Small US Bank Loses $750,000 Due To TARP

Take the case of Centra Bank, a relatively small institution in West Virginia. Centra accepted a $15 million loan from the government and promptly paid it back. But that money came with strings attached, and over the past couple of weeks, Centra executives have realized they lost the better part of $1 million in their dance with TARP.

The Troubled Asset Relief Program (TARP) was crafted at the outset of America’s economic crisis by people under a great deal of stress, and probably without much sleep. It’s had some unexpected consequences for the banks that borrowed money in the bailout.

Centra is a private bank, and to protect the taxpayer, warrants are part of TARP loan packages that let the government pay $750 for preferred stock worth $750,000. When the bank paid back the $15 million loan after six weeks, Bank President Douglas Leech figured he’d just return the $750.

But Treasury told Centra that to exit the TARP program, the bank would have to wire $750,000. Plus interest.

Even though the bank had held the money for only six weeks, Centra had to pay the equivalent of a 60% annual interest rate on it. If Centra had stayed in TARP longer, the money would have been a cheap loan. But exiting early came with a stiff penalty.

For Leech, TARP backfired. It was supposed to give banks extra capital. Instead, he lost $750,000.

Read the amazing story here from NPR.

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