that cannot issue debt without the 

guarantee, and will carry significantly higher fees of at least 300 

basis points.163

The other part of the TLGP was the TAG. Under the FDIC’s deposit insurance program, the FDIC insures deposit accounts up to 

$100,000. EESA temporarily increased this limit to $250,000.164

This increase was enacted to improve confidence in the banks as 

well as to provide additional liquidity to FDIC-insured institutions.165 Separately, the TAG insures deposits in non-interest bearing accounts to an unlimited amount.166 Though it covers all depository accounts, this program was intended to benefit business payment processing accounts, such as payroll accounts.167 Unlike the 

FDIC deposit insurance program, banks’ participation in TAG is 

voluntary. To participate, banks pay a fee of 10 basis points 


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168 12 C.F.R. § 1A370.7(c). 169Federal Deposit Insurance Corporation, Final Rule regarding Limited Amendment of the 

Temporary Liquidity Guarantee Program to Extend the Transaction Account Guarantee Program 

with Modified Fee Structure (Aug. 26, 2009) (online at www.fdic.gov/news/board/aug26no4.pdf). 170 Board of Governors of the Federal Reserve System, Press Release for Release at 8:15 a.m. 

EST (Nov. 25, 2008) (online at www.federalreserve.gov/newsevents/press/monetary/ 

20081125a.htm). 171Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Frequently 

Asked Questions (online at www.newyorkfed.org/markets/talf_faq.html) (accessed Oct. 30, 2009). 172 U.S. Department of the Treasury, Treasury Department Releases Details on Public Private 

Partnership Investment Program (Mar. 23, 2009) (online at www.treasury.gov/press/releases/ 

tg65.htm). 173 Id. (stating the goal of PPIP is ‘‘to repair balance sheets throughout our financial system 

and ensure that credit is available to the households and businesses, large and small, that will 

help drive us toward recovery.’’). 174Federal Deposit Insurance Corporation, FDIC Statement on the Status of the Legacy Loans 

Program (June 3, 2009) (online at www.fdic.gov/news/news/press/2009/pr09084.html). The Legacy Loans Program creates Public-Private Investment Funds (PPIFs) comprised of private equity, public equity, and FDIC-guaranteed debt, and allows participating banks to sell certain 

existing assets, typically whole loans or pools of loans, into the program. U.S. Department of 

the Treasury, Public-Private Investment Program, $500 Billion to $1 Trillion Plan to Purchase 

annualized for deposits over $250,000.168 Though originally scheduled to end on December 31, 2009, TAG has been extended until 

June 30, 2010. Coverage after December 31, 2009 will carry higher 

fees; banks must have opted out of the extended coverage by November 2, 2009.169

4. Other Programs That Have ‘‘Guarantee’’ Aspects 

As discussed above, the federal government designed all of its financial stabilization programs to work together, and the guarantee 

programs can only be examined in this joint context. Effectively, 

the entire stabilization program has functioned as a ‘‘guarantee’’ in 

that the combined efforts of several government entities signaled to 

the markets and the broader economy that there would be no largescale failure of the financial system, and that further support 

would be available to large private financial institutions if necessary. The actions taken to ensure the continued viability of 

American International Group are just one example. 

The Federal Reserve Bank of New York’s (FRBNY) Term AssetBacked Securities Loan Facility (TALF), which was announced on 

November 25, 2008, is another. It provides non-recourse loans to 

any participating institution pledging eligible asset-backed securities (ABS) as collateral.170 This program was designed to stimulate 

the origination of new ABS at a time when the credit markets were 

almost entirely frozen.171 TALF encourages new ABS originations 

by shifting the risk of declining ABS values to the U.S. government. Although TALF is not a direct guarantee of any financial institution, market, or class of securities, it functions as a guarantee 

by permitting participating ABS owners to default on their TALF 

loans without further recourse from the lender, the government. 

Thus, the FRBNY serves as a quasi-guarantor of the newly issued 

ABS under TALF. 

Another program that had the same effect is the Public-Private 

Investment Program (PPIP), announced on March 23, 2009 by 

Treasury in conjunction with the Federal Reserve and the FDIC.172

PPIP is designed to provide liquidity for legacy assets and assist 

financial institutions in raising capital.173 PPIP, as originally envisioned, would address two components: legacy loans and legacy securities. Although the legacy loans program has been postponed,174


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Legacy Assets (online at www.treas.gov/press/releases/reports/ppip_whitepaper_032309.pdf) 

(accessed Nov. 5, 2009). 175The Legacy Securities Program pre-selects investment fund managers, who then raise private equity to fund purchases of mortgage backed securities. These managers receive matching 

TARP money for any amount they raise privately, and are eligible to seek additional TARP 

funding. Id. 176 EESA § 102(a)(1). 177During a discussion with Panel staff, Treasury stated that the Bank of America asset guarantee would have been assigned to the AGP had it been finalized. Treasury conversations with 

Panel staff (Nov. 4, 2009). Thus, it is reasonable to assume that the Bank of America arrangement would have taken roughly the same form as the Citigroup arrangement, and therefore 

been subject to the analysis set forth here. 178 EESA, §§ 102(a)(1), 102(a)(2), 102(a)(3), 102(c)(2), 102(c)(4), 102(d)(3). 179 As noted in Section B(1), infra, a true guarantee involves three parties: the one to whom 

the original obligation is owed, the person who owes the original obligation, and the guarantor. 180Treasury AGP Report, supra note 31 at 1. 181The only part of the section to speak in terms of a traditional guarantee is section 

102(a)(3), which authorizes the Secretary ‘‘[u]pon the request of a financial institution . . . to 

guarantee the timely payment of principal of, and interest on, troubled assets in amounts not 

to exceed 100 percent of such payments.’’ Under that arrangement, Treasury does agree to pay 

the financial institution seeking the guarantee if the person obligated to pay the principal and 

interest does not do so. The Citigroup arrangement, however, operates in terms of write-down 

values, which may depend on other factors besides the timely payment of principal and interest. 

the legacy securities program continues to move forward. To restart 

the market for legacy securities, the government provides debt financing from the Federal Reserve under TALF and through matching private capital raised for dedicated funds targeting legacy securities.175 Although the FDIC provided debt guarantees for investors 

purchasing legacy loans, the bulk of the government’s initiatives 

under PPIP do not explicitly guarantee legacy assets. Instead, like 

TALF, PPIP provides a quasi-guarantee to the markets by demonstrating the U.S. government’s willingness to subsidize private 

investments and implement measures to encourage market liquidity. 

D. Analysis of the Creation and Structure of the Guarantee 

Programs 

1. AGP Guarantees for Citigroup and Bank of America 

a. Treasury’s Authority to Create the AGP 

Treasury created the Citigroup AGP under Section 102 of EESA, 

which requires the Secretary, if he creates the TARP, also to ‘‘establish a program to guarantee troubled assets originated or issued 

prior to March 14, 2008, including mortgage-backed securities.’’ 176

The Citigroup AGP raises three questions.177

The first is whether the term ‘‘guarantee’’ in Section 102 embraces the AGP. The section prominently and repeatedly uses that 

term,178 with no additional definition.179 The Citigroup AGP is not 

a classic guarantee; instead it is an insurance contract, a two-way 

agreement under which Treasury will reimburse Citigroup up to a 

certain amount if assets within a defined pool lose value.180

Section 102 can be read to authorize only classic guarantees 181

or both classic guarantees and insurance-like arrangements. Either 

would allow an institution to hold real estate-based obligations on 

its books rather than forcing it to dispose of them at greatly reduced prices, and it is noteworthy that Section 102(c) refers to 


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182 In addition, the fund to be created to hold premiums under section 102 is called the ‘‘Troubled Assets Insurance Financing Fund,’’ and Sections 116(e)(2) (termination of reporting obligations of GAO) and 121(h)(2) (termination of authority of Special Inspector General for the Troubled Asset Relief Program) speak of ‘‘insurance contracts issued under Section 102.’’ Finally, although the titles of statutes generally have a low impact on statutory meaning, Section 102 is 

entitled ‘‘Insurance of Troubled Assets.’’ There is no legislative history suggesting that Congress 

intended to distinguish between ‘‘guaranteeing’’ and ‘‘insuring’’ troubled assets. 183 Under the doctrine of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 

U.S. 837 (1984), a court defers to an agency’s interpretation of an ambiguous statute so long 

as the interpretation is ‘‘based on a permissible construction of the statute.’’ Id. at 843. 184Treasury AGP Report, supra note 31. In exercising the authorities granted under EESA, 

the Secretary is required to ‘‘ensur[e] that all financial institutions are eligible to participate 

in the program, without discrimination based on size, geography, form of organization, or the 

size, type and number of assets eligible for purchases under [EESA].’’ EESA § 103(5). 185Section 102(c)(2) speaks of the Secretary developing guarantees and premiums ‘‘according 

to the credit risk associated with the particular troubled asset that is being guaranteed.’’ 186 EESA § 102(c)(2). 187For a discussion of pool finalization, see supra Section C(1)(a)(iii). This raises the question 

as to how the premium for covering assets could be set almost a year ago, before the assets 

to be covered were known. There is, however, a mechanism for revising premiums upwards. 

Citigroup Master Agreement, supra note 35. 

‘‘credit risk,’’ ‘‘premiums,’’ and ‘‘actuarial analysis,’’ all classic insurance concepts.182

It is likely that if there were a litigant with standing to challenge 

Treasury’s interpretation that Treasury would rely on ‘‘Chevron 

deference’’ but the eventual outcome of such litigation is not 

clear.183

The second question is whether Section 102 authorizes a program limited to ‘‘assets held by systemically significant financial 

institutions that face a high risk of losing market confidence due 

to a large portfolio of distressed or illiquid assets’’ and not ‘‘made 

widely available.’’ 184 Here again, the statute grants considerable 

discretion to Treasury. Thus, although an initial reading of the 

statute suggests that Congress sought a broad-based program to 

complement direct bank stabilization efforts,185 the broad language 

of Section 102(a)(2) authorizes the Secretary to ‘‘develop guarantees 

of troubled assets and the associated premiums for such guarantees.’’ That language is sufficiently broad to allow design of a program like the AGP, however far it may have been from Congress’ 

original intention. 

The third question is whether Treasury has complied with the 

terms of Section 102 governing the implementation of guarantee 

programs. Here the answers are less clear, in two important respects: • Treasury has not ‘‘publish[ed] the methodology for setting the 

premium for a class of troubled assets together with an explanation 

of the appropriateness of the class of assets for participation in the 

program established under [Section 102],’’ despite the requirement 

of Section 102(c)(2) that it do so.186 Treasury has explained in discussions with Panel staff that publication of the methodology has 

been delayed until the full pool of assets subject to the guarantee 

has been assembled and will be forthcoming when assembly of the 

pool is complete.187

• Section 102(d)(2) requires that ‘‘any balance’’ in the Troubled 

Assets Insurance Financing Fund ‘‘shall be invested by the Secretary in United States Treasury securities, or kept in cash on 

hand or on deposit, as necessary’’ (emphasis added). The language, 

coupled with the traditional understanding of premiums as cash 

payments, would seem to bar Treasury from taking premiums in 


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188FDIC conversations with Panel staff (Oct. 26, 2009). 189FDIC conversations with Panel staff (Oct. 26, 2009). 

the form of preferred stock and warrants. The reason is to assure 

that the premiums supporting the actuarial risk of liability do not 

lose value. Preferred stock and warrants do not have the same constant value. 

Treasury reads the statute differently. It believes that Section 

102 does not limit the form premiums can take; rather it requires 

only that cash balances in the Fund, for example those derived 

from preferred stock dividends, must be invested in the specified 

form. It has also explained that if sufficient cash is not on hand 

to pay claims under the AGP, it will ‘‘borrow from the Bureau of 

the Public Debt through the financing account to pay the claims. 

This borrowing will be repaid when cash is received from the preferred stock [received as a premium for the guarantee].’’ 

Whichever reading is correct, receipt of premiums in the form of 

preferred stock and warrants, without a public statement of the 

methodology used to set premiums, makes it impossible for the 

public to determine the sufficiency of what has been received to 

back Treasury’s obligation or the potential cost of that obligation. 

Treasury can ease the uncertainty raised by its interpretation of 

the operating rules of Section 102 if it publishes its actuarial methodology, carefully protects the value of the assets received as premiums, administers those assets independently of similar assets received in exchange for direct TARP assistance, and, above all, presents the AGP with transparency and clarity in the future. 

b. FDIC’s Authority To Participate in the AGP 

When asked to identify its legal authority for participating in the 

AGP, the FDIC pointed to Section 13(c)(4)(G) of the Federal Deposit Insurance Act, which gives the FDIC authority to provide assistance ‘‘following the determination of systemic risk by the Secretary of the Treasury (in consultation with the President), with 

the recommendation of the Board of Directors of the FDIC and the 

Federal Reserve Board of Governors.’’ 188 The FDIC noted, however, 

that the Secretary made this determination in order to provide the 

additional assistance to Citigroup, but did not make the determination for Bank of America.189 While the Panel recognizes that no definitive AGP agreement was ever reached between Bank of America 

and the three agencies, the lack of the systemic risk determination 

for Bank of America raises critical questions about the AGP. First, 

since the statutory provision calls for this determination, the lack 

of that determination seems to imply that the FDIC had no authority to enter into the Bank of America deal. Second, in various conversations with Panel staff, Treasury has indicated that it called 

for Bank of America to pay a termination fee for exit from the AGP 

because, while there was no contract, Bank of America did incur 

a benefit and the three agencies represented that they were ready 

and willing to guarantee and share losses that Bank of America 

might have incurred commencing on the date the AGP was announced. Being ready and willing to backstop any losses, however, 

implies that all three agencies participating had the legal authority 

to participate in the AGP from the date of announcement. 


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190Treasury Citigroup Press Release, supra note 45; Board of Governors of the Federal Reserve, Report Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Authorization to Provide Residual Financing to Citigroup, Inc. For a Designated Asset Pool (online 

at www.federalreserve.gov/monetarypolicy/files/129citigroup.pdf) (hereinafter ‘‘Section 129 Report’’) (accessed Nov. 2, 2009) (noting that the package of additional assistance to Citigroup ‘‘will 

augment the capital of Citigroup; protect the company from further declines in the value of a 

substantial pool of primary mortgage-related assets; and better enable the company, its subsidiary depository institutions and the financial system to weather the current difficulties, and 

provide credit and other financial services needed by consumers, small businesses, and others.’’); 

Treasury conversations with Panel staff (Oct. 19, 2009). 191Treasury conversations with Panel staff (Oct. 19, 2009). 192 Citigroup conversations with Panel staff (Oct. 26, 2009). It is interesting to note that in 

discussions with Panel staff, Citigroup personnel, perhaps naturally, emphasized external elements such as market perception and share price, while government officials focused on whether 

Citigroup could open its doors the following Monday. 193Treasury conversations with Panel staff (Oct. 19, 2009); Federal Deposit Insurance Corporation, Responses to Panel Questions About the AGP (Oct. 30, 2009) (in its responses, the 

FDIC noted that ‘‘[o]n Friday, November 21, 2008, market acceptance of the firm’s liabilities diminished, as the company’s stock plunged to a 16-year low, credit default swap spreads widened 

by 75 basis points to 512.5 basis points, multiple counterparties advised that they would require 

greater collateralization on any transactions with the firm, and the UK FSA imposed a $6.4 billion cash lockup requirement to protect the interests of the UK broker dealer . . .’’). 194Federal Deposit Insurance Corporation, Responses to Panel Questions About the AGP (Oct. 

30, 2009); Treasury conversations with Panel staff (Oct. 19, 2009). 

c. Why was additional assistance necessary? 

It is not possible to know what would have happened without additional assistance, and it may be some time before the full story 

is known, if ever. Certainly, the U.S. governmental agencies believed at the time that such assistance was essential, and there is 

data and anecdotal evidence to support that view. As discussed 

above, on November 23, 2008, Treasury, the Federal Reserve, and 

the FDIC responded to Citigroup’s request for assistance by providing Citigroup with an additional package of guarantees, capital, 

and liquidity access.190 The additional assistance to Citigroup was 

considered and ultimately approved by the supervisors primarily 

because of the systemic risk concerns it posed due to its size and 

significant international presence. Citigroup was an even larger 

market player than Bank of America.191 Believing that additional 

assistance was necessary, Citigroup engaged in discussions with 

federal regulators during the weekend of November 21–23, and discussed possible options.192 In addition, Citigroup faced widening 

credit default swap (CDS) spreads and losses due to write-downs 

on leveraged finance investments and securities, particularly those 

in the automobile, commercial real estate, and residential real estate sectors.193 For example, in October 2008, credit rating agencies considered placing Citigroup and many other TARP-recipient 

financial institutions on watch for potential credit downgrades. 

During a period of much fluctuation, Citigroup’s stock price fell 

below $4 per share on November 21, 2008 from a high of over $14 

per share just three weeks earlier on November 3, 2008. This constituted a loss of more than two-thirds of Citigroup’s market capitalization during those three weeks. Citigroup ultimately incurred 

a loss of $8.29 billion for the fourth quarter of 2008. Both regulatory and internal Citigroup projections at this time ‘‘showed that 

the firm would likely be unable to pay obligations and meet expected deposit outflows the following week without substantial government intervention that resulted in positive market perception.’’ 194

For its part, Bank of America incurred its first quarterly loss in 

more than seventeen years in the fourth quarter of 2008. Bank of 


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195See Bank of America, Bank of America Earns $4 Billion in 2008, (Jan. 16, 2009) (hereinafter ‘‘Bank of America 1Q 2009 Release’’) (online at http://newsroom.bankofamerica.com/ 

index.php?s=43&item=8316) (reporting Bank of America’s year end 2008 results and describing 

its fourth quarter losses). Key factors that impacted Bank of America’s financial results included 

losses associated with certain securities and legacy trading books; write-downs in commercial 

mortgage-backed securities and private equity, trading disruptions, and continued economic decline. These conditions caused additional credit deterioration across Bank of America’s loan portfolio. 196Treasury conversations with Panel staff (Oct. 19, 2009); Bank of America conversations 

with Panel staff (Oct. 26, 2009). In the conversation between Bank of America and Panel staff, 

Bank of America personnel concurred that the additional assistance was necessary primarily because of the Merrill Lynch acquisition. In particular, Bank of America personnel noted the size 

of the Merrill Lynch loss and the speed with which it happened. 197Treasury conversations with Panel staff (Oct. 19, 2009). 198 Emergency Capital Injections, supra note 30, at 23–29. 199See Bank of America 1Q 2009 Release, supra note 195 (noting that ‘‘in view of the continuing severe conditions,’’ the U.S. government ‘‘agreed to assist in the Merrill acquisition by 

making a further investment in Bank of America of $20 billion in preferred stock’’ under TIP 

while also providing Bank of America with asset guarantee protection against further losses on 

a pool of assets ‘‘primarily from the former Merrill Lynch portfolio . . .’’). 200Treasury Citigroup Press Release, supra note 45; see also U.S. Department of the Treasury, 

Treasury, Federal Reserve and the FDIC Provide Assistance to Bank of America (Jan. 16, 2009) 

(online at www.financialstability.giov/latest/hp1356.html). 201Treasury conversations with Panel staff (Oct. 19, 2009). Confidential Treasury documents 

shared with Panel staff support this rationale. 

America’s year-end financial data for 2008 illustrates that these 

losses were largely due to capital markets losses and rising credit 

costs caused by the global economic downturn and continued uncertainty in the capital markets.195 Upon the completion of its acquisition of Merrill Lynch in early January 2009, Bank of America became substantially exposed to losses on Merrill’s distressed assets, 

including significant assets belonging to Merrill Lynch International.196 The integration of Merrill Lynch’s portfolio—a large 

and complex broker-dealer portfolio—into Bank of America’s substantial commercial lending portfolio presented a major challenge.197 Following the completion of Bank of America’s acquisition 

of Merrill Lynch, and upon the request of Mr. Lewis,198 Treasury, 

the Federal Reserve, and the FDIC provided Bank of America with 

$20 billion of additional assistance under TIP and asset guarantees 

related to $118 billion of distressed or illiquid assets.199

Treasury, the Federal Reserve, and the FDIC stated that this additional assistance to both institutions was necessary not only to 

keep these institutions afloat, but also ‘‘to strengthen the financial 

system and protect U.S. taxpayers and the U.S. economy.’’ 200 The 

banking industry suffered one of the worst earnings quarters in recent history during the fourth quarter of 2008, and economic deterioration persisted into 2009. Noting that at the end of 2008 no one 

knew what might happen to the economy next, Treasury stated 

that a driving force behind the decisions was a fear that either institution’s failure would cause the same deep, systemic damage as 

Lehman Brothers’ collapse.201

Treasury, the Federal Reserve, and the FDIC ultimately decided 

to use this program for only two institutions. One possible explanation for why the government did not extend asset guarantees to 

additional institutions may be that the mere existence of the AGP 

(and its implementation in a test case) calmed the market sufficiently. Several of the factors that supported the provision of additional assistance to Citigroup and Bank of America, however, likely 

also applied to other financial institutions, including the others 

that received the initial CPP assistance, especially given the deteVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00043 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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202Treasury conversations with Panel staff (Oct. 19, 2009). 203 Citigroup conversations with Panel staff (Oct. 26, 2009). 204 Id. 205Treasury conversations with Panel staff (Oct. 19, 2009); Government Accountability Office, 

Troubled Asset Relief Program: One Year Later, Actions Are Needed to Address Remaining 

Transparency and Accountability Challenges, at 77 (Nov. 2, 2009) (online at www.gao.gov/ 

new.items/d1016.pdf). 206Treasury conversations with Panel staff (Oct. 19, 2009). 207 Id. 208 Id. 209FDIC written responses to Panel questions (Oct. 30, 2009). 

riorating economic conditions and deteriorating balance sheets that 

plagued many financial institutions at the close of 2008 and into 

2009. It is also possible that the AGP was superfluous in light of 

other initiatives. 

While Treasury indicated that the existing TARP assistance to 

both institutions did not influence the decisions to provide additional assistance, Treasury stated that the three agencies remained 

aware of the substantial capital infusions already provided and realized that they were not sufficient to stabilize these institutions.202 As reflected above, both institutions received additional 

TARP capital infusions through TIP, and the additional assistance 

provided under both TIP and AGP was coordinated and announced 

simultaneously. 

d. How and why was an asset guarantee program selected? 

The idea for the AGP was apparently based on a guarantee 

framework developed earlier by the FDIC and Citigroup to support 

Citigroup’s failed bid for Wachovia in late September 2008.203 During the discussions preceding the announcement of additional assistance, including the AGP, Citigroup suggested that the parties 

model the guarantee after the Wachovia structure.204

In Treasury’s view, asset guarantees would ‘‘calm market fears 

about really large losses,’’ thereby encouraging investors to keep 

funds in Citigroup and Bank of America.205

When asked to discuss possible alternatives to asset guarantees 

and why they were not selected, Treasury indicated that no alternatives were seriously considered.206 Since Treasury was already 

providing capital infusions, it believed that guarantees could work 

in tandem to help restore market confidence and financial stability.207 In particular, since Treasury had established a precedent 

for providing guarantee protection through its additional assistance 

to Citigroup, Treasury felt that it was important to provide Bank 

of America with similar assistance so that ‘‘systemically significant’’ institutions needing ‘‘exceptional assistance’’ would be given 

consistent treatment.208 However, the FDIC indicated that the 

agencies considered providing liquidity support to Citigroup 

through expanded access to the CPFF, the Primary Dealer Credit 

Facility (PDCF), and the Term Securities Lending Facility (TSLF), 

but concluded that that type of short-term liquidity support would 

not have been an effective solution.209

Economic and practical considerations largely drove the interagency coordination on the creation and structure of the asset 

guarantees. Section 102 of EESA seems to intend for the cost of a 

guarantee program to be borne by TARP, rather than the Federal 


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210See EESA § 102 (requiring the Secretary of the Treasury to ‘‘establish a program to guarantee troubled assets originated or issued prior to March 14, 2008, including mortgage-backed 

securities,’’ if he establishes the Troubled Asset Relief Program under Section 101, and referring 

only to the Treasury Secretary throughout the section text). 211See Treasury AGP Report, supra note 31 (noting that Treasury ‘‘generally achieves a greater impact per TARP dollar absorbed by taking an early loss position over a narrow interval of 

losses rather than a late loss position over a larger range of losses’’). 212Treasury conversations with Panel staff (Oct. 21, 2009). 213Treasury conversations with Panel staff (Oct. 21, 2009). 214Treasury conversations with Panel staff (Oct. 19, 2009). 215Treasury conversations with Panel staff (Oct. 19, 2009). 216Treasury conversations with Panel staff (Oct. 19, 2009). 217The history and role of Treasury, the Federal Reserve, and the FDIC in the provision of 

additional assistance to Citigroup is the subject of some press accounts suggesting some amount 

of interagency tension in the decision to extend support. See, e.g., Edmund L. Andrews & Louise 

Story, Regulators Press for Change at Two Troubled Big Banks, New York Times (June 5, 2009) 

(online at www.nytimes.com/2009/06/06/business/economy/06bank.html) (stating that the FDIC 

‘‘reluctantly went along’’ in the decision to provide Citigroup with a package of TARP funds and 

guarantees). Contradicting these reports, the government agencies assert that the approach was 

well-coordinated and conversations with Citigroup and Bank of America suggests that the agencies presented a united front. 218Treasury AGP Report, supra note 31. 

