	TARP Strategy Has Evolved From Capitalizing Institutions to Stabilizing Securitization Markets and Preserving Homeownership

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 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. TARP Program Description and Total Disbursements, as of September 11, 2009 (dollars in billions)
Capital Purchase 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. Home Affordable Modification Program. Public-Private Investment Program. 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. 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. 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. However, whether the  new Chrysler and new GM will achieve long-term financial viability  remains unclear. 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. 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. In our July 2009 report, we  noted that Treasury’s estimate of the 3 to 4 million homeowners who  would likely be helped under the HAMP loan modification program may  have been overstated. Treasury’s authority  to purchase or insure additional troubled assets will expire on December  31, 2009, unless the Secretary submits a written certification to Congress  describing “why the extension is necessary to assist American families and  stabilize financial markets, as well as the expected cost to the taxpayers  for such an extension.” In the next few months, Treasury will need to  make decisions about providing new funding for TARP programs.
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), through the Office of Financial Stability (OFS), has the authority to purchase or insure almost $700 billion in troubled assets held by financial institutions. It focuses on (1) the nature and purpose of activities that have been initiated under TARP over the past year and ongoing challenges; (2) Treasury's efforts to establish a management infrastructure for TARP; and (3) outcomes measured by indicators of TARP's performance.

What GAO Found

TARP is one of many programs and activities the federal government has put in place over the past year to respond to the financial crisis. It represents a significant government commitment to stabilizing the financial system. For example, as of September 11, 2009, it had disbursed $363 billion to participating institutions. At the same time, TARP's Capital Purchase Program (CPP) has shown evidence of some success in returning funds to the federal government. 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. But TARP still faces a variety of challenges. For example, CPP, the largest of the TARP programs, has hundreds of participating institutions. Because of its size, this program requires ongoing strong oversight to ensure that participants comply with the program's requirements as we have recommended in prior reports. In addition, most of the other investment-based TARP programs that have provided assistance to a few large individual institutions present Treasury with the challenge of determining when assistance is no longer needed. Further, amid concerns about the strategic direction of the program and lack of transparency, the new administration has attempted to provide a more strategic plan for using the remaining funds and has created a number of programs aimed at stabilizing the securitization markets and preserving homeownership. While some programs, such as the Term Asset-backed Securities Loan Facility (TALF), are fully operational, others including the Home Affordable Modification Program (HAMP) and the Public-Private Investment Program (PPIP), are still new and face ongoing implementation and operational challenges. Finally, even though substantial investments have been made to avert the collapse of American International Group, Inc. (AIG), General Motors Corporation (GM), and Chrysler LLC (Chrysler), the ultimate outcomes of these investments are unclear and will be influenced by the long-term viability of these entities. Certain of these TARP investments were made with Treasury's expectation that the disbursements would be returned to the federal government. HAMP funds, however, are direct expenditures which are not expected to be repaid. But given the many challenges and uncertainties facing TARP programs, the total cost to the government of these programs remains unclear at this time.