Banks Not Lending From Bailout Money Are In 'Violation Of The Law', Frank Says

October 31, 2008 3:16 p.m. EST

Washington, D.C. (AHN) - The financial institutions that are receiving hundreds of billions of dollars of taxpayer must use the funds to improve their lending capacity, rather than using for anything else, a top Democratic lawmaker said on Friday.

House Financial Services Committee Chairman Barney Frank said banks are violating the law if they use funds from the $700 billion rescue package to give away bonuses, pay dividends or for acquisitions.

"I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the President's request to respond to the credit crisis by making funds available for increased lending," Rep. Frank said in a statement.

He added, "Any use of the these funds for any purpose other than lending-for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc.-- is a violation of the terms of the Act."

The officials from the Bush administration are already disappointed with the slow effect of the billion dollar rescue package as banks are not appropriately using funds provided under the Troubled Asset Relief Program (TARP) to revive the economy.

"I appreciate the fact that the Secretary of the Treasury has reemphasized that increased lending activity is the only legitimate purpose for taxpayer funding of these institutions," he continued.

"He must make it absolutely clear to any participating entity that the federal government will insist on compliance."

Treasury Secretary Henry Paulson has indicated that the recently approved $250 billion is an initial investment in the banking firms in the U.S. to curb the slowdown in the economy that is hurting other sectors.

Currently, House Oversight and Government Reform Committee Chairman Henry Waxman and New York Attorney General Andrew Cuomo are investigating nine large banks in the U.S. for paying out hefty bonuses after they recently received $125 billion in federal funds.

the House Financial Services Committee is expected to hold oversight hearings On November 12th and November 18th on legislation Congress has passed to tackle with the on-going financial crisis and slumping credit market condition.