Financial Crisis Response Report - April 2012

8/2/2019 Financial Crisis Response Report - April 2012

1/24

The Financial Crisis ResponseIn ChartsApril 2012


2/24


3/24

This recession was the worst since the Great Depression

U.S. DEPARTMENT OF THE TREASURYSource: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Flow of Funds.

Real GDP, percent fall from pre-recession peak

-6%

-5%

-4%

-3%

-2%

-1%

0%

Pre-recessionpeak

1 2

Years since pre-recession GDP peak

2007 - 09 recession

2001 recession

1990 - 91 recession

1981 - 82 recession

1980 recession

1974 recession

= trough

1Metrics of the 07 - 09 nancial crisis, peak-to-trough:

8.8 million jobs lost

$19.2 trillionlost household wealth

(2011 dollars)

ChallengesReformCostResponse


4/24

2007 2008 2009 2010 2011

+0.5%

+3.6%

+3.0%

+1.7%

-1.8%

+1.3%

-3.7%

-8.9%

-6.7%

-0.7%

+1.7%

+3.8% +3.9% +3.8%

+2.5% +2.3%

+0.4%+1.3%

+1.8%

+3.0%

ChallengesReform

The crisis response helped restart economic growth

U.S. DEPARTMENT OF THE TREASURYSource: Bureau of Economic Analysis.

2Real GDP growth, quarterly

Jan. 20, 2009 President Obama

takes of ce

Feb. 2009 Financial Stability Plan announced

Recovery Act signedHousing programs announced

Mar. 3, 2009 TALF program launched to help

revive credit markets

Mar. 23, 2009 PPIP program announced to helprevive mortgage nance market

May 7, 2009 Large bank stress test results released

Apr. 2, 2009 G-20 nance ministers announcecoordinated response to globalnancial crisis

Jun. 2009 First large banks repay TARP fundsGM restructuring

Oct. 3, 2008

TARP nancial stabilizationpackage enacted

CostResponse

Mar. 2008 Bear Stearns collapses

Sept. 2008 Fannie Mae and Freddie Mac conservatorship

Lehman Brothers bankruptcy

AIG stabilization effort

Jul. 7, 2008 FDIC intervenes

in IndyMac Bank

Dec. 12, 2007 Fed establishes rst liquidity

facility and currency swap lines

with other central banks


5/24

2007 2008 2009 2010 2011

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

-

200

400

600

800

1,000

1,200

1,400

1,600

3 The crisis response paved the way for retirement savings to recover

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve Flow of Funds.

S&P 500 index

Retirement fund assets(billions of 2011 dollars)


takes of ce

Feb. 2009 Financial Stability Plan announcedRecovery Act signed

Housing programs announced

Mar. 3, 2009 TALF program launched to help revive credit markets

Mar. 23, 2009 PPIP program announced to help revive

mortgage nance markets


Apr. 2, 2009 G-20 nance ministers announcecoordinated response to global

nancial crisis

Oct. 3, 2008 TARP nancial stabilization package passed

Jun. 2009 First large banks repay TARP fundsGM restructuring

Mar. 2008 Bear Stearns

collapses

Sept. 2008

Fannie Mae/Freddie Mac conservatorshipLehman Brothers bankruptcy

AIG stabilization effort



6/24

2006 2007 2008 2009 2010 2011

MoreMorebanksbanks

tighteningtightening

The crisis response helped unclog the credit pipes of thenancial system

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve Senior Loan Ofcer Opinion Survey, Treasury calculations.

The crisis response helpedrestart the markets thatprovide nancing for auto,credit card, mortgage, andbusiness loans.

For borrowers, it: Improved credit access Lowered borrowing

costs.

4

Net percentage of banks easing lending standards, by loan type

MoreMorebanksbankseasingeasing

-100

-80

-60

-40

-20

0

20

40

Commercial and industrial lending

Residential mortgages

Consumer credit cards


takes of ce

Feb. 2009 Financial Stability Plan announced

Recovery Act passedHousing programs announced

Mar. 3, 2009 TALF program launched

Mar. 23, 2009 PPIP program announced to helprevive mortgage nance markets


Oct. 3, 2008 TARP enacted

Jun. 2009 First large banks repay TARP funds


99%

99%

100%

Credit cards

Auto loans

Agencymortgages

How much has the price of creditrecovered since the crisis?As measured by the return of yields of asset- backed securities to their pre-crisis levels


7/24

Financialmarkets

Smallbusinesses

Autos HousingRetirementConsumers

Helped supportcompanies thatneed credit to hireand grow.

Helped support acrucialmanufacturingindustry and saveAmerican jobs.

Helped restartcredit markets andstabilize firms thathold deposits andprovide credit.

Helped supportfamilies that needauto, credit card,and student loans.

