Subscribe to Common Dreams News Updates

 

Popular content

resize:+ - reset
Published on Monday, July 20, 2009 by The Washington Post

Bailout Overseer Says Banks Misused TARP Funds

by Binyamin Appelbaum

Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program.

The Citigroup building in New York, New York. (AFP/Getty Images/Spencer Platt) The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks.

Roughly 80 percent of respondents, or 300 banks, also said at least some of the money had supported new lending.

The report by special inspector general Neil Barofsky calls on the Treasury Department to require regular, more detailed information from banks about their use of federal aid provided under the Troubled Asset Relief Program. The Treasury has refused to collect such information.

Doing so is "essential to meet Treasury's stated goal of bringing transparency to the TARP program and informing the American people and their representatives in Congress about what is being done with their money," the report said.

In a written response, the Treasury again rejected that call. Officials have taken the view that the exact use of the federal aid cannot be tracked because money given to a bank is like water poured into an ocean.

"Although it might be tempting to do so, it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient," Herbert M. Allison Jr., the assistant Treasury secretary who administers the rescue program, wrote in a letter to Barofsky.

The Treasury has required 21 of the nation's largest banks to file public reports each month showing the dollar volume of their new lending.

The government so far has invested more than $200 billion in more than 600 banks under a program that began in October with investments in nine of the largest banks. Some banks have started to repay the aid even as others continue to apply for it.

Officials said the program intended to increase the capital reserves of healthy banks, allowing them to make more loans. From the beginning, however, the government invested in troubled banks -- most prominently Citigroup -- that had publicly announced intentions to reduce lending.

The government has also used the money to encourage mergers, such as Bank of America's acquisition of Merrill Lynch and PNC's deal for National City.

The report provides the most comprehensive look to date at how banks have used the money, based on voluntary responses to a March survey. Banks were asked to describe how they used the money, but they were not asked to break down the amounts.

One response, which the report described as typical, said the money had been used "to make loans to credit worthy customers, and to facilitate resolution of problem assets on our books."

© 2009 The Washington Post Company
  • Posted in
Comments are closed

36 Comments so far

Show All