Some discussion yesterday (You’re Not So Tough After All Safecracker) caused us to wonder who exactly had put the provision that seems to forbid Tim “The Safecracker” Geithner from imposing conditions on the repayment of TARP funds.
A series of amendments to what was then H.R. 384, the “TARP Reform and Accountability Act of 2009″ were offered to the rules committee on January 14th. That bill was eventually consolidated into a large mass of amendments and voted into the final bill which was passed in the house on January 28th. The Senate bill was passed on February 10th. Obama signed the bill on February 17th.
The “No Impediment” section of the bill was in the amendment packaged offered on January 14th, amendment #43, to be specific, was offered by Frank, Barney (D-MA).
Suck it, Timmy.
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Tony Danza
And some people think cucumbers taste better pickled.
What?
Huh…?
Exact language:
On the second-last page (574 out of 575) of the Stimulus Bill, you will find the following:
(g) NO IMPEDIMENT TO WITHDRAWAL BY TRAP RECIPIENTS. – Subject to consultation with the appropriate Federal banking agency (as that term is defined in section 3 of the Federal Deposit Insurance Act), if any, the Secretary shall permit a TARP recipient to repay any assistance previously provided under the TARP to such financial institution, without regard to whether the financial institution has replaced such funds from any other source or to any waiting period, and when such assistance is repaid, the Secretary shall liquidate warrants associated with such assistance at the current market price.
To add to #5…
“(q) APPROPRIATE FEDERAL BANKING AGENCY.–The term “appropriate Federal banking agency” means–
(1) the Comptroller of the Currency, in the case of any national banking association, or any Federal branch or agency of a foreign bank;
(2) the Board of Governors of the Federal Reserve System, in the case of–
(A) any State member insured bank,
{{2-29-08 p.1071}}
(B) any branch or agency of a foreign bank with respect to any provision of the Federal Reserve Act which is made applicable under the International Banking Act of 1978,
(C) any foreign bank which does not operate an insured branch,
(D) any agency or commercial lending company other than a Federal agency,
(E) supervisory or regulatory proceedings arising from the authority given to the Board of Governors under section 7(c)(1) of the International Banking Act of 1978, including such proceedings under the Financial Institutions Supervisory Act of 1966, and
(F) any bank holding company and any subsidiary of a bank holding company (other than a bank);
(3) the Federal Deposit Insurance Corporation in the case of a State nonmember insured bank, or a foreign bank having an insured branch; and
(4) the Director of the Office of Thrift Supervision in the case of any savings association or any savings and loan holding company.
Under the rule set forth in this subsection, more than one agency may be an appropriate Federal banking agency with respect to any given institution. “
Tony Danza
I doubt the statute matters here. Even without the TARP law, the government has all the leverage it wants over the banks at this point. How do you think it got them to jump on the TARP train in the first place?
EP, I agree this is sloppy legislation with interpretation problems but despite yesterday’s little colloquy I am not convinced Barney’s intent was to fully emasculate the Secretary.
In trying to dig up a little legislative history on this, I find Barney’s Committee website (http://www.house.gov/apps/list/press/financialsvcs_dem/press0109093.shtml) where he refers to the section:
“No impediment to withdrawal – Subject to consultation with the appropriate bank regulatory agency, Treasury shall permit a recipient of TARP funds to repay those funds, whether or not the recipient has replaced those funds with private capital, as currently required by Treasury.”
There is a similar GOP page (http://www.gop.gov/bill/111/1/hr384) that says, “No Impediment to Withdrawal: Authorizes the Secretary to allow insured depository institutions to repay TARP assistance funds regardless of whether the institution has replaced such funds from another source.”
I find it hard to construe either of these to mean the Secretary must allow repayment under all conditions, but rather that Timmy either cannot (Barney) or may not (GOP) condition repayment on replacing the capital.
@8 FTW.
@9- I’m undecided on the issue, but I doubt that argument will win over EP who strikes me more as a textualist and not so much a legislative intent kinda gal.
@11: Correct. The House and Senate voted on the text of the bill, not the text of the committee markup summary.
@11 much as I would like to win over EP (strict interpretation is such a hot quality in a woman), I think the relevant audience is the Federal judiciary.
While this is an interesting line of argument I think it has little practical import because the Fed (or other Appropriate Banking Agency) can clearly put stipulations on a premature repayment plan so this would find its way to court only if Ben says, “sure Jamie, we have no problem with you paying that cash back without raising equity,” but Timmy says, “I’m not taking the money until you raise new equity – and make sure you give a slice of that secondary to Maxine’s friends.”
Despite the formal independence of the Fed I just don’t see that happening.
I agree that the practical issues will outweigh the law here. Still, the interpretation being thrown around by many makes “arbitrary and capricious” sound like a summer musical.
“…the Fed (or other Appropriate Banking Agency) can clearly put stipulations on a premature repayment plan….”
Actually, wait. Where are you getting this from?
@15, EP:
The “Standard Provisions” of the Purchase Agreement states in Section 5(a) that both repayment (i.e., after three years) and prepayment are “subject to the approval of the Appropriate Federal Banking Agency.”
I think Timmy and friends are deriving their power from the rulemaking authority of Section 101 of the EESA:
“AUTHORITY.—The Secretary is authorized to establish the Troubled Asset Relief Program (or ‘‘TARP’’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.”
Because the preferred share purchases were made under the authority of TARP, Treasury can promulgate rules regarding their repayment.
Clearly Barney’s amendment has taken away the ability to make repayment conditional upon raising new capital, but this seems otherwise to be broad authority and it’s likely Tim could refuse to accept repayment on other grounds, such as some kind of “safety-and-soundness of the financial system” blather.
And a bank holding company can’t repay the TARP money without Fed consent because to do so would alter their Tier I capital ratio (which they aren’t allowed to do without Fed consent).