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Government Bailouts, Poor Growth Fuel Concerns Over Banking Sector

Troubling economic reports and bleak forecasts from the nation's economic policymakers have fueled new concerns over the health of the economy and the stability of the nation's banks. Banking experts offer insight.

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    The collapse of California-based IndyMac Bank on Friday was one of the largest bank failures in U.S. history. Now, concerns are growing about the financial stability of other banks.

    For some perspective on what's going on, we are joined by independent banking consultant Bert Ely. And William Isaac, he served as chairman of the Federal Deposit Insurance Corporation, or FDIC, from 1978 until 1985. He's now chairman of the Secura Group, a financial institutions consulting firm.

    William Isaac, to you first. President Bush, we just heard him say that people should just take a deep breath. Just how much anxiety is there right now out there about commercial banks?

    WILLIAM ISAAC, Secura Group of LECG: Well, I think there is a fair amount of anxiety out there. People see things like Fannie and Freddie having to be beefed up a little bit by government action, they see the Bear Stearns and the investment banking firms generally coming in to the government for help, and then they see things like IndyMac.

    I understand why people are nervous. But I think I would agree with President Bush's sentiments, that it's time for us to take a deep breath. We've been through worse before. And we'll get through this just fine.


    Bert Ely, how much nervousness do you sense out there?

    BERT ELY, Ely & Company, Inc.: Well, I think there is nervousness. The IndyMac failure and the run on IndyMac has certainly fed into that.

    But, again, I would agree with Bill Isaac that there is excessive anxiety. The banking industry overall is in very good shape. We've had a number of years of very few failures. We will see a pickup in failures over the next couple of years, but that's to be expected in the type of credit correction we're going through right now.

    But this is not a reason for people to suddenly be very worried about the soundness of the banking industry.

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