Deposit Reserve Continuing to Dwindle : Finance: The chairman of FDIC says the bank insurance fund could shrink by as much as $2 billion this year.

WASHINGTON —  A top federal regulator said today the fund protecting commercial bank deposits is under “very substantial stress” and probably will suffer a third consecutive loss this year.

L. William Seidman, chairman of the Federal Deposit Insurance Corp., said, “We may well have another loss in the current year.”

He told the Senate Banking Committee the loss could drop reserves in the fund to between 50 cents and 60 cents per $100 in bank deposits.

Speaking to reporters during a break in the hearing, Seidman said “it would not be unreasonable” to predict a $2-billion loss in the bank insurance fund, lowering reserves to roughly $11 billion.

The fund has lost money in every year since 1988, when it began with reserves of $18 billion. The fund is declining despite increases in the insurance premiums paid by banks.

Seidman said after a review of more than 1,000 problem banks in the country that his agency believes the fund is still adequate to handle bank failures.

“At this point we believe we can handle anything we can see,” he said.

Seidman also said most bank and thrift customers are ill-equipped to evaluate the health of the institutions where they deposit their money.

“Only a small proportion of depositors have the resources and ability to make informed judgments about the condition of a bank,” he said.

“Even the best regulators, Wall Street types and financial gurus have a very poor record of foreseeing banking problems much in advance,” he said in testimony before the Senate Banking Committee.