Pelosi signals willingness to add to TARP funds

WASHINGTON (Reuters) - House Speaker Nancy Pelosi said on Sunday the federal government may need to pump more taxpayer funds into the faltering banking system and that taxpayers should receive equity as compensation.

Pelosi told ABC’s “This Week” program that “some increased investment” might be needed beyond the $700 billion approved last year under the Troubled Asset Relief Program, or TARP, to stabilize the nation’s banks and get them to resume making loans.

Congress would require more oversight of any further bank bailout, the California Democrat said.

“Change has to happen in terms of what is done, what the transparency of it is, what the accountability of it is. Only then would we be able to pass any additional funding,” Pelosi said.

President Barack Obama’s pick for treasury secretary, Timothy Geithner, said last week the Treasury had no current plans to request more bailout money beyond the $700 billion already authorized, but that the situation was “dynamic.”

“We have to be prepared to act flexibly and with speed if conditions worsen appreciably, to devote more resources if that is necessary to secure our objectives,” he wrote last week in reply to written questions during his confirmation hearing.

Billions of dollars in auto and credit card debt held by banks are expected to default in 2009, after the billions in mortgage-backed debt that initiated the financial crisis.

The first $350 billion in TARP funds has been committed and lawmakers agreed last week to release the second half.

Pelosi said the government should take an equity stake in banks that receive funds so taxpayers could share in any upside as banks return to health.

“If we are strengthening (the banks), then the American people should get some of the upside of that strengthening,” she said. “Some people call that nationalization. I’m not talking about total ownership.”

The government has obtained preferred shares for the capital it pumped into ailing institutions as part of the first half of the TARP program.

Geithner said on Wednesday the Obama administration in coming weeks would unveil a multi-pronged effort to stabilize the housing market, strengthen core banks and support consumer credit to help foster economic recovery.

One idea calls for the establishment of a “bad bank” that would take distressed assets off banks’ balance sheets to free them up to resume lending.

Geithner won Senate Finance Committee backing on Thursday, and the chamber’s majority leader said he expected the full Senate to confirm him.

Pelosi said any new phase of a bank bailout would be done openly.

“Whatever we have to do will have to be clearly explained to Congress and to the American people as to what the purpose of the money is, why it is urgent, and then accountability for it as it is distributed.”

Reporting by Philip Barbara; Editing by Peter Cooney