US banks face probe over rate rises

NEW YORK - The United States banks that took bailout money from the federal government are fighting a new battle to limit political interference in their lending decisions, after receiving criticism for raising interest rates and customer charges.

The congressional appointee overseeing the use of taxpayer money under the US$700 billion Troubled Asset Relief Programme, or Tarp, said she was investigating whether companies including Citigroup and Bank of America were exploiting customers and whether taxpayers were, in effect, "paying twice" to bail out the banks.

But banks immediately launched a rearguard action in defence of their new charges, saying that they were responding to economic conditions and working to restore their businesses to sustainable profitability.

Elizabeth Warren, chairwoman of the Congressional Oversight Panel set up to monitor the use of bailout money, said she would publish a report detailing instances of potentially inappropriate lending practices by recipients of Tarp funds.

More than 400 banks have received capital from the government since Tarp was launched after last year's financial panic.

Because private funding sources for banks dried up, and banks were sitting on trillions of dollars of potential bad loans already, the amount of lending they made available to consumers and to businesses also dried up, exacerbating the recession.

- INDEPENDENT