Agency Financial Report

United State D e pa rt m e n   o   t h  T ra s

Office of financial stabili

2009 I 

Troubled Asset Relief Program

Office of Financial Stability

for the year ended September 30, 2009

Agency Financial Report

United State D e pa rt m e n   o   t h  T ra s

Office of financial stabili

2009 I 

Troubled Asset Relief Program

Office of Financial Stability

for the year ended September 30, 2009
OICE OF FINANCIAL STABILIT • Agency Finan

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Table of Con

te

s

Table of Contents

Message from the Assistant Secretary iv

Part I: Management’s Discussion and Analysis 1

Executive Summary 

Section One: Background and Creation of the Troubled Asset Relief Program (TARP) 6

Mission and Organizational Structure 

Section Two: Overview and Analysis of the TARP 

TARP in Context: A Critical Pillar of a Coordinated Government Response 9

OFS Strategic Goals 9

TARP Timeline 11

FY 2009 Financial Summary 13

The Impact of TARP 19

External Assessments of TARP Performance 23

Section Three: Ensuring Stability and Liquidity 24

Capital Purchase Program (CPP)  .

Capital Assistance Program (CAP) and the Supervisory Capital Assessment Program (SCAP)  .

Targeted Investment Program (TIP) 26

Asset Guarantee Program (AGP)  .

Consumer and Business Lending Initiative (CBLI) 29

Public-Private Investment Program (PPIP) 32

AIG Investment Program (AIG)  .

Auto Industry Financing Program 33

Section Four: Preventing Foreclosures and Preserving Homeownership 37

Section Five: Protecting Taxpayer Interests 39

Section Six: Promoting Transparency 46

Section Seven: Financial Accounting Policy  .

Section Eight: TARP Valuation Methodology  .

Incorporating Market Risk in Valuation Models 51

Sensitivity Analysis 54

Section Nine: Systems, Controls, and Legal Compliance  .

Management Assurance Statement  .

Internal Control Program  .

Improper Payments 58

Section Ten: Other Management Information 63

Table of Contents i
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Section Eleven: Limitations of the Financial Statements 65

Part II: Financial Reporting

Message from the Chief Financial Officer (CFO) 69

Government Accountability Office (GAO)’s Report on FY 2009 Financial Statements 71

Assistant Secretary’s Response to GAO Report on FY 2009 Financial Statements  .

Financial Statements 81

Notes to the Financial Statements 86

iv Table of Con Table of Contte
message from 

Assi

ta

t s

cr

tary of fina

cial 

tabil

y

message from Assistant secretary of financial sta

I am pleased to provide the Office of Financial Stability’s Agency Financial Report for 

year 2009. This report describes the activities and financial results for the Troubled Asset

Relief Program (TARP) since its inception in October, 208.  The report includes 

financial statements for the TARP and the Government Accountability Office’s audit opi

on the financial statements, a separate audit opinion on OFS’s internal controls o

financial reporting, and results of tests of OFS’s compliance with selected laws a

regulations. 

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

Financial Stability (Treasury-OFS) within the Office of Domestic Finance of the Tr

Department to implement the TARP  Th OFS carries out the mission and objectives of te EESA:  ensuring the

stability and liquidity of the financial system; preventing avoidable foreclosures and helping preserve homeownership; 

protecting taxpayer interests, and promoting transparency.

Treasury-OFS has made substantial progress toward meeting these objectives and goals by using TARP funds to 

rebuild confidence in U.S. financial institutions. For the period ended September 30, 2009, Treasury-OFS report

following key results:

•	 Treasury-OFS disbursed $364 billion of the authorized $700 billion, most of it in the form of investments and $

billion of those TARP funds have already been repai

•	 As shown in greater detail in this report, Treasury-OFS reports an estimated net cost of $41.6 billion for the

disbursements made during the fiscal year. 

•	 The ultimate cost of TARP will not be known for some time  The combination of lower spending and higher expecte

returns has already significantly lowered the estimated cost from our earlier estimates. However, as additional funds are 

distributed, particularly for the housing initiative, the total cost is likely to rise.

Treasury-OFS also improved its operational efficiency by adopting a number of the recommendations made by our oversight bodie   We have benefited from their involvement in the development of TARP programs and policies as we pu

our common goal of carrying out the objectives of EE

The financial and performance data included in this report are reliable and complete. The Government Accountabilit

Office rendered an unqualified (“clean”) audit opinion on theOFS financial statemens.  he OFS has chosen to p

an alternative to the consolidated Performance and Accountability Report, the attached Agency Financial Report.

will include its Y 2009 Annual Performance Report with its Congressional Budget Justification and will post it on

OFS website (www.financialstability.gov) in Febru

Sincerely,

Herbert M. Allison J

Assistant Secreta

Office of Financial Stabili

Message from the Assistant Secretary

for Financial Stability 
OICE OF FINANCIAL STABILIT • Agency Finan

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Part 1

Management’s Discussion & Analysis
For more information, see:

FinancialStability.gov

MakingHomeAffordable.gov
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Executive Summary

This report provides a summary of the activities of the 

Troubled Asset Relief Program (TARP), which 

established under the Emergency Economic Stabilizati

Act (EESA) last yar.  The purpose of TARP 

restore the liquidity and stability of the financial system. 

While we will never know for certain what would have 

happened without TARP, there is broad agreement toda

that because of TARP and other governmental actions

the United States averted a potentially catastrophic

failure of the financial system.

This report also provides an update on the costs of TARP

While ESA provided the Secretary of the Treasury 

the authority to purchase or guarantee $700 billion 

to meet the objectives of the Act, it is clear today that

TARP will not cost taxpayers $700 billion  First, t

Treasury’s Office of Financial Stability (Treasury-OF

unlikely to disburse the full $700 billion. In addition,

many of the investments under the program, particularly 

those aimed at stabilizing banks, are expected to deliver 

returns for taxpayers. This combination of lower spending and higher expected returns is expected to lower the 

projected costs of TARP from the $341 billion estimat

in the President’s Mid-session Budget in August 20

During the period ended September 30, 2009, the

Treasury-OFS disbursed $364 billion of the authoriz

$700 billion, most of it in the form of investments, 

and $73 billion of those TARP funds have already bee

repaid as of such date. In addition, for the period ended

September 30, 2009, the investments generated $12.7

billion in cash received through interest, dividends, and 

the proceeds from the sale of warrants. For those TA

disbursements in Y 2009, the Treasury-OFS repo

net cost of operations of approximately $41.6 billion 

including administrative expenses. The reported net cost 

of operations includes the estimated net cost related 

to loans, equity investments, and asset guarantees. As

additional funds are distributed, particularly for the 

housing initiative, the total cost is likely to rise, although 

anticipated to remain substantially below the $341 billion estimate in the August 2009 Midsession estimat

Four TARP programs reported net income n FY 2

the Capital Purchase Program, the Targeted Investment

Program, the Asset Guarantee Program, and th

Consumer and Business Lending Initiativ.  This n

income was offset by reported net cost of the investments in IG and the automotive companies, bringi

the net cost for these programs during Y 2009 t

approximately $41.4 billion.

As further disbursements are made inFY 2010 a

later, the costs of the TARP program are likely t

rise. In particular, the $50 billion Home Affordabl

Modification Program or “HAMP,” is not design

to recoup money spent on loan modifications to keep 

people in their homes. In addition, the Treasury-O

assistance to IG includes an equity facility on whi

$27 billion remained undrawn at fiscal year end, and 

$30 billion of investments and loans under the Public 

Private Partnership Program will largely be recorded 

beginning in Y 2010

The ultimate return on the outstanding TARP investments will depend on how the economy and financia

markets evolve. The general improvement in economic 

and financial environment, early repayments of TAR

funds and refinements to the valuation models have 

significantly lowered expected costs for the program 

funds disbursed in Y 2009 by $110 billion belo

the estimates made when the programs were initiated. 

About $10 billion of that decline in costs stems from

early repayments of TARP fund

These estimates will change. The design and the precise 

amounts of additional investments for small banks and 

to facilitate small business lending have not yet been 

determined. In addition, the ultimate return on TA

investments is subject to significant uncertainty as 

market conditions evolve. 

While this report provides updated information on 

TARP’s costs, the initiative should be evaluated primarily based on its impact on stabilizing the financia

system. These investments were not made to make 
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money but to help prevent a collapse of our financial 

system and lay the foundation for economic recovery. 

Today, the financial system and the economy are 

showing signs of stability. The cost of borrowing has 

declined to pre-crisis levels for many businesses, states 

and local governments, the government sponsored 

enterprises (GSEs), and the banks. Housing marke

have shown signs of stabilization, and home prices have 

ticked up in recent months, after three straight years of 

declines. The economy grew in the third quarter, and 

most private economists predict it will grow for the 

remainder of this year and next.

That improvement in the economic and financial 

outlook since the spring reflects a broad and aggressive 

policy response that included the financial stability 

policies implemented under TARP, efforts to bolste

confidence in the housing and mortgage markets under 

the Housing and Economic Reform Act (H

other financial stability policies implemented by the 

Federal Deposit Insurance Corporation and the Boa

of Governors of the Federal Reserve System (Fed

Reserve), accommodative monetary policy, and the

Obama Administration’s fiscal stimulus packag

implemented under the American Recovery an

Reinvestment Act of 2009

 While TARP was necessary, it has put the federa

government in the unwelcome position of owning 

sizeable stakes in private sector companies. Given that

unusual position as a reluctant shareholder, TreasuryOFS has established a core set of principles to guide i

actions. First and foremost, Treasury-OFS is seeking

protect taxpayers by minimizing the long-term consequences of the current economic and financial crisis 

with as little direct cost to the taxpayer as possible. As

economic and market conditions improve, TreasuryOFS aims to dispose of its investments as quickly 

practicable, in a timely and orderly manner consistent 

with the duty to promote financial stability and protect 

taxpayers’ interests. 

To administer the programs under TARP, the Secreta

of the Treasury has established Treasury-OFS, whi

is designed to be temporary in nature, but also highly 

skilled and well equipped to handle the complexity of 

TARP initiatives  At the same time, Treasury-OFS’ process is designed to be highly transpaent.  Congres

taxpayers are kept informed of TARP’s actions, results

investments and costs through frequent and timely public reports, daily communication with oversight bodies, 

public responses to oversight reports, and direct outreach 

to taxpayers through its websites: FinancialStability.

gov and MakingHomeAffordable.gov.

Because of the magnitude and importance of these

programs, Congress established a strong oversight 

structure to ensure accountability. The Government

Accountability Office (GAO), the Special Ins

General for TARP (SIGTARP), the Congre

Oversight Panel (COP) and the Financial Stabil

Oversight Board (FINSOB) engage in frequent 

of TARP activities and have contributed to making th

programs stronger and more effective. 

Despite TARP’s positive record to date, and th

improving financial and economic outlook, significant 

challenges remain for the financial sector and our 

economy. While the economy is growing again, jobs 

are still being lost and the unemployment situation 

continues to worsen. The pace of bank failures, 

which tends to lag economic cycles, remains elevated. 

Foreclosure rates also remain very high, and bank

lending has contracted, with credit standards tight. 

Commercial real estate losses weigh heavily on many 

banks, especially on smaller banks, impairing their 

ability to extend new loans. Small businesses have

been particularly affected because they rely heavily 

on bank lending and do not have the ability to raise 

capital through the securities markets. 

While a number of TARP initiatives, particularl

those for large institutions, have begun to wind down, 

Treasury-OFS continues to focus on stabilizing t
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housing markets as well as improving access to credit for 

small businesses. Treasury-OFS is also mindful of t

fact that risks remain, and history suggests that exiting 

too soon from policies designed to contain a financial 

crisis can significantly prolong an economic downturn. 

It is within this larger context that the Secretary of th

Treasury will evaluate and decide whether to extend 

TARP authority past December 31, 200
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Section One: 

Background and Creation of TARP

Stresses in U.S. financial markets began to emerg

in 2007 as the performance of subprime mortgages 

deteriorated significantly, and losses on related securities began to climb. With the extent and distribution 

of losses quite uncertain, concerns surfaced about the 

financial condition of banks and other financial institutions. Pressures in short-term funding markets escalated and some off-balance sheet funding vehicles were 

not able to renew their asset-backed commercial paper, 

raising concerns about the ability of sponsoring banks 

to meet funding needs. As a consequence, short-term

credit markets came under considerable pressure and 

risk spreads in interbank funding markets and in some 

segments of the commercial paper (CP) market rose 

sharply. Announcements of large asset write-downs and

weak financial reports for many large financial institutions in late 2007 raised additional concerns about the 

resilience and capital adequacy of financial counterparties and the likelihood of further large losses.

 Continuing declines in mortgage loan performance, 

market valuations of mortgage-related assets, and the 

credit ratings of even so-called “super-senior” tranches 

of structured finance securitizations heightened the 

pressure on financial institutions with significant 

known exposures in these areas. Market participants

became increasingly cautious and, in some cases, 

unwilling to extend funding to the most-affected 

institutions, as in the case of Bear Stearns. In Ma

2008, the Federal Reserve, with the full support o

the Treasury, facilitated a merger of Bear Stearns wit

JPMorgan Chase to prevent a disorderly collapse of

the firm and potentially severe spillover effects in the 

financial markets. The condition of financial guarantors weakened, calling into question the value of the 

insurance they had written, leading to declines in the 

value of products insured by these entities. In Marc

2008, the Federal Reserve introduced two new liquidity facilities (the Primary Dealer Credit Facility and t

Term Securities Lending Facility), which increased t

liquidity available to primary dealers.

Pressures in financial markets initially appeared to ease 

somewhat as a consequence of these actions. However, 

housing conditions and the broader economy continued to deteriorate, and financial institutions came 

under renewed stress in the summer of 2008. Capital 

market dislocations and volatility combined with losses 

and expectations of further losses on mortgage-related 

assets resulted in the debt spreads of Fannie Mae an

Freddie Mac widening and these two companies becoming unable to raise new capital or long-term debt

In September, the Federal Housing Finance Ag

(FHFA) placed these firms into conservatorship whi

obtaining backup capital and funding support from 

Treasury under authority granted in July 2008 by the 

Housing and Economic Recovery Act of 20

In mid-September, a series of events caused the crisi

to escalate. Lehman Brothers came under heightene

funding pressures, and on September 15, 2008, the

parent company filed for bankruptcy protection. 

American International Group, Inc. (AIG), a 

insurance company, experienced severe liquidity pressures, necessitating assistance from the Federal Reserve

with the concurrence of Treasury, on September 16,

2008, to prevent the potential for severe systemic 

consequences from a disorderly failure of the firm. 

In the wake of the bankruptcy of Lehman Brothe

and the near failure of AIG, spreads on interba

borrowing jumped to a record high as banks sought 

to safeguard their own liquidity and interbank lending volumes contracted sharply. Losses on Lehma

Brothers commercial paper caused a money market

mutual fund to experience Net Asset Valuations 

less than $1 per share (i.e., “breaking the buck”) and 

investors accelerated withdrawals from prime money 

market funds, forcing sales of their CP holdings. Total 

CP outstanding fell sharply, leaving many financial and 

nonfinancial businesses with sharply reduced access 
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to needed short-term funds. Many such institutions

tapped existing back-up lines of credit at banks, adding 

to the pressure on liquidity funding needs of those 

banks. To support the functioning of money market 

mutual funds, on September 19, 2008, the Treasury

initiated an insurance program for existing balances at 

money market mutual funds. In addition, the Federa

Reserve established the Asset-Backed Commerci

Paper Money Market Mutual Fund Liquidity Fac

(AMLF) to provide liquidity to money market mut

funds that were holding asset-backed commercial 

paper.

The loss of confidence in financial institutions also 

contributed to the failure of Washington Mutual, the

largest U.S. thrift institution in September 2008. Th

FDIC sold the banking operations of the institution t

JPMorgan Chase. Wachovia Corporation subsequently

came under intense funding pressures, and ultimately 

was acquired by Wells Fargo & Co. Moreover, as th

financial crisis intensified in the U.S. and abroad, risks

to the stability of the international financial system 

increased. To help ease liquidity pressures, the Federal

Reserve in coordination with other central banks

around the globe provided dollar liquidity to banking 

institutions through reciprocal currency (or swap) 

lines.

Accompanying the pressures in interbank and

other funding markets, and in light of the weakening 

economy, banks continued to tighten their credit terms 

and standards on loans to their customers. The tighter 

terms and standards reduced credit availability, leaving 

its imprint on economic activity. In the corporate bond

market, borrowing costs increased dramatically and 

the spread of corporate yields to comparable maturity 

Treasury yields rose, reflecting financial market stresses 

and a weakening economic outlook. Broad stock price

indexes fell sharply, nearly 15 percent in early October

2008, leaving them down about 40 percent since the 

beginning of 2008.

This accumulation and confluence of events placed severe financial stresses on financial markets and institutions, and strong pressures on institutions to deleverage 

and restrain lending. Because of the dependence of our

economy on the flow of credit, serious strains on credit 

providers can impose disproportionately large costs on 

the broader economy. Responding to these severe conditions, the Treasury, Federal Reserve, Federal Hous

Finance Agency (FHFA), Federal Deposit Ins

Corporation (FDIC), and other U.S. governme

bodies undertook an array of unprecedented actions in 

accordance with their respective authorities. However, 

additional resources and authorities were needed to 

help address the significant problems in the financial 

markets and the dangers posed by such problems to 

consumers, businesses, and the broader economy. To 

provide additional resources and authorities, Congress 

passed the Emergency Economic Stabilization Act

2008 (E

1

 which was signed into law by President 

George W. Bush on October 3, 2008. The purpos

of ESA were to provide authority and facilities t

the Secretary of the Treasury could use to restore

liquidity and stability to the financial system of the 

United States, and to ensure that such authority and

facilities were used in a manner that protected home 

values, college funds, retirement accounts, and life 

savings; preserved home ownership; promoted jobs 

and economic growth; maximized overall returns to 

the taxpayers of the United States; and provided public

accountability for the exercise of such authority. 

Mission and Organization

Struc

The ESA established the Office of Financial Sta

(OFS) within the Office of Domestic Finance of

Treasury Department to implement the TARP. Th

mission of Treasury-OFS is to carry out the authoriti

given to the Secretary of the Treasury to implement

the Troubled Asset Relief Program (TARP). Sec

101 of ESA authorized the Secretary of the Trea

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

1 The Emergency Economic Stabilization Act of 2008 

Pub. L. No. 110-343, 122 Stat.3765 (2008), codified at 

U.S.C. §§ 5201 et seq
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fund commitments to purchase, troubled assets from 

any financial institution, on terms and conditions as 

are determined by the Secretary”.EESA defines

terms “troubled assets” and “financial institution” and 

provides other requirements that must be met for any 

such purchase. The statute also provides authority for a 

guarantee program for troubled assets. 

Assistant Secretary 

for 

Financial Stability

Financial Agents (OFA)

Chief Counsel

Chief 

Investment 

Officer

Chief

 Financial 

Officer

Chief 

Investment 

Operations/Technology

Chief 

Homeownership 

Preservation Officer

Chief 

Administrative 

Officer

Chief 

OFS Internal 

Review

Chief 

Reporting

Officer

Preservation Officer, the Chief Administrative Office

the Chief Reporting Officer, and the Chief fo

Internal Review A Chief Counsel’s Office reports

the Assistant Secretary and to the Office of the Gene

Counsel in the Department of Treasury. 

Treasury-OFS organization chart is shown bel

EESA Section 101: Def

Troubled Assets are defined by ESA as residential

commercial mortgages and any securities, obligations or other instruments that are based on or 

related to such mortgages, that in each case was 

originated or issued on or before March 14, 2008,

the purchase of which the Secretary of the Treasury

determines promotes financial market stability; and 

any other financial instrument that the Secretary of

the Treasury, after consultation with the Chairman 

of the Board of Governors of the Federal Rese

System, determines the purchase of which is necessary to promote financial market stability, but only

upon transmittal of such determination, in writing, 

to the appropriate committees of Congress.

Financial Institutions are defined by ESA as 

institution, including, but not limited to, any bank, 

savings association, credit union, security broker 

or dealer, or insurance company, established and 

regulated under the laws of the United States or any

State, territory, or possession of the United States

the District of Columbia, Commonwealth of Puerto 

Rico, Commonwealth of Northern Mariana Islan

Guam, American Samoa, or the United Sta

Virgin Islands, and having significant operations i

the United States, but excluding any central bank

of, or institution owned by, a foreign government.

Treasury-OFS is headed by an Assistant Secretary of

Treasury, appointed by the President with the advice 

and consent of the Senate. Reporting to the Assista

Secretary for Financial Stability are seven maj

divisions: the Offices of the Chief Investment Office

the Chief Financial Officer, the Chief for Investme

Operations/Technology, the Chief Homeownership

Additional information regarding the operations of

these divisions and other aspects of Treasury-OF

operations can be found in Section Ten [Othe

Management Information] of this report
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Section Two: 

Overview and Analysis of the Troubled Asset Relief Program

This section provides a broad overview of the TARP. 

begins by placing the program in context, explaining 

why it was a necessary ingredient of a coordinated government response to contain and resolve the financial 

crisis. This is followed by a discussion of Treasury-OF

strategic goals, and how particular programs and activities were developed to meet each of these goals. Next,

this section presents the TARP financial summary fo

the period ended September 30, 2009. Finally, thi

section concludes with a discussion of the aggregate 

impact of TARP and other government financia

policies on financial markets and institutions. These are 

the metrics by which we evaluate success or failure of 

government support policies. 

TARP in Conte

A Critical Pillar 

a Coordina

Government Res

This crisis really began in August 2007. The Federa

Reserve, and to a lesser extent the FDIC, led the poli

response during the first year of the crisis. Before

September 2008, the Federal Reserve was providi

sorely-needed liquidity to many financial institutions, 

which allowed them to meet near-term obligations. 

The FDIC was insuring deposits, which helped quel

traditional bank runs, and it was resolving troubled 

depository institutions, such as IndyMac

But when stress in the system dramatically intensified

in the wake of the Lehman Brothers failure, investor

began to question whether the financial system was 

solvent and confidence collapsed.  different sort of

policy response was needed. 

The Federal Reserve does not have the authority t

directly inject capital into banks and other financial 

institutions to address potential capital shortfalls. 

Although it has expanded the scope of eligible borrowers and collateral over the past few years, the Federa

Reserve’s liquidity provision is confined to secured

lending against good collateral. This is a powerful, but 

limited tool. The large amount of troubled assets held 

by financial institutions heightened the markets’ fears.

The FDIC has a broader toolset in some respect

including the ability to inject capital or to purchase or 

guarantee liabilities—but only for depository institutions. This too proved a stabilizing factor. But in the

fall of last year the crisis spread well beyond traditional 

banks, and threatened to exceed the limitations of the 

FDIC’s capacity to effectively respond. Investors fear

that U.S. financial institutions needed, in the aggregate, hundreds of billions of dollars to offset potential

credit losses. 

In this context the passage ofEESA was essentia

gave the Secretary of the Treasury temporary authority

to purchase and guarantee assets in a wide range of 

financial institutions and markets. As explained below,

that step, combined with the actions of other government agencies and the Federal Reserve, helped preven

the potential collapse of the U.S. financial system. To

date, the cost has been considerably less than what was 

originally projected. Today, ESA programs conti

to stabilize and rehabilitate still fragile markets and 

institutions, while repayments of the government’s 

investments over the past year have already begun.

OFS Strateg

The purpose of ESA is to provide the Secretary of

Treasury with the authorities and facilities necessary 

to stabilize the U.S. financial system. In addition, th

Secretary is directed to ensure that such authorities are

used in a manner that protects home values, college 
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funds, retirement accounts, and life savings; preserves 

homeownership; promotes jobs and economic growth; 

maximizes overall returns to taxpayers; and provides 

public accountability. ESA also provided speci

authority to take certain actions to prevent avoidable 

foreclosures.

In light of this statutory direction, Treasury-OFestablished the following as its operational go

1. Ensure the overall stability and liquidity of the

financial system.

a. Make capital available to viable institution

b. Provide targeted assistance as needed.

c. Increase liquidity and volume in securitizatio

markets.

2. Prevent avoidable foreclosures and help preserve 

homeownership.

3. Protect taxpayer interests.

4. Promote transparency.

1. Ensure the Overall Stability and Liquidity of the 

Financial System

To ensure the overall stability and liquidity of the 

financial system, Treasury-OFS developed sever

programs under the TARP that were broadly availabl

to financial institutions. Under the Capital Purchase 

Program (CPP), Treasury-OFS provided capit

infusions directly to banks and insurance companies 

deemed viable by their regulators but in need of a 

stronger asset base to weather the crisis. The Capital 

Assistance Program (CAP) was developed to supplement the Supervisory Capital Assessment Prog

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

institutions. If these institutions were unable to raise

adequate private funds to meet the SCAP requirements, Treasury-OFS stood ready to provide additi

capital. 

In addition, Treasury-OFS provided direct aid

certain financial industry participants through the 

Targeted Investment Program (TIP) and the Ass

Guarantee Program (AGP), as well as the progr

originally known as the Systemically Significant Faili

Institutions (SSFI) program. These programs were designed to mitigate the potential risks to the system 

whole from the difficulties facing these firms. (Because

SSFI was used only for investments in Amer

International Group, Inc. (AIG), such investment

now referred to as the IG Investment Progr

Similarly, the Automotive Industry Financ

Program (AIFP) provided funding for General Mo

Corporation (GM) and Chrysler LLC (Chrysler),

well as their financing affiliates in order to prevent a 

significant disruption of the automotive industry that 

would have posed a systemic risk to financial markets 

and negatively affected the real economy. TreasuryOFS’ actions helpd GM and Chrysler under

massive and orderly restructurings through the bankruptcy courts that have resulted in leaner and stronger 

companies. 

The Public-Private Investment Program (PPIP) wa

established to facilitate price discovery and liquidity 

in the markets for troubled real estate-related assets 

as well as the removal of such assets from the balance 

sheets of financial institutions. In addition to these

initiatives, Treasury implemented the Consumer and 

Business Lending Initiative (CBLI) to enhance liquidity and restore the flow of credit to consumer

small businesses. The primary program through which 

the CBLI operated in 2009 was the Term Asset-Ba

Securities Loan Facility (TALF). Through this combination of tools, the TARP helped strengthen 

set of financial institutions and markets.

Details on all of these efforts, including

program-specific results, can be found in Sectio

Three [Ensuring Stability and Liquidit

2. Prevent Avoidable Foreclosures and Preserve 

Homeownership 

To prevent avoidable foreclosures and preserve homeownership, Treasury used authority granted under 

EESA to establish the Home Affordable Modific

Program (HAMP) in February 2009. Other government policies have helped keep home mortgage ra
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at historic lows and allowed millions of Americans

to refinance and stay in their homes. But because of

falling housing prices, many responsible homeowners 

are unable to refinance. Meanwhile, job losses and

reductions in working hours and benefits are making 

it harder for these Americans to pay their mortgages.

HAMP provides incentives to mortgage servicers

investors, and homeowners to work together to reduce 

an eligible homeowner’s monthly payments to levels 

that are affordable in light of the homeowner’s current 

income. HAMP operations and program detail ar

provided in Section Four [Preventing Foreclosures a

Preserving Homeownership].

3. Protect Taxpayer Interests

Government financial programs, including TAR

helped prevent the U.S. financial system from collapse,

which could have resulted in a much more severe contraction in employment and production. The manner 

in which TARP was implemented is also designed t

protect taxpayers and to compensate them for risk. For

example, in exchange for capital injections, recipients 

of TARP funds have to adhere to corporate governanc

standards, limit executive pay, and provide additional 

reporting on lending activity. In addition, TreasuryOFS generally received preferred equity, which provides dividends. The dividend rates increase over t

to encourage repayment.

Further,EESA stipulated that the taxpayer benefi

the institutions which received TARP funds recovered

In connection with most investments, Treasury-OFalso receives warrants for additional securities in the institutions. Under the broad programs described abo

the Treasury-OFS has priority over existing shareholders of TARP recipients for which TARP holds 

investments. This gives taxpayers the ability to share in 

the potential upside along with existing shareholders.

Finally, the Treasury-OFS seeks to achieve the goal

protecting the taxpayer through the effective management and disposition of all TARP investments, a

detailed in Section Five [Protecting Taxpayer Interest

4. Promote Transparency

EESA requires transparency and accountabil

Specifically,EESA requires Treasury to pro

Congress with a variety of reports. These include 

a monthly report to Congress on TARP activity, 

“tranche” report each time Treasury reaches a $50

billion spending threshold, and transaction reports 

posted within two days detailing every TARP transaction. In carrying out its operations, Treasury-OF

sought to not only meet the statutory requirements 

but also to be creative and flexible with respect to 

additional transparency initiatives. Treasury-OFproactively provides to the public monthly Dividen

and Interest Reports reflecting dividends and interes

paid to Treasury-OFS from TARP investments, lo

and asset guarantees, as well as monthly reports

detailing the lending activity of participants in the 

Capital Purchase Program. All of these reports are

publicly available on FinancialStability.gov.

EESA also provided for extensive oversight of 

TARP, including by the Congressional Oversig

Panel, the Special Inspector General for the T

and the Government Accountability Office. In addition, Treasury-OFS officials frequently testify 

Congress on the progress of TARP programs, an

Treasury-OFS staff provide briefings to Congression

staff on programmatic developments. 

Further details on these efforts are provided in Sectio

Six [Promoting Transparency]
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12 Section 2: Overview and analysis of the Troubled Asset R

TARP Timel

The following timeline illustrates major events in the implementation of the TAR

TARP 

Oct. 3, 2008 Congress 

passes EESA, which 

authorizes TARP

Nov.10, 2008 

Treasuryan -

nounces that it 

will purchase $40 

billion insenior 

preferred stock 

from AIG

Jan. 27, 2009

Treasury 

announces new 

stepped up 

rules to limit the 

interests of lobby -

ists and special 

interests in the 

EESA process

Feb.25, 2009

Treasury 

announces 

theCapital 

Assistance 

Program

June 17,2009 

Ten ofthelargest banks 

repaid their CPP invest -

mentsforover $68 

billion inrepayments to 

Treasury 

Feb. 4,2009 

Treasury issues 

new guidelines 

onexecutive 

compensa -

tion forfirms 

participatingin 

TARP

Mar.3,2009 

Treasury andthe 

Federal Reserve 

launch TALF

Oct. 8,2009 

Treasury announces 

a milestone of more 

than500,000 trial 

loan modifications 

in progress under 

the MakingHome 

Affordable Program

Sep. 30, 2009 

Treasury announces 

initial closings of 

Legacy Securities 

PPIPfunds

Feb. 10,2009 

Treasury 

announces 

theFinancial 

StabilityPlan

Mar. 23,2009 

Treasury andthe 

Federal Reserve 

announcethe PublicPrivateInvestment 

Program (PPIP)

Oct. 21, 2009 

PresidentObama 

announcesnew 

initiativesto 

makeiteasierfor 

community banks 

tolend to small 

businesses

Feb. 17,2009 

Treasuryreleases 

its firstMonthly 

Lendingand 

Intermediation 

Snapshot 

May15, 2009 

Treasury receives $2.8 

billionin dividend 

paymentsfrom TARP 

investments, thelargest 

amount of dividends 

receivedin oneday

Oct. 22, 2009 

SpecialMasterfor 

TARP Executive 

Compensation 

issues first rulings 

Nov. 9, 2009 

Treasuryannounces 

closureof Capital 

Assistance Program 

with no investmentshaving been 

made

Nov. 19, 2009 

Treasury announces 

its intention to 

disposeofsev -

eralwarrant positions 

receivedin consider -

ation for investments 

made undertheCPP

Feb.18, 2009 

Treasury announces the 

Homeowner Afford -

ability andStability 

Plan, which includes the 

Home Affordable 

Modification Program

June 1, 2009 

Treasury releases its 

firstCPPMonthly 

Lending Report 

Nov. 23, 2008 

Treasury 

announcesthe 

Targeted Invest -

ment Program 

(TIP)and Asset 

Guarantee Pro -

gram (AGP)

Nov. 25, 2008 

Treasury 

announces it 

willallocate 

$20 billionto 

backtheTerm 

Asset-backed 

Securities Loan 

Facility (TALF)

Dec. 19, 2008 

Treasuryannounces 

theAutomotive 

Industry Financing 

Program(AIFP) 

andits plan for 

stabilizingthena -

tion’s automotive 

industry

Jan. 16, 2009 

Treasury 

announces 

additional 

executive 

compensation 

rulesunder 

TARP

Oct. 14, 2008

Treasury announces executive com -

pensationrulesunderTARP

Oct. 14, 2008

Treasury announces the CapitalPurchase Program 

(CPP)andintention to purchase upto $250 billion in 

preferredstock from financial institutions

Timeline
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FY 2009 Financial S

for TAR

The ESA provided authority for the TARP to pur

or guarantee up to $700 billion in troubled assets. 2

Treasury-OFS used this authority to help strength

the U.S. financial system, restore health and liquidity

to credit markets to facilitate borrowing by consumers 

and businesses, and prevent avoidable foreclosures in the 

housing market. While the TARP should be evaluate

primarily based on its impact on stabilizing the financial 

system, a critical factor in the analysis is cost. While 

EESA provided $700 billion in authority, the TAR

not cost taxpayers $700 billion. Treasury-OFS used t

authority to make investments to stabilize the financial 

system and expects that much of the funding will be 

repaid. While some of the TARP investments may resul

in a cost, others are estimated to produce net income. 

Treasury-OFS tracks costs in accordance with Fede

budget procedure. First, amounts are allocated or

budgeted to certain programs or needs within the 

TARP. Allocations may change over time as needs a

reevaluated. Second, Treasury-OFS enters into lega

binding “obligations” to invest or spend the funds. 

Third, funds are disbursed over time pursuant to the 

obligations. In any given case, it is possible that the full

amount allocated will not be obligated, and that the 

full amount obligated will not be disbursed.

Based on operations for the period ended September 30

2009, Treasury-OFS reports the following key resul

•	 Treasury-OFS entered into obligations with a fa

value of $454 billion in TARP authority durin

the fiscal year. 

•	 In fiscal year 2009, Treasury-OFS disbursed $

billion in TARP funds to make loans and equit

investments, and reported net cost of operations of 

$41.6 billion.

•	 During fiscal year 2009, Treasury-OFS receiv

$72.8 billion of repayments on certain investments 

and loans made early in Y 200

2 The Helping Families Save Their Homes Act of 2009, Pub.

No. 111-22, Div. A, amended the act and reduced the maximu

allowable amount of outstanding troubled assets under the act by 

almost $1.3 billion, from $700 billion to $698.7 billion.

•	 At September 30, 2009, Treasury-OFS repo

$240 billion for the value of loans, equity investments, and asset guarantees.

Treasury-OF’ FY 2009 net cost of operation

$41.6 billion includes the total estimated net cost 

related to loans, equity investments and asset guarantees. The total ultimate cost of the TARP is expected t

be higher because additional investments and disbursements have been made or will be made after Y 2009

Due to its program structure, the $50 billion HAM

has delayed payments as well as a long disbursement 

cycle so the Y 2009 amounts include only $2 millio

in cost. In addition,AIG has drawn an additio

$2.1 billion on its $29.8 billion equity capital facility 

since September 30, 2009, and may draw down the

additional funds available to it,which may result in 

additional cost. Including these costs as well as the

Public-Private Investment Program and other costs is

likely to significantly increase the estimated lifetime net 

cost for TARP. For programs where funds have be

obligated but not yet disbursed, the future outlays in 

some cases are dependent on program subscription or 

other uncertain factors. In addition, new commitments

may be made under TARP prior to EESA’s expira

As described further throughout this report, the valuation of the TARP investments will naturally chan

based on many factors.

As of September 30, 2009, Treasury-OFS curre

projects that four programs will produce a net return 

to taxpayers. The Capital Purchase Program, the 

Targeted Investment Program, the Asset Guarant

Program, and the Consumer and Business Lendin

Initiative had reported net income of $19.5 billion.

Also, as of September 30, 2009, Treasury-OFS rep

that two programs—the IG Investment Program 

the Automotive Industry Financing Program—wi

have net costs to taxpayers of $60.9 billion. Taking 

into consideration the gains, the total net cost for 

TARP to taxpayers, based on disbursements made a

of September 30, 2009, is reported to be $41.4 billion.

