A Break in Bank Failures as FDIC Lowers Loss Estimates

This weekend marked the fourth this year where the ""FDIC's"":http://www.fdic.gov liquidation professionals stayed home instead of venturing out across the country to close down lenders deemed to have too little capital to cover their loan losses and continue operating.
[IMAGE] With no bank closings this weekend, the ""2011 failed-bank tally"":http://www.fdic.gov/bank/individual/failed/banklist.html holds at 34. As predicted by FDIC Chairman Sheila Bair, the pace of institutional shut-downs has slowed considerably. By comparison, at this time in 2010, the year's failures stood at 57.

Earlier this month, the FDIC updated its loss and reserve ratio projections for the agency's Deposit Insurance Fund (DIF), which is used to cover consumers' deposits when a lender's other business activities push it to fold.

The projected cost of FDIC-insured institution failures for the five-year period from 2011 through 2015 is $21 billion, compared to estimated losses of $24 billion for banks that failed in 2010 alone.

While these loss projections are subject to considerable uncertainty, the FDIC says under these projections and

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current assessment rates, the fund should become positive this year and reach 1.15 percent of estimated insured deposits in 2018.

The Dodd-Frank Act requires that the fund reserve ratio reach 1.35 percent by September 30, 2020.

Following seven quarters of decline, the DIF balance has increased for four consecutive quarters.

The DIF balance stood at negative $7.4 billion at year-end 2010, up from negative $8.0 billion in the prior quarter and negative $20.9 billion at the end of 2009.

""These projections and trends are indeed good news, but I want to caution that we are not out of the woods yet,"" said Chairman Bair. ""While it is difficult to make long-term projections, we think that these latest projections are a sign of continued recovery in the banking industry.""

Market analysis conducted by ""Trepp LLC"":http://www.trepp.com indicates that lenders are now taking the biggest hit from souring commercial real estate loans, as opposed to troubled residential mortgages that weighed down so many at the start of this financial crisis.

Looking at a snapshot of the six community banks that were seized on April 15th to illustrate the research firm’s assumption, Trepp found that commercial real estate (CRE) loans comprised the bulk of the banks’ distressed portfolios, with CRE accounting for $304 million of the banks’ total of $394 million in nonperforming loans.

Nonperforming residential loans, on the other hand, stood at $73 million, or 19 percent of the total in nonperforming loans. Commercial and industrial (C&I) loans to businesses made up the remaining share of the nonperforming portfolios.