The Congressional Oversight Panel's July oversight report, "Small Banks in the Capital Purchase Program," found that the result of the Capital Purchase Program's (CPP) "one-size-fits-all" repayment terms has been that large banks have been much better served by the program than smaller institutions. Small banks may find it difficult or impossible to exit the program, particularly if the current distressed financial markets persist.

Treasury provided capital to banks participating in the CPP under a single set of repayment terms designed at the outset of the program. Of the 19 American banks with more than $100 billion in assets, 17 participated in the CPP, receiving 81 percent of the total CPP funds. Money was made available to many of these large banks in only a matter of weeks, in some cases even before the banks applied for the funds. Of these large banks, 76 percent have already repaid taxpayers, and many are now reporting record profits. By contrast, of the 7,891 banks with assets of less than $100 billion, only 690 received funds from CPP and less than 10 percent have repaid. Those banks experienced a longer and more stringent evaluation, and many are now struggling to meet their obligations to the taxpayers.

July 14, 2010

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• The Report: “Small Banks in the Capital Purchase Program”
• Executive Summary
• Additional Views by
  J. Mark McWatters and Kenneth Troske

The Congressional Oversight Panel's June oversight report, "The AIG Rescue, Its Impact on Markets, and the Government's Exit Strategy," found that the Federal Reserve and Treasury failed to exhaust all other options before undertaking their unprecedented, taxpayer-backed rescue of American International Group (AIG) and its creditors. This rescue resulted in extraordinary risk to taxpayers and a fundamental redefinition of the relationship between the government and the country's most sophisticated financial institutions.

On September 16, 2008, the Federal Reserve Bank of New York (FRBNY), with the full support of Treasury, rescued AIG with an $85 billion, taxpayer-backed Revolving Credit Facility. These funds would later be supplemented by $49.1 billion from Treasury under the Troubled Asset Relief Program (TARP) as well as additional funds from the Federal Reserve, with $133.3 billion outstanding in total. The total government assistance reached $182 billion.

The Panel conducted a comprehensive overview of the AIG transactions based on a review of thousands of documents. After reviewing the federal government's actions leading up to the AIG rescue and the actions of Treasury, the Panel identified several major concerns.

June 10, 2010

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• The Report: “Congressional Oversight Panel Examines AIG Rescue and Its Impact on Markets”
• Executive Summary
• Additional Views by
  J. Mark McWatters
• Correspondence

The Congressional Oversight Panel's May oversight report, "The Small Business Credit Crunch and the Impact of the TARP," finds that, although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring credit availability, it is not clear that they have had any significant impact on small business lending.

Small business credit remains severely constricted. Data from the Federal Reserve show that lending plummeted during the 2008 financial crisis and remained sharply restricted throughout 2009. Although Wall Street banks had been increasing their share of small business lending over the last decade, between 2008 and 2009 their small business loan portfolios fell by 9.0 percent, more than double the 4.1 percent decline in their overall lending portfolios.

Treasury has proposed addressing the credit crunch through a new lending program for small banks, but even if enacted by Congress, could have limited success. The proposed Small Business Lending Fund (SBLF) would provide $30 billion in low-cost capital to small and mid-sized banks, along with incentives to increase lending. The SBLF's prospects are far from certain. The program would require legislative approval, and even if Congress acts immediately, the program may not be fully operational for some time. Moreover, banks may shun the program for fear of being stigmatized by its association with the TARP, or they may wish to avoid taking on SBLF liabilities in such troubled economic times.

May 13, 2010

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• The Report: “The Small Business Credit Crunch and the Impact of the TARP”
• Executive Summary
• Additional Views by Paul Atkins and J. Mark McWatters
• Correspondence

The Congressional Oversight Panel's April oversight report, "Evaluating Progress of TARP Foreclosure Mitigation Programs," commends recent changes to the mortgage modification program designed to reach more homeowners, but finds that Treasury is still struggling to get its foreclosure programs off the ground even as the crisis continues unabated.

