GAO 

United States Government Accountability Office

Report to Congressional Committees

TROUBLED ASSET 

RELIEF PROGRAM 

One Year Later, 

Actions Are Needed to 

Address Remaining 

Transparency and 

Accountability 

Challenges 

October 2009 

GAO-10-16 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2009

TROUBLED ASSET RELIEF PROGRAM

One Year Later, Actions Are Needed to Address

Remaining Transparency and Accountability 

Highlights of GAO-10-16, a report to Challenges

congressional committees 

Over the last year, TARP in general, and the Capital Purchase Program (CPP) 

in particular, along with other efforts by the Board of Governors of the 

Federal Reserve System (Federal Reserve) and Federal Deposit Insurance 

Corporation (FDIC), have made important contributions to helping stabilize 

credit markets. To illustrate, figure 1 shows that while it is difficult to isolate 

the impact of TARP, the TED spread—a key indicator of credit risk that 

gauges the willingness of banks to lend to other banks—has narrowed to 

levels not seen since market turmoil began in late 2007. However, TARP is still 

a work in progress, and many uncertainties and challenges remain. For 

example, while some CPP participants had repurchased over $70 billion in 

preferred shares and warrants as of September 25, 2009, whether Treasury 

will fully recoup TARP assistance to the automobile industry and American 

International Group Inc., among others, remains uncertain. Moreover, other 

programs, such as the Public-Private Investment Program and the Home 

Affordable Modification Program (HAMP) are still in varying stages of 

implementation. 

Figure 1: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill Yield, as of September 29, 

2009 

0

1

2

3

4

5

6

2007 2008 2009

Interest rates

Year

LIBOR 3-month Treasury TED spread

Source: GAO analysis of data from Thomson Reuters Datastream.

BNP Paribas freezes three 

investment funds.

Major banks begin to write down subprime mortgage losses.

FDIC takes over IndyMac.

Lehman bankruptcy; 

Merrill Lynch 

purchase announced.

Washington Mutual closed by 

Office of Thrift Supervision.

CPP announced along 

with Federal Reserve 

and FDIC programs.

Citigroup receives

additional government 

assistance.

Bank of America receives

additional government 

assistance.

Capital Assistance 

Program Stress 

Test results 

Bear Stearns receives emergency loan released.

from Federal Reserve through JPMorgan.

Fannie Mae and Freddie Mac 

placed into conservatorship.

Note: Rates and yields are daily percentages. The area between the LIBOR and Treasury yield is the 

TED spread. 

As of September 25, 2009, Treasury had disbursed almost $364 billion in TARP 

funds; however, Treasury has yet to update its projected use of funds for most 

programs in light of current market conditions, program participation rates, 

and repurchases. Without more current estimates about expected uses of the 

remaining funds, Treasury’s ability to plan for and effectively execute the next

steps of the program will be limited. Amid concerns about the direction and 

transparency of TARP, the new administration has attempted to provide a 

GAO’s eighth report assesses the 

Troubled Asset Relief Program’s 

(TARP) impact over the last year. 

Specifically, it addresses (1) the 

evolution of TARP’s strategy and 

the status of TARP programs as of 

September 25, 2009; (2) the 

Department of the Treasury’s 

(Treasury) progress in creating an 

effective management structure, 

including hiring for the Office of 

Financial Stability (OFS), 

overseeing contractors, and 

establishing a comprehensive 

system of internal control; and (3) 

indicators of TARP’s performance 

that could help Treasury decide 

whether to extend the program. 

GAO reviewed relevant 

documentation and met with 

officials from OFS, contractors, 

and financial regulators. 

What GAO Recommends

While Treasury has been generally 

responsive to GAO’s prior 35 

recommendations, GAO reiterates 

the importance of fully 

implementing several previous 

recommendations. GAO also makes 

three new recommendations. 

Specifically, the Secretary should 

(1) coordinate with the Federal 

Reserve and FDIC to help ensure 

that the decision to extend or 

terminate TARP is considered in a 

broader market context, (2) 

document and communicate the 

results of its determination, and (3) 

update its projected use of funds. 

Treasury agreed with the first two 

recommendations. With the third, it 

stated that Treasury regularly 

re-evaluates its funding needs. 

However, GAO found that a 

thorough review of its estimates is 

warranted. 

View GAO-10-16 or key components. 

For more information, contact Thomas J. 

McCool, 202-512-2642, mccoolt@gao.gov. 
United States Government Accountability Office

Highlights of GAO-10-16 (continued) 

more strategic direction for using the remaining funds. 

TARP has moved from investment-based initiatives to 

programs aimed at stabilizing the securitization 

markets and preserving homeownership, and most 

recently at providing assistance to community banks 

and small businesses. While some programs, such as 

the Term Asset-Backed Securities Loan Facility, appear 

to have generated market interest, others, such as 

HAMP, face ongoing implementation and operational 

challenges. Related to transparency, Treasury has taken 

a number of steps to improve communication with the 

public and Congress, including launching a Web site 

and preparing to hire a communications director for 

OFS to support these efforts. 

Treasury has also made significant progress in 

establishing and staffing OFS; however, it must 

continue to focus on filling critical leadership positions, 

including the Chief Homeownership Preservation 

Officer and Chief Investment Officer, with permanent 

staff. Treasury’s network of contractors and financial 

agents that support TARP administration and 

operations has grown from 11 to 52. While Treasury has 

an appropriate infrastructure in place, it must remain 

vigilant in managing and monitoring conflicts of 

interests that may arise with the use of private sector 

sources. 

GAO again notes that isolating and estimating the effect 

of TARP programs remains a challenging endeavor. As 

shown in table below, the indicators that GAO has been 

monitoring over the last year suggest that there have 

been broad improvements in credit markets since the 

announcement of the first TARP program (CPP) and 

that a number of anticipated effects of TARP have 

materialized, although not necessarily due to TARP 

actions alone. Specifically, the cost of credit and 

perceptions of risk (as measured by premiums over 

Treasury securities) have declined significantly in 

interbank, corporate debt, and mortgage markets. 

Further, our analysis of Treasury’s loan survey results 

over most of the past year shows that collectively the 

largest CPP participants have reported extending 

almost $2.3 trillion in new loans since receiving $160 

billion in CPP capital. While Treasury has not fully 

developed a comprehensive framework for assessing 

the need for additional actions and evaluating program 

results in a transparent manner, in a recent report 

Treasury began to lay the foundation for such a 

framework and provided a number of financial 

indicators. A framework that utilizes indicators or 

measures of program effectiveness would help in 

weighing the benefits of TARP programs against the 

cost of employing additional taxpayer resources. Also, 

as Treasury considers further action under TARP and 

considers whether to extend the program beyond 

December 31, 2009, it will need to evaluate TARP in the 

broader context of efforts by the Federal Reserve and 

FDIC to stabilize the financial system. Finally, Treasury 

will need to document its analysis and effectively 

communicate its reasoning to Congress and the 

American people for its decisions to be viewed as 

credible. 

Changes in Select Credit Market Indicators, October 13, 2008, to September 30, 2009 

Credit market rates and spreads 

Indicator Description 

Basis point change from October 13, 

2008, to September 30, 2009 

LIBOR 3-month London interbank offered rate (an average of interest rates 

offered on dollar-denominated loans) 

Down 446 

TED Spread Spread between 3-month LIBOR and 3-month Treasury yield Down 443

Aaa bond rate Rate on highest-quality corporate bonds Down 143

Aaa bond spread Spread between Aaa bond rate and 10-year Treasury yield Down 85 

Baa bond rate Rate on corporate bonds subject to moderate credit risk Down 263

Baa bond spread Spread between Baa bond rate and 10-year Treasury yield Down 205 

Mortgage rates 30-year conforming loans rate Down 142 

Mortgage spread Spread between 30-year conforming loans rate and 10-year Treasury yield Down 83 

Quarterly mortgage volume and defaults 

Indicator Description 

Change from December 31, 2008 to 

June 30, 2009 

Mortgage originations New mortgage loans Up $290 billion to $550 billion 

Foreclosure rate Percentage of homes in foreclosure Up 100 basis points to 4.30 percent 

Source: GAO analysis of data from Global Insight, the Federal Reserve, Thomson Reuters Datastream, and Inside Mortgage Finance. 

Note: Rates and yields are daily except mortgage rates, which are weekly. Higher spreads (measured 

as premiums over Treasury securities of comparable maturity) represent higher perceived risk in lending 

to certain borrowers. Higher rates represent increases in the cost of borrowing for relevant borrowers. 

As a result, “Down” suggests improvement in market conditions for credit market rates and spreads. 

Foreclosure rate and mortgage origination data are quarterly. See GAO-09-161, GAO-09-296, GAO-09-

504, and GAO-09-658. 
Page i GAO-10-16 

Contents 

Letter 1

Scope and Methodology 2 

Background 7 

TARP Has Moved from Capitalizing Institutions to Stabilizing 

Securitization Markets and Preserving Homeownership, but 

Effective Communication Remains a Challenge 11 

The Office of Financial Stability Has Made Progress in Developing 

a Management Infrastructure and a Comprehensive System of 

Internal Control 26 

Conditions in Credit Markets Have Improved Since TARP Was 

Implemented, but Treasury Needs to Establish a Basis for Future 

TARP Actions 33 

Conclusions and Recommendations 47 

New Recommendations for Executive Action 50 

Agency Comments and Our Analysis 51 

Appendix I Status of GAO Recommendations, as of 

September 25, 2009 54 

Appendix II Capital Purchase Program 58 

Appendix III Capital Assistance Program 69 

Appendix IV Targeted Investment Program 73 

Appendix V Systemically Significant Failing Institutions 

Program 75 

Appendix VI Asset Guarantee Program 77 

 Troubled Asset Relief Program 
Appendix VII Consumer and Business Lending Initiative 79 

Appendix VIII The Public-Private Investment Program 83 

Appendix IX Auto Industry Financing Program 86 

Appendix X Home Affordable Modification Program 91 

Appendix XI Comments from the Department of the Treasury 99 

Appendix XII GAO Contact and Staff Acknowledgments 100 

Related GAO Products 101 

Tables 

Table 1: Status of TARP Funds, as of September 25, 2009 12 

Table 2: Capital Purchase Program Repurchases, from TARP’s 

Inception through September 25, 2009 14 

Table 3: TARP Dividend Payments Received, as of September 25, 

2009 16 

Table 4: TARP Contracts, Financial Agency Agreements, and 

Subcontracts with Minority-Owned, Women-Owned, and 

Small Businesses, as of September 18, 2009 29 

Table 5: Status of Treasury’s Actions to Renegotiate Existing 

Vendor Mitigation Plans That Predated the January 2009 

TARP Conflict-of-Interest Regulation, as of September 18, 

2009 30 

Table 6: Changes in Select Credit Market Indicators, October 13, 

2008, to September 30, 2009 37 

Page ii GAO-10-16 Troubled Asset Relief Program
Table 7: Increase in Capital Adequacy among CPP Participants and 

Nonparticipants (in percentage points), Fourth Quarter 

2008 to First Quarter 2009 38 

Table 8: New Lending at the 21 Largest Recipients of CPP, as of 

July 31, 2009 41 

Table 9: Capital Investments Made through the Capital Purchase 

Program, as of September 25, 2009 59 

Table 10: Treasury’s Actions in Response to GAO 

Recommendations, as of September 25, 2009 66 

Table 11: Federal Reserve’s Response to GAO’s Recommendation, 

as of September 25, 2009 72 

Table 12: Status of TIP Funds as of September 25, 2009 73 

Table 13: Status of SSFI Funds, as of September 25, 2009 75 

Table 14: Treasury’s Response to GAO’s Recommendation, as of 

September 25, 2009 76 

Table15: Status of Asset Guarantee Program Funding, as of 

September 25, 2009 77 

Table 16: Status of TARP Funds for the Consumer and Business 

Lending Initiative, as of September 25, 2009 80 

Table 17: Amount of TALF Loans Requested by Asset Class, from 

March through September 2009 80 

Table 18: Status of TARP Funds, as of September 25, 2009 84 

Table 19: TARP Funding Authorized for the Auto Industry and 

Payments Made, as of September 25, 2009 87 

Table 20: Treasury’s Actions in Response to GAO 

Recommendations 97 

Figures 

Figure 1: Timeline for the Implementation of TARP, October 3, 

2008, through September 30, 2009 8 

Figure 2: Number of Permanent Staff and Detailees, November 21, 

2008, through September 15, 2009 26 

Figure 3: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill 

Yield, from January 1, 2007, to September 29, 2009 35 

Figure 4: New Lending at the 21 Largest Recipients of CPP Capital, 

from October 2008 to July 2009 40 

Figure 5: Annual and Quarterly Asset-Backed Security Issuance 43 

Page iii GAO-10-16 Troubled Asset Relief Program
Abbeviations: 

ABS asset-backed securities 

AGP Asset Guarantee Program 

AIFP Automotive Industry Financing Program 

AIG American International Group, Inc. 

ARRA American Recovery and Reinvestment Act of 2009 

CAP Capital Assistance Program 

CDFI Community Development Financial Institutions 

CDS credit default swap 

CMBS commercial mortgage-backed securities 

COP Congressional Oversight Panel 

CPP Capital Purchase Program 

FAR Federal Acquisition Regulation 

FDIC Federal Deposit Insurance Corporation 

FinSOB Financial Stability Oversight Board 

FRBNY Federal Reserve Bank of New York 

GM General Motors Company 

GMAC GMAC LLP 

GSE government-sponsored enterprise 

HAMP Home Affordable Modification Program 

HPDP Home Price Decline Protection 

HPO Homeownership Preservation Office 

HUD Department of Housing and Urban Development 

IAA interagency agreements 

LIBOR London Interbank Offered Rate 

MBS mortgage-backed securities 

MHA Making Home Affordable 

MLSA Master Loan and Security Agreement 

OCC Office of the Comptroller of the Currency 

OFS Office of Financial Stability 

OGE Office of Government Ethics 

OMB Office of Management and Budget 

OTS Office of Thrift Supervision 

PPIP Public-Private Investment Program 

SBA Small Business Administration 

SCAP Supervisory Capital Assessment Program 

SIGTARP Special Inspector General for TARP 

SSFI Systemically Significant Failing Institutions Program 

TALF Term Asset-backed Securities Loan Facility 

TARP Troubled Asset Relief Program 

TIP Targeted Investment Program 

Page iv GAO-10-16 Troubled Asset Relief Program
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Page v GAO-10-16 Troubled Asset Relief Program
Page 1 GAO-10-16 

 

United States Government Accountability Office

Washington, DC 20548 

 

October 8, 2009 

Congressional Committees 

About a year ago, when the Emergency Economic Stabilization Act of 2008 

(the act) that authorized the Troubled Asset Relief Program (TARP) was 

enacted, the U.S. financial system was facing the most severe financial 

crisis since the Great Depression.1

 The crisis, which threatened the 

stability of the financial system and the solvency of many financial 

institutions, prompted the Department of the Treasury (Treasury) to 

request and Congress to authorize Treasury to buy or guarantee up to $700 

billion of the “troubled assets” that were deemed to be at the heart of the 

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

financial instrument Treasury determined it needed to purchase to help 

stabilize the financial system.2

When the act was signed on October 3, 2008, financial markets were in 

significant turmoil. The dramatic correction in the U.S. housing market 

had precipitated a decline in the price of financial assets associated with 

housing, in particular mortgage assets based on subprime loans that lost 

value as the housing boom ended and the market underwent a dramatic 

correction. Some institutions found themselves so exposed that they were 

threatened with failure—and some failed—because they were unable to 

raise the necessary capital as the value of their portfolios declined. Other 

institutions, ranging from government-sponsored enterprises (GSE) such 

as Fannie Mae and Freddie Mac to Wall Street firms, were left holding 

“toxic” or “legacy” assets that became increasingly difficult to value, were 

illiquid, and potentially had little worth. Moreover, investors not only 

stopped buying securities backed by mortgages but also became reluctant 

to buy securities backed by many other types of assets. Because of 

1

The Emergency Economic Stabilization Act of 2008 (the act), Pub. L. No. 110-343, 122 Stat. 

3765 (2008), codified at 12 U.S.C. §§ 5201 et seq. The act originally authorized the 

Department of the Treasury (Treasury) to purchase or guarantee up to $700 billion in 

troubled assets. The Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 

Div. A, 123 Stat. 1632 (2009), amended the act to reduce the maximum allowable amount of 

outstanding troubled assets under the act by almost $1.3 billion, from $700 billion to 

$698.741 billion.

2

Section 3(9) of the act, 12 U.S.C. § 5202(9). The act requires that the appropriate 

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

consultation with the Federal Reserve Chairman, has determined that it is necessary to 

purchase other financial instruments to promote financial market stability. 

 Troubled Asset Relief Program 
 

uncertainty about the financial condition and solvency of financial entities, 

the prices banks charged each other for funds rose dramatically, and 

interbank lending effectively came to a halt. The resulting credit crunch 

made the financing on which businesses and individuals depend 

increasingly difficult to obtain as cash-strapped banks held on to their 

assets. By late summer of 2008, the potential ramifications of the financial 

crisis ranged from the continued failure of financial institutions to 

increased losses of individual savings and corporate investments and 

further tightening of credit that would exacerbate the emerging global 

economic slowdown that was beginning to take shape. 

The act requires GAO to report at least every 60 days on the status of 

TARP. As the act required, our reports have focused on (1) findings 

resulting from our oversight of TARP’s performance in meeting the 

purposes of the act; (2) the financial condition and internal controls of 

TARP, its representatives, and agents; (3) the characteristics of both asset 

purchases and the disposition of assets acquired, including any related 

commitments that are entered into; (4) TARP’s efficiency in using the 

funds appropriated for the program’s operation; (5) TARP’s compliance 

with applicable laws and regulations; (6) efforts to prevent, identify, and 

minimize conflicts of interest of those involved in TARP’s operations; and 

(7) the efficacy of contracting procedures.3

This report assesses the program’s impact over the last year. Specifically, 

it addresses (1) the evolution of the TARP strategy and the status of TARP 

programs as of September 25, 2009; (2) the Department of the Treasury’s 

(Treasury) progress in creating an effective management structure, 

including hiring for the Office of Financial Stability (OFS), overseeing 

contractors, and establishing a comprehensive system of internal control; 

and (3) changes in the condition of financial markets as measured by 

indicators of TARP’s performance that could help Treasury decide 

whether to extend the program. 

We took several steps to update information on the status of TARP funds, 

including disbursements, dividend payments, repurchases, and warrant 

liquidations, from October 3, 2008, through September 25, 2009 (unless 

otherwise noted), and the status of Treasury’s actions taken in response to 

recommendations from our TARP reports, including its progress in 

Scope and 

Methodology 

 

3

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

Page 2 GAO-10-16 Troubled Asset Relief Program
 

developing a comprehensive system of internal control.4 We reviewed 

documents provided by OFS and conducted interviews with officials from 

OFS, including the Chief Financial Officer, Deputy Chief Financial Officer, 

Cash Management Officer, Director of Internal Controls, and their 

representatives. 

For the Capital Purchase Program (CPP), we reviewed documents from 

OFS that described the amounts, types, and terms of Treasury’s purchases 

of senior preferred stocks, subordinated debt, and warrants under CPP. 

We also reviewed documentation and interviewed officials from OFS who 

were responsible for approving financial institutions’ participation in CPP 

and overseeing the repurchase process for CPP preferred stock and 

warrants. Additionally, we contacted officials from the four federal 

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

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

Governors of the Federal Reserve System and Federal Reserve Banks 

(Federal Reserve), and the Office of Thrift Supervision (OTS)—to obtain 

information on their processes for reviewing CPP applications, the status 

of pending applications, their processes for reviewing preferred stock and 

warrant repurchase requests, and their examination processes for 

reviewing recipients’ lending activities and compliance with TARP 

requirements. 

To update the status of the Capital Assistance Program (CAP), we 

reviewed relevant documents and interviewed OFS officials about the 

program. We also met with Federal Reserve officials to discuss the stress 

test methodology and results for the 19 largest U.S. bank holding 

companies and reviewed related documents relevant to CAP. 

 

4

For our past 60-day reports, see GAO, Troubled Asset Relief Program: Additional Actions 

Needed to Better Ensure Integrity, Accountability, and Transparency, GAO-09-161

(Washington, D.C.: Dec. 2, 2008); Troubled Asset Relief Program: Status of Efforts to 

Address Transparency and Accountability Issues, GAO-09-296 (Washington, D.C.: Jan. 30, 

2009); Troubled Asset Relief Program: March 2009 Status of Efforts to Address 

Transparency and Accountability Issues, GAO-09-504 (Washington, D.C.: Mar. 31, 2009); 

Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date, 

GAO-09-553 (Washington, D.C.: Apr. 23, 2009); Troubled Asset Relief Program: June 2009 

Status of Efforts to Address Transparency and Accountability Issues, GAO-09-658

(Washington, D.C.: June 17, 2009); Troubled Asset Relief Program: Treasury Actions 

Needed to Make the Home Affordable Modification Program More Transparent and 

Accountable, GAO-09-837 (Washington D.C.: July 23, 2009); and Troubled Asset Relief 

Program: Status of Federal Assistance to AIG, GAO-09-975 (Washington, D.C.: Sept. 21, 

2009). 

Page 3 GAO-10-16 Troubled Asset Relief Program
 

To update our work on the Targeted Investment Program (TIP) and the 

Asset Guarantee Program (AGP), we reviewed the Securities Purchase 

Agreements that Citigroup Inc. (Citigroup) and Bank of America 

Corporation (Bank of America) entered into with Treasury and the Master 

Agreement signed by Citigroup, Treasury, FDIC, and the Federal Reserve 

Bank of New York (FRBNY). In addition, we interviewed OFS officials, 

including the acting Chief Investment Officer and the General Counsel, to 

obtain information on the current status of TIP and AGP in terms of new 

applicants for the programs, compliance with their requirements, and 

possible exit strategies for unwinding the TIP investments. 

For the Systemically Significant Failing Institutions (SSFI) program, we 

reviewed relevant documents from Treasury, the Federal Reserve, and 

American International Group, Inc. (AIG), including securities purchase 

agreements, periodic reports provided to Treasury, and other relevant 

documentation. We also met with officials from each organization and 

relevant state insurance regulators. 

To meet the report’s objectives with respect to the Consumer and 

Business Lending Initiative, we reviewed announcements and other 

publicly available information on the Term Asset-Backed Securities Loan 

Facility (TALF) that were available on the FRBNY’s Web site, in OFS 

internal reports, and in program design documents from Treasury and 

FRBNY. We also interviewed officials from OFS, FRBNY, and the Federal 

Reserve, as well as TALF investors, a securitization attorney, three 

underwriters, two major credit rating agencies, an academic, a policy 

analyst, and TALF issuers for commercial mortgage-backed securities 

(CMBS) and asset-backed securities (ABS) backed by credit cards, auto 

loans, student loans, and Small Business Administration (SBA) loans. 

To meet the report’s objectives with respect to the Public-Private 

Investment Program (PPIP), we reviewed PPIP-related announcements, 

OFS internal reports, and program operation and design documents 

published by Treasury and FDIC. We also interviewed officials from 

Treasury and FDIC, as well as a policy analyst and an economist. 

To determine the status of TARP assistance provided through the 

Automotive Industry Financing Program (AIFP), we reviewed documents 

related to the restructuring of General Motors Company (GM) and 

Chrysler Group LLC (Chrysler), including the automakers’ bankruptcy 

filings, credit agreements between the automakers and the federal 

government, and TARP disbursements to the automakers. We also 

Page 4 GAO-10-16 Troubled Asset Relief Program
 

interviewed Treasury officials, including officials from Treasury’s auto 

team, and representatives from GM and Chrysler. 

To determine the program status of the Home Affordable Modification 

Program (HAMP) and the status of our previous recommendations related 

to the program, we reviewed Treasury’s guidelines for each HAMP 

component, published reports on servicer performance, and Treasury’s 

written response to our July recommendations. In addition, we 

interviewed Treasury officials and officials at Fannie Mae and Freddie 

Mac—financial agents of Treasury for HAMP—about the status of program 

implementation, including a comprehensive system of internal control. We 

also reviewed documentation of Treasury’s recent communications with 

servicers, such as draft servicer guidelines and letters sent to participating 

servicers. Finally, we spoke with representatives of consumer groups, 

housing counselors, and servicer associations to obtain their views on the 

implementation of HAMP to date. 

To determine Treasury’s progress in developing an overall 

communications strategy for TARP, we interviewed individuals from OFS 

and Treasury’s Office of Public Affairs and Office of Legislative Affairs to 

determine what steps Treasury had taken to improve and coordinate 

communications with the public and Congress. 

To assess Treasury’s progress in hiring permanent staff for OFS, we met 

with officials from the Human Resources Office and OFS to discuss hiring 

efforts and reviewed various documents that OFS provided to us. In the 

interviews, officials discussed their processes for recruiting individuals 

with the skill sets and competencies needed to administer TARP, including 

steps taken to find permanent replacements to fill key leadership 

positions. To examine changes in the composition of staff since the office 

was established, we reviewed past GAO reports on TARP and various 

documents that OFS provided to us, including OFS’s updated 

organizational chart. To gauge OFS’s mix of permanent and temporary 

staff and the number of vacancies, we reviewed the totals for each type of 

staff over time and within each OFS office. 

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

administration and operations, we obtained information from Treasury on 

contracting activity as of September 18, 2009—including task orders and 

modifications—for the OFS-support financial agency agreements, 

contracts, blanket purchase agreements, and interagency agreements 

(IAA). We analyzed this information to identify each contract’s and 

agreement’s purpose, period of performance, and potential value. To 

Page 5 GAO-10-16 Troubled Asset Relief Program
 

assess OFS’s processes for (1) management and oversight of contractors’ 

and financial agents’ performance, and (2) managing conflicts of interest 

of contractors and financial agents supporting TARP administration and 

operations, we reviewed applicable documents that had become available 

from OFS since our June 2009 report. We also communicated with 

Treasury compliance officials and reviewed applicable documentation 

concerning OFS’s progress in (1) completing reviews of vendor conflictsof-interest mitigation plans to conform with applicable TARP requirements 

and (2) issuing guidance on OFS requirements and procedures for 

documenting and resolving conflicts of interest. 