Accrued expenses for the HAMP as of September 

2009, of $2 million and administrative expenses for 

the year of $167 million bring the total estimated net 

costs to $41.6 billion, as shown in Table 1.
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table 1: net income (c0st) of tarp o

for the period ended september 

($ in Millions)

Programs with Estimated Subsidy Income

Capital Purchase Program 15,033

Targeted Investment Program 1,927

Asset Guarantee Program 2,201

Consumer and Business Lending Initiative 339

Net Income (Cost) from Programs Above 19,500

Programs with Estimated Subsidy (Cost)

American International Group, Inc

Investments (30,427)

Automotive Industry Financing Program (30,477)

Net (Cost) of Two Programs Above (60,904)

Total Net Subsidy Income (Cost) (41,404)

Additional TARP (Costs)

Home Affordable Modification Program (2)

Administrative Costs (167)

Total Net (Costs) of TARP Operations (41,573)

Over time the ultimate cost of the TARP progra

may change. As described later in this MD&A, and 

Treasury-OFS audited financial statements, these estimates are based in part on currently projected econom

factors. Forecasts for these economic factors will likely

change, either increasing or decreasing the ultimate cost 

of the TARP. HAMP expenses will increase significan

over time, as more modifications of mortgage payments 

are finalized between mortgage servicers and borrowers, 

resulting in increased incentive payments. These payments are described in Section Fou

Table 2 provides a financial summary for TAR

programs in Y 2009. For each program, the tab

gives the face value of the amount obligated by each 

program, the amount actually disbursed during the 

fiscal year, repayments to Treasury-OFS during t

period from program participants, net outstanding 

balance (the amount on the original investment that is 

due to be repaid to Treasury) on September 30, 2009,

and cash inflows on the investments for each program 

in the form of dividends, interest or other fees. As of

fiscal year end 2009, approximately $317 billion of 

the $700 billion in purchase and guarantee authority 

remained available, taking into account $72.8 billion 

in repayments. However, this does not include the 

full planned amounts for the HAMP, Public Privat

Investment Program (PPIP), Consumer and Busine

Lending Initiative, and other program

Table 2: TARP Sum

As of September 30,

($ in Billions

Purchase Price or 

Guarantee Amoun

Total $ 

Disbursed

Investment

Repayment

Outstanding

Balanc

Cash 

Received from

Investment

Capital Purchase Program $ 204.6 $ 204.6 $ 70.7 $ 133.9 

Targeted Investment Program $ 40.0 $ 40.0 $ 0.0 $ 40.0 

Asset Guarantee Program $ 5.0 $ 0.0 $ 0.0 $ 0.0 

American International Group Investment2 $ 69.8 $ 43.2 $ 0.0 $ 43.2 

Term Asset-Backed Securities Loan Facility $ 20.0 $ 0.1 $ 0.0 $ 0.1 

Public Private Investment Program3 $ 6.7 $ 0.0 $ 0.0 $ 0.0 

Automotive Industry Financing Program $ 81.1 $ 75.9 $ 2.1 $ 73.8 

Home Affordable Modification Program4 $ 27.1 $ 0.0 NA NA $ 

Totals $ 454.3 $ 363.8 $ 72.8 $ 291.0 $

1/ This table shows the TARP activity for the period ended September 30, 2009, on a cash basis. Cash received from investments includes dividends and interest

income reported in the Statement of Net Cost and proceeds from repurchases of warrants and warrant preferred stock

2/ The disbursed amount is lower than purchase price because of the $29.8 billion facility available to AIG of which only $3.2 billion was drawn at Septembe

30, 2009. AIG drew an additional $2.1 billion from the facility on November 13, 20

3/ Reflects the face value of obligations as of September 30, 2009. As of that date, no fund managers had made any investments and Treasury-OFS expects to

provide a total of $30 billion in funding to the nine fund managers selected for PPIP

4/ Reflects legal commitments to servicers as of September 30, 2009. Treasury-OFS has allocated $50 billion in total for the program. Payments are made t

servicers once temporary modifications are made permanent
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Most of the TARP funds have been used to make investments in preferred stock or make loan.  TreasuryOFS has generally received dividend on the pref

stock and interest payments on the loans from the 

institutions participating in TARP programs  Thes

payments are a return on Treasury’s TARP investments  For the period ended September 30, 20

Treasury-OFS received a total of $9.8 billion 

dividends, interest and fees. Table 3 shows the breakdown of receipts for the period ended September 30,

2009 for all TARP programs combined

Treasury-OFS also receives warrants in connecti

with most of its investments, which provides an opportunity for taxpayers to realize an upside on investments. Treasury-OFS has begun to dispose of some 

its warrants as institutions repay their preferred share 

investments. For the period ended September 30

2009, twenty-four institutions have already repurchased 

their warrants which generated $2.9 billion in receipts. 

Table 4 provides information on the institutions that 

have fully repurchased the CPP preferred shares and 

repurchased warrants as well as those that have fully 

repurchased their preferred shares but not their warrants.

(Treasury-OFS receives warrants for preferred stock 

the case of most private institutions, which are exercised immediately. The receipts from warrants include 

receipts from the repayment of such preferred shares, 

or “warrant preferred stock”.) 

Table 3: TAR FY 2009 Rec

Repayments on Investmen

For the period ended Septembe

($ in billions)

Dividends, Interest, Fees and Warrants Repurcha

Dividends and Fees $ 9.6

Interest $ 0.

Repurchases of Warrants and Warrant Preferred Stock $ 2.9

Additional Notes $ 0.

Subtotal $ 12.7

Investment/Loan Repayme

Repurchases/Repayments on preferred stock $ 70.7

Loan Principal Repaid $ 2.1

Subtotal $ 72.8 

Grand Total $ 85.5

1/ This table shows the TARP activity for the period ended September 30, 

2009, on a cash basis. The table includes receipts and repayments that

do not result in revenue in the Statement of Net Cost
OFFICE OF FINANCIAL STABILITY • Agency

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16 Section 2: Overview and analysis of the Troubled Asset Relief

Table 4: Repurchases of Preferred 

($ in millions)

Institutio

Proceeds from

Preferred Share

Redeemed

Total

Dividends

Received

Proceeds

from Warrants 

Repurchased

Institutions with fully repurchased preferred shares and repurchased warrants or warrant preferred stoc

Alliance Financial Corporation $ 26.9 $ 0.5 $ 0.9 

American Express Company $ 3,388.9 $ 74.4 $ 340.0 

Bancorp Rhode Island, Inc. $ 30.0 $ 0.9 $ 1.4 

Bank of New York Mellon $ 3,000.0 $ 95.4 $ 136.0 

BB&T Corp. $ 3,133.6 $ 92.7 $ 67.0 

Berkshire Hills Bancorp, Inc. $ 40.0 $ 0.9 $ 1.0 

Centra Financial Holdings, Inc. $ 15.0 $ 0.2 $ 0.8 

First Manitowoc Bancorp, Inc. $ 12.0 $ 0.2 $ 0.6 

First Niagara Financial Group $ 184.0 $ 4.8 $ 2.7 

First ULB Corp. $ 4.9 $ 0.1 $ 0.2 

FirstMerit Corporation $ 125.0 $ 1.8 $ 5.0 

Goldman Sachs Group, Inc. $ 10,000.0 $ 318.1 $ 1,100.0 

HF Financial Corp. $ 25.0 $ 0.7 $ 0.7 

IberiaBank Corporation $ 90.0 $ 1.5 $ 1.2 

Independent Bank Corp. $ 78.2 $ 1.1 $ 2.2 

Morgan Stanley $ 10,000.0 $ 318.1 $ 950.0 

Northern Trust Corporation $ 1,576.0 $ 46.6 $ 87.0 

Old Line Bancshares, Inc. $ 7.0 $ 0.2 $ 0.2 

Old National Bancorp $ 100.0 $ 1.5 $ 1.2 

SCBT Financial Corporation $ 64.8 $ 1.1 $ 1.4 

Somerset Hills Bancorp $ 7.4 $ 0.1 $ 0.3 

State Street Corporation $ 2,000.0 $ 63.6 $ 60.0 

Sun Bancorp, Inc. $ 89.3 $ 1.1 $ 2.1 

U.S. Bancorp $ 6,599.0 $ 195.2 $ 139.0 

Subtotal $ 40,597.0 $ 1,220.7 $ 2,900.9 

Institutions with fully repurchased preferred shares but warrants are outstandin

Bank of Marin Bancorp $ 28.0 $ 0.5 $ — 

Capital One Financial Corp $ 3,555.2 $ 105.2 $ — 

Centerstate Banks of Florida Inc. $ 27.9 $ 1.2 $ — 

CVB Financial Corp. $ 130.0 $ 4.7 $ — 

F.N.B. Corporation $ 100.0 $ 3.3 $ — 

First Community Bancshares Inc. $ 41.5 $ 1.3 $ — 

JPMorgan Chase & Co. $ 25,000.0 $ 795.1 $ — 

Manhattan Bancorp $ 1.7 $ 0.1 $ — 

Shore Bancshares, Inc. $ 25.0 $ 0.3 $ — 

Signature Bank $ 120.0 $ 1.8 $ — 

Sterling Bancshares, Inc. $ 125.2 $ 2.5 $ — 

TCF Financial Corporation $ 361.2 $ 7.9 $ — 

Texas Capital Bancshares, Inc. $ 75.0 $ 1.2 $ — 

Washington Federal S and L Association $ 200.0 $ 5.4 $ — 

Wesbanco, Inc. $ 75.0 $ 2.9 $ — 

Subtotal $ 29,865.6 $ 933.4 $ — 

Institutions making partial repurchases of preferred shares and outstanding warrant

State Bankshares, Inc. $ 12.5 $ 1.6 $ —

Valley National Bancorp $ 200.0 $ 11.2 $ —

Westamerica Bancorporation $ 41.9 $ 2.2 $ —

Subtotal $ 254.4 $ 15.0 $ —

Total $ 70,717.0 $ 2,169.1 $ 2,900.9
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The ultimate cost of the TARP will not be known fo

some time. The financial performance of the programs 

will depend on many factors such as future economic 

and financial conditions, and the business prospects of 

specific institutions. Table 5 provides information on 

the estimated values of the TARP investments by program, as of the end o FY 2009. (HAMP is exc

from the chart because no repayments are required). 

The estimates in Table 5 are based on assumptions 

regarding future events, which are inherently uncertain. The estimates are sensitive to a number of factors, 

including changes in general economic conditions, 

specific stock price volatility of the entities in which 

Treasury-OFS has an equity interest, estimates 

expected defaults, and prepayments. If Treasury-OFexperiences higher than currently projected ea

repayments, TARP’s ultimate cost will decline further

Sections Seven and Eight of this report describe t

methods used to determine the estimates.

In Table 5 below, the Outstanding Balance column represents the amounts paid by Treasury-OFS to acquir

loans and equity investments that were outstanding as 

of fiscal year end. The Estimated Value of Investment column represents the present value of net cash inflows th

Treasury-OFS estimates it will receive from the loans a

equity investments. For equity securities, this amount

represents fair value. The total difference of $53.1 billion 

between the two columns is considered the “subsidy cost 

allowance” under the Federal Credit Reform Act methods Treasury-OFS follows for budget and accou

purposes (see Section Seven for further discussion)

3 To reconcile the subsidy cost allowance to the total subsidy cost 

amount of $41.4 billion shown in Table 1 and on the Statement

of Net Cost, the $53.1 billion is adjusted by intragovernmental

interest cost, the net present value of the Asset Guarante

Program, and certain inflows from the loans and equity investments (e.g., dividends, interest, proceeds from repurchase of 

warrants by financial institutions, and other realized fees). 

Table 5: Summary of TARP In

($ in billions) 

Program

Outstanding

Balance 

Estimated

Value of

Investment

9/30/09

Capital Purchase Program $ 133.9 $ 141

Targeted Investment Program $ 40.0 $ 40

AIG Investment Program $ 43.2 $ 13

Automotive Industry Financing Program $ 73.8 $ 42

Term Asset-Backed Securities Loan 

Facility

$ 0.1 $ 0

Total $ 291.0 $ 237

1/ Before subsidy cost allowance

Table 6 below shows the estimated net asset value for 

the top ten CPP investments held as of September

30, 2009. The estimates shown below include only 

estimates of the value of the preferred stock for each 

institution. Treasury-OFS also holds warrants for ea

institution and those warrants have additional value. 

As Treasury-OFS will still need to negotiate a s

price for the warrants, the estimated warrant value of 

each institution cannot be disclosed without harming 

Treasury-OFS’ ability to secure the best return for taxpayers. Through an exchange process, Treasury-OFreceived common shares at $3.25 per share fo

originally issued preferred shares in Citigroup which 

had an initial investment of $25 billion. The holdings 

of Citigroup common shares had a market value of 

$37.23 billion ($4.84 per share) as of September 30,

2009.
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18 Section 2: Overview and analysis of the Troubled Asset R

Table 6: Top Ten CPP Invest

($ in billions)

Institutio

Original

Investmen

Estimated Net Ass

Value (excluding

warrants)1

as of 9/30/09

Citigroup (Common Shares) $ 25.00 $ 37.

Bank of America $ 25.00 $ 22.

Wells Fargo $ 25.00 $ 23.

PNC Financial $ 7.58 $ 7.

SunTrust Bank $ 4.85 $ 4.

Regions Bank $ 3.50 $ 3.

Fifth Third Bancorp $ 3.41 $ 3.

Hartford Financial $ 3.40 $ 3.

Keycorp $ 2.50 $ 1.

CIT Group $ 2.33 $ 

Total $ 102.57 $ 105.

1/ Does not reflect the impact of management’s expectation of an additional 

$30 billion in early repayments

Market conditions and the performance of specific

financial institutions will be critical determinants of 

the TARP’s final cost. The changes in Treasury-OFestimates during the period ended September 30, 

provide a good illustration of this impact. The estimated 

net cost of programs implemented to date declined by 

approximately $110 billion as compared to the estimates 

made while the programs were being initiated in the 

heart of the financial market crisis last winter in large 

part due to market stabilization seen to date and actual 

and forecast repayments occurring at a faster rate than 

originally anticipated. In the CPP program for example,

when the cost of the program was first estimated by the 

Congressional Budget Office and Treasury-OFS 

winter, the expectation was that the program would 

lose about 18-22 percent.4 In large part because of the

improved market conditions, Treasury-OFS estimated

net income of about $15.0 billion for the period ended 

September 30, 2009. Based on the repayments to dat

and current market conditions, the major bank stabilization programs, including the CPP and the TIP, are

4 “The Troubled Asset Relief Program: Report on Transactio

Through December 31, 2008.” Congressional Budget Office

January 2009.

currently estimated to provide a net financial return to 

the taxpayer. The outstanding $174 billion in CPP and 

TIP balances are estimated to be worth approximately

$182 billion. However, the outlook for repayments from 

the auto industry investments and the IG Investm

Program is less positive. Treasury-OFS estimates t

$117 billion originally invested in these programs is 

currently valued at approximately $56 billion. These 

programs may result in a net financial loss to taxpayers. 

Table 7 provides information as to how the estimated 

cost of the TARP has changed during the period ende

September 30, 2009. The positive amounts reflect an estimated income whereas negative amounts reflect a cost

or expense. For example, the $204.6 billion invested in

the CPP program was originally expected to cost about 

$57 billion (in net present value cost). For the period

ended September 30, 2009, Treasury-OFS reported 

income of about $15 billion for CPP. This amount represents primarily the combination of actual dividends, 

interest and realized fees, and the excess of estimated fair 

value as of September 30, 2009, of the CPP investments

over original cost. Additional explanatory material on

how these estimates were developed can be found in 

Sections Seven [Financial Accounting Policy] and E

[TARP Valuation Methodolog

Table 7: Estimated Change in NET cos

TARP Progr

($ in billions)

Original

Estimate

Current 

Estimat

Net

Change

Capital Purchase Program - 57.4 + 15.0 + 7

Targeted Investment Program - 19.6 + 1.9 + 2

Asset Guarantee Program + 1.0 + 2.2 + 

AIG Investment Program - 31.5 - 30.4 + 

Automotive Industry Financing 

Program

- 43.7 - 30.4 + 1

Term Asset-Backed Securities 

Loan Facility

 + 0.1 + 0.3 + 

Subtotal - 151.1 - 41.4 + 10

Home Affordable Modification 

Program

- 27.1 - 27.1 

Total - 178.2 - 68.5 + 10

1/ Original estimates completed on or near the initiation of each program 

and adjusted for modifications. Amounts shown in both original and

current estimates are based on total program disbursements through FY 

2009
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The Impact 

Measuring the impact of the TARP in isolation is challenging. The health of the overall system and its impa

on the U.S. economy are the most important metrics

by which Treasury-OFS can measure the effectivene

of these policies. However, the cost of the financial 

system collapse that was likely averted by TARP an

the other government actions taken in the fall of 2008 

and since then will never be known. Moreover, it is

difficult to measure separately the impact of TARP a

it was part of a coordinated government response to 

restore confidence in our financial system.  few TA

programs were uniquely targeted to specific markets 

and institutions. In those instances, Treasury-OFS 

measure performance more directly.

Confidence in the stability of our financial markets and 

institutions has improved dramatically. Interbank lending rates, which reflect stress in the banking system,

have returned to levels associated with more stable 

times. For example, the spread of one-month Libor t

the overnight index swap fell from a peak of about 340 

basis points5 last fall to roughly 10 basis points at the 

end of October 2009, as shown in Figure 1. Creditdefault swap spreads for financial institutions, whic

measure investor confidence in their health, have also 

fallen significantly.  measure of credit-default swaps

for the largest U.S. banks reached 450 basis points last

fall, as shown in Figure 2, and is just over 100 basis

points today. The TARP was a necessary step, but no

the only step, to achieving this recovery.

5 A basis point is one hundredth of a percentage point or 0.0

percent so 100 basis points equals 1 percent. Basis points are

often used to measure small changes in interest rates or yields on 

financial instruments.

Figure 1. Libor-OIS Spread (basis points) Basis 

Lehman FSP

1-Month 3-Month

0

50

100

150

200

250

300

350

400

2006 2007 2008 2009

Source: Bloomberg

Figure 2. Credit Default Spreads for Financial Instituti

(basis points) Basis Points

Lehman FSP

0

50

100

150

200

250

300

350

400

450

500

2006 2007 2008 2009

Source: Bloomberg

Notes: Includes Bank of America, Citigroup, Goldman Sachs, JPMorgan, 

Morgan Stanley, and Wells Fargo

At the same time, borrowing costs have declined for

many businesses, homeowners, and municipalities. 

Investment-grade corporate bond rates have fallen by

over 70 percent since last fall, and high-yield bond rates 

have fallen by more than half. Fears of default on these

bonds have receded, providing further relief on prices. 

The CDX investment-grade index (see Figure 3), an aggregate measure of credit-default swaps for highly-rate

companies, has fallen about 35 percent from its October

2008 peak. Further, conventional 30-year mortgage rates

(see Figure 4) remain under five percent at historic lows.

AAA municipal bond rates are three percent, down fr

five percent last fall.
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20 Section 2: Overview and analysis of the Troubled Asset R

Figure 3. Corporate Bond Spreads (basis points) Basis Poi

AA 5-Year BBB 5-Year

0

100

200

300

400

500

600

2006 2007 2008 2009

Source: Bloomberg

Figure 4. Conventional 30-Year Mortgage Rate (percent) Basis Poi

4

5

6

7

8

9

10

11

12

13

14

1985–1997 1998–2009

Source: Federal Reserve

As borrowing costs have come down, businesses have

raised about $900 billion in investment-grade debt and 

over $100 billion in high-yield debt this year. While 

much of the new issuance early this year was supported 

by the federal government, private investors have 

funded most new corporate debt in recent months. In

particular, banks have raised substantial capital from 

private sources following the release of the results from 

the federal government “stress test” of major U.S.

financial institutions. Since the results were released,

banks have raised $80 billion in new common equity 

and over $40 billion in debt that is not guaranteed by 

the federal government.

Figure 5. Corporate Bond Issuance (US$ billions) Dollars (in bill

Government Guaranteed Not Guaranteed

$0

$40

$80

$120

$160

$200

2008 2009

Source: JPMorgan

Figure 6. Net Common Issuance by U.S. Banks (US$ billions) Dollars (in b

-$20

-$10

$0

$10

$20

$30

$40

$50

$60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: SNL Financial 

Notes: Excludes equity generated through asset sales and preferred 

conversions. Negative figures represent net repurchases of equit

Securitization markets that provide important channels

of credit for consumers and small businesses have also 

improved, in large part because of programs launched 

under the TARP  Announcements about TALF h

narrow spreads in these markets even before the 

program began operating. This trend has continued, 

with spreads on TALF-eligible asset-backed securiti

(ABS) back to pre-crisis levels today, and spreads 

non-TALF-eligibe ABS more than 90 percent off 

peaks from last fall. Issuance ofABS backed by consumer and business loans has averaged $14 billion 

month since the government launched TALF in Ma

2009, compared to about $1.6 billion per month in 

the six months prior to the program’s launch. Issuance
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not supported by the federal government program 

accounted for about 40 percent of all such issuance in 

October 2009. However, the overall size of securitization markets remains small, relative to pre-crisis levels

Figure 7. Spreads Between TALF-Elgible ABS and

Securities (basis points

AAA 2-Yr/Auto ABS AAA 2-Yr/Credit Card ABS

Basis Points

Lehman FSP

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009

Source: JPMorgan

Figure 8. Issuance o ABS Backed by Consumer and

Business Loans (US$, billions) Dollars (in billi

TALF-Eligible ABS Standard ABS

$0

$5

$10

$15

$20

$25

2007 2008 2009

Average Pre-TALF 

(Sep. 2008 - Feb. 2009)

Average Post-TALF 

(Mar. 2009 - Oct. 2009)

AUGJUNJULAUGSEPOCTNOVDECJANFEBMARAPRMAYJUNJULAUGSEPOCT

Source: Federal Reserve

Legacy security prices have improved significantly this

year. This is due in part to general market improvement and in part to announcements for the Securities

PPIP. Most of the Public-Private Investment Fu

(PPIFs) have now been formed and are starting t

purchase legacy assets from banks. The PPIFs shoul

continue to contribute to price improvements in these 

markets.

Stock markets have recovered substantial ground since

March, following 18 months of steep declines. The

S&P 500 has risen over 60 percent over the past six

months, and share prices for financial companies in the 

S&P 500 have doubled. At the same time, volatility i

stock markets is trending lower and approaching historical norms. The implied volatility of the S&P 500,

as measured by the Chicago Board Options Exchange

Market Volatility (VIX), has fallen by over 70 per

since its peak in October 2008 and is roughly at its

average since 1990. These improvements reflect broadbased confidence not only in the financial system, but 

also the prospects for economic recovery.

Indeed, the American economy is growing again. 

expanded at an annual rate of 2.8 percent in the third 

quarter of 2009, snapping four consecutive quarters 

of negative growth. And private economists generally

expect moderate growth over the next year.

Meanwhile, housing markets are showing some signs of

stabilizing and household wealth is recovering, which 

should stimulate consumer spending—vital to American

economic growth. Thanks in part to federal government 

financial policies, mortgage rates remain near historic 

lows. Home prices have ticked up over the past six 

months, after showing consistent declines since 2006. 

For example, the seasonally adjusted S&P/Case-Shill

U.S. National Home Price Index rose by 1.8 perce

and 1.9 percent in the second and third quarters, 

respectively. Since March, sales of existing single-famil

homes have increased by 20 percent and over 2.7 

million mortgages have been refinanced. Since TreasuryOFS announced its Making Home Affordable pro

over 650,000 trial modifications under HAMP hav

been initiated, with roughly a few hundred completing 

the trial period by September 30, 2009. Household net

worth increased by $2 trillion in the second quarter, the 

first increase since the third quarter of 2007.

However, the financial and economic recovery faces 

significant headwinds. Although the unemployment

rate fell in November, it remains high at 10 percent.

This places enormous pressure on homeowners and 

American families. Indeed, delinquencies of subprim
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22 Section 2: Overview and analysis of the Troubled Asset R

residential mortgages reached over 26 percent and conforming mortgages nearly seven percent in the third 

quarter. And although RealtyTrac’s October repo

shows a third straight month of decreasing foreclosure 

activity, foreclosures are still up nearly 19 percent since 

October 2008. Moreover, according to First Ameri

CoreLogic, roughly one in four homeowners owed

more on their mortgages than the properties were 

worth in the third quarter of 2009.

Bank lending also continues to contract, as shown in

Figure 10. In the third quarter, commercial and industria

(C&I) loans outstanding contracted at an annual rate

of 27 percent, and commercial real estate (CRE) loan

outstanding at 8 percent. Small businesses rely on banks

for 90 percent of their financing. Unlike large corporations, few can substitute credit from securities issuances.

The contraction in bank lending reflects a combination 

of weak demand for credit and tightening standards 

at the banks. The former is a function of the recession 

preceded by a period of over expansion. The latter is 

in part a function of the fact that many banks face 

continued losses on outstanding exposures, in particular 

in commercial real estate. FDIC-insured commercia

banks reported that net charge-offs—that is, losses 

that have occurred—increased to 2.9 percent as a share 

of loans and leases in the third quarter, up from 0.6 

percent before the recession. And delinquencies of commercial real estate loans were nine percent in the third

quarter and increasing.

Figure 9. Mortgage Delinquencies (percent) Subprim

Conforming

Subprime Conforming

8%

12%

16%

20%

24%

28%

1998–2003 2004–2009 2%

3%

4%

5%

6%

7%

Source: Mortgage Bankers Association

Figure 10. Bank Loans, C&I and CRE (percent change, end of pe

C&I CRE

Percent

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2004 2005 2006 2007 2008 2009

Source: Federal Reserve

Bank failures and the number of problem banks

continue to increase. There have been over 120 bank 

failures through November 20, 2009, compared with

41 over the decade that preceded the current recession. 

And the number of banks that the FDIC classifi

as “problem institutions” has reached 552 this year, 

compared with 76 in 2007 and 252 in 2008. 

Banks’ willingness to lend also has a significant impact

on consumer spending and, consequently, economic 

growth. Macroeconomic Advisors, a consulting firm

found that a 10-point increase in bank’s willingness to 

make consumer installment loans yields a 0.3 percentage point increase in personal consumption expenditures. 6 Figure 11 illustrates this relationship between

bank lending attitudes and consumer spending.

6 Macroeconomic Advisers, “Banks’ Willingness to Lend a

Growth,” Oct. 8, 200
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Figure 11. Banks’ Willingness to Lend and Personal Consumpti

Expenditures (percent) Percen

Percent yr/yr

-8

-4

-6

-2

2

0

4

6

8

-80

-40

-60

-20

20

0

40

60

80

1966 1971 1976 1981 1986 1991 1996 2001 2006

Real Personal

Consumption

Expenditures (left)

Banks’ Willingness

To Make Consumer

Installment Loans

(right)

Source: Federal Reserve, BEA

In this context, some federal government financial

support is still necessary. In particular, the TARP c

help stimulate credit for small businesses and assist 

responsible homeowners in avoiding foreclosures. 

As discussed in more detail below, Treasury-OFS

redirecting the TARP to meet these needs. TreasuryOFS recently launched initiatives to provide cap

to small and community banks, which are important 

sources of credit for small businesses. Treasury-OFS 

also working with the Small Business Administratio

Congress, and the small business community to design 

other programs that will use TARP funds to get credi

flowing again to these important engines of economic 

growth.

External Assess

of TARP Perform

The United States Government Accountability Off

(GAO) is one of four oversight bodies explicitly designated by Congress to provide oversight of the T

GAO’s October 2009 anniversary report on the

provides a comprehensive and independent assessment of various aspects of the TARP

 The AO al

acknowledges that isolating and estimating the effect of 

TARP programs is challenging and that improvement

in credit markets cannot be attibuted solely to TAR

programs. The indicators that the AO has monitor

over the past year suggest that there have been broad 

improvements in credit markets since the announcement of CPP, the first TARP program. Th

notes, specifically, 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

•	 The institutions that received CPP funds in the 

first quarter of 2009 saw more improvement in 

their capital positions than banks outside the 

program. 

Additional information on the assessments and activities of the TARP oversight entities can be found 

Section Nine [Systems, Controls, Legal Complia

and Oversight]

7 Troubled Asset Relief Program: One Year Later, Actio

Needed to Address Remaining Transparency and Accountabil

Challenges. Government Accountability Office. GAO-1

October 8, 2009
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24 Section 3: Ensuring Stability 

Section Three: 

Ensuring Stability and Liquidity

This section provides a description of each of the 

programs established under the TARP to ensure stabilit

and liquidity, including results for each program to date.

Capital Purchase Pro

EESA was originally proposed as a means to 

mortgage loans, mortgage-backed securities and certain 

other assets from banks. However, the authorities 

granted under ESA were broadened in the legislat

process to cover any financial instrument whose purchase the Secretary of the Treasury, after consultation

with the Chairman of the Federal Reserve, determine

necessary to promote financial market stability. Shortly

following passage of EESA, it became clear to 

leaders of many G-7 nations that rapid action was

needed to provide capital to the financial system as a 

whole. Lending even between banks had practically

stopped, credit markets had shut down, and many 

financial institutions were facing severe stress. There 

was not sufficient time to implement a program to buy 

mortgage related assets, which posed difficulties related 

to valuing such assets and getting the holders of such 

assets to sell them at current prices. In this context,

immediate capital injections into financial institutions 

were a necessary step to avert a potential collapse of the 

system.

Given the high level of uncertainty in financial markets

and the economy, even strong financial institutions 

began to hoard capital. Based on various market

indicators, it became clear that financial institutions 

needed additional capital to sustain a normal flow of 

credit to businesses and consumers during the financial 

turmoil and economic downturn. As a result, TreasuryOFS launched the Capital Purchase Program (CP

its largest and most significant program under EE

on October 14, 2008. Treasury-OFS initially committed over a third of the total TARP funding,

billion, to the CPP, which it lowered to $218 billion in 

March 2009

The CPP was designed to bolster the capital position 

of viable institutions and, in doing so, to build confidence in these institutions and the financial system as 

a whole. With the additional capital, CPP participants 

were better equipped to undertake new lending, even 

while absorbing write downs and charge-offs on loans 

that were not performing. 

Of the $250 billion commitment, Treasury-OFinvested $125 billion in eight of the country’s larg

financial institutions. The remaining $125 billion 

was made available to qualifying financial institutions (QFIs) of all sizes and types across the countr

including banks, savings associations, bank holding 

companies and savings and loan holding companies. 

QFIs interested in participating in the program had 

submit an application to their primary federal banking regulator. The minimum subscription amount 

available to a participating institution was one percent 

of risk-weighted assets. The maximum subscription 

amount was the lesser of $25 billion or three percent of 

risk-weighted assets. 

Over the weeks and months that followed the announcement of the CPP, Treasury-OFS provi

capital to 685 institutions in 48 states, including 

more than 300 small and community banks, helping 

to enable them to absorb losses from bad assets while 

continuing to lend to consumers and businesses. The 

largest investment was $25 billion while the smallest 

was $301,000. To encourage continued participation by small and community banks, the application 

window for CPP was reopened on May 13, 2009, for

banks with less than $500 million in assets, with an 

application deadline of November 21, 2009

Most banks participating in the CPP are to pay

Treasury-OFS a dividend rate of five percent per yea
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increasing to nine percent a year after the first five 

years. In the case of S-corporations, Treasury-OFacquires subordinated debentures. Treasury-

received $6.8 billion in CPP dividend and interest 

payments for the period ended September 30, 2009.

As of September 30, 2009, 38 institutions had no

paid full dividends or interest payments. Under the 

CPP, Treasury-OFS has a right to elect two directors 

the board of directors of an institution that misses six 

or more dividend payments. 

One measure of the CPP’s performance is the effect on

lending by CPP participants. Lending typically falls

during a recession, and the current cycle is no exception. The Federal Reserve Board’s recent article U.

Credit Cycles: Past and Present examines how credit volumes have evolved in the current economic downturn 

relative to previous business cycle downturns using 

the Federal Reserve’s Flow of Funds data.8 Signifi

among the Federal Reserve’s findings is that despit

many unprecedented aspects of the current financial 

and economic turbulence, movements in credit volumes in the current recession are similar to historical 

patterns. In terms of looking more specifically at CPP

bank lending, each month Treasury-OFS asks C

participants to provide information about their lending 

activity. As illustrated by Treasury-OFS’ Lending

Intermediation Survey, the 22 largest CPP participant

have been able to sustain their lending activities during 

this crisis, despite the significant headwinds posed by 

the recession, including increased bankruptcies, higher 

unemployment and falling home prices. Details on the 

Bank Lending Surveys can be found at http://w

financialstability.gov/impact/surveys.htm. 

8 The article “U.S. Credit Cycles: Past and Present” can be found

at the following link: http://www.financialstability.gov/docs/

CPP/Report/Fed%20US%20Credit%20Cycles%20072409.

pdf.

Capital Assistance P

and the Supervisory Ca

Assessment Pro

In early 2009, the Federal banking agencies conducte

a one-time, forward-looking assessment or “stress 

test”—known as the Supervisory Capital Assessmen

Program (SCAP)—on the nineteen largest U.S. ba

holding companies (BHCs). The stress test assessed

whether these BHCs had the capital to continue

lending and absorb all potential losses resulting from 

a more severe decline in economic conditions than 

projected by economic forecasters. After completion of

the SCAP, the banking agencies concluded that ten o

these BHCs needed to raise a total of an additional $75

billion in capital to establish a buffer for more adverse 

conditions. The remaining nine BHCs were found to

have sufficient capital to weather more adverse market 

conditions. 

In conjunction with this forward-looking test,

Treasury-OFS announced that it would provide capit

through the Capital Assistance Program (CAP) t

banks that needed additional capital but were unable 

to raise it through private sources. The capital provided by the CAP would take the form of convertible

preferred stock. This program was made available to 

all QFIs, not solely to those banks that underwent t

SCA

The design of the tests and their results were made 

public, a highly unusual step that was taken because 

of the unprecedented need to reduce uncertainty and 

restore confidence. By identifying and quantifying

potential capital shortfalls and requiring that additional 

capital be raised to eliminate any deficiencies, the 

SCAP ensured that these financial institutions woul

have sufficient capital to sustain their role as intermediaries and continue to provide loans to creditworthy 

borrowers even if economic conditions suffered a severe 

and extended deterioration. 

Of the ten bank holding companies that were identified as needing to raise more capital, nine have met or
OICE OF FIN

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26 Section 3: Ensuring Stability 

exceeded the capital raising requirements through private efforts. In the aggregate, these firms have increased

requisite capital by over $77 billion since the results of 

the SCAP were announced. Treasury-OFS may pro

additional capital to GMAC under the Auto Indu

Financing Program to assist its fundraising efforts to

meet the requirements of the SCAP

Since the stress test results were released in early May

banks of all sizes have raised over $80 billion in common equity and $40 billion in debt that is not guaranteed by the government. Importantly, that capital raising has enabled more than 40 banks to repay the TA

investments made by Treasury-OFS. Treasury-OFhas received over $70 billion in principal repaym

and $9.7 billion in dividends, interest, warrants and 

fees from CPP participants. In addition, Treasury-OFestimates that another $70 billion in repayments f

all TARP investments will occur over the next 12 to 1

months. Another measure of the effectiveness of SC

and the CPP, as well as other government efforts, is 

that Treasury-OFS did not receive any applications f

CAP which terminated on November 9, 2009

Targeted Investment 

Treasury-OFS established the Targeted Investm

Program (TIP) under the TARP in December 200

The TIP gave the Treasury-OFS the necessary flexibility to provide additional or new funding to financ

institutions that were critical to the functioning of the 

financial system. Through TIP, Treasury-OFS sought

prevent a loss of confidence in critical financial institutions, which could result in significant financial market 

disruptions, threaten the financial strength of similarly 

situated financial institutions, impair broader financial 

markets, and undermine the overall economy.

Eligibility to participate in the TIP was determined o

a case-by-case basis, depending on a number of factors. 

Treasury-OSF considered, among other thin

•	 The extent to which the failure of an institution 

could threaten the viability of its creditors and 

counterparties because of their direct exposures to 

the institution;

•	 The number and size of financial institutions that 

are perceived or known by investors or counterparties as similarly situated to the failing institution, 

or that would otherwise be likely to experience 

indirect contagion effects from the failure of the 

institution;

•	 Whether the institution is sufficiently important 

to the nation’s financial and economic system that 

a disorderly failure would, with a high probability, 

cause major disruptions to credit markets or payments and settlement systems, seriously destabilize 

key asset prices, or significantly increase uncertainty or loss of confidence, thereby materially 

weakening overall economic performance; and

•	 The extent and probability of the institution’s 

ability to access alternative sources of capital and 

liquidity, whether from the private sector or other 

sources of government funds.

Treasury-OFS invested $20 billion in each of B

of America (BofA) and Citigroup under the T

These investments provide for annual dividends of 

eight percent. These investments also impose greater 

reporting requirements and harsher restrictions on 

the companies than under the CPP terms, including 

restricting dividends to $0.01 per share per quarter, 

restrictions on executive compensation, restrictions on 

corporate expenses, and other measures. Assistance under the TIP is also considered “exceptional assistance”

which means that the recipient is also subject to greater 

restrictions under the executive compensation rules. 
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American International

Inc. (AIG) Investme

Since September 2008, the Federal Reserve 

Treasury-OFS have taken a series of actions related 

AIG in order to prevent AIG’s disorderly failur

mitigate systemic risks. These actions addressed the 

liquidity and capital needs of AIG, helping to stabili

the company. Treasury-OFS provided this assistan

by purchasing preferred shares in IG and also receiv

warrants to purchase common shares in the institution. 

