Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.comment From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Bank doomsday hype and hysteria Date: Fri, 6 Nov 92 11:28:29 EST Message-ID: \SE G;COMMENTARY \SS (WS) \HD Bank doomsday hype and hysteria \BY Joseph Perkins Is the sky falling? Will there be a December surprise, with 100 or more of the nation's banks going belly-up and the taxpayers being stuck with the bill? Much of the major media apparently think so. They've been reporting this doomsday story like there's no tomorrow. The forthcoming banking crisis, warned one leading West Coast rag, is the evil twin of the savings and loan fiasco. Black Saturday, maybe? Dec. 19 is the critical date. That is when new federal banking standards take effect. Federal regulators will be empowered to seize banks whose capital falls to 2 percent or less of core assets. Previously, the feds took control of banks only after they had become insolvent. The more stringent capital requirements will provoke a wave of bank failures, the doomsayers foresee. They direly predict that in the next several years, roughly one of every 12 banks throughout the country will be taken over by the government. One network newscast wildly estimated the cost to taxpayers at as much as $100 billion. The scenario gets even scarier. Supposedly, the new federal banking standards make it likelier that regulators will seize uninsured deposits to help offset some of the cost of closing institutions. If that were to happen, which it did not as part of the S&L clean-up, bank deposits above $100,000 would be at risk. Right about now, Joe and Mary Paycheck must be wondering if they should cash out their bank accounts and deposit their life savings under the mattress. They shouldn't. The impending banking crisis of which we have been warned is nothing more than a hoax. Says who? Says Federal Reserve Board Gov. Larry Lindsey. The scare stories that were written are absolute fantasy, he told me, noting that as of the second quarter, 96 percent of all assets in banking institutions exceeded capital requirements that kick in Dec. 19. "It would have been much easier to claim that the sky is falling two years ago than it is now," Lindsey said. "I'm not saying that the banking system is out of the woods, but it is remarkable how much progress has been made." Indeed. Though the national economy remains in a weakened state, the banking industry has fared rather well this year. Banks have managed to shed 6 percent of their problem loans. And over the first six months of the year, the industry enjoyed record profits of $15.5 billion. Federal regulators could seize about 80, not 100, banks as a result of the new 2 percent capital requirement. But, even if they do, the troubled banks wouldn't all come tumbling down on Dec. 19, or even during the first several months of the new year. More likely, the total 80 banks would be closed over the entire year of 1993, which hardly can be construed as an imminent crisis considering that, over the last decade, an average 125 banks a year went out of business. Also, it is quite possible that not all of the 80 banks around the country that fall shy of capital requirements will be cashiered by federal regulators. Those that show progress toward boosting their capital almost certainly will be reprieved. And don't expect a run on troubled banks by depositors with more than $100,000 at stake. Most such depositors are large institutions, like pension funds. If a bank folded, every individual fund member would be covered by up to $100,000 of deposit insurance, not merely the single institutional custodian of the large account. The alarmists out there who continue to insist that a banking crisis awaits in the near future are doing a public disservice. The evidence does not support the cockeyed notion that 1,000 banks will fail in coming years, or that taxpayers will be stuck with a $100 billion tab for a bank bailout. The sky simply is not falling. Joseph Perkins, a columnist for The San Diego Union-Tribune, is nationally syndicated. This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM