The US Banking Crisis Is Not Over

Most attention is now focused on the problems of European banks that foolishly bought risky sovereign debt. But do you remember TARP, the Troubled Asset Relief Program for American banks? Since its inception, 742 banks have gained “relief”. Under TARP, a bank gets funds in return for preferred shares and a dividend that goes from 5% to 9% after four years.

A banker told me that TARP money is expensive and unnecessary – “I can get Home Loan Bank funds for less.” And most banks that still have TARP money got it in late 2008. That means the dividend (really an interest payment) will shortly be 9%. That is really expensive money!

And we think the US banking crisis is behind us? Think again. There are still 382 banks that have made no repayments on TARP money as yet. The top twenty in terms of TARP funds outstanding are given in Table 1.

Table 1. – Banks with Largest Balances That Have Made No TARP Repayments

Source: US Treasury

In addition to these banks, there are 13 that have made partial repayments. These banks are listed in Table 2.

Table 2 – Banks That Partially Repaid TARP (in mil. $)

Source: US Treasury

I repeat the question posed earlier: Is the bank crisis behind us? With more than 50% of the banks that took TARP money still owing the US Treasury nearly $17 billion, the answer is no. I urge all readers to check out the US Treasury web site to make sure your bank does not owe TARP money. While deposits are insured, there is very little reason to have deposits in a bank paying 9% for its money.

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