The US treasury is about to approve capital injections into 20 more banks, said Neel Kashkari, the department’s assistant secretary in charge of a $700 billion bank-rescue plan.
“I think we're going to approve another 20 banks today, large and small across the country,” Kashkari told a congressional panel Friday.
Kashkari spent two hours under hostile questioning from lawmakers concerned that the treasury’s equity purchase program won’t do enough to help homeowners avoid foreclosure. Kashkari’s response was that the Treasury has concluded the capital injections are the fastest and best way to help revive the overall economy.
Several congressmen criticised Kashkari and treasury secretary Henry Paulson for changing the strategy earlier this week of the $700 billion bank rescue fund, called the Troubled Asset Relief Program, just a month after Congress approved it.
“I don’t know whether to call this ‘fire, ready, aim’ or something more pejorative,” said Darrell Issa, a Republican from California.
Paulson is scheduled to appear November. 18 before the House Financial Services Committee.
The treasury has allocated $250 billion of the TARP for purchasing stakes in US banks and has so far approved $125 billion for nine big banks. More than 50 regional US banks have offered stakes to the treasury and are awaiting final decisions, according to Bloomberg data.
Banks apply first to their regulator to participate in the program. If the regulator approves, the applications go to the treasury, which makes the final decisions.
Kashkari said the treasury didn’t see an application from National City Corp for a capital injection. PNC Financial Services Group Inc said last month it would buy National City for about $5.2 billion in stock after receiving a $7.7 billion investment from the Treasury.
Kashkari declined to comment on any stake the treasury might take in PNC. The treasury has avoided discussing specific banks unless it completes a capital injection in them, although institutions are allowed to disclose preliminary approval if they choose.
Publicly traded banks had until today to decide whether to participate. Kashkari said terms for private banks are coming “soon.”
Regarding the securities of mortgage-finance companies Fannie Mae and Freddie Mac, which the government took over on September 7, Kashkari said they arent quite completely guaranteed by the US government, even though they have “the treasury's backing.”
“We provide a very strong implicit support,” Kashkari said. “It’s darn close, but it’s not quite full faith and credit.”
Overall, financial markets are starting to experience “healing,” Kashkari said. Even so, “we’re not out of the woods yet,” he said.
The treasury views its efforts to help ease lending conditions as a way to reach homeowners directly, Kashkari said. “Bringing mortgage rates down for borrowers is the best thing we could do,” he said.
The US treasury also will try to ease “distress” in securities markets that is raising consumer borrowing costs, Kashkari said.
“We are examining strategies to support consumer access to credit outside the banking system, specifically the asset-backed securities market,” Kashkari said in his prepared testimony for the House Oversight and Government Reform Committee's subcommittee on domestic policy.
The market for securitized auto loans, credit cards and student loans “is currently in distress and its illiquidity is raising the cost and reducing the availability” of consumer credit, Kashkari said.
On November 12, Paulson announced that the Fed and his department were working on a backstop facility for asset-backed securities, with funds from the Treasury’s Troubled Asset Relief Program. Details of the program haven't been announced.
Kashkari said the Treasury has “stabilized” mortgage companies Fannie Mae and Freddie Mac and “limited systemic risk” that their failure would have posed. Overall, US markets have improved, he said.
“Our system is stronger and more stable than just a few weeks ago,” Kashkari said.
The treasury is committed to transparency and oversight for the rescue efforts, Kashkari said. Lawmakers recently have raised concerns that the rescue effort isn't properly supervised.
When asked whether he'd stay on to manage TARP for the next administration, Kashkari, who has been putting in marathon hours, responded that he'd be “honored'' to be asked to serve. “I'd have to ask my wife,” he said.
Separately, the White House announced today that Neil Barofsky, an assistant US Attorney in New York’s southern district and chief of a mortgage fraud unit, will be nominated to be the TARP’s inspector general.
