FDIC to bailout banks: Where's the money?

In a letter to the more than 5,000 financial institutions it regulates, the FDIC said banks “should implement a process to document how these funds were used” and consider disclosing their findings in their financial statements.

Banks have benefited from a number of government programs designed to bolster their balance sheets and make it easier for them to borrow. The Treasury has spent $188 billion to supply 222 banks with capital through the purchase of preferred shares, according to investment bank Keefe Bruyette & Woods. And the Federal Reserve and FDIC have both created programs designed to make issuing debt easier for financial institutions.

The FDIC wants banks to monitor their use of money from those programs with a particular focus on how they have helped meet “credit needs in their market,” the letter said.

“In particular, the monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures,” the agency said in the letter to banks.

Critics of the government’s assistance to financial institutions say the programs haven’t resulted in more lending to consumers but instead have been used by banks to fuel a wave of takeovers and to shore up balance sheets damaged by risky investments gone sour.

And the proliferation of programs designed to help banks has inspired a rush by other financial institutions to apply for bank holding company status or buy a bank to become eligible.

President-elect Barak Obama has signaled that his administration will seek close oversight over the way the final $350 billion of the Treasury’s bailout money is spent.