When EESA was signed on October 3, 2008, the U.S. financial system faced a severe crisis that has rippled throughout the global economy, moving from the U.S. housing market to an array of financial assets and interbank lending. The crisis restricted access to credit and made the financing on which businesses and individuals depend increasingly difficult to obtain. Further tightening of credit exacerbated a global economic slowdown. During the crisis, Congress, the President, federal regulators, and others undertook a number of steps to facilitate financial intermediation by banks and the securities markets. In addition to Treasury’s efforts, policy interventions were led by the Board of Governors of the Federal Reserve System (Federal Reserve) and the Federal Deposit Insurance Corporation. While the banking crisis in the United States no longer presents the same level of systemic concerns as it did in 2008, the economy remains vulnerable, with unemployment higher than in the recent past. Globally, concerns about the stability of European banks and countries, especially Greece, escalated in 2011— demonstrating that problems remain in the global economy and financial markets. The passage of EESA resulted in a variety of programs supported with TARP funding. (See table 1.) Some of these programs have begun to unwind.overview of key dates for TARP implementation and the unwinding of some programs. TARP programs continue to wind down, and some programs have ended. Treasury has stated its goals for the exit process for many programs, but as we and others have reported, these goals at times conflict. Treasury has stated that when deciding to sell assets and exit TARP programs, it will strive to: protect taxpayer investment and maximize overall investment returns promote the stability of financial markets and the economy by bolster markets’ confidence to increase private capital investment, dispose of the investments as soon as it is practicable. For example, we previously reported that deciding to unwind some of its assistance to GM by participating in an initial public offering (IPO) presented Treasury with a conflict between maximizing taxpayer returns and exiting as soon as practicable. Holding its shares longer could have meant realizing greater gains for the taxpayer, but only if the stock appreciated in value. By participating in GM’s November 2010 IPO, Treasury tried to fulfill both goals, selling almost half of its shares at an early opportunity. Treasury officials stated that they strove to balance these competing goals, but have no strict formula for doing so. Rather, they ultimately relied on the best available information in deciding when to start exiting this program. Moreover, Treasury’s ability to exercise control over the timing of its exit from TARP programs is limited in some cases. For example, Treasury will likely decide when to exit AIG based on market conditions but Treasury has less control over its exit from PPIP because the program’s exit depends on the timing of each public-private investment fund (PPIF) selling its investments. Treasury continues to face this tension in its goals with a number of TARP programs as they continue to unwind. Throughout this section we provide the status of each TARP program that remains open or still holds assets that need to be managed, including when the program will end (or stop acquiring new assets and no longer receive funding) and when Treasury will exit the program (or sell assets it acquired while the program was open). We also provide information on outstanding assets, as applicable—both the book value and the market value—as of September 30, 2011. Also included are the lifetime estimated costs for each program calculated by Treasury. Later in this report we discuss the reasons for recent changes in several of Treasury’s cost estimates between September 2010 and September 2011. While repayments and income from CPP investments have exceeded the original outlays, financial strength will determine when remaining institutions exit the program. As we have reported, Treasury disbursed $204.9 billion to 707 financial institutions nationwide from October 2008 through December 2009.received $208.1 billion in repayment and income from its CPP investments, exceeding the amount originally disbursed by $3.2 billion (see fig. 2). The repayment and income amount included $182.4 billion in repayments of original CPP investments, as well as $11.2 billion in dividends, interest, and fees; $7.6 billion in warrant income; and $6.9 billion in net proceeds in excess of costs. After accounting for writeoffs and realized losses on sales totaling $2.6 billion, CPP had $17.3 billion in As of September 30, 2011, Treasury had outstanding investments as of September 30, 2011. Treasury estimates lifetime income of $13 billion for CPP as of September 30, 2011. See Department of the Treasury, Troubled Asset Relief Program (TARP) Monthly 105(a) Report-September 2011 (Washington, D.C.: Oct. 11, 2011). investments. Another 52 percent, or 165 institutions, exited CPP by exchanging their securities under other federal programs: 28 through CDCI and 137 through the Small Business Lending Fund (see fig. 3).the remaining 8 percent of CPP recipients that exited the program, 13 went into bankruptcy or receivership, 11 had their securities sold by Treasury, and 2 merged with another institution. Also, according to data in a Treasury report, as of September 30, 2011, 390 of the original 707 institutions remained in CPP but accounted for only 8.4 percent of the original investments. Much of the $17.3 billion in outstanding investments was concentrated in a relatively small number of institutions. The largest single outstanding investment was $3.5 billion, and the top four outstanding investments totaled $6.8 billion. The top 25 remaining CPP investments accounted for $11.3 billion. The cumulative number of financial institutions that had missed at least one scheduled dividend or interest payment by the end of the month in which the payments were due rose from 164 as of November 30, 2010, to 226 as of November 30, 2011. Institutions can elect whether to pay dividends and may choose not to pay for a variety of reasons, including decisions that they or their federal and state regulators make to conserve cash and maintain (or increase) capital levels. Institutions are required to pay dividends only if they declare dividends, although unpaid cumulative dividends generally accrue and the institution must pay them before making payments to other types of shareholders, such as holders of common stock. These figures differ from the number of dividend or interest payments outstanding because some institutions made their payments after the end of the reporting month. CPP dividend and interest payments are due on February 15, May 15, August 15, and November 15 of each year, or the first business day subsequent to those dates. The reporting period ends on the last day of the calendar month in which the dividend or interest payment is due. institutions still in the program (see fig. 4).despite reduced program participation, and the proportion of those missing scheduled payments has risen accordingly. The number of institutions missing payments stabilized in recent quarters; however, most of these institutions had repeatedly missed payments. In particular, 119 of the 158 institutions that missed payments in November 2011 had also missed payments in each of the previous three quarters. Moreover, these 158 institutions had missed an average of 4.8 additional previous payments, and only 7 had never missed a previous payment. On July 19, 2011, Treasury announced that it had, for the first time, exercised its right to elect members to the boards of directors of two of the remaining CPP institutions. In considering whether to nominate directors, Treasury said that it would proceed in two steps. First, after an institution misses five dividend or interest payments, Treasury sends OFS staff members to observe board meetings. Second, once an institution has missed six dividend payments, Treasury decides whether to nominate a board member based on a variety of considerations, including what it learns from the board meetings, the institution’s financial condition, the function of its board of directors, and the size of its investment. The financial strength of the participating institutions will largely determine the speed at which institutions repay their investments and exit and the amount of total lifetime income. Institutions will have to demonstrate that they are financially strong enough to repay the CPP investments in order to receive regulatory approval to exit the program. The institutions’ financial strength will also be a primary factor in their decisions to make dividend payments, and institutions that continue to miss payments may also have difficulty exiting CPP. Moreover, dividend rates will increase for remaining institutions beginning in late 2013, up to 9 percent, which may prompt institutions to repay their investments as that dividend increase approaches. If broader interest rates are low, especially approaching the dividend reset, banks could have further incentive to redeem their preferred shares. Treasury will need to balance the goals of protecting taxpayer-supported investments while expeditiously unwinding the program. Treasury officials told us that Treasury’s practice was generally to hold, rather than sell, its CPP investments. As a result, Treasury’s ability to exit the program largely depends on the ability of institutions to repay their investments. However, Treasury officials noted that if warranted, Treasury could change its practice in the future and sell its investments. In an upcoming report, we plan to describe the financial condition of the remaining CPP institutions and compare them with institutions that already exited and those that never participated. Treasury has disbursed $570 million to its 84 CDCI participants, 28 of which had previously participated in CPP (see fig. 5). As we previously reported, CDCI is structured similarly to CPP in that it provides capital to financial institutions by purchasing equity and subordinated debt from them. No additional funds are available through the program, as CDCI’s funding authority expired in September 2010. While no