Financial Reform Watch

TARP in Transition

Lest anyone think Congress was not giving the financial crisis enough time and attention, the House Financial Services and Senate Banking Committees are holding no less than six hearings on financial regulatory reform and oversight this week. Down the avenue, the Treasury Department is hard at work crafting plans to release the second half of the Troubled Asset Relief Program (TARP), also known as TARP II. Rumors have it that TARP II will require recipients to dedicate a percentage of the federal funds received to consumer, auto, student, and small business loans. The good “bad bank” or aggregator bank proposal also still seems to be in the works, and the Beltway buzz is that it will not emerge until next week. Perhaps the administration is waiting to see what this week’s Congressional hearings yield.

The General Accountability Office (GAO) just issued its second TARP status report and concluded that while Treasury is making limited progress implementing the recommendations of the last GAO report, there is much work to be done. GAO’s major criticism is that Treasury has no overarching TARP strategy, which is the source of most of the TARP’s other problems. Specifically, the report concluded: “While GAO does not question the need for swift responses in the current economic environment, the lack of a clearly articulated vision has complicated Treasury’s ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP and has limited its ability to identify personnel needs.” The Office of Financial Stability (OFS), which oversees TARP, has hired only 38 of the approximately 131 staff members needed.

Even the Office of the Special Inspector General for the TARP (SIGTARP) is running into challenges. Special Inspector General Neil Barofsky informed Congress that he plans to “initiate an across-the-board review of the use of TARP funds,” asking each recipient to provide the following information within 30 days of receiving his request:

  • A narrative response outlining the use or expected use of TARP funds
  • Copies of the supporting documentation for the response
  • A plan for complying with the applicable executive compensation restrictions
  • A certification by an authorized senior executive as to the accuracy of all the information provided.

The SIGTARP had not even gotten the requests on letterhead before the Office of Management and Budget (OMB) said the letters would violate the Paperwork Reduction Act. To comply, the SIGTARP needed to issue a notice of inquiry to the TARP recipients explaining the impending request and providing a fifteen day window to receive their feedback about the paperwork burden. After that period and taking the financial institutions’ comments and concerns into account, the SIGTARP could then issue the requests for information.

As readers of Financial Reform Watch know, we have commented in the past about the importance of transparency in maintaining and building support for a government effort as enormous as this. The quest for TARP transparency continues.

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