TARP Bailout if a Windfall to Banks but Not Borrowers

As the Obama Adminstration considers the payout of the next $300 billion from the $700 billion TARP, it might want to see what banks are saying about the first round of money they received. Many are seeing the public funded cash as a way of advancing their business and funding future acquisitions, neither of which was the prime reason to be giving money to banks. Perhaps most discouraging, many banks are saying the TARP money isn't making a material difference in their business decisions. In fact, many of the banks that received TARP money have raised rates on their credit cards, tightened lending standards, and made it more difficult on their customers. Citibank and Chase recently raised the rates on their credit cards even though the Federal Funds rate is at 0%. So what are we getting for our money?

From the NY Times:

"Alan White, Chairman of PlainsCapital Bank of Dallas said the bank had not yet decided what to do with its bailout money, which he called “opportunity capital.” Increased lending would be a priority, said Mr. White, who did not rule out using it for other acquisitions, adding that when regulators invited PlainsCapital to apply for federal dollars, there were no conditions attached.

“They didn’t tell me I had to do anything particular with it,” he said.

None of the bankers who appeared before recent investor conferences offered specific details about their intentions, but recurring themes emerged in their presentations. Two of the most often cited priorities were hanging on to the money as insurance against a prolonged recession and using it for mergers."

Banks should be pragmatic and respondible in running their business but the money was supposed to help them take a bit more risk with their lending, credit card portfolios, etc. It wasn't meant to serve as a war chest for future acquisitions.

Hopefully, the next $300 billion will have specific goals and restrictions associated with it so that banks aren't receiving a financial windfall on the backs of cash-strapped consumers.