TARP repayments exceed outstanding bailout debt, Treasury says
The Treasury Department on Friday hailed what it called a milestone in the history of the controversial $700-billion bailout fund: For the first time, the amount repaid by banks and other recipients has surpassed the outstanding balance.
In the latest monthly report to Congress on the Troubled Asset Relief Program, or TARP, Treasury officials said repayments had reached $194 billion. That figure tops the $190 billion in bailout money still outstanding.
The fund received a big boost in May when the Treasury Department completed its sale of 1.5 billion shares of Citigroup stock it acquired in that bank’s bailout — a sale that pulled in $6.18 billion.
“TARP repayments have continued to exceed expectations, substantially reducing the projected cost of this program to taxpayers,” said Herbert M. Allison, Treasury’s assistant secretary for financial stability. “This milestone is further evidence that TARP is achieving its intended objectives: stabilizing our financial system and laying the groundwork for economic recovery.”
TARP was created by Congress at the height of the financial crisis in 2008. It was designed to purchase toxic subprime mortgage securities from banks, but then-Treasury Secretary Henry M. Paulson quickly changed its main purpose and began funneling money into banks to stabilize their financial condition and give them capital to make loans.
In all, 707 banks in the U.S. received $205 billion in 2008 and 2009. An additional $331 billion was committed to other programs, including bailouts of General Motors Co. and Chrysler Group, as well as expanded rescues of Citigroup Inc. and Bank of America Corp.
As the financial crisis eased and the economy has recovered, banks have scrambled to repay the money to avoid tough executive compensation restrictions. As of the end of May, 71 banks had repaid all of their TARP money and $137 billion had been returned.
The Treasury Department has projected that the total bank investments by TARP will earn a profit because of additional income from dividends, interest and the sale of stock warrants the government received.
The repayments and other income have helped dramatically reduce the projected TARP losses. In August, the Obama administration estimated losses of $341 billion. That figure was reduced last month to $105.4 billion.
No additional TARP money can be spent after October, when the fund expires.
Although the administration has been increasingly optimistic about the eventual losses from the TARP fund, the panel set up by Congress to oversee it has been critical of the continued taxpayer exposure.
On Thursday, the Congressional Oversight Panel said taxpayers still “remain at risk for severe losses” from the bailout of insurance giant American International Group Inc. Much of the $182 billion committed to AIG comes from the Federal Reserve, but Treasury committed $70 billion of TARP money to save the company from bankruptcy. As of May 31, AIG had received $48 billion of that money.
Some TARP money will never be repaid. For example, the administration has committed $50 billion to provide cash incentives to banks to modify mortgages of homeowners in danger of foreclosure.
To recover any TARP losses, President Obama has proposed a tax on the 50 largest U.S. financial institutions that would bring in about $9 billion a year over 10 years. Congress is considering the proposal, which is strongly opposed by large banks.
“The repayments of TARP increase every day, thereby lessening the need for any tax,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable, an organization of large financial institutions.