Strong Banks to Face Government Conditions on TARP Repayments

The nation’s 19 largest banks will be allowed to repay billions in TARP repayments, but only if such a move passes a test to determine whether it’s in the national economic interest, the Financial Times reported on Sunday, citing an unnamed senior U.S. administration official.

From FT: “Our general objective is going to be what is good for the system,” the senior official said. “We want the system to have enough capital.”

The official also told FT the government had three basic tests.

It needed first to “make sure the system is stable.” Second, to not create “incentives for more deleveraging which would deepen the recession.” Third, to make sure the system had enough capital to “provide credit to support the recovery.”

The report also said banks that had plenty of capital and demonstrated an ability to raise fresh capital from the market should, in principle, be able to repay government funds. But the judgment would be made in the context of the wider economic interest, the report said.

The comments come as Goldman Sachs (GS), JPMorgan (JPM) and other banks are trying to convince the administration to allow them to repay their federal bailout funds.

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