On October 19th, the FDIC announced that they are not going to increase deposit premiums for now - but this is really a temporary adjustment based on the fact that failed bank losses at the FDIC are not as high as anticipated. FDIC officials said they now expect to lose $52 billion through 2014, which is $8 billion lower than earlier projections.
FDIC charges premiums to cover deposits of failed institutions. Similar to an insurance policy, the more people that pay into the policy, the more evenly the costs can be distributed. The FDIC is facing a growing dilemma; institutions continue to fail, mergers and acquisitions will always exist, and the lack of de-novo start up banking ventures has meant a significant decrease in the number of FDIC insured institutions. Thus, the remaining participants are left to fund the insurance policy.
The Deposit Insurance Fund (DIF) by law currently needs to be 1.15% of total insured deposits. Recently passed legislation (Dodd-Frank) requires that ratio to increase to 1.35%, but gives the industry ten years to get to that level. Assuming that the U.S. economy and financial institutions continue to show signs of better health, this should be achievable without putting too much undue stress on existing financial institutions.
As of October 15th, the U.S. has seen 132 bank failures. This compares to 140 in all of 2009. Therefore, from the number of bank failures, we will exceed 2009 levels, but there is more to the story. In spite of two recent exceptions (Premier Bank of Missouri and ShoreBank of Illinois, both over $1 billion in assets), since May 7th, only 5 out of the 60 failed institutions have been over $1 billion in assets. In 2009, 28 out of the 140 failed institutions were greater than $1 billion. In fact, if you add up the assets of all the failed institutions in 2010, they only equal the assets of the top 7 bank failures of 2009.
So the trend is getting better. Bank failures are becoming less frequent, are impacting smaller institutions, and are allowing the FDIC to rebuild their coffers after a terrible 18 months preceding this period. If this trend continues, those institutions that survive will be stronger, more profitable, innovative, and reinvest in their communities and isn't that what we want our financial institutions to do?