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 WashingtonPost.com, 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.

GM to Announce It Will Pay Back Government Loans Soon

Tomorrow, General Motors is supposed to announce its plan for repayment of government bailout loans, something they have been promising for months. As this USA Today article explains, the recovering auto manufacturer still owes money to the U.S government as well as the Canadian government, in the amount of $5.8 billion.

CEO Ed Whitacre is set to announce the payment at GM's plant in Fairfax, Kansas assembly plant. He'll then fly off to Washington to meet with House Speaker Nancy Pelosi and Michigan's Congressional delegation, The Detroit Free Press says.

Anyone who takes the repayment as a sign that business is completely back on track may want to pause before taking a victory lap.

The $4.7 billion check going to the U.S. Treasury and the $1.1 billion check going to the Canadian governments comes directly out of an escrow fund the two governments set up for the automaker when it was coming out of bankruptcy. The automaker was required to pay back that money by June.

And repaying the loans doesn't mean the automaker is free from government ownership: The U.S. still has a 60.1% stake in GM.

Bank of America to Repay TARP, Raise Cash

Yesterday, Bank of America announced plans to repay the $45 billion in government bailout money it received last year. They hope the move will help them recruit a new CEO, a feat they have yet to manage since their last CEO (Ken Lewis) announced this was to be his last year with the company.

The bank said in a statement it would use available cash and raise $18.8 billion in capital to repay the money, which it received during the height of the credit crisis last year and after its purchase of Merrill Lynch & Co. earlier this year.

Bank of America has been searching for a successor to CEO Ken Lewis since the bank announced in late September that he planned to retire on Dec. 31. But the bank, burdened with government restrictions and close oversight after accepting the Troubled Asset Relief Program funds, has so far been unable to sign a new chief executive.

"It removes the stigma that we've had as a company," spokesman Bob Stickler said of the planned repayment. "We become more attractive to a CEO candidate. Whether that means we get somebody external is impossible to say."

The bank has said it was considering candidates from inside and outside the company. Stickler said a decision is expected "in the near future."

Investors were relieved by the news, and sent Bank of America stock up 3.3 percent in after-hours trading.

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