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Washington, D.C.—The failure of a bank in Miami once held up as a model for international business underscores the unacceptable risk to the nation’s banking system that the Federal Deposit Insurance Corporation (FDIC) is taking in proposing cutbacks in its legal division, the president of the National Treasury Employees Union (NTEU) said today.

NTEU President Colleen M. Kelley has been urging the FDIC to drop its proposal to cut its legal staff at both its Washington headquarters and at two facilities in Dallas, TX.

The announcement of the failure of Miami’s Hamilton Bank, “along with the continued uncertainty about the future of our economy, the potential need for additional FDIC action and assistance to the banking industry, and the critical need to reassure the American people that the financial services industry is stable,” Kelley said, “should be more than enough to cause the FDIC to drop its ill-advised cutback plan.”

Hamilton Bank, with more than $1.3 billion in assets, 240 employees and nine branches, was shut down late Friday afternoon even as customers waited in teller lines. Another bank will operate three of Hamilton’s branches in South Florida, while the other six, including one in Puerto Rico, will be shut down permanently. As Hamilton’s receiver, the FDIC will be responsible for making payments directly to customers for about half the bank’s insured deposits.

FDIC said it could not estimate the bank’s losses because of the complexity of its assets, many of them in international loans, but banking analysts told news agencies there was a strong chance of substantial losses as a result of the bank’s operating practices.

Apart from the pressure a soft economy historically places on the banking system, causing some banks to fail and many others to seek assistance, Kelley said the FDIC’s own projection is for a loss of up to 25 percent of its legal staff over the next few years.

“In addition to cleaning up financial problems like the Hamilton Bank,” Kelley said, “the FDIC staff plays a critical role in providing the kinds of assistance that go a long way toward preventing costly events of this kind.”

The agency “is mistaken in taking a very short term look at its needs for legal services,” the NTEU president said. “The FDIC is going to get caught up in the middle of the government’s human capital crisis and will find itself scrambling to replace legal talent it will wish it had retained,” Kelley added.

One of the most serious effects of implementing the FDIC proposal, the NTEU leader said, would be the agency’s loss of legal expertise. Under the FDIC plan, it would lay off as many as 70 lawyers in Washington and another 25 in Dallas—virtually all of whom would have at least 14 years of service with the agency.

“No federal agency,” Kelley said, “and for that matter, no effective private sector organization, can stand the loss of that kind of experience and expertise, particularly when, as at the FDIC, it has an insufficient number of younger, less experienced attorneys available to work their way into these more senior positions” to deal with complex financial regulatory matters.

NTEU is the largest independent federal union, representing some 150,000 employees in 25 agencies and departments, including some 4,600 FDIC employees. More than 1,400 FDIC employees at its Washington headquarters and another 800 at the two Dallas facilities are represented by NTEU.