DEPOSIT INSURANCE FUND TRENDS
SECOND QUARTER 2009

Notes to Users

DIF Reserve Ratio Declines 5 Basis Points to 0.22 Percent Insured Deposit Growth Was Flat in Second Quarter 24 Institutions Failed during Second Quarter 5-Basis-Point Special Assessment Levied on Industry Assets

During the second quarter of 2009, total assets of the nation’s 8,195 FDIC-insured commercial banks and savings institutions decreased by 1.8 percent ($238.1 billion). During this period, total deposits increased by 0.7 percent ($66.7 billion), foreign office deposits increased by 3.6 percent ($51.0 billion), and domestic office deposits increased by 0.2 percent ($15.7 billion). Domestic non-interest-bearing deposits increased by 2.3 percent ($32.6 billion) and savings deposits and interest bearing checking accounts increased by 2.8 percent ($92.9 billion), while domestic time deposits decreased by 4.0 percent ($109.8 billion). For the 12 months ending June 30, total domestic deposits grew by 7.5 percent ($525.5 billion), as interest-bearing deposits increased by 4.7 percent ($274.3 billion) and non-interest-bearing deposits rose by 20.5 percent ($251.3 billion). Over the past year, the share of assets funded by domestic deposits increased from 52.8 percent to 56.8 percent. In contrast, over the same 12 months, Federal Home Loan Bank (FHLB) advances as a share of asset funding declined from 6.3 percent to 4.8 percent and foreign deposits’ share of assets declined from 11.6 percent to 11.0 percent. FHLB advances decreased by 24.5 percent ($206.1 billion) and foreign office deposits decreased by 5.0 percent ($77.6 billion) over the 12 months ending June 30.

Beginning in the second quarter of 2009, brokered deposits that exceed 10 percent of an institution’s domestic deposits are included in the metrics used to price an institution’s deposit insurance¹. Brokered deposits decreased by 5.8 percent ($45.2 billion) during the second quarter, the largest quarterly decline since the first quarter of 2005, when brokered deposits decreased by 9.6 percent. At mid-year 2009, 46 percent (3,758) of FDIC-insured banks and thrifts used brokered deposits to fund a portion of their balance sheet, and roughly 40 percent (1,488) of these institutions had brokered deposits that exceeded 10 percent of their domestic deposits. Insured institutions began itemizing reciprocal brokered deposits² on their reports of condition beginning June 30, 2009; 1,352 institutions reported $34.2 billion in reciprocal brokered deposits, amounting to 4.7 percent of total outstanding brokered deposits.

Estimated insured deposits at all FDIC-insured institutions (based on the $100,000 coverage limit) decreased by 0.3 percent during the second quarter of 2009 but increased 7.8 percent during the past four quarters combined. For institutions existing as of March 31, 2009, and June 30, 2009, insured deposits increased during the second quarter at 4,724 institutions (58 percent), decreased at 3,419 institutions (42 percent), and remained unchanged at 40 institutions.

On 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 (from the permanent limit of $100,000 for deposits other than retirement accounts) 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. Starting on September 30, 2009, insured deposit estimates will be based on the increased insurance coverage limit of $250,000.

On June 30, 2009, a special assessment was imposed on all insured banks and thrifts. For 8,106 institutions, with assets of $9.3 trillion, the special assessment was 5 basis points of each institution’s assets minus Tier 1 capital; 89 other institutions, with assets of $4.0 trillion, had their special assessment capped at 10 basis points of their second quarter assessment base.

The Deposit Insurance Fund (DIF) decreased by $2.6 billion (20.3 percent) during the second quarter to $10.4 billion (unaudited). Accrued assessment income from the regular and the special assessment increased the fund by $9.1 billion. Interest earned, combined with realized gains on securities and debt guarantee surcharges from the Temporary Liquidity Guarantee Program added $1.1 billion to the fund. Unrealized losses on available-for-sale securities combined with operating expenses reduced the fund by $1.3 billion.

The reduction in the DIF was primarily due to an $11.6 billion increase in loss provisions for bank failures. Twenty-four insured institutions with combined assets of $26.4 billion failed during the second quarter of 2009, the largest number of quarterly failures since the fourth quarter of 1992, when 42 insured institutions failed. For 2009 through the end of the second quarter, 45 insured institutions with combined assets of $35.9 billion failed at an estimated current cost to the DIF of $10.5 billion.

The DIF’s reserve ratio was 0.22 percent on June 30, 2009, down from 0.27 percent at March 31, 2009, and 1.01 percent one year ago. The June figure is the lowest reserve ratio for the combined bank and thrift insurance fund since March 31, 1993, when the reserve ratio was 0.06 percent. All else being equal, an increase in insured deposits, will reduce the reserve ratio.

Footnotes

¹ For an institution in Risk Category I, the initial base assessment rate depends, in part, on the institution’s 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, regardless of the rate of growth of assets. Reciprocal brokered deposits are included in the amount of brokered deposits for purposes of computing this ratio.

² Reciprocal brokered deposits are deposits that an insured depository institution receives through a deposit placement network on a reciprocal basis, such that: (1) For any deposit received, the institution (as agent for depositors) places the same amount with other insured depository institutions through the network; and (2) each member of the network sets the interest rate to be paid on the entire amount of funds it places with other network members.