Rep. Frank warns banks against diverting funds

Companies receiving help under the federal government’s financial bailout program are violating the law if they use the money for anything other than to ease lending, Rep. Barney Frank (D-Mass.) said Friday. 

{mosads}“I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the president’s request to respond to the credit crisis by making funds available for increased lending,” Frank, the chairman of the House Financial Services Committee, stated. “Any use of these funds for any purpose other than lending — for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. — is a violation of the terms of the act.”

The Treasury has said it will invest $250 billion directly into banks as part of the $700 billion package passed by Congress earlier this month.

In recent days, however, lawmakers have expressed concern that some of the money is going toward bonuses and to pay dividends, rather than to shore up the bank’s capital positions and to dissuade banks from hoarding money.

“I appreciate the fact that the secretary of the Treasury has re-emphasized that increased lending activity is the only legitimate purpose for taxpayer funding of these institutions,” Frank said. “He must make it absolutely clear to any participating entity that the federal government will insist on compliance.”

Congressional investigators led by Rep. Henry Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, are requesting broad data on how much the biggest banks participating in the program paid in salary, bonuses and benefits between 2006 and 2008.

Frank has scheduled hearings for Nov. 12 and Nov. 18 on the federal rescue program.