Risk Management

CFOs Zing Fed for Poor Bank Oversight

Finance chiefs say the Federal Reserve failed to do enough to regulate banks in past four years.
Tim ReasonMarch 19, 2008

The market may have breathed a sigh of relief at the latest moves by the Federal Reserve. But a recent survey of chief financial officers gives the Fed failing grades for its oversight of the banks at the heart of the current credit crisis.

In a survey conducted at the CFO Rising conference in Orlando Fla., 69 percent of senior financial executives said the Fed and other regulators should have exercised tighter regulation over banks during the past four years. A similar number—68 percent—said that requiring greater transparency of structured banking products would have a positive effect on the U.S. economy going forward.

Conducted before the Fed’s dramatic weekend rate cut, another cut on Tuesday
, and the bailout of Bear Stearns, the survey gave the board mixed marks for its interest-rate cuts. A slim majority—54 percent—said the Fed should have done a better job of using monetary policy to reduce the impact of the credit crunch, and 46 percent saying it should not have done more than it did. The survey had 142 respondents, 72 percent of whom were CFOs or vice presidents of finance. Ten percent were controllers and 16 percent were directors of finance.

Green issues seemed as high on the radar of conference attendees as on that of the presidential candidates. The cost of energy was cited by the largest group—62 percent—as a “serious roadblock” to prosperity. At the same time, an even bigger group, 72 percent, felt that providing incentives for alternative energy use and development would have a positive effect on the U.S. economy. That was the most popular way to provide a boost among the respondents—more popular than cutting the corporate-tax rate (69 percent) or maintaining the 2003 tax cuts (66 percent), for example.

Overall, the mood at the conference was grim, with several speakers warning of serious economic woes ahead. Particularly striking was this characterization of the current state of affairs by Jerry York, the former finance chief of IBM and Chrysler Corp.: “It’s going to be a very bad recession, perhaps the worst I’ve seen in the 46 years I’ve been working.”

York said that a “perfect storm” of economic calamity has struck. The confluence of negative forces includes rising energy prices, rising commodity prices, credit markets in turmoil, credit losses in which “no one knows where the bottom is,” and a housing market in crisis. “We have too many sectors going south all at once, he told the website. What’s more, York can’t find a silver lining: “I frankly don’t see many positive signs right now, we are looking at a really nasty economic situation.”