[JPRT, 112th Congress]
[From the U.S. Government Publishing Office]



 
                                     


                     CONGRESSIONAL OVERSIGHT PANEL

                      FEBRUARY OVERSIGHT REPORT *

                               ----------                              

   EXECUTIVE COMPENSATION RESTRICTIONS IN THE TROUBLED ASSET RELIEF 
                                PROGRAM

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


               February 10, 2011.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343
        CONGRESSIONAL OVERSIGHT PANEL FEBRUARY OVERSIGHT REPORT




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                     CONGRESSIONAL OVERSIGHT PANEL

                      FEBRUARY OVERSIGHT REPORT *

                               __________

   EXECUTIVE COMPENSATION RESTRICTIONS IN THE TROUBLED ASSET RELIEF 
                                PROGRAM

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


               February 10, 2011.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343
                     CONGRESSIONAL OVERSIGHT PANEL
                             Panel Members
                       Sen. Ted Kaufman, Chairman
                           Richard H. Neiman
                             Damon Silvers
                           J. Mark McWatters
                             Kenneth Troske
                            C O N T E N T S

                              ----------                              
                                                                   Page
Executive Summary................................................     1
Section One:
    A. Overview..................................................     5
    B. Background................................................     7
        1. Overview..............................................     7
        2. The Statutes and Regulations that Govern Compensation 
          Paid by TARP Recipients................................    18
    C. Summary of the Special Master's Determinations............    25
        1. Overview..............................................    25
        2. Determinations........................................    30
        3. Advisory Opinions.....................................    39
        4. Look Back Review......................................    40
        5. Final Report..........................................    41
    D. Evaluation of Treasury's Implementation of the Executive 
      Compensation Restrictions..................................    42
        1. The Interim Final Rule and the Special Master's 
          Implementation of the Rule.............................    42
        2. Look Back Review......................................    45
        3. Transparency: The Office of the Special Master and the 
          Office of Internal Review..............................    47
        4. Impact................................................    56
        5. Missed Opportunities..................................    65
    E. Conclusions and Recommendations...........................    66
Annex I: Salary Tables...........................................    70
Section Two: Additional Views
    A. Professor Kenneth R. Troske and J. Mark McWatters.........    73
Section Three: TARP Updates Since Last Report....................    75
Section Four: Oversight Activities...............................   104
Section Five: About the Congressional Oversight Panel............   105
======================================================================



 
                       FEBRUARY OVERSIGHT REPORT

                                _______
                                

               February 10, 2011.--Ordered to be printed

                                _______
                                

                           EXECUTIVE SUMMARY*

    Executive compensation has been a subject of controversy 
and debate since long before the 2008 financial crisis. 
Academics, shareholders, and other experts have long agreed 
that an executive's pay should accurately reflect his or her 
contributions to a business and should avoid creating 
incentives to pursue excessively risky business strategies. 
Debates have erupted, however, about what these standards mean 
in practice and about how to structure executive pay 
appropriately. For example, should corporations pay their 
executives primarily in stock in hopes of aligning their 
interests with those of other shareholders? Or would this 
approach encourage executives to take wild risks in order to 
increase the value of their own pay? Fault lines have also 
emerged over which stakeholders should play a role in 
determining executive pay, which metrics should be used to 
gauge an executive's performance, and what timeframe should be 
used in evaluating an executive's contributions, among many 
other points of contention.
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    \*\ The Panel adopted this report with a 5-0 vote on February 9, 
2011.
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    Congress entered this well-worn debate in dramatic fashion 
in late 2008 and early 2009, when it enacted the Troubled Asset 
Relief Program (TARP) and subsequently imposed sweeping 
restrictions on executive pay at institutions that accepted 
TARP funds. The restrictions generally reflected the notion 
that, when a company accepts taxpayer money, its compensation 
practices must shift to take into account factors beyond the 
customary elements of executive pay. In particular, 
compensation should reflect the need for taxpayers to recover 
their investment, should recognize public frustration about 
taxpayer funds being paid to executives at bailed-out 
institutions, and should advance the public goal of stabilizing 
the financial system. These concerns are especially acute at 
``too big to fail'' firms, which survived due to taxpayers'' 
reluctant intervention rather than the competence of the 
executives who led their companies astray. In keeping with 
these considerations, Congress banned TARP recipients from 
compensating executives in ways that encouraged unnecessary and 
excessive risks; required ``clawback'' provisions to allow 
recovery of compensation paid based on inaccurate metrics; 
limited bonuses and other incentive compensation to one-third 
of total pay; and imposed several further restrictions.
    To implement this Congressional mandate, Treasury 
established two new offices: the Office of Internal Review 
(OIR) within the Office of Financial Stability, which reviews 
and certifies compliance with executive compensation 
restrictions by all TARP recipients; and the Office of the 
Special Master for Executive Compensation, which actively 
negotiates executive pay for the seven institutions that 
received ``exceptional assistance'': AIG, Bank of America, 
Citigroup, Chrysler, Chrysler Financial, General Motors, and 
GMAC/Ally Financial.
    Of the two offices, the OIR has attracted less public 
attention because it merely certifies compliance rather than 
actively setting pay. Even so, OIR has posed particular 
problems for oversight. Despite its far-reaching jurisdiction, 
it has not published a single document. Although OIR provided 
helpful responses to the Panel's questions, the Panel remains 
troubled that a body with such significant scope has disclosed 
so little information to the public. The omission is 
particularly surprising given OIR's determinations that the 
vast majority of the companies under its jurisdiction have been 
compliant with executive pay restrictions--information that 
would be valuable to the public.
    The Office of the Special Master has a far more limited 
jurisdiction, but it plays an active role in setting executive 
compensation at the institutions within its purview. In 
general, the Special Master has achieved significant changes in 
practices at these firms, including an average percentage 
decrease in overall compensation of 54.8 percent (with a range 
between 24.2 percent and 85.6 percent) for the 25 highest-paid 
employees at each company from 2008 to 2009. The Special Master 
generally limited cash compensation to $500,000 or less and 
required that, for the 25 highest-paid employees, stock 
received as salary should be redeemable only over four years. 
The Special Master also limited incentive payments to one-third 
of total compensation, as required by Congress, and tied these 
payments to specific, observable performance metrics. The 
Special Master accomplished these changes in a complex 
environment under a constant media spotlight.
    A key focus of the Special Master's work was shifting 
companies away from guaranteed pay and toward stock-based 
compensation in an effort to better align the interests of 
executives with the long-term interests of the company. This 
shift is broadly in line with current academic thinking and 
corporate best practices for executive pay. Even so, stock-
focused pay packages raise their own concerns. The payment of 
salary in the form of stock may encourage executives to take 
unnecessary or excessive risks, especially because the very low 
stock prices of distressed institutions serve to limit downside 
losses while still allowing tremendous upside gains. Further, 
the four-year timeframe for the redemption of certain stock 
payments may be too short to determine whether an executive's 
actions have truly created long-term value. Many executives in 
the early 2000s, for example, gambled on high-risk business 
strategies that proved unsustainable only when the financial 
crisis hit in 2008. Even if their firms had followed the pay 
principles subsequently laid out by the Special Master, these 
executives would have walked away with dramatically and 
inappropriately inflated pay packages--precisely the outcome 
that the Special Master sought to prevent.
    Also, pay packages approved by the Special Master have 
generally been quite uniform despite wide variations in the 
companies under the office's review. It is unclear whether one 
size truly fits all and whether the same redemption schedule 
for salary stock should apply to employees of an automotive 
company and employees of a large bank. Similarly, a cash salary 
of $500,000 might have different ramifications for hiring and 
retention at an institution based in New York compared to one 
based in Michigan, given the widely varying costs of living.
    A separate concern involves the Special Master's ``Look 
Back Review'' of payments to executives at TARP recipients 
prior to February 17, 2009. Congress instructed the Special 
Master to ``seek to negotiate'' with TARP recipients for 
``appropriate reimbursements'' of any payments made prior to 
that date that were ``contrary to the public interest.'' At the 
conclusion of the review, the Special Master found that no 
payments had violated the ``public interest,'' and thus he did 
not attempt to claw back any pay. Even so, he labeled $1.7 
billion in payments as ``disfavored'' and ``not necessarily 
appropriate.'' The finding that pay was ``disfavored'' but not 
``contrary to the public interest'' is troublesome for several 
reasons: it may appear to the public to be excessively 
legalistic, it may represent an end-run around Congress' 
determination that the Special Master should make every effort 
to claw back wrongful payments, and it may give the impression 
that the government condoned inappropriate compensation to 
executives whose actions contributed to the financial crisis.
    The application of the ``public interest'' standard 
throughout the Special Master's other work also raises 
questions. Treasury initially defined six factors--including 
risk, taxpayer return, and appropriate allocation of pay 
between cash and other forms of pay--that should be considered 
in determining whether a compensation package met the ``public 
interest'' standard. Unfortunately, Treasury provided no 
guidance on how the six factors should be balanced or 
prioritized when they conflict. Subsequent statements have 
provided little public explanation of how the Special Master 
managed contradictions, noting only that the process is a 
mixture of art and science. As a result, aspects of the Special 
Master's work are essentially ``black boxes'' to the public, 
and it would be very difficult for any outside expert to 
replicate the Special Master's efforts.
    The ``black box'' approach is especially troubling given 
the Special Master's aspiration for his determinations to be 
used as a model for compensation structures. It is impossible 
for outside actors to replicate a process that they cannot 
fully understand. Experts have assessed the broader impact of 
the Special Master's work as modest and have suggested that 
Wall Street's pay practices have not changed significantly 
since the financial crisis. So long as compensation experts on 
Wall Street and elsewhere lack the information needed to use 
the Special Master's deliberations as a model, what seemed an 
opportunity for sweeping reform will be destined to leave a far 
more modest legacy.
                              SECTION ONE:


                              A. Overview

    Congress entered the executive compensation debate by 
including executive compensation restrictions for recipients of 
funds from the Troubled Asset Relief Program (TARP). The 
original restrictions were in Section 111 of the TARP's 
authorizing legislation, the Emergency Economic Stabilization 
Act of 2008 (EESA).\1\ After a series of revelations about 
bonuses at several major TARP recipients,\2\ the American 
Recovery and Reinvestment Act of 2009 (ARRA) subsequently 
amended EESA (EESA as amended) and put additional restrictions 
on pay practices at TARP recipients.\3\ In June 2009, Treasury 
issued the Interim Final Rule on TARP Standards for 
Compensation and Corporate Governance (IFR), which consolidated 
and superseded all prior guidance on compensation and corporate 
governance for TARP recipients. The IFR also created within 
Treasury an Office of the Special Master, which is charged with 
overseeing compensation practices at recipients of 
``exceptional financial assistance'' from the TARP in 
accordance with six prescribed principles.\4\
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    \1\ Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-
343 (Oct. 3, 2008) (executive compensation and corporate governance 
restrictions codified as amended at 12 U.S.C. Sec. 5221).
    \2\ For example, for the 2008 fiscal year, Merrill Lynch paid $3.6 
billion in bonuses despite incurring more than $15 billion in losses 
during the fourth quarter of 2008 and being acquired by Bank of 
America. See Letter from Andrew Cuomo, attorney general, State of New 
York, to Congressman Barney Frank, chairman, House Committee on 
Financial Services, Merrill Lynch 2008 Bonuses (Feb. 10, 2009) (online 
at www.ag.ny.gov/media_center/2009/feb/merrill%20letter.pdf).
    \3\ American Recovery and Reinvestment Act of 2009, Pub. L. No. 
111-5 (Feb. 17, 2009).
    \4\ 31 CFR Sec. 30. The IFR defined ``exceptional financial 
assistance'' as ``any financial assistance provided under the TARP 
programs for Systemically Significant Failing Institutions, the 
Targeted Investment Program, the Automotive Industry Financing Program, 
and any new TARP program designated by the Secretary as providing 
exceptional financial assistance.'' 31 CFR Sec. 30.16. The Systemically 
Significant Failing Institutions program is now known as the American 
International Group, Inc. Investment Program (AIGIP). The seven 
institutions that participated in the three programs mentioned above 
were AIG, Bank of America, Citigroup, Chrysler, Chrysler Financial, 
General Motors, and GMAC/Ally Financial. For purposes of this report, 
an ``exceptional assistance recipient'' is any institution that 
received such assistance.
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    Since the Office of the Special Master was established in 
June 2009, it has been the public face of the government's 
efforts to guide compensation practices at TARP recipients. The 
Special Master's mandate is at once broad and narrow: to 
determine the amount and structure of senior executive pay, but 
only for those firms deemed to be recipients of exceptional 
assistance. To date, the Special Master has issued 42 
determinations setting compensation for 300 employees at the 
seven exceptional assistance recipients. Treasury's Office of 
Internal Review (OIR) was responsible for monitoring compliance 
with, in total and at the peak, compensation rules at the seven 
exceptional assistance companies and the other 760 TARP 
recipients that were subject to the compensation rules.\5\
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    \5\ Letter from Timothy Geithner, Secretary, U.S. Department of the 
Treasury, to Elizabeth Warren, Chair, Congressional Oversight Panel, 
Re: Response to Questions on Executive Compensation (Feb. 16, 2010) 
(online at cop.senate.gov/documents/cop-031110-report-
correspondence.pdf) (hereinafter ``Geithner Response to Questions on 
Executive Compensation''). This monitoring is performed by the 
compliance office within the Office of Internal Review, which is itself 
part of the Treasury's Office of Financial Stability. Treasury 
conversations with Panel staff (Feb. 7, 2011). As of January 28, 2011, 
OIR was responsible for monitoring compliance at the four remaining 
exceptional assistance companies as well as the other 660 remaining 
TARP recipients. U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for the Period Ending January 28, 2011 
(Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-
28-11.pdf) (hereinafter ``Treasury Transactions Report'').
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    The Panel has examined executive compensation as it relates 
to the TARP in past reports, although none of its reports to 
date have focused exclusively on the issue. In its March 2010 
report the Panel stated that the levels of compensation set for 
GMAC/Ally Financial's CEO ``raise significant questions, which 
the Panel will continue to study.'' \6\ In its June 2010 
report, the Panel reiterated its concern that compensation 
levels ``raise significant unanswered questions.'' \7\ Most 
recently, on October 21, 2010, the Panel held a hearing on 
executive compensation, which included testimony from the 
former Special Master, Kenneth Feinberg, among others.\8\
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    \6\ Congressional Oversight Panel, March Oversight Report: The 
Unique Treatment of GMAC Under the TARP, at 57 (Mar. 11, 2010) (online 
at cop.senate.gov/documents/cop-031110-report.pdf) (``These 
[significant questions] include whether particular levels of 
compensation are either necessary or appropriate, the nature of the 
incentives the compensation creates, and the manner in which Treasury 
is exercising its authority under the EESA compensation restrictions as 
amended by the American Recovery and Reinvestment Act of 2009 
(ARRA).'').
    \7\ Congressional Oversight Panel, June Oversight Report: The AIG 
Rescue, Its Impact on Markets, and the Government's Exit Strategy, at 
229 (June 10, 2010) (online at cop.senate.gov/documents/ cop-061010-
report.pdf). In addition to its discussion of executive compensation 
restrictions for TARP recipients, in its January 2009 report on 
regulatory reform, the Panel noted that ``[e]xecutive pay should be 
designed, regulated, and taxed to incentivize financial executives to 
prioritize long-term objectives, and to avoid both undertaking 
excessive, unnecessary risk and socializing losses with the help of the 
federal taxpayer.'' Congressional Oversight Panel, Special Report on 
Regulatory Reform: Modernizing the American Financial Regulatory 
System: Recommendations for Improving Oversight, Protecting Consumers, 
and Ensuring Stability, at 38 (Jan. 29, 2009) (online at 
cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf) 
(hereinafter ``Special Report: Modernizing the American Financial 
Regulatory System'').
    \8\ Other witnesses at the Panel's hearing included Kevin Murphy, 
Kenneth L. Trefftzs Chair in Finance and professor of corporate 
finance, University of Southern California Marshall School of Business; 
Fred Tung, Howard Zhang Faculty Research Scholar and professor of law, 
Boston University School of Law; Rose Marie Orens, senior partner, 
Compensation Advisory Partners LLC; and Ted White, strategic advisor, 
Knight Vinke Asset Management. Other oversight bodies have also 
examined the issue of executive compensation for TARP recipients. The 
Special Inspector General for TARP (SIGTARP) has issued reports on 
institutions' efforts to comply with compensation restrictions, 
compensation at AIG, and Treasury's monitoring of compliance at 
exceptional assistance firms. Office of the Special Inspector General 
for the Troubled Asset Relief Program, Treasury's Monitoring of 
Compliance with TARP Requirements by Companies Receiving Exceptional 
Assistance (June 29, 2010) (online at www.sigtarp.gov/reports/audit/
2010/Treasury's%20Monitoring%20of%20Compliance %20with%20TARP%20 
Requirements%20by%20 Companies% 20Receiving%20 
Exceptional%20Assistance%206_29_10.pdf) (hereinafter ``Treasury's 
Monitoring of Compliance for Companies Receiving Exceptional 
Assistance''); Office of the Special Inspector General for the Troubled 
Asset Relief Program, Extent of Federal Agencies' Oversight of AIG 
Compensation Varied, and Important Challenges Remain (Oct. 14, 2009) 
(online at www.sigtarp.gov/ reports/audit/2009/ Extent_of_ 
Federal_Agencies'_ Oversight_of_AIG_ Compensation_Varied_and_ 
Important_ Challenges_Remain_10_14_09.pdf); Office of the Special 
Inspector General for the Troubled Asset Relief Program, Despite 
Evolving Rules on Executive Compensation, SIGTARP Survey Provides 
Insights on Compliance (Aug. 19, 2009) (online at www.sigtarp.gov/ 
reports/audit/ 2009/Despite%20Evolving%20 Rules%20on%20 
Exec%20Comp..._8_19_09.pdf) (hereinafter ``SIGTARP Survey Provides 
Insights on Compliance''). The Government Accountability Office (GAO) 
has also analyzed compensation issues in several of its reports and in 
congressional testimony. U.S. Government Accountability Office, Office 
of Financial Stability (Troubled Asset Relief Program) Fiscal Years 
2010 and 2009 Financial Statements (Nov. 2010) (GAO-11-174) (online at 
www.gao.gov/new.items/d11174.pdf); U.S. Government Accountability 
Office, Financial Assistance: Ongoing Challenges and Guiding Principles 
Related to Government Assistance for Private Sector Companies (Aug. 
2010) (GAO-10-719) (online at www.gao.gov/new.items/d10719.pdf); House 
Oversight and Government Reform, Subcommittee on Domestic Policy, 
Written Testimony of Orice Williams Brown, director, financial markets 
and community investment, and A. Nicole Clowers, acting director, 
physical infrastructure, U.S. Government Accountability Office, The 
Government as Dominant Shareholder: How Should the Taxpayers' Ownership 
Rights Be Exercised? Day 1 (Dec. 16, 209) (online at www.gao.gov/
new.items/d10325t.pdf).
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    In this report, the Panel focuses on the work of the Office 
of the Special Master. It also evaluates the separate role of 
Treasury's Office of Internal Review in monitoring compensation 
practices at TARP recipients. The Panel describes the legal 
landscape that provided the foundation for the government's 
involvement in executive compensation, including, but not 
limited to, the work of the Special Master. It summarizes the 
Special Master's determinations. The Panel then examines the 
broader impact of the government's approach to executive 
compensation at TARP recipients. This topic falls squarely 
within the Panel's mandate to ``review the current state of the 
financial markets and the regulatory system.'' The Panel is 
tasked with reviewing the ``use by the Secretary of authority'' 
under EESA, authority that included the development of 
executive compensation standards.

                             B. Background


1. Overview

            a. Developments in Executive Compensation Prior to and 
                    Around the Financial Crisis 
    Since well before the financial crisis, executive 
compensation has been a contentious issue. In 1941, an observer 
wrote that ``executives have received compensation so large as 
to cause dissatisfaction among factory and office workers, and 
to lead stockholders to feel that they have been unjustly 
deprived of funds.'' \9\ From the early 1950s through the mid-
1970s, executive pay remained at a fairly steady level in terms 
of real dollars.\10\ From the 1980s onward, however, executive 
compensation has generally increased, often swiftly.\11\ For 
instance, during the 1970s, the average pay for a chief 
executive officer (CEO) was approximately 30 times the average 
annual pay of a production worker. By 1991, however, this pay 
ratio climbed to over 100 to one. Just before the economic 
crisis in 2007, the average compensation for a CEO was nearly 
300 times that of a production worker.\12\ The average total 
compensation for CEOs for some of the largest TARP recipients 
was approximately $21 million in 2007, prior to the crisis, 
with a range from $4.4 million to $54 million.\13\ At the same 
time, compensation for employees in the financial sector 
increased relative to their peer group in other industries. One 
study showed that those in the financial sector were paid a 
premium of about 40 percent compared with those with similar 
educations and backgrounds in other industries.\14\ However, 
some commentators emphasize that when assessing compensation, 
it is not the level or amount that should be analyzed but 
rather the structure of that compensation.\15\
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    \9\ George T. Washington, The Corporation Executive's Living Wage, 
Harvard Law Review, Vol. 54, at 733 (1941).
    \10\ Carola Frydman and Dirk Jenter, CEO Compensation, Rock Center 
for Corporate Governance at Stanford University Working Paper No. 77, 
at 4 (Nov. 2010) (online at ssrn.com/abstract=1582232) (hereinafter 
``Frydman & Jenter on CEO Compensation''). The average pay increase for 
the top three executives during that period was approximately 0.8 
percent per year.
    \11\ Id. at 4 (``The increase in compensation was most dramatic in 
the 1990s, with annual growth rates that reached more than 10% by the 
end of the decade. CEO pay grew more rapidly than the pay of other top 
executives during the past 30 years, but not before. The median ratio 
of CEO compensation to that of the other highest-paid executives was 
stable at approximately 1.4 prior to 1980 but has since then risen to 
almost 2.6 by 2000-2005.''). On the other hand, it is possible that pay 
in the beginning of the period was too low, as the pay levels in the 
early 1990s were just catching up to pre-Great Depression levels. 
Michael C. Jensen and Kevin J. Murphy, CEO Incentives: It's Not How 
Much You Pay, But How, Harvard Business Review, No. 3, at 2 (May-June 
1990) (online at papers.ssrn.com/sol3/
papers.cfm?abstract_id=146148&rec=1&srcabs=94009##) (hereinafter 
``Jensen & Murphy on CEO Incentives'').
    \12\ Economic Policy Institute, The State of Working America, CEOs 
See Big Raises: Ratio of Average CEO Average Production Worker to 
Compensation, 1965-2009 (online at www.stateofworkingamerica.org/
charts/view/17) (accessed Feb. 8, 2011).
    \13\ The following institutions were included in this sample: 
American Express, BB&T, the Bank of New York Mellon, Capital One 
Financial, Fifth Third Bancorp, Goldman Sachs, JPMorgan Chase, KeyCorp, 
Morgan Stanley, PNC Financial Corp., Regions Financial, SunTrust Banks, 
State Street Corporation, U.S. Bancorp, and Wells Fargo. By 2009, their 
average total CEO compensation dropped to approximately $9 million, 
with some CEOs seeing a decrease of more than $40 million in total 
compensation. Despite the significant decrease in total compensation, 
base salaries either remained unchanged or increased slightly between 
2007 and 2009. Panel calculations based on 2007 and 2009 salary data. 
Salary data accessed through SNL Financial Data Service (Jan. 18, 
2011).
    \14\ Thomas Philippon and Ariell Reshef, Wages and Human Capital in 
the U.S. Financial Industry: 1909-2006, NBER Working Paper No. 14644, 
at 27, figure 11 (Jan. 2009) (online at pages.stern.nyu.edu/tphilipp/
papers/pr_rev15.pdf). However, though workers in the financial sector 
are paid more than their counterparts in other sectors, some 
commentators believe the discrepancy could be due to the demand and 
scarce resources for their specialized skills. Congressional Oversight 
Panel, Written Testimony of Kevin J. Murphy, Kenneth L. Trefftzs Chair 
in Finance, University of Southern California Marshall School of 
Business, COP Hearing on the TARP and Executive Compensation 
Restrictions, at 14 (Oct. 21, 2010) (online at cop.senate.gov/
documents/testimony-102110-murphy.pdf) (hereinafter ``Murphy October 
2010 Written Testimony'') (``The fact that pay is high does not, 
however, imply that pay is excessive in the sense of not being 
determined by competitive market forces . . . The highest-paid 
employees in financial services firms typically have scarce and highly 
specialized skills that are specific to their industry but not 
necessarily to their employer. As a result, employees in financial 
services are remarkably mobile both domestically and internationally 
when compared to employees in virtually any other sector in the 
economy.'').
    \15\ Squam Lake Working Group on Financial Regulation, Regulation 
of Executive Compensation in Financial Services, at 2 (Feb. 2010) 
(online at i.cfr.org/content/publications/attachments/
Squam_Lake_Working_Paper8.pdf) (``We have seen no convincing evidence 
that high levels of compensation in financial companies are inherently 
risky for the companies themselves or the overall economy.''). See also 
Jensen & Murphy on CEO Incentives, supra note 11, at 1 (``There are 
serious problems with CEO compensation, but `excessive' pay is not the 
biggest issue. The relentless focus on how much CEOs are paid diverts 
public attention from the real problem--how CEOs are paid.'').
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    Another factor that has spurred interest in executive 
compensation has been greater availability of comprehensive 
data. It is worth noting that compensation is not composed 
merely of annual salary and performance-based bonuses but also 
encompasses all benefits that flow to individuals based on 
their work, including perquisites, tax gross-ups, corporate 
loans at favorable rates,\16\ severance, and retirement benefit 
accruals. Although extensive data existed on salary amounts 
prior to 2006, there was more limited public information 
regarding perquisites and other personal benefits, including 
club memberships, housing allowances, and other similar 
benefits. This caused one commentator to note that ``there were 
substantial opportunities to obfuscate the true cost of 
compensating executives.'' \17\ A series of disclosure 
requirements, however, culminating in Securities and Exchange 
Commission (SEC) regulations, adopted in 2006, requiring more 
extensive disclosure for perquisites and other personal 
benefits, made the process much more transparent.\18\
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    \16\ These received particular attention in the case of Dennis 
Kozlowski and Mark Swartz, executives at Tyco, Inc., whom the SEC and 
the state of New York accused of looting the company in order to enrich 
themselves. U.S. Securities and Exchange Commission, TYCO Former 
Executives L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick Sued 
for Fraud, Accounting and Auditing Enforcement (Sept. 12, 2002) 
(Release No. 1627) (online at www.sec.gov/litigation/litreleases/
lr17722.htm) (``[Kozlowzki and Swartz] granted themselves hundreds of 
millions of dollars in secret low interest and interest-free loans from 
the company that they used for personal expenses. They then covertly 
caused the company to forgive tens of millions of dollars of those 
outstanding loans, again without disclosure to investors as required by 
the federal securities laws. In addition, they engaged in other 
undisclosed related party transactions that cost shareholders hundreds 
of thousands, if not millions of dollars . . . . Kozlowski and Swartz 
enjoyed numerous and extensive undisclosed perquisites that they 
bestowed upon themselves, all at the expense of Tyco shareholders. For 
example, Kozlowski lived rent-free in a $31 million Fifth Avenue 
apartment that Tyco purchased in his name while Swartz lived rent-free 
in a multi-million dollar apartment Tyco purchased in his name on New 
York City's Upper East Side. Both used Tyco corporate jets for personal 
use at little or no cost. Moreover, Kozlowski directed millions of 
dollars of charitable contributions in his own name using Tyco 
funds.''). After a nearly six-month jury trial in New York state court, 
on September 19, 2005, Kozlowski and Swartz were convicted of 12 counts 
of first degree grand larceny, eight counts of first degree falsifying 
business records, one count of fourth degree conspiracy and one Martin 
Act count of securities fraud. Kozlowski and Swartz were sentenced to 
prison terms of 8 and 1/3 to 25 years, and the court ordered joint 
restitution of $134,351,397 and imposed fines of $35 million and $70 
million on Swartz and Kozlowski, respectively. People v. Kozlowski, 11 
N.Y.3d 223, 230-231, 237 (Oct. 16, 2008). Kozlowski and Swartz have 
appealed their cases to various courts, and in 2009 the U.S. Supreme 
Court declined to hear their case. Kozlowski v. New York, 129 S. Ct. 
2775 (U.S. 2009). On July 14, 2009, Kozlowski and Swartz settled with 
the SEC, and as part of that final judgment they will be permanently 
barred from serving as officers or directors of a public company. U.S. 
Securities and Exchange Commission, Former TYCO Executives L. Dennis 
Kozlowski and Mark H. Swartz Settle SEC Fraud Action, Accounting and 
Auditing Enforcement (July 14, 2009) (Release No. 3010) (online at 
www.sec.gov/litigation/litreleases/2009/lr21129.htm).
    \17\ Ian Dew-Becker, How Much Sunlight Does it Take to Disinfect a 
Boardroom? A Short History of Executive Compensation Regulation, CESifo 
Working Paper No. 2379, at 5 (Aug. 2008) (online at www.ifo.de/portal/
page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/
wp-cesifo-2008-08/cesifo1_wp2379.pdf) (hereinafter ``Dew-Becker's Short 
History of Executive Compensation Regulation''). See also Raghuram G. 
Rajan and Julie Wulf, Are Perks Purely Managerial Excess?, Journal of 
Financial Economics, Vol. 79, at 2 (2006) (online at people.hbs.edu/
jwulf/Rajan_and_Wulf_2006_JFE.pdf) (``In fact, the leading theory of 
perks in the corporate finance literature, following Grossman and Hart 
(1980), Jensen and Meckling (1976), and Jensen (1986), is that they are 
a way for managers to misappropriate some of the surplus the firm 
generates.'').
    \18\ See U.S. Securities and Exchange Commission, Final Rule, 
Amended: Executive Compensation and Related Person Disclosure, at 71-78 
(Sept. 8, 2006) (Release No. 33-8732A; 34-54302A) (online at 
www.sec.gov/rules/final/2006/33-8732a.pdf); Carola Frydman, Learning 
from the Past: Trends in Executive Compensation Over the Twentieth 
Century, CESifo Working Paper No. 2460, at 1 (Nov. 2008) (online at 
www.ifo.de/portal/page/portal/DocBase_Content/WP/WP-
CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-11/
cesifo1_wp2460.pdf) (hereinafter ``Frydman's Trends in Executive 
Compensation''); Dew-Becker's Short History of Executive Compensation 
Regulation, supra note 17, at 5.
---------------------------------------------------------------------------
    Though a good deal of research has centered on why 
executive pay has risen over the past three decades, there is 
still no real consensus. The availability of executive 
mobility, managerial bargaining power and control over boards 
of directors, the low values assigned to stock options along 
with the perception that stock options are a low-cost method to 
pay employees, the effects of the bull market, and government 
regulation and deregulation have all been cited as contributing 
to this phenomenon.\19\ In addition, during the period from the 
mid-1970s to the 1990s, equity-linked compensation not only 
became more widely used but also represented a larger portion 
of top executives' total compensation packages.\20\ In part as 
a result of academics' and practitioners' commonly held belief 
that equity-linked compensation better aligned the interests of 
managers and shareholders, equity-based remuneration became the 
single largest component of executive pay.\21\ This shift did 
have some unintended consequences, as commentators across the 
spectrum agree that changing the structure of pay to include 
stock-based compensation during a thriving stock market 
contributed to the dramatic increase in compensation.\22\ One 
commentator noted that payment in stocks and options also 
allowed for payments that would have been unpalatable to 
shareholders had they been in cash.\23\ For instance, Angelo 
Mozilo, the former chairman and CEO of Countrywide Financial 
Corporation, received over half his $48 million in compensation 
for 2006 through some form of equity.\24\
---------------------------------------------------------------------------
    \19\ Kevin J. Murphy, Explaining Executive Compensation: Managerial 
Power Versus the Perceived Cost of Stock Options, University of Chicago 
Law Review, Vol. 69, at 847, 858-868 (2002) (hereinafter ``Explaining 
Executive Compensation: Managerial Power Versus the Perceived Cost of 
Stock Options''); Lucian Bebchuk and Yaniv Grinstein, The Growth of 
Executive Pay, Oxford Review of Economic Policy, Vol. 21, No. 2, at 
283, 298-302 (2005) (online at www.law.harvard.edu/faculty/bebchuk/
pdfs/Bebchuk-Grinstein.Growth-of-Pay.pdf) (hereinafter ``Growth of 
Executive Pay''); Dew-Becker's Short History of Executive Compensation 
Regulation, supra note 17.
    \20\ Frydman & Jenter on CEO Compensation, supra note 10, at 8 
(``From the mid-1970s to the end of the 1990s, all compensation 
components grew dramatically, and differences in pay across executives 
and firms widened. By far, the largest increase was in the form of 
stock options, which became the single largest component of CEO pay in 
the 1990s.'').
    \21\ During the 1980s there was a belief that executive 
compensation was structured such that CEOs received higher pay for 
creating larger firms, but not necessarily more profitable ones. 
Therefore, the trend was to structure compensation packages to include 
more equity-based compensation with an aim to better align executive 
compensation with shareholder value. Michael C. Jensen, Kevin J. Murphy 
and Eric G. Wruck, Remuneration: Where We've Been, How We Got to Here, 
What are the Problems, and How to Fix Them, European Corporate 
Governance Institute--Finance Working Paper No. 44/2004, at 28 (July 
12, 2004) (online at ssrn.com/abstract=561305) (``by the late 1980s, 
the renewed focus on creating shareholder value endured. It became 
apparent that traditional management incentives focused on company 
size, stability, and accounting profitability destroyed rather than 
created value. By this time, shareholder activists and academics 
(including the first two authors of this report) were increasingly 
demanding that executive pay be tied more closely to company value 
through increases in share options and other forms of equity-based 
incentives. [ . . . ] cash remuneration continued to grow in real terms 
after the mid-1980s, but became a smaller part of the total 
compensation package.''). See also Lucian A. Bebchuk, How to Fix 
Bankers' Pay, at 4 (Fall 2010) (online at papers.ssrn.com/sol3/
papers.cfm?abstract_id=1673250) (hereinafter ``Bebchuk's Fix Banker's 
Pay'') (``Equity-based compensation is the primary component of modern 
pay packages.'').
    \22\ Growth of Executive Pay, supra note 19, at 283, 298-302; 
Frydman's Trends in Executive Compensation, supra note 18, at 1; 
Explaining Executive Compensation: Managerial Power Versus the 
Perceived Cost of Stock Options, supra note 19, at 858.
    \23\ Growth of Executive Pay, supra note 19, at 283, 302.
    \24\ Countrywide Financial Corporation, Schedule 14A: Definitive 
Notice & Proxy Statement, at 35 (Apr. 27, 2007) (online at www.sec.gov/
Archives/edgar/data/25191/000119312507093783/ddef14a.htm). At the 
beginning of 2007, Countrywide Financial's stock price was above $40 
per share. The price per share plummeted to approximately $5 prior to 
Bank of America's acquisition of the firm on January 11, 2008. Market 
data accessed through Bloomberg Data Service (accessed Jan. 18, 2011); 
Bank of America Corporation, Bank of America Agrees to Purchase 
Countrywide Financial Corp. (Jan. 11, 2008) (online at 
mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-
newsArticle&ID=1389986&highlight=).
---------------------------------------------------------------------------
    The recent historical background has informed the debate 
about what an appropriate approach to executive compensation 
should be. This debate has typically revolved around two 
issues: first, the size of compensation, and second, the 
principal-agent problem that can arise in attempting to align 
the interests of managers who operate a company and the 
shareholders who own it.\25\ The unique situation of the TARP, 
where the government invested in and effectively acted as 
guarantor of several large faltering institutions, also created 
a new set of issues in the executive compensation debate beyond 
the traditional shareholder-manager tensions.
---------------------------------------------------------------------------
    \25\ See, e.g., Lucian Bebchuk and Jesse Fried, Pay Without 
Performance: The Unfulfilled Promise of Executive Compensation (2004) 
(hereinafter ``Bebchuk & Fried: Pay Without Performance''); Lynn A. 
Stout, The Mythical Benefits of Shareholder Control, UCLA School of 
Law, Law & Economics Research Paper Series, Research Paper No. 06-19 
(2007) (online at papers.ssrn.com/sol3/papers.cfm?abstract_id=929530) 
(hereinafter ``Stout Paper on Shareholder Control''); Stephen M. 
Bainbridge, Executive Compensation: Who Decides?, Texas Law Review, 
Vol. 83, at 1615 (2005) (online at papers.ssrn.com/sol3/
papers.cfm?abstract_id=653383) (hereinafter ``Bainbridge:Executive 
Compensation'').
---------------------------------------------------------------------------
            b. Corporate Governance Scholarship and Prevailing Theories 

