Banking, by and large, is a bore for the media. Want to turn off readers and viewers? Just mention risk-adjusted capital ratios. Crisis, on the other hand, is hot stuff. Reporters and editors who were slow to catch on to the savings and loan collapse of the late 1980s and the real-estate crash of the early ’90s are determined not to miss the Next Big One. But recent stories, fed by headline-seeking “experts,” have often been more alarming than illuminating.
Boston Globe readers, for example, awoke Oct. 7 to the front-page headline UNINSURED DEPOSITS OF $1.2 BILLION IN PERIL. The story correctly pointed out that customers of banks that fail could lose deposits in excess of the FDIC’s $100,000 insurance limit. The Globe cited seven weak New England banks and the uninsured deposits in each. The Wall Street Journal followed suit: last week it listed uninsured deposits at 62 troubled institutions, totaling more than $1.6 billion.
Warning savers about the safety of their deposits is sensible. Trouble is, the numbers are flimsy. Banks don’t report uninsured deposits. The only data available concerns accounts of more than $100,000, which are the basis of the newspapers’ figures. Many of those big accounts, though, are not uninsured; a single large account owned by a pension plan, for example, carries $100,000 of FDIC insurance for each plan member. The total amount at risk nationwide is simply unknown. The Globe and the Journal claim that Eastland Savings Bank in Woonsocket, R.I., has $46 million in uninsured deposits. Eastland says the figure is “substantially inaccurate,” and consultant Warren Heller of Veribanc Inc., who provided data to both papers, has lowered his number to $5 million. Guaranty First Trust Co. of Waltham, Mass., says it had only $3 million in deposits unprotected by the FDIC on June 30, not the reported $35 million. Minor errors? At Guaranty, says president Charles McAlister, $10 million in deposits fled when the Globe piece appeared, almost all of it from fully insured passbook accounts. The Globe subsequently ran sharp staff critiques of its stories. The Journal told NEWSWEEK Friday that some of its figures were erroneous and had not been properly checked with the institutions named.
The Globe and the Journal are not alone. Check out the Los Angeles Times, which reported on Oct. 11: “Senior federal officials caution that at least half a dozen of the nation’s largest commercial banks are among those teetering on the edge of failure, although they decline to identify them publicly.‘We can run from this, but we can’t hide,’ cautioned Robert Reischauer, director of the Congressional Budget Office.” Who’s teetering? Don’t ask Reischauer. He says the comment referred to Congress’s failure to appropriate $43 billion to close failed S&Ls, and that he has no information as to whether large banks will fail. James Risen, who wrote the story, says the quote is accurate and in proper context.
And then there’s the thunderous response to “Banking on the Brink” by economists Roger Vaughan and Edward Hill, published Oct. 5 by The Washington Post Company, owner of NEWSWEEK. The book claims that nearly 40 percent of U.S. banking companies with $1.7 trillion in assets are weak, including 14 of the nation’s largest. Most banking experts consider the numbers wildly inflated, with the usually aloof FDIC going so far as to accuse the team of “sloppy computational methods, a lack of understanding of bank financial reports, and an unfamiliarity with such basic concepts as default and loss rates.” Nonetheless, Vaughan and Hill found a ready audience. “The costs to taxpayers of the bank closings will be staggering-as much as $100 billion to protect depositors’ savings,” reported Irving R. Levine of NBC television. Washington Post columnist Hobart Rowen, noting the government’s slowness in admitting to the S&L problem in 1988, was so impressed by the book-“The full and frightening story of the impending banking crisis,” he called it-that he listed 10 big banking companies that were purportedly insolvent. The Post issued a retraction the following day. Perot took it from there. “If you believe The Washington Post … it’ll be a $100 billion problem,” he said in last week’s presidential debate. “Now, if that’s true, just tell me now.”
And so the very real problem of weak banks–a problem that has diminished substantially over the past year–mushrooms into a “crisis.” Maybe that’s what it takes to get Washington to address the minutiae of misguided bank regulation. But it causes lots of needless worry on the way.
