WASHINGTON -- The outlook for the U.S. bank insurance fund has become more gloomy as real estate markets continue to languish and the economy remains sluggish, Federal Deposit Insurance Corp. Chairman L. William Seidman said yesterday.
In prepared testimony to the House Budget Committee, he said that under the FDIC's "baseline," or middle-of-the-road, projection, the fund will have a surplus of about $3.2 billion at the end of this year but a deficit of $3 billion at the end of 1992. This compares with a January forecast of a $4.1 billion surplus at the end of this year and a $3.6 billion surplus at the end of 1992.
However, in the FDIC's most pessimistic scenario, the fund would show a surplus of $1.7 billion at the end of 1991, Mr. Seidman said. At the end of 1992, he said, the deficit is now forecast at $11.0 billion under the pessimistic scenario, compared with January's projection of $4.6 billion.
In both cases, the estimates take into account an increase effective July 1 in bank insurance premiums to 23 cents per $100 of deposits, up from 19 1/2 cents.
According to a report in yesterday's Wall Street Journal, Mr. Seidman said that he expected the fund to be insolvent by the end of 1991, mostly because of the expected failure of several large East Coast banks.
Mr. Seidman noted that the number of "problem" banks totaled 1,030 as of last Friday, down from 1,044 at the end of March. Over the same period, though, total assets of these institutions have increased to $430.8 billion from $399.7 billion, he said.
So far this year, 62 federally insured banks have failed, compared with 169 for all of last year and 207 in 1989.
The more gloomy forecast means the FDIC must borrow for working capital, Mr. Seidman said. Cash on hand at the end of 1990 of $6.9 billion plus expected cash receipts during 1991 of $10.7 billion "fall considerably short of the outlay that will be required under either scenario," he said.
New borrowings necessary under the baseline scenario in 1991 will total $18.5 billion, and under the pessimistic outlook, the FDIC would need to borrow $21 billion, he said. For 1992, the figures are $20 billion and $29.2 billion, respectively, Mr. Seidman said.