Newspaper article THE JOURNAL RECORD

No `December Surprise' Expected in Banking

Newspaper article THE JOURNAL RECORD

No `December Surprise' Expected in Banking

Article excerpt

WASHINGTON (AP) _ Plenty of banks remain in danger of failing, but no banking crisis threatens to explode just after the election, senior regulators said Monday.

"A significant number of commercial banks remain troubled, and their assets are substantial. However, there should be no solled `December surprise,' " Federal Reserve Board Gov. John P. LaWare told a rare postjournment hearing of the Senate Banking Committee.

Andrew C. Hove Jr., acting chairman of the Federal Deposit Insurance Corp., predicted 100 to 120 banks with $37 billion in assets will fail this year and an additional 100 to 125 banks with $76 billion in assets will fail in 1993.

But the $16 billion in reserves established by the agency, $6 billion a year in deposit insurance premium revenue and a $30 billion line of credit to taxpayer funds should be enough to pay for failures, he said.

Hove said it was "simply not the case" that regulators are deliberately holding back on declaring failures before the election.

The wide gap between the interest rates on deposits and on loans produced a record $15.7 billion in bank profits during the first half of this year. These profits have postponed or avoided many of the failures that the FDIC had predicted for this year, he said.

New regulatory standards taking effect Dec. 19 will not cause a significant increase in failures although they may hasten the closing dates for some banks, he said.

The chairman of the committee, Sen. Donald W. Riegle Jr., D-Mich., was the only member to attend the session, called just eight days before the election. He said he scheduled it because of the sharp disagreement among reputable observers of the banking system.

"Some say the industry is on the brink of healing itself. Some say it's on the brink of a major crisis," he said.

But the ranking Republican on the panel, Sen. Jake Garn of Utah, and Treasury Secretary Nicholas F. Brady issued statements rebuking Riegle for politicizing the issue.

"Perhaps the senator finds it politically opportune to jump on the bandwagon of the fearmongers and doomsayers," Brady said.

Garn said, "It is a mistake to frighten the public about the condition of the banking system for political advantage. …

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