In the News: TARP Bankers say They are Unfairly Criticized

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TARP Bankers say They are Unfairly Criticized, Most Used Money to Spur Lending

July 26, 2009

Community banks that received TARP money are bristling at the daily criticism from Washington that they are misspending the funds. Last week’s release of an audit from TARP’s Special Inspector General (SIGTARP) that detailed TARP spending didn’t help matters.

“Nobody wants to stand up for the good bankers in this deal,” says Robert B. Atwell, chairman, president and CEO of Nicolet Bancshares ($636 million) in Green Bay, Wis., which received a $15 million capital infusion from Treasury last December.

The watchdog report was based on a survey sent to banks that received TARP funding through January. While most of the banks reported that they had not segregated the government’s funds from their own, more than 80% reporting using the funds to either make new loans or help them avoid reduced lending. More than 40% said they used the money to boost their capital cushions. About one-third said they invested the funds in agency-mortgage backed securities, positioning themselves for increased lending later. And a smaller number of banks said they used the TARP dollars to repay outstanding loans, buy other banks or had not yet allocated the funds.

Yet those findings led to headlines like “US Banks Misused TARP Money” from UPI, and “Bank Overseer Says Banks Misused TARP Funds” in The Washington Post.

“I don’t like the tenor of the whole dialogue around TARP since we got involved with it,” Atwell says, noting that most people are unaware that the banks pay interest on the funds. When he answered Special Inspector General Neil Barofsky’s survey, he noted that he was concerned that “a broad brush is being applied to the banking industry and to all banks that received TARP funds.”

Rusty Cloutier, president and CEO of Midsouth Bank ($937 million) in Lafayette, La., scoffs at the notion that banks are not using TARP funds to make more loans. “No bank is not trying to make loans,” he says. “I wish they would stop grandstanding and solve the real problems.”

One week after receiving the TARP money, Nicolet National Bank also raised $9.5 million in a private common stock offering. “It’s a little hard to say what money went where,” Atwell says. “The notion that the public seems to have is that there are 15 million dollar bills in iridescent ink going through the economy of Green Bay,” he says. “Money is fungible, especially in its electronic form. I can show you the debits and credit that went on during that period.”

Still, in his answer to the TARP survey, which Atwell posted on his bank’s website, he said the bank “originated, or committed to originate” $54 million in new loans, renewed $24 million in credit to existing customers, repurchased $6 million of participations and maintained a $3 million line of credit to a local bank holding company — all with the government funds.

“What we did with the money was we infused it into the bank,” he says. “It dramatically increased our capital base, a very good thing to have defensively.”

Atwell says he thought the purpose of the TARP money was to “invest in our community.” He assumed that Washington policy-makers believed that local bankers had a good awareness of the local economy. But now he finds that, “There is a fair amount of thinking in Washington that they know best.”

Cloutier couldn’t agree more. His bank got $20 million in TARP funding, money he says the bank took, “because I thought it was the patriotic thing to do.” But he found it wasn’t easy to lend the money. The bank held 14 town hall meeting in south Louisiana and southeast Texas, focusing on lending opportunities for small businesses. But folks didn’t want to take on new debt. “Trying to loan money to customers is like trying to feed green peas to my 7-month-old grandson,” Cloutier says. “He doesn’t like them.”

Still, the bank made $13 million in new consumer and commercial loans after it received its TARP infusion and generated more than $7 million in new mortgages, he told Congress in March. But he did not segregate the funds, Cloutier allows. But he knows this: Lawmakers in Washington are clueless about how to solve the financial crisis, he says, adding that there are two sets of rules in America, one for the big banks and one for the community banks. He is even writing a book about it, tentatively called “Big Bad Banks: How Greed and Corruption Destroyed the American Economy.”

Barofsky says his survey proves that banks “can provide meaningful information about what they are doing with TARP funds.” He wants Treasury to demand more accounting from the banks, but Treasury contends such an accounting is meaningless when the money is comingled with other funds.

The government has made TARP investment in 657 financial institutions, including 300 small and community banks. The smallest infusion was $301,000; the largest $25 billion. The survey was based on 360 responses. Of those, 103 reported using TARP money for residential mortgages, 66 for commercial mortgages, 61 for other consumer lending, 45 for small business loans, 48 for other business loans, 34 for loan modifications, eight for credit cards and six for student loans. Of those banks that invested TARP money, 88 said they invested in agency mortgage-backed securities, 19 in municipal securities, 10 in agency debt, 8 in non-agency MBS and 6 in corporate debt.

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