Authority to make and fund commitments to purchase assets under the TARP programs, including the CPP, could only take place for a limited period of time, as prescribed by the 2008 Emergency Economic Stabilization Act (“EESA”) that created TARP. Pursuant to Section 120 of the EESA, TARP authority was initially set to terminate on December 31,
2009, but the Treasury Department had authority under that section to extend the TARP commitment period to October 3, 2010.44 In December 2009, the Treasury Department did so.45 In July 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act separately decreased TARP purchase authority from $700 billion to $475 billion.46 Dodd–
Frank also expressly prohibited TARP authority under the EESA from being used to incur any obligation for a program or initiative that was not initiated before June 25, 2010.47
Accordingly, no new funds can now be committed to a TARP program and no new TARP programs can be established. Furthermore Section 106(d) of the EESA requires that when recipients of funds that were disbursed by TARP programs pay back their funds that such funds be deposited with the US Treasury, so that they cannot be used to further fund any future disbursements.48 In other words, TARP funds cannot be reused once then have been disbursed to a private borrower and paid back to the US Treasury. Dodd–Frank made this point crystal clear, by amending the EESA’s text to remove any potential ambiguities in the language about the funds’ reuse.49 However, the Treasury has the statutory authority under Section 106(e) of the EESA to continue to disburse the funds that were already allocated for each TARP program before October 3, 2010, but have not yet been actually disbursed to private borrowers.50
TARP programs for banks have essentially been wound-down, as there are no funds allocated to banks generally that have not been used. The only reason that the programs are not completely wound down is that certain small banks that received $625 million funds from these programs have yet to repay these funds. As noted above, these funds must be paid straight to the US Treasury, thus once they are repaid these TARP programs will cease to exist.51 Since minimal commitments remain in the TARP programs, and no new commitments to these programs can be made, there is no standing TARP authority to capitalize future troubled banks. The below table details the status of these programs, ordered from largest to smallest based on the initial investment. The “Initial Investment”
column refers to the total amount Treasury invested in the particular TARP program. The
“Lifetime income (cost)” column refers to the overall income or expenses incurred for the program, from inception to expiration. The source for this table is the Government
Accountability Office’s (“GAO”) January 2015 TARP update.
Table 22.2 Remaining financial-crisis TARP commitments as of Jan. 2015, reproduced per GAO update (apart from housing programs)
Note: US Government Accountability Office, Troubled Asset Relief Program 1, 10 (Jan. 2015), available at http://www.gao.gov/assets/670/667833.pdf.
We have already discussed the CPP. The Automotive Industry Financing Program
(“AIFP”) refers to Treasury’s investments in automakers Chrysler and GM and other auto financing companies; such investments were justified as needed to stabilize the
automotive industry, although no convincing case was made that the failure or
restructuring of that industry would be a source of systemic risk52 After the first stage of TARP that involved the CPP, the second stage of TARP assistance included the
Systemically Significant Failing Institutions (“SSFI”) program, created to provide support to AIG and subsequently renamed the American International Group, Inc. (AIG)
Investment Program.53 According to the Congressional Budget Office (CBO),54 “AIG has fully exited the TARP; the company repaid its line of credit, and the Treasury recouped
$34 billion from the sale of its shares of AIG common stock at an average price of about
$31— bringing the total amount repaid or recovered to $54 billion out of the $68 billion originally disbursed. The final net subsidy cost to the Treasury for [sic]the assistance that was provided to AIG through the TARP was $15 billion.”55 However, because the Treasury (with the Federal Reserve) also supported AIG through non-TARP assistance in exchange for common shares of AIG, the Treasury will actually wind up with a net profit of $5
billion on its overall AIG assistance.56 The Federal Reserve profited $17.7 billion on its
overall AIG assistance.57
Additionally the Targeted Investment Program (“TIP”) refers to Treasury’s case-by-case investments in critical financial institutions; only Citigroup and Bank of America
participated in this program, each receiving $20 billion in exchange for preferred stock and warrants.58 The Public–Private Investment Program (“PPIP”) refers to Treasury’s purchase of residential and commercial mortgage-backed securities in coordination with private firms.59 The Community Development Capital Initiative (“CDCI”) refers to
Treasury’s investment in Community Development Financial Institutions through which Treasury received preferred stock and subordinated debentures.60 The Small Business Administration Securities Purchase Program refers to Treasury’s investments in the secondary markets for government-guaranteed small business loans under the 7(a) SBA loan program.61 The Term Asset-backed Securities Loan Facility (“TALF”) refers to
Treasury’s further investments in the securitization market, enabling credit access throughout the crisis period.62 The Asset Guarantee Program refers to a program that provided federal government guarantees for financial institution assets; only Citigroup participated in this program, while Bank of America also considered it.63 Through this program, Citigroup received loss protection on $301 billion of assets.64 Finally, the Capital Assistance Program was created to provide capital to financial institutions that were unable to meet stress test requirements under the Supervisory Capital Assessment Program; this program was ultimately not funded or initiated.65
Ultimately the ten TARP programs described above invested a total of $412 billion, with only $12.4 billion outstanding as of 2014.66 As of October 9, 2015, TARP has recovered 98.7 percent of funds invested.67 However, the remaining $625 million in CPP assets,
$465 million in CDCI assets, and 13 percent share in Ally Financial acquired through the AIFP program will likely turn these modest losses into a net profit. It is worth noting that, aside from the relatively minor loss from the CDCI illustrated above, TARP losses are not attributable to the bank investment programs; instead, the AIFP and AIG Investment Program are responsible for the most significant losses. The outcome of TARP is broadly consistent with the experience of Fannie Mae and Freddie Mac, which received $187
billion in government aid during the crisis and ultimately returned $192 billion by 2014.68 While TARP has now expired, consideration should be given to provide a standing
program for capital injections with significant design improvements from TARP. The program could be on the shelf ready to be used by regulators, subject to appropriate
findings and high-level approvals, if events required this. The reality is that currently few would support rational planning for the future, since political opponents would accuse the planners of being pro-bailout.