In June, the U.S. Treasury Department (Treasury) published new regulations requiring the adoption of a Policy by each remaining TARP recipient. The new regulations apply to any TARP recipient that has not repaid its original TARP funds. There is an exception for TARP recipients who have repaid those original monies, but whose warrants are still held by the Treasury. Those banks are not required to adopt a Policy.

The Board of Directors of each remaining TARP recipient must adopt a Policy in writing. The Policy must remain in place until the TARP recipient has paid back the original TARP monies. A copy of the written Policy must be provided to the Treasury and to the primary regulator of that remaining TARP recipient. The Policy must be published on its website. A review of bank websites suggests that so far very few remaining TARP recipients have published their Policy.

The new regulations require that the Policy address four categories of expenses: (1) “entertainment or events”; (2) “office and facility renovations”; (3) “aviation or other transportation services”; and (4) the usual catch-all of “other similar items, activities or events ….” The Treasury does not provide specifics, but leaves it to each remaining TARP recipient to address these four categories and to adopt a Policy that is “reasonably designed to eliminate excessive and luxury expenses.”

The new regulations only identify the broad contents of the required Policy. This lack of precise guidance by the Treasury is one reason for delay in the creation of a Policy. Each remaining TARP recipient is left on its own to provide details in its Policy. This has produced a wide variety of rules in those few Policies that have been published so far on bank websites. Some banks have opted to be as unspecific as the new regulations. Those bank Policies simply require general oversight by a “Principal Executive Officer,” “Principal Financial Officer” or specified other “Senior Executive Officer.” In contrast, some banks have adopted Policies with monetary guidelines for required approvals of expenditures in each of the four categories. Since the new regulations are lacking in detail and most remaining TARP recipients plan to repay the original investments as soon as possible, the more general Policies will likely be the norm.

Publishing the Policy on a bank's website will invite close scrutiny. Each Policy must strike a balance between public perception and legitimate business practices. Entertainment, event, renovation and transportation expenses frequently benefit other segments of the economy. We believe that it is possible to develop a reasonable Policy that does not interfere with the most productive use of a bank’s resources. The ultimate goal for each remaining TARP recipient is to repay those TARP monies. The need for a Policy should not make it more difficult for banks to meet that goal.