Four Banks Repay Government Aid

Last week, four regional community banks became the first institutions to pay the government back the bailout money they received through the Troubled Asset Relief Program (TARP), citing their concern over stringent conditions now attached to the federal recovery plan.
""Signature Bank"":http://www.signatureny.com of New York is the largest bank to exit the program, returning $120 million to the Treasury Department last week. ""Old National Bancorp"":https://www.oldnational.com of Indiana settled its $100 million debt with the government, Louisiana's ""Iberiabank"":http://www.iberiabank.com paid back $90 million, and ""Bank of Marin Bancorp"":http://www.bankofmarin.com in Novato, California, has squared up on $28 million. All of the banks paid the Treasury 5 percent interest.
New restrictions on executive compensation and dividend payouts, brought into the spotlight by congressional and public outrage over AIG's employee bonuses, have made some institutions leery of the government's financial support.
Scott A. Shay, the chairman of Signature Bank, told _""The New York Times"":http://www.nytimes.com/2009/04/01/business/01bank.htmlx_r=1&ref=business_, ""We don’t want to be touched by the stigma attached to firms that had taken money."" He said that by repaying the aid, his bank could avoid conditions that would limit the way he compensated bankers and sales representatives and drive away his most talented employees.
Signature's chief executive Joseph J. DePaolo commented to _""The Washington Post"":http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033102187.html_ that the aid had become an undeserved scarlet letter because of public perception that the program was being used to save troubled banks, rather than fortifying healthy firms.
The Treasury Department has invested almost $200 billion of the quarter of a trillion dollars set aside to prop up the financial system, injecting more than 500 banks with capital. About half of that money has gone to the nation's eight largest banks.
John R. Davis, an SVP at Iberiabank, told the _Times_, ""It [TARP] really changed significantly from how it started. All those changes made it very difficult for a bank like us to participate in the program.""
Under the original language of the program, banks that accepted TARP funding were required to raise private capital before they could repay the government loan. But, in mid-February, Congress loosened the repayment policy as strict new compensation rules were put in place, making it possible for banks to solicit permission from their primary regulators to return the TARP money to the Treasury Department early, who in turn could use the funds for additional bailouts.
The American Bankers Association has steadily lobbied lawmakers to allow banks to settle their government debts quickly, arguing that it would send a positive message to depositors and investors that the nation’s banks were healthy. The announcements last week from these first four banks that they have paid back their TARP loans in full signal that all three major regulators — the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC — are open to granting early repayment waivers to institutions.
Executives at several of the larger banks - including Goldman Sachs, JPMorgan Chase, Wells Fargo, Bank of America, and Northern Trust - have indicated that they also intend to repay their bailouts quickly. Other smaller institutions, such as TCF Financial of Minnesota, have already announced that they have submitted repayment applications to the bank regulators.
According to the _Washington Post_ report, Treasury officials are worried about the growing haste among TARP recipients to repay the aid, which they feel may diminish the impact of the program in supporting renewed lending to consumers and businesses.