Troubled Asset Relief Program (TARP):
Implementation and Status
Baird Webel
Specialist in Financial Economics
January 31, 2011
Congressional Research Service
7-5700
www.crs.gov
R41427
CRS Report for Congress
P
repared for Members and Committees of Congress
Troubled Asset Relief Program (TARP): Implementation and Status
Summary
The Troubled Asset Relief Program (TARP) was created by the Emergency Economic
Stabilization Act (EESA; P.L. 110-343) in October 2008. EESA was enacted to address an
ongoing financial crisis that reached near-panic proportions in September 2008. The act granted
the Secretary of the Treasury authority to either purchase or insure up to $700 billion in troubled
assets owned by financial institutions. This authority was granted for up to two years from the
date of enactment and was very broad. In particular, the definitions of both “troubled asset” and
“financial institution” allowed the Secretary wide leeway in deciding what assets might be
purchased or guaranteed and what might qualify as a financial firm.
The financial crisis grew out of an unprecedented housing boom that turned into a housing bust.
Much of the lending for housing during the boom was based on asset-backed securities, which
used the repayment of housing loans as the basis for repaying these securities. As housing prices
fell and mortgage defaults increased, these securities became illiquid and fell sharply in value,
causing capital losses for financial firms. Uncertainty about future losses on illiquid and complex
assets led to some firms having reduced access to private liquidity, with the loss in liquidity being
in some cases catastrophic. September 2008 saw the government takeover of Fannie Mae and
Freddie Mac, the bankruptcy of Lehman Brothers, and the near collapse of AIG, which was saved
only by an $85 billion loan from the Federal Reserve. There was widespread lack of trust in the
financial markets as participants were unsure which firms might be holding so-called toxic assets
that might now be worth much less than previously estimated, and thus might be unreliable
counterparties in financial transactions. This prevented firms from accessing credit markets to
meet their liquidity needs.
As EESA moved through Congress, most attention was focused on the idea of the government
purchasing mortgage-related toxic assets, thus alleviating the widespread uncertainty and
suspicion by cleaning up bank balance sheets. The initial TARP Capital Purchase Program,
however, directly added capital onto banks’ balance sheets through preferred share purchases,
rather than removing assets that had become liabilities through purchasing mortgage-related
assets. Several other TARP programs followed, including an asset guarantee program; programs
designed to spur consumer and business lending; financial support for companies such as AIG,
GM, and Chrysler; and programs to aid homeowners at risk of foreclosure. Eventually, the
Public-Private Investment Program resulted in the purchase of some mortgage-related assets from
banks, but this has remained a relatively small part of TARP. Most of the TARP programs are now
closed, with no additional disbursements expected.
With the immediate crisis subsiding through 2009, congressional attention in financial services
turned largely to consideration of broad regulatory changes. The resulting Dodd-Frank Wall Street
Reform and Consumer Protection Act (P.L. 111-203) amended the TARP authority, including (1)
reduction of the overall amount to $475 billion; (2) removal of the ability to reuse TARP funds
that had been repaid; and (3) removal of the authority to create new TARP programs or initiatives.
The original TARP authority to purchase new assets or enter into new contracts expired on
October 3, 2010. Outlays under the existing contracts, however, may continue through the life of
these contracts. Overall budget cost estimates for TARP have decreased significantly since the
passage of EESA, with the latest Congressional Budget Office estimates foreseeing $25 billion in
costs and the latest Treasury estimates foreseeing $48 billion in costs. Most of these costs are
from aid to homeowners and the automakers. The assistance to banks is generally showing a
profit for the government.
Congressional Research Service
Troubled Asset Relief Program (TARP): Implementation and Status
Contents
Introduction ................................................................................................................................ 1
TARP Programs .......................................................................................................................... 2
Current Status and Future of TARP ............................................................................................. 3
The 112th Congress and TARP..................................................................................................... 5
The Costs of TARP ..................................................................................................................... 5
Ownership of Private Companies ................................................................................................ 7
TARP and the Dodd-Frank Act .................................................................................................... 8
Tables
Table 1. Outlay of TARP Funds ................................................................................................... 4
Table 2. Incoming TARP Funds................................................................................................... 5
Table 3. Estimates of Overall TARP Costs Over Time ................................................................. 6
Table 4. Detailed Cost/Gain Estimates for TARP ......................................................................... 7
Table 5. Companies with Large Government Common Ownership Stakes ................................... 8
Table 6. TARP Changes Following the Dodd-Frank Act .............................................................. 9
Table A-1. Capital Purchase Program ........................................................................................ 13
Table A-2. Consumer and Business Lending Initiatives ............................................................. 16
Table A-3. Government Support to the Auto Industry ................................................................ 18
Table A-4. Public Private Investment Program........................................................................... 21
Table A-5. AIG Support ............................................................................................................ 23
Table A-6. Citigroup Support (CPP/TIP/AGP)........................................................................... 25
Table A-7. Bank of America Support (CPP/TIP/AGP) ............................................................... 26
Appendixes
Appendix. Details of TARP Programs ....................................................................................... 11
Contacts
Author Contact Information ...................................................................................................... 27
Congressional Research Service
Troubled Asset Relief Program (TARP): Implementation and Status
Introduction
The Troubled Asset Relief Program (TARP) was created by the Emergency Economic
Stabilization Act1 (EESA) enacted on October 3, 2008. EESA was passed by Congress and signed
by President Bush to address an ongoing financial crisis that reached near-panic proportions in
September 2008.
Financial turmoil began in August 2007 when asset-backed securities, particularly those backed
by subprime mortgages, suddenly became illiquid and fell sharply in value as an unprecedented
housing boom turned to a housing bust. The Federal Reserve (Fed) stepped in with emergency
measures to restore liquidity, temporarily calming markets. Losses in mortgage markets, however,
continued and spilled into other markets. Financial firms eventually wrote down many of these
losses, depleting their capital. Uncertainty about future losses on illiquid and complex assets led
to some firms having reduced access to private liquidity, with the loss in liquidity being in some
cases catastrophic.
September 2008 saw the government takeover of Fannie Mae and Freddie Mac, the bankruptcy of
Lehman Brothers, and the near collapse of AIG, which was averted with an $85 billion loan from
the Fed. There was widespread unwillingness to lend in the financial markets as participants were
unsure which firms might be holding so-called toxic assets now worth much less than previously
estimated, and thus might be unreliable counterparties in financial transactions.
EESA authorized the Secretary of the Treasury (hereafter “the Secretary”) to either purchase or
insure up to $700 billion in troubled assets owned by financial firms. This authority was granted
for a maximum of two years from the date of enactment and expired on October 3, 2010. The
general concept was that by removing such assets from the financial system, confidence in
counterparties could be restored and the system could resume functioning. This authority granted
in EESA was very broad. In particular, the definitions of both “troubled assets” and “financial
institutions” allowed the Secretary wide latitude in deciding what assets might be purchased or
guaranteed and what might qualify as a financial institution.2 EESA also included a number of
oversight mechanisms3 and reporting requirements.4 EESA was later amended to strengthen its
executive compensation requirements5 and to reduce the authorized amount to $475 billion.6
1 P.L. 110-343, 12 USC 5311 et seq.
2 The definition for financial institution gives examples, such as banks and credit unions, but specifically does not limit
the definition to the types of firms named. The definition of troubled asset includes “any financial instrument”
determined by the Secretary, in consultation with the Chairman of the Fed, the purchase of which would promote
financial stability.
3 See CRS Report R40099, The Special Inspector General for the Troubled Asset Relief Program (SIGTARP), by
Vanessa K. Burrows and CRS Report RL34713, Emergency Economic Stabilization Act: Preliminary Analysis of
Oversight Provisions, by Curtis W. Copeland.
4 Treasury publishes their TARP reports at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/
Pages/Home.aspx. This report will make use of many of these TARP reports. Monthly overall reports are required
under Section 105(a) of EESA and will be referenced hereafter as, for example, the “December 2010 TARP 105(a)
Report.” Monthly reports on dividends and interest accrued to TARP will be referenced hereafter as, for example, the
“December 2010 TARP Dividends and Interest Report.” These reports are typically published 10 days after the month
in question. Treasury also is required to publish a “TARP Transactions Report” detailing TARP transactions shortly
after they occur.
5 P.L. 111-5; see CRS Report R40540, Executive Compensation Limits in Selected Federal Laws, by Michael V.
Seitzinger and Carol A. Pettit.
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Troubled Asset Relief Program (TARP): Implementation and Status
This report provides a brief outline of the programs created under TARP, recent changes made by
Congress, and a summary of the current status and estimated costs of the program. It also
provides an Appendix that contains detailed discussions of the individual TARP programs. This
report will be updated as warranted by market and legislative events.
TARP Programs
Treasury reacted quickly after the enactment of EESA, announcing the first TARP program, the
Capital Purchase Program, on October 14, 2008, and several other programs followed. This
programs included the following:
• Capital Purchase Program (CPP). The CPP did not purchase the mortgage-
backed securities that were seen as toxic to the system, but instead purchased
preferred shares in banks.7 The resulting addition of capital, it was hoped, would
allow banks to overcome the effect of the toxic assets while the assets remained
on bank balance sheets. The CPP is now closed, with assets outstanding, but no
additional disbursements
• Targeted Investment Program (TIP). This program provided for exceptional
preferred share purchases and was used only for Citigroup and Bank of America.
