WASHINGTON, May 6, 2009
U.S. Places Conditions On Bailout Payback
Banks Repaying Bailout Funds To Government Will Also Have To Forgo Another Financial Assistance Program
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Banks looking to retreat from the glare of government scrutiny by paying back federal bailout funds will have to sever ties with another financial assistance program. (AP)
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Financial firms eager to return infusions from the $700 billion Troubled Asset Relief Program will have to demonstrate that they can operate without debt guarantees provided by the Federal Deposit Insurance Corp., a senior government official said Tuesday. The FDIC program allows financial institutions to borrow money at lower costs.
The new requirement will make it harder for some institutions to get out from under government rules attached to the bailouts, another shift in a changing landscape for banks. It also illustrates the government's desire not to have banks abandon the bailout program if they are not financially prepared to do so.
The official spoke on condition of anonymity because the standards have not been made public. The Treasury and the Federal Reserve are expected to issue TARP repayment guidelines on Wednesday, a response to banks that want to get out from under bailout conditions. The change was first reported Tuesday evening by The Wall Street Journal.
By linking the two programs, the government could motivate banks to cut themselves off from the various assistance programs that it put in place to unclog credit and free up lending in the midst of the financial crisis.
The bailout program has been unpopular in Congress and prompted a new round of conditions earlier this year following news reports about lavish spending on perks, retreats and corporate planes.
Initially, the government required banks that wanted to repay early to raise money from the private sector. Then Congress eased that rule but attached greater restrictions on the government funds. Among the rules restricting banks were conditions on employee compensation, bonuses and dividend payouts. Congress also required the Treasury to review previous compensation payments.
The government also required 19 of the country's largest banks to undergo financial "stress tests" designed to gauge whether they have enough capital to withstand a further economic downturn. Officials notified bank executives of the results Tuesday and will make them public Thursday. Reports indicate that Bank of America will need nearly $34 billion in additional capital.
Other banks that need extra capital, reportedly including Citigroup and Wells Fargo, will have six months to raise money from private investors, sell off assets or tap what remains of the $700 billion TARP.
The FDIC debt guarantee, meanwhile, has proven to be popular with some banks as a way to increase liquidity and does not impose the same restrictions as TARP. So far, banks have issued more than $330 billion under the program, which the FDIC launched in October to help financial institutions finance themselves and make loans.
"It throws a hurdle as far as the banks repaying TARP," Scott Talbott, a senior lobbyist for the Financial Services Roundtable, a bank industry group, said of the new condition.
Banks have become increasingly wary of the bailout funds, chafing at the restrictions and worried that acceptance of the money somehow tagged them as troubled institutions. As a result, a handful of banks have returned a small amount of money and bigger institutions have indicated a desire to repay.
Banking industry consultant Bert Ely said requiring banks to first show an ability to operate without the FDIC guarantees does complicate their payback of TARP money. But he said it also demonstrates a change in the Federal Reserve's and the Treasury's approach to TARP.
"A couple of weeks ago it was, 'Oh, we don't know if want to let you repay,"' he said. "There's been a reversal of position here as far as I'm concerned. It will be interesting to see how fast banks move in that direction."
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Add a Comment See all 22 Comments
- In response.... I have only been late on my credit card one other time in over six years..I mean this time my payment arrived one day late...Thats right..It was one day late and the day before was Sunday as well....What the government should of did instead of bailing out the banks is give money to each homeowner to pay off their own mortgage...That way your home is payed and the banks will receive the money anyway....If each homeowner was given 100,000 to pay there own note.. It would of helped this economy more than giving it to the same people who screwed up in the first place...I think this makes more sense than just handing over 700 billion to the same crooks...When will the geniunes in washington stop the wasteful speding...Oh I forgot,,its not really theirs anyway...
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- The FDIC LOAN program (for low-asset banks) that they are talking about is separate from the FDIC INSURANCE program that protects your bank deposits. I see quite a few here have been confused by this.
Posted by DefendLiberty at 10:07 AM : May 6, 2009
So, what happens to these low-asset banks who have loans that go bad and they NEED the FDIC LOAN program?
Isn't that what the program is there for? What happens if it's not there?
Forcing a bank to forego any kind of insurance is inviting disaster.
Just like banking deregulation was in the first place. - Reply to this comment
- Good to see that someone in Government finally has enough sense to make the Banks accountable.
Too bad that did not happen 5 months ago and before another 750 billions dollars disappeared under George W Bush....
His last "TAX PAYER" good deal (i.e. screww job) - Reply to this comment
- I thought FDIC was essential for a bank to even be allowed to operate.
Posted by gregorio57 at 9:48 AM : May 6, 2009
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The FDIC LOAN program (for low-asset banks) that they are talking about is separate from the FDIC INSURANCE program that protects your bank deposits. I see quite a few here have been confused by this. - Reply to this comment
- I don't understand.
I thought FDIC was essential for a bank to even be allowed to operate.
Posted by gregorio57
Banks participate in FDIC because people like having their money guaranteed by the government. Banks pay fees to belong. However, it is not a requirement. Buyer beware. Check with your banks to make sure they participate with FDIC. Otherwise, the safety of your money is not guaranteed. - Reply to this comment
- Excellent. The banks were paying back TARP with FDIC money simply so that they could pay their executives big bonuses. The TARP paybacks had NOTHING to do with the bank's health, just the GREED of the executives who wanted their multi-million dollar paydays. f'em.
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- Rowdy108 said: "the communist in our White House is still trying to force bailout money on the banks so he can nationalize them.... "
Thats funny. Most of us are mad cuz he DIDN'T nationalize them. And speaking of against the law, since when can you go bankrupt, and not be forced into bankruptcy?? The investors should have lost their investments, the bank management should have lost their jobs, and the assets and liabilities placed under new management. Do you have any issue with THAT illegality?
