restructured rewarding value rather than the number of services provided. and another question which is whether beneficiaries should pay more in co-payments or deductibles. . >> people who think of raising

revenues as a joint project and focus on the personal tax code or the corporate tax code and raises questions on whether we should raise the taxes or income. in 1986, a little before it can to washington, there was a substantial effort to broaden the tax base and bring down the rates. that effort was by design, essentially revenue-neutral. it could be designed differently, as some people think it should be. there are discussions of new ways of raising revenues. people talk about a value added tax. people talk about environmental taxes, like a tax on carbon emissions or an auction of copper -- car and allowances. -- carbon allowances that brings

me to the bottom line. i think this is a good summary of budget challenges that we face today. as you know, is important for everyone to know, the country faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older americans and the tax revenue that people are willing to send to the government to fund the services. the fundamental disconnect will have to be addressed in some way if the federal budget is in place on an unsustainable course. thank you, i will stop there. [applause] >> doug has graciously agreed to answer questions. we have a microphone in the middle of the floor. if you come down and state your name and where you come from, he

is open to questions. you have given us a great foundation, highlighting the challenges we face. we have had to think in different ways about a lot of programs and responsive. i was wondering if you could address some of the more challenging aspects that we face, some challenges we face and how you have thought of those problems. >> there are many people in romom. i have been at cbo for 10 months now. it has been an exciting 10 months. [laughter] there are a few broad challenges. one issue we face is that policy makers are considering policies that are outside of recent experience in their scope and the problems they are tackling.

as work on health care reform, climate policy, financial market intervention, we are trying to analyze policies that we do not have historical references for. the easiest thing for us to analyze at the cbo would be a policy change of the sort that has been tried in the past the best would be a policy that has come back and forth over the past several years and we can observe the change that takes place. it is difficult to decide what an overhaul of the health-care system would be a cap on health care commission's -- a cap on carbon emissions. we look at the novelty and ambition of the policies. the second issue i would highlight is that we are in

macroeconomic conditions that we are not familiar with. if one thinks about the effect of a stimulus package or a financial intervention package, that happens against the backdrop of economic conditions. the size of the stimulus package and the size of the financial intervention is on president -- is unprecedented but so is the size of the stimulus. the pack -- the historical parallels are difficult international context and are more difficult for us to get a handle on. a third issue i would highlight that is challenging is on the financial side. this is how the government budget account for does not account for financial risk. the budget is mostly a cash flow accounting system. for certain credit programs that were established 20 years ago, a

system for trying to account for the risk of default on future loans does not account for the more general market risk of a sort that we have been forced to confront before i arrived tarp and fannie mae and freddie mac. we look at how to take a budget on a cash flow basis and incorporate the effects of financial risk that the government is taking on in a way that it has not done before. that is a challenge we face. >> it is a very astute and pithy description of the problem.

if you show this paragraph to many people outside the beltway, they would say that you could make up the difference by going up -- going after waste, fraud, and abuse and the government. members of congress often introduced this as amendments in order to make proposals of revenue-neutral. could you describe ihow the cbo looks at the problem, how big is it, what kind of methods you go -- you used to go after waste, fraud, and abuse? >> it depends on the context. a very important point to understand, those three words, waste, fraud, and abuse, are used as a group. they mean quite different things. let me use one example from medicare.

there are numbers about the amount of medicare spending in one year. it does not follow the rules for payment in medicare part c when they do what it, they find some block of money that does not follow the rule. maybe that is abuse. i don't know. when one looks more closely at that, a significant amount of misguided payments are misguided because the paperwork was not filled out write like a social security number was not filled out correctly for the patient or some other mistake was made but if that mistake had been corrected, the payment would still have been appropriate. it is a violation of the program's rules but it is not what most people would probably think of as a true abuse or waste. it certainly is not fraud. i'm not a lawyer but fraud has a particular legal definition. when we look at proposals to ferret out fraud in medicare,

