GAO submits first report and recommendations on TARP to CongressBlank RomeGAO, TARP, Congress, General Accountability Office
When the General Accountability Office (GAO) reports, Congress
listens. The GAO is the non-partisan investigating and auditing arm
of Congress, and in its first bi-monthly TARP oversight report, it
provides a comprehensive overview of the financial crisis and
Treasurys response to it. As the subtitle conveys, the GAO
recommends "Additional Actions Needed to Better Ensure Integrity,
Accountability, and Transparency." There is no scandal or surprise
in the 60-plus page report. While GAO acknowledges that Treasurys
Office of Financial Stability (OFS), which is charged with
executing the TARP, has only existed for 60 days, the report points
to critical areas for improvement. In its analysis, the GAO said
that the Treasury Department generally agrees with eight of the
nine GAO recommendations.
Despite the lack of drama, however, the report is an important
guide for the OFS. Upcoming congressional hearings are likely to
focus intensely on the following nine recommendations and how
(quickly) Treasury can implement them. The GAO recommends that
Treasury should:
• Work with federal banking regulators to develop methods
to determine and report on whether the activities of financial
institutions receiving TARP funds are compliant with the Emergency
Economic Stabilization Act.
• Ensure that financial institutions participating in the
Capital Purchase Program (CPP) comply with the requirements of the
Treasury agreements, including limits on executive compensation,
dividend payments and the repurchase of stock.
• Formalize the communications strategy so that Congress
and the public are well informed about the current program and
activities but also the rationale behind strategic program changes
"to avoid information gaps and surprises."
• Develop a plan for a smooth transition to the Obama
Administration.
• Expedite the hiring process for the OFS so they have the
necessary personnel.
• Ensure that there are enough trained personnel to
oversee the performance of contractors.
• Continue to develop a comprehensive system of internal
controls over TARP, e.g. policies, procedures and guidance to
ensure that the program runs effectively and "taxpayers interests
are protected."
• Issue final conflict of interest regulations concerning
Treasury's contractors and financial agents and review and
renegotiate conflict mitigation plans to comply with the final
rules.
• Institute a system to manage and monitor the mitigation
of conflicts of interest. Treasury and the Federal Reserve differed
with GAO on the first recommendation, preferring an approach that
would develop "general metrics for evaluating the overall success
of the CPP." GAO believes a more focused approach, building on the
existing regulatory reporting banks are already required to do,
will provide for better transparency and accountability.
The GAO draws no conclusion on the success of the TARP thus far.
In fact, it concludes that determining the effectiveness of TARP
will be very difficult given all the other factors at work in the
economy, including changes in domestic monetary and fiscal policies
as well as global economic activity and regulations. Nevertheless,
the GAO will look to interest rate spreads, mortgage rates,
mortgage originations, and a handful of other indicators over the
coming months as part of its ongoing requirement to report on the
TARP. The complete GAO report can be downloaded
here.
For more information please contact Missy Foxman (
[email protected]), Peter
Peyser (
[email protected]) or
J.C. Boggs (
[email protected]).
