Banks May Face More TARP Hurdles

Treasury Secretary Timothy Geithner told a panel overseeing the Troubled Asset Relief Plan that regulators may want to keep banks in the program longer than the banks might wish. It depends in large part on how much credit banks make available to borrowers.

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Members of the special panel overseeing the Obama administration's bank bailout program finally got a chance today to ask some tough questions. It was the panel's first crack at Treasury Secretary Timothy Geithner, the point man on the administration's financial rescue plan. Members wanted to know when the $700 billion program will turn the economy around and whether American taxpayers are getting a good deal. Geithner said the credit markets are reviving, but that bad mortgage-backed securities are still an issue.

NPR's Tom Gjelten reports.

TOM GJELTEN: The Troubled Asset Relief Program, the TARP, is not especially popular on Capitol Hill or across the country. It's the job of the TARP oversight panel to ask the questions Americans want answered, and the members came prepared.

Elizabeth Warren, the Harvard Law professor who chairs the panel, wanted to know why the administration has insisted the U.S. car companies be restructured, union contracts voided and auto executives fired as the price of government aid, but has not demanded similar concessions from Wall Street banks.

ELIZABETH WARREN: The banks have received 10 times more money than the auto industry and yet they seem to be receiving a very different treatment. So the question I have is why the different treatment? Do you think that the banks are better managed than the auto companies?

GJELTEN: Republican Congressman Jeb Hensarling of Texas, who voted against the bailout package last October, asked the question from the opposite perspective: Why did a program meant to revive the banking sector even get extended to the auto industry?

JEB HENSARLING: Which leaves to the question, who's next? The airline industry, the trucking industry? At what point does Starbucks get in line for some titled bailout?

GJELTEN: The oversight panel is set up to represent a variety of political viewpoints from the U.S. Congress, to academe, to state governments and the U.S. labor movement.

Damon Silvers, general counsel of the AFL-CIO, came to the oversight hearing with charts about the U.S. government investment in Citigroup. Silvers claimed the majority of Citigroup's current working capital has actually come from the federal government, even though it's the banks' shareholders more than U.S. taxpayers that stand to benefit.

DAMON SILVERS: We have the downside of ownership. We have a tiny bit of the upside of ownership. And we have none of the control of ownership.

GJELTEN: Timothy Geithner had basically the same answer for all the questions. The issue, he said, is not how much U.S. taxpayers will earn on their TARP investment or whether banks are favored over the auto industry or anyone else.

TIMOTHY GEITHNER: We are not a private investment. We are the government of the United States.

GJELTEN: Over and over Geithner returned to his bottom line: The main goal guiding U.S. economic policy right now is simply to revive the U.S. financial system.

GEITHNER: We want to protect the taxpayer. But, again, the recovery requires, the economy requires, small businesses, families across the country require a better functionally financial system. And so we will look at all actions we think are necessary against those two basic objectives: Get the system working better, do that at least cost to the taxpayer.

GJELTEN: Some U.S. banks that have received TARP funds are now saying they'd like to give that money back, largely to escape restrictions that came with it, such as limits on executive pay. Geithner has said the Treasury Department won't necessarily let the banks repay the money, not unless regulatory agencies think the banks have enough capital to permit them to lend again.

But Geithner today seemed to add another condition, even well-endowed banks may be prevented from paying back their TARP funds if the whole banking system remains undercapitalized.

GEITHNER: The critical thing we care about is whether the system as a whole has the capacity to support the credit the recovery requires. That's the ultimate test.

GJELTEN: And Geithner said it's still too soon to know when the U.S. financial system is at that point. Most banks, he said, have enough capital, at this point, to lend. But they remain reluctant to do so, Geithner said, because they still haven't figured out how much their toxic assets are weighing them down.

Tom Gjelten, NPR News, Washington.

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