Word: costs
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...Already, the effort to repay TARP is boosting the cost of borrowing for some banks. That's because banks have to regularly issue bonds in order to have money to make loans and underwrite securities. This became much harder to do during the credit crunch, so the government began allowing banks to offer bonds that are insured by the Federal Deposit Insurance Corp. (FDIC). With the government's backing, banks were able to raise money. (See 25 people to blame for the financial crisis...
...estimates that JPMorgan, one of the healthiest banks, will have to pay three percentage points more per year to borrow without the FDIC guarantee. That would boost the interest JPMorgan has to pay on five-year loans to 6%, from an FDIC-backed rate of 3%. For Goldman, the cost of borrowing could rise as much as five percentage points...
...Banks exiting the TARP program are also looking to buy back the warrants they issued to the government in order to receive TARP funds. David Hendler, an analyst at CreditSights, estimates that it would cost JPMorgan nearly $2.6 billion to buy back their warrants from the government. "Banks may have to spend substantial sums to pay back their TARP warrants," says Hendler. Proponents of the banks paying back the government say the higher borrowing costs will only be temporary. As the market improves, banks will be able to issue bonds on their own at lower rates. Indeed, so-called bank...
...think it's worth the cost," says Hintz. "The only way it will turn out to be really expensive is if the economy never recovers...
...results are a microcosm of the trouble that may face the economy over the next several quarters. Oil now trades above $60 a barrel. Fuel prices will inevitably move up making the cost of living and doing business higher while the abilities of consumers and businesses to spend are already in retreat. (Read: "British Airways: Cabin Pressure...