US government guarantees peaked $4.3 trillion: COP report

The federal government's guarantees for troubled assets during the financial crisis hit a massive $4.3 trillion at its highest point, exceeding the total size of the Troubled Asset Relief Programme (TARP) and making it the single largest element of the government's response to the crisis, a report released by the Congressional Oversight Panel (COP) said yesterday.

The watchdog, COP was created in October last year, in the wake of the financial crisis to ''review the current state of financial markets and the regulatory system'' and oversee Treasury actions, asses the impact of spending, and evaluate market transparency. The panel is chaired by Elizabeth Warren, Professor of Harvard University.

The panel found that the various government programmes played a major role in containing the severe financial crisis, and the income from these would likely exceed their expenditure, although they exposed American taxpayers to trillions of dollars in guarantees. 

''While taxpayers will likely profit, guarantees carry enormous risk and created significant moral hazard,'' the report said.

COP said that during the financial crisis, the federal government through the Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve expanded its role as a guarantor and negotiated to secure hundreds of billions of dollars in assets belonging to Citigroup and Bank of America, other financial institutions and money market funds.

The FDIC, apart from increasing the deposit insurance coverage of bank accounts from $100,000 to $250,000 per account, established the debt guarantee programme to stimulate the market for banks to raise funds, while the Treasury guaranteed that money market funds would not fall below $1.00 per share.