This program is closed, with all funds repaid.
• Asset Guarantee Program (AGP). Required by Section 102 of EESA,
guarantees provided under this program were also part of the exceptional
assistance to Citigroup and Bank of America. This program is closed, with all
guarantees cancelled.
• Systemically Significant Failing Institution Program/AIG Assistance.
Preferred share purchases to supplement and supplant assistance to AIG
previously provided by the Federal Reserve. This assistance was recently
restructured with the government now owning 92% of AIG’s common equity and
substantial equity in AIG subsidiaries. This equity is to be sold, and AIG may
access up to $2 billion in additional TARP funding.8
• Consumer and Business Lending Initiatives (CBLI). Three different attempts
to increase lending and spur the economy. The Term Asset-Backed Securities
Loan Facility (TALF) supported the asset-backed security market.9 The Section
7a Securities Purchase Program supported the Small Business Administration’s
(SBA) Section 7a loan program through purchases of pooled SBA guaranteed
securities. The Community Development Capital Initiative (CDCI ) provided for
lower dividend rates on preferred share purchases from banks that target their
(...continued)
6 P.L. 111-203.
7 Preferred stock is an equity instrument, but it does not confer any control over the company and typically has a set
dividend rate to be paid by the company; it is similar economically to debt, but accounted for as equity.
8 For more detailed information on AIG, see CRS Report R40438, Federal Government Assistance for American
International Group (AIG), by Baird Webel.
9 For more information see CRS Report RL34427, Financial Turmoil: Federal Reserve Policy Responses, by Marc
Labonte.
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lending to small businesses. The SBA securities and CDCI programs are closed
with some assets still outstanding, but no new disbursements. Additional
disbursements are possible under TALF should future losses occur.
• Housing Assistance Programs. These programs are unlike the other TARP
programs in that they do not result in valuable assets or income in return for the
TARP funding. The Home Affordable Modification Program (HAMP) pays
mortgage servicers if they modify mortgages to reduce the financial burden on
homeowners. The Hardest Hit Fund provides aid to state housing authority
programs in states that have high unemployment rates and foreclosures. These
programs remain open under the contracts previously agreed to and substantial
funds remain to be disbursed. The December TARP 105(a) report shows $45.6
billion planned with only $1 billion disbursed.10
• Public-Private Investment Program (PPIP). This program provides funds and
guarantees for purchases of mortgage-related securities from bank balance sheets.
Purchases and management of the securities is done by private investors who
have provided capital to invest along with the TARP funds. The PPIP is still open
under previous contracts with $15.6 billion of a possible $22.4 billion disbursed
as of December 2010.
• Automobile Industry Support. This program provided loans to support General
Motors (GM) and Chrysler. The program ultimately resulted in majority
government ownership of GM (60.8%) and its financing arm, GMAC/Ally
Financial (74%), and minority government ownership of Chrysler (9.9%). The
ownership in GM was reduced to 33.3% in a recent public share offering but the
government has yet to divest any shares in GMAC/Ally Financial or Chrysler.
The only remaining funds that might be disbursed are up to $2 billion in loans to
Chrysler.11
Current Status and Future of TARP
As detailed above, until October 3, 2010, the Secretary had the authority to purchase or insure
nearly any financial asset under the programs in place on June 25, 2010. This authority has now
expired. The legal contracts entered into under the previous authority, however, are still in force.
Thus, TARP funds may still flow out from the Treasury in the future. The programs with the
largest gap between legal commitments and the actual amount disbursed, and thus the largest
potential to grow in the future, are the housing support programs. Table 1 presents the figures
reported by the Treasury for committed and actually disbursed TARP funds.
10 For more information see CRS Report R40210, Preserving Homeownership: Foreclosure Prevention Initiatives, by
Katie Jones.
11 For more information see CRS Report R41401, General Motors’ Initial Public Offering: Review of Issues and
Implications for TARP, by Bill Canis, Baird Webel, and Gary Shorter and CRS Report R41154, The U.S. Motor Vehicle
Industry: A Review of Recent Domestic and International Developments, by Bill Canis and Brent D. Yacobucci.
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Table 1. Outlay of TARP Funds
($ in billions)
TARP Program
Committed Amount
Actual Disbursements
Capital Purchase Program
$204.89
$204.89
Targeted Investment Program
$40.0
$40.0
Asset Guarantee Program
$5
$0
Consumer and Business Lending Initiative
$5.24
$0.67
Public-Private Investment Program
$22.41
$15.56
AIG $69.84
$67.84
(Jan. 14, 2011)
Auto Industry Financing Program
$81.76
$79.69
Housing Support
$45.63
$1.00
Totals $475
$411.65
Source: December 2010 TARP 105(a) Report; January 18, 2011 TARP Transactions Report.
Notes: Figures as of December 31, 2010, except for AIG assistance. Figures may not sum due to rounding.
Although the total amount of assets held or insured under TARP was initially capped at $700
billion, and the program was widely reported as a “$700 billion bailout,”12 the actual net cost of
TARP was never likely to approach $700 billion. Unlike most government programs, where funds
are simply expended, TARP funds were generally used in ways that resulted in either the holding
of assets by the government or in some form of income accruing to the government. The
incoming receipts from TARP outlays have taken several forms, including
• funds from the sale of previously purchased assets,
• repayment of principal from loans,
• premium payments for insured assets,
• dividend and interest payments from assets and loans, and
• proceeds from the sale of warrants issued by companies who sold assets to TARP.
Table 2 summarizes these incoming revenues from TARP.
12 See, for example, “7 Questions about the $700 Billion Bailout,” Time, September 24, 2008, http://www.time.com/
time/politics/article/0,8599,1843941,00.html and “Administration Is Seeking $700 Billion for Wall Street,” New York
Times, September 20, 2008, p. A1.
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Table 2. Incoming TARP Funds
($ in billions; as of December 31, 2010)
Asset
Dividends, Interest,
Unpaid Accrued
Sales/Repayment
Premiums, and
Dividends and
TARP Program
of Loan Principal
Warrant Proceeds
Interesta
Capital Purchase Program
$167.9
$30.96
$0.2
Targeted Investment Program
$40
$4.26
$0
Asset Guarantee Program
none
$2.96
$0
Consumer and Business Lending
$0 $0 $0
Initiative
Public-Private Investment Program
$0.43
$0.2
$0
AIG $0
$0
$1.6
Auto Industry Financing Program
$26.86
$3.47
$0.3
(Chrysler)
Housing Support
Not applicable
Not applicable
Not applicable
Totals $199.1
$30.0
$2.0
Source: December 2010 TARP 105(a) Report; December 2010 TARP Dividends and Interest Report; Chrysler
2010 2nd Quarter Financial Statement.
Notes: Housing support programs results in no assets to be sold, nor other income.
a. For both AIG and Chrysler, the unpaid dividends and interest have been converted into principal under
contracts agreed to between the company and the Treasury. The unpaid Capital Purchase Program
dividends are due to banks missing their scheduled dividend payments.
The 112th Congress and TARP
The 112th Congress has shown a continued interest in TARP despite the expiration of the
purchasing authority in October 2010. The first hearing of the House Committee on Oversight
and Government Reform in the 112th Congress focused on TARP, with the Special Inspector
General for TARP and Treasury’s Acting Assistant Secretary for Financial Stability as witnesses.
Shortly following this hearing, Representative Jim Jordan introduced H.R. 430, a bill to terminate
TARP’s HAMP program. Other TARP legislation introduced in the 112th includes Representative
Jordan’s H.R. 189, which was introduced on January 5, 2011, and would repeal TARP in its
entirety while allowing the Secretary to continue managing TARP assets to maximize future
returns.
The Costs of TARP
In arriving at an overall cost to the government of TARP, or any similar program, it is important
to account for the difference in time between initial outlay of funds and the receipt of any income.
Some TARP contracts run for five years or more, and the difference in value between a dollar in
2008 and 2013, for example, could be significant. To compare dollar values over time,
economists use present value calculations that reduce costs or income in the future relative to the
present by a discount rate. Present value calculations can be very sensitive to the rate used if the
amount of time involved is large. In preparing the budget cost estimates for TARP, the
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Troubled Asset Relief Program (TARP): Implementation and Status
Administration and the Congressional Budget Office (CBO) are directed by Section 123 of EESA
to adjust their estimates by current market borrowing rates, as opposed to the borrowing rate paid
by Treasury. Using market rates instead of government borrowing rates increases the net
calculated cost of these investments, and is meant to better represent the true economic costs of
the programs. Table 3 presents a range of TARP cost estimates over the life of the program while
Table 4 summarizes the latest detailed estimates of TARP’s cost from CBO and the Treasury.
Table 3. Estimates of Overall TARP Costs Over Time
($ in billions; gain(+)/loss(-))
Date Of Estimate/Agency
Amount
October 2008/CBO
“likely to be substantially less than $700 billion
but is more likely than not to be greater than
zero.”
