And So I Go: Yesterday, Today and Tomorrow

Rising number of small banks are becoming TARP ‘deadbeats’

Posted on: September 15, 2010

Rising number of small banks are becoming TARP ‘deadbeats’.Those of you who have been with me for  awhile know that I raised my hackles and  the posts flew out of my keyboard over the TARP program (that was before they called it TARP and just called it what it was and is:  BAILOUTS.)  As it turned out Wall Street didn’t need the money because as soon as the Congress decided after the fact to put some strings and regulations on these funds they started coming back to the Treasury and with interest and penalty payments even.  The big guys wanted the government  out ASAP.  TARP was by any standards if measurement you want to use a complete failure to stimulate the economy.  It was however a complete success at putting our great grandchildren in debt and causing the economy to continue downwards due to this high federal debt.

Then of course we also had the Stimulus Plan, huge Budget and more bailouts and government actually taking over private businesses (auto industry, Freddy Mac and Fannie Mae).

The banks that got government funds were supposed to lend out the money but of course they didn’t because with the economy going sour they didn’t want to be part of those who went out of business.    Now we see they are not even paying their interest payments on what was supposed to be a “loan”.

But not to worry after all this is the federal government and everyone knows the feds only come after the peons like you and me who might owe the government a coupler hundred dollars at most.  You see peons can be frightened by the tough talking federal lackeys.  (Lackeys who are very well paid by the way!)

Rising number of small banks are becoming TARP ‘deadbeats’

A Treasury report shows that more than 120 institutions have  missed their quarterly dividend payments.

A Treasury report shows that more than 120 institutions have missed their quarterly dividend payments. (Mark Lennihan)

By Brady Dennis

Tuesday, September 14, 2010

Big Wall Street firms have the most bruised public reputations, but it’s a collection of smaller banks that continues to plague the Treasury Department’s bank bailout program.

The latest report from the agency shows that more than 120 institutions – nearly all of them small banks – have missed their scheduled quarterly dividend payments, which is more than a sixth of the banks that received federal aid during the financial crisis.

In addition, five banks that received capital injections from the $700 billion Troubled Assets Relief Program have failed altogether, making it highly unlikely that taxpayers will recover the nearly $3 billion poured into those institutions.

The Treasury report showed that at the end of August, a record six banks each missed six dividend payments. Saigon National Bank in Southern California has missed seven.

The rising number of “deadbeat” banks, as they are known, has prompted calls for Treasury officials to take action to protect taxpayers’ investment.

The bailout legislation gives the Treasury the authority to appoint two members to the boards of banks that miss six or more dividend payments, but the agency has refrained from doing so.

In its report, the Treasury stated that in weighing whether to exercise its option to appoint directors, it would “prioritize” institutions in part based on whether the government’s investment in the bank exceeds $25 million.

That list includes AnchorBank of Wisconsin, which received $110 million, and Seacoast National Bank of Florida, which received $50 million.

“We are exploring a number of options on how to properly exercise our contractual rights so to best protect the interests of taxpayers,” Treasury spokesman Mark Paustenbach said.

Administration officials are quick to point out that, overall, the TARP program has fared far better than initial projections and that the estimated cost of the program has continued to dwindle. (The nonpartisan Congressional Budget Office recently lowered the projected final cost to $66 billion.)

They say that while the missed payments from an increasing number of community banks are a legitimate problem, the amount of taxpayer money at stake pales in comparison with the government investments in companies such as General Motors and insurance giant American International Group.

In addition, they note that taxpayers have already recovered three-quarters of the TARP funds invested in banks.

Others expect the problem of missed dividend repayments to continue to grow as small banks continue to struggle with the lagging economy and troubled loan portfolios. Most large and healthy banks long ago repaid their aid and exited the bailout program.


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“The number of institutions missing their dividends will tend to go higher,” said Linus Wilson, a finance professor at the University of Louisiana at Lafayette who has monitored the government’s aid efforts. “You have the really strong institutions leaving the program, and the not-so-strong ones tend to get worse.”

During the crisis, the Treasury pledged to give aid only to banks that were in relatively good shape but that needed help to weather the financial upheaval. Looking back, Wilson said, some of the government’s investments “were really speculative at the time.

He cited CIT Group, which failed despite a $2.3 billion infusion of taxpayer money, and OneUnited, the Massachusetts-based bank that has missed six dividend repayments and has come under scrutiny for seeking help from U.S. Reps. Barney Frank (D-Mass.) and Maxine Waters (D-Calif.).

Wilson said the wave of missed payments also should stoke skepticism about the administration’s plan to make more taxpayer money available to community banks through a small-business bill that the Senate is expected to take up this week. Among other things, the legislation would create a $30 billion fund that smaller banks could tap to extend loans to businesses.

Administration officials have insisted that weak or troubled banks would be excluded from the program and note that, to participate, a bank’s federal regulator must deem it viable.


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