UPDATE 1-US Treasury receives $6.7 billion in TARP dividends

(Adds details from testimony, legislation)

WASHINGTON, July 8 (Reuters) - Financial institutions that received government bailout funds have paid the U.S. Treasury $6.7 billion in preferred stock dividends through the end of June, a Government Accountability Office executive said on Wednesday.

Gary Engel, GAO director of financial management and assurance, disclosed the figure in prepared testimony to the U.S. House of Representatives Financial Services Committee that was posted on the panel's website on Wednesday.

The committee is holding a hearing on Thursday on a bill to use $2.5 billion in dividend profits from the Troubled Asset Relief Program to aid housing and neighborhoods, dubbed the "TARP for Main Street Act of 2009."

The government's $700 billion Troubled Asset Relief Program required participating banks to pay quarterly dividends on preferred stock sold to the government at a 5 percent annual rate. Citigroup (C.N) and Bank of America (BAC.N) also pay dividends at rate of 8 percent on additional investments made by the Treasury.

American International Group (AIG.N), which received about $180 billion in government assistance, had its dividend payments substantially reduced by a restructuring deal reached with the government in April. This converted nearly $1.6 billion in unpaid dividends into new preferred shares, but AIG is due to make $150 million in backpayments as part of its August 1 payment to the government, Engel said.

Engel also said also said 17 banks that were supposed to declare or pay dividends of about $6.6 million through June, did not do so.

After taking back $70.1 billion from 32 banks that have repurchased preferred shares through June, Engel said the Treasury has about $328 billion in cash resources remaining under the $700 billion TARP limit.

But including all obligations and allocations for the money, the GAO estimates that the bailout fund's available balance is about $127 billion -- the same as the Treasury's most recent estimate.

Engel said the Treasury and the Federal Reserve need to provide clearer and more consistent guidelines on how they will make future repurchase determinations.

"Clearly articulated and consistently applied criteria are indicative of a robust decision making process, and without them Treasury will face an increased risk that institutions requesting repurchase of their stock may not be treated equitably," he added. (Reporting by David Lawder; Editing by Kenneth Barry)