Comments on: The secrecy of the FDIC, FOIA edition http://blogs.reuters.com/felix-salmon/2011/02/24/the-secrecy-of-the-fdic-foia-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: AABender1 http://blogs.reuters.com/felix-salmon/2011/02/24/the-secrecy-of-the-fdic-foia-edition/comment-page-1/#comment-24291 Thu, 24 Feb 2011 16:33:27 +0000 http://blogs.reuters.com/felix-salmon/?p=7421#comment-24291 Felix S. asks: “Why is it that the FDIC is being so willfully obstructive even as other agencies, including the Department of Defense and the FDA, are much more cooperative?”

As a general comment, bank regulatory agencies have very wide internal discretion on expenses, and they would prefer not to be scrutinized, thank you very much.

More important, bank regulatory agencies generally have limited external oversight. They are funded by bank fees (OCC, OTS) or bank premiums (FDIC) not by the Congressional budget process. Once those bank fees/premiums are paid, the contributors (banks) have absolutely no audit or review power over how the funds are spent. And Congress can do little about this except excoriate the agencies publicly for a day or two. The Inspector General/GAO does perform audits but not often enough.

And the current FDIC reaction to FOIA has two other specific causes: first, the FDIC Fund is running a deficit (it is in the 2nd year of a 3-year prepaid premium that provides the Fund cash but not income).

When the crisis hit, the FDIC began hiring consultants and outside legal experts not permanent staff and internal counsel. These external contractors are paid by the hour making the FDIC hugely inefficient for managing bank failures. Whenever you pay an investigator or lawyer by the hour to analyze a problem (a bank failure or near failure), the incentive for them is to keep digging deeper/wider/more far afield in order to keep the billable hours up. The FDIC has responded to this ballooning expense by lagging their payables to extraordinary terms–200+ days in some cases–in order to reduce apparent expense and to minimize the fund deficit until they can buy time to accrue additional income from the prepaid premiums.

Practical result: this small-bank failure crisis will be stretched out over 3-7 years so the FDIC doesn’t have to borrow from the Treasury for the clean up. So don’t expect a reasonable FOIA release anytime soon.

Second, Chairman Bair has announced that she is leaving in June 2011. While she has done a good job during a tough time–certainly standing up to Paulson, Geithner et. al. who were trying to raid the FDIC fund wasn’t easy–she is now very surely protecting her legacy. Why would she want to release records on a FOIA request?

So the FDIC FOIA stonewall seems to be a case of “apres moi, le deluge.” But, the coming flood will be more like drops of water akin to economic Chinese water torture.

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