Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.news From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Feds deny collapse signals bank crisis Date: Sun, 1 Nov 92 20:06:09 EST Message-ID: \SE A;MONEY \SS (WS) \HD Feds deny collapse signals bank crisis \BY ASSOCIATED PRESS Federal regulators deny the collapse of a large chain of Texas banks signals the start of a national banking crisis, but they say Americans should be braced for more bank failures next year. Banking regulators announced at a hastily scheduled news conference Friday night that they had taken control of First City Bancorporation of Texas in what they ranked as the biggest bank failure this year and the eighth largest in U.S. history. The bank holding company, which had assets of $8.8 billion, was seized after regulators determined that a growing level of bad loans had made it insolvent. It had operations in Houston, Dallas and 18 other Texas cities. Sen. Donald Riegle, Michigan Democrat and chairman of the Senate Banking Committee, said that what worried him about the collapse of First City was that it marked the second time the banking chain had failed. In 1988, the FDIC had provided $977 million to protect depositors. Officials estimated the failure of the bank this time could end up costing $500 million. Mr. Riegle said he would ask the congressional General Accounting Office to study the First City case to determine "what specific steps should be taken by regulators in the future to prevent a bank failing twice." Officials at the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency denied that the timing of their decision was linked in any way to Tuesday's presidential election. "It is always unfortunate when any bank must be closed," acting Comptroller Stephen R. Steinbrink told reporters. "Nonetheless, once we clearly identify that a bank is insolvent, we must act. That was the situation we faced with First City." While President Bush and Democratic challenger Bill Clinton have both said that the nation's banking industry is basically sound, independent candidate Ross Perot has raised questions about a possible wave of bank failures starting in December as banks are unable to meet stringent new federal regulations. Federal regulators, however, insisted that the collapse of First City did not alter their forecasts of the number of bank failures likely over the next 14 months. So far this year, 104 banks, with assets of $36.6 billion, have been closed. Officials predict that number could reach 120 before the year is over and total between 100 and 125 banks next year. But they said this should not overwhelm the resources the FDIC has available to protect depositors. Federal officials have insisted that the tougher regulations going into effect Dec. 19 should not increase the number of bank failures significantly, although they may hasten the closing of some banks. During the last presidential debate, Mr. Perot brought up a new study warning that 1,150 of the nation's 12,000 banks were solvent on paper only and should be closed or merged with stronger institutions. The study said that ridding the system of these weak banks could cost as much as $95 billion, making a taxpayer bailout of the FDIC a virtual certainty. The agency is financed by insurance premiums paid by banks. But acting FDIC Chairman Andrew C. Hove Jr., who participated in Friday's news conference, attacked the study as lacking credibility. The FDIC insures deposits up to $100,000. Officials estimated that about $260 million in deposits in some 5,000 accounts in the Houston, Dallas, Austin and San Antonio bank subsidiaries of First City were above the $100,000 threshold and therefore these depositors would suffer losses. The FDIC said depositors facing losses would receive checks equal to 80 percent of the amounts they had on deposit over the $100,000 limit. Depositors in the 16 other better-capitalized bank subsidiaries of First City will be fully protected, even if their deposits exceed the $100,000 limit, the FDIC said. 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