By Silla Brush - 07/14/10 04:42 AM EDT
The $700 billion bailout has done little to help small banks weather the financial crisis even as big banks repay the money and post record profits, a government watchdog said Wednesday.
The Congressional Oversight Panel over the financial rescue package said that less than 10 percent of small banks that received bailout aid have repaid the money. Nearly $25 billion in bailout money is outstanding with small banks, and roughly 15 percent of the small banks have missed a dividend payment.
Most big banks — including JPMorgan Chase & Co., Wells Fargo, Goldman Sachs and Morgan Stanley — have repaid billions in bailout money and are posting hefty profits.
The government invested capital directly in banks as part of the Troubled Asset Relief Program (TARP), with the first round of money going toward large banks. Seventeen banks with at least $100 billion in assets received 81 percent of the capital; 690 smaller banks received the rest.
"Now small banks continue to struggle and [the Troubled Asset Relief Program] provides little relief," the oversight panel said in a new report.
The report said small banks also may struggle to meet dividend rates that increase from 5 percent to 9 percent in 2013. The increase was intended as an incentive for banks to repay the taxpayer investment.
The report said small banks may become trapped without a way to raise money to repay the higher dividend rate.
"A growing number could default on their obligations to taxpayers, be forced to consolidate or collapse completely," the report said.