Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Bank of America TARP Repayment: An Emancipation Proclamation?


Shareholders are just at the beginning of its intimate relationship with the government.

Since the beginning of the year, I've joked with my clients that at the top of Ken Lewis' daily to-do list were two simple words: Repay TARP.

For Mr. Lewis and his too-big-to-fail bank CEO brethren, it would appear that the immediate capital benefits of the TARP have been significantly offset by greater government involvement in daily bank operations, most notably compensation practices.

To read the media reports this morning, though, TARP repayment will bring Ken Lewis (and Bank of America (BAC) shareholders) a long-awaited liberation from the chains of government.

At the risk of raining on the parade, I'd offer that regulatory liberation is, at best, delusional -- particularly for an institution of the size and significance of Bank of America.

While technically Bank of America is no longer bound by the explicit rules of TARP, as the largest deposit-taking institution in the United States, the implicit contracts remain. And should it not abide by them, I have no doubt that any one of Bank of America's major regulators -- the Federal Reserve, the FDIC, the OCC -- would gladly introduce new regulations to "clarify" matters. (Never forget that "risk management" regulations are a very effective tool to address any number of objectionable items, including compensation.)

Finally, I think it's also worth remembering that, for good or bad, regulation runs in cycles that last decades in length -- not months or even years. I think it's fair to say that Bank of America as well as all other TARP and non-TARP banks, are just at the beginning of their more "intimate" relationships with the government.

To put it bluntly: Hell hath no fury like a regulator scorned.

And for those wondering what the future of banking looks like, I'd offer that one need only look at the nuclear-energy industry after Three Mile Island for a glimpse of what's ahead.

Minyanville's FlexFolio is +18.25% in 2009. Start your FREE trial today and get trade alerts and portfolio access
< Previous
  • 1
Next >
Position in SPY, SRS, and JPM.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos