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Newsmakers

Host: Susan Swain

Interview with Sheila Bair, Chairman, FDIC

July 18, 2008

SUSAN SWAIN, HOST: Hello, and welcome to Newsmakers. Everyone who’s following the financial markets knows that the stories are coming at us fast and furiously and they're very complex. That’s why we’re very pleased to welcome this week the Chairman of Federal Deposit Insurance Corporation, Sheila Bar. Thank you for being with us.

SHEILA BAIR, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION: Happy to be here.

SWAIN: And let me introduce our two reporters. John Poirier is with Reuters. He’s been there for 11 years and covers banking regulation among other financial issues. And Joanna Chung has just returned to the United States for Financial Times. She’s been based in London and been with the publication for six years. Thanks to both of you for being here.

John, let’s start with you.

JOHN POIRIER, FINANCIAL CORRESPONDENT, REUTERS: OK, thank you. Chairman Bair, thank you very much. In light of what’s happened within IndyMac – IndyMac and – there seems to be this new era of regulation with the Internet, rumors being spread around which perpetuates this fear among depositors. How more – how much more difficult is regulation with this sort of perpetuation of fear on the Internet?

BAIR: Well, it clearly has been a factor. And we saw the blogs were working overtime over the weekend after IndyMac was closed by its preliminary regulator. So we’re trying to respond by just vigorously getting the facts out, by doing shows like this. I’ve been on the media a lot. John Lavensy (ph), my COO, who’s now the interim CEO at IndyMac, has also been very aggressively using media outlets to try to get the word across. Just luckily for us we decided to launch a public education campaign on the deposit insurance issuer (ph) as part of 75^th anniversary. And though we’re tying it to our anniversary, we thought that there – given the distressed economic environment we would probably be seeing uptick in bank failures and this would create more of a need for public information. So we’ve been – and we also have on our Web site a lot of information about deposit insurance. We have something called our EDIE, electronic deposit insurance estimator, which provides consumers information about whether they're below our insured deposit limits. And of course we provide information to banks (INAUDIBLE) hand out to the bank customers and training CD-ROMs for their tellers. So we’ve been actively engaged in deposit insurance public education for a long time. Those efforts have intensified this year. But it still – we just need to keep it up, because the blogs are out, there’s a lot of misinformation out there.

POIRIER: But is the Internet becoming a challenge for regulators like yourselves?

BAIR: I think – I think it’s something to deal with. It is becoming more of a challenge, absolutely. And just – which in turn makes it more of a challenge for us to get the facts out, which is why, you know, (INAUDIBLE) what it is (ph), such as those in this room, to get – help us get accurate information out. I don't want to over-react, I don't want to under-react to the current situation. Clearly we’re in a more distressed credit environment. Clearly banks have some challenges. But at the end of the day we’ve had five bank failures this year. IndyMac, yes, was bigger than the usual, the smaller banks that we’ve been closing recently. But it’s still, you know, .2 percent of industry assets, one of 8,500 insured depository institutions. So we do think it was important to put it in proper context. Unfortunately, I think some of the initial coverage and blog commentary was really blowing it out of proportion.

POIRIER: So how can – what can regulators do to combat the false rumors that are (INAUDIBLE)

BAIR: Well, I think – in terms of what we’re doing for deposit insurance, again, we’re a very aggressive public education campaign. We’re also going to be stepping up our efforts to make sure depository institutions have trained their tellers. We have a one-page disclosure document which we are going to new efforts to ask all banks to hand this out when folks come in to open up an account. We also have developed a bill of rights for depositors which we are – hope will be published next week as an op-ed. So we’re – in terms of our end and deposit insurance, again, we’re trying to attack this from a media perspective and a public information perspective, using a variety of venues. But regulatory, our ability to communicate with the banks directly is with the press.