As we noted in our initial report under the mandate, we identified a 

preliminary set of indicators on the state of credit and financial markets 

that might be suggestive of the performance and effectiveness of TARP.5

We consulted Treasury officials and other experts and analyzed available 

data sources and the academic literature. We selected a set of indicators 

that offered perspectives on different facets of credit and financial 

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

businesses and consumers.6

 We assessed the reliability of the data upon 

which the indicators were based and found that, despite certain 

limitations, they were sufficiently reliable for our purposes. To update the 

indicators in this report, we primarily used data from Thomson Reuters 

Datastream, a financial statistics database. As these data are widely used, 

we conducted only a limited review of the information but ensured that 

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

on data from Inside Mortgage Finance, Treasury, the Federal Reserve, the 

Chicago Board Options Exchange, the Securities Industry and Financial 

Markets Association, and Global Insight. We have relied on data from 

these sources for past reports and determined that, considered together, 

they are sufficiently reliable for the purpose of presenting and analyzing 

trends in financial markets. The data from Treasury’s survey of lending by 

the largest CPP recipients (as of July 31, 2009, the latest available survey) 

are based on internal reporting from participating institutions, and the 

definitions of loan categories may vary across banks. Because these data 

 

5

See GAO-09-161. 

6

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

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

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

draw conclusions about causality, because a variety of actions have been taken to address 

the economic downturn. 

Page 6 GAO-10-16 Troubled Asset Relief Program
 

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

historical lending or seasonal patterns at the institutions. Based on 

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

sufficiently reliable for the purpose of documenting trends in lending. 

Lastly, we collected data on loan balances from the Consolidated Financial 

Statements for Bank Holding Companies Y-9C Report Forms, the primary 

analytical tool that regulators use to monitor financial institutions. We 

verified that the input process did not result in data entry errors. Because 

the Y-9C is the primary source for balance sheet data and can be 

corroborated to some extent by audited financial statements, we 

conducted only a limited review of this data. 

We conducted this performance audit from July 2009 to October 2009 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Background 

TARP Is A Key Part of the 

United States’ Response to 

the Recent Financial Crisis 

Before the act was passed, TARP was expected to be a program to 

purchase mortgage-backed securities (MBS) and whole loans from 

financial institutions to stabilize the financial system. Within 2 weeks of 

enactment, however, following similar action by several foreign 

governments and central banks, Treasury—through the newly established 

OFS—announced that it would make $250 billion available to U.S. 

financial institutions through purchases of preferred stock to provide 

additional capital that would help enable the institutions to continue 

lending. This effort was coordinated with a number of foreign 

governments as part of a global effort to stabilize financial markets. In the 

United States, the Federal Reserve and FDIC also announced concurrent 

coordinated actions that were intended to increase confidence in the U.S. 

financial system. Treasury’s decision to change its strategy raised 

questions about TARP’s transparency, and the fact that the funds were 

disbursed before a comprehensive system of internal control had been 

established raised issues of accountability. Figure 1 provides an overview 

of key dates for TARP implementation. 

Page 7 GAO-10-16 Troubled Asset Relief Program
 

Figure 1: Timeline for the Implementation of TARP, October 3, 2008, through September 30, 2009 

Source: GAO.

2008 2009

Oct. Nov. Dec. Jan. Feb. Mar. April May June July Aug. Sept.

10/3: Congress passes P.L. 

110-343, EESA (the act), 

which authorized TARP.

10/14: Treasury announces

that it will purchase up to $250 

billion in financial firms’ 

preferred stock under TARP 

via the Capital Purchase 

Program (CPP).

10/28: Under CPP, Treasury 

purchases $115 billion in 

preferred stock and 

warrants from eight 

financial institutions.

11/10: Treasury announces that it will 

purchase $40 billion in senior 

preferred stock from AIG under SSFI. 

11/23: Treasury, FDIC, and the Federal 

Reserve enter into an agreement with 

Citigroup to provide a package of 

guarantees, liquidity access, and capital, 

including equity investment of $20 billion 

in Citigroup under newly created 

Targeted Investment Program (TIP).

11/25: Treasury announces

allocation of $20 billion to back

Term Asset-backed Securities

Loan Facility (TALF), a $200 billion 

lending facility for the consumer 

asset-backed securities market 

established by the Federal 

Reserve Bank of New York.

12/19: Treasury announces plan for stabilizing the 

automotive industry under the Automotive Industry 

Financing Program (AIFP), including loans to Chrysler 

and General Motors (GM).

12/29: Treasury announces purchase of $5 billion in 

senior preferred equity from GMAC LLC and agrees

to loan $1 billion to support its reorganization as a

bank holding company.

1/16: Treasury, the Federal Reserve, and FDIC enter 

into an agreement with Bank of America to provide 

guarantees, liquidity access, and capital, including 

protection against possible losses on approximately 

$118 billion in assets and the purchase of $20 billion 

in preferred stock under TIP.

2/10: Treasury announces the 

Financial Stability Plan.

3/3: Treasury and the 

Federal Reserve announce 

the launch of TALF.

3/23: Treasury, FDIC, and the 

Federal Reserve announce the 

details of the Public-Private 

Investment Program (PPIP).

5/7: Stress test results

are announced.

6/1: Treasury releases its first 

CPP Monthly Lending Report for 

all CPP participants.

6/17: Five of the eight largest 

financial institutions to first 

participate in CPP repurchase 

their preferred stock from 

Treasury.

9/14:

Treasury 

issues report 

on status and 

next phase of 

financial 

stabilization 

efforts.

9/30: Treasury 

announces that 

two PPIP funds

have raised at 

least the 

minimum $500 

million to invest 

in legacy 

securities.

8/17: Treasury and the 

Federal Reserve 

announce extension of 

TALF through March 

2010 for all asset classes

except for new-issue 

CMBS, which is extended 

through June 2010. 

2/18: Treasury announces

the Homeowner Affordability 

and Stability Plan.

2/25: Treasury announces the 

terms and conditions for the 

Capital Assistance Program.

Overview of GAO 

Recommendations 

In the last year, GAO has made 35 recommendations to Treasury and one 

to the Federal Reserve on a number of issues surrounding the 

implementation of TARP and the need to improve its operations and 

transparency.7

 Some of our recommendations applied to TARP in general, 

while others, such as CPP and HAMP, were program specific. Our 

 

7

Appendix I provides a complete list of the recommendations by report and their status as 

of September 25, 2009. 

Page 8 GAO-10-16 Troubled Asset Relief Program
 

recommendations to Treasury generally fell into three broad categ

(1) transparency, reporting, and accountability; (2) management 

infrastructure; and (3) communication. Other TARP oversight entitie

such as the Special Inspector General for TARP (SIGTARP)

Congressional Oversight Panel, have also made numerous 

recomm

ories: 

s, 

 and the 

endations aimed at improving the implementation and oversight of 

TARP. 

ations 

S 

ess 

assisted. Treasury has started to address many of these recommendations. 

 risk 

m in a 

taffing, 

contractor oversight, and internal controls. For example: 

ring 

ry fully 

ion Officer 

nt placement—and evaluate staffing levels and 

ompetencies. 

s 

were 

Transparency, reporting, and accountability. We made a series of 

recommendations aimed at improving the transparency and accountability 

of TARP and its programs. Initially, we made a series of recommend

aimed at improving the transparency of CPP. As a result, OFS now 

requires all CPP participants to participate in some form of monthly 

lending survey. We recommended that OFS report publicly the monies, 

such as dividends, paid to Treasury by TARP participants, something OF

started doing in June 2009. Similarly, Treasury took steps to implement 

our recommendations aimed at making the warrant repurchase proc

more transparent. Finally, we made a number of recommendations 

addressing the basis and design of HAMP’s Home Price Decline Protection 

program and the need to routinely review and update the key assumptions 

that underlie Treasury’s projection of the number of borrowers likely to be 

Management infrastructure. To ensure that OFS established a robust 

management structure, comprehensive system of internal control, and

assessment process, we made a series of recommendations aimed at 

addressing challenges associated with establishing a federal progra

short period of time including challenges associated with s

• We recommended that Treasury expedite its hiring efforts to help ensure 

that OFS had the needed personnel throughout the implementation phase

of the program and that key OFS leadership positions were filled du

and after the transition to the new administration. In certain areas, 

challenges remain, and most recently we recommended that Treasu

staff vacant positions in the Homeownership Preservation Office—

including filling the position of Chief Homeownership Preservat

with a permane

c

• We recommended that OFS take a number of actions to ensure an 

appropriate oversight infrastructure to manage contractors and addres

conflicts of interest, including ensuring that sufficient personnel 

Page 9 GAO-10-16 Troubled Asset Relief Program
 

assigned and properly trained to oversee the performance of all 

contractors. We recommended that OFS issue regulations on conflicts of 

interest involving Treasury’s agents, contractors, and their employees and 

related entities as expeditiously as possible. We also recommended issu

guidance requiring that key communications and decisions concerning 

p

ing 

otential or actual vendor-related conflicts of interest be documented. 

s’ 

ditiously finalize 

 comprehensive system of internal control over HAMP. 

 the 

ing 

pacity to meet HAMP requirements during program 

dmission. 

s 

l 

d 

d 

. 

ns 

l committees and members, and attempting to leverage 

technology. 

—we 

• More broadly, we recommended that Treasury continue to develop a 

comprehensive system of internal control over TARP, including policies, 

procedures, and guidance that were robust enough to protect taxpayer

interests and ensure that the program objectives were being met. For 

example, we recommended improvements in documenting certain internal 

control procedures and in updating the guidance available to the public on

determining warrant exercise prices so that it was consistent with OFS’s 

actual practices. Finally, we recommended that OFS expe

a

• We also recommended that Treasury develop a process to monitor

status of programs and identify any potential risk that announced 

programs would not have adequate funding. Most recently, we also 

recommended that OFS develop a means of systematically assess

servicers’ ca

a

Communication. In light of the backlash from Congress and other

regarding Treasury’s initial shift in the program from purchases of 

mortgages and mortgage-backed securities to capitalization of financia

institutions, we made a series of recommendations over the past year 

aimed at improving OFS’s communication with Congress and the public. 

While the theme has been constant, the recommendations have attempte

to help ensure that Treasury develops a comprehensive communication 

strategy and clearly articulated vision for the program that goes beyon

just providing information. We have recommended, for instance, that 

Treasury develop a communication strategy that includes building an 

understanding and support for the various components of the program

Treasury continues to take steps to address these recommendations, 

including hiring a communications officer, integrating communicatio

into TARP operations, scheduling regular and ongoing contact with 

congressiona

We made one recommendation that was not directed to Treasury. To help 

improve the transparency of CAP—in particular the stress test results

Page 10 GAO-10-16 Troubled Asset Relief Program
 

recommended that the Director of Supervision and Regulation of th

Federal Reserve consider periodically disclosing to the public the 

aggregate performance of the 19 bank holding companies against the mo

adverse scenario forecast for the duration of the 2-year forecast period 

and decide whether the scenario needs to be revised. At a minimum, the 

Federal Reserve should provide the aggregate performance data to OFS 

program staff for the 19 institutions partic

e 

re 

ipating in CAP or CPP. We are 

addressing these issues in ongoing work. 

as 

ting 

es and 

ple, 

d has 

sults, if on 

tegy and 

improve the way it communicates with Congress and the public. 

ams to 

ts 

so paid 

ury’s 

y 

TARP is one of many programs and activities the federal government h

put in place over the past year to respond to the financial crisis. As of 

September 25, 2009, it had disbursed almost $364 billion to participa

institutions. Participating institutions have in turn made billions in 

dividends, interest, and principal payments on loans and some have 

started to repurchase their preferred shares and warrants. With the 

exception of CPP, which has hundreds of participants of various typ

sizes, most of the other investment-based programs have provided 

substantial amounts of assistance to individual institutions. For exam

AIG has received assistance under SSFI and GM and Chrysler have 

received support through AIFP. Amid concerns about the direction of the 

program and lack of transparency, the new administration has attempted 

to provide a more strategic direction for using the remaining funds an

created a number of programs aimed at stabilizing the securitization 

markets, preserving homeownership, and most recently at providing 

assistance to community banks and small businesses. Some programs, 

such as TALF—which is operated by FRBNY, with Treasury providing a 

backstop against losses—appear to be achieving the intended re

a reduced scale. Others, such as HAMP and PPIP, face ongoing 

implementation or operational challenges. Finally, over the past year OFS 

has also started to take steps to formalize its communication stra

TARP Has Moved 

from Capitalizin

Institutions

Stabilizing 

Securitization

Markets and

Preserving 

Homeown

Effective 

Communication 

g 

 to 

ership, but 

Remains a Challenge 

$70 Billion 

Participants 

In the past year, Treasury has implemented a range of TARP progr

stabilize the financial system. As of September 25, 2009, OFS had 

disbursed almost $364 billion for TARP loans and equity investmen

(table 1). Disbursements represent amounts actually paid to make 

troubled asset purchases or loans. Participating institutions have al

Treasury billions of dollars in repurchases of preferred shares and 

warrants, dividend payments, and loan repayments. In general, Treas

authority to purchase, commit to purchase, or commit to guarantee 

troubled assets will expire on December 31, 2009. However, the Secretar

Over the Last Year, 

Treasury Has Disbursed 

Almost $364 Billion and 

Had More Than 

Returned From

Page 11 GAO-10-16 Troubled Asset Relief Program
 

of the Treasury, upon submission of a written certification to Congress,

may extend these authorities to no later than October 3, 2010—2 years

from the date of enactment.

nt 

ing 

ns 

for 

and effectively execute the next phase of the program will be limited. 

Table 1: Status of TARP Funds, as of September 25, 2009 

8

 Based on the total prices of outstanding 

troubled asset purchases and outstanding commitments to purchase and 

the total face amount of outstanding guarantees as of September 25, 2009, 

almost $329 billion remains available under the almost $700 billion limit on 

Treasury’s authority to purchase or insure troubled assets; however, while

Treasury has updated its projected use of funds for AGP and AIFP, it has 

not modified any of its estimates for the others despite changes in curre

market conditions, program participation rates, and repurchases since 

March 2009. For example, when Treasury updated its estimates in March

2009, it estimated that CPP participants’ repurchases would total about 

$25 billion but almost three times that amount has been repurchased as of

September 25, 2009. Moreover, questions remain about the projected use

of funds associated with consumer and business lending initiatives and 

PPIP. While Treasury officials acknowledge they are currently review

potential changes to the projections for the future, they continue to 

believe that these estimates are appropriate program funding allocatio

given current market conditions. Without more meaningful estimates 

about projected uses of the remaining funds, Treasury’s ability to plan 

Dollars in billions 

Program and purpose 

Ca

and received 

Asset pur 

pricea

sh disbursed chase

Capital Purchase Program. To provide capital to viable banks through the purchase of 

preferred shares and subordinated debentures. $204.6 $204.6 

Targeted Investment Program. To foster market stability and thereby strengthen the 

economy by making case-by-case investments in institutions that Treasury deems are 

critical to the functioning of the financial system. 40.0 40.0

Capital Assistance Program. To restore confidence throughout the financial system th

the nation’s largest banking institutions have sufficient capital to cushion themselve

against larg

at 

s 

er-than-expected future losses, and to support lending to creditworthy 

borrowers. 0.0 0.0

Systemically Significant Failing Institutions. To provide stability in financial markets and 

avoid disruptions to the markets from the failure of a systemically significant institution. 

Treasury determines participation in this program on a case-by-case basis. 43.2 69.8

 

8

Sections 106(e) and 120 of the act, 12 U.S.C. §§ 5216(e), 5230. 

Page 12 GAO-10-16 Troubled Asset Relief Program
 

Dollars in billions 

Program and purpose 

Cash disbursed 

and received 

Asset purchase 

pricea

Asset Guarantee Program. To provide federal government assurances for assets h

by financial institutions that are v

eld 

iewed as critical to the functioning of the nation’s 

financial system. 0.0 5.0

Automotive Industry Financing Program. To prevent a significant disruption of the 

American automotive industry. 75.9 81.1

Home Affordable Modification Program. To offer assistance to homeowners through a 

cost-sharing arrangement with mortgage holders and investors to reduce the monthly 

mortgage payment amounts of homeowners at risk of foreclosure to affordable levels. 0.0b

 22.3

Consumer and Business Lending Initiative.c To support consumer and business credit 

iness credit. 2

markets by providing financing to private investors to issue new securitizations to help 

unfreeze markets and lower interest rates for auto, student, and small business loans; 

credit cards; commercial mortgages; and other consumer and bus 0.1 0.0

Public-Private Investment Program. To address the challenge of “legacy assets” as part 

 to repair balance sheets throughout the financial system and 

ity of credit to households and businesses. 

of Treasury’s efforts

increase the availabil 0.0 0.0

Total $363.8 $442.8

Less repurchasesd70.7 70.7

Less loan principal repayments 2.1 2.1

Less dividends and interest received 9.5 n/ae

Less repurchased warrants and preferred stock obtained through the exercise of 

warrants 2.9 n/ae

Net disbursements and total troubled assets outstanding $278.6 $370.0

Source: GAO presentation of OFS, Treasury, data (unaudited). 

a

The Asset Purchase Price reflects the aggregate amount Treasury agreed to pay to purchase 

outstanding troubled assets that are subject to the almost $700 billion purchase limit in section 115 of 

the Emergency Economic Stabilization Act (the act). This amount includes signed contract amoun

not yet disbursed and the aggregate amount of outstanding guarantees made by Treasury, even 

though Treasury has not disbursed 

p

ts 

any cash to honor a guarantee. For example, AGP’s asset 

urchase price includes the $5 billion Citigroup guarantee, even though no cash has been disbursed 

amount to reflect the balance in the Troubled 

ssets Insurance Financing Fund. 

asury had disbursed almost $1 million in HAMP investor subsidies 

nd incentive payments to participating servicers. 

ses represent the amounts received from CPP participant institutions that bought back their 

’

to Citigroup through this program. However, as required under section 102 of the act, it does not 

include a subtraction from the outstanding guarantee 

A

b

As of September 25, 2009, Tre

a

c

The Consumer and Business Lending Initiative includes TALF and the former Small Business and 

Community Lending Program. 

d

Repurcha

preferred shares from Treasury. Repurchases exclude any amounts relating to private institutions’

buybacks of their preferred shares obtained through the exercise of warrants and public institutions

buybacks of their warrants. 

Page 13 GAO-10-16 Troubled Asset Relief Program
 

e

Dividend payments and the amounts received from the repurchases of warrants and preferred sto

issued through the exercise of the warrants are not to be used to reduce the outstanding balance

under the almost $700 billion TARP limit. However, these amounts are deposited in the genera

of the U.S. Treasury or the Troubled Asset Insurance Financing Fund, and they offset the amo

Treasury’s disbursements. 

As shown in table 1, repurchases of preferred stock and repayments 

loan principal have reduced the outstanding balance of the program. 

Specifically, 41 institutions, including 10 of the largest bank holding 

companies participating in TARP, had repurchased all or a portion

preferred stock from Treasury for a total of about $70.7 billion a

September 25, 2009 (table 2).

ck 

l fund 

unt of 

of 

 of their 

s of 

n to 

e 

Treasury, as administrator of CPP, has a 

responsibility to help ensure that institutions are being treated 

ing TARP participants’ requests to repurchase their 

preferred shares.10 

Table 2: Capital Purchase es o

9

 While the decision to allow an institutio

repurchase its preferred shares rests with its primary federal regulator, w

continue to believe that 

consistently and that the regulators are applying generally consistent 

criteria when review

 Program Repurchas , from TARP’s Incepti n through 

September 25, 2009 

Dollars in millions 

Institution type 

Repurchas

for prefer

initially

Treasury

Repurchase amount 

for preferred st

issued thro

exercise of warrants

Rep

am

warrants

e amount 

red stock 

 issued to 

ock 

ugh 

urchase 

ount for 

Private Institutions $44.4 $1.6 n/a

Publicly held Institutions $70,644.8 n/a $2,897.9

Total $70,689.2 $1.6 $2,897.9

Source: GAO presentation of OFS, Treasury, data (unaudited). 

 

9

Under the terms of the CPP securities purchase agreement, CPP participants have a right 

to repurchase their preferred or debt securities and warrants from Treasury. Our use of the 

term “repurchases” is general and does not differentiate between repurchases and 

redemptions of senior preferred stock. A redemption of senior preferred stock occurs 

when an institution completes a qualified equity offering per the standard terms of the 

preferred stock and subsequently exchanges cash for the senior preferred stock it 

previously issued to Treasury. A repurchase occurs when the institution buys back its 

senior preferred shares without having completed a qualified equity offering, as permitted 

by American Recovery and Reinvestment Act, Pub. L. No. 111-5, div. B, § 7001, 123 Stat, 516 

(2009), or another authority. 

10The primary federal regulators are FDIC, the Federal Reserve, OCC, and OTS. 

Page 14 GAO-10-16 Troubled Asset Relief Program
 

A number of participants have also started to repurchase their warrants 

and preferred stock obtained through the exercise of warrants.11 However, 

unlike preferred stock, these amounts are deposited in the general fund of 

the U.S. Treasury and are not to be used to reduce the outstanding 

troubled assets counted against the almost $700 billion limit, as required 

by the act (see table 2). Specifically, as of September 25, 2009, 20 financial 

institutions had repurchased their warrants, and 3 had repurchased their 

warrant preferred stock from Treasury, at an aggregate cost of about $2.9 

billion. 

While the first warrants repurchased were valued using a valuation 

process agreed to by Treasury, some in the industry have suggested that 

an auction process may represent the best method for Treasury to realize 

the market value of the warrants and provide a more transparent process. 

Treasury announced in June 2009 that it would auction certain warrants 

but has yet to establish guidelines for how the auction process will work. 

Treasury and others have noted that an auction method may not 

necessarily yield the best price for the federal government. As of 

September 25, 2009, Treasury had not yet auctioned any securities. 

As of September 25, 2009, Treasury had received approximately $9.2 

billion in dividend payments on shares of preferred stock acquired through 

CPP, TIP, AIFP, and AGP (table 3). Treasury’s agreements under these 

programs entitled it to receive dividend payments on varying terms and at 

varying rates.12 The dividend payments to Treasury are contingent on each 

institution declaring dividends. However, AIG—the sole participant in 

 

11In addition to preferred stock, Treasury also received from the privately held institutions 

warrants to purchase a specified number of shares of preferred stock—called warrant 

preferred stock—that pay quarterly dividends at a rate of 9 percent per year. The exercise 

price for the warrant preferred stock is $0.01 per share unless the financial institution’s 

charter requires otherwise. Treasury exercised these warrants immediately for privately 

held institutions. 

12For example, according to the CPP terms for publicly held institutions, participating 

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

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

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

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

percent per year. 

Page 15 GAO-10-16 Troubled Asset Relief Program
 

SSFI—had not declared dividends and therefore had not made any of its 

three scheduled dividend payments as of September 25, 2009.13

Table 3: TARP Dividend Payments Received, as of September 25, 2009 

Dollars in millions 

Program 

Dividend 

payments 

received

Cumulative 

dividends not 

declared and 

not paid 

Noncumulative 

dividends not 

declared and not 

paid

Capital Purchase Programa$6,733.9 $74.1 $1.6

Targeted Investment Program 1,862.2 - -

Automotive Industry Financing 

Programb

430.6 - -

Asset Guarantee Program 174.8 - -

Systemically Significant Failing 

Institutions Programc

- - 1,226.8

Total $9,201.5 $74.1 $1,228.4

Source: GAO presentation of OFS, Treasury, data (unaudited). 

a

Dividend payments received includes interest received on subordinated debentures received under 

the program. 

b

AIFP participants that issued debt instruments to Treasury are not reflected on this table. 

c

On April 17, 2009, AIG and Treasury restructured their November 25, 2008, agreement. Under the 

restructuring, Treasury exchanged $40 billion of cumulative Series D preferred shares for $41.6 billion 

of noncumulative Series E preferred shares. The amount of Series E preferred shares is equal to the 

original $40 billion plus approximately $733 million in undeclared dividends as of February 1, 2009—

the scheduled quarterly dividend payment date—$15 million in dividends compounded on the 

undeclared dividends, and an additional $855 million in dividends accrued from February 1, 2009, but 

not paid as of April 17, 2009. The amount of dividends not declared and not paid in the table 

represents unpaid dividends since the April 17, 2009, restructuring. The last scheduled dividend 

payment date was August 1, 2009, and the next payment date is November 1, 2009. 

Treasury borrows funds to finance the gap between the federal 

government’s revenues and outlays and is subject to a statutory debt limit. 

Because Treasury must borrow the funds disbursed, TARP and other 

actions taken to stabilize the financial markets increase the federal debt 

and result in related borrowing costs in the form of interest. Because 

Treasury manages its cash position and debt issuances from a 

governmentwide perspective, it is generally not possible to match TARP 

 

13See GAO-09-975. Treasury officials stated that, in accordance with the securities purchase 

agreement, if AIG fails to make one more dividend payment, Treasury will be able to elect 

at least three members to its board of directors. 

Page 16 GAO-10-16 Troubled Asset Relief Program
 

disbursements with specific debt securities issued by Treasury and the 

related borrowing costs. Moreover, Treasury typically does not calculate 

the federal government’s borrowing cost related to specific disbursements, 

including the net disbursements for TARP. However, Treasury provided us 

with an unaudited estimate of approximately $2.3 billion in borrowing 

costs based on certain assumptions relating to the net disbursements for 

TARP from TARP’s inception through September 30, 2009.14 Using 

different assumptions would result in different estimated borrowin

Treasury’s estimation of the federal government’s borrowing costs for 

TARP does not represent the ultimate costs of TARP and does not 

consider, among other things, the intra-governmental interest that TARP 

incurs. 

g costs. 

 

CPP Is Treasury’s Largest 

Program for Capitalizing 

Institutions and Stabilizing 

the Financial System 

Over the past year, CPP—the largest and most widely used program under 

Treasury’s TARP authority for stabilizing the financial markets—made 

investments in large publicly held financial institutions quickly but faced 

challenges and delays in developing standard terms for investing in 

smaller, nonpublic institutions.15 As of September 25, 2009, Treasury had 

provided capital to 685 financial institutions through CPP. Treasury has 

extended the CPP application deadline for small banks and increased the 

amount of investment they can receive to encourage participation, but the 

number of CPP disbursements has decreased dramatically. Investments 

that are being made are going to relatively small banks. For example, the 

average investment size for the 9 institutions funded in August 2009 was 

$14.4 million, compared with the average investment size of $121 million 

for the 147 institutions funded in January 2009. 

According to Treasury, over 430 institutions have withdrawn their 

applications to CPP after receiving approval for funding. Also, federal 

banking regulators’ data show that over 1,800 applications have been 

withdrawn since the start of the program. The number of approved 

institutions withdrawing increased earlier this year, in part because of 

uncertainties about program requirements (e.g., changes to executive 

compensation). Anecdotally, some of the reasons cited have included 

14According to Treasury, it estimated the borrowing costs for TARP as a proportion of total 

monthly borrowing costs on a rolling basis since TARP’s inception. These borrowing costs 

included refinancing TARP when initial financing matured as well as the reduction of 

financing costs due to repurchases. 

15For a detailed discussion of CPP, see appendix II. 

