On Monday, the U.S. Government Accountability Office (GAO) released a report entitled, “Opportunities Exist to Apply Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and to Improve the Repayment Process.” The report addresses the characteristics of financial institutions that received government assistance under the U.S. Treasury’s Capital Purchase Program (CPP), as well as the Treasury’s implementation of the CPP. The CPP was established under the Troubled Asset Relief Program (TARP) to assist troubled financial institutions and was the “primary initiative under TARP for stabilizing the financial markets and banking system.”

The Report indicates that the 707 institutions that received CPP assistance through December 31, 2009 “varied in terms of ownership type, location, and size” and were almost equally split between publicly and privately held. However, 25 of the largest institutions accounted for nearly 90% of funds distributed under the CPP.

With respect to eligibility, the Report concludes that nearly all participating institutions received examination ratings of satisfactory or higher. However, the Report criticizes the inconsistent implementation of the program and the extension of taxpayer funds to a number of particularly weak financial institutions: “Treasury relied on individual bank regulators to recommend applicants that it would consider for CPP investments and provided regulators with limited formal guidance on the factors to consider in evaluating the applicants.” Overall, the Report identifies 66 institutions, or 12% of the institutions reviewed by the GAO, that “exhibited weaker financial conditions relative to those or other approved institutions,” yet were selected to receive CPP funds.

The Report also highlights the increasing troubles facing certain institutions that received CPP funds, saying that “the number of firms exhibiting signs of financial difficulty—such as missing their dividend or interest payments—has increased over time. Specially, the number of institutions that have not made a scheduled dividend or interest payment has increased from 8 for payments due February 2009 to 123 for payments due in August 2010.” The Report warns that future programs modeled on the CPP must alleviate these repayment concerns.

Monday’s report follows other GAO reports addressing aspects of TARP, including automotive assistance and the Home Affordable Modification Program (HAMP).