Former FDIC Chairmans Worthy Opinion on Credit Crunch

As the U.S. faces major reform of its financial industry, the question on the minds of many consumers is "how will this affect me?" It's also a question that is very commonly on the minds of most board members who are seeing unprecedented drops in their company's stock value in the financial markets. TK Kerstetter, president & CEO of Board Member Inc., which publishes Corporate Board Member magazine and its sister publication, Bank Director magazine, sat down with former FDIC chairman, L. William Seidman to discuss the current market crisis and how it will affect the entire banking industry. Corporate Board Member's web editor, Laura Finn, also interviewed James C. Woolery, partner with Cravath, Swaine & Moore LLP, to discuss what in his opinion caused the crisis, the impact of the government bailouts, bankruptcies and mergers on the board and its global ramifications.

According to Seidman, who states that as much as one year ago he warned about the dangers of Fannie Mae and Freddie Mac and the risk of a "major disaster," the nation has for a long time been running at a weakened state where credit is concerned. He said the biggest question now that has not yet been addressed is "what do we do about changing the system so it doesn't happen again?" Seidman also states that since the U.S. is part of a global financial system, the Wall Street crisis directly affects the financial institutions of the developed countries around the world.

Woolery believes liquidity issues and a failure of financing in the housing industry ultimately caused the financial crisis and that the recent Lehman Brothers' bankruptcy played a major role in the breakdown in the financial industry. He also warns that one of the side effects from the crisis will be that funds will be less available for borrowers which will affect the general economy and corporate strategy since the banking industry will not have extra funds to help support new businesses. According to Woolery, one lesson that boards should learn from this experience is that they need to push management teams to address risk head on instead of hoping and waiting until things get better. If they decide not to take action, they should be well informed, as it is their job to push management to make the type of difficult decisions that are in the best interest of the company.

"One of the benefits of our websites and online communications are their ability to respond immediately to critical issues affecting board members between both Corporate Board Member and Bank Director," said Kerstetter. "Our interview with Bill Seidman, who is arguably one of the most knowledgeable experts in the banking and financial markets, will help boards and management react immediately to issues that affect their companies."