BANK BAILOUTS A SUCCESS?

One year ago, the Federal Government was forced to step in and rescue several large financial institutions from the brink of total collapse.  Billions were loaned to banks to help them regain their footing in the midst of a mortgage and financial meltdown.  Some criticized the move, blaming the banks for their own misfortunes while encouraging them to fail.  Others said it was crucial to prevent a global domino effect of  epic financial ruin.  Did the bank bailout work?  For the most part, surprisingly YES!

On Monday, Citigroup announced plans to repay $20. billion it received from the Treasury Dept.  This comes after JPMorgan Chase & Co., Goldman Sachs Group, and Bank of America all repaid the government bailout funds.  So far, $116. billion has been repaid, with Wells Fargo as the last remaining holdout still owing the government money.

The bank bailout worked primarily because the government insisted on strict oversight of the participating institutions before it agreed to any loan, including caps on executive pay and dividends.  The government also received large ownership stakes in each bank.  In the case of Citigroup, the government got 34% of the bank’s ownership  — which has risen in value by more than 20 percent — and it plans to sell at a profit next year.  On Monday, top executives from some of the nation’s biggest banks met with President Obama, who asked the executives to back his efforts to tighten financial regulations and rein in the risky behavior that led to the credit crisis in the first place.  But the President also wants banks to stop being skittish about loaning money and to start recirculating money back into the economy.  He asked top bankers in the Monday meeting to explore “every responsible way” to increase lending, saying they are obliged to help jump-start the economy after being rescued by taxpayers.  Mr. Obama insisted bankers “take a third and fourth look” at their small-business lending.