Bank of America, Wells Fargo and PNC Financial’s quick exits from the bailout program raise questions about whether government officials put repayment ahead of ensuring that the banks were financially strong enough to survive on their own.

By Jim Puzzanghera, Los Angeles Times
September 30, 2011

Reporting from Washington— Federal regulators bent the rules to allow Bank of America Corp., Wells Fargo & Co. and PNC Financial Services Group Inc. to repay their bailout money early, missing a chance to force them into further bolstering their finances.

The banks pushed for the repayment requirements to be eased in part because they wanted to avoid tough executive compensation restrictions attached to the Troubled Asset Relief Program, according to an audit released Thursday by the special inspector general monitoring the bailout fund.

The Treasury Department, which oversaw the $700-billion TARP, bowed to requests for quick exits from the bailout program, raising questions about whether government officials put repayment ahead of ensuring that the banks were financially strong enough to survive on their own, the report said.

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“While regulators leveraged TARP repayment requirements to improve the quality of capital held by the nation’s largest financial institutions in the wake of the financial crisis,” said the report from the special inspector general, known as SIGTARP, “they relaxed those requirements shortly after establishing them.”

The report offered a window into the behind-the-scenes maneuvering by banks eager to leave the unpopular bailout program and federal officials seeking to recover taxpayers’ money while at the same time keeping the financial system stable.

Bank executives were “notably persistent” and “to varying degrees, regulators bent to these concerns,” the report said. Overall, “the process to review a TARP bank’s exit proposal was ad hoc and inconsistent.”

Regulators defended their actions, saying they bent the rules out of concern that the guidelines were too tough for market conditions at the time. The “flexibility to deviate somewhat” from the rules “was pragmatic and necessary,” said John Walsh, acting comptroller of the currency, in a written response to the findings.

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