William K. Black has been making the rounds lately, and has been drawing a lot of attention (from people who want to hate the Geithner plan) by claiming that the Obama administration is "refusing to obey the law" by not seizing the major banks. On Bill Moyers' show, Black stated:
I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.This is patently untrue. Prompt Corrective Action (PCA) does not require the government to close any of the major banks. PCA requires the government to take certain actions as an FDIC-insured bank's capital cushion declines. But even when a bank becomes "critically undercapitalized," PCA requires the government to either place the bank in receivership or "take such other action as the agency determines ... would better achieve the purpose of [PCA], after documenting why the action would better achieve that purpose."So Black is misrepresenting the law. Moreover, none of the major banks' FDIC-insured subsidiaries are even close to "critically undercapitalized" under the Prompt Corrective Action Law. In fact, they're all considered "well capitalized" under PCA. To be considered "well capitalized" under PCA, a bank must have (1) a total risk-based capital ratio of 10% or higher; (2) a Tier 1 risk-based capital ratio of 6% or higher; and (3) a leverage ratio of 5% or greater. A bank isn't considered "critically undercapitalized" until its ratio of tangible equity to total assets falls below 2%. Here are the relevant ratios for the FDIC-insured subsidiaries of Citigroup, BofA, Wells Fargo, and JPMorgan. (Select "Performance and Condition Ratios.") As you can see, all of them have capital ratios well above those required to be considered "well capitalized" under PCA. Now, you can argue that these capital ratios don't represent the true condition of the banks, but that's a different argument. The issue here is whether the Obama administration is "refusing to obey the law" by not seizing the banks under PCA. Clearly they're not. So not only is Black misrepresenting the Prompt Corrective Action Law, he's also badly misrepresenting the condition of the banks under PCA. What a dishonest hack.