TOPICS > Economy

Details Scarce on How Banks Are Spending Rescue Funds

December 22, 2008 at 6:20 PM EST
Loading the player...
With half of the $700 billion in financial industry rescue funds already allocated, new questions are emerging over exactly how banks have used the money. A financial reporter and a top GAO official examine the issue.
LISTEN SEE PODCASTS

TRANSCRIPT

GWEN IFILL: Next: tracking the government’s money.

Jeffrey Brown picks up that story.

JEFFREY BROWN: We tackle this in two parts. First, as a story today by the Associated Press asked, where did the bailout money go?

Economics writer Chris Rugaber was part of the team that wrote that article and joins us now.

Welcome to you.

CHRIS RUGABER, Associated Press: Thank you.

JEFFREY BROWN: So, your team was trying to find out what happened to money given to the banks, specifically. What — what did you find?

CHRIS RUGABER: Well, we found out very — we found out that the banks didn’t want to tell us much, specifically, about what they were doing with the money.

They said general things about increasing lending and so forth. But we — we had asked them four questions. What did they spend the money on? How much had they spent? How much did they put in reserves? And what were they planning to do with the money that was left over? And most of them just gave us very general answers and didn’t want to break out any of that into dollar amounts.

JEFFREY BROWN: Was it — was it possible to tell whether they just didn’t want to answer or whether they didn’t know the answers to those questions?

CHRIS RUGABER: It was hard to tell. But they definitely did not want to talk to us at all. It was surprising and — how unwilling they were to — to give us much of anything.

JEFFREY BROWN: I mean, one of the key questions, obviously, that people have been asking is to what extent the money that they get is being passed along as loans to consumers. You wanted to know.

CHRIS RUGABER: Right.

JEFFREY BROWN: But?

CHRIS RUGABER: Well, and a lot of the banks said, oh, well, we are doing that. We’re — we are providing more lending. And that’s what people want to know, is, is there more lending?

And but we said, well, we also would like to know what is being done with the $3.5 billion of taxpayer dollars or however much it was that each of these banks had received. And that is when they really didn’t want to, again, break out the actual amounts.

JEFFREY BROWN: And did they say why they didn’t want to tell you?

CHRIS RUGABER: Not really.

They were willing to tell us a little bit on background, that kind of thing. But, when we said we wanted it on the record, they — they didn’t give us much indication. I got some sense that they probably felt under pressure. Perhaps there’s some moves among regulators. And, certainly, Congress is very interested in where this money is going.

So, they may be trying to figure some of these things out, and didn’t want to tell us anything.

Congress seeks more accountability

Chris Rugaber
Associated Press
I got some sense that (banks) probably felt under pressure. Perhaps there's some moves among regulators. And, certainly, Congress is very interested in where this money is going.

JEFFREY BROWN: Several banks did tell you about some specific programs that they're using the money for. What -- tell us what you -- what you learned.

CHRIS RUGABER: Well, we did hear that J.P. Morgan has set aside $5 billion for a lending program for nonprofits and hospitals. And there's a smaller bank in Wisconsin that said the money that they received from the government did allow them to stop foreclosing homes.

And then, of course, we had another bank that said -- that assured us they did not use some of the money for one of their recent acquisitions of another company, because that is one of the things that Congress has expressed concern about.

And then we said, well, if you can tell us that the money wasn't used for that, how can you tell us if you aren't tracking this dollar for dollar? And then they sort of backtracked a bit and said, well, we definitely would have made the purchase anyway.

JEFFREY BROWN: You -- you have referred to this, but you sense there are some strong signs on Capitol Hill that, with the next $350 billion, Congress is going to want stronger rules in place.

CHRIS RUGABER: Yes.

I talked to Chairman Barney Frank today, actually, on the -- one of the key committees, and he was saying that any legislation for the next $350 billion will almost certainly include requirements that the banks, for example, report lending every quarter, so that we will have -- that there will be more of a sense of where this money is going.

JEFFREY BROWN: And, briefly, I want to ask you -- there was a second story that a team of AP reporters...

