CNBC Press Releases

WHEN: Today, Wednesday, May 27th

WHERE: CNBC's "Mad Money w/ Jim Cramer"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Shelia Bair, FDIC Chairman, tonight on CNBC's "Mad Money w/ Jim Cramer."

All references must be sourced to CNBC.

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CRAMER: I'M GOING STRAIGHT TO THE SOURCE TO FIND OUT TO DISCUSS TODAY'S REPORT AND THE FATE OF THE FINANCIAL THE FDIC CHAIRMAN SHEILA BAIR. CHAIRMAN BAIR WELCOME TO MAD MONEY

BAIR: THANK YOU I AM HAPPY TO BE HERE

CRAMER: ALRIGHT SHOULD I TAKE IT FROM YOUR CUE EARLY WHEN YOU SAID THAT WE'RE NOT OUT OF THE WOODS OR SWITCH METAPHORS AND SAY WE SEE LIGHT AT THE END OF THE TUNNEL

BAIR: I THINK I AM SEEING LIGHT AT THE END OF THE TUNNEL AND I WOULD LIKE TO SAY FIRST BEFORE I SAY ANYTHING ELSE THAT INSURED DEPOSITORS OBVIOUSLY HAVE NOTHING TO WORRY ABOUT WE STILL HAVE MONEY WE ARE STAYING IN POSITIVE TERRITORY IN OUR RESERVES WE OBVIOUSLY HAVE THE BACKSTOP OF THE GOVERNMENT AND THE FULL FAITH IN CREDIT AND AMPLE LINES OF CREDIT SO INSURED DEPOSITORS HAVE NOTHING TO WORRY ABOUT WHATEVER HAPPENS AND I DO SEE SOME LIGHT AT THE END OF THE TUNNEL I THINK THINGS HAVE STABILIZED WE'VE GOT SOME CLEANING UP TO DO BUT WE'VE GOT SOME POSITIVE SIGNS OUT THERE

CRAMER: WHY DO WE THINK THESE NEW FEE HIKES WILL BE ENOUGH TO COVER THE FDIC DEFICIT?

BAIR: WELL WE MAKE LOST PROJECTIONS GOING OUT FOR A FIVE YEAR PERIOD, WE ARE CURRENTLY PROJECTING LOSES OF $70 BILLION OVER THE NEXT FIVE YEARS MOST OF THAT'S GOING TO BE FRONT LOADED THIS YEAR AND NEXT. SO THESE PROJECTIONS CAN BE AS MUCH ART AS SCIENCE. BUT WE'VE GOT A LOT OF ECONOMIST AND EXAMINERS WHO WORK TOGETHER WHO MAKE THESE PROJECTIONS AND WE'VE BEEN DOING IT FOR MANY YEARS SO I'M COMFORTABLE I THINK THAT THEY ARE AS GOOD AS THEY CAN BE AND WE ARE RAISING ASSESSMENT PREMIUM TO MAKE SURE THAT OUR RESERVES, OUR INDUSTRY FUNDED RESERVES, STAY IN POSITIVE TERRITORY THROUGHOUT THE YEAR. WE MAY HAVE TO ANOTHER ASSESSMENT IN THE FOURTH QUARTER, BUT WE WILL HAVE THE MOST RECENT DATA TO MAKE THE DECISION AT THAT TIME.

CRAMER: THE WASHINGTON POST TODAY TALKED ABOUT A DISPUTE BETWEEN YOU AND THE CONTROLLER, TALKING ABOUT WHO SHOULD REALLY HAVE TO BARE THE BRUNT OF THESE ADDITIONAL FEES.

BAIR: RIGHT

CRAMER: WHERE SOME PEOPLE FEEL THAT THE SMALLER COMMUNITY BANKS REALLY SHOULD DO IT. I MEAN ISN'T IN TRUE THAT IF IT WEREN'T FOR TARP WE WOULD BE HOPELESSLY IN FAVOR OF THE BIG BANKS PAYING THE FEE?

