FDIC Chairman tries to calm bank fears

July 23, 2008 9:18:43 AM PDT
Candid comments came from the head of the Federal Deposit Insurance Corporation, or F.D.I.C., of more bank failures to come. A crisis facing banks around the country is far from being over.

There was new evidence of this crisis on Tuesday when two of the nation's biggest lenders released their second quarter earnings.

Washington Mutual, the country's largest savings and loan, reported $3 billion in losses. WaMu says it will beef-up its reserves to cover loans likely to go sour in the future.

Wachovia, the nation's fourth largest bank, announced a $9 billion loss and the elimination of 10,000 jobs. This is all due to mortgages gone bad.

ABC7's Moneyscope Reporter David Louie spoke with the head of the F.D.I.C., Chairman Sheila Bair, on Tuesday.

More banks are in trouble. However, bank customers, Bair says, should not be worried. The F.D.I.C. backs banks, insuring deposits. Chairman Bair was in San Francisco Tuesday to calm growing jitters as a handful of banks pay a price for the mortgage crisis.

"I can tell you, based on the supervisory information I have, overwhelmingly banks are safe and sound in this country, and the chance that your bank is going to fail is extremely remote," said Chairman Bair.

It's Bair's job and that of the agency she chairs, to keep tabs on the soundness of banks. It had to step in 10 days ago when Pasadena' s IndyMac Bank failed. Nervous customers lined up to withdraw funds.

There are about 90 others on its troubled bank list, but it won't name them.

"It is to avoid bank runs. It is to avoid banks having to close because of a deposit run when perhaps their capital situation may be challenged, but with some extra supervisory attention, we can get it back into a healthy institution. If there's a run on deposits, we don't have a chance in time to do that," said Bair.

In the absence of that list, some customers have begun to shift their money to other institutions in search of safety. Wells Fargo says it's on the receiving end of customers switching banks, but it won't disclose any numbers. Its bankers have been focusing on face-to-face meetings with customers to educate them.

"Certainly you can't put a value on peace of mind. Customers, consumers, whether they are business customers or consumer customers, they vote with their feet, and they vote with their wallet. And they say, "I want to be able to sleep comfortably at night." That means a lot to a customer," said David Galasso, the Wells Fargo Regional President.

F.D.I.C. Chairman Bair has embarked on a national tour to assure bank customers their deposits are insured and safe.

She maintains that 99-percent of the nation's 8,500 banks and thrifts are sound. However, the balance sheet of each bank can be different. Wachovia, for example, is laying off 10,000 employees, while Wells Fargo has 6,500 job openings. So consumers are somewhat in the dark about who might be next.

"Yes, there will be more bank failures. The number of banks on our troubled bank list will go up, the total number of assets on that list will go up, and there will be more bank failures," said Bair.

Those are blunt and ominous words.

Watch the entire interview with FDIC chairman Sheila Bair above.


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