the amount of money at stake, according to most estimates, is much smaller than the number that people hear about in terms of these payments that do not follow the rules. we try to look at the best guess people have as to how much fraud is going on. there are estimates that we use and we try to look at the tools that will be given to investigators or prosecutors to try to reduce debt fraud. we try to make an estimate of those affected are the answers tend to be discouraged in small. the total amount that is fraud is much smaller than the numbers you sometimes hear. secondly, it is hard to stop all of that. it is not that we have been trying until now to encourage waste, fraud, and abuse and have suddenly decided that we need to stop it. people working very hard to discourage it. it turns out there is a cat and

mouse game with lawbreakers. is not easy to stop all the bad things from happening. you have to think of what you mean by waste. there are pure inefficiencies. if the government is contract badly or running a system and a bad way, there are ways to check that. they don't like certain programs and people do like those programs and it has to be a political judgment as to what we spend our money on. but it is not waste in a simple, pure sense of something we could live without. >> i am with george washington university -- when i heard about

the cbo baseline for ketcham when we had impressive economic growth 10 years ago, we thought that full economic growth could reach lower rates and 4% unemployment was feasible and maybe that was given up in the early 1970's. with the economic crisis we have, have we had to give up on that goal or that sense that we could have a good level of employment at 3 or 4%. is that possibility gone given what we know about our economy now? >> economists agree that the sustainable level of unemployment is not a natural constant like pi or the speed of light. it is something that response to policies and people's behavior. we have thought for some time that that natural rate or the

non-accelerating rate of unemployment will move around. it is difficult to know where it is at any point in time. the general view is that when push -- that certain sorts of changes in the economy and changes in policy can raise or lower it. there is substantial concern, i think, among experts, we had a meeting of economic advisers a few weeks ago, and one topic we discussed was what those experts thought would be possible in terms of bringing the unemployment rate down and how far down with it, and there was concern in that group and other places that this very deep recession has accelerated structural shifts in the economy. in a way that has put people out of work without -- who would not be able to find jobs that match their skills going forward.

i think this interacts with problems in the housing market. research suggests that part of the way in which labour markets come back over time which pushes the unemployment rate back down is that people move from areas they live and where jobs have been lost to areas where jobs are being created. the sharp drop in house prices and the fact that so many americans owe more on their homes than their homes are worth is slowing that migration it will be harder for people even of new jobs are created in some other states to make that move. whether these effects are permanent is less clear to me. there is reason to believe that they will be lasting for a while. if you lose your job in some industry, in some state, the fact that the economy will ultimately create jobs in a different industry in a different states is not going to get that person a job very quickly.

it will not get them a job as quickly as they would have hoped. is a real concern. i cannot put a number and it's a fact. -- a company number and its effect. -- i cannot put a number on its effect. some places will offer suffer harm in a way that macro economic picture may not reflect strongly that policy can address but also have to be a policy focus on those people beyond the macroeconomic policy in terms of overall demand on the economy. i am from -- >> i am from the government accountability office.

what about the term "non- partisan?" when you guys have numbers you are running, people say you're making assumptions based on the numbers they have been given. you said earlier that you make recommendations. as a taxpayer, i am often frustrated. you guys have known this for a long time. if there are numbers in there that you know from your experience that are unrealistic, as a taxpayer i almost feel like i am being given a disingenuous story. give me a real number. from your experience, tell me how accurate that is up front. if i want to hold a senator or a

congressperson accountable for a number. do you find that frustrating that you cannot do this up front or do you go behind closed doors and pick a number -- [laughter] you know that is not right. >> health care is the example. [laughter] first of all, let me be clear -- i do not do anything different behind closed doors that i do out here. i make a recommendation behind closed doors, we do not spin our numbers any differently. when i was interviewed for my job, i was interviewed simultaneously by democrats and republicans publicans leading the house finance committee. that was designed explicitly as a test. we are an organization that speaks the same thing to everybody all the time. when there are estimating assumptions, we are in -- we're