The assistance provided to IG was deemed “exception

assistance” which means that the recipient is subject to 

greater restrictions under the rules relating to executive 

compensation. Further details on theAIG Invest

Program can be found in the IG b

In September 2008, prior to the passage of EESA, AIG faced severe liquidity pressures and potential insolvency. These pressures

grew acute the day after the bankruptcy filing of Lehman Brothers, as financial and credit markets ceased to function. Treasury

and Federal Reserve officials feared that a disorderly failure of the company at that time posed a systemic risk to the financial

system and the U.S. economy. The company had global operations and was a significant participant in many financial mark

Through its subsidiaries, the company provided insurance protection to more than 100,000 entities, including small businesses, 

municipalities, 401(k) plans, and Fortune 500 companies who together employ over 100 million Americans. The company

was also a significant counterparty to a number of major financial institutions. These commitments were reflected in tens of

thousands of contracts that touched millions of Americans and businesses

The complexity of these insurance contracts and the exposure of the financial system and economy to their default required 

government intervention. The Federal Reserve provided an $85 billion credit facility in the form of secured loans to AIG on

September 16, 2008, to contain the financial panic at least cost to the American taxpayer. At the time, the government was

constrained by the tools at its disposal. The Federal Reserve was not in a position to selectively impose haircuts on AIG

counterparties, or to know the long-term costs of its liquidity provision. Time was of the essence and the Federal Reserve faced a

binary choice: allow AIG to default on tens of thousands of contracts, further eroding confidence in U.S. financial institutions an

perpetuating market freezes, or provide secured credit to allow AIG to meet its near-term contractual obligations with millions of 

insurance holders. The Federal Reserve chose the latter option, and, along with Treasury, has managed its investment in AIG to

facilitate an orderly restructuring of the company and to maximize repayments to taxpayers

In November 2008, this assistance was restructured so that the company had more equity and less debt. Treasury-OFS purchased

$40 billion in cumulative preferred stock from AIG under the TARP, the proceeds of which were used to repay the Federal Reserve 

loan in part. In April 2009, Treasury-OFS exchanged the $40 billion in cumulative preferred stock for $41.6 billion in non-cumulative preferred stock and created an equity capital facility, under which AIG may draw up to $29.8 billion as needed in exchan

for issuing additional preferred stock to Treasury-OFS. As of September 30, 2009, AIG had drawn approximately $3.2 billio

from the facility. The preferred stock pays a noncumulative dividend, if declared, of ten percent per annum. The Federal Reserv

Bank of New York (FRBNY) has also provided additional assistance to AIG by funding special purpose entities which purchased 

certain derivative contracts from AIG. In connection with its assistance to AIG, the FRBNY received convertible preferred stock

representing approximately 79.8 percent of the fully diluted voting power of the AIG common stoc

The preferred stock was deposited in a trust, which exists for the benefit of the U.S. taxpayers. The FRBNY has appointed thr

independent trustees who have the power to vote the stock and dispose of the stock with prior approval of FRBNY and after 

consultation with Treasury. The trust agreement provides that the trustees cannot be employees of Treasury or the FRBNY. Th

Department of the Treasury does not control the trust and cannot direct the trustees. Treasury-OFS, through its TARP investment,

owns other preferred stock that is not held in the trust and does not have voting rights except in certain limited circumstances
OICE OF FIN

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28 Section 3: Ensuring Stability 

Asset Guarantee Pr

Pursuant to Section 102 of EESA, Treasury-OFestablished the Asset Guarantee Program

the same objective as the TIP of preserving financial

market stability. The AGP, like the TIP, is a target

program aimed at maintaining the stability of systemically important financial institutions and, thereby, 

reducing the potential for problems at such an institution to “spillover” to the broader financial system and 

economy. More specifically, the AGP may be us

to provide protection against the risk of significant 

loss in a pool of assets held by a systemically significant financial institution that faces a risk of losing 

market confidence due in large part to its holdings 

of distressed or illiquid assets. By helping limit the

institution’s exposure to losses on illiquid or distressed 

assets, the AGP can help the institution maintain th

confidence of its depositors and other funding sources 

and continue to meet the credit needs of households 

and businesses.

The AGP has been applied with extreme discretio

and Treasury-OFS does not anticipate wider use 

this program. To date, Treasury-OFS has used th

program to assist Citigroup and began negotiations 

with Bank of America (BofA) under the AGP 

BofA subsequently terminated. Further details on th

assistance can be found in the BofA and Citigrou

separate presentations.

Bank of Ameri

Under the CPP, in October 2008, Treasury-OFS agreed 

to purchase $15 billion of preferred stock from Bank of 

America and $10 billion from Merrill Lynch. When Bank

of America completed its acquisition of Merrill Lynch at 

the end of 2008, Treasury-OFS held a total of $25 billion of 

preferred stock in Bank of America. This preferred stock has

a dividend rate of five percent per annum for the first five 

years and increases to nine percent thereafter. Under the

TIP, Treasury-OFS purchased an additional $20 billion in preferred stock from Bank of America in January 2009, which 

pays a dividend of eight percent per annum. Treasury-OFS

also received warrants in both transactions

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

the FDIC entered into a term sheet for a potential loss 

sharing arrangement under the AGP on a $118 billion pool 

of financial instruments owned by Bank of America. In May

2009, Bank of America announced its intention to terminate 

negotiations with respect to the loss-sharing arrangement 

and in September 2009, Treasury, the Federal Reserve, 

the FDIC and Bank of America entered into a termination 

agreement pursuant to which (i) the parties terminated 

the related term sheet and (ii) Bank of America agreed to 

pay a termination fee of $425 million to the government 

parties, with $276 million going to Treasury-OFS. The fee

compensated the government parties for the value that 

Bank of America had received from the announcement of 

the negotiations with government parties to guarantee and 

share losses on the pool of assets from and after the date 

of the term sheet. The termination fee was determined

by taking the fee that would have been payable had the 

guarantee been finalized
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Citigroup

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

stock had a dividend rate of five percent per annum. Under

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

preferred stock from Citigroup, Inc. in December 2008. Tha

preferred stock had a dividend rate of eight percent per 

annum. Treasury-OFS also received warrants in both

transactions. As part of an exchange offer designed to

strengthen Citigroup’s capital, Treasury-OFS recently 

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

In January 2009, Treasury-OFS and Citigroup entered into 

an agreement for Citigroup’s participation in the AGP

Treasury-OFS guaranteed up to $5 billion of potential losses 

incurred on a $301 billion pool of loans, mortgage-backed 

securities, and other financial assets held by Citigroup. The

Federal Reserve and the FDIC are also parties to this arrangement. Treasury-OFS will not become obligated to pay

on its guarantee unless and until Citigroup has absorbed 

$39.5 billion of losses on the covered pool. Treasury-OF

would then cover 90 percent of all losses on the covered 

pool, up to a maximum of $5 billion. In consideration

for the guarantee, Treasury-OFS received $4.03 billion

in preferred stock that pays an annual dividend of eight 

percent. Treasury-OFS also received a warrant to purchase

approximately 66 million shares of common stock at a strike 

price of $10.61 per shar

As part of the exchange offer noted above, Treasury-OFS 

exchanged preferred stock received under the AGP for 

an equivalent amount of trust preferred securities paying 

interest at the same rate

Consumer and Busine

Lending Initi

Treasury-OFS designed two initiatives to resto

consumer and business lending in the period ended 

September 30, 2009, the Term Asset-Backed Securit

Loan Facility (TALF) and the Unlocking Credit

Small Business Initiative. Both programs are discus

in more detail below.

1. Term Asset-Backed Se

Loan Faci

The asset-backed securities (ABS) and commerci

mortgage-backed securities (CMBS) markets over ti

have funded a substantial share of credit to consumers, 

businesses and real estate owners. In the third quarter

of 2008, the BS market and CMBS markets

to nearly a complete halt. Interest rate spreads on the

most highly-rated AA tranches f ABS

rose to levels outside their historical range, in certain 

cases well over 7 to 15 times their average, respectively. 

CMBS had accounted for almost half of all new commercial mortgage originations in 2007. The disrupti

of these markets contributed to the lack of credit to 

households and businesses of all sizes, impacting U.S.

economic activity.

In November 2008, the Federal Reserve and Treas

announced the creation of the Term Asset-Backe

Securities Loan Facility (TALF) and laun

under the Financial Stability Plan on February 1

2009. The TALF’s objective was to stimulate invest

demand for certain types of eligible ABS, specifically those backed by loans to consumers and sma

businesses, and ultimately, bring down the cost and 

increase the availability of new credit to consumers 

and businesses. Under the TALF, the Federal Res

extends up to $200 billion in three- and five-year 

non-recourse loans to investors that agree to purchase 

eligible consumer or small business ABS. Treasury-OFprovides up to $20 billion of TARP monies in

protection to the Federal Reserve for losses arisin

under TALF loan
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The TALF was initially designed for newly or recent

originated AAA-ratd ABS backed by student l

auto loans, credit card loans, and loans guaranteed 

by the SBA. On March 19, 2009, Treasury-

the Federal Reserve announced that the TALF w

be expanded to include newly or recently issued 

AAA-rated Asset Backed Securities (ABS) b

four additional types of consumer and business loans 

—mortgage servicing advances, loans or leases relating 

to business equipment, leases of vehicle fleets, and 

floor plan loans. These new categories of collateral were 

eligible for inclusion in the April 2009 TALF subscription and funding proce

The Treasury-OFS and the Federal Reserve struct

the TALF to minimize credit risk to the U.S. government to the greatest extent possible, consistent w

achieving the program’s purpose of encouraging lending to consumers and businesses. Investors take risk by

providing some of the capital to purchase the securities. The amount of private capital is measured in the 

form of haircuts, which represents the investor’s equity 

contribution. For example, if a borrower purchases an

ABS for $100 and tht ABS has an assigned hairc

15 percent, the borrower must put $15 at risk and can 

receive only $85 in financing. The haircut level varies 

across asset class and maturity to take into account 

any differences in risk. Finally, the borrower must also

make monthly or quarterly interest payments to the 

federal government. The cost of the loan is 100 basis 

points over a fixed or floating rate benchmark, such as 

the London Interbank Offered Rate (

The Federal Reserve had originally authorized using th

TALF to make loans through December 31, 2009. 

promote the flow of credit to businesses and households and to facilitate the financing of commercial 

properties, the Federal Reserve announced on Augu

17, 2009 that the TALF will continue to make loa

against newly issued BS and previously issue

through March 31, 2010. In addition, TALF will 

loans against newly issued CMBS through June 3

2010. The inclusion of CMBS as eligible collater

helps prevent defaults on economically viable commercial properties, increases the capacity of current holders 

of maturing mortgages to make additional loans, and 

facilitates the sale of distressed properties.

TALF Res

TALF’s impact on the securitization markets can 

measured by a number of indicators, including 

issuance—both TALF and non-TALF eligible

percentage decline in BS ad SMBS spread

the height of the financial crisis, and the number and 

composition of investors in the securitization market.

ABS Issuance: The market for new issuance of 

had shut down at the end of 2008 and remained 

effectively closed until TALF became operationa

Since March 2009, offerings in th ABS markets 

gradually increased with nearly $86 billion of new 

issuance through October 2009. Of that amount, $4

billion of securities were purchased with TALF loan

These securities supported over 3.6 million consumer 

and small business loans and leases, and over 132 

million active credit card accounts. TALF has al

provided loans to purchase about $4.1 billion of legacy 

CMBS securities (issued before January 1, 200

This re-starting of the securitization market translates 

into increased consumer and small business lending 

and, in some cases, lower loan rates for consumers. In

addition, investors are gaining confidence in the market’s ability to function without federal government 

support. In March 2009, approximately 60 percent o

new BS issuance was purchased with the support 

the TALF. By September 2009, that was down t

percent. The following chart (Figure 12) shows total

consumer BS issuance and the portion backed 

TA
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Figure 12. Total ConsumerABS Issuance through Sep

Secondary market spreads: Since the peak of the

credit crisis, spreads for the asset classes eligible for 

the program have decreased by 60 percent or more. 

Spreads on credit card and auto loans have fallen from

a peak of 600 basis points to less than 100 basis points 

over their benchmarks, the same levels that existed before Lehman Brothers’ bankruptcy filing in Septemb

2008. Spreads in the secondary market for CMBS h

come in from 1500 basis points over its benchmark to 

300 basis points today. Prior to the beginning of the 

crisis in August 2007, highly rated CMBS were pri

on average approximately 100 basis points over its 

benchmark.

Borrower Composition: At the peak of the credit

crisis, there was little confidence among institutional 

investors in the capital markets. Investors effectively

were standing on the sidelines. Since the implementation of TALF, there has been renewed confidence in 

market.  range of institutional investors have become

active participants, including hedge funds, asset 

managers, pension funds, and insurance companies.

With an increase in investor participation and thus 

investor demand, required returns have fallen more 

than half, in some cases, suggesting a return of risk 

premiums to more “normalized” levels. Cash participation, specifically for TALF-eligible prime auto a

equipment transactions, has also increased, suggesting investors’ decreasing reliance on TALF suppor

Further, some transactions for specific asset classes with

shorter durations are being successfully completed 

without TALF financing, suggesting investor confidence in shorter-duration transactio

TALF Loans to Date: As of September 30, 2009, n

securities used as collateral for TALF loans had be

surrendered to the Federal Reserve. In addition, as 

September 30, 2009, 13.6 percent of the total amount

of TALF loans, or $6.3 billion, had been repaid. Gi

that the term of the TALF loans is three to five year

this reflects the increasing health of the securitization 

markets.

2. Unlocking Credit for 

Businesses Progr

To help restore the confidence needed for financial 

institutions to increase lending to small businesses, 

Treasury announced a program to unlock credit for 

small businesses on March 16, 2009. Under the program, Treasury announced that it would make up to $15

billion in TARP funds available to purchase securitie

backed by the Small Business Administration 

guaranteed portions of loans made under the SBA’s 7(

loan program. The SBA’s 7(a) program is the SBA’s

basic and widely used loan program. 

Since Treasury’s announcement of this program, the

credit markets for small businesses have improved somewhat. The secondary market for guaranteed BA loan

for example, had essentially ceased working last fall and 

had only $86 million in January re-sales. That market 

improved notably this spring in the wake of Treasury’s 

announcement, with $399 million settled from lenders 

to broker-dealers in September 2009. As a result of thi

improvement, as well as reluctance on the part of market 

participants to accept TARP funds, Treasury-OFS f

that demand for its proposed program declined. As

of September 30, 2009, no funds had been disbursed

under the program, although it remains available.
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Public-Private Inve

Progra

Treasury, in conjunction with the Federal Reserve an

the FDIC, announced the Public-Private Investme

Program (PPIP) on March 23, 2009, as a part o

the Financial Stability Plan. The PPIP is design

to improve the condition of financial institutions by 

facilitating the removal of legacy assets from their balance sheets. Legacy assets include both real estate loans

held on banks’ balance sheets (legacy loans) as well as 

securities backed by residential and commercial real 

estate loans (legacy securities). 

The PPIP should help restart the market and provide

liquidity for legacy assets, enabling financial institutions to make new loans available to households and 

businesses. Legacy assets became a stumbling block

to the normal functioning of credit markets with the 

bursting of the housing bubble. With the housing 

market in decline, financial institutions and investors 

suffered significant losses on these legacy assets. These 

losses drove financial institutions to conserve capital, 

reduce leverage and minimize exposure to riskier 

investments. Many institutions did so by selling assets,

triggering a wide-scale deleveraging in these markets. 

As the supply of assets being sold increased, prices

declined and many traditional investors exited these 

markets, causing further declines in the demand and 

the liquidity for these assets. This lack of liquidity 

created significant uncertainty regarding the value 

of these legacy assets, which in turn raised questions 

about the balance sheets of these financial institutions, 

compromising their ability to raise capital and continue lending.

The PPIP helps addresses this valuation concern.

Through PPIP, Treasury-OFS partners with experien

investment managers and private sector investors 

to purchase legacy assets. Rather than resolving the

uncertainty by having the government set the price for 

these assets, the private sector investors compete with 

one another to establish the price of the legacy assets 

purchased under the PPIP. By drawing new privat

sector capital into the market for legacy assets and 

facilitating price discovery, the PPIP should increase

the liquidity for these legacy assets. 

Treasury-OFS initially announced that it wou

provide up to $100 billion for the PPIP. Because o

improvements in the market, this amount was reduced 

to $30 billion. Under the PPIP, Treasury-OFS provi

equity and debt financing to newly-formed publicprivate investment funds (PPIFs) established by privat

fund managers with private investors for the purpose of 

purchasing legacy securities. These securities are commercial mortgage-backed securities and non-agency 

residential mortgage-backed securities. To qualify for 

purchase by a Legacy Securities PPIP (S-PPIP), t

securities must have been issued prior to 2009 and 

have originally been rated AAA—or an equivale

rating by two or more nationally recognized statistical 

rating organizations – without ratings enhancement 

and must be secured directly by the actual mortgage 

loans, leases, or other assets. 

The S-PPIP allows the Treasury-OFS to partner 

private investors in a way that increases the flow of 

private capital into these markets while maintaining 

equity “upside” for the taxpayers. Under the principal 

terms of the S-PPIP, Treasury-OFS partners 

pre-qualified fund managers that raise a minimum 

amount of capital from private sources. Each manager

forms a Public Private Investment Fund or PP

Treasury-OFS invests equity capital from the TAR

each PPIF on a dollar-for-dollar basis, matching th

funds raised by these managers. In addition, TreasuryOFS also provides debt financing up to 100 perc

of the PPIF’s total equity capital, subject to certai

restrictions on leverage, withdrawal rights, disposition 

priorities and other customary financing protections. 

Treasury-OFS not only participates pro rata in a

profits or losses of the PPIF but also receives additiona

potential equity upside in the form of warrants, as 

required by EESA. Each fund manager will see

generate attractive returns for the PPIF through 

predominately long-term buy and hold strategy. 
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On July 8, 2009, following a comprehensive twomonth application, evaluation and selection process,

Treasury-OFS pre-qualified nine fund managers 

participate in the S-PPIP based, in part, on a demonstrated ability to invest in legacy assets and to rais

private capital for such investments. On Septembe

30, 2009, two PPIFs signed limited partnershi

agreements and loan agreements with Treasury-OF

resulting in a $6.7 billion commitment for TreasuryOFS. As of September 30, 2009, these two PPI

approximately $1.13 billion in private sector capital 

commitments, which were matched 100 percent by 

Treasury-OFS, representing total equity capital commitments of $2.26 billion. Treasury-OFS is prov

debt financing up to 100 percent of the total capital 

commitments of each PPIF, representing in the aggregate approximately $4.52 billion of total equity an

debt capital commitments. As of November 30, 2009

eight PPIFs have signed agreements with TreasuryOFS. Following signature of these agreements,

fund manager has up to six months to raise additional 

private capital to receive the full allocation of the 

$3.3 billion in matching equity and debt capital from 

Treasury-OFS. Assuming that each of the nine f

managers raises enough private capital to receive the 

full allocation from Treasury-OFS, the total purchasi

power of the PPIFs will be $40 billion, including $1

billion in private capital and the $30 billion TreasuryOFS commitment. As of September 30, 2009, no 

managers had made any investments and TreasuryOFS had not disbursed any fun

PPIP Resul

Although purchases of assets under the program are

just beginning, the announcement of the program itself helped reassure investors. Since the announcement,

prices for non-agency mortgage-backed securities 

have gone up substantially in price. Prime fixed-rate 

securities issued in 2006 that traded as low as $60 in 

March have increased in value by over 40 percent as

markets have become more liquid. That improvement 

in financial market conditions has created the positive 

backdrop that caused Treasury-OFS to proceed wi

the program at a scale smaller than initially envisioned.

Automotive In

Financing Prog

The Treasury-OFS established the Automotive Indu

Financing Program (AIFP) on December 19, 2008,

help prevent a significant disruption to the American

automotive industry, which would have posed a systemic 

risk to financial market stability and had a negative 

effect on the economy. Treasury-OFS announced

plan to make emergency loans available from the TAR

under the AIFP to General Motors Corporatio

and Chrysler LLC (Chrysler) to provide a path for thes

companies to go through orderly restructurings and 

achieve viability.

Treasury-OFS’ investments in the auto companies we

determined to be consistent with both the purpose 

and specific requirements of EEA.  Treasury-OFdetermined that the auto companies were a

interrelated with entities extending credit to consumers 

and dealers because of their financing subsidiaries and 

other operations, and that a disruption in the industry 

or an uncontrolled liquidation would have had serious 

effects on financial market stability, employment and 

the economy as a whole. In addition, Congress provided

the Secretary of the Treasury broad authority by defining

“financial institutions” in ESA flexibly so as not to

limited to banks, savings institutions, insurance companies and similar entities. The auto companies qualified 

as “financial institutions” under ESA as they met 

basic requirements of the definition. In each case, they

were organized under Delaware law, had significant U.S.

operations, were subject to extensive federal and state 

regulation, and were not a central bank or institution 

owned by a foreign government. 

Treasury-OFS initially provided loans of $13.4 billi

to M and $4 billion to Chrysler under the AIF

give the companies time to negotiate with creditors 

and other stakeholders in order to prevent disorderly bankruptcies. Under the terms of the loans, each 

company was required to prepare a restructuring plan 

that included specific actions aimed at assuring: (i) the 

repayment of the loan extended by TARP; (ii) the abilit
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of the company to comply with applicable federal fuel 

efficiency and emissions requirements and commence 

the domestic manufacturing of advanced technology 

vehicles in accordance with federal law; (iii) achievement 

of a positive net present value; (iv) rationalization of 

costs, capitalization, and capacity with respect to the 

manufacturing workforce, suppliers and dealerships of 

the company; and (v) a product mix and cost structure 

that is competitive in the U.S. marketplace

To oversee the federal financial assistance—including 

evaluating the restructuring plans—and to make decisions about future assistance to the automakers, the loan 

agreements provided for a presidential designee. Under 

the terms of the loan agreements, because no presidential designee has been appointed to date, the Secretary

of the Treasury makes decisions on all matters involving 

financial assistance to the automakers, with input from 

the National Economic Counci

To date, Treasury-OFS has provided approximately $

billion in loans and equity investments to GM, Chrysler

and their respective financing entities. Further details on

these loans and the valuation of these investments can be 

found in Section Eight [Valuation Methodolog

General Motor

On December 31, 2008, Treasury-OFS agreed to make 

loans of $13.4 billion to General Motors Corporation to

fund working capital. Under the loan agreement, GM was

required to implement a viable restructuring plan by March 

30, 2009. The Administration determined that the first

plan GM submitted failed to establish a credible path to 

viability, and the deadline was extended to June 1, 2009

Treasury-OFS loaned an additional $6 billion to fund GM 

during this period. To achieve an orderly restructuring, GM

filed bankruptcy proceedings on June 1, 2009. TreasuryOFS provided $30.1 billion under a debtor-in-possessio

financing agreement to assist GM through the restructuring 

period. The new entity, General Motors Company (New GM)

purchased most of Old GM’s assets and began operating on 

July 10, 2009

Treasury-OFS converted most of its loans to the Old GM to 

$2.1 billion of preferred stock and a 60.8 percent share o

the common equity in the New GM and a $7.1 billion debt

security note. $380 million of Treasury-OFS’ debt in the

new GM was immediately repaid with the termination of 

the Auto Warranty Program, leaving $6.7 billion of loans

outstanding as of September 30, 2009. The New GM

currently has the following ownership: Treasury-OFS (60.8

percent), GM Voluntary Employee Benefit Association (17.5

percent), the Canadian Government (11.7 percent), and Old

GM’s unsecured bondholders (10 percent)

Figure 13. New GM Owner

17%

GM Voluntary

Employee 

Benefit 

Association

12%

Canadian

Government

10%

Old GM’s Unsecured

Bondholders

61%

U.S. Government
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Section 3: Ensuring Stability and

Chrysler

On January 2, 2009, Treasury-OFS loaned $4 billion to 

Chrysler. On March 30, 2009, the Administration determined

that the business plan submitted by Chrysler failed to demonstrate viability and announced that in order for Chrysler 

to receive additional taxpayer funds, it needed to find a 

partner with whom it could establish a successful alliance

Chrysler made the determination that forming an alliance 

with Fiat was the best course of action for its stakeholders

Treasury-OFS continued to support Chrysler as it formed an 

alliance with Fiat. In connection with Chrysler’s bankruptcy

proceedings filed on April 30, 2009, Treasury-OFS provided 

an additional $1.9 billion under a debtor-in-possession

financing agreement to assist Chrysler in an orderly restructuring. On June 10, 2009, substantially all of Chrysler’s

assets were sold to the newly formed entity, Chrysler Group 

LLC (New Chrysler). Treasury-OFS committed to loan $6.

billion to New Chrysler in working capital funding, and as of 

September 30, 2009, New Chrysler has drawn $4.6 billion

of this amount

As of September 30, 2009, Treasury-OFS had a $7.1 billion

debt security from New Chrysler and held 9.9 percent of

the equity in New Chrysler. The original loans to Chrysler

remain outstanding, but have been reduced by $500 million 

of debt that was assumed by New Chrysler. Current equity

ownership in New Chrysler is as follows: the Chrysler 

Voluntary Employee Benefit Association (67.7 percent),

Fiat (20 percent), Treasury-OFS (9.9 percent) and the

Government of Canada (2.5 percent

Figure 14. New Chrysler Owners

2%

Canadian 

Government

10%

U.S. Government

20%

Fiat

68%

The Chrysler

Voluntary

Employee Benefit

Association

In addition to the AIFP funds committed to the 

auto manufacturers, Treasury-OFS determined th

TARP assistance was also needed for the financin

companies affiliated with these manufacturers. The 

vast majority of automobile purchases in the U.S. are

financed, including an estimated 80 to 90 percent 

of consumer purchases and substantially all dealer 

inventory purchases. Without the TARP’s assistance

it is unlikely that the tightened credit markets would 

have been able to provide the critical financing needed 

for consumers to purchase autos.  description of the

assistance provided to GMAC and Chrysler Financ

is provided below. 

GM

GMAC is an important source of auto-related credit for 

consumers and dealers and, through a subsidiary, is the 

country’s fifth largest mortgage servicer. It is also one of

the largest U.S. bank holding companies. On Decemb

29, 2008, Treasury-OFS purchased $5 billion in preferred 

equity from GMAC, and received an additional $250 million 

in preferred equity through warrants that Treasury-OFS 

exercised at closing. At the same time, Treasury-OFS also

agreed to lend up to $1 billion of TARP funds to GM (one of 

GMAC’s owners), to enable GM to participate in GMAC’s 

rights offering. GM drew $884 million under that commitment on January 16, 200

In May 2009, banking regulators required GMAC to raise 

additional capital by November 2009 in connection with 

the SCAP or stress test. On May 21, 2009, Treasury-OFS

purchased $7.5 billion more of convertible preferred shares

from GMAC and received warrants that Treasury-OFS 

exercised at closing for an additional $375 million in 

convertible preferred shares. GMAC is in discussions with

the Treasury-OFS regarding additional financing to complete 

GMAC’s post-SCAP capital needs up to the amount of $5.6

billion, as previously discussed in May

On May 29, 2009, Treasury-OFS exercised its option to exchange the $884 million loan for the ownership interest that 

GM had purchased, amounting to about 35 percent of the 

common membership interests in GMAC. As of September

30, 2009, Treasury-OFS owns $13.1 billion in preferred shares

in GMAC, through purchases and the exercise of warrants, in 

addition to 35 percent of the common equity in GMAC
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Chrysler Financia

On January 16, 2009, Treasury-OFS announced that it 

would lend up to $1.5 billion to a special purpose vehicle

created by Chrysler Financial to enable Chrysler Financial 

to finance the purchase of Chrysler vehicles by consumers

To satisfy the EESA warrant requirement, the Chrysler 

Financial special purpose vehicle issued additional notes 

entitling Treasury-OFS to an amount equal to five percent of 

the maximum loan amount. Twenty percent of those notes

vested upon the closing of the transaction, and additional 

notes were to vest on each anniversary of the transaction 

closing date. The loan was fully drawn by April 9, 200

On July 14, 2009, Chrysler Financial fully repaid the loan, 

including the vested additional notes and interest

Auto Supplier Suppo

Because of the credit crisis and the rapid decline in

auto sales, many of the nation’s auto parts suppliers 

were struggling to access credit and faced uncertainty 

about the prospects for their businesses. Suppliers that

ship parts to auto companies generally receive payment 

approximately 45-60 days after shipment. In a normal

credit environment, suppliers can either sell or borrow 

against those commitments, or receivables, in the interim period to pay their workers and fund their ongoing 

operations. However, due to the uncertainty about the 

ability of the auto companies to honor their obligations, banks were unwilling to extend credit against 

these receivables. On March 19, 2009, Treasury-OFannounced the Auto Supplier Support Prog

to help address this problem by providing up to $5 

billion to domestic auto manufacturers to purchase 

supplier receivables. With the emergence of New

and New Chrysler from bankruptcy proceedings and

with the threat of liquidation greatly reduced, credit 

market access for suppliers has improved. As of July

1, 2009, the base commitment under the ASSP w

decreased to $3.5 billion. As of September 30, 2009

Treasury-OFS has funded $413 million under t

ASSP. The loans used to finance the program must 

repaid within a year, unless extended. Treasury-OFexpects these loans to be fully repaid by or before Ap

2010. The companies may still draw on the loans but 

they are not expected to.

Auto Warranty Pro

On March 30, 2009, Treasury-OFS announce

Auto Warranty Program designed to give consumers

considering new car purchases from domestic manufacturers the confidence that warranties on those cars 

would be honored regardless of the outcome of the 

restructuring process. As of July 10, 2009, the program

was terminated after NewGM and New Chrys

completed the purchase of substantially all of the assets 

of M and Chrysler from their respective bankruptcies. The $640 million advanced t GM and Chrys

under the program has been repaid to Treasury-OF

Chrysler repaid the full amount with interest while 

GM repaid only principa
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Section 4: Preventing Foreclosures and Preserving Homeo

Section Four: 

Preventing Foreclosures and Preserving Homeownership

To mitigate foreclosures and help ensure homeownership preservation, Treasury announced a comprehensive $75 billion program, the Home Affordable

Modification Program (HAMP), in February 20

Treasury-OFS will provide up to $50 billion in funding through the TARP, while Fannie Mae and 

Mac agreed to provide up to $25 billion of additional

funding. HAMP focuses on creating sustainabl

affordable mortgage payments for responsible home 

owners who are making a good faith effort to make 

their mortgage payments, while mitigating the spillover 

effects of preventable foreclosures on neighborhoods, 

communities, the financial system and the economy.

HAMP is built around three core concepts. First, t

program focuses on affordability. Every modification

under the program must lower the borrower’s monthly 

mortgage payment to no more than 31 percent of the 

borrower’s monthly gross income, the “target monthly 

mortgage payment ratio”. Second, the HAMP

pay-for-success structure aligns the interests of servicers, investors and borrowers in ways that encourage 

loan modifications that will be both affordable for 

borrowers over the long term and cost-effective for 

investors and taxpayers. Third, the HAMP establishe

detailed guidelines for the industry to use in making 

loan modifications with the goal of encouraging the 

mortgage industry to adopt a sustainably affordable 

standard, both within and outside of the HAM

HAMP operates through the combined efforts of th

Treasury Department, Fannie Mae, Freddie M

mortgage loan servicers, investors and borrowers to 

help qualifying homeowners who commit to making 

modified monthly mortgage payments to stay in their 

homes. In addition, the federal bank, thrift, and credit

union regulatory agencies have encouraged all federally 

regulated financial institutions that service or hold 

residential mortgage loans to participate in the HAMP

The following highlights some of the key terms and 

conditions of HAM

•	 Eligible Homeowners: The modification plan

was designed to be inclusive, with a loan limit of 

$729,750 for single-unit properties, and higher 

limits for multi-unit properties. Over 97 percent

of the mortgages in the country have a principal 

balance within these limits.

•	 Servicers’ Obligation to Extend Modificat

Offer: Servicers participating in HAMP 

required to apply a standardized net present 

value (NPV) test to each loan that is at risk o

foreclosure—defined as either at risk of imminent 

default or in default. The NPV test compares th

net present value of cash flows from the mortgage 

if modified under HAMP and the net presen

value of the cash flows from the mortgage without 

modification. If the NPV test is positi

meaning that the net present value of expected 

cash flows is greater if modified under the HAM

than if the loan is not modified—the servicer must 

extend an offer to modify the loan in accordance 

with HAMP guidelines, absent fraud or a contractual prohibition limiting modification of th

mortgage. 

•	 Reductions in Monthly Payments: Servicers a

required to follow the waterfall outlined in the 

program contracts in reducing the borrower’s 

monthly payment to no more than 31 percent of 

their monthly gross income. The interest rate floor 

under HAMP is 2 percent. Further flexibility 

provided if reducing the loan rate to 2 percent, by 

itself, does not achieve the 31 percent threshold. 

In that case, the servicers can extend the term of

the loan, up to 480 months, in order to achieve 

the 31 percent payment threshold. The HAM

also provides the servicer the option to reduce 
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38 Section 4: Preventing Foreclosures and Preserving Ho

principal on a stand-alone basis to help reduce the 

borrower’s monthly payment.

The HAMP includes a standardized set of procedure

that servicers must follow in modifying eligible loans 

under the program and in estimating the expected 

cash flows of modified mortgages. The borrower must 

remain current on their modified mortgage payments 

for at least 90 days in order for a HAMP loan modification to become permanen

To increase participation in HAMP and encourag

borrowers to remain current on loan modifications 

under the program, Treasury-OFS provides target

incentives to borrowers, investors, and servicers that 

participate in the program. These incentives include 

an up-front payment of $1,000 to the servicer for each 

successful modification after completion of the trial 

period, and “pay for success” fees of up to $1,000 per 

year for three years, provided the borrower remains 

current. Additional one-time incentives of $500 to the

servicers and $1,500 to the investors are paid if loans 

are modified for borrowers who are current but are in 

danger of imminent default are successfully modified. 

Homeowners will also earn up to $1,000 towards principal balance reduction each year for five years if they 

remain current and pay on time. Investors are entitled

to payment reduction cost-share compensation for up 

to five years for half the cost of reducing the borrower’s 

payment from a 38 percent to 31 percent threshold, 

provided the borrower remains current. Investors must

pay for reducing the borrower’s payment down to the 

38 percent threshold before they are able to benefit 

from the cost-share incentive. This requires investors 

to take the first loss for unaffordable and unsustainable 

loans that were extended to borrowers.

HAMP Res

The incentives offered under HAMP have had 

substantial impact in helping American homeowners

and stabilizing the housing market, as detailed below:

•	 As of October 31, 2009, 71 servicers have signe

up for the HAMP. Between loans covered 

these servicers and loans owned or guaranteed by 

the GSEs, approximately 85 percent of first-li

residential mortgage loans in the country are now 

covered by the program. As of September 30

2009, Treasury-OFS has made commitments 

fund up to $27.1 billion in HAMP payment

•	 As of October 31, 2009, these participatin

servicers have extended offers on over 919,665 

trial modifications. 

