Wednesday, March 26, 2008


Federal bank regulators plan to increase staffing 60 percent in their bank-failure division in coming months to handle an anticipated surge in troubled financial institutions.

The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 in the division that handles bank failures, John Bovenzi, the agency’s chief operating officer, said yesterday.

“We want to make sure that we’re prepared,” Mr. Bovenzi said, adding that most of the hires will be temporary and based in Dallas.

There have been five bank failures since February 2007 following an uneventful two-year stretch. The last time the agency was hit hard with failures was during the 1990-1991 recession, when 502 banks failed in three years.

The FDIC provides insurance for deposits up to $100,000. While depositors typically have quick access to their bank accounts on the next business day after a bank closure, winding down a failed bank’s operations can take years to finish. That process can include selling off real estate, liquidating investments and dealing with lawsuits.

There are 76 banks on the FDIC’s “problem institutions” list — which would equate to about 10 expected bank failures this year, though FDIC officials declined to make projections. Historically, about six banks fail per year on average, officials said.

Since 1981, total failures per year have averaged about 13 percent of the number of institutions that started the year on the agency’s list of banks with weak financial conditions.

There have been two failures in 2008 — both of which were small Missouri-based banks. By far the largest recent failure was the September 2007 shutdown of Georgia-based NetBank Inc., an online bank with $2.5 billion in assets. NetBank’s insured deposits — representing more than 100,000 customers — were assumed by ING Bank, part of Dutch financial giant ING Groep NV.

FDIC Chairman Sheila Bair has said that banks that were cautious about their lending should be able to weather the economic downturn, but warned that those that weren’t so careful won’t be so lucky.

Regulators have warned of problems lurking, especially in smaller banks with a high concentration of real estate construction loans.

FDIC officials said last month they planned to bring back about 25 retirees to the agency and noted those workers will train new hires. Over the next five years, about 50 percent of employees with experience in bank failures, especially those who were at the agency during the savings and loan crisis of the late 1980s and early 1990s, will be eligible for retirement, officials added.

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