House Urges Tighter Rules For Bailout Beneficiaries
Thursday, January 22, 2009
The House yesterday overwhelmingly approved a plan to place strict new requirements on banks and other financial institutions that accept government assistance under the Treasury Department's $700 billion financial rescue program.
The measure, while unlikely to become law, could strengthen lawmakers' position as they deal with the White House on the rescue program.
By a vote of 260 to 166, the House agreed to require recipients of government cash to prove they are using the money to increase lending to consumers and small businesses, limit their ability to use the money to finance mergers, and bar them from paying bonuses to their top executives until the money is repaid.
The measure also would require President Obama to dedicate at least $40 billion to help distressed homeowners avoid foreclosure, in part by creating a "safe harbor" that would protect loan servicers that modify troubled mortgages from lawsuits by investors in those mortgages.
The Senate does not have plans to consider the bill, but Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he still pressed forward with it because the House vote "gives me, frankly, more authority" to insist that Obama voluntarily enact some of its provisions. And if the Obama administration decides to seek funds beyond the $700 billion already approved by Congress, Frank said, "this will tell them what they need to do to get it."
The House is expected to vote today on a resolution that would prevent the Treasury from spending the second half of the money in the rescue program. But because a similar measure has already failed in the Senate, Obama is assured of receiving the rest of the cash early next week.
Obama and his top economic advisers have told lawmakers, who were furious about the Bush administration's handling of the rescue program, that they will do a better job of managing it.
Lawmakers have accused banks that received government cash of not significantly increasing lending and failing to move aggressively enough to help struggling homeowners avoid foreclosure. Banks are under pressure from Congress to take such steps to ease the economic crisis.
Many lawmakers also have been outraged by the decision by former Treasury secretary Henry M. Paulson Jr. to permit some recipients of public aid to purchase banks that did not get government money, saying the government is picking winners and losers. There also has been widespread frustration on Capitol Hill with firms that continue to pay big bonuses to executives and dividends to shareholders while on the public dole.
Under Frank's proposal, the law that created the rescue program -- known as the Troubled Asset Relief Program, or TARP -- would be modified to address many of those concerns. It also would be amended to explicitly permit the Treasury to use TARP funds to assist the faltering domestic auto industry, which has already been promised a small portion of the money.
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, has said he sees no need to approve Frank's legislation because he trusts Obama to fulfill his promise to increase oversight of the program. In two letters submitted to congressional leaders last week, White House economic adviser Lawrence H. Summers pledged to spend at least $50 billion of the rescue funds to assist homeowners.
Frank said he would prefer to put the requirements into law, in part because some of Obama's pledges don't go as far as he would like. For example, Frank's bill would require all TARP recipients, including firms that have already received cash, to ban "golden parachute" payments and bonuses to top executives, among other pay restrictions. Obama's advisers, meanwhile, have pledged to apply those restrictions only to firms that receive substantial assistance from the Treasury, such as insurance giant American International Group.
"If I believed they were me, I'd go home for the summer," Frank said of the new administration. "I know they need counter-pressure."