WASHINGTON — Lawmakers pressed the Treasury Department Thursday to let the Troubled Asset Relief Program expire as planned at the end of the year, but it appeared unlikely the administration would give in.
Several panel members, mostly Republicans, said Tarp had accomplished its goals.
"The Tarp should not be extended," said Sen. Richard Shelby, the lead GOP member of the Senate Banking Committee, at a hearing on the coming one-year anniversary of the program, "We must remain mindful of the original intent, market stability. The administration, I believe, should not pursue policy objectives that are unrelated to that goal."
In response, Herb Allison, the Treasury's assistant secretary for financial stability, declined to say whether the administration will extend the program.
"That's a determination the secretary of the Treasury will make later on this year … I know he is going to look at measures on the economy … when he makes that decision," Allison said.
Still, his commentary appeared to indicate a reluctance from the Treasury to let the program expire. Under the law that created Tarp, Treasury has the power to extend it until Oct. 3, 2010, if economic conditions warrant. Several lawmakers argued the economy has improved, and said it was time for the program to sunset.
"It was clearly sold over and over in light of absolute collapse of the financial sector … that threat has passed," said Sen. David Vitter, R-La. "The sort of threat to the financial sector is minuscule to nonexistent right now so what would be the rational for extending Tarp in light of that clear argument under which that it was sold?"
Allison said despite the improvements, there are still troubled areas in the economy, such as the commercial real estate market, growing foreclosures and unemployment.
Vitter rejected those arguments, saying he was worried Tarp would become permanent.
"There are going to be areas, troubled areas in virtually any economy," he said. "I share the concern of a lot of Americans that this is creeping into status quo and a much higher level of government involvement in the marketplace."
But Allison insisted the program would only be temporary.
"This government does not have any interest in maintaining long-term shareholder, long-term investments in banks," he said. "We'd like to see this wound down as soon as possible given the need to return to financial stability."
Whether Democrats will push for Tarp to expire is unclear. Senate Banking Committee Chairman Chris Dodd would not indicate whether he supported an extension, but he acknowledged the Republicans' concerns and said he also did not want the program to become permanent.
"I don't disagree this cannot be a permanent program," Dodd said. "This can't be seen as a permanent program."
Still, he noted continued bank failures and rising foreclosures.
Industry representatives have said the Treasury is already working on a plan to allow Tarp to help more community banks. The program has been viewed as primarily benefiting the largest institutions.
Speaking to reporters Wednesday, House Financial Services Committee Chairman Barney Frank said more community banks might get Tarp money soon. When asked if Tarp would be extended, the Massachusetts Democrat said "of course."
The Tarp program has always been controversial. During a vote in the House last year, it unexpectedly failed after many lawmakers viewed it as a reward to the institutions that had caused the crisis. Since then, the program has changed its focus from buying up bad assets to injecting capital into banks.
Some parts of Tarp are winding down. Banks have repaid $70 billion in capital to the Treasury and the administration expects another $50 billion to be repaid within 18 months. The Treasury is letting other programs, like a guarantee program for money market mutual funds, expire on time.
At the hearing, lawmakers criticized the Treasury for the unfinished business of Tarp, including cleansing toxic assets from banks, ramping up loan modifications and implementing a small-business lending program. The Treasury has introduced a Public-Private Investment Program but so far failed to implement it.
"My fear is banks are not willing to bite the bullet," said Sen. Mark Warner, D-Va. Banks have not wanted to participate in a toxic asset plan for fear of forcing more writedowns, he said. Warner also said small-business lending has been one of the casualties of the crisis.
Allison said the administration is working on a new program to help small business finance but provided no further details.
Several Democrats argued that a program to modify mortgages, begun last spring, has not kept pace with rapidly growing foreclosures. "My patience is quickly dissipating," said Sen. Jeff Merkley, D-Ore.
Allison said the administration is set to meet its target of 500,000 trial modifications by November, and said he plans to meet with servicers again next month to discuss their efforts.
"I think the progress has actually been good," Allison said. "Are we where we want to be? No, we all have to do a great deal of work to get there."
Overall, Dodd said Tarp has been effective.
"Do I share the anger and frustration that many Americans felt and continue to feel that Wall Street greed and regulatory neglect left taxpayers on the hook? Absolutely," Dodd said. "But am I also proud of the hard work we did a year ago to protect taxpayers and introduce some accountability into the stabilization program."