Not so fast. There is some bad news, too. On balance, it appears that the US banking system has a long way to go to be fully healthy. Here are some of the negatives:
- Bank lending activity has not increased since the inception of TARP in October, 2008. In fact, by some measures lending has declined.
- Bank profits are coming from trading activities, not from lending. This limits the positive spillover from Wall Street to Main Street.
- Banks point out that one reason they are not lending more is that lending remains risky in a weak economy. This argument seems justified at least in part. For example, the percentage of nonperforming loans continues to rise, especially at the largest banks.
- The Federal Deposit Insurance Corporation (FDIC) reports that the number and size of problem banks continues to increase. "Problem banks" are those that have received low marks on regulatory reviews, even though they remain solvent for the time being.
Some critics believe that banks should not have been allowed to repay TARP funds so soon. They say that the primary motive for early repayments is the desire to escape government limits on bonuses for top executives and traders. Early repayment may come at the expense of shareholder value, and failure to rebuild capital could lead to the need for more bailouts in the future.
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