CDFIs have repaid Treasury’s investment as of September 30, 2011, Treasury has thus far received $10 million in dividend payments from CDCI participants. Lastly, Treasury expects CDCI will cost approximately $182 million over its lifetime, almost a third of the $570 million obligated to the program. Officials stated that CDCI has a cost, while CPP is estimated to result in lifetime income, in part because CDCI provides a lower dividend rate that increases the financing costs. CDCI also does not require warrants of participating institutions, which would otherwise offset Treasury’s costs. As with CPP, Treasury must continue to monitor the performance of CDCI participants because their financial strength will affect their ability to repay Treasury and Treasury’s ability to exit the program. As of September 30, 2011, 5 of the 84 CDCI participants had missed at least one dividend or interest payment, according to Treasury. While the continuing weak economy could negatively affect distressed communities and the CDFIs that serve them, the program’s low dividend rates may help participants remain current on payments. When Treasury will exit CDCI is unknown but the dividend rate that program participants pay increases in 2018, which provides an incentive for some borrowers to repay before that rate change occurs. As with CPP, Treasury officials indicated that while Treasury’s current practice is to hold its CDCI investments, that strategy could change and Treasury could opt to sell its CDCI shares. Treasury has received more than $40 billion for its roughly $80 billion AIFP investment, in large part from its participation in GM’s IPO and its exit from Chrysler. In November and December 2010, Treasury received $13.5 billion from its participation in GM’s IPO and $2.1 billion for selling preferred stock in GM. Treasury’s investment in Chrysler ended with the repayment of $5.1 billion in loans in May 2011 and the $560 million in proceeds that Treasury received from the sale of its remaining equity stake to Fiat in July 2011. Treasury received $2.7 billion from its sale of Ally Financial trust preferred securities in March 2011. Treasury’s timing of its exit from GM and Ally Financial—and ultimate return on its investment—will depend on how it balances its competing goals of maximizing taxpayer returns and selling its shares as soon as practicable. As figure 6 shows, all of the $37.3 billion in outstanding AIFP funds is from Treasury’s investments in GM and Ally Financial, including 32 percent of GM’s common stock and 74 percent of Ally Financial’s common stock. The timing of Ally Financial’s IPO will be critical to Treasury’s exit strategy, but Ally Financial’s mortgage liabilities could hamper the company’s efforts to launch an IPO and makes the timing of Treasury’s exit from Ally Financial unknown. On March 31, 2011, Ally Financial filed a registration statement with the Securities and Exchange Commission for a proposed IPO but a date has yet to be announced for the IPO. Additionally, after six straight quarterly profits, including growing asset balances for its auto loan business, the company posted a loss of $210 million in the third quarter of 2011, dropping from a profit of about $270 million in the third quarter of 2010, primarily due to losses in its mortgage business. The company attributed these losses to the negative impact of the mortgage servicing rights valuation, resulting from a decline in interest rates and market volatility. Additionally, Ally Financial has $12 billion in debt coming due in 2012. Treasury officials told us that they continue to monitor market conditions and other factors in determining a divestment strategy for GM, but share prices would have to increase significantly from current levels to fully recoup Treasury’s investment in GM. As we previously reported, GM’s share price would have to increase by more than 60 percent from the IPO share price of $33 to an average of more than $54 for Treasury to fully recoup its investment. shares have traded far below the IPO share price—with shares closing above $33 only twice since March 2011, and as of September 30, 2011, the shares closed at $20.18 (fig. 7). GAO-11-471. Additional reporting on AIFP appears in GAO, Troubled Asset Relief Program: Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future, GAO-10-492 (Washington, D.C.: Apr. 6, 2010); Troubled Asset Relief Program: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM, GAO-10-151 (Washington, D.C.: Nov. 2, 2009); and Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date, GAO-09-553 (Washington, D.C.: Apr. 23, 2009). In September 2008, prior to TARP, AIG received government assistance in the form of a loan from the Federal Reserve Bank of New York (FRBNY). In exchange, AIG provided shares of preferred stock to the AIG Credit Facility Trust created by FRBNY. These preferred shares were later converted to common stock and transferred to Treasury. In addition to this non-TARP support, Treasury provided TARP assistance to AIG in November 2008 by purchasing preferred shares that were also later converted to common stock. In late January 2011, following the recapitalization of AIG, Treasury owned 1.655 billion TARP and non- TARP common shares in AIG. The sale included about 132 million TARP AIG common shares on which Treasury had a realized loss and about 68 million non-TARP AIG common shares on which Treasury had a realized gain. 960 million TARP and 495 million non-TARP shares. (AIG also sold 100 million shares of common stock during this offering.) The costs for underwriting, Treasury’s financial advisors, and Treasury’s legal counsel were paid by, and will continue to be paid by, AIG. Treasury, however, pays the costs for assistance it receives from FRBNY. Based on the September 30, 2011, market price of AIG common stock, in selling all of its AIG common shares, Treasury expects to incur a lifetime cost of $24.3 billion for its TARP shares and receive income of $12.8 billion for its non- TARP shares, giving it a lower than expected net estimated cost of $11.5 billion for assistance to AIG (see fig. 8). AIG originally issued $16 billion of preferred shares in a special purpose vehicle (SPV) called AIA Aurora LLC (or AIA), an SPV created by FRBNY to hold shares of certain portions of AIG’s foreign life insurance businesses. Likewise, AIG issued $9 billion of preferred shares in an SPV called American Life Insurance Company (ALICO) Holdings LLC, which was created to hold AIG’s ALICO holdings. AIG issued the shares to FRBNY in December 2009 in exchange for a $25 billion reduction in FRBNY’s revolving loan to AIG. As part of the recapitalization plan executed on January 14, 2011, AIG redeemed FRBNY’s preferred shares by drawing down the Series F equity facility and selling assets. In turn, FRBNY transferred to Treasury the proceeds, along with a cross collateralization agreement against certain other AIG businesses, held for sale. Since the recapitalization, AIG has used the additional sales proceeds to reduce the remaining liquidation preferences of Treasury’s preferred interests in the AIA and ALICO SPVs. Treasury has not announced any time frames for selling its AIG investments, but as it exits this assistance it needs to balance selling its AIG stock as soon as practicable based on market conditions with protecting taxpayers’ interests. Treasury officials said that the agency would work to avoid economic losses during this exit. To that end, Treasury officials said that the agency had waited to proceed with its first underwritten offering of AIG common stock until (1) it reacquainted the investment community with AIG and (2) AIG executed and closed other transactions, such as the March 2011 sale of MetLife equity securities and a subsequent March transaction that reduced the preferred interests in the AIA SPV by approximately $5.6 billion. The first underwritten offering of Treasury’s AIG common shares occurred in May 2011. Treasury expects to use underwritten offerings to sell most of its common stock in AIG, with assistance from AIG. While Treasury generally prefers to sell the common stock that it holds through underwritten offerings, it could also decide to sell stock through other mechanisms, including more frequent at-the-market offerings. To sell its AIG stock, officials said that the agency planned to regularly conduct analyses, consider market challenges, and rely on AIG to facilitate Treasury’s offerings. Treasury officials have said that they would continue to conduct analyses using factors such as AIG’s share price, investor interest in AIG stock, and possible future restructuring. Treasury officials also expect to face several challenges when disposing AIG stock. First, because Treasury owns a significant amount of AIG stock—both as a percentage of total company stock and in absolute terms—the amount of shares the market can absorb may be limited. Second, continued price volatility in the domestic and global insurance markets could impede growth in these insurance markets. Third, the continued low interest rate environment could likely lead to lower investment incomes and overall profits for AIG, which in turn could affect Treasury’s opportunities to sell its AIG shares. According to Treasury officials, Treasury expects to rely on AIG to prepare and file certain paperwork with the Securities and Exchange Commission and provide other assistance when Treasury sells its remaining AIG shares. Given the decline in AIG’s stock price since January 2011 and the recent volatility in the stock market, when Treasury’s exit will be completed is unknown. Treasury will also need to balance the tension of its competing goals by deciding whether it should exit even if the stock value is below Treasury’s break-even amount. Treasury purchased 31 SBA 7(a) securities between March and September 2010 in an attempt to alleviate liquidity strains in secondary Treasury announced in June 2011 that it markets for SBA 7(a) loans. intended to sell these securities and has sold nearly three-quarters of the portfolio. As of October 2011, Treasury has sold 23 securities. Treasury has eight securities remaining to be sold and projects lifetime income of $3.9 million (see fig. 9). Treasury officials took into account market effects when they considered exiting Treasury’s portfolio