10 Big Banks Repaying $68 Billion In Bailout And TARP Funds

Early this morning the Wall Street Journal reported that American Express, Bank of New York Mellon, Capital One, Goldman Sachs and J.P. Morgan Chase are among 9 big banks who have been approved by the Treasury Department for early loan repayments. (Others are State Street, US Bancorp, Morgan Stanley, BB&T Corporation, and Northern Trust.) It looks like over $50 billion will be coming back in in what the Journal calls "the latest sign of improvement in the banking sector." With a semblance of apparent stability returning to the sector banks have been raising capital from private sources in the hope of "escaping from under the government's thumb," primarily caps on the compensation for crooked, greed-obsessed banksters. Almost 2 dozen smaller banks have begun paying back their loans as well.

The timing of the paybacks will be up to the individual banks and the Treasury, which must determine how to deal with warrants the government received as part of its initial investment. The warrants gave the government the right to purchase common stock at a set price for a period of 10 years. The Treasury is discussing how to value the warrants and could ultimately choose to sell them into the private market.

While the government hadn't intended for firms to pay back their TARP money so quickly, legislation passed by Congress earlier this year required they be allowed to do so. Before getting the green light, banks had to prove they could raise money in the private sector without backing from a Federal Deposit Insurance Corp. program. The Federal Reserve also had to agree that banks could continue to lend without TARP money and retain adequate capital levels.

Banks have been able to raise money in part because of government-performed stress tests that assessed the capital cushions at the nation's 19 largest banks. The tests showed banks' exposure to various assets, such as real estate, and how they would fare if economic conditions worsened. Nine of those banks were judged not to need to bolster their capital, while another 10 were told to improve their capital position.

Many banks have been eager to repay TARP in part to show investors they are healthy enough not to need government assistance. But many are uncomfortable with the restrictions that come with the government's investment, including on pay, dividends and stock buybacks.

This afternoon the Treaury Department announced that 10 big banks have been cleared to start repaying billions of dollars in government loans. "The 10 banks are expected to return about $68.3 billion to the Treasury Department, more than double the administration’s initial estimate of about $25 billion in funds to be returned this year." Obama claims the government turned a profit on the deal, although he added (sternly, I'm sure) that "the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds." Sounds good right? Um... in the anti-accountability society? I don't think so.

And not everything is exactly coming up roses in banksterville either. Government policies and actions-- cheap loans, debt guarantees from the Fed (both of which have become addictive to banksters) and promises that big banks will not be allowed to fail-- have created an environment which have made stock prices and profits look like they're rebounding, which, in turn, has enabled banks to raise $50 billion in private capital.

Outside experts are warning that the government is maneuvering itself the unenviable position of being responsible for absorbing the losses of reckless and larcenous banksters while not sharing in profits. This is the kind of thing you would expect from a Republican administration but should hardly be too much of a surprise to anyone who understands Geithner and Summers.