* Bair says bank capital injections stoked public outrage
* Says wishes had deterred Treasury from investments
* Says government stakes still causing troubles
(Adds comments by Bair, other details)
WASHINGTON, Nov 13 (Reuters) - Leading U.S. bank regulator
Sheila Bair said on Friday that the government's capital
injections into the largest banks was "probably not a good
thing."
Bair, the chairman of the Federal Deposit Insurance Corp,
said the billions of dollars of capital infusions last year had
a terrible impact on public perception of the financial
industry and government regulators.
"I think at the time it sounded like the right thing to do
and, again, it was part of an international effort, but I just
see all the problems it's created," Bair said during an
interview with PBS NewsHour. "I think we would have tried to
dissuade Treasury from making these capital investments."
During the height of the financial crisis that had
virtually frozen credit markets, the Treasury Department in
October 2008 injected $125 billion into the nine largest U.S.
banks.
The capital investments were part of the $700 billion
Troubled Asset Relief Program, which was originally pitched to
Congress as a way to absorb banks' toxic assets but was
switched to become largely a capital infusion plan to shore up
banks' balance sheets and encourage them to lend.
Public outcry followed the investments, which largely came
to be referenced as government bailouts. Lawmakers raced to
attach more conditions, such as restrictions on compensation,
to the capital injections.
"It's had a terrible, terrible impact on public attitudes
toward the financial system, toward the regulatory community,"
Bair said. "It's created all sorts of issues about government
ownership of these institutions, what happens if they get in
trouble again."
Soon after populist anger erupted over the capital
injections, banks strove to give back the funds. So far,
Treasury has allowed a handful of the largest banks to return
the government investments, but other firms such as Bank of
America (BAC.N) and Citigroup (C.N) retain large government
ownership stakes.
Bair has on occasion locked horns with other regulators and
administration officials over the right method to stabilize the
financial system.
She has advocated a more restrained approach, and is now
pushing Congress to crack down on the notion that some firms
are "too big to fail."
Bair said during the interview that no one should be held
accountable for the government's decision to inject capital
into the largest banks, but noted that complications are still
lingering.
She said the government, as partial owners of some banks,
are put in the difficult position of determining how to manage
compensation and executive changes at these firms.
"I think in retrospect that was probably not a good thing,"
Bair said.
(Reporting by Karey Wutkowski, editing by Leslie Gevirtz and
Matthew Lewis)
