BofA, Wells Fargo, Citigroup Left TARP Early To Avoid Restrictions On Executive Pay: Report [UPDATE]

In the wake of the financial crisis, a number of the nation's largest banks were excused from the government's rescue program before they had returned to a position of complete financial security -- in part because they wanted to avoid restrictions on how much their executives would get paid, according to a new report from the program's government overseer.

Citigroup, Wells Fargo, PNC and Bank of America successfully lobbied to leave the federal bailout program early in 2009, even though the Federal Reserve Board and the Federal Deposit Insurance Corporation had recommended they take additional steps to shore up their assets, according to a new report from the Special Inspector General for the Troubled Relief Asset Program, a government watchdog office.

(This post has been updated to include a statement by Treasury Assistant Secretary Tim Massad.)

Regulators, including the Treasury and the Federal Reserve Board, eventually "relaxed" their criteria for letting the banks out of the program, the report says, leaving questions about whether the banks had strengthened their holdings enough to be able to withstand another systemic crisis.

"Ultimately, the federal banking regulators ended up bowing to pressure" to let the banks leave early, said Christy Romero, Acting Special Inspector General for TARP and the author of the report.

Romero added that in the event of another shock, many banks could be left with too little capital to endure, raising the possibility that "it could potentially trigger an avalanche of severe consequences to the broader economy."

SIGTARP's findings do little to change widespread impressions that the government's Wall Street rescue handed out billions of dollars in taxpayer funds without extracting lasting change in return, with many institutions able to continue operating much as they had before the crisis.

The new report shows how several major banks were allowed to exit the program by paying back their government loans even before they had returned to full health. According to SIGTARP, in 2009, these four banks repeatedly tried to leave the bailout program, also known as TARP, ahead of schedule, claiming that the stigma attached to the bailout would damage investor confidence in their stability.

Bank of America was especially persistent, submitting 11 separate exit proposals to the Federal Reserve Board in less than a month.

The banks, particularly Citigroup and Bank of America, also expressed concern that if they stayed in TARP, they would be subject to the program's restrictions on executive compensation.

Romero told The Huffington Post that the matter of executive payment was "a recurring theme" throughout the banks' requests to exit the program.

Once it was clear that these banks wanted to leave TARP sooner rather than later, the Federal Reserve undertook stress tests to determine how much capital the banks would need to have on hand in the event of another emergency, and issued recommendations for how the banks could raise the money.

However, each of the banks ended up negotiating different terms for their exits, and between December 2009 and February 2010, all four banks were allowed to repay their bailout funds and leave TARP, even though doubts remained about whether they'd taken sufficient steps to secure a big enough safety cushion of capital.

In the end, the process by which these banks exited TARP was "ad hoc and inconsistent," the report says.

As a result of this lenience, Romero told The Huffington Post, the financial system is still carrying considerable systemic risk from huge, interconnected banks, well after the meltdown of 2008.

"The institutions that were 'too big to fail' ... are bigger than they were before," said Romero. "It's very critical that regulators remain vigilant to banks' demands to relax capital requirements."

Treasury Assistant Secretary Tim Massad released this statement in response to the report:

“We are pleased that the report acknowledges that the nation’s largest banks are much stronger today as a result of the actions the government took. Treasury wanted the major banks to raise private capital and repay taxpayers because that was necessary to restore stability and strength to the financial system. Moreover, we estimate that taxpayers will realize a $20 billion gain on the assistance to banks provided under TARP.”

Comments

[biabouman41]

09:38 PM on 10/05/2011

At first, I had my issues with Obama sticking with Geithner and Sumner. I still feel Sumner was a bad choice because it is he who advised Clinton to get rid of the Glass-Steagall protections.

But little by little I have come to appreciate Geithner. When we compare what occured in Europe and the fact they are still having major banking problems but at least our banking system has been stabilized. I do not think that we are out of the woods, but at the same time we cannot underestimate the excellent job done by Geithner. End 2008/start 2009, we were on the brink.

And I am glad Obama ignored those of us who nipped at his heals to fire Geithner. Obama was correct.

[tooncesrocks]

02:43 PM on 10/03/2011

TARP itself hasn’t made any money.... AIG alone still owes $75.6 billion.

Even better:
the AIG money was DIRECTLY PAID to many of these same banks that “paid back their TARP”

EVEN BETTER --> TARP was LESS THAN 10% of the money that we paid out to the banks!

