WASHINGTON -- Federal regulators have had to move more slowly in seizing weak banks because of the depletion of the deposit insurance fund, and the premiums that banks pay to the fund are likely to rise sharply next year, the new chairman of the Federal Deposit Insurance Corp. says.
Both those comments by William Taylor, who was sworn in four weeks ago to replace L. William Seidman, reflect a sharp departure from previous comments by top regulators, and each bodes ill for the public purse.
The inability to deal promptly with large weak banks raises the cost of rescuing them. As big depositors move elsewhere seeking greater safety, the banks have fewer reserves when the government eventually takes control.
And the higher premiums for deposit insurance are passed on to banks' shareholders, as reduced profits, and to customers, who receive lower interest on deposits and pay more for loans and services.
Mr. Taylor, in a wide-ranging interview Friday, seemed pessimistic about the banking industry and the real estate markets, in which banks have invested heavily.
"Is it going to get worse before it gets better?" he asked. "Probably. I hope not, but probably."
Congress has been struggling to approve $70 billion in taxpayer loans to keep the deposit insurance fund afloat, and House and Senate conferees, who will meet today, are expected to adopt a stripped-down bill bereft of all the Bush administration's sweeping proposals to overhaul the banking industry.
Mr. Taylor has been waiting in the wings to spend the money. Already, he said, federal regulators have apparently begun to hold back on taking action against large but weak banks because of the condition of the insurance fund. As recently as last month, senior FDIC officials were saying that was not so.
"There's a general inhibition by the fact that the FDIC doesn't have much money," Mr. Taylor said.
Asked about the impact on other regulatory agencies, which consult with the FDIC about whether to seize banks, he said: "No orders have gone out or directives. But people throughout the organization say, 'We've got this $6 billion bank or $7 billion bank. Should we close it? We don't have any money.' The answer is: Probably yes, it has slowed it down."
The insurance fund administered by the FDIC stands behind more than $2 trillion in bank deposits. Absent congressional action, it is expected to be out of money by the end of next month.
Mr. Taylor predicted that the annual premiums banks pay the fund would increase, perhaps by as much as 30 percent, or to 30 cents for every $100 in deposits insured. Only five months ago, the premiums rose to 23 cents for every $100, a jump of 92 percent from 1990 levels.
He said that he would vigorously oppose any efforts to jump-start the economy by reducing current standards and letting banks maintain a smaller cushion against losses.
With the continued weakness of real estate markets in the Northeast and California, Mr. Taylor does not expect the condition of the weak banks to improve anytime soon.
One sign of his difficulties, Mr. Taylor acknowledged, is that he does not know if even the new money Congress will soon provide the insurance fund will be enough to cover future losses from banks.
"I have no idea," he said. "Not the foggiest. Tell me what the economy is going to look like. Tell me what interest rates are going to look like. Tell me what housing starts and real estate activities are like. Tell me what prices are going to be like, and I'll have a better view."