Since the Panel's last examination of foreclosure mitigation efforts in October 2009, Treasury has taken steps to address concerns that the Home Affordable Modification Program (HAMP) did not adequately address foreclosures caused by unemployment or negative equity, including by establishing a voluntary principal reduction program. Despite these and other efforts, foreclosures continue at a rapid pace. In 2009, 2.8 million homeowners received a foreclosure notice, and nearly one in four homeowners with a mortgage currently has negative equity. While housing prices have begun to stabilize in many regions, home values in several metropolitan areas continue to fall sharply.

The Panel finds that "Treasury's response continues to lag well behind the pace of the crisis" and that, even when HAMP is fully operational, they "will not reach the overwhelming majority of homeowners in trouble." The report raises specific concerns about the timeliness, sustainability, and accountability of Treasury's foreclosure programs.

April 14, 2010

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• The Report: “Evaluating Progress of TARP Foreclosure Mitigation Programs”
• Executive Summary
• Additional Views by Richard Neiman
• Additional Views by J. Mark McWatters
• Correspondence

The Congressional Oversight Panel's March oversight report, "The Unique Treatment of GMAC Under TARP," finds that Treasury's early decisions in its rescue of GMAC resulted in missed opportunities to increase accountability and better protect taxpayers.

In an unusual divided vote in late 2008, the Federal Reserve approved GMAC's conversion to a bank holding company. When as a result of this decision GMAC was included in the government-run stress tests a few months later, Treasury committed itself to a full bailout strategy: taxpayers would provide any necessary new capital identified by the stress tests that GMAC couldn't raise in the private markets. If GMAC had not been included in the stress tests, Treasury might have had options other than committing new public capital, such as orchestrating a bankruptcy or isolating the auto financing business, which could have putt the company on a stronger economic footing.

The Panel is also deeply concerned that Treasury has not required GMAC to lay out a clear path to viability or a strategy for fully repaying taxpayers. Despite a $17.2 billion TARP investment, there is still no clear business plan for GMAC. Treasury has not given due consideration, for example, to the possibility of breaking apart GMAC and merging the auto finance part back into GM, a step which would restore GM's financing operations to the model generally shared by other automotive manufacturers.

March 11, 2010

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• The Report: “The Unique Treatment of GMAC Under TARP”
• Executive Summary
• Additional View by Paul Atkins and J. Mark McWatters
• Correspondence

The Congressional Oversight Panel's February oversight report, "Commercial Real Estate Losses and the Risk to Financial Stability," expresses concern that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks. Commercial real estate loans made over the last decade - including retail properties, office space, industrial facilities, hotels and apartments - totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present "underwater," meaning the borrower owes more on the loan than the underlying property is worth. While these problems have no single cause, the loans most likely to fail are those made at the height of the real estate bubble.

The Panel found that "a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American." When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery and extend an already painful recession.

February 11, 2010

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• The Report: “Commercial Real Estate Losses and the Risk to Financial Stability”
• Executive Summary
• Additional View by Paul Atkins and J. Mark McWatters
• Correspondence

The Congressional Oversight Panel's January oversight report, "Exiting TARP and Unwinding Its Impact on the Financial Markets," finds that the repayment of TARP assistance represents only the first stage of exiting TARP. Even after repayments are complete, Treasury will hold a massive pool of assets, worth hundreds of billions of dollars, for several years to come. Managing these assets will present extraordinary challenges. Furthermore, any effective exit strategy must address the unwinding of the implicit guarantee created by TARP.

January 14, 2010

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• The Report: “Exiting TARP and Unwinding Its Impact on the Financial Markets”
• Executive Summary
• Additional View by Damon Silvers
• Additional View by Paul Atkins and J. Mark McWatters
• Correspondence

The Congressional Oversight Panel's January oversight report, "Exiting TARP and Unwinding Its Impact on the Financial Markets," finds that even after Treasury's authority to make new TARP commitments expires in October 2008, taxpayers will hold a diverse collection of assets worth many billions of dollars. The Panel expresses concern that the principles guiding Treasury's divestment strategy may frequently conflict and are so broad as to justify a wide range of actions. Furthermore, any effective exit strategy must help to unwind the implicit guarantee created by TARP.

January 14, 2010

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• The Report: “Exiting TARP and Unwinding Its Impact on the Financial Markets”
• Executive Summary
• Additional View by Damon Silvers
• Additional View by Paul Atkins and J. Mark McWatters
• Correspondence