Troubled Asset Relief Program:

One Year Later, Actions Are Needed to Address Remaining Transparency and Accountability Challenges

GAO-10-16: Published: Oct 8, 2009. Publicly Released: Oct 8, 2009.

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GAO's eighth report assesses the Troubled Asset Relief Program's (TARP) impact over the last year. Specifically, it addresses (1) the evolution of TARP's strategy and the status of TARP programs as of September 25, 2009; (2) the Department of the Treasury's (Treasury) progress in creating an effective management structure, including hiring for the Office of Financial Stability (OFS), overseeing contractors, and establishing a comprehensive system of internal control; and (3) indicators of TARP's performance that could help Treasury decide whether to extend the program. GAO reviewed relevant documentation and met with officials from OFS, contractors, and financial regulators.

Over the last year, TARP in general, and the Capital Purchase Program (CPP) in particular, along with other efforts by the Board of Governors of the Federal Reserve System (Federal Reserve) and Federal Deposit Insurance Corporation (FDIC), have made important contributions to helping stabilize credit markets. TARP is still a work in progress, and many uncertainties and challenges remain. For example, while some CPP participants had repurchased over $70 billion in preferred shares and warrants as of September 25, 2009, whether Treasury will fully recoup TARP assistance to the automobile industry and American International Group Inc., among others, remains uncertain. Moreover, other programs, such as the Public-Private Investment Program and the Home Affordable Modification Program (HAMP) are still in varying stages of implementation. As of September 25, 2009, Treasury had disbursed almost $364 billion in TARP funds; however, Treasury has yet to update its projected use of funds for most programs in light of current market conditions, program participation rates, and repurchases. Without more current estimates about expected uses of the remaining funds, Treasury's ability to plan for and effectively execute the next steps of the program will be limited. Amid concerns about the direction and transparency of TARP, the new administration has attempted to provide a more strategic direction for using the remaining funds. TARP has moved from investment-based initiatives to programs aimed at stabilizing the securitization markets and preserving homeownership, and most recently at providing assistance to community banks and small businesses. While some programs, such as the Term Asset-Backed Securities Loan Facility, appear to have generated market interest, others, such as HAMP, face ongoing implementation and operational challenges. Related to transparency, Treasury has taken a number of steps to improve communication with the public and Congress, including launching a Web site and preparing to hire a communications director for OFS to support these efforts. Treasury has also made significant progress in establishing and staffing OFS; however, it must continue to focus on filling critical leadership positions, including the Chief Homeownership Preservation Officer and Chief Investment Officer, with permanent staff. Treasury's network of contractors and financial agents that support TARP administration and operations has grown from 11 to 52. While Treasury has an appropriate infrastructure in place, it must remain vigilant in managing and monitoring conflicts of interests that may arise with the use of private sector sources.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In a follow-up report, GAO-10-531, we found that Treasury's decision to extend TARP was taken after significant deliberation and involved sufficient interagency coordination. Furthermore, Treasury officials identified four documents that were central to its efforts to describe and communicate to Congress and the public the framework it used to make decisions related to the extension of TARP. Treasury often directly or indirectly linked program decisions to a variety of quantitative indicators, including surveys, financial market prices and quantities, and measures of program utilization, among others. We also found that this framework was sufficient.

    Recommendation: As it enters the next phase of the program, Treasury will likely face ongoing challenges. Building on our prior recommendations aimed at improving Treasury's ability to effectively manage the next phase of the program, the Secretary of the Treasury should consider TARP in a broad market context and as part of determining whether to extend TARP, work with the Chairmen of the Federal Reserve and FDIC to develop a coordinated framework and analytical basis to determine whether an extension is needed. If it is, the Secretary should clearly spell out what the objectives and measures of any extended programs would be, along with anticipated costs and safeguards.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: Treasury officials identified four documents that were central to its efforts to describe and communicate to Congress and the public the framework it used to make decisions related to the extension of TARP. Treasury often directly or indirectly linked program decisions to a variety of quantitative indicators, including surveys, financial market prices and quantities, and measures of program utilization, among others. We found that this framework was sufficient.

    Recommendation: As it enters the next phase of the program, Treasury will likely face ongoing challenges. Building on our prior recommendations aimed at improving Treasury's ability to effectively manage the next phase of the program, the Secretary of the Treasury should document its analytical decision-making process and clearly communicate the results to Congress and the American people for determining whether an extension is needed.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: Based on our review of subsequent OFS reporting on projected use of funds, we found that as of November 9, 2009, OFS had updated its projected use of funds for all TARP programs. By updating estimates of expected uses of remaining TARP funds, OFS should be better able to plan for and more effectively execute the next steps of the TARP program.

    Recommendation: As it enters the next phase of the program, Treasury will likely face ongoing challenges. Building on our prior recommendations aimed at improving Treasury's ability to effectively manage the next phase of the program, the Secretary of the Treasury should update its projected use of funds and, if the program is extended, continue to re-evaluate them on a periodic basis.

    Agency Affected: Department of the Treasury

 

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