TARP watchdog says Treasury lacking bank data

The top watchdog over the financial bailout package said the Treasury Department is rejecting "common sense" by not requiring banks receiving billions of dollars in government money to say how they are using the money.

In a report to be released on Monday, Neil Barofsky said banks that have received money from the $700 billion bailout package passed last year are able to indicate how they are using taxpayer money and that Treasury should require banks to be more transparent.

"The fact that there may be some limitations on the precision of the data that could be collected," Barofsky said in the report, "does not mean that such reporting could not generate meaningful information."

Barofsky is the Special Inspector General over the Troubled Asset Relief Program (SIGTARP) that was passed by Congress in October. The report is based on a survey of 360 banks receiving government aid and is meant to bolster Barofsky's recommendation that the Obama administration should mandate that banks supply more information about how they are using the money, whether for lending, additional capital or other purposes.

The report indicates that banks can give "at least a general indication" about how the money is used and what they were able to do had it not been for the government help.

"Treasury's decision to reject this information just because the bank may not be able to trace the exact dollars ignores this common sense view," Barofksy said.

The Treasury Department currently requires that banks provide monthly data on their lending rates, but does not request any information about how banks are using government money for other purposes. Barofsky made a similar recommendation several months ago and continues to believe it is "essential".

In a letter in response to the report, Herbert Allison, the assistant secretary for financial stability at Treasury, urged caution and said that "money is fungible, and paying an expense from one source frees up cash to be used for other purposes."

Banks under the TARP program were not required to separate the government aid on their balance sheets from other resources and capital on their books.

"In accordance with typical banking industry practices, they commingled the TARP funds with their other capital and leverage the funds to increase lending and/or make investments," Barofksy's report said. Forty-four banks did, however, separate the money, according to the report.

The report is based on a survey the office did of 360 financial institutions that had received money through the end of January. The responses -- representing all the banks receiving money at that time -- indicate how banks used the money, but not on a dollar-by-dollar basis.

More than 80 percent of the banks said they used the money to increase lending, 40 percent said they used it to help build up capital cushions, and a third said they used it to invest in mortgage-backed securities guaranteed by the government. Fifty-two banks said they used the money to repay outstanding loans and 15 said they used the money to support acquisitions of other banks.

The inspector general's office is evaluating the actual responses from banks and plans to post them online with possible redactions over the next month.