of SBA 7(a) securities. For example, Treasury analyzed SBA lending and securitization volumes, which had recovered to precrisis levels. According to Treasury officials, Treasury also consulted with its external advisor, EARNEST Partners, to understand the potential effect of its sales on the markets. According to Treasury officials, EARNEST Partners advised Treasury that its portfolio was small enough not to affect liquidity in the $15 billion market for SBA 7(a) securities. Moreover, the firm advised Treasury that it had received significant market interest in the securities after Treasury announced its intention to sell them. Treasury officials concluded that it was an opportune time to begin selling these securities without negatively affecting markets. Treasury officials stated that they considered several tradeoffs in deciding to sell the securities this year, rather than holding them for longer. Exiting quickly appears to be the main consideration, although Treasury officials stated that they balanced this with promoting financial stability and protecting the taxpayer. To determine what prices are reasonable to accept as it continues to sell these securities, Treasury requested market price estimates from two companies for each security it held and compared that to a break-even price and a reserve price, below which it would require additional approvals to proceed with the sale. While Treasury might have maximized taxpayer returns by holding the securities longer, according to Treasury officials, it faced prepayment risk that could have reduced the securities’ long-term earning potential. TALF provided loans to certain institutions and business entities in return for collateral in the form of securities that are forfeited if the loans are not repaid. Securitization is a process by which similar debt instruments—such as loans, leases, or receivables—are aggregated into pools, and interest-bearing securities backed by such pools are then sold to investors. These asset-backed securities (ABS) provide a source of liquidity for consumers and small businesses because financial institutions can take assets that they would otherwise hold on their balance sheets, sell them as securities, and use the proceeds to originate new loans, among other purposes. Commercial mortgage-backed securities (CMBS) are securitizations with cash flows backed by principal and interest payments on a pool of loans on commercial properties. For additional information about securitization and about TALF see GAO, Federal Reserve System: Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance, GAO-11-696 (Washington, D.C.: July 21, 2011), and Troubled Asset Relief Program: Treasury Needs to Strengthen Its Decision-Making Process on the Term Asset-Backed Securities Loan Facility, GAO-10-25 (Washington, D.C.: Feb. 5, 2010). collateral.costs related to the TALF SPV, TALF LLC (see fig. 10). This SPV receives a portion of the interest income earned on TALF loans that can be used to purchase any borrower-surrendered collateral from FRBNY, referred to as excess interest. As we have identified in previous reports, Treasury still faces staffing challenges, including recent turnover stemming from the departure of term-appointed staff, but it has been addressing these challenges. Overall staffing numbers steadily increased from 2008 through 2010 but began declining for the first time in 2011 (see fig. 14). Also, as we previously reported in September 2011, OFS no longer has detailees from other federal agencies. When OFS was first organized, it relied on a significant number of staff from other agencies to start up new TARP programs. With most TARP programs winding down, OFS officials stated that OFS has begun to detail OFS staff to other Treasury programs, such as the Small Business Lending Fund (SBLF), and other federal agencies, such as the Bureau of Consumer Financial Protection. From September 2010 through September 2011, about 65 staff left OFS, according to Treasury officials. As overall staffing numbers have declined, staffing levels within individual OFS offices have fluctuated depending on staffing needs. In some offices, for instance, staff levels have decreased. For example, in the Chief Investment Office—which includes staff working on various TARP programs, such as CPP—more than half of the staff departed from June 2010 to September 2011 (a decrease of 20 staff from 2010). Though some Chief Investment Office staff were replaced with staff in other OFS offices and staff that were new to Treasury, many were not replaced because their skill sets were no longer needed given the wind-down phase of investment programs. Conversely, staff have increased in certain OFS offices where OFS management had identified specific needs. For example, the number of staff in the Office of Internal Review (OIR), which identifies risks and develops procedures for complying with EESA, increased from June 2010 to September 2011. Treasury had been seeking new staff with the skill set needed for this work, as we previously reported, and officials stated that the increase reflected a need to continue monitoring compliance among Treasury financial agents and contractors. Treasury filled these positions in part by streamlining the hiring process and better targeting its job announcements. Treasury officials anticipate that staffing levels in most OFS offices will decrease over time, though it will continue to seek talent for OIR, the Chief Financial Office, and the TARP housing programs that remain active. In addition to changes in staff numbers and office composition, OFS has had a number of its leadership team depart since 2010. As we previously reported, the Assistant Secretary of Financial Stability resigned on September 30, 2010. His replacement is OFS’s former Chief Counsel, who was sworn in as Assistant Secretary in July 2011. An acting Chief Counsel has assumed the Assistant Secretary’s former role. Other staff in leadership positions have resigned since we last reported in January 2011. The Chief Investment Officer and the Chief of Operations both left OFS and were replaced internally by OFS staff members. Both of these departing staff were in 3-year term senior executive service positions that were set to expire, according to Treasury officials. The Chief of Operations position is now held by a permanent staff member in an acting capacity, while the Chief Investment Officer position remains a term position. Program leadership has also changed for Treasury’s first and largest program, CPP. Its director left Treasury in 2011 and was replaced with another staff member from the Chief Investment Office. Though OFS has experienced staff turnover and still faces staffing challenges, OFS has been addressing these and other staffing issues. For example: As we previously reported, we recommended that OFS finalize its staffing plan. Treasury has implemented this recommendation, which should help OFS better ensure that it recognizes and addresses its staffing challenges, given that many staff still remain in term appointments. As a result of this plan, OFS produced information on critical positions that should remain or be filled and successors for all of the chiefs and those in critical management positions directly below the chief level. OFS also plans to conduct succession planning for other staff below the management level. OFS now hires predominantly term-appointed staff for a maximum of 2 years, according to Treasury officials. Previously, it hired staff for “permanent” positions as well as term-appointed positions with a maximum of 4 years. Treasury officials noted that they made this change in recognition of the fact that most of its programs are winding down. Additionally, limiting new hires to shorter-term appointments reduces the number of staff that Treasury will need to absorb when OFS closes. OFS has also filled or removed a number of vacancies to recognize that it is in a period of winding down. Specifically, OFS vacancies decreased from 61 in 2010 to 29 as of September 30, 2011. In addition, OFS continues to address employee morale concerns. As we previously reported, an employee survey in 2010 identified communication and staff development as two areas for improvement. According to Treasury officials, OFS took steps to address communication concerns through a monthly newsletter; “lunch and learn” sessions on a variety of topics; and briefings attended by senior Treasury officials, such as the Secretary of the Treasury. To address concerns about staff development, OFS officials said that they increased training offerings and provided the opportunity to complete professional development plans. Treasury has also been assisting term-appointed staff. For example, Treasury officials stated that they have continued to provide information sessions for those staff on term appointments that are seeking permanent positions in the federal government. Officials also noted that they have briefings on helping staff in term appointments understand the terms of the appointment and to find opportunities for detail positions to other agencies. Treasury continues to rely heavily on financial agents to support TARP programs. According to OFS procedures, financial agency agreements are used for services that cannot be provided with existing Treasury or contractor resources and generally involve inherently governmental functions. Since the start of TARP, Treasury has relied on financial agents for asset management, transaction structuring, disposition services, custodial services, and administration and compliance support for the TARP housing assistance programs. Through fiscal year 2011, Treasury awarded 17 financial agency agreements, of which 14 remain active. As shown in table 2, the total obligated value of financial agency agreements increased from about $327 million to about $547 million, or 67 percent, from the end of fiscal year 2010 to the end of fiscal year 2011. Treasury awarded two new financial agency agreements in fiscal year 2011 for transaction structuring and disposition services. As shown in table 3, five financial agency agreements accounted for 87 percent of the total obligated value through fiscal year 2011—about $476 million out of about $547 million. The vast majority of these obligations, approximately $383 million, went to