Page 17 GAO-10-16 Troubled Asset Relief Program
 

increased confidence in the financial condition of banks and, for smaller 

institutions, the relatively high cost of closing CPP transactions. We are 

continuing to review the process used to assess applications for CPP 

funding to determine the extent to which Treasury consistently applied 

established criteria and adequately documented the regulators’ 

recommendations and its final decisions. The results of this review will be 

discussed in a subsequent report. 

Over the last year, and consistent with our recommendation that Treasury 

bolster its ability to determine whether institutions’ activities are generally 

consistent with the act’s purposes, Treasury and federal banking 

regulators have made progress in monitoring the activities of CPP 

participants. Specifically: 

• Using its new monthly lending surveys, in February 2009 Treasury began 

to publish detailed information for the 20 largest CPP institutions. In April 

2009, it added questions addressing their small business lending activity to 

the survey.16 In June Treasury began to publish basic information from all 

CPP participating institutions.17 The monthly surveys are an important step 

toward greater transparency and accountability for institutions of all sizes. 

In August 2009, Treasury and the bank regulators began publishing a 

quarterly analysis of regulatory financial data for CPP and non-CPP 

institutions that focuses on three broad categories: on- and off-balance 

sheet items, performance ratios, and asset quality measures.18 Moreover, 

the largest CPP institutions that have repurchased their preferred shares 

and warrants have agreed to voluntarily provide lending information 

through 2009. These data will enable Treasury and others to monitor the 

institutions’ lending activities following the repurchase of their shares. 

• In the past year, the federal banking regulators have taken steps to help 

ensure compliance with the CPP agreements and other TARP 

requirements, as we recommended. All of the federal banking regulators 

have issued or are finalizing examiner guidance and procedures for 

assessing institutions’ compliance with CPP and other TARP 

 

16The name of the survey report is Monthly Lending and Intermediation Snapshot. The 

original 20 institutions were expanded to 22 when American Express Company was added 

in March 2009, and Hartford Financial Services Group, Inc. was added in July 2009. 

17The CPP Monthly Lending Report. 

18The Quarterly Capital Purchase Program Report. 

Page 18 GAO-10-16 Troubled Asset Relief Program
 

requirements.19 For example, in March 2009 OCC issued a supervisory 

memorandum to all examination staff that provided specific forms, 

checklists, and guidance for assessing compliance with CPP and TARP 

requirements. They plan to examine institutions’ compliance with TARP 

requirements on executive compensation, dividend payments, and stock 

repurchases as part of routine examinations. Three of the four banking 

regulators had conducted 351 examinations as of September 2009, that 

included checking for compliance with CPP and TARP requirements. 

According to these regulators, the institutions examined were generally in 

compliance with the requirements. 

• Treasury also has hired three asset management firms to provide market 

advice about its portfolio of investments in financial institutions 

participating in various TARP programs. Consistent with our 

recommendation that Treasury increase its oversight of compliance with 

terms of the CPP agreements, including limits on dividends and stock 

repurchases, these managers are responsible for helping OFS monitor 

compliance with these terms. However, Treasury has yet to finalize the 

specific guidance and performance measures for the asset managers’ 

oversight responsibilities or identify the process for monitoring the asset 

managers’ performance. We plan to continue monitoring this area. 

The Level of Participation 

in the Capital Assistance 

Program Remains 

Uncertain 

As of September 25, 2009, no funds had been expended under CAP.20 The 

Federal Reserve’s stress tests of the 19 largest bank holding companies in 

May 2009 identified 10 bank holding companies that needed to raise 

approximately $75 billion in additional capital. According to FinSOB, this 

result was better than the markets anticipated and helped boost the 

markets’ confidence in the largest banks.21 By September 25, 2009, these 10 

institutions had raised about $79 billion in capital, and 9 institutions had 

 

19OTS, Monitoring and Documenting the Use of Funds from Federal Financial Stability 

and Guaranty Programs (Mar. 18, 2009). OCC, Examination Guidance for Institutions 

Participating in the Treasury’s TARP Capital Purchase Program, (Mar. 26, 2009). FDIC, 

Monitoring the Use of Funding from Federal Financial Stability and Guaranty 

Programs, (Jan. 12, 2009). FDIC, Examination Guidelines for Financial Institutions 

Receiving Subscriptions from U.S. Department of the Treasury’s TARP CPP Program, 

(Feb. 9, 2009). Federal Reserve, Applying Supervisory Guidance and Regulations on the 

Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding 

Companies, (Mar. 27, 2009). 

20For a detailed discussion of this program, see appendix III. 

21Financial Stability Oversight Board, Financial Stability Oversight Board Quarterly 

Report to Congress for the quarter ending June 30, 2009. 

Page 19 GAO-10-16 Troubled Asset Relief Program
 

successfully raised the full amount required by the stress test. While the 

program is open to other institutions that did not participate in the stress 

test, the extent to which these other institutions will choose to participate 

in the program appears limited. Treasury extended the CAP application 

deadline from May 25, 2009, to November 9, 2009. As of September 25, 

2009, Treasury had not received any CAP applications. However, 

regulators said that they had begun to receive CAP applications. 

Overseeing Investments in 

Programs That Targeted 

Certain Critically 

Important Institutions 

Presents Challenges 

Early in the implementation of TARP, Treasury announced that it was 

providing what it refers to as “exceptional assistance” to three institutions 

deemed to be critically important to financial markets and subsequently 

created three programs—TIP, SSFI, and AGP—to provide that 

assistance.22 TIP investments in Bank of America and Citigroup, Inc. in 

January 2009 and December 2008, respectively, followed the institutions’ 

participation in CPP. In addition, OFS provided assistance to AIG under 

SSFI. Treasury officials said that they did not expect to have to use these 

programs again if economic conditions and market stability continued to 

improve. 

oup 

r 

ets 

ived 

t will fully recoup its investment 

in AIG in the long term remains unclear.23

 

Treasury has yet to develop exit strategies for unwinding these 

investments but has said that it intends to sell the federal government’s 

ownership interest as soon as practicable. Bank of America and Citigr

have yet to announce any plans to repurchase outstanding shares o

warrants under CPP or TIP in the near term. Treasury, the Federal 

Reserve, FDIC, and Citigroup have yet to finalize the segregation of ass

or the valuation process for the assets that will remain on Citigroup’s 

books but will be guaranteed by the government under AGP. Conversely, 

Bank of America withdrew from AGP before an agreement was finalized 

and recently negotiated and paid FDIC, the Federal Reserve, and Treasury

a total of $425 million in termination fees to cover the benefit it rece

from the announcement of the federal government guarantee. AIG 

continues to rely on federal assistance to maintain its investment grade 

rating, and whether the federal governmen

22For a detailed discussion of TIP, AGP, and SSFI, see appendixes IV through VI, 

respectively. 

23GAO-09-975. 

Page 20 GAO-10-16 Troubled Asset Relief Program
 

Treasury’s capital investments in these three companies totaled more

$100 billion as of September 25, 2009, and are a significant portio

TARP disbursements. Given the three financial institutions’ ongoin

participation in TARP, oversight and management of these large 

investments continues to be a challenge, especially managing the 

government’s investment and developing an appropriate exit strategy. 

According to OFS, TIP investments in Citigroup and Bank of America are 

monitored through the same process as CPP investments, as the interest

are incremental to the CPP investments in these institutions. OFS has also

put in place dedicated teams charged with monitoring and manag

investments in AIG and the Citigroup asset guarantee. These investments 

also raise broader questions about how Treasury is managing its 

investments in institutions that have received what Treasury refers

an exceptional level of assistance. To respond to these co

 than 

n of 

g 

s 

ing its 

 to as 

ncerns, we and 

SIGTARP are conducting a coordinated review of how the federal 

overnment is monitoring and managing its investments. 

he 

ss 

 and FDIC, is 

intended to invest in funds that provide a market for the legacy loans and 

riety 

en 

nd some 

as 

improvements in securitization and credit markets as a reason. Some 

 

g

The Consumer and Business Lending Initiative announced in February as 

part of the Financial Stability Plan consists of two programs, including t

Federal Reserve’s TALF, operated primarily by FRBNY, and a program to 

directly purchase securities backed by SBA-guaranteed small busine

loans that has yet to materialize. A separate program, PPIP, which is being

implemented in cooperation with the Federal Reserve

ubled Asset Relief Program

securities that currently burden the financial system. 

Term Asset-Backed Securities Loan Facility. The Federal Reserve

extended TALF into 2010. This program has been used to finance a va

of ABS, but as of September 17, 2009, the bulk of the loans have be

collateralized by credit card and auto ABS—the largest asset classes 

historically according to Federal Reserve officials.24 Some market 

participants for SBA-related securities noted that TALF, even without high

transaction volumes of SBA-backed securities, had benefited small 

businesses by helping to restore confidence in the SBA market, a

thought that it had helped unfreeze the market. Overall, participation h

been lower than expected for all assets, and officials cite recent 

g Secondary 

Markets Have Had Mixed 

Success 

Programs Aimed at 

Restartin

24For a detailed discussion of the Federal Reserve’s TALF and Treasury’s role, see appendix 

VII. 

Page 21 GAO-10-16 Tro
 

TALF participants and market observers also told us that TALF financi

terms had become les

ng 

s favorable as credit markets stabilized, making 

TALF less appealing. 

ing 

ees by 

. 

an 

he 

at 

as unlikely, in part 

because of the requirements of the act noted above. 

nducting a 

following 

han 

 

Small Business Lending. Treasury has yet to begin purchasing securities

backed by SBA-guaranteed small business loans as part of the Consumer 

and Business Lending Initiative. Initially, Treasury anticipated purchas

securities backed by SBA section 7(a) guaranteed loans by the end of 

March 2009 and securities backed by SBA section 504 loan guarant

the end of May 2009; however, no purchases had been made as of 

September 21, 2009. Several factors have been cited to explain this delay

First, a Treasury official told us that some participants in the SBA lo

markets said they did not want to sell SBA-guaranteed securities to 

Treasury if doing so would require them to provide warrants to Treasury 

and to comply with executive compensation restrictions.25 Second, some 

market participants said that this program might not be as helpful to t

SBA loan market as initiatives by SBA, because SBA efforts included 

reductions in fees and increases in guarantees for the 7(a) program th

had been helpful. One major market participant also noted that high 

participation in Treasury’s direct purchase program w

Public-Private Investment Program. Treasury announced PPIP in 

March 2009 to help add liquidity to the market for legacy assets (both 

securities and loans), to allow banks and other financial institutions to 

free up capital, and to stimulate the extension of new credit.26 Treasury 

continues to take steps to implement the Legacy Securities Program, and 

FDIC has continued to develop the Legacy Loans Program by co

pilot sale of receivership assets to test the funding mechanism 

contemplated for this program. Some market participants and observers

we spoke with in the summer of 2009 told us that while the problem of 

toxic assets remained, there have been delays in launching PPIP. These 

individuals, Treasury, and FDIC cited rising investor confidence 

the stress test results and successful capital-raising by financial 

institutions as one of the main reasons. In addition, banks have had 

increasing incentives to hold troubled assets in the short term, rather t

selling them and taking losses now, in the hopes that such assets will 

25Conversely, CPP participants may be willing to participate in the program, because they 

already must comply with the requirements of the act. 

26For a detailed discussion of PPIP, see appendix VIII. 

Page 22 GAO-10-16 Troubled Asset Relief Program
 

perform better in the future. Treasury officials also noted the diffic

measuring the impact of the program announcement on markets. 

Nevertheless, Treasury officials noted the financial market’s positive 

reaction when the program was announced and said that they contin

believe that the program is important to further bolstering financial 

markets. Treasury officials stated that as of October 5, 2009, five of the 

nine pre-qualified funds have raised at least the minimum $500 million to 

qualify to invest in two legacy securiti

ulty of 

ued to 

es. The first two legacy securities 

PPIP funds closed on September 30, 2009. 

e 

r. 

lar, 

tes to 

f 

istance on pensions and plan to report 

on these issues in future reports. 

 

AIFP has provided assistance to Chrysler, GM, auto suppliers, and auto 

finance companies in an effort to assist the failing domestic automotiv

industry. Over the past year, Chrysler and GM underwent bankruptcy 

reorganization and streamlined their operations by closing factories and 

reducing the number of dealerships. However, whether the reorganized 

Chrysler and GM will achieve long-term financial viability remains unclea

In addition to funding provided under AIFP, the federal government has 

launched other programs to help the automotive industry. In particu

the Department of Transportation’s Car Allowance Rebate System 

program (“Cash for Clunkers”) provided nearly $3 billion in reba

consumers who purchased more fuel-efficient vehicles, and the 

Department of Energy’s Advanced Technology Vehicles Manufacturing 

Incentive Program has provided loans for the development of motors and

components that use advanced technologies.27 Automotive and financial 

experts we spoke with as part of our ongoing monitoring of AIFP agree 

that the federal government-provided funding likely increased Chrysler’s

and GM’s odds of attaining financial success but said that other factors 

would affect the outcome, including consumer preferences, the strength o

the economy, and the success of the companies in continuing to increase 

their profitability.28 We are continuing to evaluate Treasury’s exit strategy

for AIFP and the impact of the ass

ubled Asset Relief Program

d GM Remains 

Uncertain 

The Automotive Industry 

Benefited from about $80 

Billion in TARP Funding, 

but the Future Viability of 

Chrysler an

27GAO plans to report separately on this program in 2010. 

28For additional information on AIFP see appendix IX. 

Page 23 GAO-10-16 Tro
 

HAMP faces a significant challenge that centers on uncertainty over the 

number of homeowners it will ultimately help. Residential mortgage 

defaults and foreclosures are at historic highs, and Treasury officials and 

others have identified reducing the number of unnecessary foreclosures as 

critical to the current economic recovery. In our July 2009 report, we 

noted that Treasury’s estimate that it would likely help 3 to 4 million 

homeowners under the HAMP loan modification program may have been 

overstated.29 Further, we and others have raised concerns about the 

capacity and consistency of servicers participating in HAMP in offering 

loan modifications to qualified homeowners facing potential foreclosure. 

Treasury has taken some actions to encourage servicers to increase the 

number of modifications made, including sending a letter to participating 

HAMP servicers and meeting with them to discuss challenges to making 

modifications. However, the ultimate result of Treasury’s actions to 

increase the number of HAMP loan modifications and the corresponding 

impact on stabilizing the housing market remains to be seen.30

Home Affordable 

Modification Program 

Continues to Face Ongoing 

Challenges 

Treasury faces a number of other challenges in implementing HAMP, 

including ensuring that decisions to deny or approve a loan modification 

are transparent to borrowers and establishing an effective system of 

operational controls to oversee the compliance of participating servicers 

with HAMP guidelines. In July 2009, we made several recommendations to 

Treasury concerning HAMP. Among other things, we recommended 

actions to monitor particular program requirements, re-evaluate and 

review certain program components and assumptions, and finalize a 

comprehensive system of internal control over HAMP. Treasury noted that 

it would take various actions in response to our recommendations, such as 

exploring options to monitor counseling requirements and working to 

refine its internal controls over the program. We plan to continue to 

monitor Treasury’s responses to our recommendations as part of our 

ongoing work on HAMP. 

In our July report, we also noted that Treasury lacked a way to assess, 

during the admission process, the capacity of servicers to meet program 

requirements. Recently, Treasury reported significant variations across 

participating servicers in the number of trial modifications started as a 

percent of estimated eligible loans (those delinquent by at least 60 days). 

To encourage servicers to increase the number of modifications they were 

 

29GAO-09-837. 

30For additional information about HAMP see appendix X. 

Page 24 GAO-10-16 Troubled Asset Relief Program
 

making, Treasury and the Department of Housing and Urban Development 

sent a letter to participating HAMP servicers in July 2009 asking them to 

expand their capacity to make modifications. Treasury also subsequently 

held a meeting with servicers to discuss challenges to making 

modifications and strategies to improve the program’s effectiveness. 

Treasury Has Taken Steps 

to Improve 

Communication with the 

Public and Congress 

Since Treasury’s unexpected shift soon after the act was passed toward 

making capital investments in financial institutions rather than purchasing 

the mortgages and mortgage-related assets on their books, Treasury has 

struggled to improve the transparency of the program and effectively 

communicate a strategic vision for TARP. Over the last year, Treasury has 

posted information on its Web site; announced decisions in press releases, 

press conferences, and speeches; and testified at congressional hearings. 

But these efforts, although intended to help ensure that TARP programs 

and decisions are transparent, have not always been effective in 

communicating Treasury’s rationale for certain decisions or in addressing 

confusion and concerns about the program. As discussed previously, we 

made a series of recommendations aimed at improving the transparency of 

TARP, including establishing more effective communication with 

Congress and the public and developing a clearly articulated strategy for 

the program, among other things. 

Over the last several months, Treasury has taken steps to improve its 

communication efforts, including releasing the Financial Stability Plan in 

February 2009; launching its FinancialStability.gov Web site in March 2009; 

and, in August 2009, adding a usability survey on its FinancialStability.gov 

Web site to gauge user satisfaction and gather input on the quality of users’ 

experience navigating the site. Moreover, OFS has formed a working 

group to help ensure that Treasury’s communication strategy addresses 

both internal and external communications and that appropriate staff are 

being hired to support the strategy. Treasury officials told us that key 

components of the strategy included (1) coordinating communication 

among OFS and Treasury’s Office of Public Affairs and Office of 

Legislative Affairs to help ensure that congressional and other external 

stakeholders received timely information, (2) continuously improving the 

financial stability Web site, and (3) conducting outreach across the 

country on the homeownership preservation programs. To support these 

efforts, Treasury is planning to hire a communications director for OFS 

once it completes a position description of duties and responsibilities. 

Treasury has already hired a communications director and four staff 

members to support its efforts to communicate with the public and 

Congress on the homeownership programs. These ongoing efforts should 

Page 25 GAO-10-16 Troubled Asset Relief Program
 

help address the concerns about Treasury’s communication on TARP 

issues that we noted in earlier reports. 

As we recommended in our December 2008 report, Treasury has 

expeditiously hired OFS staff to administer TARP duties. Over the last 

year, the total number of OFS staff has quadrupled, rising from 48 in 

November 2008 to 196 as of September 15, 2009 (see fig. 2). Moreover, OFS 

has relied increasingly on permanent staff rather than detailees. For 

example, OFS increased the number of permanent staff from 5 in 

November 2008 to 184 as of September 15, 2009, while the number of 

detailees fell from 43 in November 2008 to 12 as of September 15, 2009. 

The Office of 

Financial Stability 

Has Made Progress in 

Developing a 

Management 

Infrastructure and a 

Comprehensive 

System of Internal 

Control 

Figure 2: Number of Permanent Staff and Detailees, November 21, 2008, through 

September 15, 2009 

0

50

100

150

200

Sept. 15,

2009

June 8,

2009

Mar. 16,

2009

Jan. 26,

2009

Nov. 21,

2008

Number of employees

Date

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

Permanent staff (including limited-term appointments)

Source: GAO analysis of Treasury data.

43

48

38

52

90

77

36

113

137

29

166 184

12

196

5

While Treasury has made progress in establishing OFS and filling many 

positions, it continues to face hiring challenges. Treasury officials said that 

the direct-hire authority authorized by TARP had been helpful in bringing 

staff on board expeditiously. OFS has increased its estimate of the number 

of full-time staff that it needs based on changes to TARP and currently 

Page 26 GAO-10-16 Troubled Asset Relief Program
 

estimates that it will need 283 full-time equivalents for fiscal year 2010 to 

operate at full capacity. Most of the increase in the estimate of full 

capacity is attributable to anticipated needs in the Homeownership 

Preservation, Investment, and Compliance offices and staff for the 

Director of Internal Review. In addition, the Assistant Secretary for 

Financial Stability has continued to develop OFS’s organizational 

structure. For example, the Assistant Secretary is considering establishing 

a Director of OFS Internal Review who will help oversee internal control 

and compliance procedures and liaise with oversight entities. 

OFS has experienced challenges finding permanent staff for some of its 

key senior positions, specifically the Chief Homeownership Preservation 

Officer and the Chief Investment Officer. The Chief Homeownership 

Preservation Officer position has been filled by two successive interim 

appointments, and the Director of Operations is currently serving as the 

acting chief. Similarly, the Director of Investments has been serving as the 

acting Chief Investment Officer since the interim chief left in June 2009. In 

our July report, we emphasized that the lack of a permanent head of the 

Homeownership Preservation Office (along with the number of vacancies 

in the office itself) could impact Treasury’s ability to effectively monitor 

HAMP and recommended that these staffing needs be given high priority.31

Treasury has hired an executive search firm to recruit candidates for these 

leadership positions, potentially facilitating the process of identifying 

qualified applicants but also adding additional time to the hiring process. 

The Assistant Secretary is reassessing the duties of the Chief Operating 

Officer and the need for the position, which is currently vacant, to bring 

them in line with TARP’s current needs before filling the position. 

 

31GAO-09-837. 

Page 27 GAO-10-16 Troubled Asset Relief Program
 

After nearly a year, the number of private contracts and financial agency 

agreements Treasury uses as part of OFS’s management infrastructure has 

grown from 11 to 52. Treasury has primarily used two mechanisms for 

engaging private sector firms. First, as of September 18, 2009, Treasury has 

exercised its statutory authority to retain seven financial agents to provide 

services such as managing TARP’s public assets.32 Second, Treasury has 

entered into contracts and blanket purchase agreements under the Federal 

Acquisition Regulation (FAR) for a variety of legal and accounting 

services, investment consulting, and other services and supplies. In some 

cases, interagency agreements (IAA) are also used in support of OFS’s 

administration and operations for TARP to engage vendors that have 

existing contracts with other Treasury offices or bureaus or other federal 

agencies. As of September 18, 2009, Treasury had 39 contracts and blanket 

purchase agreements and six IAAs. Legal services contracts and financial 

agency agreements accounted for 57 percent of the service providers 

directly supporting OFS’s administration of TARP. For contracts and 

agreements in place through August 31, 2009, Treasury reports incurring a 

total of $110.2 million in expenses. The potential value of all 52 TARP 

support agreements and contracts—some completed and some scheduled 

to run until June 2014—totals about $601.6 million.33

Treasury Has Strengthened 

Management and 

Oversight of Contracting 

and Vendor-Related 

Conflicts of Interest 

The share of work by small businesses—including minority- and womenowned businesses—under TARP contracts and financial agency 

agreements has grown substantially since November 2008, when only one 

of Treasury’s prime contracts was with a small business and only one 

minority small business firm was a subcontractor with a large business 

contractor. From the outset, Treasury has encouraged small businesses to 

pursue procurement opportunities for TARP contracts and financial 

agency agreements. As shown in table 4, eight of Treasury’s prime 

contracts and financial agency agreements are with small and/or minority- 

 

32To implement TARP, Treasury is using its authorities to enter into agreements that 

designate financial institutions as financial agents for Treasury. Section 101(c)(3) of the 

act; see also 31 C.F.R. pt 202. The financial agency agreements, which are completed 

through Treasury’s Office of the Fiscal Assistant Secretary and are not subject to the 

Federal Acquisition Regulation, are used to hire asset managers, custodial agents, and 

financial advisors, among others, and to manage troubled assets purchased under TARP, 

including revenues and portfolio risks. 

33The total for Treasury’s reported incurred expenses as of August 31, 2009, is for 40 

contracts and agreements. As of September 18, 2009, 13 of the 52 TARP support contracts 

and IAAs were completed. For detailed information on all TARP financial agency 

agreements, contracts, and blanket purchase agreements, and services obtained through 

IAAs, see GAO-10-24SP. 

Page 28 GAO-10-16 Troubled Asset Relief Program
 

and women-owned businesses. The majority of these businesses are 

subcontractors to TARP prime contractors. 

Table 4: TARP Contracts, Financial Agency Agreements, and Subcontracts with 

Minority-Owned, Women-Owned, and Small Businesses, as of September 18, 2009 

Socioeconomic business 

category 

Prime contracts and 

financial agency 

agreements Subcontractsa

Total

Minority-ownedb3c9 12

Women-owned 2 14 16

Other small 3 15 18

Total 8 38 46

Source: GAO presentation of OFS, Treasury, data (unaudited). 

a

As of September 18, 2009, TARP prime contractors and financial agents had awarded 80 

subcontracts. 

b

ncludes both small and non-small minority-owned businesses and minority/women-owned 

businesses. 

c

Since our June 2009 report, Treasury has reclassified one reported minority-owned contract as an 

interagency agreement, reducing the number of reported minority-owned prime contracts for this 

report. Treasury does not provide the socioeconomic status of entities contracted through interagency 

agreements. 

Treasury’s Processes for 

Managing and Monitoring 

Conflicts of Interest among 

Contractors and Financial 

Agents Continue to Mature 

Treasury’s reliance on private sector resources to assist OFS with 

implementing TARP underscores the importance of addressing conflictsof-interest issues. As required by the act, in January 2009 Treasury issued 

an interim regulation on TARP conflicts of interest, which was effective 

immediately.34 With this action, Treasury put in place a set of clear 

requirements to address actual or potential conflicts that may arise during 

the selection of retained entities seeking a contract or financial agency 

 

34TARP Conflicts of Interest, 74 Fed. Reg. 3431-3436 (Jan. 21, 2009) (codified at 31 C.F.R. 

Part 31). Treasury issued this regulation as an interim rule pursuant to 41 U.S.C. § 418b and 

5 U.S.C. § 553(b)(3)(B) based on a determination that urgent and compelling circumstances 

and good cause existed that justified the promulgation of the interim rule without public 

comment. Treasury found it essential to issue conflict-of-interest regulations without delay 

so that anyone participating in the TARP program would have clear information as soon as 

possible on avoiding conflicts of interest. 74 Fed. Reg. 3432. Treasury received public 

comments on the interim rule and anticipates that the process of developing a final rule 

will take more time. Treasury’s action to issue this regulation as an interim rule, effective 

immediately, is responsive to our December 2008 recommendation to issue regulations as 

expeditiously as possible. 

Page 29 GAO-10-16 Troubled Asset Relief Program
 

agreement with the Treasury, particularly those involved in the 

acquisition, valuation, management, and disposition of troubled assets.35

Since January 2009, OFS’s Chief Risk and Compliance Office has been 

actively renegotiating several contracts that predated the TARP conflictsof-interest rulemaking to enhance specificity and conformity with the 

regulations. To date, conflicts-of-interest provisions and approved 

mitigation plans have been renegotiated for three of the six contracts, as 

shown in table 5. According to Treasury, the complex nature of these 

contracts and business relations with other firms means that significant 

time is required to develop mitigation plans that appropriately meet the 

provisions of the regulations, and as a result these plans are in various 

stages of renegotiation. 

