Risk-Averse Regulators

Friday, November 13th, 2009

Eric Falkenstein tells a tale of risk-averse regulators:

A friend of mine runs a small bank. He said the regulators came in, and said that they had too much money invested in brokered deposits. Like any businessman he wanted a spotless review, because any negative marks could imply he could not do certain things, such as expand a new office, acquire or be acquired. Bad reviews give the government an undefined option to meddle, veto, who knows? So he asked, what level would be alright with you Fed guys? They said, ‘that’s a business decision”. My business friend noted they were very clear that they do not give advice or anything that could be construed as advice.

Translation. We are suspicious of your exposure, but do not want to defend our suspicions.

This is government in action, afraid to make any hard decisions.

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