We don't want your stinkin' money

An angry backlash is brewing at the country's smaller, healthier banks. At least two banks, Minnesota's TCF and Louisiana's Iberiabank, have decided to give back the money they received from TARP. I suspect more banks will follow. They are unhappy about three things.

One is a PR problem. Community banks that avoided the subprime market and took better care of their balance sheets are getting painted with the same nasty brush as the toxic banks. The CEO of Iberiabank explained it this way:

"We believe recent actions, interpretations, and commentary regarding various aspects of the (TARP) program places our company at an unacceptable competitive disadvantage."

The head of TCF, William Cooper, said something similar, and he also points out the second problem. That is, FDIC fees. Cooper says his bank has invested $1 billion in an FDIC fund that guarantees bank deposits. That fund is disappearing quickly.

"I'm kind of bitter. We pay for the excesses of our competitor over and over again."

And because the FDIC's running out of money, those fees are going up. The government is imposing a one-time "emergency" charge on all banks in an effort to raise $27 billion.

The final issue is the increased oversight that comes with taking TARP money -- regulations on executive pay and certain business practices. The Reformed Broker quotes B. Riley analyst Andy Stapp:

"A lot of these small-cap banks remain profitable, and it just doesn't make much sense for the government to try to dictate the way they should operate their business. I think you'll see more banks returning TARP money."

They'll be less profitable thanks to the new FDIC bite, but in giving back their TARP money, these banks can wash their hands of the stigma and government interference that comes with it.

Not to mention, get a pat on the back from the taxpayers.

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While I sympathize with the Mr. Cooper, FDIC fees are in fact "insurance levies" that MUST be applied to all with the hope that no banks will require to use them. As a young driver I never had an accident BUT my insurance premiums were still very high because I WAS a young driver and the data clearly indicated that young drivers as a group had no accidents. WHile I didn't like paying higher premiums and was grateful that I never had an accident.

FDIC fees are no different, so quit crying and start lending! This economy needs doers not winers.

While the FDIC provides insurance, it also provides regulation that ostensibly exists to manage the risks being insured against. So the small banks have a case in saying that they are being required to pay more for other people's errors. To refine the auto insurance analogy into something more apt, it is as if the mayor allowed his 14 year old son to drive, and after he got into an accident, the premiums for everyone under 19 went up because those under 19, as a class, were more risky.

The failure in the case of the FDIC was accepting the decisions of the ratings firms to rate investment-grade derivatives that were not derived from investment-grade instruments.

And just to add this: The current FDIC fee structure is not weighted by bank size. In the Bloomberg article, Camden Fine, president of the Independent Community Bankers of America, says the formula should be changed to shift the cost burden to the largest banks "that caused this train wreck." That seems more than fair to me.

I am hoping that Small Banks will get a repreive and encourage many smaller banks to stay small. Perhaps discourage all the merging that has been going on for the past decade and a half.

On paper, mergers seem like a good thing, but when you get to the size of these mega corporations, it's unhealthy.

Anti trust laws exist for a reason, and even though there is still competition, they collectively initiate business practices and create monopolistic issues.

Let's take the opportunity to reshape the economic landscape into something with a bit more diversity.

Is ONE major issue with the "credit crisis" being overlooked? ONE reason that (some) lenders may have stopped lending is because consumer's and business's TRUE, responsible borrowing capacity has been far overextended? Banks don't want to lend, because they realize that Americans have already borrowed far too much...?

I wonder if bankers are looking at the present economic environment and shaking their heads in despair. Lending is always about taking risks, but sensible lending practices require doing all that can be done to minimize the risks, at least to the point where it can be called "doing business" and not "being a blithering idiot."

At the moment, if I was a banker, I might wonder what possible business I could do that didn't at least look like I'd just taken leave of my senses.

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