Tuesday, November 24, 2009

Lessons learned? Federal Reserve asks for some of its billions back

Here we go again! News that the U.S. Federal Reserve had asked some banks to repay money they got from last year's $700 billion financial system bailout would seem to be good news, since it means those institutions have recovered. But what many U.S. banks who are trying to repay the Troubled Asset Relief Program really want is to escape the tighter oversight imposed by the federal government as a condition of receiving taxpayer funds, the Reuters international news service reported Tuesday. Citing an unnamed source, Reuters said nine of the 10 banks that were among the 19 stress-tested in May and found to need additional capital are now clamoring to leave the program, which provided billions in capital to more than 500 banks and a few struggling industrial companies. But the nine, including Bank of America Corp., Citigroup, Wells Fargo & Co. and Fifth Third Bancorp, began to prosper again in no small part due to the restrictions imposed by the program. Requirements for participation included perfectly sensible limits on executive compensation, dividend payouts and share buybacks. If those banks are released from the program, they also get released from those requirements. What is to prevent them from doing the same things that got them into so much trouble? Sure, there are regulators, but there were regulators before and the financial collapse still happened. The 10th bank, GMAC Corp., is not expected to be able to raise capital anytime soon. The 10 banks that passed the June test repaid the government in June and have already left the program, including JPMorgan Chase & Co., and Goldman Sachs Group Inc. Citigroup's situation is different from the other stress-tested banks because the federal government invested billions of dollars in shares of the bank's common stock and trust-preferred securities in an effort to keep it solvent.

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