Table 5: Status of Treasury’s Actions to Renegotiate Existing Vendor Mitigation 

Plans That Predated the January 2009 TARP Conflict-of-Interest Regulation, as of 

September 18, 2009 

Contractor or financial agent 

Status of renegotiated conflict-of-interest 

mitigation plana

Bank of New York Mellon Pending 

Ennis Knupp & Associates, Inc. Completed April 2009 

Ernst & Young, LLP Pending 

Hughes, Hubbard, & Reed, LLP Completed May 2009 

PricewaterhouseCoopers, LLP Pending 

Squire Sanders & Dempsey, LLP Completed July 2009 

Source: GAO analysis of Treasury information. 

a

As of March 2009, Treasury was also reviewing for renegotiation mitigation plans for two more 

contractors—-Simpson Thacher & Bartlett (I) and Sonnenschein Nath & Rosenthal (II). According to 

Treasury however, the renegotiations stopped when these contracts were found to be close to 

completion and the performance of services was ending. Separate ongoing contracts awarded to both 

companies after January 2009 for other services have contract provisions and mitigation plans in 

conformance with the TARP conflict of interest regulations. 

 

35Under Treasury’s regulations, retained entities are contractors, financial agents, and their 

subcontractors. Treasury’s regulations also address conflicts and other matters that may 

arise in the course of TARP services. The scope of the regulation does not include 

administrative services identified by the TARP Chief Risk and Compliance Officer. 31 

C.F.R. § 31.200(b). OFS determined that because some administrative services (e.g., 

temporary services for document production) do not have substantial decision-making 

authority, those contractors are unlikely to have conflicts of interest and do not warrant 

the burden imposed by the regulatory requirements. 74 Fed. Reg. 3432. See our eSupplement at GAO-10-24SP, which identifies the contractors and financial agents covered 

by TARP conflict-of-interest requirements under 31 C.F.R. Part 31. 

Page 30 GAO-10-16 Troubled Asset Relief Program
 

Since March 2009, and consistent with our recommendation, Treasury has 

strengthened guidance and procedures requiring that key communications 

and decisions concerning potential or actual vendor-related conflicts of 

interest be documented. In an effort to improve the monitoring of 

contracts and formally document conflict-of-interest processes, Treasury 

has taken several steps. For example, it has developed and implemented 

conflicts-of-interest procedures and distributed guidance documents to 

Treasury contracting staff and TARP contractors and financial agents that 

include detailed workflow charts depicting the standardized processes for 

the review and disposition of conflict-of-interest inquiries.36 Also, Treasury 

has finished implementing an improved internal reporting database for 

documenting and tracking all conflict-of-interest inquiries and requests for 

conflicts-of-interest waivers.37 Treasury’s guidance was sent to contractors 

and financial agents in early July, along with a request that all inquiries 

related to conflicts of interest be submitted via email to the “TARP.COI” 

mailbox created in April 2009 for contractors and financial agents to 

document communications to Treasury. Although Treasury has an 

appropriate management infrastructure in place, it must remain vigilant in 

managing and monitoring conflicts of interest that may arise with the use 

of private sector resources. 

OFS Has Continued 

Developing a Financial 

Reporting System and 

Related Internal Controls 

As required by the act, Treasury must annually prepare and submit to 

Congress and the public audited fiscal year financial statements for TARP 

that are prepared in accordance with generally accepted accounting 

principles.38 Moreover, the act requires Treasury to establish and maintain 

an effective system of internal control over TARP that provides reasonable 

 

36As part of issuing guidance requiring that key conflict-of-interest communications and 

decisions be documented, in July 2009 OFS e-mailed a complete set of workflow charts to 

Treasury contracting staff and officials from TARP contractors and financial agents. The 

conflicts-of-interest workflow charts reflect standard procedures for reviews of conflicts of 

interest raised by (1) new solicitations or competitive task orders, (2) work done under 

existing contracts, (3) financial agent selection, (4) work done under existing financial 

agency agreements, (5) initial and reviews of initial and subsequent conflict-of-interest 

certifications, (6) conflicts-of-interest inquiries from TARP contractors and financial 

agents, and (7) conflict-of-interest waiver requests from TARP contractors and financial 

agents. 

37Treasury also developed a separate internal reporting system for documenting and 

tracking all conflicts-of-interest certifications required of TARP contractors and financial 

agents. According to Treasury, an improved internal conflicts-of-interest certification 

database will be implemented in the near future. 

38Section 116(b) of the act, 12 U.S.C. § 5226(b). 

Page 31 GAO-10-16 Troubled Asset Relief Program
 

assurance of achieving three objectives: (1) reliable financial reporting, 

including financial statements and other reports for internal and external 

use;39 (2) compliance with applicable laws and regulations;40 and (3) 

effective and efficient operations, including the use of TARP resources.41

Accordingly, OFS continues to develop a comprehensive system of 

internal control for TARP.42

The fiscal year ending September 30, 2009, will be the first period for 

which Treasury prepares financial statements for TARP.43 The act requires 

that Treasury assess and report annually on the effectiveness of TARP’s 

internal controls over financial reporting.44 The act also requires GAO to 

audit TARP’s financial statements annually in accordance with generally 

accepted auditing standards.45

We are currently performing an audit of TARP’s financial statements and 

the related internal controls. Our objectives are to render opinions on (1) 

the financial statements as of and for the period ending September 30, 

2009; and (2) internal controls over both financial reporting and 

 

39An entity’s internal control over financial reporting includes those policies and 

procedures that (1) pertain to the maintenance of records that, in reasonable detail, 

accurately and fairly reflect the transactions and disposition of the assets of the entity; (2) 

provide reasonable assurance that transactions are recorded as necessary to permit 

preparation of financial statements in accordance with generally accepted accounting 

principles and that receipts and expenditures of the entity are being made only in 

accordance with authorizations of management and those charged with governance; and 

(3) provide reasonable assurance regarding prevention or timely detection and correction 

of any unauthorized acquisition, use, or disposition of the entity’s assets that could have a 

material effect on the financial statements. 

40Internal controls over compliance with laws and regulations should provide reasonable 

assurance that transactions are executed in accordance with laws governing the use of 

budget authority and with other laws and regulations that could have a direct and material 

effect on the financial statements and, as applicable, any other laws, regulations, and 

governmentwide policies identified in the Office of Management and Budget’s audit 

guidance. 

41Section 116(c) of the act, 12 U.S.C. § 5226(c). 

42Section 101 of the act, 12 U.S.C. § 5211, established OFS within the Department of the 

Treasury to implement TARP. 

43The TARP financial statements will include an estimate of the value of the TARP’s 

investments as of September 30, 2009. 

44Section 116(c) of the act, 12 U.S.C. § 5226 (c). 

45Section 116(b) of the act, 12 U.S.C. § 5226(b). 

Page 32 GAO-10-16 Troubled Asset Relief Program
 

compliance with applicable laws and regulations as of September 30, 2009. 

We will also be reporting on the results of our tests of TARP’s compliance 

with selected provisions of laws and regulations related to financial 

reporting. The results of our financial statement audit will be published in 

a separate report. 

Although isolating and estimating the effect of TARP programs remains a 

challenging endeavor, the indicators that we have been monitoring over 

the last year suggest that there have been broad improvements in credit 

markets since the announcement of CPP, the first TARP program. 

Specifically, we found that: 

• the cost of credit and perceptions of risk declined significantly in 

interbank, corporate debt, and mortgage markets; 

• the decline in perceptions of risk (as measured by premiums over 

Treasury securities) in the interbank market could be attributed in part to 

several federal programs aimed at stabilizing markets that were 

announced on October 14, 2008, including CPP; and 

Conditions in Credit 

Markets Have 

Improved Since TARP 

Was Implemented, but 

Treasury Needs to 

Establish a Basis for 

Future TARP Actions 

• institutions that received CPP funds in the first quarter of 2009 saw more 

improvement in their capital positions than banks outside the program. 

Acting on GAO’s recommendation that Treasury collect information about 

the impact of its investments on participants’ lending activities, Treasury 

implemented a monthly survey. Our analysis of the surveys, which cover 

October 2008 through July 2009, show that collectively the 21 largest 

participants reported extending almost $2.3 trillion in new loans since 

receiving $160 billion in CPP capital from the Treasury. Although lending 

standards remained tight, new lending by these institutions increased from 

$240 billion a month during the fourth quarter of 2008 to roughly $287 

billion a month in the second quarter of 2009. Because loan origination 

data is not available for most banking institutions—including CPP 

recipients outside of the largest institutions—the ability to perform more 

rigorous analysis to determine the extent to which the increased lending 

could be attributed to TARP is limited.46 Consistent with the intent of 

 

46Loan originations are new loans by banks. Some analysts have argued for using changes 

in loan balances to compare banks, but our analysis suggests that using such measures as a 

proxy for originations may lead to invalid conclusions. 

Page 33 GAO-10-16 Troubled Asset Relief Program
 

TALF, asset-backed security issuance has recently shown signs of a slight 

recovery. While foreclosures continued to increase, it is too soon to judge 

the effects of the HAMP program. Treasury recently released a report that 

discusses the next phase of its stabilization and rehabilitation efforts. 

Treasury’s report also begins to establish a framework that could provide 

a basis for deciding whether any further actions will be necessary to assist 

in financial stabilization after its authority to purchase or insure additional 

troubled assets expires on December 31, 2009 (unless it is extended 

through October 3, 2010). As it decides the future of TARP, Treasury will 

need to document and communicate its reasoning to Congress and the 

American people in order for its decisions to be viewed as credible. 

Continuing to develop its quantitative indicators of market conditions to 

benchmark TARP programs and its measures of program effectiveness 

would support Treasury in this process. 

Some Anticipated Effects 

of TARP on Credit Markets 

and the Economy Have 

Materialized, but Not 

Necessarily Due to TARP 

Actions Alone 

In our reports since December 2008, we have highlighted the intended 

effects of several broad-based TARP programs, including CPP, CAP, TALF, 

PPIP, and HAMP. Chief among these intended effects was to stabilize and 

return confidence to the financial system. We paid particular attention to 

developments in the interbank market by monitoring the London 

Interbank Offered Rate (LIBOR), which is the cost of interbank credit, and 

the TED spread, which captures the risk perceived in interbank markets 

and gauges the willingness of banks to lend to other banks (see fig. 3).47 As 

figure 3 shows, LIBOR increased significantly in September 2008, and 

more importantly banks began to pay an even higher premium for loans to 

compensate for the perceived increase in default risk. After widening 

somewhat after the first major subprime mortgage write-down and the 

Bear Stearns rescue, the TED spread increased significantly in the days 

following the bankruptcy of Lehman Brothers and other adverse events, 

exceeding 4.5 percent at its highest point (450 basis points). However, 

since the announcement of CPP and other interventions in October 2008, 

the 3-month LIBOR and TED spread have fallen by more than 430 basis 

points.48 About 60 basis points of that decline occurred after the 

announcement of the stress test results associated with CAP in May 2009. 

 

47In our reports, the TED-spread is the spread between the 3-month LIBOR and 3-month 

Treasury yield. Increases in the TED spread imply a greater aversion to risk. 

48A basis point is a common measure used in quoting yields on bills, notes, and bonds and 

represents 1/100 of a percent of yield. An increase from 4.35 percent to 4.45 would be an 

increase of 10 basis points. 

Page 34 GAO-10-16 Troubled Asset Relief Program
 

Figure 3: TED Spread, 3-Month LIBOR, and 3-Month Treasury Bill Yield, from January 1, 2007, to September 29, 2009 

0

1

2

3

4

5

6

2007 2008 2009

Interest rates

Year

LIBOR

3-month Treasury

TED spread

Source: GAO analysis of data from Thomson Reuters Datastream.

BNP Paribas freezes three investment 

funds.

Major banks begin to write down subprime mortgage losses.

FDIC takes over IndyMac.

Lehman bankruptcy; 

Merrill Lynch 

purchase announced.

Washington Mutual closed by 

Office of Thrift Supervision.

CPP announced along

with Federal Reserve 

and FDIC programs.

Citigroup receives

additional government 

assistance.

Bank of America

receives additional 

government assistance.

Capital Assistance 

Program Stress Test 

results released.

Bear Stearns receives emergency loan 

from Federal Reserve through JPMorgan. Fannie Mae and 

Freddie Mac placed 

into conservatorship.

Note: Rates and yields are daily percentages. The area between the LIBOR and Treasury yield is the 

TED spread. 

To examine whether the decline in the TED spread could be attributed in 

part to TARP, we conducted additional analysis using a simple 

econometric model, which took into account the possibility that the 

spread would have narrowed without the intervention.49 We did not 

attempt to account for all the important factors that might influence the 

 

49The model used changes in the TED spread as the dependent variable regressed on a CPP 

indicator variable, a time trend, lagged values of changes in the S&P 500, the term spread 

(structure), and the default risk premium, an indicator variable that denoted whether the 

TED spread exceeded 200 basis points, as well as a counter variable that indicated the 

number of consecutive days (including the day in question) that the TED spread had taken 

on an extreme value. However, the results were robust to a number of different 

econometric specifications, including a two-stage approach that first generated the 

unexpected value of the TED spread (as well as the other spreads) by extracting the 

predictable component from the variables using an autoregression model fit to each series. 

Similar to our primary regressions modeling changes in the TED spread, the CPP indicator 

variable had a statistically significant impact on the unexpected level of the TED spread, 

even when we controlled for other potentially confounding factors. 

Page 35 GAO-10-16 Troubled Asset Relief Program
 

TED spread.50 Because the TED spread reached extreme values leading up 

to the CPP announcement (more than 450 basis points), it could have 

declined even in the absence of CPP, simply because extreme values have 

a tendency to return to normal levels.51 Even when we accounted for this 

possibility and for other factors that might influence the interbank market, 

we found that the October 14, 2008, announcement of the CPP had a 

statistically significant impact on changes in the TED spread. 

Nevertheless, the associated improvement in the TED spread (or LIBOR) 

cannot be attributed solely to TARP because the October 14, 2008, 

announcement was a joint announcement that also introduced the Federal 

Reserve’s Commercial Paper Funding Facility program and FDIC’s 

Temporary Liquidity Guarantee Program. 

More broadly, the programs established under TARP, if effective, should 

have jointly resulted in improvements in general credit market conditions, 

including declining risk premiums and lower borrowing costs for nonbank 

businesses and consumers. In the month leading up to the CPP 

announcement, market interest rates and spreads reflected a significant 

tightening in credit conditions as investors, worried about the health of the 

economy, became increasingly risk averse. The indicators that we have 

been monitoring illustrate that since mid-October 2008 the cost of credit 

and perceptions of risk (measured by premiums over Treasury securities) 

have declined significantly, not only in interbank markets but also in 

corporate debt and mortgage markets (see table 6).52 Recent trends in 

these measures are consistent with those for other indicators that we and 

other researchers have monitored. For example, stock market volatility 

has fallen considerably, and the credit default swap index for the banking 

 

50See our June 2009 report (GAO-09-658) for additional information on the model and the 

limitations. 

51This phenomenon is often referred to as “regression to the mean” or “regression 

artifacts.” Failure to acknowledge this phenomenon can lead to invalid inferences about a 

program’s impact when analyzing time series data. We found that since 1982 the TED 

spread had exceeded 200 basis points only 3.2 percent of the time, underscoring the fact 

that 450 basis points is quite extreme and indicating that significant stress was present in 

the interbank market at the time of the CPP announcement. 

52Our December 2008 and January 2009 reports (GAO-09-161 and GAO-09-296) provide a 

more detailed description of the indicators. 

Page 36 GAO-10-16 Troubled Asset Relief Program
 

sector has declined significantly since TARP actions began.53 Even taken 

collectively, though, changes in these indicators are an imperfect way to 

measure TARP’s impact, as they may also be influenced by general market 

forces and cannot be exclusively linked to any one program or action.54

Table 6: Changes in Select Credit Market Indicators, October 13, 2008, to September 30, 2009 

Indicator Description 

Basis point change from October 

13, 2008 to September 30, 2009 

Credit market rates and spreads

LIBOR 3-month London interbank offered rate (an average 

of interest rates offered on dollar-denominated 

loans) 

Down 446 

TED spread Spread between 3-month LIBOR and 3-month 

Treasury yield 

Down 434 

Aaa bond rate Rate on highest-quality corporate bonds Down 143

Aaa bond spread Spread between Aaa bond rate and 10-year 

Treasury yield 

Down 85 

Baa bond rate Rate on corporate bonds subject to moderate credit 

risk 

Down 263

Baa bond spread Spread between Baa bond rate and 10-year 

Treasury yield 

Down 205 

Mortgage rates 30-year conforming loans rate Down 142 

Mortgage spread Spread between 30-year conforming loans rate and 

10-year Treasury yield 

Down 83 

 

53The credit default swap (CDS) index provides an indicator of the credit risk associated 

with U.S. banks, as judged by the market. Therefore, declines in this index suggest lower 

perceived risk in the U.S. banking sector. Thomson Reuters Datastream data shows that 

the 5-year CDS index dropped significantly after the initial passage of the Emergency 

Economic Stabilization Act and again after the announcement of the CPP before trending 

up again. However, from the end of March 2009 to September 15, 2009, the bank CDS index 

fell by roughly 69 percent. Similarly, the Chicago Board of Option Exchange VIX index, 

which measures expected stock market volatility, has fallen considerably since late 

November 2008. 

54For example, a significant drop in mortgage rates occurred shortly after the Federal 

Reserve’s announcement in November 2008 that it would purchase mortgage-backed 

securities.

Page 37 GAO-10-16 Troubled Asset Relief Program
 

Quarterly mortgage volume and defaults

Indicator Description Change from December 31, 2008 to 

June 30, 2009 

Mortgage originations New mortgage loans Up $290 billion to $550 billion 

Foreclosure rate Percentage of homes in foreclosure Up 100 basis points to 4.30 percent 

Source: GAO analysis of data from Global Insight, the Federal Reserve, Thomson Reuters Datastream, and Inside Mortgage Finance. 

Note: Rates and yields are daily except mortgage rates, which are weekly. Higher spreads (measured 

as premiums over Treasury securities of comparable maturity) represent higher perceived risk in 

lending to certain borrowers. Higher rates represent increases in the cost of borrowing for relevant 

borrowers. As a result, “down” suggests improvement in market conditions for credit market rates and 

spreads. Foreclosure rate and mortgage origination data are quarterly. See GAO-09-161, 

GAO-09-296, GAO-09-504, and GAO-09-658. 

One of the intentions of TARP, and specifically of CPP, was to improve 

banks’ balance sheets, enhance lenders’ ability to borrow, raise capital, 

and lend to creditworthy borrowers. Capital ratios at institutions that 

received CPP capital in the first quarter of 2009 rose more than capital 

ratios at non-CPP institutions between December 31, 2008, and March 31, 

2009. This difference holds across several measures of capital adequacy 

(see table 7). Improved confidence in the interbank market may to some 

degree reflect the increased capital ratios at institutions that received CPP 

funding, as these ratios are important indicators of solvency—that is, the 

higher the ratio, the more solvent the institution. As we have discussed in 

previous reports, tension exists between promoting lending and improving 

banks’ capital position. We noted that some institutions likely would use 

CPP capital to improve their capital ratios by holding the additional capital 

as treasuries or other safe assets rather than leveraging it to support 

additional lending. Using the capital in this manner could allow 

institutions to absorb losses or write down troubled assets. 

Changes in Capital Ratios and 

Bank Lending are Consistent 

with the Intended Effects of 

TARP but Cannot Be Attributed 

Solely to TARP Programs 

Table 7: Increase in Capital Adequacy among CPP Participants and Nonparticipants 

(in percentage points), Fourth Quarter 2008 to First Quarter 2009 

Increase in capital adequacy, fourth quarter 2008 to 

first quarter 2009 

Measure of capital 

adequacy 

Bank holding companies 

receiving CPP in first 

quarter 2009 

Bank holding companies 

not participating in CPP

Tier 1 leverage ratio 2.9 0.6

Tier 1 risk-based capital 

ratio 3 0.4

Total risk-based capital 

ratio 2.9 0.4

Source: GAO analysis of Federal Reserve data. 

Page 38 GAO-10-16 Troubled Asset Relief Program
 

Note: The tier 1 leverage ratio is defined as tier 1 capital—what regulators consider to be the highestquality capital—over total average on balance sheet assets. The tier 1 risk-based capital ratio is 

defined as tier 1 capital over risk-weighted assets, where risk-weighted assets is a measure of assets 

adjusted for risk. The total risk-based capital ratio is defined as total capital (including tier 1 and other 

sources of capital) over risk-weighted assets. 

Recent trends in lending suggest that CPP capital infusions may have 

made participating banks somewhat more willing and able to increase 

lending to creditworthy businesses and consumers, although lending 

standards for consumer and business credit remain tight.55 Our analysis of 

Treasury’s loan surveys showed that these CPP recipients reported an 

increase in new lending to consumers and businesses to, on average, $287 

billion a month in the second quarter of 2009, up $47 billion from $240 

billion a month in the fourth quarter of 2008 (see fig. 4).56 These findings 

are consistent with the trends in aggregate mortgage originations, which 

more than doubled between the fourth quarter of 2008 and the end of the 

second quarter of 2009 to $550 billion. 

 

55According to the Federal Reserve’s Senior Loan Officer Survey, commercial bank lending 

standards for consumer and business loans dramatically tightened in the year leading up to 

the fourth quarter of 2008. Although the net percentages of banks reporting that they had 

tightened their business lending policies declined over the first two quarters of 2009, 

standards remain elevated. 

56New lending includes new home equity lines of credit; mortgage, credit card, and other 

consumer originations; new or renewed commercial and industrial loans; and commercial 

real estate loans, but not other important activities that these institutions may undertake to 

facilitate credit intermediation, including underwriting and purchasing MBS and ABS. 

Because the origination data collected by Treasury are unique, we were not able to 

benchmark the origination levels against historical lending or seasonal patterns at these 

institutions. New lending in July for the top CPP recipients was similar to the second 

quarter, at $282 billion. 

Page 39 GAO-10-16 Troubled Asset Relief Program
 

Figure 4: New Lending at the 21 Largest Recipients of CPP Capital, from October 

2008 to July 2009 

0

50

100

150

200

250

300

350

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July

Dollars in billions

Source: GAO analysis of Treasury loan survey.

Month

Note: Lending levels may be affected by merger activity. Hartford is not included in the totals because 

Treasury’s loan survey includes data for Hartford starting in April of 2009. 

Table 8 documents the total amount of new consumer and business 

lending for each institution that received CPP funds. Despite tight lending 

standards and the usual drop in credit flows during recessions, collectively 

the top 21 institutions participating in CPP have reported extending almost 

$2.3 trillion in new loans since receiving CPP capital totaling $160 billion. 

While lending typically falls during a recession, recent research by the 

Federal Reserve concluded that through the first quarter of 2009, the 

contraction in commercial mortgages, nonfinancial business credit, and 

consumer credit did not appear to be particularly severe relative to 

contractions in these types of lending in other downturns. However, the 

contraction in residential mortgage lending has exceeded past downturns. 

Page 40 GAO-10-16 Troubled Asset Relief Program
 

Table 8: New Lending at the 21 Largest Recipients of CPP, as of July 31, 2009 

Dollars in billions 

Institution Date of CPP Size of CPP 

New lending since 

receiving CPP

Citigroup 10/28/2008 $25.0 $173.1

JPMorgan Chasea 10/28/2008 25.0 449.9

Wells Fargo Bank 10/28/2008 25.0 502.4

Bank of America 10/28/2008 15.0 579.0

Goldman Sachsa 10/28/2008 10.0 20.8

Morgan Stanleya10/28/2008 10.0 32.9

Bank of New York Mellona10/28/2008 3.0 5.2

State Streeta10/28/2008 2.0 9.8

U.S. Bancorpa11/14/2008 6.6 127.4

Capital Onea11/14/2008 3.6 18.3

Regions 11/14/2008 3.5 45.6

SunTrust 11/14/2008 3.5 66.1

BB&Ta11/14/2008 3.1 54.8

KeyCorp 11/14/2008 2.5 23.6

Comerica 11/14/2008 2.3 23.2

Marshall & Ilsley 11/14/2008 1.7 8.4

Northern Trusta11/14/2008 1.6 12.2

PNC 12/31/2008 7.6 65.8

Fifth Third Bancorp 12/31/2008 3.4 45.1

CIT 12/31/2008 2.3 24.3

American Expressa1/9/2009 3.4 6.8

Total $160.0 $2,294.6

Source: GAO analysis of Treasury loan survey. 

Note: The table features the 21 largest of the 22 recipients of CPP funds as of July 31, 2009. We did 

not include Hartford, which received CPP funds on June 26, 2009. New lending begins with the 

month after the institution received CPP capital (e.g., December for institutions receiving CPP on 

Nov. 14, 2008). As such, the measure is likely to understate the amount of new lending. In addition, 

lending levels may be affected by merger activity during the time period presented. Date and size of 

CPP refer to the initial infusion of CPP funds. Citigroup and Bank of America have received additional 

TARP funds. 

a

These institutions repaid CPP capital on June 17, 2009, but have voluntarily agreed to continue to 

provide information through the end of 2009. 

Data limitations may prevent a reliable comparison of lending volumes 

across institutions of different sizes and between CPP and non-CPP 

participants. For the hundreds of smaller financial institutions receiving 

Page 41 GAO-10-16 Troubled Asset Relief Program
 

CPP funds, the only lending information provided was based on the value 

of loan balances and thus was not comparable to the more detailed data 

for large CPP recipients. Similarly, only comparative balance sheet data is 

available for non-CPP institutions. Although balance sheet data—which is 

available for all banking institutions—could be useful for comparing 

capital ratios, our quantitative work suggests that loan balances may not 

be a good proxy for lending activity, at least for the third quarter of 2008 to 

the first quarter of 2009. Specifically, we found the correlations between 

new lending and changes in loan balances to be relatively low over this 

period.57 A number of factors can affect loan balances that are unrelated to 

new lending, including merger activity, changes in the value of existing 

loans (e.g., realizing losses on a loan portfolio), and loan payoffs as 

borrowers attempt to reduce debt burdens. Banks could, for example, 

undertake significant origination activity and still see a drop in the total 

value of loans that they held. As a result, it is difficult to determine CPP’s 

specific impact on lending activity in a more rigorous way. 

