The Troubled Assets Relief Program (“TARP”) may now be the source of funds for temporary assistance to the U.S. auto industry. TheWhite House announced earlier today that it was considering the use of TARP funds in light of the collapse yesterday evening of Congressional efforts to put together an assistance package for domestic automobile manufacturers. There is certainly a supportably legal basis for doing so, and Congressional approval is not required, but such a decision will involve a notice to Congress.
The press release represents a departure from earlier reports that Treasury would use TARP funds only for financial institutions and related industries and that the auto industry would not have access to TARP. The White House statement, while noting the Administration’s preference for the resolution of economic issues solely through private markets, observed that, “given the current weakened state of the U.S. economy,” other options would be considered “if necessary” – including the use of TARP – to prevent the failure of troubled automakers. The statement explained that the collapse of the auto industry would have a “severe impact” on the economy.
As a legal matter, Congress appears already to have authorized the use of TARP funds to assist auto makers, or any other troubled industry. Section 2(2) of the Emergency Economic Stabilization Act (“EESA”) enumerates the purposes of the statute, including the promotion of “jobs and economic growth.” Additionally, section 103 identifies the considerations that Treasury is to take into account in exercising its authority under EESA. Among these considerations is the need to “protect American jobs, savings, and retirement security.”
Specifically, under EESA, TARP authorizes Treasury to purchase “troubled assets” from “financial institutions.” The term “financial institution” is defined so broadly in section 3(5) of EESA as to cover effectively every industrial company in the U.S. By its terms, section 3(5) does not expressly exclude any industry from TARP eligibility, provided that the entity receiving the proceeds is “established and regulated under” United States federal or state law. As to a “troubled asset,” Treasury already has defined this term broadly to encompass new senior preferred stock issued by a banking organization. Section 3(9) of EESA defines a “troubled asset” as either a mortgage-related instrument or as “any other financial instrument” that Treasury, after consultation with the Federal Reserve, “determines the purchase of which is necessary to promote financial market stability” – and after Treasury transmits such determination, in writing, to the appropriate committees of Congress. Given the significance of the auto industry in the U.S. economy, the financial market stability standard should be reasonably easy to meet. A transmittal to Congress also is required, although, given the reasonably broad (though not sufficient) support in Congress for an assistance package, this transmittal should not prove to be an impediment.
We should note that, by assisting the auto industry with TARP funds, Treasury would have only $5 billion remaining in TARP before it would need Congressional clearance for additional TARP funds. Arguably, there may be more if Treasury does not deploy the $250 billion it has set aside in the Capital Purchase Program. So far, Treasury has used about $150 billion of the $250 billion. But, by accessing TARP for the auto industry, Treasury may well have exhausted both TARP and its own willingness to approach Congress, leaving any further assistance efforts for the banking industry, automakers or others to the incoming administration.