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United States Government Accountability Office GAO December 2008 Report

United States Government Accountability Office GAO December 2008 Report

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08/21/2014

 
 
Report to Congressional Committees
United States Government Accountability Office
GAOTROUBLED ASSETRELIEF PROGRAM Additional ActionsNeeded to BetterEnsure Integrity, Accountability, andTransparency
December 2008GAO-09-161
 
What GAO Found
United States Government Accountability Office
Why GAO Did This Study
H
ighlights
Accountability Integrity Reliability
 
December 2008
 
TROUBLED ASSET RELIEF PROGRAM
Additional Action
s
Needed to Better En
s
ure Inte
g
rity,Accountability, and Tran
s
parency
Highlights ofGAO-09-161, a report tocongressional committees
On October 3, 2008, the EmergencyEconomic Stabilization Act wassigned into law. The act establishedthe Office of Financial Stability(OFS) within the Department of theTreasury (Treasury) and authorizedthe Troubled Asset Relief Program(TARP). Every 60 days, the U.S.Comptroller General is required toreport on a variety of areasassociated with oversight of TARP.This report reviews (1) the activitiesthat have been undertaken throughTARP as of November 25, 2008; (2)the structure of OFS, its use of contractors, and its system of internal controls; and (3) preliminaryindicators of TARP’s performance.GAO reviewed documents related toTARP, including contracts,agreements, guidance, and rules.GAO also met with OFS, contractors,federal agencies, and officials fromsome participating institutions. GAO plans to continue to monitor theseand other issues including future andongoing capital purchases, othertransactions undertaken as part of TARP (e.g., capital purchases inCitigroup and AmericanInternational Group), and the statusof other aspects of TARP.
What GAO Recommend
s
 
Treasury generally agreed withGAO’s recommendations, but had adifferent perspective on the need tomonitor how participatinginstitutions are spending CPPfunds. GAO believes thatmonitoring aggregate informationacross the participants would helpensure an appropriate level of transparency and accountability.
Treasury has taken a number of steps to stabilize U.S. financial markets andthe banking system, including injecting billions of dollars in financialinstitutions. Through the capital purchase program (CPP)—a preferred stockand warrant purchase program—Treasury provided more than $150 billion incapital to 52 institutions as of November 25, 2008. GAO recognizes that TARPhas existed for less than 60 days and that a new program of such magnitudefaces many challenges, especially in this current uncertain economic climate.However, Treasury has yet to address a number of critical issues, includingdetermining how it will ensure that CPP is achieving its intended goals andmonitoring compliance with limitations on executive compensation anddividend payments. Moreover, further actions are needed to formalizetransition planning efforts and establish an effective management structureand an essential system of internal control. To help ensure the program’sintegrity, accountability, and transparency, GAO recommends that Treasury
 
work with the bank regulators to establish a systematic means of determining and reporting in a timely manner whether financialinstitutions’ activities are generally consistent with the purposes of CPP and help ensure an appropriate level of accountability andtransparency;
 
develop a means to ensure that institutions participating in CPPcomply with key program requirements (e.g., executive compensation,dividend payments, and the repurchase of stock);
 
formalize the existing communication strategy to ensure that externalstakeholders, including Congress, are informed about the program’scurrent strategy and activities and understand the rationale forchanges in this strategy to avoid information gaps and surprises;
 
facilitate a smooth transition to the new administration by building onand formalizing ongoing activities, including ensuring that key OFSleadership positions are filled during and after the transition;
 
expedite OFS’s hiring efforts to ensure that Treasury has the personnel needed to carry out and oversee TARP;
 
ensure that sufficient personnel are assigned and properly trained tooversee the performance of all contractors, especially for Contracts priced on a time and materials basis, and move toward fixed-pricearrangements whenever possible;
 
continue to develop a comprehensive system of internal control overTARP, including policies, procedures, and guidance that are robustenough to protect taxpayers interests and ensure that the programobjectives are being met;
 
issue final regulations on conflicts of interest quickly and review andrenegotiate mitigation plans to enhance specificity and compliance;and
 
institute a system to effectively manage and monitor the mitigation of conflicts of interest.
To view the full product, including the scopeand methodology, click onGAO-09-161.For more information, contact ThomasMcCool (202)512-2642.
 