Reserve or the FDIC, perhaps signaling that no tripartite structure 

was envisioned.210 Nonetheless, the TARP purchasing authority is 

reduced dollar-for-dollar by the amount guaranteed, meaning that 

insuring an asset under Section 102 of EESA has almost an equivalent impact on TARP purchasing authority as purchasing the 

same asset.211 Treasury needed the joint participation of the Federal Reserve and the FDIC to cover the sizeable Citigroup and 

Bank of America guarantees.212 While the Federal Reserve would 

provide financing only after the loss sharing agreements with 

Treasury and the FDIC were exhausted, it is the only agency that 

could provide a non-recourse loan of large notional value, if necessary, because of its emergency lending authority under Section 

13(3) of the Federal Reserve Act. Treasury also indicated that the 

expertise and experience of the other agencies helped in coordinating, structuring, and implementing the AGP.213

EESA statutory considerations largely drove the cost allocation 

for the asset guarantees among the three agencies—Treasury and 

the FDIC each received preferred stock and warrants—along with 

each agency’s individual determinations about their loss positions.214 Potential loss estimates for the asset pools determined the 

deductibles for Citigroup and Bank of America.215 Jointly Treasury 

and the FDIC made the decisions regarding the loss positions and 

the split of any loss share.216 The Section 13(3) legal authority supporting the Federal Reserve’s participation in the AGP only provides it with emergency lending authority. Since the Federal Reserve lends solely against collateral that meets particular quality 

criteria (and applies haircuts where necessary), the financing it 

would provide is collateralized by the assets in the designated 

pools.217

e. How Were Assets Selected with Respect to Citigroup 

and Bank of America? 

Under the AGP, insured assets are ‘‘selected by Treasury and its 

agents in consultation with the financial institution receiving the 

guarantee.’’ 218 Pursuant to EESA’s statutory mandate, the assets 


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219 EESA § 102(a)(1). 220Treasury conversations with Panel staff (Oct. 19, 2009); Citigroup conversations with Panel 

staff (Oct. 26, 2009). 221 Citigroup conversations with Panel staff (Oct. 26, 2009). 222Treasury conversations with Panel staff (Oct. 21, 2009). 223 EESA § 102(a)(1). 224Treasury conversations with Panel staff (Oct. 19, 2009). 225For further discussion on how assets were selected, see Section C, infra. 226 Citigroup conversations with Panel staff (Oct. 26, 2009). 227 Id. 228Treasury conversations with Panel staff (Oct. 19, 2009). 229Treasury conversations with Panel staff (Oct. 21, 2009). 230Treasury conversations with Panel staff (Oct. 22, 2009). 

selected must be ‘‘troubled assets originated or issued prior to 

March 14, 2008, including mortgage-backed securities.’’ 219

Initially, Citigroup identified a pool of assets for which it sought 

coverage under the asset guarantee, selecting what it viewed as 

some of the riskiest classes of assets on its balance sheet and providing an asset class by asset class presentation.220 The initial 

amount of the pool Citigroup presented—roughly $307 billion—was 

in the same range as the Wachovia guarantee model.221 The Federal Reserve conducted some initial diligence work on the pool presented, with the understanding that the amount would change 

after the pool was subject to more thorough diligence.222 Treasury ultimately narrowed this pool to $306 billion due to certain filters, 

such as EESA statutory requirements, including the provision that 

assets needed to be ‘‘originated or issued prior to March 14, 

2008,’’ 223 as well as the exclusion of some foreign assets deemed 

impermissible due to policy considerations. Subsequently, the asset 

pool amount was lowered to $301 billion due to accounting changes, 

corrections, and voluntary exclusions.224

As discussed above, while the Citigroup Master Agreement does 

not identify the value or composition of the guaranteed asset pool, 

it sets forth the criteria for covered assets, as well as a post-signing 

process for negotiating and finalizing those matters.225

As assets are sold, losses are taken against the portfolio and the 

size of the asset pool diminishes.226 Citigroup and Treasury have 

both detailed substantial monitoring and auditing on the asset 

pool.227

Like Citigroup, Bank of America also identified and set forth the 

pool of assets that it sought the government to cover under the 

asset guarantee, selecting what it viewed as the riskiest assets on 

its balance sheet and providing an asset class by asset class presentation.228 The Federal Reserve also conducted some initial diligence work on the pool presented, with the understanding that the 

amount would ultimately change after the pool was subject to more 

thorough diligence.229 At the time of termination of the term sheet, 

the value of the pool was established at $83 billion for purposes of 

calculation of the termination fee.230

f. Analysis of the Terms of the Guarantees 

As discussed above, the asset guarantees negotiated pursuant to 

the AGP share several key features. The federal government was 

largely consistent in negotiating asset guarantee agreements with 

Citigroup and Bank of America. 

Broader comparisons are tricky. In particular, it is difficult to say 

whether the terms of these asset guarantees resemble ‘‘typical’’ or 


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231The Citigroup guarantee arrangement does include an unusual provision limiting 

Citigroup’s ability to issue dividends. See Citigroup Master Agreement, supra note 35, at 30. 

Bank of America’s provisional guarantee arrangement contemplated a similar limitation. 232 As a point of comparison, the Panel notes that the United Kingdom is likely to require 

the Royal Bank of Scotland Group PLC (RBS) to increase its deductible under the U.K. government’s asset protection plan. This would increase RBS’ deductible to λ60 billion ($99 billion) 

from 42 billion in initial losses that the bank originally agreed to incur last February. See Sara 

Schaefer Munoz, RBS Likely to Pay Higher Insurance Fee, Wall Street Journal (Nov. 2, 2009) 

(online at online.wsj.com/article/SB125692835737019207.html?mod=rss_Europe_Markets_News). 

This decision highlights how the European Union is ‘‘cracking down on RBS as a condition for 

the billions in taxpayer aid it has received since the start of the financial crisis.’’ Id. While it 

is unlikely that the assets could be compared, the comparison provides an idea of the appropriateness of the price paid by Citigroup for the guarantee. 233 U.S. Department of the Treasury, Citigroup Asset Guarantee Agreement, Summary of 

Terms, at 1 (Nov. 23, 2008) (online at www.treas.gov/press/releases/reports/ 

cititermsheet_112308.pdf); Treasury conversations with Panel staff (Oct. 21, 2009). In conversations with Panel staff, Treasury indicated that since the federal government had never created 

a guarantee program like this before, the agencies determined that it was important to use a 

pre-existing framework and not resort to another framework on an ad hoc basis. 234See Section C(1)(a), infra. 235Treasury winds up paying less by reason of the netting process that only goes one way. 

To illustrate this accounting method, the Panel provides the following example. Asset A in Pool 

X has a quarterly loss of $25,000, and Asset B in Pool Y has a quarterly loss of $50,000. A different asset, Asset C, in Pool Z, has a quarterly gain of $100,000. Since the quarterly gain for 

Asset C exceeds the quarterly losses in Assets A and B, that gain will net out the losses on 

Assets A and B, even though they are not in the same asset class. However, even if Asset C 

only had a quarterly gain of $50,000, the losses in Assets A and B would not offset that gain 

since losses are not treated across the board. 236 Citigroup Master Agreement, supra note 35, at 23–25. 

‘‘standard’’ commercial terms; the agreements are sui generis. Generally speaking, however, there is nothing unusual about the terms 

negotiated by the federal government.231 Moreover, to the extent 

that useful comparisons are possible, the terms of these guarantees 

seem relatively typical.232 For instance, the durations of the guarantees (five years for non-residential assets and ten years for residential assets) mirror the FDIC’s standard loss-sharing protocol.233

In addition, the interest rate that will apply should Citigroup draw 

funds from the Federal Reserve’s loan facility in order to cover residual losses on the guaranteed pool—that is, a floating rate of OIS 

plus 300 basis points—is standard and within commercial limits. 

The asymmetric nature of some key terms in the Master Agreement also works in the government’s favor while disadvantaging 

Citigroup in some ways. While losses are calculated with respect to 

each security, as discussed above,234 gains and recoveries are credited across the board, meaning that any gain on any asset will offset any losses on the pool. Since the quarterly calculation of net 

covered losses under the guarantee includes all gains and recoveries, this diminishes the likelihood that the government agencies 

will have to pay out on the guarantee (and thereby protects the 

taxpayers).235

While there have been reports of banks marking down assets aggressively and then benefitting from an uptick in value, certain 

clawback provisions in the Master Agreement ensure that the U.S. 

government will likely be able to benefit from any recoveries or 

gains in the asset pool. If the deductible is met, Citigroup would 

be permitted to collect on the insurance while continuing to carry 

the assets on its books. However, if the assets later stabilize and 

improve and Citigroup incurs quarterly recoveries or gains (that 

exceed its quarterly losses), it is required, pursuant to the Master 

Agreement, to reimburse the U.S. government for its outstanding 

advances in a specified manner.236 Such contractual provisions 


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237For further discussion of the particular aspects of corporate governance addressed in the 

Citigroup Master Agreement, see Section C, infra. 238See, e.g., Dan Fitzpatrick, U.S. Regulators to BofA: Obey or Else, Wall Street Journal (July 

16, 2009) (online at online.wsj.com/article/SB124771415436449393.html). 239Treasury conversations with Panel staff (Sept. 23, 2009); Emergency Capital Injections, 

supra note 30, at 29. 240Treasury conversations with Panel staff (Oct. 19, 2009). 241 Id. 242 Id. 243 Id. 244 Emergency Capital Injections, supra note 30, at 23–29. 245 Bank of America, Bank of America Terminates Asset Guarantee Term Sheet (Sept. 21, 2009) 

(online at newsroom.bankofamerica.com/index.php?s=43&item=8536). 246Treasury conversations with Panel staff (Sept. 23, 2009). 

allow the U.S. government (and the taxpayers) the opportunity to 

benefit from any upside in value within the guaranteed asset pool. 

The terms of the Citigroup asset guarantee also address certain 

corporate governance issues including executive compensation, 

asset management, and personnel.237 Recent press reports indicate 

that Bank of America, as part of its package of additional assistance, is operating under a slightly different memorandum of understanding (MOU) that requires it to change its board of directors 

and address certain risk and liquidity management issues.238 The 

Panel has made numerous requests to Treasury and the Federal 

Reserve for this MOU and similar documents. To date the Panel 

has not received this or any other related documents. 

g. Termination of the Bank of America Asset Guarantee 

As discussed above, Bank of America notified Treasury, the Federal Reserve, and the FDIC on May 6, 2009 that it intended to terminate its asset guarantee because executives ‘‘believed that the 

cost of the guarantees outweighed the potential benefits.’’ 239 The 

federal government and Bank of America held extensive discussions in the period between January 15 and May 6 regarding the 

identity of the assets to be covered.240 In the end, Bank of America 

was not satisfied with the federal government’s negotiating position.241 Treasury acknowledges that Bank of America’s position in 

May, after the completion of the stress tests, as discussed below, 

was different than it had been in January when the asset guarantee was announced.242 For one, the $20 billion TIP investment 

substantially helped Bank of America’s capital ratios.243 In addition, Mr. Lewis and other Bank of America senior executives concluded that future losses would not exceed the initial $10 billion 

that the bank would need to cover pursuant to the AGP negotiated 

term sheet.244 Upon the termination of the asset guarantee term 

sheet on September 21, 2009, Mr. Lewis stated, ‘‘[w]e are a stronger company than we were even a few months ago, and while we 

continue to face challenges from rising credit costs, we believe we 

have all the pieces in place to emerge from this current economic 

crisis as one of the leading financial services firms in the world.’’ 245

Between May 6, 2009 and September 21, 2009, Treasury, the 

Federal Reserve, and the FDIC reviewed the likely effects of Bank 

of America’s withdrawal from the AGP and then negotiated an appropriate fee or rebate for Bank of America’s withdrawal.246 As 

noted above, Bank of America initially took the view that since no 


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247Treasury conversations with Panel staff (Oct. 19, 2009). 248See James Kwak, Bank of America $4 Billion, Taxpayers $425 Million, 

Baselinescenario.com (Sept. 23, 2009) (online at baselinescenario.com/2009/09/23/bank-of-america-4–billion-taxpayers-425-million/); James Kwak, More on Bank of America, 

Baselinescenario.com (Sept. 28, 2009) (online at baselinescenario.com/2009/09/28/more-on-bankof-america/) (questioning the U.S. government’s decision to pro-rate the $4 billion in preferred 

stock by the effective term of the guarantee—4 months—and arguing that Bank of America was 

‘‘buying insurance against the bad state of the world’’ and should not be able to get its money 

back ‘‘[w]hen the good state occurs.’’). Such arguments, however, do not reflect the terms of the 

term sheet. The term sheet contemplated that there would be a rebate if the guarantee were 

terminated. This was a policy decision made by the U.S. government and Bank of America. In 

addition, the fees for the guarantee were calculated at the outset of the program, when both 

parties felt asset guarantees were needed, and on the basis of the assets those parties thought 

would be in the pool. Treasury’s negotiating stance was that when the additional assistance was 

announced, Bank of America had obligated itself to pay for the guarantee at the rates set out 

in the term sheet. The U.S. government concluded, however, that the construction of Bank of 

America’s fee should be based on the fees in the term sheet, adjusted for the shortened time 

period between announcement and termination and some adjustments in the size of the asset 

pool. 249Treasury conversations with Panel staff (Sept. 23, 2009); Treasury conversations with 

Panel staff (Oct. 22, 2009). 250 Bank of America Provisional Term Sheet, supra note 75. 

contract was executed, no fee was owed.247 The government agencies disagreed, on the basis that the government had stood ready 

to make good on the guarantee even though the guarantee had not 

been formally executed, and that Bank of America clearly benefitted from the market’s perception that the government had 

agreed to guarantee Bank of America’s assets. This approach resulted in a $425 million termination fee. While some critics have 

argued that the government should have demanded more,248 it appears that Treasury, the Federal Reserve, and the FDIC negotiated 

robustly and achieved a commercially reasonable result. 

The fees for the guarantee were calculated at the outset of the 

program, when both parties felt the guarantee was needed, and on 

the basis of the assets the parties thought would be in the pool.249

Those fees were set out in the term sheet dated January 15, 

2009.250 The termination fee was calculated using the fees in the 

term sheet as a starting point, and then adjusted for the length of 

time the guarantee was perceived to be in effect. Bank of America 

had obligated itself to pay for the guarantee, pursuant to the rates 

set out in the term sheet. 

While it is impossible to determine whether Treasury, the Federal Reserve, and the FDIC needed to ‘‘save’’ Bank of America, the 

Panel notes that one of the primary reasons given by both sides for 

not needing the guarantee is the market-calming effect of the 

stress tests. The fact that the agencies were ready to backstop 

Bank of America’s losses, if necessary, also had a calming effect on 

the financial markets, and likely aided its ability to raise capital 

and terminate the guarantee in the ensuing months. 

2. TGPMMF 

a. Legal Authority for the TGPMMF 

It is not immediately apparent that the Gold Reserve Act of 1934 

authorizes Treasury’s decision to fund the TGPMMF with the $50 

billion assets held in the ESF. The Act currently provides that, 

‘‘[c]onsistent with the obligations of the Government in the International Monetary Fund on orderly exchange arrangements and a 

stable system of exchange rates, the Secretary or an agency designated by the Secretary, with the approval of the President, may 


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251 31 U.S.C. 5302(b). 252S. Rep. No. 1295, 94th Cong., 2d Sess. 17 (1976), reprinted in 1976 U.S.C.C.A.N. 5950, 

5966; see also Id. (‘‘[U]se of the ESF [is] authorized only for purposes consistent with United 

States obligations in the IMF regarding orderly exchange arrangements and a stable system of 

exchange rates.’’); 31 U.S.C. 5302(b) (conditioning in 1976 loan or credit to a foreign government 

or entity for more than six months only upon written statement of President to Congress of 

‘‘unique or emergency circumstances.’’). 253See U.S. Department of the Treasury, Exchange Stabilization Fund History (accessed Nov. 

3, 2009) (online at www.treas.gov/offices/international-affairs/esf/history) (periodizing over 100 

uses of the ESF from 1936 to 2002; explaining that from 1961 to 1971, the ESF was used to 

incentivize foreign banks not to make demands on the U.S. gold stock; explaining further that 

from 1972 to 2002, the ESF was primarily used to acquire foreign currency reserves and extend 

lines of credit to foreign nations, and, more recently, to provide loans to the United Kingdom, 

Brazil, Argentina, Nigeria, and Romania). 254Treasury information provided in response to Panel written questions (Oct. 29, 2009). Although Treasury informed Panel staff that Treasury’s Office of General Counsel had prepared 

a more formal legal analysis of its authority under the Act, Treasury has not shared this analysis with the Panel despite our requests. Treasury also contended that ‘‘the guarantee structure 

of the Program was consistent with the requirement in § 31 U.S.C. 5302(b) that use of the ESF 

involved a deal[ing] in an ‘instrument of credit’.’’ Id. 255See, e.g., BIS, U.S. Dollar Money Market Funds and Non-U.S. Banks, supra note 95 at 79 

(explaining that ‘‘[g]lobal interbank and foreign exchange markets felt the strain’’ of run on 

MMFs after the collapse of Lehman). 

deal in gold, foreign exchange, and other instruments of credit and 

securities the Secretary considers necessary.’’ 251 The statute and 

its legislative history both suggest that Congress intended principally for Treasury to use the ESF ‘‘to provide short-term credit 

to foreign countries to counter exchange market instability.’’ 252

Treasury has traditionally used the ESF to support the dollar in 

international exchange markets and to extend credit and loans to 

foreign sovereigns and central banks;253 the use of the ESF to 

enact an insurance program to ensure macroeconomic stability 

amidst a domestic financial crisis marks a significant departure 

from prior practice. The TGPMMF seems to represent Treasury’s 

first use of the ESF involving domestic counterparties and the first 

to establish an insurance mechanism. 

Treasury has justified its use of the ESF for the TGPMMF as follows: 

The IMF obligations referenced in this provision link orderly exchange arrangements to the stability and health of 

the global financial and economic system. Because the extreme demand for redemptions facing money market funds 

at the time the [TGPMMF] was initiated had magnified liquidity strains in global funding markets and greatly exacerbated global financial instability, the [TGPMMF] was expected to counter such instability and help restore financial equilibrium. This objective was consistent with the 

terms of the statute.254

While one could argue that the distress in the MMF market 

had—and the prospect of a prolonged run on the markets would 

have had—serious consequences for international financial stability,255 Treasury’s position raises the prospect of using the ESF 

for other domestic activities that can be plausibly linked to ensuring international financial stability. 

Treasury’s use of the ESF for the TGPMMF led Congress to include in EESA requirements that Treasury replenish any funds 

paid out of the ESF under the TGPMMF and a prohibition against 


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256 EESA § 131(a)–(b). Treasury’s use of the ESF to purchase $3.6 billion of USGF’s assets 

raises related legal questions. While Treasury has explained that ‘‘unique and extraordinary circumstances’’ justified the purchase, See Treasury Reserve Fund Release, supra note 118, its connection with the statutory purposes of the ESF is more attenuated than the use of ESF to fund 

the TGPMMF. A disorderly liquidation of USGF in November 2008 was likely not large enough 

to have the same sort of direct impact on global exchange rates as the potential collapse of the 

entire MMF market in September 2008. While it is possible that the orderly liquidation of USGF 

had a stabilizing effect on exchange rates and global financial health, it is not clear why a similar result could not have been achieved by allowing USGF to file a claim under the TGPMMF. 257 U.S. Department of the Treasury, Treasury Announces Guaranty Program for Money Market Funds (Sept. 19, 2008) (online at www.treas.gov/press/releases/hp1147.htm). 258 Id. 259See Section E, infra. 260See Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release 

H.4.1: Factors Affecting Reserve Balances of Depository Institutions (online at 

www.federalreserve.gov/releases/h41/) (accessed Oct. 29, 2009) (showing peak CPFF participation of $351 on January 21, 2009 declining to $39.4 billion on October 21, 2009 and peak AMLF 

lending at $152 billion on October 1, 2008 declining to $0 on October 21, 2009). 261See Figure 12, infra; ICI Money Market Working Group Report, supra note at 98 (‘‘The 

U.S. Government’s programs were highly successful in shoring up confidence in the money market and money market funds. Immediately following the difficulties of Primary Fund, assets in 

institutional share classes of prime money market funds dropped sharply as institutional investors, Seeking the safest, most liquid investments, moved into institutional share classes of 

Treasury and government-only money market funds . . . and bank deposits. Within a few days 

of the announcements on September 19 of the Treasury Guarantee Program and the Federal 

Reserve’s AMLF program, however, outflows from institutional share classes of prime money 

market funds slowed dramatically. Indeed, by mid-October, the assets of prime money market 

funds began to grow and continued to do so into 2009, indicating a return of confidence by institutional investors in these funds. During this same time period, assets of Treasury and government-only money market funds also continued to grow, although at a much reduced pace.’’). 262See Figure 14, infra (showing a narrowing of spreads between overnight commercial paper 

and 3-month Treasury bills in the months following the implementation of the TGP). 

Treasury from using the ESF to guarantee money market funds in 

the future.256

b. Impact of the TGPMMF 

Treasury created the TGPMMF at the height of the crisis last 

fall, and, at the time, stated that ‘‘[m]aintaining confidence in the 

money market fund industry [was] critical to protecting the integrity and stability of the global financial system.’’ 257 The program 

was designed to enhance market confidence, alleviate investors’ 

concerns that money market funds would drop below a $1.00 NAV, 

and ease strains on financing that threatened capital markets and 

financial institutions.258 The TGPMMF has succeeded under these 

stated objectives, as measured by the absence of any additional 

MMFs breaking the buck, the declining commercial paper yield 

spreads, and stability in the commercial paper market.259 In conjunction with the Federal Reserve’s programs, CFPP and AMLF, 

which both saw heavy use during the TGPMMF’s first months, the 

TGPMMF has helped stabilize the MMF and commercial paper 

markets.260

After the Reserve Primary Fund broke the buck and before the 

TGPMMF’s institution, investors fled from prime funds and also 

from MMFs in general. The day the program was announced, the 

flight from prime funds arrested and, over the course of the program, reversed.261 Yields in the commercial paper market also reflect the TGPMMF’s impact.262 Perhaps equally important, since 

the expiration of the guarantee program, strong investment in 

MMFs has occurred. While total assets in MMFs have declined 

slightly from $3.482 trillion to $3.372 trillion since September 18, 

2009, and have declined more significantly from the January 2009 


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263 Investment Company Institute, Money Market Fund Assets October 22, 2009 (Oct. 22, 2009) 

(online at www.ici.org/research/stats/mmf/mm_10_22_09); Investment Company Institute, Weekly Total Net Assets (TNA) and Number of Money Market Mutual Funds (online at www.ici.org/ 

pdf/mm_data_2009.pdf) (accessed Nov. 4, 2009); see also Figure 13, infra. 264See, e.g., David Serchuk, Another Run on Money Market Funds?, Forbes.com (Sept. 24, 

2009) (online at www.forbes.com/2009/09/24/money-market-lehman-intelligent-investing-breakbuck.html) (quoting Jeff Rubin, head of research at Birinyi Associates, as attributing move from 

MMFs since January 2009 peak to the search for higher yields). 265Letter from Edward L. Yingling, President, American Bankers Association, to Henry M. 

Paulson, Jr., Secretary of the Treasury and Ben S. Bernanke, Chairman of the Federal Reserve 

System (Sept. 19, 2008) (hereinafter ‘‘ABA Letter to Paulson and Bernanke’’) (illustrating the 

comparative advantage the TGP granted MMFs in their competition for investors’ funds with 

FDIC-insured banks, which he contended face higher costs to fund deposit insurance and a 

greater regulatory burden than MMFs) (online at www.aba.com/aba/documents/press/ 

LetterGuarantyProgramMoneyMarketFunds091908.pdf); see James B. Stewart, The $4 Trillion 

Rescue You Should Be Grateful For, SmartMoney.com (Sept. 15, 2009) (online at 

www.smartmoney.com/investing/stocks/the-4-trillion-rescue-you-should-be-grateful-for/) (reporting that guarantee set off ‘‘howls of protest from the banking industry’’ that led the FDIC to 

raise the insurance limit to $250,000). 266See BIS, U.S. Dollar Money Market Funds and Non-U.S. Banks, supra note 95, at 68, 71 

(reporting that while around 145 funds provided support in the thirty years up to July 2007, 

one third of the top 100 U.S. MMFs received support since that time); Id. at 71 (showing largest 

money market funds seeking support both before and after program was in place); U.S. Securities and Exchange Commission, No-Action Letters for Money Market Funds (online at 

www.sec.gov/divisions/investment/im-noaction.shtml#money) (accessed Nov. 2, 2009). 267Moral hazard is discussed in more detail in Section E(2), supra. 268See U.S. Department of the Treasury, Financial Regulatory Reform: A New Foundation, at 38–39 (online at www.financialstability.gov/docs/regs/FinalReport_web.pdf) (accessed Nov. 2, 

2009) (instructing SEC to promulgate rules ‘‘to reduce the credit and liquidity risk profile of individual MMFs and to make the MMF industry as a whole less susceptible to runs.’’); SEC Proposed Money Market Fund Reform Rule, supra note 124. 269This approach was advocated by the Investment Company Institute, the industry trade 

group, and largely reflected in the SEC’s proposed amendments to Rule 2a–7. See SEC Proposed 

Money Market Fund Reform Rule, supra note 124; ICI Money Market Working Group Report, 

supra note 98 (recommending new disclosure requirements, shorter maturities, and new liquidity standards). 

market peak of $3.920 trillion,263 market observers attribute this 

gradual decline to the relative attractiveness of other higher risk 

investments, not to fears regarding MMF market stability.264

One result at least partially attributable to the TGPMMF was 

the Congressional decision in October 2008 to increase deposit insurance from $100,000 to $250,000. Banks complained that the 

guarantee program tilted the balance unfairly to MMFs in their 

competition with FDIC-insured depository institutions for funds 

and used this argument effectively as leverage to have deposit insurance increased.265

TGPMMF made no outlays, but that does not mean that the program eliminated all pressure on funds’ NAVs. Even after the guarantee, funds provided ‘‘parental support’’ to preserve their NAV, although the rate of this support decreased as liquidity improved. No 

fund chose to rely on the TGPMMF in part because the consequences of a triggering event and payment from the fund were 

so draconian—liquidation, and the reputational hit that liquidation 

would involve.266

Draconian consequences tend to temper the moral hazard resulting from government guarantees of private obligations.267 The 

Obama Administration has called for and the SEC has moved to 

further mitigate the moral hazard in the MMF industry through 

regulatory reform.268 The first approach to reform is to minimize 

the risk by mandating disclosure and setting further limits on the 

liquidity, maturities, and composition in assets in MMF portfolios.269 The premise behind this approach is that more tightly 

regulated MMFs will not include illiquid and/or high risk assets. 