under no particular requirements there. there are some restrictions. on health care -- we released cost estimates of the legislation that passed the house. that was introduced in the senate for those cost estimates say that we think those pieces of legislation would reduce budget deficits by around $100 billion each of the next decade and with each slightly reduce deficits beyond that in the second decade. i have heard four flavors of criticism of the conclusion. one flavor is that we estimate of the policy wrong. for example, some people say more employers would stop providing health care to their employees. people would end up in the exchanges and we would see federal subsidies. my answer to that is that this is a very uncertain business

we're engaged in. everything we write and every time i talk, we try to hard to put our estimates in the middle of the distribution of possible outcomes. we could be too low or too high. in our professional, non- partisan and objective judgment, we balance this risk. a second flavor of criticism is that congress may change block. in particular, much of the savings over time in health care come from a reduction in the growth rate of payments to providers in medicare. in a way that will squeeze them overtime and lead to greater inefficiencies. it will put people in unbearable barn where they cannot cover their costs. congress may change allotted to is true that we are required and need to be required to estimate

the effects of a law as it is written. it is not our job to guess what congress might do. in this particular case, we did want to emphasize the importance for estimates of the current law remaining in place. if you look at our cost estimates, both these health bills have discussions in the back about the importance of leaving those provisions in place and we talk about the experience with a doctor payments in medicare, the sustainable growth rate mechanism or sgr. a decade ago there was an agreement to ratchet down doctor payments but congress has changed that law many tons and is considering changing again. we raised that as an example of the difficulty of sticking with those sorts of payment reductions. we talked about how, over the past 20 years, medicare

spending per beneficiary just for inflation, has grown about 4% per year. under the both of these bills, medicare spending per beneficiary would rise about 2%. we have been very clear publicly about how sharp the changes in policy that is embodied in these laws. it is not our place to offer a specific judgment about what congress might do in the future. our job illustrates the importance of those issues. a third letter of concern i have heard is that even though law is carried out as written, some of the changes that are being made in policy to pay for the new health care entitlements would be made otherwise in the face of the looming budget deficit. some people have said that what we did a decade ago with a

budget deficit was to reduce medicare payments and to raise taxes and hire new people. maybe those changes are what we would have used again in three- five years. they have been taken off the table for deficit reduction. i think that is a legitimate issue to grace. again, it is a speculation about what congress would have done under other circumstances we find budget and economic projections are not. we don't do political projections. [laughter] that is a concern but it is not something we can speak to. the fourth labor of this concern i have heard is not so much with in bill stuff that is wrong, it is the more profound changes on how we organize our healthcare system. these are changes that are not being made. it is more a lost opportunity of what in the bill.

what we do for that, correctly, is to talk about options for changes. it is not our place to say what is right and wrong because there are an awful lot of value judgment in addition to professional analytic judgments that would go into that. we continue to talk about options that could be used. i have been asked a number of times by different members at public forums what else might be done in health reform. i talk about some of the options we laid out before that have not been taken up in the bill. in all those ways, we are doing all we can do at cbo. i do not feel -- to is our job to follow the law as written and give congress option the ground that. i don't think there is an alternative and i don't feel bad about that. i think that is the appropriate structure. the most important thing we can

do is to continually talk about alternatives and illustrate different alternatives and that the size what is crucial to our assessment -- and emphasize what is crucial to our estimate. this is so they can make their decisions. >> i appreciate your candor. >> other questions? >> i am from the diego. i have a question related to -- i am from the government accountability office. i have a question about rest produce at risk back doors are a challenge -- you said risk factors are a challenge. when you report, have you thought of also reporting on but

baryons or standard deviation and the features and distribution of the estimate that made that estimate either less reliable or more reliable? do you have ways of including interaction between progress? one example would be the housing tax credit that is likely to lead to a reduction in the reserves of the fha because of the requirement that homeowners will have to put up less equity

for the houses they bought. how will that affect the risk that the federal government is exposed to and will increase? >> in answer to the first question about trying to describe the variations that exist -- for cost estimates, the process, the budget and legislative process require estimates. we provide those. when we move beyond things that are cost estimates, we tried to offer ranges as a way of expressing on certain taper it when we reported the effects of the stimulus package on the economy, we have ranges of gdp, unemployment, and so on. with the health care analysis, the cost estimates, we have used. estimat point estimate.

