Remarks by
FDIC Chairman Sheila C. Bair
to the
Independent Community
Bankers Association,
Orlando, Florida
March 5, 2008
Thank you, Cynthia, for that very kind introduction.
Let me add another little known fact about my resume.
Just after college, I worked for about eight months as a bank teller at a small savings
and loan in Lawrence, Kansas. I had graduated from college early, in December, and
needed to make some money before I started law school in the fall. So I went to work at
an S&L. Actually, the pay was lousy, but the work was fun.
That was a different time. A time of passbook savings and 30-year fixed-rate
mortgages. A time when people would proudly present their monthly mortgage
payments in person at the teller window. A time when parents would come in with their
kids on Saturday mornings to deposit a portion of their weekly allowances. A time when
“saving” and “thrift” were considered overriding virtues. When kids competed over who
had the most passbook stamps.
Those times will never come back completely. But couldn’t this country use just a little
bit more of that local, personal touch when it comes to financial services?
Would we have all these problems with abusive, unaffordable mortgages if people still
got their home loans from the same folks they went to church with or who umpired their
kids’ Little League games?
When you are a community banker, you learn a lot about people and what’s going on in
their lives. And you have a long-term commitment to your town.
That’s why community bankers -- all of you here today -- make such a difference. You
know your customers and your market better than anyone. Your interests are their
interests. You have your finger on their pulse.
Community bankers didn’t cause our current problems. Very few of you were involved in
the subprime mortgage mess.
But as America’s Main Street bankers, you can be a major part of the solution. Long
term, I believe the problems we’re having now will lead to new opportunities for
community banks and thrifts to regain a bigger share of the mortgage market. Short
FDIC Chairman Sheila C. Bair
to the
Independent Community
Bankers Association,
Orlando, Florida
March 5, 2008
Thank you, Cynthia, for that very kind introduction.
Let me add another little known fact about my resume.
Just after college, I worked for about eight months as a bank teller at a small savings
and loan in Lawrence, Kansas. I had graduated from college early, in December, and
needed to make some money before I started law school in the fall. So I went to work at
an S&L. Actually, the pay was lousy, but the work was fun.
That was a different time. A time of passbook savings and 30-year fixed-rate
mortgages. A time when people would proudly present their monthly mortgage
payments in person at the teller window. A time when parents would come in with their
kids on Saturday mornings to deposit a portion of their weekly allowances. A time when
“saving” and “thrift” were considered overriding virtues. When kids competed over who
had the most passbook stamps.
Those times will never come back completely. But couldn’t this country use just a little
bit more of that local, personal touch when it comes to financial services?
Would we have all these problems with abusive, unaffordable mortgages if people still
got their home loans from the same folks they went to church with or who umpired their
kids’ Little League games?
When you are a community banker, you learn a lot about people and what’s going on in
their lives. And you have a long-term commitment to your town.
That’s why community bankers -- all of you here today -- make such a difference. You
know your customers and your market better than anyone. Your interests are their
interests. You have your finger on their pulse.
Community bankers didn’t cause our current problems. Very few of you were involved in
the subprime mortgage mess.
But as America’s Main Street bankers, you can be a major part of the solution. Long
term, I believe the problems we’re having now will lead to new opportunities for
community banks and thrifts to regain a bigger share of the mortgage market. Short
term, however, weakness in the housing sector and turmoil in the financial markets are
making for very challenging times for us all.
Industry conditions
It’s no surprise to anyone that the second half of 2007 was a very tough period for the
banking industry. And to be honest, let me say up front, that the worst may not be over.
Fourth quarter results were heavily influenced by a number of well-publicized write-
downs by large banks.
Industry earnings were down 27 percent for the year as a whole, and were the
lowest we’ve seen since 2002.
A substantial part of the sharp decline in fourth quarter earnings was
concentrated in a handful of institutions.
Many community banks also were seeing their troubled loans increase and their
earnings diminish, but to a lesser degree than the large banks.
Fortunately, the industry as a whole is coming off a golden period of record profits and
remarkable liquidity. And because of this financial strength, the overwhelming majority
of banks and thrifts remain well-capitalized (99 percent) and profitable (88 percent).
Asset quality remains key. Write-offs and loss provisions will likely remain elevated for
the near future, given current trends.
We’ll also need to keep a close eye on loan portfolios other than housing, including
commercial real estate and consumer credit.
A note of caution – CRE concentrations
As most of you know, CRE concentrations -- and especially construction and
development lending (C&D) -- rose rapidly during recent years. They are now higher
than they were in the early 1990s.
This trend was fueled by strong liquidity in global credit markets and rapid home price
appreciation that led to sharp increases in residential construction in the early years of
this decade.
Community banks were a natural fit for this kind of “high-touch” lending, especially as
consumer loans and mortgages were commoditized by Wall Street. But now that the
housing boom is clearly over, we’re seeing more consequences as we move through
this credit cycle.
making for very challenging times for us all.
Industry conditions
It’s no surprise to anyone that the second half of 2007 was a very tough period for the
banking industry. And to be honest, let me say up front, that the worst may not be over.
Fourth quarter results were heavily influenced by a number of well-publicized write-
downs by large banks.
Industry earnings were down 27 percent for the year as a whole, and were the
lowest we’ve seen since 2002.
A substantial part of the sharp decline in fourth quarter earnings was
concentrated in a handful of institutions.
Many community banks also were seeing their troubled loans increase and their
earnings diminish, but to a lesser degree than the large banks.
Fortunately, the industry as a whole is coming off a golden period of record profits and
remarkable liquidity. And because of this financial strength, the overwhelming majority
of banks and thrifts remain well-capitalized (99 percent) and profitable (88 percent).
Asset quality remains key. Write-offs and loss provisions will likely remain elevated for
the near future, given current trends.
We’ll also need to keep a close eye on loan portfolios other than housing, including
commercial real estate and consumer credit.
A note of caution – CRE concentrations
As most of you know, CRE concentrations -- and especially construction and
development lending (C&D) -- rose rapidly during recent years. They are now higher
than they were in the early 1990s.
This trend was fueled by strong liquidity in global credit markets and rapid home price
appreciation that led to sharp increases in residential construction in the early years of
this decade.
Community banks were a natural fit for this kind of “high-touch” lending, especially as
consumer loans and mortgages were commoditized by Wall Street. But now that the
housing boom is clearly over, we’re seeing more consequences as we move through
this credit cycle.