Congress to banks: Eat your veggies
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.