•	 Over 650,994 trial modifications are already

underway, as of October 31, 2009

HAMP Snapshot through Oct

Number of Trial Modifications Started1 650,994 

Number of Trial Period Plan Offers Extended

to Borrowers2

919,665 

Number of Requests for Financial Information Sent

to Borrowers2

2,776,740 

1/ Active trial and permanent modifications as of October 31; based on 

numbers reported by servicers to the HAMP system of record

2/ Source: Survey data provided by servicers, through October 29
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Section Five:

Protecting Taxpayer Interests

The government’s response to the financial crisis 

including the actions taken under TARP, were necessary to avoid an even greater deterioration or collaps

of the U.S. and global financial systems , which would

have resulted in a far worse recession or even depression. TARP provided a form of taxpayer protection b

helping to achieve that basic objective. Treasury-OFS 

committed to ensuring that taxpayers are also protected with respect to how the TARP is implemented

The taxpayers clearly assumed downside risk in the 

TARP purchases and guarantees of troubled assets

thus Treasury-OFS also seeks to protect the taxpay

through the effective management and disposition of 

all TARP investments EESA also stipulated tha

taxpayer benefit from any potential upside on any 

assistance transaction by requiring that Treasury receive 

warrants in most investments. This section addresses 

portfolio management topics such as:

1. Portfolio Overvie

2. Guiding Principle

3. Portfolio Management Approac

4. Exchange Offers and Restructurin

5. Treasury-OFS’s Actions as a Shareho

6. Compliance

7. Program Specific Considerations

Portfolio Overv

Treasury-OFS’s investments inclu

1. Preferred stock: a majority of the TARP investments are in nonvoting perpetual preferred stock

2. Common stock: currently, Treasury-OFS hol

common stock in GM, GMAC, Chrysler

Citigroup;

3. Warrants and senior debt instruments: in connection with its investments in publicly traded 

companies, Treasury-OFS has received, pursua

to Section 113 of EESA, warrants to purc

common stock at market price as of the time 

of the investment. In the case of investments

in privately held companies, Treasury-OFS h

received warrants to purchase preferred stock at 

a nominal price, which it exercised at closing, or 

debt instruments issued by the TARP recipien

4. Loans: Treasury-OFS has made loans t

Chrysler, and the special purpose vehicles under 

TALF, AIFP, ASSP, and WCP, as well a

definitive loan agreements for the Public Private 

Investment Funds (PPIFs);

5. Fund investments: Treasury-OFS has sig

limited partnership agreements to make equity 

investments in the PPIF

Guiding Princi

Pursuant to Section 2 of EESA, Treasury-

made investments and entered into guarantee agreements to “restore liquidity and stability to the financial 

system of the United States” in a manner which “maximizes overall returns to the taxpayers of the United

States”. Consistent with the statutory requirements,

Treasury-OFS’ four overarching portfolio manageme

guiding principles are as follows:

•	 Protect taxpayer investments and maximize overall 

investment returns within competing constraints,

•	 Promote stability for and prevent disruption of 

financial markets and the economy,

•	 Bolster market confidence to increase private

capital investment, and
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40 Section 5: Protecting Taxpayer

•	 Dispose of investments as soon as practicable, in a 

timely and orderly manner that minimizes financial market and economic impact.

Treasury-OFS’s asset management approach is design

to implement the guiding principles. Treasury-OFprotects taxpayer investments and promotes stabili

through evaluating systemic and individual risk from 

standardized reporting and proactive monitoring and 

ensuring adherence to ESA and compliance w

contractual agreements. By avoiding involvement

in day to day company management decisions and 

exercising its rights as a common shareholder only on 

core governance issues, Treasury-OFS seeks to bolst

market confidence to increase private capital investment. 

Treasury-OFS also adheres to certain principles in connection with restructurings or exchange offers involvi

TARP recipients, including minimizing taxpayer loss

enhancing and preserving institutional viability, treating like investments across programs consistently, and 

minimizing negative governmental impact. Such efforts

help to prevent disruption of financial markets and the 

economy.

Treasury-OFS seeks to exit investments as soon 

practicable to remove Treasury-OFS as a shareholde

eliminate or reduce Treasury-OFS downside tail ri

exposure, return TARP funds to reduce the federal debt

and encourage private capital formation to replace federal government investment. The desire to achieve such 

objectives must be balanced against a variety of other 

objectives, including avoiding further financial market 

and/or economic disruption, and the potentially negative impact to the issuer’s health and/or capital raising 

plans from Treasury-OFS’ disposition. Treasury-OFmust also consider the limited ability to sell an investment to a third party due to the absence of a tr

market or lack of investor demand, and the possibility 

of achieving potentially higher returns through a later 

disposition. An issuer typically needs the approval of

its primary federal regulator in order to repay TreasuryOFS and therefore regulatory approvals also affect h

quickly an institution can repay.

Because of the size of certain positions as well as the

overall portfolio, successful disposition will take time, 

as well as expertise. In addition, information about

Treasury-OFS’s intentions with respect to its investments could be material information and prematu

release of such information could adversely affect 

the ability of Treasury-OFS to achieve its objective

Therefore, Treasury-OFS will make public announcements of its disposition plans when it is appropriate 

do so in light of these objectives and constraints. 

Portfolio manage

appro

In managing the TARP investments, Treasury-OFtakes a disciplined portfolio approach with a r

down to the individual investment level. Treasury-OFaims to monitor risk and performance at both the overall portfolio level and the individual investment leve

Given the unique nature and the size of the portfolio,

risk and performance are linked to the overall financial 

system and the economy. Therefore, Treasury-OFconducts sensitivity analyses to contextualize the result

Such analyses by their very nature are based upon

significant assumptions.

In conducting the portfolio management activities,

Treasury-OFS employs a mix of dedicated professionals and external asset managers. These external ass

managers provide market specific information such as 

market prices and valuations as well as detailed credit 

analysis using public information on a periodic basis. 

A portfolio management leadership team oversees the

work of asset management employees organized on 

a program basis, under which investment and asset 

managers may follow individual investments. 

Treasury-OFS tracks the fair market value of the asse

in the TARP portfolio on a regular basis. The value o

publicly traded common stock can be measured by 

market quotations. Most of Treasury-OFS’ investmen

however, consist of securities and instruments for which 

no market exists. Such securities include preferred
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stocks, warrants, loans and other debt securities, as well 

as common stock of private companies. As a result,

Treasury-OFS has developed internal, market-bas

valuation models in consultation with Treasury-OF

external asset managers and in compliance with EE

For purposes of its financial statements, Treasury-OFcalculates valuations in accordance with the Fed

Credit Reform Act of 1990, as well a OMB guideli

The methodology is discussed further in Section Eigh

[Valuation Methodology

Risk Assess

Treasury-OFS has developed procedures to identify a

mitigate investment risk. These procedures are designed 

to identify TARP recipients that are in a significantl

challenged financial condition to ensure heightened 

monitoring and additional diligence and to determine 

appropriate responses by Treasury-OFS to preser

the taxpayers’ investment and minimize loss as well as 

to maintain financial stability. Specifically, TreasuryOFS’ external asset managers review publicly availa

information to identify recipients for which pre-tax, 

pre-provision earnings and capital may be insufficient 

to offset future losses and maintain required capital. 

For certain institutions, Treasury-OFS and its exter

asset managers engage in heightened monitoring and 

due diligence that reflects the severity and timing of the 

challenges. 

Although Treasury-OFS relies on the recommendations of federal banking regulators in connection w

reviewing and approving applications for assistance, 

Treasury-OFS does not have access to non-publ

information collected by federal banking regulators 

on the financial condition of TARP recipients  To th

contrary, there is a separation between the responsibilities of Treasury-OFS as an investor and the duties 

the government as regulator. 

The data gathered through this process is used by 

Treasury-OFS in consultation with its external managers and legal advisors to determine a proper course 

action. This may include making recommendations to 

management or working with management and other 

security holders to improve the financial condition of 

the company, including through recapitalizations or 

other restructurings. These actions are similar to those 

taken by large private investors in dealing with troubled 

investments. Treasury-OFS does not seek to influen

the management of TARP recipients for non-financia

purposes. 

EXHA

reconstructur

TARP recipients may also seek Treasury-OFS’ appr

for exchange offers, recapitalizations or other restructuring actions to improve their financial condition. 

Treasury-OFS evaluates each such proposal based on i

unique facts and circumstances, and takes into account 

the following principles in all cases: 

•	 Pro forma capital position of the institution,

•	 Pro forma position of Treasury-OFS investment 

the capital structure,

•	 Overall economic impact of the transaction to the

government,

•	 Guidance of the institution’s primary federal

supervisor, and

•	 Consistent pricing with comparable marketplace 

transactions. 

TREASURY-OFs’

S

Treasury-OFS’ role as a shareholder is to mana

the government’s investment and not to manage the 

related company. Most of Treasury-OFS’ equity investments have been in the form of preferred stock. A

typical for a preferred stock investor, Treasury-OFdoes not have voting rights except on certain limit

issues such as amendments to the charter and certain 

transactions that could adversely affect Treasury-OF

rights as an investor. In the event preferred dividends

are unpaid for six quarters (or four quarters in the 
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42 Section 5: Protecting Taxpayer

case of IG preferred stock), Treasury-OFS ha

right to elect two directors to the board. Treasury-OFholds common shares in GM, GMAC, Chrys

Citigroup. In addition, the taxpayers are the beneficiaries of a trust that exercises 80 percent of the voting

rights of the outstanding IG common stock. Th

trust is controlled by three independent trustees who 

exercise voting rights on behalf of the taxpayers and do 

not report to Treasury-O

Treasury-OFS has established the following four principles to guide its actions as a common shareholde

•	 Reluctant shareholder: The government is a reluctant owner as a consequence of the financial crisis

and the current recession. Treasury-OFS inten

to dispose of its investments as soon as practicable 

and in conformity with the aforementioned 

portfolio management principles; 

•	 Treasury-OFS will not interfere in the day-to-d

management decisions of a company in which it 

is an investor. Such interference might actually

reduce the value of those investments, impede 

the companies’ successful transition to the private 

sector, expose taxpayers to third party lawsuits, 

and frustrate the federal government’s broader 

economic policy goals;

•	 Strong board of directors: Establishing an effectiv

board of directors that selects management with a 

sound, long-term vision should restore a company to 

profitability and end the need for government support expeditiously. In cases where Treasury-OFS 

the ability to establish strong upfront conditions at 

the time of investment, these may include changes to 

the existing board of directors and management; and

•	 Limited voting rights: The government intends to

exercise its voting rights as a common shareholder 

only with respect to core shareholder matters such 

as board membership; amendments to corporate 

charters or bylaws; mergers, liquidations, substantial 

asset sales; and significant common stock issuances. 

Complian

Treasury-OFS also takes steps to ensure that 

recipients comply with their TARP-related statutory an

contractual obligations. Statutory obligations include

executive compensation restrictions. Contractual 

obligations vary by investment type. For most of

Treasury-OFS’ preferred stock investments, 

recipients must comply with restrictions on payment 

of dividends and on repurchases of junior securities, so 

that funds are not distributed to junior security holders 

prior to repayment of the government. Recipients of

exceptional assistance must comply with additional 

restrictions on executive compensation, lobbying, 

corporate expenses and internal controls and must 

provide quarterly compliance reports. For AIFP loa

additional restrictions and enhanced reporting requirements are imposed, which is typical with debt investments compared to equity investments. Such enhanced

reporting requirements include bi-weekly status reports 

(rolling 13-week cash forecast), monthly liquidity 

analysis reports, and monthly budget reports covering 

the current fiscal year.

PROGRAM

considerati

The following briefly describes key contractual terms 

and other characteristics of each program that affect how Treasury-OFS will recover the TARP f

invested in each institution. 

Capital Purchase Program (C

The majority of Treasury-OFS’ investments und

TARP were made under the CPP program. TreasuryOFS received preferred stock and warrants in re

for the capital it provided each institution. The 

preferred stock is redeemable at the option of the issuer 

at any time, subject to the approval of the primary 

federal bank regulator. This means that the primary 

federal bank regulator, such as the Federal Reserv

Bank or the FDIC, must determine that the issuer h
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sufficient capital to repay Treasury-OFS. If permit

to repay Treasury-OFS, the issuer must repay the fu

amount of the investment plus any accrued dividends. 

As of September 30, 2009, 42 issuers have repaid 

total of $70.7 billion of CPP investments. TreasuryOFS did not require issuers to repay the preferr

stock by a particular date, because the preferred stock 

would not have met the requirements for Tier 1 capital 

had such a fixed date been imposed. However, there 

are incentives for issuers to repay. First, issuers are

subject to restrictions on executive compensation for as 

long as the preferred stock is outstanding. In addition,

they are restricted in their ability to pay dividends to 

common stockholders and to make other distributions 

and repurchases. In addition, the dividend rate on

the preferred stock increases from five percent to nine 

percent after five years. 

Treasury-OFS also has the right to sell the preferr

stock to a third party. Treasury-OFS also has registration rights, which are rights to require the issuer 

assist Treasury-OFS in making a public sale of t

securities which can facilitate transfer. Although

Treasury-OFS has not exercised these rights, it m

do so in the future. In the case of Citigroup, TreasuryOFS exchanged the CPP preferred shares for com

stock of Citigroup. Because the common stock is not

redeemable and because there is a large trading market 

for Citigroup common stock, one potential manner in 

which Treasury-OFS may exit this investment wou

be by selling the stock in the market. 

Much of Treasury-OFS’ warrant portfolio pertains

CPP investments. Pursuant to the requirements of EE

Treasury receives warrants from TARP recipients in orde

to give the taxpayers an opportunity to participate in any 

increase in shareholder value that follows the investment. In the case of a CPP investment in a company

that is publicly traded, Treasury-OFS receives warrants 

acquire common stock with a price equal to 15 percent 

of the senior preferred investment. The exercise price 

on the warrants is the market price of the participating 

institution’s common stock at the time of preliminary 

approval calculated on a 20-trading day trailing average. In the case of an investment in a privately-held

company, Treasury-OFS receives warrants to purchas

at a nominal cost, additional preferred stock equivalent 

to five percent of the senior preferred investment. 

Treasury-OFS exercises the latter kind of warrants 

closing of the senior preferred investment.

CPP Sale of Warrants

Issuers have a contractual right to repurchase the

warrants upon redemption of the preferred stock issued 

to Treasury-OFS. In the event they do not repurcha

Treasury-OFS will sell the warrants to third partie

If an issuer wishes to repurchase its warrants, the issuer

and Treasury-OFS must agree on a price. The contra

provides for an independent appraisal procedure that 

can be invoked by either party to determine this price. 

Treasury-OFS has established a methodology for valui

warrants for purposes of this process that it uses for all 

banks, regardless of the size of the bank or the warrant 

position. Treasury-OFS’ determination of the value 

any warrant is based on three categories of input: market 

prices, financial modeling, and outside consultants. 

Further details on this valuation approach are provided

in Section Eight. If the bank and Treasury-OFS d

agree on price and the appraisal procedure is invoked 

by either party, then each party selects an independent 

appraiser. These independent appraisers will conduct 

their own valuations and attempt to agree upon the fair 

market value. If they agree on a price, that price becomes

the basis for repurchase of the warrants by the bank. If

these appraisers fail to agree, a third appraiser is hired, 

and subject to some limitations, a composite valuation 

of the three appraisals is used to establish the sale price. 

Even if agreement is not reached within the aforementioned timeframe, an institution that has redeemed

its preferred stock can always bid to repurchase its 

warrants at any time and Treasury-OFS can choo

whether to accept a bid. Similarly, Treasury-OFretains the right to sell the warrants to a third party

a mutually agreed price. If following repayment of the

preferred stock, an institution notifies Treasury-OFthat it does not intend to repurchase its warrants, 
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44 Section 5: Protecting Taxpayer

if an agreement is not reached, Treasury-OFS inten

to dispose of the warrants through public auctions. 

Treasury-OFS has announced that the first su

auctions would take place in early December. These 

auctions are conducted as modified “Dutch” auctions 

which are registered under the Securities Act of 1933

Only one issuer’s warrants will be auctioned in each

auction. In this format, qualified bidders may submit

one or more independent bids at different pricequantity combinations and the warrants will be sold at 

a uniform price that clears the market. 

Targeted Investment 

(TIP

Treasury-OFS invested $20.0 billion in each 

Citigroup and Bank of America under TIP a

acquired preferred stock. In the case of Citigroup,

Treasury-OFS exchanged the preferred stock f

trust preferred securities, which are senior in right of 

repayment to preferred stock but otherwise have many 

similar terms. Both the Citigroup trust preferred

securities and the Bank of America preferred stock pa

dividends at eight percent per year. Treasury-OFS al

received warrants in connection with both investments. 

The disposition considerations are similar to those 

for CPP, including the fact that the issuers need the 

approval of the primary banking regulators to repay the 

trust preferred securities and preferred stock. 

Automotive In

Investments (A

Treasury-OFS’ auto industry investments consist 

equity investments, largely in the form of common 

stock, as well as loans. The loans must be repaid by 

certain dates. The M loan was recently amended t

require quarterly mandatory prepayments of $1 billion 

from existing escrow amounts in addition to the obligation for such funds to be applied to repay the loan 

by June 30, 2010, unless extended. In addition, the

loan matures in July 2015.  portion of the Chrysler

loan also matures in December 2011 and the balance 

in June 2017. Chrysler has recently announced that it 

plans to repay the loan fully prior to maturity.

In the case of the equity investments, Treasury-OFholds primarily common stock in GM, Chry

and GMAC. Because the companies are not publi

traded at this time, there is no market for the common 

stock. Treasury-OFS also holds preferred stock 

and GMAC. Of the $13.1 billion in preferred sha

in GMAC held by Treasury-OFS, $7.875 billi

convertible at the option of GMAC subject to certa

conditions. 

Contractual agreements govern disposition options 

and timetables, and participants in AIFP are subject 

enhanced reporting requirements relative other TAR

recipients (discussed under “Compliance”). TreasuryOFS will periodically evaluate both public and priva

options to exit the equity investments under the AIF

ForGM the most likely exit strategy is a gradual selloff of shares following a public offerin.  Pursuant 

its operating agreement, General Motors will attemp

a reasonable best efforts initial public offering by July 

10, 2010. This date marks the one-year anniversary of 

the automaker’s exit from bankruptcy. For Chrysler

and GMAC, the exit strategy may involve either

private sale or a gradual sell-off of shares following 

a public offering. In each case, Treasury-OFS’ g

is to dispose of the government’s interests as soon as 

practicable consistent with ESA goals. As descr

below, Treasury will sell down, and ultimately sell off 

completely its interests in a timely and orderly manner 

that minimizes financial market and economic impact. 

At the same time, Treasury cannot control market

conditions and have an obligation to protect taxpayer 

investments and maximize overall investment returns 

within competing constraints. 

Treasury-OFS has reduced the Automotive Supp

Support Program (ASSP) aggregate commitm

from $5.0 billion to $3.5 billion. Treasury-OF

current funding equates to $0.4 billion, with M an

Chrysler accounting for $0.3 billion and $0.1 billion, 

respectively. Treasury-OFS does not anticipate 
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creased participation prior to the program’s April 2010

expiration.

American Internation

(A

Treasury-OFS holds preferred stock in AIG. A

the CPP preferred, there is no mandatory repayment 

date. IG has replaced most of its board of director

as well as its chief executive officer since September

2008, and is presently engaged in a variety of restructuring initiatives, including the divestment of assets 

to enable repayment of loans made by the FRBNY

well as Treasury-OFS’ investment and the wind-do

of exposure to certain financial product and derivative 

trading activities to reduce excessive risk taking. 

Term Asset Backed Loan

(TA

Although Treasury-OFS has committed to provide

to $20 billion in credit protection to the TALF speci

purpose vehicle, Treasury-OFS has only funded $0

billion as of September 30, 2009. Additional funding will be required only if borrowers default on thei

non-recourse loans and surrender the collateral for such 

loans, which consists of asset-backed securities to the 

FRBNY, which made the loans. In that event, TreasuryOFS’ funds are used to reimburse the Feder

Bank, and the asset-backed securities would then be sold

to repay Treasury-O

Asset Guarantee Progra

This program, which currently includes only 

Citigroup, differs from other TARP financial institution support programs in that Treasury-OFS does

invest TARP funds in the institution directly. Rathe

TARP funds are reserved to cover a portion of the possible losses in the selected assets. In conjunction wi

the transaction, Treasury-OFS received $4.0 billi

of preferred stock with identical terms as Citigroup’s 

agreement under TIP. This investment is managed and

monitored in conjunction with TIP. As of Septemb

30, 2009, no payment had been made to Citigroup 

related to the covered asset pool. The preferred stock 

can be redeemed or sold in the same manner as CPP 

and TIP preferred stocks. Treasury-OFS also recei

warrants in connection with this investment. 

Treasury-OFS has a cross functional team of staff overseeing and monitoring the covered asset pool under t

Citigroup AGP. Given the nature of the transaction, t

Treasury-OF, FRBNY and FDIC work collab

on overseeing the Citigroup AGP. Additionally, U

Federal Parties have engaged outside independent service

providers to perform various business, compliances/

audit activities with respect to the covered asset pool. 

Public-Private Inve

Program (PPIP

Treasury-OFS’ investments in Public-Priva

Investment Funds (PPIFs) are subject to differ

disposition considerations given the nature of the 

investments. Treasury-OFS provides funds which a

used by the PPIF managers, together with privat

capital, to purchase asset-backed securities. These 

asset-backed securities then yield principal, interest 

and dividend payments to the PPIFs which are used t

repay Treasury-OFS for its loans, and provide distributions to Treasury-OFS and the private investor

their equity investments. 

Treasury-OFS’ management of these investments 

therefore focused on ensuring that the asset managers 

comply with the requirements of the program, including the detailed compliance rules that govern matters 

such as conflicts of interest. Fund managers are required to disclose to and seek the approval of TreasuryOFS with respect to certain fundamental corpor

policies that could impact the PPIFs. In additio

there are restrictions on dealings with affiliates and 

other interested parties, which will help ensure that the 

PPIFs only enter into arm’s-length transactions
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46 Section 6: Promoting Transp

Section Six: 

Promoting Transparency

Treasury-OFS is committed to providing full disclosu

regarding the TARP. This includes information on ho

the money has been spent, who has received it, and the 

results of those investments. Providing such information promotes transparency and insures accountability. 

In order to meet these objectives, Treasury-OFoperates under a core set of principles. First, TreasuryOFS will provide detailed information on its p

on a timely basis, including information on specific 

institutions. Second, Treasury-OFS will provide t

information in accessible and usable formats. Finally,

Treasury-OFS will focus on answering the questio

that are most important to the public, the Congress or 

the oversight bodies.

1. Providing detailed and 

informati

Treasury-OFS publishes a variety of reports th

provide information about TARP programs and transactions, and Treasury-OFS activities. For the p

ended September 30 2009, Treasury-OFS publis

the following reports and information, which are available publicly at www.financialstability.gov: 

•	 86 transaction reports, in accordance with section 114 of EESA, which include details on ev

investment in every institution under every program, 

including dates and amounts invested, as well as payments received with respect to TARP investments

•	 10 Section 105(a) monthly congressional reports

which provide qualitative program updates and 

detailed financial information on all programs, 

•	 7 Tranche Reports in accordance with Sectio

105(b) of EESA, which outline the details of 

transactions related to each $50 billion increment 

of TARP investment

•	 3 Dividend and interest reports,

•	 2 Making Home Affordable program reports

•	 7 Monthly Lending and Intermediation Snaps

reports and 7 CPP Monthly Lending Reports, a

•	 2 Section 104(g) Financial Stability Oversi

Board quarterly reports to the Congress

All program descriptions, including term sheets and

forms of contracts, are also posted. Treasury-OFS h

used standard forms of contracts and thus within a 

program there is little variation among the contracts 

for all institutions. Treasury-OFS has also post

investment contracts on Treasury-OFS website with

two business days of each transaction’s closing.

The monthly report to Congress, also known as the 

Section 105(a) report, provides one of the most useful

ways to track the activities of TARP. It contains easyto-read charts showing how much money has be

spent and where the money is going by program. It

also contains charts on how much money has been repaid or returned to Treasury-OFS, descriptions of ea

TARP program as well as highlights of new developments. For those who want more detail, the transacti

reports give details on each investment.

2. Making information usabl

and accessi

A key element in Treasury-OFS’ public outreach eff

is providing user-friendly resources online. Earlier this

year, Treasury-OFS launched a new website—w

FinancialStability.gov—that provides a wealth of 

information about the TARP. FinancialStability.go

provides all of the TARP reports, lists the institution

participating in the Treasury-OFS’ programs, and mak

available detailed contracts defining those investments. 

As of today, Treasury-OFS has posted nearly 

investment contracts, in addition to terms and program 

guidelines for all programs under EE
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Treasury-OFS also launched the website w

MakingHomeAffordable.gov to provide specific information to homeowners on the Making Home Affordabl

Program and efforts to mitigate the fore-closure crisis. 

In addition, Treasury-OFS has launched an initiative

ensure that its website meets the needs of all its users to 

provide easily accessible data and information.

3. Answering the r

question

In being transparent with information, Treasury-OFhas designed reports not only to be detailed and time

but also to answer the questions that observers most 

frequently ask. For example, Treasury-OFS is of

asked about what banks are doing with their TAR

funds. So, in January 2009, Treasury-OFS launc

an important initiative to help the public easily assess 

the lending and intermediation activities of the largest 

CPP participants and more limited information for 

smaller CPP participants. Treasury-OFS now publish

monthly and quarterly lending surveys that contain 

information on the lending and other activities of over 

670 institutions that have received TARP funds

Performance Metrics for Y 20

Treasury-OFS has developed performance measur

related to each of its strategic goals for Y 201

•	 Additional performance measures will evaluate the

change in the capital ratios and lending of CPP 

participants by comparing them to a control set of 

banks with similar characteristics. 

•	 Treasury-OFS will continue to evaluate performance of the SCAP bank holding compa

(BHCs). Performance measures will include changes

in capital ratios and lending of the SCAP BH

versus control banks with similar characteristics.

•	 Treasury-OFS will continue to track various performance measures for the TALF. These mea

will include the TALF-eligibe ABS issu

spreads in the secondary markets of RMBS, 

CMBS securities, as well as the spread betwe

secondary BS and benchmar

•	 Performance measures of the number of HAM

modifications (trial and permanent) entered into, 

the redefault rate, and the change in average borrower payments will be tracked.

•	 Several specific measures will address taxpayer

protection. First, Treasury-OFS will seek to hav

clean audit opinion on its financial statements. In

addition, the financial return for each program will 

be evaluated against its benchmark (subsidy rate). 

Finally, Treasury-OFS will report performance d

on how oversight issues are addressed and resolved. 

•	 Several indicators will measure performance on promoting transparency. First, Treasury-OFS will t

on-time reporting performance. Second, TreasuryOFS will measure the degree of user satisfact

with the TARP’s website, www.financialstabilit

gov, to determine areas for improvement. Finally, a

request response index will be created to provide the 

public with a clear measure of timely performance.

HAMP Report

Treasury-OFS is improving performance and enhancing 

transparency on the HAMP

1. Servicer-specific results are now reported on a

monthly basis. These reports provide a transparent and

public accounting of individual servicer performance by 

detailing the number of trial modification offers extended

2. Treasury-OFS is establishing specific operational

metrics.These metrics wil measure the performance

of each servicer, such as average borrower wait time in 

response to inquiries, and the response time for completed 

applications; and servicer performance will be included in 

our monthly public report

3. Treasury-OFS directed that Freddie Mac review

declined modifications. In its role as compliance agent,

Freddie Mac has developed a “second look” process by auditing samples of HAMP modification applications that have 

been declined. This will minimize the likelihood that borrower

applications are overlooked or that applicants are inadvertently or incorrectly denied a modification. In addition, the

“second look” program is examining servicer non-performing 

loan (NPL) portfolios to identify eligible borrowers that should 

have been solicited for a modification, but were not
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Under TARP, Treasury-OFS has made equity investments, loans and asset guarantees in a range of financial institutions. In exchange for these investm

loans, and asset guarantees, Treasury-OFS, on beha

of the taxpayer, has received financial instruments—

equity, debt and warrants—from these companies. In

this report, Treasury-OFS is presenting a transpare

accounting of the current estimated cost of TARP

which reflects estimates of the value of those investments, loans and asset guarantees. Treasury-OFS h

developed and presented the estimates in a way that is 

consistent with the statutory reporting requirements. 

The statutory reporting requirements for TARP i

this area are in some respects unique. Under EE

Treasury-OFS is required to determine the budgeta

cost of TARP under the general framework of credi

reform. Treasury-OFS has determined it was appropriate to also use the credit reform framework f

financial reporting purposes. ESA also requires t

the budgetary cost of TARP programs be determine

using a methodology that incorporates market risk. 

This requirement means that TARP equity investment

similar to those that are publicly traded are valued in a 

way that is analogous to the “fair value” standard that 

private sector firms are required to use. 

This section explains the applicable reporting requirements, discusses how Treasury-OFS has m

the requirements, and describes how this reporting 

methodology relates to commercial reporting concepts.

Applicable Bu

Accounting St

The Emergency Economic Stabilization Act of 2

(EESA) requires that the cost of troubled ass

purchased or guaranteed be determined for budgetary accounting purposes in accordance with the 

Federal Credit Reform Act of 1990 (F

also requires that the cost calculations be adjusted for 

market risk. 

FCRA established a methodology for budgeting f

loans or loan guarantees issued by the federal government. Under the FCRA, the budgets for loans and lo

guarantee programs reflect the expected cost of these financial arrangements, rather than just the cash flows as 

is typically the case for federal budgeting. For example,

when a federal agency enters into a loan guarantee, 

no actual cash outflow from the government typically 

occurs, however, the cash outflows and the expected 

cost over the life of the guarantee may be substantial. 

In contrast, when a federal agency provides a loan,

there is a substantial cash outflow at loan origination, 

but the ultimate cost of that loan to the government 

will depend on future repayments. 

Rather than using a cash basis for credit programs,

which can be misleading, the FCRA calls for agenci

to record the “subsidy” cost of a loan or loan guarantee at the time of the disbursement of the loan. The 

subsidy cost is the net present value of all cash flows associated with the credit transaction, usually calculated 

by discounting all payments back to the current period 

at the appropriate Treasury rate. Subsidy estimates

reflect both the terms of the underlying instrument 

and the likelihood of repayment. For example, if a

loan carries a rate below the comparable Treasury rate, 

that loan will generate a subsidy cost even if the loan 

is expected to be fully repaid. The subsidy calculation 

also reflects the risk that the borrower may not repay 

the entire amount of the loan. The potential for less 

than full repayment is reflected in the expected cash 

flows, which should reflect historical defaults on 

similar instruments, and assumptions about possible 

future economic performance. 

Section Seven: 

Financial Accounting Policy
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The original subsidy cost estimate made at the time the 

transaction occurs is updated each year to reflect the 

actual cash flows that occurred as well as any changes 

in the expected future repayments from the borrower. 

EESA mandated that the FCRA be used to det

the cost of all TARP investments for budgetary purposes, although the FCRA as originally designed

not cover equity investments. Treasury-OFS conclud

that it was appropriate to apply FCRA to its preferr

stock purchases since preferred stock has a dividend 

rate and regularly scheduled dividend payments, 

similar to debt instruments. 

The Federal Accounting Standards Advisory B

(FASAB) has promulgated extensive accoun

guidance that establish Federal accounting practices

for loans and guarantees are consistent with the F

method of budgeting for credit programs. TAR

investments in direct loans, such as those to the auto 

industry, and asset guarantees are covered by existing 

accounting standards. Specifically Statement of Feder

Financial Accounting Standards 2, Accounting 

Direct Loans and Loan Guarantees (SFFAS 2) p

relevant accounting guidance for direct loans and loan 

guarantees issued by federal entities and closely parallels the FCRA provisions. Federal entities must rec

loans disbursed as an asset, valued at the net present 

value of expected future cash inflows. The difference 

between the amount disbursed and the net present 

value of expected cash inflows for loans is recorded as 

a subsidy cost at the time of the loan disbursement. 

Federal entities must book outstanding guarantees as

an asset or a liability, valued at the net present value of 

the expected future cash flows, with the corresponding 

amount reflected in subsidy cost. Estimates of future

cash flows are revised on an annual basis with changes 

reflected as an increase or decrease in the subsidy allowance and reflected in the Statement of Net Cost

FASAB standards do not cover equity investment

federal entities in private enterprises as the Federal

government generally does not make these types of 

investments. Consistent with the accounting policy 

for equity investments made by Treasury in private 

entities, Treasury-OFS accounts for its equity investments at fair value, defined as the estimated amou

of proceeds Treasury-OFS would receive if t

equity investments were sold to a market participant. 

Treasury-OFS uses the present value accounti

concepts embedded in FFAS No. 2 to derive

value measurements. Treasury-OFS concluded th

the equity investments were similar to direct loans in 

that there is a stated interest rate and a redemption 

feature which, if elected, requires repayment of the 

amount invested. Furthermore, theEESA require

to consider market risk provides a basis to arrive at a 

fair value measurement. Therefore, Treasury-OFS us

SFFAS No. 2 for reporting and disclosure require

of it equity investments. Treasury-OFS accounts for t

warrants received under Section 113 ofEESA as 

under FFAS No. 2, as such the value of the war

is a reduction of the subsidy allowance.

Market Ris

EESA departed from the FCRA by requiring t

adjustment for market risk be made to the interest rate 

used to discount future expected cash flows rather than 

using the interest rate on comparable maturity Treasury 

debt as the FCRA requires. This distinction values t

TARP equity investments as closely as possible to ho

they would be priced in private markets. The incorporation of market risk is a departure from the standard 

FCRA methodology and is an important factor in t

valuations included in Treasury-OFS financial statements. The loan and asset guarantee models inclu

an adjustment for market risk which is intended 

to capture the risk of unexpected losses, but is not 

intended to represent fair value. 

TARP holds a variety of investments. The Citigrou

common stock is a standard financial instrument 

that trades in public markets and has a market price 

that can be directly observed. Certain other TAR

investments are closely related to tradable securities. 

Wherever possible Treasury-OFS has sought to u

market prices of traded equity securities in estimating 

the fair value of TARP equity investment
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Most TARP equity investments do not have direct analogs in private markets so Treasury-OFS uses int

market-based models to estimate the fair value of these 

investments. These models have been benchmarked 

to actual securities with observable market prices to 

try and ensure, to the maximum extent possible, that 

the model’s results actually reflect how the private 

markets are pricing risk. As described in Section Eig

[Valuation], the valuation of Treasury-OFS’ equ

investments comes as close as possible to how private 

financial markets would price those instruments.

Comparison to Comme

Reporting Co

While commercial reporting standards vary, fair value 

is the most common valuation approach for reporting relatively liquid equity investments like preferred 

stock. For Treasury-OFS, adjusting our estimates

reflect market risk ensures that the asset values reflect 

a reasonable assessment of fair value, which can be 

readily compared and evaluated based on commercial 

investment information. 
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This section describes the methodologies used to estimate the value of the diverse set of TARP investment

made under EESA. Wherever possible, Treasury-OFhas sought to use market prices of tradable secu

to make direct estimates of the market value of TAR

investments. Use of market prices was possible for 

TARP investments that are standard financial instruments that trade in public markets or are closely relate

to tradable securities. For those TARP investments th

do not have direct analogs in private markets, TreasuryOFS uses internal market-based models to estimate t

market value of these investments as detailed below.

Incorporating “Market Ris

Valuation Mod

Risk can be taken into account in a number of ways

when estimating the value of an asset. ESA requi

that the budgetary cost and risk of troubled assets 

acquired under TARP be estimated in accordance wit

the Federal Credit Reform Act of 1990 (FCRA

using a market adjusted discount rate. Where possible, 

market prices are used to benchmark the values of 

TARP investments

The standard methodology under FCRA is to estima

asset values as the net present value of expected cash 

flows, using Treasury rates for discounting. In that

approach, risk is reflected in the expected cash flows. 

For example, default risk on a loan would be reflected

in the fact that the expected cash flows are less than the 

contractual obligations. 

EESA also requires for budgetary purposes that 

FCRA methodology be modified to include an adjustment for market risk. Specificaly, EESA requir

instead of discounting future expected cash flows at the 

interest rate on comparable maturity Treasury debt, an 

additional adjustment for market risk must be made. 

For financial reporting purposes, the market risk is

incorporated in the future expected cash flows. 

In effect, the requirement to adjust the standard 

methodology to reflect “market risk” means that for the 

purposes of budget and accounting, TARP equity investments are valued as closely as possible to how the

would be priced in private markets. This requirement is 

relatively easy to implement for TARP investments tha

are closely related to securities with observable market 

prices. However, where empirical models are needed to 

estimate the value of non-standard TARP investment

those models must be benchmarked to ensure, to the 

extent possible, that their results reflect the way public 

markets price risk. This benchmarking is an important 

part of valuation methodology. 

The adjustment for “market risk” can be reflected in 

either expected cash flows or the discount rate used 

to calculate net present values. Regardless of where

the adjustment is made, it should not have a material impact on the results as long as those models are 

benchmarked to suitable measures of market risk in an 

appropriate manner.

CPP Investment

Under the CPP as detailed in Section Three [Ensurin

Stability], Treasury-OFS has provided capital to 

qualified financial institutions and received preferred 

stock and warrants in return. To estimate the value of 

these investments, Treasury-OFS has built two separa

statistical models: one to value the preferred stock 

and one to value the warrants. Both valuation models

use standard methods employed in academe and the 

financial sector. An important aspect of these models is

the treatment of the implicit options embedded in the 

assets; i.e., the financial institution’s decision to repurchase the asset and Treasury-OFS’ decision to exerci

the warrants. These models make use of a variety of information, including historical and current information 

Section Eight: 

TARP Valuation Methodology
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on the institution’s balance sheets, the term-structure of 

interest rates, and equity prices and dividends.