This approach may be insufficient to address the contagion dyVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00052 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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270See, e.g., Bullard, Federally-Insured Money Market Funds, supra note 95 (proposing the 

creation of permanent, full federal insurance for MMFs and similarly regulated ‘‘narrow banks’’ 

both regulated by the FDIC). 271See Letter from Jeffery N. Gordon, Alfred W. Bressler Professor of Law, Columbia University School of Law, to Elizabeth M. Murphy, Secretary of the U.S. Securities and Exchange Commission (Sept. 9, 2008) (commenting on SEC Proposed Money Market Fund Reform Rule and 

stating ‘‘Institutional MMFs should give up the promise of a fixed NAV.’’). 272See Mary L. Schapiro, Chairman, U.S. Securities and Exchange Commission, Speech at 

SEC Open Meeting (June 24, 2009) (online at www.sec.gov/news/speech/2009/ 

spch062409mls.htm). 273 Unlike other mutual funds, which can use an amortized cost value to calculate their daily 

NAV, MMFs have typically been required to rely on market quotations for their daily shadow 

price valuations of portfolio securities. See Investment Company Institute, SEC No-Action Letter 

(Oct. 10, 2008) (online at www.sec.gov/divisions/investment/noaction/2008/ici101008.htm) (hereinafter, ‘‘SEC No-Action Letter to ICI’’). The SEC restricted the application of amortized cost 

valuation to First Tier Securities of MMFs with 60-day or less maturities that the fund reasonably expected to hold to maturity. Id. 274See SEC No-Action Letter to ICI, supra note 273; ICI Money Market Working Group Report, supra note 98, at 99–100. 275 ICI Money Market Working Group Report, supra note 98, at 100. 276See Treasury Reserve Fund Release, supra note 118 (describing the asset purchase as a 

‘‘separate agreement’’). 

namic of runs on MMFs, and it raises the possibility of excess reliance on the credit rating agencies. The second approach is to create 

a private or public insurance mechanism that would internalize the 

cost of a potential bailout to market participants.270 Institution of 

a public insurance mechanism would go some way into regulating 

MMFs like banks, with the acknowledgement that some MMFs will 

adopt strategies that will fail, but that the industry will pay for 

any bailout and that contagion will be limited by the existence of 

an explicit guarantee. This approach would have its own problems 

in that the traditional boundaries between banking and securities 

regulators would be tested. Some commentators have taken this insight a step further and counseled the abandonment of expectation 

of a $1.00 NAV either for a portion or the entirety of the market.271

The SEC is in the process of finalizing its rule, and the President’s 

Working Group on Financial Markets has delayed the issuance of 

its report on MMF regulatory reform in order to assimilate the 

public comments on the proposed rule.272

Finally, on October 10, 2008, the SEC ruled that funds could 

temporarily (until January 12, 2009) value their portfolio securities 

by reference to their amortized cost value rather than their market 

quotations as part of MMFs’ daily shadow pricing to determine 

NAV.273 The SEC’s action was intended to correct for what MMFs 

contended were depressed market-based values of commercial 

paper that would not accurately reflect asset values at maturity because they were attributable more to market disruption and 

illiquidity than to fundamental components of asset valuation like 

credit risk.274 Although the Panel has not been able to test this 

proposition, according to market participants, the SEC’s measure 

was successful in relieving pressure on MMFs facing pressure on 

their NAVs due to temporarily illiquid commercial paper markets.275

c. USGF Purchase 

As previously noted, Treasury support of the Reserve Fund’s 

USGF appears to constitute an activity outside of the parameters 

of the TGPMMF.276 Treasury’s actions in this regard raise additional important questions, including the legal authority for Treasury’s use of the ESF for such purpose. The letter agreement beVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00053 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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277See EESA § 131. 278See Report infra, section 2(a) (discussing authority for the TGPMMF under 31 U.S.C. 

§ 5302(b)). Treasury disagrees with this analysis and states that the USGF asset purchase was 

authorized under the TGPMMF. In Treasury’s view, a September 29, 2009 Presidential approval 

of the TGPMMF did not limit the mechanism of meeting TGPMMF’s ‘‘principal’’ objective—making shareholders whole—to a guarantee claim and thus provides sufficient authority within its 

broad contours for Treasury to make shareholders whole by entering a contingent asset purchase agreement (separate from the Guarantee Agreement) with a liquidating participating 

MMF. On September 29, 2009, the President issued a memorandum to the Secretary of the 

Treasury approving ‘‘the use of funds from the Exchange Stabilization Fund as a guaranty facility for certain money market mutual funds, consistent with your recommendation to me and 

the terms and conditions set out in your memorandum to me dated September 26, 2008.’’ See 

Administration of George W. Bush, Memorandum on Use of the Exchange Stabilization Fund 

To Support the Money Market Mutual Fund Guaranty Facility, at 1279 (Sept. 29, 2008) (online 

at http://frwebgate.access.gpo.gov/cgi-bin/ 

getdoc.cgi?dbname=2008_presidential_documents&docid=pd06oc08_txt_15.pdf). Treasury has 

provided the Panel a brief oral summary of the September 26, 2008 memorandum from the Secretary of the Treasury to the President, but has not provided the memorandum to the Panel. 279Treasury’s press release further indicates that were the SEC to have allowed other funds 

to suspend redemptions, Treasury may have pursued a similar course. See Treasury Reserve 

Fund Release, supra note 118 (stating ‘‘no other funds participating in Treasury’s temporary 

guarantee program received a similar order from the SEC. Because of this, Treasury does not 

foresee a need to take similar actions with regard to any other funds participating in Treasury’s 

temporary guarantee program.’’). 280FDIC written responses to Panel questions (Oct. 30, 2009). 

tween Treasury and the Reserve Fund was entered into on November 19, 2008, which was more than one month after EESA prohibited the Secretary of the Treasury from using the ESF for ‘‘any future guaranty programs.’’ 277 Given Congress’s pronouncement only 

a month previously in enacting EESA that it would not allow 

Treasury to use ESF in the future to fund an MMF guarantee program, Treasury’s decision to go forward with another novel use of 

ESF to stabilize the MMF market—albeit through an asset purchase and not through the use of a guarantee—raises significant 

questions.278

The second issue is a question of policy. Why did Treasury determine it was more beneficial to purchase the USGF’s assets, rather 

than trigger the TGPMMF? 279 Treasury’s choice to provide support 

to the USGF in this case raises the question whether Treasury believed that the bolstering of market confidence that occurred upon 

TGPMMF implementation might be vitiated if the program actually had to pay a claim. 

3. FDIC Guarantee Program 

a. The Rationale for Creating Guarantees 

On October 14, 2008, the same day that Treasury announced the 

CPP and the Federal Reserve announced additional details of its 

Commercial Paper Funding Facility, the FDIC announced the creation of the TLGP. The TLGP is part of a coordinated effort by 

Treasury, the Federal Reserve, and the FDIC to address substantial disruptions in credit markets and the resultant inability of 

many institutions to obtain funding and make loans. The FDIC has 

cited the disruptions in the credit markets, especially inter-bank 

credit markets, as well as concerns that bank account holders 

‘‘might withdraw their uninsured balances from depository institutions’’ (the loss of which might have ‘‘impaired the funding structures of the institutions that relied on them’’) as primary rationales 

for the creation of the TLGP.280 The FDIC worked closely with 


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281FDIC conversations with Panel staff (Oct. 22, 2009). 282 Id. 283Federal Deposit Insurance Corporation, Chairman’s Statement on the Temporary Liquidity 

Guarantee Program (Oct. 23, 2008) (online at www.fdic.gov/regulations/resources/TLGP/chairman_statement.html). 284 Id. 285TLGP Interim Rule, supra note 167. 286FDIC written responses to Panel questions (Oct. 30, 2009). 287Federal Deposit Insurance Corporation, Statement by Federal Deposit Insurance Corporation Chairman Sheila Bair, U.S. Treasury, Federal Reserve, FDIC Joint Press Conference (Oct. 

14, 2008) (online at www.fdic.gov/news/news/press/2008/pr08100a.html) (hereinafter ‘‘Bair Statement’’). 288See Last Call for TLGP Debt, supra note 158. 

Treasury and the Federal Reserve in formulating this multipronged governmental intervention.281

While the TARP-funded CPP capital infusions would help bolster 

banks’ balance sheets, the agencies concluded that the provision of 

guarantees through the TLGP would help foster liquidity in the nation’s banking system.282 By guaranteeing debt, the FDIC acted to 

provide investors ‘‘with the comfort necessary to invest in longerterm obligations of financial institutions.’’ 283 With respect to eligibility, the FDIC concluded that making the program as widely inclusive as possible would help ensure that credit—particularly 

inter-bank lending—would start to flow again.284 The FDIC decided to allow banks, thrifts, and holding companies to participate 

given their substantial role in the credit markets and inter-bank 

lending. FDIC Chairman Sheila Bair encouraged eligible institutions of all sizes to participate in the TLGP, hoping that the program ‘‘will once again spur credit to flow, which is essential for 

banks to return to normal lending activity.’’ 285

While these developments were influential, the FDIC tailored its 

programs to problems in the U.S. markets.286 The actions of foreign 

governments, including members of the G–20, also substantially influenced the creation of the TLGP. In the absence of similar action 

by the U.S. government, foreign banks could have gained a competitive advantage. Prior to the FDIC’s announcement, various European countries announced plans to provide additional deposit insurance or to guarantee various debt obligations of financial institutions, including Austria, Belgium, France, Germany, Ireland, 

Italy, Portugal, Spain, the Netherlands, and the United Kingdom. 

As FDIC Chairman Bair noted in announcing the TLGP, ‘‘[o]ur efforts also parallel those by European and Asian nations. Their 

guarantees for bank debt and increases in deposit insurance would 

put U.S. banks on an uneven playing field unless we acted as we 

are today.’’ 287

The FDIC introduced the DGP to restart senior debt issuances 

by banks. Only $661 million in debt was issued in September 2008, 

a 94 percent decrease from September 2007. The program succeeded in jumpstarting debt issuances, with $106 billion in guaranteed debt issued before the end of 2008.288 There was no non-guaranteed senior unsecured debt issued by DGP eligible entities between October 14 and December 31, 2008. 


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289Federal Deposit Insurance Corporation, Master Agreement, Federal Deposit Insurance Corporation Temporary Liquidity Guarantee Program—Debt Guarantee Program (online at 

www.fdic.gov/regulations/resources/TLGP/master.pdf) (accessed Nov. 2, 2009) (hereinafter 

‘‘TLGP Master Agreement’’). 290See Federal Deposit Insurance Act of 1950, Pub. L. No. 81–797, § 13(c)(4)(G). The systemic 

risk determination authorized the FDIC to take actions to avoid or mitigate serious adverse effects on economic conditions or financial stability, and in response to this determination, the 

FDIC established the TLGP. The FDIC adopted the TLGP in October 2008 following a determination of systemic risk by the Secretary of the Treasury (after consultation with the President) that was supported by recommendations from the FDIC and the Federal Reserve. 291For further discussion on the structure of the Citigroup guarantee, see Section C, infra. 292FDIC conversations with Panel staff (Oct. 22, 2009). 293For example, the FDIC uses risk-based premiums for its Deposit Insurance Fund and Congress, in providing the Treasury Secretary with the authority to create an asset guarantee program in § 102 of EESA, also provided him with the authority to base premiums on the credit 

risk pertaining to the asset(s) being guaranteed. 294FDIC conversations with Panel staff (Oct. 26, 2009). 295Federal Deposit Insurance Corporation, Notice of Proposed Rulemaking, Expiration of the 

Issuance Period for the Debt Guarantee Program; Establishment of Emergency Guarantee Facility (Sept. 9, 2009) (hereinafter ‘‘FDIC DGP Rule Notice’’) (online at www.fdic.gov/news/board/ 

NoticeSept9no6.pdf) The FDIC chose October because it believed that the markets ‘‘were recovb. Analysis of the Terms of the Guarantees 

The FDIC released the TLGP master agreement for the DGP on 

November 24, 2008.289 The terms contained in the master agreement generally seem to be normal commercial terms. To some degree, however, any discussion about ‘‘normal’’ commercial terms in 

this context is complicated and challenging because the creation of 

this program involved the invocation of the ‘‘systemic risk exception,’’ which can be applied only in very explicit and unusual circumstances.290 In other words, the government provided normal financing at normal prices during abnormal times. 

There are, however, several provisions worth noting. For example, unlike Treasury, which obtained special supervisory powers 

from Citigroup with respect to the ring-fenced assets and management and imposed other restrictions on the institution,291 the FDIC 

does not seem to have obtained such consideration from the institutions participating in the TLGP. While such additional leverage 

might not have been practical or feasible given the size of the 

TLGP and the number of participating institutions, it is at least 

worth noting. 

Additionally, the FDIC also indicated that it based its fee structure on practical considerations.292 While the FDIC found the idea 

of risk-based pricing (i.e., calculating fees by reference to the risk 

or the size of the institution, which would have been normal commercial practice) 293 appealing and considered it in the process, the 

combination of the short amount of time available and the fact that 

non-insured depository institutions were eligible to participate in 

the TLGP made such risk-based pricing impractical, according to 

the FDIC.294

c. FDIC Decision to End the DGP and the Rationale 

Behind It 

Initially, the DGP allowed participating institutions to issue 

FDIC-guaranteed senior unsecured debt until June 30, 2009. The 

FDIC Board subsequently issued a final rule that extended the period during which participating institutions could issue FDIC-guaranteed debt until October 31, 2009, with the stated purpose of reducing ‘‘market disruption at the conclusion of the DGP and [facilitating] the orderly phase-out of the program.’’ 295


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ering in the spring of 2009, and that they were likely to return to a reasonable level of stability 

by then—just over one year from the start of the crisis.’’ FDIC written responses to Panel questions (Oct. 30, 2009). 296FDIC DGP Rule Notice, supra note 295. 297FDIC DGP Rule Notice, supra note 295. 298 In the FDIC’s view, creating an emergency guarantee facility would be in accord with both 

the rationale for developing the TLGP and the October 14, 2008 systemic risk determination 

pursuant to Federal Deposit Insurance Act of 1950, Pub. L. No. 81–797, § 13(c)(4)(G), and the 

authority to act was granted to the FDIC Board by § 9(a)(Tenth) to issue ‘‘such rules and regulations as it may deem necessary to carry out the provisions of the FDI Act.’’ Pub. L. No. 81– 

797 § 9(a)(Tenth); see also FDIC DGP Rule Notice, supra note 295. 299FDIC DGP Rule Notice, supra note 295. 300FDIC DGP Rule Notice, supra note 295. 301Federal Deposit Insurance Corporation, Final Rule: Amendment of the Debt Guarantee Program to Provide for the Establishment of a Limited Six-Month Emergency Guarantee Facility 

(Oct. 20, 2009) (hereinafter ‘‘DGP Final Rule’’) (online at www.fdic.gov/news/board/Oct098.pdf); 

FDIC conversations with Panel staff, Oct. 22, 2009. 302FDIC DGP Rule Notice, supra note 295. 303FDIC DGP Rule Notice, supra note 295. As the discussion in Section C, infra, indicates, 

this fee is significantly higher than the fee initially charged. 304See Federal Deposit Insurance Corporation, Memorandum Re: Final Rule Allowing the 

Basic Debt Guarantee Component of the Temporary Liquidity Guarantee Program (TLGP) to Expire on October 31, 2009 and Establishing a Six-Month Emergency Guarantee Facility (Oct. 20, 

2009) (online at www.fdic.gov/news/board/Oct097.pdf) (providing FDIC staff recommendation 

that the Board allow the DGP to expire on October 31, 2009 and to establish a six-month emergency guarantee facility); DGP Final Rule, supra note 301. 305DGP Final Rule, supra note 301. 

In early September 2009, the FDIC issued a notice of proposed 

rulemaking that presented two options for ending the program.296

While acknowledging that the DGP could terminate in light of improved market conditions, the FDIC indicated that it might be 

‘‘prudent’’ to create an emergency guarantee facility to serve as a 

safeguard in limited circumstances.297 Under the first alternative, 

the DGP would terminate as provided in the existing regulation. 

Under the second alternative, the DGP would terminate as provided in the existing regulation, but the FDIC would create a limited six-month emergency guarantee facility 298 to be used by insured depository institutions and other DGP participants to guarantee senior unsecured debt.299 Institutions seeking to participate 

in the emergency guarantee facility would need to ‘‘demonstrate an 

inability to issue non-guaranteed debt to replace maturing senior 

unsecured debt as a result of market disruptions or other circumstances beyond the entity’s control.’’ 300 According to the FDIC, 

a limited six-month extension (with a definite end date of April 30, 

2010) would ‘‘serve as a mechanism to phase-out the DGP,’’ not to 

promote ‘‘indefinite participation.’’ 301 The FDIC would also assess 

an annualized participation fee of at least 300 basis points (or 

three percent of the amount of debt issued) on any FDIC-guaranteed debt that institutions issued under the emergency guarantee.302 The FDIC intends this provision to deter applications 

based on ‘‘other, less severe circumstances or concerns.’’ 303

After receiving only four comments on the proposed rule, all of 

which generally supported the second alternative, the FDIC Board 

voted for the second alternative on October 20, 2009, offering a limited six-month emergency extension through April 30, 2010.304 In 

doing so, the FDIC selected the approach that it believed to be the 

‘‘most appropriate phase-out of the DGP,’’ 305 and signaled that the 

DGP adds value as an additional support mechanism even if it is 

not heavily utilized. 

The FDIC’s decision-making has been largely driven by recent 

market data suggesting that the TLGP and other federal efforts 


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306FDIC DGP Rule Notice, supra note 295. 307FDIC DGP Rule Notice, supra note 295. According to FDIC Chairman Sheila C. Bair, ‘‘[t]he 

TLGP has been very effective at helping financial institutions bridge the uncertainty and dysfunction that plagued our credit markets last fall. As domestic credit and liquidity markets appear to be normalizing and the number of entities utilizing the Debt Guarantee Program (DGP) 

has decreased, now is an important time to make clear our intent to end the program. It is also 

important to note that FDIC has collected over $9 billion in fees associated with this program. 

FDIC will be using some of this money to offset resolution costs associated with bank failures.’’ 

Federal Deposit Insurance Corporation, FDIC Board Approves Phase Out of Temporary Liquidity Guarantee Program Debt Guarantee Program to End October 31st (Sept. 9, 2009) (hereinafter 

‘‘TLGP Phase Out Notice’’) (online at www.fdic.gov/news/news/press/2009/pr09166.html). Furthermore, data provider Dealogic highlighted that the DGP’s largest users had issued over $81.3 

billion in medium-term debt outside of the program by early September. 308FDIC DGP Rule Notice, supra note 295. 309Federal Deposit Insurance Corporation, FDIC Extends the Debt Guarantee Component of 

Its Temporary Liquidity Guarantee Program (Mar. 17, 2009) (online at www.fdic.gov/news/news/ 

press/2009/pr09041.html). 310 At this point, it remains unclear whether these changed circumstances have arisen because 

creditors view the banks as strong and not needing guarantees or because creditors view the 

banks as receiving other implicit guarantees for which the banks are not paying. 311FDIC written responses to Panel questions (Oct. 30, 2009); see also discussion in Section 

E, infra. 312FDIC written responses to Panel questions (Oct. 30, 2009); see also discussion in Section 

E, infra. 313See U.S. Department of the Treasury, Treasury Announces Expiration of Guarantee Program for Money Market Funds (Sept. 18, 2009) (hereinafter ‘‘Money Market Expiration Release’’) 

(online at www.treasury.gov/press/releases/tg293.htm). 

have helped to restore liquidity and confidence in the banking and 

financial services industries.306 Furthermore, the FDIC noted that 

only a limited number of participating institutions have issued 

FDIC-guaranteed debt under the extended DGP, and that a number of banks have issued debt successfully and rather inexpensively 

without government backing.307 FDIC-backed deals, which reached 

60 in number during the first quarter of 2009, dropped to eight in 

the third quarter.308 Such events are in large part a reflection of 

the TLGP’s design and structure. The FDIC intended for the TLGP 

debt guarantee program to become uneconomic once the market improved. While fees to issue debt under the TLGP ranged from 50 

to 100 basis points at the program’s commencement, the FDIC increased these fees by 25 to 50 basis points on April 1, 2009.309 As 

the market has stabilized and economic conditions have shifted, 

borrowing costs in the private markets have lessened, making the 

TLGP debt guarantee program fees less appealing to issuers from 

an economic standpoint.310 As of October 22, 2009, there has been 

one failure of an institution, an affiliate of which had issued guaranteed debt.311 The FDIC anticipates up to a $2 million loss on 

that issuance. No losses, however, have been paid out yet with respect to the DGP and the FDIC expects ‘‘very few losses on the remaining outstanding debt through the end of the program in 

2012.’’ 312 This decision parallels Treasury’s decision to terminate 

its TGPMMF as of September 18, 2009.313

E. Cost/Benefit to Taxpayers of the Guarantee Programs 

By guaranteeing or backstopping the assets of troubled financial 

institutions, the federal government was taking sizeable risks. It is 

important to consider the relationship between measures of the 

benefit provided—the risk absorbed by the taxpayer—and the fees 

and other compensation the government received for taking such 

extraordinary risks. 


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314FDIC written responses to Panel questions (Oct. 30, 2009). 315Office of Management and Budget, FY 2010 Budget: Department of the Treasury at 983 

(online at www.whitehouse.gov/omb/budget/fy2010/assets/tre.pdf) (hereinafter ‘‘Treasury 2010 

Budget’’). 316This analysis was performed in late November 2008 for the Citigroup ring-fenced assets 

as of November 21, 2008. 

1. Direct Cost/Benefit from the Programs 

To date, the federal government has made one small payout on 

a financial stability guarantee program: a $2 million DGP claim associated with a failed bank.314 Fee income has been significant: a 

total of $17.4 billion across the three major programs. A simple 

summation of claim payments relative to fees received does not 

capture the long-term costs and benefits of these programs. A better analytical approach would be to calculate the discounted 

present value of the projected cash flows of the guarantee program. 

This is the approach CBO and OMB use to estimate the credit reform subsidy when calculating the federal budget, as described in 

Section B. On this basis, for example, the Asset Guarantee Program was estimated in May by OMB to produce a ‘‘negative subsidy,’’ or net benefit, of 0.18 percent, meaning that, from the federal 

government’s perspective, the program’s fees and revenues will exceed its projected losses by roughly $752 million.315

Receipts may not accurately measure the benefits conveyed 

under a federal guarantee, even when discounted at a rate that attempts to capture market risk, which is the calculation made by 

CBO and OMB under EESA. One obvious alternative is to look at 

market prices to gauge the value of the financial guarantee. This 

can be approached in two ways: (1) determining what a private sector entity would charge for guaranteeing debt issuances on the 

exact terms as those guaranteed under the TLGP and TGPMMF; 

or (2) measuring the spread between the interest rate at which 

banks or money market funds have in fact been able to issue debt 

under these programs and the rate they would have been charged 

without the guarantee. Not surprising, there are virtually no private sector institutions capable of insuring the risks of the magnitude discussed in this report. Hence, only the second analytical 

approach was pursued here. 

a. Asset Guarantee Program 

The Panel reviewed an analysis performed for Treasury by the 

FRBNY of the asset guarantees for Citigroup. No such analysis 

was performed for the Bank of America guarantees because supporting details—such as the composition of the ring-fenced asset 

pool and projected losses on that pool—were not available. 

In order to calculate the fees that should be charged for the 

Citigroup AGP, the FRBNY conducted an actuarial analysis of the 

performance and estimated future losses of the ring-fenced assets 

included in the Citigroup AGP.316 This involved using a statistical 

model that incorporates probabilities of expected losses based on a 

stress test, and a discount rate that includes a market risk component. 

The stress test undertaken by the FRBNY provided an estimate 

of losses on the ring-fenced assets in the AGP under two scenarios: 

(1) a moderately adverse asset performance, and (2) a severely adVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00059 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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317The FRBNY estimated the expected cost to TARP was $2.07 billion. The estimated benefit 

to TARP, based on the expected cashflows of the fees received by TARP (estimating the current 

value of the preferred shares and warrants using information on the current market value of 

similar Citigroup preferred shares and expected returns to Treasury and the FDIC from holding 

the preferred shares and warrants) was $2.73 billion (calculated using a simple average of 

cashflows under the 2–10 year preferred shares prepayment). 

verse asset performance. Given the fact that the asset composition 

of the guaranteed pool was not finalized at the time the stress test 

was conducted as part of the actuarial analysis, the FRBNY based 

the performance on assets similar to those likely to be in the portfolio. Two key economic indicators that were factored into the 

stress tests were: the projected unemployment rates for 2009 and 

2010, and housing prices, utilizing the Case-Shiller 20-city housing 

price index for 2009 and 2010 (see table below for details). It 

should be noted that, as illustrated in Figure 4, the projected unemployment rate for the severely adverse scenario is lower than 

the actual unemployment rate as of October 2009 (9.8 percent). 

FIGURE 4: ECONOMIC INDICATORS INCLUDED IN STRESS TEST MODELS 

The result of the FRBNY’s actuarial analysis (conducted November 21, 2008) on the expected future losses on the ring-fenced assets was $26.5 billion in losses above $8.1 billion in loan loss reserves (total $34.6 billion) under the moderately adverse scenario 

and $35.8 billion in losses above $8.1 billion in loan loss reserves 

(total $43.9 billion) under the severely adverse scenario. As such, 

the base scenario conducted during November 2008 projected losses 

below the $39.5 billion AGP loss threshold or deductible that must 

be reached before any losses are absorbed by the federal government. On the other hand, the severely adverse scenario analyzed 

by the FRBNY projected $4.4 billion in losses above the $39.5 billion AGP loss threshold or deductible that must be reached before 

any losses are absorbed by the federal government. This implies 

that Treasury will have to pay out $3.96 billion under its share of 

the Citigroup AGP agreement. The Panel believes this a more likely scenario than the moderately adverse case because: (1) the unemployment assumptions used in both scenarios have in fact already been exceeded, and (2) the FRBNY analysis was based upon 

the Citigroup asset pool prior to Citigroup’s exercise of its ability 

to substitute more troubled assets. 

