PrintMarch 13, 2009
Of Monkeys, Backs, Banks and TARP
CNN's David Ellis is reporting that some banks are already paying back their share of TARP funds with existing capital. What is more, this list of banks is expected to grow. Other banks who have taken TARP funds seek to return the money as fast as possible. And this list does not even include banks eligible for TARP funds, but who refuse to participate. Why would banks do this? Don't they know we are on the brink of catastrophe?
Some institutions have argued that it is too costly to keep government capital on their books at a time when banks in general have been resistant to make new loans as the economy sours and more Americans lose their jobs.
Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.
"We believe participation in TARP has created a competitive disadvantage for TCF and it is in the best interest of our shareholders to redeem these shares," said TCF Chairman and CEO William Cooper in a statement when the company announced its plans last week.
Many bankers are also troubled by the inconsistency in the government's rescue efforts so far. Others worry that regulators or lawmakers could change the accompanying terms of the government's capital purchase program as they see fit in the future.
For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.
"The biggest issue is just the fact that the rules can change," said Alan Avery, a partner in the financial services group at the law firm Arnold & Porter.
Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.
"We believe participation in TARP has created a competitive disadvantage for TCF and it is in the best interest of our shareholders to redeem these shares," said TCF Chairman and CEO William Cooper in a statement when the company announced its plans last week.
Many bankers are also troubled by the inconsistency in the government's rescue efforts so far. Others worry that regulators or lawmakers could change the accompanying terms of the government's capital purchase program as they see fit in the future.
For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.
"The biggest issue is just the fact that the rules can change," said Alan Avery, a partner in the financial services group at the law firm Arnold & Porter.
Summarizing the reasons, we have 1) too costly, 2) competitive disadvantage, 3) inconsistent government policy, and 4) fear of loan quotas (can you say Clinton, ACORN, and sub-prime?).
Ellis concludes by asking what Treasury might do with the returned money, and he very helpfully provides an answer:
Calls to the Treasury Department on the matter were not returned. But if even a fraction of the nearly $200 billion that the government has injected into banks since last fall is used to plug holes in the nation's widening budget deficit for example, that could be helpful.
So, 1) the government drives up a deficit to bailout banks; 2) fearing government intrusion into their otherwise recovering operations, banks pay back bailout funds with existing capital; 3) other banks are anxious to refund their TARP funding, apparently to get the federal monkey off their backs too; and 4) it would be helpful to pay down the TARP-induced deficit with the refunded money.
For these troubled banks, this scenario is somewhat equivalent to no TARP at all. TARP is reduced to an illusion that the leftist-controlled government is doing something constructive. Some (the left) might argue that were it not for the TARP-induced monkey on their back, bank leadership (known to some as, greedy bankers) would not care about competitiveness. This is just more illusion. On behalf of shareholders, these bankers want to refuse and/or exit TARP so that they can be competitive again (i.e., restore shareholder value), like they were before federal loan quotas and mortgage-backed securities. For the doubting Thomas, that historical competitiveness is reality fully documented in decades of independently audited annual bank reports required by the SEC.
