FDIC Banks Earn Big, But Still Lend Little
"For now, the credit adversity we have been discussing for some time remains with us, and we expect that it will be at least a couple of more quarters before we see a meaningful improvement in that trend," Bair added. "Despite the challenges, I am optimistic that if we address these problems head-on, we will see clear signs of improvement in bank earnings and lending in 2010."
As projected in September, the FDIC's Deposit Insurance Fund (DIF) balance—or the net worth of the fund—fell below zero for the first time since the third quarter of 1992. The fund balance of negative $8.2 billion as of September already reflects a $38.9 billion contingent loss reserve that has been set aside to cover estimated losses over the next year. Just as banks reserve for loan losses, the FDIC has to set aside reserves for anticipated closings over the next year. Combining the fund balance with this contingent loss reserve shows total DIF reserves with a positive balance of $30.7 billion.
Bair distinguished the DIF's reserves from the FDIC's cash resources, which stood at $23.3 billion of cash and marketable securities. To further bolster the DIF's cash position, the FDIC Board approved a measure on November 12th to require insured institutions to prepay three years worth of deposit insurance premiums—about $45 billion—at the end of 2009. "This measure will provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010, but without accelerating the impact of assessments on the industry's earnings and capital," Chairman Bair said.
Total insured deposits increased by 10 percent ($491.5 billion), reflecting new data collected on the temporary increase in the standard maximum FDIC deposit insurance amount from $100,000 to $250,000.
The complete Quarterly Banking Profile is available on the FDIC Web site at http://www2.fdic.gov/qbp.