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Bartiromo & Bair: One-on-One

Sheila Bair
AP
Sheila Bair

We’re at Fortune's Most Powerful Women Summitand Maria Bartiromo interviewed FDIC Chairwoman Sheila Bair about where we are today, a year since Lehman’s collapse.

Bair believes we are much more stable now.

Liquidity is stable, insured deposits are stable.

However, “we still have some challenges to work through in the banking sector, but we have time and can do that in a methodical way”, Bair said.

Troubled Assets

The big question: How is it possible that the FDIC takes over all of these troubled assets? Bartiromo asked how the lost shares deals and how they work.

The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage
The Crisis: 1 Year Later - A CNBC Special Report - See Complete Coverage

BAIR: “The actually our total reserves are about $42 billion.

So, we reserve $32 billion to cover projected losses over the next 12 months. And after that, we have $10.4 billion left. So, it's over $42 billion. The total saved us money. Where they've saved us about $11 billion. Since over the past year. I think what people need to understand is we already have the exposure. We must covered those insured deposits. That's what we're all about. And then we sell off the bank and the bank's assets and whatever franchise value it has to recover some of our costs. And the shortfall is it's a loss that we have to absorb.”

Bair said there are no plans to go to Congress for more money. The FDIC already has a $100 billion credit line already and up to $500 billion with the approval of the Fed and the Treasury. However, “never say never” she said. FDIC has a variety of tools available to them. Bair said, “The board is actively considering our different options now. Again, we have very wide ability to assess the industry. We can actual borrow from the industry, too. We have the authority to do that. So, there are a number of tools we have-- and we'll be-- dealing with that probably towards the end of the month”.

Too Big To Fail?

BARTIROMO: Most people would say right now that given the fact that the government has supported some of the largest banks, we're still at that point where we have institutions out there that are, in fact, too big to fail. Would you agree with that, number one?

BAIR: I think that is an unfortunate outcome. I think we did what we had to do. I support all of the stabilization measures. But it was at the cost of making explicit the too big to fail doctrine which was probably implicit going into this crisis. And I think frankly it helped feed the crisis, you know? As investors and creditors think the government's always going step in and take the downside. So, they only have upside. That fosters additional risk taking. So, we absolutely have to have an exit strategy. And most importantly, I think of all the reforms that Congress is considering, a resolution mechanism-- akin to what the FDIC has for insured banks that would apply to any large financial intermediaries, so that they can be closed, and shareholders and creditors will take losses if the government has to step in.

Check out the rest of the interview. We’ll have complete coverage from Fortune Most Powerful Women Summit.

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