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Oct 12 - FDIC Predictions on Its Losses and Income Provides Signal on Future Bank Failures

SBJ Staff Report

Oct 12, 2011 - The Federal Deposit Insurance Corporation (FDIC) updated its loss, income, and reserve ratio projections today for the Deposit Insurance Fund (DIF) over the next several years.

The predict that FDIC-insured institution failures for 2011 through 2015 will cost another $19 billion, compared to estimated losses of $23 billion for banks that failed in 2010 alone – a significantly better path, but an indication that a significant level of bank failures are still ahead.

While the loss projections are subject to considerable uncertainty, the FDIC predicts that the fund should reach 1.15 percent of estimated insured deposits in 2018. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the fund reserve ratio reach 1.35 percent by September 30, 2020. A future rulemaking will implement the requirement in Dodd-Frank that the FDIC offset the effect of increasing the reserve ratio from 1.15 percent to 1.35 percent on institutions with assets of less than $10 billion.

After seven consecutive quarters of negative balances, the DIF became positive in the second quarter of 2011, standing at $3.9 billion at June 30. The DIF balance has increased for six quarters in a row, following seven quarters of decline. Cumulatively, the DIF balance has risen by almost $25 billion from its negative $20.9 billion low point at the end of 2009.

"The assessment that the insurance fund remains on the path to recovery and on track to meet the goals established by Congress is welcome news," said Acting Chairman Martin J. Gruenberg. "As we seek to stay on track, it's important to always be mindful of the challenges we face and ongoing risks to the insurance fund."

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