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FDIC Projects Far Lower Bank Failure Losses

Posted on 10/13/2011

Bank failures from 2011 to 2015 are projected to cost the Deposit Insurance Fund $19 billion, compared with $23 billion in estimated bank-failure losses in 2010 alone, the FDIC said Tuesday. "While these loss projections are subject to considerable uncertainty, under these projections and current assessment rates, the fund should reach 1.15 percent of estimated insured deposits in 2018," the agency said. The DIF balance has increased for six consecutive quarters after seven quarters of decline and reached a positive balance of $3.9 billion in this year's second quarter, the FDIC said. Cumulatively, the DIF balance has risen by almost $25 billion from its negative $20.9 billion low point at the end of 2009. The FDIC will report on the updated third-quarter DIF balance in late November.

"The FDIC's update on the [DIF] recapitalization reaffirms the fact that the banking industry is rapidly returning to health and the losses once expected were overstated," ABA Chief Economist Jim Chessen said. "The FDIC had set aside $17.7 billion for possible bank failures losses at the start of 2011, twice what the actual losses are likely to be this year."

Chessen noted that banks are paying $13.5 billion in yearly premiums to the FDIC -- far above the yearly costs the agency expects over the next several years. The DIF "is rebuilding faster than the FDIC had projected at the end of 2009, when the industry paid $46 billion in pre-paid assessments to ensure the FDIC would have adequate cash to handle any contingency," he said.

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