Treasury eyes speedier exit from bank bailout

The Treasury Department is mulling selling off its shares in hundreds of smaller banks as it looks to speed up the winding-down of federal bailout programs.

A source within the Obama administration confirmed to The Hill that the government is considering exiting its investments in over 350 small banks as a way to further reduce the government's presence in the nation's financial system, as first reported by The Wall Street Journal.


The source emphasized that no decisions had been made yet, and the move is just one of several options on the table, adding that it still expects several of the smaller banks to repay their government loans in the coming year.

The January report from the special inspector general for the Troubled Asset Relief Program (TARP) found that the Treasury still owned preferred stock in 371 banks as part of its Capital Purchase Program — roughly half the number of banks that originally participated in it.

The Treasury hired the advisory firm Houlihan Lokey Capital in November, asking it to review the government's remaining holdings in banks and come up with recommendations for handling the lingering portfolio. The source said that project is still ongoing.

The government announced in March that it had officially turned a profit on what it originally handed out to banks under TARP, estimating it would ultimately reap about $20 billion in profit. The Capital Purchase Program invested roughly $205 billion in banks, and has brought in about $211 billion so far.

The nation's largest banks that were largely identified with the government bailout, such as Citigroup and Bank of America, were quick to repay their TARP loans, and actually pressured the government to let them exit from TARP earlier than originally planned. The stigma of participating in the bailout, coupled with executive pay restrictions and gradually climbing dividend payments to the government, made banks eager to get out from under the program sooner rather than later.