A panel appointed by Congress to help guide the Treasury’s rescue of the financial system says firing top bank executives and closing the most troubled banks may be the best option.
In its just-released report, the Congressional Oversight Panel also argues that the Treasury may be guilty of overly optimistic economic projections as it executes its $700 billion bank bailout — the Troubled Asset Relief Program (TARP).
TARP’s success has been “mixed,” the panel notes.
As for the fate of bank managers, “All successful efforts to address bank crises have involved the combination of moving aside failed management and getting control of the process of valuing bank balance sheets,” the report reads.
The group says “it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth.”
The panel says that for now it’s examining “potential policy alternatives” for the Treasury and isn’t yet calling for changes.
Nonetheless, the report says, “Allowing institutions to fail in a structured manner supervised by appropriate regulators offers a clearer exit strategy than allowing those institutions to drift into government control piecemeal.”
Bank analyst Mike Mayo said in a recent conference call that nationalization of banks remains a possibility because government policy remains unclear, according to Bloomberg.
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