CHRIS RUGABER: Right.

JEFFREY BROWN: ... had today about compensation for bank executives.

JEFFREY BROWN: What did you find there?

CHRIS RUGABER: Well, we found that about 600 of the executives at these banks that received money received over $1.6 billion in compensation. Now, that was in 2007, before a lot of this really -- the financial crisis hit in full force.

But it is clearly -- it was an average of about $2.6 million for each of these executives. And some of these banks have said they will cut down this year, but...

JEFFREY BROWN: A major issue, obviously, for...

CHRIS RUGABER: Right. Right.

JEFFREY BROWN: ... the public, as well as Congress.

CHRIS RUGABER: Exactly.

JEFFREY BROWN: Yes.

CHRIS RUGABER: So -- and a lot of money for -- for these folks.

JEFFREY BROWN: All right, Chris Rugaber from AP, thanks very much.

CHRIS RUGABER: Thank you.

Tracking fund allocations

Chris Rugaber
Associated Press
J.P. Morgan has set aside $5 billion for a lending program for nonprofits and hospitals. And there's a smaller bank in Wisconsin that said the money that they received from the government did allow them to stop foreclosing homes.

JEFFREY BROWN: And, now, how much does the government know about the money trail?

Auditors at the Government Accountability Office have been keeping an eye on that.

And we're joined now by its interim head, U.S. Comptroller General Gene Dodaro.

Welcome to you.

GENE DODARO, acting comptroller general, Government Accountability Office: Thank you, Jeff.

JEFFREY BROWN: So, how -- how good a job -- what is your sense of how good a job the Treasury has done of keeping track of the money?

GENE DODARO: Well, Treasury had, given the amount of time that had elapsed, a short amount of time, instituted some processes to -- to decide how to allocate the money.

Our concern was, they had not addressed some critical management issues that fell into two general categories. One was monitoring and tracking where the money went and get systematic reporting back of how the banks had used the funds under the capital purchase program, and also to build their own capacity up to manage the program to have the proper numbers of people with the right skills and the proper internal controls in place to protect the taxpayers' interest.

JEFFREY BROWN: All right, so, take them one at a time.

On the -- the tracking, does the government know what happens to the money once it goes to a financial institution?

GENE DODARO: There's not yet a systematic process in place. That was our number-one recommendation, Jeff, was that the Treasury institute a systematic process, working with the regulators -- and, in some cases, the regulators are there on site in some of the largest banks -- to have a monitoring and reporting system back on how the money was used, to ensure it was used consistent with the purposes of the act, and that also that requirements, such as limits on executive compensation and payment of dividends, were being complied with.

In the second area, in terms of their capacity, Treasury had not yet hired up the full complement of people that they needed. We recommended they expedite hiring processes. We also recommended that they have a comprehensive plan to ensure a smooth transition to the next administration, and that they put a system of internal controls in place that are needed to protect and safeguard taxpayers' interests.

JEFFREY BROWN: So -- but, staying on the tracking thing for a moment -- so, on this -- this question that we were just talking about, about whether the banks are using the money for loans to consumers, for example, Treasury has no way of -- of actually tracking that right now?

GENE DODARO: Not yet. That's what our recommendation was: Put that system in place.

They're working on -- on coming up with something now, as a result of our recommendation.

Call for more frequent reporting

Gene Dodaro
Acting U.S. Comptroller General
... it's not too much to ask, for billions of dollars that are provided to the banks, that they report back how they have used the money.

JEFFREY BROWN: What kind -- well, what -- what would your recommendation be.

GENE DODARO: Well...

JEFFREY BROWN: What kind of system should they put in place?

GENE DODARO: Well, right now, the banks receive -- or -- excuse me -- the regulators receive, every quarter, from the banks regular call report data on their financial statements.

We're saying that they could modify that system to get more frequent reporting back from the banks on how their lending practices are -- are changed under this system. So, there's a regular reporting system already in place.

What we're saying is, you ought to build off of that and, you know, change the frequency, so you get more reliable data coming back. I mean, it's not too much to ask, for billions of dollars that are provided to the banks, that they report back how they have used the money.

