The Fed just raised the stakes of beneficiary banks.
It’s not something that they didn’t expect to happen but TARP beneficiaries seem to be acting stranger as the months pass by. Recently, the Federal Reserve pulled its reins over the banks that received the bailout money when it issued a new demand that they raise specific amounts of new capital. Among the large banks include JPMorgan Chase & Co. (needs $5 billion in common equity) and Morgan Stanley (required to pool in $1.8 billion). In an exclusive Bloomberg interview, Lawrence Kaplan , former attorney at the Office of Thrift Supervision, declared, “The Fed doesn’t want to be criticized for allowing people to repay this and then having the banks say we just don’t have the capital to make loans now. It’s an exercise to make sure that no one is going to get criticized for allowing these redemptions.”
Kaplan nails the point. The government is making sure that it won’t earn the grunt of billions of taxpayers and has to fulfill its promises of getting back their money to where America is expecting the funds to be allotted for. But to no surprise, the banks are not taking this fairly. Last June 1, Jamie Dimon, Chairman of JPMorgan read his letter (albeit a fictitious one) addressed to Treasury Secretary Tim Geithner at the 31st Annual NYU International Hospitality Industry Investment Conference, “Dear Timmy, we are happy to be able to pay back the $25 billion you lent us. We hope you enjoyed the experience as much as we did.”
This comes after learning the costs of borrowing from the government and the hefty consequences that he has to pay.
While the stress test results were just a precursor of the higher capital requirements recently announced, it has already brought banks scrambling to sell shares and raise the repayment funds. And is the sarcasm worthy enough for the public to hear from Dimon? Definitely no.
The banks have gotten themselves into trouble in the first place. Had they not remained foolish to grant risky mortgages to their clients, they wouldn’t have taken advantage of the loose regulation that was irresponsibly set by the government. So here’s to the frenzy in the banking sector: more stresses to endure, more stringency from your lender – your one and only government.
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