Feds Talk Tough: Bank Heads May Roll

Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said mis-managment by bank chief executives, and their Boards of Directors may cause some of them to be replaced in the months ahead as the FDIC, U.S. Treasury and Federal Reserve Bank regulators scrutinizes the mis-management and balance sheets of financially troubled banks and ‘Too big to fail’ lenders.  “Management needs to be evaluated,” Bair said today on Bloomberg Television’s show, Political Capital with Al Hunt, to be broadcast this weekend. “Have they been doing a good job? Are there people who can do a better job?”

 

 U.S. regulators last week released stress-test results on 19 banks and ordered 10 including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. to raise $74.6 billion in capital to withstand a “deeper and more protracted” slump than forecast. CEOs of Citigroup and Bank of America, which got a total of $90 billion in U.S. aid, remain on the job, while top executives at Fannie Mae, Freddie Mac and General Motors Corp. were ousted after getting federal bailout help.

 

The FDIC released a statement after the interview characterizing Bair’s comments. Bair said management changes “could happen” based on capital-raising plans submitted to the government. “She did not refer to CEOs specifically,” the agency said in an e-mailed statement. “Bair also did not suggest the federal government will remove the bank CEOs,” the statement said.  Asked in the interview, “Why are some of these other banks’ CEOs still there?” Bair replied, “I think the review needs to go with both the management and the board as well, absolutely.” Bair also indicated there will be an evaluation process for bank management as part their required capital plan.

Chief executive officers at American International Group Inc., Fannie Mae and Freddie Mac were ousted by the Bush administration after the U.S. took control in September. General Motors CEO Rick Wagoner was forced out in March after the Obama administration rejected GM’s recovery plan.

Regulators have a “continuing obligation” to offer sound guidance and steer banks that need government aid to a point where they can eventually operate without taxpayer money. “So to the extent that it means oversight of adequacy of management and boards, I think that’s absolutely appropriate for regulators to do,” Bair said.    Read interview transcript here.

Source: Excerpt reported from Bloomberg By Alison Vekshin — May 15