(Recasts with details from GAO report, adds Treasury, lawmaker comment)
By Richard Cowan and Rachelle Younglai
WASHINGTON, Dec 2 (Reuters) - The investigative arm of the U.S. Congress on Tuesday criticized the Treasury Department’s handling of a $700 billion bank bailout program and urged the Bush administration to get it into better shape.
Treasury has yet to address a number critical issues, including how it will ensure that the program “is achieving its intended goals,” said Congress’ Government Accountability Office (GAO) in a study first reported by Reuters.
Under the government’s Troubled Asset Relief Program (TARP), $250 billion has been committed for direct injections into U.S. banks in a bid to revive sluggish credit markets and restore confidence in the banking system.
Some lawmakers have accused banks of hoarding the money, instead of lending it out, and have urged Treasury to make it clear that government funds must be used for loans and not to buy healthy banks or pay higher dividends.
The GAO said Treasury has not yet determined if it will impose reporting requirements on participating banks so that the government can monitor how federal funds are being used.
“The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments,” the GAO said.
The congressional watchdog recommended Treasury develop ways to ensure participating banks comply with key TARP conditions, such as limits on executive compensation.
It also urged Treasury to report in a timely manner on whether financial institutions are fulfilling the bailout’s goals, and to ensure accountability and transparency.
Treasury agreed with the bulk of the GAO’s recommendations, but said it had a “different perspective” with what is needed to evaluate how participating banks are spending their government funds.
Many banks, including Bank of America (BAC.N), have already received government funds and have assured Congress that they intend to lend the money out to credit-worthy borrowers. ID:nN17526849
The GAO also said oversight and enforcement of the program’s executive pay provisions are still unclear. The TARP limits executive pay for participating banks, including restrictions on golden parachutes for departing executives.
The GAO said credit market improvement could not be solely attributed to the government’s capital injection program because so many different actions are being taken.
“No single indicator will provide a definite determination of the program’s impact,” the document said. The GAO said its preliminary indicators of success for the program will include trends in interest rate spreads, mortgage rates, mortgage originations and foreclosures.
In related news, Montana Democratic Sen. Max Baucus, chairman of the Finance Committee, in a statement urged the Senate to confirm the Bush administration’s nominee for inspector general of the TARP so he can get to work.
Baucus said the GAO report underlined how important it is for nominee Neil Barofsky to start his job and set up his staff of internal TARP watchdogs. His nomination is being blocked by a single, unnamed Republican senator.
“This report proves the immediate need for oversight of the taxpayer dollars being expended right now as part of TARP. Because of one Senator’s anonymous block on this nomination, three weeks have been lost, a key element of the TARP oversight program is not in place,” Baucus said.
“It makes no sense to block the appointment of the special inspector general. The Senate must act quickly to confirm the special IG next week.” (Additional reporting by Kevin Drawbaugh; Editing by Phil Berlowitz)