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c-span, your unfiltered view of government. washington journal continues. host: joining us is william isaac he served as the chair of the fbi see. he did that in 1985. we are here to talk about banking issues. good morning. guest: good morning. thank you for having me. host: thank you for joining us. how do you view the bank's handling of the situation a couple weeks back? guest: i think it was important they jumped in and acted promptly and decisively without letting this thing get out of hand. i'm not thrilled with the fact that they are bailing out the largest depositors. in my opinion they should not have done that. that's something we've got to get over.

we've been doing that a long time and i thought we reached a consensus in the country we would stop doing that so i would have handled that differently but all over -- overall i think that they have handled it well. host: there was a topic about if this is a bailout we are the president say it would not be a bailout why do you think it is? guest: a bailout is when somebody get something they were not supposed to get. the largest depositors are rich depositors who are part of the problem. in my view. anyway, the government decided to make them whole and we have a good system in place when i was chairman to not have it happen

and not have the effects of the bank failure. the biggest issue was small depositors is that they get made whole and all the credit that is denied to borrowers going forward: the fact that a lot of money -- going forward the fact that a lot of money -- we developed a system at the fbi see -- fbi c --fdci. with uninsured depositors we gave them a full insured amount. with the balance of the uninsured depositors and other creditors we estimated the amount of the payoff they would get in the end and the fbi see

history is that --fdic history is that they would usually get a sense of a dollar -- $.80 on the dollar. and usually not more than that. they could to get to the fed reserve banks and discount it and get money for it. that kept money in supply. excuse me that cap money in the local communities that let employers make their payrolls and all of that stuff. but it took disciplined largest depositors to be careful of what they are doing so we need that market discipline. if we take that away, and bail

them out all the time we will not have a disciplined banking system. i feel strongly that it is on the fdic to do that consistently. in the bank -- the fed can partner with the fbi seat -- with the fdic and on those receiverships allow us to keep money in the hands of the local community where it is needed. host: william isaac our guest. if you want to ask him about the role of the fdic the government protection of bank deposits. you can call and ask questions about that. (202) 748-8000 democrats, (202) 748-8001 republicans, (202) 748-8002 independents. text (202) 748-8003. host: if you look at the information the fbi c provides about 4700 -- fdic provides

about 4700 overseeing those. can you distinguish between the two of those? guest: i'm not sure what they mean by terminology but there are 4700 banks roughly in the country. when i was chairman of the fdic there were 30,000 so you can see how much we have reform. the banking system and how much it has changed. it was highly regulated after the depression. and state regulated strongly until somewhere around 19 -- 1990 -- 1980, excuse me. and them had to deregulated because interest rates were so high they could not stay in business because they could not compete. the interest rates were so high

they would lose all their deposits because we had interest rates cap for banks. we lost a lot of banks during the 1980's, 90's, and beyond. and we are now down to 4700. the fdic what they probably mean by the 3000 number is that fdic directly supervises state nonmember banks. and be fdic -- the fdic is the primary regulator of those banks. host: if i got the map right -- math right it is over $23 trillion in assets. is that enough to cover any emergency that the fdic might face? guest: i don't know what the $23 trillion is. host: in assets. guest: oh ok.

the fdic fund is around $150 billion it was 13 billion when i was chairman of the fdic. so it is larger but we had a lot of inflations of the fund relative to the deposits has not changed enormously probably it has changed some sure it has grown. but a lot of the growth is accounted for by inflation and deposits. i think the banking industry is strong and i do not expect there to be a massive crisis this time. i don't think we are out of the woods yet. i think we still need to watch what we are doing and be careful. the regulators have got to get their eyes on the bowl. the silicon valley bank was not properly supervised -- on the ball. the silicon valley bank was not supervised. it never should have happened. host: first citizens bank is

buying a large part of the silicon valley bank perch about $72 billion and it would be of the discount. does that move to consider more consolidation as far as business is concerned and what do you think about the idea of life: by the other? -- idea of one bank buying the other? guest: i think you ideally want to be able to replace it with another bank. so i think it is ideal. what you want them to do is put the bank out for auction and they clean up the problem and then they put it up for auction with other banks. and hopefully they can sell it which gives the fdic a profit on the sale and that reduces its overall losses.

and it brings the local communities and the competitor to replace the failed competitor. host: let's hear from rolen. roland in connecticut. republican then you are speaking with the former chair of the fdic. caller: thank you. good morning mr. isaac. we appreciate you going through turbulent times through the high inflation rates we had and also the first few years of reagan administration. but i do have a very deep concern that this was unprecedented. and i do not believe with having president biden state he was going to bail out fully the additional svb creditors. what i'm hoping is that doesn't set us up for a massive bank failure and catastrophe where we freefall as a country. we are in big trouble with the banking system.

