The roughly $200 billion the Treasury Department has handed out to battered banks was swapped for a special class of stock that pays a 5 percent dividend (rising to 9 percent after five years.)
NOTE:
As of April 15, the Treasury had collected about $2.5 billion in dividend payments on its investment.
So in that sense, the bailout money represents an expense for banks. That’s one reason a number of banks have said they want to give the money back as soon as possible.
The government has played a much bigger role in getting some banks back in the black — by engineering a dramatic drop in short-term interest rates to near zero. By borrowing from the Fed at zero and charging 5 percent or so to its customers, U.S. banks have been generating piles of cash. (Some banks also turned a tidy profit trading bonds, which have risen in value as interest rates have fallen.)
The banking industry also caught a break thanks to a change in the accounting rules covering assets backed by mortgages and other consumer loans. With the outlook for loan defaults still very cloudy, these investments have become virtually impossible to sell at a price bankers are willing to accept. Since there’s no “market price,” they’ve had to write down the value of these assets and take big losses. The rule change gives bankers more flexibility when they assign a value to these assets on their books.
The hope is that the Fed’s policy of clamping down on short-term interest rates — with over $1 trillion in fresh cash swapped for bank assets like bonds — will let banks generate their own cash fast enough to get them on a solid footing before a new panic threatens to topple another one. So far that part of the plan seems to be working.
NOTE:
As of April 15, the Treasury had collected about $2.5 billion in dividend payments on its investment.
So in that sense, the bailout money represents an expense for banks. That’s one reason a number of banks have said they want to give the money back as soon as possible.
The government has played a much bigger role in getting some banks back in the black — by engineering a dramatic drop in short-term interest rates to near zero. By borrowing from the Fed at zero and charging 5 percent or so to its customers, U.S. banks have been generating piles of cash. (Some banks also turned a tidy profit trading bonds, which have risen in value as interest rates have fallen.)
The banking industry also caught a break thanks to a change in the accounting rules covering assets backed by mortgages and other consumer loans. With the outlook for loan defaults still very cloudy, these investments have become virtually impossible to sell at a price bankers are willing to accept. Since there’s no “market price,” they’ve had to write down the value of these assets and take big losses. The rule change gives bankers more flexibility when they assign a value to these assets on their books.
The hope is that the Fed’s policy of clamping down on short-term interest rates — with over $1 trillion in fresh cash swapped for bank assets like bonds — will let banks generate their own cash fast enough to get them on a solid footing before a new panic threatens to topple another one. So far that part of the plan seems to be working.