SWAIN: Before Joanna asks a question, just a quick thought. As – if you're walking into a bank and your handed a piece of paper that reminds you about your deposit insurance, isn’t there actually a worry that you’re raising fears (INAUDIBLE)

BAIR: Well, you know, that is an argument that banks have used. But I think the issue’s out there. You know? And in my view it’s just always, you know, information is a positive thing, you empower depositors when you provide them the information. And in point of fact, when it’s just routinely made as part of your account opening documents, I don't think it is a alarmist if all banks are doing it. So I think – and certainly now the issue’s out there, I think pretty much everybody’s focused on deposit insurance, deposit insurance limits now. So to the extent maybe a while back we would have put people – ideas into people’s minds, I think now everybody’s focused on they want the information.

SWAIN: Joanna Chung.

JOANNA CHUNG, U.S. FINANCIAL CORRESPONDENT, FINANCIAL TIMES: I think especially in light of the IndyMac failure, which was not among the 90 problem institutions that the FDIC was already looking at, I think there are some concerns out there that is there enough staff or resources to handle the coming expected failures that you among others have been predicting.

BAIR: Right. Well, I would like to clarify, we have a troubled bank list. Those are banks that fall to the lowest (ph) supervisory, you know (INAUDIBLE) four or five. And that’s done on a quarterly basis, so there’s generally a time lag. For instance, the second quarter troubled bank list, we don't obviously disclose the names of the banks on the troubled bank list. But the number and the total assets are on that list for the second quarter will be – will be disclosed in mid August. IndyMac actually was on it. Since it’s closed I can tell you this now. IndyMac was on the troubled bank list for the second quarter. It went on in early June. And it’s certainly been (INAUDIBLE) institution that we’ve been monitoring for some time with OTS.

I would say, you know, any bank that has significant exposure to non-traditional mortgage lending or other forms of high-risk mortgage lending, as well as banks that have heavy concentration in residential construction development, are ones that we’re monitoring very carefully. And but I would also say that, you know, they may or may not be on the troubled bank list. And we try to get to them early before it gets to that stage, and we’ve been very aggressively encouraging banks to raise capital, get their loan loss reserves up, make sure their portfolios are well managed and diversified. We’ve been doing that for some time. I think it’s also important to note that we’re still in historical low levels on this troubled bank list. You know, it was 90 in the first quarter. I think we had something like 1,500 at the peak on the troubled bank list during the S&L days. Our bank closings – we were closing one a day for a while at the FDIC. I think the peak year was 1989 at 534. So the level of resolution activity, bank closing activity that we’re looking at is still quite low compared to previous periods of – historical periods of distress.

That said, resources is something I’ve been focused on for quite some time. I took this job at the end of January 6. The industry – excuse me, the agency had gone – undergone some significant down-sizing which was reflective of the benign banking environment at that time. But we started turning ship fairly early in my tenure, building up our examination staff, and then quite some time ago building up – starting to build up our receivership and resolution staff.

With receiverships and resolutions, it’s also – a lot of the activity can be outsourced through contractors, especially the asset marketing component, when we take over a bank. You know, there are kind of two things we need to do within the liability side and the deposit side to make sure insured depositors get their money, they have virtually uninterrupted access to their money. That is our absolute top priority. But also we need to market the bank – the assets of the banks to try to recover our cost and covering the insured deposits. More of that can be contracted out. In house, though, our primary focus is dealing with making an insured deposit determination. That is something that’s an expertise that’s particular to us.

We’re also developing a new computerized system to be able to make that insurance determination more quickly, and we really finalized rules for larger institutions to require them to hold better data so that if we do end up having to take them over because their primary regulator has closed them we can more quickly through an electronic system make an insured versus an uninsured deposit (INAUDIBLE)

CHUNG: There’s no delaying resolutions of any of the problem bank (INAUDIBLE)

BAIR: No, I don't see that at this point. I don't see – I don't see that at this point. And we are, again, vigorously – we’re still beefing up our staff through both temporary hires as well as some permanent hires, reaching out and rehiring retired (INAUDIBLE), increasing contractors, and also implementing an electronic system to help us, which is by and large a manual process now of differentiating insured from an uninsured deposit. So through contractors, temporary and permanent hires, as well as developing new computerized systems to sort out insured from uninsured deposits, these are the tools that we’re using to make sure we do have adequate resources.