Posted by ubrew12
ubrew12 - credibility2 provides a great answer that most Americans probably support. Americans tend not to have an interest in nationalizing the banking system. Unlike countries like Russia that are just developing a credit system, the American system has allowed millions of people to buy homes and automobiles. We would be in the dark ages without a credit system developed by capitalism. Yes for capitalism and no for socialism. - Reply to this comment
- I don't understand.
I thought FDIC was essential for a bank to even be allowed to operate. - Reply to this comment
- Rowdy108 said: "the communist in our White House is still trying to force bailout money on the banks so he can nationalize them.... "
Thats funny. Most of us are mad cuz he DIDN'T nationalize them. And speaking of against the law, since when can you go bankrupt, and not be forced into bankruptcy?? The investors should have lost their investments, the bank management should have lost their jobs, and the assets and liabilities placed under new management. Do you have any issue with THAT illegality? - Reply to this comment
- HEY THIS IS EVEN BETTER THAN REPEALING GLASS-STEAGAL!!!
NOW BANKS WILL BE DEREGULATED, AND NO MORE FDIC!!!
OH THIS IS SO WICKED SMAHT!!!
THIS HAS BARNEY FRANK'S BUTTPRINTS ALL OVER IT. - Reply to this comment
- Financial firms eager to return infusions from the $700 billion Troubled Asset Relief Program will have to demonstrate that they can operate without debt guarantees provided by the Federal Deposit Insurance Corp., a senior government official said Tuesday. The FDIC program allows financial institutions to borrow money at lower costs.
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OH SMART! SO SMART!!!
THEY HAVE TO DROP OUT OF FDIC!!!
WHAT A FANTABULOUS SUPER DUPER IDEA!!!
CAN THE OBAMA ADMINISTRATION POSSIBLE FIND A STUPIDER THING TO DO!!!! - Reply to this comment
- Sooooooooo, the communist in our White House is still trying to force bailout money on the banks so he can nationalize them....
When do the people stand up and tell this MORON that's against constitutional law?
When are we going to call for his impeachment? - Reply to this comment
- On the matter of paying late on a credit card, if the practice is habitual, credit card companies or mortgage companies should charge a huge fee to try and discourage debtors from being irresponsible. If paying late is a rare occurrence, the debtor should call and get the fee waived. I've done this a few times in the past ten or so years. Translation: I rarely, if ever pay my bills late.
On the matter of the government making early payback conditional, this is just one more attempt at the government getting its talons into the backs of business. You'd think the government would be happy to get the taxpayer money back early and without any strings attached.
We should have never bailed out Wall St. or Main St. Let the irresponsible fall flat on their faces. - Reply to this comment
- Buisness as usual in our lovely country..See what happens when average Joe has to pay back money...Or the famous LATE CHARGES these companies love to add on to your bill...One day late and the try to tack on an extra 39.00..These companies were given taxpayer bailouts but want to screw us right back...They even charge you a fee when you go to take out your unemployment if your not at the correct bank..What a crock...Greedy american buisness tactics........The banks were given bailouts by us and then they take more....There needs to be a war in this country and we need to overthrow this lousy corrupt governement..Time has come for us americans to revolt against these bastards who have been keeping us down and robbing us forso long....Forget Health care in this country....Thats the biggest buisness..Every other country in the civilied western world has universal heathcare except the USA.....Oh no if that happens here the crooks would not be able to operate and the American people would maybe live alittle more stress free..God forbid they make our lives easier...We just have to worry that we dont need an operation or get cancer that might wipe out everything we have ever worked for....Real scumbags in Washington..What do they care,they have their own healthcare provided by the taxpayer dollar....Greedy bastards..In for a penny ,in for a pound...All sucking the *** dry....
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- Banks aren't in trouble they have all the taxpayer money they got from TARP that they won't lend to anyone just accruing interest while it sits in their GREEDY little hands. Charge them as many hidden fees as we can to get just like they do to the public. Constantly change the payback rules and rates to our (taxpayer) benefit. Don't show them an ounce of consideration because they don't show it to us. Remember if it sounds too good it's a ripoff and if you don't believe me just check a few banking industry advertisements.
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- The TARP was to make it official that the banks wer taking over the government so they could use the TALF window as the real backdoor to the bail-outs.
Goldman Sucks purposely lobbyed Paulson to put in the TARP legislation that 'ALL BANKS' whether they played the derivatives market or not, had to take TARP so that it would cover over the malfeasance of the BIG BANKS.
Folks, this is all a sham, and Obama is unfortunately in on it because of his buddy Warren Buffet at Goldman Sucks.
What's happening now is a delibrate bankruptcy of the Federal government so the bankster will have suupreme power over every nation on this earth. Once they have that power then they will enforce the most extreme 'austerity' measures, like 'euthanise grandma' to save money and carbon foot-crap,
Folks, we're dumber then dirt because the bankers have taken over EVERYTHING! - Reply to this comment
- debinok1 said: "Things will get worse. End time prophecy said all this would happen. "
It just wasn't real clear on 'when'. - Reply to this comment
- Why should a bank take TARP funds?
They can make their money the old fashioned way: borrow trillions at zero interest from the Fed, and loan it to 'little people' Americans at a 30% interest rate. - Reply to this comment
- Is this another way for the government to keep control of the banks? Is this a way for the banks to make the patron pay more? I'm not sure what the whole thing will turn out like but I believe that neither party has OUR best intentions in mind.
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- The bailouts, bonuses and greed are leading us to a global currency. Things will get worse. End time prophecy said all this would happen.
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