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1999 Annual Report: Promises Kept




Each D ep ositor In sured to $100,000

FEDERAL DEPOSIT INSURANCE CORPORATION




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 of banks and
savings associations, and in cooperation with the
other federal and state regulatory agencies, the FDIC
promotes the safety and soundness of insured
depository institutions and the U.S. financial system
by identifying, monitoring and addressing risks to the
deposit insurance funds.
The FDIC promotes public understanding and sound
public policies by providing financial and economic
information and analyses. It minimizes disruptive
effects from the failure of banks and savings
associations. It assures fairness in the sale of
financial products and the provision of financial
services.
The FDIC’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







Federal Deposit Insurance Corporation
Washington, DC 20429-9990

Office of the Chairman

August 11, 20 0 0

Sirs,
In accordance w ith the provisions of section 1 7(a)
of the Federal Deposit Insurance Act,
the Federal Deposit Insurance Corporation
is pleased to subm it its Annual Report
fo r the calendar year 1999.

Sincerely,

Donna Tanoue

Chairman

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




1999 Annual Report:
Promises Kept




Board of Directors
Chairman’s Statement

Challenges in Deposit Insurance

7
9

13

Operations of the Corporation - The Year in Review
Overview
Emerging Trends
Year 2000
The Gramm-Leach-Bliley Act

23
25
26
29

Financial Statem ents
Bank Insurance Fund (BIF)
Savings Association Insurance Fund (SAIF)
FSUC Resolution Fund (FRF)..................

33
49
63

Key Statistics........................................................................................................

85

Resources
Organization Chart/Officials/Staffing
Sources of Information
Regional Offices.........................

94
96
97




BOARD OF DIRECTORS

Board of Directors
a Tanoue (seated),
D. Hawke, Jr.,
Seidman,
jw C. Hove, Jr.
ling, l-r)

Donna Tanoue
Donna Tanoue took office as the 17th Chairman of the Federal
Deposit Insurance Corporation on May 26,1998 .
Chairman Tanoue has focused attention on emerging risks in the
financial institution industry, and especially on the risks that arise
from subprime lending. Further, under Chairman Tanoue’s direction,
investigating fraud at banks is among the highest priorities for FDIC
examiners because recent changes in the business of banking and
innovations in computer technology create greater opportunity for
financial irregularities. The FDIC has also recently refined its system
of setting deposit insurance premiums to capture more accurately
the risks that institutions pose to its insurance funds.
Under the leadership of Chairman Tanoue, the FDIC took an aggres­
sive approach to supervising federally insured financial institutions
to ensure their readiness for the Year 2000 date change. In 1999,
the Corporation engaged in an extensive program of Y2K public
education and outreach in which FDIC officials participated in hun­
dreds of outreach meetings and other Y2K events throughout the




country. Ms. Tanoue personally appeared on network television
news programs to describe the industry's preparedness for Year
2000, assuring the public that there would be no significant disrup­
tions in the banking system because of Y2K, and in late 1999 she
held press conferences in major cities throughout the country to
raise public awareness of banking readiness.
Before she became FDIC Chairman, Ms. Tanoue was a partner in
the Hawaii law firm of Goodsill Anderson Quinn & Stifel, which she
joined in 1987. She specialized in banking, real estate finance, and
governmental affairs.
From 1983 to 1987, Ms. Tanoue was Commissioner of Financial
Institutions for the State of Hawaii. In that post, she was the pri­
mary state regulator for state-chartered banks, savings and loan
associations, trust companies, industrial loan companies, credit
unions, and escrow depository companies. Ms. Tanoue also served
as Special Deputy Attorney General to the Department of Commerce
and Consumer Affairs for the State of Hawaii from 1981 to 1983.
Ms. Tanoue received a J.D. from the Georgetown University Law
Center in 1981 and a B.A. from the University of Hawaii in 1977.

BOARD OF DIRECTORS

Andrew C. Hove, Jr.

Drysdale, a Washington, DC, law firm specializing in tax, securities
and bankruptcy issues.

Mr. Hove was appointed to his second term as Vice Chairman of the
FDIC in 1994. His first term as Vice Chairman began in 1990. Since
1991, Mr. Hove has served as Acting Chairman of the FDIC three
times, most recently from June 1,1997, when Chairman Ricki Heifer
resigned, to May 26,1998, when Donna Tanoue was sworn in as the
17th Chairman. Before joining the FDIC, Mr. Hove was Chairman and
Chief Executive Officer of the Minden Exchange Bank & Trust
Company, Minden, Nebraska, where he served in every department
during his 30 years with the bank.

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.

Also involved in local government, Mr. Hove was Mayor of Minden
from 1974 until 1982 and was Minden's Treasurer from 1962 until
1974.
Other civic activities included serving as President of the Minden
Chamber of Commerce, President of the South Platte United
Chambers of Commerce and positions associated with the University
of Nebraska. 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 of Nebraska-Lincoln.
He also is a graduate of the University of Wisconsin-Madison
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.

Ellen Seidman
Ms. Seidman became Director of the Office of Thrift Supervision (OTS)
on October 28,1997. As OTS Director, Ms. Seidman is also an FDIC
Board member.
Ms. Seidman joined the OTS from the White House, where from 1993
to 1997 she was Special Assistant to President Clinton for economic
policy at the White 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 Undersecretary for Finance from
1986 to 1987, and Deputy Assistant General Counsel at the
Department of Transportation from 1979 to 1981. Ms. Seidman also
practiced law for three years beginning in 1975 with Caplin &


8


John D. Hawke. Jr.
Mr. Hawke was sworn in as the 28th Comptroller of the Currency on
December 8,1998. After serving ten months under a recess appoint­
ment, he was sworn in for a full five-year term on October 13,1999.
As Comptroller, Mr. Hawke serves as an FDIC Board member. He also
serves as a Director of the Federal Financial Institutions Examination
Council, and the Neighborhood Reinvestment Corporation.
Prior to his appointment as Comptroller, Mr. Hawke served for three
and a half years as Under Secretary of the Treasury for Domestic
Finance. He oversaw the development of policy and legislation in the
financial institutions, debt management and capital markets areas,
and served as Chairman of the Advanced Counterfeit Deterrence
Steering Committee and as a member of the board of the Securities
Investor Protection Corporation. Before Treasury, Mr. Hawke was a
senior partner at the Washington, DC, law firm of Arnold & Porter,
which he first joined as an associate in 1962. While there, he headed
the financial institutions practice, and from 1987 to 1995, served as
the firm ’s Chairman. In 1975, he left the firm to serve as General
Counsel to the Board of Governors of the Federal Reserve System,
returning in 1978.
Mr. Hawke graduated from Yale University in 1954 with a B.A. in
English. From 1955 to 1957, he served on active duty with the U.S.
Air Force. After graduating in 1960 from Columbia University School
of Law, where he was Editor-in-Chief of the Columbia Law Review, Mr.
Hawke was a law clerk for Judge E. Barrett Prettyman on the U.S.
Court of Appeals for the District of Columbia Circuit. From 1961 to
1962, he served as counsel to the Select Subcommittee on Education
in the House of Representatives.
From 1970 to 1987, Mr. Hawke taught courses on federal regulation
of banking at Georgetown University Law Center. He has also taught
courses on bank acquisitions and financial regulation, and serves as
the Chairman of the Board of Advisors of the Morin Center for
Banking Law Studies in Boston. Mr. Hawke has writtern extensively
on matters relating to the regulation of financial institutions, and is the
author of "Commentaries on Banking Regulation,” published in 1985.
He was a founding member of the Shadow Financial Regulatory
Committee, and served on the committee until joining Treasury in
1995.

