WASHINGTON | An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.
"We're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.
Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.
"They will be watching very closely, and they're working with the banks," she said.
She said that Anthony Ryan, Treasury's acting undersecretary for domestic finance, delivered a speech in New York on Tuesday that made this point. Ryan spoke to the annual meeting of the Securities Industry and Financial Markets Association, a group of Wall Street executives.
"The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money," Perino said.
There has been some evidence of loosening lending, Perino said. But it's not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories.
Under the authority of the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month, the Bush administration plans to dole out $250 billion to banks in return for partial ownership. The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks this week. Another $125 billion will go to other banks.
Treasury Secretary Henry Paulson has said the money would be used by banks to rebuild their reserves so that they would resume more normal lending practices -- a crucial ingredient to breaking through a debilitating credit clog that is hurting the national economy and threatens to bring about a deep recession. More recently, though, Paulson said the money could be used by banks to buy other banks to make them both stronger to weather the financial storms.
On Friday, PNC Financial Services Group Inc. said it had received $7.7 billion in cash through selling stock to the government under the bailout program. PNC then said it planned to buy National City Corp. for $5.58 billion.
The rescue program is just one of the efforts the government is making to combat the worst financial crisis to hit the country since the 1930s. The Federal Reserve began a program Monday to purchase the short-term debt of businesses, known as commercial paper. This market has been frozen since the collapse of Lehman Brothers spooked credit markets last month.
But so far, the efforts to battle the severe credit squeeze have shown little in the way of results. Libor, the London Interbank Offered Rate, a key goalpost for international lending, edged down only marginally on Monday and still remains at elevated levels.
