TARP UPDATE: Congressional Oversight Panel (COP) April Report

April 15, 2009

On April 7, the Congressional Oversight Panel (COP) devolped the April reoprt which examines Treasury’s current strategy and evaluates progress at the six month anniversary of the passage of EESA. Among other things, the report (1) assesses the federal government's current strategy; (2) analyzes historical approaches and lessons; (3) includes an analysis of the current crisis in Europe and response; (4) presents options moving forward.

Notably, the COP concludes that Treasury’s current approach *may* prove a reasonable response to the current crisis, provided that Treasury's assumptions are correct...yet notes that "On the other hand, it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability. By offering this assessment of Treasury’s current approach and identifying alternative strategies taken in the past, the Panel hopes to assist Congress and Treasury officials in weighing the available options as the nation grapples with the worst financial crisis it has faced since the Great Depression."

In terms of reviewing historical lessons, the COP identifies four critical elements that have helped resolve financial crises in the past:

"• Transparency. Swift action to ensure the integrity of bank accounting, particularly with respect to the ability of regulators and investors to ascertain the value of bank assets and hence assess bank solvency

• Assertiveness. Willingness to take aggressive action to address failing financial institutions by (1) taking early aggressive action to improve capital ratios of banks that can be rescued, and (2) shutting down those banks that are irreparably insolvent.

• Accountability. Willingness to hold management accountable by replacing – and, in cases of criminal conduct, prosecuting – failed managers.

• Clarity. Transparency in the government response with forthright measurement and reporting of all forms of assistance being provided and clearly explained criteria for the use of public sector funds."

Written by Kirsten Wegner

To download the full report, visit the Congressional Oversight Panel's web site.