Executives from the financial institutions who received TARP funds testify before the House Financial Services Committee Feb. 11, 2009 in Washington, DC. Chip Somodevilla/Getty Images
At turns apologetic and defensive, eight CEOs of banks that benefited from the government's bailout program appeared before the House Financial Services Committee on Feb. 11, assuring legislators the banks are aware of complaints about their use of federal funds and are using the money to make loans.
"We're doing our best to balance the interests of customers, shareholders, and taxpayers," said Kenneth Lewis, chief executive of Bank of America (BAC). "Despite recessionary headwinds, we are lending. In the fourth quarter alone, we extended more than $115 billion in new credit to consumers and businesses."
Enough Strings Attached?
The committee—chaired by Representative Barney Frank (D-Mass.)—asked the CEOs who received the Troubled Asset Relief Program (TARP) funds to explain how their share of the $350 billion distributed in the fall from the first installment of the program was being used. Critics of the program say there were few requirements imposed on recipients of TARP funds, therefore failing to boost lending significantly and prevent home foreclosures. The Obama administration is currently considering how to spend the balance of the $700 billion TARP.
Lawmakers said that there was a great deal of anger among their constituents over the way banks handled TARP funds, citing reports of difficulties obtaining consumer loans to buy homes and automobiles. "I want to know where the money has gone and why it went there," Representative Paul Kanjorksi (D-Pa.), said in a written version of his opening statement.
The bankers—whose firms received about $165 billion from TARP—said they were aware of the public demand for accountability. "It is abundantly clear that we are here amidst broad public anger at our industry," Goldman Sachs (GS) CEO Lloyd Blankfein said in a prepared statement. "Many people believe—and, in many cases, justifiably so—that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system's stability."
Citigroup (C) CEO Vikram Pandit apologized for the furor over its planned purchase of a new corporate jet even though it received $45 billion from the government. At first, the bank insisted it would go ahead with the purchase, but it then backed down amid a barrage of bad publicity.
"We did not adjust quickly enough to the new world," Pandit said. "I get the new reality, and I will make sure that Citi gets it as well."
Several bankers told the committee they were reducing their compensation. Morgan Stanley (MS) CEO John Mack said most senior members of the firm didn't receive bonuses in 2008. "We're tying future compensation more closely to multiyear performance," Mack said.
Frank criticized the bonus culture of banks, however, hitting at the banks' contention that compensation was important to keep talented people. "If I told you you wouldn't get a bonus, what part of your job wouldn't you do?" he asked.
Representative Maxine Waters (D-Calif.) attacked the bankers for raising credit-card rates despite receiving TARP funds.
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Mintz is news editor for BusinessWeek.com in New York.