    The academic debate around the evolution of pay practices 
has largely concentrated on whether common executive 
compensation practices sufficiently align the incentives of the 
executives with the interests of shareholders. Can managers 
ever be trusted to set their own pay in the interests of 
shareholders? Is there a form of ``capture,'' whereby 
compensation committees come to serve executives and not the 
shareholders to whom they have a duty? Corporate governance 
scholars analyzing executive compensation generally follow one 
of two schools of thought in their responses to these 
questions:
           The ``Optimal Contracting'' Camp. These 
        scholars maintain that compensation practices result 
        from arm's-length negotiations between executives and 
        board members, and serve the interests of shareholders, 
        obviating direct shareholder participation or any 
        government regulation that would make such 
        participation easier; and
           The ``Managerial Power'' School. These 
        scholars maintain that corporate board members are ill-
        equipped and disinclined to negotiate with managers on 
        behalf of the shareholders because they are appointed 
        by and beholden to management, while shareholders have 
        no meaningful influence on their selection, their pay, 
        or their termination. This means that boards will more 
        often than not go along with compensation arrangements 
        that are disproportionately favorable to executives.
    Corporate governance scholars in both camps generally agree 
that executive compensation should be tied to performance. 
However, they disagree on the specifics of what the most 
appropriate metrics for measuring performance are, and who is 
in the best position to determine these metrics. Those 
subscribing to the managerial power theory believe that more 
direct shareholder involvement and effective shareholder 
control are necessary for effective performance-driven 
practices.\26\ Academics in the optimal contracting camp 
discount the importance of direct shareholder control and argue 
that corporate boards are best placed to negotiate executive 
pay in an efficient manner.\27\ Some academics argue that tying 
executive performance to the performance of the company's debt 
is preferable because such compensation would create greater 
incentives for executives to safeguard the company's long-term 
solvency.\28\ Other commentators argue that companies--and 
especially financial institutions--are best served by 
compensation practices that are in line with societal 
interests.\29\ The circumstances of the TARP have added another 
layer to the discussion, and some academics and commentators 
have focused on the additional question of what are appropriate 
compensation structures for firms that enjoy implicit or 
explicit government guarantees, or government guarantees of 
some portion of their debts.\30\ The Office of the Special 
Master informed the Panel that it has not taken a position on 
whose interests compensation practices should serve because the 
Office's mandate was narrowly defined by EESA as amended and 
the IFR.\31\
---------------------------------------------------------------------------
    \26\ Bebchuk & Fried: Pay Without Performance, supra note 25. 
Bebchuk and Fried elaborated on conflicts of interest inherent in the 
way corporate boards and their compensation committees are appointed 
and argued that increased shareholder control would likely lead to more 
performance-driven compensation practices.
    \27\ Professor Stephen M. Bainbridge, who teaches corporate law and 
finance at UCLA Law School, and Professor Lynn Stout, who teaches 
corporate and securities law also at UCLA Law School, question both the 
existence of the problem (i.e., that CEOs are overpaid) and the 
effectiveness of the proposed remedy (increased shareholder control) 
and argue that board governance, while worsening agency costs, also 
promotes efficient and informed decision making, thereby providing net 
benefits to shareholders. See Stout Paper on Shareholder Control, supra 
note 25; Bainbridge:Executive Compensation, supra note 25, at 1615. 
Professor Bainbridge also argues that increased shareholder control 
would generally disproportionately favor one or two potentially 
opportunistic large shareholders to the detriment of the rest of the 
shareholders and therefore federal regulation of corporate governance 
is inappropriate and likely to misfire. Stephen M. Bainbridge, Is `Say 
on Pay' Justified?, Regulation, Vol. 32, No. 1, at 42-47 (Spring 2009) 
(online at SSRN: ssrn.com/abstract=1452761).
    \28\ Frederick Tung, Pay for Banker Performance: Structuring 
Executive Compensation for Risk Regulation, Boston University School of 
Law Working Paper No. 10-25, at 8 (Aug. 31, 2010) (online at 
www.bu.edu/law/faculty/scholarship/workingpapers/documents/
TungF083110.pdf) (hereinafter ``Tuck: Pay for Banker Performance'') 
(``The flip side of shareholders' preference for risky bets at 
creditors' expense is creditors' preference for more conservative 
strategies. Creditors enjoy only a fixed upside--their interest 
payments and return of principal at a loan's maturity--and they enjoy a 
priority over equity in terms of repayment: Creditors are repaid before 
equity receives any return. In practice, this means that a firm must be 
solvent in order for the firm to make any distribution to equity 
holders and that upon dissolution, creditors are repaid in full before 
equity holders receive any distribution. Creditors would therefore 
rather avoid the higher-risk, potentially higher-return bets that 
shareholders prefer.'').
    \29\ House Committee on Financial Services, Written Testimony of 
Joseph E. Stiglitz, University Professor, Columbia Business School, 
Compensation in the Financial Industry, at 2-3 (Jan. 22, 2010) (online 
at financialservices.house.gov/media/file/hearings/111/stiglitz.pdf) 
(hereinafter ``Stiglitz Written Testimony on Compensation in the 
Financial Industry'') (``[F]inancial markets are a means to an end, not 
an end in themselves. If they allocate capital and manage risk well, 
then the economy prospers, and it is appropriate that they should 
garner for themselves some fraction of the resulting increases in 
productivity. But it is clear that pay was not connected with social 
returns--or even long-run profitability of the sector . . . Market 
economies work to produce growth and efficiency, but only when private 
rewards and social returns are aligned. Unfortunately, in the financial 
sector, both individual and institutional incentives were 
misaligned.'').
    \30\ See Lucian A. Bebchuk and Holger Spamann, Regulating Bankers' 
Pay, Georgetown Law Journal, Vol. 98, at 252-253 (Jan. 2010) (online at 
www.georgetownlawjournal.com/issues/pdf/98-2/Bebchuk%20&%20Spamann.PDF) 
(hereinafter ``Bebchuk & Spamann: Regulating Bankers' Pay'').
    \31\ Treasury conversations with the Panel (Jan. 18, 2011). 
Separately, and as further described below, the Special Master 
established rules that would eliminate ``excessive'' cash payments, 
among other things.
---------------------------------------------------------------------------
    The choice regarding appropriate performance metrics to a 
large extent determines how these scholars analyze executive 
pay structures. The three key issues are the level and 
composition of compensation, whether the compensation provides 
recipients with both the opportunity to benefit from upside 
growth and exposure to downside risk, and the compensation's 
time horizon. Time horizon, generally, addresses when the 
executive can walk away with his or her pay: for example, cash 
provides immediate payment to the executive, while stock-based 
compensation typically takes some period to vest or become 
liquid. Academics generally do not propose caps on compensation 
levels or make concrete recommendations on amounts, although 
several companies, investors, corporate governance 
professionals, and other stakeholders signed onto the Aspen 
Institute's list of principles to foster long-term value 
creation at corporations. One of the suggestions included on 
this list was a proposal to keep executive compensation at 
``fair'' and ``rational'' levels as a general matter.\32\ Most 
scholars in the managerial power camp recommend relatively low 
levels of cash compensation and higher long-term stock 
compensation.\33\ Members of the optimal contracting camp tend 
to agree with the need for long-term performance measures; 
however, they maintain that excessive restrictions imposed from 
outside the company and its board, such as regulation, are 
unnecessary.\34\ Academics and commentators differ in their 
interpretation of what ``long-term'' should mean. As discussed 
below in more detail, the Office of the Special Master told the 
Panel that they determined that a three-year period qualifies 
as ``long-term,'' while some academics argue that a five-year 
vesting period would be more appropriate.\35\ According to one 
official at the Federal Reserve, in some cases even multi-year 
vesting periods for stock compensation or other forms of 
significantly deferred compensation will not address all the 
risks certain important employees may be able to expose their 
companies to, and therefore compensation schemes should be 
tailored to companies and individuals.\36\
---------------------------------------------------------------------------
    \32\ The Aspen Institute, Long-Term Value Creation: Guiding 
Principles for Corporations and Investors, at 4 (June 2007) (online at 
www.aspeninstitute.org/sites/default/files/content/docs/pubs/
Aspen_Principles_with_signers_April_09.pdf) (``Corporations and society 
both benefit when the public has a high degree of trust in the fairness 
and integrity of business. To maintain that trust, the board of 
directors . . . (a) Ensures that the total value of compensation, 
including severance payments, is fair, rational and effective given the 
pay scales within the organization, as well as the firm's size, 
strategic position, and industry. (b) Remains sensitive to the 
practical reality that compensation packages can create reputation risk 
and reduce trust among key constituencies and the investing public.''). 
The list was originally published in June 2007; however, the list of 
subscribers is current as of April 2009.
    \33\ See House Committee on Financial Services, Written Testimony 
of Lucian Bebchuk, William J. Friedman and Alicia Townsend Friedman 
Professor of Law, Economics, and Finance, and director of the program 
on corporate governance, Harvard Law School, Compensation in the 
Financial Industry, at 2-3 (Jan. 22, 2010) (online at 
financialservices.house.gov/media/file/hearings/111/bebchuk.pdf) (``To 
better link equity compensation to performance, it is desirable to 
separate the time that equity-based compensation can be cashed out from 
the time in which it vests. [ . . . ] As soon as an executive has 
completed an additional year at the firm, the equity incentives 
promised as compensation for that year's work should vest, and should 
belong to the executive even if he or she immediately leaves the firm. 
But the cashing out of these vested equity incentives should be 
``blocked'' for a specified period after vesting--say, five years after 
the vesting.''). For more on the importance of long-term performance-
based compensation, see also House Committee on Financial Services, 
Written Testimony of Nell Minow, editor, The Corporate Library, 
Compensation in the Financial Industry, at 5 (Jan. 22, 2010) (online at 
financialservices.house.gov/media/file/hearings/111/minow.pdf) (``Long-
term performance-based compensation should always make up the majority 
of total realizable compensation for the most senior executives at the 
company. We like to see non-performance-based compensation play a 
fairly small role in total compensation. Many of the companies that do 
best for long-term investors pay executives below-median base salaries. 
And they are careful about what their performance goals are. It works 
well to base performance pay on some form of return on capital 
measure--often a better measure of value growth than earnings--and, in 
many cases, these return measures also take into account the cost of 
capital, rendering the metric an even more efficient measure of value 
growth. There is no one best practice for the form of long-term 
incentive practice. Some companies opt solely for stock options, some 
for time and/or performance-restricted stock, and some for other 
performance-related long-term incentives.'').
    \34\ House Committee on Financial Services, Written Testimony of 
Kevin J. Murphy, Kenneth L. Trefftzs Chair in Finance, University of 
Southern California Marshall School of Business, Compensation Structure 
and Systemic Risk, at 7 (June 11, 2009) (online at 
financialservices.house.gov/media/file/hearings/111/kevin_murphy.pdf) 
(hereinafter ``Murphy Written Testimony on Compensation Structure and 
Systemic Risk''). (``Bonus plans in financial services can also be 
improved by ensuring that bonuses are based on value creation rather 
than on the volume of transactions without regard to the quality of 
transactions. Measuring value creation is inherently subjective, and 
such plans will necessarily involve discretionary payments based on 
subjective assessments of performance . . . it is highly unlikely that 
compensation practices can be improved through increased government 
rules and regulations.'')
    \35\ See note 33, supra, for Lucian Bebchuk's testimony detailing 
the benefits of a five-year deferral period for the vesting of stock 
compensation. See also Treasury conversations with the Panel (Jan. 18, 
2011).
    \36\ House Committee on Financial Services, Written Testimony of 
Scott G. Alvarez, General Counsel, Board of Governors of the Federal 
Reserve System, Compensation in the Financial Industry--Government 
Perspectives, at 7 (Feb. 25, 2010) (online at 
financialservices.house.gov/media/file/hearings/111/2-25-
2010_alvarez_statement_- -_incentive_compensation_- -_hfsc.pdf) (``For 
example, incentive compensation arrangements for senior executives at 
large, complex organizations are likely to be better balanced if they 
involve deferral of a substantial portion of the executives' incentive 
compensation over a multiyear period, with payment made in the form of 
stock or other equity-based instruments and with the number of 
instruments ultimately received dependent on the performance of the 
firm during the deferral period. Deferral, however, may not be 
effective in constraining the incentives of employees who may have the 
ability to expose the firm to long-term or ``bad tail'' risks, as these 
risks are unlikely to be realized during a reasonable deferral 
period.'').
---------------------------------------------------------------------------
    The Special Master consulted with academics from each camp 
in making determinations about executive compensation at 
exceptional assistance recipients: Lucian Bebchuk, William J. 
Friedman and Alicia Townsend Friedman Professor of Law, 
Economics, and Finance, and director of the program on 
corporate governance, Harvard Law School, who espouses the 
``managerial power'' theory,\37\ and Kevin Murphy, Kenneth L. 
Trefftzs chair in finance and professor of corporate finance, 
University of Southern California Marshall School of Business, 
who argues that the ``optimal contracting'' theory is 
appropriate.\38\ That said, although the Special Master 
consulted with academics who ascribe to both theories, the 
Office of the Special Master stated that its mandate derived 
from EESA and ARRA, as interpreted by the IFR, and according to 
the Office, any approach to executive compensation had to be 
consistent with those sources. In response to a question about 
the appropriate weight to give the various considerations that 
animate the optimal contracting and managerial power camps, 
such as whether executive compensation should be structured 
with an eye to shareholder value, company solvency, return to 
creditors, or the public interest, the Office of the Special 
Master responded that they acted within statutory and 
regulatory limits, which did not address these particular 
concepts. Rather, according to the Office of the Special 
Master, they were required to maximize overall returns to 
taxpayers and market stability and to minimize market 
disruption, as required by EESA and ARRA, and to make their 
determinations in accordance with the ``public interest 
standard'' established by the principles in Treasury's IFR. 
Accordingly, the considerations that animate regular 
participants in executive compensation debates are not 
necessarily identical to those that the Special Master used, 
although there is overlap--such as evaluating the links between 
compensation and excessive risk--between the two.
---------------------------------------------------------------------------
    \37\ Professor Bebchuk is a noted corporate finance and governance 
expert at Harvard Law School and the author of Pay Without Performance, 
an extensive overview and critique of prevailing executive compensation 
practices. In Pay Without Performance, Mr. Bebchuk and his co-author, 
Jesse Fried, argued that executive pay has become economically 
meaningful as a share of public companies' earnings over the previous 
decade and that this pay growth cannot be adequately explained by 
changes in firm size, performance, or industry mix. See Bebchuk & 
Fried: Pay Without Performance, supra note 25.
    \38\ Professor Murphy is a widely published expert on executive 
compensation. He argues that compensation levels--especially equity-
based compensation--were inefficiently low in the beginning of the 
1990s, and shareholders would have been better served by higher levels 
of equity compensation that would have provided important incentives 
for executives to increase value. Equity-based compensation packages 
typically have a high payoff in the event of success. Thus, he argues 
that shareholders were better served as such pay became increasingly 
more accepted during the economic boom of the 1990s.
---------------------------------------------------------------------------
    Since the onset of the financial crisis, much attention has 
focused on how executive compensation practices contributed to 
corporate risk-taking. Some have argued that compensation 
packages created incentives for executives to focus on short-
term results, even at the cost of taking excessively large 
risks of later catastrophe.\39\ Many commentators have a 
particular interest in the effect of mismatches between 
executive compensation and the time horizon for assessments of 
risk. Chairman of the Board of Governors of the Federal Reserve 
System Ben Bernanke stated that compensation practices ``led to 
misaligned incentives and excessive risk taking, contributing 
to bank losses and financial instability.'' \40\ On the other 
hand, this link between compensation and risk taking has been 
contested by some scholars who note that the value of 
executives' stock holdings fell precipitously during the 
crisis. Given this potential for loss, they argue, there is no 
reason compensation structures would lead to excessive risk 
taking.\41\ Some commentators note, however, that stock options 
in particular do not necessarily create an exposure to losses 
for executives symmetric with that of ordinary shareholders. As 
one of these commentators puts it, ``stock options--where 
executives only participate in the gains, but not the losses--
and even more so, analogous bonus schemes prevalent in 
financial markets, provide strong incentives for excessive risk 
taking.'' \42\ Although there is no academic consensus on the 
relationship between compensation practices and risk, or 
whether compensation practices contributed to the financial 
crisis,\43\ Treasury's view is that compensation practices did 
in fact contribute to the crisis. Treasury Secretary Timothy 
Geithner has stated that executive compensation played a 
``material role'' in causing the crisis because it encouraged 
excessive risk taking.\44\
---------------------------------------------------------------------------
    \39\ See, e.g., Lucian A. Bebchuk, Alma Cohen, and Holger Spamann, 
The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 
2000-2008, John M. Olin Center for Law, Economics, and Business, 
Harvard Law School, Discussion Paper No. 657 (Feb. 2010) (online at 
papers.ssrn.com/sol3/papers.cfm?abstract_id=1513522). The Panel 
discussed the role of misaligned incentives on risk-taking in its 
Special Report on Regulatory Reform. See Special Report: Modernizing 
the American Financial Regulatory System, supra note 7, at 37-40.
    \40\ Board of Governors of the Federal Reserve System, Press 
Release (Oct. 22, 2009) (online at www.federalreserve.gov/newsevents/
press/bcreg/20091022a.htm) (hereinafter ``Federal Reserve Press Release 
on Compensation'').
    \41\ Murphy Written Testimony on Compensation Structure and 
Systemic Risk, supra note 34, at 6.
    \42\ Joseph E. Stiglitz, The Financial Crisis of 2007/2008 and its 
Macroeconomic Consequences, at 1 (online at unpan1.un.org/intradoc/
groups/public/documents/apcity/unpan033508.pdf) (accessed Feb. 8, 
2011). See also Financial Crisis Inquiry Commission, Final Report of 
the National Commission on the Causes of the Financial and Economic 
Crisis in the United States, at 63 (Jan. 2011) (online at www.gpo.gov/
fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf) (``Stock options had potentially 
unlimited upside, while the downside was simply to receive nothing if 
the stock didn't rise to the predetermined price. The same applied to 
plans that tied pay to return on equity: they meant that executives 
could win more than they could lose. These pay structures had the 
unintended consequence of creating incentives to increase both risk and 
leverage, which could lead to larger jumps in a company's stock 
price.''). These distortions can be further magnified for ``too-big-to-
fail'' entities, as further discussed below.
    \43\ House Committee on Financial Services, Testimony of Lucian 
Bebchuk, professor of law, economics, and finance, and director of the 
program on corporate governance, Harvard Law School, Compensation 
Structure and Systemic Risk, at 56 (June 11, 2009) (online at 
financialservices.house.gov/Media/file/hearings/111/Printed%20Hearings/
111-42.pdf).
    \44\ Congressional Oversight Panel, Testimony of Timothy F. 
Geithner, secretary, U.S. Department of the Treasury, Transcript: COP 
Hearing with Treasury Secretary Timothy Geithner (Dec. 16, 2010) 
(publication forthcoming) (online at cop.senate.gov/hearings/library/
hearing-121610-geithner.cfm) (hereinafter ``Geithner Oral Testimony 
before the Panel'').
---------------------------------------------------------------------------
    In the aftermath of the financial crisis and the large-
scale government intervention, academics and others have 
examined the impact of government support for banks--ranging 
from deposit insurance to an implicit ``too big to fail'' 
guarantee--on compensation. As a result of providing a ``too-
big-to-fail'' backstop, the government may have eliminated 
certain disincentives for pay arrangements that encourage 
excessive risk taking. Too-big-to-fail status permits 
shareholders and executives to accept substantial amounts of 
risk, since they can reap the benefits but will not suffer the 
consequences if the gambles are unsuccessful. Accordingly, some 
commentators have speculated that government guarantees could 
spur higher wages for bank employees, as guarantees may have 
the effect of minimizing the costs to bank shareholders and 
bondholders of awarding higher compensation to employees, which 
in turn could skew incentives for executives toward projects 
that are riskier and produce higher expected returns even if 
the associated risks ultimately turn out to be excessive.\45\ 
The idea that government involvement in an entity can further 
distort executive compensation practices has led some lawmakers 
to argue that recipients of TARP funds should not be held to 
ordinary standards.\46\ In response to these concerns, some 
academics have argued that for systemically significant 
financial institutions ``[r]ather than tying executive pay to a 
specified percentage of the value of the common shares of the 
bank holding company, compensation could be tied to a specified 
percentage of the aggregate value of the common shares, the 
preferred shares, and the bonds issued by either the bank 
holding company or the bank.'' \47\ According to these 
commentators, such measures could encourage the executive to 
take into account the effects of their decisions on a broad 
group of stakeholders, including the government as a deposit 
guarantor.\48\ In 2009, the Federal Reserve conducted two 
supervisory initiatives to review compensation practices: one 
for large, complex banking organizations and a separate one for 
smaller institutions.\49\ Under the Dodd-Frank Wall Street 
Reform and Consumer Protection Act of 2010 (signed into law on 
July 21, 2010) (Dodd-Frank), agencies are required to adopt 
regulations on executive compensation. Furthermore, Dodd-Frank 
created a new resolution authority for the FDIC, which is aimed 
at the orderly liquidation of failed systemically important 
companies or in other words was designed to mitigate, if not 
eliminate, ``too big to fail.'' \50\ Since most of the future 
regulations of executive compensation to be enacted pursuant to 
Dodd-Frank have yet to be finalized,\51\ it is it is difficult 
to assess whether such rules will take into account these 
concerns. In addition, Dodd-Frank, which establishes a 
bankruptcy-like system for resolving large financial companies, 
intends to help eliminate or diminish ``too big to fail,'' but 
that resolution authority remains untested.\52\
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    \45\ Christopher Phelan and Douglas Clement, Incentive Compensation 
in the Banking Industry: Insights from Economic Theory, Economic Policy 
Paper 09-1, Federal Reserve Bank of Minneapolis, at 8-9 (Dec. 2009) 
(www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4344) 
(hereinafter ``Incentive Compensation in the Banking Industry'') 
(``[P]romises to pay the employee in the event of default are a way of 
shifting the bank's wage bill onto the government. Government 
guarantees of financial institution debt may perversely encourage 
dangerous levels of risk taking and the offloading of employee 
compensation to the government.''). See also Stiglitz Written Testimony 
on Compensation in the Financial Industry, supra note 29, at 7 (``But 
in some critical ways, incentives are actually worse now than they were 
before the crisis. The way the bank bailout was managed--with money 
flowing to the big banks while the smaller banks were allowed to fail 
(140 failed in 2009 alone)--has led to a more concentrated banking 
system. Incentives have been worsened too by the exacerbation of the 
problem of moral hazard. A new concept--with little basis in economic 
theory or historical experience--was introduced: the largest financial 
institutions were judged to be too big to be resolved.'').
    \46\ See, e.g., Justin Rood, Don't Call it a Bonus: Bailout Banks 
Still Generous to Execs, ABC News (Jan. 13, 2008) (online at 
abcnews.go.com/Blotter/Economy/story?id=6631288&page=1) (hereinafter 
``Don't Call it a Bonus'') (Congressman Elijah Cummings of Maryland 
stating ``When folks come to the government for money, I want them 
understanding they have to live by new rules, or don't come at all. 
This is a time when all of America must come together to sacrifice . . 
. Everybody, all of us, needs to be a part of that sacrifice.''); 
Office of Congressman Sam Johnson, Sam Johnson Livid at AIG Bonus News 
(Mar. 17, 2009) (online at www.samjohnson.house.gov/news/
DocumentSingle.aspx?DocumentID=114841) (hereinafter ``Sam Johnson Livid 
at AIG Bonus'') (``AIG asserts it can not risk a lawsuit if the company 
demands the money back. Johnson vehemently disagrees and believes that 
once the taxpayers own 80% of a company, the company no longer has the 
right to offer multi-million dollar bonuses to employees, especially 
those who sparked such extreme economic turmoil.'').
    \47\ Bebchuk & Spamann: Regulating Bankers' Pay, supra note 30, at 
253.
    \48\ Bebchuk & Spamann: Regulating Bankers' Pay, supra note 30, at 
253. (``[T]o the extent that executives receive bonus compensation 
based on accounting measures, such bonuses could be based not on 
metrics that exclusively reflect the interests of common shareholders, 
such as earnings per share, but rather on broader metrics that also 
reflect the interests of preferred shareholders, bondholders, and the 
government as guarantor of deposits. Such changes in compensation 
structures would induce executives to take into account the effects of 
their decisions on preferred shareholders, bondholders, depositors, and 
taxpayers, and consequently, would curtail incentives to take excessive 
risks.'').
    \49\ Federal Reserve Press Release, supra note 40 (``[S]upervisors 
will review compensation practices at regional, community, and other 
banking organizations not classified as large and complex as part of 
the regular, risk-focused examination process. These reviews will be 
tailored to take account of the size, complexity, and other 
characteristics of the banking organization.''). In response to the 
release, Federal Reserve Governor Daniel Tarullo added, ``In 
customizing the implementation of our compensation principles to the 
specific activities and risks of banking organizations, we advance our 
goal of an effective, efficient regulatory system.'' Id.
    \50\ 12 U.S.C. Sec. 5381 et seq.
    \51\ See Section B.2.c.ii, infra, regarding the SEC's ``say on 
pay'' regulations. On February 4, 2011, the OCC, Federal Reserve, FDIC, 
OTS, National Credit Union Administration, SEC, and the Federal Housing 
Finance Authority proposed rules implementing Section 956 of Dodd-
Frank. The proposed rule would: prohibit incentive-based compensation 
arrangements at covered institutions that encourage various employees, 
executives, and directors (covered persons) to expose the institution 
to excessive risks by providing covered persons with excessive 
compensation; prohibit incentive-based compensation that would 
encourage inappropriate risks that could lead to a material financial 
loss; require deferral of a portion of incentive-based compensation for 
executive officers of larger covered financial institutions (what 
constitutes a ``larger financial institution'' depends on the type of 
institution); require the board of directors of a larger covered 
financial institution to identify covered persons that have the ability 
to expose the institution to substantial possible losses and would 
require the board to approve such compensation and document such 
approval; require covered financial institutions to maintain relevant 
policies and procedures; and provide information regarding incentive 
compensation to their regulator(s). See Office of the Comptroller of 
the Currency, Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation, Office of Thrift Supervision, National 
Credit Union Administration, U.S. Securities and Exchange Commission, 
and the Federal Housing Finance Authority, Proposed Rule re: Incentive-
Based Compensation Arrangements (Feb. 4, 2011) (online at www.fdic.gov/
news/board/2011rule2.pdf). Because the rule will be subject to public 
comment, its final form may differ from the proposal.
    \52\ 12 U.S.C. Sec. 5381 et seq.
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            c. Passage of Legislation and the Interim Final Rule 
    Congress included executive compensation restrictions in 
the TARP's authorizing legislation, the Emergency Economic 
Stabilization Act of 2008 (EESA), signed on October 3, 2008. On 
October 20, 2008, Treasury issued an interim final rule 
implementing these standards for participants in the TARP's 
Capital Purchase Program. On February 4, 2009, President Obama 
announced revised Treasury guidelines that set forth additional 
corporate governance requirements and restrictions.\53\
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    \53\ U.S. Department of the Treasury, Treasury Announces New 
Restrictions on Executive Compensation (Feb. 4, 2009) (available at 
www.treasury.gov/press-center/press-releases/Pages/tg15.aspx) 
(mandating, among other things, that senior executives at exceptional 
financial recovery assistance firms limit senior executives to $500,000 
in annual compensation, aside from restricted stock, which was not 
capped).
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    On February 17, 2009, however, before Treasury had 
implemented these guidelines, Congress passed the American 
Recovery and Reinvestment Act of 2009 (ARRA), which amended 
EESA and added additional, more stringent restrictions on pay 
practices at TARP recipients. These included a prohibition on 
the payment or accrual of any bonus or retention award to 
certain highly compensated employees, a requirement that firms 
establish compensation committees composed entirely of 
independent directors, and an annual, non-binding ``say on 
pay'' shareholder vote on executive compensation packages.\54\
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    \54\ For a more complete discussion of ARRA's requirements, see 
Section B.1.b, supra.
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    In accordance with ARRA's requirement that the Secretary of 
the Treasury issue implementing regulations, on June 10, 2009, 
Treasury released the IFR.\55\ The IFR became effective on June 
15, 2009. It established a distinction between exceptional 
assistance companies and other TARP recipients that had not 
been required by ARRA. In addition, the IFR created the Office 
of the Special Master and mandated a number of specific 
restrictions, such as prohibiting companies from paying tax 
``gross-ups'' to the 25 highest-paid executives.\56\
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    \55\ Office of the Special Master for TARP Executive Compensation, 
Final Report of Special Master Kenneth R. Feinberg, at 2 (Sept. 10, 
2010) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-compensation/Documents/Final Report 
of Kenneth Feinberg-FINAL.PDF) (hereinafter ``Final Report from Special 
Master Kenneth R. Feinberg''); U.S. Department of the Treasury, Interim 
Final Rule on TARP Standards for Compensation and Corporate Governance 
(June 10, 2009) (online at www.treasury.gov/initiatives/financial-
stability/about/Recipient_Guidance/executive-compensation/Documents/
Interim%20Final%20Rule%20on%20Compensation%20and%20Corporate%20Governanc
e.pdf) (hereinafter ``Interim Final Rule on TARP Standards for 
Compensation and Corporate Governance''); U.S. Department of the 
Treasury, Statement by Secretary Tim Geithner on Compensation (June 10, 
2009) (online at www.treasury.gov/press-center/press-releases/Pages/
tg163.aspx).
    \56\ Gross-ups are arrangements in which an institution reimburses 
an individual for a tax he or she owes on compensation received from 
the institution. Under the IFR, tax ``gross-ups'' are defined as ``any 
reimbursement of taxes owed with respect to any compensation, provided 
that a gross-up does not include a payment under a tax equalization 
agreement.'' 31 CFR Sec. 30.1. Final Report from Special Master Kenneth 
R. Feinberg, supra note 55, at 2-3.
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            d. Brief Overview of the Office of the Special Master 
    As discussed in more detail below, in Section B.2.b, the 
IFR charged the Special Master with setting compensation for 
the 25 highest-paid employees, and the compensation structures, 
rather than the actual amounts, for the 26th-100th highest-paid 
employees at the exceptional assistance recipients.\57\ In 
addition, the Special Master was required by the IFR to conduct 
a review of bonuses, retention awards, and other compensation 
paid to each TARP recipient's 25 highest-paid employees before 
February 17, 2009, the date of ARRA's passage, to determine 
whether any of the payments were contrary to the public 
interest or were inconsistent with the purposes of EESA or the 
TARP.\58\
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    \57\ 31 CFR Sec. 30.16. See also Murphy October 2010 Written 
Testimony, supra note 14, at 8-9.
    \58\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 2; 31 CFR Sec. 30.16; 12 U.S.C. Sec. 5221(f)(1).
---------------------------------------------------------------------------
    On June 15, 2009, Secretary Geithner appointed Kenneth 
Feinberg to be the Special Master.\59\ Mr. Feinberg served as 
Special Master until September 10, 2010, when Patricia 
Geoghegan replaced him.\60\
---------------------------------------------------------------------------
    \59\ Interim Final Rule on TARP Standards for Compensation and 
Corporate Governance, supra note 55; Final Report from Special Master 
Kenneth R. Feinberg, supra note 55, at iv.
    \60\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at iv; Congressional Oversight Panel, Written Testimony of 
Kenneth R. Feinberg, former special master for TARP executive 
compensation, COP Hearing on the TARP and Executive Compensation 
Restrictions, at 1 (Oct. 21, 2010) (online at cop.senate.gov/documents/
testimony-102110-feinberg.pdf) (hereinafter ``Feinberg October 2010 
Written Testimony'').
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2. The Statutes and Regulations that Govern Compensation Paid by TARP 
        Recipients 

    There are two relevant legal frameworks that govern 
executive compensation paid by TARP recipients: Section 111 of 
EESA as amended and the IFR, which implemented Section 111. The 
IFR created two sets of restrictions, one governing all TARP 
recipients and another for exceptional assistance 
recipients.\61\
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    \61\ A ``TARP recipient'' is ``any entity that has received or will 
receive financial assistance under the financial assistance provided 
under the TARP.'' 12 U.S.C. Sec. 5221(a)(3). TARP recipients include 
Bank of America, Goldman Sachs, and JPMorgan Chase. A complete list of 
all TARP recipients can be found on Treasury's weekly transactions 
reports. Treasury Transactions Report, supra note 5.
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            a. EESA and ARRA 
    Section 111 of EESA as amended requires Treasury to issue 
regulations applying the following compensation standards to 
all TARP recipients:
           Limitations on compensation that creates 
        incentives for ``senior executive officers'' \62\ and 
        other employees to take unnecessary and excessive 
        risks; \63\
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    \62\ A senior executive officer is defined as ``an individual who 
is 1 of the top 5 most highly paid executives of a public company, 
whose compensation is required to be disclosed pursuant to the 
Securities Exchange Act of 1934, and any regulations issued thereunder, 
and non-public company counterparts.'' 12 U.S.C. Sec. 5221(a)(1).
    \63\ 12 U.S.C. Sec. 5221(b)(3)(A).
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           ``Clawback'' provisions, which permit 
        recovery of bonus amounts paid on account of earnings 
        or other metrics that are later found to be materially 
        inaccurate; \64\
---------------------------------------------------------------------------
    \64\ 12 U.S.C. Sec. 5221(b)(3)(B). In general, a ``clawback'' 
provision in an employment contract is a provision that allows a 
company to recoup performance-based compensation, if such compensation 
is later determined to be excessive in accordance with the terms of the 
employment contract.
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           Prohibitions on golden parachute payments 
        and other forms of individualized deferred 
        compensation; \65\
---------------------------------------------------------------------------
    \65\ 12 U.S.C. Sec. 5221(b)(3)(C).
---------------------------------------------------------------------------
           Limitations on bonuses, incentive 
        compensation, and retention awards (paid under post-
        February 11, 2009 agreements)\66\ to one-third of total 
        compensation, paid only in stock that cannot 
        immediately vest or be sold (``restricted stock''); 
        \67\
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    \66\ February 11, 2009 was the day after the Senate originally 
voted for the passage of ARRA. U.S. Senate, Roll Call Vote on Agreeing 
to H.R. 1 (Feb. 10, 2009) (61 yeas, 0 nays) (online at www.senate.gov/
legislative/LIS/roll_call_lists/
roll_call_vote_cfm.cfm?congress=111&session=1&vote=00061).
    \67\ 12 U.S.C. Sec. 5221(b)(3)(D).
---------------------------------------------------------------------------
           Prohibitions on compensation plans that 
        would encourage manipulation of reported earnings; \68\
---------------------------------------------------------------------------
    \68\ 12 U.S.C. Sec. 5221(b)(3)(E).
---------------------------------------------------------------------------
           Establishment of independent board 
        compensation committees that meet at least semiannually 
        to review employee compensation plans; \69\
---------------------------------------------------------------------------
    \69\ Companies that are not registered with the Securities and 
Exchange Commission and received less than $25 million of TARP 
assistance have less stringent requirements. 12 U.S.C. 
Sec. 5221(b)(3)(F) and 12 U.S.C. Sec. 5221(c).
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           Adoption of compensation committee-approved 
        policies against ``excessive or luxury expenditures;'' 
        \70\ and
---------------------------------------------------------------------------
    \70\ 12 U.S.C. Sec. 5221(d).
---------------------------------------------------------------------------
           Establishment of non-binding ``say-on-pay'' 
        shareholder votes on compensation of executives.\71\
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    \71\ 12 U.S.C. Sec. 5221(e).
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    These standards apply to all institutions that received 
TARP assistance until that assistance is repaid.\72\ The number 
of executives subject to the standards depends on the 
particular restriction and the amount of TARP funds an 
institution received.\73\ To demonstrate compliance, each TARP 
recipient must provide a written certification to Treasury or 
the SEC stating that it has abided by the provisions.\74\
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    \72\ If the government holds only warrants to purchase common stock 
of the entity, that entity is no longer subject to the compensation 
provisions of EESA as amended. 12 U.S.C. Sec. 5221(a)(5).
    \73\ The number of employees covered by these limitations ranges 
from one to 25 or more depending on the amount of TARP assistance 
received. For example, for a financial institution receiving less than 
$25 million in assistance, the prohibition applies to only the most 
highly compensated employee. On the opposite end of the scale, for a 
financial institution receiving more than $500 million, the prohibition 
applies to the senior executive officers and the 20 next most highly 
compensated employees, or such other number as determined by Treasury. 
12 U.S.C. Sec. 5221(b)(3)(D)(ii).
    \74\ 12 U.S.C. Sec. 5221(b)(4).
---------------------------------------------------------------------------
    The statute also required Treasury to conduct a review of 
payments (Look Back Review) to executives of TARP recipients 
made before February 17, 2009, to determine whether the 
payments were inconsistent with the purposes of EESA as 
amended, or otherwise contrary to the public interest. In the 
event that a payment was found to be inconsistent with the 
public interest, Treasury was authorized to negotiate with the 
TARP recipient and the relevant employee for appropriate 
reimbursement.\75\
---------------------------------------------------------------------------
    \75\ 12 U.S.C. Sec. 5221(f)(1).
---------------------------------------------------------------------------
            b. The Interim Final Rule and the Creation of the Office of 
                    the Special Master
    On June 15, 2009, Treasury issued the IFR. Written in the 
form of questions and answers, the IFR was created to both 
supplement and explain the employee compensation statutes of 
EESA as amended.\76\ The IFR also created an additional set of 
rules for exceptional assistance recipients.\77\ Not only did 
exceptional assistance recipients have to comply with the 
compensation restrictions contained in EESA as amended, but 
they were also subjected to the oversight of the Special 
Master.\78\
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    \76\ In addition to providing additional guidance on the 
compensation requirements, the IFR clarified the definition of ``TARP 
recipient.'' Under the revised definition, third parties, such as TARP 
contractors or financial agents that benefited from the TARP but did 
not receive the funds as prescribed under the regulation, are not TARP 
recipients and are therefore not subject to the compensation 
restrictions. Under the regulation, TARP recipients are entities that 
directly received funds from Treasury or certain related entities of 
TARP recipients (including parents and subsidiaries of TARP recipients 
that meet certain thresholds). 31 CFR Sec. 30.1 (defining the term 
``TARP recipient'').
    \77\ As discussed in Section A, supra, exceptional assistance 
recipients include any participants in the Targeted Investment Program, 
the Automotive Industry Financing Program, and the American 
International Group, Inc. Investment Program.
    \78\ In a memorandum provided by the Department of Justice to 
Treasury, the Office of Legal Counsel concluded that the Special Master 
is not a principal officer under the appointments clause and therefore 
does not need to be confirmed by the Senate. Furthermore, the memo 
opined that though the Special Master is given the ability to make 
``final and binding'' determinations, those decisions can still be 
reviewed and reversed by Treasury. Office of the Special Inspector 
General for the Troubled Asset Relief Program, Quarterly Report to 
Congress, at 309-316 (Jan. 26, 2011) (online at www.sigtarp.gov/
reports/congress/2011/January2011_Quarterly_Report_to_Congress.pdf).
---------------------------------------------------------------------------
            i. Provisions Applicable to All TARP Recipients
    In addition to the requirements of EESA as amended, the IFR 
required all TARP recipients to meet the following standards:
           Prohibition on paying tax gross-ups to 
        senior executive officers and the 20 next most highly 
        compensated employees; \79\
---------------------------------------------------------------------------
    \79\ 31 CFR Sec. 30.4-30.7. See footnote 56, supra, for the 
definition of gross-ups.
---------------------------------------------------------------------------
           Disclosure of perquisites that exceed 
        $25,000 for relevant executives; \80\
---------------------------------------------------------------------------
    \80\ Perquisites are benefits with a personal aspect, such as 
company-provided vehicles (aircraft, cars, etc.), travel 
accommodations, or office furniture that is not generally available to 
all employees. Companies are required to provide a narrative 
description of the amount and nature of the perquisite, the 
recipient(s), and the justification for providing the perquisite. 31 
CFR Sec. 30.11(b).
---------------------------------------------------------------------------
           Disclosure of whether the company or its 
        compensation committee engaged a compensation 
        consultant; \81\
---------------------------------------------------------------------------
    \81\ 31 CFR Sec. 30.11(c).
---------------------------------------------------------------------------
           Semiannual discussions, evaluations, and 
        reviews of any risks that could threaten the TARP 
        recipient's value; \82\ and
---------------------------------------------------------------------------
    \82\ 31 CFR Sec. 30.4(a)(4).
---------------------------------------------------------------------------
           Disclosure on compensation plans, including 
        a description of how these plans are structured to 
        avoid creating incentives for ``excessive'' risk 
        taking.\83\
---------------------------------------------------------------------------
    \83\ 31 CFR Sec. 30.4(a)(4).
---------------------------------------------------------------------------
    Each TARP recipient must file an annual written 
certification, indicating that it is in compliance with the 
TARP's executive compensation standards.\84\ In addition, the 
independent board compensation committee of each TARP recipient 
must file an annual report attesting that the recipient is in 
compliance.\85\ Treasury's Office of Internal Review is 
responsible for ensuring that the information in these reports 
is accurate and that the reports are filed in a timely 
manner.\86\ According to Treasury, some of the smaller TARP 
institutions have failed to meet their reporting deadlines or 
to provide complete information in their annual reports. In 
such an event, it is the responsibility of the Office of 
Internal Review to work with these recipients to ensure that 
these reports are eventually filed and that all information is 
accurate.\87\
---------------------------------------------------------------------------
    \84\ The next round of CEO and CFO annual certifications are due to 
Treasury on March 31, 2011. Treasury conversations with Panel staff 
(Oct. 6, 2010).
    \85\ The independent board compensation committee reports for 2010 
are due on April 30, 2011. Treasury conversations with Panel staff 
(Oct. 6, 2010).
    \86\ Treasury conversations with the Panel (Jan. 21, 2011).
    \87\ Treasury conversations with Panel staff (Oct. 6, 2010).
---------------------------------------------------------------------------
            ii. Provisions Applicable to Exceptional Assistance 
                    Recipients
    In addition to the provisions applicable to all TARP 
recipients, exceptional assistance recipients were made subject 
to the jurisdiction of the Special Master, a position created 
by the IFR.\88\ As noted above, exceptional assistance 
recipients were the seven institutions that received money 
under any one of the three enumerated TARP programs.\89\ Those 
recipients were AIG, Bank of America, Citigroup, Chrysler, 
Chrysler Financial, General Motors, and GMAC/Ally Financial. 
Those recipients were required to obtain the approval of the 
Special Master for: (1) any payment of compensation to the five 
senior executive officers and the 20 next most highly paid 
employees; \90\ and (2) the structure of compensation for all 
senior executive officers, as well as the 100 most highly 
compensated employees.\91\
---------------------------------------------------------------------------
    \88\ 31 CFR Sec. 30.16.
    \89\ 31 CFR Sec. 30.16. The exceptional assistance recipients were 
not classified according to the size of their institution or the amount 
of TARP money they received. Instead they were classified based on 
whether they participated in any of the following three programs: the 
American International Group, Inc. Investment Program, the Targeted 
Investment Program, or the Automotive Industry Financing Program. See 
note 4, supra, for the definition of exceptional assistance recipients.
    \90\ 31 CFR Sec. 30.11(a).
    \91\ 31 CFR Sec. 30.11(a). Under the Rule, a ``compensation 
structure'' is generally the combination of the amount and 
characteristics of the various forms of compensation an individual may 
receive and their respective relationship to each other and to the 
total amount of the individual's compensation. The Rule provides 
examples of the characteristics that can make up a compensation 
structure; those include the nature of the compensation (salary or 
short- or long-term incentive compensation), cash or equity 
compensation, and current or deferred compensation. 74 FR 28405 
Sec. 30.1.
---------------------------------------------------------------------------
    The IFR required the Special Master to determine whether a 
payment or compensation structure could ``result in payments 
that are inconsistent with the purposes of Section 111 of EESA 
or the TARP, or are otherwise contrary to the public 
interest.'' \92\ EESA and ARRA do not set forth a specific 
definition of the ``public interest,'' and the text of ARRA 
leaves the determination to the discretion of the Secretary of 
the Treasury. In floor debate prior to the passage of ARRA, 
Senator Christopher Dodd (D-CT) stated that strong and certain 
regulation of executive compensation was a key component of the 
public interest standard.\93\ Similarly, Representative Darrell 
Issa (R-CA), questioning Mr. Feinberg in a subsequent 
congressional hearing, asked whether it would be appropriate to 
hold ``a vote of the stockholders or some kind of affirmation 
by the long-term stockholders of these companies that in fact 
they agree with the pay packages we are setting as in the best 
interest.'' \94\
---------------------------------------------------------------------------
    \92\ 31 CFR Sec. 30.16(a)(3).
    \93\ Statement of Senator Christopher Dodd, Congressional Record, 
S1652 (Feb. 5, 2009) (online at www.gpo.gov/fdsys/pkg/CREC-2009-02-05/
pdf/CREC-2009-02-05-pt1-PgS1617-2.pdf#page=36) (``The problem is, if 
you don't do something about this, we are never going to be able to 
build the confidence and optimism people need to feel about the larger 
part of this program. . . . There will be those who think these are 
excessive, but unfortunately, what we have seen is excessive. If we are 
going to convince the American public that what we are trying to do is 
in their interest, then we have to be certain when it comes to these 
matters.'').
    \94\ House Committee on Oversight and Government Reform, 
Transcript: Executive Compensation: How Much is Too Much?, at 12, 191 
(Oct. 28, 2009) (online at www.gpo.gov/fdsys/pkg/CHRG-111hhrg54553/pdf/
CHRG-111hhrg54553.pdf). In fact, neither Treasury nor the Special 
Master required shareholder approval for compensation packages set by 
the Special Master. A related but distinct concept--``say on pay''--is 
discussed in more detail below. See Section B.2.c.ii., infra.
---------------------------------------------------------------------------
    The IFR stipulated six principles that the Special Master 
must apply to each decision in order to enforce this ``public 
interest'' standard:
           Risk: compensation should avoid incentives 
        that reward employees for taking unnecessary or 
        excessive risks, including those that create short-term 
        or temporary increases in value that may not ultimately 
        result in an increase in the long-term value of the 
        TARP recipient;
           Taxpayer Return: compensation should reflect 
        the need for the TARP recipient to remain a competitive 
        enterprise and ultimately repay TARP obligations;
           Appropriate Allocation: compensation should 
        be appropriately allocated among each element of pay 
        (for example, salary, short- and long-term incentive 
        pay, and current and deferred compensation or 
        retirement pay);
           Performance-based Compensation: an 
        appropriate portion of the compensation should be 
        performance-based, and determined through tailored 
        metrics that encompass individual performance and/or 
        the performance of the TARP recipient or relevant 
        business unit;
           Comparable Payments: compensation should be 
        consistent with, and not excessive in comparison to, 
        pay for those in similar roles at similar entities; and
           Employee Contribution: compensation should 
        reflect the current or prospective contributions of the 
        employee of the TARP recipient.\95\
---------------------------------------------------------------------------
    \95\ 31 CFR Sec. 30.16(b).
---------------------------------------------------------------------------
    The IFR did not specify how to resolve conflicts between 
the principles when they arose. Instead, it granted to the 
Special Master the ``discretion to determine the appropriate 
weight or relevance of a particular principle depending on the 
facts and circumstances surrounding the compensation structure 
or payment under consideration.'' \96\ As discussed in more 
detail below, however, the Special Master employed the six 
principles as the basis of his determination for what 
constituted the public interest.\97\ In testimony before 
Congress, Mr. Feinberg elaborated on additional factors that he 
considered components of serving the ``public interest,'' 
including emphasizing performance-based compensation, imposing 
limits on guaranteed cash and perks, and imposing ``rational 
compensation limits'' on companies that received government 
assistance.\98\
---------------------------------------------------------------------------
    \96\ 31 CFR Sec. 30.16(b).
    \97\ See Section C.1.b, infra.
    \98\ House Committee on Oversight and Government Reform, Testimony 
of Kenneth R. Feinberg, special master for TARP executive compensation, 
Transcript: Executive Compensation: How Much is Too Much?, at 12, 191 
(Oct. 28, 2009) (online at www.gpo.gov/fdsys/pkg/CHRG-111hhrg54553/pdf/
CHRG-111hhrg54553.pdf).
---------------------------------------------------------------------------
    The regulations also created a ``safe harbor'' for 
employees who received less than $500,000 in annual 
compensation. Institutions are not required to receive approval 
of compensation structures from the Special Master for 
employees who fall within this safe harbor.\99\ In addition to 
approving specified compensation payments and structures for 
those entities that received exceptional financial assistance, 
the IFR gave the Special Master several additional 
responsibilities. The Special Master is authorized to interpret 
and issue non-binding advisory opinions on Section 111 of EESA 
as amended, and the IFR.\100\ Furthermore, the IFR authorized 
the Special Master to review compensation paid by TARP 
recipients prior to February 17, 2009, to determine if such 
payments were inconsistent with the purposes of Section 111 of 
EESA as amended, and TARP or contrary to the public 
interest.\101\
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    \99\ The safe harbor provision covers employees who receive less 
than $500,000 in cash salary and stock salary, excluding long-term 
restricted stock. 31 CFR 30.16(a)(3)(ii); Interim Final Rule on TARP 
Standards for Compensation and Corporate Governance, supra note 55.
    \100\ 31 CFR Sec. 30.16(a)(1).
    \101\ 31 CFR Sec. 30.16(a)(2).
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            c. Dodd-Frank and the Future of the Office of the Special 
                    Master
            i. The Future of the Office of the Special Master
    The TARP expired on October 3, 2010, but the executive 
compensation standards under EESA as amended will continue to 
bind TARP recipients for as long as they hold TARP 
funding.\102\ The Special Master remains responsible for 
approving the compensation of the top employees at the 
exceptional assistance recipients. The four remaining 
exceptional assistance recipients are AIG, Chrysler, General 
Motors, and GMAC/Ally Financial.\103\ The Office of the Special 
Master will continue to issue advisory opinions on TARP 
compensation at its discretion or at the request of a TARP 
institution.
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    \102\ 12 U.S.C. Sec. 5221(a)(5). However, entities in which the 
federal government only holds warrants to purchase common stock are not 
subject to the TARP compensation restrictions.
    \103\ Feinberg October 2010 Written Testimony, supra note 60, at 1. 
Bank of America, Citigroup, and Chrysler Financial are no longer deemed 
to be recipients of exceptional assistance. See Final Report from 
Special Master Kenneth R. Feinberg, supra note 55, at 4.
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    The Special Master intends to determine the compensation 
for the top employees at the four remaining exceptional 
assistance companies for 2011. It plans to release these 
determinations in the first quarter of 2011.\104\ Treasury has 
indicated that it has no intention of disbanding the Office of 
the Special Master or changing its responsibilities.\105\
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    \104\ Treasury expects to receive the data from the companies by 
February 1, 2010 and release its determinations by the end of the first 
quarter of 2011. Treasury conversations with the Panel (Jan. 18, 2011).
    \105\ Treasury conversations with Panel staff (Oct. 6, 2010).
---------------------------------------------------------------------------
            ii. Dodd-Frank and Agency Rulemaking
    Signed into law on July 21, 2010, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) 
includes several provisions that will govern executive 
compensation at financial institutions in the future. It 
includes a provision permitting clawbacks in certain 
situations, and it imposes more stringent requirements with 
respect to independent compensation committees.\106\ It also 
requires disclosure of a wide range of information, including 
the relationship between compensation and performance and the 
ratio of the CEO's compensation to median employee pay.\107\ 
Furthermore, Dodd-Frank requires a number of agencies, such as 
the Federal Deposit Insurance Corporation (FDIC) and the Board 
of Governors of the Federal Reserve System (Federal Reserve), 
to work together to prescribe regulations or guidelines on 
incentive compensation applicable to ``covered financial 
institutions.'' \108\ ARRA and IFR restrictions will remain 
applicable to TARP recipients, without respect to whether Dodd-
Frank also applies.
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    \106\ 15 U.S.C. Sec. 78j-4(b)(2). The clawback provision under 
Dodd-Frank is triggered by an accounting restatement that results from 
material noncompliance with any financial reporting requirements under 
relevant securities laws. 15 U.S.C. Sec. 78j-3.
    \107\ 15 U.S.C. Sec. 78n(i); Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. No. 111-203, Sec. 953(b) (2010).
    \108\ These institutions include depository institutions and 
holding companies regulated by the FDIC, SEC registered broker-dealers, 
credit unions regulated by the Board of Governors of the Federal 
Reserve, Fannie Mae, Freddie Mac, and certain other financial 
institutions. 12 U.S.C. Sec. 5641(e)(2). However, the rules are not 
applicable to covered financial institutions with less than $1 billion 
in assets. 12 U.S.C. Sec. 5641(f).
---------------------------------------------------------------------------
    As required under Dodd-Frank, several agencies have already 
begun developing guidance on executive compensation.\109\ On 
June 21, 2010, the Office of the Comptroller of the Currency 
(OCC), Federal Reserve, FDIC, and Office of Thrift Supervision 
(OTS) adopted final guidance on incentive compensation for 
banking organizations.\110\ The guidance released by the OCC, 
Federal Reserve, FDIC, and OTS is centered on three core 
principles, which are aimed at maintaining the safety and 
soundness of the banking organization while discouraging 
``imprudent'' risk taking. According to the guidance, incentive 
compensation should (1) provide incentives that ``appropriately 
balance risk and reward,'' (2) ``be compatible with effective 
controls and risk management,'' and (3) ``be supported by 
strong corporate governance.'' \111\ Unlike the bonus 
restrictions in EESA as amended, and the IFR, which apply only 
to a specified number of ``highly-compensated'' executives, 
this guidance applies to any employees who have the ability to 
expose their organizations to ``material amounts of risk.'' 
\112\
---------------------------------------------------------------------------
    \109\ There have also been efforts to address compensation issues 
at the international level. In April 2009, a working group of the G-20 
released ``Principles for Sound Compensation Practices,'' and in 
September 2009, the Financial Stability Board released implementation 
standards for those principles. Financial Stability Board, FSB 
Principles for Sound Compensation Practices--Implementation Standards 
(Sept. 25, 2009) (online at www.financialstabilityboard.org/
publications/r_090925c.pdf). These principles included effective 
governance of compensation, effective alignment of compensation with 
prudent risk taking, and effective supervisory oversight and engagement 
by stakeholders. Financial Stability Forum, FSF Principles for Sound 
Compensation Practices, at 2-3 (Apr. 2, 2009) (online at 
www.financialstabilityboard.org/publications/r_0904b.pdf). In March 
2010, the Financial Stability Forum released a peer review of the 
implementation of these principles. Financial Stability Forum, Thematic 
Review on Compensation Peer Review Report, at 23-24 (Mar. 30, 2010) 
(online at www.financialstabilityboard.org/publications/r_100330a.pdf). 
Taking into account the principles and implementation standards set 
forth by the Financial Stability Board, on December 27, 2010 the Basel 
Committee on Banking Supervision issued a consultive document 
containing proposed compensation disclosure requirements. This 
consultive document is open for comment until February 25, 2011. Basel 
Committee on Banking Supervision, Consultative Document--Pillar 3 
Disclosure Requirements for Remuneration (Dec. 2010) (online at 
www.bis.org/publ/bcbs191.pdf).
    \110\ Board of Governors of the Federal Reserve System et al., 
Guidance on Sound Incentive Compensation Policies, at 24 (online at 
www.federalreserve.gov/newsevents/press/bcreg/bcreg20100621a1.pdf) 
(accessed Feb. 8, 2011).
    \111\ Id. at 24 (``Provide employees incentives that appropriately 
balance risk and reward; [b]e compatible with effective controls and 
risk-management; and [b]e supported by strong corporate governance, 
including active and effective oversight by the organization's board of 
directors.''). The guidance then goes on to describe methods to 
implement each of the principles. For instance, under the first 
principle (balanced risk taking incentives), the guidance describes 
four methods for achieving this goal, including: (i) the modification 
time horizons of incentive compensation schemes; (ii) the addition or 
modification features of current schemes to better reflect risk; (iii) 
the tailoring of schemes between different levels of employees (i.e., a 
senior executive might have a different risk profile than a trader); 
and (iv) a requirement for the carefully consideration when using 
``golden parachutes'' and accelerated vesting for departing employees. 
In addition, the banking institution needs to communicate effectively 
to employees that the incentive structure is designed to minimize risk, 
and that the amount of compensation they may receive will be dependent 
on risk associated with an activity. Id. At 30-34. The guidance also 
goes into further detail on the factors that should be considered and 
evaluated when modifying and designing internal controls and risk 
management to successfully monitor and implement incentive compensation 
schemes as well as elements to be considered in a strong corporate 
governance structure. Id. at 35-41.
    \112\ Id. at 26-27. The determination is based on specific facts 
and circumstances; however, the guidance is applicable to both 
executive officers and non-executive officers who are able to expose 
the bank to material amounts of risk and could pose a threat to the 
organization's safety and soundness. Id. at 26-27.
---------------------------------------------------------------------------
    The FDIC is also developing enhanced examination procedures 
to use in evaluating incentive compensation at institutions 
under its supervision.\113\ Furthermore, the SEC recently 
adopted regulations that require shareholder approval of 
executive compensation and ``golden parachute'' compensation 
arrangements, and the SEC is in the process of formulating 
regulations that require institutional investment managers to 
disclose how they voted on these compensation 
arrangements.\114\
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    \113\ In the coming months, the FDIC and the other federal banking 
agencies will contribute to a Federal Reserve Board report on trends 
and developments in compensation. House Committee on Financial 
Services, Written Testimony of Marc Steckel, associate director, 
Division of Insurance and Research, Federal Deposit Insurance 
Corporation, Executive Compensation Oversight after the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Sept. 24, 2010) (online at 
financialservices.house.gov/Media/file/hearings/111/09242010/
Steckel%209_24_10.pdf). See also note 51, supra, for a discussion of 
the FDIC-led interagency proposal.
    \114\ U.S. Securities and Exchange Commission, SEC Adopts Rules for 
Say-on-Pay and Golden Parachute Compensation as Required Under Dodd-
Frank Act (Jan. 25, 2011) (proposed rule) (online at www.sec.gov/news/
press/2011/2011-25.htm); U.S. Securities and Exchange Commission, 
Reporting of Proxy Votes on Executive Compensation and Other Matters, 
75 Fed. Reg. 66622 (Oct. 18, 2010) (proposed rule) (online at 
www.sec.gov/rules/proposed/2010/34-63123.pdf).
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           C. Summary of the Special Master's Determinations


