Treasury Secretary Timothy Geithner said US banks weren’t hurting their ability to lend as they repaid the loans of the Troubled Asset Relief Programme and backed away from government assistance.
“By replacing Treasury investments with private capital, banks have stronger capital positions, and will be in a better position to expand lending as the economy expands,” Geithner said yesterday in Washington.
His comments come as the biggest US banks are stepping up their efforts to escape TARP and its restrictions on executive compensation. Bank of America Corp, Wells Fargo & Co and Citigroup Inc all took steps this month to sever ties with the bank rescue effort, raising questions about whether regulators should slow the escape process.
Geithner said the Obama administration would like to see banks relying on private investors as soon as possible. While he didn’t say banks should make TARP repayment a priority, he said the Treasury welcomed their efforts to raise funds to leave the programme.
“Repayments will not come at the expense of lending capacity, they will improve it,” Geithner said. “We ran a strategy from the beginning designed to recapitalise the banking system with private capital.”
Banks have obligation
After blasting the Wall Street “fat-cat bankers” on December 14, President Barack Obama said banks had an obligation to help the recovery. That’s not translating into more lending by the country’s biggest financial firms, according to Treasury surveys of the 22 largest companies that received capital from TARP.
“I don’t see how exhortation works with bankers,” said James Galbraith, an economics professor at the University of Texas and former executive director of the Joint Economic Committee. “Lending to the private sector requires that the private sector want to borrow and have the collateral — not true at present.”
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Meanwhile, Wells Fargo & Co and Citigroup Inc launched plans this past week to exit TARP and raise capital to repay the government. Bank of America paid back its $45 billion in TARP funds and Wells Fargo is in the process of returning all $25 billion it received.
Complicated separation
Citigroup faces a more complicated separation. Its public offering hit a snag when the bank was forced to price it lower than expected, prompting the Treasury to delay sales of government-owned common stock. The company raised $17 billion in an offering that was priced 10 cents a share lower than what the government paid in September.
The Treasury’s investments in Citigroup include $25 billion in preferred shares that were converted to common stock, along with a $20-billion preferred equity stake and further preferred shares granted in connection with an asset-guarantee agreement. The Treasury has said it still intended to sell its common shares over the next six to 12 months, after a 90-day waiting period, and the department has valued its common stock holdings at $26.5 billion based on recent market prices.