TARP Critical Success Factors

U.S. Treasury Secretary Timothy Geithner will particpate in a hearing today conducted by the TARP Congressional Oversight Panel.  The focus of the discussion will most likely be the contents of a report issued by the Panel about the Treasury's TARP Strategy.  In the report, the Panel explores various governmental interventions over the past century and identifies their sources of success.  Here are the four critical success factors: 

• Transparency.  Swift action to ensure the integrity of bank accounting, particularly with respect to the ability of regulators and investors to ascertain the value of bank assets and hence assess bank solvency.


• Assertiveness.  Willingness to take aggressive action to address failing financial institutions by 1) taking early aggressive action to improve capital ratios of banks that can be rescued, and 2) shutting down those banks that are irreparably insolvent. 


• Accountability.  Willingness to hold management accountable by replacing—and, in cases of criminal conduct, prosecuting—failed managers. 


• Clarity.  Transparency in the government response with forthright measurement and reporting of all forms of assistance being provided and clearly explained criteria for the use of public sector funds.  

The report falls short of offering an ultimate view on the best strategy to take in the current crisis.  However, it does indicate that there is dissent among the Panel members on efficacy of the Treasury's current strategy. This dissent will most likely lead to a very interesting hearing.