1. Overview

            a. Process
    To make each determination, the Special Master first 
formally requested data from each exceptional assistance 
recipient on its historical compensation practices. The 
companies also submitted proposed compensation packages to the 
Special Master for each covered employee. To the extent 
necessary, the Special Master would request additional data or 
hold follow-up conversations with the exceptional assistance 
companies.\115\
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    \115\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 8. Once the Special Master declared the company's 
submission substantially complete, the Special Master was required to 
issue a determination within 60 days. Final Report from Special Master 
Kenneth R. Feinberg, supra note 55, at 8.
---------------------------------------------------------------------------
    Upon receiving the information, the Office of the Special 
Master would perform legal due diligence as well as market and 
historical analysis of the proposed compensation structures. 
During this process, the Office of the Special Master used data 
provided by the companies and data on compensation practices at 
comparable firms. At the height of its oversight of seven 
companies, the Office of the Special Master employed two 
executive compensation specialists with over 15 years of 
experience each, two compensation analysts, three full-time 
attorneys with compensation experience, and one part-time 
attorney in addition to the Special Master. Currently, the 
staff includes the Special Master, one executive compensation 
specialist, one analyst, and two full-time attorneys.\116\ The 
Special Master also formally consulted with officials from 
Treasury, the Federal Reserve, and other agencies, as well as 
two academic experts, Professors Bebchuk and Murphy.\117\ 
Following this review, the Special Master developed proposed 
compensation packages. These proposals were then debated within 
the Office of the Special Master and with the exceptional 
assistance companies. At this point, the Special Master drafted 
final compensation determinations. These determinations were 
presented in letters to the exceptional assistance 
companies.\118\
---------------------------------------------------------------------------
    \116\ Treasury conversations with the Panel (Jan. 18, 2011).
    \117\ In describing the organization and administration of the 
office, Mr. Feinberg lists Professors Bebchuk and Murphy in the 
staffing section. Final Report from Special Master Kenneth R. Feinberg, 
supra note 55, at 6-7.
    \118\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 8-9.
---------------------------------------------------------------------------
    To date, the Special Master has released compensation 
determinations for 2009 and 2010, as well as a number of 
supplemental determinations. The first round of determinations 
was released on October 22, 2009 and established 2009 pay for 
the 25 highest-paid employees at the exceptional assistance 
companies. On December 11, 2009, the Special Master released 
his determinations for the 26th-100th highest-paid employees. 
The determinations for the top 25 employees' 2010 compensation 
were released on March 23, 2010, and the determinations for the 
26th-100th employees' 2010 compensation were released on April 
16, 2010. Supplemental determinations were made at various 
points in response to specific developments at the 
companies.\119\
---------------------------------------------------------------------------
    \119\ See U.S. Department of the Treasury, Special Master for 
Executive Compensation (online at www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executive-compensation/
Pages/spcMaster.aspx) (accessed Feb. 8, 2011) (hereinafter ``Special 
Master for Executive Compensation'').
---------------------------------------------------------------------------
            b. Principles and Recurrent Determinations 
    The IFR required the Special Master to make determinations 
according to the six principles described above in Section 
B.2.b.ii, which the Special Master referred to as the ``Public 
Interest Standard.'' In many determinations, the Special Master 
noted that three of these principles were of particular 
importance: that compensation be performance-based, that 
compensation be competitive enough to maximize taxpayer return, 
and that the compensation be appropriately allocated between 
types of compensation and between the long and short term.\120\ 
In the Special Master's judgment, an allocation was 
``appropriate'' if it heavily favored long-term 
structures.\121\
---------------------------------------------------------------------------
    \120\ See, e.g., Letter from Kenneth R. Feinberg, special master 
for TARP executive compensation, to Robert Benmosche, president and 
chief executive officer, American International Group, Inc., Proposed 
Compensation Payments and Structures for Senior Executive Officers and 
Most Highly Compensated Employees, at 3-4 (Oct. 22, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20091022%20AIG%202009%20Top%2025%20Determination.pdf) (hereinafter 
``October 2009 Feinberg Determination Letter to AIG''); Letter from 
Kenneth R. Feinberg, special master for TARP executive compensation, to 
Gregory E. Lau, executive director--global compensation, General Motors 
Company, Proposed Compensation Structures for Certain Executive 
Officers and Most Highly Compensated Employees (``Covered Employees 26-
100''), at 3 (Dec. 11, 2009) (online at www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executive-compensation/
Documents/2091210%20General%20Motors%20Determination%20Letter.pdf) 
(hereinafter ``December 2009 Feinberg Determination Letter to GM'').
    \121\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 10. See also Letter from Kenneth R. Feinberg, special 
master for TARP executive compensation, to Gregory E. Lau, executive 
director--global compensation, General Motors Company, Proposed 
Compensation Payments and Structures for Senior Executive Officers and 
Most Highly Compensated Employees, at E1 (Oct. 22, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20091022%20GM%202009%20Top%2025%20Determination.pdf) (hereinafter 
``October 2009 Feinberg Determination Letter to GM''). The Office of 
the Special Master stated that three years was appropriately long-term. 
Treasury conversations with the Panel (Jan. 18, 2011). For more 
information, see Sections B.1.b, D.3, and C.1.b.
---------------------------------------------------------------------------
    Though the specific compensation for each employee was 
calculated on an employee-by-employee, company-by-company 
basis, the Special Master applied four standards to implement 
the Public Interest Standard across all determinations:
           Strict Limits on Guaranteed Cash 
        Compensation: The cash portion of an employee's salary 
        generally was not to be excessive, and cash incentives 
        were not to be guaranteed under any circumstances. 
        Additional salary was instead to be composed of vested 
        stock with extended holding requirements.
           Achievement of Objective Performance Goals: 
        Incentive compensation was to be based on measurable 
        and enforceable performance metrics. When the goals 
        were not met, they were to be enforced fully, and no 
        incentive compensation was to be paid.
           Long-term Structures: A significant amount 
        of compensation was to reflect the company's long-term 
        performance and value, often using grants of company 
        stock. A large proportion of compensation was to be 
        held or deferred for a period of at least three years.
           Minimization of Indirect and Ancillary 
        Compensation: Compensation structures not aligned with 
        shareholder and taxpayer interests in the firm were to 
        be minimized or eliminated.\122\
---------------------------------------------------------------------------
    \122\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 10.
---------------------------------------------------------------------------
    The Special Master principally divided compensation between 
cash payments, salary stock (stock given regardless of 
performance and therefore a component of base pay),\123\ and 
incentive payments. The Special Master's four standards led to 
several concrete policies for each type of compensation:
---------------------------------------------------------------------------
    \123\ Salary stock was not prohibited by EESA or the IFR. In fact, 
the IFR specifically permitted ``an arrangement under which an employee 
receives salary or another permissible payment in property, such as 
TARP recipient stock.'' 31 CFR Sec. 30.1. The Special Master's use of 
salary stock permitted him to provide additional compensation to 
executives without providing that compensation in cash. ARRA's 
amendments to EESA prohibited incentive payments--including the payment 
of long-term restricted stock--that exceeded one-third of total 
compensation, but did not restrict the amount of ``base salary.'' 
Accordingly, the use of salary stock allowed the Special Master to 
increase the portion of overall compensation paid in the form of stock 
without running afoul of EESA's prohibitions. See Murphy October 2010 
Written Testimony, supra note 14.
---------------------------------------------------------------------------
           Cash Compensation: In most cases, the 
        Special Master limited cash compensation to $500,000 or 
        less.\124\ For the 26th-100th highest-paid employees, 
        cash compensation was limited, at most, to 45 percent 
        of total compensation.\125\
---------------------------------------------------------------------------
    \124\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 9.
    \125\ See, e.g., Letter from Kenneth R. Feinberg, special master 
for TARP executive compensation, to Michael S. Helfer, general counsel 
& corporate secretary, Citigroup Inc., Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 26-100''), at A5 (Dec. 11, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20091210%20Citigroup%20Determination.pdf) (hereinafter ``December 2009 
Feinberg Determination Letter to Citigroup'').
---------------------------------------------------------------------------
           Salary Stock: The Special Master required 
        that, for the 25 highest-paid employees, salary stock 
        be redeemable only in three equal, annual installments 
        beginning on the second anniversary of the grant.\126\ 
        For the 26th-100th highest-paid employees, salary stock 
        was redeemable after at least one year.\127\
---------------------------------------------------------------------------
    \126\ See, e.g., October 2009 Feinberg Determination Letter to GM, 
supra note 121, at A7.
    \127\ See, e.g., Letter from Kenneth R. Feinberg, special master 
for TARP executive compensation, to Robert Benmosche, president and 
chief executive officer, American International Group, Inc., Proposed 
Compensation Structures for Certain Executive Officers and Most Highly 
Compensated Employees (``Covered Employees 26-100''), at A6-A7 (Dec. 
11, 2009) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-compensation/Documents/
20091210%20AIG%20Determination.pdf) (hereinafter ``December 2009 
Feinberg Determination Letter to AIG'').
---------------------------------------------------------------------------
           Incentive Payments: For the top 25 
        employees, the Special Master generally required 
        incentive payments to be paid to the top 25 employees 
        only if the employees remained with the company for 
        three years following the grant and only in 25 percent 
        installments for each 25 percent of the company's TARP 
        obligations that are repaid.\128\ For the 26th-100th 
        highest-paid employees, generally at least 50 percent 
        of incentive payments had to be in stock redeemable 
        only after a minimum of three years. If any cash 
        incentive payments were awarded to employees 26-100, at 
        least 50 percent of the cash award had to be deferred a 
        year. The Special Master limited total incentive 
        payments to no more than a third of all compensation, 
        as required by EESA, and also required that they be 
        paid only if specific observable performance metrics 
        were met. Generally, the Special Master obliged the 
        company's compensation committee to develop these 
        metrics and judge whether employees met their metrics.
---------------------------------------------------------------------------
    \128\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Nancy A. Rae, executive vice president--
human resources, Chrysler Group, LLC, Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees, 
at A8, A10-A11 (Oct. 22, 2009) (online at www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executive-compensation/
Documents/20091022%20Chrysler%202009%20Top%2025%20Determination.pdf) 
(hereinafter ``October 2009 Feinberg Determination Letter to 
Chrysler''); 12 U.S.C. Sec. 5221(b)(3)(D)(i).
---------------------------------------------------------------------------
           Other forms of compensation: Some of the 
        exceptional assistance companies proposed non-qualified 
        deferred compensation, severance plans (such as golden 
        parachutes), and other forms of compensation. The 
        Special Master generally prohibited non-qualified 
        deferred compensation, severance payments, and 
        ``bonus'' or ``retention'' awards. He limited all other 
        compensation to $25,000 and prohibited tax gross-
        ups.\129\
---------------------------------------------------------------------------
    \129\ October 2009 Feinberg Determination Letter to Chrysler, supra 
note 128, at A8-A10, A12; December 2009 Feinberg Determination Letter 
to Citigroup, supra note 125, at A8-A9, A11.
---------------------------------------------------------------------------
    Accordingly, top 25 employees had the potential to receive 
cash, stock salary (fully redeemable in four years), and 
incentive payments (in stock redeemable after a minimum of 
three years). Employees 26-100 also had the potential to 
receive cash, stock salary (fully redeemable after at least one 
year), and incentive payments (at least 50 percent in stock, 
which was redeemable after three years, and no more than 50 
percent in cash, of which 50 percent was to be deferred at 
least one year).
    The Special Master, when determining the amount to award, 
generally targeted the 50th percentile of compensation for 
comparable employees at comparable companies, stating that this 
level was in line with the Public Interest Standard's 
principles of competitive and comparable pay.\130\ The 
compensation structures of employees who had total compensation 
below $500,000 were automatically approved.\131\ There were no 
set upper limits on total compensation, though EESA as amended 
required that for the top 25 employees, no more than one-third 
of their compensation could be from incentive payments.\132\ In 
addition, for the 26th-100th highest-paid employees, at least 
50 percent of total compensation had to be redeemable no 
earlier than three years from the date of the award.\133\
---------------------------------------------------------------------------
    \130\ See, e.g., October 2009 Feinberg Determination Letter to 
Chrysler, supra note 128, at 2.
    \131\ See, e.g., Final Report from Special Master Kenneth R. 
Feinberg, supra note 55, at 6.
    \132\ 12 U.S.C. Sec. 5221(b)(3)(D).
    \133\ See, e.g., December 2009 Feinberg Determination Letter to GM, 
supra note 120.
---------------------------------------------------------------------------
    In a number of determinations, some employees who were in 
the top 25 had either already left the company or were leaving 
before the end of the year. In most such cases, these employees 
were allowed either their cash salary or both cash and stock 
salary through their termination date and $25,000 in other 
payments, but no other payments of any kind, such as severance 
or incentive payments.\134\ In addition, the Special Master 
compelled some of the exceptional assistance companies to 
ensure that employees were prohibited from engaging in any 
derivative or other hedging transactions with regard to company 
stock, stating that this could blunt the effect of the long-
term performance incentives.\135\
---------------------------------------------------------------------------
    \134\ See, e.g., Letter from Kenneth R. Feinberg, special master 
for TARP executive compensation, to J. Steele Alphin, chief 
administrative officer, Bank of America Corporation, Proposed 
Compensation Payments and Structures for Senior Executive Officers and 
Most Highly Compensated Employees, at A12 (Oct. 22, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20091022%20BofA%202009%20Top%2025%20Determination.pdf) (hereinafter 
``October 2009 Feinberg Determination Letter to Bank of America''). As 
a result, the Special Master did not issue individualized compensation 
determinations for each of the top 25 employees at several of the 
institutions he supervised. For example, at Bank of America and AIG in 
2009, he made such pay determinations for only 13 employees. In total, 
in 2009 he made individual compensation determinations only for 136 
employees, which is 23 percent fewer than if he had covered the full 25 
at each firm. Although the numbers increased in his 2010 
determinations, he still made individual compensation decisions for 
fewer than 25 employees at several institutions. Letter from Patricia 
Geoghegan, special master for TARP executive compensation, to Ted 
Kaufman, chairman, Congressional Oversight Panel, Re: Data Request, at 
5 (Nov. 18, 2010) (online at cop.senate.gov/documents/cop-121410-
report-correspondence.pdf) (hereinafter ``Re: Data Request'').
    The Office of the Special Master states that the most workable 
interpretation of the IFR requires including departed employees in the 
list of and approach to the top 25 employees rather than attempting to 
replace employees who had departed with the next most highly 
compensated employees. Treasury conversations with the Panel (Jan. 27, 
2011). Question 3 of the IFR identifies the top 25 employees by 
reference to the previous year's salary. 31 CFR Sec. 30.03. As a 
result, according to the Office of the Special Master, the list of the 
top 25 employees is fixed as of January 1 for the entire year, even if 
some of those employees then leave during the course of the year. 
Moreover, according to the Office of the Special Master, attempting to 
replace employees who had departed would not have been practical. For 
example, according to the Office of the Special Master, because the 
treatment of the top 25 employees differed from the treatment of the 
top 26-100 employees, moving an employee from the category of 26-100 
into the top 25 would alter their compensation packages and subject 
them to additional restrictions during the course of the year. In the 
view of the Office of the Special Master, this would cause significant 
difficulties for covered employees at the companies. In addition, the 
Office of the Special Master noted that post-severance pay also came 
within the Office of the Special Master's jurisdiction for the top 25, 
and that it was therefore important to keep the list intact as of 
January 1. Treasury conversations with the Panel (Jan. 27, 2011).
    Alternatively, the Special Master could have chosen to set pay 
amounts for more than just the top 25 employees. Question 16 of the IFR 
authorizes the Special Master to set compensation amounts for the five 
senior executive officers and at least the twenty next most highly 
compensated employees. 31 CFR Sec. 30.16. As a result, the Special 
Master could theoretically have set compensation amounts for more than 
just the top 25 most highly compensated employees at the exceptional 
assistance companies. The Office of the Special Master explained to the 
Panel that they never considered setting compensation amounts for more 
than the top 25 employees. Treasury conversations with the Panel (Jan. 
27, 2011).
    \135\ See, e.g., October 2009 Feinberg Determination Letter to AIG, 
supra note 120, at 3, A13.
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2. Determinations 

            a. AIG
            i. 2009
    The Special Master's 2009 determinations for AIG's 25 
highest-paid employees made individual compensation 
determinations for 13 employees,\136\ and reduced total 
compensation by 58 percent compared to 2008.\137\ AIG had 
proposed to increase cash salaries, pay retention awards 
between $1,500,000 and $2,400,000, pay salary stock between 
$250,000 and $4,600,000, and award considerable ``other'' 
compensation in the form, for example, of perquisites, 
retirement income, and severance plans. AIG did not propose any 
incentive payments.\138\ The Special Master automatically 
accepted any compensation package with total direct 
compensation of less than $500,000.\139\ For five covered 
employees who worked at AIG Financial Products, a division that 
was at the center of AIG's collapse in 2008, he awarded no 
additional compensation beyond what they had already been paid 
in 2009. Compared to what the employees would have received in 
2009 absent the Special Master, cash salaries remained 
unchanged for 10 employees and decreased for three 
employees.\140\ In total, the Special Master granted cash 
compensation, salary stock,\141\ and incentive payments worth 
between $100,000 and $10,500,000. In addition, he demanded that 
those AIG employees who had pledged to return previously 
awarded 2009 bonuses actually return them.\142\
---------------------------------------------------------------------------
    \136\ The remaining 12 employees in the ``top 25'' were those 
employees that had already left AIG by the time of the Special Master's 
determination. At most of the exceptional assistance companies, some of 
the top 25 employees had left the company before the Special Master 
made his determination for that year. As noted above, the Special 
Master determined the list of the ``top 25'' for each company as of 
January 1 of the relevant year and did not alter the list to replace 
employees that left the company with the next most highly compensated 
employees. Thus, departed employees were still considered part of the 
``top 25'' by the Special Master. However, they were not individually 
covered. Instead, they were generally treated as a group, with the 
Special Master authorizing the payments made to them through the date 
of termination plus up to $25,000 in perquisites, but no other payments 
of any kind. Thus, despite being called the determinations for the 25 
highest-paid employees, the Special Master made individual compensation 
determinations for the full 25 employees at only one of the 
institutions he supervised in 2009 and at only one institution in 2010. 
Instead, the Special Master made individual compensation determinations 
for only those employees who were with the institution on January 1 and 
remained with the institution on the date he reached his 
determinations. Treasury conversations with the Panel (Jan. 27, 2011); 
October 2009 Feinberg Determination Letter to AIG, supra note 120, at 
A5-A15, E1.
    The Special Master explained this choice to treat departed 
employees as part of the top 25 as being the result of the most 
workable interpretation of the IFR. For a more complete discussion of 
the Special Master's rationale, see footnote 134, supra.
    \137\ Prior to this top 25 employee determination, on October 2, 
2009, the Special Master released a supplemental determination 
approving AIG's proposed compensation for the incoming president and 
chief executive officer, Robert Benmosche. The approved annual 
compensation provided for $3,000,000 in cash, $4,000,000 in salary 
stock in AIG not transferable for five years, and $3,500,000 in 
incentive pay. Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Compensation and Management Resources 
Committee, American International Group, Inc., Proposed Compensation 
Payments and Structure for Robert H. Benmosche, at 4 (Oct. 2, 2009) 
(online at www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
RobertBenmoscheDeterminationLetter.pdf) (hereinafter ``Proposed 
Compensation Payments and Structure for Robert H. Benmosche'').
    \138\ During the submission process, AIG changed CEOs and business 
strategy, which affected the negotiations with the Special Master. 
Treasury conversations with the Panel (Jan. 27, 2011).
    \139\ One employee's compensation package was initially proposed as 
under $500,000 based on the expectation that the employee was going to 
leave AIG before the end of 2009. The employee later decided to stay, 
and AIG requested that the employee's pay be increased beyond the 
$500,000 threshold. The proposed compensation package requested that, 
in addition to the previously approved cash compensation, the Special 
Master approve $3,258,333 in salary stock (valued as of the grant date) 
and $1,000,000 in incentive payments. The Special Master approved the 
request. Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Robert Benmosche, president and chief 
executive officer, American International Group, Inc., Reconsideration 
Request and Supplemental Determination Regarding 2009 Compensation 
Payments and Structures for Senior Executive Officers and Most Highly 
Compensated Employees, at 2-3 (Dec. 21, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20091221%20AIG%20Supplemental%20Determination%20Letter.pdf) 
(hereinafter ``Reconsideration Request and Determination on 2009 
Compensation Payments and Structures for AIG Officers'').
    \140\ October 2009 Feinberg Determination Letter to AIG, supra note 
120, at A5-A15, E1. Unless otherwise noted, these discussions of 
compensation for 2009 absent the special master set forth the 
comparison between what the covered entity was paying the executive 
prior to the Special Master's determination, assuming that the entity 
would have continued to pay those amounts for the rest of the year, and 
what the covered entity paid the executive after the Special Master's 
determination on an annualized basis.
    \141\ Salary stock was given in units reflecting the value of a 
``basket'' of four AIG subsidiaries that AIG, the Federal Reserve Bank 
of New York, and the Treasury determined were critical to the future of 
the company. October 2009 Feinberg Determination Letter to AIG, supra 
note 120, at 2, A9. Subsequently, AIG requested that salary stock 
instead be paid in AIG common stock. The Special Master reviewed the 
proposal and allowed salary stock to include common stock. 
Reconsideration Request and Determination on 2009 Compensation Payments 
and Structures for AIG Officers, supra note 139, at 4.
    \142\ October 2009 Feinberg Determination Letter to AIG, supra note 
120, at A5-A15, E1.
---------------------------------------------------------------------------
    For its 26th-100th highest-paid employees in 2009, AIG 
proposed compensation structures divided between cash, stock, 
and previously existing cash retention agreements. Stock was 
the largest component, divided between salary stock and long-
term restricted stock, and cash represented approximately 40 
percent of total compensation. The Special Master, though 
approving AIG's proposal for stock salary, adjusted all of 
AIG's proposals to accord with his general timing, amount, and 
allocation requirements for compensation structures.\143\ In 
addition, he required that cash awards be reduced by the amount 
of any previously existing cash retention agreement.\144\
---------------------------------------------------------------------------
    \143\ See Section C.1.b, supra; December 2009 Feinberg 
Determination Letter to AIG, supra note 127.
    \144\ December 2009 Feinberg Determination Letter to AIG, supra 
note 127. The Special Master did not provide the ranges of approved 
salaries for the 26th-100th highest-paid employees because he set only 
compensation structures for these employees, not actual amounts.
---------------------------------------------------------------------------
            ii. 2010
    In 2010, AIG proposed that its 25th highest-paid employees 
be paid cash salaries of between $350,000 and $1,500,000; 
salary stock worth between $200,000 and $7,740,000; incentive 
awards worth 10 percent of their total compensation; and 
additional ``other'' compensation. The Special Master made 
individual compensation determinations for 22 employees, 
limited cash salaries to a maximum of $500,000, reduced the 
amount of salary stock payments, increased the proportion of 
total compensation that was given as incentive payments, and 
capped other forms of compensation at $25,000 compared to AIG's 
proposal. In addition, with one exception, the Special Master 
froze cash compensation at 2008 levels for covered employees at 
AIG Financial Products. The Special Master did, however, 
approve additional non-cash compensation for AIG Financial 
Products employees after noting that AIG had informed him that 
all of the 2009 bonuses that had been pledged to be returned 
had actually been repaid. Total compensation for all individual 
employees ranged from $312,500 to $10,500,000.\145\
---------------------------------------------------------------------------
    \145\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Robert Benmosche, president and chief 
executive officer, American International Group, Inc., Proposed 
Compensation Structures for Certain Executive Officers and Most Highly 
Compensated Employees (``Covered Employees 1-25'') (Mar. 23, 2010) 
(online at www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20100323%20AIG%202010%20Top%2025%20Determination%20(3-23-10).pdf) 
(hereinafter ``March 2010 Feinberg Determination Letter to AIG''). 
Subsequent to this determination, AIG identified two employees who had 
mistakenly been omitted from the 2010 determinations. AIG proposed and 
the Special Master approved compensation plans for these employees 
similar to the Special Master's other determinations. In another 
instance, AIG sought to increase compensation for two employees. These 
increases were approved, in one case because of expanded 
responsibilities and in the other because the increases were due to the 
employee earning greater than expected commissions. AIG also sought to 
hire three employees for which the Special Master's approval was needed 
on compensation. For two employees, their compensation structures and 
amounts were consistent with the Special Master's 2010 determination 
and were approved. Letter from Kenneth R. Feinberg, special master for 
TARP executive compensation, to Jeffrey J. Hurd, senior vice 
president--human resources and communications, American International 
Group, Inc., Supplemental Determination Regarding 2010 Compensation 
Payments and Structures for Most Highly Compensated Employees (May 18, 
2010) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-compensation/Documents/
20100518+AIG+Letter.PDF); Letter from Kenneth R. Feinberg, special 
master for TARP executive compensation, to Jeffrey J. Hurd, senior vice 
president--human resources and communications, American International 
Group, Inc., Supplemental Determination Regarding 2010 Compensation 
Payments and Structures for Most Highly Compensated Employees (Aug. 3, 
2010) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_ Guidance/executive-compensation/Documents/
20100803%20AIG%20Supplemental%20Determination.pdf); Letter from Kenneth 
R. Feinberg, special master for TARP executive compensation, to Jeffrey 
J. Hurd, senior vice president--human resources and communications, 
American International Group, Inc., Supplemental Determination 
Regarding Proposed Compensation Structure for Chief Risk Officer (Nov. 
8, 2010) (online at www.treasury.gov/initiatives/ financial-stability/
about/Recipient_Guidance/executive-compensation/Documents/
Signed%20Letter%20to%20AIG%20re%20 
Supplemental%20Determination%20of%20CRO%20Comp.%20(Exhibit%20I%20attache
d).pdf). For the last potential employee, Peter Hancock, AIG proposed 
for 2010 a cash salary of $1,500,000; stock salary of $2,400,000; and 
incentive pay of $3,600,000. The Special Master approved this proposal 
and agreed in principle to a substantial raise in 2011. Letter from 
Kenneth R. Feinberg, special master for TARP executive compensation, to 
Robert Benmosche, president and chief executive officer, American 
International Group, Inc., Supplemental Determination Regarding 
Proposed Compensation Structure for Peter Hancock (Feb. 5, 2010) 
(online at www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-
compensation/Documents/exec_comp20100208AIGLetter.pdf).
---------------------------------------------------------------------------
    The Special Master largely reaffirmed for 2010 the 
compensation structures for the 26th-100th highest-paid 
employees that were authorized in 2009. AIG's proposed 
compensation for these employees largely adhered to these same 
2009 guidelines and was approved with only minor 
modifications.\146\
---------------------------------------------------------------------------
    \146\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Robert Benmosche, president and chief 
executive officer, American International Group, Inc., Proposed 
Compensation Structures for Certain Executive Officers and Most Highly 
Compensated Employees (``Covered Employees 26-100''), at 1 (Apr. 16, 
2010) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-compensation/Documents/
20100416%20AIG%2026-100%20Determination.pdf).
---------------------------------------------------------------------------
            b. Bank of America
    The Special Master's determinations for Bank of America's 
25 highest-paid employees 2009 compensation made individual 
compensation determinations for 13 employees and reduced total 
compensation by 62 percent from 2008 levels. Bank of America 
initially proposed cash compensation of either $700,000 or 
$950,000; stock salary of between $1,966,667 and $19,050,000; 
incentive payments ranging from $1,333,334 to $10,000,000; and 
additional ``other'' compensation in the form, for example, of 
perquisites, retirement income, and severance plans. The 
Special Master, in general, reduced these amounts and adjusted 
the awards to match his standard structure for timing, 
allocation, and amount.\147\ Compared to what the employees 
would have received in 2009 absent the Special Master, cash 
salaries increased for nine employees, remained unchanged for 
two, and decreased for two.\148\ Total compensation approved 
ranged, with one exception, from $3,318,750 to $9,900,000. The 
lone exception to these structures was Bank of America's CEO 
Kenneth Lewis, who was retiring and who all parties agreed 
would take $0 in compensation.\149\
---------------------------------------------------------------------------
    \147\ See Section C.1.b, supra; October 2009 Feinberg Determination 
Letter to Bank of America, supra note 134.
    \148\ October 2009 Feinberg Determination Letter to Bank of 
America, supra note 134, at E1.
    \149\ See October 2009 Feinberg Determination Letter to Bank of 
America, supra note 134.
---------------------------------------------------------------------------
    Bank of America repaid its TARP obligations on December 9, 
2009, removing itself from the Special Master's jurisdiction. 
Though Bank of America agreed to be bound by the top 25 
employee restrictions through the end of 2009, it was not 
subject to any further Special Master determinations, including 
the 2009 determinations for the 26th-100th highest-paid 
employees.\150\
---------------------------------------------------------------------------
    \150\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to J. Steele Alphin, chief administrative 
officer, Bank of America Corporation, Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 26-100'') (Dec. 11, 2009) (online at 
www.treasury.gov/initiatives/financial-
stability/about/Recipient_Guidance/executive-compensation/Documents/
20091210%20Bank%20of%20America%20Determination.pdf) (hereinafter 
``December 2009 Feinberg Determination Letter to Bank of America''). 
For information on Bank of America's compensation practices after 
leaving the Special Master's jurisdiction, see Section D.4, infra.
---------------------------------------------------------------------------
            c. Chrysler
    For its 25 highest-paid employees in 2009, Chrysler 
proposed cash salaries of between $276,672 and $603,000, salary 
stock ranging from $56,000 to $122,000, incentive payments of 
$56,001 to $122,002, and additional ``other'' compensation. The 
Special Master made individual compensation determinations for 
25 employees and automatically approved compensation packages 
that totaled less than $500,000. The Special Master capped cash 
compensation at that level for all other top 25 employees. 
Compared to what the employees would have received in 2009 
absent the Special Master, cash salaries increased for 21 
employees, remained unchanged for one, and decreased for 
three.\151\ The Special Master approved the amounts of salary 
stock and incentive payments proposed,\152\ but adjusted the 
awards to match the standard structure for the timing and 
allocation of the compensation.\153\ Total compensation ranged, 
with one exception, from $334,018 to $2,150,000. The exception 
to these structures was the CEO, who was paid through Fiat, and 
who all parties agreed would take $0 in compensation from 
Chrysler.\154\
---------------------------------------------------------------------------
    \151\ October 2009 Feinberg Determination Letter to Chrysler, supra 
note 128.
    \152\ The amount of incentive payments was later increased in 
response to a request by Chrysler. Letter from Kenneth R. Feinberg, 
special master for TARP executive compensation, to Nancy A. Rae, 
executive vice president--human resources, Chrysler Group, LLC, 
Supplemental Determination Regarding 2009 Compensation Payments and 
Structures for Senior Executive Officers and Most Highly Compensated 
Employees (Mar. 12, 2010) (online at www.treasury.gov/
initiatives/financial-stability/about/Recipient_Guidance/executive-
compensation/Documents/
Chrysler%20Supplemental%20Determination%20(3-12-10).pdf).
    \153\ October 2009 Feinberg Determination Letter to Chrysler, supra 
note 128.
    \154\ October 2009 Feinberg Determination Letter to Chrysler, supra 
note 128, at A5. This was subsequently altered with the Special 
Master's approval to provide $600,000 in company stock redeemable on 
the third anniversary of the stock grant or the date of full repayment 
of Chrysler's TARP obligations, whichever was later. Letter from 
Kenneth R. Feinberg, special master for TARP executive compensation, to 
Nancy A. Rae, executive vice president--human resources, Chrysler 
Group, LLC, Supplemental Determination Regarding 2009 Compensation 
Payments for the Chief Executive Officer (``CEO'') (Dec. 23, 2009) 
(online at www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/20091223%20 
Chrysler%20 Supplemental%20Determination%20Letter.pdf).
---------------------------------------------------------------------------
    In 2010, Chrysler's proposals for the top 25 highest-paid 
employees were largely consistent with the Special Master's 
determinations for 2009. Chrysler proposed cash salaries frozen 
at 2009 levels: stock salary of up to $180,000; incentive 
payments of up to $340,000; and additional ``other'' 
compensation. The Special Master made individual compensation 
determinations for 24 employees. The Special Master reduced 
``other'' compensation to no more than $25,000 but approved all 
other proposed compensation. Total compensation ranged from 
$280,008 to $1,020,000.\155\
---------------------------------------------------------------------------
    \155\ Chrysler's CEO, who received $0 compensation from Chrysler 
because he was being paid by Fiat, is excluded from this range. Letter 
from Kenneth R. Feinberg, special master for TARP executive 
compensation, to Nancy A. Rae, executive vice president--human 
resources, Chrysler Group LLC, Proposed Compensation Structures for 
Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 1-25'') (Mar. 23, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20100323%20Chrysler%202010%20Top%2025%20Determination%20(3-23-10).pdf) 
(hereinafter ``March 2010 Feinberg Determination Letter to Chrysler'').
---------------------------------------------------------------------------
    In both 2009 and 2010, Chrysler proposed compensation 
packages for its 26th-100th highest-paid employees that were 
all below $500,000 in total compensation. As a result, the 
Special Master automatically approved them.\156\
---------------------------------------------------------------------------
    \156\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Nancy A. Rae, executive vice president--
human resources, Chrysler Group LLC, Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 26-100'') (Dec. 11, 2009) (online at 
www.treasury.gov/initiatives/ financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20091210%20Chrysler%20Determination.pdf); Letter from Kenneth R. 
Feinberg, special master for TARP executive compensation, to Nancy A. 
Rae, executive vice president--human resources, Chrysler Group LLC, 
Proposed Compensation Structures for Certain Executive Officers and 
Most Highly Compensated Employees (``Covered Employees 26-100'') (Apr. 
16, 2010) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_ Guidance/executive-compensation/Documents/
20100416%20Chrysler%2026-100%20Letter.pdf).
---------------------------------------------------------------------------
            d. Chrysler Financial
    The Special Master's determinations for Chrysler Financial 
are unique because the company seemed to be winding down its 
operations until it was bought by Toronto Dominion Bank and 
repaid its exceptional assistance.\157\ As a result, the 
Special Master concluded that the traditional business metrics 
used to determine compensation were inappropriate.
---------------------------------------------------------------------------
    \157\ Congressional Oversight Panel, January Oversight Report: An 
Update on TARP Support for the Domestic Automotive Industry, at 15-16 
(Jan. 13, 2011) (online at cop.senate.gov/
documents/cop-011311-report.pdf).
---------------------------------------------------------------------------
    For its top 25 employees' 2009 compensation, Chrysler 
Financial requested cash salaries ranging from $175,872 to 
$1,500,000 and additional ``other'' compensation. It did not 
request any stock salary or incentive payments. The Special 
Master made individual compensation determinations for 22 
employees and approved the cash salaries, noting that long-term 
incentives are not appropriate for a company that is winding 
down. Compared to what the employees would have received in 
2009 absent the Special Master, cash salaries increased for all 
22 covered employees. Consistent with the other determinations, 
though, the Special Master limited ``other'' compensation to 
$25,000.\158\
---------------------------------------------------------------------------
    \158\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Tracy Hackman, vice president, general 
counsel and secretary, Chrysler Financial, Proposed Compensation 
Payments and Structures for Senior Executive Officers and Most Highly 
Compensated Employees (Oct. 22, 2009) (online at www.treasury.gov/
initiatives/financial-stability/ about/Recipient_Guidance/executive-
compensation/Documents/
20091022%20Chrysler%20Financial%202009%20Top%2025%20Determination.pdf) 
(hereinafter ``October 2009 Feinberg Determination Letter to Chrysler 
Financial'').
---------------------------------------------------------------------------
    In 2010, Chrysler Financial's proposals for its 25 highest-
paid employees were largely consistent with the Special 
Master's 2009 determinations. Chrysler Financial proposed 
increasing cash salaries 20 percent over 2009 and some 
additional ``other'' compensation. The Special Master allowed 
an increase in cash salaries of 10 percent and accepted 
Chrysler Financial's justifications for ``other'' compensation. 
The Special Master made individual compensation determinations 
for 25 employees. Total compensation ranged from $237,600 to 
$1,650,000.\159\
---------------------------------------------------------------------------
    \159\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Tracy Hackman, vice president, general 
counsel and secretary, Chrysler Financial, Proposed Compensation 
Structures for Certain Executive Officers and Most Highly Compensated 
Employees (``Covered Employees 1-25'') (Mar. 23, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/
20100323%20Chrysler%20Financial%202010%20Top%2025%20Determination%20(3-
23-10).pdf).
---------------------------------------------------------------------------
    In both 2009 and 2010, Chrysler Financial proposed 
compensation packages for its 26th-100th highest-paid employees 
that were all below $500,000 in total compensation. As a 
result, the Special Master automatically approved them.\160\
---------------------------------------------------------------------------
    \160\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Tracy Hackman, vice president, general 
counsel and secretary, Chrysler Financial, Proposed Compensation 
Structures for Certain Executive Officers and Most Highly Compensated 
Employees (``Covered Employees 26-100'') (Dec. 11, 2009) (online at 
www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executivecompensation/
Documents/
20091210%20Chrysler%20Financial%20Determination%20Letter.pdf); Letter 
from Kenneth R. Feinberg, special master for TARP executive 
compensation, to Tracy Hackman, vice president, general counsel and 
secretary, Chrysler Financial, Proposed Compensation Structures for 
Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 26-100'') (Apr. 16, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/ about/Recipient_
Guidance/executive-compensation/Documents/
20100416%20Chrysler%20Financial%2026-
100%20Letter.pdf).
---------------------------------------------------------------------------
            e. Citigroup
    In 2009, the Special Master's determinations for 
Citigroup's 25 highest-paid employees' compensation made 
individual compensation determinations for 21 employees and 
reduced total compensation by 70 percent from 2008 levels. 
Citigroup had initially proposed cash salaries of up to 
$800,000; stock salary of between $2,311,667 and $5,525,000; 
incentive payments ranging from $1,393,333 to $3,000,000; and 
additional ``other'' compensation. In addition, Citigroup 
proposed that some stock salary be immediately transferable. 
According to the Special Master, Citigroup's proposal 
represented a reduction in total compensation, and in almost 
all cases, the Special Master accepted the proposed amounts. 
The Special Master did, however, reject Citigroup's proposed 
immediate stock salary transferability and adjusted the awards 
to match the timing used in other determinations. Compared to 
what the employees would have received in 2009 absent the 
Special Master, cash salaries increased for 18 employees, 
remained unchanged for three, and decreased for none. Citigroup 
proposed and was authorized to award its CEO $1 in 2009 base 
salary. Other than the CEO, total compensation as approved 
ranged from $712,500 to $9,000,000.\161\
---------------------------------------------------------------------------
    \161\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Michael S. Helfer, general counsel & 
corporate secretary, Citigroup Inc., Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees 
(Oct. 22, 2009) (online at www.treasury.gov/initiatives/financial-
stability/about/Recipient_Guidance/
executive-compensation/Documents/
20091022%20Citigroup%202009%20Top%2025%20Determination.pdf) 
(hereinafter ``October 2009 Feinberg Determination Letter to 
Citigroup'').
---------------------------------------------------------------------------
    For its 26th-100th highest-paid employees in 2009, 
Citigroup proposed compensation with stock as the largest 
component, divided between salary stock and long-term 
restricted stock. Cash represented approximately 10 to 20 
percent of total compensation. The Special Master altered these 
arrangements to match his standard structures for compensation 
and divided payments between cash compensation (limited to, at 
most, 45 percent of total compensation and capped at $500,000), 
salary stock, and incentive payments.\162\
---------------------------------------------------------------------------
    \162\ December 2009 Feinberg Determination Letter to Citigroup, 
supra note 125.
---------------------------------------------------------------------------
    On December 23, 2009, Citigroup repaid its obligations 
under the Targeted Investment Program (TIP), removing itself 
from the Special Master's jurisdiction. Citigroup agreed to 
abide by the Special Master's determinations for the remainder 
of 2009.\163\
---------------------------------------------------------------------------
    \163\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Michael S. Helfer, general counsel & 
corporate secretary, Citigroup Inc., Compensation Structures for 
Executive Officers and Certain Most Highly Compensated Employees (Dec. 
23, 2009) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-
compensation/Documents/
20091223%20Citigroup%20Supplemental%20Determination%20Letter.pdf). 
Unlike Bank of America, which also repaid its exceptional assistance 
funds, the later timing of Citigroup's repayment meant that Citigroup 
was bound by the Special Master's determinations for the 26th-100th 
highest-paid employees as well as the top 25 highest-paid employees. 
For information on Citigroup's compensation practices after leaving the 
Special Master's jurisdiction, see Section D.4, infra.
---------------------------------------------------------------------------
            f. General Motors
            i. 2009
    For GM's 25 highest-paid employees in 2009, total direct 
compensation declined 20.4 percent from 2008 levels. GM 
proposed cash salaries of up to $1,800,000; stock salary of up 
to $2,235,000; incentive payments of up to $1,815,000; \164\ 
and additional ``other'' compensation. The Special Master made 
individual compensation determinations for 20 employees and 
restructured the awards to match his standard timing, amounts, 
and allocation.\165\ In addition, the Special Master limited 
cash compensation to $500,000; approved GM's proposed stock 
salary amounts; and limited ``other'' compensation amounts to 
$25,000.\166\ Compared to what the employees would have 
received in 2009 absent the Special Master, cash salaries 
increased for 15 employees, remained unchanged for one, and 
decreased for four. Total direct compensation ranged from 
$437,200 to $5,445,000.\167\
---------------------------------------------------------------------------
    \164\ GM later requested and was authorized to replace these 
payments with salary stock for some employees in consideration for 
their unique skills. Letter from Kenneth R. Feinberg, special master 
for TARP executive compensation, to Gregory E. Lau, executive 
director--global compensation, General Motors Company, Supplemental 
Determination Regarding 2009 Compensation Structures for Senior 
Executive Officers and Most Highly Compensated Employees (Dec. 23, 
2009) (online at www.treasury.gov/initiatives/financial-stability/
about/
Recipient_Guidance/executive-compensation/Documents/
20091223%20GM%20Supplemental%20Determination%20Letter%20
(Technical%20Corrections).pdf) (hereinafter ``Supplemental 
Determination Regarding 2009 Compensation Structures for GM 
Officers'').
    \165\ October 2009 Feinberg Determination Letter to GM, supra note 
121.
    \166\ The Special Master subsequently approved a GM request to 
allow some employees to receive ``other'' compensation in personal 
security awards and up to $350,000 in expatriate payments. Supplemental 
Determination Regarding 2009 Compensation Structures for GM Officers, 
supra note 164.
    \167\ October 2009 Feinberg Determination Letter to GM, supra note 
121. Subsequently, GM sought to hire a new chief financial officer and 
requested approval of compensation totaling $6,200,000. The Special 
Master approved this proposal. Letter from Kenneth R. Feinberg, special 
master for TARP executive compensation, to Gregory E. Lau, executive 
director--global compensation, General Motors Company, Proposed 
Compensation Payments and Structure for Christopher Liddell (Dec. 23, 
2009) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-compensation/Documents/
20091223%20GM%20Supplemental%20Determination%20Letter.pdf).
---------------------------------------------------------------------------
    For GM's 26th-100th highest-paid employees in 2009, among 
those who were in its automotive business, GM proposed 
compensation based mainly on stock. For employees who managed 
GM's pension fund, the proposed payments were mostly cash 
salary and short- and long-term bonuses. The Special Master 
largely approved GM's proposed structures, modifying them as 
needed to match the standard timing, amount, and allocation 
structures.\168\
---------------------------------------------------------------------------
    \168\ December 2009 Feinberg Determination Letter to GM, supra note 
120.
---------------------------------------------------------------------------
            ii. 2010
    GM's 2010 proposals for its 25 highest-paid employees were 
largely consistent with the structure of the Special Master's 
2009 determinations. GM requested an increase in cash salaries; 
stock salaries of up to $5,300,000; incentive payments of up to 
$2,000,000; and additional ``other'' payments. The Special 
Master made individual compensation determinations for 24 
employees and reduced the proposed cash salaries, but otherwise 
approved GM's proposals. Total approved compensation ranged 
from $550,000 to $9,000,000.\169\
---------------------------------------------------------------------------
    \169\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Gregory E. Lau, executive director--global 
compensation, General Motors Company, Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 1-25'') (Mar. 23, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/ 
20100323%20GM%202010%20Top%2025%20Determination%20(3-23-10).pdf) 
(hereinafter ``March 2010 Feinberg Determination Letter to GM''). 
Subsequently, GM requested and the Special Master approved an increase 
in compensation amounts of approximately 13 percent for two top 25 
employees because of increased responsibilities. The identity of these 
employees was not disclosed, so the Panel cannot determine if the range 
of total compensation was affected. Letter from Kenneth R. Feinberg, 
special master for TARP executive compensation, to Gregory E. Lau, 
executive director--global compensation, General Motors Company, 
Supplemental Determination Regarding 2010 Compensation Payments and 
Structures for Senior Executive Officers and Most Highly Compensated 
Employees (June 23, 2010) (online at www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executive-compensation/
Documents/
Supplemental%202010%20GM%20Determination%20(6-23-10).pdf). In addition, 
GM also later hired a new chief executive officer, whose $9,000,000 
proposed compensation was approved. Letter from Kenneth R. Feinberg, 
special master for TARP executive compensation, to Gregory E. Lau, 
executive director--global compensation, General Motors Company, 
Proposed Compensation Payments and Structure for Daniel F. Akerson 
(Sept. 10, 2010) (online at www.treasury.gov/initiatives/financial-
stability/about/Recipient_Guidance/executive-compensation/Documents/
Supplemental%202010%20 GM%20New%20CEO%20Determination%20(09-10-
10).pdf). In a recent speech, GM's chief executive officer stated that 
he would like the Special Master to relax the pay restrictions in order 
to retain top employees. Daniel Akerson, chief executive officer, 
General Motors, Future of General Motors (Dec. 10, 2010) (online at 
www.c-spanarchives.org/program/GeneralMot). It should also be noted 
that due to its initial public offering, GM must abide by the same 
regulatory reporting standards set by the SEC as all other publicly 
traded companies.
---------------------------------------------------------------------------
    The Special Master largely reaffirmed for 2010 the 
compensation structures for the 26th-100th highest-paid 
employees that were authorized in 2009. GM's proposed 
compensation for these employees largely adhered to these same 
2009 guidelines and was approved with only minor 
modifications.\170\
---------------------------------------------------------------------------
    \170\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Gregory E. Lau, executive director--global 
compensation, General Motors Company, Proposed Compensation Structures 
for Certain Executive Officers and Most Highly Compensated Employees 
(``Covered Employees 26-100''), at 1 (Apr. 16, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/20100416%20GM%2026-
100%20Determination.pdf). GM did subsequently request that, based on 
GM's first quarter earnings report, the Special Master reconsider the 
timing of incentive payments. The Special Master denied the request. 
Letter from Kenneth R. Feinberg, special master for TARP executive 
compensation, to Mary T. Barra, vice president--human resources, 
General Motors Company, Reconsideration Request Regarding Proposed 
Compensation Structures for Certain Executive Officers and Most Highly 
Compensated Employees (``Covered Employees 26-100'') (June 10, 2010) 
(online at www.treasury.gov/ initiatives/financial-stability/about/
Recipient_Guidance/executive-compensation/Documents/Response%20to%20GM
%20Reconsideration%20Request%20(6-10-10).pdf). As noted above, the 
Special Master did not provide the ranges of approved salaries for the 
26th-100th highest-paid employees because he set only compensation 
structures for these employees, not actual amounts.
---------------------------------------------------------------------------
            g. GMAC/Ally Financial 
            i. 2009 
    For its 25 highest-paid employees in 2009, GMAC/Ally 
Financial proposed cash salaries ranging from $380,000 to 
$1,000,000; stock salary of between $400,000 and $5,330,000; 
incentive payments ranging from $400,000 to $3,170,000; and 
additional ``other'' compensation. The Special Master made 
individual compensation determinations for 22 employees, 
reduced the amounts of the awards, and restructured them to 
match his standard allocation, amounts, and timing. Compared to 
what the employees would have received in 2009 absent the 
Special Master, cash salaries increased for 16 employees, 
remained unchanged for three, and decreased for three. Total 
direct compensation was reduced by 86 percent from 2008 levels, 
to between $1,200,000 and $8,450,000.\171\
---------------------------------------------------------------------------
    \171\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Al de Molina, chief executive officer, GMAC 
Financial Services, Proposed Compensation Structures for Certain 
Executive Officers and Most Highly Compensated Employees (Oct. 22, 
2009) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-
compensation/Documents/
20091022%20GMAC%202009%20Top%2025%20Determination.pdf). Subsequently, 
GMAC/Ally Financial hired a new chief executive officer and proposed 
that he receive total compensation of $9,500,000. The Special Master 
approved the award. Letter from Kenneth R. Feinberg, special master for 
TARP executive compensation, to Drema M. Kalajian, GMAC Financial 
Services, Supplemental Determination Regarding 2009 Compensation 
Payments for the Chief Executive Officer (the ``CEO'') (Dec. 23, 2009) 
(online at www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executive-compensation/
Documents/
20091223%20GMAC%20Supplemental%20Determination%20Letter.pdf).
---------------------------------------------------------------------------
    GMAC/Ally Financial's 2009 proposal for its 26th-100th 
highest-paid employees included cash salaries comprising 
between 20 and 50 percent of total compensation. Additional 
short-term bonuses would be awarded at the discretion of GMAC/
Ally Financial's Compensation Committee based on individual 
unit performance. The Special Master determined that this 
proposal was inconsistent with the Public Interest Standard and 
required GMAC/Ally Financial to conform to the standard 
compensation structure.\172\
---------------------------------------------------------------------------
    \172\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Drema M. Kalajian, GMAC Financial Services, 
Proposed Compensation Structures for Certain Executive Officers and 
Most Highly Compensated Employees (``Covered Employees 26-100'') (Dec. 
11, 2009) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/
executive-compensation/Documents/20091211%20GMAC%202009%2026%20-
%20100%20Determination.pdf).
---------------------------------------------------------------------------
            ii. 2010 
    The proposals for GMAC/Ally Financial's 25 highest-paid 
employees in 2010 were largely consistent with the structure of 
the Special Master's 2009 determinations. GMAC/Ally Financial 
requested cash salaries of between $400,000 and $500,000, 
freezing returning top 25 employees' cash salaries at 2009 
levels. GMAC/Ally Financial also proposed stock salaries 
ranging from $900,000 to $4,937,500, incentive payments of up 
to one-third of total compensation, and additional ``other'' 
payments. The Special Master made individual compensation 
determinations for 24 employees and approved GMAC/Ally 
Financial's cash salaries, but reduced stock salaries and 
incentive payments. Total compensation ranged from $1,252,278 
to $8,000,000.\173\ GMAC/Ally Financial had also proposed that 
stock salary be redeemable in five equal annual installments 
beginning on the first anniversary of the grant, rather than 
the Special Master's standard four-year redemption period for 
stock salary of the top 25 employees. The Special Master 
approved the change.\174\
---------------------------------------------------------------------------
    \173\ Notably, GMAC/Ally Financial's CEO, Michael Carpenter, 
received no cash compensation. He received $8 million in stock salary 
alone. Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Drema M. Kalajian, GMAC Financial Services, 
Proposed Compensation Payments and Structures for Senior Executive 
Officers and Most Highly Compensated Employees (``Covered Employees 1-
25'') (Mar. 23, 2010) (online at www.treasury.gov/
initiatives/financial-stability/about/Recipient_Guidance/executive-
compensation/Documents/
20100323%20GMAC%202010%20Top%2025%20Determination%20(3-23-10).pdf).
    \174\ Id. GMAC/Ally Financial subsequently requested the Special 
Master's approval to enter into agreements with even longer redemption 
periods. The Special Master agreed after requiring certain minimum 
provisions. Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to James J. Duffy, Ally Financial Inc., 
Supplemental Determination Regarding 2010 Compensation Payments and 
Structures (Aug. 3, 2010) (online at www.treasury.gov/initiatives/
financial-stability/about/Recipient_Guidance/executive-compensation/
Documents/20100803%20Ally%20Supplemental%20Determination.pdf).
---------------------------------------------------------------------------
    The Special Master largely reaffirmed for 2010 the 
compensation structures for the 26th-100th highest-paid 
employees that were authorized in 2009. GMAC/Ally Financial's 
proposed compensation for these employees largely adhered to 
these same 2009 guidelines and was approved with only minor 
modifications.\175\
---------------------------------------------------------------------------
    \175\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to Drema M. Kalajian, GMAC Financial Services, 
Proposed Compensation Structures for Certain Executive Officers and 
Most Highly Compensated Employees (``Covered Employees 26-100''), at 1 
(Apr. 16, 2010) (online at www.treasury.gov/initiatives/financial-
stability/about/
Recipient_Guidance/executive-compensation/Documents/
20100416%20GMAC%2026-100%20Determination.pdf).
---------------------------------------------------------------------------

