Treasury called to account for Tarp

“The Treasury has yet to address a number of critical issues, including determining how it will ensure that the Capital Purchase Program (CPP) is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments,” the GAO noted.

Additionally, the office said further efforts were required to establish internal controls for monitoring how Tarp funds are used and to establish an effective management structure.

Revision of executive remuneration and bonuses within financial firms, which have come under increasing scrutiny in the current economic climate, was an essential component of the CPP. In the initial plans, the Treasury stipulated compensation based on materially inaccurate earnings had to be refunded, while golden parachute payments were to be scrapped.

However, the GAO noted the Treasury has yet to determine how it will monitor firms’ compliance with its compensation rules. “Without a consistent process for monitoring participating institutions, the Treasury’s ability to identify and address any potential problems in these institutions’ compliance with programme requirements will be limited," the GAO warned.

In addition, the GAO said, the Treasury “has not yet set up policies and procedures to help ensure the CPP funds are being used as intended”. The GAO noted the Treasury’s ability to ensure accountability and transparency will be hindered without this oversight.

The report notes that, while institutions participating in the CPP are subject to restrictions on dividend payments and repurchasing of shares, “the Treasury has no policies and procedures in place for ensuring the institutions are complying with these requirements or that they are using the capital investments in a manner that helps meet the purposes of the Act”.

Furthermore, the GAO believes the Treasury’s ability to oversee the implementation of Tarp has been affected by the change in the direction of the programme. Initially, Tarp’s primary focus was expected to be the purchase of illiquid mortgage-backed securities and wholesale loans. However, on November 25 the focus of the programme switched to providing financial institutions additional capital through purchases of senior preferred stock. A total of $250 billion of the $700 billion Tarp funds was allotted to the CPP, while the Treasury also purchased $115 billion in senior preferred shares of eight national financial institutions.

The GAO recommends the Treasury works with bank regulators to establish a system for reporting whether the activities of financial institutions are “generally consistent with the purposes of CPP and help ensure an appropriate level of accountability and transparency”. Additionally, the GAO said, the Treasury must ensure institutions participating in CPP comply with key programme requirements, including those covering executive compensation, dividend payments and the repurchase of stock.

See also: Contenders queue up for Tarp funds
Paulson: buying MBSs no longer Tarp priority
US Treasury considering allowing insurers, auto-makers to access Tarp
Treasury to take $125bn equity in nine US banks, says Paulson

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here