Crisis puts FDIC chief front, center
Posted on Saturday, October 4, 2008
When Sheila Bair took over as head of the Federal Deposit Insurance Corp. in 2006, the agency was probably better known for the “FDIC” logo on the doors of the nation’s banks than for anything it did.
Now Bair is at the center of the financial crisis, speeding the takeover of failing banks and pressing the mortgage industry to ease loan terms. And she’s vaulted from the leadership of a once-sleepy regulator into the league of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, winning praise from Democrats and Republicans.
“She has more power because of the situation on the ground,” said Sen. Charles Schumer, DN. Y. “No one is going to put handcuffs on her.”
“She’s going to be Treasury secretary someday,” said Tim Adams, a former department undersecretary under President Bush who worked with Bair when she was an assistant secretary.
In just the past week, Bair, 54, invoked never-before-used authority to avert a financialsystem breakdown by brokering a deal for Citigroup Inc. to buy Wachovia Corp. ’s banking operations. She seized Washington Mutual Inc. and sold it to JPMorgan Chase & Co. and persuaded the Senate to temporarily increase the FDIC’s insurance of individual bank deposits — a move Paulson opposed.
The FDIC chairman is working to get Congress to bestow more power on the agency. On Wednesday, as the Senate was reworking the $ 700 billion financial-market bailout bill to attract more votes, Bair tried to get lawmakers to cede control over how high FDIC insurance limits can rise.
Over breakfast in the dining room off her office, she handed Camden Fine, president of the Independent Community Bankers of America, legislative language that she wanted him to shop around on Capitol Hill.
Fine represents 5, 000 community bankers, the sort of “Main Street” constituency that could help convince skeptical House members that the bill was essential not just to Wall Street, but to their hometowns.
The proposal would temporarily lift the insurance limit on bank deposits to $ 250, 000 from $ 100, 000 and give the FDIC authority to change that limit without congressional approval.
Senate Banking Committee Chairman Christopher Dodd said “no” to giving that kind of discretion to the agency, and the language was left out. Bair will bring it up again, Fine said.
To be sure, she has angered investors. Some Wachovia shareholders blame her for wiping them out when she helped engineer the sale and warn that other banks will suffer for it.
“That destroyed the market,” said Peter Kovalski, senior portfolio manager at Alpine Woods Capital Investors LLC. “Taking over a healthy, well-capitalized bank the way they did, now investors are not going to be willing to invest in any bank.”
Those angry investors may get a reprieve because Wells Fargo & Co. offered $ 15. 1 billion for Wachovia, valuing the company at $ 7 a share, outbidding Citigroup’s $ 2. 16 billion offer for parts of the troubled bank. Citigroup has demanded Wachovia terminate the Wells Fargo deal.
“The FDIC stands behind its previously announced agreement with Citigroup,” Bair said in a statement Friday. “The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.”
Bair’s efforts to prod mortgage lenders to reduce loan principals for borrowers in danger of losing their homes have been met with reluctance from the industry. And some analysts say she hasn’t done enough to clear out insolvent banks.
“She really hasn’t shown her mettle in aggressively seizing banks and helping to sort out solvency issues,” said Joseph Mason, an economist at Louisiana State University.
Still, Bair — a lifelong Republican who has made a career in regulation with a decidedly non-Republican bent — has stood out in an administration that’s been criticized for going easy on oversight.
Bair, who has pushed banks to carry less debt and for strong net capital standards, has been “a tougher regulator in a reasonable way than most Bush appointees,” said House Financial Services Committee Chairman Barney Frank, D-Mass.
And in the past two years, as the crisis has spread to the broader financial system, she’s been getting out in front of fellow Republicans, including Bernanke and Paulson.
In September 2006 she said at a Fannie Mae conference that she was concerned that the proliferation of nontraditional mortgages such as option adjustablerate mortgages was a danger to the banking system. In March 2007, she called for “aggressive” foreclosure relief.
Two months later, as Paulson declared the housing market crisis more than half over, Bernanke echoed Bair and called on lenders and the government to intensify efforts to prevent home foreclosures.
“She was one of the first to say that you couldn’t just do it by interest rates, that you had to reduce the principal and that you couldn’t just do it one by one,” Frank said in an interview. Bair wasn’t available for an interview.
When Bair found herself in control of IndyMac in July, she used the bank to make her point. She suspended foreclosures on $ 15 billion worth of mortgages and sought to work out deals for the 60, 000 borrowers who were behind in payments.
“My hope is that the program for IndyMac Federal Bank will be a catalyst for others across the country to modify their loans more rapidly and systematically,” she told lawmakers at a hearing last month.
The Independence, Kan., native was an adviser to former Sen. Robert Dole, R-Kan., throughout the 1980 s before taking on roles at the Commodity Futures Trading Commission and the New York Stock Exchange. In 2001, she joined the Treasury Department.
She didn’t fit in easily with the Bush administration’s freemarket, anti-regulation ethos, former associates said.
She spoke out in support of strong consumer protection and wasn’t afraid to preach the virtues of regulation. She left Treasury in 2002 to teach at the University of Massachusetts at Amherst.
“I didn’t know how I would replace her,” said Adams, who was Treasury chief of staff at the time.
Bair doesn’t shy away from acknowledging the problems in banking. More of them will fail, she told Bloomberg News in a Sept. 26 interview.
“The number will go up,” she said. “Banks overall continue to be safe and sound and very wellcapitalized.”
At an event at the National Press Club a few days earlier, she said the most high-profile problems are coming from nonbanks.
“There is some virtue to regulation,” she said.
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
