LOS ANGELES, WASHINGTON AND NEW YORK — The Treasury Department's decision Tuesday to allow 10 major banks to repay their federal bailout money is a measure of how much the fear of a wholesale collapse of the banking system has receded since last fall.
Although banks continue to receive many types of federal support including loans, banks are increasingly able to attract private capital, to trade securities and to give consumers confidence that their deposits are safe, experts said.
The progress is crucial to a recovery from the recession that is gripping the auto industry and other nonbanking sectors of the economy. From the very beginning of the financial meltdown, economists have warned that a crippled banking system propped up only by an endless flow of taxpayer money would be an anchor on the rest of the economy.
"I think it's fair to say that the force of the global storm is receding a bit," Treasury Secretary Timothy F. Geithner said. "We want to see a financial system that's strong enough that it's going to be able to support a reasonable recovery. And we're in a much better position today than I think we could have expected to have been . . . six weeks ago, two months ago, three months ago, four months ago."
The repayments also demonstrate that the much-maligned Trouble Asset Relief Program, hastily concocted in the desperate days of last October, will not be a black hole for taxpayers.
The 10 banks could repay as much as $68 billion of the $199 billion invested in more than 600 banks under the capital purchase program, a part of TARP. In addition, the federal government has received $4.5 billion in dividends on its investments, earning a higher interest rate than it currently pays to borrow. The repayments will go into the Treasury Department's general account, allowing flexibility to reuse the money to stabilize the financial system.
But Tuesday's milestone hardly signals that the U.S. banking system is on a path to normalcy any time soon, economists say. Three of the nation's biggest banks aren't on the list of those healthy enough to repay the funds: Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. All three were told by regulators last month to raise additional capital.
