I do think that we are going to see tighter regulations and tighter credit than we saw in the five years before the financial meltdown – 2002 through 2007.  Those five years were the culmination of a world wide expansion of credit and leverage that began in the US around 1980, so we really had a great run.  Nonetheless, by 2002, a good number of observers would argue that credit availability was running somewhat out of control.

As Mrs. Wallace suggests, we will have tighter rules, but they will by nowhere near as tight as those that prevailed until the late 1980′s or early 1990′s.  During my career beginning in the late 1960′s, we have done away with limits on interest paid on deposits, most commercial usury limits, limits on branching and cross state expansion, certain caps on real estate lending, and we have expanded the lending limit in many cases from 10% of capital to 25%.  Most of these changes will not be reversed, and credit will continue to be available for borrowers who can demonstrate an ability to repay the loan.  However, I do not see banks going to the credit excesses of the 2002-2007 period, and there will be  people who might have gotten loans then who will not be able to get loans in 2011… and that is probably not all bad.

Related Posts

1. Commentary: NYTimes Recognizes Community Banks - May 18, 2009
2. Commentary: Demonstrating a Bank is Using TARP Capital to Lend - January 15, 2009
3. Commentary: Tightening of TARP Capital Standards - November 21, 2008

• Elimination of the “Stated Threshold” and 95%/5% loss sharing basis.  Accordingly, all loss sharing will be at a constant 80%/20% split (FDIC/acquiring bank) for all covered assets and all losses.
• Bidders will now be expected to express the Asset Premium (Discount) component of their bid as a percentage of the book value of assets purchased, rather than a fixed dollar amount.
• The “First Loss Tranche” will now be an element to be bid, rather then an amount calculated based on assets acquired and liabilities assumed.  Bidders will be expected to express the “First Loss Tranche” component of their bid as a percentage of the covered assets.  The “First Loss Tranche” will continue to represent the amount of losses the acquirer will absorb prior to the commencement of loss sharing.  Negative bids for the First Loss Tranche will not be accepted, although zero bids will.
• As the “First Loss Tranche” will now be separately bid, the net equity position of the failed bank may cause an initial payment to be due to the FDIC at closing, particularly when assets passing to the acquiring bank exceed the deposit liabilities.  (Previously such an acquiring bank merely assumed 100% of the losses until the amount owed the FDIC was exhausted.)
• The Initial Payment will be the sum of  the equity adjustment (assets – liabilities), deposit premium bid (in dollars), and the asset premium bid (in dollars). If the result of the calculation is positive, the acquiring bank will be required to wire the Initial Payment to the FDIC, while if it is negative, the acquiring bank will receive a wire of the Initial Payment from the FDIC.

There will also be changes in the shared loss exhibits, primarily clarifications, with conforming changes made to the Purchase and Assumption Agreement.  The calculation of the “true-up” will also be modified to incorporate the absence of a published Stated Threshold.

We believe these changes increase the risk associated with bidding on loss share transactions, and may thus result in further widening of the negative bids received by the FDIC.

Related Posts

1. FDIC and Open Bank Assistance - January 12, 2009
2. Bank Eligibility to Bid for Loss Sharing Arrangements - September 4, 2009
3. FDIC Expands Bidder List for Troubled Institutions - November 26, 2008

The decline in small business lending has many reasons, not the least of which is that loan demand is actually down.  Lenders are also naturally cautious of lending to those businesses that are reliant solely on cash flow that has slowed due to the slowdown in consumer spending and the decline ion the personal wealth of the owners of the businesses.  Despite the assertions to the contrary by the regulators, lenders are concerned that there is a disconnect between statements from Washington, DC and what actually happens in the field when examiners are onsite at financial institutions.  Our experience seems to show that local federal regulators do not see any upside in being flexible when faced with making decisions about how to rate credits.  Lenders are therefore naturally reluctant to maker decisions based on guidance until they see it actually implemented on the ground.

Related Posts

1. Policy Statement on Prudent Commercial Real Estate Loan Workouts - November 1, 2009
2. Interagency Statement on Meeting the Needs of Creditworthy Borrowers - November 12, 2008
3. Stimulus for Small Businesses — Unlocking the Credit Market - March 17, 2009

(This post was authored by Walt Moeling and Dustin Hall.  A version of this post originally appeared in the August 2009 issue of the ABA’s Community Banker magazine.)

The grim economic prognoses we continue to hear about have an immediate impact in the bank board room. Boards must think about short-term planning for recovery and survival because virtually no bank is wholly immune from the current recession.  Although the problems may have started with residential real estate in the Sunbelt, they have gone much beyond that now, impacting banks throughout the country.

