Too Big to Succeed
A source familiar with the situation indicated there was a sense of hesitancy within the Treasury Department to let TARP recipients pay back the government funds. That’s because doing so could send a signal to the markets about which banks are strong and which are not.
Treasury officials would not comment on which institutions, if any, have approached the agency about repaying the funds early.
This strikes me as a bad argument. In part, I don’t know why investors wouldn’t know which banks are healthy (as the article goes on to point out). Moreover, it strikes me of more of the same bad, cross-subsidization, thinking. If it is true that certain banks are strong enough to stand on their own, let’s permit them to return our money. Maybe doing so would reinforce public support for emergent interventions in the market. And if that means that other banks face more pressure to come clean faster … well, isn’t that what we want?