The headline of today’s Financial Times cover story “Banks use Tarp funds to boost lending,” could not be more misleading.
As the article itself makes clear, “Some 43 per cent [of banks] said that they had bolstered their capital cushion, 31 per cent made other investments, 14 per cent repaid debt and 4 per cent made acquisitions.” Clearly, the 49 per cent of the TARP funds (31+14+4) that went to something other than “bolstering capital cushions” did not go to loan making, but that does not at all mean that the 43 per cent which did go to capital cushions materially “boosted lending”, even though a large number of the respondents would have us believe it did:
First, one needs to measure the amount of TARP dollars not the number of TARP recipients, since of course a small distressed regional bank that received a de minimus amount of TARP monies is no comparison to, say, Citibank and BofA, and the article fails to make this distinction.
Second, a careful review of last week’s bank earnings reports shows that in the first half of 2009, the major banks, which received almost all of the actual TARP monies, actually used their bolstered capital cushions and the exceptionally high 25:1 leverage ratio permitted under the Geithner stress tests mostly for renewed proprietary trading – and, according to their very own statements, specifically NOT for much new lending.
- Leo Hindery
Chairman, Smart Globalization Initiative, New America Foundation
Managing Partner, Intermedia Partners
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– Samuel Sherraden