The Truth About TARP and the Government’s Investment in Banks

February 18, 2010 bmills
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U.S. Treasury states that the government’s investment in banks has earned taxpayers a nearly $20 billion profit

This program is not the same as other TARP programs used to support troubled non-bank institutions, including AIG, GM and Chrysler.

  • Congress created the TARP program in October 2008, as part of the Emergency Economic Stability Act (EESA). Supported by the banking industry, the original intent of TARP was to purchase troubled assets. However, within days of enacting EESA, U.S. Treasury’s policy shifted to putting capital in U.S. banks, and the nine largest financial institutions in the country were requested to accept capital injections from a program that became the Capital Purchase Program (CPP).

  • The CPP program, a loan program designed to support healthy financial institutions, is not the same as other TARP programs used to support troubled non-bank institutions, including AIG, GM and Chrysler.

  • To date, $245 billion has been invested in more than 700 banks. Through repayments, dividends, interest and other income, taxpayers have now recovered almost $264 billion from TARP’s bank programs through repayments, dividends, interest, and other income – approximately $19 billion more than the $245 billion invested in banks. Additionally, Treasury currently estimates that bank programs within TARP will ultimately provide a lifetime profit of nearly $22 billion to taxpayers.

  • It is reasonable for some banks that received CPP funds to use those funds to strengthen their balance sheets, cover losses and ensure adequate reserves. Yet, despite the weak economy, the largest 21 bank participants leveraged $210 billion in TARP investments to extend $2.3 trillion in new loans through July 31, 2009, according to a GAO report issued last fall. According to another report by the TARP Inspector General, 80 percent of CPP recipients used their capital injections to directly support lending.

“…assistance to banks, once thought to cost the taxpayers untold billions, is on track to actually reap billions in profits for the taxpaying public.”

President Barack Obama, December 8, 2009