An Update on TARP

The report by the Inspector General of TARP drew some attention for showing that some of its programs would not end until 2017. That in itself is no surprise; in fact, some programs do not have specific end dates and could go on longer than that. Still, the report is useful to see where we are on TARP.

The SIGTARP report lists four TARP programs with specific end dates: the Term Asset-Backed Loan Facility (2015); the Public-Private Investment Program (2017); and two housing programs, the Home Affordable Modification Program and the Hardest Hit Fund (2017).

These programs, however, are small change compared to the programs that are open-ended, allowing Treasury to sell its holdings at its own discretion. Among these is the "original" TARP program, the Capital Purchase Program. Almost all of the larger banks have repaid Treasury, but as of the end of last year, 371 banks were still in the program. With dividend rates on Treasury preferred stock set to rise from five to nine percent at the end of this year, we may see a flood of repayments around that time. Additionally, there is the Community Development Capital Initiative, the more generous and much smaller cousin of CPP. No repayments have currently been made yet in that program, and dividend rates will not rise to nine percent until 2018.

Of course, there is also Treasury's large investment in AIG, where it currently owns 77 percent of the shares. Treasury had 93 percent of AIG common stock at the beginning of 2011 and sold off shares bit by bit throughout the year. However, CBO's most recent estimate of TARP revised its subsidy cost projection of the program upward due to lower projected valuation of AIG stock. This may force Treasury to delay its sale of AIG stock beyond what it otherwise would.

Area Subsidy Cost Estimate  Total Amount Disbursed

June 2009 March 2010 March 2011 December 2011
Capital Purchase Program $24 -$2 -$16 -$17 $205
Citigroup and Bank of America $7 -$5 -$7 -$8 $40
Community Development Capital Initiative N/A $0 $0 $0 $1
Assistance to AIG $35 $36 $14 $25 $68
Subtotal, Financial Institutions $66 $29 -$9 $1 $313
Auto Company Assistance $40 $34 $14 $20 $80
Investment Partnerships $2 $2 $1 $0 $18
Mortgage Programs $50 $22 $13 $13 $3
Total $158 $87 $19 $34 $414

Finally, there is the auto industry aspect of TARP. Treasury currently owns 32 percent of GM shares and 74 percent of Ally Financial (formerly GMAC). Treasury ended its assistance to Chrysler and sold off about half of its shares of GM in late 2010, but little has happened since then. This assistance is another category whose estimated cost jumped in CBO's December estimate. Like with AIG, Treasury may hold off longer than they anticipatedon selling further shares until stock prices are at a level they are comfortable with.

To sum up, although the net cost estimates of TARP have generally been declining, Treasury still has a ways to go in winding down its financial sector, housing, and auto industry commitments. Be sure to check for up-to-date estimates and developments on TARP.