Tarp Repayments a Farce - Banks Pay Back TARP Funds by Borrowing from Treasury

Image via WikipediaMost of the big banks have repaid the government funds they received under the Capital Purchase Program (CPP), the pillar of TARP under which Treasury bought preferred shares in the nation's banks. Enough so that, combined with dividends and sales of warrants, Treasury has declared that taxpayers have earned a profit on the CPP. Thus far, $245 billion has gone out, and $255 billion in repayments, interest and warrants has come back, yielding a profit to taxpayers of $10 billion. And there's several billion more where that came from.

Many of the small banks that took relatively small chunks of capital have been slower to exit. Last week, however, there was a mini stampede. The transactions are reported here. Eight banks paid back their funds on July 14. They were:

Eagle Bancorp of Bethesda, MD: $23.235 million
First California Financial, Westlake Village, CA: $25 million
Cache Valley Bank, Logan, UT: $4.77 million, plus $263,000 to buy back preferred shares granted to Treasury in lieu of warrants
Security Business Bancorp, San Diego, CA: $5.8 million, plus $290,000 to buy back preferred shares granted to Treasury in lieu of warrants
BOH Holdings of Houston, Houston, TX: $10 million, plus $500,000 to buy back preferred shares granted to Treasury in lieu of warrants
BancIndependent, Sheffield, AL: $21.1 million, plus $1.055 million to buy back preferred shares granted to Treasury in lieu of warrants
York Traditions Bank, York, PA: $4.871 million, plus $244,000 to buy back preferred shares granted to Treasury in lieu of warrants
Centric Financial, Harrisburg, PA: $6.056 million, plus $182,000 to buy back preferred shares granted to Treasury in lieu of warrants

That adds up to a total of $103.3 million.

But sometimes there's less than meets the eye. Generally, banks that repaid CPP funds did so with cash raised from earnings, or by raising new outside capital. In finance and banking you always have to read the fine print. And if you go back to the report, you'll notice that the fine print accompanying the entries for each of the above exits makes reference either to Footnote 49 or Footnote 50. Footnote 49 reads: "Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 using proceeds received in connection with the institution's participation in the Small Business Lending Fund." Footnote 50 reads: "Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009 — part of the repayment amount obtained from proceeds received in connection with the institution's participation in the Small Business Lending Fund."

All of which is to say that these banks repaid cash owed to a program run by the Treasury Department by. . . borrowing from another program run by the Treasury Department. More...