Bill Taylor Has Become A Gadfly In His Own Right

When William Taylor was tapped to head the Federal Deposit Insurance Corp. last fall, one of his most important qualifications seemed to be that he wasn't L. William Seidman. By the time Seidman had stepped down as FDIC chairman in October, he had worn out his welcome at the White House with his dire--and all-too-accurate--predictions about the depth of the thrift industry's ills. In Taylor, who served for 15 years as a top Federal Reserve bank supervisor, Bush Administration officials appeared confident they were getting a respected bureaucrat who wouldn't make waves.

They were half right. The 53-year-old Taylor has lived up to his reputation as a tough regulator, but in his understated way, the FDIC chairman is taking stands that clash with the White House. While some Bush aides have been quick to declare that banks--like the economy--have turned the corner, Taylor, by contrast, has emerged as the Administration's prophet of gloom. "I'm not sure the problems have peaked by any means," he says. "I think you're going to have a continued high level of bank failures."

LOAN VOICE. Perhaps more worrisome for the White House, some of Taylor's initiatives run counter to Administration efforts to jawbone banks into pumping out new loans. Taylor, for instance, is pushing the FDIC board to approve a 22% hike next year in the premiums that banks pay into the ailing deposit insurance fund, which now shows a $7 billion deficit. But critics contend that Taylor's proposal might force banks to set aside funds this year and thus crimp their ability to make loans that could spur the economy--and Bush's reelection prospects. "I haven't seen him do a lot to endear himself to the Administration," deadpans Seidman, now a Washington consultant. "Before it's over, they may even yearn for me again."

Taylor's professional credentials are impeccable. He joined the Chicago Fed as a bank examiner straight out of college in 1961. Taylor is the only FDIC chief ever to have held that job. After a stint as head of lending for Chicago's small Upper Avenue Bank, Taylor rejoined the Fed in 1976. The son of a Scottish coal miner, Taylor is known for being blunt. But his style is more in keeping with the low-key culture at the Fed, where anonymity prevails.

In his new post, Taylor finds himself at center stage--and at times in conflict with the Administration. Unlike the White House, the FDIC chief is downright pessimistic about banks. While the lower interest rates have boosted industry profits this year, Taylor believes that many weaker banks haven't worked through their real estate problems. And he fears that as desperate developers of vacant new buildings lure tenants from older properties, it will send new ripples through banks' real estate portfolios. "I don't have any sense commercial real estate values have stabilized," he says.

`HE'S THE WRONG MAN.' That's one reason why Taylor wants a premium increase for deposit insurance over the Administration's strenuous objections. As more banks fail, Taylor expects the fund's deficit to widen sharply. Even if the proposed increase--from 23 cents to 28 cents for every $100 in deposits--is approved, the fund's deficit could hit $12.7 billion by 1993 (chart).

Recent regulatory changes may hasten the process, Taylor says. When Congress voted last November to lend $70 billion to bolster the insurance fund, lawmakers also gave the FDIC authority to deal earlier with teetering banks. Under new rules, regulators won't have to wait until a bank's entire net worth is gone before seizing it. By Taylor's count, the new guideline could double, to $76 billion, the assets that the FDIC will have to seize as banks go belly-up next year.

So far, the Administration has downplayed its differences with Taylor. Publicly, Treasury officials praise Taylor as a no-nonsense regulator. But some bankers are openly hostile. They contend that Taylor's bearish predictions are overblown and impede the industry's efforts to win regulatory relief. They also argue that Taylor symbolizes exactly what has gone wrong with Washington's oversight of the industry: Shell-shocked by the S&L bailout, policymakers are focusing exclusively on protecting taxpayers while ignoring the economic impact of their actions. "He's a professional knothole inspector," complains Bert Ely, an Alexandria (Va.) financial consultant whose clients include the Association of Bank Holding Companies. "He's the wrong man for the job."

And although Taylor differs with the Administration over key issues, some critics say the FDIC chairman isn't above politics. While the FDIC predicted that it would close 200 banks in 1992, Taylor so far has shuttered only 69. Congressional Budget Office Director Robert D. Reischauer wonders whether the Administration intends to spring a "December surprise" by delaying the seizure of troubled banks until after the election.

Taylor bristles at suggestions that he is being influenced by election-year politics. The banking industry's recent profit surge has bought a little time for some mortally wounded institutions, he says. What's more, Taylor insists that he has never felt any backroom pressure from Administration officials to go easy on banks. Taylor insists: "They have never given me any instructions other than `Go fix it. Don't make any mistakes.' "

Unfortunately for the Administration, Taylor's determination to fix the fund may become even more painful as banks and the economy continue limping. And in the end, Taylor, whose term expires next February, may wear out his welcome just as Seidman did. But at the FDIC these days, that may come with the job.

Before it's here, it's on the Bloomberg Terminal.