The primary goal of TALF, as designed and operated by the Federal 

Reserve, is to make credit more readily available to households and small 

businesses by increasing liquidity and improving conditions in ABS 

markets. Investors requested $51.7 billion in TALF loans between the start 

of the program in March of 2009 and September 2009. As figure 5 indicates, 

ABS activity has begun to rebound somewhat after reaching zero for 

several types of issuances in the fourth quarter of 2008. While aggregate 

issuance is still down significantly from 2007, non-mortgage-related ABS 

issuance rose to $47.9 billion in the second quarter of 2009 from $3.3 

billion in the fourth quarter of 2008. ABS backed by home equity loans, 

which are not eligible for TALF assistance, increased to just $71 million 

from $17 million over the same period, although whether a significant 

Securitization Markets Have 

Shown Some Signs of Recovery 

for TALF-Eligible Securities 

 

57We collected data on quarterly loan balances for the top 21 CPP recipients from third 

quarter of 2008 to the first quarter of 2009 and compared it to the data on originations from 

the Treasury’s loan survey. Data on loan balances are from the Consolidated Financial 

Statements for Bank Holding Companies Y-9C Report Form. We aggregated the monthly 

loan origination figures up to the quarterly level in order to compare the data to changes in 

quarterly loan balances for each institution. The correlation between total originations and 

changes in total loan balances was just 0.14. Across the various disaggregated loan 

categories, the correlations ranged from 0.29 for mortgages to negative 0.21 for credit 

cards, suggesting that any attempt to gauge the effectiveness of CPP on lending activity 

using changes in loan balances would likely lead to invalid conclusions. Correlations are 

somewhat higher for the change in loan balances for the quarter ending December 31, 2008, 

to the quarter ending March 31, 2009. Nevertheless, they are still relatively low. 

Page 42 GAO-10-16 Troubled Asset Relief Program
 

increase would be expected given the turmoil in mortgage markets is not 

clear. 

Figure 5: Annual and Quarterly Asset-Backed Security Issuance 

0

100

200

300

400

500

600

199219911990 3 1997199619951994199 1998 2002200120001999 3 2007200620052004200 2008

0

5

10

15

20

25

Q2 Q3 Q4 Q1 Q2

Dollars in billions

Quarterly data (second quarter of 2008

through second quarter of 2009)

Year

2008 2009

Home equity

Student loans

Auto

Credit cards

Source: GAO presentation of Securities Industry and Financial Markets Association data.

Note: Annual figures are adjusted for inflation. 

As we discussed in previous reports, TALF support to securitization 

markets should, if effective, increase the availability of new credit to 

consumers and businesses, lowering rates on credit card, automobile, 

small business, student, commercial mortgage, and other types of loans 

traditionally facilitated by securitization. From November 2008 to May 

2009, the average rate on automobile loans from finance companies 

declined significantly (296 basis points) to 3.5 percent, well below the 

bank rate, which fell only 26 basis points to 6.8 percent.58 While these 

declines correlate with the launching of TALF, the federal government’s 

support of GM and Chrysler also likely played a role in alleviating liquidity 

 

58The bank rate reflects 48-month loans, while the average maturity for the finance rate was 

roughly 63 months for November 2008 and May 2009. 

Page 43 GAO-10-16 Troubled Asset Relief Program
 

constraints at finance companies. Because stand-alone auto finance 

companies rely more heavily on securitization than commercial banks, the 

differences in the trends in their automobile loan rates could partially 

reflect the issues in securitization markets that TALF was intended to 

address. After initially providing funding to certain holders of AAA-rated 

ABS backed by newly and recently originated consumer and small 

business loans, TALF has been expanded to other assets, including 

commercial MBS. We will continue to monitor ABS activity, interest rates 

on consumer and business loans and other TALF-eligible securities, as 

well as ABS spreads. 

In future reports, we will address the effectiveness of the more recently 

initiated financial stability programs, using indicators and auxiliary 

quantitative work. These programs are intended to address rising 

foreclosures and the condition of the housing market (HAMP) as well as 

the legacy loans and securities that are widely held to be the root cause of 

the deteriorating conditions of many financial institutions (PPIP). 

Foreclosure data, although also influenced by general market forces such 

as falling housing prices and unemployment, should provide an indication 

of the effectiveness of HAMP. Although it is too soon to expect any HAMPrelated improvements, because HAMP was only recently implemented, we 

have monitored foreclosure rates over the past year. While the average 

foreclosure rate from 1979 to 2006 was less than 1 percent, the percentage 

of loans in foreclosure reached an unprecedented high of 4.3 percent at 

the end of the second quarter of 2009, up from 3.3 percent in the fourth 

quarter of 2008 (see table 6). Over the same period, the foreclosure rate on 

subprime loans rose to 15.1 percent from 13.7 percent (the rate for 

adjustable-rate subprime loans is now more than 24 percent). 

It Is Too Soon to Expect 

Results from More Recently 

Implemented TARP Programs 

As discussed in our March 2009 report, Treasury introduced PPIP to 

facilitate the purchase of legacy loans and securities. PPIP’s impact will 

depend largely on the pricing of the purchased assets. Sufficiently high 

prices will allow financial institutions to sell assets, deleverage, and 

improve their capital adequacy, but overpaying for these assets could have 

Page 44 GAO-10-16 Troubled Asset Relief Program
 

negative implications for taxpayers.59 In addition to providing more 

transparent pricing for assets, PPIP—if it is effective—should improve 

solvency at participating institutions and others holding those assets, 

reduce uncertainty about their balance sheets, and improve investor 

confidence. If it does, the institutions will be able to borrow and lend at 

lower rates and raise additional capital from the private sector. But PPIP is 

in the initial stages of implementation, and it is too early to expect effects 

on related markets. 

Challenges to Assessing 

TARP’s Effect on the 

Economy Remain 

While TARP’s activities could improve market confidence in participating 

banks and have other beneficial effects on credit markets, we have also 

noted in our previous reports that several factors will complicate efforts to 

measure any impact. For example, any changes attributed to TARP could 

well be changes that: 

• would have occurred anyway; 

• can be attributed to other policy interventions, such as the actions of 

FDIC, the Federal Reserve, or other financial regulators; or 

• were enhanced or counteracted by other market forces, such as the 

correction in housing markets and revaluation of mortgage-related assets. 

Consideration of market forces is particularly important when using bank 

lending as a measure of CPP’s and CAP’s success, because it is not clear 

what would have happened in the absence of TARP. Weaknesses in the 

balance sheets of financial intermediaries, a decline in the demand for 

credit, reduced creditworthiness among borrowers, and other market 

fundamentals suggest lower lending activity than would be expected. 

Similarly, nonbank financial institutions, which have accounted for a 

significant portion of lending activity over the last two decades, have been 

 

59Prices at or below the values financial institutions are currently assigning to these loans 

or securities would provide a limited incentive to sell. To the extent that nonrecourse 

funding and FDIC-guaranteed debt provide an implicit subsidy (e.g., through offering 

below-market loan terms) to potential buyers of legacy loans and securities, buyers would 

likely be willing to pay higher prices for these assets. To the extent that markets are 

underpricing such assets or prices are suppressed due to illiquidity, higher prices may be 

more reflective of the underlying value or cash flows associated with the assets (and 

therefore aid in price discovery). However, all other things being equal, higher prices 

impose certain risks on Treasury, FDIC, and the Federal Reserve if prices paid are too high, 

as these agencies will absorb losses beyond the equity supplied by investors. 

Page 45 GAO-10-16 Troubled Asset Relief Program
 

constrained due to weak securitization markets. Lastly, because the 

extension of credit to less-than-creditworthy borrowers appears to have 

been an important factor in the current financial crisis, it is not clear that 

lending should return to precrisis levels. Similar difficulties arise in using 

foreclosure data as a measure of HAMP’s success, especially given the 

rising unemployment rate and the number of homeowners who may have 

taken on mortgage-related debt beyond prudent levels. 

Treasury Should Consider 

a Number of Indicators 

and Measures to Provide a 

Basis for Future TARP 

Actions 

While Treasury is beginning to establish a case for exiting from some 

emergency programs and maintaining others, it has not fully established a 

comprehensive framework that will provide a basis for making transparent 

decisions about which TARP-specific actions are necessary or how those 

programs will be evaluated. Treasury’s authority to purchase or insure 

additional troubled assets will expire on December 31, 2009, unless the 

Secretary submits a written certification to Congress explaining why an 

extension is necessary and how much it is expected to cost. For this 

reason, Treasury will need to make decisions about providing new funding 

and maintaining existing funding for TARP programs in the next few 

months. It will need to do this in light of current and expected market 

conditions, and it will need to communicate its determinations to 

Congress and the American people. 

Treasury has recently released a report that begins to discuss the next 

phase of its stabilization and rehabilitation efforts—a discussion that may 

be a starting point for deciding whether any further actions are necessary 

to stabilize financial markets and the first step in establishing a framework 

for such actions.60 The report describes the drop in utilization of some 

programs as financial conditions normalize and confidence in financial 

markets improves and identifies a number of financial market indicators. 

Treasury also notes that it will need to ensure the continuation of some 

policies and programs that it believes are needed for financial and 

economic recovery. However, Treasury has yet to take all the steps needed 

to provide a basis for deciding whether or not to provide new funding for 

TARP. For example, while some rationale is provided for continued HAMP 

and TALF action, none is provided for PPIP. Without a robust analytic 

framework, Treasury may be challenged in effectively carrying out the 

next phase of its programs. 

 

60“The Next Phase of Government Financial Stabilization and Rehabilitation Policies,” 

Department of the Treasury (September 2009). 

Page 46 GAO-10-16 Troubled Asset Relief Program
 

For the decision-making process to be viewed as credible, Treasury will 

need to document and communicate the basis for its decisions. Although 

qualitative factors should be given serious consideration, to the extent that 

Treasury can relate its decision making to a set of quantitative measures or 

indicators, its case can be more convincing. In addition, Treasury would 

add further credibility to the process by announcing ahead of time the 

indicators or measures it plans to use. Doing so would help to disarm 

potential criticism that it had selectively chosen indicators or measures to 

justify its decisions after the fact. While indicators of credit market 

conditions can suggest the extent to which, for example, credit costs and 

lending have returned to levels consistent with the stability of financial 

markets, measures of program effectiveness can offer insight into the 

potential benefits of additional TARP expenditures. The Office of 

Management and Budget (OMB) guidance for cost-benefit and regulatory 

analyses suggests, among other things, making assumptions explicit, 

characterizing the uncertainties involved, varying assumptions to 

determine the sensitivity of estimated outcomes (sensitivity analysis), and 

considering alternative approaches.61 If Treasury adopts a more formal 

cost-benefit framework, additional principles may also be applicable, 

including the use of net present value measures, an enumeration of 

benefits and costs, and the quantifying of benefits and costs whenever 

possible. 

In establishing this new program, Treasury faced a number of operational 

challenges. Not only did it have to implement the program in the midst of 

the greatest financial crisis since the Great Depression, but Treasury also 

had to adjust the program as events continued to unfold. As TARP’s focus 

shifted from making a number of capital purchases as investments in 

individual institutions to one geared toward restarting securitization 

markets and preserving homeownership, its management infrastructure 

had to change as well. 

Conclusions and 

Recommendations 

While progress has been made in establishing TARP, much remains 

uncertain about the program, including whether it will pay for itself or 

prove to be a cost to the taxpayers. The reasons for the uncertainty 

include the following: 

 

61The Office of Management and Budget (OMB) guidance includes circulars A-4 “Regulatory 

Analysis” and A-94 “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal 

Programs.” 

Page 47 GAO-10-16 Troubled Asset Relief Program
 

• Some programs remain in their infancy, while others are winding down. 

Therefore, determining the overall impact and costs of the programs will 

take time. 

• TARP funds were invested in a variety of institutions, some of which were 

less risky than others. 

• Some TARP programs may generate some returns for Treasury through 

interest and dividend payments and sales of warrants, while others—such 

as HAMP—are expenditure programs aimed at helping homeowners 

modify their mortgages. 

To help Treasury meet the challenges associated with implementing a 

program while concurrently establishing a comprehensive system of 

internal control, we have made 35 recommendations to Treasury aimed at 

improving the accountability, integrity, and transparency of TARP. As 

discussed in appendix I, Treasury has taken action to address most of 

them. And while much important progress has been made, a number of 

areas warrant ongoing attention as Treasury moves into the next phase of 

the program and contemplates a possible extension. 

• First, we continue to believe that Treasury should work with the Chairmen 

of the FDIC and Federal Reserve, the Comptroller of the Currency, and the 

Acting Director of OTS to help ensure that the primary federal regulators 

use generally consistent criteria when considering repurchase decisions 

under TARP. While we understand that the final repurchase decision rests 

with a participant’s primary federal regulator, Treasury has a responsibility 

to ensure that these regulators are applying generally consistent criteria 

when reviewing TARP participants’ requests to repurchase their preferred 

shares. 

• Second, Treasury has yet to finalize its implementation of an oversight 

program for asset managers covering CPP and the other capital-based 

programs, such as TIP and AGP. While Treasury now has asset managers 

to help manage its equity investments, it must also ensure that the federal 

government’s interests are protected and that the asset managers are 

performing as agreed. 

• Third, Treasury has yet to implement our recommendation aimed at 

strengthening its efforts to help preserve homeownership and protect 

home values. As we previously recommended, Treasury should routinely 

update projections of the number of homeowners who can be helped 

under HAMP by reviewing key assumptions about the housing market and 

the behavior of mortgage holders, borrowers, and servicers. In addition, 

Page 48 GAO-10-16 Troubled Asset Relief Program
 

Treasury should develop a means of systematically assessing servicers’ 

capacity to make HAMP modifications and meet program requirements, so 

that Treasury can understand and address any risks associated with 

individual servicers’ ability to fulfill program requirements. 

• Fourth, in the area of management infrastructure, OFS has continued to 

make progress in establishing a management infrastructure to administer 

TARP and oversee contractors and financial agents, but some challenges 

remain. Though OFS now has close to 200 staff, some key senior positions 

have not been permanently filled, such as the Chief Homeownership 

Preservation Officer and Chief Investment Officer. Bringing on board 

permanent staff for these key positions is important in helping Treasury 

effectively administer TARP activities and ensuring accountability for 

program outcomes. Treasury has strengthened its management and 

oversight of contractors as its reliance on them to support TARP has 

grown over the past year. OFS continues to make progress in developing a 

comprehensive system of internal control. As we complete our first audit 

of OFS’s annual financial statements for TARP, we will be able to provide 

a more definitive view of TARP’s internal controls over financial reporting. 

• Fifth, in the area of communication, the program has evolved and 

continues to evolve. Treasury viewed its initial shift toward capital 

investments in the first weeks of the program as a more effective way to 

stabilize fragile financial markets. This shift in strategy, however, caught 

Congress and the public by surprise, and has created long-term challenges 

for the program, and, some would argue, ultimately impacted the 

effectiveness of the program. Concerns about this shift in structure 

highlight the communication challenges that continue to confront the 

program. And as Treasury continues to improve its communication efforts 

and formalize its communication strategy, Treasury must ensure that its 

ongoing efforts include keeping Congress adequately informed about 

TARP and its strategy, including its exit strategy for the various programs 

created under TARP. Furthermore, formalizing the communication 

strategy and hiring a communications director will help ensure that 

communication is given sufficient attention on an ongoing basis. 

• Finally, because TARP has been part of a broader effort that has included 

the Federal Reserve and FDIC, measuring the effectiveness of TARP’s 

programs has been an ongoing challenge. We developed a set of indicators 

that we used to track conditions of financial markets over the past year. 

These indicators show that a number of the anticipated effects of TARP 

have materialized. However, changes in these metrics are an imperfect 

way to measure TARP’s impact, as they may also be influenced by general 

market forces and cannot be exclusively linked to any one program or 

Page 49 GAO-10-16 Troubled Asset Relief Program
 

action. As a result, isolating and assessing TARP’s effect on the economy 

remains a challenging endeavor. 

Treasury has not fully established a comprehensive analytic framework for 

assessing the need for additional actions and evaluating program results in 

a transparent manner. In a recent report on the next phase of the federal 

government’s stabilization efforts, Treasury began to lay the foundation for 

an analytic framework for determining whether to extend TARP and also 

provided a number of financial indicators. Although TARP expires on 

December 31, 2009, the Secretary of the Treasury may extend the program 

to October 3, 2010, and Treasury will need to make a determination 

regarding such an extension. As Treasury considers whether to extend the 

program, the Secretary’s determination must be made in light of actions 

taken and planned by the Federal Reserve and FDIC and their winding 

down of certain programs and continuation of others that were also 

established to help stabilize markets. In addition, any continued action 

under TARP should be based in part on quantitative measures of program 

effectiveness, such as performance indicators, in order to weigh the 

benefits of TARP programs against the cost of using additional taxpayer 

resources. However, Treasury has not fully established a comprehensive 

analytic framework for assessing the future direction of the programs or 

determining whether additional actions are warranted. Moreover, as it 

finalizes the next phase of the program, Treasury will need to document its 

decision-making process and communicate its reasoning to Congress and 

the American people in order for its decisions to be viewed as credible. 

Finally, with the exception of AGP and AIFP, Treasury has not updated its 

projected use of funds for the TARP programs in light of current market 

conditions and program participation rates since March 2009. Based on 

changes in the markets, repurchases, participation levels in certain 

programs, and the implementation status of others, a thorough review of 

Treasury’s existing estimates of its projected use of TARP funds is 

warranted in light of the need to make a determination about whether to 

extend the program. Without more current and meaningful estimates 

about projected uses of the remaining funds, Treasury’s ability to plan for 

and effectively execute the next phase of the program will be limited. 

As it enters the next phase of the program, Treasury will likely face 

ongoing challenges. Building on our prior recommendations, we are 

making three new recommendations aimed at improving Treasury’s ability 

to effectively manage the next phase of the program. Specifically, we 

recommend that the Secretary of the Treasury 

New 

Recommendations for 

Executive Action 

Page 50 GAO-10-16 Troubled Asset Relief Program
 

• Consider TARP in a broad market context and as part of determining 

whether to extend TARP, work with the Chairmen of the Federal Reserve 

and FDIC to develop a coordinated framework and analytical basis to 

determine whether an extension is needed. If it is, the Secretary should 

clearly spell out what the objectives and measures of any extended 

programs would be, along with anticipated costs and safeguards; 

• Document its analytical decision-making process and clearly communicate 

the results to Congress and the American people for determining whether 

an extension is needed; and 

• Update its projected use of funds and, if the program is extended, continue 

to re-evaluate them on a periodic basis. 

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

We also provided excerpts of the draft report to the Federal Reserve and 

FDIC for their review. Treasury provided written comments that we have 

reprinted in appendix XI. Treasury, the Federal Reserve, and FDIC also 

provided technical comments that have been incorporated as appropriate. 

Agency Comments 

and Our Analysis 

In its comments, Treasury noted that “there is important work ahead” and 

that our recommendations were constructive as Treasury works to 

implement its financial stability programs and enhance OFS’s 

performance. In particular, the Assistant Secretary noted in response to 

our recommendations that the Secretary in deciding whether to extend 

TARP authority beyond December 31, 2009, “will coordinate with 

appropriate officials to ensure that the determination is considered in a 

broad market context that takes account of relevant objectives, costs, and 

measures” and that Treasury will communicate the reasons for the 

decision when it is made. Concerning our recommendation that Treasury 

update its projected use of funds estimates and if the program is extended, 

regularly re-evaluate them, Treasury commented that it regularly evaluates 

funding needs for TARP programs and announces revisions as decisions 

are made. However, with the exception of AGP and AIFP, Treasury had 

not publicly affirmed its projected use estimates since March 2009. As it 

continues to evaluate these estimates, Treasury should disclose this 

information periodically, including reconciling estimates to actual results. 

For example, in March Treasury estimated that it had $135 billion 

remaining under TARP. This included $25 billion in estimated repurchases, 

yet as of September 25, 2009, actual repurchases totaled almost three 

times that amount. 

Page 51 GAO-10-16 Troubled Asset Relief Program
 

Page 52 GAO-10-16 Troubled Asset Relief Program 

We are sending copies of this report to the Congressional Oversight Panel, 

Financial Stability Oversight Board, Special Inspector General for TARP, 

interested congressional committees and members, Treasury, the federal 

banking regulators, and others. The report also is available at no charge on 

the GAO Web site at http://www.gao.gov. 

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

Richard J. Hillman at (202) 512-8678 or hillmanr@gao.gov; Thomas J. 

McCool at (202) 512-2642 or mccoolt@gao.gov; or Orice Williams Brown at 

(202) 512-8678 or williamso@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix XII. 

Gene L. Dodaro 

Acting Comptroller General 

 of the United States 
 

List of Committees 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Thad Cochran 

Vice Chairman 

Committee on Appropriations 

United States Senate 

The Honorable Christopher J. Dodd 

Chairman 

The Honorable Richard C. Shelby 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Kent Conrad 

Chairman 

The Honorable Judd Gregg 

Ranking Member 

Committee on the Budget 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable David R. Obey 

Chairman 

The Honorable Jerry Lewis 

Ranking Member 

Committee on Appropriations 

House of Representatives 

The Honorable John M. Spratt, Jr. 

Chairman 

The Honorable Paul Ryan 

Ranking Member 

Committee on the Budget 

House of Representatives 

Page 53 GAO-10-16 Troubled Asset Relief Program
 

The Honorable Barney Frank 

Chairman 

The Honorable Spencer Bachus 

Ranking Member 

Committee on Financial Services 

House of Representatives 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Dave Camp 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

Page 54 GAO-10-16 Troubled Asset Relief Program
Appendix I: Status of GAO Recomme

as of September 25, 2009 

ndations, 

Page 55 GAO-10-16 

GAO recommendations Status 

December 2, 2008, report: 

Work with the bank regulators to establish a systematic means of determining and reporting in a timely 

manner whether financial institutions’ activities are generally consistent with the purposes of Capital 

Purchase Program (CPP) and help ensure an appropriate level of accountability and transparency. 

Implemented 

Develop a means to ensure that institutions participating in CPP comply with key program 

requirements (for example, executive compensation, dividend payments, and the repurchase of stock). 

Partially implemented 

Formalize the existing communication strategy to ensure that external stakeholders, including 

Congress, are informed about the program’s current strategy and activities and understand the 

rationale for changes in this strategy to avoid information gaps and surprises. 

Partially implemented 

Facilitate a smooth transition to the new administration by building on and formalizing ongoing 

activities, including ensuring that key Office of Financial Stability (OFS) leadership positions are filled 

during and after the transition. 

Implemented 

Expedite OFS’s hiring efforts to ensure that the Department of the Treasury (Treasury) has the 

personnel needed to carry out and oversee the Troubled Asset Relief Program (TARP). 

Implemented 

Ensure that sufficient personnel are assigned and properly trained to oversee the performance of all 

contractors, especially for contracts priced on a time-and-materials basis, and move toward fixed-price 

arrangements whenever possible. 

Implemented 

Continue to develop a comprehensive system of internal control over TARP, including policies, 

procedures, and guidance that are robust enough to protect taxpayers’ interests and ensure that 

program objectives are being met. 

Partially implemented 

Issue regulations on conflicts of interest involving Treasury’s agents, contractors, and their employees 

and related entities as expeditiously as possible and review and renegotiate mitigation plans, as 

necessary, to enhance specificity and compliance with the new regulations once they are issued. 

Implemented 

Institute a system to effectively manage and monitor the mitigation of conflicts of interest. Implemented 

January 30, 2009, report: 

Expand the scope of planned monthly CPP surveys to include collecting at least some information 

from all institutions participating in the program. 

Implemented 

Ensure that future CPP agreements include a mechanism that will better enable Treasury to track the 

use of the capital infusions and seek to obtain similar information from existing CPP participants. 

Implemented 

Establish a process to ensure compliance with all CPP requirements, including those associated with 

limitations on dividends and stock repurchase restrictions. 

Partially implemented 

Communicate a clearly articulated vision for TARP and show how all individual programs are intended 

to work in concert to achieve that vision. This vision should incorporate actions to preserve 

homeownership. Once this vision is clearly articulated, Treasury should document needed skills and 

competencies. 

Implemented 

Continue to expeditiously hire personnel needed to carry out and oversee TARP. Implemented 

Expedite efforts to ensure that sufficient personnel are assigned and properly trained to oversee the 

performance of all contractors, especially for contracts priced on a time-and-materials basis, and move 

toward fixed-price arrangements whenever possible as program requirements are better defined over 

time. 

Implemented 

Develop a comprehensive system of internal control over TARP activities, including policies, 

procedures, and guidance that are robust enough to ensure that the program’s objectives and 

requirements are met. 

Partially implemented 

Appendix I: Status of GAO 

Recommendations, as of September 25, 2009 

 Troubled Asset Relief Program 
Appendix I: Status of GAO Recommendations, 

as of September 25, 2009 

GAO recommendations Status 

Develop and implement a well-defined and disciplined risk-assessment process, as such a process is 

essential to monitoring program status and identifying any risks of potential inadequate funding of 

announced programs. 

Implemented 

Review and renegotiate existing conflict-of-interest mitigation plans, as necessary, to enhance 

specificity and conformity with the new interim conflicts-of-interest regulation and take continued steps 

to manage and monitor conflicts of interest and enforce mitigation plans. 

Partially implemented 

March 31, 2009, report: 

Develop a communication strategy that includes building an understanding and support for the various 

components of the program. Specific actions could include hiring a communications officer, integrating 

communications into TARP operations, scheduling regular and ongoing contact with congressional 

committees and members, holding town hall meetings with the public across the country, establishing 

a counsel of advisors, and leveraging available technology. 

Partially implemented 

Require that American International Group, Inc. (AIG) seek concessions from stakeholders, such as 

management, employees, and counterparties, including seeking to renegotiate existing contracts, as 

appropriate, as it finalizes the agreement for additional assistance. 

Closed, not implemented 

Update OFS documentation of certain internal control procedures and the guidance available to the 

public on determining warrant exercise prices to be consistent with actual practices applied by OFS. 

Partially implemented 

Improve transparency pertaining to TARP program activities by reporting publicly the monies, such as 

dividends, paid to Treasury by TARP participants. 

Implemented 

Complete the review of, and as necessary renegotiate, the four existing vendor conflicts-of-interest 

mitigation plans to enhance specificity and conformity with the new interim conflicts-of-interest rule. 

Partially implemented 

Issue guidance requiring that key communications and decisions concerning potential or actual 

vendor-related conflicts of interest be documented. 

Implemented 

June 17, 2009, report: 

Ensure that the warrant valuation process maximizes benefits to taxpayers and consider publicly 

disclosing additional details regarding the warrant repurchase process, such as the initial price offered 

by the issuing entity and Treasury’s independent valuations, to demonstrate Treasury’s attempts to 

maximize the benefit received for the warrants on behalf of the taxpayer. 

Partially implemented 

In consultation with the Chairmen of the Federal Deposit Insurance Corporation and the Board of 

Governors of the Federal Reserve System, the Comptroller of the Currency, and the Acting Director of 

the Office of Thrift Supervision, ensure consideration of generally consistent criteria by the primary 

federal regulators when considering repurchase decisions under TARP. 

