Sheila Bair: All Bark, No Bite

The Market Ticker ^ | 11/2/09

[FromLori]

Sheila is apparently upset at the banks "pushing back" against reform:

Sheila Bair, chairman of the Federal Deposit Insurance Corp, said on Monday that some in the financial services sector are trying to argue that regulatory reform would stifle innovation and impede economic growth.

"That makes me angry," Bair said in a text of remarks prepared for a lecture at Kansas State University.

It does? You're not showing it.

How hard is this Sheila? You have the authority, along with the OTS and OCC, to walk into any bank in the United States with your examiners, look at every asset they hold, compare it against your standards of a "reasonable" mark and take action if you find that the bank could not be liquidated "at or above par."

You not only can do this but Prompt Corrective Action, US Code Title 12, Chap 16, Section 1831o mandates that you do, as that law is liberally peppered with "SHALL"s and has precious few "MAY"s.

Sheila is being gamed because the FDIC has shown over the last two years that whenever the banking industry say "Bark" the response from Sheila is "YIP!" Indeed, when I looked up "lapdog" in an online dictionary I got the following back:

lap*dog Function: noun Date: 1645

a small dog that may be held in the lap a servile dependent or follower Sheila Bair Oops, did I make that last one up? Well....

There is already plenty of law on the books to cover what's been going on here, especially when it comes to banking regulation.

The examiners can have their mandate set by Sheila, along with the OTS and OCC. Their job, after all, is to determine what the odds are of loss to the deposit fund and whether a bank is safe and sound (for depositors), not whether the numbers will look good for Wall Street's quarterly parade.

Yes, I'm sure the banks would grouse if the examiners were to show up and demand that banks hold capital against the underwater portion of Home Equity loans, subprime CDOs and similar garbage. They'd also squeal if the examiners decided that any loan that was 60+ had to be reserved against at recovery value.

So what? The response ought from them to be "Talk to the hand."

Those banks that don't like these rules don't have to take FDIC insurance! They can run without it if they're so "safe" - let's see how many depositors they retain without it.

If Sheila doesn't like being the hard-nosed enforcer of capital adequacy and marking assets at recovery value as soon as loans fail to be paid on time then she should resign and cede the office to someone who has no problem getting on the phone - or showing up in person - and raising hell.

I'll volunteer, and suggest that anyone wondering if I have the "sack" for the job should find Mory Ejebat (formerly of Ascend) and mention my name.

Bring a tape recorder and post the result on YouTube.

Alternatively, just read a few Tickers.