United States To Place Conditions On TARP Repayment

Strong, credit-worthy banks will be allowed to repay bail-out funds they received from the US government once they pass a series of tests to determine whether it is in the national economic interest, a senior administration official has told the Financial Times.

"Our general objective is going to be what is good for the system," the senior official said. "We want the system to have enough capital."

As of late, Goldman Sachs (NYSE: GS), JPMorgan Chase (NYSE: JPM) and a couple other seemingly strong banks are talking about repaying the bail-out funds they received from the government. Lawrence Summers, President Barack Obama’s top economic adviser, told NBC’s Meet the Press that repayments could eventually help the government provide further resources to help the sector.

The official said banks that had plenty of capital and had demonstrated an ability to raise fresh capital from the market should in principle be able to repay government funds. But the judgment would be made in the context of the wider economic interest. He said the government has three basic tests.

• Make sure the system is stable.
  
• Not create incentives for more deleveraging which would deepen the recession.
  
• Make sure the system has enough capital to "provide credit to support the recovery".

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