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




 
                     CONGRESSIONAL OVERSIGHT PANEL

                        MARCH OVERSIGHT REPORT *

                               ----------                              

         THE FINAL REPORT OF THE CONGRESSIONAL OVERSIGHT PANEL

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                 March 16, 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 MARCH OVERSIGHT REPORT




                                     


                     CONGRESSIONAL OVERSIGHT PANEL

                        MARCH OVERSIGHT REPORT *

                               __________

         THE FINAL REPORT OF THE CONGRESSIONAL OVERSIGHT PANEL

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                 March 16, 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




                  U.S. GOVERNMENT PRINTING OFFICE
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                     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
Glossary of Terms................................................    vi
Executive Summary................................................     1
Section One:
I. Introduction..................................................     5
    A. Key Events of the Financial Crisis........................     6
        1. Events Leading up to Enactment of EESA................     6
        2. Initial TARP Investments in the Largest Institutions..    13
    B. Overview of Government Efforts............................    15
        1. Federal Reserve.......................................    15
        2. FDIC..................................................    18
        3. Treasury Department...................................    19
        4. Coordinated Action....................................    21
II. Banks........................................................    25
    A. Capital Infusions and Bank Balance Sheets.................    25
        1. Summary of COP Reports and Findings...................    25
        2. Panel Recommendations and Updates.....................    31
        3. Lessons Learned.......................................    46
    B. Guarantees and Contingent Payments........................    48
        1. Background............................................    49
        2. Summary of COP Report and Findings....................    50
        3. Panel Recommendations and Updates.....................    50
        4. Lessons Learned.......................................    51
    C. Global Context and International Effects of the TARP......    52
        1. Background............................................    52
        2. Summary of COP Report and Findings....................    53
        3. Panel Recommendations and Updates.....................    54
        4. Lessons Learned.......................................    55
III. Credit Markets: Small Business and Consumer Lending.........    55
    A. Background................................................    55
        1. Small Business Lending................................    55
        2. Consumer Lending......................................    58
        3. Government Efforts to Stimulate Small Business and 
          Consumer Lending.......................................    59
    B. Summary of COP Reports and Findings.......................    63
    C. Panel Recommendations and Updates.........................    64
        1. Current State of Commercial and Industrial Lending....    64
        2. Consideration of Alternatives.........................    65
        3. Small Business Lending Fund...........................    66
    D. Lessons Learned...........................................    67
IV. Foreclosure Mitigation.......................................    68
    A. Background................................................    68
    B. Summary of COP Reports and Findings.......................    72
    C. Panel Recommendations and Program Updates.................    75
        1. Transparency..........................................    76
        2. Compliance............................................    78
        3. Goals.................................................    78
        4. Streamlining..........................................    79
        5. Program Structure.....................................    80
        6. Document Irregularities...............................    83
    D. Data Updates..............................................    84
        1. Treasury's Foreclosure Mitigation Programs............    84
        2. Housing Market........................................    88
    E. Lessons Learned...........................................    93
V. Automotive Industry Assistance................................    95
    A. Background................................................    95
        1. Initial Treasury Action...............................    96
        2. Additional Initiatives and Actions....................    98
    B. Summary of COP Reports and Findings.......................    99
    C. Panel Recommendations and Updates.........................   103
        1. Transparency..........................................   103
        2. Accountability........................................   103
        3. Improved Balance among Treasury's Roles...............   105
        4. Continued Oversight...................................   105
        5. Updates...............................................   105
    D. Lessons Learned...........................................   106
VI. AIG..........................................................   107
    A. Background................................................   107
        1. Government Assistance.................................   109
    B. Summary of COP Report and Findings........................   114
        1. AIG Changed a Fundamental Market Relationship.........   114
        2. The Powerful Role of Credit Rating Agencies...........   115
        3. The Options Available to the Government...............   115
        4. The Government's Authorities in a Financial Crisis....   116
        5. Conflicts.............................................   116
    C. Panel Recommendations.....................................   117
        1. Government Exit Strategy/Equity Market Risk Mitigation   117
        2. Status of COP Recommendations.........................   118
    D. Updates...................................................   118
        1. Recent Developments...................................   118
        2. Outlook...............................................   125
    E. Lessons Learned...........................................   129
VII. Administration of the TARP..................................   130
    A. Treasury's Use of Its Contracting Authority...............   130
        1. Background............................................   130
        2. Summary of COP Report and Findings....................   131
        3. Panel Recommendations and Updates.....................   133
        4. Lessons Learned.......................................   135
    B. Executive Compensation Restrictions in the TARP...........   135
        1. Background............................................   135
        2. Summary of COP Report and Findings....................   139
        3. Panel Recommendations and Updates.....................   140
        4. Lessons Learned.......................................   141
VIII. General TARP Assessment....................................   141
    A. Summary of COP Reports and Findings.......................   142
    B. Panel Recommendations.....................................   144
    C. Financial Status of the TARP..............................   145
IX. Conclusions and Lessons Learned..............................   151
    A. ``Too Big to Fail'' and Moral Hazard......................   153
    B. Stigma....................................................   155
    C. Transparency, Data Collection, and Accountability.........   156
    D. Other Obstacles Encountered by the TARP...................   158
    E. On the Role of Oversight..................................   160
Annex I: Federal Financial Stability Efforts.....................   162
Annex II: Additional CPP Data....................................   165
Annex III: Endnotes..............................................   172
Section Two: Oversight Activities................................   180
Section Three: About the Congressional Oversight Panel
    A. Members...................................................   181
    B. Reports...................................................   182
    C. Hearings..................................................   187
    D. Staff.....................................................   188
    E. Budget....................................................   188
Appendices:
APPENDIX I: LETTER TO SECRETARY TIMOTHY GEITHNER FROM CHAIRMAN 
  TED KAUFMAN RE: REDESIGN OF WEBSITE, DATED MARCH 7, 2011.......   190
APPENDIX II: LETTER TO CHAIRMAN TED KAUFMAN FROM ACTING ASSISTANT 
  SECRETARY TIMOTHY MASSAD RE: REDESIGN OF WEBSITE, DATED MARCH 
  14, 2011.......................................................   194
                        Glossary of Terms

------------------------------------------------------------------------

------------------------------------------------------------------------
ABS....................................  asset-backed securities
AGP....................................  Asset Guarantee Program
AIA....................................  American International
                                          Assurance Company, Limited
AIFP...................................  Automobile Industry Financing
                                          Program
AIG....................................  American International Group
AIGFP..................................  AIG Financial Products
AIGIP/SSFI Program.....................  American International Group
                                          Investment Program/
                                          Systemically Significant
                                          Failing Institutions Program
ALICO..................................  American Life Insurance Company
AMLF...................................  Asset-Backed Commercial Paper
                                          Money Market Mutual Fund
                                          Liquidity Facility
ARRA...................................  American Recovery and
                                          Reinvestment Act
ASSP...................................  Auto Supplier Support Program
BHC....................................  bank holding company
C&I loans..............................  commercial and industrial loans
CAP....................................  Capital Assistance Program
CBO....................................  Congressional Budget Office
CDCI...................................  Community Development Capital
                                          Initiative
new Chrysler...........................  Chrysler Group LLC; Chrysler
                                          post bankruptcy
Chrysler Holding LLC...................  Chrysler Holding Limited
                                          Liability Company
CMBS...................................  commercial mortgage-backed
                                          securities
CPFF...................................  Commercial Paper Funding
                                          Facility
CPP....................................  Capital Purchase Program
CRE....................................  commercial real estate
DGP....................................  Debt Guarantee Program
Dodd-Frank Act.........................  Dodd-Frank Wall Street Reform
                                          and Consumer Protection Act of
                                          2010
EESA...................................  Emergency Economic
                                          Stabilization Act of 2008
FDIC...................................  Federal Deposit Insurance
                                          Corporation
FHA....................................  Federal Housing Administration
FHFA...................................  Federal Housing Finance Agency
FOMC...................................  Federal Open Market Committee
FRB....................................  Federal Reserve Board
FRBNY..................................  Federal Reserve Bank of New
                                          York
GAO....................................  Government Accountability
                                          Office
GDP....................................  gross domestic product
new GM.................................  General Motors Company; GM post
                                          bankruptcy
GM.....................................  General Motors Corporation
GMAC...................................  General Motors Acceptance
                                          Corporation; now Ally
                                          Financial
GMAC/Ally Financial....................  Ally Financial
GSE....................................  government sponsored enterprise
GSE MBS Purchase Program...............  Government Sponsored
                                          Enterprises' Mortgage Backed
                                          Securities Purchase Program
HAMP...................................  Home Affordable Modification
                                          Program
IFR-COI................................  Interim Final Rule on TARP
                                          Conflicts of Interest
IFR-Comp...............................  Interim Final Rule on TARP
                                          Standards for Compensation and
                                          Corporate Governance
IPO....................................  initial public offering
IRR....................................  internal rate of return
LIBOR..................................  London Interbank Offered Rate
LIBOR-OIS spread.......................  measures the difference between
                                          the LIBOR and the OIS
LLC....................................  limited liability company
------------------------------------------------------------------------

                        Glossary of Terms

------------------------------------------------------------------------

------------------------------------------------------------------------
MBS....................................  Mortgage Backed Securities
                                          Purchase
MMF....................................  Money Market Fund
OIS....................................  Overnight Indexed Swaps rate
OMB....................................  Office of Management and Budget
PDCF...................................  Primary Dealer Credit Facility
PPIP...................................  Public-Private Investment
                                          Program
RCF....................................  revolving credit facility
RMBS...................................  residential mortgage-backed
                                          security
SBA....................................  Small Business Administration
SBA 504................................  a loan program of the Small
                                          Business Administration
SBA 7(a)...............................  a loan program of the Small
                                          Business Administration
SBLF...................................  Small Business Lending Fund
                                          program
SCAP...................................  Supervisory Capital Assessment
                                          Program (the ``stress tests'')
SEC....................................  U.S. Securities and Exchange
                                          Commission
SIGTARP................................  Special Inspector General for
                                          the Troubled Asset Relief
                                          Program
SPA....................................  Securities Purchase Agreement
SPV....................................  special purpose vehicle
SSFI program...........................  Systemically Significant
                                          Failing Institutions program
                                          (solely for AIG)
TAF....................................  Term Auction Facility
TAG....................................  Transaction Account Guarantee
TALF...................................  Term Asset-Backed Securities
                                          Loan Facility
TALF LLC...............................  Term Asset-Backed Securities
                                          Loan Facility Limited
                                          Liability Company
TARP...................................  Troubled Asset Relief Program
TGPMMF.................................  Temporary Guarantee Program for
                                          Money Market Funds
TIP....................................  Targeted Investment Program
TLGP...................................  Temporary Liquidity Guarantee
                                          Program
Trust..................................  AIG Credit Facility Trust
TSLF...................................  Term Securities Lending
                                          Facility
------------------------------------------------------------------------

======================================================================




                         MARCH OVERSIGHT REPORT

                                _______
                                

                 March 16, 2011.--Ordered to be printed

                                _______
                                

                          EXECUTIVE SUMMARY *

    On October 3, 2008, in response to rapidly deteriorating 
financial market conditions, Congress and the President created 
the Troubled Asset Relief Program (TARP) to ``immediately 
provide authority and facilities that the Secretary of the 
Treasury can use to restore liquidity and stability to the 
financial system of the United States.'' The same law also 
established the Congressional Oversight Panel and charged it 
with providing public accountability for Treasury's use of its 
TARP authority. By statute, the Panel terminates six months 
after the expiration of TARP authority, which ended on October 
3, 2010. Thus, the Panel's work concludes with this report.
---------------------------------------------------------------------------
    * The Panel adopted this report with a 5-0 vote on March 15, 2011.
---------------------------------------------------------------------------
    For its final report, the Panel summarizes and updates its 
comprehensive body of oversight work. The report describes the 
financial crisis and the broad array of federal initiatives 
undertaken in response. The Panel also provides a summary of 
its key findings and recommendations, along with updates since 
the Panel's prior work.
    In order to evaluate the TARP's impact, one must first 
recall the extreme fear and uncertainty that infected the 
financial system in late 2008. The stock market had endured 
triple-digit swings. Major financial institutions, including 
Bear Stearns, Fannie Mae, Freddie Mac, and Lehman Brothers, had 
collapsed, sowing panic throughout the financial markets. The 
economy was hemorrhaging jobs, and foreclosures were escalating 
with no end in sight. Federal Reserve Chairman Ben Bernanke has 
said that the nation was on course for ``a cataclysm that could 
have rivaled or surpassed the Great Depression.''
    It is now clear that, although America has endured a 
wrenching recession, it has not experienced a second Great 
Depression. The TARP does not deserve full credit for this 
outcome, but it provided critical support to markets at a 
moment of profound uncertainty. It achieved this effect in part 
by providing capital to banks but, more significantly, by 
demonstrating that the United States would take any action 
necessary to prevent the collapse of its financial system.
    The Cost of the TARP. The Congressional Budget Office (CBO) 
today estimates that the TARP will cost taxpayers $25 billion--
an enormous sum, but vastly less than the $356 billion that CBO 
initially estimated. Although this much-reduced cost estimate 
is encouraging, it does not necessarily validate Treasury's 
administration of the TARP. Treasury deserves credit for 
lowering costs through its diligent management of TARP assets 
and, in particular, its careful restructuring of AIG, Chrysler, 
and GM. However, a separate reason for the TARP's falling cost 
is that Treasury's foreclosure prevention programs, which could 
have cost $50 billion, have largely failed to get off the 
ground. Viewed from this perspective, the TARP will cost less 
than expected in part because it will accomplish far less than 
envisioned for American homeowners. In addition, non-TARP 
government programs, including efforts by the FDIC and the 
Federal Reserve, have shifted some of the costs of the 
financial rescue away from the TARP's balance sheet. Further, 
accounting for the TARP from today's vantage point--at a time 
when the financial system has made great strides toward 
recovery--obscures the risk that existed in the depths of the 
financial crisis. At one point, the federal government 
guaranteed or insured $4.4 trillion in face value of financial 
assets. If the financial system had suffered another shock on 
the road to recovery, taxpayers would have faced staggering 
losses.
    ``Too Big to Fail.'' The Panel has always emphasized that 
the TARP's cost cannot be measured merely in dollars. Other 
costs include its distortion of the financial marketplace 
through its implicit guarantee of ``too big to fail'' banks. At 
the height of the financial crisis, 18 very large financial 
institutions received $208.6 billion in TARP funding almost 
overnight, in many cases without having to apply for funding or 
to demonstrate an ability to repay taxpayers. In light of these 
events, it is not surprising that markets have assumed that 
``too big to fail'' banks are safer than their ``small enough 
to fail'' counterparts. Credit rating agencies continue to 
adjust the credit ratings of very large banks to reflect their 
implicit government guarantee. Smaller banks receive no such 
adjustment, and as a result, they pay more to borrow relative 
to very large banks.
    By protecting very large banks from insolvency and 
collapse, the TARP also created moral hazard: very large 
financial institutions may now rationally decide to take 
inflated risks because they expect that, if their gamble fails, 
taxpayers will bear the loss. Ironically, these inflated risks 
may create even greater systemic risk and increase the 
likelihood of future crises and bailouts.
    In addition, Treasury's intervention in the automotive 
industry, rescuing companies that were not banks and were not 
particularly interconnected within the financial system, 
extended the ``too big to fail'' guarantee and its associated 
moral hazard to non-financial firms. The implication may seem 
to be that any company in America can receive a government 
backstop, so long as its collapse would cost enough jobs or 
deal enough economic damage.
    Stigma. As the TARP evolved, Treasury found its options 
increasingly constrained by public anger about the program. The 
TARP is now widely perceived as having restored stability to 
the financial sector by bailing out Wall Street banks and 
domestic automotive manufacturers while doing little for the 
13.9 million workers who are unemployed, the 2.4 million 
homeowners who are at immediate risk of foreclosure, or the 
countless families otherwise struggling to make ends meet. As a 
result of this perception, the TARP is now burdened by a public 
``stigma.''
    Because the TARP was designed for an inherently unpopular 
purpose--rescuing Wall Street banks from the consequences of 
their own actions--stigmatization was likely inevitable. 
Treasury's implementation of the program has, however, made 
this stigma worse. For example, many senior managers of TARP-
recipient banks maintained their jobs and their high salaries, 
and although shareholders suffered dilution of their stock, 
they were not wiped out. To the public, this may appear to be 
evidence that Wall Street banks and bankers can retain their 
profits in boom years but shift their losses to taxpayers 
during a bust--an arrangement that undermines the market 
discipline necessary to a free economy.
    Transparency, Data Collection, and Accountability. 
Beginning with its very first report, the Panel has expressed 
concerns about the lack of transparency in the TARP. In perhaps 
the most profound violation of the principle of transparency, 
Treasury decided in the TARP's earliest days to push tens of 
billions of dollars out the door to very large financial 
institutions without requiring banks to reveal how the money 
was used. As a result, the public will never know to what 
purpose its money was put.
    In some cases, public understanding of the TARP has 
suffered not because Treasury refused to reveal useful 
information but because relevant data were never collected in 
the first place. Without adequate data collection, Treasury has 
flown blind; it has lacked the information needed to spot 
trends, determine which programs are succeeding and which are 
failing, and make necessary changes. A related concern is 
Treasury's failure to articulate clear goals for many of its 
TARP programs or to update its goals as programs have evolved. 
For example, when the President announced the Home Affordable 
Modification Program in early 2009, he asserted that it would 
prevent three to four million foreclosures. The program now 
appears on track to help only 700,000 to 800,000 homeowners, 
yet Treasury has never formally announced a new target. Absent 
meaningful goals, the public has no meaningful way to hold 
Treasury accountable, and Treasury has no clear target to 
strive toward in its own deliberations.
    On the Role of Oversight. Between the efforts of the 
Congressional Oversight Panel, SIGTARP, the GAO, the U.S. 
Congress, and many journalists and private citizens, the TARP 
has become one of the most thoroughly scrutinized government 
programs in U.S. history. Such close scrutiny inevitably begets 
criticism, and in the case of the TARP--a program born out of 
ugly necessity--the criticism was always likely to be harsh. 
After all, in the midst of a crisis, perfect solutions do not 
exist; every possible action carries regrettable consequences, 
and even the best decisions will be subject to critiques and 
second-guessing.
    Yet there can be no question that oversight has improved 
the TARP and increased taxpayer returns. For example, in July 
2009, the Panel reported that Treasury's method for selling 
stock options gained through the CPP appeared to be recovering 
only 66 percent of the warrants' estimated worth. Due in part 
to pressure generated by the Panel's work, Treasury changed its 
approach, and subsequent sales recovered 103 cents on the 
dollar, contributing to $8.6 billion in returns to taxpayers. 
Other substantial improvements in the TARP--such as Treasury's 
heightened focus on the threat to HAMP posed by second liens, 
the increased transparency of the TARP contracting process, and 
the greater disclosure of TARP-related data--are all partly the 
result of pressure exerted by the Panel and other oversight 
bodies.
    Thus, an enduring lesson of the TARP is that extraordinary 
government programs can benefit from, and indeed may require, 
extraordinary oversight. This lesson remains relevant in the 
context of the government's extraordinary actions in the 2008 
financial crisis: The public will continue to benefit from 
intensive, coordinated efforts by public and private 
organizations to oversee Treasury, the FDIC, the Federal 
Reserve, and other government actors. Careful, skeptical review 
of the government's actions and their consequences--even when 
this review is uncomfortable--is an indispensable step toward 
preserving the public trust and ensuring the effective use of 
taxpayer money.
                              SECTION ONE


                            I. Introduction

    In response to rapidly deteriorating financial market 
conditions, Congress passed and the President signed into law 
the Emergency Economic Stabilization Act of 2008 (EESA) on 
October 3, 2008, creating the Troubled Asset Relief Program 
(TARP). The Act was intended to ``immediately provide authority 
and facilities that the Secretary of the Treasury can use to 
restore liquidity and stability to the financial system of the 
United States'' and ``to ensure that such authority and such 
facilities are used in a manner that protects home values, 
college funds, retirement accounts, and life savings; preserves 
homeownership and promotes jobs and economic growth; maximizes 
overall returns to the taxpayers of the United States; and 
provides public accountability for the exercise of such 
authority.''
    In order to provide the intended public accountability, 
EESA designated multiple oversight bodies. In particular, 
Section 125 established the Congressional Oversight Panel (the 
Panel) and charged it with reviewing the current state of the 
financial markets and regulatory system. In addition to one 
special report on regulatory reform, the Act required monthly 
reports, including oversight of ``the use by the Secretary of 
authority under this Act, including with respect to the use of 
contracting authority and administration of the program; the 
impact of purchases made under the Act on the financial markets 
and financial institutions; the extent to which the information 
made available on transactions under the program has 
contributed to market transparency; and the effectiveness of 
foreclosure mitigation efforts, and the effectiveness of the 
program from the standpoint of minimizing long-term costs to 
the taxpayers and maximizing the benefits for taxpayers.'' In 
meeting this mandate the Panel has issued 27 monthly oversight 
reports, as well as the special report on regulatory reform and 
a subsequently required special report on farm credit.
    Under EESA, the Panel terminates six months after the 
expiration of TARP authority, which ended on October 3, 2010. 
Thus, the Panel's work will conclude with this report. For its 
final report the Panel summarizes and revisits its 
comprehensive body of monthly oversight work. To provide a 
context for understanding and evaluating the TARP, the report 
first describes the major events of the financial crisis in the 
fall of 2008 and the economic conditions prevailing during the 
crisis and response, as well as the broad array of federal 
initiatives undertaken to promote financial stability and 
liquidity as a result of the crisis. For each area in which it 
has done oversight work, the Panel then provides a summary of 
its key findings and recommendations, along with an update 
since the Panel's prior work and the current status of the 
Panel's recommendations.
    The Panel's body of work reveals a number of clear and 
consistent themes. In closing, the report summarizes these key 
``lessons learned'' in order to guide policymakers as they 
continue to unwind the TARP, but more important, to inform 
policymakers should they find it necessary to respond to 
financial crises in the future.

                 A. Key Events of the Financial Crisis


1. Events Leading up to Enactment of EESA \1\
---------------------------------------------------------------------------

    \1\ For a more expansive listing of the events prior to and during 
the financial crisis, see Federal Reserve Bank of St. Louis, The 
Financial Crisis: A Timeline of Events and Policy Actions (online at 
timeline.stlouisfed.org/) (accessed Mar. 3, 2011).
---------------------------------------------------------------------------
    The first tremors of the impending financial crisis and the 
severe recession that followed were seen in the American 
housing market. During the years from 2000 until 2007 home 
prices more than doubled and the amount of mortgage debt 
outstanding increased nearly 80 percent.\2\ The rapid 
appreciation in home prices, which increased every month from 
January 2000 to their peak in April 2006, helped fuel housing 
speculation and a boom in mortgage refinancing and home equity 
loans.\3\
---------------------------------------------------------------------------
    \2\ The S&P Case/Shiller home price index, a measure of home values 
in the United States, reached its peak level of 206.5 in April 2006, 
representing a 105 percent increase from January 2000. Standard & 
Poor's, S&P/Case-Shiller Home Price Index (Instrument Used: Home Price 
Index Levels, Seasonally adjusted, Composite 20-city Index) (online at 
www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/
us/?indexId=spusa-cashpidff--p-us----) (accessed Mar. 11, 2011) 
(hereinafter ``S&P/Case-Shiller Home Price Index''). An alternative 
measure of home prices, the Federal Housing Finance Agency's quarterly 
Purchase Only Index increased for 49 consecutive quarters beginning in 
the first quarter of 1995 until the second quarter of 2007. Federal 
Housing Finance Agency, Purchase Only Indexes: U.S. Summary Through Q4 
2010 (Instrument Used: HPI % Change Over Previous Quarter) (online at 
www.fhfa.gov/Default.aspx?Page=87) (accessed Mar. 11, 2011).
    Total mortgage debt outstanding for one to four family homes 
increased from $4.8 trillion at the end of 1999 to $10.4 trillion in 
the beginning of 2007. Board of Governors of the Federal Reserve 
System, Statistical Supplement to the Federal Reserve Bulletin: 
Mortgage Debt Outstanding (Jan. 2004) (online at 
www.federalreserve.gov/pubs/supplement/2004/01/table1_54.htm); Board of 
Governors of the Federal Reserve System, Mortgage Debt Outstanding 
(Dec. 2010) (online at www.federalreserve.gov/econresdata/releases/
mortoutstand/current.htm).
    \3\ From 2001 to 2005, Americans extracted an average of $646.3 
billion of equity from their homes each year. In the ten years prior, 
the average amount of equity extracted per year was $272.0 billion. 
Board of Governors of the Federal Reserve System, Sources and Uses of 
Equity Extracted from Homes, at 21 (Mar. 2007) (online at 
www.econ.jku.at/members/Riese/files/SS08/239315/topic2_wealth_effect/
greenspan_kennedy.pdf).
---------------------------------------------------------------------------

The Housing Bubble Bursts

    In late 2006, home prices began to decline and 
delinquencies on home mortgages, particularly those taken out 
by subprime borrowers, began to rise significantly.\4\ Figure 1 
illustrates the dramatic increase in subprime mortgage 
delinquencies, which reached 13.3 percent by the end of 2006, 
and the corresponding beginning of a relative decline in home 
values that continues to this day.\5\
---------------------------------------------------------------------------
    \4\ S&P Case Shiller index reached its peak of 206.5 in April 2006. 
Also, delinquencies as a percentage of loans rose from 4.39 percent at 
the end of Q2 2006 to 5.12 percent at the end of Q2 2007. Mortgage 
Bankers Association, National Delinquency Survey--2010 4th Quarter, at 
4 (Feb. 17, 2011) (hereinafter ``National Delinquency Survey--2010 4th 
Quarter'').
    \5\ Case-Shiller values are indexed to 100 in January 2000. As of 
December 2010, national home prices, as measured by the S&P Case-
Shiller Home Price Index, have declined 30.2 percent since January 2007 
and declined 9.1 percent since the enactment of EESA in October 2008. 
S&P/Case-Shiller Home Price Index, supra note 2. Subprime delinquencies 
reached their highest level during the first quarter of 2010 when 
delinquencies reached 27.2 percent. National Delinquency Survey--2010 
4th Quarter, supra note 4, at 4.
---------------------------------------------------------------------------

 FIGURE 1: PERCENTAGE OF DELINQUENT HOME LOANS BY TYPE AS COMPARED TO 
                            HOME PRICES \6\

      
---------------------------------------------------------------------------
    \6\ National Delinquency Survey--2010 4th Quarter, supra note 4, at 
4; S&P/Case-Shiller Home Price Index, supra note 2.

[GRAPHIC] [TIFF OMITTED] T4832A.001

    The subprime mortgage crisis grew in 2007, and during the 
period from April to the end of August the credit rating 
agencies downgraded hundreds of bonds backed by such mortgages. 
Later that summer, Bear Stearns closed two mortgage-backed 
securities (MBS) focused hedge funds, and two of the largest 
subprime mortgage originators and securitizers--New Century 
Financial and American Home Mortgage--filed for bankruptcy.\7\ 
On August 9, 2007, BNP Paribas, the largest bank in France, 
suspended redemptions in three investment funds due to their 
exposure to the U.S. subprime mortgage market.\8\ These events 
contributed to the significant stress in the housing and 
mortgage finance market which then began to spread into the 
broader financial sector.
---------------------------------------------------------------------------
    \7\ U.S. Securities and Exchange Commission, American Home Mortgage 
Investment Corp. Files for Chapter 11 Bankruptcy (Aug. 6, 2007) (online 
at www.sec.gov/Archives/edgar/data/1256536/000091412107001892/
am9746838-99_1.txt); U.S. Securities and Exchange Commission, New 
Century Financial Corporation Files for Chapter 11; Announces Agreement 
to Sell Servicing Operations (Apr. 2, 2007) (online at www.sec.gov/
Archives/edgar/data/1287286/000129993307002129/exhibit1.htm).
    \8\ Viral V. Acharya and Ouarda Merrouche, Precautionary Hoarding 
of Liquidity and Inter-Bank Markets: Evidence from the Sub-prime 
Crisis, at 2 (July 3, 2009) (online at pages.stern.nyu.edu/sternfin/
vacharya/public_html/acharya_merrouche.pdf).
---------------------------------------------------------------------------

Beginning of the Financial Crisis

    The uncertainty and fear that gripped the financial markets 
during this period can be seen in critical credit market 
indicators such as the closely watched LIBOR-OIS spread. This 
spread measures the difference between the London Interbank 
Offered Rate (LIBOR), which shows quarterly borrowing costs for 
banks, and the Overnight Indexed Swaps rate (OIS), which 
measures the cost of extremely short-term borrowing by 
financial institutions. An increase in the LIBOR-OIS spread 
indicates that market participants have growing fears about 
whether major financial institutions will be able to deliver on 
their obligations.\9\ Figure 2 illustrates the spikes in the 
LIBOR-OIS spread as key events in the ensuing financial crisis 
unfolded.
---------------------------------------------------------------------------
    \9\ Federal Reserve Bank of St. Louis, What the Libor-OIS Spread 
Says (2009) (online at research.stlouisfed.org/publications/es/09/
ES0924.pdf).
---------------------------------------------------------------------------

          FIGURE 2: LIBOR-OIS SPREAD AND SELECTED EVENTS \10\

      
---------------------------------------------------------------------------
    \10\ SNL Financial (accessed Mar. 1, 2011).

    [GRAPHIC] [TIFF OMITTED] T4832A.002
    

    For the first seven months of 2007, the LIBOR-OIS spread 
averaged 8.7 basis points, reflecting relative calm in the 
financial markets. Following the announcement by BNP Paribas on 
August 9, 2007, however, this measure increased nearly 200 
percent, settling at 39.9 basis points.\11\ On the same date, 
the rate for overnight commercial paper, a mechanism of short-
term credit for enterprises, increased to levels not seen since 
early 2001.\12\ The summer of 2007 ended with the Federal Open 
Market Committee (FOMC) of the Federal Reserve System 
concluding that financial market conditions had worsened, 
credit availability had decreased, and ``downside risks to 
growth [had] increased appreciably.'' \13\
---------------------------------------------------------------------------
    \11\ SNL Financial (accessed Mar. 1, 2011).
    \12\ The interest rate for overnight AA Asset-backed Commercial 
Paper increased from 5.39 percent on August 8, 2007 to 5.75 percent on 
August 9, 2007. This was the highest level this measure reached since 
its January 31, 2001 level of 5.78 percent. The interest rate for 
overnight financial AA Financial Commercial Paper increased from 5.31 
percent on August 8, 2007 to 5.39 percent on August 9, 2007. This was 
the highest level this measure reached since its March 30, 2001 level 
of 5.44 percent. Board of Governors of the Federal Reserve System, Data 
Download Program: Commercial Paper (Instruments Used: Rates; Overnight 
AA Asset-backed Commercial Paper, Overnight AA Financial Commercial 
Paper) (online at www.federalreserve.gov/datadownload/
Choose.aspx?rel=CP) (accessed Mar. 1, 2011).
    \13\ Board of Governors of the Federal Reserve System, FOMC 
Statement (Aug. 17, 2007) (online at www.federalreserve.gov/newsevents/
press/monetary/20070817b.htm).
---------------------------------------------------------------------------

Initial Government and Industry Responses

    Among the first direct actions taken by governments to stem 
the effects of the growing financial crisis was the creation by 
the British Government of a liquidity facility to support 
Northern Rock, the fifth largest bank in the United 
Kingdom.\14\ In the United States, the Board of Governors of 
the Federal Reserve System, or Federal Reserve Board (FRB or 
Federal Reserve) lowered its target interest rate twice in the 
fall of 2007, signaling the Federal Reserve's growing concern 
regarding the tightening credit markets and worsening housing 
conditions.\15\ On October 10, 2007, the HOPE NOW Alliance--a 
private sector initiative promoted by Treasury and the 
Department of Housing and Urban Development and aimed at 
bringing together mortgage market participants to encourage 
counseling and other foreclosure mitigation options--was 
announced.\16\ Finally, on October 15, 2007, a consortium of 
banks agreed, after discussions facilitated by Treasury, to 
create a pooling mechanism to facilitate liquidity in the 
asset-backed commercial paper market.\17\ Within a couple of 
months, however, the leading banks involved in this effort--
Bank of America, JPMorgan Chase, and Citigroup--announced that 
the initiative had collapsed.\18\
---------------------------------------------------------------------------
    \14\ HM Treasury, Liquidity Support Facility for Northern Rock plc 
(Sept. 14, 2007) (online at webarchive.nationalarchives.gov.uk/+/
www.hm-treasury.gov.uk/press_94_07.htm).
    \15\ On September 18, 2007, the FOMC reduced its target for the 
federal funds rate from 5.25 percent to 4.75 percent. In conjunction 
with that decision, the Federal Reserve stated that, ``the tightening 
of credit conditions has the potential to intensify the housing 
correction and to restrain economic growth more generally. Today's 
action is intended to help forestall some of the adverse effects on the 
broader economy that might otherwise arise from the disruptions in 
financial markets and to promote moderate growth over time.'' Board of 
Governors of the Federal Reserve System, FOMC Statement and Board 
Approval of Discount Rate Requests of the Federal Reserve Banks of 
Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and 
San Francisco (Sept. 18, 2007) (online at www.federalreserve.gov/
newsevents/press/monetary/20070918a.htm) (hereinafter ``FOMC Statement 
and Board Approval of Discount Rate Requests''). On October 31, 2007, 
the FOMC reduced its target for the federal funds rate from 4.75 
percent to 4.25 percent. Board of Governors of the Federal Reserve 
System, FOMC Statement and Board Approval of Discount Rate Requests of 
the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, 
Minneapolis, Kansas City, and San Francisco (Oct. 31, 2007) (online at 
www.federalreserve.gov/newsevents/press/monetary/20071031a.htm).
    \16\ HOPE NOW Alliance, HOPE NOW Alliance Created to Help 
Distressed Homeowners (Oct. 10, 2007) (online at www.fsround.org/
hope_now/pdfs/AllianceRelease.pdf).
    \17\ Bank of America Corporation, Global Banks Announce Plans for 
Major Liquidity Facility to Bolster Asset-Backed Commercial Paper 
Markets (Oct. 15, 2007) (online at mediaroom.bankofamerica.com/
phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1389929&highlight=).
    \18\ Bank of America Corporation, Consortium Provides Update on 
Master Liquidity Enhancement Conduit (Dec. 21, 2007) (online at 
mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-
newsArticle&ID=1389982&highlight=).
---------------------------------------------------------------------------

The Financial Crisis Widens

    As housing fundamentals continued to weaken and financial 
fear spread, some of the nation's largest financial firms began 
to teeter on the edge of failure. On January 11, 2008, Bank of 
America announced its purchase of a major mortgage originator, 
Countrywide Financial.\19\ Then on March 14, the Federal 
Reserve intervened to rescue Bear Stearns by helping to arrange 
for and assisting with its purchase by JPMorgan.\20\ During 
this period the impacts of the crisis in the housing and 
financial sectors began to be felt in the broader economy. The 
nation's gross domestic product (GDP), a measure of this 
country's economic activity, suffered its first quarterly 
decline since 2001 in the first quarter of 2008. Following a 
slight increase of 0.6 percent in the next quarter, GDP 
contracted for four consecutive quarters through June 2009.\21\
---------------------------------------------------------------------------
    \19\ See 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=). This purchase followed a $2 billion 
investment by Bank of America in Countrywide in return for 16 percent 
of the company on August 22, 2007. See Bank of America Corporation, 
Bank of America Makes Investment in Countrywide Financial (Aug. 22, 
2007) (online at mediaroom.bankofamerica.com/
phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1389904&highlight=).
    \20\ For further details on the purchase of Bear Stearns by 
JPMorgan, as well as the government assistance provided to facilitate 
the agreement, see Section I.B.1, infra.
    \21\ The National Bureau of Economic Research, the body responsible 
for determining when shifts in the U.S. business cycle occur, stated on 
September 20, 2010 that the most recent recession--commonly referred to 
as the ``Great Recession''--began in December 2007 and ended in June 
2009, a period corresponding to the decline in GDP mentioned here. 
National Bureau of Economic Research, US Business Cycle Expansions and 
Contractions (online at www.nber.org/cycles/cyclesmain.html) (accessed 
Mar. 3, 2011) (hereinafter ``NBER: US Business Cycle''). Bureau of 
Economic Analysis, Gross Domestic Product (Instruments used: Current-
dollar and ``real'' GDP, Percent change from preceding period) (online 
at www.bea.gov/national/index.htm) (accessed Mar. 3, 2011) (hereinafter 
``Gross Domestic Product'').
---------------------------------------------------------------------------

                     FIGURE 3: GDP SINCE 2006 \22\

      
---------------------------------------------------------------------------
    \22\ Amounts are in constant 2005 dollars. Gross Domestic Product, 
supra note 21.
[GRAPHIC] [TIFF OMITTED] T4832A.003

    Similarly, unemployment rose sharply in 2008 and early 
2009. The unemployment rate rose from a low of 4.6 percent in 
January 2007 to 6.2 percent by September 2008 and 10.1 percent 
by October 2009. Figure 4 shows not only the rise in the 
unemployment rate, but also the concurrent increase in the 
median duration of unemployment, and the sharp increase in 
underemployment, a measure that includes people who are 
unemployed as well as those who are working fewer hours than 
they want to work and those who have become discouraged and 
stopped looking for a job.

 FIGURE 4: UNEMPLOYMENT, UNDEREMPLOYMENT, AND DURATION OF UNEMPLOYMENT 
                                  \23\

      
---------------------------------------------------------------------------
    \23\ Bureau of Labor Statistics, Labor Force Statistics from the 
Current Population Survey: Unemployment Rate (online at data.bls.gov/
pdq/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000) 
(accessed Mar. 4, 2011) (hereinafter ``BLS: Unemployment Rate''); 
Bureau of Labor Statistics, Alternative Measures of Labor 
Underutilization (Instrument Used: U-6) (online at www.bls.gov/
news.release/empsit.t15.htm) (accessed Mar. 4, 2011); Federal Reserve 
Bank of St. Louis, Median Duration of Unemployment (online at 
research.stlouisfed.org/fred2/series/UEMPMED) (accessed Mar. 4, 2011).
[GRAPHIC] [TIFF OMITTED] T4832A.004

Second Half of 2008 Brings Extraordinary Government Intervention

    As the effects of the crisis spread to the wider market, 
the summer of 2008 brought further concerns about financial 
institutions which specialized in mortgage finance. IndyMac 
Bank, one of the nation's largest savings and loans and the 
second largest mortgage lender in the country, came under 
pressure as fear spread about its potential insolvency. Over an 
eleven day period, depositors withdrew over $1.3 billion of the 
$19 billion it held in deposits and the institution was 
subsequently taken over by the Federal Deposit Insurance 
Corporation (FDIC).\24\ Also in July 2008, the Federal Reserve 
and Treasury took coordinated action to provide increased 
credit support to Fannie Mae and Freddie Mac, two critical 
players in the secondary mortgage market which had begun 
experiencing difficulty in financing their operations.\25\ Then 
on July 30, the Housing and Economic Recovery Act of 2008 
(HERA) was signed into law. Among its provisions, HERA 
reorganized the government sponsored enterprise's (GSE) 
regulatory framework, placing them under the supervision of the 
newly created Federal Housing Finance Agency (FHFA) and 
providing Treasury with the ability to invest taxpayer funds in 
Fannie Mae and Freddie Mac.\26\
---------------------------------------------------------------------------
    \24\ Office of Thrift Supervision, OTS Closes IndyMac Bank and 
Transfers Operations to FDIC (July 11, 2008) (online at 
www.ots.treas.gov/index.cfm?p=PressReleases&ContentRecord_id=37f10b00-
1e0b-8562-ebdd-d5d38f67934c&ContentType_id=4c12f337-b5b6-4c87-b45c-
838958422bf3&MonthDisplay=7&YearDisplay=2008).
    \25\ U.S. Department of the Treasury, Paulson Announces GSE 
Initiatives (July 13, 2008) (online at www.treasury.gov/press-center/
press-releases/Pages/hp1079.aspx). Also, the Federal Reserve announced 
that it would supplement the Treasury credit line by providing its own 
credit line if necessary. Board of Governors of the Federal Reserve 
System, Board Grants Federal Reserve Bank of New York the Authority to 
Lend to Fannie Mae and Freddie Mac Should Such Lending Prove Necessary 
(July 13, 2008) (online at www.federalreserve.gov/newsevents/press/
other/20080713a.htm).
    \26\ Housing and Economic Recovery Act of 2008, Pub. L. No. 110-
289, Sec. Sec. 1101, 1117 (2008) (codified at 12 U.S.C. Sec. Sec. 4511, 
1716 et seq., 1451 et seq.).
---------------------------------------------------------------------------
    In September, the housing bubble, the liquidity crunch, and 
the financial crisis culminated in a string of unprecedented 
events and government interventions that took place over a 19-
day stretch. During this period, Fannie Mae and Freddie Mac 
were placed into conservatorship, Lehman Brothers filed for 
bankruptcy, the Federal Reserve initiated an $85 billion 
government rescue of American International Group (AIG), 
Treasury announced a temporary guarantee of the $3.7 trillion 
money market funds (MMFs), and the FDIC steered Washington 
Mutual through the largest bank failure in U.S. history.\27\ By 
the beginning of October 2008, the value of the stock market 
had declined by nearly 20 percent from its level in January of 
that year, losing 10 percent in September alone.\28\ Figure 2 
illustrates the effect these events had on the credit markets. 
The LIBOR-OIS spread reached a record high of 364 basis points, 
or 3.64 percentage points, in October 2008.\29\
---------------------------------------------------------------------------
    \27\ Treasury took Fannie Mae and Freddie Mac into conservatorship 
on September 7, 2008. Lehman Brothers failed on September 14. The next 
day, Bank of America announced it was buying Merrill Lynch. The day 
after that, the government announced its bailout of AIG. Also, on 
September 16, the assets of a money-market mutual fund fell below $1 
per share, exposing investors to losses, an occurrence known as 
``breaking the buck'' that had not happened in the industry for 14 
years. On September 20, the Federal Reserve announced that it was 
allowing Goldman Sachs and Morgan Stanley, the nation's only two 
remaining large investment banks, to become bank holding companies, 
giving them access to a key source of low-cost borrowing from the 
Federal Reserve. On September 25, the FDIC took Washington Mutual, the 
nation's largest savings and loan, into receivership and sold many of 
its assets to JPMorgan Chase. Congressional Oversight Panel, December 
Oversight Report: Taking Stock: What Has the Troubled Asset Relief 
Program Achieved?, at 11 (Dec. 9, 2009) (online at cop.senate.gov/
documents/cop-120909-report.pdf) (hereinafter ``2009 December Oversight 
Report''). The size of the money market funds (MMFs) was $3.66 trillion 
in June 2009. Institutional Money Market Funds Association, Frequently 
Asked Questions (online at www.immfa.org/about/faq/default.asp) 
(accessed Mar. 3, 2011) (hereinafter ``IMMFA: Frequently Asked 
Questions'').
    \28\ The value of the S&P 500 Index is used here as a proxy for the 
broader market. SNL Financial (accessed Mar. 3, 2011).
    \29\ SNL Financial (accessed Mar. 3, 2011).
---------------------------------------------------------------------------
    As a result of these events and the continuing rapid 
deterioration in the condition of the credit markets, Chairman 
of the Board of Governors of the Federal Reserve System Ben S. 
Bernanke and Secretary of the Treasury Henry M. Paulson, Jr. 
concluded on September 18th that their only realistic option to 
contain the rapidly spreading financial crisis was to convince 
Congress to authorize an overwhelming fiscal response by the 
federal government. On September 20th, Treasury sent Congress a 
three-page legislative proposal giving Treasury the authority 
to spend up to $700 billion to purchase ``troubled assets,'' 
particularly ``residential and commercial mortgage-related 
assets.'' \30\
---------------------------------------------------------------------------
    \30\ 2009 December Oversight Report, supra note 27, at 16.
---------------------------------------------------------------------------
    Over the following two weeks, the proposal was defeated 
once in the House of Representatives and subsequently modified 
and expanded prior to being signed into law on October 3, 2008. 
The law--EESA--authorized the Treasury Secretary to purchase 
not only mortgage-related securities under the TARP, but also 
``any other financial instrument'' the purchase of which the 
Secretary determined to be ``necessary to promote financial 
market stability.'' \31\ Although the federal government has 
intervened to rescue financial institutions and prevent bank 
runs on several previous occasions in U.S. history, the scale 
and breadth of the financial rescue authorized in EESA was 
unprecedented.\32\
---------------------------------------------------------------------------
    \31\ 2009 December Oversight Report, supra note 27, at 16.
    \32\ For example, the savings and loan crisis of the late 1980s and 
early 1990s was the last significant previous disruption in financial 
markets that involved government intervention. At the time, the total 
cost of government assistance provided over the course of this crisis 
was estimated at $160 billion ($230 billion in 2005 dollars). Federal 
Deposit Insurance Corporation, The Cost of the Savings and Loan Crisis: 
Truth and Consequences, at 29 (Dec. 2000) (online at www.fdic.gov/bank/
analytical/banking/2000dec/brv13n2_2.pdf). Dollars adjusted for 
inflation using the Gross Domestic Product Implicit Price Deflator. 
Federal Reserve Bank of St. Louis, Gross Domestic Product: Implicit 
Price Deflator (online at research.stlouisfed.org/fred2/data/
GDPDEF.txt) (accessed Mar. 1, 2011).
---------------------------------------------------------------------------
    Secretary Paulson and Chairman Bernanke had initially 
proposed using TARP funds to buy troubled assets on the books 
of the largest U.S. financial institutions; however, they soon 
decided that this was impractical given the need for quick 
action and the difficulty of structuring an auction process for 
purchasing such assets.\33\ On October 14, 2008, Secretary 
Paulson met with the heads of the nine largest U.S. banks to 
Washington and told them that Treasury would instead make 
direct capital injections into each of their institutions.\34\
---------------------------------------------------------------------------
    \33\ Less than two weeks after EESA was signed into law, Secretary 
Paulson announced that Treasury would ``purchase equity stakes in a 
wide array of banks and thrifts.'' U.S. Department of the Treasury, 
Statement by Secretary Henry M. Paulson, Jr. on Actions to Protect the 
U.S. Economy (Oct. 14, 2008) (online at www.treasury.gov/press-center/
press-releases/Pages/hp1205.aspx) (hereinafter ``Statement by Secretary 
Paulson on Actions to Protect the U.S. Economy'').
    In response to questions posed by this Panel regarding the shift 
from asset purchases to injecting capital, Treasury stated: ``Given 
such market conditions, Secretary Paulson and Chairman Bernanke 
recognized that Treasury needed to use the authority and flexibility 
granted under the EESA as aggressively as possible to help stabilize 
the financial system. They determined the fastest, most direct way was 
to increase capital in the system by buying equity in healthy banks of 
all sizes. Illiquid asset purchases, in contrast, require much longer 
to execute.'' U.S. Department of the Treasury, Responses to Questions 
of the First Report of the Congressional Oversight Panel for Economic 
Stabilization, at 56 (Dec. 30, 2008) (online at cop.senate.gov/
documents/cop-010909-report.pdf).
    \34\ 2009 December Oversight Report, supra note 27, at 17-18.
---------------------------------------------------------------------------

2. Initial TARP Investments in the Largest Institutions

    The nine institutions that were the recipients of the 
initial round of TARP investments included the four largest 
U.S. commercial banks (JPMorgan, Bank of America, Citigroup, 
and Wells Fargo), the three largest investment banks (Goldman 
Sachs, Morgan Stanley, and Merrill Lynch), and the two largest 
custodian banks (State Street and BNY Mellon). At that time, 
these banks held $10.3 trillion in assets, representing more 
than 75 percent of all the assets in the American banking 
system.\35\ On October 28, 2008, Treasury purchased $125 
billion of preferred stock in these nine institutions and by 
the end of 2008, Treasury had invested approximately $177.6 
billion in banks through the Capital Purchase Program 
(CPP).\36\
---------------------------------------------------------------------------
    \35\ Amount of assets held by each of these institutions was as of 
the third quarter 2008. Total amount of assets in the banking system 
were accessed through the FDIC's Quarterly Banking profile as of the 
third quarter 2008. SNL Financial (accessed Mar. 3, 2011); Federal 
Deposit Insurance Corporation, Quarterly Banking Profile: Balance 
Sheet--Excel (online at www2.fdic.gov/qbp/timeseries/BalanceSheet.xls) 
(accessed Mar. 3, 2011).
    \36\ On October 14, 2008, then Secretary Paulson stated that the 
nine initial Troubled Asset Relief Program (TARP) recipients ``are 
healthy institutions, and they have taken this step for the good of the 
U.S. economy. As these healthy institutions increase their capital 
base, they will be able to increase their funding to U.S. consumers and 
businesses.'' Statement by Secretary Paulson on Actions to Protect the 
U.S. Economy, supra note 33; U.S. Department of the Treasury, Troubled 
Asset Relief Program Transactions Report for Period Ending March 8, 
2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf) (hereinafter 
``Treasury Transactions Report'').
---------------------------------------------------------------------------
    In addition to the initial capital investments made in the 
nation's largest banks, Treasury undertook additional steps to 
ensure the stability of Citigroup and Bank of America in 
November and December 2008 by purchasing an additional $20 
billion of preferred shares from both institutions under the 
Targeted Investment Program (TIP), a program that was utilized 
only for those two banks.\37\ Furthermore, in November, 
Treasury, in conjunction with the Federal Reserve and the FDIC, 
put together a hastily crafted $301 billion guarantee of 
Citigroup assets.\38\ A similar guarantee of $118 billion of 
Bank of America assets was announced as well, although it was 
never legally finalized.\39\
---------------------------------------------------------------------------
    \37\ U.S. Department of the Treasury, Joint Statement by Treasury, 
Federal Reserve and the FDIC on Citigroup (Nov. 23, 2008) (online at 
www.treasury.gov/press-center/press-releases/Pages/hp1287.aspx) 
(hereinafter ``Statement by Treasury, Federal Reserve and the FDIC on 
Citigroup''); Treasury Transactions Report, supra note 36; Board of 
Governors of the Federal Reserve System, Regulatory Reform: Citigroup 
(online at www.federalreserve.gov/newsevents/reform_citi.htm) (accessed 
Mar. 11, 2011); Board of Governors of the Federal Reserve System, 
Regulatory Reform: Bank of America (online at www.federalreserve.gov/
newsevents/reform_boa.htm) (accessed Mar. 11, 2011) (hereinafter 
``Regulatory Reform: Bank of America'').
    \38\ On November 23, 2008, the Treasury, Federal Reserve, and FDIC 
announced in a joint statement that they would provide further 
assistance to Citigroup in the form of an asset guarantee and an 
additional $20 billion preferred investment. The funds were disbursed 
to Citigroup on December 31, 2010 under a program first introduced on 
that day named the Targeted Investment Program (TIP). Similarly, the 
asset guarantee announced in November was not a part of a specific TARP 
initiative until the agreement was finalized on January 16, 2010 under 
the newly designated Asset Guarantee Program (AGP). Statement by 
Treasury, Federal Reserve and the FDIC on Citigroup, supra note 37; 
Treasury Transactions Report, supra note 36.
    \39\ Regulatory Reform: Bank of America, supra note 37; 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) 
(hereinafter ``BofA Termination Agreement'').
---------------------------------------------------------------------------
    Also in November, the federal government supplemented the 
original $85 billion loan to AIG and initiated a second round 
of assistance to AIG in which the TARP purchased $40 billion of 
preferred equity and the Federal Reserve provided $44 billion 
to create two special purpose vehicles (SPVs) to take ownership 
of certain AIG financial assets.\40\ Treasury also made its 
first investments in the automotive industry in late 2008 with 
loans and preferred stock purchases for General Motors, GMAC, 
Chrysler, and Chrysler Financial. By the end of January 2009, 
TARP assistance outstanding amounted to $301 billion with over 
75 percent having been provided to only a few firms: the 
nation's biggest banks, the automotive industry, and AIG.\41\
---------------------------------------------------------------------------
    \40\ Two Special Purpose Vehicles (SPVs), Maiden Lane II and Maiden 
Lane III, were created on December 12, 2008 as part of the federal 
government's restructuring of its original assistance to AIG. These 
facilities were funded with loans from the Federal Reserve of $19.5 and 
$24.3 billion respectively. Board of Governors of the Federal Reserve 
System, Regulatory Reform: American International Group (AIG), Maiden 
Lane II and III (online at www.federalreserve.gov/newsevents/
reform_aig.htm) (accessed Mar. 11, 2011) (hereinafter ``Fed Regulatory 
Reform: AIG, Maiden Lane II and III''). These TARP funds were later 
supplemented with a commitment of an additional $30 billion TARP 
commitment to AIG in April 2009. Treasury Transactions Report, supra 
note 36, at 21.
    \41\ In total, $301 billion was outstanding under the TARP with 
$195.3 billion outstanding under the Capital Purchase Program (CPP), 
$40 billion outstanding under the TIP, $20.8 billion outstanding under 
the automotive portion of the program, $40 billion outstanding to AIG, 
and $5 billion in funds committed to the Citigroup asset guarantee. All 
but $70.3 billion of the $301 billion outstanding was provided to 
thirteen institutions: Citigroup, Bank of America, JPMorgan, Wells 
Fargo, Goldman Sachs, Merrill Lynch, Morgan Stanley, Bank of New York, 
State Street, General Motors, GMAC, Chrysler, and Chrysler Financial. 
U.S. Department of the Treasury, Troubled Asset Relief Program 
Transaction Report for Period Ending January 30, 2009 (Feb. 2, 2009) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/
transaction_report_02-02-09.pdf) (hereinafter ``Treasury Transactions 
Report--January 2009'').
---------------------------------------------------------------------------
    It was in this climate that the Panel began its oversight 
work. The unprecedented financial crisis and the corresponding 
government intervention left many questions. What steps would 
be taken to ensure accountability from TARP recipients? How 
would Treasury make certain that its actions were transparent 
and that the taxpayer be fairly compensated for the risk they 
were taking? What steps would Treasury take to stem the tide of 
foreclosures that was having a debilitating effect on American 
families and neighborhoods? The Panel laid out these central 
concerns in its first two reports and, throughout its 
existence, has consistently used its oversight authorities to 
focus attention on these questions.

                   B. Overview of Government Efforts

    In response to the financial crisis, Congress, the Federal 
Reserve, Treasury, and the FDIC worked both independently and 
in concert with other agencies to implement a variety of 
policies and initiatives aimed at ensuring financial stability. 
In addition to the direct expenditures Treasury made through 
the TARP, the federal government also engaged in a broad array 
of programs directed at stabilizing the economy. Many of these 
programs explicitly augmented Treasury's TARP initiatives, like 
asset guarantees for Citigroup and Bank of America, or relied 
on cooperation, such as the Federal Reserve and Treasury 
working in tandem to create programs such as the Term Asset-
Backed Securities Loan Facility (TALF). Other programs, like 
the Federal Reserve's extension of credit through its section 
13(3) facilities and SPVs or the FDIC's Temporary Liquidity 
Guarantee Program (TLGP), stood independent of the TARP and 
sought to accomplish different, but related, goals. Given that 
all of these programs provided support to the largest banks, 
they had an interactive effect and clearly affected the 
performance of each separate program. Figure 6 illustrates the 
interconnectedness of certain financial stability programs.

1. Federal Reserve

    The policy response to the financial crisis ran the gamut 
from the use of traditional monetary policy to the creation of 
unprecedented credit and liquidity measures. From September 
2007 to December 2008, the Federal Reserve steadily lowered the 
federal funds rate from 5.25 percent to its December 2008 
target of 0 to 0.25 percent.\42\ Furthermore, in August 2007 
the Federal Reserve lowered the interest rate it charged banks 
for loans through its discount window above the federal funds 
target rate to 50 basis points.\43\ It also expanded the list 
of securities banks could post to draw down these loans through 
the discount window. While the discount window is an important 
monetary tool in normal economic conditions, there were two 
problems that limited its effectiveness in late 2007: (1) There 
was a fear in the market that companies accessing the discount 
window would have a stigma attached to them,\44\ and (2) only 
banks could access the discount window.
---------------------------------------------------------------------------
    \42\ FOMC Statement and Board Approval of Discount Rate Requests, 
supra note 15; Board of Governors of the Federal Reserve System, FOMC 
Statement and Board Approval of Discount Rate Requests of Federal 
Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, 
and San Francisco (Dec. 16, 2008) (online at www.federalreserve.gov/
newsevents/press/monetary/20081216b.htm).
    \43\ Its level prior to the reduction was 100 basis points above 
the federal funds target rate. Board of Governors of the Federal 
Reserve System, Federal Reserve Board Discount Rate Action (Aug. 17, 
2007) (online at www.federalreserve.gov/newsevents/press/monetary/
20070817a.htm). The Federal Reserve subsequently lowered this interest 
rate to 25 basis points above the federal funds target rate in March 
2008. See, e.g., Board of Governors of the Federal Reserve System, FOMC 
Statement and Board Approval of Discount Rate Requests of the Federal 
Reserve Banks of Boston, New York, and San Francisco (Mar. 18, 2008) 
(online at www.federalreserve.gov/newsevents/press/monetary/
20080318a.htm). The discount window ``functions as a safety valve in 
relieving pressures in reserve markets; extensions of credit can help 
relieve liquidity strains in a depository institution and in the 
banking system as a whole. The Window also helps ensure the basic 
stability of the payment system more generally by supplying liquidity 
during times of systemic stress.'' Board of Governors of the Federal 
Reserve System, The Federal Reserve Discount Window (Feb. 19, 2010) 
(online at www.frbdiscountwindow.org/
discountwindowbook.cfm?hdrID=14&dtlID=43).
    \44\ Chairman Bernanke stated that, ``In August 2007 . . . banks 
were reluctant to rely on discount window credit to address their 
funding needs. The banks' concern was that their recourse to the 
discount window, if it became known, might lead market participants to 
infer weakness--the so-called stigma problem.'' Federal Reserve Bank of 
New York, Stigma in Financial Markets: Evidence from Liquidity Auctions 
and Discount Window Borrowing During the Crisis, at 1 (Jan. 2011) 
(online at www.newyorkfed.org/research/staff_reports/sr483.pdf).
---------------------------------------------------------------------------
    The Federal Reserve took actions to solve both of these 
issues. First, the Term Auction Facility (TAF) was created in 
order to allow banks to access funding anonymously through a 
bidding process. Second, the Federal Reserve created a number 
of new programs under section 13(3) of the Federal Reserve Act 
aimed at expanding access to liquidity beyond banks.\45\ These 
programs included:
---------------------------------------------------------------------------
    \45\ Board of Governors of the Federal Reserve System, Regulatory 
Reform: Usage of Federal Reserve Credit and Liquidity Facilities 
(online at www.federalreserve.gov/newsevents/reform_transaction.htm) 
(accessed Mar. 11, 2011).
---------------------------------------------------------------------------
      The Commercial Paper Funding Facility (CPFF)--a 
facility for corporations to roll over their maturing 
commercial paper debt. At its maximum, nearly $350 billion was 
outstanding under the facility.\46\
---------------------------------------------------------------------------
    \46\ Board of Governors of the Federal Reserve System, Regulatory 
Reform: Commercial Paper Funding Facility (online at 
www.federalreserve.gov/newsevents/reform_cpff.htm) (accessed Mar. 11, 
2011) (hereinafter ``Fed Regulatory Reform: Commercial Paper Funding 
Facility''); Board of Governors of the Federal Reserve System, Loans to 
CPFF LLC (Instrument Used: CPFF commercial paper holdings, net) (online 
at www.federalreserve.gov/newsevents/files/cpff.xls) (accessed Mar. 11, 
2011).
---------------------------------------------------------------------------
      Support for Primary Dealers through the Primary 
Dealer Credit Facility (PDCF), an overnight loan facility for 
Primary Dealers, and the Term Securities Lending Facility 
(TSLF), a program that loaned Primary Dealers relatively liquid 
securities such as U.S. Treasury bonds in exchange for less 
liquid securities such as residential mortgage-backed security 
(RMBS).\47\
---------------------------------------------------------------------------
    \47\ Primary Dealers are banks and securities firms that serve as 
counterparties for FRBNY in the management of its open market 
operations. Fed Regulatory Reform: Commercial Paper Funding Facility, 
supra note 46; Board of Governors of the Federal Reserve System, 
Regulatory Reform: Glossary of Terms (online at www.federalreserve.gov/
newsevents/reform_glossary.htm#primarydealers) (accessed Mar. 11, 
2011).
---------------------------------------------------------------------------
      Support for the money market mutual funds through 
the Asset-Backed Commercial Paper Money Market Mutual Fund 
Liquidity Facility (AMLF).\48\ During the crisis, withdrawals 
from money market mutual funds caused the funds to sell the 
asset-backed commercial paper they held at discounted levels to 
meet liquidity needs. Under the AMLF, the Federal Reserve 
provided loans to allow eligible institutions to purchase 
asset-backed commercial paper, thereby fostering liquidity in 
the market.
---------------------------------------------------------------------------
    \48\ The Federal Reserve also introduced the Money Market Investor 
Funding Facility on October 21, 2008. However, this facility was never 
used and closed on October 30, 2009. See Board of Governors of the 
Federal Reserve System, Regulatory Reform: Money Market Investor 
Funding Facility (online at www.federalreserve.gov/newsevents/
reform_mmiff.htm) (accessed Mar. 11, 2011).
---------------------------------------------------------------------------
      Support for the securitization market through the 
TALF. Under the TALF, the Federal Reserve provided holders of 
eligible asset-backed securities (ABS) with loans, using the 
ABS as collateral. The intent of the program was to use TALF 
borrowers as conduits for enhanced liquidity by providing loans 
to those entities that served as issuers and sponsors of ABS.
    At its height, $1.7 trillion was outstanding under the 
Federal Reserve's liquidity facilities.\49\
---------------------------------------------------------------------------
    \49\ To offset some of the impact of the Federal Reserve's 
liquidity programs, Treasury announced on September 17, 2008, the 
Supplementary Financing Program--a program expected to be temporary in 
nature but that would allow Treasury to auction bills to various 
financial institutions with relationships with the Federal Reserve. The 
program consisted of a series of Treasury bill auctions, separate and 
distinct from Treasury's standard borrowing operations. The proceeds 
from these auctions were maintained in a Treasury account held at the 
Federal Reserve Bank of New York. As a result, funds would flow from a 
particular bank's account with the Fed to Treasury's account with the 
Fed. The program was created in order to help the Federal Reserve 
manage the significant increase in the size of its balance sheet due to 
its newly created liquidity programs. U.S. Department of the Treasury, 
Treasury Announces Supplementary Financing Program (Sept. 17, 2008) 
(online at www.treasury.gov/press-center/press-releases/Pages/
hp1144.aspx); Federal Reserve Bank of Cleveland, The Supplemental 
Financing Program (Sept 28, 2009) (online at www.clevelandfed.org/
research/trends/2009/1009/03monpol.cfm).
---------------------------------------------------------------------------
    As noted earlier, in March 2008, the financial condition of 
Bear Stearns, an investment bank with assets of $400 billion, 
began to worsen rapidly and the Federal Reserve intervened to 
facilitate the purchase of Bear Stearns by JPMorgan Chase.\50\ 
The Federal Reserve did so by creating a limited liability 
company (LLC) named Maiden Lane that acquired a portion of Bear 
Stearns' assets.\51\ The Federal Reserve Bank of New York 
(FRBNY) extended approximately $30 billion of credit to the 
Maiden Lane vehicle to purchase the securities.\52\
---------------------------------------------------------------------------
    \50\ Bear Stearns was unable to fulfill its liquidity needs, and in 
response, the Federal Reserve authorized a $12.9 billion loan to the 
company. Although the loan was repaid in full with interest, continued 
pressure on the firm made it clear that without either a large infusion 
of capital or a sale, the firm would likely fail. Board of Governors of 
the Federal Reserve System, Regulatory Reform: Bear Stearns, JPMorgan 
Chase, and Maiden Lane LLC (online at www.federalreserve.gov/
newsevents/reform_bearstearns.htm) (accessed Mar. 11, 2011) 
(hereinafter ``Fed Regulatory Reform: Bear Stearns, JPMorgan Chase, and 
Maiden Lane LLC'').
    \51\ The Maiden Lane facilities were named for the street behind 
the FRBNY building in Manhattan, New York. As of March 3, 2011, the net 
portfolio holdings of the Maiden Lane vehicles are $26.1 billion while 
the amount due to FRBNY, including accrued interest, is $24.7 billion. 
Board of Governors of the Federal Reserve System, Factors Affecting 
Reserve Balances (H.4.1) (Mar. 3, 2011) (online at 
www.federalreserve.gov/releases/h41/20110303/); Fed Regulatory Reform: 
Bear Stearns, JPMorgan Chase, and Maiden Lane LLC, supra note 50.
    \52\ The Federal Reserve Act of 1913 provides for the central bank 
to take broad action in the face of financial or economic crisis. 
Section 13, paragraph 3 of the Act states that ``[i]n unusual and 
exigent circumstances, the Board of Governors of the Federal Reserve 
System'' may lend to any individuals, partnerships or corporations, 
given that certain conditions are met. On March 16, 2008, the Federal 
Reserve Board announced that it would use its authority under section 
13(3) of the Federal Reserve Act to help facilitate the acquisition of 
Bear Stearns by JPMorgan Chase. The Federal Reserve provided this 
assistance by creating a Limited Liability Company (LLC) named Maiden 
Lane that then received a $28.8 billion loan from FRBNY to purchase 
troubled assets from Bear Stearns. Subsequently, in September 2008, the 
Federal Reserve used its authority under section 13(3) of the Act to 
assist AIG. This assistance came in the form of a $85 billion credit 
facility for AIG and the creation as well as funding of two more Maiden 
Lane SPVs dedicated to purchasing troubled assets from the company. 
Federal Reserve Bank of Minneapolis, The History of a Powerful 
Paragraph (June 2008) (online at www.minneapolisfed.org/
publications_papers/pub_display.cfm?id=3485); Federal Reserve Bank of 
New York, Maiden Lane Transactions: Introduction (online at 
www.newyorkfed.org/markets/maidenlane.html) (accessed Mar. 8, 2011).
---------------------------------------------------------------------------
    The Federal Reserve also undertook considerable asset 
purchases in response to the crisis. Between November 2008 and 
March 2010, the Federal Reserve purchased $1.25 trillion of MBS 
with government agency guarantees in an attempt to drive down 
mortgage rates and by doing so provided additional liquidity to 
financial institutions, including TARP participants.\53\ The 
Federal Reserve also purchased nearly $175 billion of GSE 
debt.\54\ As Figure 5 below illustrates, the purchase of agency 
MBS and GSE debt steadily increased as the liquidity facilities 
established at the height of the crisis were wound down, thus 
signaling a shift from crisis response to economic stimulus.
---------------------------------------------------------------------------
    \53\ See Congressional Oversight Panel, September Oversight Report: 
Assessing the TARP on the Eve of Its Expiration, at 99-100 (Sept. 16, 
2010) (online at cop.senate.gov/documents/cop-091610-report.pdf) 
(hereinafter ``2010 September Oversight Report''); Board of Governors 
of the Federal Reserve System, Data Download Program (Instrument Used: 
Mortgage-Backed Securities Held by the Federal Reserve) (online at 
www.federalreserve.gov/datadownload/) (accessed Mar. 3, 2011).
    \54\ At its height, on March 31, 2010, the Federal Reserve owned 
$169 billion of GSE debt. Board of Governors of the Federal Reserve 
System, Data Download Program (Instrument Used: Federal agency debt 
securities: week average) (online at www.federalreserve.gov/
datadownload/) (accessed Mar. 3, 2011).
---------------------------------------------------------------------------

  FIGURE 5: FEDERAL RESERVE LIQUIDITY FACILITIES AS COMPARED TO ASSET 
                             PURCHASES \55\

      
---------------------------------------------------------------------------
    \55\ Federal Reserve Liquidity Facilities are comprised of Term 
auction credit, Secondary credit, Seasonal credit, Term Asset-Backed 
Securities Loan Facility, Other credit extensions, Net portfolio 
holdings of Commercial Paper Funding Facility LLC, Central bank 
liquidity swaps, Primary dealer and other broker-dealer credit, Asset-
Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, 
Term facility. The Federal Reserve Mortgage Asset Purchases are 
comprised of federal agency debt securities and mortgage-backed 
securities held by the Federal Reserve. Board of Governors of the 
Federal Reserve System, Data Download Program (online at 
www.federalreserve.gov/datadownload/) (accessed Mar. 3, 2011).