Fannie Mae and Freddie Mac, which provide administrative and compliance services, respectively, for HAMP. Congress established Fannie Mae and Freddie Mac as for-profit, shareholder-owned corporations to stabilize and assist the U.S. secondary mortgage market and facilitate the flow of mortgage credit. Treasury also heavily relies on contractors to help administer TARP programs. Treasury uses TARP contracts for a variety of legal, investment consulting, accounting, and other services and supplies. Through fiscal year 2011, Treasury had awarded or used 116 contracts and blanket purchase agreements, up from 81 last year, and about half of them remain active. As shown in table 2, the total obligated value of these contracts has increased 42 percent since 2010, from $109 million to $155 million. About 75 percent of the contracts and blanket purchase agreements are relatively small (less than $1 million each). The two largest contracts are $33 million (with PricewaterhouseCoopers, LLP for internal control services) and $17 million (with Cadwalader, Wickersham & Taft, LLP for legal services). From the outset, Treasury encouraged small and minority- and women- owned businesses to pursue opportunities for TARP contracts and financial agency agreements. The number of contracts and financial agency agreements that went to small and minority-owned businesses increased since 2010 from 16 to 31 (as shown in table 4). Also, 6 of the 17 total financial agency agreements and 25 of the 116 total contracts were with these businesses through 2011. In addition, 73 subcontracts under financial agency agreements and prime contracts went to small and/or minority- and women-owned businesses. As in previous years, the majority of these businesses participating in TARP are subcontractors. As we have reported, when Treasury began to quickly implement TARP initiatives in 2008, OFS had not finalized its procurement oversight procedures and lacked comprehensive internal controls for contractors and financial agents. Further, it did not have a comprehensive compliance system to monitor and fully address vendor-related conflicts of interest. Last year we reported that OFS had put in place an appropriate infrastructure to manage and monitor its network of financial agents and contractors. Specifically, by the end of fiscal year 2010, OFS had: defined organizational roles and responsibilities and established written policies and procedures for the management and oversight of TARP financial agents; taken action to ensure that sufficient personnel were assigned and properly trained to oversee the performance of financial agents and contractors; issued written procedures on measuring the performance of financial agents and installed qualitative and quantitative performance measures for several of its financial agents; and issued regulations on conflicts of interest, established an internal reporting system for tracking all vendor conflict-of-interest certifications, inquiries, and requests for waivers, and completed renegotiations of three contracts that predated the regulations. In fiscal year 2011, Treasury continued to strengthen its policies and procedures for managing financial agents and contractors and conflicts of interest. For example, contract administration personnel made improvements to OFS’s contract record system, including controls and clear deadlines for validating and certifying the completeness and accuracy of the information. According to an OFS official responsible for contracting, contract administration personnel audited most of the items in the record system by tracing the items back to source documents, and found some areas that needed to be improved. Data fields that were used for informational purposes only, such as the contract specialist’s telephone number, were not selected for audit. Fields selected included date of award, contractor, potential contract value, and socioeconomic status. Contract actions were matched against data in the Federal Procurement Data System-Next Generation before deciding whether the items needed to be traced back to source documents. According to the official, new controls were established for adding new contract information to the system and documentation procedures were developed to improve data consistency. The Office of Financial Agents (OFA) also expanded its implementation of performance assessments of financial agents by issuing performance measures and initiating assessments for five additional financial agents, including Fannie Mae. Quarterly performance assessments are now conducted for all of the active financial agents. OFA establishes qualitative and quantitative performance measures, with input from the financial agent, based on the core functions and responsibilities described in each financial agency agreement. OFA staff review financial agents’ performance against the qualitative and quantitative measures and prepare an overall performance assessment. The OFA reviews have identified areas in which a financial agent is performing above expectations or needs improvement. According to an OFA official, the performance reviews have been an important management tool and helped improve compliance through active communication and dialog with the financial agents. For those financial agents eligible to receive incentive payments, the performance reviews can affect the amount of payment. OFA may revise the performance measures annually to ensure continued alignment with the financial agents’ scope of work and OFS priorities. The OIR took several actions to strengthen oversight of conflicts-of- interest requirements over the last year. Specifically, we found the following: OIR began conducting on-site compliance reviews to determine whether financial agents’ internal controls and procedures are working. According to Treasury officials, six reviews were conducted in fiscal year 2011. Treasury found that five of the financial agents reviewed had reasonable internal controls in place. There were no significant findings, although OIR made some recommendations. The review of the remaining financial agent identified significant weaknesses in its controls and in organizational management and oversight. As a result of the review, the relationship with the financial agent was terminated. Thus far, the on-site compliance reviews have been of financial agents, but OIR plans to begin reviewing contractors in the near future. In 2011, OIR began preparing a quarterly conflicts-of-interest feedback report for contractors. The report is shared with the Contracting Officer’s Technical Representatives and included in the contractor performance metrics that are incorporated into Contract and Agreement Review Board reports. OIR’s reports describe and rate contractors’ performance during the quarter in identifying, mitigating, and disclosing conflicts of interest to the Treasury; submitting adequate conflicts-of-interest certifications in a timely manner; and expeditiously responding to requests for additional information, among other things. In 2011, according to OFS’s Compliance Officer, OIR put in place a requirement that all new contractors and financial agents, as well as Contracting Officer’s Technical Representatives and OFA personnel with similar responsibilities, receive conflict-of-interest training. The training materials used are similar to those used before 2011, but the information presented is more consistent across all the training materials than it was before the formalization of the requirement. OIR continued to review a large number of inquiries from financial agents and contractors about potential conflicts of interest. The total reviewed as of September 30, 2011, was about 1,300, compared to about 655 through fiscal year 2010. Reasons given by OIR for the increase in inquiries in fiscal year 2011 compared with prior fiscal years include the addition of several new contractors and financial agents in fiscal year 2011 and the initiation of new processes, such as on-site reviews of entities’ conflicts-of-interest controls. Forty-five of the 1,300 inquiries have resulted in waivers, including 8 waivers during fiscal year 2011. According to OFS’s Compliance Officer, examples of waivers include permitting contractors and financial agents to utilize Office of Government Ethics Form 450 in place of the Form 278 and allowing contractors and financial agents to use their own entertainment and gift policies in place of those in Treasury’s conflicts-of-interest regulation. OIR has never waived an actual or potential conflict of interest. Staffing related to management and oversight of financial agents, contractors, and conflicts of interest has remained stable. However, a temporary loss of contract administration positions occurred when the Procurement Services Division transitioned to the Internal Revenue Service (IRS) in fiscal year 2011 as part of a Treasury-wide consolidation to improve departmental offices’ procurement. Treasury hopes to realize cost savings from the consolidation, improve internal controls and risk management, and enhance employee career development. According to an OFS contract administration official, several procurement positions were lost in the transition to IRS because staff did not want to move to the IRS facility in Oxon Hill, Maryland. IRS has agreed to staff a dedicated team of ten individuals to support OFS, the same level as before the move, and the team is currently being staffed by three federal employees and two contractors, with plans to expand to six federal employees and four contractors. According to the official, the procurement work is a partnership between OFS and IRS, with OFS identifying vendors in conjunction with IRS, IRS awarding the contracts, and OFS and IRS sharing post-award duties, such as managing vendors, invoicing, and keeping records. While lifetime cost estimates for TARP have decreased since the government first provided assistance in 2008, the lifetime cost and income estimates for specific TARP programs have fluctuated with changes in program activity and the market value of Treasury’s TARP investments. Although Treasury issues several reports on the costs of TARP, its communications about TARP costs in press releases is inconsistent and could be enhanced. Moreover, indirect costs such as moral hazard are also