Citigroup, Wells Fargo May Loan Less After Downgrades

Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that downgrades may compromise bank capital ratios enough that some of the largest institutions will no longer be considered well capitalized.

Falling below a regulatory benchmark that is intended to maintain a minimum level of capital to protect depositors against losses would subject banks to more scrutiny from regulators than they have ever experienced.

``This is a nightmare for the country,'' said William Isaac, who was chairman of the FDIC from 1981 to 1985. Banks will ``raise what capital they can, then they'll slow down their growth and stop lending, and what should be a mild recession becomes a much more serious one.''

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``Banks have to maintain their ratios,'' said Dennis Santiago, chief executive officer of Institutional Risk Analytics, a Torrance, California-based research firm that monitors banking statistics. ``This is an institutional panic. At what point will consumers feel the panic? I don't know.''