Full text of Annual Report of the Federal Deposit Insurance Corporation : Annual Report, 1997

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*

F E D E R A L D E P O S IT IN SU R A N C E C O R PO R A TIO N




A n n u a l Report 1997

America Banks on Deposit Insurance




The Federal Deposit Insurance Corporation
(FDIC) is the independent deposit insurance
agency created by Congress to maintain stability
and public confidence in the nation’s banking system.
In its unique role as deposit insurer o f banks and
savings associations, and in cooperation with
the other federal and state regulatory agencies, the
FDIC promotes the safety and soundness o f insured
depository institutions and the U.S. financial system
by identifying, monitoring and addressing risks to
the deposit insurance funds.
The F D IC promotes public understanding and sound
public policies by providing financial and economic
information and analyses. It minimizes disruptive
effects from the failure o f banks and savings
associations. It assures fairness in the sale of financial
products and the provision of financial services.
The F D IC ’s long and continuing tradition of public
service is supported and sustained by a highly skilled
and diverse workforce that responds rapidly and
successfully to changes in the financial environment.

FEDERAL DEPOSIT INSURANCE CORPORATION







FDIC
Federal Deposit Insurance Corporation

Washington, DC 20429_____________________

Office of the Chairman

M y 31, 1998

Sirs,
In accordance with the provisions o f section 17(a)
of the Federal Deposit Insurance Act,
the Federal D eposit Insurance Corporation
is pleased to subm it its Annual Report
for the calendar year 1997.

Sincerely,

Donna A.Tanoue
Chairman

The President of the U. S. Senate
The Speaker of the U.S. House of Representatives




O verview
1

C hairm an’s Statement

3

Highlights

5

Condition o f the FD IC ’s Funds

7

State o f the Banking and Thrift Industries

10

Board o f Directors

12

Organization Chart/Officials

15

Supervision and Enforcement

22

Failed Institutions

Operations of the Corporation

26

Consumer Protection Activities

30

Significant Court Cases

33

Internal Operations

Regulations and Legislation
39

Regulations Adopted and Proposed

44

Legislation Enacted

47

Bank Insurance Fund (BIF)

Financial Statements
63

Savings Association Insurance Fund (SAIF)

77

FSLIC Resolution Fund (FRF)

103

Number and Deposits o f BIF-Insured Banks Closed, 1934-97

Statistical Tables
104

Recoveries and Losses on D isbursements-BIF, 1934-97

105

Income and E xpenses-B IF , 1933-97

106

Insured Deposits and the BIF, 1934-97

107

FDIC-Insured Institutions Closed During 1997

107

Income and Expenses— SAIF, 1989-97

107

Insured Deposits and the SAIF, 1989-97

108

Insured Thrifts Taken O ver or Closed, 1989-97

For M ore Information
111

Sources o f Information

112

Regional Offices

113

Selected Testimony and M ajor Speeches

114

Index







*

OVERVIEW




Chairman's Statement

The Federal D eposit Insurance
C orporation spent much o f 1997
preparing for a new financial world
being shaped by consolidation and
technological change. In previous
years, as geographic and other barriers
fell, it had became increasingly clear
that we had to alter many of our ways
of doing business if we were to continue
to meet our responsibilities as a bank
supervisor and the insurer o f the pub­
lic’s deposits. By the end o f the year,
we had achieved a number of important
objectives that will enable us to take
a m ore dynam ic approach to our
mission.
In 1997, the Corporation implemented
several programs to improve our riskassessment capabilities. O ur safety and
soundness examiners began using the
revised Uniform Financial Institutions
Rating System, a new system of riskfocused exam ination m odules; and
new exam ination procedures that
assess nondeposit investment products
and electronic banking.
The revised rating system emphasizes
the quality of risk-management practices
at an individual institution and explicitly
adds “ sensitivity to market risk” as a
sixth com ponent in rating institutions.
O ur new approach to safety and sound­
ness examinations, which was fully
implemented in October, refines the
examination process by dividing tasks
into a series of diagnostic modules that
help identify a bank’s greatest risks.
The approach assists exam iners in
structuring exam inations that are
appropriate to the risks the individual
institution presents. The approach
focuses on a bank's risk-management
practices, thus allowing examiners to
look beyond the static condition of
a bank to how well it can respond to
changing market conditions, given its
particular risk profile. Concurrently,
the Exam iner Laptop Visual Infor­
mation System (ELVIS), software
that is an automated version o f the




Acting Chairman Andrew C. Hove, Jr.

diagnostic modules, helps to organize
data and comments and to generate
examination workpapers. These two
developments, in turn, enable the
Corporation to automate the prepara­
tion of the entire examination report,
which will occur in 1998.
Our new procedures for nondeposit
investment products enable examiners
to evaluate bank sales of products such
as mutual funds and annuities to retail
customers and to identity any safety
and soundness concerns. In conjunction
with the new procedures, a new track­
ing system was developed to capture
the results from examinations and to
provide analysis of industry trends.
D uring the year, the Corporation
took a leading role in recognizing
and responding to electronic banking
developments. In 1997, we became the
first of the federal bank supervisors to
develop and publish electronic banking
examination guidelines. These proce­
dures focus on safety and soundness.
We also began field-testing more
technical work programs that evaluate
the safety of various operating systems
and firewalls. General distribution
and use of these work programs will
begin early in 1998.

1

In April 1997, the Corporation reorga­
nized the structure and risk-assessment
programs o f its regional offices to
accommodate interstate banking and
consolidation. A “ case manager”
program consolidated the supervision
of related institutions under one FDIC
regional office regardless of where the
institutions operate. This new program
more closely matches the level of
regulatory oversight with the level of
risk an organization poses to the deposit
insurance fund. It also strengthens the
C orporation’s enforcement o f an insti­
tution’s compliance with fair lending,
community reinvestment and other
consum er protection laws.
In parallel with automating safety-andsoundness supervision, the Corporation
during the year developed or began
developing automated programs for
compliance examinations. These pro­
grams will help examiners target
potential risk areas for a more detailed
review. One example is our Community
R einvestm ent A ct M apping and
A nalysis System, which integrates
dem ographic, loan and econom ic
information from a variety of sources.

Our freedom to focus on the future
was, in large part, a reflection o f the
extraordinarily healthy state of the
banking and thrift industries. Low
and stable interest rates and a growing
econom y gave both industries the
opportunity to register record profits
in 1997. Commercial bank earnings
totaled $59.2 billion in 1997, up more
than 13 percent from the previous year.
The return on assets (ROA) for the
industry was 1.23 percent, the highest
annual rate reported in the 64-year
history of the Corporation. One com ­
mercial bank failed during 1997, the
first year with only one commercial
bank failure since 1972. Insured savings
institutions reported total earnings of
$8.8 billion in 1997— the first time
industry earnings exceeded $8 billion.
The thrift industry’s ROA rose to
0.93 percent, the highest annual rate
since 1946. No insured savings insti­
tutions failed in 1997, the first year
without a thrift failure since 1959.
The number of commercial banks on
the FD IC ’s "Problem List” declined
from 82 to 71 during the year, while
the total o f thrifts on the list declined
from 35 to 21. At year-end, problem
institutions held $7.2 billion in assets.
The extraordinary earnings figures—
and the lack of bank failures— enabled
the insurance funds to grow. At yearend, the balance in the Bank Insurance
Fund was $28.3 billion, a 5.4 percent
increase over the year-end 1996 balance
of $26.9 billion. (BIF-insured deposits
grew 2.4 percent in 1997). As a result
of the strength of the industry, 19-outof-20 BIF-insured institutions paid
no insurance prem ium during 1997.
The balance o f the Savings Association
Insurance Fund at year-end was
$9.4 billion, a 5.6 percent increase
over 1996 (SA IF-insured deposits
grew 1 percent in 1997). About 9-outof-10 SAIF-insured institutions paid
no insurance.prem ium during 1997.




These conditions— in the industry and
of the insurance funds— contrast greatly
with the conditions at the time I came
to the Corporation in 1990. Former
Chairman L. W illiam Seidman wrote
of that year: “Entering 1990, it was
clear to everyone associated with the
FDIC that it would be a very difficult
year for the agency. We would struggle
with mounting problems in the bank­
ing industry, particularly in real estate
portfolios. We would face the prospect
o f additional losses to the Bank
Insurance Fund. We would have our
first full year addressing the savings
and loan industry problems through
the operation o f the Resolution Trust
Corporation and as back-up supei'visor
o f savings associations. As the year
unfolded, 1990 presented difficulties
and challenges far beyond anyone’s
expectations.” The following year,
the BIF reported a negative balance.
Things change— but as it has shown
again and again, the Corporation can
change with them.
On lune 1,1997, I assumed the duties
o f Acting Chairman again— for the
third tim e— upon the resignation of
Ricki Heifer as Chairman. I have
always considered heading the agency
as an honor and a duty— I would not
seek the office, but I did not shirk the
responsibility when it came. As a
banker for 30 years, I saw how federal
deposit insurance provides many people
with the only real assurance in the
financial markets that they will ever
know. Here at the Corporation, I saw

2

the difference that it made in the bank­
ing crisis during the early 1990s. I
know first-hand that America banks
on deposit insurance. The threats to
financial stability have changed over
time, too, but the FDIC has been there
to protect the savings of the public for
64 years. I hope that all the men and
women who have worked to achieve
this accom plishment are as proud of it
as I am, and that they are as confident
as I am that the Corporation will be
just as successful in the new financial
world that consolidation and technology
are now creating.

Sincerely,

Andrew C. Hove, Jr.
Acting Chairman
1997

Highlights

■ S e lected S tatistics
D o l l a r s

in

m i l l i o n s

For the year ended December 31

January 16
Experts from around the country gath­
ered at an FDIC-sponsored symposium
to examine the banking crisis o f the
1980s and early 1990s. At the heart
of the discussion was a two-year FDIC
research project on the causes of the
crisis and its lessons. The study was
published later in the year as a twovolume work, History o f the Eighties Lessons fo r the Future (see Page 24).

January 29
The FDIC became the first federal
banking agency to issue examination
procedures on electronic banking and
associated risks to its staff. The FDIC
also provided the examination guidance
to financial institutions, assisting them
in the early development o f their elec­
tronic banking systems. The guidance
was followed by comprehensive training
o f exam iners and technical staff
(see Page 16).

M arch 13
The FDIC announced that commercial
banks earned record annual profits for
the fifth consecutive year. Earnings
reached $52.4 billion in 1996, which
surpassed the previous record of $48.8
billion in 1995. Strong growth in non­
interest income, such as fees and service
charges, was largely credited for the
earnings growth. In 1997, bank earnings
reached another new record of $59.2
billion, up 13.1 percent from 1996
results ( see Page 7).




1997

1996

1995

Bank Insurance Fund
Financial Results
Revenue
Operating Expenses
Insurance Losses and Expenses
Net Income
Insurance Fund Balance
Fund as a Percentage of Insured Deposits
Selected Statistics
Total BIF-Member Institutions*
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Total Assets of Failed Institutions
Number of Active Failed Institution Receiverships

$ 1.616
S 28.293
1.38%

$ 1,655
$ 505
$ (251)
S 1,401
$ 26,854
1.34%

9,403
73
S 5,000
1
26
302

9,822
86
S 7,000
5
183
408

$ 550
72
S
$ (2)
s 480
$ 9.368

$ 5,502
$ 63
$ (92)
$ 5,531
$ 8,888

605
s
s (428)
s 1,438

$

$

$ 4,089
$ ""471
$ 12
$ 3,606

]
|

S 25,454
1.30% B

$
$

10,242
15lj
20,160
6
753
590

1
1

Savings Association Insurance Fund
Financial Results
Revenue
Operating Expenses
Insurance Losses and Expenses
Net Income
Insurance Fund Balance
Fund as a Percentage of Insured Deposits
Selected Statistics
Total SAIF-Member Institutions
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Total Assets of Failed Institutions
Number of Active Failed Institution Receiverships

1.36%

s
$

1,519
19
2,000
0
0
2

1.30%

$
$

1,630
31
6,000
1
35
2

$ 1,140
$ 40 1
$ (321)
S 1 ,4 2 1 1
$ 3,358
047% It

$

1,728
4 2 |
10,862

$

456

;T 1

* Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.
■ Savings institutions and commercial banks.
» No SAIF-insured institutions that failed in 1995 or prior were the financial responsibility of the SAIF.
The RTC was responsible for the resolution and related costs of SAIF-insured institutions that failed before
July 1,1995. The SAIF became responsible for resolutions thereafter.
T

This represents the receivership for Heartland Federal Savings and Loan Association, Ponca City, Oklahoma,
which was closed on October 8,1993. Although this is a SAIF receivership, any financial burden will be borne
by the FSLIC Resolution Fund (FRF).

7 1

April 28
The FDIC announced a series of
seminars to educate bankers about its
new examination procedures for the
sale of nondeposit investment products,
such as mutual funds and annuities.
The FDIC, the American Bankers
Association, A m erica's Community
Bankers and the Independent Bankers
Association of America collaborated
in this educational effort (see Pages 16
and 20).

M ay 2____________________________

June 1

November 17

In a letter to FDIC-supervised banks,
the agency highlighted the basic risks
of extending credit to consumers with
incomplete or tarnished credit records
who are unable to obtain traditional
financing. A number of financial insti­
tutions involved in “ subprime lending”
were not properly assessing o r con­
trolling the risks and were suffering
substantial losses, dam aging some
institutions’ overall financial condition.
The FDIC outlined general controls
believed necessary to effectively
manage those risks (see Page 17).

Andrew C. Hove, Jr., became Acting
Chairman of the FDIC for the third
time, succeeding Ricki Heifer, who
left the Corporation after more than
two and a half years in the agency’s
top jo b (see Page 10).

The FDIC and the Georgia Department
o f Banking and Finance jointly issued
cease and desist orders against three
affiliated Georgia banks in the govern­
m ent’s first enforcement actions to
address Year 2000 compliance in the
banking industry (see Page 19).

M a y 9 ______
The Federal Financial Institutions
Examination Council issued guidance
on the activities necessary for insured
financial institutions to make computer
systems capable o f recognizing dates
in the Year 2000 and beyond. Most
computers store dates with only the
last two digits and cannot distinguish
2000 from 1900. Unless bank computer
systems are corrected, institutions face
substantial risks from faulty accounting
and recordkeeping to system shutdowns
(seeP ages 18-19).




July 30
Acting Chairman Hove told Congress
that FDIC-supervised banks are gener­
ally aware they face serious disruptions
if their com puter system s are not
modified to handle transactions starting
January 1,2000. However, senior
m anagem ent and outside directors
may not have the in-depth technical
know ledge to appreciate the extent
of the risks posed by Year 2000 noncompliance. The FDIC is monitoring
the situation closely and will take
supervisory action, including enforce­
m ent action, if banks do not address
the problem, Mr. Hove reported
(see Pages 18-19).

August 7

Novem ber 21

_______ _ _

The first BIF-insured institution failed
in the U.S. since August 1996. This
was the only bank failure in 1997. No
SAIF-insured institution failed during
the year (see Pages 8 and 22).

Decem ber 9
The Board approved a 1998 budget
o f $1.36 billion for the agency,
$255 m illion (16 percent) less
than the amount planned for 1997
(see Page 33).

___________________

The FDIC and the Office o f Thrift
Supervision teamed up to provide
bank branch data on the Internet. With
the new “Bank/Thrift Deposit Inquiry”
service, this information is available
to the public in one place for the first
time (.see Page 111).

Top: Former F0IC Chairman L. William Seidman
discusses the banking crisis of the 1980s and 1990s
at a January 16 FDIC-sponsored symposium.
Bottom: Chairman Ricki Heifer left the agency's top
post on June 1.

Condition of the Funds

FD IC -lnsured Deposits
The FDIC administers two deposit
insurance funds, the Bank Insurance
Fund (BIF) and the Savings Associ­
ation Insurance Fund (SAIF). The
agency also manages a third fund that
fulfills the obligations o f the former
Federal Savings and Loan Insurance
Corporation (FSLIC), called the
FSLIC Resolution Fund (FRF). On
lanuary 1,1996, the FRF assumed
responsibility for the Resolution Trust
C orporation’s (RTC) assets and obli­
gations. An overview of the fu n d s’
performance during 1997 follows.

D o l l a r s

in

b i l l i o n s

60

1955

I SAIF-lnsured
IBIF-lnsured
70

80

90

97

3,000
2,500
2,000

1,500
1,000

500

Bank Insurance Fund______________
III!

With banks experiencing another
record-breaking year o f profitability
and only one bank failure, 1997 was
another positive year for the BIF. The
BIF has climbed steadily from a nega­
tive balance of $7 billion in 1991 to
$28.3 billion in 1997. The 1997 yearend fund balance represents a 5.4 per­
cent increase over the 1996 balance
of $26.9 billion. BIF-insured deposits
grew by 2.4 percent in 1997. The B IF’s
reserve ratio increased from 1.34 to
1.38 percent of insured deposits during
the year.
The law requires the FDIC to establish
a risk-based assessment system. For
the first semiannual assessment period
o f 1997, the B oard retained the rates
approved in the second assessment
period of 1996: a range of 0 to 27 cents
annually per $100 o f assessable
deposits. Under the 1996 rate schedule,
94.8 percent of BIF-insured institutions
paid no assessm ents. The Board
approved the same rate schedule for
the second sem iannual assessm ent
period o f 1997, when 95.2 percent
of BIF-insured institutions were in
the low est-risk category and paid
no assessments. The lowest average
assessment rate in the history o f FDIC
deposit insurance resulted, with an
average 1997 BIF rate of 0.08 cents
per $100 of assessable deposits, down
from 0.24 cents per $100 in 1996.




II

iiiiiiii m l

Source: Commercial Bank Call Reports and Thrift Finaniat Reports
Note: For more details, see pages 106 (BIF) and 107 (SAIF).

In addition, as a direct result o f the
continued low assessm ent rate sched­
ule and the concentration o f institutions
in the lowest-risk category, interest
earned on U.S. Treasury investments
($1.5 billion) in 1997 greatly exceeded
assessment revenue ($25 million) as
the source of BIF revenue.
The only BIF-insured institution to
fail during the year had assets o f
$25.9 million. In contrast, five BIFinsured banks with assets totaling
$183 million failed in 1996. Estimated
insurance losses in 1997 were $4 mil­
lion, compared to $43 million in
estimated losses for 1996.

Investments in U.S. Treasury obligations
continued to be the main component
of the B IF ’s total assets, at 93 percent,
rising from 81 percent during the
previous year. The B IF ’s financial
position continued to improve: Cash
and investm ents at year-end were
86 times the B IF’s total liabilities, up
from 51 times the B IF ’s total liabilities
in 1996.

Savings Association Insurance
Fund_____________________________
The SAIF ended 1997 with a balance
o f $9.4 billion, a 5.6 percent increase
over the 1996 balance o f $8.9 billion.
Insured deposits increased by 1.0 per­
cent in 1997. During the year, the
SA IF’s reserve ratio grew from 1.30
of insured deposits to 1.36 percent.

Insurance Fund Reserve Ratios 1991-1997 (year-end)
P erc en t of insured D eposits
June 1997 used $33 million o f this
appropriation to pay expenses incurred
by the U.S. Department o f Justice
relating to “regulatory goodwill”
litigation.

' Savings Association Insurance Fund
■ Bank insurance Fund

The FRF continued selling the rem ain­
ing assets and settling its liabilities in
1997. A t year-end, assets in liquidation
for the former RTC totaled $2.2 billion,
down from $4.4 billion at year-end
1996. The FR F also m anages the
reserves set aside to support the sale of
securities collateralized by RTC assets.
These “credit enhancem ent reserves”
dropped from $5.8 billion in 1996
to $4.9 billion. Borrowings from the
Federal Financing Bank declined
from $4.6 billion to $849 million at
year-end 1997. (For more information
on the FSLIC Resolution Fund, see
Pages 24-25).

Note:
Insured deposit amounts are estimates. More details appear in the tables in the back of this Annual Report.

For the first sem iannual assessm ent
period of 1997. the Board approved
an assessm ent rate schedule ranging
from 0 to 27 cents annually per $100
o f assessable deposits. U nder this
schedule, 90.0 percent o f SAIFinsured institutions paid no assessments.
The Board approved the same rate
schedule for the second semiannual
assessment period of 1997, when
90.9 percent o f SAIF-insured institu­
tions again were in the lowest-risk
category and paid no assessments.
The SAIF recognized $14 million
in assessment income in 1997, com ­
pared to $535 million in interest
income. No SAIF-insured institutions
failed in 1997.




FSLIC Resolution Fund

___

The FRF was established by law in
1989 to assume the remaining assets
and obligations o f the form er FSLIC
resulting from thrift failures before
January 1,1989. Congress placed
this new fund under the management
o f the FDIC on A ugust 9,1989,
when it abolished the FSLIC. On
January 1,1996, the FRF also
assumed the R TC ’s residual assets
and obligations.
In 1994. the Congress authorized
$827 million in appropriations to be
available to the FRF until expended,
o f which $602 million was still avail­
able at year-end 1997. The FRF uses
appropriated funds only when other
sources o f funds are insufficient.
A sset collections and interest income
provided sufficient funding so that
no appropriated funds were needed
by the FRF in 1997. However, the
U.S. Departm ent o f the Treasury in

6

State of the Banking and Thrift Industries

A nnual Return on Assets (ROA)
FD IC -lnsured Institutions 1934-1997
■ Commercial Banks
r Savings Institutions
1934

40

45

50

55

60

65

70

75

80

85

90

97

Savings institution data not available prior to 1947.

Buoyed by an environment o f low
and stable interest rates and a growing
economy, insured commercial banks
and savings institutions registered
record profits in 1997. For commercial
banks, it was the sixth consecutive
year of record earnings. Higher net
interest income and strong growth in
noninterest income (such as service
charges and other fees) helped propel
commercial bank earnings in 1997.
For the thrift industry, 1997 marked
the second time in three years that
earnings set a new record. Only one
insured commercial bank failed during
1997, and there were no failures o f
insured savings associations. This
was the first year since 1946 that only
one federally insured bank or thrift
was closed. The follow ing is an
overview of conditions in these two
industries.




Commercial Banks
Commercial bank earnings totaled
a record $59.2 billion in 1997, up
$6.9 billion (13.1 percent) from the
previous year. Banks set successive
earnings records in each quarter o f
1997. Earnings were boosted by higher
net interest income (up $11.7 billion,
or 7.2 percent), which was attributable
to strong growth in earning assets
as the industry’s net interest margin
declined for the fifth consecutive year.
The increase in non-interest income
(up $10.9 billion, or 11.7 percent)
reflected higher revenues from trust
activities (up $2.4 billion, or 17.8 per­
cent) and growth in other fee income
(up $5.2 billion, or 14.0 percent). Higher
loan-loss provisions (up $3.5 billion, or
21.5 percent) and noninterest expenses
(up $9.2 billion, or 5.8 percent) limited
the rise in profits. Commercial banks’
return on assets (ROA) reached 1.23
percent in 1997, the highest annual rate
reported in the 64 years that the FDIC

has been in existence. Industry pros-perity was broad-based; more than two
out of every three banks (68.7 percent)
reported full-year ROAs o f 1.00 per­
cent or higher, and a similar proportion
(68.8 percent) reported higher earnings
compared to 1996. More than 95 percent
of all commercial banks were profitable
in 1997.
Assets o f insured commercial banks
registered their strongest growth in
17 years. Total assets increased by
$436.6 billion, or 9.5 percent. This
is the highest growth rate for industry
assets since 1980, when assets grew
by 9.7 percent. Net loans and leases
increased by $158.3 billion (5.7 per­
cent), as lending growth slowed for
the third consecutive year. High
growth rates were evident in leases
(up $22.2 billion, or 28.3 percent), real
estate construction and development
loans (up $11.8 billion, or 15.5 percent),
home equity loans (up $12.8 billion,
or 15.0 percent) and commercial and
industrial loans (up $86.3 billion, or
12.2 percent). Other asset categories
that experienced strong growth in 1997
include short-term funds lent as “fed
funds” sold and securities purchased
under resale agreem ents, which
increased by $97.9 billion (59.7 per­
cent); assets in trading accounts, which
were up by $55.8 billion (23.1 percent);
and mortgage-backed securities, which
grew by $48.3 billion (14.4 percent).
At year-end, assets o f insured comm er­
cial banks surpassed $5 trillion for the
first time while the number o f banks
continued to decline.

C redit Card Losses and
Personal B ankruptcy Filings 1985-1997 (by quarter)
Personal Bankruptcy Filings (thousands)
■ Credit Card Charge-Off Rates
1985

86

87

90

91

92

Net
Charge-Off

Sources: Bankruptcies-Administrative Office of .the United States Courts; Charge-Off Rates-Commercial Bank Call F

Deposit growth reached an 11 -year
high in 1997, as total deposits at com ­
mercial banks increased by 7.0 percent
($224.5 billion), the highest annual
growth rate since 1986, when they
grew by 7.7 percent. Despite the strong
grow th in deposits, the proportion
of industry assets funded by deposits
declined for the sixth consecutive year
as banks continued to reduce their
reliance on deposits to fund assets.
Fed funds purchased and securities
sold under repurchase agreem ents
increased by $98.8 billion (31.1 per­
cent), trading account liabilities grew
by $55.7 billion (37.0 percent), and
equity capital rose by $42.6 billion
(11.4 percent).
Credit quality remained largely favor­
able in 1997. The percentage of loans
that was noncurrent— 90 days or more
past due on scheduled payments or in
nonaccrual sta tu s- declined to 0.96
percent at year-end, the lowest level
in the 16 years that noncurrent loan
data have been reported. The percent­
age of loans charged off during 1997




rose to 0.63 percent, from 0.58 percent
in 1996. As has been the case since
1995. credit-card loans comprised the
majority of total loan charge-offs. O f
the $18.3 billion in total loans charged
off by commercial banks in 1997, creditcard loans accounted for $11.7 billion
(64.0 percent).
The number of insured commercial
banks reporting financial results
declined by 385 in 1997, from 9,528
to 9,143. Mergers absorbed 599 banks
during the year, while 188 new banks
were chartered, and one commercial
bank failed. This is the first year since
1962 with only one commercial bank
failure. (In 1972. only one commercial
bank failed but another received assis­
tance from the FDIC to prevent failure.)
The number of commercial ban <s on
the FD IC ’s “Problem List” declined
from 82 to 71 during 1997. Assets of
"problem ” banks at year-end totaled
$5.2 billion, up from $5.1 billion at
the end of 1996.

8

Savings Institutions
Insured savings institutions reported
total earnings o f $8.8 billion in 1997,
for an ROA of 0.93 percent. Industry
earnings exceeded $8 billion for the
first time, surpassing the previous
full-year earnings record o f $7.6 billion,
set in 1995, by $1.2 billion. The 1997
earnings represent an increase of
$1.8 billion over the results for 1996,
when a special assessment to capitalize
the Savings Association Insurance
Fund (SAIF) cost SAIF-insured savings
institutions $3.5 billion. The thrift
industry’s ROA rose to 0.93 percent,
the highest annual rate since 1946.
Savings institutions benefited from
lower noninterest expenses and reduced
expenses for loan losses. The capital­
ization of the SAIF in 1996 meant that
most thrifts with SAIF-insured deposits
enjoyed low er deposit insurance
premiums in 1997, producing pre-tax
savings of approximately $800 million.
The record profits were made possible
by lower noninterest expenses, reduced
costs related to credit losses, and higher
gains on sales of securities. Total assets
of insured savings institutions declined
for the first year since 1993, falling by
$2.1 billion (0.2 percent). This decrease
was caused by the transfer o f assets
from the thrift industry to the com m er­
cial banking industry through mergers
and charter conversions. During 1997,
the com m ercial banking industry
absorbed 116 savings institutions with
$75 billion in assets. This is the largest
number o f institutions and the largest
amount of assets ever transferred in a
single year between the two industries.

Notwithstanding the decline in assets,
the industry exhibited numerous signs
of improved health. Almost nine out
of ten savings institutions- 8 9 percent
- reported higher earnings in 1997,
and more than 96 percent were prof­
itable. Noncurrent loans declined by
$1.2 billion (13.4 percent) in 1997,
while net charge-offs were $544 million
(25.9 percent) lower than in 1996. The
industry’s equity capital to assets ratio
rose to 8.71 percent at year-end, the
highest level since 1943.
The number of insured savings institu­
tions reporting financial results declined
by 145 institutions during 1997, from
1,924 to 1,779. Mergers absorbed
127 thrifts, and another 39 converted to
commercial bank charters. In addition,
12 new institutions were chartered, 11
commercial banks converted to thrift
charters, five voluntarily liquidated,
two active thrift charters did not file
year-end reports, and one noninsured
institution became insured. No insured
savings institutions failed in 1997.
This is the first year since 1959 with­
out a thrift failure. The num ber of
thrifts on the FD IC ’s “Problem L ist”
declined from 35 to 21 during the year,
and the assets o f “problem ” thrifts
declined from $7 billion to $2 billion.




Board of Directors




A ndrew C. Hove. Jr.
Mr. Hove was appointed to his second
term as Vice Chairman o f the FDIC in
1994. When Ricki Heifer resigned from
the top post in June 1997, Mr. Hove
began serving as Acting Chairman for
the third time since 1991. Prior to his
first appointment as Vice Chairman
in 1990, Mr. Hove was Chairman and
Chief Executive Officer o f the Minden
Exchange Bank & Trust Company,
Minden, Nebraska, where he served
in every department during his 30 years
with the bank.
Also involved in local government, Mr.
Hove was M ayor o f Minden from 1974
until 1982 and was M inden’s Treasurer
from 1962 until 1974.
Other civic activities included serving
as President o f the M inden Chamber
of Commerce, President of the South
Platte United Chambers of Commerce
and positions associated with the
U niversity o f N ebraska. Mr. Hove
also was active in the Nebraska Bankers
Association and the American Bankers
Association.
Mr. Hove earned his B.S. degree at
the University o f Nebraska-Lincoln.
He also is a graduate o f the University
of W isconsin-M adison Graduate
School of Banking. After serving as
a U.S. naval officer and naval aviator
from 1956 to 1960, Mr. Hove was in
the Nebraska National Guard until 1963.

Donna A. Tanoue was confirmed
as FDIC Chairman on April 30,1998,
by the fu ll Senate. She was sworn in
on M ay 26,1998, as the 17th Chairman
o f the FDIC.

FDIC Board of Directors:
(seated) Andrew C. Hove, Jr.,
(standing l-r) Ellen S. Seidman,
Joseph H. Neely, Eugene A. Ludwig

Joseph H. N eely

Eugene A. Ludwig

Ellen S. Seidman

Mr. Neely served as M ississippi’s
banking commissioner before being
sworn in as a member of the FDIC
Board on January 29, 1996. His appoint­
ment, which followed nomination by
President Clinton on July 12, 1995,
and Senate confirmation later that year
on December 22, brought the Board to
its full membership of five directors for
the first time since August 1992.

Mr. Ludw ig becam e the 27th C om p­
troller of the Currency on April 5,1993.
As the C om ptroller, Mr. Ludwig also
serves as an FDIC Board member.

Ms. Seidman became Director o f the
Office o f Thrift Supervision (OTS)
on October 28, 1997. She succeeded
Nicolas P. Retsinas, who had served
in dual positions as OTS Director
and Assistant Secretary for HousingFederal Housing Commissioner
at the U.S. Department of Housing
and Urban Development. As OTS
Director, Ms. Seidman is also an
FDIC Board member.

Mr. N eely’s banking experience began
in 1977 with the Grenada Sunburst
Banking System in Grenada, Mississippi,
where he worked in the lending area.
In 1980, he continued his community
banking service at M erchants National
Bank o f Vicksburg, M ississippi,
where he ultimately served as Senior
Vice President before being named
Commissioner of the Department of
Banking and Consumer Finance for
the State of Mississippi in 1992. As
Commissioner, Mr. Neely was the
primary regulator and supervisor of
state-chartered bank and thrift institu­
tions, as well as state-chartered
credit unions and consum er finance
companies.
Throughout his career, Mr. Neely has
been active in community affairs and
has held a number of civic leadership
positions.

In January 1997, Mr. Ludw ig was
elected Chairman of the Neighborhood
Reinvestment Corporation. He also
serves as Chairm an of the Federal
Financial Institutions Exam ination
Council and the federal C onsum er
Electronic Paym ents Task Force.
Prior to becom ing C om ptroller,
Mr. Ludwig was with the law firm o f
Covington and Burling in Washington,
DC, where he specialized in intellectual
property law, banking and international
trade. He became a partner in 1981.
Raised in York, Pennsylvania,
Mr. Ludwig earned his B.A. magna
cum laude from Haverford College
in Pennsylvania. He also received
a Keasbey scholarship to attend
Oxford University, where he earned
a B.A. and M.A. Mr. Ludwig holds
an LL.B. from Yale University, where
he served as Editor o f the Yale Law
Journal and C hairm an o f Yale
Legislative Services.
Mr. Ludwig’s five-year term as
Com ptroller of the Currency expired
on April 4, 1998.

A native of G renada, M ississippi,
Mr. Neely received his B.S. and M.B.A.
degrees from the University of Southern
M ississippi. He also is a graduate
of the Stonier G raduate School of
Banking, Rutgers University; The
School of Bank Marketing, University
of Colorado: and the School of Bank
Management and Strategic Planning,
University of Georgia. Mr. Neely has
lectured at the Stonier Graduate School
of Banking, the Graduate School of
Banking at Louisiana State University,
and the A labam a and M ississippi
Schools of Banking.




Ms. Seidman joined the OTS from
the W hite House, where from 1993
to 1997 she was Special Assistant
to President Clinton for economic
policy at the W hite House National
Economic Council. She chaired
the interagency working group on
pensions and dealt with such issues
as financial institutions, natural
disaster insurance, bankruptcy and
home ownership.
From 1987 to 1993, Ms. Seidman
served in various positions at Fannie
Mae, ending her career there as Senior
Vice President for Regulation, Research
and Economics. Other prior positions
include Special Assistant to the Treasury
Under-secretary for Finance from
1986 to 1987, and Deputy A ssistant
G eneral Counsel at the D epartm ent
of Transportation from 1979 to 1981.
Ms. Seidman also practiced law for
three years beginning in 1975 with
Caplin & D rysdale, a W ashington,
DC, law firm specializing in tax,
securities and bankruptcy issues.
Ms. Seidman received an A.B. degree in
government from Radcliffe College, an
M.B.A. from George Washington
University and a J.D. from Georgetown
University Law Center.

11

Organization Chart
as of Decem ber 31,1997




12

*

¥

L




★
★
★

*
♦

OPERATIONS OF THE CORPORATION




Supervision and Enforcement

At year-end 1997, the FDIC was
the primary federal regulator o f 5,561
state-chartered banks that are not mem­
bers o f the Federal Reserve System
and 565 state-chartered savings banks.
The FDIC also had back-up supervisory
responsibility over the remaining 4,811
federally insured banks and savings
associations.
The Division of Supervision (DOS)
leads the FD IC ’s supervisory efforts
through on-site exam inations and
off-site analyses. W hen DOS identifies
excessive risk-taking, it employs various
corrective methods and it works closely
with other divisions to develop regula­
tions and issue enforcem ent actions
designed to prevent or curtail imprudent
activities that might otherwise result
in significant losses to the deposit
insurance funds.
Taking the opportunity provided
by the continued good health of the
banking industry in 1997, the FDIC
implemented several initiatives to
address changes in the industry and
provide a more dynamic supervisory
approach to its mission. DOS completed
the development and implementation
o f new exam ination procedures,
improved its off-site monitoring
capabilities and information systems,
reorganized the supervisory structure
of its regional offices, staffed specialty
areas to meet the challenges of the
future, and created a multi-divisional
committee to oversee the Year 2000
rem ediation process. The agency also
initiated outreach programs on several
emerging issues for bankers and other
regulators. These initiatives illustrated
the FD IC ’s continuing commitment
to improve efficiency throughout the
organization and reduce regulatory bur­
den on the industry.




Refining Examination and
Risk-Assessment Procedures
In 1997, the FDIC im plem ented
several programs intended to improve
the agency’s risk-assessm ent capabili­
ties and to streamline examination
and other supervisory functions. DOS
examiners began using the revised
Uniform Financial Institutions Rating
System (UFIRS); a new system of
risk-focused exam ination modules;
and new examination procedures that
assess nondeposit investment products,
electronic banking and Year 2000
readiness. The FDIC also devoted
considerable resources to analyzing
industry and econom ic trends and
the potential im pact of these trends
on the deposit insurance system.
Revisions to the Federal Financial
Institutions Exam ination Council
(FFIEC) Policy Statement on the UFIRS
became effective in January 1997.
These revisions updated the CAMEL
(capital, asset quality, management,
earnings, and liquidity) rating system
to address changes in the financial
services industry and in supervisory
policies that occurred since the original
rating system was adopted in 1979.
The revised CAMEL system empha­
sizes the quality of risk management
practices and adds a sixth component"S," for sensitivity to market risk. The
updated rating system also redefines
the other five components and high­
lights risks that may be considered
when assigning component ratings.

15

The FD IC im plem ented riskfocused exam ination m odules on
October 1,1997. The uniform proce­
dures, developed jointly by the FDIC
and the Federal Reserve in conjunction
with the Conference o f State Bank
Supervisors (CSBS), refine the exami­
nation process by dividing tasks into a
series of diagnostic modules that help
identify a bank’s greatest risks. The
modules employ a tiered approach that
assists examiners in establishing an
appropriate examination scope and
managing examiner resources. This
structured risk assessment approach
focuses on a bank's risk management
practices, thereby allowing examiners
to look beyond the static condition
o f a bank to how well it can respond to
changing market conditions given its
particular risk profile. The Examiner
Laptop Visual Information System
(ELVIS), an automated version o f the
diagnostic modules, was developed
concurrently with the new examination
procedures. This software application
helps to organize data and comments,
generates examination workpapers and
allows information to be exported into
the report o f examination.

Assistant Director Chris Spoth of the Division
of Supervision helped get the Case Manager
Program up and running.

FDIC E x a mi na t i on s 1995-1997

Safety and Soundness:
State Nonmember Banks
Savings Banks
National Banks
State Member Banks
Savings Associations
Subtotal
fConsumer and Civil Bights
Trust Departments
iData Processing Facilities
Total

In addition, the FDIC continued to
develop and improve other automation
tools designed to make examinations
more productive, efficient and riskfocused. The Automated Loan Exam i­
nation Review Tool (ALERT), which
debuted in 1996, was greatly improved
in 1997. The new version, introduced
in June, not only gives examiners the
ability to collect loan data from institu­
tions electronically, but also allows
for a more refined selection of loans
to be reviewed through a sophisticated
query function. The FDIC also
continued to develop the G eneral
Exam ination System (GENESYS),
which will automate the preparation
of the entire examination report. W hen
completed in 1998, the GENESYS
software package will allow examiners
to access and analyze financial infor­
mation and prior examination report
data electronically for use in the current
examination report, incorporate data
generated by the ALERT and ELVIS
programs, and better manage examina­
tion resources through autom ated task
assignments. These tools enable exam­
iners to perform a significant portion
o f their analysis off-site, thereby
m inim izing tim e spent in a financial
institution. The FD IC has worked
closely with the Federal Reserve Board
and the CSBS in developing these




1997

1996

mmmm 1995

2,515
224
6
0
4
2,749
1,990
552
1,514

2789
297
11
2
7
3,106
2,033
637
1,681

3,218
294
6
4
6
3,528
3,148
657
1,671

6.805

7,457

9,004

program s. This cooperation has pro­
m oted consistency among the agencies
and will further reduce regulatory burden
on state banks. (For more information
on other autom ated exam ination
program s, see Page 27.)
New exam ination procedures for
non-deposit investm ent products were
developed and im plem ented duiing
1997. These revised procedures enable
examiners to evaluate bank sales of
products such as mutual funds and
annuities to retail customers, to identify
any safety and soundness concerns,
and to streamline examinations. A
new automated tracking system was
developed in conjunction with the new
procedures to capture the results from
examinations and provide a clear
analysis o f banks’ retail investment
sales activities.
The FDIC has taken a leading role
in recognizing and responding to
electronic banking developm ents,
which present new risks and supervisory
issues to the financial system. As of
year-end 1997, the FDIC had approved

16

two applications for banks that plan to
operate solely through the Internet or
other electronic means. These applica­
tions present a num ber o f com plex
issues relating to business strategy,
system security and geographic market.
In 1997, the FDIC became the first
federal supervisor to develop and
publish electronic banking examination
guidelines. These exam ination proce­
dures focus on safety and soundness
functions such as planning, adm inistra­
tion, internal controls, and policies
and procedures. The procedures are
non-technical; they are designed with
the flexibility to be applied to a wide
range of electronic banking activities.
DOS also developed and began fieldtesting more technical work programs
that evaluate the safety o f various
operating system s and firew alls in
1997; general distribution and use of
these work programs will begin early
in 1998. (For more information on
electronic banking, see Page 27.)
In addition to refining programs that
assess risk in individual institutions,
the FDIC has also developed several
program s to better evaluate risks
that affect either the industry or groups
o f institutions with common geographic
or business profiles. The Division of
Insurance (DOI) identifies and monitors
emerging and existing risks in both
the financial services industry and the
economy by drawing on a wide variety
o f internal and external information
sources. DOI has w orked closely
with DOS on several projects to help
examiners and case managers assess
emerging risk exposure for individual
institutions as well as groups of insti­
tutions. One o f these is the Regional
Econom ic Conditions R eport for
Exam iners (RECO N ), which will
provide timely, comprehensive regional
economic data to examiners through the
FDIC’s Intranet site. RECON, which
is scheduled for release in 1998, will
serve as a valuable resource for exam­
iners evaluating the potential impact
of external risks on an institution.

