Congress would vote against releasing the second tranche of $350 billion of funds under the financial rescue package if Treasury Secretary Henry Paulson requested them, a leading Democratic senator said Friday.

Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, and the Democrats' chief negotiator on the financial rescue package, said that decision would be due to anger over the handling of the first tranche of funds by the Treasury.

The Troubled Asset Relief Program created by the White House and Congress allocated $700 billion to the Treasury to use to stabilize the financial markets.

The goal of the program was that the federal government would strengthen bank and other financial institutions balance sheets and they would in turn start lending more to each other, businesses and individuals to unglue seized-up credit markets.

But under with nearly half the money spent, many lawmakers have complained that there is little evidence that many of the banks that have received taxpayer financial assistance have used the money to increase lending levels.

The legislation creating the TARP stated that lawmakers could prevent the second tranche of money being released by passing a resolution of disapproval.

Last week, Dodd said that he would personally oppose the release of the funds to the Treasury. Friday, he went further, saying he now believed that Congress would vote against the release.

Paulson has so far not formally requested the release of the funds.

Even if Congress approved a resolution of disapproval, President George W. Bush would be able to veto it, so lawmakers would realistically have to vote for the resolution by a two-thirds veto-proof majority.

-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com

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