What should banks do with TARP funds?

All along, Treasury officials have been stressing that banks receiving TARP funds should be lending it. How else will the funds ease the credit crunch? Now, even the White House is telling TARP bank not to hoard the dough, but to lend it. The government, it should be noted, does not have any voting rights attached to their preferred shares. Loaning out the funds willy nilly may not be a good idea. Nearly 20 banks in the second round got $35 billion each. They are being asked to lend it in a really bad environment. How awful it would be if loaned TARP funds ended up in default. That certainly would be bad for taxpayers. Hoarding the capital, at least until good lending opportunities arise, makes a receivership less likely. And using the capital to make an acquisition has been blessed by the government in at least one case, PNC. My suspicion is we'll see more regional banks take over less healthy local banks. It would be hard to argue with that right now.

For more:
- here's an AP article

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