Finally, based on a probability model for its two stress test scenarios, the FRBNY then formulated a loss distribution analysis to 

predict the estimated expected costs to the guarantor (Treasury, 

the Federal Reserve, and the FDIC). The result was that the 

FRBNY actuarial analysis of the Citigroup AGP projected that premiums would exceed expected losses to be absorbed by Treasury 

and other government guarantors by $700 million.317


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Similarly, the two federal budget agencies OMB and CBO are required under EESA to estimate the costs of the AGP (and other 

TARP initiatives) under modified ‘‘credit reform’’ budget accounting 

rules (see Section B above). As noted above, the most recent OMB 

analysis for the combined Citigroup and Bank of America guarantees produces a ‘‘negative subsidy’’ of 0.18 percent, meaning the 

guarantees produce a $752 million receipt to the federal government. CBO calculates a large positive subsidy amount for the 

Citigroup (64 percent) and presumably would have shown a similar 

estimate for Bank of America had it been executed. For the 

Citigroup guarantee alone, the latest CBO analysis shows a cost to 

the federal government of $3 billion out of the $5 billion maximum 

exposure. This calculation is based upon their analysis of the 

Citigroup ring-fenced portfolio and disclosed charge-off rates of 

comparable assets. However, the CBO subsidy estimate excludes 

offsetting fees, which are recorded elsewhere in the budget. 

The Panel was not able to complete its own analysis of expected 

losses on the Citigroup guaranteed portfolio. On the benefit or receipt side of the ledger, however, the Panel estimated the current 

market value (as of November 4, 2009) of the preferred shares 

issued to the federal government for the Citigroup AGP (subsequently converted to trust preferred shares). This analysis is based 

on using existing Citigroup trust preferred shares trading in the 

market with a similar dividend yield and maturity to model a ‘‘synthetic Citi AGP trust preferred security’’ to estimate the market 

price of the non-trading Citi AGP trust preferred shares. According 

to the Citigroup AGP Master Agreement, Treasury and the FDIC 

received Citigroup non-voting preferred shares with a combined 

face value of $7.059 billion ($4.034 billion to Treasury and $3.025 

billion to the FDIC). Figure 5 below highlights the estimate. Based 

on the analysis, the Panel’s staff estimates that the market value 

of Citigroup AGP trust preferred shares at $5.76 billion as of November 4, 2009, of which Treasury holds $3.29 billion and the 

FDIC holds $2.47 billion. By comparison, the Panel’s staff estimates the market value of the Citigroup preferred shares on November 21, 2008 were $2.14 billion. 

FIGURE 5: ESTIMATE OF THE MARKET VALUE OF PREFERRED SHARES ISSUED UNDER THE 

CITIGROUP AGP 

Citigroup 7.625% Trust Preferred Share (Existing Trading Security) 

Maturity date ................................................................................. 12/1/2036 

Outstanding shares ....................................................................... 200,000 

Issue price ..................................................................................... $100 

Market price (11/04/2009) ............................................................ $82.00 

Dividend ......................................................................................... 7.625% 

Market price/issue price ................................................................ 82.0% 

Synthetic Citigroup AGP 8% Trust Preferred Share (Model) 

Maturity date ................................................................................. 7/30/2039 

Outstanding shares ....................................................................... 7,059,000 

Issue price ..................................................................................... $1,000 

Market price (11/04/2009) ............................................................ $816.14 

Dividend ......................................................................................... 8.000% 


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318These documents were provided to the Panel on a confidential basis by Treasury. 319See Annex, Figure 14; ICI Money Market Working Group Report, supra note at 98. 320 Id. 

FIGURE 5: ESTIMATE OF THE MARKET VALUE OF PREFERRED SHARES ISSUED UNDER THE 

CITIGROUP AGP—Continued 

Market price/issue price ................................................................ 81.6% 

Market price/issue price ................................................................ 81.61% 

Face value of Citigroup AGP Trust preferred shares .................... $7.06 billion 

Estimated market value of Citigroup AGP Trust pref shares ...... $5.76 billion 

The Panel also estimates the value of the warrants received by 

Treasury for the Citigroup AGP at $61.2 million as of October 20, 

2009 using an estimated implied volatility of 58.7 percent. The 

Citigroup AGP actuarial analysis conducted by the FRBNY estimated that the value of the warrants on November 21, 2008 was 

$30 million using an estimated volatility of 40 percent. 

Finally, the Panel also reviewed Citigroup’s own internal monthly summary analysis of the performance of the ring-fenced assets.318 Citigroup conducted its own stress test of the ring-fenced 

assets with similar inputs to FRBNY’s actuarial analysis. 

Citigroup’s stress test of the ring-fenced assets is periodically adjusted to reflect changing economic and asset assumptions. Given 

the Panel’s review of the FRBNY’s analysis as discussed above, the 

Panel intends to monitor closely trends in the performance of the 

ring-fenced assets. 

b. TGPMMF 

MMFs do not issue marketable securities but instead purchase 

securities issued by others, and there is a unified market for and 

hence no difference in the interest rates of similar securities held 

by MMFs versus those held outside such funds. Furthermore, there 

is no private sector firm that provides protection for investors’ holdings in MMFs by guaranteeing the MMFs’ NAVs. 

The government incurred no costs from claims made under the 

TGPMMF. It should be noted, however, that the government was 

exposed to significant potential costs from claims while the program was in effect. The Administration’s 2010 Budget, for example, 

projected losses of $2.5 billion in 2009 for the TGPMMF, well in excess of the $1.2 billion in fees collected. There is evidence that 

yields of commercial paper were substantially affected largely by 

the financing available in the healthy and stable MMF market buttressed by the TGPMMF and related Federal Reserve initiatives. 

Commercial paper yields, as measured by spreads over Treasury 

securities, quickly declined after the program was instituted and 

stayed at low levels for the duration of the program.319 This is an 

understandable result of the program (which, at the onset guaranteed 93 percent of the MMFs outstanding value), the fact that a 

substantial amount of commercial paper was held in MMFs, and 

the liquidity and purchase of commercial paper by the Federal Reserve’s AMLF and CPFF. The MMF guarantees allowed issuers of 

commercial paper to pay lower interest rates.320 As with the TLGP 

analysis discussed below, the difference between what the interest 

rates were after the MMF guarantees and what the rates would 


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321When comparing TLGP debt and debt issued outside of FDIC’s TLGP, SNL Financial used 

all senior debt that had been issued between 11/21/2008 and 11/04/2009. For TLGP debt, SNL 

Financial used all senior debt that had been issued under the TLGP, excluding issuances with 

maturities of less than one year (e.g., commercial paper), for a total of $303.78 billion. For the 

offerings issued in foreign currencies, SNL Financial converted those offerings to USD by using 

the appropriate exchange rate as of the offering completion date. In addition, SNL excluded equity linked notes such as ELKS or Internotes and offerings with maturities of less than one 

year. 

have been without guarantees is a measure of the government subsidy to the issuers of commercial paper, typically large businesses. 

c. Temporary Liquidity Guarantee Program DGP 

In order to measure the value of the government assistance to 

the banking industry provided by the DGP, the Panel measured 

the spread between the interest rate at which banks issued debt 

under TLGP and compared that rate to non-TLGP debt they issued 

in the same period. This analysis was conducted using two alternative methodologies. The first method, highlighted in Figure 6 

below, is based upon interest rate spreads calculated by SNL. This 

analysis calculates how much the TLGP participating firms saved 

in borrowing costs by comparing the interest rates on the $304 billion in senior debt issued under TLGP to interest rates on $7.1 billion of non-TLGP senior debt with similar maturities issued by 

some of the same firms. The difference represents the interest rate 

savings and provides an estimate of the TLGP subsidy. (The analysis compared debt that had a fixed coupon rate and did not include debt issued with a floating rate.) 321

For the period of November 21, 2008 through November 4, 2009, 

TLGP-participating banks have issued senior debt on a guaranteed 

basis at a weighted average coupon rate of 2.374 percent, compared 

to a 3.9 percent coupon rate for the small amount of comparable 

debt issued on a non-guaranteed basis (see table below). This savings of 1.53 percentage points would translate into an annual subsidy of almost $4.73 billion, or a subsidy of $13.4 billion over the 

weighted average term of the TLGP loans. 

A second method for calculating the implicit subsidy provided by the TLGP is to compare the interest rates on each slice of the $276 

billion in senior debt issued under TLGP program by the top ten 

issuers to non-TLGP floating senior debt with similar maturities 

issued by these same firms and trading in the secondary market 

on the date of issuance of TLGP debt. This allows for computation 

of an implicit savings for those banks that did not actually issue 

any non-TLGP debt during this period. The result as computed by 

the Panel shows a subsidy of $28.9 billion (see Figure 7 below). 

It should be noted that compared to the two subsidy estimates 

described above ranging from $13.4 to 28.9 billion—FDIC’s TLGP 

collected fees of $9.64 billion during the same period (see table). 


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FIGURE 6: TLGP DEBT COMPARED TO NON-TLGP SENIOR DEBT ISSUANCE (METHOD 1) 

[Dollars in millions] 

Amount offered Weighted 

average coupon 

(%) 

Weighted 

average 

maturity (years) 

Borrowing 

cost 

savings 322 Non-TLGP TLGP 

Non-TLGP TLGP Non-TLGP TLGP 

Citigroup Inc. ...................................................................................................................................................... $1,453 $64,600 0.00 1.91 3.02 2.55 General Electric Co. ............................................................................................................................................ 1,500 54,846 3.50 2.26 3.01 2.96 $1,941.6 Bank of America Corp. ....................................................................................................................................... 15 44,000 0.00 2.48 1.01 2.76 JPMorgan Chase & Co. ....................................................................................................................................... 2 40,435 0.00 2.61 1.04 2.80 Morgan Stanley ................................................................................................................................................... .................... 23,769 0.00 2.50 0.00 2.81 Goldman Sachs Group Inc. ................................................................................................................................ 1,000 21,614 3.63 2.61 3.05 2.50 606.9 Wells Fargo & Co. .............................................................................................................................................. .................... 9,500 0.00 2.68 0.00 3.12 GMAC Inc. ........................................................................................................................................................... .................... 7,400 0.00 2.20 0.00 3.55 American Express Co. ......................................................................................................................................... .................... 5,900 0.00 3.15 0.00 2.67 State Street Corp. ............................................................................................................................................... .................... 3,950 0.00 2.03 0.00 2.55 All other participants ......................................................................................................................................... 3,177 27,767 4.33 2.44 2.75 2.91 

Total ........................................................................................................................................................... $7,147 $303,781 3.90 2.35 2.90 2.78 $13,445.2 

322 The method 1 cost savings analysis was conducted using a company-specific comparison made between non-TLGP senior unsecured offerings made between 11/21/08 and 10/19/09 and TLGP issued debt issued during the same period. 

There were only three instances of a participant with both a non-TLGP offering with a set coupon rate and a TLGP offering. Thus, the analysis represents an extrapolation from these three eligible offerings. 


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FIGURE 7: TLGP DEBT COMPARED TO NON-TLGP SENIOR DEBT ISSUANCE (METHOD 2) 

[Dollars in millions] 

Amount offered Weighted average maturity (years) Weighted average coupon (%) Weighted average of existing non-TLGP floating debt (%) Borrowing cost savings 

Citigroup Inc. ..................................................................................................................................................... $64,600 2.7 1.9 5.6 $6,780 General Electric Co. ........................................................................................................................................... 54,846 2.9 2.3 5.3 4,696 Bank of America Corp. ....................................................................................................................................... 44,000 2.7 2.4 5.5 3,761 JPMorgan Chase & Co. ...................................................................................................................................... 40,435 3.1 2.7 4.5 2,156 Morgan Stanley .................................................................................................................................................. 23,769 2.8 2.4 7.7 3,748 Goldman Sachs Group Inc. ................................................................................................................................ 21,614 2.8 2.6 6.7 2,379 Wells Fargo & Co. .............................................................................................................................................. 9,500 3.1 2.7 5.7 903 GMAC Inc. ........................................................................................................................................................... 7,400 3.4 2.0 17.1 3,813 American Express Co. ........................................................................................................................................ 5,900 2.9 3.1 4.8 327 State Street Corp. .............................................................................................................................................. 3,950 3.1 2.0 4.8 362 

Total for Top 10 Issuances ....................................................................................................................... $276,014 2.8 2.3 5.9 $28,924 


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324Without protections, Citigroup would have more of an incentive to not properly manage 

the protected assets under the AGP. Treasury has provided certain safeguards against this risk. 

First, the AGP carries a very high deductible for Citigroup—it is liable for the first $39.5 billion 

of losses in the pool, and 10 percent of losses thereafter. Second, Citigroup must abide by strict 

asset management guidelines as set forth in the agreement. And third, if the pool loses more 

than $27 billion, the government may demand a change in the management of the pool. 325The funds themselves paid fees, however, which were passed on to investors. See, e.g., 

BlackRock Liquidity Funds, Certified Shareholder Report (Form N–CSRS), at 60, 102 (Apr. 30, 

2009) (online at www.sec.gov/Archives/edgar/data/97098/000119312509141660/dncsrs.htm) (accounting for TGP fees as ‘‘federal insurance’’ on statement of operations and explaining that fees 

‘‘are not ordinary expenses and are not covered by the contractual agreement to reduce fees and 

reimburse expenses’’). 326 American Enterprise Institute for Public Policy Research, Do Money Market Funds Have 

a Future in the New Financial System (May 5, 2009) (online at www.aei.org/EMStaticPage/ 

100048?page=Summary) (quoting Marcel Bullard: ‘‘We have permanent implied money market 

insurance. It’s with us now and it’s likely to be with us forever . . .’’); ABA Letter to Paulson 

& Bernanke, supra note 265; (citing the ‘‘perception by the market that money market mutual 

funds now have a permanent implicit government guaranty—much like Fannie Mae and Freddie 

Mac did’’); Robert L Hetzel, Should Increased Regulation of Bank Risk-Taking Come from ReguFIGURE 8: TLGP FEES COLLECTED 323

[Dollars in millions] 

Period Fees 

Fourth Quarter 2008 ................................................................................................................................................. $3,437 

January 2009 ............................................................................................................................................................ 1,024 

February 2009 .......................................................................................................................................................... 1,087 

March 2009 .............................................................................................................................................................. 1,323 

April 2009 ................................................................................................................................................................. 712 

May 2009 .................................................................................................................................................................. 488 

June 2009 ................................................................................................................................................................. 597 

July 2009 .................................................................................................................................................................. 387 

August 2009 ............................................................................................................................................................. 296 

September 2009 ....................................................................................................................................................... 288 

Total ................................................................................................................................................................. $9,639 

323 Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program (Oct. 21, 

2009) (www.fdic.gov/regulations/resources/TLGP/fees.html). 

2. Moral Hazard Considerations 

In addition to direct monetary costs, the guarantee programs discussed in this report have broader costs resulting from the moral 

hazard that arises when the government agrees to guarantee the 

assets and obligations of private parties. Generally, the question of 

moral hazard arises when a party is protected, or expects to be protected, from loss. The insured party might take greater risk than 

it would otherwise, and market discipline is undermined.324

The problem is more pronounced when the protected party is not 

required to purchase the protection. For example, investors and 

issuers of commercial paper paid nothing directly for Treasury’s 

guarantee of MMFs,325 and yet received its protection or benefits. 

The TGPMMF served to backstop not only the funds themselves, 

but also the commercial paper market to which the funds are so 

crucial. It should also be noted that the fees the government 

charged the financial institutions for the guarantees in all of the 

programs were lower than fees commercial entities would have 

charged for the same protection. 

Some commentators have expressed the view that market participants believe that should money market funds again threaten 

to break the buck or threaten contagion, the federal government 

will again step in to guarantee the money market funds and the 

solvency of system.326 (On the other hand, not everyone believes 


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lators or from the Market?, Economic Quarterly, Vol. 95, No. 2, at 161 (Spring 2009) 

(‘‘[R]egulators had drawn the financial-safety-net line to exclude money market mutual funds, 

these funds would have been subject to the market discipline of possible failure. They would 

then have had to make one of two hard choices to become run-proof. Prime money funds could 

have chosen some combination of high capital and extremely safe, but low-yielding, commercial 

paper and government debt. Alternatively, they could have accepted variable NAV as the price 

of holding risky assets. Either way, the money market mutual fund industry would have had 

to shrink. At present, the incentive exists for money funds to take advantage of the government 

safety net by increasing the riskiness of their asset portfolios.’’). 327Peter Wallison, Panel Discussion: Do Money Market Funds Have a Future in the New Financial System, American Enterprise Institute for Public Policy Research, at 1:05 (May 5, 2009) 

(online at www.aei.org/video/101087) (‘‘I disagree completely with [the] view that money funds 

are now guaranteed or insured in some way because the government stepped in this case.’’). 328Speech of Federal Reserve Board Governor Daniel K. Tarullo, Confronting Too Big to Fail 

(Oct. 21, 2009) (online at www.federalreserve.gov/newsevents/speech/tarullo20091021a.htm). 329See, e.g. Senate Committee on Banking, Housing, and Urban Affairs, Statement of Sheila 

C. Bair, Chairman, Federal Deposit Insurance Corporation, Modernizing Bank Supervision And 

Regulation (Mar. 19, 2009). Likewise, federal regulators have proposed and undertaken several 

Continued 

that the government’s temporary guarantee of money market funds 

created an implicit and permanent guarantee.) 327

A larger issue arises when one considers the implicit guarantees, 

those that are paid for by neither party, but whose cost is borne 

by the taxpayer. The DGP and TGPMMF both carry fees paid for 

by the financial institutions. But their existence, and the existence 

of the other elements of the bailout of the financial system, could 

imply that there is a permanent, and ‘‘free,’’ insurance provided by 

the government, especially for those institutions deemed ‘‘too big to 

fail,’’ or ‘‘too connected to fail.’’ There is an implication that, in the 

case of another major economic collapse, the government will again 

step in to prop up the financial system, especially the ‘‘too big to 

fail’’ institutions. This moral hazard creates a real risk to the system. 

This ‘‘free’’ insurance causes a number of distortions in the marketplace. On the financial institution side, it might promote risky 

behavior. On the investor and shareholder side, it will provide less 

incentive to hold management to a high standard with regard to 

risk-taking. By creating a class of ‘‘too big to fail’’ institutions, it 

has provided these institutions with an advantage with respect to 

the pricing of credit: 

Creditors who believe that an institution will be regarded by the government as too big to fail may not price 

into their extensions of credit the full risk assumed by the 

institution. That, of course, is the very definition of moral 

hazard. Thus the institution has funds available to it at a 

price that does not fully internalize the social costs associated with its operations. The consequences are a diminution of market discipline, inefficient allocation of capital, 

the socialization of losses from supposedly market-based 

activities, and a competitive advantage for the large institution compared to smaller banks.328

The implied guarantee of ‘‘too big to fail’’ institutions might also 

result in a concentration of risk in this group, resulting in greater 

danger to the taxpayer if and when the government must step in 

again. 

Treasury and the other government entities involved in the financial system bailout are aware of the problem of moral hazard, 

and have taken a number of steps to combat it.329 It will be difVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00067 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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initiatives designed to lessen the moral hazards caused by the existence of financial entities that 

are perceived as ‘‘too big’’ or ‘‘too important’’ to fail, such as: 

• Partnering with other central bankers, the Fed developed heightened international standards for bank capital and liquidity under the Basel II framework. 

• The Fed, FDIC, Office of the Comptroller of the Currency, and Office of Thrift Supervision 

proposed a rule requiring banks to factor their unconsolidated subsidiaries into risk-based capital adequacy calculations. 

• The White House and House Committee on Financial Services drafted legislation centralizing oversight for systemically important financial firms and requiring them to pay into a ‘‘Resolution Fund’’ for future financial system backstops. 

See Board of Governors of the Federal Reserve System, Speech given by Chairman Ben S. 

Bernanke at the Federal Reserve Bank of Boston 54th Economic Conference, Financial Regulation and Supervision after the Crisis: The Role of the Federal Reserve (Oct. 23, 2009); Federal 

Deposit Insurance Corporation, Notice of Proposed Rulemaking with Request for Public Comment: Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Regulatory Capital; Impact of Modifications to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues (Aug. 26, 2009); 

House Committee on Financial Services, Financial Services Committee and Treasury Department 

Release Draft Legislation to Address Systemic Risk, ‘‘Too Big to Fail’’ Institutions (Oct. 27, 2009). 330Securities Industry and Financial Markets Association, SIFMA Research and Statistics: US 

Key Stats (Instrument: ‘‘Other and IR’’, 3 Month T Bills and 10 Year Treasuries) (online at 

www.sifma.org/uploadedFiles/Research/Statistics/SIFMA_USKeyStats.xls). See Figure 9 below. 331 Id. 

ficult, however, if not impossible, to erase all effects of the moral 

hazards created by these government guarantees, whether expressed or implied. 

F. Market Impact 

Measuring the value of the federal financial guarantee programs 

means looking beyond the costs and benefits of assisting individual 

financial institutions or individual sectors of the financial market. 

These guarantee initiatives were part of the larger effort to restore 

financial stability and to renew access to credit. Improved credit 

conditions and restoration of markets for commercial paper and 

other short-term debt suggest that guarantee programs have 

helped achieve their objectives and can now be withdrawn. 

Treasury interest rates dropped sharply during this period as investors engaged in a ‘‘flight to quality.’’ 330 Rates have subsequently 

rebounded as the markets have stablized and as guarantee programs have provided nervous investors with assurance that other 

debt instruments are as safe as Treasuries.331 Guarantees are now 

being phased out in an orderly manner without a renewed flight 

to Treasuries or a spike in interest rates. 


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332Securities Industry and Financial Markets Association, SIFMA Research and Statistics: US 

Key Stats (Instrument: ‘‘Other and IR’’, 3 Month T Bills and 10 Year Treasuries) (online at 

www.sifma.org/uploadedFiles/Research/Statistics/SIFMA_USKeyStats.xls). 333See Figure 14; ICI Money Market Working Group Report, supra note at 98. 334 Neither TARP nor the TLGP can operate without the authority of the Secretary of the 

Treasury. The TARP is implemented by Treasury; the TLGP is an FDIC program, but its creation required a finding by the Secretary (in consultation with the President), upon the recommendation of both the FDIC and the Board, that the program was necessary to avoid ‘‘serious 

adverse effects on economic conditions or financial stability’’ that would be avoided or mitigated 

by that program. See 12 U.S.C. 1823(c)(4)(G)(i). Whether this clause in fact authorizes creation 

of a general program, rather than an exception to the ‘‘least cost resolution standard’’ directed 

at a single failing institution, is an issue on which the Panel takes no view. 335The use of such arrangements during the crisis predates EESA. For example, the FRBNY 

provided $29 billion to finance the acquisition of Bear Stearns by JPMorgan Chase in March 

2008 under an arrangement providing that Morgan would bear only the first $1 billion in losses; 

the rest is to be borne by the FRBNY. And FDIC concluded a loss-sharing agreement as part 

of the transfer in the same month of the single-family residential portfolio of the failed IndyMac 

Continued 

FIGURE 9: TREASURY BILL AVERAGE YIELDS SINCE JANUARY 2008 332

Introduction of the money market guarantee reversed investor 

flight from prime funds; recent outflows may reflect both a continuing low interest rate environment and renewed relative 

attractiveness of higher yielding alternative investments. Moreover, 

there is evidence that yields of commercial paper were substantially affected by the financing available in the healthy and stable 

MMF market buttressed by TGPMMF and related Federal Reserve 

initiatives. Commercial paper yields, as measured by spreads over 

Treasury securities, quickly declined after the program was instituted and remained at low levels for the duration of the program.333

G. The Guarantee Programs as Part of the Broader 

Stabilization Effort 

1. The TARP and the Guarantee Programs 

The TARP, the TLGP, and the Federal Reserve Board’s programs 

are, and have been presented as, parts of a single, coordinated program to stabilize the nation’s financial institutions.334 The first 

two, and several of the Reserve Board’s programs, were organized 

immediately after enactment of EESA.335 A joint statement by SecVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00069 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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to OneWest Bank as part of an agreement by the latter to continue FDIC’s loan modification 

program. (The single-family portfolio made up $12.8 billion of the total $20.7 billion in assets 

transferred to OneWest; the transfer of the $20.7 billion at an overall $4.7 billion discount has 

the economic effect of a second guarantee). 336That facility, which began operation on October 27, was created to finance the purchase 

of highly-rated unsecured and asset-backed commercial paper from eligible issuers via eligible 

primary dealers. 

337 Board of Governors of the Federal Reserve System, Joint Statement by Treasury, Federal 

Reserve and FDIC (Oct. 14, 2008) (online at www.federalreserve.gov/newsevents/press/monetary/ 

20081014a.htm). At the news conference that accompanied release of the statement, Chairman 

Bair stated that ‘‘the bulk of the U.S. banking industry is healthy and remains well-capitalized. 

What we do have, however, is a liquidity problem . . . In addition to the actions just announced 

by Secretary Paulson and Chairman Bernanke, the FDIC Board yesterday approved a new Temporary Liquidity Guarantee Program to unlock inter-bank credit markets and restore rationality 

to credit spread. This will free up funding for banks to make loans to creditworthy businesses 

and consumers.’’ Bair Statement, supra note 287. 338See COP August Oversight Report, supra note 45. 

retary Paulson, FDIC Chairman Bair, and Chairman Bernanke 

made 11 days after EESA became law described TARP’s Capital 

Purchase Program (CPP), the TLGP, and the Federal Reserve’s 

new Commercial Paper Funding Facility 336 as 

actions to protect the U.S. economy, to strengthen public 

confidence in our financial institutions, and to foster the 

robust functioning of our credit markets [, as well as] to 

restore and stabilize liquidity necessary to support economic growth.337

The CPP and DGP are structurally connected. The debt guaranteed by FDIC—and hence FDIC’s potential liability as guarantor— 

had, and has, a claim that is senior to the claims of the CPP preferred stock on the assets of the guaranteed institution. The TLGP 

initially ran through June 30, 2012, the year before the rate of interest on the CPP preferred stock increases from five to nine percent. 

