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Wednesday, November 04, 2009

Politicians Pressuring Regulators on Banks

by Calculated Risk on 11/04/2009 10:06:00 PM

Repeating the errors from the S&L crisis ...

Last Friday, the Chicago Tribune reported: Regulators seize FBOP banks

The Park National shutdown occurred after several Illinois congressmen, including Reps. Bobby Rush and Danny Davis and Sen. Roland Burris, called the FDIC asking it to delay closing the bank for at least a week, said Marilyn Katz, a bank spokeswoman.
emphasis added
Tonight from the WSJ: Bank Crackdown Draws Criticism
Politicians are putting pressure on regulators to go easy on small community banks across the U.S. ...

"A self-fulfilling prophecy of community bank failures, shrinking credit availability and a slower economic recovery can all result from a regulatory overreaction to the current crisis," said the letter, which also was signed by Rep. Walt Minnick (D., Idaho).
Rep. Tom Price (R., Ga.) told [FDIC Chairwoman] Ms. Bair he wasn't "convinced that the FDIC isn't contributing to the awful problems that we're having" in his state, where 20 banks have failed in 2009. The banks "dot every 'i' and they cross every 't' and then the knock comes on the door on Friday afternoon," he told her.
This is backwards. By moving slowly, the FDIC is tainting all small banks and making it more difficult for them to raise capital (ht Pat). In addition, healthy banks are holding on to capital to try to buy assets from the FDIC at a discount, compared to the cost of a similar new loan.

The sooner the FDIC completes the process of closing failed banks, the better for the remaining banks and the economy.