A Stress Test for Community Banks

The $700 billion TARP program has failed for the majority of its community bank recipients. TARP was given to about 700 community banks, and now 123 are reneging on TARP Dividend Payments. We are finding out the hard way that when you give money to “healthy” banks, you don’t get it back -- primarily because they are not healthy. By my measure, community banks should never have received TARP money in the first place if they were overexposed to C&D and CRE loans, in violation of the FDIC’s own guidelines. Many banks cannot make dividend payments because they are choking on non-performing real estate loans established between 2003 and 2007.