Treasury Notes

 TARP’s Bank Programs: A Success Story

By: Timothy Bowler
7/10/2014

Last week’s repayment by Popular, Inc. marked a significant step in the successful wind down of the Troubled Asset Relief Program (TARP) – a key part of Treasury’s response to the financial crisis. Taxpayers invested $935 million in Popular and at the time of its repayment, it was the largest remaining bank in the Capital Purchase Program (CPP).  In total, taxpayers recovered $1.22 billion in principal, interest and dividend payments from Popular, a $285 million net profit. 

Treasury disbursed $245.1 billion to banks to promote financial stability, motivate those institutions to make loans and increase confidence in our financial system during an unprecedented period of market and economic volatility.  The CPP portfolio included investments in 707 institutions, the vast majority of which were regional and community banks. Today only 47 banks remain in the CPP program, and the outstanding investments total just $689 million. When including the outstanding investments in Community Development Financial Institutions, 115 bank investments remain in our portfolio with a notional balance of $1.2 billion. 

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While cost is not the complete measure of success, it is important to note that TARP's bank programs have already yielded a significant positive return for taxpayers.  After Popular’s​ repayment, Treasury has recovered more than $274.6 billion[1] compared to the $245.1 billion initially invested – nearly $30 billion more than was disbursed.  As a whole, taxpayers have recovered $439.7 billion on TARP investments, including the sale of Treasury’s AIG shares, compared to total investment outlays of $424.5 billion.  Furthermore, each additional dollar recovered from TARP is an additional dollar of profit for taxpayers.

The vast majority of the funds recovered to date have been in the form of repayments after banks – with the approval of their regulators – chose to repurchase their preferred shares in full.  Treasury expects that several of the remaining banks in the CPP will be able to repay taxpayers, and we plan to manage those investments accordingly.

A number of banks in the program restructured their investments, usually in conjunction with a merger or an effort to raise more capital.  Treasury will continue to pursue this option in limited circumstances when it represents the best outcome for taxpayers and promotes financial stability.

Finally, Treasury will continue utilizing the successful auction platform that has already recovered $3 billion in proceeds. These auctions are part of the plan that Treasury outlined in May 2012 to protect taxpayer interests while efficiently winding down CPP investments at market prices. 

When TARP was launched in 2008, many doubted this type of success story would ever come to fruition. In fact, most were skeptical that the program would work.  However, thanks to the economic recovery and the hard work of the team managing the investments made in 2008 and 2009, the bank investment programs under TARP have been an economic success for the taxpayer. 

While unpopular at times, the program protected the economy during the crisis and helped keep credit flowing to consumers and businesses. Almost six years later, it is clear that TARP and the broader emergency actions taken by the government succeeded at stabilizing a collapsing economy and helped prevent a second Great Depression.  

Treasury has diligently worked to wind down TARP and maximize the value of the remaining investments. Guided by market conditions, we will manage the remaining investments in the same manner that has produced the positive results to date and earned significant returns for taxpayers.

 

Timothy Bowler is the Acting Assistant Secretary for the Office of Financial Stability at the U.S. Department of the Treasury.

 

For more details on Treasury’s lifetime cost estimates for TARP programs, please visit Treasury’s Monthly 105(a) Report to Congress on TARP here.


[1]Approximately $2 billion of the repayments were refinanced under the Small Business Lending Fund (SBLF). Congress created the SBLF outside of TARP and required Treasury to let CPP institutions repay TARP funds by borrowing under that program.

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