R isk-R elated Prem ium s

In 1997, the FDIC monitored a number
o f significant trends, including the
increase in credit card charge-off rates,
the rise of bankruptcy filings, the growth
o f home equity loans, the expansion
o f the subprime and syndicated lending
markets, and the growing concentration
o f com m ercial real estate loans in
certain markets. In addition, the agency
analyzed industry underwriting stan­
dards by having field examiners com ­
plete a questionnaire at the end o f each
examination. The questionnaire helps
identify material changes in underwrit­
ing standards for new loans and the
degree o f risk in current lending
practices. This system, which began
in 1995, provides an “early warning”
mechanism to identify potential lending
problems that could eventually lead
to an increase in bank failures. W hile
underwriting practices remained sound
overall in 1997, exam iners noted a
few trends that warrant closer scrutiny
in the future, such as an increase in
speculative construction loans and
a general loosening of credit in some
geographic regions.

The following tables show the number and percentage of institutions insured by the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to their risk classification as of
December 31,1997. Each institution is categorized based on its capitalization and a supervisory subgroup
rating (A, B, or C), which is generally determined by on-site examinations. Assessment rates are basis
points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups*

W ell Capitalized:
Assessment Rate
Number of Institutions
Adequately Capitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

In April 1997, the FDIC reorganized
the structure and risk-assessment
program s of its regional offices to
accom m odate interstate branching
and consolidation. The case manager
program consolidates under one FDIC
regional office the supervision and
monitoring responsibilities for a group
of related institutions regardless of
the number of regions in which sub­
sidiary banks and branches operate
(see Page 26). This approach differs
from the past, when the risk assessment
of banks and their affiliates was broken
down by geographic areas, sometimes
resulting in m ore than one FDIC
regional office supervising interstate
banking organizations. The new pro­
gram more closely matches the level




B

C

0
8,981 (95.2%)

3
243 (2.6%)

17
44 (0.5%)

3
117(1.2%)

10
20 (0.2%)

24
13(0.1%)

10
5(0.1%)

24
0 (0.0%)

27
9(0.1%)

J

SAIF Supervisory Subgroups*
___________________ ________ _________________________ __________
W ell Capitalized:
Bate
Number of Institutions
1,383(90.9%)
94(6.2%)
17(1.1%)
Adequately Capitalized:
__________________________________________________
Rate
Number of Institutions
12(0.8%)
7(0.5%)
6(0.4%)

[Undercapitalized:_____________
Assessment Bate
Number of Institutions

Reorganizing to Reflect Industry
Changes__________________________

A

_______ ______ ______________________________
10
1(0.1%)

1(0.1%)

27
0(0.0%)

*

BIF data exclude 108 SAIF-member "Oakar" institutions that hold BIF-insured deposits. The assessment rate
reflects the rate for BIF-assessable deposits, which remained the same throughout 1997.

*

SAIF data exclude 770 BIF-member "Oakar" institutions that hold SAIF-insured deposits. The assessment rate
reflects the rate for SAIF-assessable deposits, which remained the same throughout 1997.

17

Data exchanges with business
partners outside the financial
institution, such as transactions
with correspondent banks, may
be disrupted.
Credit quality issues could arise
as borrowers encounter their own
Year 2000 vulnerabilities.
of regulatory oversight with the level
o f risk an organization poses to the
deposit insurance fund. The case
manager system helps the FDIC better
understand the risks presented by large
banking organizations and reduces
burden for bankers by designating
a single contact person for questions
about applications and supervisory
issues.
To address the growing complexity of
the banking industry, DOS expanded
the number and variety o f regional
office specialists as part o f its supervi­
sory reorganization. In addition to
case m anagers, each regional office
appointed experts in the areas o f capi­
tal markets, accounting, trust activities,
information systems, fraud detection
and prevention, and internal information
management.
The FDIC also was faced with the
challenge of supervising an increasingly
global industry. Foreign banking
organizations (FBOs) operating in
the U.S. control nearly one-fifth o f
the U.S. banking industry’s asset base.
DOS created an international branch,
which became operational and fully
staffed in 1997, to monitor the activities
of U.S. banks operating abroad and
foreign banks operating in the U.S.
The international branch also completes
risk profiles o f various countries
whose banking systems are o f potential
interest to the FDIC. DOS personnel
are involved in numerous international
supervisory working groups, including
the Basle C om m ittee on Banking




Supervision and the Interagency
Country Exposure Review Committee.
The FDIC is also working with the
U.S. D epartm ent o f the Treasury on
inform ation-sharing initiatives v/ith
other industrialized nations as well
as training program s for banking
supervisors in A sia and Latin America.

Addressing "Year 2000"
Computer Challenges________
The potential inability of computer
systems to accurately perform tasks
using dates beyond 1999 (the “Year
2000” problem) is a significant concern
for the financial services industry and
its regulators. The problem stems from
many systems and programs using only
two digits to designate the year. Unless
these programs are modified, comput­
ers may interpret “00” as the year 1900
instead o f 2000. Financial institutions
are vulnerable to the Year 2000 prob­
lem in a number o f areas:
•

Data processing systems, including
mainframe, network and personal
computers, may be unable to record
and process financial informal ion
accurately.

•

Equipment such as automated teller
m achines, vault locks, security
system s, elevators and climate
control systems may malfunction.

18

•

Corrupt data create the potential
for fraud against the industry and
its customers.

The FDIC is working with the other
financial institution regulatory agencies
to m onitor the potential risk to the
insurance funds if institutions fail
because of the Year 2000 problem.
The FDIC has devoted significant
resources to developing and implement­
ing programs designed to ensure that
all FDIC-supervised financial institu­
tions deal with the problem. These
efforts include industry awareness
campaigns, a comprehensive examiner
training program, off-site and on-site
Year 2000 reviews o f all FDIC-super­
vised institutions, and the creation
o f a centralized tracking system to
manage the large volume o f data
generated by the Year 2000 reviews.
To improve the industry’s awareness,
the FDIC, in cooperation with the
other federal and state supervisors, has
taken steps to highlight the importance
of Year 2000 issues. During 1997, the
FFIEC issued interagency statements
that provided detailed guidance on
Year 2000 project management and
outlined the responsibilities of an
institution’s senior management and
board of directors in addressing business
risks. The FDIC also began developing
a public awareness campaign to promote
consum er awareness o f the Year 2000
issue without creating unnecessary
concern. The campaign will encourage
consum ers to seek answers from their
financial institutions regarding potential
disruptions to their accounts, while
assuring depositors that their accounts
remain insured up to statutory limits.

Examiner Michael Fullick from the
Division of Supervision's Indianapolis office
instructs examiners on Year 2000 issues.

The FDIC in 1997 completed an initial
assessment of all the banks it supervises
to determine their awareness of the
Year 2000 problem and identify any
corrective programs initiated. The
agency will also conduct on-site Year
2000 reviews of all FDIC-supervised
institutions by June 1998; thereafter,
the FDIC, in conjunction with state
authorities, will follow up with each
institution at least tw ice annually.
Institutions that fail to adequately
address the business risks posed by
the Year 2000 problem will be subject
to supervisory action, including formal
enforcement action. The FDIC issued
three such actions in 1997.
Additional information on Year 2000
issues is available through the FDIC's
Internet site.

Reducing Regulatory Burden
The FDIC continued to streamline its
regulations and policies as mandated
by the Riegle Community Development
and Regulatory Improvement Act of
1994 (CDRI). This effort was led by
FDIC Board member Joseph Neely
and involved more than 300 employees.
Throughout 1997, FDIC staff worked
diligently to develop and implement
recommendations, which called for the
rescission or revision o f 90 regulations
and policy statements.
Perhaps the most important single
achievement from these reviews was
the proposal to consolidate and simplify
the FD IC ’s application requirements.
The revised application procedures
w ould stream line the processing of
more than 90 percent of the applications
received by allowing most applications
filed by well-managed, well-capitalized
institutions to be treated as notices.
The proposed procedures will result
in significantly reduced processing
times for all applications.




The FDIC also proposed combining
regulations governing activities and
investments o f insured state nonm em ­
ber banks and savings associations
into a single regulation. The proposed
changes will allow institutions to
engage in certain activities and make
certain investments by filing a notice
with the FDIC rather than an applica­
tion. The proposal should relieve
regulatory burden significantly without
affecting safety and soundness because
the FDIC retains the ability to place
restrictions on an activity or prohibit
a particular institution from engaging
in the activity.
Other significant actions taken in 1997
as a result of the CDRI review included:
•

Streamlining the FD IC ’s securities
registration and disclosure rules by
cross-referencing the Securities and
Exchange Commission’s regulations;

•

Increasing the flexibility o f the
FD IC ’s audit regulations and
policies, and streamlining external
auditing program procedures;

•

Revising disclosure regulations
to make information more
accessible to the public;

19

•

Simplifying reporting requirements
for suspected criminal activity;

•

Proposing simplified deposit
insurance rules; and

•

Proposing consolidation of regula­
tions regarding international and
foreign activities.

The FDIC, along with the other federal
banking regulators, also worked to
simplify other reporting requirements
for financial institutions. Effective
M arch 31, 1997, the FFIEC adopted
generally accepted accounting principles
(GAAP) as the reporting basis for most
Reports o f Condition and Income (Call
Reports), which financial institutions
must file quarterly with their primary
federal supervisor. The adoption of
GAAP as the reporting basis for most
Call Report schedules will eliminate
the need for some institutions to
m aintain two sets o f books. The
FDIC also published guidelines to
assist smaller institutions in preparing
error-free Call Reports. This publica­
tion, along with Call Report forms and
instructions, is readily available from
the FD IC ’s Internet site.

FDIC Director Joseph H. Neely spearheaded
the agency's efforts to reduce regulatory burden.

FDIC A p p lic a tio n s 1 9 9 5 -1 9 9 7

Deposit Insurance
Approved
Denied
N ew Branches
Approved
Branches
Remote Service Facilities'
Denied
Mergers
Approved
Denied
Requests for Consent to Serve'
Approved
Section 19
Section 32
Denied
Section 19
Section 32
Notices of Change in Control
Letters of Intent Not to Disapprove
Disapproved
Conversions of Insurance Coverage*
Approved
Denied
Brokered Deposit Waivers
Approved
Denied
Savings Association Activities
Approved
Denied
State Bank Activities/Investments’
Approved
Denied
; Conversions of Mutual Institutions
Non-Objection
Objection

■ H H
1997
238
238
0
1,436
1,435
1,435
NA
1
419
419
0
261
258
76
182
3
2
1
28
28
0
0
0
0
17
17
0
2
2
0
46
46
0
15
15

0

*

1996
192
192
0
2,054
2,054
1,352
702
0
392
392
0
873
873
77
796
0
0
0
46
46
0
0
2
0
15
15
0
2
2
0
167
164
3
26
26
0

1995
146
145
1
2,135 1
2,135
1,224
911
0
419
419
0
1,092
1,086
86
1,000
6
2
4
46
45
1
3
3
0
30
29
1
0
0
0
367
366
1
24
24
0

*

Effective September 30,1996, the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)
excluded remote service facilities from the definition of a domestic branch under Section 3 (o) of the FDI Act.

*

Under Section 19 of the Federal Deposit Insurance Act, an insured institution must receive FDIC approval before
employing a person convicted of dishonesty or breach of trust. Under Section 32, the FDIC must approve any
change of directors or senior executive officers at a state nonmember bank that is not in compliance with capital
requirements or is otherwise in troubled condition.

*

Applications to convert from the SAIF to the BIF or vice versa.

T

Section 24 of the FDI Act, in general, precludes an insured state bank from engaging in an activity not permissible
for a national bank and requires notices be filed with the FDIC.




20

M aintaining Open Communication
The FDIC has worked diligently to
establish and maintain open lines of
communication regarding supervisory
matters with both the financial services
industry and other regulators. FDIC
representatives routinely attend or
participate in events sponsored by
trade associations, foreign and domestic
regulatory agencies, as well as FDICsponsored outreach meetings. The
FDIC also serves as a chief source of
public information on banking industry
supervision through a variety of publi­
cations and an extensive Internet site.
Communication efforts initiated or
expanded in 1997 included:
•

Seminars on nondeposit investment
products, conducted in collaboration
w ith the Independent Bankers
A ssociation o f A m erica and the
American Bankers Association,
held across the country and attended
by more than 1,000 bankers;

•

The Division of Insurance’s quarterly
R egional O utlook publication,
which provides an in-depth discus­
sion o f trends that affect the
financial services industry from
national and regional perspectives;
and

•

Timely, useful and easily accessible
information for bankers and the
general public on the FD IC ’s
Internet home page, located at
www.fdic.gov.

For more information on the FD IC ’s
outreach efforts, see Pages 28-29.

Com pliance, Enforcem ent and Other Related Legal A ctions 1995-1997

Enforcement and Applications

Total Number of Actions Initiated by the FDIC

DOS works closely with the Legal
Division to initiate supervisory enforce­
ment actions against FDIC-supervised
institutions and their employees. The
FDIC initiated just 127 enforcement
actions in 1997, nearly two-thirds of
the 186 actions begun in 1996 and
almost one-third of the 338 actions
initiated just five years ago. This indi­
cates the continued health and stability
of the banking industry.

Termination of Insurance
Involuntary Termination
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition
Voluntary Termination
Sec.8a By Order Upon Request
Sec.8p No Deposits
Sec.8q Deposits Assumed

The trends of continued health and
further consolidation o f the industry
also are evident in both the number
and types of applications processed
by the FDIC. New bank applications
increased significantly for the fifth
consecutive year, as record profits
attracted more entrants to the market­
place. Nevertheless, merger applica­
tions continue to outnum ber new
entrants by nearly two to one as the
industry consolidates. Efforts to reduce
regulatory burden on the industry
are also evident in the significantly
lower volume of applications for new
branches and notifications of changes
in directors and officers. The Economic
Growth and Regulatory Paperwork
Reduction Act of 1996 eliminated
the need for institutions to file branch
applications for remote service facilities
and narrowed the circum stances
under which institutions must notify
the FDIC of changes in directors and
senior executive officers.




Sec. 8b Cease-and-Desist Actions
Notices of Charges Issued
Consent Orders
Sec. 8e Removal/Prohibition of Director or Officer
Notices of Intention to Remove/Prohibit
Consent Orders
Sec. 8g Suspension/Removal When Charged W ith Crime
Civil Money Penalties Issued
Sec 7a Call Report Penalties
Sec.8 i Civil Money Penalties
Sec. 10c Orders of Investigation
Sec. 19 Denials of Service After Criminal Conviction
Sec. 32 Notices Disapproving Officer or Director
Truth in Lending Act Reimbursement Actions
Denials of Requests for Relief
Grants of Relief
Banks Making Reimbursement:
Criminal Referrals Involving Open Institutions
Other Actions Not Listed

One action included a Section 8c Temporary Order.
These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included
in the total number of actions initiated.

21

Failed Institutions

The Federal D eposit Insurance
Corporation has the unique mission
to protect depositors of insured banks
and savings associations. No insured
depositor has ever experienced a loss
in an FDIC-insured institution due to a
failure. The FDIC protects depositors
by managing the Bank Insurance Fund
(BIF) and the Savings A ssociation
Insurance Fund (SAIF). The FDIC
also manages the remaining assets and
liabilities of the former Federal Savings
and Loan Insurance Corporation
(FSLIC) and the former Resolution
Trust Corporation (RTC) through the
FSLIC Resolution Fund (FRF).
Once an institution is closed by its
chartering authority— the state for
state-chartered institutions, the Office
of the Comptroller o f the Currency
(OCC) for national banks and the
Office of Thrift Supervision (OTS)
for federal savings associations—
the FDIC is responsible for resolving
that failed bank or savings association.
The D ivision o f R esolutions and
R eceiverships (DRR) staff gathers
data about the troubled institution,
estim ates the potential loss from a
liquidation, solicits and evaluates bids
from potential acquirers, and recom ­
mends the least-costly resolution to
the FD IC ’s Board of Directors.

Protecting Insured Depositors
The FDIC’s ability to attract healthy
institutions to assume deposits and
purchase assets of failed banks and
savings associations minimizes the
disruption to customers and allows
some assets to be returned to the




private sector immediately. Assets
remaining after resolution are liquidat­
ed by DRR in an orderly m anner and
the proceeds are used to pay creditors,
including depositors whose accounts
exceeded the insured $100,000 limit.
During 1997, the FDIC resolved
only one institution, the fewest in one
year since 1962. (In 1972, only one
com m ercial bank failed but another
received assistance from the FDIC
to prevent failure.) Southwest Bank
o f Jennings, Louisiana, which was
insured by the BIF, was closed by
the state banking comm issioner on
N ovem ber 21,1997. It had total
deposits o f $26.8 million and total
assets o f $25.9 million. The FDIC
was able to find a bank to assume
all o f the bank’s deposits and
$20 million of its assets.
As assets o f failed institutions are
liquidated by the FDIC, DRR makes
payments, known as dividends, to
uninsured depositors and general
creditors o f failed banks, including
payments to the FDIC as a creditor
for advancing funds for the payment
o f insured deposits at the time o f an
institution’s failure. Total dividend
payments during 1997 to all creditors
o f institutions that failed in prior years
were just more than $5.3 billion.

Asset Disposition_________________
The FDIC’s ability to provide incentives
for healthy institutions to assume
deposits and purchase assets o f failed
banks and savings associations allows
a portion o f assets to be returned to
the private sector immediately. The
remaining assets are retained by the
FDIC for later sale, workout or other
disposition. At year-end, the FDIC
was managing $4.1 billion in assets
in liquidation and $7.9 billion in assets
not in liquidation, consisting of cash
and securitization reserves.
DRR successfully settled, sold or other­
w ise resolved a significant portion
o f its asset inventory from failed
institutions during the year as follows:
•

The FDIC reduced the book value
of the combined FDIC/RTC assets
in liquidation by 52.8 percent,
to $4.1 billion from $8.7 billion.
Net collections for all funds totaled
about $3.6 billion.

•

1,288 real estate properties,
w hich were sold for a total of
$320.6 million, yielded a recovery
of 102.4 percent of their average
appraised value as determined by
independent appraisers.

•

23,207 loans and other assets,
which were sold for a total of
$845 million, yielded a recovery
of 111.3 percent of their average
appraised value.

Donald Linker (standing I) and Daniel Bell of the FDIC's
Southwest Service Center join Russell Welsh (seated)
of the Colorado River Indian Tribes in closing a deal that
returned 7,808 acres of California land to the tribes. The
deal involved the sale of a company, for which the FDIC
was trustee, that held a 65-year lease on the tribal proper!

Liquidation H ighlights 1 9 9 5 1 9 9 7
Dollars

in b i l l i o n s

....... ■ ■■

....................

Total Failed Banks
{Assets of Failed Banks
Total Failed Savings Associations
lAssets of Failed Savings Associations
Net Collections’
iTotal Assets in Liquidation (year-end)
*
■
A
T

1
$ 0 .0 *
0
$ 0 .0 *
$3.6
$4.1

1996
5
$ 0.2
1
$ 0.0 A
$ 6.6
$ 8.7

1995
6
$ 0.8
3"
$ 6.3
$16.6
$18.0

Only one BIF-insured institution failed in 1997, with assets totaling $25.9 million.
The FDIC assumed responsibility for resolving failed savings associations from the Resolution Trust Corporation
(RTC) on July 1,1995. All savings association failures in 1995 were resolved by the RTC.
No SAIF-insured institution failed in 1997, and only one failed in 1996, with assets totaling $35 million.
Also includes assets from thrifts resolved by the former federatSavings and Loan Insurance Corporation (FSLIC)
and the RTC. These assets are serviced by the FDIC as well as by asset management contractors and
national servicers

Several sales strategies are used by
DRR to sell assets. These include the
use of brokers, auctions and sealed
bids. For the one bank failure in 1997,
DRR began a Joint Asset Marketing
(JAM) program designed to increase
competition and speed the sale of assets
from failing institutions. In the past,
DRR would arrange for the assuming
bank to buy as many of the failed bank's
assets as possible, leaving the rest for
the division to dispose. With JAM, the
FDIC sells pools of assets to banks at
the time of closing. As a result, in the
one failure in 1997, approximately
79 percent of the bank’s assets were
sold at the time of resolution.
In 1997, the Corporation continued
to expand its use of the Internet to
provide information on upcoming loan
and real estate sales. Investors interested
in purchasing real estate acquired from
failed institutions can now conduct
their own Internet searches by property
type, state, city, name, and/or market
price. Also added in 1997 was a Web
site listing properties with environmen­
tal conditions, including those with
historical or cultural significance
or special resources.




The FDIC is the limited partner in 40
equity transactions entered into by
the former RTC. The RTC contributed
asset pools (usually sub-performing
loans, non-performing loans and real
estate) to the partnerships. The general
partner invested equity capital and
has responsibility for the day-to-day
management and disposition of the
assets. Partnership distributions are
generally split 50-50 between the part­
ners. During 1997, the FDIC received
$302 million in distributions, based
on several reports.
The FDIC also has limited partnership
investments in 29 Judgment, Deficiency,
and Charge-Off (JDC) partnerships.
The JDC partnerships were created
by the RTC in 1993 to place hard-tocollect assets in the private sector, and
the FDIC has continued using them.
These judgments, deficiencies, chargeoffs and small balance assets acquired
from failed institutions generally had
been written off or determined to be
uncollectible by the failed institutions.
The RTC contributed these assets

23

to the partnerships in return for the
general partner’s private sector exper­
tise and willingness to absorb the cost
of pursuing collections. Collections
typically are shared equally between
the general partner and the FDIC as a
limited partner. During 1997, the FDIC
delivered to the partnerships $449 m il­
lion of assets, which is carried on the
FDIC's books at a small fraction o f the
original value. Due to declining deliver­
ies. one partnership was terminated in
1997, eight partnerships have initiated
termination procedures and 21 still are
actively working to collect on assets.

Affordable Housing
During 1997, the FDIC Affordable
Housing Disposition Program sold
37 multifamily and 25 single family
properties, consisting of 1,755 units,
for $9.8 million. Since 1990, the FDIC
and RTC affordable housing programs
had cumulative sales of more than
125,000 affordable housing units for
$1.8 billion.
In addition, 30 state housing agencies
and nonprofit organizations, acting
under a memorandum of understanding
with the FDIC, m onitor 93,409 m ulti­
family rental units to ensure that the
purchasers are making units available
at adjusted rents as specified in the
purchase agreements.

Receivership M anagem ent
A ctivities
Once the assets of failed institutions
have been sold and the proceeds dis­
tributed to creditors, the FDIC termi­
nates the receiverships. During 1997,
the FDIC terminated 251 receivership
operations, or approximately 19 per­
cent of the open receiverships as of

January 1, 1997. O f those, 76 were
FRF receiverships commonly referred
to as "Southwest Plan” institutions,
five were FSLIC institutions, 21 were
RTC pass-through receiverships
(where assets and liabilities are passed
to a newly created institution while
certain claims were retained by the
RTC as receiver), and the remaining
149 were BIF or FRF/RTC financial
institutions. In addition, a total of
197 receiverships entered into the
final stages of the termination process
and are expected to be terminated in
early 1998.
The FDIC has updated its tracking
system and centralized the oversight of
the receivership program in the Dallas
Field Operations Branch in order to
terminate receiverships more quickly.

Historical Studies
The FDIC in December 1997 published
a two-volume study on the banking
crisis of the 1980s and early 1990s.
History o f the Eighties— Lessons fo r
the Future provides a careful examina­
tion and analysis o f the crisis, and an
evaluation of the lessons learned. The
two-year study, spearheaded by the
Division of Research and Statistics,
determined that there was no single
cause or short list o f causes for the
rise in the num ber o f bank failures
during the period. Rather, failures
resulted from a num ber of forces—
structural, economic, supervisory and
legislative— working together at that
time. The study is available on the
FD IC ’s Internet home page.
During the year, the FDIC also
continued an internal study of the
aftermath of bank and thrift failures




from 1980 to 1994. This study covers
the evolution of resolution and closing
strategies used by the FDIC and
the RTC, with an em phasis on the
approaches used for the larger, more
complex failures. It includes case
analyses of some of the more notable
bank and thrift failures. The study
also focuses on asset sales techniques,
securitization, equity partnerships,
and other innovative methods used
by the FDIC and RTC to dispose of
the substantial volume o f assets once
held by both agencies. The study will
be published in 1998.

FSLIC Resolution Fund____________
The FD IC, through the FRF, is
responsible for managing and m onitor­
ing assistance agreements that the
former FSLIC entered into prior to
A ugust 9, 1989. The FRF also
is responsible for disposing of all
remaining assets and liabilities of the
former RTC. The FRF, as successor
to the FSLIC, receives federally
appropriated funds. In 1994, the FRF
was allocated $827 million, which
is available until expended. O f that
am ount, $602 m illion was still
available at year-end 1997.

The FRF portfolio of FSLIC assets
in liquidation had a book value of
$169 m illion at year-end, down
from $476 million at the end of 1996.
FRF net liquidation collections totaled
$291 for the former FSLIC in 1997.
At year-end 1997, the FRF portfolio
o f assets from the former RTC had a
book value o f $2.2 billion, down from
$4.4 billion at the end of 1996. During
the same period, securitization credit
enhancem ent reserves dropped from
$5.8 billion to $4.9 billion, and the
FDIC, through the FRF, was able to
repay $3.8 billion o f the $4.6 billion
in RTC borrowings from the Federal
Financing Bank. The FDIC expects
to recover sufficient funds from the
R TC 's receivership assets to cover
the approxim ately $1 billion in
RTC- corporate liabilities remaining
at year-end.

T o p F o fm o . FDIC o ffic ia l R o b e rt M ia ilo v iiih a r
Ib e H is to r y a ! i h j t i q h t i a sy n p o s iu n n o n th e
b a n t in g a n d t h r i f t c ris is B o tto m ; ; r!: r D iC C h a irm a n
Hies; H e lle r , F o n n n r : D iC C h a irm a n W illia m Is a a c
fc n n e r F s t a i a l R r s e iv o C h a irm a n P aul V o ike r, a n I
FDIC V in a C h a irn a ir A m ;iim w C H o ve , J r
th e s y n tj rrsiisnr

a ls o nr

Estim ated Losses on B IF -ln su red Institu tio n s Resolved 1980-1997
■ Deposit Payoff Cases ■
■ Deposit Assumption Cases
Assistance Transactions

The FRF will continue to exist until
all of its assets are sold or liquidated
and all of its liabilities are satisfied.
Any rem aining funds from FRF
liquidation activities will revert to
the U.S. Department of the Treasury.
(F o rm o re inform ation on the FRF.
see Page 6.)

Professional Liability Recoveries
The FD IC ’s Legal Division and DRR
work together to identify claims
against directors and officers, accoun­
tants, appraisers, attorneys and other
professionals who may have contributed
to the failure o f insured financial insti­
tutions. During the year, the Corporation
recovered nearly $156.8 million from
these professional liability suits. In
addition, as part of the sentencing
process for those convicted o f criminal
wrongdoing against failed institutions,
the court may order a defendant to
pay restitution to the receivership.
The FDIC, working in conjunction
with the U.S. Department of Justice,
collected more than $13 million in
criminal restitution during the year.

Note:

For more details,

The Corporation also investigates the
circumstances surrounding the failure
of every institution and, where appro­
priate, sends suspicious activity reports
to the Justice Department. Six such
reports were sent during the year. The
FD IC ’s caseload at the end o f the year
included investigations, lawsuits and
ongoing settlement collections involving
182 institutions, down from 244 at
the beginning of 1997. This caseload
includes RTC cases the FDIC assumed
on January 1, 1996.




25

Consumer Protection Activities

In addition to promoting the safety
and soundness of FDIC-insured institu­
tions, the FDIC plays a strong consumer
protection role. The agency enforces
compliance with consumer protection
laws, including fair lending and com ­
munity reinvestment. It also educates
banks and consumers in areas such as
fair lending, community reinvestment
and deposit insurance. The F D IC ’s
consum er protection activities are car­
ried out primarily through its Division
o f Compliance and Consumer Affairs
(DCA), with support from other
divisions and offices.

Community Reinvestment Act
Reform
The FDIC continued working with the
other federal bank and thrift regulatory
agencies to complete implementing
1995 revisions to rules that implement
the Community Reinvestment Act
(CRA), a law that encourages federally
insured lenders to help meet the credit
needs of their communities. The 1995
rules significantly changed the way
financial institutions are evaluated
for CRA compliance. The new rules
emphasize evaluating an institution
based on actual lending, investment
and service, and they establish differ­
ent tests for different sizes and types
o f institutions. The revised CRA rules
were phased in over a two-year period
that ended on July 1, 1997, when
new examination procedures for large
financial institutions took effect.
A mong the 1997 initiatives by the
FDIC and the other regulatory agencies
to implement the new CRA rules were:
issuing revised CRA examination
procedures and sample performance
evaluation guidelines for large institu­
tions; updating the interagency CRA
Question and Answer Guide for finan­
cial institutions; and training more




than 300 examiners across the country
in the new CRA examination proce­
dures for large banks. The agencies
have agreed to continue working in
1998 on a project to further promote
consistency among the agencies in
implementing CRA examination
procedures for large banks.

Fair Lending Efforts
The FDIC is strongly committed to
ensuring that lenders give equal and
fair treatment to all loan applicants.
In 1997, the FD IC 's continued efforts
in fair lending included discussions
with the U.S. Department of Justice
and the U.S. Department of Housing
and Urban Development (HUD) to
refine procedures for exchanging infor­
mation about potential violations of
the Fair Housing Act and the Equal
Credit Opportunity Act. In June, the
federal bank regulatory agencies and
the Federal Trade Commission entered
into a Memorandum of Understanding
with HUD establishing procedures for
exchanging fair lending information
with the Federal National Mortgage
Association (Fannie Mae) and the
Federal Home Loan M ortgage
Corporation (Freddie M ac), two
major housing-related governm entsponsored enterprises.

Compliance Examinations
DCA exam ines FD IC -supervised
banks for compliance with consumer
protection, fair lending, and community
reinvestm ent laws and regulations.
During 1997, the FDIC initiated 1,990
such examinations, representing 32
percent of the financial institutions
supervised by the FDIC at year-end.
The percentage o f institutions that
were rated satisfactory or outstanding
for compliance with consumer protec­
tion laws remained constant over the

26

past two years. At year-end, 95 percent
of FDIC-supervised banks were rated
satisfactory or outstanding for com pli­
ance with consum er protection and fair
lending laws, while 99 percent were
rated satisfactory or outstanding for
compliance with the CRA. These
percentages are essentially unchanged
from a year earlier.
During 1997, a total o f 139 FDICsupervised banks were required to
reimburse nearly $1.6 m illion to
49,100 consumers for violations of the
Truth in Lending Act, which requires
accurate disclosures o f interest rates
and finance charges. The reimburse­
ments ordered in 1997 stem from
compliance examinations conducted
in 1997 and in previous years.
The FDIC took a num ber o f steps
during the year to stream line and
refine the com pliance exam ination
process. The FDIC instituted a new
“case m anager” approach to bank
supervision ?see Page 17), significantly
enhancing the exam ination and
enforcem ent processes. The new
approach allows the FDIC to focus
on the activities and management of
all affiliated institutions in a holding
com pany or affiliate organization,
rather than just on one institution.
The case m anager system will
strengthen the FD IC 's enforcement
of institution compliance with fair
lending, community reinvestment
and other consum er protection laws.
The FDIC also refined its consum er
lending training program for compliance
examiners, with increased emphasis on
examination techniques and methodol­
ogy. The core training requirements for
compliance examiners now incorporate
a new focus on the revised CRA rules
and examination policies.

In another initiative, the FDIC began
developing automated programs that
will allow examiners to examine
supervised institutions for compliance
more comprehensively and effectively.
The programs will help examiners
target potential risk areas for a more
detailed review in a way that is less
burdensome to financial institutions.
Examples of programs recently devel­
oped or under development include the:
•

CRA Mapping and Analysis System,
which integrates demographic, loan
and economic information from
a variety of sources;

•

Automated Compliance Examination
Structure, a joint initiative by the
FDIC and the Federal Reserve that
will improve examination efficiency
and consistency, while minimizing
the burden on financial institutions
by reducing the time that examiners
must spend at the bank; and

•

Community Contacts Database,
a centralized interagency list of
community organizations or other
entities involved in community
reinvestment activities of banks
and thrifts.

For information 011 other automated
examination programs, see Pages 15-16.




•

Participating in a Federal Financial
Institutions Examination Council
working group that focused on
electronic banking issues and
interagency examination policies
on consum er protection and
fair lending laws, and advised
examiners in these areas.

•

Coordinating participation by
the regulatory agencies in an
Internet conference for financial
institutions that responded to
15 major industry questions
on electronic banking.

Electronic Banking
Financial institutions increasingly are
using technology to provide financial
products and services. Many recent
enhancements involve automated teller
machines, “smart cards,” video-kiosks,
and home banking by phone, computer
or interactive television (Web TV).
At year-end 1997, a total o f 602 FDICsupervised banks operated home pages
on the Internet. T hirty-four were
“transactional” sites that provided
custom ers the ability to pay bills,
transfer funds and open accounts.
The others w ere “ inform ation only”
sites that described the bank’s products
and services. W hile institutions on
the Internet represent a small segment
of all financial institutions, acceptance
of the new technology by consumers
and financial institutions is increasing
rapidly.
The advent o f electronic banking
technology raises significant questions
and unique challenges for enforcing
consum er protection, fair lending and
community reinvestment laws. The
regulations im plementing these laws
generally do not contemplate the elec­
tronic delivery o f financial products
and services. The FDIC has recognized
the need to ensure that its examination
staff is aware o f current developments
in electronic banking, and that exami­
nation and enforcement policies take
into account the increased use of
new technology by institutions and
consumers. DCA took steps in 1997
to address the impact o f electronic
banking on enforcement o f the con­
sumer protection activities, including:

27

For more information on electronic
banking, see Page 16.

Educating Consumers and Bankers
The FDIC offers a wide range of
educational information and assistance
to tens of thousands o f consumers and
financial institutions each year. DCA’s
main vehicle for providing deposit
insurance and consum er protection
information is its toll-free Call Center
(1-800-934-3342 or 1-800-925-4618
for the deaf). During 1997, more
than 70,000 consumers and bankers
contacted the DCA Call Center with
questions about FDIC deposit insur­
ance or consum er protection matters.
DCA regional offices received another
15,000 calls.
DCA also responded to 1,522 written
inquiries from consumers and 320
written inquiries from financial institu­
tions. A nother 555 inquiries were
received through the Internet (see
Page 111 for the address). Use of the
electronic mail to contact the FDIC
increased in 1997, with the agency
receiving an average o f 45 inquiries
per month, compared to 10 per month
in 1996.

FDIC and Federal Reserve employees join in
an "on-line conference" on electronic banking
and Year 2000 challenges.

Most consum er inquiries in 1997
concerned deposit insurance coverage,
determining if a financial institution
is FDIC-insured, requests for FDIC
publications, consum ers’ rights under
the consum er protection regulations,
and how to file a consum er complaint.
M ost financial institution inquiries
concerned the deposit insurance rules,
requests for FDIC publications and
consum er brochures, and questions
about general banking or regulatory
matters, including fair lending, com ­
munity reinvestment and consumer
protection laws.
The FDIC develops and distributes
inform ational brochures on deposit
insurance and other topics of interest
to consumers. The FD IC’s most popular
brochure is Your Insured Deposit,
w hich explains the rules for insurance
coverage of deposit accounts. During
1997, the FDIC issued a new consumer
brochure, Your Investm ents, about
financial institution investment products,
such as mutual funds and annuities,
that are not deposits and are not insured
by the FDIC.
The FDIC frequently conducts training
and outreach activities to prom ote an
understanding of deposit insurance and
consum er protection laws. The FDIC
conducted several m ajor outreach
initiatives locally and nationally in
October 1997 in observance of National
Consum ers W eek, such as training
sessions for bankers on consum er
protection issues, joint outreach efforts
with local consum er organizations,
and consum er focus groups.
Because the staff of an insured institu­
tion generally is a custom er’s first
source of information about deposit
insurance, the FDIC conducted 12
insurance seminars for employees o f




institutions in eight states during 1997.
Approximately 430 financial institution
employees attended these sessions,
which provided an in-depth review
o f the deposit insurance regulations
and interagency guidelines for the sale
o f nondeposit investment products.
In 1997, DCA continued to expand
its use o f the Internet to provide infor­
mation about deposit insurance and
consum er protections. DCA began
developing an interactive Internet
application that will allow consumers
to enter information about their accounts
and determine whether their funds are
fully insured under the FDIC deposit
insurance rules. The application is
expected to be on the Internet in the
third quarter of 1998.

Responses to Consumer
Complaints______________________
The FDIC investigates complaints it
receives from consumers about FDICsupervised financial institutions. It also
tracks the volume and nature of these
com plaints to m onitor trends and
identify emerging issues that may raise
consum er protection concerns.
In 1997, DCA received more than
3,600 written consum er complaints
against FDIC-supervised banks, most
concerning consum er credit card
accounts, as has been the trend over
the past few years. About half of all
complaints involved a small number
of specialized credit-card banks that
manage large credit-card loan portfo­
lios. The most common complaints
typically involved the adverse action
notice that financial institutions must
provide consumers under the Equal
Credit Opportunity Act when denying
a credit application; credit card billing
errors and disputes with m erchants;
the advertising o f loan products,
particularly credit cards; and creditors’
requirem ents for a co-signor as a
condition o f loan approval.

28

The FD IC ’s Office of Legislative
Affairs, with the assistance o f other
divisions and offices, sent 1,385 letters
to m em bers o f Congress in 1997.
Many were in response to constituent
complaints about financial institutions’
compliance with fair lending and
consum er protection laws.
The FD IC ’s Office of the Ombudsman
handled more than 55,000 inquiries
and requests for information in 1997.
The office provides guidance to con­
sumers on where to get information
throughout the agency and acts as an
impartial third party to assist consumers
and bankers who have had problems
working with the agency. The Ombuds­
m an’s office conducted a number of
outreach efforts in 1997 and participat­
ed in programs such as National
Consumers Week, sponsored by the
U.S. Office o f Consumer Affairs as
well as other consumer-related groups
and associations.

Community Outreach
The FDIC frequently meets with com ­
munity and consum er groups, bankers
and government officials to exchange
views about community reinvestment
and fair lending issues. In 1997, the
FDIC participated in 187 such events
across the country. More than half were
events to educate bankers and others
about CRA and fair lending topics.
Other events focused on fostering part­
nerships between financial institutions
and com m unity-based organizations.
The FDIC reached more than 6,000
bankers through these events.

Other outreach efforts in 1997 included
form ing a focus group in G eorgia
to enhance comm unication between
bankers and community representatives
after claims o f lending discrimination,
and organizing roundtable discussions
with bankers and a community organi­
zation to spur economic development
in low- and moderate-income areas
of Reno, NV. (For more information
on outreach efforts, see Page 20.)

Communicating Through
Technology_______________________

Teresa Perez

The FDIC broadened its use of Internet
technology to communicate both inside
and outside the agency. Documents
published on the FD IC ’s home page
on the World Wide Web include FDIC
“financial institution letters” (notices
to the industry about proposed or new
rules and procedures), press releases,
speeches by the FDIC Chairman,
congressional testimony, manuals,
descriptions of banking laws, lists of
asset information and banking statistics.
U sers o f FDIC Internet offerings
include bankers, regulators, financial
analysts, journalists, stockbrokers,
academ ics, consum ers and others
who want quick and easy access to
the FD IC ’s public information.
Several new features were added to the
FD IC ’s home page in 1997, including
an electronic reading room where the
public may peruse FDIC publications;
an online form to request information
from corporate databases; and custom­
ized reports with FDIC and banking
industry information. Another new
feature provides state banking agencies
and other regulators secure access to
confidential financial, supervisory
and policy data. For students in kinder­
garten through grade 12, the FD IC ’s
hom e page now offers interesting
and useful inform ation about the
FDIC and the banking system.
(For a general description of FDIC
Internet offerings, see Page 111.)




29

FDIC employees from Washington (top) and
Dallas participate in National Consumers Week
outreach and educational efforts.

Significant Court Cases

Matters in litigation covered a broad
spectrum including issues relating to
the supervision o f insured institutions,
the resolution o f failed banks and
savings associations, the liquidation
of assets and the pursuit o f liability
claims against failed institution officers,
directors and professionals. The FD IC ’s
litigation caseload declined 23 percent,
from about 12,300 matters at year-end
1996 to approximately 9,500 at yearend 1997. The Legal Division and the
Division of Resolutions and Receiver­
ships recovered nearly $156.8 million
during 1997 from professional liability
settlements or judgm ents. A t year-end,
the FD IC ’s professional liability case­
load included investigations, lawsuits
and settlem ent collections involving
m ore than 180 institutions. This
caseload includes the cases the
FDIC assum ed from the form er
R esolution Trust Corporation (RTC)
on January 1, 1996. The Legal Division,
working closely with other divisions
and offices, was involved in several
noteworthy court cases in 1997, as
described below. (For more informa­
tion about professional liability settle­
ments and judgm ents, see Page 25.)

