Federal Reserve Wants Bank of America (NYSE:BAC), Wells Fargo (NSYE:WFC), Citigroup (NYSE:C) to Submit TARP Repayment Plans

It seems the Federal Reserve has had mounting pressure to push banks like Bank of America (NYSE:BAC), Wells Fargo (NSYE:WFC), Citigroup (NYSE:C) to submit repayment plans concerning the TARP funds they received.

Along with the three major banks above, other banks being asked to submit TARP repayment plans are PNC (NYSE:PNC), Fifth Third Bancorp (Nasdaq:FITB), GMAC (NYSE:GJM), KeyCorp (NYSE:KEY), Regions Financial (NYSE:RF)  and SunTrust Banks (NYSE:STI).

Evidently stress tests seem to have deemed these nine banks able in some way to start to pay back the taxpayers their money. In results released from the stress tests in May, it was found that the largest banks, Bank of America, Wells Fargo and Citigroup, still needed to raise cash in order to start paying back TARP funds in a way that wouldn’t harm the financial institutions.

What the stress test measured was how the banks would perform if a recovery took longer to come about than expected, and if it was to continue to be a jobless one. Included in the test were the 19 largest banks in America. Nine of the banks were considered healthy enough to start repaying the money at that time.

One glitch in repayments which has been altered is the laws prior to the stimulus law in February 2009, which didn’t allow banks to repay the funds unless it was replaced with money raised from private sources. Banks like Wells Fargo have resisted this, saying they would dilute shareholder value if they issued common stock to pay back the TARP funds.

As far as the TARP repayment plan goes, included with how they would pay back the funds the Fed also wants a timetable presented to them on the length of time banks would do it.

Banks will evidently be offered the option of paying back TARP funds quickly as long as they continue to operate within the capital parameters set within the stress tests.
 
All of this probably has come about because of the growing realization banks are starting to pick and choose the optimal conditions  and time for paying back the money, which isn’t sitting well with taxpayers, who have paid out close to $142 billion for these nine banks alone.

It seems the banks have lost all sense of urgency in the matter, and that may have brought the issue out into the open to put the pressure on them to start to handle it as one of their top priorities, rather than sit on the back burner like it has been.