Sept. 30, 2011
By Marcy Gordon
WASHINGTON (AP) — Federal regulators bowed to pressure from big banks seeking a quick exit from the financial bailout program and did not uniformly apply the government’s own conditions set for repaying the taxpayer funds, a new watchdog report says.
The report was issued Friday by the office of Christy Romero, the acting special inspector general for the $400 billion taxpayer bailout of the financial industry and automakers. It found that regulators, to varying degrees, “bent” to pressure from the banks in late 2009 and relaxed the requirements put in only weeks earlier.
The regulators also were motivated by a desire to cut the government’s stake in the banks it had bailed out in September 2008 when the financial crisis struck, the report says.
Meanwhile, the banks wanted to get out quickly from the so-called Troubled Asset Relief Program, or TARP, because they wanted to avoid its limits on executive compensation and the stigma associated with receiving rescue money, according to the report.
The report focused on the sales of stock to raise capital and bailout repayments by four major banks: Bank of America Corp. and Citigroup Inc., which each received $45 billion from the government; Wells Fargo & Co., which received $25 billion; and PNC Financial Services Group Inc., which got $7.6 billion.
Because the regulators failed to enforce the policy for repayments set by the Federal Reserve, the new report says, “the process to review a TARP bank’s exit proposal was … inconsistent.” That policy required banks to issue at least $1 in new common stock for every $2 in bailout money they repaid.
But the banks doggedly resisted the regulators’ demands to issue common stock, seeking instead to use cheaper and “less sturdy” alternatives such as selling assets or issuing preferred stock, the report found. Issuing common stock is a better way to shore up a bank’s capital base, it said.
When Bank of America, Citigroup and Wells Fargo repaid the government in December 2009, only Citigroup fully met the 1-for-2 requirement, the report said.
The regulatory agencies overseeing the banks, which negotiated the repayment terms with them, were the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department’s Office of the Comptroller of the Currency. Treasury itself ran the bailout program, and the report said its involvement in individual banks’ repayment proposals was greater than was previously known publicly.
It said Treasury encouraged the banks to speed repayment, raising the criticism that Treasury officials put that goal ahead of ensuring that the banks were strong enough to exit TARP safely.
Full Article Here – http://finance.yahoo.com/news/Watchdog-Regulators-bowed-to-apf-3217329384.html?x=0