3. Advisory Opinions 

    In addition to setting compensation for exceptional 
assistance companies, the Special Master is responsible for 
interpreting the executive compensation provisions of ARRA and 
the IFR and determining how they apply to particular facts and 
circumstances. This includes the authority to initiate and 
issue an advisory opinion to any TARP recipient about its 
compliance with the compensation rules. If the Special Master 
issues an adverse advisory opinion, the Special Master had the 
authority to seek to negotiate with the TARP recipient for 
appropriate reimbursements.\176\
---------------------------------------------------------------------------
    \176\ 31 CFR Sec. 30.16(a).
---------------------------------------------------------------------------
    To date, the Special Master has issued only one advisory 
opinion. On March 3, 2010, AIG wrote the Special Master 
requesting an opinion on the implications of AIG's sale of 
American Life Insurance Company (ALICO) to MetLife, Inc. AIG 
asserted that, upon its sale, ALICO would no longer be 
considered a TARP recipient, since it would no longer be 
majority-owned by a TARP recipient. In addition, AIG asserted 
that MetLife would not be a TARP recipient as a result of the 
transaction. The Special Master concurred with this 
assessment.\177\
---------------------------------------------------------------------------
    \177\ Letter from Kenneth R. Feinberg, special master for TARP 
executive compensation, to P. Nicholas Kourides, deputy general 
counsel, American International Group, Inc., and Ralph R. Gonzalez, 
senior vice president and general counsel, American Life Insurance 
Company, MetLife's Purchase of American Life Insurance Company (Mar. 5, 
2010) (online at www.treasury.gov/initiatives/financial-stability/
about/Recipient_Guidance/executive-
compensation/Documents/
20100305%20Letter%20re%20ALICO%20transaction.pdf).
---------------------------------------------------------------------------

4. Look Back Review 

    Section 111(f) of EESA as amended by ARRA required the 
Secretary of the Treasury to ``review bonuses, retention 
awards, and other compensation'' paid to the 25 highest-paid 
employees of any TARP recipient from the day the company first 
received TARP funding to the date of ARRA's enactment, February 
17, 2009. The Secretary was to determine whether any such 
compensation was not in the public interest, and if so, to seek 
to negotiate with the TARP recipient for its reimbursement to 
the federal government. The Secretary, however, was not 
authorized to require that the payments be returned.\178\ In 
the IFR, the Secretary delegated this ``Look Back Review'' 
authority to the Special Master. The Special Master was 
required to follow the Public Interest Standard in making his 
determinations, but was given the discretion to determine the 
scope of the review, including factors such as the payment 
amount, the type of payment, the total compensation, or other 
factors.\179\
---------------------------------------------------------------------------
    \178\ 12 U.S.C. Sec. 5221(f).
    \179\ 31 CFR Sec. 30.16.
---------------------------------------------------------------------------
    On March 23, 2010, the Special Master issued requests for 
information from all 419 TARP recipients covered by the Look 
Back Review. For each covered employee the Special Master 
sought the name, title, historical annual compensation 
information from 2007, 2008, and 2009, any applicable 
employment termination date, and an accounting of all 
compensation paid to the employee during the relevant 
period.\180\ The Special Master, judging that any package of 
less than $500,000 in total annual compensation would not be 
against the public interest, exempted all employees with 
compensation below that threshold from the data request. Of the 
419 reviewed companies, 240 did not have any employees with 
compensation in excess of $500,000.\181\
---------------------------------------------------------------------------
    \180\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 12-13.
    \181\ U.S. Department of the Treasury, The Special Master for TARP 
Executive Compensation Concludes the Review of Prior Payments, at 1 
(July 23, 2010) (online at www.treasury.gov/press-center/press-
releases/Pages/tg786.aspx) (hereinafter ``Special Master Concludes 
Review of Prior Payments'').
---------------------------------------------------------------------------
    Once the remaining 179 companies had completed their data 
submissions, the Special Master examined the information on an 
employee-by-employee and company-by-company basis.\182\ The 
Special Master focused his review on employees who had received 
the type of payments that were later restricted by ARRA and the 
IFR, such as cash bonuses, retention awards, stock grants, 
golden parachutes, and tax gross-ups.\183\ He referred to these 
types of payments as ``disfavored.''
---------------------------------------------------------------------------
    \182\ The Special Master's review examined a number of factors, 
including payment structure and allocation, aggregate amounts relative 
to peer firms and TARP funds received, payment timing, whether the 
company had repaid the TARP funds, and descriptions of incentive 
payments. Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 12.
    \183\ Special Master Concludes Review of Prior Payments, supra note 
181, at 2.
---------------------------------------------------------------------------
    In total, the 179 companies reviewed paid $2.3 billion in 
compensation payments during the relevant period. Of that, $1.7 
billion fell into the disfavored categories,\184\ but the 
Special Master did not determine that the payments were 
inconsistent with the public interest.\185\ He explained this 
decision by noting that they were legal at the time and that 
most of the disfavored payments were made by firms that have 
since repaid their TARP funds.\186\
---------------------------------------------------------------------------
    \184\ One hundred and twenty-six companies made at least some 
payments in these categories. However, $1.6 billion of the $1.7 billion 
was paid by just 17 institutions. Those 17 institutions were American 
Express Company, American International Group, Inc., Bank of America 
Corporation, Boston Private Financial Holdings, Inc., Capital One 
Financial Corporation, CIT Group Inc., Citigroup Inc., JPMorgan Chase & 
Co., M&T Bank Corporation, Morgan Stanley, Regions Financial 
Corporation, SunTrust Banks, Inc., The Bank of New York Mellon 
Corporation, The Goldman Sachs Group, Inc., The PNC Financial Services 
Group, Inc., U.S. Bancorp, and Wells Fargo & Company. Final Report from 
Special Master Kenneth R. Feinberg, supra note 55, at 13, 21 n.106.
    \185\ As further discussed below, at a hearing before the Panel Mr. 
Feinberg nonetheless described the payments as ``inappropriate,'' and 
in his final report did not conclude that the payments were appropriate 
or advisable. Final Report from Special Master Kenneth R. Feinberg, 
supra note 55, at 13; Congressional Oversight Panel, Testimony of 
Kenneth R. Feinberg, former special master for TARP executive 
compensation, Transcript: COP Hearing on the TARP and Executive 
Compensation Restrictions (Oct. 21, 2010) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-102110-
compensation.cfm) (hereinafter ``Feinberg Oral Testimony before the 
Panel'').
    \186\ Special Master Concludes Review of Prior Payments, supra note 
181, at 2-3. For further discussion of the look-back review, see 
Section D.2, infra.
---------------------------------------------------------------------------
    As a result of this finding, the Special Master did not 
negotiate with the companies for possible reimbursement of the 
offending payments. However, the Special Master proposed a 
``brake'' policy that any company could voluntarily adopt. 
Under the proposed policy, the compensation committee at the 
company would be given the authority to restructure, reduce, or 
cancel pending payments to executives if the board of directors 
identified extraordinarily adverse circumstances that posed a 
threat to the company's financial viability.\187\ To date, of 
the 17 firms responsible for the majority of the disfavored 
payments in the look-back review, only Goldman Sachs has 
publicly announced that it has adopted such a ``brake'' 
policy.\188\
---------------------------------------------------------------------------
    \187\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 13-14.
    \188\ The Goldman Sachs Group, Inc., Form 8-K for the Period Ended 
December 17, 2010: Exhibit 10.4, at 3-4 (Dec. 23, 2010) (online at 
www.sec.gov/Archives/edgar/data/886982/000095012310116277/
y88643exv10w4.htm).
---------------------------------------------------------------------------

5. Final Report 

    Before stepping down, Mr. Feinberg issued a final report in 
which he summarized his actions as Special Master and provided 
his recommendations as to how the operations of the Office of 
the Special Master should proceed going forward. In particular, 
he observed that ``a more permanent Treasury official should be 
appointed to lead the Office [of the Special Master].'' With 
respect to how this more permanent official should lead the 
Office, he made two recommendations: (1) the person should 
retain the core set of standards that have been applied so far 
such as limited cash salaries, a performance component for most 
compensation, a focus on long-term value creation, and a halt 
to excessive perquisites and other giveaways; and (2) the 
person should continue the constructive dialogue with the 
leadership, advisors, and directors of the affected firms.\189\
---------------------------------------------------------------------------
    \189\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 15.
---------------------------------------------------------------------------

      D. Evaluation of Treasury's Implementation of the Executive 
                       Compensation Restrictions 


1. The Interim Final Rule and the Special Master's Implementation of 
        the Rule 

            a. Terms of the Interim Final Rule 
    As described above, the IFR laid out six principles for the 
Special Master to use in reaching compensation determinations: 
(1) minimize excessive risk; (2) maximize the capacity to repay 
TARP obligations; (3) appropriately allocate compensation; (4) 
use performance-based compensation; (5) make payments that are 
consistent with compensation for similar employees at similar 
entities; and (6) base compensation on an employee's 
contributions.\190\
---------------------------------------------------------------------------
    \190\ See Section B.2.b.ii, supra.
---------------------------------------------------------------------------
    Although these principles touch upon many of the issues 
covered under EESA as amended, such as the relationship between 
performance-based compensation and excessive risk, the IFR 
includes few specifics on how the rule should be implemented. 
As one commentator notes, this leaves a significant amount of 
discretion in the hands of the Special Master.\191\ On the one 
hand, this discretion allowed the Special Master to tailor his 
determinations to the particular factual situations at specific 
institutions.\192\ According to Mr. Feinberg, it also provided 
him with room to develop his own principles for implementing 
ARRA and the IFR.\193\
---------------------------------------------------------------------------
    \191\ The language in the IFR rule is vague. For example, the IFR 
uses the term ``appropriate'' 23 times, a term that invites subjective 
interpretation. See generally 31 CFR Sec. 30. See also Murphy October 
2010 Written Testimony, supra note 14, at 13 (``In my opinion, the 
`public interest standard' is not an objective function, but a[n] ill-
defined concept that allows too much discretion and destroys 
accountability for those exercising the discretion.'').
    \192\ As discussed in more detail in Section D.3, infra, the 
Special Master did not disclose information sufficient to evaluate the 
extent to which he tailored his decisions.
    \193\ Feinberg October 2010 Written Testimony, supra note 60, at 3 
(``Under the regulations, I had discretion to determine the appropriate 
weight or relevance of a particular principle depending on the facts 
and circumstances surrounding the compensation structure or payment for 
a particular executive, which I often exercised when two or more 
principles were in conflict in a particular situation.'').
---------------------------------------------------------------------------
    On the other hand, giving the Special Master such 
discretion obscured the decision-making process in individual 
determinations. As one commentator implied in testimony to the 
Panel, the breadth of the principles makes it difficult for the 
public to assess whether the Special Master has acted in 
accordance with the mandate.\194\ In effect, Treasury's 
compensation principles are so amorphous that they could 
support a very wide range of disparate decisions.\195\ In one 
case, the Special Master could have been acting to minimize 
excessive risk taking. In another, the Special Master might 
have aimed to provide a competitive salary. The IFR does not 
shine a light on how these principles should be weighed against 
each other.
---------------------------------------------------------------------------
    \194\ See Murphy October 2010 Written Testimony, supra note 14, at 
15 (``While the IFR require compensation committees to `identify and 
limit the features' in pay plans that could lead executives to take 
excessive risks, the law stops short of defining `excessive risk' or 
providing guidance on how one might distinguish excessive risk from the 
normal risks inherent in all successful business ventures.'').
    \195\ The Panel raised a parallel concern in its January 2010 
report on Treasury's exit strategy. In that report, the Panel noted its 
concerns that the three principles Treasury adopted to guide its exit 
strategy were overly broad such that ``there is effectively no metric 
to determine whether Treasury's actions met its stated goals.'' 
Congressional Oversight Panel, January Oversight Report: Exiting TARP 
and Unwinding Its Impact on the Financial Markets, at 5 (Jan. 13, 2010) 
(online at cop.senate.gov/documents/cop-011410-report.pdf).
---------------------------------------------------------------------------
    Second, making the six principles operational is 
complicated, as there may be tensions between them in 
individual cases. For example, the Special Master was charged 
with the competing objectives of reining in excessive risk-
taking to protect the public good, while simultaneously 
permitting compensation sufficient to attract and retain 
executives who could maximize the public's investment in the 
exceptional assistance institutions.\196\ Zealously restricting 
compensation in the name of prudent risk management could have 
the unintended impact of inhibiting the firm's growth potential 
and decreasing long-term shareholder value. At the same time, 
if the determinations were not restrictive enough, they could 
permit compensation that would contribute to excessive risk 
taking, which is precisely the problem the rules were designed 
to prevent. Likewise, for employees who perform outside the 
average, it requires particular care to ensure that payments 
are both performance-based and comparable to others at 
comparable firms.
---------------------------------------------------------------------------
    \196\ Feinberg October 2010 Written Testimony, supra note 60, at 3 
(``When making compensation determinations, these principles demanded 
that I strike a balance between prohibiting excessive compensation and 
permitting the appropriate competitive compensation to attract talented 
executives capable of maximizing shareholder value.''). See also House 
Committee on Financial Services, Written Testimony of Kenneth R. 
Feinberg, special master for TARP Executive Compensation, Compensation 
in the Financial Industry--Government Perspectives, at 2 (Feb. 25, 
2010) (online at www.house.gov/apps/list/hearing/financialsvcs_dem/
20100224_feinberg_hfsc_testimony_(final).pdf) (hereinafter ``Feinberg 
Testimony on Government Perspectives'') (``The tension between reining 
in excessive compensation and allowing necessary compensation is, of 
course, a very real difficulty that I have faced and continue to face 
in making individual compensation determinations.'').
---------------------------------------------------------------------------
    The IFR provides essentially no guidance on how the Special 
Master should attempt to navigate these types of tensions.\197\ 
Mr. Feinberg has stated in congressional testimony that 
striking a balance between ``reining in excessive 
compensation'' and maximizing the public's return on its 
investment played a determinative role in each of his 
rulings.\198\ Yet he has offered relatively little insight to 
the public into how he reconciled these principles when they 
conflicted. In conversations with the Panel, the Office of the 
Special Master has noted that they had an obligation to give 
equal weight to all six principles primarily with a view to 
maximizing return for the taxpayers and preserving financial 
stability, as required by EESA.\199\
---------------------------------------------------------------------------
    \197\ See Feinberg Testimony on Government Perspectives, supra note 
196, at 4.
    \198\ Feinberg Testimony on Government Perspectives, supra note 
196, at 2 (``Because achieving this balance is a fundamental component 
of the Public Interest Standard, it has played a determinative role in 
each of the rulings issued by the Office of the Special Master.''). In 
his final report, Mr. Feinberg stated that, in general, he does not 
believe that his determinations have led to recruiting and retention 
problems at the firms under his jurisdiction. Final Report from Special 
Master Kenneth R. Feinberg, supra note 55, at 15.
    \199\ Treasury conversations with the Panel (Jan. 18, 2011). For 
further discussion on how the Special Master resolved conflicts between 
the six principles, see Section D.3, infra.
---------------------------------------------------------------------------
            b. Did the Special Master Successfully Implement the 
                    Interim Final Rule? 
    Because the IFR endowed the Special Master with a 
tremendous amount of discretion in approving pay packages and 
structures, he was able to create metrics and processes for the 
implementation of the rule that were instrumental in the 
determinations he made. One of those decisions merits 
particular attention: he emphasized stock compensation relative 
to cash compensation.
    The Special Master interpreted his mandate under the Public 
Interest Standard to be consistent with allocating a greater 
portion of compensation in stock rather than cash, so as to 
align the interests of the employee with the long-term 
interests of the institution.\200\ Some consultants have 
suggested that larger stock allocation rewards employees for 
creating long-term value, as opposed to short-term gains.\201\
---------------------------------------------------------------------------
    \200\ See, e.g., October 2009 Feinberg Determination Letter to AIG, 
supra note 120, at 2 (``Rather than cash, the majority of each 
individual's base salary will be paid in the form of stock units . . . 
.'').
    \201\ Johnson Associates (a boutique compensation consulting firm), 
for instance, included such a recommendation in their 2002 
recommendations on compensation. Johnson Associates, Inc., Executive 
and Professional Compensation: Issues and Potential Directions, at 2 
(June 25, 2002) (online at www.johnsonassociates.com/
2002%20Exec%20Comp%201.pdf) (hereinafter ``Johnson Associates: 
Executive Compensation'') (``Significant [stock] ownership continues to 
be the single best remedy for a host of executive compensation 
issues.'').
---------------------------------------------------------------------------
    There may be some circumstances, however, in which 
allocating a greater portion of compensation in the form of 
stock, even when it is not redeemable for years, is not 
consistent with the principles set forth in the IFR, including 
minimizing ``unnecessary or excessive risks.'' \202\ While the 
Special Master's use of ``salarized stock'' has been commended 
as a ``brilliant idea'' by some,\203\ others questioned it for 
``sharply boost[ing] fixed compensation at many banks.'' \204\ 
The Special Master has noted, however, that he was required by 
the IFR to allocate two-thirds of total compensation as ``fixed 
salary,'' and he deemed it preferable to allocate much of that 
fixed compensation as stock compensation rather than cash. 
Nonetheless, unless employees are prohibited from receiving 
their stock for a significant period of time, they may be able 
to cash in before the impact of their activities is fully 
realized. A full redemption period of four years, the length 
selected by the Special Master for stock salary for the top 25 
employees, may not provide a delay sufficient to determine 
whether an employee's contributions have resulted in long-term 
value.\205\ Others have critiqued equity awards at banks more 
generally for incentivizing risky practices.\206\ In response 
to Panel questions, the Office of the Special Master stated 
that it did not consider anything other than common stock as 
the optimal form of stock to use for stock salary because that 
was what most companies did.\207\
---------------------------------------------------------------------------
    \202\ See 31 CFR Sec. 30.16(b)(1).
    \203\ Murphy October 2010 Written Testimony, supra note 14, at 21.
    \204\ Council of Institutional Investors, Wall Street Pay: Size, 
Structure, and Significance for Shareholders, at 2 (Nov. 2010) (online 
at www.cii.org/UserFiles/file/CII%20White%20Paper%20-
%20Wall%20Street%20Pay%20FINAL%20Nov%202010.pdf) (hereinafter ``Wall 
Street Pay''); Congressional Oversight Panel, Written Testimony of Rose 
Marie Orens, senior partner, Compensation Advisory Partners, COP 
Hearing on the TARP and Executive Compensation Restrictions, at 2 (Oct. 
21, 2010) (online at cop.senate.gov/documents/testimony-102110-
orens.pdf) (hereinafter ``Orens October 2010 Written Testimony'') (``As 
a result of the limitations in the Interim Rules, only a modest amount 
(at most one-third) of each employee's compensation was actually based 
on performance--the portion that was provided in restricted stock. 
Existing pay programs would have had a far larger amount conditioned on 
performance.''). Professor Murphy questioned whether the use of 
salarized stock was consistent with the ``intentions'' of Congress. 
Murphy October 2010 Written Testimony, supra note 14, at 2.
    \205\ See Johnson Associates: Executive Compensation, supra note 
201, at 2 (``Longer vesting periods (i.e., 5+ years) would help link 
stockholder and executive interests across volatile markets and 
business cycles. Modest vesting periods make little sense given the 
size of today's awards and volatile markets.'').
    \206\ Bebchuk & Spamann: Regulating Bankers' Pay, supra note 30, at 
247 (``Equity-based awards, coupled with the capital structure of 
banks, tie executives'' compensation to a highly levered bet on the 
value of banks' assets.'').
    \207\ Treasury conversations with the Panel (Jan. 18, 2011). The 
Special Master said that for AIG, the only reason he used a ``basket'' 
of stock representing four subsidiaries was because the company 
requested this arrangement since it was generally believed that AIG's 
common stock was worthless, while there was value in the stock of the 
subsidiaries.
---------------------------------------------------------------------------
    In addition, when companies are in the midst of financial 
duress, as several of the exceptional assistance firms were 
during much of 2008 and 2009, stock compensation may create an 
even stronger incentive to engage in risky behavior.\208\ Low 
stock prices can fall only to zero, but there is no upper limit 
on the amount they can increase. In other words, there is 
tremendous upside potential but little downside risk.\209\ 
Furthermore, CEOs who have received a substantial portion of 
their compensation in stock may be reluctant to lead their 
institutions into bankruptcy, as a declaration of bankruptcy 
would wipe out the value of any stock they hold. Senior 
executives with substantial stock holdings therefore may 
exhibit a disinclination to consider filing for bankruptcy, 
even when doing so might be in the company's best interest.
---------------------------------------------------------------------------
    \208\ See Orens October 2010 Written Testimony, supra note 204, at 
2 (``While delivering compensation in stock reinforces a long term 
focus, it does not guarantee the existence of a pay-for-performance 
program or a culture that properly evaluates individual risk-
taking.''); Bebchuk & Spamann: Regulating Bankers' Pay, supra note 30, 
at 247 (``Equity-based awards, coupled with the capital structure of 
banks, tie executives'' compensation to a highly levered bet on the 
value of banks' assets.''); Tuck: Pay for Banker Performance, supra 
note 28 (``[E]quity compensation tends to induce greater risk taking by 
aligning managers'' risk preferences with those of equity holders.''). 
See also Congressional Oversight Panel, Written Testimony of Ted White, 
strategic advisor, Knight Vinke Asset Management, and co-chair of the 
executive remuneration committee, International Corporate Governance 
Network, COP Hearing on the TARP and Executive Compensation 
Restrictions, at 4-5 (Oct. 21, 2010) (online at cop.senate.gov/
documents/testimony-102110-white.pdf) (``[M]any companies use equity 
with associated vesting periods as a form of long-term alignment, and 
articulate that it satisfies investors' desire for performance. While I 
believe investors generally support the use of equity, and recognize 
certainly the retention aspects of this tool, there is less agreement 
on pure incentive characteristics.'').
    \209\ See Murphy October 2010 Written Testimony, supra note 14, at 
16 (``When executives receive rewards for upside risk, but are not 
penalized for downside risk, they will naturally take greater risks 
than if they faced symmetric consequences in both directions.'').
---------------------------------------------------------------------------

2. Look Back Review 

    As discussed above, ARRA and the IFR obligated the Special 
Master to conduct a Look Back Review to determine if any 
payments made to TARP recipients from the day the company first 
received TARP funding to February 17, 2009--the date ARRA was 
passed--were ``inconsistent with the purposes'' of ARRA or 
``otherwise contrary to the public interest.'' \210\ If he 
found any payments that met this standard, then he was required 
to ``seek to negotiate'' with the offending TARP recipient for 
``appropriate reimbursements.'' \211\ Although the compensation 
rules required the Special Master to conduct this review and 
required him to negotiate with any TARP recipients that he 
found to have violated the standard, they gave him no power to 
demand repayment.\212\ In the words of Mr. Feinberg, ``[a]ll I 
could do under the statute was seek, beseech, request, urge.'' 
\213\
---------------------------------------------------------------------------
    \210\ 12 U.S.C. Sec. 5221(f).
    \211\ See Section C.4, supra. See also 12 U.S.C. Sec. 5221(f).
    \212\ See 12 U.S.C. Sec. 5221(f)(2); Special Master Concludes 
Review of Prior Payments, supra note 181, at 1 (``Statutory authority 
to review payments, but no authority to require reimbursement.''); 
Feinberg Oral Testimony before the Panel, supra note 185 (``I also 
recognized I had no authority to force that money back.'').
    \213\ Feinberg Oral Testimony before the Panel, supra note 185.
---------------------------------------------------------------------------
    As noted above, at the conclusion of his review, the 
Special Master found that TARP recipients had made $1.7 billion 
in ``disfavored'' payments, but he concluded that these 
payments did not violate the Public Interest Standard.\214\ In 
the Final Report of Special Master Feinberg, the Special Master 
notes that not finding the payments to be contrary to the 
Public Interest Standard ``does not express a conclusion that 
these payments were appropriate or advisable, particularly in 
light of the circumstances facing the financial system 
generally, and some institutions specifically, in late 2008 and 
early 2009.'' \215\ At the Panel's hearing with Mr. Feinberg, 
however, he conceded that the payments were ``inappropriate'' 
because they amounted to TARP recipients ``taking taxpayer 
money and feathering their own nest.'' He also acknowledged 
that determining whether the payments contradicted the Public 
Interest Standard was a ``very close question,'' but that he 
thought that it was ``overkill'' to hold recipients accountable 
when they ``hadn't violated any regulation at the time'' they 
made the payments.\216\
---------------------------------------------------------------------------
    \214\ See Section C.2, supra.
    \215\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 13-14.
    \216\ Feinberg Oral Testimony before the Panel, supra note 185.
---------------------------------------------------------------------------
    He also implied that concluding that the payments were 
contrary to the public interest could trigger a futile 
negotiation process that would require the government to seek 
reimbursement from Wall Street banks that had no obligation to 
comply with government demands. According to the Special 
Master, a futile negotiation process could itself be contrary 
to the public interest.\217\ The Office of the Special Master 
also emphasized that at the time of the review, 11 of the 17 
reviewed TARP institutions had repaid the government, 
specifically the larger institutions, so according to the 
Office of the Special Master, there was very little to actually 
claw back at that point. In addition, according to the Office 
of the Special Master, seeking a clawback from companies that 
were shortly to pay back the taxpayers could have had the 
potential to disrupt those repayments by diverting funds 
designated for TARP repayments. In the view of the Office of 
the Special Master, disrupting those repayments would not have 
served the public interest.\218\
---------------------------------------------------------------------------
    \217\ Feinberg Oral Testimony before the Panel, supra note 185 
(``Mr. Feinberg: It was inappropriate because they were taking taxpayer 
money and feathering their own nest. ... Damon Silvers, COP Panelist: 
[I]t can't be true that feathering your own nest, when you're a--when 
you're holding the public's money, is in the public's interest. That 
can't be true. It seems to me, what you just said is the key thing, 
that you felt that it was not in the public's interest to have an 
accurate finding here, because it would trigger a process of recapture 
that you felt was not in the public interest to trigger. . . . Mr. 
Feinberg: You say it well. You say it well. But . . . I also recognized 
I had no authority to force that money back.'').
    \218\ Treasury conversations with the Panel (Jan. 27, 2011). While 
Citigroup remained one of the reviewed institutions with TARP funds 
outstanding, at that point the government stake had been converted into 
common equity, complicating the process of seeking clawbacks. The 
Office of the Special Master noted continually in its discussions with 
the Panel that all internal discussions about clawbacks were 
hypothetical, as the Special Master never deemed them to be necessary.
---------------------------------------------------------------------------
    The Special Master's description of the payments as 
``inappropriate''--or his refusal to describe them as 
appropriate or advisable, although not contrary to the public 
interest--raises at least two concerns. First, this decision 
may have been at odds with Congress' determination that he 
should make every effort to seek to claw back the payments, 
even if he lacked the authority to compel reimbursement.\219\ 
Second, the fine distinctions drawn by Mr. Feinberg and the 
Office of the Special Master between the public interest and 
the appropriateness of the payment may appear excessively 
legalistic, and the public may view the payments as contrary to 
the public interest, even though the Special Master concluded 
that they were not. Fundamentally, the distinction between the 
public interest and ``inappropriate''--or not necessarily 
appropriate--is difficult to describe.\220\ Nor is the 
explanation that funds might have been diverted from TARP 
repayments entirely satisfactory if the concern is that 
executives were unjustly enriched--and feathering their own 
nests--with taxpayer funds. Thus, the Special Master's finding 
may leave the impression that the government condoned the 
payments despite their being inappropriate, a finding that 
could set an undesirable precedent.
---------------------------------------------------------------------------
    \219\ 12 U.S.C. Sec. 5221(f)(2) (``[T]he Secretary shall seek to 
negotiate with the TARP recipient and the subject employee for 
appropriate reimbursements to the Federal Government with respect to 
compensation or bonuses.'').
    \220\ For instance, taxpayers may recognize that the payments could 
have violated ARRA if they had been made five months later.
---------------------------------------------------------------------------

