Seidman's Views on Fund: Pessimistic or Even Worse
WASHINGTON - A likely worsening of conditions in the banking industry could leave the Bank Insurance Fund with a deficit, under a "pessimistic scenario," of $11 billion at the end of 1992, L. William Seidman said Thursday.
But in testimony to the House Budget Committee, the Federal Deposit Insurance Corp. chairman was quick to add that losses to the fund could go even higher.
"If substantial deterioration occurs in other real estate markets, such as California or the Southeast, insurance losses will be greater than indicated by the pessimistic scenario," said Mr. Seidman.
The pessimistic outlook assumes that 400 banks with $200 billion in assets will fail in 1991 and 1992, rather than the 340 banks with $140 billion in assets in the FDIC's current "baseline projection."
The baseline projection has the Bank Insurance Fund balance at $3.2 billion on Dec. 31, 1991, and with a deficit of $3 billion a year later. The figures would be $1.7 billion and an $11 billion deficit, respectively, under the pessimistic projection.
"We have not seen at this point any recovery in the banking system," amid the recession, Mr. Seidman said. "When we look at 1992, we see a substantial deterioration."
Estimates on Failures
The number of failed banks would rise to 180 in 1992, from 160 this year under the baseline scenario; and to 220 from 180 under the pessimistic scenario.
Mr. Seidman's progressively worsening projections for the Bank Insurance Fund have provoked criticism from lawmakers.
"Every time we hear the numbers, the numbers get worse," Leon E. Panetta, D-Calif., chairman of the budget committee, said Thursday.
"We are giving you estimates as we have them," Mr. Seidman replied.
"We have built 1993's buildings in 1989," Mr. Seidman said.
Mr. Seidman said future problems in the real estate and commercial sectors would continue to affect the performance of many banks in the Northeast and Southeast. He also noted more than one of every five banks with $1 billion or more in assets reported a net loss for 1990.
"My feeling about New England is, I wish it would get well fast. It is breaking the fund," he said.
PHOTO : Two Dire Projections For Insurance Fund