Contorting bank regulators

February 17, 2010
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This isn’t a pleasant era to be a bank regulator. Pressures have grown enormous to avoid pushing troubled banks into liquidation, and several deals likely have been struck in Indiana to prevent collapses, says veteran bank observer John Reed.

Reed, who heads David A. Noyes & Co.’s investment banking group, says regulators are doing whatever they can to keep from taking over banks.

Regulators have never liked running banks. What’s changed since the 2008 financial crisis is that the regulators know they’re too thinly staffed to supervise many liquidations. They also know the FDIC is growing depleted.

As a result, Reed says, they’re allowing, and sometimes forcing, banks into things that would have been unusual before the crisis.

First Financial’s sudden takeover of Irwin Bank and Trust Co. is a high-profile example. And Reed has noticed several small banks’ assuming deposit liabilities and acquiring “certain assets” without detailing which assets were and were not acquired.

“You’ll never know in many cases exactly what happened,” he says.

Reed expects to see more contortions.

“We haven’t seen the crest of the wave with commercial real estate,” he says. “All bets are off if we have a double-dip recession.”

Reed emphasizes he isn’t predicting whether or not recession will return, though he says it’s a real possibility.

What’s your take on the banking crisis? How bad will it get before it gets better?

 

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