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Friday
Oct072011

SIGTARP Report - Bank Of America, Wells Fargo, Citigroup Left TARP Early To Avoid Restrictions On Executive Pay

Bank of America was especially persistent, submitting 11 separate exit proposals to the Federal Reserve Board in less than a month.  And now, less than 2 years later, BofA's stock is at $7, Citigroup is $2.70 (adjusted for perception-boosting reverse 1:10 split) and both will need billions more in taxpayer funds to survive.

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Huffington Post

By Alexander Eichler

In the wake of the financial crisis, a number of the nation's largest banks were excused from the government's rescue program before they had returned to a position of complete financial security -- in part because they wanted to avoid restrictions on how much their executives would get paid, according to a new report from the program's government overseer.

Citigroup, Wells Fargo, PNC and Bank of America successfully lobbied to leave the federal bailout program early in 2009, even though the Federal Reserve Board and the Federal Deposit Insurance Corporation had recommended they take additional steps to shore up their assets, according to a new report from the Special Inspector General for the Troubled Relief Asset Program, a government watchdog office.

Regulators, including the Treasury and the Federal Reserve Board, eventually "relaxed" their criteria for letting the banks out of the program, the report says, leaving questions about whether the banks had strengthened their holdings enough to be able to withstand another systemic crisis.

"Ultimately, the federal banking regulators ended up bowing to pressure" to let the banks leave early, said Christy Romero, Acting Special Inspector General for TARP and the author of the report.

Romero added that in the event of another shock, many banks could be left with too little capital to endure, raising the possibility that "it could potentially trigger an avalanche of severe consequences to the broader economy."

SIGTARP's findings do little to change widespread impressions that the government's Wall Street rescue handed out billions of dollars in taxpayer funds without extracting lasting change in return, with many institutions able to continue operating much as they had before the crisis.

The new report shows how several major banks were allowed to exit the program by paying back their government loans even before they had returned to full health. According to SIGTARP, in 2009, these four banks repeatedly tried to leave the bailout program, also known as TARP, ahead of schedule, claiming that the stigma attached to the bailout would damage investor confidence in their stability.

Bank of America was especially persistent, submitting 11 separate exit proposals to the Federal Reserve Board in less than a month.

The banks, particularly Citigroup and Bank of America, also expressed concern that if they stayed in TARP, they would be subject to the program's restrictions on executive compensation.

Romero told The Huffington Post that the matter of executive payment was "a recurring theme" throughout the banks' requests to exit the program.

Once it was clear that these banks wanted to leave TARP sooner rather than later, the Federal Reserve undertook stress tests to determine how much capital the banks would need to have on hand in the event of another emergency, and issued recommendations for how the banks could raise the money.

However, each of the banks ended up negotiating different terms for their exits, and between December 2009 and February 2010, all four banks were allowed to repay their bailout funds and leave TARP, even though doubts remained about whether they'd taken sufficient steps to secure a big enough safety cushion of capital.

In the end, the process by which these banks exited TARP was "ad hoc and inconsistent," the report says.

As a result of this lenience, Romero told The Huffington Post, the financial system is still carrying considerable systemic risk from huge, interconnected banks, well after the meltdown of 2008.

"The institutions that were 'too big to fail' ... are bigger than they were before," said Romero. "It's very critical that regulators remain vigilant to banks' demands to relax capital requirements."

 

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Reader Comments (6)

@DB, get a story up about Boston so I can keep it updated. Local media is covering and here is video of 20 arrests in front of
B of A.... Another big crowd is located elsewhere in the financial district. To top it off the Red Sox fired Manager Terry Francona.



http://www.thebostonchannel.com/news/29354287/detail.html
Sep 30, 2011 at 6:11 PM | Unregistered Commenterjohn
Sep 30, 2011 at 8:44 PM | Unregistered Commenterjohn
I will get something up as soon as I can...I am leaving this comment from my phone...will be back in front of the computer in 30 minutes.
Sep 30, 2011 at 9:00 PM | Registered CommenterDailyBail
As a result of the trillions of dollars injected into these criminal banks through the Fed's Trojan horse of asset purchase programs and quantitative easing, it's been easy for anyone with his eyes open to see that the "they paid back TARP" narrative is an absurd lie worthy of an 8 year-old of average intelligence.

Now, from this piece, we learn that it was a grand cheat as well; that once again Wall Street robbed Peter (meeting pre-ordained capital requirements to forestall a repeat of its epic collapse) to pay Paul (i.e., banker bonuses).

Does Wall Street perform any functions at all any more that don't involve lying, cheating, and stealing? And is this not where the gravamen of the protestors' complaints really lies? Just enforce black letter law and put fantastically wealthy criminals in prison for fraud, whereupon the trillion-dollar looting operation that is preventing any recovery so long as it festers will cease forthwith.

Until the pustulant boil that is Wall Street is lanced wide open by the Rule of Law, and allowed to ooze in the bright light of day, the American serfdom formerly known as a constitutional republic will continue its spiral into a cesspool.
Oct 7, 2011 at 9:36 AM | Unregistered CommenterCheyenne
Does Wall Street perform any functions at all any more that don't involve lying, cheating, and stealing? And is this not where the gravamen of the protestors' complaints really lies? Just enforce black letter law and put fantastically wealthy criminals in prison for fraud, whereupon the trillion-dollar looting operation that is preventing any recovery so long as it festers will cease forthwith.

Until the pustulant boil that is Wall Street is lanced wide open by the Rule of Law, and allowed to ooze in the bright light of day, the American serfdom formerly known as a constitutional republic will continue its spiral into a cesspool.

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Uh huh. Nice prose this morning Cheyenne. That about nails it.
Oct 7, 2011 at 9:51 AM | Registered CommenterDailyBail
The main issue here is the need for those inflated salaries and/or bonuses.

These institutions made BAD DECISIONS. Capitalism dictates that the strong survive, not the stupid.

It's easy to convince someone to invest in something, short-term. These transactions should NOT be rewarded with outrageous bonuses.
Oct 7, 2011 at 3:52 PM | Unregistered CommenterVincent Nunes

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