FDIC Chairman issues warning

Through the financial mess of the past 18 months, Sheila Bair has been a voice of common sense and reason. Her seamless handling of failing banks and restructuring of equities has been nothing short of steller. But more than that, she is a straight shooter, seamingly uninfluenced by the political posturing of our idiot representatives in congress. For those resons and others, what she will be saying to the Senate Banking System will be something that you can, well ... take to the bank. / GB

submitted by Rich Edson, Fox Business News

FDIC Chairman Sheila Bair will tell the Senate Banking Committee Wednesday that recovery may be less robust than expected, commercial real estate loans continue to be worrisome and that banks need to increase lending.
Just days after a survey from the National Association for Business Economics showed the recession to be over, Bair warned recovery might be "less robust."
"While we are encouraged by recent indications of the beginnings of an economic recovery, growth may still lag behind historical norms. There are several reasons why the recovery may be less robust than was the case in the past. Most important are the dislocations that have occurred in the balance sheets of the household sector and the financial sector, which will take time to repair," she is set to say in her testimony.
Bair also warned credit distress has spread beyond non-prime mortgages and warned about the looming problems from the commercial real estate market.
"However, the greatest exposures faced by community banks may relate to construction loans and other CRE loans. These loans made up over 43 percent of community bank portfolios, and the average ratio of CRE loans to total capital was above 280 percent." She continues to say the scale of losses in the CRE loan portfolio will depend on the pace of recovery and financial markets during that time.
Bair will tell lawmakers that the regulators are not instructing banks to shy away from lending and that the The FDIC provides banks with considerable flexibility in dealing with customer relationships and managing loan portfolios. "I can assure you that we do not instruct banks to curtail prudently managed lending activities, restrict lines of credit to strong borrowers, or require appraisals on performing loans unless an advance of new funds is being contemplated."
Bair also provided details on the Reserve Fund's negative balance.
"The FDIC estimates that as of September 30, 2009, both the fund balance and the reserve ratio were negative after reserving for projected losses over the next 12 months, though our cash position remained positive. This is not the first time that a fund balance has been negative. The FDIC reported a negative fund balance during the last banking crisis in the late 1980s and early 1990s. Because the FDIC has many potential sources of cash, a negative fund balance does not affect the FDIC’s ability to protect insured depositors or promptly resolve failed institutions.