Which bankers will Treasury oust?
Ben Bernanke, Tim Geithner, and Sheila Bair have put out a statement which says that the stress tests aren’t just about capital:
Over the next 30 days, any BHC needing to augment its capital buffer will develop a detailed capital plan to be approved by its primary supervisor, in consultation with the FDIC, and will have six months to implement that plan…
In addition, as part of the 30-day planning process, firms will need to review their existing management and Board in order to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment and maintain balance sheet capacity sufficient to continue prudent lending to meet the credit needs of the economy.
I’d love to know what this means. Who’s going to review the management and boards of these companies, if not the management and boards themselves? And what are the chances that any such entity will come to the conclusion that the leadership of the firm does not have “sufficient expertise and ability to manage the risks presented by the current economic environment”?
I suspect that this requirement is basically a way to allow Treasury to make any changes it wants at the top of the banks’ org charts. Obviously Ken and Vikram are at the top of most pundits’ hit lists, but there’s a good chance that Treasury has overly-complaisant boards in its sights too. I’m sure that Walter Massey is a first-rate physicist, but he has no financial experience whatsoever: is he really the best possible person to be chairman of the largest bank in America? I suspect that Treasury might have its doubts.