Taylor Blasts Proposal To Phase In FDIC Recap
Says $70 Billion Is Needed Now
WASHINGTON -- The newly installed chairman of the Federal Deposit Insurance Corp. told a Senate panel Monday that his agency absolutely needs $70 billion in borrowing authority this year, even if getting it means postponing proposed banking reforms.
With Congress nearing its planned adjournment this week, FDIC Chairman William Taylor called it "essential" that Congress provide for a long-term solution to the problems of the Bank Insurance Fund. He argued strongly against suggestions that the FDIC get only stopgap funding now, in hopes that broader legislation can be completed next year.
|We Need the Money'
"It is clear in my mind: We need the money, and we need all of it," Mr. Taylor said in a hastily scheduled appearance before the Senate Banking Committee. "We can't do it piecemeal."
Mr. Taylor was summoned by committee Chairman Donald W. Riegle, D-Mich., in part to elaborate on statements he made in a report published Monday in The New York Times. He said there that a lack of funds is slowing the FDIC's effort to close sick banks.
The FDIC has not yet been prevented from acting as needed, Mr. Taylor told the panel. But if banks that are projected to fail "had some problem today, obviously, we would not be able to close them" with only $2 billion left in the Bank Insurance Fund.
The FDIC chief said some proposals to overhaul the financial services industry, including interstate branching and repeal of the Glass-Steagall Act, could help the insurance fund in the long run by increasing industry profitability.
But the immediate need, he said, is for money to run the insurance fund.
The cornerstone of both House and Senate banking bills, which went to a conference committee late Monday to be reconciled, was a proposal to permit the Bank Insurance Fund to borrow up to 30 billion from the U.S. Treasury to cover losses, up from its current $5 billion borrowing limit.
The bills would also permit the FDIC to borrow an additional $40 billion against assets in its possession for use as working capital.
While the House narrowed its bill to deal only with funding and insurance fund reform measures, the Senate also addressed interstate branching and banks' ability to enter the insurance business.
Stopgap for RTC?
Also pending before Congress are proposals to let the Resolution Trust Corp. borrow an additional $80 billion. However, senior House members said Monday it appears Congress will approve a stopgap measure to let the thrift bailout agency continue its work just through early spring.
"We'll probably give the RTC enough to last until March or April," said Rep. Joe Moakley, D-Mass., chairman of the House Rules Committee. "I expect we'll do full funding for the bank fund."
As Congress approached its likely Wednesday adjournment with major differences remaining between the House and Senate banking bills, lawmakers had begun to ask whether it might be better to pass stopgap funding measures for both the FDIC and RTC.
Last week, the House Banking Committee voted to give the RTC only $20 billion of the $80 billion requested, with additional funds coming only after the administration submits an acceptable plan to pay off RTC loans within five years.
House Standing Firm
As negotiators for the House and the Senate were nearing their planned conference Monday evening, it appeared that House members were unwilling to budge from their narrow legislative package. The House voted 398-3 early Monday afternoon to instruct its conferees to stick with the House package.
The Senate passed its bill by voice vote and without recording individual members' stands. That leaves it in a weaker negotiating position.
Mr. Taylor emphasized repeatedly that the insurance fund's problems would get worse before they get better. Losses by the fund are expected to jump to $15 billion next year from the $6 billion estimated for this year, Mr. Taylor said.
Losses for 1993, he added, should run about $12 billion.
Turnaround Seen Near
The slump in the commercial real estate market is continuing, Mr. Taylor said, but could turn around soon. "We have an over-supply right now, but rents are to the point where at some point they will be a bargain," he said.
He repeatedly declined to estimate the total amount of funds that might be needed by his agency, contending that it is not possible to predict economic conditions precisely enough to know how many banks are likely to fail. He also declined to say whether he believes the banking industry will be able to repay the loans that will be used to put the fund back on its feet.
Mr. Taylor urged the banking panel not to do anything that would jeopardize the FDIC's ability to set up a "hospital" to nurse troubled banks back to health before they are put on the auction block. A provision in the Senate bill calling for least-cost resolutions could hinder the hospital plan, he said.
|Walls of Fire'
The FDIC chairman also expressed skepticism about the value of the safeguards, or firewalls, that the administration proposed as part of its effort to overhaul the Glass-Steagall Act. "I have difficulty believing in firewalls," he said.
"Firewalls tend to be walls of fire when things get hot. Maybe we ought to just allow them to [underwrite securities] in the bank so that, at least, everyone would understand what is being done."
PHOTO : William Taylor Argues against stopgap funding
PHOTO : Sen. Donald Riegle Hastily summoned Taylor