CHAIRMAN’S STATEMENT

Second, a review is necessary because our current system is raising
■ u r Annual Report has a new look. In the past, it was
issues of fairness. Deposit growth is currently free for most institu­
publication of record for events the previous year.
tions, and some are growing rapidly. A recent announcement by a
•
“ Beginning this year, it will also include an essay on a
Wall Street investment firm that it plans to sweep uninvested funds
banking, financial or economic issue of current
into insured deposit accounts is particularly significant for the future
importance. This essay is not intended to provide a
of the funds.
roadmap for legislative or regulatory actions. Rather, it seeks to
provide perspectives.
Some institutions have never paid anything into the deposit insur­
ance funds; meanwhile, there are many other institutions that are
The 1999 Annual Report examines a seemingly straightforward but,
losing core deposits and have paid substantial premiums in the past
in fact, very complex topic: deposit insurance.
to recapitalize the funds. We need
to consider alternative pricing
As of the end of 1999, the Bank
arrangements that might distribute
Insurance Fund (BIF) stood at almost
the costs of the deposit insurance
$30 billion and its reserve ratio at
system more fairly.
1.36 percent. The Savings
Association Insurance Fund (SAIF)
There are other areas where we
stood at more than $10 billion and
need to consider reforming the sys­
its reserve ratio at 1.45 percent tem. One involves the rules for
higher than the BIF ratio. Given
maintaining our insurance funds at
these benign conditions and the cur­
appropriate levels. The current sys­
rent strong economy, there is no
tem resembles a “pay-as-you-go”
better time than now to look at how
it
approach, where the FDIC is forced
we can strengthen our deposit insur­
to charge institutions the most dur­
ance system. Consequently, the
ing bad times, when they can least
FDIC is undertaking a comprehen­
afford to pay. Arguably, this is not
sive review of the deposit insurance
how an insurance system is sup­
system - we are taking a fresh look.
posed to work.
A review is necessary for a number
Finally, there have been calls to
of reasons.
reevaluate deposit insurance cover­
age limits. The $100,000 limit has
First, premiums are based on risks,
been in place for 20 years - the
and we need to measure those risks
longest period in the history of the
more effectively and we need premi­
FDIC without an increase in the cov­
ums that reflect the risks more accu­
Chairman Donna Tanoue
rately. Under our current premium
erage limit. We must be cautious,
system, more than 9,500 insured
however, when it comes to expand­
ing the federal safety net.
institutions are grouped into the
same risk category - the zero premium category. We believe there
The banking and thrift crisis a decade ago demonstrated that the
are some discernible differences among the risk profiles of these
institutions, and we are going to look for straightforward and com­
stakes could be enormous for the U.S. taxpayers, and we must be
mindful that the reforms enacted in the wake of that crisis have not
pelling ways of making appropriate distinctions and charging premi­
ums accordingly.
been tested by an economic downturn.

la

The supervisory process makes distinctions among these 9,500
banks, and we should be able to develop a consistent approach to
pricing that reflects those differences. The market may help us to
price risks from the large complex banks.




We intend to study the potential consequences of higher coverage
very carefully before drawing any final conclusions.

9

There is a danger that - in its relative simplicity - the coverage
issue could overshadow other deposit insurance issues - that the
public debate on deposit insurance could boil down to the question
of how high coverage should be. That would be a mistake. It would
address one issue with the current system, but coverage is just one
issue among many. Increasing coverage raises many related con­
siderations. In fact, expanding coverage alone would increase the
fairness problem - because new and higher growth institutions
wouldn’t be asked to contribute more. And increasing coverage without fine-tuning the risk-based pricing system - could reduce
market discipline.
Reform will not be quick or easy. It will require a lot of thoughtful
work, but we are building a foundation for action. The FDIC has
held one roundtable discussion in Washington where we heard from
the American Bankers Association, the Independent Community
Bankers of America, America’s Community Bankers, the American
Association of Retired Persons, Consumer Action, the National
Bankers Association, and two noted academics. We held outreach
sessions in Minneapolis, kansas City and Dallas, where we listened
to the views of bank CEOs on a wide range of deposit insurance
issues. We are doing research, and are commissioning independent
analysts to examine specific topics in deposit insurance reform, as
well.
After careful review, the FDIC will prepare a set of policy recommen­
dations. With the exception of our long-standing position that the
BIF and SAIF should be merged, we have not endorsed anything,
but we are looking at the key issues presented by our current
deposit insurance system.
The FDIC has served the public well over the years by providing cer­
tainty and stability.
By refining our deposit insurance system - by eliminating inequities
and addressing unintended consequences - we can improve the
service we provide the public.
Sincerely,

Donna Tanoue
Chairman


10





Challenges in Deposit Insurance




CHALLENGES IN DEPOSIT INSURANCE

DIC insurance has protected depositors and served and monitoring the risks assumed by insured institutions was
as a symbol of confidence in our nation’s banking
increasing. In part, this trend was a function of the increasing size,
system for more than 66 years. During the last
scope of activities, and complexity of the largest institutions. Yet the
two decades of the twentieth century, there were
FDIC has observed that the opacity of bank risk is not confined to
significant changes in some of the underlying
the largest institutions. The proliferation of securitization vehicles,
parameters of deposit insurance - in the risks the FDIC was under­quickly assume - or hedge - significant risks off the
the ability to
writing, in the risk-management tools that banks and bank supervi­
balance sheet, the ability to raise loans and deposits quickly through
sors used to control those risks, and in the premium and funding
aggressive price competition, the propensity to outsource significant
structures for deposit insurance. These changes have created new
bank functions, and entry to lines of business outside the traditional
issues for the operation of our deposit insurance system, and high­
bank franchise, by small institutions as well as large, all can be
lighted the importance of old issues. This article takes stock of the
used by bankers to manage risk, but also can increase both the
new challenges and offers thoughts on how the system might
speed with which risks can change and the complexity of measuring
evolve in response.
those risks. These trends will put continued pressure on the FDIC's
deposit insurance pricing system to use the best information avail­
able to assess risks - both from onsite examinations, the most reli­
New Risks
able source of information about banks’ risk profiles, and from new
and existing sources of offsite information.
At year-end 1999, the FDIC faced a more challenging risk environ­
ment than ever before. Cyclically, we stood at the ninth year of the
M ^ p p ro a c h ^ ^ ^ ^ N |m a g g m
longest and strongest economic expansion in U.S. history, an
extraordinary period of low unemployment, low inflation, high pro­
ductivity growth, low and stable interest rates, significant technologi­ Standing between the FDIC and the risks we have described is an
cal change, and soaring household wealth. One of the new risks in
array of private sector and supervisory risk controls. By the end of
this economic landscape was the potential for highly integrated
the 1990s, it was clear that these risk-mitigating tools were under­
global financial markets to speed the transmission of financial risks
going significant change. There was substantial discussion about
across borders, sometimes in unexpected ways. And as the decade the implications of these trends for capital regulation, but discus­
ended, there were signs of financial imbalances emerging in the
sions about the implications for deposit insurance were in their
U.S. economy: a buildup of household and corporate debt; a nega­
infancy.
tive personal savings rate; a record and rising trade deficit; and
more generally, an increasing reliance on financial markets as
Private sector risk management strategies evolved considerably dur­
sources of wealth and cash flow. Some observers saw in the eco­
ing the 1990s. An ongoing dialogue that included the accounting
nomic fundamentals a new age of limitless prosperity; others saw
profession, the financial regulatory community, and leading financial
the financial imbalances in apocalyptic terms; but all agreed that the institution practitioners resulted in a significant increase in the
U.S. economy was in uncharted territory.
degree to which best practices in risk management were formalized
and made available. Quantitative tools to measure and monitor risk
Structurally, risks within the banking industry were becoming more
became more sophisticated as well. Asset-liability management
concentrated, a trend that ultimately could have ramifications for the software to assist in the evaluation and control of interest rate risk is
ability of the banking industry to collectively insure itself. FDIC
now readily available to financial institutions; market risks are being
insurance gives each bank a contingent liability to pay for the fail­
measured in real time through value-at-risk models and other
ures of other banks, a contingent liability that is analogous to a
approaches; and credit risk modeling and measurement is becom­
credit exposure. Just as standard credit-risk measurement tools
ing more rigorous. As the decade closed, the risks identified
predict that the potential for extreme losses increases with the con­
through these tools were being managed with financial instruments
centration of a loan portfolio, we may expect that over a long period
and financial technologies that did not exist twenty years earlier.
of time, increasing banking industry concentration will place each
bank at greater risk of extreme outcomes with respect to its mutual
Bank supervisors have long emphasized that the successful man­
deposit insurance obligations.
agement of bank risk is ultimately a function of the stewardship pro­
vided by bank management. During the 1990s, the operational and
As the nineties drew to a close, it also appeared that we were in the policy implications of this philosophy began to be explored more fully.
midst of a long-term trend in which the complexity of measuring

F




13

CHALLENGES IN DEPOSIT INSURANCE

Bisk-Belalefl Premiums _____________ _____ _______
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 risk clas­
sifications effective for the first semiannual assessment period of 2000. Each institution is cate­
gorized based on its capitalization and a supervisory subgroup rating (A, B, or C), which is gen­
erally determined by on-site examinations. Assessment rates are basis points, cents per $100
of assessable deposits, per year.