if you have a response i would appreciate that. thank you for all we have done -- you have done. guest: thank you for your question and interest. i share your concern. when i was chairman of the fdic, all bucher, by the way is one of my heroes, one of the greatest people i've met. what a public servant he was. we dealt with the crisis. it was a big crisis. we lost 3000 banks during the 1980's. it was a big crisis. but he and i resolve the issues together. the ftse and fedco operating we cap don regan who was the secretary of the treasury involved and informed. he did not make decisions though

nor did the president. president reagan was not involved in deciding what to do about bank failures. he left that to the people who knew what to do. the fed and the fdic. and don regan did not interfere. he consulted with him about continental illinois. excuse me we did consult with him about that but earlier than that there was a bank failure that was controversial that was a bank in open will homa called -- in oklahoma called pin square. and we set explaining all the issues with him. it was controversial and we were going to do a deposit payoff. we were not going to bail anybody out. in the end after an hour or so of discussion don regan that she turned to me and said, bill, you are in charge. you make the decisions and i will support what you do. it is your call. and i just wanted to give him a

hug and a kiss because that is what he -- exactly what he should have done he should have left it to us with the deal i mean not to single myself out as a person but i was the chairman but for the whole fdic. he left it to the fdic to make the decision of how to handle it. he said you make the decision and let the chips fall where they may. that's exactly the kind of relationship the treasury and the fdic should have. i do not like where we are now. congress has gotten politicized and the president is involved in the secretary of treasury is involved. it is not a proper way to govern bank failures. host: i want to play you part of the speech of janet yellen and about her assessment of the banking industry. i want to play a little of that

and get your response to it. >> first, we work with the reserve in the sbic to protect both depositors and the resolution to silicon valley bank and signature bank. the steps we took were not focused on aiding specific banks or classes of banks. our intervention was necessary to protect the broader u.s. banking system. and similar actions could be warranted in smaller institutions suffering deposit runs imposed the risk of contagion. i believe that our actions reduce the risk of further bank failures. eber propose losses on the insurance fund which is paid for -- it would propose losses on the insurance fund. host: as part of her assessment. what do you think? guest: i did not like it i do

not like what she was saying. i don't know like -- i do not like the fact that she was saying it because the fdic and the fed reserve ought to be speaking for the banking system and the regulators who are trying to deal with the crisis. it would be nice to have some support from the secretary treasury and even the president that people were concerned to say something nice about what is going on. but it should not be the secretary of the treasury's role to be talking about what the fdic and the fatter going to do. the secretary -- and the fed are going to do. the secretary treasury is not engaged and -- they are politicians. the fdic is independent and the fed is independent. these decisions ought to be made by experts who are independent from the political system.

the fdic has a bipartisan board on purpose. the last problem we had in 2008 and 2010 where folsom was the secretary of treasurer and he took over he took charge. a proposed $750 billion bailout bill which was nonsense. they never should have proposed that. i think congress should not have enacted it. it was a terrible idea to dump $750 billion of troubled assets on the government. instead of letting the fdic and defend figure out how to deal with it. that is where this thing went wrong in 2008. i've said this all the time i wrote articles against it and testified against it. i said the program was a terrible program and it was going to diminish the authority of regulators and cause a lot of

needless expenses on the taxpayers. that is where we went wrong. we are still in that mode. the secretary of treasury should not be talking right now about this. at least certainly if not if she wants to be reassuring right now but certainly not talking policy and what needs to be done for the fed -- that is up to the fed and the fdic. i don't like it at all. she got it under the previous administration of think it was george bush, no, it was george bush and then obama who got involved. but when hank fulsome was secretary of the treasury george bush was the president and he turned it over to folsom. i thought i thought that was a terrible mistake. we went off the rails they are and we are still off the radials -- rails of how you handle a banking crisis professionally,

and independently. and do the best you can do in terms of what can be done. host: let's hear from max in north carolina democrat. caller: good morning c-span. my question is simple, if the current amount of issuance for fdic account is $100,000, is it not time to increase the amount? guest: thank you for the question it has been increased it started out at 5000 in 1953 and then it went from 10,000, is to 20,000. when i was chairman it was 40,000. and in congress decided they wanted to protect depositors up to $100,000. we followed along and protected them. now, and 2008, the disastrous situation they increased it to

$250,000 from 100,000 dollars and that is where it sits today. host: is it time for an increase? guest: i don't think so i think to $50,000 should be plenty. we are trying to protect -- $250,000 should be plenty. we are trying to protect everyday folks who do not have access to the information needed. were trying to protect and ensure -- for sure them that their life savings are secure. and with congress originally it was $55,000 and they believed it was enough now we are at $250,000 and that is a faster rate of growth than inflation. so anyway, i think to $50,000 is enough. -- $250,000 is enough. and we have to stop this to protect -- stop protecting large depositors we got to stop doing that. i will have more coming out on

that soon on that subject. host: this is jane, new york, independent. caller: aside from the issues that are important why are the deposits of the bank of china and the bank of india guaranteed by the fdic? guest: well all depositors are guaranteed. that is a mistake. it should not be that way. but i do not think it matters whether somebody is a u.s. citizen or a citizen of china or india or anywhere else or england or germany. if they are a depositor they are covered. and that is as it should be. host: we have a viewer who asked on a text this morning about where the fbi seek is the depositors and the person asked as the federal reserve just print more money to cover it? guest: that is a lot of

discussion around that issue. but where the fdic gets its money is from the bank assessments. but when thanks -- banks have deposits they pay deposit insurance premiums on those deposits to the fdic. every one -- dollar bet is in the fdic -- the fdic fund is assessed. and this is supplied by the depositors. host: this is a call from fred in pennsylvania. independent. caller: good morning out you for years and i do not really understand all the banking system but i wanted to give you guys a lot of credit because we talked about it in the 80's and i know in philadelphia we had a bank called philadelphia savings

fund society which is doing well. i understand you said you had 13,000 banks around and we are down to 4300. to me, i am not saying it is a problem but i hope we got the banking system back on track. guest: thank you for your kind remarks. there were two notable banks in pennsylvania notable to the fbi's -- to the fdic and to the public. there are a number of five banks i do not mean to highlight these two but they are special in the sense that they were in the fdic 's eyes. one was the pennsylvania bank which is the largest bank in pennsylvania and the old -- oldest nationally chartered bank. it was the best bank and then

they loaded up on treasury securities way more than they should have had and -- at fixed rates -- and they made about that interest rates would not go up from there and that rates were at a peak and they lost that bet. he became chairman of the fed and president carter told him that he wanted to get interest rates and inflation under control and so paul who was a great american and i miss him he took strong action and he started decreasing rates and ultimately the prime rate went over 21%. one of the first casualties of that was pennsylvania. because they had a lot of fixed rate treasury loans and those were not going up but their prices were going up but the yield on them were going down. and so, they were losing a lot

of money holding all those fixed rate low rate securities. they failed. we had to rescue them. as they went out of business ultimately. and they lost fair board and the management lost fair -- they are jobs. when you look at that situation, what happened with silicon valley bank was identical. it's the identical bad move when one of the notorious bank failures was pennsylvania which already made those moves and we had already seen them fail and seen shareholders get wiped out in management get fired. why would you do the same thing again and why would regulators let up -- let them? and that really was a strange thing for me to see that repeat of the 1979 failure of first pennsylvania.

the other really notable bank in fdic's history was pfs who philadelphia savings fund supply -- ps f as philadelphia savings fund society. --psfs, philadelphia savings fund society. they were able to survive when other savings banks did not. we actually used psfs as a partner to take care of and take over some deals we had with respect to other banks that were not surviving. they helped us out by taking over some of them. and they got paid by the fdic to do that. and i am forever grateful to

psfs they are no longer with us unfortunately. but they did a group -- a good deed for the fdic and i appreciate it. host: a text from taxes saying will this not make risk more speculative to investment and that is bad, right? guest: if we keep on bailing out the largest depositors and making them whole, it will make things worse. i don't know why we don't learn that. it has been happening for a long time. for most of the fdic's history as a nation in the fdic -- the fdic as an agency has been bailing out largest -- large depositors. to some extent we have bailed

out shareholders and we've got to stop it.and we got to stop pampering management and boards of the directors to do that. the only way i know to do it is to stop -- there are several ways to do it but you can fire directors and officers and find them and bring lawsuits against them. really important, we have to get creditor discipline. we have to get large depositors to discipline banks. that did not happen in silicon valley bank and they had large, rich, sophisticated deposits. they knew better to have the money in the bank and at the same time, you don't want to crash the economy and be local community by wiping out all the depositors. that is my we developed the fdic modified pail program -- pay off

program. we did get the largest depositors and took some of their money and we left most of it with them. we let them have 80% of their money and family kept 20% because we thought that would be needed to payoff -- i lost my thought. my phone started to ring. we left them -- we let them have 80% of their money we kept 20% because that was our average loss in bank failures. 20% of the assets is usually where we wound up losing money. sometimes we made more money and we got back more money than 80%. so, what we did, we allowed them to -- we paid

is so, that rule has changed.

and we stop, we looked -- booked assets at cost. and did not write them down unless there was a permanent

impairment in the value of the asset. so if you have a long-term corporate grande -- bond and corporation. the price goes down permanently market down. you say it is never going to be worth it anymore but if it is just pocket variations you do not require it to be marked down. they change that in that financial standards. they change that in conjunction with the sec. around 1991 as i recall. i was adamantly opposed to it wrote articles and it was right controversial -- quite controversial. and then we change that later, but not all the way. banks are still having to show their market value losses and that is what spooks the public. you see hear people talking about all the time that the banks had bonds that were below

market value. and they cite that and they get everybody nervous about the banks. of course banks are going to have issues from time to time when markets go down, but they have a job to do. and if they are doing that job we ought to let them do it and not punish them by announcing that they have a deficiency in the value of their government box. host: if you have the opportunity to advise congress on the white house and government overall what are the next best steps they should take not only to prevent what occurred about to prepare for the next time it does happen? guest: i write about and speak about that frequently. i am hoping we will get through this time. i do plan to write more and speak more and to hopefully have -- i will go to congress and talk some more of done