Banking Law

No sooner had Treasury Secretary Tim ("Pinocchio") Geithner issued the Obama administration's regulatory reform white paper last week, then FDIC Chairman Sheila Bair was praising it out one side of her mouth and  bashing it out of the other side. Simultaneously, her critics were hard at it, baiting the Bair.

The FDIC press release on the proposal is a not-so-subtle reminder to President Obama that the FDIC ought to be front and center in the management of "too big to fail" systemic risk. Reading only that statement, you might believe that Ms. Bair had decided to become a team player. In an interview aired on Friday on CNCB, "Chair Bair" ("just call me 'Chairman'") revealed that she intends to "study the white paper," which she labeled a "good opening process" by Obama, and then "work with the administration and Congress constructively on this.?

She then tipped her hand as to who she thinks should be running the show on "too big to fail, and it's not the Fed. She said the FDIC has played a substantial role in stabilizing the financial system and would like a seat at the table in oversight council.

?[The FDIC] is guaranteeing over $6 trillion right now,? she said. ?The FDIC has tremendous exposure to the system so we would like a real say on systemic risk issues. [Reform overhaul] is an institutional issue, not a turf issue or a personality issue.?

Additionally, Bair suggested creating a separate fund going forth for existing firms that are already ?too big,? as a way to create economic disincentives for companies that put others at risk.

?We suggest that for very large financial organizations including bank holding companies, Congress should consider creating a fund?just as we do with a deposit insurance fund?that could be set up [for firms] that have risk-based assessments," she said. "So if an institution is extremely large, interconnected or imposes a risk to the system?they would pay a higher assessment.?

In the interview, she made it clear that she wants the FDIC to have a "seat at the table" and "a real say" on rule making and enforcement of "too big to fail" policy. She also makes it clear (after being served up soft balls by Camden Fine, of all people) that the Oversight Council has to have "real teeth," not merely serve an advisory role. In other words, she doesn't think the Fed is where the power should lie.

She specifically denies that any of the disputes between the Fed and the FDIC (and, obviously, between the FDIC and the administration's point man on these issues, Tiny Tim Geithner) involve a "turf war" between the various regulatory agencies. Sure, I believe that. I also believe that The Great Pumpkin exists.

On the good news front, she supports the dual banking system (state and federal). That support will last as long as the FDIC remains the primary federal regulator for state-chartered, non-Fed member banks. Consolidating all supervisors in one federal banking regulator is not a model preferred by Ms. Bair, who favors a larger, not smaller, role for the FDIC, based entirely on what's in the best interests of the country as a whole, of course, and not (Lord forbid!) a matter of bureaucratic turf wrestling.

Review the interview and decide for yourself for yourself the sincerity of her positions. She's good on camera, you have to hand it to her. In comparison, she makes Timmy look like Elmer Fudd after ingesting a bit too much caffeine.

I don't think that she's any worse than any of the other federal regulatory arm-wrestlers, other than that her fetish for consumer advocacy is often hard to stomach. Given her role as "Chair Bair" of the FDIC, she should make the best interests of insured institutions her primary concern. "What's good for the consumer is always what's best for insured institutions" sounds nice as a populist slogan, but it often rubs up against the facts, as it has in the "system-wide loan modification" train she's been driving the past two years. As Ocwen has demonstrated convincingly, looking at each loan individually makes more sense for lenders than across-the-board, one-size-fits-all, approaches. Also, her double-dealing between Citigroup and Wells Fargo over Wachovia and her pathetic political butt-kissing in the industrial bank charter moratorium affair didn't win her any points with me, even if many commercial banks were happy to see Wal;mart and Home Depot shut out of starting or acquiring a non-bank bank. Moreover, as an attorney for community and regional banks, I can't help but notice how the FDIC under her watch has been especially tough behind the scenes on the little guys while it caters to the giants. Well, those giants who don't curse her for her two-faced ways. Those giants earn her undying wrath and calls that they be replaced immediately, even if she's the only federal regulator who thinks so.

Wait a minute...I DO think she's worse than any of the other regulatory arm-wrestlers. That said, I hope that the FDIC does not become "the biggest loser" (as the New York Post speculated in the story linked in the first paragraph of this post). As I've stated previously, the rank-and-file of that agency, including many of the old salts who've been called out of retirement to deal with this crisis, and also including many of the independent contractors the agency has engaged to help manage failed institutions and their assets, "know their stuff." It would be bad news for the country if that expertise is wasted because political appointees are engaged in a game of throwing elbows at an "elevated" level.