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FDIC's Bair Supports US, Euro Plan to Tax Large Banks

FDIC Chairman Sheila Bair told CNBC Monday that she supports placing a tax on large financial institutions that would shield taxpayers in the event of another bank failure, pinning any financial liabilities on shareholders and creditors instead.

"It's not a bailout fund, as someone said, it's really a taxpayer protection fund," Bair said. "It will set up a mechanism going forward that doesn't put the taxpayer at any risk for resolving one of these very large entities if they get in trouble again."

Earlier Monday, The Wall Street Journal reported that governments in both the US and in Europe are moving closer to a decision to tax large banks.

Bair also said she expects souring commercial real estate loans to drive a slightly higher number of bank failures in 2010 than the 140 that occurred last year, with the peak coming in the third quarter. But toward the end of the year, she said, the industry will start to stabilize.

Bair reconfirmed her assessment that small to mid-sized banks will struggle more than the larger financial institutions this year because of their concentration in the commercial real estate market. But she's not worried about a blowup in commercial real estate, she said, though "there's still a lot of losses there."

Bair emphasized that a banking recovery typically lags economic recovery, as it takes some time for credit losses to work through the system. But in the event of a double-dip recovery, she said the FDIC's funds would still be in "pretty good shape."