Despite numerous reports that the TARP program had stabled U.S. financial institutions, a new congressional watchdog report has been published asserting that many banks are still holding onto billions of dollars in bad loans. The report claims that a sharp rise in unemployment or a drop in the real estate values could cause the entire banking system to loose its footing once again.
“In its latest assessment of the $700 billion financial system bailout, the Congressional Oversight Panel warns that banks still hold many risky loans of uncertain value. If unemployment rises sharply or the commercial real estate market collapses - as many economists fear - the banking system could again lose its footing, the panel says in a report to be released Tuesday.”
"The financial system (remains) vulnerable to the crisis conditions that (the bailout) was meant to fix," the panel wrote in a draft copy of Tuesday's report.
The Congressional Oversight Panel was created as part of the Troubled Asset Relief Program, or TARP. It is designed to provide an additional layer of oversight, beyond the Special Inspector General for the TARP and regular audits by the Government Accountability Office.
The report says many of the Obama administration's financial stability efforts are working - including infusions of new capital for banks, heightened scrutiny of capital ratios, "stress-testing" of large financial firms. It also pointed to a public-private investment plan designed to buy up bad assets that has yet to get off the ground.