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We don’t want your stinkin’ money

Scott Jagow Mar 9, 2009

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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