A taste of my own medicine

I have been visiting my usual blogs, correcting people whenever they talk about whether Treasury should “allow the banks to repay the TARP”.  I smugly point them to the term sheet, which says any bank may repay the TARP if they perform a capital raise of sufficient size.

Well, I have been outdone by someone called “a stranger“.  Anybody can read a 5-page term sheet, but how many could find the relevant language in the 169-page legislation?

Nemo & Yves –

Equity offering is not true anymore, even with the term sheet. Read the American and Recovery Investment Act. Section VII. The original act was amended to:
‘‘(g) NO IMPEDIMENT TO WITHDRAWAL BY TARP RECIPIENTS.—
Subject to consultation with the appropriate Federal banking agency (as that term is defined in section 3 of the Federal Deposit Insurance Act), if any, the Secretary shall permit a TARP recipient to repay any assistance previously provided under the TARP to such financial institution, without regard to whether the financial institution has replaced such funds from any other source or to any waiting period, and when such assistance is repaid, the Secretary shall liquidate warrants associated with such assistance at the current market price.”

All they require is that the regulators approve of it, which can be with or without an equity offering.

He’s right. A last-minute change to the final bill specifically prohibits Treasury from including the terms that they did. So the only way to prevent a bank from repaying the TARP money is for their regulator (FDIC? Fed?) to say that they need that money to remain adequately capitalized.

And I thought I was exaggerating about “the best government money can buy”.