Grouper

Why Banks Want to Return TARP Money

Interesting information, but it sounds like no one on this board uderstands banking. First of all it is a hugely leveraged business. 6 to 8% real capital, which can include long term debt, preferred stock, common stock, etc. All the rest of the money is FDIC insured deposits or Fed borrowings (costing anywhere from 0% to 4%). That means that $1B in TARP can turn into $15B in loans. The average cost of funding the loans is in the 1% to 2% range, so lending at 6% is extremely profitable. TARP was created because no one else would give banks capital. Buffett did his deal with Goldman and GE at 10% plus in the money (at the time) warrants.

Goldman, Citi, and BOA are trying to repay their TARP debts because they got back door TARP money from AIG. AIG paid out obligations at face value with your money, so now these guys can repay their TARP with free money (really should have been huge losses because AIG was bankrupt, and they should have received nothing).