Congress to banks: Eat your veggies

October 23, 2008

U.S. senators want bankers to eat their broccoli before gorging on taxpayer bread.

The Senate Banking Committee took a Treasury Department official to task for committing $250 billion of the $700 bailout money to buy stakes in banks without getting any guarantees that those firms wouldn’t pocket the cash or use it for acquisitions.

“I remain especially concerned that, in the Treasury’s zeal to make the capital injection program easily digestible for the banks, we’re feeding them a little too much dessert and not making them eat enough of their vegetables,” says New York Democratic Sen. Charles Schumer.

Schumer had welcomed the Treasury’s decision earlier this month to shift the focus from buying troubled assets to directly injecting capital in troubled firms, but like many of his colleagues thought there should have been more strings attached.

The senators were particularly distressed over news reports that several of the banks that took the government’s money said they were in no hurry to lend it out. If banks hoard the cash, that doesn’t provide an immediate lift to the economy.

Taking the beating on behalf of the Treasury was Neel Kashkari (above),  the wunderkind who was put in charge of the $700 billion bailout program.

“Secretary Kashkari,” said Sen. Richard Shelby, the Alabama Republican.  “Why did Treasury not attach a requirement to increase lending as a price for receiving the government money?”

“We completely agree with the spirit of that and we want our banks to lend,” Kashkari said. “But we also didn’t want to be in a position of micromanaging our banks.  We wanted to create a program where thousands of institutions across our country would volunteer to participate.  And if we came in with very specific guidance on you must do this, you must do that, we were afraid that we would discourage firms — discourage healthy institutions from participating.”

He did not specify which firms might still be considered “healthy” some 14 months into the credit crisis.

Kashkari also said it would be unwise to block banks from using taxpayers’ money to acquire weaker rivals.

“If we have a small bank, a failing bank, in a community, that bank is not in a position to write loans for its small businesses, its homeowners. If a larger bank, a stronger bank, is able to acquire that and capital is put into that combined entity, that community is now better served,” he said.

“So we have to be very careful about not discouraging prudent acquisitions because that can actually help us get through these troubled times that we’re in right now.”

Note to the M&A advisers: Eat your veggies. You’re going to need your strength.

What restrictions should the government put on banks who accept federal funds? Leave your answer in the comments section.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

what restrictions should the gov put on banks who accept fed funds? apparently none.

Posted by bashjustice | Report as abusive

More restrictions than just to say: Have some money. Now go buy up any bank you wish. Healthy or not. Just get bigger on the taxpayers dime. Then, when your competition is gone. Charge the taxpayers whatever you want to charge for any service you care to extend. Rape them. We don’t care. After all, we are from Goldman Sachs and when we are done here as servants of the taxpayers, lol, we will go back to Goldman Sachs in senior positions for having made them so much money facilitating deals for which they got paid to help you make. Everyone wins. Except, certainly, the taxpayer.

What a racket.

Posted by bubba | Report as abusive

Why has 35 year old Kashskhari, primarily trained in Engineering, been put in charge of the Office of Financial Stability, for the United States of America’s Treasury Department? His financial expertise is limited to an MBA, which everyone and his dog can aquire and is of limited financial training. Why has he been charged with the responsibility for distribution of tax payer funded bailout in the biggest financial crisis of all American history. He appears to be unqualified and out of his league. A really big question is who put him in the position and where is mention of the committee responsible for establishing banking industry accountabilities before just handing over money. One man doesn’t just hand over This is completely ludicrous – there must be someting missing from this story. One man doesn’t just hand over $250 billion without ensuring the objective is going to be met. There must, or should be a controlling interest by treasurey until recovery is seen to be established. In this environment the attachment of strings and accountability is necessary – the financial, banking and credit industry’s lack of self regulation is the whole reason behind the initial problem! The big question is, who put Kashkari in this position – this website indicates he’s only got an MBA. Preparing this transfer of funds to the banks should have involved committee decisions that established accountability criteria for the banks, and agreement by the banks to apply the funding in the way determined by the overall bailout plan. This is taxpayer money – to be used for taxpayer benefit – not the banks’.

Posted by mick | Report as abusive

One big Scam !

Paulson Goldman Buffet Sachs.

We are being scammed big time.

$ 62 billion taxpayers money is being payed for bonusses of these failing corrupt criminal financial institutions.

They are steeling us blind and the Bush Cheney Junta is facilitating these corrupt criminal buddies in the last moment.

Steeling 10 trillion dollars from us.

Posted by Chris Boston USA | Report as abusive

What a joke – bankers given tax payers money so they can remain in their highly paid jobs having presided over a massive disaster! There should be a $200,000 cap on all banking jobs with immediate effect that would help restore the banking system back to health much more quickly than this crazy Paulson and Bernanke plan!. They have shown themselves to be totally incompetent and should both be sacked.

Posted by keith | Report as abusive

Yeah, I found out yesterday that PNC has bought my employer, National City, using some of that money.
Now I have no idea whether or not I will have a job as a result of that action. My tax dollars at work….

Posted by Upset | Report as abusive

Ahh, no.

“‘If we have a small bank, a failing bank, in a community, that bank is not in a position to write loans for its small businesses, its homeowners. If a larger bank, a stronger bank, is able to acquire that and capital is put into that combined entity, that community is now better served,’ he said.”

So the purpose of Treasury’s capital injection is to create MORE consolidation of banks and institutions “too large to fail” instead of breaking them up as Nobel Prize-winning economist Steglitz and others say is necessary to prevent a repeat need for a bailout in future?!!

Posted by Laura Stein | Report as abusive

Banks should not be receiving federal funds.

Posted by jason | Report as abusive