Department of the Treasury Financial Management

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Department of the Treasury Financial Management

• Al Runnels
• DCFO
• Department of the Treasury
• Defense Credit Union Council Conference
• Aug 2009

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Agenda

• Economic Stability Programs
• Government Sponsored Enterprises (GSE)
• Troubled Asset Relief Program (TARP)
• Treasury Recovery Act Implementation Program
• Enterprise Risk Management Program

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GSE Support Program

• Authority Housing and Economic Reform Act July
  2008
• Created Federal Housing Finance Agency
• Treasury Support of
• Federal National Mortgage Association (Fannie
  Mae)
• Federal Home Loan Mortgage Corp (Freddie Mac)
• Components
• Preferred Stock Purchase Agreement (Liquidity
  Guarantee)
• Credit Facility
• Mortgage-Backed Securities Purchases

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GSE Support Program Components

• Preferred Stock Purchase Agreement
• Credit Facility
• Mortgage-Backed Securities Purchases

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GSE Support Financial Reporting Issues

• Preferred stock purchase agreements liquidity
  guarantee programs
• Intent was to treat all the transactions as a
  guarantee program
• Treated preferred stock and warrants as
  investments and reported at estimated value on
  date received
• We will attempt to measure the future liability
  as of September 30, 2009
• GSEs are not consolidated in Treasury or govt
  wide financial statements
• Included full disclosure of relationship with
  GSEs in Treasurys FY08 F/S

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Troubled Asset Relief Program/Office of
Financial Stabilization

• Emergency Economic Stabilization Act of 2008
  (EESA)
• The Secretary is authorized to purchase, and to
  make and fund commitments to purchase troubled
  assets
• Website www.financialstability.gov

• Authority
• Authorized Secretary of the Treasury to establish
  the TARP

• Facility
• Authorized establishment of OFS

• Funding
• Authorized up to 700B

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Oversight (FSOB, SIGTARP, GAO, COP, Others)
www.financialstability.gov
Treasury Department
Reporting
Transparency
Policy Services
Office of Financial Stability
Program Offices
Chief Counsel
Legal Agents
Financial Agents Bank of New York Mellon,
Fannie Mae, Freddie Mac
TARP Fund Recipients
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OFS/TARP
Est. 197 FTE
Financial Stability Oversight Board
Assistant Secretary for Financial Stability
Chief Operating Officer
Chief Counsel
Chief Financial Officer
Chief Risk Compliance Officer
Chief Investment Officer
Chief Homeownership
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OVERSIGHT

• Financial Stability Oversight Board (FSOB)
• Secretary of the Treasury
• Chairman of Board of Governors of Federal Reserve
  System
• Director of Federal Housing Finance Agency
• Chairman of Securities Exchange Commission
• Secretary of Housing and Urban Development
• Special Inspector General (SIGTARP)
• Government Accountability Office (GAO)
• Congressional Oversight Panel (COP)

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TARP Programs

• Capital Purchase Program (CPP)
• Preferred Stock with Warrants
• 650 Institutions 204 Billion
• Received 5B Dividends/Interest
• Received 70B Repayments/
• Systematically Significant Failing Institution
  Program (SSFI)
• AIG Preferred Stock with Warrants
• Initial Purchase (40B
• Capital Facility (Up to 30B

• Targeted Investment Program (TIP)
• Citigroup -- 20B
• Bank of America -- 20B
• Asset Guarantee Program (AGP)
• Citigroup up to 5B
• Consumer and Business Lending Initiative (CBLI)
• Term Asset Backed Securities Loan Facility (TALF)
  20B
• Small Business and Consumer Lending Initiative
  (SBCLI) 15B
• TALF Asset Expansion 35B

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TARP Programs (cont)
Automotive Industry Financing Program (AIFP)

• GMAC -- 12.5B
• Preferred Stock with Exercised Warrants
• GM -- 884M
• Debt Obligation - Loan to Participate in GMAC
  Rights Exchanged for GMAC Common Stock
• GM -- 49.5B
• Debt Obligation with Warrants and Additional
  Notes and Common Stock
• Warranty Commitment Pgm 600M Special Purchase
  Vehicle

• Chrysler -- 14.9B
• Debt Obligation with Additional Note
• Chrysler Financial -- 1.5B
• Debt Obligation with Additional NoteRepaid in
  Full
• Auto Supplier Support Program (ASSP) -- 3.5B
• Special Purchase Vehicle

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TARP Programs (Cont)