BAIR: WELL, I THINK THAT'S, WE TOOK A LOT OF FACTORS INTO ACCOUNT. WE CAME UP WITH A HYBRID APPROACH SO WE USED OUR ASSETS AS OPPOSED TO DOMESTIC DEPOSITS FOR THE ASSESSMENT BASE WHICH SHIFTED THE BURDON SOMEWHAT TO LARGER INSTITUTIONS, BY ABOUT 10 PERCENT, NOT AN INORDINATE AMOUNT, BUT WE DO THINK THERE'S AN EQUITY ARGUMENT. YES, WE HAVE ALL THESE GOVERNMENT PROGRAMS THE TARP CAPITAL INVESTMENTS, OUR DEBT GUARANTEE PROGRAMS, ALL THE FED LIQUIDITY GUARANTEE FACILITIES THAT HAVE RAISED HUNDREDS OF BILLIONS IF NOT TRILLIONS OF DOLLARS, PRIMARILY THAT HAVE HELPED STABILIZE THE LARGE INSTITUTIONS, SO WE DO THINK THAT SHIFTING A BIT OF THE BURDON TO THEM IS EQUITABLE AND SO WE THINK IT WAS FAIR, WE TRIED TO BALANCE ALL THE COMMENT LETTERS AND I'M COMFORTABLE WITH THE APPROACH WE CAME OUT WITH.

CRAMER: EARLIER YOUR QUOTED AS SAYING THAT SOME BANKS SHOULD HAVE TO CHANGE MANAGEMENTS. COULD YOU TELL ME WHAT YOU CRITERIA IS THAT WE USE TO WOULD BE ABLE TO GIVE TO SOME MANAGERS THE HOOK?

BAIR: WELL YES, THAT WAS IN RESPONSE TO A QUESTION. I MEAN I THINK WE LOOK, AS PART OF THE CAPITAL PLANS THAT ARE BEING REQUIRED AS PART OF THE NINETEEN INSTITUTIONS THAT WERE STRESS TESTED, THAT WE SAID IN OUR INTERAGENCY STATEMENT THAT THE BOARDS AND MANAGEMENT SHOULD REVIEW THE ADEQUACY AND THE CAPABILITIES OF THE BOARDS AND MANAGEMENT. ARE THEY DOING A GOOD JOB? COULD THEY BE DOING A BETTER JOB? ARE THERE OTHERS THAT PERHAPS WOULD HAVE BETTER SKILL SETS TO MANAGE THE BANK THROUGH THIS CRISIS? WE THINK THAT THIS IS THE JOB REALLY OF THE BOARD, FIRST AND FOREMOST OF THE BOARD TO MAKE SURE THAT THE SENIOR MANAGEMENT IS THE RIGHT LEADERSHIP TEAM TO LEAD THE ORGANIZATION SO WE LOOK TO THE BOARDS AND THE MANAGEMENT TO COME BACK TO US WITH A PLAN. BUT YES, WE WANT RIGOROUS REVIEW OF THE MANAGEMENT CAPABILITIES AND TO MAKE SURE THEY HAVE THE RIGHT MIX THERE. IN SOME CASES THEY MAY NOT.

CRAMER: CHAIRMAN BAIR, WHY WOULD WE TRUST BOARDS? FOR INSTANCE, WE HAD THE ABSOLUTELY WORST MANAGEMENT WE'VE EVER SEEN OF A MAJOR BANK, WASHINGTON MUTUAL, REPEATEDLY, REPEATEDLY OKAYED BY A BOARD OF DIRECTORS THAT WAS ALLEGEDLY SUPPOSED TO BE -- I'M TRYING NOT TO USE THE WORD HONEST BECAUSE THAT WOULD REVEAL ME NOT AS A STATESMAN. BUT LET'S JUST SAY SUPPOSED TO BE CRITICAL OF PAY. INSTEAD THEY JUST KEPT REUPPING THE CEO. HOW CAN WE TRUST BOARDS?

BAIR: WELL, BOARDS NEED TO DO THEIR JOB. WE ALL NEED TO DO THEIR JOB. AND THE BOARDS, THEIR PRIMAL OBLIGATION IS TO MAKE SURE THAT THE EXECUTIVE MANAGEMENT, THE LEADERSHIP AT THE TOP, IS THE RIGHT TEAM IN PLACE TO RUN THAT ORGANIZATION. IF IT'S NOT, THEN THEY NEED TO MAKE CHANGES. AND THE BANKS THEMSELVES NEED TO -- EXCUSE ME, THE BOARDS THEMSELVES NEED TO HAVE THE RIGHT SKILL SETS. SO WE NEED PEOPLE WITH THE EXPERIENCE IN BANK MANAGEMENT, IN DEALING ON BANK BOARDS, IN DEALING WITH DISTRESSED CREDIT ENVIRONMENTS. SO WE WANT A REVIEW OF BOTH THE COMPOSITION OF THE BOARD AS WELL AS THE EXECUTIVE MANAGEMENT. BUT IT REALLY -- IT SHOULD BE THE JOB OF REGULATORS TO MAKE SURE THERE IS SCRUTINY OF THE PROCESS, WHETHER THE BOARDS AND MANAGEMENT ARE DOING THEIR JOBS. WE SHOULDN'T DO THEIR JOBS FOR THEM. THAT'S WHAT THEY'RE THERE FOR.THAT'S WHAT THEY'RE PAID TO DO.

