The inspector general overseeing the federal bailout program said he would audit a Treasury Department initiative that guaranteed more than $300 billion in assets held by Citigroup Inc.
Neil Barofsky, special inspector general for the Troubled Asset Relief Program, said he would take a close look at an effort by the Federal Reserve Bank, the Treasury and the Federal Deposit Insurance Corp. to guarantee a $306 billion pool of housing-related assets held by the banking giant.
Barofsky's announcement came in a letter to Rep. Alan Grayson of Florida, who had asked for details about the program. Federal efforts to support the financial sector through stock purchases and loan and asset guarantees have been controversial, with critics calling them needless interference in the free market and corporate giveaways.
Overall, the federal government has extended more than $3 trillion in direct support to the financial industry through stock purchases, loans and other mechanisms. It also has provided guarantees on trillions of dollars worth of additional debt and so-called toxic securities backed by mortgages and consumer loans.
The government offered the guarantees to Citigroup in November after the bank's shares fell along with the rest of the financial sector. Regulators feared that the collapse of a major institution such as Citigroup could spark a wholesale industry breakdown.
Under the terms of the guarantees, Citigroup would absorb the first $39.5 billion of losses on the assets, plus 10 percent of any remaining losses. Through June 30, losses on the pool totaled $5.3 billion, Bloomberg News reported.
A key question, however, is whether the bank sufficiently wrote down the value of these assets before the guarantees were offered. A failure to do that could eventually result in proportionally larger losses for taxpayers.
In a letter to Rep. Grayson, Barofksy said his audit would the "process for selecting loans to be guaranteed," as well as "the risk-management and internal controls and related oversight processes and procedures to mitigate risks to the government."
Neil Barofsky, special inspector general for the Troubled Asset Relief Program, said he would take a close look at an effort by the Federal Reserve Bank, the Treasury and the Federal Deposit Insurance Corp. to guarantee a $306 billion pool of housing-related assets held by the banking giant.
Barofsky's announcement came in a letter to Rep. Alan Grayson of Florida, who had asked for details about the program. Federal efforts to support the financial sector through stock purchases and loan and asset guarantees have been controversial, with critics calling them needless interference in the free market and corporate giveaways.
Overall, the federal government has extended more than $3 trillion in direct support to the financial industry through stock purchases, loans and other mechanisms. It also has provided guarantees on trillions of dollars worth of additional debt and so-called toxic securities backed by mortgages and consumer loans.
The government offered the guarantees to Citigroup in November after the bank's shares fell along with the rest of the financial sector. Regulators feared that the collapse of a major institution such as Citigroup could spark a wholesale industry breakdown.
Under the terms of the guarantees, Citigroup would absorb the first $39.5 billion of losses on the assets, plus 10 percent of any remaining losses. Through June 30, losses on the pool totaled $5.3 billion, Bloomberg News reported.
A key question, however, is whether the bank sufficiently wrote down the value of these assets before the guarantees were offered. A failure to do that could eventually result in proportionally larger losses for taxpayers.
In a letter to Rep. Grayson, Barofksy said his audit would the "process for selecting loans to be guaranteed," as well as "the risk-management and internal controls and related oversight processes and procedures to mitigate risks to the government."
published August 20, 2009, 0 Comments
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