Seidman Says Early Closings Would Raise Cost to U.S.
WASHINGTON -- A provision in the banking reform bill requiring regulators to shut down undercapitalized banks would have cost the Federal Deposit Insurance Corp. up to $2.1 billion had it been in effect since 1986, according to FDIC Chairman L. William Seidman.
In a letter sent last week to Sen. William V. Roth Jr., R-Del., Mr. Seidman opposed the "early intervention" amendment. He said many institutions that regulators would be forced to close could recover if given enough time.
The amendment was sponsored by Rep. Peter Hoagland, D-Neb., and approved by the House Banking Committee's financial institutions subcommittee. The full committee plans to take up the bill, including the Hoagland amendment, on June 19.
High Cost Is Projected
"The amendment strikes us as overly draconian," Mr. Seidman wrote in his June 12 letter. "It is clear that the mechanistic approach of the Hoagland amendment would substantially increase costs to the funds in the future."
Of the 152 banks with $39 billion in assets and less than 2% equity in 1986, 46 banks with $20 billion in assets were able to rebuild their capital by yearend 1990, Mr. Seidman said. Eighty-nine of the banks failed or required FDIC assistance.
"If these 46 banks had been closed in 1986, the combined resolution costs are estimated to be between $1.6 billion and $2.1 billion," Mr. Seidman wrote.
Discretion Is Urged
Mr. Roth said that while he supports the concept of early intervention by regulators, "the FDIC analysis shows that Congress can go too far.
"The regulators . . . must be accorded the discretion to decide what to do on a case-by-case basis," Mr. Roth said.
An aide to Rep. Hoagland said that the lawmaker has not attempted to estimate the financial impact his amendment would have on the FDIC.