Official: Banks returning bailout money have to meet conditions

WASHINGTON -- The government will require banks seeking to return federal bailout money to prove they don't need other special federal assistance, a condition that will make it harder for some institutions to escape restrictions on executive compensation.

The new requirement represents another shift in a changing landscape for banks. It also illustrates the government's desire not to have banks abandon the bailout program if they are not financially prepared to do so.

A senior government official said Tuesday evening that banks eager to return infusions from the $700 billion Troubled Asset Relief Program will have to demonstrate that they can operate without debt guarantees provided by the Federal Deposit Insurance Corp. The FDIC program allows financial institutions to borrow money at lower costs.

The official spoke on condition of anonymity because the standards have not been made public. The Treasury and the Federal Reserve are expected to issue TARP repayment guidelines on Wednesday, a response to banks that want to get out from under bailout conditions.

By linking the two programs, the government could motivate banks to cut themselves off from the various assistance programs that it put in place to unclog credit and free up lending in the midst of the financial crisis.

The bailout program has been unpopular in Congress and prompted a new round of conditions earlier this year following news reports about lavish spending on perks, retreats and corporate planes.

Initially, the government required banks that wanted to repay early to raise money from the private sector. Then Congress eased that rule but attached greater restrictions on the government funds. Among the rules restricting banks were conditions on employee compensation, bonuses and dividend payouts. Congress also required the Treasury to review previous compensation payments.

The FDIC debt guarantee, meanwhile, has proven to be popular with some banks as a way to increase liquidity. So far, banks have issued more than $330 billion under the program, which the FDIC launched in October to help financial institutions finance themselves and make loans.