WASHINGTON Chances of a big bank failure are remote but regulators are hoping for the best and preparing for the worst to deal with a strong industry hit hard by credit problems, a top U.S. regulator said on Tuesday.
Sheila Bair, chairman of the Federal Deposit Insurance Corp, said bank failures will likely tick up but mainly among smaller institutions.
When asked what keeps her up at night, Bair, speaking at the Reuters Regulation Summit in Washington, said: "Probably a large bank failure but I don't think that's going to happen. The chances of that happening are very, very remote."
The FDIC, which insures up to $100,000 per depositor per insured bank and up to $250,000 in some retirement accounts at banks, has a $52 billion purse it can dip into for bank failures.
"I really don't think it's going to happen, I would hasten to add," she said.
The Bush administration cited in its 2009 budget proposal "a higher rate of potential failures given current conditions in the industry" and said the agency expects to collect about $4.7 billion in new revenue from premiums that banks will pay in 2008 and 2009.
An analyst with RBC Capital Markets said last week that between 50 and 150 U.S. banks could fail by early 2010, mostly those with no more than a couple of billion dollars of assets.
Bair said she could not speculate about future predictions and repeated previous statements indicating that banks overall are in strong shape and the size of the problematic ones are small.
In November, the FDIC said in its third-quarter industry report that the number of those banks grew to 65 from 61. That number will likely tick up again in the next quarterly report, she said.
She added that banks are well capitalized and had very strong earnings going into the credit crisis, which was sparked by mortgages provided to homeowners with tainted credit history.
Banks worldwide have written down more than $130 billion linked to subprime mortgages. According to Standard & Poor's, financial industry losses linked to mortgages may reach more than $265 billion.
"They are doing what they need to do right now," Bair said.
The FDIC started hiring more staff for examinations and receivership and resolution divisions last year and also brought back retired staff, at least on an on-call basis, she said.
"We have been, in a balanced way, intensifying our safety and soundness supervisory efforts given the changed credit conditions and the changed economic conditions. Again, we're trying to do that in a balanced way to send a signal to banks."
(For summit blog: summitnotebook.reuters.com/)
(Editing by Phil Berlowitz)