As an indication of waning financial crisis, the US government has approved a list of 10 of the largest banks to repay $68 billion of the bail-out money given to themunder the Troubled Asset Relief Programme (TARP).
"Following consultation with the primary banking supervisor of each institution, Treasury has notified the institutions that they are now eligible to complete the repayment process," the US Treasury said in a statement yesterday.'' "If these firms choose to do so, Treasury will receive $68 billion in repayment proceeds."
President Barack Obama said, ''This is not a sign that our troubles are over. Far from it.
Timothy Geithner, treasury secretary said, "These repayments are an encouraging sign of financial repair, but we still have work to do.''
The banks are keen to repay the money as it would ease the government restrictions on lending practices as well as pay caps.
So far, the Treasury was unwilling to accept any large paybacks from the banks due to perceived risks. The administration had spent about $700 billion since last October to buy toxic assets from troubled banking institutions following the financial turmoil.
Only a dozen small scale lenders have been allowed to redeem the government's preferred shares, aggregating $1.9 billion.
Although the treasury did not list out the lenders, most of the banks confirmed the news separately.
The banks allowed to repay the bail-out money include; JPMorgan Chase & Co., Goldman Sachs and Morgan Stanley aggregating $45 billion. (See: Table below)
Others which have received the permission to repay include; US Bancorp, Capital One, American Express, BB&T, Bank of New York Mellon, State Street and Northern Trust.
Last month, the US Treasury had conducted ''stress tests'' on 19 large banks to assess whether they had adequate capital to shore up the crisis and found that several banks are healthier than others and are willing to repay the bail-out money.
The regulator had given time up to 8 June to the troubled banks to get a capital raising plan approved and as the deadline ended, the Treasury was expected to come out with the list. (See: US government to name banks that can repay TARP money)
Till yesterday, it was believed that 8 of the 19 banks which had undergone the ''stress test'' and were told in May that they need not raise any capital, would be allowed to repay the bail-out money.
In addition, Morgan Stanley, which was asked to raise $1.8 billion based on the basis of the tests, and Northern Trust, which was not part of the 19 stress-tested banks, have been allowed to pay back the money.
It is believed that the repayments could nourish the TARP funds for further use in case of any financial instability, though some analysts feel that the repayment could affect banks' lending programmes and in turn, the economic recovery.
It is expected that the 10 banks will be freed from legal limits on bonuses to their top executives.
The absence of biggest names - Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. which received an aggregate $115 billion under the TARP, is conspicuous in the list.
The Treasury further stated that the firms buying back the government's preferred shares also have the right to repurchase warrants the Treasury holds at ''fair market value''.
Since the ''stress tests'' US firms mooted plans to raise $100 billion as the tests showed 10 banks would require $74.6 billion to tide over the recession.
Shares of financial institutions witnessed a recovery during the past three months, signaling an economic recovery. The Standard & Poors 500 Financial Index soared almost 50 per cent during the period. List of banks said to be repaying the bailout money
|1 ||JPMorgan Chase ||$25 billion |
|2 ||Goldman Sachs ||$10 billion |
|3 ||Morgan Stanley ||$10 billion |
|4 ||US Bancorp ||$6.6 billion |
|5 ||Capital One ||$3.5 billion|
|6 ||American Express ||$3.4 billion |
|7 ||BB&T ||$3.1 billion |
|8 ||Bank of New York Mellon ||$3.0 billion |
|9 ||State Street ||$2.0 billion |
|10 ||Northern Trust ||$1.6 billion|
| ||TOTAL ||$68.2 billion |