Luca Geithner's "Super-FDIC" Proposal
Either their brains, or their signatures:
When he goes before a Congressional panel Tuesday morning, Timothy F. Geithner, the Treasury secretary, is expected to call for the Treasury Department to be granted greater powers to seize troubled financial institutions that aren’t banks.
…
In his opening statement, Mr. Geithner calls for the Treasury Department to have the kind of tools for winding down nonbanks, such as A.I.G., that the Federal Deposit Insurance Corporation has to seize failed banks.
Well.
A few pesky details about the FDIC:
- It’s actually voluntary, at least nominally. People often forget that. The FDIC cannot seize any bank that does not participate in the deposit insurance system.
- The FDIC only seizes insolvent banks, not “troubled” banks. FDIC seizure is, literally, the remedy of last resort. Is Geithner really seeking an open-ended power to seize “troubled” non-banks? Who gets to decide what constitutes “troubled? Geithner, under an unsupervised regulatory mandate? Congress, subsequent to legislation? The President, subsequent to some Bush-like theory of “emergency economic powers”?
- FDIC’s “seizure” power does not exist in a vacuum, and is technically not even a regulatory power in the literal sense. Whether strictly voluntary or of a more “Luca Brasi” nature, a bank’s relationship with the FDIC is contractual: the bank pays insurance premiums (and, perhaps more important, pledges not to mismanage itself into insolvency), and in return the FDIC guarantees deposits (up to a point) and agrees, as a beneficial service, to take over a distressed bank’s operations in anticipation of restructuring, sale or orderly liquidation.
Whatever Geithner is seeking, it is not “like the FDIC.” The FDIC at least goes through the motions, however disingenuous, of being independent and voluntary. Geithner is simply slicing through the pretense and going stright to “a gun at your head and a contract on the table.”
Previously:
–When Did Luca Brasi Become Deputy Treasury Secretary?
–FDIC for Dummies (and Politicians)
Filed under: Activist Legislators & Nanny Statists, Capitalism
Given what ultimately happened to Luca Brasi, I'm not sure Turbo Tax Tim would be all that thrilled with your analogy
It's not really accurate to claim that FDIC insurance is "voluntary." It's "voluntary" the way that paying one's income taxes relies on so-called "voluntary compliance."
Banking requires a state or federal charter. Participation in the FDIC is required to get a charter. If you start and operate a non-government-chartered bank, or fail to "voluntarily comply" with the requirement file and pay income taxes for that matter, you will not be in business very long — and you'll probably go to The Big House to boot.