Many U.S. Banks on Brink of Insolvency, Report Warns
Most of the nation’s largest banks are teetering on the brink of insolvency and tax money must quickly be injected into the government fund insuring deposits, warns a congressional report due out Monday.
Bank failure costs could total $63 billion in a severe recession, it said. Even the mild downturn expected by most economists would leave the fund short of cash, said the report, which was written by three economists at the request of a congressional subcommittee.
“This nation faces an almost unprecedented situation in having most of its largest banks operating on--or conceivably, over--the edge of insolvency,” said the report, prepared for the House Banking subcommittee on financial institutions, chaired by Rep. Frank Annunzio (D-Ill.).
The study was written by Robert Litan of the Brookings Institution, a Washington-based think tank; James Barth of Auburn University and R. Dan Brumbaugh of Stanford University. Barth and Brumbaugh are former chief economists of the Federal Home Loan Bank Board, the regulatory agency since dismantled--of the savings and loan industry.
The report is due to be released at a public hearing Monday, but the Associated Press obtained the economists’ summary on Friday.
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