[tooncesrocks]

02:33 PM on 10/03/2011

In other words... the banks ARE STILL ready to fail...

by the governments own admission. AND they were given the GREEN LIGHT to leave the program because CEOs wanted to get paid ludicrous amounts of money.

Govt puts world economy at risk so that 3-4 guys could get huge paychecks.
Sounds like AMERICA!!!

[linksteroh]

09:22 PM on 10/02/2011

I really believe these banks need to be broken up. No more bu!!$h*t about to big to fail!

[authorized-user]

08:34 PM on 10/02/2011

Banks made profits on their 0% bailout money and then sent the principal back to keep their manager's bonuses intact. Probably bought US treasuries with their dough.
What a deal.

[winterpenny]

08:25 PM on 10/02/2011

So let me get this straight...People are angry that the banks got a bailout (TARP). Now people are angry that some banks paid that money back & at a premium. The gov't actually made money on the TARP that was repaid. So what is it going to be. Maybe the gov't should stick with making energy loans because that worked out so well.

[linksteroh]

09:23 PM on 10/02/2011

good point

[Okey Umez]

01:24 PM on 10/02/2011

It pays to be a top bank executive. Too bad aint many of those kinda gigs!.

[kamact]

12:52 PM on 10/02/2011

Snakes in the grass,...protected by their government agents,....

[AZreb]

11:10 AM on 10/02/2011

And on this same page we have an article where Bloomberg is advising us to "be nice" to the "poor, struggling" banksters! Also it is interesting that the feds bowed to pressure from the banks - not unexpected, since the big banks and financial institutions hand out big donations - don't want to bite the hand that feeds them.

[shadow013]

07:36 PM on 10/01/2011

This is another version of big ego big shots looting the company for personal profit. It's been going on since Michael Milken's leveraged junk bond buy outs, on through S&L disaster and Enron. As long as the tops dogs get their bonuses, it doesn't matter to them if they kill the company, harm stockholders, customers - or the globalized financial system. BofA is apparently most at risk. But BofA also paid too much for Countrywide which had a loot the company CEO.

Has anyone seen a regulator? No? They aren't regulators anymore. They are facilitators.

[destin023]

06:55 PM on 10/01/2011

If anyone is fooled enough to think any one institution is strong enough to ward off a full scale collapse of the financial system, think again. The federal reserve is by all account in the red, the major banks have shadow inventories of real estate & they're fighting a hostile WH. There's still this little thing of derivatives in the amount of $600 trillion or so that are ticking away with unhealthy balance sheets all over waiting for counter parties to falter & these banks are still leveraged to the hilt due to these terrible hidden off balance sheet items. So much of this could have been avoided if they'd just saved a few of these institutions & kept the market from panicking. Home values could have peaked & unwound naturally instead of sending shockwaves through the entire system. Game's up..

[Binea]

05:39 PM on 10/01/2011

On February 26, 2009, Ron Paul introduced HR 1207, the bill to audit the Federal Reserve:
“I rise to introduce the Federal Reserve Transparency Act. Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve’s loose monetary policy. How long will we as a Congress stand idly by while hard-working Americans see their savings eaten away by inflation? Only big-spending politicians and politically favored bankers benefit from inflation.”
After a groundswell of grassroots support, HR 1207 and its counterpart in the Senate, S 604, went on to attract 320 and 32 co-sponsors respectively.
10/2009: Mel Watt Introduces Competing Placebo Amendment
With HR 1207 gaining momentum, Congressman Mel Watt introduced a competing banker-approved “placebo” amendment that would have replaced HR 1207 and actually increased the Federal Reserve’s secrecy.
11/2009: Victory over Mel Watt Amendment
On November 19, 2009, after a historic debate lasting several hours, Ron Paul’s and Alan Grayson’s “Audit the Fed” amendment passed 43-26 in the House Financial Services Committee. The amendment called for a comprehensive audit of the Federal Reserve and replaced the opposing “placebo” amendment proposed by Mel Watt.
How they voted on RonPaul’s Audit the Fed amendment (HR 1207 co-sponsors inbold):
Note:
http://www.ronpaul.com/congress/legislation/111th-congress-200910/audit-the-federal-reserve-hr-120

[Binea]

