updated 5/11/2009 6:34:31 PM ET 2009-05-11T22:34:31

Banks that are ready to repay government bailout money are finding it's not as simple as writing a check to the Treasury.

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So far, no large U.S. bank has returned funds received from the Troubled Assets Relief Program, or TARP. Last week, JPMorgan Chase & Co. CEO Jamie Dimon said he wants to repay TARP, but "the rules aren't clarified." Goldman Sachs Group Inc. CEO Lloyd Blankfein has repeatedly said he expects to pay back TARP "soon."

And BB&T CEO Kelly King told The Associated Press Monday the timing of the repayment is "really in the hands of the regulators and the Treasury. All we can do is apply and meet the conditions, which we believe we have."

To repay TARP money, the companies must meet three requirements.

First, they must raise long-term debt in the private markets without the Federal Deposit Insurance Corp. guaranteeing it. Second, they must agree to prices for the warrants the government received in return for the original loan. A warrant is the right to buy a stock at a certain price. Last, they must be deemed "well-capitalized" by regulators and the Treasury — a qualification that remains fuzzy at this point.

The reason for the rules? The last thing U.S. officials want is for a bank to return their funds, only to ask for more later. After Fannie Mae's warning last week that it needs an extra $19 billion from the government after receiving $15 billion in March, it's clear the financial crisis is not yet over.

"Regulators need to be very careful on their own credibility," said Paul Miller, a bank analyst with Friedman, Billings, Ramsey & Co. "They've got to be very careful that they don't give a seal of approval to a system that is not stable yet. There are a lot of other shoes that could drop in this economy."

Several banks have paid back TARP, but the rules were different because they were small, said Standard & Poor's financial institutions analyst Scott Sprinzen. "They weren't institutions viewed as systemically important."

On Monday, a handful of larger banks — BB&T, U.S. Bancorp, Capital One Financial Corp. and Bank of New York Mellon Corp. — said they were raising capital in order to repay TARP. They passed the government's stress tests last week with no capital requirements, so they and other banks with sufficient capital, such as JPMorgan and Goldman Sachs, are likely to get approval soon to return TARP, analysts say.

However, "after those, the candidate list gets very thin," Miller said.

Paying back federal funds has pros and cons for all involved: the government, the banks, stockholders and taxpayers.

For many banks, TARP has given them capital they need to stay operational. One factor holding banks back from returning TARP is that they've already lent out some of the money, said Scott Talbott of the Financial Services Roundtable, which represents large financial firms.

A negative for banks, though, is that the bailout program has given lawmakers the ability to restrict compensation. As a result, banks say they are having a hard time keeping top employees on their payrolls. Executives also contend that holding TARP money has become a sign of weakness to the public and to investors. Another pitfall: The banks must pay a 5 percent dividend on the government's investment.

For the government, getting taxpayer money back from healthier banks would be a strong sign to the American public that the financial system is healing. It could also help Treasury avoid having to go back to Congress for additional funding. At around $110 billion, down from $700 billion, "the TARP fund is running low, and this would be one way to see it partly replenished," Sprinzen said.

But if the Treasury and the Federal Reserve allow repayment by potentially weak banks, those companies might come back for more TARP. At best, that would be an image disaster for the bank and for the government, and at worst, it would cause turmoil in the broader markets.

Because of this grim possibility, stockholders are mixed on TARP. Their holdings have already been diluted, sending stock values lower whether a bank gets money through getting more government funding, a conversion of preferred shares to common shares, or raising capital from private sources. Having the government restrict compensation and play a part in corporate decision-making is far from ideal, but having a strong, solvent company is the biggest priority right now.

"For those that looked healthy in the stress test, if I'm shareholder, I'm really excited about them getting out from underneath TARP," said Kevin Jacques, a longtime Treasury employee who is now a finance professor at Baldwin-Wallace College. "But for those institutions that had problems, I'm concerned."

The same thinking should go for taxpayers, too, analysts said. After all, taxpayers are now investors in these banks.

"The taxpayers should worry about the safety and soundness of the business," Miller said. "The biggest concern is keeping things stable, rather than giving the money bank."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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