In the past year, Treasury has implemented a range of TARP programs to stabilize the financial system. As of September 11, 2009, it had disbursed just over $363 billion for TARP loans and equity investments (table 1). In addition to disbursements, participating institutions have paid Treasury billions of dollars in repurchases of preferred shares and warrants, dividend payments, and loan repayments. In particular, Treasury has received almost $7 billion in dividend payments, about $2.9 billion in warrant liquidations, and over $70 billion in repurchases from institutions participating in CPP, as of August 31, 2009. Table 1. TARP Program Description and Total Disbursements, as of September 11, 2009 (dollars in billions) Capital Purchase Program. To provide capital to viable banks through the purchase of preferred shares and subordinated debentures. Targeted Investment Program. To foster market stability and thereby strengthen the economy by making case-by- case investments in institutions that Treasury deems are critical to the functioning of the financial system. Capital Assistance Program. To restore confidence throughout the financial system that the nation’s largest banking institutions have sufficient capital to cushion themselves against larger-than-expected future losses, and to support lending to creditworthy borrowers. Systemically Significant Failing Institutions. To provide stability in financial markets and avoid disruptions to the markets from the failure of a systemically significant institution. Treasury determines participation in this program on a case-by-case basis. Asset Guarantee Program. To provide government assurances for assets held by financial institutions that are viewed as critical to the functioning of the nation’s financial system. Automotive Industry Financing Program. To prevent a significant disruption of the American automotive industry. Home Affordable Modification Program. To offer assistance to an estimated 3 to 4 million homeowners through a cost-sharing arrangement with mortgage holders and investors to reduce the monthly mortgage payment amounts of homeowners at risk of foreclosure to affordable levels. Consumer & Business Lending Initiative. To support consumer and business credit markets by providing financing to private investors to issue new securitizations to help unfreeze and lower interest rates for auto, student, and small business loans; credit cards; commercial mortgages; and other consumer and business credit. Public-Private Investment Program. To address the challenge of “legacy assets” as part of Treasury’s efforts to repair balance sheets throughout the financial system and increase the availability of credit to households and businesses. CPP continues to be the largest and most widely used program under Treasury’s TARP authority for stabilizing the financial system. Over the last year, CPP has made significant capital investments in financial institutions, and although Treasury has made progress in monitoring the activities of CPP participants, challenges remain in ensuring that participants comply with program requirements. As of September 11, 2009, CPP had provided more than $204 billion in capital to more than 670 institutions, about 56 percent of total TARP disbursements. The amount of disbursements has slowed significantly, in part, because the institutions receiving CPP capital in recent months are generally smaller than those that received capital in the beginning of the program. Also, many CPP applicants have withdrawn their applications from consideration because of uncertainties about program requirements and improving economic conditions. Consistent with our recommendations, Treasury began to collect detailed information for the largest institutions in February 2009 and basic information through monthly lending surveys from all CPP participating institutions later in June. These monthly surveys are an important step toward greater transparency and accountability for institutions of all sizes. We have also made recommendations that Treasury strengthen its oversight of participants’ compliance with the act’s program requirements (e.g., restrictions on executive compensation, dividend payments, and stock repurchases), and Treasury continues to make progress in these areas. For example, Treasury has hired three asset management firms to provide market advice about its portfolio of investments and to oversee compliance with the terms of CPP agreements. However, Treasury has yet to finalize the specific guidance and performance measures for the asset managers’ oversight responsibilities and has not established a process for monitoring asset managers’ performance. Early in the implementation of TARP, Treasury provided what it now refers to as “exceptional assistance” to three institutions—AIG, Citigroup and Bank of America. For example, Treasury, along with the Board of Governors of the Federal Reserve System (Federal Reserve), and the Federal Reserve Bank of New York (FRBNY), provided assistance to AIG, the sole participant in TARP’s Systemically Significant Failing Institutions (SSFI) program. As discussed in our recently issued report, Treasury committed $70 billion in TARP funds to AIG and, together with the Federal Reserve, had made over $182 billion available to assist the company between September 2008 and April 2009. As of September 2, 2009, the outstanding balance of federal government assistance used by AIG was $120.7 billion. In providing the assistance, Treasury and the Federal Reserve have taken several steps intended to protect the federal government’s interest. These include making loans that are secured with collateral, instituting certain controls over management, and obtaining compensation for risks such as charging interest, requiring dividend payments, and obtaining warrants. Moreover, Treasury and the FRBNY staff routinely monitor AIG’s operations and receive reports on AIG’s condition and restructuring. While these efforts are being made, however, the government remains exposed to risks, including credit and investment risk. As a result, Treasury and FRNYB may not be repaid in full. We recently reported that, as of September 21, 2009, AIG had not declared and paid the three scheduled dividend payments since the inception of the preferred equity investments. According to Treasury, if AIG fails to make its next dividend payment due on November 1, Treasury will be able to directly elect at least two board members. GAO-developed indicators of AIG’s repayment of federal assistance show some progress in AIG’s ability to repay the federal assistance; however, any improvement in the stability of AIG’s business depends on the long-term health of the company, market conditions, and continued federal government support. For this reason, the ultimate success of federal efforts to aid AIG’s restructuring and the scope of possible repayments remain unclear at this point. Also during the early phase of TARP (December 2008), Treasury established the Automotive Industry Financing Program (AIFP) to help stabilize the U.S. automotive industry and avoid disruptions that would pose systemic risk to the nation’s economy. Under this program, Treasury has committed a total of about $82.6 billion to help support automakers, automotive suppliers, consumers, and auto finance companies. Chrysler and GM have received a sizeable amount of funding to support their reorganization. In exchange, Treasury received a substantial ownership interest in the companies and debt obligations. Over the last year, Chrysler and GM filed for bankruptcy and streamlined their operations by closing factories and reducing the number of dealerships. However, whether the new Chrysler and new GM will achieve long-term financial viability remains unclear. As we have previously reported, Treasury should have a plan for ending its financial involvement with Chrysler and GM that indicates how it will divest itself of its ownership shares. In developing and implementing such a plan, Treasury should weigh the objective of expeditiously ending the federal government’s financial involvement in the companies with the objective of recovering an acceptable amount of the funding provided to them. We will report later this fall on Treasury’s approach to managing its ownership interests in the companies, how it plans to divest itself of these interests, and the progress the companies have made in restructuring since receiving federal government assistance. We also plan to report this winter on how Chrysler and GM’s restructuring efforts have affected their pension plan assets and what the federal government’s potential exposure will be should the companies terminate their plans. Following the early months of TARP implementation, which largely focused on capital investments and amid concerns about the overall strategic direction of the program and lack of transparency, the new administration has attempted to provide a more strategic direction for using the remaining funds and creating a number of programs aimed at stabilizing the securitization markets and preserving homeownership. For example, TALF, a program launched by Treasury and the Federal Reserve, has been mostly used for credit card and auto loan securitization and was extended through March 2010 for more asset classes. As of September n 17, 2009, TALF loan requests are only about a quarter of the $200 billio maximum that Treasury currently anticipates being made by FRBNY, which is much less than the $1 trillion potential expansion that the Federal Reserve and Treasury initially announced. The relatively low loan volume could be attributed to recent improvements in securitization and credit markets that make the financing terms of TALF loans less attractive, according to agency officials and certain market participants. Because the Banking Agency Audit Act (31 U.S.C. § 714) prohibits GAO from auditing certain Federal Reserve activities, we are limited in our ability to review the Federal Reserve’s actions with respect to TALF. In May 2009, legislation was passed that gave GAO authority to audit Federal Reserve actions taken with respect to three entities also assisted under TARP— AIG, Citigroup and Bank of America—but not TALF. To enable us to audit TARP support for TALF most effectively, we would support legislation to provide GAO with audit authority over Federal Reserve actions taken with respect to TALF, together with appropriate access. While TALF has been implemented, HAMP and PPIP face ongoing implementation and operational challenges. For example, HAMP faces a significant challenge that centers on uncertainty over the number of homeowners it will ultimately help. Residential mortgage defaults and foreclosures are at historical highs and Treasury officials and others have identified reducing the number of unnecessary foreclosures as critical to the current economic recovery.