FDIC Bair:Consumer Agency, Too-Big-To-Fail Key Reform Issues
October 07 2009 - 10:27AM
Dow Jones News
In the flood of proposals to reform bank regulation, creating a
consumer protection agency and creating a system to deal with
troubled, "too big to fail" financial institutions are the most
important, Federal Deposit Insurance Corp. Chairman Sheila Bair
said in New York Tuesday evening.
The consumer protection agency the administration of President
Barack Obama proposed "needs to get done," and the authority to
dissolve large failing banks "is at the top of our list," she said.
However, differences of opinion about which regulator should get
such authority and how the regulatory system should be reformed
make a swift reform unlikely.
"I really don't think anything is going to happen this year,"
Bair said during a discussion sponsored by the American Banker
newspaper and US Banker magazine, two trade publications.
Bair reiterated her concern that one super-regulator for banks
would fail to address the lack of oversight over the so-called
shadow banking industry, which includes non-bank lenders like CIT
Group (CIT) and participants in the securitized and syndicated loan
markets.
Regulation needs to become more effective rather than more
bureaucratic, Bair said, echoing a statement by JPMorgan Chase
& Co. (JPM) chairman and chief executive James Dimon a few
weeks ago during a discussion both attended at the annual meeting
of Clinton Global Initiative in New York.
Bair said she expects bank failures to continue at an
accelerating pace. "It's just a bad economy," she said.
Though she would not say whether she expected more or fewer
banks to collapse next year than this year, Bair said she does not
expect the total number of bank failures to become as high as
during the savings and loan crisis, when over several years more
than 1,000 institutions failed.
Asked about the fateful week last fall when Wachovia Corp. came
close to collapse and was subsequently sold, Bair said that she had
no choice but to allow Wells Fargo & Co. (WFC) to break up the
agreement in principle Wachovia had struck with Citigroup Inc.
(C).
The offer by Wells for Wachovia "was better for shareholders and
required no assistance" from the FDIC to ring-fence losses from
Wachovia's loan book. "Even if we wanted to, we had no authority"
to stop Wells and allow Citi to go through with its plans to buy
Wachovia.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com