The planned return of roughly $68 billion of Troubled Asset Relief Program funds has raised several questions, including whether and how the Treasury Department plans to redeploy the money and if banks unable to repay their government capital will suffer in comparison.
The move makes it increasingly unlikely the Treasury will return to Congress to seek additional money. After the 10 banks return their government capital, the Treasury will have roughly $270 billion left in the program, reports American Banker, a Collections & Credit Risk sister publication.
But how the agency plans to spend that money remains a question. President Obama suggested this week that some of it could be used to pay down the national debt, while others say it may help fund an expanded loan modification plan or program to purchase toxic assets. Ultimately, it may just be held in reserve as a buffer in case the economic situation worsens, says Mark Zandi, the chief economist and a co-founder of Moody's economy.com.
But the announcement also raised questions of whether the repayments would spark a backlash against banks that cannot return the funds, including Citigroup Inc. and Bank of America Corp.
Bart Narter, senior vice president in the banking group at Celent, says that while banks have had an easier time raising capital lately, investors may be more attracted to institutions that repay Tarp.
"Every investor knows that" banks are "exceptionally motivated to get rid of the Tarp money," he says. "The fact that" a bank "can't says that its capital structure is such that it still needs Tarp money."
Among the $68 billion in repayments announced this week, the largest by far was that of JPMorgan Chase & Co., which was cleared to repay $25 billion. Other large firms that said they would repay funds were: Northern Trust Corp., BB&T Corp., Morgan Stanley, State Street Corp., U.S. Bancorp, American Express Co., Capital One Financial Corp., Goldman Sachs, and Bank of New York Mellon Corp.