The US Treasury should scrutinise banks receiving public capital more closely to ensure the money is being used to support the economy and not hoarded, a watchdog said yesterday.

The Congressional Oversight Panel said the Treasury had not yet adequately answered questions about the $700bn (€538bn, £474bn) troubled asset relief programme (Tarp), including what the administration’s strategy was and why this had changed so abruptly from one based on asset purchases to one based on capital injections.

Soon after the legislation was passed, the Treasury announced a plan to invest in bank equity and on November 12, Hank Paulson, Treasury secretary, said that the government was not proceeding with the asset purchase plan.

The panel’s report comes amid a heated international debate as to how far governments injecting public capital into banks should demand tough terms and try to force them to lend as a condition of this support.

Financial Times