The estimated values of CPP preferred equity investments are the net present values of the expected dividend payments and repurchases. The model is used to 

estimate the likely distribution of dividend payments 

over time. Estimates of the ultimate cost of TARP wi

decline further if early repayments are higher than 

those currently built into the models. It is assumed

that the key decisions that affect whether or not banks 

pay their preferred dividends are made by each bank 

based on the strength of their balance sheet. The model 

assumes a probabilistic evolution of each bank’s asset 

to liability ratio. Each institution’s assets are subject

to uncertain returns and institutions are assumed to 

manage their asset to liability ratio in such a way that 

it reverts over time to a target level. Historical volatility is used to scale the likely evolution of each banks’ 

assets-to-liabilities ratio. 

In the model, when equity decreases, i.e. the asset-toliability ratio falls; institutions are increasingly likely

to default, either because they enter bankruptcy or are 

closed by regulators. The probability of default is estimated based on the performance of a large sample of 

US banks over the period 1990-2008. At the other en

of the spectrum, institutions call their preferred shares 

when the present value of expected future dividends 

exceeds the call price; which occurs when equity is high 

and interest rates are low. 

The warrants for the purchase of common stock are 

priced using an option-pricing model augmented for 

the fact that exercising warrants infuses cash into an 

institution and also dilutes current stockholders. The 

model assumes optimal warrant exercise by TreasuryOFS; that is, the warrants are exercised if the expect

present value of income from future optimal warrant 

exercise is less than the current in-the-money value. 

The key input to the model—the future volatility 

of bank stock prices—is derived from the model for 

preferred stock.

The basic preferred equity model is benchmarked to 

the market pricing of risk. The model was used to estimate the value of preferred equity instruments issued 

by 18 of the CPP banks that trade actively in public 

markets. These particular instruments were chosen 

because they share important characteristics with the 

CPP instruments. In particular, these traded instruments have very long maturities and are callable. The

stochastic assumptions that drive the evolution of bank 

balance sheets in the model were then adjusted so the 

model’s valuation of this portfolio of tradable securities 

matched the observed market prices.

The only other adjustment to the model relates to 

the banks’ repurchases of preferred securities from 

Treasury-OFS. Treasury-OFS management, bas

public statements by individual banks, believes that a 

significant volume of CPP and TIP preferred shares is

likely to be repaid earlier than the model predicts. To 

reflect this judgment, the model is adjusted to generate 

approximately $70 billion in CPP and TIP repurchases

over the next twelve to eighteen months. 9

Treasury-OFS exchanged the CPP preferred shar

purchased from Citigroup for common stock. The 

exchange rate was $3.25 per share resulting in TreasuryOFS obtaining approximately 7.7 billion shares. T

value of these shares is the amount of shares held times 

its market price.

TI

Treasury-OFS provided funds to both Citigro

and Bank of America under the Targeted Investme

Program through the purchase of additional preferred 

shares. These investments are valued in the same 

manner that Treasury-OFS uses to value CPP invest9 Without this adjustment the CPP preferred equity mod

predicts roughly $20 billion in repurchases over the next year. 

The valuation model is altered both by directly imposing the 

repurchases of those institutions that have stated plans to 

repurchase soon, and by adding a small additional benefit for 

any institution that repays its TARP funds and exits the CPP

This adjustment increases rates slightly to be consistent with a 

reasonable forecast of future repurchases.
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ments in large institutions. As noted above, the model

assumes $70 billion in CPP and TIP repurchases

AIG Investment Pro

The method used to value IG preferred shares 

broadly analogous to the approach used to value CPP 

investments. However, greater uncertainty exists for 

the valuation of preferred shares for AIG. First, the s

of Treasury-OFS’ holding of preferred shares relative to AIG’s total balance sheet makes the valu

extremely sensitive to assumptions about the recovery 

ratio for preferred shares should IG enter defaul

Second, no comparable traded preferred shares exist.

Therefore, Treasury-OFS based te AIG valuati

the observed market values of publicly traded assets on 

either side of the liquidation preference of the preferred 

stock; common stock (paid after preferred stock), 

and the most junior subordinated debt (paid before 

preferred stock). Further, based on certain publicly

available third party sources, assumptions about payouts in different outcomes and the probability of some 

outcomes were made. Finally, external asset managers

provided estimated fair value amounts, premised on 

public information, which also assisted Treasury-OFin its valuation. These different factors were all used 

determining the best estimate of the fair value of 

assets. The IG Investment Program also includes

equity capital facility that can be drawn upon at the 

discretion of AI

A

The valuation of equity-type investments was performed in a manner that is broadly analogous to 

the methodology used for CPP investments, with 

reliance on publicly traded securities to benchmark 

the assumptions of the valuation exercise. Debt with 

potential value is valued using rating agency default 

probabilities.

As part of the General Motors (GM) bankruptcy proceedings, Treasury-OFS received a 60.8 percen

in the common equity of General Motors Compan

(New GM). Because the unsecured bond holders

General Motors Corporation (Old GM) receive

percent of the common equity ownership and warrants 

in New GM, the expected recovery rate implied by t

current trading prices of the OldGM bonds provid

the implied value of the NewGM equity. TreasuryOFS used this implied equity value to account fo

equity stake in New 

For the GMAC equity instruments, Treasury-OFused the model to estimate the value of GMAC subordinated debt that trades actively in public

The stochastic assumptions that drive the evolution 

of the institution’s balance sheet in the model were 

then adjusted so the model’s valuation of this security 

matched the observed market price.

Treasury-OFS values direct loans using an analytical model that estimates the net present value of t

expected principal, interest, and other scheduled 

payments taking into account potential defaults. In

the event of a financial institution’s default, these 

models include estimates of recoveries, incorporating 

the effects of any collateral provided by the contract. 

The probability of default and losses given default are 

estimated by using historical data when available, or 

publicly available proxy data, including credit rating 

agencies historical performance data.

Treasury-OFS also benchmarks the valuation of

holdings of auto securities against the assumptions 

about the dynamics of future revenues and costs 

provided by an inter-agency working group dealing 

with the automotive industry.

T

Under the TALF program, Treasury-OFS will pr

funding of up to $20 billion as necessary for the 

purchase of TALF collateral through a direct loan 

a Special Purpose Vehicle (SPV). The SPV col

monthly interest spreads on all outstanding T

loans, as well as any income or sale proceeds from 

purchased collateral. When the program is wound 

down, Treasury-OFS will be repaid principal and interest on the loan if funds are available, and will colle

90 percent of any proceeds remaining in the SPV. Th

value of Treasury-OFS’ loan to the TALF SPV
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estimated net present value of the expected principal, 

interest, and additional proceeds. 

To derive the cash flows to the SPV, and ultimately

Treasury-OFS, the model simulates the performan

of underlying collateral. Loss probabilities on the

underlying collateral are calculated based on analysis of 

historical loan loss and charge off experience by credit 

sector and subsector. Historical mean loss rates and 

volatilities are significantly stressed to reflect recent 

and projected performance. Simulated losses are run

through cash flow models to project impairment to 

the TALF eligible securities. Impaired securities 

projected to be purchased by the SPV, requiring additional Treasury-OFS funding. Simulation out

consisting of a range of loss scenarios are probabilityweighted to generate the expected net present value of 

future cash flows.

A

Under the AGP, Treasury-OFS received prefe

shares and warrants in exchange for providing a 

guarantee on a pool of Citigroup’s assets. The value of 

the AGP preferred shares and warrants is determine

in exactly the same manner that Treasury-OFS uses 

value CPP investments in large institutions. The cost 

that Treasury-OFS expects to incur is based on projected losses on the asset pool under a weighted avera

of different possible loss scenarios.

The value of the AGP is the discounted expected cas

inflows from the preferred shares and warrants less the 

expected costs of the TARP expenditures to make goo

on the asset pool guarantees and adjusted for market risk.

Sensitivity Analys

The ultimate value of TARP investments will only b

known in time. Realized values will vary from current estimates in part because economic and financial

conditions will change. Many TARP investments 

not have readily observable values and their values can 

only be estimated by Treasury-OF

Sensitivity analysis is one way to get some feel for the

degree of uncertainty around Treasury-OFS estimate

In the analysis reported here, Treasury-OFS focuses

the largest components of the TARP, the assets hel

under the Capital Purchase Program (CPP), as well as 

preferred stock investments made under the Targeted 

Investment Program (TIP). Second, Treasury-OFfocuses on two of the most important inputs t

valuation: i) whether and when the banks repay the 

preferred stock, and ii) whether there are changes in 

the market price of publicly-traded preferred stock 

used as a benchmark for valuing the preferred stock 

held in the TAR

Prepayments: The CPP preferred stock carries a 5

percent dividend, which increases to 9 percent after 

5 years. Banks able to repay would be likely to do so

at the 5-year point. However, some banks have repaid 

early. Over $70 billion of the $204 billion of preferred

stock has already been repaid. The model forecasts additional repayments over the next 18 months of $19.5 

billion. Treasury-OFS increased that forecast by $

billion for CPP and TIP combined to reflect additional

anticipated repayments over the next 12 months. As a

sensitivity analysis, Treasury-OFS computed the C

and TIP values without the additional $50 billion

of anticipated repayments. The result is shown in 

Scenario 1 of Table 8

Benchmark Preferred Stock: The valuation procedur

entails observing the market price of publicly-traded 

preferred stock and calibrating the model (in particular 

the risk premium) to match those prices. The calibrated model is then used to price the non-publicly traded 

preferred stock held by the TARP. The benchmar

preferred stock consists of a portfolio of claims issued 

by some of the same institutions with TARP preferre

stock. It is generally the larger institutions that have

issued preferred stock. The TARP preferred stock fo

smaller institutions may not be exactly comparable, 

but the bulk of TARP investments, as measured on 

dollar basis, are in large institutions. 

The preferred stock calibration procedure imposes a 

strict discipline on the model. If one parameter in the

model is changed, calibration to the market benchmark 

will induce an offsetting change in other parameters, 
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with the result that the final valuation is not altered 

much. Changes in the price of the benchmark, however, have the potential to significantly alter the valuations. As a sensitivity analysis, Treasury-OFS increa

and decreases the value of the benchmark preferred 

stock in the CPP and TIP by 10 percent. The result is

shown in Scenarios 2 and 3 of the following table

To put this sensitivity analysis in perspective it is useful 

to consider the range over which actual preferred shares 

have moved in this crisis. Figure 15 shows the prices of

callable preferred shares of those CPP banks that have 

such instruments outstanding. Since their troughs in

early March, these shares have recovered substantially.

Currently the basket of callable preferred shares for 

CPP banks is trading at about 76 percent of their call 

prices which leaves opportunity for further improvement. Of course just last March these instrument

were trading for less than half their current value. 

This considerable volatility, along with the sensitivity 

analysis presented here, gives a good sense of the degree 

of unavoidable uncertainty around the estimates of the 

valuation of TARP investments presented her

Figure 15. Prices of Callable Preferred Shares Issues by C

Banks, (Percent of Call Price) Percen

CPP Repaid CPP Still Outstanding

CPP Launched

FSP

Valuation (8/30)

30%

40%

50%

60%

70%

80%

90%

100%

110%

2007 2008 2009

Note: Weighted averages of prices of callable preferred shares issued by 

three CPP banks that have already repaid their TARP capital injections and 

14 CPP banks that have not. Prices are expressed as a percent of the call

price. Source Bloomber

TABLE 8: Market Value Se

(Dollars in Billions

Current 

Market 

Value

Scenario

1

Scenario

2

Scenario

3

Program

Additional

Repayments

No

Additional

Repayment

10% 

Financial

Stock

Price 

Increas

10% 

Financial

Stock

Price 

Decrease

CPP 133.0 127.7 141.8 1

% change 

from current

N/A -4.03% 6.58% -7.01%

TIP 38.6 36.3 39.8 

% change 

from current

N/A -5.96% 3.05% -2.98%

Total 171.6 164.0 181.5 1

% change 

from current

N/A -4.46% 5.78% -6.10%

1/ The difference between the values contained in this table and the financial 

statements is that the financial statement values include the warrants

2/ Assumes $70 billion in repayments over the next 12 to 18 months

Other Sources of Sensitivity

Wherever possible Treasury-OFS has used dire

market proxies to estimate the value of TARP investments. The volatility of the market prices of the relate

securities is an important indicator of the uncertainty 

of our estimates of what the returns on TARP investments ultimately will be. For example, the price 

Citigroup common shares has fluctuated in a range 

from $2.6 to $5.2 per share just since the SCAP result

were announced in early May
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56 Section 9: systems, controls, and legal 

Section Nine: 

Systems, Controls, and Legal Compliance

Management Assurance 

The Treasury Office of Financial Stability’s (Treasury-OFS) management is responsible for establishin

maintaining effective internal control and financial management systems that meet the objectives of the Federal

Managers’ Financial Integrity Act (FMFIA), 31 U.S.C. Section 3512(c), (d). Treasury-OFS has 

management controls, internal controls over financial reporting, and compliance with the federal financial 

systems standards. As part of the evaluation process, Treasury-OFS considered the results of extensive documentation, assessment and testing of controls across Treasury-OFS, as well as the results of independent a

Treasury-OFS conducted its reviews of internal controls in accordance with te FMFIA and the O

Management and Budget (OMB’s) Circular A-123, Management’s Responsibility for Internal Co

As a result of its reviews, Treasury-OFS management concludes that the management control objectives described below, taken as a whole, were achieved as of September 30, 2009. Specifically, this assurance is pro

relative to Sections 2 (internal controls) and 4 (systems controls) of FMFIA. Treasury-OFS further assu

the financial management systems relied upon by Treasury-OFS are in substantial compliance with the requirements imposed by the Federal Financial Management Improvement Act (FFMIA). Treasury-OF

on any financial systems beyond those maintained by the Department of the Treasury and Fannie Mae

Treasury-OFS’ internal controls are designed to meet the management objectives established by Treasury a

listed below:

a. Programs achieve their intended results effectively and efficiently; 

b. Resources are used consistent with the overall mission

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

d. Laws and regulations are followed

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

f. Performance information is reliable; 

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

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

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

Section 4/

In addition, Treasury-OFS management conducted its assessment of the effectiveness of internal cont

over financial reporting, which includes safeguarding of assets and compliance with applicable laws and 

regulations, in accordance with MB Circular A-123, Management’s Responsibility for Internal Co

Appendix A, Internal Control over Financial Reporting. Based on the results of this evaluation, TreasuryOFS provides unqualified assurance that internal control over financial reporting is appropriately 

and operating effectively as of September 30, 2009, with no related material weaknesses noted.

Sincerely

Herbert M. Allison, J

Assistant Secretary for Financial Stabi
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Internal Control Progra

The Emergency Economic Stabilization Act

established the Office of Financial Stability (TreasuryOFS) on October 3, 2008. Shortly thereafter, TreasuryOFS funded $115 billion to eight financial in

as part of the Capital Purchase Program. From the

inception of that initial program to the current day, the 

importance of effective internal controls in safeguarding the use of taxpayer dollars to provide financial 

stability through the Troubled Asset Relief Progra

(TARP) has remained a top priority of Treasury-OFmanagem

Whether deploying operational processes to support 

new TARP programs or implementing complex budge

and financial reporting processes to support its first 

year of operations, Treasury-OFS endeavors to establi

an effective initial operating capability for internal controls that are first and foremost effective at mitigating 

risk. Then, Treasury-OFS enhances the initial operating capability to a sustainable level that is effective a

efficient, and designed to meet the long-term needs of 

its programs. 

Treasury-OFS is committed to implementing 

effective internal control program and has established 

a Senior Assessment Team (SAT) to guide the offic

efforts to meet the statutory and regulatory requirements surrounding a sound system of internal control. 

The SAT is chaired by the Deputy Chief Financi

Officer (DCFO) and includes representatives fr

all Treasury-OFS functional areas. Further, TreasuryOFS has defined an Internal Control F

that is based on the principles of The Committee 

of Sponsoring Organizations of the Treadwa

Commission (COSO). The SAT leverages this framework in communicating control objectives across

organization and its third party service providers. 

Treasury-OFS established an Internal Control Prog

Office (ICPO) under the Office of the Chief Finan

Officer that is guided by the SAT and focuses 

managing the office’s internal control efforts. The 

ICPO monitors the implementation of the Intern

Control Framework and ensures the achievement of

management control objectives. The ICPO monitor

Treasury-OFS activities to ensure management contr

objectives are achieved by: 

•	 Integrating management controls into TreasuryOFS business processes throu

Developing internal control documentation,

Reviewing internal control responsibilities with

process owners before major program execution 

events, and,

Real-time monitoring of key control effectiveness

during and after significant program execution 

events; 

•	 Conducting “lessons learned” sessions to identify 

and remediate areas requiring improvement; 

•	 Periodic testing of key controls; and,

•	 Monitoring feedback from third party oversight

bodies.

In addition, the internal control environment supporting TARP programs and Treasury-OFS activ

undergoes continuous improvement to remain effective 

and is subject to significant third party oversight by 

the Government Accountability Office (GAO) an

Special Inspector General for the Troubled Asset Re

Program (SIGTA

The Assistant Secretary for Financial Stability m

report annually to the Under Secretary for Domestic

Finance on the adequacy of the various internal

controls throughout the Office of Financial Stabilit

to include financial management systems compliance. 

The Assurance Statement is required by the Feder

Managers’ Financial Integrity Act (FMFIA). In

support the Assistant Secretary’s letter of assurance, th

respective Treasury-OFS divisions prepare individu

statements of assurance. These individual statements of 

assurance provide evidence supporting the achievement 

of Treasury-OFS-wide internal control objectives a

disclose any noted weaknesses. 

Information Technology Syste
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For fiscal year 2009, Treasury-OFS did not direc

support any Information Technology (IT) systems

Significant IT systems used by TARP are supported

various Departmental Offices or bureaus that are part

of Treasury. 

Other IT systems are supported by Financial Age

which provide services to the U.S. Treasury. The

Financial Agency Agreements maintained by t

Treasury Office of the Fiscal Assistant Secretary

support of Treasury-OFS require the Financial Ag

to design and implement suitably robust IT security

plans and internal control programs, to be reviewed 

and approved by the Treasury at least annually.

Compliance with the Improper Payments

Information Act (

The elimination of improper payments is a major focus 

of Treasury-OFS executive management. Manag

are held accountable for developing and strengthening 

financial management controls to detect and prevent 

improper payments, and thereby better safeguard 

taxpayer dollars. 

Treasury-OFS carried out its fiscal year 200

assessment per Treasury-wide guidance and did not 

identify any programs or activities susceptible to 

significant erroneous payments. Treasury-OFS did n

identify any payments to incorrect payees or ineligible 

recipients. Management will continue to monitor

disbursements and re-assess IPIA compliance as n

programs are initiated. 

Areas for Improveme

Over the next year,OFS management is focused

enhancing the maturity of its internal control environment in several key areas as follows:

•	 Because of limited staffing and competing priorities among the various compliance activities and

TARP programs, independent monitoring o

contract requirements for TARP programs ha

been constrained. Treasury-OFS has been challenged to develop sufficient resources to respo

to the number of requirements imposed by TAR

programs, the large number of participants in 

those programs, and recommendations by the 

oversight entities. Management is building the personnel resources to aggressively address a number

of compliance priorities, including for example, 

monitoring Treasury-OFS’ contract complian

status of CPP recipients’ compliance. 

•	 The system of record used to manage the Home 

Affordable Modification Program (HA

requires increased functionality to meet the control 

requirements of the program. Weaknesses in these 

systems are currently mitigated by our detective internal controls. However, management recognizes 

that these system shortfalls must be addressed in 

the near term, as the volume and complexity of 

these system functions increase. 

•	 ESA required the preparation of stand-al

financial statements that would be audited by the 

GAO. As a new entity, neither Treasury-O

our AO auditors have previously been throu

the statement preparation and auditing process for 

this complicated entity. An additional complication resulted fromEESA and OMB’s interpretation of the statute to require the applica

complex accounting required by the Federal Credit

Reform Act of 1990 to all of Treasury-OFS acquisitions (i.e. equities, loans and asset guarant

Given these facts, Treasury-OFS faced a num

of challenges, including a shortage of experienced 

credit reform staff and evolving and untested 

financial reporting processes and controls. Given

the pace and evolution of the TARP program

throughout the year and subsequent impact on 

the accounting and financial reporting areas, 

certain accounting practices continued to evolve 

throughout the period ended September 30, 2009.

In an effort to keep pace with these changes,

management continues to focus its attention on 

the development of robust processes that meet 

business needs and internal control requirements. 

In developing its accounting processes and controls, management has sought to balance effective
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risk mitigation, flexibility to respond to new 

programs, and efficiency through shared resources. 

Accordingly, the maturation and formalization of

financial capabilities and controls will continue 

into fiscal 2010.

As noted in Section Seve, EESA mandated th

FCRA be used to determine the cost of all 

investments for budgetary purposes. The FCRA cal

for agencies to record the “subsidy” cost of an investment at the time of the disbursement, which requires 

the use of detailed models following the methodology 

described in Section Eight  Due to a compresse

timeframe, management was not able to execute 

the planned controls around manual data inputs in 

the credit subsidy models in such a manner so as to 

prevent non-material errors from occurring in the 

final re-estimate production process. Significant errors

identified were corrected and amounts were properly 

reflected in the financial statements. In year one, our

internal controls over data inputs were intended to 

provide full coverage of the models, but of necessity 

our resources focused more on the high risk programs 

and items. In fiscal year 2010, we will focus more

attention on improving internal control effectiveness 

in mitigating the risk of errors in data inputs for all 

models.

Oversight Entiti

Per the ESA requirements, Treasury-OFS ha

oversight entities with specific responsibilities with 

regard to TARP, which are the Financial Stabil

Oversight Board, the GAO, the Special Ins

General for TARP, and the Congressional Oversi

Panel.  summary of the responsibilities and activities

of each of these entities is provided below.

Financial Stability Oversight B

The Oversight Board was established by section 10

of the ESA to help oversee the Troubled Asset R

Program and other emergency authorities and facilities granted to the Secretary of the Treasury under

the EESA. The Oversight Board is composed o

Secretary of the Treasury, the Chairman of the Board o

Governors of the Federal Reserve System, the Direc

of the Federal Housing Finance Agency, the Chairm

of the Securities and Exchange Commission, and th

Secretary of the Department of Housing and Urban

Development. Through Oversight Board meeting

and consultations between the staffs of the agencies 

represented by each Member of the Oversight Boar

the Oversight Board reviews and monitors the development and ongoing implementation of the policies an

programs under TARP to restore liquidity and stabilit

to the U.S. financial system. The Oversight Boa

meets each month, and receives presentations and 

briefings from Treasury officials and, where appropriate, other government officials, including officials from 

the other agencies represented on the Oversight Board

concerning the implementation and the effects of the 

programs established under TARP

The Oversight Board also monitors Treasury’s response

to the recommendations made by SIGTARP and

GAO. Throughot FY 2009, the Oversight

received updates on Treasury’s progress in addressing the issues raised by these oversight bodies with 

respect to transparency, the establishment of internal 

controls, compliance and risk monitoring, staffing and 

Treasury’s communication strategy. In addition, staff

of the Oversight Board and of the agencies represente

by each Member of the Oversight Board continued 

have regular discussions with representatives from the 

SIGTARPand GAO to discuss recent and upcoming activities of the oversight bodies. These 

continued to help facilitate coordinated oversight and 

minimize the potential for duplication. 

The Oversight Board issues a Quarterly Report 

each three-month period. Copies of approved minutes 

of the Oversight Board’s meetings and the Quarter

Reports are made available on the internet at: http:/

www.financialstability.gov/about/oversight.html.

Section 116(a)(3) ofEESA stipulates that 

Comptroller General [who heads the GAO] sh

submit reports of findings ... regularly and no less 
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frequently than once every 60 days, to the appropriate 

committees of Congress.” “The Comptroller may also 

submit special reports ... as warranted by the findings 

of its oversight activities.” 

Treasury-OFS has a statutory obligation und

Section 116(b)(3) ofEESA to take corrective act

in response to audit deficiencies identified by the 

Comptroller General or other auditor engaged by

the TARP or certify to the appropriate committee

of Congress that no action is necessary or appropriate. In addition, under Section 236 of the Legislati

Reorganization Act of 1970, Treasury is required t

respond in writing to Congress within 60 days of the 

issuance date of a AO repor

Currently, the AO is engaged in eight audits related 

TARP. Treasury-OFS responds to information requ

from the AO by providing responsive documen

and other information and facilitating comprehensive 

briefings on TARP programs with senior Treasury staff

In addition, Treasury-OFS apprises he GAO 

developments in current and proposed programs and 

policies under EE

To date, the AO has issued 41 recommendatio

in its reports issued in December 2008 and January, 

March, June, July, October, and November 200

The recommendations have focused on the following 

themes: (1) transparency, reporting, and accountability; (2) management infrastructure; and (3) 

communication. In response to the recommendations,

Treasury-OFS has developed remediation plans a

actively communicates the status of its remediation 

efforts to the AO and will continue to do so 

2010. Treasury-OFS has fully or partially implement

32 of the recommendations and has responded or is in 

the process of responding to six recommendations; the 

remaining recommendations have been deemed closed 

by the AO and/or Treasury-OFS has taken no ac

Treasury-OFS’ actions in response o GAO recommendations in

•	 Treasury-OFS delivered draft internal contro

policies and procedures to AO on June 30, 200

Many of the final policies and procedures covering a majority ofOFS were deliveredto 

September 30, 2009. The bulk of the remainder

of Treasury-OFS policies and procedures will 

delivered by December 31, 2009.

•	 Treasury-OFS has completed draft risk assessmen

of TALF, CPP, HAMP, contracting and h

resources. Plans have been developed for high risk 

areas.

•	 Treasury-OFS continues to expeditiously hi

personnel to carry out and oversee HAMP as wel

as finalizing a comprehensive system of HAM

internal controls.

Additional detail regarding Treasury-OFS’ progress on the GAO’s recommendations 

found at http://www.financialstability.gov/docs/

SummaryResponseGAO10-8-2009.pdf.

SI

The SIGTARP was created by section 121 

The objectives of SIGTARP are to investigate and prevent fraud, waste and abuse in TARP programs,

trying to promote transparency in TARP programs

SIGTARP must report to Congress each qua

certain information about TARP over the precedin

quarter. As of September 30, 2009, SIGTA

issued three quarterly reports in February 2009, Apri

2009 and July 2009. SIGTARP also has a duty u

EESA to conduct audits and investigations of the purchase, management, and sale of assets under any

program, and with certain limitations, any other action 

under EESA. As of September 30, 200

has completed four audits and is currently conducting 

eleven audits that are at various stages. 

Treasury-OFS has worked closely with 

and maintains regular lines of communications with 

the personnel conducting audits and investigations of 

TARP programs. Treasury-OFS staff also regularly provides updates to SIGTARP about program d

implementation issues. Treasury-OFS has benefit
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from their involvement in the development of TAR

programs and policies as we pursue our common goal 

of carrying out the objectives of EESA, which are

promote financial stability and protect the interests of 

the taxpayers. 

As of September 30, 2009, SIGTARP has iss

individual recommendations in their reports. General

topics covered by SIGTARP’s recommendat

include reporting on use of TARP funds, valuation o

the TARP portfolio, and potential fraud vulnerabilitie

associated with PPIP, TALF and HAMP. Treasury-OFhas given careful consideration to the recommendations in SIGTARP’s prior reports, and 

responses detailing what actions that Treasury-OFS h

taken or will take to address SIGTARP’s recommendations. Treasury-OFS’ policies and programs cu

address many of the issues raised by SIGTARP in t

recommendations, and in other cases Treasury-OFtook specific action to implement SIGTARP’s recommendations. Treasury-OFS also has or wi

alternative approaches that we believe address some of 

the issues raised by SIGTARP in their recommendations. SIGTARP has closed 29 of its recomm

based on Treasury-OFS’ response to the 

recommendations.

Congressional Oversight Pane

The Congressional Oversight Panel (COP’s) mandate includes assessing the impact of Treasury-

spending to stabilize the economy, evaluating market 

transparency, ensuring effective foreclosure mitigation 

efforts, and guaranteeing that Treasury-OFS’ actio

are in the best interest of the American people

The COP consists of five panel members appointed

as follows: 1 member appointed by the Speaker of the

House of Representatives; 1 member appointed by the

minority leader of the House of Representatives; 1 member appointed by the majority leader of the Senate, 

member appointed by the minority leader of the Senate,

and 1 member appointed by the Speaker of the House

of Representatives and the majority leader of the Senate

after consultation with the minority leader of the Senate

and the minority leader of the House of Representatives.

The COP also employs a professional staff, numbering
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approximately 27, who are responsible for carrying out 

the day-to-day work of the Panel. The COP also reaches

out to experts, primarily academics, to conduct analysis 

in support of their work. 

EESA requires the COP to produce a report ever

days examining Treasury’s efforts and the impact on the 

economy of those efforts. The statute grants the COP

the authority to hold hearings, review official data, and 

write reports on actions taken by Treasury and financial 

institutions and their effect on the economy. Generally,

the COP focuses on one program or topic each month

and produces a report that describes the program, 

assesses its design and implementation and presents 

recommendations. Many of their recommendations

have focused on issues of transparency and what they 

see as the need to operate the programs in a way that 

the public can understand exactly how their taxpayer 

dollars are being used. 

The COP staff work in a fairly independent fashion,

using publically available documents and information to develop the outlines of their reports. They 

also request information, documents, and data from 

Treasury-OFS. Treasury-OFS regularly briefs COP

on the topic of their current focus, as well as any new 

initiatives or changes in Treasury-OFS program

The COP also convenes regular hearings on Capitol

Hill, usually timed to coincide with the issuance of their 

reports. Treasury makes its senior staff available to appear 

before the COP as witnesses; the Secretary appear

before the COP on a quarterly basis, and Assistan

Secretary for Financial Stability Herb Allison is m

available as requested for other hearings. Other Treasury

officials have also appeared before the COP as requested

To date, the COP has issued the following reports

•	 Questions About the $700 Billion Emerge

Economic Stabilization Fun

•	 Accountability for the Troubled Asset Relief Prog

•	 Special Report on Regulatory Re

•	 February Oversight Report: Valuing Treasur

Acquisition

•	 Foreclosure Crisis: Working Toward a Soluti

•	 Assessing Treasury’s Strategy: Six Months of

•	 Stress Testing and Shoring Up Bank Capit

•	 Lending to Small Businesses and Families and 

Impact of the 

•	 TARP Repayments, Including the Repurchas

Stock Warrant

•	 Special Report on Farm Loan Restruct

•	 The Continued Risk of Troubled Asse

•	 The Use of TARP Funds in Support 

Reorganization of the Domestic Automotive Indus

•	 An Assessment of Foreclosure Mitigation Eff

After Six Mon

•	 Guarantees and Contingent Payments in TA

and Related Program
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Section 10: other management informa

Section Ten: 

Other Management Information

Over the past year, Treasury-OFS has grown into

organization of 198 full-time employees (101 career 

civil servants, 85 term appointments, and 12 detailees) 

who support the TARP. These employees include 1

employees who report through the Department of the 

Treasury’s Office of General Counsel and approximately 40 others outside of Treasury-OFS who cont

to provide support to the office on an as-needed basis. 

Treasury-OFS continues to use direct-hire and oth

appointments to expedite hiring of highly-qualified 

candidates, which has enabled Treasury-OFS to redu

the number of temporary and contract staff and 

strengthen the continuity and institutional knowledge of the workforce. The Y 2009 Administrati

budget obligations totaled $248 million split between 

salaries and benefits of approximately $14 million and 

non-personnel services, generally contracts, of approximately $234 million. 

As noted in Section One, Treasury-OFS is made 

seven divisions.

The Chief Investment Office (CIO) is responsible 

program development and the execution and management of all investments made pursuant to EE

Investments can be made by either purchasing or insuring “troubled assets” (as defined in EESA). 

relies on contracted asset managers and a custodian to 

assist in the management of acquired or insured assets. 

The CIO also manages a contract with an investmen

advisor who provides guidance on the selection of asset 

managers.

The Office of the Chief Financial Officer (CFO)

lead responsibility within Treasury-OFS for budget formulation and execution, cash management, accounting, financial systems, financial reporting, and intern

controls. In each of these areas the CFO works close

with the appropriate offices within main Treasury. 

The CFO manages Treasury-OFS budget, cash 

requirements and accounting support activities for 

all of Treasury-OFS concentrating on accounting a

reporting activities required by the Federal Credit

Reform Act to include modeling of cash flow and al

required re-estimates. The Office serves as liaison with

Government Accountability Office (GAO) staf

financial statement reporting and internal controls. 

For theFY 2009 reporting cycle, the OCFO le

implementation of the MB Circular A-123 inter

controls requirements for Treasury-O

The Office of the Chief of Homeownership

Preservation is responsible for identifying opportunities 

to help homeowners while also protecting taxpayers. 

The key policy goals of the Office are to reduce the

number of principal residences lost to foreclosure and 

to stabilize the value of homeownership in surrounding 

communities through polices which impact homeowners, home mortgage loans, lenders, servicers and their 

communities. The priorities of the Office are to: implement the Administration’s loss mitigation program

develop and implement a robust outreach program 

targeted to at-risk homeowners; outline and implement strategies to regularly update the Administration,

Congress, the public, and other key stakeholders, on 

results; and monitor, analyze and report on the results 

of the loan modification program.

The Office of the Chief Administrative Offic

(OCAO) is responsible for developing an offi

infrastructure and managing internal operations 

in Treasury-OFS. The OCAO works to inte

Treasury-OFS investments, program, compliance, ris

finance, and legal functions and facilitates communication across the organization. The OCAO supports t

execution of TARP programs and the management o

Treasury-OFS employees and contractual resource

The OCAO works with the Assistant Secretary

Financial Stability to set and execute goals and objectives. The OCAO works with each Trea
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64 Section 10: other management info

organizational entity to effectively manage the budget, 

facilities, information technology (IT), acquisition

management oversight, document flows, physical 

security and privacy, and workforce planning.

The Office of the Chief Counsel provides legal advice

to the Assistant Secretary. The Chief Counsel report

to the Assistant General Counsel (Banking a

Finance) in Treasury’s Legal Division. The Office 

the Chief Counsel is responsible for the legal affairs of 

Treasury-OFS. The Office is involved in the structuring of Treasury-OFS programs and activities to 

compliance with ESA and with other laws and regulations and to insure the programs and activities are w

designed from a legal point of view. The Office assists

in responding to OIA requests, the inquiries of oversight bodies such as he GAO and the Congres

Oversight Panel (COP) and any litigation concernin

EESA or Treasury-OFS activities. The Offi

works on a variety of other legal matters pertaining to 

Treasury-OFS operation

The Office of Reporting is responsible for coordinating Treasury-OFS’ work with the external overs

entities including the GAO, Special Inspector Ge

for TARP, Financial Stability Oversight Boar

the Congressional Oversight Panel. The Office als

prepares periodic reports to the Congress under E

The Office of Internal Review (OIR) was rec

established within Treasury-OFS to ensure that prop

management controls are developed, in place, and 

operating as intended. Management controls include

organization, policies, and procedures, all of which 

are designed to help program and financial managers 

achieve results and safeguard the integrity of their 

programs. The IR also works with the other progr

offices to identify the most significant risks that the 

TARP faces including operational risk, credit risk

market risk, and reputational risk. The office assesses 

those risks (either quantitatively or qualitatively) and 

works to ensure that the assessments are integrated 

into the decision making processes of each business 

line of the TARP and that risks are managed in 

consistent fashion across business lines. The IR sco

of responsibilities also covers the compliance oversight 

area including developing and implementing, in conjunction with the relevant program offices, processes 

and procedures to provide for overall program compliance with EESA. These include the HAMP pr

requirements, executive compensation, statutory 

reporting, and conflict of interest requirements.

Treasury-OFS is not envisioned as a permane

organization, so to the maximum extent possible and 

appropriate, Treasury-OFS utilizes private sector expertise in support of the execution of TARP progr

Fannie Mae and Freddie Mac accounted for alm

thirty percent of the non-personnel services to assist in 

the administration and compliance, respectively, of the 

Home Affordable Modification Program. Additionall

asset managers were hired to serve as financial agents in 

managing the portfolio of assets associated with several 

TARP programs. The balance of the non-personne

private sector firms were engaged to assist with the 

significant volume of work associated with the TAR

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

advisory, and information technology.
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Section Eleven: 

Limitations of the Financial Statements

The principal financial statements have been prepared 

to report the financial position and results of operations of Treasury-OFS’ Troubled Asset Relief Prog

consistent with the requirements of 31 U.S.C.

3515(b). While the statements have been prepared 

from the books and records of the Office of Financia

Stability and the Department of the Treasury in

accordance with section 116 of ESA and GA

Federal entities and the formats prescribed by O

the statements are in addition to the financial reports 

used to monitor and control budgetary resources which 

are prepared from the same books and records. 

