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STEVE INSKEEP, host:

It's Morning Edition from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. Good morning. When banks got most of the bail-out billions handed out so far, the idea was to stabilize the financial system and ease tight credit markets. With more money on their balance sheets, the thinking went banks would make more loans, and this would help jump start the economy. But as we now know, it hasn't quite worked out that way. NPR's Wendy Kaufman reports.

WENDY KAUFMAN: Let's step back to the crazy days of September and October, as policy makers were desperately trying to prevent the economy from going into freefall. Congress reluctantly approved a bail-out package, and treasury secretary Henry Paulson decided to give the first chunk of money to the nation's banks. OK. So, where did the money go, and what impact has it had? Congress essentially invested in the financial institutions, getting preferred stock in exchange for capital. Tax payer money went onto bank balance sheets and made them stronger as Mike Menzies, CEO of Easton Bank and Trust, explains.

Mr. MIKE MENZIES (CEO, Easton Bank and Trust): Banks might normally be leveraged 10 to one, so some of the logic is that if you invest a billion dollars in a bank in capital, then over a period of time that bank may create $10 billion in loans.

KAUFMAN: But exactly how much a bank is willing to lend, depends in part on how much risk it's willing to take. And right now says, Wayne Armstrong(ph), a senior official at the American Bankers Association, a tug-of-war exists. Congressional leaders, and other government officials, are telling banks to lend more money, but bank regulators are telling them to take less risk. [POST-BROADCAST CORRRECTION: The senior official at the American Bankers Association is named Wayne ABERNATHY.]

Mr. WAYNE ABERNATHY (American Bankers Association): The bank regulator is going to come in, and he's asking tougher questions than he did a year ago. Yeah. He's asking, let me see the kind of information you got from that borrower. Did you go into his business? Did you kick the tires of his car? Did you look what was in the back room? Let me know how diligent you were in checking his - the likelihood that he's going to be able to repay.

KAUFMAN: It's all but impossible to get reliable numbers as to the amount of new lending taking place, but Armstrong says, it appears to vary bank by bank and region by region.

Mr. ABERNATHY: You have some banks saying, I see some really good opportunities, this capital is allowing me to move forward and provide these new loans - these new financing. You're having other banks saying, well I've got the capital for now, and I'm ready when things start to pick up, but right now, things aren't picking up.

KAUFMAN: Still, other banks needed all the bail-out money they got to meet minimum reserve requirements. And in at least one case, a bank has used the government money to buy a weak, possibly failing bank. Reporters and others who've queried many of the big banks that received money, have gotten less than satisfying answers from the institutions as to how they were using tax payer money. Richard Shelby, ranking Republican on the banking committee says Congress didn't require the banks to disclose exactly what they were doing.

Senator RICHARD SHELBY (Republican, Alabama): Congress should have known that this was a rush to judgment. This was unprecedented. It was a lot of money. It was thrown at a problem. There was not enough accountability in the language. There was not any real oversight.

KAUFMAN: His concerns that the bail-out program lacks internal controls, is also expressed by the Government Accountability Office. The GAO adds, that so far at least, there's no way to know if the money is aiding the economy as intended. But Professor Jim Wilcox of the Haas School of Business, at the University of California at Berkeley, says that while the program hasn't turned the economy around, it has made banks stronger.

Professor JIM WILCOX (Haas School of Business, University of California-Berkeley): And that one way or another, they were either going to have to get more capital or they were going to do a lot less lending. And I think that the program has helped us avoid that reduction in lending.

KAUFMAN: In any case, it likely will be many months before we have an idea as to whether the capital bail-out for banks was a success. If things go according to plan, the economy will pick up, and the banks will pay the money back to the government with interest. Tax payers could even reap a profit on their investment. Wendy Kaufman, NPR News.

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