Sheila Bair's Power Play

The FDIC chairman already insures more than $340 billion in bank debt and is helping the Treasury sell up to $1 trillion of troubled assets. Now she wants to tame Wall Street by gaining the authority to wind down giant financial holding companies.

By Alison Vekshin
Bloomberg Markets, July 2009

Sheila Bair, chairman of the Federal Deposit Insurance Corp. and a lifelong Republican, boarded Air Force One for the first time in February. Neither President George H.W. Bush nor his son, President George W. Bush, had invited her on the world’s most famous jet in the five years she worked for them. It was a Democratic president, Barack Obama, who asked her to fly to Washington after the two had unveiled his administration’s foreclosure relief plan in Mesa, Arizona.

“Sheila, come on back. I want to talk to you,” Obama told Bair, who was seated in the plane’s conference room. He then escorted her into his airborne Oval Office for their first private meeting, where they discussed the government’s role in alleviating the worst financial crisis since the 1930s.

“It was great,” Bair says of her meeting with the president. “He’s got an agenda which we share. Banks are a means to an end. You stabilize the banks to support the economy. But you don’t stabilize the banks for the sake of stabilizing the banks.”

After being left out of big decisions by Bush administration officials, such as the push last year for the $700 billion bank bailout, Bair, 55, has become one of the most powerful policy makers in Washington. Driven by a combination of circumstances and her own candor, Bair has presided over the biggest expansion of the FDIC’s authority since its founding in 1933 to insure bank deposits.

‘Bites Like Jaws’

“She looks like Bambi and she bites like Jaws,” says Wade Henderson, president of the Washington-based Leadership Conference on Civil Rights, who has known her for 27 years. “There’s a quiet intensity about her. She’s idealistic in spite of her 30 years in Washington.”

Under Bair, the normally invisible agency was the prime mover behind Obama’s $75 billion program to curb foreclosures. Last year, the FDIC became the go-to agency to insure hundreds of billions in bank debt to boost liquidity, and it’s currently spearheading half of the initiative to encourage investors to buy up to $1 trillion in troubled assets.

The FDIC head isn’t done expanding her influence over Wall Street. An opponent of the “too-big-to-fail” policy for firms like Citigroup Inc., Bair is lobbying Congress to give the FDIC authority to wind down bank and thrift holding companies -- a move she says is necessary to protect taxpayers. And she wants lawmakers to include the agency in a systemic risk council to prevent future financial shocks.

Populist

As Bair builds her power, soaring bank failures are jeopardizing her agency’s deposit insurance fund, which had dwindled to $13 billion in the first quarter, the lowest amount since 1993 following the savings-and-loan crisis. She requested more funding from Congress, which on May 19 more than tripled the FDIC’s borrowing authority from the Treasury Department to $100 billion. Lawmakers also approved a temporary boost of the credit line to $500 billion.

A self-described “populist,” Bair has won allies in the Democratic Party, such as Representative Barney Frank of Massachusetts, in muscling the FDIC into prominence. She has also fought battles with the Independent Community Bankers of America, representing 5,000 banks, and the Bush administration.

In 2008, Bair says, her struggle with midlevel Treasury Department officials turned tense as they stonewalled her proposal to use federal funding to prevent foreclosures. And she tussled with Timothy Geithner, then the president of the Federal Reserve Bank of New York, over the request last year that the FDIC guarantee all debt issued by lenders -- a move she rejected because it would expose her agency to big losses.

Geithner’s Respect

“I’m from Kansas; I’m not from New York,” Bair says. “I’m a lot of things that are different. So maybe that does give me some more independence of thought and daring to not care who I offend.”

Following Obama’s election in November, Geithner tried to have her ousted for not being a team player, according to people familiar with the matter. Through a spokesman, Geithner declined to say whether he sought to remove Bair from office.

“I have great respect for her,” Geithner told Bloomberg TV on May 21. “She’s a strong advocate for her agency and a strong advocate for her points of view.”

In May, after the FDIC assisted the Federal Reserve in stress testing 19 lenders, Bair put their executives on notice. She said some of them could lose their jobs in the next few months after the companies submit capital-raising plans to the government, according to an interview with Bloomberg TV and a statement from the FDIC on May 15. Bair didn’t say that the government would oust the chief executive officers of the banks.

Click HERE to read the full version of this story

		Email this article Printer friendly format