Tim Geithner Is Trying To Steal Ben Bernanke’s TARP Job

Earlier this afternoon we pointed out that Tim Geithner probably doesn’t have the authority to tell banks they can’t withdraw from TARP and its compensation restrictions by paying back the bailout money. The law actually says there should be no empediments to banks that want to withdraw–no requirements that they raise new money, and certainly no requirement that the "system" is healthy enough to withstand their withdrawal.

The provision of the stimulus act, in which the rule about withdrawing was contained, does have a clause saying that withdrawal is "subject to consultation with the appropriate Federal banking agency (as that term is defined in section 3 of the Federal Deposit Insurance Act)." Now a consultation requirement is a far cry from giving regulators the right to reject a repayment request.

But the real mystery here is why Geithner thinks he’s the "appropriate Federal banking agency." Because that’s not what the law says. For, say, a bank holding company like Goldman Sachs, the law says the appropriate authority is the Board of Governors of the Federal Reserve System as the consultant.

Here’s the appropriate passage of the FDIA (via DealBreaker):

(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.

It’s got to be inconvenient, and perhaps surprising, that even in the midst of the crisis we still require our regulators to act within the limits of the law. But it does seem that Geithner needs to clarify his position on TARP repayment since right now his insistence on systemic health is in flagrant violation of the law.