Will Bonuses Really Be That Good At Non-TARP Banks This Year?

Author:
Greg Michaels
Updated:
Jan 14, 2019
Original:
Jun 11, 2009

There is little doubt one of the main motivations for paying back the TARP was to allow firms the flexibility to pay their top people commensurate with their pre-crash expectations and avoid further defections. But will the bonus and spending floodgates really reopen this year in light of a still shaky economic reality? How many of the 10 firms who are now free of the TARP shackles are going to bet that there is no way whatsoever they will need a helping hand from the government if the economy goes back in the toilet? Those that do better be right.
Banks Trade TARP for Bonuses, Debauchery, Jets [Bloomberg]

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Money is tight, so the bank's gotta think outside the box.

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The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn't want the bag to be heavy, or as they put it: The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses. So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.): So ... not loaned then. But that's not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here's what they get:

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A 6.2 billion euro ($7 billion) loss will generally have that effect.

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