Transcripts

It's Time To Payback The TARP

PAUL KANGAS: While Chrysler await word on how its government bailout will end, the Treasury could tell us as soon as tomorrow which banks will be allowed to pay back their TARP loans. Goldman Sachs, JPMorgan Chase and Morgan Stanley are among the most likely to be on that list. But they'll have to prove to regulators they can raise private capital without government help. As Stephanie Dhue reports, the nation's largest banks have been busy doing just that.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some banks had to raise capital because of the stress test, but others did it to remove the stress of being under government control. Congressional restrictions on executive pay are creating headaches for bank executives taking TARP money. Analyst Karen Petrou says the headaches didn't end with those restrictions.

KAREN PETROU, FEDERAL FINANCIAL ANALYTICS: They are subject to untold amounts of political risk, anything they do, buying a fancy lunch, first comes before the public is look what they're doing with your money. They really can't operate as they see fit as long as they've got TARP.

DHUE: But some analysts say there are risks to having the banks pay back the money too soon. The economy is still on a shaky foundation and the bank stress tests may not have been stressful enough. Brookings fellow Doug Elliott says the Fed easily could have underestimated the amount banks need by $300 billion.

DOUG ELLIOTT, SENIOR FELLOW, BROOKINGS: That would just be 3 percent of their assets, so instead of $75 billion needed by the banks, it could be the right number was $375 billion. We would be feeling a lot differently about the world if that were the case.

DHUE: Paying back the TARP money won't necessarily be a strain, since banks are getting a lot of other help from U.S. taxpayers. The Federal Reserve has lent banks more than a trillion dollars in emergency funding. The FDIC has a program to guarantee private money lent to banks. Analysts say there could be political pressure to put new restrictions on banks. Bank lobbyist Scott Talbott says that would be a mistake.

SCOTT TALBOTT, LOBBYIST, FINANCIAL SERVICES ROUNDTABLE: You'd see companies exiting those programs and we need the companies to remain in those programs to continue to restore the secondary markets.

DHUE: To pay back the loans, banks will have to buy back the preferred shares and warrants they issued to the government. Banks and regulators have been at odds over valuing those warrants. How much they're worth will determine the return taxpayers get on their investment. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.