Bank Of America To Repay Bailout Funds

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Bank of America says it plans to repay the government bailout funds it received during the credit crisis and after it purchased Merrill Lynch & Co. The move would allow Bank of America, which is trying to recruit a new CEO, to free itself from government restrictions on executive pay that come along with bailout funds.

RENEE MONTAGNE, host:

And in other corporate news, Bank of America says it plans to pay back the $45 billion in rescue funds it received from the government during the financial crisis.

NPR's John Ydstie reports.

JOHN YDSTIE: Bank of America said it would repay the Treasury's TARP rescue program, using more than $26 billion in cash that it has on hand and money raised through the sale of new securities. Three other big banks - Goldman Sachs, JP Morgan Chase and Morgan Stanley - have already gotten permission from the government to pay back TARP. Mike England, chief economist of Action Economics, says the rush by banks to repay TARP may not be the best thing for the economy because it means that they'll have less money to lend.

Mr. MIKE ENGLAND (Chief Economist, Action Economics): Banks are clearly hoarding cash to pay back the TARP funds. And I think what we're seeing from B of A is probably typical of what we're seeing from other banks that have really pulled back on their lending activity for the purpose of acquiring capital and paying down TARP.

YDSTIE: In a statement announcing the repayment, Bank of America said it has been originating new loans at the rate of $3 billion a day to support the economy. But England says data show overall bank lending contracting since the beginning of the year.

One thing paying back the TARP will do is get B of A out from under government compensation restrictions. Those restrictions could be hampering its search for a new CEO to replace leader Ken Lewis, who is stepping down at the end of the month. A bank spokesman acknowledged the repayment would make B of A more attractive to a CEO candidate.

John Ydstie, NPR News, Washington.

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