associated with TARP and remain a concern. As of September 30, 2011, Treasury has incurred net costs of $28 billion, while recent federal lifetime cost projections for TARP—which include both realized and future cash flows—have decreased. In 2009, the Congressional Budget Office (CBO) estimated that TARP could cost $356 billion. However, CBO’s most recent estimate, using November 2011 data, is approximately $34 billion. Treasury’s fiscal year 2011 financial statement, audited by GAO, reported that TARP would cost around $70 billion as of September 30, 2011, a decrease from about $78 billion estimated as of September 2010. In general, the variation in CBO and Treasury cost estimates is attributable to their timing—that is, market conditions and program activities differed when the estimates were developed. However, program participation assumptions for TARP- funded housing programs explain the large difference between the CBO and Treasury cost estimates. Treasury assumed that all of the $45.6 billion allocated to TARP housing programs would be utilized and, as a result, estimated that they would cost $45.6 billion. Conversely, CBO expected lower participation rates for the housing programs, resulting in a cost estimate of $13 billion as of November 2011. While these differences exist, CBO officials noted that as TARP continues to wind down, Treasury’s and CBO’s lifetime cost estimates should be more similar. This convergence of cost estimates is likely to occur as program costs become clearer and more recipients repay their assistance—reducing the number of outstanding TARP assets and the related uncertainty about how market risks will affect the future value of these investments. In our review of Treasury’s lifetime cost estimates for TARP’s equity investment programs, we found that the estimates for some programs changed only slightly, if at all, between September 2010 and September 2011, while others changed by a notable margin. For example, Treasury estimated that CPP would result in lifetime income of $11.2 billion as of September 2010 and its recent estimate as of September 2011 was slightly higher at $13 billion (see fig. 15). This increase in CPP’s estimated lifetime income was the result of proceeds in excess of costs from the sale of Citigroup common stock offset by a decline in the estimated market value of Treasury’s remaining CPP investments. Additionally, Treasury’s lifetime cost estimate of $45.6 billion for TARP- funded housing programs remained unchanged between September 2010 and September 2011 because Treasury continues to assume that all of the $45.6 billion allocated to the housing programs will be utilized. On the other hand, Treasury’s recent cost estimates for AIFP and assistance to AIG changed markedly when compared to estimates as of September 2010. Specifically, Treasury estimated a lifetime cost of $14.7 billion for AIFP as of September 2010 but that estimate increased to $23.6 billion using September 2011 data due to a decline in the value of Treasury’s equity investments in GM and Ally Financial. Additionally, Treasury’s estimate for assistance to AIG decreased from $36.9 billion to $24.3 billion between September 2010 and September 2011 as a result of improvements in the financial condition of AIG since Treasury first provided assistance and the restructuring of Treasury’s AIG investment to common stock. However, as we have seen, the ultimate cost of the assistance to AIG could be about $11.5 billion after factoring in the estimated lifetime income of $12.8 billion from Treasury’s non-TARP assistance to AIG. As shown, lifetime cost estimates are likely to fluctuate, particularly for investment programs like AIFP and the AIG Investment Program, because future results rely heavily on the market price of common stock. Although Treasury regularly reports on the cost of TARP and its programs, it could improve the clarity and consistency of its communications on TARP costs, specifically in its press releases about specific programs. Treasury issues several reports—including the Agency Financial Report, Monthly 105(a) Reports, and Transaction Reports—that provide updates on the funds obligated and disbursed, repayments and income, and gains and losses. Compared to Treasury’s past reporting practices, recent versions of the Agency Financial Report and the Monthly 105(a) Reports clearly present Treasury’s lifetime cost estimates for TARP and its programs. However, Treasury’s press releases do not consistently include these cost estimates. Rather, Treasury’s press releases on specific TARP programs typically only include transaction- oriented updates, such as disbursements and returns on Treasury’s investments from repayments, dividends, and the sale of its assets. While the transaction-oriented updates in Treasury’s press releases are important, they do not provide the general public with the greater context—the lifetime cost associated with individual programs. Furthermore, it appears that over the last 2 years Treasury has included lifetime cost estimates in some of its program-specific press releases for programs expected to result in a lifetime income, while excluding these estimates for programs expected to result in a cost for taxpayers. For instance, a press release from April 2011 indicated that Treasury’s bank programs were expected to result in a lifetime positive return of approximately $20 billion. Other press releases for TARP banking programs also include this reference to expected lifetime income. However, during the same period Treasury did not include lifetime cost estimates in its press releases for TARP programs that projected a cost to the government, such as SBA 7(a), AIG, and AIFP. For example, Treasury issued a press release in June 2011 that described its sale of several SBA 7(a) securities. Treasury stated that the sale resulted in overall gains and income. The content of this press release implied that the program had earned a significant amount of money but did not provide the more comprehensive lifetime cost estimate for the program, which was $1 million at that time. In addition, over the last 2 years none of Treasury’s press releases for AIG and AIFP (programs expected to cost approximately $24.3 billion and $23.6 billion respectively, as of September 30, 2011) have included the lifetime cost estimates associated with the programs. investment in the programs and revenues received. This inconsistent disclosure of lifetime cost estimates raises concerns about the consistency and transparency of Treasury’s press releases and suggests a selective approach that focuses on reporting program lifetime income and not lifetime costs. As noted earlier in this report, the $24.3 billion is associated with TARP-related assistance. Factoring in income of $12.8 billion for its non-TARP shares could result in a net estimated cost of $11.5 billion. As we have previously reported, transparency is important in the context of TARP and the unprecedented government assistance it provided to the financial sector. In discussing our questions about the press releases with Treasury officials, they noted that they provide cost information in other public reports. However, by improving the clarity of its communication on the costs of TARP through consistently incorporating lifetime cost estimates into its program press releases, Treasury could reduce potential confusion and misunderstanding of TARP’s results. Treasury would also be setting a precedent for cost reporting associated with any future government interventions. Though direct costs for TARP—including potential lifetime income—can be estimated and quantified, certain indirect costs connected to the government’s assistance are less easily measured. For example, as we have previously reported, when the government provides assistance to the private sector, it may increase moral hazard that would then need to be mitigated. That is, in the face of government assistance, private firms are motivated to take risks they might not take in the absence of such assistance, or creditors may not price into their extensions of credit the full risk assumed by the firm, believing that the government would provide assistance should the firm become distressed. EESA and the amendments made by the American Recovery and Reinvestment Act of 2009 established a number of measures to mitigate the moral hazard of TARP by requiring that participating institutions follow certain requirements. These include providing Treasury with warrants in exchange for TARP funds to allow taxpayers to benefit from any appreciation of the company’s stock, and limiting certain bonuses and golden parachute payments for certain highly compensated employees and senior executive officers, as such payments can encourage excessive risk-taking. Even with such requirements in place, however, government intervention in the private sector can encourage market participants to expect similar emergency actions. This belief diminishes market discipline as it can weaken private or market-based incentives to properly manage risks and can in particular contribute to the perception that some firms are “too big to fail.” Government interventions can also have consequences for the banking industry as a whole, including institutions that do not receive bailout funds. For instance, investors may perceive the debt associated with institutions that received government assistance as being less risky because of the potential for future government bailouts. This perception could lead them to choose to invest in such assisted institutions instead of those that did not receive assistance. However, such effects may be temporary, as evidenced by the recent downgrade by Moody’s Investors Service, Inc. (Moody’s) of the long-term credit ratings of Bank of America Corp. and Wells Fargo & Co. after the Dodd-Frank Act’s new regulatory provisions were enacted into law, which aim to avoid or at least limit future government bailouts to financial institutions. Moody’s stated that it downgraded these credit ratings because it believes the government is less likely to rescue these financial institutions now than it was during the financial crisis. This rating change could affect their ability to access financing with as favorable terms. The Dodd-Frank Act included a number of provisions intended to