Out of Control Policy Blog

More CEOs Face Government Pink Slips

This kind of language from FDIC makes me pretty uncomfortable:

Federal Deposit Insurance Corp. Chairman Sheila Bair said some bank chief executive officers will be replaced within the next several months after the U.S. scrutinizes lenders subjected to tests of their financial strength. "Management needs to be evaluated," Bair said today on Bloomberg Television’s "Political Capital with Al Hunt," to be broadcast this weekend. "Have they been doing a good job? Are there people who can do a better job?"

Ok, things that jump out at me here are first, "replace"--the government is going to fire more people? We've already seen Rick Wagoner and the Bank of America board strong armed, basically she is saying more is to come. Second, "needs to be evaluated"--sure it does, but not by the FDIC or any other government branch. They don't have firm's best interest in mind. They can't know what's best for each firm. Third, the questions "have they?" and "who is better?"--I just don't understand what gives bureaucrats special insight into these questions to the point where they know more than the private sector.

I'm not necessarily opposed to the government assessing firm's health or their leadership for legal behavior. But when those assessments are used to issue mandates such as how much capital a bank needs to raise (stress tests) or which CEO stays and which goes, it crosses a line.

See my notes about the government's designs on determining compensation on a wide scale through Pay for Performance legislation here and here.

Anthony Randazzo is Director of Economic Research


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