TARP 2.0 will come with new rules

February 10, 2009 7:28:48 PM PST
In Washington on Tuesday, the government took a series of historic steps to revive a collapsing national economy. The U.S. Senate approved an $838 billion bailout bill, which is a key victory for President Obama, but difficult negotiations lie ahead with the House.

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The Federal Reserve announced plans to launch a colossal $1 trillion lending program to thaw credit markets for consumers and small businesses. The treasury secretary also announced a financial stability plan to provide another $1 trillion, potentially, to shore up the nation's banks.

The government truly wants banks lending money again, yet only one Bay Area bank is telling ABC7 how it spent $8.5 million in Troubled Asset Relief Program, or TARP, funds.

"We will keep at it until we fix it!" said U.S. Treasury Secretary Tim Geithner.

That's the promise Geithner made as he outlined what many are calling "TARP 2.0." It is a $1 trillion plan to help prop up troubled banks unwilling or unable to make loans. This time there is a promise of oversight after earlier recipients of TARP funds may have used the money for executive bonuses and other non-lending purposes.

"We will impose new, higher standards for transparency and accountability," said Geithner.

The nation's 20 largest banks will be given extra scrutiny -- what Geithner called a "stress test." Other banks must submit a plan for using the money. All must commit to programs to avoid foreclosures and to monthly reports on lending activity. Those reports will be posted on a new government website.

Tom Duryea, the president of Summit State Bank in Santa Rosa, thinks community banks like his were tarnished by the actions of the big banks.

"Quite frankly, I'm appalled by the behavior of some of my fellow bankers, really on the larger banker. I think it shows tremendous insensitivity toward the public," said Duryea.

Author and journalist Stephen Pizzo thinks the new plan will contain the fire, but not put it out. He wrote a major book on the savings and loan crisis called the "Inside Job."

"Then we're going to be burdened still with this unbelievable amount of toxic paper out there," said Pizzo.

Summit State Bank is one of four local banks that accepted TARP funds late last year, ranging from $43 million down to $6 million.

Summit was the only one that agreed to tell ABC7 what it did with $8.5 million in TARP funds.

"We took in the 8.5 and we lent out approximately $24 million in the very first month. So I think you need to be completely upfront and transparent with the American people," says Duryea.

At Summit, the money was lent out, mostly to small businesses, and to a community group to expand its services for people with Alzheimers. Big bank CEO's will be grilled on Capitol Hill Wednesday about what they did with their TARP funds.

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