Helped protectsavers with 401(k)plans, moneymarket funds, andother investments.

Helped supportAmericans seekingto obtain orrefinance amortgage, oravoid foreclosure.

Small businessAutosFinancial marketsConsumersRetirementHousing

What did it support?

The crisis response helped support families and businesses

U.S. DEPARTMENT OF THE TREASURYSource: Treasury, Ofce of Management and Budget.

5ChallengesReformCostResponse

The Treasury Department, the Federal Reserve, and other federal agencies attacked the crisis on multiple fronts so that families cotheir nancial needs and businesses could obtain the credit they need to hire and grow.

This chart is intended to illustrate the breadth of the crisis response, but is not meant to be a complete depiction of all the actions taken by the government or th


8/24

The crisis response helped stabilize the housing market

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve, HOPE NOW, Department of Housing and Urban Development.

6Conventional 30-year mortgage ratesThe governments

efforts helped keepmortgage rates low sothat Americans couldcontinue to buy homesand re nance in the wakeof the crisis.

Since April 2009, loanmodi cation programshave helped millions of

borrowers stay in theirhomes, more than thenumber who have losttheir homes to foreclosure.

Cumulative foreclosures and permanent modi cations started*


* Cumulative HAMP permanent modi cations, FHA loss mitigation (such as modi cations, partial claims, and forbearance plans), and early delinquency interventions, plus proprietary modi cations completed as reported by the HOPE

NOW Alliance. Some homeowners may be counted in more than one category. Foreclosure completions are properties entering Real Estate Owned (REO) as reported by Realty Trac. This does not include other loss mitigaunder Treasury housing programs or by the GSEs, such as forbearance plans, short sales, and second lien modi cations, which would increase the totals.

0

1

2

3

4

5

6

Apr '09 Jul '09 Oct '09 Jan '10 Apr '10 Jul '10 Oct '10 Jan '11 Apr '11 Jul '11 Oct '11 Jan '12

Private

modifications

Since April 2009, there have been5 million permanent loan modifications

Foreclosurecompletions

2.6m

HAMP modifications

FHA loss mitigation

6 million

0

1

2

3

4

5

6

7

Jan '08 Jul '08 Jan '09 Jul '09 Jan '10 Jul '10 Jan '11 Jul '11 Jan '12

7 percent


9/24

2.2

2.3

2.4

2.5

Jan2009 '10 '11 '12

2.6m auto industry workers

+231,000auto jobs since

June 2009

The crisis response saved the auto industry and one million American jobs

U.S. DEPARTMENT OF THE TREASURYSource: Bureau of Labor Statistics, Autodata.

According toindependent estimates,

the rescue of the autoindustry saved more thanone million American jobs.

Since the rescue, theauto industry has added

more than 230,000 jobs.The auto industry

rescue is currentlyestimated to cost about$22 billion, but the cost

of a disorderly liquidationto families and businessesacross the country thatrely on the auto industrywould have been far

higher.

7Auto-industry employment

After June 2009 Post-restructuring of GM and Chrysler

Mar. 2009 President Obama rejects restructuring plans fromGM and Chrysler, challenging them to developmore aggressive plans to return to viability.

Sales of motor vehicles in the U.S.

13m

10m12m

13m14.5m

2008 2009 2010 2011 2012(annualizedaverage to

date)


Ch llf


10/24

The crisis response curbed the damage and helped restart the economy

U.S. DEPARTMENT OF THE TREASURYSource: Treasury analysis based on OECD and U.S. Census data.

8 Total civilian employment, percentage change from pre-crisis peak Jobs are returning.

Despite the size of the

nancial shock, thespeed and force of theresponse helped restore job growth more quicklythan in most other

recent crises. There is still more

work ahead, butbusinesses have...

Added workers overthe last 25 straightmonths.

Created 4.1 million jobs.

U.S.Great Depression

-30%

-20%

-10%

0%

+10%

+20%

Pre-crisispeak

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years since pre-crisis employment peak

U.S.2008-09

financial crisis

Average of 5 most recentadvanced economy financial crises

Spain 1974Norway 1986Finland 1989Sweden 1989Japan 1991

Jobs growth resumed much fasterthan average of other recent nancialcrises in advanced economies


Ch llR fCR


11/24

IMF March 2009 estimate of the costof U.S. response to 08-09 crisis

12.7% of GDP($1.9 trillion in 2011$)

Estimated total potential exposurefrom financial rescue

$24 trillionSpecial Inspector General for TARP, July 2009

U.S. pledges top

$7.7 trillionto ease frozen credit

Bloomberg November 24, 2008

How much were the nancial stability programs expected to cost?

U.S. DEPARTMENT OF THE TREASURYSource: See Notes.

