"$78 billion Tarp windfall" for banks

The US Treasury paid banks $78 billion too much for bank stock and warrants under the Troubled Asset Relief Programme (Tarp), according to the programme's head of oversight.

The Congressional Oversight Panel, created as part of the Emergency Economic Stabilization Act of 2008 to review the state of the financial markets and regulatory system, as well as giving oversight to the use of Tarp funds, reported that for every $100 spent by the Treasury in the ten largest transactions made with Tarp funds to date, it received assets worth an average of only $66 at the time of issue.

Elizabeth Warren, chair of the panel, told the Senate banking committee yesterday: "Last fall, the Treasury sold the American public on the Tarp programme by claiming that it would help banks while protecting taxpayers. Secretary Paulson described the transactions as 'at or near par'-that the value of the assets the Treasury received was roughly equal to the money being spent. But that didn't happen. Treasury got less than it spent".

As of January 23, 2009, 317 financial institutions have received $194 billion, under the Treasury's Capital Purchase Program (CPP), which is designed for healthy banks, with eight large early investments for firms including Bank of America, Citigroup and JP Morgan accounting for 64% of the total. However, in these eight deals the Treasury received only $78 in bank stock and warrants for every $100 spent.

In the two deals made under the Treasury's programmes for significant institutions at particular risk, the Treasury received assets worth only $41 for every $100 spent. American International Group (AIG) received money under the Systemically Significant Failing Institutions Program (SSFI), while six weeks after receiving money under the CPP, Citigroup received a second infusion of Tarp funds as part of the Targeted Investment Program (TIP).

Warren said the Treasury had "failed to delineate a clear reason for such an overpayment" - while the overpayment, effectively a government subsidy, could have theoretically been justified by the need to keep the banks afloat, the Treasury had produced no evidence that this was in fact the case.

Warren noted that she had sent a letter to former Treasury Secretary Paulson asking for his responses on a variety of strategical and logistical issues. The Panel found the Treasury's responses to be "non responsive or incomplete", especially in relation to bank accountability, transparency and asset valuation.

See also: $20 billion in Tarp aid for Bank of America after Merrill losses
$428bn of Tarp funds to be exhausted by end of year
Tarp runs out at last