December 9, 2023 / VOLUME NO. 291

Break the Glass

In April 2008, Treasury Secretary Henry “Hank” Paulson visited Ben Bernanke in his office at the Eccles Building, the Fed’s stately Washington headquarters. While the two met weekly for breakfast, this time Paulson was accompanied by two of his advisers — Phillip Swagel, now director of the Congressional Budget Office, and Neel Kashkari, now president of the Federal Reserve Bank of Minneapolis. 

Kashkari and Swagel had crafted a plan that they shared with Fed Chairman Bernanke, one they called “Break the Glass: Bank Recapitalization Plan.” It sketched out how U.S. government agencies could react in the event of a total meltdown of the financial system.

“Like a fire alarm enclosed in glass, it was intended to be used only in an emergency, though with each passing day, it appeared more and more likely that the proposal was no mere drill,” wrote Andrew Ross Sorkin in his book about the 2007-08 financial crisis, “Too Big to Fail.”

Months later — after a rough September that saw the U.S. government takeover of Fannie Mae and Freddie Mac, the collapse of Lehman Brothers and the bailout of AIG — that emergency plan turned into a reality, according to Sorkin’s book and Bernanke’s memoir, “The Courage to Act.”

The Treasury’s “Break the Glass” plan formed the bones of the Troubled Asset Relief Program, or TARP, which was not universally popular. But in October 2008, Congress authorized the Treasury Department to disperse $700 billion in funds to stabilize the economy. (Ultimately, far less was spent.) Roughly $245 billion was invested in the banking system, absorbing toxic assets and providing capital to more than 700 financial institutions. 

When Kashkari and Swagel presented their plan to Bernanke, Bear Stearns had just collapsed. No one knew how bad things would get. “It was 10 pages, probably six or eight different ideas. No details, just concepts,” Kashkari told the radio program “Marketplace” a decade later. “Just to say, ‘Let’s have an idea of what we might do if we really needed to do something dramatic.’”

Now, as the economy propels toward the end of 2023 — and as banks focus on preserving capital and figuring out how they’ll weather anything that 2024 throws their way — executives and boards will need a plan to carve a path forward. 

“We never know, when these crises happen, how bad they’re going to get or that they’re going to happen,” said Kashkari in 2018. All anyone can do is prepare for the next downturn.

• Emily McCormick, vice president of editorial & research for Bank Director

How High Interest Rates Changed Bank M&A

Two banks eye a critical financial metric in getting deals done. 

“If you think about M&A, it’s like a balloon: I can push it one way, and it’s going to come out somewhere else.”

— Rick Childs, Crowe LLP

• Kiah Lau Haslett, banking & fintech editor for Bank Director

Thinking Through Capital Decisions

When determining how to allocate capital, bank leaders should consider multiple scenarios that could affect the math of a given decision.

Reactionary Shifts in Customer Service

Customer service teams still struggle to strike a balance between in-person and remote banking following the Covid-19 pandemic.

Navigating a Higher Interest Rate Reality

Strong capital can minimize impact across the balance sheet.

Strategic Growth in a Challenging Environment

Despite economic uncertainty, the number of possible strategic paths that banks can take has never been greater.