G oodw ill_________________________
As a result o f the Financial Institutions
Reform, Recovery, and Enforcement
Act of 1989 (FIRREA), the Office
of Thrift Supervision (OTS) changed
the regulations governing the capital
requirements for thrift institutions to
make them conform to those for com­
mercial banks. Consequently, certain
forms of intangible capital, such as
supervisory goodwill, were no longer
allowed to be counted as part o f a
thrift’s capital. A number o f acquirers
of thrift institutions sued the govern­
ment, alleging that they had purchased




failed or failing thrifts prior to the
passage of FIRREA based on a promise
that they could count certain intangibles
toward their capital requirements. They
said FIRREA’s changes resulted in a
breach o f contract or a taking of their
property without just compensation.
Three o f the cases were consolidated
and heard by the U.S. Supreme Court
in a case known as Winstar Corporation
v. United States (Winstar). The Court
issued a decision in July 1996, finding
the United States liable for a breach
of contract based on FIRREA's change
in capital standards. As a result of
that decision, more than 120 of these
cases are pending in the U.S. Court
o f Federal Claims, with the lead case,
Glendale v. United States, in its seventh
month o f trial at year-end. A second
case was set for trial in April 1998;
trial dates have not been set for
rem aining cases. A sm all num ber
of the Winstar cases, known as the
Guarini cases, involve challenges to
legislation passed after FIRREA that
changed the method for computing
certain tax benefits given to acquirers
of failed or failing thrifts.
The FDIC as successor to the rights
of failed institutions is a co-plaintiff
or plaintiff in more than 40 goodwill
cases.

Entitlement to Deposit Insurance
In 1993, recipients o f a new bank
charter in Michigan filed an application
with the FDIC for deposit insurance.
On June 21,1994, and on two subse­
quent occasions, the FDIC Board of
Directors denied the group’s application
for deposit insurance because o f con­
cerns about one of the proposed bank
officials. In a previous banking position,
this person mixed the bank’s assets
with his personal assets and demon­
strated a continuing inability to identify
and understand conflicts of interest.

30

In November 1996, in the case of
Anderson v. FDIC, the U.S. District
Court for the Eastern D istrict o f
M ichigan granted the FD IC ’s request
for a summary judgm ent and dismissed
the case. The organizers filed an appeal
with the U.S. Court o f Appeals for
the Sixth Circuit in Cincinnati, Ohio,
and a decision upholding the FD IC ’s
action was issued on August 19,1997.
The Appeals Court concluded that
the FD IC ’s concerns were appropriate
and that its decisions denying the
applications were not arbitrary or
capricious. The organizers’ petition
for rehearing was denied by the Court
on N ovem ber 14, 1997. This case
is significant because it upheld the
F D IC ’s discretion to grant or deny
applications for deposit insurance.

Removal and Prohibition__________
An individual who worked for a coin
and precious metals business made
more than $1 million in cash sales
to one customer as part o f a moneylaundering scheme in 1993. The seller
later was convicted of failing to file
a Form 8300 (Currency Transaction
R eport), w hich a business m ust file
w ith the Internal Revenue Service
(IRS) when it receives m ore than
$10,000 in a cash transaction. He
also was convicted of creating a false
Form 8300 to deceive IRS compliance
auditors. W hile the criminal proceed­
ings were progressing, however, the
local bank where he had been previously
employed hired him as its president.
In 1996, the FDIC Board removed him
from banking due to his conduct at the
coin business, citing Section 8(e)(1)
of the Federal Deposit Insurance Act.

••••••••I

'®*®®««®*>*«®»®®®®®®»®®®®®®®®®®» • * # * • » # * * • • • • • • • • • • • • • • • • • • • » • • • • • • • * * * • • • • • • • • • • • • • • • • * • • • • • • • • • • • • • • • • • • • •

In a Section 8(e)(1) proceeding, the
FDIC must demonstrate misconduct,
culpability and effect due to the person’s
activities at a business or financial
institution. In Hendrickson v. Federal
D eposit Insurance Corporation, the
U.S. Court of Appeals for the Seventh
Circuit in Chicago, Illinois, affirmed
the FD IC ’s decision to rem ove the
individual from banking. The case
is significant to the FDIC because
it involved an order o f prohibition
against a person for misconduct when
he was not in banking, and did not
involve a bank. The case also is sig­
nificant because the “benefit” to the
individual was not an immediate gain
in the form of cash or property, but
instead the continued employment
by his fam ily’s coin business.

Directors' and Officers'
Standard of Lia bility
During the 1980s, even as many finan­
cial institutions were failing, a number
of states relaxed the traditional negli­
gence standard of director and officer
liability. These states provided for
liability based on gross negligence or
even intentional wrongdoing instead
of the simple negligence standard. In
addition, many states enacted “insulat­
ing statutes” allowing, for example,
corporations to elim inate the civil
liability o f their directors for even
gross breaches of the traditional duties
of care and diligence. W hen enacting
FIRREA in 1989, Congress included
a new statute in the Federal Deposit
Insurance Act demonstrating concern
about states protecting directors and
officers from liability for breach of
traditional duties to federally insured
depository institutions. The new federal
statute, while allowing for “gross negli­
gence” liability in FDIC civil action




against directors and officers o f failed
depository institutions, does not impair
FDIC rights “under other applicable
law.” Litigation im mediately ensued
over the meaning of this statute.
Lower and appellate courts around
the country issued widely conflicting
opinions concerning the basic standard
o f care for which bank and thrift offi­
cials may be held personally liable for
monetary damages. The U.S. Supreme
C ourt’s decision in Atherton v. FDIC,
issued on January 14,1997, resolved
this long-standing conflict. The Court
agreed with the FD IC ’s position that
FIRREA’s “gross negligence” standard
“provides only a floor - a guarantee
that officers and directors must meet
at least a gross negligence standard. It
does not stand in the way o f a stricter
standard (such as ordinary negligence).”
However, the Court disagreed with the
FDIC on whether federal or state law
supplied the standard o f pre-insolvency
and receivership liability for officers
o f federally chartered institutions. The
Court explained that state law applies
when the institution is in receivership,
although subject to the limitation of
FIRREA’s gross negligence standard.
The lower federal courts have been
in considerable disagreem ent on this
issue. Because o f this confusion, the
C ourt’s decision represents a needed
clarification o f the law.
The Atherton decision is expected to
streamline litigation against bank offi­
cers and reduce litigation costs because
it removes one of the principal uncer­
tainties o f the law. The FDIC will
continue to follow its long-standing
practice of bringing claims against
outside directors where investigation
shows them to have been grossly
negligent or worse. However, where
applicable state law provides an
ordinary care standard, the FDIC still
will sue outside directors believed
to be guilty o f gross negligence but
will allege only w hat is required
under the law.

31

D'Oench Duhme
In 1942, the Suprem e Court in
D 'O ench, D uhme & Co. v. FDIC
established a broad rule protecting
the FDIC against any arrangements,
including oral or secret agreements,
that are likely to mislead bank examin­
ers in their review o f a bank’s records.
Then, in 1950, Congress established
strict approval and recording require­
m ents that, if not met, barred any
claim attem pting to dim inish the
interest of the FDIC in assets acquired
from a failed bank.
M otorcity o f Jacksonville v. Southeast
Bank remains one of the most im por­
tant cases in the F D IC ’s efforts to
preserve the D ’Oench d octrine’s
protection from unwritten agreements
or arrangements. On August 20,1997,
the U.S. Court o f A ppeals for the
Eleventh Circuit in Atlanta, Georgia,
sitting en banc (with all active judges
participating), held in Motorcity that
the D 'O ench doctrine was intended
by Congress to survive the passage of
FIRREA and remains a viable protec­
tion for the FDIC. However, that
decision disagreed with a 1995 opinion
by the U.S. Court o f Appeals for the
District o f Columbia.
The plaintiff in Motorcity appealed to
the U.S. Supreme Court, arguing that
the “split” between the two circuits
needed to be resolved. Following its
decision in Atherton v. FDIC, which
involved federal common law in a
different context, the U.S. Supreme
Court instructed the Eleventh Circuit to
reconsider its decision and determine
whether Atherton affected the out­
come. The Eleventh Circuit on August
20,1997, held that nothing
in Atherton altered the outcom e
of its earlier decision and in an even
stronger opinion, reinstated its previous
decision that the D 'O ench doctrine

# ## # # # *

is not lim ited by a specific asset
requirem ent, that the freestanding
tort exception to D ’Oench does not
apply to Atherton and that Motorcity
does not have a viable state law claim.
According to the Eleventh Circuit,
the Atherton decision recognized the
continuing availability of federal com ­
m on law for circumstances involving
uniquely federal interests requiring a
special rule. The Eleventh Circuit held
that D ’Oench recognized those special
needs and that the special rule was
still required. In the absence of clear
congressional intent to displace the
D ’Oench doctrine, it survives as an
effective protection for the FDIC.
The Motorcity plaintiff filed its second
appeal to the U.S. Supreme Court on
December 18, 1997.

Although the case arose from OCC
actions, the decision imposes the same
kind o f civil money penalties that
could be used by the FDIC. Hudson
effectively removes the doubt created
by the 1989 decision and should result
in sm oother coordination with the
U.S. D epartm ent o f Justice in cases
with the potential for crim inal
prosecution.

Enforcem ent Po w e r s _____________
In D ecember 1997, the Supreme Court
issued a favorable decision in a case
affecting the F D IC ’s enforcem ent
powers. In Hudson v. United States,
the Court decided that criminal prose­
cution of bank officers after the Office
of the C om ptroller o f the Currency
(OCC) had im posed civil money
penalties for the same conduct does
not violate the C onstitution’s Double
Jeopardy Clause. Hudson effectively
overruled a 1989 Supreme Court deci­
sion that created doubt as to whether
the FDIC or any other bank regulator
could impose civil penalties in cases
that might also give rise to criminal
prosecution. Hudson holds that only
additional crim inal penalties are
unconstitutional and that the sanctions
imposed by the OCC were civil in
nature.




32

Internal Operations

The FDIC continued to emphasize
improving organizational and opera­
tional efficiency in 1997. Key functional
areas were realigned and staff size
further reduced as the banking industry
remained strong and the FD IC ’s pro­
jected workload continued to decline.

Focusing on Planning
and Efficiency____________________
The FDIC in 1997 updated its Strategic
Plan for subm ission to Congress
and the Office of M anagem ent and
Budget, as required by the Government
Performance and Results Act (GPRA).
The plan, originally approved in 1995
by the Board of Directors as a founda­
tion for the agency’s corporate planning
process, provided a clear strategic
vision for the FDIC and focuses on
managing risk and minimizing the effect
o f institution failures.
The GPRA also requires the FDIC to
develop an Annual Performance Plan.
This plan, which combines the agency’s
corporate operating and business plans,
defines w hat w ill be accom plished
during the year to achieve strategic
goals and objectives. The plan guides
the allocation of FDIC resources to
its three major programs— insurance;
supervision; and policy, regulation and
outreach— and identifies annual goals
for measuring performance. A quarterly
reporting mechanism was instituted
during 1997 to provide senior FDIC
management with regular feedback on
the C orporation’s actual performance
against the measurable performance
targets contained in the A nnual
Performance Plan. The process allows
management to evaluate performance
and to adjust strategic goals and
resource allocations as needed.




One of the major initiatives for 1998
is to develop an automated system that
will assist the FDIC in linking its
budget to the Strategic Plan and the
Annual Performance Plan, in accordance
with GPRA requirements.

Controlling Expenses
and Reducing Costs
The FD IC ’s budget is the culmination
o f the C orporation’s annual planning
process. Budget and staffing levels are
based upon the Annual Performance
Plans for each division and office.
In 1997, the FDIC continued to make
considerable progress in controlling
expenses and reducing costs. Actual
expenses for 1997 were $1.38 billion—
22 percent less than 1996 spending
and 15 percent below the approved
1997 budget. A ctual 1997 spending
was below budgeted levels primarily
due to lower costs for asset liquidationrelated contracting and a more rapid
pace of staff downsizing.
Employee compensation and benefits
were the largest budgeted expenses
for 1997, constituting 54 percent of
the budget. At the beginning of 1997,
a total of 9,151 employees were on the
payroll, and targeted staffing for yearend was 8,361. By December 31,1997,
the workforce had shrunk substantially
below the authorized level to 7,793,
primarily due to the consolidation of
field operations. As a result, spending
for employee compensation and bene­
fits totaled $752 million— 17 percent
below the $910 m illion spent for
this purpose in 1996 and 13 percent
below the approved 1997 budget o f
$868 million.

33

Outside services represented the second
largest component of total expenses
in 1997. Although the FDIC budgeted
$429 million for this category, actual
1997 expenses w ere $330 m illion,
w hich is 23 percent less than the
budgeted amount and 43 percent below
the $581 million spent in 1996.
The continued consolidation of field
operations also contributed to reduced
expenses for buildings and leased
space. For 1997, $123 m illion was
spent for buildings, down significantly
from the $129 million spent in 1996.

Downsizing and Consolidation
As noted previously, the Corporation
continued to shrink the size o f its
workforce in 1997 due to a decline
in workload. Total FDIC staffing in
1997 fell by approximately 15 percent.
Staffing for the Division of Resolutions
and Receiverships (DRR), which liqui­
dates the assets of failed institutions,
fell by over 40 percent during the year.
DRR staffing reductions were accom­
plished primarily through the expiration
of term and temporary appointments
and by consolidating field liquidation
operations. DRR operations and related
Legal D ivision and other support
activities in San Francisco, New York,
Chicago, Atlanta, and Franklin, MA,
were consolidated into other offices
during the year. This was part of a

Division of Finance employees Joseph Malloy
and Giseie Jones helped monitor the "buyout"
used to shrink the FDIC workforce.

-------------------------------------------------------------------------------------------------------N um ber of O ffic ia ls and Em ployees of the FDIC 1996-1997 (year-end)
Total

Executive Offices'
Division of Supervision
Division of Compliance and Consumer Affairs
Division of Resolutions and Receiverships'
Legal Division
i Division of Finance
Division of information Resources Management
Division of Research and Statistics
Division of Insurance
: Division of Administration
Office of Inspector General
Office of Diversity and Economic Opportunity
Office of the Ombudsman
Office of Internal Control Management
Total

■

Regional/Field

1996

1997

1996

1997

19%

127
2,550
618
1,093
1,035
606
502
94
56
758
216
63
57
18

137
2,672
588
1,819
1,306
726
552
85
41
895
285
64
65
16

127
191
56
153
472
307
421
94
32
$29
147
45
23
18

137
154
51
211
518
328
434
85
28
477
192
51
23
16

0
2,359
562
940
563
299
81
0
24
329
69
18
34
0

0
2,418
537
1,608
788
398
118
0
13

7,793
------ ------—--------- --- ----- ----........ .................•

*

Washington

1997

.........

9,151

2,515
.. .............
. ..

2,705

5,278

93
13
42
0
6,446

Includes the Offices of the Chairman, Vice Chairman, Director (Appointive], Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Executive Secretary,
Corporate Communications, Legislative Affairs, and Policy Development. In 1996, also included the Office of the Deputy to the Chairman for Policy (abolished in 1997).
In December 1996, the Division of Depositor and Asset Services and the Division of Resolutions were merged to create the Division of Resolutions and Receiverships.

phased, three-year consolidation plan
announced the previous year. DRR
field operations are expected to be
fully consolidated into a single site in
D allas by year-end 1999. In addition,
the Division of Finance’s field financial
activities were consolidated in Dallas
in 1997, and three Division o f Super­
vision (DOS) field offices and a
Division of Compliance and Consumer
Affairs (DCA) satellite office were
closed.
As a result of the buyout programs
initiated in 1995 and 1996, a total of
379 employees left the Corporation
during 1997. Another 87 permanent
em ployees elected buyouts in 1997
in lieu of being reassigned to other
areas of the country. In late 1997, the
Corporation announced that new buy­
out and early retirement opportunities
would be available during 1998 for
selected employees in overstaffed
divisions and offices.




To cushion the impact of the DRR
field consolidation, the Corporation
continued to provide job placement
and training opportunities to affected
employees, and was successful in
placing many employees affected by
downsizing in positions both inside
and outside the Corporation. A total of
138 DRR and Legal Division employees
accepted positions in the Dallas office,
and more than 200 employees (mostly
from DRR) were selected for DOS or
DCA examiner positions and training.
Many employees also took advantage
o f the F D IC ’s expanded Career
Transition and Outplacement Program
in 1997, which provides job search
assistance and resources to employees
affected by downsizing.

benefits, and reimbursement o f travel
and relocation expenses for bargainingunit employees. The FDIC later applied
these same changes to executives and
other nonbargaining-unit employees.
A key program change is the new
pay-for-performance system. Beginning
in January 1998, the Corporation will
move from a 19-step compensation
program to an open range salary struc­
ture, with a salary minim um and
m aximum for each grade. In 1999,
the Corporation will discontinue acrossthe-board salary increases and will
link merit pay increases to em ployees’
annual performance ratings.

Internal Controls
Compensation
and B enefit Changes
M ajor changes to the Corporation’s
compensation and benefits program for
1997-1999 were negotiated with the
National Treasury Employees Union.
An agreement signed in February 1997
covered changes in pay, employee

34

During 1997, the FDIC strengthened
its internal control program for ongoing
operations and management processes.
Guidelines were issued to define the
responsibilities of FDIC employees in
audits, surveys and reviews conducted

by the Office of Inspector General and
the U.S. General Accounting Office
(GAO). The FD IC 's Office o f Internal
Control M anagement also conducted a
conference on successful risk m anage­
ment and internal control programs to
familiarize FDIC senior management
and auditors with current best practices
for managing risks in the private sector.
Two major internal control activities
were completed in 1997— coordination
o f the GAO audit of the Corporation's
financial statements and preparation
o f the annual Chief Financial O fficer’s
Act Report, which focused on the oper­
ations and internal control programs
within each FDIC division and office.

Year 2000 Computer Challenges
The FDIC is committed to ensuring
that its computer hardware, software
and communications infrastructure
will continue to function properly in
the Year 2000, when many computer
systems will have trouble distinguish­
ing the Year 2000 from 1900. To meet
this goal, the FDIC is following a pro­
posal by the GAO calling for rigorous
program management and a structured
approach.
In 1997, the FDIC distributed internal
directives with policy and guidance
on Year 2000 issues and conducted a
number of awareness briefings for its
staff. To identify specific areas needing
change, the FDIC inventoried and
assessed over 500 o f its application
systems during the year. The agency
also undertook an extensive Year 2000
com pliance review o f comm ercial
software and other products purchased
from vendors. (For information about
the FD IC ’s efforts to ensure Year 2000
compliance by banks, see Pages 18-19.)




Kevin Glueckert (top! and Andre Galeano
of the Division of Supervision display some
of the more than 300 applications they reviewed
for the agency's "crossover" training program
for examiner positions.




Annua] Report 1997
*

L




*
*
★

★

REGULATIONS AND LEG ISLA TIO N




Regulations Adopted and Proposed
The "published" date refers to the day published in the Federal Register,

Final

Rules

» ••••••••••••••••••••••••••••••••••••••••<

Forms, Instructions and Reports
The FD IC ’s systematic review o f its
regulations indicated a need to stream­
line Part 304 relating to forms, instruc­
tions and reports. The existing regulation
had been in place since 1948. The FDIC
revised the regulation by rem oving
unneeded language w hile retaining the
listing of forms and other information
to satisfy the requirem ents of the
Freedom of Information Act and the
Federal Deposit Insurance Act.

Approved:

January 21,1997

Published:

February 21,1997

Bank Disclosure of Financial
and Other Information
The FDIC, as part of its systematic
review of regulations, amended Part
350 regarding the disclosure of finan­
cial and other information by insured
nonmem ber banks. The amendment
removes references to the obsolete sav­
ings bank Call Report, permits the
annual report on annual independent
audits and reporting requirements to be
used as the annual disclosure statement
in certain circumstances, and updates
and clarifies certain other references
in the rule.

Approved:

February 4,1997

Published:

March 6,1997

Government Securities Sales
The FDIC, together with the other
bank and thrift regulatory agencies,
adopted regulations regarding sales
of government securities by depository
institutions. The F D IC ’s final rule
(new Part 368) im plem ents recent
statutory changes authorizing the
agencies to adopt rules providing
consistent treatm ent for custom ers
who purchase government securities.
The new rule also minimizes regulatory
burden to the extent feasible.

Approved:

March 11,1997

Published:

March 19,1997

S ecurities D isc lo s u res _________
The FDIC am ended Part 335 of its
regulations regarding securities of
nonmem ber insured banks. The revised
rule incorporates by cross-reference
the com parable regulations o f the
Securities and Exchange Commission
(SEC), rather than continuing to main­
tain a separate, but substantially similar,
body of rules. The amended regulation
ensures that FDIC securities disclosure
requirem ents rem ain substantially
similar to those of the SEC.

Approved:

February 4,1997

Published:

February 14,1997




Applications, Requests
and Other Notices
Recordkeeping and Confirmation
Requirements for Securities
Transactions
The FDIC amended Part 344 of its reg­
ulations governing recordkeeping and
confirmation requirements for securi­
ties transactions for customers
o f an insured state bank or a foreign
bank having an insured branch. The
amended rule updated, clarified and
stream lined the form er rule and
reduces regulatory burden. The most
significant change was to provide
a specific exemption from the rule
for securities transactions conducted
through separate registered broker/
dealers when fully disclosed to bank
customers and with whom the customer
has a direct contractual agreement.

Approved:

February 25,1997

Published:

March 5,1997

The FDIC amended Part 303 of its
regulations to streamline the supervision
process and simplify communication
channels regarding applications,
requests, submittals and notices. As
a result, the FDIC Division o f Super­
vision and the Division o f Compliance
and Consumer Affairs will supervise
groups of related insured institutions
from one FDIC regional office.

Approved:

March 25,1997

Published:

April 8,1997

F i n a l R u l e s

Insurance Assessments
Given the favorable conditions facing
depository institutions and their insur­
ance funds, the FDIC Board of Directors
voted to m aintain the low prem ium
rates for banks and thrifts for the second
half of 1997. M ost insured institutions
w ill continue to pay nothing for their
deposit insurance coverage in the sec­
ond half of the year, while the riskiest
institutions will pay 27 cents for every
$100 of assessable deposits.

Approved:

May 6,1997

Published:

May 19,1997

Fair Housing
The FDIC am ended Part 338 o f its
regulations to more closely align its
fair housing regulations with those
of the other federal bank and thrift
regulatory agencies. The amended rule
reduces the burden on insured state
nonmem ber banks in the areas o f fair
housing advertising, poster, and record­
keeping and reporting requirements.

Approved:

June 24,1997

Published:

July 14,1997




I n t e r i m R u l e s

Prohibition Against Interstate
Branches Prim arily
for Deposit Production
The FDIC, together with the Office of
the Comptroller o f the Currency and
the Federal Reserve Board, amended
Part 369 of its regulations to im ple­
ment section 109 of the Riegle-Neal
Interstate Banking and Branching Act
o f 1994. As required by this law,
the new rule prohibits any bank from
establishing or acquiring branches
outside of its home state primarily for
the purpose o f deposit production. The
final rule also provides guidelines for
determining whether a bank is reason­
ably helping to meet the credit needs
o f the communities served by these
branches.

Approved:

August 26,1997

Published:

September 10,1997

Longer Examination Cycle
for Certain Small Institutions
The FDIC, along with the other bank
and thrift regulatory agencies, amended
Part 337 o f its regulations concerning
the examination cycle for certain small
insured institutions. The amendment
im plem ents provisions o f the
Riegle Community Development and
Regulatory Improvement Act of 1994
and the Econom ic G rowth and
Regulatory Paperwork Reduction Act
of 1996 authorizing the agencies to
raise the asset limit that determines
which institutions will be examined
every 18 months rather than every
12 months.

Approved:

January 21,1997

Published:

February 12,1997

Risk-Based Capital
for M ark et Risk
Transfers of Small Business Loan
Obligations W ith Recourse
The FDIC, together with the Office
o f the C om ptroller of the Currency
and the Office o f Thrift Supervision,
am ended Part 325 of its regulations
that generally require banks to maintain
risk-based capital against the full
am ount o f assets transferred with
recourse. Under the new rule, if certain
conditions are met, qualifying institu­
tions that sell small business obligations
with recourse are required to maintain
risk-based capital only against the
am ount o f recourse retained. The
new rule also states that the amount
o f recourse retained by a qualifying
institution on transactions receiving
this preferential capital treatm ent
cannot exceed 15 percent of the banks
total risk-based capital. The new rule
essentially m akes perm anent an
interagency rule in effect since 1995.

Approved:

September 18,1997

Published:

October 24,1997

40

The FDIC adopted an interim rule
amending Part 325 of its regulations
regarding the risk-based capital rules
for insured state nonmem ber banks
with large trading portfolios. The
amendment reduces regulatory burden
because institutions will not have to
develop and maintain two systems—
an internal model and a standardized
approach— when measuring market
risk. The FDIC adopted the amendment
jointly with the Federal Reserve Board
and the Office of the Comptroller of
the Currency, but also requested public
comment.

Approved:

December 9,1997

Published:

December 30,1997

P r o p o s e d

R u l e s

Advertisem ent of M em bership
The FDIC issued for public comment
a proposed amendment to Part 328 of
its regulations concerning the adver­
tisement of membership. The proposed
rule would consolidate the provisions
that require FDIC-insured institutions
to display official signs; extend to
all insured depository institutions the
official advertising statem ent that is
currently required only for insured
banks; streamline the exceptions to the
required use of the official advertising
statement; prohibit the use of the official
advertising statement in advertisements
concerning nondeposit products; and
delegate to certain FDIC officials the
authority to approve the translation
of the official advertising statement
into other languages.

Approved:

January 21,1997

Published:

February 11,1997

Uniformity in Risk-Based Capital
Standards

Sim plification of
Deposit Insurance Rules

The FDIC. along with the other bank
and thrift regulatory agencies, issued
for public comm ent amendments to
Part 325 of its regulations regarding
risk-based capital standards and lever­
age capital standards. The effect o f
the proposal would be to have uniform
risk-based capital treatments for con­
struction loans on presold residential
properties, real estate loans secured by
junior liens on 1-to-4 family residential
properties, and investments in mutual
funds. The proposal would result
in uniform and simplified minimum
Tier 1 leverage capital standards.

The FDIC proposed am endm ents to
Part 330 o f its regulations to clarify
and sim plify the deposit insurance
regulations. The proposed rule includes
many technical changes to the regula­
tions, the most notable being the inclu­
sion of common examples illustrating
how the FDIC insures the most basic
types of deposit accounts, primarily
consumer accounts.

Approved:

February 4,1997

Published:

October 27,1997

Outreach Programs
Resolution and Receivership Rules
The FDIC issued for public comment
certain technical revisions to its regula­
tion on resolutions and receiverships
contained in Part 360. The FDIC
proposed an am endm ent to correct
a typographical error and another to
remove an unnecessary section relating
to security interests o f Federal Home
Loan Banks in FDIC-administered
receiverships.

Approved:

February 4,1997

Published:

February 20,1997




The FDIC issued for public comment
a proposed rule to Part 361 of its regu­
lations that provide that the FDIC
certify the eligibility of businesses
and law firms for the m inority and
w om en’s contracting program . The
purpose of the proposed amendment
would be to replace a self-certification
system with a more formal certification
program. The proposed rule also would
establish an outreach program for
individuals with disabilities.

Approved:

March 25,1997

Published:

April 14,1997

41

Approved;

April 29,1997

Published:

May 14,1997

M unicip al Securities Dealers
The FDIC proposed to rescind Part 343
o f its regulations that requires insured
state nonmem ber banks that are munic­
ipal securities dealers to report certain
information about people who are or
seek to be municipal securities princi­
pals or municipal securities representa­
tives. The FDIC determined that it is
not required by law to issue its own
regulations governing the professional
qualification o f these individuals
and that the current regulation is
unnecessary and duplicative.

Approved:

April 29,1997

Published:

May 16,1997

P r o p o s e d

R u l e s

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N otification of Changes
in Insured Status

Capital Treatm ent
of Servicing Assets

Capital Standards for Unrealized
Gains on Certain Equity Securities

The FDIC issued for public comment
amendments to Part 307 of its regula­
tions to clarify that an insured depository
institution must provide the FDIC with
a certification of any partial or total
assumption of deposits from another
insured depository institution, unless
the deposits assumed are from an
institution in default.

The FDIC, along with the other bank
and thrift regulatory agencies, is sued
for public comment a proposed amend­
ment to Part 325 of its regulations
regarding the regulatory capital treat­
ment of mortgage servicing assets.
The proposed rule would ease limits
on the volume of mortgage servicing
assets that FDIC-supervised batiks can
recognize in calculating Tier 1 capital.
The proposed rule also would align
the terminology used in the FD IC ’s
capital standards more closely with
that used under generally accepted
accounting principals. This proposed
rule was developed in response to a
Financial Accounting Standards Board
ruling that affects servicing assets.

The FDIC, along with the other bank
and thrift regulatory agencies, issued
for public comment a proposed amend­
ment to Part 325 o f its regulations
regarding unrealized holding gains on
certain equity securities. The proposed
amendment would permit institutions
to recognize Tier 2 capital limited
amounts of unrealized gains on available
for sale equity securities with readily
determinable fair values.

Approved:

April 29.1997

Published:

May 14,1997

International Banking A ctivities
The FDIC issued for public comment
am endm ents to various parts of its
regulations regarding international
banking activities. The proposed rules
w ould allow w ell-m anaged, state
nonmem ber banks with international
operations to undertake a number of
activities abroad without filing a formal
application. The proposed rules also
would clarify existing regulations for
state-licensed, insured branches o f
foreign banks, and simplify regulations
on the accounting treatment for foreign
lending activities of state nonmember
banks.

Approved:

June 24,1997

Published:

July 15,1997




Approved:

July 22,1997

Published:

August 4,1997

A ctivities and Investments
of Insured State Depository
Institutions
The FDIC issued for public comment
a proposal to consolidate the securities
activities regulation and the regulation
governing the activities and investments
of savings associations into Part 362
o f the agency’s regulations, which
governs activities and investments of
insured state banks. The new Part 362
would provide stream lined notice
procedures for certain real estate and
equity securities activities and invest­
ments. The proposed rule would also
provide safety and soundness guidelines
relating to certain real estate activities
and investments, as well as delete
provisions, clarify language and
promote consistency.

Approved

August 26,1997

Published:

September 12,1997

42

Approved:

September 16,1997

Published:

October 27,1997

Treatm ent of Recourse
and D irect Credit Substitutes
The FDIC, along with the other bank
and thrift regulatory agencies, issued
for comment a proposed amendment
to Part 325 o f its regulations regarding
treatment of recourse arrangements
and direct credit substitutes. Recourse
arrangements arise when an institution
retains all or part of the risk of loss on
an asset or pool of assets it has sold to
another party. A direct credit substitute
is an arrangement, such as a guarantee,
in w hich an institution assum es all
or part o f the risk o f loss on an asset
or asset pool owned by another party,
even though the institution had not
owned or sold the asset. The proposal
w ould treat recourse obligations and
direct credit substitutes consistently,
and would use credit ratings and possi­
bly certain other alternative approaches
to match the risk-based capital assess­
ment more closely to a banking organi­
zation’s relative risk o f loss in asset
securitizations. The agencies intend
that any final rules adopted that result
in increased risk-based capital require­
m ents apply only to transactions
consum m ated after the effective
date of the final rules.

Approved:

September 16,1997

Published:

November 5,1997

P r o p o s e d

R u l e s

Applications, Requests
and Other Notices
The FDIC issued for public comment
amendments to Part 303 o f its regula­
tions, as well as other related sections
of the regulations. The proposed
amendments would streamline process­
ing for well-managed and well-capitalized institutions, reduce regulatory
burden, remove inconsistencies and
outmoded requirements, and present
the regulation in a more user-friendly
format. The most significant feature
of the proposed rule would expedite
processing for most filings by wellmanaged and well-capitalized deposi­
tory institutions, typically for deposit
insurance, mergers, branches, trust
powers, stock buy-backs, and certain
foreign banking activities. An estimated
90 percent of banks supervised by the
FDIC would be eligible.

Approved:

September 23,1997

Published:

October 9,1997

Interest on Deposits
The FDIC issued for com m ent a
proposed amendment to Part 329 of
its regulations regarding interest on
deposits. The Federal Deposit Insurance
Act requires that the FDIC prohibit
insured nonmember banks and insured
branches o f foreign banks from paying
interest or dividends on demand
deposits. Under the proposed amend­
ment, these institutions automatically
would become subject to the exceptions
to the prohibition adopted by the
Federal Reserve Board for its member
banks, regardless of whether the FDIC
had issued or authorized the specific
exception.

Approved:

October 6,1997

Published:

October 16,1997




W i t h d r a w n

P r o p o s e d

R u l e s

Prevention of Deposit Shifting
The FDIC withdrew a February 1997
proposal that would have prevented
institutions from shifting deposits
insured under the Savings Association
Insurance Fund (SAIF) to deposits
insured under the Bank Insurance Fund
(BIF) in order to evade SAIF assessment
rates. The FDIC withdrew the proposal
for various reasons, including the
elimination of the differential between
BIF and SAIF assessment rates and
the lack o f evidence o f significant
deposit shifting.

Approved:

July 22,1997

Published:

July 29,1997

A ctivities and Investments
of Insured State Banks
The FDIC withdrew a proposed amend­
ment to Part 362 o f its regulations that
would have substituted a notice for an
application for certain activities. At the
same time, the FDIC proposed a new
amendment to completely revise part
362 vcc IM:.v 42 s.

Approved:

August 26,1997

Published:

September 12,1997

Executive Secretary Robert Feldman, shown
here w ith staff member Gwen Alston before
a Board of Directors m eeting, is in charge
of the FDIC's office that manages the
regulatory review program

Legislation Enacted

Although Congress did not enact
comprehensive banking legislation in
1997, lawmakers approved measures
addressing interstate banking for statechartered banks and giving federal
regulators flexibility in enforcing certain
regulations w ithin disaster areas.
Congress also approved Fiscal Year
1998 appropriations for the FDIC
Office of Inspector General (OIG).

Interstate Branching
The Riegle-Neal Amendments Act of
1997 (Public Law 105-24) was enacted
on July 3, 1997. The Act amends the
Federal D eposit Insurance Act to
change the law applicable to branches
o f out-of-state state-chartered banks.
Prior to the Act, host state law applied.
U nder the new law, home state law
applies to the extent that federal law
preempts host state law for branches
of out-of-state national banks. The Act
also clarifies what law governs permissi­
ble activities. A branch of an out-ofstate state-chartered bank may conduct
in the host state those activities that
are perm issible either for a bank
chartered in the host state, or for
a branch of an out-of-state national
bank.

Depository Institutions
Disaster Relief

gives to federal financial institution
regulatory agencies greater flexibility
to waive or limit the application o f the
Truth in Lending Act, the Expedited
Funds Availability Act, and certain
prom pt corrective action provisions
of the Federal Deposit Insurance Act.
The authority for the temporary provi­
sions ends in either 1998 or 1999.

Appropriations
Congress appropriated funds for the
activities of the FDIC OIG as part
of the Fiscal Year 1998 Departments
of Veterans Affairs and Housing and
Urban Development, and Independent
Agencies Appropriations Act of 1998
(Public Law 105-65) enacted October
27,1997. The Act designates nearly
$34.4 million from the Bank Insurance
Fund, the Savings Association Insur­
ance Fund and the FSLIC Resolution
Fund for necessary expenses of the
OIG in Fiscal Year 1998.

The Depository Institutions Disaster
Relief Act of 1997 (Public Law 105-18)
was enacted as part of an emergency
supplemental appropriations bill on
June 12. The Act provides tem porary
regulatory relief for financial institutions
in flooded areas of M innesota and the
Dakotas and in other areas where a
m ajor disaster has occurred. The Act




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Annual Repor t 1991

FIN AN CIAL STATEM ENTS




Bank Insurance Fund

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Statements of Financial Position
Dollars

in T h o u s a n d s

December 31,1997

December 31,1996

Assets
Cash and cash equivalents

$

Investment in U.S. Treasury obligations, net (Note 3)
(Market value of investments at December 31,1997 and
December 31,1996 was $27.1 billion and $22.1 billion, respectively)
Interest receivable on investments and other assets, net
Receivables from bank resolutions, net (Note 4)

219,207

$

26,598,825

22,083,494

472,818

384,824
4,341,154

1,109,035

Assets acquired from assisted banks and terminated receiverships,
net (Note 5)
Property and buildings, net (Note 6)

Total Asset

258,132

60,724

74,173

145,061

148,400

$

28,605,670

$

27,290,177

$

228,955

$

250,952

Liabilities
Accounts payable and other liabilities
Estimated liabilities for: (Note 7)
Anticipated failure of insured institutions

11,000

75,000

Assistance agreements

31,952
13,500

50,817
14,750

Litigation losses
Asset securitization guarantees

27,715

44,279

313,122

435,798

28,292,672
(124)

26,854,379

Unrealized loss on available-for-sale securities, net (Note 3)

Total Fund Balance
Total Liabilities and Fund Balance

28,292,548
28,605,670

26,854,379
27,290,177

Total Liabilities
Commitments and off-balance-sheet exposure (Note 13)

Fund Balance
Accumulated net income

$

The accompanying notes are an integral part o f these financial statements.




47

0
$

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Statements of Incom e and Fund B alance
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Revenue
A sse ssm en ts (N ote 9)

$

In te re st on U.S. T reasury investm ents

24,711

$

1,519,276

72,662
1,267,134

R evenue fro m assets a cq uired fro m assisted
banks and te rm in a te d re ce ive rsh ip s

38,000

69,879

O ther revenue (N ote 10)

33,631

245,585

1,615,618

1,655,260

Total Revenue
Expenses and Losses
O perating expenses
P rovision fo r in su ra n ce losses (N ote 8)
Expenses fo r assets a cq uired fro m assisted
banks and te rm in a te d re ce ive rsh ip s
In te re st and o th er insu ra nce expenses

Total Expenses and Losses
Net Income
U nrealized loss on a va ila b le -fo r-sa le s e c u ritie s , net (N ote 3)

Comprehensive Income
Fund Balance - Beginning
Fund Balance - Ending

$

The accompanying notes are an integral part o f these financial statements.




48

605,214

505,299

(503,714)

(325,206)

74,319

73,819

1,506

667

177,325

254,579

1,438,293

1,400,681

(124)

0

1,438,169

1,400,681

26,854,379

25,453,698

28,292,548

$

26,854,379

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Statements of Cash Flows
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

$

$

Cash Flows From Operating Activities
Cash provided from:
Assessments

22,201

73,961

Interest on U.S. Treasury investments

1,480,060

1,303,629

Recoveries from bank resolutions

3,826,273

624,502

141,765
24,951

355,913

Recoveries from assets acquired from assisted banks
and terminated receiverships
Miscellaneous receipts

34,329

Cash used for:
Operating expenses

(580,515)

(489,372)

Disbursements for bank resolutions

(298,943)

(632,930)

Disbursements for assets acquired from assisted banks
and terminated receiverships

(67,231)

(205,775)

Miscellaneous disbursements

(11,771)

(16,810)

4,536,790

1,047,447

6,300,000

7,550,000

(10,373,695)

(8,870,623)

(502,020)

0

(4,575,715)

(1,320,623)

(38,925)

(273,176)

Net Cash Provided by Operating Activities (Note 15)
Cash Flows From Investing Activities
Cash provided from:
M aturity of U.S. Treasury obligations, held-to-maturity

Cash used for:
Purchase of U.S. Treasury obligations, held-to-maturity
Purchase of U.S. Treasury obligations, available-for-sale

Net Cash Used by Investing Activities
Net Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning

258,132

Cash and Cash Equivalents - Ending

S

The accompanying notes are an integral part o f these financial statements.




49

219,207

531,308
$

258,132

Notes to the Financial Statements
Bank Insurance Fund
December

31,

1997

and

1996

1. Legislative History and Operations of the Bank insurance Fund

The Omnibus Budget Reconciliation Act o f 1990 (1990
OBR Act) and the Federal Deposit Insurance Corporation
Improvement Act o f 1991 (FDICIA) made changes to the
FD IC ’s assessment authority (see Note 9) and borrowing
authority (see “Operations of the BIF” below). The FDICIA
also requires the FDIC to: 1) resolve troubled institutions in
a manner that will result in the least possible cost to the
deposit insurance funds and 2) maintain the insurance funds
at 1.25 percent of insured deposits or a higher percentage as
circumstances warrant.

Legislative History_____________________________________
The U.S. Congress created the Federal Deposit Insurance
Corporation (FDIC) through enactment of the Banking Act
of 1933. The FDIC was created to restore and maintain
public confidence in the nation’s banking system.
The Financial Institutions Reform , Recovery, and
Enforcement Act o f 1989 (FIRREA) was enacted to reform,
recapitalize, and consolidate the federal deposit insurance
system. The FIRREA created the Bank Insurance Fund
(BIF), the Savings Association Insurance Fund (SAIF), and
the FSLIC Resolution Fund (FRF). It also designated the
FDIC as the administrator of these three funds. All three
funds are maintained separately to carry out their respective
mandates.