CHUNG: And what measure are you taking to replenish the deposit insurance fund?

BAIR: Well, that’s a very good question. We have $53 billion in our deposit insurance fund right now. I would say that we are – this is an industry funded reserve. We are required to keep our reserve ratio, which is our reserves to insurance deposits, within a range of 1.5 to 1.5. With the IndyMac failure we have already had to reserve for those losses. So that has brought us below the 1.15. And by statute we are required within 90 days to implement a restoration plan. So the clock on that is ticking. In September the board will be considering staff’s recommendation for restoration plan, which requires us to get back up to 1.15 within five years. So that will happen in September. I think you know we always hate to raise premiums, but I think it’s probably likely that we will have to do that, although hopefully not so severely. We do have some time to build the fund back, and not so severely that we will further stress the industry. But, again, overwhelmingly banks are safe and sound and healthy. And so I think the industry will be able to able to absorb whatever our additional needs will be to keep those reserves strong. We are backed by the full (INAUDIBLE) credit of the United States government. So the, you know, average depositor doesn't need to worry even if, you know, really dire worst case scenarios. We would still be backed by the (INAUDIBLE) credit of the United States government. So it’s really not something that the average depositor should need to worry about.

POIRIER: Does that mean that the Treasury Department would have to issue bonds in order to – in the worst case scenario ...

BAIR: In the worst case scenario – well, we have a line of credit I believe that for about another 40 billion. And then after that they might have to resort – but you're really, really talking worst case dire scenarios (INAUDIBLE) something like if it ever got to that stage.

POIRIER: I was just wondering. How much further – how much more hiring of staff and contractor do you foresee the FDIC doing or you yourself doing over the next, I don't know, year or so. Do you ...

BAIR: Well, I think we have – we’ve increased – we’ve got double the size of the receivership and resolution staff. Some of those have been permanent, some of those have been temporary hires. I think we’re also – you know, it’s not all – I guess that’s what I was trying to say earlier. It’s not all being done by staff. We’re increasing our contractor relationships for asset marketing as well as developing more sophisticated computerized systems to make insured deposit determinations which will (INAUDIBLE) some of the staff resources. So my sense is we may need to hire more especially temporary hires. Again, it just will depend on the pace of resolution activity. But I think given our projections over the next couple of years I think – I think we’re well positioned to do it. I won’t say that it hasn't been a challenge. I has. We (INAUDIBLE) to turn ship. We’ve been downsizing and we needed to start rebuilding fairly quickly. But I think, you know, the thing about IndyMac is I wish people could see all the behind the scenes work that it took FDIC staff in the bank around the clock over the weekend to make sure all the systems were transferred over so that Monday morning we did open with business as usual. And it was – it was – I was very sad to see those lines, because a lot of the (INAUDIBLE) didn't need to be there. And the irony was a lot of insured depositors were taking their money out. I would have been much, much better for them to just leave their money there, because they had to go to the inconvenience of getting a cashier’s check, taking it to another bank. Then we had to some issues with other banks. (INAUDIBLE) away. And we put out information to all banks yesterday requesting that they honor the IndyMac checks. But really, you know, it was – it was ironic because it wasn’t like the bank was going to fail again. At that point it was probably the safest place to have your money and still people lining up.

But we responded very quickly. We, again, through contractor relationships were able to get another 100 tellers into the institution by Tuesday morning to handle the lines. And so I think the FDIC staff did really, really a great job. It is a lot of detail, a lot of work goes into, as you can imagine, taking over a $32 billion institution on Friday and re-opening it on Monday as business as usual. But we did do it. And I regret that, you know, because of the long lines – I think that was the media coverage that we were getting as opposed to the tremendous effort and resources that the staff of the FDIC put in.

POIRIER: Is the FDIC close to finding a buyer for IndyMac’s assets?

BAIR: Well, we’re – we hope to get the bid package out within 60 days and have it back into the private sector in 90 days. That might be an ambitious time period, but that is – I think it’s important to try to move it back into the private sector as quickly as possible. We would like to try to – there may be some components where we need to value the assets, we need to come up with a bid package that we will maximize our value. That is our statutory obligation and our obligation to the deposit insurance reserves as well as to uninsured depositors. Because the more we can recover when we sell the assets the more we’ll be able to give them some additional recovery.