Perhaps more important, the DGP guarantee allowed participating institutions to raise funds through obligations that were 

backed by the full faith and credit of the United States, when those 

banks otherwise might not have been able to do so at acceptable 

interest rates, or perhaps at all. Addition of the amounts generated 

through the issuance of guaranteed debt likely took pressure off 

the balance sheets of participating institutions at the same time 

that Treasury used the CPP to stabilize those balance sheets as an 

alternative to purchasing troubled assets directly.338 The FDIC announced the end of the DGP (other than for emergency situations) 

at the same time as the nation’s largest banks were starting to 

repay their CPP assistance; the DGP termination means that 

banks that end their participation in the CPP cannot continue to 

receive a related form of assistance from the FDIC, or to use the 

continued availability of the guarantee program to obtain assistance while avoiding the limitations imposed by the executive compensation and corporate governance provisions of EESA. 

The support the two programs gave affected banks is indicated by the numbers. Citigroup, for example, has received $45 billion in 

TARP assistance, as well as the $301 billion asset guarantee, and 

it has issued $64.6 billion of debt under the DGP. Bank of America 

has received $45 billion of TARP assistance, benefitted from a 

never-consummated asset guarantee, and has issued $44 billion of 

debt under the DGP. The 19 stress tested banks received a total 


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339October 30 TARP Transactions Report, supra note 27; SNL Financial, TLGP Debt Issued 

(online at www1.snl.com/interactivex/TDGPParticipants.aspx) (accessed Nov. 5, 2009). 340October 30 TARP Transactions Report, supra note 27. 342Federal Deposit Insurance Corporation, Temporary Liquidity Guarantee Program Frequently Asked Questions (online at www.fdic.gov/regulations/resources/TLGP/faq.html) (accessed 

Nov. 5, 2009). In July, SIGTARP released an audit on the topic. The first paragraph of the audit 

states: ‘‘Although most banks reported that they did not segregate or track TARP fund usage 

on a dollar-for-dollar basis, most banks were able to provide insights into their actual or planned 

use of TARP funds. Over 98% of survey recipients reported their actual uses of TARP funds.’’ 

SIGTARP Bank Audit, supra note 42, at 1. 

of $163.5 billion under the CPP (GMAC received $12.5 billion 

under the AIFP and Bank of America and Citigroup got $20 billion 

each under TIP, which are not included in this total) and issued 

$238 billion of debt under the DGP.339 The nation’s other banks received $41 billion in CPP assistance and issued $65.6 billion of debt 

under the DGP.340

FIGURE 10: 19 STRESS TESTED BANKS, CPP ASSISTANCE AND DGP ISSUANCE (AS OF OCTOBER 

23, 2009) 341

Institution TARP assistance 

amount 

TARP 

investments 

repaid 

TARP 

investments 

outstanding 

Debt guaranteed 

under the TLGP 

Asset guarantee 

program (AGP) 

JPMorgan Chase .. $25,000,000,000 $25,000,000,000 ¥ $40,435,009,000 

Citigroup .............. 50,000,000,000 ¥ $50,000,000,000 64,600,000,000 $266,400,000,000 

Bank of America 45,000,000,000 ¥ 45,000,000,000 44,000,000,000 

Wells Fargo .......... 25,000,000,000 ¥ 25,000,000,000 9,500,000,000 

Goldman Sachs ... 10,000,000,000 10,000,000,000 ¥ 21,614,310,000 

Morgan Stanley ... 10,000,000,000 10,000,000,000 ¥ 23,768,503,000 

MetLife ................. ¥ ¥ ¥ 397,436,000 

PNC ...................... 7,579,200,000 ¥ 7,579,200,000 3,900,000,000 

U.S. Bancorp ....... 6,599,000,000 6,599,000,000 ¥ 2,679,873,000 

Bank of New York 

Mellon ............. 3,000,000,000 3,000,000,000 ¥ 603,448,000 

GMAC ................... 12,500,000,000 ¥ 12,500,000,000 7,400,000,000 

Sun Trust ............. 4,850,000,000 ¥ 4,850,000,000 3,000,000,000 

State Street ......... 2,000,000,000 2,000,000,000 ¥ 1,500,000,000 

Capital One ......... 3,555,199,000 3,555,199,000 ¥ ¥ 

BB&T ................... 3,133,640,000 3,133,640,000 ¥ ¥ 

Regions ................ 3,500,000,000 ¥ 3,500,000,000 3,750,000,000 

American Express 3,388,890,000 3,388,890,000 ¥ 5,900,000,000 

Fifth Third 

Bancorp ........... 3,408,000,000 ¥ 3,408,000,000 ¥ 

KeyCorp ................ 2,500,000,000 ¥ 2,500,000,000 1,937,500,000 

Total Stress 

Test 

Banks ..... 221,013,929,000 66,676,729,000 154,337,200,000 234,986,079,000 266,400,000,000 

Total All 

Other 

Participants ...... 245,964,872,956 6,199,452,870 239,765,420,086 68,624,448,000 

Total ........... $466,978,801,956 $72,876,181,870 $394,102,620,086 $303,610,527,000 $266,400,000,000 

341 October 30 TARP Transactions Report, supra note 27, SNL Financial, TLGP Debt Issued (online at 

www1.snl.com/interactivex/TDGPParticipants.aspx) (accessed Nov. 5, 2009). 

As under the CPP, there was no requirement to track the use of 

funds obtained through the DGP without the cooperation of the 

banks involved.342 The FDIC does not require financial institutions 

to use capital raised through the issuance of guaranteed debt for 

lending or to free up funds for lending. Although the FDIC cautioned that the short-term nature of these guaranteed funds meant 

that downstreaming them to augment the capital of a subsidiary 

bank ‘‘should be carefully considered,’’ it allowed such a use. MoreVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00071 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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343The Panel has not studied, and expresses no view, on the general relationship between the 

TLGP and the capital position of FDIC. 344TLGP Final Rule, supra note 146. 345Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program (Oct. 21, 2009) www.fdic.gov/regulations/resources/TLGP/ 

total_issuance9_09.html 346For a detailed description and analysis of the tests, see Congressional Oversight Panel, 

June Oversight Report: Stress Testing and Shoring up Bank Capital, at 13 (June 9, 2009) (online 

at cop.senate.gov/documents/cop–060909–report.pdf) (hereinafter ‘‘COP June Oversight Report’’). 347 Board of Governors of the Federal Reserve System, The Supervisory Capital Assessment 

Program: Overview of Results (May 7, 2009) (online at www.federalreserve.gov/newsevents/press/ 

bcreg/bcreg20090507a1.pdf). 

over, the extent to which a bank holding company can use guaranteed funds in its securities trading activities is unclear. The FDIC 

will not guarantee debt issued directly by a broker dealer holding 

company subsidiary, and many market instruments are altogether 

excluded from the definition of DGP guarantee-eligible senior debt. 

But the FDIC has also explicitly stated that firms may use capital 

raised by selling guaranteed instruments in market-making activities. 

Thus, the relationship between the DGP and the FDIC’s general 

resolution authority is unclear.343 The FDIC protects guaranteed 

amounts if a holding company becomes insolvent according to the 

terms of the guarantees.344 But the resolution authority only extends to depository institutions, and the use of funds raised with 

guaranteed debt is not restricted to shoring up depository institutions. The FDIC’s intention to maintain an emergency guarantee 

facility once the DGP is terminated would not seem to alter this 

situation. 

Finally, the terms of the DGP permit its use for other non-insured financial institutions. The FDIC has repeatedly used this capability. Approximately $248.2 billion of debt has been issued by 

non-insured affiliated bank and thrift holding companies.345 The 

policy implications of the use of the FDIC guarantee in this situation is beyond the scope of this report. While the public could have 

reasonably expected that the FDIC would provide support for insured depository institutions, they may well not have anticipated 

that the FDIC would come to the aid of non-insured financial institutions. 

2. Interaction with Stress Tests 

In early 2009, Treasury and the Federal Reserve announced that 

the 19 BHCs, including Bank of America and Citigroup, would undergo a supervisory action to test the BHCs’ current economic 

health and their projected health if the economic crisis continued.346 Specifically, the tests considered whether these BHCs had 

the necessary capital buffers to withstand losses while continuing 

lending even in a worsening economy. These tests, called the Supervisory Capital Assessment Program or colloquially the ‘‘stress 

tests,’’ assessed the BHCs’ capital under two potential scenarios: 

one in which the crisis continued along the trajectory most economists were projecting at that time, and another more adverse scenario in which the crisis worsened beyond current projections. 

On May 7, 2009, the Federal Reserve announced the results of 

the stress tests under the more adverse scenario.347 The tests 

found that Bank of America would require $33.9 billion in addiVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00072 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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348 Id. at 20, 24. 349See Board of Governors of the Federal Reserve System, Overview of Results, at 9 (May 7, 

2009) (online at www.federalreserve.gov/newsevents/press/bcreg/20090507a.htm) (stating ‘‘[f]or 

BofA, includes capital benefit from risk-weighted asset impact of eligible asset guarantee’’ but 

does not mention Citigroup’s asset guarantee). 350 U.S. Securities and Exchange Commission, Quarterly Report for Bank of America Corporation (for the quarter ended June 30, 2009) (Form 10–Q) (Aug. 7, 2009) (online at sec.gov/ 

Archives/edgar/data/70858/000119312509168935/d10q.htm). 351 EESA § 120. The Secretary has not, as of this writing, announced whether he intends to 

extend TARP. 352 Next Phase Report, supra note 49, at 44. According to Treasury, these guarantee obligations may also be terminated ‘‘upon mutual agreement by Citigroup, Treasury, Federal Reserve, 

and FDIC.’’ Id. 

tional tier 1 capital in the more adverse scenario and Citigroup 

would require $5.5 billion.348

The AGP guarantees had a very limited effect on the stress tests. 

They did not affect the calculation of potential losses at all, however, they did impact the calculation of assets available to absorb 

losses. In conducting the test on Citigroup, this effect was taken 

into account in reaching the final determination that Citigroup required an additional $5.5 billion in tier 1 capital. In the case of 

Bank of America, however, Bank of America indicated it wished to 

terminate the guarantee while the stress test was ongoing. For this 

reason, the Federal Reserve calculated two possible results for 

Bank of America, which would be required to raise $33.9 billion in 

tier 1 capital in the event the guarantee was in place and $35.7 billion if the guarantee were terminated, which was eventually the 

case.349 One consideration that would have reduced the impact of 

the guarantees on the stress tests overall is the fact that the guarantees were not likely to have become relevant until after the period covered by the stress tests because the banks were unlikely to 

exceed their ‘‘deductibles’’ under the AGP by then. As of June 30, 

2009, Bank of America reported that it had increased its tier 1 capital by $39.7 billion, which renders the distinction between $33.9 

billion and $35.7 billion moot.350

3. The Guarantees and Exit from TARP 

None of the financial stabilization programs were intended to be 

permanent. Under EESA, Treasury’s authority to guarantee and 

make and fund commitments to purchase assets with TARP funding will terminate on December 31, 2009. (The Secretary of the 

Treasury may extend that authority to October 3, 2010 by submitting written certification to Congress.) 351 For various reasons, however, while some of the guarantees discussed in this report have already terminated, others extend beyond 2010. 

For example, while Treasury created the AGP pursuant to its 

TARP authority, Treasury is contractually obligated to continue 

guaranteeing Citigroup assets until 2013 (for non-residential assets 

in the guaranteed pool) or 2018 (for residential assets in the guaranteed pool).352 For Bank of America, Treasury’s guarantee obligations ended when the parties agreed to terminate Bank of America’s guarantee. 

The TGPMMF and the TLGP are not TARP programs. As discussed above, Treasury terminated the TGPMMF on September 18, 

2009, claiming that it had accomplished its goal of adding stability 


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353See Money Market Expiration Release, supra note 313. 354FDIC DGP Rule Notice, supra note 295. 355See Congressional Oversight Panel, July Oversight Report: TARP Repayments, Including 

the Repurchase of Stock Warrants, at 8 (July 10, 2009) (online at cop.senate.gov/documents/cop– 

071009-report.pdf) (hereinafter ‘‘COP July Oversight Report’’). 356See id. at 40. 357 U.S. Department of the Treasury, Capital Purchase Program, FAQs on Capital Purchase 

Program Repayment, at 1 (May 2009) (online at www.financialstability.gov/docs/CPP/ 

FAQ_CPP_guidance.pdf) (emphasis added); see also Board of Governors of the Federal Reserve 

System, Federal Reserve Outlines Criteria It Will Use to Evaluate Applications to Redeem U.S. 

Treasury Capital from Participants in Supervisory Capital Assessment Program (June 1, 2009) 

(online at www.federalreserve.gov/newsevents/press/bcreg/20090601b.htm) (‘‘Any BHC seeking to 

redeem U.S. Treasury capital must demonstrate an ability to access the long-term debt markets 

without reliance on the [TLGP], and must successfully demonstrate access to public equity markets.’’). To be clear, however, a financial institution is not excluded from participating in the 

TLGP simply because it has repaid TARP funds. See COP July Oversight Report supra note 

355, at 18, supra note 355 (observing that institutions who have repaid TARP funds ‘‘remain 

eligible to use FDIC’s Temporary Liquidity Guarantee Program, as well as other indirect support through the Federal Reserve’s various liquidity Programs’’). 358Treasury AGP Terms Release, supra note 31. In a September 2009 briefing with Treasury, 

the Panel learned the absence of a master agreement contract with Bank of America on Treasury’s website was because no formal asset guarantee agreement had been signed. 359See Citigroup Master Agreement, supra note 35, at § § 1, 5. 

to the money market mutual fund industry.353 The DGP component 

of the FDIC’s TLGP ended on October 31, 2009. Banks were permitted to issue new FDIC-insured debt only until October 31, 2009, 

with the guarantee for such debt terminating by December 31, 

2012.354 However, the FDIC created a limited guarantee facility for 

insuring debt in emergency situations beyond October 31, 2009. 

This facility will be available only for banks that are unable to 

issue debt without the guarantee, and will carry significantly higher fees. 

Finally, it is worth noting that the DGP plays a role in determining which financial institutions may repay the capital infusions 

they received under the CPP and TIP.355 Specifically, the federal 

government has announced that if any of the 19 TARP recipient, 

stress-tested BHCs wish to repay those funds,356 they must first 

‘‘demonstrate [their] financial strength by issuing senior unsecured 

debt for terms greater than five years, not backed by FDIC guarantees, in amounts sufficient to demonstrate a capacity to meet funding needs independently.’’ 357

H. Transparency Issues 

Treasury, the Federal Reserve, and the FDIC have taken different approaches with respect to disclosing information regarding 

the implementation, administration, and status of their respective 

guarantee programs. 

1. Asset Guarantee Program 

On January 16, 2009, after Treasury and Citigroup had finalized 

the terms of their guarantee agreement, Treasury disclosed these 

terms by posting the Citigroup Master Agreement on its Web 

site.358 The Master Agreement sets forth much if not all of the 

process with respect to asset valuation, the criteria for selecting 

covered assets, as well as the criteria for asset selection.359 Also, 

at the time of each announcement, Treasury publicly disclosed the 

term sheets for the transactions with each institution. The Federal 

Reserve, pursuant to Section 129(b) of EESA, released a report discussing its authorization to provide residual financing to Citigroup 


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360Section 129 Report, supra note 190. 361 AGP Overview, supra note 34. 362 Citigroup Second Quarter 2009 Report, supra note 48. 363 It must also be noted that a complete list of Citigroup covered assets has not yet been published. Treasury has informed the Panel that such a list is pending finalization of the asset pool. 

At the time the final list is published, Treasury will also be able to publish the methodology 

by which it calculated the premium for coverage. 

for its asset pool.360 Treasury provides a summary of the program 

on its website.361 Furthermore, in its quarterly SEC filings, 

Citigroup has disclosed the current value of the assets, with any 

declines due to receipt of principal repayment charge-offs, and 

asset sales. 

While Treasury, the Federal Reserve, and the FDIC provided extensive details of the mechanics with respect to additional assistance to Citigroup and Bank of America, the rationale underlying 

the guarantees remains somewhat unclear. To date the three agencies have not disclosed why these programs were selected; why 

Citigroup and Bank of America were the only institutions selected 

for asset guarantee protection; what alternatives were available; 

and why those alternatives were not chosen. Nor has Treasury provided a detailed legal analysis explaining how the AGP is consistent with section 102 of EESA. While Treasury, the Federal Reserve, the Federal Reserve Bank of New York, and the FDIC discussed some of these issues with Panel staff during recent briefings, the Panel believes that the assumptions and rationale underlying policy decisions should be made public to ensure program 

transparency, and as they are necessary in order to provide meaningful program evaluation and oversight. More transparency also 

assists the efficiency and stability of the financial markets. 

The Panel has identified several instances where Treasury’s disclosures have been insufficient. First, since the Master Agreement 

was executed in January, Treasury has not provided sufficient information concerning the estimated potential losses on Citigroup’s 

asset pool. While Citigroup’s second quarter 10-Q recorded approximately $5.3 billion of charge-offs on the asset pool for the period 

between November 21, 2008 and June 30, 2009,362 Treasury has 

not disclosed information concerning cumulative asset pool losses 

or the projected losses of the pool and how they have been calculated. While as yet the losses remain less than the deductible 

needed to trigger Treasury and FDIC pay-outs, these metrics are 

critical to any assessment of the program.363

Additionally, given the deteriorating economic conditions at the 

time when Citigroup and Bank of America received guarantee protection, and that the banking industry as a whole suffered substantial losses during this period, it would be useful to have better details and analysis on why these financial institutions were selected 

for the AGP and not others. It would also be useful to understand 

why these institutions received asset guarantees instead of the approach used with AIG, the giant failing financial institution. AIG 

received cash and its shareholders were wiped out. 

2. TGPMMF 

Several transparency-related concerns arise with respect to the 

TGPMMF. First, Treasury has not disclosed why it decided to use 

a guarantee program to stabilize the money market funds, nor 


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364Section 131 of EESA requires Treasury to reimburse ESF for any depletion of the fund 

attributable to the TGPMMF and prohibits Treasury ‘‘from using the [ESF] for the establishment of any future guaranty programs for the United States money market mutual fund industry.’’ EESA § 131(b). One could interpret the latter provision as an expression of Congressional 

disapproval of Treasury’s use of the ESF in this case. While Congressional disapproval does not 

necessarily signal illegality, it does further support the notion that Treasury was obligated to 

explain and justify its actions. 365 U.S. Department of the Treasury, Treasury’s Temporary Guarantee Program for Money 

Market Funds (online at www.treas.gov/offices/domestic-finance/key-initiatives/money-marketfund.shtml) (accessed Nov. 2, 2009). 366See Next Phase Report, supra note 49, at 2, 10, 46 (reporting aggregate fees collected to date at $1.2 billion, number of funds participating at 1,486, and gross assets of and percentage 

of total MMFs participating the program in its initial and two extension periods). Treasury did 

provide monthly and fiscal year to date program insurance premium fees in its monthly reports 

on the ESF, see, e.g., U.S. Department of the Treasury, Exchange Stabilization Fund Statement 

of Financial Position as of July 31, 2009 (July 31, 2009) (online at www.treas.gov/offices/international-affairs/esf/esf-monthly-statement.pdf), but this information was sequestered in a difficult to locate and to interpret financial statement on the website of a different Treasury office 

and only minimally added to the TGPMMF’s transparency. 367Treasury conversations with Panel staff (Oct. 20, 2009). 

whether it considered alternative methods for achieving that policy 

goal. Understanding the analysis that informed these decisions 

would permit the Panel, and taxpayers, better to evaluate Treasury’s performance. 

Second, as discussed above, Treasury has never fully explained 

the legal basis for structuring the program as it did. In particular, 

Treasury has never explained how its initial reliance on up to $50 

billion in funding from the ESF comports with the language and 

intent of the Gold Reserve Act of 1934. Treasury has failed to disclose publicly any internal analysis of its legal authority to expose 

the ESF to liability in the way discussed above.364

Finally, Treasury did not take steps to address uncertainty 

among market participants regarding the true extent of Treasury’s 

obligation to honor the guarantees under the program in the hypothetical context of widespread claims beyond the $50 billion ESF. 

Treasury’s disclosures were geared primarily to explaining program requirements to potential market participants, and these appeared to be responsive to participants’ needs. After announcing 

the program, Treasury created a Web page that detailed the eligibility conditions and application processes for would-be-participant 

money market funds.365 The website also included samples of guarantee agreements, a comprehensive list of frequently asked questions, and a term sheet for the guarantee program. 

Treasury never disclosed a list of participating MMFs for the initial program period or for the two subsequent extensions of the program. In addition, Treasury, unlike the FDIC in its disclosures 

under TLGP, did not provide monthly reports of the total number 

of MMFs participating in the program or the total dollar value of 

funds guaranteed, and provided only aggregate data participation 

levels and premiums collected on its program website in September 

2009, days before the program was set to expire.366 Treasury explained that it relied on the funds themselves to decide whether to 

disclose their participation in the program to their potential investors.367

Before Treasury’s limited September 2009 disclosures, the only 

additional publicly available information on many key aspects of 

the TGPMMF’s operation resulted from the Panel’s publication of 

the results of an information request that it had submitted to 

Treasury. Chair Elizabeth Warren, on behalf of the Panel, sent a 


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368See COP June Oversight Report, supra note 346 (reprinting ‘‘Letter from Chair Elizabeth 

Warren to Secretary Timothy Geithner’’). 369See Geithner Letter to Warren, supra note 133, at 126–129. 370See Treasury 2010 Budget, supra note 315, at 975; see also Section E, infra. 371Treasury responses to Panel questions (Nov. 2, 2009). 372See U.S. Department of the Treasury, Department of the Treasury Exchange Stabilization 

Fund: Financial Report Fiscal Year 2008, at 26 (online at www.treas.gov/offices/internationalaffairs/esf/congress_reports/final_22509wdc_combined_esf_auditreports.pdf) (accessed Nov. 4, 

2009) (‘‘ESF management has assessed the likelihood of claims related to this contingency as 

well as any potential resultant losses. This included gathering analytical data about the Money 

Market fund industry and specifically the history of funds from which NAV has dropped below 

the aforementioned thresholds. Based on this assessment, management has determined that 

while any loss on claims could be significant, currently such amount is not quantifiable and the 

likelihood of claims under the Treasury Guarantee Program is deemed to be remote.’’). 373See 31 U.S.C. § 5302(c)(1) (requiring that Treasury provide the Senate Banking and House 

Financial Services Committees a monthly ‘‘detailed financial statement on the stabilization fund 

showing all agreements made or renewed, all transactions occurring during the month, and all 

projected liabilities’’). 374Treasury responses to Panel questions (Nov. 2, 2009). 

letter to U.S Treasury Secretary Geithner on May 26, 2009 concerning, among other issues, the extent of Treasury’s obligation 

under EESA to reimburse the ESF for any funds used for the 

TGPMMF.368 In his July 21, 2009 response, Secretary Geithner 

stated that money market funds that applied for participation in 

the money market guarantee ‘‘represented over $3.2 trillion of 

money market assets as of September 19, 2008,’’ and that those 

funds continuing to participate through the program’s extension period had an ‘‘aggregate designated asset base of nearly $2.5 trillion 

calculated as of September 19, 2008.’’ 369

Also of concern is Treasury’s transparency regarding two important aspects of the operation of the TGPMMF. First, it appears 

that Treasury never conducted an estimate of losses under the program. While the Office of Management and Budget’s fiscal year 

2010 budget request for Treasury estimates a $2.5 billion pay-out 

under the TGPMMF for fiscal year 2009, 370 Treasury did not assist 

in calculating this estimate.371 In addition, despite the presence of 

a yearly audit of ESF that implies that Treasury undertook some 

form of an analysis of the likelihood and magnitude of claims under 

the program,372 and a statutory requirement for Treasury to provide Congress with a monthly estimate of ESF liabilities,373 Treasury has informed the Panel that it did not conduct any extensive 

analysis regarding the risk of losses to the TGPMMF because of 

the ‘‘exigent circumstances’’ of the program’s establishment.’’ 374 Although the TGPMMF was undoubtedly created in an atmosphere 

of dire necessity, the program was in place for a full calendar year 

with taxpayers subject to large exposures, and it is troubling that 

Treasury did not conduct (or could not produce to the Panel) any 

substantial analysis of program risks. 

The second issue concerns Treasury’s purchase of $3.6 billion of 

GSE securities from the USGF to provide support to the fund and 

to prevent a TGPMMF claim. Although it appears that Treasury 

will not incur any losses from the purchase, Treasury’s disclosures 

about the purchase have been less than complete. While Treasury 

announced the asset purchase agreement shortly after the time of 

its execution and posted the letter agreement on its website, it has 

not adequately publicly explained its connection with the TGPMMF 

or disclosed how much of a subsidy it represented to the USGF and 

its investors. 


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375FDIC DGP Rule Notice, supra note 295; TLGP Interim Rule, supra note 167. 376See TLGP Final Rule, supra note 146. 377Federal Deposit Insurance Corporation, FDIC Board of Directors Approves TLGP Final 

Rule (Nov. 21, 2008) (online at www.fdic.gov/news/news/press/2008/pr08122.html) (accessed Nov. 

5, 2009). 378Federal Deposit Insurance Corporation, Temporary Liquidity Guarantee Program (online at 

www.fdic.gov/regulations/resources/TLGP/index.html) (accessed Nov. 2, 2009). 379 Id. See Section C, infra, for a detailed explanation of the opt-out concept. 380TLGP Extension Notice, supra note 162; Federal Deposit Insurance Corporation, Amendment of the Temporary Liquidity Guarantee Program to Extend the Debt Guarantee Program and 

to Impose Surcharges on Assessments for Certain Debt Issued on or after April 1, 2009, 12 C.F.R. 

