WASHINGTON — The chairman of the House Financial Service Committee accused financial institutions on Friday of "distorting" the government's $700 billion economic bailout plan by using funds for bonuses, dividends and acquisitions.
Rep. Barney Frank, D-Mass., said such uses of the funds are a "violation of the terms of the act."
Frank joins a growing chorus of lawmakers on Capitol Hill who are criticizing the Bush administration over management of the bailout plan.
Nine banks have received a $125 billion stock investment from the Treasury Department. The law contains some relatively weak limits on compensation, but does not prohibit recipients of Treasury investments from paying dividends to investors, making acquisitions or awarding bonuses.
Treasury Secretary Henry Paulson has said the capital infusion's purpose is to persuade banks to do more lending. Frank said the money should be used for "relending and for no other purpose."
The White House defended the plan on Thursday, noting the Treasury investment will lead to more lending and pay dividends to the government.
On Wednesday, the top House Republican and the Democratic leaders of the House and Senate sent letters to Paulson following reports on how the bailout funds may be used.
"Funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises and executive bonuses," wrote House Republican leader John Boehner of Ohio.
House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., wrote "to express concern about the level of compensation" for top executives at banks set to receive bailout dollars.