WASHINGTON — Top banking executives are being asked to account for how they spent federal bailout money at a House committee hearing that the chairman hopes will dissipate some of the public's "deeply rooted anger" over the program.
Eight chief executive officers of the initial banks receiving money from the Troubled Asset Relief Program have been called to testify at the Feb. 11 hearing of the House Financial Services Committee.
Its chairman, Rep. Barney Frank, D-Mass., said he met with Bank of America chief Ken Lewis and Citigroup's Vikram Pandit in recent days to discuss accountability, accounting issues and public image problems brought on by rewarding big bonuses to executives while failing to lend to typical Americans.
"The way in which the TARP was administered -- the absence of foreclosure (assistance,) the absence of pressure to lend, laxity with regard to compensation -- it has helped bring public anger to a fever pitch, to the point where it would prevent us from going forward in a lot of ways unless we alleviate it," Frank said. "You can't alleviate it with hocus pocus."
Frank said he thinks bank executives have come to understand that rewarding executives with high-dollar compensation and buying corporate jets aren't helping their situation.
"They have to cooperate with us in avoiding bad things and showing how they are doing good things," he said.
Among the topics Frank and Lewis discussed Monday was the mixed message that banks are getting from the government to remain sound by retaining capital and at the same time lend more.
"We have to have a balance between encouraging them to lend but not letting anybody get into a dangerous situation," Frank said.
Asked if banks might need another capital injection, Frank said, "Until they are successful in showing the average American that the money is being used reasonably, there's no point in asking for it, because they won't get it."
"They're getting a lot of money. They made a lot of mistakes. They've got to lean over backwards not to offend people in terms of compensation and everything else," he said. "Secondly, they have to show people that we're getting something from the money. That's foreclosure diminution. That's loans. That's more cars bought, more student loans picked up, etc…. Once they have done that, then I think they'll be in a position to come back and say, 'And now we would like some more for this purpose.’"
Larry Summers, chairman of the Council of Economic Advisers, told reporters Tuesday that President Obama's financial recovery plan would be different from Bush's TARP program in accountability, transparency and "the needs of borrowers rather than simply a focus on the needs of financial institutions."
The CEOs being asked to testify are from the banks receiving the initial infusion of TARP funds: Bank of America, Wells Fargo, Citigroup, JP Morgan, State Street, Morgan Stanley, Goldman Sachs and Bank of New York Mellon. Merrill Lynch was in the initial group, but it has been absorbed by BofA.
Citi on Tuesday issued its first quarterly accounting of how it used its TARP funds. It said it invested $25.7 billion in the residential mortgage market, and issued new loans including $2.5 billion in personal and business loans, $1 billion in student loans, $5.8 billion in credit card lending,