The Deposit Insurance Funds Act o f 1996 (DIFA) was enact­
ed to provide for: 1) the capitalization o f the SAIF to its des­
ignated reserve ratio of 1.25 percent by means o f a one-time
special assessment on SAIF-insured deposits; 2) the expansion
o f the assessment base for payments o f the interest on oblig­
ations issued by the FICO to include all FDIC-insured banks
and thrifts , 3) beginning January 1, 1997, the imposition of
a FICO assessment rate on BIF-assessable deposits that is
one-fifth of the rate for SAIF-assessable deposits through the
earlier of December 31, 1999, or the date on which the last
savings association ceases to exist; 4) the payment o f the
approximately $790 million annual FICO interest obligation
on a pro rata basis between banks and thrifts on the earlier
o f December 31, 1999, or the date on which the last savings
association ceases to exist; 5) authorization o f BIF assess­
ments only if needed to maintain the fund at the designated
reserve ratio; 6) the refund o f amounts in the BIF in excess
o f the designated reserve ratio with such refund not to exceed
the previous semi-annual assessment; and 7) the merger of
the BIF and the SAIF on January 1, 1999, if no insured
depository institution is a savings association on that date.

The BIF and the SAIF are insurance funds responsible for
protecting depositors in operating banks and thrift institu­
tions from loss due to failure o f the institution. The FRF
is a resolution fund responsible for winding up the affairs of
the form er Federal Savings and Loan Insurance Corporation
(FSLIC) and liquidating the assets and liabilities transferred
from the former Resolution Trust Corporation (RTC).
Pursuant to FIRREA. an active institution’s insurance fund
membership and primary federal supervisor are generally
determined by the institution’s charter type. Deposits of
BIF-m ember institutions are generally insured by the BIF;
BIF members are predominantly commercial and savings
banks supervised by the FDIC, the Office o f the Comptroller
of the Currency, or the Federal Reserve. Deposits of SAIFmember institutions are generally insured by the SAIF; SAIF
members are predominantly thrifts supervised by the Office
o f Thrift Supervision (OTS). The O akar amendment to the
Federal Deposit Insurance Act (FDI Act) allows BIF and
SAIF members to acquire deposits insured by the other
insurance fund without changing insurance fund coverage
for the acquired deposits. These institutions with deposits
insured by both insurance funds are referred to as Oakars or
O akar institutions. “Sasser” banks are SAIF members that
have converted to a bank charter in accordance with Section
5(d)(2)(G) o f the FDI Act.

_____________
Operations o f the BIF_____
The primary purpose of the BIF is to: 1) insure the deposits
and protect the depositors o f BIF-insured banks and
2) resolve failed banks, including managing and liquidating
their assets. In addition, the FDIC, acting on behalf of the
BIF, examines state-chartered banks that are not members
of the Federal Reserve System and provides and monitors
assistance to troubled banks.
The BIF is primarily funded from the following sources:
1) interest earned on investments in U.S. Treasury obligations;
2) BIF assessment premiums; 3) income earned on and funds
received from the management and disposition o f assets
acquired from failed banks; and 4) U.S. Treasury and Federal
Financing Bank (FFB) borrowings, if necessary.

Other Significant Legislation___________________________
The Competitive Equality Banking Act of 1987 established
the Financing Corporation (FICO) as a mixed-ownership
governm ent corporation whose sole purpose was to function
as a financing vehicle for the FSLIC.




50

BI F
The 1990 OBR Act established the FD IC ’s authority to
borrow working capital from the FFB on behalf of the BIF
and the SAIF. The FDICIA increased the FD IC ’s authority
to borrow for insurance losses from the U.S. Treasury, on
behalf of the BIF and the SAIF, from $5 billion to $30 billion.
The FDICIA also established a limitation on obligations that
can be incurred by the BIF, known as the maximum obliga­
tion limitation (MOL). At December 31. 1997. the MOL for
the BIF was $50 billion.

The VA, HUD and Independent Agencies Appropriations
Act, 1998, Public Law 105-65, appropriated $34 million for
fiscal year 1998 (October 1,1997, through September 30,1998)
for operating expenses incurred by the Office of Inspector
General (OIG). The Act mandates that the funds are to be
derived from the BIF, the SAIF, and the FRF. In prior years,
the OIG funding was not submitted to Congress as part of
the appropriation process.

2. Summary of Significant Accounting Policies

date of maturity. Beginning in 1997, the BIF designated a
portion o f its securities as available-for-sale. These securi­
ties are shown at fair value with unrealized gains and losses
included in the fund balance. Realized gains and losses are
included in other revenue when applicable. Interest on both
types o f securities is calculated on a daily basis and recorded
monthly using the effective interest method. The BIF does
not have any securities classified as trading.

General________________________________________________
These financial statements pertain to the financial position,
results o f operations, and cash flows of the BIF and are
presented in accordance with generally accepted accounting
principles (GAAP). These statements do not include report­
ing for assets and liabilities of closed banks for which the
FDIC acts as receiver or liquidating agent. Periodic and final
accountability reports o f the FD IC ’s activities as receiver
or liquidating agent are furnished to courts, supervisory
authorities, and others as required.

Allowance for Losses on Receivables From Bank
Resolutions and Assets Acquired From Assisted Banks
and Terminated Receiverships
The BIF records as a receivable the amounts advanced
and/or obligations incurred for resolving troubled and failed
banks. The BIF also records as an asset the amounts paid for
assets acquired from assisted banks and terminated receiver­
ships. Any related allowance for loss represents the differ­
ence between the funds advanced and/or obligations incurred
and the expected repayment. The latter is based on estimates
o f discounted cash recoveries from the assets of assisted or
failed banks, net o f all estimated liquidation costs.

Use o f Estimates_______________________________________
FDIC management makes estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these
estimates. Where it is reasonably possible that changes in
estimates will cause a material change in the financial state­
ments in the near term, the nature and extent o f such changes
in estimates have been disclosed.
Cash Equivalents
The BIF considers cash equivalents to be short-term, highly
liquid investments with original maturities of three months
or less.

_____
__
Receivership O perations____
The FDIC is responsible for managing and disposing o f the
assets o f failed institutions in an orderly and efficient man­
ner. The assets, and the claims against them, are accounted
for separately to ensure that liquidation proceeds are distrib­
uted in accordance with applicable laws and regulations.
Also, the income and expenses attributable to receiverships
are accounted for as transactions of those receiverships.
Liquidation expenses incurred by the BIF on behalf o f the
receiverships are recovered from those receiverships.

Investments in U.S. Treasury Obligations________________
Investm ents in U.S. Treasury O bligations are recorded
pursuant to the provisions of the Statem ent of Financial
A ccounting Standards No. 115, “A ccounting for C ertain
Investments in Debt and Equity Securities” (SFAS 115).
SFAS 115 requires that securities be classified in one o f three
categories: held-to-maturity, available-for-sale, or trading.
Securities designated as held-to-maturity are intended to be
held to maturity and are shown at amortized cost. Amortized
cost is the face value o f securities plus the unamortized pre­
mium or less the unamortized discount. Amortizations are
computed on a daily basis from the date o f acquisition to the




Cost Allocations Among[Funds
Certain operating expenses (including personnel, administra­
tive, and other indirect expenses) not directly charged to each
fund under the FD IC’s management are allocated based on

51

BI F
Information.” The FDIC intends to adopt SFAS No. 131
effective on January 1, 1998; however, managem ent
anticipates that the BIF, as a non-publicly held enterprise,
will not be affected by SFAS No. 131.

percentages developed during the business planning process.
The cost o f furniture, fixtures, and equipment purchased by
the FDIC on behalf o f the three funds under its administra­
tion is allocated among these funds on a similar basis. The
BIF expenses its share of these allocated costs at the time
of acquisition because of their immaterial amounts.

Other rece nt pronouncements issued by the FASB are not
applicable to the financial statements.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting
and administration o f postretirement benefits on behalf of
the BIF, the SAIF, and the FRF. Each fund pays its liabilities
for these benefits directly to the entity. The B IF’s remaining
net postretirem ent benefits liability for the plan is recognized
in the B IF’s Statement o f Financial Position.

Depreciation___________________________________________
The FDIC has designated the BIF as administrator of build­
ings owned and used in its operations. Consequently, the
BIF includes the cost of these assets in its financial state­
ments and provides the necessary funding for them. The BIF
charges the other funds a rental fee representing an allocated
share of its annual depreciation expense.

Disclosure About Recent Financial Accounting Standards
Board Pronouncements
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement o f Financial Accounting Standards
(SFAS) No. 130, “Reporting Comprehensive Income.”
Comprehensive income includes net income as well as certain
types of unrealized gain or loss. The only component of
SFAS No. 130 that impacts the BIF is unrealized gain or loss
on securities classified as avaiable-for-sale which is present­
ed in the B IF’s Statement o f Financial Position and the
Statement of Income and Fund Balance. The FDIC adopted
SFAS No. 130 effective on January 1, 1997.

The Washington, D.C. office buildings and the L. William
Seidman (’enter in Arlington, Virginia, are depreciated on
a straight-line basis over a 50-year estimated life. The
San Francisco condominium offices are depreciated on
a straight-line basis over a 35-year estim ated life.
Related Parties
The nature o f related parties and a description o f related
party transactions are disclosed throughout the financial
statements and footnotes.
Reclassifications
Reclassifications have been made in the 1996 financial
statements to conform to the presentation used in 1997.

In June 1997, the FASB also issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related

3. Investment in U.S. Treasury Obligations, Net

All cash received by the BIF is invested in U.S. Treasury
obligations with maturities exceeding three months unless
the cash is used: 1) to defray operating expenses; 2) for
outlays related to assistance to banks and liquidation




activities; or 3) for investments in U.S. Treasury one-day
special certificates that are included in the cash and cash
equivalents line item. Prior to 1997, all investments were
designated “held-to-m aturity” (see Note 2).

52

BI F

U.S. Treasury Obligations at Decem ber 31,1997
Dollars

in T h o u s a n d s

Maturity

Yield at
Purchase

Face
Value

Unrealized
Holding
Gains

Amortized
Cost

Unrealized
Holding
Losses

Market
Value

Held-to-Maturity
Less than one year

5.58%

$

5,250,000

$

$

5,240,657

5,369

$

(5,650)

5,240,375

$

1-3 years

5.83%

5,280,000

5,330,281

5,348,983

6.15%

5,490,000

5,685,279

26,113
89,744

(7,413)

3-5 years

(6,895)

5,768,128

5-10 years

6.57 %

9,500,000

9,840,712

439,733

0

10,280,445

s 26,637,931

Total

$

25,520,000

$

490,000

$

26,096,929

$

560,959

$

(19,958)

$

19

$

(143)

560,978

$

(20,101)

Available-for-Sale
1-3 years

5.67%

$

502,020

$

501,896

Total Investment in U.S. Treasury Obligations, Net
Total

$

26,010,000

$

26.598,949

$

$ 27,139,827

U.S. Treasury Obligations at Decem ber 31,1996
Dollars

in T h o u s a n d s

Maturity

Face
Value

Yield at
Purchase

Less than one year
1-3 years

6.02%
5.62%

5,800,000
8,320,000

3-5 years

6.10%

4,770,000

5-10 years

6.51%

Total

$

Amortized
Cost
$

$

$

3,127,436

s

22,083,494

15,032
8,499
21,306

4,811,582

3,100,000

21,990,000

5,805,090
8,339,386

Unrealized
Holding
Gains

$

Unrealized
Holding
Losses
$

(6,934)

Market
Value
$

(37,429)
(30,560)

38,415

(328)

83,252

$ (75,251)

5,813,188
8,310,456
4,802,328
3,165,523

$

22,091,495

In 1997, the unamortized premium, net o f unamortized discount, was $589 million. In 1996, the unamortized premium, net
o f unamortized discount, was $93 million.




53

BI F

4. R eceivables From Bank Resolutions, N et

As of Dec em ber 31, 1997 and 1996, the FDIC, in its
receivership capacity for BIF-insured institutions, held
assets with a book value of $2.5 billion and $7.3 billion,
respectively (including cash and miscellaneous receivables
o f $1 billion and $3.9 billion at December 31, 1997 and
1996, respectively). These assets represent a significant
source of repaym ent o f the B IF ’s receivables from bank
resolutions. The estimated cash recoveries from the man­
agement and disposition o f these assets that are used to
derive the allowance for losses are based in part on a
statistical sampling o f receivership assets. The sample
was constructed to produce a statistically valid result.
These estim ated recoveries are regularly evaluated,
but rem ain subject to uncertainties because o f potential
changes in econom ic conditions. These factors could
affect the B IF ’s and other claim ants’ actual recoveries
from the level currently estim ated.

The FDIC resolution process takes different forms depend­
ing on the unique facts and circumstances surrounding each
failing or failed institution. Payments to prevent a failure are
made to operating institutions when cost and other criteria
are met. Such payments may facilitate a merger or allow a
troubled institution to continue operations. Payments for
institutions that fail are made to cover the institution’s oblig­
ation to insured depositors and represent a claim by the BIF
against the receiverships’ assets. There was only one bank
failure in 1997.
The FDIC, as receiver for failed banks, engages in a variety
o f strategies at the time o f failure to maximize the return
from the sale or disposition o f assets. A failed bank acquirer
can purchase selected assets at the time o f resolution and
assume full ownership, benefit, and risk related to such
assets. The receiver may also engage in other types o f trans­
actions as circumstances warrant. As described in Note 2,
an allowance for loss is established against the receivable
from bank resolutions.

R eceivables From Bank Resolutions, N et at Decem ber 31
Dollars

in T h o u s a n d s

1997
Assets from open bank assistance
Allowance for losses

$

Net Assets From Open Bank Assistance
Receivables from closed banks
Allowance for losses

Net Receivables From Closed Banks
Total

$

140,035
(38,497)

1996
$

142,267
(49,580)

101,538

92,687

23,268,950
(22,261,453)

28,169,809
(23,921,342)

1,007,497
1,109,035

$

4,248,467
4,341,154

5. Assets Acquired From Assisted Banks and Terminated Receiverships, Net
The BIF acquires assets from certain troubled and failed
banks by either purchasing an institution’s assets outright
or purchasing the assets under the terms specified in each
resolution agreement. In addition, the BIF can purchase
assets remaining in a receivership to facilitate termination.
The methodology used to derive the allowance for losses for
assets acquired from assisted banks and terminated receiver­
ships is the same as that for receivables from bank resolutions.




54

The BIF recognizes income and expenses on these assets.
Income consists primarily o f the portion o f collections on
performing mortgages and comm ercial loans related to inter­
est earned. Expenses are recognized for administering the
management and liquidation of these assets.

BI F

Assets Acquired From Assisted Banks and Terminated Receiverships, N et at Decem ber 31
Dollars

in T h o u s a n d s

1997

1996

Assets acquired from assisted banks and terminated receiverships
Allowance for losses

$

256,237
(195,513)

$

423,151
(348,978)

Assets Acquired From Assisted Banks and Terminated Receiverships, Net

$

60,724

$

74,173

6. Property and Buildings, Net

Property and Buildings, N et at Decem ber 31
Do l l a r s in T h o u s a n d s

1997
Land
Office buildings
Accumulated depreciation

$

29,631
151,443
(36,013)

Property and Buildings, Net

$

145,061

1996
$

29,631
151,442
(32,673)

$

148,400

7. Estimated Liabilities for:
Anticipated Failure o f Insured Institutions
The BIF records an estim ated liability and a loss provision
for banks (including Oakar and Sasser financial institutions)
that are likely to fail, absent some favorable event such as
obtaining additional capital or merging, in the period when
the liability is considered probable and reasonably estimable.

The accuracy of these estim ates will largely depend on
future economic conditions. The FDIC Board has the
statutory authority to consider the estimated liability from
anticipated failures o f insured institutions when setting
assessment rates.
Assistance Agreements
The estimated liabilities for assistance agreements resulted
from several large transactions where problem assets were
purchased by an acquiring institution under an agreement
that calls for the FDIC to absorb credit losses and pay related
costs for funding and asset administration, plus an incentive
fee.

The estimated liabilities for anticipated failure o f insured
institutions as of December 31, 1997 and 1996, were $11
million and $75 million, respectively. The estim ated liability
is derived in part from estimates o f recoveries from the man­
agement and disposition of the assets of these probable bank
failures. Therefore, they are subject to the same uncertainties
as those affecting the B IF’s receivables from bank resolu­
tions (see Note 4). This could affect the ultimate costs to the
BIF from probable bank failures.

____ ___
________
Litigation Losses
The BIF records an estimated loss for unresolved legal cases
to the extent those losses are considered probable and rea­
sonably estimable. The estim ated liability for litigation loss­
es is $14 million and $15 million at December 31, 1997 and
1996, respectively. In addition to the am ount recorded as
probable, the FD IC ’s Legal Division has determined that
losses from unresolved legal cases totaling $320 million are
reasonably possible.

There are other banks where the risk o f failure is less certain,
but still considered reasonably possible. Should these banks
fail, the BIF could incur additional estimated losses o f about
$197 million.




55

BI F
liability under the guarantees o f $28 million and $44 million,
respectively.

Asset Securitization Guarantees
As part of the FD IC ’s efforts to maximize the return from the
sale or disposition o f assets from bank resolutions, the FDIC
has securitized some receivership assets. To facilitate the
securitizations, the BIF provided limited guarantees to cover
certain losses on the securitized assets up to a specified max­
imum. In exchange for backing the limited guarantees, the
BIF received assets from the receiverships in an amount
equal to the expected exposure under the guarantees. At
D ecember 31, 1997 and 1996, the BIF had an estimated

During 1996. the BIF refined its liability estimation process
and returned to receiverships $91.6 million in cash (including
interest of $8.4 million) received for backing the limited
guarantee. The BIF made this one-time refund as a result of
lowering the estim ate o f expected exposure under one o f the
guarantees. To determine the maximum exposure under
the limited guarantees, please refer to the chart in Note 13.

8. Provision for Insurance Losses
Provision for insurance losses was a negative $504 million
and a negative $325 million for 1997 and 1996, respectively.
Reductions to various allowance for losses and estimated

liabilities account for the negative loss provision. The fol­
lowing chart lists the major components o f the reduction in
provision for insurance losses.

Provision for Insurance Losses
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Valuation adjustments:
Open bank assistance
Closed banks
Assets acquired from assisted banks and terminated receiverships

$

Total Valuation Adjustments

(12,180)
(356,347)
(55,663)

$

(3,605)
(128,149)
50,589

(424,190)

(81,165)

(59,000)
(12,716)
(6,558)
(1,250)

(204,000)
(4,404)
(14,572)
(21,065)

Contingencies:
Anticipated failure of insured institutions
Assistance agreements
Asset securitization guarantees
Litigation

Total Contingencies
Reduction in Provision for Insurance Losses

S

(79,524)
(503,714)

%

(244,041)
(325,206)

9. Assessments

available to satisfy the B IF’s obligations; 3) required the
FDIC to build and maintain the reserves in the insurance
funds to 1.25 percent o f insured deposits; and 4) authorized
the FDIC to increase assessment rates more frequently than
semiannually and impose emergency special assessments
as necessary to ensure that funds are available to repay
U.S. Treasury borrowings.

The 1990 OBR Act removed caps on assessment rate
increases and authorized the FDIC to set assessment rates for
BIF members semiannually, to be applied against a m em ­
b er’s average assessment base. The FDICIA: 1) required the
FDIC to implement a risk-based assessment system; 2)
authorized the FDIC to increase assessment rates for BIFmember institutions as needed to ensure that funds are




56

BI F
assessment, and the FICO assessment is imposed on banks
and not on the BIF. The FDIC, as administrator o f the BIF,
is acting solely as a collection agent for the FICO. During
1997, $338 million was collected from banks and remitted
to the FICO.

In May 1995, the BIF reached the FDICIA mandated capital­
ization level of 1.25 percent of insured deposits.
The DIFA (see Note 1) provided, among other things, for the
elimination of the mandatory minimum assessment formerly
provided for in the FDI Act. It also provided for the expan­
sion o f the assessment base for payments o f the interest on
obligations issued by the FICO to include all FDIC-insured
institutions (including banks, thrifts, and O akar and Sasser
financial institutions). On January 1, 1997, BIF-insured
banks began paying a FICO assessment. The FICO assess­
m ent rate on B IF-assessable deposits is one-fifth o f
the rate for SA IF-assessable deposits. On the earlier of
D ecember 31, 1999, or the date on which the last savings
association ceases to exist, the approximately $790 million
annual FICO interest obligation will be paid on a pro rata
basis between banks and thrifts.

The FDIC uses a risk-based assessment system that charges
higher rates to those institutions that pose greater risks to the
BIF. To arrive at a risk-based assessm ent for a particular
institution, the FDIC places each institution in one o f nine
risk categories, using a two-step process based first on capi­
tal ratios and then on other relevant information. The FDIC
Board of Directors (Board) reviews premium rates semiannu­
ally. The average assessment rate for 1997 was 0.08 cents
per $100 of assessable deposits.
On November 12, 1997, the Board voted to retain the BIF
assessment schedule of 0 to 27 cents per $100 o f assessable
deposits (annual rates) for the first semiannual period o f
1998.

The FICO assessment has no financial impact on the BIF
since the FICO assessment is separate from the regular

msammasmaamm

10. Other Revenue
all higher priority claims. Once those claims have been paid,
the BIF and other claimants are eligible to receive interest
on their claims against the receivers to the extent funds are
available. Due to the uncertainty of collection, post-insol­
vency interest is recognized as income when received.

Included in other revenue is interest on subrogated claims
and advances to financial institutions. This interest totaled
$22 million and $231 million for 1997 and 1996, respective­
ly (including $10 million and $205 million in post-insolvency interest for 1997 and 1996, respectively). Certain BIF
receiverships may have residual funds remaining after paying

11. Pension Benefits, Savings Plans, Postemployment Benefits and Accrued Annual Leave
Although the BIF contributes a portion of pension benefits
for eligible employees, it does not account for the assets of
either retirement system. The BIF also does not have actuarial
data for accumulated plan benefits or the unfunded liability
relative to eligible employees. These amounts are reported
on and accounted for by the U.S. Office of Personnel
M anagem ent (OPM).

Eligible FDIC employees (all perm anent and temporary
employees with appointments exceeding one year) are cov­
ered by either the Civil Service Retirement System (CSRS)
or the Federal Employee Retirement System (FERS). The
CSRS is a defined benefit plan, which is offset with the Social
Security System in certain cases. Plan benefits are determined
on the basis of years o f creditable service and compensation
levels. The CSRS-covered employees also can contribute to
the tax-deferred Federal Thrift Savings Plan (TSP).

Eligible FDIC employees also may participate in an FDICsponsored tax-deferred savings plan with matching contribu­
tions. The BIF pays its share o f the em ployer’s portion o f all
related costs.

The FERS is a three-part plan consisting o f a basic defined
benefit plan that provides benefits based on years of cred­
itable service and com pensation levels. Social Security
benefits, and the TSP. A utom atic and m atching em ployer
contributions to the TSP are provided up to specified
am ounts under the FERS.




Due to a substantial decline in the FD IC ’s workload, the
Corporation developed a staffing reduction program, a
component o f which is a voluntary separation incentive plan,

57

BI F
or buyout. Corporate-wide buyout plans have been offered
to eligible employees. The buyouts have not had a material
effect on the BIF.

The B IF’s pro rata share o f the C orporation’s liability to
employees for accrued annual leave is approximately
$35.7 million and $38.9 million at D ecember 31, 1997
and 1996, respectively.

Pension Benefits and Savings Plans Expenses
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employee Retirement System (Basic Benefit)
FDIC Savings Plan
Federal Thrift Savings Plan

$

488
8,708
28,661
16,974
10,568

$

1,127
9,113
34,989
19,474
12,195

Total

$

65,399

$

76,898

12. Postretirem ent Benefits Other than Pensions

The FDIC provides certain health, dental, and life insurance
coverage for its eligible retirees, the retirees’ beneficiaries,
and covered dependents. Retirees eligible for health and/or
life insurance coverage are those who have qualified due to:
1) immediate enrollment upon appointment or five years of
participation in the plan and 2) eligibility for an immediate
annuity. Dental coverage is provided to all retirees eligible
for an immediate annuity.

direct-pay plans. Dental care is underwritten by Connecticut
General Life Insurance Company and provides coverage
at no cost to retirees.
The BIF expensed $3.3 million and $6.1 million for net
periodic postretirem ent benefit costs for the years ended
December 31, 1997 and 1996, respectively. For measurement
purposes for 1997, the FDIC assumed the following: 1) a
discount rate of 5.75 percent; 2) an average long-term rate of
return on plan assets o f 5.75 percent; 3) an increase in health
costs in 1997 o f 9.75 percent (inclusive of general inflation
of 2.5 percent), decreasing to an ultim ate rate in the year
2000 and thereafter of 7.75 percent; and 4) an increase in
dental costs for 1997 and thereafter o f 4.5 percent (in addi­
tion to general inflation). Both the assumed discount rate and
health care cost rate have a significant effect on the amount
of the obligation and periodic cost reported.

The FDIC is self-insured for hospital/medical, prescription
drug, mental health, and chemical dependency coverage.
Additional risk protection was purchased through stop-loss
and fiduciary liability insurance. All claims are administered
on an administrative services only basis with the hospital/
m edical claim s adm inistered by A etna Life Insurance
Company, the mental health, and chem ical dependency
claims adm inistered by OHS Foundation H ealth Psychcare
Inc., and the prescription drug claims adm inistered by
Caremark.

If the health care cost rate was increased one percent,
the accum ulated postretirem ent benefit obligation as of
December 31, 1997, would have increased by 20.2 percent.
The effect of this change on the aggregate of service and
interest cost for 1997 would be an increase o f 23.5 percent.

The life insurance program, underwritten by M etropolitan
Life Insurance Company, provides basic coverage at no
cost to retirees and allows converting optional coverages to




58

BI F

Net Periodic Postretirem ent Benefit Cost
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Service cost (benefits attributed to employee service during the year)
Interest cost on accumulated postretirement benefit obligation
Net total of other components
Return on plan assets

$

12,618
17,564
(5,868)
(21,009)

$

15,575
16,258
(7,369)
(18,402)

Total

S

3,305

$

6,062

As stated in Note 2, the FDIC established an entity to
provide accounting and administration on behalf of the BIF,

the SAIF, and the FRF. The BIF funds its liability and these
funds are being managed as “plan assets.”

Accum ulated Postretirem ent Benefit Obligation and Funded Status at Decem ber 31
Dollars

in T h o u s a n d s

1996

1997
Retirees
Fully eligible active plan participants
Other active participants

$

190,339
14,830
173,058

$

136,730
12.724
152,993

Total Obligation

378,227

302,447

Less: Plan assets at fair value|a|

356,447

335,439

Under/(Over) Funded Status

21,780

(32,992)

Unrecognized prior service cost
Unrecognized net gain

12,870
4,581

46,136
26,846

Postretirement Benefit Liability Recognized
in the Statement of Financial Position

$

39,231

$

39,990

^ Invested in U.S. Treasury instruments

13. Commitments and O ff-B alance Sheet-Exposure
C om m itm ents

Leases
The B IF's allocated share of the FD IC ’s lease com m itm ents
totals $188.5 m illion for future years. The lease agree­
m ents contain escalation clauses resulting in adjustments,
usually on an annual basis. The allocation to the BIF o f the
FD IC ’s future lease commitments is based upon current
relationships of the workloads among the BIF, the SAIF,




and the FRF. Changes in the relative workloads among the
three funds in future years could change the amount o f the
FD IC ’s lease payments that will be allocated to the BIF.
The BIF recognized leased space expense o f $43.6 million
and $39.9 million for the years ended D ecember 31, 1997
and 1996, respectively.

59

BI F

Lease Commitments
Dollars

in T h o u s a n d s

1999

2000

2001

2002

$35,337

$30,550

$23,950

$21,142

1998
$42,507

Asset Securitization Guarantees
As discussed in Note 7, the BIF provided certain limited
guarantees to facilitate securitization

2003 and Thereafter
$35,029

transactions. The table below gives the maxim um offbalance-sheet exposure the BIF has under these guarantees.

Asset Securitization Guarantees at Decem ber 31
Dollars

in T h o u s a n d s

1996

1997
Maximum exposure under the limited guarantees
Less: Guarantee claims paid (inception-to-date)
Less: Amount of exposure recognized as an estimated liability (see Note 7)

$

481,313
(19,231)
(27,715)

$

481,313
(8,651)
(44,279)

Maximum Off-Balance-Sheet Exposure Under the Limited Guarantees

S

434,367

S

428,383

Concentration o f Credit Risk
As of December 31, 1997, the BIF had $23.4 billion in gross
receivables from bank resolutions and $256 million in assets
acquired from assisted banks and terminated receiverships.
An allowance for loss o f $22.3 billion and $195 million,
respectively, has been recorded against these assets. The

liquidation entities’ ability to make repaym ents to the BIF
is largely influenced by the economy o f the area in which
they are located. The B IF ’s maximum exposure to possible
accounting loss for these assets is shown in the table below.

Concentration of Credit Risk at Decem ber 31,1997
Dollars

in M i l l i o n s

Receivables from bank resolutions, net and
Assets acquired from assisted banks and
terminated receiverships, net

Southeast

Southwest

Northeast

Midwest

Central

West

Total

$11

$98

$304

$50

$20

$87

$1,170

O th er O ff-B a la n c e -S h e e t R isk
Deposit Insurance
As o f December 31, 1997, deposits insured by the BIF
totaled approximately $2.1 trillion. This would be the

accounting loss if all depository institutions were to fail and
the acquired assets provided no recoveries.

14. Disclosures about the Fair Value of Financial Instruments
amount of interest receivable on investments, short-term
receivables, and accounts payable and other liabilities
approximates their fair market value. This is due to their
short maturities or comparisons with current interest rates.

Cash equivalents are short-term, highly liquid investments
and are shown at current value. The fair market value o f the
investm ent in U.S. Treasury obligations is disclosed in Note
3 and is based on current market prices. The carrying




60

BIF
The net receivable from bank resolutions primarily involves
the B IF ’s subrogated claim arising from payments to insured
depositors. The receivership assets that will ultimately be
used to pay the corporate subrogated claim are valued using
discount rates that include consideration of market risk. These
discounts ultimately affect the B IF ’s allowance for loss
against the net receivable from bank resolutions. Therefore,
the corporate subrogated claim indirectly includes the effect
o f discounting and should not be viewed as being stated in
terms of nominal cash flows.

discounts for an interested party to profit from these assets
because of credit and other risks. In addition, the timing
o f receivership payments to the BIF on the subrogated claim
does not necessarily correspond with the timing of collections
on receivership assets. Therefore, the effect o f discounting
used by receiverships should not necessarily be viewed as
producing an estimate o f market value for the net receivables
from bank resolutions.
The majority of the net assets acquired from assisted banks
and terminated receiverships (except real estate) is com­
prised of various types o f financial instruments (investments,
loans, accounts receivable, etc.) acquired from failed banks.
Like receivership assets, assets acquired from assisted banks
and terminated receiverships are valued using discount rates
that include consideration o f market risk. However, assets
acquired from assisted banks and terminated receiverships
do not involve the unique aspects o f the corporate subrogat­
ed claim, and therefore the discounting can be viewed as
producing a reasonable estim ate o f fair market value.

Although the value o f the corporate subrogated claim is
influenced by valuation o f receivership assets, such receiver­
ship valuation is not equivalent to the valuation o f the corpo­
rate claim. Since the corporate claim is unique, not intended
for sale to the private sector, and has no established market,
it is not practicable to estim ate its fair market value.
The FDIC believes that a sale to the private sector of the
corporate claim would require indeterminate, but substantial

15. Supplementary Information Relating to the Statements of Cash Flows

Reconciliation of N et Incom e to N et Cash Provided by Operating A ctivities
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997
Net Income

S

1,438,293

For the Year Ended
December 31,1996
$

1,400,681

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Income Statement Items:
Reduction in provision for insurance losses
Amortization of U.S. Treasury securities
Depreciation on buildings

(503,714)
60,261
3,339

(325,206)
(826)
3,339

(87,996)
3,600,646
69,112
(21,997)
(5,000)
(6,147)
(10,007)

21,981
(66,359)
55,531
26,327
0
(721)
(67,300)

Change in Assets and Liabilities:
(Increase) Decrease in interest receivable on investments and other assets
Decrease (Increase) in receivables from bank resolutions
Decrease in assets acquired from assisted banks and terminated receiverships
(Decrease) Increase in accounts payable and other liabilities
(Decrease) in estimated liabilities for anticipated failure of insured institutions
(Decrease) in estimated liabilities for assistance agreements
(Decrease) in estimated liabilities for asset securitization guarantees

Net Cash Provided by Operating Activities




$

61

4,536,790

$

1,047,447

BI F

16. Year 2000 Compliance Expenses

The BIF is. also subject to a potential loss from banks that
may fail if they are unable to become Year 2000 compliant
in a time]) manner. As o f D ecember 31, 1997, the potential
liability, if any, is not estimable. During 1998, the FDIC will
assess this potential liability.

As part o f its operations, the FDIC as administrator o f the
BIF is assessing, testing, modifying, or replacing as neces­
sary its autom ated systems to ensure that these systems are
Year 2000 compliant. As of December 31, 1997, the BIF has
not incurred, nor does management anticipate that the BIF
will incur, a material charge to earnings to ensure that its
systems are Year 2000 compliant.

17. Subsequent Events

Effective on January 4, 1998, all employees with five or
more years until retirement were converted from the FDIC
health plan to the Federal Employees Health Benefits (FEHB)
program. This conversion resulted in a gain to the BIF.
Assum ing enabling legislation is passed in the future, this
conversion will also affect all retirees and employees within
five years of retirement.

more years until retirement at no cost to the BIF. If retirees
and employees within five years of retirement are also con­
verted in the future, the OPM will assume the B IF’s obliga­
tion for postretirement health benefits for those individuals
at a fee to be negotiated between the FDIC and the OPM.
Assuming enabling legislation is passed, management does
not expeci: there will be a material gain or loss upon disposi­
tion of the; B IF’s postretirem ent health benefits obligation
for retirees or employees within five years o f retirement.

As part of this conversion, the OPM will become responsible
for postretirement health benefits for employees with five or




62

Savings Association Insurance Fund

Federal

Deposit

Insurance

Corporation

Savings Association Insurance Fund Statements of Financial Position
D o l l a r s in T h o u s a n d s

December 31,1997

December 31,1996

Assets
Cash and cash equivalents (See Note 4 for restrictions)

$

Investment in U.S. Treasury obligations, net (Note 3)

190,144

$

387,953

9,291,776

8,764,092

126,659

124,534

1,425

3,517

1Market value o f investments a t December 31, 1997 and
December31, 1996 was $9.4 billion and $8.7 billion, respectively!

Interest receivable on investments and other assets
Entrance and exit fees receivable, net (Note 4)
Receivables from thrift resolutions, net (Note 5)

5,176

Total Assets

19,266

s

9,615,180

$

9,299,362

$

7,317

$

179,367

Liabilities
Accounts payable and other liabilities
Estimated liability for anticipated failure of insured institutions (Note 6)
SAIF-member exit fees and investment proceeds held in escrow (Note 4)

0
239,548

4,000
227,574

Total Liabilities

246,865

410,941

9,368,347

8,888,421

(32)

0

9,368,315

8,888,421

Com m itm ents an d off-ba lan ce -sh eet exposure (N ote 10)

Fund Balance
Accumulated net income
Unrealized loss on available-for-sale securities, net (Note 3)

Total Fund Balance
Total Liabilities and Fund Balance

s

The accompanying notes are an integral part o f these financial statements.




63

9,615,180

$

9,299,362

Federal

Deposit

Insurance

Corporation

Savings Association Insurance Fund Statements of Incom e and Fund Balance
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Revenue
Assessments (Note 7)

$

Interest on U.S. Treasury investments
Other revenue

Total Revenue

13,914

$

5,221,560

535,463

253,868

535

26,256

549,912

5,501,684

71,865
(1,879)

62,618

Expenses and Losses
Operating expenses
Provision for insurance losses
Other insurance expenses

Total Expenses and Losses

128

(28,890)

69,986

Net Income

479,926

Unrealized loss on available-for-sale securities, net (Note 3)

Comprehensive Income
Fund Balance - Beginning
Fund Balance - Ending

S

The accompanying notes are an integral part o f these financial statements.




(91,636)

0

64

5,530,574

(32)

0

479,894

5,530,574

8,1)88,421

3,357,847

9,368,315

$

8,888,421

Federal

Deposit

Insurance

Corporation

Savings Association Insurance Fund Statements of Cash Flows
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Cash Flows From Operating Activities
Cash provided from:
Assessments (Note 7)

$

Interest on U.S. Treasury investments

(146,766)

$

5,293,722

544,094

192,053

Recoveries from thrift resolutions

14,728

24,478

Entrance and exit fees and interest on exit fees (Note 4)

13,596

13,739

(219)

367

(75,298)

(78,726)

Miscellaneous receipts

Cash used for:
Operating expenses
Disbursements for Oakar banks
Disbursements for thrift resolutions
Miscellaneous disbursements

0

(500)

(2,693)

(33,137)
(49)

(7)

Net Cash Provided by Operating Activities (Note 12)

347,435

5,411,947

1,740,000

1,885,000

(2,133,119)

(7,820,804)

Cash Flows From Investing Activities
Cash provided from:
Maturity of U.S. Treasury obligations, held-to-maturity

Cash used for:
Purchase of U.S. Treasury obligations, held-to-maturity
Purchase of U.S. Treasury obligations, available-for-sale

(152,125)

0

Net Cash Used by Investing Activities

(545,244)

(5,935,804)

Net Decrease in Cash and Cash Equivalents

(197,809)

(523,857)

387,953
190,144

911,810

Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending

$

The accompanying notes are an integral part o f these financial statements.




65

$

387,953

¥

*

■¥

Notes to the Financial Statements
Savings Association Insurance Fund
December

31,

1997

and

1996

1. Legislative History and Operations of the Savings Association Insurance Fund

insurance funds and 2) maintain the insurance funds at
1.25 percent of insured deposits or a higher percentage as
circumstances warrant.

Legislative History
The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) was enacted to reform, recapitalize,
and consolidate the federal deposit insurance system. The
FIRREA created the Savings Association Insurance Fund
(SAIF), the Bank Insurance Fund (BIF), and the FSLIC
Resolution Fund (FRF). It also designated the Federal Deposit
Insurance Corporation (FD IC ) as the administrator of these
three funds. All three funds are maintained separately to
carry out their respective mandates.

The Deposit Insurance Funds Act o f 1996 (DIFA) was
enacted to provide for: 1) the capitalization o f the SAIF to
its designated reserve ratio of 1.25 percent by means of a
one-time special assessment on SAIF-insured deposits;
2) the expansion of the assessment base for payments of the
interest on obligations issued by the FICO to include all
FDIC-insured banks and thrifts; 3) beginning January 1, 1997,
the imposition of a FICO assessment rate for SAIF-assessable
deposits that is five times the rate for BIF-assessable deposits
through the: earlier of December 31, 1999, or the date on
which the last savings association ceases to exist; 4) the
payment of the approximately $790 million annual FICO
interest obligation on a pro rata basis between banks and
thrifts on the earlier of December 31, 1999, or the date on
which the last savings association ceases to exist; 5) autho­
rization of SAIF assessments only if needed to maintain
the fund at the designated reserve ratio; 6) the refund o f
amounts in the SAIF in excess o f the designated reserve
ratio with such refund not to exceed the previous semiannual
assessment; and 7) the merger of the BIF and the SAIF on
January 1, 1999, if no insured depository institution is a
savings association on that date.

The SAIF and the BIF are insurance funds responsible for
protecting depositors in operating thrift institutions and banks
from loss due to failure o f the institution. The FRF is a
resolution fund responsible for winding up the affairs of the
form er Federal Savings and Loan Insurance Corporation
(FSLIC) and liquidating the assets and liabilities transferred
from the former Resolution Trust Corporation (RTC).
Pursuant to the Resolution Trust Corporation Completion Act
of 1993 (RTC Completion Act), resolution responsibility
transferred from the RTC to the SAIF on July 1, 1995. Prior
to that date, thrift resolutions were the responsibility of the
RTC (January 1, 1989 through June 30, 1995) or the FSLIC
(prior to 1989).
Pursuant to FIRREA, an active institution's insurance fund
membership and primary federal supervisor are generally
determined by the institution's charter type. Deposits of
SAIF-member institutions are generally insured by the SAIF;
SAIF members are predominantly thrifts supervised by the
Office of Thrift Supervision (OTS). Deposits o f BIF-member
institutions are generally insured by the BIF; BIF members
are predominantly commercial and savings banks supervised
by the FDIC, the Office o f the Comptroller of the Currency,
or the Federal Reserve.

In addition, DIFA requires the establishment of a Special
Reserve of the SAIF. If on January 1, 1999, the reserve ratio
of the SAIF exceeds the designated reserve ratio (DRR) of
1.25 percent, the amount that the reserve ratio exceeds the
DRR will be placed in the Special Reserve o f the SAIF.
The Special Reserve will be administered by the FDIC and
invested in accordance with provisions outlined in the
Federal Deposit Insurance Act (FDI Act).

Other Significant Legislation
The Competitive Equality Banking Act of 1987 established
the Financing Corporation (FICO) as a mixed-ownership
government corporation whose sole purpose was to function
as a financing vehicle for the FSLIC.

Also, DIFA provides: 1) exemptions from the special assess­
ment for certain institutions; 2) a 20 percent adjustment of the
special assessment for certain Oakar banks and certain other
institutions; and 3) assessment rates for SAIF members not
lower than the assessment rates for BIF members with
comparable risk.

