Geithner: Bailout repayments will broaden program
WASHINGTON — The Obama administration will use bailout money repaid by large banks to provide additional capital infusions to community banks, Treasury Secretary Timothy Geithner said Wednesday.
In remarks to an association of community bankers, Geithner also said the administration is moving forward with plans to streamline financial rules as part of a broader overhaul to be unveiled in the next several weeks.
Banks with less than $500 million in assets will have six months to apply for the funds, Geithner said. They also will be able to apply for larger amounts than banks were allowed to request during the current round of investments.
The Treasury Department has said it expects banks to repay $25 billion in government funds over the next year. Banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. have said they want to pay back the money they’ve received from $700 billion Troubled Asset Relief Program, or TARP, as soon as possible.
While Geithner’s remarks to the Independent Community Bankers of America drew applause, it’s not clear how many small banks want more government aid. Many say they are healthy, don’t need the money and are wary of the limits on executive compensation and other restrictions Congress has imposed on bailout recipients.
Twelve smaller banks have returned almost $1.2 billion in government funds so far. More than 570 banks have received about $198 billion in TARP funds.
The administration first indicated that the repaid funds would be used for further injections earlier this month when regulators announced the results of the “stress tests” conducted on the nation’s 19 largest banks. Those tests found that 10 of the banks, including Bank of America Corp. and Citigroup Inc., needed to raise additional capital to survive a worsening recession.
Several members of Congress, including Rep. Brad Sherman, D-Calif., contend that the law creating the TARP doesn’t allow the money to be invested a second time. Instead, repayments should be used to reduce the national debt, they say.
Geithner also said the administration will propose an overhaul of financial regulations in the next several weeks.
A core part of the reforms will be to require large banks to hold more capital and less debt as part of a “more conservative set of constraints” on those institutions, he said.
The administration also will propose that big banks pay into a separate fund to be used for winding down large, failed banks. The fund would be similar to the Federal Deposit Insurance Corp.’s deposit insurance fund, Geithner said.
Administration officials have previously said they plan to roll out reform proposals in June.
Due largely to the government’s efforts, “the financial system is starting to heal” and “a substantial part of the adjustment process is now behind us,” Geithner said.
Still, the administration wants to move on an overhaul of the nation’s financial rule book “while memory of the damage of the crisis is still acute,” he said.
Geithner also drew applause when he said the administration supports increasing the cap on the FDIC’s authority to borrow from the Treasury, to $100 billion from $30 billion.
That idea is popular because it could allow the FDIC to reduce the fees it charges banks.
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