[GRAPHIC] [TIFF OMITTED] T4832A.005

2. FDIC

    In keeping with its mission to ``maintain stability and 
public confidence in the nation's financial system,'' the FDIC 
undertook a number of measures in response to the financial 
crisis.\56\ The FDIC experienced significant losses to its 
Deposit Insurance Fund during the crisis due to the high number 
of bank failures. From the third quarter of 2008 through 2010, 
318 banks failed in the United States with total assets of 
$631.7 billion.\57\ During that same period, the FDIC set aside 
provisions for deposit insurance fund losses totaling $185.7 
billion.\58\ In addition, the enactment of EESA in October 2008 
raised the basic limit on federal deposit insurance coverage 
from $100,000 per borrower to $250,000.\59\
---------------------------------------------------------------------------
    \56\ Federal Deposit Insurance Corporation, FDIC Mission, Vision, 
and Values (online at www.fdic.gov/about/mission/index.html) (accessed 
Mar. 3, 2011).
    \57\ This figure includes the $307 billion of assets Washington 
Mutual held when it was seized by regulators on September 25, 2008. The 
institution's banking assets were purchased by JPMorgan Chase the 
following day in a deal facilitated by the FDIC. Federal Deposit 
Insurance Corporation, Failures and Assistance Transactions (online at 
www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30) (accessed Mar. 4, 2011); 
Federal Deposit Insurance Corporation, JPMorgan Chase Acquires Banking 
Operations of Washington Mutual (Sept. 25, 2008) (online at 
www.fdic.gov/news/news/press/2008/pr08085.html).
    \58\ This figure only reflects information provided through the 
third quarter of 2010. Federal Deposit Insurance Corporation, DIF 
Income Statement (Instrument Used: Provision for insurance losses, Q3 
2008 through Q3 2010) (online at www.fdic.gov/about/strategic/
corporate/index.html) (hereinafter ``FDIC: DIF Income Statement'').
    \59\ Federal Deposit Insurance Corporation, Emergency Economic 
Stabilization Act of 2008 Temporarily Increases Basic FDIC Insurance 
Coverage from $100,000 to $250,000 Per Depositor (Oct. 7, 2008) (online 
at www.fdic.gov/news/news/press/2008/pr08093.html).
---------------------------------------------------------------------------
    The FDIC created its TLGP less than two weeks after the 
enactment of EESA, under the authority of the Federal Deposit 
Insurance Act. The TLGP had two parts. First, the Debt 
Guarantee Program (DGP) portion of the TLGP guarantees debt 
issued by banks. Second, the Transaction Account Guarantee 
Program (TAG) guaranteed certain noninterest-bearing 
transaction accounts at insured depository institutions.\60\ 
Though it covered all depository accounts, the TAG program was 
intended to benefit business payment processing accounts, such 
as payroll accounts. The FDIC currently guarantees 
approximately $264.6 billion in outstanding financial 
institution obligations, and at its maximum $345.8 billion was 
guaranteed under the program.\61\ Through both the TLGP and the 
expansion of deposit insurance, the FDIC provided significant 
additional support for the banking system at the peak of the 
crisis.
---------------------------------------------------------------------------
    \60\ Congressional Oversight Panel, November Oversight Report: 
Guarantees and Contingent Payments in TARP and Related Programs, at 38 
(Nov. 6, 2009) (online at cop.senate.gov/
documents/cop-110609-report.pdf) (hereinafter ``2009 November Oversight 
Report'').
    \61\ The maximum amount outstanding under this program was in May 
2009. The current amount outstanding is as of January 31, 2011. Federal 
Deposit Insurance Corporation, Monthly Reports Related to the Temporary 
Liquidity Guarantee Program (Instrument Used: Debt Issuance Under 
Guarantee Program) (accessed Mar. 3, 2011) (online at www.fdic.gov/
regulations/resources/tlgp/reports.html) (hereinafter ``FDIC: Monthly 
Reports Related to the TLGP'').
---------------------------------------------------------------------------

3. Treasury Department

    In addition to the TARP, Treasury undertook several other 
highly important initiatives in response to the financial 
crisis. On September 7, 2008, Treasury announced that it would 
purchase government sponsored enterprises' mortgage backed 
securities (GSE MBS) in an attempt to promote both market 
stability and lower interest rates.\62\ At its maximum, 
Treasury owned $220.8 billion in MBS under this program.\63\ 
Furthermore, on September 29, 2008, Treasury announced a 
temporary guarantee for MMFs. While the total size of the money 
market at that point in time was $3.7 trillion, no losses were 
incurred and the program was closed on September 18, 2009, with 
Treasury having earned $1.2 billion in participation fees.\64\
---------------------------------------------------------------------------
    \62\ U.S. Department of the Treasury, Fact Sheet: GSE Mortgage 
Backed Securities Purchase Program (Sept. 7, 2008) (online at 
www.treasury.gov/press-center/press-releases/Documents/
mbs_factsheet_090708.pdf).
    \63\ U.S. Department of the Treasury, Agency MBS Purchase Program 
(Instrument Used: Trades by Month) (www.treasury.gov/resource-center/
data-chart-center/Documents/Final%20Trades%20by%20month.pdf). As of 
February 2011, Treasury has received $84.0 billion in principal 
repayments and $16.7 billion in interest payments from the securities 
it holds as part of this program. U.S. Department of the Treasury, MBS 
Purchase Program Principal and Interest Received (online at 
www.treasury.gov/resource-center/data-chart-center/Documents/
February%202011%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.
pdf) (accessed Mar. 11, 2011).
    \64\ The size of the MMFs was $3.66 trillion in June 2009. IMMFA: 
Frequently Asked Questions, supra note 27; U.S. Department of the 
Treasury, Treasury Announces Expiration of Guarantee Program for Money 
Market Funds (Sept. 18, 2009) (online at www.treasury.gov/press-
center/press-releases/Pages/tg293.aspx) (hereinafter ``Treasury's 
Guarantee Program for Money Market Funds Expires'').
---------------------------------------------------------------------------
    In early September 2008, the FHFA, using authority it had 
been provided in law only six weeks earlier, placed the two 
large GSEs, Fannie Mae and Freddie Mac, in conservatorship, and 
Treasury agreed to provide capital infusions to these mortgage 
giants.\65\ At that time, these two GSEs owned or guaranteed 
approximately $5.3 trillion in mortgage assets.\66\ The FHFA 
placed Fannie Mae and Freddie Mac into conservatorship on 
September 7, 2008, in order to preserve each company's assets 
and to restore them to sound and solvent condition. Secretary 
Paulson announced Treasury's intention to make capital 
injections (through the purchase of preferred interests) in the 
GSEs in order to preserve their positive net worth.\67\ Due to 
these coordinated actions, Treasury had guaranteed the GSE's 
debts, and FHFA had all the powers of the management, board, 
and shareholders of the enterprises.\68\ In sum, these actions 
had the effect of changing the previously implicit government 
guarantee of these institutions into an explicit government 
guarantee.
---------------------------------------------------------------------------
    \65\ Conservatorship is the legal process by which an entity 
establishes control and oversight of a company to put it in a sound and 
solvent condition. Congressional Budget Office, CBO's Budgetary 
Treatment of Fannie Mae and Freddie Mac (Jan. 2010) (online at 
www.cbo.gov/ftpdocs/108xx/doc10878/01-13-FannieFreddie.pdf) 
(hereinafter ``CBO: Fannie Mae and Freddie Mac'').
    \66\ At the end of the third quarter 2008, Fannie Mae's mortgage 
credit exposure was $3.1 trillion, and Freddie Mac's exposure was $2.2 
trillion. Federal National Mortgage Association, Form 10-Q for the 
Quarterly Period Ended September 30, 2008, at 110-111 (Instrument Used: 
Mortgage credit book of business) (Nov. 10, 2008) (online at 
www.sec.gov/Archives/edgar/data/310522/000095013308003686/
w71392e10vq.htm#131); Federal Home Loan Mortgage Corporation, Form 10-Q 
for the Quarterly Period Ended September 30, 2008, at 99 (Instrument 
Used: Total mortgage portfolio) (Nov. 14, 2008) (online at www.sec.gov/
Archives/edgar/data/1026214/000102621408000043/f65508e10vq.htm).
    \67\ U.S. Department of the Treasury, Fact Sheet: Treasury Senior 
Preferred Stock Purchase Agreement (Sept. 7, 2008) (online at 
www.treasury.gov/press-center/press-releases/Documents/
pspa_factsheet_090708%20.pdf) (hereinafter ``Treasury Fact Sheet on 
Senior Preferred Stock'').
    \68\ House Financial Services, Subcommittee on Capital Markets, 
Insurance, and Government-Sponsored Enterprises, Written Testimony of 
Edward J. DeMarco, acting director, Federal Housing Finance Agency, The 
Future of Housing Finance: A Progress Update on the GSEs, at 2 (Sept. 
15, 2010) (online at financialservices.house.gov/Media/file/hearings/
111/DeMarco091510.pdf).
---------------------------------------------------------------------------
    Initially, Treasury acquired $1 billion in preferred stock 
from both Fannie Mae and Freddie Mac. Subsequently both 
entities drew upon this assistance by providing preferred stock 
with a dividend rate of 10 percent (double the initial dividend 
rate for participation in the CPP) in exchange for cash 
investments from Treasury. Furthermore, Treasury received 
warrants to purchase common stock in the GSEs, representing 
79.9 percent of the common ownership when exercised.\69\ The 
preliminary ceiling for the amount of preferred stock Treasury 
would purchase was $100 billion for each of the GSEs.\70\ In 
February 2009, the ceiling for preferred stock purchases was 
raised to $200 billion for each GSE, and in December 2009, 
Treasury removed the cap on possible purchases entirely.\71\ As 
of February 2011, the GSEs had drawn $153.9 billion under the 
Treasury preferred facility and paid $20.2 billion in 
dividends.\72\ Earlier, in January 2010, the Congressional 
Budget Office (CBO) had estimated the total cost to the 
government for assistance to Fannie Mae and Freddie Mac to be 
$389 billion, a figure which included ``the recognition of 
substantial losses on the entire outstanding stock of mortgages 
held or guaranteed by Fannie Mae and Freddie Mac'' at the time 
the estimate was made in August 2009.\73\
---------------------------------------------------------------------------
    \69\ Treasury Fact Sheet on Senior Preferred Stock, supra note 67.
    \70\ Treasury Fact Sheet on Senior Preferred Stock, supra note 67.
    \71\ U.S. Department of the Treasury, Statement by Secretary Tim 
Geithner on Treasury's Commitment to Fannie Mae and Freddie Mac (Feb. 
2, 2009) (online at www.treasury.gov/
press-center/press-releases/Pages/tg32.aspx); U.S. Department of the 
Treasury, Treasury Issues Update on Status of Support for Housing 
Programs (Dec. 24, 2009) (online at www.treasury.gov/press-center/
press-releases/Pages/2009122415345924543.aspx) (hereinafter ``Treasury 
Update on Housing Programs'').
    \72\ This figure excludes the $2 billion in preferred stock given 
to Treasury by the GSEs upon the creation of these facilities. Fannie 
Mae had drawn $90.2 billion and Freddie Mac had drawn $63.7 billion 
under their respective facilities. Thus far, Fannie Mae has paid $10.2 
billion and Freddie Mac has paid $10.0 billion in dividends for their 
draws from the preferred facilities. Federal Housing Finance Agency, 
Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-
Related Securities, at 2-3 (Feb. 25, 2011) (online at www.fhfa.gov/
webfiles/19854/TreasFED02252011%20pdf%20-%20Adobe%20Acrobat%20Pro.pdf) 
(hereinafter ``Treasury & Federal Reserve Purchase Programs for GSE and 
Mortgage-Related Securities'').
    \73\ CBO: Fannie Mae and Freddie Mac, supra note 65, at 8-9.
---------------------------------------------------------------------------
    From a larger perspective, TARP-assisted institutions were 
also among the many beneficiaries of the federal government's 
rescue of the GSEs themselves. Given the large holdings of GSE 
securities at the largest TARP-assisted institutions, the 
federal government's rescue of Fannie Mae and Freddie Mac 
effectively served to prevent additional major losses at these 
institutions. As noted above, one result of the federal 
government's intervention to place Fannie Mae and Freddie Mac 
in conservatorship in September 2008 was that their MBS and 
debt issues now enjoyed the effective guarantee of the federal 
government.\74\ By first making explicit the federal support 
for these GSE securities and subsequently buying up to $1.25 
trillion of the same securities, Treasury and the Federal 
Reserve effectively provided substantial economic benefit to 
the TARP-assisted banks that went well beyond the amounts 
reflected in the accounting for the TARP itself.
---------------------------------------------------------------------------
    \74\ Absent government intervention, the GSEs would have been 
unable to honor their MBS guarantees, and therefore the value of these 
MBS securities would have plummeted. Treasury Update on Housing 
Programs, supra note 71.
---------------------------------------------------------------------------

4. Coordinated Action

    As mentioned above, there were a number of initiatives that 
called for cooperative action between government actors. Figure 
6 below illustrates this interaction. For example, the TALF was 
a cooperative program between Treasury and the Federal Reserve 
in which the TARP took a first-loss position on any losses 
associated with TALF loans, originally up to $20 billion, with 
the Federal Reserve responsible for losses above that 
level.\75\ Similarly, Citigroup and Bank of America benefitted 
from an asset guarantee in which Treasury, the FDIC, and the 
Federal Reserve all accepted risk liability for losses above a 
certain level.\76\ Additionally, as discussed in Section VI of 
this report, AIG was the beneficiary of a coordinated effort 
between the TARP and the Federal Reserve, with $182 billion of 
funds being committed at the height of assistance.
---------------------------------------------------------------------------
    \75\ The TARP is currently only responsible for losses up to $4.3 
billion. Treasury Transactions Report--January 2009, supra note 41.
    \76\ Although Treasury, the Federal Reserve, and the FDIC 
negotiated with Bank of America regarding a Guarantee similar to the 
one provided to Citigroup, 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. BofA Termination Agreement, supra note 39, at 1-2.
---------------------------------------------------------------------------

 FIGURE 6: GOVERNMENT RESPONSE TO FINANCIAL CRISIS BY ORGANIZATION \77\

[GRAPHIC] [TIFF OMITTED] T4832A.006

      
---------------------------------------------------------------------------
    \77\ This figure does not reflect that Fannie Mae and Freddie Mac 
were placed into conservatorship by their regulator, the Federal 
Housing Finance Agency, on September 7, 2008. Federal Housing Finance 
Agency, Statement of FHFA Director James B. Lockhart (Sept. 7, 2008) 
(online at www.fhfa.gov/webfiles/23/FHFAStatement9708final.pdf); 
Congressional Research Service, Government Interventions in Response to 
Financial Turmoil (Dec. 16, 2010).

    Finally, the Federal Reserve, the FDIC, and the Comptroller 
of the Currency released the Supervisory Capital Assessment 
Program (SCAP), more commonly known as the ``stress tests,'' on 
May 7, 2009. This forward-looking analysis was intended to 
determine whether or not the nation's 19 largest bank holding 
companies (BHCs) could withstand adverse economic 
conditions.\78\ Under the SCAP, only one institution, GMAC/Ally 
Financial, was found to be in need of additional government-
provided capital, which was provided under the automotive 
portion of the TARP. The review, however, did note that roughly 
half of the firms needed to take steps, including raising 
capital, to be more adequately prepared for possible 
losses.\79\
---------------------------------------------------------------------------
    \78\ Board of Governors of the Federal Reserve System, Federal 
Reserve, OCC, and FDIC Release Results of the Supervisory Capital 
Assessment Program (May 7, 2009) (online at www.federalreserve.gov/
newsevents/press/bcreg/20090507a.htm).
    \79\ Board of Governors of the Federal Reserve System, Federal 
Reserve Board Makes Announcement Regarding the Supervisory Capital 
Assessment Program (SCAP) (Nov. 9, 2009) (online at 
www.federalreserve.gov/newsevents/press/bcreg/20091109a.htm) 
(hereinafter ``Federal Reserve Announcement on the Supervisory Capital 
Assessment Program'').

                                                           FIGURE 7: TOTAL FEDERAL GOVERNMENT EXPOSURE TO SCAP BANK HOLDING COMPANIES
                                                                                      [Dollars in billions]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            TARP i                                  FDIC                                    Federal Reserve
                                     -----------------------------------------------------------------------------------------------------------------------------------------------    Total
                                                                                                                                         Liquidity Programs iv                         Federal
                                          CPP          AGP          TIP          AIFP      TLGP Debt     AGP iii   -----------------------------------------------------------------   Exposure
                                                                                          Issuance ii                   PDCF         CPFF         TAF        TSLF vi       AGP v
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bank of America.....................        $25.0         $5.0        $20.0           --        $68.6         $5.0         $9.3        $14.9        $88.0        $13.1        $87.2       $336.1
Citigroup...........................         25.0          5.0         20.0           --         66.4        $10.0         21.3         24.9         25.0         34.0        244.5        476.2
JPMorgan Chase......................         25.0           --           --           --         40.6           --      vii 3.0           --         48.0         13.0  ...........        129.6
Wells Fargo.........................         25.0           --           --           --          9.7           --           --           --         72.5           --  ...........        107.2
American Express....................          3.4           --           --           --          5.9           --           --          4.5           --           --  ...........         13.8
Bank of New York Mellon.............          3.0           --           --           --          0.6           --           --           --           --           --  ...........          3.6
BB&T Financial......................          3.1           --           --           --           --           --           --           --          8.5           --  ...........         11.6
Capital One Financial...............          3.6           --           --           --           --           --           --           --           --           --  ...........          3.6
Regions Financial...................          3.5           --           --           --          3.8           --           --           --         13.0           --  ...........         20.3
KeyCorp.............................          2.5           --           --           --          1.9           --           --           --          9.5           --  ...........         13.9
State Street........................          2.0           --           --           --          4.1           --           --          8.5         10.0           --  ...........         24.6
SunTrust............................          4.9           --           --           --          3.6           --           --           --          3.5           --  ...........         11.9
PNC Financial Services..............          7.6           --           --           --          3.9           --           --          0.4          2.0           --  ...........         13.9
Goldman Sachs.......................         10.0           --           --           --         28.6           --         16.5            *           --         34.5  ...........         89.6
Morgan Stanley......................         10.0           --           --           --         24.5           --         60.2          4.3           --         36.0  ...........        135.0
US Bancorp..........................          6.6           --           --           --          3.9           --           --           --           --           --  ...........         10.5
Fifth Third Bancorp.................          3.4           --           --           --           --           --           --          0.3          7.3           --  ...........         11.0
Ally Financial/GMAC.................           --           --           --         17.2          7.4           --           --          7.9          5.0           --  ...........         37.5
MetLife viii........................           --           --           --           --          0.4           --           --          1.6          2.8           --  ...........          4.8
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
    Total...........................       $163.5        $10.0        $40.0        $17.2       $273.8        $15.0       $110.2        $67.4       $295.1       $130.6       $331.7     $1,454.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
*Amount less than $50 million.
See endnote references in Annex III: Endnotes

    In conjunction with its oversight mandate, the Panel has 
done its own accounting of the total resources that the federal 
government has devoted to stabilizing the economy through the 
programs and initiatives outlined above. A complete accounting 
of the government's current maximum exposure from these 
financial stability efforts can be found in Annex I.

   FIGURE 8: GOVERNMENT EXPOSURE TO FINANCIAL STABILITY EFFORTS \80\

      
---------------------------------------------------------------------------
    \80\ At its peak, the Federal Reserve had purchased $1.1 trillion 
of Fannie Mae and Freddie Mac MBS. These MBS are guaranteed by Fannie 
Mae and Freddie Mac and those two institutions in turn have been placed 
into conservatorship and had the entirety of their debts guaranteed by 
Treasury. Hence, while this graph represents the federal government's 
financial exposure to the MBS held by the Federal Reserve as part of 
the Federal Reserve's balance sheet, there is an open question as to 
what agency of the federal government is ultimately bearing the risk 
entailed in holding these securities. In a May 2010 Report, as part of 
a larger review of the Federal Reserve's actions during the financial 
crisis, CBO concluded that ``Direct Purchases of Securities'' 
(including MBS) of the Federal Reserve that had been made up to that 
time did not expose the federal government to any subsidy cost. This 
analysis was done on a risk-adjusted basis and implies that there was 
no risk of loss to the Federal Reserve from these MBS purchases. 
Treasury & Federal Reserve Purchase Programs for GSE and Mortgage-
Related Securities, supra note 72, at 2-3; Congressional Budget Office, 
The Budgetary Impact and Subsidy Costs of the Federal Reserve's Actions 
During the Financial Crisis (May 2010) (www.cbo.gov/
doc.cfm?index=11524&zzz=40793).

[GRAPHIC] [TIFF OMITTED] T4832A.007


    Figure 8 \81\ above shows the actual monthly amounts 
outstanding for all three agencies' (TARP, FDIC, and the 
Federal Reserve) stabilization efforts since November 2008. At 
its height, $2.4 trillion was outstanding under the financial 
rescue programs conducted by these agencies. While significant, 
TARP funds outstanding never represented more than 19 percent 
of the total government stability efforts.
---------------------------------------------------------------------------
    \81\ The Federal Reserve total is comprised of the following: Term 
auction credit, Secondary credit, Seasonal credit, Term Asset-Backed 
Securities Loan Facility, Other credit extensions, Net portfolio 
holdings of Commercial Paper Funding Facility LLC, Central bank 
liquidity swaps, Primary dealer and other broker-dealer credit, Asset-
Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, 
Term facility, federal agency debt securities, mortgage-backed 
securities held by the Federal Reserve, Credit extended to American 
International Group, Inc., Net portfolio holdings of Maiden Lane II 
LLC, Net portfolio holdings of Maiden Lane III LLC, and Preferred 
interests in AIA Aurora LLC and ALICO Holdings LLC. Board of Governors 
of the Federal Reserve System, Data Download Program: Factors Affecting 
Reserve Balances (H.4.1) (Instrument Used: Weekly Average) (Mar. 3, 
2011) (online at www.federalreserve.gov/releases/h41/20110203/). The 
TARP total uses the amounts outstanding at the end of each month as 
reported on Treasury's Monthly 105(a) Reports to Congress. The total 
amount committed under the HAMP and the SSFI/AIGIP is used rather than 
the outstanding amount in order to reflect more accurately the TARP's 
assistance. U.S. Department of the Treasury, Monthly 105(a) Reports to 
Congress (Dec. 5, 2008-Feb. 10, 2011) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/105/Pages/
default.aspx). The FDIC total is comprised of the amounts outstanding 
under the Temporary Liquidity Guarantee Program (TLGP), the quarterly 
amounts outstanding on the Deposit Insurance Fund's balance sheet for 
``liabilities due to resolutions'' and ``contingent liabilities: future 
failures,'' and the FDIC's exposure to the Bank of America and 
Citigroup asset guarantees. This figure represents the FDIC's actual 
balance sheet holdings for ``liabilities due to resolutions'' and 
``contingent liabilities: future 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. FDIC: DIF 
Income Statement, supra note 58; FDIC: Monthly Reports Related to the 
TLGP, supra note 61.
---------------------------------------------------------------------------

                               II. Banks


              A. Capital Infusions and Bank Balance Sheets


1. Summary of COP Reports and Findings

    Since banks are the principal actors in most financial 
systems and were at the center of many of Treasury's TARP 
interventions, a substantial majority of the Panel's reports 
addressed the banking sector in some fashion.\82\ The six 
reports discussed in this section (II.A), however, 
predominantly addressed issues arising out of one of Treasury's 
central strategies for the banking sector during the crisis: 
Treasury's (and, as applicable, the Federal Reserve's) focus on 
the health of bank balance sheets and Treasury's attempts to 
foster bank stability through capital infusions in the form of 
equity investments.\83\ The questions that the Panel raised in 
its first two reports, including the means for ensuring 
accountability and transparency from TARP recipients (such as 
the tracking of TARP funds) and the methods for the taxpayer to 
be fairly compensated for the risk they were taking, run 
solidly through the Panel's reports on banks.
---------------------------------------------------------------------------
    \82\ For example, reports on small business lending and 
foreclosures and housing have important implications for banks' health 
and the stability of the financial system in general.
    \83\ In Sections II.B and II.C, infra, this report discusses 
additional types of Treasury actions intended to foster bank stability.
---------------------------------------------------------------------------
            a. Treasury as Investor and Recovery for the Taxpayer
    The Panel's reports on the banking sector have consistently 
focused on returns to the taxpayer from Treasury's investments 
and the valuation of the assets received by Treasury for the 
equity investments it made. Prior to the first CPP repayments, 
the Panel addressed the problem of valuation broadly and 
published a report assessing Treasury's investment to determine 
whether the taxpayers had received a fair deal.\84\ The 
February 2009 report provided a financial valuation and legal 
analysis of the terms of Treasury's investment in the 
participating financial institutions and concluded that, 
partially because all investments were made on the same terms, 
Treasury paid substantially more for the assets it purchased 
under the TARP than their then-current market value.\85\ While 
a legal analysis of the program concluded that one-size-fits-
all terms aided speed and participation rates for the 
program,\86\ the program design meant that Treasury could not 
address differences in credit quality or risk among 
institutions, or differences in their need for capital, by 
varying the terms of each investment. Insofar as the standard 
terms were set for strong institutions, they may have been too 
lenient for weaker institutions.\87\ In its April 2009 report, 
the Panel continued to emphasize the need for a clear and well-
explained strategy and transparent execution for Treasury's 
TARP investments to improve public confidence in the 
program,\88\ and broadly discussed valuations for the 
distressed assets in the financial sector and their 
relationship to government options.\89\
---------------------------------------------------------------------------
    \84\ Congressional Oversight Panel, February Oversight Report: 
Valuing Treasury's Acquisitions, at 2-11 (Feb. 6, 2009) (online at 
cop.senate.gov/documents/cop-020609-report.pdf) (hereinafter ``2009 
February Oversight Report'').
    \85\ The Duff & Phelps analysis was done for the ten largest TARP 
transactions and compared the amount of the government's investment 
with the value of the preferred stock and the warrants it received in 
return in each transaction. Since these were not publicly traded 
securities, the valuation had to make a variety of assumptions and make 
comparisons with a specific set of private deals. The study concluded 
that every time Treasury spent $100, it took back assets that were 
worth, on average, $66. This difference would equal a $78 billion 
shortfall for the $254 billion spent on these deals. See Section II.A.2 
below for further analysis.
    \86\ The legal analysis study, performed by Timothy Massad and 
Catherina Celosse, found that the standardized documentation used by 
Treasury likely contributed to Treasury's ability to obtain speed of 
execution and wide participation, both important program goals. 2009 
February Oversight Report, supra note 84, at 40-50. At the time of this 
report, Mr. Massad was a corporate lawyer at a New York-based law firm. 
He took a leave of absence from the law firm in order to serve as 
special advisor to the Panel on a pro bono basis. Ms. Celosse acted as 
counsel for the Panel.
    \87\ The Panel's ongoing concerns with respect to Treasury's ``one 
size fits all'' approach are discussed further in Section II.A.2 below.
    \88\ Congressional Oversight Panel, April Oversight Report: 
Assessing Treasury's Strategy: Six Months of TARP, at 7 (Apr. 7, 2009) 
(online at cop.senate.gov/documents/cop-040709-report.pdf) (hereinafter 
``2009 April Oversight Report'').
    \89\ Id. at 75-76.
---------------------------------------------------------------------------
      
---------------------------------------------------------------------------
    \90\ 2009 February Oversight Report, supra note 84, at 7. Note that 
Merrill Lynch was not included in the Duff & Phelps analysis because it 
did not exist as a standalone entity by February 2009.

   FIGURE 9: ESTIMATED VALUE AND SUBSIDY RATES OF CERTAIN TARP INVESTMENTS AS OF COP'S FEBRUARY 2009 REPORT 90
----------------------------------------------------------------------------------------------------------------
                                                                                   Total Estimated Value
                                                                          --------------------------------------
          Purchase Program Participant            Valuation   Face  Value                        Subsidy
                                                     Date                     Value    -------------------------
                                                                                          Percent         $
----------------------------------------------------------------------------------------------------------------
Capital Purchase Program:
    Bank of America Corporation................     10/14/08        $15.0        $12.5          17%         $2.6
    Citigroup, Inc.............................     10/14/08         25.0         15.5          38%          9.5
    JPMorgan Chase & Co........................     10/14/08         25.0         20.6          18%          4.4
    Morgan Stanley.............................     10/14/08         10.0          5.8          42%          4.2
    Goldman Sachs Group........................     10/14/08         10.0          7.5          25%          2.5
    PNC Financial Services.....................     10/24/08          7.6          5.5          27%          2.1
    U.S. Bancorp...............................      11/3/08          6.6          6.3           5%          0.3
    Wells Fargo & Company......................     10/14/08         25.0         23.2           7%          1.8
                                                ----------------------------------------------------------------
    Subtotal...................................  ...........        124.2         96.9          22%         27.3
311 Other Transactions.........................  ...........         70.0         54.6          22%         15.4
SSFI & TIP:
    American International Group, Inc..........     11/10/08         40.0         14.8          63%         25.2
    Citigroup, Inc.............................     11/24/08         20.0         10.0          50%         10.0
                                                ----------------------------------------------------------------
    Subtotal...................................  ...........         60.0         24.8          59%         35.2
                                                ----------------------------------------------------------------
        Total..................................  ...........       $254.2       $176.2          31%        $78.0
----------------------------------------------------------------------------------------------------------------

    In June 2009, Treasury permitted (with the Federal 
Reserve's approval), ten of the nation's largest BHCs--
representing more than one-third of the nation's banking 
assets--to repay the financial assistance they received in 
October 2008.\91\ The Panel's July 2009 report on TARP 
repayments (including the repurchase of stock warrants) 
accordingly focused on whether the taxpayer was receiving 
maximum benefit from its investment in the TARP.\92\
---------------------------------------------------------------------------
    \91\ CPP recipients may only repay their funds if their regulator 
determines that the repayment will not jeopardize the entity's capital 
position, and thus repayments must be approved.
    \92\ Congressional Oversight Panel, July Oversight Report: TARP 
Repayments, Including the Repurchase of Stock Warrants, at 3-4 (July 
10, 2009) (online at cop.senate.gov/documents/cop-071009-report.pdf) 
(hereinafter ``2009 July Oversight Report''). The Panel noted, however, 
that its own valuations did not include the liquidity discounts and 
other adjustments contemplated by Treasury.
---------------------------------------------------------------------------
    As part of its analysis, the Panel determined that because 
the warrants that accompanied the CPP funds represented the 
only opportunity for the taxpayer to participate directly in 
the increase in the share prices of banks made possible by 
public money, the price at which the warrants were sold was 
critical. As of July 2, 2009, 11 small banks had repurchased 
their warrants from Treasury for a total amount that the Panel 
estimated to be only 66 percent of its best estimate of their 
market value.\93\ However, at the time of this valuation, 
Treasury was just beginning its warrant repurchase program, and 
the Panel acknowledged that the prices paid might not be 
representative of future repurchases. Building on its February 
2009 report, the Panel's July 2009 report analyzed the 
contractual constraints governing Treasury's TARP investments 
in the banks.\94\ As in prior reports, the Panel emphasized 
that it was critical that Treasury make the repayment process--
the reason for its decisions, the way it arrived at its 
figures, and the exit strategy from or future use of the TARP--
absolutely transparent.
---------------------------------------------------------------------------
    \93\ Id. at 7.
    \94\ Id. at 23.
---------------------------------------------------------------------------
            b. Stability of the Banking System
    The health--or possible lack thereof--of a variety of 
banks, small and large, lay at the center of the financial 
crisis and significantly informed Treasury's approach under the 
TARP. Thus, in a number of reports, the Panel focused on 
actions Treasury took to assess the health of financial 
institutions participating in the TARP, the impact of those 
actions on financial stability in general, and whether they 
contributed to market transparency. The Panel particularly 
focused on these issues in its June 2009 and August 2009 
reports on the Federal Reserve's and Treasury's ``stress 
tests'' and on the impact of troubled assets on bank balance 
sheets, respectively.
    As described above in Section I, in the first quarter of 
2009 Treasury and the Federal Reserve announced that they would 
conduct stress tests of the 19 largest BHCs in the country, the 
vast majority of which were TARP recipients and which received 
the lion's share of the CPP funds. Upon completion of the 
stress tests in May 2009, BHCs found to be in need of an 
additional capital buffer were given six months to raise the 
necessary capital. Accordingly, the Panel's June 2009 report 
examined the first stress tests conducted by banking regulators 
on these BHCs.\95\ The report focused on how effectively 
Treasury and the Federal Reserve conducted the stress tests, 
specifically reviewing the government's economic assumptions, 
their methods of calculating bank capitalization, their release 
of information to the public, and whether the stress tests 
should be repeated in the future.\96\
---------------------------------------------------------------------------
    \95\ Congressional Oversight Panel, June Oversight Report: Stress 
Testing and Shoring Up Bank Capital, at 3-5 (June 9, 2009) (online at 
cop.senate.gov/documents/cop-060909-report.pdf) (hereinafter ``2009 
June Oversight Report''). Treasury and the Federal Reserve Board had 
announced in early February 2009 that they would conduct comprehensive 
and simultaneous reviews of the nation's largest BHCs--those with more 
than $100 billion in assets--to determine their ability to remain well 
capitalized if the recession were to lead to deeper than expected 
losses. The effort, called the Supervisory Capital Assessment Program 
(SCAP), has been referred to more informally as the ``stress tests.''
    \96\ To help make these assessments of the stress tests and review 
the stress test methodology, the Panel engaged two internationally 
renowned experts in risk analysis, University of California at Berkeley 
Professors Eric Talley and Johan Walden.
---------------------------------------------------------------------------
    The Panel asked independent experts to review and evaluate 
the stress tests. These experts found the economic modeling 
used to conduct them to be generally soundly conceived and 
conservative based on the limited information available to 
them.\97\ However, the experts cautioned that the stress tests 
did not model BHC performance under ``worst case'' scenarios, 
and as a result did not project the capital necessary to 
prevent banks from being stressed to near the breaking point. 
Most important, the expert study stated that the primary issue 
with the stress test process was the program's lack of 
``transparency to outsiders and replicability of its results.'' 
\98\ In the report, the Panel concluded that while the stress 
tests had a positive short-term effect on the markets, they did 
not address the question as to whether the values shown on bank 
balance sheets for certain classes of assets were too high; by 
restricting themselves to a two-year timeframe, their 
conclusions did not take into account the possibility that the 
asset values assumed (particularly for so-called troubled 
assets), may overvalue bank assets to the extent that those 
liabilities result in losses after 2010.\99\ Thus, although the 
release of these stress test results had a positive effect on 
the market, it was not clear that the banks were fully healthy.
---------------------------------------------------------------------------
    \97\ 2009 June Oversight Report, supra note 95, at 50.
    \98\ 2009 June Oversight Report, supra note 95, at 43.
    \99\ 2009 June Oversight Report, supra note 95, at 50.
---------------------------------------------------------------------------
    In its August 2009 report, the Panel revisited bank balance 
sheets in analyzing the potential risks troubled assets may 
present in the future and assessed Treasury's strategy for 
removing these assets from bank balance sheets.\100\ In this 
context, the Panel has noted that a continuing uncertainty in 
the financial markets was whether the troubled assets that 
remain on banks' balance sheets could again become the trigger 
for instability.\101\ The Panel found that ten months after the 
TARP was signed into law, substantial troubled assets remained 
on banks' balance sheets but that it was difficult to assess 
the full scope of the problem because of insufficient 
disclosure by the banks. In light of this finding, the Panel 
analyzed Treasury's program to remove these assets from banks' 
balance sheets, which was the Public-Private Investment Program 
(PPIP), and concluded that there was much uncertainty as to 
whether the PPIP would jump-start the market for troubled 
securities.\102\ The Panel concluded that the future 
performance of the economy and the performance of the 
underlying loans, as well as the method of valuation of the 
assets, were critical to the continued operation of the banks.
---------------------------------------------------------------------------
    \100\ Congressional Oversight Panel, August Oversight Report: The 
Continued Risk of Troubled Assets, at 6 (Aug. 11, 2009) (online at 
cop.senate.gov/documents/cop-081109-report.pdf) (hereinafter ``2009 
August Oversight Report'').
    \101\ Id. at 62.
    \102\ For details regarding the Public-Private Investment Program 
(PPIP), see U.S. Department of the Treasury, Legacy Securities Public-
Private Investment Program: Program Update--Quarter Ended December 31, 
2010, at 3 (Jan. 24, 2011) (online at www.treasury.gov/initiatives/ 
financial-stability/investment-programs/ppip/s-ppip/Documents/ppip-
%2012-10%20vFinal.pdf) (hereinafter ``Treasury's Legacy Securities 
Public-Private Investment Program: Program Update''). The PPIP, 
announced on March 23, 2009, was designed to allow banks and other 
financial institutions to shore up their capital by removing troubled 
assets from their balance sheets by creating public-private investment 
funds financed by private investors, whose capital contributions were 
to be matched dollar-for-dollar by Treasury using TARP funds. Treasury 
initially pledged up to $30 billion for the PPIP, but the fund managers 
did not raise sufficient private sector capital for Treasury's 
combination of matching funds and debt financing to reach that amount. 
Therefore, Treasury's total obligation is limited to $22.4 billion 
(which includes $22.1 billion for active public-private investment 
funds and $356.3 million disbursed to TCW, which has been repaid). For 
an update on the PPIP as of December 31, 2010, see id. at 5.
---------------------------------------------------------------------------
    The August 2009 report also addressed differences between 
smaller and larger banks, discussed more fully below: in 
particular, the Panel was concerned about the impact of 
troubled assets on small banks, whose troubled assets are 
generally whole loans that could not be sold under the PPIP's 
terms.\103\ In addition, the report noted that small banks were 
and remain far more exposed to commercial real estate (CRE) 
loans and, unlike the larger financial institutions, are not 
stress tested by Treasury and the Federal Reserve.
---------------------------------------------------------------------------
    \103\ As noted in the discussion of the Panel's small business 
lending report, Section III.A.3.d, infra, the PPIP can therefore be 
assumed to have had very little effect on small business lending since 
it had little effect on the balance sheets of the banks that are 
disproportionately engaged in such lending.
---------------------------------------------------------------------------
            c. Ongoing Risks for Smaller Banks
    One of the recurring themes in the Panel's reports has been 
the different effects of Treasury's TARP programs on banks of 
different sizes. Smaller and larger banks have different types 
of exposures and focus on different assets in the banking 
sector. Accordingly, one-size-fits-all programs do not always 
have comparable effects on smaller and larger banks.
    As an example, smaller banks lend to CRE ventures at much 
greater rates than larger banks. Smaller banks are therefore 
significantly exposed to one of the sectors in the economy that 
has been very hard-hit during and since the crisis. In this 
context, the Panel examined the effects of CRE loans on smaller 
banks in detail in its February 2010 report. The Panel 
expressed concern that a wave of CRE loan losses over the next 
four years could jeopardize the stability of many banks, 
particularly community banks.\104\ CRE loans made over the last 
decade--for retail properties, office space, industrial 
facilities, hotels and apartments--totaling $1.4 trillion will 
require refinancing in the period 2011 through 2014. The report 
noted that nearly half of those CRE loans are ``underwater,'' 
meaning the borrower owes more on the loan than the underlying 
property is worth. While these problems have no single cause, 
the loans made at the peak of the real estate market are most 
likely to fail.
---------------------------------------------------------------------------
    \104\ Congressional Oversight Panel, February Oversight Report: 
Commercial Real Estate Losses and the Risk to Financial Stability, at 2 
(Feb. 10, 2010) (online at cop.senate.gov/documents/cop-021110-
report.pdf) (hereinafter ``2010 February Oversight Report'').
---------------------------------------------------------------------------
    In its evaluation of the effect of CRE exposures, the Panel 
stated that ``a significant wave of commercial mortgage 
defaults would trigger economic damage that could touch the 
lives of nearly every American.'' The failure of commercial 
properties creates a downward spiral of economic contraction: 
job losses; deteriorating store fronts, office buildings and 
apartments; as well as the failure of the banks serving those 
communities. Acknowledging that not every bank can or should be 
saved, the Panel noted that because community banks play a 
critical role in financing the small businesses that could help 
the American economy create new jobs, their widespread failure 
could disrupt local communities, undermine the economic 
recovery, and extend an already painful recession.
    In July 2010, continuing its examination of stresses on 
smaller banks, and emphasizing problems with one-size-fits-all 
programs, the Panel published a comprehensive report on small 
banks in the CPP and addressed issues beyond the continued risk 
posed by CRE assets. The Panel's main conclusion was that 
because of the CPP's ``one-size-fits-all'' repayment terms, 
large banks had been much better served by the program than 
smaller institutions. In fact, the Panel concluded that small 
banks might find it difficult or impossible to exit the 
program, particularly if the banking sector remained weak.\105\ 
As discussed earlier, Treasury provided capital to banks 
participating in the CPP under a single set of repayment terms 
designed at the outset of the program. Of the 19 American banks 
with more than $100 billion in assets, 17 participated in the 
CPP, receiving 81 percent of the total CPP funds. Money was 
made available to many of these large banks in only a matter of 
weeks, in some cases even before the banks applied for the 
funds. As of July 2010, 76 percent of these large banks had 
already repaid taxpayers, and the healthier banks were 
reporting record profits. However, the July 2010 report noted 
that by contrast, of the 7,891 banks with assets of less than 
$100 billion, only 690 received funds from CPP, and less than 
10 percent of those banks had repaid their loans. Those banks 
experienced a longer and more stringent evaluation to receive 
the funds, and many are still struggling to meet their 
obligations to the taxpayer.\106\ The Panel also stated that 
the CPP could have the potential to contribute to an already 
ongoing trend towards concentration in the financial sector and 
analyzed the potential negative consequences of such a 
trend.\107\
---------------------------------------------------------------------------
    \105\ Congressional Oversight Panel, July Oversight Report: Small 
Banks in the Capital Purchase Program, at 3 (July 14, 2010) (online at 
cop.senate.gov/documents/cop-071410-report.pdf) (hereinafter ``2010 
July Oversight Report'').
    \106\ Id. at 3.
    \107\ Id. at 56 (``This increase in concentration could potentially 
have the ancillary, and likely unpopular, effect of reducing 
competition and giving the remaining banks a freer hand in setting 
terms for their depositors, possibly resulting in higher fees and more 
restrictions on account holders. Individuals and families with smaller 
accounts may receive diminished customer service, and smaller 
businesses are likely to suffer as well. Moreover, the limited systemic 
effect of small banks belies the critical role they can play in local 
economies.'').
---------------------------------------------------------------------------

   FIGURE 10: CONCENTRATION OF BANK ASSETS, BY SIZE (2007-2010) \108\

[GRAPHIC] [TIFF OMITTED] T4832A.008

      
---------------------------------------------------------------------------
    \108\ Data compiled using the FDIC's Statistics on Depository 
Institutions. Four asset categories were created in order to facilitate 
a snapshot of the industry at the end of each financial quarter. 
Federal Deposit Insurance Corporation, Statistics on Depository 
Institutions (Instrument: Total Assets) (online at www3.fdic.gov/sdi/) 
(accessed Mar. 3, 2011).
---------------------------------------------------------------------------
    In its conclusions, the Panel questioned whether the 
participation of small banks in the CPP had advanced Treasury's 
broader aims for the program. These CPP-participant small banks 
comprised too small a share of the banking sector to be 
systemically significant, and therefore their participation was 
and remains unlikely to contribute to financial stability. In 
addition, the Panel stated that there was very little evidence 
to suggest that the CPP led small banks to increase lending, 
which was the other initial goal of the program.\109\ According 
to the Panel's May 2010 report on small businesses, the 
inability of smaller banks to provide credit was also 
problematic because between 2008 and 2009 Wall Street banks' 
small business loan portfolios fell by 9.0 percent, more than 
double the 4.1 percent decline in their entire lending 
portfolios.\110\
---------------------------------------------------------------------------
    \109\ See Section III for additional discussions on the 
consequences of these ongoing problems for small businesses and the 
economy.
    \110\ Congressional Oversight Panel, May Oversight Report: The 
Small Business Credit Crunch and the Impact of the TARP, at 3 (May 13, 
2010) (online at cop.senate.gov/documents/cop-051310-report.pdf) 
(hereinafter ``2010 May Oversight Report''). In addition, the Panel 
noted in its July report that ``neither Treasury nor federal financial 
regulators have pushed big banks to deploy their TARP funds in lending 
to consumers, small businesses, and smaller banks to `unfreeze' the 
financial markets the way they have pushed small banks. This may be in 
part because the larger institutions have largely exited, and therefore 
are not subject to the public pressure arising from the lingering 
credit crunch.'' 2010 July Oversight Report, supra note 105, at 48.
---------------------------------------------------------------------------

2. Panel Recommendations and Updates

    Over the course of the last two years, in evaluating 
Treasury's capital infusion programs and approaches to bank 
balance sheets, the Panel has provided Treasury with a series 
of specific recommendations targeted towards particular 
programs. These recommendations are detailed below, and as 
individual and detailed as they may be, the recommendations 
share common themes. The Panel's recommendations have 
constantly included calls for greater transparency and 
accountability as well as suggested program changes that would 
improve the government's financial stabilization effort and 
protect the taxpayer's investments in the banking sector.\111\
---------------------------------------------------------------------------
    \111\ In connection with its evaluation of Treasury's investments 
in banks, the Panel has also expressed continuing concerns with moral 
hazard associated with the TARP investments, which are detailed in 
Section IX, below.
---------------------------------------------------------------------------
            a. Risk Assessments/Stress Tests
    Accurately assessing the economic viability of the banks 
was critical to instilling public trust in our financial 
markets. Accordingly, the Panel recommended several steps that 
were geared towards reducing the risk of the banks' returning 
to instability and improving market confidence. In both the 
June 2009 and August 2009 reports, the Panel advocated that 
Treasury and the Federal Reserve repeat the stress tests if the 
adverse scenario assumptions (unemployment, GDP, and housing 
prices) of the original stress tests had been exceeded.\112\ 
Specifically, the Panel noted the possibility that the actual 
unemployment rate average for 2009 would exceed the one used in 
the more adverse scenario.\113\ The Panel also suggested that 
stress testing should be a regular feature of the 19 largest 
BHCs' examination cycle as long as an appreciable amount of 
troubled assets remain on their books, economic conditions do 
not substantially improve, or both.\114\ In addition, the Panel 
stated that between supervisory stress tests, the 19 stress-
tested BHCs should be required to run internal stress tests, 
according to supervisory guidance, and to submit those results 
as part of their ongoing supervisory examinations.\115\ 
Finally, the Panel encouraged regulators to use stress tests on 
an ad hoc basis for all banks or BHCs as circumstances, 
including the banks' business mix, dictated.\116\
---------------------------------------------------------------------------
    \112\ 2009 June Oversight Report, supra note 95, at 48-49; 2009 
August Oversight Report, supra note 100, at 61-62.
    \113\ The adverse economic assumptions for the unemployment rate 
were 8.9 percent for 2009 and 10.3 percent for 2010. The actual 
unemployment rates for those years were 9.3 percent for 2009 and 9.6 
percent for 2010. 2009 June Oversight Report, supra note 95, at 5, 17; 
BLS: Unemployment Rate, supra note 23. After the June 2009 report, the 
Panel questioned Secretary Geithner at a hearing and engaged in 
correspondence with him regarding the assumptions (including the 
unemployment assumptions) and the relative weight of the assumptions 
used in the stress tests without, however, receiving substantial 
additional clarity. See Congressional Oversight Panel, Testimony of 
Timothy F. Geithner, secretary, U.S. Department of the Treasury, 
Transcript: COP Hearing with Treasury Secretary Timothy Geithner, at 33 
(Sept. 10, 2009) (online at cop.senate.gov/documents/transcript-091009-
geithner.pdf); Letter from Elizabeth Warren, chair, Congressional 
Oversight Panel to Timothy F. Geithner, secretary, U.S. Department of 
the Treasury (Sept. 15, 2009) (online at cop.senate.gov/documents/cop-
100909-report-correspondence.pdf); Letter from Timothy F. Geithner, 
secretary, U.S. Department of the Treasury to Elizabeth Warren, chair, 
Congressional Oversight Panel (Dec. 10, 2009) (online at 
cop.senate.gov/documents/cop-011410-report-correspondence.pdf).
    \114\ 2009 June Oversight Report, supra note 95, at 48-49.
    \115\ 2009 June Oversight Report, supra note 95, at 48-49.
    \116\ 2009 June Oversight Report, supra note 95, at 48-49.
---------------------------------------------------------------------------
    Although the stress tests are being repeated,\117\ not all 
of the Panel's concerns regarding bank stability have been 
assuaged. For instance, neither Treasury nor the banking 
regulators have made stress testing a regular part of the bank 
examination process yet, although under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (Dodd-Frank 
Act) the Federal Reserve must conduct and publish a summary of 
the results of annual stress tests for systemically important 
financial institutions.\118\ Furthermore, Secretary of the 
Treasury Timothy F. Geithner has stated that he expects public 
disclosure of stress testing will become a regular part of bank 
supervision.\119\ The Dodd-Frank Act has also made broader 
changes to the regulatory landscape, including requiring that 
regulators establish minimum capital leverage levels for the 
banks and other relevant financial institutions.\120\
---------------------------------------------------------------------------
    \117\ Board of Governors of the Federal Reserve System, Revised 
Temporary Addendum to SR Letter 09-4: Dividend Increases and Other 
Capital Distributions for the 19 Supervisory Capital Assessment Program 
Bank Holding Companies (Nov. 17, 2010) (online at 
www.federalreserve.gov/newsevents/press/bcreg/bcreg20101117b1.pdf) 
(hereinafter ``Fed Addendum to SR Letter 09-4'').
    \118\ 12 U.S.C. Sec. 5365(i). The Federal Reserve has yet to 
implement this regulation or to release information on the extent to 
which it will disclose the results of the latest round of stress tests 
or those tests which will be performed in accordance with the Dodd-
Frank Act Wall Street Reform and Consumer Protection Act of 2010 (Dodd-
Frank Act). The Federal Reserve lists the stress requirements under the 
Dodd-Frank Act as initiative that it plans to implement between April 
and June of 2011. See Board of Governors of the Federal Reserve System, 
Implementing the Dodd-Frank Act: The Federal Reserve Board's Role: 
Initiatives Planned: April to June 2011 (online at 
www.federalreserve.gov/newsevents/reform_milestones201104.htm) 
(accessed Mar. 11, 2011).
    \119\ 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 Testimony to the 
Panel'') (``I am very confident that a regular part of risk management 
and supervision in the future for our system will be regular public 
disclosure of stress tests by major institutions.'').
    \120\ 12 U.S.C. Sec. 5371. The question of the level of capital 
leverage requirements remains a much debated issue among policymakers 
and academics. At the Panel's March 4, 2011 hearing, there was a 
consensus among economists across the political spectrum that the 
capital requirements should be more stringent than those required under 
Basel III and those that could be required under the Dodd-Frank Act. 
However, the economists still disagreed on the exact level that a bank 
should hold, with one economist suggesting that it should start at 10 
percent and increase towards 20 percent based on the size of the bank 
and another economist indicating that a 40 or 50 percent capital 
requirement would not be unreasonable. Congressional Oversight Panel, 
Testimony of Allan H. Meltzer, Allan H. Meltzer University Professor of 
Political Economy, Carnegie Mellon University, COP Hearing on the 
TARP's Impact on Financial Stability (Mar. 4, 2011) (publication 
forthcoming) (online at cop.senate.gov/hearings/library/hearing-030411-
final.cfm) (``I would raise the requirement to say that for every--that 
after a minimum size to protect community banks, you start to phase in 
capital requirements which start at 10 percent and increase as the size 
of the bank increases so that it's 11, 12, 13, going up toward 20, so 
that the largest banks will be paying what they were paying in the 
1920's.''); Congressional Oversight Panel, Testimony of Simon Johnson, 
Ronald A. Kurtz (1954) Professor of Entrepreneurship, MIT Sloan School 
of Management, and senior fellow, Peterson Institute for International 
Economics, COP Hearing on the TARP's Impact on Financial Stability 
(Mar. 4, 2011) (publication forthcoming) (online at cop.senate.gov/
hearings/library/hearing-030411-final.cfm) (hereinafter ``Simon Johnson 
Testimony to the Panel'') (``Gene Fama suggests, and I actually agree 
with him, we should be looking at capital requirements closer to 40 or 
50 percent. This is--this is just the percent of the assets financed 
with equity. . . . '').
---------------------------------------------------------------------------
            b. Program Changes
    For several of its program-centered recommendations, the 
Panel focused on stresses particular to smaller banks. In the 
August 2009 report, the Panel noted that Treasury must be 
prepared to turn its attention to small banks in crafting 
solutions to the growing problem of troubled whole loans. As 
discussed above, those banks also face special risks with 
respect to problems in the CRE loan sector. The Panel believed 
that Treasury should implement programs to ensure the viability 
of smaller banks. One such example was for Treasury and the 
banking regulators to extend the methodology and capital 
buffering involved in the stress tests to the nation's smaller 
banks on a forward-looking basis.\121\
---------------------------------------------------------------------------
    \121\ 2009 August Oversight Report, supra note 100, at 62.
---------------------------------------------------------------------------
    Similarly, in the July 2010 report, the Panel's 
recommendations focused on the potentially long timeframe and 
the increased uncertainty of CPP investments in smaller 
banks.\122\ Banks with more than $100 billion in assets have 
returned to profitability while smaller banks, which (among 
other things) have more significant CRE exposure, continue to 
struggle financially and are now struggling to meet their 
obligations to taxpayers.\123\ To deal with CPP investments in 
smaller banks, the Panel's July 2010 report recommended that 
Treasury articulate and determine options for the illiquid 
portions of its portfolio, such as warrants that are too small 
to be listed on an exchange, including bundling or pooling 
investments if that makes them more attractive to 
investors.\124\ The Panel went on to suggest that Treasury both 
articulate clear measures for risk-testing its own portfolio 
and aggressively exercise its shareholder rights, such as 
appointing directors in those banks that have missed the 
requisite number of dividends or payments, in order to protect 
the taxpayers' investment and maintain market discipline.\125\ 
In addition, the Panel recommended that for the banks that 
Treasury's asset manager believed were in need of additional 
capital, Treasury should retain or create a workout team that 
will swiftly negotiate a deal.\126\ Treasury has announced that 
it has exercised some of its shareholder rights and has 
observers attending board meetings at 31 banks; however, if 
Treasury has adopted any of these other recommendations, it has 
not announced them publicly.\127\
---------------------------------------------------------------------------
    \122\ During a discussion of Treasury's ability to exit CPP at the 
Panel's March 4, 2011 hearing, Acting Assistant Secretary for Financial 
Stability Timothy Massad indicated that Treasury was concerned with 
small banks and there was still work to be done to help their recovery. 
Congressional Oversight Panel, Testimony of Timothy G. Massad, acting 
assistant secretary for the Office of Financial Stability, U.S. 
Department of the Treasury, Transcript: COP Hearing on the TARP's 
Impact on Financial Stability (Mar. 4, 2011) (publication forthcoming) 
(online at cop.senate.gov/hearings/library/hearing-030411-final.cfm) 
(hereinafter ``Massad Testimony to the Panel'') (``We've made a lot of 
progress, but we still have more work to do. And in particular with 
respect to our small banks, their path to recovery has been a little 
harder. And we need to continue to work with them on that.''). In 
discussing stresses on smaller banks in the context of the CPP, 
however, the Panel noted that economic stability and a strengthened 
banking sector would help alleviate some of the difficulties facing 
various TARP recipients and Treasury. For example, if the banking 
sector strengthens and becomes a more attractive investment, all banks, 
but particularly smaller banks, may have an easier time repaying their 
CPP funds. If the economy recovers more generally, then commercial real 
estate (CRE) may weigh less on bank balance sheets and smaller banks 
may experience healthier balance sheets as a result. Similarly, if 
Treasury holds CPP-related warrants in a company, and the common stock 
value of that institution is greater than the strike price of its 
warrants, those warrants have a greater value since they can be 
exercised and immediately reap a profit. The strike price, or the fixed 
price that a holder must pay to exercise their option (warrant) to 
purchase a company's stock, for the warrants Treasury received as part 
of its TARP investment, were established by averaging the common stock 
price during the twenty days prior to TARP assistance being provided. 
U.S. Department of the Treasury, Warrant Disposition Report, at 3 (June 
30, 2010) (online at www.treasury.gov/initiatives/financial-stability/
briefing-room/reports/other/DocumentsOther/ TARP_WRRTDISP_80310.pdf) 
(hereinafter ``June 2010 Warrant Disposition Report'').
    \123\ 2010 July Oversight Report, supra note 105, at 5, 33. Of the 
smaller banks in the CPP, approximately 16 percent have repaid their 
CPP funds. Many have no clear path for repaying their CPP investment 
and exiting the program in the near future, if at all.
    \124\ 2010 July Oversight Report, supra note 105, at 61.
    \125\ 2010 July Oversight Report, supra note 105, at 61.
    \126\ 2010 July Oversight Report, supra note 105, at 61.
    \127\ See Section II.A.2.d for a more detailed description of the 
board observers.
---------------------------------------------------------------------------
            c. Particular Stresses on Smaller Banks
    In connection with its concerns about the risks that 
distressed CRE loans pose to smaller banks, the Panel has 
continued to monitor the sector.\128\ In its most comprehensive 
discussion of the problem, the February 2010 report, the Panel 
noted that there were no easy solutions to the risks CRE may 
pose to the financial system. Although it endorsed no specific 
proposals, the Panel identified a number of possible 
interventions to contain the problem until the CRE market could 
return to health. The Panel indicated that government cannot 
and should not keep every bank afloat, but neither should it 
turn a blind eye to the dangers of unnecessary bank failures 
and their impact on communities.\129\
---------------------------------------------------------------------------
    \128\ Specifically, the Panel has held three hearings and released 
one report specifically dedicated to CRE issues. See 2010 February 
Oversight Report, supra note 104; Congressional Oversight Panel, COP 
Hearing on Commercial Real Estate's Impact on Bank Stability (Feb. 4, 
2011) (online at cop.senate.gov/hearings/library/hearing-020411-
cre.cfm); Congressional Oversight Panel, COP Atlanta Field Hearing on 
Commercial Real Estate (Jan. 27, 2010) (online at cop.senate.gov/
hearings/library/hearing-012710-atlanta.cfm); Congressional Oversight 
Panel, COP Field Hearing in New York City on Corporate and Commercial 
Real Estate Lending (May 28, 2009) (online at cop.senate.gov/hearings/
library/hearing-052809-newyork.cfm).
    \129\ 2010 February Oversight Report, supra note 104, at 138.
---------------------------------------------------------------------------
    Since the release of the February 2010 report, CRE 
continues to threaten the economic viability of banks, 
particularly smaller banks. There is approximately $3.2 
trillion of outstanding debt associated with CRE loans, with a 
significant concentration of that debt centered in smaller 
banks.\130\ Over the next two years over $1 trillion of that 
debt will come to maturity.\131\ In February 2010, the Panel 
reported that losses on these loans for commercial banks alone 
could total $200 billion to $300 billion for 2011 and 
beyond.\132\ However, Chairman Bernanke recently indicated that 
many of the worst fears about the CRE market do not seem to be 
coming to fruition.\133\ In pursuit of information as to the 
degree of risk that the CRE market poses to economic recovery, 
the Panel held a hearing on February 4, 2011. The hearing 
focused in particular on CRE's impact on bank stability. Though 
there were indicators of price stabilization in some key 
markets, issues related to commercial real estate continue to 
cause problems for the banking sector and are the main reason 
for recent bank failures.\134\ Sandra Thompson, director of the 
Division of Supervision and Consumer Protection at the FDIC, 
indicated that it could take time to sort out the CRE market 
through restructuring and for loans that cannot be modified, 
``prompt loss recognition and restructuring, painful as it may 
be, is needed to lay the foundation for recovery in CRE 
market.'' \135\ The Panel stated that until Treasury and the 
bank supervisors address forthrightly and transparently the 
threats facing the CRE markets--and the potential impact that a 
breakdown in those markets could have on local communities, 
small businesses, and individuals--the financial crisis will 
not end.\136\
---------------------------------------------------------------------------
    \130\ Congressional Oversight Panel, Written Testimony of Patrick 
M. Parkinson, director, Division of Banking Supervision and Regulation, 
Board of Governors of the Federal Reserve System, COP Hearing on 
Commercial Real Estate's Impact on Bank Stability, at 3-5 (Feb. 4, 
2011) (online at cop.senate.gov/documents/testimony-020411-
parkinson.pdf) (hereinafter ``2011 COP Hearing on CRE Impact on Bank 
Stability'') (``Notably, CRE concentrations are not a significant issue 
at the largest banks. Among banks with total assets of $10 billion or 
more, 10 percent had CRE concentrations. In contrast, one-third of all 
banks with assets between $1 billion and $10 billion had CRE 
concentrations. For banks with less than $1 billion in assets, 
approximately 17 percent had CRE concentrations.''). See also 
Congressional Oversight Panel, Written Testimony of Matthew Anderson, 
managing director, Foresight Analytics, COP Hearing on Commercial Real 
Estate's Impact on Bank Stability, at 1, 3 (Feb. 4, 2011) (online at 
cop.senate.gov/documents/testimony-020411-anderson.pdf) 
(``Approximately two-thirds of CRE debt is held by banks with less than 
$100 billion in total assets.'').
    \131\ 2011 COP Hearing on CRE Impact on Bank Stability, supra note 
130, at 5 (``Approximately one-third of all CRE loans (both bank and 
non-bank), totaling more than $1 trillion, are scheduled to mature over 
the next two year''). See also Morgan Stanley, CMBS Market Insights CRE 
Debt Markets: Challenges and Opportunities, at 1 (Dec. 6, 2010) (online 
at cop.senate.gov/documents/testimony-020411-parkus.pdf) (``nearly $1.4 
trillion of commercial real estate loans maturing over the next three 
years'').
    \132\ 2010 February Oversight Report, supra note 104, at 2, 38, 
102.
    \133\ Senate Committee on Banking, Housing, and Urban Affairs, 
Testimony of Ben S. Bernanke, chairman, Board of Governors of the 
Federal Reserve System, Transcript: The Semiannual Monetary Policy 
Report to the Congress (Mar. 1, 2011) (publication forthcoming) (online 
at banking.senate.gov/public/
index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=9ff8158e-fc56-495b-
aa5b-e957b981da96) (``I would say overall that some of the worst fears 
about commercial real estate seem not to be coming true, that there is 
some stabilization of vacancy rates and prices and so on in this--in 
this market. That being said, there's still a lot of, as you say, a lot 
of properties that are going to have to be refinanced and probably some 
losses the banks are still going to have to take. So it's still 
certainly a risk to the financial system, but it does seem to be 
looking at least marginally better than we were fearing six months 
ago.'').
    \134\ Congressional Oversight Panel, Testimony of Patrick M. 
Parkinson, director, Division of Banking Supervision and Regulation, 
Board of Governors of the Federal Reserve, Transcript: COP Hearing on 
Commercial Real Estate's Impact on Bank Stability (Feb. 4, 2011) 
(publication forthcoming) (online at cop.senate.gov/hearings/library/
hearing-020411-cre.cfm) (``CRE-related issues also present ongoing 
problems for the banking industry, particularly for community and 
regional banking organizations. Losses associated with CRE, 
particularly residential construction and land development lending, 
have been the dominant reason for the high number of bank failures 
since the beginning of 2008.'').
    \135\ Congressional Oversight Panel, Testimony of Sandra Thompson, 
director, Division of Supervision and Consumer Protection, Federal 
Deposit Insurance Corporation, Transcript: COP Hearing on Commercial 
Real Estate's Impact on Bank Stability (Feb. 4, 2011) (publication 
forthcoming) (online at cop.senate.gov/hearings/library/hearing-020411-
cre.cfm) (``Distressed CRE loan exposures take time to work out, and in 
some cases require restructuring to establish a more realistic and 
sustainable repayment program. Some loans may not be able to be 
modified and must be written off. This process of prompt loss 
recognition and restructuring, painful as it may be, is needed to lay 
the foundation for recovery in CRE market. At the same time, it must be 
recognized that many institutions with CRE concentrations have 
weathered the financial crisis.'').
    \136\ 2010 February Oversight Report, supra note 104, at 139.
---------------------------------------------------------------------------
    As summarized in the July 2010 report, many smaller banks 
face balance sheet pressures in what remains a pervasively 
uncertain market. Faced with these pressures, however, smaller 
banks do not necessarily have the options for capital-raising 
available to larger banks. In particular, smaller banks have 
more difficulty accessing capital than larger banks for many 
reasons, among them that equity capital markets are more costly 
for smaller banks due to fixed costs associated with 
transactions; they are often too small to interest private 
equity funds; and their traditional investors, who tend to be 
locally based, might be unwilling to part with capital during 
difficult economic times.\137\
---------------------------------------------------------------------------
    \137\ 2010 July Oversight Report, supra note 105, at 24-25.
---------------------------------------------------------------------------
            d. Transparency and Accountability
    Transparency is essential because it facilitates 
accountability and instills confidence in and increases 
credibility of the decisions of Treasury and the Federal 
Reserve--all of which are necessary and critical for proper 
management of the taxpayers' involvement in the financial 
sector rescue. The Panel has emphasized the need for 
transparency in the operation and administration of the TARP 
since its first report. In that report, the Panel first asked 
whether Treasury knew what TARP recipients were doing with the 
money they had received from the government.\138\ In the 
context of Treasury's bank capital programs, the Panel stressed 
the need for transparency in the administration of both the 
stress tests and the CPP and has made calls more generally for 
release of additional data from recipients of TARP funds.
---------------------------------------------------------------------------
    \138\ Congressional Oversight Panel, December Oversight Report: 
Questions About the $700 Billion Emergency Economic Stabilization 
Funds, at 11-12 (Dec. 10, 2008) (online at frwebgate.access.gpo.gov/
cgi-bin/getdoc.cgi?dbname=110_cong_senate_committee_ 
prints&docid=f:45840.pdf) (``If the funds committed under TARP have an 
intended purpose and are not merely no-strings-attached subsidies to 
financial institutions, then it seems essential for Treasury to monitor 
whether the funds are used for those intended purposes. Without that 
oversight, it is impossible to determine whether taxpayer money is used 
in accordance with Treasury's overall economic stabilization strategy. 
Treasury cannot simply trust that the financial institutions will act 
in the desired ways; it must verify.'').
---------------------------------------------------------------------------
    Stress Tests. In the June 2009 report, the Panel suggested 
that additional information on the results of the stress tests 
needed to be in the public domain, including the results under 
the ``baseline'' economic scenario, or at least an explanation 
if Treasury and the Federal Reserve decided not to release that 
data. Furthermore, the Panel advocated for the release of more 
extensive data on the stress test results, for instance, more 
granular details on estimated losses by sub-categories. The 
Panel noted that this additional information would improve the 
transparency of the process and increase confidence in the 
robustness of the tests.\139\ The Panel also recommended that 
Treasury and the Federal Reserve publicly track the status of 
its stress tests' macro-economic assumptions, including 
unemployment, GDP, and housing price assumptions.\140\
---------------------------------------------------------------------------
    \139\ 2009 June Oversight Report, supra note 95, at 49.
    \140\ 2009 June Oversight Report, supra note 95, at 48-49.
---------------------------------------------------------------------------
    Since the June 2009 report, there has not been 
significantly more information released regarding the results 
of the May 2009 stress tests. In November 2010, the Federal 
Reserve announced a second round of stress testing for SCAP 
banks.\141\ The Federal Reserve requested that by January 7, 
2011 these banks file a comprehensive capital plan detailing 
their ability to absorb losses over the next two years and to 
comply with new banking industry capital rules.\142\ Although 
Secretary Geithner stated that disclosure of stress test 
results is an effective supervisory approach,\143\ unlike the 
May 2009 stress tests the results of the Federal Reserve's 
regulatory review will not be made public.\144\ Similarly, in 
August 2009, the Panel suggested that Treasury and relevant 
government agencies work together to move financial 
institutions toward sufficient disclosure of the terms and 
volume of troubled assets on banks' books so that markets can 
function more effectively.\145\ To date, this has not occurred.
---------------------------------------------------------------------------
    \141\ In November, the Federal Reserve announced that nine of the 
ten bank holding companies that needed to raise or improve the quality 
of their capital under the stress tests had done so and at the time 
they had sufficient capital to meet their capital requirements under 
the stress tests. Federal Reserve Announcement on the Supervisory 
Capital Assessment Program, supra note 79 (``The Federal Reserve Board 
on Monday said that 9 of the 10 Bank Holding Companies (BHCs) that were 
determined in the Supervisory Capital Assessment Program (SCAP) earlier 
this year to need to raise capital or improve the quality of their 
capital to withstand a worse-than-expected economic scenario now have 
increased their capital sufficiently to meet or exceed their required 
capital buffers. The one exception, GMAC, is expected to meet its 
remaining buffer need by accessing the TARP Automotive Industry 
Financing Program, and is in discussions with the U.S. Treasury on the 
structure of its investment.''); Fed Addendum to SR Letter 09-4, supra 
note 117.
    \142\ Fed Addendum to SR Letter 09-4, supra note 117.
    \143\ Geithner Testimony to the Panel, supra note 119 (stating that 
disclosure is a ``remarkably effective approach, because it allowed 
these firms to go out and raise a lot of capital much earlier'').
    \144\ In addition, under the Dodd-Frank Act, financial institution 
regulators will be required to perform stress tests for financial 
companies with over $10 billion in assets for which they are the 
primary regulator. Those findings will then be reported to the Federal 
Reserve. The Dodd-Frank Act will not cover any financial institution 
with assets of below $10 billion or which is a state chartered 
institution. Under rules to be accepted within 18 months of the 
enactment of the Dodd-Frank Act, any financial company with a primary 
federal regulator that has over $10 billion in assets must conduct an 
annual stress test and report the results to the Federal Reserve. In 
addition, BHCs and non-bank financial Companies with assets in excess 
of $50 billion must conduct semi-annual stress tests. At systemically 
important BHCs and non-bank financial companies, the Federal Reserve 
must conduct annual stress tests using at least three scenarios of 
increasing adversity. 12 U.S.C. Sec. 5365(i).
    \145\ 2009 August Oversight Report, supra note 100, at 61-62.
---------------------------------------------------------------------------
    CPP. The Panel has continually advanced recommendations 
aimed at fostering transparency in the CPP. In the June 2009 
report, the Panel urged Treasury to increase transparency in 
the CPP repayment process; including a recommendation that 
Treasury disclose information on the criteria for repayment 
eligibility, the approval process, and the process for 
valuation and repurchase of warrants. The Panel further 
suggested that the relationship of the stress test results to 
CPP repurchases should be completely transparent.\146\ The 
Panel reiterated many of these recommendations in the July 2009 
report about warrant dispositions, emphasizing that Treasury 
should negotiate the disposition of the warrants in a manner 
that is as transparent and fully accountable as possible.\147\ 
The Panel noted that Treasury and the Federal Reserve must 
explain fully and clearly to the public the reasons for 
approval for repayment of financial assistance. The Panel also 
stated that Treasury must be transparent about the way warrants 
are valued, and clearly set forth the exit strategy for, or 
future use of, the TARP, including how it proposed to use 
repaid TARP funds.\148\ Specifically, the Panel recommended 
that Treasury promptly provide written reports to the American 
taxpayer analyzing the fair market value determinations for any 
warrants either repurchased by a TARP recipient from Treasury 
or sold by Treasury through an auction, and that Treasury 
disclose the rationale for its choice of an auction or private 
sale.\149\ Furthermore, in December 2009, the Panel suggested 
that Treasury disclose the precise number of warrants it holds 
for each financial institution within CPP.\150\ Similarly, the 
Panel made several calls for additional transparency for the 
use of TARP funds, and noted in May 2010 that Treasury had 
failed to track TARP funds or require certain kinds of 
longitudinal lending data from TARP recipients, both of which 
hampered the Panel in its efforts to determine the 
effectiveness of CPP.\151\
---------------------------------------------------------------------------
    \146\ 2009 June Oversight Report, supra note 95, at 48-49.
    \147\ 2009 July Oversight Report, supra note 92, at 44-45.
    \148\ 2009 July Oversight Report, supra note 92, at 44-45; 2009 
June Oversight Report, supra note 95, at 49.
    \149\ 2009 July Oversight Report, supra note 92, at 44-45.
    \150\ 2009 December Oversight Report, supra note 27, at 108.
    \151\ 2010 May Oversight Report, supra note 110, at 26.
---------------------------------------------------------------------------
    Since the Panel made its recommendations for increased 
transparency, Treasury and the other banking regulators have 
released significantly more information; however, there is 
still room for improvement. For instance, even though federal 
regulators have established approval processes for CPP 
repayments, Treasury has not publicly issued uniform guidelines 
or documentation needed for meaningful oversight or to achieve 
transparency regarding these repayments. Additionally, while 
Treasury has issued some general statements on its overall 
repayment policy, it has not provided more detailed, case-by-
case explanations for approval of financial assistance 
repayments. Furthermore, even though Treasury described its 
approach to CPP warrant dispositions in three Warrant 
Disposition Reports, Treasury's negotiations with the banks to 
repurchase the warrants are still not transparent.\152\ 
Treasury never required the tracking of funds and has not 
collected the lending data that the Panel thought was essential 
for effective oversight.\153\
---------------------------------------------------------------------------
    \152\ 2010 February Oversight Report, supra note 104, at 149-152; 
U.S. Department of the Treasury, Warrant Disposition Report (Jan. 20, 
2010) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/other/
DocumentsOther/TARP%20Warrant%20Disposition%20Report%20v4.pdf); June 
2010 Warrant Disposition Report, supra note 122; U.S. Department of the 
Treasury, Warrant Disposition Report (Dec. 31, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
other/DocumentsOther/TARP%20Warrant%20 
Disposition%20Report%2012.31.2010%20Update.pdf) (hereinafter ``December 
2010 Warrant Disposition Report'').
    \153\ 2010 May Oversight Report, supra note 110, at 26. When asked 
how institutions used the TARP funds they were given, Treasury raised 
the difficulty in tracking individual dollars through an institution in 
response--in essence, that because money is fungible, it is not useful 
to track particular funds. Nevertheless, as the Panel and the Special 
Inspector General for the Troubled Asset Relief Program (SIGTARP) have 
noted, Treasury could have conditioned receipt of TARP assistance upon 
requirements to report the usage of those funds and the overall lending 
activities of the institutions in question. See Congressional Oversight 
Panel, January Oversight Report: Taking Stock: Accountability for the 
Troubled Asset Relief Program, at 3-4 (Jan. 9, 2009) (online at 
cop.senate.gov/documents/cop-010909-report.pdf); 2009 December 
Oversight Report, supra note 27, at 108-111. See also Congressional 
Oversight Panel, January Oversight Report: Exiting TARP and Unwinding 
Its Impact on the Financial Markets, at 5 (Jan. 14, 2010) (online at 
cop.senate.gov/documents/cop-011410-report.pdf) (hereinafter ``2010 
January Oversight Report''); Office of the Special Inspector General 
for the Troubled Asset Relief Program, SIGTARP Survey Demonstrates that 
Banks Can Provide Meaningful Information on Their Use of TARP Funds 
(July 20, 2009) (online at sigtarp.gov/reports/audit/2009/SIGTARP_ 
Survey_Demonstrates_That_Banks_Can_Provide_Meaningful_%20Information_On_
Their_ Use_Of_TARP_Funds.pdf). Further, banking industry witnesses at 
the Panel's Field hearing in Phoenix stated that they would support a 
tracking requirement for capital infusion programs. See Congressional 
Oversight Panel, Testimony of Candace Wiest, president and chief 
executive officer, West Valley National Bank, Transcript: Phoenix Field 
Hearing on Small Business Lending (Apr. 27, 2010) (publication 
forthcoming) (online at cop.senate.gov/hearings/library/hearing-042710-
phoenix.cfm) (hereinafter ``Wiest Testimony to the Panel'').
---------------------------------------------------------------------------
    The Panel's calls for transparency have also focused on 
Treasury's activities as a shareholder. In the July 2010 
report, the Panel requested that Treasury explain its process 
for appointing board members to banks that are in arrears, 
including the way in which it will identify board members for 
those banks. The Panel added that Treasury should clearly 
articulate its restructuring policy and indicate to CPP 
participants that it will protect the priority of its 
investments.\154\ Since the July 2010 report, Treasury has 
publicly released a ``fact sheet'' and ``frequently asked 
questions'' regarding the nomination of directors.\155\ 
Although Treasury has not yet exercised its right to nominate 
board members for banks that have missed six dividend or 
interest payments, as of February 28, 2011, 31 banks have 
agreed to have Treasury observers attend board of directors 
meetings.\156\ To date, 32 banks have missed at least six 
payments.\157\ To the extent that Treasury has implemented the 
Panel's other recommendations, it has not announced these 
changes publicly.
---------------------------------------------------------------------------
    \154\ 2010 July Oversight Report, supra note 105, at 61.
    \155\ In these documents released in August 2010, Treasury 
indicated that director nominations would be a two-step process based 
on the number of missed dividend or interest payments. After five 
missed payments, Treasury may request permission to send qualified 
members of its staff to observe board meetings of the institution. 
Then, once an institution misses six payments, Treasury will evaluate 
whether to nominate up to two board members. Such determinations will 
be based on Treasury's evaluation of the condition and health of the 
institution as well as the functioning of its board of directors. U.S. 
Department of the Treasury, Frequently Asked Questions: Capital 
Purchase Program (CPP), Related to Missed Dividend (or Interest) 
Payments and Director Nomination (Aug. 2010) (online at 
www.treasury.gov/initiatives/financial-stability/investment-programs/
cpp/Documents/CPP%20Directors%20FAQs.pdf); U.S. Department of the 
Treasury, Factsheet: Capital Purchase Program, Nomination of Board 
Observers & Directors (Aug. 2010) (online at www.treasury.gov/
initiatives/financial-stability/investment-programs/cpp/Documents/
CPP%20 Directors%20-%20Observer%20Fact%20Sheet.pdf). See also U.S. 
Government Accountability Office, Report to Congressional Addressees, 
Troubled Asset Relief Program: Status of Programs and Implementation of 
GAO Recommendations, at 18-19 (Jan. 2011) (GAO-11-74) (online at 
www.gao.gov/new.items/d1174.pdf). Treasury has elected two members to 
AIG's board of directors under the AIG Investment Program. Id. at 18.
    \156\ U.S. Department of the Treasury, Cumulative Dividends, 
Interest and Distributions Report as of February 28, 2011 (Mar. 10, 
2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/dividends-interest/
DocumentsDividends Interest/
February%202011%20Dividends%20Interest%20Report.pdf) (hereinafter 
``Treasury's Dividends & Interest Report'').
    \157\ Id. Based on information as of February 28, 2011.
---------------------------------------------------------------------------
    Data Gathering and Disclosure. In pursuit of greater 
accountability, the Panel has called for data gathering to help 
review the effectiveness of Treasury's programs. In the July 
2010 report, the Panel recommended that Treasury analyze the 
characteristics of the smaller banks that took CPP funds and 
the data on the smaller banks that have repaid CPP funds in 
order to determine commonalities among them. The Panel further 
urged Treasury to use those commonalities to create a strategy 
for exit, to help anticipate risks in the portfolio, and to 
evaluate the effectiveness of capital infusions for stabilizing 
smaller banks, given the program design of the CPP.\158\ The 
Panel also requested that Treasury review the CPP's impact on 
bank consolidations and concentration in the banking sector 
generally.\159\ While the Panel acknowledges improvements in 
data disclosure, many of the specific recommendations of the 
Panel, such as a review of the CPP's impact on bank 
consolidation and concentrations, have not been implemented, or 
at least not announced publicly.
---------------------------------------------------------------------------
    \158\ 2010 July Oversight Report, supra note 105, at 61.
    \159\ 2010 July Oversight Report, supra note 105, at 52-57. The 
Panel noted that although concerns about bank consolidation may not 
have informed the program at the outset, increasing concentration in 
the banking sector could have adverse effects on competition and 
services offered to customers, and, potentially, on systemic stability.
---------------------------------------------------------------------------
            e. CPP Profits and Accountability
    Accountability and program effectiveness are of particular 
import with respect to returns under the CPP. The CPP was the 
largest of three capital injection programs under the TARP, 
providing 707 banks with capital injections totaling nearly 
$205 billion.\160\ The program has to date generated returns 
for the government: the current CBO and Office of Management 
and Budget (OMB) subsidy costs for CPP are actually savings of 
$15 billion and $12 billion, respectively, which represents a 
positive rate of return. These returns come from redemptions, 
warrant repurchases, and dividend payments. As of March 8, 
2011, 145 of the 707 banks that participated in the CPP have 
fully redeemed their preferred shares either through capital 
repayment or exchanges for investments under other government 
programs, including the Community Development Capital 
Initiative (CDCI).\161\ Currently, banks can apply to the Small 
Business Lending Fund (SBLF) as a means of refinancing their 
preferred shares issued through CPP and CDCI.\162\ In addition, 
Treasury receives dividend payments on the preferred shares it 
holds under the CPP, 5 percent per year for the first five 
years and 9 percent per year thereafter.\163\ In total, 
Treasury has received approximately $30 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.\164\ As noted above, in 
conjunction with its preferred stock investments under the CPP 
and the TIP, Treasury generally received warrants to purchase 
common equity.\165\ As of July 2009, the Panel reported that 
Treasury's method for selling stock options gained through the 
CPP appeared to be recovering only 66 percent of the warrants' 
estimated worth. Treasury has subsequently changed its approach 
and subsequent sales recovered 103 cents on the dollar compared 
to the Panel's best estimate. As of March 8, 2011, 51 
institutions have repurchased their warrants from Treasury at 
an agreed-upon price and Treasury has also sold warrants for 18 
other institutions at auction. To date, income from warrant 
dispositions totals $8.6 billion. Treasury still holds warrants 
in 211 TARP recipients. The Panel's best estimate for the total 
value of all outstanding warrants is $2.3 billion as of March 
3, 2011.\166\ Figure 38 in the Annex provides further detail on 
the income from warrant dispositions for financial institutions 
that have fully repaid CPP funds and Figure 39 in the Annex 
breaks down the value of Treasury's current holdings of 
warrants by financial institution.
---------------------------------------------------------------------------
    \160\ Treasury Transactions Report, supra note 36.
    \161\ Treasury Transactions Report, supra note 36.
    \162\ In a pamphlet designed for community banks, Treasury explains 
the eligibility requirements for refinancing outstanding CPP or CDCI 
securities through the Small Business Lending Fund (SBLF). U.S. 
Department of the Treasury, SBLF: Small Business Lending Fund--Getting 
Started Guide For Community Banks, at 4-5 (online at www.treasury.gov/
resource-center/
sb-programs/Documents/SBLF_Getting_Started_Guide_Final.pdf).
    \163\ U.S. Department of the Treasury, Capital Purchase Program 
(online at www.treasury.gov/initiatives/financial-stability/investment-
programs/cpp/Pages/capitalpurchaseprogram.aspx) (accessed Mar. 11, 
2011). For preferred shares issued under the TIP, Treasury received a 
dividend of 8 percent per year. U.S. Department of the Treasury, 
Targeted Investment Program (online at www.treasury.gov/initiatives/
financial-stability/investment-programs/tip/Pages/
targetedinvestmentprogram.aspx) (accessed Mar. 11, 2011).
    \164\ This number is calculated including only the CPP and CDCI. 
Treasury's Dividends & Interest Report, supra note 156; Treasury 
Transactions Report, supra note 36. Treasury also received an 
additional $1.2 billion in participation fees from its Guarantee 
Program for MMFs. Treasury's Guarantee Program for Money Market Funds 
Expires, supra note 64.
    \165\ 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 received warrants to purchase additional subordinated debt 
that were immediately exercised along with its CPP investments in 
subchapter S corporations.
    \166\ As discussed in its July 2009 report, the Panel uses a Black-
Scholes model to calculate low, high, and best valuation estimates of 
outstanding TARP warrants. For more details on the Panel's warrant 
valuation methods and inputs used in the Black-Scholes model, see 2009 
July Oversight Report, supra note 92, at 20-28 and Annex A/B.
---------------------------------------------------------------------------
    That CPP has had an overall rate of return that is positive 
is not to say that all CPP investments have been profitable. As 
of February 28, 2011, 161 institutions have missed at least one 
dividend payment on outstanding preferred stock issued under 
the CPP. Among these institutions, 131 are not current on 
cumulative dividends, amounting to $187.4 million in missed 
payments. Another 30 banks have not paid $11.3 million in non-
cumulative dividends.\167\ Of the $30.9 billion currently 
outstanding in CPP funding, Treasury's investments in banks 
with non-current dividend and interest payments total $7.3 
billion. A majority of the banks that are not current on 
dividend payments have under $1 billion in total assets on 
their balance sheets.\168\ 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. Figure 35 in the Annex provides further details on 
the distribution and the number of institutions that have 
missed dividend payments.
---------------------------------------------------------------------------
    \167\ In addition, nine CPP participants have missed at least one 
interest payment, representing $5.6 million in cumulative unpaid 
interest payments. Treasury's total investments in these non-public 
institutions represent less than $100 million in CPP funding. 
Treasury's Dividends & Interest Report, supra note 156.
    \168\ There are also 19 institutions that no longer have 
outstanding unpaid dividends, after previously deferring their 
quarterly payments. Fourteen banks have failed to make six dividend 
payments, eleven banks have missed seven quarterly payments, six banks 
have missed eight quarterly payments, and one bank has missed all nine 
quarterly payments. These institutions received a total of $1.07 
billion in CPP funding. Treasury's Dividends & Interest Report, supra 
note 156.
---------------------------------------------------------------------------
    Other CPP investments have been losses. As of March 8, 
2011, Treasury has realized a total of $2.6 billion in losses 
from investments in seven CPP participants.\169\ Figure 37 in 
the Annex 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. As of March 9, 2011, however, the average internal 
rate of return (IRR) \170\ for all public financial 
institutions that participated in the CPP and TIP and fully 
repaid the U.S. government (including preferred shares, 
dividends, and warrants) was at 10 percent.
---------------------------------------------------------------------------
    \169\ CIT Group Inc. and Pacific Coast National Bancorp both 
completed bankruptcy proceedings, and the preferred stock and warrants 
issued by the South Financial Group, TIB Financial Corp., the Bank of 
Currituck, Treaty Oak Bancorp, and Cadence Financial Corp. 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. Treasury Transactions Report, supra note 
36, at 14. Settlement of these transactions and proceedings would 
increase total losses in the CPP to $2.8 billion.
    \170\ The internal rate of return (IRR) is the annualized effective 
compounded return rate that can be earned on invested capital.
---------------------------------------------------------------------------
    CPP Profits and the Risk of the Investments in 2008. As 
described above, the overall rate of return for CPP and TIP is 
10 percent,\171\ and Treasury often points to this positive 
rate of return.\172\ As Harvard professor and economist Kenneth 
Rogoff noted to the Panel in connection with the September 2010 
report, however, that should not be the end of the inquiry. In 
his words, a proper cost benefit analysis ``needs to price the 
risk the taxpayer took on during financial crisis.'' Ex post 
accounting (how much did the government actually earn or lose 
after the fact) can yield an extremely misguided measure of the 
true cost of the bailout, especially as a guide to future 
policy responses.'' \173\ Therefore the simple question of 
whether the program ends with a negative or positive balance 
does not provide a complete answer to whether the program was 
necessary or properly designed and implemented.\174\
---------------------------------------------------------------------------
    \171\ That said, however, as the Panel noted in its September 
report, many of the banks that have yet to repay may be in weaker 
capital positions, and the ultimate overall returns may be less 
favorable. 2010 September Oversight Report, supra note 53, at 28 
(``[B]anks that have not repaid their TARP funds may be under or could 
come under greater stress. Some banks that remain in the CPP may find 
it difficult or impossible to raise the capital necessary to meet their 
obligations to the taxpayers, and Treasury's rate of return may 
therefore decline over the life of the program.'').
    \172\ In an opinion piece for The New York Times titled ``Welcome 
to the Recovery,'' Secretary Geithner wrote that ``[t]he government's 
investment in banks has already earned more than $20 billion in profits 
for taxpayers, and the TARP program will be out of business earlier 
than expected--and costing nearly a quarter of a trillion dollars less 
than projected last year.'' Timothy F. Geithner, Welcome to the 
Recovery, New York Times (Aug. 2, 2010) (online at www.nytimes.com/
2010/08/03/opinion/03geithner.html?_r=2&dbk). See also U.S. Department 
of the Treasury, Treasury Department Announces TARP Milestone: 
Repayments to Taxpayers Surpass TARP Funds Outstanding (June 11, 2010) 
(online at www.treasury.gov/press-center/press-releases/Pages/
tg742.aspx) (quoting Assistant Secretary Herbert Allison as saying that 
``TARP repayments have continued to exceed expectations, substantially 
reducing the projected cost of this program to taxpayers . . . This 
milestone is further evidence that TARP is achieving its intended 
objectives: stabilizing our financial system and laying the groundwork 
for economic recovery.'').
    \173\ Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy, 
Harvard University, Written Answers to Questions Posed by the 
Congressional Oversight Panel (Aug. 2010); 2010 September Oversight 
Report, supra note 53, at 123. Professor Joseph E. Stiglitz echoed the 
same opinion stating that Treasury should have demanded appropriate 
compensation for the risk borne and that a proper evaluation should be 
done ex ante and take into account the risks at the time. Congressional 
Oversight Panel, Written Testimony of Joseph E. Stiglitz, Nobel 
Laureate and University Professor, Columbia Business School, Graduate 
School of Arts and Sciences Department of Economics and the School of 
International and Public Affairs, COP Hearing on the TARP's Impact on 
Financial Stability, at 3 (Mar. 4, 2011) (online at cop.senate.gov/
documents/testimony-030411-stiglitz.pdf) (``The fairness of the terms 
is to be judged ex ante, not ex post, taking into account the risks at 
the time.'').
    \174\ 2010 September Oversight Report, supra note 53, at 93.
---------------------------------------------------------------------------
    The Panel first addressed the question of whether, given 
the risk involved, Treasury had paid a premium for the assets 
purchased under the CPP in February of 2009. At that time, 
there had been no CPP repayments: the first repayment took 
place in March 2009, and thus the analysis performed was made 
without the benefit of knowing the current CPP returns.\175\ As 
noted above, while all of the investments under the CPP carry 
the same terms,\176\ the first investments in the CPP were made 
before Treasury instituted an application process, on the 
publicly stated grounds that all recipients were healthy--an 
assertion that came into question very rapidly.\177\
---------------------------------------------------------------------------
    \175\ The February 2009 report also addressed the Systemically 
Significant Failing Institutions (SSFI) program, but this discussion 
focuses primarily on the CPP and the TIP.
    \176\ As noted above, the Panel addressed the effect this had on 
smaller banks in the CPP in July of 2010. See 2010 July Oversight 
Report, supra note 105, at 3.
    \177\ 2009 February Oversight Report, supra note 84, at 5 (``This 
program was intended for healthy banks: those that are sound and not in 
need of government subsidization. While a total of 317 financial 
institutions have received a total of $194 billion under the CPP as of 
January 23, 2009, eight large early investments represent $124 billion, 
or 64 percent of the total. The eight were: Bank of America 
Corporation, Citigroup, Inc., JPMorgan Chase & Co., Morgan Stanley, 
Goldman Sachs Group, Inc., PNC Financial Services Group, U.S. Bancorp, 
and Wells Fargo & Company.'').
---------------------------------------------------------------------------
    Shortly after the initial CPP investments, it became clear 
that the health of some of these initial recipients--
particularly Bank of America and Citigroup--was less certain 
when soon after the initial CPP investments, these institutions 
received additional infusions through the TIP.\178\ Testifying 
in front of the Panel, Assistant Secretary of the Treasury for 
Financial Stability Herb Allison stated that, ``I think that 
Citi, and a number of other banks, many banks, would have been 
on the brink of failure had the system not been underpinned by 
actions of the government--including the Federal Reserve and 
the U.S. Treasury.'' \179\ Subsequent emails made public in 
connection with the Financial Crisis Inquiry Commission's work 
made it clear that within weeks after the initial CPP 
investments, the regulators in various banking agencies, 
including the FDIC and FRBNY, were aware that Citigroup was in 
a ``negative and deteriorating'' situation and that its 
financial condition was ``marginal.'' \180\ Similarly, in mid-
January 2009, minutes of a board meeting indicate that the FDIC 
was significantly concerned about Bank of America's health, 
describing that entity's capital situation as ``strained'' and 
expressing concern about a systemic event that disclosure of 
Bank of America's operating results might cause.\181\
---------------------------------------------------------------------------
    \178\ 2009 February Oversight Report, supra note 84, at 5.
    \179\ Assistant Secretary Allison added that, ``Citi [ . . . ] 
could have difficulty funding themselves at that time. Their debt 
spreads had widened considerably, and so, in the opinion of their 
management, they were facing a very serious situation.'' Congressional 
Oversight Panel, Testimony of Herbert M. Allison, Jr., assistant 
secretary for financial stability, U.S. Department of the Treasury, 
Transcript: COP Hearing on Assistance Provided to Citigroup Under TARP, 
at 27 (Mar. 4, 2010) (online at cop.senate.gov/documents/transcript-
030410-citi.pdf).
    \180\ See Email from Christopher J. Spoth to Sheila C. Bair (Nov. 
21, 2008) (online at c0181567.cdn1.cloudfiles.rackspacecloud.com/2008-
11-21%20FDIC%20Richardson% 20Email%20re%2011-21-
08%20Citi%20Liquidity%20Call%20Notes.pdf). See also Federal Deposit 
Insurance Corporation, Transcript of the Minutes of the Meeting of the 
Board of Directors, at 4 (Nov. 23, 2008) (online at 
c0181567.cdn1.cloudfiles.rackspacecloud.com/2008-11-
23%20Transcript%20of%20FDIC%20 
Board%20of%20Directors%20meeting,%20closed%20session.pdf); Federal 
Reserve Bank of New York, Memorandum to Citigroup Board of Directors 
(Jan. 14, 2009) (online at c0181567.cdn1.cloudfiles.rackspacecloud.com/
2009-01-14%20FRBNY%20Summary%20 of%20Supervisory%20Activity%20 
and%20Findings%20on%20Citi.pdf).
    \181\ Federal Deposit Insurance Corporation, Transcript: Board of 
Directors Meeting (Jan. 15, 2009) (online at 
c0181567.cdn1.cloudfiles.rackspacecloud.com/2009-01-
15%20FDIC%20Board%20Meeting%20Transcript.pdf) (hereinafter ``FDIC 
Transcript on Board of Directors Meeting'').
---------------------------------------------------------------------------
    Nor was the market unaware of these differences among the 
big banks: an examination of the stock prices in the fall of 
2008 of these nine banks shows that the market had a fairly 
accurate perception of their relative health--or lack thereof. 
Figure 11 details the percent change in stock prices of the 
nine banks from December 2005. Specifically, in February 2009 
the monthly stock prices of Bank of America and Citigroup were 
below their December 2005 levels by 91 percent and 97 percent, 
respectively. While all of the first nine banks to enter the 
CPP clearly saw dipping stock prices, two banks, Citigroup and 
Bank of America, consistently tracked the bottom of the group 
after December 2008.

