Magazine article American Banker

FDIC Sharply Cuts Forecast of Bank Failures through '94

Magazine article American Banker

FDIC Sharply Cuts Forecast of Bank Failures through '94

Article excerpt

WASHINGTON -- Offering another sign of confidence in the banking industry's strength, the Federal Deposit Insurance Corp. on Wednesday sharply cut its projection for bank failures.

The FDIC now predicts that commercial and savings banks with combined assets of about $10 billion are likely to fail in 1993, down from a previous estimate of $25 billion.

And in 1994, the agency expects banks with $20 billion in assets to fail, down from the previous projection of 445 billion.

Recent Turn of Events

"Many banks that just a few months ago appeared weak and at risk of closing now have been merged or have been able too increase their capital levels through improved profits or successful new equity offerings," said acting FDIC Chairman Andrew C. Hove.

The FDIC's reestimates come just two weeks after the agency announced record first-quarter earnings of $10.9 billion for commercial banks. Problem assets in the first three months dropped to their lowest level in almost three years.

No Premium Cuts in Sight

Despite the rash of good news for the industry, lenders should not look for the FDIC to cut deposit insurance premiums any time soon, the FDIC chairman said.

"Even if we are fortunate enough to see a continuing improvement in the volume of bank failures, it will be some years before the insurance fund is resorted to an adequate level," Mr. Hove said. The agency is required to bring the Bank Insurance Fund up to $1.25 for every $100 of insured deposits by 2006.

In March, the FDIC predicted that the BIF would be fully recapitalized by 2002. The agency has not officially changed that projection in response to continued improvements in the industry, but agency officials are growing more optimistic, said Roger Watson, FDIC's director of research and statistics.

"If I were a betting person, I would probably say it would be closer to 1997 or 1998," he said. …

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