The Omnibus Budget Reconciliation Act of 1990 (1990
OBR Act) and the Federal D eposit Insurance Corporation
Improvement Act o f 1991 (FDICIA) made changes to the
FD IC ’s assessment authority (see Note 7) and borrowing
authority (see “Operations of the SAIF” below). The FDICIA
also requires the FDIC to: 1) resolve troubled institutions in a
manner that will result in the least possible cost to the deposit

Operations of the SAIF
The primary purpose of the SAIF is to: 1) insure the deposits
and protect the depositors o f SAIF-insured institutions and
2) resolve failed SAIF-insured institutions. In this capacity,
the SAIF has financial responsibility for all SAIF-insured
deposits held by SAIF-member institutions and BIF-m ember
banks designated as O akar banks.




66

SAIF
The Oakar bank provisions are found in Section 5(d)(3) of
the FDI Act. The provisions allow, with the approval of the
acquiring institution’s appropriate federal regulatory authority,
any insured institution that belongs to one insurance fund to
merge, consolidate with, or acquire the deposit liabilities of
an institution that belongs to the other insurance fund with­
out paying entrance and exit fees, under two principal condi­
tions. One condition is that although the acquiring institution
continues to belong to its own insurance fund (primary fund),
the institution becomes obliged to pay assessments to the
fund of which the acquired institution was a mem ber (sec­
ondary fund). The secondary fund assessments are keyed to
the amount of the deposits so acquired. The other condition
is that if the acquiring institution should fail, the losses
resulting from the failure are allocated between the two
insurance funds according to a formula that is likewise keyed
to the amount of the acquired deposits. “Sasser" banks are
SAIF members that converted to a bank charter in accor­
dance with Section 5 (d)(2)(G) o f the FDI Act.

2) SAIF assessment premiums; and 3) borrowings from
Federal Home Loan Banks, the U.S. Treasury, and the
Federal Financing Bank (FFB), if necessary.
The 1990 OBR Act established the FD IC 's authority to
borrow working capital from the FFB on behalf o f the SAIF
and the BIF. The FDICIA increased the FD IC's authority to
borrow for insurance losses from the U.S. Treasury, on
behalf of the SAIF and the BIF, from $5 billion to $30 bil­
lion. The FDICIA also established a limitation on obligations
that can be incurred by the SAIF, known as the maximum
obligation limitation (MOL). At December 31, 1997, the
MOL for the SAIF was $16.9 billion.
The VA, HUD and Independent Agencies Appropriations
Act, 1998, Public Law 105-65 appropriated $34 million for
fiscal year 1998 (October 1, 1997, through September 30, 1998)
for operating expenses incurred by the Office of Inspector
General (OIG). The Act mandates that the funds are to be
derived from the SAIF, the BIF, and the FRF. In prior years,
the OIG funding was not submitted to Congress as part of
the appropriation process.

The SAIF is primarily funded from the following sources:
1) interest earned on investments in U.S. Treasury obligations;

2. Summary of Significant Accounting Policies
General
These financial statements pertain to the financial position,
results of operations, and cash flows of the SAIF and are
presented in accordance with generally accepted accounting
principles (GAAP). These statements do not include report­
ing for assets and liabilities of closed thrift institutions
for which the FDIC acts as receiver or liquidating agent.
Periodic and final accountability reports of the FD IC ’s activi­
ties as receiver or liquidating agent are furnished to courts,
supervisory authorities, and others as required.

Investments in U.S. Treasury Obligations
Investments in U.S. Treasury obligations are recorded
pursuant to the provisions o f the Statement of Financial
Accounting Standards No. 115, “Accounting for Certain
Investments in Debt and Equity Securities” (SFAS 115).
SFAS 115 requires that securities be classified in one of three
categories: held-to-maturity, available-for-sale, or trading.
Securities designated as held-to-maturity are intended to be
held to maturity and are shown at amortized cost. Amortized
cost is the face value o f securities plus the unamortized pre­
mium or less the unamortized discount. Amortizations are
computed on a daily basis from the date of acquisition to the
date of maturity. Beginning in 1997, the SAIF designated a
portion o f its securities as available-for-sale. These securities
are shown at fair value with unrealized gains and losses
included in the fund balance. Realized gains and losses are
included in other revenue when applicable. Interest on both
types of securities is calculated on a daily basis and recorded
monthly using the effective interest method. The SAIF does
not have any securities classified as trading.

Use of Estimates
FDIC management makes estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these
estimates. W here it is reasonably possible that changes in
estimates will cause a material change in the financial state­
ments in the near term, the nature and extent o f such changes
in estimates have been disclosed.
Cash Equivalents
The SAIF considers cash equivalents to be short-term, highly
liquid investments with original maturities of three months or
less.




67

SAIF

Allowance for Losses on Receivables From
Thrift Resolutions
The SAIF records as a receivable the amounts advanced
and/or obligations incurred for resolving troubled and failed
thrifts. Any related allowance for loss represents the differ­
ence between the funds advanced and/or obligations incurred
and the expected repaym ent. The latter is based on the
estim ates o f discounted cash recoveries from the assets of
assisted or failed thrifts, net o f all estim ated liquidation
costs.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting
and administration o f postretirem ent benefits on behalf of
the SAIF, the BIF, and the FRF. Each fund pays its liabilities
for these benefits directly to the entity. The SA IF’s remaining
net postretirem ent benefits liability for the plan is recognized
in the SA IF’s Statement o f Financial Position.
Disclosure About Recent Financial Accounting Standards
Board Pronouncements
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement o f Financial Accounting Standards
(SFAS) No. 130, “Reporting Comprehensive Incom e.”
Comprehensive income includes net income as well as
certain types of unrealized gain or loss. The only component
of SFAS No. 130 that impacts the SAIF is unrealized gain or
loss on securities classified as available-for-sale, which is
presented in the SA IF’s Statement of Financial Position and
the Statement of Income and Fund Balance. The FDIC
adopted SFAS No. 130 effective on January 1, 1997.

Receivership Operations
The FDIC is responsible for managing and disposing o f the
assets of failed institutions in an orderly and efficient man­
ner. The assets, and the claims against them, are accounted
for separately to ensure that liquidation proceeds are distrib­
uted in accordance with applicable laws and regulations.
Also, the income and expenses attributable to receiverships
are accounted for as transactions o f those receiverships.
Liquidation expenses incurred by the SAIF on behalf o f the
receiverships are recovered from those receiverships.

In June 1997, the FASB also issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related
Information.” The FDIC intends to adopt SFAS No. 131
effective on January 1, 1998; however, management anticipates
that the SAIF, as a non-publicly held enterprise, will not be
affected by SFAS No. 131. Other recent pronouncements issued
by the FASB are not applicable to the financial statements.

Cost Allocations Among Funds
Certain operating expenses (including personnel, administra­
tive, and other indirect expenses) not directly charged to each
fund under the FD IC ’s management are allocated based on
percentages developed during the business planning process.
The cost o f furniture, fixtures, and equipment purchased by
the FDIC on behalf of the three funds under its administra­
tion is allocated among these funds on a similar basis. The
SAIF expenses its share o f these allocated costs at the time
of acquisition because o f their immaterial amounts. The
FDIC includes the cost o f buildings used in operations in
the B IF ’s financial statem ents. The BIF charges SAIF a
rental fee representing an allocated share of its annual
depreciation.

Related Parties
The nature of related parties and a description of
related party transactions are disclosed throughout the
financial statements and footnotes.
Reclassifications
Reclassifications have been made in the 1996 financial
statements to conform to the presentation used in 1997.

3. Investment in U.S. Treasury Obligations, Net

All cash received by the SAIF is invested in U.S. Treasury
obligations with maturities exceeding three months unless
the cash is used: 1) to defray operating expenses; 2) for
outlays related to liquidation activities; or 3) for investments
in U.S. Treasury one-day special certificates, which are
included in the cash and cash equivalents line item. In 1997




and 1996, $185 million and $190 million, respectively, were
restricted and invested in U.S. Treasury notes (see Note 4).
The related interest earned on these invested funds was also
held as restricted funds. Prior to 1997, all investm ents were
designated “held-to-m aturity” (see Note 2).

68

SAIF
U.S. Treasury Obligations at Decem ber 31,1997
D o l l a r s in T h o u s a n d s

Maturity

Yield at
Purchase

Face
Value

Amortized
Cost

Unrealized
Holding
Gains

Unrealized
Holding
Losses

Market
Value

Held-to-Maturity
Less than one year

5.91%

$

1,690,000

1-3 years

5.87%

3,415,000

3-5 years

6.03%

2,610,000

5-10 years

6.47%

1,310,000

Total

$

9,025,000

$

150,000

$

$

1,687,269

$

2,762

$

(319)

$

1,689,712

3,451,362

16,852

(3,309)

3,464,905

2,642,131

27,641

(969)

2,668,803

1,358,889

51,327

0

9,139,651

S

1,410,216

98,582

S

(4,597)

$

9,233,636

$________ 32

$

(64)

$

152,125

$

(4,661)

Available-for-Sale
1-3 years____________5.67%

$

152,157

Total Investment in U.S. Treasury Obligations, Net
Total

S 9,175,000

$ 9,291,808

$

98,614

$ 9,385,761

U.S. Treasury Obligations at Decem ber 31,1996

wmmmmmmmammmmmmmmmMmwmwmmmmmmMMMgmmmm

Dollars

in T h o u s a n d s

Maturity
Less than one year
1-3 years
3-5 years

Total

Yield at
Purchase
5.68%
5.86%
6.01%

Face
Value

Amortized
Cost

1,740,000
3,290,000
3,670,000

$

S 8,700,000

$

$

1,740,792
3,305,270

Unrealized
Holding
Gains

Unrealized
Holding
Losses

$

$

6,930

$

10,206

0

$

1,744,068
3,303,874

$

8,744,426

(8,326)

0

3,718,030

8,764,092

3,276

Market
Value

3,696,484

(21,546)

$

(29,872)

In 1997, the unamortized premium, net o f unamortized discount, was $116.8 million. In 1996, the unamortized premium, net
of unamortized discount, was $64.1 million.




69

SAIF
4. Entrance and Exit Fees R eceivable, Net

The interest earned is also held in escrow. Interest on these
investm ents was $12.1 million and $11.1 million for 1997
and 1996, respectively. For 1997, restricted assets included:
$49 million in cash and cash equivalents, $185 million of
investments in U.S. Treasury obligations, net, $1.4 million
in exit fees receivable and $4 million in interest receivable.
For 1996, restricted assets included: $31 million in cash
and cash equivalents, $190 million of investments in
U.S. Treasury obligations, net, $3.5 million in exit fees and
$3.7 million in interest receivable. There were no conver­
sion transactions during 1997 and only one conversion
transaction in 1996 that resulted in an exit fee to the SAIF.

The SAIF receives entrance and exit fees for conversion
transactions when an insured depository institution converts
from the BIF to the SAIF (resulting in an entrance fee)
or from the SAIF to the BIF (resulting in an exit fee).
Regulations approved by the FD IC ’s Board o f Directors and
published in the Federal Register on M arch 21, 1990, direct­
ed that exit fees paid to the SAIF be held in escrow. The
FDIC and the Secretary of the Treasury will determine when
it is no longer necessary to escrow such funds for the pay­
ment o f interest on obligations previously issued by the
FICO. These escrowed exit fees are invested in U.S.
Treasury securities pending determination of ownership.

5. Receivables From Thrift Resolutions, Net

The FDIC resolution process takes different forms depending
on the unique facts and circumstances surrounding each
failing or failed institution. Payments to prevent a failure are
made to operating institutions when cost and other criteria are
met. Such payments may facilitate a merger or allow a trou­
bled institution to continue operations. Payments for institu­
tions that fail are made to cover the institution’s obligation to
insured depositors’ and represent a claim by the SAIF against
the receiverships’ assets. There were no thrift failures in 1997.

As of December 31, 1997 and 1996, the FDIC, in its
receivership capacity for SAIF-insured institutions, held
assets with a book value o f $56.6 million and $78.2 million,
respectively (including cash and miscellaneous receivables
o f $40 million and $42.3 million at D ecember 31, 1997 and
1996, respectively). These assets represent a significant
source o f repayment of the SA IF’s receivables from thrift
resolutions. The estimated cash recoveries from the m anage­
ment and disposition o f these assets that are used to derive
the allowance for losses are based in part on a statistical
sampling o f receivership assets. The sample was constructed
to produce a statistically valid result. These estim ated recov­
eries are regularly evaluated, but remain subject to uncertain­
ties because of potential changes in economic conditions.
These factors could affect the SA IF’s and other claim ants’
actual recoveries from the level currently estimated.

The FDIC, as receiver for failed thrifts, engages in a variety
of strategies at the time o f failure to maximize the return
from the sale or disposition o f assets. A failed thrift acquirer
can purchase selected assets at the time of resolution and
assume full ownership, benefit, and risk related to such
assets. The receiver may also engage in other types of trans­
actions as circumstances warrant. As described in Note 2,
an allowance for loss is established against the receivable
from thrift resolutions.

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ II

6. Estimated Liabilities for:

Anticipated Failure of Insured Institutions
The SAIF records an estimated liability and a loss provision
for thrifts (including Oakar and Sasser financial institutions)
that are likely to fail, absent some favorable event such as
obtaining additional capital or merging, in the period when
the liability is considered probable and reasonably estimable.

and $4 million, respectively. The estimated liability is
derived in part from estimates o f recoveries from the
management and disposition of the assets o f these probable
failures. Therefore, they are subject to the same uncertainties
as those affecting the SA IF’s receivables from thrift resolu­
tions (see Note 5). This could affect the ultim ate costs to
the SAIF from probable thrift failures.

The estimated liabilities for anticipated failure o f insured
institutions as of December 3 1,1997 and 1996, were zero




70

SAIF

There are other institutions where the risk of failure is less
certain, but still considered reasonably possible. Should
these institutions fail, the SAIF could incur additional
estimated losses o f about $50 million.

Litigation Losses
The SAIF records an estimated loss for unresolved legal
cases to the extent those losses are considered probable and
reasonably estimable. For 1997 and 1996, FDIC identified
no legal cases that met the criteria for recognition in the
financial statem ents. The FD IC ’s Legal D ivision has
determined that losses from unresolved legal cases totaling
$7 million are reasonably possible.

The accuracy o f these estimates will largely depend on future
economic conditions. The FDIC Board has the statutory
authority to consider the estim ated liability from anticipated
failures of insured institutions when setting assessment rates.

7. Assessments

The 1990 OBR A ct rem oved caps on assessm ent rate
increases and authorized the FDIC to set assessment rates
for SAIF members sem iannually, to be applied against a
m em ber’s average assessment base. The FDICIA: 1) required
the FDIC to im plem ent a risk-based assessm ent system;
2) authorized the FDIC to increase assessm ent rates for
SAIF-member institutions as needed to ensure that funds are
available to satisfy the SA IF’s obligations; 3) required the
FDIC to build and maintain the reserves in the insurance
funds to 1.25 percent o f insured deposits; and 4) authorized
the FDIC to increase assessment rates more frequently than
semiannually and impose emergency special assessments
as necessary to ensure that funds are available to repay
U.S. Treasury borrowings.

The FICO assessment has no financial impact on the SAIF
since the FICO assessment is separate from the regular
assessment, and the FICO assessm ent is imposed on thrifts
and not on the SAIF. The FDIC as administrator of the SAIF
is acting solely as a collection agent for the FICO. During
1997, $454 million was collected from savings associations
and rem itted to the FICO.
The FDIC uses a risk-based assessm ent system that charges
higher rates to those institutions that pose greater risks to the
SAIF. To arrive at a risk-based assessm ent for a particular
institution, the FDIC places each institution in one o f nine
risk categories using a two-step process based first on capital
ratios and then on other relevant information.

The DIFA (see Note 1) provided, among other things, for
the capitalization of the SAIF to its designated reserve ratio
o f 1.25 percent by means of a one-time special assessment
on SAIF-insured deposits. Effective on October 1, 1996,
the SAIF achieved its required capitalization by means
of a $4.5 billion special assessment.

The FDIC Board o f Directors (Board) reviews premium rates
semiannually. In December 1996, the Board set SAIF assess­
ment rates to a range o f 0 to 27 cents per $100 of assessable
deposits (annual rates). The new rates, which are identical to
those previously approved for BIF members, were effective
on October 1, 1996, for Oakar and Sasser financial institutions,
and effective on January 1, 1997, for all other SAIF-insured
institutions. The assessment rate averaged approximately
0.39 cents and 20.4 cents per $100 o f assessable deposits
for 1997 and 1996, respectively.

Prior to January 1, 1997, the FICO had priority over the
SAIF for receiving and utilizing SAIF assessments to ensure
availability of funds for interest on the FIC O ’s debt obliga­
tions. Accordingly, the SAIF recognized as assessment rev­
enue only that portion of SAIF assessments not required by
the FICO. Assessments on the SAIF-insured deposits held
by BIF-m ember O akar or SAIF-member Sasser institutions
prior to January 1, 1997, were not subject to draws by the
FICO and thus, were retained in SAIF in their entirety.
FICO assessments collected and rem itted during 1996 were
$808 million.

Total assessment revenue for 1997 and 1996 was $13.9
million and $5.2 billion, respectively. Assessment revenue
for 1996 included the one-time special assessment o f $4.5
billion required to capitalize SAIF. The SAIF refunded a
total of $219 million (including $2.9 million in interest) to
Oakar and Sasser financial institutions in 1996 and 1997.
Refunds were necessary because fourth quarter 1996
assessm ent rates were set prior to SA IF’s capitalization.

The DIFA expanded the assessm ent base for payments of
the interest on obligations issued by the FICO to include all
FDIC-insured institutions (including banks, thrifts, Oakar
and Sasser financial institutions) and made the FICO assess­
ment separate from regular assessments, effective on
January 1, 1997.




On N ovember 12, 1997, the Board voted to retain the SAIF
assessm ent schedule of 0 to 27 cents per $100 of assessable
deposits (annual rates) for the first semiannual period of
1998.

71

SAIF
8. Pension Benefits, Savings Plans, Postemployment Benefits and Accrued Annual Leave

actuarial data for accumulated plan benefits or the unfunded
liability relative to eligible employees. These amounts are
reported on and accounted for by the U.S. Office of
Personnel M anagement (OPM).

Eligible FDIC employees (all permanent and temporary
employees with appointments exceeding one year) are cov­
ered by either the Civil Service Retirement System (CSRS)
or the Federal Employee Retirement System (FERS). The
CSRS is a defined benefit plan, which is offset with the
Social Security System in certain cases. Plan benefits are
determined on the basis o f years o f creditable service and
compensation levels. The CSRS-covered employees also
can contribute to the tax-deferred Federal Thrift Savings
Plan (TSP).

Eligible FDIC employees also may participate in an FDICsponsored tax-deferred savings plan with matching contribu­
tions. The SAIF pays its share of the em ployer's portion of
all related costs.
Due to a substantial decline in the FD IC ’s workload, the
Corporation developed a staffing reduction program, a com ­
ponent of which is a voluntary separation incentive plan, or
buyout. Corporate-wide buyout plans have been offered to
eligible employees. The buyouts have not had a material
effect on the SAIF.

The FERS is a three-part plan consisting o f a basic defined
benefit plan that provides benefits based on years o f cred­
itable service and compensation levels, Social Security
benefits, and the TSP. Automatic and m atching employer
contributions to the TSP are provided up to specified
amounts under the FERS.

The SAIF pro rata share of the Corporation’s liability to
employees for accrued annual leave is approximately
$3 million and $4 million at December 31, 1997 and 1996,
respectively.

Although the SAIF contributes a portion o f pension benefits
for eligible employees, it does not account for the assets of
either retirement system. The SAIF also does not have

Pension Benefits and Savings Plans Expenses
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employee Retirement System (Basic Benefit)
FDIC Savings Plan
Federal Thrift Savings Plan

$

44
855
2,242
1,446
840

$

121
613
1,821
1,111
641

Total

$;

5,427

$

4,307

9. Postretirement Benefits Other Than Pensions

The FDIC provides certain health, dental, and life insurance
coverage for its eligible retirees, the retirees’ beneficiaries
and covered dependents. Retirees eligible for health and/or
life insurance coverage are those who have qualified due to:
1) immediate enrollment upon appointment or five years of
participation in the plan and 2) eligibility for an immediate
annuity. Dental coverage is provided to all retirees eligible
for an immediate annuity.




The FDIC is self-insured for hospital/medical, prescription
drug, mental health and chemical dependency coverage.
Additional risk protection was purchased through stop-loss
and fiduciary liability insurance. All claims are administered
on an administrative services only basis with the hospital/
m edical claims administered by A etna Life Insurance
Company, the mental health and chemical dependency claims
administered by OHS Foundation Health Psychcare Inc.,
and the prescription drug claims administered by Caremark.

72

SAIF

costs in 1997 of 9.75 percent (inclusive o f general inflation
o f 2.5 percent), decreasing to an ultimate rate in the year
2000 and thereafter o f 7.75 percent; and 4) an increase in
dental costs for 1997 and thereafter o f 4.5 percent (in addi­
tion to general inflation). Both the assumed discount rate and
health care cost rate have a significant effect on the amount
o f the obligation and periodic cost reported.

The life insurance program, underwritten by Metropolitan
Life Insurance Company, provides basic coverage at no
cost to retirees and allows converting optional coverages to
direct-pay plans. Dental care is underwritten by Connecticut
General Life Insurance Company and provides coverage
at no cost to retirees.
The SAIF expensed $451 thousand and $168 thousand for
net periodic postretirement benefit costs for the years ended
D ecember 31, 1997 and 1996, respectively. For measurement
purposes for 1997, the FDIC assumed the following: 1) a dis­
count rate of 5.75 percent; 2) an average long-term rate of
return on plan assets o f 5.75 percent; 3) an increase in health

If the health care cost rate was increased one percent, the
accumulated postretirement benefit obligation as o f
December 31, 1997, would have increased by 20.2 percent.
The effect o f this change on the aggregate of service and
interest cost for 1997 would be an increase o f 23.5 percent.

Net Periodic Postretirement Benefit Cost
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Service cost (benefits attributed to employee service during the year)
Interest cost on accumulated postretirement benefit obligation
Net total of other components
Return on plan assets

$

1,061
473
(493)
(590)

$

432
457
(204)
(517)

Total

$

451

$

168

As stated in Note 2, the FDIC established an entity to provide accounting and administration on behalf o f the SAIF, the BIF,
and the FRF. The SAIF funds its liability and these funds are being managed as “plan assets.”

Accum ulated Postretirement Benefit Obligation and Funded Status at Decem ber 31
Dollars

in T h o u s a n d s

Retirees
Fully eligible active plan participants
Other active participants

$

Total Obligation

1997

1996

4,736
369
4,306

3,686
343
4,125

$

8,154

9,411
10,011

9,421

(Over) Funded Status

(600)

(1,267)

Unrecognized prior service cost
Unrecognized net gain

1,082
385

1,280
745

Less: Plan assets at fair value,a|

Postretirement Benefit Liability Recognized
in the Statements of Financial Position

S

(a) Invested in U.S. Treasury instruments




73

867

S

758

SAIF
10. Commitments and O ff-B alance-Sheet Exposure
C om m itm ents
Leases
The SAIF’s allocated share of the FDIC’s lease commitments
totals $18.7 million for future years. The lease agreements
contain escalation clauses resulting in adjustments, usually
on an annual basis. The allocation to the SAIF o f the FD IC’s
future lease commitments is based upon current relationships
of the workloads among the SAIF, the BIF and the FRF.

Changes in the relative workloads among the three funds in
future years could change the amount o f the FD IC ’s lease
payments that will be allocated to the SAIF. The SAIF
recognized leased space expense o f $3.3 million and
$2.2 million for the years ended D ecem ber 31, 1997
and 1996, respectively.

Lease Commitments
Dollars

in T h o u s a n d s

1998
$4,218

1999
$3,507

2000

2001

2002

$3,032

$2,377

$2,099

2003 and Thereafter
$3,477

O th e r O f f - B a la n c e - S h e e t Risk
Deposit Insurance
As o f December 31, 1997, deposits insured by the SAIF
totaled approximately $690 billion. This would be the

accounting loss if all depository institutions were to fail and
t^le acquired assets provided no recoveries.

11. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments
and are shown at current value. The fair market value of
the investment in U.S. Treasury obligations is disclosed in
Note 3 and is based on current market prices. The carrying
amount o f interest receivable on investments, short-term
receivables, and accounts payable and other liabilities
approximates their fair market value. This is due to their
short maturities or comparison with current interest rates.
As explained in Note 4, entrance and exit fees receivable
are net of discounts calculated using an interest rate compa­
rable to U.S. Treasury Bill or Government bond/note rates
at the time the receivables are accrued.

indirectly includes the effect o f discounting and should
not be viewed as being stated in terms o f nominal cash
flows.
Although the value of the corporate subrogated claim is
influenced by valuation o f receivership assets, such receiver­
ship valuation is not equivalent to the valuation of the
corporate claim. Since the corporate claim is unique, not
intended for sale to the private sector, and has no established
market, it is not practicable to estimate its fair market value.
The FDIC believes that a sale to the private sector of the
corporate claim would require indeterminate, but substantial
discounts for an interested party to profit from these assets
because of credit and other risks. In addition, the timing of
receivership payments to the SAIF on the subrogated claim
do not necessarily correspond with the timing o f collections
on receivership assets. Therefore, the effect o f discounting
used by receiverships should not necessarily be viewed as
producing an estimate o f market value for the net receivables
from thrift resolutions.

The net receivable from thrift resolutions primarily involves
the SA IF’s subrogated claim arising from payments to
insured depositors. The receivership assets that will ulti­
mately be used to pay the corporate subrogated claim are
valued using discount rates that include consideration of
market risk. These discounts ultimately affect the SAIF’s
allowance for loss against the net receivable from thrift
resolutions. Therefore, the corporate subrogated claim




74

SAIF

12. Supplementary Information Relating to the Statements of Cash Flows

Reconciliation of N et Income to N et Cash Provided by Operating A ctivities
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997
Net Income
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities

$

479,926

For the Year Ended
December 31,1996
$

5,530,574

Income Statement Items:
(1,879)

Reduction in provision for insurance losses
Amortization of U.S. Treasury securities (unrestricted)

(91,636)
4,788

17,675

Change in Assets and Liabilities:
(Increase) in amortization of U.S. Treasury securities (restricted)
Decrease in entrance and exit fees receivable
(Increase) in interest receivable on investments and other assets
Decrease (Increase) in receivables from thrift resolutions
(Decrease) Increase in accounts payable and other liabilities
Increase in exit fees and investment proceeds held in escrow

(147)

(157)

2,092
(2,125)

5,305
(75,900)
(33,260)
60,419
11,814

11,652
(171,732)
11,973

Net Cash Provided by Operating Activities

S

347,435

S

5,411,947

13. Year 2000 Compliance Expenses

As part of its operations, the FDIC as administrator of the
SAIF is assessing, testing, modifying or replacing as neces­
sary its automated systems to ensure that these systems are
Year 2000 compliant. As o f December 31, 1997, the SAIF
has not incurred, nor does management anticipate that the
SAIF will incur, a material charge to earnings to ensure that
its systems are Year 2000 compliant.

The SAIF is also subject to a potential loss from thrifts that
may fail if they are unable to become Year 2000 compliant
in a timely manner. As of December 31, 1997, the potential
liability, if any, is not estimable. During 1998 the FDIC
will assess this potential liability.

14. Subsequent Events

Effective on January 4. 1998, all employees with five or
more years until retirement were converted from the FDIC
health plan to the Federal Employees Health Benefits
(FEHB) program. This conversion resulted in a gain to the
SAIF. Assuming enabling legislation is passed in the future,
this conversion will also affect all retirees and employees
within five years of retirement.

more years until retirement at no cost to the SAIF. If retirees
and employees within five years of retirement are also con­
verted in the future, the OPM will assume the SA IF’s obliga­
tion for postretirement health benefits for those individuals at
a fee to be negotiated between the FDIC and the OPM.
Assuming enabling legislation is passed, management does
not expect there will be a material gain or loss upon disposi­
tion o f the SAIF’s postretirement health benefits obligation
for retirees or employees within five years of retirement.

As part of this conversion, the OPM will become responsible
for postretirement health benefits for employees with five or




75




FSLIC Resolution Fund

Federal

Deposit

Insurance

Corporation

FSLIC Resolution Fund Statements of Financial Position
Dollars

in T h o u s a n d s

December 31,1997

December 31,1996

Assets
Cash and cash equivalents

$

2,107,171

$

1,103,921

Receivables from thrift resolutions, net (Note 3}

2,570,486

4,454,776

Securitization reserve fund, net (Note 4)

4,890,568

5,804,062

73,051

202,955
6,747

Assets acquired from assisted thrifts and terminated receiverships, net (Note 5)
Other assets, net (Note 6)

7,391

Total Assets

$

9,648,667

$

11,572,461

Liabilities
Accounts payable and other liabilities

$

164,401

$

174,179

Notes payable - Federal Financing Bank borrowings (Note 7)

849,294

4,617,147

Liabilities incurred from thrift resolutions (Note 8)

105,168

143,725

Estimated Liabilities for: 1Note 9)
Assistance agreements
Litigation losses

6,328

16,120

2,634

39,590

1,127,825

4,990,761

Contributed capital

135,493,762

135,501,023

Accumulated deficit

(126,972,920)

(128,919,323)

Total Liabilities
Commitments and concentration o f credit risks (Note 14)
Resolution Equity (Note 11)

Total Resolution Equity
Total Liabilities and Resolution Equity

$

The accompanying notes aw an integral part o f these financial statements.




77

8,520,842
9,648.667

S

6,581,700
11,572,461

Federal

Deposit

Insurance

Corporation

FSLIC Resolution Fund Statements of Incom e and Accum ulated D eficit
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Revenue
Interest on securitization reserve fund

$

299,854

$

82,103

Interest on U.S. Treasury investments

86,959

26,452

Revenue from assets acquired from assisted thrifts
and terminated receiverships

74,286

228,274

Limited partnership revenue (Note 2)

16,600

54,600

Interest on advances to receiverships and other revenue

(22,348)

127,117

Total Revenue

455,351

518,546

Expenses and Losses
Operating expenses
Interest expense on FFB debt and other notes payable
Expenses for assets acquired from assisted thrifts and terminated receiverships
Provision for losses (Note 10)
Other expenses
Total Expenses and Losses
Net Income
Accumulated Deficit - Beginning
Accumulated Deficit - Ending

$

The accompanying notes are an integral part of these financial statements.




78

16,732

26,074

137,658

386,064

68,226

128,826

(1,744,690)

(2,400,366)

31,022
(1,491,052)

2,889
(1,856,513)

1,946,403

2,375,059

(128,919,323)

(131,294,382)

(126,972,920)

$

(128,919,323)

Federal

Deposit

Insurance

Corporation

FSUC Resolution Fund Statements of Cash Flows
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Cash Flow From Operating Activities
Cash provided from:
Interest on U.S. Treasury investments

$

86,966

$

26,541

Recoveries from thrift resolutions

3,912,625

6,152,927

Recoveries from securitization reserve

1,078,815

95,067

483,524

608,620

13,962

12,174

Recoveries from assets acquired from assisted thrifts
and terminated receiverships
Miscellaneous receipts
Cash used for:
Operating expenses

(41,268)

(42,882)

Interest paid on notes payable

(173,981)

(352,767)

Disbursements for thrift resolutions

(417,242)

(772,301)

Disbursements for assets acquired from assisted thrifts
and terminated receiverships

(176,933)

(169,463)

Disbursements for securitization reserve

(493)

0

(4,420)

(19,714)

4,761,555

5,538,202

(8,053)

0

(3,718,692)

(5,913,975)

(31,560)

(31,560)

Net Cash Used by Financing Activities

(3,758,305)

(5,945,535)

Net Increase (Decrease) in Cash and Cash Equivalents

1,003,250

(407,333)

Cash and Cash Equivalents - Beginning

1,103,921

Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 16)
Cash Flows From Financing Activities
Cash used for:
Return of U.S. Treasury payments
Repayments of Federal Financing Bank borrowings
Repayments of indebtedness incurred from thrift resolutions

Cash and Cash Equivalents - Ending

$

The accompanying notes are an integral part o f these financial statements.




79

2,107,171

1,511,254
S

1,103,921

Notes to the Financial Statements
FSLIC Resolution Fund
December

31,

1997

and

1996

1. Legislative History and Operations of the FSLIC Resolution Fund

L egislative H istory
T he U.S. C ongress created the Federal S avings and Loan
Insurance C orporation (F S L IC ) through the enactm ent o f
the N ational H ousing A ct o f 1934.

available ap p ro x im ately $ 18 b illio n w o rth o f ad d itio n al
fun d in g . T he R TC a c tu a lly d rew d o w n ap p ro x im ately
$4.55 b illio n .
T he FDIC' m ust transfer to the R E F C O R P the n et proceeds
fro m the F R F ’s sale o f R TC assets, after p roviding fo r all
outstanding RTC liabilities. A ny such funds transferred
to the R E F C O R P pay the interest o n the R E F C O R P bonds
issued to fu n d the early RTC resolutions. A ny such p ay ­
m ents ben efit the U .S. Treasury, w hich w ould otherw ise
be o bligated to pay the in terest on the bonds.

T h e F in an cial In stitu tio n s R eform , R ecovery, and
E n fo rcem en t A ct o f 1989 (F IR R E A ) ab o lish ed the
insolvent FS L IC , created th e F S L IC R eso lu tio n Fund
(F R F ), and tran sferred the assets and liab ilitie s o f the
F S L IC to the F R F (ex cep t those assets and liabilities
tran sferred to th e R eso lu tio n T ru st C o rp o ratio n (R TC)),
effective on A u g u st 9, 1989. T h e F R F is resp o n sib le
fo r w inding up th e affairs o f the fo rm er F S L IC .

O p eration s o f the F R F
The F R F w ill continue until all o f its assets are sold or
otherwise; liquidated and all o f its liabilities are satisfied.
U pon the dissolution o f the FRF, any funds rem aining
(after repaym ents o f RTC C om pletion A ct appropriations
and paym ents to R EFC O RP, if any, from the proceeds
o f the FR F-R TC ) w ill be p aid to the U .S. Treasury.

F IR R E A w as enacted to reform , recapitalize, and c o n ­
solidate the federal dep o sit insurance system . In addition
to the FRF, FIR R E A created the RTC, the B ank Insurance
Fund (B IF), and the S avings A ssociation Insurance Fund
(SA IF). F IR R E A also designated the F ed eral D eposit
Insurance C orporation (FD IC ) as the adm inistrator
o f these three funds. All three funds are m aintained
separately to carry o u t th eir respective m andates.

The F R F has been p rim arily funded from the follow ing
sources: 1) U .S. T reasury appropriations; 2) am ounts
borrow ed by th e RTC from the Federal F inancing B ank
(FFB ); 3) funds receiv ed from the m anagem ent and
disposition o f assets o f the FR F; 4) th e F R F ’s portion
o f liquidating dividends p aid b y F R F receiverships; and
5) interest earned on one-day U .S. T reasury investm ents
purchased w ith proceeds o f 3) and 4). If th ese sources are
insufficient to satisfy the liabilities o f the FRF, paym ents
w ill be m ade from the U.S. Treasury in am ounts necessary,
as are appropriated by C ongress, to carry out the objectives
o f the FRF.

T he R TC w as created to m anage an d resolve all thrifts
previously insured by the FSL IC fo r w hich a conservator
or receiver was appointed during the period January 1, 1989,
through A ugust 8, 1992. In ord er to provide funds to the
R TC fo r u se in thrift resolutions, F IR R E A established
the R esolution F unding C orporation (R E FC O R P).
T he RTC’s resolution responsibility w as extended through
subsequent legislation from the original term ination date
o f A ugust 8, 1992. R esolution responsibility transferred
from the RTC to the S A IF on July 1, 1995.

To facilitate efforts to w ind up the reso lu tio n activity o f
the FRF, Public L aw 103-327 provides $827 m illion in
funding to be available until expended. T he F R F received
$165 million under this appropriation on N ovem ber 2, 1995.
In addition, Public L aw 104-208 and Public L aw 105-61
au th o rized the use b y the D ep artm en t o f Ju stic e o f
$26.1 m illion and $33.7 m illio n , resp ectiv ely , o f the
orig inal $827 m illio n in fu n d in g , thus red u cin g the
am o u n t av ailab le to be e x p en d ed to $ 6 0 2 .2 m illion.

T he RTC C om pletion A ct o f 1993 (RTC C om pletion A ct)
term inated the RTC as o f D ecem ber 31, 1995. A ll rem ain ­
ing assets and liabilities o f the RTC w ere transferred to
the FR F on January 1, 1996. Today the F R F consists o f
tw o distinct pools o f assets and liabilities: one com posed
o f the assets and liabilities o f the FSL IC transferred to the
F R F upon the dissolution o f the F S L IC on A ugust 9, 1989
(FR F-FSL IC ), and the other com posed o f the RTC assets
and liabilities transferred to the F R F on January 1, 1996
(FR F-R TC).

E ffective on A ug u st 9, 1989, F IR R E A established an
Insp ecto r G eneral fo r the RTC and authorized appropria­
tions necessary for the operation o f the RTC O ffice o f
Insp ecto r G eneral (O IG ). T he R T C ’s O IG received
$152.3 m illio n o f ap p ro p riated fu n d s from th e U .S.
T reasury since it w as estab lish ed . T he RTC O IG ’s
fin al ap p ro p riatio n ex p ired on S ep tem b er 30. 1996.

T he RTC C om pletion A ct requires the FD IC to deposit
in the general fu n d o f the T reasury any funds transferred
to the R TC p u rsu a n t to the C o m p letio n A ct b u t n o t
n eed ed by th e R TC . T he RTC C o m p letio n A ct m ade




80

FRF

T he VA, H U D and Independent A gencies A ppropriations
A ct, 1998, Public L aw 105-65 appropriated $34 m illion
fo r fiscal year 1998 (O cto b er 1, 1997, th ro u g h

S eptem ber 30, 1998) for operating expenses incurred
by the O IG. T he A ct m andates that the funds are to
b e derived from the FRF, the BIF, and the SAIF.

2. Summary of Significant Accounting Policies

G eneral
These financial statem ents pertain to the financial position,
results o f operations, and cash flow s o f the F R F and are
presented in accordance w ith generally accepted account­
ing principles (G A A P). T hese statem ents do not include
reporting fo r assets and liabilities o f closed insured thrift
institutions for w hich the F D IC acts as receiv er o r liqui­
dating agent. Periodic and final accountability reports o f
the F D IC ’s activities as receiv er o r liquidating agent are
furnished to courts, supervisory authorities, and others
as required.

R eceivership O perations
The FD IC is responsible for m anaging and disposing o f
the assets o f failed institutions in an orderly and efficient
m anner. The assets, an d th e claim s against them , are
accounted for separately to ensure that liquidation p ro­
ceeds are distributed in accordance w ith applicable law s
and regulations. A lso, the incom e and expenses attrib u t­
able to receiverships are accounted for as transactions o f
those receiverships. L iquidation expenses incurred by the
F R F on b e h alf o f the receiverships are recovered from
those receiverships.

U se o f E stim ates
FD IC m anagem ent m akes estim ates and assum ptions
that affect the am ounts reported in the financial state­
m ents and accom panying notes. A ctual results co u ld d if­
fer from these estim ates. W here it is reasonably possible
that changes in estim ates w ill cause a m aterial change in
the financial statem ents in the n ear term , the nature and
extent o f such changes in estim ates have been disclosed.

C ost A llocation s A m on g F unds
C ertain operating expenses (including personnel, adm inis­
trative, and other indirect expenses) no t directly charged
to each fund u n d er the F D IC ’s m anagem ent are allocated
b ased on percentages developed during the business plan­
ning process. T he cost o f furniture, fixtures, and equip­
m ent purchased by the FD IC on b eh alf o f the three funds
u n d er its adm inistration is allocated am ong these funds
on a sim ilar basis. T he F R F expenses its share o f these
allocated costs at the tim e o f acquisition because o f their
im m aterial am ounts. T he FD IC includes the co st o f
b uildings u sed in operations in the B IF ’s financial state­
m ents. T h e B IF charges th e F R F a rental fee representing
an allocated share o f its annual depreciation.

C ash E cjuivalen ts
T he F R F considers cash equivalents to be short-term ,
highly liquid investm ents w ith original m aturities o f three
m onths or less.
A llow ance for L osses on R eceivab les From
T hrift R esolu tions and A ssets A cquired From
A ssisted T hrifts an d Term inated R eceiverships
T he F R F records as a receivable the am ounts advanced
and/or obligations incurred for resolving troubled and
failed thrifts. T he F R F also records as an asset the
am ounts paid for assets acquired from assisted thrifts
and term inated receiverships. A ny related allow ance for
loss represents the difference betw een the funds advanced
and/or obligations incurred and the ex pected repaym ent.
T he latter is based o n estim ates o f discounted cash
recoveries from the assets o f assisted or failed thrift in sti­
tutions, net o f all estim ated liquidation costs. E stim ated
cash recoveries also include dividends and gains on
sales from equity instrum ents acquired in resolution
transactions.