§ 370 (hereinafter ‘‘TLGP March 2009 Rule’’) (online at www.fdic.gov/news/board/ 

Mar1709rule.pdf) (accessed Nov. 2, 2009). 381TLGP March 2009 Rule, supra note 380. 382FDIC DGP Rule Notice, supra note 295. 383FDIC DGP Rule Notice, supra note 295. 

3. Temporary Liquidity Guarantee Program 

Nine days after the FDIC announced the TLGP, it issued an interim rule to implement the TLGP and defined in detail the program’s framework and operating mechanics.375 A legal analysis 

supporting the FDIC’s authority to create the program also accompanied this release. The FDIC provided a 15–day comment period 

for institutions to suggest changes to the interim rule, offer feedback, and consider their interest in program participation. In response to more than 700 comments, the FDIC made significant alterations to the interim rule, including changing the debt guarantee trigger to payment default rather than bankruptcy or receivership, and determining that short-term debt issued for one month 

or less would not be included in the TLGP.376 The FDIC Board of 

Directors approved the TLGP final rule on November 21, 2008.377

In general, the FDIC has disclosed extensive information related 

to the TLGP throughout the life of the program. For example, the 

FDIC’s website includes a separate webpage devoted to the TLGP 

that contains various postings such as financial institution letters, 

reports, and data. It has also included all TLGP amendments and 

modifications since the program’s commencement.378 The FDIC has 

published regular reports of debt issuance under the TLGP, including the amount outstanding and type and term of FDIC-guaranteed 

debt instruments at issuance, as well as TLGP opt-out lists.379 The 

FDIC has also provided extensive information concerning its subsequent decision to extend the debt guarantee portion of the TLGP 

from June 30 through October 31, 2009, and impose a surcharge 

on debt issued with a maturity of one year in order to phase-out 

the program.380 In particular, the FDIC concluded that an extension of the program would ‘‘provide an orderly transition period for 

participating entities returning to non-FDIC-guaranteed funding, 

and reduce the potential for market disruption when the DGP 

ends.’’ 381 Additionally, on September 9, 2009, the FDIC issued a 

detailed notice of proposed rulemaking seeking comment on its proposed alternatives for terminating the DGP and describing its rationale for setting forth both alternatives.382 The FDIC noted that 

it would be ‘‘prudent’’ to allow the DGP to expire as of October 31, 

2009, while also creating a limited six-month emergency facility to 

be accessed on a ‘‘limited, case-by-case basis.’’ 383 By voting to establish a limited extension on October 20, 2009, the FDIC intends 

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384FDIC DGP Rule Notice, supra note 295. 385TLGP Phase Out Notice, supra note 307. Although the FDIC has achieved a high level of 

transparency with regard to this program overall, the importance of transparency with regard 

to the TAG portion of the program must be emphasized. Given the widespread impact of this 

portion of the program, and its potential impact on the vulnerabilities of weaker small banks, 

it is particularly important that the FDIC be transparent and vocal about its decisions regarding 

the duration of the TAG. 

ernment-guaranteed debt due to ‘‘market disruptions or other circumstances beyond their control.’’ 384

The FDIC’s disclosures to date help policymakers and the public 

evaluate the TLGP’s impact on the availability of credit and its effectiveness in achieving its objective: ‘‘helping financial institutions 

bridge the uncertainty and dysfunction that plagued our credit 

markets last fall.’’ 385

I. Conclusions and Recommendations 

With so many stabilization initiatives in use at any time, it is 

impossible to attribute specific results to a particular initiative. 

The guarantees provided by Treasury, the Federal Reserve, and the 

FDIC helped restore confidence in financial institutions, and did so 

without significant expenditure, initially at least, of taxpayer 

money. Moreover, as the market stabilizes and the scope of the programs decreases, the likelihood that any such expenditure will be 

necessary diminishes. Additionally, the U.S. government—and thus 

the taxpayers—benefit financially from the fees charged for guarantees. At the time of this report, the programs under discussion 

have generated fees of $17.4 billion, and only up to $2 million is 

expected to be paid out to cover a default under the DGP. 

This apparently positive outcome, however, was achieved at the 

price of a significant amount of risk. A significant element of moral 

hazard has been injected into the financial system and a very large 

amount of money remains at risk. At its high point, the federal 

government was guaranteeing or insuring $4.3 trillion in face value 

of financial assets under the three guarantee programs discussed 

in this report. Taxpayers’ funds remain at risk as follows: • The TGPMMF has ended with no loss, but $3.6 billion was 

used from the ESF to purchase assets from the USGF outside of 

the TGPMMF. • The DGP currently guarantees a principal amount of $307 billion (plus interest), which will diminish as June 2012 approaches, 

with $2 million in expected losses to date. • The AGP guarantee for Citigroup is still in place, and initial actuarial estimates point towards a possible $34.6 billion loss 

under the moderate stress test scenario and $43.9 billion loss 

under the severe stress test scenario, which, after the 39.5 billion 

‘‘deductible,’’ would result in no loss for the government entities 

under the moderate scenario and a loss of $3.96 billion to Treasury 

under the severe scenario. The AGP guarantee for Bank of America 

ended with no loss. 

The Panel has not identified significant flaws in Treasury’s implementation of the programs. To the contrary, the Panel has noted 

a trend towards a more aggressive and commercial stance on the 

part of Treasury staff in safeguarding the taxpayers’ money, evidenced, for example, in the apparently robust negotiation of the 

Bank of America termination fee. The Panel recommends that this 


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trend continue. It should be noted, however, that this newly aggressive stance has a disproportionate effect on banks that remain 

governed by TARP, meaning that financial institutions that have 

already exited TARP have been treated more leniently. 

The analysis in this report raises some issues, however, particularly with respect to the question of transparency and clarity of 

purpose, a theme of several previous reports. While it may be understandable that much of the government’s reaction to the financial crisis was based on expediency rather than clear and transparent principles, the result is that government intervention has 

caused confusion and muddled expectations. Extraordinary transparency is necessary in order to determine the rationale behind the 

guarantee programs, and whether they have achieved their objectives. • First, the Panel recommends that Treasury disclose the rationale behind the creation of guarantee programs, including a discussion of any alternatives, why those were not selected, a cost-benefit 

analysis of all options, and why Citigroup and Bank of America 

were the only institutions selected for asset guarantee protection. • Second, the Panel recommends that Treasury fully and publicly disclose its legal justification for creating the TGPMMF 

through the use of the Exchange Stabilization Fund. Treasury 

should also provide reports of the total number of money market 

funds participating in the program, or the total dollar value guaranteed, for each month that the program was in existence. • The Panel also recommends that the MOUs with Citigroup and 

Bank of America, and the MOU with any other institution relevant 

to this report on the AGP and other TARP-related guarantees, be 

provided to the Panel to inform its oversight functions, to be used 

subject to applicable legal protections. • Finally, the Panel recommends that Treasury provide regular 

disclosures relating to the guarantee of Citigroup assets under the 

AGP, including the final composition of the asset pool (as reflected 

on Schedule A to the Master Agreement) and total asset pool losses 

to date, as well as projected losses of the pool, and how these estimates have been calculated. 


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ANNEX TO SECTION ONE: 


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FIGURE 11: TLGP DEBT BY CONSOLIDATED ISSUER 386

[Dollars in millions] 

TLGP issuance 

Total amount offered 

Weighted 

average 

coupon 

Weighted 

average 

maturity 

Access National Corp. ............................................................... $30,000.0 2.7 3.0 

American Express Co. ............................................................... 5,900,000.0 3.2 2.7 

Banco Bilbao Vizcaya Argentaria SA ........................................ 470,000.0 2.2 2.7 

Bank of America Corp. ............................................................. 44,000,000.0 2.5 2.8 

Bank of New York Mellon Corp. ................................................ 603,448.0 FLOAT 3.3 

Cascade Bancorp ...................................................................... 41,000.0 2.7 3.0 

BNP Paribas Group ................................................................... 1,000,000.0 2.2 3.0 

Banner Corp. ............................................................................. 50,000.0 2.6 3.0 

Citigroup Inc. ............................................................................ 64,600,000.0 1.9 2.5 

First Merchants Corp. ............................................................... 52,882.0 2.6 3.0 

General Electric Co. .................................................................. 54,846,345.0 2.3 3.0 

GMAC Inc. ................................................................................. 7,400,000.0 2.2 3.5 

Goldman Sachs Group Inc. ....................................................... 21,614,310.0 2.6 2.5 

HSBC Holdings plc .................................................................... 2,675,000.0 3.1 3.0 

Huntington Bancshares Inc. ..................................................... 600,000.0 FLOAT 3.3 

Integra Bank Corp. ................................................................... 50,000.0 2.6 3.0 

Deere & Co. ............................................................................... 2,000,000.0 2.9 3.5 

JPMorgan Chase & Co. ............................................................. 40,435,009.0 2.6 2.8 

KeyCorp ..................................................................................... 1,937,500.0 3.2 2.9 

LaPorte Savings Bank MHC ...................................................... 5,000.0 2.7 3.0 

MetLife Inc. ............................................................................... 397,436.0 FLOAT 3.3 

Morgan Stanley ......................................................................... 23,768,503.0 2.5 2.8 

National Consumer Cooperative Bank ...................................... 75,000.0 2.3 3.0 

New York Community Bancorp Inc. .......................................... 602,000.0 2.9 3.3 

Oriental Financial Group Inc. ................................................... 105,000.0 2.8 3.0 

PAB Bankshares Inc. ................................................................ 20,000.0 2.7 3.8 

PNC Financial Services Group Inc. ........................................... 3,900,000.0 2.2 2.9 

Preferred Bank .......................................................................... 26,000.0 2.7 3.9 

Provident New York Bancorp .................................................... 51,493.0 2.7 3.0 

Regions Financial Corp. ............................................................ 3,750,000.0 3.1 2.3 

Renasant Corp. ......................................................................... 50,000.0 2.6 3.0 

Banco Santander SA ................................................................. 1,600,000.0 2.7 3.3 

State Bancorp Inc. .................................................................... 29,000.0 2.6 3.0 

State Street Corp. ..................................................................... 3,950,000.0 2.0 2.6 

SunTrust Banks Inc. ................................................................. 3,576,000.0 3.0 2.7 

Superior Bancorp ...................................................................... 40,000.0 2.6 3.0 

U.S. Bancorp ............................................................................. 2,679,873.0 2.0 3.0 

Mitsubishi UFJ Financial Group Inc. ......................................... 1,000,000.0 FLOAT 2.5 

United Services Automobile Association ................................... 95,000.0 2.2 3.0 

Wells Fargo & Co. ..................................................................... 9,500,000.0 2.7 3.1 

Zions Bancorp. .......................................................................... 254,895.0 FLOAT 3.4 

Total (For All Issuances) .................................................. $303,780,694.0 2.4 2.8 

386 SNL Financial, TLGP Debt Issued (online at WWW1snl.com/interactivex/TDGPParticipants.aspx) (accessed Nov. 5, 2009). This data includes 

only senior debt issued under the TLGP as of September 29, 2009 and excludes short-term offerings and commercial paper. 


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SECTION TWO: ADDITIONAL VIEWS 

A. Damon Silvers 

While I support this report, there is an important limitation to 

its analysis that was not present in prior reports of this panel addressing valuation issues associated with TARP. 

Past reports of our Panel have valued securities such as CPP 

preferred stock and warrants by reference to public market prices 

for related securities. This report contains similar efforts to value 

guarantees for bank public debt and the preferred stock and warrants received as compensation for the Citigroup guarantee. I view 

this type of analysis as a critical component of our Panel’s mission. 

However, the Panel staff’s efforts to analyze the asset guarantees 

provided to Citigroup have been hampered by the staff not having 

access to a comprehensive, itemized list of the assets that have 

been guaranteed by Treasury or information as to the detailed 

characteristics of those assets. In addition, there remains uncertainty as to which assets will ultimately be guaranteed by Treasury 

because a final agreement has not been entered into between 

Treasury and Citigroup that fixes which assets are subject to the 

guarantee. 

As a result the Panel has had to rely upon the analysis of the 

tentative portfolio of assets subject to the guarantees performed by 

the Congressional Budget Office and the Office of Management and 

Budget. In the case of OMB their analysis was in turn reliant upon 

the analyses of the parties to the transaction—Citigroup, Treasury, 

and the Federal Reserve. CBO’s analysis was based not on looking 

at the assets themselves but on making estimates based on assumptions that categories of assets in the guarantee pool would 

perform similarly to their asset class as a whole. In each case, our 

staff, CBO and OMB lacked the data needed to do more. 

The consequence is that there has been no independent, assetspecific valuation of the Citigroup guarantee either as of the time 

the guarantee was made or as of a more recent date. Thus the detailed statements made in this report about potential losses on 

Citigroup assets covered under the Citigroup guarantee must be 

understood to be based on Federal Reserve Bank of New York analyses and not on an informed, independent valuation of the risk 

Treasury has assumed as a result of the guarantee of these specific 

assets. 

B. Paul S. Atkins 

With the publication of a report on federal government guarantee 

programs to the financial system, the Panel has produced a detailed perspective on an area that has received little public attention. I support the issuance of the report and appreciate the very 

hard work during the past month that the Panel staff has poured 

into this subject to produce this historical analysis. 

With Congressman Hensarling, I believe that a few points should 

be noted with respect to this report: 

First, American taxpayers have borne and continue to bear significant costs from the huge risk incurred in extending the guarantees, the direct administrative costs of the guarantee programs, 


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390The Panel’s reports may be found at cop.senate.gov/reports/. My separate views are included in each report. For example, my dissenting views from the September report on the bailout of Chrysler, GM and GMAC may be found at cop.senate.gov/documents/cop-090909-reportadditionalviews.pdf, and my dissenting views from the October report on foreclosure mitigation 

may be found at cop.senate.gov/documents/cop-100909-report-hensarling.pdf. 

and the expense of overseeing the programs. Even though many 

today seem to think mistakenly that the federal budget is limitless, 

there are also indirect costs to the taxpayer of issuing guarantees 

in the hundreds of billions of dollars, including market distortions, 

potential higher borrowing costs, opportunity costs of these off-balance sheet contingencies, and hard-to-quantify implications of 

moral hazard that arise when the government issues guarantees to 

private parties who have been unsuccessful in the marketplace, for 

whatever reason. 

Second, the report’s very matter-of-fact treatment of the guarantee programs should not be taken as a sign that all of the Panel 

members necessarily approve of the use of U.S. Government authority and resources in this way. These guarantees were issued in 

unusual circumstances, and as the facts come to light over time 

and ARE scrutinized as the crisis recedes, the wisdom and 

outworkings of the various decisions will be debated and judged. I 

also agree with Congressman Hensarling that this report should 

not be interpreted as advocating any particular legislative or regulatory response. 

Finally, it is important that the Panel focus on ways in which 

TARP might be transformed over the coming months, particularly 

if the Treasury Secretary extends it pursuant to Section 120(b) of 

Emergency Economic Stabilization Act (EESA). Programs that demand especial scrutiny by the Panel are those that have the greatest enduring financial exposure and public policy implications for 

the taxpayer: AIG, Chrysler, GM, GMAC, Citigroup, the Capital 

Purchase Program, and imprudent efforts regarding mortgage foreclosures. If TARP is extended, perhaps the greatest danger is that 

other initiatives may be undertaken that depart from the intent of 

the Congress that approved EESA in 2008. The taxpayers depend 

on this Panel’s vigilance in that respect. 

C. Representative Jeb Hensarling 

I concur with the issuance of the November report subject to my 

observations included in prior reports as well as those noted 

below.390 I thank the Panel for incorporating several of the suggestions I offered during the drafting process. 

• The TARP funded and other guarantee programs analyzed in 

the November report carry significant costs to the taxpayers attributable to the moral hazard that arises when the government agrees 

to guarantee the assets and obligations of private parties. 

• Simply because the guarantee programs do not require an immediate outlay of taxpayer sourced funds, they are by no means 

free from risk. Such programs in fact burden the taxpayers with 

hundreds of billions of dollars of contingent obligations that must 

be funded in accordance with the terms of each governmental undertaking. 

• The guarantee programs analyzed in the report should not 

serve as a template for future bailouts and the report should not 


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be interpreted as advocating any particular legislative or regulatory response. • As Treasury unwinds several TARP programs where the taxpayers have recouped their investments with interest, the Panel 

should focus its attention on the new and existing programs that 

are likely more enduring and costly to the taxpayers. The opportunity cost of not providing rigorous oversight in these areas is 

high. These programs include taxpayer funds directed to AIG, 

Chrysler, GM, GMAC, foreclosure mitigation, preferred share purchases in Citigroup, Bank of America and hundreds of additional 

large and small financial institutions and other initiatives. • TARP was promoted as a way to provide ‘‘financial stability,’’ 

and the American Reinvestment and Recovery Act (ARRA) was promoted as a way to provide ‘‘economic stimulus.’’ Regrettably, TARP 

has evolved from a program aimed at financial stability during a 

time of economic crisis to one that increasingly resembles another 

attempt by the Administration to promote its economic, political 

and social agenda through fiscal stimulus. • In order to end the abuses of EESA as evidenced by the Chrysler and GM bankruptcies, misguided foreclosure mitigation programs and the ‘‘re-animation’’ of reckless behavior, the TARP program must end. To accomplish this goal, I introduced legislation— 

H.R. 2745—to end the TARP program on December 31, 2009. • As discussed in detail in the October report, I encourage the 

Panel to adopt and make publicly available an oversight plan and 

a budget. • I again note my disappointment that the Panel has not held 

a hearing with AIG, Citigroup, Bank of America (other than with 

respect to foreclosure mitigation) and many other significant recipients of TARP funds. 

1. TARP’s Guarantee Programs 

Although I do not object to the subject matter addressed in the 

November report, I suggest that other topics would have been more 

relevant and timely regarding the Panel’s discharge of its oversight 

responsibility. For example, the Panel has yet to produce a report 

on AIG or Treasury’s exit strategy with respect to its TARP funded 

investments. I also question the overall timeliness of the topic. 

With the exception of Citigroup, most guarantee programs associated with financial stability through TARP, the FDIC and the Federal Reserve are winding down in the immediate term. Treasury’s 

Temporary Guarantee Program for Money Market Funds 

(TGPMMF) ended in September and the FDIC’s Temporary Liquidity Guarantee Program (TLGP) expired for new contracts at the 

end of October. Bank of America terminated its term sheet for the 

Asset Guarantee Program (AGP) at the end of September and the 

actual risk-sharing program was never launched. 

In voting to approve the report, it is with the caveat that I do 

not endorse further extensions of TARP, either through asset or 

debt guarantees or other means. I also submit that it is too early 

to properly determine if the guarantee programs analyzed in the 

report achieved their intended purposes or whether the fees 

charged by Treasury were properly structured or adequate in 

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391 Congressional Budget Office, The Troubled Asset Relief Program: Report on Transactions 

Through June 17, 2009 (June 2009) (online at www.cbo.gov/ftpdocs/100xx/doc10056/06-29- 

TARP.pdf). 392The Administration ‘‘invested’’ TARP funds in Chrysler and GM even though neither company is a ‘‘financial institution’’ as required by EESA. 393Without protections, Citigroup would have more of an incentive to not properly manage 

the protected assets under the AGP. Treasury has provided certain safeguards against this risk. 

First, the AGP carries a very high deductible for Citigroup—it is liable for the first $39.5 billion 

of losses in the pool, and 10 percent of losses thereafter. Second, Citigroup must abide by strict 

asset management guidelines as set forth in the agreement. And third, if the pool loses more 

than $27 billion, the government may demand a change in the management of the pool. 

payers. I am also by no means convinced that Treasury had the authority under EESA to implement the guarantee programs as 

structured. 

I appreciate there may be upfront advantages of contingent credit support—which is not triggered unless certain adverse events 

occur—over direct taxpayer outlays. But the long term moral hazard effects on entrepreneurial activity and the capital costs of 

unfurling the government safety net widely will surely dwarf even 

CBO’s $3 billion 391 in estimated subsidies. By its very nature, ringfencing allows firms to keep poorly-performing assets on their balance sheets until recovery when a backstop is no longer needed. 

This type of credit support cannot become a permanent part of an 

overall expectation that the taxpayers will again respond and assume risky bets should they sour. In other words, the guarantee 

programs analyzed in the report should not serve as a template for 

future bailouts and the report should not be interpreted as advocating any particular legislative or regulatory response. 

2. Moral Hazard 

I am pleased the Panel gave some consideration to the issue of 

moral hazard. Indeed, one of the most regrettable legacies of TARP 

is that the all-but-explicit government guarantee of financial institutions (and non-financial institutions such as Chrysler and 

GM) 392 has severed the link between risk and responsibility, resulting in greater threats to economic stability and growth. 

Given the length of the report, I think it is important to highlight the Panel’s analysis of the moral hazard issue presented by 

the guarantee programs in particular and the broader TARP program in general. 

In addition to direct monetary costs, the guarantee programs discussed in this report have broader costs resulting 

from the moral hazard that arises when the government 

agrees to guarantee the assets and obligations of private 

parties. Generally, the question of moral hazard arises 

when a party is protected, or expects to be protected, from 

loss. The insured party might take greater risk than it 

would otherwise, and market discipline is undermined.393

A larger issue arises when one considers the implicit 

guarantees, those that are paid for by neither party, but 

whose cost is borne by the taxpayer. The DGP and 

TGPMMF both carry fees paid for by the financial institutions. But their existence, and the existence of the other 

elements of the bailout of the financial system, could imply 

that there is a permanent, and ‘‘free,’’ insurance provided 

by the government, especially for those institutions 


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394Speech of Federal Reserve Board Governor Daniel K. Tarullo, Confronting Too Big to Fail 

(Oct. 21, 2009) (online at www.federalreserve.gov/newsevents/speech/tarullo20091021a.htm). 

deemed ‘‘too big to fail,’’ or ‘‘too connected to fail.’’ There 

is an implication that, in the case of another major economic collapse, the government will again step in to prop 

up the financial system, especially the ‘‘too big to fail’’ institutions. This moral hazard creates a real risk to the system. 

This ‘‘free’’ insurance causes a number of distortions in 

the marketplace. On the financial institution side, it might 

promote risky behavior. On the investor and shareholder 

side, it will provide less incentive to hold management to 

a high standard with regard to risk-taking. By creating a 

class of ‘‘too big to fail’’ institutions, it has provided these 

institutions with an advantage with respect to the pricing 

of credit. 

Creditors who believe that an institution will be regarded by the government as too big to fail may not price 

into their extensions of credit the full risk assumed by the 

institution. That, of course, is the very definition of moral 

hazard. Thus the institution has funds available to it at a 

price that does not fully internalize the social costs associated with its operations. The consequences are a diminution of market discipline, inefficient allocation of capital, 

the socialization of losses from supposedly market-based 

activities, and a competitive advantage for the large institution compared to smaller banks.394

The implied guarantee of ‘‘too big to fail’’ institutions 

might also result in a concentration of risk in this group, 

resulting in greater danger to the taxpayer if and when 

the government must step in again. 

The Panel also concludes: 

This apparently positive outcome, however, was achieved 

at the price of a significant amount of risk. A significant 

element of moral hazard has been injected into the financial system and a very large amount of money remains at 

risk. At its high point, the federal government was guaranteeing or insuring $4.3 trillion in face value of financial assets under the three guarantee programs discussed in this 

report. Taxpayers’ funds remain at risk as follows: • The TGPMMF has ended with no loss, but $3.6 billion 

was used from the ESF to purchase assets from the USGF 

outside of the TGPMMF. • The DGP currently guarantees a principal amount of $307 billion (plus interest) which will diminish as June 

2012 approaches, with $2 million in expected losses to 

date. • The AGP guarantee for Citigroup is still in place, and initial actuarial estimates point towards a possible $34.6 

billion loss under the moderate stress test scenario and 

$43.9 billion loss under the severe stress test scenario, 

which, after the $39.5 billion ‘‘deductible,’’ would result in 

no loss for the government entities under the moderate 


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395 U.S. Department of the Treasury, Transactions Report (Nov. 3, 2009) (online at 

www.financialstability.gov/docs/transaction-reports/ 

10-30-09%20Transactions%20Report%20as%20of%2010-28-09.pdf). 396 U.S. Department of the Treasury, Secretary of the Treasury Timothy F. Geithner Written 

Testimony before the Congressional Oversight Panel (Sept. 10, 2009) (online at www.ustreas.gov/ 

press/releases/tg283.htm). See also, Dealbook, Some Profits from TARP, but Are They Enough, 

New York Times, (Aug. 31, 2009) (online at dealbook.blogs.nytimes.com/2009/08/31/are-profitson-tarp-funds-enough-feel-free-to-change/) (illustrating the repayment returns). 397White House, Treasury Announces New Efforts to Improve Credit for Small Businesses, 

(Oct. 21, 2009) (online at www.whitehouse.gov/assets/documents/small_business_final.pdf). 

scenario and a loss of $3.96 billion to Treasury under the 

severe scenario. The AGP guarantee for Bank of America 

ended with no loss. 

I wish to emphasize that the apparently ‘‘favorable’’ outcome for 

some of the guarantee programs analyzed in the report should not 

obscure the overwhelming burden that could have fallen to the taxpayers if the government had been called upon to honor its guarantee obligations. The take away point is not to view government 

sponsored guarantee programs as cost-effective bailout tools. Instead, these programs are fraught with uncertainty and peril for 

the taxpayers and create significant moral hazard risks. 

3. Taxpayer Protection 

As Treasury unwinds several TARP programs where the taxpayers have recouped their investments with interest, the Panel 

should focus its attention on the new or existing programs that are 

likely more enduring and costly to the taxpayers. The opportunity 

cost of not providing rigorous oversight in these areas is high. 

