Last week's Government Accountability report on TARP's Capital Purchase Program revealed an interesting tidbit.
As BailoutSleuth has previously reported, the number of banks in that program that are missing quarterly dividend payments (more than 20 percent) and violating banking standards (more than 11 percent) suggests that the Treasury Department may not have invested exclusively in healthy banks, as it has always suggested.
That may be because regulators were working with old data when deciding who could get taxpayer money through TAR. According to the GAO, regulators used bank examination reports that were, on average, nine months old when determining which institutions were healthy enough to get billions in taxpayer aid.
Bank examinations are on-site visits by regulators used to get a comprehensive understanding of a bank's financial condition, risks and management. Generally, banks are examined every 12 to 18 months, though they can be performed more or less frequently depending on the circumstances.
According to guidance from Federal Reserve, one of the regulators that conducts bank examinations, "the longer the time since a bank's most recent examination, the higher the likelihood that conditions at the bank will have changed in a way that diminishes the current value of that information."
Twenty-five percent of the TARP applications GAO analyzed relied on bank examinations that were more than a year old. Even more astonishing: in 18 percent of the applications, GAO could not even identify how old the examination was.
The report also identified 66 Capital Purchase Program recipients - 12 percent of the banks GAO analyzed - as having "weak characteristics" prior to getting TARP approval, such as low bank ratings, low capital ratios, high levels of nonperforming loans or heavy loan concentrations, among other criteria.
From the report:
"Regulators used examination ratings as a key measure of an applicant's financial condition and viability, and the age of these ratings could affect how accurately they reflect the institutions' current state. For example, assets, liabilities, and operating performance generally are affected by the economic environment and depend on many factors, such as institutional risk profiles.
Stressed market conditions such as those existing in the broad economy and financial markets during and before CPP implementation could be expected to have negative impacts on many of the applicants, making the age of examination ratings a critical factor in evaluating the institutions' viability. Further, some case decision files for CPP firms were missing examination dates. Specifically, 104 applicants' case decision files out of the 567 we reviewed lacked a date for the most recent examination results.
Treasury and regulatory officials told GAO they used other data besides the bank examinations such as brief visits, quarterly financial data and CAMELS ratings -- another measure of a bank's condition -- to help determine whether banks should get the aid.