Inside the FDIC

Chapter 9

Leadership Matters

During the late 1990s and the early 2000s, interest rates were low, the economy was strong, and the banking industry was earning record profits. Most people acted like the good times would never end. Federal Reserve Chairman Alan Greenspan talked about how productivity gains were creating strong economic growth without inflation.

Amid this climate of confidence, the FDIC was slowly but steadily rebuilding. The downsizing that had consumed the agency for many years was mostly complete. A number of new initiatives were launched to improve management within the agency, and a new chairman, Don Powell, pressed the agency to become more assertive, recognizing that its inward focus had been a handicap in debates over financial regulation.

With this mandate, the FDIC reengaged with external constituencies. We also placed renewed emphasis on identifying and analyzing issues that posed a potential threat to the stability of the financial sector. As a result, the agency identified and spoke publicly about the shortcomings inherent in the Basel II capital standards, began preparing for how to handle the failure of a large bank (which was viewed as unlikely at that time), and pinpointed the risks in the housing market as subprime mortgages proliferated. While the FDIC's warnings mostly fell on deaf ears, our work nonetheless signaled that the agency was prepared to once again be a leader in financial stability and financial regulation.

In January 2001, Bill ...