WASHINGTON (Reuters) - The U.S. agency charged with dismantling or selling off failed banks said it is equipped to deal with what it sees as a busy 2010, according to remarks to be delivered before Congress on Thursday.
The Federal Deposit Insurance Corp expects that bank failures will remain elevated this year, said Mitchell Glassman, director of the FDIC’s division of resolutions and receiverships.
Regulators seized 140 banks in 2009, the highest annual level since 1992 in the wake of the savings and loan crisis. Many of the institutions collapsed due to deteriorating loans from the credit boom.
“While the economy is showing signs of improvement, recovery in the banking industry tends to lag behind other sectors. We expect to see the level of failures continue to be high during 2010,” Glassman said in testimony posted to the website of the House of Representatives subcommittee on financial institutions.
The FDIC has said it expects the total bill for bank failures to reach $100 billion for the period of 2009 through 2013.
FDIC Chairman Sheila Bair told a commercial real estate conference on Wednesday that troubles in the commercial sector will increasingly be a driver of bank failures this year.
The woes in the banking industry have migrated from home mortgages to commercial real estate (CRE), especially for community banks that tend to have higher concentrations of commercial loans.
Bair said that failed banks with high concentrations of CRE may be difficult to sell as a whole bank, meaning the FDIC may resolve more institutions through securitizations.
Glassman said in his testimony that the FDIC has beefed up the division in charge of bank failures, almost tripling the staff to 1,161 in 2009. That number is expected to grow to 2,310 this year.
He also noted that the FDIC relies on a large number of private contractors and outside law firms to quickly and efficiently resolve failed banks.
In the most recent sign of the FDIC girding for continued distress across the nation, the agency announced this week plans to open up a satellite office in Chicago, to complement the work of other satellite offices in Irvine, California, and Jacksonville, Florida.
Glassman further used his testimony to explain why the FDIC chose to sell the nine subsidiary banks of FBOP Corp in October, saying it was the least-costly solution.
He said the banks’ chartering authorities notified the FDIC of plans to close seven of the subsidiary banks, but the FDIC decided to also sell the two other subsidiaries because of their clear weaknesses.
It used its cross-guarantee authority to sell the other two units. That authority says the FDIC can assess banks that have not failed for the anticipated losses to the Deposit Insurance Fund caused by the failure of affiliated banks. If the losses are too great, it can result in the affiliated banks also being closed.
U.S. Bancorp acquired the nine banks that had been held by FBOP Corp, picking up $19.4 billion in assets and $15.4 billion of deposits.
Glassman said FBOP’s banking units were “in deteriorating financial condition and had poor future prospects.” It had unsuccessfully tried to sell off subsidiary banks and raise new capital, he said.
Also in prepared testimony, Michael Kelly, the chief executive of FBOP, said his company’s story should challenge policymakers to understand the challenges of community banks.
While not accusing regulators of improperly seizing the institution, Kelly said FBOP was not given a chance to raise private equity that would have served as a match for funds from Treasury’s Troubled Asset Relief Program.
Two previous FBOP proposals for TARP funds were deferred by regulators.
Reporting by Karey Wutkowski; Editing by Tim Dobbyn