(Update 1: shows Frank’s statement on TARP provisions, released at the time this story was published) With major banks owing billions to executives and some banks stubbornly resisting assistance in capital, House Financial Services Committee chairman Barney Frank (D-MA) announced Friday the committee will hold hearings on the inappropriate use of federal funds. “I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the President’s request to respond to the credit crisis by making funds available for increased lending,” Frank said. “Any use of the funds for any purpose other than lending — for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. — is a violation of the terms of the Act.” Major financial institutions receiving federal capital from the U.S. Treasury Department so far reported owing more than $40 billion in executive compensation as of the end of 2007, according to a Wall Street Journal report Friday. Goldman Sachs Group Inc. (GS) reported $11.8 billion, J.P. Morgan Chase & Co. (JPM) owed an estimated $8.5 billion, and Morgan Stanley (MS) owed from $10 billion to $12 billion. Financial institutions were not required to report the size of debts to their executives – Goldman being the exception – but the Journal reported that it calculated them by extrapolating from figures that the firms did disclose. In HousingWire‘s recent coverage of a letter sent Tuesday to the nine major banks, Henry Waxman (D-CA) expressed concern that the group has already spent or reserved $108 billion for employee compensation and bonuses thus far in 2008; he noted that this year’s total was “nearly the same amount as last year,” clearly alluding to the worsening state of U.S. banking in 2008 versus one year earlier. “Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds,” he wrote. Waxman requested full compensation details from each of the banks, including all employees paid more than $500,000 in total compensation during each of the past two years. The House Committee on Oversight and Government Reform chair did not announce a formal hearing on the issue at the time, but Frank announced Friday hearings will take place in November. “On Nov. 12 and Nov. 18 the House Financial Services Committee will hold oversight hearings on legislation Congress has passed to cope with the financial crisis,” Frank said. “It is very important if Congressional and public support for this program is to continue that we receive assurances at those hearings that the money being advanced will be used only for relending and for no other purpose.” Other concerns regarding banks in receipt of federal funds have circulated recently, culminating in a move earlier this week by White House officials to encourage banks to stop hoarding funds and start lending to American consumers and businesses. “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America,” said White House press secretary Dana Perino during a press conference Tuesday, in response to a reporter’s question about banks hoarding capital. “And banks exist to lend money; that’s how they make money. After much White House scrutiny, some banks are planning to use new capital to make loans, according to a Friday report by the Wall Street Journal. “We do expect to start deploying it almost immediately,” Doyle Arnold, CFO of Zions Bancorp (ZION), told the Journal. Arnold predicted in mid-October the federal injections probably would have a muted impact on lending, according to the Journal. The Salt Lake City-based lender, which holds $54 billion of assets and more than 500 branches, “basically shut down” lending operations in the third quarter because of capital levels, Arnold told the Journal. Zions, which will receive $1.4 billion in TARP funds, now plans to lend out “several hundred million dollars” by the end of 2008. But not all banks are as cooperative. The New York Times reported the American Bankers Association complained on Thursday that bankers were “extremely upset” by the Treasury’s forced capital injections of billions of dollars. “These bankers believe they are being asked — in some cases pressured — to participate in a program they did not want and do not need,” wrote ABA president Edward L. Yingling in a letter to Treasury secretary Henry M. Paulson Jr., according to the Times. Yingling said he had “deep concerns with the lack of clarity about the program.” But Treasury officials have been clear on one point: Federal funds are intended for lending purposes, a sentiment praised Friday by Frank. “I appreciate the fact that the secretary of the Treasury has re-emphasized that increased lending activity is the only legitimate purpose for taxpayer funding of these institutions,” Frank said. “He must make it absolutely clear to any participating entity that the federal government will insist on compliance.” Write to Diana Golobay at [email protected]. Disclosure: The author held no positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.