JEFFREY BROWN: Well, your other issue was -- I will call it internal controls, or management, right?

GENE DODARO: Yes.

JEFFREY BROWN: So, what kind of recommendations do you have there?

GENE DODARO: In that area, we focus, number one, on people. The most important safeguard and controls is having enough people with enough skills to be able to tackle the project.

Also, in the contract area, we suggested that they, in the future, use fixed-price contracts. To date, they have used...

JEFFREY BROWN: What does -- what does that mean?

GENE DODARO: Well, that means that there's a definitive limit on the amount of money that the government is going to pay a contractor for a particular service.

Right now, they -- in order to expedite and move quickly, they put time and materials contracts in place, which means there's more onus on the government to manage the contractors, to make sure that the money is safeguarded.

The other area is in conflict of interests. We recommended that they expedite their final regulations on conflict of interests, and also have an enforcement mechanism in place to monitor the mitigation plans, if there are conflict of interests, how they're going to be managed effectively. This is very important to make sure that everything is done properly.

JEFFREY BROWN: Now, you said -- I mean, it's interesting. Of course, as you say -- and I'm sure everybody would agree -- it's not too much to ask that they know what happens to this.

On the other hand, I mean, this -- this stuff happened fast, right? And it was a serious situation. And they would say, well, we had to respond quickly.

The whole tenor, or the focus, of the plan changed midway through, as well, right? What kind of impact did that have on -- on the accounting?

GENE DODARO: Well, that should not have had any bearing on the type of reporting that is given back by the banks.

The banks have time to use the money under this program and to -- there's plenty of time to report back on how they have used the funds. There's nothing in our recommendations that would have prevented the program from being implemented quickly.

Our recommendations are intended to make sure it's implemented properly and that there's proper accountability and there's proper transparency. And I think it's very important to the credibility of the program that the American people have that.

Communicating better with Congress

Gene Dodaro
Acting U.S. Comptroller General
... it's fine to change rationale to changing circumstances, but you need to communicate to people, both to the Congress and other stakeholders, so they understand, not only why you're changing, but what you're hoping to accomplish from that.

JEFFREY BROWN: Well, that goes to another thing that I noticed in your report, which was you called on -- you called for better communication...

GENE DODARO: Yes.

JEFFREY BROWN: ... with Congress and the American people.

GENE DODARO: Yes.

JEFFREY BROWN: What -- what did you see? What was missing?

GENE DODARO: Well, there, as you mentioned, the situation was fluid, in terms of the economy.

Treasury was trying to respond to that. And they changed the nature of the program, from buying troubled, or toxic, assets, to the capital purchase program, which is to get equity into the banks. Our -- our point there was that it's fine to change rationale to changing circumstances, but you need to communicate to people, both to the Congress and other stakeholders, so they understand, not only why you're changing, but what you're hoping to accomplish from that.

And Treasury agreed that they needed to modify their communication strategy going forward.

JEFFREY BROWN: I should say that we did call the Treasury Department today, and invite them to come on and join you and talk about all these things. And I hope we will have a chance another time.

But, since your report came out, what kind of response have you had from Treasury, from the government?

GENE DODARO: Yes.

Generally, they agreed with our recommendations and working to implement them. The one area where they had an initial different interpretation was on monitoring and tracking of the funds and reporting back.

But, since we have had a hearing on Capitol Hill, the Treasury is now moving forward on that. We are required by law to report every 60 days. So, our -- our second report will be issued at the end of January. And, there, we plan -- plan to provide a full accounting of how Treasury has responded to our nine recommendations.

JEFFREY BROWN: So, you're looking -- I mean, you're still looking at the same issues, but in more detail?

GENE DODARO: That's exactly right.

We're on site, and following up on this very carefully, to make sure we execute our oversight responsibilities to assist the Congress and also to provide those types of reporting back to the American people.

JEFFREY BROWN: All right, Gene Dodaro from the GAO, thank you very much.

GENE DODARO: Thank you, Jeff.