Yesterday, Herb Allison, the newly appointed Assistant Secretary to the Treasury for Financial Stability, testified before the Congressional Oversight Panel at a hearing regarding the Troubled Asset Relief Program.

Mr. Allison stated his three primary goals as Assistant Secretary for Financial Stability to be:

  1. reviewing the controls over taxpayers’ money, giving special attention to compliance with laws and directives, managing risks and internal audits;
  2. maximizing the effectiveness of financial stability programs, and restoring soundness to financial institutions and liquidity to markets; and
  3. emphasizing transparency and interaction with Congress.

Allison highlighted the accomplishments that Treasury has made under the TARP program, including the investment of $200 billion in over 600 financial institutions, “helping to restart securitizations process,” beginning to rebuild the domestic automobile industry and making “mortgages more affordable” for “tens of thousands of Americans.” He expressed optimism that “the financial system is beginning to stabilize,” pointing to a substantial drop in credit market risk, a 17% annual increase in May for housing starts and localized increases in home purchases. Despite the progress, Allison warned Panel members that recovery efforts must not be scaled back.

When questioned by Panel members about cooperation with private entities, Allison pointed to “progress in developing” those relationships, and a pairing of “investors and the government in buying poorly performing assets from banks.” He expressed his confidence that such partnerships, intended to relieve banks of toxic assets, will be launched “very soon.” In the banking industry more generally, Allison pointed to an increase in investor confidence, and pointed to stress testing as the root of such confidence. Additionally, Allison expressed optimism that banks will return to profitability in the “coming years.”

Allison also responded to questioning about TARP warrants, available for banks to buy back as they exit the TARP program. Allison promised that a system of valuation of the warrants will be published on Treasury’s website in the near future.