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By Zach Lowe
The American Lawyer and Law.com Legal Newswire
February 4, 2009
"[L]awyers [we interviewed] ... advising ... financial institutions keen on applying for a chunk of the fresh $350 billion in Troubled Asset Relief Program funds ... were nearly unanimous in saying that ... [ -- w]ith President Barack Obama and Treasury Secretary Timothy Geithner reportedly promising to attach more strings to federal bailout money [ -- ] ... banks of all kinds are becoming more cautious about participating in TARP, with some even backing out of the program after Treasury has approved them for funding. And in some cases, lawyers say they are actively advising institutions against seeking the bailout money.
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"Among the banks' concerns: limits on executive compensation and government oversight that could extend to tracking how every TARP dollar is spent. One clause in the general TARP agreement says Congress can amend the lending terms at any time, and that a participating bank must adhere to any such amendments, including compensation rules and loan requirements, [the lawyers] say.
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"Several lawyers say the most troubling new conditions are [in a letter] the Office of Thrift Supervision ... sent out ... last week saying any holding company running a thrift that receives TARP money will have to remain a ... 'source of strength' for the thrift[.] ... This 'source of strength rule' requires holding companies to maintain a certain level of capital that is earmarked specifically for propping up its thrifts, lawyers say. And if a thrift under its control were to fail, a holding company that had pledged to be a 'source of strength' would be on the hook for that thrift's losses[.]"
To read the full article, click on the Title Line, above.
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