Wednesday, May 06, 2009
Did the federal government play favorites when it came to distributing bailout money to banks? The editors at the FinCri Advisor believe so, and they have facts to back up their claim. Overall, a bank had an 8.3% chance of receiving federal support, according to the FinCri Advisor, unless the bank had an executive serving on the board of a regional Federal Reserve bank—which increased the odds to 40.5%. Some examples of big banks that got assistance from the Treasury Department include Northern Trust, JP Morgan Chase, PNC and SunTrust, all of which have CEOs serving as Federal Reserve bank directors.
There was also a geographic favoritism when it came to time dish out money to banks.
Eastern banks with Federal Reserve representation did better than counterparts in the West. For instance, all three banks in Boston with Fed connections got Treasury grants. But no banks with representation on the Minneapolis, Kansas City or Dallas Fed boards received help.
Carnegie Mellon Professor Allan Meltzer, a Fed historian and professor of political economy, told the FinCri Advisor that the findings are “not surprising,” given the long history the Federal Reserve has forged with certain banks. “The Federal Reserve has always been protective of the money center banks,” said Meltzer.
-Noel Brinkerhoff
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