CashWhen the U.S. government started handing out taxpayer dollars to banks under TARP last fall, hundreds of banks lined up. To many, government money was cheaper than the terms they were getting in private and public markets.

“That really, in effect for several months, put a lot of our discussions with issuers really on hold,” said John Duffy, CEO of investment bank KBW, which specializes in the financial services sector.

Now, the pendulum may be swinging away from the government.

The Obama administration has made it clear that the recipients of more capital will have to live under dictates on what they can and cannot do with the money — dividend restrictions, executive compensation caps and such. ¬†

And now the private market may be becoming more attractive to banks, despite private equity seeking better terms like asking for a more senior position than just common shares in investments, Duffy said.

“The longer this environment exists, the more there will be capitulation on the part of banks or potential issuers that the government is forcing them to go get that capital,” Duffy said on a conference call after announcing results. “And I think the capital out in the public or private markets is maybe more appealing than the terms attached on the latest government plan.”