The Federal Deposit Insurance Corp. board expects bank failures to cost the fund $12 billion over the next five years, down from $88 billion in losses between 2008 and 2011.
At the end of 2009, the deposit insurance fund hit a low point of negative $20.9 billion. It since has increased to a positive $11.8 billion at the end of last year, following eight-straight quarterly gains. It holds a reserve ratio of 0.17%.
According to FDIC projections released Monday, the board expects the reserve ratio to reach 1.15% by the second half of 2018, which would equal a mark required by previous law. The Dodd-Frank Act raised the minimum reserve ratio to 1.35%, which the FDIC is required to reach by September 2020.
In October, the board projected bank failures to cost the FDIC $19 billion between 2011 and 2015.
Seventeen banks failed to date this year, according to the FDIC, down from 34 over the same time period last year.
Fewer failures, better revenue generated by the banking industry and higher insurance fees charged to the largest banks helped restore the fund, the FDIC said.
“Even if a slowdown in the economic recovery results in higher fund losses than projected, the existing statutory framework should provide sufficient time to evaluate the effect on the fund’s recovery before considering future adjustments to the restoration plan and assessment levels,” according to a memorandum released by the FDIC Monday.
James Chessen, executive vice president and chief economist at the American Bankers Association, said banks pay roughly $13.5 billion in premiums every year. This will result in $65 billion in revenue to the FDIC over the next five years, more than five times what the fund expects in losses.
“As a result, the fund will recapitalize much faster than the FDIC anticipates,” Chessen said in a statement. “The FDIC has been overly conservative in setting aside reserves for possible failures that did not occur. These excessive reserves mean the fund is even healthier than expected.”