So we want to make sure we do it right, but we want to do it in a timely way. so I'm hoping that within 90 days we will have most of it sold or be real on track. But we’re evaluating the assets now. As you know, this institution unfortunately did a lot of what they call altate (ph) mortgages and option arms, a lot of it looks like – some stated income. So we’ve got to go through and value those assets, value the servicing rights, and – to determine, you know, what we think would be a good price and a good – we might do some loss sharing so – to try to enhance the value of selling off the mortgages, (INAUDIBLE) share in some future losses. That might – that might also maximize the price (INAUDIBLE)

JANE: Do you see (INAUDIBLE) thank you. Do you see any other banks with quite the same profile as IndyMac that are of concern (INAUDIBLE)

BAIR: Well, I never name individual institutions. You know, the good – yes, there were some banks doing this kind of lending. For the most part this lending was done outside the banking sector. And I think that’s important for people to understand. You know, people talk about banks. Everybody’s (INAUDIBLE) the banks are the ones that are doing the mortgage lending. And that was one of the dynamics that led to some of the problems we’re having now is that there was a lot of competition from non-bank mortgage originators, those that use the capital markets, not deposits but capital markets to access funding that were much less regulated than depositor institutions. Starting with this very type of aggressive lending, taking market share away from banks, then banks kind of responding in kind. And we had this downward negative (INAUDIBLE) competitive spiral, kind of a race to the bottom in lending standards.

But only about 25 percent of this type of lending was done inside depository institutions. The rest was done outside. And most of the depository institutions that did it sold those mortgages off. So they did not keep on balance sheet. So, yes, there are some banks that do have exposure to these types of mortgages, but it is – it is not pervasive. Again, most of this type of lending was done outside of the depository institutions. That said, we’re – and, you know, and an increasing challenging credit environment, economic situation, and there are other banks with exposures to residential construction development, which is kind of suffering the collateral damage from the problems in the housing market. So we’re watching and monitoring those very carefully, especially those with large concentrations in the previous boom housing market areas (INAUDIBLE) the bust areas. But for the most part this – these higher risk forms of mortgage lending were done outside of depository institutions.

SWAIN: A question for you.

BAIR: Sue.

SWAIN: Last October you pretty famously in an op-ed in "The New York Times" really predicted how deep this mortgage crisis might become. And also offered some prescriptions. Are you frustrated with the pace of response (INAUDIBLE)

BAIR: Oh, I am so frustrated. Yes, I am. I – you know, I think – it’s interesting. Loan modification activity is really starting to pick up now. And I think one of the reasons for that is this that the prices you're getting for closure are just so low now, especially in some of the distressed areas, California , Florida, Nevada, other areas where we’re really seeing the higher foreclosure rates. But, you know, it should have started a year ago. We said this was going to happen, we said it’s in your interest, modify these loans now, you've got unaffordable loans out there, make them affordable. There were a lot of reasons why – and some of that did happen. And I think the Treasury Department doesn't give as much credit as they deserve, because what – one modification activity that has been going on, it’s been – it’s been to their through their leadership and cajoling of the industry to get it done. (INAUDIBLE) loans are in a securitization trust, you can’t – these are all private contracts. You can’t just go in and undo the contracts. You really have to rely on voluntary efforts. And, no, I don't think the servicers or the investors saw early enough what was in their own economic interest to do, which was to go ahead, take their losses, but get these loans modified, reduce the interest rate, reduce the principal if you need to, but get the payment down to an affordable level. And some of the early loan modification activity we saw really were (INAUDIBLE) repayment plans, which we said at the time, you know, is just deferring principal interest for 12 or 18 months. So at the end of that short time period you're going to have another time payment shock.

And I think that’s one of the reasons why some of the early loan workout programs, loss mitigation, went into re-default, because they were not sustainable permanent solutions. They were again just kicking a can down the road. So I think – I think servicers and investors are starting to realize more and that it is in their own economic interest to get these loans modified and do it in a – in a long-term sustainable way. But, yes, if it had happened earlier I think I think we could have avoided some of this. I really do.

