Banking Law

President Obama today shook his fist in the faces of the top 50 domestic (including domestic subsidiaries of foreign banks) financial institutions and told them that "we want our money back." He didn't mean the TARP capital investments that those banks (except Citigroup) have already paid back (with dividends plus warrant repurchases that yielded the taxpayers a 14% profit). He meant all the rest of the unpaid balance of the $700 billion given to entities like the effectively nationalized Freddie Mac and Fannie Mae and auto makers GM and Chrysler (whose big labor unions have done so much to make the auto makers uncompetitive with their foreign counterparts while solidly supporting the Democratic Party), none of whom have paid a nickel back (nor will likely ever pay any of it back), and none of whom will be subject to the "financial crisis responsibility fee."

The administration mouthpiece friendly Washington Post was even forced to observe that what the president is actually doing is playing the populist card to use the public's justifiable anger against tone-deaf Wall Street greed heads to divert attention from the inconvenient truth that his administration has accomplished little during its first year in office, a year in which it was promised that the new sheriff in town would shake things up for the better. Instead, this latest cynical political theater reminds some of the closing lyrics of The Who's "Wont Get Fooled Again":

Meet the new boss
Same as the old boss

If Obama is serious about recovering "every single dime" of TARP from every business that received it and that doesn't have embedded within it a rock-solid Democratic Party constituency, he might want to lean on Sheila Bair's FDIC and other federal banking regulators who, according to a recent American Banker article (paid subscription required), are refusing to allow community banks that want to repay all of their TARP investments to do so.

Take my money, please.

That's what some community bankers itching to repay bailout funds are telling the government.

But regulators, with their reputations on the line and anxiety about the future, are forcing some banks to hold on to much of the capital. In recent months, some banks that wanted to fully repay the Troubled Asset Relief Program were allowed to return a fraction.

"We demonstrated we could pay back all of our Tarp and still have a total risk-based capital ratio over 10%," said David Wadlington, the chief financial officer of Magna Bank in Memphis.

"But regulators are operating with an abundance of caution. They told us they were reluctant to give permission that would allow total risk-based capital to be below 12%," he said.

[...]

Industry watchers cited several reasons why they expect to see more partial repayments from community and regional banks in the coming year.

Regulators want to ensure banks have enough capital if the economy takes a second turn downward. And most bankers will acquiesce to the government's demands, figuring a partial repayment at least reduces their dividend payments to the Treasury Department.

[...]

One reason regulators may be more comfortable with smaller banks repaying in pieces is that those banks have a tougher time raising capital, several sources said.

None of those reasons for holding back on TARP repayments are unsupportable. Nevertheless, at the same time the administration is publicly bullying the top 50 banks to pay for other TARP recipients' unpaid shares of the total TARP amount invested by the government because it will leave no stone unturned in its quest for TARP recoveries, it is (under the radar of the main stream media) preventing other TARP recipients from lowering the aggregate outstanding unpaid TARP capital by paying their share back.

TARP truly is a roach motel. Once you're in, you can NEVER get out.