FDIC throws a dart and bank failure losses reduced by $8 billion and Sheila Bair caved in to the banksters

The obvious reason why Sheila caved in to her banksters

(taken directly from the FDIC Restoration Plan):

The FDIC has concluded that given the continuing stresses on the earnings of insured depository institutions and the additional time afforded to reach the reserve ratio required by Dodd-Frank, that it will forego the uniform 3 basis point increase in initial assessment rates scheduled to take effect on January 1, 2011.

By Victoria McGrane

Of Dow Jones Newswires
10/19/10 

WASHINGTON (Dow Jones)--The Federal Deposit Insurance Corp. Tuesday killed a scheduled rate hike for bank deposit insurance after new projections show bank failure losses will be less than previously thought.

In a sign that the effects of the financial crisis are starting to mediate, FDIC staff said that they now expect $52 billion in losses to the fund through 2014, down from the $60 billion predicted in June.

SAY WHAT!!??

Since their June guess (a.k.a. analysis), the banks are in a heap of hurt and unkown foreclosure fraud liability territory and no one has any clue of the impact of this fradulant mess.

As a result, staff recommended the FDIC board forgo levying a three-basis-point increase in assessment rates, slated to go into effect Jan. 1. Without the rate increase, staff predict the insurance fund will still reach a reserve ratio of 1.15% by the end of 2018.

The Dodd-Frank financial regulation law requires that the FDIC devise a plan to bring the insurance fund's reserve ratio to 1.35% by Sept. 30, 2020.

But the FDIC put off until 2011 a decision on the method it will use to make sure small banks aren't hurt by recapitalization of the insurance fund, a protection required by the Dodd-Frank law.

Banks welcomed the decision to halt the rate increase. The move will save banks about $2.5 billion a year, according to an estimate by the American Bankers Association.

"Simply put, the FDIC's decision to forgo the premium increase means that banks will have $2.5 billion every year that can now be used for loans in their communities," said James Chessen, ABA's chief economist.

In a separate action, the board approved an initial plan to set the deposit insurance fund's long-term designated reserve ratio at a minimum of 2% ahead of a possible banking crisis, significantly above the 1.35% minimum specified in the Dodd-Frank Act enacted in July.

The minimum designated reserve ratio was 1.15% prior to Dodd-Frank.

The FDIC wants a larger fund to avoid having the deposit insurance fund plunge into negative territory during a crisis as it did in the 1990s and again in the recent crisis, when it hit a record low of negative $20.9 billion in December 2009.

In exchange for having a higher reserve ratio, banks would get more stable, predictable premiums as opposed to being hit by high assessments when they can least afford to pay such rates, FDIC officials said.

The FDIC assesses member banks a fee to back the deposit insurance fund, which in turn guarantees the safety of depositor funds.

Under the proposed plan, the FDIC would also lower assessment rates when the reserve ratio hits 1.15%. And instead of issuing dividends when the fund reaches a certain size, the FDIC would continue to adopt lower rate schedules when the reserve ratio reached 2% and again at 2.5%. FDIC officials said that would cause average rates to decline about 25% and 50%, respectively.

"While it is difficult to make long-term projections, we are trying to give the industry greater certainty regarding what rates will be over the long run," FDIC Chairman Sheila Bair said in a statement. "The trade off we are proposing is lower, more stable and predictable premiums, but a higher reserve."

FDIC staff estimated that the fund's reserve ratio could hit 2% by 2027, but stressed that the projection is far from solid given how far in the future it required them to look.

There is likely to be push-back against the FDIC's goal of growing the fund's reserve ratio larger than 2%. While there's consensus that the fund should be larger, some banking industry officials argue that going bigger than 2% is unnecessary, especially since higher capital standards in Dodd-Frank are supposed to make insurance fund losses less likely in the future.

The initial proposal is now open to public comment for 30 days, and subject to future changes by the FDIC.

The Publilc has already commented Sheila!