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FDIC moving back into black

By Claes Bell · Bankrate.com
Thursday, April 14, 2011
Posted: 4 pm ET

During the depths of the financial crisis, savings account holders were treated to the unpleasant news that rapidly failing banks were emptying the multi-billion-dollar FDIC insurance fund faster than a hunch-punch bowl at a frat party.

By the end of the third quarter of 2009, the fund was $8.2 billion in the red and falling, ending up with a negative balance of $20.9 billion at the end of that year. Eventually, the flood of bank failures waned and a series of special assessments on banks helped stabilize the fund.

Now the FDIC says it expects its insurance fund to swing back into the black this year. From the Financial Times:

A return to positive territory for the fund, which is paid for by FDIC member banks, would be yet another step toward putting the worst financial crisis in recent history behind the banking system.

"These projections and trends are indeed good news, but I want to caution that we are not out of the woods yet," Sheila Bair, who chairs the FDIC, said on Tuesday.

While Ms. Bair warned against reading too much into uncertain long-term estimates, she added: "We think that these latest projections are a sign of continued recovery in the banking industry."

The insurance fund deficit began to narrow four quarters ago. While the FDIC expects it to cross into the black sometime this year, it was unwilling to say exactly when during the year that would happen.

After peaking at 157 in 2010, the number of bank failures, which have totalled 28 so far this year, are expected to decrease going forward. The banks failing now are mostly smaller, regional and community banks.

While I don't think the FDIC was ever in any real trouble because it could always have gone to the Treasury for support, this is comforting news for anyone who has an FDIC-insured savings or checking account. It's always nice to know the entity that ensures you'll get your money back if your bank fails is on solid financial footing.

For those seeking further reassurance that their bank is on sound financial footing, check out Bankrate's recently updated Safe & Sound Star Ratings. The ratings are formulated by looking at banks' balance sheets, asset performance and other factors to assess their overall financial status.

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