TARP Exits Costing Taxpayers

The TARP Congressional Oversight Panel today says Treasury is costing the U.S. taxpayers money when banks exit the bailout program.

The Congressional Oversight Panel, charged with watching the federal bailout program, says in a report that Treasury needs to get tougher with banks exiting the Troubled Asset Relief Program and collect the full money due the government.

TARP (Troubled Asset Relief Program) is the $700 billion bailout enacted last October to infuse cash into financial firms through loans and other companies that needed help.

The five-member oversight panel, led by Harvard University Professor Elizabeth Warren, examined 11 small banks that were among the first to pledge to return their bailout money some months ago.

The issue, the panel says, are warrants the Treasury holds on the banks. These warrants allow Treasury to buy a certain number of shares in the future at a certain price. Some banks returning bailout money are now seeking to buy those warrants back.

"The opportunity to profit from TARP investments comes through special securities called warrants," the report says. "In this way, the banks were repaying the taxpayers for their investment by sharing some of their future profitability."

Most of the warrants Treasury holds come from a handful of the biggest banks. J.P. Morgan Chase, Bank of America, Morgan Stanley, Goldman Sachs, Citigroup and Wells Fargo account for 70 percent of the warrants.

The panel says by selling its warrants back to the 11 smaller banks, the Treasury Department collected only two-thirds of what it could have and gave up an estimated $10 million.

All told, the government stands to give up as much as $2.7 billion if that 66 percent threshold applied to the entire population of banks for which it holds warrants, the panel said.

The report further analyzes how Treasury is constrained by the provisions of the contracts governing the TARP investments in the banks and recognizes that the Panel's valuations do not include the liquidity discounts and other adjustments contemplated by Treasury.

Full report available (PDF)


About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.




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