Acadiana banks turn up noses at U.S. cash, rules

A bank in Acadiana, the Cajun country of Louisiana, has become the first to give back federal bailout money, saying the strings attached by the Treasury put it at a competitive disadvantage. IberiaBank of Lafayette will buy back the $90 million in stock that the federal government added, it said in a press release.

While the bank declined to elaborate on its reasons, one of its Lafayette-based competitors suggested why last week. MidSouth Bank said in a release that it was considering returning the $20 million it got because of "potential changes to the Capital Purchase Program," which was related to the Troubled Asset Relief Program but "for healthy community banks." (Encarta map)

MidSouth said it held 14 meetings in Louisiana and Texas "to get the word out to the business community that it was lending money to help stimulate the economy," then President and CEO Rusty Cloutier concluded that "It's looking more and more like the federal government wants to treat this like it was a needs-based issue, and we didn't need the money."

Cloutier laid it out: ""They're talking about attaching all sorts of strings to the money, so banks have been sending it back," he added. "The Treasury needs to stop listening to the special interests of the 'too big to fail' banks that got us into this trouble and break them up. And at the same time it should back away from community banks and let us do what we're supposed to do with the TARP funds -- lend the money."

"Clearly the bailout isn’t popular, and the bankers are unhappy about the added compensation limits and public pressure to lend," writes Paul Kiel of ProPublica. "Under the new limits passed by Congress earlier this month, the five most highly compensated execs at IberiaBank would have seen their bonuses limited. ... About 162 banks have announced that they won’t be taking the Treasury’s cash, according to the investment firm Keefe, Bruyette, and Woods, but this is the first time that a bank has taken the money and then given it back. A sign of things to come?" (Read more)