Not too long ago it seemed inconceivable that Bank of America (BAC) would be in a position to pay off its TARP funds. But incredibly, that seems to be coming true. The bank has apparently reached an agreement to pay back $45 billion in TARP funds. This has huge implications and just might breathe new life into the bank's troubled efforts to hire a CEO to replace the outgoing Ken Lewis.

All this makes sense, but you have to wonder if this is a bit premature. True, the bank's position has improved, but I wouldn't assume the worst is over for the industry nor would I assume that the recent gains in trading and investment banking will be permanent. It would be a disaster if the bank ran into extreme difficulty again. The banks will be required to raise $18.8 billion in capital, which will ultimately dilute common shareholders and shed $4 billion in assets. We can only hope earnings don't deteriorate to the point where capital adequacy again becomes something to think about. The markets seem bullish on the news for now. The banks 5-year CDS spreads narrowed. 

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