Wednesday, June 16, 2010

Small Banks Are Big Problem In Government Bailout Program

Although Wall Street and large financial institutions are usually the subject of negative bailout headlines, according to new reports many smaller banks are also behind on their payments to the Treasury Department. According to this article on, over 100 “small” financial institutions that received federal aid are behind on payments. That total is up by around 25% since February, and has reportedly doubled since last year.

The rising number of "deadbeat" banks, as they are known, could force Treasury to become more deeply entangled in the affairs of small financial firms that are troubled. The bailout legislation gives Treasury the right to appoint members to the boards of banks that miss six dividend payments.

So far only one firm, Saigon National Bank in Southern California, has missed that many payments. Eight others have missed five payments and 16 have missed four. Most banks that received federal aid agreed to pay the government a 5 percent dividend every three months upon taking funds from the Troubled Assets Relief Program.

Treasury officials declined to answer questions about whether they were preparing to make board appointments.

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