2ndUPDATE: US Kashkari Warns Against Government Micromanaging Bks
12 March 2009 - 5:17AM
Dow Jones News
U.S. officials shouldn't micromanage banks, a top Treasury
official told lawmakers Wednesday, even as the U.S. government
takes equity stakes in more and more institutions.
Neel Kashkari, the Treasury's assistant secretary for financial
stabilization, told a U.S. House subcommittee that the government
shouldn't interfere with banks as they make their business
decisions.
"However well-intended, government officials are not positioned
to make better commercial decisions than lenders in our
communities," Kashkari said in testimony Wednesday. "The government
must not attempt to force banks to make loans whose risks they are
not comfortable with or attempt to direct lending from
Washington."
Members of the House Oversight and Government Reform Committee's
domestic policy panel expressed little sympathy for Kashkari's
concerns. Instead, they faulted Kashkari and the Treasury for not
keeping track of how banks have used taxpayer dollars, questioning
recent overseas investments, spending on executive bonuses and a
lack of commitment for using rescue funds to benefit the U.S.
economy.
"If the banking system is in serious enough trouble to require
massive amounts of federal support, shouldn't that federal support
be channeled to the domestic economy?" Rep. Dennis Kucinich,
D-Ohio, asked Kashkari.
Kucinich, chairman of the Domestic Policy Subcommittee, cited as
questionable Citigroup Inc.'s (C) $8 billion financing arrangement
for public authorities in Dubai, as well as Bank of America Corp.'s
(BAC) $7 billion investment in the China Construction Bank Corp.
(601939.SH).
"The kinds of transactions they are doing include billions in
loans and investments in other countries at precisely the time that
a liquidity shortage has impaired credit markets in the U.S.,"
Kucinich said.
Other panel members questioned whether the Treasury had enough
information to answer questions about how banks have used funds
from the $700 billion Troubled Asset Relief Program.
"It's quite clear to me Treasury does not have the information
or personnel in place to conduct vigorous oversight of the TARP,"
Rep. Edolphus Towns, D-N.Y., said. "I don't think they even know
how much they don't know."
The comments from the committee members struck a familiar chord
of criticism about the federal government's efforts to stabilize
the U.S. financial system and rescue certain financial institutions
deemed too big, or too important, to be allowed to fail.
Kashkari, acknowledging some of the concerns, said the Treasury
isn't happy about having to repeatedly come to the rescue of
individual firms such as Bank of America and Citigroup to the tune
of billions of dollars of additional taxpayer funds.
"We regretted having to take these actions, to put so many
taxpayer dollars at risk to support firms that had made bad
decisions," he said. "But the choice was clear when the
consequences of inaction were so severe."
Despite his warnings against micromanaging banks, Kashkari did
suggest that the Treasury is open to using its positions as a
significant investor in major financial institutions to affect
change when the government deems it necessary. He cited the
management changes required at American International Group Inc.
(AIG) in the wake of its rescue by the government in September as
an example of this position.
In addition, Kashkari put the onus on firms that have received
extraordinary assistance from the government - the automakers,
Citigroup, Bank of America, and AIG - to meet a higher standard of
disclosure than banks that have just received capital injections
from the Treasury.
"I believe institutions that receive extraordinary assistance
have a moral obligation to disclose as much as possible," Kashkari
said in response to questions about AIG and the various
counterparties that have benefited as a result of the help provided
the company by the government.
-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273;
michael.crittenden@dowjones.com