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Banks report using govt. assistance for loans

THE internal watchdog overseeing the US government's financial bailout is pressing Treasury to seek more information from banks that receive taxpayer assistance, brandishing his own bank survey as evidence that such data can be obtained.

More than eight out of 10 banks responding to Special Inspector General Neil Barofsky's survey said money they received from the government had been used for loans or to avoid reduced lending.

Fewer than a third of the 360 banks surveyed said their lending levels would have been lower without money from the $700 billion Troubled Asset Relief Program. Banks also reported using the money to provide additional cushions of capital or to buy other institutions.

The law that created the bailout fund did not require banks to segregate the government's assistance or to track how it was used, though Congress' intent was to increase loans, either directly or by unclogging credit markets. But there is no process in place to make sure the money is specifically used to boost lending and there are no consequences for banks that don't use it to that end.

Treasury's top official in charge of the program minimized the significance of Barofsky's survey, saying few conclusions could be drawn from the data.

"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," Assistant Treasury Secretary Herbert Allison wrote in response to the Barofsky's audit.

Treasury conducts its own, more limited lending survey of 21 large banks. In its latest survey, released on Wednesday, Treasury reported that outstanding loan balances were flat in May and that the banks reported modest growth in new loan originations.

Even Barofsky cautioned that in his survey banks did not quantify the amount of new lending or the incremental difference in lending attributable to the bailout funds. As a result, Barofsky said there was not enough data to obtain an aggregate amount of new lending caused by the taxpayer infusions.

But Barofsky said banks receiving infusions are likely to budget how they would use the money and be able to indicate generally what the bank was able to do that it would not have done without the assistance.

"Treasury's decision to reject this information just because the bank may not be able to trace the exact dollars ignores this common sense view," Barofsky wrote in his report, being released Monday.

It recommended that Treasury require bailout recipients to submit periodic reports on their use of the TARP money and to detail actions they took that they would have been unable to undertake without the government aid.

The exchange illustrates continuing tensions between Treasury officials and Barofsky, whose position was mandated by Congress when it approved the massive program last fall. While Treasury has applied some previous Barofsky suggestions, the inspector general and Treasury have clashed in the past over access to certain data and over Treasury's reluctance to collect data from all banks.

Barofsky's survey covered 364 financial institutions that had completed funding agreements with Treasury through Jan. 31.

As of last month, the Treasury has provided about $330 billion to more than 600 financial institutions from the TARP through a capital purchase program. TARP has also been used to pump billions of dollars into the insurance conglomerate American International Group and to automakers General Motors and Chrysler.

Some banks have paid the government back and Treasury says it has about $127 billion available in the fund.

Thirty-two of the institutions surveyed by Barofsky have since repaid the government, including Goldman Sachs, Morgan Stanley, State Street, JPMorgan Chase, and Bank of New York Mellon.

Many banks submitted the data under claims of confidentiality. Barofsky, in his report, said he was reviewing those claims and intended to make the responses - with redactions where legally necessary - public sometime next month.

In the survey, Barofsky also asked the banks how they were implementing Treasury conditions on executive compensation. The report says those results will be reported on later.


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