January 2009/CBO
-$189
March 2009/CBO
-$356
May 2009/OMB
-$307.5
August 2009/OMB
-$208
August 2009/CBO
-$241
October 2009/Treasury
-$68.5
January 2010/CBO
-$99
February 2010/OMB
-$127
March 2010/CBO
-$109
May 2010/Treasury
-$105.4
August 2010/CBO
-$67
October 2010/Treasury
-$51a
October 2010/OMB
-$113b
November 2010/Treasury
-$77.7(-$45.9)c
November 2010/CBO
-$25
December 2010/Treasury
-$48
Source: CBO, Analysis of Dodd Substitute Amendment for H.R. 1424, October 1, 2008; OMB, Analytical
Perspectives, FY2010 President’s Budget, Table 702, May 2009; CBO, Budget and Economic Outlook, (January 2009,
August 2009, January 2010, and August 2010); and U.S. Treasury Office of Financial Stability, Agency Financial
Report Fiscal Year 2009, October 2009. OMB, Analytical Perspectives, FY2011 President’s Budget, Table 4-7; February
2010; CBO, Report on the Troubled Asset Relief Program—March 2010, March 17 2010; U.S. Treasury, Summary
Tables of Trouble Asset Relief Program (TARP) Investments as of March 31, 2010, May 2010; U.S. Treasury, Troubled
Asset Relief Program: Two Year Retrospective, October 5, 2010; and U.S. Treasury Office of Financial Stability,
Agency Financial Report Fiscal Year 2010, November 2010. CBO, Report on the Troubled Asset Relief Program—
November 2010, November 29, 2010; OMB, Report Under the Emergency Economic Stabilization Act, Section 202,
October 15 2010; and December 2010 TARP 105(a) Report.
a. This estimate assumed the announced AIG restructuring would take place as planned and used the market
value of AIG stock. It did not adjust for market risk and the time value of money as other estimates do.
b. This estimate was released in October, but used data from the end of May 2010; other estimates use data
closer to their publication dates.
c. The smaller figure is a “pro forma” cost, assuming that the proposed AIG restructuring takes place and
using market values for AIG stock. This is akin to the October estimate released by Treasury.
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Table 4. Detailed Cost/Gain Estimates for TARP
($ in billions; gain(+)/loss(-))
CBO
Treasury
TARP Program
(November 2010)
(December 2010)
Capital Purchase Program
$15
$15.5
Targeted Investment Program
$3.8
$7
Asset Guarantee Program
(combined)
$3.7
Consumer and Business Lending Initiative
$0
$0
Public-Private Investment Program
$0
$0.2
AIG -$14
-$8.0
Auto Industry Financing Program
-$19
-$14.8
Housing Support
-$12
-$45.6
Source: CBO, Report on the Troubled Asset Relief Program—November 2010, November 29, 2010; December
TARP 105(a) Report.
Note: December Treasury estimate assumes the completion of the AIG restructuring that subsequently
occurred January14, 2011.
The cost estimates of TARP are sensitive to financial markets and the state of the economy. The
ultimate cost of the program will depend largely on recouping value from the financial assets held
in TARP. The assets resulting from bank assistance (CPP/TIP/AGP), including warrants and both
preferred and common shares, have turned out to be relatively valuable, thus CBO and Treasury
estimate that these programs may show an overall profit as the increases in asset values outweigh
any losses from defaults. In the cases of AIG or the automakers, however, both CBO and Treasury
estimate that the assets held by the government ultimately will not return enough to recoup the
cash put into the companies, though the latest estimates are for a much smaller loss than was
previously expected.
Ownership of Private Companies
Government ownership of common equity in private companies was not a general goal of EESA
although it was expected that the government would be compensated for the assistance given to
companies under TARP. In some cases, this compensation for TARP assistance has resulted in
government holdings of common stock in amounts that typically would result in the government
having a controlling interest in these companies. Common equity in companies has typically been
accepted in return for TARP assistance in order to strengthen the companies’ capital positions
going forward. Such equity also provides a potential financial upside to the taxpayers if firms
have a strong recovery, but has potential downside if firms do not recover strongly.
In the case of Citigroup, which converted $25 billion of preferred shares into common shares, the
outcome for the government has been positive as the share price rose after the conversion,
resulting in approximately $6.8 billion in gains for taxpayers. The outcome for GM is less certain.
The share price would have to rise substantially from current levels to result in an overall gain.
Sales of the stakes in the other large companies (Chrysler, AIG, and GMAC/Ally Financial) have
yet to begin, although preferred shares in both AIG and GMAC/Ally Financial have recently been
converted into common shares to facilitate the sale of the government’s investment in these
companies.
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Table 5. Companies with Large Government Common Ownership Stakes
($ in billions)
TARP Outlays
Outstanding
Current
Still Owed by
Outlays
Government
Total TARP
Amount
the Company
Converted to
Ownership
Assistance
Recouped by
to the
Ownership
Company
Share
Receiveda
the Treasury
Treasury
Stakes
GM 33.3%
$50.2
$23.3b $0 $27.1
Chrysler 9.9% $11.3 $2.9c $5.1 $3.5
GMAC/Ally
Financial
74% $17.2 $2.0 $7.6 $9.6
AIG 92.1%d
$67.8 $0 $0 $47.5
Citigroupe
$45 cash;
0%
$5 billion
$57.0 $0 $0
guarantee
Source: Various TARP 105(a) Reports, TARP Dividend and Interest Reports, and U.S. Treasury press releases
Chrysler Group LLC, Third Quarter 2010 Financial Statement, November 8, 2010.
a. Some of these companies received commitments for funds greater than the reported amounts, or other
TARP assistance. These figures are actual dollars received by, or spent on behalf of, companies. In the case
of GM and Chrysler, this includes before, during, and after their bankruptcies, and also includes amounts
that went to support third party suppliers to GM and Chrysler.
b. Includes repayments, interest, dividends and fees.
c. $1.9 billion recouped from assets remaining after the bankruptcy of Old Chrysler; $403 million principal
repaid for warranty and supplier support loans; and $570 million in interest, dividends, and fees.
d. 79.8% ownership of AIG results from a Federal Reserve loan that predates TARP. The additional 12.3%
resulted from conversion of TARP preferred shares, including $1.6 billion in unpaid dividends. This
conversion substantially diluted the initial 80% government stake.
e. $20 billion was repaid directly by Citigroup; $25 billion was converted into 34% of the equity in Citigroup,
which was subsequently sold for $31.8 billion. Warrants from the transactions are still outstanding.
TARP and the Dodd-Frank Act13
Unlike EESA, which was a temporary response to the immediate financial crisis, the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was a broad bill that
permanently changed many parts of the U.S. financial regulatory system. The act included a
relatively short amendment to EESA in Title XIII, entitled the Pay It Back Act. Section 1302 of
Dodd-Frank made three primary changes to EESA:
• reducing the overall authorization to purchase from nearly $700 billion14 to $475
billion;
13 P.L. 111-203, see CRS Report R41350, The Dodd-Frank Wall Street Reform and Consumer Protection Act: Issues
and Summary, coordinated by Baird Webel.
14 The initial $700 billion had been reduced by $1.26 billion in P.L. 111-22.
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• removing the implicit authority for the Secretary to reuse TARP funds when
TARP assets are sold;15 and
• limiting the authorities under the act to programs or initiatives initiated prior to
June 25, 2010.
As of June 30, 2010, the Treasury reported that it planned to spend approximately $537 billion on
the various programs, with $491 billion committed under signed contracts and $385 billion
actually disbursed.16 The July 21, 2010, enactment of the $475 billion limit in the Dodd-Frank
Act thus required Treasury to reduce the amounts planned for TARP by more than $60 billion and
the legal commitments under TARP by more than $16 billion. CBO scored the TARP changes in
the Dodd-Frank Act as resulting in a decrease in direct spending of $11 billion in 2010.17 The
TARP changes reported by Treasury following the Dodd-Frank Act appear below in Table 6.
Table 6. TARP Changes Following the Dodd-Frank Act
($ in billions)
Planned
Change
Planned
Legal
Allocation Prior
Following
Allocation
Commitments
TARP Program
to Dodd-Frank
Dodd-Frank July 31, 2010
July 31, 2010
Capital Purchase Program
$204.9
$0.0
$204.9
$204.9
Targeted Investment Program
$40.0
$0.0
$40.0
$40
Asset Guarantee Program
$5.0
$0.0
$5.0
$5.0
AIG (Systemically Significant Failing
Institutions)
$69.8 $0.0
$69.8
$69.8
Term Asset-Backed Securities Program
$20.0
-$15.7
$4.3
$4.3
SBA Section 7(a)
$1.0
-$0.6
$0.4
Community Development Capital
$1.0a
Initiative
$0.8 $0.0
$0.8
Smal Business Lending Fund
$30
-$30.0b $0.0 $0.0
Public Private Investment Program
$30.4
-$7.9
$22.4
$22.4
Automotive Industry Financing
Program
$84.8 -$3.1
$81.8
$81.8
Housing/HAMP $48.7
-$3.1
$45.6
$30.25
Total $535.5
-60.5
$475.0
$454
Source: July 2010 TARP 105(a) Report
Notes: Figures may not add due to rounding.
a. Treasury’s reporting did not separate the legal commitments for the two programs.
