Report on the Troubled Asset Relief Program—June 2017

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 its own assessment of the TARP’s costs within 45 days of the issuance of OMB’s report. 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 were completed, outstanding, or anticipated as of May 31, 2017. By CBO’s estimate, $445 billion of the initially authorized $700 billion will be disbursed through the TARP, including $438 billion that has already been disbursed and $8 billion in additional projected disbursements. CBO’s current estimate of the cost to the federal government of the TARP’s transactions (also referred to as the subsidy cost)—which accounts for the realized costs of completed transactions and the estimated costs of outstanding and anticipated transactions—amounts to $33 billion.

The estimated cost of the TARP stems largely from assistance to American International Group (AIG), aid to the automotive industry, and ongoing grant programs aimed at avoiding foreclosures on home mortgages. Taken together, other transactions with financial institutions have yielded 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 higher than the $30 billion estimate shown in the agency’s previous report on the TARP (issued in March 2016). That increase in the estimated cost stems from an increase in projected disbursements for mortgage programs. CBO’s current estimate for all TARP transactions is slightly greater than OMB’s latest estimate of $32 billion because CBO projects a slightly higher cost for those 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 realized 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.