Report on the Troubled Asset Relief Program—May 2013

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, as amended, requires the Office of Management and Budget (OMB) to submit annual reports on the costs of the Treasury’s purchases and guarantees of troubled assets. The law also requires 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 the TARP’s transactions that had been completed, were outstanding, and were anticipated as of April 17, 2013. By CBO’s estimate, $428 billion of the initially authorized $700 billion will be disbursed through the TARP, including $419 billion that has already been disbursed and $9 billion in additional projected disbursements. 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 yet been made, will amount to $21 billion, CBO estimates (see table below).

The estimated cost of the TARP stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding home mortgage foreclosures. Other transactions with financial institutions will, taken together, yield a net gain to the federal government, in CBO’s estimation.

CBO’s current assessment of the cost of the TARP’s transactions is $3 billion lower than the $24 billion estimate shown in the agency’s previous report on the TARP (issued in October 2012). That decrease in the estimated cost stems primarily from an increase in the market value of the government’s investments in General Motors and sales of a portion of those investments at prices that were higher than the market price at the time of CBO’s last report. CBO’s current estimate for all TARP transactions is less than OMB’s latest estimate of $47 billion, largely because CBO projects a lower cost for the mortgage programs.

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. Nevertheless, the net costs directly associated with the TARP, when taken in isolation, have been near the low end of the range of possible outcomes anticipated when the program was launched—in part because funds invested, loaned, or granted to participating institutions through the Federal Reserve and government programs other than the TARP helped limit those costs.