A growing number of banks are expressing the desire to repay the billions of dollars in taxpayer dollars that they borrowed in the form of TARP money. Banks have worked hard to increase capital levels over the past several months and now 10 banks have started the process of repaying the money they borrowed. But how much of this is an indication of healthier banks ready to make funds available to businesses and consumers again, and how much is this just an effort by these corporations to get out from under government control?

Repaying TARP money isn’t easy. Uncle Sam made it simple, and mandatory in some cases, for banks to take these loans from the government. They have made paying the loans back more difficult. The biggest factor is that the banks need to pass a stress test, demonstrating that they have sufficient capital without the TARP money to continue operations even if the economy continues in its extended downturn.

The hopes of easy credit from these banks once they are out from under the TARP money are probably unfounded. Five of the ten firms repaying the loans at this point are financial institutions that do very little in consumer lending, including investment banks Goldman Sachs and Morgan Stanley along with three asset managers. Of the five commercial banks approved to repay loans, only JP Morgan Chase has a sizeable consumer lending program. Chase will write a check for $25 billion to pay off the funds they borrowed.

The other big players in consumer lending-Citibank, Bank Of America, and Wells Fargo–are still not in a position to repay the TARP money, no matter how much they would like to get out from under heavy government influence. The federal government has kept a watchful eye on the companies that have borrowed money, not afraid to flex their muscle to influence company decisions. Major companies in other industries, such as cell phone companies, have turned down offers of government support just to retain complete control of operations within their companies.

Although we probably won’t see a flood of dollars become available for lending, this is a good sign in the overall recovery for financial institutions. Government officials are optimistic that lending will pick up sooner rather than later, and banks look forward to rebuilding after one of the most difficult chapters in the industry’s history.

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Tags: banks, credit, repay, TARP

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