Few would have predicted the strength of the U.S. banks 11 years after Treasury Secretary Hank Paulson summoned the nine-largest chief executives to inject $125 billion in liquidity into them by buying preferred stock. From that conference on October 13, 2008, U.S. banks have emerged from the verge to "take over the world." The power of banking in the U.S. today represents more than a decade of great work by the boards and executives of banks as well as regulators, which indicates a cultural shift toward total risk management.
How did this change happen? And what can international bankers so regulators benefit from US banks ' return?
Volumes have been published on the recession, its spread, and the role of the Troubled Asset Relief Program (TARP) in recovery. Many overlook that on September 29, 2008, the United States House of Representatives voted against the TARP authorization. With the largest single-day point drop to date, the markets embraced the move. Trust was shaken. Through voting to approve the TARP on October 3, Congress replied. Ten days later, the Treasury initiated the Capital Purchase Program (CPP), pouring $125 billion into the nine biggest domestic banks and enabling them to engage in the bond and loan account protection program of the Federal Deposit Insurance Corporation (FDIC). Markets loved the story, the next day they soared 11%. Trust was on the mend.
2008's Emergency Economic Stabilization Act authorized $700 billion for the TARP, but it has never been spent in full.
That's almost a 13% yield on the TARP assets deposited in U.S. lenders. Only $17 million from the original TARP investment remained in two small banks as of September 10, 2019. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act limited it to $475 billion. Of that $475 billion, the Treasury Department paid out $442 billion—$245 billion to 707 lenders of all kinds, $68 billion to bail out American International Group (AIG), $80 billion to the three big US companies, $20 billion to credit markets, and $30 billion to refinance and adjust troubled home loans. Since then, $443 billion has been reimbursed to the Treasury, including $276 billion by insurers, $73 billion from AIG, $71 billion from car companies and $24 billion from credit markets. Although it was one of several alternatives, the TARP, and more importantly the CPP, helped restore confidence in US banks and pave the way for a large-scale economic recovery; but there is a more complex tale of how the American banking system persisted to climb to where it is today.
Central banks around the globe stepped in, lowering interest rates and buying large quantitative easing (QE) bonds and debt. In the U.S., the Federal Reserve switched to QE earlier than its European counterparts, launching QE1 on November 25, 2008, including $800 billion throughout bank debt sales, U.S. Treasury bills and securities backed by mortgages. This helped to provide extra liquidity and restore asset prices to a floor.
Tags : U.S. banks, conference, TARP authorization, United States House of Representatives , Emergency Economic Stabilization Act ,