CHAIRMAN DONALD E. POWELL
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS TO
THE FDIC CORPORATE SECTOR ROUNDTABLE
NEW YORK, NY
APRIL 24, 2003
FOR IMMEDIATE RELEASE Media Contact:
PR-36-2003 (04-24-2003) David Barr (202) 898-6992
Good morning. It is wonderful to be here and we're honored all of you have taken time
to attend today's roundtable event.
This is the second economic roundtable we've held this year, and the fourth in the last
six months. In February, we hosted a Consumer Balance Sheet Roundtable in
Washington, where we gathered experts on household finances and consumer credit
quality.
They told us that the higher credit losses consumer lenders have seen in recent years
are part of a long-term trend that is not likely to turn around anytime soon. They also
said there was nothing wrong with consumer finances overall that some decent job
growth couldn't cure.
We're here today, in part, to ask when that job growth is finally going to materialize and
help to get the U.S. economy moving forward again on a more solid footing.
Consumers have been instrumental in keeping the economy growing for five
consecutive quarters through December of last year. But consumers can't do it on their
own forever.
The total number of payroll jobs remains over two million below what it was two years
ago. Large companies have been very reluctant to hire and invest in recent months
because they've been trying to get their financial house in order and because they've
seen weak demand and weak pricing for their products.
What we're going to need to keep consumers in the game and to add some muscle to
the recovery is a decided turnaround in the nonfinancial corporate sector that puts them
more in the mood to hire and invest.
Let's look back for a moment at how we arrived here. The recession that began in
March 2001 can truly be called a corporate-sector recession, because most of the bad
economic news has been corporate news.
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS TO
THE FDIC CORPORATE SECTOR ROUNDTABLE
NEW YORK, NY
APRIL 24, 2003
FOR IMMEDIATE RELEASE Media Contact:
PR-36-2003 (04-24-2003) David Barr (202) 898-6992
Good morning. It is wonderful to be here and we're honored all of you have taken time
to attend today's roundtable event.
This is the second economic roundtable we've held this year, and the fourth in the last
six months. In February, we hosted a Consumer Balance Sheet Roundtable in
Washington, where we gathered experts on household finances and consumer credit
quality.
They told us that the higher credit losses consumer lenders have seen in recent years
are part of a long-term trend that is not likely to turn around anytime soon. They also
said there was nothing wrong with consumer finances overall that some decent job
growth couldn't cure.
We're here today, in part, to ask when that job growth is finally going to materialize and
help to get the U.S. economy moving forward again on a more solid footing.
Consumers have been instrumental in keeping the economy growing for five
consecutive quarters through December of last year. But consumers can't do it on their
own forever.
The total number of payroll jobs remains over two million below what it was two years
ago. Large companies have been very reluctant to hire and invest in recent months
because they've been trying to get their financial house in order and because they've
seen weak demand and weak pricing for their products.
What we're going to need to keep consumers in the game and to add some muscle to
the recovery is a decided turnaround in the nonfinancial corporate sector that puts them
more in the mood to hire and invest.
Let's look back for a moment at how we arrived here. The recession that began in
March 2001 can truly be called a corporate-sector recession, because most of the bad
economic news has been corporate news.
As you know well, the problems began in the manufacturing sector, but bigger problems
soon materialized in high-tech industries, such as telecom, computers and dot-coms.
The overhang of New Economy excesses remains with us three years after the tech
bubble burst here on Wall Street. It's only been compounded by problems in airlines and
insurance that were related to 9-11 and its aftermath.
The result has been a long, slow, painful restructuring process for corporate America. In
the last five years, over 800 publicly traded U.S. companies with over $800 billion in
assets have gone into bankruptcy. Many others cut back sharply on payrolls and
investment plans.
Needless to say, very little happy news comes out of such a process. There are real
human costs to these upheavals, involving dashed expectations and shattered dreams.
Stories of bankruptcy and scandal attract a great deal of media attention, as well they
should, for they are cautionary tales of what can go wrong if we are not careful in how
we run our businesses.
But these stories also tend to obscure another, more positive side of the story, and that
is the ultimate benefits of promptly fixing investment mistakes.
It is widely recognized that the genius of the American economy is the ability of the
private sector to identify and fund worthy new investment projects.
I would submit that it is equally valuable to be able to quickly identify and correct our
investment mistakes.
To do so, it is sometimes necessary that companies fail and that workers be displaced.
But it is an article of faith in our system that the ultimate health of our economy requires
that we pursue these remedies so that we may then move on to more productive uses
of capital and labor.
Our faith in this premise has allowed us to enjoy one of the highest standards of living
anywhere in the world.
We at the FDIC have a great deal of first-hand experience with this process, having
acted as trustee for the receiverships of over 1,500 failed institutions since 1989.
The interest that the FDIC takes in the prospects of the nonfinancial corporate sector
goes beyond a concern about credit quality at large banks that lend to large corporate
borrowers.
Yes, our mission is to promote financial stability, and that involves effective
management of credit risks on the part of insured banks and thrifts.
soon materialized in high-tech industries, such as telecom, computers and dot-coms.
The overhang of New Economy excesses remains with us three years after the tech
bubble burst here on Wall Street. It's only been compounded by problems in airlines and
insurance that were related to 9-11 and its aftermath.
The result has been a long, slow, painful restructuring process for corporate America. In
the last five years, over 800 publicly traded U.S. companies with over $800 billion in
assets have gone into bankruptcy. Many others cut back sharply on payrolls and
investment plans.
Needless to say, very little happy news comes out of such a process. There are real
human costs to these upheavals, involving dashed expectations and shattered dreams.
Stories of bankruptcy and scandal attract a great deal of media attention, as well they
should, for they are cautionary tales of what can go wrong if we are not careful in how
we run our businesses.
But these stories also tend to obscure another, more positive side of the story, and that
is the ultimate benefits of promptly fixing investment mistakes.
It is widely recognized that the genius of the American economy is the ability of the
private sector to identify and fund worthy new investment projects.
I would submit that it is equally valuable to be able to quickly identify and correct our
investment mistakes.
To do so, it is sometimes necessary that companies fail and that workers be displaced.
But it is an article of faith in our system that the ultimate health of our economy requires
that we pursue these remedies so that we may then move on to more productive uses
of capital and labor.
Our faith in this premise has allowed us to enjoy one of the highest standards of living
anywhere in the world.
We at the FDIC have a great deal of first-hand experience with this process, having
acted as trustee for the receiverships of over 1,500 failed institutions since 1989.
The interest that the FDIC takes in the prospects of the nonfinancial corporate sector
goes beyond a concern about credit quality at large banks that lend to large corporate
borrowers.
Yes, our mission is to promote financial stability, and that involves effective
management of credit risks on the part of insured banks and thrifts.