FDIC Plans for Rise In Bank Failures

FDIC's John Bovenzi says most new hires will be based in Dallas.
FDIC's John Bovenzi says most new hires will be based in Dallas. (Larry W. Smith - Bloomberg News)
By Alan Zibel
Associated Press
Wednesday, March 26, 2008

Anticipating a surge in troubled financial institutions, federal regulators aim to increase by 60 percent the number of workers who handle bank failures.

The Federal Deposit Insurance Corp. wants to add 140 workers in the division that handles bank failures, bringing the total to 360, said John Bovenzi, the agency's chief operating officer.

"We want to make sure that we're prepared," Bovenzi said yesterday, adding that most of the hires will be temporary and based in Dallas.

There have been five bank failures since February 2007 following an uneventful stretch of more than two years. The last time the agency was hit hard with failures was during the 1990-91 recession, when 502 banks failed in three years.

Analysts predict more failures but said they don't think they will reach early-1990s levels.

Gerard Cassidy, managing director of bank equity research at RBC Capital Markets, projects 150 bank failures over the next three years, with the highest concentration coming from states such as California and Florida where an overheated real estate market is in a fast freeze.

The FDIC provides insurance for deposits up to $100,000. Although depositors typically have quick access to their bank accounts on the next business day after a bank closes, winding down a failed bank's operations can take years. That process can include selling off real estate, investments and dealing with lawsuits.

There are 76 banks on the FDIC's "problem institutions" list, which would equate to about 10 expected bank failures this year, though FDIC officials declined to make projections. About six banks a year fail, FDIC officials said.

There have been two failures in 2008, both of which were small Missouri-based banks. The largest recent failure was the September 2007 shutdown of Georgia-based NetBank, an online bank with $2.5 billion in assets. NetBank's insured deposits, representing more than 100,000 customers, were assumed by ING Bank, part of Dutch financial giant ING Group.

FDIC Chairman Sheila Bair has said that banks that were cautious about their lending should be able to weather the economic downturn but cautioned that those that weren't so careful won't be so lucky.

FDIC officials said last month that they planned to bring about 25 retirees back to the agency and said that those workers will train new hires. Over the next five years, about 50 percent of employees with experience in bank failures, especially those who were at the agency during the savings and loan crisis of the late 1980s and early 1990s, will be eligible for retirement, the officials added.

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