Summit State Bank on Thursday became the first lender in Sonoma County to repay taxpayer money it received as part of the government program to stabilize U.S. banks.
The program, criticized as a bank bailout when it began in 2008, is now heralded for stabilizing banks and actually returning a profit to the government.
The U.S. Treasury, which loaned $245 billion to banks through its Troubled Asset Relief Program, has now recovered all of that initial investment and earned an additional $10 billion, according to government accounting.
Three Sonoma County banks received a total of $60.2 million through the TARP program.
The Treasury, which required banks to pay interest on the borrowed money, currently estimates its investment in U.S. financial institutions will generate a $21.2 billion profit by the time the 10-year program ends.
“Overall, this was a good program for the taxpayer,” said Fred Ptucha, a Santa Rosa banking analyst. “As bad as this recession has been, it would have been far worse if they hadn't rescued the banks.”
The government's Capital Purchase Program, which accounted for about half of TARP's overall budget, was designed to boost capital at U.S. banks. Officials created the program to ease a credit crunch that had engulfed U.S. financial institutions in late 2008.
The Capital Purchase Program provided additional money for banks to lend while also easing the minds of jittery bankers who watched as loan defaults hit near historic levels during the recession.
The Capital Purchase Program injected money into 707 community banks across the United States. As of June 30, about one in seven had fully repaid the money.
Exchange Bank, the largest and oldest community bank in Sonoma County, received $43 million in December 2008. It is one of about 530 community banks that has yet to repay its TARP funds.
“It certainly stabilized our financial picture enough to lend during these difficult times,” said Bill Schrader, president of the bank. “It gave us the time to heal.”