ABA Testifies on Current Status of the Troubled Assets Recovery Program

The American Bankers Association told Congress Tuesday that confusion about the Troubled Assets Recovery Program (TARP) remains and clarity is needed in order to assure that banks and the public understand how it works and how it will promote economic growth.

Testifying before the House Financial Services Committee, ABA Chairman and CEO Edward L. Yingling stated that the constantly changing nature of the TARP program has led to misperceptions about the health of the banking industry and caused many observers to wrongly conclude that banks were capital deficient.

“To my knowledge, no one in the banking industry requested a capital program, and the ABA certainly did not,” said Yingling.  “The vast majority of banks are still well-capitalized, which is the highest rating the regulators can give,” he said.

Yingling noted that confusion has stemmed in large part from a failure to distinguish between the Capital Purchase Program (CPP) – which is a voluntary program for healthy banks – and use of TARP funds for direct bailout of failing institutions, like AIG, from other parts of the financial sector. 

“It only gradually became clearer that the program was to focus on healthy banks and its purpose was to promote the availability of credit,” he said.  “Many people, understandably, did not differentiate between this voluntary program for solid institutions and ‘bailouts.’”

Despite the confusion, Yingling said that banks are signing up for the CPP program and he offered some examples of how different banks can use the infusion of capital to promote expanded lending. 

However, he also stated that one aspect of the program that needs to be addressed is the fact that it has not been made available to all healthy banks, regardless of their corporate structure.

“Term sheets for many other banks, including S corporation banks and mutual institutions, have not been issued,” said Yingling.  “It would be patently unfair to exclude healthy institutions from having the choice of whether or not to use the TARP capital to enhance their banking services,” he said.

Yingling also sought to dispel the misperception that banks are currently not lending. 

“Banks are lending,” he said.  “Many of the stories about the lack of credit are due to the weakness of non-bank lenders.  In fact, many banks have said that they are seeing borrowers that used to rely on non-bank financing or Wall Street coming to their doors.”

Yingling further stressed the need to ensure that other emergency programs work in tandem with the TARP program.

“The actions taken are positive and promise to have the desired effect of stimulating credit availability,” he said.  “It is also important that any initiatives be consistent and not send conflicting messages or undermine the effort to extend new credit.”

Finally, Yingling proposed a four-point plan to address the housing market and foreclosures.  This includes using some TARP funds for distressed homeowners, addressing foreclosures connected with securitized mortgages, taking action to lower interest rates on mortgage lending, and using part of any stimulus package to create tax incentives for purchasing homes.

For a copy of Yingling’s full testimony click here

The American Bankers Association (www.aba.com) brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation’s banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13.3 trillion in assets and employ over 2 million men and women.