WASHINGTON — Banking institutions that are benefiting from the $700 billion federal rescue program for their industry should be pressed to better explain what they are doing with the money, a government investigative agency said Friday.
A report by the Government Accountability Office, an investigative arm of Congress, said the Treasury Department had been better able to track the money flow recently by starting a monthly survey of the program’s 20 biggest beneficiaries.
Nonetheless, the report said, “we continue to believe that additional action is needed to better ensure that all participating institutions are accountable for their use of program funds.”
Moreover, the report said, it may be a long time before the effects of the Troubled Asset Relief Program can be gauged accurately, given the time lag in gathering and assessing data and the other economic forces at play.
Since the program was rushed through Congress and signed by former President George W. Bush last fall to counter what seemed to be an imminent, catastrophic breakdown in the nation’s financial system, it has been the subject of criticism and second-guessing.
The G.A.O. said it agreed that speed rather than contemplation was called for when the program was enacted. Still, the agency said, “The lack of a clearly articulated vision has complicated Treasury’s ability to effectively communicate to Congress, the financial markets and the public on the benefits of TARP.”
As of Jan. 23, the Treasury Department had distributed about $293.7 billion of the $700 billion, the G.A.O. said. Of the $293.7 billion, about $194.2 billion has been spent to shore up 317 financial institutions by buying preferred shares in those firms, the report said. (The document is posted at www.gao.gov.)
As originally conceived, the TARP program was supposed to help banks by buying up their “toxic assets,” or tangled mortgage-backed investments whose values plunged with the problems in the housing industry. Then the Treasury Department under the Bush administration changed course, electing to help banks with infusions of capital, with the aim of encouraging the banks to lend more.
But too many banks, still nervous about the true value of their assets, have hoarded their new capital instead of making it available to would-be borrowers, critics of the banking industry have said repeatedly. The Obama administration has said that it wants to use the program more aggressively to aid homeowners facing foreclosure.
The $700 billion bank-rescue program is distinct from the $800 billion-plus economic stimulus program put forward by President Obama and approved this week by the House.
In a letter replying to the G.A.O. report, Neel Kashkari, the interim assistant Treasury secretary who has been running the TARP program, noted that it was still “very young.”
“G.A.O.’s report tells us we are on the right path,” Mr. Kashkari wrote, promising more improvements and thanking the G.A.O. for its “very constructive recommendations.”
