Banks struggle to get away from “TARP-baby”

Banks who want to pay back their TARP loans won’t be allowed to do so unless it’s in the “national interest,” reports the Financial Times. Solvent banks want to repay the TARP funds pressed on them during the Bush Administration to avoid looming regulations that will restrict their employee compensation. The usual “senior administration official” says that they ought “in principle” to be allowed to repay, but that will depend, said the SAO, on the “wider economic interest.”

Meanwhile, the Obama Administration has come up with a way to put more money into U.S. banks without going back to Congress for more. The solution: turn existing loans into common stock, thus bolstering the banks’ capital and giving the government big stakes in the banks.  For some of these banks, the government would become the largest shareholder, raising interesting fiduciary duty issues if it decided to exert its influence.

[Frank Snyder]