BIF Supervisory Subgroups*
A
Well Capitalized:
Assessment Rate
Number of Institutions
Adequately Capitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

B

C

0
8,291 (93.7%)

3
329 (3.7%)

17
50 (0.6%)

3
150(1.7%)

10
12(0.1%)

24
10(0.1%)

10
2 (0.0%)

24
0 (0.0%)

27
8(0.1%)

0
1,271 (91.6%)

3
77 (5.5%)

17
6 (0.4%)

SAIF Supervisory Subgroups'
Well Capitalized:
Assessment Rate
Number of Institutions
Adequately Capitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

concerned with any systemic trend that
increases the likelihood of such break­
downs. For example, we have seen some
cases where the opportunities to generate
revenue inherent in a long expansion and the competitive pressures to do so have led banks to compromise or neglect
important aspects of risk-management
discipline. Warnings from the Securities
and Exchange Commission about the dan­
ger that some accounting firms may be
compromising their auditing business in
favor of more lucrative consulting opportu­
nities may provide another example of a
systemic trend towards an increasing
volatility of risk-management outcomes.
Given these trends, it can be expected
that the FDIC’s pricing and evaluation of
risk will, over time, continue to place
heavy emphasis on identifying the quality
of banks’ risk controls.

A New Legislative Framework

By a combination of legislative changes,
regulatory choices and economic events,
the funding and pricing of FDIC insurance
evolved during the 1980s and 1990s into
10
24
27
something fundamentally different from
0 (0.0%)
0 (0.0%)
1 (0,1%)
what existed during the first 50 years of
* BIF data exclude SAIF-member Oaka ns i t ! ) '
hold E1 i
leposifs, The assessment rate reflects the
rate for BIF-assessable deposits, which remained the same throughout 1999.
the FDIC’s history. The banking crisis of
* SWF data exclude BIF-member "Qatar" Institutions that hold SWF-insured deposits. The assessment rate reflects
the 1980s led to two major pieces of leg­
the rate for SWF-assessable deposits, which remained the same throughout 1999.
islation, the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
(FIRREA) and the FDIC Improvement Act of
1991 (FDICIA). These laws have signifi­
cantly changed the way the FDIC conducts business in a number of
Supervisors placed more emphasis on risk-focused loan review and
areas, including the institutions it insures, the insurance funds it
transaction testing for the purpose of validating policies and proce­
administers, its enforcement powers, and the manner in which it
dures, with more detailed testing where there was evidence of a
resolves failing institutions. Most noteworthy for the purposes of
need for further review. In the arena of large or publicly traded
this article are two requirements laid down by
banks, there was a clear policy momentum towards improving the
FDICIA: i) that the FDIC price insurance according to the risks posed
quality of management’s public disclosures, in order to enhance the
by individual institutions, in order to mitigate the moral hazard prob­
potential risk-mitigating effects of private market discipline.
lems that can attend any deposit insurance system; and ii) that it
maintain the funds at designated reserve ratios.
The impact of these trends in risk management on the FDIC’s losses
will depend on the frequency of instances where specific aspects of
risk control systems do not work as intended. Thus, we should be


14


3
21 (1.5%)

10
5 (0,4%)

24
7 (0.5%)

CHALLENGES IN DEPOSIT INSURANCE

The FDIC implemented its risk-based deposit insurance premium
system in 1993, the Bank Insurance Fund achieved its designated
reserve ratio in 1995, and it quickly became apparent that there
were severe tensions between a requirement for risk-based pricing
and a requirement to manage the insurance funds to a specific size.
Implicit constraints on the size of the FDIC’s insurance funds placed
constraints on deposit insurance pricing at the individual institution
level. The tension between the twin requirements of risk-based
pricing and management of fund size became far more explicit in
1996, when the Deposit Insurance Funds Act constrained both the
FDIC’s ability to determine which insured institutions belong in the
best category for insurance purposes, and the premiums it can
charge those institutions.

A third change stems from the conjunction of two factors: the FDIC’s
original decision to rely on examination ratings as a significant input
to the risk based premium system, and the assessment revenue
constraints of the 1996 Deposit Insurance Funds Act. The banks
that were paying for deposit insurance at the end of the 1990s
were those that had run afoul of capital regulations or the supervi­
sory process. Thus, another departure from past practice was that
the pricing of deposit insurance at the individual institution level had
evolved into a penalty system for the few, rather than a priced serv­
ice for all.

In particular, when the insurance fund is above its Designated
Reserve Ratio (1.25 percent of insured deposits at year-end 1999),
the FDIC in effect cannot collect assessment revenue from institu­
tions in its best insurance category, which at year-end 1999 com­
prised 93 percent of all insured institutions. Conversely, when the
fund is below its designated ratio, the FDIC must collect sufficient
assessment revenue to return the fund to that Designated Reserve
Ratio within one year, or else collect average deposit insurance pre­
miums of at least 23 basis points of domestic deposits.

From the FDIC's standpoint, it was clear as the nineties drew to a
close that the terms of the tradeoff between the ability to price
deposit insurance based on risk and constraints on aggregate rev­
enue needed to be re-evaluated. That tradeoff had been resolved
by the Deposit Insurance Funds Act in favor of a zero premium for
most institutions. As a result, by the end of the 1990s, the moral
hazard problems FDICIA intended to address through risk-based
deposit insurance premiums may have become more firmly
entrenched than ever. At year-end 1999, the FDIC provided a non­
priced guarantee of over two trillion dollars in bank liabilities.

The new legislative and regulatory framework has resulted in at
least three striking departures from past practice. First is the zero
deposit-insurance premium paid by most banks. In contrast to the
period 1933-1995, when the FDIC assessed every dollar of domes­
tic deposits at a rate of at least three basis points per annum, after
1995 most deposits were not assessed at all. A striking feature of
a zero premium is that not only may the rate paid by vastly dis­
parate banks be identical, but the dollar amount as well: a bank with
$100 billion in deposits can be billed the same amount for its insur­
ance as the smallest community bank.
Second, in reaching a point where the FDIC does not collect assess­
ment revenue from most institutions during good times, we have
clearly departed from any concept of spreading insurance losses
over time. In contrast, prior to 1989 it could be argued that
Congress intended the FDIC to operate under a form of long-term
expected loss pricing. During the period 1933-1989, when premi­
ums were set by statute and never departed from a range of
between three and 8.9 basis points per annum, accumulated premi­
ums and the investment income on those balances enabled the sys­
tem to roughly pay for itself. The system in place today, in contrast,
amounts essentially to charging nothing in times of prosperity and a
lot in times of adversity, thereby potentially magnifying swings in the
banking cycle.




