Magazine article American Banker

FDIC's Tanoue Warns Banks Taking Big Risks to Watch Their Step

Magazine article American Banker

FDIC's Tanoue Warns Banks Taking Big Risks to Watch Their Step

Article excerpt

Risky institutions that pay nothing for deposit insurance -- beware.

In the two months since she unveiled an ambitious plan to question every aspect of the government's guarantee, Federal Deposit Insurance Corp. Chairman Donna Tanoue is starting to draw some conclusions.

First, there is no way that 9,500 banks and thrifts should get deposit insurance for free. Those with wild growth or reckless lending -- "institutions furthest out on the risk curve" -- are more likely to cost the FDIC money and should be paying their fair share now, Ms. Tanoue said last week.

In a speech at a Federal Reserve Bank of Chicago conference, she pledged to "take a good, hard look" at these institutions, "especially those whose performance looks too good to be true."

Ms. Tanoue reminded her audience that a rash of bank failures last year produced the first annual loss in the Bank Insurance Fund since 1991. Then she dropped a bombshell: "The banks that accounted for most of that loss were not paying premiums two years or less prior to their failures."

Though she wasn't this blunt, her message was clear: If a bank less than two years from failure is not paying for deposit insurance, something is wrong. The FDIC wants to refine its pricing policies, she said, by making better use of market signals, financial reports, and data generated by examiners.

The FDIC could piggyback on regulators' broader effort to harness market discipline -- for, example by watching how much investors are willing to pay for a bank's subordinated debt. …

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