Sheila Bair Speaks Out
by Hiland Doolittle
Soft-spoken Kansas native and tough-minded Chairman of the FDIC, Sheila Bair, is gaining a reputation on Capitol Hill. Unlike her fellow Treasury and Federal Reserve regulators, her strongly asserted positions do not reflect any political agenda. This causes some concern with her co-workers and on Capitol Hill, but raises admiration from the once dubious banking industry.
For the time being, Bair has spurred government assistance in her attempts to keep her ailing banks and cash strapped FDIC afloat. Her innovative request to the nation’s bankers that they prepay three years of FDIC fees will add $39 billion to the agency’s dwindling coiffures. Bair has the authority and has reserved her right to tap a $100 billion credit line at Treasury but has chosen to keep that option as an action of last resort.
At the rate the country’s banks are tumbling, that day may come sooner rather than later. The FDIC is fast approaching 100 bank takeovers since the recession began. At the close of September, banks held $1.7 trillion in commercial real estate loans and the industry is struggling under the weight of high vacancy rates and declining values.
In an interview with CNBC in advance of her appearance before the Senate Banking Committee, Bair shared her assessment of the industry and trajectory of the banking recovery. In her candid revelations, the relationships between the FDIC, the Treasury, the Federal Reserve and the Obama Administration appeared strained.
Bair Tests Bernanke and Geithner
Tension reached a high point between Bernanke, Geithner and Bair when the FDIC declined Citi’s application for registration with the FDIC. Bair saw the handwriting on the wall with Citi and rejected consideration, an action that prompted a heated response from Geithner. Three months later, Bair looks like a hero as Citi heads down the road to bankruptcy court.
Additional pressure has come from the handling of TARP funds, which many members of Congress feel should be used for the intended purpose of removing toxic assets from the banking system. As such, these funds would be moved from the Treasury’s control to Bair’s FDIC.
Bair’s initiative to boost her depleted cash reserves is typical of her creative alternatives to taxpayer assistance. Bair recently launched another initiative to assist troubled homeowners. She prompted the 55 banks under FDIC control to extend forbearance programs to unemployed homeowners who had current status prior to unemployment. The program would allow the homeowner six months to find employment before payments would have to resume.
Bair seemed pleased with he test-sample Legacy Loan Program, which placed numerous toxic assets on the market. The program recouped $0.71 on the dollar and Bair seemed content with the results. The implication is that the value of toxic assets could be far less and that an orderly liquidation process is necessary. Bair would like to be involved.
Saving The FDIC
Some on Capitol Hill have pushed for a reduction in the FDIC’s role suggesting that the creation of a new, central regulatory agency would make the FDIC unnecessary. Bair has voiced strong opposition to this proposal and insists that while the Fed, Treasury and FDIC have their differences, they also have areas of overlapping agreement.
Bair proposes that the three main existing regulatory bodies remain in tact but with more defined spheres of influence. She has pushed Congress for clarity.
In her Tuesday interview, Bair was guarded regarding the fate of the troubled agricultural banks and the beleaguered commercial banks. For the most part, these banks face the unenviable position of being small enough to fail. In the current climate, that is a bad place to be.
Citing that baking is a lagging indicator, Bair stated that failures will continue to occur through the end of 2010. With just $40 billion on hand, Sheila Bair may have to continue her creative solutions very quickly.
Tags: 2009 Stimulus Package, Consumer Confidence, CPI, Deflation, depression, dollar, Economy, Euro, GDP, housing, Inflation, interest rates, recession, stimulus, Stimulus Plan, unemployment, US Dollar, US GDP, US Unemployment
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
