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Treasury Notes

 Small TARP Investment, Big Impact for a Local Community

By: Timothy Massad
12/21/2012


On Wednesday, most of the public attention on the TARP program was focused on Treasury’s announcement that it intends to fully exit its investment in General Motors within the next 12-15 months.

That’s not surprising given that GM is one of our largest TARP investments. And it came on the heels of Treasury exiting its common stock investment in AIG earlier this month. Overall, the Federal Reserve and Treasury fully recovered the $182 billion committed to stabilize AIG during the crisis – with an additional $22.7 billion positive return.

Even if you caught the headlines on GM, though, you may have missed another important TARP milestone that happened on the same day.

On Wednesday, Freeport State Bank based in Harper, Kansas – which received the smallest investment ($301,000) made through TARP’s Capital Purchase Program – repaid taxpayers in full with interest.

Speaking to the Wall Street Journal, the bank’s chairman and CEO, Leon Drouhard, explained the critical role TARP played in stabilizing the economy during the worst financial crisis since the Great Depression.

           

“[TARP] has been a very important thing and it has been a beneficial thing . . . It’s always referred to as a bailout but it was actually an investment in the financial system of the country as far as I’m concerned–and that investment turned out to be a good investment for the Treasury, and the country and the banks involved.”

 

Mr. Drouhard told the Wall Street Journal that TARP allowed his bank to “lend at a steady pace through the downturn.” That means that people in his local community had better access to the loans they needed to buy a home or start a business during a time when credit became especially scarce.                                                                                                                     

Indeed, while most people think of large financial institutions when they think of TARP, the program invested funds in more than 400 smaller, community banks. And those investments had an important, positive impact in thousands of local communities all across the country.

 

Timothy G. Massad is Assistant Secretary for Financial Stability at the U.S. Department of the Treasury

 

Posted in:  Financial Stability
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