9Projections of potential cost of nancial stability programs

Bank bailout could cost

$4 trillionCNNMoney.com

January 27, 2009

Fannie, Freddie bailoutcould cost taxpayers

$1 trillionThe Christian Science Monitor

June 18, 2010

Estimated cost of TARP

$356 billionCongressional Budget Office, March 2009

Estimated cost of TARP

$341 billionOffice of Management and Budget, August 2009



12/24

ChallengesReformCostR


13/24

The projected cost of TARP has fallen signicantly

U.S. DEPARTMENT OF THE TREASURYSource: Treasury, Ofce of Management and Budget.

The projected cost ofTARP has fallen signicantlyover the last three years.

TARPs investmentprograms, together withTreasurys additional stake inAIG, are currently expectedto realize a positive returnfor taxpayers.

The remainingprojected cost is primarilyattributable to support for

struggling homeowners;these funds were notintended to be recovered.

TARP programs havereceived three straight cleanaudits.**

11Projections of TARP programs and additional Treasury AIG holdings, gain (cost)

-$341b

-$60b

-$291b

+$2b

-400

-350

-300

-250

-200

-150

-100

-50

0

50

Aug. 2009Mid-session Review

Feb. 2010President's Budget



Apr. 2012estimate

+$50 billion

-$400 billion loss

TARPoverall

Investment programs only(excludes housing)*

83%decrease in projected

TARP costs sinceAug. '09

POSITIVE RETURN

LOSS


* This represents the TARP investment programs and includes Treasurys additional AIG common stock holdings valued as of February29, 2012. It excludes foreclosure prevention funds, which were not intended to be recovered ($46B).

** GAO annually reviews Treasury TARP cost estimates.



14/24

The bank investment program helped stabilize thenancial system

Source: Treasury.

TARPs bank

investment programshelped stabilize thenancial system by

providing capital to morethan 700 banks

throughout the country.More than 450 were

small, community banks.

Treasury is continuingto wind down thoseinvestments, which havealready realized asigni cant return fortaxpayers.

12Returns as of April 12, 2012

Federal Reserve regulatory minimum on stress tests

-

50

100

150

200

250

300

Oct'08

Apr'09

Oct'09

Apr'10

Oct'10

Apr'11

Oct'11

Apr'12

$300 billion

$245b

Repayments$230b

Realizedincome$34b

Disbursed Recovered

$264b

Outstanding bank program investments, principal

+$19bpositivereturn

Note: About $2b of the funds invested in banks re nanced into the SBLF program. This

re ects less than 1% of the total TARP funds invested in banks.

A total of 348 banks remain in TARPs Capital Purchase Program and 82

banks remain in TARPs Community Development Capital Initiative

U.S. DEPARTMENT OF THE TREASURY




15/24

Max. commitmentMarch 2009

Remaining Investment Outstanding Value of Remaining Stake

76%of maximum committment

returned or cancelled to date

$44b

$182b

Current Value of RemainingGovernment Stake$49b

Interest/ Fees/GainsRealized to Date$12b

$61b

Based on current marketprices, the government is

expected to realize a gain onits AIG investment

Remaining investment outstandingAs of March 2012

Value of remaining stakeAs of March 2012

The crisis response helped prevent the collapse of thenancial system and stabilized AIG

U.S. DEPARTMENT OF THE TREASURYSource: Treasury, Federal Reserve.

13Total commitment (Treasury and Federal Reserve), outstanding investment, and value of ownership stake in AIG,

billions of dollars




16/24

The nancial industry is less vulnerable to shocks than before the crisis

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve form Y-9C, Treasury calculations.

Banks have added

nearly $400 billion infresh capital as acushion againstunexpected losses andnancial shocks.

Banks are also lessreliant on short-termfunding, which candisappear in a crisis andleave them morevulnerable to panics.

14

Federal Reserve regulatory minimum on stress tests

Short-term wholesale funding as a percentof assets, 4 largest U.S. banks

0

5

10

15

20

25

30

35

40

2002

Q1

'03 '04 '05 '06 '07 '08 '09 '10 '11

40 percent

0

2

4

6

8

10

12

14

2002

Q1

'03 '04 '05 '06 '07 '08 '09 '10 '11

Other Tier 1

Tier 1 Common

14 percent

Capital in bank holding companies as a percentage of risk-weighted assets




17/24

The U.S. banking system is proportionally smaller than that of other advanced economie

U.S. DEPARTMENT OF THE TREASURYSource: BankScope, IMF, Federal Reserve Flow of Funds.

15Total assets of commercial banks, percent of GDP

Total assets of 4 largest commercial banks, percent of GDP

Even with theconsolidation of some of

the weakest players duringthe crisis, the UnitedStates has... the least concentrated

banking system of any

major economy. the smallest banking

system relative to thesize of its economy.