  FIGURE 11: STOCK PRICE CHANGE OF THE FIRST NINE CPP BANKS (DECEMBER 
        2005-DECEMBER 2009) (RELATIVE TO DECEMBER 2005 LEVELS) 

[GRAPHIC] [TIFF OMITTED] T4832A.009

    Accordingly, even assuming that the other large banks that 
received the initial CPP infusions were equally healthy, by 
virtue of being made on the same one-size-fits-all terms, at a 
minimum the Bank of America and Citigroup CPP investments 
appear not to have properly priced the risk of investing in 
those entities. As the Panel warned in its February 2009 
report, when the initial CPP returns were unknown, using a one-
size-fits-all investment policy, rather than using risk-based 
pricing more commonly used in market transactions, meant that 
Treasury made its investments at a substantial premium to the 
market value of the assets purchased under the CPP.\182\ As the 
Panel stated:
---------------------------------------------------------------------------
    \182\ 2009 February Oversight Report, supra note 84, at 2.

          Treasury's emphasis on uniformity, marketability, and 
        use of call options in structuring TARP investments 
        helped produce a situation in which Treasury paid 
        substantially more for its TARP investments than their 
        then-current market value. The decision to model the 
        far riskier investments under the TIP . . . closely on 
        the CPP transactions also effectively guaranteed that a 
        substantial subsidy would exist for these riskier 
        institutions. Because Treasury decided to make all 
        healthy bank purchases on precisely the same terms, 
        stronger institutions received a smaller subsidy, while 
        weaker institutions received more substantial 
        subsidies.\183\
---------------------------------------------------------------------------
    \183\ 2009 February Oversight Report, supra note 84, at 8.

Professors Luigi Zingales and Pietro Veronesi came to a similar 
conclusion in their evaluation of the redistributive effects of 
Treasury's initial investments into the first and largest 
banks.\184\ Examining the TARP interventions on an ex-ante 
basis, they found that the initial CPP terms provided these 
banks' shareholders with a subsidy--or, as the authors put it, 
a gift--which they estimated to be between $21 and $44 billion. 
According to this study, the subsidy to the banks' bondholders 
was even larger: $121 billion.\185\ The general effect of the 
intervention on enterprise value also differed: stronger 
institutions received lower and sometimes negative increases in 
enterprise value from the announcement of the TARP 
interventions, while weaker institutions received more.\186\
---------------------------------------------------------------------------
    \184\ Luigi Zingales, Robert C. McCormack Professor of 
Entrepreneurship and Finance and the David G. Booth Faculty Fellow, 
Booth School of Business, University of Chicago. Pietro Veronesi, Roman 
Family Professor of Finance, Booth School of Business, University of 
Chicago.
    \185\ Zingales and Veronesi note, however, that if the goal of the 
plan was to get full participation and avoid signaling effects, more 
stringent terms might have interfered. Pietro Veronesi and Luigi 
Zingales, Paulson's Gift, Journal of Financial Economics, Vol. 97, No. 
3, at 364 (Sept. 2010) (hereinafter ``Zingales & Veronesi: Paulson's 
Gift''). At the time of the initial CPP infusion, Wells Fargo had 
already reached an agreement to purchase Wachovia. The Panel's reports 
have therefore consistently referred to the first nine banks: 
Professors Zingales and Veronesi refer in their paper both to the first 
nine and the first ten banks.
    \186\ Id. at 364.
---------------------------------------------------------------------------
    The subsequent positive returns on investment in the larger 
CPP banks--including Citigroup and Bank of America--should not 
obscure this point. Had Treasury more accurately priced the 
risk--and calibrated it to each investment, as a private 
investor would have done \187\--Treasury's upside returns would 
have been greater. In illustrating this principle, Professors 
Zingales and Veronesi compared Treasury's returns using the 
terms of the CPP as implemented to Warren Buffet's investment 
in Goldman at around the same time. Professors Zingales and 
Veronesi concluded that if Treasury had demanded Mr. Buffet's 
terms, Treasury would in most cases have captured significant 
gains.\188\ Thus, if this analysis is correct, and although Mr. 
Buffet remains currently invested in Goldman and his ultimate 
returns are unknown, it is likely that Mr. Buffet will realize 
more on his investment in Goldman than Treasury realized for 
its similar TARP investment in that institution.\189\
---------------------------------------------------------------------------
    \187\ In the February report, the Panel noted that it appeared that 
private investors who made investments at around the same time received 
better terms and thus better valuations than Treasury. Two of the 
private transactions compared received assets worth more than their 
investment, and one received assets worth less than the investment, but 
still of greater worth than Treasury's assets (these ranged from 
securities worth $123 on a $100 investment to $91 on a $100 investment, 
as compared to Treasury's average $66 on a $100 investment). 2009 
February Oversight Report, supra note 84, at 4, 8.
    \188\ Zingales & Veronesi: Paulson's Gift, supra note 185, at 364.
    \189\ These analyses are ex-ante, and not ex-post, and it is 
important to note that--to the best of the Panel's knowledge--there is 
no current academic effort to value the private investments under 
discussion in this section. Further, since the private investments are 
ongoing, it is impossible to determine what their ultimate value will 
be, and an unforeseen shock to Goldman could impair Mr. Buffet's 
returns in the future.
---------------------------------------------------------------------------
    Treasury was not, of course, acting as a normal private 
investor. Secretary Geithner recently stated that, ``you can't 
say because we priced our investments below the cost of credit 
that was available in the market in a time of a financial panic 
that we underpriced those investments. That would not be a fair 
way to evaluate it or a sensible way to run a financial 
emergency.'' \190\ In the early days of the CPP, Treasury said 
that its primary goal for the program was to stabilize the 
financial system.\191\ Thus, Treasury was acting as a 
government body with the goal not only of returns to taxpayers, 
but also of market stability. In an atmosphere of profound 
uncertainty as to the health of banks in general, the 
regulators questioned whether the market was fully prepared for 
the details of what the regulators knew to be true--that not 
all of the largest banks were alike and healthy, and that some 
were indeed very fragile.\192\ Accordingly, the fact that 
Treasury's returns likely differ from those of a private 
investor is not, and should not, be the end of the inquiry or 
dispositive of future policy responses to a crisis. 
Nonetheless, Professor Rogoff's cautions--with which Secretary 
Geithner has said he agrees \193\--are not satisfied by 
observations that Treasury has since made money without 
recognizing that Treasury did not necessarily price the risk of 
its investments in all of the CPP recipients.
---------------------------------------------------------------------------
    \190\ Geithner Testimony to the Panel, supra note 119.
    \191\ U.S. Department of the Treasury, Interim Assistant Secretary 
for Financial Stability Neel Kashkari Remarks on Financial Markets and 
TARP Update (Dec. 5, 2008) (online at www.treasury.gov/press-center/
press-releases/Pages/hp1314.aspx).
    \192\ For example, in FDIC board minutes from the time, the FDIC 
board acknowledged that while the market was sensitive to Bank of 
America's losses and liabilities from Countrywide and Merrill Lynch, 
the extent of the losses to which it was exposed would still be a 
surprise. See, e.g., FDIC Transcript on Board of Directors Meeting, 
supra note 181, at 22-23 (``DIRECTOR REICH: Yes, I think there's been 
the perception that B of A has been sort of--well, certainly their 
acquisitions of Countrywide and Merrill Lynch has given them greater 
exposure to losses, but there nevertheless has been the perception that 
they are among the strongest of institutions, and I think this is going 
to be a surprise to the market. . . . DIRECTOR DUGAN: . . . . My only 
comment would be, it would be a lot more surprise if it came out with a 
loss in November [unclear]....I mean, I think it will be a very big 
surprise, indeed, the size of the loss. That's exactly the shock that I 
think we're all fearful of and will generate the systemic risk that can 
have such harmful effects and the idea is that this will counteract 
that perception as much as possible.''); Id. at 5 (``MR. NEWBURY: The 
market reaction to Bank of America Corporation's operating results may 
have systemic consequences given the size of the institution and the 
volume of counterparty transactions involved.''). See also Email from 
Jennifer Burns, Federal Reserve Bank of Richmond, to Richard Cox, FDIC, 
and Morgan Morris, Office of the Comptroller of the Currency, 
discussing Bank of America (online at 
c0181567.cdn1.cloudfiles.rackspacecloud.com /2009-01-
11%20FDIC%20Cox%20Email%20to%20Corston,%20Hoyer%20-
%20FW%20Funding%20Vulnerabilities%20Memo.pdf).
    \193\ In testimony before the Panel, Secretary Geithner stated that 
Professor Rogoff's approach was fundamentally right. Geithner Testimony 
to the Panel, supra note 119 (stating that ``what [Professor Rogoff] 
says is fundamentally right. You have to measure, as any investor would 
do, you have to measure return against risk.'').
---------------------------------------------------------------------------

3. Lessons Learned

    As noted above, between February 2009 and July 2010, the 
Panel examined questions about the policy, strategy, and 
execution of the TARP's approach to bank assistance, how 
Treasury and the Federal Reserve allowed banks to repay TARP 
assistance, the financial stability of banks in the context of 
troubled assets and CRE losses, and small banks' ability to 
exit Treasury's CPP. From the Panel's recommendations common 
themes emerged: transparency and accountability, forward-
looking risk assessment, and the fact that one size does not 
necessarily fit all banks. These themes are discussed below.
            a. Transparency and Accountability
    In the reports on banking, the Panel has been consistent in 
its call for greater transparency. Fuller disclosure to the 
public instills confidence that the steps that Treasury has 
implemented to buttress the financial system are being executed 
in a prudent and fair manner. Accountability and transparency 
go hand in hand: there can be no accountability without 
transparency in decision-making. The taxpayers are only able to 
assess Treasury's choices meaningfully if they get a complete 
picture of how those choices were made and why Treasury deemed 
those to be the most appropriate to recover the public's 
investment, stabilize financial markets, and maximize return. 
Such disclosure would prevent the appearance of ad hoc 
decision-making and give Treasury an opportunity to take credit 
for any positive outcomes. The Panel recognizes that 
occasionally there are statutory and supervisory reasons to 
limit transparency about certain data; however, except in those 
limited circumstances, Treasury should always err on the side 
of greater disclosure.
    In some cases, and as mentioned above, this lack of 
transparency has made Treasury the target of criticism that it 
could have avoided had it been more open. Some economists 
believe that the TARP was the most visible of the government's 
actions in addressing the financial crisis, and that being the 
public face of the intervention has contributed to its negative 
reputation \194\--a difficulty that additional transparency 
might have alleviated. The Panel has pointed out on numerous 
occasions that a major source of the TARP's unpopularity was 
insufficient transparency and inadequate communication. For 
instance, in the implementation of the CPP, Treasury initially 
indicated it was only infusing money into healthy banks. Later, 
when it became apparent that some participating banks were on 
the brink of failure, this not only tainted all participating 
banks (including healthy banks), but also diminished Treasury's 
credibility with the public.\195\ Furthermore, with regard to 
TARP repayments by financial institutions small and large, 
Treasury has only issued some general statements on its overall 
repayment policy, instead of more detailed, case-by-case 
explanations for its approval of these repayments. Given the 
vast amounts of money involved, the public has a right to 
expect transparency and to hold Treasury accountable for its 
decisions. In addition, the lack of transparency may have 
contributed to the general misperceptions that exist about the 
TARP. Despite, for example, Treasury's recovery of much of the 
money taxpayers initially invested, there is the lingering 
belief that the TARP was an extremely costly program.\196\ The 
transparency and accountability of Treasury's various choices 
in the TARP may thus have significant implications not only for 
the policies chosen during this crisis, but also for 
policymakers facing difficult questions in the future.
---------------------------------------------------------------------------
    \194\ 2010 September Oversight Report, supra note 53, at 95-96.
    \195\ 2010 September Oversight Report, supra note 53, at 107.
    \196\ The Pew Research Center, Few Aware of TARP Repayment, 
Inflation Rate: Public Knows Basic Facts About Politics, Economics but 
Struggle with Specifics, at 1-2 (Nov. 18, 2010) (online at people-
press.org/reports/pdf/677.pdf) (``But the public continues to struggle 
with questions about the bank bailout program known as the TARP: Just 
16 percent say, correctly, that more than half of loans made to banks 
under the TARP have been paid back; an identical percentage says that 
none has been paid back.'').
---------------------------------------------------------------------------
            b. Forward-Looking Risk Assessment
    Stress testing of banks was designed to assess whether 
banks on a forward-looking basis could withstand a variety of 
worst-case scenarios of economic events and still continue to 
be financially viable. Banking regulators have used these tests 
to require capital buffers to be built in advance of any 
problem, based on projections about the economy and its impact 
on banks' operating results. While it would be unwise to think 
that stress testing could diagnose all of potential weaknesses 
of the banking system, it does determine the extent of problems 
in the market that are reasonably foreseeable.\197\ For 
example, although it is not known to what degree the current 
stress tests will take into account the effect on bank balance 
sheets of mortgage documentation irregularities, the Panel has 
urged the regulators to do so.
---------------------------------------------------------------------------
    \197\ 2009 June Oversight Report, supra note 95, at 3-5.
---------------------------------------------------------------------------
            c. One Size Does Not Necessarily Fit All
    Treasury provided capital to banks participating in the CPP 
under a single set of repayment terms designed at the outset of 
the program. However, the result has been that large banks have 
been much better served by the program than smaller banks. For 
the stress-tested banks, the CPP proved to be a short-term 
investment. They entered early, and most have exited early--
beneficiaries of capital market confidence resulting, in part, 
from their ``too big to fail'' status. For smaller banks, by 
contrast, the CPP is a long-term investment, subject to market 
uncertainty, stigma, and pressure. Additionally, the purchase 
agreements between Treasury and the banks did not address 
differences in credit quality among various capital-infusion 
recipients through variations in contractual terms governing 
the investments. Nor did the purchase agreements impose 
specific requirements on a particular recipient that might have 
helped insure stability and soundness.
    The CPP had a different impact on large and small banks in 
part because these banks vary in a number of fundamental ways. 
Small banks are often privately held or thinly traded and have 
limited access to capital markets.\198\ Also, small banks are 
disproportionately exposed to CRE, where there remains 
substantial uncertainty about future performance. In addition, 
and finally, as small banks do not benefit from any ``too big 
to fail'' guarantee, their regulators have been quite willing 
to close them down. Therefore, designing a standardized program 
may be the quicker answer, but speed may not address 
differences among participants in a program.
---------------------------------------------------------------------------
    \198\ 2010 July Oversight Report, supra note 105, at 3.
---------------------------------------------------------------------------

                 B. Guarantees and Contingent Payments

    Capital infusions were not the only tool that Treasury 
employed under the TARP to stabilize the banking sector. In 
fact, during the financial crisis of late 2008 and early 2009, 
the federal government dramatically expanded its role as a 
guarantor.\199\ All told, the federal government's guarantees 
have exceeded the total value of the TARP, making guarantees 
the single largest element of the government's response to the 
financial crisis.
---------------------------------------------------------------------------
    \199\ Created by the FDIC less than two weeks after the enactment 
of EESA, the TLGP was intended to promote liquidity in the interbank 
lending market and confidence in financial institutions. The U.S. 
government also developed two other initiatives with guarantee-like 
aspects. First, through the TALF, FRBNY served as a quasi-guarantor of 
the newly issued ABS by permitting participating ABS owners to default 
on their TALF loans without further recourse from the lender (the 
government). Second, the PPIP provides a quasi-guarantee to the markets 
by demonstrating the U.S. government's willingness to subsidize private 
investments and implement measures to encourage market liquidity.
---------------------------------------------------------------------------

1. Background

    As noted above, CPP infusions were not enough for some 
institutions. In a matter of weeks, two of the first nine 
institutions to receive CPP funds--Citigroup and Bank of 
America--needed additional support.\200\ Citigroup faced 
widening credit default swap spreads and losses due to write-
downs on leveraged finance investments and securities, 
particularly in residential real estate. Citigroup's stock 
price, which had been volatile, fell below $4 per share on 
November 21, 2008, from a high of over $14 per share just three 
weeks earlier. This constituted a loss of more than two-thirds 
of Citigroup's market capitalization during those three 
weeks.\201\ Citigroup ultimately incurred a loss of $8.29 
billion for the fourth quarter of 2008.\202\ For its part, Bank 
of America incurred its first quarterly loss in more than 17 
years in the fourth quarter of 2008. These losses were largely 
due to escalating credit costs (including additions to 
reserves), and significant write-downs and trading losses in 
the capital markets businesses.\203\ In addition, the market 
feared Bank of America's liability from its purchases of 
Merrill Lynch and Countrywide.\204\
---------------------------------------------------------------------------
    \200\ 2009 November Oversight Report, supra note 60, at 13-14.
    \201\ 2009 November Oversight Report, supra note 60, at 43-44.
    \202\ 2009 November Oversight Report, supra note 60, at 43.
    \203\ 2009 November Oversight Report, supra note 60, at 43.
    \204\ See Section II.A.1.a, supra. As noted above, in FDIC board 
minutes from the time, the FDIC board acknowledged that the market was 
sensitive to Bank of America's losses and liabilities from Countrywide 
and Merrill Lynch, although the extent of the losses to which it was 
exposed would still be a surprise. See, e.g., FDIC Transcript on Board 
of Directors Meeting, supra note 181, at 22-23.
---------------------------------------------------------------------------
    Treasury, the Federal Reserve, and the FDIC stated that 
providing additional assistance to both institutions was 
necessary not only to keep them afloat, but also ``to 
strengthen the financial system and protect U.S. taxpayers and 
the U.S. economy.'' Noting that at the end of 2008 no one knew 
what might happen to the economy next, Treasury stated that a 
driving force behind the decision to provide additional 
assistance was a fear that either institution's failure would 
cause the same deep, systemic damage as had Lehman Brothers' 
collapse.\205\
---------------------------------------------------------------------------
    \205\ 2009 November Oversight Report, supra note 60, at 45.
---------------------------------------------------------------------------
    Part of the government's additional assistance to Citigroup 
and Bank of America was provided through the Asset Guarantee 
Program (AGP), which Treasury created pursuant to Section 102 
of EESA to guarantee certain distressed or illiquid assets that 
were held by systemically significant financial 
institutions.\206\ In Treasury's view, asset guarantees would 
``calm market fears about really large losses,'' thereby 
encouraging investors to keep funds in Citigroup and Bank of 
America.\207\ Citigroup's guarantee under the AGP ended in 
December 2009, following the partial repayment of its TARP 
assistance.
---------------------------------------------------------------------------
    \206\ 2009 November Oversight Report, supra note 60, at 14, 40. 
Section 102 of EESA required the Secretary of the Treasury, if he 
created the TARP, also to ``establish a program to guarantee troubled 
assets originated or issued prior to March 14, 2008, including 
mortgage-backed securities.''
    \207\ 2009 November Oversight Report, supra note 60, at 24-25, 46. 
As discussed above, while a provisional term sheet was drafted 
reflecting the outlines of Bank of America's asset guarantee agreement 
(which was intended to resemble the Citigroup guarantee), the parties 
never agreed upon a finalized term sheet.
---------------------------------------------------------------------------
    In addition to the AGP, on September 19, 2008, two weeks 
before EESA was signed into law, Treasury announced the 
Temporary Guarantee Program for Money Market Funds (TGPMMF), 
which was designed to alleviate investors' concerns that MMFs 
would drop below a $1.00 net asset value, an occurrence known 
as ``breaking the buck.'' \208\ At the program's height, it 
guaranteed $3.2174 trillion in MMFs.\209\ The TGPMMF ended in 
September 2009. Similarly, the FDIC's DGP, part of the TLGP, 
discussed in greater detail in Section I, placed the FDIC's 
guarantee behind the debt that banks issued in order to raise 
funds that they could use to lend to customers. The DGP closed 
to new issuances of debt on October 31, 2009. The FDIC will 
continue to guarantee debt issued prior to that date until the 
earlier of its maturity or June 30, 2012.
---------------------------------------------------------------------------
    \208\ 2009 November Oversight Report, supra note 60, at 54.
    \209\ 2009 November Oversight Report, supra note 60, at 6.
---------------------------------------------------------------------------

2. Summary of COP Report and Findings

    The Panel's November 2009 oversight report found that the 
income of several government-backed guarantee programs would 
likely exceed their direct expenditures, and that guarantees 
had played a major role in calming financial markets. These 
same programs, however, exposed American taxpayers to trillions 
of dollars in guarantees and created significant moral hazard 
that distorted the marketplace. Despite the guarantees' 
significant impact, the contingent nature of guarantees, 
coupled with the limited transparency with which the guarantee 
programs were implemented, obscured the total amount of money 
that was being placed at risk. Some financial stabilization 
initiatives outside of the TARP, such as the FDIC's DGP and 
Treasury's TGPMMF, carried greater potential for exposure of 
taxpayer funds than the TARP itself.

3. Panel Recommendations and Updates

    The extraordinary scale of these guarantees, the 
significant risk to taxpayers, and the corresponding moral 
hazard led the Panel to conclude that these programs should be 
subject to extraordinary transparency. The Panel strongly urged 
Treasury to provide regular, detailed disclosures about the 
status of the assets backing up the Citigroup AGP guarantee, 
the largest single guarantee offered. The Panel called upon 
Treasury to disclose greater detail about the rationale behind 
guarantee programs, the alternatives that might have been 
available and why they were not chosen, and whether these 
programs had achieved their objectives, including an analysis 
of why Citigroup and Bank of America were selected for the AGP 
and not others. The Panel also asked Treasury to provide a 
legal justification for its use of the Exchange Stabilization 
Fund to create the TGPMMF and to provide reports of the total 
number of MMFs participating in the program (or the total 
dollar value guaranteed), for each month that the program was 
in existence.
    To date, Treasury has not disclosed any of the information 
the Panel requested concerning the various guarantee programs 
it launched during the financial crisis, although a SIGTARP 
audit recently disclosed information germane to the Panel's 
requests.\210\ As noted above, the temporary guarantee program 
for MMFs terminated in September 2009 and the Citigroup AGP 
terminated in December 2009.
---------------------------------------------------------------------------
    \210\ A recent SIGTARP audit provides some key disclosures relating 
to the AGP and the government's decision to provide additional 
assistance to Citigroup. Not only does this audit detail Citigroup's 
initial proposal for additional government assistance, but it also 
discusses several alternatives that were floated besides guarantees to 
address the lack of market confidence in Citigroup. These included the 
possibility of creating a conservatorship for Citigroup or creating a 
SPV or public-private investment fund to purchase troubled assets from 
Citigroup with government funds. Office of the Special Inspector 
General for the Troubled Asset Relief Program, Extraordinary Financial 
Assistance Provided to Citigroup, Inc., at 17-21 (Jan. 13, 2011) 
(online at www.sigtarp.gov/reports/audit/2011/
Extraordinary%20Financial%20Assistance%20Provided 
%20to%20Citigroup,%20Inc.pdf).
---------------------------------------------------------------------------

4. Lessons Learned

    As the Panel pointed out in its November 2009 oversight 
report, it is impossible to attribute specific results to a 
particular initiative given that so many stabilization 
initiatives have been in use. The guarantees provided by 
Treasury, the Federal Reserve, and the FDIC helped restore 
confidence in financial institutions, and did so without 
significant expenditure, initially at least, of taxpayer money. 
Moreover, as the market has stabilized and the scope of the 
programs has decreased, the likelihood diminishes that any such 
expenditure will be necessary. Additionally, the U.S. 
government--and thus the taxpayers--have benefited financially 
from the fees charged for guarantees.
    This apparently positive outcome, however, was achieved at 
the price of a significant amount of risk. A significant 
element of moral hazard was injected into the financial system 
at that time and a very large amount of money was at risk. At 
its high point, the federal government guaranteed or insured 
$4.4 trillion in face value of financial assets under the three 
major guarantee programs.\211\ In addition, while circumstances 
may have led the government into ad-hoc reactions to the 
financial crisis, rather than permitting it to develop clear 
and transparent principles, the result is that government 
intervention has caused confusion and muddled 
expectations.\212\
---------------------------------------------------------------------------
    \211\ This figure includes the entirety of the governments exposure 
to the Citigroup and Bank of America guarantees, $259 billion and $97 
billion respectively, as well as the maximum amount outstanding under 
the TLGP ($346 billion in May 2009), and the size of the money market 
fund at the time Treasury enacted its guarantee ($3.7 trillion). 
Federal Deposit Insurance Corporation, Monthly Reports on the Temporary 
Liquidity Guarantee Program (Instrument Used: Debt Issuance under 
Guarantee Program, Debt Outstanding) (May 31, 2009) (online at 
www.fdic.gov/regulations/resources/tlgp/total_issuance5-09.html). For 
details regarding the loss exposure for Treasury, the FDIC, and the 
Federal Reserve to Citigroup and Bank of America guarantees, see U.S. 
Department of the Treasury, Master Agreement Among Citigroup Inc., 
Certain Affiliates of Citigroup Inc. Identified Herein, Department of 
the Treasury, Federal Deposit Insurance Corporation and Federal Reserve 
Bank of New York, at 6-8, 13 (Jan. 15, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/investment-programs/
agp/Documents/Citigroup_01152009.pdf); Federal Deposit Insurance 
Corporation, Summary of Terms (Jan. 15, 2009) (online at www.fdic.gov/
news/news/press/2009/pr09004a.pdf). IMMFA: Frequently Asked Questions, 
supra note 27.
    \212\ 2009 November Oversight Report, supra note 60, at 85.
---------------------------------------------------------------------------

        C. Global Context and International Effects of the TARP

    Many of the banks at the center of the TARP interventions 
had substantial global operations. Similarly, the U.S. banking 
sector contains multiple financial institutions headquartered 
elsewhere, but active in the U.S. economy. The crisis showed 
that these sorts of cross-border links within the financial 
system could magnify rather than reduce risks. In order to 
examine the effects of these links on financial stability, the 
Panel's August 2010 report addressed the international effects 
of the TARP.

1. Background

    In an earlier era, a mortgage crisis that started in a few 
regions in the United States might have ended there as well. 
But by 2008, the global financial system had become deeply 
internationalized and interconnected. Mortgages signed in 
Florida, California, and Arizona were securitized, repackaged, 
and sold to banks and other investors in Europe, Asia, and 
around the world. At the same time, other countries experienced 
their own housing booms fueled by new financial products.
    The conventional wisdom in the years immediately before the 
crisis held that banks that operated across global markets were 
more stable, given their ability to rely on a collection of 
geographically dispersed businesses. The conventional wisdom, 
however, was proved wrong. Using short-term liabilities 
(funding from the overnight and other short-term markets, often 
dollar-denominated) to purchase long-term assets such as RMBS, 
many firms simply recreated the classic problem faced by 
commercial banks prior to the securitization of mortgages, 
creating a mismatch in the length of liabilities and assets. 
When subprime borrowers began to default on their mortgages, 
banks around the world discovered that their balance sheets 
held the same deteriorating investments. The danger was 
amplified by the high leverage created by layers of financial 
products based on the same underlying assets. When short-term 
lenders began to question the ability of banks to repay their 
obligations, markets froze, and the international financial 
system verged on chaos.\213\ The result was a truly global 
financial crisis, and the interconnections within the global 
financial marketplace and the significant cross-border 
operations of major U.S. and foreign-based firms widened the 
fallout of the crisis, requiring a multi-pronged response by a 
host of national regulators and central banks.\214\
---------------------------------------------------------------------------
    \213\ Congressional Oversight Panel, August Oversight Report: The 
Global Context and International Effects of the TARP, at 3-4 (Aug. 12, 
2010) (online at cop.senate.gov/documents/cop-081210-report.pdf) 
(hereinafter ``2010 August Oversight Report'').
    \214\ Id. at 29.
---------------------------------------------------------------------------
    For the most part, governments across the globe responded 
to the crisis on an ad hoc basis as it unfolded. What this 
meant was that most of the responses were tailored to address 
immediate problems and they tended to target specific 
institutions or specific markets, rather than the entire 
financial system. Home country regulators generally took 
responsibility for banks headquartered in their jurisdictions, 
and the evidence suggests that assistance was doled out less to 
stabilize the international financial landscape than to respond 
to potential fallout across a particular domestic market.\215\ 
There was, however, substantial cross-border coordination 
between financial authorities and central banks of foreign 
governments to establish TARP-like programs.\216\ For example, 
in response to market disruptions, the Federal Reserve and 
other central banks established reciprocal currency 
arrangements, or swap lines, starting in late 2007.\217\ The 
Federal Reserve's swap line programs enhanced the ability of 
foreign central banks to provide U.S. dollar funding to 
financial institutions in their jurisdictions at a time when 
interbank lending was effectively frozen. Most countries 
ultimately intervened in similar ways and used the same basic 
set of policy tools: capital injections to financial 
institutions, guarantees of debt or troubled assets, asset 
purchases, and expanded deposit insurance.\218\
---------------------------------------------------------------------------
    \215\ Id. at 35.
    \216\ Id. at 3-4. Treasury also stated that it coordinated 
extensively with its foreign counterparts throughout the financial 
crisis. Id. at 96.
    \217\ A swap line functions as follows: as the borrowing central 
bank draws down on its swap line, it sells a specified quantity of its 
currency to the lending central bank in exchange for the lending 
central bank's currency at the prevailing market exchange rate. The two 
central banks simultaneously enter into an agreement that obligates the 
borrowing central bank to buy back its currency at a future date at the 
same exchange rate that prevailed at the time of the initial draw, plus 
interest. The borrowing central bank then lends the dollars at variable 
or fixed rates to entities in its country. Id. at 107-108. The majority 
of the swap line programs established by the Federal Reserve terminated 
on February 1, 2010, but in response to the European sovereign debt 
crisis, the Federal Reserve reestablished its swap line facilities by 
entering into agreements with the European Central Bank and other major 
central banks (the Bank of England, the Swiss National Bank, the Bank 
of Canada, and the Bank of Japan) in May 2010 in order to counteract a 
shortage of dollar liquidity. These swaps were authorized through 
January 2011. In addition, on December 21, 2010, the Federal Reserve 
Board authorized an extension through August 1, 2011, of its temporary 
U.S. dollar liquidity swap arrangements with the Bank of Canada, the 
Bank of England, the European Central Bank, the Bank of Japan, and the 
Swiss National Bank. See Board of Governors of the Federal Reserve 
System, Credit and Liquidity Programs and the Balance Sheet, at 8-9 
(Feb. 2011) (online at www.federalreserve.gov/monetarypolicy/files/
monthlyclbsreport201102.pdf).
    \218\ 2010 August Oversight Report, supra note 213, at 117.
---------------------------------------------------------------------------

2. Summary of COP Report and Findings

    The Panel's August 2010 oversight report examined the TARP 
in an international context, describing how the financial 
crisis that began in 2007 exposed the interconnectedness of the 
global financial system. By 2008, the global financial system 
had become deeply internationalized and interconnected. 
Although the crisis began with subprime mortgage defaults in 
the United States, its damage spread rapidly overseas and it 
quickly evolved into a global financial crisis. Faced with the 
possible collapse of their most important financial 
institutions, many national governments intervened. While the 
United States attempted to stabilize the system by flooding 
money into as many banks as possible--including those that had 
significant overseas operations--most other nations targeted 
their efforts more narrowly toward institutions that in many 
cases had no major U.S. operations. While it was difficult to 
assess the precise international impact of the TARP or other 
U.S. rescue programs because Treasury gathered very little data 
on how TARP funds flowed overseas, it appeared likely that 
America's financial rescue had a much greater impact 
internationally than other nations' programs had on the United 
States.\219\
---------------------------------------------------------------------------
    \219\ 2010 August Oversight Report, supra note 213, at 3-5.
---------------------------------------------------------------------------

3. Panel Recommendations and Updates

    Improved Data Collection and Reporting. In its August 2010 
Oversight Report, the Panel called upon Treasury to collect and 
report more data about how the TARP and other rescue funds 
flowed internationally, to document the impact that the U.S. 
rescue had overseas, to create and maintain a database of this 
information, to urge foreign regulators to collect and report 
similar data, and to make international regulatory bodies and 
their interactions with U.S. regulators open and transparent. 
The Panel also urged U.S. regulators to make clear to 
policymakers the impact that such international regulatory 
bodies have on the U.S. banking industry and broader economy. 
It does not appear that Treasury has acted upon this 
recommendation.
    ``War gaming'' Exercises. The Panel also recommended that 
the international community gather information about the 
international financial system, identify vulnerabilities, and 
plan for emergency responses to a wide range of potential 
future crises. The Panel called upon U.S. regulators to 
encourage regular crisis planning and financial ``war gaming.''
    Though no regulatory body has yet reported results from 
financial ``war gaming,'' a broad array of international 
standard-setting bodies, including the Basel Committee on 
Banking Supervision and national authorities, under the 
coordination of the Financial Stability Board, are in the midst 
of quantifying and finalizing key elements of regulatory 
reform. The Financial Stability Board, which includes the G20 
(a group of 20 nations consisting of both industrialized and 
emerging economies), will assess financial system 
vulnerabilities, promote coordination and information exchange 
among authorities, advise and monitor best practices to meet 
regulatory standards, set guidelines for and support the 
establishment of supervisory colleges, and support cross-border 
crisis management and contingency planning. At the Seoul Summit 
in November 2010, the G20 leaders endorsed the Financial 
Stability Board policy framework, including its work processes 
and timelines, for reducing the moral hazard of systemically 
important financial institutions.\220\ Regulators are also 
working with international bodies to coordinate responses in 
the event of a large cross-border bank failure.\221\ U.S. 
regulators do not have the authority to resolve foreign parents 
of U.S. subsidiary firms that fail in the United States and 
only have authority over the U.S. parent companies and U.S. 
subsidiaries of U.S. entities,\222\ making international 
cooperation helpful for the successful resolution of large, 
transnational banks.
---------------------------------------------------------------------------
    \220\ See Sullivan & Cromwell LLP, Basel III and FSB Proposals 
(Nov. 15, 2010) (www.sullcrom.com/files/Publication/27b4dd5f-05fd-4f6b-
b49e-21caae447eee/Presentation/PublicationAttachment/6cdbbb2e-1103-
4c89-b0d5-23f7341d2b4c/SC_Publication_Basel_III_and_FSB_Proposals.pdf).
    \221\ Federal Deposit Insurance Corporation, Statement of John 
Corston, Acting Deputy Director, Complex Financial Institution Branch, 
Division of Supervision and Consumer Protection, Federal Deposit 
Insurance Corporation on Systemically Important Institutions and the 
Issue of ``Too Big to Fail'' (Sept. 1, 2010) (online at www.fdic.gov/
news/news/speeches/archives/2010/spsep0110.html).
    \222\ See Simon Johnson Testimony to the Panel, supra note 120. See 
also Jeffrey N. Gordon, The Dangers of Dodd-Frank (Oct. 15, 2010) 
(online at www.law.com/jsp/nylj/PubArticleNY.jsp?id=1202473381266).
---------------------------------------------------------------------------

4. Lessons Learned

    As the Panel highlighted in its August 2010 oversight 
report, the international response to the crisis that started 
in 2007 developed on an ad hoc, informal, jurisdiction-by-
jurisdiction basis. Despite the limitations of international 
coordination, macro-economic responses taken by central banks, 
which had broader discretion to design liquidity facilities, 
were the most coordinated.\223\ Governments ultimately made 
their decisions, however, based on an evaluation of what was 
best for their own banking sector and their domestic economy: 
consideration of the specific impact of their actions on the 
financial institutions, banking sector, or economies of other 
jurisdictions was not a high priority. This was due to both the 
rapid and brutal pace of the crisis as well as the absence of 
effective cross-border crisis response structures. Ultimately, 
this meant that the assistance that was provided to specific 
troubled institutions depended very much on where they were 
headquartered.\224\
---------------------------------------------------------------------------
    \223\ 2010 August Oversight Report, supra note 213, at 116-117.
    \224\ 2010 August Oversight Report, supra note 213, at 116.
---------------------------------------------------------------------------
    Although these ad hoc actions ultimately restored a measure 
of stability to the international system, there is no doubt 
that international cooperation could be improved. The 
internationalization of the financial system has, in short, 
outpaced the ability of national regulators to respond to 
global crises.\225\
---------------------------------------------------------------------------
    \225\ 2010 August Oversight Report, supra note 213, at 117.
---------------------------------------------------------------------------

        III. Credit Markets: Small Business and Consumer Lending

    As noted above, the majority of the Panel's reports have 
addressed topics relevant to the banking sector. Bank health 
and credit markets are opposite sides of the same coin, because 
a healthy bank with a solid balance sheet is in a better 
position to respond to demand for credit. Accordingly, this 
section discusses the impact of the financial crisis and 
subsequently the TARP on credit markets.

                             A. Background


1. Small Business Lending

    Credit is critical to the ability of all businesses to 
purchase new equipment or new properties, expand their 
workforce, and fund their day-to-day operations. If credit is 
unavailable, businesses may be unable to meet current business 
demands or to take advantage of opportunities for growth.\226\ 
In contrast to large corporations, small businesses are 
generally less able to access the capital markets directly and 
thus are more vulnerable to a credit crunch. The result of 
reduced access to credit can be that too few small businesses 
start and too many stall--a combination that can hinder 
economic growth and prolong an economic downturn.\227\
---------------------------------------------------------------------------
    \226\ 2010 May Oversight Report, supra note 110, at 3; 
Congressional Oversight Panel, Written Testimony of Paul Smiley, 
president, Sonoran Technology and Professional Services, Phoenix Field 
Hearing on Small Business Lending, at 2 (Apr. 27, 2010) (online at 
cop.senate.gov/documents/testimony-042710-smiley.pdf).
    \227\ Congressional Oversight Panel, May Oversight Report: Reviving 
Lending to Small Businesses and Families and the Impact of the TALF, at 
12 (May 7, 2009) (online at cop.senate.gov/documents/cop-050709-
report.pdf) (hereinafter ``2009 May Oversight Report'').
---------------------------------------------------------------------------
    During the financial crisis, bank lending to individuals 
and businesses decreased across the board due to market 
uncertainty and continued credit quality deterioration.\228\ As 
Figure 12 shows, the amount of loans and leases outstanding at 
commercial banks dropped to $6.5 trillion in the spring of 2010 
from its level of $7.3 trillion outstanding in October 
2008.\229\ As loans and leases outstanding have declined, the 
amount of cash assets held as a portion of total loans and 
leases has increased. Following the government's initial $125 
billion investment in the first nine TARP participants in 
October 2008, the cash to loans ratio more than doubled, from 7 
percent to its December 2010 level of 16 percent.\230\ While an 
increased cash to loan ratio is not necessarily a negative 
sign, as it conveys a desire to ensure adequate cash reserves, 
the continued decrease in loans outstanding shows that there 
continues to be a decrease in the amount of credit in the 
market.
---------------------------------------------------------------------------
    \228\ Board of Governors of the Federal Reserve System, U.S. Credit 
Cycles: Past and Present, at 4 (online at www.treasury.gov/initiatives/
financial-stability/results/cpp/cpp-report/Documents/
Fed%20US%20Credit%20Cycles%20072409.pdf) (accessed Mar. 11, 2011) (``. 
. . credit growth typically declines prior to and during economic 
downturns'').
    \229\ The National Bureau of Economic Research, the body 
responsible for determining when shifts in the business cycle occur, 
stated that the most recent recession began in December 2007 and ended 
in June 2009. NBER: US Business Cycle, supra note 21. The sharp jump in 
loans and leases to $7.0 trillion in the spring of 2010 is 
predominantly due to the implementation of FAS 166/167, which required 
institutions to bring all loans held in variable interest entities onto 
their balance sheets. Since then, outstanding loans and leases have 
steadily decreased.
    \230\ It is difficult to isolate new lending due to reporting 
standards of banks. As part of the TARP, banks that received assistance 
were required to report on their lending. Treasury used those data to 
publish a survey of the top 22 CPP recipients. However, Treasury did 
not require TARP recipients that repaid their funds to continue 
reporting, thereby leaving a deficiency of data on new lending by the 
nation's largest banks. Treasury continued publishing the Capital 
Purchase Program Monthly Lending Report, which measures only three 
metrics of the 26 measured by the survey of the top 22 CPP recipients. 
2010 May Oversight Report, supra note 110, at 28.
---------------------------------------------------------------------------

      FIGURE 12: LENDING AND CASH ASSETS AT COMMERCIAL BANKS \231\

[GRAPHIC] [TIFF OMITTED] T4832A.010

      
---------------------------------------------------------------------------
    \231\ The considerable increase in loans and leases outstanding in 
this graphic in early 2010 is due to the adoption of the Financial 
Accounting Standards Board's Financial Accounting Statements No. 166 
and No. 167 as of the week ending March 31, 2010. These rules changed 
the accounting standards for financial assets and led to domestically 
chartered commercial banks consolidating approximately $377.8 billion 
in assets and liabilities on their balance sheets at the end of the 
first quarter 2010. Financial Accounting Standards Board, FASB Issues 
Statements 166 and 167 Pertaining to Securitizations and Special 
Purpose Entities (June 16, 2009) (online at www.fasb.org/cs/
ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_C/
NewsPage&cid=1176156240834); Board of Governors of the Federal Reserve 
System, Assets and Liabilities of Commercial Banks in the United 
States--Notes on the Data (Apr. 9, 2010) (online at 
www.federalreserve.gov/releases/h8/h8notes.htm#notes_20100409); 
Treasury Transactions Report, supra note 36.
---------------------------------------------------------------------------
    While it is difficult to gather data specifically about 
small business credit or to generalize across small business 
market participants, credit began to tighten for small 
businesses in early 2008 and worsened over the course of 
2009.\232\ For loans to small businesses, in the first quarter 
of 2008, 51.8 percent of the Federal Reserve's Survey of Senior 
Loan Officers respondents reported that they had tightened 
credit standards. By the fourth quarter of that year, that 
percentage had risen to 69.2 percent. Credit remained tight 
during the first part of 2009: in the first quarter, 42.3 
percent of the Survey of Senior Loan Officers respondents 
reported that they had tightened credit standards. The numbers 
of Senior Loan Officers reporting tightening credit eventually 
leveled off, reflecting the fact that most banks had already 
tightened their lending standards.\233\ Unable to find credit, 
many small businesses shut their doors, and some of the 
survivors are still struggling to find adequate financing.\234\ 
At an acute phase of the crisis, the Panel found compelling 
reports of slowed lending at its April 2009 field hearing in 
Milwaukee, Wisconsin. On the one hand, small business owners 
discussed their lack of access to credit at that hearing. 
Anecdotally, small business owners who testified suggested that 
their banks, which had received TARP injections, had been 
unable to fulfill their credit needs, which ranged from 
additional loans to restructuring or even sustaining existing 
lines of credit. On the other hand, the community bankers who 
testified at the field hearing highlighted their efforts to 
extend credit to their small business customers. Two witnesses 
representing community banks emphasized that they were 
continuing to lend throughout the crisis, while acknowledging 
that they had no choice but to pursue new opportunities 
cautiously.\235\
---------------------------------------------------------------------------
    \232\ A source of information on trends is the Federal Reserve's 
Senior Loan Officer Opinion Survey on Bank Lending Practices, which is 
based on quarterly data reported by the Survey of Senior Loan Officers 
respondents and addresses changes in the supply of and demand for loans 
to businesses and households. See Board of Governors of the Federal 
Reserve System, January 2011 Senior Loan Officer Opinion Survey on Bank 
Lending Practices, at 7 (Jan. 31, 2011) (online at 
www.federalreserve.gov/boarddocs/snloansurvey/201102/fullreport.pdf) 
(hereinafter ``January 2011 Senior Loan Officer Survey'').
    \233\ 2010 May Oversight Report, supra note 110, at 17.
    \234\ 2010 May Oversight Report, supra note 110, at 3.
    \235\ 2009 May Oversight Report, supra note 227, at 13-14; 
Congressional Oversight Panel, Hearing on the Credit Crisis and Small 
Business Lending (Apr. 29, 2009) (online at cop.senate.gov/hearings/
library/hearing-042909-milwaukee.cfm) (full audio recording).
---------------------------------------------------------------------------
    During the crisis, many larger banks pulled back from the 
small lending market.\236\ Some borrowers looked to community 
banks to pick up the slack, but smaller banks remained strained 
by both their exposure to CRE, which continued to pose a risk 
to the economic viability of banks, and other liabilities.\237\ 
In addition, many of the government programs aimed at banks 
were arguably designed more to provide relief for the kinds of 
assets held by larger banks, and have had little effect on the 
smaller banks now bearing a greater share of small business 
lending. Even now, with a cautious recovery under way in many 
sectors, standards for small business lending have remained 
tight, easing only very slightly by the fourth quarter of 
2010.\238\
---------------------------------------------------------------------------
    \236\ 2010 May Oversight Report, supra note 110, at 62-63.
    \237\ The withdrawal of consumer and small business loans because 
of a disproportionate exposure to commercial real estate capital 
creates a ``negative feedback loop'' that suppresses economic recovery. 
See Section II.
    \238\ 2009 May Oversight Report, supra note 227, at 4, 12-13. 
According to the Federal Reserve Board's January 2011 Senior Loan 
Officer Opinion Survey on Bank Lending Practices, a small fraction of 
banks reported they were continuing to ease standards for commercial 
and industrial (C&I) loans over the fourth quarter of 2010 to large and 
medium-size firms, but few reported changing standards on such loans to 
small businesses. January 2011 Senior Loan Officer Survey, supra note 
232, at 4, 13. While the respondents reported a moderate increase in 
demand for C&I loans, there was little if any change in demand for 
other types of loans. Reports of strengthened demand for C&I loans were 
more widespread than in the previous survey. Approximately 5 percent of 
banks reported increased demand from small businesses. Id.
---------------------------------------------------------------------------

2. Consumer Lending

    Leading into the financial crisis, families were deep in 
debt, including mortgages, auto loans, credit cards and student 
loans. Families were left with little savings, while declines 
in the value of housing and in the stock market further shrunk 
household net worth. As wages stagnated and unemployment rose, 
the ability of households to manage ever-larger debt loads 
became increasingly difficult.
    During late 2008 and into 2009, consumer credit indicators 
showed the tightening of the credit markets and the effect on 
household borrowing. This reduction in credit availability can 
be seen through rising interest rates and higher lending 
standards, as well as through reductions in the rate and 
overall volume of lending. In the fourth quarter of 2008, 
consumer spending on goods and services fell 4.3 percent--a 
decline responsible for nearly half of the reported 6.2 percent 
annualized contraction in GDP. This was the largest spending 
decrease in 29 years.\239\ At the same time, the recession 
impacted demand for borrowing, as households paid down debts 
built up during the boom years, which contributed to the 
economic contraction. Overall, the trend across the sector was 
one of debt reduction, credit limit decreases, rising 
delinquencies, and tightening lending standards.\240\ The 
aggregate decline in consumer lending was likely due to a 
combination of deleveraging by households and reduced access to 
credit.
---------------------------------------------------------------------------
    \239\ 2009 May Oversight Report, supra note 227, at 19-20.
    \240\ 2009 May Oversight Report, supra note 227, at 25-30.
---------------------------------------------------------------------------

3. Government Efforts to Stimulate Small Business and Consumer Lending

    Since the onset of the financial crisis, the federal 
government has instituted a series of programs designed to 
support lending and liquidity in the consumer and small 
business credit markets. Since the TARP's inception, Treasury 
has announced almost $60 billion in funding for TARP programs 
for small business-related initiatives, but it has reduced that 
commitment to approximately $5.2 billion over the past 
year.\241\ The government initiatives predominantly included 
additional support for Small Business Administration (SBA) 
programs, capital infusions for smaller banks, and various 
efforts to stimulate secondary markets for bank assets in hopes 
of easing the stresses on bank balance sheets and freeing banks 
to make more loans.
---------------------------------------------------------------------------
    \241\ In April 2010, Treasury reduced its planned investment 
commitments for the Consumer and Business Lending Initiative from $60 
billion to $52 billion. The $52 billion of the Consumer and Business 
Lending Initiative was comprised of $20 billion for the TALF, $30 
billion reserved for the SBLF (separate from the TARP through 
legislation), not more than $1 billion for the CDCI Program, and not 
more than $1 billion for the SBA 7(a) Securities Purchase Program. U.S. 
Department of the Treasury, Troubled Asset Relief Program Monthly 
105(a) Report--March 2010, at 7 (Apr. 12, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
105/Documents105/March%202010%20105(a)%20monthly%20report_final.pdf).
    Before and after passage of the Dodd-Frank Act, Treasury announced 
changes in the planned commitments under the TARP, including changes to 
its small business-related initiatives. Treasury reserved $5.48 billion 
for the Consumer and Business Lending Initiative in July 2010, of which 
(i) $4.3 billion was allocated to TALF, (ii) $337 million was disbursed 
from the $400 million allocated for SBA 7(a) securities purchases, and 
(iii) $570 million was disbursed from the $780 million allocated for 
the CDCI. See U.S. Department of the Treasury, Troubled Asset Relief 
Program Monthly 105(a) Report--July 2010, at 4-6 (Aug. 10, 2010) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/105/Documents105/July%202010%20105(a)%20Report_Final.pdf). 
As of the expiration of Treasury's authority to make new financial 
commitments under the TARP on October 3, 2010, its Consumer and 
Business Lending Initiative commitment stood at approximately $5.2 
billion. See U.S. Department of the Treasury, Troubled Asset 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)%20report_FINAL_v4.pdf) 
(hereinafter ``TARP Monthly 105(a) Report--December 2010'').
---------------------------------------------------------------------------
            a. SBA Programs
    In stable credit markets, the government's effort to 
facilitate small business lending relies chiefly on programs 
run by the SBA. The SBA acts as direct lender or, more often, 
guarantor in the small business lending sector. Guarantees, 
which comprise the bulk of the SBA's outstanding loan 
portfolio, derive from the agency's 7(a) and 504 loan programs 
and its Small Business Investment Company Program. Under its 
7(a) program, the SBA is authorized to guarantee loans for 
working capital. Under its 504 program, the SBA is authorized 
to guarantee loans for the development of small assets such as 
land, buildings, and equipment that will benefit local 
communities. Direct loans originate from the SBA's microloan 
and disaster loan programs. While SBA programs have helped 
promote lending to small businesses, SBA-guaranteed loans 
constitute only a small percentage of total small business 
lending.\242\
---------------------------------------------------------------------------
    \242\ 2010 May Oversight Report, supra note 110, at 42.
---------------------------------------------------------------------------
    During the financial crisis, however, SBA lending declined 
considerably, even though those loans can be a fallback for 
business owners who fail to obtain conventional loans. The 
tightening of credit in the SBA lending markets mirrored the 
tightening of credit in conventional markets for small business 
loans, with loan volume decreasing over the course of 2008. In 
the fall of 2008, the secondary market for SBA 7(a) loans froze 
altogether. Unable to shed the associated risk from their books 
and free up capital to make new loans through securitization, 
commercial lenders significantly curtailed both their SBA 
lending and other lending activities. The decline in SBA 
lending became even more pronounced in the early months of 2009 
while commercial lending remained very constricted, thus 
leading to few sources of credit for small businesses.\243\
---------------------------------------------------------------------------
    \243\ 2009 May Oversight Report, supra note 227, at 14, 30-42.
---------------------------------------------------------------------------
    In an effort to increase SBA lending, the American Recovery 
and Reinvestment Act (ARRA) included a provision that reduced 
the risk to private lenders by temporarily increasing the 
government guarantee on loans issued through the SBA's 7(a) 
loan program to as much as 90 percent.\244\ The SBA began 
implementing the increased guarantee program in March 
2009.\245\
---------------------------------------------------------------------------
    \244\ 2010 May Oversight Report, supra note 110, at 45.
    \245\ Moreover, ARRA temporarily eliminated up-front fees that the 
SBA charges on 7(a) loans that increase the cost of credit for small 
businesses, and temporarily eliminated certain processing fees 
typically charged on 504 loans. ARRA also included a Business 
Stabilization Program that allowed the SBA to guarantee fully loans to 
``viable'' small businesses experiencing short-term financial 
difficulty (up to $35,000).
    Pursuant to H.R. 5297, the Small Business Jobs Act of 2010, the SBA 
loan guarantee enhancement provisions relating to guarantees and fees 
were extended through December 31, 2010.
---------------------------------------------------------------------------
            b. Capital Infusions
            i. CDCI
    On October 21, 2009, the White House announced a small 
business lending initiative under the TARP, the CDCI, to invest 
lower cost capital in community development financial 
institutions (CDFIs). As of the CDCI's close in September 2010, 
Treasury had provided to 84 community development financial 
institutions approximately $570.1 million (approximately $363.3 
million of this amount was a result of exchanges from CPP by 28 
institutions) of the $780.2 million it originally allocated for 
this program.\246\ Treasury did not require community 
development financial institutions to use the capital to 
increase small business lending as a condition of participating 
in CDCI.
---------------------------------------------------------------------------
    \246\ U.S. Department of the Treasury, Troubled Asset Relief 
Program: Two Year Retrospective, at 33 (Oct. 5, 2010) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
agency_reports/Documents/
TARP%20Two%20Year%20Retrospective_10%2005%2010_ 
transmittal%20letter.pdf) (hereinafter ``TARP: Two Year 
Retrospective'').
---------------------------------------------------------------------------
            ii. SBLF
    On September 27, 2010, President Barack Obama signed the 
Small Business Jobs and Credit Act of 2010 into law.\247\ This 
legislation created the SBLF, which was created outside the 
TARP and aims to stimulate small business lending by providing 
capital to participating community banks at interest rates 
keyed to small business lending levels.\248\ The capital is in 
the form of a preferred stock investment with a variable 
dividend rate: it starts at 5 percent and can be reduced to as 
low as 1 percent or increased to as high as 7 percent, 
depending on small business lending levels. As small business 
lending increases, a bank will receive a reduced dividend rate 
on the funds borrowed. If small business lending fails to 
increase, the bank will pay increased dividend rates on the 
funds borrowed. After four and a half years, the dividend rate 
will increase to 9 percent regardless of the change in small 
business lending levels. The SBLF will be open to banks that 
received funds from the TARP's CPP as well as those that did 
not. The legislation limits participation in the SBLF to banks 
with under $10 billion in assets, and it prohibits 
participation by institutions on the FDIC's Problem Bank List 
and by TARP recipients that have missed more than one dividend 
payment.\249\ Generally speaking, the SBLF will provide capital 
on terms that are more favorable than the CPP offered.
---------------------------------------------------------------------------
    \247\ Small Business Jobs and Credit Act of 2010, Pub. L. No. 111-
240 (2010).
    \248\ For further discussion concerning the SBLF, see Section III, 
infra. On December 20, 2010, Treasury issued guidance under which CDCI 
recipients can refinance into the SBLF. Banks that participate in the 
SBLF will not be able to continue to participate in the CDCI, must be 
in compliance with all the terms, conditions, and covenants of the CDCI 
in order to refinance, and must be current in their dividend payments 
owed to Treasury under the CDCI. U.S. Department of the Treasury, 
Resource Center--Small Business Lending Fund (Dec. 20, 2010) (online at 
www.treasury.gov/resource-center/sb-programs/Pages/Small-Business-
Lending-Fund.aspx) (hereinafter ``Treasury Resource Center--SBLF'').
    \249\ H.R. 5297 Sec. 4103(d)(4), 111th Cong. (2010); H.R. 5297 
Sec. 4103(d)(7)(B), 111th Cong. (2010). Banks may be put on the Problem 
Bank List for a number of reasons, including failure to achieve certain 
capital ratios, the issuance of cease and desist orders, and other 
regulatory actions.
---------------------------------------------------------------------------
            c. Supporting Secondary Markets
    Starting in November 2008, Treasury and the FRB emphasized 
revival of the securitization markets, not simply basic bank 
lending, to restore the flow of credit to small businesses and 
families. The government developed numerous initiatives for 
supporting secondary lending markets. Secondary markets allow 
depository institutions either to sell or securitize loans, 
converting potentially illiquid assets into cash and shifting 
assets off their balance sheets. From the outset, however, this 
approach raised a variety of issues, including whether the 
program would meaningfully affect access to credit for small 
businesses because only a small fraction of small business 
loans are securitized, limiting the effectiveness of secondary 
market-driven programs for small business loans.\250\
---------------------------------------------------------------------------
    \250\ Generally, only SBA-guaranteed loans are securitized, and 
they constitute only a small fraction of small business lending. 2010 
May Oversight Report, supra note 110, at 42; 2009 May Oversight Report, 
supra note 227, at 50-58.
---------------------------------------------------------------------------
            i. TALF
    Driven by the ABS market freeze in the fall of 2008, the 
Federal Reserve and Treasury announced the creation of the TALF 
in late November 2008. The TALF was designed to promote renewed 
issuance of consumer and business ABS at more normal interest 
rate spreads. As demonstrated in Figure 13 below, the majority 
of TALF ABS issuances were consumer lending-related, but only a 
small percentage of transactions occurred in the small business 
sector. When the TALF program was closed on June 30, 2010, 
there were $43 billion in loans outstanding. Accordingly, on 
July 20, 2010, Treasury reduced the credit protection provided 
for the TALF from $20 billion to $4.3 billion, constituting 10 
percent of the total outstanding TALF loans.\251\
---------------------------------------------------------------------------
    \251\ Federal Reserve Bank of New York, Term Asset-Backed 
Securities Loan Facility: Terms and Conditions (July 21, 2010) (online 
at www.newyorkfed.org/markets/talf_terms.html); Board of Governors of 
the Federal Reserve System, Press Release (July 20, 2010) (online at 
www.federalreserve.gov/newsevents/press/monetary/20100720a.htm).
---------------------------------------------------------------------------

