Bair: Reform Critics 'Badly Misinformed'

Federal Deposit Insurance Corp. Chairman Sheila Bair said misinformation about the regulatory reform legislation may hold up the bill.

Speaking Monday in Washington to a conference of the Council of Institutional Investors, Bair also reiterated her agency's hopes to tie a bank's compensation structure to its deposit insurance rate.

The FDIC has recently stepped up its support for Congress to authorize the agency to resolve systemically important companies, including nonbanks, similar to how it cleans up banks. It has also challenged criticism that such power would lead to more bailouts and that bankruptcy is a better option.

"The FDIC resolution process for insured banks has proven over time to be an effective alternative mechanism that provides continuity of credit functions while liquidating the operations of a failing firm," Bair said.

She told the audience that some of the opposition's arguments are inaccurate and have muddied the debate.

"We have recently seen some badly misinformed criticisms of the legislative reforms that appear to have no other purpose than to obfuscate the issues and delay enactment," she said.

Bair said the agency would support changes to the bill to further ensure that a future resolution regime would not lead to bailouts. "We support any constructive improvements to the bills which will reinforce market discipline and preclude future bailouts," she said.

Bair also insisted the agency should be able to factor risky compensation schemes into how much a bank pays for deposit insurance. An advance notice of proposed rulemaking in January asked for comment on how the FDIC could do this. (The agency's board will meet today to consider a premium proposal, but details of the meeting are unclear.)

"The FDIC operates under a statutory mandate to establish an assessment system that considers all relevant factors that may drive the risk of loss to the insurance fund," she said. "To the extent that compensation structures shape the incentives of bank management, we must consider this factor in our premium system."

For reprint and licensing requests for this article, click here.
Practice management Compliance Law and regulation
MORE FROM FINANCIAL PLANNING