Report on the Troubled Asset Relief Program

March 29, 2011

In October 2008, the Emergency Economic Stabilization Act of 2008 (Division A of Public Law 110-343) established the Troubled Asset Relief Program (TARP) to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of "troubled assets." Section 202 of that legislation requires the Office of Management and Budget (OMB) to submit semiannual reports on the costs of the Treasury's purchases and guarantees of troubled assets. The law also requires the Congressional Budget Office (CBO) to prepare an assessment of each OMB report within 45 days of its issuance. That assessment must discuss three elements:

  • The costs of purchases and guarantees of troubled assets,
  • The information and valuation methods used to calculate those costs, and
  • The impact on the federal budget deficit and debt.

To fulfill its statutory requirement, CBO has prepared this report on transactions completed, outstanding, and anticipated under the TARP as of March 3, 2011. CBO estimates that the cost to the federal government of the TARP's transactions (also referred to as the subsidy cost), including grants for mortgage programs that have not been made yet, will amount to $19 billion. That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding foreclosures. Other transactions with financial institutions will, taken together, yield a net gain to the federal government, in CBO's estimation.

CBO's current estimate of the cost of the TARP's transactions is $6 billion less than the $25 billion estimate shown in the agency's previous report on the TARP (issued in November 2010). The reduction in the estimated cost results primarily from a lower assessment of losses from assistance provided to the automotive industry. CBO's current estimate is well below OMB's latest estimate of $64 billion, largely because of different assessments of the cost of the Treasury's housing programs under the TARP.

When the TARP was created, the U.S. financial system was in a precarious condition, and the transactions envisioned and ultimately undertaken engendered substantial financial risk for the federal government. The costs directly associated with the TARP, when taken in isolation, have come out toward the low end of the range of possible outcomes anticipated when the program was launched; however, funds invested, loaned, or granted to participating institutions through the Federal Reserve and other government entities helped limit those costs. As a result, only $432 billion will be disbursed through the TARP, CBO estimates, well below the $700 billion initially authorized. Overall, the outcomes of most transactions made through the TARP were favorable for the federal government.