Bailout Cost Falls as Fewer Banks Fail : Finance: None of the $30 billion Congress approved last year to reimburse depositors at failing banks may be needed in 1993, the FDIC says.

With bank failures down sharply, the Federal Deposit Insurance Corp. is unlikely to have to borrow any taxpayer money next year to prop up its bailout fund, the agency’s chief said Friday.

Andrew (Skip) Hove, acting FDIC chairman, said bank failures are running at half the pace expected, and with the economic outlook brightening, no draw-down on its $30-billion credit line with the Treasury is likely in 1993.

“If the industry continues to improve and failures are fewer, then I do not anticipate we would use any of it,” Hove said in an interview.

Just a year ago, top lawmakers in Congress believed that a taxpayer bailout of the banking industry was virtually inevitable--an ugly prospect on the heels of the multibillion-dollar savings and loan fiasco.

But that threat has diminished significantly, Hove said. “I don’t sense that is a risk to taxpayers.”

Favorable interest rates, which allow banks to borrow money very cheaply and charge a much higher rate on loans, account for their strengthening balance sheets.

Indeed, the industry expects to report record profit this year. Its third-quarter earnings are due out Wednesday.

A strengthening banking industry is an immense boon for President-elect Clinton, for it allows him to forgo the politically tricky issue of bank failures. And banks are well positioned to resume lending, crucial to boost the economic growth he promised, analysts said.

The much-feared “December surprise”--expected after Dec. 19 when tough new capital rules require regulators to shut critically weakened banks quickly--appears to be withering away.

Hove said 35 banks with $7 billion in assets face government takeover, down dramatically from the 60 banks with $25.3 billion in assets that were critically weak at mid-year.

For next year, FDIC forecasts 125 banks with about $70 billion in assets might fail. Although high, that rate is about 30% below the rate expected a year ago.

And this year’s failures of 105 banks with $40 billion to $45 billion in assets is half the amount forecast.

The FDIC pays for bank failures from its Bank Insurance Fund, which is financed by premiums levied on bank deposits.

Near-record failures of over 1,000 banks the last five years have drained the fund dry, requiring Congress last year to approve the Treasury line of credit to keep it afloat.

The fund was running a $5.5-billion deficit at June 30, after taking a $16-billion reserve against future losses.

But with failures down sharply, the loss reserve appears to be more than enough to handle losses for 1992 and 1993--about $12 billion, Hove said. In addition, the fund next year will receive $16 billion in income from deposit premiums.

For these reasons, no draw-down on the Treasury funds is likely to be needed, he said, and banks can quickly rebuild the Bank Insurance Fund without government help.

Despite the improved outlook, Hove said, he is not ready to declare the bank recovery is firmly in place.

“We have some concerns if the economy does not continue to improve and if the interest rate environment does not remain favorable,” he said. “But I don’t think it will cause a significant uptick in the failure rate.”