WASHINGTON - A US congressional panel on Friday sharply criticised the Treasury for its handling of a $700 billion (S$1 trillion) financial bailout fund, as lawmakers moved to demand more transparency and accountability.

The panel tasked with scrutinising the operations of the Troubled Asset Relief Programme or TARP fund said it was in the dark about how some ailing banks which received swift cash infusions were utilizing the aid money.

It also questioned the Treasury's basic strategy of using the public funds and apparent failure to ease the home mortgage crisis at the epicenter of the global financial meltdown.

The panel also slammed the Treasury for failing to complete answers or address numerous questions over the bailout operations, saying there appeared to be 'significant gaps' in monitoring use of taxpayer money.

'The panel's initial concerns about the TARP have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury,' said the 65-page report by the panel led by Harvard Law professor Elizabeth Warren.

About $350 billion from the mammoth fund has so far been allocated, mostly to ailing banks as well as automakers, and insurance and credit card companies, among others.

The oversight panel, which includes lawmakers from both sides of the political divide, 'still does not know what the banks are doing with taxpayer money', the report said.

'So long as investors and customers are uncertain about how taxpayer funds are being used, they question both the health and the sound management of all financial institutions,' it said.

Certain private financial institutions have refused to provide any accounting of how they were using taxpayer money, a move the panel said 'undermines public confidence'.

'For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore,' the report said.

But the White House defended the decisions of the Treasury, whose chief Henry Paulson, a former top Wall Street banker, has been spearheading the Bush administration's efforts to contain the financial turmoil.

'The Treasury Department has been balancing the urgent need to act quickly while also adhering to the most rigorous oversight ever imposed,' said White House spokesman Scott Stanzel.

He noted that Congress had given very broad authority to the Treasury Department to deal with 'a challenge the likes of which we have never seen'.

'I think that the Treasury Department has acted swiftly to try to get this money out the door to try to stabilise the financial system, and at the same time deal with the reporting requirements and the oversight requirements.'

Lawmakers meanwhile are preparing legislation to make the Treasury more accountable for its handling of the remaining portion of the bailout funds.

The plan will 'strengthen accountability, close loopholes, increase transparency, and require Treasury to take significant steps on foreclosure mitigation', said Mr Barney Frank, a Democratic lawmaker heading the House of Representatives' financial services committee.

The planned legislation further required the Treasury to also consider giving smaller community financial institutions similar aid on the same terms as large institutions that received funding. -- AFP