WASHINGTON  – The official in charge of the Treasury’s $700 billion bailout program for the financial sector warned Congress that the government should not force banks to make loans that bankers may deem risky.

Neel Kashkari, interim assistant secretary for financial stability at Treasury, told a congressional oversight panel Wednesday that bad lending practices were at the root of the financial crisis and cautioned Congress not to “micromanage” institutions that receive government funds.

“However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities,” he said.

Kashkari, who was put in the job under the Bush administration, testified amid growing impatience among members of Congress who want to see evidence that the taxpayer money is actually loosening credit markets.

Lawmakers on a subcommittee of the House Oversight and Reform Committee voiced frustration with what they said was a continued lack of clarity from the Treasury on how banks were spending money they have received under the Troubled Asset Relief Program. Under the program, the federal government has used more than $300 billion in taxpayer money to infuse financial institutions with cash, much of it by purchasing preferred stock and other assets.

Subcommittee chairman Dennis Kucinich, D-Ohio, complained that at least three financial institutions that have received TARP money – Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase and Co. – have made foreign investments.

“If the banking system is in serious enough trouble to require massive amounts of federal support, shouldn’t that federal support be channeled to the domestic economy?” Kucinich asked.

The misgivings were bipartisan.

“We don’t know if $300 billion has changed anyone’s behavior,” said Rep. Darrell Issa, R-Calif.

Kashkari said Treasury has used the TARP’s capital purchase program to invest an average of $16 million in 489 banks. He said the program was making about 30 new investments a week. At the same time, several banks have indicated a desire to pay back the federal funds early, citing the number of government restrictions that the Obama administration has attached to the capital injections and the
fear that other limits may be added.