FDIC Says Insurance Fund’s Growth Unlikely to Alter Banks’ Rates

The Federal Deposit Insurance Corp. said it is unlikely to change the rates banks pay for insurance that guarantees customer deposits even as the fund continues to stay on track to meet deadlines for its health.

The federal backstop, funded by assessments on banks, was at $37.9 billion by June 30, up from a deficit of $20.9 billion at the end of 2009 as bank failures surged during credit crisis. The FDIC predicted it will spend $4 billion to cover bank shutdowns in the next five years, a projection that declined another $1 billion since April as the industry improves, according to a report issued today updating the fund’s health.

“Notwithstanding this improvement, we have a long way to go,” said FDIC Chairman Martin Gruenberg. He said rates charged the banks probably won’t rise as industry health improves and numbers of banks failing or at risk of doing so continues to decline. “It is also unlikely we will be able to lower them in the near future.”

The fund returned to a positive balance in 2011, and the FDIC anticipates that its income from assessments on banks will drop from about $12.4 billion in 2012 to about $10 billion this year as conditions improve and growth in the assessment base has been more sluggish than expected, according to the report.

The fund still has less than its required reserve ratio of 1.15 percent of the deposits it insures, and the FDIC expects to reach that goal by 2019 -- an extension of one year from earlier estimates because of a “more conservative projection of future assessment revenue.” The reserve ratio was at 0.63 percent by June 30, the agency said. The Dodd-Frank Act of 2010 required the FDIC to increase the target ratio even higher to 1.35 percent by Sept. 30, 2020.

When the ratio nears 1.15 percent, the agency will propose a rule required by Dodd-Frank to offset the effect on smaller banks as the ratio target increases to 1.35 percent, according to the report.

First National Bank of Edinburg, Texas, was the most recent of this year’s 22 bank failures. The FDIC estimated its cost to the fund will be $638 million.

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