The recent vote by Federal Reserve Board Governor Elizabeth Duke opposing the application of GMAC LLC to become a bank holding company deserves high praise. The only reason GMAC, CIT Group, American Express, Discover Financial, Goldman Sachs, and Morgan Stanley decided to become bank holding companies was because that was the only goofy way former Secretary of the Treasury Henry Paulson figured non-bank firms could access TARP funds.
No CEO in their right mind would knowingly reorganize their company so it could be regulated by the Federal Reserve. Just what they needed – another regulator looking over their shoulder!
The Fed is digging a regulatory hole for itself that will prove embarrassing. Insurance companies, such as Genworth, Hartford Financial, Lincoln National, and Protective Life, whose stocks and bonds have been hammered due to observed weakness in their balance sheets, are all acquiring banks and/or forming bank holding companies to access TARP funds.
In approving the Protective Life Corporation’s application to become a bank holding company by acquiring the Bank of Bonifay and its holding company, the Fed went overboard to help the FDIC because that Bank was operating under a cease and desist order and its capital was insufficient given its risk profile. Protective Life was downgraded by Standard & Poors on January 15, 2009 the very date the Fed approved its holding company application. S & P stated: “…Protective Life maintains a relative risky investment portfolio with sizable exposure to commercial real estate and BBB and below-investment-grade fixed-income securities.”
The Fed is simply not prepared to deal with the regulatory problems it is bring on itself by approving these absurd combinations. Let’s hope Fed Governor Duke’s view on this matter gains traction.
No CEO in their right mind would knowingly reorganize their company so it could be regulated by the Federal Reserve. Just what they needed – another regulator looking over their shoulder!
The Fed is digging a regulatory hole for itself that will prove embarrassing. Insurance companies, such as Genworth, Hartford Financial, Lincoln National, and Protective Life, whose stocks and bonds have been hammered due to observed weakness in their balance sheets, are all acquiring banks and/or forming bank holding companies to access TARP funds.
In approving the Protective Life Corporation’s application to become a bank holding company by acquiring the Bank of Bonifay and its holding company, the Fed went overboard to help the FDIC because that Bank was operating under a cease and desist order and its capital was insufficient given its risk profile. Protective Life was downgraded by Standard & Poors on January 15, 2009 the very date the Fed approved its holding company application. S & P stated: “…Protective Life maintains a relative risky investment portfolio with sizable exposure to commercial real estate and BBB and below-investment-grade fixed-income securities.”
The Fed is simply not prepared to deal with the regulatory problems it is bring on itself by approving these absurd combinations. Let’s hope Fed Governor Duke’s view on this matter gains traction.
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