About 20 percent of the banks that received TARP funds from the US Treasury have missed payments.
Of the 707 banks that received Treasury funding during the Troubled Asset Relief Program, 139 have not made timely payments to their Treasury Department creditors.
A new paper by finance professor Dr. Linus Wilson, of the University of Louisiana at Lafayette, explores the underlying data. Specifically, Wilson looks at how banks that received over $6 billion in Treasury funds have fallen behind on their dividend payments to the government.
In his analysis of the causes of the defaults, Wilson concludes that: "Banks with weaker core capital ratios, more charged off loans, more allowances for loan losses, more non-performing loans, and lower returns on assets are more likely to miss their Troubles Asset Relief Program (TARP) dividends."
Moreover, according to Wilson's analysis, 11 percent of America's banks are on the FDIC's problem bank list—but 20 percent of the banks that received TARP funds can't make their payments.
What exactly are we to conclude from that disparity?
Would a reasonable person begin to suspect that perhaps the actual percentage of troubled banks is higher than the FDIC's list would suggest? Perhaps.
But Wilson takes the opposite tack, suggesting that the Treasury may have invested in the wrong small banks:
"The Capital Purchase Program (CPP) was meant for healthy banks. But it seems like banks in the CPP are not as healthy as the average bank."
When I asked Dr. Wilson what conclusions one might draw from that, he sighed. "The government is not a good private equity investor," he said.
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