             FIGURE 13: TALF ABS ISSUANCES BY SECTOR \252\

      
---------------------------------------------------------------------------
    \252\ The TALF provided investors with non-recourse loans secured 
by certain types of ABS, including credit card receivables, auto loans, 
equipment loans, student loans, floor plan loans, insurance-premium 
finance loans, loans guaranteed by the SBA, residential mortgage 
servicing advances, and commercial mortgage-backed securities (CMBS). 
The chart reflects all TALF ABS issuances, but does not reflect CMBS 
issuances.
[GRAPHIC] [TIFF OMITTED] T4832A.011

            ii. SBA 7(a) and 504 Securities Purchase Programs
    In addition to the TALF, Treasury created a program to make 
direct purchases of securities backed by the government-
guaranteed portion of SBA 7(a) loans and the non-government-
guaranteed first lien mortgage loans affiliated with the SBA's 
504 loan program in hopes of unlocking the small business loan 
market. Treasury announced its SBA 7(a) initiative in March 
2009 to help restart small business credit markets and provide 
an additional source of liquidity designed to foster new 
lending. Despite stating that 7(a) and 504 purchases would 
begin by May 2009, Treasury did not implement the program until 
March 19, 2010.\253\ Treasury initially allocated $15 billion 
in TARP funds for the purchases, but this was revised to just 
$1 billion, and was again reduced to $400 million.\254\ As of 
the program's close in September 2010, Treasury had made 31 
purchases of SBA 7(a) securities totaling about $357 
million.\255\ Treasury never purchased any 504 securities 
through this initiative.
---------------------------------------------------------------------------
    \253\ 2010 May Oversight Report, supra note 110, at 41.
    \254\ 2010 September Oversight Report, supra note 53, at 53-54.
    \255\ TARP: Two Year Retrospective, supra note 246, at 43.
    Securities purchased by Treasury comprised approximately 700 loans 
ranging across approximately 17 industries including retail, food 
services, manufacturing, scientific and technical services, health 
care, and educational services. The program supported loans from 39 of 
the 50 states.
---------------------------------------------------------------------------
            d. Other Government Programs
    Some programs, like the PPIP, discussed above in Section 
II.A.1.b, were initially expected to help stimulate small 
business and consumer lending but ultimately did not. The PPIP 
was designed to allow banks and other financial institutions to 
shore up their capital by removing troubled assets from their 
balance sheets. Since the PPIP did not ultimately purchase the 
whole loans that many smaller banks hold on their books, it had 
little effect on the banks responsible for a disproportionate 
amount of small business lending. Many state and local entities 
also have programs to support small business lending within 
their geographic boundaries. These programs generally mirror, 
on a smaller scale, tools employed by SBA, including both 
direct lending and loan guarantees.\256\
---------------------------------------------------------------------------
    \256\ 2010 May Oversight Report, supra note 110, at 46-47, Annex 
II.
---------------------------------------------------------------------------

                 B. Summary of COP Reports and Findings

    In May 2009, the Panel addressed small business lending and 
evaluated the impact of FRBNY's and Treasury's TALF. The report 
examined the design of the TALF, which was intended to restart 
securitization markets, and questioned whether any 
securitization program could help meet the credit needs of 
small businesses. The report also examined other sources of 
small business credit, including credit cards and informal 
credit sources, such as angel investors, family, and friends. 
The report noted Treasury's assertion that restoring access to 
credit has multiplier effects throughout the economy and 
examined the difficulties that small businesses were having in 
obtaining credit of any kind.
    The Panel's examination of small business credit at the 
beginning of 2009 showed credit terms tightening and loan 
volume dropping, based on the limited data available. Small 
businesses found themselves in a contradictory position: they 
needed credit to operate, but the drop in demand for their 
products or services as a result of the country's economic 
difficulties likely made lenders unwilling to give them that 
credit except on terms that small businesses could not accept. 
While noting that the TALF, if successful, could improve access 
to lending for families and small businesses, the Panel found 
that there was reason for caution in predicting the ultimate 
impact of the TALF, though the program could succeed in 
improving investor demand for ABS.
    In May 2010, the Panel re-examined the contraction in small 
business lending and noted that although Treasury had launched 
several programs aimed, in whole or in part, at improving small 
business credit availability, it was not clear that they had 
had any significant impact on small business lending, which 
remained severely constricted. Numerous factors--bank strength 
or weakness, number of creditworthy borrowers, soft demand for 
goods and services, and deleveraging, among other things--can 
all cause low lending levels, and the relative importance of 
these factors in the overall mix can shift over time. As demand 
and supply shift and interact, low lending levels can be 
difficult to analyze.\257\ For example, at the Panel's April 
2010 field hearing in Phoenix, Arizona, Candace Wiest, 
President and CEO of the West Valley National Bank, noted that 
``we want to loan'' \258\ but ``it is difficult to find anyone 
who has not been impacted [by the recession] and remains 
creditworthy.'' \259\ FDIC San Francisco Regional Director Stan 
Ivie noted, however, that ``many banks have financial 
difficulties right now with their credit quality and they need 
to reserve their capital for losses and future losses which 
results in less capital and liquidity to lend . . . to 
borrowers.'' \260\ In focusing on measures to increase the 
supply of small business loans, the Panel's report noted that 
Treasury's actions may ultimately be ineffective if the demand 
for small business loans fails to keep pace. While government 
intervention in the form of capital infusions, for example, 
might foster additional lending if the recipient institutions 
are facing depleted capital, a bank might not necessarily use 
an unrestricted capital infusion to increase leverage if low 
lending volume is in fact the result of constrictions in 
demand.
---------------------------------------------------------------------------
    \257\ 2010 May Oversight Report, supra note 110, at 47-57.
    \258\ Wiest Testimony to the Panel, supra note 153.
    \259\ Congressional Oversight Panel, Written Testimony of Candace 
Wiest, president and chief executive officer, West Valley National 
Bank, Phoenix Field Hearing on Small Business Lending, at 61-62 (Apr. 
27, 2010) (online at cop.senate.gov/documents/transcript-042710-
phoenix.pdf).
    \260\ Congressional Oversight Panel, Testimony of Stan Ivie, San 
Francisco regional director, Federal Deposit Insurance Corporation, 
Transcript: Phoenix Field Hearing on Small Business Lending (Apr. 27, 
2010) (online at cop.senate.gov/documents/transcript-042710-
phoenix.pdf).
---------------------------------------------------------------------------
    The Panel also evaluated the proposed SBLF,\261\ which the 
Administration sent to Congress shortly before publication of 
the Panel's May report. The Panel found that even if enacted by 
Congress the prospects of the SBLF in its draft form were far 
from certain. Not only would the program require legislative 
approval (and even if Congress had acted immediately, the 
program would not be fully operational for some time), but the 
Panel also noted the possibility that banks could shun the 
program for fear of being stigmatized by its association with 
the TARP, or avoid taking on SBLF liabilities in such troubled 
economic times.
---------------------------------------------------------------------------
    \261\ On May 7, 2010, the Administration provided Congress with 
revised proposed legislation for the SBLF program, and the discussion 
of the SBLF in the Panel's May 2010 oversight report was based upon 
that proposal. This revised proposed legislation modified the 
Administration's original proposal in some respects, and is different 
from the version that ultimately was passed by both houses of Congress 
and signed into law by President Obama in September 2010. For further 
discussion of the final SBLF legislation, see Section III.A.3.b.ii, 
supra.
---------------------------------------------------------------------------

                  C. Panel Recommendations and Updates


1. Current State of Commercial and Industrial Lending

    After declining or stagnating consistently through 2008 and 
2009, commercial and industrial (C&I) lending at domestic 
commercial banks began to increase slightly towards the end of 
2010.\262\ As of February 23, 2011, there were approximately 
$620 billion in outstanding C&I loans at large banks, while 
small banks had $374 billion in outstanding C&I loans.\263\ 
Figure 14 below illustrates the level of outstanding C&I loans 
from 2000 to 2011.
---------------------------------------------------------------------------
    \262\ Board of Governors of the Federal Reserve System, Monetary 
Policy Report to Congress, at 12 (Mar. 1, 2011) (online at 
www.federalreserve.gov/monetarypolicy/files/
20110301_mprfullreport.pdf).
    \263\ Board of Governors of the Federal Reserve System, H.8 Assets 
and Liabilities of Commercial Banks in the United States: Data Download 
Program (Instruments: Large Domestically Chartered Banks, Small 
Domestically Chartered Banks; Frequency: Weekly; Seasonally-Adjusted) 
(online at www.federalreserve.gov/datadownload/Choose.aspx?rel=H.8) 
(accessed Mar. 10, 2011) (hereinafter ``Federal Reserve H.8''). Large 
banks are defined as the top 25 domestically chartered commercial 
banks. As of December 2009, these banks had more than $65 billion in 
total assets. Board of Governors of the Federal Reserve System, Assets 
and Liabilities of Commercial Banks in the United States--H.8: About 
the Release (Apr. 9, 2010) (online at www.federalreserve.gov/releases/
h8/about.htm) (hereinafter ``Federal Reserve H.8: About the Release'').
---------------------------------------------------------------------------

  FIGURE 14: COMMERCIAL AND INDUSTRIAL LOANS OUTSTANDING AT DOMESTIC 
                   COMMERCIAL BANKS (2000-2011) \264\

      
---------------------------------------------------------------------------
    \264\ Federal Reserve H.8, supra note 263. Large banks are defined 
as the top 25 domestically chartered commercial banks. As of December 
2009, these banks had more than $65 billion in total assets. Federal 
Reserve H.8: About the Release, supra note 263.
[GRAPHIC] [TIFF OMITTED] T4832A.012

    Despite the slight increase in loans, data from the January 
2011 Senior Loan Officer Opinion Survey offered mixed responses 
from banks regarding the state of C&I lending over the fourth 
quarter in 2010. More large banks were reporting easing 
standards for both large/middle-market and small firms, while 
responses from small banks show that loan standards remained 
largely unchanged for all firms. Respondents cited increased 
competition from other banks and nonbank lenders, as well as 
``a more favorable or less uncertain'' economic horizon, as 
reasons for easing lending standards. With regard to loan 
demand, the net percentage of large banks reporting stronger 
demand for C&I loans from large/middle-market firms was 53 
percent. However, a lesser percentage indicated stronger demand 
from small firms. Small banks, on the other hand, reported 
weaker overall demand for C&I loans.\265\
---------------------------------------------------------------------------
    \265\ The Senior Loan Officer Opinion Survey on Bank Lending 
Practices reviews changes in lending terms and standards, as well as 
demand for loans to businesses and households at approximately 60 
domestic banks and 22 U.S. branches and agencies of foreign banks. The 
survey defines large and middle-market firms as firms with more than 
$50 million in annual sales. Also, large banks are defined as banks 
with at least $20 billion in total assets as of October 31, 2010. 
January 2011 Senior Loan Officer Survey, supra note 232, at 3-5. For 
measures of C&I loan standards and demand, see id. at 12-13, 24.
---------------------------------------------------------------------------

2. Consideration of Alternatives

    In its May 2009 Oversight Report, the Panel recommended 
that if Treasury's efforts to revive securitization failed to 
expand small business access to credit, then the administration 
should consider: (1) reviving SBA direct loans without going 
through bank intermediaries; and/or (2) devoting more funds 
directly to business lending rather than securitization, given 
that secondary markets may have limited impact on the financing 
of small and medium-sized firms.\266\ Treasury's new programs, 
the CDCI and the SBLF, however, while not dependent on the SBA 
or securitization, still focused on bank intermediaries and 
capital infusions. The Panel also recommended that Treasury and 
relevant federal regulators establish a rigorous data 
collection system or survey that examines small business 
finance that would include demand- and supply-side data along 
with data from banks of different sizes (both TARP recipients 
and non-TARP recipients). The Panel also recommended that 
Treasury require reporting obligations as part of any future 
capital infusion program, some of which were addressed through 
the SBLF.
---------------------------------------------------------------------------
    \266\ 2009 May Oversight Report, supra note 227, at 58.
---------------------------------------------------------------------------

3. Small Business Lending Fund

    In its May 2010 report, the Panel evaluated a proposed 
draft of the SBLF and made multiple recommendations about 
aspects of the program, many of which appear to have informed 
the final legislation. The Panel recommended that Treasury 
consider mandating minimum standards for underwriting SBLF 
loans in order to ensure that the incentives embedded in any 
program do not spur imprudent lending; and evaluate whether the 
SBLF could be implemented quickly enough to make any difference 
at all in small business lending. The SBLF as enacted,\267\ 
several months after the Panel's May 2010 report, contains some 
key provisions relating to several of the Panel's 
recommendations. It mandates minimum standards for underwriting 
SBLF loans to ensure that the incentives embedded in any 
program do not spur imprudent lending.\268\ The SBLF as enacted 
also improved tracking and reporting over the draft reviewed by 
the Panel. It requires the Secretary of the Treasury to report 
to the appropriate congressional committees on key SBLF 
metrics, including the duty to provide a written report 
detailing how SBLF participants have used the funds they 
received within seven days after the end of each calendar 
quarter in which transactions are made under the SBLF.\269\ 
Similarly, as part of their application form, prospective SBLF 
participants must submit a ``small business lending plan'' of 
approximately two pages to their primary federal regulator and 
to their state regulator, if applicable.\270\
---------------------------------------------------------------------------
    \267\ See the Small Business Jobs and Credit Act of 2010, Pub. L. 
No. 111-240 (2010). President Obama signed the law on September 27, 
2010. Although the SBLF evolved from a 2009 administration proposal to 
use $30 billion in TARP funds to spur small business lending, the 
latest incarnation of the SBLF is separate from the TARP.
    \268\ H.R. 5297 Sec. 4103(d)(10), 111th Cong. (2010).
    \269\ H.R. 5297 Sec. 4103(3), 111th Cong. (2010).
    \270\ The ``small business lending plan'' must detail how the 
institution would use the SBLF funds to increase small business lending 
in their community, their expected increase in small business lending 
after receipt of SBLF funds, and proposed outreach efforts to inform 
community members about how to apply for small business loans. Treasury 
Resource Center--SBLF, supra note 248.
---------------------------------------------------------------------------
    The terms for the SBLF have been made available, and the 
application deadline is March 31, 2011. As of March 8, 2011, 
Treasury had received 336 applications.\271\
---------------------------------------------------------------------------
    \271\ Data provided by Treasury (Mar. 9, 2011).
---------------------------------------------------------------------------

                           D. Lessons Learned

    Several important lessons can be identified through the 
Panel's examinations of Treasury's efforts to support small 
business and consumer lending.
    First, FRB and Treasury's emphasis on the securitization 
markets as an avenue to restore small business and consumer 
credit and creation of the TALF to regenerate investor interest 
in those markets illustrate the complexities and difficulties 
of making predominant use of any single approach to reviving 
credit for small businesses and families.\272\ While the 
revival of the securitization markets, which are an important 
part of the nation's financial sector, can be a part of any 
effective strategy for restarting the credit markets, this 
cannot be the primary means to stimulate credit for small 
business lending because of the relatively small number of 
small business loans that are securitized. Therefore, it is 
also critical to consider bank lending without regard to 
securitization. Ultimately, keeping the credit markets open in 
a fair--and economically healthy--manner to small businesses 
requires a mix of policies that reflect the realities that 
borrowers face.\273\
---------------------------------------------------------------------------
    \272\ 2009 May Oversight Report, supra note 227, at 62-63.
    \273\ 2009 May Oversight Report, supra note 227, at 62-63.
---------------------------------------------------------------------------
    Second, while it is easier and arguably more efficient for 
Treasury and other government actors to use regulated entities 
like banks as conduits to small businesses since small 
businesses are so heterogeneous, this does not come without 
cost. Not only are the intermediary's incentives and challenges 
not identical to the government's in this approach, but also 
the form of the government's involvement depends entirely upon 
the assets the intermediary holds. For example, the government 
can use an intermediary to help provide guarantees and 
secondary market support only if that intermediary holds assets 
that can be securitized or guaranteed.\274\
---------------------------------------------------------------------------
    \274\ 2010 May Oversight Report, supra note 110, at 81-82.
---------------------------------------------------------------------------
    Third, when adopting any particular small business and 
consumer lending program, the government should consider 
whether approaches that are less dependent on healthy bank 
balance sheets (i.e., state-level consortia and programs in 
which banks take first losses and first profits with a public 
backstop), might more likely effectuate Treasury's stated 
objectives.\275\
---------------------------------------------------------------------------
    \275\ 2010 May Oversight Report, supra note 110, at 82-83.
---------------------------------------------------------------------------
    Finally, the lack of aggregated, timely, and consistent 
data collection regarding small business lending undermines the 
development of sound policy and fails to reflect the importance 
of small business to the economy. One problem in trying to 
analyze small business lending, or in identifying and designing 
programs for spurring small business lending, arises from the 
heterogeneity of small businesses (which makes it difficult to 
determine what, precisely, constitutes a small business). 
``Small business'' has been variously defined by Congress and 
several agencies, including the SBA, the Federal Reserve, and 
others.\276\ The myriad definitions not only complicate any 
discussion of small business but also make it difficult to 
compare data and results across studies and surveys in a field 
in which, as an added complication, data are notoriously hard 
to obtain. The wide variety among small businesses also makes 
it difficult to collect data, target individual trends, and 
effectively stimulate small business lending. Furthermore, in 
the absence of a rigorous data collection system or survey that 
examines small business finance and includes timely and 
consistent data, the federal government's efforts to develop 
sound policies to address small business lending will remain 
significantly hampered.
---------------------------------------------------------------------------
    \276\ These definitions depend on sector, assets, number of 
employees, and revenue. 2010 May Oversight Report, supra note 110, at 
8-9.
---------------------------------------------------------------------------

                       IV. Foreclosure Mitigation

    Given the importance of foreclosure mitigation to families 
and communities and the impact of foreclosures on bank balance 
sheets and financial stability, the Panel has devoted more 
attention to this topic than any other single area under the 
TARP. The Panel issued its first foreclosure mitigation report 
in March 2009, coinciding with the announcement of Treasury's 
Making Home Affordable initiative, and released three update 
reports, approximately every six months after the initial 
program announcement and report. The Panel produced a fifth 
foreclosure mitigation report in November 2010, focusing 
specifically on the foreclosure irregularities that had come to 
light. The body of foreclosure mitigation work was shaped by 
information obtained at field hearings held in Clark County, 
Nevada, Prince George's County, Maryland, and Philadelphia, as 
well as a hearing in Washington, DC.

                             A. Background

    As the housing boom peaked and began its long downward 
slide in 2006, millions of families began entering foreclosure, 
with serious implications for the housing markets and broader 
financial stability. Policymakers appeared to take for granted 
that the housing market would not require government 
intervention. Theoretically, loan modifications should be in 
the self-interest of lenders, since they are typically less 
costly than foreclosure, and should therefore need no 
inducement. But lenders did not engage in the anticipated 
number of modifications due to a number of factors that the 
Panel has examined in its reports. In particular, incentives 
built into the mortgage servicing system often make foreclosure 
more attractive than modification.\277\
---------------------------------------------------------------------------
    \277\ The Panel has looked at the disincentives for servicers to 
employ HAMP modifications in several reports. See, e.g., Congressional 
Oversight Panel, April Oversight Report: Evaluating Progress on TARP 
Foreclosure Mitigation Programs, at 70-76 (Apr. 14, 2010) (online at 
cop.senate.gov/documents/cop-041410-report.pdf) (hereinafter ``2010 
April Oversight Report''). Some of the more notable of these include: 
misalignment of servicer and investor interests, including lack of 
servicer funds at risk and servicing fees that are not tied to 
investment performance; impediments to loan modification in pooling and 
servicing agreements that, even if they can be overcome, create 
additional cost and complication for servicers; lack of investor 
supervision of servicers to encourage financially beneficial 
modifications; and the possible negative assessment of modifications by 
credit rating agencies.
---------------------------------------------------------------------------
    As millions of borrowers continued moving into foreclosure, 
the federal government made several attempts to address the 
foreclosure problem, generally with minimal impact. In the wake 
of the financial crisis of late 2008, and incorporating lessons 
from these unsuccessful foreclosure mitigation efforts, 
Treasury developed the Home Affordable Modification Program 
(HAMP) to fulfill the foreclosure prevention mandate in TARP's 
authorizing legislation, EESA.\278\ At the time, policymakers 
were concerned about both the social and economic effects of 
mass foreclosures and the systemic risk to the banking system 
caused by non-performing mortgages.
---------------------------------------------------------------------------
    \278\ See Emergency Economic Stabilization Act of 2008 (EESA), Pub. 
L. No. 110-343, at Sec. 109 (2008) (online at thomas.loc.gov/cgi-bin/
query/z?c110:H.R.1424.enr:).
---------------------------------------------------------------------------
    Prior to the introduction of HAMP in March 2009, there were 
several federal foreclosure mitigation initiatives, but they 
met with little success. One of the earliest of these 
initiatives was endorsement of the HOPE NOW Alliance, a 
voluntary coalition of mortgage companies and industry 
organizations designed to centralize and coordinate private 
foreclosure mitigation efforts. Although both Treasury and the 
Department of Housing and Urban Development were consulted and 
strongly promoted the effort, the federal government is not an 
official sponsor.\279\ HOPE NOW reports that it has modified 
over 3 million loans to date,\280\ but little information is 
available about the monthly savings those modifications provide 
to homeowners.
---------------------------------------------------------------------------
    \279\ See U.S. Department of the Treasury, Statement by Secretary 
Henry M. Paulson, Jr. on Announcement of New Private Sector Alliance--
HOPE NOW (Oct. 10, 2007) (online at www.treasury.gov/press-center/
press- releases/Pages/hp599.aspx).
    \280\ HOPE NOW Alliance, HOPE NOW: Mortgage Servicers Completed 
1.76 million Loan Modifications for Homeowners in 2010 (Feb. 2, 2011) 
(online at www.hopenow.com/press_release/files/
HN%202010%20Full%20Data_FINAL.pdf).
---------------------------------------------------------------------------
    The outcome of several federal programs influenced the 
design of HAMP. The first official federal government 
foreclosure mitigation program was FHA Secure, announced in 
August 2007, which refinanced adjustable-rate mortgages into 
fixed-rate mortgages insured by the Federal Housing 
Administration (FHA). FHA Secure ended in late 2008. Although 
the program refinanced nearly half a million loans, only about 
4,000 of these were delinquent at the time of refinancing. The 
Panel has previously attributed FHA Secure's failure to its 
restrictive borrower criteria.\281\
---------------------------------------------------------------------------
    \281\ Congressional Oversight Panel, March Oversight Report: 
Foreclosure Crisis: Working Toward a Solution, at 35 (Mar. 6, 2009) 
(online at cop.senate.gov/documents/cop-030609-report.pdf) (hereinafter 
``2009 March Oversight Report'').
---------------------------------------------------------------------------
    HOPE for Homeowners was established by Congress in July 
2008 to permit the FHA to insure refinanced distressed 
mortgages. HOPE for Homeowners was initially expected to help 
400,000 homeowners, but it managed to refinance only a handful 
of loans. This was likely due to the program's poor initial 
design, lack of flexibility, and its reliance on voluntary 
principal write-downs, which lenders were very reluctant to 
make, a pattern also seen in HAMP.\282\
---------------------------------------------------------------------------
    \282\ See id. at 36.
---------------------------------------------------------------------------
    Also in July 2008, the FDIC took over IndyMac, one of the 
nation's largest subprime lenders. Soon afterward, the FDIC 
announced a loan modification program to assist the 65,000 
delinquent borrowers with loans in IndyMac's non-securitized 
portfolio. The FDIC instituted a number of similar efforts for 
loans owned by other, smaller failed banks, which have been 
moderately successful in mitigating foreclosures at those 
particular lenders.\283\
---------------------------------------------------------------------------
    \283\ For more discussion of the FDIC's IndyMac program, see 
Congressional Oversight Panel, December Oversight Report: A Review of 
Treasury's Foreclosure Prevention Programs, at 92 (Dec. 14, 2010) 
(online at cop.senate.gov/documents/cop-121410-report.pdf) (hereinafter 
``2010 December Oversight Report'').
---------------------------------------------------------------------------
    Figure 15 below shows a timeline of foreclosure mitigation 
efforts and the number of new foreclosure actions each month 
from January 2007 to the present. It is important to note that 
although foreclosure actions have declined in recent months, 
this likely is due to voluntary foreclosure suspensions put in 
place in the fall of 2010 in response to the documentation 
irregularities situation. At that time many of the government 
initiatives were still relatively new and would not reasonably 
be expected to cause a significant decline in the foreclosure 
rate.\284\
---------------------------------------------------------------------------
    \284\ For statistics on how many borrowers Treasury's programs have 
helped to date, see Figure 19 and footnote 336.
[GRAPHIC] [TIFF OMITTED] T4832A.013

                 B. Summary of COP Reports and Findings

    The Panel's first report on foreclosures was published in 
March 2009, roughly concurrent with the announcement of 
HAMP.\286\ The report, Foreclosure Crisis: Working Toward a 
Solution, described major impediments to mortgage 
modifications, including the presence of second liens and 
incentive problems for mortgage servicers caused by the 
securitization process. The report called for the collection 
and public dissemination of more nationwide mortgage 
performance data. And it established eight questions on which 
to evaluate a foreclosure mitigation program:\287\
---------------------------------------------------------------------------
    \286\ HAMP is designed to provide a path to modifying mortgages and 
provides subsidies to lenders, servicers, and homeowners to encourage 
such modifications. Once approved for assistance through HAMP, a 
borrower must successfully complete a trial period, typically three 
months, during which the borrower makes payments on the modified 
mortgage. A borrower who remains current through the trial period 
becomes eligible for a permanent modification, under which the terms of 
the trial modification remain in effect for a period of five years. 
After the five-year term is up, the interest rate on the loan can 
increase by a maximum of 1 percent per year until it reaches the 
prevailing Freddie Mac average interest rate at the time the HAMP 
modification was made.
    \287\ These criteria were considerably influenced by the testimony 
of foreclosure prevention experts and borrowers facing foreclosure in 
the Panel's field hearings on foreclosures in Clark County, Nevada, and 
Prince George's County, Maryland. See Congressional Oversight Panel, 
COP Field Hearing: Clark County, NV: Ground Zero of the Housing and 
Financial Crisis (Dec. 16, 2008) (online at cop.senate.gov/hearings/
library/hearing-121608-firsthearing.cfm); Congressional Oversight 
Panel, Coping with the Foreclosure Crisis: State and Local Efforts to 
Combat Foreclosures in Prince George's County, MD (Feb. 27, 2009) 
(online at cop.senate.gov/hearings/library/hearing-022709-housing.cfm).
---------------------------------------------------------------------------
      Will the plan result in modifications that create 
affordable monthly payments?
      Does the plan deal with negative equity?
      Does the plan address junior mortgages?
      Does the plan overcome obstacles in existing 
pooling and servicing agreements that may prevent 
modifications?
      Does the plan counteract mortgage servicer 
incentives not to engage in modifications?
      Does the plan provide adequate outreach to 
homeowners?
      Can the plan be scaled up quickly to deal with 
millions of mortgages?
      And finally, will the plan have widespread 
participation by lenders and servicers?
    The report did not specifically evaluate the 
administration's initial foreclosure-prevention plan, since 
Treasury announced it shortly before the Panel's report went to 
press, and it had not yet become operational.
    The Panel's October 2009 report, An Assessment of 
Foreclosure Mitigation Efforts After Six Months, provided a 
preliminary evaluation of HAMP, which at the time was still in 
its early stages. The report expressed concern that HAMP was 
not designed to deal with the evolving nature of the 
foreclosure crisis; in particular, the report raised questions 
about the ability of HAMP to prevent foreclosures caused by 
unemployment or negative equity. The report questioned whether 
HAMP would be able to attain the scale necessary to deal with 
the millions of foreclosures that were expected. Finally, the 
report questioned whether or not HAMP would merely forestall 
foreclosure for many homeowners, since only a small percentage 
of HAMP trial modifications had converted into five-year, so-
called permanent modifications, and also because even those 
that became permanent modifications carried the risk that the 
homeowner would redefault.
    The Panel again assessed HAMP in April 2010. The report 
applauded Treasury for beginning to address the problems that 
the Panel highlighted during the previous year and in 
particular for taking steps to address the ways in which 
unemployment, second liens, and negative equity may lead to 
foreclosure. Foreclosures continued at a rapid pace, however, 
and the report found that Treasury's response continued to lag 
well behind the pace of the crisis. The April 2010 report 
highlighted in particular the role of unemployment as a driver 
of delinquencies and foreclosures. However, the program as 
structured at that time did not meet the needs of the 
unemployed. First, many unemployed individuals were unable to 
qualify for HAMP because they could not pass the net present 
value test for program admittance. Second, borrowers who have 
lost their jobs and have no income are rarely able to pay their 
mortgages for long, even if they receive favorable concessions 
from their lender; therefore, a program premised on moderate, 
long term payment relief did not provide the deep, short term 
relief necessary to keep unemployed borrowers temporarily 
without income in their homes. Finally, the unemployed are also 
often forced to move to take advantage of better job 
opportunities. This can undermine many loan modifications 
designed to prevent foreclosure, since these modifications are 
generally based on an assumption that the borrower will stay in 
place for several years. The Panel stated the best foreclosure 
mitigation initiative would be a sound economy with low 
unemployment.\288\
---------------------------------------------------------------------------
    \288\ See 2010 April Oversight Report, supra note 277, at 18-20, 
134-139.
---------------------------------------------------------------------------
    The Panel articulated three major concerns with HAMP in the 
April 2010 report: (1) its failure to deal with the foreclosure 
crisis in a timely way; (2) the unsustainable nature of many 
HAMP modifications, given the large debt burdens and negative 
equity that many participating homeowners continued to carry; 
and (3) the need for greater accountability in HAMP, 
particularly with regard to the activities of participating 
servicers.
    Following the release of the Panel's April 2010 report, 
Treasury implemented certain previously announced changes to 
HAMP, but the Panel remained concerned that the choices made by 
Treasury in terms of program structure, transparency, and data 
collection did not leave borrowers well served. In a December 
2010 report, the Panel estimated that HAMP would prevent only 
700,000 to 800,000 foreclosures if it continues on its current 
trajectory--far fewer than the three to four million 
foreclosures that Treasury initially aimed to prevent, and 
vastly fewer than the eight to 13 million foreclosures expected 
by 2012. The Panel attributed many of the problems plaguing 
HAMP to the program's design, including its failure to address 
adequately the incentive structures for loan servicers and the 
obstacles to modifications created by second liens. Because 
Treasury's authority to restructure HAMP ended on October 3, 
2010, the Panel noted that HAMP's prospects were unlikely to 
improve substantially in the future.
    In the December 2010 report, the Panel again raised 
concerns that Treasury refused to specify meaningful goals by 
which to measure HAMP's progress. The program's sole initial 
goal--to prevent 3 to 4 million foreclosures--had been 
repeatedly redefined and watered down.\289\ When the stated 
objectives of a program are limited or not meaningful, the 
scope of oversight and analysis is narrowed. However, as of the 
publication of this report, with fewer than 1.5 million total 
trial modifications started and only about 540,000 permanent 
modifications in place, it is clear that Treasury is going to 
fall well short of its initial goal, no matter how that goal is 
defined.\290\
---------------------------------------------------------------------------
    \289\ See 2010 December Oversight Report, supra note 283, at 42-48. 
For an example of Treasury's articulation of HAMP goals and 
expectations in the early months of the program, see Congressional 
Oversight Panel, Transcript: Hearing with Herbert M. Allison, Jr., 
Assistant Secretary of the Treasury for Financial Stability, at 30-33 
(Oct. 22, 2009) (online at cop.senate. gov/
documents/transcript-102209-allison.pdf).
    \290\ U.S. Department of the Treasury, Making Home Affordable 
Program: Servicer Performance Through January 2011, at 2 (Jan. 31, 
2011) (online at www.treasury.gov/initiatives/financial
-stability/results/MHA-Reports/Documents/Jan_2011_MHA_Report_FINAL.PDF) 
(hereinafter ``MHA Program: Servicer Performance January 2011'').
---------------------------------------------------------------------------
    The Panel further noted in December 2010 that the problem 
of evaluating HAMP was exacerbated by Treasury's failure to 
collect and analyze data that would explain its shortcomings. 
Absent a dramatic and unexpected increase in HAMP enrollment, 
it appears that many billions of dollars set aside for 
foreclosure mitigation will be left unused. Yet Treasury 
continues to state that $30 billion in TARP funding will be 
expended under HAMP. Because Treasury's authority to 
restructure HAMP ended, the Panel noted in December 2010 that 
it was too late for Treasury to revamp its foreclosure 
prevention strategy, but that meaningful steps could be taken 
to wring every possible benefit from the program.
    The Panel also focused on possible conflicts of interest 
and their impact on servicer compliance in the December 2010 
report. Treasury has essentially outsourced the responsibility 
for overseeing servicers to Fannie Mae and Freddie Mac, but 
both companies have critical business relationships with the 
very same servicers, calling into question their willingness to 
conduct stringent oversight. Freddie Mac in particular has 
hesitated to enforce some of its contractual rights related to 
the foreclosure process, arguing that doing so ``may negatively 
impact our relationships with these seller/servicers, some of 
which are among our largest sources of mortgage loans.'' \291\
---------------------------------------------------------------------------
    \291\ 2010 December Oversight Report, supra note 283, at 5.
---------------------------------------------------------------------------
    A complex group of issues that came to light in the summer 
and fall of 2010 related to documentation ``irregularities'' in 
recent foreclosure actions added further to the factors 
impeding HAMP success and recovery of the housing market. These 
widely reported problems include improper mass ``robo-signing'' 
of mortgage documents by servicers, lost promissory notes and 
other documents that call into question the proper legal 
ownership of mortgage loans, and related securitization issues. 
The Panel's November 2010 report examined these issues and 
considered their implications for HAMP, the housing market, and 
the stability of the economy and the banking system. As of the 
date of publication, a group comprised of Treasury, bank 
regulators, and attorneys general of all 50 states and the 
District of Columbia are engaged in negotiations over 
resolution of the documentation irregularity situation with a 
group representing servicers and lenders.
    Although the ultimate implications of these irregularities 
remain unclear, it is possible that the irregularities may 
conceal deeper problems in the mortgage market that could 
potentially threaten financial stability and undermine 
foreclosure prevention efforts.\292\
---------------------------------------------------------------------------
    \292\ Congressional Oversight Panel, November Oversight Report: 
Examining the Consequences of Mortgage Irregularities for Financial 
Stability and Foreclosure Mitigation, at 83 (Nov. 16, 2010) (online at 
cop.senate.gov/documents/cop-111610-report.pdf) (hereinafter ``2010 
November Oversight Report'').
---------------------------------------------------------------------------
    The Panel observed that in the coming years, in the best-
case scenario, mortgage documentation irregularities may prove 
to be relatively rare paperwork errors that can be easily 
corrected, and have little impact on the housing and financial 
markets. However, the Panel also found that if future 
revelations show that documentation problems are pervasive, 
investors and others will have reason to doubt the legal 
ownership of pooled mortgages, which could have severe 
consequences. In this scenario, borrowers may be unable to 
determine whether they are sending their monthly payments to 
the right people. Judges may block any effort to foreclose, 
even in cases where borrowers have failed to make regular 
payments. Multiple banks may attempt to foreclose on the same 
property. Borrowers who suffered foreclosure may seek to regain 
title to their homes and force any new owners to move out. 
Would-be buyers and sellers could find themselves in limbo, 
uncertain about whether they can safely buy or sell a 
home.\293\
---------------------------------------------------------------------------
    \293\ Id. at 84.
---------------------------------------------------------------------------
    Should foreclosure irregularities cause such wide-scale 
disruptions in the housing market, financial institutions may 
suffer significant harm, and the stability of the financial 
system may be at risk. For example, if a bank were to discover 
that, due to shoddily executed paperwork, it still owns many 
defaulted mortgages that it thought it sold off years ago, it 
could face substantial unexpected losses. This could disrupt 
foreclosure prevention efforts such as HAMP. This situation has 
the potential to reduce public trust substantially in the 
entire real estate industry, especially in the legitimacy of 
important legal documents and the good faith of other market 
participants, particularly if foreclosure irregularities prove 
to be very common or to involve deliberate fraud.\294\
---------------------------------------------------------------------------
    \294\ Id. at 84.
---------------------------------------------------------------------------

              C. Panel Recommendations and Program Updates

    After examining various issues related to the foreclosure 
crisis and Treasury's response throughout the last two years, 
the Panel provided a series of specific recommendations 
designed to improve the modification process, the structure of 
Treasury's foreclosure programs, their transparency, and their 
accountability.\295\ Treasury's response to these 
recommendations has been mixed. Treasury followed some 
suggestions, ignored some, and partially or unsuccessfully 
followed others. Overall, Treasury's response thus far has been 
disappointing.
---------------------------------------------------------------------------
    \295\ SIGTARP released a report in January 2011 that echoed many of 
the Panel's recommendations for HAMP, particularly in the fields of 
transparency, servicer accountability, and goals. See Office of the 
Special Inspector General for the Troubled Asset Relief Program, 
Quarterly Report to Congress, at 10-13 (Jan. 26, 2011) (online at 
www.sigtarp.gov/reports/congress/2011/
January2011_Quarterly_Report_to_Congress.pdf).
---------------------------------------------------------------------------

1. Transparency

    In order to provide a source of comprehensive information 
about loan performance and foreclosure mitigation initiatives, 
the Panel concluded in its March 2009 report that Congress 
should create a national mortgage loan performance reporting 
requirement applicable to banking institutions and other 
mortgage servicers. In subsequent reports, the Panel repeatedly 
recommended that Treasury collect more loan-level data on 
borrowers facing foreclosure.\296\ In particular, the Panel 
stated that Treasury does not collect sufficient information to 
determine why loans are moving to foreclosure rather than 
workouts, nor does it monitor closely enough any loan 
modifications performed outside of HAMP.\297\ Since the Panel 
published those recommendations, federal banking regulators 
have not implemented a national mortgage loan performance 
reporting requirement. After being surveyed by the Panel, the 
OCC and OTS did create a quarterly report that contains a 
limited amount of aggregate information about mortgage 
performance across the country, but this information falls far 
short of the loan-level data that is needed.
---------------------------------------------------------------------------
    \296\ Treasury officials have predicted that upcoming ``dramatic'' 
changes in the servicing industry will lead to a comprehensive database 
of mortgages in foreclosure, but have provided no indication of when 
these changes will occur, or whether Treasury will take any specific 
actions on this front. Congressional Oversight Panel, Transcript: COP 
Hearing on TARP's Impact on Financial Stability (Mar. 4, 2011) 
(publication forthcoming) (online at cop.senate.gov/hearings/ library/
hearing-030411-final.cfm) (hereinafter ``COP Transcript: Hearing on 
TARP's Impact on Financial Stability'').
    \297\ 2010 December Oversight Report, supra note 283, at 107.
---------------------------------------------------------------------------
    In April 2010, the Panel recommended that Treasury commit 
to providing regular and publicly available data reports on all 
HAMP modifications through the end of their five-year 
modification period. In addition, the Panel called on Treasury 
to release more data collected by its program administrator, 
Fannie Mae, and its compliance agent, Freddie Mac, so that 
Congress, the TARP oversight bodies, and the public can better 
evaluate the effectiveness of HAMP.\298\ In late January 2011, 
Treasury for the first time released loan-level data on HAMP 
participants, fulfilling the Panel's recommendation. This 
information provides a great deal of raw data that could reveal 
insights that could then be used to improve HAMP. The data 
include information on the gross income of applicants, the loan 
balances of HAMP participants after they receive permanent 
modifications, the credit scores of HAMP participants, and the 
race and ethnicity of HAMP participants, as well as other 
information. However, the timing of the data release provides 
limited time for oversight bodies or academics to draw any 
conclusions from the data before HAMP expires at the end of 
2012.
---------------------------------------------------------------------------
    \298\ 2010 April Oversight Report, supra note 277, at 88.
---------------------------------------------------------------------------
    The Panel expressed concern about the impact of redefaults 
of HAMP permanent modifications on the program's ultimate 
success, and the related need for the collection of better data 
specifically on redefaults. At the Panel's October 2010 
hearing, Guy Cecala, publisher of Inside Mortgage Finance, 
emphasized the danger that redefaults pose to the housing 
market as a whole. ``Even a re-default rate at the lower end of 
estimates would put more than 600,000 additional distressed 
properties into the housing market at time when it is 
struggling to unload an already high inventory,'' Cecala 
stated.\299\ In order to understand which HAMP participants are 
most at risk of redefault and thereby improve the program's 
success rate, the Panel believes that Treasury should focus its 
data analysis on identifying borrower characteristics that 
positively correlate to a higher risk of redefault. To maximize 
the effectiveness of their data collection efforts, Treasury's 
metrics should be comprehensive, and the results should be 
disaggregated by lenders and servicers and made publicly 
available.\300\ Treasury has begun to release a limited amount 
of aggregate data on HAMP redefaults, but despite the Panel's 
urging, it has not made public any analysis that identifies 
borrower characteristics that positively correlate to a higher 
risk of redefault. Nor has Treasury made public data on 
redefaults that is disaggregated by servicer, or that shows 
redefault rates for more than 12 months after the permanent 
modification begins. Such information is crucial for evaluating 
the extent to which redefaults are undermining HAMP's 
performance.
---------------------------------------------------------------------------
    \299\ Congressional Oversight Panel, Written Testimony of Guy 
Cecala, chief executive officer and publisher, Inside Mortgage Finance 
Publications, Inc., COP Hearing on TARP Foreclosure Mitigation Programs 
(Oct. 27, 2010) (online at cop.senate.gov/documents/testimony-102710-
cecala.pdf).
    \300\ Congressional Oversight Panel, October Oversight Report: An 
Assessment of Foreclosure Mitigation Efforts After Six Months, at 112 
(Oct. 9, 2009) (online at cop.senate.gov/documents/cop-100909-
report.pdf) (hereinafter ``2009 October Oversight Report''); 2010 April 
Oversight Report, supra note 277, at 90.
---------------------------------------------------------------------------
    The Panel made a number of specific recommendations related 
to publicly available information. In October 2009, the Panel 
called on Treasury to provide borrowers and housing counselors 
with access to its net present value model.\301\ Contrary to 
the Panel's recommendations, Treasury has never made the net 
present value model fully or even substantially public. 
Treasury has provided borrowers and housing counselors with 
greater access to its net present value model, but the model 
remains less than fully transparent.
---------------------------------------------------------------------------
    \301\ 2009 October Oversight Report, supra note 300, at 47. HAMP 
relies on a net present value calculation performed by the loan 
servicer to determine whether or not a modification is warranted. This 
consists of a comparison of the net present value of an unmodified 
delinquent loan to the net present value of a modification of that same 
delinquent loan. If the net present value of the modified loan is 
greater than the net present value of the unmodified loan, then a 
modification is value maximizing for the investors in the loan. The 
Panel's October 2009 report examined Treasury's model and models used 
by similar programs. Id. at 45-47, 83, 106, 113-116, 129-131.
---------------------------------------------------------------------------
    In December 2010, the Panel urged Treasury to determine 
which sorts of modifications have proven to be most successful 
in practice. Treasury could then encourage servicers to make 
more of these types of modifications and fewer of the types of 
modifications that tend to end in redefault.\302\ Treasury has 
thus far shown no indication that it has studied or understands 
which types of loan modifications tend to be most effective and 
sustainable. Without this knowledge, it is impossible for 
Treasury to press servicers to favor more effective types of 
modifications over others.
---------------------------------------------------------------------------
    \302\ 2010 December Oversight Report, supra note 283, at 109-110.
---------------------------------------------------------------------------
    The Panel also called on Treasury to provide detailed 
public information related to its selection and use of Fannie 
Mae as a financial agent and HAMP administrator and Freddie Mac 
as compliance agent.\303\ Treasury has not provided this 
information. In January 2010, the Panel recommended that 
Treasury release a legal opinion on its HAMP authority.\304\ 
Although Treasury did provide a legal opinion on its HAMP 
authority to the Panel and allowed the Panel to quote from the 
document, it objected to the Panel making the entire document 
public.
---------------------------------------------------------------------------
    \303\ 2010 April Oversight Report, supra note 277, at 78.
    \304\ 2010 January Oversight Report, supra note 153, at 12.
---------------------------------------------------------------------------

2. Compliance

    Treasury has struggled to ensure that HAMP servicers comply 
with the program's rules. In describing the ineffectiveness of 
the current system, which provides few real ``sticks'' to 
punish noncompliance, Professor Katherine Porter, University of 
Iowa College of Law, testified before the Panel that, 
``servicers . . . have gorged themselves at a buffet of 
carrots, and they're still not doing what we want them to do.'' 
\305\ In October 2009, the Panel stressed that Treasury needed 
an appropriate monitoring mechanism to ensure that servicers 
were accurately reporting the reasons for denial or 
cancellation and that those who did not received meaningful 
sanctions for noncompliance.\306\ The Panel stated that these 
sanctions should include the use of Treasury's authority to 
withhold or claw back incentive payments.\307\ Following the 
Panel's recommendations, Treasury has not permanently withheld 
or clawed back any incentive payments as a result of 
noncompliance.
---------------------------------------------------------------------------
    \305\ Congressional Oversight Panel, Testimony of Katherine Porter, 
professor of law, University of Iowa College of Law, Transcript: COP 
Hearing on TARP Foreclosure Mitigation Programs (Oct. 27, 2010) 
(publication forthcoming) (online at cop.senate.gov/hearings/library/
hearing-102710-foreclosure.cfm).
    \306\ 2009 October Oversight Report, supra note 300, at 9, 96.
    \307\ 2010 December Oversight Report, supra note 283, at 109.
---------------------------------------------------------------------------
    In addition to meaningful monetary penalties for 
noncompliance, the Panel stated that foreclosures should be 
stayed until an independent analysis of the application or 
trial could be performed, with the servicer paying the cost of 
the evaluation.\308\ The Panel also stressed that information 
on eligibility and denials should be clearly and promptly 
communicated to borrowers, and that denial information should 
be reported to the public. The Panel reiterated these 
recommendations in April 2010 and again in December 2010, 
stressing that denials should be subject to a meaningful, 
independent appeals process managed by either the Office of 
Homeowner Advocate or an ombudsman. While Treasury made 
progress in ensuring that HAMP applicants receive clear and 
prompt notice on why they are being denied a modification, it 
has not stayed any foreclosures until an independent analysis 
of the application has been performed. Furthermore, Treasury 
has not implemented the Panel's recommendation that HAMP denial 
be made subject to a meaningful, independent appeals process. 
And while Treasury collects data on why modifications are being 
denied or cancelled, it still lacks a monitoring mechanism to 
ensure that those reasons are being reported accurately, and 
that servicers that make inaccurate reports face meaningful 
sanctions.
---------------------------------------------------------------------------
    \308\ 2010 April Oversight Report, supra note 277, at 53.
---------------------------------------------------------------------------

3. Goals

    The Panel repeatedly requested that Treasury announce 
firmer goals for HAMP. Specifically, the Panel recommended that 
Treasury produce a clear metric of how many foreclosures it 
expects HAMP to prevent, since foreclosures prevented is the 
only real measure of the program's success.\309\ To date, 
Treasury has not released any goals or estimates for how many 
foreclosures will be ultimately prevented by HAMP since its 
original goal of 3 to 4 million.\310\ Although Treasury has 
made some additional data on the program available to the 
public, and also asserts that HAMP has yielded indirect 
benefits by establishing industry-wide standards for mortgage 
modifications,\311\ the lack of clearly articulated goals still 
hampers evaluation of the program.
---------------------------------------------------------------------------
    \309\ 2010 December Oversight Report, supra note 283, at 106.
    \310\ 2010 December Oversight Report, supra note 283, at 106. See 
also Congressional Oversight Panel, Testimony of Timothy F. Geithner, 
secretary, U.S. Department of the Treasury, Transcript: COP Hearing 
with Treasury Secretary Timothy Geithner, at 55 (June 22, 2010) (online 
at cop.senate.gov/documents/transcript-062210-geithner.pdf) (``Well, 
again, what HAMP does and what HAMP is designed to do--it was not 
designed to prevent all foreclosures. It could not be designed to do 
that. . . . What HAMP is designed to try to do is to make sure that a 
set of people facing the risk of foreclosure have the chance of being 
able to afford the challenges of staying in their home.'').
    \311\ Congressional Oversight Panel, Written Testimony of Timothy 
G. Massad, acting assistant secretary for the Office of Financial 
Stability, U.S. Department of the Treasury, COP Hearing on the TARP's 
Impact on Financial Stability, at 8 (Mar. 4, 2011) (online at 
cop.senate.gov/documents/testimony-030411-massad.pdf) (hereinafter 
``COP Hearing on the TARP's Impact on Financial Stability'') 
(``Moreover, many more homeowners have been helped indirectly as a 
result of the standards that HAMP has catalyzed across mortgage 
modifications industry-wide.''). The Panel has encouraged Treasury to 
collect and release information on non-HAMP proprietary loan 
modifications. Treasury has stated that it has suggested to several 
servicers that they submit such information, but it has made no 
commitments to the Panel. COP Transcript: Hearing on TARP's Impact on 
Financial Stability, supra note 296.
---------------------------------------------------------------------------
    In addition, the Panel recommended that Treasury be clearer 
about exactly how much TARP money it intends to spend on 
HAMP.\312\ Treasury has not provided a realistic estimate of 
how much it expects to spend. Treasury continues to insist that 
it will use the entire $30 billion allocated to HAMP, a highly 
unlikely outcome considering the program's meager performance 
to date and the looming expiration of HAMP in December 2012, 
after which no new trial modifications can begin.\313\ More 
realistically, CBO estimated that Treasury will spend a total 
of $12 billion among Treasury's three foreclosure-prevention 
programs--HAMP, the Hardest Hit Fund, and the FHA Short 
Refinance Program. The Panel further estimated that as little 
as $4 billion may be spent on HAMP.
---------------------------------------------------------------------------
    \312\ 2010 April Oversight Report, supra note 277, at 5.
    \313\ As of February 25, 2011 Treasury has expended $1.038 billion 
under HAMP.
---------------------------------------------------------------------------

4. Streamlining

    The Panel repeatedly urged Treasury to improve and 
streamline communications with borrowers, and to make it easier 
for them to apply for HAMP assistance. For instance, the Panel 
recommended that Treasury establish an ombudsman and dedicated 
case staff to help borrowers cut through red tape and resolve 
servicer problems.\314\ Treasury did not implement this 
recommendation. The Panel also requested that Treasury 
standardize the paperwork that HAMP applicants must submit in 
order to document their income.\315\ The shift in June 2010 to 
requiring that servicers verify borrower income upfront for all 
trial modifications was an important step in this direction, 
but it would not be accurate to call the current system 
``standardized.''
---------------------------------------------------------------------------
    \314\ 2009 October Oversight Report, supra note 300, at 112.
    \315\ 2009 October Oversight Report, supra note 300, at 111.
---------------------------------------------------------------------------
    The Panel focused on the slow rollout of the HAMP borrower 
web portal, which allows borrowers to apply for modifications 
and to track their application status online. The Panel 
repeatedly encouraged Treasury to get the portal operational, 
ensure that it is user-friendly, and press servicers to use it 
as the primary point of entry for applications.\316\ The Panel 
also called on Treasury to enforce borrower outreach and 
communication standards and timelines.\317\ Although the 
servicer portion of the HOPE LoanPort web portal finally rolled 
out in November 2010, a development the Panel applauded, the 
``borrower portal'' portion, which would allow borrowers to 
interact directly with the LoanPort system by uploading 
documents and information without working through housing 
counselors, has not been implemented due to cost reasons. The 
Panel sees this as a significant problem.
---------------------------------------------------------------------------
    \316\ The web portal, officially the HOPE LoanPort, is operated by 
the HOPE Alliance, a consortium of private lenders and other mortgage 
industry firms. 2009 October Oversight Report, supra note 300, at 111; 
2010 April Oversight Report, supra note 277, at 96; 2010 December 
Oversight Report, supra note 283, at 78, 198.
    \317\ 2010 April Oversight Report, supra note 277, at 96.
---------------------------------------------------------------------------
    Overall, Treasury made some progress in making the program 
more accessible and understandable to borrowers, improving 
communications with HAMP participants, and streamlining the 
HAMP process. For example, Treasury instituted a campaign of 
televised public service announcements. Treasury implemented 
firmer timelines and standards for the servicers, although as 
discussed above, servicer compliance remains a major challenge. 
But there are several indications that Treasury has more work 
to do in this area: the low number of new trial modifications 
in recent months; the long average time that it takes for a 
trial modification to convert into a permanent modification; 
the still considerable, though much reduced number of trial 
modifications that remain in the conversion pipeline for many 
months; and anecdotal evidence that many borrowers remain 
confused and frustrated.

5. Program Structure

    Since the inception of HAMP, the Panel made numerous 
recommendations regarding the structure of the program, in 
order to address problems that became apparent during the 
program's implementation. Although Treasury made some modest 
progress in increasing participation and reducing the redefault 
rate, it adopted relatively few of the Panel's recommendations 
thus far.
    The Panel repeatedly called on Treasury to modify the 
program to address three areas of major concern: second lien 
mortgages, unemployed borrowers, and borrowers with negative 
equity. In response to criticisms by the Panel and other 
observers, Treasury developed several new HAMP-related programs 
intended to deal with these issues directly, which the Panel 
applauded. Unfortunately, as of the publication of this report, 
these efforts have not demonstrated a track record of success.
    The Panel addressed the problems caused by second-lien 
mortgages in each of its reports on HAMP. The Panel encouraged 
Treasury to investigate and find a solution to the obstacles 
that second liens often present to first-lien mortgage 
modifications.\318\ The Panel recommended that Treasury explore 
the implications of adding borrower-specific junior lien 
information directly into HAMP's net present value model, which 
is a key tool that servicers use to determine whether 
applicants are eligible for the program. The Panel also 
recommended that Treasury consider the effect these additional 
debts have on the number of borrowers served by HAMP and the 
impact they have on the sustainability of HAMP 
modifications.\319\
---------------------------------------------------------------------------
    \318\ 2009 March Oversight Report, supra note 281, at 38-39. See 
also 2010 April Oversight Report, supra note 277, at 16, 126; 2010 
December Oversight Report, supra note 283, at 109.
    \319\ 2010 April Oversight Report, supra note 277, at 16; 2010 
December Oversight Report, supra note 283, at 109.
---------------------------------------------------------------------------
    On April 28, 2009, Treasury announced the Second Lien 
Modification Program to address the problem of second liens. 
The program went into effect on August 14, 2009. Borrowers are 
eligible after their corresponding first liens have been 
modified under HAMP. Although servicer participation is 
voluntary, once they sign a participation agreement, servicers 
must modify or extinguish the second liens of all eligible 
borrowers. Servicers, borrowers, and second-lien investors all 
receive incentive payments for their participation. Although 
the second lien modification program is a welcome development, 
the program has so far seen relatively little use.
    The Panel repeatedly urged Treasury to find a way to 
provide assistance to unemployed borrowers, and Treasury 
attempted to do so by instituting several new programs. The 
Panel commends Treasury for creating the Home Affordable 
Unemployment Program. This program, announced on March 26, 
2010, and effective July 1, 2010, assists unemployed homeowners 
by granting temporary forbearance of a portion of their monthly 
mortgage payments. During the forbearance period, which lasts a 
minimum of three months, unless the homeowner finds a job, 
payments fall to no more than 31 percent of the borrower's 
gross monthly income, including unemployment benefits. Once 
borrowers are in the program, the forbearance ends when they 
find work.
    Another Treasury program designed in part to deal with the 
problem of unemployed homeowners is the Hardest Hit Fund. This 
program, announced on February 19, 2010, provides TARP money to 
state-run foreclosure mitigation programs in specific states 
hit hardest by home value decreases and unemployment. Eighteen 
states and the District of Columbia are eligible for funding. 
Before receiving the funds, eligible states must submit and 
receive approval for their plans to use the money. Many of the 
proposed Hardest Hit Fund programs aim to help low- to 
moderate-income families. Some states, such as Arizona, 
developed programs intended to help any struggling homeowner 
with a demonstrated hardship who meets certain qualifications. 
To date, Treasury allocated $7.6 billion to the states in four 
rounds of funding. All states receiving these funds are using 
at least a portion of the money to aid unemployed homeowners.
    The Panel also suggested that Pennsylvania's successful 
Homeowners' Emergency Mortgage Assistance Program, which 
provides short-term loans to unemployed homeowners, could serve 
as a model for a nationwide program.\320\ Although it is not 
part of HAMP, Congress authorized and the Department of Housing 
and Urban Development is implementing the Emergency Homeowners' 
Loan Program, which will assist unemployed borrowers. Despite 
these new programs, however, unemployed borrowers continue to 
account for many foreclosures.\321\
---------------------------------------------------------------------------
    \320\ 2009 October Oversight Report, supra note 300, at 89-90; 2010 
April Oversight Report, supra note 277, at 20.
    \321\ In September 2009, the Panel visited Philadelphia's Mortgage 
Foreclosure Diversion Pilot Program, a court sponsored mediation 
program for borrowers in foreclosure created by Judge Annette Rizzo of 
the Philadelphia Court of Common Pleas. This program, instituted in 
April 2008, requires ``conciliation conferences'' in all foreclosure 
cases involving residential properties with up to four units that were 
used as the owner's primary residence, based on the idea that bringing 
borrowers into the same room with lenders' representatives will foster 
a compromise that is in both parties' best interests. The program was 
also discussed in the Panel's September Field Hearing. See 
Congressional Oversight Panel, Written Testimony of Judge Annette M. 
Rizzo, Court of Common Pleas, First Judicial District, Philadelphia 
County, Philadelphia Mortgage Foreclosure Diversion Program, 
Philadelphia Field Hearing on Mortgage Foreclosures (Sept. 24, 2009) 
(online at cop.senate.gov/documents/testimony-092409-rizzo.pdf); 
Congressional Oversight Panel, Testimony of Judge Annette M. Rizzo, 
Court of Common Pleas, First Judicial District, Philadelphia County, 
Philadelphia Mortgage Foreclosure Diversion Program, Transcript: 
Philadelphia Field Hearing on Mortgage Foreclosures, at 46-47, 103-105 
(Sep. 24, 2009) (online at cop.senate.gov/documents/transcript-092409-
philadelphia.pdf).
---------------------------------------------------------------------------
    Negative equity constituted another longstanding area of 
concern for the Panel, since there is a correlation between 
negative equity, or owing more on your mortgage than your home 
is worth, and delinquency.\322\ In December 2009, the Panel 
encouraged Treasury to consider incentivizing servicers to use 
principal reduction to deal with these ``underwater'' 
borrowers.\323\ Since then, Treasury has attempted to deal with 
negative equity in several ways.
---------------------------------------------------------------------------
    \322\ See First American CoreLogic, Underwater Mortgages On the 
Rise According to First American CoreLogic Q4 2009 Negative Equity Data 
(Feb. 23, 2010) (online at www.corelogic.com/uploadedFiles/Pages/
About_Us/ResearchTrends/Q4_2009_Negative_Equity_FINAL.pdf).
    \323\ 2010 December Oversight Report, supra note 283, at 67.
---------------------------------------------------------------------------
    Treasury created the HAMP Principal Reduction Alternative, 
which attempts to incentivize servicers to write down 
underwater loans voluntarily. The program was announced on June 
3, 2010, and went into effect on October 1, 2010. The Principal 
Reduction Alternative operates much like HAMP, except that 
instead of postponing payments on a portion of the mortgage, 
the program forgives that portion altogether. Servicers are 
required to consider loans that are HAMP-eligible and have 
loan-to-value ratios greater than 115 percent. This evaluation 
involves comparing the amount of money that a modification 
involving principal reduction would generate to the amount 
generated by a modification that does not involve principal 
reduction. The final decision on whether to grant a principal 
reduction is ultimately up to the servicer. Participating 
investors receive standard incentive payments as well as a 
percentage of each dollar forgiven.
    The Principal Reduction Alternative also includes an equity 
sharing option, in which the investor may be able to share the 
benefits of a subsequent appreciation in the home's value. 
Based on this option, the Panel suggested that Treasury monitor 
the Principal Reduction Alternative to determine whether equity 
sharing increased program participation. If so, the Panel 
suggested that Treasury should consider authorizing equity 
sharing arrangements in other programs.\324\ Although the 
Principal Reduction Alternative program allows equity sharing, 
it is not required, and it is unclear at this time if this 
feature will be extensively used or will significantly boost 
overall program performance. Treasury has not implemented any 
additional equity sharing arrangements. Although the Principal 
Reduction Alternative is a welcome additional tool to prevent 
foreclosures, it does not yet have a demonstrated track record 
of success, and Treasury has not made much data available on 
its performance.
---------------------------------------------------------------------------
    \324\ 2010 December Oversight Report, supra note 283, at 109.
---------------------------------------------------------------------------
    Treasury's Home Affordable Foreclosure Alternative and the 
FHA Short Refinance Program are also intended to address 
problems caused by negative equity. The Home Affordable 
Foreclosure Alternative program, announced on November 30, 
2009, but not effective until April 5, 2010, seeks to encourage 
the use of short sales and deeds-in-lieu of foreclosure for 
HAMP-eligible borrowers who are underwater and unable to 
qualify for modifications. Servicers agree to forfeit the 
ability to seek a deficiency judgment in exchange for allowing 
borrowers to make short sales or issue a deed-in-lieu. 
Essentially, a servicer agrees to accept the property itself in 
satisfaction of a borrower's mortgage obligation. All parties 
receive TARP financial incentives.
    The FHA Short Refinance Program, which was announced on 
March 26, 2010 and went into effect on September 7, 2010, 
offers a similar option. This TARP-funded program allows for 
the refinancing of non-FHA-insured underwater mortgages into 
positive equity, FHA-insured mortgages. Program participation 
is voluntary for servicers on a case-by-case basis. As with the 
Principal Reduction Alternative, both the Home Affordable 
Foreclosure Alternative program and the FHA Short Refinance 
program are relatively new and have not been used extensively 
so far.
    The Panel also recommended that Treasury consider allowing 
borrowers whose monthly mortgage payments are currently less 
than 31 percent of their monthly incomes to enter HAMP, thereby 
capturing additional at-risk borrowers, especially those who 
owe large amounts in overdue payments.\325\ In the Panel's 
October 2010 hearing on foreclosures, Faith Schwartz, senior 
adviser for the HOPE NOW Alliance, testified that HAMP's 31 
percent minimum eligibility standard was considered 
``aggressive'' when HAMP was first rolled out, but that even 
this level of mortgage payment to income is too high for many 
homeowners who wind up in foreclosure.\326\ Treasury has not 
taken action on this suggestion.
---------------------------------------------------------------------------
    \325\ 2009 October Oversight Report, supra note 300, at 112.
    \326\ Congressional Oversight Panel, Written Testimony of Faith 
Schwartz, senior advisor, HOPE NOW Alliance, COP Hearing on TARP 
Foreclosure Mitigation Programs, at 7 (Oct. 27, 2010) (online at 
cop.senate.gov/documents/testimony-102710-schwartz.pdf).
---------------------------------------------------------------------------

6. Document Irregularities

    The Panel's November 2010 report on foreclosure 
irregularities included several recommendations for Treasury. 
Treasury stated at the Panel's October 2010 hearing that based 
on the information it had at the time, foreclosure 
irregularities posed no systemic threat to the financial 
system. The Panel challenged this view and asked Treasury to 
explain why it saw no danger. The Panel also encouraged 
Treasury to monitor closely the impact of foreclosure 
irregularities and publicly report its findings. Further, the 
Panel's November 2010 report stated that Treasury should 
develop contingency plans to prepare for the potential worst-
case scenario.\327\ Treasury indicated that as of the 
publication of this report, it has not found evidence of a 
systemic threat. However, the 11 member federal agency working 
group, of which Treasury is a member, continues to investigate. 
Rather than conducting an independent monitoring effort, 
Treasury has chosen to monitor the situation through its 
participation with the interagency working group and updates 
from various regulators. Finally, Treasury has not yet prepared 
any contingency plans for a worst case scenario, but is 
awaiting the findings of the interagency investigations to 
decide what action, if any, it should take.\328\
---------------------------------------------------------------------------
    \327\ 2010 November Oversight Report, supra note 292, at 6, 83-84; 
Congressional Oversight Panel, COP Hearing on TARP Foreclosure 
Mitigation Programs (Oct. 27, 2010) (online at cop.senate.gov/hearings/
library/hearing-102710-foreclosure.cfm).
    \328\ Information provided by Treasury (Mar. 9, 2011).
---------------------------------------------------------------------------
    So far, the most comprehensive federal response to the 
Panel's concerns came from the OCC, which, along with other 
federal banking regulators, conducted examinations of 
foreclosure processing at the 14 largest federal regulated 
servicers during the fourth quarter of 2010. These examinations 
found ``critical deficiencies and shortcomings in foreclosure 
governance process, foreclosure document preparation process, 
and oversight and monitoring of third party law firms and 
vendors'' that ``have resulted in violations of state and local 
foreclosure laws, regulations, or rules that have had an 
adverse effect on the functioning of the mortgage markets and 
the U.S. economy as a whole.'' The examinations also found 
``[a] small number of foreclosure sales'' that ``should not 
have proceeded'' for various reasons, but also that ``servicers 
maintained documentation of ownership and had a perfected 
interest in the mortgage to support their legal standing to 
foreclose.'' \329\
---------------------------------------------------------------------------
    \329\ Senate Committee on Banking, Housing, and Urban Affairs, 
Written Testimony of John Walsh, acting comptroller of the currency, 
Office of the Comptroller of the Currency, Oversight of Dodd-Frank 
Implementation: A Progress Report by the Regulators at the Half-Year 
Mark, at 13-15 (Feb. 17, 2011) (online at banking.senate.gov/public/
index.cfm? FuseAction=Files. View&FileStore_id=99d7b6a8-d834-46e6-a088-
f463fb740cf0).
---------------------------------------------------------------------------

                            D. Data Updates


1. Treasury's Foreclosure Mitigation Programs

    Treasury announced its broad foreclosure mitigation 
initiative, headlined by HAMP, more than two years ago. Since 
that time, what results has the effort produced? HAMP began in 
2009 with a major push to get at-risk homeowners into trial 
modifications. As early enrollees either converted into 
permanent modifications or dropped out of the program, the 
number of new trial modifications began to fall. As a result, 
the pipeline of new trial modifications has slowed considerably 
since 2009. Unless this trend reverses, which appears unlikely, 
the program will fall far short of Treasury's initial goal of 3 
million to 4 million foreclosures prevented. Figure 16 shows 
the number of trial modifications started each month since the 
program's inception.

FIGURE 16: NUMBER OF NEW TRIAL MODIFICATIONS SINCE HAMP'S INCEPTION BY 
                              MONTH \330\

      
---------------------------------------------------------------------------
    \330\ Trial modifications are categorized by the month in which 
homeowners made their first reduced trial payment. Data provided by 
Treasury (Feb. 28, 2011).
[GRAPHIC] [TIFF OMITTED] T4832A.014


    According to Treasury, most of the decline in new trial 
modifications has been due to Treasury's decision, instituted 
in June 2010, to require that servicers verify upfront the 
income of HAMP applicants. Prior to June 2010, homeowners were 
able to qualify for trial modifications by verbally providing 
their incomes to servicers over the phone. As the Panel 
observed in the December 2010 report, however, this change 
cannot completely explain the decrease, since the number of new 
trial modifications began dropping off long before the upfront 
verified documentation standard was implemented. The Panel also 
considered the possibility that HAMP has already reached the 
majority of eligible borrowers who can be helped.\331\ In the 
early months of the program, there was a large pool of 
borrowers awaiting help. Once many of these homeowners entered 
HAMP or other programs, there were simply fewer potential 
applicants who met HAMP criteria.\332\
---------------------------------------------------------------------------
    \331\ 2010 December Oversight Report, supra note 283, at 20.
    \332\ Office of the Comptroller of the Currency and Office of 
Thrift Supervision, Mortgage Metrics Report, Second Quarter 2010, at 22 
(Sept. 2010) (online at www.ots.treas.gov/_files/490019.pdf). See also 
Fitch Ratings, U.S. RMBS: Still Under a Shadow, at 5 (Nov. 1, 2010) 
(noting that ``the number of remaining borrowers eligible for a loan 
modification appears to be declining, as new loan modification activity 
has declined from its peak in 2009'').
---------------------------------------------------------------------------
    While new trials are an important metric for determining 
the maximum number of borrowers the program may be able to 
assist, a trial modification that fails to convert to a 
permanent modification can hardly be called a success. The 
pipeline of new permanent modifications expanded in late 2009 
and early 2010 as Treasury made a major push to convert trial 
modifications into permanent ones. Between January and June 
2010, Treasury recorded an average of about 55,000 new 
permanent modifications each month. But since then, the numbers 
have fallen, as Figure 17 shows, to an average of around 30,000 
new permanent modifications per month.

FIGURE 17: NUMBER OF NEW PERMANENT MODIFICATIONS SINCE HAMP'S INCEPTION 
                             BY MONTH \333\

      
---------------------------------------------------------------------------
    \333\ From May 2009 to September 2009, new permanent modifications 
totaled 4,742. Monthly new permanent modifications are derived from 
``All Permanent Modifications Started'' levels from October 2009 to 
January 2011, which are recorded in the Making Home Affordable 
Program's monthly Servicer Performance Reports. For these monthly 
reports, see U.S. Department of the Treasury, Program Results, Making 
Home Affordable Reports (online at www.treasury.gov/initiatives/
financial-stability/results/MHA-Reports/Pages/default.aspx) (accessed 
Mar. 3, 2011) (hereinafter ``MHA: Program Results'').
[GRAPHIC] [TIFF OMITTED] T4832A.015


    The number of permanent modifications is not a complete 
indicator of program success either, since HAMP participants 
who redefault after conversion to permanent modifications not 
only face foreclosure once again, but also represent an 
unsuccessful expenditure of taxpayer dollars. The Panel in its 
December 2010 report expressed concern about HAMP redefaults, 
since they have the potential to undermine the program's 
success. As Figure 18 illustrates, the gap between the number 
of redefaults and the new monthly permanent modifications 
narrowed in recent months.

  FIGURE 18: MONTHLY HAMP PERMANENT MODIFICATIONS AND REDEFAULTS \334\

      
---------------------------------------------------------------------------
    \334\ ``Monthly Active Permanent Modifications'' and ``Monthly 
Permanent Modification Redefaults'' are derived from cumulative 
``Active Permanent Modifications'' and ``Permanent Modifications 
Canceled'' (excluding loans paid off) from February 2010 to January 
2011, as recorded in the Making Home Affordable Program's monthly 
Servicer Performance Reports. For these monthly reports, see MHA: 
Program Results, supra note 333.

[GRAPHIC] [TIFF OMITTED] T4832A.016

    As noted earlier, Treasury set a goal in March 2009 of 
assisting 3-4 million homeowners avoid foreclosure through 
HAMP, although Treasury's definition of ``assist'' has been 
somewhat unclear. Figure 19 shows the number of households 
currently being assisted by HAMP, as measured by active trial 
and permanent modifications, along with the number of 
households currently being assisted by the other TARP 
foreclosure prevention programs. It is important to note that 
some HAMP trial modifications will not convert to permanent 
modifications and some permanent modifications will end in 
redefaults; therefore, not all of these households will avoid 
foreclosures.

    FIGURE 19: NUMBER OF HOUSEHOLDS CURRENTLY BEING ASSISTED BY TARP
                   FORECLOSURE PREVENTION PROGRAMS 335
------------------------------------------------------------------------
                                                Households Receiving
                  Program                            Assistance
------------------------------------------------------------------------
HAMP \336\................................                       684,753
FHA Short Refinance Program \337\.........                            64
Hardest Hit Fund \338\....................                           757
                                           -----------------------------
    Total.................................                       685,574
------------------------------------------------------------------------
\335\ In light of the number of households assisted to date by
  Treasury's foreclosure prevention programs, some members of Congress
  have introduced legislation proposing the repeal of various TARP
  foreclosure prevention programs. See H.R. 430, The HAMP Repeal and
  Deficit Reduction Act of 2011, 112th Cong. (online at www.gpo.gov/
  fdsys/pkg/BILLS-112hr430ih/pdf/BILLS-112hr430ih.pdf) (accessed March
  11, 2011); H.R. 839, The HAMP Termination Act of 2011, 112th Cong.
  (online at www.gpo.gov/fdsys/pkg/BILLS-108hr839ih/pdf/BILLS-
  108hr839ih.pdf) (accessed March 11, 2011).
Treasury has stated that it is ``very concerned'' about HAMP repeal
  legislation, and believes that if the program was terminated, ``many,
  many Americans who otherwise could be helped into an affordable
  mortgage will not have that opportunity to do so.'' Massad Testimony
  to the Panel, supra note 122.
The Panel has taken no position on this issue.
\336\ This figure is the sum of 539,493 active permanent modifications
  and 145,260 active trial modifications. Both numbers are as of Jan.
  31, 2011. MHA Program: Servicer Performance January 2011, supra note
  290, at 2. Treasury also reports that 21,043 households have received
  assistance through HAMP's Principal Reduction Alternative, HAMP's
  Unemployment Program, HAMP's Second Lien Program, the Home Affordable
  Foreclosure Alternatives Program, and the Home Price Decline
  Protection Program. It is likely, however, that at least some of these
  households are among those in active HAMP trial and permanent
  modifications, and that some of the households are not currently
  receiving assistance. Treasury data provided to the Panel (Feb. 28,
  2011).
\337\ Data provided by Treasury (Mar. 10, 2011).
\338\ The Hardest Hit Fund data show the number of applications approved
  through December 31, 2010. The data is sourced from seven of the 19
  states participating in the program. Treasury data provided to the
  Panel (Feb. 28, 2011).

    To achieve these results, Treasury has spent $1.2 billion 
out of the $45.6 billion in TARP funds allocated for 
foreclosure mitigation programs, or 2.6 percent of the funds 
available.\339\ Spending on these programs will continue until 
2018, but given the current pace of outlays, Treasury seems 
unlikely to spend anywhere near $45.6 billion.\340\ CBO 
estimates that Treasury will ultimately spend only about $12 
billion on these programs.\341\ Figure 20 shows Treasury's 
expenditures to date for its TARP foreclosure mitigation 
programs.
---------------------------------------------------------------------------
    \339\ Treasury estimates that over time each HAMP permanent 
modification will cost the federal government $20,000. Massad Testimony 
to the Panel, supra note 122.
    \340\ Although HAMP expires on December 31, 2012, and new trial 
modifications after that date are prohibited, existing trial 
modifications can continue to convert. Considering the five-year term 
of HAMP assistance, the program should continue to expend funds into 
2018.
    \341\ Congressional Budget Office, Report on the Troubled Asset 
Relief Program--November 2010, at 4 (Nov. 29, 2010) (online at 
www.cbo.gov/ftpdocs/119xx/doc11980/11-29-TARP.pdf) (``CBO Report on 
TARP--November 2010'').

