FDIC’s Insurance Fund Drops Below Zero

The Federal Deposit Insurance Corp.'s (FDIC) Deposit Insurance Fund (DIF) fell below zero for the first time since the third quarter of 1992, the FDIC said Tuesday.

The fund balance of negative $8.2 billion as of September 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.

In its Quarterly Banking Profile, the FDIC also says that the commercial banks and savings institutions it insures reported aggregate net income of $2.8 billion in the third quarter of 2009, but loan balances declined by the largest percentage since quarterly reporting began in 1984.

‘There is no question that credit availability is an important issue for the economic recovery," says FDIC Chair Sheila Bair. "We need to see banks making more loans to their business customers. This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 percent of the credit they use.’

Provisions for loan losses totaled $62.5 billion in the third quarter – an increase of $11.3 billion (22.2%) over the third quarter of 2008. Net interest income was $4.6 billion (4.8%) higher than a year earlier, non-interest income increased by $4 billion (6.8%), realized losses on securities and other assets were $3.8 billion lower, and non-interest expenses declined by $1.6 billion (1.7%).

Indicators of asset quality continued to deteriorate during the third quarter, the FDIC adds, but at a slowed pace. Both the quarterly net charge-off rate and the percentage of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) rose to the highest levels in the 26 years that insured institutions have reported these data.

Insured institutions charged off $50.8 billion in uncollectible loans during the quarter, up from $28.1 billion a year earlier, and noncurrent loans and leases increased by $34.7 billion during the third

SOURCE: Federal Deposit Insurance Corp.

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