Lawmakers challenge big banks on bailout funds

By Kevin Drawbaugh and Rachelle Younglai

WASHINGTON (Reuters) - Senators asked the nation's biggest banks on Thursday to explain how they are using the billions of taxpayer dollars provided to them under a massive government bailout program. The answers were mixed.

Amid deepening concern about the financial system and the economy, Senate Banking Committee Chairman Christopher Dodd urged the banks to spend the money to preserve homeownership and restart credit markets, while putting limits on executive pay.

The $700 billion bailout approved by Congress and signed by President George W. Bush in early October came with strings attached, but not as many as similar European bailouts, prompting some criticism that U.S. banks have too much leeway.

"Hoarding capital and acquiring healthy banks are not -- I repeat, are not -- reasons why Congress authorized $700 billion in emergency funding," Dodd, a Connecticut Democrat, said at a hearing on oversight of the financial rescue program.

Goldman Sachs Group Inc will spend the $10 billion it got on activities such as offering its clients strategic advice, financing transactions and making markets, said an executive for the Wall Street powerhouse.

Bailout proceeds "will be put to work consistent with our mandate to meet the advisory, financing and investing needs of our clients to fund innovation and growth," Goldman Sachs General Counsel Gregory Palm told the committee.

Leading banks JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co said they would use government funds to make loans to creditworthy borrowers.

"The capital we have received ... is being deployed in a manner consistent with the purposes of the program," said JPMorgan Chase Chief Risk Officer Barry Zubrow.

Wells Fargo Regional Banking President Jon Campbell said the bank planned to use government funds for "additional lending and to facilitate appropriate home mortgage solutions."

The Treasury Department has already injected $110 billion of the bailout funds into the largest banks.

New York Democratic Sen. Charles Schumer warned that additional funds might come with provisions such as one that would require the Treasury Department to approve mergers.

"I didn't vote to save Wall Street; I voted to save Main Street," said Ohio Democratic Sen. Sherrod Brown.

"If taxpayers' funds are not going to be used for lending, then we need to give serious thought to whether this effort still makes sense," Brown said.

Banks defended their dividend policies. Anne Finucane, Bank of America's global marketing and corporate affairs executive, said the company would use the money to strengthen its capital base. "We will not use it to increase our dividends," Finucane said.

(Reporting by Rachelle Younglai and Kevin Drawbaugh)