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House Financial Services Committee Chairman Barney Frank, D-Mass.

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Kai Ryssdal: There is an almost existential question at the heart of the bailout package: once you give a bank money, can you force them to spend it? The Treasury Department has tried, Henry Paulson and the White House have strongly encouraged banks to do what banks are supposed to do, that is, lend money. Those banks do, though, have other things in mind. They've used it to make acquisitions; there are reports it's being spent on bonuses and dividends. That, in turn, has congressional Democrats none too pleased, and they are talking about revisiting the whole thing. So we asked our Washington Bureau Chief John Dimsdale what the law actually says.


John Dimsdale: So far, the Treasury Department has distributed $125 billion to nine large banks under the Troubled Asset Relief Program, or TARP. Representative Barney Frank, chairman of the House Financial Services Committee, says the law demands those banks use the money for loans.

Barney Frank: You may not use any of these funds to pay dividends or pay rent, or pay salaries or pay bonuses, or anything else. That does not stop you from doing your normal work with money you otherwise had, as long as none of the TARP money is implicated.

The Treasury Department confirms that participating banks can pay stock dividends and salary incentives, but not with taxpayer money. Several members of Congress, including Republicans, say Treasury should keep a sharper eye on how the banks are using bailout dollars. The banks aren't commenting, but Wayne Abernathy at the American Bankers Association says some of them didn't want the government's money in the first place.

Wayne Abernathy: There's been a lot of arm-twisting going on. A number of banks that I think would have chosen not to participate because of a lot of the baggage that comes along with taking the king's shilling.

Things like limiting dividend payments that he says will drive down the value of bank stock. But Rep. Frank is unmoved by the banks arguments.

Frank: They are the ones who've been telling us: Wait a minute; we can't lend the way we used to. So I'm not sympathetic to the notion these poor innocent, pure entities are being picked on.

Frank says the banks had better lend out the money the taxpayers give them.

In Washington I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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