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Bank Failures Through 2014 Will Cost $60 Billion, FDIC Says

June 22 (Bloomberg) -- U.S. bank failures through 2014 will drain $60 billion from the Federal Deposit Insurance Corp. fund that protects customer accounts in the event of a collapse, the agency said today.

“We expect bank failures to peak this year and start tapering off next year as the banking industry continues to heal and recover, but there are some uncertainties that lie ahead,” FDIC Chairman Sheila Bair said today at a meeting in Washington.

Regulators are closing banks at the fastest pace since the savings-and-loan crisis ended in the 1990s, seizing 83 lenders through June 18 of this year after shutting 140 in 2009 amid loan losses stemming from the collapse of the mortgage market.

The surge in failures has pushed the industry-supported fund into a deficit for the first time since early 1990s, according to agency estimates. The deficit narrowed to $20.7 billion in the first quarter from $20.9 billion three months earlier, and the fund is projected to reach a positive balance by 2012, the agency said today.

The FDIC included 775 banks with $431 billion in assets on the confidential list of problem lenders as of March 31, an increase from 702 banks with $402.8 billion at the end of the fourth quarter, the agency said in its quarterly banking report.

The agency was required to institute a fund restoration plan after its ratio of reserves to insured deposits fell below the mandated 1.15 percent in the wake of the credit crisis. Banks last year were required by the FDIC to prepay three years of premiums, raising about $46 billion. The agency also has authority to tap a $500 billion Treasury Department credit line.

The fund will be back at the mandated ratio by the first quarter of 2017, the agency said today.

The FDIC insures deposits at 7,932 lenders with $13.4 trillion in assets. The insurance fund is used to reimburse customers for deposits of as much as $250,000 when a bank fails.

To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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