The Federal Deposit Insurance Corp. said Tuesday its 2010 budget will jump to $4 billion from $2.6 billion this year, and announced plans to hire more than 1,600 mostly temporary employees as it continues to grapple with a rising number of bank failures.
The FDIC's board voted at a public meeting to approve the 2010 budget, which includes $2.5 billion for resolving failed banks taken over by the agency. That's up from $1.3 billion in 2009. The hiring plans will bring the number of FDIC employees to 8,653.
So far this year, 133 U.S. banks have succumbed to the soured economy and a cascade of loan defaults — the most in a year since 1992 at the height of the savings-and-loan crisis. They compare with 25 last year and three in 2007. The failures have cost the federal deposit insurance fund more than $30 billion so far this year.
FDIC Chairman Sheila Bair has said most banks continue to be profitable but others continue to be stressed, and that the number of failures could rise further next year. The agency expects the cost of bank failures to grow to about $100 billion over the next four years.
Bair said Tuesday the budget approved for 2010 "will ensure that we are prepared to handle an even larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions."
The number of problem banks on the FDIC's confidential list as of Sept. 30 more than doubled to 552 — the highest level in 16 years — from 250 at the start of the year.
Even after the failures stop, the work and costs for the FDIC as receiver of the collapsed banks will go on, agency staffers noted Tuesday.
Martin Gruenberg, the FDIC's vice chairman and like Bair one of its directors, said the distressed labor market has enabled the FDIC to hire many highly qualified midlevel staff.
With unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions out of the deposit insurance fund, which has fallen into the red. The FDIC has mandated banks to prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.
Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government.
Besides the fund, the FDIC has about $21 billion in cash available in reserve to cover losses at failed banks. The agency could tap a $500 billion credit line at the Treasury Department, but Bair has said that is the least desirable option.
The FDIC's operating expenses — about $1.5 billion in 2010 — are covered by the insurance fund. The $2.5 billion for resolution costs is mostly funded by what the FDIC collects from selling assets of banks in its receivership.