TARP Funds – A Boon for Europe? - Analyst Blog

Criticizing the structure of the U.S. Treasury’s $700 billion Troubled Asset Relief Program (TARP) that was created to rescue the nation’s financial industry, the Congressional Oversight Panel said in a report on Thursday that the foreign companies got greater benefit from the U.S. bailout program than U.S. companies realized from other countries' bailout programs.

 

Following the collapse of Lehman Brothers in September 2008, which was acquired by Barclays (BCS), the U.S. government has injected billions of dollars into several national financial institutions to stabilize the financial system. Many of these financial institutions have substantial overseas operations. As a result, the rescue funds indirectly helped many big foreign financial institutions based in France, Germany, Canada, Britain and Switzerland.

 

On the other hand, most of the other countries structured their bailout plan more conventionally to rescue financial institutions in their nations that do not have significant U.S. operations.

 

According to the Oversight Panel, the U.S. government failed to arrange data about where the TARP money was going other than U.S. companies. Otherwise, the government might have been able to claim some of the cost sharing from those countries.

 

The panel’s report primarily criticized the non-generalized approach taken by the U.S. government to rescue American International Group Inc. (AIG) without international support, while the greatest beneficiaries were banks in France and Germany.

 

Out of the total $182 billion TARP money given to AIG, the majority was used to meet its obligations to its Wall Street trading partners on credit default swaps, a form of insurance against default of securities. Among the others, the French trading partners Glencairn Gold Corp. (GLE) received $11.9 billion and BNP Paribas got $4.9 billion of the money given to AIG. Also, Germany’s Deutsche Bank AG (DB) received $11.8 billion.

 

According to the report, out of the total 87 financial institutions who have indirectly benefited from the bailout of AIG, 43 are non-U.S.

 

There are many other financial institutions and automakers that received TARP money from the U.S. government but depend on foreign operations for a large proportion of their revenues.

 

Finally, according to the report, the financial crisis has revealed that there is a need for an international plan to handle the failure of financial giants. The panel expects such a plan to prevent collateral damage to the global markets.

 

Though the U.S. government’s efforts have helped stabilize the financial system to a great extent, it would have cost the taxpayers less.