CRAMER: RIGHT. TAKE A BANK LIKE CITIGROUP, WHICH EVERYONE KNOWS IS JUST A GIGANTIC MESS. THAT BOARD HAS NOT BEEN SCRUTINIZED BY THE FDIC OR ANYBODY ELSE. THE BOARD THAT PUT -- THAT CHECKED OFF ON EVERY BAD DECISION ON A MAJOR BANK STILL SITTING PRETTY, MAKING A LOT OF MONEY.

BAIR: I CAN'T COMMENT ON ANY INDIVIDUAL OPEN OPERATING INSTITUTION. I'M SORRY.

CRAMER: OKAY. CAN YOU TELL ME WHY IT TAKES SO LONG TO CLOSE ZOMBIE BANKS LIKE INDYMAC OR RECENTLY BANK UNITED WHEN WE ALL KNOW, YOU AND I BOTH, WE CAN READ BALANCE SHEETS. I TOOK A COUPLE YEARS OF ACCOUNTING. YOU AND I BOTH KNOW THAT THAT BANK WAS MAKING HIDEOUS LOANS FOR SO LONG. WHY DID IT TAKE SO LONG TO CLOSE THEM?

BAIR: RIGHT. WELL, I THINK TIMING IS ONE OF JUDGMENT. AND I THINK ONE OF THE THINGS ABOUT THIS CRISIS THAT IS DIFFERENT WITH THE S & L DAYS IS MOST OF THESE LOSSES ARE ALREADY COOKED.SO EVEN IF THE BANK STAYS OPEN A WHILE, IF THEY'RE ON A DOWNWARD SPIRAL, IT REALLY DOESN'T INCREASE OUR LOSSES THAT MUCH. UNLIKE THE S & L DAYS WHERE WE HAD S & Ls AFFIRMATIVELY GOING OUT MAKING HIGH-RISK LOANS TRYING TO GROW THEIR WAY OUT OF IT. SO I I THINK THESE INSTITUTIONS FOR THE MOST PART NOT ALL BUT FOR THE MOST PART, AND WE WORK WITH THE PRIMARY REGULATORS TO MAKE SURE THIS IS THE CASE, ARE UNDER CLOSE SUPERVISORY ATTENTION ALREADY. BUT IT IS -- WE DO LIKE TO TRY TO MARKET THESE INSTITUTIONS PRIOR TO THEIR BEING CLOSED BY THEIR PRIMARY REGULATOR. THAT HELPS ASSURE MORE OF A SEAMLESS TRANSITION. THAT HELPS DEPOSITORS.THAT HELPS BORROWERS TOO. SO WE CAN FACILITATE THAT. WE LIKE TO TAKE SOME TIME IN ADVANCE TO MARKET IT AND TRY TO SELL IT AS A WHOLE BANKING INSTITUTION, WHICH MAKES IT BETTER FOR THE CONSUMERS AND THE BORROWERS. BUT WE DO CLOSELY MONITOR THIS. AND CERTAINLY WE ALSO WEIGH IN THE BALANCE ANY POTENTIAL INCREASE IN OUR RESOLUTION COSTS THROUGH THE TIMING.BUT I THINK FOR THE MOST PART THE STAFF HAS MANAGED IT WELL.BUT IT'S A DIFFICULT DECISION. YOU ALSO -- YOU DON'T WANT TO CLOSE AN INSTITUTION PREMATURELY IF YOU DO THAT SOMETIMES, YOU KNOW IF IT CAN BE ACQUIRED ON AN OPEN BANK BASES THAT'S ALWAYS BEST FOR THE FDIC THEN THAT DOESN'T COST US ANYTHING SO WE WANT TO BE CAREFUL NOT TO PREMATURELY CLOSE AS WELL, BUT AGAIN LIKE ALL THINGS ITS A MATTER OF JUDGMENT

CRAMER: OKAY BUT WE HAVE A WHOLE BUNCH OF INSTITUTIONS THAT BETWEEN THE RANGE OF 5 BILLION AND 25 BILLION THAT ARE SCREWING UP THE WHOLE PROFITABILITY OF THE SYSTEM. YOU CAN GO TO A LOT OF WEBSITES ITS ALL PUBLIC AND YOU SEE THAT SOME OF THESE BANKS ARE OFFERING MUCH HIGHER RATES FOR DEPOSITS THAN OTHERS. WE KNOW THESE BANKS ARE KILLING PROFITABILITY AND HURTING THE SYSTEM. WHY DON'T' WE SEIZE THEM?

BAIR: WELL I WILL TELL YOU, YOU SHOULD LOOK AT OUR BOARD MEETING ON FRIDAY, BECAUSE WE ARE GOING TO BE FINALIZING SOME RULES TO TRY TO GET A BETTER HANDLE ON SOME OF THESE HIGH RATE DEPOSIT TAKERS. WE DON'T' LIKE THOSE, WE DON'T' LIKE HIGH RATE DEPOSITS. THEY COST US A LOT OF MONEY. IT'S VERY DIFFICULT TO SELL OFF THOSE DEPOSITS IF WE HAVE TO RESOLVE AN INSTITUTION THAT'S PAYING THOSE HIGH RATES, SO WE ARE GOING TO BE MORE AGGRESSIVELY USING THE TOOLS THAT WE HAVE TO TRY TO GET THOSE DEPOSIT RATES DOWN AND WE'LL BE FINALIZING THE RULE ON FRIDAY FOR THAT VERY PURPOSE.

CRAMER: "FINANCIAL TIMES" TOOK YOUR ORGANIZATION TO TASK THIS MORNING TALKING ABOUT PRIVATE EQUITY, AND PERHAPS THERE SHOULDN'T HAVE BEEN A CONSORTIUM OF BLACKSTONE AND CARLYLE AND OTHERS, THAT MAYBE THEY SHOULD BE MADE TO COMPETE AGAINST EACH OTHER IN ORDER TO BE ABLE TO BANK UNITED AND MAYBE WE DIDN'T GIVE THE TAXPAYER A FAIR SHAKE BY NOT HAVING A COMPETING INTEREST BY THIS BANK.

BAIR: WELL, WE DID HAVE A COMPETITIVE PROCESS WITH BANK UNITED. ACTUALLY, WE HAD THREE BIDDERS IN, AND THIS WAS BY FAR THE BEST DEAL FOR US GIVEN THE TERMS OF OUR BID PACKAGE. SO THERE WAS A COMPETITIVE PROCESS. IF THE "FINANCIAL TIMES" HAS IDEAS FOR ME TO BRING IN MORE BIDDERS, I'D BE HAPPY TO DO THAT. I THINK WE'RE PRETTY THOROUGH ALREADY. WE VERY AGGRESSIVELY MARKET AND REACH OUT TO INSTITUTIONS AND INVESTORS THAT HAVE EXPRESSED INTEREST IN A PARTICULAR GEOGRAPHIC AREA OR WHAT HAVE YOU. SO WE ARE ON THE GROUND ALL THE TIME TRYING TO SOLICIT BIDDING INTERESTS. AND THERE WAS A MULTIPLE BIDDING PROCESS. AND THIS WAS THE BEST BID THAT WE RECEIVED, GIVEN THE BID PACKAGE THAT WAS PUT OUT. SO WE'RE DOING THE BEST WE CAN. IF PEOPLE HAVE OTHER SUGGESTIONS, I'D WELCOME THEM. BUT I THINK WE'RE DOING -- YOU KNOW, THE REALITY IS A LOT OF THE LARGER BANKS ARE CAPITAL CONSTRAINED TO MAKE THESE ACQUISITIONS. SO WE HAVE TO EXPAND THOSE WHO ARE ELIGIBLE TO BID. BUT WE ALSO WANT GOOD CORPORATE CITIZENS BIDDING ON THESE BANKS. THOSE WHO ARE COMMITTED TO OPERATING THEM AS WELL-REGULATED BANKS, AS PRUDENT SAFE AND SOUND BANKS AND ARE WILLING TO SERVE AS A SOURCE OF STRENGTH TO THOSE INSTITUTIONS. BUT I THINK OVERALL WE STRUCK THE RIGHT BALANCE. WE'RE GOING TO BE WORKING ON SOME GENERIC GUIDANCE TO HELP PROVIDE CLARITY ABOUT WHEN NON-TRADITIONAL ACQUIRERS A BANK SUCH AS PRIVATE EQUITY, THEIR APPROPRIATE ROLE IN HOW THEIR BIDDING PROCESS NEEDS TO BE STRUCTURED. AND THEIR OWNERSHIP STRUCTURE NEEDS TO BE MAINTAINED TO MAKE SURE THAT THEY WILL BE A SOURCE OF STRENGTH FOR THE BANK.

