Treasury: TARP Repayments Now Surpass Debt

The $700 billion Troubled Asset Relief Program (TARP) is turning out to be a better bet than many thought at first. According to the Treasury Department, the amount of money repaid by banks and other recipients now exceeds TARP’s outstanding balance.  In a monthly report to Congress on the program, TARP repayments total $194 billion; $190 billion is still outstanding.  A large chunk of that came when Treasury sold 1.5 billion Citigroup shares it had acquired when bailing out the bank, netting $6.18 billion.

“TARP repayments have continued to exceed expectations, substantially reducing the projected cost of this program to taxpayers,” said Herbert M. Allison, the Department of the Treasury’s assistant secretary for financial stability.  “This milestone is further evidence that TARP is achieving its intended objectives:  stabilizing our financial system and laying the groundwork for economic recovery.”

Created during the darkest months of the financial meltdown in the fall of 2008, TARP originally was intended to purchase toxic subprime mortgage securities from banks.  Henry M. Paulson, who was Treasury Secretary at the time, later altered TARP to channel money into banks to stabilize them and provide capital to encourage them to make loans at a time when the capital markets were frozen.  TARP funds bailed out 707 American banks – including Citicorp and Bank of America — to the tune of $205 billion.  Another $331 billion was used to bail out companies such as General Motors and Chrysler.

Banks are making a concerted effort to repay the money to avoid strict executive compensation limits.  By May 31, 71 banks had repaid 100 percent – or $137 billion — of their TARP money.  President Barack Obama hopes to recoup some TARP losses with his proposal to tax the 50 largest financial institutions.  This would net approximately $9 billion annually over 10 years.  Congress is considering the legislation, which faces stiff opposition from the big banks.