House Banking Committee Chairman Henry B. Gonzalez, D-tex., last week charged bank regulators with "sweeping the banking industry's problems under the rug until after the election."
Gonzalez said regulators were delaying the closing of bankrupt financial institutions, which will result "in a costly post-election surprise for the taxpayer."
According to Gonzalez, the Bank Insurance Fund faced a $5.5 billion deficit it the end of June and the Savings Association Insurance Fund had only $187 million as of August.
"The taxpayer should not be made the fall guy for an administration desperate to get votes and contributions from corporations," Gonzalez said. "I urge regulators to deal straight with taxpayers now and not present them with a bombshell come January."
Gonzalez said that although regulators have celebrated the banking industry's profits during recent quarters, commercial banks are saddled with a heavy portfolio of past-due real estate loans.
Industry profits "may disappear" if the poor loans are correctly accounted for with proper reserves, the lawmaker said. Moreover, there are more than 1,000 banks with a total of $567.5 billion in assets that are considered shaky by regulators, he said.
"We do not know how many of these will fail or be closed," Gonzalez said. "A rough estimate from previously closed banks is that 15% of assets equal losses that the insurance fund must bear."
Consequently, "I can find no reason to celebrate recent bank profits without telling the public the true condition of the [bank and thrift insurance funds] and what it will cost them." Gonzalez said.