Let’s Talk About Real Performance (TARP)

Every month I examine my financial statements to see how I am doing. I think most Americans do that, especially in these times. We compare where we were years ago to where we are now, and generally find that we have stayed even or lost money. Now, in a USA today article entitled “Banks receiving US assist[ance] cut loans,” (April 22, 2010) American University's (AU’s) Investigative Reporting Project studied the impact of the Toxic Asset Relief Program (TARP) on 940 United States banks, receiving those loans versus the 7,400 that did not. What did they find? Exactly what you would expect: rewarding bad behavior results in continued poor performance.

According to the AU report, during its first year of TARP, ending September 30, 2009, TARP distributed $247 billion to 940 banks. American University identified performance differences between TARP and non-TARP banks.

- Lending at TARP banks fell 9.2% versus a decline of 6.2% at non-TARP banks.
- Average employee pay at a TARP bank increased by 9.4%, whereas non-TARP banks raised their average pay by only 1.8%.
- TARP banks added 2.7% new branches, whereas non-TARP banks cut their number of branches by 1.2%.
- Expenses at TARP banks declined by 3.9%, whereas non-TARP banks cut expenses by 6%.

Contrast TARP bank performance with BBVA Compass Bank, a Spanish-owned bank, located in Birmingham, Alabama, that did not qualify for TARP funds. BBVA cut its workforce 10% (1,200 persons), while increasing its lending by 17% to profitable sectors of the market. The same was true at Hancock Bank. “… it was definitely a tale of two worlds: banks that took TARP, and those that did not," said Michael Achary, Chief Financial Officer. Hancock ($3.5 billion in assets) raised $175 million on its own during this period, acquired assets of a failed Florida bank, and increased lending.

What is true in everyday life is true in business: if you don’t expect much, you will not get much. Unfortunately, in this case it cost us $247B and created nothing more than 940 banks that are “too big to fail.”