Bailout Banks Look to Escape TARP Trap

As Congress imposes greater restrictions on financial institutions that received government bailout money, a number of smaller banks are beginning to express a desire to give the money back -- and some question whether they even needed it in the first place.

Limits Congress has placed on executive compensation packages and other perks have caused widespread grumbling among banks of all sizes that have received aid through the Troubled Asset Relief Program. But some also worry about tarnishing their brand with the stigma now being associated with accepting government money, thanks to repeated bailouts for companies like Citigroup (C Quote), Bank of America (BAC Quote) and AIG (AIG Quote).

"My sense is a lot of banks are looking at [paying back TARP money]," says Jean Everett, a partner at Hiscock & Barclay's financial institutions and lending practice. "It's a tough call because you don't know what's going to happen in three to six months or three to six days ... Maybe sitting on that capital will still be a good idea even though it's not economic at these rates to lend it." ...