Why are big banks like Citigroup rushing to pay back TARP funds?

Bailed-out Citigroup says it will be known as bailed-out no more. The bank announced plans to return $20 billion in federal funds while converting another $25 billion in debt into a 34 percent ownership stake in the company for Uncle Sam.

The move caused Citigroup's stock to fall about 6 percent in early Monday trading.

Of the 737 institutions that received bailout funds, 51 other banks have wiped out their financial obligation to the Feds according to ProPublica’s database on the subject.

Among them, however, have been most of America’s banking heavies. Bank of America made good on its $45 billion debt on Dec. 9, while JP Morgan Chase ($25 billion) Goldman Sachs ($10 billion) and Morgan Stanley ($10 billion) all paid the federal piper on June 9. In Bank of America’s case, the repayment came almost two years ahead of its own projected payback date.

While media attention has focused on these big names, the vast majority of banks receiving financial life support were smaller regional banks who aren’t charging on to repay their Troubled Asset Relief Program (TARP) funds.

So what’s the hurry for big banks?

For one, paying back Uncle Sam ends government strictures on executive pay. Bankers say these restrictions make it impossible for bailout-receiving banks to compete for top banking talent. AIG head Robert Benmosche was reportedly on the verge of jumping ship only a few months after being hired because of pay frustration.

Plus, there are plenty of what hedge fund whiz George Soros calls “hidden,” or indirect, benefits for bankers in the government’s attempts to reinvigorate the economy. From miniscule interest rates to a number of moves to get credit flowing freely once again, banks are getting plenty of federal help without the public relations blemish of counting government dollars on their balance sheet.

Third, there is that all-important public image of the bank. Many investors will view a bank as weaker if it's still dipping into TARP while its peers are in the clear. And beyond investors, the banks face broader public-relations concerns. How sensitive banks are to public criticism right now is best shown through the actions of Goldman Sachs, which recently announced that its top 30 bankers will have their entire bonuses converted into company shares for 2009. That follows on the heels of a widely panned move to donate $500 million to a variety of programs to help small businesses.

Medium sized banks, on the other hand, are not being pummeled with the same sort of public scrutiny and thus aren’t under the same pressure as the Wall Street titans. Moreover, the structure of large but not hulking banks like Wells Fargo is fundamentally different from Wall Street’s biggest institutions, as TIME magazine blogger Justin Fox recently wrote.

“It's that Wells, unlike BofA and Citi, doesn't employ legions of investment bankers and traders who expect to be paid millions of dollars a year,” writes Mr. Fox. “It's a financial institution that caters to consumers and small-to-medium-sized-businesses, not a creature of Wall Street.”