SWAIN: And what is going to turn it around?

BAIR: Well, the issue has always been housing. And, you know – you know, we’re making loans to a lot of people – it seems like we’re making loans to everybody that borrows. You know, a lot of institutions are getting help here and there. And, you know, I don't judge that. But the core of the problem is housing and unaffordable loans. And if you're not – you're kind of just, you know – the reason a lot of these institutions are under distress is because the loans are going delinquent and going into default. But they're kind of helping the institutions, we’re not fixing the loans that are going into delinquency or into default. So I think the FHA program will help somewhat. We also suggested a broad scale program that Treasury – we suggested that Treasury would (INAUDIBLE) to make loans to borrowers to pay down principal amounts to get the dollar – the payments to an affordable level. I don't think that’s going to happen. I think Congress is just on the – on the path that they're on now. And I think the FHA proposal is basically what we’re going to get from Congress in terms of providing relief to borrowers, kind of tackling this problem at its core.

And, you know, the irony is I think there apparently is more political pushback against helping individual borrowers than it is helping Fannie or Freddie or Bear Stearns. I don't know. That seems somewhat ironic to me. Because, again, I think the borrowers – helping the borrowers is really the core problem that needs to be fixed. I know there are a lot of people out there that say, you know, I’ve got to safe mortgage, I didn't over leverage, I didn't do these cash out refis, I didn't do these (INAUDIBLE) rate loans. Why should you help the guy down the street who did it? I didn't. And, you know, I think there was a lot of bad marketing, a lot of bad – a lot misinformation about these loans. I think there were some borrowers that were taking advantage of. There were other borrowers who clearly willingly over-leveraged themselves.

But at the end of the day I'm not sure that matters anymore. I think at least for owner occupied homes, these escalating foreclosures are hurting us all. They're hurting our economy. And even if you don't have compassion for the borrowers, think about the neighborhoods, think about the neighboring properties, think about, you know, how people’s prices are – home prices, home values are going down because of these distressed foreclosure sales.

So it’s really in all of our interest to get these unaffordable loans fixed. And I’ve got a 15-year fixed, you know? I’ve got, you know, about 50 percent equity in our house even with the declining home prices. We’re very conservative borrowers. But at the end of the day I think – I think we should put that aside and look at what is in all of our collective best economic interest. And that is to tackle the problem at its core, which are these unaffordable loans.

POIRIER: Before we close up, I just wanted to hear your thoughts on a couple of issues. Could you just clarify. Are you comfortable with the amount in the fund right now?

BAIR: Yes, I am. Based on what I know now, I really think that our industry funded reserves are – will be quite adequate. And as I said, we will be implementing a restoration plan adjusting insurance premiums to further strengthen the fund. I think as part of that we will also be trying to make further adjustments to better provide strong incentives for good risk management. Now that we’ve had some additional experience with bank failures, when the system was put into place two years ago it had a very benign banking environment. We really didn't have any recent experience with bank closures. But now we know there are a couple of recurring themes. One is a rapid growth combined with high levels of broker deposits. I think that is something we need to factor into our premiums and charge higher premiums to banks that fit that profile. Those that rely on very highly on secured liabilities, those really increase our resolution costs. That’s the primary reason why IndyMac is going to cost so much. Because they got most of their funding from broker deposits which have no franchise value for us. We don't really recover anything by selling those off. But also federal home loan bank advances which are fully collateralized, those are above us in the claims priorities. So the federal home loan banks can claim those high quality assets to get repayment before we can claim them (INAUDIBLE) have to recoup our own costs. That may be (INAUDIBLE) you wanted, but at the end of day a have reliance on secured liabilities really does increase our resolution cost. So I think that’s something else we’ll need to factor into (INAUDIBLE)

POIRIER: And could you also just comment on – when the OTS talked to reporters about IndyMac and Senator Schumer – can we get your thoughts on how that all played out, whether or not – do you think Senator Schumer was responsible (INAUDIBLE)

