IndyMac customers line up outside a branch. Bank insurance regulators say they don’t see this scene repeating in New England.
The Federal Deposit Insurance Corp does not expect to take over another failed bank similar in size to IndyMac Bancorp Inc or larger, FDIC Chairman Sheila Bair said last week.
“Based on the supervisory data and financial data I have, I would be very surprised if we had failures of that size institution or larger,” Bair said in an interview before delivering a speech about consumer protection.
“Based on what I’m seeing now, I really don’t see we will have institutions of that significant size having serious problems,” she said.
Earlier this month the FDIC seized IndyMac, the ninth-largest U.S. mortgage lender in 2007. The FDIC is running IndyMac while looking to sell its assets.
Before its demise, IndyMac was on the FDIC’s list of problem banks at the end of the second quarter. There were 90 institutions on the list at the end of the first quarter, and the FDIC is expected to update the list in August.
Bair and other regulators have been saying that they expect an uptick in the number of bank failures, but mostly among smaller institutions.
The FDIC oversees a federal fund of about $53 billion that will be tapped to save IndyMac depositors and other future bank failures. The federal agency insures up to $100,000 per deposit and $250,000 per individual retirement account.
Bair, who has said she remains comfortable with the amount in the fund, said the FDIC board will meet in September to determine how to replenish it, which must be done within the next five years according to federal banking laws.
Raising Rates
Regulators are considering charging higher premiums for banks that rely on volatile secured funding like brokered deposits—short-term deposits accepted by banks to fund lending activity.
Bair has said adjusted premiums for this activity could prove to be a useful risk management tool and provide banks with an incentive to be careful about where they seek funding.
The FDIC is holding townhall-style panel sessions across the United States to discuss banking services and protections for consumers and how banks can become more inclusionary.
“We meet at a very critical time in the economy. There’s obviously a lot of uncertainty out there,” Bair said in prepared remarks before the panel discussion.
“Today there is a tremendous thirst among consumers for personal finance information,” Bair said, adding that calls to the FDIC’s helpline have doubled from a year ago.
The FDIC is trying to manage misinformation quickly in the blogosphere that contributed to panic among some depositors after Indy-Mac’s failure, she said. Relative stability in the banking sector in recent years has lulled people into a mindset that banks never fail, she said.
“These are challenging times for a number of institutions large and small,” Bair said, adding that “very strong capital cushions” were nevertheless in place to absorb losses. “Some will have some bad quarters, but they’re solvent institutions.”
Speaking about the mortgage crisis resulting from the housing slump and loose underwriting standards, Bair said that regulators had a responsibility to go back to the basics and “make loans that people can repay.”
Moreover, the current banking sector turmoil has underscored the importance of having a personal relationship with one’s bank, with community banks seeing a resurgence among mortgage-seekers, she said.
Asked whether she would like to stay on as FDIC chair under a new administration, Bair replied: “If the next administration would like me to continue, I’d be happy to stay.”
