Nearing the conclusion of her tumultuous five-year term, outgoing FDIC chairman Sheila Bair made moves this week to shape the legacy she leaves behind in July, making the case for sounder policies needed to head off the potential for a replay of the 2008 financial crisis as markets and industries move forward.
_Bloomberg News_ reports that Bair traipsed from congressional hearings to public speaking engagements, testifying before the House Oversight and Government Reform subcommittee on proposed capital standards increases on Wednesday and delivering a speech on the soundness of still-recovering banks at the National Press Club on Friday.
Despite glowing praise from Rep. Patrick McHenry (R-North Carolina), Bair offered up some shortcomings in her testimony, citing over 350 FDIC -insured bank failures during her tenure. She sang a familiar refrain by arguing against the 2008 bailouts and government intervention in general.
├â┬ó├óÔÇÜ┬¼├àÔÇ£Bailouts are inherently unfair,├â┬ó├óÔÇÜ┬¼├é┬Ø she said in her testimony. ├â┬ó├óÔÇÜ┬¼├àÔÇ£They violate the fundamental principles of limited government and] that├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós why the [FDIC was so determined├â┬ó├óÔÇÜ┬¼├é┬Ø to argue for greater receivership authority and sensible liquidation plans.
Calling a proposed 10 percent capital hike for risk-weighted assets ├â┬ó├óÔÇÜ┬¼├àÔÇ£moderate,├â┬ó├óÔÇÜ┬¼├é┬Ø Bair said in her testimony that federal regulators needed to push for a 3 percent capital surcharge for large banks.
Bair, a registered Republican, also shared her support for the Dodd-Frank Act, praising opportunities for greater oversight and transparency in the mortgage banking industry. Unlike many of her fellow party members, the FDIC chairman agreed with the controversial Qualified Residential Mortgage rule, which requires banks issuing mortgage-backed securities to retain 5 percent of the risk.
Shifting to another forum, Bair spoke at length against what she called ""short-termism,"" describing the mortgage industry before 2006 as one buoyed by ""badly misaligned economic incentives"" that proved disastrous over the long haul.
She used the speaking opportunity to highlight the FDIC's role in resolution framework affecting systemically important financial institutions, or banks deemed ""too big to fail,"" and the Dodd-Frank Act -- moves that garnered both praise and criticism for her legacy.
Mark Calabria, director of financial regulation studies at the Cato Institute, called the legacy that Bair leaves behind ├â┬ó├óÔÇÜ┬¼├àÔÇ£at best a mixed one.""
He criticized Bair for pushing for ├â┬ó├óÔÇÜ┬¼├àÔÇ£a massive expansion├â┬ó├óÔÇÜ┬¼├é┬Ø of FDIC├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós regulatory authority during the Dodd-Frank Act, saying ├â┬ó├óÔÇÜ┬¼├àÔÇ£the agency has proved itself barely capable of handling the responsibilities it already has.
├â┬ó├óÔÇÜ┬¼├àÔÇ£While she was sometimes the only voice in the room arguing against bailouts, she also oversaw a massive, and in my opinion illegal, bailout of bank creditors via the FDIC├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós debt guarantee program,├â┬ó├óÔÇÜ┬¼├é┬Ø Calabria said. ├â┬ó├óÔÇÜ┬¼├àÔÇ£She helped prolong the foreclosure crisis by continuing to claim ├â┬ó├óÔÇÜ┬¼├ï┼ôexploding [adjustable-rate mortgages]' were the primary driver, when they ultimately had little to do with the crisis.├â┬ó├óÔÇÜ┬¼├é┬Ø
FDIC spokesperson Andrew Gray declined to comment on the remarks, saying Calabria ""can have his own perspective"" on Bair.
Gray praised the FDIC chairman's role as an ""early warner [sic] of what we saw in the housing market... and mortgage market,"" adding that Bair ""championed government initiative to get ahead of the"" financial crisis.
The spokesman credited Bair with a smooth handling of the loss of hundreds of FDIC mortgages and called her bipartisan support in the nation's Capitol an indicator of her success.
Bair leaves her position on July 8, at which time FDIC vice-chairman Martin Gruenberg will take over as chairman or acting chairman, if he fails to pass the Senate confirmation process.
Gray said that the chairman looks forward to writing a book and spending time with her family once she leaves.
""It├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós been a very hectic five years, and I think she├â┬ó├óÔÇÜ┬¼├óÔÇ×┬ós looking forward to some down time,"" he said.