The FDIC's head honcha, and lone voice of reason among bank regulators in Washington, Sheila Bair has been extremely busy. And it's good news for taxpayers across the board. We have the details (3 articles) from the just-concluded Reuters Financial Summit plus new video.
On Tuesday, Bair and the other 4 board members voted unanimously to terminate the FDIC's debt-guarantee program, which has been a lifeline for failed financial institutions and their automotive brethren (Hallelujah).
- U.S. regulators voted on Tuesday to end a government program that guarantees some debt issued by banks, but also to set up a 6-month safety net facility. All five members of the Federal Deposit Insurance Corp panel of regulators voted to end the Temporary Liquidity Guarantee Program, or TLGP, on October 31, as planned.
- Debt could be issued and guaranteed under that program up until the deadline. The guarantee on that debt would expire no later than December 31, 2012.
- "It should be clear that this is not a continuation of the program but an ending of the program," FDIC Chairman Sheila Bair said at an open meeting.
- But the program leaves open a 6-month safety feature for institutions suffering from market disruptions beyond their control. Under the 6-month facility, subject to approval, a bank's senior unsecured debt issued after October 31 would be guaranteed through April 30, 2010, the FDIC said.
- Participation under the 6-month safety net could also be more costly, depending on the risk level.
- As of October 14, there was $309.4 billion in FDIC-guaranteed debt outstanding.
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On Wednesday, she reiterated her call for legislative resolution authority to seize any troubled institution regardless of size and place that firm into receivership, while holding the creditors (bank bondholders) financially responsible for their misjudgement (Hallelujah Part 2).
She went so far as to request specific legislative language precluding even temporary bailouts, which Treasury (Geithner) has opposed (on grounds that they won't be able to help their friends if such legislation is passed.).
From a 2nd Reuters article
- Congress should eliminate any possibility of temporary bailouts in draft legislation that would give the government power to break up troubled, systemic financial firms, a top U.S. bank regulator said on Wednesday.
- Bair said the Obama administration's draft bill could be strengthened to eliminate the possibility of any "open bank" assistance, which would be another deterrent for growth.
- "I think we need to make it clear it's a resolution mechanism, not an organized bailout mechanism," Bair said.
- The administration plans to send a tougher draft bill to Congress in the coming days, but has not detailed the changes.
- Bair has been a strong advocate for measures that could combat the moral hazard of "too big to fail." She said financial firms and their investors and creditors cannot make judgments based on the belief that government will step in to insulate them from their mistakes.
- The resolution regime laid out in the administration's original proposal softened the prospect that a large firm could be subject to a government-driven dismantling if it runs into severe trouble.
- That proposal would have given Treasury the power to decide whether to first try to stabilize a large failing firm before appointing the Federal Deposit Insurance Corp as a conservator to unwind the institution.
- "On an individual institution basis, I do not think you should make capital investments, provide credit support, do any of that," she said. "I think if a bank gets in trouble or any large financial organization gets in trouble because of its own mismanagement, I believe it should be put in to receivership."
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Also Wednesday from the Reuters Summitt, Bair called on Wall Street to suspend bonus payments at least temporarily (fat chance hallelujah).
From a 3rd Reuters article
- "It distresses me," Bair said, referring to news that some large financial institutions are returning to pre-crisis bonus levels. "I think it is in the enlightened self-interest of these large financial organizations to, you know, suspend these outsized bonuses at least, if not permanently, (and) realign compensation to more rational levels, shall I say."
Though she seems to understand that it's not likely:
- Bair, speaking at the Reuters Washington Summit, said policing pay through regulation is very difficult and it is not the government's role to micromanage pay.
- "Some of it is just you're going to have to rely on the industry's own self-restraint, and unfortunately a lot of them don't seem to be too self restrained right now," she said.
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Video: Sheila Bair Interview with Reuters Broadcast October 21, 2009
Watch (don't click unless you're coming from our email letter)
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