The House Financial Services Subcommittee on Oversight and Investigations held a hearing yesterday focusing on oversight and transparency of the U.S. Treasury’s Troubled Asset Relief Program (TARP). Testifying before the subcommittee were the following witnesses:

  • Neil M. Barofsky, Special Inspector General, Office of the Special Inspector General, Troubled Asset Relief Program (SIGTARP)
  • Gene L. Dodaro, Acting Comptroller General of the United States, Government Accountability Office (GAO)
  • Elizabeth Warren, Chair, Congressional Oversight Panel (COP), Leo Gottlieb Professor of Law, Harvard University

This hearing followed hearings before the full House Financial Services Committee as well as TARP oversight reports issued by the GAO within the first and second 60 days of TARP’s enactment and a series of reports submitted by the COP. The GAO and COP reports are required under the Emergency Economic Stabilization Act of 2008.

Mr. Barofsky testified on three primary areas of concern for SIGTARP: transparency, coordinated oversight and robust enforcement. With respect to transparency under TARP, Mr. Barofsky noted that the Treasury had adopted several of his prior recommendations, including public posting of all TARP agreement and reports from recipients such as Bank of America and Citigroup. He said that SIGTARP was presently initiating audit procedures to ascertain institutions’ uses of TARP funds and determine the impact of outside influences on the TARP application process. As to oversight and enforcement, Mr. Barofsky noted that SIGTARP was working closely with other federal bodies, including the GAO, the COP, the SEC and U.S. Attorneys’ offices, to investigate possible fraud and other abuses. However, due to the large volume of funds (he approximated nearly $3 trillion in total among all programs), he cautioned about the possibility of rampant fraud in connection with these programs, noting that such a large sum of money “will inevitably draw those seeking to profit criminally.” Mr. Barofsky completed his testimony by requesting Congress to provide additional leeway in his hiring standards for SIGTARP, arguing that his current staffing situation would not enable SIGTARP to operate effectively.

Mr. Dodaro began his testimony by noting that Treasury had implemented all recommendations from the GAO’s prior report, but he encouraged Treasury to take further action to improve transparency and accountability for TARP and to “more clearly articulate and communicate a strategic vision.” Mr. Dodaro’s recommendations to Treasury included, among others, suggestions to expand the scope of reporting tracking for participating institutions, institute compliance, internal control and risk assessment procedures, review and monitor conflicts of interest and mitigation plans, and hire and train appropriate personnel. Mr. Dodaro noted that Treasury’s recently announced Financial Stability Plan “outlines some steps it is taking to improve the transparency and accountability of new programs going forward, but Treasury still faces several challenges.” Mr. Dodaro stated that, given the recent implementation of the programs and time lags in reporting, it is still too early to accurately measure results. Furthermore, as time progresses, it will become more difficult to distinguish between effects caused directly by TARP versus other economic forces.

Ms. Warren testified to the joint efforts of COP, SIGTARP and the GAO to manage the TARP oversight process, noting that “[t]he three oversight organizations are working to complement, not duplicate, one another.” In addition, she outlined several points raised by the COP in its analysis of TARP to date. Specifically, she raised the COP’s concern that many of Treasury’s capital infusions under TARP were made “at a discount” – Treasury received securities having a fair value that the COP determined was well less than the amount of its contributions – and noted that no rationale for this result had yet been given by Treasury. In addition, she raised the COP’s concern about the lack of progress in the realm of foreclosure mitigation. She concluded by recommending additional detail to Treasury’s Financial Stability Plan, which she believed would contribute to greater transparency for the American public.