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Worst of Bank Failures Isn't Over Yet: FDIC's Bair

Bank failures will continue to accelerate into next year despite "some encouraging signs" that things are turning around for the battered industry, FDIC Chair Sheila Bair told CNBC.

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Speaking as President Obama prepares to meet today with some of the nation's leading bankers, Bair did not quantify how bad the failures would get but said the worst isn't over yet for institutions that will suffer even as the economy improves.

"There's a lag generally with bank recovery from the overall economy," she said. "We do think bank failures will continue to go up next year but will peak. Even at higher levels than we have this year, it's still far below where we were during the S&L days."

The savings and loan crisis that began in the mid-1980s saw more than 1,000 institutions fail.

Conversely, three additional bank failures over the weekend brought the number during the financial crisis to 133, according to data Monday from Keefe, Bruyette & Woods.

"Even though the insured depository institutions are having their share of problems, it's really much lower than it was during the S&L days simply because most of this occurred outside the insured banks," Bair said.

Amid the problems for the industry, Bair said the Federal Deposit Insurance Corp's financial standing remains solid. She said the FDIC will head into 2010 with about $60 billion in cash reserves.

"Of course we do have authority to borrow from the Treasury Department but we're trying not to turn to taxpayers on this and continue to rely on our industry-funded sources," she said.

Bair also said she is encouraged by legislative efforts to reform the industry, particularly the major reform bill moving through the House of Representatives.

She praised congressional efforts to establish a resolution agency that penalizes banks for wanton risk and will make so-called "too big to fail" institutions go into receivership "if they get into trouble again."

"I think there are a number of very positive features that will impose—reimpose, I hope—significant market discipline on these large institutions. We need that right now," Bair said. "Regulation can only do so much and investors and creditors need to understand that their money is at risk."