The statements should be read with the realization that 

they are for a component of the U.S. Government, 

sovereign entity.
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66
Part 2

Agency Financial Statements

Part 2 • agency Financial Statement

Message from the Chief Financial Officer

I am very pleased to submit the Office of Financial Stability’s (OFS) Annual Financial Report for FY 2009. This 

report provides our stakeholders with meaningful financial results and program performance as required by the 

Emergency Economic Stabilization Act (EESA) and the Reports Consolidation Act. The unqualified audit opinion 

provided by our auditor, the Government Accountability Office (GAO), on these financial statements represents 

an extraordinary achievement by OFS and Treasury staff. The support of our contractors, staff at the Office of 

Management and Budget and the GAO audit team was invaluable to this success. I am exceptionally proud and

appreciative of the effort and commitment made by everyone involved.

Under the EESA authority as described throughout this report, the government made unprecedented investments 

in private entities through the Troubled Asset Relief Program (TARP). The unique features of the EESA programs, 

as well as the statutory requirement that the budgetary cost of the programs be determined under the standards of 

the Federal Credit Reform Act (FCRA), adjusted for market risk, meant that the OFS had to navigate unchartered 

ground in Federal budget and accounting concepts. For these and related reasons, creating the accounting and 

reporting infrastructure and internal control environment to support the development of the first year financial 

statements for the TARP, was an extraordinary challenge. 

As a start up organization with an unprecedented emergency mission to stabilize the nation’s financial system, the 

OFS moved swiftly to develop and implement eight new programs. The face value of the amounts obligated for 

these programs in FY 2009 totaled $454 billion, nearly as much as the entire combined FY 2008 Federal nondefense discretionary outlays. OFS’s budget, accounting, and financial reporting policies and operations had to 

be designed and executed simultaneously with the establishment of the new programs. OFS was able to leverage 

a number of Treasury’s existing financial management systems and resources, but also had to develop procedures, 

reports, models, and methodologies from scratch. 

All of the TARP initiatives except for the housing program are loans, guarantees or investments and are accounted 

for using FCRA methods of net present value for budgeting and financial reporting. Cost models (or “subsidy” 

models as they are called under FCRA) had to be developed for all of the programs and unique transactions. 

Never before has a Federal entity created as many subsidy cost models in such a short period made even more difficult by the vastness and complexity of TARP’s programs. While we and GAO identified some non-material errors 

and opportunities for improvements in the models and processes, overall the results were outstanding, given the 

magnitude of the effort required this year. Because the credit and investment programs constitute the vast majority 

of OFS’s financial activity, continuing to build a very strong internal control process and high quality, state of the 

art subsidy cost models is a top priority for us.

A consistent focus on internal control was a mainstay of the OFS’s efforts. From the first transactions in October, 

2008, 23 days after passage of EESA, OFS instituted comprehensive controls around the highest risk elements 

of the transaction lifecycle – for example the disbursement and receipt of funds and receipt of appropriate consideration such as preferred shares and warrants associated with a transaction. OFS aggressively used prototyping 

to establish an effective process design, cross-functional meetings to ensure cohesion across areas, and real time 

control monitoring of all transactions to improve accuracy in execution. We focused on core controls such as appropriate levels of authorization and reconciliation of critical transaction information. Over the course of the year, 

we were able to maturate much of our internal control capacity from heavily monitored, individual transactions, to 

mssage ro
OFFICE OF FINANCIAL STABILITY • Agency

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documented, repeated processes with embedded control monitoring, automated control evidence collection, and 

ongoing control testing. 

Finally, OFS implemented the internal control requirements for financial reporting under Appendix A of OMB 

Circular A-123. OFS staff within the Office of the Chief Financial Officer worked closely with the program and 

other support offices to develop a comprehensive sub-certification and review process supporting management’s 

interim and final assurance statements.

Looking ahead, we plan to continue improving our financial management capacity, including strengthening our

financial reporting processes, developing additional or enhancing existing documentation supporting our policies, 

and formalizing our financial data management approach. We will be actively addressing GAO’s audit findings 

and look forward to building on our successes this year to resolve the outstanding issues identified in this audit.

Successfully preparing the first year financial statements for the programs developed under the EESA required 

extraordinary dedication and commitment. It has been a privilege to lead this effort and I want to extend my 

thanks to the many people who contributed to making this endeavor successful.

Thank you for your interest in our FY 2009 Annual Financial Report.

Jennifer E. Main

Chief Financial Officer

70 ssage 
Part 2 • agency Financial Statement

Government Accountability Office (GAO)’s Report

on FY 2009 Financial Statements

Page 5 GAO-10-301 OFS Fiscal Year 2009 Financial Statement

United States Government Accountability Office

Washington, D.C. 20548

Page 5 GAO-10-301 OFS Fiscal Year 2009 Financial Statement

A

To the Assistant Secretary for Financial Stability AudtoRsir’eport

In accordance with the Emergency Economic Stabilization Act of 2008 

(EESA),1

 we are required to audit the financial statements of the Troubled 

Asset Relief Program (TARP), which is implemented by the Office of 

Financial Stability (OFS).2

 In our audit of OFS’s financial statements for 

TARP for the period from October 3, 2008, (date of OFS’s inception) 

through September 30, 2009, we found 

• the financial statements are presented fairly, in all material respects, in 

conformity with U.S. generally accepted accounting principles;

• although internal controls could be improved, OFS maintained, in all 

material respects, effective internal control over financial reporting as 

of September 30, 2009; and

• no reportable noncompliance in the period ended September 30, 2009, 

with provisions of laws and regulations we tested.

The following sections discuss in more detail (1) these conclusions; (2) our 

conclusion on Management’s Discussion and Analysis (MD&A) and other 

required supplementary and other accompanying information; (3) our audit 

objectives, scope, and methodology; and (4) OFS’s comments on a draft of 

this report. In addition to our responsibility to audit OFS’s annual financial 

statements for TARP, we also are required under EESA to report at least 

every 60 days on the findings resulting from our oversight of the actions 

taken under TARP.3

 This report responds to both of these requirements. We 

1

Section 116(b) of EESA, 12 U.S.C. § 5226(b), requires that the Department of the Treasury 

(Treasury) annually prepare and submit to Congress and the public audited fiscal year 

financial statements for TARP that are prepared in accordance with generally accepted 

accounting principles. Section 116(b) further requires that GAO audit TARP’s financial 

statements annually in accordance with generally accepted auditing standards.

2

Section 101 of EESA, 12 U.S.C. § 5211, established OFS within Treasury to implement TARP.

3

Section 116 of EESA, 12 U.S.C. § 5226, requires the U.S. Comptroller General to report at 

least every 60 days, as appropriate, on findings resulting from oversight of TARP’s 

performance in meeting the act’s purposes; the financial condition and internal controls of 

TARP, its representatives, and agents; the characteristics of asset purchases and the 

disposition of acquired assets, including any related commitments entered into; TARP’s 

efficiency in using the funds appropriated for its operations; its compliance with applicable 

laws and regulations; and its efforts to prevent, identify, and minimize conflicts of interest 

among those involved in its operations. 

GAO Rert on f 2
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Page 6 GAO-10-301 OFS Fiscal Year 2009 Financial Statement

have issued numerous other reports on TARP in connection with this 60-

day reporting responsibility which can be found on GAO’s Web site at 

http://www.gao.gov.

Opinion on Financial 

Statements

OFS’s financial statements for TARP, including the accompanying notes, 

present fairly, in all material respects, in conformity with U.S. generally 

accepted accounting principles, OFS’s assets, liabilities, and net position as 

of September 30, 2009, and its net cost, changes in net position, and 

budgetary resources for the period from October 3, 2008, (date of OFS’s 

inception) through September 30, 2009.

As discussed in notes 2 and 6 to OFS’s financial statements for TARP, the 

valuation of TARP direct loans, equity investments, and asset guarantees is 

based on estimates using economic and financial credit subsidy models. 

The estimates use entity-specific as well as relevant market data as the 

basis for assumptions about future performance, and incorporate an 

adjustment for market risk to reflect the variability around any unexpected 

losses. In valuing the direct loans, equity investments, and asset 

guarantees, OFS management considered and selected assumptions and 

data that it believed provided a reasonable basis for the estimated subsidy 

allowance and related subsidy costs reported in the financial statements.4

 

However, there are a large number of factors that affect these assumptions 

and estimates, which are inherently subject to substantial uncertainty 

arising from the likelihood of future changes in general economic, 

regulatory, and market conditions. The estimates have an added 

uncertainty resulting from the unique nature of transactions associated 

with the multiple initiatives undertaken for TARP and the lack of historical 

program experience upon which to base the estimates. As such, there will 

be differences between the net estimated values of the direct loans, equity 

investments, and asset guarantees as of September 30, 2009, that totaled 

$239.7 billion, and the amounts that OFS will ultimately realize from these 

assets, and such differences may be material. These differences will also 

affect the ultimate cost of TARP. Further, the ultimate cost will change as 

4

The subsidy allowance represents the difference between the amounts paid by OFS to 

acquire the direct loans and equity investments and the reported value of such assets. The 

subsidy cost is composed of (1) the subsidy cost allowance, (2) net intragovernmental 

interest cost, (3) certain inflows from the direct loans and equity investments (e.g., 

dividends, interest, proceeds from repurchase of warrants by financial institutions, and 

other realized fees), and (4) the estimated discounted net cash flows related to the Asset 

Guarantee Program.

72 GAO Rert on f
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Page 7 GAO-10-301 OFS Fiscal Year 2009 Financial Statement

OFS continues to purchase troubled assets and incur related subsidy costs 

as well as incur costs under other TARP initiatives.5

 OFS’s authority to 

purchase or insure additional troubled assets expires on December 31, 

2009, but may be extended by the Secretary of the Treasury to up to 

October 3, 2010.6

As discussed in note 1 to the financial statements, while OFS’s financial 

statements reflect activity of OFS in implementing TARP, including 

providing resources to various entities to help stabilize the financial 

markets, the statements do not include the assets, liabilities, or results of 

operations of commercial entities in which OFS has a significant equity 

interest. According to OFS officials, OFS’s investments were not made to 

engage in the business activities of the respective entities and OFS has 

determined that none of these entities meet the criteria for a federal entity.

Opinion on Internal 

Control

Although certain internal controls could be improved, OFS maintained, in 

all material respects, effective internal control over financial reporting as 

of September 30, 2009, that provided reasonable assurance that 

misstatements, losses, or noncompliance material in relation to the 

financial statements would be prevented or detected and corrected on a 

timely basis. Our opinion on internal control is based on criteria 

established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal 

Managers’ Financial Integrity Act (FMFIA). 

5

 Under EESA, as amended, OFS is authorized to purchase or insure up to almost $700 

billion in troubled assets.

6

 Section 120 of EESA, 12 U.S.C. § 5230, established that the authorities under Sections 

101(a), excluding Section 101(a)(3), and Section 102, shall terminate on December 31, 2009. 

Section 120 of EESA further established that the Secretary of the Treasury, upon submission 

of a written certification to Congress, may extend the authority provided under these 

sections of EESA to expire no later than 2 years from the date of the enactment of EESA 

(Oct. 3, 2008).

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We identified two significant deficiencies7 in OFS’s internal control over 

financial reporting, which although not material weaknesses, are important 

enough to merit management’s attention. These deficiencies, described in 

more detail later in this report, concern OFS’s (1) accounting and financial 

reporting processes, and (2) verification procedures for data used for asset 

valuations. 

We will be reporting additional details concerning these significant 

deficiencies separately to OFS management, along with recommendations 

for corrective actions. We also identified other deficiencies in OFS’s system 

of internal control that we consider not to be material weaknesses or 

significant deficiencies. We have communicated these matters to 

management and, where appropriate, will report on them separately.

Significant Deficiencies Since its creation on October 3, 2008, OFS has made significant progress in 

building a financial reporting structure, including developing an internal 

control system over TARP activities and transactions and addressing key 

accounting and financial reporting issues necessary to enable it to prepare 

financial statements, and receive an audit opinion on those statements, for 

the period ended September 30, 2009. However, OFS’s financial reporting 

structure continued to evolve throughout the year as new TARP programs 

were implemented, which posed a challenge to OFS’s ability to establish a 

comprehensive system of internal control while simultaneously reacting to 

market events and implementing TARP initiatives. This challenge 

contributed to the following two significant deficiencies in OFS’s internal 

control that we identified.

Accounting and Financial 

Reporting Processes

While OFS had developed and implemented controls over TARP 

transactions and activities, we identified several control deficiencies that 

collectively represented a significant deficiency in OFS’s internal control 

7

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control 

that is less severe than a material weakness, yet important enough to merit attention by 

those charged with governance. A material weakness is a deficiency, or a combination of 

deficiencies, in internal control such that there is a reasonable possibility that a material 

misstatement of the entity’s financial statements will not be prevented, or detected and 

corrected on a timely basis. A deficiency in internal control exists when the design or 

operation of a control does not allow management or employees, in the normal course of 

performing their assigned functions, to prevent or detect and correct misstatements on a 

timely basis.

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over its accounting and financial reporting processes. Specifically, OFS did 

not effectively implement its review and approval process for preparing its 

financial statements and related disclosures for TARP. We identified 

incorrect amounts and inaccurate, inconsistent, and incomplete 

disclosures in OFS’s draft financial statements, footnotes, and MD&A for 

TARP that were significant, but not material, and that were not detected by 

OFS. OFS revised the financial statements, footnotes, and MD&A to 

address the issues that we identified. In addition, OFS had not finalized its 

procedures related to its processes for accounting for certain program 

transactions, preparing its September 30, 2009, financial statements, and its 

oversight and monitoring of financial-related services provided to OFS by 

asset managers and certain financial agents. Further, OFS did not have 

proper segregation of duties over a significant accounting database it uses 

in valuing its assets in that the same individual was responsible for 

performing both the data entry and the reconciliation of the data output. 

However, OFS had other controls over TARP transactions and activities 

that reduced the risk of misstatements resulting from these deficiencies. 

Properly designed and implemented controls over the accounting and 

financial reporting processes are key to providing reasonable assurance 

regarding the reliability of the balances and disclosures reported in the 

financial statements and related notes in conformity with generally 

accepted accounting principles.

Verification Procedures for 

Data Input for Asset 

Valuations

OFS did not effectively implement its verification procedures for certain 

assumptions and related data that were input into the economic and 

financial credit subsidy models used for the valuation of TARP direct loans, 

equity investments, and asset guarantees. Specifically, we identified data 

input errors to the estimation models, such as incorrect dividend rates and 

maturity dates, that were not detected by OFS’s verification procedures. 

Significant errors that we identified were corrected and amounts were 

properly reflected in the September 30, 2009, financial statements. OFS did 

perform procedures to assess the reasonableness of the model outputs, 

including comparison of the asset valuations calculated by the model with 

independently performed valuations. We believe that these procedures 

reduced the risk of misstatements resulting from the data input errors. 

Nonetheless, we believe the ineffective implementation of data input 

verification procedures represents a significant deficiency in OFS’s internal 

control warranting management’s attention. Effective verification of data 

inputs used in the subsidy models is key to providing reasonable assurance 

that the asset valuations and related subsidy cost are reliably reported in 

the financial statements. 

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Compliance with Laws 

and Regulations

Our tests of OFS’s compliance with selected provisions of laws and 

regulations for the period ended September 30, 2009, disclosed no 

instances of noncompliance that would be reportable under U.S. generally 

accepted government auditing standards. The objective of our audit was 

not to provide an opinion on overall compliance with laws and regulations. 

Accordingly, we do not express such an opinion.

Consistency of Other 

Information

OFS’s MD&A, other required supplementary information, and other 

accompanying information contain a wide range of information, some of 

which is not directly related to the financial statements. We did not audit 

and we do not express an opinion on this information. However, we 

compared this information for consistency with the financial statements 

and discussed the methods of measurement and presentation with OFS 

officials. On the basis of this limited work, we found no material 

inconsistencies with the financial statements, U.S. generally accepted 

accounting principles, or the form and content guidance in Office of 

Management and Budget Circular No. A-136, Financial Reporting 

Requirements. 

Objectives, Scope, and 

Methodology

OFS management is responsible for (1) preparing the financial statements 

in conformity with U.S. generally accepted accounting principles; (2) 

establishing and maintaining effective internal control over financial 

reporting, and evaluating its effectiveness; and (3) complying with 

applicable laws and regulations. Management evaluated the effectiveness 

of OFS’s internal control over financial reporting as of September 30, 2009, 

based on the criteria established under FMFIA. OFS management’s 

assertion based on its evaluation is included in appendix I.

We are responsible for planning and performing the audit to obtain 

reasonable assurance and provide our opinion about whether (1) OFS’s 

financial statements are presented fairly, in all material respects, in 

conformity with U.S. generally accepted accounting principles; and (2) OFS 

management maintained, in all material respects, effective internal control 

over financial reporting as of September 30, 2009. We are also responsible 

for (1) testing compliance with selected provisions of laws and regulations 

that have a direct and material effect on the financial statements, and (2) 

performing limited procedures with respect to certain other information 

accompanying the financial statements.

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In order to fulfill these responsibilities, we

• examined, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements;

• assessed the accounting principles used and significant estimates made 

by management;

• evaluated the overall presentation of the financial statements;

• obtained an understanding of the entity and its operations, including its 

internal control over financial reporting;

• considered OFS’s process for evaluating and reporting on internal 

control over financial reporting that OFS is required to perform by 

FMFIA and Section 116(c) of EESA;

• assessed the risk that a material misstatement exists in the financial 

statements and the risk that a material weakness exists in internal 

control over financial reporting;

• evaluated the design and operating effectiveness of internal control over 

financial reporting based on the assessed risk; 

• tested relevant internal control over financial reporting; 

• tested compliance with selected provisions of the following laws and 

regulations: EESA, as amended; the Antideficiency Act, as amended; the 

Federal Credit Reform Act of 1990; and the Purpose Statute; and

• performed such other procedures as we considered necessary in the 

circumstances. 

An entity’s internal control over financial reporting is a process affected by 

those charged with governance, management, and other personnel, the 

objectives of which are to provide reasonable assurance that (1) 

transactions are properly recorded, processed, and summarized to permit 

the preparation of financial statements in conformity with U.S. generally 

accepted accounting principles, and assets are safeguarded against loss 

from unauthorized acquisition, use, or disposition; and (2) transactions are 

executed in accordance with the laws governing the use of budget 

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Page 12 GAO-10-301 OFS Fiscal Year 2009 Financial Statement

authority and other laws and regulations that could have a direct and 

material effect on the financial statements. 

We did not evaluate all internal controls relevant to operating objectives as 

broadly established under FMFIA, such as those controls relevant to 

preparing statistical reports and ensuring efficient operations. We limited 

our internal control testing to testing controls over financial reporting. 

Because of inherent limitations, internal control may not prevent or detect 

and correct misstatements due to error or fraud, losses, or noncompliance. 

We also caution that projecting any evaluation of effectiveness to future 

periods is subject to the risk that controls may become inadequate because 

of changes in conditions, or that the degree of compliance with the policies 

or procedures may deteriorate. 

We did not test compliance with all laws and regulations applicable to OFS. 

We limited our tests of compliance to selected provisions of laws and 

regulations that have a direct and material effect on the financial 

statements for the period ended September 30, 2009. We caution that 

noncompliance may occur and not be detected by these tests and that such 

testing may not be sufficient for other purposes. 

We performed our audit in accordance with U.S. generally accepted 

government auditing standards. We believe our audit provides a reasonable 

basis for our opinions and other conclusions.

Agency Comments In commenting on a draft of this report, the Assistant Secretary, Office of 

Financial Stability, stated OFS concurred with the two significant 

deficiencies in its internal control over financial reporting that GAO 

identified. He also stated that OFS is committed to correcting the 

deficiencies. The complete text of OFS’s comments is reprinted in 

appendix II.

Gary T. Engel

Director

Financial Management and Assurance

December 4, 2009

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Appendix I

Management’s Report on Internal Control over Apendxies

Financial Reporting ApendxiI

Assistant Secretary’s Response to GAO Report

on FY 2009 Financial Statements

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Appendix II

Comments from the Office of Financial 

Stability ApendxiI

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Part 2 • agency Financial Statement

Financial Statements

The OFS prepares financial statements for the Troubled Asset Relief Program as a critical aspect of ensuring the 

accountability and stewardship for the public resources entrusted to it and as required by Section 116 of EESA. 

Preparation of these statements is also an important part of the OFS’ financial management goal of providing accurate and reliable information that may be used to assess performance and allocate resources. The OFS management is responsible for the accuracy and propriety of the information contained in the financial statements and 

the quality of internal controls. The statements are, in addition to other financial reports, used to monitor and 

control budgetary resources. The OFS prepares these financial statements from its books and records in conformity with the accounting principles generally accepted in the United States for federal entities and the formats 

prescribed by the Office of Management and Budget.

While these financial statements reflect activity of the OFS in executing its programs, including providing resources 

to various entities to help stabilize the financial markets, they do not include, as more fully discussed in Note 1, the 

assets, liabilities, or results of operations of commercial entities in which the OFS has a significant equity interest. In 

addition, comparative information is not available because OFS began operations on October 3, 2008.

The Balance Sheet summarizes the OFS assets, liabilities and net position as of the reporting date. 

Intragovernmental assets and liabilities resulting from transactions between federal agencies are presented separately from assets and liabilities from transactions with the public.

The Statement of Net Cost shows the net cost of operations for the reporting period.

The Statement of Changes in Net Position presents the OFS ending net position by two components - 

Cumulative Results of Operations and Unexpended Appropriations. It summarizes the change in net position. 

The ending balances of both components of net position are also reported on the Balance Sheet.

The Statement of Budgetary Resources provides information about funding and availability of budgetary resources and the status of those resources at the end of the reporting period. 

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Offic of Financial Stability (Troubled Asset Rel

BAL

As of September 30, 2009

Dollars in Millions

ASSETS

Intragovernmental Assets:

Fund Balance with Treasury (Note 4) $ 97,733 

Troubled Asset Relief Program:

Direct Loans and Equity Investments, Net (Note 6) 237,892 

Asset Guarantee Program (Note 6) 1,765 

Total Assets $ 337,39

LIABILITIES

Intragovernmental Liabilities:

Accounts Payable and Other Liabilities $ 5 

Principal Payable to the Bureau of the Public Debt (Note 8) 143,335 

Due to the General Fund (Note 3) 109,748 

Total Intragovernmental Liabilities $ 253,088 

Accounts Payable and Other Liabilities 73 

Liability for Home Affordable Modification Program (Note 5) 1

Total Liabilities $ 253,16

Commitments and Contingencies (Note 7)

NET POSITION 

Unexpended Appropriations $ 84,229 

Cumulative Results of Operations (1)

Total Net Position $ 84,228 

Total Liabilities and Net Position $ 337,390 

The accompanying notes are an integral part of these financial statements.

82 Fin
Part 2 • agency Financial Statement

Offic of Financial Stability (Troubled Asset Rel

STATEEN

For the Period Ended September 30, 2009

Dollars in Millions

Gross Cost:

Subsidy Cost (Note 6)

Direct Loan and Equity Investments Program $ 43,605

Asset Guarantee Program (2,201)

Total Program Subsidy Costs 41,4

Interest Expense on Borrowings from the Bureau of the Public Debt (Note 8) 6,436 

Home Affordable Modification Program (Note 5) 2 

Administrative Cost 167 

Total Gross Cost $ 48,009 

Less Earned Revenue:

Dividend and Interest Income - Programs (Note 6) $ (9,503)

Interest Income on Fianancing Account (3,649)

Subsidy Allowance Amortized (Note 9) 6,716

Net Earned Revenue $ (6,436)

Total Net Cost of Operations $ 41,573

The accompanying notes are an integral part of these financial statements.

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Offic of Financial Stability (Troubled Asset Rel

STATEMENOF C

For the Period Ended September 30, 2009

Dollars in Millions

Unexpended 

Approprations

 Cumulative 

Results of 

Operations 

Beginning Balances, at Inception $ — $ —

Budgetary Financing Sources

Appropriations Received 238,268 — 

Appropriations Used (154,039) 154,039 

Other Financing Sources — (112,467)

Total Financing Sources 84,229 41,572 

Net Cost of Operations — (41,573)

Ending Balances $ 84,229 $ (1)

The accompanying notes are an integral part of these financial statements

84 Fin
Part 2 • agency Financial Statement

Offic of Financial Stability (Troubled Asset Rel

STATEENT

For the Period Ended September 30, 2009

Dollars in Millions

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balances Brought Forward, Inception $ — $ — 

Budget Authority:

Appropriations 238,268 — 

Borrowing Authority — 309,971 

Spending Authority from Offsetting Collections

Earned: Collected — 243,072 

Change in Unfilled Orders Without Advance — 28,927 

Total Budget Authority 238,268 581,970 

Permanently Not Available — (120,841)

TOTAL BUDGETARY RESOURCES (Note 10) $ 238,268 $ 461,129 

STATUS OF BUDGETARY RESOURCES

Obligations Incurred:

Direct $ 210,112 $ 452,184 

Unobligated Balance:

Apportioned and Available 28,156 7,009 

Not Available — 1,936

TOTAL STATUS OF BUDGETARY RESOURCES $ 238,268 $ 461,129 

CHANGE IN OBLIGATED BALANCES

Obligated Balance Brought Forward, Inception $ — $ —

Obligations Incurred 210,112 452,184 

Gross Outlays (153,961) (372,982)

Change in Uncollected Customer Payments from Federal Sources — (28,927)

Obligated Balance, Net, End of Period:

Unpaid Obligations 56,151 79,202 

Uncollected Customer Payments from Federal Sources — (28,927)

Obligated Balance, Net, End of Period $ 56,151 $ 50,275 

NET OUTLAYS

Gross Outlays $ 153,961 $ 372,982 

Offsetting Collections — (243,072)

Distributed Offsetting Receipts (2,720) — 

NET OUTLAYS $ 151,241 $ 129,910 

The accompanying notes are an integral part of these financial statements

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Notes to the Financial Statements

Note 1. Reporting 

The Troubled Asset Relief Program (TARP) was authorized by the Emergency Economic Stabilization Act of 2008 

(EESA or “The Act”). The Act gave the Secretary of the Treasury (the Secretary) broad and flexible authority to 

establish the TARP to purchase and insure mortgages and other troubled assets, which permits the Secretary to 

inject capital into banks and other commercial companies by taking equity positions in those entities, if needed, to 

stabilize the financial markets.

The EESA established certain criteria under which the TARP would operate, including provisions that impact 

the budgeting, accounting, and reporting of troubled assets acquired under the Act. Section 101(a) of the EESA 

provided the authority for the Secretary to purchase troubled assets, and Section 101(a)(3) of the EESA established 

the Office of Financial Stability (OFS) to implement the TARP. Section 102 of the EESA required the Secretary to 

establish a program to guarantee troubled assets originated or issued prior to March 14, 2008, including mortgagebacked securities. Section 115 of the EESA limits the authority of the Secretary to purchase troubled assets up to 

$700 billion1 outstanding at any one time, calculated at the aggregate purchase prices of all troubled assets held. 

There was approximately $381.3 billion outstanding against the Section 115 authority as of September 30, 2009. 

Section 120 of the EESA established that the authorities under Sections 101(a), excluding Section 101(a)(3) and 

Section 102 of the EESA, shall terminate on December 31, 2009. Section 120 of the EESA further established that 

the Secretary, upon submission of a written certification to Congress, may extend the authority provided under the 

Act to expire no later than 2 years from the date of the enactment of the Act (October 3, 2008).

Under the provisions of the EESA, the OFS implemented the TARP which resulted in the development of the following programs: the Capital Purchase Program; the Targeted Investment Program; the Asset Guarantee Program; 

the Consumer and Business Lending Initiative; the Public-Private Investment Program; the American International

Group, Inc. Investment Program (formerly known as the Systemically Significant Failing Institutions Program); 

and the Automotive Industry Financing Program (see Note 6); as well as the Home Affordable Modification

Program (see Note 5).

While these financial statements reflect the activity of the OFS in executing its programs, including providing 

resources to various entities to help stabilize the financial markets, they do not include the assets, liabilities, 

or results of operations of commercial entities in which the OFS has a significant equity interest. Through the 

purchase of troubled assets, the OFS has entered into several different types of direct loan, equity investment, and 

asset guarantee arrangements with private entities. These direct loans, equity investments, and asset guarantees were 

made with the intent of helping to stabilize the financial markets and mitigating, as best as possible, any adverse 

impact on the economy. These direct loans, equity investments, and asset guarantees were not made to engage 

in the business activities of the respective private entities. Based on this intent, the OFS has concluded that such 

direct loans, equity investments, and asset guarantees are considered “bail outs”, under the provisions of paragraph 

50 of Statement of Federal Financial Accounting Concepts (SFFAC) No. 2, Entity and Display. In addition, these 

entities do not meet the conclusive criteria in SFFAC No. 2. As such, OFS determined that none of these entities 

1 The Helping Families Save Their Homes Act of 2009 (PubL. No. 111-22, Div. A, 123 Stat., 1632 (2009) amended the act to reduce t

maximum allowable amount of outstanding troubled assets under the act by almost $1.3 billion, from $700 billion to $698.7 billion. As 

required under Section 102 of EESA, the $381.3 billion does not include a subtraction from the outstanding guarantee amount to reflect 

the balance in the Troubled Assets Insurance Financing Fund.

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Part 2 • agency Financial Statement

meet the criteria to be classified as a federal entity. Consequently, their assets, liabilities, and results of operations 

are not consolidated in these OFS financial statements.

In addition, the OFS has made investments in certain Special Purpose Vehicles2 (SPV). SFFAC No. 2, paragraphs 

43 and 44, reference indicative criteria such as ownership and control over an SPV to carry out government powers 

and missions, as criteria in the determination of consolidation. The OFS has concluded that the lack of control over 

the SPVs is the primary basis for determining that none of the SPVs meet the criteria to be classified as a federal 

entity. As a result, the assets, liabilities and results of operations of the SPVs are not included in these OFS financial 

statements. The OFS has recorded the investments in private entities and investments in SPVs in accordance with 

Credit Reform Accounting, as discussed below. Additional disclosures regarding these SPV investments are included 

in these Notes.

The EESA established the OFS within the Office of Domestic Finance of the Department of the Treasury 

(Treasury). The OFS prepares stand-alone financial statements to satisfy EESA’s requirement for the TARP to 

prepare annual financial statements. Additionally, as an office of the Treasury, its financial statements are consolidated into Treasury’s department-wide financial statements and Agency Financial Report.

Note 2. Summar of Significant Accounting

Bass of Accounting and Pre

The accompanying financial statements include the operations of the OFS and have been prepared from the 

accounting records of the OFS in conformity with accounting principles generally accepted in the United States 

for federal entities (Federal GAAP), and the Office of Management and Budget (OMB) Circular A-136, Financial 

Reporting Requirements, as amended. Federal GAAP includes the standards issued by the Federal Accounting 

Standards Advisory Board (FASAB). The FASAB is recognized by the American Institute of Certified Public 

Accountants (AICPA) as the official accounting standards-setting body for the U.S. Government. As such, the 

FASAB is responsible for establishing Federal GAAP for Federal reporting entities.

In July 2009, the FASAB issued the Statement of Federal Financial Accounting Standards (SFFAS) No. 34, The 

Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial 

Accounting Standards Board. SFFAS No. 34 identifies the sources of accounting principles and the framework for 

selecting the principles used in the preparation of general purpose financial reports of federal reporting entities 

that are presented in conformity with Federal GAAP.

In addition to the above, Section 123(a) of the EESA requires that the budgetary cost of purchases of troubled 

assets and guarantees of troubled assets, and any cash flows associated with authorized activities, be determined in 

accordance with the Federal Credit Reform Act of 1990 (FCRA). Section 123(b) (1) of the EESA requires that the 

budgetary costs of troubled assets and guarantees of troubled assets be calculated by adjusting the discount rate for 

market risks. As a result of this requirement, the OFS considered market risk in its calculation and determination of 

2 The OFS has invested in SPV’s under the Consumer and Business Lending Initiative and the Automotive Industry Financing Program

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the estimated net present value of its direct loans, asset guarantees, and equity investments for budgetary purposes. 

Similarly, market risk is considered in valuations for financial reporting purposes (see Note 6 for further discussion).

Consistent with the accounting policy for equity investments made by Treasury in private entities, the OFS accounts for its equity investments at fair value, defined as the estimated amount of proceeds the OFS would receive 

if the equity investments were sold to a market participant. The OFS uses the present value accounting concepts 

embedded in SFFAS No. 2, Accounting for Direct Loans and Loan Guarantees, to derive fair value measurements. 

The OFS concluded that the equity investments were similar to direct loans in that there is a stated rate and a 

redemption feature which, if elected, requires repayment of the amount invested. Furthermore, consideration of 

market risk provides a basis to arrive at a fair value measurement. Therefore, the OFS uses SFFAS No. 2 (as more 

fully discussed below) for reporting and disclosure requirements of its equity investments. 

Federal loans and loan guarantees are governed by FCRA for budgetary accounting and the associated FASAB 

accounting standard SFFAS No. 2, as amended for financial reporting. The OFS applies the provisions of the SFFAS 

No. 2, as amended, when accounting for direct loans, equity investments, and asset guarantees. Direct loans and 

equity investments disbursed and outstanding are recognized as assets at the net present value of their estimated 

future cash flows and outstanding asset guarantees are recognized as liabilities or assets at the net present value of 

their estimated future cash flows. The subsidy allowance account represents the difference between the face value 

of the outstanding direct loan and equity investment balance and the net present value of the expected future cash 

flows, and is reported as an adjustment to the face value of the direct loan or equity investment. Consequently, direct 

loans, asset guarantees, and equity investments, including investments in preferred and common stock and warrants 

of public companies, are accounted for and reported by the OFS using credit reform accounting in accordance with 

SFFAS No. 2, as amended.

The OFS recognizes dividend revenue associated with equity investments when declared by the entity in which OFS 

has invested and when received in relation to any repurchases and restructuring. The OFS reflects changes in the value 

of direct loans, equity investments, and asset guarantees in the subsidy cost on the Statement of Net Cost annually. 

The OFS has received common stock warrants, additional preferred stock (referred to as warrant preferred stock) or 

additional notes, as additional consideration for direct loans and equity investments made and asset guarantees entered 

into. The OFS accounts for the warrants and warrant preferred stock received under Section 113 of EESA as fees 

under SFFAS No. 2, and, as such, the value of the warrants and warrant preferred stock is a reduction of the subsidy 

allowance.

Us of Es

The OFS has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, and 

cost to prepare these financial statements. Actual results could significantly differ from these estimates. Major 

financial statement line items subject to estimates include Troubled Asset Relief Program Direct Loans and Equity

Investments, Net, Asset Guarantee Program, and related subsidy cost (see Note 6).

The most significant differences between actual results and estimates may occur in the valuation of direct loans, 

equity investments, and asset guarantees. The forecasted future cash flows used to determine these amounts as of 

September 30, 2009, are sensitive to slight changes in model assumptions, such as general economic conditions, 

specific stock price volatility of the entities which the OFS has an equity interest, estimates of expected default, 

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and prepayment rates. Forecasts of future financial results have inherent uncertainty and the OFS’s Troubled 

Asset Relief Program Direct Loans and Equity Investments, Net, and Asset Guarantee Program line items as of

September 30, 2009, are reflective of relatively illiquid, troubled assets whose values are particularly sensitive to 

future economic conditions and other assumptions. Additional discussion related to sensitivity analysis can be 

found in the Management Discussion and Analysis section of the Agency Financial Report.

Credit Reform for Ac

The FCRA provided for the use of program, financing, and general fund receipt accounts to separately account 

for activity related to loans and guarantees. These accounts are classified as either budgetary or non-budgetary 

in the Statement of Budgetary Resources. The budgetary accounts include the program and general fund receipt 

accounts, and the non-budgetary accounts consist of the credit reform financing accounts. 

As discussed previously, the OFS accounts for the cost of purchases of troubled assets and guarantees of troubled 

assets, and any cash flows associated with authorized activities, including direct loans, in accordance with Section 

123(a) of the EESA and the FCRA for budgetary accounting and SFFAS No. 2 for financial reporting, except for 

the Home Affordable Modification Program (HAMP) (see Note 5

The authoritative guidance for financial reporting is primarily contained in the SFFAS No. 2, as amended by the 

SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, and the SFFAS No. 

19, Technical Amendments to Accounting Standards for Direct Loans and Loan Guarantees.

In accordance with SFFAS No. 2, the OFS maintains program accounts which receive appropriations and obligate 

funds to cover the subsidy cost of direct loans, equity investments and asset guarantees, and disburses the subsidy 

cost to the OFS financing accounts. The financing accounts are non-budgetary accounts that are used to record 

all of the cash flows resulting from the OFS direct loans, equity investments and asset guarantees.3 Cash flows 

include disbursements, repayments, repurchases, fees, recoveries, borrowings from the Treasury, interest, negative 

subsidy and the subsidy cost received from the program accounts. 

