Rather than cleaning up after disasters, Ricki Helfer wants the Federal Deposit Insurance Corp. to help banks avoid them.
To that end, the FDIC chairman created the division of insurance last year "to bridge the gap" between the information examiners glean from individual institutions and what the agency's economists and analysts know about economic and business trends.
"Our goal is to predict the problems that will affect a number of institutions in a particular geographic area or line of business," she said in a recent interview.
When fully staffed, the insurance division will have about 50 people. Heading it up is FDIC veteran Arthur Murton, 39, who joined the agency 10 years ago as a financial economist and rose to the position of deputy director of the division of resarach and statistics.
How will the division work? Mr. Murton explained that an economist and a regional analyst in each of the agency's eight regions will track the region's economy, keep abreast of local trends and statistics, and pass that information along to bank examiners. The examiners, in turn, will flag problems cropping up at individual banks.
Mr. Murton said it is important for examiners to understand economic trends. In Texas in the mid-1980s, for example, examiners did not take a broad enough look at commercial real estate lending. While individual loans at particular banks seemed sound, regulators did not realize banks were flooding the market.
He said the division has more modest goals than the Federal Reserve's economists, who track tons of economic data for monetary policy purposes.
"Our analysis is more focused, more limited: What developments are relevant to the performance of insured institutions?" Mr. Murton said.
For example, to track the potential impact of the drought in the Midwest, the division worked with agency examiners and statisticians to identify the banks in the region and their exposure to defaults. They also consulted with the Department of Agriculture to understand the weather's impact on farm prices, and talked to Farm Credit Administration officials to see how its banks were faring.
"Our conclusion was that the drought wouldn't lead to the problems of the early 1980s," when farmers had borrowed against the overinflated value of their land, Mr. Murton said.
This time around, land prices did not rise because of speculation, and loans continued to be keyed to the land's operating income, he said.
Home equity loans, installment and credit-card lending also are being scrutinized by the division, according to Mr. Murton.
When she testified before Congress last month, Ms. Helfer noted a correlation between credit card loss rates and personal bankruptcy filings, which are expected to hit an all-time high of one million during 1996.
But Mr. Murton said there are other reasons to monitor the situation. Credit-card lending has grown very rapidly. In the past, areas of rapid growth have led to problems, he said.
"This is a very competitive business," he added, noting that lenders increasingly use mass mail solicitations to snag new customers. Banks have to keep track of the amount of credit they are extending through these offers, he said. They also need to "constantly re-evaluate" the credit limits they have placed on their customers, he said.
But so far, no alarms have gone off, he said. Lenders seem to be able to factor in the risk when they price their products. "The credit card business is very profitable," he said.
