Tarp runs out at last

Funds from the Troubled Asset Relief Program (Tarp) have finally been exhausted, following three months of capital injections and loan facilities extended to a variety of institutions.

The Economic Stabilisation Act of 2008 was passed on October 3, endowing the US Treasury with $350 billion to purchase illiquid assets from financial entities under the Tarp. A further $350 billion would be made available subject to congressional consent.

The Tarp took on a different character, however, on October 14, with the establishment of the Capital Purchase Program (CPP). The CPP would directly invest $250 billion of the Tarp into financial institutions.

According to the latest US Treasury figures, released on December 29, the CPP has so far invested $177.5 billion in 208 institutions, although more applications are pending. Deadlines for applications for aid have now passed.

The first wave of applicants were nine of the most prominent US banks, including former investment banks Morgan Stanley and Goldman Sachs, receiving a total of $125 billion in return for preferred stock in October 2008.

A long list of smaller banks received Treasury approval, but as panic permeated the markets, other entities looked to take advantage of the scheme.

In November, Genworth Financial, Lincoln Financial and Hartford Financial Services, three prominent insurers, converted themselves into bank holding companies and announced their intention to acquire federally regulated savings banks, thereby making themselves eligible for the CPP. Their requests for capital are still pending.

The credit card company American Express also converted itself into a bank holding company on November 10, and received preliminary approval for issuing $3.39 billion of stock to the Treasury under the CPP.

The remaining $100 billion of Tarp funds available without congressional approval have been dedicated to a variety of schemes.

On November 23, Citi received $20 billion, having already accepted $25 billion from the CPP in the first round of equity purchases (under the CPP, an institution cannot issue more than $25 billion of preferred stock to the Treasury).

Under the Systemically Significant Failing Institutions Program (SSFI), the Treasury bought $40 billion in preferred stock in AIG on November 10.

$20 billion of Tarp funds was also put towards the Federal Reserve's $200 billion Term Asset-Backed Securities Loan Facility (TALF).

In a report published on December 8, the Treasury stated the combination of the CPP, Citi bail-out, SSFI and TALF amounted to an allocation of $335 billion of the Tarp.

Meanwhile, an ailing US auto industry became an increasing concern. On December 19, Chrysler was extended a loan of up to $4 billion from the Tarp, while General Motors (GM) will receive up to $13.4 billion, although some of this is subject to approval from Congress.

The Treasury also purchased $5 billion of preferred stock in GMAC, the former financial arm of GM, under the Tarp on December 29. GM was also extended a $1 billion loan to participate in a rights offering at GMAC, which was granted bank holding company status on December 24.

"[The] Treasury effectively has allocated the first $350 billion from the Tarp," said Paulson on December 19. "It is clear, however, that Congress will need to release the remainder of the Tarp to support financial market stability."

See also: Treasury called to account for Tarp
$20 billion bail-out for Citi
Contenders queue up for Tarp funds

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