Remaining $350b of TARP Funds To Come With More Pressure On Banks To ‘Redeploy’ Capital

There is $350b left in of the original $700 billion Troubled Asset Relief Program funds that were approved by Congress and the White House in October. At that time, funds were to be used to buy troubled assets from banks—illiquid mortgage securities mostly—to get banks to regain their appetite for lending again. Right after TARP funds were approved Treasury Secretary Henry Paulson said that it was best to inject the money directly into the banks. He took a lot of heat for this heat-of-the-moment change of plans even though the plan always had the provision for Treasury to act as triage specialist in the midst of the worst phase of the crisis last Fall.

Paulson also encouraged banks many times to redeploy capital in a manner that benefits businesses and consumers. But this was never mandated and TARP-funded banks instead bought each other and/or held onto the money (click the TARP tag below for full coverage). Now it seems the remaining $350 billion of TARP funds will come with tougher conditions for banks.

House financial services committee Barney Frank said today that he’s got a handshake deal with Obama that funds won’t be distributed without commitments from banks that they’ll restrict executive bonuses and redeploy capital to help stem foreclosures and help seekers of auto, home and business loans.

Outgoing NY Fed president and incoming Treasury Secretary Tim Geithner will preside over this process along with Congress.