BAIR'S FDIC IS DOWN TO ITS LAST $10.4B
MARK DeCAMBRE
Friday, Aug 28, 2009
It's the case of the incredible shrinking Bair. As the Federal Deposit Insurance Corp.'s depositor insurance fund to shutter failed banks shrinks, so, too, has the political clout of its chairman, Sheila Bair. Plagued by waves of bank failures, the FDIC, which guarantees bank deposits, has a mere $10.4 billion left in its coffers to backstop future losses -- the lowest level of funding the agency has seen since 1992, when it was battling the savings-and-loan crisis, according to a second-quarter public report.
It's troubling news considering many banking analysts predict that the FDIC may need nearly $70 billion over the next three years to rescue failed banks. Indeed, on Wednesday the FDIC revised upward by one-third its list of troubled banks to 416, with assets totaling $299.8 billion. So far, the FDIC has had to shut down 81 banks.
But even more disheartening for Bair is that she finds herself exactly in the position she's been trying to avoid -- a nearly depleted bank-insurance fund and none of the extra political firepower she hoped to gather for the agency after tussling with Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke.
Bair had fought for more power for the FDIC, arguing that the agency, which guarantees bank deposits, has a lot of skin in the game given the number of banks on the verge of failing and because it guarantees billions of dollars for two of the financial industry's biggest problem children, Citigroup and Bank of America.
Some have described the financial collapse as a free-for-all among regulators who tried to outmaneuver each other in a bid for greater power.
However, signs are emerging that Bair, who had been one of Washington's fiercest competitors, is losing ground, particularly to Bernanke, whose central bank has already gotten bigger and stands to gain more now that President Obama has nominated him for a second four-year term.
To be sure, the FDIC can tap a $500 billion credit line from Treasury or simply charge higher fees to replenish the insurance fund. But its current balance places it on the brink of having to scurrying after fresh funds if a large financial institution suddenly stumbles.
But right now, it seems Bair hasn't reached the point of needing to go to Geithner, hat in hand.
"Not at this point in time, I never say never, but not at this point in time. No," Bair said in response to a question about needing more funding.
