The continuing recovery of the U.S. banking industry means less work for the agency primarily responsible for the safety and soundness of the nation’s banks and savings associations. Due to the decline in banking failures and resolution receivables, the FDIC announced today that their operating budget for 2014 will decline by 10.9% to $2.39 billion. This is the third consecutive decline in the FDIC’s annual operating budget and the lowest since 2008 when the banking industry was in a full blown financial crisis.
The banking industry recovery and lower FDIC budget translate into a reduced need for personnel. The authorized 2014 FDIC staffing level will drop to 7,199 positions, a decline of 854 jobs from last year’s level of 8,053.
Historically, staffing levels at the FDIC have fluctuated dramatically based on the health of the U.S. banking system. During the savings and loan crisis of the early 1990?s when hundreds of banks were failing every year, staffing at the FDIC reached a peak of 22,586 in 1991. As the banking industry gradually recovered FDIC staffing declined to a low of 4,532 in 2007 on the eve of the biggest banking crisis since the 1930?s.
The FDIC’s operating budget is broken down into separate components that fund ongoing operations and receivership funding. The budget for each component is restricted to its specific mission and funds cannot be transferred between the two components. Although the total FDIC budget for next year drops by 10.7%, the entire decline is due to substantially lower resource requirements for receivership costs. Funding for receivership costs is projected to decline by $300 million while the costs of ongoing FDIC operations is projected to rise by 0.5 percent. The 2014 FDIC operating budget of $2.4 billion includes $1.8 billion for ongoing operations and $600 million for receivership funding.
Total projected staffing levels of 7,199 for 2014 consists of 5,879 permanent employees and 1,320 temporary staff. The costs associated with receivership costs can escalate dramatically when the banking industry runs into trouble. Over the past decade costs for annual receivership funding have been as low as $11 million and as high as $2 billion.
During the recent banking crisis the FDIC was forced to retain massive amounts of junk assets (known as resolution receivables) from failed banks that could not be sold to other financial institutions. Resolution receivables ballooned to $38.4 billion in 2009 before being gradually reduced to $16.9 billion at September 30, 2013.
The budget for receivership costs is expected to continue declining due to the reduced number of bank failures expected during 2014. The FDIC had earlier announced its plan to close the temporary East Coast Satellite Office in April 2014 due to declining bank failures.
Bank failures and industry consolidation have dramatically reduced the number of banks that are subject to regulatory review by the FDIC. The number of FDIC-supervised institutions declined by 1,192 or almost 22% from 5,527 at the end of 2007 to 4,335 on November 7, 2013. The FDIC expects the number of FDIC-supervised institutions to continue declining during 2014.
Despite the reduced number of banks the FDIC is responsible for supervising, the cost of future ongoing operations is not expected to decline. One significant factor contributing to the increase in the ongoing costs of operating the FDIC is the increase in payroll costs. While most private sector employees are looking at very small or zero increases in their paychecks, FDIC employees managed to negotiate a 4% pay increase for themselves.
The big question is when receivership funding will explode again as the banking industry stumbles from one crisis to the next. After the S&L crisis of the early 1990?s the number of bank failures was negligible for the 16 years from 1993 to 2007. If the past precedent holds, more than a decade should pass before the next U.S. banking crisis.