Feb. 11 (Bloomberg) -- Banks taking government aid to stay solvent must accept tougher business restrictions and disclose more about their operations under a new financial rescue plan announced yesterday by Treasury Secretary Timothy Geithner.

Guidelines for transparency and accountability exceed those in the program devised by Geithner’s predecessor, Henry Paulson. Barack Obama’s administration has promised more oversight to make sure bailed-out banks use government money to increase lending. The plan also includes restrictions on acquisitions, dividends, and executive pay.

Still, only time will tell how successfully such requirements can be enforced and whether, in practice, the rules turn out to be as tough as they sound.

“The new conditions are all sensible,” said former Labor Secretary Robert Reich. “But the proof is in the pudding.” Reich, a professor at the University of California in Berkeley who was an informal adviser to Obama’s campaign, said “the real question” will be “how tightly these regulations are going to be put into effect.”

The new plan’s accountability provisions don’t explicitly give the Treasury authority to fire bank executives who misuse taxpayer money. Geithner, 47, told Bloomberg Television yesterday that “we have done it already, and we would do it again” when appropriate.

Nader’s View

Geithner “didn’t put it in writing,” said consumer advocate Ralph Nader. Unless the government has the power to remove executives, Nader said, “there’s no chance here of success.” So far, just Fannie Mae, Freddie Mac and American International Group Inc. have had their chiefs fired after receiving government bailouts.

Public anger at institutions that continued to provide employees with lavish compensation and perks after accepting government funds has prompted the new bank restrictions and disclosure requirements.

Chief executive officers of eight of the biggest U.S. banks may get a grilling on their compensation packages when they appear before the House Financial Services Committee today. The hearing begins at 10 a.m. in Washington.

Paulson’s initial $250 billion round of capital injections was aimed at “healthy” banks and put few restrictions on what banks did with the money. Banks that received exceptional assistance did face additional requirements and oversight. So far, more than 360 banks have signed up for infusions ranging from $1 million to $25 billion.

Geithner Plan

The main components of Geithner’s Financial Stability Plan, which he outlined in a speech at the Treasury, are a joint public- and private-sector fund to buy as much as $1 trillion of illiquid bank assets and a $1 trillion program to supply new credit to consumers and businesses. The administration also will inject additional taxpayer funds into banks.

“Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses,” Geithner said. “As we do each of these things, we will impose new, higher standards for transparency and accountability.” Geithner criticized the original Paulson plan for “limited transparency.”

Banks that negotiate “exceptional assistance” deals with Treasury, such as the targeted relief provided to Citigroup Inc. last November or to Bank of America Corp. in January, will be required “to show how every dollar of capital they receive is enabling them to preserve or generate new lending,” Treasury’s announcement said.

Salary Limit

Executives at those banks can’t be paid more than $500,000 a year in salaries and bonuses. Additional compensation can be made in the form of restricted stock, providing the possibility of larger future paydays.

To better inform the public about how banks use government funds, the Treasury set up a Web site, called http://www.financialstability.gov, where it plans to post information disclosed by the banks participating in the plan.

Such information from hundreds of banks accepting government funds may be overwhelming, Nader said. The government doesn’t have the resources to properly monitor the banks, rendering disclosures and other conditions a “wish list,” he said.

The results of “stress tests” that Treasury will administer to test the banks’ vulnerability to shocks, won’t be made public.

Fed Disclosure

The Federal Reserve, which has also been criticized for not disclosing the assets it holds in its various lending facilities, is also promising greater transparency.

At a House Financial Services Committee hearing yesterday, Fed Chairman Ben S. Bernanke indicated the central bank may disclose more information about emergency lending programs that have swelled the Fed’s balance sheet to about $2 trillion.

Bernanke said he initiated a review, to be led by Vice Chairman Donald Kohn, with a “presumption” that the public has a right to know and that “nondisclosure of information must be affirmatively justified by clearly articulated criteria for confidentiality.”

Massachusetts Representative Barney Frank, the Democratic chairman of the House committee, told Bernanke that “zero negatives have resulted” from past increases in Fed disclosure. Kohn, in testimony before the committee last month, declined to provide information on recipients of Fed loans.

“I hope, in this study of openness, that it will be completed quickly and that you’ll put very severe tests against these claims,” Frank said during the hearing.

To contact the reporters on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net; Rebecca Christie in Washington at rchristie4@bloomberg.net.

Last Updated: February 11, 2009 08:25 EST