WASHINGTON — A decline in bank failures and improving stability across the financial industry helped persuade the Federal Deposit Insurance Corp. to approve a 4.7% reduction in its 2016 operating budget on Tuesday.
The $2.21 billion budget is down from $2.32 billion in 2015, with most of the decline derived from a 23.8% reduction in estimated costs associated with receivership funding. The ongoing operations budget, which is separate from the receivership funding, is slated to increase 0.9%.
"As the U.S. banking industry continues to show improvement and the number of bank failures steadily declines, we remain focused on fulfilling the responsibilities of our mission while prudently managing costs," FDIC Chairman Martin Gruenberg said in a press release.
The FDIC said headcount at the agency will decrease by 317, with an increase of 17 permanent staff positions being offset by a 334 reduction in temporary positions. Eight of the new permanent positions will be added to groups overseen by Chief Information Officer Lawrence Gross Jr. who joined the FDIC in October. The total staffing level for 2016 is projected to be 6,569.
FDIC Chief Financial Officer Steven App wrote in a memorandum proposing the budget that the number of banks with a high risk rating has "declined substantially" since 2010 and is expected to continue to fall.
"As a result, the number of risk management examinations will decline by a projected 12%, from 2,117 in 2015 to 1,862 in 2016," App wrote, saying that it will "permit a significant decrease in the authorized non-permanent supervision staff for risk management in 2016."
He noted that there were only 8 bank failures so far in 2015, down from 18 a year earlier. "No change is expected next year in this downward trend," he said.
While costs associated with the receiverships are expected to fall, the workload will still be elevated "for several years" because of ongoing post-failure receivership resolutions and managing loss share agreements, which were used frequently during the financial crisis.
The memo said the FDIC is still managing 460 active receiverships and overseeing 236 loss share agreements.