August 19, 2019

Seidman says more banks will fail, but help on the way for others

NASHUA, N.H. — More New England banks will fail, but federal regulators stand ready to help those that can be saved if bankers and investors can come up with good proposals, the nation’s top regulator said Wednesday.

“We don’t predict failures; we tolerate them,” L. William Seidman told reporters. “But we’re at the point where unfortunately there will be more.”

He declined to be more specific.

Seidman, the chairman of the Federal Deposit Insurance Corp., commented after addressing New England’s governors and more than 400 bankers and others in the industry during a symposium billed as a New England banking summit.

He told the gathering the FDIC is ready to help step in to try to prevent more costly failures, as it did with the Bank of New England and banks in the Southwest.

Robert Glauber of the Treasury Department told the bankers earlier an announcement would be made next week outlining technical steps federal officials will take to make bankers more comfortable about loaning money under federal requirements.

Seidman called the announcement a clarification of regulatory policies that should reduce concerns some bankers may have about extending credit to sound borrowers.

The guidelines involve accounting practices on problem loans and ensuring a realistic valuation on real estate loans.

But Seidman cautioned that the guidelines “will not provide an answer to the region’s credit problems.”

Mergers that attract new capital is one option that has received wide publicity as a method of early intervention to prevent bank failures.

Seidman encouraged investors and bankers to work together and come forward with merger ideas, and promised the FDIC would take part in the process. “We will not simply stand around and wait,” he said.

Under one scenario, the FDIC would provide some capital in a merger and assume some risk of a bank’s bad debts. The idea has been trumpeted in New Hampshire, where Gov. Judd Gregg has said it has renewed substantial interest among investors.

Seidman said the program is available in the rest of New England also and other banks in the region have asked about it, but the idea hasn’t generated as much interest elsewhere as it has in New Hampshire.

However, several bankers said it is difficult to put together a plan with investors, who want to know more specifically what the FDIC will do.

“Investors won’t put up money until they see the government role,” said Lawrence Connell, chairman of troubled New Hampshire Savings Bank Corp.

But Connell said federal regulators are “moving in the right direction. I don’t think we can ask any more of them.”

Ira Stepanian, chairman of the Bank of Boston, also said he was encouraged to see regulators, Treasury and the banking industry working together on an overall solution to revise the banking industry. But he said he feared Congress might deal only with the FDIC. “It should be done without all factions involved,” he said.

Gov. William Weld of Massachusetts and Gov. John R. McKernan of Maine expressed concern that federal action and a congressional banking reform bill might favor large banks and “kill off little banks.”

“The bill is aimed not at small banks, but at weak banks,” Glauber said.

Seidman agreed that New England would end up with some bigger banks and “some very good small institutions.”

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