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After Infusion of Aid, Some Banks Return Bailout Funds

As the government invests billions to shore up the financial sector, some banks are returning rescue funds earlier than expected. A banking chief and a reporter explain the latest.

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    In his economic speech today, President Obama said troubled banks are a fundamental part of the financial crisis. Some banks have taken notable steps of their own in recent days.

    Jeffrey Brown has more.


    For months, we've been reporting on the hundreds of billions of dollars the government has invested in financial institutions. Now a handful of banks want to give the money back earlier than expected.

    One of the giants, Goldman Sachs, just announced a plan to begin paying back $10 billion. That follows four smaller, regional banks that have repaid the government within the last few weeks.

    We talk first with the CEO of one of those institutions. Joseph DePaolo is president of Signature Bank in New York City, which just returned $120 million to the U.S. Treasury.

    Well, Mr. DePaolo, first, why did you decide to repay the money?

  • JOSEPH DEPAOLO, Signature Bank:

    Well, Jeffrey, thank you for having me on. We decided to pay back the funds because the Capital Purchase Program, as originally outlined, was for healthy, well-capitalized institutions, and we received those funds in the fourth quarter of 2008.

    Then, all of a sudden, it changed from a program to well-capitalized institutions to one where unhealthy banks were allowed to participate. So it went from a perception of good, a great partnership between government and business, to a stigma of being unhealthy. And the government also placed some restrictions on banks…


    Well, can I stop you there before we get to the restrictions?




    Because wasn't the original idea that there are — there were and still are very weak banks and that the government wanted healthy institutions, perhaps like yours, to participate so that those wouldn't be even further stigmatized? Wasn't that the original idea?


    Yes, the original idea was that these healthy banks, like Signature Bank, would participate. We could possibly help the unhealthy banks by taking them over with the additional capital that we received from the government. Yes, that's correct.


    All right, now, you said there were some restrictions put on, knew that we've heard some about those. Tell us, how in your — how do you believe that these all hurt your bank? What did it actually — what was the impact of participating?


    Well, when the stimulus package was passed on the 17th of February, everyone thought that it just placed restrictions on executive management, when — for compensation purposes — when, in fact, it would affect our best sales people, our best relationship bankers.

    So that effect of us being unable to possibly keep our best bankers because of the compensation restrictions, coupled with the recruiting that we would want to do and we would be unable to recruit because of the restrictions, that really hurt fundamentally what we'd like to do with the bank in growing the institution.

    The last part was, they changed the game — or I should say, they changed the rules in the middle of the game. And by doing that, it created a lot of uncertainty as to what other restrictions and what other rules would they place on the healthy banks?

    And, therefore, those three elements caused us to really pause and say, "It's probably best for us to return the funds." One other thing…