WASHINGTON -- Reserves in the Bank Insurance Fund dropped to 1.27% of insured deposits in the fourth quarter, the lowest point in six years and just two basis points above the legal minimum, the Federal Deposit Insurance Corp. said Friday.
If the funds reserve ratio drops below the mandatory 1.25%, all banks would have to pay premiums again.
Though the FDIC did not immediately recommend premiums be charged this year, it said that an assessment increase of between 1 and 5 basis points was possible. The agency has until May 15 to inform banks if it will charge premiums this year. The agencys board is expected to meet again in two months to discuss if such an increase, which would be effective in July, will be necessary.
The agencys projections made it appear increasingly likely that fees would eventually be charged. Based on what it characterized as a conservative assumption of 2% growth of insured deposits, the agency said the Bank Insurance Funds reserve ratio could fall to as low as 1.17% by yearend, according to figures released at a board meeting Friday.
If deposits grew as much as 6% during the year, the ratio could drop to 1.12%, the agency said.
Both numbers are significantly below the point where the FDIC would be required by law to assess premiums on all banks for the first time since 1996.
Under the agencys best case scenario -- minimal losses and slow insured deposit growth -- the ratio would rise by one basis point, to 1.28%.
Projecting further, to mid-2003, the FDIC said the funds condition could worsen. Based on the agencys projection that bank failures could cost the fund between $150 million and $3.94 billion between now and then, the ratio could fall to 1.13%, even with minimal deposit growth. If deposit growth increases, the ratio could fall to 1.07% -- a dramatic drop from 1.35% at the end of 2000, and had reached a peak of 1.41% as of March 31, 1999.
