Sun Biz: Banks weigh bailout funding
American Bankers Association board member and First National Bank of the Rockies President Peter Waller was in on the conference call when U.S. Treasury Secretary Henry Paulson made his case for the bailout to more than 100 bankers nationwide during the week before Congress approved it.
“Essentially, Paulson was presenting his case for the necessity of these TARP (Troubled Asset Relief Program) funds to be released,” Waller said. “I felt sorry for him in a lot of ways, because at the time there was such an intense possibility for a panic, and the problem was global.”
“There was a concern among government officials that, if not handled appropriately, this would get really really bad. We didn’t see a financial collapse happen, like in the ’30s. They were successful, from that standpoint.”
On Tuesday, Waller’s colleague and ABA president, Edward Yingling, is scheduled to testify before Congress and ask them to segregate the TARP funds for bailing out troubled institutions from the Capital Purchase Program for healthy banks. Both fund programs are under the bailout umbrella.
The ABA, one of the most powerful bank lobbying groups in the country, is laying out recommendations for the use of the TARP funds, of which $125 billion already has been used for the nine largest banks, and $125 billion is available for the other commercial banks to apply for.
“Thousands of banks across the country did not make toxic subprime loans, are strongly capitalized and are ready to lend,” Yingling said in an advanced copy of his testimony. “But they cannot do so if misguided policies increase their regulatory costs and provide disincentives to lend.
“Banks already face significantly higher costs from increases in deposit-insurance premiums.
And banks are already receiving contradictory government signals about lending, being told to use CPP (Capital Purchase Program) capital to make new loans, and in some cases being told by bank examiners not to increase lending, because the risk is too great.”
While most bankers agree the bailout was a good idea and things might be far worse if it did not happen, being among the banks isn’t necessarily a feather in the cap.
It will come with a price.
The bank pays back the federal government 5 percent for each of the first five years, and if the bank keeps the money beyond that, it goes to 9 percent, in addition to a warrant equal to 5 percent of however much capital the institution took.
The government stands to make $40 billion to $45 billion on the $250 billion investment, bankers are saying.
The initial purpose of some of the bailout’s intent to help weak banks has changed, ABA representatives said.
The ABA wants the Capital Purchase Program for banks segregated from other TARP programs because of the confusion of purpose.
“The announcement of the (capital purchase) program really harmed the perception of our banking industry,” Yingling wrote for his testimony to Congress. “As the program was extended beyond the initial nine banks to other banks, it evolved that the program was to focus on healthy banks and its purpose was to promote the availability of credit.”
Banks that are healthy are applying for the bailout money with the premise that they will focus on building capital to help promote lending, bring interest rates down by buying up bad debts on the market and help fund weaker institutions, Waller said. That said, his is one of few local institutions that have applied for the money.
Moody’s Investor’s Service downgraded the debt held by both Bank of America Corp. and Wells Fargo & Co. on Thursday. The institutions acquired Merrill Lynch & Co. and Wachovia Corp., respectively.
“The commercial banks aren’t the ones that caused the problem,” said Bob Hoffman, president of Palisades National Bank. “The programs that have been put out there, I don’t know if they’re well-conceived or ill-conceived. They are a stopgap measure that gives the economy the chance to recover and go from there.”
Find the complete transcript of American Bankers Association President Edward Yingling online at http://www.gjsentinel.com.