United States Government Accountability Office
 
Hi
g
hli
g
ht
s
of GAO-09-161 (continued)
It is too soon to determine whether the program is having the intended effect on credit and financial markets.Moreover, given that U.S. regulators as well as foreign governments are continuing to take a variety of actionsaimed at stabilizing markets and the economy, separately evaluating the impact of Treasury’s efforts under TARPwill be difficult. Nevertheless, GAO has identified a number of preliminary indicators that when viewedcollectively should signal whether TARP as well as other related programs may be functioning as intended. Among these preliminary indicators are trends in interest rate spreads, mortgage rates, mortgage originations, andforeclosures.Treasury has operated on parallel tracks in implementing the act. The following timeline highlights key actionsassociated with program implementation to date.
Timeline of Key Trea
s
ury Activitie
s
(Pro
g
ram Activitie
s
,
S
election of Financial A
g
ent
s
and Contractor
s
, and Or
g
anizational Activitie
s
), a
s
ofNovember 25, 2008
OctoberNovember
Programactivities
10/3:
Congre
ss
p
ass
e
s
P.L. 110-343, theEmergency Economic
S
t
a
biliz
a
tion Act(the
a
ct), which
au
thorized TARP.
10/6:
Tre
asu
ry
S
ecret
a
ry
a
ppoint
s
 Interim A
ss
i
s
t
a
nt
S
ecret
a
ry of theTre
asu
ry for Fin
a
nci
a
l
S
t
a
bility toover
s
ee the Office of Fin
a
nci
a
l
S
t
a
bility (OF
S
).
10/6:
Tre
asu
ry
s
olicit
s
fin
a
nci
a
l in
s
tit
u
tion
s
 intere
s
ted in providing c
us
todi
a
l
a
nd
ass
etm
a
n
a
gement
s
ervice
s
for TARP.
10/7:
Fir
s
t meeting of theFin
a
nci
a
l
S
t
a
bility Over
s
ightBo
a
rd, e
s
t
a
bli
s
hed
u
nderthe
a
ct.
10/
8
:
Re
s
pon
s
e
s
d
u
e from fin
a
nci
a
lin
s
tit
u
tion
s
intere
s
ted in providingc
us
todi
a
l
a
nd
ass
et m
a
n
a
gement
s
ervice
s
for TARP.
10/14:
Tre
asu
ry
a
nno
u
nce
s
th
a
t it will p
u
rch
as
e
u
p to $250 billion in fin
a
nci
a
lfirm
s
’ preferred
s
tock
u
nder TARP vi
a
the C
a
pit
a
l P
u
rch
as
e Progr
a
m (CPP)Nine m
a
 jor fin
a
nci
a
l in
s
tit
u
tion
s
 
a
gree to p
a
rticip
a
te in CPP.Tre
asu
ry i
ssu
ed exec
u
tive compen
sa
tion g
u
ideline
s
on T
u
e
s
d
a
y, October 14, for threeTARP
a
re
as
: CPP, Tro
u
bled A
ss
et A
u
ction Progr
a
m,
a
nd
S
y
s
temic
a
lly
S
ignific
a
nt F
a
ilingIn
s
tit
u
tion
s
(
SS
FI).
10/20:
Tre
asu
ry, the Feder
a
l Re
s
erve, the Office of the Comptroller ofthe C
u
rrency, the Office of Thrift
Su
pervi
s
ion,
a
nd the Feder
a
l Depo
s
itIn
su
r
a
nce Corpor
a
tion i
ssu
e
a
pplic
a
tion g
u
ideline
s
 
a
nd other doc
u
ment
s
 for
a
ll b
a
nk
s
wi
s
hing to p
a
rticip
a
te in CPP.
10/2
8
:
Tre
asu
ry di
s
b
u
r
s
e
s
c
a
pit
a
l injection
s
to 8 of the 9 b
a
nk
s
 
