Strong Banks, Weak Credit: Treasury Rethinks TARP

Big banks are roaring back.

At crisis' edge last year, they are repaying billions of dollars dumped into their vaults to rescue them. Dividend checks are accumulating at the Treasury. Taxpayers won't recoup the full sum of the government's unprecedented infusion to the financial sector, but the returns are ahead of schedule.

With large bets on bonds, commodities and exotic financial products, big banks are reporting third-quarter profits.

Of the $250 billion that the government initially set aside to spend in direct assistance to banks, it has spent $205 billion and the Treasury is already taking steps to bring that program to an end. The ledger: Banks have paid back $71 billion of the infusions. They have also paid the Treasury nearly $7 billion in dividends.

If propping up much of the teetering financial markets was the goal of the government's $700 billion Wall Street rescue, then mission accomplished.

But there were other objectives for the Troubled Asset Relief Program, too: greater lending to consumers and businesses, mitigating foreclosures and helping banks shed toxic mortgage-backed assets.

On that, it's unfinished business.

A program announced with fanfare four weeks ago that would funnel money to small banks at low rates to increase small business lending is still being designed. Treasury officials are looking at plans that could cost taxpayers between $10 billion and $50 billion but are encountering reluctance from small banks.

"I'm told by banker associations and banks, 'Hey, this is good capital, we'd like to have it, but we don't want to be the only bank in town who takes your capital because the others will advertise against us,'" Herbert Allison Jr., the assistant Treasury secretary in charge of TARP, said in an interview. "There is a stigma and it's frustrating, frankly."

Meanwhile, TARP is set to expire Dec. 31. But with about $140 billion still uncommitted (even more, about $300 billion, unspent), the Obama administration is considering extending at least a portion of the huge fund until next October.