No Hope for Installment Loans as A-List Banks Repay Bailout Funds

Banks Feel The Heat

As many of the nation’s A-List banks including Goldman Sachs decide to pay back government aid, it is a sign of impending doom for the public waiting in line for installment loans. Economists view such a move skeptically. While it may seem to be a sign of strength of the bank, other banks may feel the pressure to follow suit and get out of the government program prematurely.

In fact…

In fact, banks may not be in a position to afford the repayment of bailout funds but may still go ahead with it from a marketing perspective. Returning the Troubled Asset Relief Program money seems like a signal of strong credit in the market.

Are Banks Strong Enough Yet?

To prove this fact, Former Treasury Secretary, Paul O’Neill sent an email to ABC News disclosing the willingness of major U.S. banks to accept money at the beginning of the TARP program. If the banks had not needed the funds in the first place, they could have refused to accept them.

By repaying government aid, banks will be able to portray a stronger financial standing and more importantly, prevent administrative restrictions on executive compensation. Along with Goldman Sachs, Bank of America may also repay the $45 billion received from the government as bailout help. Five smaller banks have also made statements showing their willingness to return the TARP money.

The Government’s Take

Contradicting this move by financial institutions, Obama’s administration has told the banks to look at the welfare of the overall economy and not just their own organization. Driven by the goals of avoiding compensation restrictions or just appearing stronger in public eye seem to be putting pressure on banks to return billions of dollars of money received as bailout aid. In the coming times, this may prove to be detrimental for both the banks and the nation’s recovery from the economic crisis. On the other hand, Americans will have to wait for a long time to gain access to installment loans for handling the financial crisis.

Presently, a bank looking at a refund of TARP money should notify the Treasury Department and the associated federal banking agency about their intentions. After consulting with the primary regulator, the Treasury will contact the bank to discuss the redemption request.

The Final Analysis

Not being a consumer-based lending bank puts Goldman Sachs in a unique position to return its TARP money. They can easily raise money in the market, unlike several other large banks. Perhaps, this is a major reason why institutions are confident of their ability to return government aid and still maintain a good financial position. The real risk faced by banks is not returning the government money for the wrong reasons but the possible changes in bank policy after they repay the funds.

In such circumstances, the people can only wonder if they will ever know the reality of any of the financial institutions and get installment loans to improve their own financial state. As the skepticism rises, President Obama and his administration have been forced to conduct a “stress test”, with the aim to disclose information about the health of American’s 19 largest banks. Only time will tell what’s in store for the TARP program and the US economy.