Banking Law

Make Work

Last week, banking expert Bert Ely argued persuasively why banks should not be pushed into using TARP dollars to throw good money after bad. He urged, instead, that banks put capital to work where it best served the survival of the bank and of the entire financial system, which might include making loans to credit-worthy borrowers, but might also include covering anticipated losses or acquiring weaker rivals.  Such attacks of logic and sound business judgment didn't deter the FDIC. Today, it issued a letter that directs all state-chartered, non-member banks that receive federal assistance from capital injections, federal guarantees on financing, or expanded borrowing facilities to "implement a process to monitor their use" of such assistance.

"In particular, the monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures."

So, it's all about the loan modifications. How so very Sheila!

As Damian Paletta observed in today's Wall Street Journal, the FDIC's move appeared to be a case of Sheila Bair taking her game of  "neener-neener" with the other federal bank regulators to a whole new level.

The FDIC's request is unusual in that it isn't expected to be matched by other bank regulators, such as the Federal Reserve and Office of the Comptroller of the Currency. That means that community banks regulated by the FDIC will likely be pushed to provide more transparency over their lending but big banks overseen by the OCC or Fed won't. That could all change, though, as public pressure mounts for regulators to demand more accountability.

Seeing the handwriting on the wall, and being one of those kids who always sticks herhand up in class and squeaks "Pick me, teacher! Pick me!", Ms. Bair wants to separate herself from the pack. It's totally in line with her self-promoting, consumer-advocacy M.O. It's also as far as can be from what's supposed to be her primary focus: the safety and soundness of the financial institutions under her watch. As if a state-chartered, non-member community bank didn't have enough incentive to change to a national bank (or even OTS) charter, or at least become a Fed member, add one more.

One senior bank executive, who works for a state-chartered, non-member bank that has been granted TARP funds, and who has a tremendous amount of work on his plate at the moment, commented to me about this latest mandate in language too graphic for the eyes of the women and children who read this blog daily. In addition, I believe that what he suggested Ms. Bair might do would be physically impossible. An executive for another bank that has applied for TARP CPP funds, but not yet been granted them, quoted back to me words that the president of a federal thrift once told me, right after we'd walked out of a particularly tense session with OTS supervisory personnel that left me steaming: "Kevin, it's like Hyman Roth told Michael Corleone in 'The Godfather-Part II': 'This is the life we've chosen.' "

Ain't it a hoot?

Full post as published by Bank Lawyers Blog on January 12, 2009 (boomark / email).