Smart Borrower Blog

What Are Banks Really Doing With TARP funds?

There have been 360 banks and lending institutions across that have received government funding from the Treasury Department’s Troubled Asset Relief Program (TARP). Have you been wondering what these financial institutions have been doing with your taxes? Well, a new report from the Office of the Special Inspector General, the oversight department for the program, has shed some light on that question.

Apparently, 83 percent of these banks are using some or all of the money to make more loans, including things like commercial and residential mortgage loans, small business loans, and credit card loans. Yet 43 percent are using part or all of the money to beef up their reserves to protect themselves against potential future losses.

Interestingly, almost one-third of the banks said they have used some of the money to invest in mortgage backed securities, one of the drooping investment areas that has caused so much financial grief in the past year or so.

Not too many lenders, only 4 percent, are using their bailout funds to buy up other troubled financial institutions.

All in all, banks are using the money to lend and stimulate more economic action, as intended by the authors of the bailout funding. It’s hard to say whether these measures are really helping the economy get back on track, but perhaps, this money has been enough to stop or dramatically slow the recent trend of small and major lenders going under.

And while banks are opening up about the general way they are using government money, the Treasury Department has been catching flack for its lack of transparency on its TARP decisions.

The Wall Street Journal Wednesday quoted Neil Barofsky, TARP’s special inspector general from his remarks before a U.S. House panel:

Treasury’s default position should always be to require more disclosure rather than less and to provide [the American taxpayers] as much information about what is being done with their money.

The Treasury says it will give more information about its dealings after it concludes.