Democrats have upped the pressure on the Treasury Department to better implement provisions in the recently passed $700 billion financial rescue package, calling on Secretary Paulson to take additional steps to ensure banks that have received federal money start lending the money. House Financial Services Chairman Barney Frank urged Paulson to lean on banks to immediately start lending money included in the rescue package, such as an initial $125 billion that was allocated to the nation's top nine banks this week. Frank said he was concerned over reports that the banks could use the funds for bonuses, severance pay and acquisition for other institutions. Meanwhile, Rep. Steven LaTourette, R-Ohio, has been critical of the government's $7.7 billion investment into PNC Bank that he claims made it possible for it to purchase Cleveland-based National City Bank.
"I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the President's request to respond to the credit crisis by making funds available for increased lending," Frank said in a statement today. "I appreciate the fact that the Secretary of the Treasury has re-emphasized that increased lending activity is the only legitimate purpose for taxpayer funding of these institutions. He must make it absolutely clear to any participating entity that the federal government will insist on compliance." Frank's panel will hold hearings on the program Nov. 12 and 18. The banking industry also has concerns about the program, arguing that Treasury needs to clarify standards between its efforts to invest directly into stable institutions versus those on the verge of failing. Bankers have roughly two weeks left to decide whether to participate in the program for direct Treasury investment. "Many such banks would be interested in the [program], but not if they are going to run the risk of being labeled -- falsely -- as needing government support ... or of being subjected to additional unknown government requirements or restrictions in the future -- restrictions that could have the perverse effect of discouraging private investment in banks," wrote American Bankers Association CEO Ed Yingling in a Thursday letter to Paulson.
The action comes as Treasury is reportedly ready to use up to $50 billion from the rescue package for an anti-foreclosure effort, with the department guaranteeing loans that have been modified so the borrower can remain in the home. But critics contend such action may not be enough. Senate Banking Chairman Christopher Dodd and eight other Banking panel Democrats sent a letter Wednesday to Paulson saying he must "act decisively, aggressively, and swiftly to reduce foreclosures." Dodd has said he will attempt during the lame-duck session to pass legislation to suspend foreclosure proceedings for 90 days, in addition to other relief measures.
This article appears in the November 1, 2008 edition of National Journal Daily PM Update.