Biggest Banks Lending Less After Getting TARP Funds

The January 26th edition of the Wall Street Journal reported this story.

Despite its stated purpose to increase liquidity in the credit markets, the largest recipients of bailout money under the Troubled Asset Relief Program are actually lending less today than before they received government assistance, according to an article published today (1/26) in The Wall Street Journal.

A Journal analysis found that ten of the 13 large banks that have received funds so far saw their outstanding loan balances decrease $46 billion, or 1.4%, in the fourth quarter. Among those whose lending has declined are Bank of America Corp. and Citigroup Inc., each of which received $45 billion under TARP. Only three of the banks reported growth in their loan portfolios: U.S. Bancorp, SunTrust Banks Inc. and BB&T Corp.

The reluctance of banks to lend the money they have received under the government bailout package has prompted resounding criticism of the TARP program and led many to question its efficacy. Now the government says it wants an accounting of the money. In a January 16 letter to 20 banks receiving TARP funds, Neel Kashkari, the head of the program, asked the banks to provide monthly accounting statements detailing commercial and consumer lending activity. "The purpose of this snapshot is to provide insight into the lending and financial intermediation activities of the largest recipients of the CPP (Capital Purchase Program)," said Kashkari.

Editor's Note: Since the initial TARP $$ did not have covenants attached that included requirements to lend, banks have been using the $$ for other purposes, namely activity like acquiring weaker competition who did not get TARP funds but still hold valuable deposits worth buying. This kind of activity is what makes having a good banker and multiple sources for access to cash or credit so vitally important in this challenging environment.

Stu
Southern Lending Solutions