Seidman Confident Banks Will Keep the FDIC Afloat

A deep recession lasting a year or more could wipe out 440 banks, the chairman of the Federal Deposit Insurance Corp. said Thursday. But he expressed confidence that the industry is healthy enough to bolster the ailing deposit insurance fund.

L. William Seidman told the House Budget Committee that his agency, which operates the insurance fund with premiums collected from banks, “can provide a plan to handle losses through late 1991 without any new legislation.”

He is conferring with bankers to develop a plan for the industry to funnel more money into the fund, averting a bailout by taxpayers. In addition to charging higher premiums, the FDIC may issue bonds to raise extra funds and charge the interest to the banking industry, according to officials involved in the talks between the bankers and the FDIC.

Seidman is insistently optimistic about the ability of the banking industry to keep the insurance fund solvent, despite mounting losses in real estate, the biggest area of lending for the commercial banking system.

Meanwhile, a top Treasury official acknowledged that the battle to allow the banking industry to engage in new business opportunities--thus reducing its dependence on real estate lending--will be a long, tough struggle with little chance of success this year.

Many small banks “are going to fight us tooth and nail” to block freedom of movement across state lines to open new branches, the official said in an interview.

Giving banks permission to open branches in all states, combined with full powers to underwrite and sell securities and insurance, are the key provisions in the Administration’s ambitious financial reform plan released this week. Some smaller community banks fear invasions of their markets by giant financial institutions.

But the Bush Administration contends that efficient local and regional banks will flourish, even in the face of competition from big banks.