Stress-tested US banks told to submit Tarp plans

Font Size

Print

Feedback

Email

Discuss

• Discount UK Shopping

Related Articles

Re slips to 3-wk low as $ climbsBoA to pay bonuses close to 2007 levelsLehman Europe to repay investors $11 billion‘Dubai crisis not to hurt India’

: The Federal Reserve asked nine of the US banks that were part of this year’s stress tests to submit plans for repaying the government’s capital injections, a person familiar with the situation said.

The central bank this month asked Bank of America Corp and eight other banks to give plans including a timetable, said the person, speaking on condition of anonymity. The firms may have the option to repay Troubled Asset Relief Programme (Tarp) funds soon if they’ve been able to raise common equity and would continue to exceed capital buffers set in the stress tests, the person said.

“It would send a terrific message to the market if there was a plan and a timetable for at least the top banks in Tarp to pay the money back,” said Joel Conn, president of Lakeshore Capital Inc. in Birmingham, Alabama, which owns stock in PNC Financial Services Group Inc. “It would signify they are good enough to stand on their own.”

The Fed’s request may turn up the pressure for banks accustomed to more flexibility on the timing and process of Tarp repayment. Together the nine banks have received about $142 billion in bailout funds, out of the $700 billion Congress authorised in 2008 for the financial rescue.

The banks in the stress test that have yet to repay Tarp are Bank of America, PNC, Citigroup Inc, Fifth Third Bancorp, GMAC Inc, KeyCorp, Regions Financial Corp, SunTrust Banks Inc. and Wells Fargo & Co. The Fed released results in May from stress tests that showed how the 19 largest US lenders would fare in a slower recovery with higher-than-forecast unemployment. Ten companies including Bank of America, Wells Fargo and Citigroup needed to raise additional capital.

Banks had been prohibited from repaying Tarp money quickly unless they replaced it with private capital. That changed with February’s $787 billion stimulus law. Since then, Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co among others have returned Tarp funds by proving they were well capitalised without the government money.