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U.S. bailout money greatly aided foreign banks, report says

WASHINGTON — The $700 billion U.S. bailout program launched in response to the global economic meltdown had a far greater impact overseas than other countries' financial rescue plans did on the United States, according to a new report from a congressional watchdog.

Billions of dollars in U.S. rescue funds wound up in big banks in France, Germany and other nations. That was probably inevitable because of the structure of the Treasury Department's program, the Congressional Oversight Panel said in a report issued Thursday.

The U.S. program — known as the Troubled Asset Relief Program, or TARP — aimed to stabilize the financial system by injecting money into as many banks as possible, including those with substantial operations overseas. Most other countries, by contrast, focused their efforts more narrowly on banks in their nations that usually lacked major U.S. operations.

But the report said that if the United States had gotten more data on which foreign banks would benefit the most, the government might have been able to ask those countries to share some of the cost.

"There were no data about where this money was going," panel Chairwoman Elizabeth Warren said. "The American people have a right to know where the money went."

An example: Major French and German banks were among the biggest beneficiaries of the U.S. rescue of American International Group, yet the American government shouldered the entire $70 billion risk of pumping capital into the crippled insurance titan. The report compares that with the $35 billion that France spent on its overall financial rescue program and the $133 billion that Germany spent.

Much of the $182 billion in federal aid to AIG — the biggest of the government's rescues — went to meet the company's obligations to its Wall Street trading partners on credit default swaps, a form of insurance against default of securities. The partners included French banks Societe Generale and BNP Paribas, who received $11.9 billion and $4.9 billion in AIG money, and Germany's Deutsche Bank, which received $11.8 billion.

Of the 87 banks and financial entities that indirectly benefited from the U.S. aid to AIG, 43 are foreign, according to the report. In addition to France and Germany, they include banks based in Canada, Britain and Switzerland.

The report also noted that in addition to AIG, many of the U.S. banks and automakers that received billions in bailout aid derive a large proportion of their revenue from operations outside the United States.

The watchdog panel has said it's unclear whether U.S. taxpayers will ever fully recoup the cost of the AIG bailout. The Congressional Budget Office estimates that taxpayers will lose $36 billion.

Although the law creating the U.S. rescue program called for the Treasury to coordinate its actions with similar efforts by foreign governments, "the global response to the financial crisis unfolded on an … informal, country-by-country basis," the new report says. "Each individual government made its own decisions based on its evaluation of what was best for its own banking sector and for its own domestic economy."

The U.S. program wound up injecting capital into about 700 banks, while all other governments combined aided fewer than 50, according to the oversight panel.

U.S. bailout money greatly aided foreign banks, report says 08/12/10 [Last modified: Thursday, August 12, 2010 8:23pm]
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