|Timothy Geithner (standing) briefing President Obama in the Oval Office when he served as treasury secretary in 2009-2013. Prior to that he was president of the Federal Reserve Bank of New York and his close ties to ex-Citi executive Robert Rubin "tempered my skepticism" about the bank’s health in the years before the financial crisis hit. Rubin as treasury secretary in the Clinton Administration in the 1990s had been Geithner's boss in the Treasury Department. |
The question to Timothy Geithner could not have been more blunt: Why, asked
Oregon Sen. Ron Wyden, had Geithner failed to adequately regulate the banking
giant Citigroup during his tenure as president of the Federal Reserve Bank of
"Should your supervision have been more effective?" Wyden demanded of Geithner,
then on his way to eventual confirmation as Treasury secretary.
"Absolutely," Geithner responded. But he did not elaborate.
That was five years ago. Last week, Geithner provided a fuller mea culpa with
the release of " Stress
Test," his book on the financial crisis. It does elaborate — albeit modestly
— on his oversight of Citigroup, including issues our
reporting raised about his time
at the New York Fed.
The Federal Reserve supervises bank holding companies. The New York Fed is
responsible for firms based in the region, including Citigroup. The largest
institution under Geithner's watch, Citi required the biggest bailout — $45
billion in taxpayer funds plus other federal support.
One of his key mistakes, Geithner writes in the book, was failing to realize
that Citi's equity, or capital, was weak. Capital is the cushion meant to
protect a bank from losses and, ultimately, insolvency.
"I should have paid more attention to Citi's lack of common equity while I was
at the Fed," Geithner writes. Although Citigroup, at the urging of the New York
Fed, began raising capital in late 2007, he says it "came in the lower-quality
forms that investors now found meaningless."
Curiously, at another point in his book, Geithner writes about how focused he
was, in general, on the issue of bank capital. "I spent most of my time trying to
understand whether banks under our supervision had enough capital," the book
In articles before and after Geithner's confirmation as treasury secretary,
examined his supervision of Citi, including the bank's weak capital, risky
lending practices and the failure of the New York Fed to use its enforcement
tools to strengthen the bank.
The articles reported on Geithner's ties to Robert Rubin, Geithner's mentor, a
former treasury secretary under President Clinton and a senior executive of
Citigroup during the bank's high-flying years.
Geithner's calendars, obtained by ProPublica, showed that in 2007 and 2008
he had dozens of discussions with executives of Citigroup, including Rubin, more
than with any other firm.
In a 2009 interview, Geithner told ProPublica that such meetings were routine
and that Citi was not treated preferentially because the New York Fed's system
of checks and balances insured its independence.
But in his book, he suggests that his relationship with Rubin did affect his
supervision of Citi. Geithner had worked under Rubin at the Treasury Department,
and Rubin helped him land his job at the New York Fed in 2003.
"Bob Rubin's presence at Citi surely tempered my skepticism," Geithner writes,
and "probably gave Citi an undeserved aura of competence in my mind."
his job as a senior counselor at
Citi in January 2009, prior to Geithner's confirmation.
"Stress Test" does not discuss why the New York Fed did not act more
aggressively to stem Citi's risky practices in 2006 and 2007, as detailed in
ProPublica's articles. But in the book, Geithner notes that "our supervisors"
viewed the bank as "a laggard in risk management."
of the Geithner's 580-page memoir is
a look back at how, as treasury secretary, he helped end the financial crisis
and put in place reforms.
Jeff Gerth is a senior reporter at ProPublica. Previously, Gerth worked as an
investigative reporter at The New York Times. He has twice been awarded the
ProPublica is an independent, non-profit newsroom that produces investigative
journalism in the public interest. It was founded in 2007 by Paul Steiger, a
former managing editor of The Wall Street Journal.
As Crisis Loomed, Geithner Pressed But Fell Short