TARP and Community Banks

From the SIGTARP  quarterly report to congress I January 26, 2012

Community Banks In TARP
With 371 banks left in TARP, a clear and workable exit plan for community banks is crucial to financial stability. There appears to be no concrete plan to
help struggling community banks other than approving 137 banks to exit TARP through the Small Business Lending Fund. On a case-by-case basis, Treasury has
also sold its TARP investments (sometimes at a discount) or exchanged them for stock with less priority. This has often taken place in connection with a merger,
acquisition, or other new capital investor. Last quarter, SIGTARP recommended that Treasury develop a clear TARP exit path for community banks, in light of a
steep rise in the TARP dividend rate from 5% to 9% beginning in 2013. SIGTARP’s recommendation was designed to allow for multiple strategies developed in
consultation with the banking regulators that could take into account different categories of banks, for example, banks that are under regulatory orders to retain
capital and may only be able to repay TARP gradually. In response, Treasury hired an investment advisory firm to “explore options for the management and ultimate
recovery of [its] remaining CPP investments.” Treasury’s next steps are critical. Treasury must develop a workable plan in consultation with regulators and begin
executing that plan to remove uncertainty related to these banks.