TARP Payback Benefit is Unclear

Investors immediately cheered when they heard the news. Shares of JP Morgan and Goldman are up 117% and 80% respectively since the bottoming of the market in early March.

Seemingly, this return of government funds benefits the bank executives. TARP-funded banks need to adhere to the compensation rule in paying their top executives. In addition, these banks have put off remodeling offices or buying private jets so that they will not appear irresponsible with the taxpayer money. And according to industry insiders, government regulators also limited the risks of these TARP-funded banks.

But what’s not clear is whether TARP payback is beneficial for investors. Some analysts say that it would be costly to get out of TARP. Indeed, others worry that the banks wanted so much to get rid of government intervention that they are putting this concern ahead of their bottom lines.

A longtime bank consultant and top former Wall Street analyst, Ray Soifer, said “These days, TARP funds are an inexpensive way to fund your operations. However, there is a problem. Banks are saving every nickel and penny and rushing for TARP payback instead of lending, which, as you know, is a way for them to make money.”

So now, the government said that banks (even those that passed the stress test) will not be allowed for TARP payback until they can raise sufficient money on their own.