Government sets rules for banks wanting to return bailout money

WASHINGTON -- The nation's largest banks that want to exit the financial rescue program will have to demonstrate to the government that they can survive without its support.

In a joint statement, Treasury Secretary Timothy Geithner and other government banking officials said Wednesday that the 19 largest banks seeking to withdraw from the $700 billion rescue program will have to prove that they can borrow money without the support of the Federal Deposit Insurance Corp.

The new rules for repayment of bailout money were issued by the Federal Reserve and the Treasury Department one day before the government is scheduled to provide the results of "stress tests" it ran on the 19 banks.

The statement said that the 19 banks will be allowed to exit the $700 billion bailout program only if they have the enhanced capital requirements called for in the stress tests.

In addition, they will have to show they can borrow money without the support of the emergency program established by the FDIC in October at the height of the financial crisis.

That program allows banks to borrow money at lower rates because the FDIC guarantees the bank loans. Banks have more than $330 billion in debt outstanding under the program.

Many banks have said they want to pay back the money they received from the bailout fund because they object to conditions Congress has imposed, including caps on executive pay.

However, the requirements being imposed on the large banks will mean that they will also have to demonstrate the ability to raise money through normal inter-bank lending, without FDIC guarantees, something that the healthiest banks have already begun to do.

The joint statement did not address another issue that could block some banks from paying back the bailout money: payments by the banks to the Treasury Department for warrants the government received to purchase stock in the banks.

Many banks are arguing that they should not be required to buy back those warrants. But others contend that taxpayers should get some return on the huge investments made in the banks.