The administration of US President Barack Obama will impose tighter conditions on banks receiving money under the US$700 billion financial rescue program, but for now is not expected to ask Congress for more money in its sweeping overhaul of the bailout, industry and congressional officials said on Friday.
The decision not to request more money would be a relief to lawmakers, given that the administration is unveiling its changes in the midst of a debate over an economic recovery package that’s expected to cost about US$800 billion.
The program Treasury Secretary Timothy Geithner is scheduled to unveil in a speech tomorrow could cost more than the US$350 billion still unspent in the Troubled Asset Relief Program (TARP). But officials said the administration would have room to overhaul how the program works before determining whether to seek more money from Congress.
“Some of the reforms can be paid for without a new appropriation,” one official familiar with the plan said.
The industry and congressional officials who spoke did so on condition of anonymity because the administration had not yet publicly released details of the program.
Key members of Congress had urged the administration not to request more money for the rescue program. Congress approved the US$700 billion program last fall, but since then, many lawmakers have complained that the Bush administration implemented a confused and ad hoc strategy.
“Until they are successful in showing the average American that the money is being used reasonably, there’s no point in asking for it, because they won’t get it,” House Financial Services Committee Chairman Barney Frank said last week.
The administration declined Friday to provide any specifics of what will be in Geithner’s new plan to address the worst financial crisis to hit the country in seven decades. But the Treasury Department said the revamped plan would offer a comprehensive way to stabilize the financial system, while strengthening accountability, oversight and transparency to protect taxpayer money.
Industry and congressional officials said they thought the administration would continue to stress government purchases of bank stock as a way to bolster banks’ balance sheets and to try to get them to resume more normal lending.
But these officials said they believed the administration would impose tougher terms on the banks receiving money than in the first round of spending.
One official said the new terms will include requirements that banks that accept the next round of money work to get bad assets off their books.
The industry and congressional sources said they believed the new plan would also make broader use of government guarantees of bad assets that banks are carrying on their books. Those bad assets are helping to stifle lending.
The Bush administration used government guarantees in November when it agreed to limit Citigroup’s losses on a portfolio of US$301 billion in troubled assets.
It used the same approach last month, when it agreed to provide increased support to Bank of America by covering US$118 billion of that bank’s troubled assets.
The administration’s new plan is likely to include at least a limited effort to buy banks’ bad assets. One possibility is to use a new lending facility the Federal Reserve is developing called the Term Asset-Backed Securities Loan Facility, these officials said.