Under pure risk-based pricing, it is likely that every bank in the U.S.
with insured deposits would pay something for its deposit insurance,
for the same reason that every bank pays at least some spread over
Treasuries for unsecured debt. Given the long and uncertain dura­
tion of banking cycles, however, under such a system it would never
be clear in advance whether the premiums accumulated during
times of prosperity were more, or less, than what would ultimately
be needed during periods of economic upheaval. Consequently,
there will inevitably be questions about the appropriate disposition
of these accumulated funds. The answer to such questions
depends on one’s vision of how the costs and benefits of the
deposit insurance system should be shared.
Under one extreme, deposit insurance could be viewed as com­
pletely private. Under this pure mutual model, monies collected by
the insurer are the collective property of the banks that contributed,
any insurance losses are their sole responsibility, and pricing of
deposit insurance is not the subject for public policy discussions but
is of concern only to the banking industry. The history of banking
and financial crises in both the U.S. and other countries provides
numerous examples where bank losses were so severe and so sys­
temic that the government was forced to step in, either through
loans or taxpayer bailouts. This experience calls into question

15

CHALLENGES IN DEPOSIT INSURANCE

whether pure private deposit insurance
would be economically viable over long
periods of time.
Another endpoint, in which the mutual
aspect of insurance is removed com­
pletely, might be termed the user-fee
or priced service model of deposit
insurance. The insurer collects premi­
ums on an expected-loss or riskadjusted basis from each institution.
The premium is simply a payment for a
service, namely the use of the deposit
guarantee for a specified time. In this
"demutualized” model, the premium
payer has neither an ownership interest
in collected premiums nor a responsi­
bility to pay for the insurance losses of
other banks. An insurance fund to pro­
vide rapid resolution flexibility is consis­
tent with this model, provided govern­
ment reaps all surplus funds during
good times and readily recapitalizes it
to cover all insurance losses.
The pure priced service model, taken
to its logical extreme, makes moot a
number of issues raised in this article.
Concentrations of deposit insurance
exposure - although an issue for the
government insurer and its ability to
diversify risks - are not an issue for
insured institutions because they are
never asked to help pay for the failures
of other banks. Rebates from the
insurance funds are ruled out, but con­
versely banks are relieved of the
responsibility to rebuild a fund during
periods of economic hardship.
Whereas history casts doubt on the
long-term economic viability of a pure
private deposit insurance model, it also
casts doubt on the long-term political
sustainability of a pure user-fee model.
It is human nature to keep score. As
assessment revenues mount far above
cumulative insurance losses during
good times, bankers will point out that


16


FDIC-lnsured Deposits (year-end through 1999)
I SAIF-lnsured
I BIF-lnsured

Dollars in billions
1960

70

80

90

99

3,000
2,500
2,000

1,500

1,000
500

.......... m u

ml

Source: Commercial Bank Call Reports and Thrift Financial Reports
Note: For more details, see pages 33 (BIF) and 49 (SAIF).

Real

iwrrrinmr

$ 120,000 ■
100,000

■

8 0,00 0 ■

60,000

40,000

20,000

Declined Since 1980

Statutory Insurance Levels
Insurance Coverage in 1980 Dollars

CHALLENGES IN DEPOSIT INSURANCE

the costs of the system
appear to be outstripping its
benefits, and they will be
heard, as they were heard in
1950 when Congress
required the FDIC to institute
rebates of excess assess­
ment revenues, and again in
1996 with the Deposit
Insurance Funds Act.
Conversely, during bad times
Congress is unlikely to sit by
while losses mount, under
the theory that everything
will even out in the end.
Instead, as they have in the
past, the banking industry
probably would be asked to
pay for as significant a share
of losses as possible before
recourse is had to the tax­
payer.

Deposit Growth
Since Funds Were
Capitalized
The top 25 percent in terms of
deposit growth have added
$178 billion
>814 new banks have added
$44 billion of insured deposits
1The lowest 25 percent in terms
of deposit growth have lost
$69 billion since the funds
were capitalized
* $100 billion in deposits dilutes:
- BIF by five basis points
-S A IF by 18 basis points

selves, increase the mutually shared obligations or reduce the mutu­
ally shared benefits of other members of the system.
There may be other quasi-mutual models where the rules for doling
out mutual costs and benefits are different than in our current sys­
tem, and that do not create the degree of perverse or unintended
consequences as our current system. For example, it is not clear
that the shared benefit that accrues to the banking industry during
good times should necessarily be in the form of a zero deposit insur­
ance premium. One could imagine, for example, that premiums col­
lected during good times could go first to the insurance fund, and
then to some asset in which member banks have a collective or indi­
vidual interest. There are many ways banks’ collective interest in
such an asset could be structured - through a rebate system,
through a credit-union approach in which each bank carries its share
of the asset on its books, or some other approach in which the col­
lective asset only generates cash flows for banks during bad times.
Under any of these approaches, if ownership of the collective asset
were apportioned analogous to a mutual fund, with a dollar of premi­
ums buying a dollar of shares, the free-rider problems described
above could be mitigated.

Implications for Deposit Insurance Pricing
Between the two endpoints of a purely private system and a pure
user fee system - between a pure mutual system and a completely
demutualized one - are the intermediate models of mutual insurance
with a federal backstop against catastrophic loss. Under these
approaches, banks are mutually obligated to pay aggregate insur­
ance losses up to a point, and mutually entitled to some of the bene­
fits of favorable fund performance. Under any such approach, the
federal government’s guarantee against catastrophic loss gives it a
significant public policy stake in ensuring that the guarantee is
appropriately priced. At the same time, all participants in the system
have a significant stake in the manner in which aggregate system
performance results in shared costs and shared benefits.
For example, under the current system, banks are mutually obligated
to recapitalize the insurance funds if the funds fall below a designat­
ed ratio; conversely, when the funds remain above the designated
ratio they are mutually entitled to a benefit, namely zero-cost federal
deposit insurance for most institutions. This particular set of mutual
obligations and benefits carries with it all of the issues we described:
the zero premium during good times; a potentially heavy assessment
during bad times; and a growing concentration of contingent deposit
insurance exposures. Current arrangements also create an issue we
have so far deferred: the tendency of a zero premium under a mutual
insurance arrangement to create free-rider problems, in which new
banks, fast growing banks and non-banks can, at no cost to them­




Risk-based deposit insurance pricing at the individual institution level
has two goals: to provide beneficial incentives to control excessive
risk taking and mitigate the moral hazard problems associated with
flat-rate deposit insurance; and to lessen the degree to which strong
institutions subsidize weak and poorly managed institutions, so that
the cost of the insurance program is shared in an equitable manner.
An interesting question is whether deposit insurance pricing is con­
ceptually redundant with supervision as a policy instrument to
accomplish these goals. There are reasons to think not. There are
built-in limits in a market economy on the degree that supervisors
can or should attempt to control individual institution behavior. To
use a private insurance analogy, a supervisor is unlikely to take away
someone’s driver's license simply because that person owns a sports
car; an insurer, without trying to change the behavior, can price it.
Even under a theoretically perfect supervisory capital regime where
all institutions have an identical estimated probability of failure, mar­
ket pricing or other indicators may at times suggest that the risk pro­
files of some institutions are significantly different than others. In
such instances deposit insurance pricing can be a policy tool that
complements the tools available to supervisors.
In practice, there are limits to what deposit insurance pricing can
and should try to achieve. The FDIC provides a monopoly-priced

17

CHALLENGES IN DEPOSIT INSURANCE

Deposit Concentrations Have Shifted
Percent of Total Core Deposits

60
1999
50

30 - I

20

10

1
$0 - $500MM

$500MM - $1B

$ 1 B -$ 5 B

$ 5 B -$ 1 0 B

$10B - $20B

ASSET SIZE

service, and it may be undesirable for a federal agency to make
exceedingly fine subjective distinctions that have the effect of allo­
cating credit to favored activities or institutions. Within those limits,
however, risk differentiation is important, and the technical issues of
how best to achieve it are significant.
If a significant adverse change in the banking and economic cycle
occurs in the next few years, historical experience suggests that
many of the resulting bank failures will come from institutions that
did not pay insurance premiums at year-end 1999. The question
will then be how many of those premium misclassifications were the
result of what one might call random errors - the price we willingly
accepted for not having an overly burdensome regulatory and
supervisory structure - and how many were the result of systemati­
cally subsidizing certain types of riskier institutions at the expense of
other members of the system.
When we consider the more than 9,500 insured institutions that all
paid no premium at year-end 1999, there clearly were some sys­
tematic factors that distinguished their risk profiles. The distinction
between banks with composite examination ratings of 1 and 2 is
one example, but there may be others. For example, should new
banks or fast growing banks pay additional premiums, both for rea­
sons of risk differentiation and to force them to pay for the external

Digitized18 FRASER
for


cost they impose on other members in a
mutual structure? Are there indicators that
would identify those banks within the best
risk-related premium category that have
high concentrations of risky assets, signifi­
cant interest-rate risk or market risk, or
weak risk-management practices?

