Watchdog Urges More Treasury Help for Small Banks

Thursday, 27 Oct 2011 01:02 PM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
The Treasury Department should do more to help small banks free themselves from the Troubled Asset Relief Program after making great efforts to help Wall Street banks do so, a government watchdog agency said on Thursday.

The Special Inspector General of the Troubled Asset Relief Program, or SIGTARP, said about 400 small and medium-sized banks — often called community banks — still were in the bailout program set up amid the 2007-09 financial crisis.

"Despite the dramatic efforts to expedite the largest banks' exit from TARP, there appears to be no corresponding concrete plan for community banks' exit from TARP," the quarterly report to Congress by SIGTARP said.

TARP was the taxpayer-funded bailout fund used to pump capital into banks and keep them operating during the crisis.

Most big banks have paid back the tens of billions of dollars they received and exited TARP, but "community banks do not have the same access to capital as the larger banks," SIGTARP said. "They are more exposed to distressed commercial real-estate assets and nonperforming loans."

The report said the only exit strategy for smaller banks so far announced by the Treasury was the Small Business Lending Fund under which it invested $4 billion in smaller banks.

More than half of that money went toward swapping 137 TARP banks into the non-TARP government program, SIGTARP said. It recommended the Treasury and banking regulators develop a comprehensive strategy to let as many community banks as possible repay their TARP investment and get ready to deal with banks that cannot.

The Treasury should develop criteria for restructurings, exchanges and sales of its TARP investments to give community banks a clear exit path from TARP before a scheduled rise in the dividend that banks must pay for the money they received takes place.

Banks that got TARP money pay a 5 percent dividend on it to the government, but that will rise to 9 percent after five years and, for many banks, the higher dividend kicks in during the fall of 2013. That will make it even harder for them to raise new capital as a means of exiting TARP.

The Treasury Department said it recognized the financial crisis had been "particularly tough" for many of the smaller banks and wanted to help them.

"We continue to work with community banks to determine the best ways to exit our remaining investments in order to promote financial stability and maximize taxpayer returns," Matt Anderson, a Treasury spokesman, said.

SIGTARP said the Treasury should develop guidelines for sales of its TARP investments, including setting out factors for calculating any discounts on the TARP investment, so community banks know what they are facing and are not left to approach the Treasury on a case-by-case basis to try to exit TARP.

The Treasury Department should do more to help small banks free themselves from the Troubled Asset Relief Program after making great efforts to help Wall Street banks do so, a government watchdog agency said on Thursday.

The Special Inspector General of the Troubled Asset Relief Program, or SIGTARP, said about 400 small and medium-sized banks — often called community banks — still were in the bailout program set up amid the 2007-09 financial crisis.

"Despite the dramatic efforts to expedite the largest banks' exit from TARP, there appears to be no corresponding concrete plan for community banks' exit from TARP," the quarterly report to Congress by SIGTARP said.

TARP was the taxpayer-funded bailout fund used to pump capital into banks and keep them operating during the crisis.

Most big banks have paid back the tens of billions of dollars they received and exited TARP, but "community banks do not have the same access to capital as the larger banks," SIGTARP said. "They are more exposed to distressed commercial real-estate assets and nonperforming loans."

The report said the only exit strategy for smaller banks so far announced by the Treasury was the Small Business Lending Fund under which it invested $4 billion in smaller banks.

More than half of that money went toward swapping 137 TARP banks into the non-TARP government program, SIGTARP said. It recommended the Treasury and banking regulators develop a comprehensive strategy to let as many community banks as possible repay their TARP investment and get ready to deal with banks that cannot.

The Treasury should develop criteria for restructurings, exchanges and sales of its TARP investments to give community banks a clear exit path from TARP before a scheduled rise in the dividend that banks must pay for the money they received takes place.

Banks that got TARP money pay a 5 percent dividend on it to the government, but that will rise to 9 percent after five years and, for many banks, the higher dividend kicks in during the fall of 2013. That will make it even harder for them to raise new capital as a means of exiting TARP.

The Treasury Department said it recognized the financial crisis had been "particularly tough" for many of the smaller banks and wanted to help them.

"We continue to work with community banks to determine the best ways to exit our remaining investments in order to promote financial stability and maximize taxpayer returns," Matt Anderson, a Treasury spokesman, said.

SIGTARP said the Treasury should develop guidelines for sales of its TARP investments, including setting out factors for calculating any discounts on the TARP investment, so community banks know what they are facing and are not left to approach the Treasury on a case-by-case basis to try to exit TARP.

© 2014 Thomson/Reuters. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 

You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved