WASHINGTON — The Federal Deposit Insurance Corp. said Tuesday estimated failure costs over the five-year period from 2010 through 2014 are expected to total $45 billion, a $7 billion decrease from the agency's projection in October.
The agency's staff was expected to update the FDIC board on the status of the Deposit Insurance Fund at a morning meeting. The board also planned to consider new proposals related to deposit insurance premium adjustments for large banks, and new swap requirements for depository institutions under the Dodd-Frank Act.
The DIF update said estimated failure costs from 2011 through 2015 are expected to be significantly lower than the 2010-2014 period — totaling $21 billion — and reiterated that the fund is expected to turn positive this year. At yearend, the DIF's balance totaled negative-$7.4 billion. (Estimated failure losses in 2010 were $24 billion.) Officials said projections for failures have gone down as the industry has stabilized.
"Staff's projections of both the pace of institution downgrades to Camels 3, 4, and 5 ratings, and the rates at which these institutions fail this year and in the next few years, are lower than in the October 2010 projections," the agency said in the DIF update. "Staff projects that the DIF balance will continue to recover and turn positive this year. The DIF is projected to earn approximately $13 billion in assessment income this year."
Yet the update also noted caution about the road ahead.
"We do expect a high amount of failures this year and next compared to historical norms," an official said.
In the update, the agency said, "Staff's projections are subject to considerable uncertainty. Bank failures could be higher than projected, and recoveries from assets of banks already closed could be lower than projected, if, for example, the economic recovery stalls as a result of prolonged sharp increases in oil and other commodity prices."
Meanwhile, the new pricing guidelines stem from a broader overhaul, finalized in February, to how banks with over $10 billion in assets are assessed.
The FDIC has long maintained discretion to consider unique factors about individual institutions and adjust a bank's price up or down, following its initial price calculation. But as the assessment formula changed in the overhaul — attempting to more precisely reflect a bank's risk — the FDIC is also updating the standards it uses to adjust a bank's price.
For example, certain factors in the current adjustment guidelines may be unneeded, since they were added to the initial price calculation in February.
In the updated proposed guidelines, the agency said, "The FDIC would focus on identifying institutions for which a combination of risk measures and other information suggests either materially higher or lower risk than their total scores indicate."
Finally, a proposed rule to be considered by the board — drafted along with other agencies — would implement new requirements for swap participants mandated under Dodd-Frank. The proposal, which would give the public until June 24 to comment, would require covered swap entities "to collect initial margin" in swap transactions with others.
