The US government is gradually shutting down the controversial program that bailed out the financial sector four years ago by selling its ownership stakes in banks that took the money but have not paid it back.
About 330 banks, including two in Massachusetts, are still holding $11 billion from the Troubled Asset Relief Program, or TARP, the bailout program approved by Congress during the financial crisis in 2008.
Unless the Treasury expects banks to repay the taxpayer money in the next 12 to 18 months, the agency plans to sell its stakes to other investors, a spokesman said. The government has already auctioned off its preferred stock in 20 banks in the past few months.
Industry executives say most banks that could repay the TARP funds have done so. The nation’s biggest banks, including Bank of America Corp. of Charlotte, N.C., and JP Morgan Chase & Co. of New York, repaid the government with interest some time ago.
But some banks, especially those that are privately held, have been stuck in TARP because they cannot raise outside capital by selling stock to the public and have not earned enough profits to repay the money quickly.
In Massachusetts, OneUnited and Wachusett Finan- cial have yet to clear their debts.
“Selling the preferred stock to third-party investors is the only way to put an end to government ownership of these remaining banks,” said Linus Wilson, an assistant professor of finance at the University of Louisiana Lafayette. “It appears that the administration is eager to wind down the TARP.”
The two banks in Massachusetts that are affected are OneUnited Bank in Boston and Wachusett Financial Services Inc., the parent of Clinton Savings Bank in Clinton. They received about $12 million each in TARP funds.
OneUnited, one of the largest black-owned banks in the country, is operating under a regulatory order to increase its capital and has not been in a position to repay the government. It has skipped most of its dividend payments to the government. The bank earned $2.8 million last year, less than one-quarter of the amount it received in TARP money.
OneUnited said in a statement that it “continues to be committed to repaying TARP.”
Wachusett says it is slowly repaying the government. It paid back $3 million in April and plans to pay another $3 million later this year. It will buy back the remaining $6 million in preferred stock by the end of 2014, said Ellen McGovern, a spokeswoman.
The government originally invested $245 billion in 763 banks, including 11 in Massachusetts. The Treasury Department said banks have repaid $264 billion in principal, dividends, and interest — $19 billion more than taxpayers invested. But TARP remains $72 billion in the red overall, largely because the government gave billions more to the insurance giant AIG and major automakers such as General Motors, which have had trouble repaying as quickly as major banks.
In addition, more than 100 small banks repaid $2.2 billion in TARP money with funds obtained under a new government aid program, the Small Business Lending Fund, which critics nicknamed Son of TARP.
Although Congress authorized $700 billion for TARP in 2008, the Treasury estimates it wound up doling out $416 billion. Of that amount, the Treasury estimates it has recovered $344 billion so far, and hopes to recover billions more.
This week, the agency said it expects TARP to wind up costing about $60 billion, mostly for money set aside to help homeowners avoid foreclosures.