Banking: Q&A With FDIC Chairwoman Sheila Bair | Newsweek Business

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The deposit-insurance fund has about $52.8 billion in it. The IndyMac failure of last week will require you to spend about $4 to $8 billion alone, up to 15 percent of the fund. How many bank failures will it take to deplete the fund?
We don't make public projections. We've had five failures this year. There will be more this year and more next year. But in 1989, at the peak of the savings and loan crisis, we closed 534 institutions, and the troubled bank list had a couple thousand institutions on it. Today, there are about 90 banks on the troubled list.

But it's not just the number that matters; it's the size, right?
Larger institutions typically have lower loss rates than smaller institutions. My view is that I would be very, very surprised if an institution of significant size were to get into serious trouble. But we prepare for all contingencies.

So can you categorically rule out that taxpayers will have to help FDIC pay out claims?
I can only answer questions based on what I know now, but based on that, I don't think that would happen. Even in the most dire, worst-case scenarios in which we'd have to call on the federal government to backstop the fund, by statute we would be required to then make assessments on banks to pay the government back. Ultimately the industry that benefits from this insurance must pay.

What keeps you awake at night?
Not being able to get the housing market stabilized. There are a few little signs that things may be stabilizing but not enough to give me a lot of comfort. In terms of an immediate shock, certainly a mega-internationally active bank getting into trouble is something that we all worry about.

Posted By: austin c @ 07/26/2008 10:53:32 AM

foggy @ 07/24/2008 9:19:37 AM wrote: " The information from Chairman Bair is straight from the horses mouth - why on earth would you believe the media over the person who runs the show?????" You may be making a mistake in believing that all the branch chiefs ( usually a party loyalist) know all the business details in the branch. The real experts are the professionals in their branch or in the media .
On the topic of FDIC insurance limit, their web page shows the following, presumably written by their experts
http://www.fdic.gov/deposit/deposits/deposit/faqs/faqs.html#single
which seems to be different from what said in this Q/A related to insurance.

Posted By: guymc @ 07/23/2008 9:19:34 PM

Chairwoman Bair has suggested a simple solution that, according to daniel Gross, has been all but ignored by the rest of our government and the greedy banking industry: That is to rewrite the loans at consumer favorable terms. It seems that 3rd grade arithmetic would support the Chairwoman's plan. Possibly the banking industry never got that far- hence the "crisis". It seems a no brainer to me that if you limit the number of forclosures, you limit the bank failures and there for the "crisis". The fact is some banks are only marginally affected by the crisis and welcome the demise of competitors. Buying up competitors is expensive- ask BofA- but if a fire sale atmosphere is created, then the price of gobbling up the competition is reduced. As a lovely bonus, the SEC looks the other way and you get a virtual "Monopoly". It will get even better when the next crisis- the credit card crisis- created from squeezing .borrowers that have succombed to the teaser balance transfer rates find out they can no longer move their money from one bank to the other to avoid the 28% payback rates because there are not enough banks left to deal with. This will make our "mortgage crisis" look like chump change. The banks will be just as stubborn about rewriting the debt at reasonable rates because they have the bankrupcy reform act on their side. This is not only greedy, it's insidious. The only real solution is for Congress to get the banks out of their pockets and show some common sense- force the banks to mitigate their losses by rewriting at least 90% of their "bad" mortgage loans, put a moratorium on all foreclosures, and put a limit on creditcard interest rates. The sad part is that there is little chance of that, so we go to the next crisis: Who will pay to build all the poorhouses?

Member Comments

Posted By: austin c @ 07/26/2008 10:53:32 AM

foggy @ 07/24/2008 9:19:37 AM wrote: " The information from Chairman Bair is straight from the horses mouth - why on earth would you believe the media over the person who runs the show?????" You may be making a mistake in believing that all the branch chiefs ( usually a party loyalist) know all the business details in the branch. The real experts are the professionals in their branch or in the media .
On the topic of FDIC insurance limit, their web page shows the following, presumably written by their experts
http://www.fdic.gov/deposit/deposits/deposit/faqs/faqs.html#single
which seems to be different from what said in this Q/A related to insurance.
Posted By: foggy @ 07/24/2008 9:19:37 AM

The information from Chairman Bair is straight from the horses mouth - why on earth would you believe the media over the person who runs the show?????
Posted By: guymc @ 07/23/2008 9:19:34 PM

Chairwoman Bair has suggested a simple solution that, according to daniel Gross, has been all but ignored by the rest of our government and the greedy banking industry: That is to rewrite the loans at consumer favorable terms. It seems that 3rd grade arithmetic would support the Chairwoman's plan. Possibly the banking industry never got that far- hence the "crisis". It seems a no brainer to me that if you limit the number of forclosures, you limit the bank failures and there for the "crisis". The fact is some banks are only marginally affected by the crisis and welcome the demise of competitors. Buying up competitors is expensive- ask BofA- but if a fire sale atmosphere is created, then the price of gobbling up the competition is reduced. As a lovely bonus, the SEC looks the other way and you get a virtual "Monopoly". It will get even better when the next crisis- the credit card crisis- created from squeezing .borrowers that have succombed to the teaser balance transfer rates find out they can no longer move their money from one bank to the other to avoid the 28% payback rates because there are not enough banks left to deal with. This will make our "mortgage crisis" look like chump change. The banks will be just as stubborn about rewriting the debt at reasonable rates because they have the bankrupcy reform act on their side. This is not only greedy, it's insidious. The only real solution is for Congress to get the banks out of their pockets and show some common sense- force the banks to mitigate their losses by rewriting at least 90% of their "bad" mortgage loans, put a moratorium on all foreclosures, and put a limit on creditcard interest rates. The sad part is that there is little chance of that, so we go to the next crisis: Who will pay to build all the poorhouses?