Copyright 2009 Marketwatch
Distributed by McClatchy-Tribune News Service
December 15, 2009 Tuesday
SECTION: BUSINESS AND FINANCIAL NEWS
LENGTH: 530 words
HEADLINE: FDIC nearly doubles money for bank failures
BYLINE: By Ronald D. Orol, MarketWatch
WASHINGTON _ The Federal Deposit Insurance Corp. on Tuesday agreed to nearly double the amount of capital in its 2010 budget that it is allocating to deal with bank failures and plans to add more than 1,600 staffers.
The agency released a $4 billion operating budget, of which $2.5 billion is to be used to fund the takeover of failed banks. The 2009 operating budget was $2.6 billion.
“It will ensure that we are prepared to handle an even larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions,” FDIC Chairman Sheila Bair said.
The additional staff members will be needed to help the agency unwind failed banks. Only 84 of the new staff positions will be permanent additions to the FDIC, with the remaining 1,559 to be temporary additions during this period of high bank failures. So far, in 2009, 133 banks have failed while the agency announced last month that the number of distressed banks in the U.S. rose to the highest level in sixteen years in the third quarter, to 552. FDIC officials expect many more banks to fail in 2010.
Responding to the financial crisis, the FDIC also introduced a preliminary proposal that could change the structure and transparency of consumer loan-backed securities, including a provision that asks whether consumers loan originators should be required to retain a piece of the credit risk of loans that they package and sell.
The FDIC was expected to introduce a specific proposal that could be voted on by the agency after a comment period. However, instead, after an hour’s delay, the agency introduced a so-called Advance Notice of Proposed Rulemaking, which is an interim step that means the agency will likely release a more detailed proposal after a comment period. That proposal would then be made available for comment before commissioners vote on whether to adopt it or not.
“Securitization encouraged a focus by non-banks, and later some insured banks and thrifts, on deal production and fee generation at the expense of consumer protection and sound underwriting,” Bair said. “The consequences of these combinations have been lethal to financial and economic stability.”
Specifically, the proposal asks whether the sponsor should retain an economic interest in a “material portion” of credit risk of the financial assets, such as a 5 percent stake.
“If so, what is the appropriate risk retention percentage? Is five percent appropriate? Should the number be higher or lower? Should this vary by asset class or the size of securitization? If so how?” the proposal asks.
As the FDIC considers its securitization proposal, lawmakers on Capitol Hill are considering legislation that would require a loan originator to retain a piece of the credit risk of loans that they package and sell.
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LOAD-DATE: December 16, 2009