• Financial Stability Plan
• Capital Assistance Program (CAP) -- Amount TBD
• Public - Private Investment Program (PPIP) --
  100B
• Making Home Affordable -- 50B
• Home Affordable Modification Program (HAMP)

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TARP Risk Management Governance
TARP employs key governance risk and compliance
(GRC) enablers to ensure that a proper internal
control framework is in place for each OFS program

• The business model is organized around the
  operational programs
• These programs are focused on the purchase,
  management and sale of assets
• These programs are evolving and maturing while in
  operation
• There may be additional programs announced in the
  future

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OFS/TARP Risk Management
Establish control environment Execute Senior
Management control activities
Executive Committee
Senior Assessment Team
Conduct risk assessments
Potential new functions
Procurement
Asset Purchases
Asset Sales
Asset Management
Budget/Accounting
Reporting/Compliance
Information Tech.
Human Resources
Perform control activities by function
Governance
Internal and external monitoring
Information and communication
Business Functions
Support functions
Support entire control framework and organization
Slide 14
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Key TARP Stats/Actions

• Allocated about 643B spent 362.6B
• Invested more than 200B in 657 financial
  institutions of all sizes through CPP
• Received over 70B in CPP repayments from 34
  institutions and 6.6B in dividend payments
• Beginning to receive proceeds from the sale of
  warrants
• Provided support to three systemically
  significant institutions
• Launched an unprecedented housing program to help
  millions of homeowners
• Assisted with restructuring of both GM and
  Chrysler through the bankruptcy process,
  accomplished with speed previously considered
  impossible both companies leaner and better able
  to compete today
• Together with Fed, helped restart securitization
  markets
• Launched the Public-Private Investment Program to
  help remove legacy assets from balance sheets of
  financial institutions
• Issued regulations guiding executive comp at
  firms receiving TARP funds

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SO HOW ARE WE DOING?

• Signs of recovery in the financial markets
• Since October 13, 2008
• LIBOR Down 435 Basis Points
• TED Spread Down 433 Basis Points
• Corporate Borrowing Rates Down 250 Basis Points
• AAA investment grade corporate bonds - credit
  spreads down 110 basis points
• High yield corporate issuance in first half of
  2009 was about 62B, up 26 from same period last
  year 
• Issuance of asset-backed securities has recently
  improved in response to the TALF, with 53B in
  consumer securitizations this year
• Also signs the economy is beginning to mend
• Consumer confidence increased significantly after
  sliding in the early part of the year.
• Housing starts have moved higher starts of
  single-family units were up 32 through June
  since their low in February 
•  House purchases have begun to pick up in some
  parts of the country

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TARP Financial Reporting Issues

• EESA Requires the Cost of Purchased Troubled
  Assets or Guarantees of Troubled Assets to Follow
  the Credit Reform Act
• Thus We Account for the Equity Programs Under
  Credit Reform
• Treasury Follows FASAB Standards - FASAB
  Statements Dont Address Equities Accounted for
  Under Credit Reform
• EESA Requires Market Adjusted Discount Rate Used
  for Calculating Costs
• Rely on GAAP Hierarchy in Absence of FASAB
  Guidance
• Consolidation Issues CitiGroup/GM/GMAC
• Coordination with OMB, KPMG, and GAO

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Recovery Act Implementation

• Funding
• Programs
• Risk Management Activities
• How Are We Doing?

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ERMP Imperatives

• Vision
• Leadership
• Environment
• Opportunities
• Appetite For Change
• Initiative Management
• Governance and Integration
• Risk
• Risk Mitigation

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ERMP Imperatives (Cont)

• Vision

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ERMP Imperatives (Cont)

• Leadership

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ERMP Imperatives (Cont)

• Environment

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ERMP Imperatives (Cont)

• Opportunities

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ERMP Imperatives (Cont)

• Appetite For Change

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ERMP Imperatives (Cont)

• Initiative Management

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ERMP Imperatives (Cont)

• Governance and Integration

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ERMP Imperatives (Cont)

• Risk

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ERMP Imperatives (Cont)

• Risk Mitigation

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My View of ERMP

• Part of Organizations Strategic Fabric and
  Culture
• Governance
• Outcome Based - Org Performance Mgmt Metrics
• Cost/Benefit Leverages IT and BI
• Inventory of Risk Management Info
• Risk and Vulnerability Assessment
• Problem Reduction
• Cost Reduction
• Process Improvement/Excellence