04/19/2012 06:48 pm ET

TARP Bailout Watchdog: 'We're Letting Our Guard Down' Against Too-Big-To-Fail Banks

The likelihood of another financial crisis and subsequent bailout is far from dead. And that's partly because Americans and the financial community forgot what the last one was like, at least according to the watchdog charged with overseeing the 2008 financial bailouts.

"We are letting our guard down against things like moral hazard and 'too big to fail' banks," Christy Romero, the special inspector general for TARP told the Wall Street Journal. "And that causes me great concern."

This isn't the first time Romero has come down hard against the banks. A SIGTARP report from late last year found that Bank of America and other large banks left the TARP program early in order to avoid restrictions on executive pay. Nor is she alone in her criticism. Just this month, Dallas Fed President Richard Fisher made headlines when he called to break up the nation’s biggest banks.

Romero argues that both Americans and the financial community have grown complacent due to discussions of financial stability, profitably and repayment of the TARP funds. Romero was also critical of the Treasury Department's claims that TARP achieved its goals because taxpayers will ultimately profit from the program, calling that "a microscopic view" that misses "the big picture"

Romero's office has already offered up criticism of the bailout, taking issue with a program funded with TARP money that's meant to help needy homeowners. One problem: it isn't.

TARP, which pumped $700 billion to banks and other financial institutions, has both been heralded as saving the economy from financial meltdown and criticized as a taxpayer-funded bailout that propped up those most responsible for the financial crisis. So far, $300 billion of the money has been returned, according to ProPublica, with 300 of the 926 recipients returning their money in full, and 40 recipients returning the money in part.

Romero's concern about moral hazard, or the notion that an institution will take on more risk if it doesn't have to bear all of the losses, has been backed up by research. Banks that received bailout funds are taking more risks than those that didn't get taxpayer money, according to a Federal Reserve paper released last month.

TARP-funded banks have also been lending less than those that didn’t get the money, the study found, undermining one of the main arguments for TARP: That by propping up big banks, the government would be able to keep the credit flowing.