Panel questions Treasury’s oversight of TARP funds

Lawmakers say the department has failed to track how companies are spending money from economic rescue programs.

Taxpayers lack an accurate picture of how companies receiving billions of dollars in federal funds through the Troubled Assets Relief Program are spending their money, members of a House panel said on Wednesday.

The Treasury Department does not ask program recipients for a detailed list of TARP transactions. And, with some exceptions, such as limits on executive compensation, the government does not say how companies should spend bailout money.

That lack of guidance has led to "questionable transactions," said Rep. Dennis Kucinich, D-Ohio, chairman of the House Oversight and Government Reform Subcommittee on Domestic Policy, during a hearing on TARP oversight.

For example, during the past several months, as credit markets in the United States worsened, TARP recipients spent at least $16 billion on loans or investments with foreign entities. This included an $8 billion December 2008 loan from Citigroup Inc. to Dubai public sector entities. Citigroup initially received $25 billion in TARP funds in October 2008, followed by another $25 billion through two other TARP programs.

"Are these … large investments and loans to foreign entities among the kind of transactions American taxpayers should be supporting with TARP monies when we face significant credit problems here at home?," Kucinich asked. "How does a multibillion [dollar] financing deal to Dubai ease the liquidity crisis in the USA?"

But Neel Kashkari, Treasury's interim assistant secretary for financial stability, argued the government should not micromanage bailout funds.

The goal of TARP, he said, is to strengthen banks so they increase lending and are in a better position to reimburse taxpayers.

"However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities," Kashkari said. "The government must not attempt to force banks to make loans whose risks they are not comfortable with, or attempt to direct lending from Washington."

And, while Treasury would prefer that investments remained in the United States, Kashkari noted that many of the largest TARP recipients are global institutions. Without these foreign investments, banks "would have seen their profits lowered and they may have needed more taxpayer dollars," he said.

A lack of strict and detailed reporting guidelines makes it more difficult to monitor foreign transactions, lawmakers said.

The 20 financial institutions that received the most money through the Capital Purchase Program -- the largest of five TARP programs -- are required to file reports with Treasury. But hundreds of other CPP fund recipients are exempt from Treasury reporting guidelines altogether, Kucinich said.

The mandated reports -- known as monthly intermediation snapshots -- are too vague, committee members said. They do not provide details on transactions, no matter how large, and do not address specific investments other than new lending.

Kashkari conceded that "we did not put specific tracking procedures in place" prior to disbursing the funds, but said his office does not need additional oversight tools.

Treasury has trouble monitoring TARP spending partly because the money is fungible and is difficult to separate from nonfederal dollars, explained Anthony Sanders, a professor at the W.P. Carey School of Business at the University of Arizona.

"Despite our accounting and regulatory reporting on these institutions, the TARP funds seemingly sink into an abyss," Sanders said.

Notwithstanding the statutory and reporting challenges, many program recipients are voluntarily providing information on how they are spending the bailout funds, said Neil Barofsky, special inspector general for TARP.

In January, Barofsky's office sent letters asking TARP recipients for information on spending to date and plans for the remaining money. "Responses from recipients have been coming in at a steady pace for the past week and we anticipate that most, if not all will be received within the next few days," he said.

Thus far, Treasury has doled out about $325 billion of TARP funds, including investments in 489 banks nationwide, Kashkari said. Funding is in the pipeline for another 500 to 1,000 banks.