The best risk indicators may not be the
same for large institutions as for small insti­
tutions, and indeed, both onsite and offsite
examination procedures vary depending on
the size, complexity and risk profile of a
bank. FDICIA provided the FDIC with
authority to establish separate premium sys­
tems for large versus small institutions.
Because of their size, scope and complexity,
large institutions and their supervisors nec­
essarily measure and manage risk differently
Over $20B
than is the case for a typical small bank. By
the end of the nineties it was clear that
some thought needed to be given to the
implications of the developments in largebank risk measurement for the way the FDIC measures risk for
insurance purposes, so that the FDIC might benefit from the results
of risk measurement undertaken by industry practitioners, as well as
by their supervisors and publicly available sources. Likewise, risks
taken by large banks are priced in a variety of markets, conceivably
resulting in useful information that may be valuable in pricing
deposit insurance. And the proliferation of financial instruments by
which risks are transferred and priced is at least suggestive of the
possibility that new instruments could be developed that could
enhance risk-based pricing at the individual institution level, or pro­
vide market signals about the direction of the FDIC’s aggregate
exposure.
Given the potential for a bank’s risk profile to change quickly,
changes in risk profiles in the interval between examinations may
take on added significance in the years ahead. The FDIC already
has a number of offsite tools for evaluating these inter-examination
trends, and the importance of continuing to refine such tools and
develop new ones is likely to increase.
Finally, if risks are indeed becoming more opaque and complex to
monitor as we have argued, there is room for discussion of the
implications for deposit insurance pricing. An interesting public poli­
cy question is what role, if any, deposit insurance premiums should

have in providing incentives to banks regarding the quality of their
disclosures about the risks they undertake.

h^g^Coverage
There has been considerable discussion since year-end 1999 about
whether and how deposit insurance coverage should be adjusted for
inflation. The merits of indexing coverage ultimately depend on
one’s view of the role of deposit insurance in the financial system.
Deposit insurance was implemented not only to protect small
savers, but to correct a market failure: the susceptibility of banks to
deposit runs, a susceptibility that arises from banks’ combination of
illiquid assets and liquid liabilities.
There was always a danger that deposit insurance would simply
replace one ill with another. While deposit runs are a thing of the
past, in their place we have a greater potential for the distortions
and moral hazard problems that come with a federal safety net. For
those who do not think this has been a good tradeoff, the policy
prescription is clear: allow the deposit insurance coverage limit to
erode in real terms over time.
On the other side of the debate are those who point to the array of
private sector and supervisory risk mitigation tools, and more
recently, risk-based premiums, that can act as a counterweight to
the potential moral hazard problems. In this view, the increased
stability deposit insurance brings is not completely offset by other
problems. There is also the view that every country has deposit
insurance - whether it knows it or not - and that meaningful,
explicit coverage results in lower costs in the event of banking
crises than would occur under negligible or implicit coverage. The
argument is that little or no formal coverage may well turn into
unlimited coverage in times of crisis, while a meaningful and explicit
coverage limit is more likely to be adhered to. Proponents of this
view would be more likely to recommend a coverage limit that
adjusts over time to maintain the same relative importance in the
financial system.
*

* *

None of the issues discussed in this article are easy to address, but
their importance is undeniable. The time appears ripe for a produc­
tive debate on how the U.S. deposit insurance system should be
strengthened to meet the new challenges.













OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

Overview
In 1999, the U.S. economy marked its ninth year of a remarkably
strong economic expansion, which contributed to record profits for
the banking industry. Insured commercial banks posted record earn­
ings for the eighth consecutive year, while insured savings institu­
tions recorded their third consecutive year of record earnings.
Commercial banks earned $71.7 billion in 1999, an increase of $9.9
billion (16.0 percent) over their 1998 results, The industry’s return
on assets (ROA) rose to a record-high 1.31 percent, from 1.19 per­
cent in 1998. The previous record for full-year ROA was 1.23 per­
cent, set in 1997. Banks’ return on equity (ROE) rose to 15.34 per­
cent, equaling the all-time high first reached in 1993. Much of the
earnings improvement occurred at the largest banks, due to contin­
ued strength in noninterest income and slower growth in noninterest
expenses. Profitability declined at smaller banks, reflecting narrower
net interest margins. Overall asset-quality indicators remained favor­
able; both the percentage of loans charged off and the percentage of
loans that were noncurrent (past due 90 days or more or in nonac­
crual status) at year-end were lower than a year earlier. This
improvement was made possible by lower losses on credit card
loans, which outweighed a rise in losses on commercial and industri­
al loans.
Insured savings institutions earned $10.9 bil­
lion in 1999, a $736 million (7.3 percent)
increase over 1998. The average ROA was
1.00 percent, about the same as the 1.01
percent that thrifts registered in 1998. The
gap in performance between the largest sav­
ings institutions and their smaller counterparts
widened in 1999. At thrifts with more than $5
billion in assets, the average ROA was 1.06
percent, up from 1.04 percent in 1998. At
savings institutions with less than $5 billion in
assets, the average ROA declined from 0.96 J
percent to 0.93 percent.
§
The FDIC administers two deposit insurance funds, the Bank
Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF), and manages the FSUC Resolution Fund (FRF), which fulfills
the obligations of the former Federal Savings and Loan Insurance
Corporation (FSUC). As a result of positive conditions, deposit insur­
ance assessment rates remained unchanged from 1998 for both
deposit insurance funds, ranging from 0 to 27 cents annually per
$100 of assessable deposits. Under this assessment rate schedule,




93.7 percent of BIF-member institutions and 91.6 percent of SAIFmember institutions were in the lowest risk-assessment rate catego­
ry and paid no deposit insurance assessments for the first semian­
nual assessment period of 2000.
At year-end 1999, the BIF had a balance of $29.4 billion, represent­
ing a loss of $198 million for the year. This was the first year-end
loss reported since 1991 and was primarily attributable to insurance
losses recognized in 1999. During the year, BIF-insured deposits
grew by 0.76 percent, yielding a reserve ratio of 1.36 percent of
insured deposits at year-end 1999. The reserve ratio at year-end
1998 was slightly higher, at 1.38 percent. Seven BIF-insured institu­
tions failed in 1999 with total assets at failure of $1.4 billion and
total estimated insurance losses of $838.4 million. The contingent
liability for anticipated failure of BIF-insured institutions as of
December 31,1999, was $307.0 million compared to $32.0 million
at year-end 1998.
The SAIF ended 1999 with a fund balance of $10.3 billion, a 4.5
percent increase over the year-end 1998 balance of $9.8 billion.
Estimated insured deposits increased by 0.34 percent in 1999. The
reserve ratio grew from 1.39 percent of insured deposits at year-end
1998 to 1.45 percent. Only one SAIF-insured institution failed in
1999 with total assets at failure of $63.0 million and estimated
insurance losses of $1.3 million. The contingent liabilities for antici­
pated failure of SAIF-insured institutions as of December 31,1999

3 representatives answer
:omers' questions after financial
tution failures. Here, the
3’s Rickie McCullough meets
depositors of the failed First
onal Bank of Keystone,
stone, WV.

and 1998, were $56.0 mil­
lion and $31.0 million,
respectively. On January 1,1999, a Special Reserve was estab­
lished within the SAIF, as required by the Deposit Insurance Funds
Act of 1996. The SAIF Special Reserve was mandated as a result of
the federal budget process and did not address any deposit-insurance issues. The reserve was funded with $978 million, the amount
by which the SAIF exceeded the Designated Reserve Ratio of 1.25
percent. The segregation of these funds into the special reserve was
eliminated on November 12,1999, with the enactment of the
Gramm-Leach-Bliley Act.

