Tags: Treasury | Banks | Bailout | Funds

Treasury Department: Small Banks Still Can't Pay Back Bailout Funds

By Michael Kling   |   Monday, 07 May 2012 12:29 PM

Many small banks cannot pay back their TARP funds, and it might cost the taxpayers some real money.

The Treasury Department mentioned in a blog that 343 banks probably won't be able to pay back the government any time soon.

Not being household names, smaller banks have a hard time raising capital, wrote Timothy Massad, Treasury Department's assistant secretary for financial stability. "Many community banks have been particularly hard hit by troubled commercial and residential real estate loans."

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

The government expects that "a number of additional banks" will be able to repurchase more of their stocks over the next 12 to 18 months, wrote Massad.

Some banks could restructure their investments, typically in connection with a merger or plan to raise new capital, and give the government cash or securities.

The government could sell some of its bank stocks through public auctions, a practice it has used successfully, Massad wrote.

The government may lose money in the sales or restructurings. Still, overall TARP will generate a positive gain for taxpayers, he said, saying it has locked in a $19 billion gain.

Even though the Treasury Department is still laboring to extricate itself from the banking industry, Massad praised TARP, saying it helped prevent a second Great Depression. It invested $245 billion and has gotten back $264 billion, including repayments and other income.

The government still has about $12 billion invested in the 343 small banks, according to The Wall Street Journal.

"It is a widely held misconception that TARP will make a profit," stated Christy Romero, TARP's special inspector general, in a report on the program.

"The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost)."

The government invested $204.9 billion of TARP money in 707 banks in 2008.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown


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2012-29-07
 

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