Under the TARP

The big financial news this week is that several major U.S banks have announced stock sales in order to raise money to pay back the funds they got from the federal government under TARP (the Troubled Assets Relief Program). Bank of America plans to raise over $15 billion in capital through a sale of common stock. Credit card giant Capital One also annouced a stock sale, and U.S. Bancorp and Bank of New York Mellon's are expected to raise over $1 billion each through sales of their own.

The stated purpose of these sales is to pay back the TARP funds; Bank of America got $45 billion of that money from the government. It certainly would be a good sign for the health of the banking industry if big banks like B of A were able to pay that money back. And a healthy banking industry is very important to getting us along the road to recovery.

But I wouldn't be too optimistic yet. Goldman Sachs said in February it wanted to pay back $10 billion in TARP funds, to remove the stigma of being in debt to the government as well as the restrictions that come along with it, but they haven't paid anything back yet. Don't pay much attention to what the banks say they are going to do; pay attention to what they do.