Breaking Views

Let banks pay back TARP now

It may cost more, but many financial institutions would like to remove the millstone from around their necks.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Dwight Cass, breakingviews.com

(breakingviews.com) -- The Obama administration's conditions on the repayment of bailout funds by banks shouldn't go too far.

Relatively strong firms like Goldman Sachs (GS, Fortune 500) and JPMorgan (JPM, Fortune 500) have been agitating to shuck off what the latter's boss, Jamie Dimon, recently called a "scarlet letter". If they have adequate capital, or can raise it privately, the banks should be allowed to pay the government back. Regulators should still be able to rein them in if need be.

The conditions lawmakers retroactively attached to the U.S. Treasury's Troubled Asset Relief Program have chafed - especially the politically charged limits on executive pay. Bankers, dismayed by these, the potential for more Congressional meddling and the reputational concern Dimon referred to, want to pay the TARP funds back - despite the higher cost of raising money in the open market.

This shouldn't be discouraged. Yes, it will put banks that can't pay TARP back under an uncomfortable spotlight - an understandable worry. But in fact, the results of the government's stress tests should do that anyway if the tests are meaningful and the results are disclosed.

And by proving they can do without TARP, stronger banks may be able to attract private capital on somewhat better terms - exactly the sort of development the government should encourage.

Meanwhile, getting some capital back would help replenish the Treasury's bailout coffers, which will probably be called on again soon to prop up weaker banks and automakers, among others.

Finally, the government shouldn't worry too much that allowing banks to pay back TARP will allow them to wriggle free of regulators' embrace. Yes, it may release them from executive compensation limits.

But aside from their everyday regulation - tighter than before in the case of Goldman and Morgan Stanley (MS, Fortune 500) because of their new bank holding company status - banks have issued massive amounts of government-guaranteed short-term debt, and benefit from a range of new emergency lending facilities.

Those are levers regulators - and Congress, if it chooses - can use to influence their behavior. And it's likely that any new oversight regime will be much more intrusive. Even if they repay TARP capital, banks will be under regulators' thumbs for some time to come. To top of page

Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.21 0.00 0.00%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 6:35pm ET
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.