Economic News

Banks' big bailout payback after regulators rollover on terms

(10/5/2011) - The Obama Administration says taxpayers are recouping the full $245 billion in bank bailout money from the government, as well as a hefty $20 billion profit, but regulators rolled over on payback terms.

"Exiting TARP: Repayment by the Largest Financial Institutions" prepared by the U.S. Treasury's Special Inspector General for the Troubled Asset Relief Program (SIGTARP) focused on the sales of stock to raise capital for bailout repayments by four major banks: $45 billion each from Bank of America and Citigroup; $25 billion from Wells Fargo; and $7.6 billion from PNC Financial Services Group.

The payback terms required banks to issue a minimum of $1 in new common stock for every $2 in bailout money repaid.

Banks instead used cheaper and faster alternatives, including selling assets or issuing preferred stock, the report found. Banks wanted to quickly exit TARP because it restricted executive bonus programs and created a stigma associated with federal bailout money, according to the report.

When banks repaid the government in December 2009, only Citigroup fully met the 1-for-2 requirement, the report said.

The regulatory agencies that originally negotiated repayment terms were the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Treasury Department's Office of the Comptroller of the Currency (OCC), but may have bowed to bank pressure.

The critical report said the Treasury agreed to speed up repayment, even if it meant the repayment goal was put ahead of making certain banks had recovered sufficiently to exit TARP without problems.

Banks have been shaky lately, with share prices falling due to worries over exposure to European debt and bank issues. They've also been doing an end run around new regulations that have forced more disclosures and caps on some credit card interest rates and other fees.

Banks are moving away from free-checking and socking it to consumers with higher debit card fees and charges, fee-loaded secured credit cards, tighter underwriting rules and other money-making measures.

The report said regulators not only ignored repayment requirements on bailout money, they also used ad hoc and inconsistent methods.

Regulatory shortcomings were one of the major causes of the housing crash and the subsequent greatest recession since the Great Depression, according to the Financial Crisis Inquiry Commission.

The Fed, the OCC said in written statements they are satisfied with the payback and the joint regulatory decision on the speed up. The OCC disagreed with the charge that the bank review process was inconsistent and said deviating from the original plan resulted in positive results.

The banks said repaying the bailout quickly benefited taxpayers and allowed banks to fully get back to the business of banking.





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