3. Transparency: The Office of the Special Master and the Office of 
        Internal Review

            a. The Office of the Special Master
    The Special Master has disclosed virtually all the official 
documents produced by his office to date. This includes all 23 
general compensation determinations, 18 supplemental 
determinations, one advisory opinion, five fact sheets on 
compensation decisions, and a final report summarizing the 
Office's activities. In addition, the Office of the Special 
Master's website has all of the laws and rules governing the 
Special Master's activities, relevant statements and 
congressional testimony by the Special Master, and documents 
used in the Look Back Review.\221\ Moreover, all materials 
submitted to the Office of the Special Master are subject to 
disclosure under the Freedom of Information Act.\222\ This 
repository is important to the public's understanding of the 
Special Master's actions, and it is to the Special Master's 
credit that these documents are in the public record.
---------------------------------------------------------------------------
    \221\ See Special Master for Executive Compensation, supra note 
119.
    \222\ 31 CFR Sec. 30.16(d)(2).
---------------------------------------------------------------------------
    This extensive disclosure has not, however, publicly 
presented a transparent process capable of replication. In 
conversations with Panel staff, the Office of the Special 
Master said that there was no formula for its determinations, 
but that they were part art and part science.\223\ As a result, 
aspects of Special Master's process are essentially black 
boxes. For example, in one determination, the Special Master 
simply stated that ``I have reviewed the Letter Agreement in 
light of the [Public Interest Standard] . . . I hereby 
determine that the compensation structure set forth in the 
Letter Agreement . . . will not result in payments that are 
inconsistent with the purposes of section 111 of EESA or TARP, 
or are otherwise contrary to the public interest.'' \224\ 
Despite the many posted documents and because of the Special 
Master's wide discretion in interpreting the Public Interest 
Standard, it is difficult to get insight into fundamental 
questions about the Special Master's efforts. How, exactly, did 
the Special Master pick compensation amounts and structures? 
Did his determinations cause employees to leave? And did he 
permit companies to pay their employees too much?
---------------------------------------------------------------------------
    \223\ Treasury conversations with Panel staff (Dec. 22, 2010).
    \224\ Proposed Compensation Payments and Structure for Robert H. 
Benmosche, supra note 137.
---------------------------------------------------------------------------
    The Special Master is required by the IFR to make 
determinations in accordance with the six principles of the 
Public Interest Standard.\225\ As discussed above, though, the 
principles are potentially in conflict with one another.\226\ 
For example, it may not always be possible to both reduce 
excessive pay and offer compensation comparable to compensation 
at peer firms. Aware of this potential, the IFR also gave the 
Special Master discretion to determine the appropriate weight 
to give a particular principle depending on the 
circumstances.\227\ The Office of the Special Master stated 
that the principles were generally of equal importance. The 
Office of the Special Master also emphasized, however, that all 
determinations proceeded on a case-by-case basis.\228\ In many 
determinations, the Special Master would list some of the 
principles that were of particular importance in that 
particular instance. Often the principles cited were: (1) 
performance-based compensation; (2) taxpayer return; and (3) 
appropriate allocation.\229\ The Office of the Special Master 
has explained to Panel staff that in its view, for the top 25 
employees, the other principles were largely addressed by the 
compensation structures mandated by EESA as amended and the 
IFR. According to the Office of the Special Master, the 
remaining principles helped guide the Special Master in the use 
of his discretion and so were particularly important.\230\
---------------------------------------------------------------------------
    \225\ For a description of the six principles see Section B.1.c, 
supra.
    \226\ See Section B.2.b, supra.
    \227\ 31 CFR Sec. 30.16(b). In testimony before the Panel, Mr. 
Feinberg noted, ``Under the regulations, I had discretion to determine 
the appropriate weight or relevance of a particular principle depending 
on the facts and circumstances surrounding the compensation structure 
or payment for a particular executive, which I often exercised when two 
or more principles were in conflict in a particular situation.'' 
Feinberg October 2010 Written Testimony, supra note 60, at 1.
    \228\ Treasury conversations with the Panel (Jan. 18, 2011).
    \229\ See, e.g., December 2009 Feinberg Determination Letter to 
Bank of America, supra note 150.
    \230\ Treasury conversations with Panel staff (Feb. 3, 2011). Thus, 
for example, the requirement that the top 25 receive no more than 1/3 
of their pay in incentive payments addressed the considerations of 
excessive risk as well as allocation under the principles. Similarly, 
employee contribution was viewed in tandem with taxpayer return.
---------------------------------------------------------------------------
    Additionally, the Special Master crafted a number of 
specific rules to translate these principles into the 
individual determinations he was required to make. These 
included provisions that total compensation for the top 25 
highest-paid employees would be targeted at the 50th percentile 
of comparable employees at peer firms, that for the top 25 
employees stock salary would be redeemable in equal annual 
installments from the second anniversary of the grant, with 
each installment redeemable a year earlier if the company 
repays all of its TARP obligations, and that cash salaries 
would generally be limited to $500,000.\231\
---------------------------------------------------------------------------
    \231\ See, e.g., March 2010 Feinberg Determination Letter to 
Chrysler, supra note 155, at 1-2; October 2009 Feinberg Determination 
Letter to Citigroup, supra note 161, at 2. For a more complete listing 
of these general rules, see Section C.2, supra.
---------------------------------------------------------------------------
    These rules were the core of the Special Master's work, and 
they were specifically formulated by the Special Master. They 
form the basis of virtually all of the Special Master's 
determinations, and the Special Master used them to judge 
almost all of the companies' proposals. Mr. Feinberg himself 
stated that the area of his work that will ``hopefully have the 
most permanent impact'' was the creation and application of 
these general rules.\232\ That said, the Office of the Special 
Master provides no explanation or background to the public for 
how he crafted these specific rules to satisfy the Public 
Interest Standard principles.\233\
---------------------------------------------------------------------------
    \232\ Feinberg Testimony on Government Perspectives, supra note 
196, at 6 (``Not only has my office promulgated generally applicable 
compensation principles and prescriptions, but we have shown that these 
principles can work in practice by calculating individual compensation 
packages for officials in these companies. I believe this is the most 
`unique' aspect of my work and will hopefully have the most permanent 
impact.'').
    \233\ See, e.g., October 2009 Feinberg Determination Letter to 
Chrysler, supra note 128, at A7-A8 (``The Rule requires that the 
Special Master consider whether an appropriate portion of an employee's 
compensation is allocated to long-term incentives. Stock salary that 
can be liquidated too soon would not be performance-based over the 
relevant period to provide such a long-term incentive. Instead, such 
stock salary could incentivize employees to pursue short-term results 
instead of long-term value creation by paying excessive benefits to 
employees for short-term increases in share price. Under the Company's 
proposal, 50% of stock salary would be redeemable by the employee after 
two years and the remaining 50% of stock salary would be redeemable 
after three years, which the Special Master has concluded is 
insufficient holding period to provide an appropriate long-term 
incentive and could result in payments that would be inconsistent with 
the Public Interest Standard.'') (citations omitted).
---------------------------------------------------------------------------
    The Special Master had the discretion to craft these 
rules,\234\ and stated that he did so only after carefully 
balancing the competing principles and pressures.\235\ But it 
is insufficient for the Office of the Special Master to conduct 
that balancing and then simply present the results. The Office 
of the Special Master should publicly explain the steps they 
took to go from principle to rule if they wish the 
determinations to become a widely used model.
---------------------------------------------------------------------------
    \234\ See 31 CFR Sec. 30.16; Feinberg Oral Testimony before the 
Panel, supra note 185.
    \235\ Feinberg October 2010 Written Testimony, supra note 60, at 3 
(``When making compensation determinations, these principles demanded 
that I strike a balance between prohibiting excessive compensation and 
permitting the appropriate competitive compensation to attract talented 
executives capable of maximizing shareholder value.'').
---------------------------------------------------------------------------
    The 50th percentile rule provides a specific example of the 
questions that remain. The rule states that for the top 25 
employees, the Special Master will target compensation at the 
50th percentile of comparable employees at comparable firms and 
that it is designed to accord with the Public Interest Standard 
principles that compensation be comparable and be competitive 
enough to ensure the company maximizes return to the 
taxpayer.\236\ Though the 50th percentile is an intuitively 
appealing middle ground, the Special Master presents no 
evidence that it is the appropriate level of pay for a firm to 
remain competitive. When asked about the logic behind choosing 
the 50th percentile, the Office of the Special Master stated 
that the 50th percentile seemed appropriate on the basis of the 
staff's experience with setting executive compensation.\237\ It 
is possible that the target is ideal, controlling salaries 
while still attracting talent. It is also conceivable, though, 
that the best employees, those who will make the firm the most 
competitive, will be paid at a higher than median level and so 
would not be attracted to a salary at the 50th percentile. 
Without more information, it is impossible to determine which 
of these possibilities is accurate. Moreover, the Panel cannot 
tell if the Special Master acted arbitrarily in choosing the 
50th percentile.
---------------------------------------------------------------------------
    \236\ See, e.g., October 2009 Feinberg Determination Letter to 
Citigroup, supra note 161, at 2, A7.
    \237\ Treasury conversations with Panel staff (Jan. 7, 2011).
---------------------------------------------------------------------------
    Similarly, for stock salary, the Special Master appealed to 
the Public Interest Standard principle that compensation be 
performance-based over the relevant performance period. The 
Special Master decided that for the top 25 employees, stock 
salary would be redeemable only in three equal annual 
installments from the second anniversary of the grant, with 
each installment redeemable a year earlier if the company 
repaid all of its TARP obligations.\238\ But for the 26th-100th 
highest-paid employees, stock salary was redeemable after at 
least a single year.\239\ The Office of the Special Master 
stated in conversations with Panel staff that three years was 
an appropriate time period for long-term compensation, but the 
reasoning remains opaque and, in the public record, unsupported 
by data, particularly given the wide range of opinions on what 
is an appropriate time period.\240\
---------------------------------------------------------------------------
    \238\ October 2009 Feinberg Determination Letter to Bank of 
America, supra note 134, at A9.
    \239\ December 2009 Feinberg Determination Letter to GM, supra note 
120, at 3.
    \240\ See Section B.1.b, supra.
---------------------------------------------------------------------------
    Moreover, the Special Master did not alter his set of core 
rules for specific types of firms. For example, should a four-
year redemption schedule for the stock salary of the top 25 
employees apply equally to employees of an automotive company 
and employees of a large bank? \241\ Similarly, a presumption 
that cash salaries should not exceed $500,000 might have 
different ramifications for hiring and retention at an 
institution based in New York compared to one based in 
Michigan: $500,000 goes a great deal farther in Detroit than it 
does in New York, and therefore presents a more attractive 
compensation package in Detroit.\242\ In addition, it is not 
clear that these rules should be immutable; allowing them to be 
flexible over time may allow them to be more closely tailored 
to specific circumstances at specific institutions.
---------------------------------------------------------------------------
    \241\ The ``one size fits all'' nature of the rules is particularly 
worth questioning given the history of different pay practices at banks 
and other firms. For further discussion of these differences, see 
Section B.1.a, supra.
    \242\ For example, housing in New York is approximately two and a 
half times more expensive than in Detroit. Standard and Poor's, S&P/
Case-Shiller Home Prices Indices: Home Price Index Levels (Oct. 2010) 
(online at www.standardandpoors.com/indices/sp-case-shiller-home-price-
indices/en/us/?indexId=spusa-cashpidff- -p-us- - - -). Similarly, the 
Consumer Price Index was 17 percent higher in New York than in Detroit. 
Bureau of Labor Statistics, Consumer Price Index Detailed Report: Data 
for October 2010, at 44 (Nov. 17, 2010) (online at www.bls.gov/ro5/
cpidet.htm). In total, the cost of living for Detroit is just 1 percent 
above the national average, while New York's cost of living is 116 
percent above the national average. PayScale, Cost of Living in New 
York, New York by Expense Category (online at www.payscale.com/cost-of-
living-calculator/New-York-New-York) (accessed Feb. 8, 2011); PayScale, 
Cost of Living in Detroit, Michigan by Expense Category (online at 
www.payscale.com/cost-of-living-calculator/Michigan-Detroit) (accessed 
Feb. 8, 2011).
---------------------------------------------------------------------------
    Equally important to the Special Master's derivation of 
these rules, however, is the application of the rules to the 
individual facts and circumstances of each exceptional 
assistance company. In this respect as well, the Special Master 
has not provided critical information to the public, and the 
Panel cannot determine precisely why the particular dollar 
amounts were awarded and why those awards varied so 
significantly between companies.\243\ The rules, though much 
more concrete than the principles of the Public Interest 
Standard, still require the Special Master to make active 
choices in how to apply them. These choices were often critical 
to the outcomes he reached, but were never publicly explained. 
Even if the Special Master had been unwilling to provide 
detailed explanations for each individual, a few illustrative 
examples would have greatly improved the public's 
understanding. Instead, at points, the Special Master's 
determination letters did not note that he had made a choice at 
all.
---------------------------------------------------------------------------
    \243\ As further described below, the Special Master relied on a 
variety of comparators and jobs within those comparators in order to 
inform the determinations, and according to the Office of the Special 
Master, the variety in the comparators contributed to the differences 
in awards.
---------------------------------------------------------------------------
    For example, applying the 50th percentile rule requires the 
Special Master to determine which firms were comparable. In 
fact, the IFR specifically mentions that the Special Master 
could consider employees at a wide variety of types of firms, 
including firms that are ``financially distressed or that are 
contemplating or undergoing reorganization.'' \244\ The Special 
Master's determinations demonstrate that he sought input from a 
variety of sources, as each of the determinations lists a 
variety of sources consulted. The sources range from professors 
like Lucian Bebchuk to competitive market data provided by the 
institution, to compensation databases, such as Equilar's 
Executive Insight database.\245\
---------------------------------------------------------------------------
    \244\ 31 CFR Sec. 30.16(b)(v).
    \245\ See, e.g., March 2010 Feinberg Determination Letter to GM, 
supra note 169.
---------------------------------------------------------------------------
    While these lists provide some insight into the Special 
Master's decision-making process, the Special Master does not 
disclose information that is critical to evaluating the 
mechanisms used to select comparators. For example, the Office 
of the Special Master has generally said to the Panel that they 
looked at distressed firms, specifically other TARP 
recipients,\246\ but did not consider market data on pay for 
turnaround specialists generally.\247\ However, it is unclear 
how many distressed firms were considered or what impact they 
had on the Special Master's calculations. Similarly, there is 
no information in the determination letters on whether the 
Special Master dealt with situations in which few comparators 
were available or in which the Special Master supervised two 
firms that might be considered similarly situated, such as GM 
and Chrysler. The Office of the Special Master has explained to 
Panel staff that they used a wide variety of comparators and 
job descriptions within those comparators to come to their 
determinations. Where the Special Master dealt with companies 
with few clear peers under the circumstances--such as Chrysler 
or GM--the Special Master used other auto companies and 
multinationals. For an outsider, however, given the 
subjectivity of the process the Office of the Special Master 
employed, it would be difficult if not impossible to replicate 
the process and to assess whether the Office of the Special 
Master chose appropriate comparators.
---------------------------------------------------------------------------
    \246\ Treasury conversations with Panel staff (Jan. 7, 2011). See 
also Feinberg Oral Testimony before the Panel, supra note 185.
    \247\ Treasury conversations with the Panel (Jan. 18, 2011).
---------------------------------------------------------------------------
    For stock salary, the Special Master had to determine which 
stocks the employees would receive. In general, the Special 
Master provided common stock in the company, but provided no 
public explanation of why common stock is the optimal form of 
stock to give. The Office of the Special Master informed the 
Panel, however, that the decision to use common stock was based 
on the use of common stock by companies as the predominant form 
of equity compensation. For AIG, the Special Master mandated 
that stock be given in units representing a ``basket'' of four 
AIG subsidiaries. Mr. Feinberg explained in testimony to the 
Panel that AIG requested this arrangement because of its unique 
situation and that the ``basket'' was a compromise between the 
Special Master, the Federal Reserve, Treasury officials, and 
AIG.\248\ This answer is not, however, apparent from the 
determination letter. The Office of the Special Master and the 
public could have benefited from more detailed and prompter 
explanations on this point.
---------------------------------------------------------------------------
    \248\ Feinberg Oral Testimony before the Panel, supra note 185; 
Treasury conversations with the Panel (Jan. 18, 2011). See also October 
2009 Feinberg Determination Letter to AIG, supra note 120, at A9; 
Steven Brill, What's a Bailed-Out Banker Really Worth?, New York Times 
(Jan. 3, 2010) (online at www.nytimes.com/2010/01/03/magazine/
03Compensation-t.html).
---------------------------------------------------------------------------
    In one instance, the Special Master did explicitly and 
publicly provide at least some reasoning. Chrysler Financial 
was in the process of winding down its business, making long-
term incentives inappropriate. As a result, the Special Master 
decided to award primarily cash compensation to Chrysler 
Financial employees.\249\ This accommodation and several 
others, as well as the Special Master's statements,\250\ 
demonstrate that the Special Master was considering the 
circumstances at each company. This consideration, however, 
only emphasizes that the same rules were used across many 
companies despite the fact that it is uncertain whether the 
same incentive structures will be optimal for companies as 
different as Bank of America and General Motors. The Special 
Master did not explain these choices.
---------------------------------------------------------------------------
    \249\ See, e.g., October 2009 Feinberg Determination Letter to 
Chrysler Financial, supra note 158, at A6.
    \250\ Feinberg Oral Testimony before the Panel, supra note 185 
(``[E]very company has a culture and a [sic] environment that is 
different. I'm not sure you can answer that very legitimate question by 
saying that GM and automobile companies should have the same 
prescriptions as AIG or Bank of America. I think they're very 
different.'').
---------------------------------------------------------------------------
    It should be noted, however, that the Special Master's 
determination letters do provide important information, not 
least of which is compensation structures, types, and amounts 
for each individual top 25 employee. A considerable portion of 
that compensation is usually provided in the form of incentive 
payments for performance. The performance goals are typically 
set by the company subject to the Special Master's 
approval.\251\ The Special Master, however, has not released 
these goals to the public (to the extent permitted by 
applicable laws). Such information is vital both to understand 
how executives' incentives are actually aligned and to allow 
the public to ensure that the goals are being rigorously 
enforced.
---------------------------------------------------------------------------
    \251\ See, e.g., October 2009 Feinberg Determination Letter to Bank 
of America, supra note 134.
---------------------------------------------------------------------------
    Similarly, the public's understanding depends on the 
Special Master's determination letters, which generally frame 
his decisions in terms of whether a company's proposed 
compensation package is consistent with the public interest. In 
each determination letter, the Special Master provides a brief 
summary of the company's proposals, but does not provide 
detailed information.\252\ To the Panel, the Office of the 
Special Master provided the employee-by-employee percentage 
change in cash and total direct compensation between the 
initial company proposal and the final determination.\253\ 
However, benchmarking the Special Master's determinations to 
initial company proposals is potentially problematic, as the 
exceptional assistance companies would have had an incentive to 
propose high salaries as the first step in a negotiation. 
Moreover, some of the changes from the initial company 
proposals could have been driven by factors external to the 
Special Master, as may have been the case with Citigroup's 
CEO's decision in 2009 to accept only $1 in salary.\254\ 
Instead of just the summaries in the determination letters, the 
Office of the Special Master should, consistent with applicable 
laws, disclose information on the compensation negotiations, as 
it would allow the public much greater insight into the Special 
Master's actual impact.
---------------------------------------------------------------------------
    \252\ See, e.g., March 2010 Feinberg Determination Letter to AIG, 
supra note 145, at A4-A5.
    \253\ See Annex I, infra.
    \254\ House Committee on Financial Services, Written Testimony of 
Vikram Pandit, chief executive officer, Citigroup, TARP Accountability: 
Use of Federal Assistance by the First TARP Recipients (Feb. 11, 2009) 
(online at frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=111_house_hearings&docid=f:48675.pdf) (``My goal is 
to return Citi to profitability as soon as possible, and I have told my 
board of directors that my salary should be $1 per year with no bonus 
until we return to profitability.'').
---------------------------------------------------------------------------
    Further, Treasury has released no information to the public 
on whether exceptional assistance recipients complied with the 
IFR between its issuance in June 2009 and the release of the 
Special Master's first determinations in October.\255\ In 
conversations with the Panel, Treasury stated that the 
exceptional assistance companies submitted certifications of 
their compliance for this period.\256\ Without knowing more 
about the compensation practices of exceptional assistance 
recipients during this period, though, it is difficult to 
develop an accurate assessment of the impact of the 
restrictions.
---------------------------------------------------------------------------
    \255\ Exceptional assistance recipients were required to comply 
with the IFR during this period, and the Special Master was permitted 
to take payments made during this period into consideration when he 
issued determinations. See 31 CFR Sec. 30(a)(3)(iii) (``For the period 
from June 15, 2009 through the date of the Special Master's final 
determination, the TARP recipient will be treated as complying with 
this section if, with respect to employees covered by paragraph 
(a)(3)(i) of this section, the TARP recipient continues to pay 
compensation to such employees in accordance with the terms of 
employment as of June 14, 2009 to the extent otherwise permissible 
under this Interim Final Rule (for example, continued salary payments 
but not any bonus payments) and if, with respect to employees covered 
by paragraph (a)(3)(ii) of this section, the TARP recipient continues 
to pay compensation to such employees under the compensation structure 
established as of June 14, 2009, and if in addition the TARP recipient 
promptly complies with any modifications that may be required by the 
Special Master's final determination. However, the Special Master may 
take into account the amounts paid to an employee during such period in 
determining the appropriate compensation amounts and compensation 
structures, as applicable, for the remainder of the year.'').
    \256\ Treasury conversations with the Panel (Jan. 21, 2011).
---------------------------------------------------------------------------
    The Office of the Special Master has made less information 
public than it could, subject to applicable laws. By contrast, 
the Office of the Special Master has been responsive to the 
Panel and has provided considerable new information that helps 
explain its decision-making process.\257\ This information 
could have been included in the Special Master's public 
determination letters or on Treasury's website and, going 
forward, it should be. The Special Master's reticence in 
explaining his actions to the public has significantly affected 
the public's ability to evaluate the Special Master's actions. 
Moreover, the Special Master's general lack of detail in the 
determination letters and other publications also limits the 
future impact of his model, as it is difficult for an outside 
observer to mimic the Special Master's work. The Special Master 
aspired to make his work a model for others.\258\ Without more 
transparency, though, it is unlikely that it will be.
---------------------------------------------------------------------------
    \257\ For example, in the 2009 determinations, the Special Master 
included only aggregate comparison between 2008 and 2009 compensation. 
See, e.g., October 2009 Feinberg Determination Letter to AIG, supra 
note 120, at E1 (noting that 2009 compensation decreased by 57.8 
percent compared to 2008 and by 55.7 percent compared to 2007). The 
Special Master did not include comparisons at an individual employee 
level, and this information has not yet been posted on Treasury's 
website. In response to a Panel request, the Office of the Special 
Master provided information on individual percentage changes in 
compensation between 2007 and 2009 and between 2008 and 2009. This 
information is included as Annex I, infra.
    \258\ Feinberg October 2010 Written Testimony, supra note 60, at 3-
4. See also House Committee on Oversight and Government Reform, Written 
Testimony of Kenneth R. Feinberg, special master for TARP executive 
compensation, Executive Compensation: How Much Is Too Much?, at 7 (Oct. 
28, 2009) (online at oversight.house.gov/images/stories/Hearings/pdfs/
20091028Feinberg.pdf) (hereinafter ``Feinberg October 2009 Written 
Testimony'') (``Hopefully, the individual final compensation 
determinations I make may yet be used, in whole or in part, by other 
companies in modifying their individual compensation practices. I 
believe the final compensation determinations I make and discuss in my 
Report are a useful model to guide others in the private 
marketplace.'').
---------------------------------------------------------------------------
            b. Office of Internal Review
    Although the Office of the Special Master has received 
considerable attention, it is only responsible for executive 
compensation at exceptional assistance companies. The executive 
compensation provisions of ARRA applied in total and at the 
peak to 760 other TARP recipients \259\ whose practices are 
overseen by Treasury's Office of Internal Review (OIR), 
including several large institutions like Morgan Stanley, 
JPMorgan Chase, Wells Fargo, and Goldman Sachs.\260\
---------------------------------------------------------------------------
    \259\ Treasury conversations with Panel staff (Feb. 7, 2011). As of 
the date of this report, the Office of Internal Review oversees the 
compensation practices of four exceptional assistance recipients and 
660 other TARP recipients. Treasury Transactions Report, supra note 5. 
See note 5, supra, for more information about the monitoring performed 
by OIR.
    \260\ Geithner Response to Questions on Executive Compensation, 
supra note 5.
---------------------------------------------------------------------------
    Despite OIR's significantly more far-reaching jurisdiction, 
OIR has not published a single document to the public record. 
To date, they have not publicly disclosed any information about 
their activities, and their record is completely opaque. To the 
Panel, OIR has indicated that, for non-exceptional assistance 
companies, its activities are focused on reviewing the 
companies' annual certifications for completeness and generally 
bringing companies into compliance. If, as has happened a few 
times, a certification is not complete, OIR informed the Panel 
that its primary duty is to bring the company into compliance 
rather than make a public record of its actions. If OIR had 
difficulties bringing a company into compliance, the next step 
would be to consult Treasury's legal department before taking 
further action, but OIR has not yet required such assistance 
from the legal department. OIR is currently working with two or 
three companies that it states are making good progress toward 
full compliance.\261\
---------------------------------------------------------------------------
    \261\ Treasury conversations with the Panel (Jan. 21, 2011).
---------------------------------------------------------------------------
    OIR also stated to the Panel that, for exceptional 
assistance companies, it performs on-site reviews of payroll 
documentation and internal audit documentation to ensure that 
the companies have actually paid their employees in accordance 
with the Special Master's determinations. To date, OIR has 
concurred with the companies' assessments of their own 
compliance. OIR has informed the Panel that in the future, it 
plans to expand the scope of its reviews to examine other 
aspects of the Special Master's determinations, such as 
ensuring that the anti-hedging provisions are being 
followed.\262\
---------------------------------------------------------------------------
    \262\ Treasury conversations with the Panel (Jan. 21, 2011).
---------------------------------------------------------------------------
    The Panel is troubled that a body with such significant 
scope has disclosed so little information to the public. Though 
OIR's responses to the Panel's questions are helpful, the 
public would benefit from more widespread disclosure of OIR's 
activities. Nor does OIR's stated primary objective of bringing 
companies into compliance provide an adequate explanation for 
its practice of not releasing information publicly. The 
omission is particularly startling given OIR's determinations 
that the vast majority of the companies under its jurisdiction 
have been compliant, information that would be of significant 
value to the public. OIR should publish specific information on 
its activities to date and should continue to do so going 
forward.
    Furthermore, it is notable that some of OIR's reviews are 
still quite limited almost two years after the passage of ARRA 
and more than a year after the Special Master's first 
determinations, raising questions as to whether its enforcement 
of compliance with a variety of provisions under the IFR has 
been effective. OIR should promptly expand its oversight 
activities to incorporate reviews of all relevant provisions.
            c. Additional Data Necessary to Evaluate the Government's 
                    Work on Executive Compensation
    Given that data are critical tools for evaluation, the 
Office of the Special Master and the Office of Internal Review 
should release key data that would enable the public to 
evaluate the impact of their work. For example, the Special 
Master was tasked with balancing talent retention with 
reasonable pay, yet when he released his 2009 determinations, 
he included no information on turnover at the firms he 
supervised. Without this information, it is essentially 
impossible to evaluate whether his pay determinations were too 
stringent or too lenient, because their effect on talent 
retention is not clear. The Office of the Special Master 
released some turnover data in response to a request from the 
Panel. The letter states that 40 of the 175 total top 25 
employees left exceptional assistance firms between January 1 
and October 22, 2009, and another 17 left between the 2009 
determination and the 2010 submissions.\263\ The Office of the 
Special Master still has not released information on the number 
of employees who left exceptional assistance firms after March 
23, 2010, when the Special Master released the 2010 
determinations.\264\ In addition, the Office of Internal Review 
has released essentially no information on the impact of its 
work. Despite the Office's supervision of more than 700 TARP 
recipients, there is no record of the impact of executive 
compensation regulations on those firms.\265\ The absence of 
these data will make it very difficult for government agencies 
or other observers involved in monitoring compensation, such as 
pension funds like the California Public Employees' Retirement 
System (CALPERS) and other entities such as the Investment 
Company Institute, to implement best practices for monitoring 
and enforcement derived from the work of the Special Master and 
the Office of Internal Review.\266\
---------------------------------------------------------------------------
    \263\ Re: Data Request, supra note 134, at 1. The 175 employees are 
all of those covered by the Special Master, and not only those for 
which he made individual compensation determinations. There were seven 
exceptional assistance firms on October 22, 2009, but only five were 
covered in the 2010 determinations due to the exit from the TARP of 
Bank of America and Citigroup.
    \264\ Some experts have speculated that turnover may increase at 
TARP recipients as the economy improves and a greater percentage of 
executives at TARP recipients are able to find alternative employment. 
Orens October 2010 Written Testimony, supra note 204, at 3.
    \265\ According to a SIGTARP audit, as of June 29, 2010, the Office 
of Internal Review had not reviewed institutions' compliance with the 
executive compensation restrictions. The audit states that the Office 
of Internal Review delayed this review until 2010 because the Special 
Master was working with exceptional assistance institutions in the 
latter half of 2009. The report also states that the office planned to 
review executive compensation compliance in 2010, but it has not yet 
released results of that review. In addition, the Office elected to 
terminate its reviews of Bank of America and Citigroup since those 
institutions repaid their ``exceptional assistance.'' See Treasury's 
Monitoring of Compliance for Companies Receiving Exceptional 
Assistance, supra note 8, at 7-8. It is impossible, of course, to 
evaluate the work of the Office of Internal Review when it has not 
completed its review or released any of the information about the 
results of that review. Nonetheless, the Panel shares SIGTARP's concern 
that prior reviews have relied heavily on disclosures by institutions, 
rather than independent fact-finding by the Office of Internal Review. 
Id. at 13-14 (``Treasury should promptly take steps to verify TARP 
participants' conformance to their obligations, not only by ensuring 
that they have adequate compliance procedures but also by independently 
testing participants' compliance.''). It would be troubling if the 
office's review of executive compensation were to rely similarly on 
disclosure by financial institutions rather than independent data-
gathering and monitoring.
    \266\ Cf. Bebchuk's Fix Bankers' Pay, supra note 21 (``Monitoring 
and encouraging such compensation structures should be an important 
instrument in the toolkit of financial regulators.'').
---------------------------------------------------------------------------

4. Impact

            a. Evaluation of the Special Master's Work
    The Special Master had an impact at the firms under his 
jurisdiction and potentially at institutions closely linked to 
those firms, but he did not have a broad enough mandate 
directly to alter compensation practices across the board. A 
measure of his potential effect on firms outside his narrow 
jurisdiction is the use of his recommendations as a model. Some 
companies have altered their pay practices in the wake of the 
financial crisis and ARRA's compensation provisions. At some 
firms, compensation levels declined, and institutions adopted a 
range of practices designed to address and control executive 
compensation: stronger clawback provisions, longer deferral 
periods, a greater use of stock compensation, and the use of 
variable pay as a means of mitigating risk tasking.\267\ The 
Special Master also presided over a restructuring of 
compensation that generally provided employees with a lower 
percentage of guaranteed pay: his emphasis on stock 
compensation and performance-based compensation made pay more 
dependent on the performance of the individual and the 
institution.\268\
---------------------------------------------------------------------------
    \267\ In a study by the Council of Institutional Investors, all of 
the domestic banks examined, Bank of America, Citigroup, Goldman Sachs, 
JPMorgan Chase, Morgan Stanley, and Wells Fargo, strengthened or 
expanded existing clawback policies, such as by moving from a fraud-
based policy to a performance-based policy and requiring clawbacks if 
executives operate outside the firm's risk parameters. Bank of America, 
Goldman Sachs, JPMorgan Chase, and Wells Fargo also increased incentive 
equity vesting and deferral or retention periods. At the time of the 
survey, only Morgan Stanley and Wells Fargo had introduced long-term 
performance incentives. Wall Street Pay, supra note 204, at 2.
    \268\ Feinberg October 2009 Written Testimony, supra note 258, at 5 
(``I succeeded in almost all cases in getting the companies to agree to 
restructure guaranteed contracts and other forms of guaranteed 
compensation into prospective, performance-based compensation 
packages.''). Although stock salary could obviously fluctuate based on 
the value of the company's shares and could theoretically fall to zero, 
it also has some characteristics of guaranteed compensation. It vests 
immediately and is therefore not subject to forfeiture.
---------------------------------------------------------------------------
    In evaluating the Special Master's work, it is important to 
note the historical structure of compensation on Wall Street. 
Typically, large financial institutions provided employees with 
a low cash base salary relative to their total compensation, 
with the bulk of their pay bundled in a year-end bonus 
comprised of both cash and stock-based compensation. According 
to the Office of the Special Master, this year-end bonus was 
often considered guaranteed compensation, regardless of actual 
employee performance.\269\ The Special Master's work on 
compensation therefore took place in the context of 
compensation structured towards a proportionately significantly 
large cash incentive payment. In most instances, for the 
exceptional assistance recipients, the Special Master reduced 
total compensation, primarily through the elimination of 
bonuses, which, as noted above, the Office of the Special 
Master viewed as being functionally guaranteed rather than 
performance-based. But, according to the Office of the Special 
Master, in order to assist with employee retention and thus 
company viability, in many cases the Special Master increased 
cash base salary relative to the prior year cash base 
salary.\270\ However, total cash compensation generally 
decreased, as the compensation structure no longer included a 
large cash bonus.\271\ The limits on cash bonuses were designed 
to increase the relevant executives' interest in longer-term 
performance, as the firm would have to thrive through more than 
three years that some of the stock compensation would take to 
become liquid in order for the executive to realize their full 
compensation--although, as noted above, stock compensation 
might also create a significant incentive for risk.
---------------------------------------------------------------------------
    \269\ Treasury conversations with Panel staff (Feb. 3, 2011).
    \270\ Treasury conversations with Panel staff (Feb. 3, 2011). 
Compared to what the exceptional assistance companies were already 
scheduled to pay in base cash in 2009, the Special Master often 
increased cash compensation. In other words, he raised the cash salary 
that most employees were being paid in 2009. Among the institutions 
subject to the Special Master's determinations, excluding AIG, 12 
employees' cash base salary decreased, 10 employees' cash base salary 
remained the same, and 101 employees' cash base salary increased from 
2008 to the Special Master's determination.
    \271\ For certain employees at AIG's Financial Products unit, total 
cash compensation in 2009 included certain ``grandfathered'' payments, 
potentially causing total 2009 cash compensation for those employees to 
be larger than their 2008 cash compensation. Treasury conversations 
with Panel staff (Feb. 3, 2011).
---------------------------------------------------------------------------
    As an example of potential after-effects of the Special 
Master's determinations, Goldman Sachs recently adopted a long-
term performance incentive plan with the intention of aligning 
compensation with long-term performance ``in a manner that does 
not encourage imprudent risk taking.'' \272\ Equilar, an 
executive compensation research firm, found that 34 percent of 
Fortune 100 companies eliminated some perquisites for CEOs in 
2009 and 2010 and that total ``other'' compensation decreased 
28.3 percent from 2008 to 2009.\273\ According to Mr. Feinberg, 
his determinations did not result in an exodus of employees, as 
84 percent of the top 25 employees covered in his 2009 
compensations stayed at the institutions through his 2010 
determinations.\274\ Also, other government agencies like the 
Federal Reserve have considered the Special Master's work in 
developing their own guidance on executive compensation.\275\
---------------------------------------------------------------------------
    \272\ Awards granted under Goldman Sachs' Long-Term Performance 
Incentive Plan may include equity, cash, and other securities of 
Goldman Sachs and may be conditioned wholly or in part on meeting one 
or more performance measures relating to the firm. Awards may also 
include clawback provisions. The Goldman Sachs Group, Inc., Form 8-K 
for the Period Ended Dec. 17, 2010 (Dec. 23, 2010) (online at sec.gov/
Archives/edgar/data/886982/000095012310116277/y88643e8vk.htm).
    \273\ Equilar, Inc., Equilar Study: Value of CEO Perks Drops 28.3 
Percent in 2009 (June 30, 2010) (online at www.equilar.com/company/
press-release/press-release-2010/equilar-study-value-of-ceo-perks-
drops-28-percent-in-2009.html).
    \274\ Feinberg October 2010 Written Testimony, supra note 60, at 3. 
This statistic is relevant, but it is worth noting that many employees 
left exceptional assistance recipients between January 1, 2009 and 
March 23, 2010, the date of the Special Master's 2010 determinations. 
The time period between the 2009 determinations and the 2010 
determinations was only five months. In addition, low turnover may have 
reflected other factors, such as poor employment opportunities in a 
constrained market.
    \275\ See Section B.2.c, supra. Federal Reserve staff 
communications with Panel staff (Jan. 27, 2011). The Federal Reserve 
staff noted, however, that TARP executive compensation restrictions 
related to a particular circumstance--the government as an equity 
holder in an institution--while the Federal Reserve focused on the 
threat to a supervised institution's safety and soundness posed by 
poorly balanced incentive compensation arrangements. Further, the TARP 
executive compensation restrictions applied only to certain 
individuals, while the Federal Reserve guidance focused on all 
individuals who could expose the institution to material amounts of 
risk. Federal Reserve staff communications with Panel staff (Jan. 27, 
2011).
---------------------------------------------------------------------------
    Firms have begun to take the link between risk-taking and 
compensation more seriously. According to executive 
compensation consultant Rose Marie Orens in testimony before 
the Panel, ``[c]ompanies have responded to TARP, SEC, Treasury 
guidance and current Federal Reserve/regulatory reviews by 
developing processes that integrate risk management with human 
resources and finance in incentive compensation design and 
retrospective reviews.'' Institutions have introduced measures 
that give them more control over the balance between risk and 
pay, such as clawback provisions. Ms. Orens views this 
development as a ``relatively new, but essential, component of 
the pay design process.'' \276\
---------------------------------------------------------------------------
    \276\ Orens October 2010 Written Testimony, supra note 204, at 1.
---------------------------------------------------------------------------
    Despite these achievements, the overall decline in pay has 
been ``modest,'' according to the Council of Institutional 
Investors.\277\ Professor Murphy stated in testimony before the 
Panel that he was ``not aware that the Special Master's 
determinations have been adopted by any companies that were not 
subject to his oversight.'' \278\ According to a study by the 
Council of Institutional Investors, ``[m]ore vigorous federal 
oversight of Wall Street does not appear to have changed 
compensation on the Street for the better.'' The study also 
found that some institutions enacted ``excessive'' increases in 
levels of fixed pay, which executives receive regardless of 
whether their leadership generates large profits or huge 
losses. None of the banks in the study ``addressed adequately 
the importance of tying compensation to long-term value 
growth.'' The study also concluded that the government's 
involvement may have been even worse than ineffectual: it may 
have actually had a negative effect, as the ``new rules 
resulted in a less performance-related compensation 
structure.'' \279\ According to some commentators, recruitment 
and retention problems are a concern as well. Ms. Orens noted 
that for TARP firms, ``the possibility of recruiting new talent 
at the highest levels in the firm was viewed as virtually 
impossible'' due to the ``the relatively inflexible pay 
programs.'' \280\ Even at the exceptional assistance 
recipients, however, it is difficult to determine whether the 
Special Master's determinations were likely to have an effect 
on risk taking, performance-based compensation, employee 
contribution, and other elements of executive compensation. For 
example, while the Special Master's use of salarized stock to 
separate vesting and transferability was innovative in some 
respects,\281\ it also had the effect of ``sharply'' increasing 
fixed compensation at certain institutions,\282\ and could have 
the effect of encouraging executives to take excessive risks in 
hopes of capturing the upside gains in the then low-priced 
stock.\283\
---------------------------------------------------------------------------
    \277\ Wall Street Pay, supra note 204, at 2.
    \278\ Murphy October 2010 Written Testimony, supra note 14, at 21-
22.
    \279\ Wall Street Pay, supra note 204, at 2.
    \280\ Orens October 2010 Written Testimony, supra note 204, at 3. 
See also Sharon Terlep and Josh Mitchell, GM Seeks More Leeway on Pay, 
Wall Street Journal (Dec. 11, 2010) (online at online.wsj.com/article/
SB10001424052748704457604576011314012028354.html) (``Mr. Akerson said 
the auto maker has been able to attract quality executives despite the 
pay limits, `but we're starting to lose them now . . . . We sold half 
the government position in the company. There ought to be a new 
perspective . . . . We have to be competitive. We have to be able to 
attract good people.' '').
    \281\ Congressional Oversight Panel, Testimony of Fred Tung, Howard 
Zhang Faculty Research Scholar and Professor of Law, Boston University 
School of Law, Transcript: COP Hearing on the TARP and Executive 
Compensation Restrictions (Oct. 21, 2010) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-102110-
compensation.cfm) (``I think that the salary-stock approach was a 
useful way to generate a longer-term perspective than what came 
before.'').
    \282\ Wall Street Pay, supra note 204, at 19.
    \283\ See discussion in Section D.1.b, supra.
---------------------------------------------------------------------------
    Regardless of the effect of the Special Master's 
determinations on individual TARP recipients, it is clear that 
his determinations have not had a broad impact on executive 
compensation in the United States. The Council of Institutional 
Investors concluded that ``very little of any real import has 
changed; on balance, pay practices have worsened.'' \284\ There 
are other indications that the Special Master failed to 
constrain excessive risk-taking.\285\ According to Thomas 
Hoenig, president of the Federal Reserve Bank of Kansas City, 
``little has changed on Wall Street,'' and ``[t]wo years later, 
the largest firms are again operating with bonus and 
compensation schemes that reflect success, not the reality of 
recent failures.'' \286\ William Cohan, writing in The New York 
Times said, ``the incentives on Wall Street have not been 
changed one iota.'' \287\
---------------------------------------------------------------------------
    \284\ Wall Street Pay, supra note 204, at 16.
    \285\ Wall Street Pay, supra note 204, at 19 (``These incentive 
packages, which afforded big gains in pay for small increases in short-
term performance, also appear to have encouraged excessively risky 
behavior in two other sectors where they were common: residential 
construction and financial services more broadly.'').
    \286\ Thomas M. Hoenig, president, Federal Reserve Bank of Kansas 
City, Too Big To Succeed, New York Times (Dec. 1, 2010) (online at 
www.nytimes.com/2010/12/02/opinion/02hoenig.html?_r=1&ref=todayspaper).
    \287\ William D. Cohan, Make Wall Street Risk It All, New York 
Times (Oct. 7, 2010) (online at opinionator.blogs.nytimes.com/2010/10/
07/make-wall-street-risk-it-all/).
---------------------------------------------------------------------------
    The Council of Institutional Investors maintains that the 
work of the Special Master is ``likely to be short-lived.'' 
\288\ As evidence, it cites Bank of America's 2009 statement 
that ``[g]iven that the bank has fully repaid all TARP 
financing, the Compensation and Benefits Committee expects that 
for 2010 it will apply the principled, structured compensation 
framework described above under `Overview of Our Executive 
Compensation Program,' consistent with our Global Compensation 
Principles, rather than continuing with the forms of 
compensation required by the Special Master.'' \289\ This 
statement suggested that as soon as Bank of America was no 
longer obligated to follow the determinations of the Special 
Master, it would revert to its own compensation policies. This 
impression appears to be confirmed by the company's behavior. 
Bank of America dropped salarized stock as part of its 
compensation packages and elected to increase cash compensation 
for several of its senior executive officers. It claimed that 
greater levels of cash salary ``better reflect the size and 
scope of the jobs and are more competitive with broader market 
practices.'' \290\ At the time of the TARP repayments by Bank 
of America and Citigroup, many commentators speculated that the 
rush to repay TARP funds was driven by the companies' desire to 
be out from under the Special Master's thumb and increase 
compensation.\291\ However, in testimony before the Panel, Mr. 
Feinberg noted that Congress, Secretary Geithner, and the 
Administration made clear ``that the single most important 
thing I could do is get those seven companies to repay the 
taxpayer'' and that those stakeholders viewed repayment as a 
good thing, no matter the motivation behind it.\292\
---------------------------------------------------------------------------
    \288\ Wall Street Pay, supra note 204, at 15.
    \289\ Wall Street Pay, supra note 204, at 15. See also Bank of 
America Corporation, Schedule 14A: Definitive Notice & Proxy Statement, 
at 33 (Mar. 17, 2010) (online at www.sec.gov/Archives/edgar/data/70858/
000119312510059187/ddef14a.htm) (hereinafter ``Schedule 14A'').
    \290\ See Schedule 14A, supra note 289, at 33. Of course, deviating 
from the course set by the Special Master may not necessarily mean that 
a financial institution has rejected all of the principles underlying 
the TARP's compensation regime. For example, despite Bank of America's 
insistence that it would employ its own compensation policies rather 
than employing the Special Master's, it emphasized its efforts to tie 
employee compensation to the institution's performance. Id. at 30 
(``Our year-end compensation decisions over the last several years most 
clearly illustrate the direct linkage between our executive officers' 
pay and our company's performance.'').
    \291\ See, e.g., Associated Press, Bank of America to Repay TARP, 
Raise Cash (Dec. 2, 2009) (online at www.msnbc.msn.com/id/34245560/ns/
business-us_business/); See also Stephen Gandel, Citi's TARP Repayment: 
The Downside for a Troubled Bank, Time (Dec. 15, 2009) (online at 
www.time.com/time/business/article/0,8599,1947625,00.html). In its TARP 
repayment, Bank of America used a combination of $19.3 billion raised 
from a common stock offering and $25.7 billion from excess liquidity to 
redeem its CPP Preferred. Debt proceeds may have comprised a portion of 
the ``excess liquidity,'' although precise usage of debt proceeds is 
difficult to track. See Bank of America Corporation, Form 10-K for the 
Fiscal Year Ended December 31, 2009, at 18 (Feb 26, 2010) (online at 
www.sec.gov/Archives/edgar/data/70858/000119312510041666/d10k.htm).
    \292\ Feinberg Oral Testimony before the Panel, supra note 185.
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            b. Compensation Trends
    The data collected to date do not indicate that 
compensation levels have been altered significantly. CEO pay at 
companies in the S&P 400, which is made up of firms with an 
average market capitalization of around $2 billion,\293\ 
increased between 2008 and 2009, despite the widespread turmoil 
in financial markets.\294\ Bonus pay increased 11.6 percent, 
and a higher percentage of CEOs received a bonus in 2009 than 
in 2008.\295\ At S&P 500 companies, which comprise many of the 
largest publicly traded firms in the United States, CEO 
compensation fell, but bonus compensation ``surged.'' \296\ 
Strikingly, among both S&P 400 and S&P 500 firms, more stock 
options were granted in 2009 than in 2008, as companies 
increased the number of options they granted to their employees 
so as to account for lower share values.\297\
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    \293\ Standard & Poor's, S&P MidCap 400, at 2 (online at 
www2.standardandpoors.com/spf/pdf/index/SP_MidCap_400_Factsheet.pdf).
    \294\ Equilar, Inc., Bucking Trend, S&P 400 CEO Compensation Rises 
in Equilar Pay Study (May 12, 2010) (online at www.equilar.com/company/
press-release/press-release-2010/bucking-trend-sp-400-ceo-compensation-
rises-in-equilar-pay-study.html) (hereinafter ``CEO Compensation Rises 
in Equilar Pay Study'') (``Median S&P 400 CEO compensation rose 
slightly from 2008 to 2009, increasing 1.7 percent. The median CEO's 
pay was $3.76 million in 2009, compared to $3.7 million in 2008.'').
    \295\ Id. (``Bonus payouts surged from a median of $656,531 in 2008 
to a median of $732,331 in 2009, an 11.6 percent increase. 25.4 percent 
of CEOs received no bonus this year, compared to 27.8 percent last 
year.'').
    \296\ Equilar, Inc., Overall CEO Compensation Falls, But Bonuses 
Surge in S&P 500 Pay Study (May 5, 2010) (online at www.equilar.com/
company/press-release/press-release-2010/overall-ceo-compensation-
falls-bonuses-surge-in-sp-500-pay-study.html) (hereinafter 
``Compensation Falls, But Bonuses Surge''). See also Devin Leonard, 
Bargain Rates for a C.E.O.?, New York Times (Apr. 3, 2010) (online at 
www.nytimes.com/2010/04/04/business/04comp.html?pagewanted=all) 
(hereinafter ``Bargain Rates for a C.E.O.?'') (stating that according 
to a study prepared for it by Equilar, the median pay package of CEOs 
at the largest companies for which data was available fell 13 percent, 
although the median cash payout increased 1 percent, the average cash 
payout fell 5 percent).
    \297\ CEO Compensation Rises in Equilar Pay Study, supra note 294; 
Compensation Falls, But Bonuses Surge, supra note 296.
---------------------------------------------------------------------------
    Overall, in 2009, the median pay for 12 CEOs at TARP 
recipients surveyed by The New York Times decreased 34 percent, 
although median cash compensation rose 20 percent.\298\ Wells 
Fargo, a TARP recipient that was not subject to direct 
oversight by the Special Master, gave its CEO a 107 percent 
raise and increased his base salary by $4.7 million (an 
increase of 537 percent).\299\ In 2010, pay at many TARP 
recipients increased, even when revenues did not. At Goldman 
Sachs, compensation increased by $3.7 billion, even though 
revenue decreased 13.3 percent. A similar disconnect between 
revenue and compensation occurred at Bank of America, one of 
the firms formerly supervised by the Special Master, where 
compensation as a percentage of total revenue increased by 5 
percent.\300\
---------------------------------------------------------------------------
    \298\ Bargain Rates for a C.E.O.?, supra note 296.
    \299\ New York Times, The Pay at the Top (Apr. 3, 2010) (online at 
projects.nytimes.com/executive_compensation?ref=business).
    \300\ Data accessed through SNL Financial Data Service (accessed 
Feb. 8, 2011). It is important to note that these compensation figures 
represent total compensation and benefits for all employees at Goldman 
Sachs and Bank of America, and therefore are affected by the inclusion 
of the lowest- and the highest-paid employees at the firm.
    Unlike Bank of America, Citigroup (which is also no longer under 
the supervision of the Special Master) lowered compensation and 
benefits approximately 4 percent, even though it saw a 7 percent 
increase in revenues in 2010. Compensation as a percentage of total 
revenue decreased by 3 percent.
---------------------------------------------------------------------------
    A Wall Street Journal study on pay at top financial firms 
in 2010 found that pay would increase 4 percent overall in 
2010; of the firms surveyed, 74 percent were expected to 
increase their compensation in 2010.\301\ Several exceptional 
assistance recipients, including Citigroup and Bank of America, 
enacted significant compensation increases after they exited 
from under the Special Master's oversight. In September 2010, 
Citigroup decided to pay stock salary to its top 25 employees, 
following the construct developed by the former Special Master. 
Based on this plan, the annual stock salary for Citigroup's 
named officers ranged from $4.2 million to $9 million.\302\ The 
company has also recently disclosed that it has awarded 
approximately $50 million in stock bonuses to its 15 top 
executives.\303\ In 2010, Bank of America increased its CEO's 
annual base salary from $800,000 to $950,000, also increasing 
the annual rates for two other officers.\304\ According to 
recent filings, Bank of America did not grant cash bonuses in 
2010 for its executive officers. However, the company did issue 
long-term incentive awards totaling $35.7 million for four of 
its named executive officers, which will be granted based on 
the company's future performance.\305\ Other TARP recipients 
enacted increases as well, with salaries at Wells Fargo rising 
to between $3.3 million and $5.6 million for four officers, 
increases of more than 500 percent.\306\
---------------------------------------------------------------------------
    \301\ It is important to note that compensation costs should not 
necessarily follow revenue growth, as revenue does not take into 
consideration the net profitability of a company, but compensation 
compared to revenue is a metric often employed when analyzing pay 
practices. Liz Rappaport, Aaron Lucchetti, and Stephen Grocer, Wall 
Street Pay: A Record $144 Billion, Wall Street Journal (Oct. 11, 2010) 
(online at online.wsj.com/article/
SB10001424052748704518104575546542463746562.html) (stating that 
revenues are expected to increase 3 percent at the surveyed firms in 
2010 in comparison to 2009).
    \302\ This group of executive officers excludes Citigroup CEO 
Vikram Pandit, who did not receive a stock salary for 2010, and whose 
annual salary was $1 per year. Citigroup, Inc., Form 8-K for the Period 
Ended September 21, 2010 (Sept. 24, 2010) (online at sec.gov/Archives/
edgar/data/831001/000114420410050767/v197421_8k.htm); Citigroup Inc., 
Citi Files Disclosure Regarding 2010 Compensation (Sept. 24, 2010) 
(online at www.citigroup.com/citi/press/2010/100924a.htm).
    \303\ Common stock awards may be subject to certain vesting and/or 
transfer restrictions. Value based on the company's closing stock price 
on January 18, 2011 ($4.80). Staff compilation from SEC Form 4 
disclosures for 15 top Citi executives. See Citigroup, Inc., Form 4: 
Shirish Apte (CEO, Asia Pacific) (Jan. 20, 2011) (online at 
www.sec.gov/Archives/edgar/data/831001/000118143111004505/xslF345X03/
rrd297989.xml); Citigroup, Inc., Form 4: Don Callahan (Chief 
Administration Officer) (Jan. 20, 2011) (online at www.sec.gov/
Archives/edgar/data/831001/000118143111004507/xslF345X03/
rrd297992.xml); Citigroup, Inc., Form 4: John C. Gerspach (Chief 
Financial Officer) (Jan. 20, 2011) (online at www.sec.gov/Archives/
edgar/data/831001/000118143111004509/xslF345X03/rrd297996.xml); 
Citigroup, Inc., Form 4: Michael S. Helfer (General Counsel) (Jan. 20, 
2011) (online at www.sec.gov/Archives/edgar/data/831001/
000118143111004512/xslF345X03/rrd297999.xml); Citigroup, Inc., Form 4: 
Edward J. Kelly III (Vice Chairman) (Jan. 20, 2011) (online at 
www.sec.gov/Archives/edgar/data/831001/000118143111004514/xslF345X03/
rrd298002.xml); Citigroup, Inc., Form 4: Eugene M. McQuade (CEO, 
Citibank, N.A.) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/
data/831001/000118143111004517/xslF345X03/rrd298004.xml); Citigroup, 
Inc., Form 4: William Mills (CEO Europe, Middle East, Africa) (Jan. 20, 
2011) (online at www.sec.gov/Archives/edgar/data/831001/
000118143111004520/xslF345X03/rrd298006.xml); Citigroup, Inc., Form 4: 
Jeffrey R. Walsh (Controller) (Jan. 20, 2011) (online at www.sec.gov/
Archives/edgar/data/831001/000118143111004523/xslF345X03/
rrd298009.xml); Citigroup, Inc., Form 4: Stephen Bird (CEO Asia 
Pacific) (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/
831001/000118143111004506/xslF345X03/rrd297991.xml); Citigroup, Inc., 
Form 4: Michael Corbat (CEO, Citi Holdings) (Jan. 20, 2011) (online at 
www.sec.gov/Archives/edgar/data/831001/000118143111004508/xslF345X03/
rrd297995.xml); Citigroup, Inc., Form 4: John P. Havens (President and 
Chief Operating Officer) (Jan. 20, 2011) (online at www.sec.gov/
Archives/edgar/data/831001/000118143111004510/xslF345X03/
rrd297998.xml); Citigroup, Inc., Form 4: Lewis B. Kaden (Vice Chairman) 
(Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/831001/
000118143111004513/xslF345X03/rrd298001.xml); Citigroup, Inc., Form 4: 
Brian Leach (Chief Risk Officer) (Jan. 20, 2011) (online at 
www.sec.gov/Archives/edgar/data/831001/000118143111004515/xslF345X03/
rrd298003.xml); Citigroup, Inc., Form 4: Manuel Medina-Mora (CEO 
Consumer Banking for the Americas) (Jan. 20, 2011) (online at 
www.sec.gov/Archives/edgar/data/831001/000118143111004518/xslF345X03/
rrd298005.xml); Citigroup, Inc., Form 4: Alberto J. Verme (CEO, Europe, 
Middle East, Africa) (Jan. 20, 2011) (online at www.sec.gov/Archives/
edgar/data/831001/000118143111004521/xslF345X03/rrd298007.xml).
    \304\ Bank of America Corporation, Form 8-K for the Period Ended 
January 27, 2010 (Feb. 2, 2010) (online at sec.gov/Archives/edgar/data/
70858/000119312510019661/d8k.htm).
    \305\ Of the amount granted in long-term incentive awards, $33.0 
million came in the form of performance contingent restricted stock 
units (PRSUs), and $2.7 million were cash-settled stock units. One-
twelfth of the total cash-settled stock units will vest and become 
payable on the 15th day of each month beginning in March 2011 and 
ending in February 2012. PRSUs will be awarded based on whether Bank of 
America's return on assets (ROA) from the first quarter of 2011 to the 
fourth quarter of 2015 exceeds certain percentage benchmarks. Bank of 
America Corporation, Form 8-K for the Period Ended January 25, 2011 
(Jan. 31, 2011) (online at sec.gov/Archives/edgar/data/70858/
000095012311007348/g25940e8vk.htm) (hereinafter ``BofA Form 8-K January 
25, 2011''); Bank of America Corporation, Form 8-K: Exhibit 10.1 (Jan. 
31, 2011) (online at sec.gov/Archives/edgar/data/70858/
000095012311007348/g25940exv10w1.htm).
    \306\ Wall Street Pay, supra note 204, at 15.
---------------------------------------------------------------------------
    Beyond disclosing details on compensation plans for 2010, 
several companies have already begun to report changes in 2011 
base salary rates for some of their senior executive officers. 
For example, Citigroup's CEO will have an annual base salary 
rate of $1.75 million for 2011, after accepting only a $1 
salary in 2009 and 2010.\307\ Bank of America raised the base 
salary for three of its named executive officers to $850,000, 
although its CEO, Brian Moynihan, will maintain his previous 
annual base salary rate of $900,000.\308\ At Goldman Sachs, CEO 
Lloyd Blankfein's base salary for 2011 will increase more than 
threefold, from $600,000 to $2 million. The company also stated 
that it would increase the individual base salary for four 
other officers from $600,000 to $1.85 million.\309\ The Council 
of Institutional Investors referred to post-crisis compensation 
increases as the ``unintended consequences'' of the 
government's compensation regime, which created a ``loophole'' 
by not imposing salary caps.\310\ The Special Master's full 
impact may be unknown at this point, but Wall Street pay shows 
no signs of slowing.
---------------------------------------------------------------------------
    \307\ Citigroup, Inc., Form 8-K for the Period Ended January 18, 
2011 (Jan. 21, 2011) (online at sec.gov/Archives/edgar/data/831001/
000114420411003391/v208667_8k.htm).
    \308\ BofA Form 8-K January 25, 2011, supra note 305. The previous 
base salary for the three individuals was $800,000.
    \309\ The Goldman Sachs Group, Inc., Schedule 14A: Definitive Proxy 
Statement, at 20 (Apr. 7, 2010) (online at www.sec.gov/Archives/edgar/
data/886982/000119312510078005/ddef14a.htm); The Goldman Sachs Group, 
Inc., Form 8-K for the Period Ended January 26, 2011 (Jan. 28, 2011) 
(online at sec.gov/Archives/edgar/data/886982/000095012311006686/
y89310e8vk.htm).
    \310\ Wall Street Pay, supra note 204, at 15. However, although in 
many cases pay has rebounded to pre-crisis levels--or surpassed them--
the structure of that pay may have changed. Mercer, Organizations are 
Focusing on Measuring Performance Aligned with Pay, Mercer survey shows 
(Jan. 19, 2011) (online at www.mercer.com/press-releases/1405765) (``In 
response to the ongoing legislative and regulatory demands regarding 
executive compensation, organizations are focusing efforts on measuring 
performance and aligning it with pay. Nearly two-thirds of companies 
are introducing new financial performance measures in their annual 
incentive programs, according to a new survey by Mercer.'').
---------------------------------------------------------------------------
            c. Challenges of Evaluating Impact
    Despite this data suggesting that the Special Master's 
impact has been limited, it is difficult to develop a precise 
assessment of the Special Master's impact because in cases 
where institutions changed their pay practices, it is difficult 
to ascribe plainly the changes to the Special Master, because 
there are few, if any, clear links.\311\ In other cases, it may 
be that the Special Master's impact cannot be distinguished 
from the effect of other government policies. For example, an 
institution may have set a certain compensation package as a 
result of ARRA, and this level was left unaltered by the 
Special Master.\312\ Further, there are numerous factors that 
go into executive pay that are difficult to capture in a 
consistent way, and it is difficult to establish causation 
between compensation and multiple possible influences on that 
compensation.
---------------------------------------------------------------------------
    \311\ For example, Morgan Stanley--which was a TARP recipient but 
not an exceptional assistance recipient--significantly altered its 
compensation practices in April 2009, but it is not apparent that those 
changes were related to the Special Master's work. Its 10-page report 
on the new plan never once mentioned the Special Master, even though it 
contains certain elements that mimic core elements in the design of the 
Special Master's determinations. Despite containing many elements that 
are similar to the government's compensation regime, Morgan Stanley 
stated that the plan was derived from the institution's ``clear and 
well-defined `pay-for-performance' philosophy that pervades the Firm's 
culture and motivates its employees.'' At the same time, it is evident 
that the new policy was developed with the government's compensation 
standards in mind. The report states that its clawback provision 
``exceeds TARP requirements'' and that in light of ``recent 
amendments'' to EESA and ARRA, it would be ``reviewed'' and ``modified 
if necessary to comply with applicable law.'' See Morgan Stanley, 2009 
Compensation Report: Adapting Employee Compensation to the Current 
Environment, at 3, 7 (Apr. 2009) (online at www.morganstanley.com/
about/ir/pdf/comp_report042009.pdf).
    \312\ This scenario may have occurred in several of the Special 
Master's 2009 determinations. Because the Special Master's cash 
compensation determinations applied to only two months--November and 
December 2009--he was in the position of reviewing a pre-existing 
payment plan and determining whether that plan should continue or 
should be altered. He had two options: he could use the final two 
months of 2009 to balance compensation paid in prior months, or he 
could leave the rate intact. See Sections C.2. and D.4.a, supra.
---------------------------------------------------------------------------
    The amounts determined by firms that are establishing pay 
for a particular executive in a given year may reflect concerns 
that that executive may leave and will be difficult to replace, 
returns to the firm from the department requiring the 
executive's area of expertise, pay at prior employers, the 
overall health of the firm, concerns with public relations, 
general trends, and any number of similar influences, in 
addition to the work of the Special Master. Determining the 
extent of the influence of the Special Master, particularly on 
firms that were not within the Special Master's jurisdiction, 
is very difficult.
    Finally, even beyond the difficulties in establishing 
causation between the Special Master's work and larger 
compensation trends or influences, and as noted above, the 
Special Master's governing concerns were not necessarily 
identical to those common in the academic and policy 
literature. The Special Master had statutory and regulatory 
instructions that included themes common to the academic and 
policy debate, but were not necessarily identical. Risk, 
return, and performance are clearly germane to the debate, but 
many of the agency problems that animate the ``managerial 
power'' and ``optimal contracting'' theories are less relevant, 
because there was an agent with the ability to review and 
affect compensation: the Special Master. Further, of returns to 
taxpayers, market stability, and market disruption, cited by 
the Office of the Special Master as its primary concerns, only 
the first has a clear analog to more typical, non-crisis, non-
TARP executive compensation discussions, in the form of returns 
accruing to shareholders or creditors. Although market 
stability has been a thread in the executive compensation 
debate generally, it has little role in a typical board's 
determination of what to pay a CEO.\313\ Finally, although the 
IFR conferred significant discretion on the Office of the 
Special Master, the IFR still created limitations: for example, 
the Special Master could only examine structure, not dollar 
amounts, for employees 26-100, among other similar 
requirements. Such limitations mean that the Special Master is 
not perfectly comparable to a compensation committee on a 
corporate board. Those committees would typically be bound by a 
variety of regulations and principles but would nonetheless 
have the capacity to be creative and would not have the 
additional concerns conferred by a taxpayer investment weighing 
upon their decisions.
---------------------------------------------------------------------------
    \313\ See, e.g., International Business Machines Company, Schedule 
14A: Definitive Proxy Statement (Mar. 8, 2010) (online at www.sec.gov/
Archives/edgar/data/51143/000110465910012758/a09-36376_1def14a.htm) 
(describing the Compensation Committee's approach to benchmarks, 
strategic objectives and performance-based compensation, contributions 
by the employee, and other similar factors).
---------------------------------------------------------------------------
    As a result, although the Special Master stated that he 
hoped to affect compensation in the market generally, it is 
unclear whether this was in fact a realistic goal: it is 
possible that the unique elements of the Special Master's 
involvement will outweigh the more universal concerns that 
contributed to his determinations. The Office of the Special 
Master has stated that it is, at this point, too early to tell 
what their contribution to the debate will be.\314\ As the 
financial markets have only recently emerged from the acute 
crisis, it may take some time before some form of equilibrium 
appears in executive compensation practices, at which point it 
may be possible to evaluate the Special Master's contribution 
more clearly.
---------------------------------------------------------------------------
    \314\ Treasury conversations with the Panel (Jan. 18, 2011). It is 
also worth noting that there may be unintended consequences from the 
Special Master's work that have yet to be determined: as discussed 
above, efforts to align more closely executive compensation and company 
performance contributed substantially to the increase in executive pay 
over the 1980s and 1990s. See Section B.1.a, supra.
---------------------------------------------------------------------------
            d. Compliance
    There have also been reports that some firms did not comply 
with their obligations under EESA as amended and the IFR. 
According to the Council of Institutional Investors study, 
``[s]ome banks found ways around prohibitions that were 
explicit, namely the ban on golden parachutes.'' The study 
found that at least three TARP recipients paid ``golden 
parachutes,'' which included a payment to a chief operating 
officer in the form of a ``non-compete'' payment that ``was 
clearly a golden parachute by another name.'' \315\ According 
to a 2009 SIGTARP report based on self-reported data, nearly 83 
percent of surveyed institutions reported that they complied 
with the golden parachute provisions, and 80 percent reported 
that they complied with the clawback requirements.\316\
---------------------------------------------------------------------------
    \315\ Wall Street Pay, supra note 204, at 15.
    \316\ SIGTARP Survey Provides Insights on Compliance, supra note 8, 
at 9. These data should be considered in light of the fact that in both 
cases, the bulk of the remaining respondents did not specifically 
address compliance with the provision. In other words, no institutions 
reported that they choose not to comply with the provisions.
---------------------------------------------------------------------------
    While these reports suggest that at least some 
institutions--either intentionally or negligently--opted not to 
comply with the government's compensation rules, it is 
impossible to determine the scope of noncompliance without more 
extensive reporting by the Office of the Special Master and 
Treasury. Current public disclosures by the Special Master 
include a substantial amount of critical information, but they 
do not detail the Office's ongoing monitoring efforts and 
findings. Treasury's Office of Internal Review has not made any 
information on its actions or findings available to the public. 
To the Panel, OIR noted that it reviews non-exceptional 
assistance recipients only for the completeness of their self-
certifications. For exceptional assistance recipients, OIR does 
conduct on-site audits of payroll and internal audit 
information to ensure compliance with the Special Master's pay 
amounts. This review, however, examines only the amounts paid, 
and does not examine whether the companies complied with other 
provisions of the Special Master's determinations, such as the 
requirement that employees not engage in any derivative or 
other hedging transactions with regard to company stock. 
Without this information, the Panel cannot assess whether other 
institutions failed to abide by the rules or whether the rules 
had any impact at all at the non-exceptional assistance TARP 
recipients.

