What’s Really Behind the Banks’ Generosity?

A Welcome Step

Everyone, including President Obama, has been cautious in their movements when major banks announced last week that they were returning over $50 billion in loans that they had received as bailouts from the government. The taxpayers’ money was used as a loan from the government to bail out the banks on the promise to create more jobs in return for the favor. While President Obama had pressured them to do this, one wonders whether there is more to this than what has been revealed.

Cash Strapped Banks?

With the recession in full force, even the banks have begun feeling the pinch. Stock markets are stumbling while investors are looking to offload stocks. Banks are facing a cash crunch, which led them to borrow money on reasonable terms to tide them over until the recession eases up a bit. Major banks such as Wells Fargo, Citibank and Bank of America are still standing, hats in hand, on the doorstep of the federal government for more money. The government felt it was their obligation to give these banks a patient hearing and bail them out at a low cost and a promise to cut wages of their highly paid executives. The banks had no alternatives but to agree, as this was what they needed. Soon after this, the government decided to exercise its option to control executive salaries. The lawyer, Kenneth Fienberg, was appointed as TARP’s master for executive compensation in the month of June. It might be a coincidence that some banks decided to return the money they had borrowed just before the appointment took place.

‘No Thank You’

Kenneth Fienberg sent out guidelines during October, 2009 to banks that were still receiving the bailout loans from the federal government. October, incidentally, is also the time of year when executive bonuses are paid out. Soon after this, statements started emerging from the banks still receiving funds that they were looking to return all of the money that the government had loaned them. It sure indicates that these banks did not want to adhere to the guidelines that Mr. Fienberg gave them, so the best way to get out from these requirements was to return the money they had borrowed from the government.

Lean and Mean Times for Banks

Banks are trying their best to trim some of the costs they have incurred by letting go of some executives and hiring new ones. Share value, by way of issuing more shares, has been diluted, which investors have bought up immediately. There have been no change in executive salaries, and one can make a wild guess to say that the banks did not want to offer personal loans to the very people they served all this time. The speed at which the taxpayer’s money is being returned can only suggest that banks are doing more than necessary to keep executive salaries as they are. Instead, they have promised to be more strict with any further loans they make. It could be said that they could have done better for their customers.

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