Treasury also has begun to  receive dividend payments relating to capital purchases under CPP and  other programs. Initially, Treasury approved $125 billion in capital purchases for nine of  the largest public financial institutions that federal banking regulators and  Treasury considered to be systemically significant to the operation of the  financial system. These efforts are  important steps toward ensuring that all participating institutions are held  accountable for their use of the funds and are consistent with our past  recommendation that Treasury seek similar information from existing CPP  participants.. We will continue to monitor Treasury’s oversight efforts as  well as the consistency of the approval process in future work. We will also continue to monitor the system that Treasury  develops to ensure compliance with the agreements and the  implementation of additional oversight and accountability efforts under its  new plan. In our December 2008 report, we first raised  questions about the effectiveness of Treasury’s communication strategy  for TARP with Congress, the financial markets, and the public. In response to  our recommendation about its communication strategy, Treasury noted  numerous publicly available reports, testimonies, and speeches. At least two institutions  (Citigroup and Bank of America) currently participate in more than one  program, adding to the confusion about Treasury’s strategy and vision for  implementing TARP. On March 4, 2009, Treasury unveiled its Making Home Affordable program,  which is based in part on the use of TARP funds. As part  of our oversight responsibilities for TARP, we are monitoring Treasury’s  implementation of AIFP, including the auto manufacturers’ use of federal  funds and development of the required restructuring plans. However, hiring for OFS is still ongoing, Treasury is  working to improve its oversight of contractors, and its development of a  system of internal control is still evolving. Specifically,  we recommended that Treasury continue to expeditiously hire personnel  needed to carry out and oversee TARP. Finally, as noted in December,  these indicators may be suggestive of TARP’s ongoing impact, but no  single indicator or set of indicators can provide a definitive determination  of its effects because of the range of actions that have been and are being  taken to address the current crisis. These include coordinated efforts by  U.S. regulators—namely, the Federal Deposit Insurance Corporation, the  Board of Governors of the Federal Reserve System, and the Federal  Housing Finance Agency—as well as actions by financial institutions to  mitigate foreclosures. Additionally, we  plan to use the Treasury survey data in our efforts to evaluate changes in  lending activity resulting from CPP. Federal Debt Management Challenges

You also asked that I discuss the impact of TARP and related activities on  the national debt and borrowing. Because the Treasury must borrow the  funds disbursed, TARP and other actions taken to stabilize the financial  markets increase the need to borrow so adding to the federal debt. To support Congress’ oversight of  the use of TARP funds we have work underway looking at how Treasury  has financed borrowing associated with the recent financial crisis and at  additional ideas for debt management that might make sense going  forward. Total borrowing will increase by trillions of dollars this year, not solely  due to TARP and other activities aimed at stabilizing the financial system. The debt limit was increased by the Emergency  Economic Stabilization Act of 2008 and the Recovery Act, but with only  $1.2 trillion remaining under the limit, it will have to be raised again. Today Congress, the  executive branch and the American people are understandably focused on  restoring financial stability and economic growth. Contact

For further information on this testimony, please contact Thomas J.  McCool on (202) 512-2642 or mccoolt@gao.gov.
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 findings resulting from our oversight of the actions taken under the program. We are also responsible for auditing OFS'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. In addition, we are building on our in-house technical expertise with targeted new hires and experts. The act also created additional oversight entities--the Congressional Oversight Panel (COP) and the Special Inspector General for TARP (SIGTARP)--that also have reporting responsibilities. We are coordinating our work with COP and SIGTARP and are meeting with officials from both entities to share information and coordinate our oversight efforts. These meetings help to ensure that we are collaborating as appropriate and not duplicating efforts.

What GAO Found

This testimony is based primarily on our January 30, 2009 report, the second under the act's mandate, which covers the actions taken as part of TARP through January 23, 2009, and follows up on the nine recommendations we made in our December 2, 2008 report.3 This statement also provides additional information on some recent program developments, including Treasury's new financial stability plan and, as you requested, provides some insights on our ongoing work on the implications of actions related to the financial crisis on federal debt management. Our oversight work under the act is ongoing, and our next report is due to be issued by March 31, 2009, as required. Specifically, this statement focuses on (1) the nature and purpose of activities that have been initiated under TARP; (2) the status of OFS's hiring efforts, use of contractors, and development of a system of internal control; (3) implications of TARP and other events on federal debt management, and (4) preliminary indicators of TARP's performance. To do this work, we reviewed documents related to TARP, including contracts, agreements, guidance, and rules. We also met with OFS, contractors, federal agencies, and officials from all eight of the first large institutions to receive disbursements. We plan to continue to monitor the issues highlighted in our prior reports, as well as future and ongoing capital purchases, other more recent transactions undertaken as part of TARP (for example, guarantees on assets of Citigroup and Bank of America), and the status of other aspects of TARP.