Several of the largest U.S. financial institutions are now clamoring to repay the TARP funds. Editor-at-large Jill Schlesinger talks to financial analyst John Keefe about the status of TARP repayments -- and the ongoing health worries affecting some of the big banks.
>> Jill: Since the height of the financial crisis in the Fall of 2008, the government has injected nearly 200 billion dollars into more than 500 large and small banks around the country. Eager to free themselves from government oversight and involvement, many institutions are clamoring to repay TARP funds. MoneyWatch blogger and financial and economic analyst John Keefe joins us to discuss the implications of the repayment process. Welcome John.
>> John Keefe: Hello Jill.
>> Jill: So we learned that are some banks that are ready to give us back 68 billion dollars. What does this say about those not on the original list?
>> John Keefe: Well first, about the banks that were able to repay, those initial ten. Those are the banks that were the biggest and the strongest to begin with. They probably didn't need the TARP funds, but the Treasury and the Fed felt a need to come in and control the entire system. So their repayment is probably symbolic if anything else.
>> Jill: When you look forward and we say, out of those big banks that are not on the original list of re-payers, are there any names that pop out at you of concern?
>> John Keefe: Well the one that is a little troublesome, the one that's the most obvious is CitiBank. And of course, one of the big banks was not able to repay. They have been the one institution that's most notable for converting their preferred shares into common equity. And they also had a personal visit from Sheila Bair, who's the Chairman of the FDIC, who came and spoke to their board of directors and tried to calm everybody down.
>> Jill: We don't like visits from the principal, so not a good sign, so not a good sign.
>> John Keefe: No, not a good sign.
>> Jill: This week we found out Elizabeth Warren, she's the TARP oversight point person for Congress. She said we may need to run stress tests again. We may need to do another round. What's your opinion about that?
>> John Keefe: Well I think that's fine. The markets, keep in mind, are doing stress tests all the time. The quarterly earnings come out or the rating agencies, they're doing the same kind of work. But the assumptions that were behind the stress tests, there were a couple of different things. One was unemployment rate. We've already surpassed that in 2009. There are, since the stress tests began it's been revealed that there are going to be a lot of potential defaults in commercial real estate in office buildings and shopping malls in the 2012-2013 timeframe. So I think more stress tests are entirely appropriate.
>> Jill: So how long do you think it will take for us to get out of this stress test period, this period where we're worried about our financial institutions?
>> John Keefe: Well the financial crises are slow to develop and they're slow to heal. So it could be three or four years before we're really out of it.
>> Jill: John, thank you so much for joining us.
>> John Keefe: Thank you.
>> Jill: For more on John Keefe's log, go to MoneyWatch.com.
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