Financial Firms Plan to Repay Bailouts

Goldman Sachs and Morgan Stanley have formally asked the Federal Reserve for permission to repay their shares of $20 billion combined bailout funds out of the $700 billion made available last year to ailing financial corporations. Goldman Sachs, Morgan Stanley, and JPMorgan Chase & Co. have been in talks for weeks about formally applying to repay. The requests are pending, and in true government fashion, no decision has been made or implied, nor is there promise of an expedited agreement.

The companies are hoping to repay the received bailout funds in an attempt to sever ties with the entire bailout program (Troubled Asset Relief Program), allowing them to operate free of restrictions. All media sources spoke on a condition of anonymity due to the ongoing process of the requests. In a more formal note, the companies themselves have declined to comment to any media outlet. The Treasury Department has not even commented on whether or not they had received repayment proposals from either Goldman Sachs or Morgan Stanley.

Goldman Sachs, Morgan Stanley, and JPMorgan & Chase were among nine large financial firms that split the original $125 billion before we ever heard of the TARP as it is now known. If their requests are approved, these two corporations would be the first two of the original nine bailout recipients to repay bailout money. This would also be the first time a company returned more than $1 billion independently. Twelve smaller banks have returned a combined $1.2 billion. Of course, this is just a small step to independence from bailout funds as over 570 banks and countless corporations all across the board have received uncountable amounts.

The issue of paying back TARP funds is sensitive. On one hand, paying back TARP money would be a significant sign of strength. On the other hand, the government is afraid that it would put other banks at a disadvantage. They are also concerned that high level employees of TARP recipients could seek employment with banks that have already repaid the funds. Banks that repay bailout money must be able to replace it by raising capital not guaranteed by the FDIC. Government “stress tests” on the nation’s nineteen largest banks found that only nine had enough capital raised to survive after paying back the bailout money, two of which were Goldman Sachs and JPMorgan & Chase.

The Treasury Department has said it expects $25 billion of repayments in the next year. The Obama Administration has indicated that repayments will be used for new “injections” into banks.