15 Section 115(a)(3) of EESA limits the Secretary’s authority to purchase or guarantee assets to $700 billion
“outstanding at any one time.” While the interpretation was never subject to determination by the courts, this language
can be read to allow total purchase of assets beyond $700 billion if assets are sold before additional purchases are
made. Section 1302 of Dodd-Frank removed the phrase “outstanding at any one time.”
16 June 2010 TARP 105(a) Report.
17 Congressional Budget Office, CBO Estimate of the Net Deficit Effects of H.R. 4173, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, June 29, 2010.
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b. The Administration proposed creating a similar fund outside of TARP. See CRS Report R41385, Small
Business Legislation During the 111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther .
Under the broad authorities granted by EESA, Treasury could unilaterally change the planned
program allocations. Following the Dodd-Frank Act, this authority was limited to the difference
between the total of Treasury’s plans and the total of the signed contracts, approximately $21
billion as of July 31, 2010.
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Appendix. Details of TARP Programs
Capital Purchase Program and Capital Assistance Program
Under the Capital Purchase Program (CPP), $125 billion in capital was immediately provided to
the nine largest banks (which became eight after a merger), with up to another $125 billion
reserved for smaller banks that might wish to apply for funds through their primary federal
banking regulator. This capital was provided in the form of preferred share purchases by TARP
under contracts between the Treasury and banks. The initial contracts with the largest banks
(ultimately, eight rather than nine) prevented these banks from exiting the program for three
years. The contracts included dividend payments to be made on the preferred shares outstanding
and the granting of warrants to the government. By the end of 2008, the CPP had 214
participating banks with approximately $172.5 billion in share purchases outstanding.
The Obama Administration and the 111th Congress implemented changes to the CPP. EESA was
amended by the new 111th Congress, placing additional restrictions on participating banks in the
existing CPP contracts, but also allowing for early repayment and withdrawal from the program
without financial penalty.18 With the advent of more stringent executive compensation restrictions
for TARP recipients, many banks began to repay, or attempt to repay, TARP funds. According to
Treasury reports, by June 30, 2009, $70.1 billion of $203.2 billion CPP funds had been repaid; by
December 31, 2009, $121.9 billion of $204.9 billion had been repaid; and by December 31, 2010,
$167.93 billion of $204.9 billion had been repaid.
The new Administration also announced a review of the banking system, in which the largest
participants were subject to stress tests to assess the adequacy of their capital levels. Satisfactory
performance in the stress test was one regulatory requirement for large firms that wished to repay
TARP funds. Large firms that appear too fragile in the stress test would be required to raise
additional capital, and the firms would have the option of raising that capital privately or from the
government through a new Capital Assistance Program. No funding was provided through the
Capital Assistance Program, although GMAC, formerly General Motors’ financing arm, received
funding to meet stress test requirements through the Automotive Industry Financing Program
(discussed below). In addition, Citigroup, one of the initial eight large banks receiving TARP
funds, agreed with the government to convert its TARP preferred shares into common equity to
meet stress test requirements (see discussion of Citigroup below).
CPP profits stem from dividend payments and warrants received from recipients, and capital
gains in limited cases when shares are sold for more than face value (the standard CPP shares can
be resold only at face value). Losses stem from failure to repay in part or full. The ultimate
profitability of the program will be determined by the balance between the two.
Realized losses to date on the CPP preferred shares have been relatively small. At the end of
2010, Treasury reported seven TARP recipients had failed. These seven had CPP shares of $2.98
billion, with losses from the largest failed recipient (CitiGroup) accounting for $2.3 billion of
18 Title VII of the American Recovery and Reinvestment Act of 2009 (P.L. 111-16,123 Stat. 115).
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those losses. In addition, Treasury had realized losses of $242 million on discounted sales as of
the end of September 2010.19
An indication of how many preferred shares may currently be at risk of future losses might be
gleaned from the number of recipients who have missed dividend payments. At the end of
September 2010, 123 recipients missed the last quarterly dividend payment, and 21 recipients had
missed four or more payments. The missed payments equaled $44.9 million, not including
dividends owed by failed recipients20 (e.g., $58.3 million were owed by CIT Group in 2009).21
This may be a misleading measure of troubled participants, however, because there is no financial
penalty for missing a dividend payment. Missed dividend payments are simply rolled into the
outstanding balance, although multiple missed dividend payments do give Treasury the right to
appoint members to the board of the institution. Thus, healthy banks could be missing dividend
payments in order to increase the amount of capital available to support their business. In
practice, two studies have claimed that dividend skippers tend to be weaker institutions.22
Alternatively, some of the banks who cannot afford dividend payments now may become more
profitable as the economy recovers and ultimately repay TARP funds.
Another source of CPP profits are the proceeds from the warrants received from the companies.
Treasury has not generally exercised warrants to take common stock in CPP recipients. Following
the contracts initially agreed upon, Treasury has allowed institutions to purchase their warrants
directly upon repayment of preferred shares, as long as both sides can reach an acceptable price.
To reach an initial offering price, Treasury is using complex option pricing models to price the
warrants that require assumptions to be made about future prices and interest rates. Since these
pricing models are by their nature uncertain, some critics urge Treasury to auction the warrants on
the open market (allowing the issuing firm to bid as well) to ensure that Treasury receives a fair
price for them. Open auctions have been used, but only when an agreement between the Treasury
and the firms cannot be reached.
CPP also earns income from dividends with a rate of 5% for the first five years, and 9%
thereafter. (For S-Corp banks, the dividend rate is 7.7% for the first five years and 13.8%
thereafter.)
Table A-1 below summarizes the CPP, including current and peak asset holdings, losses or gains,
and conditions of the program.
19 U.S. Department of Treasury, Office of Financial Stability, Troubled Asset Relief Program – Two Year
Retrospective, October 2010, p. 26.
20 U.S. Department of Treasury, Office of Financial Stability, Troubled Asset Relief Program – Two Year
Retrospective, October 2010, p. 26.
21 Special Inspector General, Troubled Asset Relief Program, Quarterly Report to Congress, January 2010, Table 2.10.
22 Dobrina Georgieva, Linus Wilson “TARP’s Dividend Skippers,” working paper, Social Science Research Network,
August 6, 2010; Linus Wilson “TARP’s Deadbeat Banks,” working paper, Social Science Research Network, August
15, 2010.
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Table A-1. Capital Purchase Program
Federal Government
Terms and Conditions
Latest
Asset
Expected
Asset
Holdings
Total
Gains(+)/
Dividend
Holdings
at Peak
Income Losses(-)
Rate
Warrants Expiration
Date
$34
$198.8
$24.1
+$12.5
5% for
15% of
Preferred Shares
billion
billion
billion
billion
first 5
preferred
outstanding until repaid.
(Mar 30,
(less 3
(Treasury);
years, 9%
shares (5%
No new
2009)
billion in
+15 billion
thereaftera immediately
contracts/modifications
losses)
(CBO)
exercised for
after Oct. 3, 2010.
privately- held
banks)
Source: December 2010 TARP 105(a) Report; CBO, Report on the Troubled Asset Relief Program—November
2010; SIGTARP, Quarterly Report to Congress, January 30, 2010; U.S. Treasury Office of Financial Stability, Agency
Financial Report Fiscal Year 2010, November 2010. Various TARP Transactions Reports.
Notes: Data includes preferred shares to Citigroup and Bank of America under CPP, which are also detailed in
sections on assistance to those companies below.
a. For S-Corp banks, the dividend rate is 7.7% for the first five years and 13.8% thereafter.
TARP Housing Assistance Programs23
One criticism leveled in TARP’s early stages was its focus on assisting financial institutions, thus
providing only indirect assistance to individual homeowners facing foreclosure. Sections 103,
109 and 110 of the EESA specifically embody congressional intent that homeowners be aided
under TARP. Treasury ultimately created several programs addressing this criticism, specifically
(1) the Home Affordable Modification Program (HAMP) pays mortgage servicers if they modify
mortgages to reduce the financial burden on homeowners; (2) the Hardest Hit Fund provides aid
to state housing authority programs in states that have high unemployment rates and foreclosures;
and (3) FHA Short Refinance Program for homeowners who owe more than their house is worth.
Unlike other TARP programs that have resulted in asset purchases that may eventually return
some funds to the government, the housing assistance programs have no mechanism for returning
funds. Some $50 billion of TARP funding was initially planned for housing assistance effort.
Expected outlays under these programs have been counted as 100% spending with no expected
financial return to the government.
As of December 31, 2010, Treasury reports commitments of $45.6 billion to its TARP foreclosure
prevention programs, compared with the initial $50 billion. Of this amount, nearly $30 billion
was committed to HAMP and its related programs, $7.6 billion was committed to the Hardest Hit
Fund, and $8.1 billion to the FHA Refinance Program. As of the same date, only $0.8 billion had
been disbursed for HAMP, $0.1 billion for the Hardest Hit Fund, and $0.05 for the FHA
Refinance Program. This low amount of spending has resulted in further criticism that the
programs are ineffective at helping homeowners.
23 For additional detail on these and other housing assistance efforts, see CRS Report R40210, Preserving
Homeownership: Foreclosure Prevention Initiatives, by Katie Jones; portions of this section are based on this report.
