School of Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and former counsel to the Fed Board of Governors, says CEOs of TARP-assisted banks must start clearing their toxic assets or get out.

“Asked (Sunday) whether the government would force banks to sell their toxic assets and begin lending again, Treasury Secretary Geithner was noncommital.  CEOs of TARP banks need to be instructed by their regulators that if they do not participate in the balance sheet-clearing program they will be treated the same as GM CEO Waggoner.

“In anticipation of the toxic asset sales: (1) banks need to begin the process of adjusting the value of their loans and investments to reflect marketplace reality; and (2) regulators (FDIC, FED, and OCC) must signal their intention to enforce the Prompt Corrective Action provisions of the law.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

School of Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law, says the onging debate between Treasury Secretary Timothy Geithner and columnist and Nobel winner Paul Krugman is revealing.

“The Geithner vs. Krugman debate is interesting.  At least we can be confident that Krugman hopes Geithner suceeds, unlike others with which the administration has locked horns recently.  Krugman’s characterization of the toxic asset purchases as ‘cash for trash’ will, however, be valid if the so-called PPIPs end up overpaying for bank assets.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and former counsel to the Fed Board of Governors:

“Secretary Geithner has kicked off the debate over regulatory reform starting with systemic risk.  Regrettably, the proposals continue the Fed’s failed policy of ‘constructive ambiguity’ regarding too-big-to-fail firms.  I applaud Geithner’s suggestion that TBTF firms have to be identified ahead of time.  However, we now know that such firms and their uninsured creditors have an advantage that takes the form of the taxpayers’ safety net.  The funding benefits of that safety net have to flow to the general treasury of the U.S., not to the bottom line of TBTF firms.  Otherwise, we are doomed to re-live this cycle.”

Professor Tamar Frankel, an authority on securities law and author of “Trust and Honesty: America’s Business Culture at a Crossroad“:

“The market we have today does not signify freedom for investors, but freedom for a few very tightly controlled, very large concentrations of investors’ money.  This is private power and like any power it requires counterveiling power.  I just hope that the government exercises a counterveiling balance to the private power holders, rather than taking them over.  And rather than rely on self reporting, which unfortunately may note be reliable any more, let government begin to rely on government examinations by experts.”

Robert R. Bench, senor fellow at the Morin Center for Banking and Financial Law and former deputy Comtroller of the Currency:

“Under this proposal, the game changes from “too big to fail’ to ‘big enough to qualify for FDIC liquidation,’ which should foster more market discipline on these institutions, in addition to the major increases in government supervision proposed by the Treasury.  The administration is smart not to propose at this time any restructuring of the existing financial agencies.  All agency personnel need to stay focused on managing the crisis and not on the game of bureaucratic musical chairs.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu

Contact Robert Bench, 617-353-5428, bobbench@bu.edu