Although Trea Undertook a Deliberative Process in Deciding to E TARP, It Could Strengthen Coordination

		The Decision to Extend TARP Involved Terminating and Winding Down Some Programs and Making New Commitments in Select Areas

On December 9, 2009, the Secretary announced that he was extending  Treasury’s authority under EESA to purchase, commit to purchase, or  commit to guarantee troubled assets until October 3, 2010 (TARP  expiration date). Nevertheless, the extension has formally moved TARP from a program  with a heavy focus on capitalizing institutions and stabilizing securitization  markets to one focused primarily on mitigating preventable foreclosures  and improving financial conditions for small banks and small businesses. Treasury Could Strengthen Its Interagency Coordination and Consultation

As part of a robust analytic framework for decision making, we  recommended that the Secretary coordinate with the Federal Reserve and  FDIC to help ensure that the decision to extend or terminate TARP was  considered in a broader market context. However, the extent of Treasury’s coordination with FDIC,  while sufficient for the decision to extend TARP, should be enhanced and  formalized for any upcoming decisions that would benefit from  interagency collaboration. Treasury Considered a Number of Qualitative and Quantitative Factors for Key Decisions Associated with the TARP Extension

Treasury considered a number of qualitative and quantitative factors for  key decisions associated with the TARP extension. Important factors  considered for the extension of TARP centered on ongoing weaknesses in  key areas of the economy. Treasury underscored that  while analysis was possible on the need for or success of individual  programs, the fragile state of the economy and remaining downside risks  were an ongoing source of uncertainty. Considering this uncertainty,  Treasury wanted to extend TARP through October 2010 in order to retain  resources to respond to financial instability. Treasury could strengthen its  analytical framework by identifying clear objectives for small business  programs and explaining how relevant indicators motivated TARP  program decisions. Appendix I: Scope and Methodology

The objectives of this report are to determine (1) the process the  Department of the Treasury (Treasury) used to decide to extend the  Troubled Asset Relief Program (TARP) and the extent of coordination  with relevant agencies and (2) the analytical framework and quantitative  indicators Treasury used to decide to extend TARP. In particular, we  reviewed four public documents Treasury identified as central to its  efforts to describe and communicate the framework it used to make  decisions related to the extension of TARP to Congress and the public (1)  the September 2009 report “The Next Phase of Government Financial  Stabilization and Rehabilitation Policies”; (2) the December 9, 2009, letter  to Congressional leadership certifying the extension of TARP; (3)  Secretary Geithner’s December 10 testimony to the Congressional  Oversight Panel; and (4) the “Management Discussion and Analysis”  portion of the fiscal year 2009 Office Financial Stability Agency Financial  Report.
Why GAO Did This Study

The Department of the Treasury's (Treasury) authority to purchase, commit to purchase, or commit to guarantee troubled assets was set to expire on December 31, 2009. This important authority has allowed Treasury to undertake a number of programs to help stabilize the financial system. In December 2009, the Secretary of the Treasury extended the authority to October 3, 2010. In our October 2009 report on the Troubled Asset Relief Program (TARP), GAO suggested as part of a framework for decision making that Treasury should coordinate with relevant federal agencies, communicate with Congress and the public, and link the decisions related to the next phase of the TARP program to quantitative analysis. This report discusses (1) the process Treasury used to decide to extend TARP and the extent of coordination with relevant agencies and (2) the analytical framework and quantitative indicators Treasury used to decide to extend TARP. To meet the report objectives, GAO reviewed key documents related to the decision to extend TARP, interviewed agency officials and analyzed financial data.

What GAO Found

The extension of TARP involved winding down programs while extending others, transforming the program to one focused primarily on preserving homeownership, and improving financial conditions for small banks and businesses. While the extension of TARP was solely the Treasury's decision, it was taken after significant deliberation and involved interagency coordination. Although sufficient for the decision to extend, the extent of coordination could be enhanced and formalized for any upcoming decisions that would benefit from interagency collaboration, especially with the Federal Deposit Insurance Corporation (FDIC). Treasury considered a number qualitative and quantitative factors for key decisions associated with the TARP extension. Important factors considered for the extension of new commitments centered on ongoing weaknesses in key areas of the economy. Treasury underscored that while analysis was possible on the needs or success of individual programs, the fragile state of the economy and remaining downside risks were difficult to know with certainty. Considering this uncertainty, Treasury wanted to extend TARP through October 2010 in order to retain resources to respond to financial instability. Going forward, Treasury could strengthen its current analytical framework by identifying clear objectives for small business programs and providing explicit linkages between TARP program decisions and the quantitative analysis or indicators used to motivate those decisions.

What GAO Recommends

GAO recommends that the Secretary of the Treasury (1) formalize coordination with FDIC for future TARP decisions and (2) improve the transparency and analytical basis for TARP program decisions. Treasury generally agreed with our recommendations.