The financing arrangements specifically for the TARP activities are provided for in the EESA as follows: 

 (1) borrowing for program funds under Section 118 that constitute appropriations when obligated or 

spent, which are reported as “appropriations” in these financial statements; 

(2) borrowing by financing accounts for non-subsidy cost under the FCRA and Section 123; and 

(3) the Troubled Assets Insurance Financing Fund (TAIFF) under section 102(d).

The OFS has general fund receipt accounts which are used to record the receipt of amounts paid from the financing accounts when there is a negative subsidy or negative modification from the original estimate or a downward 

reestimate. Amounts in the general fund receipt accounts are available for appropriations only in the sense that 

all general fund receipts are available for appropriations. Any assets in these accounts are non-entity assets and 

are offset by intragovernmental liabilities. At the end of the fiscal year, the fund balance transferred to the U.S. 

Treasury through the general fund receipt account is no longer included in the OFS’s fund balance reporting. 

3 For the Asset Guarantee Program, OFS has established the Troubled Assets Insurance Financing Fund, as required by Section 102(d) of 

the EESA which is the financing account under FCRA for the Asset Guarantee Program.

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The SFFAS No. 2 requires that the actual and expected costs of federal credit programs be fully recognized in 

financial reporting. The OFS calculated and recorded an initial estimate of the future performance of direct loans, 

equity investments, and asset guarantees. The data used for these estimates were reestimated at the fiscal year-end 

to reflect adjustments for market risk, asset performance, and other key variables and economic factors. The 

reestimate data was then used to estimate and report the “Subsidy Cost” in the Statement of Net Cost. A detailed 

discussion of the OFS subsidy calculation and reestimate assumptions, process and results is provided in Note 6.

Fund Balance with Trea

The Fund Balance with Treasury includes general, financing and other funds available to pay current liabilities 

and finance authorized purchases. Cash receipts and disbursements are processed by the Treasury, and the OFS’s 

records are reconciled with those of the Treasury on a regular basis.

Available unobligated balances represent amounts that are apportioned for obligation in the current fiscal year. 

Unavailable unobligated balances represent unanticipated collections in excess of the amounts apportioned which 

are unavailable. Obligated balances not yet disbursed include undelivered orders and unpaid expended authority. 

Troubled Asset Relief Program Direct Loan

Investments,

Troubled Asset Relief Program Direct Loans and Equity Investments, Net represents the estimated net outstanding amount of the OFS direct loans and equity investments, exclusive of the HAMP. The direct loan and equit

investment balances have been determined in accordance with the provisions of SFFAS No. 2 (see Note 6).

Asset Guarantee Pr

The Asset Guarantee Program represents the asset resulting from the net present value of the estimated cash 

inflows that are in excess of the estimated future claim payments (see Note 6).

Liabilities for Home Affordable Modifi

Liabilities for Home Affordable Modification Program (HAMP) represent the liability for payments to servicers a

investors, and principal balance reduction payments for the account of borrowers under the HAMP are accounted

for in accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government. Under SFFAS No. 5, a 

liability is recognized for any unpaid amounts due as of the reporting date. This liability includes amounts due from 

the OFS to pay for benefits and services provided under the terms of the HAMP as of the OFS’s reporting date

regardless of whether such payments have been reported to the OFS. The liability estimate is calculated based on 

information reported by participating servicers.

The OFS has determined that credit reform accounting, is not applicable to HAMP since there are no incoming cash

flows to be valued. 

General Property and Equi

Equipment with a cost of $50 thousand or more per unit and a useful life of two years or more is capitalized at 

full cost and depreciated using the straight-line method over the equipment’s useful life. Other equipment not 

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meeting the capitalization criteria is expensed when purchased. Under this policy, the OFS had no capitalized 

general property and equipment at September 30, 2009.

Accounts Payable and Other Liabi

Accounts Payable and Other Liabilities are amounts due to intragovernmental or public entities that will generally

be liquidated during the next operating cycle (within one year from the balance sheet date).

Principal Payable to the Burau of the Pub

Principal Payable to the Bureau of the Public Debt (BPD) represents the net amount due to the BPD for equity 

investments, direct loans, and asset guarantees funded by borrowings from the BPD as of September 30, 2009 

(see Note 8).

Due to the General 

Due to the General Fund represents the amount of downward reestimates as of September 30, 2009, related to 

direct loans, equity investments, and asset guarantees as of September 30, 2009 (see Notes 3 and 6).

Unexpended Appro

Unexpended Appropriations represents the OFS undelivered orders and unobligated balances as of

September 30, 2009. 

Cumulative Resuts of O

Cumulative Results of Operations, presented on the Balance Sheet and on the Statement of Changes in Net 

Position, represents the net results of the OFS operations since inception, through September 30, 2009. The 

Other Financing Sources in the Statement of Changes in Net Position consist primarily of transfers due to the 

Treasury General Fund as of September 30, 2009, relating to the downward reestimates.

Leav

A liability for OFS employees’ annual leave is accrued as it is earned and reduced as leave is taken. Each year 

the balance of accrued annual leave is adjusted to reflect current pay rates as well as forfeited “use or lose” leave. 

Amounts are unfunded to the extent current or prior year appropriations are not available to fund annual leave 

earned but not taken. Sick leave and other types of non-vested leave are expensed as taken.

Employee Health and Life Insurance a

Compensation 

The OFS employees may choose to participate in the contributory Federal Employees Health Benefit and the

Federal Employees Group Life Insurance Programs. The OFS matches a portion of the employee contributions to

each program. Matching contributions are recognized as current operating expenses.

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection to covered 

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tional disease. Future workers’ compensation estimates are generated from an application of actuarial procedures 

developed to estimate the liability for FECA benefits. The actuarial liability estimates for FECA benefits include 

the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases.

Employee Pension 

The OFS employees participate in either the Civil Service Retirement System (CSRS) or the Federal Employees’ 

Retirement System (FERS) and Social Security. These systems provide benefits upon retirement and in the event 

of death, disability or other termination of employment and may also provide pre-retirement benefits. They 

may also include benefits to survivors and their dependents, and may contain early retirement or other special 

features. The OFS contributions to both retirement plans and Social Security, as well as imputed costs for pension 

and other retirement benefit costs administered by the Office of Personnel Management, are recognized on the 

Statement of Net Cost as Administrative Costs. Federal employee benefits also include the Thrift Savings Plan 

(TSP). For FERS employees, a TSP account is automatically established and the OFS matches employee contributions to the plan, subject to limitations. The matching contributions are also recognized as Administrative 

Costs on the Statement of Net Cost.

note 3. Non-Entity Liabi

The OFS had approximately $109.7 billion in downward reestimates related to its Troubled Asset Relief Program 

Direct Loans and Equity Investments, Net and Asset Guarantee Program which is a non-entity liability payable

due to the Treasury General Fund as of September 30, 2009 (see Note 6).

note 4. Fund Balances with Tr

As of September 30, 2009, Fund Balances with Treasury, by fund type and status, consisted of the following: 

(dollars in Millions)

Fund Balances:

General Funds $ 45,650

Program Funds 38,658

Financing Funds 13,425

Total Fund Balances $ 97,733

Status of Fund Balances:

Unobligated Balances

Available $ 35,165

Unavailable 1,936

Obligated Balances Not Yet Disbursed 60,632

Total Status of Fund Balances $ 97,733

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Included in the OFS Financing Funds is the premium collections of approximately $174.8 million related to the 

Asset Guarantee Program (AGP) that are required by the EESA Section 102(d) to be maintained in the TAIFF (see 

Note 6).

note 5. The Home Affordable Modific

The Home Affordable Modification Program (HAMP) is designed to assist eligible homeowners who are experiencing financial hardships to remain in their homes by providing reductions in their monthly mortgage payment

for up to five years. The HAMP provides for one-time, monthly, and annual incentives to servicers, borrowers,

and investors who participate in the program. On an ongoing basis, beyond such incentives, the OFS shares 

equally in the cost of the reductions with the mortgage investors. Lastly, investors are paid a Home Price Declin

Protection payment to partially offset losses from home price declines.

For the HAMP, Fannie Mae provides direct programmatic support as a third party agent on behalf of the OFS,

Freddie Mac provides compliance oversight as a third party agent on behalf of the OFS, and the servicers work 

directly with the borrowers to modify and service the borrowers’ loans.

As of September 30, 2009, the OFS had entered into agreements with 63 servicers to provide up to approximately 

$27.1 billion in payments and incentives to borrowers, servicers and investors. As of September 30, 2009, this 

$27.1 billion was included in Obligations Incurred in the Statement of Budgetary Resources. All HAMP payments are made to servicers either for themselves or for the benefit of borrowers and investors. Furthermore, all

payments are contingent on borrowers remaining current on their mortgage payments. As of September 30, 2009, 

approximately $946.5 thousand in incentive payments had been paid to three servicers in incentive payments for 

743 borrowers who had completed official loan modifications.

Servicers have until December 31, 2012, to enter into mortgage modifications with borrowers.

As of September 30, 2009, the OFS had accrued approximately $1.4 million of first lien incentive for modifications under the HAMP program

note 6. Troubled Asset Relief Program direct Loan

investments, net and asset Guarantee P

The OFS applies the provisions of SFFAS No. 2 to account for direct loans, equity investments and asset guarantees. This standard requires measurement of the asset or liability at the net present value of the estimated future 

cash flows. The cash-flow estimates for each transaction reflect the actual structure of the instruments. For each 

of these instruments, analytical cash flow models generate estimated cash flows to and from the OFS over the 

estimated term of the instrument. Further, each cash-flow model reflects the specific terms and conditions of the 

program, technical assumptions regarding the underlying assets, risk of default or other losses, and other factors 

as appropriate. The models also incorporate an adjustment for market risk to reflect the additional return required 

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by the market to compensate for variability around the expected losses reflected in the cash flows (the “unexpected 

loss”). The basic methods for each of these models are outlined below.

Direct Loa

The estimated future cash flows for direct loans are derived using analytical models that estimate the cash flows to 

and from the OFS over the life of the loan. These cash flows include the scheduled principal, interest, and other 

payments to the OFS, including estimated proceeds from equity interest obtained or additional notes. These 

models also include estimates of default and recoveries, incorporating the value of any collateral provided by the 

contract. The probability and timing of default and losses relating to a default are estimated by using applicable 

historical data when available, or publicly available proxy data, including credit rating agency historical performance data.

In the case of the Term Asset-backed Securities Loan Facility (TALF), the OFS uses an analytical model to projec

cash flows to and from the OFS based on the estimated loan collateral performance, the estimated mix of collateral funded through the TALF and the terms of the contracts

The models include an adjustment for market risk which is intended to capture the risk of unexpected losses, but 

are not intended to represent fair value, i.e. the proceeds that would be expected to be received if the loans were 

sold to a market participant.

Equity Investmen

Preferred stock cash flows are projected using an analytical model developed to incorporate the risk of losses 

associated with adverse events, such as failure of the institution or increases in market interest rates. The model 

estimates how cash flows vary depending on: 1) current interest rates, which may affect the decision whether to 

repay the preferred stock; and 2) the strength of a financial institution’s assets. Inputs to the model include institution specific accounting data obtained from regulatory filings, an institution’s stock price volatility, historical bank 

failure information, as well as market prices of comparable securities trading in the market. OFS estimates the 

values and projects the cash flows of warrants using an option-pricing approach based on the current stock price 

and its volatility. Investments in common stock which are exchange traded are valued at the market price. The 

result of using market prices, either quoted prices for the identical asset or quoted prices for comparable assets, is 

that the equity investments are recorded at estimated fair value.

Asset Guarante

The value of the asset guarantee reflects the net present value of estimated default-claim payments by the OFS, net 

of income from recoveries on defaults, fees, or other income. Guarantee fees to date have been paid in the form 

of preferred stock, subsequently converted to trust preferred stock, and a warrant to purchase common stock of 

the financial institution, whose value is modeled using the same methodology for other equity purchase programs, 

discussed above. Default-claim payments are based on estimated losses on the guaranteed assets. Key inputs into 

these estimates are forecasted gross domestic product, unemployment rates and home price depreciation, in a base 

scenario and a stress scenario.

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Subsidy Cos

The recorded subsidy cost of a direct loan, equity investment or asset guarantee is based on a set of estimated 

future cash flows. OFS actions that change these estimated future cash flows change subsidy costs and are recorded as a modification. The cost of a modification is recognized as a modification expense, included in subsidy 

cost, when the direct loan, equity investment, or asset guarantee is modified. During fiscal year 2009, modifications occurred within the Capital Purchase Program, Consumer and Business Lending Initiative, the American

International Group, Inc. Investment Program, and the Automotive Industry Financing Program. See detailed 

discussion related to each program and related modifications below. Total net modification costs for the period 

ended September 30, 2009, approximated $412.1 million.

Equity Investments, Direct Loan and Asset Guara

The OFS administers a number of programs designed to help stabilize the financial system and restore the flow 

of credit to consumers and businesses. The OFS has purchased direct loans and made equity investments and 

entered into asset guarantees. The table below is a list and type of the OFS programs: 

Program Program Type

Capital Purchase Program Equity Investment/Subordinated Debentures

Targeted Investment Program Equity Investment

Asset Guarantee Program Guarantee

Consumer and Business Lending Initiative Direct Loan

Public-Private Investment Program Equity Investment and Direct Loan

American International Group, Inc. Investment Program (*) Equity Investment

Automotive Industry Financing Program Equity Investment and Direct Loan

(*) Formerly known as the Systemically Significant Failing Institutions Program

A description of each of these programs is provided below, and certain financial data by program is provided in 

the table at the end of this footnote.

Capital Purchase Pr

In October 2008, the OFS began implementation of the TARP with the Capital Purchase Program (CPP), designed to help stabilize the financial system by assisting in building the capital base of certain viable U.S. financial 

institutions to increase the capacity of those institutions to lend to businesses and consumers and support the 

economy. Under this program, the OFS purchases senior perpetual preferred stock from qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies (Qualified Financial 

Institution or QFI). The senior preferred stock has a stated dividend rate of 5.0% through year five, increasing 

to 9.0% in subsequent years. The dividends are cumulative for bank holding companies and subsidiaries of bank 

holding companies and non-cumulative for others and payable when and if declared by the institution’s board of 

directors. Under the original terms of the senior preferred stock the QFI may not redeem the shares within the 

first three years of the date of the investment, unless it has received the proceeds of one or more Qualified Equity 

Offerings (QEO)4 which results in aggregate gross proceeds to the QFI of not less than 25.0% of the issue price 

4 A Qualified Equity Offering is defined as the sale by the QFI after the date of the senior preferred stock investment of Tier 1 perpetual 

preferred stock or common stock for cash.

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of the senior preferred stock. QFIs that are Sub-chapter S corporations issued subordinated debentures in order 

to maintain compliance with the Internal Revenue Code. The maturity of the subordinated debentures is 30 years 

and interest rates are 7.7% for the first 5 years and 13.8% for the remaining years. 

In February 2009 and May 2009, the United States Congress passed the American Recovery and Reinvestment 

Act of 2009 and the Helping Families Save Their Homes Act of 2009, respectively. These acts contained amendments to the EESA (EESA Amendments) which require the Secretary to allow QFIs to repay at any time, subjec

to regulatory approval, regardless of whether the 25.0% or greater QEO was accomplished. The ability of a QFI 

to repay the OFS investment prior to year 3 or a 25.0% QEO was not considered in the original subsidy cost 

estimate. Therefore, a modification cost of $77.7 million was recorded as a result of these amendments.

In addition to the senior preferred stock, the OFS received warrants, as required by section 113(d) of EESA, from 

public QFIs to purchase a number of shares of common stock. The warrants have an aggregate market price equal 

to 15.0% of the total senior preferred stock investment. The exercise price and market value used to determine the 

number of shares of common stock subject to the warrant was calculated based on the average of closing prices of the 

common stock on the 20 trading days ending on the last day prior to the date the QFIs application was preliminarily 

approved for participation in the program. The warrants include customary anti-dilution provisions. In the event 

that a public QFI completes, prior to December 31, 2009, one or more QEOs with aggregate gross proceeds of not 

less than 100.0% (100.0% QEO) of the senior perpetual preferred stock investment, the number of shares subject to 

the warrants will be reduced by 50.0%. As of September 30, 2009, 19 QFIs reduced the number of shares available 

under the warrants as a result of this provision. The warrants have a 10 year term. The OFS may exercise one half of 

the warrants prior to the earlier of a 100.0% QEO, or December 31, 2009. Subsequent to December 31, 2009, OFS 

may exercise any warrants held in whole or in part. The OFS considers the impact of potential future QEOs in the 

valuation process.

The OFS received warrants from non-public QFIs for the purchase of additional senior preferred stock (or 

subordinated debentures if appropriate) with a stated dividend rate of 9.0% (13.8% interest rate for subordinate 

debentures) and a liquidation value equal to 5.0% of the total senior preferred stock (additional subordinate 

debenture) investment. These warrants were immediately exercised and resulted in the OFS holding additional senior preferred stock (subordinated debentures) (collectively referred to as “warrant preferred stock”) of non-public 

QFIs. The OFS did not receive warrants from banks considered Community Development Financial Institutions 

(CDFIs). As of September 30, 2009, the OFS has invested in 20 institutions considered CDFIs. 

The EESA Amendments previously discussed also allow the Secretary to liquidate warrants associated with repurchased senior preferred stock at the market price. In addition, a QFI, upon the repurchase of its senior preferred 

stock, also has the contractual right to repurchase the common stock warrants at the market price.

In June 2009, the OFS entered into an exchange agreement with Citigroup. Under the terms of the agreement 

the OFS exchanged $25.0 billion of its investment in senior preferred stock for a new series (Series M) of mandatorily convertible preferred stock. The initial conversion price was $3.25 per share. In July 2009, the OFS received 

the Series M shares, which were subsequently converted in September 2009 to approximately 7.7 billion common 

shares of Citigroup. This exchange transaction was not considered in the original subsidy cost estimate for CPP. 

As a result, the OFS recorded a modification cost of approximately $1.8 billion for the fiscal year ended 2009. 

The OFS also has investments in Citigroup through the TIP and AGP.

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During the period ended September 30, 2009, OFS invested approximately $204.6 billion in 685 institutions, including small, community, regional, and national banks, as well as CDFIs, in 48 states, the District of Columbia, 

and Puerto Rico. Approximately $70.7 billion of the OFS investments have been repurchased or redeemed 

bringing the total gross investment balance as of September 30, 2009, to approximately $133.9 billion. In addition, during the period ended September 30, 2009, the OFS received under CPP approximately $6.8 billion in 

dividends on senior preferred and warrant preferred stock and approximately $2.9 billion in proceeds from the 

repurchase of warrants and warrant preferred stock. 38 QFIs have not declared and paid one or more dividends to 

OFS under CPP as of September 30, 2009.

On November 1, 2009, a CPP participant, CIT Group, filed for Chapter 11 Bankruptcy. The OFS had invested 

$2.3 billion in senior preferred stock of CIT Group and received a warrant for the purchase of common stock. 

The OFS does not expect a significant recovery of its preferred stock investment. As such, this investment has 

been reduced to zero in these financial statements. The ultimate amount received, if any, from this investment 

will depend on the outcome of the bankruptcy proceedings.

On November 6, 2009, a subsidiary of UCBH Holdings, Inc. (a CPP participant), United Commercial Bank

was closed by its regulators. The OFS had invested approximately $298.7 million in senior preferred stock and 

received a warrant for the purchase of common shares. The value of these shares, including the warrant, reflected 

in these financial statements is approximately $22.5 million as of September 30, 2009. The ultimate amount 

received, if any, from this investment will depend on the outcome of the receivership.

On November 13, 2009, a subsidiary of Pacific Coast National Bancorp. (a CPP participant), Pacific Coast 

National Bank, was closed by its regulators. The OFS had invested approximately $4.1 million in senior preferred 

stock and received warrant preferred stock in the amount of $206 thousand. The value of the shares, including the warrant preferred stock, reflected in these financial statements is approximately $154 thousand as of 

September 30, 2009. The ultimate amount received, if any, from this investment will depend on the outcome of 

the receivership.

Further details on the outstanding senior preferred share investments and subordinated debentures under CPP 

and the net investment amount including estimated cash flows associated with the sale or exercise of the warrants, 

as of September 30, 2009, are presented in the table at the end of this section.

Targeted Investment Pro

The Targeted Investment Program (TIP) was designed to prevent a loss of confidence in financial institutions that 

could result in significant market disruptions, threatening the financial strength of similarly situated financial 

institutions, impairing broader financial markets, and undermining the overall economy. The OFS considers institutions as candidates for the TIP on a case-by-case basis, based on a number of factors described in the program 

guidelines. These factors include the threats posed by destabilization of the institution, the risks caused by a loss 

of confidence in the institution, and the institution’s importance to the nation’s economy.

The OFS completed the first transaction under the TIP in December 2008, when it invested $20.0 billion in 

Citigroup cumulative perpetual preferred stock and received a warrant for the purchase of Citigroup common 

stock. Under the agreement with Citigroup, the OFS receives an 8.0% annual dividend, payable quarterly, if and 

when declared by Citigroups’ Board of Directors. As part of this agreement, Citigroup must implement rigorous 

compensation standards and other restrictions on corporate expenditures. In June 2009, the OFS and Citigroup 

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agreed to an exchange of the cumulative perpetual preferred stock issued under the TIP for a new series of trust 

preferred securities. Citigroup issued subordinated debentures to a trust established by Citigroup, and the trust 

issued trust preferred securities to the OFS. Interest and principal payments on the subordinated debentures are 

passed-through to the trust preferred security holders. The trust preferred securities pay a quarterly distribution 

at an annual rate of 8.0% to OFS. The subordinated debentures contain an interest deferral provision allowing 

Citigroup to defer payment of interest for up to 5 years. The OFS will not receive distributions from the trust 

preferred securities during a deferral period. Deferred interest is required to be paid upon termination of the 

deferral period. As of September 30, 2009, Citigroup has not exercised its option to defer interest payments. The 

subordinated debentures mature in 2039. As a result, the trust is scheduled to pay out the proceeds to the holders 

of the trust preferred securities. In addition, the subordinated debentures can be prepaid by Citigroup at any time 

prior to maturity, subject to consultation with the Federal Reserve, as long as the U.S. Government holds the 

trust preferred securities. The terms of the new securities are substantially the same as the preferred stock originally received by the OFS and therefore the exchange transaction did not result in a modification. The OFS also 

has investments in Citigroup through the CPP and the AGP.

In January 2009, OFS completed its second transaction under the TIP, investing $20.0 billion in Bank of 

America. Under the agreement with Bank of America, the OFS purchased $20.0 billion of cumulative perpetual 

preferred stock and received a warrant for the purchase of Bank of America common stock. The preferred stock 

purchased from Bank of America contains a stated annual dividend rate of 8.0%, payable quarterly, if declared.

Bank of America’s agreement under the TIP stipulated that the institution must implement rigorous executive 

compensation standards and other restrictions on corporate expenditures. The OFS also has investments in Bank 

of America through the CPP.

During the period ended September 30, 2009, OFS received approximately $1.9 billion in dividends under the 

TIP. See the table presented at the end of this section for further details.

Asset Guarantee Pr

The Asset Guarantee Program (AGP) provides guarantees for assets held by systemically significant financial institutions that face a risk of losing market confidence due in large part to a portfolio of distressed or illiquid assets. 

The AGP is applied with extreme discretion in order to improve market confidence in the systemically significant 

institution and in financial markets broadly.

Section 102 of the EESA established the AGP to guarantee troubled assets originated or issued prior to March 

14, 2008, including mortgage-backed securities, and established the Troubled Assets Insurance Financing Fund 

(TAIFF). In accordance with Section 102(c) and (d) of the EESA, premiums from financial institutions, are 

collected and all fees are recorded by the OFS in the TAIFF. In addition, Section 102(c)(3) of the EESA requires 

that the original premiums assessed are “set” at a minimum level necessary to create reserves sufficient to meet 

anticipated claims. In the event there are insufficient funds within the TAIFF for the payment of claims, amounts 

are borrowed from the Treasury until sufficient funds are received into the TAIFF. In the event that the estimate 

of claims exceeds the estimated future cash inflows, an upward reestimate would be recorded and amounts would 

be transferred to the TAIFF as a subsidy expense.

The OFS completed its first transaction under the AGP in January 2009, when it finalized the terms of a guarantee agreement with Citigroup. Under the agreement, the OFS, the Federal Deposit Insurance Corporation 

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(FDIC), and the Federal Reserve Bank of New York (FRBNY) provided protection against the possibility of large 

losses on an asset pool of approximately $301.0 billion of loans and securities backed by residential and commercial real estate and other such assets, which remain on Citigroup’s balance sheet. The following loss-sharing 

terms apply to the transaction: Citigroup absorbs the first $39.5 billion in losses, and losses over the $39.5 billion 

are shared by the U. S. government (90.0 %) and Citigroup (10.0 %) (the “second loss”). For the second loss, 

the OFS absorbs up to $5.0 billion, then the FDIC absorbs up to $10.0 billion, and lastly the FRBNY funds any 

U.S. government losses above the OFS and the FDIC commitments through a non-recourse loan. The guarantee 

is in place for ten years for residential assets and five years for non-residential assets.

As a premium for the guarantee, Citigroup issued $7.0 billion of cumulative perpetual preferred stock with an 

8.0 % stated dividend rate and a warrant for the purchase of common stock; approximately $4.0 billion and the 

warrant were issued to the OFS, and approximately $3.0 billion was issued to the FDIC. As part of the agreement, Citigroup submitted an executive compensation plan to the OFS and the FDIC for approval and must 

comply with certain common stock dividend restrictions. The OFS has received approximately $174.8 million 

in dividends on the preferred stock received as compensation for this arrangement. These dividends have been 

deposited into the TAIFF. The preferred stock originally issued to the OFS and the FDIC were exchanged for the 

trust preferred securities discussed above under the TIP. The OFS has also invested in Citigroup through the CPP 

and the TIP.

The net present value of the estimated cash inflows from the preferred stock and warrant received by the OFS 

from Citigroup as a premium is greater than the estimated net present value of future claim payments, resulting 

in an asset of approximately $1.8 billion, after reestimates, as of September 30, 2009.

In January 2009, the OFS, FDIC, FRBNY (together the USG Parties) and Bank of America signed a Summary 

of Terms (Term Sheet) pursuant to which the USG Parties agreed to guarantee or lend against a pool of up to 

$118.0 billion of financial instruments consisting of securities backed by residential and commercial real estate 

loans and corporate debt and related derivatives. In May 2009, prior to completing definitive documentation, 

Bank of America notified the USG Parties of its desire to terminate negotiations with respect to the guarantee 

contemplated in the Term Sheet. All parties agreed that Bank of America received value for entering into the 

Term Sheet with the USG Parties and that the USG Parties should be compensated for out-of-pocket expenses 

and a fee equal to the amount Bank of America would have paid for the guarantee from the date of the signing 

of the Term Sheet through the termination date. Under the terms of the settlement, the U.S. Treasury received 

$276.0 million for its role in the guarantee agreement through the OFS, the FRBNY received $57.0 million, and 

the FDIC received $92.0 million. All the OFS funds received for the settlement were deposited in the TAIFF and 

subsequently paid to the Treasury General Fund. The $276 million received by OFS pursuant to the settlement is 

reflected in the OFS Statement of Net Cost as a reduction of the AGP subsidy cost.

Consumer and Business Lending Init

Term Asset-Backed Securities Loan Faci

The Term Asset-Backed Securities Loan Facility (TALF) was created by the Federal Reserve Board (FRB) t

provide low cost funding to investors in certain classes of Asset Backed Securities (ABS). The OFS agreed to 

participate in the program by providing liquidity and credit protection to the FRB.

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Under the TALF, the FRBNY, as implementer of the TALF program, originated loans on a non-recourse basis t

holders of certain AAA rated ABS secured by recently originated consumer and commercial loans and commercial 

mortgage backed securities (New Issue CMBS). In addition to securities secured by recently originated loans, 

CMBS issued prior to January 2009 and originally AAA rated (Legacy CMBS) are eligible collateral. TALF loan

have a term of 3 or 5 years and are secured solely by eligible collateral. Haircuts (a percentage reduction used for

collateral valuation) are determined based on the riskiness of each type of eligible collateral and the maturity of the 

eligible collateral pledged to the FRBNY. The “haircuts” provide additional protection to OFS by exposing the 

TALF borrowers to some risk of loss. Interest rates charged on the TALF loans depend on the weighted averag

maturity of the pledged collateral, the collateral type and whether the collateral pays a fixed or variable coupon

As part of the program, the FRBNY has entered into a put agreement with the TALF, LLC, a special purpo

vehicle created by the FRBNY. In the event of a TALF borrower default, the FRBNY will seize the collateral and

sell it to the TALF, LLC under this agreement. The TALF, LLC receives a monthly fee equal to the diffe

between the TALF loan rate and the FRBNY’s fee (spread) as compensation for entering into the put agreement.

The accumulation of this fee will be used to fund purchases. In the event there are insufficient funds to purchase 

the collateral, the OFS has committed to invest up to $20.0 billion in non-recourse subordinate notes issued 

by TALF, LLC. The subordinate notes bear interest at 1 Month LIBOR plus 3.0% and mature 10 years f

the closing date, subject to extension. The OFS disbursed $100.0 million upon creation of the TALF, LLC a

the remainder can be drawn to purchase collateral in the event the spread is not sufficient to cover purchases. 

Any amounts needed in excess of the OFS commitment and the fee would be provided through a loan from the 

FRBNY. Upon wind-down of TALF, LLC (collateral defaults, reaches final maturity or is sold), the cash balan

will be disbursed according to the following payment priority:

1. FRBNY principal balance

2. OFS principal balance

3. FRBNY interest 

4. OFS interest 

5. Remaining cash balance – 90.0% to the OFS, 10.0% to the FRBNY

Subsequent to the initial cost estimates prepared for the TALF, certain changes were made to the terms of the

program, including increasing the term to 5 years and the addition of different types of acceptable collateral. 

These program changes resulted in a modification, increasing the original cost estimate by $8.0 million.

The TALF, LLC is owned and controlled by the FRBNY. The credit agreement between the OFS and the TA

LLC provides the OFS with certain rights consistent with a creditor but would not constitute control. As suc

TALF, LLC is not a federal entity and the assets, liabilities, revenue and cost of TALF, LLC are not included i

OFS financial statements. The discussion below provides information on 1) the amount of TALF loans issued by

the FRBNY, by collateral class, and 2) the assets, liabilities, income and expense of the TALF, L

The FRBNY has originated $50.9 billion in TALF loans

, of which about $42.7 billion is outstanding as of September 30, 2009. The average “haircut” was approximately 9.92% of the originated balance. As of September 30, 

2009, all of the TALF loans performed as agreed. The table below shows the outstanding balance of the FRBNY

TALF loans as of September 30, 2009, by collateral type

5 These represent loans originated by the FRBNY and not the OFS. The intention of this disclosure is to show the activity in the program 

and the types of collateral that could eventually be purchased by the TALF, LLC with funding provided by the O

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Collateral Type

Loan Amount

(Dollars in Billions) % of Total

Auto $ 7.43 17.3 %

Credit Cards $ 21.61 50.6 % 

Equipment $ 0.89 2.1 %

Floor Plan $ 1.01 2.4 %

Premium Finance $ 0.99 2.3 %

Servicing Advances $ 0.58 1.4 %

Small Business $ 0.46 1.1 % 

Student Loan $ 5.63 13.1 %

New Issue CMBS $ 0.0 0.0 %

Legacy CMBS $ 4.13 9.7 %

Total $ 42.73 100.0 %

As of September 30, 2009, the TALF, LLC has assets of approximately $198.9 million consisting primarily 

investments in U.S. Treasury and Agency securities6. Total liabilities of the TALF, LLC are $101.8 million consisting of the OFS subordinated note plus accrued interest. During the period ended September 30, 2009, the TA

LLC collected $99.1 million in fees and investment income and incurred $2.3 million in expenses, $1.8 millio

of which is accrued interest on the OFS subordinated note. As of September 30, 2009, there were no TALF borrower defaults and consequently no purchases of collateral by the TALF, 

American International Group, Inc. Investment 

The OFS provides assistance to certain systemically significant financial institutions on a case by case basis in 

order to provide stability to institutions that are critical to a functioning financial system and are at substantial 

risk of failure as well as to prevent broader disruption to financial markets. 

In November 2008, the OFS invested $40.0 billion in AIG’s cumulative Series D perpetual cumulative preferred 

stock with a dividend rate of 10.0% compounded quarterly. On April 17, 2009, AIG and the OFS restructured 

their November 2008 agreement. Under the restructuring, the OFS exchanged $40.0 billion of cumulative Series 

D preferred stock for $41.6 billion of non-cumulative 10.0% Series E preferred stock. The amount of Series E 

preferred stock is equal to the original $40.0 billion, plus approximately $733.0 million in undeclared dividends 

as of the February 1, 2009, scheduled quarterly dividend payment date, $15.0 million in dividends compounded 

on the undeclared dividends, and an additional $855.0 million in dividends from February 1, 2009, but not paid 

as of April 17, 2009. AIG’s restructured agreement kept the quarterly dividend payment dates of May 1,

August 1, November 1, and February 1, as established by the original November 2008 agreement. The original 

subsidy cost estimate did not consider this restructuring which resulted in a modification cost of $127.2 million.

In addition to the exchange, the OFS agreed to make available an additional $29.8 billion capital facility to allow 

AIG to draw additional funds if needed to assist in AIG’s restructuring. The OFS investment consists of Series 

F non-cumulative perpetual preferred stock with an initial liquidation amount of $0.0. This liquidation amount 

increases with any draw down by AIG on the facility. The dividend rate applicable to these shares is 10.0% and is 

payable quarterly, if declared, on the outstanding liquidation amount. As of September 30, 2009, approximately 

6 Agency securities refer to securities issued by either Ginnie Mae, Fannie Mae, Freddie Mac, or the Federal Home Loan Bank

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$3.2 billion has been funded by the OFS to AIG under this additional capital facility. Consistent with SSFAS 

No. 2, the unused portion of the AIG capital facility is not recognized as an asset as of September 30, 2009.

As of September 30, 2009, AIG has not made any dividend payments on any of the perpetual preferred stock. 

Subsequently, AIG failed to make a dividend payment on November 2, 2009. Per the terms of the preferred 

stock, if AIG misses 4 dividend payments, the OFS may appoint to the AIG board of directors, the greater of two 

members or 20.0% of the total number of directors of the Company. 

Automotive Industry Financing P

The objective of the Automotive Industry Financing Program (AIFP) was to help prevent a significant disruption 

of the American automotive industry, which could have a negative effect on the economy of the United States. 

The discussion below details the various investments and loans made by the OFS in the automotive industry, 

generally provided in chronological order.

The table below illustrates amounts originally disbursed and collected under AIFP. These amounts are shown 

before conversions, exchanges, or valuation. For a detailed discussion on the current status of the loans see the 

narrative below the table.

(Dollars in Millions)

Amounts 

Disbursed as of 

September 

30, 2009

Collection 

of Interest, 

Dividends, and 

Additional Notes

Principal 

Repayments

Amount Outstanding 

before Conversions, 

Exchanges, and 

Valuation

GM General Purpose Loan including Working Capital Advances $ 19,400 $ 134 $ — $ 19,400

GMAC LLC Rights Offering 884 9 — 884

Chrysler Holding LLC General Purpose 4,000 53 — 4,000

Chrysler Financial 1,500 22 1,500 —

Auto Supplier Support Program 413 6 — 413

Auto Warranty Program 640 4 640 —

Chrysler Debtor-In-Possession 1,888 — — 1,888

Chrysler Exit 4,577 — — 4,577

GM Debtor-In-Possession 30,100 34 — 30,100

GMAC Preferred stock 5,000 265 — 5,000

GMAC Mandatorily Convertible Preferred Stock 7,500 165 — 7,500

Total $ 75,902 $ 692 $ 2,140 $ 73,762

General Motors (GM or old GM) General Purpose Loan including Workin

Advance

The OFS provided GM with a total of $13.4 billion in a three-year direct loan bearing interest at 3 Month 

LIBOR (subject to a 2.0% floor), plus 3.0% and secured by various types of collateral. $4.0 billion of this loan

was funded in December 2008, an additional $5.4 billion in January, 2009, and an additional $4.0 billion in 

February 2009. In April 2009, the OFS and GM amended this loan agreement to increase the maximum loan 

amount from $13.4 billion to $15.4 billion, and on May 20, 2009 to increase the maximum loan amount from 

$15.4 billion to $19.4 billion (these amendments are referred to as the Working Capital Advances) to provide 

GM with adequate working capital to assist in the restructuring effort. The additional amounts were funded upon 

amendment, bringing the total funded under this loan to $19.4 billion. The agreement required GM to develop 

and implement a restructuring plan to achieve long-term financial viability and required compliance with certain 

enhanced executive compensation and expense control requirements.

