The Troubled Asset Relief Program (TARP), while aimed at recapitalizing the banking sector, has produced some unintended consequences, and the potential for similar harmful consequences exists in the American Recovery and Reinvestment Act of 2009. The government’s investment of more than $350 billion in bank preferred stock, with more government funds to follow, immediately provided needed liquidity in the banking sector. It was believed that this increased liquidity would ensure the survival of problem banks and allow banks to extend loans to businesses and individuals. These funds would then be used for investment and consumption, which would in turn help revitalize the economy.

Citigroup Inc., one of the biggest recipients of government bailout money, gave employees $5.33 billion in bonuses for 2008, New York’s attorney general said yesterday in a report detailing the payouts by nine big banks. The report from Attorney General Andrew Cuomo’s office focused on 2008 bonuses paid to the initial nine banks that received loans under the government’s Troubled Asset Relief Program last fall. Cuomo has joined other government officials in criticizing the banks for paying out big bonuses while accepting taxpayer money.

“You can’t stew in it,“ says one Richmond resident who lost his job at Qimonda in February but is trying to stay positive. An employer says this year is even more frustrating than the last.

Banks have been eager to pay back bailout money almost since the moment they accepted it. Now the government is deciding which banks can return the cash—at the risk of setting up a system of winners and losers. The Treasury gets to determine which banks can quit the $700 billion Troubled Asset Relief Program, loosening the federal grip on the banking sector eight months after Congress approved the rescue package. An announcement could come as early as today.

Billions of dollars flooded into banks’ coffers as the credit crunch gripped the U.S. economy last year, but only a fraction of that stimulus money is going back into the community as loans, regulatory records show. Richmond-area banks that received taxpayer money meant to kickstart lending show only modest increases in loans on their books, a Richmond Times-Dispatch review of hundreds of pages of filings found.

Richmond-based First Market Bank has received $33.9 million from the U.S. Treasury as part of the government’s $700 billion Troubled Asset Relief Program. First Market was among 28 banks to receive a total of $238.6 million in the latest batch of payments, bringing the government’s total infusion in U.S. banks to $195.6 billion. “The TARP funds are meant for healthy banks,“ said Katie Gilstrap, spokeswoman for First Market. “First Market has a very conservative credit culture. We have never been involved in subprime or risky loans.“