Banks Set To Make Big TARP Repayments Next Week

The Washington Post is reporting that as much as $50 billion of TARP money may be repaid next week. 

The Obama administration is set to announce next week that a larger-than-expected number of big financial firms can repay their bailout funds, a sign of the government’s belief that the banking system is stabilizing, people familiar with the matter said.

The size of the repayments may double the initial estimate of $25 billion by the Treasury Department, the sources said. That would mean that many, perhaps nearly all, of the nine firms that regulators found to have sufficient reserves in a recent “stress test” would be allowed to return federal aid.

Remember that repayment of TARP money is not just a function of having the funds on hand to do so, it’s conditioned upon the government’s approval. Theoretically, the Treasury and relevant regulators determine whether the bank repaying TARP funds will be sufficiently well capitalized after repayment. Until recently, it appeared that the administration was reluctant to let banks rush to repay their TARP advances. Now they seem much more amenable, why?

The economy hasn’t improved that much and there still is the rather large issue of commercial real estate exposure to be dealt with. The relative ease with which banks have been able to raise new capital may have given the regulators a sense of comfort but all it would take is an event out of left field to scare away that money and there are a lot of things still swirling around in left field.

My guess is that they are feeling better about the banking sector but that they also want to replenish the TARP war chest. We can all speculate about why they would need the money but there are a couple of obvious possibilities. They may need or anticipate needing more money for the auto company bailouts or they may see a looming train wreck among the smaller banks.

I worry about looking for all of these ulterior motives. I’m developing a paranoid personality. Maybe things really are fine.

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