Capital Gold Group Report: FDIC Head Expects Banking’s Crisis to Worsen

WASHINGTON — Sheila C. Bair anticipated the mortgage crisis long before most other regulators. But she never dreamed it would wreak so much havoc on so many banks.

Sheila C. Bair of the Federal Deposit Insurance Corporation.

More than a year after the credit crisis first flared, Ms. Bair, the chairwoman of the Federal Deposit Insurance Corporation, warned on Tuesday that the outlook for the ailing banking industry was bad — and getting worse.

The swelling tide of toxic home loans is proving to be even more worrisome than initially feared, Ms. Bair said. She is struggling to clean up the mess and forestall home foreclosures with a plan to ease loan terms for hard-pressed homeowners.

“It is going to be slog to work though this, but there is no easy way to do it,” Ms. Bair said about her plan during an interview in her office here. “We haven’t seen the trough of the credit cycle yet.”

Her downbeat outlook was underscored on Tuesday by the F.D.I.C’s latest quarterly assessment of the industry. The agency said the number of bad loans at banks ballooned to its highest level in 15 years during the second quarter.

Industrywide, bank earnings plunged 86 percent from April to June, to $4.96 billion, from $36.8 billion a year earlier, the agency said.

The F.D.I.C., which guarantees savings and checking deposits, also raised the number of banks on its list of problem lenders to 117, the most since mid-2003.

That is up from 90 at the end of the first quarter. The agency does not disclose which banks are on the list, but it said the troubled lenders had combined assets of about $78 billion.

For all the bad news, American banks are in far better shape than they were in the late 1980s and early ’90s, when the savings and loan crisis claimed hundreds of lenders across the nation.

But some worry that the agency has fewer people — and less money — than it needs to cope with the industry’s latest travails, particularly if several large institutions were to collapse. Nine lenders, most of them small, have failed so far this year. Analysts expect dozens more to run into trouble.

Ms. Bair’s agency is stretched. Dozens of staff members who had been through the banking crises of the early 1990s retired in recent years. Despite her efforts to bring some seasoned examiners back, her small army of examiners is largely untested.

Meanwhile, there are growing questions about the adequacy of F.D.I.C.’s insurance fund, which guarantees repayment on deposit accounts of up to $100,000 when banks collapse. The fund dwindled to $45.2 billion during the second quarter, from $53 billion in the first quarter.

To replenish its fund, the agency will probably have to raise the fees it charges banks by at least 14 cents for every $100 of deposits, according to estimates by analysts. Ms. Bair declined to comment on the likely size of any increase but said the agency was proposing to revamp its fees so that institutions engaging in high-risk practices would pay higher rates.

“It only seems fair,” Ms. Bair, 54, said. Such a move is expected to draw criticism from banks.

How Ms. Bair navigates the financial and political landmines ahead will help determine the course of the banking industry and, by extension, the broader economy. It will also determine her legacy.

“If the agency gets through the credit mess, having handled the bank failures that are to come, she is going to be widely seen as the person who prepared the agency for this,” said Jaret Seiberg, a financial policy analyst for the Stanford Group in Washington. “If the cycle is worse than expected — and if the agency insurance fund isn’t big enough or they didn’t have enough examiners — she will become the fall guy.”

The centerpiece of Ms. Bair’s plan is to modify loans so that people can stay in their houses. “It is something we should put a priority on,” said Ms. Bair, who speaks at a rapid clip.

From her perch at the F.D.I.C., Ms. Bair has become one of the industry’s most influential policy makers and outspoken critics. She issued some of the earliest warnings on the housing market and prodded the Treasury Department to back a comprehensive approach toward freezing low teaser rates on certain adjustable mortgages, a stance that many investors have opposed. She has also walked a fine line between pressuring banks to raise capital and urging depositors to remain calm.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold