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Community Banks Highlight Truth About TARP’s Capital Purchase Program

Washington, D.C. (Feb. 12, 2009)––The Independent Community Bankers of America (ICBA) and the nation’s community banks are correcting misconceptions about the Troubled Asset Relief Program’s (TARP) Capital Purchase Program (CPP). The program is not a blank check to financial institutions. Rather, it invests federal funds in healthy financial institutions to help banks make loans and revitalize communities. Banks are required to pay dividends on the investments at a tax effective rate as high as 7.7 percent for the first five years and 13.8 percent thereafter. The government also receives a stake of the bank’s stock, giving taxpayers an additional upside from those shares.  Get the facts on what the TARP really means for your community.

Myth: TARP is a “bailout” for failing banks.
Fact: TARP Capital Purchase Program funds go to healthy banks to advance lending in their communities.
The federal government wants to provide capital to healthy financial institutions that can use the funds to make loans to help revitalize local economies. The decision to participate in the CPP is a case-by-case business decision.  A decision not to participate does not reflect on the well-being of financial institutions.

Myth: TARP funds are a handout.
Fact: Financial institutions that receive TARP CPP funds are required to pay back the investments with interest.
Community banks that receive funding must pay the government a 5 percent dividend per year for the first five years and 9 percent thereafter. The government also receives an additional stake of the bank’s common stock, so taxpayers will get all of their money paid back with interest, plus the upside of the common shares.  Community banks that receive investments also must adhere to many restrictions. It is not cheap money—and it’s certainly not free.

Myth: Community banks are in trouble.
Fact: The vast majority of our nation’s community banks are strong, safe and stable.
Community bankers are common-sense lenders that didn’t engage in the high-risk activities that led to the financial downturn. Instead, they stick to the longstanding fundamentals of responsible banking, and always seek to serve the long-term interests of their customers and communities.

Community banks are well-run, well capitalized, tightly regulated and more risk-averse than big banks. Community banks continue to make loans in communities across the nation. In spite of the trouble on Wall Street, community banks remain committed to taking deposits and making loans on Main Street.