address the problem of “too big to fail” by strengthening oversight of financial institutions. For example, the Dodd-Frank Act required the Federal Reserve to implement enhanced prudential standards for bank holding companies that are deemed systemically important and increased oversight of certain nonbank financial companies. Specifically, the Federal Reserve has been given supervisory authority over any nonbank financial company that the Financial Stability Oversight Council determines could pose a threat to the financial stability of the country. Also, the Dodd-Frank Act provided new reporting and resolution authorities to the Federal Deposit Insurance Corporation for certain large, systemic financial institutions, and requires those institutions to write plans for their unwinding. However, if these new provisions fail to address the too big to fail phenomenon, future financial crises could emerge that may be similar or worse than the financial meltdown that escalated with the failures of Bear Stearns and Lehman Brothers in 2008. That is, some firms may see the government assistance that was provided during the last crisis as a promise of similar aid in the future and therefore have an incentive to continue engaging in risky activities. Ultimately, any moral hazard effects of the Dodd-Frank Act changes will not be known until financial institutions face another period of financial stress. As Treasury continues to unwind most TARP programs, the estimated costs of TARP have decreased significantly from when Treasury first announced TARP. Treasury’s latest estimate of approximately $70 billion as of September 30, 2011, includes a large projection of lifetime income from CPP, and the cost estimates for assistance to AIG and the auto companies continue to fluctuate, demonstrating that such estimates are subject to price movements in the market, among other factors, and could change in the future. We found that Treasury enhanced some of its cost reporting in the past year, although its press releases require improvements. Such communications about specific programs include information about estimated lifetime costs and income only when programs are expected to result in lifetime income and not when they are expected to result in a lifetime cost. This practice does not represent a consistent approach to reporting to the public through press releases on the costs of individual programs. As we have indicated in many past reports on TARP, transparency remains a critical element to the government’s unprecedented assistance to the financial sector. Such transparency helps clarify to the public the costs of TARP assistance and to understand how the government intervened in various markets. Enhancing the transparency and clarity of these press releases will also set a precedent for any future government interventions, should they ever be needed. To enhance transparency about the costs of TARP programs as Treasury unwinds its involvement, we recommend that the Secretary of the Treasury enhance Treasury’s communications with the public, in particular Treasury’s press releases, about TARP programs and costs by consistently including information on estimated lifetime costs, especially when reporting on program results. For example, Treasury should consider including lifetime cost estimates, or references to Treasury reports that include such information, in its press releases about specific programs. We provided a draft of this report to Treasury for its review and comment. Treasury provided written comments that we have reprinted in appendix III. Treasury also provided technical comments that we have incorporated as appropriate. In its written comments, Treasury agreed with our recommendation that it could further enhance its communications about the costs of TARP programs in its program-specific press releases, also noting that it has established comprehensive accountability and transparency regarding TARP. Treasury stated that it will implement our recommendation by including a link to its Monthly 105(a) Report, which contains cost estimates for each TARP program, in its future program-specific press releases. Implementation of our recommendation through this practice would provide a good opportunity for Treasury to clearly and fully communicate TARP program costs to the public. We are sending copies of this report to the Financial Stability Oversight Board, Special Inspector General for TARP, interested congressional committees and members, and Treasury. The report also is available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact Orice Williams Brown at (202) 512-8678 or williamso@gao.gov, A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov, or Thomas J. McCool at (202) 512-2642 or mccoolt@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. To assess the condition and status of all programs initiated under the Troubled Asset Relief Program (TARP), we collected and analyzed data about program utilization and assets held, as applicable, focusing primarily on financial information that we had audited in the Office of Financial Stability’s (OFS) financial statements, as of September 30, 2011. As noted in the report, in some instances we provided more recent, unaudited financial information. The financial information includes the types of assets held in the program, obligations that represent the highest amount ever obligated for a program (to provide historical information on total obligations), disbursements, and income. We also provide information on program start dates, defining them based on the start of the first activity under a program, and we provide program end dates, based on official announcements or program terms from the Department of the Treasury (Treasury). Finally, we provide approximate program exit dates—either estimated by Treasury or actual if the exit already occurred—that reflect the time when a program will no longer hold assets that need to be managed. We also used OFS cost estimates for TARP that we audited as part of the financial statement audit and reviewed Congressional Budget Office (CBO) cost estimates from publicly available CBO reports. In addition, we tested OFS’s internal controls over financial reporting as it relates to our annual audit of OFS’s financial statements. The financial information used in this report is sufficiently reliable to assess the condition and status of TARP programs based on the results of our audits of fiscal years 2009, 2010, and 2011 financial statements for TARP. We also examined Treasury documentation such as program terms, decision memos, press releases, and reports on TARP programs and costs. Also, we interviewed OFS program officials to determine the current status of each TARP program, the role of TARP staff while most programs continue to unwind, and to update what is known about exit considerations for TARP programs. Other TARP officials we interviewed included those responsible for financial reporting. Additionally, in reporting on these programs and their exit considerations we leveraged our previous TARP reports and publications from the Special Inspector General for TARP and the Congressional Oversight Panel, as appropriate. In addition: For the Capital Purchase Program, we used OFS’ reports to describe the status of the program, including amount of investments outstanding, the number of institutions that had repaid their investments, and the amount of dividends paid, among other things. In addition, we reviewed Treasury’s press releases on the program. We also relied on information that we have collected as part of our ongoing review of the financial condition of Capital Purchase Program institutions. For the Community Development Capital Initiative, we interviewed program officials to determine how the program is managed and what repayment or exit concerns Treasury has for the program. To update the status of the Automotive Industry Financing Program (AIFP) and Treasury’s plans for managing its investment in the companies, we leveraged our past work; reviewed information on Treasury’s exit from Chrysler, including Chrysler and Treasury press releases; reviewed information on Treasury’s plans for overseeing its remaining financial interests in General Motors (GM) and Ally Financial, including Administration and Treasury reports. To obtain information on the current financial condition of the companies, we reviewed information on GM’s and Ally Financial’s finances and operations, including financial statements and industry analysts’ reports. To update the status of the American International Group, Inc. (AIG) Investment Program (formerly the Systemically Significant Failing Institutions Program) we reviewed relevant documents from Treasury and other parties. For the AIG Investment Program, these documents included 105(a) reports provided periodically to Congress by Treasury, as well as reports produced by the Board of Governors of the Federal Reserve System, and the Federal Reserve Bank of New York, and other relevant documentation such as AIG’s financial disclosures and Treasury’s press releases. We also interviewed officials from each of these agencies and AIG. For the Small Business Administration (SBA) 7(a) Securities Purchase Program, we analyzed data on Treasury purchases and dispositions of SBA 7(a) securities collected during our financial audit. We also reviewed decision memos on the disposition of the SBA 7(a) portfolio. In addition, we reviewed press releases about the program’s sales activity and income. We reviewed SBA 7(a) loan volume data provided by Treasury and compared that to trends in our past reports related to SBA 7(a) lending and we also interviewed program staff about the status of the programs and plans for future sales. For the Term Asset-Backed Securities Loan Facility (TALF), we reviewed program terms and requested data from Treasury about loan prepayments and TALF LLC activity. We also researched trends in the values of commercial mortgage-backed securities. Additionally, we interviewed OFS officials about their role in the program as it continues to unwind. To update the status of the Public-Private Investment Program, we analyzed program quarterly reports, term sheets, and other documentation related to the public-private investment funds. We also interviewed OFS staff responsible for