TARP Inspector General: Banks Used Bailout Money for Investments, Debt Repayment

Numerous banks that received federal bailout money used it to make investments and repay debts instead of lending it, according to the inspector general overseeing the program.

In a report to be released later today, Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, said that 110 of the 360 banks to receive assistance used it for investment purposes. Fifty-two of them used it to pay creditors, and 15 used it to buy other banks. Eighty percent of the TARP recipients 80 said they had used at least some of the money to make loans. 

Numerous news outlets provided details of Barofsky's report, which will be released today.

The Treasury Department has provided $200 billion in taxpayer capital to shore up the nation's banks and other financial institutions. When the program began, it was intended to provide liquidity and encourage banks to lend, thereby adding fuel to a sputtering economy.

Whether the recipients have been using the money as intended has been an open question since the $700 billion program began. Critics have noted that other government reports show that lending is down in a number of a key sectors, and have wondered where all the government money injected into the banking system went.

In his report, Barofsky charged the government with failing to hold the banks accountable.

The monthly lending surveys compiled by the Treasury are inadequate, he said, and fail "to recognize that TARP recipients do far more with their TARP funds than simply originating loans: They have also used these funds in a broader array of interrelated activities ... such as making investments, acquiring other financial institutions and simply maintaining the capital as a cushion against future losses."

In a written response, Herbert M. Allison Jr., the assistant Treasury secretary overseeing the TARP program, said tracking bailout dollars was impossible. "Although it might be tempting to do so, it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient," Allison said.