Troubled Asset Relief Program:
Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency
GAO-09-266T, Dec 10, 2008
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This testimony discusses our first report on the newly created Troubled Asset Relief Program (TARP), which gave the Department of Treasury the authority to purchase and insure up to $700 billion in troubled assets held by financial institutions through the Office of Financial Stability (OFS). Treasury was granted this authority in response to the recent financial crisis that has threatened the stability of the U.S. banking system and the solvency of numerous financial institutions. Among other things, 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 status of actions taken under the program. This testimony is based on our December 2, 2008, report. This report is the first under the act's mandate and covers the actions taken as part of TARP through November 25, 2008.3 Our oversight work under the act is ongoing, and our next report will be issued by January 31, 2009.
Treasury has taken a number of steps to try to stabilize the U.S. financial markets and banking system, including injecting billions of dollars into financial institutions. Although Treasury initially planned to buy mortgages and mortgage-related assets through TARP, Treasury shifted its focus to a preferred stock and warrant purchase program, known as the Capital Purchase Program (CPP). Treasury has provided more than $155 billion in capital to 87 institutions through CPP as of December 5, 2008. It has also established a Systemically Significant Failing Institution (SSFI) program, through which Treasury may invest in any financial instrument, including debt, equity, or warrants determined to be a troubled asset, and continues to explore other programs, including those focused on insurance, foreclosure mitigation, and consumer lending. As of December 5, 2008, Treasury had allocated a total of $335 billion of TARP funds and disbursed $195 billion to institutions under the various programs. While we recognize that TARP has existed for a short time and that a new program of such magnitude faces many challenges, especially in this current uncertain economic climate, we found that Treasury has yet to address a number of critical issues. These include determining how it will ensure that CPP is achieving its intended goals and monitoring compliance with limitations on executive compensation, dividend payments, and stock repurchases. Moreover, it has yet to formalize transition planning efforts given the upcoming shift to a new administration or to establish an effective management structure and an essential system of internal controls.