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Good news for the FDIC

By David McMillin · Bankrate.com
Sunday, October 23, 2011
Posted: 12 pm ET

While hundreds of bank failures have drained the FDIC's Deposit Insurance Fund over the past four years, members across the banking industry may have a reason to celebrate.

Over the next five years, the FDIC estimates losses of $19 billion due to bank failures, according to a report released last week.

Wait, is that the good news?

Well, when you compare a projected five-year loss of $19 billion to the $23 billion of losses in 2010 alone, the projections are positive, signaling that the FDIC expects banks to regain some sense of stability. This return to normalcy is certainly good for account holders and bank executives alike, and the expected decrease in losses will make legislators happy, too. Part of the Dodd-Frank Act requires the ratio of insurance funds to deposits increase to 1.35 percent by 2020.

While the FDIC's mission is to keep the public confident about the security of their money, the organization is cautious about the potential for good news. The press release states the "loss projections are subject to considerable uncertainty." Translation: These estimates could be completely wrong.

That being said, all indications are good. The fund suffered massive losses that took it to a negative $20.9 billion balance in 2009. Banks seemed to be failing left and right, and a lot of people wondered not if, but when, the next financial institution would fall. With the DIF back to a positive value and these new estimates, I think we're slowly turning the corner toward a healthier financial industry.

What do you think? Are banks stabilizing? Or are these projections wishful thinking? As the FDIC continues to work toward firming up the Deposit Insurance Fund, what other changes might we see in the banking industry?

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1 Comment
hawks5999
October 24, 2011 at 1:16 pm

This article needs to be cross-referenced in any future definition of putting "lipstick on a pig". And perhaps an accompanying photo of an ostrich, head buried in the sand.
These projections disappear as soon as BofA completes its transfer of 10's of Trillions of derivatives into its retail bank. A prompt BK for the retail bank will follow. JPM will follow the same course (don't want to waste a crisis).
FDIC is toast. But the good news is that the entire Federal Government will be defaulting at that point so FDIC won't dominate headlines for more than about 8 hours.