WASHINGTON --- The government must toughen its monitoring of the $700 billion financial bailout to ensure that banking institutions limit their top executives' pay and comply with other restrictions, federal auditors said Tuesday in the first comprehensive review of the rescue package.
The Treasury Department has no mechanism in place to track how institutions are using $150 billion in taxpayer money that the government had injected into the banking system as of last month, the Government Accountability Office concluded in its report to Congress.
The auditors acknowledged that the program, created Oct. 3 to help stabilize a rapidly faltering banking system, was less than 60 days old and has been adjusting to an evolving mission.
But the 72-page report is bound to feed congressional concern that banks and other institutions aren't being properly monitored and aren't using the money to increase lending.
Also on Tuesday, the Federal Reserve said it was extending the life of lending programs aimed at smashing through credit clogs and restoring stability to financial markets. The Fed said the programs, originally scheduled to last through Jan. 30, would be extended through April 30 "in light of continuing strains in financial markets."
As for the bailout plan, auditors cited weaknesses in determining whether institutions that received the money are complying with limitations on executive compensation and dividend payments. For instance, some top executives must repay any incentives that were based on inaccurate financial statements.
"Treasury has not yet determined how it will monitor compliance with this or other requirements such as limitations on dividend payments and stock repurchases," the report states.
Auditors recommended the Treasury work with government regulators to determine whether the activities of financial institutions are meeting their purpose.
In a response, Neel Kashkari, who heads the department's Office of Financial Stability, said the agency was developing its own compliance program and indicated that it disagreed with the need to work with regulators.
So far, the government has pledged to pour $250 billion into banks in return for partial ownership. It also has agreed to provide $40 billion to insurer American International Group. In addition, $20 billion was invested in Citigroup, and another $20 billion went to the Federal Reserve to help ease credit stresses.
Initially, Treasury Secretary Henry Paulson said the money would be used to buy distressed mortgage-related securities from banks. His switch in strategy was criticized by lawmakers as a confusing mix of messages to the public and investors.
Responding to criticism, federal regulators urged banks to use the money they receive from the bailout to bolster lending. The advice, however, isn't legally binding.