	Treasury’s Strategy for Deploying TARP Funds Continues to Evolve, Though CPP Remains Key Effort to Stabilize Financial Market

As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700  billion in TARP funds (see table). Most of the funds (about $199 billion)  went to purchase preferred shares of 532 financial institutions under the  Capital Purchase Program (CPP)—Treasury’s primary vehicle under TARP  for stabilizing financial markets. For example, it  recently expanded monthly surveys of the largest institutions’ lending  activity to cover all CPP participants, as GAO recommended. At this point, Treasury has not taken steps to verify this information or  require the institutions to provide any additional documentation. As  recommended in our December 2008 report, we continue to believe that  Treasury should develop a formal system to help ensure compliance with  the agreements and leverage the oversight activities of the bank regulators  by having them include compliance with the agreements as part of their  ongoing examinations. OFS had received approximately $2.9 billion in dividends through March  20, 2009, from its investments in CPP and certain other programs. Treasury has also continued to take steps to articulate a more clearly  defined vision for TARP; and, in February 2009, it provided its strategy for  using its remaining funds. Specifically, Treasury announced the Financial Stability Plan, which  outlines a set of measures to address the financial crisis and restore  confidence in the U.S. financial and housing markets. In particular, it has announced its plans to  participate in the purchase of troubled assets through public-private  partnerships and launched a homeownership protection program, both  activities consistent with the original plans for TARP. Therefore we recommended in our March  2009 report that Treasury develop a communication strategy that includes  building understanding and support for the various components of the  program and suggested specific actions, such as hiring a communications  officer, integrating communications into TARP operations, and scheduling  regular and ongoing contact with congressional committees and members,  among other actions. While Treasury has announced $70 billion dollars in assistance  to AIG—more assistance than has been provided to any other single  institution to date—it has yet to disperse the up to $30 billion of additional  assistance or finalize the terms under which the assistance will be  provided. Following the announcement of Treasury’s Homeownership Affordability  and Stability Plan, in March 2009, Treasury released information on its  Making Home Affordable Program. As part of our  oversight responsibilities for TARP, we are monitoring Treasury’s  implementation of AIFP, including the development of the required  restructuring plans. Treasury Continues to Make Progress in Establishing OFS

Treasury has also made progress in establishing its management  infrastructure, which includes five of our nine recommendations from our  January 2009 report related to hiring, contracting, and establishing its  internal controls. OFS has begun to build a financial reporting structure, including  addressing the key accounting and financial reporting issues necessary to  enable it to prepare financial statements and receive an audit opinion on  those statements at this fiscal year end. Indicators Suggest Mixed Developments in the Credit Markets, but Isolating the Impact of TARP Continues to Present Challenges

Finally, we again note that while isolating the effect of TARP’s activities  continues to be difficult, conditions appear to have generally improved in  various credit markets since the announcement of the first TARP program. However, some indicators demonstrate that, since our January 2009  report, the cost of credit continues to increase in interbank and corporate  bond markets and decrease in mortgage markets, while perceptions of risk  (as measured by premiums over Treasury securities) have declined in  interbank and mortgage markets and risen in corporate debt markets.
Why GAO Did This Study

This testimony discusses our work on the Troubled Asset Relief Program (TARP), under which the Department of the Treasury (Treasury) has the authority to purchase and insure up to $700 billion in troubled assets held by financial institutions through its Office of Financial Stability (OFS). As Congress may know, Treasury was granted this authority in response to the financial crisis that has threatened the stability of the U.S. banking system and the solvency of numerous financial institutions. The Emergency Economic Stabilization Act (the act) that authorized TARP on October 3, 2008, requires GAO to report at least every 60 days on the findings resulting from our oversight of the actions taken under the program. We are also responsible for auditing TARP's annual financial statements and for producing special reports on any issues that emerge from our oversight. To carry out these oversight responsibilities, we have assembled interdisciplinary teams with a wide range of technical skills, including financial market and public policy analysts, accountants, lawyers, and economists who represent combined resources from across GAO. This testimon is based primarily on our March 31, 2009 report that we are issuing today--the third under the act's mandate, which covers the actions taken as part of TARP through March 27, 2009, and follows up on the recommendations we made in our previous reports.

What GAO Found

As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700 billion in TARP funds. Most of the funds (about $199 billion) went to purchase preferred shares of 532 financial institutions under the Capital Purchase Program (CPP)--Treasury's primary vehicle under TARP for stabilizing financial markets. Treasury has continued to take significant steps to address all of the recommendations from our December 2008 and January 2009 reports. In particular, Treasury has recently expanded the scope of the monthly CPP surveys of the largest institutions to include all institutions participating in the program, which is intended to provide Treasury with information necessary to begin to track the effectiveness of the program. Treasury also continued to make progress in several other areas, including requiring firms participating in certain new programs to show how assistance will expand lending. These requirements will better enable Treasury to determine what institutions plan to do with any capital infusions and to track the resulting lending activity of participating institutions on a regular basis. In addition, we specifically found that though Treasury is now receiving dividends from the investments it has made in CPP and certain other programs, it has not publicly reported these receipts, which totaled almost $2.9 billion through March 20, 2009. In February 2009, Treasury announced its broad strategy for using the remaining TARP funds and provided the details for its major components in the following weeks. Specifically, Treasury announced the Financial Stability Plan, which outlined a comprehensive set of measures to help address the financial crisis and restore confidence in our financial markets, and a Homeowner Affordability and Stability Plan to mitigate foreclosures and preserve homeownership. While articulating its plan was an important first step, Treasury continues to struggle with developing an effective overall communication strategy that is integrated into TARP operations. Without such a strategy, Treasury may face challenges, should it need additional funding for the program. Also, while Treasury has announced up to $70 billion dollars in assistance to AIG--more assistance than has been announced for any other single institution to date--it has yet to disperse the up to $30 billion of additional assistance or finalize the agreement. We continue to note the difficulty of measuring the effect of TARP's activities. Developments in the credit markets have generally been mixed since our January 2009 report. Some indicators revealed that the cost of credit has increased in interbank and corporate bond markets and decreased in mortgage markets, while perceptions of risk (as measured by premiums over Treasury securities) have declined in interbank and mortgage markets and risen in corporate debt markets.