This story appeared in Bank Digest.
The Government Accountability Office has issued a report (GAO-15-367R) on winding down the Capital Purchase Program that examines: (1) the status of the CPP, including repayments and other proceeds, as well as investments outstanding; (2) Treasury's strategy for winding down the program; and (3) the financial condition of institutions remaining in the CPP.
Treasury does not know when it will completely exit the CPP program and continues to utilize the three-pronged exit strategy it first announced in 2012. The strategy includes repayments, which allow firms to redeem their shares in full; restructuring, which involves exchanging cash or other securities—often at a discount—for preferred stock; and auctions. Over the past five years, repayments and auctions were the primary means by which institutions exited the CPP. However, Treasury officials indicated that more remaining institutions may use restructurings as an exit strategy, since few remaining CPP participants may be able to make full repayments, and the use of auctions as an exit option depends largely on investor demand for the CPP securities and the quality of the underlying financial institutions.