WASHINGTON -- In an ominous forecast for taxpayers, the Bush administration has quietly estimated that the dwindling federal fund that insures bank deposits is much closer to insolvency -- and a publicly financed bailout -- than had been generally thought.
The administration's projections imply a continuation of bank failures into the mid-1990s and predict that the Federal Deposit Insurance Corp.'s bank insurance fund will lose $6.1 billion in the next three years, even if insurance premiums are doubled.
Moreover, banking industry experts warn that the losses probably will be even greater, because the administration has assumed that the economy wouldn't sink into a recession. Most economists now foresee a recession, which they say would add to the number of bank failures.
"It could easily be more if the economy turns sour," said Robert Litan, a senior fellow at the Brookings Institution, a Washington research organization, referring to losses at the FDIC fund.
The projects "show the fund in very serious trouble, maybe facing bankruptcy," said Rep. Frank Annunzio, D-Ill., chairman of the House Financial Institutions Subcommittee. "At the very least, the [fund] will suffer a liquidity crisis."
The forecast was prepared by the Office of Management and Budget and the Treasury Department and was in the budget package that the House scuttled. In the debate over the plan, the figures were overlooked even by key congressional committees.
The basis of the projections, however, was unaffected by the House vote.
Experts say the predictions carry added significance because they come from the administration. Heretofore, the administration generally has issued much rosier forecasts than congressional agencies, which have been warning that commercial banks may follow savings and loans into deep financial trouble.
Officials at the budget office and the FDIC declined to comment on the projections.
The FDIC's bank insurance fund protects deposits of up to $100,000 in case of bank failure. The fund gets its money by charging banks a premium on their deposits.
Compared to the deposits it protects, the fund is at its lowest point in history. After losing more than $5 billion in 1988 and 1989, the fund totaled $11.4 billion as of June 30. That works out to 0.6 percent of the roughly $1.9 trillion in insured deposits.
The fund will close this year with even less money. FDIC Chairman L. William Seidman told a congressional committee last month that because of continued bank failures, the fund would lose about $3 billion in 1990.
The fund's reserves are dangerously low. In a report to Congress in September, the General Accounting Office warned that the failure of just one big bank might deplete the fund.