Apr. 13--Taking inexpensive capital from the Treasury Department sounded like a great idea when the credit and capital markets were frozen late last year.

But today, a growing number of banks are having second thoughts.

In its effort to spur lending and jump-start the faltering economy, the Treasury began offering billions of dollars of capital to the nation's banks in October. Through March, more than 530, including four in Hampton Roads, had signed up.

In exchange for funds from the Treasury's Capital Purchase Program, Monarch Financial Holdings Inc. and other participants issued preferred stock with a 5 percent dividend and warrants that would allow the Treasury to buy some of their common shares.

When it received $14.7 million from the Treasury in December, the Chesapeake-based parent of Monarch Bank called attention to the help it could provide to its customers.

"We are extremely proud that the U.S. Treasury chose to make an investment in Monarch," said Brad Schwartz, its executive vice president and chief financial officer, in a statement about the transaction.

Four months later, Monarch is weighing whether to repay the capital as quickly as possible, Schwartz said. Amid the turmoil in financial markets last year, "we took the capital as an insurance policy," he said. Congress, however, imposed additional rules for institutions receiving funds from the Treasury's Troubled Asset Relief Program, he said.

One change requires that banks receiving TARP funds allow their shareholders to vote on executive compensation. The outcome is advisory and isn't binding on the company's board. However, other requirements tucked into the economic stimulus package make more onerous demands on banks using the TARP program, including restraints on the use of bonuses, retention awards and incentive compensation for highly paid employees.

The stimulus legislation, which was signed into law in February, also requires the boards of companies receiving TARP funds to have a company wide policy regarding excessive or luxury expenditures for such things as entertainment, office and facility renovation, aviation and other transportation services.

What concerned him and other bankers, Schwartz said, was the possibility that more rules may be coming.

Since the end of March, six banks around the country have redeemed the shares they issued for the Treasury's capital, and four others are in the process of doing so, according to SNL Financial, a Charlottesville-based research and publishing company.