  FIGURE 20: EXPENDITURES FOR TARP FORECLOSURE MITIGATION PROGRAMS 342
------------------------------------------------------------------------
                  Program                           Expenditures
------------------------------------------------------------------------
HAMP......................................                  $1.0 billion
FHA Short Refinance Program...............                  53.9 million
Hardest Hit Fund..........................                 125.1 million
                                           -----------------------------
    Total.................................                  $1.2 billion
------------------------------------------------------------------------
\342\ The HAMP expenditures are as of February 25, 2011, while the
  expenditures for the other two programs are as of February 28, 2011.
  Treasury data provided to the Panel (Feb. 28, 2011).

2. Housing Market

    Treasury introduced the foreclosure mitigation programs in 
an effort to prevent foreclosures and stabilize the housing 
markets. Yet, foreclosures have remained at very high levels 
over the last two years. In December 2010, there were 232,000 
foreclosure starts, while there were 56,000 foreclosure sales. 
This compares to 282,000 foreclosure starts and 51,000 
foreclosure sales in March 2009, when HAMP was introduced. 
(Foreclosure sales dipped in late 2010 as a result of a number 
of large mortgage servicers suspending foreclosures in order to 
review their internal foreclosure procedures, but these numbers 
will likely increase in the coming months as these servicers 
resume their foreclosures.) Figure 21 shows foreclosure starts 
and completions by month since March 2009. The 685,574 
households currently receiving TARP housing assistance--shown 
in Figure 19--represent roughly the same number of households 
that move into foreclosure proceedings every three months, 
based on the current rate.

          FIGURE 21: FORECLOSURE STARTS AND COMPLETIONS \343\

      
---------------------------------------------------------------------------
    \343\ HOPE NOW Alliance, Appendix--Mortgage Loss Mitigation 
Statistics: Industry Extrapolations (Quarterly from Q1-2007 to Q1-
2009), at 4 (online at www.hopenow.com/industry-data/
HOPE%20NOW%20National%20Data%20July07%20to%20April09.pdf) (accessed 
Mar. 11, 2011); HOPE NOW Alliance, Appendix--Mortgage Loss Mitigation 
Statistics: Industry Extrapolations (Monthly for Dec 2008 to Nov 2009), 
at 2 (online at www.hopenow.com/industry-data/
HOPE%20NOW%20National%20Data%20July07%20to%20Nov09%20v2%20(2).pdf) 
(accessed Mar. 11, 2011); HOPE NOW Alliance, Industry Extrapolations 
and Metrics (May 2010), at 8 (June 28, 2010) (online at 
www.hopenow.com/industry-data/HOPE%20NOW%20Data%20Report%20(May)%2006-
21-2010.pdf); HOPE NOW Alliance, Industry Extrapolations and Metrics 
(September 2010), at 8 (Oct. 31, 2010) (online at hopenow.com/industry-
data/HOPE%20NOW%20Data%20Report%20(September)%2010-31-2010%20v2.pdf); 
HOPE NOW Alliance, Industry Extrapolations and Metrics (December 2010), 
at 8 (Feb. 2, 2011) (online at www.hopenow.com/industry-data/
HOPE%20NOW%20Data%20Report%20(December)%2002-01-2011%20v2.pdf).

[GRAPHIC] [TIFF OMITTED] T4832A.017

    As foreclosure starts and completions have remained at a 
persistently high level, home prices have continued to fall. 
The S&P/Case Shiller index, which measures residential real 
estate prices nationwide, began declining in 2007, and the 
index's fall continued through the financial crisis of 2008 and 
beyond. After stabilizing in early 2010, home prices continued 
their decline in the second half of last year. Since the TARP 
was enacted in October 2008, nationwide home prices have 
declined by 9.1 percent. Since their peak in February 2007, 
nationwide home prices have fallen by 30.2 percent.\344\ Figure 
22 shows that this decline in home prices has happened 
simultaneous with the rise in foreclosures.\345\
---------------------------------------------------------------------------
    \344\ S&P/Case Shiller Index data, which runs through December 
2010, accessed through Bloomberg Financial Data Service (accessed Mar. 
4, 2011).
    \345\ At the Panel's March 4, 2011, hearing, Assistant Secretary 
Massad noted that foreclosures put downward pressure on the prices of 
neighboring homes. ``A foreclosure for any family that goes through it 
is obviously a terrible economic loss,'' he stated. ``It's also a great 
social and--or great psychological and emotional loss. It's a loss to 
the community. The community suffers from it because neighboring house 
prices fall. Particularly where you have a vacant home that can then be 
subject to vandalism. . . . So you know this situation is a drag on our 
economy as a whole.'' Massad Testimony to the Panel, supra note 122. 
Patrick Lawler, the FHFA's chief economist, made a related point, 
noting that foreclosures can result in additional losses for government 
sponsored enterprises Fannie Mae and Freddie Mac. Speaking about HAMP 
and other foreclosure-prevention programs, he stated: ``These programs 
have benefited the enterprises by mitigating risks and reducing both 
direct losses on loans where foreclosure is avoided and indirect losses 
on properties where housing markets are stabilized, which reduces 
defaults on other loans.'' Congressional Oversight Panel, Testimony of 
Patrick Lawler, chief economist and head of the Office of Policy 
Analysis and Research, Federal Housing Finance Agency, Transcript: COP 
Hearing on the TARP's Impact on Financial Stability (Mar. 4, 2011) 
(publication forthcoming) (online at cop.senate.gov/hearings/library/
hearing-030411-final.cfm).
---------------------------------------------------------------------------

          FIGURE 22: FORECLOSURE ACTIONS AND HOME PRICES \346\

      
---------------------------------------------------------------------------
    \346\ The metric ``foreclosure actions,'' as used by RealtyTrac, 
encompasses default notices, scheduled auctions and bank repossessions. 
RealtyTrac: Foreclosures in February, supra note 285. S&P/Case Shiller 
Index data accessed through Bloomberg Financial Data Service (accessed 
Mar. 4, 2011).

[GRAPHIC] [TIFF OMITTED] T4832A.018

    Putting additional pressure on housing prices is a glut of 
unsold homes. According to one estimate, there are currently 
more than six million unsold housing units in the United 
States, as compared to a pre-crisis level of 3.8 million.\347\ 
Figure 23 shows the overhang of housing inventory in the 
market. The chart distinguishes between visible inventory and 
pending inventory, which is a measure of potential additions to 
the sales inventory from homes that are in the foreclosure 
process or have mortgages that are seriously delinquent. There 
are currently 16 months of visible housing supply, as compared 
to an average of 7.3 months of visible inventory in 2006.\348\
---------------------------------------------------------------------------
    \347\ Data provided by CoreLogic (Feb.16, 2011).
    \348\ Even though the pending nationwide inventory increased only 
from 3.4 million in January 2006 to 3.9 million in November 2010, the 
rate at which the inventory was clearing slowed down, which explains 
why the rate at which the pending inventory is expected to clear has 
more than doubled during the same nearly five-year period. Data 
provided by CoreLogic (Feb. 15, 2011).
---------------------------------------------------------------------------

         FIGURE 23: VISIBLE AND PENDING HOUSING INVENTORY \349\

      
---------------------------------------------------------------------------
    \349\ Data provided by CoreLogic (Feb.16, 2011).

    [GRAPHIC] [TIFF OMITTED] T4832A.019
    
    Because borrowers entering foreclosure have been delinquent 
on their mortgage payments for several months, delinquencies 
are an indicator of likely future trends in foreclosures. 
HAMP's declining trial modification production is therefore 
troubling in relation to the current high level of 
delinquencies. While mortgage delinquencies have declined over 
the past three quarters, they remain near historically high 
levels. At the end of 2010, loans that were 30, 60, or 90 or 
more days delinquent represented approximately 8.2 percent of 
all outstanding loans--down from 10.1 percent during the first 
quarter of 2010, which was the peak during the current crisis, 
but still above 7.8 percent rate in the fourth quarter of 2008. 
Mortgages in the foreclosure inventory, meaning those currently 
in the foreclosure process, represent 4.6 percent of 
outstanding loans--which equals the highest level since 2006 
and is well above the 3.3 percent rate in the fourth quarter of 
2008. The delinquency rate remains 18 percent above its level 
at the time the TARP was enacted, and the foreclosure inventory 
rate is 56 percent above its level from that period.\350\ 
Figure 24 shows delinquency and foreclosure inventory rates 
since before the foreclosure crisis began.
---------------------------------------------------------------------------
    \350\ National Delinquency Survey--2010 4th Quarter, supra note 4.
---------------------------------------------------------------------------

      FIGURE 24: DELINQUENCY AND FORECLOSURE INVENTORY RATES \351\

      
---------------------------------------------------------------------------
    \351\ National Delinquency Survey--2010 4th Quarter, supra note 4.

    [GRAPHIC] [TIFF OMITTED] T4832A.020
    
    Unemployment rates remain problematic as well, given the 
link between joblessness and mortgage delinquency. Figure 25 
shows that the nationwide delinquency rate and the U.S. 
unemployment rate have followed similar trends since early 
2006.

          FIGURE 25: UNEMPLOYMENT AND DELINQUENCY RATES \352\

      
---------------------------------------------------------------------------
    \352\ Data accessed through Bloomberg Financial Data Service 
(accessed Mar. 4, 2011).

[GRAPHIC] [TIFF OMITTED] T4832A.021

    Negative equity, a situation in which homeowners owe more 
than their homes are worth, is another factor that may 
contribute to foreclosures. Figure 26 shows that the percentage 
of homeowners who are underwater has risen by more than 10 
percentage points since the second quarter of 2008.

      FIGURE 26: PERCENTAGE OF HOMEOWNERS WHO ARE UNDERWATER \353\

      
---------------------------------------------------------------------------
    \353\ Data provided by Zillow.com (Feb. 18, 2011).
    [GRAPHIC] [TIFF OMITTED] T4832A.022
    

    While we cannot know what the state of the housing market 
would be in the absence of HAMP, we do know that despite the 
implementation of HAMP and other foreclosure mitigation 
efforts, foreclosures remain high, and the housing market shows 
continuing signs of stress.

                           E. Lessons Learned

    The first step in crafting a successful mortgage 
modification program is to have an accurate empirical picture 
of the mortgage market. As the Panel has noted with other TARP 
programs, insufficient data collection undermines the 
development of good policies. The lack of comprehensive, 
reliable data also makes it difficult for policymakers to 
identify successful loan modifications or make apples-to-apples 
comparisons among programs. This information is crucial for 
understanding the changing nature of the mortgage market and 
crafting informed, targeted policy responses.
    It is important to ensure that modified mortgages be 
affordable to borrowers. Because the HAMP requirement that 
homeowners spend 31 percent of their monthly income on their 
first-lien mortgage payments does not take into account local 
conditions, overdue payments, second liens, and other borrower 
debt, the Panel has questions about the sustainability of many 
HAMP modifications. Future mortgage modification programs 
should consider the best way to measure overall affordability.
    The problems that Treasury has encountered with HAMP 
underscore the importance of a timely, decisive response to any 
future foreclosure crisis. When HAMP was introduced in early 
2009, the foreclosure crisis was already well under way, and 
HAMP was not well designed to address the coming waves of 
foreclosures, which were increasingly driven by unemployment 
and negative equity. Over the next two years, Treasury provided 
increasingly generous incentives to participating borrowers, 
lenders, and servicers, which gave them reason to hold out for 
a better offer. While the constant flux of new programs, new 
standards, and new requirements reflected Treasury's efforts to 
respond to recommendations made by oversight bodies, the 
shifting ground also led to confusion among servicers and 
borrowers. Any future foreclosure mitigation programs should be 
forward-looking and attempt to address new and emerging 
problems before they reach crisis proportions.
    Future policymakers should be mindful that the incentives 
of mortgage servicers are different from those of the 
government, and design any foreclosure mitigation program with 
that reality in mind. Borrower eligibility must depend on 
criteria set forth in the foreclosure mitigation program, 
rather than on the willingness of servicers or lenders to 
participate. If incentive payments are used to drive servicer 
participation, those payments must be sufficient to offset the 
financial incentives for servicers to push for foreclosure. 
Modification programs should also include an appropriate 
monitoring mechanism to ensure that servicers are accurately 
reporting the reasons for denials and cancellations, and there 
should be meaningful sanctions for noncompliance.
    The need for better communication with homeowners is 
another important lesson to be drawn from HAMP. Because 
servicers generally first contact borrowers in a debt-
collection role, any future foreclosure mitigation program that 
relies on servicers would benefit from a government-run 
outreach campaign designed to inform borrowers of their options 
for preventing foreclosure. A uniform and streamlined 
modification process would allow housing counselors to be more 
effective and allow borrowers and servicers to navigate the 
system more easily. Foreclosure mitigation efforts that rely on 
servicers should also make increasing servicer capacity an 
early priority.
    It is also important that policymakers focus on ensuring 
good outcomes for homeowners, rather than becoming bogged down 
in process-related concerns. HAMP has a dizzying number of 
rules. In its oversight of Fannie Mae, HAMP's administrator, 
and Freddie Mac, HAMP's compliance agent, Treasury has seemed 
to focus more on ensuring that its rules are followed than on 
addressing the individual concerns of the people that the 
program is supposed to help.
    Finally, the current crisis shows how closely foreclosure 
prevention is intertwined with efforts to ensure bank solvency. 
Delinquent mortgages continue to weigh on the U.S. banking 
system, and government efforts to remedy either the debt facing 
homeowners or the weakness of the banking system can have 
significant effects on the other problem. Principal write-downs 
on a large scale, for example, would help homeowners but hurt 
the banks. Over the last two years, Treasury has designed 
housing programs that aim to avoid fully facing this trade-off, 
by providing assistance to homeowners without restructuring 
bank balance sheets.\354\ The limitations of that approach are 
apparent in the problems that Treasury has encountered.
---------------------------------------------------------------------------
    \354\ See, e.g., Congressional Oversight Panel, Written Testimony 
of Timothy F. Geithner, secretary, U.S. Department of the Treasury, COP 
Hearing with Treasury Secretary Timothy Geithner, at 6 (Apr. 21, 2009) 
(online at cop.senate.gov/documents/testimony-042109-geithner.pdf) 
(``Falling home prices are a major financial challenge for many 
families. At the same time, financial losses related to the housing 
sector adjustment continue to be a significant headwind for banks and 
other financial institutions. Foreclosures are particularly problematic 
because they not only impose significant financial and emotional 
burdens on families, they are also costly for communities and banks. 
For all these reasons, addressing the housing crisis and reducing 
foreclosures is an important objective.'').
---------------------------------------------------------------------------

                   V. Automotive Industry Assistance


                             A. Background

    The automotive industry has traditionally accounted for a 
significant portion of U.S. domestic output and employment. As 
recently as 2004, the industry produced nearly 4 percent of 
U.S. GDP.\355\
---------------------------------------------------------------------------
    \355\ Bureau of Economic Analysis, National Income and Product 
Accounts Table: Table 1.5.5--Gross Domestic Product, Expanded Detail 
(online at www.bea.gov/national/nipaweb/TableView.asp? 
SelectedTable=35&ViewSeries=NO&Java= no&Request3Place=N 
&3Place=N&FromView=YES&Freq= Year&FirstYear=1990&LastYear=2008&3Place= 
N&Update=Update&JavaBox=no) (accessed Mar. 11, 2011).
---------------------------------------------------------------------------
    Even prior to the financial crisis, the industry had begun 
to experience severe strain. Foreign competitors were steadily 
increasing market share at the expense of domestic 
manufacturers. Legacy costs and poor strategic decisions added 
to the problems of General Motors Corporation (GM) and 
Chrysler. Between 2000 and 2008, employment in the industry 
fell by roughly 34 percent, from a high of 1,254,900 in 
February 2001 to 822,900 in October 2008.\356\
---------------------------------------------------------------------------
    \356\ Bureau of Labor Statistics, Automotive Industry: Employment, 
Earnings, and Hours (online at data.bls.gov/pdq/
SurveyOutputServlet?series_id=CEU3133600101&data_tool=XGtable) 
(accessed Mar. 11, 2011).
---------------------------------------------------------------------------
    In the fall of 2008, a combination of rising gasoline 
prices, tightening credit markets, eroding consumer confidence, 
high unemployment, and a decline in consumer discretionary 
spending led to a significant downturn in automobile sales in 
the United States and abroad. U.S. automobile sales fell to a 
26-year low.\357\ By early December 2008, GM and Chrysler were 
struggling to secure the credit they needed to conduct their 
day-to-day operations.
---------------------------------------------------------------------------
    \357\ IHS Global Insights, U.S. Executive Summary (Aug. 2009).
---------------------------------------------------------------------------
    Additionally, the freeze in credit markets in late 2008 
resulted in lenders experiencing increased difficulty in 
raising capital to finance auto loans. At that time, GMAC/Ally 
Financial had already suffered third quarter losses and was 
facing even greater fourth quarter losses, due largely to their 
hemorrhaging residential mortgage unit, ResCap. The contraction 
of the credit markets and the shaky financial condition of the 
companies had an especially severe impact on their automotive 
lending businesses. Since substantially all wholesale purchases 
by automobile dealers and about three quarters of retail 
consumer purchases are financed with borrowed funds,\358\ GM 
and Chrysler faced additional losses in sales due to potential 
customers' inability to find credit.
---------------------------------------------------------------------------
    \358\ Senate Committee on Banking, Housing, and Urban Affairs, 
Written Testimony of Ron Bloom, senior advisor, U.S. Department of the 
Treasury, The State of the Domestic Automobile Industry: Impact of 
Federal Assistance (June 10, 2009) (online at banking.senate.gov/
public/index.cfm?FuseAction =Files.View&FileStore_id=40341601-355c-
4e6f-b67f-b9707ac88e32). As of December 2009, 26 percent of all retail 
automobile purchases were cash transactions. This figure has been 
relatively constant over the past five years, fluctuating between 22 
and 32 percent. Data provided to the Panel by J.D. Power and 
Associates.
---------------------------------------------------------------------------
    The CEOs of Chrysler and GM appeared before Congress in 
December of 2008 to plead for government assistance to keep 
them from going under.\359\ The House of Representatives 
responded on December 10 by passing legislation that would have 
provided a total of $14 billion in loans to Chrysler and GM, 
but the bill was blocked in the Senate on December 11.\360\ The 
Bush administration then reversed its previous stance that had 
precluded TARP funding for the auto industry, and on December 
19 announced that Chrysler and GM would both be provided TARP 
assistance. This was justified in part on the basis that 
allowing them to fail would result in a more than 1 percent 
reduction in real GDP growth and about 1.1 million workers 
losing their jobs.\361\
---------------------------------------------------------------------------
    \359\ The President and Chief Executive Officer of Ford Motor 
Company also testified at this hearing. Senate Committee on Banking, 
Housing, and Urban Affairs, Written Testimony of Richard Nardelli, 
chairman and chief executive officer, Chrysler LLC, State of the 
Domestic Automobile Industry: Part II (Dec. 4, 2008) (online at 
banking.senate.gov/public/index.cfm 
?FuseAction=Files.View&FileStore_id=c41857b2-7253-4253-95e3-
5cfd7ea81393).
    \360\ The money would have been re-allocated from a pre-existing 
Department of Energy program for advanced vehicle technology. H.R. 
7321, Auto Industry Financing and Restructuring Act, 110th Cong. 
(2008). The Senate failed to invoke cloture on the proposed legislation 
by a vote of 52 to 35. U.S. Senate, Roll Call Vote on the Motion to 
Invoke Cloture on the Motion to Proceed to Consider H.R. 7005 (Dec. 11, 
2008) (online at www.senate.gov/legislative/LIS/roll_call_lists/
roll_call_vote_cfm.cfm ?congress=110&session=2&vote=00215) (52 yeas, 35 
nays).
    \361\ The George W. Bush White House Office of the Press Secretary, 
Fact Sheet: Financing Assistance to Facilitate the Restructuring of 
Auto Manufacturers to Attain Financial Viability (Dec. 19, 2008) 
(online at georgewbush-whitehouse.archives.gov/news/releases/2008/12/
20081219-6.html) (hereinafter ``White House Fact Sheet: Assistance to 
Auto Manufacturers'').
---------------------------------------------------------------------------
    Meanwhile, on November 20, 2008, GMAC/Ally Financial 
requested the approval of FRB to become a BHC, contingent on 
the conversion of GMAC Bank to a commercial bank.\362\ Becoming 
a BHC would make GMAC/Ally Financial eligible for access to 
both the FDIC's TLGP and the TARP's CPP. GMAC/Ally Financial's 
management also maintained that conversion to a BHC addressed a 
weakness in the company's business model by providing it with 
access to deposits for liquidity. FRB expedited GMAC/Ally 
Financial's BHC application, citing ``emergency conditions,'' 
although the 4-1 split in the vote of FRB was unusual for these 
kinds of actions.\363\
---------------------------------------------------------------------------
    \362\ GMAC, LLC, GMAC Files Application With Federal Reserve to 
Become Bank Holding Company (Nov. 20, 2008) (online at 
media.gmacfs.com/index.php?s=43&item=288).
    \363\ Board of Governors of the Federal Reserve System, Order 
Approving Formation of Bank Holding Companies and Notice to Engage in 
Certain Nonbanking Activities, at 2, 15 (Dec. 24, 2008) (online at 
www.federalreserve.gov/newsevents/press/orders/orders20081224a1.pdf).
---------------------------------------------------------------------------

1. Initial Treasury Action

    The Automobile Industry Financing Program (AIFP) was 
announced on December 19, 2008. Its first acts were to provide 
Chrysler and GM with bridge loans of $4 billion and $13.4 
billion, respectively, under separate loan and security 
agreements. Treasury, asserting that GM and Chrysler could not 
survive without access to GMAC/Ally Financial's and Chrysler 
Financial's financial underpinning, further provided GMAC/Ally 
Financial with $5 billion in emergency funding under the AIFP 
on December 29, 2008. Another $887 million lent to GM was used 
to buy GMAC/Ally Financial shares in a $2 billion equity rights 
offering to current shareholders. Additionally, Chrysler 
Financial was provided with a $1.5 billion loan on January 16, 
2009.
    A key component of the receipt of this federal aid required 
each company to demonstrate that the assistance would allow it 
to achieve ``financial viability.'' \364\ Both companies were 
required to submit viability plans incorporating ``meaningful 
concessions from all involved in the automotive industry.'' 
\365\ These plans were submitted to the Obama administration in 
February 2009, and on February 15, 2009, President Obama 
announced the creation of the interagency Presidential Task 
Force on the Auto Industry, to assume responsibility for 
reviewing the Chrysler and GM viability plans. In addition, the 
President named two advisors, Ron Bloom and Steven Rattner, to 
lead the Treasury auto team in reviewing the viability plans 
and negotiating the terms of any further assistance.\366\
---------------------------------------------------------------------------
    \364\ ``Financial viability'' was defined as ``positive net value, 
taking into account all current and future costs, and [the ability to] 
fully repay the government loan.'' White House Fact Sheet: Assistance 
to Auto Manufacturers, supra note 361.
    \365\ The George W. Bush White House Office of the Press Secretary, 
President Bush Discusses Administration's Plan to Assist Automakers 
(Dec. 19, 2008) (online at georgewbush-whitehouse.archives.gov/news/
releases/2008/12/20081219.html).
    \366\ The missions and personnel of the Presidential Task Force on 
the Auto Industry and Treasury auto team--a joint Treasury-National 
Economic Council team that staffs the Task Force--overlap considerably; 
therefore, these entities are often cited interchangeably.
---------------------------------------------------------------------------
    The results of the auto team's review were announced by 
President Obama on March 30, 2009. The team found GM's plan 
``not viable as it is currently structured'' due largely to 
overly optimistic assumptions about prospects for the 
macroeconomy and GM's ability to generate sales. GM was 
provided 60 days of working capital in order to submit a 
substantially more aggressive plan.\367\ The team found that 
Chrysler had an even poorer outlook than GM and concluded that 
Chrysler was not viable outside of a partnership with another 
automotive company. Chrysler was offered working capital for 30 
more days in order to seek an agreement with Fiat.\368\
---------------------------------------------------------------------------
    \367\ U.S. Department of the Treasury, GM February 17 Plan: 
Viability Determination (Mar. 30, 2009) (online at www.whitehouse.gov/
assets/documents/GM_Viability_Assessment.pdf).
    \368\ The White House, Obama Administration New Path to Viability 
for GM & Chrysler (Mar. 30, 2009) (online at www.whitehouse.gov/assets/
documents/Fact_Sheet_GM_Chrysler_FIN.pdf).
---------------------------------------------------------------------------
    Unable to reach agreement in 30 days, Chrysler filed for 
bankruptcy on April 30. Forty-two days later, the sale of the 
majority of its assets to a newly formed entity, Chrysler Group 
LLC (new Chrysler), closed. Treasury provided a total of $8.5 
billion in working capital and exit financing to support 
Chrysler through the bankruptcy and restructuring process.\369\
---------------------------------------------------------------------------
    \369\ Treasury Transactions Report, supra note 36, at 18.
---------------------------------------------------------------------------
    GM followed Chrysler into bankruptcy on June 1, 2009. On 
July 5, 2009, the sale of the ``good'' assets of GM to the new 
government-owned General Motors Company (new GM) closed. 
Treasury provided $30.1 billion of financing to facilitate an 
expedited Chapter 11 proceeding and restructuring.\370\
---------------------------------------------------------------------------
    \370\ The White House, Remarks by the President on General Motors 
Restructuring (June 1, 2009) (online at www.whitehouse.gov/
the_press_office/Remarks-by-the-President-on-General-Motors-
Restructuring/); Treasury Transactions Report, supra note 36, at 18.
---------------------------------------------------------------------------
    GMAC/Ally Financial, in the interim, one of the 19 large 
entities subject to stress tests, had failed the stress test 
and was unable to raise capital in the private markets. 
Accordingly, Treasury extended a further $7.5 billion in TARP 
financing in May of 2009, and another $3.8 billion in December 
2009.
    Meanwhile, in July 2009, Chrysler Financial repaid its $1.5 
billion loan in full with all interest and an additional $15 
million note. GMAC/Ally Financial had taken over its floor plan 
business in May 2009. The remaining platform of Chrysler 
Financial was owned by Chrysler Holding LLC, which was in turn 
owned by Cerberus Management. Through Treasury's investment in 
Chrysler Holding LLC, Treasury remained entitled to proceeds 
Chrysler Holding LLC received from Chrysler Financial: the 
greater of either $1.375 billion, or 40 percent of the equity 
value of Chrysler Financial.\371\
---------------------------------------------------------------------------
    \371\ For more discussion of how Treasury potentially left money on 
the table in the Chrysler Financial deal, see 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) (hereinafter ``2011 
January Oversight Report'').
---------------------------------------------------------------------------

2. Additional Initiatives and Actions

    In addition to the assistance provided to the automotive 
industry described above, several other initiatives were 
undertaken to support the industry, both within and outside of 
the TARP.
    On March 19, 2009, Treasury announced the Auto Supplier 
Support Program (ASSP), a TARP initiative. At the time it was 
announced, Treasury stated that up to $5 billion in financing 
would be available to auto suppliers, to be funded through 
participating automotive companies. Under this program, auto 
suppliers could obtain government-backed protection on 
receivables to provide a safety net for those who may not 
receive payment for their shipments. Auto suppliers were also 
able to sell their receivables into the program at a discount 
to provide immediate liquidity for suppliers in need of cash to 
continue operations. This facility was reduced to $3.5 billion, 
and ultimately only $413 million was used.\372\ On the same 
day, as part of ARRA, the Obama administration announced a 
grant of up to $2 billion for competitively awarded cost-shared 
agreements for manufacturing of advanced batteries and related 
drive components, plus another $400 million for transportation 
electrification demonstration and deployment projects.\373\
---------------------------------------------------------------------------
    \372\ Treasury Transactions Report, supra note 36.
    \373\ U.S. Department of Energy, President Obama Announces $2.4 
Billion for Electric Vehicles (Mar. 19, 2009) (online at 
apps1.eere.energy.gov/news/daily.cfm/hp_news_id=159).
---------------------------------------------------------------------------
    To help spur automotive sales, Congress created the Car 
Allowance Rebate System (nicknamed ``cash for clunkers'') to be 
administered through the Department of Transportation. The 
program, announced on July 27, 2009, offered rebates for new 
car buyers who were trading in older cars for newer, more 
efficient models. The program attracted interest and resulted 
in a brief surge in sales in the summer of 2009, with federal 
disbursements of $2.9 billion.
    The Energy Independence and Security Act of 2007 
established a $25 billion loan program to encourage the 
development of advanced technology vehicles--primarily those 
that meet certain energy efficiency criteria--and associated 
components in the United States. The program, administered by 
the Department of Energy, had completed a little over $2 
billion in loans as of the end of 2010. Before declaring 
bankruptcy, GM applied for a loan under this program and was 
rejected. The new GM later resubmitted the old GM's 
applications but ultimately withdrew these, saying it had 
enough liquidity of its own to modernize its facilities and 
build fuel-efficient vehicles.\374\ Chrysler is still awaiting 
a determination on its application for a total of $3 billion in 
loans to be disbursed over three years.
---------------------------------------------------------------------------
    \374\ General Motors Company, GM Withdraws Federal Loan Application 
(Jan. 27, 2011) (online at www.gm.com/news-article.jsp?id=/content/
Pages/news/us/en/2011/Jan/0127_federal_loan.html).
---------------------------------------------------------------------------

                 B. Summary of COP Reports and Findings

    In September 2009, the Panel issued its first report on the 
use of TARP funds in supporting the domestic automotive 
industry.\375\ In that report, the Panel examined several key 
considerations relating to the commitment of $85 billion in 
TARP funds, including: Treasury's justification for extending 
TARP funds to the automotive sector, how exactly this money had 
been used, and whether Treasury had properly and publicly 
articulated its objectives and taken action in furtherance of 
those objectives. The report also examined Treasury's role in 
the bankruptcy of Chrysler Holding LLC (Chrysler) and (GM, how 
Treasury planned to protect taxpayers' interests while the 
government controlled these companies, and how Treasury 
intended to maximize taxpayers' returns when the government 
divested itself of ownership.
---------------------------------------------------------------------------
    \375\ Congressional Oversight Panel, September Oversight Report: 
The Use of TARP Funds in the Support and Reorganization of the Domestic 
Automotive Industry (Sept. 9, 2009) (online at cop.senate.gov/
documents/cop-090909-report.pdf).
---------------------------------------------------------------------------
    The Panel compared Treasury's dealings with the automotive 
companies with its dealings with banks under the CPP and 
similar programs, and found that Treasury's financial 
assistance to the automotive industry differed significantly 
from its assistance to the banking industry. In particular, 
assistance provided to the banks carried less stringent 
conditions, and money was made readily available without a 
review of business plans and without any demands that 
shareholders forfeit their stake in the company, or that top 
management lose their jobs. By contrast, the Panel found that 
Treasury was a tough negotiator as it invested taxpayer funds 
in the automotive industry, requiring the companies to file for 
bankruptcy, wiping out their old shareholders, cutting their 
labor costs, reducing their debt obligations and replacing some 
top management. While this stance may have provided better 
protection for Treasury's investment, the Panel noted that it 
may have raised other issues related to the government's role 
as shareholder in private companies. The report recommended 
that Treasury consider placing the government's shares in a 
trust that could be managed in a more hands-off manner, 
effectively removing the concern that direct management by 
Treasury itself could have undesirable consequences.
    The Panel also examined the bankruptcy processes each of 
the companies underwent and concluded, with the assistance of 
outside bankruptcy experts, that the government's intervention 
in the bankruptcies raised questions about the long-term 
effects of such intervention on credit markets, but that it was 
too early to determine what those effects might be. Although 
the Panel also discussed the legal justification for using the 
TARP to support the automotive industry, the Panel took no 
position on whether this use was authorized by EESA.
    At the time of the Panel's 2009 report, the prospects for a 
return of the $85 billion invested in the automotive industry 
were not favorable. Projected losses on TARP investments in the 
auto industry at that time varied from Treasury's estimate that 
approximately $23 billion of the initial loans made would be 
subject to ``much lower recoveries'' to an estimate of $40 
billion in losses from CBO.\376\ Although Treasury at times 
stated its definition of success was whether taxpayers saw a 
return of their money, at other times it defined success in 
terms of preserving jobs or preventing the disorganized 
bankruptcy of systemically significant institutions that could 
potentially destabilize all or a sector of the fragile economy. 
Treasury's inability to articulate a clear objective, the Panel 
noted, made it difficult to determine whether the program had 
been a success even by Treasury's own standards.
---------------------------------------------------------------------------
    \376\ Id. at 5.
---------------------------------------------------------------------------
    In March 2010, the Panel examined Treasury's use of TARP 
funds to rescue GMAC/Ally Financial.\377\ Although the Panel 
took no position on whether Treasury should have rescued GMAC/
Ally Financial, it found that Treasury missed opportunities to 
increase accountability and better protect taxpayers' money. 
Treasury did not, for example, condition access to TARP money 
on the same kinds of sweeping changes that it required from GM 
and Chrysler: it did not wipe out GMAC/Ally Financial's equity 
holders; it did not require GMAC/Ally Financial to create a 
viable plan for returning to profitability; nor did it require 
a detailed, public explanation of how the company would use 
taxpayer funds to increase consumer lending. Treasury's 
explanations for the need to rescue GMAC/Ally Financial were 
also at times inconsistent, casting the decision sometimes as a 
part of the wider automotive industry rescue and at other times 
as a part of the stress tests, and therefore a part of the 
effort to backstop the nation's financial sector. If the rescue 
of GMAC/Ally Financial was necessitated by its inclusion in the 
stress tests, it was not clear why Treasury turned to the AIFP, 
a program intended to support the automotive sector, for 
financing instead of using the Capital Assistance Program 
(CAP), which was devised specifically to provide additional 
capital to those BHCs that did not pass the stress tests.
---------------------------------------------------------------------------
    \377\ Congressional Oversight Panel, March Oversight Report: The 
Unique Treatment of GMAC Under the TARP (Mar. 11, 2010) (online at 
cop.senate.gov/documents/cop-031110-report.pdf) (hereinafter ``2010 
March Oversight Report'').
---------------------------------------------------------------------------
    Whatever the reason for rescuing GMAC/Ally Financial, the 
report questioned Treasury's assertion that bankruptcy was not 
a viable option in 2008.\378\ The report concluded that, in 
connection with the Chrysler and GM bankruptcies, Treasury 
might have been able to orchestrate a strategic bankruptcy for 
GMAC/Ally Financial.\379\ This bankruptcy could have preserved 
GMAC/Ally Financial's automotive lending functions while 
winding down its other, less significant operations, dealing 
with the ongoing liabilities of the mortgage lending 
operations, and putting the company on more sound economic 
footing. The Panel also expressed concern that Treasury had not 
given due consideration to the possibility of merging GMAC/Ally 
Financial back into GM, a step which would have restored GM's 
financing operations to the model generally shared by other 
automotive manufacturers, thus strengthening GM and eliminating 
other money-losing operations.\380\ The Panel expressed no 
doubt that Treasury's actions to preserve GMAC/Ally Financial 
played a major role in supporting the domestic automotive 
industry.\381\ These same actions, however, reinforced GMAC/
Ally Financial's dominance in automotive floor plan financing, 
perhaps obstructing the growth of a more competitive lending 
market. The report also examined the great public expense 
incurred by this rescue, noting that the federal government had 
spent $17.2 billion to bail out GMAC/Ally Financial and now 
owned 56.3 percent of the company. At the time, OMB estimated 
that $6.3 billion or more may never be repaid.
---------------------------------------------------------------------------
    \378\ Ron Bloom, senior advisor to the Secretary of the Treasury, 
testified that the administration considered bankruptcy in April and 
May 2009. He did not state whether bankruptcy was considered before 
Treasury made the December 2008 investment. Congressional Oversight 
Panel, Testimony of Ron Bloom, senior advisor, U.S. Department of the 
Treasury, Transcript: COP Hearing on GMAC Financial Services, at 23-24 
(Feb. 25, 2010) (online at cop.senate.gov/documents/transcript-022510-
gmac.pdf).
    \379\ 2010 March Oversight Report, supra note 377, at 5.
    \380\ 2010 March Oversight Report, supra note 377, at 5.
    \381\ 2010 March Oversight Report, supra note 377, at 5.
---------------------------------------------------------------------------
    The Panel also noted that Treasury's avowed hands-off 
approach to managing its sizeable stake in the company could 
have unintended consequences, such as creating a power vacuum 
that would allow smaller shareholders a disproportionate 
influence.\382\ Because both GM and GMAC/Ally Financial were at 
the time majority-owned by Treasury and subject to its hands-
off policy, the potential for a governance vacuum was 
amplified. This meant that the parties who wished to operate 
GMAC/Ally Financial in GM's interests had the potential to 
become proportionately more powerful, inasmuch as GM has 
extraordinary commercial influence over GMAC/Ally Financial, 
and there may not have been countervailing pressure from 
involved shareholders. The report repeated the suggestion made 
in the September 2009 report that Treasury consider placing the 
government's shares in a trust to help alleviate this concern. 
The Panel concluded, however, that although the rescue of GMAC/
Ally Financial appeared to be one of the more baffling 
decisions made under the TARP, since the company itself posed 
no systemic risk, when viewed as a piece of either the 
automotive industry or the group of banks involved in the 
stress tests, Treasury's objectives become clearer.\383\
---------------------------------------------------------------------------
    \382\ 2010 March Oversight Report, supra note 377, at 121.
    \383\ 2010 March Oversight Report, supra note 377, at 122.
---------------------------------------------------------------------------
    In its oversight report for January 2011, the Panel 
revisited Treasury's support of the domestic automotive 
industry as Treasury began the process of unwinding its stakes 
in GM, Chrysler, and GMAC/Ally Financial.\384\ Of those 
companies, GM is furthest along in the process of repaying 
taxpayers. It conducted an initial public offering (IPO) on 
November 18, 2010, and Treasury used the occasion to sell a 
portion of its GM holdings for $13.5 billion. This sale 
represents a major recovery of taxpayer funds, but it is 
important to note that Treasury received a price of $33.00 per 
share--well below the $44.59 needed to be on track to recover 
fully taxpayers' money. Pricing the GM IPO below the break-even 
price likely had the effect of greatly reducing the likelihood 
that taxpayers will be fully repaid, as full repayment will not 
be possible unless the government is able to sell its remaining 
shares at a far higher price. However, it is impossible to know 
if a longer-term investment horizon by the government (via an 
IPO at a later date) would have allowed Treasury to sell its 
shares at a more favorable price, closer to its breakeven cost 
basis. The Panel recognized that delaying the IPO would have 
exposed Treasury to the risk that the price that buyers were 
willing to pay for GM stock would fall. Moreover, such a delay 
would have run contrary to the government's stated objective of 
disposing of its shares ``as soon as practicable.'' \385\
---------------------------------------------------------------------------
    \384\ 2011 January Oversight Report, supra note 371, at 15-16.
    \385\ 2011 January Oversight Report, supra note 371, at 47.
---------------------------------------------------------------------------
    The report also discussed the status of Treasury's 
investments in Chrysler, Chrysler Financial, and GMAC/Ally 
Financial. The report noted that Treasury will likely require 
an IPO to redeem its investment in Chrysler. The need for an 
IPO presents a challenge since Treasury does not have a 
controlling stake in Chrysler and, even if it did, it is 
unlikely given Treasury's hands-off management approach that it 
would use this leverage. Meanwhile, it appears that GMAC/Ally 
Financial is moving closer to an IPO and Treasury has had 
significant leverage over the IPO's timing due to its preferred 
stock holdings. Regrettably, however, Treasury has been 
inconsistent in acknowledging this leverage. Treasury's 
reluctance to recognize its own influence may represent an 
effort to claim a coherent hands-off shareholder approach, 
despite the unique circumstances that apply to GMAC/Ally 
Financial.\386\ Finally, another source of concern explored in 
this report was Treasury's unwinding of its position in 
Chrysler Financial, in which taxpayer returns appear to have 
been sacrificed in favor of an accelerated exit, further 
compounded by apparently incomplete due diligence. Although 
Treasury's hands-off approach may have reassured market 
participants about the limited scope of government 
intervention, it may also have forced Treasury to leave 
unexplored options that would have benefited the public.
---------------------------------------------------------------------------
    \386\ 2011 January Oversight Report, supra note 371, at 5.
---------------------------------------------------------------------------
    While the Panel had previously questioned the government's 
perception of its policy choices during various stages of the 
crisis, there is little doubt that in the absence of massive 
government assistance, GM, Chrysler, and GMAC/Ally Financial 
faced the prospect of bankruptcies and potential liquidation, 
given the apparent dearth of available financing from the 
private sector.\387\ The Panel noted that in the context of a 
fragile economy and the financial crisis (which severely 
restricted both corporate and consumer credit), the failure of 
these companies could have had significant near-term 
consequences in terms of job losses and the performance of the 
broader U.S. economy. Further, although the assets of GM and 
Chrysler (plants and equipment, employees, brand recognition) 
would have had value to other firms over the longer term, it 
was in the context of these adverse near-term consequences that 
both the Bush and Obama administrations provided assistance to 
the auto sector. As in its September 2009 report, the Panel 
took no position on the decision to support the auto industry. 
Despite the recent GM IPO and improving financials at the other 
companies, the Panel noted that there is still a long road 
ahead, particularly for GMAC/Ally Financial and Chrysler, 
before the final outcome of these programs can be determined.
---------------------------------------------------------------------------
    \387\ 2011 January Oversight Report, supra note 371, at 115.
---------------------------------------------------------------------------

                  C. Panel Recommendations and Updates

    The Panel's recommendations in its three reports on the 
automotive industry and GMAC/Ally Financial focused on four key 
areas in need of improvement:
            Transparency on the part of Treasury and 
        the companies' management;
            Accountability;
            Improved balance among Treasury's roles as 
        shareholder in private enterprise and government 
        policymaker; and
            Continuing oversight to ensure that the 
        American people are not again called upon to rescue the 
        automotive industry.
To date, only a handful of recommendations made by the Panel 
have been implemented and even those have been implemented only 
partially.

1. Transparency

    The Panel consistently requested that Treasury and the 
automotive companies provide detailed information about 
Treasury's investments and the companies' management and 
strategic planning but has received only a partial response to 
these requests. In September 2009, the Panel recommended that 
Treasury ensure that the automotive companies' bylaws and 
policies provide for full disclosure of all dealings with 
significant shareholders, including the government, and that 
the two new companies, when filing their planned periodic 
reports with the U.S. Securities and Exchange Commission (SEC), 
ensure that these reports conform to the standards of 
disclosure required for SEC reporting companies. While GM and 
GMAC/Ally Financial have released such reports, Chrysler has 
reported only its consolidated financial statement and notes. 
In March 2010 and again in January 2011, the Panel also 
recommended that the administration enhance disclosure in the 
budget and financial statement for the TARP by reporting on the 
valuation assumptions for the individual companies. The Panel's 
recommendations in March 2010 focused on the specific lack of 
transparency with regard to the government's investment in 
GMAC/Ally Financial, encouraging Treasury to go to greater 
lengths to explain its approach to the treatment of legacy 
shareholders. Treasury has provided no such additional 
explanation. Finally, the Panel requested that Treasury provide 
a legal opinion justifying the use of TARP funds for the 
automotive industry rescue. In response, Treasury directed the 
Panel to certain materials associated with the automotive 
companies' bankruptcies. These materials did not provide a 
sufficiently robust analysis of Treasury's legal justification 
and so constitute, at most, only a partial response to the 
Panel's recommendation.

2. Accountability

    In each of its three reports on the industry, the Panel 
called for Treasury to articulate clear goals and benchmarks by 
which progress could be measured. Treasury, however, has never 
articulated a clear set of goals for these programs. Instead, 
it has articulated a number of goals at different times, many 
of which may ultimately be conflicting. For example, at a Panel 
hearing in June 2009, then-Panel Chair Elizabeth Warren asked 
Assistant Secretary Allison, ``Can you explain in some general 
strokes, the strategic thinking on the part of your team in 
terms of what we are trying to accomplish with the auto 
industry?'' \388\ Assistant Secretary Allison responded:
---------------------------------------------------------------------------
    \388\ Congressional Oversight Panel, Testimony of Herbert M. 
Allison, Jr., assistant secretary for financial stability, U.S. 
Department of the Treasury, Transcript: COP Hearing with Assistant 
Treasury Secretary Herb Allison, at 23 (June 24, 2009) (online at 
cop.senate.gov/documents/
transcript-062409-allison.pdf).

          What we're trying to do is to allow the automobile 
        industry and encourage the automobile industry to 
        restructure so that it is again a highly-competitive 
        sector of our economy and can grow and create more jobs 
        over time and that's the reason why the 
        Administration--actually, they were asked to take part 
        in this. That's the reason why they've decided it was 
        necessary to do so. The outlook here is very important 
        to the whole economy and I think that's been the 
        underlying reason why the Administration has acted in 
        the way it has.\389\
---------------------------------------------------------------------------
    \389\ Id. at 24.

In a later hearing on the automotive industry, senior Treasury 
advisor Ron Bloom defined success as primarily a question of 
return on investment: ``the greater percentage of the money 
that we invested that we get back, the greater success.'' \390\ 
These differing and potentially conflicting goals make it 
difficult to determine whether the TARP's interventions in the 
auto industry should be judged to be successful. Instead, the 
articulation of multiple goals, without specification of their 
priority, allows Treasury to claim success if the program 
achieves any one of these goals.
---------------------------------------------------------------------------
    \390\ Congressional Oversight Panel, Testimony of Ron Bloom, senior 
advisor, U.S. Department of the Treasury, Transcript: COP Field Hearing 
on the Auto Industry, at 38 (July 27, 2009) (online at cop.senate.gov/
documents/transcript-072709-detroithearing.pdf).
---------------------------------------------------------------------------
    The Panel also called on Treasury to provide a detailed 
plan for exiting its position in each company. In particular, 
in its March 2010 report, the Panel urged Treasury to require 
greater accountability on the part of GMAC/Ally Financial by 
insisting that the company produce a viable business plan 
showing a path toward profitability. Given that a GMAC/Ally 
Financial IPO, which is likely to occur later this year, would 
provide an opportunity for Treasury to sell its GMAC/Ally 
Financial holdings, Treasury should clearly outline its 
proposed strategy for divesting itself of some or all of its 
position as the IPO approaches. There remain, in addition, 
certain obstacles that Treasury must overcome before it can 
successfully and fully exit its position in all of these 
companies and, as discussed in the Panel's January 2011 report, 
Treasury has yet to articulate a clear plan for addressing 
these challenges. The Panel also recommended that Treasury 
require that any entity receiving TARP funds be subject to more 
stringent criteria and due diligence to establish that it would 
become a profitable concern, and that any such entity be 
subject to use of funds disclosure requirements. Specifically, 
the Panel suggested that Treasury take these steps 
retroactively with regard to its investment in GMAC/Ally 
Financial. Treasury has never acted to implement this 
recommendation.

3. Improved Balance among Treasury's Roles

    While Treasury has insisted that it adheres to a hands-off 
policy in managing its TARP investments to assuage concerns 
about government intervention in private enterprise, the Panel 
warned against an unduly rigid policy that could jeopardize 
both taxpayers' investment and the longer-term goals of the 
TARP. In September 2009, the Panel recommended that Treasury 
provide more detail about its corporate governance policies, 
including how the government would deal with conflicts of 
interest between its role as an equity holder or creditor and 
as regulator. The Panel also suggested that Treasury establish 
policies prohibiting Treasury employees from accepting 
employment with the automotive companies for a period of at 
least one year following termination of their employment with 
Treasury. The Panel is not aware that Treasury has acted on any 
of these recommendations. The Panel also recommended that 
Treasury consider placing its holdings in a trust that could be 
managed by an independent trustee whose actions would not raise 
the same concerns that similar actions by Treasury might raise. 
There has not been any indication that Treasury seriously 
considered creating such a trust. In March 2010, the Panel 
recommended that Treasury consider affirmatively promoting a 
merger between GM and GMAC, a step that Treasury may have been 
unwilling to consider in light of its hands-off management 
policy. There has been no indication that Treasury has altered 
its stance on this issue.
    While the Panel recommended in each of its reports that 
Treasury unwind its positions in the companies quickly, the 
Panel also cautioned against an exit that would be unduly 
detrimental to the value of the taxpayers' investment. Based on 
the steps it has taken thus far to sell portions of its 
holdings, it appears that Treasury has been mindful of this 
concern but, because of its avowed ``hands-off'' stance, may 
not have fully considered all options that would provide the 
best return.

4. Continued Oversight

    In its last report on the industry in January 2011, the 
Panel recommended, in order to prevent the need for a future 
government rescue, that Congress commission independent 
researchers to periodically assess the long-term fallout from 
the collapse of the auto industry and the subsequent government 
intervention, including the risk to taxpayers stemming from 
future disruptions to the auto market from economic, credit 
market or other potential threats.

5. Updates

    Since the Panel's most recent report on the industry in 
January 2011, Treasury announced on March 1, 2011, that it was 
planning a public offering of its trust preferred securities 
holdings in GMAC/Ally Financial.\391\ The offering is not to 
include any of Treasury's $5.9 billion of mandatory convertible 
preferred stock in Ally nor does it include any of Treasury's 
current holdings of 74 percent of the shares of Ally's common 
stock. On March 2, 2011, Treasury announced the pricing of the 
offering, stating that the securities would be offered at par, 
for a total of $2.7 billion.\392\ This offering closed on March 
7, 2011.
---------------------------------------------------------------------------
    \391\ U.S. Department of the Treasury, Treasury Announces Public 
Offering of Ally Financial, Inc., TruPS (Mar. 1, 2011) (online at 
www.treasury.gov/press-center/press-releases/Pages/tg1081.aspx).
    \392\ U.S. Department of the Treasury, Treasury Announces Pricing 
of $2.7 billion of Ally TruPS (Mar. 2, 2011) (online at 
www.treasury.gov/press-center/press-releases/Pages/tg1086.aspx).
---------------------------------------------------------------------------
    Also on March 1, 2011, GM released its annual report, 
showing the company made meaningful gains in 2010, posting a 
profit of $4.7 billion for the year.\393\
---------------------------------------------------------------------------
    \393\ General Motors Company, Form 10-K for the Fiscal Year Ended 
December 31, 2010, at 142 (Mar. 1, 2011) (online at www.sec.gov/
Archives/edgar/data/1467858/000119312511051462/d10k.htm).
---------------------------------------------------------------------------

                           D. Lessons Learned

    It is clear that GM and Chrysler were in dire straits in 
late 2008. Although it is difficult to say whether government 
intervention was the best option, the TARP funds the companies 
received provided them with at least some short-term stability. 
Whether the programs aimed at helping the automotive industry 
can be called ``successful'' will be difficult to determine 
since Treasury has never clearly stated its goals in assisting 
the companies. To the extent that success is defined as a 
return of taxpayer money, it remains somewhat unlikely that all 
TARP funds invested will be returned. Although the outlook is 
currently much better than it was when the Panel released its 
first report on the industry in late 2009, certain factors, 
including the loss locked in by the GM IPO price, must be 
overcome before taxpayers see a complete return of the money 
invested.
    Even if TARP funds are fully repaid, the government's 
intervention in this industry may have lasting effects. In an 
effort to reduce the impact of its intervention in private 
industry, Treasury has consistently stated that it is acting as 
a ``reluctant shareholder'' and has committed to maintaining a 
hands-off approach to management of the companies. This 
position, however, may have served principally to highlight the 
difficult role Treasury occupied as shareholder, creditor, and 
regulator of the companies. Furthermore, Treasury's 
unwillingness to influence management even in its role as a 
large shareholder may ultimately have put the government's 
investment at greater risk than was necessary. Finally, it is 
too soon to say what the TARP's ultimate impact on the 
automotive industry, and these companies in particular, will 
be. The domestic automotive industry was trending downward 
before the financial crisis hit and it is unclear whether the 
TARP will ultimately reverse that trend in the long term.
    Even if these companies were to become extremely successful 
in the coming years, paying back the funds invested by Treasury 
and creating jobs and revenue for the American people, there 
may be lingering and potentially harmful effects from the 
programs. The Panel has frequently cited the potential moral 
hazard if large companies, and the markets in which they 
operate, believe that they will be rescued by the government if 
they falter. Although the TARP seemed originally to target only 
those companies whose financial operations made them a 
potential risk to systemic stability, the use of the TARP to 
support the automotive industry suggests that a company may be 
considered ``systemically significant'' merely because it 
employs a certain number of workers. Whether and to what extent 
these issues become manifest can only be determined as future 
events unfold.

                                VI. AIG

    The magnitude of AIG's operations and the company's far-
flung linkages across the global financial system led to 
multiple rounds of exceptional assistance from the government. 
Only Fannie Mae and Freddie Mac, institutions in government 
conservatorship, received more assistance during this 
period.\394\ Accordingly, AIG's unique position in the 
financial system and the significant investment of taxpayer 
dollars required to avert the company's collapse warranted 
particular scrutiny from the Panel relative to other recipients 
of TARP assistance. In addition to the Panel's June 2010 
report, which focused solely on AIG, the Panel also held a 
hearing to explore the rescue of AIG, its impact on the 
markets, and the outlook for the government's significant 
investment in the company.\395\
---------------------------------------------------------------------------
    \394\ Unlike AIG, Fannie Mae and Freddie Mac were not TARP 
participants. See Section II.B for further discussion of the combined 
federal efforts.
    \395\ See Congressional Oversight Panel, June Oversight Report: The 
AIG Rescue, Its Impact on Markets, and the Government's Exit Strategy 
(June 10, 2010) (online at cop.senate.gov/documents/cop-061010-
report.pdf) (hereinafter ``2010 June Oversight Report''); Congressional 
Oversight Panel, Transcript: COP Hearing on TARP and Other Assistance 
to AIG (May 26, 2010) (online at cop.senate.gov/documents/transcript-
052610-aig.pdf).
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                             A. Background

    At its peak, AIG was one of the largest and most successful 
companies in the world. With over $1 trillion in assets and a 
AAA credit rating, AIG generated over $100 billion in annual 
revenues, serving 76 million customers in more than 130 
countries. However, the scale of and linkages across AIG's 
operations posed unique managerial and regulatory challenges. 
Accordingly, a poor risk management structure, combined with a 
lack of regulatory oversight, led AIG to accumulate staggering 
amounts of risk, especially in its Financial Products 
subsidiary, AIG Financial Products (AIGFP).\396\ Among its 
other operations, AIGFP sold credit default swaps to investors, 
instruments that would pay off if certain financial securities, 
particularly those made up of subprime mortgages, defaulted. As 
long as the mortgage market remained sound and AIG's credit 
rating remained stellar, these instruments did not threaten the 
company's financial stability.
---------------------------------------------------------------------------
    \396\ AIG's product and regional diversity was predicated on 
maintaining an exceptional credit rating, which helped bolster its 
insurance operations and allowed the company to use its low cost of 
funds as leverage to boost non-insurance business lines, including 
aircraft leasing and consumer finance. AIG's longtime AAA credit rating 
also increased its attractiveness as a counterparty in the capital 
markets, helping the company further expand its product base in the 
United States and around the world. The product and geographic breadth 
of AIG's operations, however, were not matched by a coherent regulatory 
structure to oversee its business. The Office of Thrift Supervision 
(OTS), a federal agency that regulates the U.S. thrift industry, was 
specifically charged with overseeing the parent and it failed to do so. 
Whether the OTS or a more coherent regulatory framework could have 
prevented the build-up in risks that the company's own management team 
failed to recognize or understand is unlikely, but this does not 
obscure the point that AIG's holding company regulator had the power 
and the duty to spot and require the company to curtail its risk. 2010 
June Oversight Report, supra note 395, at 21-24.
---------------------------------------------------------------------------
    The financial crisis, however, fundamentally changed this 
equation. As subprime mortgages began to default, the complex 
securities based on those loans threatened to topple both AIG 
and other long-established institutions. During the summer of 
2008, AIG faced increasing demands from its credit default swap 
customers for cash security--known as collateral calls--
totaling tens of billions of dollars. These costs put AIG's 
credit rating under pressure, which in turn led to even greater 
collateral calls, creating even greater pressure on AIG's 
credit.
    The trigger and primary cause of AIG's collapse came from 
inside AIGFP. This business unit was responsible for unrealized 
valuation losses and collateral calls that ultimately engulfed 
AIG. While the risk overhang in this business would have likely 
been sufficient to bring down the firm on its own, AIG's 
securities lending operations,\397\ which involved securities 
pooled from AIG's domestic life insurance subsidiaries, 
contributed to a ``double death spiral.'' \398\ The problems in 
AIGFP exacerbated the problems in securities lending, and vice 
versa, as collateral demands from both sets of counterparties 
quickly imperiled the company's liquidity position as it 
struggled to meet its cash demands. Meanwhile, the company's 
insurance operations were incapable of generating the requisite 
cash either through normal operations or asset sales to fund 
the parent company. The threats within both of these businesses 
emanated from outsized exposure to the deteriorating mortgage 
markets, owing to grossly inadequate valuation and risk 
controls, including insufficient capital buffers as losses and 
collateral calls mounted.
---------------------------------------------------------------------------
    \397\ Securities lending normally provides a low-risk mechanism for 
insurance companies and other long-term investors in the financial 
markets to earn modest sums of money on assets that would otherwise be 
sitting idle. However, rather than investing the cash collateral from 
borrowers in low-risk short-term securities in order to generate a 
modest yield, AIG invested in more speculative securities tied to the 
RMBS market. Consequently, these investments posed a duration mismatch 
(securities lending counterparties could demand a return of their 
collateral with very little notice) that was exacerbated by valuation 
losses and illiquidity in the mortgage markets that impaired AIG's 
ability to return cash to its securities lending counterparties. 2010 
June Oversight Report, supra note 395, at 7, 271-272.
    \398\ Assessment of Marshall Huebner of Davis Polk & Wardwell (a 
law firm that represented FRBNY). FRBNY and Treasury briefing with the 
Panel and Panel staff (Apr. 12, 2010).
---------------------------------------------------------------------------
    By early September 2008 AIG had reached a crisis 
point.\399\ AIG sought more capital in a desperate attempt to 
avoid bankruptcy. When the company could not arrange its own 
funding, then-FRBNY President Timothy Geithner told AIG that 
the government would attempt to orchestrate a privately funded 
solution in coordination with JPMorgan Chase and Goldman Sachs. 
However, this approach failed to materialize, forcing the 
government's hand.
---------------------------------------------------------------------------
    \399\ These problems did not arrive out of the blue in mid-
September. AIGFP had recognized $11.1 billion in unrealized losses on 
CDS contracts as early as the fourth quarter of 2007. This was followed 
by an effort to raise capital on May 21, 2008, and an announcement on 
June 15, 2008 that CEO Martin Sullivan was being replaced. A further 
$13.5 billion in unrealized losses on RMBS and other structured 
securities investments was recognized in late June, and on July 29, the 
new CEO, Robert Willumstad, spoke with then-FRBNY President Timothy 
Geithner about the possibility of getting access to the Federal 
Reserve's discount window, an idea which was dismissed by Mr. Geithner 
on the premise that this would only induce further panic among AIG's 
creditors. Various efforts to raise capital in other ways ensued. In 
late August, AIG contracted with JPMorgan Chase to help develop 
alternatives as the market and the company's condition worsened 
rapidly. A detailed timeline of the events leading up to the collapse 
of AIG is available in Annex II of COP's June 2010 AIG report. 2010 
June Oversight Report, supra note 395, at 58, 238-250.
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1. Government Assistance

    In the wake of the collapse of Lehman Brothers, FRBNY 
abandoned its effort at a private solution, announcing an $85.0 
billion taxpayer-backed Revolving Credit Facility (RCF) for AIG 
on September 16, 2008.\400\ These funds would later be 
supplemented by $49.1 billion from Treasury under the TARP, as 
well as additional funds from FRBNY, aggregating to total 
assistance of $133.3 billion. At the height of the government 
support, AIG and its affiliates received $89.5 billion in loans 
from the Federal Reserve, $49.1 billion from Treasury, and 
$43.8 billion from the Federal Reserve to capitalize two SPVs 
for AIG asset purchases (i.e., Maiden Lane II and III), 
totaling $182.4 billion.\401\ As discussed below, FRBNY 
underwrote the initial two rounds of government assistance 
(September and November 2008) before Treasury provided TARP 
funds for subsequent efforts by the government (November 2008 
and April 2009).
---------------------------------------------------------------------------
    \400\ Revolving Credit Facility (RCF) is a credit facility that 
allows the company to draw and repay loans to meet its funding 
requirements. As a part of a broader restructuring of the Government's 
assistance to AIG, on November 10, 2008, the RCF ceiling was lowered to 
$60.0 billion and the TARP made its initial investment of $40.0 billion 
in preferred stock. Fed Regulatory Reform: AIG, Maiden Lane II and III, 
supra note 40.
    \401\ The announced assistance to AIG exceeded the cost of the EU's 
sovereign bailouts of Greece (=110 billion) and Ireland (=85 billion). 
International Monetary Fund, Europe and IMF Agree =110 Billion 
Financing Plan With Greece (May 2, 2010) (online at www.imf.org/
external/pubs/ft/survey/so/2010/car050210a.htm); International Monetary 
Fund, IMF Reaches Staff-level Agreement with Ireland on =22.5 Billion 
Extended Fund Facility Arrangement (Nov. 28, 2010) (online at 
www.imf.org/external/np/sec/pr/2010/pr10462.htm). See also 2010 August 
Oversight Report, supra note 213.
---------------------------------------------------------------------------
    The rescue of AIG was initially led by FRBNY, acting on 
behalf of FRB and in close consultation with Treasury. While 
FRB had no role in supervising or regulating AIG and was also 
not lending to the company, it was the only governmental entity 
at the time with the legal authority to provide liquidity to 
the financial system in emergency and exigent 
circumstances.\402\ Treasury had little if any authority to 
provide funds to AIG at the time given that EESA was not 
enacted until October 3, 2008.\403\ Similarly, other AIG 
regulatory bodies, such as state insurance regulators and the 
OTS, possessed oversight authority but lacked any legal 
authority to step in and provide funds to the parent 
company.\404\
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    \402\ The Federal Reserve's ability to act was dependent upon the 
Board's authorization to invoke Section 13(3) of the Federal Reserve 
Act, which was provided on September 16, 2008. For further discussion 
of the legal options available to AIG in September 2008, see 2010 June 
Oversight Report, supra note 395, at 79-83.
    \403\ At the time FRBNY provided AIG with the $85 billion RCF, 
Treasury only provided a very short statement, with then-Secretary 
Paulson noting that ``[t]hese are challenging times for our financial 
markets. We are working closely with the Federal Reserve, the SEC and 
other regulators to enhance the stability and orderliness of our 
financial markets and minimize the disruption to our economy. I support 
the steps taken by the Federal Reserve tonight to assist AIG in 
continuing to meet its obligations, mitigate broader disruptions and at 
the same time protect the taxpayers.'' U.S. Department of the Treasury, 
Statement by Secretary Henry M. Paulson, Jr., on Federal Reserve 
Actions Surrounding AIG (Sept. 16, 2008) (online at www.treasury.gov/
press-center/press-releases/Pages/hp1143.aspx). In a subsequent letter 
to Timothy F. Geithner, then-president and CEO of FRBNY, Secretary 
Paulson stressed that ``the situation at AIG presented a substantial 
and systemic threat'' to our financial markets, and that the 
government's decision to assist AIG ``was necessary to prevent the 
substantial disruption to financial markets and the economy that could 
well have occurred from a disorderly wind-down of AIG.'' Letter from 
Henry M. Paulson, Jr., secretary, U.S. Department of the Treasury, to 
Timothy F. Geithner, president and chief executive officer, Federal 
Reserve Bank of New York (Oct. 8, 2008) (online at 
www.federalreserve.gov/monetarypolicy/files/letter_aig.pdf).
    \404\ It is similarly worth noting that OTS, although it was AIG's 
primary regulatory, approached AIG from a bottom-up perspective, 
focused primarily on ensuring that no harm would be done to AIG's 
relatively small thrift institution, as opposed to taking a top-down 
approach that reviewed the overall safety and soundness of the holding 
company. Given that AIG's thrift represented well under 1 percent of 
the holding company's assets, this approach seems misguided at best and 
raises questions about whether this is the most effective way to 
regulate complex companies and monitor their systemic risks. 2010 June 
Oversight Report, supra note 395, at 23.
---------------------------------------------------------------------------
    Through internal discussions and a dialogue with AIG and 
its state insurance regulators, FRB and FRBNY, with input from 
Treasury, ultimately chose to provide AIG with assistance after 
identifying the systemic risks associated with the company and 
contemplating the consequences of an AIG bankruptcy or partial 
rescue.\405\ FRB determined that, in the then-existing 
environment, ``a disorderly failure of AIG could add to already 
significant levels of financial market fragility and lead to 
substantially higher borrowing costs, reduced household wealth, 
and materially weaker economic performance.'' \406\
---------------------------------------------------------------------------
    \405\ FRBNY and Treasury briefing with Panel and Panel staff (Apr. 
12, 2010).
    \406\ Board of Governors of the Federal Reserve System, Press 
Release (Sept. 16, 2008) (online at www.federalreserve.gov/newsevents/
press/other/20080916a.htm) (hereinafter ``Fed Press Release on AIG 
Assistance'').
---------------------------------------------------------------------------
    Secretary Geithner has stated that ``[t]he decision to 
rescue AIG was exceptionally difficult and enormously 
consequential.'' \407\ Chairman Bernanke noted that the Federal 
Reserve's decision-making was driven by the ``prevailing market 
conditions and the size and composition of AIG's obligations,'' 
\408\ as well as ``AIG's central role in a number of markets 
other firms use to manage risks, and the size and composition 
of AIG's balance sheet.'' \409\ The Federal Reserve's actions, 
with the support of Treasury, were also informed by its 
judgment that an AIG collapse would have been much more severe 
than that of Lehman Brothers because of its global operations, 
substantial and varied retail and institutional customer base, 
and the various types of financial services it provided.\410\
---------------------------------------------------------------------------
    \407\ House Committee on Oversight and Government Reform, Written 
Testimony of Timothy F. Geithner, secretary, U.S. Department of the 
Treasury, The Federal Bailout of AIG, at 3 (Jan. 27, 2010) (online at 
oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/
TESTIMONY-Geithner.pdf) (hereinafter ``Geithner Written Testimony 
before House Committee on Oversight'').
    \408\ Senate Committee on Banking, Housing, and Urban Affairs, 
Written Testimony of Ben S. Bernanke, chairman, Board of Governors of 
the Federal Reserve System, Turmoil in U.S. Credit Markets: Recent 
Actions Regarding Government Sponsored Entities, Investment Banks and 
Other Financial Institutions, at 2 (Sept. 23, 2008) (online at 
banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=bbba8289-b8fa-46a2-a542-
b65065b623a1).
    \409\ Ben S. Bernanke, chairman, Board of Governors of the Federal 
Reserve System, Remarks at the National Association for Business 
Economics, 50th Annual Meeting, Washington, DC, Current Economic and 
Financial Conditions (Oct. 7, 2008) (online at www.federalreserve.gov/
newsevents/speech/bernanke20081007a.htm).
    \410\ Ben S. Bernanke, chairman, Board of Governors of the Federal 
Reserve System, Speech at the Morehouse College, Atlanta, GA, Four 
Questions About the Financial Crisis (Apr. 14, 2009) (online at 
www.federalreserve.gov/newsevents/speech/bernanke20090414a.htm).
---------------------------------------------------------------------------
            a. Initial Government Assistance (Non-TARP Initiatives)
    As noted, on September 16, 2008, the FRB, with the full 
support of Treasury, announced that, using its authority under 
Section 13(3) of the Federal Reserve Act,\411\ it had 
authorized FRBNY to establish an $85.0 billion RCF for 
AIG.\412\ This facility would be secured by AIG's assets and 
``assist AIG in meeting its obligations as they come due and 
facilitate a process under which AIG will sell certain of its 
businesses in an orderly manner, with the least possible 
disruption to the overall economy.'' \413\ In exchange for the 
provision of the credit facility by the federal government, AIG 
provided Treasury with preferred shares and warrants that, if 
exercised, would give the government a 79.9 percent ownership 
stake in AIG.\414\
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    \411\ The Federal Reserve Act, enacted December 23, 1919, created 
the Federal Reserve System. Section 13(3) of the Act gives the Board of 
Governors of the Federal Reserve the power to authorize any regional 
Federal Reserve bank to provide funding in unusual or exigent 
circumstances, provided that evidence is obtained that a participant is 
unable to secure adequate credit accommodations from other banking 
institutions. Board of Governors of the Federal Reserve System, Federal 
Reserve Act: Section 13. Powers of Federal Reserve Banks (online at 
www.federalreserve.gov/aboutthefed/section13.htm (accessed Mar. 11, 
2011).
    \412\ Fed Press Release on AIG Assistance, supra note 406. See also 
Henry M. Paulson, Jr., On the Brink (2010).
    \413\ Board of Governors of the Federal Reserve System, Report 
Pursuant to Section 129 of the Emergency Economic Stabilization Act of 
2008: Securities Borrowing Facility for American International Group, 
at 2 (Oct. 14, 2008) (online at www.federalreserve.gov/monetarypolicy/
files/129aigsecborrowfacility.pdf) (hereinafter ``Fed Report Pursuant 
to Section 129 of the EESA'').
    \414\ Id. at 2.
---------------------------------------------------------------------------
    By September 30, 2008, just 14 days after FRB approved the 
$85.0 billion RCF, AIG had already drawn down approximately 
$61.3 billion of that money.\415\ It became apparent that the 
facility would be inadequate to meet all of AIG's 
obligations.\416\ FRB and FRBNY worried about further ratings 
downgrades, which would--among other adverse effects--trigger 
more collateral calls on AIGFP.
---------------------------------------------------------------------------
    \415\ AIG used these funds for the following: $35.3 billion to 
cover loans to AIGFP for collateral postings, Guaranteed Investment 
Agreements, and other maturities; $13.3 billion in capital 
contributions for insurance subsidiaries; $3.1 billion to repay 
securities lending obligations; $2.7 billion for AIG funding commercial 
paper maturities; $1.5 billion for intercompany loan repayment; $1.0 
billion each in contributions for AIG Consumer Finance Group's 
subsidiaries and debt repayments; and $2.7 billion in additional 
borrowing. Including paid in kind interest and fees on the amount 
borrowed, AIG's total balance outstanding on the facility was $62.96 
billion at the end of September 2008. American International Group, 
Inc., Form 10-Q for the Quarterly Period Ended September 30, 2008, at 
52 (Nov. 10, 2008) (online at www.sec.gov/Archives/edgar/data/5272/
000095012308014821/y72212e10vq.htm).
    \416\ Fed Report Pursuant to Section 129 of the EESA, supra note 
413, at 2.
---------------------------------------------------------------------------
    On October 6, 2008, FRB approved an additional Securities 
Borrowing Facility to allow FRBNY to lend up to $37.8 billion 
to AIG.\417\ The lending would occur on an overnight basis, 
with FRBNY borrowing investment-grade fixed income securities 
from AIG's life insurance subsidiaries in return for cash 
collateral.\418\ The facility allowed AIG to replenish 
liquidity to its securities lending program--by extending its 
then-outstanding lending obligations where those obligations 
were not rolled over or replaced by transactions with other 
private market participants--while giving FRBNY possession and 
control of the securities.
---------------------------------------------------------------------------
    \417\ Fed Report Pursuant to Section 129 of the EESA, supra note 
413, at 2. The Federal Reserve Board publicly announced the Securities 
Borrowing Facility on October 8, 2008, the day that FRBNY established 
it. See Board of Governors of the Federal Reserve System, Press Release 
(Oct. 8, 2008) (online at www.federalreserve.gov/newsevents/press/
other/20081008a.htm).
    \418\ These securities were previously lent by AIG's insurance 
subsidiaries to third parties. The maximum amount of credit that FRBNY 
could extend at any one time was $37.8 billion. The Board made this 
authorization under Section 13(3) of the Federal Reserve Act. Fed 
Regulatory Reform: AIG, Maiden Lane II and III, supra note 40.
---------------------------------------------------------------------------
            b. Additional Government Assistance (Treasury Action)
    As discussed above, Treasury's participation in the initial 
rescue of AIG was limited to an advisory role. It is clear, 
however, that all actions taken by FRBNY were in close 
consultation with Treasury. After passage of EESA in October 
2008, Treasury took on a greater role in the AIG rescue as the 
government expanded and restructured its aid to the company. 
Additional assistance was necessitated by an ongoing decline in 
asset values and AIG's mounting debt burden, both of which 
raised concern with credit rating agencies.
    The credit rating agencies advised AIG that the company's 
upcoming November 10 report of third quarter earnings results--
which would reveal a loss of $24.5 billion \419\--would likely 
trigger a ratings downgrade in the absence of a ``parallel 
announcement of solutions to its liquidity problems.'' \420\ 
AIG was having difficulty selling assets to pay down debt from 
the RCF and meet anticipated liquidity needs, particularly in 
light of continuing collateral calls under its credit default 
swap contracts.\421\ Consequently, in the days leading up to 
AIG's earnings announcement, the Federal Reserve and Treasury 
hurried to put together additional financial assistance from 
the federal government that would address AIG's growing debt 
burden.
---------------------------------------------------------------------------
    \419\ Of which $19 billion was due to the securities lending 
program and AIGFP's CDS exposure. Board of Governors of the Federal 
Reserve System, Report Pursuant to Section 129 of the Emergency 
Economic Stabilization Act of 2008: Restructuring of the Government's 
Financial Support to the American International Group, Inc. on November 
10, 2008, at 4 (Nov. 10, 2008) (online at federalreserve.gov/
monetarypolicy/files/129aigrestructure.pdf).
    \420\ House Committee on Oversight and Government Reform, Written 
Testimony of Thomas C. Baxter, executive vice president and general 
counsel, Federal Reserve Bank of New York, The Federal Bailout of AIG, 
at 8-9 (Jan. 27, 2010) (online at oversight.house.gov/images/stories/
Hearings/pdfs/20100127baxter.pdf); FRBNY and Treasury briefing with 
Panel and Panel staff (Apr. 12, 2010).
    \421\ Congressional Oversight Panel, Joint Written Testimony of 
Thomas C. Baxter, Jr., general counsel and executive vice president of 
the legal group, and Sarah Dahlgren, executive vice president of 
special investments management and AIG monitoring, Federal Reserve Bank 
of New York, COP Hearing on TARP and Other Assistance to AIG, at 9 (May 
26, 2010) (online at cop.senate.gov/documents/testimony-052610-
baxter.pdf).
---------------------------------------------------------------------------
    This resulted in the November 10, 2008 announcement by 
FRBNY and Treasury of a comprehensive multi-pronged plan to 
address AIG's liquidity issues, create a ``more durable capital 
structure,'' and provide AIG with more time and increased 
flexibility to sell assets and repay the government.\422\ 
Significantly, Treasury's TARP equity facilities allowed AIG to 
access capital without drawing on credit lines, avoiding an 
increase in the company's outstanding debt (and thus further 
pressure on its credit ratings).\423\ As Secretary Geithner 
later stated, ``[a]voiding any downgrade of AIG's credit rating 
was absolutely essential to sustaining the firm's viability and 
protecting the taxpayers' investment.'' \424\
---------------------------------------------------------------------------
    \422\ Board of Governors of the Federal Reserve System, Federal 
Reserve Board and Treasury Department Announce Restructuring of 
Financial Support to AIG (Nov. 10, 2008) (online at 
www.federalreserve.gov/newsevents/press/other/20081110a.htm).
    \423\ FRBNY and Treasury briefing with Panel and Panel staff (Apr. 
12, 2010).
    \424\ Geithner Written Testimony before House Committee on 
Oversight, supra note 407, at 8.
---------------------------------------------------------------------------
    As part of the announcement, Treasury said it planned to 
use $40 billion of TARP money to purchase newly issued AIG 
perpetual preferred shares and warrants to purchase AIG common 
stock;\425\ this initiative was known as the Systemically 
Significant Failing Institutions program (SSFI), and AIG was 
its only beneficiary. At the same time, FRBNY reduced AIG's 
line of credit under the RCF to $60 billion from $85 billion. 
FRBNY also announced that it was restructuring the facility by 
extending the loan from two to five years and lowering the 
interest rate and fees charged.\426\
---------------------------------------------------------------------------
    \425\ The perpetual preferred shares were also known as the Series 
D Preferred Stock Purchase Agreement. American International Group, 
Inc., U.S. Treasury, Federal Reserve and AIG Establish Comprehensive 
Solution for AIG, at 1 (Nov. 10, 2008) (online at media.corporate-
ir.net/media_files/irol/76/76115/reports/Restructuring10Nov08LTR.PDF) 
(hereinafter ``U.S. Treasury & Federal Reserve Craft Solution for 
AIG'').
    \426\ See Fed Regulatory Reform: AIG, Maiden Lane II and III, supra 
note 40.
---------------------------------------------------------------------------
    Also on that day, Treasury and FRB announced a major 
initiative to increase and restructure federal assistance to 
AIG; FRBNY would be authorized to create two SPVs--Maiden Lane 
II and Maiden Lane III--to purchase troubled assets from AIG 
and its subsidiaries. Maiden Lane II was designed to address 
AIG's liquidity problems by purchasing RMBS assets from its 
securities lending collateral portfolio.\427\ Maiden Lane III 
was authorized to provide up to $30.0 billion ($24.3 billion 
from FRBNY and $5.0 billion from AIG) to purchase the 
collateralized debt obligations (held by the firm's 
counterparties) underlying AIG's credit swap contracts.\428\
---------------------------------------------------------------------------
    \427\ Initially $22.5 billion was authorized, of which $19.5 
billion was lent in order to purchase $39.3 billion (at par value) of 
RMBS at the then-current market price of $20.8 billion. See 2010 June 
Oversight Report, supra note 395, at 87-88; Board of Governors of the 
Federal Reserve System, Monthly Report on Credit and Liquidity Programs 
and the Balance Sheet, at 22 (Jan. 2011) (online at 
www.federalreserve.gov/monetarypolicy/files/
monthlyclbsreport201101.pdf) (hereinafter ``Fed Monthly Report on 
Credit, Liquidity Programs, and Balance Sheet'').
    \428\ See 2010 June Oversight Report, supra note 395, at 91; Fed 
Monthly Report on Credit, Liquidity Programs, and Balance Sheet, supra 
note 427, at 23.
---------------------------------------------------------------------------
    Although Maiden Lane II, Maiden Lane III, and Treasury's 
initial TARP capital infusion helped relieve AIG's financial 
pressures, asset valuations continued to decline, and AIG's 
losses increased through the end of 2008.\429\ These losses 
raised the prospect of another round of rating agency 
downgrades and collateral calls that would require further cash 
postings from AIG. In response, the Federal Reserve and 
Treasury announced on March 2, 2009, that they would again 
restructure their existing aid to AIG and provide additional 
assistance in order to stabilize AIG and protect financial 
markets and the existing investment.\430\
---------------------------------------------------------------------------
    \429\ The company reported a net loss of $61.7 billion for the 
fourth quarter of 2008 on March 2, 2009, capping off a year in which 
AIG incurred approximately $99 billion in total net losses. 2010 June 
Oversight Report, supra note 395, at 94.
    \430\ See U.S. Department of the Treasury, U.S. Treasury and 
Federal Reserve Board Announce Participation in AIG Restructuring Plan 
(Mar. 2, 2009) (online at www.treasury.gov/press-center/press-releases/
Pages/tg44.aspx). See also House Committee on Financial Services, 
Written Testimony of William C. Dudley, president and chief executive 
officer, Federal Reserve Bank of New York, Oversight of the Federal 
Government's Intervention at American International Group, at 5 (Mar. 
24, 2009) (online at www.house.gov/apps/list/hearing/financialsvcs_dem/
hr03240923.shtml).
---------------------------------------------------------------------------
    Under the March 2009 restructuring, Treasury substantially 
increased its involvement in AIG, with the goal of reducing 
AIG's leverage, or debt load.\431\ Treasury announced a new 
five-year standby $29.8 billion TARP preferred stock facility, 
which would allow AIG to make draw-downs as needed.\432\ 
Treasury also exchanged its November 2008 cumulative preferred 
stock interest for noncumulative preferred stock, which more 
closely resembles common stock and is, therefore, viewed more 
favorably as a source of funding by the credit rating 
agencies.\433\
---------------------------------------------------------------------------
    \431\ FRBNY also took several actions at this time with respect to 
the terms and structure of the RCF. First, it announced the creation of 
SPVs for American International Assurance Company, Limited (AIA) and 
American Life Insurance Company (ALICO), two of AIG's foreign insurance 
company subsidiaries, through which AIG would contribute the equity of 
AIA and ALICO in exchange for preferred and common interests in the 
SPVs. FRBNY received preferred interests of $16 billion in the AIA SPV 
and $9 billion in the ALICO SPV. AIG would then transfer the preferred 
interests in the SPVs to FRBNY in exchange for a $25 billion reduction 
in the outstanding balance of the RCF, to $35 billion. 2010 June 
Oversight Report, supra note 395, at 95, 97.
    \432\ The total amount of credit made available under the second 
TARP intervention was $30.0 billion, which included $165 million 
dedicated for retention bonuses of AIGFP employees. See 2010 June 
Oversight Report, supra note 395, at 95; Treasury Transactions Report, 
supra note 36.
    \433\ Non-cumulative preferred stock is more like common stock 
largely because its dividends are non-cumulative, which means missed 
dividend payments do not accumulate for later payment. At the time, the 
$1.6 billion in dividends AIG did not pay were capitalized and added as 
an obligation to be repaid prior to the company redeeming the newly 
issued Series E preferred stock. U.S. Treasury & Federal Reserve Craft 
Solution for AIG, supra note 425, at 1; Treasury Transactions Report, 
supra note 36.
---------------------------------------------------------------------------
    These March 2009 announcements represented the final round 
of government support prior to the publication of the Panel's 
June 2010 report on AIG.

