A growing number of healthy bank chains across the country are bailing out of the $700-billion federal banking bailout program, saying it has tarnished the reputation of banks that took the money and tangled them in unwieldy regulations.
When the program began last fall, it was billed by then-Treasury Secretary Henry M. Paulson as an investment in strong banks to make them even stronger.
Traditionally conservative local banks around the country began applying for the program, accepting Paulson's explanation that participation would be a sign of financial strength.
But not long after the program began, it became clear that the bulk of early funding was going to a handful of financially crippled giants such as Bank of America Corp., Merrill Lynch & Co., American International Group Inc. and Citigroup Corp.
"It was supposed to be a badge of honor if you were able to get this money, but now it's a badge of honor if you didn't take it, with all the bad publicity it has attracted," said Alan Rothenberg, chairman of 1st Century Bank in Century City.
Rothenberg's bank took a look at the Treasury program and decided to avoid it.
More than 100 banks were approved by federal regulators to get money under the Troubled Asset Relief Program, or TARP, and then backed out before getting any, a senior Treasury official disclosed. The department said earlier this week that 489 banks have received funding and about another 1,000 are still being evaluated.
But a growing number of banks that have received the money now want to give it back.
"The TARP money is tainted and we don't want it," said Jason Korstange, a spokesman for Minnesota-based TCF Financial Corp., which received $361 million and announced this month that it wanted to pay it back. "The perception is that any bank that took this money is weak. Well, that isn't our case. We were asked to take this money."
The bank issued a toughly worded statement earlier this year, saying that the money had put the financially strong banking chain at a "competitive disadvantage" and that the bank now believed it was "in the best interest of shareholders" to return it.
Chicago-based Northern Trust Corp., which took $1.5 billion, seems even more anxious for a quick exit. It found itself the object of national ridicule several weeks ago when it put on a golf tournament for its well-heeled customers at the Riviera Country Club in Pacific Palisades.
