WASHINGTON - Despite a string of record profits,
hundreds of commercial banks and the government insurance fund that
guarantees their deposits are far less healthy than they seem,
The warnings are making members of Congress nervous just two
months after they enacted a $50 billion, three-year bailout of the
savings and loan industry.
Legislators remember all too well the reassurances they heard
from regulators and industry executives while the S&L business was
crumbling, and how quickly hints of trouble mushroomed into the most
dire financial crisis since the Depression.
Two well-known banking economists, Robert E. Litan of the
Brookings Institution, a liberal think tank, and R. Dan Brumbaugh
Jr. of Stanford University, report that commercial banks, though
better off as a whole than S&Ls, may be heading for trouble
Litan, appearing before the Senate Banking Committee last week,
warned that about two-thirds of the reserves in the Federal Deposit
Insurance Corp.'s bank fund will be needed for banks that are weak
or already insolvent.
At the end of June, the FDIC's bank reserves totaled $14.5
billion. But Litan and Brumbaugh say their analysis of bank data
through March shows that $9.5 billion of that is needed to cover
losses at banks that are insolvent or close to it,leaving only a
thin $5 billion layer of protection before taxpayers would be called
on to bail out the fund.
A post-Depression record of 221 banks failed last year. So far
this year, 167 have closed or required government assistance to stay
open - 116 in Texas.
FDIC Chairman L. William Seidman says he expects failures for
all of 1989 to be slightly below last year and to decline further in
However, a study by analyst William C. Ferguson of Irving,
Texas, casts doubt on that. He said that 443 banks of 13,000
nationwide have been losing money consistently from 1987 through the
first quarter of this year.
``In spite of the high reported earnings of the banking industry
(overall), the picture is not as rosy as it seems,'' Ferguson said.
``If present earnings trends for these (443) banks continue, this
group will run out of capital by late 1990 or early 1991.''
The banking industry disputes its critics.
``Skeptics make a living peddling a different tune,'' Nebraska
banker C.G. Holthus, president-elect of the American Bankers
Association, told a House subcommittee. ``We think they're
exaggerating the problem. …