in the bill put forward by the house republicans, we talked about the effect of that bill by the health industry and we talked about ranges. when it is not something that can be added up to fit a in a budget resolution, we try to provide ranges. we also look for ways to do that precisely because it is the most direct way of reporting on uncertainties. there's a downside to granges. if we say something happens and will cause something to rise between 1% and 4%, people want to rise a lot, up to 4%, and people who don't want to rise, will use 1%. there is a risk in the range that people pick out. it suits their purposes. we use this when we can but we can't use that during cost estimate. we do work hard to trace through the effects of a piece of

legislation on all the aspects of the budget that we can trace it to. that is very challenging. it is a very complicated world. even understanding the behavior response of people and businesses and local governments, for individual policies, it is pretty difficult. we try it. it is our job to provide to the congress the best estimate we can and that means including all the interactive of fact that we can get our arms around in a quantifiable way. ok, i think i should go. [applause] thank you. >> when we talk in august about you joining us today, we both thought the tuesday before thanksgiving would be a calm time and that has not happened

that way. i appreciate you joining us this morning as a small token, i have and aadp mug for you. [laughter] i look forward to seeing a prominently displayed in the director's office. >> you will. [laughter] c-span [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> sheila bair says she needs more money from banks to protect the camps. "washington journal" will have different segments. tonight at 8:00 eastern, a forum on the role of the media in elections. at 9:15 eastern, more of our coverage of the hearing on head

injuries in the national football league. the center for american progress is hosting a form on the u.s. education system this morning. it will include remarks by the education secretary, arne duncan, and the new york mayor, michael bloomberg. it is live on c-span 2, at 8:00, eastern. our coverage of a hearing on the long-term effects of the head injuries in the national football league continues tonight with testimony from medical professionals and former players. that is here on c-span, tonight at 9:15 eastern. >> thanksgiving day on c-span, at 10:00 eastern, bill clinton is on hand to present steven spielberg with this year's miss liberty medal from the national constitution center also, stanley greenberg and alex

kastellanos on the economy. also a form on terrorism. >> the government insurance fund that predicts bank deposits has fallen into debt for the first and since the early 1990's. the federal deposit insurance corporation reports a third quarter deficit of more than $8 billion. it plans to make up the difference by having banks prepay billions of dollars in fees. this briefing is a half an hour. >> good morning, welcome to the third quarter quarterly banking press conference. sheila bair will open a meeting and we will take some remarks from the media. after the presentation, we will

have fbi staff to enter further questions. -- we will have the fdic staff to answer further questions. for the q&a, please wait for the microphone. i will now introduce fdic chairman, sheila bair. >> thank you, andrew. good morning everybody and welcome to our briefing on industry results for the third quarter. for the past several quarters, i

have described to you a fairly consistent trend for the banking industry performance. we have seen high credit losses and volatile earnings and a rising number of problem institutions. these trends are appalled of the dislocations in our real estate markets, the financial crisis, and the longest and deepest recession since the 1930's. since last fall, we have seen normalization in many parts of our financial markets. there now appears to be a consensus that the recession is over, at least in a statistical sense. however, the report today shows that while bank and thrift earnings have improved, the effects of the recession continued to be reflected in their financial performance. earnings remain low and balances had their largest percentage decline since at least 1984. in this first chart, insured

institutions reported $2.8 billion of net income in the third quarter. this is an improvement over the $4.3 billion net loss posted in the second quarter and it is up from earnings of $79 million from one year ago. as this next chart shows, the eroding affect as the greatest impact on industry earnings compared to one year ago as insured institutions set aside more reserves to cover losses loss provisions of $52.5 billion worth $11 billion higher than one year ago. this is the fourth quarter in a row that industry provisions have exceeded $60 billion. nearly two out of three institutions increased their loss provisions from one year earlier. on the other hand, there were several factors contributed to earnings improvement from the prior year. interest income was $4.6 billion higher and the average net

