Benchmarks for lending with TARP money is a good idea

Sheila Bair indicates that the FDIC will require its member institutions to report on how they are using their Troubled Asset Relief Program (TARP) funds. The request is new and the details are not yet specified.  At this point, Bair is asking only that recipients report how they used their funds to stimulate lending.  They can make the report a part of their 10-k or their annual report.

Bair’s actions are the first from a regulator to require some kind of reporting regime.  Earlier, advocates had led in wanting some indication of how public funds were being utilized.  See the list of banks who have applied for funds here.

This is a step in the right direction, but it seems likely to produce reports that are selectively transparent.  A better plan would be to develop a systemic set of guidelines, much like the FFIEC uses for reporting on home mortgage loans or for small business loans.  Banks are going to have to make these reports anyway, so it is not as if there is some sort of privacy issue.  This is taxpayer money.

Any public investment or grant comes with expectations that its recipients will provide some kind of benchmarking on the progress made with the funds.  For here, the baseline information would be to indicate the amount of TARP dollars that had been utilized for new loans in the United States.  Imagine if we find out that some bank is using TARP money to make loans in Iceland!

Then, it would be good to know how much of those dollars were going to what types of loans.  Some lending is not helpful (payday lending, Refund anticipation loans, pawn shops).  Other lending doesn’t do much to circulate more dollars into the economy.  I am thinking of refinance loans on existing mortgages that are not past due.  In that instance, the only benefit would be to reduce monthly payments for the well-off.

How much is going to loans for small businesses?  How much is going to the kinds of investments in infrastructure (highways, bridges, utilities, as well as schools and other public items) that Obama is projecting for the next round of stimulus?  What kind of job creation can we point to for our TARP investment?

When pressed last month, some banks said that they could not indicate how TARP funds are used, if only because money is money and its all one pot.

Obama indicates that he wants to spend the remaining $350 billion authorized under TARP fairly soon.