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FDIC plans for a surge in failures of banks

The federal regulator will hire 140 workers for its failure unit. The last time the agency was hit hard, 502 banks failed.

WASHINGTON - Federal bank regulators plan to increase staffing 60 percent in coming months to handle an anticipated surge in troubled financial institutions.

The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 workers in the division that handles bank failures, John Bovenzi, the agency's chief operating officer, said yesterday.

"We want to make sure that we're prepared," Bovenzi said, adding that most of the hires would be temporary and based in Dallas.

There have been five bank failures since February 2007, following an uneventful stretch that lasted more than two years. The last time the agency was hit hard with failures was during the 1990-91 recession, when 502 banks failed in three years.

Analysts expect casualties to rise, but do not believe they will reach levels seen in the early 1990s.

Gerard Cassidy, managing director of bank-equity research at RBC Capital Markets Corp., projects 150 bank failures over the next three years, with the highest concentration coming from states such as California and Florida, where an overheated real estate market is in a fast freeze.

To cushion against losses from bad loans, banks likely will raise additional capital and cut dividends this year, said Tony Davis, a senior bank analyst with Stifel Nicolaus & Co. Inc. However, he said, "we're not looking at a massive number of bank failures."

The FDIC provides insurance for deposits up to $100,000. While depositors typically have quick access to their bank accounts on the next business day after a bank closure, winding down a failed bank's operations can take years. That process can include selling off real estate, handling investments, and dealing with lawsuits.

There are 76 banks on the FDIC's "problem institutions" list - which would equate to about 10 expected bank failures this year, though FDIC officials declined to make projections. Historically, about six banks fail per year on average, FDIC officials said.

Since 1981, total failures per year averaged 13 percent of the number of institutions that started the year on the agency's list of banks with weak financial conditions.