Condition of the FDIC

Two years of major losses dropped the FDIC insurance fund from an all-time high of $52.4 billion going into 2008 to a deficit of $20.9 billion at the end of last year. The decline was despite $17.8 billion of premiums, including a $5.6 billion “special assessment.”

The large deficit is the result of nearly $100 billion of provisioning for insurance expenses. The FDIC predicts that bank failures will cost this much over 2009-2013 – most of this by the end of 2010. Noting the continued rise in the “Problem Bank List” mostly due to commercial real estate troubles –FDIC Chairman Sheila Bair recently forecast that there will be more bank failures this year than last (140).

However, Chairman Bair also forecasted that bank failures will peak this year, and that the insurance fund will reach a nadir in mid-year (see below). Premium assessment rates rose significantly last year and the assessment schedule will rise by three basis points again starting next year. The good news is that Chairman Bair indicated that the insurance fund is expected to recapitalize on the timeline established last September – without additional hikes of the assessment schedule or “special assessments.”