WASHINGTON (MarketWatch) -- A key oversight panel released a report Wednesday seeking to have the Treasury Department provide details about how financial institutions receiving capital from a $700 billion bailout are using the money.

"The oversight panel believes the public has the right to know how financial institutions that have received public money are using that money," according to a report produced by the Congressional Oversight Panel for Economic Stability. "It also believes that Treasury should be responsible for holding individual institutions accountable for how they use public's money."

At issue is the governance surrounding how the Treasury Department is spending $700 billion in bailout funds for banks. The report was released at a hearing held Wednesday by House Financial Services Committee Chairman Barney Frank, D-Mass. Frank said he expects to hold a hearing either later this year or early next year to hear testimony from executives of banks receiving bailout funds. The timing of the hearing will be based, in part, on whether or when the Treasury Department seeks the second half of the bailout fund. See the report.

“ 'Treasury should be responsible for holding individual institutions accountable for how they use public's money.' ”

A GOP-nominated panel member, Rep. Jeb Hensarling, R-Texas, said he was happy with many of the questions addressed in the report, but that he has concerns about whether the oversight panel is allocating its own resources effectively. He expects the panel will have a series of hearings on the bailout funds to examine, in part, why certain financial institutions received capital injections while others haven't.

"I am concerned about how Treasury adopts policies that could delay the recovery of our housing market at exactly the wrong time," he added.

The report acknowledges it is a "difficult challenge" for Treasury to identify how financial institutions receiving government-capital injections are being used, because "systemic economic effects take time to manifest themselves." In the report, the oversight panel says that because other government agencies, such as the Federal Deposit Insurance Corp. and the Federal Reserve, have their own separate programs in place to encourage financial institutions to lend, it is difficult for Treasury to track the specific impact of the funds provided as part of the $700 billion package.

In addition, the report calls on the Treasury to provide details why it is opposed to a plan introduced by FDIC Chairwoman Sheila Bair, which would use $24.4 billion of the bailout fund to assist lenders to modify mortgages as a plan to avert foreclosures. Harvard Law School professor Elizabeth Warren is chairwoman of the oversight panel.

Accountability

The Treasury should obtain and provide some details about the lending plans of participating financial institutions, according to Consumer Federation of America researcher Barbara Roper. "Pressure is being brought to bear on Treasury to be a lot more accountable for how they are spending this money," she said.

Defending governance of the government's plan, Assistant Treasury Secretary Neel Kashkari told lawmakers Wednesday that the department is working with other banking regulators to obtain quarterly reports of participating financial institutions and "what else we need" to identify the extent to which lending is taking place.

Frank and other lawmakers expressed concern about both the conclusion of the congressional panel's report and a study released last week by the Government Accountability Office that raised some issues as well.

Treasury should take steps to provide details about lending, Frank told Kashkari, so that he could be better prepared to defend release of the second half of the funds to Treasury, should it be requested. "Whether or not there is a successful attempt to draw down the second $350 billion will be based on whether there are attempts to limit mortgage foreclosure, other consumer matters and showing that there is some way of counting how the funds are being used," the legislator said.

Several lawmakers were worried that Congress was not moving to oversee some of the recent actions taken by the Federal Reserve to limit the financial crisis.

For example, the Treasury announced a program Nov. 25 that would use $20 billion of the funds to back a consumer-lending facility to be run by the Federal Reserve Bank of New York to provide liquidity to consumer loans, such as student loans and credit cards.\

"We in Congress will be negligent if we only focus on TARP [the Troubled Asset Relief Program] and not the actions taken by Federal Reserve," Hensarling said.

More help for homeowners

Some lawmakers expressed a desire for Treasury to establish additional programs to help homeowners. Rep. Carolyn Maloney, D-N.Y., said she has been receiving lots of support for an idea reportedly floated by the Treasury department that would use government funds to cut mortgage rates for new loans for homes to as low as 4.5%, roughly 1 percentage point lower than current rates. "My phone has rung off the hook with people calling in support of it," Maloney said.

Harvard Law School professor Elizabeth Warren, chairwoman of the governance panel, testified at the hearing that she wasn't resistant to the idea of helping out new homebuyers with a 4.5% rate, but that lawmakers should also focus energy on assisting existing borrowers to refinance their existing loans.

Warren said lawmakers may want to revive efforts to change bankruptcy law and let judges adjust the terms of mortgages. In September, many Democrats sought unsuccessfully to include bankruptcy law modification as part of the larger $700 billion bank bailout package that passed Oct. 3.

Should lawmakers consider the measure again, it would give judges the authority to modify mortgages such as reduce principal or interest rates or lengthen the amount of time to pay back the mortgages. "We have to think about who will be the beneficiary of these measures," Warren said.

Maloney added that lawmakers are considering introduction of legislation that would require Treasury to use $24.4 billion of the remaining bank bailout funds to employ Bair's mortgage modification proposal. The measure would require Treasury to implement the mortgage modification package to gain congressional approval to use the remaining $350 billion in funds.

The report also calls on Treasury to provide details why it is opposed to a plan introduced by Federal Deposit Insurance Corp. Chairwoman Sheila Bair that would use $24.4 billion of the bailout fund to assist lenders to modify mortgages as a plan to avert foreclosures