Frank, Hoyer say TARP funds for lending only

Nov. 3, 2008 – Two key House Democrats on Friday warned financial institutions against using funds received from the Troubled Assets Relief Program for purposes other than its intended purpose: lending.

NAFCU President Fred Becker has been urging Treasury and lawmakers on this point for nearly two weeks, from the time reports first emerged that some banks might use the capital infusion funds they get from Treasury under the program for purchases of competing institutions.

In a statement Friday, House Financial Services Chairman Barney Frank, D-Mass., said both the president and Congress had lending in mind when they pressed forward on TARP, and he said using the fund for bonuses, severance pay, dividends, or acquisitions “is a violation of the terms of the act.” He said he was “deeply disappointed” that several institutions have distorted the law’s intent.

House Majority Leader Steny Hoyer, D-Md., expressed similar sentiments. “It is the responsibility of all parties involved to remember not only the terms, but the spirit of this program,” he said, adding that Congress “will continue to exercise strong oversight of this program.”

Frank also called on Treasury Secretary Henry Paulson to “make it absolutely clear to any participating entity that the federal government will insist on compliance.”

NAFCU President Fred Becker has been urging Treasury and lawmakers on this point for nearly two weeks, from the time reports first emerged that some banks might use the capital infusion funds they get from Treasury under the program for purchases of competing institutions.

Frank said his panel will hold two hearings – Nov. 12 and 18 – on TARP issues and will be seeking assurances that the funding it provides is being used “for relending and for no other purpose.”

TARP has $700 billion in all for the purchase or guarantee of illiquid mortgage-related assets and for capital purchases in banks, thrifts and their holding companies. So far, Treasury has allocated $250 billion for the capital purchases, and nine banks are already receiving some $125 billion of that.

Credit unions have access to the mortgage-assets purchase component of TARP but not the capital program.