the program to determine the status of the program while it remains in active investment status. To determine the status of Treasury’s TARP-funded housing programs, we obtained and reviewed Treasury’s published reports on the programs and servicer performance, documentation on projected cost estimates and disbursements for each of the programs, and guidelines and related updates issued by Treasury for each of the programs. In addition, we obtained information from and interviewed Treasury officials about the status of the TARP-funded housing programs, including numbers of borrowers helped and the actions Treasury had taken to address our prior recommendations. To obtain the final status for three programs that Treasury exited and for which Treasury no longer holds assets that it must manage—the Asset Guarantee Program, Capital Assistance Program, and Targeted Investment Program—we reviewed Treasury’s recent reports and leveraged our past work. To determine the proportion of permanent, term, and detailee staff in OFS, we reviewed program data showing changes in the number of staff over time and in each OFS office. We assessed this staffing data for reliability by comparing it to organizational directories to ensure that the changes were generally equivalent. We determined that the staffing data was sufficiently reliable to show trends in OFS staffing. We also interviewed agency officials to gain insight into the trends. Additionally, we obtained program-specific staffing information from agency officials during interviews to inform our discussion of the staffing needs of each TARP program and any succession planning undertaken by OFS. Also, we reviewed OFS documentation, such as the organizational directories, to analyze any changes in leadership positions in OFS. To assess the staffing challenges of OFS as TARP continues to wind down, we reviewed past GAO reports and recommendations and the OFS staffing and development plan, and we interviewed agency officials. To assess OFS’s use of financial agents and contractors since TARP was established in October 2008, we reviewed information on financial agents and contractors from OFS’s contract record system and interviewed Treasury contract officials about financial agency agreements, contracts, and blanket purchase agreements as of September 30, 2011, that support TARP administration and programs. We analyzed information from the contract record system to update key details on the status of TARP financial agents and contractors, such as total number of agreements and contracts, type of services being performed, obligated values, periods of performance, and share of work by small businesses. Through discussions with Treasury officials responsible for the contract record system and inquiries we made about selected data items, as well as matching OFS’s contract list against data we obtained from the Federal Procurement Data System-Next Generation, we determined that data in the record system were sufficiently reliable for our purposes. To assess OFS’s progress in strengthening its infrastructure for managing and overseeing the performance of TARP financial agents and contractors and addressing conflicts of interest that could arise with the use of private sector firms, we reviewed various documents and interviewed OFS officials about changes in fiscal year 2011 to its policies and procedures regarding (1) management and oversight of TARP financial agents and contractors and (2) monitoring and oversight activities by the OFS team responsible for financial agent and contractor compliance with TARP conflicts-of-interest requirements. We did not review financial agents’ performance assessments or incentive payments. To ascertain what is known about TARP costs, we reviewed the cost reporting of CBO, the Office of Management and Budget (OMB), and Treasury, including the credit reform accounting methods used to develop cost estimates for TARP programs. For our analysis we focused on Treasury’s cost estimates for the following reasons: (1) Treasury’s recent financial statements and cost projections have been audited by GAO and (2) estimates reported by OMB are based on numbers provided by Treasury.methods used to calculate TARP costs and the reasons for any significant differences among the cost estimates calculated by each agency. We utilized data from our financial audit and leveraged other internal resources related to credit reform accounting and the modeling of TARP costs. We also reviewed Treasury’s press releases on the costs of TARP. For our review of the moral hazards of TARP, we reviewed pertinent legislation such as the Emergency Economic Stabilization Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and utilized previous GAO reports and Congressional Oversight Panel publications. We interviewed officials from CBO and Treasury on the We conducted this performance audit from June 2011 to January 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This appendix includes information about TARP programs that Treasury has exited and for which Treasury no longer holds assets to manage. We provide an overview of the purpose of these programs, when they started and ended, the status of funding, and the final lifetime costs or income of the programs, as applicable. The Asset Guarantee Program was established as the Treasury insurance program, which provided federal government assurances for assets held by financial institutions that were deemed critical to the functioning of the U.S. financial system. Citigroup and Bank of America were the only two institutions that participated in this program before it was terminated. As previously reported, Bank of America paid Treasury and others a fee for terminating the term sheet before any assets were segregated. Treasury sold the remaining assets that it held related to this program in January 2011 with the sale of Citigroup warrants, though it could receive future monies from trust preferred stock held by the Federal Deposit Insurance Corporation. Treasury reports that lifetime income from terminating the Bank of America agreement and exiting Citigroup-related assets is $3.7 billion (see fig. 16). The Targeted Investment Program was designed to foster market stability and thereby strengthen the economy by investing in institutions on a case-by-case basis that Treasury deemed critical to the functioning of the financial system. Only two institutions—Bank of America and Citigroup— participated in this program, and each received $20 billion in capital investment, which both repaid in December 2009. Treasury auctioned the Bank of America warrant that it received under the Targeted Investment Program in March 2010. Treasury auctioned the Citigroup warrant in January 2011. Treasury reports that lifetime income for this program totals $4 billion (see fig. 17). The Capital Assistance Program was designed to further improve confidence in the banking system by helping ensure that the largest 19 U.S. bank holding companies had sufficient capital to cushion themselves against larger than expected future losses, as determined by the Supervisory Capital Assessment Program—or “stress test”—conducted by the federal banking regulators. The Capital Assistance Program was announced in February 2009 and ended in November 2009. It was never utilized. In addition to the contacts named above, Gary Engel, Mathew J. Scirè, and William T. Woods (lead Directors); Marcia Carlsen, Lawrance Evans, Jr., Dan Garcia-Diaz, Lynda Downing, Kay Kuhlman, Harry Medina, Joseph O’Neill, John Oppenheim, Raymond Sendejas, and Karen Tremba (lead Assistant Directors); Emily Chalmers; Rachel DeMarcus; John Forrester; Christopher Forys; Heather Krause; Robert Lee; Aaron Livernois; Dragan Matic; Emily Owens; Erin Schoening; and Mel Thomas have made significant contributions to this report. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2011 and 2010 Financial Statements. GAO-12-169. Washington, D.C.: November 10, 2011. Troubled Asset Relief Program: Status of GAO Recommendations to Treasury. GAO-11-906R. Washington, D.C.: September 16, 2011. Troubled Asset Relief Program: The Government’s Exposure to AIG Following the Company’s Recapitalization. GAO-11-716. Washington, D.C.: July 28, 2011. Troubled Asset Relief Program: Results of Housing Counselors Survey on Borrowers’ Experiences with the Home Affordable Modification Program. GAO-11-367R. Washington, D.C.: May 26, 2011. Troubled Asset Relief Program: Survey of Housing Counselors about the Home Affordable Modification Program, an E-supplement to GAO-11-367R. GAO-11-368SP. Washington, D.C.: May 26, 2011. TARP: Treasury’s Exit from GM and Chrysler Highlights Competing Goals, and Results of Support to Auto Communities Are Unclear. GAO-11-471. Washington, D.C.: May 10, 2011. Management Report: Improvements Are Needed in Internal Control Over Financial Reporting for the Troubled Asset Relief Program. GAO-11-434R. Washington, D.C.: April 18, 2011. Troubled Asset Relief Program: Status of Programs and Implementation of GAO Recommendations. GAO-11-476T. Washington, D.C.: March 17, 2011. Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program. GAO-11-288. Washington, D.C.: March 17, 2011. Troubled Asset Relief Program: Actions Needed by Treasury to Address Challenges in Implementing Making Home Affordable Programs. GAO-11-338T. Washington, D.C.: March 2, 2011. Troubled Asset Relief Program: Third Quarter 2010 Update of Government Assistance Provided to AIG and Description of Recent Execution of Recapitalization Plan. GAO-11-46. Washington, D.C.: January 20, 2011. Troubled Asset Relief Program: Status of Programs and Implementation of GAO Recommendations. GAO-11-74. Washington, D.C.: January 12, 2011. