FDIC's Woes Are Delaying Bank Closings, Some Charge

WASHINGTON - The slower-than-expected pace of bank failures this year is raising speculation that regulators are delaying closings to conserve the deposit insurance fund's cash.

Through midyear, 63 banks had failed. At that rate, 252 institutions will close by the end of 1992, well below the Federal Deposit Insurance Corp.'s two-year estimate of 400.

The shortfall has fueled the idea that regulators, faced with a Bank Insurance Fund moving rapidly toward insolvency, are dragging their feet to avoid costly rescues. The contention is flatly dismissed by regulators but has become widely held in banking circles.

"They are waiting and hoping they will get some sort of recapitalization so they can get back on schedule," asserted Edward J. Kane, a banking professor at Ohio State University.

"I think they are moving more slowly because the cash just isn't there," agreed James Butera, an industry consultant here. Mr. Butera said the failure rate reflects the regulators' reluctance to take on more bad assets.

James R. Barth, a finance professor at Auburn University, said regulators are conserving cash because "they do not want to be caught without any reserves in the event that a big institution fails."

A slower pace, contended banking consultant David C. Cates, chairman of Ferguson & Co., also helps avert a cash crisis that might force Congress to rush through a recapitalization of the fund without also approving an overhaul of banking laws, which the regulatory agencies strongly endorse.

"All this stuff is stage-managed," Mr. Cates said. "I think they are trying to manage the news by having a lower number of failures. Why muddy the reform bill's chances by giving us real bad news on the failure front?"

Nobody Stalling, Agency Says

FDIC officials and other regulators strongly deny the assertions.

"Nobody is dragging their feet - not us, not any of the regulators," said Alan J. Whitney, an FDIC spokesman.

John W. Stone, director of the FDIC's supervision division, said "some of what we project for the fourth quarter of '92 could spill into the first quarter of '93.

"It's pretty tough to project a failure two years out."

But Mr. Stone insisted that all of the banks the FDIC is predicting will fail still are expected to close.

26 Failures by June

A spokeswoman at the Office of the Comptroller of the Currency denied that any insolvent national banks were being left open to give the FDIC breathing room. She added that 26 national banks failed in the first half and that the agency expects another 69 to fall by yearend.

Several state regulators contacted also denied any slowdown.

"I've never heard the term, |We don't have the money,'" said New Hampshire's banking commissioner, Roland Roberge. "The FDIC is prioritizing what they are doing here. They are doing so very carefully."

Pessimism Grows

The regulators' position was supported by Washington attorney Ronald R. Glancz, a partner with Drinker Biddle & Reath. "I don't think they are monkeying with the books," he said. "We're going to see some pretty big numbers in the second half."

As the economy and real estate values have continued to deteriorate, Mr. Seidman has had to steadily increase his estimates of costs to the insurance fund.

In January, Mr. Seidman predicted that 340 to 440 banks, with assets of $95 billion to $160 billion, would fail this year and next.

In mid-June, he said that the ongoing recession was causing the agency to take a more pessimistic view. The estimate now stands at 400 failures, involving assets of $140 billion to $200 billion.

While the agency is far behind its prediction of failures, it's closer to target in terms of the amount of assets seized.

The 63 banks that failed in the first half this year held $40.7 billion in assets - 20% of the predicted two-year caseload. That was more than four times the $9.2 billion in assets held by the 103 banks that failed in the first six months of 1990.

At the current pace, the FDIC would handle $162.8 billion in assets from failed banks by the end of 1992, or 81% of its $200 billion projection.

One reason the pace might be slower than expected is that the projections are inflated, said Bert Ely, a consultant. He accused Mr. Seidman of using "scare talk."

"It's one way to look the hero if things don't turn out to be as bad as he says they will," Mr. Ely said. "I think were seeing a hype of the numbers."

The FDIC's Mr. Stone denied that the agency was inflating its estimates. He repeated Mr. Seidman's frequent assertion that it is difficult to pinpoint the number of expected failures because of the unpredictability of the economy.

Texas remained the king of busted banks during the first half with 22 failures. However, those institutions held less than $1 billion in total assets.

Massachusetts took second place with eight failures, but had a total of $16.1 billion in failed bank assets. Connecticut was third in number of failures with five, involving $7.8 billion in assets.

All tolled, 18 banks with $37.9 billion in assets failed in five Northeastern states. The largest casualties were the three subsidiary banks of Bank of New England Corp., with $14 billion in total assets, and Goldome, based in Buffalo, N.Y., with $10 billion in assets.

PHOTO : Drop-Off in Failures Number of bank closings, from January through June

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