CHAIRMAN DONALD E. POWELL
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS TO
THE INDEPENDENT COMMUNITY BANKERS OF AMERICA
ANNUAL CONFERENCE
ORLANDO, FLORIDA
MARCH 5, 2003
FOR IMMEDIATE RELEASE Media Contact:
PR-19-2003 (03-05-03) Rosemary George (202) 898-6530
Thank you for inviting me here to speak today, I'm honored to be here with you in
Florida. Quite a welcome change from the record snowfalls and ice we've been getting
back in Washington, DC.
I want to talk to you today about the economy and what I see ahead for banks in the
area of corporate governance. Regarding the economy, we've heard a lot of conflicting
predictions about the future in recent months from the economists. I'm not an
economist, and I am not here to make predictions. Predictions are pretty difficult in an
economic climate like the one we have today.
On the other hand, I don't need to be a weatherman to be able to predict that the
weather in Amarillo will be hot this summer. I also know from prior experience with
business cycles that we still have a lot of challenges ahead of us.
We've been through a rough time over the past two years. The impact of the terrorist
attacks on September 11 shook our nation to its core. And the collapse of firms like
WorldCom and Enron - and the crisis of corporate governance that followed - has
contributed to a loss of investor confidence which continues to plague the stock market.
Now we have a new threat: the threat of war. These two factors have created a climate
of uncertainty and slowed our recovery from the recession that began in March 2001.
In fact, I believe that the most serious impediment to growth - the kind of growth that will
put the economy back on track - is this uncertainty itself.
Risk can be estimated and priced. Uncertainty cannot. As bankers, you know that very
well. In a climate of uncertainty, investors, consumers, and business executives tend to
postpone important transactions until the future appears more predictable. We saw that
back in 1991 at the successful conclusion of the Gulf War, when consumer and
business confidence jumped sharply.
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS TO
THE INDEPENDENT COMMUNITY BANKERS OF AMERICA
ANNUAL CONFERENCE
ORLANDO, FLORIDA
MARCH 5, 2003
FOR IMMEDIATE RELEASE Media Contact:
PR-19-2003 (03-05-03) Rosemary George (202) 898-6530
Thank you for inviting me here to speak today, I'm honored to be here with you in
Florida. Quite a welcome change from the record snowfalls and ice we've been getting
back in Washington, DC.
I want to talk to you today about the economy and what I see ahead for banks in the
area of corporate governance. Regarding the economy, we've heard a lot of conflicting
predictions about the future in recent months from the economists. I'm not an
economist, and I am not here to make predictions. Predictions are pretty difficult in an
economic climate like the one we have today.
On the other hand, I don't need to be a weatherman to be able to predict that the
weather in Amarillo will be hot this summer. I also know from prior experience with
business cycles that we still have a lot of challenges ahead of us.
We've been through a rough time over the past two years. The impact of the terrorist
attacks on September 11 shook our nation to its core. And the collapse of firms like
WorldCom and Enron - and the crisis of corporate governance that followed - has
contributed to a loss of investor confidence which continues to plague the stock market.
Now we have a new threat: the threat of war. These two factors have created a climate
of uncertainty and slowed our recovery from the recession that began in March 2001.
In fact, I believe that the most serious impediment to growth - the kind of growth that will
put the economy back on track - is this uncertainty itself.
Risk can be estimated and priced. Uncertainty cannot. As bankers, you know that very
well. In a climate of uncertainty, investors, consumers, and business executives tend to
postpone important transactions until the future appears more predictable. We saw that
back in 1991 at the successful conclusion of the Gulf War, when consumer and
business confidence jumped sharply.
Right now, prospects appear good for resolving some of these uncertainties during
2003, and I believe this will eventually lead to improved economic performance. Rules
recently introduced by the New York Stock Exchange, the NASDAQ, and the SEC will
help define the new corporate operating environment. And we appear to be moving
closer to a resolution on the war front. If these twin sources of uncertainty are resolved
this year, all indications are that there will be no lasting damage to the economy.
In fact, I am optimistic that we will come out of this stronger than before.
