Back in October 2008, as the country’s worst financial crisis since the Great Depression gripped the nation, then-President George W. Bush signed legislation that created the Troubled Asset Relief Program (TARP).
The program, though broadly supported in Washington and by many economists and financial experts, was derided as a bank “bailout” by many political candidates and other critics. In Utah, one major contributing factor to former Sen. Robert Bennett’s defeat in 2010 was his vote in favor of TARP.
TARP was, and still is, broadly misunderstood, and its positive outcome isn’t widely known. Most people don’t know that just this week, the largest remaining bank in TARP repaid its investment, plus profit. U.S. taxpayers received $285 million in profit on their investment in that bank alone in the form of regular dividends, bringing the total profit on the Treasury Department TARP bank program to almost $30 billion. That’s right, taxpayers made a $30 billion profit in the TARP bank program.
While TARP was a necessary step at a time of great fear and uncertainty, the program has caused confusion among bank customers and the public. Here are some misconceptions and realities about TARP:
- Congress originally authorized the Treasury Department to spend up to $700 billion to purchase assets and equity from financial institutions to strengthen them and provide infusions of capital. Thus, some critics called TARP the “$700 billion bank bailout.” But, in reality, only $245 billion was used to help stabilize banks by investing capital in them at a time when the capital markets had shut down, to ensure banks could continue to lend. Not all banks that applied for this capital received any investment. Since the program began, banks have paid some $274.5 billion to the Treasury, returning the $245 billion original investment — plus a hefty taxpayer profit of $29.5 billion.
- The real “bailout” of the economy was the Federal Reserve's monetary easing policy of purchasing longer-term securities to put downward pressure directly on longer-term interest rates. As former Fed Chairman Ben Bernanke said: “By easing conditions in credit and financial markets, these actions encourage spending by households and businesses through essentially the same channels as conventional monetary policy, thereby strengthening the economic recovery.”
- Many people have confused TARP with the federal government’s American Recovery and Reinvestment Act (ARRA) of 2009, a massive stimulus program expected to spend some $830 billion on hundreds of local, state and federal programs, including infrastructure, education, health, energy and many social welfare programs. The stimulus program understandably generated a great deal of controversy, and TARP was caught up in it. They are entirely different programs and should not be confused.
- The perception exists that the nation’s banks were on the verge of collapse and/or were the cause of the financial crisis in the Great Recession. In reality, most traditional banks were in good financial shape and had not participated in the excesses that cause the financial scare. It was mostly nonbank financial institutions that dragged down the financial sector and threatened an economic collapse.
It is important for citizens to know that the banking industry is strong and resilient. As bankers, we live entirely by our reputations and the confidence our customers and clients invest in us. We pledge to continue to earn that trust.
A. Scott Anderson is CEO and president of Zions Bank.