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Small banks struggling to pay TARP funds back to feds

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David Brancaccio: While big banks are paying back with interest the federal government’s massive bailout we call TARP, there’s worry now about small banks that took the money during the 2008-2009 financial crisis. In a report to congress, TARP’s inspector general says while the program will likely end up making a profit for taxpayers, there’s ongoing worry that many small banks are having trouble paying back the feds.

Marketplace’s Nancy Marshall-Genzer reports.

Nancy Marshall-Genzer: American taxpayers want the TARP money paid back. They have been reimbursed by some big banks, like Bank of America. It’s been fairly simple for Wall Street’s giants to raise money — they can sell stock, and they’re attractive to investors, unlike the little guys.

Jim Millstein: And these banks are so small and the amount they need to raise is so tiny that it’s very hard to get investors to really pay attention to these guys.

That’s Jim Millstein, a former Treasury Department official in the early days of the TARP program. He says small banks don’t have a lot of options. It would be too expensive for them to go public and sell stock. And they’re too tiny to be attractive targets for a merger with a bigger, richer bank.

Millstein: They’re going to have to do it the old fashioned way. They’re going to have to earn the money to repay the government.

Millstein says that could take up to seven years.

But he says that won’t put a strain on the financial sector — because only $15 billion of the more than $200 billion the government spent on TARP went to small banks.

In Washington, I’m Nancy Marshall-Genzer for Marketplace.

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