When Congress passed the legislation that created the $700 billion Troubled Asset Relief Program (TARP), it authorized the creation of the Congressional Oversight Panel (COP) to monitor the execution of the program by the Treasury Department. The panel is required to issue reports on a regular basis, and its latest report, released Jan. 9, indicates that the Treasury Department either cannot or will not answer the questions posed to it in the COP's previous report, released on Dec. 10, 2008. The Dec. 10 report was issued within days of the panel's formation; the COP therefore had little time to produce substantive information on TARP. Instead, the panel posed to Treasury 44 questions falling under ten broader topics. One month later, the COP reported on Treasury's responses to those questions. Of the 44 questions originally asked, the Treasury Department failed to respond to 25 and provided non-answer responses to five others. The answers to the questions the Treasury Department did address provide a murky picture of the effectiveness of TARP and the processes by which Treasury is implementing the program.

In responding to the very basic question, "What is Treasury's strategy?" the department enumerated a series of goals without indicating a plan by which those goals could be achieved. Treasury also failed to respond to the question of what it sees as the fundamental problem in the financial markets that TARP is supposed to fix. As the COP report's authors reason, without an understanding of the underlying problem, it is impossible to devise a strategy to tackle the problem itself rather than merely treat the attendant symptoms. What's more, the report indicates that Treasury is not collecting sufficient data to provide support to its claim that the program is in fact attenuating those symptoms.

Although Treasury provides several broad-based data points that it believes are sufficient to measure the effectiveness of TARP, the COP would prefer that Treasury collect and provide a more robust set of data. The COP believes that "metrics that gauge the markets more broadly, as well as other economic measures [are necessary], in order to form any firm view of the effectiveness of Treasury's strategy."

In addition to these broad metrics, the panel was also interested in assessing changes in the level of lending by banks that have participated in TARP. The COP believes that analyzing data on each bank receiving TARP funds would provide insight into whether banks are lending at higher levels than they otherwise would. And while Treasury has told the COP that it is working with banking regulators to obtain information on tracking TARP dollars, it has yet to inform the COP which, if any, metrics are being used to measure the impact of TARP funds on bank lending levels. Treasury also remains circumspect on answering the more general question, "What have financial institutions done with the taxpayers' money received so far?" The Treasury Department's response suggests that it gave little forethought into gathering information that would indicate if banks receiving TARP money were using the funds as intended.

On the specific question, "Have the companies used the funds in the way Treasury intended when it disbursed them?" Treasury provided no response to the COP. And with respect to whether banks are increasing their levels of lending, the COP insists that Treasury provide "some evidence" to support its assertion that lending levels are increasing. However, Treasury's response to this question is emblematic of its attitude toward transparency with respect to its approach to administering TARP.

The COP asked reasonable questions that Treasury can certainly answer, such as what authority the department assumes it has in executing specific TARP programs or how it determines the value of a given bank's assets. Yet the Treasury Department has refused to directly answer these questions. For other inquiries, such as those about the financial markets and the banking system, Treasury is resistant to obtaining data the COP considers useful in providing insight into the effectiveness of TARP. The resistance from the Treasury Department to disclose information about its activities and also to collect the necessary data to evaluate their actions has important implications for the very financial system that TARP was intended stabilize.

As the COP report argues, "The confidence [in the nation's financial markets] that Treasury seeks can be restored only when information is completely transparent and reliable." Without knowledge of Treasury's method of assessment of the health of the banks that receive TARP funds, potential creditors to those banks will have little basis on which to judge market risk. The report also states that the "recent refusal of certain private financial institutions to provide any accounting of how they are using taxpayer money undermines public confidence in [the health and the sound management of all financial institutions]."

Many in Congress share these concerns and are developing legislation to increase the amount of information required to be disclosed about TARP. On the same day the COP released its second oversight report, Chairman of the House Financial Services Committee Barney Frank (D-MA) introduced legislation designed to, among other things, improve TARP oversight. The TARP Reform and Accountability Act of 2009 (H.R. 384) would :

• Require insured depository institutions that receive funding under TARP to report quarterly on the amount of any increased lending (or reduction in lending) and related activity attributable to such financial assistance.


• For recipients that are not insured depository institutions or that do not have a federal regulator, require any reporting and impose other terms no less stringent than those applicable to insured depository institutions, and require Treasury to examine the institution or delegate such functions to the Federal Reserve.


• Require Treasury to reach agreement with the institution and its primary federal regulator on how the funds are to be used and benchmarks the institution is required to meet so as to advance the purposes of the act to strengthen the soundness of the financial system and the availability of credit to the economy.

President-elect Obama, through Director-designate of the National Economic Council Larry Summers, has expressed a desire to improve transparency and oversight of TARP. Writing to congressional leadership on Jan. 12, Summers requested the release of the final $350 billion of TARP funds and promised that the incoming administration would "impose tough and transparent conditions on firms receiving taxpayer assistance." Summers also stated that Obama is "committed to ensuring a full and accurate accounting of how the Treasury Department has allocated the funds spent to date and going forward." While the letter was short on what specific remedies Obama intents to implement, it indicated that the Obama administration will likely pursue transparency and accountability policies that mark a departure from the current administration.

Regardless of the impact of transparency on the financial markets, there still exists the essential right of the public to know how the federal government is deploying hundreds of billions of dollars to repair a sector of the economy that, as has been argued relentlessly by economists and policymakers, has a large impact on all American families. The COP's activities and investigations and Frank's legislation are important first steps in clearing initial obstacles to transparency of the TARP, but they also indicate the myriad aspects of the program that remain behind closed doors and deserve increased public scrutiny.