FDIC’s Suzy Gardner on Bank Failures

The FDIC has been hit with a tsunami of bank failures, and the culprit of many traces directly to bad real estate loans. The ""Congressional Oversight Panel released estimates"":http://dsnews.comarticles/tarp-watchdog-says-small-banks-cre-losses-could-hit-300-billion-2010-02-12 back in February that put losses from defaults on commercial real estate loans over the next few years as high as $300 billion, threatening to topple nearly 3,000 community banks nationwide.

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At ""The Five Star Institute's"":http://www.fivestarinstitute.com ""Commercial Default 360"":http://www.commercialdefault360.com event in Dallas Tuesday, Beverlea S. ""Suzy"" Gardner, who has been with the FDIC for more than 24 years and is a senior examination specialist in its policy and program development section in Washington, D.C., addressed this very issue.

In 2007, the FDIC stepped in as receiver on just three bank failures, and in 2008, 25 insured financial institutions went under. By 2009, the number of bank collapses skyrocketed to 140. Three months into 2010, and 41 banks have folded â€" a pace that's well on the way to surpass last year's already-elevated number, especially considering the FDIC has placed 702 institutional lenders on its problem watch list.

""I fully expect my banks to recognize their problems, and I fully expect them to recognize their losses,"" Gardner told attendees at Commercial Default 360.

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""And yeah, some of those banks will fail…but those that survive will ultimately be stronger going forward,"" Gardner said. ""I want to see the banks get paid. Trust me, it's a lot cheaper than a failure.""

The catch phrase ""too big to fail"" has become mainstream lingo since the nation's economic meltdown took hold. Many of the nation's largest banks fit this bill, as evidenced by the massive bailouts the government deemed was necessary to keep the entire financial system from crashing. But it's a phrase that now carries a stigma and lawmakers are dead-set on erasing it from our vocabulary.

If Congress institutes new rules for eradicating too big to fail, Gardner says, ""I hope they give the FDIC the tools we need to successfully unwind and resolve"" the institutions. ""We're actually pretty good at it,"" she said.

Since 2006, Gardner has covered a wide variety of policy issues for the FDIC, including subprime and nontraditional mortgages, real estate lending standards, appraisals, residential modifications, and commercial real estate.

Through her work with other financial regulatory agencies, Gardner drafted interagency guidance on nontraditional mortgage loans in October 2006, but by this time the industry was already knee-deep in its subprime mess and the aftershocks were inevitable.

""We tried to act in a fairly reasonable timeframe,"" Gardner said. But, she added, ""It takes a while to get five agencies to come to a consensus. I wish it had been earlier, I might have been able to save more people's homes, more people's livelihoods, and more of their savings.""

In 2007, Gardner drafted additional guidance on subprime mortgage lending and loan modifications. She's also responsible for the interagency federal guidelines on appraisals and evaluations for real estate loans, and most recently guidance for prudent commercial real estate loan workouts issued in 2009.