Some Fear Woes May Spread To Other Banks
MICHELE NORRIS, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
ROBERT SIEGEL, host:
And I'm Robert Siegel. Wall Street and Main Street are nervously watching banks today. Investors have been spooked by failing bank stocks, and customers are wondering if their money is safe. Lines of them outside the failed IndyMac Bank for a second straight day certainly didn't help.
IndyMac was taken over by the FDIC, and in a moment we'll talk with the head of the FDIC about how much of your money is and isn't insured by the federal government. First to NPR's Chris Arnold, who reports on how likely it is that more banks could fail.
CHRIS ARNOLD: One place that you can see firsthand the problems facing banks around the country is at the trading floor at a company called DebtEx in Boston. The company is sort of like a stock exchange, except instead of stocks it helps banks sell off loans - good, bad and ugly ones so that they can raise money.
Mr. KINGSLEY GREENLAND (DebtEx): These guys down here are the ones who are talking to the bank clients, trying to help them figure out what loans they might be able to move at a price that would work.
ARNOLD: Kingsley Greenland is DebtEx's CEO. All the problems the banks are facing mean big business for him. He's helped hundreds of banks sell of billions of dollars worth of loans over the past year.
Mr. GREENLAND: It's busier than we've ever seen it. You know, I mean, I think you can reasonably say that at least the volume that we're selling is at least 200 percent more than this time last year.
ARNOLD: Greenland says a lot of regional banks made the same mistake: They couldn't make as much money on things like credit cards, so they looked to make money from real estate. Then the housing market tanked, and lots of construction projects that banks financed went bad. Now to clean up their books the banks have to sell off those loans and take a loss.
Mr. GREENLAND: For many of those, the value in a marketplace right now could be 50 cents on the original dollar, some instances even less if they're in very remote areas.
ARNOLD: Beyond housing, falling values of commercial properties like shopping malls can force banks to raise more money. That's hard to do when investors are dumping your stock and running in the other direction. Greenland says a lot of banks are getting squeezed.
Mr. GREENLAND: Yeah, I'm very concerned about it. I don't see a massive, S&L-type debacle, but it's not going to be easy. It's going to be painful.
ARNOLD: But just how many banks are in such serious trouble that they're going to go under is hard to know.
Mr. CHRIS THORNBERG (Beacon Economics): We're still in the midst of a giant guessing game.
ARNOLD: Chris Thornberg is a forecaster with Beacon Economics. He says there are just too many question marks: how bad the housing crunch will be, what the broader economy will do, and which banks are still heavily exposed to bad loans.
He says the Federal Deposit Insurance Corporation, or FDIC, actually has a list of troubled banks that it's keeping an eye on. There are more than 90 banks on the list right now, but it turns out it's a secret list.
Mr. THORNBERG: The problem here is this: Here is a situation in which information is both an enemy and a friend. The FDIC recognizes that if they point at a bank and say, well, maybe them, they can create a full-fledged panic and bring down even healthy institutions.
ARNOLD: But not knowing which banks are most in trouble is also helping to create this panic across the whole industry. At one point today, the stock of the Ohio-based bank National City was down more than 75 percent on the year. Washington Mutual and Wachovia have also been falling sharply, but some analysts think investors are getting too scared.
Mr. BRIAN BETHUNE (Economist, Global Insight): My sense of it is that it's not a system-wide problem.
ARNOLD: Brian Bethune is an economist with Global Insight. He says more banks will fail over the next couple of years, but he thinks most banks are on much more solid footing than, say, IndyMac Bank, which just went bust a few days ago.
Mr. BETHUNE: Well, IndyMac was a specialized mortgage lender and therefore had a lot of concentration in the mortgage market. Large regional banks, they're not anywhere near as exposed.
ARNOLD: Regulators are trying to calm fears. They say most banks will be fine, and most people are covered by FDIC insurance. The main concern for most people is that the ongoing problems in the banking system could make it harder to borrow money, and that could keep dragging down the economy. Chris Arnold, NPR News.
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