5. Missed Opportunities

    In the early days of his tenure, the Special Master told 
Reuters that he anticipated that his pay scheme could be used 
as a ``model'' for pay rules used by other government agencies 
in the future.\317\ He made similar statements in his testimony 
before the Panel: ``I believe that these standards could help 
lay the groundwork for appropriate compensation structures at 
all financial institutions, regardless of whether those 
institutions are receiving financial assistance from the 
government.'' \318\ In statements to Panel staff, Treasury 
echoed this sentiment, expressing its view that it hoped to use 
publicly available advisory opinions to create a body of best 
practices that would serve as non-binding precedents for 
financial firms.\319\
---------------------------------------------------------------------------
    \317\ Steve Eder, U.S. ``Pay Czar'' Feinberg Using Formulas, Not 
Caps, Reuters (Sept. 25, 2009) (online at www.reuters.com/article/
idUSTRE58O3KP20090925).
    \318\ Feinberg October 2010 Written Testimony, supra note 60, at 3-
4. See also Feinberg October 2009 Written Testimony, supra note 258, at 
7 (``Hopefully, the individual final compensation determinations I make 
may yet be used, in whole or in part, by other companies in modifying 
their individual compensation practices. I believe the final 
compensation determinations I make and discuss in my Report are a 
useful model to guide others in the private marketplace.'').
    \319\ Treasury conversations with Panel staff (June 8, 2009).
---------------------------------------------------------------------------
    Measured against the initial expectations that executive 
compensation practices for TARP recipients might have a long-
term effect on a broad swath of institutions, the data suggest 
that the Special Master's ambitious aspirations are unlikely to 
be fulfilled.\320\ In his response to a question at the Panel's 
executive compensation hearing in October 2010, Mr. Feinberg 
said that if the culture of pay on Wall Street has not changed, 
``I think that our work has not been successful and it's not 
being followed and it is a problem.'' \321\ Similarly, when 
probed by the Panel, Secretary Geithner concurred, adding that 
``I would not claim that we've seen enough change in the 
structure of compensation.'' \322\ As noted above, it is 
possible that in the future the Special Master's work will be 
seen to have a more broad-ranging impact, but at present, that 
does not appear to be the case. In conversations with Panel 
staff, the Office of the Special Master stated that it is too 
early to tell.\323\
---------------------------------------------------------------------------
    \320\ See Orens October 2010 Written Testimony, supra note 204, at 
3 (``The Special Master's actions may have supported the public 
interest and attempted to lower the tension between Wall Street and 
Main Street, but most companies would not view them as a model for 
effective incentive compensation.'').
    \321\ Feinberg Oral Testimony before the Panel, supra note 185.
    \322\ Geithner Oral Testimony before the Panel, supra note 44.
    \323\ Treasury conversations with the Panel (Jan. 18, 2011).
---------------------------------------------------------------------------
    The Special Master himself has cautioned against extending 
the Office's jurisdiction to other TARP recipients and 
emphasized the uniqueness of his situation and the narrowness 
of his determinations. In the Final Report, he stated that he 
might have created a ``useful model'' for future determinations 
made by future Special Masters, but he cautioned against 
extending the Office's jurisdiction.\324\
---------------------------------------------------------------------------
    \324\ Final Report from Special Master Kenneth R. Feinberg, supra 
note 55, at 15. It is worth noting in this context that in 
communications with Panel staff, Federal Reserve staff explained that 
they had included the Special Master's work as a source for their 
executive compensation guidance, but kept the particular context for 
the Special Master's work in mind as they did so. See note 275, supra.
---------------------------------------------------------------------------
    Despite the many observers--ranging from government 
agencies to corporate compensation committees to pension 
funds--who might be interested in using the Special Master's 
work on compensation as a data point for developing their own 
compensation policies, it will be difficult for them to do so. 
In the absence of more disclosure about the Special Master's 
decision-making process and more data on the impact of the 
Special Master's work on the companies he supervised, the work 
of the Office will not serve as a detailed guide to best 
practices on executive compensation, as was once hoped. What 
seemed an opportunity for sweeping reform now seems likely to 
leave a far more modest legacy.

                   E. Conclusions and Recommendations

    In the more than two years since EESA was passed, 
exceptional assistance institutions have altered their cash 
compensation and their compensation structures. The Office of 
the Special Master has been at the center of these two reforms. 
In 2009, the year of the Special Master's first determinations 
the average percentage decrease in overall compensation was 
54.8 percent (with a range between 24.2 percent and 85.6 
percent) for the top 25 employees. The Special Master also 
restructured compensation at several of the institutions he 
supervised, as stock compensation came to play a more 
significant role in their compensation packages, and employees 
generally received a lower percentage of their pay in the form 
of guaranteed compensation. Furthermore, the Special Master 
demanded that AIG repay certain bonuses paid to its employees, 
and when certain employees pledged to do so, the Special Master 
ensured that AIG returned all of the money it pledged to 
return. The Special Master achieved these changes in a complex 
environment in which he was constantly operating in the media's 
spotlight.
    Furthermore, the Special Master's Look Back Review of 
payments made by TARP recipients prior to February 17, 2009 
covered 419 firms and analyzed $2.3 billion in payments. In the 
Final Report, Mr. Feinberg offered a set of recommendations 
that could be adopted by compensation committees, including a 
recommendation that firms restructure existing payment 
agreements in the event of a crisis situation. In the wake of 
Dodd-Frank, as agencies like the Federal Reserve and the FDIC 
begin the work of drafting rules on executive compensation, 
these recommendations may prove useful.
    Despite these achievements, the public knows very little 
about how the government has implemented the compensation rules 
or about the impact of these measures. The public has been 
deprived of this information because Treasury has neglected to 
disclose critical information about its implementation of the 
compensation rules. Of particular concern are the unanswered 
questions about monitoring of the 767 TARP recipients that were 
covered by the compensation rules and overseen by the OIR, 
including several large institutions like Morgan Stanley and 
Goldman Sachs. How many employees have been covered by the 
government's oversight? How many employees have had their pay 
altered as a result of the government's involvement? How has 
the government's involvement affected compensation at these 
institutions? Has it affected the structure of compensation in 
addition to the level of compensation? How many employees have 
left TARP recipients as a result of the compensation rules?
    Unlike the Office of Internal Review, the Special Master 
has made a substantial amount of summary information on his 
determinations publicly available. The Office of the Special 
Master also provided considerable additional information to the 
Panel, though the information could, and should, have been 
included in public determination letters or on Treasury's 
website. Important information still remains obscured from 
public view, such as the specific comparators used as the basis 
of his determinations. Due to the lack of disclosure, it would 
be very difficult, if not impossible, for any board of 
directors, shareholder, or government agency to use the Special 
Master's public determination letters as the basis for 
mimicking those decisions.
    While a comprehensive assessment of the government's work 
will not be possible until more information is released, recent 
data suggest that the government's intervention in executive 
compensation through the TARP ultimately may have little effect 
on executive compensation practices. Pay has rebounded at many 
Wall Street firms although the structure of compensation has 
changed in some cases. Although the Special Master may have 
successfully achieved a key set of goals--including following 
the specific guidelines set forth in the IFR and reducing cash 
compensation at the companies supervised during the relevant 
period--the Special Master's effect on long-term compensation 
practices seems likely to be more limited than initially hoped.
    Regardless, the government's work is not done. Ms. 
Geoghegan will continue to oversee compensation determinations 
at exceptional assistance firms that have not yet repaid their 
TARP assistance. While she will continue to oversee four 
institutions, 660 TARP institutions that were subject to the 
compensation rules remain subject to ongoing government 
oversight by Treasury's Office of Internal Review, and bank 
regulators will continue to oversee pay at still more 
institutions.
    The Office of the Special Master and the Office of Internal 
Review have opportunities to incorporate lessons learned from 
the past two years. As the new Special Master, Ms. Geoghegan 
has the opportunity to issue strong, thoughtful determinations 
for employees at the institutions she continues to supervise. 
The Office of the Special Master can also become more 
transparent, so that more companies and individuals can gain an 
understanding of its decision-making process. Similarly, the 
Office of Internal Review has an opportunity to share data on 
its efforts to ensure that TARP recipients comply with 
compensation rules. Improved transparency will enable taxpayers 
to reach a more informed view of the successes and failures of 
the government's regulation of compensation and will increase 
the likelihood that other institutions will employ the Special 
Master's prescriptions and principles as a model for 
compensation practices in the future.
    The Panel recommends that Treasury, and the Office of the 
Special Master specifically, address the following issues:
           Transparency and Accountability
          -- Non-exceptional assistance institutions: 
        Treasury's Office of Internal Review should issue a 
        report on the compensation practices of TARP recipients 
        who did not fall under the Special Master's purview. 
        The report should include details on pay practices at 
        these institutions since the IFR was issued, including 
        the number of employees covered, the number of 
        employees who have had their compensation altered as a 
        result of the Office's involvement, the impact on cash 
        compensation, the impact on compensation structure, and 
        employee turnover. It should also note instances in 
        which the Office of Internal Review discovered 
        violations of the IFR and steps that the Office took to 
        remedy to these situations.
          -- Release of information on compensation paid 
        between the passage of the IFR and the Special Master's 
        release of his first determinations: The Office of the 
        Special Master should release data on compensation paid 
        to exceptional assistance recipients during this four-
        month period. The Special Master, in consultation with 
        the Office of Internal Review, should release a 
        statement on whether the exceptional assistance 
        institutions complied with the provisions of the IFR 
        during this period.
          -- Turnover data: Given that part of the Special 
        Master's mandate was to balance reasonable pay levels 
        with talent retention, the Office of the Special Master 
        should release data on employee turnover at exceptional 
        assistance recipients. These data should include 
        turnover data for exceptional assistance firms for 2009 
        and 2010, as well as comparative data for prior years. 
        It should also include turnover data for other similar 
        firms.
          -- Individual pay comparison data: In response to a 
        Panel request, the Office of the Special Master 
        provided the Panel with data on compensation changes 
        for covered employees between 2008 and 2009 and between 
        2007 and 2009. The Office of the Special Master should 
        make individual pay data available for several years 
        prior to 2007 as well, and should also post this 
        information on Treasury's website, including the data 
        in terms of values and percentages.
          -- Detailed information on performance incentives: 
        Consistent with applicable laws, the Special Master 
        should release more information to the public about the 
        performance targets used as the basis for performance-
        based compensation. Without this information, it is 
        impossible to determine whether institutions are 
        adequately linking employee performance to employee 
        compensation. The Special Master should also release 
        information on whether any performance-based 
        compensation was improperly provided to employees who 
        did not meet performance targets.
          -- Company proposals: When the Special Master 
        publishes a determination letter, the letter should 
        also include detailed information on what the 
        exceptional assistance companies proposed compensation 
        packages contained.
          -- Specific rationales for determination decisions: 
        The determination letters often do not explain how the 
        Special Master arrived at or applied the compensation 
        structures used to evaluate companies' proposals. 
        Further discussion of the Special Master's decision-
        making process beyond boilerplate language is necessary 
        to determine the appropriateness of compensation. In 
        addition, award amounts above certain amounts required 
        the Special Master's specific authorization, which was 
        occasionally given. However, the rationale for these 
        outlier decisions was not provided.
          -- The future of the Office of the Special Master: 
        Treasury should make a formal public announcement of 
        its plans for the Office of the Special Master, 
        including the anticipated release date of its 2011 
        determinations.
          -- Office of Internal Review monitoring: The Office 
        of Internal Review should publicly disclose specific 
        information on its activities in monitoring both 
        exceptional and non-exceptional assistance 
        institutions, including the frequency of such 
        monitoring, whether it initiates independent 
        investigations into a company's pay practices or relies 
        solely on factual information provided by the TARP 
        recipient, its process for communicating its findings 
        to the institutions, and enforcement mechanisms it 
        pursues to ensure that the institutions comply with 
        ARRA and the IFR. Finally, the Office should disclose 
        its plans for monitoring compensation at these 
        institutions in the future.
          -- Expand scope of Office of Internal Review 
        monitoring: The Office of Internal Review should 
        promptly expand its oversight activities to incorporate 
        reviews of all relevant provisions of EESA as amended, 
        the IFR, and the Special Master's determinations.
          -- Lessons Learned and Best Practices: The 
        extraordinary legislation and regulations enacted 
        during the financial crisis provided Treasury with 
        unprecedented authority to intervene with private 
        institutions' compensation practices. Given these 
        circumstances, it is important that Treasury make 
        publicly available a guide on the lessons it has 
        learned during this process, including best practices 
        for executive compensation.
          -- Publish a summary report: Treasury should release 
        a report on executive compensation at all TARP 
        recipients, akin to the Special Master's Final Report, 
        including information on compensation changes at non-
        exceptional assistance institutions and comparative 
        data on institutions that did not receive TARP 
        assistance.
          -- Publish a follow-up report: The Office of the 
        Special Master should release a follow-up to the Final 
        Report of Special Master Feinberg that discusses the 
        Office of the Special Master's decision-making process. 
        The report should discuss how he responded to different 
        circumstances at the companies and how the Special 
        Master balanced competing principles.
                        ANNEX I: SALARY TABLES 


                     FIGURE 1: AMERICAN INTERNATIONAL GROUP, INC. 2009 PROPOSAL v. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                          Percentage Change in
                                                               Percentage Change in           Total Direct
                        Employee ID                              Cash Salary from          Compensation from
                                                              Proposal to Exhibit I      Proposal to Exhibit I
----------------------------------------------------------------------------------------------------------------
AIGa......................................................                     (89.5)                     (96.6)
AIGb......................................................                     (86.8)                     (95.8)
AIGc......................................................                     (84.8)                     (95.1)
AIGd......................................................                     (47.4)                     (94.0)
AIGe......................................................                     (56.1)                     (91.1)
AIGf......................................................                     (77.5)                     (91.0)
AIGg......................................................                     (57.5)                     (87.9)
AIGh......................................................                     (65.1)                     (80.8)
AIGi......................................................                     (46.2)                     (25.0)
AIGj......................................................                       0.0                        0.0
AIGk......................................................                     (73.1)                       9.2
AIGl......................................................                     (75.0)                      18.8
AIGm......................................................                     (74.6)                      32.8
----------------------------------------------------------------------------------------------------------------


                              FIGURE 2: BANK OF AMERICA 2009 PROPOSAL v. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                          Percentage Change in
                                                               Percentage Change in           Total Direct
                        Employee ID                              Cash Salary from          Compensation from
                                                              Proposal to Exhibit I      Proposal to Exhibit I
----------------------------------------------------------------------------------------------------------------
BoAa......................................................                    (100.0)                    (100.0)
BoAb......................................................                     (47.4)                     (67.0)
BoAc......................................................                     (41.1)                     (59.4)
BoAd......................................................                     (42.3)                     (52.5)
BoAe......................................................                     (28.6)                     (51.8)
BoAf......................................................                     (28.6)                     (50.0)
BoAg......................................................                     (57.1)                     (38.7)
BoAh......................................................                     (49.6)                     (36.8)
BoAi......................................................                     (47.4)                     (33.3)
BoAj......................................................                     (47.4)                     (32.9)
BoAk......................................................                     (41.1)                     (27.6)
BoAl......................................................                     (42.3)                     (18.3)
BoAm......................................................                     (41.1)                     (17.0)
----------------------------------------------------------------------------------------------------------------


                                  FIGURE 3: CHRYSLER 2009 PROPOSAL v. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                          Percentage Change in
                                                               Percentage Change in           Total Direct
                        Employee ID                              Cash Salary from          Compensation from
                                                              Proposal to Exhibit I      Proposal to Exhibit I
----------------------------------------------------------------------------------------------------------------
ChryslerA.................................................                    (100.0)                     (16.8)
ChryslerB.................................................                       3.5                      (13.6)
ChryslerC.................................................                       2.3                       (8.8)
ChryslerD.................................................                       2.6                       (7.9)
ChryslerE.................................................                       2.2                       (7.5)
ChryslerF.................................................                      (6.4)                      (5.2)
ChryslerG.................................................                     (13.7)                      (4.1)
ChryslerH.................................................                       2.2                       (4.0)
ChryslerI.................................................                       8.5                       (2.5)
ChryslerJ.................................................                      (8.5)                      (2.1)
ChryslerK.................................................                       3.2                       (0.8)
ChryslerL.................................................                       2.0                       (0.4)
ChryslerM.................................................                       1.7                       (0.3)
ChryslerN.................................................                       1.7                       (0.3)
ChryslerO.................................................                       1.2                       (0.2)
ChryslerP.................................................                       1.2                       (0.2)
ChryslerQ.................................................                       0.9                       (0.2)
ChryslerR.................................................                       1.1                       (0.2)
ChryslerS.................................................                       1.1                       (0.2)
ChryslerT.................................................                       1.1                       (0.2)
ChryslerU.................................................                       0.8                       (0.2)
ChryslerV.................................................                       0.0                        0.0
ChryslerW.................................................                      11.1                        8.8
ChryslerX.................................................                      56.9                       41.7
ChryslerY.................................................                     115.3                       54.7
----------------------------------------------------------------------------------------------------------------


                             FIGURE 4: CHRYSLER FINANCIAL 2009 PROPOSAL v. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                           Percentage Change in
                                                                  Percentage Change in         Total Direct
                          Employee ID                               Cash Salary from        Compensation from
                                                                 Proposal to Exhibit I    Proposal to Exhibit I
----------------------------------------------------------------------------------------------------------------
ChryslerFinA..................................................                      0.0                   (50.8)
ChryslerFinB..................................................                      0.0                   (48.3)
ChryslerFinC..................................................                      0.0                   (48.2)
ChryslerFinD..................................................                      0.0                   (47.7)
ChryslerFinE..................................................                      0.0                   (47.0)
ChryslerFinF..................................................                      0.0                   (46.7)
ChryslerFinG..................................................                      0.0                   (46.3)
ChryslerFinH..................................................                      0.0                   (45.4)
ChryslerFinI..................................................                      0.0                   (42.9)
ChryslerFinJ..................................................                      0.0                   (42.4)
ChryslerFinK..................................................                      0.0                   (42.1)
ChryslerFinL..................................................                      0.0                   (41.3)
ChryslerFinM..................................................                      0.0                   (41.3)
ChryslerFinN..................................................                      0.0                   (41.0)
ChryslerFinO..................................................                      0.0                   (40.1)
ChryslerFinP..................................................                      0.0                   (35.2)
ChryslerFinQ..................................................                      0.0                    (5.5)
ChryslerFinR..................................................                      0.0                    (5.3)
ChryslerFinS..................................................                      0.0                    (5.0)
ChryslerFinT..................................................                      0.0                    (4.5)
ChryslerFinU..................................................                      0.0                    (4.5)
ChryslerFinV..................................................                      0.0                    (2.0)
----------------------------------------------------------------------------------------------------------------


                               FIGURE 5: CITIGROUP INC. 2009 PROPOSAL v. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                          Percentage Change in
                                                               Percentage Change in    Total Direct Compensation
                        Employee ID                              Cash Salary from       from Proposal to Exhibit
                                                              Proposal to Exhibit I                I
----------------------------------------------------------------------------------------------------------------
CitiA.....................................................                    (100.0)                    (100.0)
CitiB.....................................................                      35.7                      (40.7)
CitiC.....................................................                       0.0                        0.0
CitiD.....................................................                       0.0                        0.0
CitiE.....................................................                     (37.5)                       0.0
CitiF.....................................................                       0.0                        0.0
CitiG.....................................................                       0.0                        0.0
CitiH.....................................................                       0.0                        0.0
CitiI.....................................................                       0.0                        0.0
CitiJ.....................................................                       0.0                        0.0
CitiK.....................................................                       0.0                        0.0
CitiL.....................................................                       0.0                        0.0
CitiM.....................................................                       0.0                        0.0
CitiN.....................................................                       0.0                        0.0
CitiO.....................................................                       0.0                        0.0
CitiP.....................................................                       0.0                        0.0
CitiQ.....................................................                       0.0                        0.0
CitiR.....................................................                       0.0                        0.0
CitiS.....................................................                     (37.5)                       0.0
CitiT.....................................................                     (37.5)                       0.0
CitiU.....................................................                       0.0                        0.0
----------------------------------------------------------------------------------------------------------------


                               FIGURE 6: GENERAL MOTORS 2009 PROPOSAL V. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                          Percentage Change in
                                                               Percentage Change in           Total Direct
                        Employee ID                              Cash Salary from          Compensation from
                                                              Proposal to Exhibit I      Proposal to Exhibit I
----------------------------------------------------------------------------------------------------------------
GMa.......................................................                      26.8                      (23.4)
GMb.......................................................                       8.0                       (5.9)
GMc.......................................................                       5.8                       (4.6)
GMd.......................................................                       6.1                       (3.8)
GMe.......................................................                       8.4                       (3.3)
GMf.......................................................                      22.3                       (3.2)
GMi.......................................................                     (34.6)                      (0.5)
GMh.......................................................                      21.9                        0.0
GMj.......................................................                      32.8                        0.0
GMk.......................................................                      36.8                        0.0
GMl.......................................................                      14.5                        0.0
GMo.......................................................                      15.4                        0.0
GMp.......................................................                     (27.0)                       0.0
GMq.......................................................                     (31.9)                       0.0
GMr.......................................................                     (10.0)                       0.0
GMs.......................................................                      15.4                        4.5
GMt.......................................................                       4.1                        4.6
GMu.......................................................                      38.6                        6.5
GMv.......................................................                      46.4                       10.5
GMw.......................................................                      22.8                       13.7
----------------------------------------------------------------------------------------------------------------


                                    FIGURE 7: GMAC 2009 PROPOSAL V. EXHIBIT I
----------------------------------------------------------------------------------------------------------------
                                                                                          Percentage Change in
                                                               Percentage Change in           Total Direct
                        Employee ID                              Cash Salary from          Compensation from
                                                              Proposal to Exhibit I      Proposal to Exhibit I
----------------------------------------------------------------------------------------------------------------
GMACa.....................................................                     (38.5)                     (25.8)
GMACb.....................................................                     (15.0)                     (11.1)
GMACc.....................................................                     (33.3)                     (10.3)
GMACd.....................................................                     (26.2)                      (9.8)
GMACe.....................................................                     (47.4)                      (6.3)
GMACf.....................................................                     (44.4)                      (3.1)
GMACg.....................................................                     (41.2)                      (2.7)
GMACh.....................................................                     (33.3)                      (1.9)
GMACi.....................................................                     (40.0)                      (1.4)
GMACj.....................................................                     (43.8)                      (1.2)
GMACk.....................................................                     (25.0)                      (1.1)
GMACl.....................................................                     (27.3)                      (1.1)
GMACm.....................................................                     (30.8)                      (1.0)
GMACn.....................................................                     (25.0)                      (0.3)
GMACo.....................................................                      (6.3)                       0.0
GMACp.....................................................                     (27.0)                       0.0
GMACq.....................................................                       0.0                        0.8
GMACr.....................................................                     (10.0)                       2.0
GMACs.....................................................                     (16.7)                       2.3
GMACt.....................................................                     (33.3)                       3.0
GMACu.....................................................                     (20.0)                       3.5
GMACv.....................................................                       0.0                        5.6
----------------------------------------------------------------------------------------------------------------

                     SECTION TWO: ADDITIONAL VIEWS 


         A.  Professor Kenneth R. Troske and J. Mark McWatters

    We concur with the issuance of the February report and 
offer the additional observations below. We appreciate the 
efforts the Panel staff made incorporating our suggestions 
offered during the drafting of the report.
    In these additional views we want to expand on the 
following passage in the report:

          As a result of providing a ``too-big-to-fail'' 
        backstop, the government may have eliminated certain 
        disincentives for pay arrangements that encourage 
        excessive risk taking. Too-big-to-fail status permits 
        shareholders and executives to accept substantial 
        amounts of risk, since they can reap the benefits but 
        will not suffer the consequences if the gambles are 
        unsuccessful. Accordingly, some commentators have 
        speculated that government guarantees could spur higher 
        wages for bank employees, as guarantees may have the 
        effect of minimizing the costs to bank shareholders and 
        bondholders of awarding higher compensation to 
        employees, which in turn could skew incentives for 
        executives toward projects that are riskier and produce 
        higher expected returns even if the associated risks 
        ultimately turn out to be excessive.\325\ The idea that 
        government involvement in an entity can further distort 
        executive compensation practices has led some lawmakers 
        to argue that recipients of TARP funds should not be 
        held to ordinary standards.\326\
---------------------------------------------------------------------------
    \325\ Incentive Compensation in the Banking Industry, supra note 
45, at 8-9 (``[P]romises to pay the employee in the event of default 
are a way of shifting the bank's wage bill onto the government. 
Government guarantees of financial institution debt may perversely 
encourage dangerous levels of risk taking and the offloading of 
employee compensation to the government.''). See also Stiglitz Written 
Testimony on Compensation in the Financial Industry, supra note 29, at 
7 (``But in some critical ways, incentives are actually worse now than 
they were before the crisis. The way the bank bailout was managed--with 
money flowing to the big banks while the smaller banks were allowed to 
fail (140 failed in 2009 alone)--has led to a more concentrated banking 
system. Incentives have been worsened too by the exacerbation of the 
problem of moral hazard. A new concept--with little basis in economic 
theory or historical experience--was introduced: the largest financial 
institutions were judged to be too big to be resolved.'').
    \326\ See, e.g., Don't Call it a Bonus, supra note 46 (Congressman 
Elijah Cummings of Maryland stating ``When folks come to the government 
for money, I want them understanding they have to live by new rules, or 
don't come at all. This is a time when all of America must come 
together to sacrifice ... Everybody, all of us, needs to be a part of 
that sacrifice.''); Sam Johnson Livid at AIG Bonus, supra note 46 
(``AIG asserts it can not risk a lawsuit if the company demands the 
money back. Johnson vehemently disagrees and believes that once the 
taxpayers own 80% of a company, the company no longer has the right to 
offer multi-million dollar bonuses to employees, especially those who 
sparked such extreme economic turmoil.'').

    In our view this is a key point for understanding the 
current state of executive compensation and the potential for 
future changes in the way executives are paid.
    As the report points out, there currently exist two main 
views about executive compensation--those who believe that 
shareholders have sufficient power to design compensation 
schemes that will maximize their wealth, and those who believe 
that executives are able to capture boards of directors 
allowing them to design compensation schemes that benefit 
managers at the expense of shareholders. However, as the above 
passage makes clear, in the presence of a ``too-big-to-fail'' 
(TBTF) guarantee provided by the government, both shareholders 
and executives have an incentive to design compensation schemes 
that reward executives for investing in risky projects.
    In a well-functioning competitive market, both shareholders 
and creditors have significant incentives to monitor the 
behavior of executives to prevent them from pursuing projects 
that expose the firm to excessive risk. However, once the 
government provides a guarantee that it will step in and bail 
out creditors and employees if the firm becomes insolvent, then 
creditors no longer have any incentive to pay attention to the 
risk the firm is absorbing. In fact, the presence of this 
government guarantee means that creditors are willing to lend 
money to the firm at a lower rate than they would charge to a 
similar firm without the TBTF guarantee.
    This lower price for credit causes the firm to rely more on 
debt to finance projects. In addition, the TBTF guarantee means 
that shareholders want managers to focus on riskier, higher 
return projects since shareholders will reap the gains from 
these higher returns projects but will be protected from the 
full extent of the loss if projects go bad. Shareholders 
incentivize managers to pursue riskier projects by compensating 
them for doing so through the use of bonuses and stock options 
that reward short-term gains. Firm managers are willing to go 
along with these plans because they know that the government 
will protect their pay in the event that the risky projects 
blow up and the firm begins teetering on the brink of 
bankruptcy. In addition, in order to encourage managers to 
invest in high-risk, high-return projects, shareholders are 
also willing to pay managers upfront bonuses so that, in the 
event the project turns bad, managers have already received 
hefty bonuses and are more than happy to ``retire'' from the 
firm. The key point is that in the presence of a TBTF guarantee 
provided by the federal government, the incentives of firm 
shareholders and executives are aligned--both want compensation 
schemes that encourage managers to invest in riskier projects.
    Recently, Standard & Poor's announced that it believed the 
market will experience another banking crisis and, in this 
crisis, the federal government will once again step in and bail 
out TBTF firms. Consequently, S&P will explicitly account for 
this TBTF guarantee in their credit ratings.\327\ This is a 
clear sign that the market remains convinced the TBTF guarantee 
remains in effect and goes a long way towards explaining why 
there has been very little change in the way Wall Street 
executives are paid. This also demonstrates why reforms such as 
say-on-pay and independent compensation committees that are 
part of the recently enacted Dodd-Frank legislation will have 
little, if any, impact. As long as the government is willing to 
guarantee the survival of large financial firms, both 
shareholders and executives will continue to push for 
compensation plans that reward executives for focusing on risky 
projects. It seems clear to us that if policymakers want to 
reform the way Wall Street executives are compensated, then 
they need to start by having the government stop guaranteeing 
the survival of ``too-big-to-fail'' financial firms.
---------------------------------------------------------------------------
    \327\ Standard & Poor's, Banks: Rating Methodology, at 16, 48-59 
(Jan. 6, 2011) (online at www2.standardandpoors.com/spf/pdf/media/
CriteriaFinancialInstitutionsRequestforCommentBanksRatingMethodology.pdf
).
             SECTION THREE: TARP UPDATES SINCE LAST REPORT 


                    A. Fifth Third Repays TARP Funds

    Fifth Third Bancorp of Cincinnati, Ohio fully repaid its 
$3.4 billion in outstanding TARP funds on February 2, 2011. 
Fifth Third was one of the five remaining stress-tested banks 
to have still outstanding TARP funds.

                     B. Sale of Citigroup Warrants 

    Treasury recorded gross proceeds of $312.2 million from its 
sale on January 25, 2011 of the final 465.1 million warrants to 
purchase Citigroup common stock.

 C. AIG Repays FRBNY, Converts Stock, Issues Warrants--Treasury Stake 
                         Jumps to 92.1 Percent 

    On January 14, 2011, AIG closed its previously announced 
recapitalization. Treasury converted its preferred shares in 
AIG to 1.655 billion shares of common stock, giving Treasury a 
92.1 percent stake in AIG. Monies from various asset sales were 
used to repay fully the remaining $21 billion outstanding under 
the Federal Reserve Bank of New York's revolving credit 
facility. Warrants were distributed on January 19, 2011, 
entitling AIG's common shareholders prior to the issuance of 
Treasury's common stock to purchase AIG common stock at $45 per 
share.
    Additionally, AIG announced a plan to sell its Taiwan life 
insurance business, Nan Shan Life, to a Taiwanese consortium 
for $2.16 billion. The sale could face regulatory hurdles.

                          D. New Stress Tests 

    The Federal Reserve is holding two rounds of stress tests 
for the 19 largest U.S. banks, with the groupings dependent on 
when the lenders want to increase their 2011 dividend. Banks 
planning to increase dividends in the second half of 2011 will 
have their test results released later than banks planning to 
raise dividends before mid-2011.

                              E. Metrics 

    Each month, the Panel's report highlights a number of 
metrics that the Panel and others, including Treasury, the 
Government Accountability Office (GAO), the Special Inspector 
General for the Troubled Asset Relief Program (SIGTARP), and 
the Financial Stability Oversight Board, consider useful in 
assessing the effectiveness of the administration's efforts to 
restore financial stability and accomplish the goals of EESA. 
This section discusses changes that have occurred in several 
indicators since the release of the Panel's January 2011 
report.

1. Financial Indices 

    Financial Stress. The St. Louis Financial Stress Index, a 
proxy for financial stress in the U.S. economy, remains at a 
relatively low level of 0.05 as of February 1, 2011. The index 
has decreased approximately 95 percent since its post-crisis 
peak in June 2010. Furthermore, the recent trend in the index 
suggests that financial stress continues moving toward its 
long-run norm. The index has decreased by more than five 
standard deviations since EESA was enacted in October 2008.

FIGURE 8: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX \328\

      
---------------------------------------------------------------------------
    \328\ Federal Reserve Bank of St. Louis, Series STLFSI: Business/
Fiscal: Other Economic Indicators (Instrument: St. Louis Financial 
Stress Index, Frequency: Weekly) (online at research.stlouisfed.org/
fred2/series/STLFSI) (accessed Feb. 8, 2011). The index includes 18 
weekly data series, beginning in December 1993 to the present. The 
series are: effective federal funds rate, 2-year Treasury, 10-year 
Treasury, 30-year Treasury, Baa-rated corporate, Merrill Lynch High 
Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-
rated, 10-year Treasury minus 3-month Treasury, Corporate Baa-rated 
bond minus 10-year Treasury, Merrill Lynch High Yield Corporate Master 
II Index minus 10-year Treasury, 3-month LIBOR-OIS spread, 3-month TED 
spread, 3-month commercial paper minus 3-month Treasury, the J.P. 
Morgan Emerging Markets Bond Index Plus, Chicago Board Options Exchange 
Market Volatility Index, Merrill Lynch Bond Market Volatility Index (1-
month), 10-year nominal Treasury yield minus 10-year Treasury Inflation 
Protected Security yield, and Vanguard Financials Exchange-Traded Fund 
(equities). The index is constructed using principal components 
analysis after the data series are de-meaned and divided by their 
respective standard deviations to make them comparable units. The 
standard deviation of the index is set to 1. For more details on the 
construction of this index, see Federal Reserve Bank of St. Louis, 
National Economic Trends Appendix: The St. Louis Fed's Financial Stress 
Index (Jan. 2010) (online at research.stlouisfed.org/publications/net/
NETJan2010Appendix.pdf).

[GRAPHIC] [TIFF OMITTED] T3750A.001


    Stock Market Volatility. Stock market volatility, as 
measured by the Chicago Board Options Exchange Volatility Index 
(VIX) on February 1, 2011, has remained flat since the Panel's 
January 2011 report. The VIX has fallen by more than sixty 
percent since its post-crisis peak in May 2010, although it 
remains higher than its post-crisis low on April 12, 2010.

FIGURE 9: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX \329\

      
---------------------------------------------------------------------------
    \329\ Data accessed through Bloomberg Data Service (Feb. 1, 2011). 
The CBOE VIX is a key measure of market expectations of near-term 
volatility. Chicago Board Options Exchange, The CBOE Volatility Index--
VIX, 2009 (online at www.cboe.com/micro/vix/vixwhite.pdf) (accessed 
Feb. 1, 2011).

[GRAPHIC] [TIFF OMITTED] T3750A.002


    Interest Rates. Since the Panel's January 2011 report, the 
3-month LIBOR has increased by approximately 2.5 percent, while 
the 1-month LIBOR decreased by less than a percentage point. 
Both rates remain below their post-crisis highs in June 
2010.\330\ Over the longer term, interest rates remain 
extremely low relative to pre-crisis levels, reflecting the 
impact of the actions of central banks and institutions' 
perceptions of reduced risk in lending to other banks.
---------------------------------------------------------------------------
    \330\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).

                       FIGURE 10: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF FEBRUARY 1, 2011)
----------------------------------------------------------------------------------------------------------------
                                                                                       Percent Change from Data
                         Indicator                               Current Rates        Available at Time of Last
                                                                                          Report (1/3/2011)
----------------------------------------------------------------------------------------------------------------
3-Month LIBOR \331\.......................................                     0.31                          2.5
1-Month LIBOR \332\.......................................                     0.26                       (0.1)
----------------------------------------------------------------------------------------------------------------
\331\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).
\332\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).

    Interest Rate Spreads. As of February 1, 2011, the 
conventional mortgage rate spread, which measures the 
difference between 30-year mortgage rates and 10-year Treasury 
bond yields, had decreased by 4 percent since the Panel's 
January 2011 report.\333\ The TED spread, which captures the 
difference between the 3-month LIBOR and the 3-month Treasury 
bill rates, serves as an indicator for perceived risk in the 
financial markets.\334\ As of February 1, 2011, the spread was 
16.6 basis points, decreasing by over 9 percent in January.
---------------------------------------------------------------------------
    \333\ Board of Governors of the Federal Reserve System, Federal 
Reserve Statistical Release H.15: Selected Interest Rates: Historical 
Data (Instrument: Conventional Mortgages, Frequency: Weekly) (online at 
www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/
H15_MORTG_NA.txt) (accessed Feb. 8, 2011) (hereinafter ``Federal 
Reserve Statistical Release H.15''); Federal Reserve Bank of St. Louis, 
Series DGS10: Interest Rates: Treasury Constant Maturity (Instrument: 
10-Year Treasury Constant Maturity Rate, Frequency: Daily) (online at 
research.stlouisfed.org/fred2/series/DGS10) (accessed Feb. 8, 2011).
    \334\ Federal Reserve Bank of Minneapolis, Measuring Perceived 
Risk--The TED Spread (Dec. 2008) (online at www.minneapolisfed.org/
publications_papers/pub_display.cfm?id=4120).
---------------------------------------------------------------------------
    The LIBOR-OIS (Overnight Index Swap) spread serves as a 
metric for the health of the banking system, reflecting what 
banks believe to be the risk of default associated with 
interbank lending.\335\ The spread increased over threefold 
from early April to July 2010, before falling in mid-July.\336\ 
The LIBOR-OIS spread grew by more than 26 percent since the 
Panel's January 2011 report. As shown in Figures 11 and 12 
below, these spreads remain below pre-crisis levels. The 
decrease in both the LIBOR-OIS spread and the TED spread from 
the middle of 2010 suggests that hesitation among banks to lend 
to counterparties has receded.
---------------------------------------------------------------------------
    \335\ Federal Reserve Bank of St. Louis, What the LIBOR-OIS Spread 
Says (May 11, 2009) (online at research.stlouisfed.org/publications/es/
09/ES0924.pdf).
    \336\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).
---------------------------------------------------------------------------

FIGURE 11: TED SPREAD \337\

      
---------------------------------------------------------------------------
    \337\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).

    [GRAPHIC] [TIFF OMITTED] T3750A.003
    

FIGURE 12: LIBOR-OIS SPREAD \338\

      
---------------------------------------------------------------------------
    \338\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).

    [GRAPHIC] [TIFF OMITTED] T3750A.004
    
    The interest rate spread on AA asset-backed commercial 
paper, which is considered mid-investment grade, has increased 
by more than 65 percent since the Panel's January 2011 report. 
The interest rate spread on A2/P2 commercial paper, a lower 
grade investment than AA asset-backed commercial paper, 
increased by approximately 9 percent. Both interest rate 
spreads remain below pre-crisis levels.

        FIGURE 13: INTEREST RATE SPREADS (AS OF FEBRUARY 1, 2011)
------------------------------------------------------------------------
                                    Current      Percent Change  Since
            Indicator                Spread     Last Report  (1/3/2011)
------------------------------------------------------------------------
Conventional mortgage rate               1.38                      (4.2)
 spread \339\...................
TED Spread (basis points).......        16.55                      (9.5)
Overnight AA asset-backed                0.10                      65.5
 commercial paper interest rate
 spread \340\...................
Overnight A2/P2 nonfinancial             0.15                       8.8
 commercial paper interest rate
 spread \341\...................
------------------------------------------------------------------------
\339\ Federal Reserve Statistical Release H.15, supra note 333; Board of
  Governors of the Federal Reserve System, Federal Reserve Statistical
  Release H.15: Selected Interest Rates: Historical Data (Instrument:
  U.S. Government Securities/Treasury Constant Maturities/Nominal 10-
  Year, Frequency: Weekly) (online at www.federalreserve.gov/releases/
  h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt) (accessed Feb. 8, 2011).
\340\ The overnight AA asset-backed commercial paper interest rate
  spread reflects the difference between the AA asset-backed commercial
  paper discount rate and the AA nonfinancial commercial paper discount
  rate. Board of Governors of the Federal Reserve System, Federal
  Reserve Statistical Release: Commercial Paper Rates and Outstandings:
  Data Download Program (Instruments: AA Asset-Backed Discount Rate, AA
  Nonfinancial Discount Rate; Frequency: Daily) (online at
  www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Feb.
  8, 2011). In order to provide a more complete comparison, this metric
  utilizes the average of the interest rate spread for the last five
  days of January.
\341\ The overnight A2/P2 nonfinancial commercial paper interest rate
  spread reflects the difference between the A2/P2 nonfinancial
  commercial paper discount rate and the AA nonfinancial commercial
  paper discount rate. Board of Governors of the Federal Reserve System,
  Federal Reserve Statistical Release: Commercial Paper Rates and
  Outstandings: Data Download Program (Instruments: A2/P2 Nonfinancial
  Discount Rate, AA Nonfinancial Discount Rate; Frequency: Daily)
  (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP)
  (accessed Feb. 8, 2011). In order to provide a more complete
  comparison, this metric utilizes the average of the interest rate
  spread for the last five days of January.

