Banks - Keep Those Books Closed

To listen to some of the arguments and discussions through Capitol Hill and the halls of the Federal Reserve, you would almost think you were back in elementary school. He-said, she-said, is running rampant as lawmakers and industry groups alike are clamoring to know exactly what every bank receiving bailout funds is doing with taxpayer money.

The Federal Reserve and the Bush Administration have done themselves a great disservice by not squashing these requests immediately. Let’s think about why a public corporation wouldn’t want to disclose what they are doing with the money: It’s called competition. Each of these companies shouldn’t have to disclose what they are doing. The only individuals these companies answer to are their board and their creditors - both through appropriate channels. If the government was so keen on knowing, they should have instituted debt covenants like any other creditor. They didn’t for good reason.

Simply because some public interest group wants to make banking as inefficient as government doesn’t make it a good idea. These groups should only look around to know that our banking system stands. That should be all the proof they need that their investment is working. Remember the reasons behind their need for money were completely different from why the auto industry needed bailout funds. If these consumer groups are so concerned with our nations governance, perhaps they should have participated more in policing the SEC, or figuring why failing automakers received funds. But individuals who suggest that any public bank should open up their books to share trade secrets or strategic plans (which is what accounting for your expenditures is equivalent to) are about as ill informed as a Madoff investor. And from the sounds of it, there are lots of them out there.

Here’s an excerpt from Reuters.

“WASHINGTON (Reuters) - The Federal Deposit Insurance Corp on Monday urged its member banks to publicly disclose how they are using the billions of dollars of government capital injections and guarantees.

The FDIC issued a letter to more than 5,000 banks it supervises, encouraging them to say more about how the funds have supported prudent lending and helped homeowners avoid foreclosure.

The letter is not an order to the banks but strongly encourages them to comply with the FDIC recommendations.

“Given that government funds, capital and guarantees are being used to support banking institutions, banks are expected to document how they are continuing to meet the credit needs of creditworthy borrowers,” the agency said.”

You can read the full article from Reuters here.

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