NEW YORK—After months of wrestling with regulators and embarrassing grilling sessions in front of lawmakers, Bank of America will finally be out of the public’s scornful eye.
The nation’s largest bank said this week that it would repay all of its $45 billion in government bailout funds within the next few days—a feat that seemed ludicrous a few months ago. The bank received the Trouble Asset Relief Program (TARP) funds last year at the height of the financial crisis, as well as after its acquisition of Merrill Lynch & Co. earlier this year.
Bank of America intends to sell almost $19 billion in securities, in addition to using existing cash, to repay the government loan.
The bank has been under close scrutiny over its operations and compensation policies—and burdened with governmental restrictions, so far it hasn't been able to recruit a new CEO to succeed retiring Kenneth Lewis.
"We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest," Lewis said in a company statement.
The board originally hoped to find a new CEO by Thanksgiving, but it became clear that as long as Bank of America is under tight governmental scrutiny, few candidates are willing to lead it. Now, Bank of America can pay its future CEO whatever amount it desires, without needing to consult with Kenneth Feinberg, President Obama’s Special Master for TARP Executive Compensation.
Did TARP Work?
Big Wall Street banks are back at making money and paying large bonuses.
But did the government’s TARP program achieve its intended purpose? Banking industry officials say yes—most banks that received federal money are still in business today, and they’re making good on interest payments. The biggest banks that still owe the Treasury money, GMAC and Citigroup Inc., are well on their paths to profitability.
But some critics say that TARP wasn’t just intended to ensure that Wall Street firms would keep reaping in gold. TARP was also designed to stimulate lending to small- and medium-sized U.S. businesses so they can create more jobs and keep more Americans employed.
Using that metric, results have been mixed. Banks made money this year by trading securities and making bets on the market—not on making loans to businesses.
“The bank bailout was necessary, but it helped Wall Street restore profits when it should have been helping Main Street create jobs,” said AFL-CIO President Richard Trumka in a speech at the Economic Policy Institute. “Banks aren’t lending to small business. We should establish a fund to lend TARP money directly to small- and medium-sized businesses at commercial rates, managed by the community banks left out of the Wall Street bailout, with the banks taking first dollar risk. If small businesses can get credit, they will create jobs.”
But according to Bank of America, so far this year it has extended $12 billion in loans to small businesses in the United States.