FDIC Fund at 10-Year High as Bank Failures Grind to Halt

The fund that insures depositors at defunct banks rose to its highest level in a decade in the first quarter, as bank failures halted for the first time in 16 years, regulators said Tuesday.

The Federal Deposit Insurance Corp. said its bank insurance fund had a balance of $15.2 billion at the end of March, up from $13.1 billion at the end of 1993 and the highest level since $15.4 billion at the end of 1983.

The fund, which protects depositors against losses of up to $100,000, had red ink of $101 million at the end of 1992.

A steep drop in failures has contributed to the health of the fund, which was depleted in the late 1980s and early 1990s after banks fell victim to the woes of the energy, real estate and farm sectors. Failures were then as high as 200 a year.

By contrast, the most recent quarter was the first time since the second quarter of 1978 that no banks went bust. Failures hit an 11-year low in 1993, when just 42 banks closed. Bank earnings, meanwhile, surged to record levels.

“It’s more than the economic recovery,” said banking analyst Bert Ely of Ely & Co. “We’ve had sharply improved real estate markets in New England and the mid-Atlantic states. At the same time, we haven’t had any new markets fall into the tank and pull down banks.”

The first-quarter level of the bank insurance fund was equal to 80 cents for every $100 in insured deposits, or 0.80% of deposits. The ratio was 0.69% at the end of 1993.

By law, the FDIC must boost the fund until it reaches 1.25% of deposits--at which time banks could see a cut in the premiums they pay for deposit insurance. That could filter through to consumers via higher rates on savings.