Small banks face decision over TARP loans

|By:, SA News Editor

With 80 lenders still owing the government $2B from TARP financing they received during the financial crisis, 27 of them have until the end of next week to repay the loans or face an increase in interest rates.

The quarterly dividend payment they would have to pay the Treasury is set to increase to 9% of the loan balance outstanding from 5%. The rise will hit another 32 banks by mid-May.

Banks that are returning the money include Buffalo-based Crazy Woman Creek Bancorp (CRZY) and Virginia-based First Capital Bancorp (FCVA).

However, other banks don't have the means to repay the loans just yet, increasing the risk that they might fail or have to sell themselves.