Troubled Asset Relief Program:

Treasury's Framework for Deciding to Extend TARP Was Sufficient, but Could be Strengthened for Future Decisions

GAO-10-531: Published: Jun 30, 2010. Publicly Released: Jun 30, 2010.

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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.

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. 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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In its 60-day letter, Treasury stated that it "will continue to consult extensively on TARP matters with the FDIC as well as with other agencies where appropriate." While Treasury did it did not address the extent to which was that it would formalize and document coordination with FDIC, Treasury did commit to consult with FDIC on key TARP decisions which is consistent with our recommendation.

    Recommendation: To effectively conduct a coordinated exit from TARP and other government financial assistance, the Secretary of Treasury should formalize and document coordination with the Chairman of the FDIC for decisions associated with the expiration of TARP (1) by including the Chairman at relevant FinSOB meetings, (2) through formal bilateral meetings, or (3) by utilizing other forums that accommodate more structured dialogue.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Not Implemented

    Comments: Treasury has publicly identified clear program objectives and addressed the recommendation broadly by articulating the objectives and purposes of individual TARP programs. For example, Treasury has written blogs about the wind down of the Capital Purchase Program. However, to the extent the recommendation focuses on specific small business lending programs such as the Community Development Capital Initiative, Treasury does not believe specifying a "target" number of institutions or dollar amount to be expended is appropriate. Treasury said that it has instituted a thorough application and review process for qualification, and to prejudge the results of that application and review process would be unwise. As such, we consider the recommendation not implemented.

    Recommendation: To improve the transparency and analytical basis for program decisions made before TARP's expiration, the Secretary of the Treasury should publicly identify clear program objectives, the expected impact of programs, and the level of additional resources needed to meet those objectives. In particular, Treasury should set quantitative program objectives for its small business lending programs and identify any additional data needed to make program decisions.

    Agency Affected: Department of the Treasury

 

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