FDIC Chair Sees More Bank Failures Ahead

The increase in troubled residential mortgages and construction loans is far from over, and more banks will run into problems and fail this year, according to Sheila Bair, chairman of the Federal Deposit Insurance Corp. "You simply must accept that the credit downturn is far from over," the FDIC chairman told the Florida Bankers Association. "It's a tough slog, but there's no easy way out." Ms. Bair stressed that it is critical for banks and thrifts to get control of their balance sheets, raise capital, and pay particular attention to liquidity. "Asset quality problems are putting pressure on the funding side of the balance sheet" Ms. Bair said. And she noted that liquidity problems have contributed in "varying degrees" to the failures of 10 banks this year. The FDIC chairman also stressed that the deposit insurance fund is "strong" and that she does not expect the FDIC will need to borrow against its line of credit with the U.S. Treasury to cover additional losses. To ensure that that doesn't happen, the FDIC board will consider a premium increase in October, she said.