The ongoing media frenzy, and disappointing Congressional attack on banks and bankers, continues to have a significant impact on the banking system. Unnecessary and harmful broad-brush discussion of “nationalization,” “stress-testing,” scary and exaggerated industry “liquidity” and “likely failure” pronouncements by bloggers and industry “experts,” inaccurate comparisons with the securities industry and prior economic downturns, “mark to market” accounting rules, SEC failure to re-implement the “uptick” rule to avoid market manipulation, and unwarranted and inappropriate demonizing of bank management and boards all serve to undermine critical depositor and investor confidence at the very time it is most important to support it. The ever-changing “strings” attached to Treasury TARP funding makes important capital planning alternatives and decisions for participants (and potential participants) unclear and unpredictable, clouds the true cost of that capital, provides a disincentive for private equity and makes pro-forma use of capital difficult, at best, to plan.
A proposed increase in FDIC premiums for all institutions would place a significant additional financial burden on an already strained industry. State and federal foreclosure proposals provide roadblocks to important foreclosure proceedings and the ability of banks to address problem loan resolution, and participation by private investors in the new Public-Private Partnership Investment Program (the “toxic asset” purchase program) is questionable, particularly in light of the unknown burdens that may accompany such investment. Changes contained in a comprehensive new proposal for expanded regulation by Secretary Geithner may have a significant impact on the operation and regulation of a broad array of financial institutions, irrespective of their participation in federal TARP-related activities and of their involvement in issues leading up to the current economic situation.
Despite these challenges and the self-fulfilling prophecies they create, it is a testament to bankers and to the underlying strength and character of the banking industry that it has persevered as well as it has. Hopefully, the media can exercise appropriate restraint and objective accuracy in coverage of industry issues, and Congress and the Administration can provide positive leadership and appropriate policy direction. Pointing fingers and demonizing the industry can only continue to make things worse.