interest margin of 3.51% was the highest since the third quarter of 2005. margins improved at institutions with under $10 billion in assets and were stable at larger institutions. interest income was $4 billion higher, led by increases in servicing income and gains from loan sales. reduce losses in securities portfolios and lower non- interest portfolios improved. provisions for loan losses remain high because the volume of problem loans continues to grow. this chart shows the amount of loans that have been charged off each quarter. that is the ballou segment. this also shows the quarterly change in loans remaining on banks' balance sheets. both charge-offs and non-current loans are still rising. the bottom of non-current loans grew at a slower rate for the second quarter.

loan balances decline for a fifth consecutive quarter. they are quite dramatic in some categories. the decline was led by commercial and industrial loans which fell by $89 billion but most major loans declined for large banking organizations with over $100 billion in total assets accounted for 3/4 of the total decline in industry loan balances. this is proportionately higher than the 66% of loans previously. tightening lending standards and reduced demand for credit by borrowers are both contributing to the decline in balances.

there is no question that credit availability is an important issue for economic recovery. we need to see banks making more loans to their business customers. this is especially true for small businesses that rely on f.d.i.c.-insured institutions to provide over 60% of the credit they use. what can we do to encourage lending to qualified borrowers? one answer is for the industry to continue to process the cleaning up of their balance sheets. we're continuing to develop a legacy loan program. we are getting market interest in the program to help them remove these spots from the balance sheet. cleansing balance sheets is absolutely necessary to strengthen the industry's capacity to lend to businesses and consumers. the industry is making progress by charging off problem loans and building capital and reserves. industry capital ratios this quarter increased. institutions are improving their liquidity. they are funding a greater share

of assets with deposits and all the greater volume of liquid assets, such as federal reserve balances and treasury securities. the federal banking agencies have addressed the problem of indoor loans by issuing policy statements on provincial laws for the policy statement encourages banks to continue making good loans for commercial real estate or worse, many of which are small businesses. examiners are instructed to take a balanced approach in assessing an institution's risk management practices. we feel this guidance can help address the economic dislocation that is hurting small business borrowers and their lenders. the balance sheet cleanup means the numbers in problem institutions will continue to rise. this is a process that we have talked about every briefing this year.

there were 50 billion in the third quarter and for the year to date, -- there were 50 failures in the third quarter. bank failures cost money as we said in september, the department -- the deposit insurance fund, went-for the first time since 1992. the fund balance is negative because over $30 billion has been set aside to cover estimated losses over the next year. we have policy reserves of $37 billion in total. we also distinguish the fund balance from our cash balance. our cash balance was $3.3 billion. to alter our cash position

further, we have asked banks to prepay three years in fees at the end of this year. this measure will provide the fdic with the funds needed to carry on with the task of resolving failed institutions in 2010 but without accelerating the assessment on the industry earnings and capital. the fdic's deposit guaranty is absolute, backed by the faith and credit of the united states government. this means we will always have access to the resources we need to protect insured depositors. for now, the credit adversely we have observed for some time remains with us. we expect that it will be at least a couple more quarters before we see a meaningful improvement in that trend. there are no quick fixes here. only careful hard work. we want to resolve banks that fail and ensure that the deposit insurance fund has the resources it needs to resolve failed

institutions and protect depositors and to craft responsible policies that help banks work with borrowers where ever report ripper these things must be done to lay the foundation for a sounder and healthier financial system in the future. i'm optimistic, depending on what happens with the economy, that we address these problems head on, we will see clear signs of improvement in banks in 2010. thank you very much and i am ready to take your questions. >> what is your reaction to the regulatory reform effort that will give the government the power to dismantle firms even if they seem healthy but could be risky? >> we are taking a look at that. i think we need to be careful. there are safety issues that should be at play.

