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 FDIC 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 FDIC director who has been nominated by President Obama to serve as the next comptroller of the currency.
Yet 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. The FDIC will report on the updated DIF balance for the third quarter in late November.
"This is a long-term project in which we are engaged. I actually was talking to some bankers and someone asked the question, 'So with the fund now fund now back in positive territory, when might we see some adjustment in premiums?'" said John Walsh, acting comptroller of the currency and an FDIC board member, said at the board meeting Tuesday. Walsh said his response was, "'I don't think that will be happening for a very, very long time.'"
Still, a premium increase in the near future is also unlikely. With the economy and financial markets still vulnerable, the FDIC says its current income projections could shoulder an uptick in failure costs, although it retains the authority to hike premiums if need be.
"The lingering effects of the financial crisis and challenges now facing the U.S. economy and the banking system create additional uncertainty. Recent developments have heightened concerns about financial-market turmoil and a struggling economy, which could result in a greater number of bank failures than projected and a decrease in the value of failed-bank assets, raising the cost of both past and future failures to the DIF," Matthew Green, the chief of the fund analysis and pricing section in the FDIC's division of insurance and research, told the board.
"Nonetheless, assessment rates now in effect should be able to accommodate somewhat higher bank-failure costs than what we project in the timeframe of the restoration plan. If losses turn out to be significantly higher, the existing statutory framework provides sufficient time to consider … adjustments to the restoration plan and assessment levels."
