Ten US banks to repay TARP money
It's the latest sign of progress in fending off a global financial crisis: The US Treasury says that 10 big banks are healthy enough to start repaying capital that the government provided amid fears of a systemwide meltdown last fall.
Despite the Treasury's Tuesday announcement regarding these 10 firms, nine other large banks will still have about $130 billion in TARP capital.
But the planned TARP paybacks reflect a significant shift in the financial climate. Fears that large banks will fail or be nationalized have receded. Another sign of the times is that all 19 of these large banks, as of Monday night, have a plan in place to ensure that they have adequate capital on hand in response to a recent regulatory "stress tests."
The two developments are related.
A cushion of capital
The stress tests, which regulatory agencies completed in May, focused on large banks whose failure might send shock waves through the economy. The results set a benchmark capital cushion for each bank, so that reserves are large enough to weather a possible tide of rising loan losses this year and next.
Once banks knew whether regulators required them to raise more capital (the answer was yes for some banks, no for others), they could also think about the next logical step: possible payback of TARP funds. Financial firms in general want to get out of the TARP if they can, in order to shed the "bailout" stigma and the extra regulatory oversight and congressional scrutiny that go with it.
Does this mean the financial crisis is over? This isn't an all-clear signal yet.
"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement accompanying the news.
For one thing, the economy still isn't in recovery mode. The bottom of the recession may be coming into view. But unemployment, an important cause of consumer loan defaults, is still rising.