Having just observed the one year anniversary of Lehman Brothers' bankruptcy, we now evidently are gearing up for the anniversary of Congress' passage of the Emergency Economic Stabilization Act of 2008 on October 3.One of the Act's provisions was to authorize the Treasury Department to create the Troubled Assets Relief Program (TARP).Since then, TARP has kind of been the Rodney Dangerfield of financial services legislation, as it has not gotten much respect but has been widely criticized by the media and many politicians as an overly generous bailout to undeserving institutions; at the same time many in the banking industry -- including recipients -- saw it as an unfair scarlet letter of sorts.
But according to Treasury Department officials, TARP has been instrumental in saving the banking system and preventing total economic disaster. So, with Congress back in session and the EESA anniversary looming, several Treasury officials did their bit this week to try to set the agenda. On September 24, Herbert M. Allison, Jr., assistant Secretary for Financial Stability (and overseer of TARP) testified before the Senate Banking Committee, and Deputy Treasury Secretary Neal S. Wolin presented to the Financial Services Roundtable. Both men outlined what they see as the successes and still-to-be-dones of TARP and the other EESA provisions, while also making the case for moving forward with the Obama Administration's proposed financial industry reforms.
"TARP has been vital to our achievements to date, and it will continue to be an important part of our recovery," Allison stated in his written testimony. "Although much remains to be done, we believe that TARP has worked to stabilize the financial system and lay the foundation for economic recovery." Wolin's comments emphasized administration's concerns about a system that encourages "moral hazard" as well as the risks of allowing financial institutions to become "too big to fail." He told the FSR, "The days when being large and substantially interconnected could be cost-free -- let alone carry implicit subsidies -- should be over."
Regardless of what bankers think about the causes and perpetrators of the global financial crisis, it seems foolish to deny the reality that the regulatory environment is changing. Rather than pushing against the tide, it seems to make more sense to understand this and move forward with business models that, in addition to being better capitalized, are capable from and operational and technological standpoint to provide the transparency and flexibility that will be the new "table stakes" of bank performance.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio