FDIC head: Bailout fund can handle stress test results

NEW YORK (AP) — The head of the Federal Deposit Insurance Corp. on Monday linked the results of recent “stress tests” on the nation’s 19 largest banks to the government’s belief that it won’t have to ask Congress for additional bailout funds in the immediate future.

FDIC Chairman Sheila Bair said she didn’t want to reveal the test results before they are made public but added, “I do believe the current resources of the Treasury will be sufficient. For now, we have the resources that we need.”

The banks received the test results last week and have until today to appeal any of the government’s findings. The government is expected to release the results May 4.

Before the government shared the results with banks Friday, Treasury Secretary Timothy Geithner last week told a congressional panel overseeing the federal bailouts that “the vast majority” of banks have more capital than they need.

There is about $109 billion remaining in the government’s $700 billion financial rescue fund, which has been used to buy preferred shares in banks to get them lending again, and to bail out American International Group Inc., General Motors Corp. and Chrysler LLC. The Treasury Department has said it also expects to get $25 billion in repayments from banks over the next year.

Bair also expanded on her calls for a new system of regulation that prevents institutions from taking on excessive risk and becoming so big their failure would endanger the financial system. She said the FDIC would be the ideal agency to become the “resolution authority” empowered to take over and resolve the risky institutions.

“The FDIC is up to the task, and whether alone or in conjunction with other agencies, the FDIC is central to the solution,” Bair said in her remarks to the Economic Club of New York. “Given our many years of experience resolving banks and closing them, we’re well suited to run a new resolution program.”

As the Obama administration and Congress work to fashion a new financial rule book to replace the “too big to fail” model used by the government in the financial crisis, various regulators have been staking claims.

Sen. Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, has suggested it could make sense for the FDIC to assume such resolution authority. Other influential lawmakers, such as Massachusetts Democrat Barney Frank, chairman of the House Financial Services Committee, have leaned toward having the Federal Reserve take on that role.

Bair also defended the Treasury Department’s $1 trillion plan to get toxic mortgage investments off of banks’ books, saying it’s the “appropriate structure to address troubled assets.”

Earlier this month, JPMorgan Chase & Co. said it wouldn’t participate in the program because it did not need to.

Bair said a bank could opt out of the broader bailout program only in consultation with the government. “Some banks have rosier views of their capital positions than what they actually are,” she said.

But she declined to weigh in on the recent controversy surrounding Bank of America Corp.’s acquisition of Merrill Lynch. In testimony released last week, Bank of America Chief Executive Kenneth Lewis told New York Attorney General Andrew Cuomo he believed former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to stay quiet about the deteriorating terms of the takeover, including massive fourth-quarter losses and hefty bonuses.

Spokesmen for the Fed and Paulson have denied pressuring Lewis to get the deal done and not to disclose his concerns about Merrill Lynch’s finances.