Treasury Secretary Can’t Really Define ‘Financial Institution’

By Susan Jones | November 18, 2008 | 10:54 AM EST

Treasury Secretary Henry Paulson, left, and Federal Reserve Chairman Ben Bernanke arrive on Capitol Hill on Tuesday, Nov. 18, 2008, to testify before the House Financial Services Committee. (AP Photo/Evan Vucci)

( - What is the definition of a financial institution under the Troubled Assets Relief Program (TARP), Treasury Secretary Henry Paulson was asked on Tuesday. He couldn’t give a specific answer.
Rep. Jeb Hensarling (R-Tex.), a member of the House Financial Services Committee, told Paulson he recently read about a group of plumbing contractors who were applying for TARP funds. They wanted to use the money to refurbish foreclosed properties, and they made the case that doing so qualified them as a financial institution.
“And so in your mind, since you are essentially in charge of disbursing the funds, can your give me a clearer, black-and-white definition of what a financial institution is?” Hensarling asked Paulson.
“Congressman, I can’t,” Paulson responded. “We have a broad definition, we got very broad authorities and powers [from Congress], and I think that’s appropriate. But we certainly are not going to give money to plumbing contractors, and we’re not going to give money to a lot of other people and institutions that are applying.”
Paulson said he feels a “great responsibility to stick with” the purpose of the TARP, which is “stabilizing and strengthening our financial system,” he said. “And I’ve said to you very clearly that I believe the auto companies fall outside that purpose.”
Paulson insists that TARP funds are aimed exclusively at the financial system. “That’s what the purpose is,” he said.
“In terms of autos, I have said repeatedly, I think it would be not a good thing – it would be something to be avoided – having one of the auto companies fail, particularly during this period of time.”
Paulson said any solution must lead to the “long-term, sustainable viability” of the auto companies. He said there are other ways to deal with the auto industry, but he did not elaborate.