U.S. government backed $4.3 trillion in assets in crisis: report

By David Lawder

WASHINGTON (Reuters) - The U.S. government guaranteed as much as $4.3 trillion in financial assets last year, making such backstops the biggest and riskiest part of Washington's response to the financial crisis, a bailout watchdog panel said on Friday.

The Congressional Oversight Panel said in its latest monthly report that the asset guarantees from the U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp helped calm panic in financial markets at minimal cost to taxpayers so far.

To date, the programs have generated fees of about $17.4 billion, while only up to $2 million is expected to be paid out for a default under the FDIC's bank debt guarantee program. .

The report said for program that once guaranteed a pool of $301 billion in Citigroup assets, initial actuarial estimates point toward a possible loss of $34.6 billion under a "moderate" stress scenario.

But since Citigroup must absorb the first $39.5 billion in losses from these assets, taxpayers would not be liable for any of this. A "severe" stress test scenario would result in losses of $43.9 billion, of which taxpayers would have to absorb nearly $4 billion.

The panel, charged with overseeing the U.S. Treasury's $700 billion Troubled Asset Relief Program, said that as financial markets stabilize and the scope of the guarantee programs decrease, the likelihood of major expenditures also diminishes.

"This apparently positive outcome, however, was achieved at the price of a significant amount of risk," the panel said in the report. "A significant element of moral hazard has been injected into the financial system and a very large amount of money remains at risk."

Elizabeth Warren, the Harvard Law School professor who heads the Congressional Oversight panel, said the guarantees also produced significant distortions in private markets, drawing funds to assets that had backstops.