it is a well-intentioned amendment. we have to make sure that institutions cannot affect the broader economy by the risk profile. some consideration needs to be made of the risk profile in an institution and take that into consideration. >> how comfortable are you with a level of open assistance that they would provide two institutions? >> for individual institutions, we would like a ban on any kind of open institution assistance for individual institutions that get into trouble. we think it would only be proveprudent to provide system e support if there was truly a central crisis for the entire system. we think of some assistance should be provided but with

important qualifications. we don't think that should for -- take the form of capital investment. government ownership of financial institutions is not something we want to do. there should be a systemic risk determination. there should be certification that there is a systemic issues. if there was a default on any of that touch-tone system-wide systems, that should trigger something so that the taxpayers would be not affected. >> what do you make of the funds set aside by banks to cover loan losses rose in the third quarter they were 7% less than a second

corporate is that a glimmer of hope that banks have more money? >> i like to see glimmers of hope everywhere. i think we need to live with this a bit longer. the fourth quarter will probably see an increase at least in charge-offs. if i were guessing, i think in the fourth quarter i think we will probably seek greater earnings because of those numbers. i would not read too much into that. >> when are we going to see a legacy loan sale? >> we have been doing a good job on our sales. most transactions we do are so the loans go with the depository we're planning for more sales probably early next year. i am hoping we can start launching the program in the first quarter of next year.

we need to be careful with this. the board is considering the eligibility requirements and how to prioritize institutions. there is still some policy issues that need to be dealt with. i am hopeful we will see that in the first quarter of next year. this involves both the fdic and legacy loans. >> i was wondering when we might expect to see the number of banks with problems decline? >> i think it is all about the economy at this point. i will have to take a pass on that. i cannot make predictions. thank you very much.

>> the second panel will not be making opening statements. they can move toward additional questions and answers. >> what is the makeup of the banks on the problem list? are they small, mid-size institutions, or what? >> they favor more to the smaller institutions. what we see now is more institutions with issues with commercial real estate issues. >> regarding the legacy long program -- was she referring to launching in the first quarter of 2010 for open institutions or would it still be more for failed institutions? >> i would want to check with her. i believe she would be referring to open institutions.

let's verify that. >> has there been any modification to the estimate of big $100 billion cost from 2009 thru 2013? >> no, that is still our estimate. >> we have heard some things about interest rate risks, maybe that is tied to debt obligations. can you see -- can you talk about how interest rates may rise and how that will affect things? >> we have been watching institutions and extending -- institutions and extending their exposure on the asset side. essentially, the issue is when they get too much of a mismatch relative to their funding, there

is an incentive in this environment that if you don't want to increase risk, you extend maturities. we have seen some of that. it is probably more institution- specific >> there is a difficult transition when you go from an ultra low interest rate to something higher. the initial phase, institutions or investors might reach for yield when rates are low and there is a transition due to mismatch when the rate rise as to when they will rise. >> do you to you expect the $8.2 billion negative number to go into positive territory? >> we don't have a projection on that. it depends on the amount of reserves we have to set aside in the fourth quarter. that is unknown right now. >> even with the $45 billion --

>> the $45 billion will not affect the fund balance. it would affect the cash balance. we will receive the cash but we will book an offsetting liability. that would be deferred revenue. the revenue from that will be recognized over the three-year period, not all at once. >> you talked about bank capital levels and what you saw in the third quarter. our banks building capital now or is there more to come? >> i think it is probably a combination of several things. we saw capital increase. the tier 1 leverage capital increase by about 1.5% pe% durig

the quarter. there is a decline in loan balances and overall balances. finally, we also noted a shift toward less-risky assets in the third quarter. it is really a combination of several different factors. there was an increase in the total amount of capital, however you want to measure it, equity capital, a tier one, or total capital in the corporate >> it represents progress in capital sheet -- in balance sheet repair.

