Sheila Bair: “Many More Bank Failures Ahead”

While the situation in the credit markets and the banking have improved compared to last year, as a result of base money increasing at pace relatively in line with the amount of QE done, the uncertainty regarding the financial sector’s near-term stability, or growth for that matter, is understandably still very high.  In an interview with Forbes reporters and editors on Friday, FDIC bosslady, Sheila Bair, said that while the financial crisis has subsided somewhat, it is far from over and there would be “many more bank failures” ahead. Here are a few excerpts from her comments:

From Forbes: “I think there’s still some challenges, I think we need to be realistic. There are still some troubled assets on the books and we still have an economy that’s under significant stress,” said Bair..

“We still don’t know how deep the recession is going to be,” she said, adding, “we’ll still be well below what we were in the S&L days.”

We still don’t know how deep the recession is going to be,” she said, adding, “we’ll still be well below what we were in the S&L days.”
…
“Hopefully there are no more events that create liquidity stresses on the banks,” Bair said, knocking on a wooden conference room table, “and now we’re having more good old-fashioned capital insolvencies.”

Bair’s focus is shifting toward the challenge of reforming banking regulation… she worried aloud about the current trend toward making the Federal Reserve banking’s regulator-in-chief…[and] cautioned the Fed could find itself making “severe trade-offs” between the needs of consumers, businesses and the economy as a whole if pressed into service as America’s top banking regulator.

“No other developed country gives their central bank the kind of power we give our central bank,” Bair said.

“[The Fed] had authority to prescribe across-the-board lending standards for mortgages, and a lot of people said they should do that and they just didn’t,” Bair says as an example of where too many roles led to lapses. “Where does the consumer role go on your priority list? At some point it just doesn’t get done. It just doesn’t get the focus it should.”

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