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Years 2010 and 2009 Financial Statements. GAO-11-174. Washington, D.C.: November 15, 2010. Troubled Asset Relief Program: Opportunities Exist to Apply Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and to Improve the Repayment Process. GAO-11-47. Washington, D.C.: October 4, 2010. Troubled Asset Relief Program: Bank Stress Test Offers Lessons as Regulators Take Further Actions to Strengthen Supervisory Oversight. GAO-10-861. Washington, D.C.: September 29, 2010. Financial Assistance: Ongoing Challenges and Guiding Principles Related to Government Assistance for Private Sector Companies. GAO-10-719. Washington, D.C.: August 3, 2010. Troubled Asset Relief Program: Continued Attention Needed to Ensure the Transparency and Accountability of Ongoing Programs. GAO-10-933T. Washington, D.C.: July 21, 2010. Management Report: Improvements are Needed in Internal Control Over Financial Reporting for the Troubled Asset Relief Program. GAO-10-743R. Washington, D.C.: June 30, 2010. Troubled Asset Relief Program: Treasury’s Framework for Deciding to Extend TARP Was Sufficient, but Could be Strengthened for Future Decisions. GAO-10-531. Washington, D.C.: June 30, 2010. Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs. GAO-10-634. Washington, D.C.: June 24, 2010. Debt Management: Treasury Was Able to Fund Economic Stabilization and Recovery Expenditures in a Short Period of Time, but Debt Management Challenges Remain. GAO-10-498. Washington, D.C.: May 18, 2010. Troubled Asset Relief Program: Update of Government Assistance Provided to AIG. GAO-10-475. Washington, D.C.: April 27, 2010. Troubled Asset Relief Program: Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future. GAO-10-492. Washington, D.C.: April 6, 2010. Troubled Asset Relief Program: Home Affordable Modification Program Continues to Face Implementation Challenges. GAO-10-556T. Washington, D.C.: March 25, 2010. Troubled Asset Relief Program: Treasury Needs to Strengthen Its Decision-Making Process on the Term Asset-Backed Securities Loan Facility. GAO-10-25. Washington, D.C.: February 5, 2010. Troubled Asset Relief Program: The U.S. Government Role as Shareholder in AIG, Citigroup, Chrysler, and General Motors and Preliminary Views on its Investment Management Activities. GAO-10-325T. Washington, D.C.: December 16, 2009. Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 Financial Statements. GAO-10-301. Washington, D.C.: December 9, 2009. Troubled Asset Relief Program: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM. GAO-10-151. Washington, D.C.: November 2, 2009. Troubled Asset Relief Program: One Year Later, Actions Are Needed to Address Remaining Transparency and Accountability Challenges. GAO-10-16. Washington, D.C.: October 8, 2009. Troubled Asset Relief Program: Capital Purchase Program Transactions for October 28, 2008, through September 25, 2009, and Information on Financial Agency Agreements, Contracts, Blanket Purchase Agreements, and Interagency Agreements Awarded as of September 18, 2009. GAO-10-24SP. Washington, D.C.: October 8, 2009. Debt Management: Treasury Inflation Protected Securities Should Play a Heightened Role in Addressing Debt Management Challenges. GAO-09-932. Washington, D.C.: September 29, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-1048T. Washington, D.C.: September 24, 2009. Troubled Asset Relief Program: Status of Government Assistance Provided to AIG. GAO-09-975. Washington, D.C.: September 21, 2009. Troubled Asset Relief Program: Treasury Actions Needed to Make the Home Affordable Modification Program More Transparent and Accountable. GAO-09-837. Washington, D.C.: July 23, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-920T. Washington, D.C.: July 22, 2009. Troubled Asset Relief Program: Status of Participants’ Dividend Payments and Repurchases of Preferred Stock and Warrants. GAO-09-889T. Washington, D.C.: July 9, 2009. Troubled Asset Relief Program: June 2009 Status of Efforts to Address Transparency and Accountability Issues. GAO-09-658. Washington, D.C.: June 17, 2009. Troubled Asset Relief Program: Capital Purchase Program Transactions for October 28, 2008, through May 29, 2009, and Information on Financial Agency Agreements, Contracts, Blanket Purchase Agreements, and Interagency Agreements Awarded as of June 1, 2009. GAO-09-707SP. Washington, D.C.: June 17, 2009. Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date. GAO-09-553. Washington, D.C.: April 23, 2009. Troubled Asset Relief Program: March 2009 Status of Efforts to Address Transparency and Accountability Issues. GAO-09-504. Washington, D.C.: March 31, 2009. Troubled Asset Relief Program: Capital Purchase Program Transactions for the Period October 28, 2008 through March 20, 2009 and Information on Financial Agency Agreements, Contracts, and Blanket Purchase Agreements Awarded as of March 13, 2009. GAO-09-522SP. Washington, D.C.: March 31, 2009. Troubled Asset Relief Program: March 2009 Status of Efforts to Address Transparency and Accountability Issues. GAO-09-539T. Washington, D.C.: March 31, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-484T. Washington, D.C.: March 19, 2009. Federal Financial Assistance: Preliminary Observations on Assistance Provided to AIG. GAO-09-490T. Washington, D.C.: March 18, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-474T. Washington, D.C.: March 11, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-417T. Washington, D.C.: February 24, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-359T. Washington, D.C.: February 5, 2009. Troubled Asset Relief Program: Status of Efforts to Address Transparency and Accountability Issues. GAO-09-296. Washington, D.C.: January 30, 2009. Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency. GAO-09-266T. Washington, D.C.: December 10, 2008. Auto Industry: A Framework for Considering Federal Financial Assistance. GAO-09-247T. Washington, D.C.: December 5, 2008. Auto Industry: A Framework for Considering Federal Financial Assistance. GAO-09-242T. Washington, D.C.: December 4, 2008. 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Summary: The Emergency Economic Stabilization Act of 2008 authorized the Department of the Treasury (Treasury) to create the Troubled Asset Relief Program (TARP), a $700 billion program designed to restore the liquidity and stability of the financial system. The act also requires that GAO report every 60 days on TARP activities. This report examines (1) the condition and status of TARP programs; (2) Treasurys management of TARP operations, including staffing for the Office of Financial Stability (OFS) and oversight of contractors and financial agents; and (3) what is known about the direct and indirect costs of TARP. To do this work, GAO analyzed audited financial data for various TARP programs; reviewed documentation such as program terms and internal decision memos; analyzed TARP cost estimates from the Congressional Budget Office (CBO), the Office of Management and Budget, and Treasury; and interviewed CBO and OFS officials. Many TARP programs continue to be in various stages of unwinding and some programs, notably those that focus on the foreclosure crisis, remain active. The figure provides an overview of selected programs and the amount disbursed and outstanding, as applicable. Treasury has articulated broad principles for exiting TARP, including exiting TARP programs as soon as practicable and seeking to maximize taxpayer returns, goals that at times conflict. Some of the programs that Treasury continues to unwind, such as investments in American International Group, Inc. (AIG), require Treasury to actively manage the timing of its exit as it balances its competing goals. For other programs, such as the Capital Purchase Program (CPP)which was created to provide capital to financial institutionsTreasurys exit will be driven primarily by the financial condition of the participating institutions. Consequently, the timing of Treasurys exit from TARP remains uncertain. Treasury continues to manage the various TARP programs using OFS staff, financial agents, and contractors. Overall OFS staffing has declined slightly for the first time as staff responsible for managing TARP investment programs and those in term-appointed leadership positions have departed. However, staff in some offices within OFS have increasedfor example, in the Office of Internal Review, which helps to ensure that financial agents and contractors comply with laws and regulations. Through September 30, 2011, about half of Treasurys 116 contracts remained active, along with 14 of the 17 financial agency agreements. Treasury has continued to strengthen its management and oversight of contractors and financial agents and conflict-of-interest requirements. In response to a GAO recommendation, OFS has finalized a plan to address staffing levels and expertise that includes identifying critical positions and conducting succession planning, in light of the temporary nature of its work. Treasury and CBO project that TARP costs will be much lower than the amount authorized when the program was initially announced. Treasurys fiscal year 2011 financial statement, audited by GAO, estimated that the lifetime cost of TARP would be about $70 billionwith CPP expected to generate the most lifetime income, or net income in excess of costs. OFS also reported that from inception through September 30, 2011, the incurred cost of TARP transactions was $28 billion. Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAOs analysis of Treasury press releases about specific programs indicate that information about estimated lifetime costs and income are included only when programs are expected to result in lifetime income. For example, Treasury issued a press release for its bank investment programs, including CPP, and noted that the programs would result in lifetime income, or profit. However, press releases for investments in AIG, a program that is anticipated to result in a lifetime cost to Treasury, did not include program-specific cost information. Although press releases for programs expected to result in a cost to Treasury provide useful transaction information, they exclude lifetime, program-specific cost estimates. Consistently providing greater transparency about cost information for specific TARP programs could help reduce potential misunderstanding of TARPs results. While Treasury can measure and report direct costs, indirect costs associated with the moral hazard created by the governments intervention in the private sector are more difficult to measure and assess. Treasury should enhance its program-specific press releases to the public by consistently including lifetime cost estimates when reporting on program activities and results. Treasury agreed with our recommendation and plans to implement it by including a link to its cost reporting in future TARP program-specific press releases.