On January 21, 2009, the House adopted Barney Frank’s TARP Reform and Accountability Act of 2009, which would impose conditions on the use of remaining TARP funds.  However, the Senate has already voted to release the remaining TARP funds (without conditions) and is believed unlikely to consider this legislation.  As a result, the legislation is non-binding, but theoretically expresses the will of the people.  As a result, Barney Frank believes that the passage of the measure will give Congress additional flexibility of the Obama administration does not follow through on the conditions provided for in the Reform Act.  The text of the bill, as adopted by the House, can be obtained from the Government Printing Office.

The final bill is largely unchanged from Frank’s initial proposal, however some amendments were approved by the House.  The approved amendments:

• clarify that the requirements on the use of TARP funds would NOT apply to financial institutions that have applied to participate under the existing TARP Capital program;
• strike the provision requiring divestiture of private planes;
• require the Treasury to provide a fully searchable database of TARP recipients;
• state that it is “the sense of Congress” that any institution receiving assistance should not initiate (or continue) foreclosure proceedings with respect to any principal homeowner mortgage until a comprehensive foreclosure mitigation plan has been implemented; and
• prohibit recipients of TARP funds from entering into agreements with any foreign company for the provision of customer service functions.

Again, these conditions are unlikely to become law, but may provide guidance as to how Obama’s Treasury department will proceed.  The passage of the Reform Act also shows that the House intends to make permanent the increase in FDIC deposit insurance to $250,000 per depositor.

On January 9, 2009, Barney Frank introduced H.R. 384, the TARP Reform and Accountability Act, to amend the TARP provisions of the Emergency Economic Stabilization Act of 2008.

As introduced, the Reform Act would: require quarterly reporting on the use of TARP funds, limit the ability to use TARP funds to acquire healthy institutions, require additional compensation limitations, and require Treasury to make TARP Capital available to smaller depository institutions, including Subchapter S corporations and mutuals.

It is important to remember that this is the initial legislation as proposed by Congressman Frank, and it may never become the law, or undergo significant revisions before it becomes the law.  At this point, the proposed legislation raises as many questions as it does propose changes.

A brief summary of the provisions of TARP Reform and Accountability Act follows.  Note: Some of the provisions contained in the Reform Act would apply to all institutions that have received assistance under TARP, while others are structured to only apply to those receiving assistance following the effectiveness of the Reform Act.  We have attempted to distinguish between these provisions below.  We believe it is also important to distinguish between modifications that are requirements versus merely where the Reform Act provides for additional authority for Treasury to act.  Finally, Section 105, as noted below, may effectively permit the TARP Capital program to be largely unchanged for all institutions. (more…)