Felix Salmon, citing self-evident, points out that repaying the TARP doesn't seem to be something banks require permission to do:
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.
Looking to the FDIA we get:
(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.
So the "only" real impediment for former investment banks become bank holding companies appears to be the "consultation of" (2) the Board of Governors of the Federal Reserve System. I'm not sure that's going to be a cakewalk, as there aren't any particular criteria defining what constitutes "consultation."
This will get more interesting before it gets boring. Could be that The Safecracker overstepped his bounds.
Can Geithner Stop Banks Withdrawing From TARP? [Felix Salmon]
Posted by guest , Apr 21, 2009 12:05PM
I am altering the deal. Pray I don't alter it any further.
Posted by guest , Apr 21, 2009 12:10PM
Wrong.
The plain language of the statute makes it clear that a bank cannot unilaterally repay the TARP: they are subject to the permission of the Secretary.
In gauging whether a bank may repay the TARP funds, the Secretary is to consult with the relevant regulator.
The only proscription that Congress has applied to this "consultation" is that 1) the Secretary may not require the bank to raise capital to make the repayment and 2) there cannot be a "waiting period."
As you point out, EP, "consultation" is a wide mandate. Within the language of the statute, the regulators certainly have power to refuse repayment to protect an individual bank or the system.
If Congress intends otherwise they can pass a new law.
Posted by guest , Apr 21, 2009 12:17PM
And by the way, who is this "Felix Salmon" idiot.
It's bad enough that we have morons speaking emphatically about financial matters they do not understand (I'm talking about economists here, some of whom have little profiles of Alfred Nobel hanging over the mantle).
We really don't need a bunch of amateur legal scholars weighing in on their misinterpretation of statutes and other legal documents.
Posted by sugardaddy , Apr 21, 2009 12:18PM
Ah yes, our vague language has failed us again. Rather than admit that we are wrong, lets just add a new law on top of that. Oh yeah and if a bank attempts to pay early...90% tax.
Posted by Equity Private , Apr 21, 2009 12:21PM
"The plain language of the statute makes it clear that a bank cannot unilaterally repay the TARP: they are subject to the permission of the Secretary."
I'm not sure this is true. The section I cite above is even titled:
(g) NO IMPEDIMENT TO WITHDRAWAL BY TARP RECIPIENTS.—
Again, the operative language:
...the Secretary SHALL PERMIT a TARP recipient to repay any assistance previously provided under the TARP to such financial institution.... (emphasis added)
etc. etc.
Posted by guest , Apr 21, 2009 12:39PM
Does TARP remind anyone of Team America?
Team America-F*ck Yeah!
Posted by guest , Apr 21, 2009 12:48PM
post 6 should be deleted since i am offended
Posted by guest , Apr 21, 2009 12:49PM
@5, EP, all of the clauses of the statute have to be given effect.
If the Secretary were *required* to permit repayment, why would it be "subject to consultation" as the preceding clause requires?
And while the next clause makes it clear repayment cannot be conditioned on raising capital or a waiting period, that Congress chose to distinguish those two items implies that other conditions may be applied.
Posted by guest , Apr 21, 2009 12:51PM
Who is on the Board of Governors of the Federal Reserve System, and who is their CEO, and did he/she work for Goldman Sachs?
- Maxine Waters
Posted by guest , Apr 21, 2009 12:56PM
@3 And to that point, I think it has been pointed out in the DB comment section in the past, there is no Nobel Prize for economics. There is only the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, established and given out by...surprise surprise...a government central bank!
Posted by wcburrs87 , Apr 21, 2009 1:00PM
@9, we have a winner.
Posted by guest , Apr 21, 2009 1:07PM
It's certainly ambiguous but what is clear to me is that there is on-going collusion between Geithner and the banks. They share the same interests. So if the banks want to pretend they are so much better now than 6 months ago, they would claim they can repay the TARP but Timmy won't let them. Timmy knows they are bluffing and also knows why. It's not even clear to me Timmy would have to say why he won't let them. In other words, those repayment attempts will be not much better than rumors in most cases.
