The Agency Insider with Linda McGlasson

FDIC Makes First Move - TARP Fund Monitoring

FDIC Makes First Move - TARP Fund Monitoring

It was only a question of time before one of the regulators stepped forward to tell its banking institutions to monitor the use of their federal funds. The FDIC this week drew its own line in the sand when it comes to monitoring how the bailout money will be accounted for at its banks. What I'm talking about here is the FIL-1-2009. It's the right step, and talk is that other regulators are going to quickly follow suit. The call for full monitoring keeps everyone honest, and in these uncertain days the better businesses must strive to show how honest and above board they are. That is, if they're interested in things like continuing to build and/or restore integrity, trust and consumer confidence.

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 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.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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