Repaying TARP: U.S. Changes the Rules
Banks will have to show they don’t need the FDIC guarantee to issue debt, such as by raising it without the guarantee.
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May 6th, 2009 at 5:11 pm
Seems reasonable. Why should they cut the banks any slack while the need a crutch from FDIC?
May 6th, 2009 at 6:02 pm
Changing the rules repeatedly doesn’t seem reasonable to me. They have done it before with Tier 1 made obsolete in favor of TCE. TARP money already makes it difficult to raise equity because of potential dilution a bit like a death spiral convert.
May 6th, 2009 at 9:10 pm
Don’t agree. In view of reports that some banks are using TARP money to take bets on distressed assets or otherwise going on a gambling spree, I can perfectly well understand the Treasury putting in this kind of restriction.
This is not to say that I approve of the overall approach the US Treasury has taken, but in the context of the current policy the restriction makes political sense (economics went out the window long ago, not just in the US BTW).
May 6th, 2009 at 10:26 pm
The talk about banks taking bets on distressed assets is non-sense, it would increase their risk-weights balance just as they have to do exactly the reverse. Watch the end of quarter and t-bills going to zero or negative, that tells you that they are doing the japan banks trick, out of high risk-weight, i.e. junk and into low risk-weight, i.e. t-bills, short treasuries.
May 7th, 2009 at 9:14 am
There are various reports that BAC and C have been hoovering-up distressed assets, for example http://www.zacks.com/stock/news/18599/C,+BAC+Pushing+Prices+Up%3F.