FDIC to Hire Hundreds & Increase Budget by $1.4 Billion

Published: Mon 21 Dec 2009

Thomas Kristoffersen

The Federal Deposit Insurance Corporation (FDIC) is increasing its budget by 55 percent and boosting its workforce by 23 percent as it attempts to keep pace with closing banks.

On Tuesday, the board of the FDIC voted to approve a $4-billion corporate operating budget for the 2010 fiscal year, which is $1.4 billion more than the budget for fiscal 2009. For 2010, the receivership financing portion of the budget almost doubles, rising to $2.5 billion from $1.3 billion.

The new FDIC budget "is a prudent and measured response to current conditions in the banking industry," explained FDIC Chair Sheila Bair in a prepared statement.

"It will ensure that we are prepared to handle an ever-larger number of bank failures next year, if that becomes necessary, and to provide greater regulatory oversight for an even larger number of troubled financial institutions," Chairwoman Bair added.

So far in 2009, the FDIC has taken control of 133 failing banks, compared to only 25 failed banks in 2008. On Friday, the FDIC shut down the Solutions Bank, based in Overland Park, Kansas, which marks the third FDIC-insured lending institution to fail in Kansas in 2009. The other two bank failures were the First National Bank of Anthony and TeamBank.

The FDIC board also approved a staff increase for 2010 from 7,010 people to 8,653. The majority of the new 1,643 new positions, according to the FDIC, are only temporary and will assist the organization with bank investigations and closings.

Funded by the deposit insurance that banks pay, the FDIC covers over 8,000 financial institutions with approximately $13.5 trillion in assets in the United States. The recent spate of bank failures has taken a major toll on the FDIC's customer account protection fund. This fund reimburses customers for deposits as large as $250,000 per account when banks fail. A typical bank failure costs the FDIC hundreds of millions of dollars.

The FDIC does not expect bank failures to attenuate in the next four years, as the organization foresees even more closings next year due to large losses on commercial real estate loans. Over the next four years, the FDIC predicts bank failures to cost roughly $100 billion. To replenish its rapidly diminishing funds, the FDIC recently required United States banks to pay their deposit insurance fees in advance for the next three years. In the event the FDIC gets even more strapped for cash, the organization may also tap into a credit line from the Treasury Department of up to $500 billion.