Since the Troubled Asset Relief Program (TARP) was authorized, the U.S. Treasury Department has initiated a number of efforts under the program, disbursing $385 billion for loans and equity investments, according to testimony by the Government Accountability Office (GAO).
As of June 30, 2010, Treasury had received almost $25 billion in dividend and interest payments and warrant repurchases, as well as more than $198 billion in repayments.
Among the programs no longer making commitments are the Capital Purchase Program (CPP) and Targeted Investment Program (TIP), while the Home Affordable Modification Program (HAMP) and new small business lending initiatives are expected to continue for some time.
Although Treasury has received significant repayments of the funding it provided to financial institutions, some investments and loans could still result in substantial losses to the government. GAO has been monitoring TARP programs since their inception, including the financial condition of those institutions that received significant assistance.
In particular, Chrysler and General Motors have shown some indications of progress toward returning to profitability, such as doing better than they and Treasury had initially projected in terms of revenues, operating earnings, and cash flow.
However, the extent to which the federal government will fully recoup its investment in the auto industry is uncertain, and the companies face several challenges in the coming years, including returning to and sustaining strong growth and profitability.
Bank capital programs authorized under TARP were established to help stabilize the financial system and ensure the flow of credit to businesses and consumers. Treasury is no longer disbursing funds through these programs because according to Treasury, they have largely achieved their goals of both stabilizing the financial system and individual institutions.
Some of the anticipated effects of TARP on credit markets and the economy had materialized and that some securitization markets had experienced a tentative recovery. Indicators we have been monitoring suggest that credit markets have been able to sustain their recovery despite the winding down of key programs initiated by the Federal Reserve, Treasury, and others.
For example, the cost of credit and perceptions of risk (as measured by premiums over Treasury securities) have fallen in interbank, mortgage, and corporate debt markets. Further, the volume of credit, as measured by new mortgage loans and asset-backed securities (ABS), has improved since the first TARP program.
Unfortunately, by any measure foreclosure and delinquency statistics for residential housing remain well above their historical averages despite programs such as HAMP.
A slow recovery does not necessarily mean that TARP is ineffective, because in absence of TARP it is possible that foreclosure and delinquency rates would be higher. Moreover, full recovery will likely take some time given the build up of imbalances in the real estate, fiscal and household sectors over several years.
Because any new TARP activity will be limited to home ownership preservation and small business lending programs, we will also continue to monitor indictors such as foreclosure and delinquencies as potential measures of the programs’ success.