No New Lending From TARP

Right on the two-year anniversary of its enactment, the Troubled Asset Relief Program's (TARP) authority to disburse new money ended on Sunday. The program still has stake in a variety of institutions, so it will continue to be operational, but it will make no new loans or capital infusions.

TARP, passed on October 3, 2008, came about in the wake of the financial meltdown of September 2008, with the initial purpose of purchasing banks' toxic assets and with an initial endowment of up to $700 billion. The original purpose was modified slightly to instead infuse capital into banks, resulting in the Capital Purchase Program (CPP). CPP had an overall size of about $200 billion but is expected to turn a profit, with a few large banks and many small banks still left to pay back the Treasury. 

Under the Obama Administration, TARP's scope was significantly expanded to include the Home Affordable Modification Program (HAMP), auto industry support, and other miscellaneous programs. These programs contribute most to the cost of TARP, because some of these programs (especially HAMP) do not involve repayments like CPP does.

While the $700 billion figure was the one that stuck in the public's mind, the actual cost of TARP is much lower than that figure or even than it was originally projected. In CBO's January 2009 baseline, CBO put the ten-year deficit impact at close to $200 billion. However, in the latest estimate, CBO projected that TARP would only cost about $66 billion. The improvement is due to a much better than expected repayment rate under the CPP.

Overall, TARP will go down as a controversial program, but one that likely saved the financial system from deeper trouble at a relatively low cost. Obviously, concerns still exist about how TARP effected and will effect moral hazard and the possible implicit guarantee of large financial institutions.

For now, though, we'll just say farewell to the program.

We'll still be tracking TARP's current financial activities at For more background and discussion of TARP, see our previous policy paper here.