Treasury: You Never Said We Had To Make Banks More Consumer Friendly!


In places, the panel appears outright angry — understandably — at Treasury’s stonewalling on key questions:

The Panel’s fourth area of inquiry focused on what financial institutions have done with the taxpayer money they received. As indicated in question 1 above, Treasury appears to believe the question is beside the point because their goal for the CPP is to stabilize the financial system and to restore confidence in financial institutions.

This, they believe, will eventually increase the flow of credit. Treasury argues that there are several reasons why the TARP investments will be slow to produce increased lending: (1) The CPP began only in October 2008, and the money must work its way into the system before it can have the desired effect. (2) Because confidence is low, banks will remain cautious about extending credit, and consumers and businesses will
remain cautious about taking on new loans. (3) Credit quality at banks is deteriorating, which leads banks to build up their loan loss reserves. For example, Treasury notes that the level of loan loss provisioning by banks doubled in the third quarter from one year ago. Treasury seems to be suggesting these larger trends may be obscuring the effect of TARP funds. The Panel understands the reasons why measurement of banks’ use of TARP funds may be difficult.

Nevertheless, the Panel believes such direct measurements at the level of individual TARP recipient firms are important for determining the extent to which the funds are having a direct benefit to businesses and consumers.

And the report highlights Treasury’s amazing unwillingness to require banks that get government money to take actions that are in the public interest:

[T]he Panel asked whether Treasury’s actions preserved access to consumer credit, including student loans and auto loans at reasonable rates, and
whether Treasury was taking action to ensure that public money could not be used to subsidize lending practices that are exploitive, predatory, or otherwise harmful to customers. Treasury answered that its TARP programs to preserve access to consumer credit do not involve encouraging or mandating banks to take consumer-friendly actions with respect to credit cards or other consumer loans. (our itals)