A government programme to rid itself of Tarp investments in small banks has proved a boon to hedge funds, private equity and other private investors, according to a new watchdog report.

As the Treasury Department looks to exit from its taxpayer-backed investments in these lenders, private investors like hedge funds and others have stepped in and scooped up about 70% of the shares auctioned by the US government. Other buyers included banks, institutional investors and brokers buying shares on behalf of other entities.