P ostretirem en t B en efits O ther T h an P en sio n s_________
T he F D IC established an entity to provide the accounting
and adm inistration o f postretirem ent benefits on b e h alf
o f the FRF, the BIF, and the SAIF. E ach fund pays its lia­
bilities for these benefits directly to the entity. T he F R F ’s
rem aining net p ostretirem ent benefits liability fo r the plan
is recognized in F R F ’s S tatem ent o f F inancial Position.
D isclosu re A b ou t R ecen t F in an cial A ccou n tin g
S tan d ard s B oard P ron ou n cem en ts
In June 1997, the F inancial A ccounting Standards B oard
(FA SB ) issued S tatem ent o f Financial A ccounting
Standards (SFA S) N o. 130, “R eporting C om prehensive
Incom e.” C om prehensive incom e includes n et incom e
as w ell as certain types o f unrealized gain o r loss. The
F R F does not have any item s o f unrealized gain or loss
and, therefore, SFAS N o. 130 is not applicable.

81

FRF

R elated P arties
N a tio n a l Ju d g m en ts, D eficiencies, a n d C harge-offs Joint
Venture Program . The form er RTC purchased assets from
receiverships, conservatorships, and their subsidiaries to
facilitate the sale an d /o r transfer o f selected assets to
several Joint ventures in w hich the form er RTC retained
a financial interest.

In June 1997, the FASB also issued SFAS N o. 131,
“D isclosures about Segm ents o f an E nterprise and R elated
Inform ation.” The F D IC intends to adopt SFAS N o. 131
effective on Jan u ary 1, 1998; how ever, m an ag em en t
anticipates that the FRF, as a non-publicly held enterprise,
w ill not be affected b y SFAS N o. 131.
O ther recent pronouncem ents issued by the FASB are
n ot applicable to the financial statem ents.

L im ited P artnership E quity Interests. F orm er RTC
receiverships w ere holders o f lim ited partnership equity
interests as a result o f various RTC sales program s that
included the N ational L an d Fund, M ultiple Investor Fund,
N -Series, and S-Series program s. In 1997, the m ajority o f
the lim ited p artnership equity interests w ere transferred
from the receiverships to the FRF.

W holly O w ned Subsidiary
T he Federal A sset D isposition A ssociation (FADA)
is a w holly ow ned subsidiary o f the FRF. T he FADA
w as placed in receivership on F ebruary 5, 1990. H ow ever,
due to outstanding litigation, a final liquidating dividend
to the F R F w ill not be m ade until the FADA’s litigation
is settled o r dism issed. T h e investm ent in the FA D A is
accounted fo r using the equity m ethod and is included
in “O ther assets, net” (N ote 6).

T he nature o f related parties and a d escription o f related
party transactions are disclosed throughout the financial
statem ents and footnotes.
R eclassifications
____ _______
R eclassific ations have been m ade in the 1996 financial
statem ents to conform to the presentation used in 1997.

3. Receivables From Thrift Resolutions, Net

T he FD IC resolution process takes different form s
depending on the unique facts and circum stances sur­
rounding each failing o r failed institution. P aym ents to
prevent a failure w ere m ade to operating institutions w hen
cost and other criteria w ere m et. T hese paym ents resulted
in acquiring “A ssets from open thrift asssistance,” w hich
are various ty p es o f fin a n c ial in stru m en ts from th e
assisted institutions.

affect the F R F ’s and o th er claim an ts’ actual recoveries
from the level currently estim ated.
T h e F R F e stim ated C o rp o rate lo sses rela te d to the
receiv ersh ip s’ representation and w arranties as p art o f
the F R F ’s allow ance fo r loss valuation. T he allow ance
for these losses w as $90 m illion and $494 m illion as o f
D ecem b er 31, 1997 and 1996, respectively. T h ere are
ad ditio n al am o u nts o f rep resen tatio n and w arranty
claim s than are considered reasonably possible. A s o f
D ecem ber 31, 1997, the am ount is estim ated at $298 m il­
lion. T here w ere no additional am ounts d eem ed reason­
ably p ossible as o f D ecem ber 31, 1996. T he RTC provid­
ed guarantees, representations, and w arranties on approxi­
m ately $114 billion in unpaid p rincipal balance o f loans
sold and approxim ately $148 billion in unpaid principal
balance o f loans under servicing right contracts that had
been sold. In general, the guarantees, representations and
w arranties on loans sold related to the com pleteness and
accuracy o f loan docum entation, the quality o f the u n d er­
w riting standards used, the accuracy o f the delinquency
status w hen sold, and the conform ity o f the loans w ith
characteristics o f the pool in w hich they w ere sold. The
representations and w arranties m ade in connection w ith

A s o f D ecem ber 31, 1997 and 1996, the F D IC , in its
receivership capacity fo r FS L IC -insured institutions, held
assets w ith a book value o f $3.6 billion and $7.3 billion,
respectively (including cash and m iscellaneous receiv­
ables o f $1.4 billion and $2.9 billion at D ecem ber 31, 1997
and 1996, respectively). T hese assets represent a signifi­
cant source o f repaym ent o f the F R F ’s receivables from
thrift resolutions. T he estim ated cash recoveries from the
m anagem ent and disposition o f these assets that are used
to derive the allow ance fo r losses are based in part on
a statistical sam pling o f receivership assets. T he sam ple
w as constructed to produce a statistically valid result.
T hese estim ated recoveries are regularly evaluated, but
rem ain subject to uncertainties becau se o f potential
changes in econom ic conditions. T hese factors could




82

FRF

the sale o f servicing rights w ere lim ited to the responsibil­
ities o f acting as a servicer o f the loans. Future losses
on representations and w arranties could significantly
increase o r decrease o v er the rem aining life o f the loans
that w ere sold, w hich could be as long as 20 years.

T he estim ated liability fo r representations and w arranties
associated w ith loan sales that involved assets acquired
from assisted thrifts and terminated receiverships are included
in “A ccounts payable and other liabilities” ($18 m illion
and $57 m illion for 1997 and 1996, respectively).

Receivables From Thrift Resolutions, N et at Decem ber 31
Dollars

in T h o u s a n d s

1997
$

Assets from open th rift assistance

804,217

1996
$

1,211,902

Allowance for losses

(446,064)

Net Assets From Open Thrift Assistance

358,153

767,029

Receivables from closed thrifts

76,680,026

80,309,086

Allowance for losses

(74,467,693)

(76,621,339)

Net Receivables From Closed Thrifts
Total

S

2,212,333
2,570,486

(444,873)

$

3,687,747
4,454,776

4. Securitization Reserve Fund, Net

In order to m axim ize the return from the sale or disposition
o f assets, the RTC engaged in num erous securitization
transactions. T he RTC sold $42.4 billion o f receivership,
conservatorship, and corporate loans to various trusts
that issued regular pass-through certificates through its
m ortgage-backed securities program .

In O ctober 1996, the reserve funds and related allow ance
to cover future estim ated losses on the reserve w ere trans­
ferred from the receiverships to FRF. The $5.4 billion
transferred to the F R F w as offset by am ounts ow ed by
the receiverships to the FR F; thus, there w as no change
in the F R F ’s net assets as a result o f this transaction.

To increase the likelihood o f full and tim ely distributions
o f interest and principal to the holders o f the regular
pass-through certificates, and thus the m arketability o f
such certificates, a portion o f the proceeds from the sale
o f the certificates w as p lace d in c re d it en h an cem en t
reserve funds (reserve funds) to cover future credit losses
w ith respect to the loans underlying the certificates. The
reserve fu n d s’ structure lim its the receivership exposure
from credit losses on loans sold through the RTC securiti­
zation program to the b alance o f the reserve funds. The
initial balances o f the reserve funds are reduced for claim s
paid and recovered reserves.

T hrough D ecem ber 1997, the am ount o f claim s paid
was approxim ately 18 percent o f the initial reserve funds.
A t D ecem ber 31, 1997 and 1996, reserve funds related
to the RTC securitization program totaled $5.2 billion
and $6.3 b illio n , respectively. A t D ecem b er 31, 1997
and 1996, the allo w an ce fo r estim ated future losses
w hich w ould b e p aid fro m th e secu ritizatio n fund
to taled $0.3 billion and $0.5 billion, respectively.




The F R F earns and receives in terest incom e from the
securitization reserve fund.

83

FRF
5. Assets Acquired From Assisted Thrifts and Terminated Receiverships, N et

The F R F ’s assets acquired from assisted thrifts and
term inated receiverships includes assets that: 1) the form er
FSLIC and the form er RTC purchased from troubled o r
failed thrifts and 2) the F R F acquired from receiverships,
and purchased under assistance agreem ents. The m ethod­
ology used to derive th e allow ance for losses for assets
acquired from assisted thrifts and term inated receiverships
is the sam e as that for receivables from thrift resolutions.

T he F R F recognizes incom e and expenses on these assets.
Incom e consists prim arily o f in terest on m ortgage loans
and proceeds fro m professional liability claim s. E xpenses
are recognized for adm inistering the m anagem ent and
liquidation o f these assets.

Assets Acquired From Assisted Thrifts and Terminated Receiverships, N et at Decem ber 31
Dollars

in T h o u s a n d s

1997
Assets acquired from assisted thrifts and terminated receiverships

$

Allowance for losses

1996

277,607

$

(204,556)

Assets Acquired From Assisted Thrifts
and Terminated Receiverships, Net

S

73,051

$

15,000
(11,074)

660,802
(457,847)

S

202,955

6. Other Assets, Net

Other Assets, N et at Decem ber 31
Dollars

in T h o u s a n d s

1997
Investment in FADA (Note 2)
Allowance for loss

1996
$

15,000
(11,074)

Investment in FADA, Net

3,926

3,926

Accounts receivable
Due from other government entities

607
2,858

527
2,294

Other Receivables
Total

$

3,465
7,391

$

2,821
6,747

7. Notes Payable - Federal Financing Bank Borrowings

W orking capital w as m ade available to the RTC u n d er an
agreem ent w ith the FFB to fund the resolution o f thrifts
and fo r use in the R T C ’s high-cost funds replacem ent and
em ergency liquidity program s. The outstanding note
m atures on January 1, 2010; how ever, all or any portion
o f the outstanding principal am ount m ay be repaid
anytim e as excess funds b ecom e available.




T he note payable carries a floating rate o f interest that is
adjusted quarterly. T he FFB establishes the in terest rate
and during 1997 these rates ranged betw een 5.478 percent
and 5.187 percent. As o f D ecem ber 31, 1997 and 1996, there
w ere $0.8 billion and $4.6 billion, respectively, in b orrow ­
ings and accrued interest outstanding. T he FFB borrow ing
authority ceased upon the term ination o f the RTC.

84

FRF
8. Liabilities Incurred From Thrift Resolutions

The FSL IC issued prom issory notes and entered into
assistance agreem ents to prev en t the d efault and subse­
quent liquidation o f certain insured thrift institutions.
T hese notes and agreem ents req u ired the F S L IC to p ro­
vide financial assistance over tim e. U nder the FIR R EA ,
the FR F assum ed these obligations. N otes pay ab le and

obligations fo r assistance agreem ent paym ents incurred
bu t n o t y et p aid are in “L iabilities in curred from thrift
resolutions.” E stim ated future assistance paym ents are
included in “E stim ated liabilities for: A ssistance
agreem ents” (see N ote 9).

Liabilities Incurred From Thrift Resolutions at Decem ber 31
Dollars

in T h o u s a n d s

1997

1996

Capital instruments
Assistance agreement notes payable
Interest payable
Other liabilities to th rift institutions

$

725
94,680
1,419
8,344

$

725
126,240
1,856
14,904

Total

$

105,168

$

143,725

T he total liabilities w ill m ature according to the term s o f the assistance agreem ents on S eptem ber 23, 1998.

MMI MMMHMMMi H8MM

9. Estimated Liabilities for:

A ssistance A greem en ts
T he estim ated liabilities for assistance agreem ents is
$6 m illion and $16 m illion at D ecem ber 31, 1997 and
1996, respectively. T he liability represents an estim ate o f
future assistance paym ents to acquirers o f troubled thrift
institutions. Prior to 1997, the balance w as discounted
based on U .S. m oney rates or federal funds. T he balance
as o f D ecem ber 31, 1997, w as not discounted because the
rem aining assistance agreem ents w ill term inate w ithin the
next three years, and the disco u n t adjustm ent w as deem ed
to be im m aterial. A s o f D ecem ber 31, 1996, the nom inal
am o u n t w as $18 m illio n , u sin g a d isco u n t rate o f
5.6 percent.

has determ ined that losses from unresolved legal cases
totaling $351 m illion are reasonably possible.
_____
A dditional C on tin gen cy
An additional contingency arises from the o v er 120
law suits pending in the U nited States C ourt o f F ederal
C laim s against the U nited States, generically referred to
as the “g o o dw ill” cases, in w hich certain alleged agree­
m ents entered into by the Federal H om e L oan B ank
B oard and the Federal S avings and L oan Insurance
C orporation are claim ed to have been b reached w hen
C ongress enacted legislation affecting the thrift industry
and that legislation w as im plem ented by the O ffice of
T hrift Supervision. C laim s against the governm ent are
generally p aid from the Judgem ent Fund, a perm anent,
indefinite appropriation established by 31 U .S.C . 1304,
and adm inistered by the D epartm ent o f Treasury. However,
the D epartm ent o f T reasury m ay determ ine that paym ent
o f a ju d g m en t is “otherw ise provided for” by another
dedicated source o f funds.

The num ber o f assistance agreem ents outstanding as o f
D ecem ber 31, 1997 and 1996, w ere 33 and 36, respectively.
T he last agreem ent is scheduled to expire in July 2000.
L itigation L osses
The F R F records an estim ated loss for unresolved legal
cases to the extent those losses are considered probable
and reasonably estim able. T he estim ated liability for
litigation losses is $3 m illion and $40 m illion at D ecem ­
b er 31, 1997 and 1996, respectively. In addition to the
am ount recognized as probable, the F D IC ’s Legal D ivision




T he FD IC believes th at under F IR R E A the F R F should
n o t be considered a dedicated source o f funds for p ay ­
m ent o f goodw ill ju d g m en ts against the U nited States.

85

FRF

If substantial final ju d g m en ts w ere en tered ag ain st the
U nited S tates in the g o o dw ill cases and if the F R F w ere
d eterm ined b y T reasury to b e resp o n sible fo r p aym ent
o f those ju d g m en ts, the effect o n the F R F ’s financial
co n d itio n w ould be m aterial and adverse. In th e event
the F R F has in sufficient funds to satisfy F R F liabilities,
as w ould l ikely be the case w ere T reasury to m ake such
determ ination, 12 U .S.C . 1 8 2 la (c ) provides: “the S ecre­
tary o f the T reasury shall pay to the F u n d such am ounts
as m ay be necessary, as determ in ed b y the [FD IC] and
the Secretary, fo r F S L IC R eso lu tio n F u n d p u rp o ses.”
C ongress w ould need to appropriate fu n d s to carry
out this provision.

H ow ever, the D epartm ent o f T reasury has n o t yet d eter­
m ined the source o f p aym ent o f any goodw ill jud g m en ts
and therefore w heth er the F R F w ill be responsible for
the paym ent o f any goodw ill jud g m en ts is uncertain.
I f it is determ ined that the F R F can be called upon for
p aym ent o f possible goodw ill ju d g m en ts, the am ount o f
additional liabilities o f th e F R F cannot be reasonably
estim ated. T he FD IC is not the defendant in any o f the
goodw ill cases an d there has been no final d ecision in
any o f them . T h e C ourt o f Federal C laim s h as indicated
that the dollar dam ages sought in the goodw ill cases are
in th e “tens o f billions o f dollars.” D am ages sought by
the plaintiff, G lendale F ederal B ank, FSB , in the first o f
the goodw ill cases to be tried in the C ourt o f Federal
C laim s exceed one billion dollars.

10. Provision for Losses

T he provision for losses w as a negative $1.7 billion and
a negative $2.4 billion fo r 1997 and 1996, respectively.
R eductions to various allow ance for losses and estim ated

liabilities account for the n egative loss provision. The
follow ing chart lists the m ajor com ponents o f the reduction
in provision for losses.

Provision for Losses
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

Valuation adjustments:
Open th rift assistance
Closed thrifts
Assets acquired from assisted thrifts
and terminated receiverships
Securitization credit reserve
Miscellaneous receivables

$

(117,026)
(1,481,702)

$

(744,613)
(1,633,276)

(245,304)
134,424
(88)

246,837
(91,637)
0

(1,709,696)

(2,222,689)

Assistance agreements
Litigation

1,961
(36,955)

(53,336)
(124,341)

Total

(34,994)

(177,677)

Total
Contingencies:

Reduction in Provision for Losses




$

86

(1,744,690)

$

(2,400,366)

FRF
11. Resolution Equity

A ccu m u lated D eficit
T he accum ulated d eficit represents th e cum ulative excess
o f expenses o v er revenue for liquidation activity related
to the form er FSL IC and the form er RTC ($29.7 billion
w as b rought forw ard from the FSLIC ).

C ontributed C apital
The form er RTC and the FR F-FSLIC received $60.1 billion
and $43.5 billion from the U .S. T reasury, respectively.
T hese paym ents w ere used to fund losses from th rift
resolutions prior to July 1, 1995. A dditionally, the RTC
issued $31.3 billion in capital certificates to R E F C O R P
and the F R F -FS L IC issued $670 m illion o f these in stru ­
m ents to the FIC O . F IR R E A prohibited the p aym ent
o f dividends on any o f these capital certificates.

12. Pension Benefits, Savings Plans and Accrued Annual Leave

E ligible FD IC em ployees (all p erm anent and tem porary
em ployees w ith appointm ents exceeding one year) are
covered by either the C ivil Service R etirem ent System
(C SR S ) o r the F ed eral E m p lo y ee R etirem en t S ystem
(FE R S). T he C SR S is a d efin ed b en e fit p lan, w hich is
offset w ith the Social S ecurity S ystem in certain cases.
Plan benefits are d eterm in ed on the b asis o f years o f
creditable service and co m p en satio n levels. T h e C S R S covered em ployees also can contribute to the tax-deferred
Federal T hrift S avings P lan (TSP).

A lthough the F R F co ntributes a portion o f pension b en e­
fits fo r eligible em ployees, it does n o t account for the
assets o f eith er retirem ent system . The F R F also does not
have actuarial data fo r accum ulated plan benefits o r the
unfunded liability relative to eligible em ployees. T hese
am ounts are reported on and accounted for b y the O ffice
o f Personnel M anagem ent (O PM ).
E ligible FD IC em ployees also m ay participate in an
FD IC -sponsored tax-deferred savings p lan w ith m atching
contributions. T h e F R F pays its share o f the e m p lo y er’s
portion o f all related costs.

The FERS is a three-part plan consisting o f a basic
defined benefit plan that provides benefits based on years
o f creditable service and com pensation levels, Social
Security benefits, and the TSP. A utom atic and m atching
em ployer contributions to the T S P are provided up to
specified am ounts under the FERS.

T h e F R F ’s p ro rata share o f the C o rp o ratio n ’s liability
to em ployees fo r accrued annual leave is approxim ately
$11.2 m illion and $13.7 m illion at D ecem ber 31, 1997
and 1996, respectively.

Pension Benefits and Savings Plans Expenses
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997

For the Year Ended
December 31,1996

CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employee Retirement System (Basic Benefit)
FDIC Savings Plan
Federal Thrift Savings Plan

$

168
2,047
9,473
4,893
3,264

$

255
2,534
13,391
7,463
4,369

Total

$

19,845

$

28,012




87

FRF
13. Postretirem ent Benefits Other Than Pensions

T he F R F expensed $1.2 m illio n and $3.1 m illio n fo r net
periodic p ostretirem ent b en efit costs fo r the years ended
D ecem ber 31, 1997 and 1996, respectively. F o r m ea­
surem ent p urposes fo r 1997, the F D IC assu m ed the fo l­
low ing: 1) a discount rate o f 5.75 percen t; 2) an average
lo ng-term rate o f return o n p lan assets o f 5.75 percent;
3) an increase in h ealth co sts in 1997 o f 9.75 percen t
(inclusive o f general inflatio n o f 2.5 percent), d ecreasing
to an ultim ate ra te in the year 2 0 0 0 an d th ereafter o f
7.75 percen t; and 4 ) an increase in d ental costs fo r 1997
and th ereafter o f 4.5 p ercen t (in addition to general
inflation). B oth th e assum ed d isco u n t rate and h ealth
care co st rate have a sign ifican t effect on the am o u n t
o f the ob lig atio n and periodic c o st reported.

The FD IC provides certain health, dental, and life insurance
coverage fo r its eligible retirees, the retire es’ beneficiaries
and co vered dependents. R etirees eligible fo r health and/
or life insurance coverage are those w ho have qualified
due to: 1) im m ediate enrollm ent upon appointm ent or
five years o f participation in the plan and 2) eligibility
for an im m ediate annuity. D ental coverage is provided
to all retirees eligible fo r an im m ediate annuity.
The FD IC is self-insured for hospital/m edical, prescription
drug, m ental health and chem ical dependency coverage.
A dditional risk protection w as purchased through stop­
loss and fiduciary liability insurance. A ll claim s are
adm inistered on an adm inistrative services only basis
w ith the hospital/m edical claim s adm inistered by A etna
L ife Insurance C om pany, the m ental health and chem ical
dependency claim s adm inistered by O H S F oundation
Flealth Psychcare Inc., and the prescription drug claim s
adm inistered by C arem ark.

I f the health care cost rate w as increased one percent,
the accum ulated p ostretirem ent b enefit obligation
as o f D ecem ber 31, 1997, w ould have increased by
20.2 percent. T he effect o f this change on the aggregate
o f service and in terest co st fo r 1997 w ould be an increase
o f 23.5 percent.

The life insurance program , underw ritten by M etropolitan
L ife Insurance C om pany, provides basic coverage at no
cost to retirees and allow s converting optional coverages
to d irect-p ay plans. D ental care is u n d erw ritte n by
C onnecticut G eneral L ife Insurance C om pany and
provides coverage at no cost to retirees.

N et Periodic Postretirem ent Benefit Cost
Dollars

in T h o u s a n d s
For Ihe Year Ended
D ecem ber 31,1997

Service cost (benefits attributed to employee service during the year)
Interest cost on accumulated postretirement benefit obligation
Net total of other components
Return on plan assets
Total

$

$

3,974
3,032
(1,848)
(4,008)
1,150

For the Year Ended
D ecem ber 31,1996
$

6,621
3,102
(3,132)
(3,511)

$

3,080

A s stated in N ote 2, the FD IC established an entity to provide accounting and adm inistration on b e h alf o f the FRF,
the BIF, and the SAIF. The F R F funds its liability and these funds are being m anaged as “p lan assets.”




88

FRF
Accum ulated Postretirement Benefit Obligation and Funded Status at Decem ber 31
Dollars

in T h o u s a n d s

1997
Retirees
Fully eligible active plan participants
Other active participants

$

1996

41,072
3,200
37,342

$

23,602
2,196
26,409

Total Obligation

81,614

Less: Plan assets at fair v a lu e (a)

68,010

64,002

Under/(Over) Funded Status

13,604

(11,795)

Unrecognized prior service cost
Unrecognized net gain

4,053
1,442

19,613
11,412

Postretirement Benefit Liability Recognized
in the Statements of Financial Position

$

52,207

19,099

$

19,230

|al Invested in U.S. Treasury instruments

14. Commitments and Concentration of Credit Risk
C o m m itm e n ts

L eases
T he F R F ’s allocated share o f the F D IC ’s lease co m m it­
m ents totals $52.7 m illion for future years. T h e lease
agreem ents contain escalation clauses resulting in adjust­
m ents, usually on an annual basis. T he allo catio n to the
F R F o f th e F D IC ’s future lease com m itm ents is based
upon cu rren t relatio n sh ip s o f the w orkloads am ong the
FRF, the BIF, and the SAIF. C hanges in the relative
w orkloads am ong the three funds in future years could
change the am ount o f the F D IC ’s lease p aym ents that
w ill b e allocated to the FRF. T h e F R F reco g n ized leased
space ex p en se o f $ 1 8 .2 m illion an d $32.8 m illion
fo r the y ears en d ed D ecem b er 31, 1997 and 1996,
respectively.

L etters o f C redit
T he RTC had adopted special policies for outstanding
conservatorship and receivership collateralized letters o f
credit. T hese policies enabled the RTC to m inim ize the
im pact o f its actions on capital m arkets. In m ost cases,
these letters o f credit w ere used to guarantee tax exem pt
bonds issued by state and local housing authorities or
other public agencies to finance housing projects for
low and m oderate incom e individuals o r fam ilies. A s o f
D ecem ber 31, 1997 and 1996, there w ere pledged securi­
ties as collateral o f $17 m illion and $84 m illion, respec­
tively, to honor these letters o f credit. T he F R F estim ated
C orporate losses related to the receiv ersh ip s’ letters o f
credit as p art o f the F R F ’s allow ance for loss valuation.
T he allow ance fo r these losses w as $7 m illion and $32
m illion as o f D ecem ber 31, 1997 and 1996, respectively.

Lease Commitments
Dollars

in T h o u s a n d s

1998

1999

2000

2001

2002

2003 and Thereafter

$11,472

$9,528

$8,427

$6,770

$6,099

$10,442




89

FRF

these assets. T he liquidating en tities' ability to m ake
repaym ents to F R F is largely influenced by the econom y
o f the area in w hich they are located. The F R F ’s m axim um
exposure to possible accounting loss fo r these assets is
show n in the table below.

C oncentration o f C redit R isk
A s o f D ecem ber 3 1 .1 9 9 7 , the F R F had $77 billion in
gross receivables from thrift resolutions and $278 m illion
in assets acquired from assisted thrifts and term inated
receiverships. A n allow ance for loss o f $75 billion and
$205 m illion, respectively, has been recorded against

Concentration of Credit Risk at Decem ber 31,1997
Dollars

in M i l l i o n s

Southeast
Receivables from th rift resolutions,
net and Assets acquired from assisted
thrifts and terminated receiverships, net

$395

Southwest

$392

Northeast

M idw est

Central

West

Total

$579

$164

$236

$877

$2,643

15. Disclosures About the Fair Value of Financial Instruments

C ash equivalents are short-term , highly liquid investm ents
and are show n at current value. The carrying am ount o f
short-term receivables and accounts payable and other
liabilities approxim ates their fair m arket value. T his is
due to their short m aturities or com parisons w ith current
interest rates.

assets because o f credit and other risks. In addition, the
tim ing of receivership paym ents to the F R F on the subro­
gated claim do not necessarily correspond w ith the tim ing
o f collections on receivership assets. T herefore, the effect
o f discounting used by receiverships should n o t n ecessari­
ly be view ed as producing an estim ate o f m arket value for
the net receivables from thrift resolutions.

T he net receivable from thrift resolutions prim arily
involves the F R F ’s subrogated claim arising from p ay ­
m ents to insured depositors. T he receivership assets that
w ill ultim ately be used to pay th e corporate subrogated
claim are valued using discount rates that include c o n sid ­
eration o f m arket risk. T hese discounts ultim ately affect
the F R F ’s allow ance fo r loss against the net receivable
from thrift resolutions. T herefore, the corporate subrogat­
ed claim indirectly includes the effect o f discounting and
should not be view ed as being stated in term s o f nom inal
cash flows.

L ike the corporate subrogated claim , the securitization
credit reserves involve an asset that is unique, not intend­
ed for sale to the private sector, and has no established
m arket. T herefore, it is no t practicable to estim ate the
fair m arket value o f the securitization credit reserves.
T hese reserves are carried at net realizable value, w hich is
the book value o f the reserves less the related allow ance
for loss (see N ote 4.)
T he m ajority o f the net assets acquired from assisted
thrifts and term inated receiverships (except real estate) is
com prised o f various types o f financial instrum ents
(investm ents, loans, accounts receivable, etc.) acquired
from failed thrifts. L ike receivership assets, assets
acquired from assisted thrifts and term inated receiv er­
ships are valued using discount rates that include consid­
eration o f m arket risk. H ow ever, assets acquired from
assisted thrifts and term inated receiverships do not
involve the unique aspects o f the corporate subrogated
claim , and therefore the discounting can be view ed as
producing a reasonable estim ate o f fair m arket value.

A lthough the value o f the corporate subrogated claim is
influenced by valuation o f receivership assets, such
receivership valuation is not eq uivalent to the valuation o f
the corporate claim . Since the corporate claim is unique,
not intended fo r sale to the private sector, and has no
established m arket, it is no t practicable to estim ate its fair
m arket value.
T he FD IC believes that a sale to the private sector o f the
corporate claim w ould require indeterm inate, but substan­
tial discounts for an interested party to p rofit from these




90

FRF
16. Supplementary Information Relating to the Statements of Cash Flows

Reconciliation of N et Incom e to N et Cash Provided by Operating A ctivities
Dollars

in T h o u s a n d s

For the Year Ended
December 31,1997
Net Income

S

1,946,403

For the Year Ended
December 31,1996
$

2,375,059

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities

Income Statement Items:
Interest on Federal Financing Bank borrowings
Reduction in provision for losses
OIG income recognized

124,322
(1,744,690)
792

378,183
(2,400,366)
(225)

3,360,072
779,071
335,624
8,480
20,772
(173,484)
(6,998)
111,191

10,055,201
(5,712,446)
555,375
(5,402)
(21,548)
(345,104)
(73,253)
732,728

Change in Assets and Liabilities:
Decrease in receivables from thrift resolutions
(Increase) Decrease in securitization reserve fund
Decrease in assets acquired from assisted thrifts and terminated receiverships
(Increase) Decrease in other assets
Increase (Decrease) in accounts payable and other liabilities
(Decrease) in accrued interest on notes payable
(Decrease) in liabilities incurred from thrift resolutions
Increase in estimated liabilities for assistance agreements

Net Cash Provided by Operating Activities

$

4,761,555

$

5,538,202

17. Year 2000 Compliance Expenses

A s part o f its operations, the FD IC as adm inistrator o f
the FR F is assessing, testing, m odifying or replacing as
necessary its autom ated system s to ensure that these
system s are Year 2000 com pliant.

A s o f D ecem ber 31, 1997, the F R F has not incurred, nor
d oes m anagem ent anticipate that the F R F w ill incur, a
m aterial charge to earnings to ensure that its system s are
Year 2000 com pliant.

18. Subsequent Events

E ffective on January 4 , 1998, all em ployees w ith five
or m ore years until retirem ent w ere converted from the
FD IC health plan to the Federal E m ployees H ealth Benefits
(FE H B ) program . T his conversion resulted in a gain to
the FRF. A ssum ing enabling legislation is passed in the
future, this conversion w ill also affect all retirees and
em ployees w ithin five years o f retirem ent.

FRF. If retirees and em ployees w ithin five years o f
retirem ent are also converted in the future, the O PM will
assum e the F R F ’s obligation for p ostretirem ent health
b enefits fo r those individuals at a fee to be negotiated
b etw een the FD IC and the O PM .
A ssum ing enabling legislation is passed, m anagem ent does
not expect there w ill be a m aterial gain or loss upon dispo­
sition o f the F R F ’s postretirem ent health benefits obligation
for retirees or em ployees w ithin five years o f retirem ent.

A s part o f this conversion, th e O P M w ill b ecom e respon­
sible fo r postretirem ent h ealth benefits fo r em ployees
w ith five or m ore years until retirem ent at no co st to the




91




GAO

U n ited S ta te s
G en era l A c co u n tin g O ffice
W a sh in g to n , D.C. 2 0 5 4 8
A c co u n tin g and In fo rm a tio n
M a n a g em en t D iv isio n

T o the B o ard o f D ire cto rs
F e d e ra l D e p o sit In su ra n c e C o rp o ra tio n
W e h av e au d ited th e sta te m e n ts o f fin a n c ia l p o sitio n as o f D e c e m b e r 31, 1997 a n d 1996, o f th e th re e fu n d s
a d m in iste re d by th e F e d eral D e p o sit In su ra n c e C o rp o ra tio n (F D IC ), the re la te d sta te m en ts o f in c o m e an d fu n d
b a la n c e (ac c u m u la te d d e ficit), an d th e sta te m e n ts o f cash flo w s fo r the y e a rs th e n en d ed . In o u r a u d its o f the
B an k In su ra n c e F u n d (B IF ), the S a v in g s A sso c ia tio n In su ra n c e F u n d (S A IF ), an d th e F S L IC R e so lu tio n F u n d
(F R F ), w e fo u n d
the fin a n c ia l sta te m en ts o f e a c h fu n d w ere relia b le in all m a te ria l resp ects;
— a lth o u g h certa in in te rn a l c o n tro ls sh o u ld b e im p ro v e d , F D IC m a n a g e m e n t fa irly sta te d th a t in te rn al
c o n tro ls in p la c e o n D e c e m b e r 3 1 , 1997, w e re e ffe c tiv e in sa fe g u a rd in g a ssets fro m m a teria l lo ss, a ssu rin g
m aterial c o m p lia n c e w ith re le v a n t la w s a n d re g u la tio n s, a n d a ssu rin g th a t th ere w e re n o m a teria l
m issta te m e n ts in th e fin a n c ia l state m e n ts o f th e th re e fu n d s a d m in iste re d b y F D IC ; and
—

no re p o rta b le n o n c o m p lia n c e w ith law s an d re g u la tio n s w e tested .

T h e fo llo w in g se c tio n s d isc u ss o u r c o n c lu sio n s in m o re d etail. T h ey a lso p re s e n t in fo rm a tio n o n (1) th e sc o p e o f
o u r au d its, (2) th e c u rre n t statu s o f F R F liq u id a tio n a c tiv itie s a n d fu n d in g , (3) F D IC ’s Y e a r 2 0 0 0 effo rts,
(4) F D IC 's p ro g ress in a d d re ssin g re p o rta b le c o n d itio n s ' id e n tifie d d u rin g o u r 1996 au d its, an d a re p o rta b le
c o n d itio n id e n tifie d d u rin g o u r 1997 au d its, (5) re c o m m e n d a tio n s fro m o u r 1997 au d its, an d (6) the
C o rp o ra tio n 's c o m m e n ts o n a d raft o f th is re p o rt an d o u r ev a lu a tio n .
O P IN IO N O N B A N K IN S U R A N C E F U N D 'S
F IN A N C IA L S T A T E M E N T S
T h e fin an cial state m e n ts a n d ac c o m p a n y in g n o te s p re s e n t fairly , in all m a teria l re sp e c ts, in c o n fo rm ity w ith
g e n e ra lly acce p te d a c c o u n tin g p rin c ip le s, th e B a n k In su ra n c e F u n d ’s fin a n c ia l p o sitio n as o f D e c e m b e r 31, 1997
a n d 1996, a n d th e re su lts o f its o p e ra tio n s an d its c a sh flo w s fo r th e y e a rs th e n en d ed .
A t F D IC ’s req u est, w e p ro v id e d an a u d it o p in io n in M a rc h 1998 o n th e B a n k In su ra n c e F u n d ’s fin an c ia l
statem en ts in o rd e r to fa c ilita te F D IC ’s S e c u ritie s a n d E x c h a n g e C o m m issio n (S E C ) re p o rtin g n e e d s re su ltin g
fro m B IF ’s 1996 a sse t se c u ritiz atio n tra n sa ctio n .
A s d isc u sse d in n o te 7 o f B IF 's fin a n c ia l state m e n ts. F D IC has se cu ritiz e d som e B IF re c e iv e rsh ip assets in tw o
sep arate se c u ritiz a tio n d eals as p a rt o f F D IC ’s e ffo rts to m ax im iz e th e retu rn fro m th e sale o r d is p o sitio n o f
assets. T h e d eals w ere a c c o m p lish e d th ro u g h th e c re a tio n o f R eal E sta te M o rtg a g e In v e stm e n t C o n d u it
(R E M IC ) trusts. T o fa c ilita te the se c u ritiz a tio n s. B IF p ro v id ed lim ited g u a ra n te e s to c o v e r ce rta in lo sses on the
sec u ritiz e d assets u p to a sp e c ifie d m a x im u m . B e cau se o f the lim ite d g u a ra n te e p ro v id ed by B IF , a n d th e

'R e p o rta b le co n d itio n s in v o lv e m a tte rs c o m in g to th e a u d ito r's atte n tio n re la tin g to sig n ific a n t d e ficien c ies in the
d e sig n o r o p eratio n o f in te rn a l c o n tro ls th at, in th e au d ito r's ju d g m e n t, c o u ld a d v e rse ly a ffec t an en tity 's ab ility to
(1) safe g u a rd assets a g a in st lo ss fro m u n a u th o riz e d a c q u isitio n , u se, o r d isp o sitio n , (2) e n su re th e e x e c u tio n o f
tra n sa c tio n s in a c c o rd a n c e w ith m a n a g e m e n t's a u th o rity a n d in a cc o rd a n c e w ith law s a n d re g u la tio n s, a n d (3)
p ro p erly re co rd , p ro c ess, an d su m m a riz e tra n sa c tio n s to p e rm it the p re p a ra tio n o f fin a n c ial sta te m en ts an d to
m ain tain acc o u n ta b ility fo r assets.




93

p u b lic h o ld in g o f th e sec u rities fro m th e 1996 se c u ritiz a tio n , the R E M IC tru st w as re q u ire d to in c lu d e B IF ’s
au d ite d fin an cial sta te m e n ts as an e x h ib it in its F o rm 10-K re p o rt fo r th e y e a r e n d e d D e c e m b e r 31, 1997.
O P IN IO N O N S A V IN G S A S S O C IA T IO N IN S U R A N C E
F U N D 'S F IN A N C IA L S T A T E M E N T S
T h e fin a n c ia l state m e n ts a n d a c c o m p a n y in g n o te s p rese n t fairly , in all m a te ria l re sp e c ts, in co n fo rm ity w ith
g en e ra lly acce p te d a c c o u n tin g p rin c ip le s, th e S a v in g s A sso c ia tio n In su ra n c e F u n d 's fin a n c ia l p o sitio n as o f
D e c e m b e r 31, 1997 an d 1996, a n d th e re su lts o f its o p e ra tio n s an d its cash flo w s fo r th e y ears th e n e n d ed .
O P IN IO N O N F S L IC R E S O L U T IO N F U N D 'S
F IN A N C IA L S T A T E M E N T S
T h e fin a n c ia l sta te m e n ts a n d ac c o m p a n y in g n o tes p re s e n t fairly , in all m ate ria l resp e c ts, in c o n fo rm ity w ith
g en e ra lly acce p te d a c c o u n tin g p rin c ip les, th e F S L IC R e so lu tio n F u n d ’s fin a n c ial p o sitio n as o f D e c e m b e r 31,
1997 an d 1996, an d th e re su lts o f its o p e ra tio n s an d its ca sh flo w s fo r th e y e a rs th e n e n d ed .
A s d isc u sse d in n o te 9 o f F R F 's fin a n c ia l sta te m e n ts, a c o n tin g e n c y ex ists fro m th e o v e r 120 la w su its p e n d in g
a g ain st the U n ite d S tate s g o v e rn m e n t in th e U n ite d S tates C o u rt o f F ed eral C laim s. T h e se la w su its assert
th at certain ag re e m e n ts w e re b re a c h e d w h en C o n g re ss e n a c te d an d th e O ffic e o f T h rift S u p erv isio n
im p le m e n te d le g islatio n a ffe ctin g th e th rift in d u stry .
O n Ju ly 1, 1996, th e U n ite d S tates S u p rem e C o u rt c o n c lu d e d th at the g o v e rn m e n t is liab le fo r d am a g e s in th ree
o th e r cases, c o n so lid a te d fo r ap p eal to th e S u p re m e C o u rt, in w h ich the ch a n g e s in re g u la to ry tre a tm e n t re q u ire d by
the F in an cial In stitu tio n s R efo rm , R e c o v e ry , a n d E n fo rc e m e n t A ct (F IR R E A ) led th e g o v e rn m e n t to n o t h o n o r its
co n tra c tu a l o b lig a tio n s. H o w e v er, b e ca u se th e lo w e r c o u rts h a d no t d e te rm in e d th e a p p ro p ria te m e asu re o r am o u n t
o f d am ag e s, th e S u p re m e C o u rt re tu rn e d the c ase s to th e C o u rt o f F e d e ra l C la im s fo r fu rth e r p ro c e e d in g s. U n til the
a m o u n t o f d am a g e s is d e te rm in e d b y the co u rt, th e am o u n t o f c o sts fro m th ese th re e c ase s is u n c e rta in . F u rth e r,
w ith re sp e c t to th e o th e r p e n d in g cases, th e o u tc o m e o f e a ch case a n d th e am o u n t o f any p o ssib le d a m a g e s re m ain
u n certain .
C laim s a g a in st th e fed e ra l g o v e rn m e n t are g e n e ra lly p a id fro m th e Ju d g m e n t F u n d , a p e rm a n e n t, in d e fin ite
ap p ro p ria tio n e sta b lish e d by 31 U .S .C . 1304, an d a d m in iste re d b y th e D e p a rtm e n t o f th e T re a su ry . H o w e v e r, the
D e p a rtm e n t o f th e T re a su ry m a y d e te rm in e th a t p a y m e n t o f a ju d g m e n t is o th e rw ise p ro v id e d fo r b y a n o th e r
d e d ic a te d so u rce o f fu n d s. F D IC b e lie v e s th at F R F sh o u ld n o t b e c o n sid e re d a d e d ic a te d so u rce o f fu n d s fo r
p a y m e n t o f su ch ju d g m e n ts a g ain st th e U n ited S tates. B e c a u se th e D e p a rtm e n t o f th e T re a su ry h as no t yet
d e te rm in e d the so u rce o f p a y m e n t fo r th e se ju d g m e n ts , th e e x te n t to w h ic h F R F w ill b e re sp o n sib le fo r any
p a y m e n ts is u n certain .
O P IN IO N O N F D IC M A N A G E M E N T ’S A S S E R T IO N S
A B O U T T H E E F F E C T IV E N E S S O F IN T E R N A L C O N T R O L S
F o r the th ree fu n d s a d m in iste re d b y F D IC , w e e v a lu a ted F D IC m a n a g e m e n t’s a sse rtio n s a b o u t th e e ffe c tiv e n e ss o f
its in tern al c o n tro ls d e sig n e d to
safe g u a rd assets a g a in st loss fro m u n a u th o riz e d a c q u isitio n , use. o r d isp o sitio n ;
assu re the e x e c u tio n o f tra n sa c tio n s in a c co rd an c e w ith p ro v isio n s o f selec ted law s a n d re g u la tio n s th a t h av e a
d ire c t and m a te ria l e ffe c t o n th e fin a n c ial sta te m e n ts o f th e th ree fu n d s; and
—

p ro p e rly re c o rd , p ro c e ss, an d su m m ariz e tra n sa c tio n s to p e rm it th e p rep a ratio n o f re lia b le fin a n c ial sta te m en ts
an d to m a in ta in ac c o u n ta b ility fo r assets.

