Kashkari: Don't Force Bailed-Out Banks To Make Bad Loans

Neel Kashkari -- the $700 billion man, the Treasury official charged with spending the government rescue/bailout -- said his agency is developing tools to measure whether banks that have gotten bailout money are actually lending it rather than hoarding it, as some lawmakers have charged.

"Our banks' role as provider of credit in our economy is even more important now," Kashkari said. "But we must not attempt to force them to make loans whose risks they are not comfortable with. Bad lending practices were at the root cause of this crisis."

Banks receiving bailout funds also have been criticized for using the money to buy other banks, which Kashkari addressed today.

"What about mergers and acquisitions? Why didn't Treasury prohibit them?," Kashkari said, in his speech. "We must remember that when a failing bank is acquired by a healthy bank, the community of the failing bank is better off than if the bank had been allowed to fail."

The whole point of Treasury spending much of the first $350 billion of the bailout by buying directly into banks and infusing them with cash was to get them lending again to individuals and businesses, to help unfreeze credit markets.

But many have not, leaving Treasury in a tough position: The government agency, Treasury Secretary Hank Paulson has said, does not want to -- nor should -- force private banks to make loans.

Kashkari's comments came in a speech at Georgetown University this morning.

You can read the full text of the speech here.

-- Frank Ahrens
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