    Corporate Bonds. The spread between Moody's Baa Corporate 
Bond Yield Index and 30-year constant maturity U.S. Treasury 
Bond, which indicates the difference in perceived risk between 
corporate and government bonds, doubled from late April to mid-
June 2010. During January, the spread declined slightly, and 
has fallen almost 30 percent since its post-crisis peak in mid-
June. The declining spread could indicate waning concerns about 
the riskiness of corporate bonds.

FIGURE 14: MOODY'S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY 
        YIELD \342\

      
---------------------------------------------------------------------------
    \342\ Federal Reserve Bank of St. Louis, Series DGS30: Selected 
Interest Rates (Instrument: 30-Year Treasury Constant Maturity Rate, 
Frequency: Daily) (online at research.stlouisfed.org/fred2/
release?rid=18) (accessed Feb. 8, 2011). Corporate Baa rate data 
accessed through Bloomberg data service (Feb. 1, 2011).

[GRAPHIC] [TIFF OMITTED] T3750A.005

2. Bank Conditions 

    Senior Loan Officer Opinion Survey. The January 2011 
``Senior Loan Officer Opinion Survey on Bank Lending 
Practices'' details lending conditions at 57 domestic banks and 
22 branches of foreign banks during the fourth quarter of 2010. 
According to the survey, banks continued to ease standards and 
terms for commercial and industrial (C&I) loans, particularly 
to large and medium-sized firms. Respondents attributed these 
changes to increasing competition from other banks and nonbank 
lenders, a ``more favorable or less uncertain'' economic 
horizon, as well as growth in demand for C&I loans during the 
fourth quarter of 2010. Banks also reported no changes in 
standards on commercial real estate (CRE) loans. Approximately 
20 percent of banks surveyed indicated a reduction in lines of 
credit for commercial construction. The net percentage of 
domestic banks reporting increased demand for CRE loans grew to 
approximately 12.6 percent, the highest since the second 
quarter of 2006.\343\
---------------------------------------------------------------------------
    \343\ Board of Governors of the Federal Reserve System, The January 
2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, at 
1-5 (Jan. 31, 2011) (online at www.federalreserve.gov/boarddocs/
snloansurvey/201102/fullreport.pdf).
---------------------------------------------------------------------------

FIGURE 15: NET PERCENTAGE OF DOMESTIC RESPONDENTS REPORTING STRONGER 
        DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (2004-2010) \344\

      
---------------------------------------------------------------------------
    \344\ Board of Governors of the Federal Reserve System, Senior Loan 
Officer Opinion Survey on Bank Lending Practices Chart Data (Jan. 31, 
2011) (online at www.federalreserve.gov/boarddocs/snloansurvey/201102/
chartdata.htm).

[GRAPHIC] [TIFF OMITTED] T3750A.006

FIGURE 16: NET PERCENTAGE OF DOMESTIC RESPONDENTS REPORTING STRONGER 
        DEMAND FOR COMMERCIAL REAL ESTATE LOANS (2004-2010) \345\

      
---------------------------------------------------------------------------
    \345\ Id.

    [GRAPHIC] [TIFF OMITTED] T3750A.007
    
3. Housing Indices

    Home Sales. Both new and existing home sales experienced a 
significant month-over-month increase in December 2010. New 
home sales, as measured by the U.S. Census Bureau, increased 
17.5 percent to 329,000 during the month. With respect to 
existing home sales, the National Association of Realtors 
estimates a 12 percent month-over-month increase in December, 
to an annual rate of 5.3 million homes sold. Despite the recent 
increase in December 2010, new and existing home sales remain 
below their December 2009 levels, when the new home sales 
estimate was 356,000 and the annual rate of existing home sales 
was 5.4 million homes.

FIGURE 17: NEW AND EXISTING HOME SALES (2000-2010) \346\

      
---------------------------------------------------------------------------
    \346\ Data accessed through Bloomberg Data Service (Feb. 1, 2011). 
Spikes in both new and existing home sales in January 2009 and November 
2009 correlate with the tax credits extended to first-time and repeat 
home buyers during these periods. After both tax credits were 
extinguished on April 30, 2010, existing home sales dropped to 3.8 
million homes in July, their lowest level in a decade. National 
Association of Realtors, July Existing-Home Sales Fall as Expected but 
Prices Rise (Aug. 24, 2010) (online at www.realtor.org/press_room/
news_releases/2010/08/ehs_fall).

[GRAPHIC] [TIFF OMITTED] T3750A.008


    Foreclosures. Foreclosure actions, which consist of default 
notices, scheduled auctions, and bank repossessions, decreased 
by nearly 2 percent in December 2010 to 257,747.\347\ During 
the fourth quarter, 799,064 foreclosure actions were taken, 
representing a 14 percent decrease from the previous quarter, 
and a total of 3.8 million were reported for the year. The 
significant decline between the third and the fourth quarter of 
2010 is primarily attributable to foreclosure suspensions in 
the fall of 2010 as large loan servicers conducted internal 
reviews of their foreclosure procedures.\348\ Since the 
enactment of EESA, there have been approximately 8.4 million 
foreclosure actions.\349\
---------------------------------------------------------------------------
    \347\ RealtyTrac, Record 2.9 Million U.S. Properties Receive 
Foreclosure Filings in 2010 Despite 30-Month Low in December (Jan. 13, 
2011) (online at www.realtytrac.com/content/press-releases/record-29-
million-us-properties-receive-foreclosure-filings-in-2010-despite-30-
month-low-in-december-6309) (hereinafter ``2.9 Million U.S. Properties 
Receive Foreclosure Filings in 2010''). The most recent data available 
are for December 2010.
    \348\ For more information on foreclosure irregularities, see 
Congressional Oversight Panel, November Oversight Report: Examining the 
Consequences of Mortgage Irregularities for Financial Stability and 
Foreclosure Mitigation (Nov. 16, 2010) (online at cop.senate.gov/
documents/cop-111610-report.pdf).
    \349\ Data accessed through Bloomberg Data Service (Feb. 1, 2011).
---------------------------------------------------------------------------
    Home Prices. With respect to housing price indices, both 
the Case-Shiller Composite 20-City Composite Home Price Index 
and the FHFA Housing Price Index decreased by less than 1 
percent in November 2010. The Case-Shiller and FHFA indices are 
approximately 9 percent and 6 percent, respectively, below 
their respective October 2008 levels.\350\
---------------------------------------------------------------------------
    \350\ The most recent data available are for November 2010. See 
Standard and Poor's, S&P/Case-Shiller Home Price Indices (Instrument: 
Case-Shiller 20-City Composite Seasonally Adjusted, Frequency: Monthly) 
(online at www.standardandpoors.com/indices/sp-case-shiller-home-price-
indices/en/us/?indexId=spusa-cashpidff- -p-us- - - -) (accessed Feb. 1, 
2011) (hereinafter ``S&P/Case-Shiller Home Price Indices''); Federal 
Housing Finance Agency, U.S. and Census Division Monthly Purchase Only 
Index (Instrument: USA, Seasonally Adjusted) (online at www.fhfa.gov/
Default.aspx?Page=87) (accessed Feb. 1, 2011) (hereinafter ``U.S. and 
Census Division Monthly Purchase Only Index''). S&P has cautioned that 
the seasonal adjustment is probably being distorted by irregular 
factors. These factors could include distressed sales and the various 
government programs. See Standard and Poor's, S&P/Case-Shiller Home 
Price Indices and Seasonal Adjustment (Apr. 2010) (online at 
www.standardandpoors.com/servlet/ BlobServer?blobheadername3= MDT-
Type&blobcol= urldata&blobtable= MungoBlobs&blobheadervalue2 =inline;+ 
filename%3DCaseShiller _Seasonal Adjustment2,0.pdf 
&blobheadername2=Content-Disposition&blobheadervalue1=application/ 
pdf&blobkey=id& blobheadername1=content-
type&blobwhere=1243679046081&blobheadervalue3=UTF-8). For a discussion 
of the differences between the Case-Shiller Index and the FHFA Index, 
see Congressional Oversight Panel, April Oversight Report: Evaluating 
Progress on TARP Foreclosure Mitigation Programs, at 98 (Apr. 14, 2010) 
(online at cop.senate.gov/documents/cop-041410-report.pdf).
---------------------------------------------------------------------------
    Case-Shiller futures prices indicate a market expectation 
that home-price values for the major Metropolitan Statistical 
Areas (MSAs) will decrease through 2011.\351\ These futures are 
cash-settled to a weighted composite index of U.S. housing 
prices in the top ten MSAs, as well as to those specific 
markets. They are used as a hedge by businesses whose profits 
and losses are related to a specific area of the housing 
industry, and to balance portfolios by businesses seeking 
exposure to an uncorrelated asset class. As such, futures 
prices are a composite indicator of market information known to 
date and can be used to indicate market expectations for home 
prices.
---------------------------------------------------------------------------
    \351\ Data accessed through Bloomberg Data Service (Feb. 1, 2011). 
The Case-Shiller Futures contract is traded on the Chicago Mercantile 
Exchange (CME) and is settled to the Case-Shiller Index two months 
after the previous calendar quarter. For example, the February contract 
will be settled against the spot value of the S&P Case-Shiller Home 
Price Index values representing the fourth calendar quarter of the 
previous year, which is released in February one day after the 
settlement of the contract. Note that most close observers believe that 
the accuracy of these futures contracts as forecasts diminishes the 
further out one looks.
    A Metropolitan Statistical Area is defined as a core area 
containing a substantial population nucleus, together with adjacent 
communities having a high degree of economic and social integration 
with the core. U.S. Census Bureau, About Metropolitan and Micropolitan 
Statistical Areas (online at www.census.gov/population/www/metroareas/
aboutmetro.html) (accessed Feb. 1, 2011).

                                          FIGURE 18: HOUSING INDICATORS
----------------------------------------------------------------------------------------------------------------
                                                                        Percent Change from      Percent Change
                    Indicator                         Most Recent      Data Available at Time    Since October
                                                     Monthly Data          of Last Report             2008
----------------------------------------------------------------------------------------------------------------
Monthly foreclosure actions \352\...............          257,747                       (1.8)              (7.8)
S&P/Case-Shiller Composite 20 Index \353\.......              142.70                    (0.5)              (8.7)
FHFA Housing Price Index \354\..................              189.96                    (0.4)             (5.8)
----------------------------------------------------------------------------------------------------------------
\352\ 2.9 Million U.S. Properties Receive Foreclosure Filings in 2010, supra note 347. The most recent data
  available are for December 2010.
\353\ S&P/Case-Shiller Home Price Indices, supra note 350. The most recent data available are for November 2010.
 
\354\ U.S. and Census Division Monthly Purchase Only Index, supra note 350. The most recent data available are
  for November 2010.

FIGURE 19: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES \355\

      
---------------------------------------------------------------------------
    \355\ All data normalized to 100 in January 2000. Futures data 
accessed through Bloomberg Data Service (Feb. 1, 2011). S&P/Case-
Shiller Home Price Indices, supra note 350.

[GRAPHIC] [TIFF OMITTED] T3750A.009


                          F. Financial Update

    Each month, the Panel summarizes the resources that the 
federal government has committed to the rescue and recovery of 
the financial system. The following financial update provides: 
(1) an updated accounting of the TARP, including a tally of 
income, repayments, and warrant dispositions that the program 
has received as of January 28, 2011; and (2) an updated 
accounting of the full federal resource commitment as of 
January 28, 2011.

1. The TARP 

            a. Program Updates \356\
---------------------------------------------------------------------------
    \356\ U.S. Department of the Treasury, Cumulative Dividends, 
Interest and Distributions Report as of December 31, 2010 (Jan. 10, 
2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/dividends-interest/
DocumentsDividendsInterest/
December%202010%20Dividends%20Interest%20Report.pdf) (hereinafter 
``Treasury Dividends, Interest and Distributions Report''); Treasury 
Transactions Report, supra note 5.
---------------------------------------------------------------------------
    Treasury's spending authority under the TARP officially 
expired on October 3, 2010. Though it can no longer make new 
funding commitments, Treasury can continue to provide funding 
for programs for which it has existing contracts and previous 
commitments. To date, $419.2 billion has been spent under the 
TARP's $475 billion ceiling.\357\ Of the total amount 
disbursed, $240.4 billion has been repaid. Treasury has also 
incurred $6.1 billion in losses associated with its Capital 
Purchase Program (CPP) and Automotive Industry Financing 
Program (AIFP) investments. Over two-thirds of the $172.8 
billion in TARP funds currently outstanding relates to 
Treasury's investments in AIG and assistance provided to the 
automotive industry. For further information, see Figure 21 
below.
---------------------------------------------------------------------------
    \357\ The original $700 billion TARP ceiling was reduced by $1.26 
billion as part of the Helping Families Save Their Homes Act of 2009. 
12 U.S.C. Sec. 5225(a)-(b); Helping Families Save Their Homes Act of 
2009, Pub. L. No. 111-22 Sec. 202(b) (2009). On June 30, 2010, the 
House-Senate Conference Committee agreed to reduce the amount 
authorized under the TARP from $700 billion to $475 billion as part of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act that was 
signed into law on July 21, 2010. See Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. No. 111-203 (2010); The White House, 
Remarks by the President at Signing of Dodd-Frank Wall Street Reform 
and Consumer Protection Act (July 21, 2010) (online at 
www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-
frank-wall-street-reform-and-consumer-protection-act).
---------------------------------------------------------------------------
            CPP Repayments
    As of January 28, 2011, 135 of the 707 banks that 
participated in the CPP have fully redeemed their preferred 
shares either through capital repayment or exchanges for 
investments under the Community Development Capital Initiative 
(CDCI). During January 2011, Treasury received funds from the 
sale of the Citigroup warrants, adding an additional $312.2 
million in profit onto the $6.9 billion in profit from the sale 
of shares, and fully ending Treasury's investment in 
Citigroup.\358\ An additional four banks fully repaid their 
remaining CPP capital during January 2011, returning $80.3 
million in principal to Treasury. See Figure 20 below for 
repayment amounts.
---------------------------------------------------------------------------
    \358\ This figure is comprised of the $4.2 billion in net proceeds 
from the sale of Citigroup common stock between April 26 and December 
6, 2010 as well as $2.7 billion in proceeds from the December 6 equity 
underwriting.

FIGURE 20: BANKS THAT FULLY REPAID THEIR CPP LOANS IN JANUARY 2011 \359\
------------------------------------------------------------------------
             Bank                 Amount Repaid    Remaining  Investment
------------------------------------------------------------------------
Capital Bank Corporation......        $41,279,000  None.
BCSB Bancorp, Inc.............         10,800,000  Warrants.
Washington Banking Company....         26,380,000  Warrants.
American Premier Bancorp......          1,800,000  None.
    Total.....................        $80,259,000  .....................
------------------------------------------------------------------------
\359\ Treasury Transactions Report, supra note 5. Treasury received
  $90,000 from American Premier Bancorp for additional preferred stock,
  as the warrants in the company were immediately exercised at
  investment date.

    Additionally, during January 2011, Stockmens Financial 
Corporation made a partial repayment of $4 million. A total of 
$168.01 billion has been repaid under the program, leaving 
$34.35 billion in funds currently outstanding.\360\
---------------------------------------------------------------------------
    \360\ The $34.35 billion currently outstanding is net of the $2.6 
billion in announced losses associated with the program. See Figure 22 
for further details on losses associated with programs.
---------------------------------------------------------------------------
            b. Income: Dividends, Interest, and Warrant Sales
    In conjunction with its preferred stock investments under 
the CPP and the Targeted Investment Program (TIP), Treasury 
generally received warrants to purchase common equity.\361\ As 
of January 28, 2011, 50 institutions have repurchased their 
warrants from Treasury at an agreed-upon price. Treasury has 
also sold warrants for 16 other institutions at auction. To 
date, income from warrant dispositions totals $8.5 
billion.\362\
---------------------------------------------------------------------------
    \361\ For its CPP investments in privately held financial 
institutions, Treasury also received warrants to purchase additional 
shares of preferred stock, which it exercised immediately. Similarly, 
Treasury also received warrants to purchase additional subordinated 
debt that were immediately exercised along with its CPP investments in 
subchapter S corporations. Treasury Transactions Report, supra note 5, 
at 14.
    \362\ This total is only for the TIP and CPP programs and does not 
include the $67.2 million received pursuant to the AGP.
---------------------------------------------------------------------------
    In addition to warrant proceeds, Treasury also receives 
dividend payments on the preferred shares that it holds under 
the CPP, 5 percent per year for the first five years and 9 
percent per year thereafter.\363\ For preferred shares issued 
under the TIP, Treasury received a dividend of 8 percent per 
year.\364\ In total, Treasury has received approximately $31.0 
billion in net income from warrant repurchases, dividends, 
interest payments, profit from the sale of stock, and other 
proceeds deriving from TARP investments, after deducting 
losses.\365\ For further information on TARP profit and loss, 
see Figure 22.
---------------------------------------------------------------------------
    \363\ U.S. Department of the Treasury, Capital Purchase Program 
(Oct. 3, 2010) (online at www.treasury.gov/initiatives/financial-
stability/investment-programs/cpp/Pages/capitalpurchaseprogram.aspx).
    \364\ Congressional Oversight Panel, Written Testimony of Herbert 
M. Allison, Jr., assistant secretary for financial stability, U.S. 
Department of the Treasury, COP Hearing on Assistance Provided to 
Citigroup Under TARP (Mar. 4, 2010) (online at cop.senate.gov/
documents/testimony-030410-allison.pdf).
    \365\ Treasury Dividends, Interest and Distributions Report, supra 
note 356; Treasury Transactions Report, supra note 5. Treasury also 
received an additional $1.2 billion in participation fees from its 
Guarantee Program for Money Market Funds. U.S. Department of the 
Treasury, Treasury Announces Expiration of Guarantee Program for Money 
Market Funds (Sept. 18, 2009) (online at 205.168.45.55/latest/
tg_09182009.html).
            c. TARP Accounting

                               FIGURE 21: TARP ACCOUNTING (AS OF JANUARY 28, 2011)
                                            [Dollars in billions] \i\
----------------------------------------------------------------------------------------------------------------
                                                            Total
                                   Maximum     Actual    Repayments/      Total        Funding        Funding
             Program                Amount    Funding      Reduced        Losses      Currently      Available
                                   Allotted                Exposure                  Outstanding
----------------------------------------------------------------------------------------------------------------
Capital Purchase Program (CPP)..     $204.9     $204.9  \ii\ $(168.0)  \iii\ $(2.6         $34.4           $0
                                                                              )
Targeted Investment Program            40.0       40.0         (40.0)         0              0              0
 (TIP)..........................
Asset Guarantee Program (AGP)...        5.0   \iv\ 5.0      \v\ (5.0)         0              0              0
AIG Investment Program (AIGIP)..       70.0  \vi\ 70.0           0            0             70.0            0
Auto Industry Financing Program        81.3       81.3         (26.4)  \vii\ (3.4)   \viii\ 51.5            0
 (AIFP).........................
Auto Supplier Support Program           0.4        0.4          (0.4)         0              0              0
 (ASSP) \ix\....................
Term Asset-Backed Securities        \x\ 4.3   \xi\ 0.1           0            0              0.1            4.2
 Loan Facility (TALF)...........
Public-Private Investment              22.4  \xiii\ 15    \xiv\ (0.6)         0             15.0            6.8
 Program (PPIP) \xii\...........                    .6
SBA 7(a) Securities Purchase            0.4   \xv\ 0.4           0            0              0.4      \xvi\ 0
 Program........................
Home Affordable Modification           29.9        0.8           0            0              0.8           29.1
 Program (HAMP).................
Hardest Hit Fund (HHF)..........  \xvii\ 7.  \xviii\ 0           0            0              0.1            7.5
                                          6         .1
FHA Refinance Program...........        8.1  \xix\ 0.1           0            0              0.1            8.0
Community Development Capital      \xx\ 0.8  \xxi\ 0.6           0            0              0.6            0
 Initiative (CDCI)..............
    Total.......................     $475.0     $419.2       $(240.4)       $(6.0)        $172.8          $55.7
----------------------------------------------------------------------------------------------------------------
\i\ Figures affected by rounding. Unless otherwise noted, data in this table are from the following sources:
  U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/ briefing-room/
  reports/ tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 Transactions%20Report%20as%20of%201-28-
  11.pdf); U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report--December 2010
  (Jan. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/
  Documents105/December105(a) report_FINAL_v4.pdf).
\ii\ In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the
  company's common stock at $3.25 per share. As of January 28, 2011, Treasury had sold the entirety of its
  Citigroup common shares for $31.85 billion in gross proceeds. The amount repaid under CPP includes $25 billion
  Treasury received as part of its sales of Citigroup common stock. The difference between these two numbers
  represents the $6.85 billion in net profit Treasury has received from the sale of Citigroup common stock.
Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for
  investments under the CDCI, as well as proceeds earned from the sale of preferred stock issued by South
  Financial Group, Inc., TIB Financial Corp, and The Bank of Currituck. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, 2, 7, 13-15 (Feb. 1,
  2011) (online at www.treasury.gov/initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/
  DocumentsTARPTransactions/ 2-1-11%20Transactions%20 Report%20as%20of%201-28-11.pdf); U.S. Department of the
  Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at
  www.financialstability.gov/docs/ TARP%20Two%20Year%20 Retrospective_10%2005%2010_transmittal%20letter.pdf);
  U.S. Department of the Treasury, Treasury Commences Plan to Sell Citigroup Common Stock (Apr. 26, 2010)
  (online at ustreas.tpaq.treasury.gov/press/releases/tg660.htm).
\iii\ In the TARP Transactions Report, Treasury has classified the investments it made in two institutions, CIT
  Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold
  its preferred ownership interests, along with warrants, in South Financial Group, Inc., TIB Financial Corp.,
  and the Bank of Currituck to non-TARP participating institutions. These shares were sold at prices below the
  value of the original CPP investment, at respective losses of $217 million, $25 million, and $2.3 million.
  Therefore, Treasury's net current CPP investment is $34.4 billion due to the $2.6 billion in losses thus far.
  See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011, at 1-14 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-
  room/reports/tarp-transactions/ DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-
  11.pdf).
\iv\ The $5.0 billion AGP guarantee for Citigroup was unused since Treasury was not required to make any
  guarantee payments during the life of the program. U.S. Department of the Treasury, Troubled Asset Relief
  Program: Two-Year Retrospective, at 31 (Oct. 2010) (online at www.treasury.gov/initiatives/ financial-
  stability/ briefing-room/reports/ agency_reports/Documents/ TARP%20Two%20Year%20 Retrospective_
  10%2005%2010_transmittal%20letter.pdf).
\v\ Although this $5.0 billion is no longer exposed as part of the AGP, Treasury did not receive a repayment in
  the same sense as with other investments. Treasury did receive other income as consideration for the
  guarantee, which is not a repayment and is accounted for in Figure 22. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 20 (Feb. 1, 2011)
  (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/tarp-transactions/
  DocumentsTARPTransactions/ 2-1-11%20Transactions%20 Report%20as%20of%201-28-11.pdf).
\vi\ AIG has completely utilized the $40 billion that was made available on November 25, 2008, in exchange for
  the company's preferred stock. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
  Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/
  financial-stability/briefing-room/ reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-
  11%20Transactions%20 Report%20as%20of%201-28-11.pdf). It has also drawn down the entirety of the $30 billion
  made available on April 17, 2009. Of this $30 billion investment, $165 million was used for retention payments
  and the remainder was exchanged or used in the execution of AIG's recapitalization plan. In total $29.8
  billion was drawn by AIG. The $7.5 billion that was outstanding under the facility at the time AIG executed
  its recapitalization plan was converted to 167.6 million shares of AIG common stock. Upon the closing of the
  recapitalization plan, $16.9 billion of the funds drawn-down from the Series F TARP investment was exchanged
  for a corresponding liquidation preference of preferred stock in the AIA Aurora LLC, $3. 4 billion was
  exchanged for junior preferred stock interest in the ALICO Holdings LLC, and $2 billion was designated as
  Series G preferred stock, which provides AIG with an equity capital facility they can draw on for general
  corporate purposes. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the
  Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-
  stability/ briefing-room/ reports/ tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20Transactions%20
  Report%20as%20of%201-28-11.pdf). This figure does not include $1.6 billion in accumulated but unpaid dividends
  owed by AIG to Treasury due to the restructuring of Treasury's investment from cumulative preferred shares to
  non-cumulative shares. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report
  for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/
  financial-stability/ briefing-room/reports/ tarp-transactions/ DocumentsTARPTransactions/ 2-1-
  11%20Transactions%20Report%20as%20of%201-28-11.pdf); For a full discussion of AIG's recapitalization plan, see
  American International Group, Inc., Form 8-K (Jan. 14, 2011) (online at phx.corporate-ir.net/phoenix.zhtml?c
  =76115&p=irol -SECText&TEXT=aHR0cDovL2lyLm ludC53ZXN0bGF3Y nVzaW5lc3MuY29tL2RvY3V
  tZW50L3YxLzAwMDA5NTAxMjMtMTEt MDAzMDYxL3htbA%3d%3d).
\vii\ On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler
  Holding. The payment represented a $1.6 billion loss from the termination of the debt obligation. See U.S.
  Department of the Treasury, Chrysler Financial Parent Company Repays $1.9 Billion in Settlement of Original
  Chrysler Loan (May 17, 2010) (online at www.treasury.gov/press-center/press-releases/Pages/tg700.aspx); U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January
  28, 2011, at 18-19 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/ financial-stability/ briefing-room/
  reports/ tarp-transactions/ Documents TARPTransactions/2-1-11%20 Transactions%20 Report%20as%20of%201-28-
  11.pdf).
Also, following the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion debtor-in-
  possession (DIP) loan provided to Old Chrysler, Treasury retained the right to recover the proceeds from the
  liquidation of specified collateral. Although Treasury does not expect a significant recovery from the
  liquidation proceeds, Treasury is not yet reporting this loan as a loss in the TARP Transactions Report. To
  date, Treasury has collected $48.1 million in proceeds from the sale of collateral. Treasury includes these
  proceeds as part of the $26.4 billion repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets
  Relief Program Monthly 105(a) Report--September 2010 (Oct. 12, 2010) (online at www.treasury.gov/initiatives/
  financial-stability/briefing-room/reports/105/Documents105/September%20105(a)%20report_FINAL.pdf); Treasury
  conversations with Panel staff (Aug. 19, 2010 and Nov. 29, 2010); U.S. Department of the Treasury, Troubled
  Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 18 (Feb. 1, 2011) (online
  at www.treasury.gov/initiatives/ financial-stability/briefing-room/reports/tarp-transactions/
  DocumentsTARPTransactions/ 2-1-11%20 Transactions%20 Report%20as%20of%201-28-11.pdf).
\viii\ In the TARP Transactions Report, the $1.9 billion Chrysler debtor-in-possession loan, which was
  extinguished April 30, 2010, was deducted from Treasury's current AIFP investment amount. U.S. Department of
  the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 18
  (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/tarp-
  transactions/ DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf). See endnote
  vii, supra, for details on losses from Treasury's investment in Chrysler.
\ix\ On April 5, 2010, Treasury terminated its commitment to lend to the GM special purpose vehicle (SPV) under
  the ASSP. On April 7, 2010, it terminated its commitment to lend to the Chrysler SPV. In total, Treasury
  received $413 million in repayments from loans provided by this program ($290 million from the GM SPV and $123
  million from the Chrysler SPV). Further, Treasury received $101 million in proceeds from additional notes
  associated with this program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
  Report for the Period Ending January 28, 2011, at 19 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/
  financial-stability/briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/2-1-
  11%20Transactions%20 Report%20as%20of%201-28-11.pdf).
\x\ For the TALF, $1 of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The
  program was intended to be a $200 billion initiative, and the TARP was responsible for the first $20 billion
  in loan-losses, if any were incurred. The loan was incrementally funded. When the program closed in June 2010,
  a total of $43 billion in loans was outstanding under the TALF, and the TARP's commitments constituted $4.3
  billion. The Federal Reserve Board of Governors agreed that it was appropriate for Treasury to reduce TALF
  credit protection from the TARP to $4.3 billion. Board of Governors of the Federal Reserve System, Federal
  Reserve Announces Agreement with the Treasury Department Regarding a Reduction of Credit Protection Provided
  for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at www.federalreserve.gov/
  newsevents/press/monetary/20100720a.htm).
\xi\ As of February 3, 2011, Treasury had provided $106 million to TALF LLC. This total is net of accrued
  interest payable to Treasury. Board of Governors of the Federal Reserve System, Factors Affecting Reserve
  Balances (H.4.1) (Feb. 3, 2010) (online at www.federalreserve.gov/releases/h41/20110203/).
\xii\ As of September 30, 2010, the total value of securities held by the PPIP fund managers was $19.3 billion.
  Non-agency residential mortgage-backed securities represented 82 percent of the total; commercial mortgage-
  backed securities represented the balance. U.S. Department of the Treasury, Legacy Securities Public-Private
  Investment Program, Program Update--Quarter Ended September 30, 2010, at 4 (Oct. 20, 2010) (online at
  www.treasury.gov/initiatives/financial-stability/investment-programs/ppip/s-ppip/Documents/ppip-%2012-
  10%20vFinal.pdf).
\xiii\ U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report--December 2010, at
  3 (Jan. 10, 2011) (online at www.treasury.gov/initiatives/ financial-stability/briefing-room/ reports/105/
  Documents105/December105(a) report_FINAL_v4.pdf).
\xiv\ As of January 28, 2011, Treasury has received $620 million in capital repayments from two PPIP fund
  managers. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending January 28, 2011, at 24 (Feb. 1, 2011) (online at financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20 Report%20as%20of%2012-30-10.pdf).
\xv\ As of January 28, 2011, Treasury's purchases under the SBA 7(a) Securities Purchase Program totaled $368.1
  million. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending January 28, 2011, at 23 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-stability/
  briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 Transactions%20
  Report%20as%20of%201-28-11.pdf).
\xvi\ Treasury will not make additional purchases pursuant to the expiration of its purchasing authority under
  EESA. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 43 (Oct.
  2010) (online at www.treasury.gov/initiatives/ financial-stability/ briefing-room/ reports/ agency_reports/
  Documents/ TARP%20Two%20Year%20 Retrospective_ 10%2005%2010_transmittal%20letter.pdf).
\xvii\ On June 23, 2010, $1.5 billion was allocated to mortgage assistance through the Hardest Hit Fund (HHF).
  Another $600 million was approved on August 3, 2010. U.S. Department of the Treasury, Obama Administration
  Approves State Plans for $600 million of `Hardest Hit Fund' Foreclosure Prevention Assistance (Aug. 4, 2010)
  (online at www.treasury.gov/press-center/press-releases/Pages/tg813.aspx). As part of its revisions to TARP
  allocations upon enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury
  allocated an additional $2 billion in TARP funds to mortgage assistance for unemployed borrowers through the
  HHF. U.S. Department of the Treasury, Obama Administration Announces Additional Support for Targeted
  Foreclosure-Prevention Programs to Help Homeowners Struggling with Unemployment (Aug. 11, 2010) (online at
  www.treasury.gov/press-center/press-releases/Pages/tg1042.aspx). In October 2010, another $3.5 billion was
  allocated among the 18 states and the District of Columbia currently participating in HHF. The amount each
  state received during this round of funding is proportional to its population. U.S. Department of the
  Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 72 (Oct. 2010) (online at
  www.financialstability.gov/ docs/ TARP%20 Two%20Year%20 Retrospective_10%2005%2010_ transmittal%20letter.pdf).
 
\xviii\ As of December 31, 2010, a total of $103.6 million has been disbursed to 12 state Housing Finance
  Agencies (HFAs). Treasury conversations with Panel staff (Jan. 6, 2011).
\xix\ This figure represents the amount Treasury disbursed to fund the advance purchase account of the Letter of
  Credit issued under the FHA Short Refinance Program. The $53.3 million in the FHA Short Refinance program is
  broken down as follows: $50 million for a deposit into an advance purchase account as collateral to the
  initial $50 million Letter of Credit, $2.9 million for the closing and funding of the Letter of Credit,
  $115,000 in trustee fees, $175,000 in claims processor fees, and $156,000 for an unused commitment fee for the
  Letter of Credit. Data provided by Treasury (Dec. 2, 2010).
\xx\ U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report--November 2010, at 4
  (Dec. 10, 2010) (online at www.treasury.gov/initiatives /financial-stability/briefing-room/reports/105/
  Documents105/November%20105(a)%20FINAL.pdf).
\xxi\ U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011, at 16-17 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/
  briefing-room/reports/ tarp-transactions/ DocumentsTARPTransactions/ 2-1-
  11%20Transactions%20Report%20as%20of%201-28-11.pdf). Treasury closed the program on September 30, 2010, after
  investing $570 million in 84 CDFIs. U.S. Department of the Treasury, Treasury Announces Special Financial
  Stabilization Initiative Investments of $570 Million in 84 Community Development Financial Institutions in
  Underserved Areas (Sept. 30, 2010) (online at www.treasury.gov/press-center/ press-releases/ Pages/
  tg885.aspx).


                                                             FIGURE 22: TARP PROFIT AND LOSS
                                                                  [Dollars in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Warrant
                                                         Dividends \xxiii\  Interest \xxiv\    Disposition        Other       Losses \xxvi\
                 TARP Initiative \xxii\                    (as of  12/31/    (as of  12/31/  Proceeds \xxv\   Proceeds  (as   (as of  1/28/     Total
                                                               2010)             2010)        (as of  1/28/    of  12/31/         2011)
                                                                                                  2011)           2010)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total..................................................           $16,013            $1,223          $8,476          $9,835        ($6,018)      $29,530
CPP....................................................            10,290                59           7,030   \xxvii\ 6,852         (2,578)       21,653
TIP....................................................             3,004                --           1,446              --              --        4,450
AIFP...................................................             2,274             1,061              --     \xxviii\ 15         (3,440)         (90)
ASSP...................................................                --                15              --      \xxix\ 101              --          116
AGP....................................................               443                --              --     \xxx\ 2,246              --        2,689
PPIP...................................................                --                85              --      \xxxi\ 345              --          430
SBA 7(a)...............................................                --                 4              --              --              --            4
Bank of America Guarantee..............................                --                --              --     \xxxii\ 276              --          276
CDCI...................................................                 1                 1              --              --              --           2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\xxii\ AIG is not listed in this table because no profit or loss has been recorded to date for AIG. Its missed dividends were capitalized as part of the
  issuance to Treasury of Series E preferred shares. Following the closing of AIG's recapitalization, the $1.6 billion in missed and capitalized
  dividends were exchanged along with the $40 billion Series E TARP preferred investment for 924.5 million AIG common stock shares. Therefore, no profit
  or loss has been realized on Treasury's AIG investment to date. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for
  the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/financial-stability/ briefing-room/reports/tarp-
  transactions/Documents TARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf).
HAMP is not listed in this table because HAMP is a 100 percent subsidy program, and no profit is expected.
\xxiii\ U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of December 31, 2010 (Jan. 10, 2011) (online at
  www.treasury.gov/ initiatives/financial-stability/briefing-room/reports/dividends- interest/Documents DividendsInterest/December%202010%20Dividends
  %20Interest%20Report.pdf).
\xxiv\ U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of December 31, 2010 (Jan. 10, 2011) (online at
  www.treasury.gov/initiatives/ financial-stability/briefing-room/reports/ dividends-interest/DocumentsDividendsInterest/
  December%202010%20Dividends%20Interest%20Report.pdf).
\xxv\ U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011 (Feb. 1, 2011) (online
  at www.treasury.gov/ initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1-11%
  20Transactions%20Report%20as%20of%201-28-11.pdf).
\xxvi\ In the TARP Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast
  National Bancorp ($4.1 million), as losses. Treasury has also sold its preferred ownership interests and warrants from South Financial Group, Inc.,
  TIB Financial Corp, and the Bank of Currituck. This represents a $244.0 million loss on its CPP investments in these three banks. Two TARP recipients,
  UCBH Holdings, Inc. ($298.7 million) and a banking subsidiary of Midwest Banc Holdings, Inc. ($89.4 million), are currently in bankruptcy proceedings.
  As of January 28, 2011, three TARP recipients, Pierce County Bancorp, Sonoma Valley Bancorp, and Tifton Banking Company, had entered receivership.
  Cumulatively, these three had received $19.3 million in TARP funding. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
  Report for the Period Ending January 28, 2011 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-
  transactions/DocumentsTARPTransactions/2-1-11% 20Transactions%20Report%20as%20of%201-28-11.pdf).
\xxvii\ This figure also reflects net proceeds to Treasury from the sale of Citigroup common stock to date. For details on Treasury's sales of Citigroup
  common stock, see endnote ii, supra. See also U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011, at 15 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/
  DocumentsTARPTransactions/2-1-11%20 Transactions%20Report%20as%20of%201-28-11.pdf).
\xxviii\ Treasury received proceeds from an additional note connected with the loan made to Chrysler Financial on January 16, 2009. U.S. Department of
  the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 18 (Feb. 1, 2011) (online at
  www.treasury.gov/initiatives/ financial-stability/briefing-room/reports/ tarp-transactions/DocumentsTARPTransactions/2-1-11%20
  Transactions%20Report%20as%20of%201-28-11.pdf).
\xxix\ This represents the total proceeds from additional notes connected with Treasury's investments in GM Supplier Receivables LLC and Chrysler
  Receivables SPV LLC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 19
  (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/ 2-1-
  11%20Transactions% 20Report%20as%20of%201-28-11.pdf).
\xxx\ As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the AGP, Treasury
  received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred securities in June
  2009. Following the early termination of the guarantee in December 2009, Treasury cancelled $1.8 billion of the trust preferred securities, leaving
  Treasury with $2.23 billion in Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securities for $2.25 billion in total
  proceeds. At the end of Citigroup's participation in the FDIC's Temporary Liquidity Guarantee Program (TLGP), the FDIC may transfer $800 million of
  $3.02 billion in Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to Treasury. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 20 (Feb. 1, 2011) (online at www.treasury.gov/
  initiatives/ financial-stability/briefing-room/ reports/tarp-transactions/ DocumentsTARPTransactions/2-1-11%20Transactions% 20Report%20as%20of%201-28-
  11.pdf); U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Citigroup Inc.,
  Termination Agreement, at 1 (Dec. 23, 2009) (online at www.treasury.gov/ initiatives/financial-stability/ investment-programs/agp/ Documents/
  Citi%20AGP%20Termination% 20Agreement%20-%20Fully%20Executed% 20Version.pdf); U.S. Department of the Treasury, Treasury Announces Further Sales of
  Citigroup Securities and Cumulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (online at www.treasury.gov/press-center/press-releases/
  Pages/tg887.aspx); Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 2010) (online at www.fdic.gov/about/strategic/report/
  2009annualreport/AR09final.pdf).
\xxxi\ As of December 31, 2010, Treasury has earned $324.0 million in membership interest distributions from the PPIP. Additionally, Treasury has earned
  $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative Dividends, Interest and
  Distributions Report as of December 31, 2010, at 14 (Jan. 10, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
  dividends-interest/Documents DividendsInterest/December%202010%20Dividends% 20Interest%20Report.pdf); U.S. Department of the Treasury, Troubled Asset
  Relief Program Transactions Report for the Period Ending January 28, 2011, at 23 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-
  stability/briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/2-1-11% 20Transactions%20Report%20as%20of%201-28-11.pdf).
\xxxii\ Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a guarantee similar to that received by Citigroup
  through the AGP, the parties never reached an agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as
  though the guarantee had been in place during the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to
  the Federal Reserve, and $92 million to the FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit
  Insurance Corporation, and Bank of America Corporation, Termination Agreement, at 1-2 (Sept. 21, 2009) (online at www.treasury.gov/initiatives/
  financial-stability/investment-programs/agp/Documents/BofA%20-% 20Termination%20Agreement%20-%20executed.pdf).

            d. CPP Unpaid Dividend and Interest Payments \366\
    As of December 31, 2010, 140 institutions have missed at 
least one dividend payment on outstanding preferred stock 
issued under the CPP.\367\ Among these institutions, 111 
institutions are not current on cumulative dividends, amounting 
to $151.5 million in missed payments. Another 29 banks have not 
paid $9.5 million in non-cumulative dividends. Of the $34.4 
billion currently outstanding in CPP funding, Treasury's 
investments in banks with non-current dividend payments total 
$4.1 billion. A majority of the banks that remain delinquent on 
dividend payments have under $1 billion in total assets on 
their balance sheets. Also, there are 21 institutions that no 
longer have outstanding unpaid dividends, after previously 
deferring their quarterly payments.\368\
---------------------------------------------------------------------------
    \366\ Treasury Dividends, Interest and Distributions Report, supra 
note 356, at 20.
    \367\ This figure does not include banks with missed dividend 
payments that have either repaid all delinquent dividends, exited the 
TARP, gone into receivership, or filed for bankruptcy.
    \368\ Fifteen of these institutions made payments later. The 21 
institutions also include those that have either (a) fully repaid their 
CPP investment and exited the program, or (b) entered bankruptcy or 
their subsidiary was placed into receivership. Treasury Dividends, 
Interest and Distributions Report, supra note 356, at 20.
---------------------------------------------------------------------------
    Twelve banks have failed to make six dividend payments, six 
banks have missed seven quarterly payments, and one bank has 
missed all eight quarterly payments. These institutions have 
received a total of $897.2 million in CPP funding. Under the 
terms of the CPP, after a bank fails to pay dividends for six 
periods, Treasury has the right to elect two individuals to the 
company's board of directors.\369\
---------------------------------------------------------------------------
    \369\ U.S. Department of the Treasury, Fact Sheet Capital Purchase 
Program Nomination of Board Observers & Directors (online at 
www.treasury.gov/ initiatives/financial-stability/ investment-programs/
cpp/Documents/ CPP%20 Directors%20-%20Observer% 20 Fact%20Sheet.pdf) 
(accessed Feb. 8, 2011).
---------------------------------------------------------------------------
    As of December 31, 2010, multiple institutions with missed 
dividends have agreed to have Treasury observers attend Board 
of Directors meetings.

               FIGURE 23: INSTITUTIONS WHERE TREASURY OBSERVERS NOW ATTEND BOARD MEETINGS \xxxiii\
----------------------------------------------------------------------------------------------------------------
                                                                                      Non-Current       No. of
                         Institution                            CPP  Investment       Dividends/        Missed
                                                                     Amount            Interest        Payments
----------------------------------------------------------------------------------------------------------------
Anchor BanCorp Wisconsin, Inc................................       $110,000,000          9,854,167            7
Blue Valley Ban Corp.........................................         21,750,000          1,903,125            7
Central Pacific Financial Corp...............................        135,000,000         10,125,000            6
Centrue Financial Corporation................................         32,668,000          2,450,100            6
Citizens Bancorp.............................................         10,400,000            850,200            6
Citizens Commerce Bancshares, Inc............................          6,300,000            429,188            5
Dickinson Financial Corporation II...........................        146,053,000         11,939,880            6
First BanCorp (PR) \xxxiv\...................................        400,000,000          6,775,001            2
First Banks, Inc.............................................        295,400,000         24,148,950            6
Grand Mountain Bancshares, Inc...............................          3,076,000            244,970            6
Heritage Commerce Corp.......................................         40,000,000          2,500,000            5
Idaho Bancorp................................................          6,900,000            564,075            6
Integra Bank Corporation.....................................         83,586,000          5,224,125            5
Pacific Capital Bancorp \xxxv\...............................        180,634,000                  -            0
Pacific City Financial Corporation...........................         16,200,000          1,324,350            6
Pathway Bancorp..............................................          3,727,000            253,863            5
Premierwest Bancorp..........................................         41,400,000          2,587,500            5
Rogers Bancshares, Inc.......................................         25,000,000          1,703,125            5
Royal Bancshares of Pennsylvania, Inc........................         30,407,000          2,280,525            6
Seacoast Banking Corporation of Florida......................         50,000,000          4,375,000            7
Georgia Primary Bank.........................................          4,500,000            377,413            6
Lone Star Bank...............................................          3,072,000            297,242            7
One Georgia Bank.............................................          5,500,000            455,453            6
OneUnited Bank...............................................         12,063,000          1,055,513            7
Premier Service Bank.........................................          4,000,000            323,972            6
United American Bank.........................................          8,700,000            823,177            7
    Total....................................................     $1,676,336,000        $92,865,912         146
----------------------------------------------------------------------------------------------------------------
\xxxiii\ U.S. Department of the Treasury, Cumulative Dividends, Interest, and Distributions Report as of January
  31, 2010 (Feb. 10, 2011) (online at www.www.treasury.gov/ initiatives/ financial-stability/ briefing-room/
  reports/ dividends-interest/ Documents DividendsInterest/ January%202011%20Dividends%20Interest%20Report.pdf).
 
\xxxiv\ On July 20, 2010, Treasury completed the exchange of its $400,000,000 of Preferred Stock in First
  BanCorp for $424,174,000 of Mandatorily Convertible Preferred Stock (MCP), which is equivalent to the initial
  investment amount of $400,000,000, plus $24,174,000 of capitalized previously accrued and unpaid dividends.
  Subject to the fulfillment by First BanCorp of certain conditions, including those related to its capital
  plan, the MCP may be converted to common stock. This institution has agreed to have Treasury observers attend
  board of directors meetings.
\xxxv\ On August 31, 2010, following the completion of the conditions related to Pacific Capital Bancorp's
  (Pacific Capital) capital plan, Treasury exchanged its $180,634,000 of Preferred Stock in Pacific Capital for
  $195,045,000 of Mandatorily Convertible Preferred Stock (MCP), which is equivalent to the initial investment
  amount of $180,634,000, plus $14,411,000 of capitalized previously accrued and unpaid dividends. On September
  27, 2010, following the completion of the conversion conditions set forth in the Certificate of Designations
  for the MCP, all of Treasury's MCP was converted into 360,833,250 shares of common stock of Pacific Capital.
  This institution has agreed to have Treasury observers attend board of directors meetings.

    Figure 24 below provides further details on the 
distribution and the number of institutions that have missed 
dividend payments.

 FIGURE 24: CPP MISSED DIVIDEND PAYMENTS (AS OF DECEMBER 31, 2010) \370\
------------------------------------------------------------------------
  Number of Missed Payments     1   2   3   4   5   6   7   8    Total
------------------------------------------------------------------------
Cumulative Dividends:
Number of Banks, by asset      17  28  20  20  14   9   3   0        111
 size........................
    Under $1B................  10  21  17  16   9   6   1   0         80
    $1B-$10B.................   6   6   3   3   5   3   2   0         28
    Over $10B................   1   1   0   1   0   0   0   0          3
Non-Cumulative Dividends:
Number of Banks, by asset       6   1   6   6   3   3   3   1         29
 size........................
    Under $1B................   5   1   6   5   3   3   3   1         27
    $1B-$10B.................   0   0   0   1   0   0   0   0          1
    Over $10B................   1   0   0   0   0   0   0   0          1
Total Banks Missing Payments.  ..  ..  ..  ..  ..  ..  ..  ..        140
Total Missed Payments........  ..  ..  ..  ..  ..  ..  ..  ..       470
------------------------------------------------------------------------
\370\ Treasury Dividends, Interest and Distributions Report, supra note
  356, at 17-20. Data on total bank assets compiled using SNL Financial
  data service (accessed Feb. 2, 2011).