Not implemented 

Fully implement a communication strategy that ensures that all key congressional stakeholders are 

adequately informed and kept up to date about TARP. 

Partially implemented 

Expedite efforts to conduct usability testing to measure the quality of users’ experiences with the 

financial stability Web site and measure customer satisfaction with the site, using appropriate tools 

such as online surveys, focus groups, and e-mail feedback forms. 

Implemented 

Explore options for providing the public with more detailed information on the costs of TARP contracts 

and agreements, such as a dollar breakdown of obligations and/or expenses. 

Implemented 

Finally, to help improve the transparency of Capital Assistance Program (CAP)—in particular the stress 

tests results—we recommend that the Director of Supervision and Regulation of the Federal Reserve 

consider periodically disclosing to the public the aggregate performance of the 19 bank holding 

companies against the more adverse scenario forecast numbers for the duration of the 2-year forecast 

period and whether or not the scenario needs to be revised. At a minimum, the Federal Reserve 

should provide the aggregate performance data to OFS program staff for any of the 19 institutions 

participating in CAP or CPP. 

Not implemented 

Page 56 GAO-10-16 Troubled Asset Relief Program
Appendix I: Status of GAO Recommendations, 

as of September 25, 2009 

GAO recommendations Status 

July 23, 2009, report: 

Consider methods of (1) monitoring whether borrowers with total household debt of more than 55 

percent of their income who have been told that they must obtain HUD-approved housing counseling 

do so, and (2) assessing how this counseling affects the performance of modified loans to see if the 

requirement is having its intended effect of limiting redefaults. 

(1) Partially implemented 

(2) Not implemented 

Reevaluate the basis and design of Home Price Decline Protection (HPDP) program to ensure that the 

Home Affordable Modification Program (HAMP) funds are being used efficiently to maximize the 

number of borrowers who are helped under HAMP and to maximize overall benefits of utilizing 

taxpayer dollars. 

Partially implemented 

Institute a system to routinely review and update key assumptions and projections about the housing 

market and the behavior of mortgage holders, borrowers, and servicers that underlie Treasury’s 

projection of the number of borrowers whose loans are likely to be modified under HAMP and revise 

the projection as necessary in order to assess the program’s effectiveness and structure. 

Partially implemented 

Place a high priority on fully staffing vacant positions in Homeownership Preservation Office (HPO)—

including filling the position of Chief Homeownership Preservation Officer with a permanent 

placement—and evaluate HPO’s staffing levels and competencies to determine whether they are 

sufficient and appropriate to effectively fulfill its HAMP governance responsibilities. 

Partially implemented 

Expeditiously finalize a comprehensive system of internal control over HAMP—including policies, 

procedures, and guidance for program Activities—to ensure that the interests of both the government 

and taxpayer are protected and that the program objectives and requirements are being met once loan 

modifications and incentive payments begin. 

Partially implemented 

Expeditiously develop a means of systematically assessing servicers’ capacity to meet program 

requirements during program admission so that Treasury can understand and address any risks 

associated with individual servicers’ abilities to fulfill program requirements, including those related to 

data reporting and collection. 

Not implemented 

Source: GAO and analysis of OFS, Treasury information. 

Page 57 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

Page 58 GAO-10-16 

Appendix II: Capital Purchase Program 

The Capital Purchase Program (CPP) has been the primary initiative under 

the Troubled Asset Relief Program (TARP) for stabilizing the financial 

markets and banking system. The Department of the Treasury (Treasury) 

created CPP in October 2008 to stabilize the financial system by providing 

capital to qualifying regulated financial institutions through the purchase 

of senior preferred shares and subordinated debentures.1

 In return for its 

investment, Treasury was to receive dividend or interest payments and 

warrants.2

 Treasury has stated that by building capital, CPP should help 

increase the flow of financing to U.S. businesses and consumers and 

support the U.S. economy. At the time of the program’s announced 

establishment, nine major financial institutions—considered by federal 

banking regulators and Treasury to be essential to the operation of the 

financial system—agreed to participate in CPP.3

 Together, these 

institutions held about 55 percent of U.S. banking assets. Banking 

regulators recommend program participants, which Treasury selects, 

based on examination ratings and performance and may accept or reject 

applications based on these factors and on mitigating circumstances, such 

as confirmed private investment. 

Program Overview 

On October 14, 2008, Treasury allocated $250 billion of the almost $700 

billion for CPP but adjusted its allocation to $218 billion in March 2009. 

According to Treasury officials, this downward adjustment reflected the 

estimated funding needs of the program based on participation to date and 

the money it expected to receive from participants repurchasing their 

preferred shares and subordinated debt. As of September 25, 2009, 

Treasury had disbursed more than $204.6 billion (see table 9) and had 

received about $70.7 billion from repurchases of preferred shares leaving 

$84.1 billion available for future CPP funding, according to Tresaury. 

Funding 

 

1

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

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

savings and loan holding companies. 

2

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

predetermined price on or before a specified date. 

3

The nine major financial institutions were Bank of American Corporation; Citigroup, Inc.; 

JP Morgan Chase & Co.; Wells Fargo & Company; Morgan Stanley; The Goldman Sachs 

Group, Inc.; The Bank of New York Mellon Corporation; State Street Corporation; and 

Merrill Lynch & Co., Inc. 

 Troubled Asset Relief Program 
Appendix II: Capital Purchase Program 

Table 9: Capital Investments Made through the Capital Purchase Program, as of 

September 25, 2009 

Closing date of 

transaction 

Amount of CPP 

capital investment

Cumulative percentage 

of allocated funds used 

for CPP capital 

investment

Number of 

qualified financial 

institutions 

receiving CPP 

capital

10/28/2008 $115,000,000,000 52.75% 8

11/14/2008 33,561,409,000 68.15 21

11/21/2008 2,909,754,000 69.48 23

12/5/2008 3,835,635,000 71.24 35

12/12/2008 2,450,054,000 72.37 28

12/19/2008 2,791,950,000 73.65 49

12/23/2008 1,911,751,000 74.52 43

12/31/2008 15,078,947,000 81.44 7

1/9/2009 14,771,598,000 88.22 43

1/16/2009 1,479,938,000 88.89 39

1/23/2009 385,965,000 89.07 23

1/30/2009 1,151,218,000 89.6 42

2/6/2009 238,555,000 89.71 28

2/13/2009 429,069,000 89.91 29

2/20/2009 365,397,000 90.07 23

2/27/2009 394,906,000 90.26 28

3/6/2009 284,675,000 90.39 22

3/13/2009 1,455,160,000 91.05 19

3/20/2009 80,748,000 91.09 10

3/27/2009 192,958,000 91.18 14

4/3/2009 54,826,000 91.2 10

4/10/2009 22,790,000 91.21 5

4/17/2009 40,945,000 91.23 6

4/24/2009 121,846,000 91.29 12

5/1/2009 45,532,000 91.31 7

5/8/2009 42,019,000 91.33 7

5/15/2009 107,623,000 91.38 14

5/22/2009 108,333,000 91.43 12

5/29/2009 89,207,000 91.47 8

6/5/2009 40,269,000 91.49 3

6/12/2009 39,108,000 91.51 7

6/19/2009 84,705,000 91.54 10

Page 59 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

Closing date of 

transaction 

Amount of CPP 

capital investment

Cumulative percentage 

of allocated funds used 

for CPP capital 

investment

Number of 

qualified financial 

institutions 

receiving CPP 

capital

6/26/2009 3,626,311,000 93.21 16

7/3/2009 0 93.21 0

7/10/2009 963,669,000 93.65 2

7/17/2009 91,600,000 93.69 6

7/24/2009 87,655,000 93.73 4

7/31/2009 10,742,000 93.74 2

8/7/2009 70,236,000 93.77 2

8/14/2009 1,004,000 93.77 1

8/21/2009 9,000,000 93.77 2

8/28/2009 49,657,000 93.8 4

9/4/2009 1,697,000 93.8 1

9/11/2009 74,771,000 93.83 5

9/18/2009 15,976,000 93.84 2

9/25/2009 48,365,320 93.86 6

Total $204,617,573,320 93.86% 685a

Sources: GAO analysis of Treasury and SEC (10Q) data. 

a

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

(SunTrust), Bank of America Corporation, and Yadkin Valley Financial Corporation received two 

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

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

Corporation received $15 billion on October 28, 2008, and, after merging with Merrill Lynch & Co., 

Inc. on January 1, 2009, an additional $10 billion on January 9, 2008. Yadkin Valley Financial 

Corporation received $36 million on January 16, 2009, and another $13.3 million on July 24, 2009, 

after merging with American Community Bancshares, Inc on April 17, 2009. 

Through CPP, Treasury had provided more than $204 billion in capital to 

685 institutions as of September 25, 2009. These purchases ranged from 

$301,000 to $25 billion per institution and represented about 94 percent of 

the $218 billion Treasury allocated for CPP. As of September 25, 2009, the 

types of institutions that received CPP capital varied in size and included 

280 publicly held institutions, 337 privately held institutions, 1 mutual 

institution, 45 S-corporations, and 22 community development financial 

Status of Efforts 

Page 60 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

institutions.4 These purchases represented investments in state-chartered 

and national banks and bank holding companies located in the District of 

Columbia, Puerto Rico, and every state except Montana and Vermont. For 

a detailed listing of financial institutions that received CPP funds as of 

September 25, 2009, see GAO-10-24SP.

5

 While the last application deadline 

was May 14, 2009, for mutual institutions, on May 13, 2009, the Secretary of 

the Treasury extended the CPP program to November 21, 2009, for all 

types of small banks. The program is starting to wind down, with fewer 

than 115 applications under consideration by regulators and fewer than 30 

applications by Treasury as of September 18, 2009. 

Treasury and the federal bank regulators continue to review applications 

for CPP. According to Treasury, as of September 25, 2009, it had received 

over 1,300 CPP applications (including approximately 10 under the small 

bank program) from the banking regulators, with fewer than 30 awaiting 

decision by OFS’s Investment Committee. For many applications in this 

category, Treasury is awaiting updated information from the regulators 

before taking the application to the Investment Committee for a vote. The 

bank regulators also reported that they were reviewing applications of 

fewer than 115 institutions plus more than 50 under the small bank 

program that had not yet been forwarded to Treasury. Qualified financial 

institutions generally have 30 calendar days after Treasury notifies them of 

preliminary approval for CPP funding to submit investment agreements 

and related documentation. OFS officials stated that more than 430 

financial institutions that received preliminary approval had withdrawn 

their CPP applications as of September 25, 2009. Institutions withdrew 

their applications for a variety of reasons, including the uncertainty 

 

4

An S-corporation makes a valid election to be taxed under subchapter S of chapter 1 of 

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

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

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

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

Boston Mutual and New York Life) are mutuals. A Community Development Financial 

Institutions (CDFI) is a specialized financial institution that works in market niches that 

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

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

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

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

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

5

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

October 28, 2008, through September 25, 2009, and Information on Financial Agency 

Agreement, Contract, Blanket Purchase Agreements, and Interagency Agreements 

Awarded as of September 18, 2009, GAO-10-24SP (Washington, D.C.: October 8, 2009). 

Page 61 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

surrounding future program requirements, the legal cost to close 

transactions (for small institutions), cost of warrants, and improving 

confidence in the banking system that allowed them to raise capital in the 

private markets. 

In addition to outflows, Treasury had received about $6.7 billion in 

dividend payments and interest payments from CPP participants as of 

September 25, 2009. CPP participants repurchased about $70.7 billion in 

preferred shares and paid another $2.9 billion to repurchase their warrants 

and preferred stock received through the exercise of warrants. 

• October 13, 2008: Consistent with conditions prescribed by the 

Emergency Economic Stabilization Act of 2008 (the act), Treasury notifies 

Congress that Treasury officials have determined that it would be more 

efficient to purchase preferred shares issued by certain financial 

institutions instead of purchasing mortgage-related assets. 

Key Activities Under 

CPP 

• October 14, 2008: Treasury announces that it will make direct capital 

investments in a broad array of qualifying financial institutions in 

exchange for preferred stock and warrants through CPP. Also, Treasury 

allocates $125 billion in purchases for the first nine financial institutions 

deemed systemically significant by federal bank regulators and Treasury. 

The nine large financial institutions agree to participate in CPP, in part, to 

signal the importance of the program for the system. 

• October 14, 2008: Treasury provides a description of CPP terms for 

investments in public financial institutions and issues the term sheet for 

public institutions. The deadline for public institutions to submit 

applications to their primary federal bank regulator is November 14, 2008. 

• October 20, 2008: Treasury published in the Federal Register an interim 

final rule to provide guidance on the executive compensation provisions 

applicable to CPP participants. 

• October 20, 2008: Treasury and the four federal banking agencies—the 

Board of Governors of the Federal Reserve System, the Office of the 

Comptroller of the Currency, the Office of Thrift Supervision, and the 

Federal Deposit Insurance Corporation—issue application guidelines, 

frequently asked questions, and standardized terms for making capital 

investments in public financial institutions. The deadline for public 

institutions to submit applications to their primary federal bank regulator 

is November 14, 2008. 

Page 62 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

• October 28, 2008: Treasury settles the capital purchase transactions with 

eight of the nine institutions participating in the first round of CPP for a 

total of $115 billion.6

 

• November 17, 2008: Treasury issues standardized terms for making capital 

investments in privately held financial institutions. December 8, 2008, is 

the deadline for privately held institution to submit applications to their 

primary federal bank regulator for CPP funds. 

• January 14, 2009: Treasury issues standardized terms for making capital 

investments in S-corporations and answers to frequently asked questions 

for qualified financial institutions applying to CPP that are S-corporations. 

The term sheet provides for issuances of debt instead of preferred stock 

issued by certain other CPP participants. The deadline for S-corporations 

to submit applications to their primary federal bank regulator is February 

17, 2009. 

• February 17, 2009: Treasury publishes its first Monthly Lending and 

Intermediation Snapshot with information from the top 21 financial 

institutions participating in CPP. 

• February 17, 2009: The American Recovery and Reinvestment Act of 2009 

(ARRA) amends the Emergency Economic Stabilization Act of 2008 by 

allowing financial institutions to repurchase or buy back their preferred 

shares and warrants from Treasury at any time with the approval of their 

primary federal regulator. Under the original terms of CPP, financial 

institutions are prohibited from repurchasing in the first 3 years unless 

they had completed a qualified equity offering. 

• February 26, 2009: Treasury publishes frequently asked questions 

addressing changes to CPP under ARRA. 

• March 31, 2009: The first financial institutions begin repaying their CPP 

capital investments (that is, repurchasing preferred shares) after receiving 

approval from their primary federal banking regulator. Five institutions 

pay $353 million to Treasury. 

• April 7, 2009: Treasury issues three term sheets for qualifying financial 

institutions applying to CPP that are mutual holding companies. The 

 

6

According to Treasury, the remaining $10 billion would be settled by the end of January 

2009, by which time the merger of Bank of America Corporation and Merrill Lynch & Co., 

Inc. would be complete. 

Page 63 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

deadline for mutual institutions to submit applications to their primary 

federal bank regulator is May 7, 2009. 

• April 14, 2009: Treasury releases term sheet for mutual banks applying to 

CPP that do not have holding companies. The deadline for mutual 

institutions to submit applications to their primary federal bank regulator 

is May 14, 2009. 

• April 22, 2009: Treasury announces the selection of three firms 

(AllianceBernstein LP; FSI Group, LLC; and Piedmont Investment 

Advisors, LLC) to serve as asset managers for CPP and other programs. 

Treasury officials state that these managers would have a role in helping 

ensure that institutions are honoring dividend payments and stock 

repurchases requirements. 

• May 13, 2009: The Treasury Secretary announces in a speech that 

Treasury has taken additional actions under CPP to ensure that small 

community banks and holding companies (qualifying financial institutions 

with total assets less than $500 million) will have the capital they needed 

to lend to creditworthy borrowers. Small banks have until November 21, 

2009, to apply to CPP under all term sheets. 

• May 14, 2009: Treasury notifies six insurance companies that they have 

received preliminary CPP funding approval. All insurance companies 

complied with the requirements to participate in CPP under existing term 

sheets, as these companies are organized as bank or thrift holding 

companies and filed their CPP applications by the deadline date. As of 

September 25, 2009, two of the six had been funded. 

• June 1, 2009: Treasury releases its first CPP Monthly Lending Report, 

which includes information on outstanding balances on consumer loans, 

commercial loans, and total loans of all CPP participants. 

• June 9, 2009: Treasury announces that 10 of the largest U.S. financial 

institutions participating in CPP are eligible to complete the repurchase 

process and repay about $68 billion, having obtained regulatory consent to 

their repayment requests. 

• June 10, 2009: Treasury adopts an interim rule to implement the 

executive compensation and corporate governance provisions of the act, 

as amended by ARRA. 

Page 64 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

• June 17, 2009: Ten of the largest U.S. bank holding companies—all but 

one of which participated in the Supervisory Capital Assessment Program 

exercise—repay about $68 billion in CPP capital investments to Treasury. 

• June 26, 2009: Treasury announces its policy with respect to warrant 

repurchases and the disposition of warrants received in connection with 

investments made under CPP. Also, frequently asked questions about 

warrants and CPP are published. 

• August 17, 2009: Treasury, in conjunction with bank regulators, publishes 

the first Quarterly Capital Purchase Report of regulatory financial data for 

CPP and non-CPP banks, thrifts, and bank holding companies. It focuses 

on three broad categories: on- and off-balance sheet items, performance 

ratios, and asset quality measures. 

• December 31, 2009: Deadline for Treasury to end the approval process for 

the additional funding of institutions under CPP and TARP unless the 

Treasury Secretary extends it. 

Page 65 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

GAO’s Recommendations 

and Treasury’s Response 

Table 10: Treasury’s Actions in Response to GAO Recommendations, as of September 25, 2009 

GAO recommendations 

Treasury actions responding to 

recommendations 

GAO assessment of 

Treasury’s response 

Recommendations from the December 2, 2008, report:

Work with the bank regulators to establish a systematic 

means of determining and reporting in a timely manner 

whether financial institutions’ activities are generally 

consistent with the purposes of CPP and help ensure 

an appropriate level of accountability and transparency. 

• Publishes a monthly bank lending survey of 

the 22 largest CPP institutions to monitor 

their lending (including small business) and 

intermediation activities; includes both 

financial data and commentaries. 

• In conjunction with federal bank regulators, 

Treasury publishes a quarterly analysis of 

regulatory data for banks (call reports), 

thrifts (thrift financial reports) and bank 

holding companies (Y-9C) for all CPP 

reporting institutions. 

• All federal bank regulators, except the 

Federal Reserve, have developed 

examination polices and procedures to 

monitor CPP participants for compliance 

with CPP agreements and TARP 

requirements. 

• All reports are posted on Treasury’s 

FinancialStability.gov Web site. 

Implemented 

Develop a means to ensure that institutions participating 

in CPP comply with key program requirements (e.g., 

executive compensation, dividend payments, and the 

repurchase of stock). 

• Named a permanent Chief Risk and 

Compliance Officer and uses information 

sources such as Bloomberg, Securities and 

Exchange Commission filings, press 

releases, and other information sources to 

monitor dividend payments and stock 

repurchases. 

• Hired three asset management firms to 

provide market advice about investments in 

financial institutions and corporations 

participating in TARP programs, and help 

monitor compliance with limitations on 

dividend payments and stock repurchases; 

is also exploring software solutions and 

other data resources to improve compliance 

monitoring. 

• Publishes a monthly dividends and interest 

report detailing monthly and cumulative 

dividends and interest payments received on 

TARP investments, including CPP. 

Partially implemented 

Page 66 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

GAO recommendations 

Treasury actions responding to 

recommendations 

GAO assessment of 

Treasury’s response 

Recommendations from the January 30, 2009, report:

Expand the scope of planned monthly CPP surveys to 

include collecting at least some information from all 

institutions participating in the program. 

• Publishes a monthly survey of lending at all 

CPP institutions includes data on loans 

outstanding to consumers and commercial 

entities and total loans outstanding. 

Implemented 

Ensure that future CPP agreements include a 

mechanism that will better enable Treasury to track the 

use of the capital infusions and seek to obtain similar 

information from existing CPP participants. 

See responses above to implemented 

recommendations. 

Implemented 

Establish a process to ensure compliance with all CPP 

requirements, including those associated with 

limitations on dividends and stock repurchase 

restrictions. 

• Treasury uses its custodian bank—Bank of 

New York Mellon—to collect information 

from a variety of informal sources, such as 

Securities and Exchange Commission filings 

and press releases, Bloomberg, and 

information provided by CPP participants 

and refer instances of noncompliance to the 

Chief Risk and Compliance Office for action. 

• New executive compensation rule requires 

the establishment of the Office of the Special 

Master for TARP Executive Compensation 

(Special Master) to review compensation 

plans for the most highly compensated 

employees of recipients of exceptional 

assistance under TARP and review 

payments of bonuses, retention awards, and 

other compensation for the senior executive 

officers and 20 next highly compensated 

employees of TARP recipients before 

February 17, 2009, and where applicable, 

negotiate reimbursements (interim rule). 

• The interim rule also establishes compliance 

reporting and record-keeping requirements 

for executive compensation and corporate 

governance standards. 

• All federal bank regulators, except the 

Federal Reserve, have developed 

examination polices and procedures to 

monitor CPP participants for compliance 

with CPP and TARP requirements. 

Partially implemented 

Page 67 GAO-10-16 Troubled Asset Relief Program
Appendix II: Capital Purchase Program 

GAO recommendations 

Treasury actions responding to 

recommendations 

GAO assessment of 

Treasury’s response 

Recommendations from June 17, 2009, report: 

In consultation with the Chairmen of the Federal 

Deposit Insurance Corporation and the Federal 

Reserve, the Comptroller of the Currency, and the 

Acting Director of the Office of Thrift Supervision, 

ensure consideration of generally consistent criteria by 

the primary federal regulators when considering 

repurchase decisions under TARP. 

Believes it is unable to implement 

recommendation because Treasury cannot 

dictate criteria that federal bank regulators 

should apply in making repurchase decisions 

under TARP. 

Not implemented, we 

continue to believe that 

Treasury should work 

with the Chairmen of the 

FDIC and Federal 

Reserve, the Comptroller 

of the Currency, and the 

Acting Director of the 

OTS to ensure 

consideration of 

generally consistent 

criteria by the primary 

federal regulators when 

considering repurchase 

decisions under TARP. 

While we understand that 

the final repurchase 

decision rests with a 

participant’s primary 

federal regulator, 

Treasury has a 

responsibility to ensure 

that these regulators are 

applying generally 

consistent criteria when 

reviewing TARP 

participants requests to 

repurchase their 

preferred shares. Rather 

than dictating criteria, we 

are recommending that 

Treasury engage in a 

dialogue to help ensure 

that the criteria being 

used are generally 

consistent. 

Source: GAO and analysis of OFS, Treasury, information. 

Page 68 GAO-10-16 Troubled Asset Relief Program
Appendix III: Capital Assistance Program 

Page 69 GAO-10-16 

Appendix III: Capital Assistance Program 

In February 2009, the Department of the Treasury (Treasury) announced 

the Financial Stability Plan, which outlined a set of measures to help 

address the financial crisis and restore confidence in our financial and 

housing markets by restarting the flow of credit to consumers and 

businesses, strengthening financial institutions, and providing aid to 

homeowners and small businesses. The plan announced six key 

components, one of which was the Capital Assistance Program (CAP). 

CAP is designed to help ensure that qualified financial institutions have 

sufficient capital to withstand severe economic challenges. These 

institutions must meet eligibility requirements that will be substantially 

similar to those used for Capital Purchase Program (CPP). A key 

component of CAP is the Supervisory Capital Assessment Program 

(SCAP), which the 19 largest U.S. bank holding companies (those with 

risk-weighted assets of $100 billion or more as of December 31, 2008) were 

required to participate in.1

 Specifically, federal bank regulators, led by the 

Board of Governors of the Federal Reserve System, conducted capital 

assessments or “stress tests” to determine whether the largest bank 

holding companies have enough capital to absorb losses and continue 

lending even if conditions were worse than expected between December 

2008 and December 2010.2

 Institutions deemed not to have sufficient 

capital were given 6 months to raise private capital or to access capital 

through CAP. Institutions with less than $100 billion in risk-weighted 

assets were not required to complete a stress test but are also eligible to 

obtain capital under CAP. In a process similar to the one used for CPP, 

institutions interested in CAP must submit applications to their primary 

federal banking regulators by November 9, 2009.3

 The regulators are to 

submit recommendations to Treasury regarding an applicant’s viability. 

Program Overview 

In addition, as part of the application process, institutions must submit a 

plan showing how they intend to use this capital to support their lending 

activities and how the assistance will impact their lending compared to 

what would have been possible without it. Participating institutions under 

 

1

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

that are weighted for risk according to Federal Reserve regulations. 

2

Federal bank regulators that conducted the stress test included the Board of Governors of 

the Federal Reserve System and Federal Reserve Banks (Federal Reserve), the Federal 

Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency 

(OCC). 

3

The application deadline was extended by Treasury from May 25, 2009, to November 9, 

2009. 

 Troubled Asset Relief Program 
Appendix III: Capital Assistance Program 

CAP will be required to submit to Treasury monthly reports—similar to 

those for CPP—on their lending activities. 

To date, Treasury has not allocated any funding to CAP. 

The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), 

and the Office of the Comptroller of the Currency (OCC) conducted the 

stress test in the spring of 2009. More than 150 examiners, supervisors, 

accountants, economists, and other specialists from these banking 

agencies participated in the supervisory process. On May 7, 2009, the 

Federal Reserve announced the results of SCAP. SCAP results showed that 

10 of the 19 bank holding companies needed to raise approximately $75 

billion in additional capital. The 10 institutions that needed to raise 

additional capital filed their capital plans with the Federal Reserve by the 

June 8, 2009, deadline. 

Federal banking regulators said that as of September 18, 2009, they had 

received 6 CAP applications from institutions wanting to participate in the 

program. Regulators noted that they had forwarded no applications to 

Treasury for funding consideration. Therefore, no funds have been 

disbursed under CAP, according to Treasury officials. 

• February 10, 2009: CAP was announced as a key component of 

Treasury’s Financial Stability Plan. 

• February 25, 2009: Treasury announces the terms and conditions for 

CAP. 

Funding 

Status of Efforts 

Key Activities under 

CAP 

• February 25, 2009: Federal bank regulatory agencies announce that they 

would start conducting forward-looking economic assessments of large 

U.S. banking holding companies. Also, the three economic assumptions 

underlying the stress test are published. 

• April 24, 2009: The Federal Reserve publishes details of the stress test 

process and methodologies employed by the federal banking supervisors 

in their forward-looking capital assessment of large U.S. bank holding 

companies. 

