Small California Banks Still Mired in TARP Debt after Big Banks Made out Like Bandits

Tuesday, July 10, 2012


The big banks bailed out after the 2008 crash they helped precipitate have mostly paid the government back, but small banks have struggled, especially in California, and Washington is threatening to cut them loose.

Twenty-eight banks in California still owe money loaned them through the Troubled Asset Relief Program (TARP), more than in any other state. Some of the banks have chosen to temporarily hang on to the money and milk it is an asset, but many are still in financial trouble and can’t pay it back.

“There's no capital out there for little banks, no capital for inner-city banks and no capital for banks with a lot of troubled assets,” Wayne Kent-Bradshaw, chief executive of Broadway Financial Los Angeles, told the Los Angeles Times. “We're negotiating with everyone, including Treasury, to get this worked out,” he said.

TARP dispersed $431 billion of the $700 billion authorized by Congress in 2008, with $253 billion of that going to financial institutions. CitiGroup and BofA got $40 billion of that and around 800 institutions split the rest. ($80 billion was used to bail out the auto industry; $68 billion was earmarked for the American International Group (AIG); $22 billion went to Investment Partnerships; and mortgage programs got $16 billion.)

Treasury Department officials have said the government has made a small profit on the TARP money invested in banks. But 351 of the 707 banks that received TARP funding hadn’t repaid it as of March 31, leaving taxpayers responsible for their $15.7 billion bailout. Ninety-four percent of those banks received less than $100 million each and 164 had missed one or more payments because regulators restricted their operations.

Some banks have repaid their loans by borrowing from other federal programs, like the Small Business Fund and the Community Development Capital Initiative.

The government has indicated it wants to clean up its ledger within 18 months and is pressuring small banks to balance their books by raising capital privately from new investors, a move that could wipe out existing shareholders who are often deeply enmeshed in the community.

If the Treasury Department unloads its stock in small banks, bidders are likely to include hedge funds and other dealers in troubled assets.

–Ken Broder


To Learn More:

Many Small Banks Still Struggle to Repay TARP (by E. Scott Reckard, Los Angeles Times)

TARP Funds: Southern California Banks that Still Owe (Los Angeles Times)

U.S. Watchdog Doubts TARP will Turn a Profit for Taxpayers (by Jim Puzzanghera, Los Angeles Times)

Report on the Troubled Asset Relief Program—March 2012 (Congressional Budget Office)

Tarp Infographic (Congressional Budget Office)

Banks Paid Off Government Loans by Taking More Government Loans (by David Wallechinsky, AllGov)

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