Market's Cool Reaction to Bank Bailout Repayment
Market reacted coolly to news that the nation's largest banks have the capacity to repay their bailout money. In fact, some experts say that this can be an indication of industry stability. On the other hand, traders think that this incident may widen the split between healthy and troubled banks.
There's word that the nation's 10 largest banks can repay bailout money worth $68 billion, and investors reacted coolly to it.
Treasury Department announced that banks will now be allowed to repay $700 billion that they received from Troubled Asset Relief Program (TARP) created by Congress at the financial crisis height last October. After that, Tuesday stocks zigzagged in a narrower range.
BB&T Corp., Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp, American Express Co., and JP Morgan Chase & Co. are the banks confirmed to have received permission in repaying bailout funds. These banks have been very eager to escape from the program and get out of government restrictions like executive compensation caps.
The chief investment officer and president of Cabot Money Management, Rob Lutts, said that if banks are getting approval to repay government loans, then it’s a positive sign for this battered sector. As a result, it also provides investors a psychological boost. He added further “It’s a part of the banking industry’s healing process.”
According to experts, these repayments indicate that some stability has already returned to the whole banking sector. Looking bank, this industry has been in chaos with the Lehman Brothers Holdings Inc.’s unexpected collapse. On the other hand, others warn that the government is risking the creation of a tiered banking system where some large firms will be tied to the bailout and trying hard to figure out how they would compete with the banks that left it.
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