It’s an absolute privilege for me to participate in this celebration of Jim Watkin’s service to his nation and the FDIC and to thank Jim’s wonderful family for sharing him with us for all these years.
The FDIC was a quiet agency that didn’t have much to do from the Great Depression to the late 1970s when the financial system was heading into a massive restructuring that continues to this day. Jim’s 40 years at the FDIC from about 1980 to today witnessed three distinct periods of crisis and disruption that have shaken the financial system and the FDIC to their cores.
Jim is a wonderful and unique FDIC employee who can legitimately declare he’s seen it all. Jim’s service began in 1981 when a young man from Bryan, Ohio was Chairman navigating a severe banking crisis running from 1978 through 1992. Roughly 3,000 banks and thrifts failed during this time, including nine of the ten largest banks in Texas and the seventh largest bank in the country, Continental Illinois. Most of the savings banks and S&Ls failed and/or were merged. Congress directed the FDIC to assume the duties of the failed FSLIC with its $150 billion negative net worth.
Jim served nine different appointed Chairmen – four women and five men — during his career including our current Chairman, Jelena McWilliams. Jelena’s background is amazing even by U.S. standards. She came to the U.S. from Belgrade at age 18, getting her undergraduate and law degrees from the University of California at Berkeley. I couldn’t be prouder to stand with Jim and Jelena today (virtually, of course). And I couldn’t be prouder that Jim is joining me in a new firm to help guide financial institutions on how best to serve the public while remaining strong and resilient.
When I arrived at the FDIC in 1978, the agency had been handling roughly a dozen relatively small bank failures each year for decades. Depression-era legislation limited the growth of banks, controlled pricing on deposits and loans, restricted bank investment powers and permissible activities, and limiting branching and new bank charters – all designed to provide a safe environment for insured depository institutions.
Yet, storm clouds were forming. Our nation was facing considerable turmoil. Intense anti-Vietnam war protests led to violence and demonstrations throughout the country. Protests against racial and gender inequality led to even more violence and turmoil in major cities. Important leaders advocating peaceful reforms — Martin Luther King and Senator Robert Kennedy – were assassinated. Guns and butter spending on the war and social programs, without tax increases, led to massive deficit spending, rapidly rising inflation, and higher interest rates.
President Carter took bold action and appointed Paul Volcker as Chairman of the Federal Reserve, telling him to do whatever was necessary to break inflation’s back. Volcker raised interest rates beyond anyone’s imagination, causing two back to back recessions in the early 1980s. President Carter was defeated by President Reagan, and I was named Chairman.
We knew that much higher interest rates were going to create severe problems in the financial system – the first and hardest hit would be the savings banks with their long-term fixed-rate home mortgages. Money market funds offering market interest rates to savers, caused massive deposit outflows for thrifts. We had no choice but to remove deposit interest rate controls from banks and thrifts as quickly as possible, which in turn caused these institutions to incur massive losses. Within months we began to get hit with savings bank failures with each one costing the FDIC enormously.
Old hands like Alan Miller, the FDIC’s legendary corporate secretary, speculated that somewhere around 20 bank failures in a year is all the public would tolerate before causing a banking panic. Thankfully, he was proved wrong, in part due to the way we handled things, including a decision we made to announce publicly at the beginning of each year how many bank failures we were anticipating during the year ahead. We believed the public could accept almost any bad news so long as they believed we were being open and doing our best to avoid inflicting unnecessary harm. Heroes like Jim Watkins were working 24/7 and moving themselves and their families around the country to wherever they were most needed – I believe Jim and his family made more than a half dozen moves.
The savings bank failures alone were more difficult than anything the FDIC had faced since the 1930s. Next came the collapse of energy prices and bank failures throughout the energy producing states. Farm prices collapsed, and we faced hundreds of ag bank failures. Some farmers protested by burning to the ground one of the FDIC’s offices in the Midwest. Another protestor got into the Federal Reserve’s headquarters building and with a bomb strapped under his coat, sitting down in the middle of the floor right outside the board’s meeting room. A deep recession in real estate came next, bringing down larger banks in various regions around the country.
Finally, we were faced with the potential collapse of our largest banks. These banks had invested far too heavily in loans to Less Developed Countries. The FDIC joined with the Federal Reserve and the Treasury to plan for nationalizing our major banks, which would likely be triggered if one or more of the LDC countries were to renounce its debts. Very fortunately, this did not come to pass.
The FDIC had about 3,000 employees when I joined the agency in 1978. We increased the staff to over 10,000 very dedicated people, like Jim Watkins, during my Chairmanship to keep pace with the bank failures. That total reached about 20,000 people after I left the FDIC and the failures continued.
From day one we focused on the people of the FDIC – people like Jim Watkins — and those were by far the best investments we made. We decided to raise the pay for our most senior people to levels above the top civil servant pay grade, and we instituted a bonus program to recognize superior performance. We added new and expanded benefit programs, including a 401K retirement program with matching from the FDIC. We were delighted when a few years later Congress used our groundbreaking programs as a template available to other federal financial regulators.
We created a formal management training program to identify the FDIC’s leaders of tomorrow and rotated them in various jobs throughout the FDIC and even other government agencies to broaden their experience. And we encouraged them to attend courses at universities to broaden their education. Jim Watkins benefitted from these programs and received an accounting certificate from Northwestern followed by his CPA license, and then added his MBA from the University of Massachusetts.
Finally, we purchased land in Arlington alongside George Mason University and built a state of the art training center for the FDIC and other banking agencies around the US and even the world. I’m delighted it’s being put to very good use.
I have never seen a more motivated and energized group of people than we had at the FDIC. I really hated to leave the FDIC after eight years of service, but I have been followed by a wonderful group of talented and dedicated staff members like Jim Watkins along with very special board members and Chairmen. They have continued the proud traditions of the FDIC and have led the agency through even more financial panics and government-led financial rescues. Bill Seidman, Bill Taylor, Sheila Bair, Marty Gruenberg, and Chairman McWilliams have been the right people at the right time for an agency that deserves nothing but the best.
Presidentially appointed leaders of the FDIC would not get much done if it were not for the incredibly dedicated permanent employees of the FDIC. None have been more loyal or more dedicated than Jim Watkins. Jim has served the FDIC in something like 15 different positions throughout the country, including being in charge of two important regional offices. He has been in charge of bank supervision nationally for the past decade, and it is in that position that I was able to get to know just how talented, thoughtful and dedicated he is. I know Jim will be missed by his many friends and colleagues at the FDIC, but I also know the FDIC has a very deep bench of outstanding professionals behind him.