Fallout: The Financial Crisis

Banks return aid to cut federal strings

Jeremy Hobson Mar 11, 2009
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Fallout: The Financial Crisis

Banks return aid to cut federal strings

Jeremy Hobson Mar 11, 2009
HTML EMBED:
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TEXT OF STORY

Kai Ryssdal: The guy in charge of the government’s $700 billion bank bailout had a warning for Congress today: Don’t force banks to make loans that they — the banks — think are too risky. Neel Kashkari’s a holdover form the Bush administration. Former Treasury Secretary Henry Paulson hired him to run the TARP back in October.

Today, though, he was on the receiving end of House members’ telling him they’re not happy with how banks are spending their money. When it was his turn he channeled the banking community back to them about all the strings attached to TARP money, and the anger that has convinced some banks to just want to give the money back. Marketplace’s Jeremy Hobson reports from New York.


JEREMY HOBSON: So far, 489 of the nation’s 8,000 banks have taken money from the Treasury. But Neel Kashkari says members of Congress need to back off telling banks how they should be using the cash.

NEEL KASHKARI: However well intended, government officials are not positioned to make better commercial decisions than lenders in our communities.

Even if those lenders spent money on executive bonuses or company golf tournaments? Well, remember, not all the banks who got TARP money wanted it. They were asked to take it so no one would know which banks really needed it. And now, says analyst Andy Stapp at B. Riley . . .

ANDY STAPP: They’re all getting painted with the same brush, and it’s just not the case.

The banks lining up to give the money back range from small players like Iberia Bank of Louisiana to big dogs like Goldman Sachs.

Karen Petrou is managing director of Federal Financial Analytics in Washington.

KAREN PETROU: The stigma attached to TARP money grew ever more costly, leading the banks who felt forced to take it in the first place to say, “I want to give it back and I want to give it back now.”

Well, maybe not now. Of the handful of banks who want to return the TARP funds, not all have a check ready.

PETROU: Some want to give it back all at once right away. Others do want to phase it out, to give them that capital buffer, to support new lending if loan demand spikes before their ability to recapitalize improves.

In other words, would 12 easy payments of $20 million do? But we’ll take our bank back now, if that’s OK.

In New York, I’m Jeremy Hobson for Marketplace.

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