              B. Summary of COP Report and Findings \434\

---------------------------------------------------------------------------
    \434\ For a more complete discussion of the Panel's findings, see 
Section K and the conclusions of the Panel's June 2010 oversight 
report. 2010 June Oversight Report, supra note 395, at 230-235.
---------------------------------------------------------------------------

1. AIG Changed a Fundamental Market Relationship

    By providing a complete bailout that called for no shared 
sacrifice among AIG and its creditors, FRBNY and Treasury 
fundamentally changed the rules of America's financial 
marketplace.
    U.S. policy has long drawn a distinction between two 
different types of investments. The first type is ``safe'' 
products, such as checking accounts, which are highly regulated 
and are intended to be accessible and relatively risk free to 
even unsophisticated investors. Banks that offer checking 
accounts must accept a substantial degree of regulatory 
scrutiny, offer standardized features, and pay for FDIC 
insurance on their deposits. In return, the bank and its 
customers benefit from an explicit government guarantee: within 
certain limitations, no checking account in the United States 
will be allowed to lose even a penny of value.
    By contrast, ``risky'' products, which are more loosely 
regulated, are aimed at more sophisticated players. These 
products often offer much higher profit margins for banks and 
much higher potential returns to investors, but they have never 
benefited from any government guarantee.
    Before the AIG bailout, the derivatives market appeared to 
fall cleanly in the second category. Yet by bailing out AIG and 
its counterparties, the federal government signaled that the 
entire derivatives market--which had been explicitly and 
completely deregulated by Congress through the Commodities 
Futures Modernization Act \435\--would now benefit from the 
same government safety net provided to fully regulated 
financial products. In essence, the government distorted the 
marketplace by transforming highly risky derivative bets into 
fully guaranteed transactions, with the American taxpayer 
standing as guarantor.
---------------------------------------------------------------------------
    \435\ The Commodities Futures Modernization Act was passed by 
Congress and signed into law by President Bill Clinton in December 
2000. For a further discussion of AIG's regulatory scheme, see 2010 
June Oversight Report, supra note 395, at 19-24.
---------------------------------------------------------------------------
    The Panel believes that the moral hazard problem unleashed 
by making whole AIG's counterparties in unregulated, 
unguaranteed transactions undermined the credibility of 
specific efforts at addressing the financial crisis that 
followed, including the entirety of the TARP, as well as 
America's system of financial regulation.

2. The Powerful Role of Credit Rating Agencies

    Considerations about credit rating agencies were central to 
FRBNY's, and later Treasury's, decision to assist AIG, and 
shaped many of the decisions that had to be made during the 
course of the rescue.\436\ Indeed, it is no exaggeration to say 
that concerns about rating downgrades drove government policy 
in regard to AIG.
---------------------------------------------------------------------------
    \436\ See 2010 June Oversight Report, supra note 395, at 52-53, 
150, and 230-231.
---------------------------------------------------------------------------
    As the market's most widely followed judges of financial 
soundness, credit rating agencies wield immense power, whether 
they consciously use it or not. In this case, government 
decision makers felt compelled to follow a particular course of 
action out of a fear of what credit rating agencies might do if 
they acted otherwise. The fact that this small group of private 
firms was able to command such deference from the federal 
government raises questions about their role within the 
marketplace and how effectively and accountably they have 
wielded their power.\437\
---------------------------------------------------------------------------
    \437\ Credit rating agencies are private companies subject to the 
appropriate registration and approval of the SEC as nationally 
recognized statistical rating organizations (NRSROs). A complete list 
of NRSROs--including Moody's Investor Services, Standard & Poor's 
Ratings Services, and Fitch--can be found on the SEC's website. See 
U.S. Securities and Exchange Commission, Commission Orders Granting 
NRSRO Registration (online at www.sec.gov/divisions/marketreg/
ratingagency.htm#nrsroorders) (accessed March 4, 2011).
---------------------------------------------------------------------------

3. The Options Available to the Government \438\
---------------------------------------------------------------------------

    \438\ For a more complete discussion of the Panel's findings, see 
Section F.1.b of the Panel's June 2010 oversight report. 2010 June 
Oversight Report, supra note 395, at 139-164.
---------------------------------------------------------------------------
    FRBNY and Treasury justify AIG's extraordinary bailout by 
saying that they faced a ``binary choice'' between allowing AIG 
to fail, which would have resulted in chaos, or rescuing the 
entire institution, including all of its business 
partners.\439\ The Panel was skeptical of this reasoning. The 
evidence suggested that government had more than two options at 
its disposal, and that some of the alternatives would not have 
involved payment in full of the counterparties and other AIG 
creditors.
---------------------------------------------------------------------------
    \439\ According to Thomas Baxter Jr., FRBNY's general counsel, the 
government officials faced ``a binary choice to either let AIG file for 
bankruptcy or to provide it with liquidity.'' 2010 June Oversight 
Report, supra note 395, at 69.
---------------------------------------------------------------------------
    In interviews and meetings with participants on all sides 
in these events, the Panel identified a key decision point: the 
period between Sunday afternoon, September 14, 2008, and 
Tuesday morning, September 16, 2008. This was the period during 
which FRBNY sought to encourage a private effort to lend 
sufficient funds to AIG to address its liquidity crisis, while 
at the same time trying to determine what the consequences 
would be of the bankruptcy of AIG's holding company.
    The Panel is concerned that the government put the effort 
to organize a private AIG rescue in the hands of only two 
banks--banks with severe conflicts of interest given that they 
would have been among the largest beneficiaries of a taxpayer 
bailout.\440\ By failing to bring in other players, the 
government neglected to use all of its negotiating leverage. 
There is no doubt that a private rescue would have been 
difficult, perhaps impossible, to arrange, but the Panel 
concluded that if the effort had succeeded, the impact on 
market confidence would have been extraordinary, particularly 
for a solution that avoided putting taxpayer dollars at risk.
---------------------------------------------------------------------------
    \440\ 2010 June Oversight Report, supra note 395, at 74-75.
---------------------------------------------------------------------------
    Further, even after the Federal Reserve and Treasury had 
decided that a public rescue was the only choice, they still 
could have pursued options other than paying every creditor and 
every counterparty at 100 cents on the dollar. Arrangements in 
which different creditors accept varying degrees of loss are 
common in bankruptcy proceedings or other negotiations when a 
distressed company is involved, and in this case the government 
failed to use its significant negotiating leverage to extract 
such compromises. As Martin Bienenstock of Dewey & LeBoeuf 
testified to the Panel, ``FRBNY was saving AIG with taxpayer 
funds due to the losses sustained by the business divisions 
transacting business with these creditor groups, and a 
fundamental principle of workouts is shared sacrifice, 
especially when creditors are being made better off than they 
would be if AIG were left to file bankruptcy.'' As such, ``it 
was very plausible to have obtained material creditor discounts 
from some creditor groups as part of that process without 
undermining its overarching goal of preventing systemic 
impairment of the financial system and without compromising the 
Federal Reserve Board's principles.'' \441\
---------------------------------------------------------------------------
    \441\ See Congressional Oversight Panel, Written Testimony of 
Martin J. Bienenstock, partner and chair of business solutions and 
government department, Dewey & LeBoeuf, COP Hearing on TARP and Other 
Assistance to AIG, at 1, 3 (May 26, 2010) (online at cop.senate.gov/
documents/testimony-052610-bienenstock.pdf).
---------------------------------------------------------------------------
    Ultimately, it is impossible to stand in the shoes of those 
who had to make decisions during those hours, to weigh the 
risks of accelerated systemic collapse against the profound 
need for AIG and its counterparties to share in the costs and 
the risks of that rescue, and to weigh those considerations not 
today in an atmosphere of relative calm, but in the middle of 
the night in the midst of a financial collapse. All the Panel 
can do is observe the costs to the public's confidence in our 
public institutions from the failure to require that AIG's 
counterparties in the financial sector share the burden of the 
AIG rescue.

4. The Government's Authorities in a Financial Crisis

    The Federal Reserve and Treasury have explained the 
haphazard nature of the AIG rescue by noting that they lacked 
specific tools to handle the collapse of such a complex, 
multisector, multinational financial corporation.\442\ To some 
extent this argument is a red herring: the relevant authorities 
should have monitored AIG more closely, discovered its 
vulnerability earlier, and sought any needed new authorities 
from Congress in advance of the crisis. Even after AIG began to 
unravel, the Federal Reserve and Treasury could have used their 
existing authority more aggressively.
---------------------------------------------------------------------------
    \442\ See Section B.2 of the Panel's June 2010 oversight report for 
an overview of the company's operations and regulatory framework. See 
2010 June Oversight Report, supra note 395, at 19-24.
---------------------------------------------------------------------------

5. Conflicts

    The AIG rescue illustrated the tangled nature of 
relationships on Wall Street. People from the same small group 
of law firms, investment banks, and regulators appear in the 
AIG saga (and many other aspects of the financial crisis) in 
many roles, and sometimes representing different and 
conflicting interests.\443\ The lawyers who represented banks 
trying to put together a rescue package for AIG became the 
lawyers to FRBNY, shifting sides in a matter of minutes. Those 
same banks appear first as advisors, then potential rescuers, 
then as counterparties to several different kinds of agreements 
with AIG, and thereby as the direct and indirect beneficiaries 
of the government rescue. Many of the regulators and government 
officials (in both administrations) are former employees of the 
entities they oversee or that benefited from the rescue.
---------------------------------------------------------------------------
    \443\ See 2010 June Oversight Report, supra note 395, at 72-76.
---------------------------------------------------------------------------
    The government justified its decision to draw from a 
limited pool of lawyers and advisors by citing the need for 
expertise from Wall Street insiders familiar with AIG. Even so, 
the government entities should have recognized that at a time 
when the American taxpayer was being asked to bear 
extraordinary burdens, they had a special responsibility to 
ensure that their actions did not undermine public trust by 
failing to address all potential conflicts and the appearance 
of conflicts that could arise. The need to address conflicts 
and the appearance of conflicts by government actors, 
counterparties, lawyers, and all other agents involved in this 
drama was wrongly treated largely as a detail that could be 
subjugated to the primary goal of keeping the financial system 
up and running.
    Even setting aside concerns about actual or apparent 
conflicts of interest, the limited pool of people involved in 
AIG's rescue raises a broader concern. Everyone involved in 
AIG's rescue had the mindset of either a banker or a banking 
regulator. The discussions did not include other voices that 
might have brought different ideas and a broader view of the 
national interest. It is unsurprising, then, that the American 
public remains convinced that the rescue was designed by Wall 
Street to help fellow Wall Streeters, with less emphasis given 
to protecting the public trust.
    The Panel recognized that government officials were 
confronting an immediate crisis and had to act in haste. Yet it 
is at moments of crisis that the government has its most acute 
obligation to protect the public interest by avoiding even the 
appearance of impropriety. As Mr. Baxter of FRBNY told the 
Panel, ``[i]f we should go through this again, we [would] need 
to be more mindful of how our actions can be perceived. The 
lesson learned for me personally here is that we need to be 
mindful of that and perhaps change our behavior as a result of 
the perception, not the actuality.'' \444\
---------------------------------------------------------------------------
    \444\ Congressional Oversight Panel, Testimony of Thomas C. Baxter, 
Jr., general counsel and executive vice president of the legal group, 
Federal Reserve Bank of New York, COP Hearing on TARP and Other 
Assistance to AIG, at 102 (May 26, 2010) (online at cop.senate.gov/
documents/transcript-052610-aig.pdf).
---------------------------------------------------------------------------

                        C. Panel Recommendations


1. Government Exit Strategy/Equity Market Risk Mitigation

    In its June 2010 report, the Panel recommended that 
Treasury should explore options aimed at accelerated sales of 
smaller portions of its stake in AIG sooner rather than later, 
to help mitigate longer term equity market risks, and transfer 
some of the risk from the taxpayer to the public markets.\445\ 
While the Panel recognized the danger in a prolonged investment 
strategy, political expediency should not trump the opportunity 
for taxpayers to realize as much value as possible from their 
investment. Thus, the Panel cautioned against a rapid exit in 
the absence of clearly defined parameters for achieving the 
maximum risk-adjusted return to the taxpayer. Nonetheless, 
given the significant equity market and company execution risks 
involved in a long-term, back-end-loaded exit strategy, the 
Panel noted that the government's exposure to AIG should be 
minimized (and shifted to private shareholders) where possible 
via accelerated sales of a small minority of the government's 
holdings, provided this could be done with limited harm to the 
share price. In this sense, the interests of AIG's government 
and private shareholders would be aligned, as the taxpayer 
would be best served by enhancing value before a broader exit 
strategy via the public markets could be executed.
---------------------------------------------------------------------------
    \445\ 2010 June Oversight Report, supra note 395, at 202.
---------------------------------------------------------------------------

2. Status of COP Recommendations

    The Panel's recommendation that Treasury should explore 
options aimed at reducing its equity market exposure to AIG 
remains something of a work in progress.\446\ In September 
2010, AIG and Treasury reached an agreement to restructure 
AIG's obligations under the TARP, in which Treasury exchanged 
its preferred stock for 1.1 billion shares of AIG common stock 
on January 14, 2011 (discussed in more detail below). While 
AIG's improving outlook facilitated this announcement, these 
actions have not mitigated long-term equity market risk from 
Treasury's holdings. Although this recapitalization temporarily 
increases Treasury's equity market exposure to AIG (given the 
conversion of its preferred equity stake to common equity), the 
transaction does provide a path for the government to pursue 
share sales in the public markets that would reduce its 
exposure, potentially as soon as the second quarter of 2011. 
The assumption of FRBNY's preferred interest in AIG SPVs serves 
to increase Treasury's overall exposure to AIG, but via a 
mechanism that fully collateralizes this exposure, without 
assuming additional equity market risks.
---------------------------------------------------------------------------
    \446\ 2010 June Oversight Report, supra note 395, at 170.
---------------------------------------------------------------------------

                               D. Updates


1. Recent Developments

    On September 30, 2010, AIG, Treasury, FRBNY, and the AIG 
Credit Facility Trust (Trust) announced their intent to enter 
into a series of transactions that would ultimately allow the 
government to exit AIG.\447\ The timing and substance of this 
announcement clarifying the government's exit strategy was 
generally consistent with the expectations outlined in the 
Panel's June report.\448\ The aggregate effect of this 
agreement, which was subsequently executed, was to repay all 
outstanding obligations to FRBNY, consolidate AIG's government 
ownership with Treasury, and provide the government with a 
pathway to monetize its holdings. The integrated steps involved 
in the execution of AIG's recapitalization plan on January 14, 
2011--the most significant being the repayment of FRBNY in full 
and Treasury exchanging its preferred equity interests for 
common stock--are outlined below.\449\
---------------------------------------------------------------------------
    \447\ American International Group, Inc., AIG Announces Plan To 
Repay U.S. Government (Sept. 30, 2010) (online at www.aigcorporate.com/
newsroom/2010_September/AIGAnnouncesPlantoRepay30Sept2010.pdf). This 
agreement was supplemented by a master transaction agreement on 
December 8, 2010. American International Group, Inc., AIG Files Master 
Agreement on Recapitalization Plan (Dec. 8, 2010) (online at 
ir.aigcorporate.com/External.File?t =2&item=g7rqBLVLuv81UAmrh20Mp 
3rr7lYtG5aXEd/NUIhOaDRM1TgAKUfc NQqWGNGO+veYq18TQTV4xM1BjE/CQAuJPw==). 
While largely similar to the recapitalization plan released on 
September 30, it contains two new pieces of material information. 
First, the terms of Treasury's role as a selling shareholder have been 
somewhat clarified. Treasury has the right to participate in any 
registered stock offering and can demand twice in a year that AIG 
effect a registered market offering of shares after the earlier of 
August 15, 2011 or AIG's completion of a primary equity offering. 
Treasury can also dictate the terms and frequency of any sales of new 
AIG shares until the government's ownership falls to under 33 percent. 
Finally, the agreement provides additional clarity on future AIG 
capital raises. AIG may raise up to $3 billion of common equity by 
August 15, 2011 (and can raise an additional $4 billion with Treasury's 
consent, for a total of $7 billion in additional equity).
    \448\ 2010 June Oversight Report, supra note 395, at 222.
    \449\ American International Group, Inc., AIG Executes Plan to 
Repay U.S. Government (Jan. 14, 2011) (online at ir.aigcorporate.com/
External.File? t=2&item=g7rqBLVLuv81UAmrh20Mp 
31WhknkljlRVwaPlA8x40UnwpUYeTWq NeJMSo+ju5ThNwA5rr5tEDobelzmAXWiow==); 
U.S. Department of the Treasury, Treasury Announces Completion of the 
American International Group Recapitalization Transaction (Jan. 14, 
2011) (online at www.treasury.gov/press-center/press-releases/Pages/
tg1024.aspx); Federal Reserve Board of New York, New York Fed Ends AIG 
Assistance with Full Repayment (Jan. 14, 2011) (online at 
www.newyorkfed.org/newsevents/news/aboutthefed/2011/oa110114.html).
---------------------------------------------------------------------------
      Repayment and Termination of the FRBNY Credit 
Facility: FRBNY, which has repayment priority over Treasury, 
received approximately $21 billion in cash to redeem its 
outstanding balance and accrued interest and fees. AIG used 
funds from asset sales--the IPO of American International 
Assurance Company (AIA) and sale of American Life Insurance 
Company (ALICO)--to facilitate the repayment of amounts owed 
under the FRBNY Credit Facility.\450\
---------------------------------------------------------------------------
    \450\ As described in a regulatory filing AIG made with the SEC on 
January 14, 2011: ``[a]t the Closing, AIG repaid FRBNY approximately 
$21 billion in cash, representing complete repayment of all amounts 
owing under the Credit Agreement (as amended, the ``FRBNY Credit 
Facility''), dated as of September 22, 2008, and the FRBNY Credit 
Facility was terminated. The funds for the repayment came from the net 
cash proceeds from AIG's sale of 67 percent of the ordinary shares of 
AIA Group Limited (``AIA'') in its initial public offering and from 
AIG's sale of American Life Insurance Company (``ALICO''). These funds 
were loaned to AIG, in the form of secured limited recourse debt (the 
``SPV Intercompany Loans''), from the SPVs that hold the proceeds of 
the AIA IPO and the ALICO sale. The SPV Intercompany Loans are secured 
by pledges by AIG and certain of its subsidiaries of, among other 
collateral, certain of their equity interests in Nan Shan Life 
Insurance Company, Ltd. (``Nan Shan''), AIG Star Life Insurance Co. 
Ltd. (``AIG Star''), AIG Edison Life Insurance Company (``AIG Edison'') 
and International Lease Finance Corporation (collectively with Nan 
Shan, AIG Star and AIG Edison, the ``Designated Entities''), as well as 
the remaining AIA ordinary shares held by the AIA SPV and certain of 
the MetLife, Inc. securities received from the sale of ALICO held by 
the ALICO SPV. The proceeds from any sale or disposition of the equity 
of such Designated Entities and such other assets will be used to repay 
the SPV Intercompany Loans and the recourse on the SPV Intercompany 
Loans is generally limited to foreclosing on the pledged collateral, 
except to the extent of the fair market value of equity interests of 
the Designated Entities that cannot be pledged because of regulatory or 
tax considerations.'' American International Group, Inc., Form 8-K for 
the Period Ended January 14, 2011 (Jan. 14, 2011) (online at 
www.sec.gov/Archives/edgar/data/5272/000095012311003061/y88987e8vk.htm) 
(hereinafter ``AIG: Form 8-K Period Ended January 14, 2011'').
---------------------------------------------------------------------------
      Repurchase and Exchange of SPV Preferred 
Interests: AIG drew down an additional $20.3 billion in TARP 
funds (Series F) towards the repurchase of SPV interests from 
FRBNY. In consideration for this new funding, AIG transferred 
$20.3 billion of FRBNY's former SPV Preferred interests to 
Treasury.\451\
---------------------------------------------------------------------------
    \451\ As outlined in a company filing on January 14, 2011: ``[a]t 
the Closing, AIG drew down approximately $20 billion (the ``Series F 
Closing Drawdown Amount'') under the Treasury Department's commitment 
(the ``Treasury Department Commitment'') pursuant to the Securities 
Purchase Agreement, dated as of April 17, 2009 (the ``Series F SPA''), 
between AIG and the Treasury Department relating to AIG's Series F 
Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 
per share (the ``Series F Preferred Stock''). The Series F Closing 
Drawdown Amount was the full amount remaining under the Treasury 
Department Commitment, less $2 billion that AIG designated to be 
available after the Closing for general corporate purposes under a 
commitment relating to AIG's Series G Cumulative Mandatory Convertible 
Preferred Stock, par value $5.00 per share (the ``Series G Preferred 
Stock''), described below (the ``Series G Drawdown Right''). The right 
of AIG to draw on the Treasury Department Commitment (other than the 
Series G Drawdown Right) was terminated.
    AIG applied certain proceeds from asset sales to retire a portion 
of FRBNY's preferred interests in the ALICO SPV and used the Series F 
Closing Drawdown Amount to repurchase the remainder of FRBNY's 
preferred interests in the ALICO SPV and all of FRBNY's preferred 
interests in the AIA SPV (``SPV Preferred Interests''). AIG transferred 
the SPV Preferred Interests to the Treasury Department as part of the 
consideration for the exchange of the Series F Preferred Stock, 
described below.
    Under the Master Transaction Agreement, the Treasury Department, so 
long as it holds SPV Preferred Interests, will have the right, subject 
to existing contractual restrictions, to require AIG to dispose of the 
remaining AIA ordinary shares held by the AIA SPV and certain of the 
MetLife, Inc. securities received from the sale of ALICO held by the 
ALICO SPV. The consent of the Treasury Department, so long as it holds 
SPV Preferred Interests, will also be required for AIG to take 
specified significant actions with respect to the Designated Entities, 
including initial public offerings, sales, significant acquisitions or 
dispositions and incurrence of significant levels of indebtedness. If 
any SPV Preferred Interests are outstanding on May 1, 2013, the 
Treasury Department will have the right to compel the sale of all or a 
portion of one or more of the Designated Entities on terms that it will 
determine.
    As a result of these transactions, the SPV Preferred Interests will 
no longer be considered permanent equity on AIG's balance sheet, and 
will be classified as redeemable noncontrolling interests in partially 
owned consolidated subsidiaries.'' AIG: Form 8-K Period Ended January 
14, 2011, supra note 450.
---------------------------------------------------------------------------
      Exchange of AIG Preferred for Common Stock: In 
the aggregate, Treasury converted $47.5 billion in TARP 
preferred stock at $45 per share for an equivalent amount of 
equity (representing approximately 1.1 billion shares).\452\ 
Additionally, the Trust's Series C preferred shares were 
converted into approximately 563 million shares of AIG common 
equity. These conversions resulted in Treasury holding a 92.1 
percent equity stake in AIG.
---------------------------------------------------------------------------
    \452\ This figure includes $40.0 billion of Series E preferred 
stock converted to equity and $7.5 billion of Series F preferred stock 
converted to equity. Treasury Transactions Report, supra note 36.
    As outlined in a company filing on January 14, 2011: ``[a]t the 
Closing, AIG and the Treasury Department amended and restated the 
Series F SPA to provide for the issuance of 20,000 shares of Series G 
Preferred Stock by AIG to the Treasury Department. The Series G 
Preferred Stock initially has a liquidation preference of zero, which 
will increase by the amount of any funds drawn down by AIG under the 
Series G Drawdown Right from the Closing until March 31, 2012 (or the 
earlier termination of the Series G Drawdown Right).
    At the Closing (i) the shares of AIG's Series C Perpetual, 
Convertible, Participating Preferred Stock, par value $5.00 per share 
(the ``Series C Preferred Stock''), held by the Trust were exchanged 
for 562,868,096 shares of AIG common stock, par value $2.50 per share 
(``AIG Common Stock''), which were subsequently transferred by the 
Trust to the Treasury Department; (ii) the shares of AIG's Series E 
Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 
per share (the ``Series E Preferred Stock''), held by the Treasury 
Department were exchanged for 924,546,133 shares of AIG Common Stock; 
and (iii) the shares of the Series F Preferred Stock held by the 
Treasury Department were exchanged for (a) the SPV Preferred Interests, 
(b) 20,000 shares of the Series G Preferred Stock, and (c) 167,623,733 
shares of AIG Common Stock. As a result of the Recapitalization, the 
Treasury Department holds 1,655,037,962 shares of newly issued AIG 
Common Stock, representing ownership of approximately 92 percent of the 
outstanding AIG Common Stock, and 20,000 shares of Series G Preferred 
Stock. After this share exchange and distribution were completed, the 
Trust terminated pursuant to the terms and conditions of the Trust 
Agreement.
    The issuance of AIG Common Stock in connection with the exchange 
for the Series C Preferred Stock, the Series E Preferred Stock and the 
Series F Preferred Stock will significantly affect the determination of 
net income attributable to common shareholders and the weighted average 
shares outstanding, both of which are used to compute earnings per 
share.'' AIG: Form 8-K Period Ended January 14, 2011, supra note 450.
---------------------------------------------------------------------------
      Warrants to Purchase Common Stock: AIG 
distributed 10-year warrants on 75 million shares of AIG common 
stock with an exercise price of $45.00 per share to the 
existing public shareholders. These warrants, aimed at 
softening the significant dilution from the government's common 
share conversion, were not provided to Treasury or other 
government shareholders.\453\
---------------------------------------------------------------------------
    \453\ As described in a company filing on January 14, 2011: ``[a]s 
part of the Recapitalization, on January 19, 2011, AIG will distribute 
to the holders of record of AIG Common Stock on January 13, 2010, by 
means of a dividend, 10-year warrants to purchase a total of up to 75 
million shares of AIG Common Stock at an exercise price of $45.00 per 
share. None of the Trust, the Treasury Department or the FRBNY will 
receive these warrants. For more information on these warrants, see 
AIG's Current Reports on Form 8-K dated January 7, 2011 and January 12, 
2011.'' AIG: Form 8-K Period Ended January 14, 2011, supra note 450.
---------------------------------------------------------------------------
    Figure 27 below provides a timeline of recent AIG-related 
announcements following the publication of our June 2010 
report.
[GRAPHIC] [TIFF OMITTED] T4832A.023

    The composition of the government's assistance to AIG has 
evolved from debt to equity as the company's financial 
condition has changed. Initially, the Federal Reserve was the 
only government entity to provide assistance to AIG, which was 
limited to large lines of credit. Following the enactment of 
EESA, Treasury authorized $70 billion of preferred equity 
facilities for AIG. Since TARP assistance was in the form of 
preferred equity, it did not count against the company's 
outstanding debt, thereby providing a more attractive form of 
capital which helped improve AIG's leverage, or risk levels, in 
the eyes of the rating agencies. Currently, the only debt 
instruments outstanding as part of the government rescue of AIG 
are the loans to the Maiden Lane II and Maiden Lane III SPVs, 
which are not AIG liabilities. At present, Treasury holds 
exclusively common or preferred equity interests in AIG.

                               FIGURE 28: GOVERNMENT ASSISTANCE TO AIG OUTSTANDING
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                    November 5,   June 24,  2010  March 8,  2011
                                                                       2008            \454\           \455\
----------------------------------------------------------------------------------------------------------------
FRBNY
Revolving Credit Facility \456\.................................         $80,257         $25,756              $0
Maiden Lane II \457\............................................             N/A          14,668          12,832
Maiden Lane III \458\...........................................             N/A          16,290          13,008
Preferred interest in AIA Aurora LLC............................             N/A          16,453               0
Preferred interest in ALICO SPV.................................             N/A           9,255               0
    Total FRBNY.................................................          80,257          82,422          25,840
TARP
Series E Non-Cumulative Preferred Stock (converted to common                 N/A          40,000          40,000
 equity) \459\..................................................
Series F Non-Cumulative Preferred Stock \460\...................             N/A     \461\ 7,543    \462\ 18,763
    Total TARP..................................................             N/A          47,543          58,763
                                                                 -----------------------------------------------
Total Assistance................................................         $80,257        $129,965         $84,609
----------------------------------------------------------------------------------------------------------------
\454\ See Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.4.1: Factors
  Affecting Reserve Balances (June 24, 2010) (online at www.federalreserve.gov/releases/h41/20100624/)
  (hereinafter ``June 2010 Fed Statistical Release H.4.1'').
\455\ Treasury Transactions Report, supra note 36.
\456\ Board of Governors of the Federal Reserve System, Data Download Program (Instrument Used: Factors
  Affecting Reserve Balances, Credit extended to American International Group, Inc., Net: week average) (online
  at www.federalreserve.gov/datadownload/).
\457\ Outstanding principal amount of loan extended by FRBNY (including accrued and payable interest to FRBNY).
  Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.4.1: Factors Affecting
  Reserve Balances (June 24, 2010 and Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/). On March
  11, 2011, FRBNY announced that AIG had formally offered to purchase the assets in Maiden Lane II. There was no
  further news regarding the offer at the time this report was published. See Federal Reserve Bank of New York,
  Statement Related to Offer by AIG to Purchase Maiden Lane II LLC (Mar. 11, 2011) (online at www.newyorkfed.org/
  newsevents/news/markets/2011/an110311.html).
\458\ Outstanding principal amount of loan extended by FRBNY (including accrued and payable interest to FRBNY).
  June 2010 Fed Statistical Release H.4.1, supra note 454; Board of Governors of the Federal Reserve System,
  Federal Reserve Statistical Release H.4.1: Factors Affecting Reserve Balances (Mar. 10, 2011) (online at
  www.federalreserve.gov/releases/h41/20110310/) (hereinafter ``March 2011 Fed Statistical Release H.4.1'').
\459\ The initial direct TARP assistance was the $40 billion purchase of Series D (cumulative) preferred stock.
  AIG missed $1.6 billion of dividend payments on this investment. Consequently, when the Series D preferred
  stock was converted to Series E non-cumulative preferred stock in April 2009, the missed dividends were
  capitalized as part of the newly issued Series E preferred shares. Prior to the conversion to equity, the
  Series E shares could not be redeemed by AIG until the $1.6 billion in capitalized dividends were repaid.
  Following the conversion of the preferred interests to equity, however, the claims to the capitalized interest
  were also exchanged, thereby eliminating the potential for a payment from the missed dividends. Treasury
  Transactions Report, supra note 36.
\460\ The funds available under the Series F stock facility were reduced by $165 million in March 2009 in order
  to pay retention bonuses to AIGFP employees, thus leaving $29.8 billion available. Immediately following the
  recapitalization, the components of the $29.8 billion of TARP Series F preferred stock were: the newly created
  $2.0 billion of Series G preferred credit facility (available but currently undrawn by AIG to date), a $16.9
  billion investment in AIA preferred units, a $3.8 billion investment in ALICO junior preferred units, and the
  $7.5 billion from the Series F preferred stock facility that were subsequently converted into 167,623,733
  common equity shares. As of March 8, 2011, $9.1 billion of Treasury's holdings in the AIA and ALICO SPVs had
  been redeemed. Treasury Transactions Report, supra note 36.
\461\ American International Group, Inc., Form 10-Q for the Quarterly Period Ended June 30, 2010, at 107 (Aug.
  6, 2010) (online at www.sec.gov/Archives/edgar/data/5272/000104746910007097/a2199624z10-q.htm).
\462\ This figure is comprised of the $7.5 billion in Series F preferred stock that was converted to common
  stock and the $11.2 billion invested in the AIA SPV holdings. This figure does not reflect the $2.0 billion
  Series G preferred stock credit facility, which is available to AIG, but has yet to be drawn. Treasury
  Transactions Report, supra note 36.

    As summarized above, with the execution of AIG's 
recapitalization plan, FRBNY retired its claims on the company, 
centralizing the remaining government holdings in AIG with 
Treasury in the form of AIG common stock and preferred 
interests in certain AIG assets through SPVs. While Treasury 
increased its assistance to AIG, the incremental commitment to 
each SPV is fully secured, putting the government ahead of 
other creditors in the (unlikely) event of a default on these 
obligations. More broadly, a key hurdle to the ultimate 
government exit has been removed as a result of the conversion 
of its claims to more liquid, but higher risk common stock, 
paving the way for an eventual exit via share sales in the 
public equity market. The government's exit is expected to 
parallel the emergence of AIG as a standalone A-rated credit, 
no longer reliant on government support to sustain its credit 
rating at a level sufficient for independent access to private 
capital market funding.
    Treasury now owns 1.655 billion shares of AIG's common 
stock, representing 92 percent of the company's outstanding 
shares.\463\
---------------------------------------------------------------------------
    \463\ The total number of shares owned is comprised of 924,546,133 
shares exchanged from the Series E preferred stock and the associated 
unpaid dividends, 167,623,733 shares of common stock exchanged from the 
Series F preferred stock, and 562,868,096 common shares that are 
connected to FRBNY's original assistance. Although the common shares 
derived from the FRBNY credit facility are not directly connected to 
the TARP assistance, they are included here as part of the total 
Treasury holdings in AIG. In total, Treasury holds 1,655,037,962 shares 
of AIG common stock. Treasury Transactions Report, supra note 36.

   FIGURE 29: OWNERSHIP PROFILE OF AMERICAN INTERNATIONAL GROUP \464\
------------------------------------------------------------------------
                                       Outstanding
                                      Shares of AIG      Percentage of
                                    Common Stock  (in     Outstanding
                                        millions)       Shares (Percent)
------------------------------------------------------------------------
Series C Preferred Stock..........              562.9               31.3
Series E Preferred Stock..........              924.5               51.4
Series F Preferred Stock..........              167.6                9.3
    Subtotal......................            1,655.0               92.0
Non-Government AIG Common Stock                 143.3                8.0
 Holders \465\....................
                                   -------------------------------------
    Total.........................            1,798.4              100.0
------------------------------------------------------------------------
\464\ Figures affected by rounding. Treasury Transactions Report, supra
  note 36; U.S. Department of the Treasury, AIG Recapitalization:
  Summary of Terms September 30, 2010, at 2 (Sept. 30, 2010) (online at
  www.treasury.gov/initiatives/financial-stability/investment-programs/
  AIG/Documents/Recapitalization.Summary.Terms.Executed.pdf)
  (hereinafter ``AIG Recapitalization Summary''); Treasury conversations
  with Panel staff (Mar. 7, 2011).
\465\ This figure assumes that 2,854,069 additional shares will be
  converted and held by non-Treasury participants stemming from a
  conversion of equity units to common shares. American International
  Group, Inc., Financial Supplement: Fourth Quarter 2010, at 15 (Feb.
  25, 2011) (online at www.aigcorporate.com/investors/2011_February/
  Financial_Supplement_4Q10_ Revised_2-24-11.pdf) (hereinafter ``AIG
  Financial Supplement: 4Q 2010''); AIG Recapitalization Summary, supra
  note 464, at 2.


    In addition to this equity--valued at $61.9 billion based 
on the stock's current price of $37.39--Treasury has also 
invested approximately $11.2 billion in AIG-related preferred 
interests.\466\ While the price of AIG common equity shares has 
fluctuated significantly since the recapitalization plan was 
announced on September 30, 2010, taxpayers are poised to 
recognize a gain on the government's assistance to AIG at 
current market prices.\467\ The total value of Treasury's 
equity and preferred interests in AIG is currently $73.2 
billion.\468\ This equates to a $14.3 billion net gain based on 
Treasury's $58.8 billion cost-basis, or the amount of TARP 
funds spent to secure the government's current outstanding 
common and preferred equity interests. Of note, the Series C 
shares--representing a current market value of $21.0 billion--
were obtained at no cost to the taxpayer (or Treasury), and 
reflect consideration provided by AIG for FRBNY's initial 
lending facility in September 2008. Thus, based on current 
valuations, this stake, which is now held for the benefit of 
Treasury, is offsetting a current loss on the direct TARP 
assistance provided by Treasury. The break-even threshold for 
the value of the government's stake, including the common stock 
derived from the Series C shares, is approximately $28.73 per 
share, which means that should the share price drop below this 
level, representing a 23 percent decline versus its current 
share price, Treasury's holdings in AIG would imply a net loss 
to the government.\469\
---------------------------------------------------------------------------
    \466\ Treasury's investment in the AIA SPV is $11.2 billion, 
although the current value of this holding is $11.3 billion due to the 
payment of accrued interest. As outlined in Section IV.D.1, AIG opted 
to exercise its right to classify $2.0 billion of funds into the newly 
created Series G preferred stock. This facility is not accounted for 
here because although the funds are available to AIG, the company has 
not drawn on the facility to date. On March 8, 2011, Treasury announced 
that its interests in the ALICO SPV, which were $3.4 billion following 
the recapitalization, had been fully redeemed by AIG. Treasury 
Transactions Report, supra note 36; U.S. Department of the Treasury, 
Treasury: With $6.9 Billion Repayment Today from AIG, 70 Percent of 
TARP Disbursements Now Recovered (Mar. 8, 2011) (online at 
www.treasury.gov/press-center/press-releases/Pages/tg1096.aspx) 
(hereinafter ``Treasury: $6.9 Billion Repayment from AIG'').
    \467\ Between September 30, 2010 and January 19, 2011, AIG shares 
traded within a dividend-adjusted range of $34.22 and $51.25. Bloomberg 
Data Service (Mar. 8, 2011); AIG: Form 8-K Period Ended January 14, 
2011, supra note 450.
    \468\ Based on a March 4, 2011 closing stock price of $37.39 per 
share. Bloomberg Data Service (Mar. 8, 2011). This includes the current 
market price of the common equity as well as the value of Treasury's 
holdings in the AIA SPV. Treasury's investment in the AIA SPV is $11.2 
billion; this figure references the current value of $11.3 billion, 
which includes accrued interest. Bloomberg Data Service (Mar. 8, 2011); 
Treasury Transactions Report, supra note 36; Treasury: $6.9 Billion 
Repayment from AIG, supra note 466.
    \469\ The breakeven price assumes the following cost basis for the 
1,655,037,962 common shares Treasury holds: $40.0 billion investment in 
Series E preferred shares and $7.5 billion in Series F preferred stock 
draws. Treasury Transactions Report, supra note 36.

                       FIGURE 30: VALUATION OF TREASURY'S COMMON STOCK HOLDINGS IN AIG 470
                                                  [In billions]
----------------------------------------------------------------------------------------------------------------
                                                                                                 Total Treasury
                                                                TARP             Series C      Position  (TARP +
                                                                                                   Series C)
----------------------------------------------------------------------------------------------------------------
Funds Provided.........................................              $47.5                N/A              $47.5
Common Equity:
    No. of Shares......................................                1.1                0.6                1.7
    Implied Value......................................              $40.8              $21.0              $61.9
Implied Net Gain on Common Stock.......................             $(6.7)              $21.0              $14.3
----------------------------------------------------------------------------------------------------------------
470 This figure reflects Treasury's common stock position only, and does not account for Treasury's other
  holdings in AIG: $11.2 billion interest in the AIA SPV, the $2 billion Series G preferred stock credit
  facility (available but undrawn). Similarly, it does not account for the $9.1 billion in repayments Treasury
  has received on its preferred holdings. Bloomberg Data Service (Mar. 9, 2011). Based on a March 4, 2011
  closing stock price of $37.39 per share. Treasury Transactions Report, supra note 36.

2. Outlook

            a. Key Swing Factor: AIG's Execution of Strategy
    Based on a share price of $37.39, the equity market 
currently values AIG at $67.2 billion.\471\ While down 
considerably from the firm's peak split-adjusted share price of 
$1,456, the stock is trading significantly above the lows 
witnessed in late 2008 and early 2009, and has gained 52 
percent in value since the beginning of 2010.\472\ Not 
surprisingly, this rebound has coincided with increased 
optimism concerning the potential for the government to recoup 
a significant portion of its investment. (The recent spike and 
subsequent decline in AIG shares corresponded with the 
September 30, 2010 recapitalization announcement and January 
19, 2011 issuance of 10-year warrants to non-government 
shareholders. Market analysts estimated that these warrants 
equated to a value of approximately $8-10/share.) \473\
---------------------------------------------------------------------------
    \471\ AIG's market capitalization is based on a March 4, 2011 
closing price of $37.39 and a total of 1,798,357,785 common shares 
outstanding. Bloomberg Data Service (Mar. 9, 2011); This figure assumes 
that 2,854,069 additional shares will be converted and held by non-
Treasury participants stemming from a conversion of equity units to 
common shares. AIG Financial Supplement: 4Q 2010, supra note 465, at 
15.
    \472\ This calculation uses dividend-adjusted stock prices for AIG 
on January 5, 2010 and March 4, 2011. Bloomberg Data Service (Mar. 9, 
2011).
    \473\ Analysis of Bloomberg adjusted vs. unadjusted share price 
data. Bloomberg Data Service (Mar. 9, 2011). See also Andrew Kligerman, 
UBS Investment Research, American International Group: Staying Neutral, 
but with Short-term Buy (Oct. 18, 2010).
---------------------------------------------------------------------------
    In this context, both AIG and Treasury continue to express 
varying degrees of optimism on repayment prospects. AIG expects 
to repay fully its obligations to the government, while 
Treasury is increasingly confident on the outlook for a return 
of the taxpayer's investment. Secretary Geithner noted in a 
December 2010 appearance before the Panel that AIG's 
recapitalization plan ``will accelerate the government's exit 
on terms that are likely to lead to an overall profit on the 
government's support for AIG, including the value of Treasury's 
interests in AIG held outside of the TARP.'' \474\ Acting 
Assistant Secretary of the Treasury for the Office of Financial 
Stability Timothy Massad noted in a March 2011 appearance 
before the Panel that the government is ``potentially in 
position to recover every dollar we invested.'' \475\
---------------------------------------------------------------------------
    \474\ Geithner Testimony to the Panel, supra note 119.
    \475\ COP Hearing on the TARP's Impact on Financial Stability, 
supra note 311, at 7.
---------------------------------------------------------------------------
    The outlook for the taxpayer is dependent on the successful 
execution of AIG's strategy, which will inform the public 
market's assessment of AIG's valuation over the next 12-18 
months. This relationship was evidenced by the recent 
announcement by AIG of a $4.1 billion charge to cover increased 
loss reserves in its insurance operations.\476\ This charge 
could have weakened the company's capital position. In 
response, Treasury agreed to waive the right to $2.0 billion or 
proceeds from the sale of Star Life and Edison Life insurance 
subsidiaries for use in AIG's reserve strengthening, thereby 
delaying the payment of proceeds from asset sales Treasury was 
entitled to as collateral for its SPV Preferred Interests.\477\
---------------------------------------------------------------------------
    \476\ AIG ``announced today that, following completion of its 
annual comprehensive loss reserve review, it expects to record a $4.1 
billion charge, net of $446 million in discount and loss sensitive 
business premium adjustments, for the fourth quarter of 2010 to 
strengthen loss reserves in its Chartis property and casualty insurance 
subsidiaries.'' American International Group, Inc., AIG Expects to 
Record $4.1 Billion Net Charge in Fourth Quarter 2010 to Strengthen 
Loss Reserves Associated with Long-Tail Lines in P&C Business (Feb. 9, 
2011) (online at ir.aigcorporate.com/External.File?t=2&item= 
g7rqBLVLuv81UAmrh 20Mpz0DS1SXuRN3Wmk CRzUb5ppzF78O70yv CeQf98uqlxnez 
2NAoHFPnDPDhNydgIxz0w==). The actual charge reported on February 24, 
2011 was $4.2 billion. American International Group, AIG Reports Fourth 
Quarter Net Income of $11.2 billion (Feb. 24, 2011) (online at 
www.aigcorporate.com/investors/2011_February/4Q2010PR02242010LTR.pdf).
    \477\ Treasury's investment in the AIA SPV is $11.2 billion; 
however, its current holdings in this SPV are $11.3 billion due to the 
payment of accrued interest. American International Group, Inc., Form 
8-K for the Period Ended February 8, 2011 (Feb. 9, 2011) (online at 
www.sec.gov/Archives/edgar/data/5272/000095012311010653/
y89586e8vk.htm); Treasury Transactions Report, supra note 36.
---------------------------------------------------------------------------
    This allowed AIG to stabilize its capital ratios in a cost-
effective manner (e.g., without relying on market funding). 
Importantly, this agreement does not represent a direct loss to 
Treasury. The only ``concession'' by the government was the 
nominal forfeiture of interest income that it would have 
otherwise earned on the sale proceeds. However, this is more 
than offset by the 5 percent dividend on the government's 
preferred interest in the SPVs. Further, since Treasury's 
preferred equity investment is over-collateralized (the value 
of Treasury's claims on AIG's assets is in excess to the value 
of the funds provided by Treasury), the government remains 
well-positioned to be paid in full as AIG transfers payments 
received from subsequent asset sales to Treasury. In fact, this 
process continues, with the recent sale of AIG equity in 
MetLife conducted ahead of schedule, netting Treasury $6.9 
billion in proceeds, reducing the outstanding amount of 
Treasury's preferred interests in AIG assets to $11.2 billion 
from $20.3 billion immediately following the 
recapitalization.\478\
---------------------------------------------------------------------------
    \478\ Treasury Transactions Report, supra note 36; Treasury: $6.9 
Billion Repayment from AIG, supra note 466.
---------------------------------------------------------------------------
    Thus, AIG's financial health remains dependent on the 
government, the company's dominant shareholder, while the 
outlook for the government's investment is to a large degree 
dependent on AIG's successful execution of its business 
strategy. AIG is seeking to balance asset sales and risk 
reduction with a credible and focused ongoing business 
strategy. This strategy has been some time in the making, as 
difficult market conditions and management turnover may have 
frustrated earlier efforts at charting a course for repaying 
the taxpayer prior to CEO Robert Benmosche's arrival at the 
firm in August of 2009.\479\ Thus, a greatly improved market 
backdrop and a longer-term investment mentality on the part of 
AIG's principal shareholder have facilitated a strategy aimed 
at repaying the government and cultivating a sustainable 
independent business strategy.
---------------------------------------------------------------------------
    \479\ In the wake of the government's rescue in the fall of 2008, 
the math simply did not provide a way forward for the company (and, as 
became evident in subsequent months, for the government). Market 
conditions and the terms of the government's rescue provided little 
hope of a full recovery, beyond seeking to mitigate the magnitude of 
expected losses on the government's assistance and to reduce the 
systemic risk posed by the company. Potential buyers in the insurance 
sector suffered through significant valuation declines, dampening their 
appetite for acquisitions of AIG's most marketable assets. Cash 
purchases were problematic during this period, owing to the dearth of 
available funding, even to highly rated borrowers. In this environment, 
core operating fundamentals of key insurance businesses suffered amidst 
the deteriorating market, further clouding the mergers and acquisitions 
outlook.
---------------------------------------------------------------------------
    Specifically, in addition to asset sales, the firm is 
focused on strengthening its global property and casualty 
franchise and its domestic life insurance and retirement 
services operations, while continuing to reduce the firm's 
legacy exposure within AIGFP. After the company's restructuring 
and asset sales are complete, the vast majority of AIG's 
businesses will be housed within its global property and 
casualty and commercial insurance operation, which has been 
rebranded as Chartis, and its domestic life insurance and 
retirement services segment, rebranded as SunAmerica.\480\
---------------------------------------------------------------------------
    \480\ These businesses include General Insurance (Chartis), 
Domestic Life Insurance & Retirement Services, and Foreign Life 
Insurance & Retirement Services.
    Additionally, the company must continue to make progress on 
streamlining its operations and untangling the cross-linkages 
throughout its vast operations. In turn, greater transparency into 
individual business lines will help facilitate more beneficial terms 
from the capital markets for financing core operations as well as 
advancing the prospects for the sale of non-core businesses at more 
attractive valuations.
---------------------------------------------------------------------------
            b. Exit Strategy and Timing
    The government is unlikely to wait for the successful 
execution of this strategy. According to press reports, 
Treasury intends to commence the sale of an initial stake in 
AIG via a secondary share offering after AIG's 1Q 2011 earnings 
are released in May 2011.\481\ Media reports indicate the 
government could sell up to $20 billion worth of stock, 
representing approximately one-third of the government's 
holdings in AIG. The balance of the government's stake in AIG 
would then likely be sold through additional secondary 
offerings, automated sales through a prearranged written 
trading plan, or some combination of both.\482\
---------------------------------------------------------------------------
    \481\ See, e.g., Serena Ng, AIG to Start Marketing ``Re-IPO'' in 
May, Wall Street Journal (Feb. 25, 2011) (online at online.wsj.com/
article/SB1000142405274870415 0604576166360234955504.html) (by 
subscription only).
    \482\ Treasury employed both methods to dispose of its Citigroup 
holdings--large secondary offerings were supplemented by smaller and 
more frequent automated sales of stock in the marketplace.
---------------------------------------------------------------------------
    The government's disposition of its shares in Citigroup is 
likely to be the model for AIG.\483\ However, the AIG 
disposition may prove more difficult for Treasury to execute, 
given the value of AIG's publicly traded float of $5.4 billion 
and a government equity stake that currently amounts to 
approximately $61.9 billion.\484\ Institutional investor 
ownership in AIG is relatively limited, whereas Citigroup 
enjoyed broad institutional ownership prior to the government's 
share sales.\485\ Thus, absent a capital raise by AIG to repay 
Treasury directly, a protracted wind-down of Treasury's stake 
seems inevitable.
---------------------------------------------------------------------------
    \483\ The differences between the AIG rescue and the government's 
investment in Citigroup and the subsequent exit strategy is discussed 
in Section F.8 of the Panel's June 2010 oversight report. See 2010 June 
Oversight Report, supra note 395, at 181. 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 February 
8, 2011, Treasury had sold the entirety of its Citigroup common shares 
and warrants for $31.91 billion in gross proceeds. The Panel's January 
2010 oversight report contains a discussion of the government's since-
executed Citigroup exit strategy, including the monetization of the 
preferred shares under the CPP. See 2010 January Oversight Report, 
supra note 153, at 34-64.
    \484\ The value of AIG's public float is based on the closing price 
of the common shares on March 4, 2011 of $37.39 and 143,319,823 shares 
held by non-government investors. This assumes 2,854,069 shares will be 
converted from equity units to common shares. AIG Financial Supplement: 
4Q 2010, supra note 465, at 15; AIG Recapitalization Summary, supra 
note 464, at 2.
    \485\ Few actively managed investment funds own sizable long 
positions in AIG shares. The top five shareholders, outside of the U.S. 
government are: Fairholme Capital Management, which owns approximately 
2.5 percent of AIG shares; Starr International, Hank Greenberg's 
company, which owns 0.8 percent; two index funds, Vanguard Group Inc. 
and State Street Corp., which own 0.7 percent in the aggregate; and 
Blackrock Institutional Trust, which owns 0.2 percent. These five 
shareholders account for over half the 8 percent of AIG's shares not 
owned by the U.S. government. Fairholme Capital Management, LLC, 
Schedule 13D Statement of Acquisition of Beneficial Ownership by 
Individuals (Jan. 14, 2011) (online at www.sec.gov/Archives/edgar/data/
5272/000091957411000237/d1164162_13d-a.htm); American International 
Group, Inc., Form 4 Statement of Changes in Beneficial Ownership of 
Securities (Jan. 20, 2011) (online at www.sec.gov/Archives/edgar/data/
5272/000114036111003441/xslF345X03/doc1.xml); Vanguard Group Inc., Form 
13F for Quarterly Period Ending December 31, 2010 (Dec. 31, 2010) 
(online at www.sec.gov/Archives/edgar/data/102909/000093247111000241/
dec2010vgi13f1.txt); State Street Corp., Form 13F for Quarterly Period 
Ending December 31, 2010 (Dec. 31, 2010) (online at www.sec.gov/
Archives/edgar/data/93751/000119312511032288/d13fhr.txt); Blackrock 
Institutional Trust, Form 13F for Quarterly Period Ending December 31, 
2010 (Dec. 31, 2010) (online at www.sec.gov/Archives/edgar/data/913414/
000108636411004275/blkinsttrustco.txt); Data accessed through Bloomberg 
Data Service.
---------------------------------------------------------------------------
    In a briefing for TARP oversight bodies, Jim Millstein, 
Treasury's chief restructuring officer, noted that the 
government's exit from AIG could take anywhere from six months 
to two years, following the execution of the recapitalization 
plan.\486\ In any case, as the Panel has noted previously in 
the case of other asset dispositions, Treasury is likely to do 
what it can to accelerate the timetable for its exit. While six 
months may be overly aggressive, a two-year time horizon is 
probably overly cautious, assuming a normalized market 
backdrop. For his part, Mr. Benmosche believes the government 
may not fully exit AIG until mid-year 2012.\487\
---------------------------------------------------------------------------
    \486\ Oversight briefing on AIG recapitalization (Oct. 6, 2010).
    \487\ See Andrew Frye and Hugh Son, AIG Repays Fed, Swaps Treasury 
Investment for Common as U.S. Unwinds Stake, Bloomberg News (Jan. 14, 
2011) (online at www.bloomberg.com/news/2011-01-14/aig-repays-fed-
swaps-treasury-investment-for-common-stock.html) (``Treasury may need 
18 months to divest its stake, Benmosche told CNBC today.'').
---------------------------------------------------------------------------
    This exit timeline, of course, involves substantial equity 
market risk and will rely heavily on AIG building a sustainable 
franchise value over the medium term in order to support the 
placement of a significant supply of additional shares (at 
relatively attractive valuations) on the market. As noted, 
based on the stock's current valuation, taxpayers would see a 
positive return on their investment in AIG. However, near-term 
paper gains do not always equate to longer-term realized gains. 
Accordingly, the long-term horizon for a full government exit, 
with attendant equity market and company operating risks, still 
presents potential downside risks to the taxpayer.

                           E. Lessons Learned

    The Panel noted that the government has no well-defined 
legal process to wind down a company like AIG in the same way 
that it winds down banks through the FDIC resolution process or 
nonfinancial companies through bankruptcy. As a result, the 
Federal Reserve and Treasury had to repurpose powers that were 
originally intended for other circumstances, leading to a 
bailout that was improvised, imperfect, and in many ways deeply 
unfair.
    While issues surrounding AIG's failure provide an 
exhaustive list of lessons for regulators, Congress and the 
financial industry (``too-big-to-fail,'' moral hazard, systemic 
risk oversight, over-the-counter transparency/centralized 
clearing, risk management, etc.), the government's (both 
Treasury and FRBNY) management of its AIG engagement offers a 
host of specific lessons. These include:
     Transparency: Decisions made by government 
officials behind closed doors that put taxpayer dollars at risk 
must be subject to elevated transparency to assure fair dealing 
on behalf of the taxpayer. FRBNY's failure to be more sensitive 
with respect to potential conflicts of interest and the way in 
which the public and members of Congress would view its actions 
has colored all the dealings between the government and AIG in 
the eyes of the public.\488\
---------------------------------------------------------------------------
    \488\ 2010 June Oversight Report, supra note 395, at 105.
---------------------------------------------------------------------------
     Reluctant Shareholder versus Maximizing Taxpayer 
Value: As the Panel has previously noted, particularly in 
conjunction with accelerated exits of the government's other 
assets (e.g., GM and Chrysler Financial), Treasury should be 
careful not to sacrifice its mandate to maximize the value of 
its investment in favor of an expedited exit strategy 
consistent with its ``reluctant shareholder'' philosophy. AIG 
represents a notable example of Treasury successfully taking a 
longer-term view on its investment horizon to provide the 
greatest opportunity to realize a meaningful return.
     Moral Hazard: Given the absence of a resolution 
authority to assist with a controlled liquidation of the firm, 
AIG's vast interconnectedness across the financial landscape 
served as a mechanism to broaden the risk of moral hazard to 
the firm's creditors and counterparties. The absence of shared 
sacrifice by private parties undermined the government's 
ability to respond to the financial crisis, while also seeding 
longer-term risks for the effective functioning of the 
financial markets.

                    VII. Administration of the TARP


             A. Treasury's Use of Its Contracting Authority


1. Background

    The TARP was an unprecedented intervention into the markets 
and as a result, Treasury did not always have the in-house 
capabilities needed to implement the programs it wished to 
establish. To meet these needs, Treasury employed outside 
contractors and agents.
    Treasury is authorized by EESA and pre-existing law to 
employ private parties to provide goods and services using two 
separate mechanisms. First, the Secretary may enter into 
contracts, which are used to acquire goods and services from 
the market. This process is governed by the Federal Acquisition 
Regulation, and though EESA authorizes the Secretary to waive 
specific provisions of the regulation if needed, Treasury has 
not done so.\489\ Second, the Secretary may designate 
``financial institutions'' as financial agents to perform ``all 
such reasonable duties related to this Act . . . as may be 
required.'' \490\ Financial agents ``serve as an extension of 
Treasury to act on behalf of the Government.'' \491\ 
Historically, financial agents could be employed to perform 
only ``inherently governmental'' functions, although it may be 
the case that EESA eliminated this limitation. Treasury is not 
bound by the Federal Acquisition Regulation when it hires a 
financial agent. As a result, there are essentially no 
restrictions on the process Treasury may use for selecting 
financial agents. Once selected, however, a financial agent 
must abide by the principles of agency law.\492\
---------------------------------------------------------------------------
    \489\ Congressional Oversight Panel, October Oversight Report: 
Examining Treasury's Use of Financial Crisis Contracting Authority, at 
10 (Oct. 14, 2010) (online at cop.senate.gov/documents/cop-101410-
report.pdf) (hereinafter ``2010 October Oversight Report'').
    \490\ 12 U.S.C. Sec. 5211(c)(3). For a definition of ``financial 
institutions,'' see 2010 October Oversight Report, supra note 489, at 
39 n.143.
    \491\ Congressional Oversight Panel, Joint Written Testimony of 
Gary Grippo, deputy assistant secretary for fiscal operations and 
policy, and Ronald W. Backes, director of procurement services, U.S. 
Department of the Treasury, COP Hearing on Treasury's Use of Private 
Contractors, at 2-3 (Sept. 22, 2010) (online at cop.senate.gov/
documents/testimony-092210-treasury.pdf). For a discussion comparing 
contracting to financial agency agreements, see 2010 October Oversight 
Report, supra note 489, at 42.
    \492\ 2010 October Oversight Report, supra note 489, at 11.
---------------------------------------------------------------------------
            a. Treasury Action
    At the time of the Panel's October 2010 report, Examining 
Treasury's Use of Financial Crisis Contracting Authority, 
Treasury had awarded 81 TARP-related procurement contracts and 
15 financial agency agreements. Under these arrangements, there 
were a total of 98 subcontracts, 40 from procurement contracts 
and 58 from financial agency agreements.\493\
---------------------------------------------------------------------------
    \493\ 2010 October Oversight Report, supra note 489, at 24.
---------------------------------------------------------------------------
    The obligated value of these contracts and agreements was 
$436.7 million, with $109.3 million attributable to procurement 
contracts and $327.4 million attributable to financial agency 
agreements. The expended value under these contracts and 
agreements totaled $363.0 million, with procurement contracts 
accounting for $87.0 million and financial agency agreements 
accounting for the remaining $276.0 million.\494\
---------------------------------------------------------------------------
    \494\ 2010 October Oversight Report, supra note 489, at 24-25.
---------------------------------------------------------------------------
    In terms of obligated value, Fannie Mae was the largest 
financial agent, with $126.7 million, while 
PricewaterhouseCoopers LLP was the largest contractor, with 
$25.8 million. Seven categories of work were performed under 
the TARP procurement contracts, the largest of which was legal 
advisory. Legal advisory work accounted for 35 contracts as 
well as for the largest obligated and potential contract values 
of $55.6 million and $203.4 million, respectively.\495\
---------------------------------------------------------------------------
    \495\ 2010 October Oversight Report, supra note 489, at 25, 31.
---------------------------------------------------------------------------
    In addition, to govern potential conflicts of interest 
arising from these contracts and agreements, Treasury issued an 
Interim Final Rule on TARP Conflicts of Interest (IFR-COI) on 
January 21, 2009. The rule establishes two separate schemes to 
govern two different types of conflicts: organizational 
conflicts of interest,\496\ and personal conflicts of 
interest.\497\ The IFR-COI also regulates many traditional 
ethical issues, such as acceptance of gifts and other sorts of 
``bribes'' during the contract solicitation process and the 
handling of nonpublic information.\498\
---------------------------------------------------------------------------
    \496\ The IFR defines an organizational conflict of interest as ``a 
situation in which the retained entity has an interest or relationship 
that could cause a reasonable person with knowledge of the relevant 
facts to question the retained entity's objectivity or judgment to 
perform under the arrangement, or its ability to represent the 
Treasury.'' 31 CFR Sec. 31.201. Organizational conflicts of interest 
are prohibited unless they are disclosed to Treasury and either 
mitigated under a Treasury-approved plan or waived by Treasury.
    \497\ The rule defines a personal conflict of interest as a 
``personal, business, or financial interest of an individual, his or 
her spouse, minor child, or other family member with whom the 
individual has a close personal relationship, that could adversely 
affect the individual's ability to perform under the arrangement, his 
or her objectivity or judgment in such performance, or his or her 
ability to represent the interests of the Treasury.'' 31 CFR 
Sec. 31.201. A retained entity must ensure that ``all management 
officials'' working on the contract or agreement not have personal 
conflicts of interest unless the conflict has been either neutralized 
by mitigation measures or waived by Treasury. 2010 October Oversight 
Report, supra note 489, at 13-14, 62-63.
    \498\ 2010 October Oversight Report, supra note 489, at 15.
---------------------------------------------------------------------------

2. Summary of COP Report and Findings

    The Panel's October 2010 report, Examining Treasury's Use 
of Financial Crisis Contracting Authority, applauded Treasury's 
significant efforts to ensure that it used contractors and 
agents appropriately, noting that in testimony to the Panel, 
some outside experts had praised Treasury for going above and 
beyond the usual standards for government contracting.\499\ 
However, the report cautioned that there still remained 
important areas of concern.\500\
---------------------------------------------------------------------------
    \499\ Congressional Oversight Panel, Testimony of Steven Schooner, 
professor of law and co-director of the government procurement law 
program, The George Washington University School of Law, Transcript: 
COP Hearing on Treasury's Use of Private Contractors (Sept. 22, 2010) 
(publication forthcoming) (online at cop.senate.gov/hearings/library/
hearing-092210-contracting.cfm); 2010 October Oversight Report, supra 
note 489, at 5.
    \500\ 2010 October Oversight Report, supra note 489, at 5.
---------------------------------------------------------------------------
    For example, the Panel was concerned that while Treasury 
had disclosed some information, such as the texts of the 
contracts and agreements, the date each contract was awarded, 
and the value of the arrangements, material information still 
had not been released. Specifically, the report noted that 
Treasury does not release task orders to the public, despite 
the fact that for many arrangements critical specifics 
typically appear in task orders, rather than in the contracts 
themselves. Similarly, Treasury does not publicly disclose 
detailed information with respect to the names and duties of 
subcontractors, nor does it publish the subcontracts 
themselves. In addition, Treasury publishes almost no 
information on the performance of contractors and financial 
agents during the life of the arrangement.\501\
---------------------------------------------------------------------------
    \501\ 2010 October Oversight Report, supra note 489, at 55-59.
---------------------------------------------------------------------------
    The report expressed further concern with regard to 
Treasury's post-award management of its contracts and 
agreements. The Panel acknowledged that the procedures for 
post-award management of contracts followed well-established 
government contracting norms. By contrast, however, the Panel 
observed that the procedures for financial agent management had 
failed to detect at least one serious failing by an agent.\502\
---------------------------------------------------------------------------
    \502\ 2010 October Oversight Report, supra note 489, at 47, 49.
---------------------------------------------------------------------------
    More troublingly, the report noted that although Treasury's 
consent was required before any contractor or financial agent 
could engage a subcontractor, Treasury had limited oversight 
ability after the subcontract was awarded and instead relied 
upon the prime contractor or the financial agent to ensure 
their subcontractors' compliance. As a result, Treasury lacked 
critical basic information about subcontractors, such as the 
text of the subcontracts themselves and the dates on which they 
were awarded. Furthermore, the Panel found that Treasury would 
have difficulty both ensuring they received the best value from 
subcontractors and detecting violations of contract terms not 
related to work product, such as whether or not a subcontractor 
has maintained the confidentiality of information or that there 
are no conflicts of interest.\503\
---------------------------------------------------------------------------
    \503\ 2010 October Oversight Report, supra note 489, at 49-50.
---------------------------------------------------------------------------
    The Panel was also concerned about the scope of Treasury's 
conflict of interest rules. Though the IFR-COI took a robust 
approach to organizational conflicts of interest, personal 
conflicts of interest, and the traditional ethical issues, the 
Panel noted that the regulations did not address all situations 
in which conflicts of interest could arise. In particular, the 
report noted with concern the potential that a conflict of 
interest could develop in the following situations:
      Treasury treats a retained entity differently in 
Treasury's exercise of its public responsibilities;
      A retained entity carries out its assignments in 
a manner that serves its interest and not the public interest;
      A retained entity carries out its assignments in 
a manner that serves the interest of the entity's other 
clients;
      A retained entity uses information it obtains 
from its work for the TARP in a manner that benefits itself or 
its other clients.\504\
---------------------------------------------------------------------------
    \504\ For further discussion of these potential conflicts of 
interest, see 2010 October Oversight Report, supra note 489, at 63-70.
---------------------------------------------------------------------------
    The Panel was especially concerned with the potential 
conflicts of interest arising from Treasury's financial agency 
agreements with Fannie Mae and Freddie Mac to administer and to 
enforce compliance with HAMP, respectively. The report noted 
that because the majority of modifications involved mortgages 
that the GSEs held or guaranteed, the GSEs were in the position 
of both overseeing the program and using it to modify mortgages 
at the same time.\505\ In addition, Freddie Mac had indicated 
that it may not attempt to enforce its contractual rights 
against servicers who violated their contracts by using ``robo-
signers'' because doing so would jeopardize their relationships 
with these servicers. The Panel noted that if Freddie Mac was 
hesitant to jeopardize their relationships with servicers to 
enforce its rights in its own book of business, it was 
reasonable to worry that it may be similarly unwilling to risk 
these relationships on Treasury's behalf by aggressively 
overseeing HAMP servicers.\506\ It is worth noting that the 
GSEs and Treasury took a number of measures to mitigate these 
conflicts, such as establishing a fiduciary relationship, 
placing a firewall around material non-public information, and 
creating separate entities in the GSEs to handle all HAMP 
work.\507\ Despite these efforts, the Panel remained deeply 
concerned about the significant potential conflicts of interest 
that spring from using Fannie Mae and Freddie Mac as financial 
agents.\508\
---------------------------------------------------------------------------
    \505\ 2010 October Oversight Report, supra note 489, at 82-86.
    \506\ 2010 December Oversight Report, supra note 283, at 82.
    \507\ For a more complete discussion of the mitigating factors, see 
2010 October Oversight Report, supra note 489, at 82-86.
    \508\ 2010 October Oversight Report, supra note 489, at 82-86.
---------------------------------------------------------------------------

3. Panel Recommendations and Updates

    The Panel recommended that Treasury publish more 
information, including its rationale in selecting contractors 
and agents, contract and agreement task orders, the results of 
monitoring efforts, and descriptions of its plans to hold 
contractors and agents accountable. The Panel further 
recommended that Treasury require all contractors to disclose 
the names and duties of all subcontractors, the values of the 
subcontracts, and the subcontracts themselves. The Panel 
released some of this information, such as the names of all 
subcontractors and the values of the subcontracts, in the 
October report. Finally, the Panel recommended that Treasury 
adopt a final rule on conflicts of interest, disclose ongoing 
conflicts-of-interest findings and compliance costs, and 
consider alternatives that would make it less reliant on the 
retained entities for factual information, such as conducting 
intensive spot checks on individual entities.
    Since the Panel made these recommendations, Treasury has 
begun on-site reviews of financial agents' conflict-of-interest 
regimes, making it less reliant on self-reporting by retained 
entities. To date, Treasury has done one such review and plans 
to complete three to five more in 2011. The examinations focus 
on agents' conflict-of-interest controls, such as their 
policies and procedures, the information firewalls around 
confidential information, and the non-disclosure agreements. In 
addition, Treasury has been working to finalize the IFR-COI, 
including doing a high-level review of a possible final rule, 
though there is no timeline for publishing the final rule.\509\ 
Outside of these two areas, Treasury has not acted on the 
Panel's other recommendations.
---------------------------------------------------------------------------
    \509\ Treasury conversations with Panel staff (Feb. 24, 2011).
---------------------------------------------------------------------------
    Since it last provided data to the Panel for its October 
report, Treasury has awarded 13 more contracts worth $1.8 
million in obligated value and $265,637 in expended value. 
Eight of these contracts have been to Management Concepts for 
administrative support. The other five contracts are with the 
Association of Government Accountants, Reed Elselvier, Inc., 
Addx Corporation, MITRE Corporation, and the Hispanic 
Association of Colleges & Universities.\510\
---------------------------------------------------------------------------
    \510\ Data provided by Treasury (Mar. 1, 2011). Data on procurement 
contracts is current through January 31, 2011.
---------------------------------------------------------------------------
    Treasury has also awarded two additional financial agency 
agreements to Greenhill & Co., LLC and Perella Weinberg 
Partners & Co. on November 18, 2010 and January 18, 2011, 
respectively. The agreements were for structuring and 
disposition services and have a combined obligated value of 
$13,050,000 and expended value of $1,400,000.\511\ In addition, 
two agreements, with Morgan Stanley and with KBW Asset 
Management, have been successfully completed.\512\
---------------------------------------------------------------------------
    \511\ Data provided by Treasury (Mar. 1, 2011). Data on financial 
agency agreements is current through January 31, 2011.
    \512\ Treasury conversations with Panel staff (Feb. 17, 2011).
---------------------------------------------------------------------------
    In total, Treasury has now awarded 94 TARP-related 
procurement contracts and 17 financial agency agreements.\513\ 
The total obligated value of these arrangements, including both 
new arrangements and new expenses under existing arrangements, 
is $697.5 million, with procurement contracts accounting for 
$134.2 million and financial agency agreements accounting for 
the remaining $563.3 million. The total expended value of these 
arrangements is $454.5 million, with $96.7 million attributable 
to procurement contracts and $357.8 million attributable to 
financial agency agreements.\514\
---------------------------------------------------------------------------
    \513\ Base contracts, novations, modifications, and task orders all 
count as a single contract. However, task orders under Treasury 
contracts for Phacil Inc. and the MITRE Corporation were counted as 
separate contracts. There were two novations, a contract with the law 
firm Thacher Proffitt & Wood was novated to a contract with 
Sonnenschein Nath & Rosenthal LLP, and a contract with McKee Nelson LLP 
was novated to Bingham McCutchen LLP. For the purposes of this 
analysis, the novations count as a single contract. The total number of 
procurement contracts includes eight contracts, which were awarded by 
other branches within the Procurement Services Division pursuant to a 
common Treasury service level and subject to a reimbursable agreement 
with the Office of Financial Stability, or were awarded by other 
agencies on behalf of the Office of Financial Stability and not 
administered by the Procurement Services Division.
    \514\ Data provided by Treasury (Mar. 1, 2011). The majority of the 
total growth in both obligated value and expended value is due to 
increases in the financial agency agreements with Fannie Mae and 
Freddie Mac. The obligated and expended values of the agreements with 
the GSEs have grown by $192.7 million and $61.5 million, respectively, 
since the Panel's October report. Data provided by Treasury (Mar. 1, 
2011).
---------------------------------------------------------------------------
    In addition, since the Panel's October report, Treasury's 
conflict-of-interest monitoring regime has been changed. 
Previously, the Office of Financial Stability-Compliance was 
primarily responsible for such monitoring. Since October, the 
Contract and Agreement Review Board and the contracting officer 
technical representatives have also been tasked with reviewing 
conflict-of-interest issues.
    Finally, Treasury is in the process of consolidating 
Procurement Services with the corresponding body in the 
Internal Revenue Service (IRS). All Procurement Services 
employees are scheduled to become employees of the IRS on March 
13, 2011. Procurement Services employees working in the Office 
of Financial Stability are scheduled to move physically to the 
IRS facility on Oxon Hill on June 30, 2011. As a result of this 
consolidation, Procurement Services is in the process of 
reviewing their policies and procedures and will update them as 
needed once this review is completed.\515\
---------------------------------------------------------------------------
    \515\ Treasury conversations with Panel staff (Feb. 17, 2011).
---------------------------------------------------------------------------

4. Lessons Learned

    In general, Treasury has taken significant steps to ensure 
that it has used private contractors appropriately, and indeed 
some experts have praised Treasury for going above and beyond 
the usual standards for government contracting. This praise 
must be viewed in context, however. The government contracting 
process is notoriously nontransparent, and although Treasury 
appears to have performed well on a comparative basis, 
significant improvements can still be made.
    In particular, the Panel noted the need for increased 
transparency. For example, contractors may hire subcontractors, 
and those subcontracts are not disclosed to the public. 
Important aspects of a contractor's work may be buried in work 
orders that are never published in any form. As work moves 
farther and farther from Treasury's direct control, it becomes 
less and less transparent and thus impedes accountability.

