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Preserving Bank Capital Must Be Focus: McTeer

CNBC.com
Thursday, 2 Apr 2009 | 7:15 AM ET

The potential changes to the mark-to-market accounting rules could hurt the government’s plans to entice private investors into buying toxic assets, but as long as the problems with bank capital are being fixed, it doesn’t matter, Robert McTeer, former president of Dallas Federal Reserve, told CNBC.

Banking's Future
The government should expand its toxic asset plan to those who can buy more and look at the alternative means to helping banks rid themselves of toxic assets, says Robert McTeer, former Dallas Fed president.

“The objective is to stop the destruction of bank capital, it's not to get toxic assets off banks' balance sheets. That's a means to an ends,” McTeer said, adding that there could be numerous ways to achieve the result.

If the toxic assets remain within the banks, without causing problems to capital, then the problem would be fixed, according to McTeer.

But the incentive for private investors to buy into toxic assets, which a recent government initiative have been trying to encourage, could be diminished by the new rules, he said.

“If they make it easier for the banks to hold on to some of their illiquid mortgage-backed securities, then there’ll be less incentive to use this program,” McTeer said.

Plans to make the new accounting rules only apply to banks with problems in the futures are flawed, McTeer adde. He likened it to having a cure for cancer where only new patients could get the cure.

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