Treasury: 10 Banks Can Repay TARP Billions

WASHINGTON, June 9, 2009 -- "Freedom!" yelled Mel Gibson, as William Wallace, in the famous scene from "Braveheart."

Such a cry might be echoing around the offices of some of the nation's biggest banks after they got the green light from the government to repay bailout money.

The Treasury Department announced today that 10 of the country's 19 stress-tested banks can now pay back $68 billion in federal funds received as part of the $700 billion Troubled Asset Relief Program, or TARP.

In a written statement, Treasury Secretary Tim Geithner today voiced guarded optimism about the paybacks.

"These repayments are an encouraging sign of financial repair, but we still have work to do," he said.

The $68 billion Treasury will rake in from this first round of repayments is nearly three times the initial prediction of $25 billion made earlier this year.

JP Morgan Chase and Morgan Stanley Among Banks to Pay Back TARP

While the Treasury Department did not name the banks that would be making the repayments, six banks confirmed to ABC News that they have received the government's approval to pay back the following TARP investments:

JP Morgan Chase: $25 billion

American Express: $3.4 billion

Capital One: $3.6 billion

Morgan Stanley: $10 billion

BB&T: $3.1 billion

US Bancorp: $6.6 billion Northern Trust: $1.6 billion State Street: $2 billion Bank of New York Mellon: $3 billion Goldman Sachs: $10 billion

"The financial services industry is well-capitalized," said Steve Bartlett, President and CEO of the Financial Services Roundtable, a leading group representing the banking industry. "This is a positive sign for the industry and the economy."

Removing 'Scarlet Letter'

For some banks, like JP Morgan Chase, Goldman Sachs and Morgan Stanley, approval to pay back the money could not come soon enough. JP Morgan Chase CEO Jamie Dimon recently described participation in the program as "a scarlet letter."

Banks' frustrations with TARP were shared by some lawmakers on Capitol Hill, who wondered why the government would make banks obtain approval just to pay back American taxpayers.

In a letter sent last week to Geithner and Federal Reserve Chairman Ben Bernanke, Sen. David Vitter, R-La., blasted the repayment process as "completely unacceptable."

"It has been clear from the implantation of this program that there is no exit strategy," wrote Vitter, urging that, "Creating clear and reasonable rules for repaying TARP funds will begin that long overdue process that will save the American taxpayer from TARP."

And Republican outrage in Congress does not end there.

On Monday, Rep. Jeb Hensarling, R-Texas, the lone sitting member of Congress on the Congressional Oversight Panel, a watchdog group overseeing the TARP, called for the program to be terminated within six months.

Hensarling's bill not only wind down the program by the new year, it would also require Treasury to accept repayments from "safe and sound institutions" that want to return the money.

That would mean more money returning to government coffers sooner rather than later.

'Unanswered Questions' From Bank Stress Tests

The Fed's approval of the bank repayments comes a month after the government announced the results of its stress tests, which determined which banks, according to federal officials, should raise more capital to cushion themselves against further economic shocks.

A watchdog group today called the tests "helpful," but cautioned that there are still "unanswered questions."

The day after the Federal Reserve approved plans submitted by 10 of the country's 19 biggest banks to raise more capital as a result of the government's stress tests, a watchdog group called the tests "helpful," but cautioned that there are still "unanswered questions."

To assess the usefulness of the stress tests, the Congressional Oversight Panel recently consulted with two experts -- University of California at Berkeley professors Eric Talley and Johan Walden -- and found positive reviews overall.

"Based on the available information, the professors found that the Federal Reserve used a conservative and reasonable model to test the banks, and that the model provides helpful information about the possible risks faced by [bank holding companies] and a constructive way to address those risks," the panel said in its new report, which is to be released today.

But Talley, a law professor, and Walden, who teaches at Berkeley's Haas School of Business, did voice "some serious concerns," the panel said.

"They noted that there remain unanswered questions about the details of the stress tests," the panel said in its report. "Without this information, it is not possible for anyone to replicate the tests to determine how robust they are or to vary the assumptions to see whether different projections might yield very different results.

"There are key questions surrounding how the calculations were tailored for each institution and questions about the quality of the self-reported data," the COP report said.

One issue is that the stress tests only used economic projections dating to the end of next year.

"While this time frame avoids the greater uncertainty associated with any projection further in the future, it may fail to capture substantial risks further out on the horizon," the watchdog group warned.

So, the panel suggested in its 50-page report the government should conduct the stress tests again if economic conditions warrant.

"Regulators should have the ability to use stress tests in the future when they believe that doing so would help to promote a healthy banking system," the panel said.

Continued High Unemployment Could Make Stress Tests Obsolete

For example, if the nation's unemployment rate -- currently at a 25-year high of 9.4 percent -- continues to rise for the rest of the year, then it will likely surpass the government's adverse stress test scenario of an 8.9 percent average for 2009, rendering the stress tests obsolete.

Or, the panel said, if banks continue to keep "a large amount" of toxic assets on their balance sheets, then more tests would help.

Also, the panel added, "Between formal tests conducted by the regulators, banks should be required to run internal stress tests and should share the results with regulators."

Elizabeth Warren, the panel's chairwoman and the Leo Gottlieb Professor of Law at Harvard University, will head to Capitol Hill this morning to testify on the report before the Joint Economic Committee.

Meanwhile, the panel's lone sitting member of Congress called Monday for the $700 billion Troubled Asset Relief Program to be terminated within six months, noting that as a result of the stress tests, the 10 banks can now raise additional capital either in the private markets or simply by using the remaining bailout funds at the government's disposal.

"Through the stress tests, regulators have assured us of financial market stability going forward -- there is a defined capital hole and there is adequate unused TARP capital for this shortfall," said Rep. Jeb Hensarling, R-Texas.

"In addition, banks are again raising capital in the private markets, which can serve to reduce the capital shortfall identified by the stress tests," he said. "If banks are unable to raise capital, there is adequate unused TARP capital for this shortfall."

With the Treasury Department set to announce in the coming days which banks will be allowed to repay TARP money, around $50 billion -- twice the department's original estimate of $25 billion -- may soon come back into government coffers.

Economic Justification for TARP 'No Longer Exists,' Critic Says

"The economic justification for TARP's creation and taxpayer assistance to financial institutions no longer exists," Hensarling said.

"It's clear to me that the original goals for TARP -- primarily financial stability and taxpayer protection -- are no longer the aim of the program," he said. "It is increasingly being used instead to promote the economic, social, and political agendas of the administration."

On Tuesday the final report will be posted on the Congressional Oversight Panel's Web site.