           B. Executive Compensation Restrictions in the TARP


1. Background

            a. Overview
    Since well before the financial crisis, executive 
compensation has been a contentious issue. From the early 1950s 
through the mid-1970s, executive pay remained at a fairly 
steady level in terms of real dollars. From the 1980s onward, 
however, executive compensation has generally increased, often 
swiftly. For instance, during the 1970s, the average pay for a 
CEO was approximately 30 times the average annual pay of a 
production worker. Just before the economic crisis in 2007, the 
average compensation for a CEO was approximately $21 million, 
nearly 300 times that of a production worker.\516\
---------------------------------------------------------------------------
    \516\ Congressional Oversight Panel, February Oversight Report: 
Executive Compensation Restrictions in the Troubled Asset Relief 
Program, at 10 (Feb. 10, 2011) (online at cop.senate.gov/documents/cop-
021011-report.pdf) (hereinafter ``2011 February Oversight Report'').
---------------------------------------------------------------------------
    Though a good deal of research has been done on why 
executive pay has risen over the past three decades, there is 
still no real consensus. Executive mobility, managerial 
bargaining power, executive 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. Commentators across the 
spectrum do agree that changing the structure of pay to include 
stock-based compensation during a thriving stock market 
contributed to the increase in compensation.\517\
---------------------------------------------------------------------------
    \517\ Id. at 13.
---------------------------------------------------------------------------
    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. Many commentators have a particular 
interest in the effect of mismatches between executive 
compensation and the time horizon for assessments of risk.\518\ 
Chairman Bernanke stated that compensation practices ``led to 
misaligned incentives and excessive risk taking, contributing 
to bank losses and financial instability.'' \519\ 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. 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.\520\ 
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.'' \521\ Although there is no academic consensus on the 
relationship between compensation practices and risk, or 
whether compensation practices contributed to the financial 
crisis,\522\ Treasury's view is that compensation practices did 
in fact contribute to the crisis. Secretary Geithner has stated 
that executive compensation played a ``material role'' in 
causing the crisis because it encouraged excessive risk 
taking.\523\
---------------------------------------------------------------------------
    \518\ Id. at 17-18. The Panel discussed the role of misaligned 
incentives on risk-taking in its Special Report on Regulatory Reform. 
The Panel noted ``the unnecessary risk that many compensation schemes 
introduce into the financial sector,'' and stated that ``[a]ltering the 
incentives that encourage this risk . . . will help mitigate systemic 
risk in future crises. . . . Executive pay should . . . 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 37-40 (Jan. 29, 2009) (online at 
cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf) 
(hereinafter ``COP: Special Report on Regulatory Reform'').
    \519\ Board of Governors of the Federal Reserve System, Press 
Release (Oct. 22, 2009) (online at www.federalreserve.gov/newsevents/
press/bcreg/20091022a.htm).
    \520\ 2011 February Oversight Report, supra note 516, at 17-18.
    \521\ 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.'').
    \522\ 2011 February Oversight Report, supra note 516, at 17-18.
    \523\ Geithner Testimony to the Panel, supra note 119.
---------------------------------------------------------------------------
    In addition, commentators have also examined how the 
government's implicit ``too big to fail'' guarantee may further 
distort executive compensation practices. 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.\524\
---------------------------------------------------------------------------
    \524\ 2011 February Oversight Report, supra note 516, at 19-20, 89-
91.
---------------------------------------------------------------------------
            b. Treasury's Legal Framework
    Congress entered the executive compensation debate with the 
passage of EESA. After a series of revelations about bonuses at 
several major TARP recipients, ARRA subsequently amended EESA 
(EESA as amended) and put additional restrictions on pay 
practices at TARP recipients. These included, among others, a 
prohibition on golden parachutes, the requirement that TARP 
recipients establish compensation committees composed entirely 
of independent directors, the adoption of ``clawback'' 
provisions, and annual ``say on pay'' votes, and a requirement 
that bonuses not exceed one-third of total compensation.\525\ 
EESA as amended required the Secretary of the Treasury to issue 
implementing regulations, which resulted in the Interim Final 
Rule on TARP Standards for Compensation and Corporate 
Governance (IFR-Comp) in June 2009. For all TARP recipients, 
the IFR-Comp includes a number of specific limitations, such as 
prohibiting paying tax gross-ups to the top 25 most highly 
compensated employees, and then requiring them annually to 
certify their compliance with the IFR-Comp. Treasury's Office 
of Internal Review monitors these certifications for 
completeness. Some of the smaller TARP institutions have failed 
to meet their reporting deadlines or to provide complete 
information. The Office of Internal Review works with these 
recipients to ensure that these reports are eventually filed 
and that all information is accurate.\526\
---------------------------------------------------------------------------
    \525\ 2011 February Oversight Report, supra note 516, at 23.
    \526\ 2011 February Oversight Report, supra note 516, at 26.
---------------------------------------------------------------------------
    In addition to the provisions applicable to all TARP 
recipients, the IFR-Comp created the Office of the Special 
Master and placed seven exceptional assistance recipients under 
its jurisdiction. These exceptional assistance recipients were 
AIG, Bank of America, Citigroup, Chrysler, Chrysler Financial, 
General Motors, and GMAC/Ally Financial. The Special Master 
determined the compensation packages for the 25 most highly 
paid employees at these companies and the structure of 
compensation for the 26th-100th most highly compensated 
employees.\527\
---------------------------------------------------------------------------
    \527\ 2011 February Oversight Report, supra note 516, at 22.
---------------------------------------------------------------------------
            c. Special Master's Determinations
    To date, the Special Master has released compensation 
determinations for 2009 and 2010, as well as a number of 
supplemental determinations.
    In general, the Special Master awarded compensation to 
executives in the form of cash, stock salary, and incentive 
payments, and generally targeted total compensation amounts at 
the 50th percentile of compensation for comparable employees at 
comparable companies. Cash compensation was typically limited 
to $500,000. The amount of stock salary was not restricted but 
it was not immediately redeemable. Incentive payments were also 
not immediately redeemable. In addition, the Special Master 
limited incentive payments to no more than one-third of total 
compensation and required that they be paid only if specific 
observable performance metrics were met. All other types of 
compensation, such as severance plans or perquisites, were 
limited to a maximum of $25,000.\528\
---------------------------------------------------------------------------
    \528\ 2011 February Oversight Report, supra note 516, at 34.
---------------------------------------------------------------------------
    In making these determinations, the Special Master is 
required by the IFR-Comp to use six guiding principles: (1) 
minimize excessive risk; (2) maximize the capacity to repay 
TARP obligations; (3) appropriately allocate compensation 
between types of compensation; (4) use performance-based 
compensation; (5) award pay that is consistent with 
compensation for similar employees at similar entities; and (6) 
base compensation on an employee's contributions. The IFR-Comp 
also created a ``safe harbor'' for employees who will receive 
less than $500,000 in annual compensation. Institutions are not 
required to obtain approval of compensation structures from the 
Special Master for employees who fall within this safe 
harbor.\529\
---------------------------------------------------------------------------
    \529\ 2011 February Oversight Report, supra note 516, at 28.
---------------------------------------------------------------------------
    For a detailed description of the specific determinations 
made for each of the seven exceptional assistance recipients, 
see the Panel's February 2011 report.\530\
---------------------------------------------------------------------------
    \530\ 2011 February Oversight Report, supra note 516, at 36-48.
---------------------------------------------------------------------------
    In addition to approving specified compensation payments 
and structures, the Special Master is authorized to interpret 
and issue non-binding advisory opinions on Section 111 of EESA 
as amended and the IFR-Comp. Furthermore, the IFR-Comp 
authorized the Special Master to review compensation paid by 
each TARP recipient from the day it first received TARP funding 
to February 17, 2009, the date of ARRA's passage, to determine 
whether such payments were contrary to the public interest. If 
any payments met this standard, the Special Master was required 
to seek to negotiate with the offending company for 
reimbursement.\531\ The Special Master found that TARP 
recipients had paid $1.7 billion in ``disfavored'' compensation 
that was ``inappropriate,'' \532\ but not contrary to the 
public interest.\533\
---------------------------------------------------------------------------
    \531\ 2011 February Oversight Report, supra note 516, at 36-48.
    \532\ 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).
    \533\ 2011 February Oversight Report, supra note 516, at 6.
---------------------------------------------------------------------------
            d. Non-TARP Initiatives
    Although Treasury has not regulated executive compensation 
outside of the TARP, a number of other agencies have begun 
developing guidance on executive compensation. For example, on 
June 21, 2010, the Office of the Comptroller of the Currency, 
the Federal Reserve, the FDIC, and the Office of Thrift 
Supervision adopted final guidance that establishes three core 
principles for executive compensation designed to maintain the 
safety and soundness of banking organizations. In addition, the 
FDIC is developing enhanced examination procedures to use in 
evaluating incentive compensation at institutions under its 
supervision. Furthermore, the SEC recently adopted regulations 
that require shareholder approval of executive compensation and 
``golden parachute'' compensation arrangements, and is in the 
process of formulating regulations that require institutional 
investment managers to disclose how they vote on these 
compensation arrangements.\534\
---------------------------------------------------------------------------
    \534\ 2011 February Oversight Report, supra note 516, at 31.
---------------------------------------------------------------------------
    Moreover, Congress took further action on executive 
compensation. Signed into law on July 21, 2010, the Dodd-Frank 
Act includes several provisions that will govern executive 
compensation at financial institutions in the future. For 
example, it includes provisions that permit clawbacks in 
certain situations, require increased disclosures, and impose 
more stringent requirements with respect to independent 
compensation committees.\535\
---------------------------------------------------------------------------
    \535\ 2011 February Oversight Report, supra note 516, at 29.
---------------------------------------------------------------------------

2. Summary of COP Report and Findings

    The Panel first considered executive compensation in its 
January 2009 report when it noted that executive pay should 
``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.'' \536\ The Panel again examined compensation 
practices in March 2010, when it stated that the levels of 
compensation set for GMAC/Ally Financial's CEO ``raise 
significant questions, which the Panel will continue to 
study.'' \537\ In its June 2010 report, the Panel reiterated 
its concern that compensation levels ``raise significant 
unanswered questions.'' \538\ In addition, on October 21, 2010, 
the Panel held a hearing on executive compensation, which 
included testimony from former Special Master for TARP 
Executive Compensation Kenneth Feinberg, among others.\539\
---------------------------------------------------------------------------
    \536\ COP: Special Report on Regulatory Reform, supra note 518, at 
38.
    \537\ 2010 March Oversight Report, supra note 377, at 57 (``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).'').
    \538\ 2010 June Oversight Report, supra note 395, at 229.
    \539\ 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. Congressional Oversight Panel, COP 
Hearing on the TARP and Executive Compensation Restrictions (Oct. 21, 
2010) (online at cop.senate.gov/hearings/library/hearing-102110-
compensation.cfm).
---------------------------------------------------------------------------
    The Panel's primary study of executive compensation, 
though, was in its February 2011 report, Executive Compensation 
Restrictions in the Troubled Asset Relief Program, which 
primarily examined the Office of Internal Review and the Office 
of the Special Master. The report expressed concern that the 
Office of Internal Review had not released a single document to 
the public, despite having far-reaching jurisdiction to monitor 
compliance with executive compensation restrictions at all TARP 
recipients. In addition, the Panel was troubled that the Office 
did not review compliance with all relevant compensation 
restrictions.\540\
---------------------------------------------------------------------------
    \540\ 2011 February Oversight Report, supra note 516, at 5.
---------------------------------------------------------------------------
    With regard to the Special Master, the Panel praised the 
changes the Special Master had made to compensation practices 
at the seven exceptional assistance companies. In particular, 
the Panel noted that in 2009 the Special Master reduced total 
direct compensation by 55 percent overall and had altered the 
form of compensation executives received. Nevertheless, the 
Panel concluded that the Special Master's impact was likely to 
be limited, noting rebounding pay on Wall Street, including at 
some of the institutions that had previously been under the 
Special Master's jurisdiction. However, the report acknowledged 
that it is difficult to develop a precise assessment of the 
Special Master's impact because there are so many different 
factors that contribute to setting executive pay.\541\
---------------------------------------------------------------------------
    \541\ 2011 February Oversight Report, supra note 516, at 79.
---------------------------------------------------------------------------
    The Panel also expressed concern with the Special Master's 
level of transparency. The report described the Special 
Master's process for making determinations as a ``black box'' 
that was not capable of replication by any interested outsider. 
In particular, the report noted that the Special Master had not 
explained how he resolved conflicts between the six principles 
of the public interest standard, how he crafted the general 
rules he used, and how he applied these rules to specific 
circumstances. This lack of transparency, the Panel stated, 
helped prevent the Special Master's work from becoming a model 
for compensation in the future.\542\
---------------------------------------------------------------------------
    \542\ 2011 February Oversight Report, supra note 516, at 6.
---------------------------------------------------------------------------
    The Panel was also troubled by the general uniformity of 
the Special Master's determinations. The report questioned 
whether one size truly fits all and, for example, whether the 
same redemption schedule for salary stock should apply to both 
employees of an automotive company and employees of a large 
bank.\543\
---------------------------------------------------------------------------
    \543\ 2011 February Oversight Report, supra note 516, at 59 & n. 
241.
---------------------------------------------------------------------------
    A separate concern in the February 2011 report was the 
Special Master's aforementioned ``Look Back Review'' of 
payments to executives at TARP recipients prior to February 17, 
2009. Because the Special Master concluded that payments 
totaling $1.7 billion were ``inappropriate'' but not ``contrary 
to the public interest,'' he did not attempt to claw back the 
payments. The Panel found the Special Master's conclusion 
troublesome for several reasons: it may have appeared to the 
public to be excessively legalistic, it may have represented an 
end-run around Congress' determination that the Special Master 
should make every effort to claw back wrongful payments, and it 
may have given the impression that the government condoned 
inappropriate compensation to executives whose actions 
contributed to the financial crisis.\544\
---------------------------------------------------------------------------
    \544\ 2011 February Oversight Report, supra note 516, at 6.
---------------------------------------------------------------------------

3. Panel Recommendations and Updates

    In its February 2011 report, the Panel recommended that 
both the Office of Internal Review and the Office of the 
Special Master provide more information to the public. In 
particular, the report called for the Office of the Special 
Master to publish the specific rationales that led to 
individual determinations. In addition, the report suggested 
publishing executive turnover data, the companies' compensation 
proposals, and specific information on the performance goals 
set for incentive compensation. For the Office of Internal 
Review, the Panel recommended that it issue a report on 
compensation at non-exceptional assistance companies and also 
publish information on its monitoring activities. The Office of 
Internal Review was also called upon to expand its monitoring 
activities to encompass all of the compensation restrictions 
set by EESA as amended, the IFR-Comp, and the Special Master. 
Finally, the Panel recommended that Treasury release a guide 
outlining best practices for executive compensation.\545\
---------------------------------------------------------------------------
    \545\ 2011 February Oversight Report, supra note 516, at 81.
---------------------------------------------------------------------------
    Since the Panel's February 2011 report, several companies 
have released their 2010 compensation data, which showed that 
executive compensation increased.\546\ In total, the New York 
State Comptroller calculated that overall compensation 
increased by 6 percent in 2010. The structure of this 
compensation has changed, however. Base salaries and deferred 
compensation increased while cash bonuses declined by 8 
percent.\547\ Also, in a step away from the structures 
established by the Special Master, Citigroup stated that ``it 
does not intend to award salary stock in 2011 or future years, 
as it is no longer a TARP company.'' \548\
---------------------------------------------------------------------------
    \546\ For example, J.P. Morgan CEO James Dimon received a 22 
percent increase in restricted stock payout. J.P. Morgan Chase & Co., 
Form 4: Statement of Change in Beneficial Ownership (Feb. 17, 2011) 
(online at sec.gov/Archives/edgar/data/19617/000122520811006335/
xslF345X03/doc4.xml).
    \547\ Office of the New York State Comptroller Thomas P. DiNapoli, 
DiNapoli: Wall Street Bonuses Declined in 2010 (Feb. 23, 2011) (online 
at www.osc.state.ny.us/press/releases/feb11/022311a.htm). Though 
applauding the changes to compensation that have occurred to date, a 
Moody's report expressed pessimism that such changes would last. See 
Moody's Investor Service, Bank Compensation Reform: Short-Term 
Improvements, Long-Term Questions (Mar. 9, 2011).
    \548\ Citigroup, Inc., Schedule 14(a), at 56 (Feb. 28, 2011) 
(online at sec.gov/Archives/edgar/data/831001/000119312511050132/
dpre14a.htm).
---------------------------------------------------------------------------
    In addition, on March 2, 2011, the SEC proposed a new rule 
requiring certain financial institutions to disclose the 
structure of their incentive compensation and prohibiting pay 
arrangements that encourage excessive risk-taking. The rule is 
now open for public comment and therefore may change before 
becoming final.\549\
---------------------------------------------------------------------------
    \549\ U.S. Securities and Exchange Commission, SEC Proposes Rules 
on Disclosure of Incentive-Based Compensation Arrangements at Financial 
Institutions (Mar. 2, 2011) (online at www.sec.gov/news/press/2011/
2011-57.htm).
---------------------------------------------------------------------------

4. Lessons Learned

    The Panel's recommendations from its February 2011 report 
focused on a common theme: transparency. 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. But 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 Office of Internal Review has not 
published a single document to the public and aspects of the 
Special Master's work are ``black boxes.''
    This lack of transparency limits the impact of the 
executive compensation restrictions. It makes it 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. 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.

                     VIII. General TARP Assessment

    The preceding sections have provided an issue-specific look 
at the various pieces of the TARP. But this program, an 
unprecedented $700 billion response to a panic in the financial 
markets, is more than just the sum of its parts. In four of its 
previous reports, the Panel evaluated the TARP as a whole. This 
section includes a review of the findings in those reports, as 
well as an update on the current status of the TARP.

                 A. Summary of COP Reports and Findings

    The Panel's April 2009 report, Assessing Treasury's 
Strategy: Six Months of TARP, provided a framework for 
evaluating the TARP's success.\550\ The report gave an overview 
of past banking crises in the United States and in other 
countries, as well as the responses of other countries to the 
current crisis. It concluded that each successful resolution of 
a financial crisis involved: (1) swift action to ensure the 
integrity of bank accounting; (2) a willingness to take 
aggressive action to address failing institutions; (3) a 
willingness to hold management accountable either by firing 
them or, where appropriate, prosecuting them; and (4) 
transparency in the reporting of the use of public sector 
funds. The report also stated that if a future course change 
proved necessary, Treasury might consider liquidation or 
conservatorship of distressed banks as an alternative to 
subsidizing them through the TARP.\551\
---------------------------------------------------------------------------
    \550\ 2009 April Oversight Report, supra note 88.
    \551\ The Panel also explored these questions in an associated 
hearing. See generally Congressional Oversight Panel, Transcript: 
Learning from the Past: Lessons from the Banking Crises of the 20th 
Century (Mar. 19, 2009) (online at cop.senate.gov/documents/transcript-
031909-bankingcrises.pdf).
---------------------------------------------------------------------------
    The Panel's December 2009 report, Taking Stock: What Has 
the Troubled Asset Relief Program Achieved?, evaluated the TARP 
a little more than one year after its enactment. The report 
noted that the TARP should be judged as part of a larger series 
of extraordinary actions taken by the federal government to 
stem the panic in the financial markets in the fall of 2008, 
and stated that there is a consensus that these programs 
stabilized the U.S. financial system by renewing the flow of 
credit and averting a more acute crisis. The report also found, 
though, that credit availability remained low, questions 
remained about the capitalization of many banks, the 
foreclosure crisis continued to grow, CRE remained a looming 
problem, and the government's actions resulted in implicit 
guarantees of financial institutions, which posed the most 
difficult long-term problem to emerge from the crisis. As 
Columbia University economist Charles Calomiris stated in 
testimony before the Panel, ``If financial institutions know 
that the government is there to share losses, risk-taking 
becomes a one-sided bet, and so more risk is preferred to 
less.'' \552\
---------------------------------------------------------------------------
    \552\ Congressional Oversight Panel, Written Testimony Charles 
Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia 
Business School, Taking Stock: Independent Views on TARP's 
Effectiveness, at 4 (Nov. 19, 2009) (online at cop.senate.gov/
documents/testimony-111909-calomiris.pdf).
---------------------------------------------------------------------------
    In its January 2010 report, Exiting TARP and Unwinding Its 
Impact on the Financial Markets, the Panel focused on 
Treasury's strategy for exiting the TARP.\553\ The report was 
released following Secretary Geithner's December 9, 2009, 
exercise of his authority to extend the TARP until October 3, 
2010.\554\ Secretary Geithner had recently explained this 
decision in testimony before the Panel, stating: ``We need to 
continue to find ways to help mitigate foreclosures for 
responsible homeowners and to get credit to small business. We 
also must maintain the capacity to address potential threats to 
our financial system, which could undermine the recovery we 
have seen to date.'' \555\ The Panel noted that while 
Treasury's formal cutoff from further TARP commitments was 
October 3, 2010, its final exit from the TARP and divestiture 
of all TARP-related holdings, potentially worth billions of 
dollars, would be an ongoing process that would extend well 
into the future.\556\ Treasury's exit strategy sought to 
balance an emphasis on maintaining the stability of the 
financial system, preserving the stability of individual 
financial institutions, and maximizing the return on the 
taxpayers' investment. The Panel concluded that Treasury's 
three goals were potentially conflicting and sufficiently broad 
to justify any strategy. The report also focused on the 
continuing market effects created by the TARP, specifically the 
implicit guarantee that has created the perception that certain 
institutions will be protected by the government. The Panel 
noted two means of counteracting the effects of implicit 
guarantees: regulation of implicitly guaranteed institutions 
and the creation of a financial system in which those 
institutions could be liquidated or reorganized to allow for 
failure.
---------------------------------------------------------------------------
    \553\ 2010 January Oversight Report, supra note 153.
    \554\ TARP funds had to be legally obligated to a program by 
October 3, 2010, but they could continue to be disbursed after that 
date.
    \555\ Congressional Oversight Panel, Written Testimony of Timothy 
F. Geithner, secretary, U.S. Department of the Treasury, COP Hearing 
with Treasury Secretary Timothy Geithner (Dec. 10, 2009) (online at 
cop.senate.gov/documents/testimony-121009-geithner.pdf).
    \556\ EESA provided the Treasury Secretary with the authority to 
``hold the assets to maturity or for resale for and until such time as 
the Secretary determines that the market is optimal for selling such 
assets, in order to maximize the value for taxpayers'' and ``sell such 
assets at a price that the Secretary determines, based on available 
financial analysis, will maximize return on investment for the Federal 
Government.'' 12 U.S.C. Sec. 5223(a)(2).
---------------------------------------------------------------------------
    The Panel's September 2010 report, Assessing the TARP on 
the Eve of Its Expiration, provided a summation of Treasury's 
use of TARP funds and how its TARP programs have performed. The 
Panel noted that while Secretary Geithner's extension of the 
TARP in December 2009 was meant to allow for continued use of 
TARP funds and preserve Treasury's authority to intervene 
swiftly should financial markets exhibit signs of another 
meltdown, Treasury provided no further funding to address the 
areas it highlighted at the time the extension occurred. Thus, 
the report noted, the extension of the TARP functioned as a 
means to extend the government's implicit guarantee of the 
financial system. The report also noted that over time a public 
stigma has attached to the TARP, which is seen as a bailout of 
Wall Street banks and domestic auto manufacturers that had 
little impact on the unemployed and homeowners at risk of 
foreclosure. Alan Blinder, a Princeton economist, told the 
Panel that ``in the near term, the extreme unpopularity of TARP 
will make it hard to do anything even remotely like it again, 
should the need arise.'' \557\ The Panel's report noted that 
Treasury did little to remove this stigma, as it struggled with 
transparency and communications and failed to collect key data 
that would have allowed for greater understanding of the use 
and impact of TARP funds. The Panel consulted with outside 
economic experts who, while disagreeing on various points, 
generally agreed that the TARP was necessary to stabilize the 
financial system, but that it created significant moral hazard. 
The report noted that any evaluation of the TARP ultimately 
must take into account the goals stated in EESA: protecting 
home values, college funds, retirement accounts, and life 
savings; preserving homeownership and promoting jobs and 
economic growth; and maximizing overall returns to U.S. 
taxpayers.\558\
---------------------------------------------------------------------------
    \557\ Alan Blinder, Written Answers to Questions Posed by the 
Congressional Oversight Panel (Aug. 2010). See 2010 September Oversight 
Report, supra note 53, at 96, 112-114.
    \558\ 2010 September Oversight Report, supra note 53, at 106.
---------------------------------------------------------------------------

                        B. Panel Recommendations

    In its reports evaluating the TARP as a whole, several of 
the Panel's recommendations have focused on transparency. 
Specifically, the Panel has encouraged Treasury to provide more 
detailed, useful information in its TARP accounting statements, 
in order to show how it has managed TARP resources. The Panel 
has encouraged Treasury to produce quarterly TARP financial 
statements with an improved Management's Discussion and 
Analysis section. The Panel also recommended that Treasury 
disclose to the public more information about its plans for 
disposing of TARP assets. And in January 2010 the Panel urged 
Treasury to require any future TARP recipients to be more 
transparent about their use of taxpayer funds.\559\
---------------------------------------------------------------------------
    \559\ 2010 January Oversight Report, supra note 153.
---------------------------------------------------------------------------
    Treasury has made some progress in this area, but the Panel 
believes that Treasury can and should be more transparent. 
Treasury has produced annual financial statements and a TARP 
Two Year Retrospective that more clearly articulated the 
metrics by which Treasury was evaluating the TARP's 
effectiveness;\560\ these have been useful for oversight of the 
program. Treasury now provides daily updates on its financial 
positions and releases some of its data in a spreadsheet 
format, making it more easily analyzed and evaluated.\561\ 
Treasury released a semi-annual TARP financial statement in 
early 2010 and has been providing more frequent accounting for 
the status of TARP resources, but it has not adopted the 
Panel's recommendation of producing quarterly financial 
reports. Treasury did not take meaningful steps to require more 
transparency by new TARP recipients.
---------------------------------------------------------------------------
    \560\ TARP: Two Year Retrospective, supra note 246.
    \561\ For instance as of December 7, 2009, Treasury began releasing 
the Transaction reports in excel format. See, e.g., U.S. Department of 
the Treasury, Troubled Asset Relief Program Transactions Report for the 
Period Ending December 3, 2009 (Dec. 7, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/Pages/default.aspx?page=8).
---------------------------------------------------------------------------
    In light of the government's dual roles as investor in and 
overseer of the financial industry, the Panel recommended that 
Treasury consider holding its TARP assets in a trust that is 
insulated from political pressure and government interference, 
as long as care is taken to ensure that the trust assets are 
managed in the best interests of taxpayers. Treasury has 
maintained that the drawbacks of such a trust outweigh the 
benefits. One drawback that Treasury has cited is that the 
trust structure would make it difficult to balance Treasury's 
goal of maximizing the benefit to taxpayers with the goal of 
maintaining financial stability.\562\
---------------------------------------------------------------------------
    \562\ 2010 January Oversight Report, supra note 153, at 32, 142.
---------------------------------------------------------------------------
    Finally, the Panel, both in its January 2009 Special Report 
on Regulatory Reform and in subsequent reports, recommended 
that Treasury take steps to resolve the problem of an implicit 
government guarantee of too-big-to-fail financial 
institutions.\563\ The Dodd-Frank Act takes a variety of 
approaches to address this problem. The law empowers the FDIC 
to resolve financial institutions whose failure poses a risk to 
the nation's financial stability. The law also requires 
systemically significant institutions with more than $50 
billion in assets to submit so-called ``living wills,'' or 
plans for their resolution in times of severe financial 
distress. And the law creates a Financial Stability Oversight 
Council charged with identifying and responding to systemic 
risks in the U.S. economy. In recent months, federal regulatory 
agencies have begun the process of implementing these 
provisions. Nonetheless, the implicit guarantee of the TARP is 
proving difficult to unwind.\564\
---------------------------------------------------------------------------
    \563\ COP: Special Report on Regulatory Reform, supra note 518, at 
76 (``We should all know by now that whenever government subsidizes 
risk, either by immunizing parties from the consequences of their 
behavior or allowing them to shift risk to others at no cost, we 
produce a clear moral hazard that furthers risky behavior, usually with 
disastrous consequences.''); 2010 January Oversight Report, supra note 
153, at 142 (``There are multiple options available and there is broad 
agreement that a new approach to systemic risk regulation is necessary 
so that businesses are not insulated from the effects of their own bad 
decisions.''). See also Congressional Oversight Panel, Written 
Testimony of Sarah Bloom Raskin, commissioner, Maryland Office of 
Financial Regulation, Modernizing America's Financial Regulatory 
Structure, at 6 (Jan. 14, 2009) (online at cop.senate.gov/documents/
testimony-011409-raskin.pdf) (``While this crisis has demanded a 
dramatic response from the federal government, the short-term result of 
many of these programs, including the TARP, has been to create even 
larger and more complex institutions and greater systemic risk. These 
responses have created extreme disparity in the treatment of financial 
institutions, with the government protecting those deemed to be too big 
or too complex to fail at the expense of smaller institutions, and 
perhaps of the diversity of our financial system.'').
    \564\ 2010 September Oversight Report, supra note 53, at 11-12. The 
four economists who testified at the Panel's March 4th hearing--Prof. 
Joseph E. Stiglitz, Prof. Simon Johnson, Prof. Allan H. Meltzer, and 
Prof. Luigi Zingales--were all skeptical as to whether the Dodd-Frank 
Act will prove effective in limiting the too-big-to-fail guarantee that 
TARP has served to strengthen. See generally Congressional Oversight 
Panel, COP Hearing on Assessing the TARP (Mar. 4, 2011) (online at 
cop.senate.gov/hearings/library/hearing-030411-cre.cfm).
---------------------------------------------------------------------------

                    C. Financial Status of the TARP

    EESA authorized the expenditure of up to $700 billion under 
the TARP, and by the end of 2008 Treasury had used roughly $250 
billion of that sum, mostly in assistance to banks. In February 
2009, the Obama administration proposed a budget that raised 
the possibility that as much as $750 billion more would be 
needed.\565\ Those additional funds were never requested. As 
2009 continued, it became clear that unless Treasury expanded 
TARP programs or introduced new ones, it would not spend the 
entire $700 billion that Congress had authorized in October 
2008. The stress tests, which raised the possibility of 
substantial additional TARP funds going to the banking sector, 
ultimately resulted in a TARP expenditure of only $3.8 
billion.\566\ Treasury initially announced that it would spend 
$100 billion in TARP funds on the PPIP, but later lowered the 
program's ceiling to $22.4 billion. Likewise, the ceiling for 
TARP spending on the TALF was dropped from $55 billion to $4.3 
billion.\567\ On the eve of the TARP's potential expiration in 
December 2009, nearly $300 billion of the original $700 billion 
in TARP funds was still available. Then on December 9, 2009, 
Secretary Geithner exercised his statutory authority to extend 
the TARP for roughly nine more months. Secretary Geithner 
explained at the time that barring an immediate and substantial 
threat to the economy stemming from financial instability, 
Treasury would limit new TARP commitments to mitigating home 
foreclosures, providing capital to small and community banks, 
along with other efforts aimed at facilitating small business 
lending, and potentially increasing Treasury's commitment to 
the TALF.\568\ In the end Treasury did not allocate any 
additional TARP funds beyond those it had allocated in December 
2009. In the summer of 2010, Congress reduced the TARP's 
ceiling--or the amount that Treasury could spend before 
accounting for repayments--to $475 billion. Treasury's spending 
authority under the TARP expired on October 3, 2010.
---------------------------------------------------------------------------
    \565\ Office of Management and Budget, A New Era of Responsibility: 
Renewing America's Promise, at 37 (Feb. 26, 2009) (online at 
www.whitehouse.gov/sites/default/files/omb/assets/fy2010_new_era/
A_New_Era_of_Responsibility2.pdf) (``Although the Administration is not 
requesting additional funds from the Congress at this point and 
although it is not yet possible to provide a precise estimate of how 
much additional Federal action may be involved should the 
Administration need to request such funds, the President's Budget 
nonetheless includes a $250 billion contingent reserve for further 
efforts to stabilize the financial system. . . . The $250 billion 
reserve would support $750 billion in asset purchases.'').
    \566\ See the discussion of GMAC's participation in the SCAP in 
Section V.A.1, supra.
    \567\ 2009 May Oversight Report, supra note 227, at 72-73; 2011 
February Oversight Report, supra note 516, at 107.
    \568\ U.S. Department of the Treasury, Treasury Department Releases 
Text of Letter from Secretary Geithner to Hill Leadership on 
Administration's Exit Strategy for TARP (Dec. 9, 2009) (online at 
www.treasury.gov/press-center/press-releases/Pages/tg433.aspx).
---------------------------------------------------------------------------
    Over the life of the TARP, final loss estimates have 
sharply decreased. In March 2009, CBO estimated that the TARP 
would end up costing $356 billion. By January 2011, that latest 
loss estimate for the TARP is $25 billion, while OMB's latest 
estimate is $48 billion.\569\ OMB's cost estimates reflect the 
Administration's policy on HAMP and other programs, have 
similarly declined sharply since 2009. Figure 31 illustrates 
three trends: the total TARP funds outstanding, which rose over 
the early months of the program before falling in 2010; CBO's 
loss estimates, which rose sharply in early 2009 before 
declining; and OMB's loss estimates, which also rose 
precipitously before falling off.
---------------------------------------------------------------------------
    \569\ The main reason for the difference between CBO's estimate and 
the Administration's estimate is that CBO projects a total of $12 
billion in expenditures on HAMP, the Hardest Hit Fund, and the FHA 
Short Refinance Program, while the Administration projects $45.6 
billion in spending on those programs. The Panel believes that CBO's 
assumption is more realistic. CBO Report on TARP--November 2010, supra 
note 341, at 5; Office of Management and Budget, FY 2012 Budget, 
Economic and Budget Analyses, at 47 (Feb. 14, 2011) (online at 
www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/
econ_analyses.pdf).
---------------------------------------------------------------------------

    FIGURE 31: TARP FUNDS OUTSTANDING VS. CBO AND OMB SUBSIDY COST 
                            ESTIMATES \570\

      
---------------------------------------------------------------------------
    \570\ For current and past CBO cost estimates of TARP, see 
Congressional Budget Office, Report on the Troubled Asset Relief 
Program, at 2 (Jan. 16, 2009) (online at cbo.gov/ftpdocs/99xx/doc9961/
01-16-TARP.pdf); Congressional Budget Office, Report on the Troubled 
Asset Relief Program, at 7 (June 2009) (online at www.cbo.gov/ftpdocs/
100xx/doc10056/06-29-TARP.pdf); Douglas Elmendorf, Troubled Asset 
Relief Program, Congressional Budget Office Director's Blog (Apr. 17, 
2009) (online at cboblog.cbo.gov/?p=231); Congressional Budget Office, 
Report on the Troubled Asset Relief Program, at 2 (June 2009) (online 
at www.cbo.gov/ftpdocs/100xx/doc10056/06-29-TARP.pdf); Congressional 
Budget Office, The Budget and Economic Outlook: An Update, at 18 (Aug. 
2009) (online at www.cbo.gov/ftpdocs/105xx/doc10521/08-25-
BudgetUpdate.pdf); Congressional Budget Office, The Budget and Economic 
Outlook: Fiscal Years 2010 to 2020, at 104 (Jan. 2010) (online at 
www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf); Congressional 
Budget Office, Report on the Troubled Asset Relief Program, at 3 (Mar. 
2010) (online at cbo.gov/ftpdocs/112xx/doc11227/03-17-TARP.pdf); 
Douglas Elmendorf, CBO's Latest Projections for the TARP, Congressional 
Budget Office Director's Blog (Aug. 20, 2010) (online at 
cboblog.cbo.gov/?p=1322); Congressional Budget Office, Report on the 
Troubled Asset Relief Program, at 5 (Nov. 2010) (online at cbo.gov/
ftpdocs/119xx/doc11980/11-29-TARP.pdf); Congressional Budget Office, 
The Budget and Economic Outlook: Fiscal Years 2011 to 2021, at 67 (Jan. 
2011) (online at cbo.gov/ftpdocs/120xx/doc12039/01-
26_FY2011Outlook.pdf).
    For current and past OMB cost estimates of TARP, see Office of 
Management and Budget, OMB Report Under the Emergency Economic 
Stabilization Act, Section 202, at 4 (Dec. 5, 2008) (online at 
www.whitehouse.gov/sites/default/files/omb/assets/omb/legislative/
eesa_120508.pdf); Office of Management and Budget, Analytical 
Perspectives: Budget of the U.S. Government--Fiscal Year 2010, at 66 
(Feb. 26, 2009) (online at www.gpoaccess.gov/usbudget/fy10/pdf/
spec.pdf); Office of Management and Budget, Analytical Perspectives: 
Budget of the U.S. Government--Fiscal Year 2011, at 40 (Feb. 1, 2010) 
(online at www.gpoaccess.gov/usbudget/fy11/pdf/spec.pdf); Office of 
Management and Budget, OMB Report Under the Emergency Economic 
Stabilization Act, Section 202, at 3 (Oct. 15, 2010) (online at 
www.whitehouse.gov/sites/default/files/
OMB212Sharp_omb_eop_gov_20101015_175127.pdf); Office of Management and 
Budget, Analytical Perspectives: Budget of the U.S. Government--Fiscal 
Year 2012, at 45 (Feb. 14, 2011) (online at www.gpoaccess.gov/usbudget/
fy12/pdf/BUDGET-2012-PER.pdf).
[GRAPHIC] [TIFF OMITTED] T4832A.024

    Figure 32 shows the current status of the government's 
investments for the 13 programs that have used TARP funds. This 
table only shows the status of principal invested by Treasury. 
Any dividends, interest payments, and other proceeds that may 
allow Treasury to earn a return on its TARP investments are 
accounted for separately in Figure 33.
    The first five programs listed in Figure 32--CPP, TIP, AGP, 
AIGIP, and CDCI--collectively represent the TARP's direct 
assistance to financial institutions. Out of $320 billion 
provided to these firms, about $92.3 billion remains 
outstanding, including $30.9 billion in the CPP and $60.9 
billion to AIG. The Panel believes that the eventual losses in 
the CPP are likely to be relatively small. Consequently, most 
of Treasury's exposure to losses on its investments in 
financial institutions involves AIG. The outcome of the AIG 
investment will depend on the price that Treasury can 
eventually obtain for its common stock, including its Series C 
shares, which were not actually received as part of any TARP 
initiative.\571\
---------------------------------------------------------------------------
    \571\ The Series C shares--discussed in Section VI.F.1, supra--were 
provided by AIG to the U.S. Treasury in consideration for FRBNY's $85 
billion lending facility. This happened in September 2008, prior to the 
TARP investments in AIG.
---------------------------------------------------------------------------
    The next two programs listed in the table--AIFP and ASSP--
represent the TARP's assistance to automotive companies.\572\ 
About 60 percent of the $81.3 billion that Treasury provided to 
automotive companies remains outstanding, including large 
investments in GM, Chrysler, and GMAC/Ally Financial. There is 
still uncertainty about the outcome of each of those 
investments. The next three TARP programs listed in the table--
TALF, PPIP, and the SBA 7(a) Securities Purchase Program--
represent targeted efforts to revive lending. Though very 
little of this money has been repaid, the Panel expects losses 
on these programs to be minimal.
---------------------------------------------------------------------------
    \572\ This category includes assistance to GMAC/Ally Financial, 
which Treasury chose to fund as part of AIFP due to the companies' 
interconnectedness to the future viability of the automotive 
manufacturers.
---------------------------------------------------------------------------
    Finally, the last three programs listed in the table--HAMP, 
HHF, and the FHA Short Refinance Program--represent the TARP's 
foreclosure-prevention efforts. By design, all three of these 
programs will result in net losses to the TARP, since the funds 
are being used to provide financial incentives to prevent 
foreclosures, and are not meant to be repaid. So the size of 
the eventual losses will be negatively correlated with the 
success of the programs. In other words, the more foreclosures 
that the program prevents, the greater the losses to the TARP. 
The Panel expects the eventual losses to be far smaller than 
the $45.6 billion allocated for the programs, because usage of 
the programs to date is far below initial projections.
    Overall, Treasury has spent $419.9 billion of the $475 
billion that it is currently authorized to spend. Of the total 
amount spent, $255.9 billion has been repaid. Roughly $6 
billion in losses have been recorded. For particular TARP 
programs, those losses on principal may be partially or fully 
offset by dividends, interest payments, and other proceeds 
collected by Treasury. Since the TARP expired in October 2010, 
Treasury has no longer been able to make new funding 
commitments, but it can continue to provide funding for TARP 
programs for which it has existing contracts and previous legal 
commitments. As Figure 32 shows, $55.1 billion in TARP funding 
is still available to Treasury, reserved mostly for the three 
TARP foreclosure-prevention programs.

                                FIGURE 32: TARP ACCOUNTING (AS OF MARCH 10, 2011)
                                            [Dollars in billions] ix
----------------------------------------------------------------------------------------------------------------
                                                                Total
                                     Maximum       Actual    Repayments/     Total       Funding       Funding
             Program                  Amount      Funding      Reduced       Losses     Currently   Available xi
                                    Allotted x                 Exposure                Outstanding
----------------------------------------------------------------------------------------------------------------
Capital Purchase Program (CPP)...       $204.9       $204.9  xii $(171.5  xiii $(2.6)        $30.8            $0
                                                                       )
Targeted Invest-ment Program              40.0         40.0       (40.0)            0            0             0
 (TIP)...........................
Asset Guarantee Program (AGP)....          5.0      xiv 5.0     xv (5.0)            0            0             0
AIG Investment Program (AIGIP)...     xvi 70.0         70.0   xvii (9.1)            0         60.9             0
Community Development Capital              0.6    xviii 0.6            0            0          0.6             0
 Initiative (CDCI)...............
Auto Industry Financing Program           81.3         81.3   xix (29.0)     xx (3.4)         48.9             0
 (AIFP)..........................
Auto Supplier Support Program              0.4          0.4        (0.4)            0            0             0
 (ASSP) xxi......................
Term Asset-Backed Securities Loan     xxii 4.3    xxiii 0.1            0            0          0.1           4.2
 Facility (TALF).................
Public-Private Investment Program         22.4     xxv 15.9   xxvi (0.7)            0         15.2           6.5
 (PPIP) xxiv.....................
SBA 7(a) Securities Purchase               0.4    xxvii 0.4     xxviii 0            0          0.4             0
 Program.........................
Home Affordable Modification              29.9     xxix 1.0            0            0          1.0          28.9
 Program (HAMP)..................
Hardest Hit Fund (HHF)...........      xxx 7.6     xxxi 0.1            0            0          0.1           7.5
FHA Short Refinance Program......          8.1    xxxii 0.1            0            0          0.1           8.1
                                  ------------------------------------------------------------------------------
    Total........................       $475.0       $419.9     $(255.8)       $(6.0)       $158.1         $55.1
----------------------------------------------------------------------------------------------------------------
See endnote references in Annex III: Endnotes

    A quantitative assessment of the TARP must also include any 
profit earned or loss incurred on actual fund outlays. The 
terms of TARP transactions created the possibility for Treasury 
to profit from its investments after repayment, but Treasury 
has also suffered losses related to both investments that are 
unrecoverable and those never intended for repayment.
    Most of the TARP programs hold at least the potential for 
the taxpayers to make a profit. So far, those programs have 
earned a profit, net of losses, of $30.3 billion.\573\ The 
losses to date include $2.6 billion from CPP investments and 
$3.4 billion from the AIFP. The CPP losses relate to the 
bankruptcies of CIT Group and Pacific Coast National Bank and 
the sales of the preferred stock (and any related warrants) of 
South Financial Group, TIB Financial Corporation, the Bank of 
Currituck, Treaty Oak Bancorp, and Cadence Financial 
Corporation. The AIFP losses were derived from a $1.9 billion 
settlement payment for Treasury's $3.5 billion loan to Chrysler 
Holding \574\ and the net loss from the $1.9 billion debtor-in-
possession loan provided to Old Chrysler.\575\ Figure 33 shows 
the profits and losses for each TARP program. It is important 
to note that this table represents a snapshot in time, and 
shows only recorded profits and losses; the TARP's net profit 
or loss changes with the finalization of each transaction. 
Additional profits and losses are inevitable. As noted earlier, 
CBO currently estimates a final net loss of $25 billion, 
although this represents a discounted present value estimate 
rather than a simple accounting summation of net profits and 
losses as discussed here.\576\
---------------------------------------------------------------------------
    \573\ These figures do not include the amount currently outstanding 
of $157.9 billion. Treasury Transactions Report, supra note 36.
    \574\ 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); Treasury Transactions Report, supra note 
36.
    \575\ Following the bankruptcy proceedings for Old Chrysler, which 
extinguished the $1.9 billion debtor-in-possession 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. As 
of March 8, 2011, Treasury had collected $48.1 million in proceeds from 
the sale of collateral. Treasury included these proceeds as part of the 
funds 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); Treasury Transactions 
Report, supra note 36.
    \576\ CBO Report on TARP--November 2010, supra note 341, at 5.

                                                             FIGURE 33: TARP PROFIT AND LOSS
                                                                  [Dollars in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Warrant
                                                         Dividends xxxiv   Interest xxxv    Disposition        Other       Losses xxxvii
                TARP  Initiative xxxiii                    (as of  2/28/   (as of  2/28/  Proceeds xxxvi   Proceeds  (as   (as of  3/8/        Total
                                                              2011)            2011)        (as of  3/8/  of  2/28/2011)       2011)
                                                                                               2011)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total..................................................          $16,482          $1,256          $8,681         $10,014        ($6,018)         $30,415
CPP....................................................           10,570              68           7,069   xxxviii 6,852         (2,578)          21,981
TIP....................................................            3,004               -           1,446               -               -           4,450
AIGIP..................................................                -               -               -        xxxix 18               -              18
AIFP...................................................            2,461           1,061           xl 99          xli 43    xlii (3,440)             224
ASSP...................................................                -              15               -       xliii 101               -             116
AGP....................................................              443               -              67      xliv 2,246               -           2,756
PPIP...................................................                -             107               -         xlv 477               -             583
SBA 7(a)...............................................                -               5               -          xlvi 0               -               5
Bank of America Guarantee..............................                -               -               -       xlvii 276               -             276
CDCI...................................................                3               2               -               -               -               5
--------------------------------------------------------------------------------------------------------------------------------------------------------
See endnote references in Annex III: Endnotes

    Beyond the basic profit and loss calculation, an additional 
determination of the profitability of investments is the 
investment's return. As mentioned above, some TARP programs 
were not designed to create a return, and thus it would not 
make sense to calculate one for those expenditures. But for the 
other TARP programs, the return offers one way to assess their 
effectiveness. The Panel has consistently employed the IRR as a 
measure of profitability, as it incorporates cash outflows and 
inflows while taking into consideration the time value of 
money. Treasury, in contrast, has utilized several measures to 
assess the government's return on particular TARP programs as 
well as the TARP as a whole.\577\
---------------------------------------------------------------------------
    \577\ One criticism of the IRR approach is that it assumes 
reinvestment of the earnings and repaid principal at the same rate as 
that calculated for the overall IRR for the program. See e.g., John S. 
Walker, Henry F. Check, and Karen L. Randall, Does the Internal Rate of 
Return Calculation Require a Reinvestment Rate Assumption?--There Is 
Still No Consensus (online at www.abe.sju.edu/check.pdf) (accessed Mar. 
11, 2011). In the case of Treasury, the more appropriate assumption may 
be that Treasury's return covers only its cost of issuing new debt for 
the comparable period.
---------------------------------------------------------------------------
    For the warrants associated with the CPP investment, 
Treasury utilizes a non-annualized absolute return, which is 
calculated simply as money in divided by money out, without any 
consideration for the timing of cash flows.\578\ The Panel's 
calculation includes a consideration for the time value of 
money. Further, Treasury includes only CPP and TIP investments 
that have been fully repaid, and excludes investments lost due 
to bankruptcy or partial repayment. The Panel, however, 
includes all CPP and TIP investments that have been repaid or 
in which Treasury has concluded it will take a loss, ensuring 
that the total return is not inflated by exclusion of known 
losses. As of December 31, 2010, Treasury measured the return 
on CPP investments fully repaid to be 9.8 percent, including 
both dividends and warrants.\579\ The Panel, by comparison, 
calculates a return of 8.4 percent on CPP investments as of 
January 3, 2011.\580\
---------------------------------------------------------------------------
    \578\ Treasury notes that this method was chosen because at the 
time they first issued a CPP return, most of the investments and 
disposed warrants had only been held for a year or less, which would 
have inflated an annualized return. They have continued with this 
calculation for consistency. Treasury conversations with Panel staff 
(Mar. 7, 2011).
    \579\ December 2010 Warrant Disposition Report, supra note 152, at 
1.
    \580\ The 8.4 percent return calculated by the Panel also includes 
the additional warrants received from Treasury's investment in Bank of 
America through the TIP. The Panel calculates a return of 10.0 percent 
on CPP investments as of March 9, 2011.
---------------------------------------------------------------------------
    Neither Treasury nor the Panel have calculated an overall 
rate of return for TARP as a whole, given the disparate nature 
of the separate programs involved--including housing programs 
for which no return was expected--and the fact that most have 
not been completely closed out. The only other TARP program for 
which Treasury calculates a rate of return is the PPIP, for 
which Treasury calculates a return on equity alone, excluding 
the debt portion.\581\ While calculating a return on equity is 
standard industry practice in the private sector, for the 
purpose of a return on taxpayer dollars, this practice does not 
reflect the government's true financial exposure. While 
Treasury makes clear that its PPIP return is for equity only, 
and is useful for private investors in the program, the total 
return on debt and equity would be lower than the return on 
equity alone. Based on its method of calculating a return for 
PPIP, Treasury currently shows a return of 27.0 percent.\582\ 
When calculated as a blended return on both equity and debt, 
the total return is only 9.7 percent.\583\
---------------------------------------------------------------------------
    \581\ According to Treasury, their rationale for using a return on 
only equity is because under the terms of the PPIP agreement, only the 
equity financing was truly at risk. Treasury conversations with Panel 
staff (Feb. 11, 2011). Also, the debt portion of the PPIP investment 
carries a financing rate of LIBOR plus 1 percent. U.S. Department of 
the Treasury, Letter of Intent, at Exhibit A (July 8, 2009) (online at 
www.treasury.gov/initiatives/financial-stability/investment-programs/
ppip/s-ppip/Documents/S-PPIP_LOI_Term-Sheets.pdf).
    \582\ Treasury's Legacy Securities Public-Private Investment 
Program: Program Update, supra note 102, at 8.
    \583\ Ben Protess, Bad Asset Purchase Program Turning a Profit, The 
New York Times Dealbook Blog (Jan. 24, 2011) (online at 
dealbook.nytimes.com/2011/01/24/toxic-asset-purchase-program-turning-a-
profit/).
---------------------------------------------------------------------------

                  IX. Conclusions and Lessons Learned

    In order to evaluate the TARP's impact, one must first 
recall the extreme fear and uncertainty that infected the 
financial system in late 2008. The stock market had endured 
triple-digit swings. Major financial institutions, including 
Bear Stearns, Fannie Mae, Freddie Mac, and Lehman Brothers, had 
collapsed, sowing panic throughout the financial markets. The 
economy was hemorrhaging jobs, and foreclosures were escalating 
with no end in sight. Chairman Bernanke, looking back on the 
events of late 2008, has said that the nation was on course for 
``a cataclysm that could have rivaled or surpassed the Great 
Depression.''
    It is now clear that, although America has endured a 
wrenching recession, it has not experienced a second Great 
Depression. America's financial system has survived. Its 
economy is recovering.
    The TARP does not deserve full credit for preventing a 
depression; indeed, the TARP in isolation may have been 
insufficient to make much of a difference to the broader 
economy. But the TARP provided critical support at a moment of 
profound uncertainty. At the peak of the 2008 financial crisis, 
when the markets questioned the stability of virtually every 
bank in the country, the TARP restored a measure of calm and 
stability. It achieved this effect in part by providing capital 
to banks but, more significantly, by demonstrating that the 
United States would take any action necessary to prevent the 
collapse of its financial system. Through a combined display of 
political resolve and financial force, the TARP quelled the 
immediate panic and helped to avert an even more severe crisis.
    At the time that Congress established the TARP in October 
2008, CBO declined to provide a cost estimate, saying that the 
program's extremely broad and vague mandates rendered its final 
cost unknowable. One number, however, caught the public 
imagination: $700 billion, the total amount of money that 
Treasury requested and Congress authorized to bail out the 
financial system. As the New York Times reported following 
Treasury's initial TARP proposal, ``A $700 billion expenditure 
on distressed mortgage-related assets would roughly be what the 
country has spent so far in direct costs on the Iraq war and 
more than the Pentagon's total yearly budget appropriation. 
Divided across the population, it would amount to more than 
$2,000 for every man, woman and child in the United States.'' 
It is important to note, however, that even at the time the 
TARP was created, CBO considered it unlikely that the program 
would cost taxpayers $700 billion, as Treasury always stood to 
recover at least some portion of its investments. Nonetheless, 
$700 billion was the most precise figure available to the 
public as the TARP was enacted, and it remains the figure 
indelibly associated with the program.
    Several months after the TARP's creation, in April 2009, 
CBO finally had enough information to estimate what the TARP 
would ultimately cost taxpayers: $356 billion, or roughly half 
of the oft-cited $700 billion figure. Since then, CBO's 
estimates have grown progressively less grim as the economy has 
recovered and TARP investments have been repaid. CBO today 
estimates that the TARP will cost $25 billion--an enormous sum, 
but vastly less than anyone expected in the dark days of late 
2008 and early 2009.
    Although CBO's falling cost estimates are in many ways 
encouraging, they do not necessarily validate Treasury's 
administration of the TARP. To be sure, Treasury deserves 
credit for lowering costs to taxpayers through its diligent 
management of TARP assets and, in particular, its careful 
restructuring of AIG, Chrysler, and GM. However, a separate 
reason for the TARP's falling costs is that Treasury's 
foreclosure prevention programs, which could have cost $50 
billion, have largely failed to get off the ground. Viewed from 
this perspective, the TARP will cost less than expected in part 
because it will accomplish far less than envisioned for 
American homeowners. Another reason for the TARP's falling 
costs is that non-TARP government programs, such as the FDIC's 
efforts to allow banks to borrow at below-market rates and the 
Federal Reserve's efforts to support the RMBS market, have 
shifted some of the costs of the financial rescue off of the 
TARP's balance sheet and onto the balance sheets of other 
programs that are subject to significantly less oversight. 
Still another reason that costs have fallen is that the value 
of the government's stock holdings in the financial sector have 
sharply rebounded--a rebound that has, unfortunately, not been 
accompanied by increased lending to consumers and small 
businesses, nor by increased hiring in the broader economy, 
both of which were among the TARP's explicit goals.
    Further, the Panel has always emphasized that the TARP's 
cost cannot be measured merely in dollars. The TARP's implicit 
guarantee of ``too big to fail'' financial firms has entrenched 
moral hazard in the financial system, and the TARP's 
unpopularity in the public eye has created a lingering stigma 
that may hinder future rescue efforts. Further, accounting for 
the TARP from today's vantage point--at a time when the 
financial system has made great strides toward recovery--
obscures the risk that existed in the depths of the financial 
crisis. At one point, the federal government guaranteed or 
insured $4.4 trillion in face value of financial assets. If the 
financial system had suffered another shock on the road to 
recovery, taxpayers would have faced staggering losses.
    Finally, the TARP's incomplete transparency creates a real 
cost as well: an enduring public suspicion that taxpayers' 
money was not managed as effectively and accountably as 
possible.

                A. ``Too Big to Fail'' and Moral Hazard

    The TARP did not create the idea of ``too big to fail.'' 
Commentators had suggested for years that the U.S. government 
would intervene to prevent the collapse of any sufficiently 
large and interconnected financial institution. The government 
had even demonstrated a willingness in the past--for example, 
in the 1998 Federal Reserve-supervised bailout of Long Term 
Capital Management, a hedge fund whose failure the government 
believed would threaten financial stability--to play at least a 
limited role in preventing a panic. It is possible that these 
relatively small-scale interventions created a market 
expectation that the government would intervene in a more 
sweeping manner in the event of a crisis.
    Yet although the notion of ``too big to fail'' had existed 
for years, the TARP and other extraordinary government 
interventions in 2008 transformed it into stark reality. At the 
height of the financial crisis, 18 very large financial 
institutions received $208.6 billion in TARP funding almost 
overnight, in many cases without having to apply for funding or 
to demonstrate any ability to repay taxpayers. Three 
particularly weak and systemically significant firms--
Citigroup, Bank of America, and AIG--received even greater 
amounts of assistance under improvised programs that were not 
available to smaller, less significant institutions. The AIG 
rescue was particularly extraordinary in that it appears to 
have extended the ``too big to fail'' guarantee beyond AIG 
itself and into the broader derivatives market in which the 
company was entrenched. In essence, by bailing out AIG and its 
counterparties, the government transformed highly risky 
derivative bets into fully guaranteed transactions, with the 
American taxpayer standing as guarantor.
    The parameters of ``too big to fail'' gained greater 
clarity in early 2009, when Treasury and the Federal Reserve 
announced that the nation's 19 largest banks would undergo 
stress tests and that, if any of these banks were found to be 
potentially insolvent, it would receive further TARP capital as 
needed. In essence, the federal government announced that 
taxpayers would bear any burden and pay any price to prevent 
the collapse of any very large or very interconnected U.S. 
bank. Indeed, it was this implicit guarantee, more than any 
explicit government action, that played the greatest role in 
calming markets and halting the financial panic.
    Even as Treasury took drastic steps to rescue a handful of 
very large banks, smaller banks continued to collapse across 
the country. A total of 334 small and medium-sized banks have 
failed since the TARP's creation. Partly due to Treasury's 
decision to rescue very large banks while allowing smaller 
banks to collapse, America's largest banks today manage an even 
greater fraction of the nation's wealth than before the crisis. 
Banks that were ``too big to fail'' in 2008 are even bigger 
today.
    In light of these events, it is not surprising that markets 
have incorporated the notion that ``too big to fail'' banks are 
safer than their ``small enough to fail'' counterparts. Credit 
rating agencies continue to adjust the credit ratings of very 
large banks to reflect their implicit government guarantee. 
Smaller banks receive no such adjustment, and as a result, they 
face higher costs of funds relative to very large banks.
    By protecting very large banks from insolvency and 
collapse, the TARP also created classic moral hazard: that is, 
very large financial institutions may now rationally decide to 
take inflated risks because they expect that, if their gamble 
fails, taxpayers will bear the loss. Ironically, these inflated 
risks may create even greater systemic risk and increase the 
likelihood of future crises and bailouts. It is difficult to 
determine the degree to which moral hazard continues to infect 
the financial system. Treasury believes that the recent Dodd-
Frank Act reined in the problem by establishing a plausible 
resolution authority for very large banks, but that authority 
has yet to be tested.
    It is important to note that much of the moral hazard 
created by the TARP was inherent in any large-scale government 
intervention in the financial sector. That is, once Congress 
and the administration decided to rescue too-big-to-fail firms 
from the natural consequences of their own errors, a hefty dose 
of moral hazard was guaranteed. Yet Treasury likely exacerbated 
moral hazard in late 2008 and early 2009 by choosing not to 
impose tough consequences on TARP-recipient banks. For example, 
if banks had been forced as a condition of TARP assistance to 
use TARP funds to increase lending, fire their top management, 
or endure other severe penalties, they would be less willing to 
repeat the experience, reducing moral hazard.
    Treasury's interventions in the automotive industry, in 
particular, raise moral hazard concerns. In some ways, Treasury 
actually mitigated moral hazard through its very strict 
approach to these companies: it forced GM and Chrysler to enter 
bankruptcy, a step not required of other major TARP-recipient 
institutions. However, the mere fact that Treasury intervened 
in the automotive industry, rescuing companies that were not 
banks and were not particularly interconnected within the 
financial system, extended the ``too big to fail'' guarantee 
and its associated moral hazard to non-financial firms. The 
implication may seem to be that any company in America can 
receive a government backstop, so long as its collapse would 
cost enough jobs or deal enough economic damage.

                               B. Stigma

    As the TARP evolved, Treasury found its policy choices 
increasingly constrained by public anger about the program. The 
TARP is now widely perceived as having restored stability to 
the financial sector by bailing out Wall Street banks and 
domestic automotive manufacturers while doing little for the 
13.9 million workers who are unemployed, the 2.4 million 
homeowners who are at immediate risk of foreclosure, or the 
countless families otherwise struggling to make ends meet. 
Treasury acknowledges that, as a result of this perception, the 
TARP and its programs are now burdened by a public ``stigma.''
    Because the TARP was designed for an inherently unpopular 
purpose--rescuing Wall Street banks from the consequences of 
their own actions--stigmatization was likely inevitable. 
Treasury's implementation of the program has, however, made 
this stigma worse. For example, Treasury initially insisted 
that only healthy banks would be eligible for capital infusions 
under the CPP. When it later became clear that some TARP-
recipient banks were in fact on the brink of failure, all 
participating banks, even those in comparatively strong 
condition, became tainted in the public eye. Further, many 
senior managers of TARP-recipient institutions maintained their 
jobs and their substantial salaries, and although shareholders 
often suffered meaningful dilution, they were not wiped out. To 
the public, this may appear to be evidence that Wall Street 
banks and bankers can retain their profits in boom years and 
shift their losses to taxpayers during a bust--an arrangement 
that is anathema to market discipline in a free economy.
    Another factor contributing to stigmatization was the 
haphazard, constantly shifting, and in some ways misleading 
manner in which the TARP was sold to the public. Treasury 
initially proposed the TARP in a three-page bill that would 
have provided the Secretary of the Treasury with nearly 
unlimited, unilateral authority to buy troubled mortgage-backed 
assets off of bank balance sheets, absent any oversight or 
review. Although the legislation authorizing the TARP later 
grew in length and complexity (and added several layers of 
oversight, including the Panel), Treasury continued to assert 
that the TARP would function mainly by purchasing troubled 
assets. Mere days after the legislation authorizing the program 
was signed into law, however, Treasury changed course and 
decided to implement the TARP mainly as a bank capitalization 
program. The shift may have been made for sound policy reasons, 
but it helped to create a public distrust of the TARP: a sense 
that the government was treating honest and forthright 
communication to the public as secondary to Wall Street's 
needs. Further, the program's architects in many ways oversold 
its potential. Congress authorized the TARP to be used in a 
manner that ``protects home values, college funds, retirement 
accounts, and life savings'' and ``preserves homeownership and 
promotes jobs and economic growth.'' Notwithstanding these 
stated goals, the TARP was always intended by Congress and 
Treasury primarily to recapitalize banks. By citing the other 
goals as part of the rationale for the TARP, Congress and the 
administration may have laid the groundwork for some of the 
public disillusionment and anger that followed.
    Yet another source of stigma is that the TARP and other 
government rescue efforts were generally coordinated by the 
very regulators, bankers, and public officials who failed to 
anticipate or prevent the crisis, and that the boundaries 
between public and private actors were not always clear. To 
give a concrete example, in the rescue of AIG, people from the 
same small group of law firms, investment banks, and regulators 
appeared in many roles, sometimes representing conflicting 
interests. More broadly, the individuals who orchestrated the 
TARP and other rescue efforts almost all had the perspectives 
of either a banker or a banking regulator. This problem may be 
insurmountable--after all, who other than financial experts 
would coordinate a financial rescue? Nonetheless, the fact that 
the same people who contributed to the crisis were charged with 
ending it contributed to a perception that the government was 
quietly helping banking insiders at the expense of 
accountability and transparency.
    Whatever the reasons for the TARP's stigmatization, the 
program eventually became so detested that some smaller banks 
refused to participate in the CPP, while the legislation 
proposing the SBLF, a TARP-like bank capitalization program, 
attempted to escape the program's unpopularity by providing 
explicit assurances that the fund was not affiliated with the 
TARP.
    Stigma is difficult to quantify, but opinion polling is 
suggestive. A Bloomberg poll conducted in October 2010 found 
that 60 percent of respondents believe that most of the TARP 
funds provided to the banks would be lost; only 33 percent 
believed that most of the funds would be recovered. This 
overwhelming public belief stands at odds with projections 
released by the administration and CBO, which indicate that 
these programs may in fact turn a profit. In other words, the 
public's broad fury about the TARP may leave many Americans 
ready to believe only the worst about the program--a sentiment 
that creates real obstacles to any future government effort to 
intervene in a financial crisis.

          C. Transparency, Data Collection, and Accountability

    Transparency. Beginning with its very first report, the 
Panel has repeatedly expressed concerns about the lack of 
transparency in the TARP. In too many cases, especially in late 
2008 and early 2009, Treasury either declined to release 
information that it possessed about the program or declined to 
require TARP-recipient institutions to reveal information about 
their use of taxpayer funds. In perhaps the most profound 
violation of the principle of transparency, Treasury decided in 
the TARP's earliest days to push tens of billions of dollars 
out the door to very large financial institutions without 
requiring banks to use the funds in any particular way or even 
reveal how the money was used. As a result, the public will 
never know to what purpose its money was put. Other 
transparency problems include Treasury's refusal to explain how 
it valued the stock warrants it received in exchange for its 
TARP investments and the joint failure of Treasury and the 
Federal Reserve to disclose enough details of the 2009 stress 
tests to permit the results to be duplicated or challenged by 
outside parties.
    To Treasury's credit, its transparency and disclosure 
practices have improved over the lifetime of the TARP. For 
example, Treasury has recently begun to release loan-level 
information on its foreclosure mitigation programs--a far 
greater level of detail than was available in the program's 
early days. Further, Treasury has made an admirable commitment 
to posting TARP contracts online, and it has even disclosed the 
identity of TARP subcontractors--an unusual degree of 
transparency within the government contracting arena.
    Data Collection and Analysis. In some cases, public 
understanding of the TARP has suffered not because Treasury 
refused to reveal useful data but because these data were never 
collected in the first place. For example, despite repeated 
urgings from the Panel, Treasury still does not collect 
sufficient information about why loans are moving to 
foreclosure, nor does it monitor closely enough any loan 
modifications performed outside of HAMP. Additionally, Treasury 
stopped collecting lending data from CPP-recipient banks after 
larger banks repaid TARP funds, rendering it difficult for 
observers to measure that program's continuing impact.
    Without adequate data collection, Treasury has flown blind; 
it has lacked the information needed to spot trends, determine 
which programs are succeeding and which programs are failing, 
and make changes necessary for better implementation. The 
collection and analysis of data were especially important 
because so many of the TARP's programs were unprecedented, 
creating the possibility that data could reveal surprising and 
unexpected results. For example, Treasury took for granted that 
recapitalizing banks through the CPP would spur lending, yet 
when the Panel analyzed bank-level lending data, it was unable 
to find any correlation between the receipt of CPP funds and 
new lending. Similarly, it may seem intuitively obvious that 
homeowners who are burdened by significant car loan and credit 
card payments would be more likely to default on their 
mortgages than similar homeowners unburdened by such payments--
yet surprisingly, HAMP data revealed that this was not the 
case. To the extent that comprehensive, usable data were not 
collected for all TARP programs, or to the extent that data 
were collected but not analyzed or released for public review, 
other surprising and important correlations were likely never 
uncovered.
    Goals and Accountability. A related concern is Treasury's 
failure to articulate clear, meaningful goals for many of its 
TARP programs or to update its goals as programs have evolved. 
For example, when the President announced HAMP in early 2009, 
he asserted that the program would prevent three to four 
million foreclosures. The program has fallen far short of that 
goal and now appears on track to help only 700,000 to 800,000 
homeowners--yet Treasury has never formally announced a new 
target for the program.
    Even in cases in which Treasury's decisions have been 
clearly disclosed, the justifications have often remained 
obscure. For example, Treasury has often stated numerous goals 
for a single TARP program, such as to maintain systemic 
stability, to protect the stability of a particular 
institution, and to ensure the best possible return on taxpayer 
money. These goals have, unfortunately, frequently come into 
conflict, and Treasury has never adequately explained how it 
balanced conflicting obligations or prioritized conflicting 
aims. Because virtually any course of action could be justified 
as meeting one or another of Treasury's goals, the public has 
had no meaningful way to hold Treasury accountable--and 
Treasury has had no clear target to strive toward in its own 
internal deliberations.

