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— Rules of the Road —
Charged with pulling the U.S. financial system away from the abyss, TARP is no run-of-the-mill bowl of federal alphabet soup, but instead an initiative entrusted with an unprecedented amount of money to spread among the nation's banks, big and small, after deteriorating mortgage securities portfolios set off a wave of failures on Wall Street and threatened to knock more institutions to their knees. Taxpayers expect TARP to achieve near-instant results by jump-starting lending. Geithner must pull that off with every member of Congress, three federally appointed watchdogs and the Washington press corps looking over his shoulder.
In his first major announcement as Treasury secretary, Geithner tried
to placate all of them by issuing "stepped up" rules designed to limit
the influence of lobbyists in the Treasury's investment decisions. Like
TARP itself, which quickly morphed from a program for buying up bad
assets into direct capital investments for banks, the lobbying rules
have a haphazard appearance. The rules were issued Jan. 27, less than
24 hours after Geithner was sworn in and on the same day The Wall
Street Journal published an inflammatory front-page story suggesting
lobbyists had influenced some Treasury capital investments.
The story, however, didn't offer a single example of a lobbyist winning cash for a client bank. The paper even admitted that "a link between such lobbying and the release of TARP cash can't be proved," but that didn't stop it from suggesting there was a link anyway. A couple of state bank regulators, disgruntled that some home state institutions missed out on TARP funds, were quoted suggesting that other banks' success must have been due to lobbying. Nevertheless, perhaps to head off a potential firestorm of congressional outrage, Treasury later that day shot out a press release announcing TARP's new lobbying restrictions. Unfortunately, as of press time the rules themselves were nowhere to be seen. Typically, agencies issue rules in dense but specific legal language in the Federal Register and entered into the regulatory code. Press releases help non-lawyers understand what the rules do, but they have no legal bearing. Among the major tenets (of the press release), Treasury must certify to Congress that each investment decision is based only on investment criteria and facts of the case and not on political considerations. Treasury also reiterated that banks will be eligible for capital investments only if their primary bank regulator has recommended them. The provision is in part an answer to complaints by Ohio politicians that Cleveland-based National City Corp. was denied TARP funds and forced into a merger with PNC Financial Services Group Inc., while institutions with bigger problems -- Citigroup Inc., for instance -- have received multiple infusions. Other provisions include safeguards restricting contacts with lobbyists in connection with applications for, or disbursements of, TARP funds. There are also restrictions, modeled after existing protections for tax proceedings, limiting influence of non-Treasury government officials in the process. More clarity will come when Treasury's Office of Financial Stability publishes a detailed description of the investment review process. The general wording of Treasury's announcement, however, has lawyers wondering whether everyday contacts with government officials now cross the line. "There are lots of contacts between institutions' lawyers and Treasury officials over the mechanics of the program," says Michael Bopp, chair of the financial services crisis team at Gibson, Dunn & Crutcher LLP. For instance, Treasury has drawn up different term sheets for publicly traded banks and others organized as S corporations. Another is in the works for mutually owned ones. Government officials routinely solicit private sector advice for those kinds of projects. "Would contacts about the term sheet violate the rules even though it might not be about a specific application?" Bopp asks. Government watchdogs say they are unsure about the rules as well. "They sound good, but we need to see how they play out," says Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. She's encouraged that Treasury promises to provide a factual basis for who gets the money and why but doubts restricting contacts with department officials will be sufficient to prevent lobbying for funds. "People seeking special treatment will go to the same people they've always gone to -- Congress." Bill McConnell is The Deal's Washington bureau chief. |
Treasury Secretary Timothy Geithner inherited the unenviable chore of shepherding the $700 billion Troubled Asset Relief Program. 
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