FDIC Sees Bank Failure Losses Falling

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, April 12, 2011.

Losses from bank failures to the Federal Deposit Insurance Corporation’s deposit insurance fund for the period 2010 to 2014 are now projected to stand at $45 billion, compared with $52 billion forecast last October.

“While it is difficult to make long-term projections, we think that these latest projections are a sign of continued recovery in the banking industry,” said FDIC Chairman Sheila Bair at an April 12, 2011, meeting.

Bair noted, however, that “there are a few black swans flying over our heads and hopefully they don’t land.” With the housing market situation, the fiscal situation and international uncertainty, “we all need to be on our guard,” she said.

FDIC staff noted that the banking industry has reported four consecutive quarters of positive net income. The number of unprofitable institutions has declined from year-earlier levels, and credit performance and asset quality measures have improved for several quarters, they said. Furthermore, growth in the FDIC’s problem bank list has slowed in each quarter of 2010 and the number of bank failures has decreased in each of the last three quarters. The number of failures so far this year stands at 28.

The fund balance has increased for four consecutive quarters, according to the agency. The balance stood at negative $7.4 billion at year-end 2010, a $13.5 billion improvement from the negative $20.9 billion balance at year-end 2009. The increase stems primarily from assessment income and an improving outlook for bank failures, according to the FDIC.

The fund is projected to post a positive fund balance this year and reach 1.15 percent of estimated insured deposits by 2018. Under the Dodd-Frank Act, the fund reserve ratio must reach 1.35 percent by Sept. 30, 2020. The FDIC said it will consider a proposal later this year to implement the Dodd-Frank requirement that would offset the effect of increasing the reserve ratio to 1.35 percent on institutions with assets under $10 billion.

Meanwhile, the FDIC voted to issue proposed guidelines governing assessment rate adjustments under the new large bank pricing system that went into effect in the second quarter of 2010.