FDIC: Bank failures will cost more than $40 billion
Federal regulators now believe U.S. bank failures will cost the deposit insurance fund more than $40 billion over the next four years as the economy weakens, a government official said Tuesday.
Federal Deposit Insurance Corp. Chief Operating Officer John Bovenzi said the agency’s estimate last fall of $40 billion in losses through 2013 would probably be surpassed. He also said in testimony for a House hearing that Congress should more than triple the agency’s line of credit with the Treasury Department to $100 billion from the current $30 billion.
The FDIC has never drawn on that credit line, but such an increase would ensure "that the public has no confusion or doubt about the government’s commitment to insured depositors," Bovenzi said.
Twenty-five U.S. banks failed last year, far more than the previous five years combined. Three banks failed last week alone, the same number of failures in all of 2007.
Six federally insured institutions have collapsed so far this year, and it’s expected that many more will succumb amid the pressures of tumbling house prices, rising mortgage foreclosures and tighter credit. Some may have to merge with other institutions.
The FDIC’s original estimate of about $40 billion in losses to the insurance fund includes an $8.9 billion loss from last July’s failure of IndyMac Bank, a major thrift.
"That estimate is low," Bovenzi said at the hearing by the House Financial Services Committee payday loan cash advance. "Our losses over an extended period will be higher."
Since the estimate was made, another three months of data on banking industry performance — combined with evidence of deteriorating economic conditions — have pointed toward heavier losses, he said.
The FDIC has raised insurance premiums paid by banks and thrifts to replenish its fund, which now stands at about $34.6 billion, below the minimum target level set by Congress and the lowest level since 2003.
The agency established in October a program to guarantee as much as $1.4 trillion in U.S. banks’ debt for more than three years as part of the government’s financial rescue plan. Under the program, meant to thaw the freeze in bank-to-bank lending, the FDIC is providing temporary insurance for loans between banks, guaranteeing the new debt in the event of payment default by the borrowing bank.
Of the roughly 8,500 federally insured banks and thrifts, the FDIC had 171 on its confidential list of troubled institutions as of Sept. 30 — a nearly 50 percent jump from the second quarter and the highest tally since late 1995.
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