Federal Deposit Insurance Corp.
Chair Sheila Bair expects the deposit insurance fund to land in positive territory for the first time since 2009 when the regulator reports its June results.
Bair will leave her post on July 8 and gave her last congressional testimony before the Senate Banking Committee Thursday, updating lawmakers on the state of the fund. When Bair took over controls at the FDIC in 2006, the banking industry hit its sixth-consecutive year of record earnings. Only 0.7% of loans on the banks' balance sheets were delinquent, only 50 banks populated the FDIC problem list and 952 days had passed without a failure.
"However, as we soon learned, the apparently strong performance of those years in fact reflected an overheated housing market, which was fueled by lax lending standards and excess leverage throughout the financial system," Bair said.
By early 2010, 5.5% of all loans on bank balance sheets were delinquent. More than 370 institutions failed since the start of 2007, peaking at more than 150 in 2010 alone. The number of banks on the problem list currently stands at 888.
The DIF estimated losses totaled $84 billion since 2006. At its lowest, the DIF sat at a negative $20.9 billion balance.
But Bair told Congress Thursday because of actions the FDIC took, the regulator never had to draw from the Treasury Department.
It increased assessment rates at the beginning of 2009, raising revenue to $12 billion that year, and up to $14 billion in 2010. In the summer of 2009, the FDIC imposed a special assessment, bringing in another $5.5 billion. Then in December 2009, the FDIC required banks to prepay almost $46 billion in assessments.
At the end of March, the DIF stood at a negative $1 billion balance.
The regulator implemented an assessment rate to achieve a reserve ratio of 1.3% of insured deposits by Sept. 30, 2020. This was required under the Dodd-Frank Act.
The market continues to stumble toward recovery. Bair said roughly 2.25 million mortgages remain in the foreclosure process, slowed by the inefficiencies of servicers.
As the market continues to mend, Bair pointed out the almost 7,000 community banks are more capitalized than their larger counterparts but suffer from a distinct competitive disadvantage.
"The competitive position of small and mid-sized institutions has been steadily eroded over time by the government subsidy attached to the too-big-to-fail status of the nation's largest banks," Bair said. "Every financial company, no matter how large, complex and interconnected, also must be constrained by the discipline of the marketplace and face the credible threat of failure."
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