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Big Banks Ready to Repay the Bailout Money

After months of severe economic downturn, lay-offs, and high foreclosure rate, it hardly seems possible but a significant number of US banks will pay back the bailout money they previously received from the government. After regaining some level of financial stability and some of their old swagger, the nation’s largest banks now want to pay back billions of dollars back to the taxpayers.

Very few people in Washington and perhaps those from the financial industry themselves expected such a quick turnabout. Most legislators believed that banking institutions will need to rely on the government’s help for years because the subprime crisis and their other troublesome assets were dragging them down. But now, a number of banks say they will repay the government by year’s end.

Two weeks after the stress test results came out, several banks including JP Morgan Chase, Morgan Stanley, Goldman Sachs, Bank of New York Mellon, and US Bancorp, and State Street have talked with regulators about repaying part of the $700 billion rescue package they received. Regulators are trying to identity when the banks should be allowed to return the bailout money and whether such measure will leave these institutions vulnerable in case another crisis occurs in the near future.

A few details have emerged about these developments. For example, it is believed that regulators will not let any major bank repay first because it will give some institutions “bragging rights”. Instead, the Federal Reserve will organize the banks into a group that is ready to pay first. The Treasury Department will be assigned to handle the repayments.

For many ordinary Americans, the repayment scheme is a welcome development. After several months of multi-billion dollar bailouts that are given to the financial industry, auto industry, and other industries, the breathing space this will allow is good for the economy. However, it is also important to recognize that repayment the bailout now carries some risks.

Right now, many major banks have plugged crippling losses but the industry is still vulnerable. The continuing troubles in real estate as well as the high number of credit card defaults will surely be felt by the banks. In addition, if the government allows the banks to pay back the bailout money so soon, they will cede authority over the same institutions that caused the economic crisis.

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Category: Banking, Government Bailout

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