The US Treasury’s Troubled Asset Relief
Program (TARP) remains arguably the most controversial aspect of
the ongoing attempts to resurrect the world’s banking sector and
reinvigorate the global economy.

A new report issued on 20 July by Neil
Barofsky, Special Inspector General for the TARP, has attempted to
throw some light on just what the recipients of the $700 billion
bailout programme did with the funds received – but has produced
some mixed results.

For starters, the report proclaimed 83 percent
of respondents said they had used TARP funds to increase lending,
or at least to avoid reducing lending.

But the study also acknowledged “responses
generally did not quantify the amount of new lending or the
incremental difference in lending based on use of TARP funds.

Moreover, their responses represented their
use or planned use at a single point in time and could be subject
to change depending on economic conditions”.

The majority of the banks surveyed said they
did not segregate TARP funds from their general capital –
unsurprising, given this was not a requirement of the allocations –
but 44 of the 360 survey responses said they had nonetheless
separated out the TARP payments.

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In total, 29 percent of respondents reported
using TARP funds to support residential mortgages, with another 9
percent using the same funds to help modify their mortgage

Almost 17 percent of respondents said they
used TARP funds for other consumer loan activities.

Other uses included capital cushion or
reserving, investments, debt repayments and acquisitions (see

A separate report by Barofsky, also issued on
20 July, suggested the US government’s maximum gross exposure to
the financial crisis could reach $23.7 trillion, including $7.4
trillion in TARP and other Treasury aid, $7.2 trillion in aid for
Fannie Mae, Freddie Mac, credit unions and others, $6.8 trillion in
aid provided by the Federal Reserve and $2.3 trillion in Federal
Deposit Insurance Corporation programmes.

Barofsky said that $4.7 trillion in aid had
already been provided to the financial sector, though the Treasury
said that this figure was in fact below $2 trillion.

While noting that many respondents had not yet
allocated all their TARP funds as of the March 2009 survey close
date, and that over 250 institutions have received TARP funds since
the survey was issued, Barofsky’s report into TARP usage concluded
by repeating a previous recommendation that the Treasury require
all TARP participants to report on their use of TARP funds – a
recommendation which continues to be at odds with the Treasury’s
own sentiments.

“The fact that there may be some limitations
on the precision of the data that could be collected by requiring
use of funds reporting does not mean that such reporting could not
generate meaningful information,” the report argued.

“[Requiring banks to report on their use of
TARP funds] continues to be essential to meet the Treasury’s stated
goal of bringing transparency to the TARP program and informing the
American people and their representatives in Congress on what is
being done with their investment.”


Because of TARP funds institutions
were able to avoid:


% of respondents

Reducing lending


Reducing their loan portfolio


Shrinking their balance sheet


Freezing lending


Falling below well-capitalised level


Job reductions


Exiting the banking business


163 respondents to question Source:


Without TARP funds institutions
would not have been able to:


% of respondents

Grow lending


Enhance lending activity


Improve capital position


Conduct loan modifications


Grow deposits


Purchase investments


Reduce loan terms


Pay debt


Complete an acquisition


163 respondents to question Source: