Bank of America to Repay $45 Billion in Tarp

Bank of America TARP Repayment Premature, Analyst Says

A leading bank analyst says the regulators who allowed Bank of America to repay its $45 billion in government bailout funds made a big mistake because the bank may well need that money soon to withstand the next wave of bad loans, the withdrawal of federal subsidies, and the possible reevaluation of assets.

 Christopher Whalen, a bank analyst at Institutional Risk Analytics, says Bank of America's loans continue to sour. Defaults more than tripled from the first quarter to the third; loans more than 90 days delinquent and those so late they're no longer accruing interest have shot up 15 percent, according to an analysis of banking data. That's because, despite signs of recovery at the macro level, it takes time for homeowners to become delinquent on their mortgages and credit cards after a job loss.

To pay taxpayers back, the firm says it will use about $26 billion in excess cash "at precisely the time when the [Federal Reserve] is withdrawing many forms of subsidies for the largest banks", notes Whalen's IRA Advisory Service report. That cash could be used to guard against future losses.

"If you want a very tangible example of why the Fed should be taken out of the business of bank supervision, it is precisely the TARP repayment by [Bank of America]," Whalen writes. The Fed supervises Bank of America because it is a bank-holding company. While other regulators supervise units of the firm, the Fed is responsible for the entire corporation. The bank can't repay taxpayers without the Fed's permission.

Whalen argues that bank regulators should force the firm to raise capital now and keep it until the middle of next year when Bank of America's losses are more clear.