Recently, Bank of America, Citigroup and Wells Fargo have joined with Treasury Department officials to proudly announce their exit from the Troubled Asset Relief Program. The Washington Post’s Steven Pearlstein is appropriately skeptical:
By rushing to cash in their chips, however, the administration not only gave up political leverage and additional profit, but took the risk that one or more of the banks may find that it can’t make it on its own. While the financial system has rebounded faster than anyone could have imagined, potential threats still loom — a further collapse of commercial real estate, for example, or a string of sovereign debt defaults. And bank profits, while having rebounded, remain significantly dependent on the availability of cheap funding from the Federal Reserve and other central banks that cannot be expected to last indefinitely.
The broader “optics” problem here, I think, is that by having all the banks exit TARP it creates the impression that the banks are okay and they will now make loans to homeowners and small businesses. But the banks are A.) not okay and B.) are now under less government pressure since they exited TARP. It’s understandable that the Obama administration wants to wind down the politically unpopular TARP. But the public discontent ultimately doesn’t lie with “TARP.” It lies with the big Wall Street banks, which are unlikely to suddenly act in the public good because they’ve exited the bailout program.