How Banks Are Using Bailout Money

By Karen Weise

TARP funds were supposed to help banks increase lending, but many bailed-out banks used federal funds for other purposes, according to a report released today.

According to the inspector general who is overseeing TARP, of the 360 banks surveyed, 156 said they had used some of the funds to boost their capital cushion, 110 invested some of the money, 52 repaid debts, and 15 bought other banks with the funds. (A total of 611 banks have received bailout funds.)

Three hundred banks, or 83% of those surveyed, reported that some of the money had gone to support lending, but fewer than a third said their lending levels would have been lower without the federal money.

Neil Barofsky, the special inspector general, said the Treasury Department should require banks to report how they use TARP funds. Currently, the Treasury does not require banks to track TARP spending, nor do banks need to keep TARP funds in separate accounts. There are also no consequences for using funds for purposes other than to spur lending.

The Treasury Department dismissed Barofsky’s call for greater transparency. Assistant Treasury Secretary Herbert Allison wrote that because banks distribute TARP funds into general accounts, “it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient.”

The AP says Barofsky countered by saying that banks likely have internal budgets for using the funds, so they could report on the general uses of the aid.

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