TARP Repayment: Good News, But Banks Still Have Government Money

Today the Treasury announced that 10 large banks would be allowed to repay funds they received under the T.A.R.P. program. This is good news for the American taxpayer. However, it hardly signals some sort of "all clear" for these institutions. Banks that repay T.A.R.P. money are not necessarily operating without massive amounts of government financial assistance. Remember that the T.A.R.P. represents only a fraction of total government support to the financial sector. The Federal Reserve, through a variety of other bailout programs, has lent billions of dollars to Wall Street. Perhaps this has received less attention because reporting on it is so difficult: the Fed refuses to disclose who it has loaned to and on what terms. Meanwhile, the F.D.I.C (and ultimately the taxpayer) continues to guarantee billions of dollars of debt issued by some of the very same banks that have repaid T.A.R.P. funds.

If every single bank were to repay every dollar ever lent through T.A.R.P., Wall St. would still have lots of government money. And the government would still be on the hook for massive amounts of bank liabilities if some of these institutions ever become insolvent in the future. It remains unclear when and how the Fed and the F.D.I.C. will untangle themselves from these arrangements.