January 19, 2009

Obama to demand lending increase

A key economic adviser to Barack Obama said the new administration expects U.S. banks to increase lending as a condition for receiving government aid.

Speaking on CBS's Face the Nation, Lawrence Summers, the oncoming director of the National Economic Council, said banks using government assistance would be expected to lend above their baseline levels," Financial Times reported Monday.

On ABC's This Week program, another Obama adviser, David Axelrod said, we want to see credit flowing again. We don't want them to sit on any money that they get from taxpayers.

Some speculate that Obama would soon seek to create a bank to purchase frozen assets now on financial firms' books, the Times reported.

On Friday, outgoing Treasury Secretary Henry Paulson Jr. backed the idea of an aggregator bank, which would mirror the strategy he first proposed for the $700 billion bailout plan passed in October.

After the plan passed, Paulson switched the focus to buying equity in troubled companies rather than toxic assets.

Summers said the proposed $825 billion federal spending package was one phase of Obama's plan for an economic recovery.

That plan, he said, would affect the economy almost immediately.