Banks Leave the Bailout Behind

Updated from 1:11 p.m. EDT

Now that the guessing game over the first round of bailout repayments is over, the real games will begin.

The Treasury Department confirmed on Tuesday that 10 of the country's largest banks will be allowed to repay $68 billion worth of government funds from the Troubled Asset Relief Program. As those firms move toward independence, nine other banks that underwent regulatory stress tests still have more work to do before fully recovering their competitive edge.

The Treasury did not disclose which banks gained approval, but those that confirmed or were widely expected to be among the 10 include JPMorgan Chase (JPM Quote), Goldman Sachs (GS Quote), American Express (AXP Quote), Morgan Stanley (MS Quote), Bank of New York Mellon (BK Quote), State Street (STT Quote), US Bancorp (USB Quote), BB&T (BBT Quote), Capital One (COF Quote) and Northern Trust (NTRS Quote).

The announcement comes after the Federal Reserve said on Monday evening that it had approved plans from 10 banks that were required to outline how they would raise more capital to cope with a severe economic scenario. Among those firms were the country's biggest bank, Bank of America (BAC Quote), as well as Wells Fargo (WFC Quote) and Citigroup (C Quote), which all seem to have a longer road to recovery ahead.

"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement.

House Financial Services Committee Chairman Barney Frank (D., Mass.) called the announcements "good news," since it showed that several banks have started down the road to recovery. He also noted that they have paid the government $4.5 billion in preferred dividends and that more than one-third of taxpayers' initial investment is soon to be recovered.

For the banks returning bailout money, the good news is getting out from under the government's thumb. With Uncle Sam's capital infusions came executive-compensation limits, regulatory reviews, management shake-ups and political pressure to lend to businesses and consumers at low interest rates. None of that bodes well for bank operations or the managers butting heads with regulators while trying to hold onto their jobs. As a result, banks rushed to the market to raise new capital above and beyond required targets to repay government funds as swiftly as possible -- with remarkable success.