Obama Says He’ll Seek ‘Accountability’ for Bank Aid

President Barack Obama said he’ll demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators.

“We’ll try to use as light a touch as we can, but I’m not going to simply put taxpayer money into a black hole where you aren’t going to see results or some exit strategy so the taxpayers ultimately are relieved of these burdens,” Obama said at a news conference today in Trinidad and Tobago as he wrapped up his first Summit of the Americas.

The U.S. Treasury and financial regulators have set a May 4 deadline for disclosing results from the stress tests of 19 U.S. financial companies including Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc., GMAC LLC and MetLife Inc. The tests are being used to determine whether the firms have enough capital to cover losses over the next two years should the economic downturn worsen.

Obama said he didn’t want to speculate ahead of the stress tests and that he hasn’t seen them all yet. He declined to say whether the government would seek management changes at firms needing more funds.

The stress tests will show “different banks are in different situations,” Obama said today. “They are going to need different levels of assistance from taxpayers, and as I’ve said before, if taxpayer money is involved I’ve got a responsibility to ensure some transparency and accountability.”

Private Markets

Banks that require additional capital will first have to rely on private markets, National Economic Council Director Lawrence Summers said today on NBC’s “Meet the Press” program.

“The first resort for more capital is going to the private markets directly to raise equity,” he said.

Summers, Obama’s top economic adviser, said options for adding private capital go beyond issuing new stock to investors and include “so-called asset-liability swaps that would have the effect of perhaps diluting some shareholders, but also fortifying the level of capital.” He didn’t elaborate.

Treasury at the end of last month had allocated $328.36 billion under the Troubled Asset Relief Program, leaving $134.5 billion for additional capital injections.

The Obama administration probably won’t seek more federal funds to help capitalize banks, White House chief of staff Rahm Emanuel said today.

“I believe we won’t” have to request additional funds from Congress, he said on ABC’s “This Week” program. “But I haven’t seen the stress tests,” he added.

‘Positive Indicator’

Recent economic data have shown improvements in the economy “after a period when there was literally no positive indicator to be found.” Summers said today.

Even so, “We’ve got a long way to go in terms of supporting this economy,” he said. “There are still substantial risks.”

U.S. stocks rose last week, sending the Standard & Poor’s 500 Index to its steepest six-week gain since 1938, as profits at Goldman Sachs and JPMorgan ignited a rally in bank shares. The S&P 500 has surged 29 percent since reaching a 12-year low on March 9, posting its first six-week gain since May 2007.

A consumer confidence report last week showed signs the longest U.S. recession since World War II may be easing. An improvement in sentiment may help stem the slide in consumer spending, which accounts for 70 percent of the economy, and boosts the odds the recession will end this year.

Some of the biggest U.S. banks are already planning to give the government aid back. Goldman Sachs and JPMorgan both pledged this month to repay the TARP funds after posting profits that exceeded analysts’ expectations. Goldman Sachs received $10 billion in government rescue funds and JPMorgan got $25 billion.

Summers said that while the administration welcomes repayment, “We don’t want people to be paying back the government in ways that would put themselves right back in trouble, and leaving themselves with inadequate capital.”