More Banks to Fail, But Bailout Probably Not Needed: Bair

Bank failures are going to continue at a fairly strong rate but taxpayers hopefully won't be asked to foot the bill, FDIC Chair Sheila Bair told CNBC.

AP

Amid speculation that the Federal Deposit Insurance Corp might need to ask the Treasury Department for help covering insured deposits, Bair said the agency should be solid this year but acknowledged that 2010 could be difficult.

"Everyone has bailout fatigue so, yes, we do want to avoid that," she said in a live interview. "I never say never. But at this point based on our current projections I think we can continue to rely on the industry to fund the FDIC."

But bank health continues to be an issue.

A tepid economic recovery combined with defaults on commercial and residential mortgages will put pressure on the industry.

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"Our projection right now is bank failures will continue at a pretty good clip through 2011. We're prepared for it, we're ready for it," she said. "The rate of healing the economy will drive the rate of healing of the banking sector."

Selling the toxic assets that are clogging bank balance sheets has been going well, Bair added. The FDIC has developed a test mechanism that is showing alt-A, or nontraditional loans, fetching 71 cents on the dollar in the open marketplace.

At the same time, Bair welcomed new banking regulations to avoid the causes of the financial crisis but cautioned against putting too much pressure on struggling institutions, particularly in capital reserve requirements.

"We need to be very careful in how we do that. It needs to be a gradual process," she said. "If we spike up capital levels too much now it could impair banks' ability to lend, and we need them to lend into the economy now."

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