Word: tarps
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Dates: during 2000-2009
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...What's not so clear is whether repaying TARP will turn out to be beneficial for investors. Analysts say getting out of TARP could be costly. Indeed, some worry that banks are putting their desire to rid themselves of government intervention ahead of their firms' bottom lines...
...TARP funds are a relatively inexpensive way to fund your operations these days," says Ray Soifer, a former top Wall Street analyst and a longtime bank consultant. "The problem I see is that banks are rushing to save every penny and nickel in order to pay back TARP instead of lending, which is one of the ways they make money...
...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...
...government has said that even banks that passed stress tests will not be allowed to pay back TARP funds until they can raise money on their own. Some banks have been able to venture out into the market on their own, but the rates they are now paying investors - without government backing, that is - are significantly higher. Analyst Brad Hintz of Bernstein Research 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...
...months, the nation's largest banks have raised just over $225 billion using government guarantees, according to Thomson Reuters. Had the banks had to raise that money on their own it would have been much more expensive. Morgan Stanley, another bank that has reportedly been looking to pay back TARP funds, has raised $23 billion in FDIC-backed debt since the program began in November. Hintz estimates the government's help is allowing Morgan Stanley to lower its borrowing costs by 5½ percentage points. That would have raised Morgan Stanley's expenses by nearly $1.3 billion a year...