Banks must make major changes in risk management, expense control, and compensation, says Ken Lewis, head of Bank of America.
Writing in The Wall Street Journal, Lewis outlines banking changes that would stabilize the economy and dispels several “myths” about banks that have gained currency in the wake of the current economic crisis.
A principal myth, Lewis contends, is that banks aren't lending. False, says Lewis. Lending standards are higher, but Fed data shows business lending is up, although modestly.
Another widespread myth is that The Troubled Asset Relief Program (TARP) hasn't worked.
"Not true," according to Lewis. TARP has worked and banks are lending again.
Fears that taxpayer billions given to banks will never be recovered are also unfounded, Lewis says.
"TARP funds are not charity," he says. TARP loans were made at 5 percent to 8 percent, and banks will pay about $13 billion in dividends to the U.S. Treasury in 2009.
Despite statements that nationalizing banks may be necessary, although short-term, from influential economists such as former Fed Chairman Alan Greenspan, Lewis says this is a “misguided premise."
Nationalization, according to Lewis, would perpetuate the myth that banks are insolvent, and "undermine confidence in the financial system."
According to NYU economist Nouriel Roubini, the U.S. has already pumped $2 trillion into the banking system. "Let's stop the delusion about 'no nationalization,'" he recently said.
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