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Home Affordable Modification Program
In March 2009, the TARP Home Affordable Modification Program (HAMP) was announced.24
Through HAMP, the government provides financial incentives to participating mortgage servicers
that provide loan modifications to eligible troubled borrowers to reduce the borrowers’ monthly
mortgage payments to no more than 31% of their monthly income. Servicers receive an upfront
incentive payment for each successful permanent loan modification, an additional payment for
modifications made for borrowers who are not yet delinquent, and a “pay-for-success” payment
for up to three years if the borrower remains current after the modification. The borrower can also
receive a “pay-for-success” incentive payment (in the form of principal reduction) for up to five
years if he or she remains current after the modification is finalized. Investors receive the
payment cost-share incentive (that is, the government’s payment of half the cost of reducing the
monthly mortgage payment from 38% to 31% of monthly income), and can receive incentive
payments for loans modified before a borrower becomes delinquent. Mortgage modifications can
be made under HAMP until December 31, 2012.
The Administration originally estimated that HAMP would cost $75 billion. Of this amount, $50
billion was to come from TARP funds and $25 billion was to come from Fannie Mae and Freddie
Mac for the costs of modifying mortgages that those entities owned or guaranteed.25 Treasury has
since revised its estimate of the amount of TARP funds that will be used for HAMP, and it has
used some of the $50 billion originally allocated to HAMP to help pay for other foreclosure-
related programs.
Hardest Hit Fund
On February 19, 2010, the Obama Administration announced that it would make up to a total of
$1.5 billion available to the housing finance agencies (HFAs) of five states that had experienced
the greatest declines in home prices. This program is known as the Hardest Hit Fund, and several
additional rounds of funding have been announced since its inception, bringing the total number
of states receiving funds to 18 plus the District of Columbia. The funding comes from the TARP
funds that Treasury initially set aside for HAMP. The latest announcement came in September
2010, when Treasury announced an additional $3.5 billion of funding to be distributed to the 18
states and District of Columbia that were receiving funding through earlier rounds, bringing the
total amount of funding allocated to the Hardest Hit Fund to $7.6 billion.
FHA Short Refinance Program
On March 26, 2010, the Administration announced a new FHA Refinance Program for
homeowners who owe more than their homes are worth. Detailed program guidance was released
on August 6, 2010.26 The FHA Refinance Program is intended to use current FHA refinancing
processes to include people who are underwater. Under the new program, certain homeowners
24 HAMP is part of the Administration’s broader Making Home Affordable Program, whose other aspects include an
FDIC-sponsored loan modification program and lower mortgage-interest rates through Fannie Mae and Freddie Mac.
Much of the funding for these programs is not through TARP.
25 November 2010 TARP 105(a) Report.
26 FHA Mortgagee Letter 2010-23, “FHA Refinance of Borrowers in Negative Equity Positions,” August 6, 2010,
available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/.
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who owe more than their homes are worth may be able to refinance into new, FHA-insured
mortgages for an amount lower than the home’s current value. The original lender will accept the
proceeds of the new loan as payment in full on the original mortgage; the new lender will have
FHA insurance on the new loan; and the homeowner will have a first mortgage balance that is
below the current value of the home, thereby giving him or her some equity. Homeowners will
have to be current on their mortgages to qualify for this program. Further, the balance on the first
mortgage loan will have to be reduced by at least 10%. This program is voluntary for lenders and
borrowers, and borrowers with mortgages already insured by FHA are not eligible. The FHA
Refinance Program began on September 7, 2010, and is to be available until December 31, 2012.
As of the end of October 2010, FHA reported receiving 35 applications to the program.27 Treasury
has committed $8.1 billion of the TARP funds originally set aside for HAMP to help pay for the
cost of this program; additional program costs will be borne by FHA.
Consumer and Business Lending Initiatives
The Consumer and Business Lending Initiatives is a grouping of three different attempts to
increase lending in segments of the credit market that are perceived to be frozen and spur the
economy.
Term Asset-Backed Securities Loan Facility
The Term Asset-Backed Securities Loan Facility (TALF) is a Fed program to assist the asset-
backed security market, with TARP acting as a backstop in case of any losses. TALF income
accrues to the Fed with possible losses and some expenses accruing to the Treasury. As of
December 2010, Treasury reported $0.1 billion in disbursements for TALF.28
Section 7(a) Securities Purchase Program
This program supports the Small Business Administration’s (SBA) Section 7(a) loan program
through purchasing pooled SBA guaranteed securities backed by private loans to small
businesses.29 Beginning in March 2010, Treasury purchased a total of $357 million in securities
guaranteed by the SBA in 31 different transactions. Purchases ended in October 2010 with the
expiration of the TARP authority.
Community Development Capital Initiative
The Community Development Capital Initiative (CDCI) operated somewhat like the CPP in that
it purchased preferred shares from financial institutions, and in some cases institutions were
permitted to convert previous CPP preferred shares to CDCI preferred shares. The program was
specifically focused on institutions that serve low-income, underserved communities. Treasury
27 Federal Housing Administration, FHA Outlook, October 2010, available at http://www.hud.gov/offices/hsg/rmra/oe/
rpts/ooe/olcurr.pdf.
28 For additional information on TALF, see CRS Report RL34427, Financial Turmoil: Federal Reserve
Policy Responses, by Marc Labonte.
29 For additional information on this program, see CRS Report R41146, Small Business Administration 7(a) Loan
Guaranty Program, by Robert Jay Dilger.
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purchased preferred shares from institutions that qualified for the CDCI up to an amount equal to
5% of the institutions’ risk-weighted assets for banks and thrifts or 3.5% of total assets for credit
unions. These preferred shares pay an initial dividend rate of 2%, which will increase to 9% after
eight years. Unlike the CPP, no warrants in the financial institutions were included. Purchases
under the program were completed in September of 2010 with approximately $210 million new
shares purchased. In addition, approximately $360 million of shares were converted from CPP
shares.
Table A-2 below summarizes the Consumer and Business Lending Initiatives, including current
and peak asset holdings, losses or gains, and conditions of the program.
Table A-2. Consumer and Business Lending Initiatives
Federal Government
Terms and Conditions
Current or
TARP
Funds
Expected
Interest/
Funds
Disbursed
TARP
Gains(+)/
Dividend
Expiration
Program
Disbursed
at Peak
Income
Losses(-)
Rate
Warrants
Date
TALF
$106 million
$106 million
$0
$330 million
n/a none
No
new
(Treasury)
purchases
after June
30, 2010.
Section
$337 million
$337 million
$5.1 million
$0 (Treasury) floating
none
No new
7(a)
purchases
Securities
after Oct.
2010.
CDCI $570
milliona $570
milliona $2.1 million
-$290 million
2% (9% after
none No
new
(Treasury)
8 years)
purchases
after Oct.
2010.
Total
$1.0 billion
$1.0 billion
$7.2
+$1 billion
n/a n/a
n/a
million
(CBO)/
$0
(Treasury)
Source: December 2010 TARP 105(a) Report; CBO, Report on the Troubled Asset Relief Program—November
2010.
Notes: For TALF, the figures in this table are for TARP funds only.
a. Of this total, $210 million are new shares and $360 million are shares transferred from CPP.
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U.S. Automaker Assistance30
In addition to financial firms, non-financial firms have also sought support under TARP, most
notably U.S. automobile manufacturers.31 While EESA specifically authorized the Secretary of
the Treasury to purchase troubled assets from “financial firms,” the legislative definition of this
term did not mention manufacturing companies.32 After specific legislation for the automakers
failed to clear Congress, 33 the Bush Administration turned to TARP for funding.
On December 19, 2008, the Bush Administration announced it was providing support through
TARP to General Motors and Chrysler under the Automotive Industry Financing Program (AIFP).
The initial package included up to $13.4 billion in a secured loan to GM and $4 billion in a
secured loan to Chrysler. In addition, $884 million was lent to GM for its participation in a rights
offering by GMAC as GM’s former financing arm was becoming a bank holding company. On
December 29, 2008, the Treasury announced that GMAC also was to receive a $5 billion capital
injection through preferred share purchases.
After January 21, 2009, the Obama Administration continued assistance for the automakers,
including support for the automaker warranties under the AIFP (so that consumers would not be
discouraged from purchasing cars during the restructuring), and for third-party suppliers to the
automakers (the Automotive Supplier Support Program, ASSP). Additional loans for GM and
Chrysler were made before and during the two companies’ bankruptcies, and GMAC received
additional capital through preferred share purchases as well. At the end of 2009, GM had received
approximately $49.5 billion in direct loans; Chrysler had outstanding commitments for $12.9
billion in loans and drawn approximately $10.9 billion; GMAC had received $17.2 billion in
preferred equity purchases; and Chrysler Financial had received $1.5 billion in loans. Some of
this assistance is still owed by the companies, some has been repaid, and some has been
converted into common equity in the company receiving assistance.
