FDIC Makes First Move - TARP Fund Monitoring
Any institution that is taken aback that their regulator would ask them how they're spending the money isn't living in the real world out here with the rest of us.
The advice I've been hearing from experienced bankers is - why not show it? What do you have to hide? The FDIC isn't telling banks to take out public ads detailing the way the funds are being spent, but are asking that those banks that have received it be ready to show their examiners how the money was used. What the FDIC wants to track is how institutions have used money from TARP's $250 billion Capital Purchase Program, the numerous liquidity programs from the Fed, and the FDIC guarantee of unsecured debt and zero-interest deposits.
The FDIC this week drew its own line in the sand when it comes to monitoring how the bailout money will be monitored at its banks.
The FDIC also "encourages" institutions to include a summary of the same information in shareholder and public reports, annual reports and financial statements.
Why are they asking for this? Well, it is pretty clear they want to see how a bank has used these funds to support wise lending and/or supported the bank's work with their existing borrowers to avoid unnecessary foreclosures. Remember back to November when the FDIC said they expected banks to document how they are continuing to meet the credit needs of creditworthy borrowers, "Interagency Statement on Responsible Lending" (FIL-128- 2008)?
The federal money financial institutions are getting is meant to be used, not hoarded. Your shareholders and customers need to see how you're using it.
What if you're not using federal bailout money? What then? Make a point of saying so to your shareholders (if you have them) and especially your customers. Lay it out why you've not needed to take money and what are your plans to keep it that way.
Back to those institutions that are getting the funds ... Some of them might be the biggest banks in the country (and not under FDIC aegis), but they're still going to be held accountable. There will be a time and a place that an accounting will be made. Be sure to be one of those honest institutions that can open the reckoning document and point exactly where the money was used, how much spent and, most importantly, where the rest of it is sitting at the bank. If you decide not to, remember that customers and the public have already got serious confidence issues with the industry. By not willingly showing what you're doing with the money (it's taxpayer money) it just makes customers more suspicious and wary of doing business with your institution.