U.S. Bancorp Shows How Public Funds Crowd out Private Funds

U.S. Bancorp took $6.6 billion in TARP funds in 2008. At the same time, they maintained their dividend (continuing a 75 year tradition of maintaining or raising it).

This month they announced that they would give the TARP money back to the Treasury. How will they replace it? But cutting their dividend for the first time in at least 75 years!

It is not a coincidence that U.S. Bancorp cut its dividend at the same time that they repaid the TARP money. I explained last fall how Treasury "capital injections" just result in greater payments to bank industry shareholders. One (of many ways) it could work is that a bank that had become less profitable during this recession would either cut its dividend in the absence of Treasury funds, or (as with TARP recipients like U.S. Bancorp) use the Treasury funds to maintain the dividend it had prior to the recession.

The same argument implies that payments from a bank TO the Treasury would reduce payments to bank industry shareholders. That's what we see with U.S. Bancorp.