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Furthermore, the OFS received warrants for shares of GM common stock and an additional senior unsecured 

note in the principal amount of $748.6 million. The purpose of this loan was to enhance the ability of GM and 

its subsidiaries to pursue timely and aggressive production of energy-efficient advanced technology vehicles; 

preserve and promote the jobs of American workers employed directly by GM and its subsidiaries; safeguard 

the ability of GM and its subsidiaries to provide retirement and health care benefits for retirees and their dependents; and stimulate manufacturing and sales of automobiles produced by GM. On June 1, 2009, GM filed for 

Chapter 11 bankruptcy. All rights under this loan were transferred to a newly created entity (GM NewCo) and 

subsequently extinguished in connection with a successful credit bid for the assets of old GM. In addition, the 

OFS received $134.4 million in interest while the loan was outstanding. See further discussion below under GM 

Debtor-In-Possession.

GAC LLC Rights 

In December 2008, the OFS agreed, in principal, to lend up to $1.0 billion to GM for participation in a rights 

offering by GMAC in support of GMAC’s reorganization as a bank holding company. The loan was secured by 

the GMAC common interest acquired in the rights offering. The loan agreement specified that at any time, at 

the option of the lender (OFS), the unpaid principal and accrued interest was exchangeable for the membership 

interest purchased, by GM, during the rights offering. The note was funded for $884.0 million. In May 2009, 

the OFS exercised its exchange option under the loan and received 190,921 membership interests, representing 

approximately 35.36% of the voting interest, in GMAC in full satisfaction of the loan. In addition, OFS received 

$9.1 million in interest while the loan was outstanding. The conversion to GMAC shares was not considered in 

the original subsidy cost. As a result, a modification was recorded reducing the estimated subsidy cost by approximately $1.6 billion.

Chrysler HoldingLLC General Pu

The OFS provided a three-year, $4.0 billion loan to Chrysler in January 2009, bearing interest at 3 Month 

LIBOR (subject to a 2.0% floor) plus 3.0%. The loan was secured by various collateral including parts inventory,

real estate, and certain equity interests held by Chrysler. This agreement required Chrysler to submit a restructuring plan to achieve long-term viability and required compliance with certain enhanced executive compensation 

and expense-control requirements. Furthermore, the OFS received a senior unsecured note from Chrysler in the 

principal amount of approximately $266.8 million, containing the same terms as the General Purpose loan. The 

purpose of this loan was to: enhance the ability of Chrysler and its subsidiaries to pursue timely and aggressive 

production of energy-efficient advanced technology vehicles; preserve and promote the jobs of American workers 

employed directly by Chrysler and its subsidiaries; safeguard the ability of Chrysler and its subsidiaries to provide 

retirement and health care benefits for retirees and their dependents; and stimulate manufacturing and sales of 

automobiles produced by Chrysler.

On April 30, 2009, Chrysler filed for Chapter 11 bankruptcy. Upon entering bankruptcy, a portion of Chrysler 

was sold to a newly created entity (New Chrysler). Under the terms of the bankruptcy agreement, $500.0 million 

of this loan was assumed by New Chrysler (see discussion under Chrysler Exit for discussion of note terms). 

The balance remains outstanding and is in default. Any recovery of the remainder of this loan will depend on: 

(a) Chrysler Holding’s obligation to pay the greater of $1.375 billion or 40.0% of the equity value of Chrysler

Financial to OFS should Chrysler Holding receive certain distributions from Chrysler Financial and, (b) proceeds

received from the sale of assets remaining in the bankrupt company. In addition, OFS received $52.1 million in 

interest payments on this note.

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Chrysler Financia

In January, 2009, the OFS loaned $1.5 billion to Chrysler LB Receivables Trust (Chrysler Trust), a special

purpose entity created by Chrysler Financial, to finance the extension of new consumer auto loans. The five-year 

loan bore interest at 1 Month LIBOR plus 1.0% for the first year, 1.5% for the remaining term and was secured

by a senior secured interest in a pool of newly originated consumer automotive loans, and Chrysler served as a 

guarantor for certain covenants of Chrysler Financial. Under the agreement, Chrysler Financial was required to 

comply with the executive compensation and corporate governance requirements of Section 111(b) of the EESA, 

as well as enhanced restrictions on executive compensation including the need to reduce by 40.0% its bonus pool 

for Senior Executive Officers and Senior Employees. In lieu of warrants, the OFS received additional notes in an 

amount equal to 5.0% of the maximum loan amount. The additional notes would vest 20.0% on the closing date 

and 20.0% on each anniversary of the closing date and had other terms similar to the loan. The purpose of this 

loan was to assist Chrysler Financial in providing retail financing to purchasers of automobiles, light duty trucks 

and recreational vehicles; to stimulate manufacturing and sales of automobiles produced by Chrysler’s affiliates; 

preserve and promote the jobs of American workers employed directly by Chrysler’s affiliates and in related industries; and safeguard the ability of Chrysler to provide retirement and health care benefits for their retirees and 

their dependents. On July 14, 2009, the loan and additional note of $15.0 million were paid in full. In addition, 

the OFS received $7.4 million in interest payments while this loan was outstanding.

Auto Supplier Support Progra

In April 2009, the OFS committed $5.0 billion in financing for the Auto Supplier Support Program, as follows: 

$3.5 billion for GM suppliers and $1.5 billion for Chrysler suppliers. These commitments were subsequently 

reduced to $2.5 billion for GM suppliers and $1.0 billion for Chrysler suppliers per the loan agreement. Under 

the program, suppliers are able to sell their receivable to a SPV, created by the respective automaker, at a discount. 

The purchases of the receivables are funded by equity investments made by the automaker, cash payments made 

by the automaker on previously purchased receivables or from draws on the OFS funding commitment. The 

duration of the program is 12 months, extendable at the option of the OFS. Interest is charged on advances 

under the facility at a rate of 3 Month LIBOR (subject to a 2.0% floor) plus 3.5%. In addition, the OFS received

a contingent payment note comprised of an exit fee equal to 4.0% of the adjusted commitment amount and 

50.0% of the residual equity in the SPV after the program’s end date. This program provides suppliers with access 

to government backed protection ensuring that money owed to them for the products they ship will be paid 

regardless of what happens to the recipient car company. This provided suppliers with needed funding to operate their businesses and help unlock credit more broadly in the supplier industry. Purchases of receivables and 

collection of amounts due from GM and Chrysler is performed by a third party service provider. Suppliers must 

maintain qualifying commercial terms with the automakers to participate in the program. The OFS has provided 

approximately $413.1 million of funding to this program. The bankruptcy of Chrysler and GM did not impact 

this program, as both companies were allowed to continue paying suppliers while in bankruptcy. As of September 

30, 2009, the OFS had received $5.9 million in interest under the Auto Supplier Support Program.

Auto Warranty Progr

In April 2009 and May 2009, the OFS loaned approximately $280.0 million to Chrysler and $360.6 million 

to GM, respectively, to capitalize SPVs created by Chrysler and GM to finance participation in the Warranty 

Commitment Program (warranty program). The OFS also received additional notes as consideration for its loans in 

an amount equal to 6.67% of the funded amounts. The warranty program covered all warranties on new vehicles 

104 Noes t
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purchased from Chrysler and GM during the period in which Chrysler and GM were restructuring. The program 

was run by a third party program administrator with the backing of financial resources allocated by the OFS, 

Chrysler and GM. Chrysler and GM contributed 15.0% of the projected cost for warranty service on each covered 

vehicle, with the OFS providing additional funds to cover 110.0% of the projected cost. The SPVs holding the 

funds operated separately from Chrysler and GM and would transfer the necessary funds to a third-party to handle 

all warranty claims even if Chrysler and GM entered into bankruptcy or went out of business. Both Chrysler and 

GM have completed the Section 3637 sales in June 2009 and July 2009, respectively. Upon completion of the 

sale, the OFS received principal amounts due from both GM and Chrysler and terminated the warranty program. 

Interest in the amount of $3.1 million was received by the OFS from Chrysler. No interest was received in connection with the GM repayment. The GM additional note was assigned to the New GM as part of the bankruptcy 

proceedings and extinguished as part of the credit bid for the assets of old GM. The Chrysler additional note is still 

outstanding.

Chrysler Debtor-In-Possess

In May 2009, the OFS and the Canadian government jointly agreed to make a loan in the total amount of 

$4.1 billion ($3.0 billion by the OFS and $1.1 billion by Canada) to Chrysler LLC in its capacity as debtor-inpossession (DIP) in its bankruptcy case  In May 2009, the OFS increased its loan commitment in the DIP credi

agreement to $3.8 billion, and the Canadian government increased its commitment to $1.2 billion, bringing the 

maximum loan amount to $5.0 billion. The loan interest rate was the 3 Month Eurodollar rate plus 3.0%. The 

stated maturity was September 2009, with earlier maturity depending on the bankruptcy proceedings. Of the 

$3.8 billion committed by the OFS, approximately $1.9 billion was funded during the bankruptcy. This DIP 

loan provided the necessary liquidity to sustain Chrysler during the bankruptcy period. Upon the Section 363 

sale of the Chrysler assets, the funding commitment was reduced to amounts previously drawn. As such, no 

additional amounts were drawn from this facility. Recovery of the DIP loan is subject to the bankruptcy process 

associated with the Chrysler assets remaining after the sale to New Chrysler.

Chrysler Ex

In May 2009, the OFS committed to make a loan to New CarCo Acquisition LLC (New Chrysler or Chrysle

Group LLC), the company that purchased the assets of Chrysler. The final terms of the credit agreement resulte

in a loan to New Chrysler for approximately $7.1 billion. This amount consists of $6.6 billion of new funding 

and $500.0 million of assumed debt8 from the OFS January 2, 2009 credit agreement with Chrysler Holding

LLC. The loan was secured by a first priority lien on the assets of Chrysler Group LLC. Funding of the l

was available in two installments or tranches (B and C), each with varying availability and terms. The following 

describes the terms of Tranches B and C.

The maximum funding under Tranche B was $2.0 billion and was funded on the closing date of the agreement. 

Interest on Tranche B is 3 Month Eurodollar plus 5.0% margin (in certain situations, defined in the agreement, 

a rate other than the 3 Month Eurodollar rate will be applied. This rate, referred to as the Alternative Base Rate, 

will be the greater of the Prime Rate, the Federal Funds Effective rate plus 0.5% or the 3 Month Eurodollar rate 

plus 1.0%. If this Alternative Base Rate is applied, the margin will be 4.0% versus the 5.0% if the 3 Month 

Eurodollar Rate is used). Tranche B is due and payable on December 10, 2011, provided that the Chrysler Group 

7 Section 363 refers to Section 363 of the Federal Bankruptcy Code, which allows companies in bankruptcy to sell assets in reorganization.

8 The assumed debt contains the same terms as the Tranche C loan with respect to mandatory prepayment, interest and maturity.

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LLC may elect to extend the maturity of up to $400.0 million of Tranche B to the Tranche C maturity date  If s

elected, the applicable margin will increase to 6.5% for Eurodollar and 5.5% for ABR loans, respectively.

The maximum funding under Tranche C is approximately $4.64 billion, of which approximately $2.58 billion 

was funded on the closing date. Interest on Tranche B is 3 Month Eurodollar plus 7.91% margin (in certain 

situations, defined in the agreement, a rate other than the 3 Month Eurodollar rate will be applied. This rate, 

referred to as the Alternative Base Rate, will be the greater of the Prime Rate, the Federal Funds Effective rate 

plus 0.5% or the 3 Month Eurodollar rate plus 1.0%. If this Alternative Base Rate is applied, the margin will be 

6.91% versus the 7.91% if the 3 Month Eurodollar Rate is used). On June 10, 2016, the Tranche C loan shall be 

prepaid to the extent the funded amount is greater than 50.0% of the closing date commitment amount, taking 

into consideration amounts previously prepaid as a voluntary prepayment. The remaining balance of the Tranche 

C loan is due and payable on June 10, 2017.

Interest on both the Tranche B and Tranche C will be payable in-kind through December 2009 and will be 

added to the principal balance of the respective Tranche. In addition, additional in-kind interest will accrue in 

the amount of $17.0 million per quarter. Such amount will be added to the Tranche C loan balance subject to 

interest at the appropriate rate.

The OFS also obtained other consideration, including a 9.85% equity interest in Chrysler Group LLC an

additional notes9 with principal balances of $288.0 million and $100.0 million10. As of September 30, 2009, the 

OFS has funded approximately $4.6 billion under this facility.

GM Debtor-In-Posses

On June 1, 2009, GM filed for Chapter 11 bankruptcy. As part of the filing the OFS and the Canadian government agreed to lend up to $33.3 billion under the terms of the DIP credit agreement; the OFS’s commitment 

amount was $30.1 billion. The OFS funded the $30.1 billion of which approximately $986.0 million remains 

outstanding as of September 30, 2009. In July 2009, the DIP credit agreement was amended to reflect the fact 

that the amounts there under (other than approximately $986.0million that remained with GM for wind-down 

in bankruptcy and $7.1 billion that was assumed by GM NewCo) were extinguished in connection with a successful credit bid for the assets of old GM.

The OFS has assigned its rights in this loan as well as the General Purpose and Working Capital loans and previously received common stock warrants to a newly created entity (GM NewCo or General Motors Company). The 

purpose of this GM NewCo was to obtain sufficient assets of GM out of bankruptcy to satisfy the original loans 

disbursed to GM and discussed above, which it accomplished through a successful credit bid for the assets in a 

sale pursuant to Section 363 of the Bankruptcy Code. Upon closing of the Section 363 sale, the General Motors 

Company has assumed $7.1 billion of the DIP loan, simultaneously paying $0.4 billion (return of warranty program funds), resulting in a balance of $6.7 billion. The loan has a term of 6 years and bears interest at 3 Month 

Eurodollar (subject to a 2.0% floor) plus 5.0% and has a first lien security interest in the assets of General Motors 

Company. The OFS also received $2.1 billion in 9.0% cumulative perpetual preferred stock and 60.8% of the 

common equity interest in General Motors Company. The assets received by the OFS as a result of the assign9 The additional notes bear the same interest rate and maturity as the Tranche C loan.

10 Interest begins to accrue on this note after certain events, defined in the credit agreement, have taken place.

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ment and Section 363 sale are considered recoveries of the original loans for subsidy cost estimation purposes.

As of September 30, 2009, the OFS had received $34.1 million in dividends on GM preferred stock.

GMAC Preferred S

In December 2008, the OFS purchased preferred membership interests for $5.0 billion which were converted to 

senior preferred stock with an 8.0% annual distribution right (dividends) from GMAC. Under the agreement, 

GMAC issued warrants to the OFS to purchase, for a nominal price, additional preferred equity in an amount equal 

to 5.0% of the preferred equity purchased. These warrants were exercised at closing of the investment transaction. 

The additional preferred stock provided for a 9.0% annual distribution right. The purpose of this investment was to 

enable GMAC to restore liquidity to its finance businesses and restore stability to the domestic automobile industry 

in the United States. As of September 30, 2009, the OFS has received $265.2 million in dividends associated with 

these preferred and warrant preferred stock.

GMAC Mandatorily Convertible Preferred

In May 2009, the OFS published a non-binding term sheet to invest $13.1 billion to support GMAC, subject to 

definitive documentation and GMAC’s capital needs. The OFS has invested $7.5 billion (of the $13.1 billion) in 

9.0% Mandatorily Convertible Preferred Stock in GMAC to support its ability to originate new loans to Chrysler 

dealers and consumers, and help address GMAC’s capital needs. The preferred stock have a liquidation amount of 

$50 per share and are convertible in whole or in part, at any time, at the option of GMAC, subject to the approval of the Federal Reserve. Furthermore, GMAC shall not convert any of the stock to the extent such conversion 

would result in the OFS owning in excess of 49% of GMAC’s common equity except (1) with the prior written 

consent of the OFS, (2) pursuant to GMAC’s Capital Plan, or (3) pursuant to an order of the Federal Reserve 

compelling such a conversion. The determination of the percentage of common equity owned by the OFS would 

take into account the common stock currently owned by the OFS as a result of the conversion of the GMAC 

Rights Offering, previously discussed. Absent a previous conversion, the preferred stock will automatically 

convert after 7 years. The conversion rate is 0.00432 units of common stock per unit of convertible preferred 

stock. The remaining $5.6 billion (per the non-binding term sheet) is subject to the FRB’s review of GMAC’s 

capital plan assessment of whether additional capital is needed. As of September 30, 2009, the remaining $5.6 

billion has not been funded. The OFS had received approximately $165.4 million in dividends associated with 

these preferred and warrant preferred stock.

Public-Private Investment 

The Public-Private Investment Program (PPIP) is part of the OFS’s efforts to help restart the market and provide 

liquidity for legacy assets. Under this program, the OFS will make equity and debt investments in investment 

vehicles (referred to as Public Private Investment Funds or “PPIFs”) established by private investment managers. 

The equity investment will be used to match private capital and will equal not more than 50.0% of the total equity invested. The debt investment will be, at the option of the investment manager, equal to 50.0% or 100.0% 

of the total equity (including private equity). The PPIFs are only allowed to purchase commercial mortgagebacked securities and non-agency residential mortgage-backed securities issued prior to January 1, 2009 that were 

originally rated AAA or an equivalent rating by two or more nationally recognized statistical rating organizations 

without external credit enhancement and that are secured directly by the actual mortgage loans, leases or other 

assets and not other securities. The PPIFs are also permitted to invest in certain temporary securities, including 

bank deposits, U.S. Treasury securities, and certain money market mutual funds. At least 90 percent of the assets 

underlying any eligible asset must be situated in the United States. On September 30, 2009, the OFS signed 

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definitive limited partnership and loan agreements with two investment managers, committing to potentially 

disburse up to $6.7 billion. As of September 30, 2009, no private fund managers had made any investments and 

the OFS had not disbursed any funds.

Subsidy Reestimate

The purpose of reestimates is to update original program subsidy cost estimates to reflect actual cash flow experience as well as changes in forecasts of future cash flows. Forecasts of future cash flows are updated based on 

actual program performance to date, additional publicly available relevant historical market data on securities 

performance, revised expectations for future economic conditions, and enhancements to cash flow projection 

methods. Financial statement reestimates for all programs were performed using actual financial transaction data 

through September 30, 2009. In accordance with credit reform guidance and to ensure the timely completion of 

the credit reform reestimate process, market and security specific data publicly available as of September 30, 2009, 

was used for the CPP, AGP, TIP and direct loan AIFP and data through August 31, 2009 was used for the equity 

portion of AIFP, AIG and TALF in the reestimate calculations. The OFS assessed the key inputs of the reestimates

using data publically available as of September 30, 2009, and in its determination, there were no significant 

changes to the key inputs for the three programs for which August 31, 2009, data was used that would require a 

revision to the reestimates.

Downward Reestimates for the fiscal year ended September 30, 2009, are as follows:

Program

Downward Reestimate Amounts

(Dollars in Millions)

Subsidy Interest Total

AGP $ (1,097) $ (77) $ (1,174)

Direct Loan

AIFP $ (9,039) $ (1,571) $ (10,610)

CBLI/TALF (222) (21) (243)

Subtotal Direct $ (9,261) $ (1,592) $ (10,853

Equity Investment

CPP $ (68,558) $ (3,861) $ (72,419)

TIP (20,366) (1,101) (21,467)

AIG (845) (280) (1,125)

AIFP (2,331) (379) (2,710)

Subtotal Equity $ (92,100) $ (5,621) $ (97,721

Total $ (102,458) $ (7,290) $ (109,748)

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Descriptions of the reestimates, by OFS Program, are as follows:

The approximately $1.2 billion in downward reestimates for the AGP is primarily due to improvements in market 

conditions from when the guarantee was committed in January 2009. The improved market conditions resulted 

in an increase in the projected AGP asset due to the net present value of the estimated cash inflows from the preferred stock and warrants received by OFS from Citigroup as a premium being greater than the estimated value of 

future claim payments associated with the $5.0 billion asset guarantee.

The approximately $10.6 billion in downward reestimates for the direct loans-AIFP is primarily the result of the 

post bankruptcy improved financial position of one of the major companies participating in the program. The 

$0.2 billion in downward reestimates for the TALF is entirely due to projected improved performance of the

securities within the program versus the original estimate.

The $70.7 billion in repurchases during fiscal year 2009 accounts for $9.7 billion of the $72.4 billion in 

downward reestimates in the CPP. Projected repurchases of $30.0 billion in the next 12 months accounts for 

approximately $5.4 billion, with the $57.3 billion balance in downward reestimates in the CPP primarily due to 

improved market conditions from when the original estimate was made in December 2008.

The $21.5 billion in downward reestimates in the TIP is mostly due to improved market conditions from when 

the original estimates were made in December 2008 and January 2009. Approximately $2.3 billion is due to a 

$20.0 billion repurchase forecast within 12 months following September 30, 2009.

The $1.1 billion in downward reestimates for the AIG Investment Program and $2.7 billion in downward 

reestimates for the AIFP equity programs are primarily due to improvements in market conditions from when the 

equities were purchased resulting in a reduction in the projected costs of the programs.

Key financial data for the Troubled Asset Relief Program Loans and Equity Investments and Asset Guarantee

Program are included in the following two tables:

1. Direct Loans and Equity Investments Outstanding, Gross, represent amounts paid by OFS to acquire

the loans and equity investments. Repurchases, redemptions, and repayments have been deducted 

from these balances. 

2. Net Direct Loans and Equity Investments represent the present value of net cash flows that OFS

estimates it will receive from the loans and equity investments. For equity securities, this amount 

represents fair value.

3. Subsidy Expense by component, subsidy cost allowance and a reconciliation of the subsidy cost

allowance illustrate the relationship between subsidy cost and asset value. 

4. Reconciliation of subsidy cost by program, is also incorporated in the tables.

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offie of financial stability (Troubled Asset 

NOTES TO TH

For the Period Ended September 30, 200

(Dollars in Millions) TOTAL CPP AIG TIP AIFP CBLI

Note 6: Troubled Asset Relief Program Loans and Equity Inve

Direct Loans And Equity Investment Programs:

Direct Loans and Equity Investments Outstanding, Gross $ 290,969 $ 133,901 $ 43,206 $ 40,000 $ 73,762 $ 100 

Subsidy Cost Allowance (53,077) 7,770 (30,054) 341 (31,478) 344 

Net Direct Loans and Equity Investments $ 237,892 $ 141,671 $ 13,152 $ 40,341 $ 42,284 $ 444 

New Loans or Investments Disbursed $ 363,826 $ 204,618 $ 43,206 $ 40,000 $ 75,902 $ 100 

Obligations for Loans and Investments not yet Disbursed $ 51,681 $ — $ 26,629 $ — $ 5,152 $ 19,900 

Budget Su

and reestimates: (see

Interest Differential 5.97% -45.52% 9.31% 6.97% 5.87%

Defaults 25.60% 123.56% 48.38% 54.21% 0.00%

Other -4.58% 4.74% -8.84% -3.13% -110.10%

Total Budget Subsidy Rate 26.99% 82.78% 48.85% 58.05% -104.23%

Subsidy Cost by Component:

Interest Differential $ 4,175 $ 12,279 $ (17,280) $ 3,724 $ 5,446 $ 6 

Defaults 161,297 52,655 46,906 19,352 42,384 — 

Other (13,705) (9,414) 1,799 (3,536) (2,444) (110)

Total Subsidy Cost, Excluding Modifications and Reestimates $ 151,767 $ 55,520 $ 31,425 $ 19,540 $ 45,386 $ (104)

Reconciliation of Subsidy Cost Allowance:

Balance, inception $ — $ — $ — $ — $ — $ — 

Subsidy cost for disbursements 151,767 55,520 31,425 19,540 45,386 (104)

Subsidy cost for modifications 412 1,866 127 — (1,589) 8 

Interest and Dividend Collections 9,329 6,790 — 1,862 677 — 

Warrants and additional notes 2,916 2,901 — — 15 — 

Net Interest (to) from Treasury on borrowings and Financing 

Account Balance (2,773) (2,428) (373) (276) 309 (5)

Balance, End of period, before reestimates $ 161,651 $ 64,649 $ 31,179 $ 21,126 $ 44,798 $ (101)

Subsidy Reestimates (108,574) (72,419) (1,125) (21,467) (13,320) (243)

Balance, End of period $ 53,077 $ (7,770) $ 30,054 $ (341) $ 31,478 $ (344)

Reestimates

Interest on Reestimate $ (7,213) $ (3,861) $ (280) $ (1,101) $ (1,950) $ (21)

Subsidy (101,361) (68,558) (845) (20,366) (11,370) (222)

Total Reestimates - (Decrease) in Subsidy Cost $ (108,574) $ (72,419) $ (1,125) $ (21,467) $ (13,320) $ (243)

Reconciliation of Subsidy Costs:

Subsidy cost for disbursements $ 151,767 $ 55,520 $ 31,425 $ 19,540 $ 45,386 $ (104)

Subsidy cost for modifications 412 1,866 127 $ — (1,589) 8 

Subsidy Reestimates (108,574) (72,419) (1,125) (21,467) (13,320) (243)

Total Direct Loan and Equity Investment Programs 

Subsidy Costs $ 43,605 $ (15,033) $ 30,427 $ (1,927) $ 30,477 $ (339)

Note 1: The rates reflected in the “Budget Subsidy Rate” table above are weighted rates for the program. To compensate for the weighting of the various risk category subsidy rates, 

the “by component” dollar amounts reflected were computed as a ratio of the component rate to the total weighted subsidy rate multiplied by the subsidy expense for the program. 

Therefore, the Total Subsidy Cost excluding modifications and reestimates will not equal the New Loans or Investments Disbursed multiplied by the Budget Subsidy Rate.

110 Noes t
Part 2 • agency Financial Statement

Offic of Financial Stability (Troubled asset reli

NOTES TO TH

For the Period Ended September 30, 2009

(in Millions)

AGP

Asset Guarantee Progr

Asset Guarantees Outstanding:

Oustanding Principal Amount of Guaranteed Assets, Face Value $ 301,000 

Amount of Outstanding Principal Guaranteed $ 5,000 

Asset for Asset Guarantee Program $ 1,765 

Budget Sui

Defaults 43.62%

Fees and Other Collections -53.23%

Other -5.37%

Total Budget Subsidy Rate -14.98%

Subsidy Cost by Component:

Defaults 2,181 

Fees and Other Collections (2,662)

Other (270)

Total Subsidy Cost, Excluding Modifications and Reestimates $ (751)

Reoncili

Balance, Inception $ — 

Subsidy cost (751) 

Dividend Collections on Preferred Stock 175

Net Interest from Treasury on Borrowings and Financing Account Balance (15) 

Balance, End of Period, Before Reestimate $ (591) 

Subsidy Reestimate (1,174) 

Balance, End of Period $ (1,765) 

Re

Interest on Reestimate $ (77)

Subsidy (1,097)

Total Reestimates - (Decrease) in Subsidy Cost $ (1,174)

Reonci

Subsidy cost $ (751)

Subsidy reestimate (1,174)

Cancellation fees collected (276)

Total Asset Guarantee Program Subsidy Cost $ (2,201)

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note 7. Commitments and Contin

The OFS is party to various legal actions and claims brought by or against it. In the opinion of management and 

General Counsel, the ultimate resolution of these legal actions and claims will not have a material effect on the 

OFS financial statements as of September 30, 2009. The OFS has not incurred any loss contingencies that would 

be considered probable or reasonably possible for these cases. Refer to Note 6 for additional commitments.

note 8. Principal Payable to the burau of the Pub

Equity investments, direct loans, and asset guarantees accounted for under credit reform accounting are funded 

by subsidy appropriations and borrowings from the BPD. The OFS also borrows funds to pay the Treasury 

General Fund for negative subsidy costs and downward reestimates. The OFS makes periodic principal repayments to the BPD based on the analysis of its cash balances and future disbursement needs. All debt is intragovernmental and covered by budgetary resources. See additional details on borrowing authority in Note 10, 

Statement of Budgetary Resources.

Debt transactions for the period ending September 30, 2009, are:

(Dollars in Millions)

Beginning Balance, Principal Payable to the BPD $ —

New Borrowings 215,593

Repayments (72,258)

Ending Balance, Principal Payable to the BPD $ 143,335

Borrowings from the BPD by TARP Program that are outstanding as of September 30, 2009, are as follows:

(Dollars in Millions)

Capital Purchase Program $ 77,232

American International Group, Inc. Investment Program 12,531

Targeted Investment Program 20,460

Automotive Industry Financing Program 32,134

Consumer & Business Lending Initiative 204

Asset Guarantee Program 774

Total Borrowings Outstanding $ 143,335

Borrowings are payable to the BPD as collections are available and carry terms ranging from 2 to 30 years. 

Interest rates on borrowings range from 1.0% to 4.5%. Interest expense for the period ended September 30, 

2009, was $6.4 billion.

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Part 2 • agency Financial Statement

note 9. Statementof N

The Statement of Net Cost (SNC) presents the net cost of operations for the OFS for the Department of the 

Treasury strategic goal of ensuring that U.S. and World economies perform at full economic potential. The OFS 

has determined that all initiatives and programs under the TARP fall within this strategic goal.

The OFS SNC reports the accumulated full cost of the TARP’s output, including both direct and indirect costs 

of the program services and output identifiable to TARP, in accordance with SFFAS No. 4, Managerial Cost 

Accounting Concepts and Standards.

The OFS SNC includes approximately $6.4 billion of intragovernmental costs relating to interest expense on borrowings from the BPD and approximately $3.6 billion in intragovernmental revenues relating to interest income 

on financing account balances for the period ended September 30, 2009.

Subsidy Allowance Amortized on the SNC is the difference between interest income on financing fund account 

balances, dividends and interest income on direct loans, equity investments, and asset guarantees from TARP 

participants, and interest expense on borrowings from the BPD. Credit reform accounting requires all costs on 

the SNC for programs to be reflected only in the subsidy cost. The subsidy allowance account is used to present 

the loan or equity investment at the estimated net present value of future cash flows.

note 10. Statementof Budgetary R

The Statement of Budgetary Resources (SBR) presents information about total budgetary resources available to 

the OFS and the status of those resources for the period ended September 30, 2009. The OFS’s total budgetary 

resources were approximately $238.3 billion for the period ended September 30, 2009. Additionally, nonbudgetary resources including borrowing authority and spending authority from collections of loan principal, 

liquidation of equity investments, interest and fees in financing funds were approximately $461.1 billion for the 

period ended September 30, 2009.

Permanent Indefinite Appro

The OFS receives permanent indefinite appropriations annually to fund increases in the projected subsidy costs 

of loans and the OFS investment programs as determined by the reestimation process required by the FCRA. The 

initial funding as a result of the reestimation process will occur in 2010.

Additionally, Section 118 of the EESA states that the Secretary may issue public debt securities and use the 

resulting funds to carry out the Act and that any such funds expended or obligated by the Secretary for actions 

authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the 

time of such expenditure or obligation.

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Borrowing Auth

The OFS is authorized to borrow from the BPD when funds needed to disburse direct loans and investments, and 

to enter into asset guarantee arrangements exceed subsidy costs and collections in the non-budgetary financing 

accounts. As of September 30, 2009, the OFS had available approximately $45.8 billion of borrowing authority.

The OFS uses dividends and interest received as well as principal repayments on direct loans and liquidation of 

equity investments to repay debt in the non-budgetary loan and investment financing accounts. These receipts are 

not available for any other use per credit reform accounting guidance.

Apportionment Catgories of Obligatio

Direct vs. Reimbursable Oblig

All of the OFS apportionments are Direct and are Category B. Category B apportionments typically distribute 

budgetary resources on a basis other than calendar quarters, such as by activities, projects, objects or a combination of these categories. The OFS obligations incurred are direct obligations (obligations not financed from 

reimbursements).

Undelivered Orde

Undelivered orders as of September 30, 2009, were approximately $56.1 billion in budgetary accounts, and approximately $79.2 billion in non-budgetary financing accounts.

Explanatin of Differences Between theStatement

Resources and the Bdget of the United Stat

Federal agencies are required to explain material differences between amounts reported in the SBR and the actual 

amounts reported in the Budget of the U.S. Government (President’s Budget). However, the President’s Budget,

which will include the FY 2009 actual amounts for OFS, has not yet been published. The President’s Budget is 

expected to be published in February 2010 and will be made available from the U.S. Government Printing Office. 

Since the financial statements are published before the President’s Budget, a reconciliation is to be performed 

between the prior year’s SBR and the actual amounts for that year published in the prior year’s President’s Budget. 

Any significant differences identified from this reconciliation are to be explained in the federal agency’s notes to its 

financial statements. Given that FY 2009 is the OFS’s first year of operations, no prior year data was available to 

perform a comparison. 

114 Noes t
Part 2 • agency Financial Statement

note 11. Reconciliaton of Obligations Incurre

of Opera

The OFS presents the SNC using the accrual basis of accounting. This differs from the obligation-based measurement of total resources supplied, both budgetary and from other sources, on the SBR. The reconciliation 

of obligations incurred to net cost of operations shown below categorizes the differences between the two, and 

illustrates that the OFS maintains reconcilable consistency between the two types of reporting.

The Reconciliation of Obligations Incurred to Net Cost of Operations for the period ended September 30, 2009 

is as follows:

(Dollars in Millions)

Resources Used to Finance Activities:

Obligations Incurred $ 662,296

Spending Authority from Offsetting Collections (271,999)

Offsetting Receipts (2,720) 

Total Resources Used to Finance Activities 387,577

Resources Used to Finance Items Not Part of Net Cost:

Net Obligations in Loan and Investment Financing Funds (180,185)

Increase in Resources Obligated for Items Ordered but not yet Provided (56,073)

Total Resources Used to Finance Items Not Part of Net Cost (236,258)

Resources Used to Finance Net Cost 151,319

Components of Net Cost That Will Not Require or Generate Resources in the Current Period:

Downward Reestimate of Subsidy Cost (109,748)

Other 2

Total Components of Net Cost Not Requiring or Generating Resources in the Current Period (109,746)

Net Cost of Operations $ 41,573

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Required Supplementary Info

Offic of Financial Stability (Troubled Asset Rel

COMBINE ST

For the Period Ended September 30, 2009

Combined TARP Programs TARP Administrative Fund

(Dollars in Millions) Budgetary Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

Budgetary 

Accounts

Nonbudgetary 

Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balances Brought Forward, 

Inception $ — $ — $ — $ — $ — $ — 

Budget Authority:

Appropriations 238,268 — 237,989 — 279 — 

Borrowing Authority — 309,971 — 309,971 — — 

Spending Authority from Offsetting 

Collections

Earned: Collected — 243,072 — 243,072 — — 

Change in Unfilled Orders Without 

Advance — 28,927 — 28,927 — — 

Total Budget Authority 238,268 581,970 237,989 581,970 279 

Permanently Not Available — (120,841) — (120,841) — — 

TOTAL BUDGETARY RESOURCES $ 238,268 $ 461,129 $ 237,989 $ 461,129 $ 279 $ — 

STATUS OF BUDGETARY RESOURCES

Obligations Incurred:

Direct $ 210,112 452,184 $ 209,863 452,184 $ 249 $ — 

Unobligated Balance:

Apportioned and Available 28,156 7,009 28,126 7,009 30 — 

Not Available — 1,936 — 1,936 — — 

TOTAL STATUS OF BUDGETARY 

RESOURCES $ 238,268 $ 461,129 $ 237,989 $ 461,129 $ 279 $ — 

CHANGE IN OBLIGATED BALANCES

Obligated Balance Brought Forward, Inception $ — $ — $ — $ — $ — $ — 

Obligations Incurred 210,112 452,184 209,863 452,184 249 — 

Gross Outlays (153,961) (372,982) (153,871) (372,982) (90) — 

Change in Uncollected Customer Payments 

from Federal Sources — (28,927) — (28,927) — — 

Obligated Balance, Net, End of Period:

Unpaid Obligations 56,151 79,202 55,992 79,202 159 — 

Uncollected Customer Payments from 

Federal Sources — (28,927) — (28,927) — — 

Obligated Balance, Net, End of Period $ 56,151 $ 50,275 $ 55,992 $ 50,275 $ 159 $ — 

NET OUTLAYS

Gross Outlays $ 153,961 $ 372,982 $ 153,871 $ 372,982 $ 90 $ — 

Offsetting Collections — (243,072) — (243,072) — — 

Distributed Offsetting Receipts (2,720) — (2,720) — — — 

NET OUTLAYS $ 151,241 $ 129,910 $ 151,151 $ 129,910 $ 90 $ — 

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