These programs include taxpayer funds directed to AIG, Chrysler, 

GM, GMAC, foreclosure mitigation, preferred share purchases in 

Citigroup, Bank of America and hundreds of additional large and 

small financial institutions and other initiatives. Despite a weakened appetite from the private sector and recovery in asset values, 

Treasury has recently used $16 billion of authority for a public-private investment vehicle to purchase troubled assets.395 Although 

the Capital Purchase Program (CPP) has yielded around a 17 percent annualized rate of return (mainly through the repayment of 

institutions like Goldman Sachs and JP Morgan Chase),396 Treasury is set to chart a new course by providing lower-interest financing for community banks that extend credit to small businesses.397

The Panel should undertake to analyze these programs to determine if the investment of taxpayer funds is appropriate, authorized 

under EESA and adequately protected. 

4. Financial Stability v. Economic Stimulus 

TARP was promoted as a way to provide ‘‘financial stability,’’ and 

the American Reinvestment and Recovery Act was promoted as a 

way to provide ‘‘economic stimulus.’’ Regrettably, TARP has evolved 

from a program aimed at financial stability during a time of crisis 

to one that increasingly resembles another attempt by the Administration to promote its economic, political and social agenda through 

fiscal stimulus. 

If TARP is not being used for ‘‘economic stimulus,’’ then how else 

is it possible to explain the $81 billion ‘‘investment’’ in Chrysler 

and GM, neither of which is a ‘‘financial institution’’ as required 


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398 Although not directly related, an analysis recently released by Edmunds.com indicates that the so-called ‘‘cash-for-clunkers’’ program cost the American taxpayers approximately $24,000 

per car purchased ($3 billion program divided by 125,000 incremental sales attributable to the 

program). ‘‘Edmunds.com has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle 

sold. 

Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as 

CARS, but Edmunds.com analysts calculated that only 125,000 of the sales were incremental. 

The rest of the sales would have happened anyway, regardless of the existence of the program,’’ 

See Edmunds.com at www.edmunds.com/help/about/press/159446/article.html. 399 ‘‘The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the De- troit company, on top of the $12.5 billion that GMAC has received since December 2008, these 

people said. The latest infusion would come in the form of preferred stock. The government’s 

35.4% stake in the company could increase if existing shares eventually are converted into common equity.’’ GMAC Asks for Fresh Life, the Wall Street Journal, (October 29, 2009) (online at 

http://online.wsj.com/article/SB125668489932511683.html?mod=djemalertNEWS). 400See SIGTARP, Quarterly Report to Congress, at 4 (October 21, 2009), (online at) http:// 

sigtarp.gov/reports/congress/2009/October2009_Quarterly_Report_to_ Congress.pdf. 401See id. 402Three recent examples of the problems that may arise with respect to government financed 

investments in the private sector include: 

(i) GAO recently issued a report on the Chrysler and GM bailout. The GAO report states: 

under EESA? 398 In addition, the United States government has 

agreed to transfer to Fiat part of the equity it received in Chrysler 

if Fiat assists Chrysler in building a car that produces 40 miles per 

gallon. What does this transfer of United States government owned 

Chrysler stock to Fiat have to do with ‘‘financial stability’’? As if 

this was not enough, the Wall Street Journal recently reported that 

Treasury is considering the investment of up to an additional $5.6 

billion in GMAC.399 No transparent end-game is in sight for TARP’s $81 billion plus commitment to support Chrysler, GM and 

GMAC. 

If, in effect, the Administration now equates TARP funds with 

Stimulus funds, the Administration should direct the resources in 

the most efficient, equitable and transparent manner by granting 

tax and regulatory relief to small businesses—the economic engine 

that creates approximately three out of every four jobs—and other 

American taxpayers. 

In a recent report, SIGTARP addressed the problem of moral 

hazard, stating that ‘‘TARP runs the risk of merely re-animating 

markets that had collapsed under the weight of reckless behavior.’’ 400 I am concerned that TARP is again inflating the problem 

of moral hazard by providing government capital to institutions 

that contributed to the crisis, modifications to homeowners who 

may have taken on too much risk, and lower-cost loans to spur the 

purchase of what may be volatile, high-priced asset backed securities. 

The SIGTARP report also discussed the cost of TARP to the government’s credibility. It claims, ‘‘[u]nfortunately, several decisions 

by Treasury—including Treasury’s refusal to require TARP recipients to report on their use of TARP funds, its less-than accurate 

statements concerning TARP’s first investments in nine large financial institutions, and its initial defense of those inaccurate 

statements—have served only to damage the Government’s credibility and thus the long-term effectiveness of TARP.’’ 401 I do not 

see how Treasury will be able to regain the public’s trust so long 

as it continues to employ taxpayer sourced funds to make investments based upon the Administration’s economic, political and social agenda where there is little promise that such funds will be 

recouped.402


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‘‘As long as Treasury maintains ownership interests in Chrysler and GM, it will likely be pressured to influence the companies’ business decisions. 

‘‘Treasury officials stated that they established such up-front conditions not solely to protect 

Treasury’s financial interests as a creditor and equity owner but also to reflect the Administration’s views on responsibly utilizing taxpayer resources for these companies. While Treasury has 

stated it does not plan to manage its stake in Chrysler or GM to achieve social policy goals, 

these requirements and covenants to which the companies are subject indicate the challenges 

Treasury has faced and likely will face in balancing its roles.’’ 

GAO, TARP: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring 

and Divesting Financial Interests in Chrysler and GM, (November 2009), (online at http:// 

www.gao.gov/new.items/d10151.pdf). 

(ii) Evidence exists that Treasury arguably ‘‘pressured’’ creditors of Chrysler to support the 

Chrysler Section 363 bankruptcy sale. I requested Secretary Geithner to investigate the allegation and, to my disappointment, he declined. Specifically, I submitted the following question for 

the record to the Secretary: 

‘‘Will you agree to conduct a prompt and thorough investigation of this matter by contacting 

Mr. Rattner, Mr. Lauria and representatives of Weinberg Perella and submit your findings to 

the Panel?’’ 

The Secretary responded: 

‘‘SIGTARP will determine the appropriate actions with regard to this issue. But as noted 

above, I would reiterate that Mr. Rattner categorically denies Mr. Lauria’s allegations. 

‘‘Again, I ask the Secretary to investigate this matter and report his findings to the Panel.’’ 

Congressional Oversight Panel, Questions for the Record from the Congressional Oversight 

Panel at the Congressional Oversight Panel Hearing on Sept. 10, 2009, Questions for Timothy 

Geithner, Secretary of the Treasury, U.S. Department of the Treasury, at 27 (Sept. 23, 2009). 

See my dissent from the September report on the auto bailouts at http://cop.senate.gov/documents/cop-090909-report-additionalviews.pdf, pages 166–168. 

(iii) The Wall Street Journal recently reported. 

‘‘Federal support for companies such as GM, Chrysler Group LLC and Bank of America Corp. 

has come with baggage: Companies in hock to Washington now have the equivalent of 535 new 

board members—100 U.S. senators and 435 House members. 

‘‘Since the financial crisis broke, Congress has been acting like the board of USA Inc., invoking the infusion of taxpayer money to get banks to modify loans to constituents and to give more 

help to those in danger of foreclosure. Members have berated CEOs for their business practices 

and pushed for caps on executive pay. They have also pushed GM and Chrysler to reverse core 

decisions designed to cut costs, such as closing facilities and shuttering dealerships.’’ 

See Politicians Butt in At Bailed-Out GM, The Wall Street Journal, (October 29, 2009), (online 

at http://online.wsj.com/article/SB125677552001414699.html#mod=todays_us_page_one). 

In order to end the abuses of EESA as evidenced by the Chrysler 

and GM bankruptcies, misguided foreclosure mitigation programs 

and the ‘‘re-animation’’ of reckless behavior, the TARP program 

must end. These activities clearly show that the program is beyond 

capable oversight. Further, the TARP program should be terminated due to: • the desire of the taxpayers for the TARP recipients to 

repay all TARP related investments sooner rather than later; • the troublesome corporate governance and regulatory conflict of interest issues raised by Treasury’s ownership of equity 

and debt interests in the TARP recipients; • the stigma associated with continued participation in the 

TARP program by the recipients; and • the demonstrated ability of the Administration to use the 

program to promote its economic, social and political agenda 

with respect to, among others, the Chrysler and GM bankruptcies. 

Some of the adverse consequences that have arisen for TARP recipients include, without limitation: • the private sector must now incorporate the concept of ‘‘political risk’’ into its due diligence analysis before engaging in 

any transaction with the United States government; • corporate governance and conflict of interest issues; and • the distinct possibility that TARP recipients—including 

those who have repaid all Capital Purchase Program advances 


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403SIGTARP, Quarterly Report to Congress, (October 21, 2009), (online at http://sigtarp.gov/ 

reports/congress/2009/October2009_Quarterly_Report_to_Congress.pdf). 404 A blended cost combines short- and medium-term Treasury securities, while an ‘‘all-in’’ cost 

balances those with longer-term Treasury securities. If TARP is a medium- to longer-term program, either approach would seem more sensible than Treasury’s current short-term interest estimate. 405The $5,000 ‘‘cost’’ per taxpayer assumes 138.4 million taxpayers are covering the full $699 

billion. 406See Representative Jeb Hensarling, An Assessment of Foreclosure Mitigation Efforts After 

Six Months, Additional View by Representative Jeb Hensarling, (Oct. 9, 2009) (online at http:// 

cop.senate.gov/documents/cop-100909-report-hensarling.pdf). 

but have warrants outstanding to Treasury—and other private 

sector entities may be subjected to future adverse rules and 

regulations. 

A recent report issued by SIGTARP provides an insightful analysis of the actual cost of the TARP program.403

• Assuming that most financing for TARP comes from short-term 

Treasury bills, Treasury estimates the interest cost for TARP funds 

spent to be about $2.3 billion, although SIGTARP says a blended 

cost would double this amount and an ‘‘all-in’’ estimate would triple 

or quadruple it.404

• Were TARP to reach its $699 billion potential, it would mean 

a $5,000 expenditure for each taxpayer.405 TARP represents 5 percent of 2008 GDP. 

• Other costs identified by SIGTARP include (1) higher borrowing costs in the future as a result of increased Treasury borrowing levels, (2) a potential ‘‘crowding out effect’’ on prospective 

private-sector borrowers, potentially driving private-sector borrowers out of the market, (3) moral hazard, or unnecessary risktaking in the private sector due to the bailout, and (4) costs incurred by the other financial-rescue-related Federal agencies that 

have not yet been quantified. 

I introduced legislation—H.R. 2745—to end the TARP program 

on December 31, 2009. In addition, the legislation: 

• requires Treasury to accept TARP repayment requests 

from well capitalized banks; 

• requires Treasury to divest its warrants in each TARP recipient following the redemption of all outstanding TARP-related preferred shares issued by such recipient and the payment of all accrued dividends on such preferred shares; 

• provides incentives for private banks to repurchase their 

warrant preferred shares from Treasury; and 

• reduces spending authority under the TARP program for 

each dollar repaid. 

5. Oversight Plan, Budget, Press Releases and Hearings 

As discussed in detail in the October report, I encourage the 

Panel to adopt and make publicly available an oversight plan and 

a budget.406

Finally, I again note my disappointment that the Panel has not 

held a hearing with AIG, Citigroup, Bank of America (other than 

with respect to foreclosure mitigation) and other significant recipients of TARP funds. 


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SECTION THREE: TARP UPDATES SINCE LAST REPORT 

A. TARP Repayment 

Since the Panel’s prior report, additional banks have repaid their 

TARP investments under the Capital Purchase Program (CPP). A 

total of 42 banks have repaid in full their preferred stock TARP investments provided under the CPP to date. Of these banks, 27 

have repurchased their warrants as well. Additionally, during the 

month of September, CPP participating banks paid $138.9 million 

in dividends and $1.92 million in interest on Treasury investments. 

B. CPP Monthly Lending Report 

Treasury releases a monthly lending report showing loans outstanding at the top 22 CPP-recipient banks. The most recent report, issued on October 15, 2009, includes data through the end of 

August 2009 and shows that CPP recipients had $4.21 trillion in 

loans outstanding as of August 2009. This represents a one percent 

decline in loans outstanding between the end of July and the end 

of August. 

C. Term Asset-Backed Securities Loan Facility (TALF) 

At the October 21, 2009 facility, there were $2.1 billion in loans 

requested for legacy CMBS, but none for new CMBS. By way of 

comparison, there were $1.4 billion in loans for legacy CMBS requested at the September facility, and $2.3 billion at the August 

facility. There has never been a request for TALF loans for new 

CMBS. 

At the November 3, 2009 facility, there were $1.1 billion in loans 

requested to support the issuance of ABS collateralized by loans in 

the credit card, equipment, floorplan, small business and student 

loan sectors.No loans in the auto, premium financing, and servicing 

advances sectors were requested. By way of comparison, there were 

$2.47 billion in loans requested at the October 2, 2009 facility to 

support the issuance of ABS collateralized by loans in the auto, 

credit card, equipment, floorplan, small business, and student loan 

sectors. 

D. TARP Executive Compensation Determinations 

On October 22, 2009, Kenneth R. Feinberg, the Special Master 

for TARP Executive Compensation, released his determinations on 

the compensation packages for the top executives at the seven 

firms that have received exceptional TARP assistance. These seven 

firms are: AIG, Bank of America, Citigroup, Chrysler Financial, 

Chrysler Group, General Motors, and GMAC. The executives covered by these determinations include the senior executive officers 

and the next 20 most highly compensated employees at each of 

these seven firms. 

For each of these firms, the Special Master’s determinations set 

specific standards in compensation for the covered employees. The 

determinations limit the annual base salaries of these employees to 

no more than $500,000 unless determined otherwise by the Special 

Master. In three cases, the Special Master approved annual base 


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salaries of greater than $1 million: the new CEO of AIG and two 

employees of Chrysler Financial. 

The determinations also affect covered employees with respect to 

cash bonus payments, incentive awards, stock received as salary, 

personal expense payments and ‘‘golden parachutes.’’ Cash bonus 

payments are prohibited. Incentive awards may only be paid if the 

employee provides at least three years of service to the firm after 

an award is made. Additionally, stock received as salary may only 

be sold in one-third installments not to begin until 2011. Further, 

personal expense payments made to these employees by each of the 

firms will be capped at $25,000, unless determined otherwise by 

the Special Master. Finally, the new rules prohibit any increases 

in golden parachute payments made in 2009. 

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), 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 October report. • Interest Rate Spreads. Interest rate spreads continue to flatten. Interest rates on overnight commercial paper have returned to 

near pre-crisis levels. The interest rate spread for AA asset-backed 

commercial paper, which is considered mid-investment grade, has 

decreased by 23 percent since the Panel’s October report. The TED 

Spread, which is the difference between three month LIBOR and 

the three month Treasury Bill rate, increased by 16 percent during 

the same period. Contrary to the other key metrics presented here, 

increases in the TED Spread signify a contraction of liquidity in 

the market. This measure, however, still remains 94 percent below 

its October 3, 2008 level (see Figure 15 below). 

FIGURE 15: INTEREST RATE SPREADS 

Indicator Current spread 

(as of 10/28/09) 

Percent change 

since last report 

(10/09/09) 

3 month LIBOR-OIS spread 407 ................................................................ 0.11 ¥12.2 

1 month LIBOR-OIS spread 408 ................................................................ 0.09 ¥5.5 

TED spread 409 (in basis points) ............................................................. 23.2 16.1 

Conventional mortgage rate spread 410 .................................................. 1.57 4 

Corporate AAA bond spread 411 ............................................................... 1.73 1.17 

Corporate BAA bond spread 412 ............................................................... 2.87 1.06 

Overnight AA asset-backed commercial paper interest rate spread 413 0.20 ¥23.1 

Overnight A2/P2 nonfinancial commercial paper interest rate 

spread 414 ............................................................................................ 0.13 ¥7.1 

407 3 Mo LIBOR-OIS Spread, Bloomberg (online at www.bloomberg.com/apps/quote?ticker=.LOIS3:IND) (accessed October 28, 2009). 408 1 Mo LIBOR-OIS Spread, Bloomberg (online at www.bloomberg.com/apps/quote?ticker=.LOIS1:IND) (accessed October 28, 2009). 409 TED Spread, SNL Financial. 410 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 October 28, 2009); 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 October 28, 2009) (hereinafter ‘‘Fed H.15 10-Year 

Treasuries’’). 


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91 

415SNL Financial, Historical Dividend Yield Values, 3 Month Libor (online at www1.snl.com/ 

InteractiveX/history.aspx?RateList=1&Tabular =True&GraphType=2&Frequency =0&TimePeriod 

2=11&Begin Date=12%2F29%2F06 &End Date=11%2F4%2F2009&Selected Yield2=YID%3A63&ct 

l00%24ctl09%24Index Preference=default&Comparison Index2=0&Comparison Yield2=1&Custom 

Index=0&ComparisonTicker2=&Action=Apply) (accessed Nov. 5, 2009); SNL Financial, Historical Dividend Yield Values, 3 Month Treasury Bill (online at www1.snl.com/InteractiveX/history.aspx?Rate List=1 & Tabular=True & Graph Type =2 & Frequency=0 &Time Period2=11 &Begin 

Date=12%2F29%2F06&EndDate=11%2F4%2F2009&SelectedYield2=YID%3A63&ctl00%24ctl09% 

24 Index Preference=default & Comparison Index 2=0 & Comparison Yield2=1 & Custom Index = 0& 

ComparisonTicker2=&Action=Apply) (accessed Nov. 5, 2009). 416 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: 

Commercial Paper Rates and Outstandings: Data Download Program (Instrument: Nonfinancial 

Commercial Paper Outstanding, Frequency: Weekly) (online at www.federalreserve.gov/ 

DataDownload/Choose.aspx? rel=CP) (accessed Oct. 28, 2009). 417 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: 

Commercial Paper Rates and Outstandings: Data Download Program (Instrument: Financial 

Commercial Paper Outstanding, Frequency: Weekly) (online at www.federalreserve.gov/ 

DataDownload/Choose.aspx? rel=CP) (accessed Oct. 28, 2009). 

411 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.15: Selected Interest Rates: Historical Data (Instrument: Corporate Bonds/Moody’s Seasoned AAA, Frequency: Weekly) (online at 

www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_AAA_NA.txt) (accessed October 28, 2009); Fed H.15 10-Year Treasuries, supra 

note 410. 412 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.15: Selected Interest Rates: Historical Data (Instrument: Corporate Bonds/Moody’s Seasoned BAA, Frequency: Weekly) (online at 

www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_BAA_NA.txt) (accessed October 28, 2009); Fed H.15 10-Year Treasuries, supra 

note 410. 413 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: AA Asset-Backed Discount Rate, Frequency: Daily) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed October 28, 2009); Board of Governors of the Federal Reserve System, 

Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: AA Nonfinancial Discount 

Rate, Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed October 28, 2009) (hereinafter ‘‘Fed CP 

AA Nonfinancial Rate’’). 414 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: A2/P2 Nonfinancial Discount Rate, Frequency: Daily) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed October 28, 2009); Fed CP AA Nonfinancial Rate, supra note 413. 

• Commercial Paper Outstanding. Commercial paper outstanding, a rough measure of short-term business debt, is an indicator of the availability of credit for enterprises. While non-financial commercial paper outstanding increased by over 25 percent 

since the last report, the total outstanding is still 25 percent below 

its level in January 2007.416 Financial commercial paper outstanding increased again in October, returning the measure to its 

January 2007 level.417


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421 U.S. Department of the Treasury, Treasury Department Monthly Lending and Intermediation Snapshot Data for October 2008—August 2009 (Aug. 31, 2009) (online at 

www.financialstability.gov/docs/surveys/Snapshot_Data_August_2009.xls) (accessed Nov. 5, 

2009). 422 U.S. Department of the Treasury, Treasury Department Monthly Lending and Intermediation Snapshot: Summary Analysis for August 2009 (Oct. 28, 2009) (online at 

www.financialstability.gov/docs/surveys/ 

Snapshot%20Analysis%20August%202009%20Data%2010%2014%2009.pdf). 

FIGURE 17: COMMERCIAL PAPER OUTSTANDING 

[Dollars in billions] 

Indicator Current level 

(as of 10/28/09) 

Percent change 

since last report 

(10/09/09) 

Asset-backed commercial paper outstanding (seasonally adjusted) 418 $548.6 5.04 

Financial commercial paper outstanding (seasonally adjusted) 419 ...... 683.3 13.4 

Nonfinancial commercial paper outstanding (seasonally adjusted) 420 133.2 25.5 

418 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: Asset-Backed Commercial Paper Outstanding, Frequency: Weekly) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed October 28, 2009). 419 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: Financial Commercial Paper Outstanding, Frequency: Weekly) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed October 28, 2009). 420 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data 

Download Program (Instrument: Nonfinancial Commercial Paper Outstanding, Frequency: Weekly) (online at 

www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed October 28, 2009). 

• Lending by the Largest TARP-recipient Banks. Treasury’s 

Monthly Lending and Intermediation Snapshot tracks loan originations and average loan balances for the 22 largest recipients of CPP 

funds across a variety of categories, ranging from mortgage loans 

to commercial real estate to credit card lines. The data below exclude lending by two large CPP-recipient banks, PNC Bank and 

Wells Fargo, because significant acquisitions by those banks since 

October 2008 make comparisons difficult. Originations decreased 

across nearly all categories of bank lending in August when compared to July.421 Lenders surveyed by Treasury attribute this decrease to bank charge-offs, outstanding debt payments, decreased 

demand from borrowers, and natural seasonal patterns.422 Average 

loan balances decreased by approximately one percent from July to 

August while total loan originations declined by over 16 percent 

during that same period. 

FIGURE 18: LENDING BY THE LARGEST TARP-RECIPIENT BANKS (WITHOUT PNC AND WELLS 

FARGO) 423

Indicator Most recent data 

(August 2009) 

Percent change since 

July 2009 

Percent change since October 2008 

Total loan originations ............................ $175,850 ¥16 .5 ¥19.4 

Total mortgage originations ................... 61,181 ¥19 38.1 

Mortgage new home purchases .............. 23,614 ¥8 10.3 

Mortgage refinancing .............................. 35,201 ¥25 .2 87.6 

HELOC originations (new lines & line 

increases) ........................................... 2,216 ¥10 .8 ¥53.4 

C&I renewal of existing accounts .......... 44,148 ¥21 .9 ¥23.1 

C&I new commitments ........................... 26,431 ¥17 .8 ¥55.2 

Total average loan balances .................. $3,398,679 ¥0 .89 ¥0.7 

423 Treasury August Lending Snapshot, supra note 422. 


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• Housing Indicators. Foreclosure filings increased by roughly 

seven percent from May to June, and are nearly 25 percent above 

the level of last October. Housing prices, as illustrated by the S&P/ 

Case-Shiller Composite 20 Index, increased slightly in June. The 

index remains down over 10 percent since October 2008. 

FIGURE 20: HOUSING INDICATORS 

Indicator Most recent 

monthly data 

Percent change 

from data 

available at time of 

last report (8/5/09) 

Percent 

change since 

October 2008 

Monthly foreclosure filings 424 ................. 343,638 ¥4 .1 22.9 

Housing prices—S&P/Case-Shiller Composite 20 Index 425 ............................... 144.5 .97 ¥7.9 

424 RealtyTrac, Foreclosure Activity Press Releases (online at www.realtytrac.com//ContentManagement/PressRelease.aspx) (accessed Oct. 28, 

2009). Most recent data available for September 2009. 425 Standard & Poor’s, S&P/Case-Shiller Home Price Indices (Instrument: Seasonally Adjusted Composite 20 Index) (online at 

www2.standardandpoors.com/spf/pdf/index/SA_CSHomePrice_History_102706.xls) (accessed Oct. 28, 2009). Most recent data available for August 2009. 


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94 

426 RealtyTrac, Foreclosure Activity Press Releases (online at www.realtytrac.com// 

ContentManagement/PressRelease.aspx) (accessed Oct. 28, 2009); Standard & Poor’s, S&P/ 

Case-Shiller Home Price Indices (Instrument: Seasonally Adjusted Composite 20 Index) (online 

at www2.standardandpoors.com/spf/pdf/index/SA_CSHomePrice_History_102706.xls) (accessed 

Oct. 28, 2009). 427The Goldman Sachs Group, Inc., US Commercial Real Estate Take III: Reconstructing Estimates for Losses, Timing (Sept. 29, 2009). 428 Board of Governors of the Federal Reserve System, The July 2009 Senior Loan Officer 

Opinion Survey on Bank Lending Practices (online at www.federalreserve.gov/boarddocs/ 

snloansurvey/200908/fullreport.pdf) (accessed Nov. 4, 2009). 

• Commercial Real Estate. The commercial real estate market 

has continued to deteriorate since the Panel’s last report. New CRE 

lending by the top 22 CPP recipients has decreased by over 71 percent since the enactment of EESA. A recent Goldman Sachs report 

notes that rent growth in this market declined at an annualized 

rate of 8.7 percent in the second quarter and estimates that there 

will be a total of $287 billion in aggregated losses.427 Furthermore, 

the Federal Reserve’s recently released quarterly survey of senior 

loan officers reported that the net percentage of respondents reporting weaker demand for CRE loans was 63 percent during the 

third quarter of 2009.428

FIGURE 22: COMMERCIAL REAL ESTATE LENDING BY TOP 22 CPP RECIPIENTS (WITHOUT PNC AND 

WELLS FARGO) 429

[Dollars in millions] 

Indicator Current level 

(as of 8/31/09) 

Percent change 

since last 

report (10/9/09) 

Percent change 

since ESSA 

signed into law 

(10/3/08) 

CRE New Commitments .......................... $2,982 ¥13 .4 ¥71 .7 

CRE Renewal of Existing Accounts ........ 8,246 ¥20 ¥8 .3 

CRE Average Total Loan Balance ........... 377,433 0 .43 0 .69 

429 Treasury August Lending Snapshot, supra note 422. 


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430Treasury August Lending Snapshot, supra note 422. 431Treasury will release its next tranche report when transactions under the TARP reach 

$500 billion. 432 EESA, as amended by the Helping Families Save Their Homes Act of 2009, limits Treasury 

to $698.7 billion in purchasing authority outstanding at any one time as calculated by the sum 

of the purchases prices of all troubled assets held by Treasury. Pub. L. No. 110–343, § 115(a)– 

(b); Helping Families Save Their Homes Act of 2009, Pub. L. No. 111–22, § 402(f) (reducing by 

$1.26 billion the authority for the TARP originally set under EESA at $700 billion). 

