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As Thomas Hoenig and Jeremiah Norton step into their new Federal Deposit Insurance Corp. roles on Monday, the dynamic for the agency's board could significantly shift.
April 13 -
Despite the drop in failure predictions, officials warn that the condition of the economy remains uncertain and give no signs of premium reductions.
October 11
WASHINGTON — At the first public meeting Monday of the reconstituted Federal Deposit Insurance Corp. board, agency officials eased projections for future bank failures.
The board featured two new members — former Federal Reserve Bank of Kansas City chief Thomas Hoenig and former Treasury Department official Jeremiah Norton — who were sworn in last week. Meanwhile, Thomas Curry, who held an undesignated director's seat on the board for eight years, switched chairs as the new comptroller of the currency.
"You sort of can't tell the players without a scorecard today," said Martin Gruenberg, the FDIC's acting chairman.
Yet besides the new faces, the meeting was largely uneventful. FDIC staff echoed past updates about the Deposit Insurance Fund with another positive assessment. Losses to the DIF from failures, officials said, are projected to total $12 billion over the five-year period from 2012 through 2016. That is a $7 billion drop from projections for 2011 through 2015. (Estimated losses from failed banks from 2008 through 2011 were $88 billion.)
After dipping into negative territory in late 2009, the DIF's balance has risen steadily for eight straight quarters, thanks in large part to assessment income and a drop-off in failures. At yearend 2011, the DIF held $11.8 billion in reserves, or 0.17% of the nation's insured deposits.
The yearend fund balance was actually $2.6 billion higher than a previously unaudited amount reported in the Quarterly Banking Profile. The agency transferred that amount to the DIF from the fees paid into a temporary program - which is now winding down - launched during the crisis to guarantee banks' unsecured debt. (The temporary debt-coverage program, which ends at the end of 2012, still has about $5.7 billion to cover claims.)
The agency said the DIF is still on target to hit a reserve ratio of 1.15% of insured deposits in the second half of 2018. Under a DIF restoration plan mandated by the Dodd-Frank Act, the fund must hit a minimum ratio of 1.35% two years later, in 2020.
While the U.S. economy remains exposed to "potential instability in oil-producing regions and effects of fiscal austerity pursued by governments in Europe," the agency's "best estimate is that the DIF balance remains on track to meet the requirements of the Restoration Plan and Dodd-Frank," 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."
The agency has still given no signs of any easing in deposit insurance premiums.
The positive assessment triggered an immediate statement from the American Bankers Association, saying the update shows 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," ABA chief economist James Chessen said in the statement.
The board members also took time to commemorate its own transition, with statements honoring both Curry and John Walsh, who had served as the acting comptroller.
"I hope that sitting on this side of the table I will be able to bring my perspective — a new perspective — to the FDIC board as the comptroller of the currency," Curry said. He thanked Walsh for leading the comptroller's office while the agency lacked a confirmed leader.
"It is not easy for a government agency to function for a long period of time without permanent leadership, especially while it's implementing major statutory changes," Curry said. "John skillfully assumed this difficult role."
Yet the board's structure is still not entirely resolved. Although Congress last month confirmed Curry as comptroller, extended the board term for Gruenberg, and approved Hoenig and Norton's additions to the boards, lawmakers have still not voted yet on Gruenberg's nomination to be permanent chairman and that of Hoenig to serve as vice chairman.
Gruenberg took note of the board's reshuffling. Addressing Consumer Financial Protection Bureau director Richard Cordray — who holds the board's fifth seat but was recess-appointed in January and so also faces uncertainty — Gruenberg said, "Rich, it occurred to me that you and I are now the senior members in current positions."
