TARP Repayment vs Re-Regulation

Be sure to read Jack McHugh’s comments on the TARP repayment. He specifically asks:

1. With all the chatter about responsible regulatory reform, shouldn’t the rules governing bank conduct (e.g. leverage ratios, off balance sheet vehicles, etc.) be put in place before TARP repayments flow in?

2. Before TARP preferreds can be redeemed, shouldn’t the banks swear off all the other forms of federal assistance (the alphabet soup lending programs, FDIC-guaranteed debt, etc.)?

3. What exactly does “fair market value” mean when a bank desires to repurchase the equity warrants issued to Treasury in return for the emergency funding given the banks through TARP? No offense to the astro-physicists the banks have on staff, but could we ask for some third party verification of the models used to calculate the fair value of these warrants?

4. What happens if — Nassim Taleb forbid — a Black Swan appears (or even some continued erosion in our economy) that causes a bank or two to want to go back and ask the TARP to reissue them some preferred equity? Should we let them back in under anything other than truly onerous terms, if at all?

Great stuff, Jack . . .


TARP Repayment — Some Questions for the “Perfect 10″
Jack McHugh
TBP Think Tank, June 10th, 2009

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