November 23, 2009 7:52 pm

Fed in fresh talks with big banks on TARP repayment plans

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The Federal Reserve has asked nine of the nation’s largest banks to outline how they intend to repay TARP, including recent examples of their ability to raise common equity, this news service has learnt.

This month the Federal Reserve reached out to institutions that participated in the Supervisory Capital Assessment Program (SCAP) but have not already been approved to pay back the rescue funds, it is understood. Those banks include Bank of America (NYSE:BAC), Citigroup (NYSE:C), Fifth Third (NASDAQ:FITB), GMAC, KeyCorp (NYSE:KEY), PNC Financial (NYSE:PNC), Regions Financial (NYSE:RF), SunTrust Banks (NYSE:STI) and Wells Fargo (NYSE:WFC).

The discussion between banks and regulators comes as both groups have expressed interest in exiting the much-maligned TARP program. A grey area in the talks may be how regulators define a recent public equity raise and how much capital banks need to keep in reserve to remain in compliance with SCAP.

When asked at a Congressional hearing on 17 November why Bank of America has not paid back TARP, the bank’s head of consumer banking, Brian Moynihan, said in little noticed comments that last week “the federal government issued a series of requirements to pay [TARP] back, and we’re looking at those.”

Bank of America board member Chad Giffiord, who also testified at the hearing, told this news service that the bank only recently learned of the guidelines, but he could provide no details on them. Moynihan also refused to disclose how exactly the guidelines prevent Bank of America from repaying the funds when questioned at the hearing.

At a Small Business Administration summit on Wednesday, Treasury Secretary Tim Geithner told the audience that there have been changes to TARP repayment guidelines without providing any details. Geithner said he wants to quickly wind down the TARP program.

Charlotte, North Carolina-based Bank of America is pushing hard to payback at least USD 20bn of TARP funds as a means to loosen current restrictions that have been placed on the bank by the Treasury. Wells Fargo has expressed similar ambitions.

Treasury spokesman Andrew Williams said that any new guideline will have been set by the Federal Reserve and not the Treasury. Williams reiterated the Treasury would like banks to repay TARP money.

TARP repayment guidelines are drafted by the Fed and the Treasury’s finance group and then other regulators like the OCC and FDIC assess the financial conditions of the banks in accordance with the guidelines, according to a regulatory official.

The official said regulators continue to run stress tests on certain institutions in the aftermath of a public stress test run on the 19 largest banks. Regulators may launch a second round of stress testing next year if the economy remains sluggish, the official said.

TARP repayment guidelines announced in June require banks to demonstrate an ability to issue equity and debt and receive clearance from their primary regulators. Few large institutions have paid back the government since ten mega banks exited the TARP program in June.

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