F D IC m a n a g e m e n t fa irly sta ted th a t th o se c o n tro ls in p lace on D e c e m b e r 3 1 ,1 9 9 7 , p ro v id e d re a so n a b le assu ran ce
th at lo sses, n o n c o m p lia n c e , o r m issta te m e n ts m a te ria l in re la tio n to th e fin a n c ia l state m e n ts w o u ld b e p re v e n te d o r




94

d ete c te d on a tim ely b asis. F D IC m a n a g e m e n t m a d e th is assertio n b a se d o n crite ria e sta b lish e d u n d e r th e F ed eral
M a n ag ers' F in an cia l In te g rity A c t o f 1982 (F M F IA ). F D IC m a n a g e m en t, in m ak in g its a ssertio n , also fa irly stated
th e n eed to im p ro v e c e rta in in tern a l co n tro ls.
O u r w o rk also id e n tifie d th e n e e d to im p ro v e c e rta in in te rn a l c o n tro ls, as d e sc rib e d in a la te r se ctio n o f th is rep o rt.
T h e w e a k n e ss in in te rn a l c o n tro ls, a lth o u g h n o t c o n sid e re d a m a te ria l w e a k n e ss,2 re p re se n ts a sig n ific a n t d e ficie n c y
in th e d e sig n o r o p e ra tio n o f in tern a l c o n tro ls w h ic h c o u ld h a v e a d v e rse ly a ffe c te d F D IC ’s ab ility to fu lly m e e t th e
in tern al c o n tro l o b je c tiv e s listed a b o v e. T h e in te rn a l c o n tro l w e a k n e ss re la te s to F R F o n ly , an d a lth o u g h th e
w e a k n e ss d id n o t m a te ria lly a ffe ct F R F ’s fin a n c ia l state m e n ts, m issta te m e n ts m a y n e v e rth e le ss o c c u r in o th e r
F D IC -re p o rte d fin a n c ia l in fo rm a tio n fo r F R F as a re su lt o f th e in tern a l c o n tro l w e a k n ess. T h e w e a k n e ss is
d isc u sse d in d e tail in a la te r se c tio n o f th is rep o rt.
C O M P L IA N C E W IT H L A W S
A N D R E G U L A T IO N S
O u r tests fo r c o m p lia n c e w ith sele c te d p ro v isio n s o f law s an d re g u la tio n s d isc lo se d n o in stan c es o f n o n c o m p lia n c e
th at w o u ld be rep o rta b le u n d e r g en e ra lly a c ce p te d g o v e rn m e n t a u d itin g stan d ard s. H o w e v er, th e o b jec tiv e o f o u r
au d its w as n o t to p ro v id e an o p in io n o n o v erall c o m p lia n c e w ith law s an d re g u la tio n s. A c c o rd in g ly , w e d o n o t
e x p re ss su ch an o p in io n .
O B JE C T IV E S . S C O P E . A N D M E T H O D O L O G Y
F D IC 's m a n a g e m e n t is re sp o n sib le fo r
—

p re p a rin g th e a n n u al fin a n c ia l sta te m e n ts in c o n fo rm ity w ith g e n e ra lly a c c e p te d a c c o u n tin g p rin c ip les;
esta b lish in g , m a in ta in in g , an d e v a lu a tin g th e in tern a l c o n tro l to p ro v id e re a so n a b le assu ra n c e th a t th e b ro ad
co n tro l o b je c tiv e s o f F M F IA are m e t; an d
co m p ly in g w ith a p p lic ab le law s an d reg u la tio n s.

W e are re sp o n sib le fo r o b ta in in g re a so n a b le a ssu ra n c e a b o u t w h e th e r (1) th e fin a n c ia l sta te m e n ts are fre e o f
m aterial m issta te m e n t a n d p re se n te d fairly , in all m a te ria l re sp e c ts, in c o n fo rm ity w ith g e n e ra lly a c ce p te d
a c c o u n tin g p rin c ip le s a n d (2) F D IC m a n a g e m e n t's a sse rtio n a b o u t th e e ffe c tiv e n e ss o f in tern a l c o n tro ls is fairly
stated , in all m ateria l re sp e c ts, b a se d u p o n th e c rite ria e sta b lish e d u n d e r F M F IA . W e are a lso re sp o n sib le fo r testin g
c o m p lia n c e w ith se le c te d p ro v isio n s o f la w s a n d re g u la tio n s a n d fo r p e rfo rm in g lim ite d p ro c e d u re s w ith re sp e c t to
ce rta in o th e r in fo rm a tio n in F D IC 's a n n u al fin a n c ia l rep o rt.

In o rd e r to fu lfill th e se re sp o n sib ilitie s, w e
ex am in ed , on a te st b asis, e v id e n c e su p p o rtin g th e a m o u n ts a n d d isc lo su re s in th e fin a n c ial state m e n ts;
—

a sse sse d the a c c o u n tin g p rin c ip le s u se d an d sig n ific a n t e stim a te s m ad e by m an a g e m e n t;
e v a lu a te d th e o v e ra ll p re se n ta tio n o f th e fin a n c ia l state m e n ts;

—

o b ta in e d an u n d e rs ta n d in g o f th e in te rn a l c o n tro ls re la te d to sa fe g u a rd in g asse ts, c o m p lia n c e w ith law s an d
reg u la tio n s, in c lu d in g th e e x e c u tio n o f tra n sa c tio n s in ac c o rd a n c e w ith m a n a g e m e n t's a u th o rity , an d fin a n cia l
rep o rtin g ;

2A m aterial w e ak n ess is a re p o rta b le c o n d itio n in w h ich th e d e sig n o r o p e ra tio n o f th e in tern a l c o n tro l d o es n o t
re d u c e to a relativ e ly low lev el th e risk th at lo sses, n o n c o m p lia n ce , o r m isstatem e n ts in am o u n ts th a t w o u ld be
m aterial in relatio n to th e fin a n c ia l state m e n ts m a y o c c u r an d n o t be d e te c te d w ith in a tim ely p e rio d b y e m p lo y e e s
in the n o rm al c o u rse o f th e ir a ssig n ed duties.




95

te s te d re le v a n t in te rn a l c o n tro ls o v e r sa fe g u a rd in g , c o m p lia n c e , an d fin a n c ia l re p o rtin g a n d e v a lu a te d
m a n a g e m e n t’s a sse rtio n a b o u t th e e ffe c tiv e n e ss o f in te rn al c o n tro ls; and
—

te s te d c o m p lia n c e w ith se lec ted p ro v isio n s o f th e F e d e ra l D e p o sit In su ra n c e A ct, as a m en d e d ; th e C h ie f
F in a n c ia l O ffic e rs A c t o f 1990; an d th e F ed e ra l H o m e L o a n B a n k A ct, as am en d e d .

W e d id n o t ev a lu a te all in tern al c o n tro ls re le v a n t to o p e ra tin g o b je c tiv e s as b ro a d ly d efin e d b y F M F IA , su ch as
th o se co n tro ls re le v a n t to p re p a rin g sta tistic al re p o rts a n d e n su rin g e ffic ie n t o p e ratio n s. W e lim ite d o u r in te rn al
co n tro l te stin g to th o se c o n tro ls n e c e ssa ry to a ch ie v e the o b jec tiv e s o u tlin e d in o u r o p in io n on m a n ag e m en t's
a ssertio n a b o u t th e e ffe c tiv e n e ss o f in te rn al co n tro ls. B e ca u se o f in h e re n t lim ita tio n s in an y in tern a l c o n tro l, lo sses,
n o n c o m p lia n c e , o r m issta te m e n ts m ay n e v e rth e le ss o c c u r an d n o t b e d etec ted . W e a lso ca u tio n th a t p ro je c tin g o u r
ev a lu a tio n to fu tu re p e rio d s is su b je ct to th e risk th a t c o n tro ls m ay b e c o m e in a d eq u a te b e c a u se o f c h a n g e s in
co n d itio n s o r th at th e d e g re e o f c o m p lia n c e w ith c o n tro ls m ay d e terio rate.
W e c o n d u c te d o u r au d its b e tw e e n Ju ly 1997 a n d M ay 1998. O u r au d its w e re c o n d u c te d in a c c o rd a n c e w ith
g e n e ra lly acce p te d g o v e rn m e n t a u d itin g stan d ard s.
F D IC p ro v id e d c o m m e n ts o n a d ra ft o f th is rep o rt. F D IC 's c o m m e n ts are d isc u sse d a n d e v a lu a ted in a la te r sectio n
o f th is report.
C U R R E N T S T A T U S O F F R F 'S
L IQ U ID A T IO N A C T IV IT IE S A N D F U N D IN G
F D IC , as a d m in is tra to r o f F R F , is re sp o n sib le fo r liq u id a tin g th e asse ts a n d lia b ilitie s o f th e fo rm e r R e so lu tio n T ru st
C o rp o ra tio n (R T C ), as w ell as th e fo rm e r F S L IC ’s asse ts a n d lia b ilitie s.3 A s sh o w n in ta b le 1, th e m a jo rity o f F R F 's
lo sse s fro m liq u id a tio n a c tiv itie s h a v e b e e n re a liz e d as o f D e c e m b e r 31, 1997.
T a b le 1: F R F 's R e a liz e d an d U n re a liz ed L o sse s as o f D e c e m b e r 31. 1997 (D o llars in b illio n s)

R ea liz e d lo sses

F R F -R T C

F R F -F S L IC

T o ta l F R F

$ 8 3 .2

$ 4 1 .4

$ 1 2 4 .6

1.6

0.8

2.4

$ 8 4 .8

$ 4 2 .2

$ 1 2 7 .0

U n re a liz e d lo sse s
T o ta l rea liz e d a n d u n r e a liz e d lo sse s
(a c c u m u la te d d e fic it)

T h e a c c u m u la te d d e fic it fo r F R F in c lu d es lo sses th a t h av e alrea d y b e e n rea liz e d , as w ell as fu tu re e stim a te d lo sses
fro m assets and lia b ilitie s n o t y e t liq u id a te d . L o sse s are re a liz e d w h e n fa ile d fin a n c ia l in stitu tio n asse ts in
rec e iv e rsh ip s are d isp o sed o f an d th e p ro c e e d s are n o t su ffic ie n t to rep ay a m o u n ts p a y a b le to F R F . L o sse s are also
re a liz e d i f assets th a t F R F p u rc h a se s fro m te rm in a tin g re c e iv e rsh ip s are la te r so ld fo r less th a n th e p u rc h a se p rice.
L o sse s are a lso re a liz e d w h en c e rta in e stim a te d lia b ilitie s a sso c ia te d w ith F R F ’s liq u id a tio n a c tiv itie s a re p a id out.
U n c e rta in tie s still e x ist w ith re g a rd to th e u n re a liz e d lo sses, a n d th e fin a l a m o u n t w ill n o t b e k n o w n w ith c e rta in ty
u n til all re m a in in g asse ts a n d lia b ilitie s are liq u id ated .

3O n Jan u a ry 1, 1996, F R F a ssu m e d re sp o n sib ility fo r all re m a in in g asse ts a n d lia b ilitie s o f th e fo rm e r R T C .




96

In to tal, $ 1 3 5 .5 b illio n w as re c e iv e d to c o v e r lia b ilitie s a n d lo sse s a sso c ia te d w ith th e fo rm e r F S L IC a n d R T C
re so lu tio n a ctiv ities. O f th e $ 1 3 5 .5 b illio n to tal, $ 9 1 .3 b illio n 4 w as re c e iv e d b y R T C th ro u g h D e c e m b e r 31, 1995,
th e d ate o f R T C 's te rm in a tio n , to c o v e r lo sses an d e x p e n ses a sso c ia te d w ith fa ile d in stitu tio n s fro m its c aselo ad .
F R F re c e iv e d $ 4 4 .2 b illio n to c o v e r th e lia b ilitie s a n d lo sse s a sso c ia te d w ith th e fo rm e r F S L IC activ itie s.
A s sh o w n in tab le 2, a fte r re d u c in g th e to ta l a m o u n t o f fu n d in g re c e iv e d by th e a m o u n t o f re c o rd e d a c c u m u la te d
d e ficit, an e stim a te d $8.5 b illio n in a v a ila b le fu n d s w ill rem a in . T h e R T C C o m p le tio n A c t re q u ire s F D IC to d ep o sit
in the g en eral fu n d o f th e T re asu ry an y fu n d s tra n sfe rre d to R T C p u rsu a n t to the C o m p le tio n A ct b u t no t n e e d e d fo r
R T C -related lo sses. A lso , a fte r p ro v id in g fo r all o u tsta n d in g R T C lia b ilities, F D IC m u st tra n sfe r to th e R e so lu tio n
F u n d in g C o rp o ra tio n (R E F C O R P ) the n et p ro c e e d s fro m the sale o f R T C -re la ted assets. A n y su ch fu n d s tran sfe rre d
to R E F C O R P p ay th e in te re st on R E F C O R P b o n d s issu e d to p ro v id e fu n d in g fo r the early R T C reso lu tio n s. A ny
p a y m en ts to R E F C O R P b en e fit th e U .S . T rea su ry , w h ich is o th e rw ise o b lig a te d to p ay th e in te re st o n th e b o n d s.
S e p arately , an y F S L IC -re la te d fu n d s re m a in in g are to b e d e p o site d to th e U .S . T re a su ry . T h e fin al a m o u n t o f
u n u sed fu n d s w ill n o t be k n o w n w ith c e rta in ty u n til all o f F R F ’s re m a in in g assets a n d lia b ilitie s are liq u id ated .
T a b le 2:

E stim a te d U n u se d F u n d s A fte r C o m p le tio n o f F R F 's L iq u id a tio n
A c tiv itie s (D o llars in b illio n s)

T o ta l fu n d s re c eiv e d
L ess: ac c u m u la te d
d eficit
E stim a ted u n u se d fu n d s

F R F -R T C

F R F -F S L IC

T o ta l F R F

$91.3

$ 4 4 .2

$135.5

84.8

4 2 .2

127.0

$ 6 .5

$ 2 .0

$ 8 .5

IN F O R M A T IO N O N F D IC 'S
Y E A R 2000 E F F O R T S
T h e Y e a r 2 0 0 0 c o m p u tin g c risis is a sw e e p in g a n d u rg e n t in fo rm a tio n te c h n o lo g y c h a lle n g e fa c in g p u b lic an d
p riv ate o rg a n iz a tio n s.5 In ad d itio n to fa c in g Y e a r 2 0 0 0 issu es w ith its in tern al sy ste m s, F D IC , as a d m in istra to r
o f the d e p o sit in su ran c e fu n d s, faces e x p o su re an d p o ten tia l lo ss fro m b an k s an d th rifts th at fail to ad eq u a tely

4F IR R E A p ro v id e d an in itial $ 5 0 b illio n to R T C . T h e R e so lu tio n T ru st C o rp o ra tio n F u n d in g A c t o f 1991 p ro v id e d
an ad d itio n al $ 3 0 b illio n . T h e R e so lu tio n T ru st C o rp o ratio n R e fin a n c in g , R e stru c tu rin g , an d Im p ro v e m e n t A c t o f
1991 p ro v id e d $25 b illio n in D e c e m b e r 1991, o f w h ic h $ 6 .7 b illio n w as o b lig a te d p rio r to th e A p ril 1, 1992
d ead lin e. In D e c e m b e r 1993, th e R T C C o m p le tio n A c t re m o v e d th e A p ril 1, 1992, d e a d lin e, th u s m a k in g th e
re m a in in g $ 1 8 .3 b illio n a v a ila b le to R T C fo r re so lu tio n activ itie s. P rio r to R T C 's te rm in a tio n o n D e c e m b e r 31,
1995, R T C d rew d o w n $ 4 .6 b illio n o f the $ 1 8 .3 b illio n th at w as m a d e a v a ila b le b y th e R T C C o m p le tio n A ct.
5F o r th e p a st se v era l d e c a d e s, in fo rm a tio n sy stem s h a v e ty p ic a lly u sed tw o d ig its to re p re se n t th e y ear, su c h as
"98" fo r 1998, in o rd e r to c o n se rv e ele c tro n ic d a ta sto ra g e an d re d u c e o p e ratin g co sts. In th is fo rm a t, h o w ev er,
2 0 0 0 is in d istin g u ish a b le fro m 1900 b e c a u se b o th are re p re se n te d as "00." A s a re su lt, i f n o t m o d ifie d ,
c o m p u te r sy stem s o r a p p lic a tio n s th a t u se d ate s o r p e rfo rm d a te - o r tim e -se n sitiv e c a lc u la tio n s m a y g e n e ra te
in c o rre c t re su lts b e y o n d 1999.




97

ad d ress th e ir o w n Y e a r 2 0 0 0 sy ste m issu es. In a d d itio n , as reg u la to r, F D IC h as re sp o n sib ility to e n su re th a t th e
b an k s it o v erse e s are a d e q u a te ly a d d re ssin g sy ste m s issu e s re la ted to th e Y e a r 2000.
In F e b ru ary 1998, w e te stifie d o n F D IC ’s p ro g ress in a d d re ssin g th e Y e a r 2 0 0 0 c h a lle n g e s it fa c e s.6 In su m m ary ,
w e fo u n d that F D IC is ta k in g a ctio n to a d d re ss its Y e a r 2 0 0 0 risk s. W ith re g ard to F D IC ’s e ffo rts to c o rre c t its
in te rn a l sy stem s, w e c o n c lu d e d th a t at th e tim e o f o u r te stim o n y , F D IC w as b e h in d in a sse ssin g w h e th e r its sy stem s
w ere Y e a r 2 0 0 0 c o m p lia n t. In re sp o n se , F D IC h as re v ise d its p ro je c t p la n to in c lu d e e a rlie r c o m p le tio n d a tes fo r
c e rta in p h ases o f th e p ro je c t a n d is a llo c a tin g re so u rc e s to su p p o rt th e p lan . In a d d itio n , as d isc u sse d in th e n o tes to
F D IC ’s fin a n c ia l sta te m e n ts,7 F D IC is c u rre n tly asse ssin g , te stin g , m o d ify in g , o r re p la c in g its a u to m a te d sy ste m s in
o rd e r to e n su re th a t th e y b e c o m e Y e a r 2 0 0 0 co m p lia n t.
W e a lso te s tifie d th a t F D IC is d e v o tin g c o n sid e ra b le e ffo rt an d re so u rc e s to e n su re th a t th e b a n k s it o v erse es
m itig ate th e ir Y e a r 2 0 0 0 risk s. F D IC is also w o rk in g c lo se ly w ith th e o th e r b a n k in g re g u la to rs to p ro v id e g u id an ce
an d su p e rv isio n fo r th e b a n k in g an d sav in g s in stitu tio n in d u stries as a w h o le. H o w e v er, as d isc u sse d in th e n o tes to
B IF ’s an d S A IF ’s fin a n c ia l state m e n ts, as o f D e c e m b e r 31, 1997, th e p o te n tia l e x p o su re to th e d e p o sit in su ra n ce
fu n d s re su ltin g fro m th e Y e a r 2 0 0 0 p ro b le m w as n o t e stim a b le . D u rin g 1998, F D IC is c o n tin u in g its m o n ito rin g
e ffo rts, an d is g a th e rin g a d d itio n a l d a ta to a n aly z e a n d estim a te p o te n tia l ex p o su re to th e in su ra n c e fu n d s fro m the
p o te n tia l Y e a r 2 0 0 0 p ro b le m s o f th e b an k s an d th rifts it in su res. W e w ill e v a lu a te F D IC ’s a n a ly sis o f ex p o su re to
th e in su ra n c e fu n d s fro m b a n k s ’ a n d sav in g s in s titu tio n s’ Y e a r 2 0 0 0 p ro b le m s d u rin g o u r au d its o f F D IC ’s 1998
fin an cial statem en ts.
R E P O R T A B L E C O N D IT IO N S
T h e fo llo w in g sec tio n s d isc u ss (1) F D IC 's p ro g ress in a d d re ssin g re p o rta b le c o n d itio n s id e n tifie d d u rin g o u r 1996
a u d its an d (2) re p o rta b le c o n d itio n s fo u n d d u rin g o u r 1997 aud its.
P ro g re ss on W e a k n e sse s
Id e n tifie d in P re v io u s A u d its
In o u r 1996 au d it re p o rt o n th e th re e fu n d s a d m in iste re d b y F D IC , w e id e n tifie d tw o re p o rta b le c o n d itio n s w h ich
a ffe c te d F D IC 's ab ility to e n su re th a t in te rn al c o n tro l o b je c tiv e s w e re a c h ie v e d .8 T h e se w e a k n e sse s re la te d to
F D IC 's in tern a l c o n tro ls d e sig n ed to e n su re th at (1) c o n tra c te d asset se rv ic e rs p ro p e rly sa fe g u a rd e d fa ile d in stitu tio n
assets an d a c c u ra te ly re p o rte d fin an c ia l in fo rm a tio n to F D IC an d (2) d a ta u se d in th e c a lc u la tio n o f th e y e a r-e n d
a llo w a n c e fo r lo sse s w as a d e q u a te ly re v ie w e d fo r a c c u ra c y p rio r to in c lu sio n in th e y e a r-e n d calc u latio n .
F irst, d u rin g o u r 1996 a u d its, w e fo u n d th a t F D IC h a d lim ite d a ssu ra n c e th a t c o n tra c te d asse t se rv ic e rs p ro p e rly
s a fe g u a rd e d fa ile d in stitu tio n a sse ts a n d a cc u ra te ly re p o rte d fin an c ia l in fo rm a tio n to F D IC b e c a u se o f d e fic ie n c ie s
in F D IC ’s c o n tra c to r o v e rs ig h t p ro g ra m . S p e c ific ally , F D IC ’s c o n tra c to r o v e rsig h t p ro c e d u re s d id n o t e n su re th at
(1) c o n tra c te d asse t se rv ic e rs h a d a d e q u ate c o n tro ls o v e r d a ily co lle c tio n s a n d b a n k re c o n c ilia tio n s, (2) s e rv ic e rs’
fe e s an d re im b u rsa b le e x p e n se s w e re v a lid , ac cu ra te, a n d c o m p le te , a n d (3) se rv ice rs' lo a n sy stem c a lc u latio n s
re la tin g to the allo c a tio n o f p rin c ip a l an d in te re st w e re a ccu rate.

-Y e a r 2 0 0 0 C o m p u tin g C risis: F e d e ra l D e p o sit In su ra n c e C o rp o ra tio n 's E ffo rts to E n su re B a n k S y stem s A re
Y e a r 2 0 0 0 C o m p lia n t (G A O /T -A IM D -9 8 -7 3 , F e b ru a ry 10, 1998).
7S ee the fo llo w in g n o tes to F D IC 's fin a n c ia l statem en t: n u m b e r 16 fo r B IF ; n u m b e r 13 fo r S A IF ; an d n u m b e r
17 fo r F R F.
-F in an cial A u d it: F e d e ra l D e p o sit In su ra n ce C o rp o ra tio n 's 1996 an d 1995 F in a n c ia l S ta tem e n ts (G A O /A IM D 9 7 -1 1 1 . Ju n e 30, 1997).




98

D u rin g 1997, F D IC im p le m e n te d a c o n tra c te d asse t se rv ic e r v isita tio n p ro g ra m to a d d ress th e sp e c ific a reas o f
w ea k n e sse s n o ted d u rin g o u r 1996 a u d its. A lso , F D IC c o m p le te d an in te rd iv isio n a l m e m o ra n d u m o f u n d e rsta n d in g
to c larify th e ro les an d re sp o n sib ilitie s re la te d to c o n tra c to r o v e rsig h t. A s a re su lt, w e fo u n d th a t F D IC ’s n ew
p ro c e d u re s en su re d th a t c o n tra c te d asse t se rv ic e rs h a d a d e q u ate c o n tro ls o v e r d aily c o lle ctio n s a n d b an k
re c o n c ilia tio n s an d lo an sy ste m c a lc u la tio n s re la tin g to th e a llo ca tio n o f p rin c ip a l a n d in te rest. A lth o u g h w e
c o n tin u e d to fin d in sta n c e s w h ere F D IC o v e rsig h t p e rso n n e l d id n o t e n su re th a t se rv ic e r fees an d e x p e n se s w ere
valid an d accu rate, w e c o n c lu d e d th a t th e e x te n t o f th e p ro b lem s w as n o t sig n ific an t to B I F 's an d F R F 's fin a n cia l
statem en ts. W e w ill d isc u ss th is m a tte r fu rth e r in a m an a g e m e n t letter.
D u rin g o u r 1997 au d its, w e fo u n d th at th e a ctio n F D IC to o k to ad d ress th e se c o n d re p o rta b le co n d itio n w as not
fully effectiv e. T h e re fo re , w e are c o n tin u in g to re p o rt th e w e a k n e ss re g a rd in g in te g rity o f d a ta u sed fo r c a lc u latin g
the a llo w an c e fo r lo sses as a re p o rta b le co n d itio n . A d d itio n al d eta ils are p ro v id e d b elo w .
R ep o rtab le C o n d itio n
Id e n tifie d in 1997
F D IC e stim a te s re c o v e rie s on asse ts a c q u ired fro m fa ile d fin an cial in stitu tio n s an d u se s th e se e stim a te s to c a lc u la te
the allo w a n c e fo r lo sses o n re c e iv a b le s fro m re so lu tio n a c tiv itie s an d in v e stm e n t in c o rp o ra te -o w n e d assets. F D IC
u ses m u ltip le d a ta so u rc e s to c a lc u la te th e e stim a te d re c o v e rie s fro m th e se asse ts. G e n e ra lly , F D IC e stim a te s
re c o v e rie s on lo an s, re a l esta te o w n e d , e q u ity in su b sid iarie s, an d o th e r asse ts (in c lu d in g fu rn itu re an d fix tu re s an d
m isce lla n e o u s re c e iv a b le s) u sin g its S tan d a rd A sse t V a lu a tio n E stim a tio n (S A V E ) p ro c e ss. F D IC v a lu e s se cu ritie s
an d o th e r ty p e s o f e q u ity in te re sts o u tsid e o f its S A V E p ro cess.
D u rin g o u r 1996 au d its, w e fo u n d th at F D IC d id n o t h a v e e ffe c tiv e p ro c e d u re s in p la c e to e n su re th a t re co v e ry
e stim a te s re c e iv e d fro m th e v a rio u s so u rc e s w e re a d eq u a te ly re v ie w e d fo r a c c u ra c y p rio r to b e in g in c lu d e d in th e
y ea r-e n d c a lc u la tio n o f th e a llo w a n c e fo r lo sses. In re sp o n se to o u r fin d in g , F D IC im p le m e n te d e n h a n c ed rev ie w
p ro c e d u re s in te n d e d to m itig a te th e o c c u rre n c e o f erro rs a n d e n su re th e q u a lity an d re a s o n a b le n e ss o f th e re c o v e ry
estim ates. T h e n ew p ro c e d u re s re q u ire d c e rtific a tio n th a t re c o v e ry e stim a te s su b m itte d fo r in c lu sio n in th e
allo w an c e fo r lo ss c a lc u la tio n s h a d b e e n fo rm a lly re v ie w e d fo r a ccu racy .
D u rin g o u r 1997 a u d its, w e co n tin u e d to n o te p ro b le m s w ith re c o v e ry e stim a te s fo r F R F asse ts n o t v a lu e d as p a rt o f
F D IC ’s S A V E p ro c e ss. F o r e x a m p le , w e fo u n d th a t sig n ific a n t erro rs w ere m a d e in e stim a tin g th e re c o v e rie s fo r a
p o rtfo lio o f p a rtn e rsh ip in te re sts, c a u sin g th e p o rtfo lio to b e u n d e rv a lu e d b y $125 m illio n . In ad d itio n , w e fo u n d
u n su p p o rted rec o v e rie s a n d o th e r e rro rs in th e e stim a te d re c o v e rie s fo r a n o th e r p o rtfo lio o f d e b t an d eq u ity
secu rities c au sin g th e p o rtfo lio to be o v e rv a lu e d b y $ 2 6 m illio n . T h e e stim a te d re c o v e rie s fo r b o th th e p artn ersh ip
in terests a n d d e b t an d eq u ity se c u rities p o rtfo lio s d e sc rib e d ab o v e h ad b een c e rtifie d an d re v ie w e d fo r ac c u rac y by
F D IC p erso n n el. T h e c o m b in e d e ffec t o f th e a b o v e v a lu a tio n erro rs w as an u n d e rsta te m e n t o f F R F ’s e stim ate d
reco v eries and an o v e rsta te m e n t o f its a llo w a n c e fo r lo sse s o n a m o u n ts d u e fro m re ce iv e rsh ip s.
F R F assets v alu ed o u tsid e o f F D IC ’s S A V E p ro c e ss w ere v a lu ed u sin g v ario u s, in c o n siste n t m eth o d s w ith v ary in g
d e g rees o f ex a m in a tio n o f u n d e rly in g d o c u m e n ta tio n . T h is situ atio n , c o m b in e d w ith in e ffe c tiv e v e rific a tio n an d
rev iew in c re a se s th e risk th at erro rs w ill o c c u r a n d re m a in u n d e tec te d by F D IC .
In a d d itio n to th e w e a k n e sse s d e sc rib e d a b o v e , w e n o te d o th e r less sig n ific an t m a tte rs in v o lv in g F D IC ’s sy stem o f
in tern al a c c o u n tin g c o n tro ls an d F D IC ’s e le c tro n ic d a ta p ro c e ssin g c o n tro ls w h ich w e w ill b e re p o rtin g sep a rate ly
to F D IC in tw o m a n a g e m e n t letters.
R E C O M M E N D A T IO N S
In o rd e r to ad d ress th e a b o v e w e a k n e ss, w e re c o m m e n d th a t th e C h a irm a n o f F D IC d ire c t th e h e a d s o f th e
D iv isio n o f R e so lu tio n s a n d R e c e iv e rsh ip s a n d th e D iv isio n o f F in a n c e to im p le m e n t an im p ro v e d p ro c e ss fo r
estim a tin g re c o v e rie s fo r se c u ritie s a n d o th e r a sse ts c u rre n tly b e in g v a lu e d o u tsid e o f its S ta n d a rd A sset
V a lu a tio n E stim a tio n p ro c e ss. T h e p ro c e ss sh o u ld h a v e th e o b je c tiv e s o f p ro d u c in g v a lid a n d d e fe n sib le




99

estim a te s fo r fin a n c ia l sta te m e n t p u rp o ses. In a d d itio n , F D IC sh o u ld re e m p h a siz e th e im p o rta n c e o f th e rev iew
an d c e rtific a tio n p ro c e d u re s fo r th e estim a te d re c o v e rie s o n asse ts v a lu e d o u tsid e o f its sta n d a rd asse t
v alu a tio n p ro cess.
C O R P O R A T IO N C O M M E N T S A N D O U R E V A L U A T IO N
In co m m e n tin g o n a d ra ft o f th is rep o rt, F D IC a c k n o w le d g e d th e re p o rta b le c o n d itio n c ite d in o u r re p o rt an d
d e sc rib e d its p la n n e d a p p ro a c h to im p ro v e th e re lia b ility o f e stim a te d rec o v e ry v a lu e fo r F R F assets v a lu e d o u tsid e
o f th e S A V E p ro c e ss. W e p la n to ev a lu a te th e a d e q u ac y a n d e ffe c tiv e n e ss o f th e se c o rre c tiv e ac tio n s as p a rt o f o u r
a u d its o f F D IC 's 1998 fin a n c ia l sta te m e n ts. F D IC 's c o m m e n ts a lso a d d ress th e p ro g re ss m a d e in a d d re ssin g the
re p o rta b le c o n d itio n re g a rd in g c o n tra c to r o v e rsig h t d isc u sse d in o u r 1996 rep o rt.

R o b ert W . G ra m lin g
D irecto r, C o rp o ra te A u d its
an d S tan d ard s
M ay 15, 1998




too

♦

Annual Report 1997
*

L




★
*
*

*
★
★

*
*

ST A TISTIC A L TA BLES




N um ber and D eposits of B IF-lnsured B anks Closed B ecau se of Fin an cial D iffic u ltie s , 1934 through 19971
D o l l a r s

in

T h o u s a n d s
Num ber o f

D eposits o f
Insured Banks

Insured Banks

Year

W ithout

W ith

W ithout

W ith

disbursem ents

disbursem ents

disbursem ents

disbursem ents

by FDIC

To ta l

2,081

19

by FDIC

Total Total

2 .062

$212,730,731

by FDIC

by FDIC

$ 4,2 98 ,81 4

$ 2 0 8 ,4 3 1 ,9 1 7

$ 2 5 2,5 87 ,35 2
$25,921

Assets

1997

1

1

$ 26 ,80 0

$ 26 ,80 0

1996

5

5

168,228

1 68,228

182,502

1995

6

6

6 32 .70 0

6 3 2 ,7 0 0

7 53,024

1994

13

1993

41

1992

120

1991

124

1990

1

12

1,236,488

1 ,236,488

1,392.140

41

3 ,1 3 2.1 77

3 ,1 3 2 ,1 7 7

3,5 3 9,3 73

110

4 1,1 50 ,89 8

36,893,231

4 4,1 97 ,00 9

124

5 3,7 51 ,76 3

5 3,7 51 ,76 3

6 3,1 19 ,87 0

168

168

14,4 73 ,30 0

14,4 73 ,30 0

15,660,800

1989

206

2 06

24,090,551

24,090,551

2 9,1 68 ,59 6

1988

200

2 00

2 4,9 31 ,30 2

24,9 31 ,30 2

3 5,6 97 ,78 9

1987

184

184

6 ,2 8 1,5 00

6 ,2 8 1 ,5 0 0

6 ,8 5 0,7 00

1986

138

138

6 ,4 7 1,1 00

6 ,4 7 1,1 00

6 ,9 9 1,6 00

1985

120

120

8,059,441

8,059,441

8,7 4 1,2 68

1984

79

79

2,8 8 3,1 62

2 ,8 8 3,1 62

3,276,411

1983

48

48

5 ,441,608

5 ,4 4 1,6 08

7 ,0 2 6,9 23

10

4 ,2 5 7 ,6 6 7

1982

42

42

9 ,9 0 8,3 79

9 ,9 0 8,3 79

11.6 32 .41 5

1981

10

10

3,8 2 6,0 22

3 ,8 2 6,0 22

4 ,8 5 9,0 60

1980

10

10

2 16 ,30 0

2 16 ,30 0

2 36 ,16 4

1979

10

10

110,696

110,696

132,988

1978

7

7

8 54 ,15 4

8 54 ,15 4

9 94 ,03 5

1977

6

6

2 05,208

2 05 ,20 8

2 32,612

1976

16

16

8 64,859

8 6 4 ,8 5 9

1,039,293

1975

13

13

3 39,574

3 39 ,57 4

4 19 ,95 0

1974

4

4

1,575,832

1 ,575,832

3,8 2 2,5 96

1973

6

6

9 7 1 ,2 9 6

9 7 1 ,2 9 6

1,309,675

1972

1

1

20,4 80

2 0 ,4 8 0

22,0 54

1971

6

6

132,058

132,058

196,520

1970

7

7

54,8 06

54,8 06

62,1 47

1969

9

9

4 0,1 34

4 0 ,1 3 4

43.5 72

1968

3

3

22,5 24

22,5 24

25,154

1967

4

4

10,878

10,878

11.993

1966

7

7

103,523

103,523

120,647

1965

5

5

43,861

43,861

58,7 50

1964

7

7

23,438

23,438

25,849

1963

2

2

23,444

23,4 44

26,179

1962

1

0

3,011

1961

5

5

8 ,936

8 ,936

9 ,820
7,506

0

3,011

N/A

1960

1

1

6 ,930

6 ,930

1959

3

3

2 .593

2 ,593

2,858

1958

4

4

8 .240

8 ,240

8,905

1957

2

1

11.247

1.163

1,253

1956

2

2

11.330

10,084

11,330

12,914

1955

5

5

11.953

11,953

11,985

1954

2

2

998

998

1,138

1953

4

44,711

18,811
2,388

1952

3

2
3

3 ,170

18,262
3 ,170

1951

2

2

3,408

3,408

3,050

1950

4

4

5 ,513

5 ,513

4 ,005

1949

5

4

6 ,665

5 .475

4 ,8 8 6

1948

3

3

10,674

10.674

10,360

1947

5

5

7 ,040

7 ,040

6,798

1946

1

1

347

347

351

1945

1

1

5 ,695

5 ,695

6 ,392

1944

2

2

1,915

1,915

2,098

1943

5

5

12,525

12,525

14,058

1942

20

20

19,185

19,185

22,2 54

1941

15

15

29.7 17

29.7 17

34,8 04

1940

43

43

142,430

1 42.430

161,898

1939

60

60

157,772

157.772

181,514

1938

74

74

59,6 84

5 9 ,6 8 4

69,5 13

1937

77

75

33,6 77

3 3 ,3 4 9

4 0,3 70

1936

69

69

27,5 08

27,5 08

31,941

1935

26

25

13,405

13.320

17,242

1934

9

9

1,968

1,968

2,661

1

2
1

2 6 ,4 4 9

1.190

328
85

1 D o es n o t in clu de in stitutio ns in sured by th e S a vin g s A sso cia tio n Insu ra n ce Fund (S A IF ), w h ich w a s e sta b lish e d by the
F in a ncia l In stitu tion s R eform , R e cove ry, and E n fo rce m e n t A c t o f 1989.




103

Recoveries and Losses by the Bank Insurance Fund on Disbursements for the Protection of Depositors,
1934 through 1997
D o l l a r s

in

T h o u s a n d s

ALL CASES1
No.

Year

D eposit payoff cases2
No.

