Brady Denies Reports of Bid to Hide a Banking Collapse

Reports that the Bush Administration has attempted to hide weakness in the banking industry are “utter nonsense,” Treasury Secretary Nicholas Brady told bankers Sunday.

Another senior bank regulator, Andrew Hove, the acting Federal Deposit Insurance Corporation chairman, also denied reports that the agency has held off closing down banks this year.

Brady and Hove were among four top federal bank regulators who addressed the American Bankers Assn. convention. The four-day session ends Tuesday.

Brady criticized newspaper reports contending that on Dec. 19 federal regulators will launch a massive shutdown of banks whose capital levels fall below 2%.

“The notion that we are hiding some kind of commercial banking bailout is utter nonsense,” Brady said. “Stories of a December collapse are simply ridiculous.”

Hove warned the group, however, that regulators are prepared to enforce the new capital rule on Dec. 19. Under current rules, the FDIC must wait until a bank becomes insolvent before it can be seized.

It’s difficult to determine the number of banks that would be closed under the new rules. One estimate is fewer than 60 of the nation’s 11,500 institutions.

Brady received a cool reception during his speech as he promised again to prune the massive red tape facing the industry.

The banking industry has criticized President Bush for not aggressively pushing a comprehensive bank reform bill through Congress last year. The bill that did pass in 1991 provided a $70-billion loan from taxpayers to support the industry-funded bank insurance fund while imposing strict new regulations on banks with weak capital levels.