Banks in Trouble
In a recent interview with CNN en Espanol, Liliana Rojas-Suarez discussed some of the current problems facing the banking system in the US.
She explained that although large banks will not be allowed to fail (given the commitment of the FED and the US Treasury to bail out these institutions), medium-size and small banks are now facing significant solvency problems. Defaults on mortgage and other bank credits have continued to mount as depressed housing prices and increasing unemployment rates (projected to reach 10% at the end of the year) are having a severe impact on the capacity to pay of many bank borrowers. Indeed, there are now more tha 400 banks listed as "in trouble" by the FDIC. Since the FDIC is in charge of paying back depositors in case of bank insolvencies, the question is whether this institution might run out of money. Rojas-Suarez view is that, as in the case of large banks, the Government stands ready to provide funds to the FDIC. Indeed, the institution currently has a line of credit with the US Treasury. Looking forward, Rojas-Suarez projects a significant consolidation of the banking system, with many small bank institutions being absorved by larger, stronger ones. This development, she said is a common result of banks resolution processes in both industrial and developing countries.