Loan Modification

Incoming! 19 banks to repay TARP funds

By Morgan

The Treasury announced today that 19 banks have been allowed repay a total of $68 billion in TARP funds. The banks, who remain nameless were granted permission to buy back the warrants that the Treasury holds in each company at “fair market value.” These 19 banks are in addition to 22 smaller institutions which have already repaid their TARP dollars to the Treasury.

While some analysts are calling this a sign of stabilization in the banking system one has to wonder if enough has been done to ensure that the money won’t need to go back to these banks when they’re in more dire straits (i.e. need more capital to survive). In fact, the Washington Post today reports that the Congressional Oversight Panel responsible for overseeing the bailout recommends new stress tests due to increasingly grim unemployment numbers.

The original stress tests (the basis of which these banks are being allowed to repay their TARP funds) assume a national unemployment rate of 8.9%. Now at 9.4% and accelerating; the Panel believes that banks should be reassessed under worsening conditions.

Unemployment chart from Paper Money (See more great charts there!):

From HuffPo:

Among the banks that passed government “stress tests” last month and likely were approved to repay the bailout funds are: Goldman Sachs Group Inc., JPMorgan Chase & Co., and American Express Co.

Experts say allowing 10 banks to return $68 billion in bailout money illustrates some stability has returned to the system but caution that the crisis isn’t over. Some worry the repayments could widen the gap between healthy and weak banks.

More than 600 banks nationwide have received nearly $200 billion in TARP money and 22 smaller banks already have repaid it.

“These repayments are an encouraging sign of financial repair, but we still have work to do,” Treasury Secretary Tim Geithner said in a statement.

From the Washington Post:

But the panel, headed by Harvard Law School professor Elizabeth Warren, noted that the stress tests assumed an average unemployment rate of 8.9 percent this year under the worst-case scenario. The unemployment rate for last month, however, climbed to 9.4 percent, meaning the assumptions by regulators might have been too optimistic.

…

While the oversight panel praised the Fed for releasing an unprecedented amount of information about banks, the report criticized the regulators who performed the tests for not releasing enough information about how the evaluations were conducted, saying the lack of transparency raised “serious concerns” and left “unanswered questions.”

Full post as published by Blown Mortgage on June 09, 2009 (boomark / email).