Banks will have to lend more to qualify for rescue money: Reports

02 February 2009

President Barack Obama is likely to mandate that banks, in return for being rescued by taxpayer money, must boost lending to consumers and companies, as part of the $700-billion bailout fund, reports said citing lawmakers.

ABC television's This Week programme quoted house financial services committee chairman Barney Frank as saying that it the Obama administration's learnings from the first phase of the bailout programme would be evident, and that he would "push for much more lending."

Obama will reportedly include a restriction in a bank-rescue strategy that is expected from his administration during coming weeks, in response to criticism from Congress that companies that were the recipients of the aid during the first $350 billion round did not pass on the aid to borrowers.

Last week, the president lambasted bonuses paid out on Wall Street, while reports told of aid-recipients financing mergers and acquisitions that could lead to retrenchment.

Reports said that Obama's administration could roll out a new, stricter set of rules in the coming days to control executive pay for the biggest recipients of taxpayer funds. They said that even dividends may be restricted, and the requirements would apply to companies receiving exceptional government aid.

Reports also talked about an industry aid package and the creation of a "bad bank" that would be announced sometime next week. As part of his weekly radio address delivered on Saturday, Obama said new initiatives would ensure chief CEOs "are not draining funds" from their firms that might otherwise be spent on fuelling an economic recovery, through loans and other instruments.