First Half of TARP Funds Used Up

Mentioned in this post are General Motors Corporation (GM), PNC (PNC - Snapshot Report) and National City (NCC).

The Treasury Secretary stated today that as a result of the decision to provide $17.4 billion to General Motors Corporation (GM) and Chrysler LLC, the Treasury has effectively allocated the first $350 billion from the TARP funds.

It is not very clear whether the current administration will ask Congress to release the remaining half of the TARP funds. While Secretary Paulson stated that he will discuss that process with the congressional leadership and the President-elect’s transition team in the near future, there were reports from the White House that it would not necessarily ask Congress to release the second half of the $700 billion, implying that they would leave the decision to the incoming administration.  

Even if the current administration makes a request to the Congress for the release of the second half, the release is not going to be easy, with most of the lawmakers unhappy with the way the first half was used. While TARP was originally designed as a way to purchase troubled assets off from financial institutions, most of it (more than $250 billion) was used to inject capital in the banks in order to help them to resume normal lending.

There are increasing concerns that on one hand, the money was given to the banks on very easy terms, and then on the other there was no oversight on the use of the funds by the banks. As a result, TARP funds have not resulted in any significant increase in lending -- they have been used either for purchase of Treasuries or for purchase of other banks (e.g. PNC’s {PNC - Snapshot Report}) purchase of National City {NCC}) or to distribute as dividends or executive compensation.

Further, nothing has been put in place so far to address the fundamental problem of preventing foreclosures. We hope that the second half of the TARP money will be used more wisely and with better oversight on the institutions using the money.

Read the full analyst report on GM.

Read the full analyst report on NCC.