Outgoing U.S. Treasury Secretary Henry Paulson stated goal was to have banks "deploy not hoard" TARP money as a part of process to loosen constrained credit markets. In advocating such, the outgoing Bush administration hoped that banks would work with homeowners at risk of losing their homes to foreclosure.
Some banks have worked with struggling homeowners, offering alternate payment plans, loan forbearances, or even lowering the interest rate to help get these mortgages back in the non-delinquent category. Still, the practice has by no means been universal.
Many banks have not participated in mortgage modifications -- even those banks that received TARP funds. For example, a Palm Beach conference sponsored by Sandler, O'Neill & Partners revealed how many banks are using their TARP money, The New York Times reported.
TARP money for bank acquisitions?
Banks seem to be allocating the money for four purposes: increased lending, absorbing losses, bolstering capital, and opportunistic acquisitions, said Mark Fitzgibbons, research director at Sandler, O'Neill & Partners, The Times reported.
TARP money for opportunistic acquisitions? Economist David H. Wang said using taxpayer TARP money for strategic buys may not be as vulgar as it sounds.
"It depends on the nature of the transaction. If the acquisition leads to a stronger bank that's better-equipped to be a lending force in the community or city, in the long run the acquisition will increase liquidity and lending," Wang said. "So people should not jump to conclusions, nor assume all bank acquisitions represent an abuse of TARP dollars. We'll need at least six months of data points on TARP bank operations before we can make a documented assessment of TARP."
Bank Sector Analysis: Indeed, the restoration of credit markets is part sprint, part marathon. The U.S. Federal Reserve's interventions are running the sprint, as they're greasing the wheels of commerce. The TARP represents the marathon: if these funds work as intended, they'll strengthen bank balance sheets -- i.e. put them on a sound financial footing to make loans as demand picks up, and certain bank acquisitions can assist that process. And, hopefully, that private-sector demand will increase in the quarter or two ahead.
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Reader Comments (Page 1 of 1)
1-19-2009 @ 3:42PM
Uri said...
Give all home buyers a bunch of cash and you won't help any of them. You'll just raise the price of real estate.
Give a bunch of banks competing to buy the same companies a bunch of cash and you don't help any of them - you just drive up the cost of acquisition. That doesn't help any of the banks but it does help the investors of the acquired company.