The transaction is expected to cost the Federal Depository Insurance Corp. $3 billion, dipping deeper into already low FDIC reserves.
"There have been some hits to the fund," said Donald Powell, former FDIC chairman and board member of Bank of America . "This happened in the late '80s and banks will be assessed to replenish the fund. In good times, we should be allowed to make that fund much larger."
Despite some weakness in the banking industry, banking is "alive and peforming every day," Powell said.
Community banking has remained an area of strength.
“Most community banks practice what I call plain-vanilla banking," said Fine. "It’s your old mom-and-pop banking that you extend credit, you have a relationship, you look at your borrower in the eye.”
In the fourth quarter of 2008 and the first quarter of 2009, for instance, community bank lending rose, said Camden. Although lending stilll remains relatively soft due to a limited number of borrowers and the harsh examination environment, 98 percent of community banks are “doing fine," he said.
“The healthy banks pull in their horns until the harsh environment passes,” he said. “No banker wants to have to put capital back into loan loss reserves when they don’t think that’s justified.”
As the economy improves, Powell expects banks will become more engaged in extending credit.
“Banks make money by loaning,” he said. “In order to make a return on their investment, their equity, they got to loan some money.”
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