WASHINGTON - The government's forecast of failed thrift assets has been cut dramatically in recognition of the industry's improved fortunes.
Roger Watson, research director at the Federal Deposit Insurance Corp., said the agency expects to handle just $100 million in failed thrift assets this year.
That's a 97% decrease from January, when the FDIC predicted it would inherit $3 billion in assets from failed thrifts in 1995. The agency's forecast for failed thrift assets in 1996 remains unchanged at $2 billion.
For banks, the FDIC cut in half its projections for this year and next. The agency now expects banks with a total of $1 billion in assets to fail this year and banks with $2 billion in assets to fail in 1996.
In an interview this week, Mr. Watson did not even try to defend the massive adjustments.
"I've quit being embarrassed," he said. "We have a very poor track history in projecting out very far. No matter how hard we try, we don't get any better."
The FDIC bases its projections on the judgments of examiners working in the field. Every quarter, a committee of agency officials reviews which institutions are expected to fail.
The FDIC became responsible for thrift failures on July 1. The Resolution Trust Corp. handled thrift failures from 1989 through June 30.
Mr. Watson said the FDIC was forced to drastically trim its failure forecast for thrifts after a number of shaky institutions managed to attract new investors this year.
"The industry keeps making money," he said. "Institutions in deep trouble raised capital."
While admitting to a lousy track record, Mr. Watson said averaging the agency's annual forecasts paints a much better picture.
"Over the last few years - on average - we've been great," he said. "In any given year, we're awful, absolutely awful."
In fact, from 1987 through 1993, the FDIC's estimates missed the actual amount of failed bank assets by just 13.7%. However, in only one year of those seven did the agency do better than average: In 1990 it underestimated failed bank assets by 11.4%. In every other year, the agency was off by at least 36%.
The FDIC underestimated losses the most in 1987, when assets of failed banks - $35.7 billion - exceeded the forecast by 58.9%.
The agency's worst overestimate came in 1992, when failed bank assets - $3.5 billion - were 85.8% lower than forecast.
Industry consultant Bert Ely said the FDIC has "an upward bias that constantly distorts their numbers."
"Why do they keep seeing more problems?"