Speaker Pelosi: Banks should use funds for credit

WASHINGTON (Reuters) - The speaker of the U.S. House of Representatives urged the Bush administration on Friday to ensure that some of the federal government's investments in banks be used to free up the flow of credit and not just be hoarded by those banks.

In a letter to Treasury Secretary Henry Paulson, Speaker Nancy Pelosi, a California Democrat, urged him "to send a clear message to participating financial institutions about Congress' intent to relieve the credit crunch and get our economy moving again."

Pelosi's concerns, she said, came following reports suggesting that financial institutions might hold the $250 billion in federal funds "for extended periods of time instead of using part of it to facilitate the flow of credit in our financial markets."

The $250 billion represents the first chunk of a $700 billion fund the Treasury Department has from a newly enacted Wall Street bailout package passed by Congress and signed into law by President George W. Bush.

Pelosi said that if banks were to hold onto the federal funds for an extended period of time, that would run counter to Congress' intent in passing the legislation, which aims to get credit back into the pipeline to combat a deeper economic downturn that already has made it harder for consumers to get loans.

Nine of the largest U.S. banks are slated to receive $125 billion in capital infusions from Washington, as details are worked out on how the additional $125 billion is dispensed.

The American Bankers Association on Friday asked Paulson to clarify the purpose of the government's capital injection plan amid worries some banks fear being labeled as needing a bailout or of being subjected to unknown government requirements as part of the program.

(Reporting by Richard Cowan)