Rep. Frank says bailout funds must be for lending
WASHINGTON (Reuters) - Companies receiving public money under a U.S. government financial rescue program must use it for lending or they will be violating the law, the powerful chairman of the U.S. House of Representatives Financial Services Committee said on Friday.
"Any use of the these funds for any purpose other than lending -- for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. -- is a violation of the terms of the act," Rep. Barney Frank, a Massachusetts Democrat, said in a statement.
Frank was referring to a $700 billion financial rescue law passed by Congress earlier this month. The Treasury Department plans to use $250 billion of that amount to inject capital into financial institutions to unfreeze credit markets and restore lending.
A growing number of Democratic lawmakers have demanded more restrictions on banks receiving government money.
U.S. Treasury Secretary Henry Paulson must make it "absolutely clear" to a participating bank that the federal government will insist on compliance, Frank said.
Frank later told CNBC television on Friday that if banks do not honor the "principle" of using the funds to increase lending, Congress could fail to authorize the final $350 billion of the rescue plan.
The Treasury Department had no immediate comment.
Addressing lawmakers' questions last week, Neel Kashkari, the Treasury's interim manager for the rescue program, said the final purchase agreements between the Treasury and individual banks will have specific language on lending.
But he did not rule out the possibility of the capital injections being partly used to encourage acquisitions, saying that if a stronger bank acquires a weaker bank that has not been in a position to lend, the community is better served.
"We want our banks to lend," Kashkari said during the Senate Banking Committee hearing last week. "But we also didn't want to be in a position of micromanaging on this."
NO STRINGS ATTACHED
A "no strings attached" policy by the government would be smart, because it allows banks to operate in areas they have the most expertise, one banking analyst said.
"I just don't think the public gets it, and certainly Congress doesn't get it," said Anton Schutz, president of money managers Mendon Capital Advisors Corp in Rochester, New York.
For example, a bank that receives $25 billion through the bailout program could buy $250 billion in asset-backed securities from Fannie Mae or Freddie Mac, Schutz said. "That lending may not be direct, it may be in purchasing securities, but that's helping to unfreeze the market," he said. "You got to let those companies do what is economically sound."
Under the Treasury Department program, the first $125 billion went to nine large U.S. banks, and the remaining $125 billion will be injected into community and regional banks. Continued...
