Some of the banks that received federal TARP funds show signs of going under, despite the government promising tax payers that the cash would only be directed towards healthy institutions.
Wall Street Journal:
Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.
The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.
When TARP was created in the heat of the financial crisis, government officials said it would help only healthy banks. The depth of today's problems for some of the institutions, however, suggests that a number of them were in parlous shape from the beginning.
Seven TARP recipients have already failed, resulting in more than $2.7 billion in lost TARP funds. Most of the troubled TARP recipients are small, plagued by wayward lending programs from which they might not recover. The median size of the 98 banks was $439 million in assets as of Sept. 30. The median TARP infusion for each was $10 million, federal filings show.
The FDIC insures all of the money in the accounts of these depositors so it is a mystery why the government doesn't just allow nature to take its course. The TARP money at stake is not a large amount, but if we're not going to allow even these small institutions to assume responsibility for their own failures, where do we draw the line when it comes to banks that are "too big to fail?"