A handful of big banks waiting anxiously to rid themselves of TARP funds -- the money injected in the $700 billion bank rescue plan beginning last fall -- are running into problems regarding when they can repay taxpayers in full.
Yet according to CNBC, big banks will have to wait until at least June 8 to repay the money. This is when banks that were required to raise additional capital after the stress test, such as Citigroup
Furthermore, banks will be approved to repay TARP money in groups, rather than one by one. This is probably to avoid creating an image issue, where the first bank granted approval to repay the money is automatically crowned alpha dog, while others that wanted to repay the money, but were still being reviewed by the government, are considered second-rate.
These rules seem reasonable. When the market is clouded with fear and distrust, having rules that avoid preferential treatment should be a top priority. I also firmly believe that banks with the means to repay taxpayers should do so without hassle.
Yet the topic of preferential treatment and public image could come back to haunt weaker banks when stronger banks repay their TARP loans. Since every major bank was literally forced to take TARP money, it's been easy for the market, the media, and regulators to lump everyone into a category called "the bailed-out banking industry," often unfairly treating all banks as one and the same. This is especially true for a bank like Wells Fargo
As soon as some banks are allowed to repay TARP, we'll immediately have two distinct classes of banks: Those with taxpayer money, and those without. Good bank, bad bank. Failure, success. Criminal, savior. The idea of a failed industry, rather than failed banks, will vanish.
And, frankly, that's the way it should be. Banks that kept their business clean throughout the boom years shouldn't be scolded for others' mistakes, and banks that royally screwed up deserve to feel the wrath of investors, taxpayers, and regulators.
Fairness, in other words, is making a comeback.
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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. American Express is a Motley Fool Inside Value recommendation. The Fool owns shares of American Express, and has a disclosure policy.