The Obama administration has begun monitoring the high-level board meetings of nearly 20 banks that received emergency taxpayer assistance but repeatedly failed to pay the required dividends, according to Treasury Department officials and documents. And it may soon install new directors on some of their boards.
The moves come as the number of banks that failed to make at least one dividend payment to the government rose to 132 in the last quarter. These "deadbeats," as they are sometimes called, are virtually all community lenders and collectively received billions of dollars in taxpayer assistance.
In addition to those firms, seven others have failed, resulting in the total loss of the government's investment.
The number of banks that have missed six or more dividend payments has reached 19, up from seven during the previous quarter. Under the government's agreement with those firms, the Treasury now has the right to monitor their boards and appoint new members.
Banks are required to make quarterly dividend payments to the Treasury Department in exchange for taking aid from the Troubled Assets Relief Program, which bailed out banks to help them weather the financial crisis of 2008 and 2009.
David Miller, Treasury's chief investment officer for TARP, said the department has already dispatched officials to monitor some of the boards and may begin the board nomination process for others in the beginning of the new year. He declined to be more specific about which banks would be scrutinized and added that no final decisions have been made.
TARP, launched by the George W. Bush administration and continued by the Obama administration, has been a source of mostly good news recently.
The largest banks have paid back tens of billions of dollars in aid, with interest. And other developments - such as the initial public offering of General Motors - have further bolstered TARP's return.
For instance, American International Group, which is seeking to pay tens of billions of dollars back to taxpayers, announced Monday that banks had agreed to lend it more than $4 billion, to be used to replace funding from the Federal Reserve. The Fed and the Treasury jointly rescued AIG in September 2008.
The repayment and profits generated by aiding big banks will far overshadow any financial loss among smaller firms. But the issues indicate that the Treasury Department did not properly filter which institutions got access to the financial rescue, analysts said.
When government officials instituted TARP, they vowed to make investments only in strong banks. But a fifth of banks in the program, almost all of them small community lenders, are not paying the government dividends on time.