Five Banks Pay Off Bailout Funds Totaling $353 Million: More Banks to Follow Suit?

For five US banks, their debt to the federal government has been paid in full. And with that, they have also freed themselves from the tightening restrictions that are now being imposed on recipient banks.

The Obama administration revealed Thursday that five banks which each received a portion of the $700 billion TARP funds have repaid the US government, giving back a total of $353 million plus $5.4 million in dividends.

Further disclosing that these were the first financial institutions to do so, Treasury Department spokesperson Andrew Williams named the five banks to be the Iberiabank Corp. of Lafayette, Louisiana; Bank of Marin Bancorp of Novato, California; Old National Bancorp of Evansville, Indiana; Signature Bank of New York; and Central Financial Holdings Inc. of Morgantown, West Virginia.

Earlier last month, many banks have expressed their intention of returning their allocation of the bailout funds as soon as possible, saying that instead of boosting their reputation, participating in the TARP program has instead served to tarnish the public’s perception of them as “weak” institutions and in dire need of assistance – publicity which couldn’t be further from the truth for many of these banks.

Moreover, with the recent uproar over executive bonuses paid out by giant banks that have received bailout assistance, the government is imposing tougher limitations on banks which have benefited from the funds. Many banks simply want to opt out of constant government and public scrutiny.

Couple these drawbacks with the fact that at an interest of 5% in the first five years, and increasing to 9% in the succeeding years, making profitable use of this money would be an uphill challenge even for the most healthy of banks.

All things considered, many smaller banks that have been fortunate enough to be spared of the subprime mortgage crisis and still enjoy a relatively sound balance sheet are either making arrangements to return the funds post haste or are passing up on the offer altogether.