FDIC Chief Cautions Banking Problems Aren't Over
Andrew C. Hove J., acting chairman of the Federal Deposit Insurance Corp., pitched higher insurance premiums in a recent speech to the Executive Bankers and Directors Conference in White Sulphur Springs, W. Va.
The FDIC is scheduled to vote tomorrow on a proposal to increase premiums 22% to an average of 28 cents per $100 of insured deposits. Here are excerpt's from Mr. Hove's speech:
On Sept. 15, the FDIC Board will consider the issue of raising insurance premiums. We were going to consider it Sept. 1, but we postponed the scheduled vote on the request of acting Comptroller of the Currency Stephen Steinbrink and Office of Thrift Supervision Director Timothy Ryan.
Mixed signals about the current and future condition of the banking system make a decision about a premium increase a judgment call. The first half of the year was a great one for the banking industry as a whole.
What gave the industry such a healthy glow in the first half? Many factors. The most important: low interest rates. Profits went up.
Some banks that were heading for failure appear stabilized. And some banks that would have failed by now received a reprieve - not a pardon - a temporary reprieve.
A number of serious problems remain. Resolving them will require sizable expense to the insurance fund. Low interest rates will not be around forever. When rates rise, the weight of the past that many banks carry with them will become heavier.
And that is sobering in light of the fact that the numbers of banks on the problem list continues at a high level - over 1,000 - and in light of the fact that the total assets of these troubled institutions approach $600 billion.
Moreover, bank exposure to weakened real estate markets remains substantial.
Commercial banks nationwide hold almost $400 billion in loans for commercial real estate. Many of these loans will require restructuring and refinancing in the coming months as original terms cannot be met.
Others say that we should wait to raise premiums because the banks have been drained by too many problems loans. What, however, makes more sense: raising premiums now, when profitability is higher, or waiting until later, when profitability might be lower?