5 banks repay $353M in bailout funds - Why Pull A Ford?

[Median Democrat]

I read this rather understated piece about a couple of banks pulling a Ford, and turning turning down or repaying bailout money. What gives? Is this further evidence that the Treasury's efforts to rescue banks doesn't work?

http://www.google.com/hostednews/ap/article/ALeqM5iZKNwRyOoCx_vnwxKUC0bfIxE1EAD97AJOQG2

/snip

5 banks repay $353M in bailout funds
By JEANNINE AVERSA – 3 days ago

WASHINGTON (AP) — Five banks have repaid millions of dollars they received from the government's $700 billion financial bailout pot, the Obama administration said Thursday.

The Treasury Department, which oversees the bailout program, said the banks returned a total of $353 million.

The banks are: Iberiabank Corp. of Lafayette, La.; Bank of Marin Bancorp of Novato, Calif.; Old National Bancorp. of Evansville, Ind.; Signature Bank of New York; and Centra Financial Holdings Inc. of Morgantown, W.Va.

They were the first banks to repay the government, wanting to escape the increasingly tough restrictions placed on participants in the rescue program.

In addition to the $353 million, the banks paid the government a total of $5.4 million in dividends, Treasury Department spokesman Andrew Williams said.

The program was enacted in early October after the financial crisis — the worst since the 1930s — intensified. The goal of the program was to inject capital in banks so that they would be in a better position to boost lending, a crucial ingredient to any economic recovery. Nearly $200 billion has been injected into banks thus far.

The five banks have 15 days to buy back warrants from the government. If they don't, the government will sell them to private investors, Williams said.

/snip

[SoCalDem]

1. Many banks were "forced' to take tarp money, in order to cover up the fact that

Citi and a few others were the ones who were bankrupt.. had only a few gotten money, it would have caused a run on their banks, and made it worse.. By making MOST banks take money, they painted it as a systemic problem, and covered up for Citi & WaMu

[Median Democrat]

4. NYT Article - Says That Banks Returning Money Are Complaining About Regulation

I don't want to suggest that the sources you rely on are not accurate, but here is the NYT saying that the banks are complaining about the conditions being attached to the TARP money by Obama.

http://www.nytimes.com/2009/04/01/business/01bank.html

/snip

The four banks were the first to announce that they had returned money from the Troubled Asset Relief Fund, or TARP. The Treasury Department has set aside $250 billion to prop up the banking system, with about half of that money given to the eight biggest banks. About 500 small banks have received $73.7 billion.

But the purpose of the TARP money and the public perception of the fund have changed since then.

What was billed as a program intended to help healthy banks increase lending and swallow up troubled rivals widened to include a number of struggling banks. New restrictions on executive compensation and dividend payouts made such aid less palatable to bank managers.

“We don’t want to be touched by the stigma attached to firms that had taken money,” said Scott A. Shay, the chairman of Signature Bank. He said he also worried that the conditions on the aid could hurt the way he paid bankers and sales representatives.

Iberiabank executives said that tougher rules, including limiting dividends, made taking the aid untenable. “It really changed significantly from how it started,” said John R. Davis, a senior vice president at the bank. “All those changes made it very difficult for a bank like us to participate in the program.”

Originally, banks that accepted TARP money were required to raise private capital before they could repay the loan. But after Congress passed its economic stimulus bill in mid-February, the repayment policy was loosened as strict new compensation rules were put in place.

* * *
The announcements from the four banks indicate that all three major regulators — the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Insurance Deposit Corporation — are open to granting waivers.

Only banks deemed “well-capitalized” are expected to receive waivers. Regulators are still scrutinizing the balance sheets of the biggest banks as part of a comprehensive stress test to determine whether they need more capital. Regulators are unlikely to make such decisions until the test is complete.

/snip

Note, recall that contrary to the media spin, the stimulus package DID limit executive compensation. However, such limits apply prospectively. The limits do not abrogate bonus contracts that were executed and performed prior to the stimulus package.

[babylonsister]

2. Isn't this how it was supposed to work? Now they have the money? nt

[Political Heretic]

3. Answer:

In the beginning, banks that were invited to participate were accepting funds even if they didn't need them, becuase they felt there would be a "stigma" that they were "not well capitalized" and that banks supported by government money would be decreed "well capitalized."

Now, there is a stigma around banks that take bailout money that is just the opposite - the stigma is that they are risky, inept, corrupt, etc. (which is true in many cases) - but banks that took the money and didn't need it are rushing to give it back saying "EFF this."

Then there is also the problem of accountability. Banks can try to throw a bit of a tantrum and reject or return funds when they come with a lot of strings. This works until the Bank is literally going to fail, then they really don't have much of a choice. But its the opinon of our leaders that we have got to get to banks before they reach that absolute failure line - so they are in a tough spot. Because they've chosen this strategy of giving money to banks on one hand and subsidizing hedge funds on the other, there is a limit to how much "tough" regulation they can put on the money. Because Wall Street will just say "fuck you" and not take it, and go ahead and let the economy tank - they'll still eject with their golden parachutes.

[xchrom]

5. babble on! -- if you are trying to escape being accountable in an era of stricter accountability --

then HELL YEAH -- you give the money plus dividends back fast.

get out from under the noses of folk that would other poke where you don't want those noses poking.

and no -- that is NOT strictly speaking how it is supposed to work --

[Lasher]

6. This is about executive compensation.

Can't have the government slowing down the gravy train, ya know.