As a director you must plan for both long-term and short-term.  Long-term planning is tremendously important, and we hope to make it to the “long-term,” but short-term planning is critical today.

Short-term planning in this context deals with the reality of today’s marketplace.  The focus is not on earnings or even stock value, two traditional focal points for planning.  Instead, the focus is on capital management, liquidity, and asset quality.

Capital Management

Your short-term capital planning in the face of mounting losses cannot focus on today or yesterday; it must focus on tomorrow.  You must ask: Where are we going?  What will happen if housing prices drop for another two and a half years, as predicted by some?  Can our borrowers sustain a more prolonged recession?  If not, where will our capital be three, six, and nine months from now?  In essence, you must stress test your bank to see how far it can go.

A real problem for directors is assuming that capital today is as readily available as it has been for the past 15 years, or that they can sell the bank if there is a real problem.  Unfortunately, there is no public market, and virtually no private equity, for bank stock.  Those sources are presently closed, shall we say, for repair.  Instead, short-term capital is likely to be found only within the boardroom and from family and friends.

You must also think about the various capital-raising instruments potential investors may desire: plain debt, subordinated debt, convertible-subordinated debt, preferred stock, or common stock. At the same time, dilution, which we used to worry about, is much less of an issue today.  For example, Colonial Bank recently raised $300 million at 15% of tangible book value, diluting its tangible book value per share from $4.26 per share to $1.45 per share.  In this economy, bank directors and shareholders, like everyone else, have seen their net worth decline.  They are short of liquidity, and any capital contribution will likely come from borrowed sources.

Liquidity

Liquidity risk has ultimately doomed most of the banks that have failed recently.  The banking industry grew so much prior to the recession by using wholesale funds instead of traditional core deposits that the whole industry is at risk.  Many banks do not understand their deposit portfolio and are shocked to find that 20% of their deposits come from a few customers or that huge amounts of brokered funds will come due shortly.  Because formal action by Federal agencies effectively eliminates the use of brokered deposits, banks are all too frequently finding they have very limited funding sources.

Asset Quality

For many bank directors, the question has become: What are we running, a bank or a real estate company?  Most directors recognize that they probably should not run a real estate company—bankers should be in the business of banking.  To deal with problem real estate, boards must help formulate bank policies that address foreclosures, holding versus disposing of OREO, and collections against borrowers. Only by analyzing all of this can you know where the bank will be six, nine, or twelve months from now.

Today’s regulatory approach assumes that problems will get worse before getting better.  Examiners are assessing where the bank will be six to nine months from now, focusing on impairment (FAS 114) and loan loss reserve environmental factors (FAS 5). These are new topics for most directors, and you must ask management to discuss with the board these two topics because they are critical to short-term planning.

Working with Regulators

Regulators are asking whether the board is in a state of denial about problems with borrowers and assets.  Denial can exist in many places.  Regardless of the original fundamentals, after two-and-a-half years of housing declines, even the strongest borrowers have been affected.  Regulators know this, and when a board says its bank is not like others, regulators assume the board simply does not understand the current problems.

Think about establishing a relationship with the regulators.  Today, the chairman, the chairman of the audit committee, probably the chairman of the loan committee, must be intimately involved in the regulatory process to understand where the regulators are coming from.  You need to know the bank’s true condition, and regulators can be the best sources of that information.

Regulators can be very receptive to those boards engaged in the active, short-term planning we are discussing.  Much like you, today’s regulators are so deep in the problems that they cannot afford to think about the long term; instead, regulators think about failing banks, and which banks can survive.  Banks and boards that chart their own course now will be the big winners.

The Future Is Now

There is a back-to-the-future future, and it is a good future for community banks: We’re going back to the era of the real banker, and retail strategy will be critical to generate the deposits that will drive community banks going forward.

We are seeing growth in real deposits.  Community banks that lost business as Wall Street underpriced them are now likely to see a return of consumer business.  Wall Street’s capacity to fund easy-money credit cards, home equity lines, and automobile loans has been materially diminished, and, as a result, many people will return to our community banks for funding and liquidity.

As we move forward, personal liability is a significant, legitimate concern.  The warning signs that regulators look for and the topics they talk about are failed business strategies (e.g., expanding real estate lending in 2006 and 2007) and inadequate director oversight (e.g., failing to monitor management, engaging in improper self-dealing, violating the loans-to-one borrower rules, and engaging in insider trading).  You must aggressively address any potential violations and increase participation in the bank’s affairs.

