Magazine article American Banker

FDIC Dials Down Cost Estimates for Bank Failures

Magazine article American Banker

FDIC Dials Down Cost Estimates for Bank Failures

Article excerpt

Byline: Joe Adler

WASHINGTON - Projected bank-failure costs in the near term continue to slope downward, but that is not likely to result in lower deposit insurance premiums anytime soon, regulators said Tuesday.

The Federal Deposit Insurance Corp. said failures from 2011 to 2015 are projected to cost the agency $19 billion, a $2 billion decline from what the agency projected for that same period in April, and a far cry from the $79 billion in estimated failures costs for 2008, 2009 and 2010.

Among the factors behind the improvement are a better outlook for individual troubled banks, predictions that banks will suffer supervisory downgrades at a slower pace and a lower rate of failure for problem institutions. The FDIC said it was still on target for the Deposit Insurance Fund to hold 1.15% of insured deposits in 2018.

"Beyond five years, the projections assume a low level of failures and associated losses," the agency said.

FDIC board members praised the news. "This is good news ... notwithstanding the uncertainty. It's heartening," said Tom Curry, a director at the FDIC who has been nominated by President Obama to be the next comptroller of the currency.

Despite the improvement, the FDIC has shown no sign of letting up on premiums as the economy still faces significant uncertainty and the agency remains determined to rebuild a fund cushion that was depleted by the financial crisis. This year, the DIF - which turned positive at the end of June after being in the red for seven straight quarters - is expected to earn roughly $13.5 billion in premium income, which is about equal to 2010. Currently, most healthy institutions pay a premium somewhere within the range of 5 to 9 basis points per assets minus Tier 1 capital.

The fund balance at the end of the second quarter was $3.9 billion. …

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