“Hundreds of small banks can’t afford to repay federal bailout loans, a top watchdog will warn Wednesday in a report that challenges the government’s upbeat assessment of its financial-system rescue.
Christy Romero, special inspector general for the Troubled Asset Relief Program, said 351 small banks with some $15 billion in outstanding TARP loans face a “significant challenge” in raising new funds to repay the government.
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Ms. Romero made the comments in her quarterly report to Congress, the first since the Senate approved her appointment in March as special inspector general for the program. She urged the government and regulators to find a way to help banks raise funds to repay the loans.
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“The status of those banks is one of the major issues facing TARP nearly four years after the financial crisis,” the report says.
The report is the latest sign of a yearslong squeeze on smaller banks, those with less than $1 billion in assets. Their numbers and profitability have been declining due in part to regulatory and technological changes that made bigger institutions more profitable.
StoneCastle Partners LLC, a New York firm that has invested in about 800 community banks, estimates that community banks need $90 billion in fresh capital to clean up their balance sheets and acquire other institutions.
Many of the banks cited in the report aren’t known outside of their neighborhoods, where they count local business owners and prominent families as their investors and customers. Some cater to specific customers. For example, Saigon National Bank in Westminster, Calif., serves the Vietnamese community through one branch.
Saigon National, which received $1.5 million in TARP funds, has missed 13 dividend payments to the government worth $265,328. The report cited the bank, which has $59 million in assets, as one of the smallest that received TARP funds. William Lu, the bank’s president and chief executive couldn’t be reached for comment…”
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