Repaying T.A.R.P.: There Are Restrictions

There is a meme (did you know that word was invented by Richard Dawkins?) going around the blogosphere that, in essence, says Geithner doesn’t have the right to prevent T.A.R.P. repayment, even if no fresh capital is raised. This is incorrect. From the Goldman Sachs T.A.R.P. agreements [pdf!] governing the capital infusion (it’s hidden on the site, but there!):

tarpcovenant

(Emphasis [yes, that’s the green underlining] mine.)

Seems, then, that it’s pretty clear. Whole or partial payments, once allowed by a regulator, require fresh equity raised from a “Qualified Equity Offering.” This is a defined term, and the document defines it as follows:

equityoffering

So, it seems pretty cleat that there are conditions. Now, maybe these aren’t the systemic considerations, but that’s likely why the regulatory approval is required, especially in conjunction with the “stress test,” which we’ve discussed here at length.

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