Governance for the Programs
A new position, Assistant Secretary of Treasury for Financial Stability, was created to supervise the implementation of the programs under the Act.
The Office of Financial Stability within the Department of Treasury will be headed by the Assistant Secretary for Financial Stability. The Assistant Secretary will be appointed by the President, with the consent of the Senate. On October 6th, Neel Kashkari was named Interim Assistant Secretary for Financial Stability by Secretary Paulson until a permanent Assistant Secretary is appointed. On October 13th, Mr. Kashkari announced that several key positions of the Office of Financial Stability had been filled with interim leaders. These interim leaders have been charged with setting up the office, hiring permanent staff, operationalizing the programs and identifying each of their respective permanent successors.
As described above in part, within the Office of Financial Stability, seven policy teams have been created to develop tools to implement Treasury's responsibilities under the Act. These are:
- Mortgage-backed securities purchase program team
- Whole loan purchase program team
- Insurance program team
- Equity purchase program team
- Homeownership preservation team: The team is working with the Department of Housing and Urban Development to maximize the opportunities to help as many homeowners as possible, while protecting taxpayers.
- Executive compensation team: The team is developing requirements for financial institutions to participate in three possible scenarios: an auction purchase of troubled assets, a broad equity or direct purchase program and intervention to prevent impending failure of a significant institution.
- Compliance team: This team will manage the numerous compliance responsibilities under the Act, including coordination with the Oversight Board, on-site engagement of the General Accounting Office, and creation of the Special Inspector General for the TARP, among others.
The new Financial Stability Oversight Board is currently comprised of:
- Chairman Bernanke (Federal Reserve),
- Secretary Paulson (Treasury),
- Director Lockhart (Federal Housing Finance Agency (FHFA)),
- Chairman Cox (SEC), and
- Secretary Preston (Housing and Urban Development);
and will be comprised of their successors when named by the new administration. The Board will oversee the Office of Financial Stability and the programs developed by Treasury under the Act and make recommendations to Treasury. The Board will remain in place until 15 days after the last troubled asset has been sold or transferred or the last insurance contract has expired. The Board's first meeting occurred last week, selecting Chairman Bernanke as its Chairman.
The Special Inspector General for the Troubled Asset Relief Program, appointed by the President, with the consent of the Senate, will head the Office of the Special Inspector General for the Troubled Asset Relief Program. The Special Inspector will be selected based on integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations, and will conduct audits and issue reports to Congress. The Office of the Special Inspector General will remain in place until the last troubled asset is sold or transferred or the related insurance has expired.
Congress also established a Congressional Oversight Panel to review the current state of the financial markets and the regulatory system and submit reports to Congress. The leadership of each party in each of the House and Senate will appoint a member to the panel, and the fifth member will be appointed by the Speaker of the House and majority leader of the Senate, after consultation with the minority leader of the Senate and the majority leader of the House.
The Comptroller General of the United States was also given specific responsibilities for oversight, auditing and reporting under the Act. The Comptroller General will be providing periodic reports to committees of Congress at least every 60 days as well as an annual audit of the financial statements of the TARP. The Comptroller General has responsibilities until the last asset is sold or transferred or the related insurance has expired.
Consultation
The provisions for the establishment of the purchase program specifically identify those with whom Treasury shall consult in its exercise of authority. These include the Federal Reserve, FDIC, Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Chairman of the National Credit Union Administration Board, and the Secretary of Housing and Urban Development.
Reporting and Internal Controls
Each of the groups or individuals referenced above in the governance structure for the programs is required to make special or regular reports to the Congressional committees with responsibility for the financial industry. An overview of these may be found in the Reporting Appendix at the end of this article. Many of the special reports are described below under "Other EESA Impacts."
Treasury has also announced its commitment "to an open and transparent program" and noted that "[t]ransparency will not only give the American people comfort in our execution, it will give the markets confidence in what form our action will take."
Spending Authority
Treasury currently has $250 billion available under the Act. An additional $100 billion will be immediately available to Treasury when the President certifies to Congress that it is needed. Thereafter, the President can submit to Congress a report detailing Treasury's plan to exercise authority under the Act. Unless Congress passes a joint resolution disapproving the plan within the tight timeframe provided in the Act, the final $350 billion will be made available. Detailed provisions have been included for fast track review by Congress of any such report.
Offset by the Insurance Fund
Amounts on deposit in the Troubled Assets Insurance Financing Fund will offset the amounts outstanding under the insurance program for purposes of determining the aggregate amount outstanding under the Act. The aggregate value of the securities being insured will be reduced by the amount on deposit in the Fund and such net amount will be applied to reduce the amount available under the Act.
Money Market Guarantees
Any funds expended by Treasury to guarantee money market funds under the Treasury Money Market Guarantee Program announced on September 29, 2008, must be reimbursed from funds under the Act. This guarantee program is scheduled to terminate on December 31, 2008, and the Act specifically prohibits the establishment of any future guarantee programs under the Exchange Stabilization Act for the money market industry. As a result, any future programs would have to be developed under the authority given Treasury under the Act. Recent reports have disclosed that numerous sponsors of money market funds have signed up for the guarantee program to provide market confidence for investors.
Funds for Oversight
The Office of the Special Inspector General for the TARP, established by the Act, will have numerous auditing, inspection and reporting responsibilities. Funds in the amount of $50 million have been earmarked for the Special Inspector, from the amount authorized under the Act.
Recoupment
If, after five years, the TARP results in a net shortfall, the President will be required to submit a proposal to recoup from the financial industry the shortfall. The proposal must be a legislative solution preventing the program from adding to the deficit. The recoupment provision provides no additional detail, including no identification of the constituent members of the "financial industry."
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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