The FDIC has updated its forecast for the Deposit Insurance Fund balance, substantially revising down their projected cost of bank failures over the next five years. In addition, the FDIC announced that it will return $5.7 billion in prepaid assessments to banks due to the rapid improvement of the DIF.
ABA Chief Economist James Chessen commented, “The rapid recapitalization of the Deposit Insurance Fund reflects an industry that is stronger today than at any point in the last four years. The banking industry is returning to profitability and failures continue to decline sharply. As a result, the Deposit Insurance Fund is growing faster than expected and will have the resources to weather any contingency that could arise.”
At the end of 2012 the DIF reached $33.0 billion resulting in a reserve ratio of 0.45%. In addition to this the DIF holds $3.2 billion in reserves for anticipated failures in the next year. The FDIC projects that the DIF will reach a 1.15% reserve ratio in 2018 and reach its target 1.35% by the 3Q 2020 deadline. Under the Dodd-Frank act, once the fund reaches 1.15% - its pre-crisis reserve ratio - banks larger than $10 billion in assets will be responsible for raising the additional funds to reach 1.35% coverage.
The updated forecast substantially revises down the FDIC’s projected bank failure costs. Just last October, the FDIC estimated that bank failures would cost the fund $10 billion from 2012 through 2016. In this forecast this has been revised down 30% to $7 billion due to “lower recent and expected failure rates. In addition the FDIC now forecasts that failures in the next five years (2013-2017) will be even less, totaling just $5 billion.
The expiration of the FDIC’s temporary insurance on transaction accounts greater than $250,000 will boost the reserve ratio by 11 basis points in the first quarter of 2013.
In 2009 the FDIC required depository institutions to prepay 13 quarters of assessments, totaling $45.7 billion, to ensure the DIF had sufficient liquidity. The FDIC will refund excess prepaid assessments totaling $5.7 billion at the end of June.
Banks, not taxpayers, are entirely responsible for covering all of the FDIC’s expenses, including the recapitalization of the fund. In fact, banks have paid over $100 billion in assessments since the inception of the find, ensuring that no one has ever lost a penny of an insured deposit.