Tuesday, June 9, 2009

Banks Stress Competitiveness in TARP Repayment

Treasury has announced that it will allow 10 institutions to payback $68 billion in funds obtained via TARP’s Capital Purchase Program (CPP). The move comes as the Administration mounts pressure to limit executive compensation. Last week, Kenneth Feinberg, the man who handled compensation for 9/11 victims' families was reported to be taking a position as a compensation czar. The Wall Street Journal reported the new position as "Special Master for Compensation."

In testimony today, Secretary Geithner said that TARP has been successful but is only one piece of the solution. While calling for a “delicate balance between intervention and allowing market participants latitude to operate,” Geithner did call for a new regulatory structure.

So it's not surprising that the Treasury release did not name the banks that are paying back the funds yet Bloomberg had no problem naming them. In fact, an excited release from JP Morgan Chase touts the firm’s “fortress balance sheet." Firms want everyone to know that they are getting out of TARP. Ironically, when the CPP launched Treasury quickly gave funds to lots of institutions, some who may not have needed it, to obscure the unhealthiest institutions. By the end of 2008, 214 institutions had funds and at present 601 disbursements have been made.

These institutions want both potential employees and investors to know that they are steady enough to get rid of the TARP funds but more importantly they want to signal that they can get out before Congress or the Administration imposes new rules and regulations.

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