TARP outcome: "A tale of two worlds"

By: Wendell Cochran

Posted: April 22, 2010 | Tags: BankTracker, TARP, USA TODAY

For the past several weeks, I have been working with USA TODAY reporter Dennis Cauchon to analyze the effectiveness of the Troubled Asset Relief Program, the $250 billion package designed to shore up the nation's banks during the financial crisis. Today, the paper published the results based on federal banking reports the Workshop uses for our BankTracker project.

We found that, while overall lending has declined since the program began, banks that took TARP money (most of which now has been repaid) actually reduced lending more than those that didn't get federal aid. They also continued to expand their branch networks at a faster pace and increased employee pay more.

Mississippi banker Michael Achary told Cauchon: "It was definitely a tale of two worlds: banks that took TARP and those that didn't." 

That was hardly the plan. The TARP banks were supposed to be the healthy institutions that would use the money to boost lending, even in the face of a serious economiic downturn.

Shortly after TARP was up and running, Bush administration Treasury Secretary Henry Paulson, who conceived and created TARP, said, "all banks – not just those participating in the Capital Purchase Program – have benefited, so they all also have responsibilities in the areas of lending, dividend and compensation policies, and foreclosure mitigation...." You can read his full statement here.

During his confirmation hearing, current Treasury Secretary Timothy Geithner told the Senate Finance Committee that, "As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending above baseline levels."  Check out Geithner's testimony.

In retrospect, it might have been naive to expect banks to dramatically increase lending. Demand for loans almost always falls during recessions, and this has been an especially deep downturn. What's more, this was an economic and financial crisis largely caused by consumers and businesses taking on too much debt, especially for mortgages.

So why did officials emphasize lending as a measure of success? Probably because they figured it was the argument that made such a massive package of federal assistance acceptable to the politicians and the public.

If you are curious whether your bank took TARP funds, you can use BankTracker's search feature to find any TARP bank.