Each depositor insured to at least $250,000 per insured bank

DEPOSIT INSURANCE FUND TRENDS
FOURTH QUARTER 2009

Notes to Users

Insured Deposits Grow by 1.8 Percent DIF Reserve Ratio Declines 23 Basis Points to -0.39 Percent Forty-five Institutions Failed During Fourth Quarter Banks Prepay 13 Quarters of Insurance Assessments

Total assets of the nation’s 8,012 FDIC-insured commercial banks and savings institutions decreased by $137.2 billion (1.0 percent) during the fourth quarter of 2009. Total deposits increased by $125.7 billion (1.4 percent), domestic deposits increased by $143.6 billion (1.9 percent), and foreign office deposits decreased by $17.8 billion (1.2 percent). Domestic savings deposits and interest-bearing checking accounts increased by $194.1 billion (5.4 percent). Domestic non-interest-bearing deposits increased by $89.8 billion (6.1 percent), and domestic time deposits decreased by $140.4 billion (5.6 percent). Over the past 12 months, the share of assets funded by domestic deposits rose from 54.2 percent to 58.7 percent, and the share funded by foreign office deposits increased from 11.1 percent to 11.7 percent. During the same period, Federal Home Loan Bank (FHLB) advances as a percentage of total assets declined from 5.8 percent to 4.1 percent, the smallest percentage on record (2001 to present).

Since the second quarter of 2009, the portion of brokered deposits exceeding 10 percent of an institution’s domestic deposits has been included in the formula used to price an institution’s deposit insurance.¹ Brokered deposits decreased by $16.9 billion (2.7 percent) during the fourth quarter, and decreased by $146.8 billion (19.2 percent) during the previous 12 months. Reciprocal brokered deposits decreased by $2.8 billion (7.7 percent) to $33.6 billion during the three months ending December 31, 2009.

Beginning September 30, 2009, insured deposit estimates are based on the temporary $250,000 coverage limit.² Estimated insured deposits (including U.S. branches of foreign banks) increased by $95.3 billion (1.8 percent) during the fourth quarter of 2009. For the year estimated insured deposits increased by 13.5 percent ($641.3 billion) reflecting new data collected on the temporary increase in the standard maximum FDIC deposit insurance amount from $100,000 to $250,000. For institutions reporting as of September 30, 2009 and December 31, 2009, insured deposits increased during the fourth quarter at 5,435 institutions (68 percent), decreased at 2,546 institutions (32 percent) and remained unchanged at 28 institutions.

The Deposit Insurance Fund (DIF) decreased by $12.6 billion during the fourth quarter to a negative $20.9 billion (unaudited) primarily because of $17.8 billion in additional provisions for bank failures. Also, unrealized losses on available-for-sale securities combined with operating expenses reduced the fund by $692 million. Accrued assessment income added $3.1 billion to the fund during the quarter, and interest earned, combined with termination fees on loss share guarantees and surcharges from the Temporary Liquidity Guarantee Program added $2.8 billion. For the year, the fund balance shrank by $38.1 billion, compared to a $35.1 billion decrease in 2008.

The DIF’s reserve ratio was negative 0.39 percent on December 31, 2009, down from negative 0.16 percent on September 30, 2009, and 0.36 percent a year ago. The December 31, 2009, reserve ratio is the lowest reserve ratio for a combined bank and thrift insurance fund on record.

Forty-five insured institutions with combined assets of $65.0 billion failed during the fourth quarter of 2009, at an estimated cost of $10.2 billion. For all of 2009, 140 FDIC-insured institutions with assets of $169.7 billion failed, at an estimated cost to the DIF of $35.6 billion. This was the largest number of failures since 1990 when 168 institutions with combined assets of $16.9 billion failed (excluding thrifts resolved by the RTC).

Prepaid Assessments

On September 29, 2009, the FDIC Board adopted an Amended Restoration Plan to allow the Deposit Insurance Fund to return to a reserve ratio of 1.15 percent within eight years, as mandated by statute. At the same time, the Board adopted higher annual risk based assessment rates effective January 1, 2011. While the Amended Restoration Plan and higher assessment rates address the need to return the DIF reserve ratio to 1.15 percent, the FDIC must also consider its need for cash to pay for projected failures. In June 2008, before the number of bank and thrift failures began to rise significantly, total assets held by the DIF were approximately $56 billion and consisted almost entirely of cash and marketable securities (i.e. liquid assets). As the crisis has unfolded, liquid assets of the DIF have been to protect depositors of failed institutions and were exchanged for less liquid claims against assets of failed institutions. As of September 30, 2009, although total assets had increased to almost $63 billion, cash and marketable securities had fallen to approximately $23 billion. The pace of resolutions continues to put downward pressure on cash balances. While most of the less liquid assets in the DIF have value that will eventually be converted to cash when sold, the FDIC’s immediate need is for more liquid assets to fund near-term failures. If the FDIC took no action under its existing authority to increase its liquidity, staff projected that the FDIC’s liquidity needs would exceed liquid assets on hand beginning in the first quarter of 2010. To provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010 and beyond, but without accelerating the impact of assessments on the industry’s earnings and capital, the FDIC approved a measure to require insured institutions to prepay 13 quarters worth of deposit insurance premiums. These prepayments—about $46 billion—were collected on December 30, 2009. Cash and marketable securities stood at $66 billion on December 31, 2009.

Footnotes

¹For an institution in Risk Category I, the initial base assessment rate is adjusted using the adjusted brokered deposit ratio. This ratio will exceed zero if an institution’s brokered deposits are greater than 10 percent of its domestic deposits and its total assets are more than 40 percent greater than they were four years previously. Certain reciprocal brokered deposits are excluded from the calculation of the adjusted brokered deposit ratio. For an institution in any other risk category, the initial base assessment rate is increased if the institution’s ratio of brokered deposits to domestic deposits is greater than 10 percent. Reciprocal brokered deposits are included in the amount of brokered deposits for purposes of computing this ratio.

²On May 20, 2009, the President signed the Helping Families Save Their Homes Act of 2009, which extended the temporary deposit insurance coverage limit increase to $250,000 for deposits other than retirement accounts (from the permanent limit of $100,000) through the end of 2013. The legislation also eliminated the provision in the Emergency Economic Stabilization Act of 2008 that prevented the FDIC from considering this temporary increase in deposit insurance coverage for purposes of setting deposit insurance assessments. Beginning September 30, 2009, insured deposit estimates are based on the $250,000 coverage limit.