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Sheila Bair to Leave FDIC in July


Parsad
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  • 2 months later...

She provided an "exit interview" to the NY Times: http://www.nytimes.com/2011/07/10/magazine/sheila-bairs-exit-interview.html?_r=2&pagewanted=all

 

Some juicy quotes:

 

Geithner wanted the F.D.I.C. to guarantee literally all debt issued by the big bank-holding companies — an eye-popping request.

 

No bank needed more federal assistance than Citi — it required three separate bailouts. And yet, in Bair’s view, no bank was treated as solicitously, especially by the New York Fed. She felt pressured by the Fed to allow Citi to buy a failing Wachovia — which she suspected was a kind of backdoor way to strengthen Citi by giving it access to Wachovia’s stable deposit base. To make the deal work, the New York Fed even agreed to absorb some of Wachovia’s losses. When the F.D.I.C. accepted the Citi offer, Geithner felt that a deal had been made. But before Citi could close the deal, Wells Fargo, a much stronger bank, made a better offer — one that didn’t require government assistance. Bair leapt at it. Geithner was furious, complaining that Bair’s action was sending the wrong signal at the wrong time: that the federal government couldn’t be trusted to stick to its word.

 

During the crisis, however, Treasury and the Fed were adamant about protecting debt holders, fearing that if they had to absorb losses, the markets would be destabilized and a bad situation would get even worse. “What was it James Carville used to say?” Bair said. “ ‘When I die I want to come back as the bond market.’

 

Looks like Mrs. Bair indulged in a few well-deserved snipes at the people who took shots at her, off record of course, during the crisis.

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The most surprising part was how the FDIC dragged its feet on adopting Basel II. After years of neglect, there is still some effective bureaucracy in the USA. And yes, that is not an oxymoron.

 

Bair was a critic of the Basel II proposals as far back as '06 or '07, and she took a fair bit of flack for being a "bureaucrat". I'm not a fan of the current capital adequacy focus since you need to move the needle a lot to counter regulatory arbitrage and other big bank responses to disintermediation, but Bair was doing her job, no doubt.

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