- The Washington Times - Wednesday, November 25, 2009

Big banks are roaring back.

At crisis’ edge last year, they now are repaying billions of dollars dumped into their vaults to rescue them. Dividend checks are accumulating at the Treasury. Taxpayers won’t recoup the full sum of the government’s unprecedented infusion to the financial sector, but the returns are ahead of schedule.

With large bets on bonds, commodities and exotic financial products, big banks are reporting third-quarter profits.

Of the $250 billion that the government initially set aside to spend in direct assistance to banks, it has spent $205 billion and the Treasury is already taking steps to bring that program to an end. The ledger: Banks have paid back $71 billion of the infusions. They have also paid the Treasury nearly $7 billion in dividends.

If propping up much of the teetering financial markets was the goal of the government’s $700 billion Wall Street rescue, then mission accomplished.

But there were other objectives for the Troubled Asset Relief Program (TARP), too: greater lending to consumers and businesses, mitigating foreclosures and helping banks shed toxic mortgage-backed assets.

On that, it’s unfinished business.

A program announced with fanfare four weeks ago that would funnel money to small banks at low rates to increase small-business lending is still being designed. Treasury officials are looking at plans that could cost taxpayers between $10 billion and $50 billion, but are encountering reluctance from small banks.

“I’m told by banker associations and banks, ‘Hey, this is good capital, we’d like to have it, but we don’t want to be the only bank in town who takes your capital, because the others will advertise against us,”’ Herbert Allison Jr., the assistant Treasury secretary in charge of TARP, said in an interview. “There is a stigma, and it’s frustrating, frankly.”

Meanwhile, TARP is set to expire Dec. 31. But with about $140 billion still uncommitted (even more, about $300 billion, unspent), the Obama administration is considering extending at least a portion of the huge fund until next October.

“We are winding it down and will close it as soon as we can,” Treasury Secretary Timothy F. Geithner told a congressional committee. But he stiffly opposed any congressional effort to force the program to end. The struggle facing Treasury is how to continue TARP as insurance against further instability without having Congress use it as a source of new spending.

Officials are keeping a wary eye on smaller banks, which have been failing at the highest rate in 19 years due largely to losses from commercial real estate loans. The Federal Deposit Insurance Corp. reported Tuesday that the number of banks on its “problem list” rose to 552 from 416 on June 30. Fifty banks failed during the quarter; that’s the largest number since the second quarter of 1990.

“The financial system is stable, but it is not normal and it could be derailed again, and you need to guard against that possibility,” said economist Mark Zandi, head of Moody’s Economy.com and a regular adviser to congressional Democrats.

Extending TARP as insurance for banks wouldn’t be a popular move. Conservatives and liberals object to the direct assistance to big banks and insurance conglomerate American International Group. Republicans have called for the program to end and assigning the unused money to debt reduction. Some liberals want the money for jobs programs.

Overall, the bank infusions alone could end up costing taxpayers about $14 billion, according to estimates by Economy.com. While banks are paying money back, not all of them can be saved. Earlier this month, a San Francisco bank became the first bailed-out institution to fail. More could fall. And two weeks ago small-business lender CIT Group, which received $2.3 billion in rescue funds, filed for bankruptcy protection with little hope of repaying taxpayers.

Add to that the money injected into the auto industry, AIG and a $50 billion mortgage assistance program, and Economy.com estimates taxpayers could be left with a bill totaling $155 billion.

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