Congressional leaders made clear Wednesday they do not want money from the financial industry bailout used to boost executives’ pay.
New York’s attorney general asked banks that are getting bailout dollars to turn over information about how they are spending money on executive bonuses.
The top House Republican and the Democratic leaders of the House and Senate sent letters to Treasury Secretary Henry Paulson after reports about how the $700 billion plan might be used.
“Funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises and executive bonuses,” wrote House Republican leader John Boehner of Ohio.
House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., wrote “to express concern about the level of compensation” for top executives at banks set to receive bailout dollars.
A day earlier, Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, sought salary information from nine banks selected to receive $125 billion.
The Troubled Assets Relief Program was created as part of the bailout to buy devalued mortgage-backed securities from tottering banks to unclog frozen credit markets. But the legislation also gave the Treasury the power to make direct stock investments in financial institutions.
While the bailout legislation includes limits on compensation, Pelosi and Reid cited concerns about the direct investment program.
Treasury guidelines say participants must follow compensation restrictions contained in the law. Critics say the restrictions are weak. The law says executives should not have incentives to make risky investments. It also says an executive who receives a bonus based on false financial statements must repay it. Lastly, it says “golden parachutes” are not available for the top five executives of a company.
Several news organizations, including The Associated Press, have published stories saying that banks receiving funds from the bailout are using them to make acquisitions. They have also reported companies are going ahead with plans to pay dividends to shareholders and bonuses to executives.
Treasury spokeswoman Brookly McLaughlin said Wednesday that using the funds for acquisitions was within its broad goal of spurring more lending.
“It’s in no one’s interest to have unhealthy banks that are unable to play the role of lenders in the economy, who threaten the financial system,” she said. “So it’s possible and even appropriate if capital is used to create strong, healthy financial institutions.”
In New York, Attorney General Andrew Cuomo said Wednesday that the bailout essentially has made taxpayers shareholders in the nine banks and they have a duty to be upfront with the public about huge bonuses.