The End of Political Interference?

January 28, 2009

Authored by: Robert Klingler

On January 27, 2009, new Treasury Secretary Tim Geithner announced new rules intended to bolster transparency and limit lobbyist influence in federal investment decisions under the TARP program.  While the actual rule has not been published, the action appears intended to react to the recent Wall Street Journal article questioning whether political interference is affecting the selection of TARP Capital recipients.

The impact of the new rules may be as much symbolic as practical.  However, we do expect that, to the extent that politicians were previously willing to assist local institutions with  word of support, these new rules will cause the politicians to reconsider how to provide such support.

The press release announcing the new rules identify four key components:

1. Combating lobbyist influence in the Emergency Economic Stabilization Act process.

The press release indicates that the Treasury will implement “safeguards to prevent lobbyist influence over the program, including restricting contacts with lobbyists in connection with applications for, or disbursements of,” TARP funds.  Because of First Amendment concerns, the rules likely bar Treasury officials from talking about specific matters with lobbyists, but do not attempt to forbid people from attempting to lobby for action.

2. Keeping politics out of funding decisions.

The Treasury will, using the existing protections that limit political influence over tax matters as a model, “ensure that political influence does not interfere” with TARP decisions.  The tax model would prevent executive branch officials (but not members of Congress) from intervening in particular decisions about which banks would get funds.

However, the Treasury has also indicated that it will make a public log of all contacts by public officials and bank officials regarding specific financial institutions, posting such information to the department’s web site on at least a weekly basis.  This openness may reduce the willingness of politicians to lobby on behalf of specific institutions.

3. Certification to Congress on objective decision making.

The Treasury intends to certify to Congress that “each investment decision is based only on investment criteria and the facts of the case.”

4. The investment process will be transparent and based on objective criteria.

The Treasury specifically identifies three steps that it intends to take.  Based only on the press release, it is difficult to tell whether these steps represent changes to existing policies, or merely a public restatement of the Treasury’s intent.

  • Only banks recommended by the primary bank regulatory will be eligible for capital investments.
  • The Treasury will publish a detailed description of the investment review process undertaken by the regulators and the Treasury.
  • The Treasury will ensure adequate resources exist to process applications as quickly as possible with priority to the date of the application as received by Treasury and will formulate procedures to ensure integrity and regularity in the application process.