• May 7, 2009: The Federal Reserve and Treasury announce the results of 

the stress test under CAP. Also, the Treasury Secretary releases a 

Page 70 GAO-10-16 Troubled Asset Relief Program
Appendix III: Capital Assistance Program 

statement announcing his hopes that the release of the results will lead to 

increased bank lending. 

• May 7, 2009: Treasury publishes frequently asked questions on CPP 

repayment and CAP. 

• June 1, 2009: The Federal Reserve announces the criteria it plans to use 

to evaluate applications to repurchase Treasury’s capital investments of 

the 19 institutions that underwent stress tests. 

• June 8, 2009: The deadline for bank holding companies that need to raise 

capital under the stress test to file their capital plan with the Federal 

Reserve. 

• November 9, 2009: The deadline for bank holding companies to 

implement their capital plans and to apply for and fund transactions. 

Page 71 GAO-10-16 Troubled Asset Relief Program
Appendix III: Capital Assistance Program 

GAO’s Recommendation 

and the Federal Reserve’s 

Response 

Table 11: Federal Reserve’s Response to GAO’s Recommendation, as of September 25, 2009 

GAO recommendation 

Federal Reserve’s response to 

recommendation 

GAO assessment of Federal 

Reserve’s response 

Recommendations from June 17, 2009, report: 

To help improve the transparency of 

CAP—in particular the stress tests 

results—we recommend that the Director 

of Supervision and Regulation of the 

Federal Reserve consider periodically 

disclosing to the public the aggregate 

performance of the 19 bank holding 

companies against the more adverse 

scenario forecast numbers for the duration 

of the 2-year forecast period and whether 

or not the scenario needs to be revised. At 

a minimum, the Federal Reserve should 

provide the aggregate performance data 

to the Office of Financial Stability (OFS) 

program staff for any of the 19 institutions 

participating in CAP or CPP. 

The Senior Advisor to the Director of the 

Division of Banking Supervision and 

Regulation expressed concern that our 

recommendation to consider periodically 

disclosing aggregate information to the public 

on the performance of the 19 U.S. bank 

holding companies against the more adverse 

scenario would be operationally difficult and 

potentially misleading. Specifically, the official 

said the SCAP loss estimates were developed 

as aggregate 2-year estimates, without 

attempting to forecast the quarter-to-quarter 

path of such losses over the 2009 to 2010 

period. Further, the official expressed concern 

that the size and character of the bank holding 

companies’ on- and off-balance sheet 

exposures may change materially over the 2-

year period and that the Federal Reserve 

never intended that the one-time SCAP 

estimates be used as a tool for measuring U.S. 

bank holding company performance during the 

2009 to 2010 period. 

Not implemented. We recognize that 

updating the capital assessment would 

pose some operational challenges for 

the Federal Reserve. Nonetheless, given 

the dynamic economic environment, we 

see great value in periodically measuring 

and reporting U.S. bank holding 

company performance against the 

adverse scenario and the extent to which 

actual economic conditions compared to 

assumptions made under the 

assessment’s “adverse scenario.” 

Although this would periodically require 

additional calculations, we believe this 

analysis would provide useful trend 

information on the aggregate health of 

these important institutions. As we 

previously stated, without such analysis, 

the public will not have reliable 

information that can be used to gauge 

the accuracy of the stress test 

projections on a more detailed basis than 

what has been disclosed in the SCAP 

papers. Further, it could counter any 

adverse affect of any selective reporting 

by individual institutions. Finally, such 

periodic reporting would be useful in the 

measurement of the effectiveness of 

SCAP and CAP. 

Source: GAO and analysis of OFS, Treasury, information. 

Page 72 GAO-10-16 Troubled Asset Relief Program
Appendix IV: Targeted Investment Program 

Page 73 GAO-10-16 

Appendix IV: Targeted Investment Program 

The Targeted Investment Program (TIP) was designed to prevent a loss of 

confidence in financial institutions that could (1) result in significant 

market disruptions, (2) threatened the financial strength of similarly 

situated financial institutions, (3) impair broader financial markets, and 

(4) undermine the overall economy. The Department of the Treasury 

(Treasury) determines the forms, terms, and conditions of any investments 

made under this program and considers institutions for approval on a 

case-by-case basis based on the threats posed by the potential 

destabilization of the institution, the risk caused by a loss of confidence in 

the institutions, and the institution’s importance to the nation’s economy. 

Treasury may, on a case-by-case basis, use this program in coordination 

with a broader guarantee involving other agencies of the federal 

government. Treasury requires any institution participating in this program 

to provide Treasury with warrants or alternative considerations, as 

necessary, to minimize the long-term costs and maximize the benefits to 

the taxpayers in accordance with the Emergency Economic Stabilization 

Act of 2008 (the act). Institutions that participate in TIP are subject to 

stringent regulations regarding executive compensation, lobbying 

expenses, and other corporate governance requirements. Only two 

institutions have participated in the TIP program: Bank of America and 

Citigroup. 

Table 12: Status of TIP Funds as of September 25, 2009 

Program Overview 

Funding 

Dollars in billions 

Institution Apportioned Amount disbursed

Bank of America $20 $20 

Citigroup 20 20 

Total $40 $40 

Source: GAO presentation of OFS, Treasury, data (unaudited). 

No new applicants have applied for TIP assistance since Bank of America 

received TIP assistance in early 2009. As of September 25, 2009, Bank of 

America and Citigroup have not repurchased their preferred shares or 

warrants. On July 30, 2009, Citigroup exchanged its fixed-rate cumulative 

perpetual stock ($20 billion) for trust preferred securities. This exchange 

was part of Citigroup’s overall agreement with Treasury to exchange all of 

Treasury’s investments in Citigroup. It included the exchange of the 

Capital Purchase Program’s preferred shares of $25 billion for common 

Status of Efforts 

 Troubled Asset Relief Program 
Appendix IV: Targeted Investment Program 

stock in Citigroup, which essentially gave Treasury a common equity 

interest in the bank holding company. 

• December 31, 2008: Treasury enters into an agreement with Citigroup to 

purchase $20 billion in Fixed Rate Cumulative Perpetual Preferred Stock 

and a warrant to purchase common stock. 

Key Activities 

• January 15, 2009: Treasury enters into an agreement with Bank of 

America Corporation to purchase $20 billion in preferred stock and a 

warrant to purchase common stock. 

• February 27, 2009: Citigroup announces plans to undertake a series of 

transactions, involving the exchange of privately and publicly held 

preferred securities and trust securities for common stock and the 

exchange of up to $25 billion of Treasury CPP senior preferred. 

• May 7, 2009: Citigroup announces that it would expand its planned 

exchange of preferred securities and trust preferred securities held by 

public and private investors (other than Treasury) for common stock from 

$27.5 billon to $33 billion following the results of the stress test. 

• June 9, 2009: Treasury and Citigroup finalize their exchange agreement 

and Treasury agree to convert up to $25 billion of the Treasury CPP senior 

preferred shares for interim securities and warrants and its remaining 

preferred securities acquired in connection with assistance provided to 

Citigroup under the TIP and AGP programs for trust preferred securities 

so that the institution could strengthen its capital structure by increasing 

tangible common equity. 

• July 23, 2009: Citigroup announces completion of the exchange of $12.5 

billion of the Treasury CPP senior preferred and $12.5 billion of privately 

held convertible preferred securities for interim securities and warrants. 

• July 30, 2009: Treasury announces the final results of its offer to 

exchange publicly held preferred securities and trust securities, as well as 

the exchange by Treasury of its remaining $12.5 billion of Treasury CPP 

senior preferred shares outstanding for interim securities and warrants. 

• September 3, 2009: Citigroup announces the mandatory conservation of 

the interim securities issued in the exchange offers into common stock, 

and cancellation of the warrants, in accordance with the terms of the 

exchange offers. 

Page 74 GAO-10-16 Troubled Asset Relief Program
A

Institutio

ppendix V: Systemically Significant Failing 

ns Program 

Page 75 GAO-10-16 

Appendix V: Systemically Significant Failing 

Institutions Program 

The Systemically Significant Failing Institutions (SSFI) program was 

established to provide stability and prevent disruptions to financial 

markets from the failure of institutions that are critical to the functioning 

of the U.S. financial system. 

Table 13: Status of SSFI Funds, as of September 25, 2009 

Dollars in billions 

Institution Apportioned Amount disbursed

American International Group, Inc. $70 $43

Source: GAO presentation of OFS, Treasury, data (unaudited). 

The only participating institution was American International Group, Inc. 

(AIG). Federal assistance to AIG is a joint effort by the Department of the 

Treasury (Treasury) and the Board of Governors of the Federal Reserve 

System and Federal Reserve Banks (Federal Reserve). We recently issued 

a report on the status of this assistance.1

• November 10, 2008: Treasury announces plans to use its SSFI program to 

purchase $40 billion in AIG preferred shares. 

• November 25, 2008: AIG enters into an agreement with Treasury, which 

agrees to purchase $40 billion of AIG’s fixed-rate cumulative perpetual 

preferred stock (Series D) and a warrant to purchase approximately 2 

percent of the then issued shares of AIG’s common stock to Treasury. 

Program Overview 

Funding 

Status of Efforts 

Key Activities under 

SSFI 

• April 17, 2009: AIG and Treasury enter into an agreement in which 

Treasury agrees to exchange its $40 billion of AIG’s Series D fixed-rate 

cumulative perpetual preferred stock for $41.6 billion of AIG’s Series E 

fixed-rate noncumulative perpetual preferred shares. Also, Treasury 

provided a $29.8 billion equity capital facility to AIG, which then issued to 

Treasury 300,000 shares of fixed-rate noncumulative perpetual preferred 

stock (Series F) and a warrant to purchase up to 3,000 shares of AIG’s 

common stock. 

 

1

See GAO, Troubled Asset Relief Program: Status of Government Assistance to AIG, 

GAO-09-975 (Washington, D.C.: Sept. 21, 2009) 

 Troubled Asset Relief Program 
Appendix V: Systemically Significant Failing 

Institutions Program 

GAO’s Recommendations 

and Treasury’s Response 

Table 14: Treasury’s Response to GAO’s Recommendation, as of September 25, 2009 

GAO recommendation 

Treasury’s response to 

recommendation 

GAO assessment of 

Treasury’s response 

Recommendations from March 31, 2009, report: 

Require that American International Group, Inc. (AIG) seek 

concessions from stakeholders, such as management, 

employees, and counterparties, including seeking to renegotiate 

existing contracts, as appropriate, as it finalizes the agreement 

for additional assistance. 

Closed, not implemented 

Source: GAO and analysis of OFS, Treasury, information. 

Page 76 GAO-10-16 Troubled Asset Relief Program
Appendix VI: Asset Guarantee Program 

Page 77 GAO-10-16 

Appendix VI: Asset Guarantee Program 

Under the Asset Guarantee Program (AGP), the Department of the 

Treasury (Treasury) provides federal government assurances for assets 

held by financial institutions that are deemed critical to the functioning of 

the U.S. financial system. The goal of AGP is to encourage investors to 

keep funds in the institutions. According to Treasury, placing guarantees, 

or assurances, against distressed or illiquid assets was viewed as another 

way to help stabilize the financial system. 

In implementing AGP, Treasury collects a premium, deliverable in a form 

deemed appropriate by the Treasury Secretary. As required by the statute, 

an actuarial analysis is used to ensure that the expected value of the 

premium is no less than the expected value of the losses to TARP from the 

guarantee. The U.S. government would also provide a set of portfolio 

management guidelines to which the institution must adhere for the 

guaranteed portfolio. 

Table15: Status of Asset Guarantee Program Funding, as of September 25, 2009 

Program Overview 

Funding 

Institution Apportioned Guarantee Limit 

Citigroup n/a $5 billion 

Source: GAO presentation of OFS, Treasury, data (unaudited). 

The set of insured assets was first designated by Citigroup and submitted 

to Treasury for approval. In accordance with section 102(a), assets to be 

guaranteed must have been originated before March 14, 2008. The program 

is meant only for systemically significant institutions and can be used in 

coordination with other programs. 

Status of Efforts 

Since early 2009, no new participants have applied to the AGP program. 

Bank of America withdrew from the program and in September 2009 

negotiated a termination fee of $425 million that was paid to the Federal 

Reserve, the Federal Deposit Insurance Corporation, and Treasury. Thus, 

as of October 1, 2009, Citigroup is the only institution participating in AGP. 

On January 15, 2009, Citigroup issued preferred shares to the Treasury and 

the Federal Deposit Insurance Corporation (FDIC), and a warrant to 

Treasury in exchange for $301 billion of loss protection on a specified pool 

of Citigroup assets. As a result of receipt of principal repayments and 

charge-offs, the total asset pool has declined by approximately $35 billion 

from the original $301 billion to approximately $266.4 billion. As part of a 

series of exchange offers undertaken by Citigroup in July 2009, the 

 Troubled Asset Relief Program 
Appendix VI: Asset Guarantee Program 

preferred shares issued to Treasury and FDIC for Citigroup’s participation 

in AGP were exchanged for new Citigroup trust preferred securities. 

• January 15, 2009: Citigroup enters into an agreement with the Treasury, 

FDIC and the FRBNY to guarantee losses arising on a $301 billion portfolio 

of Citigroup assets. As consideration for the loss-sharing agreement, 

Citigroup issues non-voting perpetual, cumulative preferred stock and a 

warrant to the Treasury. 

Key Activities under 

AGP 

• January 16, 2009: Bank of America Corporation enters into a term sheet 

(Term Sheet) with the Treasury, FDIC, and the Board of Governors of the 

Federal Reserve System, in which the agencies agreed in principle to 

guarantee losses arising on a $118 billion portfolio of Bank of America 

Corporation assets. 

• May 6, 2009: Bank of America Corporation notifies the Treasury, FDIC, 

and the Federal Reserve of its plan to terminate negotiations with respect 

to the loss sharing guarantee program. 

• July 30, 2009: Treasury exchanges all of its Fixed Rate Cumulative 

Perpetual Stock received as premium under the Citigroup AGP agreement, 

“dollar for dollar’ for Trust Preferred Securities. 

September 21, 2009: Bank of America announces that it has reached an 

agreement to pay a total of $425 million to the USG in connection with the 

termination of the Term Sheet, which is equal to: (a) the out-of-pocket 

expenses of the USG in negotiating and entering into the Term Sheet and 

the negotiations concerning the definitive documentation, consisting of 

the expenses of its advisors; and (b) the fee that would have been payable 

under the Term Sheet but pro-rated for the period commencing on January 

16, 2009, and ending on May 6, 2009, and adjusted for certain exclusions 

from the asset pool. 

Page 78 GAO-10-16 Troubled Asset Relief Program
A

Lendi

ppendix VII: Consumer and Business 

ng Initiative 

Page 79 GAO-10-16 

Appendix VII: Consumer and Business 

Lending Initiative 

The Consumer and Business Lending Initiative includes the Department of 

the Treasury’s (Treasury) role in the Board of Governors of the Federal 

Reserve System’s and the Federal Reserve Bank of New York’s (Federal 

Reserve) Term Asset-Backed Securities Loan Facility (TALF) and 

Treasury’s plan to directly purchase securities backed by SBA-guaranteed 

small business loans.1

 TALF—a Federal Reserve Bank of New York 

(FRBNY) credit facility supported by a backstop of $20 billion in the 

Troubled Asset Relief Program (TARP) funds from Treasury—was 

announced by the Federal Reserve in November 2008.2

 The goal of the 

program is to provide up to $200 billion in low-cost financing for investors 

to purchase a variety of consumer, small business, and commercial 

mortgage securitizations with the goal of unfreezing securitization markets 

and increasing credit access for consumers and small businesses. 3

 Also 

under the initiative, Treasury anticipates purchasing securities backed by 

SBA 7(a) guaranteed loans and securities backed by SBA 504 loan 

guarantees to jumpstart securitization and credit markets for small 

businesses though it had not purchased any SBA-backed securities as of 

September 2009.4

Program Overview 

 

1

Treasury folded the SBA securities initiative (formerly known as the Small Business and 

Community Lending Initiative) into the Consumer and Business Lending Initiative, as 

originally reported in GAO-09-658. 

2

In February 2009, the Federal Reserve announced that it would consider expanding the 

size of TALF to as much as $1 trillion. Although Treasury and Federal Reserve officials 

suggest that such an expansion is unlikely, any expansion of the facility’s limits would 

include an increased commitment from Treasury from the current $20 billion limit to as 

much as $100 billion. 

3

The Federal Banking Agency Audit Act limits GAO’s authority to audit actions taken by the 

Federal Reserve with respect to TALF. TALF is included in the TARP because Treasury 

provides $20 billion in support to TALF and, under the new administration, TALF is 

included in the Consumer and Business Lending Initiative category in Treasury’s Financial 

Stability Plan. 

4

SBA has two principal loan guarantee programs, the 7(a) and 504 programs, which aim to 

facilitate the accessibility and affordability of financing to small businesses. Under the 7(a) 

program, SBA generally provides lenders guarantees on up to 85 percent of the value of 

loans to qualifying small businesses in exchange for fees to help offset the costs of the 

program. Under the 504 program, which generally applies to small business real estate and 

other fixed assets, SBA also provides certified development companies with a guarantee on 

up to 40 percent of the financing of the projects’ costs in exchange for fees, while the small 

business borrowers and other lenders provide the remaining 60 percent of the financing 

with no guarantee. For additional information, see GAO-09-507R. 

 Troubled Asset Relief Program 
Appendix VII: Consumer and Business 

Lending Initiative 

Table 16: Status of TARP Funds for the Consumer and Business Lending Initiative, 

as of September 25, 2009 

Funding 

Program Apportioned Disbursed

TALF $20.00 $0.10a

Small Business 7(a) loansb 3.09 0.00

Small Business 504 loans 0 0

Total $23.09 $0.1

Source: GAO presentation of OFS, Treasury, data (unaudited). 

a

Initial funding of $100 million on March 25, 2009. 

b

Treasury allocated $15 billion of TARP funds to directly purchase securities based on 7(a) and 504 

small business loans guaranteed by SBA. 

Between March 2009 and September 2009, approximately $51.7 billion in 

TALF funds were requested. Table 17 provides a summary of monthly loan 

requests by asset class. 

Status of Efforts 

Table 17: Amount of TALF Loans Requested by Asset Class, from March through September 2009 

Dollars in millions 

Loan Type March April May June July August September

Total by 

loan type

Auto $1,902 $811 $2,185 $3,307 $2,831 $555 $1,160 $12,751

Credit card 2,805 897 5,525 6,223 1,459 2,575 4,399 23,882

Student loan 0 0 2,347 228 987 2,450 180 6,192

Small business 0 0 86 81 102 149 162 581

Equipment 0 0 456 591 0 0 111 1,157

Insurance premium finance 0 0 0 529 0 0 530 1,058

Floorplan 0 0 0 0 0 1,039 0 1,039

Servicing advances 0 0 0 495 34 107 0 636

Commercial mortgage-backed 

securitiesa

0 668 2,283 1402 4,354

Total $4,707 $1,708 $10,600 $11,453 $6,081 $9,160 $7,943 $51,652

Source: GAO analysis of information available on FRBNY’s Web site. 

Note: Numbers may not add due to rounding. 

a

This total reflects loan requests against legacy CMBS collateral, no newly issued CMBS collateral 

has yet been pledged. 

Page 80 GAO-10-16 Troubled Asset Relief Program
Appendix VII: Consumer and Business 

Lending Initiative 

• November 25, 2008: The Federal Reserve announces TALF, agreeing to 

lend up to $200 billion on a nonrecourse basis to holders of newly issued 

AAA-rated asset-backed securities (ABS) backed by credit cards, auto 

loans, student loans, and small business loans guaranteed by the SBA. 

• February 10, 2009: As part of the Financial Stability Plan, the Federal 

Reserve, FRBNY, and Treasury announce a willingness to consider 

expanding the size of the TALF to $1 trillion over the life of the program. 

Key Activities under 

Consumer and 

Business Lending 

Initiative 

• March 3, 2009: The agencies launch the TALF program, and the first 

subscription occurs. 

• March 19, 2009: The agencies expand the range of eligible collateral to 

include asset-backed securities backed by mortgage servicing advances, 

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

fleets. They also announce an intention to expand the list of eligible 

collateral to include previously issued securities—so called “legacy 

securities”—as a complement to the Public-Private Investment Program 

(PPIP). 

• May 1, 2009: The Federal Reserve announces that two new asset classes 

are eligible for TALF funding: newly-issued commercial mortgage-backed 

securities (CMBS) and ABS backed by insurance premium finance loans. 

• May 19, 2009: The Federal Reserve announces that certain high-quality 

legacy CMBS are eligible for TALF funding. 

• June 2, 2009: Aggregate loan requests for the program reach peak levels 

for consumer and business ABS. 

• July 16, 2009: The first legacy CMBS loan requests are submitted to 

TALF. 

• August 17, 2009: The Federal Reserve and Treasury jointly announce 

TALF’s extension for ABS and legacy CMBS collateral through March 

2010, and through June 2010 for newly-issued CMBS collateral. Also, the 

Federal Reserve states that it does not anticipate further additions to the 

eligible asset classes. 

Page 81 GAO-10-16 Troubled Asset Relief Program
Appendix VII: Consumer and Business 

Lending Initiative 

• September 1, 2009: FRBNY approves four non-primary dealers to 

supplement the 18 primary dealers that interface between FRBNY and 

TALF borrowers.5

 

5

The roles and responsibilities of TALF agents are governed by the Master Loan and 

Security Agreement (MLSA), which is available on the FRBNY Web site. 

Page 82 GAO-10-16 Troubled Asset Relief Program
Appendix VIII: 

Program 

The Public-Private Investment 

Page 83 GAO-10-16 

Appendix VIII: The Public-Private Investment 

Program 

The Department of the Treasury (Treasury)—with assistance from the 

Board of Governors of the Federal Reserve System and the Federal 

Reserve Bank of New York (Federal Reserve) and the Federal Deposit 

Insurance Corporation (FDIC)—designed the Public-Private Investment 

Program (PPIP) to lessen the impact of legacy assets on balance sheets 

and thereby improve consumer and business lending. PPIP has two 

distinct components: the Legacy Securities Program and the Legacy Loans 

Program. Under the Legacy Securities Program, commercial mortgagebacked securities and non-agency residential mortgage-backed securities 

will be purchased and managed by fund managers overseeing publicprivate investment funds. According to Treasury, in the course of 

prequalifying nine fund managers, Treasury vetted each of them for their 

investment strategy—primarily long-term buy and hold. Public-private 

investment funds will raise equity capital from private sector investors and 

receive matching equity funds and secured nonrecourse loans from 

Treasury.1

 The Legacy Loans Program is designed to encourage the 

purchase of troubled and illiquid loans from FDIC-insured banks and 

thrifts. FDIC will provide debt guarantees and Treasury will provide equity 

co-investment to private funds purchasing such loans through an auction. 

FDIC will oversee the new funds. FDIC held a pilot sale of receivership 

assets to test the funding mechanism contemplated by the Legacy Loans 

Program, and continues to develop the program should it be needed in the 

future. 

Program Overview 

PPIP has not disbursed any of its $100 billion TARP allocation as of 

September 25, 2009, (see table 18). Funding 

 

1

As we detailed in previous TARP reports, Treasury’s Legacy Securities Program debt 

financing will range from 50 to 100 percent of a fund’s total equity capital. The financing 

will be secured by the eligible assets of the public-private investment funds, and each loan 

will accrue interest at an annual rate to be determined by Treasury, fully payable at 

termination. As required by the Emergency Economic Stabilization Act of 2008, Treasury 

will take warrants, the terms and amounts of which will be determined by the amount of 

Treasury debt financing. Additionally, fund managers may charge private investor fees at 

their discretion, and Treasury will accept proposals for fixed management fees to apply as 

a percentage of equity capital contributions for invested equity capital. 

 Troubled Asset Relief Program 
Appendix VIII: The Public-Private Investment 

Program 

Table 18: Status of TARP Funds, as of September 25, 2009 

Dollars in billions 

Program Apportioned Disbursed

Public-Private Investment Program $32.0 $0.0

Total $32.0 $0.0

Source: GAO presentation of OFS, Treasury, data (unaudited). 

For the Legacy Securities Program, nine fund managers have been 

prequalified, and as of October 5, 2009, Treasury officials stated that five 

fund mangers had raised the requisite capital to receive matching funds 

and leverage from Treasury—though no investments have yet been made. 

FDIC recently tested a funding mechanism based on the legacy loan 

program model, but agency officials are still assessing the outcome. 

Treasury, in consultation with the Federal Reserve, needs to make a 

systemic risk determination for the legacy loans program to be 

implemented, according to FDIC officials. 

Status of Efforts 

• March 23, 2009: Treasury and FDIC officials release the initial outlines of 

PPIP. Key Activities 

• March 26, 2009: FDIC announces a comment period for the Legacy Loan 

Program. 

• April 24, 2009: Private asset managers submit applications to Treasury as 

part of the Legacy Securities Program selection process. 

• June 3, 2009: FDIC announces that the Legacy Loan Program is put on 

hold. FDIC officials state that financial institutions have been able to raise 

capital without selling troubled assets through the Legacy Loan Program. 

• July 8, 2009: Treasury preapproves nine fund managers to operate publicprivate investment funds for the Legacy Securities Program. Fund 

managers select ten small-, veteran-, minority-, and women-owned 

businesses as partners. 

• July 31, 2009: FDIC announces a model funding mechanism based on the 

Legacy Loan Program for a test sale of receivership assets. 

• September 25, 2009: Treasury officials state that two of the nine 

prequalified fund managers have raised at least the required minimum of 

Page 84 GAO-10-16 Troubled Asset Relief Program
Appendix VIII: The Public-Private Investment 

Program 

$500 million each to begin investing in legacy securities, though no 

investments have yet been made. 

• October 5, 2009: Treasury officials state that an additional three of the 

nine prequalified fund managers have raised at least the required minimum 

of $500 million each to begin investing in legacy securities, though no 

investments have yet been made. 

Page 85 GAO-10-16 Troubled Asset Relief Program
Appendix IX: A

Program 

uto Industry Financing 

Page 86 GAO-10-16 

Appendix IX: Auto Industry Financing 

Program 

The Department of the Treasury (Treasury) established the Automotive 

Industry Financing Program (AIFP) in December 2008 to help stabilize the 

U.S. automotive industry and avoid disruptions that would pose systemic 

risk to the nation’s economy. Under this program, Treasury has authorized 

a total of about $81.1 billion of Troubled Asset Relief Program (TARP) 

funds to help support automakers, automotive suppliers, consumers, and 

automobile finance companies as of September 25, 2009.1

 A sizeable 

amount of funding has been to support the restructuring of Chrysler Group 

LLC (Chrysler) and General Motors Company (GM).2

 The AIFP consists of 

the following four components: 

Program Overview 

• Funding to Support Automakers during Restructuring. Treasury has 

provided financial assistance to Chrysler and GM to support their 

restructuring in an attempt to return to profitability. The assistance was 

provided in loans and equity investments in the companies. 

