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Should certain functions be centralized? It might produce shortrun benefits to combine certain functions across the nationalized banks, but, even if it did, it would run counter to the intention to sell the banks back to the private sector. The banks should be run, as much as possible, in the form that they are intended to be sold. This will make that transition quicker and easier, as well as bringing in the highest price, since there will be a track record directly relevant to the potential acquirer. That said, if certain functions are permanently removed from the banks, such as taking out the worst assets and managing them in a “bad bank,” there is no harm in combining these functions across the nationalized banks, if that is otherwise the most effective structure.

Step 8: Line up a few key managers Ideally, the government would have one or more potential CEO’s “on call” as a nationalization approached. The ability to announce a strong new CEO at the same time as the nationalization would considerably alleviate fears of chaos at the nationalized bank(s) and of immediate politicization. The strength of the CEO would go a long way towards indicating the government’s intention of being an active investor, but not the direct manager of the bank.

One problem that would arise is to find CEO candidates who are wellqualified, interested in the position, and acceptable to the public and to Congress. The current attitude towards bankers may not make this simple. It would be easy to raise questions about a large number of the leaders of the industry, either because of actions they have personally taken or the troubles into which their institutions have fallen. There are very few bankers in positions of real responsibility who did not participate in some manner in the follies of the past few years. For one thing, a complete refusal to be a part of booming markets would have been viewed by many shareholders as a lack of aggressiveness in pursuing profits, endangering the CEO’s job.

Take the case of Jamie Dimon, the CEO of J.P. Morgan Chase, whose already strong reputation rose considerably over the course of the crisis. He has been open in admitting that Morgan’s relative performance was so good, not because it performed well, but because it performed less badly than its key competitors. His firm was less involved in the activities that look so foolish in retrospect, but it did make many subprime mortgages, it does own large amounts of “toxic assets,” and it otherwise participated in some manner in most of the problems that have bedeviled the banking sector. This is not to suggest that he would be a politically unacceptable CEO, but rather to say that if these issues exist for someone of this strong a reputation, they will also be an issue for many others.

Further, those CEO’s and highlevel executives without too much tarnish on their reputations may not find it appealing to run a nationalized bank in the current highlycharged environment. When new management was brought in to Continental Illinois, they faced relatively few politically sensitive issues. Today, the public’s expectations of the CEO of a nationalized bank would be much higher. They likely would be expected to open the throttle on mortgage and small business lending, clean up the legacy problems, change the culture of their banks, generate profits, set up the bank for reprivatization, respond to frequent Congressional calls for information about their activities, and do all this for a modest compensation package.


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