Monday, January 12, 2009
WASHINGTON —Federal regulators are asking financial institutions to monitor their use of government money received under the $700 billion rescue plan and other support.
Banks and other financial institutions should track how the federal money or guarantees they received helped them boost "prudent lending" and efforts to help at-risk borrowers avoid foreclosures, the Federal Deposit Insurance Corp. said Monday in a directive issued to the roughly 5,100 state-chartered banks and savings and loans for which it is the primary regulator.
"Banks are expected to document how they are continuing to meet the credit needs of creditworthy borrowers," the directive says. "The FDIC expects that ... (institutions) will deploy funding received from these federal programs to prudently support credit needs in their market and strengthen bank capital."
The agency called on banks to include a summary of that information in their periodic reports and financial statements.
The FDIC directive applies to: the Treasury Department program in which the government is injecting $250 billion in banks and other financial companies by buying shares in them, several Federal Reserve initiatives to provide temporary loans that have totaled around $2.25 trillion, and the FDIC's program of three-year guarantees for as much as $1.4 trillion in new loans between banks.
The FDIC action comes amid bipartisan criticism that the Bush administration's handling of the first $350 billion of the financial rescue program has been unfocused, confusing and inconsistent. Critics have complained that the taxpayer money has had few strings attached and hasn't been used effectively to address the nation's housing crisis.
President-elect Barack Obama's economic team is developing a "comprehensive set of investment principles" that would put restrictions on how the second $350 billion is spent, limits on executive compensation for banks and other companies receiving funds, and a plan to address rising foreclosures.
The explanations the FDIC is asking financial institutions to provide will allow banks "to tell their stories," said Wayne Abernathy, an executive vice president of the American Bankers Association. "I think bankers will respond to that favorably because I think we've got a good story to tell," he said.
The story could include examples of positive changes in communities brought about through lending by local banks, said Abernathy.
Among the banks that have received the most funds from the various federal programs are Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. Scores of smaller banks also have been recipients, including Zions Bancorp, Regions Financial Corp. and Western Alliance Bancorp.
A congressional panel overseeing the Treasury program said in a report last week that the department failed to answer several of its questions concerning how the banks are spending the taxpayer money and the government's overall strategy for the rescue.
"For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore," the report said.
The House could act this week on a bill by Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee, that would set tougher conditions on recipients of the second $350 billion, including limits on executive pay, and require the government to use at least $40 billion to modify mortgages of struggling borrowers to avert foreclosures.
"I hope the House will pass a bill this week that sets forth the conditions we believe are necessary to assure that the public gets the full benefit of these funds," Frank said in a statement Monday. "It seems clear the Obama administration agrees with what we are setting forward, and I believe this creates a framework so that the release of these funds can go forward."
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