As the head of the Federal Deposit Insurance Corporation, or the FDIC, Sheila Bair plays a powerful role in Washington. Appointed in 2006 by President Bush, Bair is an attorney who is at the epicenter of the US banking crisis.
Bair grew up in Kansas where she received her undergraduate degree as well as her law degree from the University of Kansas. Shortly after graduation, Bair took a staff position with Senator Bob Dole, who served as Senate Majority Leader. Rising to become the Research Directory and Counsel to the Senator, Bair gained prominence in Republican policy circles.
As a result, Bair earned an appointment as a Commissioner on the important Commodity Futures Trading Commission (CFTC) in 1991. The CFTC is independent regulatory agency which oversees future contracts on stocks, commodities, options and securities generally – recently Security and Exchange Commission Chairman Christopher Cox came out in support of combining the two agencies (see Reuters.)
Bair’s work with the group further puts her front and center in today’s financial crisis.
After rising to become Acting Chair of the CFTC, Bair earned an appointment as Vice President for Government Relations at the New York Stock Exchange (NYSE). In this role, Bair served as a lobbyist for the Stock Exchange, which has since become a publicly traded company (now known as NYSE Euronext after its merger with a European rival, (see The BBC)
Acting as an important voice in Washington, Bair helped to win deregulation for the Exchange which allowed it to pursue more aggressive, profit-making ventures including global mergers and an expansion of electronic trading. During her tenure, the Exchange first topped 10,000 during the boom era, and began its transition to electronic trading with decimal pricing and nearly instantaneous trade clearing.
Bair then moved back a governmental role, in the revolving door that is Washington, serving as Assistant Secretary for Financial Institutions at the Department of the Treasury. Nominated for the role by President Bush, Bair served in the role for a year and then moved on to an academic appointment as a Professor of Financial Policy at the University of Massachusetts Amherst Business School. Bair continued to teach and research up until her appointment to head the FDIC and serve on its Board of Directors in June 2006.
As the financial crisis has intensified, Bair finds herself as a central figure in insuring banking deposits, as well as working with the Treasury Secretary to help ensure recapitalization of failed banks.
In particular, Bair helped oversee several recent banking acquisitions including Wachovia and Washington Mutual by larger rivals, as well as working to shore up the finances of banks such as Indy Mac, which have gone into government receivership.
Under Bair’s proactive loan workout leadership, by the end of August, more than 4,000 modification proposals had been mailed to IndyMac borrowers. Through today, IndyMac has mailed more than 7,400 modification proposals to borrowers and has called many thousands more in continuing efforts to help avoid unnecessary foreclosures.
Bair became the center of criticism for supporting Wells Fargo’s increased offer for Wachovia Bank even after the Treasury Secretary helped engineer an earlier commitment from Citigroup to acquire the bank.
Bair believes that the government could and should establish standards for loan modifications and provide guarantees for loans meeting those standards. By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.
Sheila Bair recently who was recently featured on the cover of the Wall Street Journal criticizing the federal government’s plan for failing to address homeowners at risk of foreclosure.
As head of the FDIC, Bair is likely to continue to play an important regulatory role in the coming months, especially now that the government has increased banking account guarantees to a maximum of $250,000 as well as providing short term guarantees on certain business accounts (see Bloomberg.)
Bair Warnings to Washington:
We are going on more than a year of warnings from the FDIC to step up pressure on loan modification efforts by servicers and now they are warning of more bank failures to come. Today in the New York Times, it was reported that the FDIC may need to borrow money themselves to insure the potential of trillions of dollars in losses for US banking customers.
October 1, 2007 – FDIC Chairman Wants Lenders to Fix These Loans - Federal Deposit Insurance Corp. Chairman Sheila Bair called for payments on most subprime mortgages to be fixed at current levels.
Lenders should extend “teaser” rates on all subprime adjustable-rate mortgages if the borrowers haven’t missed any payments and they live in the homes, Bair said today in New York. Modifying loans on a case-by-case basis and fixing rates for limited periods won’t avert enough foreclosures, she said.
November 9, 2007- Adopt a Wholesale Approach to Loan Modifications or We Will Make You - Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said “There was a gathering of political momentum for a more radical approach than the investment and home loans industries had so far countenanced.”
December 6, 2007 – Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Accelerating Loan Modifications - Critics of the proposal to restructure loans to the starter rate as described above argue that such an approach is untested and cannot be implemented on a broad basis. However, the FDIC is aware of servicers that have already begun to use a similar approach with borrowers. Those servicers are reporting that the approach is feasible and significantly reduces the cost of restructuring and its complexity.
Some loan servicers and investors have said that the approach cannot be applied consistent with PSAs because the duty to maximize NPV requires servicers to review loan by loan to set a new payment between the starter and reset rate. As I will explain below, this argument fails to consider that a loan-by-loan approach, given the current and anticipated rate of resets, will prevent maximization of NPV for the pool as a whole due to inherently limited servicer resources.
February 1, 2008 – FDIC: Subprime Modifications ‘Lagging’ - The pace of loan modifications on adjustable subprime mortgages is lagging, which could prompt regulatory action on the mortgage industry, U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair warned Thursday.
“Unfortunately, at this point, the available information seems to show that foreclosures continue at an unacceptably high level while true loan modifications are lagging,” Bair said in prepared testimony to the Senate Banking. “It is important that servicers demonstrate and document real progress soon or they invite regulatory and legislative action to supplement the industry’s actions.”
April 8, 2008 FDIC Chief Calls for a Housing Rescue – Q. Why does the foreclosure problem warrant government intervention? Sheila Bair A.- I am increasingly concerned about the foreclosure rate and the potential for a downward spiral, where we have too much inventory, additional foreclosures adding to inventory, which forces home prices down, meaning fewer people can refinance—leading to more foreclosures and more downward pressure on home prices. If this downward spiral takes hold, there could be much broader ramifications for the economy as a whole. So I think we need to come to grips with the need for government intervention. It’s not politically popular. We just need to be honest with people that we have a significant problem here and that additional measures are going to have to be taken. And yes, it may cost money.
August 27, 2008 – Agency’s Head Says Banking’s Crisis to Worsen - More than a year after the credit crisis first flared, Ms. Bair, the chairwoman of the Federal Deposit Insurance Corporation, warned on Tuesday that the outlook for the ailing banking industry was bad — and getting worse.
The swelling tide of toxic home loans is proving to be even more worrisome than initially feared, Ms. Bair said. She is struggling to clean up the mess and forestall home foreclosures with a plan to ease loan terms for hard-pressed homeowners.
“It is going to be slog to work though this, but there is no easy way to do it,” Ms. Bair said about her plan during an interview in her office here. “We haven’t seen the trough of the credit cycle yet.”