Banking Law

No sooner do I comment on last week's booing and jeering of Sheila Bair by community bankers than Pravda Reuter columnist Rob Cox (paid subscription required) tells his readers that the booing is Bair's Badge of Honor.

She was taken aback by the booing. But in fact, watchdogs should bask in such disdain if it means they're doing their jobs.

[...]

So the guffaws and snorts FDIC boss Bair elicited from small bank chiefs at Wednesday's American Bankers Association confab in Washington may represent something of a badge of honor for her.

[...]

Her job is to enforce rules that minimize taxpayers' losses from bank failures, provide a competitive banking market and claw back ill-gotten gains. If bankers don't like her for that, so be it.

Since Cox thinks Bair "should bask in such disdain," I assume he'll, personally, be toasted to the consistency of a mellow marshmallow by my hoots of derisive laughter.

Cox posits that a regulator who is respected by the regulated has likely been the object of "regulatory capture," which he asserts was the case with the OTS. It doesn't seem to occur to Cox, or it occurred to him but he chose to deliberately ignore it, that a lack of respect also can be indicative of the fact that the regulated entities honestly think that the object of their ire has not performed competently the job she swore an oath to perform. It might also be indicative of the fact that the community bankers in the audience think that Bair's pro-consumer priorities are not, as she asserts, always perfectly aligned with what should be the first priority of the Chairman of the FDIC: the safety, soundness, and survival of FDIC-insured financial institutions. For all her populist posturing, many community bankers think that Bair's FDIC has adopted a "too small to save" policy with respect to the community banking industry, and bankers see the landscape littered with the bodies of primarily small banks and de novo bank applications stiff-armed, while the too-big-to-fail banks get richer and industry consolidation accelerates.

In other words, Ronnie, there might be legitimate reasons that Ms. Bair is held in such contempt by the regulated. To know that, you'd have to get out of your bubble and actually talk to community bankers. Obviously, it's easier to construct straw men and then kncok them down from your perch inside The Beltway or on the Island of Manhatten. I've had contact with some regulators over the past six months who suffer from the same type of myopia, so it shouldn't surprise me that some members of the so-called Main Stream Media are similarly afflicted.

Cox's description of Chair Bair's "job" demonstrates his complete lack of understanding of the FDIC's mission. That mission, as stated by the FDIC on its website:

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by:

• insuring deposits,
• examining and supervising financial institutions for safety and soundness and consumer protection, and
• managing receiverships.

The taxpayers may ultimately be on the hook for the FDIC's liabilities, but the FDIC is funded by assessments on banks whose deposits it insures, so it's minimizing the fund's losses (and the resulting need for increased assessments on banks), not the taxpayers' losses, that is a portion of the "job" of the FDIC. As to "providing a competitive banking market," Cox must have confused the USA with the former USSR. The FDIC does not "provide" any markets, much less competitive markets. Finally, "clawing back ill-gotten gains" is a new feature of federal banking law, and any dissatisfaction of bankers with Ms. Bair's performance could have absolutely nothing to do with such a power. Bair simply hasn't done anything in that respect that could be the cause for the boos that greeted her.

Cox is the same guy who, a few months ago, wrote a column for Reuters in which he claimed that the demise of small banks was a good thing. He thought the US should look for inspiration to Canada, where, he claimed, there were only a handful of very large banks that were tightly regulated by the federal government, like public utilities.

Personally, I think Cox should come to Texas and address the Independent Bankers of Texas. I'm convinced that his Politburo-friendly views would garner him a very warm reception. Moreover, since Texas is a concealed carry state (in fact, the state legislature is currently moving through a bill to permit university students to carry sidearms on campus), I'm sure that by the time he got very far into his speech, he'd have a number of badges of honor to display proudly to the EMTs on his way out of the venue. He might not be fully conscious by that time, but if his latest column is any indication, that's his normal state.