Goldman Sachs and Morgan Stanley have formally asked the US Federal Reserve for permission to repay a combined US$20 billion in federal bailout money.
The requests are pending, and no decision has been made on whether the investment banks will get approval to repay the money and sever ties with the Troubled Asset Relief Program (TARP), two sources familiar with the matter said.
Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co have said for weeks that they want to repay their share of the US$700 billion government bailout so they can operate free of federal limits on executive pay and other restrictions.
A JPMorgan spokesman declined to comment on whether the bank also has requested permission to repay. Goldman Sachs and Morgan Stanley representatives also declined to comment.
The Federal Reserve, the main regulator for all three banks, would have to approve any decision on repaying bailout funds.
Goldman and Morgan, which each received US$10 billion, initiated talks with the Fed in the past few weeks, the sources said.
The banks were among nine large financial institutions that took an initial US$125 billion in bailout money in October after the collapse of Lehman Brothers threatened to trigger a financial catastrophe.
If their requests are approved, Goldman and Morgan would be the first among the nine banks to repay bailout money. Twelve smaller banks have returned nearly US$1.2 billion in government money so far.
More than 570 banks have received about US$198 billion in bailout funds.
Banks that want to repay bailout money must be able to replace the funds by raising capital without guarantees from the Federal Deposit Insurance Corp.
The issue of repaying the money is a sensitive one for the government. By allowing strong banks to abandon the bailout and its restrictions, it risks putting weaker banks at a disadvantage, analysts say. A big concern is that high-level employees of bailed-out banks could defect to rivals that have paid back the funds.
“Paying back TARP money would clearly be seen as a sign of strength,” said Douglas Elliott, fellow at Brookings Institute and former investment banker at JPMorgan. “It would be much easier for a Goldman Sachs to hire someone from another bank if it’s not bound by TARP restrictions.”
The US Treasury Department declined to comment on Monday on whether Goldman or Morgan had applied to repay bailout money.
Treasury has said it expects banks to repay US$25 billion in government funds over the next year.
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