UPDATE 1-Minnesota bank TCF repays TARP, largest to do so

NEW YORK, April 22 (Reuters) - TCF Financial Corp (TCB.N), a Minnesota lender, said it repaid a $361.2 million capital infusion that it took from the U.S. government's bank bailout program, becoming the largest recipient to repay its funds.

The Wayzata-based lender, which has $16.7 billion of assets and 449 branches in eight U.S. states, is the eighth company to return money to the Troubled Asset Relief Program, better known as TARP, according to U.S. Treasury Department data.

More than 500 companies have taken funds from the $700 billion program, the data show. Most of the aid requires recipients to pay an initial 5 percent annual dividend to the government.

Regulators, banks and investors once viewed participation in the program as a positive, figuring that it would help healthy banks lend more and perhaps buy struggling rivals.

But participation is now often viewed as an albatross, subjecting recipients to restrictions on such things as executive pay and dividends.

Investors now consider some banks that hold onto their aid as being too weak to return it. Large banks such as Goldman Sachs Group Inc (GS.N) and JPMorgan Chase & Co (JPM.N) have said they want to repay their aid soon.

TCF Chief Executive William Cooper this week said holding TARP money put the bank at a "competitive disadvantage."

He said repaying the aid and eliminating the associated dividend payments will boost earnings by more than 14 cents per share annually.

TCF has offices in Minnesota, Arizona, Colorado, Illinois, Indiana, Michigan, South Dakota and Wisconsin. Its shares fell 19 cents to $14.43 in late afternoon trading. (Reporting by Jonathan Stempel, editing by Gerald E. McCormick)