A total of 390 banks, many of them community firms, still struggle to repay a Troubled Asset Relief Program recapitalization fund with no clear exit plan, according to the Special Inspector General of TARP.
"The status of those banks is one of the major issues facing TARP nearly four years after the financial crisis," according to a SIGTARP report sent to Congress Tuesday.
There is still $118.5 bilion outstanding under TARP. The massive bailout package is expected to cost taxpayers $60 billion in the end, according to the most recent estimate.
The Treasury Department paid $204.9 billion in TARP Capital Purchase Program money to 707 banks ranging from smaller operations in local communities to global firms with more than $1 trillion in assets.
As of March 31, only 43% of the banks left TARP by actually paying back the taxpayer.
In September 2011, the Treasury allowed 137 healthier banks to refinance their dividend and capital repayments and exit TARP through a special program called the Small Business Lending Fund.
Those remaining face a dividend raise to 9% in late 2013 from 5% owed now. Of the 351 remaining banks that received funds through the specific TARP CPP, one-third missed five or more dividend payments and face formal enforcement actions by regulators.
"We've already recovered more than we invested in TARP's bank programs through repayments and other income," said Treasury Assistant Secretary Tim Massad. "Moving forward, while there's no one-size-fits-all approach, you'll continue to see us make significant additional progress winding down the program in the year ahead through repayments, sales, and other methods."
Law required the Treasury to allow banks to refinance out of TARP. Roughly $2 billion in bailouts were refinanced using the SBLF program, equal to about 1% of the $245 billion spent through all of the TARP bank programs.
Capital levels at banks gone from the program are in far better shape than those remaining. According to SIGTARP, less than 4% of the banks able to refinance out of TARP held a Tier 1 common capital ratio below 7%. Of those still in the program, more than 20% have a Tier 1 level that low.
Banks in the Southeast and Midwest had the most trouble exiting the program.
SIGTARP recommended Treasury develop a clear exit path to ensure as many community banks can exit the program as possible and "prepare to deal with the banks that cannot."
"It is unclear how the remaining banks will exit TARP," said SIGTARP Director Christy Romero. "Getting these banks back on their feet without government assistance must remain a high priority of Treasury and the federal banking regulators."