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Armed with TARP Money, Banks May Not Lend
By
Jen Chung
Published Jan 18, 2009
Modified Jan 18, 2009
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By
Jen Chung
Published Jan 18, 2009
Modified Jan 18, 2009
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The $350 billion second half of the federal government bank bailout—aka TARP (Troubled Asset Relief Program)—funding was released by the Senate. According to the Wall Street Jounral, President-elect Barack Obama intends to "spend $50 billion to $100 billion on a 'sweeping' foreclosure-prevention effort" as well as "impose tougher restrictions on banks that receive government aid, including requirements on banks to lend money, increased restrictions on executive compensation and curtailed dividend payments for some firms."
Requiring banks to lend money is a big issue: The NY Times looks at the apparent reluctance of banks, which received money from the first half of TARP funds, to lend to their customers. At a meeting with Wall Street analysts, the head of a bank with $300 million in TARP money said, "We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.” Yet Treasury Secretary Henry Paulson said banks should "deploy, not hoard" the money.
The Times also points to the Congressional panel that found "no evidence the bailout program had been used to prevent foreclosures, raising questions about whether the Treasury has complied with the law’s requirement that it develop a 'plan that seeks to maximize assistance for homeowners.'" Which creates huge expectations and pressure for the incoming Obama administration. Some believe a "bad bank" will be created to take toxic assets off banks' balance sheets, but at any rate, former chief economist for the IMF tells Bloomberg News, "We have a deteriorating real economy and deteriorating financial sector feeding on each other. It may be distasteful but we need to put more money in the banks.”
You can see how much money has been distributed to banks via this WSJ chart; most recently, Bank of America got another $20 billion infusion (it received $25 billion earlier). And the WSJ suggested that one way to benefit is to...look at credit.
Tagged
bank
bank crisis
credit crunch
lending
tarp
Troubled Asset Relief Program
Jen Chung
Jen Chung is a former WNYC and Gothamist editor.
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Gothamist is funded by sponsors and member donations
Gothamist is funded by sponsors and member donations
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