THE US Treasury should scrutinise banks receiving public capital more closely to ensure the money is being used to support the economy and not hoarded, a watchdog said yesterday.

The Congressional Oversight Panel said the Treasury had not yet adequately answered basic questions about the $700 billion (€537 billion) troubled assets relief programme, including what the administration's strategy was and why this had changed so abruptly from one based on asset purchases to one based on capital injections.

Soon after the legislation was passed, the Treasury announced a plan to invest in bank equity and on November 12th Treasury secretary Hank Paulson said the government was no longer proceeding with the purchase plan.

The panel's report comes amid heated international debate as to how far governments injecting public capital into banks should demand tough terms.

The panel questioned the relatively light-touch US approach, contrasting it with that of the UK, which imposed higher costs and stricter conditions on banks receiving public funds. It questioned whether US taxpayers were receiving a "fair deal" in terms of interest and equity warrants in return for the capital injected. - ( Financial Timesservice)