Can Washington figure out what it wants the banks to do?

There's an interesting article in the Wall Street Journal this morning. It talks about how banks that have received TARP funds are raising rates on various loan products and continuing to push loans that consumer advocates view as toxic. Other recent stories have highlighted how many borrowers continue to be cut off by their banks.

These articles highlight the dilemma in Washington. Policymakers want to ensure the banking system overall returns to health as quickly as possible. But they can't be seen encouraging -- or sitting idly by -- while consumers and businesses get the shaft by TARP-supported institutions (to say nothing of those institutions paying obscene salaries to their executives). It'll be interesting to see how this push-pull situation plays out. Now, more from the Journal ...

"Elizabeth Warren, chairwoman of the Congressional Oversight Panel, the body named by Congress to oversee the federal bailout, said the panel is working on a report examining instances of potentially inappropriate lending by banks that got taxpayer capital. "The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending," Ms. Warren said in an interview. "In a sense, we're asking taxpayers to pay twice."

"Last month, a Senate committee narrowly approved a bill that would rein in many credit-card marketing and pricing policies, including ballooning interest rates. Proponents of the legislation say many of the largest card issuers have received government aid and so should be subject to greater scrutiny.

"Banks say that raising fees and rates, even on low-risk customers, is a legitimate way to recoup some of the costs of the bad loans still on their books. They also say taxpayers have a financial interest in seeing the industry quickly return to profitability. Any revolt over price hikes could intensify the crisis by depriving institutions of a key income source, say banks. New restrictions on these lending practices "may truly have an impact on profitability," said Gerard Cassidy, a bank analyst with RBC Capital Markets.

"The controversy underscores the quandaries of Washington's dual role as owner and overseer of U.S. banks. While shoring up the banking system is a goal of federal regulators and the White House, what is good for the bottom line of banks isn't necessarily good for their customers.

"So far, regulators are focusing mostly on nursing banks back to health. "To my knowledge, the TARP funds weren't supposed to change consumer-protection requirements that apply to all institutions," Comptroller of the Currency John Dugan said in an interview. Mr. Dugan's office oversees most of the nation's biggest banks."