Has Citigroup Inc. found a way to muzzle lending critics? The ailing bank has created a special committee to allocate the $45 billion (Rs2.19 trillion) of capital injected by the US government late last year—and on Tuesday released the first of its quarterly progress reports detailing how it’s being used. That’s a helpful step.
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But it has been a while coming. Banks have, in general, been pretty lethargic at addressing growing concerns about how they’re deploying, or not, taxpayers’ money. Many, in fact, initially appeared to thumb their noses at former treasury secretary Hank Paulson’s plea that they lend rather than hoard the cash.
That was understandable to an extent: Paulson gave no guidelines and the last thing banks ought to be engaging in is a rash of forced lending into a deleveraging economy in the middle of a recession with house prices still falling. But as the scale of government intervention grew, so did the calls for banks to lend—and the need for banks to respond.
More to do: Citi’s headquarters in New York. The bank has hived off the cash it got under the Troubled Asset Relief Programme to a committee. Jeremy Sparig / Bloomberg
Citi’s disclosures go some way in doing that. It has hived the Troubled Asset Relief Programme (TARP) cash off to be controlled by the committee. And it is making a rather pointed effort to direct loans at markets suffering most from the credit and liquidity crisis—such as mortgages, including so-called jumbo mortgages that cannot be sold to Fannie Mae and Freddie Mac, student loans and credit card loans.
Granted, it’s a tad simplistic. Citi might have extended these loans anyway. And there’s no mention of how much could be lent in total—assuming a conservative 10 times leverage multiple Citi’s TARP capital would be good for $445 billion of loans; so far it has lent $36.5 billion.
But arguments that banks aren’t lending enough are also simplistic: Some critics have seized on data showing a drop in overall bank lending of 1% or 2% as proof TARP has failed. But that’s actually a pretty robust figure compared to other recessions—lending plummeted 11% in the fourth quarter of 2001.
Much as it smacks of a PR exercise, Citi’s TARP scorecard may well win over some critics. But it won’t silence those who assume only an absolute increase in lending is a success.