Magazine article American Banker

Fed Seeks Plans for Repayment

Magazine article American Banker

Fed Seeks Plans for Repayment

Article excerpt

Byline: Steven Sloan

WASHINGTON - The Federal Reserve Board is pushing banks to figure out how they will repay government bailout money while also debating how it will clean up its own balance sheet.

The Fed has told nine banks that were part of this year's stress test but have yet to pay back funds borrowed through the Troubled Asset Relief Program to submit plans for repayment, a source familiar with the situation said Tuesday. The goal is to force banks to figure out how they will operate without the taxpayer money.

The nine banks, which include Bank of America Corp., Citigroup Inc., GMAC Inc. and Wells Fargo & Co., have borrowed $142 billion from the $700 billion Tarp.

The banks will have to prove to the Fed that they can raise common equity and hold more capital than was required under the stress test before being allowed to repay Tarp funds.

The Fed's request to banks was first reported by

It is unclear how much time the Fed is giving the banks to draft their reports.

The Fed, meanwhile, has its own eye on returning to more normal operations. Minutes released Tuesday of the central bank's policy meeting earlier this month suggest a lively debate over how to pull out all of the cash it has dumped on financial markets during the turmoil.

There seems to be broad support behind at least three potential ways to withdraw liquidity: increasing the interest the Fed pays on bank reserves, broad reverse repurchase agreements and creating separate accounts where banks can hold their reserves. …

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