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Take back the money
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04/22/09 02:40 PM ET
If banks are willing and able to return money borrowed under the $700 billion financial rescue program, it’s odd to argue that the government should stop them.
Obliging banks to participate in the program and to accept congressional restrictions on executive compensation and hiring tastes unpleasantly of excessive state control.
The strings were attached after the fact. Rules on executive pay were added when Congress approved the stimulus package and not when banks entered a notionally voluntary program under intense pressure from the Bush administration.
Whether banks should have been compelled to enter the program is a matter for the history books. But no healthy company should be compelled to stay if it no longer needs the help.
It’s not that there aren’t risks in allowing some banks to return billions in government money. In fact, there are some obvious ones.
Confidence in banks that do not repay their Troubled Asset Relief Program (TARP) funds would probably sag further, and failing entities could be further weakened. Banks out of the program would be free to pay their top employees whatever they liked, which would accelerate a brain drain at other institutions.
Those still in the TARP could adjust their lending decisions in unwelcome ways in order to leave the program. Strong banks would also have less money on their balance sheets, which could undermine their credit offering.
That’s why some in the government would prefer that JPMorgan Chase and Goldman Sachs keep the money for the time being. Those are the two banks publicly pressuring the government to let them pay back the funds as soon as possible.
These fears led Treasury Secretary Timothy Geithner on Tuesday to suggest a higher bar for leaving the bailout.
He floated the idea that regulators might not allow banks out of the TARP unless the financial system as a whole is judged able to provide enough credit to keep the economy percolating. Banks would not be judged on whether they have sufficient capital themselves, but on the basis of the banking system as a whole.
It’s understandable that Geithner would want to err on the side of caution, but there are good reasons for setting institutions free, aside from the compelling principle that companies wanting to throw off the government yoke should be able to do so.
Repayments could encourage confidence in the TARP by showing that taxpayers aren’t throwing good money after bad.
The Obama administration might also need the money. It’s running short of TARP funds and Congress is unlikely to provide more. The $35 billion Goldman Sachs and JPMorgan propose to repay could come in handy.
Obliging banks to participate in the program and to accept congressional restrictions on executive compensation and hiring tastes unpleasantly of excessive state control.
Whether banks should have been compelled to enter the program is a matter for the history books. But no healthy company should be compelled to stay if it no longer needs the help.
It’s not that there aren’t risks in allowing some banks to return billions in government money. In fact, there are some obvious ones.
Confidence in banks that do not repay their Troubled Asset Relief Program (TARP) funds would probably sag further, and failing entities could be further weakened. Banks out of the program would be free to pay their top employees whatever they liked, which would accelerate a brain drain at other institutions.
Those still in the TARP could adjust their lending decisions in unwelcome ways in order to leave the program. Strong banks would also have less money on their balance sheets, which could undermine their credit offering.
That’s why some in the government would prefer that JPMorgan Chase and Goldman Sachs keep the money for the time being. Those are the two banks publicly pressuring the government to let them pay back the funds as soon as possible.
These fears led Treasury Secretary Timothy Geithner on Tuesday to suggest a higher bar for leaving the bailout.
He floated the idea that regulators might not allow banks out of the TARP unless the financial system as a whole is judged able to provide enough credit to keep the economy percolating. Banks would not be judged on whether they have sufficient capital themselves, but on the basis of the banking system as a whole.
It’s understandable that Geithner would want to err on the side of caution, but there are good reasons for setting institutions free, aside from the compelling principle that companies wanting to throw off the government yoke should be able to do so.
Repayments could encourage confidence in the TARP by showing that taxpayers aren’t throwing good money after bad.
The Obama administration might also need the money. It’s running short of TARP funds and Congress is unlikely to provide more. The $35 billion Goldman Sachs and JPMorgan propose to repay could come in handy.
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