February 3, 2009
Authored by: Robert Klingler
On January 30, 2009, the Government Accounting Office (GAO) released its second report on the Troubled Asset Relief Program (TARP).
The report indicates that “thousands of applications are under review.” As of January 16, 2009, the Treasury was in the process of reviewing approval recommendations from fewer than 150 financial institutions; however, the bank regulators reported that they are reviewing applications “from more than 2,000 institutions that have not yet been forwarded to Treasury.” Furthermore, there is a backlog of closings due to the need for some institutions to require shareholder approval and/or to finalize closing documents.
The report follows up on the nine recommendations from its prior report, finding that Treasury has yet to fully address eight of the recommendations, and includes further recommendations on how to monitor TARP funds and more clearly articulate and communicate a strategic vision for the program.
Highlights of the report:
- The report provides a timeline of the actions that have been taken under TARP since October 2008;
- More than 50 financial institutions have received preliminary approval and then withdrawn their TARP Capital applications. The Treasury has indicated that the reasons given include the cost of closing and concerns over what may be viewed as onerous reporting and compliance requirements that may be imposed on participants.
- As of January 23, 2009, the Treasury has not formally denied an application. The report does note, however, that institutions are encouraged not to apply by their appropriate bank regulator if they are not likely to meet the requirements.
- The Treasury is still developing standards for mutual organizations, but they do not have an expected date for releasing final terms. While credit unions are also covered under the Emergency Economic Stabilization Act, that Treasury has not created a program that would enable them to participate in the TARP Capital program.
- TARP Capital program is intended to provide capital to “those institutions that can demonstrate overall financial strength and long-term viability.”
Through January 23, 2009, the Treasury had distributed $293.7 billion of the total $700 billion authorized under TARP.
- $194.2 billion under the Capital Purchase Program
- $40 billion under the Systemically Significant Failing Institutions Program (AIG)
- $40 billion under the Targeted Investment Program (Citi and Bank of America)
- $19.5 billion under the Automotive Industry Financing Guarantee Program
- $0 billion under the Term Asset-backed Securities Loan Facility, the Citigroup Asset Guarantee and the Bank of America Asset Guarantee