    In addition, eight CPP participants have missed at least 
one interest payment, representing $4.0 million in cumulative 
unpaid interest payments. Treasury's total investments in these 
non-public institutions represent less than $1 billion in CPP 
funding.
            e. CPP Losses
    As of January 28, 2011, Treasury has realized a total of 
$2.6 billion in losses from investments in five CPP 
participants. CIT Group Inc. and Pacific Coast National Bancorp 
have both completed bankruptcy proceedings and there was no 
monetary recovery to the TARP, and the preferred stock and 
warrants issued by the South Financial Group, TIB Financial 
Corp., and the Bank of Currituck were sold to third-party 
institutions at a discount. Excluded from Treasury's total 
losses are investments in institutions that have pending 
receivership or bankruptcy proceedings, as well as an 
institution that is currently the target of an 
acquisition.\371\ Settlement of these transactions and 
proceedings would increase total losses in the CPP to $3.0 
billion. Figure 25 below details settled and unsettled 
investment losses from CPP participants that have declared 
bankruptcy, been placed into receivership, or renegotiated the 
terms of their CPP contracts.
---------------------------------------------------------------------------
    \371\ Treasury Transactions Report, supra note 5, at 13.

                                                    FIGURE 25: CPP SETTLED AND UNSETTLED LOSSES \372\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Investment          Warrant
            Institution                 Investment        Disposition       Disposition      Dividends  &      Possible Losses/            Action
                                          Amount            Amount            Amount           Interest        Reduced  Exposure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cadence Financial Corporation......       $44,000,000       $38,000,000                 -        $2,970,000          $(6,000,000)  10/29/2010: Treasury
                                                                                                                                    agreed to sell
                                                                                                                                    preferred stock and
                                                                                                                                    warrants issued by
                                                                                                                                    Cadence Financial to
                                                                                                                                    Community Bancorp
                                                                                                                                    LLC for $38 million
                                                                                                                                    plus accrued and
                                                                                                                                    unpaid dividends.
                                                                                                                                    Completion of the
                                                                                                                                    sale subject to
                                                                                                                                    fulfillment of
                                                                                                                                    certain closing
                                                                                                                                    conditions.
CIT Group Inc.*....................     2,330,000,000                --                --        43,687,500       (2,330,000,000)  12/10/2009:
                                                                                                                                    Bankruptcy
                                                                                                                                    reorganization plan
                                                                                                                                    for CIT Group Inc.
                                                                                                                                    became effective.
                                                                                                                                    CPP preferred shares
                                                                                                                                    and warrants were
                                                                                                                                    extinguished and
                                                                                                                                    replaced with
                                                                                                                                    contingent value
                                                                                                                                    rights (CVR). On
                                                                                                                                    Feb. 8, 2010, the
                                                                                                                                    CVRs expired without
                                                                                                                                    value.
Midwest Banc Holdings, Inc.........        89,388,000                --                --           824,289          (89,388,000)  5/14/2010: Midwest
                                                                                                                                    Banc Holdings, Inc.
                                                                                                                                    subsidiary, Midwest
                                                                                                                                    Bank and Trust, Co.,
                                                                                                                                    placed into
                                                                                                                                    receivership.
                                                                                                                                    Midwest Banc
                                                                                                                                    Holdings is
                                                                                                                                    currently in
                                                                                                                                    bankruptcy
                                                                                                                                    proceedings.
Pacific Coast National Bancorp*....         4,120,000                --                --            18,088           (4,120,000)  2/11/2010: Pacific
                                                                                                                                    Coast National
                                                                                                                                    Bancorp dismissed
                                                                                                                                    its bankruptcy
                                                                                                                                    proceedings without
                                                                                                                                    recovery to
                                                                                                                                    creditors or
                                                                                                                                    investors.
                                                                                                                                    Investments,
                                                                                                                                    including Treasury's
                                                                                                                                    CPP investments,
                                                                                                                                    were extinguished.
Pierce County Bancorp..............         6,800,000                --                --           207,948           (6,800,000)  11/5/2010: Pierce
                                                                                                                                    County Bancorp
                                                                                                                                    subsidiary, Pierce
                                                                                                                                    Commercial Bank,
                                                                                                                                    placed into
                                                                                                                                    receivership.
Sonoma Valley Bancorp..............         8,653,000                --                --           347,164           (8,653,000)  8/20/2010: Sonoma
                                                                                                                                    Valley Bancorp
                                                                                                                                    subsidiary, Sonoma
                                                                                                                                    Valley Bank, placed
                                                                                                                                    into receivership.
South Financial Group*.............       347,000,000       130,179,219          $400,000        16,386,111         (216,820,781)  9/30/2010: Preferred
                                                                                                                                    stock and warrants
                                                                                                                                    sold to Toronto-
                                                                                                                                    Dominion Bank.
The Bank of Currituck*.............         4,021,000         1,742,850                --           169,834           (2,278,150)  12/3/2010: The Bank
                                                                                                                                    of Currituck
                                                                                                                                    completed its
                                                                                                                                    repurchase of all
                                                                                                                                    preferred stock
                                                                                                                                    (including preferred
                                                                                                                                    stock received upon
                                                                                                                                    exercise of
                                                                                                                                    warrants) issued to
                                                                                                                                    Treasury.
TIB Financial Corp.*...............        37,000,000        12,119,637            40,000         1,284,722          (24,880,363)  9/30/2010: Preferred
                                                                                                                                    stock and warrants
                                                                                                                                    sold to North
                                                                                                                                    American Financial
                                                                                                                                    Holdings.
Tifton Banking Company.............         3,800,000                --                --           223,208           (3,800,000)  11/12/2010: Tifton
                                                                                                                                    Banking Company
                                                                                                                                    placed into
                                                                                                                                    receivership.
UCBH Holdings, Inc.................       298,737,000                --                --         7,509,920         (298,737,000)  11/6/2009: United
                                                                                                                                    Commercial Bank, a
                                                                                                                                    wholly owned
                                                                                                                                    subsidiary of UCBH
                                                                                                                                    Holdings, Inc., was
                                                                                                                                    placed into
                                                                                                                                    receivership. UCBH
                                                                                                                                    Holdings is
                                                                                                                                    currently in
                                                                                                                                    bankruptcy
                                                                                                                                    proceedings.
    Total..........................    $3,173,519,000      $182,041,706          $440,000       $73,628,784      $(2,991,477,294)  .....................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\372\ Treasury Transactions Report, supra note 5, at 14. The asterisk (``*'') denotes recognized losses on Treasury's Transactions Report.

            f. Rate of Return
    As of February 2, 2011, the average internal rate of return 
for all public financial institutions that participated in the 
CPP and fully repaid the U.S. government (including preferred 
shares, dividends, and warrants) rose to 10.1 percent.\373\ 
During January 2011, Huntington Bancshares, First PacTrust 
Bancorp, Inc., East West Bancorp, and Susquehanna Bancshares, 
Inc. repurchased their warrants, while Citigroup's warrants 
were sold at auction. The internal rate of return is the 
annualized effective compounded return rate that can be earned 
on invested capital.
---------------------------------------------------------------------------
    \373\ Calculation of the internal rate of return (IRR) also 
includes CPP investments in public institutions not repaid in full (for 
reasons such as acquisition by another institution), such as The South 
Financial Group and TIB Financial Corporation. The Panel's total IRR 
calculation now includes CPP investments in public institutions 
recorded as a loss on the TARP Transactions Report due to bankruptcy, 
such as CIT Group Inc. Going forward, the Panel will continue to 
include losses due to bankruptcy when Treasury determines that any 
associated contingent value rights have expired without value. When 
excluding CPP investments that have resulted in losses from the 
calculation, the resulting IRR is 11.4 percent. Treasury Transactions 
Report, supra note 5.
---------------------------------------------------------------------------
            g. Warrant Disposition

          FIGURE 26: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY REPAID CPP AND TIP FUNDS (AS OF FEBRUARY 2, 2011)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Panel's Best
                                                                                      Warrant         Warrant          Valuation      Price/
                         Institution                             Investment Date     Repurchase  Repurchase/ Sale     Estimate at    Estimate     IRR
                                                                                        Date          Amount          Disposition      Ratio   (Percent)
                                                                                                                         Date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Old National Bancorp........................................            12/12/2008     5/8/2009        $1,200,000        $2,150,000    0.558       9.3
Iberiabank Corporation......................................             12/5/2008    5/20/2009         1,200,000         2,010,000    0.597       9.4
Firstmerit Corporation......................................              1/9/2009    5/27/2009         5,025,000         4,260,000    1.180      20.3
Sun Bancorp, Inc............................................              1/9/2009    5/27/2009         2,100,000         5,580,000    0.376      15.3
Independent Bank Corp.......................................              1/9/2009    5/27/2009         2,200,000         3,870,000    0.568      15.6
Alliance Financial Corporation..............................            12/19/2008    6/17/2009           900,000         1,580,000    0.570      13.8
First Niagara Financial Group...............................            11/21/2008    6/24/2009         2,700,000         3,050,000    0.885       8.0
Berkshire Hills Bancorp, Inc................................            12/19/2008    6/24/2009         1,040,000         1,620,000    0.642      11.3
Somerset Hills Bancorp......................................             1/16/2009    6/24/2009           275,000           580,000    0.474      16.6
SCBT Financial Corporation..................................             1/16/2009    6/24/2009         1,400,000         2,290,000    0.611      11.7
HF Financial Corp...........................................            11/21/2008    6/30/2009           650,000         1,240,000    0.524      10.1
State Street................................................            10/28/2008     7/8/2009        60,000,000        54,200,000    1.107       9.9
U.S. Bancorp................................................            11/14/2008    7/15/2009       139,000,000       135,100,000    1.029       8.7
The Goldman Sachs Group, Inc................................            10/28/2008    7/22/2009     1,100,000,000     1,128,400,000    0.975      22.8
BB&T Corp...................................................            11/14/2008    7/22/2009        67,010,402        68,200,000    0.983       8.7
American Express Company....................................              1/9/2009    7/29/2009       340,000,000       391,200,000    0.869      29.5
Bank of New York Mellon Corp................................            10/28/2008     8/5/2009       136,000,000       155,700,000    0.873      12.3
Morgan Stanley..............................................            10/28/2008    8/12/2009       950,000,000     1,039,800,000    0.914      20.2
Northern Trust Corporation..................................            11/14/2008    8/26/2009        87,000,000        89,800,000    0.969      14.5
Old Line Bancshares Inc.....................................             12/5/2008     9/2/2009           225,000           500,000    0.450      10.4
Bancorp Rhode Island, Inc...................................            12/19/2008    9/30/2009         1,400,000         1,400,000    1.000      12.6
Centerstate Banks of Florida Inc............................            11/21/2008   10/28/2009           212,000           220,000    0.964       5.9
Manhattan Bancorp...........................................             12/5/2008   10/14/2009            63,364           140,000    0.453       9.8
CVB Financial Corp..........................................             12/5/2008   10/28/2009         1,307,000         3,522,198    0.371       6.4
Bank of the Ozarks..........................................            12/12/2008   11/24/2009         2,650,000         3,500,000    0.757       9.0
Capital One Financial.......................................            11/14/2008    12/3/2009       148,731,030       232,000,000    0.641      12.0
JPMorgan Chase & Co.........................................            10/28/2008   12/10/2009       950,318,243     1,006,587,697    0.944      10.9
CIT Group Inc...............................................            12/31/2008            -                 -           562,541    -         (97.2)
TCF Financial Corp..........................................             1/16/2009   12/16/2009         9,599,964        11,825,830    0.812      11.0
LSB Corporation.............................................            12/12/2008   12/16/2009           560,000           535,202    1.046       9.0
Wainwright Bank & Trust Company.............................            12/19/2008   12/16/2009           568,700         1,071,494    0.531       7.8
Wesbanco Bank, Inc..........................................             12/5/2008   12/23/2009           950,000         2,387,617    0.398       6.7
Union First Market Bankshares Corporation (Union Bankshares             12/19/2008   12/23/2009           450,000         1,130,418    0.398       5.8
 Corporation)...............................................
Trustmark Corporation.......................................            11/21/2008   12/30/2009        10,000,000        11,573,699    0.864       9.4
Flushing Financial Corporation..............................            12/19/2008   12/30/2009           900,000         2,861,919    0.314       6.5
OceanFirst Financial Corporation............................             1/16/2009     2/3/2010           430,797           279,359    1.542       6.2
Monarch Financial Holdings, Inc.............................            12/19/2008    2/10/2010           260,000           623,434    0.417       6.7
Bank of America \374\.......................................  10/28/2008 \375\ 1/9/    3/3/2010     1,566,210,714     1,006,416,684    1.533       6.5
                                                              2009 \376\ 1/14/2009
                                                                             \377\
Washington Federal Inc./Washington Federal Savings & Loan               11/14/2008     3/9/2010        15,623,222        10,166,404    1.537      18.6
 Association................................................
Signature Bank..............................................            12/12/2008    3/10/2010        11,320,751        11,458,577    0.988      32.4
Texas Capital Bancshares, Inc...............................             1/16/2009    3/11/2010         6,709,061         8,316,604    0.807      30.1
Umpqua Holdings Corp........................................            11/14/2008    3/31/2010         4,500,000         5,162,400    0.872       6.6
City National Corporation...................................            11/21/2008     4/7/2010        18,500,000        24,376,448    0.759       8.5
First Litchfield Financial Corporation......................            12/12/2008     4/7/2010         1,488,046         1,863,158    0.799      15.9
PNC Financial Services Group Inc............................            12/31/2008    4/29/2010       324,195,686       346,800,388    0.935       8.7
Comerica Inc................................................            11/14/2008     5/4/2010       183,673,472       276,426,071    0.664      10.8
Valley National Bancorp.....................................            11/14/2008    5/18/2010         5,571,592         5,955,884    0.935       8.3
Wells Fargo Bank............................................            10/28/2008    5/20/2010       849,014,998     1,064,247,725    0.798       7.8
First Financial Bancorp.....................................            12/23/2008     6/2/2010         3,116,284         3,051,431    1.021       8.2
Sterling Bancshares, Inc./Sterling Bank.....................            12/12/2008     6/9/2010         3,007,891         5,287,665    0.569      10.8
SVB Financial Group.........................................            12/12/2008    6/16/2010         6,820,000         7,884,633    0.865       7.7
Discover Financial Services.................................             3/13/2009     7/7/2010       172,000,000       166,182,652    1.035      17.1
Bar Harbor Bancshares.......................................             1/16/2009    7/28/2010           250,000           518,511    0.482       6.2
Citizens & Northern Corporation.............................             1/16/2009     8/4/2010           400,000           468,164    0.854       5.9
Columbia Banking System, Inc................................            11/21/2008    8/11/2010         3,301,647         3,291,329    1.003       7.3
Hartford Financial Services Group, Inc......................             6/26/2009    9/21/2010       713,687,430       472,221,996    1.511      30.3
Lincoln National Corporation................................             7/10/2009    9/16/2010       216,620,887       181,431,183    1.194      27.1
Fulton Financial Corporation................................            12/23/2008     9/8/2010        10,800,000        15,616,013    0.692       6.7
The Bancorp, Inc./The Bancorp Bank..........................            12/12/2008     9/8/2010         4,753,985         9,947,683    0.478      12.8
South Financial Group, Inc./Carolina First Bank.............             12/5/2008    9/30/2010           400,000         1,164,486    0.343     (34.2)
TIB Financial Corp/TIB Bank.................................             12/5/2008    9/30/2010            40,000           235,757    0.170     (38.0)
Central Jersey Bancorp......................................            12/23/2008    12/1/2010           319,659         1,554,457    0.206       6.3
Huntington Bancshares.......................................            11/14/2008    1/19/2011        49,100,000        45,180,929    1.087       6.4
First PacTrust Bancorp, Inc.................................            11/21/2008     1/5/2011         1,033,227         1,750,518    0.590       7.3
East West Bancorp...........................................             12/5/2008    1/26/2011        14,500,000        32,726,663    0.443       7.0
Susquehanna Bancshares, Inc.................................            12/12/2008    1/19/2011         5,269,179        14,708,811    0.358       6.2
Citigroup \378\.............................................      \379\ 10/25/2008    1/25/2011       245,008,277       136,161,499    1.799      13.4
                                                                  \380\ 12/31/2008
    Total...................................................  ....................  ...........    $8,463,562,508    $8,231,926,132    1.028      10.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\374\ Calculation of the IRR for Bank of America does not include fees received by Treasury as part of an agreement to terminate that bank's
  participation under the AGP. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report--December 2010, at A-3 (Jan. 10,
  2010) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Documents105/December105(a)%20report_FINAL_v4.pdf).
\375\ Investment date for Bank of America in the CPP.
\376\ Investment date for Merrill Lynch in the CPP.
\377\ Investment date for Bank of America in the TIP.
\378\ Calculations for the IRR of Citigroup do not include dividends or warrant proceeds earned from the Asset Guarantee Program (AGP). This IRR also
  does not incorporate proceeds received from Treasury's sale of Citigroup's trust preferred securities, given as a premium for Treasury's guarantee
  under the AGP. It is important to note that subject to the AGP termination agreement with Citigroup, Treasury could receive $800 million in trust
  preferred securities held by the FDIC upon the company's exit from the FDIC's Temporary Liquidity Guarantee Program (TLGP). As of February 3, 2010,
  the company and its subsidiaries had $58.3 billion in long-term debt outstanding, which is guaranteed under the TLGP. Treasury Transactions Report,
  supra note 5, at 20. Data on Citigroup debt guaranteed by the TLGP accessed through SNL Financial Data Service.
\379\ Investment date for Citigroup in the CPP.
\380\ Investment date for Citigroup in the TIP.


 FIGURE 27: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF FEBRUARY 2,
                                  2011)
                          [Dollars in millions]
------------------------------------------------------------------------
                                             Warrant Valuation
   Financial Institutions with    --------------------------------------
       Warrants Outstanding            Low          High         Best
                                     Estimate     Estimate     Estimate
------------------------------------------------------------------------
SunTrust Banks, Inc..............       $57.98      $328.46      $149.21
Regions Financial Corporation....        13.18       195.09       109.36
Fifth Third Bancorp..............       174.07       469.56       230.85
KeyCorp..........................        36.57       180.59        90.27
AIG..............................       384.03     1,892.92       973.39
All Other Banks..................       615.05      1421.37      1052.02
    Total........................    $1,280.88    $4,487.99    $2,605.10
------------------------------------------------------------------------

2. Federal Financial Stability Efforts

            a. Federal Reserve and FDIC Programs 
    In addition to the direct expenditures Treasury has 
undertaken through the TARP, the federal government has engaged 
in a much broader program directed at stabilizing the U.S. 
financial system. Many of these initiatives explicitly augment 
funds allocated by Treasury under specific TARP initiatives, 
such as FDIC and Federal Reserve asset guarantees for 
Citigroup, or operate in tandem with Treasury programs. Other 
programs, like the Federal Reserve's extension of credit 
through its Section 13(3) facilities and special purpose 
vehicles (SPVs) and the FDIC's Temporary Liquidity Guarantee 
Program (TLGP), operate independently of the TARP.
            b. Total Financial Stability Resources 
    Beginning in its April 2009 report, the Panel broadly 
classified the resources that the federal government has 
devoted to stabilizing the economy in the aftermath of the 
financial crisis through myriad programs and initiatives such 
as outlays, loans, or guarantees. With the reductions in 
funding for certain TARP programs, the Panel calculates the 
total value of these resources to be approximately $2.5 
trillion. However, this would translate into the ultimate 
``cost'' of the stabilization effort only if: (1) assets do not 
appreciate; (2) no dividends are received, no warrants are 
exercised, and no TARP funds are repaid; (3) all loans default 
and are written off; and (4) all guarantees are exercised and 
subsequently written off.
    With respect to the FDIC and Federal Reserve programs, the 
risk of loss varies significantly across the programs 
considered here, as do the mechanisms providing protection for 
the taxpayer against such risk. As discussed in the Panel's 
November 2009 report, the FDIC assesses a premium of up to 100 
basis points, or 1 percentage point, on TLGP debt 
guarantees.\381\ In contrast, the Federal Reserve's liquidity 
programs are generally available only to borrowers with good 
credit, and the loans are over-collateralized and with recourse 
to other assets of the borrower. If the assets securing a 
Federal Reserve loan realize a decline in value greater than 
the ``haircut,'' the Federal Reserve is able to demand more 
collateral from the borrower. Similarly, should a borrower 
default on a recourse loan, the Federal Reserve can turn to the 
borrower's other assets to make the Federal Reserve whole. In 
this way, the risk to the taxpayer on recourse loans only 
materializes if the borrower enters bankruptcy.
---------------------------------------------------------------------------
    \381\ Congressional Oversight Panel, November Oversight Report: 
Guarantees and Contingent Payments in TARP and Related Programs, at 36 
(Nov. 6, 2009) (online at cop.senate.gov/documents/cop-110609-
report.pdf).
---------------------------------------------------------------------------
            c. Mortgage Purchase Programs
    On September 7, 2008, Treasury announced the GSE Mortgage 
Backed Securities Purchase (MBS) Program. The Housing and 
Economic Recovery Act of 2008 provided Treasury with the 
authority to purchase MBS guaranteed by government-sponsored 
enterprises (GSEs) through December 31, 2009. Treasury 
purchased approximately $225 billion in GSE MBS by the time its 
authority expired.\382\ As of January 2011, there was 
approximately $139.6 billion in MBS still outstanding under 
this program.\383\
---------------------------------------------------------------------------
    \382\ U.S. Department of the Treasury, FY2011 Budget in Brief, at 
138 (Feb. 2010) (online at www.treasury.gov/about/budget-performance/
budget-in-brief/Documents/FY%202011%20BIB%20(2).pdf).
    \383\ U.S. Department of the Treasury, MBS Purchase Program: 
Portfolio by Month (online at www.treasury.gov/resource-center/data-
chart-center/Documents/January%202011%20Portfolio%20by%20month.pdf). 
Treasury has received $80.7 billion in principal repayments and $16.2 
billion in interest payments from these securities. See U.S. Department 
of the Treasury, MBS Purchase Program Principal and Interest Received 
(online at www.treasury.gov/resource-center/data-chart-center/
Documents/January%202011%20MBS%20Principal%20and%20Interest%20Monthly%20
Breakout.pdf).
---------------------------------------------------------------------------
    In March 2009, the Federal Reserve authorized purchases of 
$1.25 trillion MBS guaranteed by Fannie Mae, Freddie Mac, and 
Ginnie Mae, and $200 billion of agency debt securities from 
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.\384\ 
The intended purchase amount for agency debt securities was 
subsequently decreased to $175 billion.\385\ All purchasing 
activity was completed on March 31, 2010. As of February 3, 
2011, the Federal Reserve held $965 billion of agency MBS and 
$145 billion of agency debt.\386\
---------------------------------------------------------------------------
    \384\ Board of Governors of the Federal Reserve System, Federal 
Reserve System Monthly Report on Credit and Liquidity Programs and the 
Balance Sheet, at 5 (Dec. 2010) (online at federalreserve.gov/
monetarypolicy/files/monthlyclbsreport201012.pdf).
    \385\ Id. at 5.
    \386\ Board of Governors of the Federal Reserve System, Factors 
Affecting Reserve Balances (H.4.1) (Feb. 3, 2011) (online at 
www.federalreserve.gov/releases/h41/20110203/) (hereinafter ``Factors 
Affecting Reserve Balances (H.4.1)'').
---------------------------------------------------------------------------
            d. Federal Reserve Treasury Securities Purchases \387\
---------------------------------------------------------------------------
    \387\ Board of Governors of the Federal Reserve System, Press 
Release--FOMC Statement (Nov. 3, 2010) (online at 
www.federalreserve.gov/newsevents/press/monetary/20101103a.htm); 
Federal Reserve Bank of New York, Statement Regarding Purchases of 
Treasury Securities (Nov. 3, 2010) (online at www.federalreserve.gov/
newsevents/press/monetary/monetary20101103a1.pdf).
---------------------------------------------------------------------------
    On November 3, 2010, the Federal Open Market Committee 
(FOMC) announced that it has directed the Federal Reserve Bank 
of New York (FRBNY) to begin purchasing an additional $600 
billion in longer-term Treasury securities. In addition, FRBNY 
will reinvest $250 billion to $300 billion in principal 
payments from agency debt and agency MBS in Treasury 
securities.\388\ The additional purchases and reinvestments 
will be conducted through the end of the second quarter of 
2011, meaning the pace of purchases will be approximately $110 
billion per month. In order to facilitate these purchases, 
FRBNY will temporarily lift its System Open Market Account per-
issue limit, which prohibits the Federal Reserve's holdings of 
an individual security from surpassing 35 percent of the 
outstanding amount.\389\ As of February 3, 2010, the Federal 
Reserve held $1.11 trillion in Treasury securities.\390\
---------------------------------------------------------------------------
    \388\ On August 10, 2010, the Federal Reserve began reinvesting 
principal payments on agency debt and agency MBS holdings in longer-
term Treasury securities in order to keep the amount of their 
securities holdings in their System Open Market Account portfolio at 
their then-current level. Board of Governors of the Federal Reserve 
System, FOMC Statement (Aug. 10, 2010) (online at 
www.federalreserve.gov/newsevents/press/monetary/20100810a.htm).
    \389\ Federal Reserve Bank of New York, FAQs: Purchases of Longer-
term Treasury Securities (Nov. 3, 2010) (online at www.newyorkfed.org/
markets/lttreas_faq.html).
    \390\ Factors Affecting Reserve Balances (H.4.1), supra note 386.

            FIGURE 28: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF JANUARY 28, 2011) \xxxvi\
                                              [Dollars in billions]
----------------------------------------------------------------------------------------------------------------
                                                     Treasury         Federal
                    Program                           (TARP)          reserve          FDIC            Total
----------------------------------------------------------------------------------------------------------------
Total...........................................          $475.1        $1,200.4          $683.1        $2,358.5
    Outlays \xxxvii\............................           201.5         1,109.7           188.9         1,500.1
    Loans.......................................            23.2            90.7               0           113.9
    Guarantees \xxxviii\........................             4.3               0           494.2           498.5
    Repaid and Unavailable TARP Funds...........           246.0               0               0           246.0
AIG \xxxix\.....................................            70.0            25.2               0            95.2
    Outlays.....................................       \xl\ 70.0         \xli\ 0               0            70.0
    Loans.......................................               0     \xlii\ 25.2               0            25.2
    Guarantees..................................               0               0               0               0
Citigroup.......................................               0               0               0               0
    Outlays.....................................       \xliii\ 0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Purchase Program (Other)................            34.4               0               0            34.4
    Outlays.....................................     \xliv\ 34.4               0               0            34.4
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
    Capital Assistance Program..................             N/A               0               0       \xlv\ N/A
TALF............................................             4.3            18.3               0            22.6
    Outlays.....................................               0               0               0               0
    Loans.......................................               0    \xlvii\ 18.3               0            18.3
    Guarantees..................................      \xlvi\ 4.3               0               0             4.3
PPIP (Loans) \xlviii\...........................               0               0               0               0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
PPIP (Securities)...............................     \xlix\ 22.1               0               0            22.1
    Outlays.....................................             7.4               0               0             7.4
    Loans.......................................            14.7               0               0            14.7
    Guarantees..................................               0               0               0               0
Making Home Affordable Program/Foreclosure                  45.6               0               0            45.6
 Mitigation.....................................
    Outlays.....................................        \1\ 45.6               0               0            45.6
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Automotive Industry Financing Program...........       \li\ 51.4               0               0            51.4
    Outlays.....................................            43.3               0               0            43.3
    Loans.......................................             8.1               0               0             8.1
    Guarantees..................................               0               0               0               0
Automotive Supplier Support Program.............             0.4               0               0             0.4
    Outlays.....................................               0               0               0               0
    Loans.......................................       \lii\ 0.4               0               0             0.4
    Guarantees..................................               0               0               0               0
SBA 7(a) Securities Purchase....................     \liii\ 0.37               0               0            0.37
    Outlays.....................................            0.37               0               0            0.37
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Community Development Capital Initiative........      \liv\ 0.57               0            0.57            0.57
    Outlays.....................................               0               0               0               0
    Loans.......................................            0.57               0               0            0.57
    Guarantees..................................               0               0               0               0
Temporary Liquidity Guarantee Program...........               0               0           494.2           494.2
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0      \lv\ 494.2           494.2
Deposit Insurance Fund..........................               0               0           188.9           188.9
    Outlays.....................................               0               0     \lvi\ 188.9           188.9
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Other Federal Reserve Credit Expansion..........               0         1,157.0               0         1,157.0
    Outlays.....................................               0  \lvii\ 1,109.7               0         1,109.7
    Loans.......................................               0    \lviii\ 47.3               0            47.3
    Guarantees..................................               0               0               0              0
----------------------------------------------------------------------------------------------------------------
\xxxvi\ Unless otherwise noted, all data in this figure are as of January 28, 2011.
\xxxvii\ The term ``outlays'' is used here to describe the use of Treasury funds under the TARP, which are
  broadly classifiable as purchases of debt or equity securities (e.g., debentures, preferred stock, exercised
  warrants, etc.). These values were calculated using (1) Treasury's actual reported expenditures, and (2)
  Treasury's anticipated funding levels as estimated by a variety of sources, including Treasury statements and
  GAO estimates. Anticipated funding levels are set at Treasury's discretion, have changed from initial
  announcements, and are subject to further change. Outlays used here represent investment and asset purchases--
  as well as commitments to make investments and asset purchases--and are not the same as budget outlays, which
  under section 123 of EESA are recorded on a ``credit reform'' basis.
\xxxviii\ Although many of the guarantees may never be exercised or will be exercised only partially, the
  guarantee figures included here represent the federal government's greatest possible financial exposure at
  this point in time.
\xxxix\ U.S. Department of the Treasury, Treasury Update on AIG Investment Valuation (Nov. 1, 2010)
  (www.treasury.gov/press-center/press-releases/Pages/pr_11012010.aspx). AIG values exclude accrued interest
  payable to FRBNY on the Maiden Lane LLCs.
\xl\ This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November
  25, 2008, and a $30 billion investment made on April 17, 2009 (less a reduction of $165 million representing
  bonuses paid to AIG Financial Products employees). As of January 28, 2011, AIG had utilized all $70 billion
  available under the AIGIP/SSFI in the recapitalization process. U.S. Department of the Treasury, Troubled
  Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online
  at www.treasury.gov/ initiatives/financial-stability/briefing-room/reports/tarp-transactions/
  DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf).
\xli\ As part of the restructuring of the U.S. government's investment in AIG announced on March 2, 2009, the
  amount available to AIG through the Revolving Credit Facility was reduced by $25 billion in exchange for
  preferred equity interests in two special purpose vehicles, AIA Aurora LLC and ALICO Holdings LLC. These SPVs
  were established to hold the common stock of two AIG subsidiaries: American International Assurance Company
  Ltd. (AIA) and American Life Insurance Company (ALICO). This interest was exchanged as part of the AIG
  recapitalization plan. Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report
  on Credit and Liquidity Programs and the Balance Sheet, at 18 (Nov. 2010) (online at www.federalreserve.gov/
  monetarypolicy/files/monthlyclbsreport201011.pdf).
Upon the completion of AIG's recapitalization plan, FRBNY no longer held an interest in the AIA and ALICO SPVs.
  The remaining holdings in these vehicles is consolidated under Treasury. Treasury, through TARP, currently
  holds $16.9 billion in liquidation preference of preferred stock in the AIA Aurora LLC and $3.8 billion in
  junior preferred stock interest in ALICO Holdings LLC. U.S. Department of the Treasury, Troubled Asset Relief
  Program Transactions Report for the Period Ending January 28, 2011, at 21 (Feb. 1, 2011) (online at
  www.treasury.gov/ initiatives/ financial-stability/ briefing-room/reports/ tarp-transactions/
  DocumentsTARPTransactions/ 2-1-11%20 Transactions%20Report%20as%20of%201-28-11.pdf).
\xlii\ This number represents the outstanding principal of the loans extended to the Maiden Lane II and III SPVs
  to buy AIG assets (as of February 3, 2011, $12.6 billion and $12.7 billion, respectively). Federal Reserve
  Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Feb. 3, 2011) (online at www.federalreserve.gov/
  releases/h41/20110203/); Board of Governors of the Federal Reserve System, Federal Reserve System Monthly
  Report on Credit and Liquidity Programs and the Balance Sheet (Nov. 2010) (online at www.federalreserve.gov/
  monetarypolicy/files/ monthlyclbsreport201011.pdf). The amounts outstanding under the Maiden Lane II and III
  facilities do not reflect the accrued interest payable to FRBNY. Income from the purchased assets is used to
  pay down the loans to the SPVs, reducing the taxpayers' exposure to losses over time. Board of Governors of
  the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the
  Balance Sheet, at 15 (Nov. 2010) (online at www.federalreserve.gov/ monetarypolicy /files/
  monthlyclbsreport201011.pdf).
\xliii\ The final sale of Treasury's Citigroup common stock resulted in full repayment of Treasury's investment
  of $25 billion. See endnote ii, supra. For further details concerning the sales of Citigroup common stock, see
  U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011, at 15 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-
  room/ reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-11%20 Transactions%20Report%20as%20of%201-28-
  11.pdf).
\xliv\ U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011, at 13 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/financial-stability/ briefing-
  room/reports/tarp-transactions/DocumentsTARP Transactions/2-1-11%20Transactions% 20Report%20as%20of%201-28-
  11.pdf).
\xlv\ On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC/Ally
  Financial, was in need of further capital. GMAC/Ally Financial, however, received further funding through the
  AIFP. U.S. Department of the Treasury, Treasury Announcement Regarding the Capital Assistance Program (Nov. 9,
  2009) (online at www.treasury.gov/ press-center/ press-releases/Pages/tg359.aspx).
\xlvi\ This figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of February 3,
  2011, TALF LLC had drawn only $106 million of the available $4.3 billion. Board of Governors of the Federal
  Reserve System, Factors Affecting Reserve Balances (H.4.1) (Feb. 8, 2011) (online at www.federalreserve.gov/
  releases/h41 /20110203/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report
  for the Period Ending January 28, 2011, at 22 (Feb. 1, 2011) (online at www.treasury.gov/initiatives/
  financial-stability/ briefing-room/reports/tarp-transactions/ DocumentsTARPTransactions/ 2-1-
  11%20Transactions%20Report%20as%20of%201-28-11.pdf). On June 30, 2010, the Federal Reserve ceased issuing
  loans collateralized by newly issued CMBS. As of this date, investors had requested a total of $73.3 billion
  in TALF loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been
  settled ($12 billion in CMBS and $59 billion in non-CMBS). It ended its issues of loans collateralized by
  other TALF-eligible newly issued and legacy ABS (non-CMBS) on March 31, 2010. Federal Reserve Bank of New
  York, Term Asset-Backed Securities Loan Facility: Terms and Conditions (online at www.newyorkfed.org/ markets/
  talf_terms.html) (accessed Feb. 8, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan
  Facility: CMBS (online at www.newyorkfed.org/ markets/ cmbs_operations.html) (accessed Feb. 8, 2011); Federal
  Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: CMBS (online at www.newyorkfed.org/
  markets/CMBS_recent_operations.html) (accessed Feb. 8, 2011); Federal Reserve Bank of New York, Term Asset-
  Backed Securities Loan Facility: non-CMBS (online at www.newyorkfed.org /markets/ talf_operations.html)
  (accessed Feb. 8, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-
  CMBS (online at www.newyorkfed.org/markets/TALF_recent_operations.html) (accessed Feb. 8, 2011).
\xlvii\ This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the
  value of Federal Reserve loans under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial
  Stability Plan, at 4 (Feb.10, 2009) (online at financialstability.gov/docs/fact-sheet.pdf). Since only $43
  billion in TALF loans remained outstanding when the program closed, Treasury is currently responsible for
  reimbursing the Federal Reserve Board for only up to $4.3 billion in losses from these loans. Thus, since the
  outstanding TALF Federal Reserve loans currently total $22.6 billion, the Federal Reserve's maximum potential
  exposure under the TALF is $18.3 billion. See Board of Governors of the Federal Reserve System, Federal
  Reserve Announces Agreement with Treasury Regarding Reduction of Credit Protection Provided for the Term Asset-
  Backed Securities Loan Facility (TALF) (July 20, 2010) (online at www.federalreserve.gov/newsevents/press/
  monetary/20100720a.htm); Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances
  (H.4.1) (Feb. 3, 2011) (online at www.federalreserve.gov /releases/h41/20110203/).
\xlviii\ No TARP resources were expended under the PPIP Legacy Loans Program, a TARP program that was announced
  in March 2009 but never launched. Since no TARP funds were allocated for the program by the time the TARP
  expired in October 2010, this or a similar program cannot be implemented unless another source of funding is
  available.
\xlix\ On January 24, 2011, Treasury released its fifth quarterly report on PPIP. The report indicates that as
  of December 31, 2010, all eight investment funds have realized an internal rate of return since inception (net
  of any management fees or expenses owed to Treasury) of at least 23 percent. Thus far, the highest performing
  fund is AG GECC PPIF Master Fund, L.P., which has a net internal rate of return of 59.7 percent. U.S.
  Department of the Treasury, Legacy Securities Public-Private Investment Program: Program Update--Quarter Ended
  December 31, 2010, at 8 (Jan. 24, 2011) (online at www.treasury.gov/initiatives/financial-stability/investment-
  programs/ppip/s-ppip/Documents/ppip- 12-10 vFinal.pdf).
\l\ As of January 28, 2011, the total amount of TARP funds committed to HAMP is $29.9 billion. However, as of
  January 28, 2011, only $840.1 million in non-GSE payments has been disbursed under HAMP. U.S. Department of
  the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 45
  (Feb. 1, 2011) (online at www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-
  transactions/ DocumentsTARP Transactions/ 2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf).
\li\ A substantial portion of the total $81.3 billion in debt instruments extended under the AIFP has since been
  converted to common equity and preferred shares in restructured companies. $8.1 billion has been retained as
  first-lien debt (with $1 billion committed to Old GM and $7.1 billion to Chrysler). This figure ($51.4
  billion) represents Treasury's current obligation under the AIFP after repayments and losses. U.S. Department
  of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at
  18 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/financial-stability /briefing-room/ reports/ tarp-
  transactions/ DocumentsTARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf).
\lii\ This figure represents Treasury's total adjusted investment amount in the ASSP. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending January 28, 2011, at 19
  (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/financial-stability/ briefing-room/reports/tarp-
  transactions/Documents TARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-11.pdf).
\liii\ U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 42-43 (Oct.
  2010) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-room/ reports/ agency_reports/
  Documents/ TARP%20Two%20Year%20 Retrospective_10%2005%2010_ transmittal%20letter.pdf).
\liv\ U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  January 28, 2011, at 17 (Feb. 1, 2011) (online at www.treasury.gov/ initiatives/ financial-stability/ briefing-
  room/ reports/tarp-transactions/Documents TARPTransactions/2-1-11%20Transactions%20Report%20as%20of%201-28-
  11.pdf).
\lv\ This figure represents the current maximum aggregate debt guarantees that could be made under the program,
  which is a function of the number and size of individual financial institutions participating. $267.1 billion
  of debt subject to the guarantee is currently outstanding, which represents approximately 54.0 percent of the
  current cap. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity
  Guarantee Program: Debt Issuance Under Guarantee Program (Dec. 31, 2010) (online at www.fdic.gov/regulations/
  resources/TLGP/total_issuance12-10.html). The FDIC has collected $10.4 billion in fees and surcharges from
  this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly
  Reports Related to the Temporary Liquidity Guarantee Program: Fees Under Temporary Liquidity Guarantee Debt
  Program (Dec. 31, 2010) (online at www.fdic.gov/regulations/resources/tlgp/fees.html).
\lvi\ This figure represents the FDIC's provision for losses to its deposit insurance fund attributable to bank
  failures in the third and fourth quarters of 2008; the first, second, third, and fourth quarters of 2009; and
  the first, second, and third quarters of 2010. Federal Deposit Insurance Corporation, Chief Financial
  Officer's (CFO) Report to the Board: DIF Income Statement--Third Quarter 2010 (Nov. 12, 2010) (online at
  www.fdic.gov/about /strategic/corporate/ cfo_report_3rdqtr_10/income.html). For earlier reports, see Federal
  Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board (Sept. 23, 2010) (online at
  www.fdic.gov/about/strategic/corporate/index.html). This figure includes the FDIC's estimates of its future
  losses under loss-sharing agreements that it has entered into with banks acquiring assets of insolvent banks
  during these eight quarters. Under a loss-sharing agreement, as a condition of an acquiring bank's agreement
  to purchase the assets of an insolvent bank, the FDIC typically agrees to cover 80 percent of an acquiring
  bank's future losses on an initial portion of these assets and 95 percent of losses on another portion of
  assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assumption Agreement--Whole Bank, All
  Deposits--Among FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and
  Compass Bank, at 65-66 (Aug. 21, 2009) (online at www.fdic.gov/ bank/ individual/failed/ guaranty-
  tx_p_and_a_w_ addendum.pdf).
\lvii\ Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance
  sheet accounts for these facilities under federal agency debt securities and mortgage-backed securities held
  by the Federal Reserve. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances
  (H.4.1) (Feb. 3, 2011) (online at www.federalreserve.gov/releases/h41/20110203/) (accessed Feb. 8, 2011).
  Although the Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting
  clearly separates its mortgage-related purchasing programs from its liquidity programs. See, e.g., Board of
  Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1), at 2 (Feb. 3, 2011)
  (online at www.federalreserve.gov/ releases/h41/20110203/) (accessed Feb. 8, 2011).
\lviii\ Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary
  credit, central bank liquidity swaps, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
  Facility, loans outstanding to Commercial Paper Funding Facility LLC, seasonal credit, term auction credit,
  the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane LLC). Board
  of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Feb. 3, 2011) (online
  at www.federalreserve.gov/ releases/h41/20110203/) (accessed Feb. 8, 2011). For further information, see the
  data that the Federal Reserve disclosed on these programs pursuant to its obligations under the Dodd-Frank
  Wall Street Reform and Consumer Protection Act. Board of Governors of the Federal Reserve System, Credit and
  Liquidity Programs and the Balance Sheet: Overview (May 11, 2010) (online at www.federalreserve.gov/
  monetarypolicy/bst.htm); Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and
  the Balance Sheet: Reports and Disclosures (Aug. 24, 2010) (online at www.federalreserve.gov/monetarypolicy/
  bst_reports.htm); Board of Governors of the Federal Reserve System, Usage of Federal Reserve Credit and
  Liquidity Facilities (Dec. 3, 2010) (online at www.federalreserve.gov /newsevents/reform_transaction.htm).

                   SECTION FOUR: OVERSIGHT ACTIVITIES

    The Congressional Oversight Panel was established as part 
of the Emergency Economic Stabilization Act (EESA) and formed 
on November 26, 2008. Since then, the Panel has produced 27 
oversight reports as well as a special report on regulatory 
reform, issued on January 29, 2009, and a special report on 
farm credit, issued on July 21, 2009. Since the release of the 
Panel's January oversight report, the following developments 
pertaining to the Panel's oversight of the TARP took place:
           The Panel held a hearing in Washington, DC 
        on February 4, 2011. Industry experts and regulators 
        from the FDIC, the OCC, and the Federal Reserve each 
        provided testimony with an update on the current state 
        of the commercial real estate market and its continued 
        implications for financial stability, the health of 
        small and medium-sized banks, and repayment of CPP 
        funds under the TARP. The hearing was the Panel's third 
        on commercial real estate and came a year after the 
        publication of its February 2010 report on the topic.

                     Upcoming Reports and Hearings

    The Panel will release its next report in March. This final 
oversight report will summarize and update the Panel's work in 
each of its past reports, revisiting the broad array of topics 
covered throughout its oversight of the TARP.
         SECTION FIVE: ABOUT THE CONGRESSIONAL OVERSIGHT PANEL

    In response to the escalating financial crisis, on October 
3, 2008, Congress provided Treasury with the authority to spend 
$700 billion to stabilize the U.S. economy, preserve home 
ownership, and promote economic growth. Congress created the 
Office of Financial Stability (OFS) within Treasury to 
implement the TARP. At the same time, Congress created the 
Congressional Oversight Panel to ``review the current state of 
financial markets and the regulatory system.'' The Panel is 
empowered to hold hearings, review official data, and write 
reports on actions taken by Treasury and financial institutions 
and their effect on the economy. Through regular reports, the 
Panel must oversee Treasury's actions, assess the impact of 
spending to stabilize the economy, evaluate market 
transparency, ensure effective foreclosure mitigation efforts, 
and guarantee that Treasury's actions are in the best interests 
of the American people. In addition, Congress instructed the 
Panel to produce a special report on regulatory reform that 
analyzes ``the current state of the regulatory system and its 
effectiveness at overseeing the participants in the financial 
system and protecting consumers.'' The Panel issued this report 
in January 2009. Congress subsequently expanded the Panel's 
mandate by directing it to produce a special report on the 
availability of credit in the agricultural sector. The report 
was issued on July 21, 2009.
    On November 14, 2008, Senate Majority Leader Harry Reid and 
the Speaker of the House Nancy Pelosi appointed Richard H. 
Neiman, Superintendent of Banks for the State of New York, 
Damon Silvers, Director of Policy and Special Counsel of the 
American Federation of Labor and Congress of Industrial 
Organizations (AFL-CIO), and Elizabeth Warren, Leo Gottlieb 
Professor of Law at Harvard Law School, to the Panel. With the 
appointment on November 19, 2008, of Congressman Jeb Hensarling 
to the Panel by House Minority Leader John Boehner, the Panel 
had a quorum and met for the first time on November 26, 2008, 
electing Professor Warren as its chair. On December 16, 2008, 
Senate Minority Leader Mitch McConnell named Senator John E. 
Sununu to the Panel. Effective August 10, 2009, Senator Sununu 
resigned from the Panel, and on August 20, 2009, Senator 
McConnell announced the appointment of Paul Atkins, former 
Commissioner of the U.S. Securities and Exchange Commission, to 
fill the vacant seat. Effective December 9, 2009, Congressman 
Jeb Hensarling resigned from the Panel, and House Minority 
Leader John Boehner announced the appointment of J. Mark 
McWatters to fill the vacant seat. Senate Minority Leader Mitch 
McConnell appointed Kenneth Troske, Sturgill Professor of 
Economics at the University of Kentucky, to fill the vacancy 
created by the resignation of Paul Atkins on May 21, 2010. 
Effective September 17, 2010, Elizabeth Warren resigned from 
the Panel, and on September 30, 2010, Senate Majority Leader 
Harry Reid announced the appointment of Senator Ted Kaufman to 
fill the vacant seat. On October 4, 2010, the Panel elected 
Senator Kaufman as its chair.