The inspector general that oversaw the government’s bailout of the U.S. banking system has is criticizing the Treasury Department for making misleading public statements last fall to the publish and suggested that the US Treasury may have unfairly distributed money to the nation’s largest banks.
Special Inspector General, Neil M. Barofsky, said that a treasury official made incorrect statements about the health of the nation’s largest banks as the government was sending billions of dollars worth of bailout money through the Troubled Asset Relief Program (TARP).
The new report that was released on Monday provides a new insight into how the U.S. Treasury allocated billions of dollars to nine of the largest financial institutions in the United States. The report stated that Bank of America could have qualified for more aid earlier under the government’s plan. The bailout plan called for banks to get an amount equal to 3% of their risk-weighted assets with a maximum of $25 billion for each institution. Citigroup, JPMorgan Chase, and Bank of America could have all qualified for more, but the first two banks received $25 billion and Bank of America only received $15 billion in aid since the purchase of Merril Lynch was earmarked for $10 billion in bailout funds.
Wells Fargo as also involved in a purchase of another struggling bank at the time, Wachovia, but did not receive similar treatment. Wells Fargo received the bailout funds from both Wells Fargo and Wachovia at the outset of the bailout program, according to the inspector general
Barofsky’s office contends that the regulators were also wrong to tell the public last fall that all of the bailout recipients were financially healthy. On October 14th of 2008, then Treasury Secretary, Henry Paulson, said that the banks were “healthy” and that they had accepted the money for “The good of the U.S. economy.” Paulson stated that the banks would be able to use those funds to increase their lending to consumers and business lenders.
The reality was that Federal regulators were very concerned about several banks that received funds from the first bailout. The inspector general said that government officials should have been more careful in describing the rationale for their actions. In a letter that was included with the report, the Federal Reserve agreed with Barofsky’s concerns about the statements made last year.
The Treasury Department stated that the review of any statements made last year “must be considered in light of the unprecedented circumstances in which they were made.”
