FDIC staffs up for failed banks

Stacey Vanek Smith Feb 26, 2008
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FDIC staffs up for failed banks

Stacey Vanek Smith Feb 26, 2008
FDIC Logo FDIC
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TEXT OF STORY

Kai Ryssdal: You can’t say we didn’t this one coming: Bank profits dropped to $5.5 billion in the last quarter of 2007.

That’s a whole lot of money… and it’s also a 16-year-low.

The Federal Deposit Insurance Corporation insures the funds on deposit in those banks. It expects we’re going to see bankruptcies go up in the next couple of months, so the FDIC’s looking for some help to manage the mess. Stacey Vanek Smith reports.


Stacey VanekSmith: Banks have been hit hard by the credit crisis. So far, they’re still standing.

But banking consultant Bert Ely says we’ll see a spate of bank closures over the next couple years, with the little guys taking the biggest hit.

Bert Ely: The banks that will fail are by and large small banks. There are a lot of small banks that have particularly heavy exposure to all kinds of real estate lending and not just subprime. For instance, construction lending or lending in commercial real estate.

How bad will it get? Ely says that depends on the regulators.

Ely: The role of the regulators is going to be very, very important in terms of getting them to deal aggressively with these weak institutions, which number one means identifying them and then second of all, being very forceful with the management as to what they have to do to either improve their condition or find a stronger bank to buy them.

All of that action will require manpower and the FDIC has cut its staff by about two-thirds over the last 15 years. Now it’s asking retirees to come back says Wharton Business School’s Ken Thomas.

Ken Thomas: The agencies were encouraging early retirement, giving them bonuses to leave. Now they’re calling back lots of them, which is good because they’re very experienced and of course they’ve been through, some of them, the very difficult period of the S&L and the bank crisis and they’ve seen quite a bit.

That crisis was back in the early 90s when more than 1,000 financial institutions went under. Thomas says this crunch won’t be nearly that bad, but we could see some big banks fall hard.

The FDIC told Marketplace it plans to rehire about 25 retirees to help it prepare for the coming months.

I’m Stacey Vanek-Smith for Marketplace.

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