Banking Law

Ever the realist, FDIC Chairman Sheila Bair expects 2010 to be a "banner" year for bank failures, much "better" than 2009, when a mere 140 banks bit the dust. From clients and consultants I've talked to, I think she's quite correct. The only question is "How many?" We've previously blogged about various prognosticators who are convinced the final tally will be anywhere between 500 and 1,000 by the time the dust settles, and recently I've heard the number 1500 from people I respect. Whatever the final tally, many more banks will fail.

In her interview, Bair dropped additional hints about FDIC positions and viewpoints that should be of interest to those who are looking to read tea leaves and/or buy failed bank assets or deposits. For one thing, she said the FDIC is considering packaging groups of smaller banks, as the FSLIC did in The Southwest Plan of the late 1980s. You get more bang for your buck if you're an acquirer looking to build or add to a franchise if you can pick up more deposits in a targeted geographic area in one pop than you could through trying to buy smaller failed banks' deposits one-by-one. The FDIC will likely get more bidding interest through its use of packages. Higher bids mean lower FDIC losses, obviously.

?There are some sad cases of long-standing community banks that had to be closed,? Bair said. ?It?s not a happy thing to close a bank, but we?ve learned the hard way that if you put it off, it will only cost more later.?

Many pundits have been saying the same thing about the efforts of the federal government (and Ms. Bair's FDIC) to "kick the can down the road" with respect to residential mortgage loan borrowers by pushing aggressive loan modification programs. All you're doing, the critics say, is compounding the ultimate loan losses when the borrowers still can't afford the loan months or years later. By that time, however, Ms. Bair and her fellow travelers will be haunting the halls of academia, telling the folks in charge how dumb they are not to have seen this coming.

After all the blah-blah-blah was finished, the article ends with a simple line that is almost a throw away.

Bair plans to leave office after her term expires at the end of the year.

Well, paint me yellow and call me a canary. Sheila's publicly stating that she plans to move on down the road when her current term is done. I hadn't seen that bit of news in the main stream media previously.

For those who think Ms. Bair's one of my favorite punching bags, you might also think I'd be glad to see her go. No, I'm not, at least not prior to 2013. I fear her replacement might be even worse for banks, particularly community banks. Better the devil you know than the devil you don't.

After all, President Obama might appoint Elizabeth Warren.