US Tsy Tells Oversight Panel The Rescue Plan Is Working
12/31 01:00 PM
WASHINGTON (Dow Jones)--The U.S. Treasury Department this week told a Congressional panel overseeing the bailout program that its strategy to stabilize the markets is working.
In a 13-page document submitted to the Congressional Oversight Panel, Treasury said its efforts have managed to help prevent some financial institutions from collapsing, and it also asserted that it has made progress in helping to reduce foreclosures.
"The most important evidence that our strategy is working is that Treasury's actions, in combination with other actions, stemmed a series of financial institution failures," Treasury wrote. "The financial system is fundamentally more stable than it was when Congress passed the legislation."
The department's positive assessment of its actions to stem the financial crisis is part of a response to 10 questions the Congressional Oversight Panel submitted to Treasury earlier this month. That four-member panel, which is chaired by Harvard Law School Professor Elizabeth Warren, raised those questions as part of a larger report that criticized Treasury's handling of the $700 billion bailout plan.
That report echoed similar concerns previously expressed by the Government Accountability Office, saying that Treasury had doled out billions of dollars without a plan for tracking how the money is used or ensuring that banks comply with government-mandated restrictions.
In response to a question about where the money has gone, Treasury said it " will be challenging to view the impact of the Capital Purchase Program in isolation and at the institutional level."
The Treasury also responded to questions about how it chooses which banks can participate in the capital purchase program, saying that all of that information about the application process is available on its Web site.
"Treasury worked closely with the banking regulators to establish a standardized evaluation process," Treasury said.
The department conceded that since the capital purchase program was first implemented in October, the money still needs to work its way into the system.
"We are still at a low point of confidence - both due to the credit crisis and due to the economic downturn, during which lending and borrowing levels normally drop," Treasury said. "While confidence is low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans."
To help reduce foreclosures, the Treasury cited three accomplishments, including the actions taken to save Fannie Mae (FNM:$0.7204,$0.0304,4.41%) and Freddie Mac (FRE:$0.71,00$0.02,002.90%) , the establishment of the HOPE NOW Alliance, and the creation of the streamlined loan modification program that was announced in November.
In response to a question about how the department has helped the American family, Treasury said that "every aspect of the implementation of the financial rescue package" is helping system so it can "support the financing needs of the American people."
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@ dowjones.com
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12-31-081300ET
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