The problem is that the only thing TARP is good at motivating banks to do is get the hell out of TARP so they can get back to taking outrageous risks, now even safer in the knowledge that if it all goes south the US taxpayer will bail them out rather than destroy the economy.

The banks should not be allowed to leave TARP. As long as these banks continue to enjoy an implicit government guarantee, the government should maintain its stake, and its say, in the running of those banks. If they want to stop being under the control of the government, they need to split themselves into entities that are Small Enough To Fail.