Thursday, October 7, 2010

66 Struggling Banks Got Bailout Money Through ‘Healthy’ Bank Program

ProPublica:

Of banks that were bailed out through TARP’s Capital Purchase Program – a program intended for healthy bank – 66 were known to be weak at the time of their bailout, according to a new report by the Government Accountability Office.

The 66 weak banks — most of which aresmall, community banks — were more likely to miss paying out dividends and interest to the government, and their ranks have grown over time. (The worst has been California’sSaigon National Bank, which has missed every single payment.) The GAO report notes that some banks that got money have already failed:


 Four [Capital Purchase Program] institutions have failed, but the number of firms exhibiting signs of financial difficulty — such as missing their dividend or interest payments — has increased over time.


For instance, 78 bailed-out banks were on the FDIC’s list of “problem banks” as of June 30, which meant their continued survival was in question, according to the report.

The Capital Purchase Program, which loaned money to 700 banks, was supposed to help “healthy institutions” get through tough times. But the GAO report focused on a small group of weaker banks that managed to get funds through the program and are still struggling, raising questions about why they qualified in the first place.

The report noted that because banks seeking funds were recommended to the Treasury by their regulators, the use of discretion by each bank regulator “created the potential for inconsistency” across the program. The report also said that weaker banks often got a pass because Treasury officials or bank regulators would identify factors “such as management quality or substantial capital levels” that “mitigated the weakness."

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