Frank Warns Banks Against Misuse Of Bailout Funds Rep. Barney Frank is warning banks not to use federal bailout money to do anything other than make loans. A spokesman for the banking industry said banks are just starting to receive the money and plan to step up lending.
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Frank Warns Banks Against Misuse Of Bailout Funds

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Frank Warns Banks Against Misuse Of Bailout Funds

Frank Warns Banks Against Misuse Of Bailout Funds

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ROBERT SIEGEL, host:

Around the country, banks are just starting to receive money from the government's big Bailout and already the disputes are beginning. The Treasury Department is investing $250 billion in banks. And the idea is to get them to start lending again. But now, as NPR's Yuki Noguchi reports, some members are criticizing the banks for how they are using their cash.

YUKI NOGUCHI: Democrat Barney Frank is House Financial Services Committee chairman and supported the government's Bailout legislation. But this morning, Frank made it clear he's not happy. He says banks that use the money for anything other than lending are in violation of the law.

Rep. BARNEY FRANK (Democrat, Massachusetts, House Financial Services Committee Chairmam): The justification for this extraordinary thing was that there's a credit crisis and the people and the rest of the economy can't get loans.

NOGUCHI: Credit is still tight and some banks have been vague about their intentions. Some seem more interested in doing merger deals than in increasing lending right away. The rescue package passed last month contained few explicit restrictions on how the money could be used. It did say banks accepting the money couldn't increase dividends payments or give top executives new golden parachutes. But Frank says, the intent of the law is clear.

Rep. FRANK: But we can't restrict every single thing. That's why I put an etcetera. We gave them the money to make loans. What we're supposed to say, no stamps, no chairs, no gasoline for your car. I mean, when you say that the money can only be used for one purpose, that in fact restricts any other purpose.

NOGUCHI: House Oversight Committee Chairman Henry Waxman plans two hearings on the legislation next month. He says, he wishes there was less wiggle room in the law.

Rep. HENRY WAXMAN (Democrat, California; Chairman, House Oversight Committee): I wish we would have made the language tighter. I was aware at the time that it wasn't as clear and direct as I would have liked it. And to find now that it might be used for extravagant pensions or bonuses or dividends or any other purpose is inconsistent with what the Congress intended.

NOGUCHI: Scott Talbott is senior vice president of the Financial Services Roundtable, which represents many banks. He says banks started receiving the first block of $125 billion late this week and will use it as Congress intended.

Mr. SCOTT TALBOTT (Senior Vice President, Financial Service Roundtable): The purpose of the money is to lend. Our institutions are going to lend.

NOGUCHI: Talbott also defend in PNC recent move to get government money and buy troubled bank National City.

Mr. TALLBOTT: The program's goal of a strong liquidity is actually enhanced when a stronger institution acquires a weaker institution, because the merged institution is in the better position to lend than the two individual banks, who are prior to the merger.

NOGOCHI: White House spokesman Tony Fratto said today that the current law contains appropriate restrictions and that adding new ones could amount to a bait-and-switch. But Barney Frank says, Treasury Secretary Henry Paulson shares some of his concerns that the banks might hold to government money for other purposes. Frank also notes the Congress must approve the second half of the $700 billion rescue plan.

Mr. FRANK: I want to warn people that if they aren't able to alleviate those concerns, they going to face the possibility of the second 350 not being there.

NOGOCHI: The banks therefore should be on their best behavior. Yuki Noguchi, NPR News Washington.

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