Posted by guest , Apr 21, 2009 1:07PM
@10 yes, yes, of course you are absolutely right. Can you convince the Times to refer to Krugman as the "Riksbank Prize-winning economist?"
Posted by Equity Private , Apr 21, 2009 1:13PM
"@5, EP, all of the clauses of the statute have to be given effect.
If the Secretary were *required* to permit repayment, why would it be "subject to consultation" as the preceding clause requires?"
It's subject to consultation of the "Appropriate Federal Banking Agency," not the Secretary. That's the Board of Governors for bank holding companies.
"And while the next clause makes it clear repayment cannot be conditioned on raising capital or a waiting period, that Congress chose to distinguish those two items implies that other conditions may be applied."
I read that a little differently:
"...without regard to whether the financial institution has replaced such funds from any other source..."
Doesn't matter where you get it.
"...or to any waiting period...."
And you can't be made to wait to pay it.
What else IS there? The Secretary can't tell you where you can get it from (or can't get it from). The Secretary can't tell you to wait to repay it. What CAN the Secretary do?
It's not the best construction, but I think you are inventing conditions (which you do not specify) where there are none.
I think that what actually happened is that the passage forbidding impediments to exiting the TARP was a last minute amendment to the final bill. As is often the case, those result in less than total culling of conflicting passages.
Going quickly through the bill, there isn't anything else clear on this point.
As to the "consultation with" the Board of Governors, there is a ton of jurisprudence on that term within the context of e.g., War Powers. Consultation doesn't have teeth.
Posted by guest , Apr 21, 2009 1:16PM
its all talk 'till they send in the check. Do you really thing that little timmy would send the check back to GS? Can you imagine the public/congressional pressure to take the money.
In the end, it isn't going to get to that and we all know why. If GS sent in a check tomorrow that timmy didn't want, there would be payback from all of the arms of government -- and that is why none of the big boys want to go first. Several smaller banks have sent back the TARP and they are out, so please, please stop it with "the banks want to return the money but can't."
Posted by guest , Apr 21, 2009 1:17PM
There is a Nobel prize for Natural Gas Trading. A former Enron basis trader told me his boss won it in the summer of 2001.
~Fat-fingered, Low-level Contract Employee Who Reports Stored Natural Gas Volumes to EIA
Posted by guest , Apr 21, 2009 1:33PM
@1 FTW - 3:33 in the clip...
http://www.youtube.com/watch?v=QKtFrfS761Y
Posted by Equity Private , Apr 21, 2009 1:38PM
@17: Too late.
Posted by guest , Apr 21, 2009 2:07PM
@14,
EP I see your point about the meaning of the word "consultation" and I don't know what would be the relevant jurisprudence on that point so I'll accept your WPA analogy, which would weaken my argument that the regulator holds all of the cards.
But let's say Ken Lewis wants to repay TARP next December so he can pay himself a fat bonus but Tim and the regulators think this is a bad idea because BAC would be rendered insolvent. Do you think a judge would compel Treasury to accept the money based on this language?
I fully agree that the second clause was likely added late in the writing of the bill. What is the intent of this section? Was it to remove Timmy's power to refuse repayment entirely?
What that language does, I think, is to prevent the United States from enforcing certain parts of the Redemption section in the TARP Agreements.
For example, Section 5 of the JPM Agreement (http://www.financialstability.gov/docs/agreements/JPMorgan_Chase_Agreement_Dated_26_October_2008.pdf) (pg 31 of the pdf) requires the bank to wait roughly 3 years to redeem AND to fund the repayment through "Qualified Equity Offerings."
Well, anyway, this is a poorly worded section of a poorly worded statute but I don't think any bank CEO is going to get far in court with the argument that Timmy *has* to take the money back.
Posted by Lowly Assistant , Apr 21, 2009 2:09PM
17,
http://dealbreaker.com/2009/03/weekend-dealbreaker-now-just-s.php#more
-DB fan boy.
Posted by guest , Apr 21, 2009 2:13PM
@9: I believe the CEO is Mr. Goldman Sachs.
