Monday, June 14, 2010

Assistance to Banks to Reap Billions in Profit: Part I, TARP

“…assistance to banks, once thought to cost the taxpayers untold billions, is on track to actually reap billions in profit for the taxpaying public.”
President Obama, December 8, 2009

There is a great deal of misunderstanding about the cost of government programs that relate to banks. The fact is that every program involving banks will result in a profit to the taxpayers. The upcoming series of posts will review three government programs related to banks that will turn a profit: the Troubled Asset Relief Program, the Temporary Liquidity Guarantee Program, and Federal Reserve lending programs.

TARP – Expected Profit From Banks to Exceed $20 Billion
Taxpayers have already earned a significant return – estimated at 8.5%[1] – on the bank TARP investments that have been repaid to Treasury. Treasury also earned $1.2 billion in fees – with no losses – on its Money Market Fund Guarantee Program.[2] The loss on the TARP program, which was originally expected to total over $340 billion, is now expected to cost $105.4 billion, all of which is the result of non-bank TARP programs. Breaking down the Treasury’s latest estimate, the bank programs are expected to return a profit of $17 billion, while the non-bank TARP programs are expected to close at a loss of $122 billion.

On Friday, the Treasury announced that, for the first time, the amount of TARP investments repaid to the Treasury exceeded the amount of outstanding investments. The Treasury reported $23 billion in proceeds from dividends, interest, and warrants through May 2010, $21 billion of which was realized through the banking programs.

Had TARP been limited to the banking industry, there would be no losses on that program.

Perhaps Treasury Secretary Geithner summed it up best:

"(W)e've had roughly $200 billion come back from these banks, all the major banks, with over $20 billion in both dividends and proceeds from the sale of warrants. The taxpayer got a very good deal on these investments because we were so effective in stabilizing the system."[3]

1. SNL Financial, “Treasury reaps 8.5% return from companies exiting TARP,” April 1, 2010.
3. Treasury Secretary Geithner testimony (transcript of Q&A) before the Committee on Finance, U.S. Senate, May 4, 2010 .

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