CRAMER: CAN YOU EXPLAIN TO ME WHY ILLINOIS AND GEORGIA HAVE A HIGHER PERCENTAGE OF UNDERCAPITALIZED BANKS THAN EVEN SOME OF THE LARGER STATES LIKE CALIFORNIA, TEXAS, FLORIDA?

BAIR: WELL, GEORGIA IS AN INTERESTING CASE. I THINK WE JUST ENDED UP WITH TOO MANY BANKS IN GEORGIA. AND THERE WAS A LOT OF HIGHER-RISK COMMERCIAL REAL ESTATE AND CONSTRUCTION DEVELOPMENT LENDING. AND SO WE'RE DEALING WITH THAT NOW. IT IS A PAINFUL PROCESS.I KNOW WE'VE HAD A LOST BANK CLOSINGS IN THAT STATE. AND WE'VE DONE THE BEST WE CAN TO TRY TO SELL THEM OFF OR TRANSITION THEM INTO OTHER FINANCIAL RELATIONSHIPS WITH ACQUIRING INSTITUTIONS WHERE WE CAN. BUT I DON'T KNOW.THAT WAS KIND OF THE SITUATION WHEN I ARRIVED AT THE FDIC. AND THERE WERE JUST A LOT OF BANKS IN GEORGIA.IN RETROSPECT TOO MANY BANKS. THERE MAY BE SOME LESSONS LEARNED FOR THE FDIC IN TERMS OF GRANTING DEPOSIT INSURANCE.THERE MAY BE FOR CHARTERING ENTITIES AS WELL FOR ABOUT CHARTERING BANKS. I THINK THAT'S ONE OF THE LESSONS LEARNED GOING FORWARD, WE NEED TO BE CAREFUL, EVEN IN VERY HEALTHY ROBUST ECONOMIC TIMES FOR THE BANKING SECTOR WE NEED TO BE CAREFUL ABOUT GIVING OUT BANK CHARTERS AND DEPOSIT INSURANCE.

CRAMER: ONE LAST QUESTION.I KNOW I LOOK AT THE STOCK MARKET EVERY DAY. I'M SURE THAT'S NOT THE PURVIEW OF THE CHAIRMAN. BUT THERE ARE BANKS. BANKS LIKE A CHORUS BANK IN ILLINOIS. SELLING FOR 38 CENTS.MASSIVE INSIDER SELLING. WHY IS THAT BANK ALLOWED TO STAY IN BUSINESS WHEN A WASHINGTON MUTUAL OR A WACHOVIA, WHICH ARE VERY -- WERE AT ONE TIME CONSIDERED TO BE VERY SOLID INSTITUTIONS, WERE IMMEDIATELY YOU PUSHED TO OTHER BANKS? CHORUS BANK SEEMS LIKE AN ACCIDENT WAITING TO HAPPEN.

BAIR: WELL, AGAIN, I DON'T COMMENT ON OPEN AND OPERATING INSTITUTIONS. I CAN SPEAK GENERALLY TO THE CRITERIA AND PROCESS THAT'S USED WHEN A BANK IS CLOSED. FIRST OF ALL, THE DECISION IS ALMOST ALWAYS MADE BY THE PRIMARY REGULATOR, THE CHARTERING ENTITY.AND IT CAN BE PLACED ON A VARIETY OF FACTORS.ONE IS FUNDING. IF THEY CAN'T MEET THEIR FUNDING OBLIGATIONS, IF THEY CAN'T MEET THEIR DEPOSIT OBLIGATIONS OR THEIR CREDITOR OBLIGATIONS, THAT CAN BE THE BASIS FOR FORECLOSING A BANK. IF THEY'RE CAPITAL INSOLVENT OBVIOUSLY AND A PROMPT CORRECTIVE ACTION, THAT CAN BE GROUNDS. AND GENERALLY IF THEY'RE OPERATING IN AN UNSAFE AND UNSOUND MANNER THEY CAN BE CLOSED. BUT GENERALLY IF A BANK IS MEETING REGULATORY CAPITAL STANDARDS AND CAN FUND ITSELF, THEN IT IS MORE DIFFICULT TO DETERMINE GROUNDS FOR THEM TO BE CLOSED BY THEIR PRIMARY REGULATOR. BUT THOSE ARE THE STATUTORY CRITERIA THAT WE USE.

CRAMER: ALL RIGHT. THANK YOU, CHAIRMAN BAIR. GREAT TO HAVE YOU ON THE SHOW. THANK YOU.



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