Chairman L. William Seidman of the Federal Deposit Insurance Corp. told a House panel that about 440 more banks will fail in 1991 and 1992 if the recession is deeper and longer than forecast by President Bush.
Testifying Thursday before the House Budget Committee, Seidman, the nation's top bank regulator, said a deep and lengthy recession of at least a year would probably cause 230 banks to fail this year and another 210 banks to go belly up in 1992.Seidman said in the text of his testimony that many additional bank failures would wipe out the current balance in the rapidly weakening Bank Insurance Fund at the end of 1991, and would cause a projected $5.8 billion deficit in the fund at the end of 1992.
The fund had $6.5 billion in cash or liquid assets at the end of 1990, Seidman said.
Unless the banking industry covers all losses with higher deposit insurance fees, a Bank Insurance Fund deficit might require a taxpayer-financed bailout similar to - although probably much smaller than - the controversial taxpayer-paid bailout of the savings and loan industry.
Seidman said his projections assume that bank insurance premiums, used to pay depositors in the event of losses, remain unchanged through 1992. However, the FDIC chairman said the agency will consider in February a plan to raise bank insurance premiums effective June 30.
"We believe that under existing authority, the FDIC can provide a plan to handle losses through late 1991 without any new legislation," Seidman said. "However, it may be necessary under certain circumstances for the FDIC to seek relief from the statutory debt cap placed on the Bank Insurance Fund in order to have adequate liquidity."
If the recession is mild and relatively short - six months or so - as President Bush and his economic advisers have projected, Seidman projected that 180 banks would be closed this year and another 160 would fail in 1992, for a total of 340.
That scenario, Seidman said, would cause the Bank Insurance Fund to drop to $3.9 billion this year and to $2.4 billion by the end of 1992.
Seidman said that over the past four years, 800 banks with about $140 billion in total assets either have been closed or had money reserved for their possible failure. Those failures cost the FDIC $23 billion during a period when it raised about $14 billion for its fund, Seidman said.