As of December 31, 2010, TARP support for the auto industry totaled approximately $79.7 billion
disbursed, with $24.7 billion repaid and $3.23 billion in income. The assistance outstanding takes
the form of (1)government ownership of 33.3% of post-bankruptcy GM; (2) government
ownership of 9.9% of the equity in post-bankruptcy New Chrysler, with $5.1 billion in loans
outstanding; and (3) government ownership of 73.8% government ownership of GMAC (which
changed its name to Ally Financial), with $8.6 billion in preferred equity outstanding. In addition
$985.8 million in loans to Old (pre-bankruptcy) GM are outstanding and $1.8 billion in loans to
30 This section was prepared with the assistance of Bill Canis, CRS Specialist in Industrial Organization and Business.
For a comprehensive analysis of federal financial assistance to U.S. automakers, see CRS Report R40003, U.S. Motor
Vehicle Industry: Federal Financial Assistance and Restructuring, coordinated by Bill Canis. Statistics in the section
are taken from the December TARP 105(a) Report, from Congressional Oversight Panel, September Oversight Report:
The Use of TARP Funds in the Support and Reorganization of the Domestic Automotive Industry, September 9, 2009,
available at http://cop.senate.gov/documents/cop-090909-report.pdf and from various contracts posted by the U.S.
Treasury at http://www.treasury.gov/initiatives/financial-stability/investment-programs/aifp/Pages/autoprogram.aspx.
31 See, for example, Statement by Secretary of the Treasury Henry Paulson in U.S. Congress, House Committee on
Financial Services, Oversight of Implementation of the Emergency Economic Stabilization Act of 2008 and of
Government Lending and Insurance Facilities: Impact on the Economy and Credit Availability, 110th Cong., 2nd sess.,
November 18, 2008.
32 P.L. 110-343, Division A, Section 3.
33 In December 2008, the House of Representatives passed H.R. 7321, authorizing the use of certain Department of
Energy funds as bridge loans to GM and Chrysler. Passed by a vote of 237-170, the bill was not acted upon in the
Senate.
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Old (pre-bankruptcy) Chrysler are outstanding, although neither amount appears likely to be
repaid. The loan to Chrysler Financial was completely repaid with interest.
For the outstanding assistance, the extent to which the government recoups its TARP funds will
depend substantially on how much is eventually received when the government sells its equity
interests. The government has already sold a portion of its stake in New GM at a price of $33 per
share. The remaining shares would have to reach approximately $54 in order for the government
to be able to recoup the nominal value of its $50.2 billion assistance for the company.34 Treasury
estimates the ultimate subsidy cost of assistance to the auto industry to be $14.8 billion, whereas
CBO estimates it to be $19 billion.
Table A-3 below summarizes the support for the automakers, including current and peak asset
holdings or loan amounts, losses or gains, and conditions of the assistance.
Table A-3. Government Support to the Auto Industry
Federal Government
Terms and Conditions
Current or
Latest
Total
Expected
Dividend/
Beneficiary/ Outstanding
Assistance
Total
Gain(+)/
Interest
Subsequent Expiration
Program
Balance
at Peak
Income
Loss(-)
Rate
Conversion
Date
“New”
$0
$610 million
Not Reported
London
Loan
January
General
Inter-bank
converted
2015 (loan);
Motors
Offered
into 60.8 %
preferred
(post-
Rate
of common
shares had
bankruptcy)
(LIBOR) +
equity and
no
5%
preferred
expiration
stock; 27.5%
$49.5 billion
of common
combined
equity sold
loans (before
for $13.5
bankruptcy
billion.
completed)
“Old”
$985.8 million
$143.5 million Not Reported
LIBOR + 5% n/a
December
General
2011
Motors
(pre- and
during
bankruptcy)
GMAC/Ally
$8.6 billion
$16.3 billion
$2.0 billion
Not Reported
9%
Loan and
No
Financial
preferred
preferred
preferred
expiration
equity
equity; $884
shares
million loan
converted
through GM
into 73.8% of
common
equity
“New”
$5.1 billion
$10.5 billion
$511 million
Not Reported
LIBOR +
9.9% of
June 2017
Chrysler
loan
drawn of
7.9%
common
(post-
$14.9 billion
equity
bankruptcy)
total loan
34 CRS Report R41401, General Motors’ Initial Public Offering: Review of Issues and Implications for TARP, by Bill
Canis, Baird Webel, and Gary Shorter.
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Federal Government
Terms and Conditions
Current or
Latest
Total
Expected
Dividend/
Beneficiary/ Outstanding
Assistance
Total
Gain(+)/
Interest
Subsequent Expiration
Program
Balance
at Peak
Income
Loss(-)
Rate
Conversion
Date
“Old”
$1.8 billion
commitments; $55 million
Not Reported
LIBOR +
$1.9 billion
January
Chrysler
loan
$2 billion still
3%;
of $5.4
2012
(pre- and
available.
LIBOR + 5% billion
during
recouped in
bankruptcy)
bankruptcy
process
Chrysler
$0 $1.5
billion
$7 million
n/a
None
January
Financial
loan (until July
2014
14, 2009)
Auto
$0 $290
million
$116 million
n/a
Greater of
None Apr.
2010
Supplier
(GM); $123
LIBOR+
(benefitting
million
3.5% or
GM and
(Chrysler)
5.5%
Chrysler)
GM and
$0 $361
million
$5.5 million
n/a
LIBOR+3.5% None
July 2009
Chrysler
(GM); $280
Warranty
million
Commitment
(Chrysler)
(until July 10,
2009)
Source: December 2010 TARP 105(a) Report; December 2010 TARP Dividends and Interest Report;
Congressional Oversight Panel, September 2009 Oversight Report; CBO, Report on the Troubled Asset Relief
Program—November 2010; SIGTARP, Quarterly Report to Congress, September 30, 2010; U.S. Treasury Office of
Financial Stability, Agency Financial Report Fiscal Year 2010, November 2010.
Public Private Investment Program
On March 23, 2009, Treasury announced the Public Private Investment Program (PPIP). PPIP as
envisioned consisted of two asset purchase programs designed to leverage private funds with
government funds to remove troubled assets from bank balance sheets. Perhaps closer to the
original conception of TARP than other TARP programs, PPIP dedicated TARP resources as
equity to (1) acquire troubled loans in a fund partially guaranteed by the FDIC and (2) acquire
troubled securities in a fund designed to be used with loans from the Federal Reserve’s TALF
program or TARP. Both funds would match TARP money with private investment, and profits or
losses would be shared between the government and the private investors. Unlike the original
conception of TARP, private investors would choose the assets to purchase and manage the funds
and the day-to-day disposition of assets. Treasury originally envisioned assets purchases through
PPIP would be as high as $1 trillion (using as much as $200 billion in TARP funds), but
ultimately Treasury reports only $22.4 billion of TARP funds committed to the program with
$15.6 billion disbursed as of December 2010.
Legacy Loan Program
A legacy loan is a problem loan that is already on a bank’s balance sheet, as opposed to a
potential new loan or refinance. The Legacy Loan Program was intended to reduce uncertainty
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about bank balance sheets and draw private capital to the financial services sector by providing
FDIC debt guarantees and Treasury equity co-investment to fund private-public entities
purchasing problem loans from banks. The program, however, was not implemented beyond a
single pilot legacy loan sale reported by the FDIC on September 30, 2009. In this pilot sale, the
FDIC auctioned a portfolio of residential mortgages with unpaid principal of $1.3 billion from a
bank that the FDIC had taken into receivership. Residential Credit Solutions placed a winning bid
of $64 million to receive a 50% stake in this pool, and financed the purchase with $728 million of
debt guaranteed by the FDIC.35
Legacy Securities Program
The larger part of the PPIP is designed to deal with existing mortgage-related securities on bank
balance sheets. There are several basic steps to the Legacy Securities Program (S-PPIP). Investors
identify non-agency MBS that were originally rated AAA. Agency MBS refer to loans issued by
GSEs, such as Fannie Mae and Freddie Mac, and non-agency MBS refers to mortgage-related
securities issued by private financial institutions, such as investment banks. Private fund
managers apply to Treasury to pre-qualify to raise funds to participate in the program. Approved
fund managers that raise private equity capital receive matching Treasury capital and an
additional loan to the fund that matches the private capital (thus far, the private investor that
raises $100 has a total of $300 available). In addition to this basic transaction, Treasury reserves
discretion to allow up to another matching loan so that, in some cases, raising $100 makes a total
of $400 available.
Nine funds were pre-qualified by the Treasury in June 2009. In early January 2010, however, one
of the funds reached a liquidation agreement with Treasury and was wound down.36 As of
December 31, 2010, PPIP funds had raised $7.4 billion of private equity capital, to be matched by
$22.1 billion in TARP equity and debt capital.37 The Treasury reported that $15.6 billion of TARP
funds were disbursed.
Table A-4 below summarizes the Public Private Investment Program, including current and peak
asset holdings, losses or gains, and conditions of the program.
35 Federal Deposit Insurance Corporation, “Legacy Loans Program – Winning Bidder Announced in Pilot Sale,” press
release, September 16, 2009, http://www.fdic.gov/news/news/press/2009/pr09172.html. FDIC reports seven other
public-private partnership transactions since 2008, but classifies only the September 2009 transaction as a PPIP
transaction.
