Make us your home page
Instagram

Federal bailout of Citigroup called 'strikingly ad hoc' in watchdog report

WASHINGTON — The Treasury Department's 2008 rescue of Citigroup, once the world's largest bank, was "strikingly ad hoc," a government bailout watchdog said Thursday.

"While there was consensus that Citigroup was too systemically significant to be allowed to fail, that consensus appeared to be based as much on gut instinct and fear of the unknown as on objective criteria," said a report from Neil Barofsky, special inspector general for the Troubled Asset Relief Program.

In November 2008, the Treasury gave Citigroup a $20 billion emergency infusion, on top of $25 billion the prior month, from the $700 billion TARP fund. The government also backed about $300 billion of Citigroup assets, helping to prop up the New York-based bank as its share price plunged below $5 and some depositors withdrew funds.

"The absence of objective criteria for reaching such a conclusion raised concerns about whether systemic risk determinations were being made fairly and with consistent criteria," the report said.

Treasury Secretary Timothy Geithner told Barofsky that creating measurements for systemic risk was impossible because firms would "migrate around" the criteria, according to the report. Geithner led the Federal Reserve Bank of New York in 2008 when regulators allowed Lehman Brothers Holdings to fail and then bailed out American International Group in the same week.

"It depends too much on the state of the world at the time," the report cited Geithner as saying. "You won't be able to make a judgment about what's systemic and what's not until you know the nature of the shock" the economy is undergoing.

Geithner said that "we may have to do exceptional things again" if the shock to the financial system is large enough, the report said. Barofsky said that Geithner's remark "underscores a TARP legacy, the moral hazard associated with the continued existence of institutions that remain 'too big to fail.' "

Citigroup paid back $20 billion of its bailout funds, and the Treasury converted the remaining $25 billion into a 27 percent stake in the bank, which it began selling last year. It sold the last of its investment in December, realizing an overall gain for taxpayers of about $12 billion.

"It may have been ad hoc, but it worked," said Michael Goldstein, a professor of finance at Babson College in Massachusetts.

The aid was well designed based on "the final accounting of the government's assistance to Citigroup," wrote Tim Massad, the Treasury's acting assistant secretary for financial stability, in response to the report.

Barofsky said that the prospect of additional government relief may encourage excessive risk-taking by executives.

Citigroup "arguably still remains an institution that is too big, too interconnected and too essential to the global financial system to be allowed to fail," Barofsky said.

Federal bailout of Citigroup called 'strikingly ad hoc' in watchdog report 01/13/11 [Last modified: Monday, November 7, 2011 1:55pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Bloomberg News.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Lightning owner Jeff Vinik backs film company pursuing global blockbusters

    Corporate

    Times Staff

    TAMPA — Jeff Vinik's latest investment might be coming to a theater near you.

    Jeff Vinik, Tampa Bay Lightning owner, invested in a new movie company looking to appeal to a global audience. | [Times file photo]
  2. Trigaux: Look to new Inc. 5000 rankings for Tampa Bay's future heavyweights

    Business

    There's a whole lotta fast-growing private companies here in Tampa Bay. Odds are good you have not heard of most of them.

    Yet.

    Kyle Taylor, CEO and founder of The Penny Hoarder, fills a glass for his employees this past Wednesday as the young St. Petersburg personal advice business celebrates its landing at No. 25 on the 2017 Inc. 5000 list of the fastest growing private companies in the country. Taylor, still in his 20s, wins kudos from executive editor Alexis Grant for keeping the firm's culture innovative. The business ranked No. 32 last year. [DIRK SHADD   |   Times]
  3. Ford's Garage opens new Westchase spot

    Business

    Ford's Garage opened its sixth Florida location in Westchase this week.

    hillsevbiz081817: Ford's Garage opened its sixth Florida location in Westchase this week. Photo courtesy of Ford's Garage
  4. Carls Patio celebrates great outdoor furnishings in Carrollwood

    Business

    CARROLLWOOD — While many northerners are shoveling snow, Floridians are lounging poolside in the middle of winter.

    hillsevbiz081817: After selling outdoor and patio furniture in locations in South Florida since 1993, Carls Patio has opened its first store to open in the Tampa Bay area and there are plans for more. Photo courtesy of Carls Patio.
  5. Massage therapist opens South Tampa office

    Business

    As a social worker in the early '90s, a majority of Tracy Jones' cases were people dealing with depression.

    Tracy Jones recently opened Tampa Bay Sports and Medical Massage in South Tampa. Photo courtesy of Tracy Jones.