FDIC Increases Budget on Expectations of Mounting Bank Failures

Although signs of economic recovery have begun to take shape, don't expect the number of bank collapses to ease â€" that's the opinion of the federal agency that insures the nation's financial institutions.

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The FDIC is boosting its 2010 budget by a hefty 55 percent and adding staff in order to cope with another round of excessive bank failures next year. Earlier this week, ""the agency's board approved"":http://www.fdic.gov/news/news/press/2009/pr09228.html a $4.0 billion corporate operating budget for the upcoming fiscal year, up from the current 2009 budget of $2.6 billion.

""The 2010 budget is a prudent and measured response to current conditions in the banking industry,"" said FDIC Chairman Sheila Bair. ""It will ensure that we are prepared to handle an even-larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions.""

The agency said in a written statement that the budget increase is primarily due to the cyclical nature of bank failures. The receivership funding component of the 2010 budget, will be $2.5 billion, up from $1.3 billion in 2009.

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This includes funding for the continuing work associated with bank failures that have occurred since the onset of the financial crisis two years ago.

Funding for the budget increase will come solely from deposit insurance premiums paid by individual banks around the country. The FDIC has implemented a ""new payment structure"":http://dsnews.comarticles/banks-to-prepay-fdic-fees-agency-mulls-safe-harbor-for-securitized-loans-2009-11-13 requiring insured institutions to prepay three years worth of fees. Collection of this extra capital begins December 30, and is expected to yield over $45 billion to help cover the cost of bank collapses.

In conjunction with its approval of the 2010 operating budget, the FDIC's board also authorized a staff increase. In 2010, the agency will employ 8,653, up from 7,010 in 2009. Almost all the additional staff will be hired on a temporary basis, to assist with bank closings, the management and sale of failed banks' assets, and supervisory examinations of the nation's financial institutions.

As ""DSNews.com previously reported"":http://dsnews.comarticles/california-florida-banks-seized-by-regulators-2009-11-16, the FDIC has already opened a large satellite office in Jacksonville, Florida with a crew of nearly 500 specialists to help handle closings in that part of the country. Banks have been going under at a particularly rapid pace in Florida, as well as neighboring Georgia.

There have been ""133 bank seizures so far this year"":http://www.fdic.gov/bank/individual/failed/banklist.html, compared to 25 in 2008, only three in 2007, and none in 2006 and 2005. The FDIC keeps a watchlist of what it considers to be ""problem"" banks, and the number of names on that list has climbed to 552 â€" another sign that a steady stream of institutional failures will likely characterize 2010. Bair says she expects the cost of bank failures between 2009 and 2013 to reach about $100 billion.