Regulatory Reality

Sep 30 2009   7:34PM GMT

Accountability key to banking recovery

David Schneier David Schneier Profile: David Schneier

Every day, I receive a semi-deluge of industry related emails.  Between the various agencies, media sites, organizations and associations I tend to receive more communiqués than I know what to do with.  But I developed an interesting habit last year when the banking industry first started its tailspin dive by making certain to read every single issuance from the FDIC.

Going back to at least last September I have read and saved each and every one of them (several hundred I might add).  I’m sure some of my peers will beg to differ, but for me this is where anyone in the industry should’ve been looking during the crisis for the best indicators of what’s going on.

Yesterday, I was glad for this somewhat addictive habit of mine.  For what may be the very first time since Lehman went belly-up, I may have found the first true concrete piece of evidence that we’re on the road to recovery, if only in some small way.

The FDIC agency alert yesterday announced plans to bolster the Deposit Insurance Fund (DIF) by requiring insured institutions (mostly the banks you and I know) to prepay on their quarterly premiums so that the fund remains viable and liquid through the still unfolding resolution of the banking mess.  And that’s significant because unlike a year ago, this time around the plan calls for the industry to take responsibility for itself and not go running to Capitol Hill for help, an option FDIC Chairman Sheila Bair has denounced on several occasions.

Here’s what Bair had to say in the announcement:

“The decision today is really about how and when the industry fulfills its obligation to the insurance fund. It’s clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem. In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer. This proposal is a vote of confidence for the banking industry’s resilience, and it will continue to recover its strength as we work through the significant challenges ahead.”

The reason for my optimism is that this action shifts control back to the banking sector to fix its own mess.  It puts greater emphasis on each individual institution to fulfill its obligations to the DIF in advance of using those same funds for more traditional activities commonly associated with generating profits.  I think accountability is necessary, if not essential, to repairing the damage inflicted on the industry and repairing its reputation with depositors, investors and borrowers (something the NCUA had figured out much sooner).  And so I’m feeling a little better about where we’re heading, economically speaking.

Oh, and Comptroller of the Currency John C. Dugan (that’s the OCC head honcho in case you didn’t recognize the handle) agrees with me.  Mr. Dugan said of the FDIC plan: “The actions we are taking today represent a balanced approach to raising needed money for the deposit insurance fund without impairing the ability of our banks and thrifts to support economic recovery.”  He added, “I think this is a very positive proposal. The staff did an excellent job, and I support the way you handled it”.

I’d like to chalk it up to “great minds think alike.”

By the way, if anyone knows of a Sheila Bair Fan Club or is thinking of starting one I’d appreciate if you would let me know.  She won my admiration last year (no surprise to my regular readers) and has routinely found ever more ways to score points with me.  She continues to step up and talk straight, smart and to the point about what’s going on with the banks and what to do about it.  I look forward to the President acting out on the banking reform plans announced earlier this year and I sincerely hope he put Bair in charge of the new entity.

For now, though, I have to go; seven more FDIC email alerts have landed in my inbox and I need to check ’em out.

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