               D. Other Obstacles Encountered by the TARP

    In addition to the broad problems laid out above, Treasury 
has encountered other recurring difficulties in its 
administration of the TARP.
     Treasury often found greater success in TARP 
programs that had only a few participants than in programs that 
required coordinating hundreds or thousands of participants. In 
the case of the CPP, Treasury achieved the vast majority of the 
program's effect by quickly pumping tens of billions of dollars 
into a handful of very large banks. Treasury needed a much 
longer timeframe to recapitalize hundreds of local and regional 
banks, and Treasury's investments in these banks were simply 
too small and too late to have a meaningful effect on financial 
stability. Along similar lines, the TARP program that directly 
reached the most participants--HAMP--was also one of the least 
effective, in part because Treasury found the task of 
coordinating hundreds of banks and loan servicers and millions 
of homeowners to be nearly overwhelming.
    Although Treasury found it easier and often more effective 
to stabilize the financial system by supporting ``too big to 
fail'' institutions rather than smaller banks or individual 
homeowners, it is critically important that the government 
consider the effects of its actions on the overall financial 
system. Rescuing large banks may have averted the immediate 
crisis, but it also provided these banks a competitive 
advantage, exacerbating concentration and potentially 
destabilizing the financial system. Further, the fact that 
large banks received such quick and dramatic support even as 
foreclosures continued unabated has contributed to the TARP's 
stigmatization, which has undermined the program's 
effectiveness.
     Treasury often encountered difficulty in 
attracting active, widespread participation in voluntary 
programs. The TARP's most effective programs were those in 
which participants had little choice but to follow Treasury's 
guidance. In particular, the investments that most dramatically 
stabilized the financial system were the CPP's investments in 
very large banks (which, at the peak of the financial crisis, 
received intense political and market pressure to participate 
in the TARP) and AIG, GM, and Chrysler (which would have 
suffered catastrophic, uncontrolled bankruptcies had they 
refused government support). In cases in which Treasury relied 
on voluntary participation, as in the involvement of small 
banks in the CPP or of investors and loan servicers in HAMP, 
many would-be participants refused to join, and Treasury found 
that it had little leverage to enforce program terms on the 
participants that did enroll. These problems persisted even 
though the terms of HAMP and the CPP were quite generous.
    Of course, mandatory programs present their own problems, 
including the specter of unrestrained government intervention 
into private institutions. The fact that voluntary TARP 
programs worked relatively poorly does not necessarily mean 
that future programs should be made mandatory; rather, it means 
that future administrations should carefully weigh the trade-
offs of a program that relies purely on voluntary 
participation.
     Treasury often found that hastily designed 
programs could backfire. For example, in the foreclosure arena, 
Treasury found that HAMP's initial design attracted only 
limited interest from loan servicers, prompting it to launch 
half a dozen increasingly generous foreclosure-related efforts 
in 2009 and early 2010. Unfortunately, the pattern of providing 
ever more generous incentives may have backfired, as lenders 
and servicers may have opted to delay modifications in hopes of 
eventually receiving a better deal. In addition, loan servicers 
expressed confusion about the constant flux of new programs, 
new standards, and new requirements that made implementation 
more complex. A similar problem arose in the CPP, in which 
Treasury and Congress imposed additional restrictions on CPP-
recipient banks--particularly as related to executive 
compensation--long after those banks had accepted taxpayer 
money. Once financial institutions recognized that their CPP 
participation entailed a risk of being forced to accept 
additional, unilaterally imposed restrictions at a later date, 
they became less willing to participate in future TARP 
programs.
    In a crisis, government agencies may feel forced to launch 
a response--any response--as quickly as possible with the 
expectation that, if their first effort should fail, they can 
always revise and improve the program later. The experience of 
the TARP, however, suggests that poorly designed first efforts 
may create enduring problems. Government actors should weigh 
this risk carefully when choosing whether to launch an 
immediate, haphazard response or to take more time to design an 
effective program.
     Treasury's programs often focused on addressing 
the immediate crisis, potentially giving short shrift to 
longer-term risks. For example, the Panel highlighted potential 
threats to the financial system in its oversight reports on the 
CRE market and on the potential hazards posed by mortgage 
irregularities. Treasury had not established specific programs 
to deal with these potential systemic threats, and its existing 
programs in some cases relied upon these threats not 
materializing (for example, HAMP's contracts with loan 
servicers take for granted that those servicers have a legal 
right to conduct loan modifications, notwithstanding widespread 
concern about mortgage documentation irregularities).
    It is understandable that, while dealing with threats that 
could impair the financial system tomorrow, Treasury may pay 
less attention to threats that could damage the system months 
or years in the future. Even so, failure to pay attention to 
threats at their earliest stages could allow risks to magnify 
and may force more costly interventions down the road.

                      E. On the Role of Oversight

    In establishing the TARP, Congress assigned oversight roles 
to no fewer than three government bodies: the Congressional 
Oversight Panel, the Special Inspector General for TARP 
(SIGTARP), and the Government Accountability Office (GAO). 
Although this document is the Panel's final report, SIGTARP and 
GAO will continue to monitor the TARP and issue public reports 
on their findings, and further oversight work will be performed 
by committees of the U.S. House of Representatives and the U.S. 
Senate. Academics, journalists, and watchdog groups also have 
played and will continue to play an important role in 
evaluating the TARP.
    Because so many organizations have examined Treasury's 
efforts, the TARP has become one of the most thoroughly 
scrutinized government programs in U.S. history. Such close 
scrutiny inevitably begets criticism, and in the case of the 
TARP--a program born out of ugly necessity--the criticism was 
always likely to be harsh. After all, in the midst of a crisis, 
perfect solutions do not exist; every possible action carries 
regrettable consequences, and even the best possible decisions 
will be subject to critiques and second-guessing. For these 
reasons the TARP was likely doomed to be unpopular, and because 
close scrutiny from oversight bodies drew attention to the 
program's faults--both the faults resulting from Treasury's 
decisions and the faults beyond anyone's control--the oversight 
process itself may have magnified the TARP's unpopularity.
    This fact creates an unfortunate tension. In a democracy in 
which a government's legitimacy depends upon public approval 
for its actions, political logic may argue for conducting only 
loose oversight of unpopular programs in hopes of shielding 
such programs from public criticism. It is to the credit of 
Congress, Treasury, and the administration that the TARP has 
not been hidden: that despite the much-discussed gaps in the 
program's transparency, it has been thoroughly and 
systematically scrutinized and debated. There can be no 
question that this oversight has improved the TARP and 
increased taxpayer returns. For example, in July 2009, the 
Panel reported that Treasury's method for selling stock options 
gained through the CPP appeared to be recovering only 66 
percent of the warrants' estimated worth. Due in part to 
pressure generated by the Panel's work, Treasury changed its 
approach, and subsequent sales recovered 103 cents on the 
dollar, contributing to $8.6 billion in returns to taxpayers. 
Other substantial improvements in the TARP--such as Treasury's 
heightened focus on the threat to HAMP posed by second liens 
and its greater disclosure of TARP-related data--are all partly 
the result of pressure exerted by the Panel and other oversight 
bodies.
    Thus, an enduring lesson of the TARP is that extraordinary 
government programs can benefit from, and indeed may require, 
extraordinary oversight. This lesson remains relevant in the 
context of the government's extraordinary actions in the 2008 
financial crisis: the public will continue to benefit from 
intensive, coordinated efforts by public and private 
organizations to oversee Treasury, the FDIC, the Federal 
Reserve, and other government actors. Careful, skeptical review 
of the government's actions and their consequences--even when 
this review is uncomfortable--is an indispensable step toward 
preserving the public trust and ensuring the effective use of 
taxpayer money.
              ANNEX I: FEDERAL FINANCIAL STABILITY EFFORTS

    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. The Panel calculates the 
total current value of these Treasury, FDIC, and Federal 
Reserve resources to be approximately $1.9 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. The $1.9 trillion total current value does not 
include Treasury's exposure to Fannie Mae and Freddie Mac, 
which the Panel consistently has treated as a separate issue. 
It also excludes efforts by the Federal Reserve that are 
primarily monetary policy initiatives, rather than financial 
stability efforts. These efforts are discussed separately 
below.
    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.\584\ In contrast, the Federal Reserve's liquidity 
programs, classified here as loans under ``Other Federal 
Reserve Credit Expansion,'' 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.
---------------------------------------------------------------------------
    \584\ 2009 November Oversight Report, supra note 60, at 36.

                 FIGURE 34: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORTS (AS OF MARCH 8, 2011)
                                              [Dollars in billions]
----------------------------------------------------------------------------------------------------------------
                                                     Treasury         Federal
                     Program                          (TARP)          Reserve          FDIC            Total
----------------------------------------------------------------------------------------------------------------
Total...........................................          $213.2        $1,156.9           558.3         1,928.3
    Outlays xlviii..............................           186.4         1,092.2            64.1         1,342.7
    Loans xlix..................................            22.4            64.7               0            87.1
    Guarantees l................................             4.3               0           494.2           498.5
AIG li..........................................            60.0            24.8               0            85.7
    Outlays.....................................        lii 60.9          liii 0               0            60.9
    Loans.......................................               0        liv 24.8               0            24.8
    Guarantees..................................               0               0               0               0
Citigroup.......................................               0               0               0               0
    Outlays.....................................            lv 0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Bank of America.................................               0               0               0               0
    Outlays.....................................           lvi 0               0               0               0
Loans...........................................               0               0               0               0
Guarantees......................................               0               0               0               0
Capital Purchase Program (Other)................            30.8               0               0            30.8
    Outlays.....................................       lvii 30.8               0               0            30.8
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Assistance Program......................             N/A               0               0       lviii N/A
TALF............................................             4.3            15.9               0            20.2
    Outlays.....................................               0               0               0               0
    Loans.......................................               0         lx 15.9               0            15.9
    Guarantees..................................         lix 4.3               0               0             4.3
PPIP (Loans) lxi................................               0               0               0               0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
PPIP (Securities)...............................       lxii 21.7               0               0            21.7
    Outlays.....................................             7.4               0               0             7.4
    Loans.......................................            14.3               0               0            14.3
    Guarantees..................................               0               0               0               0
Making Home Affordable Program/Foreclosure                 45.6                0               0               0
 Mitigation.....................................
    Outlays.....................................      lxiii 45.6               0               0            45.6
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Automotive Industry Financing Program...........       lxiv 48.9               0               0            48.9
    Outlays.....................................            40.8               0               0            40.8
    Loans.......................................             8.1               0               0             8.1
    Guarantees..................................               0               0               0               0
Automotive Supplier Support Program.............               0               0               0               0
    Outlays.....................................               0               0               0               0
    Loans.......................................           lxv 0               0               0               0
    Guarantees..................................               0               0               0               0
SBA 7(a) Securities Purchase....................       lxvi 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........      lxvii 0.57               0               0            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    lxviii 494.2           494.2
Deposit Insurance Fund..........................               0               0            64.1            64.1
    Outlays.....................................               0               0       lxix 64.1            64.1
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Other Federal Reserve Credit Expansion..........               0         1,116.2               0         1,116.2
    Outlays.....................................               0     lxx 1,092.2               0         1,092.2
    Loans.......................................               0       lxxi 24.0               0            24.0
    Guarantees..................................               0               0               0               0
----------------------------------------------------------------------------------------------------------------
See endnote references in Annex III: Endnotes

Treasury's Exposure to Fannie Mae and Freddie Mac

    In July 2008, the Federal Reserve and Treasury began to 
provide increased credit support to Fannie Mae and Freddie Mac. 
On September 7, 2008, the FHFA, using authority it had been 
provided through the Housing and Economic Recovery Act of 2008, 
placed Fannie Mae and Freddie Mac in conservatorship, thereby 
explicitly guaranteeing the $5.2 trillion in debt and MBS 
guaranteed by the GSEs in 2008.\585\ As part of this action, 
Treasury initiated agreements to recapitalize the GSEs, and 
additionally established two programs to aid them: the 
Government Sponsored Enterprises' Mortgage Backed Securities 
Purchase Program (GSE MBS Purchase Program) and the GSE Credit 
Facility.
---------------------------------------------------------------------------
    \585\ Fannie Mae had $3.0 trillion of guaranteed debt on its books 
in 2008, and had $3.1 trillion in 2010. Freddie Mac had $2.2 trillion 
of MBS on its books in 2008 and had $2.2 trillion in 2010. Federal 
National Mortgage Association, Form 10-K for the Fiscal Year Ended 
December 31, 2010, at 74 (Feb. 24, 2011) (online at www.sec.gov/
Archives/edgar/data/310522/ 000095012311017972/w81665e10vk.htm); 
Federal Home Loan Mortgage Corporation, Form 10-K for the Fiscal Year 
Ended December 31, 2010, at 81 (Feb. 24, 2011) (online at www.sec.gov/
Archives/edgar/data/1026214/000102621411000005/f71542e10vk.htm).
---------------------------------------------------------------------------
    Under the GSE MBS Purchase Program, Treasury purchased 
approximately $225 billion in GSE MBS by the time its authority 
expired.\586\ As of February 2011, there was approximately 
$136.3 billion in MBS still outstanding under this 
program.\587\ No loans were needed or issued under the GSE 
Credit Facility.
---------------------------------------------------------------------------
    \586\ 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).
    \587\ U.S. Department of the Treasury, MBS Purchase Program: 
Portfolio by Month (online at www.treasury.gov/resource-center/data-
chart-center/Pages/mbs-purchase-program.aspx) (accessed Mar. 11, 2011). 
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/Pages/
mbs-purchase-program.aspx) (accessed Mar. 11, 2011).
---------------------------------------------------------------------------
    On May 6, 2009, Treasury doubled its recapitalization 
(stock purchase) commitment to each enterprise. In December 
2009, Treasury announced amendments to the Senior Preferred 
stock purchase agreements that removed any limits on such stock 
purchases of each GSE through the end of 2012. As of the end of 
fiscal year 2010, Treasury held $52.6 billion in preferred 
stock, a number that was predicted to fall to $47.5 billion in 
fiscal year 2011.\588\
---------------------------------------------------------------------------
    \588\ U.S. Department of the Treasury, Housing Government Sponsored 
Enterprise Programs: Program Summary by Budget Activity (Feb. 14, 2011) 
(online at www.treasury.gov/about/budget-performance/budget-in-brief/
Documents/FY2012_GSE_508.pdf).
---------------------------------------------------------------------------

Other Federal Reserve Actions

    On November 3, 2010, the FOMC announced that it had 
directed FRBNY to begin purchasing $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.\589\ 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.\590\ As of 
March 9, 2011, the Federal Reserve held $1.27 trillion in 
Treasury securities.\591\
---------------------------------------------------------------------------
    \589\ 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).
    \590\ 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).
    \591\ March 2011 Fed Statistical Release H.4.1, supra note 458.
                     ANNEX II: ADDITIONAL CPP DATA

    The CPP is discussed at length in Section II.A above. This 
annex provides additional data about the current state of the 
CPP. Figure 35 shows the number of CPP recipients that have 
missed dividend payments to Treasury by bank size, type of 
dividend owed, and number of payments missed.

 FIGURE 35: CPP MISSED DIVIDEND PAYMENTS (AS OF FEBRUARY 28, 2011) \592\
------------------------------------------------------------------------
  Number of Missed Payments    1   2   3   4   5   6   7   8   9   Total
------------------------------------------------------------------------
Cumulative Dividends:
Number of Banks, by asset     26  18  26  20  17  13   8   3   0     131
 size.......................
    Under $1B...............  16  11  19  17  13   8   5   1   0      90
    $1B-$10B................   9   7   6   3   4   5   3   2   0      39
Over $10B...................   1   0   1   0   0   0   0   0   0       2
Non-Cumulative Dividends:
Number of Banks, by asset      3   5   2   6   6   1   3   3   1      30
 size.......................
    Under $1B...............   2   5   2   6   5   1   3   3   1      28
$1B-$10B....................   1   0   0   0   1   0   0   0   0       2
Over $10B...................   0   0   0   0   0   0   0   0   0       0
                             -------------------------------------------
    Total Banks Missing       ..  ..  ..  ..  ..  ..  ..  ..  ..     161
     Payments...............
                             -------------------------------------------
    Total Missed Payments...  ..  ..  ..  ..  ..  ..  ..  ..  ..     596
------------------------------------------------------------------------
\592\ Additionally, two banks in the CDCI program have missed one
  payment and one has missed two payments, as of February 28, 2011. All
  three banks have less than $1 billion in assets. Treasury's Dividends
  & Interest Report, supra note 156. Data on total bank assets compiled
  using SNL Financial data service (accessed Mar. 11, 2011).


    Figure 36 identifies CPP recipients to whose board meetings 
Treasury currently sends an observer, as a result of multiple 
missed dividend payments.

                FIGURE 36: INSTITUTIONS WHERE TREASURY OBSERVERS NOW ATTEND BOARD MEETINGS \593\
----------------------------------------------------------------------------------------------------------------
                                                                                  Non-Current
                        Institution                          CPP  Investment       Dividends/     No. of  Missed
                                                                  Amount            Interest          Payments
----------------------------------------------------------------------------------------------------------------
Anchor BanCorp Wisconsin, Inc.............................       $110,000,000        $11,229,167               8
Blue Valley Ban Corp......................................         21,750,000          2,175,000               8
Cascade Financial Corporation.............................         38,970,000          2,922,750               6
Central Pacific Financial Corp.\594\......................        135,000,000                N/A               0
Centrue Financial Corporation.............................         32,668,000          2,858,450               7
Citizens Bancorp..........................................         10,400,000            991,900               7
Citizens Commerce Bancshares, Inc.........................          6,300,000            515,025               6
Dickinson Financial Corporation II........................        146,053,000         13,929,860               7
FC Holdings, Inc..........................................         21,042,000          1,720,170               6
First BanCorp (PR) \595\..................................        400,000,000         12,077,176               3
First Banks, Inc..........................................        295,400,000         28,173,775               7
Grand Mountain Bancshares, Inc............................          3,076,000            286,885               7
Heritage Commerce Corp....................................         40,000,000          3,000,000               6
Idaho Bancorp.............................................          6,900,000            658,088               7
Integra Bank Corporation..................................         83,586,000          6,268,950               6
Northern States Financial Corporation.....................         17,211,000          1,290,825               6
Pacific Capital Bancorp \596\.............................        180,634,000                  0               0
Pacific City Financial Corporation........................         16,200,000          1,545,075               7
Pathway Bancorp...........................................          3,727,000            304,635               6
Premierwest Bancorp.......................................         41,400,000          3,105,000               6
Ridgestone Financial Services, Inc........................         10,900,000            891,075               6
Rogers Bancshares, Inc....................................         25,000,000          2,043,750               6
Royal Bancshares of Pennsylvania, Inc.....................         30,407,000          2,660,613               7
Seacoast Banking Corporation of Florida...................         50,000,000          5,000,000               8
Syringa Bancorp...........................................          8,000,000            654,000               6
Georgia Primary Bank......................................          4,500,000            438,725               7
Lone Star Bank............................................          3,072,000            339,107               8
One Georgia Bank..........................................          5,500,000            530,391               7
OneUnited Bank............................................         12,063,000          1,206,300               8
Premier Service Bank......................................          4,000,000            378,472               7
United American Bank......................................          8,700,000            941,715               8
                                                           -----------------------------------------------------
    Total.................................................     $1,772,459,000       $108,136,877             194
----------------------------------------------------------------------------------------------------------------
\593\ Treasury's Dividends & Interest Report, supra note 156.
\594\ On February 18, 2011, Treasury completed the exchange of its $135,000,000 of Preferred Stock (including
  accrued and unpaid dividends thereon) in Central Pacific Financial Corp. for 5,620,117 shares of common stock,
  pursuant to an exchange agreement dated February 17, 2011. Treasury's Dividends & Interest Report, supra note
  156.
\595\ 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. Since that point, two additional dividend payments have been
  missed. Treasury's Dividends & Interest Report, supra note 156.
\596\ On August 31, 2010, following the completion of the conditions related to Pacific Capital Bancorp's
  capital plan, Treasury exchanged its $180,634,000 of Preferred Stock in Pacific Capital for $195,045,000 of
  Mandatorily Convertible Preferred Stock, 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. No dividends have
  been missed since this point. Treasury's Dividends & Interest Report, supra note 156.

    Figure 37 details the losses to Treasury to date, both 
settled and unsettled, from the CPP.

                                                    FIGURE 37: CPP SETTLED AND UNSETTLED LOSSES \597\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Investment     Warrant                 Possible Losses/
                 Institution                     Investment     Disposition  Disposition   Dividends        Reduced                   Action
                                                   Amount         Amount        Amount     & Interest      Exposure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cadence Financial Corporation*..............      $44,000,000   $38,000,000  ...........   $2,970,000      $(6,000,000)  3/4/2011: Treasury completed
                                                                                                                          the sale of the preferred
                                                                                                                          stock and warrants issued by
                                                                                                                          Cadence Financial to Community
                                                                                                                          Bancorp LLC for $38 million
                                                                                                                          plus accrued and unpaid
                                                                                                                          dividends.
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. On Feb. 8, 2010, the
                                                                                                                          contingent value rights
                                                                                                                          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.
Treaty Oak Bancorp *........................        3,268,000       500,000  ...........      192,415       (2,768,000)  1/26/2011: Treaty Oak
                                                                                                                          shareholders approve Carlile
                                                                                                                          Bankshares' purchase plan.
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...................................   $3,176,787,000  $182,541,706      440,000   73,821,199  $(2,994,245,294)  ...............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\597\ Treasury Transactions Report, supra note 36, at 14. The asterisk (``*'') denotes recognized losses on Treasury's Transactions Report.



                FIGURE 38: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY REPAID CPP FUNDS (AS OF MARCH 9, 2011)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Panel's Best
                                                                                     Warrant         Warrant          Valuation       Price/
                           Institution                               Investment     Repurchase  Repurchase/ Sale     Estimate at     Estimate     IRR
                                                                        Date           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 \598\............................................    \599\ 10/28/     3/3/2010     1,566,210,714     1,006,416,684      1.533      6.5
                                                                   2008 \600\ 1/9/
                                                                    2009 \601\ 1/
                                                                          14/2009
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     9/1/2010           400,000           468,164      0.854      5.9
Columbia Banking System, Inc.....................................      11/21/2008     9/1/2010         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 \602\..................................................    \603\ 10/25/    1/25/2011       245,008,277       136,161,499      1.799     13.4
                                                                   2008 \604\ 12/
                                                                          31/2008
Boston Private Financial Holdings, Inc...........................      11/21/2008     2/1/2011         6,352,500        10,150,607      0.626      7.4
Sandy Spring Bancorp, Inc........................................       12/5/2008    2/23/2011         4,450,000         4,452,306      0.999      7.3
Wintrust Financial Corporation...................................      12/19/2008     2/8/2011        25,694,061        30,185,219      0.860      9.6
Washington Banking Company.......................................       1/16/2009     3/2/2011         1,625,000         3,792,179      0.429      7.8
Cadence Financial Corporation....................................        1/9/2009     3/4/2011  ................           881,230  .........     (2.2)
First Horizon National Corporation...............................      11/14/2008     3/9/2011        79,700,000        43,387,200      1.837      8.9
1st Source Corporation...........................................       1/13/2009     3/9/2011         3,750,000         4,494,175      0.834      6.5
                                                                  --------------------------------------------------------------------------------------
    Total........................................................  ..............  ...........    $8,585,404,069    $8,329,269,048      1.031     10.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\598\ 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. TARP Monthly 105(a) Report--December 2010, supra note 241, at A-3.
\599\ Investment date for Bank of America in the CPP.
\600\ Investment date for Merrill Lynch in the CPP.
\601\ Investment date for Bank of America in the TIP.
\602\ 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 TLGP. As of March 11, 2011, the company and its subsidiaries had $58.2
  billion in long-term debt outstanding, which is guaranteed under the TLGP. Treasury Transactions Report, supra note 36, at 20. Data on Citigroup debt
  guaranteed by the TLGP accessed through SNL Financial(Mar. 11, 2011).
\603\ Investment date for Citigroup in the CPP.
\604\ Investment date for Citigroup in the TIP.

    Figure 39 shows the Panel's estimates of the value of 
Treasury's current holdings of warrants in CPP recipients as 
well as in AIG.

  FIGURE 39: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF MARCH 3,
                                  2011)
------------------------------------------------------------------------
                                       Warrant Valuation (millions of
                                                  dollars)
   Financial Institutions with    --------------------------------------
       Warrants Outstanding            Low          High         Best
                                     Estimate     Estimate     Estimate
------------------------------------------------------------------------
SunTrust Banks, Inc..............       $44.75      $305.37      $128.99
Regions Financial Corporation....        13.62       203.30       111.40
Fifth Third Bancorp..............       134.47       427.64       189.77
KeyCorp..........................        34.51       179.69        87.17
AIG..............................       247.75     1,708.06       787.49
All Other Banks..................       554.97     1,371.69       964.56
                                  --------------------------------------
    Total........................    $1,030.07    $4,195.74    $2,269.38
------------------------------------------------------------------------

                          ANNEX III: ENDNOTES

    i U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for Period Ending March 8, 2011 (Mar. 10, 
2011) (online at www.treasury.gov/initiatives/financial-stability/
briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    ii Figures represent TLGP debt outstanding at the end of 
the month for which the amount of debt outstanding reached its peak. 
BB&T Financial, Capital One Financial, and Fifth Third Bancorp did not 
issue debt guaranteed under the TLGP. Data provided by FDIC staff (Feb. 
25, 2011).
    iii For further discussion on the FDIC's loss exposure 
to Bank of America and Citigroup under the AGP, see Section II.B.1.
    iv Figures represent the outstanding loan amount at the 
end of the month for which the amount loaned to each company reached 
its peak, and include loans to companies that were acquired by a SCAP 
bank. Data provided by Federal Reserve staff (Mar. 4, 2011). For more 
information on the credit and liquidity programs, see Board of 
Governors of the Federal Reserve System, Regulatory Reform--Usage of 
Federal Reserve Credit and Liquidity Facilities (online at 
www.federalreserve.gov/newsevents/reform_transaction.htm) (accessed 
Mar. 14, 2011).
    Does not include the Asset-Backed Commercial Paper Money Market 
Mutual Fund Liquidity Facility (AMLF). Under the AMLF, the Federal 
Reserve provided loans to banks, which served as conduits to purchase 
asset-backed commercial paper from money market mutual funds. At its 
height, the facility had $146 billion in outstanding loans to 
participating banks. Although the data released by the Federal Reserve 
in December 2010 indicate that some of the SCAP banks acted as sponsors 
for money market mutual funds, it is difficult to determine the extent 
to which these banks were the ultimate beneficiaries of this facility. 
As a result, loans extended under the AMLF are not included in this 
table.
    v For discussion on the Federal Reserve's loss exposure 
to Bank of America and Citigroup under the AGP, see Section II.B.1.
    vi Under the TSLF, the Federal Reserve loaned Treasury 
securities in exchange for eligible collateral rather than extending 
credit. Figures represent the par value of Treasury securities loaned 
to participating institutions. See Board of Governors of the Federal 
Reserve System, Regulatory Reform--Term Securities Lending Facility 
(TSLF) and TSLF Options Program (TOP) (online at 
www.federalreserve.gov/newsevents/reform_tslf.htm) (accessed Mar. 11, 
2011).
    vii JPMorgan Chase did not have any outstanding loans 
from the Primary Dealer Credit Facility at month end. However, the 
company's maximum amount drawn from the facility was $3 billion in 
September 2008. Data provided by Federal Reserve staff (Mar. 4, 2011).
    viii MetLife was not a TARP recipient.
    ix 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 
Period Ending March 8, 2011 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf); U.S. Department of 
the Treasury, Daily TARP Update (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-daily-summary-report/TARP%20Cash%20Summary/
Daily%20TARP%20Update%20-%2003.10.2011.pdf).
    x Unless otherwise noted, figures reference the adjusted 
TARP commitments following the enactment of the Dodd-Frank Act. The 
automotive sector programs (AIFP and ASSP) as well as the housing 
programs (HAMP, HHF, FHA Short Refi) have been broken out in the above 
table in order to provide more detail. U.S. Department of the Treasury, 
Troubled Assets Relief Program (TARP) Monthly 105(a) Report--July 2010, 
at 5 (July 2010) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/105/Documents105/
July%202010%20105(a)%20Report_Final.pdf).
    xi Treasury will not make additional purchases pursuant 
to the expiration of its purchasing authority under EESA. Any funds 
still accounted for as available were committed to programs prior to 
the expiration of Treasury's purchasing authority. 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%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
    xii The total CPP repayment figure includes the 
principal repayment from the sale of Citigroup common stock as well as 
amounts repaid by institutions that exchanged their CPP investments for 
investments under the CDCI. See U.S. Department of the Treasury, 
Troubled Asset Relief Program Transactions Report for Period Ending 
March 8, 2011, at 2, 7, 13-15 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf); U.S. Department of 
the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 
25 (Oct. 2010) (online at www.treasury.gov/press-center/news/Documents/
TARP%20Two%
20Year%20Retrospective_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 www.treasury.gov/press-center/
press-releases/Pages/tg660.aspx).
    xiii In the TARP Transactions Report, Treasury has 
classified the entirety of 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., the Bank of Currituck, Treaty Oak Bancorp, and Cadence 
Financial Corp. to non-TARP participating institutions. These shares 
were sold at prices below the value of the initial CPP investment, and 
represent losses of $252.7 million. Therefore, Treasury's net current 
CPP investment is $30.8 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 March 8, 2011, at 1-14 (Mar. 
10, 2011) (online at www.treasury.gov/initiatives/financial-stability/
briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xiv 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%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
    xv 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 32. See U.S. Department of the Treasury, 
Troubled Asset Relief Program Transactions Report for the Period Ending 
March 8, 2011, at 20 (Mar. 10, 2011) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/tarp-
transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xvi AIG completely utilized the $40 billion that was 
made available on November 25, 2008, in exchange for the company's 
preferred stock. U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for the Period Ending March 8, 2011 (Mar. 
10, 2011) (online at www.treasury.gov/initiatives/financial-stability/
briefing-room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.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 a reduction of 
available funds 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 by AIG 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. 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. Id. at 21. For a full discussion of AIG's 
recapitalization plan, see American International Group, Inc., Form 8-K 
for the Period Ending January 14, 2011 (Jan. 14, 2011) (online at 
www.sec.gov/Archives/edgar/data/5272/000095012311003061/
y88987e8vk.htm).
    xvii As of March 8, 2011, Treasury received $9.1 billion 
in proceeds from its preferred interests in AIG-related SPVs. The funds 
used by AIG to redeem these preferred shares came from AIG asset sales. 
On February 14, 2011, AIG paid Treasury $2.2 billion using funds from 
the sale of AIG Star Life Insurance Co., Ltd. and AIG Edison Life 
Insurance Company. On March 8, 2011, Treasury received a further $6.9 
billion pursuant to AIG's sales of the MetLife equity units it acquired 
when it sold its subsidiary, ALICO, to MetLife. This fully closes 
Treasury's stake in the ALICO SPV. Treasury's remaining investment is 
comprised of $11.2 billion in AIA Preferred Units, 92 percent of AIG's 
common stock, and $2.0 billion preferred stock credit facility for 
AIG's benefit (available but undrawn). AIG is also still required to 
pay the remaining $110 million it owes stemming from the $165 million 
reduction to the Series F TARP investment. These funds were used to pay 
AIGFP retention bonuses and, as of March 8, 2011, $55 million had been 
repaid. American International Group, Inc., Form 8-K for the Period 
Ending February 8, 2011 (Feb. 9, 2011) (online at www.sec.gov/Archives/
edgar/data/5272/000095012311010653/y89586e8vk.htm); U.S. Department of 
the Treasury, Treasury: With $6.9 Billion Repayment Today from AIG, 70 
Percent of TARP Disbursements Now Recovered (Mar. 8, 2011) (online at 
www.treasury.gov/press-center/press-releases/Pages/tg1096.aspx); U.S. 
Department of the Treasury, Troubled Asset Relief Program Transactions 
Report for the Period Ending March 8, 2011 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf); Treasury 
conversations with Panel staff (Mar. 11, 2011).
    xviii Treasury closed the program on September 30, 2010, 
after investing $570 million in 84 community development financial 
institutions. Including additional investments, $464 million of the 
CDCI program funds were provided to banks that previously received 
assistance under the TARP's Capital Purchase Program. 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); U.S. 
Department of the Treasury, Troubled Asset Relief Program Transactions 
Report for the Period Ending March 8, 2011, at 18-19 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xix This figure includes $2,540,000,000 of repayment 
Treasury received from the sale of GMAC\Ally Financial's TruPs. U.S. 
Department of the Treasury, Troubled Asset Relief Program Transactions 
Report for the Period Ending March 8, 2011, at 18-19 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xx 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 
March 8, 2011, at 18-19 (Mar. 10, 2011) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/tarp-
transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    Also, following the bankruptcy proceedings for Old Chrysler, which 
extinguished the $1.9 billion 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 March 8, 2011, at 18 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxi 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 March 8, 2011, at 19 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxii 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).
    xxiii As of March 9, 2011, Treasury had provided $107 
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) (Mar. 10, 2010) (online at 
www.federalreserve.gov/releases/h41/20110310/).
    xxiv As of December 31, 2010, the total value of 
securities held by the PPIP fund managers was $21.5 billion. Non-agency 
residential mortgage-backed securities represented 81 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 December 31, 2010, at 
5 (Jan. 24, 2011) (online at www.treasury.gov/initiatives/financial-
stability/investment-programs/ppip/s-ppip/Documents/ppip-12-
10vFinal.pdf).
    xxv This number is calculated as the sum of the 
disbursed equity and disbursed debt on the Daily Tarp Update. U.S. 
Department of the Treasury, Daily TARP Update (Mar. 10, 2011) (online 
at www.treasury.gov/initiatives/financial-stability/briefing-room/
reports/tarp-daily-summary-report/TARP%20Cash%20Summary/
Daily%20TARP%20Update%20-%2003.10.2011.pdf).
    xxvi As of March 2, 2011, Treasury has received $713 
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 March 8, 2011, at 24 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxvii As of March 2, 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 March 8, 2011, at 23 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxviii Treasury has received to date $12.2 million in 
principal repayments through this program. U.S. Department of the 
Treasury, Cumulative Dividends, Interest, and Distributions Report as 
of February 28, 2011 (Mar. 10, 2011) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/dividends-
interest/DocumentsDividendsInterest/
February%202011%20Dividends%20Interest%20Report.pdf).
    xxix As of March 10, 2011, $1.04 billion was disbursed 
under this program. U.S. Department of the Treasury, Daily TARP Update 
(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-daily-summary-report/
TARP%20Cash%20Summary/Daily%20TARP%20Update%20-%2003.10.2011.pdf).
    xxx 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 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.treasury.gov/press-center/news/Documents/
TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
    xxxi As of February 28, 2011, $125.1 million has been 
disbursed to fourteen states and the District of Columbia: Alabama 
($8.0 million), Arizona ($6.3 million), California ($17.5 million), 
Florida ($10.5 million), Georgia ($8.5 million), Kentucky ($4.0 
million), Michigan ($7.7 million), Nevada ($2.6 million), North 
Carolina ($15.0 million), Ohio ($11.6 million), Oregon ($15.5 million), 
Rhode Island ($3.0 million), South Carolina ($7.5 million), Tennessee 
($6.3 million), and the District of Columbia ($1.1 million). Data 
provided by Treasury (Feb. 28, 2011).
    xxxii 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 $53.8 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, $11,500 for a letter of credit fee, and $663,472 for an 
unused commitment fee for the Letter of Credit. Data provided by 
Treasury (Feb. 28, 2011).
    xxxiii HAMP is not listed in this table because HAMP is 
a 100 percent subsidy program, and no profit is expected.
    xxxiv U.S. Department of the Treasury, Cumulative 
Dividends, Interest and Distributions Report as of February 28, 2011 
(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/dividends-interest/
DocumentsDividendsInterest/
February%202011%20Dividends%20Interest%20Report.pdf).
    xxxv U.S. Department of the Treasury, Cumulative 
Dividends, Interest and Distributions Report as of February 28, 2011 
(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/dividends-interest/
DocumentsDividendsInterest/
February%202011%20Dividends%20Interest%20Report.pdf).
    xxxvi U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for the Period Ending March 8, 2011 
(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxxvii 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 the Bank of 
Currituck, Treaty Oak Bancorp, and Cadence Financial Corp. This 
represents a $252.7 million loss on its CPP investments in these five 
banks. See Figure 37, CPP Settled and Unsettled Losses, for details on 
other banks likely to result in losses. U.S. Department of the 
Treasury, Troubled Asset Relief Program Transactions Report for the 
Period Ending March 8, 2011 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxxviii This figure represents net proceeds to Treasury 
from the sale of Citigroup common stock to date. 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. Treasury 
completed the sale of its Citigroup common shares on December 6, 2010. 
The gross proceeds of the common stock sale were $31.85 billion and the 
amount repaid under CPP was $25 billion. The difference between these 
two numbers represents the $6.85 billion in net profit Treasury has 
received from the sale of Citigroup common stock. U.S. Department of 
the Treasury, Troubled Asset Relief Program Transactions Report for the 
Period Ending March 8, 2011, at 15 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xxxix On March 8, 2011, Treasury received full payment 
for its share of the ALICO Junior Preferred Interests, which resulted 
in an associated payment of $18.5 million of accrued preferred returns 
since the recapitalization date (Jan. 14, 2011) on this segment of the 
AIG investment. This payment reflects a profit on a particular portion 
of Treasury's remaining investment, and does not account for the 
remaining ownership positions in the company or related SPVs.
    xl This represents the cash received for the warrants 
related to the GMAC/Ally sale of trust preferred securities that closed 
on March 7, 2011. U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for the Period Ending March 8, 2011, 
at 19 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xli This represents a distribution fee of $28.2 million 
received in connection with the sale of GMAC/Ally trust preferred 
securities, as well as the additional note of $15.0 million received 
upon repayment of the Chrysler Financial investment. U.S. Department of 
the Treasury, Troubled Asset Relief Program Transactions Report for the 
Period Ending March 8, 2011, at 19 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xlii Losses on the AIFP do not include projected losses 
on the GM stock sale as reported on the Daily TARP Update. U.S. 
Department of the Treasury, Daily TARP Update (Mar. 10, 2011) (online 
at www.treasury.gov/initiatives/financial-stability/briefing-room/
reports/tarp-daily-summary-report/TARP%20Cash%20Summary/
Daily%20TARP%20Update%20-%2003.10.2011.pdf). See endnote xx above for 
further details on the AIFP losses.
    xliii 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 
March 8, 2011, at 19 (Mar. 10, 2011) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/tarp-
transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xliv 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 March 8, 2011, at 20 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.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).
    xlv As of January 31, 2011, Treasury has earned $456.1 
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 
February 28, 2011, at 14 (Mar. 10, 2010) (online at www.treasury.gov/
initiatives/financial-stability/briefing-room/reports/dividends-
interest/DocumentsDividendsInterest/
February%202011%20Dividends%20Interest%20Report.pdf); U.S. Department 
of the Treasury, Troubled Asset Relief Program Transactions Report for 
the Period Ending March 8, 2011, at 24 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xlvi Treasury has received approximately $183,555 in 
proceeds from senior indebtedness instruments associated with its 
investments in SBA 7(a) securities. U.S. Department of the Treasury, 
Troubled Asset Relief Program Transactions Report for the Period Ending 
March 8, 2011 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    xlvii Although Treasury, the Federal Reserve, and the 
FDIC negotiated with Bank of America regarding a similar guarantee, 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).
    xlviii 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 investments 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.
    xlix Figures affected by rounding. All figures are as of 
March 8, 2010 unless otherwise noted.
    l 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.
    li See U.S. Department of the Treasury, Treasury Update 
on AIG Investment Valuation (Nov. 1, 2010) (online at www.treasury.gov/
press-center/press-releases/Pages/pr_11012010.aspx). AIG values exclude 
accrued dividends on preferred interests in the AIA and ALICO SPVs and 
accrued interest payable to FRBNY on the Maiden Lane LLCs.
    lii This number is comprised of the investments under 
the AIGIP/SSFI Program. U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for the Period Ending March 8, 2011, 
at 21 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    liii 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 SPVs, AIA 
Aurora LLC and ALICO Holdings LLC. These SPVs were established to hold 
the common stock of two AIG subsidiaries: AIA and ALICO. This interest 
was exchanged as part of the AIG recapitalization plan and is now 
consolidated under the Treasury holdings. Board of Governors of the 
Federal Reserve System, Federal Reserve System Monthly Report on Credit 
and Liquidity Programs and the Balance Sheet, at 18 (Dec. 2010) (online 
at www.federalreserve.gov/monetarypolicy/files/
monthlyclbsreport201012.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 were consolidated under Treasury. After the March 2, 
2011 sale of these MetLife equity units, Treasury, through the TARP, 
currently holds $11.3 billion in liquidation preference of preferred 
stock in the AIA Aurora LLC and no longer holds an interest in the 
ALICO SPV. U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for the Period Ending March 8, 2011, at 21 
(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    liv This number represents the outstanding principal of 
the loans extended to the Maiden Lane II and III SPVs to buy AIG assets 
(as of March 10, 2011, $12.4 billion for each of the SPVs). Federal 
Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) 
(Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/
20110310/); 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 taxpayer's 
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).
    On March 11, 2011, FRBNY announced that AIG had formally offered to 
purchase the assets in Maiden Lane II. There was no further news 
regarding the offer at the time this report was published. Federal 
Reserve Bank of New York, Statement Related to Offer by AIG to Purchase 
Maiden Lane II LLC (Mar. 11, 2011) (online at www.newyorkfed.org/
newsevents/news/markets/2011/an110311.html).
    lv The final sale of Treasury's Citigroup common stock 
resulted in full repayment of Treasury's investment of $25 billion. See 
endnote xxxviii, supra, for further details of the sales of Citigroup 
common stock. U.S. Department of the Treasury, Troubled Asset Relief 
Program Transactions Report for the Period Ending March 8, 2011, at 1, 
13 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    lvi Bank of America repaid the $45 billion in assistance 
it had received through TARP programs on December 9, 2009. U.S. 
Department of the Treasury, Troubled Asset Relief Program Transactions 
Report for the Period Ending March 8, 2011, at 1 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    lvii U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for the Period Ending March 8, 2011, 
at 13 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    lviii 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 from Treasury. GMAC/Ally Financial, 
however, received further funding through the AIFP. Therefore, the 
Panel considers the CAP unused. 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).
    lix This figure represents the $4.3 billion adjusted 
allocation to the TALF SPV. However, as of March 3, 2011, TALF LLC had 
drawn only $107 million of the available $4.3 billion. Board of 
Governors of the Federal Reserve System, Factors Affecting Reserve 
Balances (H.4.1) (Mar. 10, 2011) (online at www.federalreserve.gov/
releases/h41/20110310/); U.S. Department of the Treasury, Troubled 
Asset Relief Program Transactions Report for the Period Ending March 8, 
2011, at 22 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    lx 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 
banking.senate.gov/public/_files/GeithnerFINALfinancial 
stabilityfactsheet2.pdf) (describing the initial $20 billion Treasury 
contribution tied to $200 billion in Federal Reserve loans and 
announcing potential expansion to a $100 billion Treasury contribution 
tied to $1 trillion in Federal Reserve loans). Since only $43 billion 
in TALF loans remained outstanding when the program closed, Treasury is 
currently responsible for reimbursing the Federal Reserve Board only up 
to $4.3 billion in losses from these loans. Thus, since the outstanding 
TALF Federal Reserve loans currently total $20.2 billion, the Federal 
Reserve's maximum potential exposure under the TALF is $15.9 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) (Instrument 
Used: Term Asset-Backed Securities Loan Facility, Wednesday Level) 
(Mar. 3, 2011) (online at www.federalreserve.gov/releases/h41/20110303/
).
    lxi No TARP resources were expended under the PPIP 
Legacy Loans Program, a TARP program that was announced in March 2009 
but never launched.
    lxii These numbers are a staff calculation, subtracting 
the amount repaid from the funds obligated to find the maximum current 
commitment. U.S. Department of the Treasury, Daily TARP Update (Mar. 
10, 2011) (online at www.treasury.gov/initiatives/financial-stability/
briefing-room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/
Daily%20TARP%20Update%20-%2003.10.2011.pdf). On January 24, 2010, 
Treasury released its fifth quarterly report on PPIP. The report 
indicates that as of December 31, 2010, all eight investment funds had 
realized an internal rate of return (on equity) since inception (net of 
any management fees or expenses owed to Treasury) of at least 27 
percent. The highest performing fund, thus far, is AG GECC PPIF Master 
Fund, L.P., which has a net internal rate of return (on equity) of 59.7 
percent. These figures do not include the taxpayer's additional 
exposure under PPIP for credit extended to these investment funds. As 
noted in Section VIII.C of this report, when calculated as a (blended) 
return on both equity and debt, the total return is only 9.7 percent. 
U.S. Department of the Treasury, Legacy Securities Public-Private 
Investment Program, at 8 (Jan. 24, 2010) (online at www.treasury.gov/
initiatives/financial-stability/investment-programs/ppip/s-ppip/
Documents/ppip-12-10 vFinal.pdf).
    lxiii The total amount of TARP funds committed to HAMP 
is $29.9 billion. 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/
December105(a)%20report_FINAL_v4.pdf). However, as of March 4, 2011, 
only $1.04 billion in non-GSE payments have been disbursed under HAMP. 
U.S. Department of the Treasury, Daily TARP Update (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-daily-summary-report/TARP%20Cash%20Summary/
Daily%20TARP%20Update%20-%2003.10.2011.pdf).
    lxiv 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). $48.8 billion represents 
Treasury's current obligation under the AIFP after accounting for 
repayments, an additional note payment, and losses. U.S. Department of 
the Treasury, Troubled Asset Relief Program Transactions Report for the 
Period Ending March 8, 2011, at 18 (Mar. 10, 2011) (online at 
www.treasury.gov/initiatives/financial-stability /briefing-room/
reports/tarp-transactions/DocumentsTARPTransactions/3-10-11%20 
Transactions%20Report%20as%20of%203-8-11.pdf).
    lxxv At its maximum, $400 million was outstanding under 
the ASSP. These funds were fully repaid and Treasury earned $101 
million in proceeds from additional notes associated with the program. 
U.S. Department of the Treasury, Troubled Asset Relief Program 
Transactions Report for the Period Ending March 8, 2011 (Mar. 10, 2011) 
(online at www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/tarp-transactions/DocumentsTARPTransactions/3-10-
11%20Transactions%20Report%20as%20of%203-8-11.pdf).
    lxvi U.S. Department of the Treasury, Daily TARP Update 
(Mar. 10, 2011) (online at www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/tarp-daily-summary-report/
TARP%20Cash%20Summary/Daily%20TARP%20Update%20-%2003.10.2011.pdf).
    lxvii U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for the Period Ending March 8, 2011, 
at 17 (Mar. 10, 2011) (online at www.treasury.gov/initiatives/
financial-stability/briefing-room/reports/tarp-transactions/
DocumentsTARPTransactions/3-10-11%20Transactions%20 
Report%20as%20of%203-8-11.pdf).
    lxviii 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. $264.6 billion of debt subject to the 
guarantee is currently outstanding, which represents approximately 53.5 
percent of the current cap. Federal Deposit Insurance Corporation, 
Monthly Reports Related to the Temporary Liquidity Guarantee Program: 
Debt Issuance Under Guarantee Program (Feb. 23, 2011) (online at 
www.fdic.gov/regulations/resources/TLGP/total_issuance01-11.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 (Feb. 23, 2011) (online at www.fdic.gov/regulations/
resources/TLGP/fees.html).
    lxix This figure represents the amount of funds on the 
FDIC's balance sheet at the end of the third quarter of 2010 dedicated 
to the resolution of bank failures. These metrics are ``liabilities due 
to resolutions'' as well as ``contingent liabilities: future 
failures.'' As of Q3 2010, $42.8 billion was earmarked as ``liabilities 
due to resolutions'' and $21.3 billion was marked as ``contingent 
liabilities: future failures.'' Federal Deposit Insurance Corporation, 
Chief Financial Officer's (CFO) Report to the Board (Instrument Used: 
DIF Balance Sheet, Third Quarter 2010) (online at www.fdic.gov/about/
strategic/corporate/cfo_report_3rdqtr_10/balance.html) (accessed Mar. 
11, 2011).
    lxx Outlays are comprised of the Federal Reserve 
Mortgage Related Facilities. On November 25, 2008, the Federal Reserve 
announced that it would purchase $100 billion of debt and $500 billion 
of MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Federal 
Housing Finance Agency, Mortgage Market Note 10-1 (Jan. 20, 2010) 
(online at www.fhfa.gov/webfiles/15362/MMNote_10-1_revision_of_MMN_09-
1A_01192010.pdf). In March 2009, these amounts were increased to $1.25 
trillion of 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. The intended purchase amount for 
agency debt securities was subsequently decreased to $175 billion. 
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). As of March 2, 2011, the Federal 
Reserve held $949 billion of agency MBS and $143 billion of agency 
debt. Board of Governors of the Federal Reserve System, Factors 
Affecting Reserve Balances (H.4.1) (Mar. 10, 2011) (online at 
www.federalreserve.gov/releases/h41/20110310/).
    lxxi Federal Reserve Liquidity Facilities classified in 
this table as loans include primary credit, secondary credit, central 
bank liquidity swaps, loans outstanding to Commercial Paper Funding 
Facility LLC, seasonal credit, term auction credit, and loans 
outstanding to Bear Stearns (Maiden Lane LLC). Board of Governors of 
the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) 
(Mar. 10, 2011) (online at www.federalreserve.gov/releases/h41/
20110310/) (accessed Mar. 4, 2011). For further information, see the 
data that the Federal Reserve recently disclosed on these programs 
pursuant to its obligations under the Dodd-Frank 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 TWO: OVERSIGHT ACTIVITIES


                            Recent Hearings

    The Panel held its final hearing on March 4, 2011 in 
Washington, DC. The top official in Treasury's Office of 
Financial Stability answered questions about the overall 
effectiveness of the TARP in meeting its statutory goals and 
also provided insight into the future strategy for the TARP as 
it continues to wind down in the coming years. Officials from 
the FDIC, the FHFA, and the Federal Reserve offered testimony 
about their respective agencies' credit, liquidity, and housing 
initiatives that worked in concert with the TARP in the 
government's broader efforts to stabilize the financial system. 
Finally, four academic economists each offered their overall 
assessment of the effectiveness of the TARP and the 
government's other financial stability efforts.

                      Correspondence With Treasury

    The Panel's Chairman, Senator Ted Kaufman, sent a letter to 
the Secretary of the Treasury, Timothy F. Geithner, on March 7, 
2011.\605\ The letter raised concerns about transparency with 
respect to Treasury's recent redesign of its Office of 
Financial Stability website.
---------------------------------------------------------------------------
    \605\ See Appendix I of this report, infra.
---------------------------------------------------------------------------
    In response to this letter, Timothy Massad, the Acting 
Assistant Secretary for Financial Stability, sent a letter to 
Senator Kaufman on March 14, 2011.\606\ The letter outlined the 
steps Treasury has taken to address the issues raised by the 
Panel and promised future steps to ensure TARP transparency via 
Treasury's website.
---------------------------------------------------------------------------
    \606\ See Appendix II of this report, infra.
         SECTION THREE: 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 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 was 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 was 
charged with overseeing Treasury's actions, assessing the 
impact of spending to stabilize the economy, evaluating market 
transparency, ensuring effective foreclosure mitigation 
efforts, and guaranteeing that Treasury acted 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.

                               A. Members

    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, William B. 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.

                               B. Reports

12/10/2008  Questions About the $700 Billion Emergency Economic 
Stabilization Funds

    This report offered an initial impression of Treasury's use 
of authority under EESA. In order to set the agenda for the 
Panel's future work, the Panel posed ten primary questions 
regarding Treasury's goals and methods for the TARP. Among 
these questions: What is the scope of Treasury's authority? 
What is Treasury's strategy and is it working to stabilize 
markets and help reduce foreclosures? What have financial 
institutions done with taxpayers' money? Is the public 
receiving a fair deal?

1/9/2009  Accountability for the Troubled Asset Relief Program

    The report documented the efforts to get answers to the 
questions posed in the Panel's first report. It detailed both 
the answers received from Treasury and the many questions that 
remained unaddressed or unanswered. It specifically highlighted 
four key areas of concern: The rising tide of foreclosures, 
insufficient bank accountability, poor transparency in the use 
of TARP funds, and a lack of clarity in Treasury's overall 
strategy.

1/29/2009  Special Report on Regulatory Reform

    Fulfilling a mandate from Congress, this special report 
discussed how shortcomings in the financial regulatory regime 
contributed to the financial crisis by failing to effectively 
manage risk, require transparency, and ensure fair dealings. 
The report identified eight specific areas most urgently in 
need of reform and three key areas of risk management, 
concluding that financial regulation requires good risk 
management, transparency, and fairness.

2/6/2009  February Oversight Report: Valuing Treasury's 
Acquisitions

    This report presented the results of a detailed, technical 
analysis of the value of Treasury's largest transactions under 
the TARP in an effort to determine whether taxpayers were 
receiving fair value. The Panel determined that, in the ten 
largest transactions made with TARP funds, for every $100 spent 
by Treasury, it received assets worth, on average, only $66. 
This disparity translated into a $78 billion shortfall for the 
first $254 billion in TARP funds spent.

3/6/2009  Foreclosure Crisis: Working Toward a Solution

    The Panel examined the causes of the foreclosure crisis and 
developed a checklist providing a roadmap for foreclosure 
mitigation program success. Among the questions on the Panel's 
checklist: Will the plan result in modifications that create 
affordable monthly payments? Does the plan deal with negative 
equity? Does the plan address junior mortgages? Will the plan 
have widespread participation by lenders and servicers?

4/7/2009  Assessing Treasury's Strategy: Six Months of TARP

    In this report, the Panel looked back on the first six 
months of Treasury's TARP efforts and offered a comparative 
analysis of previous efforts to combat banking crises in the 
past. The Panel found that the successful resolution of past 
financial crises involved four critical elements: Transparency 
of bank accounting, particularly with respect to the value of 
bank assets; assertiveness, including taking early aggressive 
action to improve salvageable banks and shut down insolvent 
institutions; accountability, including willingness to replace 
failed management; and clarity in the government response.

5/7/2009  Reviving Lending to Small Businesses and Families and 
the Impact of the TALF

    This report surveyed the state of lending for small 
businesses and families and examined the TALF. The report 
raised concerns about whether TALF was well-designed to help 
market participants meet the credit needs of households and 
small businesses. It also raised serious doubts about whether 
the program would have a significant impact on access to 
credit.

6/9/2009  Stress Testing and Shoring Up Bank Capital

    The Panel examined how effectively Treasury and the Federal 
Reserve conducted stress tests of America's 19 largest banks. 
The Panel found that, on the whole, the stress tests were based 
on a solidly designed working model, but that serious concerns 
remained, including the possibility that economic conditions 
could deteriorate beyond the worst-case scenario considered in 
the tests. The Panel recommended that, if the economy continued 
to worsen, stress testing should be repeated.

7/10/2009  TARP Repayments, Including the Repurchase of Stock 
Warrants

    The July report examined the repayment of TARP funds and 
the repurchase of stock warrants. At that time, 11 banks had 
repurchased their warrants from Treasury. The Panel's analysis 
indicated that the taxpayers had received only 66 percent of 
the Panel's best estimate of the value of the warrants. In 
order to ensure that taxpayers received the maximum values as 
banks exited the TARP, the Panel urged Treasury to make its 
process, reasoning, methodology, and exit strategy absolutely 
transparent.

7/21/2009  Special Report on Farm Loan Restructuring

    This special report fulfilled a mandate under the Helping 
Families Save Their Homes Act of 2009 to issue a report that 
``analyzes the state of the commercial farm credit markets and 
the use of loan restructuring as an alternative to foreclosure 
by recipients of financial assistance under the Troubled Asset 
Relief Program (TARP).''

8/11/2009  The Continued Risk of Troubled Assets

    The August report found that substantial troubled assets 
backed by residential mortgages remained on banks' balance 
sheets and presented a potentially serious obstacle to economic 
stability. The risk to the health of small and mid-sized banks 
was especially high. The Panel recommended that Treasury and 
the bank supervisors carefully monitor the condition of the 
troubled assets held by financial institutions and that 
Treasury should move forward with one or more initiatives aimed 
at removing troubled whole loans from bank balance sheets.

9/9/2009  The Use of TARP Funds in Support and Reorganization 
of the Domestic Automotive Industry

    In this report, the Panel examined the use of TARP funds to 
assist the domestic automotive industry. The Panel recommended 
that Treasury provide a legal analysis justifying the use of 
TARP funds in the domestic automotive industry. The Panel 
further recommended that, in order to limit the impact of 
conflicts of interest and to facilitate an effective exit 
strategy from ownership, Treasury should consider placing its 
Chrysler and GM shares in an independent trust.

10/9/2009  An Assessment of Foreclosure Mitigation Efforts 
After Six Months

    The Panel's October report examined Treasury's efforts to 
prevent home foreclosures. The Panel expressed concern about 
the limited scope and scale of the Making Home Affordable 
program and questioned whether Treasury's strategy would lead 
to permanent mortgage modifications for many homeowners.

11/6/2009  Guarantees and Contingent Payments in TARP and 
Related Programs

    The November oversight report found that the income of 
several government-backed guarantee programs will likely exceed 
their direct expenditures, and that guarantees played a major 
role in calming financial markets. At their height, these same 
programs, however, exposed American taxpayers to trillions of 
dollars in guarantees and created significant moral hazard that 
can distort the marketplace.

12/9/2009  Taking Stock: What Has the Troubled Asset Relief 
Program Achieved?

    The Panel's December oversight report concluded that the 
TARP was an important part of a broader government strategy 
that stabilized the U.S. financial system. It was apparent 
after 14 months that significant underlying weaknesses 
remained, including a foreclosure crisis that showed no signs 
of abating and record unemployment, as well as market 
distortions caused by moral hazard.

1/14/2010  Exiting TARP and Unwinding Its Impact on the 
Financial Markets

    Even after Treasury's authority to make new TARP 
commitments expires in October 2010, taxpayers will hold a 
diverse collection of assets worth many billions of dollars. 
The Panel's January oversight report expressed concern that the 
stated principles guiding Treasury's divestment strategy may 
frequently conflict and are broad enough to justify a wide 
range of actions. Furthermore, any effective exit strategy must 
help to unwind the implicit guarantee created by the TARP.

2/11/2010  Commercial Real Estate Losses and the Risk to 
Financial Stability

    The Panel expressed concern that, over the next several 
years, a wave of CRE loan failures could jeopardize the 
stability of many banks, particularly community banks. Because 
community banks play a critical role in financing the small 
businesses that help the American economy create new jobs, 
their widespread failure could disrupt local communities, 
threaten America's weakened financial system, and extend an 
already painful recession.

3/11/2010  The Unique Treatment of GMAC Under the TARP

    The Panel examined the ways the TARP was used to support 
GMAC with funds from the Auto Industry Financing Program. The 
Panel found the government's early decisions to rescue GMAC 
resulted in missed opportunities to increase accountability and 
to better protect taxpayers' money.

4/14/2010  Evaluating Progress on TARP Foreclosure Mitigation 
Programs

    The Panel applauded recent changes to the mortgage 
modification program, but found that Treasury's response lagged 
behind the pace of the crisis, Treasury's programs would not 
reach the overwhelming majority of homeowners in trouble, and 
even families who navigate all the way through these programs 
will have a precarious hold on their homes.

5/13/2010  The Small Business Credit Crunch and the Impact of 
the TARP

    The May report found little evidence that the TARP had 
successfully spurred small business lending, and it raised 
questions about whether the program helped to restore stability 
to the smaller banks that provide substantial amounts of small 
business credit. The Panel also evaluated the proposed SBL) and 
found that, even if approved by Congress, its prospects were 
far from certain. The program might not be fully operational 
for some time, may not be embraced by banks, and may not 
address the root causes of the small business credit crunch.

6/10/2010  The AIG Rescue, Its Impact on Markets, and the 
Government's Exit Strategy

    This report found that the Federal Reserve and Treasury 
failed to exhaust all other options before undertaking their 
unprecedented, taxpayer-backed rescue of American International 
Group (AIG) and its creditors. This rescue resulted in 
extraordinary risk to taxpayers and a fundamental redefinition 
of the relationship between the government and the country's 
most sophisticated financial institutions.

7/14/2010  Small Banks in the Capital Purchase Program

    The July report found that the CPP's ``one-size-fits-all'' 
design served Wall Street banks much better than smaller banks. 
Moving forward, small banks may find it difficult to repay 
their TARP funds because the capital they need is difficult to 
obtain. If so, they are at risk of being unable to raise enough 
money to exit the program, even as many continue to struggle to 
pay their TARP dividends. If this leads smaller banks to 
consolidate or collapse, one lasting effect of the TARP could 
be an even more concentrated banking sector.

8/12/2010  The Global Context and International Effects of the 
TARP

    This report found that America targeted its bailouts very 
differently than other nations. While most nations targeted 
their funds to save individual banks, America simply flooded 
the markets with money to stabilize the system. As a result, it 
appeared that America's bailouts had much greater impact 
internationally than other nations' bailouts had on America. 
Additionally, the crisis revealed the need for an international 
plan to handle the collapse of major, globally significant 
financial institutions. The Panel recommended that U.S. 
regulators encourage regular crisis planning and ``war gaming'' 
for the international financial system.

9/16/2010  Assessing the TARP on the Eve of Its Expiration

    The September report found that, although the TARP quelled 
the financial panic in the fall of 2008, it was less successful 
in fulfilling its broader statutory goals. After the TARP's 
extension, Treasury's policy choices were increasingly 
constrained by public anger about the TARP. The Panel concluded 
that this stigma proved an obstacle to future financial 
stability efforts. In addition, in preparing the report, the 
Panel consulted a variety of prominent economists, who cited 
significant concerns about moral hazard.

10/14/2010  Examining Treasury's Use of Financial Crisis 
Contracting Authority

    This report found that Treasury's extensive use of private 
contractors in TARP programs created significant concerns about 
transparency and potential conflicts of interest. Private 
businesses performed many of the TARP's most critical 
functions, operating under 91 different contracts worth up to 
$434 million. They may have had conflicts of interest, were not 
directly responsible to the public, and were not subject to the 
same disclosure requirements as government actors. Although 
Treasury took significant steps to ensure the appropriate use 
of private contractors, the Panel recommended further 
improvements.

11/16/2010  Examining the Consequences of Mortgage 
Irregularities for Financial Stability and Foreclosure 
Mitigation

    The November report reviewed allegations that companies 
servicing $6.4 trillion in American mortgages may in some cases 
have bypassed legally required steps to foreclose on a home. 
The implications of these irregularities were unclear, but the 
Panel expressed concerns about the possibility that ``robo-
signing'' may have concealed deeper problems in the mortgage 
market that potentially threatened financial stability and put 
foreclosure prevention efforts at risk.

12/14/2010  A Review of Treasury's Foreclosure Prevention 
Programs

    This report found that Treasury's main foreclosure 
mitigation effort, HAMP, would not make a significant dent in 
the foreclosure crisis. The Panel estimated that, if current 
trends held, HAMP would prevent only 700,000 foreclosures--far 
fewer than the three to four million foreclosures that Treasury 
initially aimed to stop. While Treasury intended to devote $30 
billion to the program, it appeared that only $4 billion would 
be spent. Since the TARP had already expired, it was too late 
for Treasury to revamp its foreclosure prevention strategy, but 
Treasury could still have taken steps to wring every possible 
benefit from its programs.

1/13/2011  An Update on TARP Support for the Domestic 
Automotive Industry

    The January report found that, although it remained too 
early to tell whether Treasury's intervention in the U.S. 
automotive industry would prove successful, the government's 
ambitious actions appeared to be on a promising course. Even 
so, the companies that received automotive bailout funds 
continued to face uncertain futures, taxpayers remained at 
financial risk, concerns remained about the transparency and 
accountability of Treasury's efforts, and moral hazard lingered 
as a long-run threat to the automotive industry and the broader 
economy.

2/10/2011  Executive Compensation Restrictions in the Troubled 
Asset Relief Program

    This report examined Treasury's efforts to implement 
restrictions on executive pay at TARP-recipient institutions 
and, in particular, examined the work of the Special Master for 
Executive Compensation. The Panel found that, amidst intense 
media scrutiny and in a time of deep public anger, the Special 
Master achieved significant changes at the institutions under 
his review. Overall compensation at the companies under the 
Special Master's jurisdiction fell by an average of 55 percent, 
and cash salaries were generally limited to $500,000. 
Unfortunately, the Special Master fell short in his far broader 
goal of permanently changing Wall Street's pay practices.

3/16/2011  The Final Report of the Congressional Oversight 
Panel

    For its final report the Panel summarized and revisited its 
comprehensive body of monthly oversight work. To provide a 
context for understanding and evaluating the TARP, the report 
described the major events of the financial crisis in the fall 
of 2008 and the economic conditions prevailing during the 
crisis and response, as well as the broad array of federal 
initiatives undertaken to promote financial stability and 
liquidity as a result of the crisis. For each area in which it 
has done oversight work, the Panel provided a summary of its 
key findings and recommendations, along with an update since 
the Panel's prior work and the current status of the Panel's 
recommendations. The report concluded with a summation of the 
key lessons learned in order to guide policymakers should they 
find it necessary to respond to financial crises in the future.

                              C. Hearings


------------------------------------------------------------------------
                Date                                Hearing
------------------------------------------------------------------------
12/16/2008                            Clark County, NV: Ground Zero of
                                       the Housing and Financial Crises
1/14/2009                             Modernizing America's Financial
                                       Regulatory Structure
2/27/2009                             COP Field Hearing: Coping with the
                                       Foreclosure Crisis: State and
                                       Local Efforts to Combat
                                       Foreclosures in Prince George's
                                       County, Maryland
3/19/2009                             Learning from the Past: Lessons
                                       from the Banking Crises of the
                                       20th Century
4/21/2009                             COP Hearing with Treasury
                                       Secretary Timothy F. Geithner
5/28/2009                             COP Field Hearing in New York
                                       City: The Impact of Economic
                                       Recovery Efforts on Corporate and
                                       Commercial Real Estate Lending
6/24/2009                             COP Hearing with Herb Allison,
                                       Assistant Secretary of the
                                       Treasury for Financial Stability
7/7/2009                              COP Field Hearing in Greeley, CO
                                       on Farm Credit
7/27/2009                             Oversight of TARP Assistance to
                                       the Automobile Industry
9/10/2009                             COP Hearing with Treasury
                                       Secretary Timothy F. Geithner
9/24/2009                             COP Field Hearing in Philadelphia:
                                       Foreclosure Mitigation Under the
                                       Troubled Asset Relief Program
10/22/2009                            COP Hearing with Herbert M.
                                       Allison, Jr., Assistant Secretary
                                       of the Treasury Secretary for
                                       Financial Stability
11/19/2009                            Taking Stock: Independent Views on
                                       TARP's Effectiveness
12/10/2009                            COP Hearing with Treasury
                                       Secretary Timothy Geithner
1/27/2010                             COP Field Hearing in Atlanta on
                                       Commercial Real Estate
2/25/2010                             GMAC Financial Services and the
                                       Troubled Asset Relief Program
3/4/2010                              Citigroup and the Troubled Asset
                                       Relief Program
4/27/2010                             COP Field Hearing in Phoenix on
                                       Small Business Lending
5/26/2010                             TARP and Other Government
                                       Assistance for AIG
6/22/2010                             COP Hearing with Treasury
                                       Secretary Timothy Geithner
9/22/2010                             Treasury's Use of Contracting
                                       Authority Under the TARP
10/21/2010                            COP Hearing on the TARP and
                                       Executive Compensation
                                       Restrictions
10/27/2010                            COP Hearing on TARP Foreclosure
                                       Mitigation Programs
12/16/2010                            COP Hearing with Treasury
                                       Secretary Timothy Geithner
2/4/2011                              COP Hearing on Commercial Real
                                       Estate
3/4/2011                              COP Hearing on the TARP's Impact
                                       on Financial Stability
------------------------------------------------------------------------

                                D. Staff

  Naomi Baum, Executive Director
Tewana Wilkerson, Deputy Executive 
             Director
                                     Elizabeth MacDonald, General 
                                     Counsel

Alan Rhinesmith, Senior Policy Advisor

Steve Kroll, Deputy Executive Director/General Counselics Counsel
Patrick McGreevy, Professional Staff Membera Battista, Counsel/Senior 
Eamonn Moran, Counsel                Financial Analyst
Michael Negron, Counsel              Adam Berkland, Staff Assistant/
Marcus Newman, Financial Analyst     Dir. of Correspondence
Jamie Ostrow, Counsel                Isaac Boltansky, Research Analyst
Joe Otchin, Legislative Fellow       Katherine Brandon, Press Assistant
Patrick Pangan, Research Assistant   Elizabeth Brennan, Financial 
Matt Perault, Counsel                Analyst
Brian Phillips, Research Analyst and Dir. of Correspondenceer/Research 
Patrick Pinschmidt, Financial Markets Policy Advisor
Caroline Read, Press Assistant       Ellen Campbell, Research Analyst
Thomas Seay, Communications Director Joe Cwiklinski, Policy Advisor
William Shen, Policy Advisor         Beth Davidson, Investigative 
Ryan Spear, Legislative Fellow       Counsel
Marianne Spraggins, Senior Counsel   Elizabeth Davis, Chief Clerk
Jonathan Vogan, Fellow               Neal Desai, Counsel
Kevin Wack, Policy Analyst/Senior Editorn Evans, Chief Clerk
Graham Ward, Financial Analyst       Dan Geldon, Counsel
Caleb Weaver, Senior Advisor         Marc Geller, Professional Staff 
                                     Member
                                     Shanan Guinn, Communications 
                                     Director
                                     Sara Hanks, General Counsel
                                     Aslynn Hogue, Counsel
                                     Charles Honig, Senior Counsel
                                     Peter Jackson, Communications 
                                     Director
                                     Thaya Knight, Investigative 
                                     Counsel
                                     Fanni Koszeg, Counsel

                               DETAILEES

                                     Jayne Copley
                                     Jean Paffenback
                                     Pamela Williams

                                INTERNS

Benjamin Levine                      Michael Abelson
Eric Levine                          Daniel Arking
Dan O'Brien                          Eric Baum
Jared Policicchio                    Shirley Dai
Joshua Ruby                          Anthony DeLuise, Jr.
Matthew Schoenfeld                   Paul Dumaine
Elyse Schneiderman                   Cory Ellenson
Steven Syverud                       George Everly III
Thomas Smith                         Michael Gallagher
Nick Smyth                           Reid Johnson
Don Snyder                           Sean Kelly
Benjamin Steiner                     Arthur Kimball-Stanley
Alexa Strear                         Heather Klein
Wei Xiang                            Paul Laliberte-Tipple

                               E. Budget

    Section 125(g)(2) of EESA required that Panel expenses be 
paid equally from the contingent fund of the Senate and an 
``applicable'' fund of the House of Representatives. Such 
expenses were then to be reimbursed to the House and Senate by 
the Treasury Department from funds made available to the 
Secretary of the Treasury pursuant to the Act. Congressional 
leadership designated the Senate as the ``administrating 
entity'' for the Panel. All contracts entered into by the Panel 
received written approval from the Senate Committee on Rules 
and Administration and adhered to all Senate policies and 
procedures.


          Projected Total Panel Expenses through April 3, 2011


Compensation and Benefits...............................      $8,738,630
Office Space Rental.....................................         619,000
Office Equipment and Expenses...........................         358,904
Printing Costs for Hearings and Reports.................         768,851
Hearings and Travel.....................................         199,037
                    --------------------------------------------------------
                    ____________________________________________________
    Total...............................................     $10,684,422
  APPENDIX I: LETTER TO SECRETARY TIMOTHY GEITHNER FROM CHAIRMAN TED 
          KAUFMAN RE: REDESIGN OF WEBSITE, DATED MARCH 7, 2011

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   APPENDIX II: LETTER TO CHAIRMAN TED KAUFMAN FROM ACTING ASSISTANT 
 SECRETARY TIMOTHY MASSAD RE: REDESIGN OF WEBSITE, DATED MARCH 14, 2011

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