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The Call Geithner Didn’t Make While His New York Fed Watched Over Citigroup

A 2005 report by other Federal Reserve banks found that the New York Fed did not have the resources to supervise Citigroup. But Alan Greenspan, who was the Fed chairman at the time, says that Timothy Geithner never called to ask for more.

(Win McNamee/Getty Images file photo)The proposition that Treasury Secretary Timothy Geithner, in his prior job as president of the Federal Reserve Bank of New York, didn’t do enough to rein in banking giant Citigroup just gained new support.

On Wednesday, the Financial Crisis Inquiry Commission disclosed that a peer review study by other Federal Reserve banks in 2005 found that the New York Fed "had insufficient resources to conduct supervisory activities" of Citigroup.

Geithner, who led the New York Fed from 2003-2009, did not seek additional resources in the wake of the study, according to testimony before the commission on Wednesday by Alan Greenspan, who was chairman of the Federal Reserve at the time.

We’ve reported earlier on Geithner’s extensive contacts with Citigroup officials during his tenure at the New York Fed. In the end, the Federal Reserve was unable to curb practices that led Citigroup to the brink of collapse in 2008 and required a massive federal bailout.

Greenspan said Wednesday that if the New York Fed had not had the resources to do its job, Geithner would have been been on the phone quickly to complain. "No such telephone call or any other communication ever existed," he testified.

Geithner’s supervision of Citigroup figured in his confirmation hearings to become Treasury secretary. He acknowledged, under questioning, he could have done a better job supervising Citigroup.

A few senators cited Geithner’s handling of Citigroup as a basis for their opposition to his confirmation after ProPublica disclosed that the New York Fed had lifted some restrictions against Citigroup and allowed it to engage in risky ventures with insufficient capital during Geithner’s tenure.

Two months after Geithner’s confirmation, the Government Accountability Office weighed in on the Fed’s handling of Citigroup and other large banking companies. The GAO said the Fed, having uncovered deficiencies in risk-management practices at the largest banking firms in 2006, "did not take forceful action" to correct them "until the crisis occurred."

The Fed brought no formal enforcement actions against any large institution for substandard risk-management practices before the crisis erupted in the second half of 2007. Nor did it use its confidential process during that period to downgrade any large bank company's risk rating, according to two people familiar with the process, a step that could have triggered costly consequences for the firms.

The Citigroup bailout required $45 billion in capital and $7 billion in guarantees. Now, whether to give the Fed more power to regulate large financial institutions like Citigroup is a key issue for Congress as it debates legislation to reform the regulatory system.

Norman Morley

April 8, 2010, 6:30 p.m.

This is another example of what’s wrong with the present administration. It’s also reason enough to ask just what “O” is doing? What is it that makes every P.O.T.U.S. so inept when it comes to enforcing regulations that supposedly ban the types of behavior prevalent today? It seems that this one has turned 180* on most all campaign slogans. It further appears that he is in bed with the “Looting of the Treasury” for the benefit of the few, at the expense of the rest of the citizens of the U.S.A. Could it be that he believes because he achieved being the first A.A. as P.O.T.U.S., which is now etched into the History of the Country, that he doesn’t care what goes on? These are questions requiring answers that should be forth coming today, not after he has left office.

This article is part of an ongoing investigation:
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