The new legal tools

established by the Dodd-Frank Act mean thatregulators will be betterable to dismantle andresolve large nancialinstitutions if necessary.

Belgium

Canada

France

GermanyItaly

Japan

Netherlands

Sweden

Switzerland

United Kingdom

United States

0%

100%

200%

300%

400%

500%

600%

0% 100% 200% 300% 400% 500% 600%




18/24

The economy still has far to go to fully recover from thenancial crisis

U.S. DEPARTMENT OF THE TREASURYSource: Bureau of Labor Statistics, Congressional Budget Ofce.

Unemployment rate, percent of the labor force

Real output gap

Unemployment

has fallen, but it stillremains high.

Economic outputremains well belowits potential.

16

Long-termunemployment

rate(27+ weeks)

0

2

4

6

8

10

12

Jan2006

'07 '08 '09 '10 '11 '12

12 percent

Unemploymentrate

Recessions

10

11

12

13

14

15

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

5.5%output gapin 2011Q4

$15 trillion

Real GDP(2005 dollars)

Real potential GDP(2005 dollars)

Recessions




19/24

The longstanding nancial dif culties facing households persist

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve Flow of Funds, U.S. Census.

Household debt, percent of disposable income

Household debt is

down relative to income,but a large overhang ofdebt remains.

Median householdincome has declined

over the last decade.

17

Real median household income

0

20

40

60

80

100120

140

160

1980Q1

'85 '90 '95 '00 '05 '10

160 percent

Recessions

40,000

45,000

50,000

55,000

60,000

1967 '72 '77 '82 '87 '92 '97 '02 '07

1999:$53,252

$ 60,000

2010:$49,445

Recessions




20/24

The housing market remains a challenge

U.S. DEPARTMENT OF THE TREASURYSource: U.S. Census.

Inventory of vacant homes for sale only

New single-family home sales

Inventories of

unsold homes aredeclining, but slowly.The overhang from thecrisis continues toweigh on prices.

New home salesare stabilizing, but thehousing marketremains weak.

18

0

0.4

0.8

1.2

1.6

Jan

2003

'04 '05 '06 '07 '08 '09 '10 '11 '12

1.4 million Jul. 2005

313,000 Feb. 2012

1.6 million

Recessions

0

0.5

1.0

1.5

2.0

2.5

2004Q1

'05 '06 '07 '08 '09 '10 '11

2.5 millionRecessions

gp



21/24

Tax Cuts-$3,000b

Other annualappropriations

-$1,700b

Iraq andAfghanistan-$1,400b

Other-$600b

MedicarePart D benefit

-$300b

December 2010tax deal-$250b

Recovery Act-$800b

Other-$410b

The federal budget decit must be reduced to begin paying down debt

U.S. DEPARTMENT OF THE TREASURYSource: Treasury analysis of Congressional Budget Ofce data. See Notes for more details.

19

-8

-6

-4

-2

0

2

4

6

8

2001 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

$8 trillion

COSTS NOT DUETO LEGISLATION

(technical &economic)

Cost ofJanuary 2001 -January 2009

policies

Cost of post-January 2009

policies

29%

59%

12%

In January 2001, CBO projectedcumulative surpluses wouldtotal $5.9 trillion through 2011.

CUMULATIVESURPLUS

CUMULATIVEDEFICIT

Instead, cumulative deficitshave totaled$6.0 trillion.

Post-January 2009Policies

-$1.4 trillionthrough 2011

Jan. 2001 - Jan. 2009Policies

-$7 trillionthrough 2011

gp

Causes of the difference between projected and actual cumulative budget surpluses/de cits, scal years 2001 - 2011


22/24


23/24



24/24

Notes

U.S. DEPARTMENT OF THE TREASURY

Nnancial-stability/brieng-room/reports/105/

Documents105/March%2012%20Report%20to%20Congress.pdf

Chart 13See the latest 105(a) report for further details on TARPcost estimates: http://www.treasury.gov/initiatives/nancial-stability/brieng-room/reports/105/

Documents105/March%2012%20Report%20to%20Congress.pdf

Chart 15Four largest U.S. banks by assets are JPMorgan Chase,Bank of America, Citigroup, and Wells Fargo.

Chart 19Based on data from three annual CongressionalBudget Ofce publications: theBudget and Economic Outlook, the update to the Outlook , and CBOsestimate of the Presidents Budget. Technical andeconomic factors include all changes in decitprojections not due to the cost of new legislation,including updates to economic and demographicprojections. Post-January 2009 policies only reectsthe effect of policies, including temporary policies,through 2011. Does not reect the de cit reductionproposed in the Presidents FY2013 Budget goingforward. Numbers may not sum due to rounding.