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Former FDIC Chair Sheila Bair on efforts to resolve the European debt crisis and why the U.S. government won’t bail out banks.
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We interrupt this recovery looks a little -- -- reality jobs are slowly coming back but do not assume banks necessarily are still in a world of hurt and some of the biggest -- exposed.
To a continent that could still their wealth collapse it's enough to make -- Reached for the Tom industry as a senator Tim Geithner rushing to Europe Monday for emergency meetings of leaders there to ward such -- -- alcohol.
A very anxious Sheila bear watching closely -- former head of the Federal Deposit Insurance Corp.
better known as the FDIC.
She joins us out of Washington is there are good to have you.
Thank you happy to be here you know normally when someone -- -- across the globe.
I I read.
You know anxiety.
But of course it might be just on the scheduled trip anyway but what do you read into that and what do you expect to see.
Well I think it's it is a tremendous worry things are not getting better there the political leadership is really struggling had to come to grips with this problem.
And look it could did bring not Downey and Terry European banking system which is is not good shape is very unlike -- says she'll let me an -- I I -- think it's likely I don't think it's likely because I think can Mario dragging it was signaling yesterday as well as a and it angle of Macau.
That says ECB's gonna step down in the German and the Germans are gonna step aside and let them do that.
Or were on becoming a you know a certain size answer I'm -- -- jumper and European access our bank and the respect yes have these institutions and on my Merkel of Germany us.
Do you think they'll do everything in it hard to avoid that but they tried that before the markets to get ahead of them how exposed are we if everything bust loose.
We really haven't tried -- European Central Bank has been fairly restrained and bond purchases and I thank you mr.
Dreyer who heads the ECB.
Is signaling he's gonna step going to be much more aggressive I don't think about what the banking system collapse they can't.
If they did it would have a profound ramification on the banking system here.
But the Dodd-Frank I do think -- heard your comments earlier about whether we're gonna bail out banks again here and that we are not gonna bail -- banks here who have been the stupidly managed.
And -- have bad assets on their balance sheets and should fail.
But let's -- let's say as a premier -- like -- -- America -- will start -- time even if they did stupid things.
I would we really just and let him go.
There is a process and not mentioning specific institution yes there is a process now to put them into an orderly resolution and yes they can work and yes that is for.
For the badly managed banks that is the process that would be used.
I do think that's important to understand it if there's a systemic event here for instance the European banking system going down and had been having a shock on all the institutions say the United States including the better managed ones.
There is the ability under Dodd-Frank for the Fed and the FDIC to step in with systemic support.
For the -- -- institutions.
You know I don't -- it's gonna happen but that those tools are there.
Understood -- I don't want you to -- secrets when you root -- or Washington and handing -- to sit on -- but help -- -- do you do you worry your cohorts are those who you reported watch the stock market in other words if the banks and the stocks are stabilizing the market.
While that's not necessarily.
Their capital it is in a way that capital and their confidence and -- -- stabilizing or pick up in price.
Did that.
Ease whatever.
Thanks to -- and.
I.
Know that the stock price really is is unrelated to the regulator determination about whether bank -- -- the kind of two separate issues.
Where the stock price does come -- to -- is that we find especially during the crisis depositors would get scared and worried when they solve their -- stock price going down and so we did see a correlation between deposit withdrawals.
Especially uninsured deposit withdrawals.
And stock prices going down.
But it's not it's not to ensure we look at it we look at a lot of market indicators that it's really not related to their regulatory determination about whether bank insolvent or not.
Well the reason why and that's it is -- remember distinctly covering the the meltdown in the fall of 08.
And right prior to the details on how burning these institutions were sloppy their books were out just on prepared they were for -- hitting the -- There's stocks were cascade.
And this now of course that these results on props -- grant -- But.
If we can avoid debt is that a long way toward avoiding a repeat in other words if the stocks -- stable and investors here there everywhere worldwide.
Are competent.
Or expressing their competence of the financial system by the way of not getting out of financial stocks.
Is that something.
That's an important signal.
It is this is -- of investor confidence of that that the market -- institution is solvent or perhaps a good investment.
If their prices going up so sure from a confidence perspective -- stock prices to providing a powerful symbol.
Zero in debt under -- that again and are listed as every which way over -- if you designate crisis the FDA.
I don't.
Think.
I think we have much better tools now under Dodd-Frank and I Dodd -- not perfect but we -- government has much better tools to do with the crisis should another one occur here.
Then we did in 2008 we have better information to it's not as good as it should be.
The resolution planning process is not complete yet and that was a high priority for me to move that along.
When I was at the FDIC that there are resolution plans internally that have been developed already the FDIC for all the major institutions.
And the information is much better.
So we can we do have much better tools now it would not be a pleasant event.
And is certainly have bad impact on the economy again.
That we do if we have to go through again that they're better tools.
I think bank balance sheets are stronger now as well they've worked off a lot of their bad loans and so they they have more capital and more stable funding now have more so than they did in 2000.
Not content bank -- or whatever.
-- thank you very much of a good you can.