• Auto Supplier Support Program. Under this component of the program, 

Chrysler and GM received funding for the purpose of ensuring payment to 

suppliers. The program is designed to ensure that automakers receive the 

parts and components they need to manufacture vehicles and that 

suppliers have access to credit from lenders. The funding provided to 

Chrysler and GM in this program is in the form of a debt obligation. 

• Warranty Commitment Program. The program was designed to mitigate 

consumer uncertainty about purchasing vehicles from the restructuring 

automakers by providing funding to guarantee the warranties on new 

vehicles purchased from participating manufacturers that were 

undergoing restructuring. The funds provided to the companies ultimately 

were not needed, because both companies were able to continue to honor 

consumer warranties. 

• Funding to Support Automotive Finance Companies. Treasury has 

provided funding to support Chrysler Financial and GMAC Inc. (GMAC), 

financial services companies whose business includes providing consumer 

financing for vehicle purchases and dealer financing for inventory. 

Treasury provided Chrysler Financial with a term loan to support retail 

loan originations. Chrysler Financial is essentially winding down its 

operations, and GMAC has agreed to provide Chrysler customers and 

dealers with financing for retail and wholesale purchases. Treasury 

 

1

We reported previously on this program. See GAO-09-553. 

2

Ford Motor Company did not seek assistance from AIFP. 

 Troubled Asset Relief Program 
Appendix IX: Auto Industry Financing 

Program 

purchased preferred membership stock with warrants and common equity 

interest in GMAC—which includes funding to help support retail and 

wholesale purchases for Chrysler. To provide strategic guidance for AIFP 

and to advise the President and the Secretary of the Treasury on issues 

impacting the financial health of the industry, the White House established 

the Presidential Task Force on the Auto Industry. Treasury also hired staff 

with expertise in the financial industry to help oversee the assistance. 

Funding 

Table 19: TARP Funding Authorized for the Auto Industry and Payments Made, as of September 25, 2009 

Dollars in billions 

Company 

Description of 

funding 

Authorized 

amount Payments Amount and form of future repayments

Chrysler Loans to Chrysler for 

general business 

purposes 

$12.5 $0.055a$7.1 billion will be repaid as a term loan, 

including $5.1 billion to be repaid within 8

years and $2 billion to be repaid within 2.5 

years. Treasury also received a 9.85 

percent equity share in the new company.

Supplier Support 

Program 

1.0 0.002bAmounts provided to Chrysler are due to 

be repaid by April 2010. 

Warranty Commitment 

Program 

0.3 0.3 All funds have been repaid. 

Subtotals 13.8 0.36

General Motors Loans to GM for 

general business 

purposes 

49.5 0.144c$6.7 will be repaid as a term loan. 

Treasury also received $2.1 billion in 

preferred stock, and 61 percent equity in 

the new company. Treasury also has 

$986 million debt in the old GM (Motors 

Liquidation Corp.), which it does not 

expect to be repaid. 

Supplier Support 

Program 

2.5 0.001dAmounts provided to GM are due to be 

repaid by April 2010. 

Warranty Commitment 

Program 

0.4 0.4 All funds have been repaid. 

Loan to participate in 

GMAC rights offering 

0.884 0 Treasury exchanged this loan for a 

portion of GM’s equity in GMAC. As a 

result, Treasury holds a 35.4 percent 

common equity interest in GMAC. The 

GM loan was terminated. 

Page 87 GAO-10-16 Troubled Asset Relief Program
Appendix IX: Auto Industry Financing 

Program 

Dollars in billions 

Company 

Description of 

funding 

Authorized 

amount Payments Amount and form of future repayments

Subtotals 53.3 0.55

Chrysler Financial Loan funded through 

Chrysler LB 

Receivables Trust 

1.5 1.51 Loan repaid in full plus $7.4 million in 

interest. 

GMAC Preferred stock with 

exercised warrants 

12.5 0.16eTreasury may convert its preferred shares 

to common shares upon specific events 

such as public offerings. 

Totals $81.1 $2.57

Source: GAO presentation of OFS, Treasury, data (unaudited). 

a

Chrysler has paid $55.2 million in interest on the loans. 

b

Chrysler has paid $2.3 million in interest on the amount it borrowed under the Supplier Support 

Program. 

c

GM has paid $144 million in interest on the loans. 

d

GM has paid $1 million in interest on the amount it borrowed under the Supplier Support Program. 

e

GMAC has paid $160 million in dividends. 

Since December 2008, about $81.1 billion in AIFP funds have been 

authorized.3

 Below are key developments in the program. 

• December 19, 2008: Treasury announces the creation of AIFP using TARP 

funds to stabilize the U.S. automotive industry and avoid disruptions that 

would pose systemic risk to the nation’s economy. 

Key Activities under 

AIFP 

• December 29, 2008: Treasury purchases $5 billion in preferred stock with 

exercised warrants in GMAC LLC. 

• December 31, 2008: Treasury provides a $13.4 billion loan to GM to assist 

the company’s restructuring. 

• January 2, 2009: Treasury provides a $4 billion loan to Chrysler and a 

$1.5 billion loan to Chrysler Financial Services Americas LLC. 

• February 17, 2009: Chrysler and GM submit restructuring plans to 

Treasury as required by the terms of their loan agreements. 

 

3

For details on the total funds committed, see table 19. 

Page 88 GAO-10-16 Troubled Asset Relief Program
Appendix IX: Auto Industry Financing 

Program 

• March 19, 2009: Treasury announces the Auto Supplier Support Program 

to ensure payments to automotive suppliers. 

• March 30, 2009: The White House announces that Chrysler and GM’s 

restructuring plans do not establish a credible path to viability or merit 

additional federal government investment. The companies are given 

additional time to show greater progress. 

• March 30, 2009: Treasury announces the Warranty Commitment Program 

to guarantee the warranties on new vehicles purchased from participating 

auto manufacturers. 

• April 3, 2009: GM receives loans of $2.5 billion, under the Auto Supplier 

Support Program.4

• April 7, 2009: Chrysler receives loans of $1 billion, under the Auto 

Supplier Support Program.5

• April 29, 2009: Treasury commits to providing a loan of up to $500 million 

to Chrysler under the Warranty Commitment Program. 

• April 30, 2009: The White House announces it will provide an additional 

$8.5 billion to support Chrysler’s restructuring. 

• May 20, 2009: Treasury provides GM with an additional $4 billion for 

restructuring. 

• May 21, 2009: Treasury purchases $7.5 billion in preferred stock with 

exercised warrants in GMAC LLC. 

• May 27, 2009: Treasury provides a $360 million loan for the Warranty 

Commitment Program. 

• June 1, 2009: Treasury announces it will provide GM with up to an 

additional $30.1 billion to support the company’s bankruptcy proceeding 

and transition through restructuring. 

After emerging from bankruptcy in June 2009, Chrysler has seen the 

appointment of several new senior officials, including its chief executive 

 

4

GM is initially awarded $3.5 billion, but this amount was subsequently reduced. 

5

Chrysler is initially awarded $1.5 billion, but this amount was subsequently reduced. 

Page 89 GAO-10-16 Troubled Asset Relief Program
Appendix IX: Auto Industry Financing 

Program 

officer and chief financial officer, as well as a newly constituted board of 

directors, which Chrysler officials said met for the first time in July 2009.6

When we met with Chrysler in September 2009, officials told us that the 

company was focused on developing a new business plan, with assistance 

from Fiat in the areas of product development, distribution, and sales and 

marketing. 

GM has continued to take steps to restructure, funded by the $30.1 billion 

in financing that Treasury provided in June. On July 5, 2009, a bankruptcy 

judge approved GM’s motion to sell its assets to a new company in which 

the federal government would have a majority share. On July 10, 2009, the 

asset sale was finalized, and Treasury executed a loan agreement with the 

restructured GM, under which the company is required to repay Treasury 

$7.1 billion. The remainder of the funding that Treasury provided to GM 

was converted to 60.8 percent ownership in the new company and $2.1 

billion in preferred stock. Other stakeholders also received equity in GM. 

In consideration of their ownership stakes, GM’s shareholders—including 

Treasury—received the right to appoint directors to GM’s board. The new 

members of GM’s board have been appointed, and the board held its first 

in-person meeting in August. 

 

6

See GAO-09-658. 

Page 90 GAO-10-16 Troubled Asset Relief Program
Appendix X: 

Program 

Home Affordable Modification 

Page 91 GAO-10-16 

Appendix X: Home Affordable Modification 

Program 

The Department of the Treasury’s (Treasury) Office of Financial Stability 

(OFS) developed the Home Affordable Modification Program (HAMP) to 

address two of the stated purposes of the Emergency Economic 

Stabilization Act (the act)—preserving homeownership and protecting 

home values. According to Treasury, HAMP’s primary goal is to help up to 

three to four million borrowers who are struggling to make their mortgage 

payments by reducing their monthly payments to an affordable level (loan 

modification), thereby preventing unnecessary foreclosures and helping to 

stabilize home prices in the neighborhoods hit hardest by foreclosures. To 

implement the program, Treasury has delegated significant responsibilities 

to its financial agents, Fannie Mae and Freddie Mac, to act as the program 

administrator and compliance agent for HAMP, respectively. Under HAMP, 

Treasury will use Troubled Asset Relief Program (TARP) funds to share 

the cost of reducing monthly payments on first-lien mortgages with 

mortgage holders and investors, and provide financial incentives to 

servicers, borrowers, and mortgage holders and investors for loans 

modified under the program.1

 Under HAMP, Treasury also plans to (1) 

provide additional incentives to mortgage holders/investors to modify, 

rather than foreclose on, loans in areas where home price declines have 

been most severe; (2) provide incentives to modify or pay off second-lien 

loans of borrowers whose first mortgages were modified under HAMP; 

and (3) provide incentives to servicers and borrowers to pursue 

alternatives to foreclosure (short sales and deeds-in-lieu) to homeowners 

who do not qualify for a HAMP modification or cannot maintain payments 

during the trial period or modification. As of September 25, 2009, 63 

servicers have signed up to participate in the program, covering 

approximately 85 percent of U.S. mortgage loans.2

Program Overview 

Treasury has announced that up to $50 billion of funds from TARP may be 

used for HAMP. Most of these funds are directed to the modification of 

first-lien mortgages held by borrowers in danger of foreclosure (first-lien 

modification program). To monitor HAMP’s funding needs, Treasury has 

estimated the funding requirements, or caps, for each participating 

Funding 

 

1

According to program guidelines, payment of these matching and incentive payments is 

contingent on completion of a 3-month trial modification period. 

2

Loans covered under HAMP include privately held loans that are serviced by HAMP 

participating servicers and all loans held by Fannie Mae or Freddie Mac, both governmentsponsored enterprises (GSE). For loans held by Fannie Mae and Freddie Mac, the GSEs are 

expected to provide up to an additional $25 billion to encourage servicers and borrowers to 

modify eligible loans. 

 Troubled Asset Relief Program 
Appendix X: Home Affordable Modification 

Program 

servicer based on the number of modifications they are expected to 

perform during the entire duration of the program. The caps include 

maximum payable incentives associated with modifying borrowers’ firstlien mortgages, including incentive payments to borrowers, servicers, and 

mortgage holders and investors. According to Treasury, cap allocations 

are initially set based on publicly available information and are updated 

using more complete data on the servicers’ mortgage portfolios. Treasury 

has been reassessing each servicer’s cap on a quarterly basis, using data 

on the actual number of modifications made by the servicer under the 

program. As of September 25, 2009, Treasury had allocated a total of $22.3 

billion through the caps on its 63 participating servicers, of which about 

$946,000 has been paid out in servicer and investor incentive payments. 

Most of Treasury’s efforts to develop HAMP have been directed to the 

first-lien modification program. Treasury has designed the first-lien 

program to target borrowers in default (defined as 60 days or more 

delinquent on their mortgage payments) or in imminent danger of default 

(borrowers that are current on their mortgages but facing hardships such 

as job loss or interest rate increases on their adjustable rate mortgages). 

Treasury has established several eligibility requirements for borrower 

participation in HAMP, including that the property be an owner-occupied, 

single-family residence (one to four units) that is the borrower’s primary 

residence and that the mortgage loan amount not exceed specified dollar 

thresholds. Additionally, borrowers cannot participate in HAMP if they 

have non-GSE loans unless their servicers have signed participation 

agreements with Fannie Mae—Treasury’s administrator for the program. 

According to Treasury, as of September 25, 2009, the following HAMP 

progress has been made related to loans not owned or guaranteed by 

Fannie Mae and Freddie Mac: 

Status of Efforts 

• 63 servicers had signed participation agreements for the first-lien 

modification program; 

• More than 1.3 million solicitation letters for HAMP loan modifications to 

borrowers; 

• More than 328,000 HAMP trial modification offers to borrowers; 

• More than 209,000 HAMP trial modifications had started; and 

Page 92 GAO-10-16 Troubled Asset Relief Program
Appendix X: Home Affordable Modification 

Program 

• 1,080 borrowers had successfully completed the trial period and received 

HAMP modifications. 

Of the three other subprograms that were announced as part of HAMP in 

the March 4, 2009, program guidelines, Treasury has recently begun to 

implement the Home Price Decline Prevention (HPDP) program but has 

not implemented the other two. Treasury issued official guidance on 

HPDP in late July 2009 and began implementing the program on 

September 1, 2009. As of that date, the net present value model used to 

calculate borrowers’ eligibility for HAMP took into account the additional 

incentive payments available through HPDP to investors in areas of the 

country where price declines had been large. However, the extent to 

which HPDP will increase the number of modifications made remains 

unclear. In our July 2009 report, we recommended that Treasury reevaluate the basis and design of the HPDP program to ensure that HAMP 

funds are being used effectively.3

 Treasury released detailed guidelines on 

the second-lien modification component of HAMP on August 13, 2009. 

However, these guidelines require that servicers sign participation 

agreements with Fannie Mae on or before December 31, 2009, to be 

eligible for the program. As of September 25, 2009, no servicers have 

signed such participation agreements. Finally, Treasury had not released 

any detailed guidelines on the foreclosure alternatives component of 

HAMP. 

We previously reported that although the central program—the first-lien 

modification program—had been implemented, many of its administrative 

processes and its internal control policies and procedures were not yet 

finalized. Fannie Mae, as HAMP administrator, has mapped operational 

processes and identified points of control for multiple aspects of HAMP, 

such as servicer registration and servicer set-up in HAMP’s electronic 

system, servicer data reporting, trial and official modifications, and the 

steps of the payment process administered by Fannie Mae. Fannie Mae has 

also drafted procedures to carry out many of these processes and internal 

controls. According to Fannie Mae, processes, controls and procedures 

have not been finalized for a planned servicer call center, and the 

budgeting and billing of Fannie Mae’s work under the HAMP financial 

agent agreement. Processes and controls designed by Fannie Mae to date 

were to be tested by September 30, 2009, according to Fannie Mae 

officials. In addition, Freddie Mac, as HAMP compliance agent, has 

 

3

See GAO-09-837. 

Page 93 GAO-10-16 Troubled Asset Relief Program
Appendix X: Home Affordable Modification 

Program 

mapped out the overall compliance program, working with OFS and 

PricewaterhouseCoopers LLP, and is developing policies and procedures 

to carry it out. In a related effort, Freddie Mac has described to us its 

methods for testing compliance for 233 program requirements. In addition, 

according to Treasury, Treasury and its financial agents have formalized a 

charter for a HAMP Compliance Committee. Treasury also noted that the 

Committee is finalizing a policy for addressing remedies for identified 

instances of noncompliance among servicers. However, while Treasury 

has drafted performance measures to evaluate HAMP, these measures 

have not been fully developed and have yet to be implemented. 

On August 4, 2009, Treasury released its first report on the performance of 

participating servicers under HAMP. The Monthly Servicer Performance 

Report showed significant variations among the servicers in the 

percentage of delinquent borrowers in their servicing portfolios that had 

been offered or received trial modifications. For example, for servicers 

that had signed up to participate in the program before May 31, 2009, the 

percentage of delinquent borrowers who had been offered HAMP trial 

modifications ranged from 0 percent to 45 percent, and the percentage of 

their delinquent borrowers who had started HAMP trial modifications 

ranged from 0 percent to 25 percent. Such variations have highlighted 

potential issues with servicers’ capacity to implement HAMP. In our July 

2009 report, we expressed concern that Treasury was not fully vetting 

servicers signing HAMP loan modification participation agreements and 

recommended that Treasury develop a means of systematically assessing 

servicers’ capacity to meet program requirements during program 

admission.4

 As compliance agent for HAMP, Freddie Mac has developed 

several different types of reviews intended to be conducted after a servicer 

has signed up to participate in the program that touch on issues of servicer 

capacity. Freddie Mac is currently working with Treasury to refine these 

procedures, which include: 

• “full” on-site reviews, which are 1-week reviews that include a detailed 

management interview about all HAMP processes, walk-throughs of each 

of these processes, and file reviews of a sample of the servicer’s loan files; 

 

4

GAO-09-837. 

Page 94 GAO-10-16 Troubled Asset Relief Program
Appendix X: Home Affordable Modification 

Program 

• walk-through reviews, which are 1- to 2-day reviews that can occur sooner 

than a “full” review and that go into less detail on loss mitigation, 

collections, and investor accounting processes; and 

• “second look” reviews, which are off-site loan file reviews that look for 

servicer errors in evaluating borrowers for HAMP. 

• February 18, 2009: Treasury announced HAMP, a national loan 

modification program intended to offer assistance to up to three to four 

million homeowners by reducing monthly payments to sustainable levels. 

Key activities under 

HAMP 

• March 4, 2009: Treasury issued official guidance for loan modifications 

under HAMP and announced that servicers could begin conducting 

modifications that conform to the guidelines. These initial guidelines 

largely focused on the first-lien modification subprogram. Treasury also 

issued updated guidance on completing first-lien modifications on April 6, 

2009. 

• March 19, 2009: Treasury launched its Making Home Affordable (MHA) 

Web site for borrowers to provide information on the program, including 

eligibility requirements and housing counseling options, among other 

things. 

• April 13, 2009: The first six servicers signed participation agreements 

under HAMP. 

• April 15, 2009: Treasury launched an administrative Web site for 

mortgage servicers to provide them with the information and tools needed 

to participate in HAMP. 

• July 28, 2009: Treasury and the Department of Housing and Urban 

Development (HUD) officials held a meeting with all participating 

servicers at which they asked the servicers to ramp up their efforts to 

increase trial modifications, with a goal of starting 500,000 trial 

modifications by November 1, 2009. 

• July 31, 2009: Treasury issued official guidance on the HPDP component 

of HAMP. 

• August 4, 2009: Treasury released its first monthly Servicer Performance 

Report detailing servicers’ progress to date with HAMP. According to 

Treasury, the purpose of the report is to document the number of 

Page 95 GAO-10-16 Troubled Asset Relief Program
Appendix X: Home Affordable Modification 

Program 

struggling homeowners already helped under the program, provide 

information on servicer performance, and increase the program’s 

transparency. 

• August 13, 2009: Treasury announced details of the second-lien 

modification component of HAMP, which allows second liens with 

corresponding first liens that have been modified under HAMP to be 

modified or extinguished. While Treasury estimates that between one and 

one-and-a-half million borrowers may be eligible to receive a second-lien 

modification, servicer participation in the second-lien modification 

subprogram is unclear, as servicers who had previously signed 

participation agreements must sign amended agreements in order to 

participate in the program. As of September 25, 2009, no servicers had 

signed participation agreements for the second-lien program. 

• August 27, 2009: Treasury conducted its first disbursement of $276,000 to 

one servicer for payment of servicer incentives related to 276 non-GSE 

loans modified under HAMP. No payments were disbursed for monthly 

mortgage payment reductions or associated incentive payments to 

investors or borrowers, and no payments were made to other servicers. 

• September 25, 2009: Treasury conducted its second disbursement of 

about $670,000 to three servicers for payment of servicer incentives and 

investor subsidies. 

Page 96 GAO-10-16 Troubled Asset Relief Program
Appendix X: Home Affordable Modification 

Program 

GAO’s Recommendations 

and Treasury’s Response 

Table 20: Treasury’s Actions in Response to GAO Recommendations 

GAO recommendations 

Treasury actions responding to 

recommendations to date 

GAO assessment of 

Treasury’s response 

Recommendations from the July 23, 2009, report:

Consider methods of (1) monitoring whether 

borrowers with total household debt of more than 

55 percent of their income who have been told 

that they must obtain HUD-approved housing 

counseling do so, and (2) assessing how this 

counseling affects the performance of modified 

loans to see if the requirement is having its 

intended effect of limiting redefaults. 

• According to Treasury, it is exploring options 

for monitoring what proportion of such 

borrowers is obtaining counseling. 

• To date, Treasury has not specified if it plans 

to use information from monitoring borrowers 

with total household debt of more than 55 

percent of their income to assess how 

required counseling affects the performance 

of modified loans. 

1) Partially implemented 

2) Not implemented 

Re-evaluate the basis and design of the HPDP 

program to ensure that HAMP funds are being 

used efficiently to maximize the number of 

borrowers who are helped under HAMP and to 

maximize overall benefits of utilizing taxpayer 

dollars. 

• On July 31, 2009, Treasury announced 

detailed guidance on HPDP that included 

changes to the program’s design that, 

according to Treasury, improve the targeting 

of incentive payments to mortgages that are 

at greater risk because of home price 

declines. GAO is in the process of 

determining if these changes to the program 

have helped to maximize overall benefits of 

utilizing taxpayer dollars. 

Partially Implemented 

Institute a system to routinely review and update 

key assumptions and projections about the 

housing market and the behavior of mortgageholders, borrowers, and servicers that underlie 

Treasury’s projection of the number of borrowers 

whose loans are likely to be modified under HAMP 

and revise the projection as necessary in order to 

assess the program’s effectiveness and structure. 

• According to Treasury, it plans to actively 

evaluate the program as it progresses, 

including testing key assumptions and 

updating participation estimates. Treasury 

has not stated, however, when it plans to 

perform such evaluations or updates to its 

HAMP participation estimates. 

• Treasury is gathering data on servicer 

performance in HAMP and housing market 

conditions in order to improve and build upon 

the assumptions underlying projections about 

mortgage market behavior. 

Partially implemented 

Place a high priority on fully staffing vacant 

positions in the Homeownership Preservation 

Office (HPO)—including filling the position of Chief 

Homeownership Preservation Officer with a 

permanent placement—and evaluate HPO’s 

staffing levels and competencies to determine 

whether they are sufficient and appropriate to 

effectively fulfill its HAMP governance 

responsibilities. 

• Between July 16, 2009, and September 21, 

2009, HPO increased its permanent staff by 

twelve. According to Treasury, 7 positions 

remain vacant out of 31. 

• According to Treasury, it is making progress 

in filling the position including interviewing 

prospective candidates. 

• According to Treasury, it will conduct the first 

bimonthly workforce needs assessment for 

HPO at the end of October 2009. 

Partially implemented 

Page 97 GAO-10-16 Troubled Asset Relief Program
Appendix X: Home Affordable Modification 

Program 

GAO recommendations 

Treasury actions responding to 

recommendations to date 

GAO assessment of 

Treasury’s response 

Expeditiously finalize a comprehensive system of 

internal control over HAMP, including policies, 

procedures, and guidance for program activities, 

to ensure that the interests of both the 

government and taxpayer are protected and that 

the program objectives and requirements are 

being met once loan modifications and incentive 

payments begin. 

• Treasury continues to refine the internal 

control environment for HAMP. Fannie Mae, 

as HAMP administrator, has mapped 

operational processes and identified points of 

control for multiple steps in its HAMP 

operations, including servicer set-up in 

HAMP’s electronic system, servicer data 

reporting, trial modification, and the steps of 

the payment process administered by Fannie 

Mae. However, controls and procedures have 

not been completed for all areas of the 

program. 

• According to Treasury, it will work with Fannie 

Mae and Freddie Mac to build and refine the 

internal controls within these financial agents’

operations as new program components are 

implemented. 

Partially implemented 

Expeditiously develop a means of systematically 

assessing servicers’ capacity to meet program 

requirements during program admission so that 

Treasury can understand and address any risks 

associated with individual servicers’ abilities to 

fulfill program requirements, including those 

related to data reporting and collection. 

• Treasury has stated that it does not believe 

that assessments of servicers’ capacity need 

to occur during program admission. 

According to Treasury, such assessments are 

unnecessary because, upon admission, a 

servicer becomes contractually obligated to 

review a borrower for eligibility for HAMP 

before beginning any foreclosure actions. 

Not implemented 

Source: GAO and analysis of OFS, Treasury, information. 

Page 98 GAO-10-16 Troubled Asset Relief Program
Appendix XI: Comments from the Department Appendix XI: Comments from the of the Treasury 

Department of the Treasury 

Page 99 GAO-10-16 Troubled Asset Relief Program 
Appendix XII: GAO Contact and Staff Appendix XII: GAO Contact and Staff Acknowledgments 

Acknowledgments 

Richard J. Hillman, (202) 512-8678 or hillmanr@gao.gov

Thomas J. McCool, (202) 512-2642 or mccoolt@gao.gov

Orice Williams Brown, (202) 512-8678 or williamso@gao.gov

In addition to the contacts named above, A. Nicole Clowers, Gary Engel, 

Mathew Scirè, and William T. Woods (lead Directors); Cheryl Clark, 

Lawrance Evans Jr., Dan Garcia-Diaz, Carolyn Kirby, Barbara Keller, Kay 

Kuhlman, Harry Medina, Raymond Sendejas, Karen Tremba (lead Assistant 

Directors); Judith Ambrose, Timothy Carr, Tania Calhoun, Emily 

Chalmers, Brent Corby, Rachel DeMarcus, M’Baye Diagne, Nancy Eibeck, 

Sarah Farkas, Alice Feldesman, Heather Halliwell, Michael Hoffman, Joe 

Hunter, Tyrone Hutchins, John Karikari, Amber Keyser, Steven Koons, 

Robert Lee, Sarah McGrath, Joseph O’Neill, Rebecca Riklin, Susan MichalSmith, Maria Soriano, Cynthia Taylor, Angela D. Thomas, Julie Trinder, 

Marc Molino, Winnie Tsen , Jim Vitarello, Yun Wang, and Heather 

Whitehead have made significant contributions to this report. 

GAO Contact 

Staff 

Acknowledgments 

Page 100 GAO-10-16 Troubled Asset Relief Program
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(250433) Page 103 GAO-10-16 Troubled Asset Relief Program
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