Federal Deposit Insurance Corp. officials are concerned that banks will continue to suffer in a slow growth economy, but have an even greater fear: that a recession could spur more bank failures.
According to a new forecast from the agency, bank failures will cost the Deposit Insurance Fund another $19 billion through 2015.
From 2008 to 2010 bank failures cost the DIF $79 billion, according to Matthew Green, the agency’s chief for fund analysis.
"Recent developments have heightened concerns about renewed financial turmoil which could result in a greater number of bank failures projected and a decrease in the value of failed bank assessments -- raising the costs of both past and future failures to the DIF," Green told FDIC directors at a board meeting Tuesday.
Despite the uncertainties, FDIC directors are stressing the positives, including projections that the DIF will reach a 1.15% reserve ratio in 2018, based on current deposit insurance premium rates.
The Dodd-Frank Act requires the fund reserve ratio to reach 1.35% by September 2020. "The assessment that the insurance fund remains on the path to recovery and on track to meet the goals established by Congress is welcome news," said FDIC acting chairman Martin Gruenberg. "As we seek to stay on track, it's important to always be mindful of the challenges we face and ongoing risks to the insurance fund."
Roughly 865 institutions are on the FDIC’s problem bank list. Historically, FDIC does not project the number of bank failures, just expected losses.
Trepp LLC, a private sector analytics firm, estimates that 26 banks will fail during fourth quarter, bringing the 2011 total to 100. Last year, 157 FDIC-insured institutions failed.
As of September 30, the New York-based firm had 238 banks on its Trepp Watchlist, which means these depositories could go under. The banks in question generally are small. Only 12 have assets in excess of $1 billion.
Commercial real estate loans, including construction loans, are the "main driver" of bank failures, according to Trepp. Six banks failed in September with CRE loans accounting for 82% of the nonperforming assets at these institutions. Only 14% of their assets were nonperforming 1-4 family loans.
