Report: TARP money not going where it's supposed to

A special inspector general says banks are using the funds to invest, not to lend

Published July 20, 2009 10:30PM (EDT)

TARP funding was supposed to buoy the credit markets by giving banks money to lend. But the federal aid has also been used for purposes such as making new investments and repaying debts, the special inspector general for TARP said in a recent report.

The report, published Monday morning by SIGTARP Neil Barofsky, was the result of a survey of 360 banks. Included among the most reported categories of use for TARP money by those banks were "boosting capital cushion," "making new investments," "repaying debts" and "acquiring banks with assets." 110 banks had made new investments with some of it, 52 repaid debts and 15 used funds to buy other banks.

New lending still made up a good amount of the use of TARP funds, as 300 of the 360 banks -- 83 percent -- said at least some of the money was going toward supporting new lending.

There's also a continuing issue with the program's transparency -- or lack thereof. The special inspector general previously recommended that the Treasury Department require all TARP recipients to report on the use of their funding, but Treasury has failed to follow through on the recommendation, according to the report.

In a letter to Barofsky, Herbert M. Allison Jr., the assistant Treasury secretary who administers the rescue program, brushed off the call for greater transparency and accountability.

"Although it might be tempting to do so, it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient," Allison wrote. He added, "money is fungible, and paying an expense from one source frees up cash to be used for other purposes."

By Tim Bella


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