NEW YORK (Reuters) - News that Goldman Sachs Group Inc might quickly pay back taxpayer money could pressure able rivals to do the same.

Traders work in the Goldman Sachs booth on the floor of the New York Stock Exchange, September 30, 2008. REUTERS/Brendan McDermid

The Treasury Department’s $700 billion Troubled Asset Relief Program was intended to provide lenders with more capital to spur lending and improve the economy.

Hundreds of companies have taken TARP money, ranging from $45 billion accepted by both Citigroup Inc and Bank of America Corp to $541,000 by The Victory Bank of Limerick, Pennsylvania.

But with TARP now seen more as an albatross, expectations are growing that more banks will repay their money as soon as they can. That would also free banks from dividend payouts, typically 5 percent a year. as well as Congress’ demonstrated willingness to change the rules of engagement.

“What you have now is the stronger banks who have the money, but with one eye on Congress,” said Jerry Blanchard, a partner in the financial institutions practice at Bryan Cave LLP in Atlanta.

“If you’re a fairly well-capitalized bank, you don’t want the government looking over your shoulder,” he added. “Many of these banks also get upset getting painted with the same brush as larger investment banks that caused some of the problems.”

At the same time, many banks including Bank of America argue they should not be faulted for using TARP, which they view as a cushion in case the economy sours further.

“We took the TARP not because we needed to, but because it made sense given the nature of the freefall of the economy at that time,” said Richard Hickson, chief executive of Trustmark Corp, a Jackson, Mississippi lender with $9.8 billion of assets that took a $215 million infusion. “We feel capable of repaying it, but I want to be very surefooted and thoughtful about it. Let’s not go ‘ready, fire, aim.’”

GOLDMAN EYES REPAYMENT

Goldman Sachs is hoping to pay back its $10 billion of TARP money as soon as possible but hurdles remain, according to a person familiar with the process who was not authorized to speak publicly about it.

The New York Times reported on Tuesday that the bank hoped to repay the money as soon as next month. Goldman declined to comment.

A payback would follow the hysteria over bonuses paid by the insurer American International Group Inc, and news that Goldman had received $12.9 billion of AIG bailout money because it was a counterparty to the insurer.

Nineteen of the largest U.S. banks will soon undergo government stress tests to assess their ability to handle the economic downturn, and their need for more capital.

“I would not be surprised to see some money paid back next quarter” by other banks, said Michael Yoshikami, president of YCMNET Advisors in Walnut Creek, California. “It is, in a way, a free market stress test. If you can repay TARP money, and still operate with good capital reserves, you’re essentially saying you’ve passed your own internal stress test.”

Some banks regret participating in TARP, including Wells Fargo & Co, which took $25 billion it did not want because former Treasury Secretary Henry Paulson told it to.

Some of the vitriol results from a rule that lets the government unilaterally impose new restrictions.

It did that last month by capping executive bonuses, and could do so again once the Senate considers the fate of AIG bonuses. Last week’s House of Representatives bill setting a 90 percent tax would also hit bonuses for thousands of workers at other banks nationwide, a form of guilt by association that banks say would cause good employees to flee.

“Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?” Wells Fargo Chairman Richard Kovacevich said on March 13 in comments at Stanford University.

Treasury spokesman Isaac Baker declined to comment on Goldman or others repaying TARP, or whether early repayment would hurt lending.

EARLY PAYBACK?

Analysts at Keefe Bruyette & Woods said 184 companies have indicated they will not tap the TARP, and at least five major banks hope to repay their infusions soon: Citigroup, JPMorgan Chase & Co, Northern Trust Corp, PNC Financial Services Group Inc and U.S. Bancorp.

Others are also eyeing repayments. Bank of America Chief Executive Kenneth Lewis has said the largest U.S. bank could repay TARP money this year if the economy cooperates. Morgan Stanley Chief Executive John Mack told Congress he wants to repay that bank’s $10 billion infusion as soon as possible.

KBW said at least five smaller lenders have filed to repay TARP money: Bank of Marin Bancorp, Iberiabank Corp, Signature Bank, Sun Bancorp Inc and TCF Financial Corp.

And it identified seven banks that it said could repay TARP money with existing capital: Goldman, Morgan Stanley, City National Corp, Comerica Inc, SCBT Financial Corp, Sterling Bancshares Inc and Trustmark.

A City National spokeswoman declined to comment, and a Sterling spokeswoman had no immediate comment. Comerica and SCBT did not return calls.

There may be reason to wait, given the uncertain economy. “If I were trying to pick the bottom of the economy, I might want to keep my powder dry,” Bryan Cave’s Blanchard said.

Trustmark’s Hickson views TARP as a form of term insurance. “We have it now so we can grow loans, keep the Mississippi economy flowing,” he said. “I would not allow the marketplace to dictate what Trustmark is going to do.”