US banks to repay bailout funds

Analysts say move signals US government has confidence in banks' viability.

    Geithner said the start of the repayments were an
    "encouraging sign" for the economy [Reuters]

    "These repayments are an encouraging sign of financial repair, but we still have work to do," Timothy Geithner, the US treasury secretary, said in a one-page statement on Tuesday.

    Geithner has also said the money paid back into the $700bn bailout fund by healthy banks can be reused to help smaller banks, even those who have already received a bailout.

    Economists say that allowing some banks to repay money to the government's Troubled Asset Relief Programme (Tarp) will effectively begin the process of separating stronger banks from weaker ones as the financial sector slowly recovers.

    More than 600 banks across the country have received funds from the bailout so far.

    Banks assessed

    The US government earlier this year conducted "stress tests" on the 19 largest US banks to assess their exposure to bad debt and to see how they would fare should the current US recession worsen.

    Nine banks were considered healthy enough that they did not need to add more capital, while the other 10 were told they needed to improve their capital by a combined $74.6 billion.

    The US Federal Reserve has said that all 10 of the banks ordered to raise capital had come forward with plans that, if implemented, would raise the needed funds.

    But the head of a US financial bailout panel said on Tuesday that the stress tests were not harsh enough and should be repeated by regulators over a longer period because the "worst-case" unemployment rate used in recent tests will soon worsen.

    "We have not actually broken through the worst-case scenario, but let's face it, the numbers are bad and they're heading in the wrong direction," Elizabeth Warren, chairwoman of the congressional oversight panel, told the Joint Economic Committee.

    "The worst-case scenario number for 2009 is in fact not the worst case. Were going to see worse numbers."

    SOURCE: Agencies


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