CHUNG: Could it have been avoided, the IndyMac failure (INAUDIBLE)

BAIR: Well, you know, we’ve really – I’ve avoided comment on that. We’re trying to look forward on this. You know, I think there were a lot of problems with this institution, there was a lot of scrutiny of it coming from a variety of places. But I think, you know, at the end of the day I think what we need to do now is look forward and see how we can make sure that – and I think we have – make sure that all insured depositors have (INAUDIBLE) protecting they have. Nobody has lost a single penny of insured deposits. They've had virtually uninterrupted access to their deposits. (INAUDIBLE) make sure that now is we need to do (INAUDIBLE) the institution and sell it off that we recover as much value as we can.

POIRIER: Have you spoken to Senator Schumer?

BAIR: No, not recently. No, no, no.

POIRIER: OK.

CHUNG: One question I do have is I looked at some of the data in terms of the number of banks that has proliferated in the U.S. In the past five years the FDIC has chartered a stupendous number of banks. Why – you know, why did it do that? I mean, I think it might have contributed to the over capacity and therefore the behavior in the market. No?

BAIR: Well, that’s a – that’s an interesting observation. I don't know – actually the number of banks has declined. So you might see a lot of new charters, but you'll also see – there was a lot of – been a lot of consolidation activity as well. And actually it’s not – well, let me say a couple of things. when I took over in June of ’06 we did start taking a closer look at the deposit insurance applications. And we have I think instituted a system where those applications are very carefully evaluated, especially when they have high risk characteristics, (INAUDIBLE) business plans that have high levels of concentrations in a particular type of lending or heavy reliance on broker deposits. So under my tenure we have started taking a much closer look at deposit insurance applications.

I don't think, though – I'm not sure you would really see – in terms of the bank closings we’ve had so far, it’s really not been so much (INAUDIBLE) of new banks. A lot of these banks have been around for a while but just started getting into the high risk and high risk forms of lending they shouldn't have. So it’s not – there’s not (INAUDIBLE) correlation between the resolution activity we’ve seen and new bank charters.

Also, it’s important to emphasize that the FDIC – we don't really charter banks. We give deposit insurance. But if it’s a national charter it’s the OCC or the OTS or a state regulator, if it’s a stage chartered bank. So we approve the deposit insurance application. And the criteria that we’re supposed to use is quite straight forward. There were seven factors. And if the application (INAUDIBLE) those factors, it is pretty much of an obligation to approve. And once those – once those charters and the deposit insurance applications are provided, then of course if we’re not – we must heavily rely on the primary regulators as well. You know, a key to that is if you get deposit insurance to make sure that those funds that are bringing brought in with deposit insurance are supporting high quality forms of lending. And so we all work together on that and sometimes it can be more challenging than others. But – to make sure that the bank is engaged in prudent and safe and sound lending. But that’s why we have this extensive regulatory structure.

I guess my point is this really is a partnership between the FDIC and the primary regulators to make sure once their deposit insurance brings some of the deposit funding that that supports good sound lending.

CHUNG: One tiny last question, which is – I know you don't have a crystal ball, but how bad do you think it’ll get before it gets better.

BAIR: Well, we ...

CHUNG: Where are we (INAUDIBLE)

BAIR: We prepare for the worst and hope for the best. It’s going to get – there will continue – there will be more bank failures this year and into next year. I'm starting to see some little hints that the housing market may be settling a little bit. And, again, I think – it all comes back to housing. So I think getting home prices stabilized really – we need to see that – some confidence that that is happening before I can give you a better – a better indication. I think once we see that happening then I think other things will start growing into place. But that really – housing continues to be the key.

SWAIN: Chairman Bair, thank you very much for being with us.

BAIR: Sure, my pleasure.

CHUNG: Thank you.

POIRIER: Thank you.

SWAIN: I’d like to re-introduce our two reporters who cover the financial markets and regulation. Joanna Chung, of Financial Times, U.S. financial correspondent, and John Poirier, of Reuters, financial correspondent who specializes in banking and regulation.