23

OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

Selected Statistics
Bank Insurance Fund (BIF)
(Dollars In Millions)
Fo r th e y e a r e n d e d D e c e m b e r 31

1999

Revenue
Operatinq Expenses
Insurance Losses and Expenses
Net Income
Comprehensive Income A
Insurance Fund Balance
Fund as a Percentage of Insured Deposits

1998

$

1,816
730
1,192
(106)
(198)
$ 29,414
1.36%

2,000
698
(6)
1,309
1,319
$ 29,612
1.38%

$

1997
1,616
605
(428)
1,438
1,438
$ 28,293
1.38%

$

Splprtpd Statistics
Total BIF-Member Institutions *
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Total Assets of Current Year Failed Institutions
Number of Active Failed Institution Receiverships

$
$

8,832
66
4,000
7
1,424
101

$
$

9,031
68
5,000
3
370
219

$
$

9,403
73
5,000
1
26
302

Savings Association Insurance Fund (SAIF)
(Dollars In Millions)
Fo r th e y e a r e n d e d D e c e m b e r 31

1999

1998

1997

Financial Results
Revenue
Operatinq Expenses
Insurance Losses and Expenses
Net Income
Comprehensive Income A
Insurance Fund Balance
Fund as a Percentage of Insured Deposits

$

601
93
31
477
441
$ 10,281
1.45%

$

$

584
85
32
467
472
9,840
1.39%

$

$

550
72
(2)
480
480
9,368
1.36%

Selected Statistics
Total SAIF-Member Institutions +
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Total Assets of Current Year Failed Institutions
Number of Active Failed Institution Receiverships

1,388
13

$

6,000

$

1

$

63
3

$

1,430
16
6,000
0
0
2

$
$

1,519
19
2,000
0
0
2

A Comprehensive Income Is added to conform with SFAS No. 130, ‘ Comprehensive Income.’
* Commercial banks and savings institutions. Does not include 20 U.S. branches of foreign banks.
+ Savings institutions and commercial banks.

The FRF consists of two dis­
tinct pools of assets and liabili­
ties. One pool, composed of
the assets and liabilities of the
FSLIC, transferred to the FRF
when the FSLIC was dissolved
on August 9 ,1 9 8 9 (FRF-


24


FSLIC). The other pool, com­
posed of the assets and liabili­
ties of the Resolution Trust
Corporation (RTC), transferred
to the FRF on January 1 ,1 9 9 6
(FRF-RTC). The assets of one
pool are not available to satisfy

obligations of the other. As of
December 31,1 9 9 9 , the FRFFSUC had resolution equity of
$2.2 billion, and the FRF-RTC
had resolution equity of $4.4
billion.

Eight institutions insured by the
FDIC were closed during 1999.
Seven of those institutions
were insured by the BIF and
one was insured by the SAIF.
These failed entities had com­
bined assets of approximately
$1.5 billion. The First National
Bank of Keystone, Keystone,
WV, accounted for $1.0 billion
of the total assets.
For the eight failures in 1999,
approximately $1.4 billion of
deposits in 69,000 accounts
were protected by FDIC insur­
ance.
During 1999, the FDIC dis­
posed of $1.6 billion in
retained assets, which resulted
in a net reduction of the book
value of assets in liquidation
from $2.4 billion at year-end
1998 to $2.0 billion at yearend 1999, a decline of 17 per­
cent. In addition to assets in
liquidation, the FDIC was man­
aging approximately $5.2 bil­
lion in assets not in liquidation,
a reduction of $1.5 billion dur­
ing the year. A total of 469
real estate properties were
sold for a total of $66.8 mil­
lion, and 16,976 loans and
other assets were sold for a
total of $204.2 million.
During the year, the FDIC ter­
minated 363 receiverships.
The FDIC was administering
448 receivership estates at the
end of 1999.

OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

Chairman Tanoue appe<
live network television t
draw cash from an ATIV
showing it was busines:
usual for bank custome
January 1,2000.

Emerging Trends

W W Reid
. .

Despite the apparently strong
condition of the economy and
the banking system in 1999,
the FDIC continued to monitor
a number of emerging trends.
The first trend, an area of con­
cern, is household and busi­
ness debt levels. Spending by households and businesses is grow­
ing faster than cash income, resulting in rapidly increasing indebt­
edness. Further, recent growth in business indebtedness raises
concerns about commercial credit quality. After expanding at the
fastest growth rate in more than a decade during 1998, the com­
mercial and industrial (C&l) loan portfolios at insured depository
institutions continued to grow rapidly in 1999. Evidence of weaken­
ing corporate credit quality began to appear during 1999, and the
federal banking regulators have publicly expressed their concerns
.........

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

.............. .............. ••

“ ■

Liquidation Highlights 1997-1999
Dollars in billions

1999




7
$ 1.42
1
$ .06
$ .98
$ 1.98

$ .21
$ 5.20

3
$

$
$
$
$
$

.37
0
0

1
$ .03
0
$
0

3.55

$3.57

2.38

$ 4.12

.38
6.71

$8.17

C
O

Total Failed Banks
Assets of Failed Banks
Total Failed Savings Associations
Assets of Failed Savinqs Associations
Net Collections from Assets in Liquidation*
Total Assets in Liquidation*
Net Collections from Assets Not in Liquidation*
Total Assets Not in Liquidation*
* Also includes assets from thrifts resolved by the FSUC and the RTC.

about the quantity and quality of commercial credit risk in the sys­
tem. Despite starting from very low levels, net C&l loan charge-offs
for all insured institutions totaled $3.6 billion during 1999 - a 51
percent increase over 1998. Moreover, results from the annual
interagency review of large commercial credits - the Shared
National Credit (SNC) Program - noted a sharp rise in criticized
loans, albeit from historical lows. At the same time, corporate bond
defaults and negative credit rating revisions during 1999 reached
levels not seen since the early 1990s. These signs of moderate
deterioration in commercial credit quality have been experienced
during a particularly strong economic
......... —
-------------- ' '
environment, leading to questions
about how much further credit quality
might deteriorate in the event of a
1998
1997
moderate to severe recession.
Second, intense competition in bank­
ing is driving business strategies.
Evidence also suggests that, to main­
tain loan growth and meet funding
needs, institutions are pursuing assetliability structures with higher levels of
interest rate risk. Innovations and
cost-cutting initiatives used by insured

OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

Chairman Tanoue (center) joins
other members of the
Financial Stability Forum’s
Study Group on Deposit
Insurance at their first meeting
in Ottawa, Canada, in
December 1999.

institutions to counter competitive pressures may introduce new
risks associated with complex accounting valuations, weakening
internal controls, and the need for more intensive loan servicing.
Third, the economy and the banking system are vulnerable to sud­
den shocks from financial market instability. The 1990s were
marked by recurring, and perhaps more frequent, episodes of finan­
cial market turbulence. At the request of the Department of the
Treasury, FDIC Chairman Tanoue represents the United States on the
Financial Stability Forum’s Study Group on Deposit Insurance. The
Financial Stability Forum was established by the Bank for
International Settlements to examine issues relating to global finan­
cial stability.
Fourth, for most of the 1990s, banking industry asset growth has
outstripped growth in deposits, creating greater reliance on more
expensive and less stable market-based sources of funding. Each
quarter, the FDIC publishes a Regional Outlook that provides analy­
sis and discussion of national and regional trends that may affect
the risk exposure of insured depository institutions. The third quar­
ter 1999 edition of the Regional Outlook included a special analysis
of these funding trends and the challenges they pose for community
institutions.

Digitized 26 FRASER
for


Fifth, and finally, after the announcement of several mergers
between several of the largest U.S. banks, the FDIC created an
internal task force in July 1998 to identify and to address issues
that might arise in resolving the failure of one of the largest banks.

Year 2000
During 1999, the FDIC took an aggressive approach to supervising
federally insured financial institutions to assure readiness for the
Year 2000 (Y2K) date conversion and, as important, engaged in an
extensive program of Y2K public education and outreach.
Throughout the year, the FDIC’s Division of Supervision (DOS) exam­
iners, with assistance from state bank regulators, performed com­
prehensive on-site Y2K readiness assessments of FDIC-supervised
financial institutions and their service providers, as well as software
vendors that the FDIC is responsible for examining. Year 2000
readiness efforts were assessed “satisfactory,” “needs improve­
ment,” or “unsatisfactory.” All service providers and software ven­
dors examined by the FDIC were assessed “satisfactory” by the end
of the third quarter. And on December 13,1999, FDIC Chairman
Donna Tanoue announced to the public that every FDIC-insured
financial institution in the nation had achieved a satisfactory assess­
ment. The industry was prepared for the Year 2000 rollover.

OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

Compliance, Enforcement and Other Related Legal Actions 1997-1999
1999

1998

1997

111

143

127

0

0

0

0
3
9

0
5
4

0
6
7

Sec. 8b Cease-and-Desist Actions
Notices of Charges Issued
Consent Orders

5
19

2
21

3
15

Sec. 8e Removal/Prohibition of Director or Officer
Notices of Intention to Remove/Prohibit
Consent Orders

4
22

2
15

11
33

3

0

1

15
20

41
35

24
10

Sec. 10c Orders of Investigation

4

6

6

Sec. 19 Denials of Service After Criminal Conviction

3

3

1

Sec. 32 Notices Disapproving Officer or Director

1

0

0

1
0
134

1
0
161

3
0
139

Suspicious Activity Reports (Both Open and Closed Institutions)* 22,015

20,229

20,385

8

7

Total Number of Actions Initiated by the FDIC
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

Sec. 8g Suspension/Removal When Charged With Crime
Civil Money Penalties Issued
Sec.7a Call Report Penalties
Sec.8i Civil Money Penalties

Truth in Lending Act Reimbursement Actions
Denials of Requests for Relief
Grants of Relief
Banks Makinq Reimbursement •

Other Actions Not Listed

2

• These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total number of actions initiated.

The FDIC - along with the other federal and state regulatory agen­
cies - set up supervisory programs to monitor the transition of
financial institutions, service providers and software vendors into the
Year 2000 during the key period of October 1,1999, through the
century date change. Each financial institution, service provider and
software vendor was contacted at least once from October 1
through December 3 1,1999 ; again from January 1-3, 2000; and
again from January 4 -5 ,20 0 0.




To assure public confidence, FDIC senior officials participated in
hundreds of Y2K outreach events, and were interviewed by The Wall
Street Journal, The Washington Post, USA Today and other news
venues. During the year, the Y2K issue of FDIC Consumer News m s
one of the most popular publications offered by the Consumer
Information Center, which distributed more than 500,000 copies to
the public. Throughout the fall, Chairman Tanoue traveled the coun­
try holding press conferences in major cities and personally appear­

27

OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

FDIC Applications 1997-1999
1999
Deposit Insurance
Approved
Denied
New Branches
Approved
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
Brokered Deposit Waivers
Approved
Denied
Savings Association Activities ■
Approved
Denied
State Bank Activities/Investments *
Approved
Denied
Conversions of Mutual Institutions
Non-Objection
Objection

1998

1997

295
295
0
1,346
1,346
0
341
341
0
210
207
42
165
3
1
2
31
31
0
16
16
0
83
83
0
24
24
0
16
15
1

296
296
0
1,450
1,450
0
390
390
0
304
289
145
154
5
3
2
34
34
0
10
9
1
0
0
0
23
23
0
30
30
0

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

* Under Section 19 of the Federal Deposit Insurance Act, an insured institution must receive FDIC approval before employing a person convicted of dis­
honesty 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.
■ Amendments to Part 303 of FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.
» 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 to be filed with the FDIC.

ing on network television news programs. On September 11,1999,
syndicated columnist Ann Landers published a Year 2000 letter from
Chairman Tanoue and included the FDIC toll-free Y2K information
number. Approximately 1,200 newspapers carried the column. In
mid-November, Gallup reported that nine out of ten U.S. bank cus­
tomers believed their banks were ready for the Year 2000.


28


Throughout the day on January 1, Chairman Tanoue appeared on
NBC and CNN, withdrawing money from an automated teller
machine, illustrating that it was business as usual for banking - and
it was. Banks reported no significant Y2K problems. Public confi­
dence held.

OPERATIONS OF THE CORPORATION THE YEAR IN REVIEW

FDIC Examinations 1 9 9 1 1 9 9 9
Safety and Soundness:
State Nonmember Banks
Savinas Banks
National Banks
State Member Banks
Savinqs Associations
Subtotal

1999

1998

1997

2,289
241
3
7
0
2,540

2,170
221
1
6
1
2,399

2,515
224
6
0
4
2,749

Comoliance/CRA
Trust Deoartments
Data Processina Facilities
Total

2,368
452
1,446
6,806

1,989
542
1,335
6,265

1,990
552
1,514
6,805

The Gramm-Leach-Blilev Act
In 1999, Congress passed financial modernization legislation direct­
ly affecting depository institutions and the FDIC, and appropriations
legislation for the FSLIC Resolution Fund and the Office of Inspector
General (OIG).
The Gramm-Leach-Bliley Act is financial modernization legislation
signed by President Clinton on November 12,1999. The Act (Public
Law 106-102) repeals Sections 20 and 32 of the Banking Act of
1933 (Glass-Steagall Act) and amends the Bank Holding Company
Act of 1956 to allow affiliations between insured depository institu­
tions and any "financial” company, including securities and insur­
ance firms, in new types of bank holding companies known as
financial holding companies. The Gramm-Leach-Bliley Act also
allows certain financial activities permitted by financial holding com­
panies to be carried out through bank subsidiaries, subject to safe­
guards and restrictions.




The new law also protects the deposit insurance funds and the fed­
eral banking agencies from certain claims brought in bankruptcy for
return of capital infusions made to a failing depository institution at
the direction of a federal banking agency. The FDIC and the other
federal banking agencies are also required to write regulations on
privacy, fair credit reporting, insurance products offered by banks,
and disclosure of agreements related to the Community
Reinvestment Act (CRA); establish a consumer complaints mecha­
nism for violations of rules related to insurance; and establish
recordkeeping requirements related to certain securities activities
conducted by banks. In addition, the FDIC is required to implement
and enforce other new legal provisions, including those related to
privacy and pretext calling (obtaining customer information under
false pretenses).

29







FINANCIAL STATEMENTS




BANK INSURANCE FUND

BIF
Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Financial Position at December 31
Dollars in Thousands

Assets
Cash and cash equivalents
Investment in U.S. Treasury obligations, net (Note 3)
(Market value of investments at December 31, 1999 and December 31, 1998
m s $27.9 billion and $27.5 billion, respectively)
Interest receivable on investments and other assets, net
Receivables from bank resolutions, net (Note 4)
Assets acquired from assisted banks and terminated receiverships, net (Note 5)
Property and equipment, net (Note 6)
Total Assets
Liabilities
Accounts payable and other liabilities
Continpent liabilities for: (Note 7)
Anticipated failure of insured institutions
Assistance aqreements
Litigation losses
Asset securitization guarantees
Total Liabilities
Commitments and off-balance-sheet exposure (Note 12)
Fund Balance
Accumulated net income
Unrealized (loss)/qain on available-for-sale securities, net (Note 3)
Total Fund Balance
Total Liabilities and Fund Balance

1999
$

164,455
28,238,065

$

2,117,644
26,125,695

467,070
743,011
20,750
260,040
$29,893,391

657,636
747,948
27,373
209,615
$29,885,911

$

$

148,821

197,034

307,000
10,910
10,000
2,477
479,208

32,000
15,125
22,301
7,141
273,601

29,494,950
(80,767)
29,414,183

29,601,395
10,915
29,612,310

$29,893,391

$29,885,911

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




33

BANK INSURANCE FUND

BIF
Federal Deposit insurance Corporation
Bank Insurance Fund Statements of Income and Fund Balance for Hie Years Ended December 31
Dollars in Thousands

Revenue
Interest on U.S. Treasury obliqations
Assessments (Note 8)
Interest on advances and subrogated claims
Gain on conversion of benefit plan (Note 11)
Revenue from assets acquired from assisted banks and terminated receiverships
Other revenue
Total Revenue

1999
$

1,733,603
33,333
20,626
0

11,484
16,556
1,815,602

1998
$ 1,674,344
21,688
67,350
200,532
20,926
15,422
2,000,262

Expenses and Losses
Operatinq expenses
Provision for insurance losses (Note 9)
Expenses for assets acquired from assisted banks and terminated receiverships
Interest and other insurance expenses
Total Expenses and Losses

1,168,749
18,778
4,126
1,922,047

697,604
(37,699)
29,803
1,831
691,539

Net (Loss) Income
Unrealized (loss)/qain on available-for-sale securities, net (Note 3)

(106,445)
(91,682)

1,308,723
11,039

Comprehensive (Loss) Income

(198,127)

1,319,762

29,612,310

28,292,548

Fund Balance - Ending____________________________________________________________ $29,414,183

$29,612,310

Fund Balance - Beginning
The accompanying notes are an integral part of these financial statements.


