Regulators and Bankers at Odds Over GSE Seizure

American Banker (09/11/08) P. 1; Blackwell, Rob; Flitter, Emily
While federal financial regulators do not expect any banks to fail as a result of the government seizure of Fannie Mae and Freddie Mac, many community bankers are concerned about banks and thrifts that have large holdings of GSE preferred shares. The takeover made these shares virtually worthless, and some banks could post losses equivalent to as much as a year's worth of earnings. "If actions taken by the conservator continue to impair the value of preferred stock of Fannie Mae, the community banking industry will have carried a significant portion of burden of the government's actions, even though community banks did not participate in subprime lending, the underlying cause of the problem," wrote Bankers' Bank Northeast President and CEO Peter Sposito in a letter to Senate Banking Committee Chairman Chris Dodd, D-Conn. Federal Deposit Insurance Corp. Chairman Sheila Bair, who insists the banks would have fared worse without the takeover, says regulators are collaborating with banks on capital restoration plans.