When the U.S. government led a bailout program of $700 billion in the wake of the 2008 financial crisis, the money was generally described as bailout funds for U.S. banks and other major financial institutions. But in fact, substantial amounts went to foreign banks, according to a congressional watchdog, the Congressional Oversight Panel. Headed by Elizabeth Warren, the committee has just issued a report highlighting this dimension of the Troubled Assets Relief Program (TARP).
Out of the 87 banks that saw benefits from the U.S. bailout measures, 43 were foreign banks – many of which are based in Europe. Along with France and Germany, TARP also induced positive results in Denmark, Britain, Switzerland and the Netherlands, the report said.
In the largest specific case, TARP’s $70 billion bailout of AIG has beneficially contributed to other nation’s firms and institutions, most successfully to France and Germany. The insurance company AIG insured many “derivatives” and other financial instruments held by foreign banks and was obliged to cover their losses on these investments when market values plunged. U.S. TARP funds then made good AIG’s losses.
Ms Warren concluded that there were no specific negative consequences for the U.S. government’s actions, but her “complaint” is that the Obama administration should have pressed foreign governments to spend more on their bailouts in order to relieve part of the burden of international recovery shouldered by the U.S. The committee advises that the U.S. Treasury should have been more transparent about the levels of bailout money that would end up in Europe and other foreign countries and more diligent in tracking where funds went in order to have arguments to get more help from foreign governments. On AIG, for example, none of these European beneficiaries or aided in the bailout of the failing AIG.
Countries like France and Germany rescued only their most troubled banks, most of which happened to do little business in the U.S., who spread its funds more widely, pouring money into more than 700 financial institutions of all kinds. Many of these had significant ties to foreign investors, and when the U.S. government gave them money, much of it essentially flowed overseas. As a result, Ms. Warren said America's rescue had a much greater impact on other nations than their rescue programs had on the U.S. The congressional report says that “while the United States attempted to stabilize the system by flooding money into as many banks as possible – including those that had significant overseas operations – most other nations targeted their efforts more narrowly towards institutions that had no major U.S. operations.”
Ms Warren doesn't find fault with this. And she says this cross-border flow of rescue funds is probably inevitable in an age of giant multinational banks. If the U.S. had gathered more information about the flow of rescue funds, it could have asked other countries to share the pain. The National Public Radio (NPR) reported, “AIG probably wouldn’t have survived as a company if it had tried to treat its overseas customers any differently than those in the U.S.”
The panel also reported that American taxpayers would end up making money from the bailout of the banks.