updated 7/9/2009 7:34:02 PM ET 2009-07-09T23:34:02

The government has tens of billions of dollars left in the eye-popping $700 billion bank bailout fund created last fall, prompting a debate in Congress over what to do with it.

The Treasury Department wants to keep the money at its disposal in case the economy gets worse. But fiscal conservatives like Sen. Judd Gregg of New Hampshire and Rep. Spencer Bachus of Alabama, both Republican, want the money kept to pay down the national debt.

Meanwhile, a group of liberal Democrats led by Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, say at least a portion of it should be spent to help cash-strapped homeowners.

“We clearly face a new wave of foreclosures” because of rising unemployment, Frank said at a hearing Thursday.

The question of what to do with the money will grow more pressing in coming months as Congress takes a step back to consider the fate of the Troubled Asset Relief Program, or TARP.

Lawmakers had rushed to approve the money in October 2008 as Wall Street sat on the brink of collapse. Since then, even as the economy continues to wobble and high unemployment threatens the prospects for a speedy recovery, major banks have repaid $70 billion in assistance and expressed growing optimism about their ability to function without government assistance.

TARP is set to conclude at the end of the year unless Treasury Secretary Timothy Geithner extends it through fall 2010.

The Government Accountability Office, the nonpartisan investigative arm of Congress, estimated on Thursday that the government has about $328 billion left in the fund that hasn’t been spent or legally committed.

According to GAO, the government has disbursed approximately $339 billion and promised $102 billion more. That leaves some $259 in the fund plus the $70 billion banks have repaid.

The Treasury Department says it already has plans for some of the remaining money and predicts the available funding in TARP will be much lower, about $127 billion.

Geithner also has indicated he wants any extra money in the program left to his disposal if it’s needed. In a letter to Gregg, the secretary said any additional “headroom” under the program’s $700 billion cap provides “additional flexibility to Treasury in its efforts to stabilize the economy and build the foundation for long-term economic growth.”

But for many lawmakers, money already approved by Congress to aid the economy is ripe for the picking. Frank wants to use dividends earned through government-owned stock in ailing banks to go toward affordable housing programs.

Republicans on the House Financial Services Committee disagree.

“We need to end the bailouts and return that money to the taxpayer,” said Bachus, R-Ala.

Meanwhile, the No. 2 official at the Federal Reserve resisted calls in Congress to subject the central bank to oversight by a federal watchdog agency.

Fed Vice Chairman Donald Kohn said such a proposal would insert politics into the Fed’s role in overseeing monetary policy and introduce uncertainty into the market.

Kohn also weighed in on President Barack Obama’s plan to overhaul the regulatory framework that governs financial institutions. Kohn said he supported the idea of giving the Fed the power to monitor risk across the system and regulate institutions that grow “too big to fail.”

But Kohn suggested the Fed shouldn’t lose its ability to protect consumers. Obama’s proposal would hand that role to a new agency.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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