Posted by Equity Private , Apr 21, 2009 2:14PM
"EP I see your point about the meaning of the word "consultation" and I don't know what would be the relevant jurisprudence on that point so I'll accept your WPA analogy, which would weaken my argument that the regulator holds all of the cards."
Well, I'm not sure on this point, but it seems very weak language coming from a Congress that loves to write "must" and "will" and "approval."
"Do you think a judge would compel Treasury to accept the money based on this language?"
Yes. Most judges I think would. Particularly if there was a bunch of "consulting," to attempt to build consensus before BAC insisted on paying it back. (This I'm modeling on the War Powers issue, which is imperfect at best).
"What that language does, I think, is to prevent the United States from enforcing certain parts of the Redemption section in the TARP Agreements."
It looks aimed directly at the term sheets. I suspect last minute lobbying from the banks.
You point about CEOs not going to court is very well taken. But, consider what would happen if GS just said "here's your money back. Where are my warrants?" Balsy, agreed, but the administration would be badly over a barrel. Pushing restrictions with this kind of weak language and after you've been savaging GS for taking the money just looks totalitarian. I can't see how that flies EVEN IN THIS ENVIRONMENT.
But what do I know? I'm just a blogger.
Posted by Nemo , Apr 21, 2009 2:17PM
@19 -
You misunderstand the language in the JPM agreement you cite. It says that JPM may not repay the money for three years UNLESS they perform a Qualified Equity Offering sooner. (The key language being "Except as provided below".) This is identical to the provisions in the generic Term Sheet (http://www.treas.gov/press/releases/reports/document5hp1207.pdf).
And yes, the statute's language appears to be specifically intended to forbid Treasury from enforcing its own terms.
As for your example of "Tim and the regulators think this is a bad idea because BAC would be rendered insolvent", Tim has nothing to say about that because the Fed is the relevant regulator. This is kind of the whole point of EP's post.
Posted by guest , Apr 21, 2009 2:59PM
@23 - yes, point noted - the perils of trying to post and work at the same time.
However, the JPM Agreement does say that early payments may be made, "subject to the Approval of the Appropriate Federal Banking Agency."
Are we really making a distinction between getting approval from the Federal Reserve and getting approval from Timothy?
On the other hand, the caption of the section is: "No Impediment to Withdrawal by TARP Recipients.," which would indeed suggest Congress' intent was to allow repayment, as you and EP argue.
Posted by guest , Apr 21, 2009 3:09PM
No matter what the statute says, the government has plenty of sources of leverage over these banks. It's not getting repaid until the feds want it repaid.
Posted by guest , Apr 21, 2009 3:10PM
no bank would pay back the money if it wasn't approved - they'd have their CAMELS ratings lowered by their regulator in 3 seconds and end up in a much, much worse spot than they are with TARP money right now.
Posted by Equity Private , Apr 21, 2009 3:19PM
"Posted by guest, Apr 21, 2009 3:09PM
No matter what the statute says, the government has plenty of sources of leverage over these banks. It's not getting repaid until the feds want it repaid."
This commenter has the right idea. You don't mess with your regulator unless they really have no choice but to give you what you want.
Posted by guest , Apr 21, 2009 3:25PM
@25-27 nobody wants to be the next Lehman Brothers. Treasury and the Fed have very long institutional memories. If your regulator asks you to do something, you sure as hell had better do it.
Posted by guest , Apr 21, 2009 4:22PM
I disagree; you take the bastards on.
Giving up on a good fight because you're scared you're going to get in to trouble is pathetic.
-phobos.
Posted by guest , Apr 21, 2009 4:31PM
@27 - EP, there is also the fact that any repayment of the TARP money by a bank holding company would alter that bank's Tier I capital ratio, which is something that it would be forbidden to do without Fed approval.
These pref shares are no-call securities.
Posted by EvilBuzzard , Apr 22, 2009 8:59AM
@9 - Banks are welcomed and encouraged to repay TARP. When the Gold-Sachs and The Bildenbergers give them permission.