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The number of U.S. “problem” banks has hit a 15-year high, the Federal Insurance Deposit Corp. reported on Wednesday, while at the same time the agency’s reserves to back up these firms has declined to a 15-year low. Cramer, who was a bit concerned, invited Chairwoman Sheila Bair to appear on Mad Money to give viewers a status report.
Bair emphasized that the FDIC’s insurance fund was still in positive territory and that in a worst-case scenario there were “ample lines of credit” from which to draw. There was also “the full faith and credit” of the government.
“Insured depositors have nothing to worry about,” Bair said, “whatever happens.”
The FDIC also has raised its fees as a way to grow that insurance fund, but there has been some debate over who should bear the brunt of them: community banks or their much larger peers. Bair said that assets rather than domestic deposits would determine who pays more. She called the approach “equitable” and “fair” even though it shifts the burden to big banks – “by about 10%, not an inordinate amount” – because there are many government initiatives already in place to support these firms, such as the Troubled Assets Relief Program.
Cramer seemed to take issue with the FDIC’s demand that boards of directors review their managements’ ability to see banks through the downturn. Some of these boards didn’t always make the right decision. Washington Mutual’s directors continually rubber-stamped their management, which all but drove the company into JPMorgan Chase’s [JPM
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Bair agreed that boards of directors might need just as much oversight as management, but she tried to strike a balance between that and taking on too much responsibility for these banks. While regulators need “to make sure there is scrutiny of the process, whether the boards or management are doing their jobs,” she said, “we shouldn’t do their jobs for them.”
Cramer also wanted to know why it took so long to shut down troubled banks, such as IndyMac or BankUnited. Blair defended the FDIC’s actions so far, explaining the difference between the savings-and-loan crisis and now. In the late 1980s and early ‘90s, banks were actively making high-risk loans as a way to escape their losses. But the losses banks face today are “already cooked.” So even if they stay open for a while, she said, “it doesn’t really increase our losses that much.”
Also, the FDIC likes to sell whole institutions, not their parts. So the agency never wants to sell a bank prematurely. This allows for a more seamless transition, while also helping depositors and borrowers, Bair said.
Cramer and Chairwoman Bair also discussed bank seizures, allowing private-equity firms to buy failed banks and why Georgia’s failure rate is so high. Watch the video for that and more.
Cramer's charitable trust owns JPMorgan Chase.
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