it recognizes losses and moving bad loans off balance sheet. these are things that institutions have to do. we are looking for the industry to be in a better position to lend going into next year. >> to any of you have an historic comparison to the level of the deposit fund? >> in terms of a dollar balance, the bank insurance fund, its low was $7 billion in december of 1991. >> with the issue of lending which seemed to be a thing of the profile today, is there anything you were working on the bank examiners having to do with

the banks kind of hold on to capitol and short their balance sheets and extended that credit? is this a sign of the tension still being here? >> the guidance that has been released, the intention is to clarify how we treated, especially in commercial real estate where we are experiencing a lot of stress. it is also to make sure that we get consistency between all the agencies and our examiners and the treatment of those credits. we need to realize that institutions are dealing with boris that are under stress and to understand -- that dealing with bar wars that are under stress an -- borers -- are worse -- borrowers that are

under stress. >> every quarter that the industry moves that laws of the balance sheet, that is making progress. we will be in a better position next year than this year. >> can you give us the number of institutions that are well capitalized and the percentage by assets? >> sure, we had 8099 institutions reporting and of those, 7007 other 63, about 96%, were well-capitalized. those institutions represented 98.4% of the total industry assets.

>> the chairman talked about making lending to qualified borrowers, particularly for small businesses. our small businesses the highest risk? >> we want institutions to extend loans and we are seeing that. there is opportunity for institutions to do that. we want to make sure that nothing is done on the regulatory side to inhibit that. with that said, we don't want extensions of credit that do not make sense we want to make sure that the -- if the risk is recognized by the institutions when they go into these various lending arrangements. >> we don't have specific data on performance of business loans by size. what we have seen in previous

cycles and in this cycle is that the average loss of smaller institutions on their commercial-industrial loans tend to be lower than for larger institutions for it there is a certain symmetry between larger institutions and their aggregate numbers being affected. smaller institutions are restricted in some cases by legal lending limits as to how large a corporate customer they can lend to. generally speaking, the business lost rates for smaller banks will be more of a small business loan rate and vice versa for the larger institutions. i am not sure that we have seen, in terms of the performance, as much as we can infer from limited data that there is necessarily a significantly higher risk for smaller borrowers burde.

>> we saw a property values and residential and commercial and the case the best schiller numbers came out. we are seeing some improvement. we see demand which hurt cash flow of these businesses. it affects the credit standing of existing borrowers and it has hurt the credit standing of prospective new borrowers. as well as loan demand. as all this normalizes, the business -- the industry will be in a better position when credit demand comes back. cushioning the impact where it is appropriate is something that is positive, that the regulators are doing.

>> do you have an estimate for the fourth quarter and for next year in terms of the number of institutions failing? >> the only projections that we have made public is the five- year estimate of losses to the deposit insurance fund which is $100 billion. we have not made any estimates of numbers of banks by any different time periods. >> [unintelligible] >> when we made the projection of $100 billion, most of that loss would project to occur in 2009 and 2010. in terms of the amount of loss, it would be similar in -- next year as it has been this year. >> the provision for insurance

loss was almost double the previous quarter. do you expect that number to peak sometime soon or will it continue to rise? >> in terms of losses, which is reflected in the provision number, we expect most of the $100 billion in lost to occur into next year. we would expect to see more of the way of provisions in 2010 and then taper off after that. >> any other questions? >> what do you forecast going forward particularly in the real-estate market when the government support starts to run out? >> it is clear that the economy

is expanding. it expanded in the third quarter and the fourth quarter. there is a balance sheet impairment for households and institutions that should make the pace of recovery somewhat subdued. that is a consensus outlook. as the balance sheet gets cleaned up in 2010, it should pave the way for more durable expansion going for it i don't think anyone is looking for a rapid turnaround. balance sheets are in a difficult situation, still. >> if we have no more questions, thank you for coming. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]

>> in a few moments, today's headlines and your calls, live on "washington journal." tonight, a form on the role of media in elections and band more of our coverage on the role of head injuries in the national football league. and we will look at the health care lobbying effort. you can call in with your questions about medicare part