Troubled Asset Relief Program:

Opportunities Exist to Apply Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and to Improve the Repayment Process

GAO-11-47: Published: Oct 4, 2010. Publicly Released: Oct 4, 2010.

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Congress created the Troubled Asset Relief Program (TARP) to restore liquidity and stability in the financial system. The Department of the Treasury (Treasury), among other actions, established the Capital Purchase Program (CPP) as its primary initiative to accomplish these goals by making capital investments in eligible financial institutions. This report examines (1) the characteristics of financial institutions that received CPP funding and (2) how Treasury implemented CPP with the assistance of federal bank regulators. GAO analyzed data obtained from Treasury case files, reviewed program documents, and interviewed officials from Treasury and federal bank regulators.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: If Treasury administers programs containing elements similar to those of CPP, such as the Small Business Lending Fund (SBLF), Treasury should apply lessons learned from the implementation of CPP and enhance procedural controls for addressing the risk of inconsistency in regulators' decisions on withdrawals. Specifically, the Secretary of the Treasury should direct the program office responsible for implementing SBLF to establish a process for collecting information from bank regulators on all applicants that withdraw from consideration in response to a regulator's recommendation, including the reasons behind the recommendation. The program office should also evaluate the information to identify trends or patterns that may indicate whether similar applicants were treated inconsistently across different regulators and take action, if necessary, to help ensure a more consistent treatment.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury has implemented our recommendation by including a process for reviewing regulators' viability determinations for all eligible applicants to its Small Business Lending Fund (SBLF). In designing the SBLF investment decision procedures, Treasury included additional evaluation by a central application review committee for all eligible applicants that are not approved by their federal regulator. Treasury provides information from its evaluation to the regulator when their views differ, although an affirmative decision by the regulator ultimately is needed to fund an application. These steps help to ensure that applicants will receive consistent treatment in investment decisions across different regulators.

    Recommendation: As part of its consultation with regulators on their decisions to allow institutions to repay their CPP investments to Treasury, and to improve monitoring of these decisions, the Secretary of the Treasury should direct Office of Financial Stability (OFS) to periodically collect and review certain information from the bank regulators on the analysis and conclusions supporting their decisions on CPP repayment requests and provide feedback for the regulators' consideration on the extent to which regulators are evaluating similar institutions consistently.

    Agency Affected: Department of the Treasury

    Status: Open

    Comments: Treasury has not taken action to monitor regulators' Capital Purchase Program (CPP) repayment decisions. Treasury believes that this recommendation raises questions about how to balance the goals of consistency with the need to respect the independence of regulators. Treasury also has explained that it does not have access to confidential supervisory information that regulators may use in making repayment decisions which would limit any information collection and review envisioned in our recommendation. However, as we noted in our report, the two regulators with responsibility for most CPP repayment requests document their analysis in a manner similar to what regulators provided Treasury when recommending CPP applicants and Treasury could use these documents in their review.

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