s
l
a
ted top
a
rticip
a
te in the fir
s
t ro
u
nd of the CPP, re
su
lting in the p
u
rch
as
e of $115billion in
s
enior preferred
s
h
a
re
s
of 8 n
a
tion
a
l fin
a
nci
a
l in
s
tit
u
tion
s
.
10/31:
Tre
asu
ry i
ssu
e
s
formdoc
u
ment
s
for p
u
blicly tr
a
dedfin
a
nci
a
l in
s
tit
u
tion
s
 
a
pplyingfor CPP p
a
rticip
a
tion.
11/14:
De
a
dline forfin
a
nci
a
l in
s
tit
u
tion
s
 to
a
pply forp
a
rticip
a
tion in CPP.
11/25:
Tre
asu
ry p
u
rch
as
e
s
 $40 billion in
s
enior preferred
s
h
a
re
s
from AIG
u
nder the
SS
FI progr
a
m.
11/10:
Tre
asu
ry
a
nno
u
nce
s
th
a
t it willp
u
rch
as
e $40 billion in
s
enior preferred
s
tockfrom the Americ
a
nIntern
a
tion
a
l Gro
u
p(AIG)
u
nder
SS
FI.
10/13:
Tre
asu
ry
a
nno
u
nce
s
it will contr
a
ct with Enni
s
Kn
u
pp &A
ss
oci
a
te
s
to provide inve
s
tment con
su
lt
a
nt
s
ervice
s
on TARP.
10/14:
Tre
asu
ry
a
nno
u
nce
s
B
a
nk of New York Mellon
s
elected
as
fin
a
nci
a
l
a
gent to provide c
us
todi
a
n
s
ervice
s
for TARP.
10/16:
Tre
asu
ry
a
nno
u
nce
s
 
a
w
a
rd of contr
a
ct to
S
imp
s
on,Th
a
cher & B
a
rtlett to provideleg
a
l
a
dvice on theimplement
a
tion of the
a
ct.
10/21:
Tre
asu
ry
a
nno
u
nce
s
it will contr
a
ct for
a
cco
u
nting
a
nd intern
a
l control
s
 
su
pport
s
ervice
s
 from Pricew
a
terho
us
eCooper
s
 
a
nd Ern
s
t
a
ndYo
u
ng
u
nder the Feder
a
l
Su
pply
S
ched
u
le.
10/22:
Tre
asu
ry Dep
a
rtment
a
nno
u
nce
s
 
a
ppointmentof Interim Chief Inve
s
tment Officer for TARP.
10/13:
Tre
asu
ry identifie
s
indivd
ua
l
s
tofill chief po
s
ition
s
within the OF
S
on
a
ninterim b
as
i
s
.
10/29:
Tre
asu
ry contr
a
ct
s
with H
u
ghe
s
 H
u
bb
a
rd & Reed, LLP,
a
nd
S
q
u
ire
Sa
nder
s
 & Demp
s
ey, LLP to provide leg
a
l
a
dvice onimplement
a
tion of CPP.
11/7:
Tre
asu
ry
a
nno
u
nce
s
 
s
olicit
a
tion for fin
a
nci
a
l
a
gent
s
 to provide Eq
u
ity, Debt, W
a
rr
a
nt
s
A
ss
et M
a
n
a
gement
S
ervice
s
to implement CPP.
11/12:
 
S
ecret
a
ry P
au
l
s
on provide
s
 
u
pd
a
te on prioritie
s
for
s
pending rem
a
ining TARP f
u
nd
s
, incl
u
ding pl
a
n
s
to provide
su
pport for
s
ec
u
ritizing credit o
u
t
s
ide of the b
a
nking
s
y
s
tem.
11/17:
Tre
asu
ry
a
nno
u
nce
s
 p
u
rch
as
e
s
of
a
lmo
s
t $33.6 billionin
s
enior preferred
s
h
a
re
s
from 21fin
a
nci
a
l in
s
tit
u
tion
s
 
u
nder CPP.
11/21:
Tre
asu
ryp
u
rch
as
e
s
 
a
bo
u
t $2.9billion in
s
eniorpreferred
s
h
a
re
s
from23 fin
a
nci
a
l in
s
tit
u
tion
s
 
u
nder CPP.
OctoberNovemberOctoberNovember
S
o
u
rce: GAO.
OrganizationalactivitiesSelection offinancial agentsand contractors
 

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