Today, Treasury Secretary Timothy Geithner testified before the Congressional Oversight Panel (COP), which oversees Treasury’s actions in implementing the Troubled Asset Relief Program (TARP). In her opening remarks, COP Chair Elizabeth Warren stated that “people need to understand why [the Treasury Department] is making the choices [it is] making” and want to “see reforms that will prevent the financial system from taking huge and reckless risks with everyone else’s money in the quest for short-term profits.”

In his written testimony, Secretary Geithner acknowledged that the structure of the U.S. financial regulatory system is “unnecessarily complex and fragmented,” operating “with large gaps in meaningful oversight,” which partially allowed intense financial stresses to accumulate and profoundly affect the U.S. and global economies. He outlined for the COP the initiatives and actions undertaken by the Treasury Department under the Obama administration to counter some of these financial pressures, including:

  • the Financial Stability Plan, which was designed “to attack the credit crisis on all fronts”;
  • the Making Homes Affordable Plan, which includes a refinancing program allowing homeowners to refinance their mortgages and reduce their monthly payments, a loan modification program and support for low mortgage rates;
  • the Capital Assistance Program, which was launched to ensure that financial institutions have enough capital to lend and requires the country’s largest banks to undergo “stress tests,” results of which are expected to be released in the first week of May;
  • the Consumer and Business Lending Initiative, which includes a “significant expansion” of the Term Asset Backed Securities Loan Facility (TALF) and the Small Business Association Loan Purchase Program;
  • the Public-Private Investment Program, intended to create “substantial purchasing power to create a new market for legacy assets”; and
  • the extension of the money market fund guarantee to provide coverage to shareholders up to the amount held in participating money market funds as of the close of business on September 19, 2008.

As a result of these Treasury initiatives, Secretary Geithner testified that parts of the credit markets, notably lending among banks and for home mortgages, commercial loans and small businesses, have improved, though he acknowledged that “the cost of credit is still too high.” With respect to the impact of Treasury’s initiatives on the overall economy and financial system, Secretary Geithner claimed, “to date, frankly, the evidence is mixed.” Upon questioning by panel members regarding how the Obama administration would decide whether to allow financial institutions that have received TARP funds to repay those funds, Secretary Geithner indicated that the administration would examine the health of the particular institutions seeking to repay Treasury and separately, would examine the recovery and stability of the broader financial system.

COP members also asked about the Obama administration’s strategy for AIG, which announced yesterday that it had completed the restructuring of Treasury’s existing investment in AIG preferred stock and Treasury’s commitment to invest up to an additional $29.84 billion over five years. Secretary Geithner indicated that Treasury had come “into this crisis without a legal framework to manage the risks posed by AIG,” and that it would like “to work with Congress to legislate authority over the coming weeks and months” to receive such authority.