As we emerge from this downturn, you must think about your bank’s products and how your bank will take advantage of the hopefully tremendous opportunities for community banks.  However, right now you must engage in the necessary short-term planning to allow your bank to make it to the other side.

Related Posts

1. Approaching Clarity on TARP “Viability” Standards? - January 28, 2009
2. Commentary: The End of Community Banking? - June 29, 2010
3. Commentary: Tightening of TARP Capital Standards - November 21, 2008

In addition to several technical revisions, we have recommended that Treasury:

• permit TARP recipients to implement new commission compensation programs;
• treat single-trigger change in control payments as retention awards as opposed to golden parachute payments;
• add a $100,000 floor for consideration of an employee as a “most highly compensated employee;”
• permit smaller reporting companies to use the SEC’s smaller reporting company rules for determining their senior executive officers;
• modify its restrictions on tax gross-up payments;
• clarify that the say on pay provisions do not apply to private companies; and
• either clarify or eliminate the 162(m)(5) requirement.

The comment letter is currently being processed by the Treasury Department before being added to the public docket for the regulation, but you can read the complete comment letter here.

Related Posts

1. Questions (and Answers!) on the new TARP Executive Compensation Rules - June 24, 2009
2. Treasury Clarifies Interim Final Rule regarding TARP Executive Compensation Limitations - December 14, 2009
3. Interim Final Rule Regarding Executive Compensation Limitations Published - June 12, 2009

First, composite CAMELS ratings clearly played a significant role in determining the likelihood of success for any given institution.

• 1-rated institutions were generally sent directly to Treasury for approval, and seemingly regularly approved for Capital Purchase Program funds.
• 2-rated institutions with “acceptable performance ratios” were also sent directly to Treasury for approval, and again appear to have been regularly approved for funds.  2-rated institutions with “unacceptable performance ratios” were subject to further review by the interagency council, where at least three of the four federal banking regulators had to approve the application.  The Report states that the interagency council then analyzed “the viability of the institution based on the quantitative and qualitative  factors of the case” in determining whether to recommend approval to Treasury.
• 3-rated institutions were originally treated like 2-rated institutions, but “relatively early in the CPP application review process,” Treasury decided that all 3-rated institutions needed to be reviewed by the interagency council.
• 4- or 5-rated institutions were generally asked to withdraw, without the application being forwarded to the interagency council.

The Treasury would then make an independent evaluation of each application before making recommendations to the three-member Treasury Investment Committee.  The Treasury Investment Committee would then make a recommendation for final approval to the Assistant Secretary.  While only the Assistant Secretary can actually approve a TARP CPP application (all other actions are merely recommendations to approve), according to the Report, the Assistant Secretary had not rejected any recommendation forwarded by the Investment Committee for approval.

Performance Ratios

The Report also includes, as an Appendix, a copy of a “Case Decision Memo Template” that appears to have been the form used by the region/district level office of each federal banking regulator that reviewed TARP CPP applications.  The Memo provides further guidance on the specific performance ratios considered by the agencies.  In addition to CAMELS and CRA ratings, the  Memo called for an evaluation of the following performance ratios, both before and after a TARP infusion and both for the holding company and the largest bank subsidiary:

• Tier 1 Risk-Based Capital
• Total Risk-Based Capital
• Tier 1 Leverage Ratio
• Classified Assets/(Net Tier 1 Capital + ALLL)
• (NPLs + OREO)/(Net Tier 1 Capital + ALLL)
• Construction & Development Loans/Total Risk-Based Capital

While the first three performance ratios are consistent with the three historical measures of bank capitalization, the last three performance factors highlight the focus of the banking regulators on these ratios.

The use of the classified asset ratio (measured by considering all classified assets (substandard, doubtful, and loss) and dividing by total Tier 1 Capital plus the Allowance for Loan and Lease Losses (but not double counting the portion of the ALLL that counts as Tier 1 Capital)) is consistent with our understanding that this is currently one of the most important ratios considered by the regulators.  It is also interesting that one of the ratios that the banking regulators apparently consider to be extremely relevant to their analysis can’t be calculated from the Call Reports, as banks are not required to publicly state their total classified assets.

The use of the non-performing asset ratio to capital plus reserves is particularly interesting given the regulator’s stated dislike of the so-called “Texas Ratio.”  Given increased capital levels and mark-to-market accounting, the standard for what constitutes a good or bad Texas Ratio number has likely significantly changed since the ratio’s creation in prior decades.  However, it remains a significant performance ratio used by the regulators as a rough-indicator of the bank’s condition.

