The rationale of the TARP bailout’s “capital-injection program” — providing banks with capital that will increase loans to consumers and businesses — has apparently been forgotten by the 20 largest banks that received TARP money. A Treasury Department survey has found that lending in the last quarter of 2008 was stagnant, or even slightly declined, despite $250 billion in capital-injection funds.

The Wall Street Journal:

Some of the largest recipients of aid from the government’s $700 billion financial-rescue plan didn’t increase lending to consumers and businesses in the last three months of 2008, the Treasury Department said.

A Treasury survey of the 20 largest banks that have received funds through the government’s $250 billion capital-injection program disclosed that lending in the last quarter of 2008 was stagnant or declined slightly.

“Due to decreasing loan demand and tighter underwriting standards, as well as other factors such as charge-offs, or losses written off on loans, banks reported a general trend of modestly declining total loan balances,” the Treasury said in the report released Tuesday.

The survey, the first in a series of monthly reports the Treasury will release, is the most detailed picture yet of what the largest U.S. banks are doing with the billions of taxpayer dollars they have received through the Troubled Asset Relief Program.

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