GREAT NEWS, How are they going to get around this without paying LARGE GREEN???
US Is Still Facing Hurdles In Regulating Financial Giants
Topics:Barack Obama | Treasury Department | Recession | Economy (U.S.) | Banking
Sectors:Financial Services | Banks
Companies:Citigroup Inc | American International Group IncBy: Albert Bozzo, Senior Features Editor | 03 Mar 2009 | 07:19 PM ET Text Size For all the federal government’s intervention into the world of business and markets, there’s one thing it still can’t do to stop the bleeding in the financial system—even though a lot of experts would like it to.
Under current law, no regulator has the authority to essentially take over a troubled bank holding company—conglomerates with a wide range of financial operations—the way the government routinely does with smaller, commercial banks.
Both FDIC Chairman Sheila Bair and Fed Chairman Ben Bernanke have made that crystal clear in recent days that even as the government injects more taxpayer capital into giant financial institutions such as Citigroup [C 1.22 0.02 (+1.67%) ] it can't actually shut them down even if officials saw fit and wanted to.
"You simply need a way of calling 'time out,' ” says former Treasury official Robert Glauber, who served during the savings and loan crisis. “They lack that and they know it. I believe you do need this.”
The regulatory framework shared by several different regulators is complicated. But experts and some in Congress even say the loophole of sorts may help explain the incremental approach of both the Bush and Obama administrations in dealing with the financial crisis, regardless of their ideological positions on nationalization.
"It's an incredible gap in our authority," Sen. Bob Corker. (R-Tenn.) told CNBC.com Thursday. "There's no federal authority to go through an unwinding in a way that makes any sense. You have to wonder if that influences your policy somewhat."
Corker, a member of the Senate Finance Committee, was among those who was somehwat stunned when Bernanke said that at a hearing a week ago. The Fed Chairman said as much again to another Congressional panel today.
Regulatory reform is on the agenda for the Obama administration and the new Congress, but it’s still stuck in the back seat of the crisis. There’s been talk of a super-regulator, probably in the form of the Fed, but it's unclear if the bank holding company issue is on the agenda.
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Still, with such high profile players as Bernanke and Bair talking about the shortcomings of authority, many in Washington are becoming more aware of the obstacle.
Under current law, the FDIC has so-called “bridge bank authority” to take over a troubled institution with government insured depositions. The FDIC essentially keeps the bank open for a short period of time before a pre-arranged buyer—meaning another bank—assumes control and operation.
The FDIC, however, does not control bank holding companies, the parent companies of the commercial banks. That is the responsibility of the Fed, but the central bank is only legally allowed to make the company take so-called prompt corrective, action, to deal with such things a capital requirements.
There is no temporary status for that company if it is in trouble. Like any other corporation, its fate is settled through the bankruptcy court system,
“When you have that high degree of integration, the idea of taking over the bank and letting the bank holding company collapse doesn't really work that well,” says independent bank analyst Bert Ely. “When a holding company is stripped of key asset, the company often files for Chapter 7 or Chapter 11."
That means liquidation or protection from creditors towards a hoped for restructuring.
CONTINUED : Bernanke: What's Missing In Dealing With Problem
