Academic journal article ABA Banking Journal

Bad Ideas You Must Fight Now

Academic journal article ABA Banking Journal

Bad Ideas You Must Fight Now

Article excerpt

IN RECENT WEEKS ONE NEW IDEA, one new law, and one existing practice have moved to the forefront. All have the potential to drastically alter the banking industry as we know it.

The idea--is to nationalize banks. All sorts of people are weighing in on this. Some who should know better, support it.

Here's a question: If the government failed to recognize, ignored, and to a degree encouraged some of the excesses that have gotten us into this fix, how much sense does it make to have the government take control of, and run, troubled banks?

The government definitely has to be part of the solution. But nationalization is not the answer.

Setting up something like the Resolution Trust Company, or closing an insolvent bank, which requires government intervention, are not the same as nationalization. Unfortunately, the widespread confusion over earlier government efforts--especially "TARP"--has paved the way for talk of nationalization. It should be vigorously opposed.

One key ally here is Federal Reserve Board Chairman Ben Bernanke who has publicly stated that nationalization is neither necessary nor advisable.

The new law--is the economic stimulus plan, which contains a provision to limit bonuses to the top executives and the top performers at companies that received at least $500 million from the government under the TARP Capital Purchase Program. This, despite the fact that many healthy banks were encouraged to accept the CPP infusions as a means of leveraging economic growth, which, in fact, has occurred.

This is a tough issue because, of course, it is already law, but also because of the widespread outrage over overpaid, underachieving execs at a handful of large companies that have had to be bailed out. …

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