Oct. 29 (Bloomberg) -- Congressional leaders urged Treasury Secretary Henry Paulson to ensure that the government's $700 billion rescue plan is used for its intended purposes: to restore lending to households and businesses.

In a letter today, House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada urged Paulson to put tougher restrictions on severance pay, or so-called ``golden- parachute'' payments, for executives at participating banks.

In addition to executive pay, the Treasury also came under fire from lawmakers for letting banks use their capital injections to make acquisitions, like PNC Financial Services Group Inc.'s Oct. 24 takeover of National City Corp. in Cleveland after receiving $7.7 billion from the government.

``We are concerned that antitrust laws may be ignored in the rush to consolidate,'' wrote Democratic Representatives John Conyers of Michigan and Betty Sutton of Ohio. They asked Paulson and other regulators for more information on how Treasury is weighing bank takeovers.

Treasury spokeswoman Brookly McLaughlin said the rescue program's focus hasn't changed.

Paulson has said that mergers could help community lending as well as the banking system. ``There will be some situations where it's best for the economy and for the banking system for there to be a consolidation,'' he said in an Oct. 22 interview with PBS's Charlie Rose show.

`Failing Banks'

Still, the Treasury is ``not going to use this money to prop up failing banks,'' he added. Paulson cited Wells Fargo & Co.'s planned acquisition of Wachovia Corp. as a combination that's a ``very good thing for the system.''

Pelosi and Reid raised concern about participants in the Treasury's program to inject capital into banks in exchange for an equity stake. Paulson has set aside $250 billion of the rescue program for those purchases.

``News reports have suggested that six major financial institutions participating in the program have plans to pay their executives billions of dollars,'' Pelosi and Reid wrote in the letter. ``Such reports understandably infuriate many Americans.''

They asked Paulson to consider further restrictions on severance payments from healthy institutions that take part in the equity purchase program. The Treasury plan currently imposes stricter golden-parachute limits on ``systemically significant failing institutions'' in the program, according to the letter.

Treasury spokeswoman McLaughlin said that ``every bank that accepts this money must first agree to the compensation restrictions passed by Congress just last month -- and every bank that is receiving money has done so.''

Campaign Comments

Both major-party presidential candidates, Republican John McCain and Democrat Barack Obama, regularly lash out against Wall Street in their campaign speeches.

``I'm going to make sure we take care of the working people who were devastated by the excesses, greed and corruption of Wall Street and Washington,'' McCain, an Arizona senator, said today in Miami.

Obama, while campaigning yesterday, said, ``Wall Street bank executives are set to walk away with billions of bonuses at the end of this year. They might call them bonuses on Wall Street, but here in Pennsylvania we call that an outrage.''

Congressional investigators demanded yesterday that nine big banks justify billions of dollars in pay and bonuses after they accepted $125 billion from the capital-injection program.

In letters to the banks, Representative Henry Waxman, a California Democrat and chairman of the House Committee on Oversight and Government Reform, said they collectively will pay $108 billion in employee compensation and bonuses in the first nine months of 2008, almost the same amount as last year.

Boehner

Separately, House Minority Leader John Boehner, an Ohio Republican, wrote to Paulson today to express concern about rescue money going to fund mergers, raises and bonuses.

``Funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises and executive bonuses,'' Boehner said in his letter.

House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, raised similar concerns at a meeting with business leaders in Boston. He said the Treasury should require banks to use the new money for lending, rather than acquisitions, and he announced plans to hold a Nov. 18 hearing on the topic.

New York Attorney General Andrew Cuomo sent letters to JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and the six other big banks that received the first round of taxpayer rescue funds, demanding bonus information on upper management.

Cuomo asked for a detailed accounting of expected payments to top executives in the ``upcoming bonus season,'' including information on the expected bonus pool for this year, according to a copy of the letters sent today. He requested information on bonuses from before and after the banks knew they would receive funds from the federal Troubled Asset Relief Program.

The six other banks are Goldman Sachs Group Inc., Bank of New York Mellon Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of America Corp. Representatives of the nine firms declined to comment or couldn't immediately be reached for comment.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net.

Last Updated: October 29, 2008 18:02 EDT