On the face of it, yesterday’s news that ten American banks – including Morgan Stanley, Goldman Sachs and JPMorgan Chase – will repay about $68 billion of Troubled Asset Relief Programme (Tarp) money to the US Government is cause for celebration, not least because the repayments were predicated on the ability of those banks to support lending.
The US Government certainly appears to welcome the payments. That is partly because US taxpayers look to have made a decent return on the programme so far and partly because the rapid repayments appear to obviate the need to set up another facility, similar to the Asset Protection Scheme here in the UK, into which the banks may dump some of their most toxic assets.
The banks, meanwhile, are delighted, because it means that they have the Government out of their hair and are now free again to set executive pay without what they would regard as undue interference.
However, a few question marks remain. First, under the Tarp repayments, banks get the right to buy back warrants that the US Treasury holds in them at “fair market value”. But the US Treasury’s process for setting the value of the warrants could be open to disagreement and, at the very least, threatens to be lengthy.
Second, at least one reputable research firm argues that several of the banks now actually have more toxic assets on their balance sheets than they did this time last year, making Tarp repayment a risky thing to do. Audit Integrity, based in New York and Los Angeles, says that the three banks named above, along with Bank of New York Mellon, State Street Bank and US Bancorp, all fall into this category.
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Third, the Congressional Oversight Panel, one of Tarp’s sternest critics, is demanding that the recent stress tests carried out by the US Federal Reserve should be carried out again, arguing that they were based on too rosy a scenario.
That may be too harsh a verdict. But, at the very least, there are grounds for arguing that the stress tests should be regular and ongoing.