By Steven Greenhouse
N.Y. Times News Service
WASHINGTON _ The savings and loan mess was swept under the rug
during the 1988 presidential campaign only to explode immediately
afterward. Whether the nation's commercial banks are a similar
time bomb has emerged as an issue in this year's campaign.
Ross Perot says both Republicans and Democrats are trying to
hide a crisis in which commercial banks may require a huge
taxpayer bailout. President Bush and Gov. Bill Clinton say the
banking system is fundamentally sound, despite some problem
As politicians wrestle over how large the problem is and who
is to blame, federal banking regulators insist they have nothing
to hide. They like to recall that months ago they stated their
intention to step up the pace of closing weak banks on Dec. 19,
when bank regulations, required by Congress last year, take
The closings will certainly make the situation appear more
dire. But more than a dozen banking experts in government,
industry and academia said in interviews that they did not see a
crisis akin to the savings and loan bailout, which will cost
taxpayers more than $200 billion.
Yes, the commercial banking industry is fragile. But it is far
stronger than the hemorrhaging savings and loan industry was four
"To assume the commercial banking industry is the savings and
loan industry in sheep's clothing is terribly misleading," said
James J. McDermott Jr., a banking analyst with Keefe, Bruyette
Woods in New York.
And L. William Seidman, the former chairman of the Federal
Deposit Insurance Corp., said: "The disaster scenarios we're
seeing are based on a total collapse in real estate markets in
the future. The real estate markets are terrible and will stay
terrible, but I don't think they will get a lot worse."
Like the savings institutions, the ailing banks are usually
plagued by problem loans for commercial real estate, including
office buildings or shopping malls. Unlike most savings
institutions, some banks are also saddled with soured loans for
leveraged buyouts, oil and gas exploration and third world
Still, federal regulators insist that the worst of the
commercial bank crisis is over. They project that they will shut
100 to 125 failing banks, with combined assets of $76 billion, in
1993. That compares with an average of 175 failures annually
during the last four years.
But the amount of assets of failed banks, at $76 billion,
would be a record amount for one year.
As for the cost, the government says it will put up about $13
billion to protect depositors in those failed banks. Regulators
say that these costs will be covered by the deposit insurance
premiums collected from the banking industry. These premiums go
into a bank insurance fund that is already short of money.
Banking experts are leery of the government's estimates.
Regulators systematically underestimated the costs of the savings
and loan bailout.
Some experts say they are certain that taxpayers will be
called on to make up the difference between what the bank
insurance fund takes in from premiums paid by banks, and what is
needed to finance the bailout of commercial bank depositors.
The FDIC's latest estimate of the overall costs of bank
closings through 1996 _ $45 billion _ could be underestimated by
tens of billions of dollars, these experts say, especially if the
nation falls back into recession or if real estate values
continue to move downward.
"They're giving a very rosy projection, no matter how you cut
it," said Edward J. Kane, a professor of finance at Boston
College. He predicts that the government will need $69.7 billion
to protect depositors at failing commercial banks in the next few
Analysts also say that all projections are out the window if
one or two banking giants fail. …