By Kevin
Drawbaugh
WASHINGTON (Reuters) - So many U.S. banks are
failing that three government bank watchdogs want
the law changed to force a review only when a bank
failure costs the federal insurance fund $300
million or more.
The inspectors general, or IGs, of the U.S.
Treasury Department, the Federal Reserve and the
Federal Deposit Insurance Corp., citing a heavy
workload of "material loss reviews" of
failed banks, want Congress to change the law that
triggers a review, according to a letter obtained by
Reuters on Monday.
Currently a review must be done if a federally
supervised bank's failure costs the federal Deposit
Insurance Fund more than $25 million, the letter
said.
If the workload is not reduced, the watchdogs'
oversight of other, urgent government programs to
stabilize the financial system and revive the
economy could suffer, said the letter, which was
sent to Representative Barney Frank, chairman of the
House Financial Services Committee.
The request is expected to be discussed on
Tuesday at a hearing before the oversight
subcommittee of the U.S. House of Representatives
Financial Services Committee.
In the first four months of 2009, 32 U.S. banks
failed, compared with 25 in all of 2008, and just
three in 2007. There were no bank failures in 2006
and 2005.
On Friday, in the biggest bank failure of the
year so far, regulators shut down Silverton Bank, in
Atlanta, Georgia, at a cost to the FDIC's bank
deposit insurance fund of $1.3 billion.
In a material loss review, an inspector general
explores why a failed bank's problems resulted in a
hit to the federal bank insurance fund, and
recommends how to prevent such a loss in the future.
"We are writing to request that the Congress
consider increasing the threshold" to reflect
the increased size and number of bank failures, the
watchdogs wrote in the letter.
If the present threshold remains unchanged, the
inspectors general said they will be less able to
"oversee many of the new and significant
programs and initiatives that the federal banking
agencies are undertaking."
The inspectors general recommended raising the
threshold for a material loss review to between $300
million and $500 million.
Scheduled to testify at the Tuesday hearing are
Treasury Inspector General Eric Thorson, the Fed's
IG Elizabeth Coleman and the FDIC's IG Jon Rymer.
(Reporting by Kevin Drawbaugh; Editing by Jan
Paschal)
