The chairman of the congressional watchdog panel overseeing the TARP says the bailout fund is not intended for job-creation program and thus should not be used for them, as the Obama administration is reportedly now considering.
"The original language has real specificity about the way money can be used; the money has to go into the banking system," Congressional Oversight Panel (COP) chair and Harvard Law school professor Elizabeth Warren told CNBC's "Squawk Box."
If money were to be authorized and spent in job creation, "Congress has to make that decision," added Warren, who's committee released its latest monthly report on TARP earlier today.
The Obama administration plans to announce on Wednesday that it intends to extend the life of the $700 billion financial bailout fund until next October, sources told CNBC Tuesday.
An administration official told CNBC that it will dedicate $175 billion of TARP money to deficit reduction. The amount represents the total the Treasury expects to be repaid by banks through 2010.
The move will leave $140 billion of uncommitted TARP funds unused, allowing Congress to allocate as it sees fit, presumably for jobs programs.
A Congressional source Tuesday evening confirmed that the decision had been made to extend the controversial fund, saying it was "just a matter of when [the announcement is made]", which could be any time in the days ahead.
Obama is set to meet with Democratic and Republican leaders of Congress at the White House on Wednesday to promote the group of jobs proposals he unveiled Tuesday.
House Speaker Nancy Pelosi (D-Calif.) is among the Congressional Democrats who have suggested using TARP funds for job creation. California's jobless rate, at 12.5 percent, is among the highest in the nation.
Congress is now at work on a jobs plan that could cost up to $200 billion. It's unclear if its sponsors—which include House Leader Steny Hoyer (D-Md.)—intend to use TARP funding.
The financial rescue program, which has been used to pump money into banks, insurer American International Group and troubled automakers, was approved by Congress in October 2008 at the height of the credit crisis.
It would expire on December 31 absent a decision to extend it.
The law that established the fund, known as the Troubled Asset Relief Program (TARP), gives the administration the discretion to decide whether it should be extended, but it limits any extension to October of next year.
The legislation was conceived with two stated purposes: a reverse government auction of so-called toxic bank assets, mostly mortgage-related securities, and capital-for-equity swaps with financial firms.
The law creating the program, the Emergency Economic Stabilization Act of 2008, also says unused funds are supposed to be returned to the Treasury to pay down the deficit.
U.S. Treasury Secretary Timothy Geithner told Congress last week that much of the $700 billion lawmakers had authorized to salvage the banking system would not be needed, but that it would be a mistake to shut down the program entirely.
"By definition it is going to reduce the deficit," said Warren, who has been fairly critical of the program's effectiveness.
It did, however, have stated goals, which included reviving lending., she said.
COP's latest report said the bailout program helped prevent an all-out panic last year but hasn't met many of the targets Congress set out.
Members of Congress from both sides of the political aisle, as well as many analysts, say spending on items like job creation is not covered under the TARP. At the same time, the law gave unprecedented authority to the Treasury Secretary.