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Banks termed still in trouble
Geithner reports to panel of overseers as skepticism on bailout effort increases
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Published: April 22, 2009
WASHINGTON
America's banks are still broken despite all their bailout billions, Treasury Secretary Timothy Geithner told impatient rescue overseers yesterday as they pressed him on when things will get better and how much it will cost. A bleak new report estimated that U.S. banks and other financial institutions could lose a stunning $2.7 trillion in all.
How well is the mostly spent $700 billion federal bailout working? "To date, frankly, the evidence is mixed," Geithner told a congressionally appointed oversight panel.
Confidence in the program is wearing thin on Capitol Hill. With legislators back from their spring break, even bailout supporters are skeptical that Congress -- weary of bankers' bonuses and still-scarce credit -- would approve additional bank-rescue money if requested.
Geithner's testimony signaled that the administration is not preparing to ask. Wall Street was cheered by Geithner's assessment that "the vast majority" of banks could be considered well-capitalized. Bank stocks slid Monday but bounced back yesterday.
Still, the government's effort to stabilize the financial sector and unclog credit markets has come under heavy scrutiny. Officials must do a better job in carrying out and explaining efforts to shore up the financial system, Elizabeth Warren, the head of the oversight panel, told Geithner.
"The sense of fear and uncertainty has not gone away, but it's been joined by a new sense of anger and frustration," said Warren, who is also a law professor at Harvard University. "People are angry that, even if they have consistently paid their bills on time and never missed a payment, their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines."
Of the $700 billion authorized by Congress for the Troubled Asset Relief Program, or TARP, last October, Geithner said that about $110 billion is left. With about $25 billion expected to be repaid this year, the total available is about $135 billion.
Some banks are maneuvering to pay back some of the bailout money, unhappy with the strings attached. But Geithner said that doesn't mean that the government would necessarily accept the repayments.
First, these questions have to be answered, he said: "Do the institutions themselves have enough capital to be able to lend, and does the system as a whole, is it working for the American people for recovery?"
The administration is administering a series of "stress tests" to banks to help judge their financial health.
Geithner said that while most banks have more than enough capital to satisfy federal regulators, a combination of factors -- including worries about the broader economy and the crushing weight of bad loans and other toxic securities on their balance sheets-- is feeding "uncertainty about the health of individual banks."
That, in turn, "has sharply reduced lending across the financial system" and is holding back economic recovery, Geithner said.
Geithner testified on a day that saw a spate of reports suggesting that the economic downturn is far from over and is growing ever more expensive:
□ The International Monetary Fund said that U.S. financial institutions could suffer $2.7 trillion in losses from the global credit crisis through 2010, nearly double the IMF projection just six months ago, and that the global total could surpass $4 trillion. The IMF said that governments have made progress getting extra money into the banking system, but must do more.
□ General Motors Corp. could get as much as $5 billion more in federal loans, while Chrysler LLC could get $500 million as they race against government deadlines to restructure, according to the report of a special government inspector general. Chrysler has until April 30, while GM has until June 1. GM already has received $13.4 billion in government loans; Chrysler, $4 billion.
□ An inspector general assigned to the bailout program concluded that a private-public partnership designed to buy up bad assets is tilted in favor of private investors and creates "potential unfairness to the taxpayer."
□ The top 10 recipients of the $700 billion bailout spent about $9.5 million on federal lobbying during the first three months of 2009, a government report showed. The biggest spender was GM, devoting $2.8 million to lobbying in the first three months of 2009. American International Group Inc., the failed insurance giant, and banks Citigroup Inc. and J. P. Morgan Chase & Co. each reported spending more than $1 million to influence the government.
Geithner was asked by panel member Rep. Jeb Hensarling of Texas, one of two Republicans on the five-member panel, "What is the exit strategy from AIG?"
Geithner could not provide an answer, saying that "very difficult judgments" are involved and that the government still lacks the express authority to fully manage the company, even though about $180 billion in taxpayer support has been pledged to the giant insurer and the government effectively owns 80 percent of the company stock.
Geithner noted Obama administration efforts to gain legislative authority to more closely regulate sprawling financial institutions such as AIG that are not banks.
Former Republican Sen. John Sununu of New Hampshire told Geithner that uncertainty over the bank stress tests and the prospect that the government might take a more active shareholder role in bailed-out banks was leaving "more questions unanswered than answered."
Geithner insisted that steps taken by the administration are helping to cushion the economic pain from what he called a continuing "very severe financial crisis, the worst in generations."
Despite government help to banks, "the cost of credit is still very high. Reports on bank lending show significant declines in lending for consumer loans, for commercial and industrial loans, although mortgage refinancings have picked up considerably," he said.
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