The FDIC Retorts
The Federal Deposit Insurance Corp. came out swinging last week against two writers — Peter Wallison of the American Enterprise Institute and David Skeel, a law professor at the University of Pennsylvania — for their April 7 Wall Street Journal op-ed piece criticizing the Senate regulatory reform bill.
Wallison and Skeel took issue with provisions in Sen. Chris Dodd's bill to give the FDIC authority — with the backing of a $50 billion industry fund — to resolve financial behemoths such as American International Group, similar to how the agency now resolves banks.
They argued that the institutions the FDIC is used to handling pale in comparison to those subject to the new resolution plan, the holdings of nonbanks are different from those of banks and the bankruptcy model is a much better system for cleaning up large firms.
But the FDIC responded with a rebuttal of what it called "inaccuracies" by the authors. The op-ed listed the 1984 failure of the $40 billion-asset Continental Illinois as the largest failure in FDIC history, but the agency countered that it resolved the $299 billion-asset Washington Mutual in 2008.
Compared with the "drawn out resolution" that is the result of the bankruptcy courts, the FDIC said, "Wamu was resolved in 24 hours on a Thursday."
The agency argued that it has the experience to deal with assets not typically thought of as core banking instruments — noting how active banks are in the derivatives markets — and suggested that bankruptcy courts lack the experience to clean up large firms.
"In 22 years, the bankruptcy courts have only resolved five major corporate entities — one of which was a financial company," the agency said.
ICBA Pours It On
If you thought "too big to fail" was getting enough bad publicity, the Independent Community Bankers of America is trying to ensure big banks' image will only worsen.
Last Monday the ICBA launched a Facebook fan page titled "My Community, My Bank," which includes commentary supporting the elimination of the TBTF doctrine. The page, which had more than 600 fans Friday, follows the creation of a Web site in September of the same name and topic.
In a press release Monday, the ICBA said the Facebook page "will only enhance the debate about reining in the mega institutions that caused the financial crisis and nearly toppled our economy more than one year ago."
Both the fan page and the Web site are part of the trade association's broader marketing campaign on the issue, and its advertising tactics are starting to win critical accolades. The Holmes Report, a news organization for public relations professionals, recently presented the ICBA with one of its SABRE awards. The award, which recognizes Superior Achievement in Branding and Reputation, was for an ICBA print advertisement, "The Giant." The trade group won the award in the category of "public relations tactics."
Running in several policy publications, the ICBA ad features a giant Wall Street banker — with a top hat labeled "Too Big to Fail" — who shakes the "U.S. Treasury/Taxpayer" building to pour money into his hand.
A crowd of tiny passersby run away scared of being toppled by the oversize dollar bills.
Below the image, the ad reads, "The average citizen on Main Street should not have to pay for the risky behavior of corporate giants on Wall Street."
Greenspan in Dark
Former Federal Reserve Board Chairman Alan Greenspan brought the curtains down giving a blackout performance last week on Capitol Hill.
Appearing before the Financial Crisis Inquiry Commission, the former Fed chief was briefly interrupted — after giving more than 2.5 hours of testimony — when a power outage left Room 2123 of the Rayburn House Office Building in the dark. It wasn't immediately clear what caused the power outage, but it disrupted the hearing for several minutes before staffers opened the ceiling-to-floor-length red velvet drapes reminiscent of Scarlet O'Hara's in "Gone with the Wind."
The hearing resumed for a brief round of questioning, led by FCIC Chairman Phil Angelides, even though microphones were still not working and backup generators failed to kick power back on.
Policymakers struggled to speak loud enough to be heard by Greenspan, who was unable to respond to most of the remaining questions from the 10-member panel. Before excusing the witness, Angelides offered his thanks, and was quick to note, "I just want to say, Mr. Greenspan, you gave a lights-out performance."