UNITED STATES DEPARTMENT OF THE TREASURY OFFICE OF FINANCIAL STABILITY Troubled Asset Relief Program: Two Year Retrospective Troubled Asset Relief Program Office of Financial Stability October 2010 ……………………………………………………………………………………………..………………………………………………… “. if there's one thing that has unified Democrats and Republicans, and everybody in between, it's that we all hated the bank bailout. I hated it. You hated it. It was about as popular as a root canal. But when I ran for President, I promised I wouldn't just do what was popular ‐– I would do what was necessary. And if we had allowed the meltdown of the financial system, unemployment might be double what it is today. More businesses would certainly have closed. More homes would have surely been lost. So I supported the last administration's efforts to create the financial rescue program. And when we took that program over, we made it more transparent and more accountable. And as a result, the markets are now stabilized, and we've recovered most of the money we spent on the banks.” ‐‐ President Obama, January 27, 2010 TARP Summary Table: Maximum As of September 30, 2010 Total Spent Repayments % Repaid Income Allocation Bank capital programs $ 250 $ 245 $ 192 78% $ 26.8 Automotive companies $ 82 $ 80 $ 11 14% $ 2.6 AIG $ 70 $ 48 Credit Markets Public Private Investment Program 1 $ 22.4 1 $ 14.2 $ 0.43 3% $ 0.2 Term Asset-Backed Loan Facility $ 4.3 $ 0.1 SBA 7a Securities Purchase Program $ 0.4 $ 0.4 * Community Development Capital Initiative $ 0.8 $ 0.6 Treasury housing programs 2 $ 45.6 3 $ 0.5 4 n/a n/a n/a Totals $475 $388 $204 53% $30 *Less than $10 million as of 8/31/2010 1/ Amount was $30 billion, but was reduced to $22 billion in July 2010. 2/ Treasury's housing expenditures are not expected to be repaid and Treasury does not receive income or warrants related to these programs. 3/ Amount was $50 billion, but was reduced to approximately $46 billion in July 2010. 4/ Expenditures under the housing programs are made incrementally over time. .................................................................................................................................................. Troubled Asset Relief Program – Two Year Retrospective ‐ October 2010 i Table of Contents ……………………………………………………………………………………………..………………………………………………… Section Page 1. Message from the Acting Assistant Secretary.......................................................................... 1 2. Executive Summary.................................................................................................................. 2 3. TARP Overview ......................................................................................................................... 9 A. The Financial Crisis and the Need for the Troubled Asset Relief Program....................... 9 B. The Bush Administration’s Actions Under TARP.............................................................. 9 C. The Obama Administration’s Actions Under TARP .......................................................... 10 D. TARP Will Cost a Fraction of What Was Expected ........................................................... 13 E. Exit From TARP Programs ................................................................................................ 14 F. Financial Regulatory Reform ........................................................................................... 15 4. Stabilization of the Financial Markets ..................................................................................... 16 A. TARP Contributed to Financial Stability ........................................................................... 16 B. TARP Was Part of the Government’s Coordinated Efforts .............................................. 20 C. Challenges Lie Ahead to Achieving a Full Recovery……………………….................................. 20 5. TARP Program Descriptions...................................................................................................... 22 A. Capital Purchase Program................................................................................................. 22 B. Supervisory Capital Assessment Program and Capital Assistance Program..................... 28 C. Targeted Investment Program.......................................................................................... 29 D. Asset Guarantee Program................................................................................................. 30 E. Warrant Dispositions........................................................................................................ 32 F. Community Development Capital Initiative..................................................................... 33 G. Term‐Asset Backed Securities Loan Facility...................................................................... 34 H. Public Private Investment Program.................................................................................. 37 I. SBA 7(a) Securities Purchase Program.............................................................................. 42 J. Automotive Industry Financing Program ......................................................................... 44 K. American International Group, Inc. (AIG)......................................................................... 49 6. Retrospective on the TARP Housing Initiatives......................................................................... 58 A. The Crisis .......................................................................................................................... 58 B. Policy Responses .............................................................................................................. 60 C. Design of HAMP ............................................................................................................... 61 D. HAMP Targeting ............................................................................................................... 64 E. Early Successes and Challenges ....................................................................................... 65 F. The Second Phase of HAMP ............................................................................................. 69 G. Accomplishments ............................................................................................................. 72 H. Transparency and Accountability ..................................................................................... 75 I. Looking Ahead for Housing .............................................................................................. 76 J. Summary Description of Housing Programs..................................................................... 77 7. Executive Compensation .......................................................................................................... 80 8. U.S. Government as a Shareholder .......................................................................................... 83 .................................................................................................................................................. Troubled Asset Relief Program – Two Year Retrospective ‐ October 2010 ii Table of Contents ……………………………………………………………………………………………..………………………………………………… Section Page 9. Accountability and Transparency ............................................................................................. 84 A. Comprehensive Measures ............................................................................................... 84 B. Audited Financial Statements ......................................................................................... 84 C. Oversight by Four Separate Agencies ............................................................................. 85 D. Congressional Hearings and Testimony .......................................................................... 85 10. Additional Resources............................................................................................................... 86 A. Glossary ........................................................................................................................... 86 B. Links to Further Information ........................................................................................... 92 .................................................................................................................................................. Troubled Asset Relief Program – Two Year Retrospective ‐ October 2010 iii 1. Message from the Acting Assistant Secretary for Financial Stability ……………………………………………………………………………………………..………………………………………………… October 5, 2010 Ladies and Gentlemen: October 3, 2010 marked the second anniversary of the Emergency Economic Stabilization Act that created the Troubled Asset Relief Program (TARP) and the end of the authority to make new financial commitments. Therefore, this is an appropriate time to reflect on what TARP has accomplished. The TARP was, and is, an enormous commitment of taxpayer money. And TARP has been unpopular for good reason ‐‐ no one likes using tax dollars to rescue financial institutions. However, by objective measures, TARP worked. Two years later, our financial system is stable, more than $204 billion of TARP funds have been repaid, only a quarter of the original $700 billion authorization remains outstanding, the total estimated cost of TARP has been cut by more than three‐fourths, taxpayers have received $30 billion in income, and the TARP bank programs are on track to make