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Sheila Bair leaving FDIC

By Claes Bell, CFA · Bankrate.com
Thursday, May 12, 2011
Posted: 1 pm ET

Sheila Bair is leaving the FDIC. From the FDIC press release:

Chairman Sheila C. Bair's official departure will be effective July 8, 2011. Consistent with previous public statements, Chairman Bair has announced her intention to depart the agency following the expiration of her term as chairman. The FDIC will hold a board meeting during the first week of July. This will be Chairman Bair's final board meeting.

Bair will likely be seen as the most influential FDIC chairman ever. In the past, FDIC chairmen have mostly been behind-the-scenes bureaucrats. In contrast, from the beginning of her term in 2006, Bair used the post to sound the alarm about dangers to the banking system, advocate for distressed homeowners and help shepherd the financial system through the financial crisis of 2008 and 2009.

That financial crisis forced Bair's FDIC to close nearly 140 banks in 2009 alone, and drove the FDIC's Deposit Insurance Fund deep into the red. The number of FDIC enforcement decisions and orders rose from 205 in 2005 to 627 in 2009, according to a search of the FDIC document database. Bair also took some extraordinary steps to protect consumers, among them creating a foreclosure prevention program at FDIC-owned IndyMac and pushing for an increase in the FDIC insurance limit to $250,000 that would eventually become permanent.

During her term, Bair earned a reputation as a tough critic of banks' mortgage lending practices and a vocal advocate for banking system reform. That didn't always endear her to members of the political establishment. From a 2009 Wall Street Journal article:

Last week, House Financial Services Committee Chairman Barney Frank (D-Mass.) sent a letter to the country's top bank regulators, including Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair, urging them to "show some temperance in their regulation of traditional banks." One common complaint from lawmakers is that regulators' tough examinations are making banks reluctant to lend.

"A self-fulfilling prophecy of community bank failures, shrinking credit availability and a slower economic recovery can all result from a regulatory overreaction to the current crisis," said the letter, which also was signed by Rep. Walt Minnick (D-Idaho).

Bankers were also highly critical of Bair, and the regulations she championed, at times. After an address to the American Bankers Association in March, she was heckled by community bankers concerned about future regulatory burdens on their institutions.

But Bair's legacy at the FDIC will likely be considered seminal by future regulators. Her efforts to shape and promote the Dodd-Frank financial reform bill resulted in expanded powers for the FDIC, which can now take over and unwind failing nonbank financial institutions in much the same way it has done in the past with failing banks.

The man likely to succeed her, current FDIC vice chairman Marty Gruenberg, appears to hue more to the original template for FDIC Chairmen in terms of leadership style. From a Wall Street Journal profile of Gruenberg published in March:

Before joining the FDIC, he was a longtime aide to former Sen. Paul Sarbanes (D., Md.). Mr. Gruenberg, a Democrat, is known as an expert on banking law who believes strongly in robust financial regulation. He helped craft the Sarbanes-Oxley accounting rules that many Republican lawmakers and businesses opposed as too onerous. He took a lead role in helping design a new division of depositor and consumer protection last year.

He is known as a quiet but strong advocate for the Community Reinvestment Act, which encourages banks to make a portion of their loans in low- to moderate-income communities, and similar community-development initiatives. Republicans have criticized the CRA law as helping to cause the 2008 financial crisis. His potential nomination could roil some bankers who believe the government has become too aggressive in enforcing certain lending rules.

Personally, I'm sad to see Bair go. The banking industry has a tremendous amount of power at all levels of government, and over the last five years, Bair has been one of the few regulators out there with the clout and credibility to effectively reign in financial institutions and advocate for consumer rights. Less than three years out from one of the biggest financial crises of the last 100 years, I think the government needs more tough watchdogs, not fewer.

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4 Comments
john
May 13, 2011 at 7:00 pm

Great timing! Ms. Bair will be leaving as head of the FDIC at the end of her term in July of this year. Maybe one of Geitner's protegees is ready for a step up the ladder.....

Ben
May 13, 2011 at 10:43 am

Bair is the reason I will probably never invest in the US Stock market again. She is the head of a government insurance company. They FDIC is charged with insuring people's deposits; in that respect I suppose she succeeded. To achieve this though it appears transparency, law and ethics were disregarded. Citi bailed out, Wamu seized, Goldman bailed out, Lehman seized... Besides ambiguous statements like "they had some toxic stuff", what clear rule of law or financial trigger caused some to be seized and others rewarded with bail outs? Why would Wamu be seized just days before TARP? If a car insurer didn't have funds to pay out possible claims so they just seized the cars from some of their customers and sold them to another customer would that be a success? WaMu may have had problems but any government agent that seizes 300 billion dollars in private assets better clearly explain exactly why it happened.