Research Firm Says Savings Banks Will Cost FDIC Fund $22 Billion
At least 76 northeastern savings bank will fail over the next three years, costing the Federal Deposit Insurance Corp. some $22 billion, according to a survey by SNL Securities, a research firm.
While the FDIC has acknowledged widespread problems among savings banks under the Bank Insurance Fund, the survey suggests that the difficulties are even broader than previously thought.
SNL contends that the FDIC has not sufficiently accounted for the severity of the savings bank woes.
The FDIC heatedly contested SNL's finding. The estimates are "far too high," said Don Insco, associate director of the agency's division of research and statistics. "The methodology appears to have overstated the losses."
In its first-quarter report, the latest available, the FDIC said 48 savings banks are in danger of failing. It declined to provide asset figures for these institutions or estimate losses to the fund if these banks fail.
SNL, which is headquartered in Charlottesville, Va., based its study on yearend data. Since the first of the year, six savings banks insured by BIF have failed at an estimated cost of $2 billion to the fund. The most prominent of these failures was Goldome of Buffalo, which is expected to cost the fund at least $930 million.
Worst Case: $50 Billion Tab
Along with the 76 institutions cited as certain failures, SNL called 103 savings banks probable failures by 1994. Under SNL's most pessimistic scenario, the cost to the insurance fund could climb to $50 billion.
"The untold story of the New England banking crisis is the major problem in BIF-insured savings banks," said Dennis Jacobe, executive vice president for policy and research at the trade group. "It's gotten very little recognition."
Under SNL's projections, the savings bank industry will shrink dramatically over the next few years. Savings banks are heavily concentrated in the Northeast, which continues to be plagued by a recession and a depressed real estate market. There are 463 BIF-insured savings banks, with total assets of $217.2 billion, and 435 are those are in New England, New York, New Jersey, and Pennsylvania.
The SNL study does not include 894 savings banks insured by the Savings Association Insurance Fund. These institutions are supervised by the Office of Thrift Supervision.
According to SNL, nonperforming real estate loans will cause an "almost inevitable" dramatic erosion of capital at northeastern savings banks.
Loan Losses Estimated
To reflect the impact of possible loan losses, SNL eliminated 30% of all construction loans, 20% of all other high-risk real estate loans, and 60% of all non-performing assets and loans at least 90 days past due from equity. It then added back loan-loss reserves.
Using this calculation, SNL concluded that 162 of the 435 northeastern savings banks would have equity capital equal to 3% of assets or less, with 76 insolvent. Regulators consider 3% the bare minimum for equity capital.
Barbara A. Rehm in Washington contributed to this report.