My naive understanding was some banks, though didnt initially ask for tarp were coaxed into taking it by the gov and from a competitive perspective after every other bank started to take it for cheap capital…
US Bank Corp comes to my mind, from what I read. Don’t know if this is just another way of a bank CEO to backpeddle.
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Your understanding is correct. I forgot the number – it was 10 or 12 or something – but the largest banks were basically forced to take the TARP capital. The “reasoning” was that in forcing these largest of banks to ALL take the capital, customers wouldn’t be tempted to jump ship to the banks that had received the capital (viewing them as safer), thus alleviating a large-scale run on certain banks. Now, in hindsight, after the TARP funds were put into these banks, the FDIC expanded the guarantee on deposits, thus alleviating this concern. But, that’s the kind of thing that happens when you’re operating from the seat of your pants. Yeah, I know a couple of banks, including US Bancorp, want to return the capital. A few of them “appear” – on the surface at least – to be healthy enough to operate without it. But, there are two problems with this: (1) NOW, it will appear that the banks that RETURN the capital are the healthiest, which places a stigma on those that don’t return it, and (2) the bank REGULATORS want ALL of the banks to keep as much capital as possible – regardless of its origins – so they don’t want it returned. So, as usual, the law of unintended consequences runs amok. Again.
