Competent Banking CEOs: They Do Exist

Here is a WSJ article discussing how the CEOs of banks that refused TARP funds spent their day yesterday. If you recall I suggested the need to create an oversight board from the private sector to manage the government's investments in the banking sector, provide governance for bailed out companies, etc. The executives of the banks that aren't in trouble and don't need TARP funds seems like a good place to find the talent for the oversight board, as their approach to banking and lending is the one that the executives at the big banks need to emulate.

It might also be a good idea to carve out a portion of the TARP funds and use it to create a program that functions as a sort of "SBA for Small Banks," with the goal of helping regional/community banks and credit unions expand. The overall idea would be that the taxpayer will get a greater ROI from helping community and regional banks expand, than they will from pouring money into the money pit that is Citigroup (C), or helping other banks maintain status quo.

The capital injections could be in the form of low interest loans, or even in the form of a certificates of deposit. The idea would be to provide capital in a way that doesn't come with the TARP stigma, government interference, etc, so as to make the program appealing for the banks that can funnel the most benefits back to the taxpayer.

Mind you I'm not saying that we should let Citigroup and BoA (BAC) vanish into the ether, just pointing out that the most efficient way to increase the availability of consumer credit is to direct capital towards banks that have low loan losses and aren't losing money.

All that being said, something we have to keep in mind is that lending isn't a business function like providing electricity, and not everyone is credit worthy or can afford as much credit as they want or think they need. It's fatuous to have the credit availability discussion without first looking at lending standards and who is being denied credit, having their credit lines cut, etc., so you can determine whether or not a fair decision was made. It just doesn't make sense to rail against banks for not providing more credit, when easy credit is what caused this crisis in the first place.

You can't help people by providing them with more credit than they can afford, and loading consumers down with more debt so they can spend more (over the short-term) is not the solution to our current economic woes.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[Fabien Hug:]

You are right and it seems that they are on panic mode; let's go back to those happy years, at any cost, anyhow.

Feb 13 08:50 AM

[john s. gordon:]

yes there are competent bank executives, one reads about them occasionally in the newspaper..

they are the ones who declined to dabble in CDO's, CDS's etc. because these speculative vehicles failed the prudence test.
> jack

Feb 13 08:57 AM

[Igorsky:]

The Treasury should stop playing around trying this and that schemes and prolong the agony and head towards a long term disaster, a.k.a. Japanese economy of the last 25 years.

Instead, use the proven and successful Swedish model and do a short term nationalization of troubled banks as Roubini explained yesterday in his great article (sorry, I do not have the link) on how to solve our economic morass.

We have gone thru 1 million foreclosures so far and six million more more to go in the next 3-4 years. We need to take quick and swift measures that will quickly hurdle over all these competing interests of politicians, legislators, powerful bank lobbies, etc. and solve the problem. Sure, it will wipe out investors and shareholders but without this swift measure, in the long run, everyone loses lots more.

Feb 13 10:17 AM

[NITRAM:]

There are always good managers. Since they play by the rulkes they get no recognition. James Diamond at JP Morgan said he didnt want the money. The government made him take it. Bank of America said they didnt want the money either. So if they didnt want it why not give it back? The Congress has made Mr. Diamond the Poster boy for good management. They gave him Bear Sterns, Washing Mutual etc and billions of dollars to keep, not lend.
If you saw the group of eight in front of the Congress you should have noticed the way Mr. Diamond looked at the other bankers and the Senators. You could hear him say WHY AM I HERE? I DONT BELONG WITH THESE LOOSERS.

Feb 13 04:37 PM