Remember TARP? You know, the tax-payer-funded bailout program that passed out more than $400 billion to banks and automakers beginning in 2008. How could we forget? Most big banks have repaid the money they received from the Troubled Asset Relief Program (about 80% of funds have been recovered), but the program is not over. About 360 banks and institutions still owe more than $120 billion in TARP funds.
The US Treasury is making a push to get some of the biggest remaining debtors to repay the money. This month Regions Financial announced plans to repay the $3.5 billion it still owes. Zions Bancorporation (another big bank with an outstanding balance) also announced this month that it will repay $1.4 billion. Regions and Zion are the final remaining banks that owe more than $1 billion.
The latest round of repayment plans was a result of those institutions passing a stress test. The test indicated that large US banks could endure another severe economic crisis with existing capital levels. Those results, coupled with the government’s eagerness to shut down TARP, has led to several recent repayment deals. The government is allowing banks like Regions and Zions to repay that extra money and not force them to recapitalize the entire amounts by selling new shares.
That makes Regions and Zions shareholders happy (stock jumped for both companies after the repayments were announced). The two banks also will be freed from TARP restrictions on executive compensation and shareholder dividend payments.
Most of the remaining banks that owe money to TARP are smaller institutions. And the government is working on them too. Next week the US Treasury plans to auction off stakes in six small banks it acquired through TARP. It will be the first time that the Treasury has used a public auction to sell of stocks acquired during the financial crisis.
Other smaller banks also have recently repaid TARP funds. This week Valley Commerce Bancorp in California fully repaid the $8 million it owed TARP. And Chicago-based MB Financial repaid $196 million in order to exit TARP.
Although TARP is shrinking, the three-year-old program is nowhere near completion. TARP is expected to continue to exist for years, likely as late as 2017. TARP will not recover all of the money it is owed as some of the money was designed to be a government subsidy. The Treasury also has written off or realized $12 billion in losses on TARP funds.
Unwinding the government’s investments in companies such as AIG, GM, and Ally also is likely to take many years. Ally is not even publicly traded yet and the government will have to take part in the company’s IPO in order to sell its shares.
Banks and the government want TARP and the economic crisis to be a distant memory. However, the program will likely linger for quite some time. Whittling down the amount that the government is owed is progress, but much like the slowly recovery economy, ending TARP is a process that will likely take a while longer.