Mr. Poirier, let me start with you. Put in sort of a larger Washington brush what you heard from the chairman of the FDIC as this housing bill is moving through. We heard from her that mortgages are really the nub of all of this. So how are you watching Washington respond?

POIRIER: Well, it’s interesting. Sheila Bair has always been in the forefront of trying to help the home owners stay in their homes. And she started very early with that message. And it really hasn't resonated really that well with Congress. I mean, they've – they've heard the message but they really haven't globbed onto it, as you can see from the legislation that’s moving through Congress right now. The Senate just passed the housing bill. But it’s really focused on a lot of the institutions instead of really the home owners.

SWAIN: The discussion, Joanna Chung, that you had in many of your questions were on the ability of the FDIC both from reserve standpoint and also from a staffing standpoint to address the challenges that still lie ahead. We heard there were going to be more bank failures in the months ahead. Did you walk away from this interview confident that it’s well structured?

CHUNG: I personally have great confidence in Chairman Bair. I think she is, as John said, at the forefront of this along with a number of other regulators. The reason I asked about it is it is a concern. I mean, we’ve seen the savings and loans crisis, which I personally have not lived through, but there were unexpected things that happened and that the institution – the FDIC had issues at that time. So I think it is a concern to some of the public. You know, the natural question is is it able to handle unexpected things that happen.

I think the fact that the regulator is taking steps to replenish the fund, that it is – it has seen the failures coming, it has made steps to hire more people I think is a good sign. But at this point, everything’s so volatile. And there are things that are happening on an almost daily basis which is unexpected. And I think it’s really – it’s really a scary and uncertain time to be honest.

SWAIN: John, you – you have – (INAUDIBLE)

POIRIER: Well, I was going to add to that, yes, that it’ll be interesting to see how the FDIC reacts to the number of bank failures this year and possibly next year, just simply to see if whether or not they think the $53 billion in the fund is sufficient. Chairman Bair said that she was comfortable with the amount. But given what’s happened with IndyMac, no one really knows whether or not it could have been saved and could have saved the FDIC from having to put out more money for its accessing – or the deposits.

CHUNG: If they do spend the upper limit of what they estimate it will be the costliest bank resolution ever.

SWAIN: Yes, it’s interesting that she explained that this one failure of IndyMac bank took them below the their reserve ratio that they required. And then yet predicted that there would be – might be more failures, although she’s confidence in the system. But it will be – it’s returning to the banks to ask banks that are already troubled for more premiums.

POIRIER: Right. One thing that she didn't really touch upon was whether or not – the FDIC has a – has a list of problem banks right now at the end of the last quarter. There were 90 banks on the list. It will be interesting to see where that number goes. I think many analysts are predicting much higher over the next several months.

SWAIN: What’s the (INAUDIBLE) do they release the number but not any of the names?

POIRIER: No, they'll release the numbers and the number of assets associated with the – with the list. But they are adamant against –

SWAIN: Understandably.

POIRIER: Yes.

SWAIN: It would certainly start the stampede. Last question for you. You were both interested – and we’re out of time here – but you're both interested in the role – the amplification role of the bloggers. You're watching all this. It seems like it’s presenting particular challenges when small bits of information are being joined together to present a larger picture that may in fact be somewhat off the mark. How well is the regulatory community responding to the bloggers and to the whole Internet role in this?

POIRIER: Well, I think it’s difficult for the banking regulators to regulate what’s being said on the Internet.

SWAIN: Sure.

POIRIER: Right? I mean, it’s – there’s a free speech issue. I think Chairman Bair said something needs to be done, but I'm not sure how they can go about doing that. It’s really out of their jurisdiction and their purview.

SWAIN: Except to communicate differently and better than the bloggers.

POIRIER: Right. Which is what she was pointing out, that we have to stay ahead and inform the depositors, tell people at the – at the branches that your money is safe, the bank is safe. So it’s a challenge for them.

SWAIN: Well, thanks to both of you. We said at the outset that this whole story is very complex and very fast moving. We appreciate you being here to ask questions of the Chairman this week.

CHUNG: Thank you.

POIRIER: Thank you for having us.

END