36 December 2009 TARP 105(a) Report, pp. 15, 30-32.
37 U.S. Treasury, Legacy Securities Public-Private Investment Program Update, January 24, 2011, p. 3, available at
http://www.treasury.gov/initiatives/financial-stability/investment-programs/ppip/s-ppip/Documents/ppip-%2012-
10%20vFinal.pdf.
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Table A-4. Public Private Investment Program
Federal Government
Terms and Conditions
Current
Funds
Current or
Funds
Disbursed/
Expected
Interest/
Disbursed/
Guaranteed
Total
Gains(+)/
Dividend
Expiration
Program Guaranteed
at Peak
Income
Losses(-)a
Rate
Warrants
Date
Legacy
$15.6 billion
$15.6 billion
$430 million
LIBORb plus
yes (amount
10 years from
Securities
“applicable
unspecified)
creation of
margin”
fund.
$0 billion
Legacy
$728 million
$728 million
n/a
(CBO);
no contracts
yes (amount
No new
Loans
$0.2 billion
unspecified)
contracts/
(Treasury)
modifications
after Oct. 3,
2010.
Source: December 2010 TARP 105(a) Report; U.S. Treasury, Legacy Securities Public-Private Investment Program
Update, January 24, 2011; Congressional Oversight Panel September 2009 Oversight Report; SIGTARP, Quarterly
Report to Congress, January 30, 2010; CBO, Report on the Troubled Asset Relief Program—November 2010; U.S.
Treasury Office of Financial Stability, Agency Financial Report Fiscal Year 2010, November 2010; Data on
Structured Loan Sales from FDIC.
Note: For legacy securities, funds disbursed to date (not committed). For legacy loans, loans guaranteed.
a. Expected losses for Legacy Securities and Legacy Loans combined.
b. LIBOR = London Interbank Offered Rate.
American International Group
In the fall of 2008, American International Group (AIG) was a federally chartered thrift holding
company regulated by the Office of Thrift Supervision (OTS) at the holding company level, with
a broad range of businesses, primarily insurance subsidiaries, which are state-chartered and state-
regulated.38 Facing losses on various operations, AIG experienced a significant decline in its stock
price and downgrades from the major credit rating agencies. These downgrades led to immediate
demands for significant amounts of collateral (approximately $14 billion to $15 billion in
collateral payments, according to contemporary press reports).39 As financial demands on the
company mounted, bankruptcy appeared a possibility, as had occurred with Lehman Brothers on
September 15, 2008. Many feared that AIG was “too big to fail” due to the potential for
widespread disruption to financial markets resulting from such a failure.
On September 16, 2008 (prior to the existence of TARP), the Fed announced that it was taking
action to support AIG in the form of a secured two-year line of credit with a value of up to $85
billion and a high interest rate. In addition, the government received warrants to purchase up to
79.9% of the equity in AIG. On October 8, 2008, the Fed announced that it would lend AIG up to
an additional $37.8 billion against securities held by its insurance subsidiaries. In October 2008,
AIG also announced that it had applied to the Fed’s general Commercial Paper Funding Facility
(CPFF) and was approved to borrow up to $20.9 billion at the facility’s standard terms.
38 For a comprehensive analysis of federal assistance to AIG, see CRS Report R40438, Federal Government Assistance
for American International Group (AIG), by Baird Webel.
39 See, for example, “U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up,”
Wall Street Journal, September 17, 2008, pp. A1-A6.
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In early November 2008 (following the creation of TARP), the financial support for AIG was
restructured. The restructured financial support consisted of (1) reducing the size of the Fed loan
to up to $60 billion, with the term lengthened to five years and the interest rate reduced by 5.5%;
(2) purchasing of $40 billion in preferred shares through TARP; and (3) replacing the $37.8
billion loan, with up to $52.5 billion total in asset purchases by the Fed through two Limited
Liability Corporations (LLCs) known as Maiden Lane II and Maiden Lane III. The 79.9% equity
position of the government in AIG remained essentially unchanged after the restructuring of the
intervention.
In March 2009, the assistance was restructured further through (1) a partial payback of the Fed
loan through a swap of debt for equity in two AIG subsidiaries worth approximately $25 billion,
reducing the maximum to $35 billion; and (2) commitments for additional future TARP purchases
of up to $29.8 billion in preferred shares at AIG’s discretion, and the conversion of existing shares
into shares with optional dividend payments.40 The Maiden Lane LLCs continued operating under
the previous terms, with the actual loans extended to the LLCs totaling $43.9 billion at their peak
of the possible $52.5 billion. AIG’s access to the CPFF had been reduced to $15.9 billion in
January 2009, due to a ratings agency downgrade. AIG continued to access this facility until it
expired in February 2010.
In September 2010, AIG and the government announced another restructuring of the
government’s assistance. This restructuring closed on January 14, 2011. The expressed goal was
to simplify the government’s interest in AIG and provide for a path for the divestment of the
government’s stake in AIG. The essence of the plan called for (1) ending the Fed’s involvement
with AIG through loan repayment and transfer of the Fed’s equity interests to the Treasury and (2)
converting the government’s $49.1 billion in existing preferred shares into common shares, which
can then be sold to the public over time. The specific steps involved several interlocking
transactions, including the initial public offering (IPO) of a large AIG subsidiary, the sale of
several other AIG subsidiaries, and the use of up to approximately $20 billion in TARP funds to
transfer equity interests from the Fed to the Treasury.
The current government interests resulting from the AIG assistance include the following:
• Approximately 92.1% (1.66 billion shares) of AIG’s common equity are held by
the Treasury (this equity results from both TARP’s 1.1 billion shares and
assistance by the Federal Reserve’s 0.56 billion shares).
• An additional $2 billion in TARP preferred shares may be purchased by the
Treasury, at AIG’s discretion.
• Treasury holds $20.3 billion of preferred equity interests in AIG subsidiaries after
being exchanged against $20.3 billion in TARP funds.
• The Fed continues to hold an interest in the Maiden Lane II and III LLCs created
in November 2008. As of January 20, 2011, $26.5 billion in loans and accrued
40 AIG issued $1.6 billion of additional preferred shares to the government in recognition of accrued, unpaid dividends
on the initial $40 billion in assistance. AIG has not paid dividends since the conversion to optional dividends, with a
total of $6.7 billion in missed dividend payments as of September 30, 2010, according to the Special Inspector General
for TARP, http://www.sigtarp.gov/reports/congress/2010/October2010_Quarterly_Report_to_Congress.pdf. These
missed payments gave Treasury the right to appoint two directors to AIG’s board.
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interest are outstanding with sufficient equity holdings to provide an additional
$3.9 billion in capital gains.
The government’s ability to recoup its funds from the AIG rescue will depend mainly on how
much it eventually receives when it sells its equity interests. Table A-2 below summarizes the
support received by AIG from both TARP and the Fed, including current and peak asset holdings,
losses or gains, and conditions of the support.
Table A-5. AIG Support
Federal Government
Terms and Conditions
Current
or
Latest
Outstanding
Expected
Dividend/
Warrants/
Outstanding
Amount
Total
Gain(+)
Interest
Equity
Subsequent Expiration
Program
Amount
at Peak
Income
/Loss(-)
Rate
Interests
Conversion
Date
TARP
$67.8 billion
$67.8 billion
$1.6
-$14
10%
warrants
$49.1 billiona
Mar. 2014
Systemically
billion in
billion
(dividends
for 2% of
converted to
Significant
accrued
(CBO);
paid at
common
AIG
Failing
dividends -$36.9
AIG’s
shares
common
Institutions
billion
discretion)
equity; $20.3
(Treasury)
billion
converted
subsidiary
equity
Fed Loan to $0 $87.3
billion
$6.2
3
month
warrants
Reduced
Sept. 2013
AIG
loan
billion
London
for 79.9%
balance by
(Oct. 2008)
(accrued
Inter-bank
(later
$25 billion in
interest;
Offered
reduced to
exchange for
Sept
Rate
77.9%) of
equity in life
2010)
(LIBOR)+3% common
insurance
shares
subsidiaries
Fed Loan
$25.4 billion
$43.9 billion
$1 billion $0
LIBOR+1%
none
n/a
None;
for
in loans to
loans to
(unpaid
($3.9
securities
Troubled
purchase
purchase
accrued
billion
held until
Asset
assets
assets
interest)
unrealized
sold or
Purchases
(Dec. 2008)
capital
until
gain)
maturity.
Fed
$0 $16.2
billion
Not
n/a overnight
none n/a
Feb.
2010
Commercial
(Jan. 2009)
reported
index swap
Paper
(OIS)
Funding
rate+1%;
Facility
OIS+3%
Source: December2010 TARP 105(a) Report; Federal Reserve, statistical release H.4.1, Factors Affecting Reserve
Balances of Depository Institutions and Condition Statement of Federal Reserve Banks, January 20, 2011; Federal
Reserve, Monthly Report on Credit and Liquidity Programs and the Balance Sheet, January 2009; CBO, Report on the
Troubled Asset Relief Program—November 2010; SIGTARP, Quarterly Report to Congress, September 30, 2010; U.S.
Treasury Office of Financial Stability, Agency Financial Report Fiscal Year 2010, November 2010; AIG website,
“What AIG Owes the U.S. Government,” September 30, 2010; CRS Calculations with Fed data.
a. Includes $1.6 billion in additional preferred shares issued in return for previous conversion of shares paying
a mandatory dividend to shares paying an optional dividend.