The final performance ratio certainly appears to be a favorite of the banking regulators, at least in the Southeast.  The ratio focuses on the institution’s concentration in Acquisition & Development lending.

Qualitative Factors

In addition to the quantitative ratios provided in the Memo, the Report notes that qualitative, mitigating factors were also considered when there are weaker quantitative measurements for a particular institution.   Specifically, the Treasury and the federal banking regulators noted the following mitigating factors as weighing in favor of granting an application:

• existence of a merger agreement;
• possible adverse effect of a write-down on government-sponsored entities stocks;
• ability of an institution to raise outside capital;
• an applicant’s plans to address areas of concern;
• regional considerations regarding loan concentrations; and
• cash position and ability of the institution to pay the CPP dividend required as a condition of receiving funds.

Conclusion

Given the importance placed on these performance ratios by the federal banking regulators (now explicitly for TARP decisions, but they’re also consistently being used in all other supervision settings, including determining the appropriate form of enforcement action), all banks should consider (a) explicitly measuring themselves on these performance measures, and (b) including the ratios in their monthly board packages so that their directors can see the same numbers that the regulators will be looking at.

Related Posts

1. Acceptable Performance Ratios Under TARP CPP Standards - August 30, 2009
2. Commentary: Tightening of TARP Capital Standards - November 21, 2008
3. Approaching Clarity on TARP “Viability” Standards? - January 28, 2009

Since May 31, 20 small banks have received a total of $164.1 million in taxpayer-funded capital, according to the Treasury’s latest available figures.  Half of those banks got the money in the same week that 10 big financial institutions gave theirs back.

Analysts see no end in sight to the trend.  The recession and borrowers are squeezing most of the 8,200 federally insured commercial banks and savings institutions in the U.S., so even a dollop of TARP funds could make a difference.  Some banks are turning to the government to fill a void left by investors who are leery about pouring money into the sector, despite the rebound by bank stocks since early March.

Meanwhile, the rules and stigma of TARP that turned some executives such as J.P. Morgan Chairman and CEO James Dimon against the program are irrelevant to small institutions.

Their employees usually don’t fly on corporate jets or collect hefty bonuses that trigger outrage from taxpayers, customers and Congress.  And curbs on dividend payments are a modest price to pay for greater assurance that the banks can plow ahead with their core mission to gather local deposits, lend them nearby and support local charities, some recent TARP recipients said.

It’s certainly a stretch to say the executive compensation restrictions are “irrelevant” to small institutions, but community banks generally don’t have the excesses that have drawn public and congressional scorn.  With the deadline for smaller community banks to apply to participate under the TARP Capital Purchase Program extended until November 9, 2009, many institutions are taking a fresh look as to whether to apply, even as larger institutions are making a decision as to whether to seek to redeem the TARP investment they’ve already received.

As indicated by the sheer number of banks still accepting TARP funds and the number (and dollar volume) of banks returning TARP funds, there are good reasons for both courses of actions.

Reasons to Accept TARP Funds/Not to Seek Redemption

1. The Economy is Still at Uncertain.    While we have come a long way last October in stabilizing the credit markets, the economy continues to show increasing weaknesses.  Accordingly, the TARP funds can serve as a nice insurance policy in the event that the economy (and a bank’s loan portfolio) shows further deterioration.
2. The Market for Bank Offerings has Not Fully Recovered.  Especially for smaller community banks, the capital markets have not fully recovered.  Accordingly, there are few sources of capital (at least at reasonable pricing) other than the TARP funds.  Moreover, to the extent the economy worsens from expectations (as noted above), the capital markets may again completely freeze.

Reasons Not to Accept TARP Funds/to Seek Redemption

1. TARP Stigma and/or Making a Statement.  Although it doesn’t match reality for community banks, TARP is perceived by most as a bailout.  As noted in the Wall Street Journal, private institutions are somewhat buttressed from this social stigma, as customers are less likely to know (or possibly care) that the institution has received TARP funds (although the bank will still be named in Treasury’s transaction reports).  The experience of our clients seems to match those that the Wall Street Journal spoke with; shareholders and customers are likely to have questions, but unlikely to move their business.
2. The Cost of the TARP Investment.  Emphasizing the fact that receiving TARP funds is not a bailout, one of the primary reasons for banks not to accept TARP funds is the financial costs of the investment.  In addition to paying a quarterly dividend (5% annualized initially, rising to 9% after five years), the Treasury also receives warrants (with no additional compensation to the receiving bank).  Accordingly, a bank recipient generally needs to have a plan in place to generate income as a result of the investment.  With the economy stalled, the demand for lending has also significantly declined.  Accordingly, banks that are comfortable that their capital levels are sufficient without TARP funds are likely to not accept, or to seek to redeem, a TARP investment.
3. Executive Compensation and Dividend Restrictions.  While not necessarily particularly onerous for most community banks to comply with, these restrictions to represent an intrusion by the Treasury into the boardroom, limiting the bank’s ability to determine how to best compensate its employees and shareholders.
4. Political Philosophy.  Despite the fact that financial institutions are heavily regulated by the federal government without regard to whether the government has made an investment in the institution, many community bankers (and many citizens) simply find it contrary to personal political and economic philosophies for the federal government to make a direct equity investment in private enterprise.  While this reason would preferably take a backseat to concerns over the best interests of the bank and its shareholders, these philosophical objections are likely heard in every board room.

Related Posts

1. Commentary: Does Accepting TARP Capital Mean Additional Regulation? - October 28, 2008
2. FAQ on Expansion of TARP Capital Purchase Program for Small Banks - June 2, 2009
3. Commentary: Big Picture Thoughts on Applying for TARP Capital - November 23, 2008

The Government Accountability Office said in a June 17 report that the Treasury had received more than 1,300 applications from federal regulators as of June 12, and that fewer than 100 were still awaiting a decision. The GAO also said bank regulators are reviewing another 220 applications that have not yet been forwarded to the Treasury.

Of the banking agencies, only the Office of Thrift Supervision details the Tarp application process. Of the roughly 800 companies it oversees, the OTS said 302 have applied for capital injections. Forty-nine have gotten the money and 140 have withdrawn their applications. Another 71 are in some state of review while 42 have yet to be considered.

The Treasury may emphasize that “fewer than 100 are still awaiting a decision,” but that excludes over 200 applications that are haven’t even made it to the Treasury yet.  All told, there are probably 300 applicants that haven’t been told whether they are eligible to receive a TARP investment.

While the Treasury has emphasized that the TARP Capital Purchase Program was available to all eligible financial institutions, the delay in hearing any response has frustrated a number of community banks.

The extended deadline for the smallest financial institutions may alleviate some of the frustration, but the delay in processing is likely to have caused some institutions to have been denied as (i) the Treasury has slowly adopted higher standards for what constitutes viability, (ii) bank’s loan portfolios have continued to weaken generally, and (iii) prior TARP recipients have used the flexibility provided by the capital to sell real estate at low prices, causing further deterioration in the comparables used in the appraisal process – causing even further weakness in the loan portfolio.

Related Posts

1. Updated TARP Application Timing Information - October 30, 2008
2. TARP Capital Application Process - October 28, 2008
3. Federal Reserve TARP Capital Review for Public Member Banks - November 6, 2008

In the midst of the worst banking crisis since the Great Depression, community banks have generally fared well. That’s because they typically shunned the lending practices that led to high default rates. They rarely participated in the securitization of loans, credit-default swaps and other overvalued financial products that put the global financial system in crisis. Instead, they stuck to the fundamentals. They considered the character and history of their borrowers. They required collateral. Without community banks, the current financial crisis would be a lot worse.

The focus of the mainstreet press, and the Treasury Department, continues to be on the largest institutions, whether it be the initial nine TARP Capital recipients, or the nineteen that underwent the stress test.  There is some rationality for this focus, the majority of assets, deposits and loans are held by these institutions.  But just like small businesses generally, community banks play a critical role in the American economy.

Community banks may have weathered the current crisis better than larger banks, but they remain an American oddity. Most other countries have 5 or 10 na­tional banks, and when they get in trouble, as they did in Iceland, it can be devastating. The balance in this country is tipped toward big institutions (the four largest control half the assets held by American banks and 40 percent of all deposits), but community banks still make 43 percent of all small business loans under $1 million. Since January 2008, fewer than 1 percent of all community banks have failed.

Related Posts

1. President Obama Announces Additional TARP Capital for Community Banks - October 21, 2009
2. State of the Union – TARP Money for Community Banks - January 28, 2010
3. Commentary: The End of Community Banking? - June 29, 2010

We do not believe that TARP Capital should fundamentally change the way in which bankers run their banks.  Solely because they have TARP Capital, banks should not approve loans that they otherwise would turn down.  However, any bank with additional capital, which TARP Capital provides, is in a better position to make or renew loans than that same bank would have been without TARP Capital.

