When regulators rescued giant Continental Illinois National Bank last year, they acknowledged that they feared the domestic and international consequences of the failure of a giant, multinational bank.
They have since been accused of favoring big banks, which are not permitted to fail, over small banks, which are. This year alone, 100 smaller banks have failed.
Former Comptroller of the Currency C. Todd Conover and former Federal Deposit Insurance Commission Chairman William M. Isaac said they were troubled by the idea that some banks might be "too big to fail."
L. William Seidman, who succeeded Isaac at the FDIC late last month, said a key issue facing him is finding a way to put big banks at the same risk as smaller ones.
Robert Clarke, a Texas lawyer who soon will be sworn in as comptroller, testified at his confirmation hearings last week that finding new ways of handling troubled banks is a major issue.
But bankers and regulators say privately that Clark and Seidman will find it difficult to chart a path that will put big money-center banks and small country banks on the same level.
The failure of a big bank might wreak havoc on the international financial system. No one knows for sure, and it was a desire not to find out that propelled the $4.5 billion rescue of Continental and all its depositors last summer.
But rescuing a big bank could seriously deplete the $19 billion fund the FDIC maintains to insure deposits up to $100,000 at most of the banks in the country. In most failures, the FDIC finds another bank to take over the deposits of a failed bank, though occasionally the agency has to pay off depositors.
But finding a merger partner for a $20 billion bank is nearly impossible. And paying off the deposits might cost several billions of dollars, even after the FDIC collected all the bank's good assets.
COSTLY LATE EXIT . . . FDIC sources said former chairman Isaac had assumed successor Seidman, nominated last July, would be in office by Oct. 1. As a result, they said, Isaac accepted several lucrative speaking engagements for mid-October. But Seidman's nomination was hung up in the Senate Banking Committee.
FDIC sources said that Isaac refused to resign until a permanent successor was in place. They said he felt uncomfortable leaving the agency with an acting chairman when banks were failing at a rate of nearly three a week and when there was an acting comptroller of the currency. As a result, Isaac passed up the speaking fees -- which together totaled well into five figures, FDIC sources estimated.
EMERGENCY FUNDS . . . The FDIC has waived early withdrawal penalties on certificates of deposit held by bank customers who suffered severe losses from Hurricane Gloria in late September. The waiver applies to residents in certain counties in Rhode Island and Connecticut who can prove losses.
The FDIC regularly grants waivers from federally mandated penalties on withdrawals of funds from time deposits that have not reached maturity. FDIC sources said they expect to grant similar waivers to residents of flood-damaged counties in West Virginia, Virginia and perhaps Maryland.
The FDIC grants the waivers whenever the federal government declares a disaster area. The waivers cover state-chartered banks that are not members of the Federal Reserve System.
A Federal Reserve spokesman said the central bank usually grants similar waivers when it is asked to do so but that no request has yet been received for areas ravaged by the September hurricane or the November floods. The Fed enforces interest-rate rules for nationally chartered banks and for state banks that voluntarily join the Federal Reserve System.