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Citigroup (CPP/TIP/AGP)
On November, 23, 2008, the Treasury, Federal Reserve, and FDIC announced a joint intervention
in Citigroup, which had previously been a recipient of $25 billion in TARP Capital Purchase
Program funding, to “[support] financial stability.”41 This exceptional intervention consisted of an
additional $20 billion purchase of preferred shares through the TARP Targeted Investment
Program and a government guarantee for a pool of $306 billion in Citigroup assets (reduced to
$301 billion when the guarantee was finalized on January 16, 2009) through the TARP Asset
Guarantee Program, FDIC, and Federal Reserve. Citigroup paid the federal government a fee for
the guarantee in the form of $4 billion in trust preferred securities paying an 8% dividend rate.
The Treasury also received warrants in both of these transactions.
On February 27, 2009, Citigroup and Treasury officials agreed that the Treasury Department
would convert $25 billion of its TARP CPP investment in Citigroup preferred stock into Citigroup
common stock and cancel the warrants taken by Treasury under the CPP. After this conversion,
the U.S. government owned approximately 33.6% (7.7 million shares) of Citigroup common
stock. The conversion of preferred shares to common stock worsened the government’s priority
on Citigroup’s assets in the event of liquidation, but improved certain capital ratios for the
company and relieved it of the obligation to pay dividends to the government, as it had previously
with the preferred shares. The conversion exposed the government to more potential risk as well
as to potential upside reward. The government’s preferred shares could only be redeemed at par
value, regardless of the performance of the company, while the government’s holdings of
common stock rose and fell in value based on the market valuation of the company.
In December 2009, Citigroup and the Treasury reached an agreement to repay the outstanding
$20 billion in preferred securities and to cancel the asset guarantee. As part of this agreement,
Treasury agreed to cancel $1.8 billion worth of the $4 billion in trust preferred securities
originally paid as a fee for the guarantee. Citigroup repurchased the outstanding AGP trust
preferred securities on September 30, 2009. While the asset guarantee was in place, no losses
were claimed and no federal funds were paid out. Warrants received under the TIP and AGP, with
a strike price of $10.61, are still held by the Treasury.
In April 2010, the Treasury began selling its common share holdings in Citigroup. The shares
were sold in tranches through 2010, with a total of 4.1 million shares being sold by the end of
September 2010. Treasury announced the completion of the sales early in December 2010. The
average sales price for the Treasury shares was $4.14 per share compared with an initial
conversion price of $3.25 per share. The gain from the common stock sales was approximately
$6.9 billion, along with approximately $2.2 billion from the sales of the remaining trust preferred
securities granted as a fee from the AGP, $2.9 billion in interest and dividends, and $54 million
from the sale of warrants for a total nominal gain (i.e., not discounted for market risk) from the
Citigroup intervention of $12.1 billion.42
41 U.S. Treasury, “Joint Statement by Treasury, Federal Reserve, and FDIC on Citigroup,” press release hp-1287,
November 23, 2008.
42 U.S. Treasury, “Taxpayers Receive $10.5 Billion in Proceeds Today From Final Sale of Treasury Department
Citigroup Common Stock,” press release, December 10, 2010, http://www.financialstability.gov/latest/
pr_12102010.html, and TARP Transactions Report, January 26, 2011.
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Table A-6 below summarizes the assistance for Citigroup through the CPP, TIP, and AGP,
including current and peak asset holdings, losses or gains, and conditions of the program.
Table A-6. Citigroup Support (CPP/TIP/AGP)
Federal Government
Terms and Conditions
Current
Asset
Realized
Subsequent
Asset
Holdings/
Capital
Conversion/
Holdings/
Guarantees
Total
Gains(+)/
Warrants Amendment Expiration
Program Guarantees
at Peak
Income
Losses(-) Dividend/Fee Issued
Date
Capital
$0
$25 billion
$932
+$6.9
preferred: 5%
210 million Converted
None,
Purchase
million in
billion
dividend for
with a
preferred
shares
Program
dividends
first 5 years,
strike
shares to
outstanding
9% thereafter;
price of
common
until sold or
common: none $17.85 per stock,
repurchased.
share
subsequently
sold for $31.9
billion.
Targeted
$0;
$20 billion
$1.6 billion $0 8%
dividend
188,5
Converted
None,
Investment
trust
in
million
preferred
shares or
Program
preferred
dividends
with a
shares to
securities
securities
strike
trust
outstanding
(until Dec.
price of
preferred
until sold or
2009)
$10.61
securities.
repurchased.
Asset
$0;
$301 billion
$443
$2.2
following
66,5
$1.8 billion
Nov. 2018
Guarantee
(up to
million in
billion
termination,
million
canceled upon (residential
Program
$244.8
dividends;
$2.2 billion in
with a
termination of assets)/Nov.
billion of
$50 million
trust preferred strike
Asset
2013 (non-
losses borne
termination
securities with
price of
Guarantee.
residential
by Fed,
fee to Fed
8% dividend
$10.61 per
assets)
Treasury and
share
FDIC) (until
Dec. 2009)
Sources: November 2010 TARP 105(a) Report; November 2010 TARP Dividends and Interest Report;
SIGTARP, Extraordinary Financial Assistance Provided to Citigroup, Inc, January 13, 2011; U.S. Treasury press release,
December 10, 2010
Note: Assistance to Citigroup through CPP is also included in the CPP Table.
Bank of America (CPP/TIP/AGP)
On January 16, 2009, the Treasury, the Federal Reserve, and the FDIC announced a joint
intervention in Bank of America, which had previously been a recipient of $25 billion in TARP
Capital Purchase Program funds,43 “as part of its commitment to support financial market
stability.”44 This exceptional assistance included the purchase of an additional $20 billion of Bank
of America preferred shares through the TARP Targeted Investment Program45 and a joint
43 As part of this transaction, the government received warrants for 121,792,790 shares with a strike price of $30.79.
44 U.S. Treasury, “Treasury, Federal Reserve, and the FDIC Provide Assistance to Bank of America,” press release
hp1356, January 16, 2009.
45 As part of this transaction, the government received warrants for 150,375,940 shares with a strike price of $13.30.
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guarantee on a pool of up to $118 billion of Bank of America’s assets (largely acquired through
its merger with Merrill Lynch) through the TARP Asset Guarantee Program, the FDIC, and the
Federal Reserve. Bank of America was to pay the federal government a fee for the guarantee in
the form of $4 billion in preferred stock with an 8% dividend rate and warrants to purchase
common stock worth $2.4 billion at the time of the agreement.
While the asset guarantee was announced in January 2009, a final agreement was never signed.
On September 21, 2009, Bank of America announced that it had negotiated a $425 million
termination fee that allowed it to withdraw from the AGP, canceling the warrants and preferred
shares issued for the program.
On December 9, 2009, Treasury announced that Bank of America had repurchased the $45 billion
in preferred stock previously purchased under TARP. The warrants issued under the CPP and the
TIP were sold at auction by the government in March 2010 for approximately $1.6 billion. No
government assistance to Bank of America remains outstanding.
Table A-7 below summarizes the support for Bank of America through the CPP, TIP, and AGP,
including current and peak asset holdings, losses or gains, and conditions of the support.
Table A-7. Bank of America Support (CPP/TIP/AGP)
Federal Government
Terms and Conditions
Current
Asset
Realized
Asset
Holdings/
Capital
Holdings/
Guarantees
Total
Gains(+)/
Dividend
Expiration
Program Guarantees
at Peak
Income
Losses(-) Rate/Fee
Warrants
Date
Capital
$0 $25
billion
$1.3 billion
$0 5%
for
121,792,790 None,
Purchase
(until Dec.
(dividends);
first 5
warrants
shares
Program
2009)a
$0.3 billion
years, 9%
sold for
outstanding
(warrants
thereafter
$0.3 billion.
until
repurchased.
Targeted
$0
$20 billion
$1.4 billion
$0
8%
150,375,940 None,
Investment
(until Dec.
(dividends):
warrants
shares
Program
2009)
$1.25
sold for
outstanding
billion
$1.25
until
(warrants)
billion
repurchased.
Asset
$0 $118
billion
$425
n/a n/a n/a Jan.
2019
Guarantee
(up to $97.2
million
(residential
Program
billion of
termination
assets)/Jan.
losses borne
fee to
2014 (non-
by Fed,
government
residential
Treasury and ($57 million
assets.
FDIC) (never termination
finalized)
fee to Fed)
Source: December 2010 TARP 105(a) Report; December 2010 TARP Dividends and Interest Report;
Congressional Budget Office, Budget and Economic Outlook, January 2010; SIGTARP, Quarterly Report to Congress,
January 30, 2010; OMB, Analytical Perspectives, FY2011 President’s Budget, Table 4-7; February 2010.
Notes: Assistance to Bank of America through CPP is also included in the CPP Table.
a. Of the $25 billion of preferred shares, $10 billion were originally issued by Merrill Lynch, which
subsequently merged with Bank of America.
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Author Contact Information
Baird Webel
Specialist in Financial Economics
bwebel@crs.loc.gov, 7-0652
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