The treasury department told sources that no banks will be allowed to repay the TARP until after June 8th, when the banks that need capital must have plans in place to raise capital. Also, the government have decided that they won’t approve each bank’s request to repay TARP individually but in batches in an effort to reduce the effects that one bank can use the timing on the approval to its advantage.
In order to repay the TARP, the banks also need to:
- Demonstrate that they can issue debt without government guarantee
- Demonstrate that it can issue stock or self fund itself (for example, through earnings power)
- Have approval from the bank supervisor
While I may not agree that the government is adding rules as they go along, the Treasury has always said that its primary goal is to make sure the financial system is stable. The idea that no one will be able to repay TARP until after the capital raise plans are submitted is probably because they are afraid some firms will just not be able to raise enough capital. In that case, other banks with more than enough capital can help out (possibly buy them).