The government must toughen its monitoring of the $700 billion financial bailout to ensure that banking institutions limit their top executives’ pay and comply with other restrictions, federal auditors said Tuesday in the first comprehensive review of the rescue package.
The Treasury Department has no mechanism in place to track how institutions are using $150 billion in taxpayer money that the government injected into the banking system as of last month, the Government Accountability Office concluded in its report to Congress.
The auditors acknowledged that the program, created Oct. 3 to help stabilize a rapidly faltering banking system, was less than 60 days old and has been adjusting to an evolving mission.
But the 72-page report was bound to feed congressional concern that banks and other institutions are not being monitored properly and are not using the money to increase lending.
Auditors specifically cited weaknesses in determining whether institutions that received bailout money are complying with limitations on executive compensation and dividend payments. For instance, some top executives at institutions that receive rescue funds must repay any incentives or bonus pay that was based on inaccurate financial statements.
“Treasury has not yet determined how it will monitor compliance with this or other requirements such as limitations on dividend payments and stock repurchases,” the report states.
Auditors recommended that Treasury work with government bank regulators to determine whether the activities of financial institutions that receive the money are meeting their purpose.
In a response to the GAO, Neel Kashkari, who heads the department’s Office of Financial Stability, said the agency was developing its own compliance program and indicated that it disagreed with the need to work with regulators.
“The GAO’s discouraging report makes clear that the Treasury Department’s implementation of the [rescue plan] is insufficiently transparent and is not accountable to American taxpayers,” said House Speaker Nancy Pelosi, California Democrat.
So far, the government has pledged to pour $250 billion into banks in return for partial ownership. It also has agreed to provide $40 billion to troubled insurer American International Group. In addition, $20 billion of the money was invested in Citigroup, and another $20 billion went to the Federal Reserve to help ease credit stresses.
Treasury Secretary Henry M. Paulson Jr. initially said the money would be used to buy distressed mortgage-related securities from banks. His switch in strategy drew criticism from lawmakers as a confusing mix of messages to the public and investors.