Who's ready to watch Lloyd Blankfein pinky swear that Goldman Sachs will do no evil? That's what's in store for investment bank CEOs if the Financial Stability Oversight Council has their way. In a proposal released this week, the FSOC is floating the notion that bank CEOs should have to publicly personally guarantee their firm's compliance with securities regulations and swear their allegiance to the Volcker Rule.
"CEOs will not like this," said analyst Paul Miller, a former examiner for the Philadelphia Fed, according to Bloomberg.
I happen to think this is a fantastic idea. I hope it happens, and I hope they give it some teeth. Trust me, it'll be good for the long term health of the industry if a cheating CEO is tarred and feathered and run out of town on a rail. I've often said every TARP application should have been accompanied by the CEO's resignation letter.
What do you guys think? Does this follow along the lines of the Harvard MBA Ethics Oath? Should CEOs be forced to personally guarantee their bank's compliance? What should the penalties include if they get busted?
When a small business owner is forced to sign a personal guarantee on a business loan, he becomes personally liable if the loan defaults. It would be nice to see what would happen to Hamptons real estate values if bank CEOs were forced to have the same skin in the game that small business owners do.
Punishment: 12 month stint in exile aka Piper Jaffray BO
stupid idea.
ceo's have a responsibility to their shareholders, not to the government. also, i'm not knowledgeable in this area, but pretty sure the whole point of a Sole proprietorship/small business/partnerships is that there is no distinction between the owners and the business - and the whole point of corporations is a legal personality/limited liability ownership. thus making CEOs personally guarantee loans is stupid, not to mention unfair.
CEOs have a responsibility to taxpayers when taxpayer money saved them from being thrown out on their asses.
Also, fair or otherwise, 80%+ of small business owners, including corporations, are forced to sign PGs for loans.
not every bank received a so-called bailout. nor should the bailout have happened to the extent it did, in my opinion.
also, key word - small business. even if the small business is a corporation, banks will most likely want some sort of personal guarantee since these small corporations are often thinly capitalized. also, a major investment bank isn't a small business.
not sure if you are trying to play devil's advocate here.
Agree - freedom doesn't mean free for all, and arguing that business shouldn't have to follow any rules at all just makes it harder to get good ones passed (and bad ones removed). CEOs do answer to the shareholders in the strictest sense, but that doesn't free them to do anything they want to make money. They are legally bound to uphold the law within their own companies, and if they fail to do this, they're failing to do their job......any debate on this point is simply rediculous. This talk of 'personally guaranteeing' anything though, well that's just overblown rhetoric - no one expects the CEO to answer 'personally' for some minor infraction in some distant branch office. However, the systemic controls over compliance ARE their responsibility. It's in the job description. Hell, if they'd done their jobs in the first place, none of this mess would have happened
So are you suggesting that CEO's are going to be somehow responsible for every loan their organization makes or a certain percentage? Just trying to understand exactly what they're guaranteeing here.
EDIT: Just thought of this but, as this will obviously increase the risk CEOs have to take on in their roles, what are the odds that rumblings of higher pay for CEOs start coming out of Wall Street? No upside for them and plenty of downside which has to be compensated somehow. Obviously, most people think they are overpaid to begin with but if your job is XXX and you get paid YYY then you would expect a major bump in comp if your responsibility increased such a large amount. Just a thought.
This is idiotic, you can't make CEOS liable for a business that they do not own. Your exposing them to max downside with no upside.
Small business owners are liable because they own their business. CEO's do not own it, they are paid to run it. Will that lead to conflict of interests? Yes.
Can you make them personally liable for a business they do not own? Hell no.
what exactly are they liable for then? Their job is to run the company.....part of running a company is to ensure the laws are followed A. to avoid fines B. to ensure the long term health of the company C. b/c it's the right thing to do. Since when has the denial of responsibility become the exclusive domain of executives??? When I see that, I jump ship, and FAST, because the company usually becomes a sinking ship
I dont think you guys are getting what this is. They arent going to be personally reliable for every loan made or something like that, just that if the their bank breaks compliance rules and it can be proved that the CEO's were aware of this breach, they can be prosecuted/fired.
I think this is a good way to make sure that firms stay within the rules.
Isn't this already the case? The whole point is that it's nearly impossible to prove that they knew exactly what X group was doing.
Thanks derivstrading. This isn't about loans or anything else on the commercial side of banking. It's all about securities compliance. Fuck up and you're out, I say. Otherwise, why are you being paid CEO money?
There is also the issue that a small business's success and failure when it comes to a PG is pretty striaght forward---not the same with "following" the Volcker rule.
If we are considering such liability, we should also be asking if the key mgmt of Fannie Mae or Freddie Mac should be held accountable for underwriting standards or the CEOs of the CRAs for their credit ratings. What about making homeowners responsible for their mortgages with full recourse mortgages (as is the standard in most other countries) so people can't just give the keys back to the bank after overpaying for their house and actually think about their decisions. Much biggers issues than GS or the investment banking industry - just symptoms and easy escape goats.
I think, if i remember well when i read the dodd-frank wall street reform act, that this new piece of legislation only affects certain banks with a market cap of 50bn. "smaller" banks will be less regulated than bigger ones. The reason for monitoring such big banks by the newly created Financial Stability Oversight Council is to simply reduce systemic risk.
The reasoning behing making the CEO's accountable is to prevent financial institutions not to act in goodfaith to their clients (like goldman just before the crisis selling CDO's to clients and buying credit default swaps against them)
Hope it helped to clarify things.
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I think this is a really good idea. The real debate here should be what suldho the consequences be if they break the oath? Obviously they should be terminated immediately but anything beyond that? Should courts get invovled and force the CEO to give back some of the compensation it gained while breaking the law back to the company and shareholders ??
If this is enacted, CEO compensation will have to increase.
Isn't that called "risk management" in the industry?This seems silly to me. Even if you have them "promise" to guarantee compliance, CEO's cannot control every aspect of their organization. And it would be even more difficult to prove they knew or had anything to do with it. It looks more like a feel good regulation that really does nothing.
And we can argue all day long about which banks needed bailouts and which would have survived, etc, but that does not mean that the government should continue to influence decision-making at private institutions. That simply perpetuates the problem. If you are on a tree and choose one branch, then your next decision should not be based on the previous ones.
Show me the line in the Constitution authorizing this...
It's right after the one about life, liberty, and the pursuit of healthcare
...fun fact - freedom of practitioner (doctor and/or medical treatment) was almost written into the consititution
Yea, and I 'almost' pounded Meghan Fox...
Read 'Doctor Franklin'd Medicine' by Stanley Finger. Based on the way Megan Fox (and Sasha Grey) keep coming up, I'm guessing you dig brunettes
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