F. Financial Update 

Each month since its April oversight report, the Panel has summarized the resources that the federal government has committed 

to economic stabilization. The following financial update provides: 

(1) an updated accounting of the TARP, including a tally of dividend income and repayments that the program has received as of 

September 30, 2009; and (2) an update of the full federal resource 

commitment as of October 28, 2009. 

1. TARP 

a. Costs: Expenditures and Commitments 431

Treasury is currently committed to spend $531.3 billion of TARP 

funds through an array of programs used to purchase preferred 

shares in financial institutions, offer loans to small businesses and 

automotive companies, and leverage Federal Reserve loans for facilities designed to restart secondary securitization markets.432 Of 

this total, $391.6 billion is currently outstanding under the $698.7 

billion limit for TARP expenditures set by EESA, leaving $307.1 

billion available for fulfillment of anticipated funding levels of existing programs and for funding new programs and initiatives. The 

$391.6 billion includes purchases of preferred and common shares, 

warrants and/or debt obligations under the CPP, TIP, SSFI Program, and AIFP; a $20 billion loan to TALF LLC, the special purpose vehicle (SPV) used to guarantee Federal Reserve TALF loans; 

and the $5 billion Citigroup asset guarantee, which was exchanged 

for a guarantee fee composed of additional preferred shares and 


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433October 30 TARP Transactions Report, supra note 27. 434October 30 TARP Transactions Report, supra note 27. 435See, e.g., U.S. Department of the Treasury, Securities Purchase Agreement: Standard Terms 

(online at www.financialstability.gov/docs/CPP/spa.pdf) (accessed Nov. 4, 2009). 436 U.S. Department of the Treasury, Cumulative Dividends Report as of August 31, 2009 (Oct. 

1, 2009) (online at www.financialstability.gov/docs/dividends-interest-reports/ 

August2009_DividendsInterestReport.pdf); October 30 TARP Transactions Report, supra note 27. 437Money Market Expiration Release, supra note 313. 

warrants and has subsequently been exchanged for Trust Preferred 

shares.433 Additionally, Treasury has allocated $27.3 billion to the 

Home Affordable Modification Program, out of a projected total program level of $50 billion. 

b. Income: Dividends, Interest Payments, and CPP Repayments 

A total of 42 institutions have completely repaid their CPP preferred shares, 27 of which have also repurchased warrants for common shares that Treasury received in conjunction with its preferred stock investments. Treasury received $88.4 million in repayments from three CPP participants during October.434 There were 

over $68 billion in repayments made by 12 banks in June the total 

repayments since then have been approximately $680.8 million. In 

addition, Treasury is entitled to dividend payments on preferred 

shares that it has purchased, usually five percent per annum for 

the first five years and nine percent per annum thereafter.435 In 

total, Treasury has received approximately $86 billion in income 

from repayments, warrant repurchases, dividends, and interest 

payments deriving from TARP investments 436 and another $1.2 

billion in participation fees from its Guarantee Program for Money 

Market Funds.437

d. TARP Accounting 

FIGURE 24: TARP ACCOUNTING (AS OF OCTOBER 28, 2009) 

[Dollars in billions] 

TARP Initiative Anticipated 

funding 

Purchase 

price Repayments Net current investments 

Net 

available 

Total .................................................... $531 .3 $467 $72.9 $391 .6 438 $307 .1 

CPP ...................................................... 218 204.7 70.8 133 .9 439 13 .3 

TIP ....................................................... 40 40 0 40 0 

SSFI program ....................................... 69 .8 69.8 0 69 .8 0 

AIFP ..................................................... 80 80 2.1 440 75 .4 441 0 

AGP ...................................................... 5 5 0 5 0 

CAP ...................................................... TBD 0 N/A 0 N/A 

TALF ..................................................... 20 20 0 20 0 

PPIP ..................................................... 30 16.7 N/A 16 .7 13 .3 

Supplier support program ................... 442 3 .5 3.5 0 3 .5 0 

Unlocking SBA lending ........................ 15 0 N/A 0 15 

HAMP ................................................... 50 443 27.3 0 27 .3 22 .7 

(Uncommitted) ..................................... 167 .4 N/A N/A N/A 444 242 .6 

438 This figure is the sum of the uncommitted funds remaining under the $698.7 billion cap ($167.4 billion) and the difference between the total anticipated funding and the net current investment ($139.7 billion). 439 This figure excludes the repayment of $70.7 billion in CPP funds. Secretary Geithner has suggested that funds from CPP repurchases 

will be treated as uncommitted funds of the TARP upon return to the Treasury. 440 This number consists of the original assistance amount of $80 billion less de-obligations ($2.4 billion) and repayments ($2.14 billion); 

$2.4 billion in apportioned funding has been de-obligated by Treasury ($1.91 billion of the available $3.8 billion of DIP financing to Chrysler 

and a $500 million loan facility dedicated to Chrysler that was unused). October 30 TARP Transactions Report, supra note 27. 441 Treasury has indicated that it will not provide additional assistance to GM and Chrysler through the AIFP. Government Accountability Office, Auto Industry: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler 

and GM, at 28 (Nov. 2009) (GAO–10–151) (online at www.gao.gov/new.items/d10151.pdf) (hereinafter ‘‘GAO Auto Report’’). The Panel therefore 

considers the repaid and de-obligated AIFP funds to be uncommitted TARP funds. 


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442 On July 8, 2009, Treasury lowered the total commitment amount for the program from $5 billion to $3.5 billion, this reduced GM’s portion from $3.5 billion to $2.5 billion and Chrysler’s portion from $1.5 billion to $1 billion. October 30 Transactions Report, supra note 28. 443 This figure reflects the total of all the caps set on payments to each mortgage servicer. October 30 Transactions Report, supra note 27. 444 This figure is the sum of the uncommitted funds remaining under the $698.7 billion cap ($167.4 billion), the repayments ($72.8 billion), and the de-obligated portion of the AIFP ($2.4 billion). Treasury provided de-obligation information on August 18, 2009, in response to 

specific inquiries relating to the Panel’s oversight of the AIFP. Specifically, this information denoted allocated funds that had since been 

de-obligated. 

FIGURE 25: TARP REPAYMENTS AND INCOME 

[Dollars in billions] 

TARP Initiative 

Repayments 

(as of 

10/28/09) 

Dividends 445

(as of 

9/30/09) 

Interest 446

(as of 

9/30/09) 

Warrant 

repurchases 447

(as of 

10/28/09) 

Total 

Total ...................................................................... $72.9 $9.3 $0.22 $2.9 $85.6 

CPP ........................................................................ 70.8 6.8 0.01 2.9 80.5 

TIP ......................................................................... 0 1.9 N/A 0 1.9 

AIFP ....................................................................... 2.1 0.5 0.2 N/A 2.82 

ASSP ...................................................................... N/A N/A 0.01 N/A 0.01 

AGP 448 ................................................................... 0 0.2 N/A 0 0.2 

Bank of America Guarantee .................................. .................... .................... .................... .................... .28 

445 U.S. Department of the Treasury, Cumulative Dividends Report as of September 30, 2009 (Oct. 30, 2009) (online at 

www.financialstability.gov/docs/dividends-interest-reports/September%202009_Dividends%20and%20Interest%20Report.pdf). 446 U.S. Department of the Treasury, Cumulative Dividends Report as of September 30, 2009 (Oct. 30, 2009) (online at 

www.financialstability.gov/docs/dividends-interest-reports/September%202009_Dividends%20and%20Interest%20Report.pdf). 447 This number includes $1.6 million in proceeds from the repurchase of preferred shares by privately-held financial institutions. For privately-held financial institutions that elect to participate in the CPP, Treasury receives and immediately exercises warrants to purchase additional shares of preferred stock. October 30 Transactions Report, supra note 28. 448 Citigroup is the lone participant in the AGP. 

Rate of Return 

As of October 30, 2009, the average internal rate of return for 

all financial institutions that participated in the CPP and fully repaid the U.S. government (including preferred shares, dividends, 

and warrants) is 17.2 percent. The internal rate of return is the 

annualized effective compounded return rate that can be earned on 

invested capital. 

2. Other Financial Stability Efforts 

Federal Reserve, FDIC, and Other Programs 

In addition to the direct expenditures Treasury has undertaken 

through 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, such as the interaction between PPIP and 

TALF. Other programs, like the Federal Reserve’s extension of 

credit through its section 13(3) facilities and SPVs and the FDIC’s 

Temporary Liquidity Guarantee Program, operate independently of 

TARP. As shown in the following tables, the Federal Reserve and 

the FDIC have earned approximately $18 billion in fees from programs aimed at stabilizing the economy and expanding the credit 

markets. 

3. Total Financial Stability Resources (as of October 28, 

2009) 

Beginning in its April report, the Panel broadly classified the resources that the federal government has devoted to stabilizing the 

economy through a myriad of new programs and initiatives as outVerDate Nov 24 2008 01:19 Dec 02, 2009 Jkt 053348 PO 00000 Frm 00103 Fmt 6602 Sfmt 6602 E:\HR\OC\A348.XXX A348

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lays, loans, or guarantees. Although the Panel calculates the total 

value of these resources at over $3 trillion, 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 elsewhere in this report, the FDIC 

assesses a premium of up to 100 basis points on TLGP debt guarantees. 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. The only loans 

currently ‘‘underwater’’—where the outstanding principal amount 

exceeds the current market value of the collateral—are two of the 

three non-recourse loans to the Maiden Lane SPVs (used to purchase Bear Stearns and AIG assets). 

FIGURE 26: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF OCTOBER 28, 2009) 

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Total ............................................................................................... $698.7 $1,651.8 $846.7 iii $3,028.2 

Outlaysi ................................................................................. 387.3 0 47.7 435 

Loans ..................................................................................... 43.7 1,431.4 0 1,475.1 

Guaranteesii ......................................................................... 25 220.4 630 875.4 

Uncommitted TARP Funds .................................................... 242.7 0 0 242.7 

AIG .................................................................................................. 69.8 95.3 0 165.1 

Outlays .................................................................................. iv 69.8 0 0 69.8 

Loans ..................................................................................... 0 v 95.3 0 95.3 

Guarantees ............................................................................ 0 0 0 0 

Bank of America ............................................................................ 45 0 0 45 

Outlays .................................................................................. vii 45 0 0 45 

Loans ..................................................................................... 0 0 0 0 

Guarantees vi ........................................................................ 0 0 0 0 

Citigroup ........................................................................................ 50 220.4 10 280.4 

Outlays .................................................................................. viii 45 0 0 45 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ ix 5 x 220.4 xi 10 235.4 

Capital Purchase Program (Other) ................................................ 97.3 0 0 97.3 

Outlays .................................................................................. xii 97.3 0 0 97.3 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ 0 0 0 0 

Capital Assistance Program .......................................................... TBD 0 0 xiiiTBD 

TALF ................................................................................................ 20 180 0 200 

Outlays .................................................................................. 0 0 0 0 

Loans ..................................................................................... 0 xv 180 0 180 

Guarantees ............................................................................ xiv 20 0 0 20 

PPIP (Loans) xvi .............................................................................. 0 0 0 0 

Outlays .................................................................................. 0 0 0 0 


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FIGURE 26: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF OCTOBER 28, 2009)— 

Continued 

[Dollars in billions] 

Program Treasury 

(TARP) 

Federal 

Reserve FDIC Total 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ 0 0 0 0 

PPIP (Securities) ............................................................................ xvii 30 0 0 30 

Outlays .................................................................................. 10 0 0 10 

Loans ..................................................................................... 20 0 0 20 

Guarantees ............................................................................ 0 0 0 0 

Home Affordable Modification Program ......................................... 50 0 0 xix 50 

Outlays .................................................................................. xviii 50 0 0 50 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ 0 0 0 0 

Automotive Industry Financing Program ....................................... 75.4 0 0 75.4 

Outlays .................................................................................. xx 55.2 0 0 55.2 

Loans ..................................................................................... 20.2 0 0 20.2 

Guarantees ............................................................................ 0 0 0 0 

Auto Supplier Support Program ..................................................... 3.5 0 0 3.5 

Outlays .................................................................................. 0 0 0 0 

Loans ..................................................................................... xxi 3.5 0 0 3.5 

Guarantees ............................................................................ 0 0 0 0 

Unlocking SBA Lending .................................................................. 15 0 0 15 

Outlays .................................................................................. xxii 15 0 0 15 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ 0 0 0 0 

Temporary Liquidity Guarantee Program ....................................... 0 0 620 620 

Outlays .................................................................................. 0 0 0 0 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ 0 0 xxiii 620 620 

Deposit Insurance Fund ................................................................. 0 0 47.7 47.7 

Outlays .................................................................................. 0 0 xxiv 47.7 47.7 

Loans ..................................................................................... 0 0 0 0 

Guarantees ............................................................................ 0 0 0 0 

Other Federal Reserve Credit Expansion ....................................... 0 1,156.1 0 1,156.1 

Outlays .................................................................................. 0 0 0 0 

Loans ..................................................................................... 0 xxv 1,156.1 0 1,156.1 

Guarantees ............................................................................ 0 0 0 0 

Uncommitted TARP Funds ............................................................. 242.7 0 0 242.7 

iThe 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.). The outlays figures are based on: (1) Treasury’s actual 

reported expenditures; and (2) Treasury’s anticipated funding levels as estimated by a variety of sources, including Treasury pronouncements 

and GAO estimates. Anticipated funding levels are set at Treasury’s discretion, have changed from initial announcements, and are subject to 

further change. Outlays as used here represent investments and assets purchases and 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. iiWhile many of the guarantees may never be exercised or exercised only partially, the guarantee figures included here represent the federal government’s greatest possible financial exposure. iiiThis figure is roughly comparable to the $3.0 trillion current balance of financial system support reported by SIGTARP in its July report. 

SIGTARP, Quarterly Report to Congress, at 138 (July 21, 2009) (online at 

www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdf). However, the Panel has sought to capture additional anticipated exposure and thus employs a different methodology than SIGTARP. iv This number includes investments under the SSFI Program: a $40 billion investment made on November 25, 2008, and a $30 billion investment committed on April 17, 2009 (less a reduction of $165 million representing bonuses paid to AIG Financial Products employees). v This number represents the full $60 billion that is available to AIG through its revolving credit facility with the Federal Reserve ($42.8 

billion had been drawn down as of October 29, 2009) and the outstanding principle of the loans extended to the Maiden Lane II and III SPVs 

to buy AIG assets (as of October 29, 2009, $16.3 billion and $19 billion respectively). 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 17 (Oct. 2009) (online at 

http://www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport200910.pdf) (hereinafter ‘‘Fed October 2009 Credit and Liquidity Report’’). vi A further discussion of the Panel’s approach to classifying this agreement appears, infra. vii October 30 TARP Transactions Report, supra note 27. This figure includes: (1) a $15 billion investment made by Treasury on October 28, 

2008 under the CPP; (2) a $10 billion investment made by Treasury on January 9, 2009 also under the CPP; and (3) a $20 billion investment made by Treasury under the TIP on January 16, 2009. viii October 30 TARP Transactions Report, supra note 27. This figure includes: (1) a $25 billion investment made by Treasury under the CPP 

on October 28, 2008; and (2) a $20 billion investment made by Treasury under TIP on December 31, 2008. ix U.S. Department of the Treasury, Summary of Terms: Eligible Asset Guarantee (Nov. 23, 2008) (online at 

www.treasury.gov/press/releases/reports/cititermsheet_112308.pdf) (hereinafter ‘‘Citigroup Asset Guarantee’’) (granting a 90 percent federal 

guarantee on all losses over $29 billion after existing reserves (totaling a $39.5 billion first-loss position for Citigroup), of a $306 billion pool 

of Citigroup assets, with the first $5 billion of the cost of the guarantee borne by Treasury, the next $10 billion by FDIC, and the remainder 

by the Federal Reserve). See also U.S. Department of the Treasury, U.S. Government Finalizes Terms of Citi Guarantee Announced in November 

(Jan. 16, 2009) (online at www.treas.gov/press/releases/hp1358.htm) (reducing the size of the asset pool from $306 billion to $301 billion). x Citigroup Asset Guarantee, supra note ix. 


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xi Citigroup Asset Guarantee, supra note ix. xiiThis figure represents the $218 billion Treasury has anticipated spending under the CPP, minus the $50 billion investment in Citigroup 

($25 billion) and Bank of America ($25 billion) identified above, and the $70.7 billion in repayments that are reflected as uncommitted TARP 

funds. This figure does not account for future repayments of CPP investments, nor does it account for dividend payments from CPP investments. xiiiThe CAP was announced on February 25, 2009 and as of yet has not been utilized. The Panel will continue to classify the CAP as dormant until a transaction is completed and reported as part of the program. xiv This figure represents a $20 billion allocation to the TALF SPV on March 3, 2009. October 30 TARP Transactions Report, supra note 27. 

Consistent with the analysis in our August report, only $49.8 billion dollars in TALF loans have been requested as of November 2, 2009, the 

Panel continues to predict that TALF subscriptions are unlikely to surpass the $200 billion currently available by year’s end. Congressional 

Oversight Panel, August Oversight Report: The Continued Risk of Troubled Assets, at 10–22 (August 11, 2009) (discussion of what constitutes 

a ‘‘troubled asset’’) (online at cop.senate.gov/documents/cop-081109-report.pdf). xv This 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 (Feb. 10, 2009) (online at 

www.financialstability.gov/docs/fact-sheet.pdf) (describing the initial $20 billion Treasury contribution tied to $200 billion in Federal Reserve 

loans and announcing potential expansion to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Because Treasury is responsible for reimbursing the Federal Reserve Board for $20 billion of losses on its $200 billion in loans, the Federal Reserve Board’s 

maximum potential exposure under the TALF is $180 billion. xvi It now appears unlikely that resources will be expended under the PPIP Legacy Loans Program in its original design as a joint 

Treasury-FDIC program to purchase troubled assets from solvent banks. See also Federal Deposit Insurance Corporation, FDIC Statement on the 

Status of the Legacy Loans Program (June 3, 2009) (online at www.fdic.gov/news/news/press/2009/pr09084.html) and Federal Deposit Insurance Corporation, Legacy Loans Program—Test of Funding Mechanism (July 31, 2009) (online at 

www.fdic.gov/news/news/press/2009/pr09131.html). The sales described in these statements do not involve any Treasury participation, and 

FDIC activity is accounted for here as a component of the FDIC’s Deposit Insurance Fund outlays. xvii U.S. Department of the Treasury, Joint Statement by Secretary of the Treasury Timothy F. Geithner, Chairman of the Board of Governors 

of The Federal Reserve System Ben S. Bernanke, and Chairman of the Federal Deposit Insurance Corporation Sheila Bair: Legacy Asset Program (July 8, 2009) (online at www.financialstability.gov/latest/tg—07082009.html) (‘‘Treasury will invest up to $30 billion of equity and debt 

in PPIFs established with private sector fund managers and private investors for the purpose of purchasing legacy securities.’’); U.S. Department of the Treasury, Fact Sheet: Public-Private Investment Program, at 4–5 (Mar. 23, 2009) (online at 

www.treas.gov/press/releases/reports/ppip_fact_sheet.pdf) (hereinafter ‘‘Treasury PPIP Fact Sheet’’) (outlining that, for each $1 of private investment into a fund created under the Legacy Securities Program, Treasury will provide a matching $1 in equity to the investment fund; a 

$1 loan to the fund; and, at Treasury’s discretion, an additional loan up to $1). As of October 23, 2009, Treasury reported $11.1 billion in 

outstanding loans and $5.6 billion in membership interest associated with the program, thus substantiating the Panel’s assumption that 

Treasury may routinely exercise its discretion to provide $2 of financing for every $1 of equity 2:1 ratio. See, October 30 TARP Transactions 

Report, supra note 27. xviii U.S. Government Accountability Office, Troubled Asset Relief Program: June 2009 Status of Efforts to Address Transparency and Accountability Issues, at 2 (June 17, 2009) (GAO09/658) (online at www.gao.gov/new.items/d09658.pdf) (hereinafter ‘‘GAO June 29 Status Report’’). Of the $50 billion in announced TARP funding for this program, $27.3 billion has been allocated as of October 23, 2009. October 30 

TARP Transactions Report, supra note 27. xix Fannie Mae and Freddie Mac, government-sponsored entities (GSEs) that were placed in conservatorship of the Federal Housing Finance 

Housing Agency on September 7, 2009, will also contribute up to $25 billion to the Making Home Affordable Program, of which the HAMP is a 

key component. U.S. Department of the Treasury, Making Home Affordable: Updated Detailed Program Description (Mar. 4, 2009) (online at 

www.treas.gov/press/releases/reports/housing_fact_sheet.pdf). xx October 30 TARP Transactions Report, supra note 27. A substantial portion of the total $80 billion in loans extended under the AIFP 

have since been converted to common equity and preferred shares in restructured companies. $20.2 billion has been retained as first lien 

debt (with $7.7 billion committed to GM and $12.5 billion to Chrysler). This figure represents Treasury’s current obligation under the AIFP. 

There have been $2.1 billion in repayments and $2.4 billion in de-obligated funds under the AIFP. xxi October 30 TARP Transactions Report, supra note 27. xxii Treasury PPIP Fact Sheet, supra note xvii. xxiiiThis figure represents the current maximum aggregate debt guarantees that could be made under the program, which, in turn, is a

function of the number and size of individual financial institutions participating. $307 billion of debt subject to the guarantee has been 

issued to date, which represents about 50 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports on Debt 

Issuance Under the Temporary Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (Sept. 30, 2009) (online at 

http://www.fdic.gov/regulations/resources/TLGP/total_issuance9_09.html) (updated Oct. 28, 2009). The FDIC has collected $9.64 billion in fees 

and surcharges from this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly Reports on 

Debt Issuance Under the Temporary Liquidity Guarantee Program (Sept. 30, 2009) (online at www.fdic.gov/regulations/resources/TLGP/fees.html) 

(updated Oct. 23, 2009). xxiv This 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 and the first and second quarters of 2009. Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) Report to 

the Board: DIF Income Statement (Fourth Quarter 2008) (online at www.fdic.gov/about/strategic/corporate/cfo_report_4qtr_08/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) Report to the Board: DIF Income Statement (Third Quarter 2008) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_08/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (First Quarter 2009) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_09/income.html); Federal Deposit Insurance Corporation, Chief Financial Officer’s (CFO) 

Report to the Board: DIF Income Statement (Second Quarter 2009) (online at 

www.fdic.gov/about/strategic/corporate/cfo_report_2ndqtr_09/income.html). This figure includes the FDIC’s estimates of its future losses under 

loss share agreements that it has entered into with banks acquiring assets of insolvent banks during these four 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 of another portion of assets. See, for example Federal Deposit Insurance Corporation, Purchase and Assumption Agreement Among FDIC, Receiver of Guaranty Bank, 

Austin, Texas, FDIC 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). In information provided to Panel staff, the FDIC disclosed that 

there were approximately $82 billion in assets covered under loss-share agreements as of September 4, 2009. Furthermore, the FDIC estimates 

the total cost of a payout under these agreements to be $36.2 billion. Since there is a published loss estimate for these agreements, the 

Panel continues to reflect them as outlays rather than as guarantees. xxv This figure is derived from adding the total credit the Federal Reserve Board has extended as of October 23, 2009 through the Term 

Auction Facility (Term Auction Credit), Discount Window (Primary Credit), Primary Dealer Credit Facility (Primary Dealer and Other Broker-Dealer 

Credit), Central Bank Liquidity Swaps, loans outstanding to Bear Stearns (Maiden Lane I LLC), GSE Debt Securities (Federal Agency Debt Securities), Mortgage Backed Securities Issued by GSEs, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, and Commercial Paper Funding Facility LLC. The level of Federal Reserve lending under these facilities will fluctuate in response to market conditions. 

Fed Report on Credit and Liquidity, supra note v. 


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449See Appendix I of this report, infra. 

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 eleven 

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 October 

oversight report assessing foreclosure mitigation efforts, the following developments pertaining to the Panel’s oversight of the 

Troubled Asset Relief Program (TARP) took place: 

• The Panel received a letter from Ben S. Bernanke, Chairman 

of the Board of Governors of the Federal Reserve System, dated October 8, 2009,449 providing commentary on a July Report from the 

Government Accountability Office, titled Financial Crisis Highlights Need to Improve Oversight of Leverage at Financial Institutions and Across System. 

• The Panel held a hearing in Washington, D.C. with Assistant 

Secretary of the Treasury for Financial Stability Herbert M. Allison, Jr. on October 22. Assistant Secretary Allison answered questions relating to the Panel’s recent report on foreclosure mitigation 

efforts, compensation issues for executives of firms that had received TARP funds, and the Administration’s recent proposed program to assist small businesses and community banks. 

Upcoming Reports and Hearings 

The Panel will release its next oversight report in December. The 

report will assess TARP’s overall performance since its inception. 

The Panel is planning a hearing with leading economic experts 

on November 19, 2009. The Panel will seek the perspective of these 

experts on TARP performance to help inform the upcoming December report. 

The Panel is planning its third hearing with Secretary Geithner 

on December 10, 2009. The Secretary has agreed to testify before 

the Panel once per quarter. His most recent hearing was on September 10, 2009. 


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SECTION FIVE: ABOUT THE CONGRESSIONAL 

OVERSIGHT PANEL 

In response to the escalating 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 Stabilization (OFS) within Treasury to implement a Troubled Asset 

Relief Program. 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, Senator McConnell announced the appointment of Paul Atkins, former Commissioner of the U.S. Securities and Exchange Commission, to fill the vacant seat. 


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APPENDIX I: LETTER FROM FEDERAL RESERVE BOARD 

CHAIRMAN BEN S. BERNANKE TO PANEL MEMBERS, 

RE: COMMENTARY ON JULY GAO REPORT ON FINANCIAL CRISIS, DATED OCTOBER 8, 2009 


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