A bank should be able to show that TARP Capital is “working” so long as its total loans are higher than they would have been without the TARP Capital infusion.  In recognition of the current economic environment and capital restraints, we believe many banks would be actively attempting to shrink the size of the bank were they not to receive TARP Capital infusions.  As a result, merely maintaining the current levels of loans could, in reality, be the result of TARP Capital increasing bank lending activity.  Even Barney Frank’s proposed reform legislation acknowledges that TARP Capital may simply minimize the decline in lending that normally accompanies economic recessions.  While this metric may be difficult for the Congressional Oversight Committee to accept, anytime the question is asked whether a new program is working, you have to make assumptions about what the situation would look like without the program.

As a result of the fungibility of capital and the need to compare against a hypothetical alternative universe without TARP Capital, demonstrating that a bank is using TARP Capital to lend is probably more about marketing than about accounting.

In many cases (e.g., when a bank holding company has one or more well-capitalized bank subsidiaries), it may make financial sense to delay infusing the TARP Capital funds into the bank as capital until loan demand requires downstreaming.  By preserving flexibility, this approach also protects the safety and soundness of the overall system.  Rather than classifying this approach as “retaining the funds at the holding company,” which communicates that a decision has been made not to use the funds to lend, we would recommend that the approach be discussed as “placing the funds on deposit at the bank to provide liquidity to the bank in order to fund loans.”  While a deposit, unlike a capital infusion, does not allow the bank to leverage the TARP Capital, it still increases the ability for the bank to make loans.

Similarly, banks should use carefully chosen language to discuss the deployment of TARP Capital; language suggesting that “the funds will be used to increase the bank’s capital, which will increase the ability of the bank to lend” should be preferred over “the funds will be used to pay down fed funds borrowings.”  The latter may very well be the initial use of the cash funds until loan demand develops as the bank manages its balance sheet, but it also likely misrepresents why the bank accepted TARP Capital in the first place, blurring the line between a source of capital and simply a source of liquidity.

To the extent that the bank already tracks its loan pipeline and maturing loans, we suggest adding an additional column to the report for management and/or the board to track which loans are being made or renewed “because of the TARP Capital.”  This is obviously a judgment call but provides a basis for subsequent aggregation and reporting.  Aggregated reports and details should then be reported to the board of directors (and included in the minutes) on a monthly basis, with open discussion as to whether their are other opportunities to fruitfully lend, or otherwise use, the TARP Capital.

After several months, we would expect that most, if not all, banks would be able to honestly express something like this: “In light of the $10 million TARP Capital infusion received by the bank, we have been able to make or renew over $30 million in new loans that we would not have otherwise been in a position to make.”  While a three-times leverage may not even be sufficient to cover the dividend costs of the TARP Capital, it may go a long way to alleviate any political or customer pressure to demonstrate how the bank is using the TARP Capital.  For banks looking at TARP Capital as a transient investment that they intend to redeem in three years, we would caution to not over-leverage the funds; anything more than five- or six-times leverage may ultimately cause the institution to be come addicted to the TARP Capital.

To supplement the language used by the bank and the tracking reports, we would recommend that banks receiving TARP Capital initiate a marketing campaign indicating that the bank has received TARP Capital and is now in position to make loans to qualified borrowers looking to turn around this economy.  The marketing campaign may or may not be successful in actually identifying qualified borrowers (although it certainly is in everyone’s interest for qualified borrowers to get loans), but it does act as evidence to the regulators that if there is a nominal decrease in lending, it’s because of the economic environment, and not because the bank doesn’t want to lend.

Unfortunately, the economy remains in a recession, and the ultimate conclusion of that recession remains unclear.  As a result, bank lending is likely to continue to be tight for the foreseeable future.  However, if positioned correctly, we are not aware of a single banker who would plan on cutting back from lending merely because the bank had more capital as a result of the TARP Capital infusion.  Bankers like to help people achieve their dreams by providing financial support in the form of loans.  TARP Capital provides an additional resource for bankers to do so.  It is incumbent on the industry, and each bank, to demonstrate that the bank is ready, willing, and able to lend “TARP Capital money” to qualified borrowers.

Related Posts

1. Commentary: Big Picture Thoughts on Applying for TARP Capital - November 23, 2008
2. Commentary: Tightening of TARP Capital Standards - November 21, 2008
3. Commentary: Does Accepting TARP Capital Mean Additional Regulation? - October 28, 2008