Home » Uncategorized » Bailed Out Banks Say Loans on the Rise

Bailed Out Banks Say Loans on the Rise

Eighty percent of the banks believe TARP helped increase lending. A survey report.

A survey of 360 banks by the Special Inspector General for the Treasury’s $700 billion Troubled Asset Relief Program, known as TARP, found that more than 80 percent of the banks that received financial support have used the funds to increase lending or avoid a drop in lending as the recession worsened this year.

According to the TARP survey nearly 40 percent of the polled banks had used some of the funds to maintain capital levels required by regulators to protect against unseen future losses, while one-third of banks surveyed said they used some of the funds to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac.

About 29 percent of institutions said they used TARP funds to make residential loans, 18 percent used TARP funds for commercial mortgages and 17 percent said they made other consumer loans with TARP funds, such as auto loans and personal lines of credit, Reuters said.

The watchdog group – under the aegis of inspector general Neil M. Barofsky – which began the survey in February, sought to know ‘What have banks done with their bailout money?’

Similar attempts by TARP to elicit the response from the Treasury Department went in vain, as the Treasury apparently said it cannot answer the question. The Treasury felt that banks could not be expected to explain how they used government funds, because of the way they move money internally.

Refuting the claims of Treasury, Barofsky undertook the survey, issued a stinging report that complained of a lack of transparency in the Obama administration’s management of the giant financial services bailout program.

He was quoted in an interview saying: “You can’t ask the basic questions or have a debate about the fundamental policy questions without information,” a report in LA Times said.

Interestingly, even the original bank capital infusion program which was approved by Bush administration in October 2008 also did not seek detailed information from banks on the use of TARP funds.

However, TARP inspector general Neil Barofsky recommended in the report that Treasury require TARP recipients to submit periodic reports to Treasury on their use of the funds, “such as lending, investments, acquisitions and other activities, including a description of what actions they were able to take that they would not have taken without TARP funding.”

The report, Barofsky believes, proves that Treasury can do more to account for the use of bailout money. “Treasury has engaged in ongoing efforts to obtain lending data from each TARP recipient, but this tells only a small part of the story,” the report says.

Accordingly, Barofsky reiterates his call for Treasury Secretary Tim Geithner to require TARP recipients to submit periodic reports to the Department on their use of funds.

Meanwhile, about 14 percent of the polled institutions said they used the funds to pay off other debts because the government funding was more cost effective, while another four percent, believed they used TARP funds for acquisitions, mostly to take over failed banks at the request of the Federal Deposit Insurance Corp., the regulator that administers most bank failures.

About fayazuddin a. shirazi