“While Treasury is in the process of conducting its final auctions of its TARP stake in community banks to private entities in a desire to end the bank bailout known as the Capital Purchase Program (“CPP”), it is important to examine the lessons learned from the program. CPP was the first TARP program, much has been written on it, and most people are generally familiar with it. SIGTARP has issued a series of reports based on documents and interviews with Treasury officials and others detailing Treasury’s active role and extraordinary actions to ensure the health of the biggest CPP banks, which threatened the stability of our financial system. Two Treasury Secretaries have published books on Treasury’s unprecedented actions to stand behind the largest CPP banks. The essential purpose of the CPP program according to the two Treasury Secretaries was to bring stability to the financial system by saving those banks that threatened it. Faced with the threat of collapse of the financial system, CPP, and other TARP and federal rescue efforts targeting the largest banks, did contribute to preventing a collapse of the financial system. Secretary Paulson states in his book that by early 2009, “it was clear that our actions had prevented a meltdown” and along with other federal efforts “had stabilized the financial system.” In December 2009, Secretary Paulson’s successor Secretary Geithner would also declare the system had greater stability when he announced CPP as “effectively closed” and in “wind-down,” despite the fact that more than 600 of the 707 CPP banks remained in the program. In 2012, Treasury announced that it would auction off its interest in small banks, and proceeded to auction 26% of all CPP banks. Taxpayers have recovered far more than had been expected, recovering $197.2 billion of the original $204.9 billion TARP principal investments, as well as $12.1 in payments of dividends and interest, and $8 billion from warrants designed to compensate taxpayers for the risk they took on these investments. Nevertheless, three aspects of this bank rescue program bear noting in addition to other aspects highlighted in SIGTARP’s report.

• First, Treasury’s treatment of smaller TARP banks has and still does differ markedly from its treatment of the largest TARP banks.
• Second, while stability of the nation’s financial system was the goal of TARP as initially proposed by Treasury, it was not the only worthwhile and necessary purpose or policy goal that Congress required for Treasury to use TARP funds.
• Third, Treasury auctions leave community banks on the hook for TARP investments and dividend payments, only now these are owed to private entities, typically unknown to the bank, that are benefitting from these auctions.”