This article first appeared in the St. Louis Beacon, Feb. 5, 2009 - Banks in Missouri have received more than $641 million as part of the federal bailout so far, but that doesn't mean you can expect to see that money flowing out to would-be loan recipients any time soon.
The amounts of TARP money -- Troubled Asset Relief Program -- range from $295 million to Clayton-based First Banks down to $1 million to Calvert Financial Corp. in Ashland, Mo. The banks reached by the Beacon say they have no specific plans to make public how the funds are used beyond the regular reporting requirements.
For the most part, though, the bankers who received the aid from Washington say it won't necessarily change the way they do business. It will just make that business flow more smoothly than it has been since last year's meltdown of the nation's credit markets.
"It's very difficult for a financial institution to just say we received this amount of capital as an investment from the government and segregate that capital out from its entire balance sheet," said Greg Steffens, president of Southern Missouri Bancorp in Poplar Bluff, which received $9.55 million from TARP.
"You can't say we are doing this with that capital but wouldn't have done it if we hadn't received that capital. Our capital facilitates all of what our bank does."
Tom Daiber, president and chief executive of Centrue Financial Corp. of St. Louis, which got $33 million in TARP money, added that the funds will help leverage capital that the bank already had.
"We were fine," he said. "We were well-capitalized without it. We felt that it was better to take the capital when we didn't need it than to have it be the other way around."
Originally, the $700 billion in TARP funds was to go for buying mortgages or mortgage-based securities that became hard to sell when the bottom dropped out of the credit market last fall. But after the money won approval in Congress -- which initially balked but finally went along as the crisis deepened -- then-Treasury Secretary Henry Paulson changed course.
Instead of using the money to buy mortgages, he decided, the funds would better be deployed by investing directly in banks, with a possible boon for the public if and when the market rebounded.
Restrictions on how the money may be used and requirements on reporting to the public were loose; critics of the plan have called them practically non-existent. A report by a congressional panel last month found scant evidence that the money was used to prevent foreclosures.
Bankers in Missouri who were reached by the Beacon noted that the money they received under the TARP program does not go directly to making loans in the community. Such loans, they point out, are made with the deposits that the banks attract.
What the TARP money does, they explained, is strengthen the banks' balance sheets so that they are seen by potential customers as strong enough to justify attracting their deposits. It also acts as an extra hedge, a kind of insurance policy in case the financial situation continues to get worse.
Ideally, once consumer confidence increases, deposits will flow in and the stream of loan money that had slowed or even dried up can begin flowing again. But not everyone is sure that such a scenario will play out.
"When they first started giving out the money and gave it to investment bankers," said Ed Lawrence, a finance professor at the University of Missouri-St. Louis, "all they did was go out and pay huge bonuses. Some of this stuff is absolutely ridiculous, that taxpayers are on the hook for people who are out there spending recklessly.
"I wouldn't be surprised to see some banks go out there and acquire another bank. A few bankers told me it was such cheap money, why not? If someone offered me $10 million at 5 percent, I'd take it too. Who wouldn't?"
What the program amounts to, Lawrence said, "is corporate welfare at the grandest level I've ever seen. It certainly hasn't trickled down to very many people. We've dumped incredible sums of money on people who made horrendous mistakes."
Not surprisingly, the bankers themselves take a more positive view.
"It's not a grant," said Darryl Woods, chairman and chief executive of Calvert Financial Corp. of Ashland, whose $1 million in TARP money is the smallest amount for a Missouri bank so far. "It is a loan with a rather high interest rate in today's environment that has to be paid back.
"When you have to pay back a loan, you have to be cautious with the way you deploy it."
To Jerry Mueller, senior vice president of Enterprise Financial Services Corp. in Clayton, which received $35 million, the TARP funds help keep healthy banks strong.
"What people need to remember is it is not really a bailout," he said. "It's only available to healthy institutions, and it's an investment. Taxpayers are getting a return on their investment plus an opportunity for an upside on the stock.
"There shouldn't be restrictions that push banks into making irresponsible loans that they shouldn't be making. That's what got us into this situation in the first place."
Kathleen Bruegenhemke, senior vice president of Hawthorn Bancshares in Lee's Summit, which received $30 million from the program, noted that banks are expected to use the multiplier effects of the TARP money to help their communities.
"If we took that money and just made 30 million dollars worth of loans," she said, "we're done. We can't do anything more. Banks are all about leverage. We can take that 30 million dollars of capital to support deposits, then we use those deposits to make the loans.
"We think it's great that we have the capital. We're excited about it, and we're eager to get it back into the community. We've got loan demand. We've just got to get the deposits."
Ramsey Hamadi, chief financial officer at Pulaski Financial Corp. in Creve Coeur, which got $33 million in TARP funds, said that ultimately, the program is about confidence.
"I think there are a lot of misperceptions as to what is happening with those funds," he said. "A lot of people are thinking that the money that is coming out is directly being lent. A lot more than the equity that is being placed in banks is being lent.
"I think this is one of the few programs that will work very well. In many ways, the financial institutions are the lifeline, the circulatory system of the entire economy. If the cash flow from banks were to stop, there would be huge problems. This has kept the blood flowing, if you will, to various parts of the economy."
A spokesman for First Banks, which received the most TARP money among Missouri banks, did not return a call seeking comment on how the funds would be used.