E s tim a te d

of

D is b u r s e ­

banks

m e n ts

R e c o v e rie s

A d d it io n a l

E s tim a te d

R e c o v e rie s

Losses

Year

E s tim a te d

of

D is b u r s e ­

banks

m e n ts

R e c o v e rie s

A d d itio n a l

E s tim a te d

R e c o v e rie s

Losses

To ta l

2 ,1 9 2

5 1 0 6 ,5 6 0 ,0 8 4

$ 6 8 ,1 4 1 ,2 0 0

$ 1 ,3 0 4 ,1 6 7

$ 3 7 ,1 1 4 ,7 1 7

T o ta l

603

$ 1 4 ,4 6 9 ,2 9 9

$ 9 ,8 2 6 ,2 9 5

$103,451

$ 4 ,5 3 9 ,5 5 3

1997

1

2 5 ,5 4 6

0

22 ,0 4 6

3 ,5 0 0

1997

0

0

0

0

0

1996

5

1 6 9 ,3 9 7

1 12 ,81 3

12,888

4 3 ,6 9 6

1996

0

0

0

0

0

1995

6

7 1 7 ,7 9 9

5 9 9 ,1 8 3

25,3 82

9 3 ,2 3 4

1995

0

0

0

0

0

1994

13

1 .2 2 4.7 97

1.005.791

37 ,3 8 9

1 8 1 ,6 1 7

1994

0

0

0

0

0

1993

41

1 ,7 9 7 .2 9 7

1 ,1 0 1 ,8 3 6

45.651

6 4 9 ,8 1 0

1993

5

2 6 1 ,2 0 3

1 5 8 ,8 0 3

1.105

1 01,295

1992

122

1 4 ,0 8 4 ,6 6 3

1 0,0 24 ,47 5

3 0 3 .4 0 2

3 ,7 5 6 ,7 8 6

1992

25

1 ,8 0 2 ,6 5 5

1 ,2 7 9 ,6 8 6

2 8 ,8 3 7

4 9 4 ,1 3 2

1991

127

2 1 ,4 1 2 .6 4 7

1 4 ,4 3 9 ,9 2 9

7 2 3 ,2 3 3

6 ,2 4 9 ,4 8 5

1991

21

1 ,4 6 8,4 07

9 5 9 ,8 2 8

3 5 ,1 2 4

4 7 3 ,4 5 5

1990

169

1 0,8 16 ,60 2

7 ,9 4 6 ,3 7 8

8 3 .0 7 9

2 .7 8 7 ,1 4 5

1990

20

2 ,1 8 2 ,5 8 3

1 ,4 4 5,7 04

0

7 3 6 .8 7 9

1989

207

1 1 ,4 4 5 ,8 2 9

5 ,1 9 3 ,3 9 5

4 2.7 48

6 ,2 0 9 ,6 8 6

1989

32

2 ,1 1 6 ,5 5 6

1 ,2 2 5 ,6 8 5

3 5 ,6 8 9

8 5 5 ,1 8 2

1988

2 80

1 2 .1 6 3 ,0 0 6

5 ,2 1 1 ,5 6 5

2 ,2 4 4

6 ,9 4 9 ,1 9 7

1988

36

1 ,2 5 2 ,1 6 0

8 2 2 ,5 6 3

0

4 2 9 ,5 9 7

1987

2 03

5,0 3 7,8 71

3 ,0 1 2 ,3 1 6

2 ,5 5 9

2 ,0 2 2 ,9 9 6

1987

51

2 ,1 0 3 ,7 9 2

1,398,961

2 ,244

7 0 2 ,5 8 7

1986

145

4 ,7 9 0 ,9 6 9

3 ,0 0 8 ,1 6 5

1 ,062

1 ,7 8 1,7 42

1986

40

1,155,981

7 3 9 ,4 2 3

234

4 1 6 ,3 2 4

1985

120

2 ,9 2 0 ,6 8 7

1.9 1 3,3 17

218

1 ,0 0 7 ,1 5 2

1985

29

5 2 3 ,7 8 9

4 1 0 ,9 9 5

218

1 12,576

1984

80

7 ,6 9 6 ,2 1 5

6 ,0 5 4 ,3 2 6

1 ,734

1 ,6 4 0,1 55

1984

16

7 9 1 ,8 3 8

6 9 9 ,4 8 3

0

9 2 ,3 5 5

1983

48

3 .8 0 7 ,0 8 2

2 ,429,941

5 32

1 ,3 7 6,6 09

1983

9

1 4 8 ,4 2 3

1 22 ,48 4

0

2 5 ,9 3 9

1982

42

2 .2 7 5 ,1 5 0

1 ,1 0 6,5 79

0

1,168,571

1982

7

2 7 7 ,2 4 0

2 0 6 ,2 4 7

0

7 0 ,9 9 3

1981

10

8 8 8 .9 9 9

107,221

0

7 8 1 ,7 7 8

1981

2

3 5 ,7 3 6

3 4 .5 9 8

0

1.138

1980

11

1 52 ,35 5

1 21 ,67 5

0

3 0 ,6 8 0

1980

3

13,7 32

11,4 27

0

2 ,3 0 5

562

5 ,1 3 3 .1 7 3

4 ,7 5 2 .2 9 5

0

3 8 0 ,8 7 8

3 07

3 3 5 ,2 0 4

3 1 0 ,4 0 8

0

2 4 ,7 9 6

1 93 4-79 J

1 93 4-79 3

A ssistance transaction s1

D eposit assum ption cases
N o.

Year

N o.

E s tim a te d

of

D is b u r s e ­

banks

m e n ts

R e c o v e rie s

A d d itio n a l

E s tim a te d

R e c o v e rie s

Losses

Y ear

E s tim a te d

of

D is b u r s e ­

banks

m e n ts

R e c o v e rie s

A d d itio n a l

E s tim a te d

R e c o v e rie s

L osses

T o ta l

1,448

$ 8 0 ,4 6 0 ,4 2 9

$ 5 2 ,1 1 5 ,4 0 6

5 1 ,1 9 8 ,9 8 2

$27 ,1 4 6 ,0 4 1

T o ta l

141

$ 1 1 ,6 3 0 ,3 5 6

$ 6 ,1 9 9 ,4 9 9

$1,7 34

$ 5,4 2 9 ,1 2 3

1997

1

2 5 .5 4 6

0

2 2 ,0 4 6

3 ,5 0 0

1997

0

0

0

0

0

1996

5

$ 1 6 9 ,3 9 7

5 1 1 2 ,8 1 3

$1 2 ,8 8 8

$ 4 3 ,6 9 6

1996

0

0

0

0

0

1995

6

7 1 7 ,7 9 9

5 9 9 ,1 8 3

2 5 ,3 8 2

9 3 ,2 3 4

1995

0

0

0

0

0

1994

13

1 ,2 2 4,7 97

1,005,791

3 7 ,3 8 9

1 81 ,61 7

1994

0

0

0

0

0

1993

36

1 ,5 3 6,0 94

9 4 3 ,0 3 3

4 4 .5 4 6

5 4 8 ,5 1 5

1993

O

0

O

0

0

1992

95

1 2 ,2 8 0 ,5 2 2

8 ,7 4 4 ,4 9 3

2 7 4 ,5 6 5

3 ,2 6 1 ,4 6 4

1992

2

1 ,486

2 96

0

1 ,190

1991

103

1 9.9 38 ,12 3

1 3 ,4 7 9 ,8 8 9

6 8 8 .1 0 9

5 ,7 7 0 ,1 2 5

1991

3

6 ,1 1 7

2 12

0

5 ,9 0 5

1990

148

8 ,6 2 9 ,0 8 4

6 ,5 0 0 ,5 3 5

8 3 |0 7 9

2 ,0 4 5 ,4 7 0

1990

1

4 (9 35

139

0

4 ,7 9 6

1989

174

9 ,3 2 6 ,7 2 5

3 ,9 6 7 ,6 5 0

7 ,0 5 9

5 ,3 5 2 ,0 1 6

1989

1

2 ,5 4 8

60

0

2 ,4 8 8

1988

164

9 ,1 8 0 ,4 9 5

4 ,2 2 1 ,3 8 3

2 ,2 4 4

4 ,9 5 6 ,8 6 8

1988

80

1,730,351

1 67 ,61 9

0

1 ,5 6 2,7 32

1987

133

2 ,7 7 3 ,2 0 2

1 ,6 1 2,6 42

3 15

1 ,1 6 0 ,2 4 5

1987

19

1 6 0 ,8 7 7

7 13

0

1 60 ,16 4

1986

98

3 ,4 7 6 ,1 4 0

2 ,2 0 3 ,2 5 3

828

1 ,2 7 2 ,0 5 9

1986

7

1 58 ,84 8

6 5 ,4 8 9

0

9 3 ,3 5 9

1985

87

1 ,6 3 1,1 66

1 ,0 9 5,6 46

0

5 3 5 ,5 2 0

1985

4

7 6 5 ,7 3 2

4 0 6 ,6 7 6

0

3 5 9 ,0 5 6

1984

62

1 ,3 7 3,1 98

9 4 1 ,6 7 3

0

4 3 1 ,5 2 5

1984

2

5 ,5 3 1 ,1 7 9

4 ,4 1 3 ,1 7 0

1,734

1 ,1 1 6 ,2 7 5

1983

35

2 ,8 9 3 ,9 6 9

1,850,351

532

1 ,0 4 3 ,0 8 6

1983

4

7 6 4 ,6 9 0

4 5 7 ,1 0 6

0

3 0 7 ,5 8 4

1982

25

2 6 8 ,3 7 2

2 1 3 ,5 7 8

0

5 4 ,7 9 4

1982

10

1 ,7 2 9,5 38

6 8 6 ,7 5 4

0

1 ,0 4 2,7 84

1981

5

7 9 ,2 0 8

7 1 ,3 5 8

0

7 ,8 5 0

1981

3

7 7 4 ,0 5 5

1 ,265

0

7 7 2 ,7 9 0

1980

7

13 8 ,6 2 3

110 .24 8

0

2 8 ,3 7 5

1980

1

251

4 ,7 9 7 ,9 6 9

4 ,4 4 1 ,8 8 7

0

3 5 6 ,0 8 2

1 93 4-79 3

1 93 4-79 3

4

N /A
0

N /A
0

1 T o ta ls d o n o t in c lu d e d o lla r a m o u n ts fo r fiv e o pe n b a n k a s s is ta n c e tra n s a c tio n s b e tw e e n 1971 and 1980. E x clu d e s e ig h t tra n s a c tio n s p rio r to 1 96 2 th a t
re q u ire d no d is b u rs e m e n ts . A lso , d is b u rs e m e n ts , re co ve rie s, and e s tim a te d a d d itio n a l re co ve rie s d o n o t in c lu d e w o rk in g c a p ita l a d v a n c e s to a nd re p a y m e n ts
b y re c e iv e rs h ip s .
2 In c lu d e s in su re d d e p o s it tra n s fe r ca ses.
3 F o r d e ta il o f ye a rs 1 93 4 th ro u g h 1 97 9, re fe r to T a b le C o f th e 1 99 4 A n n u a l R e po rt.




104

N /A
0

N /A
0

Incom e and Expenses, Bank Insurance Fund, from Beginning of Operations,
Septem ber 11,1933, through Decem ber 31,1977
in

D o l l a r s

M i l l i o n s
In c o m e

E xpenses and Losses
In v e s tm e n t

E f f e c t iv e

P r o v is io n

A d m in i s t r a t iv e

In t e r e s t

fo r

a n d O p e r a t in g

& O t h e r In s .

N e t In c o m e /

Losses

E xpenses

E xpenses

(L o s s )

Assessm ent

A ssessm ent

a n d O th e r

A ssessm ent

C r e d it s

S o u rc e s

R a te ’

Year

T o ta l

In c o m e

T o ta l

$ 7 5 ,9 8 8 .7

$ 5 3 ,1 1 2 .7

$ 6 ,7 0 9 .1

$ 2 9 ,5 8 5 .1

$ 6 ,3 5 2 .7

$ 6 ,8 7 5 .5

$ 2 8 ,2 9 2 .8

1997

1 ,6 1 5 .6

2 4 .7

0 .0

1 ,5 9 0 .9

0 .0 0 0 8 %

1 7 7 .3

(5 0 3 .7 )

6 0 5 .2

7 5 .8

1 ,4 3 8 .3

1996

1 ,6 5 5 .3

7 2 .7

0 .0

1 ,5 8 2 .6

0 .0 0 2 4 %

2 5 4 .6

(3 2 5 .2 )

5 0 5 .3

7 4 .5

1 ,4 0 0 .7

1995

4 ,0 8 9 .1

2 ,9 0 6 .9

0 .0

1 ,1 8 2 .2

0 .1 2 4 0 %

4 8 3 .2

(3 3 .2 )

4 7 0 .6

4 5 .8

3 ,6 0 5 .9

T o ta l
$ 4 7 ,6 9 5 .9

$ 3 4 ,4 6 7 .7

1994

6 ,4 6 7 .0

5 ,5 9 0 .6

0 .0

8 7 6 .4

0 .2 3 6 0 %

(2 ,2 5 9 .1 )

(2 ,8 7 3 .4 )

4 2 3 .2

191.1

8 ,7 2 6 .1

1993

6 ,4 3 0 .8

5 ,7 8 4 .3

0 .0

6 4 6 .5

0 .2 4 4 0 %

(6 ,7 9 1 .4 )

(7 ,6 7 7 .4 )

3 8 8 .5

4 9 7 .5

1 3 ,2 2 2 .2

1992

6 ,3 0 1 .5

5 ,5 8 7 .8

0 .0

7 1 3 .7

0 .2 3 0 0 %

(2 ,2 5 9 .7 )

5 7 0 .8

1991

5 ,7 9 0 .0

5 ,1 6 0 .5

0 .0

6 2 9 .5

0 .2 1 2 5 %

1 6 ,8 6 2 .3

1 5 ,4 7 6 .2

2 84 .1

1 ,1 0 2 .0

(1 1 ,0 7 2 .3 )

1990

3 ,8 3 8 .3

2 ,8 5 5 .3

0 .0

9 8 3 .0

0 .1 2 0 0 %

1 3 ,0 0 3 .3

1 2 ,1 3 3 .1

2 1 9 .6

6 5 0 .6

(9 ,1 6 5 .0 )

1989

3 ,4 9 4 .6

1 ,8 8 5 .0

0 .0

1 ,6 0 9 .6

0 .0 8 3 3 %

4 ,3 4 6 .2

3 ,8 1 1 .3

2 1 3 .9

3 2 1 .0

(8 5 1 .6 )

1988

3 ,3 4 7 .7

1 ,7 7 3 .0

0 .0

1 ,5 7 4 .7

0 .0 8 3 3 %

7 ,5 8 8 .4

6 ,2 9 8 .3

2 2 3 .9

1 ,0 6 6 .2

(4 ,2 4 0 .7 )

1987

3 ,3 1 9 .4

1 ,6 9 6 .0

0 .0

1 ,6 2 3 .4

0 .0 8 3 3 %

3 ,2 7 0 .9

2 ,9 9 6 .9

2 0 4 .9

6 9.1

1986

3 ,2 6 0 .1

1 ,5 1 6 .9

0 .0

1 ,7 4 3 .2

0 .0 8 3 3 %

2 ,9 6 3 .7

2 ,8 2 7 .7

1 8 0 .3

(4 4 .3 )

(6 2 5 .8 )

2

1 ,0 6 3 .1

6 ,9 2 7 .3

4 8 .5
2 9 6 .4

1985

3 ,3 8 5 .4

1 ,4 3 3 .4

0 .0

1 ,9 5 2 .0

0 .0 8 3 3 %

1 ,9 5 7 .9

1 ,5 6 9 .0

1 7 9 .2

2 0 9 .7

1 ,4 2 7 .5

1984

3 ,0 9 9 .5

1 ,3 2 1 .5

0 .0

1 ,7 7 8 .0

0 .0 8 0 0 %

1 ,9 9 9 .2

1 ,6 3 3 .4

1 5 1 .2

2 1 4 .6

1 ,1 0 0 .3

1983

2 ,6 2 8 .1

1 ,2 1 4 .9

1 6 4 .0

1 ,5 7 7 .2

0 .0 7 1 4 %

9 6 9 .9

6 7 5 .1

1 3 5 .7

159.1

1 ,6 5 8 .2

1982

2 ,5 2 4 .6

1 ,1 0 8 .9

9 6 .2

1 ,5 1 1 .9

0 .0 7 6 9 %

9 9 9 .8

1 2 6 .4

1 2 9 .9

7 4 3 .5

1 ,5 2 4 .8

1981

2 ,0 7 4 .7

1 ,0 3 9 .0

1 17.1

1 ,1 5 2 .8

0 .0 7 1 4 %

8 4 8 .1

3 2 0 .4

1 2 7 .2

4 0 0 .5

1 ,2 2 6 .6

1980

1 ,3 1 0 .4

9 5 1 .9

5 2 1 .1

8 7 9 .6

0 .0 3 7 0 %

8 3 .6

(3 8 .1 )

1 1 8 .2

3 .5

1 ,2 2 6 .8

1979

1 ,0 9 0 .4

8 8 1 .0

5 2 4 .6

7 3 4 .0

0 .0 3 3 3 %

9 3 .7

(1 7 .2 )

1 0 6 .8

4.1

9 9 6 .7

1978

9 5 2 .1

8 1 0 .1

4 4 3 .1

5 8 5 .1

0 .0 3 8 5 %

1 4 8 .9

3 6 .5

1 0 3 .3

9.1

8 0 3 .2

1977

8 3 7 .8

7 3 1 .3

4 1 1 .9

5 1 8 .4

0 .0 3 7 0 %

1 1 3 .6

2 0 .8

8 9 .3

3 .5

7 2 4 .2

1976

7 6 4 .9

6 7 6 .1

3 7 9 .6

4 6 8 .4

0 .0 3 7 0 %

2 1 2 .3

2 8 .0

1 8 0 .4

3 .9

5 5 2 .6

1975

6 8 9 .3

6 4 1 .3

3 6 2 .4

4 1 0 .4

0 .0 3 5 7 %

9 7 .5

2 7 .6

6 7 .7

2 .2

5 9 1 .8

1974

6 6 8 .1

5 8 7 .4

2 8 5 .4

3 6 6 .1

0 .0 4 3 5 %

1 5 9 .2

9 7 .9

5 9 .2

2.1

5 0 8 .9

1973

5 6 1 .0

5 2 9 .4

2 8 3 .4

3 1 5 .0

0 .0 3 8 5 %

1 0 8 .2

5 2 .5

5 4 .4

1.3

4 5 2 .8

5 ,7 9 3 .0

6 ,3 3 2 .8

3 ,1 2 0 .3

2 ,5 8 0 .5

6 3 0 .4

6 4 .5

5 5 9 .9

6 .0

5 ,1 6 2 .6

1 9 3 3 -7 2 *

3

4

1 The effective rates fro m 1950 th roug h 1984 va ry from the s ta tu to ry rate o f 0 .0 8 3 3 pe rce n t due to a s se ss m e n t cre dits pro vided in th ose
years. The sta tu to ry rate increased to 0.12 pe rce n t in 1990 and to a m ininum o f 0.15 pe rce n t in 1991. T h e e ffe c tiv e rates in 1991
and 1992 vary be ca use th e FD IC e xe rcise d new au th o rity to in cre ase a s se ss m e n ts ab ove the sta tu to ry rate w hen needed. B eginning
in 1993, th e effective rate is based on a risk-re lated pre m ium sys te m u n d e r w hich in stitu tio n s pay a s se ss m e n ts in the range o f 0.23
pe rce n t to 0.31 percent. In M a y 1995, the B IF rea ch ed the m a nd ato ry re c a p ita liz a tio n level o f 1.25% . A s a result, the a s se ss m e n t rate
w a s reduced to 4.4 cents p e r $1 00 o f insu red d e p o sits and a s se ss m e n t pre m iu m s to taling $1.5 billion w ere refunded in S e p te m b e r 1995.
2 In clu de s $210 m illion fo r th e c u m u la tiv e e ffe c t o f an acco un tin g c han ge fo r certain po stre tire m e n t benefits.
3 In clu de s $1 05 .6 m illion net loss on g o ve rn m e n t secu rities.
4 In clu de s $80.6 m illion o f in te re st paid on ca p ita l s to ck betw een 1933 and 1948.
*F o r detail o f y ears 1933 th roug h 1972, p lea se re fe r to the 1996 annual report.




105

Insured Deposits and the Bank Insurance Fund, Decem ber 31,1934 through 1997
In s u ra n c e F u n d as a P e rc e n ta g e o f

( D o lla r s in M i llio n s )
In s u ra n c e
Y e a r1

C o v e ra g e

D e p o s its in In s u re d B a n k s
T o ta l

In s u re d 2

P e rc e n ta g e o f

D e p o s it In s u ra n c e

T o ta l

In s u re d

In s u re d D e p o s its

Fund

D e p o s its

D e p o s its

1997

$100,000

$2,785,990

$ 2,055,874

73.8

$ 28 ,29 2.5

1.02

1.38

1996

100,000

2 ,641,797

2,007,042

76.0

26,854.4

1.02

1.34

1995

100,000

2,478,888

1,951,963

78.7

25,453.7

1.03

1.30

1994

100,000

2,462,650

1,895,258

21,847.8

0.89

1.l5

1993

100,000

2,490,816

1,905,245

76.5

0 .53

0.69

1992

100,000

2,512,278

1,945,550

77.4

(100.6)

(0.00)

(0.01)

1991

100,000

2,520,074

1,957,722

77.7

(7,027.9)

(0.28)

(0.36)

1990

100,000

2,540,930

1,929,612

75.9

4,044.5

0.16

0.21

1989

100,000

2,465,922

1,873,837

^6 .0

13,209.5

0.54

0.70

1988

100,000

2,330,768

1,750,259

75.1

14,061.1

0.60

0.80

1987

100,000

2,201,549

1,658,802

75.3

13,301.8

0.83

1.10

1986

100,000

2 ,167,596

1.634,302

75.4

13,253.3

0.84

1.12

1985

100,000

1,974,512

1,503,393

76.1

17,956.9

0.91

1.19

1984

100,000

1,806,520

1,389,874

^6 .9

15,529.4

0.92

1.19

1983

100,000

1,690,576

1,268,332

75.0

15,429.1

0.91

1.22

1982

100,000

1,544,697

1,134,221

73.4

13,770.9

0.89

1.21

1981

100,000

1,409,322

9 88,898

70.2

12,246.1

0.87

1.24

1980

100,000

1,324,463

948,717

71.6

11,019.5

0.83

1.16

1979

40,000

1,226,943

8 08,555

T ? .9

9,792.7

0.80

1.21

1978

40,000

1,145,835

760,706

66.4

3,796.0

0.77

1.16

1977

40,000

1,050,435

6 92,533

65.9

7,992.8

0.76

1.15

1976

40,000

941,923

6 28,263

66.7

7,268.8

0.77

1.16

1975

40,000

875,985

569,101

65.0

6,716.0

0.77

1.18

1974

40,000

8 3 3 ,2 7 )

5 20,309

62.5

6,124.2

0.73

1.18

1973

20,000

766,509

4 65,600

60.7

5,615.3

0.73

1.21

1972

20,000

697,480

4 19,756

60.2

5,158.7

0.74

1.23

1971

20,000

610,685

3 74,568

61.3

4.739.9

0.78

1.27

1970

20,000

545,198

349,581

64.1

4 .379.6

0.80

1.25

1969

2 0,000

495,858

3 13,085

63.1

4,051.1

0.82

1.29

1968

15,000

4 91,513

296,701

60.2

3,749.2

0.76

1.26

1967

15,000

4 48,709

2 61,149

58.2

3,485.5

0 .78

1.33

1966

15,000

401,096

2 34,150

58.4

3 ,252.0

0.81

1.39

1965

10,000

377,400

209,690

55.6

3,036.3

0.80

1.45

1964

10,000

348,981

191,787

^5 .0

2 .8 4 4 .f

0.82

1.48

1963

10,000

313,304

177,381

56.6

2,667.9

0.85

1.50

1962

10,000

297,548

170,210

57.2

2,502.0

0.84

1.47

1961

10,000

281,304

160,309

57.0

2,353.8

0.84

1.47

1960

10,000

260,495

149,684

57.5

2,222.2

0.85

1.48

1959

10,000

247,589

142,131

57.4

2,089.8

0.84

1.47

1958

10,000

242,445

137,698

56.8

1,965.4

0.81

1.43

1957

10,000

225,507

127,055

56.3

1,850.5

0.82

1.46

1956

10.000

2 19,393

121,008

55.2

1,742.1

0.79

1.44

1955

10,000

212,226

116,380

54.8

1,639.6

0.77

1.41

1954

10,000

203,195

110,973

54.6

1 ,542.7

076

1.39

1953

10,000

193,466

105,610

54.6

1,450.7

0.75

1.37

1952

10,000

188,142

101,841

54.1

1,363.5

0.72

1.34

1951

10.000

178,540

96,713

54.2

1,282.2

0.72

1.33

1950

10,000

167,818

91,359

54.4

1,243.9

0.74

1.36

1949

5,000

156,786

76,589

48.8

1,203.9

0.7)

1.57

1948

5,000

153,454

75,320

49.1

1,065.9

0.69

1.42

1947

5,000

154,096

76,254

49.5

1,006.1

0.65

1.32

1946

5,000

148,458

73,759

4 9.7

1,058.5

0.71

1.44

1945

5,000

157,174

67,021

42.4

9 29.2

0.59

1.39

1944

5,000

134,662

56,398

41.9

804,3

0.60

1.43

1943

5,000

111,650

48,440

43.4

703.1

0.63

1.45

1942

5,000

89,869

32,837

36.5

616.9

0.69

1.88

1941

5,000

71,209

28,2 49

39.7

553.5

0.78

1.96

1940

5,000

65,288

26,638

40.8

496.0

0.76

1.86

1939

5,000

57,485

24.650

42.9

452.7

6.79

1.84

..... ...“

...™

J

13,121.6

1938

5,000

50,791

23,121

45.5

4 20.5

0.83

1.82

1937

5,000

48,228

22,557

46.8

383.1

0.79

1.70

1936

5,000

50,281

22,3 30

44.4

343.4

0.68

1.54

1935

5 ,000

45,125

20,158

44.7

306.0

0.68

1.52

19343

5,000

40,060

18,075

45.1

2 9 1 .7

0.75'

1.61

1 S tarting in 1990, dep osits in in sured banks e xclude th o se d ep osits held by Bank Insurance Fund m e m b ers tha t are covered by th e S avings
A ssociatio n Insurance Fund.
2 Insured dep osits are e stim ated based on dep osit inform atio n subm itted in the D ecem ber 31 C all R e po rts (q u arte rly R eports o f C ondition and
Incom e) and T h rift Financial R eports subm itte d by insured institutions. B efore 1991, in sured d e p osits w e re e stim ated using percentages
dete rm in e d fro m the June 30 Call Reports.
3 Initial co verag e w as $2,500 fro m Ja nu ary 1 to Ju ne 30, 1934.




106

Income and Expenses, Savings Association Insurance Fund, by Year,
from Beginning of Operations, August 9,1989, through Decem ber 31,1997
D o l l a r s

in

T h o u s a n d s
In c o m e
E ffe c tiv e

P ro v is io n

In te re s t

A d m in is tra tiv e

A ssessm ent

and O th e r

Assessm ent

fo r

& O th e r Ins.

and O p e ra tin g

fro m th e FSLIC

In co m e

S o u rce s

Rate

L o sse s

o ta l
E xpe nTses

E xp e n se s

R e s o lu tio n Fund

Y ear
Total

E xpenses and Losse s

In v e s tm e n t

$9,073,691

$8,505,185

T o ta l

$568,506

$324,768

$23,064

$732

$300,972

F u n d in g T ra n s fe r

$139,498

Net In co m e /
(L o ss)
$8,888,421

1997

549,912

13,914

535,998

0.004%

69,986

(1,879)

0

71,865

0

479,926

1996

5,501,684

5,221,560

280,124

0.204%

(28,890)

(91,636)

128

62,618

0

5,530,574

1995

1,139,916

970,027

169,889

0.234%

(281,216)

(321,000)

0

39,784

0

1,421,132

1994

1,215,289

1,132,102

83,187

0.244%

434,303

414,000

0

20,303

0

780,986

1993

923,516

897,692

25,824

0.250%

46,814

16,531

0

30,283

0

876,702

1992

178,643

172,079

6,564

0.230%

28,982

(14,945)

(5)

43,932

35,446

185,107

1991

96,446

93,530

2,916

0.230%

63,085

20,114

609

42,362

42,362

75,723

1990

18,195

18,195

0

0.208%

56,088

0

0

56,088

56,088

18,195

1989

2

0

2

0.208%

5,602

0

0

5,602

5,602

2

FDIC-lnsured Institutions Closed During 1997
D o l l a r s

in

T h o u s a n d s

Num ber
of
D e p o s it
A c c o u n ts

Bank
C la ss

N am e an d L o c a tio n

FDIC
D is b u rs e ­
m e n ts

T o ta l
D e p o s its

T o ta l
A s s e ts

E s tim a te d
Loss’

R e ce ive r/
A s s u m in g B a n k
a n d L o c a tio n

D ate o f
C lo s in g o r
A c q u is itio n

Bank Insurance Fund

Southw est Bank
Jennings, LA

526,800

$25,921

$25,551

First Southw est Bank
Jennings, LA

$3,500

Savings Association Insurance Fund

No closings during 1997.

NM =

S tate-chartered bank that is n o t a m em ber o f the Federal R eserve System.

1 Estim ated losses are as o f 12/31/97. Estim ated losses are routinely adjusted with updated inform ation from n ew appraisals and asset sales, w hich ultim ately
affect the a sset values and projected recoveries.

Insured D eposits and the Savings A sso ciatio n In su ran ce Fund, D e cem b er 31 ,1 9 8 9 , through 1997
( D o ll a r s in M i llio n s )
In s u ra n c e

D e p o s its in In s u re d I n s titu tio n s
I n s u re d 2

In s u ra n c e F u n d a s a P e rc e n ta g e o f

P e rc e n ta g e o f

D e p o s it In s u ra n c e

T o ta l

In s u re d

In s u re d D e p o s its

Fund

D e p o s its

D e p o s its

Y e a r1

C o v e ra g e

T o ta l

1997

$ 1 0 0,0 00

$ 7 2 1 ,5 0 3

$ 69 0,1 32

95.7

$ 9,3 68 .3

1.30

1996

100,000

708,631

6 8 3 ,4 0 3

96.4

8 ,8 8 8.4

1.25

1.30

1995

100,000

7 3 5 ,2 9 8

7 11,897

96.8

3 ,3 5 7 .8

0 .4 6

0.47

1994

1 00,000

7 2 1 ,5 1 5

6 9 3 ,6 1 0

96.1

1 ,936.7

027

0.28

1993

100,000

7 2 9 ,1 6 4

69 7 ,8 8 5

95.7

1 ,155.7

0 .1 6

0.17

1992

100,000

7 6 0 ,9 0 2

7 32 ,15 9

96.2

2 7 9 .0

0.04

0.04

1991

100,000

8 1 0 ,6 6 4

776,351

9 5.8

93 9

0.01

0.01

1990

100,000

8 7 4 ,7 3 8

8 30 ,02 8

9 4.9

18.2

0.00

0 .0 0

1989

100,000

9 4 8 ,1 4 4

8 82 ,92 0

93.1

0 .0

0 .0 0

0.00

1.36

1 S tarting in 1990, d e p o sits in in sured in stitu tio n s e xclu d e th o se d e p o sits h eld b y S aving s A sso cia tio n Insu ra n ce F u nd m e m b e rs th a t are c o ve re d by th e Bank
Insu ra n ce Fund.
2 Insured d ep osits a re e stim a te d b a se d on d e p o sit in form atio n su bm itte d in the D e ce m b e r 31 C a ll R e po rts (q u a rte rly R e p o rts o f C o n d itio n and Incom e) and
T h rift Fin a ncia l R e po rts su b m itte d b y in su re d in stitutio ns. B e fo re 1991, in sured d e p o sits w e re e stim a te d u sing p e rc e n ta g e s d e te rm in e d fro m the Ju ne 30
C all Reports.




107

Number, Assets, Deposits, and Losses of Insured Thrifts Taken Over or Closed
Because of Financial Difficulties, 1989 through 19971
Year

Total

A ssets

D eposits

Estim ated
Loss 2

T o ta l

748

$3 94 ,03 2,7 28

$ 3 17 ,53 5,9 48

1997

0
1

0

0

0

35,140

32,189

16,483

1 99 0

41 8,5 75
127,508
4,881,461
34 ,773,224
65 ,17 3,1 22
98 ,963,960

38,932

9
59
144
213

4 3 5,133
136,815
6,147,962
44 ,19 6,9 46
7 8 ,89 8,7 04
129,662,398

326,079
3,343,268
8,724,921
16,394,260

1989

318

134,519,630

113,165,909

45 ,97 7,5 15

1996
1 99 5
1 99 4
1 99 3
1 99 2
1991

2
2

$74,8 33 ,12 4

11,666

1 P rio r to J u ly 1, 1 9 9 5 , a ll th r ift c lo s in g s w e re th e re s p o n s ib ility o f t h e R e s o lu tio n T ru s t C o rp o r a tio n (R T C ). S in c e th e R T C w a s te r m in a te d on
D e c e m b e r 3 1 , 1 9 9 5 , a n d a ll a s s e ts a n d lia b ilitie s tra n s fe rre d to th e F S L IC R e s o lu tio n F u n d (F R F ), a ll th e re s u lts o f t h e th r ift c lo s in g a c tiv ity fro m
1 9 8 9 th r o u g h 1 9 9 5 a re n o w re fle c te d o n F R F 's b o o k s . T h e S a v in g s A s s o c ia tio n In su ra n ce : F u n d (S A IF ) b e c a m e re s p o n s ib le f o r a ll th r ifts c lo s e d
a fte r J u n e 3 0 , 1 9 9 5 ; th e re h a s b e e n o n ly o n e s u c h fa ilu re .
2 T h e e s tim a te d lo s s e s re p re s e n t th e p ro je c te d lo s s to re c e iv e r s h ip s f o r u n r e im b u rs e d s u b r o g a te d c la im s o f th e F R F a n d u n p a id a d v a n c e s to
r e c e iv e r s h ip s fro m th e F R F .




10 8

*

Annual pieport 1997
*

L




*
★
★
★

♦
*
★

FOR MORE INFORMATION




Sources of Information

Public Information Center
801 17th Street, NW
W ashington, DC 20434
Phone:
800-276-6003
202-416-6940
Fax:
202-416-2076
Internet:
publicinfo@ fdic.gov
FDIC publications, press releases,
speeches and Congressional testimony,
directives to financial institutions and
other documents are available through
the Public Information Center. These
documents include the Quarterly
Banking Profile, Statistics on Banking
and a variety of consumer pamphlets.

Division of Compliance
and Consumer Affairs
550 17th Street, NW
W ashington, DC 20429
Phone:
800-934-3342
202-942-3100
TDD/TTY:
800-925-4618
Fax:
202-942-3427
202-942-3098
Internet:
consum er@ fdic.gov

Office of the Ombudsman

Home Page on the Internet

550 17th Street, NW
W ashington, DC 20429

h ttp ://w w w .fd ic.gov

Phone:
800-250-9286
202-942-3500
Fax:
202-942-3040
202-942-3041
Internet:
ombudsman@ fdic.gov
The Office of the Ombudsman responds
to inquiries about the FDIC in a fair,
im partial and tim ely manner. It
researches questions and complaints
from bankers, the public and FDIC
employees on a confidential basis.
The office also recommends ways to
improve FDIC operations, regulations
and customer service.

A wide range o f banking, consumer
and financial information is available
on the FD IC ’s Internet home page.
Data available include the FD IC ’s
Q uarterly Banking Profile, the
Institution Directory, and Statistics
on Banking. Readers also can access
a variety of consumer pamphlets,
FDIC press releases, speeches and
other updates on the agency’s activities,
as well as corporate databases and
customized reports of FDIC and bank­
ing industry information. Students in
kindergarten through grade 12, teachers
and parents can access useful informa­
tion about the FDIC and the banking
system at the FDIC Learning Bank.

The Division o f C om pliance and
Consumer Affairs responds to questions
about deposit insurance and other
consumer issues and concerns, and
offers a number of publications geared
to consumers.




trj W arrick of the Division of Inform ation
Resources M anagem ent lispiays
"Carman Cents,” the FDIC's symbol
for the FDIC's edin ational W eb site for kids

Regional Offices

Division

of S u p e r v i s i o n

( D 0 S ) / D i v i s i o n of C o m p l i a n c e

and C o n s u m e r A f f a i r s

(DCA)

Atlanta

Dallas

N ew York

One Atlantic Center
1201 West Peachtree Street, N E
Suite 1600
Atlanta, Georgia 30309
404-817-1300

1910 Pacific Avenue
Suite 1900
Dallas, Texas 75201
214-754-0098

452 Fifth Avenue
19th Floor
New York, New York 10018
212-704-1200

Alabam a
Florida
Georgia
North Carolina

Colorado
N ew M exico

South Carolina
Virginia
W e s t Virqinia

Oklahoma
Texas

D elaw are
N ew York
D istrict of Columbia
Pennsylvania
M aryland
Puerto Rico
N ew Jersey
Virgin Islands

Boston

Kansas City

San Francisco

15 Braintree Hill Office Park
Braintree, M assachusetts 02184
781-794-5500

2345 Grand Avenue
Suite 1500
Kansas City, Missouri 64108
816-234-8000

25 Ecker Street
Suite 2300
San Francisco, California 94105
415-546-0160

it iw a
Kansas
M innesota
M issouri

Alaska
Arizona
California
Guam
Haw aii
Idaho

Connectic ut
M aine
M assachusetts

N ew Harnpsh re
Rhode Island
Verm ont

Nebraska
North Dakota
South Dakota

Chicago

Memphis

500 West M onroe Street
Suite 3500
Chicago, Illinois 60661
312-382-7500

5100 Poplar Avenue
Suite 1900
Memphis, Tennessee 38137
901-685-1603

Illinois
Indiana
M ichigan

Arkansas
Kents cky
Louisiana




Ohio
W i scons n

M ontana
Nevada
Oregon
Utah
W ashington
W yom ing

M ississippi
lennessee

DOS:
Examines and supe rvises state-chartered banks th a t are
not members of
eder
rve System. Provides
inform ation about sound banking practices.

DCA:
Examines FDIC-supervised banks fo r com pliance w ith
consum er pro tecticn laws, inform s bankers and the public
about deposit insurance and other consum er protections.

112

Selected Testimony and M ajor Speeches

Chairman Heifer

Acting Chairman Hove

Congressional Testimony

Congressional Testimony

Speeches

February 13,1997

July 17,1997

October 5 ,1 997

Before the House Committee on
Banking and Financial Services’ Sub­
committee on Financial Institutions
and Consumer Credit, on financial
modernization legislation.

Before the House Committee on
Com m erce's Subcommittee on Finance
and Hazardous Materials, on financial
modernization legislation.

To the American Bankers Association,
announcing the FD IC's symposium
on deposit insurance to be held in
January 1998.

July 29,1997

October 20.1997

Before the House C om m ittee on
B anking and Financial Services,
on the F D IC ’s im plem entation of
the G overnm ent Perform ance and
R esults Act.

To the Heartland Community Bankers
Association, on his goals for the FDIC.

March 5,1997
Before the House Committee on
Banking and Financial Services'
Subcommittee on Capital Markets,
Securities and Government Sponsored
Enterprises, on financial modernization
legislation.

Speeches
M arch 3, 1997
To the Institute of International
Bankers, on lessons the FDIC has
learned from studying the history
o f financial institution failures in
the 1980s.

March 21.1997
To the Independent Bankers Association
of America, on the value of federal
deposit insurance.

October 8,1997
Before the House Committee on
Banking and Financial Services'
Subcommittee on Financial Institutions
and Consumer Credit, on the future
o f bank examination and supervision.

October 21,1997
Before the Senate Committee on
Banking, Housing, and Urban A ffairs’
Subcommittee on Financial Institutions
and Regulatory Relief, on the condition
o f the banking and thrift industries.

November 4,1997
Statement submitted to the House
Committee on Banking and Financial
Services on the Year 2000 problem.

M ay 2,1997
To the Assembly for Bank Directors,
on standards for bank directors.




Text of these and other statements are available from
th
ill
or on the FDIC's Internet home page: www.fdic.gov.

113

____________

E
23 Affordable Housing Program

1,16, 27 Electronic Banking

39, 43 Applications Processing:

21 Enforcement Actions:

20,21

21

FDIC Applications, 1995-97
Assessments
(see Deposit Insurance Premiums)

22-23 Asset Disposition

Compliance. Enforcement and
Other Related Legal Actions. 1995-97

1, 3,15-17, 26, 27 Examinations:
16

FDIC Examinations, 1995-97

B
2, 5, 22 Bank Insurance Fund (BIF):
3
47-62
17

Highlights

22-25 Failed Institutions:
103

BIF-Insured Institutions
Closed During 1997

23

Liquidation Highlights

Financial Statements
Risk-Related Premiums

107

SAIF-Insured Institutions
Closed During 1997
Federal Deposit Insurance Corporation:

10-11
“CAMELS” (see Examinations)
1, 17-18, 26 Case Managers
2, 3, 7-8 Commercial Banks
(Financial Performance):
2, 7

Annual Return on Assets

26-29 Community and Consumer Protection
26 Community Reinvestment Act (CRA)
113 Congressional Testimony

3-4
12

Board of Directors
Highlights
Organization Chart/Officials

112

Regional Offices

111

Sources of Information

5, 22, 24 Federal Savings and Loan
Insurance Corporation (FSLIC)
2, 6, 22, 24-25 FSLIC Resolution Fund (FRF):
77-91

Financial Statements

30, 31 Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA)
5, 6, 40 Deposit Insurance Premiums:




17

Risk-Related Premiums

22 Depositor Protection
Director and Officer Liability
(see Professional Liability Recoveries)

93-100 General Accounting Office (GAO)
30 Goodwill

31-32 D’Oench Duhme
33, 34 Downsizing
4, 24 Heifer, Ricki
1-2, 4, 10, 12, 24 Hove. Andrew (Skip) C„ Jr.

•••<

s

I

2, 5-6, 8, 22 Savings Association Insurance Fund
(SAIF):

111 Institution Directory
27-29 Internet

3
63-75
17

Highlights
Financial Statements
Risk-Related Premiums

2, 8-9 Saving Institutions
(Financial Performance):

44 Legislation Enacted in 1997
30-32 Litigation

2, 7 ,8

10, 11, 12 Ludwig, Eugene A.

Annual Return on Assets

10, 11, 12 Seidman, Ellen S.
113 Speeches
33-34 Staffing:

N

34
10, 11, 12, 19 Neely, Joseph H.

Number of FDIC Officials
and Employees, 1996-97
Statistical Tables:

28 Ombudsman, Office of the

25, 30 Professional Liability Recoveries

103

Number and Deposits of BIF-Insured
Banks Closed, 1934-97

104

Recoveries and Losses by the BIF
on Disbursements for the Protection
of Depositors, 1934-97

105

Income and Expenses, BIF,
1933-97

106

Insured Deposits and the BIF,
1934-97

107

FDIC-Insured Institutions
Closed During 1997

107

Income and Expenses, SAIF,
1989-97

107

Insured Deposits and the SAIF,
1989-97

108

Number. Assets, Deposits, and Losses
of Insured Thrifts Taken Over or Closed,
1989-97

39-43 Regulations Adopted and Proposed
19 Regulatory Relief
5, 6, 22, 23, 24, 30 Resolution Trust Corporation (RTC)
1,15-17 Risk Assessment




33 Strategic Plan
15-21 Supervision

10 Tanoue, Donna A.

Y
4,18-19, 35 Year 2000 Issues

115

Not es




Notes










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