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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 — The White House is projecting a massive increase in costs to the Federal Deposit Insurance Corp. from bank failures over the next two years, but experts disagree over the reliability of the administration's numbers.
May 12
WASHINGTON — The Obama administration's proposed 2013 budget unveiled Monday predicted that the Deposit Insurance Fund will once again go insolvent, clashing with the Federal Deposit Insurance Corp.'s own projections.
The FDIC said in November that the DIF had reached $7.8 billion, or roughly 0.12% of the nation's insured deposits, and has shown no signs that the fund will return to the red, where it lingered for two years following a wave of failures during and after the financial crisis.
While the administration's budget ultimately agrees with the FDIC that the fund's ratio will rebound to levels that predated the financial crisis, it also said the reserve ratio "will slip back into negative territory in the near term, driven in part by higher projected bank failures and constant assessment schedule, which slows down the DIF reserve growth rate."
Specifically, the administration projected that the reserve ratio would stay negative until 2015.
The budget added, however, that the FDIC would not be in long-term fiscal straits.
"The FDIC has ample operating cash to effectively and efficiently resolve bank failures during the short period that the Budget projects the DIF balance to be negative," the budget says.
The White House also projects FDIC losses associated with failures at about $33 billion in 2012 and 2013 combined. (Under the projection, losses would be $17.2 billion in 2012 and $15.8 billion in 2013.)
Yet the estimates are sharply different from the FDIC's projections.
In the first month and a half of 2012, failures have produced estimated losses of just about $900 million. In October, the FDIC estimated total failure-related losses from 2011 to 2015 would total $19 billion, much less than what the administration sees for a shorter period. The FDIC's projection was $2 billion less than its previous forecast. The agency has also projected the reserve ratio hitting 1.15% in 2018.
A spokesman for the FDIC pointed to the agency's fall figures and said the FDIC has not changed its projections. (Later this month the agency will provide an update of where the fund stood at the end of the fourth quarter.)
"Improved prospects for individual troubled banks, an expected continued decline in the pace of Camels rating downgrades, and a reduction in the rate at which troubled banks fail are responsible for the modest reduction in projected losses to the DIF over the next five years," the FDIC said in a statement in October. "Beyond five years, the projections assume a low level of failures and associated losses."
Another startling piece of the administration's FDIC estimates was a projection of $19 billion in costs during the budget period to go toward the agency's new authority under the Dodd-Frank Act to resolve systemically important companies.
The White House budget proposal said while it "does not forecast any specific systemic failure," it calculated the probability of such a failure occurring under a model used by countries that are part of the Organization for Economic Co-operation and Development.
Monday's release of the White House proposal was not the first time an administration budget has differed from FDIC projections. In 2009, the Obama administration's proposed budget for the 2010 fiscal year had projected massive failure-related costs of $91 billion over a two-year period, contrasting with a lower number the FDIC had forecast through 2013. Under the Bush administration, a 2006 projection for industry deposit insurance premiums of $1.3 billion over two years was seen at the time as especially high.
Experts said the FDIC's estimates were more reliable.
"They're using old numbers and they haven't looked at the trends," James Chessen, the chief economist for the American Bankers Association, said of the White House's Office of Management and Budget's 2013 proposal. "Losses last year were half of what the FDIC even expected. Losses this year are going to be a lot less.
"What OMB has here is completely out of touch with the realities of the FDIC's fund."
