Our Views :
The Big toxic Banks of America seem to have once again got away with murder. In a landmark decision, the U.S. Government bowed to the Bank lobby and have reportedly agreed to keep the shady derivative trading business away from the scrutiny of exchanges, where they could be recorded or monitored. Bowing to intense pressure of the Bank lobby which was aided by the Bernanke- Geithner duo from behind the scene, the U.S. Government has agreed that the tainted derivative dealers will be able to continue peddling the customized swap contracts away from exchanges, albeit with a marginally higher capital charge.
This, when Europe in two landmark decisions have announced plans to provide stringent EU monitoring of Banks previously monitored only by their country of origin. The European Systemic Risk Council a body that will monitor trends and provide an early warning of possible risks and a European System of financial supervisors, which will monitor Banks across the EU.
By contrast there is no signs of consensus on who will regulate the Banks in the U.S. The Treasury is once again pushing for the Fed who most others know and accuse openly of being hand in glove with the toxic Banks. The supposed regulatory shake-up is still in a limbo and the same regulators who let this massive Banking crisis happen are still ruling the roost. The Federal Reserve has so far resisted attempts to even provide information on how it is spending the bailout money and worst its accounts are beyond auditing provisions . Congressman Ron Paul has in Feb 2009introduced H.R.1207: Federal Reserve Transparency Act of 2009 which even after 9 months of the Banking Crisis and 3 months of its introduction is doing the rounds of House Committee of Financial Services. Hectic lobbying is reportedly taking place to ensure that the Bill is delayed long enough and modified suitably to loose its teeth, if not totally scrapped.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation FDIC that has a mammoth $ 4.8 Trillion stake as insured deposits has suggested that systemic regulation of U.S. Banks be done by a multi-agency council. However her proposal is coming across stiff opposition by the bureaucracy in Washington reportedly at the behest of the Bank lobby and their trusted ally Mr Geithner. Another Bair proposal being opposed by the Bank lobby is her appeal to the Congress to give the FDIC authority to wind down bank and thrift holding companies -- a move she says is necessary to protect taxpayers. And she wants lawmakers to include the agency in a systemic risk council to prevent future financial shocks.
One of the few voices against the powerful American Bankers Association lobby Ms Sheila Bair has had several pitched battles in the past with the Banks and Mr Geithner when he was at the President of Fed at NY & now with his bureaucracy at the Treasury. It is said that her move to protect her agency FDIC from the guarantee of all debt issued by lenders made her unpopular with Geithner when he was the President of Fed at NY. Had she agreed to his proposal the FDIC would have been another Bankrupt institution today. Thereafter when Geithner came to the Treasury , he tried to ease her out from the FDIC on the grounds that she was a Republican supporter and hence not compatible with team Obama.
However her steady and uncompromising work to keep her vital institution vigilant and functioning despite the huge losses the Insurer had to bear as Banks defaulted a dime a dozen earned her respect and recognition. She was recently reported by Bloomberg to have been given a special hearing by President Obama after a Air force One in-flight conference. “It was great,” Bair told Bloomberg of her meeting with the president. “He’s got an agenda which we share. “Banks are a means to an end. You stabilize the banks to support the economy. But you don’t stabilize the banks for the sake of stabilizing the banks.”
However despite President Obama’s sporadic attempts and some vigilant action by individuals like FDIC’s Sheila Blair, the now retired Charles Bowsher of the Federal Home Loan Bank system, the U.S. Banks have largely been able to keep the reforms and regulators at bay. Stalling reforms in 2009 which was the primary objective of the Bank lobby seems to have almost succeeded as half the year is over. This ensures that the $ 700 billion bailout money and the $ 1 Trillion TARP funds could be used to get the Banks balance sheets in order without stringent regulatory interference. The Centre for Public Integrity, a non-profit organization claims that the $ 380 million in contributions given over the last 10 years to politicians, Senators and Congressmen could now be working overtime to dilute or stall decision making in reforms and regulatory changes in the U.S. Banking sector. Whatever be the reason very little seems to have be done in the U.S. as compared to the EU in regard to reforms and regulation, despite the fact that both President Obama and the European leaders had pledged to make it a top priority at the G 20 summit earlier this year.
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