Why the US Treasury should keep the Liberty Bank
The US Treasury’s decision to keep the private bank’s US assets in its vault has made headlines in recent days, but the bank is unlikely to lose its private-sector status as long as it has access to the public’s capital.
Liberty’s assets are held in a segregated account that can only be accessed by the public, and the Treasury’s action could be interpreted as a sign that the bank will continue to operate with a private owner.
The bank, which is managed by a private-equity firm called TPG, is part of a growing trend in the private sector to break away from government oversight and become publicly owned.
“We’re not looking to get out of the government,” said John McAfee, Liberty’s chief executive.
“But we’ve said that if the public doesn’t want to use our products, they shouldn’t use ours.”
Liberty’s private assets include a stake in a health-care company that has been under investigation for alleged violations of antitrust law.
The US Justice Department last month accused the firm of violating the Sherman Antitrust Act by using its leverage to force Anthem Blue Cross and Blue Shield of North Carolina to settle a class-action lawsuit.
Anthem had argued that the merger would save the state $1 billion.
But a judge disagreed.
Liberty said the settlement was worth more than $8 billion.
McAfee said Liberty had no choice but to divest its Liberty Bank assets because the Treasury had been looking to use the bank to fund acquisitions that it believed could benefit its private investors.
“This is not a political decision,” McAfee told reporters on a conference call.
“It’s a business decision.”
The Treasury Department has not said how much Liberty is losing through the deal, but analysts said the bank has been losing $50 million a month.
The bank, the fourth largest bank in the United States, had its assets under liquidation after the Treasury Department issued an antitrust notice in May.
The notice said Liberty’s loans were not “exclusively used for purposes of facilitating the transaction of securities.”
But Liberty has long said it was not seeking any special treatment and that the Treasury is using a “common-law” law that it is not required to comply with.
Last week, McAfee reiterated that Liberty was not looking for special treatment from the Treasury.
He said the Treasury was using the law to gain leverage against Anthem, the second-largest health insurer in the US.
“That was an intentional act,” McIbesaid.
Liberty’s assets include some $4 billion in loans to Anthem BlueCross and BlueShield, according to its filings with the Securities and Exchange Commission.
The Treasury said in a court filing that Anthem Bluecross owed more than a half-billion dollars in loans.
Anthem said the loans were used for its own internal investments and not for the bank.
The company said it is working with the Treasury to resolve the loan disputes.
On Wednesday, McIbsaid told investors that the Liberty bond sale was a “one-time transaction” and that Liberty would continue to pay its debts and repay its creditors.
“I don’t think this is the end of our relationship with the bank,” McGovern said.
“If we are going to be able to be in business, we need to have a long-term relationship.”
The decision to break up Liberty has prompted criticism from some economists, including Richard Thaler, an economist at the University of California at Berkeley.
He said that even if Liberty’s debt had been reduced to a level that the government could afford, the bank could not have been sold.
Thaler told reporters in an interview that there were other banks that were able to turn down deals like Liberty because they had the cash.
McAfee has previously said that the private-capitalization model of private banks is unsustainable, pointing out that some have seen losses of as much as $4 trillion in the past decade.
He also said he believes that private banks should not be allowed to take on any more government debt because they can’t be trusted to deliver any value.
It is unclear whether McAfee is referring to Liberty’s $4.4 billion of assets, or whether he is talking about its entire $7.4 trillion of assets.
If the Treasury sells the bank, Liberty will receive a portion of its proceeds and would no longer be part of the public debt.
But the Treasury said that money will remain in the bank’s private bank accounts, and that it will be a source of funds for Liberty’s business.
When the Treasury announced the sale of Liberty Bank, McGovern praised the decision.
“Liberty Bank is a shining example of how the private banking system can work,” McBreenaid.
“They are not part of our system of government, but they do serve as a beacon for those who seek to reform it.”
As for the Liberty shares, they will be liquidated.
(This story has been corrected to say the sale will end when the