Washington—U.S. Senator Judd Gregg (R-NH), in a letter to Treasury Secretary Timothy Geithner, today asked for reassurance that any return of assistance provided to banks through the Troubled Asset Relief Program (TARP) is going to be directed towards paying down the public debt.
Senator Gregg, one of the key negotiators of the Emergency Economic Stabilization Act (EESA) of 2008, stressed that while action of the federal government through the TARP program has been necessary to help prevent a collapse of the country’s financial system, the Treasury Department should accept the repayment of those funds, especially if financial institutions demonstrate they have sufficient capital after the upcoming stress tests, and that these funds should be immediately directed toward reducing the federal debt as the drafters envisioned. Additionally, Gregg urged Treasury to withhold from redeploying any returned assistance amounts so as to not expose the taxpayers to potentially further risk.
A copy of the letter follows:
April 23, 2009
The Honorable Timothy F. Geithner
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Dear Mr. Secretary:
I am writing this letter to express my views about the Department of the Treasury’s handling of taxpayer dollars provided under the Troubled Asset Relief Program (TARP) – namely, the importance of protecting the taxpayer and paying down the public debt.
As one of the four key Congressional negotiators of the Emergency Economic Stabilization Act (EESA) of 2008 (Public Law 110-343) last fall, I am well aware of the circumstances surrounding its enactment into law, including the tension between deploying assistance to the financial markets in an expeditious and productive manner and protecting taxpayers by maximizing the return on investment to them. By now it is well understood that implementation of the law has taken a few turns from what the congressional drafters had contemplated, with perhaps the prime example being the initial use of TARP assistance taking the form of equity injections into banks. Nonetheless, I have been an advocate for the necessity of the federal government to take these steps and have largely supported the Treasury Department’s efforts (with a few exceptions) to relieve the immediate financial crisis threatening the nation’s economic health.
Recent events, however, have led me to question whether all of the requirements of the bill, as well as its overall spirit, are being dutifully followed. I understand that a limited number of banks have already returned the equity investment made by the TARP program. Other banks are currently seeking to do so, although there appears to be some confusion surrounding under what circumstances the Treasury Department is willing to allow that to happen. I certainly hope that repayments will be permitted, especially for financial institutions that are deemed well capitalized after the stress tests. That being said, section 106(d) of EESA states: “Revenues of, and proceeds from the sale of troubled assets purchased under this Act, or from the sale, exercise, or surrender of warrants or senior debt instruments acquired under section 113 shall be paid into the general fund of the Treasury for reduction of the public debt.” Also, other provisions of the EESA state that the TARP program’s impact on taxpayers should be minimized, an important consideration that President Obama himself emphasized when – as then Senator of Illinois – he spoke in favor of the EESA and the TARP program on October 1, 2008.
In light of the public’s concern about the federal government’s growing debt, I believe that we must return TARP monies to the taxpayer as soon as those resources have accomplished the financial assistance they were intended to provide to each affected institution to get capital flowing again. The current desire by some banks to pay back TARP assistance, which should generate a profitable return for the taxpayer, now presents a good opportunity to carry this out, as consistent with the requirements under the EESA and section 7001 of the American Recovery and Reinvestment Act of 2009. Further, while the Treasury Department may have the legal authority to do so, I believe it is in the best interest of the taxpayer at this time that the Treasury Department not redeploy any portions of financial assistance under the $700 billion limit that have been issued and then returned.
Thus I would appreciate it if you could explain how the Treasury Department is implementing the EESA’s provisions regarding debt reduction and taxpayer protection, whether other provisions of law intersect with these requirements, and how the Treasury Department is resolving any issue of interpreting the various provisions of law and conflicts that may exist among them.
Thank you for your consideration of this request.