Banking Law

While we've previously focused on all the banks that are turning up their noses at the sweet smell of TARP II, we almost missed the fact that there's at least one small bank that scooted back to the trough for another generous helping of TARP Lite.

WashingtonFirst Bankshares Inc. has sold a second round of preferred stock to the Treasury through the Capital Purchase Program, part of the Troubled Asset Relief Program.

On Oct. 30, Reston-based WashingtonFirst got a $6.84 million infusion from TARP, nine months after it got $6.63 million through the program.

MMMMMM, MMMMM! I'll bet that Son of TARP goes great with fava beans and a fine Chianti.

The bank says that it will be using that capital to make loans to debt-deprived borrowers (as required by the terms of TARP II) .

Regulators offered the bank the money and it chose to take it, said Shaza Andersen, CEO. ?We have a huge amount of requests for loans right now.?

She said the bank will use the funds primarily to make loans, though it also is in expansion mode. It is hiring for seven new positions and is exploring options for new branches and acquisitions in Maryland and Northern Virginia.

Wait a minute...It's "also in expansion mode." I sure hope none of that fine preferred stock bought by Uncle Sam is used to gobble up fellow banks. That wasn't the announced purpose of either TARP Senior or Junior. The next thing you know, one of these banks might actually use the additional capital to cushion its loan write offs and build its loss reserves. When will the perfidy cease?

As to other banks who gave TARP a cold shoulder, Ms. Anderson thinks their concerns are unfounded.

Many banks didn?t take TARP money because they were unhappy with the frequently changing restrictions and the added scrutiny that came with it ? particularly the limits on executive compensation.

Andersen isn?t concerned about the restrictions, and says that WashingtonFirst executives don?t make enough to be affected by the compensation caps.

Those executives may not make enough to meet the caps today, but since there were no compensation restrictions in effect at the time the first round of TARP capital was issued, how can you be assured that Congress won't lower the caps next week, next month, or next year? How can you be assured that Congress won't impose some other restrictions on TARP takers that make it onerous to have received "cheap" TARP capital? Well, of course, you can't be assured. You're betting on a hope and a prayer, otherwise known as the "good faith" of legislators and regulators.

One thing is certain, however: Ms. Anderson is not concerned about surveys like those we discussed last week, that show TARP-takers take it on the PR chin in the eyes of their customers. If Ms. Anderson is correct, and "there are a lot of small businesses" who need the loans that WashingtonFirst will provide "right now," then perhaps her bank will eventually end up a public relations "net winner."