Breaking Views

A strange new twist for TARP rules

There's a lot to be said for a watchful regulator, but the Fed's latest requirements defy logic.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Antony Currie, breakingviews.com

(breakingviews.com) -- Has the Federal Reserve been reading too many fairy tales?

Judging by the latest tweaks the U.S. regulator has made to the criteria banks must meet before they can repay capital injected by the Troubled Asset Relief Program, the Fed seems fixated on the Princess and the Pea: no matter how much cushioning it heaps onto bank balance sheets, it still feels the discomfort of potential losses.

Of course, there's much to be said for having a proactive regulator keeping its eye on all the downside risks. But policy contradictions appear to be piling up at the Fed.

Demanding that healthy banks like JPMorgan (JPM, Fortune 500) prove they can sell equity before allowing them to offload their TARP funds looks odd enough: the New York-based bank easily passed the Fed's stress tests, and the $5 billion that regulators told it to raise does little to bolster its already very solid capital ratios.

Now Morgan Stanley (MS, Fortune 500) has been told to raise an additional $2.2 billion. Granted, the Wall Street firm didn't fare as well in the stress test. But it took its medicine immediately, raising $4.6 billion the day after stress test results were made public. That not only proved the bank could tap public equity markets -- it was more than double what it needed.

That makes it appear there is little justification for forcing Morgan Stanley to go back to the trough. Unless the Fed is somehow tacitly admitting the stress tests weren't up to snuff, this extra bout of stock-selling only serves to dilute Morgan Stanley's shareholders unnecessarily.

Even more puzzling, the Fed doesn't appear to be compelling Goldman Sachs (GS, Fortune 500) to raise more capital. Sure, Goldman shouldn't need to -- it passed the stress tests and raised $5 billion of new equity in April. But giving one solid firm a pass while conscripting others seems illogical. At least the princess in the fairy tale was consistent. To top of page

CompanyPrice% Change
Kelly Services Inc 11.31 10.23%
Terex Corp 20.95 9.06%
Alcoa Inc 15.79 8.30%
BlueLinx Holdings Inc 3.35 7.37%
Dec 21 3:53pm ET †
IndexLast% Change
Dow Jones10,414.140.83%
Nasdaq2,237.661.17%
S&P 5001,114.051.05%
10yr97 1/32Yield: 3.73%
Dec 22 9:16am ET †
CompanyPrice% Change
LSI Corp 5.97 6.42%
SanDisk Corp 26.64 6.22%
Micron Technology Inc 9.29 5.75%
Advanced Micro Devices Inc 9.52 5.19%
Dec 21 3:58pm ET †
More Galleries
Meet the hardest working Santas This is no part-time gig for these St. Nicks. They've carved out a profession warming kids' hearts during the coldest time of year. More
Obama's Main Street favorites President Obama meets often with small business owners, peppering his speeches with their stories. We checked in with 6 entrepreneurs touted by the President to find out how they handle health care. More
Class of '09: They got jobs! In August, CNNMoney asked nine recent grads about their job search. Six months after graduation, all of them are working at least part-time. More
Sponsors

© 2009 Cable News Network. A Time Warner Company. All Rights Reserved. Terms under which this service is provided to you. Privacy Policy. Advertising Practices.
Copyright © 2009 BigCharts.com Inc. All rights reserved. Please see our Terms of Use.
MarketWatch, the MarketWatch logo, and BigCharts are registered trademarks of MarketWatch, Inc.
Intraday data provided by Interactive Data Real-Time Services and subject to the Terms of Use.
Intraday data is at least 20-minutes delayed. All times are ET.
Historical, current end-of-day data, and splits data provided by Interactive Data Pricing and Reference Data.
Fundamental data provided by Morningstar, Inc..
SEC Filings data provided by Edgar Online Inc..
Earnings data provided by FactSet CallStreet, LLC.