Tags: isaac | bank | failures

Isaac: Bank Failures Nowhere Near 1980s

By Julie Crawshaw   |   Tuesday, 09 Jun 2009 10:51 AM

Former FDIC chairman Bill Isaac says that banking has “a number of significant issues” that will get worse if the economy continues to deteriorate, he says bank failures won’t reach 1980s levels.

During that crisis, 3,000 banks and thrifts failed and some 1,500 banks that escaped failure remained on the problem bank list.

“It’s hard to imagine a scenario that bad for banking,” he says.

“We’re going to see the problem bank list grow and more bank failures, but nothing approaching the 1980s unless the economy is far worse than anybody believes it is.”

Isaac says the fact that some banks are standing in line to repay their TARP loans is a good sign.

On Tuesday, Treasury announced that 10 banks, so far unnamed, would be allowed to repay $68 billion in TARP funds.

“You don’t want the government involved with your business, and with the TARP money comes a lot of involvement that is just not healthy for the banks,” Isaac told Moneynews.com.

However, Isaac cautions that banking problems are a lagging indicator, not leading one. Even if the economy has turned a corner, he says we’ll continue to see an increase in problem banks and bank failures for the next year or two.

Some consumers are getting credit, Isaac notes, but as lending standards have tightened, more are being left out in the cold.

“Some people who borrowed during this last go round may never be able to borrow again,” Isaac says.

“I believe bank standards have tightened. They needed to tighten … and I hope they will never go back to the wild and wooly days we experienced in 2005 and 2006.”

At the moment, Isaac is a lot more worried about inflation than banks.

“We’ve had to pump a lot of money into the economy,” he says. “I’m concerned that we not let inflation get out of control — and in trying to control inflation, you do run the risk of another dip in the economy.”

“It’s a very delicate balancing act.”

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Former FDIC chairman Bill Isaac says that banking has “a number of significant issues” that will get worse if the economy continues to deteriorate, he says bank failures won’t reach 1980s levels.During that crisis, 3,000 banks and thrifts failed and some 1,500 banks that...
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