I am optimistic because one of the best lessons in recent memory came out of the
economy's experience of the late 1980s and early 1990s. And its worth revisiting that
time to draw comparisons between the corporate restructuring currently underway and
the restructuring of the banking and thrift industries that occurred during the time of the
last recession.
Between the late 80's and early 90's, the FDIC and the RTC resolved over 1,400 banks
and thrifts with approximately $550 billion in assets. In 1991, analysts were pessimistic
about the pace of the process and the effect of selling a high volume of distressed loans
and real estate into weak markets. Bankers were pessimistic too - I know that because I
was one of the pessimistic ones. The banking industry faced huge challenges during
those tumultuous years.
But to the surprise of many, both the banking industry and the U.S. economy rebounded
rather quickly from that restructuring process. In the early 1990s, net income in the
banking industry more than doubled and the U.S. economy began a record 10-year
expansion.
I remain convinced that one of our country's greatest strengths -- as opposed to many
economies in Europe and elsewhere in the world - can be found in our economy's
wonderful ability to restructure and reinvent itself, and to make these changes relatively
quickly. The ability to see clearly what must be done, and deal decisively with the
challenges.
That's what banking regulators and the financial services sector had to do a decade
ago. And the current restructuring in our corporate sector presents problems and
challenges just as great as those faced by the banking industry in the early 1990s. Over
the last several years, almost 900 publicly-traded companies with over $800 billion in
assets filed for Chapter 11 bankruptcy protection, including WorldCom and Enron - the
two largest bankruptcies in our history.
For a banker who lived through the 1990s, this has a familiar ring.
Yet, despite these difficulties, the good news for corporate America is that both the
excess capacity and debt overhang from the late-1990s boom are slowly being worked
out of the system. Businesses are making progress cutting costs and cleaning up their
balance sheets. I believe all of the pieces are falling into place for the recovery,
2003, and I believe this will eventually lead to improved economic performance. Rules
recently introduced by the New York Stock Exchange, the NASDAQ, and the SEC will
help define the new corporate operating environment. And we appear to be moving
closer to a resolution on the war front. If these twin sources of uncertainty are resolved
this year, all indications are that there will be no lasting damage to the economy.
In fact, I am optimistic that we will come out of this stronger than before.
I am optimistic because one of the best lessons in recent memory came out of the
economy's experience of the late 1980s and early 1990s. And its worth revisiting that
time to draw comparisons between the corporate restructuring currently underway and
the restructuring of the banking and thrift industries that occurred during the time of the
last recession.
Between the late 80's and early 90's, the FDIC and the RTC resolved over 1,400 banks
and thrifts with approximately $550 billion in assets. In 1991, analysts were pessimistic
about the pace of the process and the effect of selling a high volume of distressed loans
and real estate into weak markets. Bankers were pessimistic too - I know that because I
was one of the pessimistic ones. The banking industry faced huge challenges during
those tumultuous years.
But to the surprise of many, both the banking industry and the U.S. economy rebounded
rather quickly from that restructuring process. In the early 1990s, net income in the
banking industry more than doubled and the U.S. economy began a record 10-year
expansion.
I remain convinced that one of our country's greatest strengths -- as opposed to many
economies in Europe and elsewhere in the world - can be found in our economy's
wonderful ability to restructure and reinvent itself, and to make these changes relatively
quickly. The ability to see clearly what must be done, and deal decisively with the
challenges.
That's what banking regulators and the financial services sector had to do a decade
ago. And the current restructuring in our corporate sector presents problems and
challenges just as great as those faced by the banking industry in the early 1990s. Over
the last several years, almost 900 publicly-traded companies with over $800 billion in
assets filed for Chapter 11 bankruptcy protection, including WorldCom and Enron - the
two largest bankruptcies in our history.
For a banker who lived through the 1990s, this has a familiar ring.
Yet, despite these difficulties, the good news for corporate America is that both the
excess capacity and debt overhang from the late-1990s boom are slowly being worked
out of the system. Businesses are making progress cutting costs and cleaning up their
balance sheets. I believe all of the pieces are falling into place for the recovery,