05:37 PM on 10/01/2011

A handful of Fed-loving U.S. senators led by Chris Dodd rewrote the Senate version of the Financial Reform Bill to strip out Ron Paul’s Audit the Fed amendment and actually expand the Fed’s power over banks, lending and money. As Alan Grayson pointed out here, and Ron Paul commented on here, the Dodd bill completely eliminated legislation to audit the Federal Reserve, which already passed in the House.
Sen. Bernie Sanders (I-Vt.) introduced an amendment on the floor effectively adding the Grayson-Paul language to the Senate bill, but later changed his amendment under pressure by the FederalReserve and the Obamaadministration. The altered Sanders amendment passed the Senate on May11,2010 by a unanimous 96-0 vote.
Sen. Vitter reintroduced an amendment with the original Audit the Fed language. The Senate rejected the amendment on May 11, 2010 by a 37-62 vote.
The House and Senate went to the conference committee which attempted to reconcile the differences between the two bills (and their amendments). Unfortunately, RonPaul’s tough language ended up not being included in the final bill.
On June 30, 2010, the GOP introduced RonPaul’s Audit the Fed bill as a motion to recommit, which was the last chance to alter the financial regulation bill. Audit the Fed failed by a vote of 229-198. All Republicans voted in favor of the measure with 23 Democrats crossing the aisle to vote with Republicans. 114co-sponsors of HR 1207, all Democrats, jumpedship and voted againstAudit the Fed.

[Binea]

05:36 PM on 10/01/2011

( Mods I copy all comments because some of you censor )

The Federal Reserve is the chief culprit behind the economic crisis. Its unchecked power to create endless amounts of money out of thin air brought us the boom and bust cycle and causes one financial bubble after another. Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by recklessly inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar.
For the past 30 years, Congressman Ron Paul has worked tirelessly to bring much-needed transparency and accountability to the secretive bank. And in 2009 and 2010 his unfaltering dedication showed astonishing results: HR 1207, the bill to audit the Federal Reserve, swept the country and made the central bankers shudder at their desks. The bill passed as an amendment both in the House Financial Services Committee and in the House itself.
But the usurpers of America’s future didn’t take it lying down. They weren’t about to allow their secrets to be exposed and their magic money machine to be put under close scrutiny. They worked frantically behind the scenes to quietly derail all efforts to open up the Federal Reserve to an independent audit.

[68Namvet]

06:52 PM on 10/01/2011

A voice of reason crying in the wilderness. Fanned faved and badged!

"Let me issue and control a nation's money and I care not who writes the laws." Mayer Amschel Rothschild, 1790.

Article I, Section 8, Clause 5, of the United States Constitution provides that Congress shall have the power to coin money and regulate the value thereof and of any foreign coins. But that is not the case. The United States government has no power to issue money, control the flow of money, or to even distribute it - that belongs to a private corporation registered in the State of Delaware - the Federal Reserve Bank.

In simple terms, the United States Government borrows money from the Federal Reserve Bank with interest. Say the Government wants $1 billion. The Federal Reserve prints $1 billion - based upon no hard asset - and lends it to the Government at a high interest rate. The bank did not have the original money, it created it and made a bookkeeping entry.The Federal Reserve controls the flow of money, making it tight and creating unemployment or printing more than actually exists and creating inflation. It is, in essence, a paper corporation, which controls the entire economic well-being of the nation. And, unfortunately, is concerned only with producing a profit irrespective of any harm done to the nation.

Simply put - you and I are not players in this game - we have nothing to say and no way to influence the outcome.

[Binea]

07:30 PM on 10/01/2011

yes..but it is MUCH worse than that..they affect the whole world's economy..which is why the world is in a depression while we are..dominoe effect..NO WONDER china wants everyone to use their currency..though I am sure they would be much worse.They were probably in cahoots with S&P to bring us all down.
we need a completely transparent and totally audited Fed Reserve

[Binea]

07:34 PM on 10/01/2011

even if we all voted in Ron Paul they would fix the vote..we need the help of the U.N but they probably won't..probably not in their interest since Obama seems to do their bidding.
there was probably a plan all along to destroy all the worlds economy to get that world currency thing going One Currency..crazy fricken plan..like some Stalin wannabe won't take control of it,and since we are all connected ..ABUSE the whole world

[Mattinnyc]

01:58 PM on 10/01/2011

I mean seams