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

“It appears that the plan is going to be very heavy on the use of public funds and very light in inducing private parties to participate.  For the plan to be successful, two elements are essential.  First, there must be robust financial inducements for private pools of funds to participate on a significant scale.  Second, banks must be required to part with assets that they are carrying at unreasonable values.

“Early indications are that the funds for the program are going to come largely from the taxpayers and that the banks will be free to offer up their dregs for sale and, even then, to resist sales that will negatively impact their capital.  The Treasury and the FDIC already have the tools needed to deal with thinly capitalized banks.  It’s called receivership.”

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