FDIC Asks Banks to Monitor Use of Bailout Money

Federal regulators are asking financial institutions to monitor their use of government money received under the $700 billion rescue plan and other support.

Banks and other financial institutions should track how the federal money or guarantees they received helped them boost "prudent lending" and efforts to help at-risk borrowers avoid foreclosures, the Federal Deposit Insurance Corp. said Monday in a directive issued to the roughly 5,100 state-chartered banks and savings and loans for which it is the primary regulator.

"Banks are expected to document how they are continuing to meet the credit needs of creditworthy borrowers," the directive says. "The FDIC expects that ... (institutions) will deploy funding received from these federal programs to prudently support credit needs in their market and strengthen bank capital."

The agency called on banks to include a summary of that information in their periodic reports and financial statements.

The FDIC directive applies to: the Treasury Department program in which the government is injecting $250 billion in banks and other financial companies by buying shares in them, several Federal Reserve initiatives to provide temporary loans that have totaled around $2.25 trillion, and the FDIC's program of three-year guarantees for as much as $1.4 trillion in new loans between banks.

The FDIC action comes amid bipartisan criticism that the Bush administration's handling of the first $350 billion of the financial rescue program has been unfocused, confusing and inconsistent. Critics have complained that the taxpayer money has had few strings attached and hasn't been used effectively to address the nation's housing crisis.

President-elect Barack Obama's economic team is developing a "comprehensive set of investment principles" that would put restrictions on how the second $350 billion is spent, limits on executive compensation for banks and other companies receiving funds, and a plan to address rising foreclosures.