34


730,394

BANK INSURANCE FUND

BIF
Dollars in Thousands

Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations
Recoveries from bank resolutions
Recoveries on conversion of benefit plan
Recoveries from assets acquired from assisted banks and terminated receiverships
Assessments
Miscellaneous receipts
Cash used by:
Operating expenses
Disbursements for bank resolutions
Disbursements for assets acquired from assisted banks and terminated receiverships
Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 15)
Cash Flows From Investinq Activities
Cash provided by:
Maturity of U.S. Treasury obligations, held-to-maturity
Maturity and sale of U.S. Treasury obligations, available-for-sale
Cash used by:
Purchase of property and equipment______
Purchase of U.S. Treasury obligations, held-to-maturity__________________
Purchase of U.S. Treasury obligations, available-for-sale____
Net Cash (Used by) Provided by Investing Activities_________ _

1999
$

1998

1,848,536
426,348
175,720
46,390
34,692
19,029

$ 1,788,937
881,802
0
54,207
22,931
27,990

(722,096)
(1,333,622)
(27,756)
(7,542)
459,699

(711,020)
(420,691)
(37,391)
(7,959)
1,598,806

2,120,000
1,060,000

5,850,000
185,456

(70,886)
(51,058)
_______________ (1,596,859)
__________ (4,478,337)
(3,925,143)________________ (1,206,430)
(2,412,888)
299,631_

Net (Decrease) Increase in Cash and Cash Equivalents

(1,953,189)_________________ 1^,898.437

Cash and Cash Equivalents - Beginning________________________________________________ 2,117,644
Cash and Cash Equivalents - Ending________________________________________________$

________ 219,207

164,455_______________$ 2,117,644

The accon panying notes are an integral pari ot these financial statements.




35

BANK INSURANCE FUND
NOTES

BIF

TO

THE

FINANCIAL

STATEMENTS

December 3 1 ,1 9 9 9 and 1998

Legislative History

Other Significant Legislation

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

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 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 funds. All three funds are maintained sep­
arately to carry out their respective mandates.

The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and
the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) made changes to the FDIC’s assessment authority (see Note
8) and borrowing authority. The FDICIA also requires the FDIC to: 1)
resolve failing institutions in a manner that will result in the least pos­
sible cost to the deposit insurance funds and 2) maintain the insur­
ance funds at 1.25 percent of insured deposits or a higher percent­
age as circumstances warrant.

The BIF and the SAIF are insurance funds responsible for protecting
insured bank and thrift depositors from loss due to institution failures.
The FRF is a resolution fund responsible for winding up the affairs of
the former 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 member­
ship and primary federal supervisor are generally determined by the
institution’s charter type. Deposits of BIF-member institutions are
generally insured by the BIF; BIF members are predominantly com­
mercial and savings banks supervised by the FDIC, the Office of the
Comptroller of the Currency, or the Federal Reserve Board. Deposits
of SAIF-member institutions are generally insured by the SAIF; SAIF
members are predominantly thrifts supervised by the Office of Thrift
Supervision.
In addition to traditional banks and thrifts, several other categories of
institutions exist. The Federal Deposit Insurance Act (FDI Act), Section
5(d)(3), provides that a member of one insurance fund may, with the
approval of its primary federal supervisor, merge, consolidate with, or
acquire the deposit liabilities of an institution that is a member of the
other insurance fund without changing insurance fund status for the
acquired deposits. These institutions with deposits insured by both
insurance funds are referred to as Oakar financial institutions. The
FDI Act, Section 5(d)(2)(G), allows SAIF-member thrifts to convert to a
bank charter and retain their SAIF membership. These institutions are
referred to as Sasser financial institutions. The Home Owners’ Loan
Act (HOLA), Section 5(o), allows BIF-member banks to convert to a
thrift charter and retain their BIF membership. These institutions are
referred to as HOLA thrifts.


36


The Deposit Insurance Funds Act of 1996 (DIFA) was enacted to pro­
vide for: 1) the capitalization of the SAIF to its designated reserve ratio
(DRR) 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 on BIF-assessable deposits that
is one-fifth of the rate for SAIF-assessable deposits through the ear­
lier of December 31, 1999, or the date on which the last savings
association ceases to exist; 4) the payment of the annual FICO inter­
est obligation of approximately $790 million on a pro rata basis
between banks and thrifts on the earlier of January 1, 2000, or the
date on which the last savings association ceases to exist; 5) author­
ization of BIF assessments only if needed to maintain the fund at the
DRR; 6) the refund of amounts in the BIF in excess of the DRR with
such refund not to exceed the previous semiannual assessment; 7)
assessment rates for SAIF members not lower than the assessment
rates for BIF members with comparable risk; and 8) the merger of the
BIF and the SAIF on January 1,1999, if no insured depository insti­
tution is a savings association on that date, As of December 31,
1999, Congress did not enact legislation to either merge the BIF and
the SAIF or to eliminate the thrift charter.
The Gramm-Leach-Bliley Act (GLBA), (Public Law 106-102), was
enacted on November 1 2 ,1 9 9 9 , in order to modernize the financial
service industry that includes banks, brokerages, insurers, and other
financial services providers. The GLBA will, among other changes, lift
restrictions on affiliations among banks, securities firms, and insur­
ance companies. It will also expand the financial activities permissi­
ble for financial holding companies and insured depository institu­
tions, their affiliates and subsidiaries. The GLBA provides for a
greater degree of functional regulation of securities and insurance

BANK INSURANCE FUND

BIF
activities conducted by banks and their affiliates. The GLBA also governs affiliations of thrifts that are in financial holding companies and
provides for functional regulation of such thrifts’ affiliates.

_

_ m m ■ ■ > ... ..
■

Recent Legislative Initiatives
Congress continues to focus on legislative proposals that would affect
.
, , „ M ,..
,
„
the deposit insurance funds. Some of these proposals, such as the
merger of the BIF and the SAIF and the rebate of the insurance funds,
may have a significant impact on the BIF and the SAIF, if enacted into
law. Flowever, these proposals continue to vary and FDIC management
cannot preoici wnicn provisions, it dny, win uiiimaieiy oe endcieu.

Operations of the BIF
The primary purpose of the BIF is to: 1) insure the deposits and protect the depositors of BIF-insured institutions and 2) resolve failed
institutions, 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. Further,
the FDIC can also provide assistance to failing banks and monitor
compliance with assistance agreements.

ment premiums. Additional fun ding sources are U.S. Treasury and
Federal Financing Bank (FFB) bori'owings, if necessary. The 1990 OBR
Act established the FDIC’s authoriity to borrow working capital from the
r 1tj on uGn3iT ot ine dm anu triG «>AIF. The FDICIA increased the FDIC’s
.
auttorl
torrow for insura„cie losses from the U.S. Treasury, on
, , ,, ... n,r
,,,
behalf of the BIF and the SAIF, frc>m $5 billion to $30 billion.
The FDICIA also established a li mitation on obligations that can be
incurred by the BIF, known as the maximum obligation limitation
(MOL). At December 31 , 1999, ttle MOL for the BIF was $51.8 billion.
n
...... ^ .. r .... .................

Receivership Operations

The FDIC is responsible for man.aging and disposing of the assets of
failed institutions in an orderly arid efficient manner. The assets held
by receivership entities, and the claims against them, are accounted
for separately from BIF assets an d liabilities to ensure that liquidation
proceeds are distributed in accor dance with applicable laws and regulations. Also, the income and e:<penses attributable to receiverships
are accounted for as transaction;3 of those receiverships. Liquidation
expenses paid by the BIF on behcilf of the receiverships are recovered

The BIF is primarily funded from the following sources: 1) interest
earned on investments in U.S. Treasury obligations and 2) BIF assess-

from those receiversh'Ps-

General

Investments in U.S. Treasury Obligations

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

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. Where it is
reasonably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature and
extent of such changes in estimates have been disclosed.

Cash Equivalents
Cash equivalents are short-term, highly liquid investments with origi­
nal maturities of three months or less. Cash equivalents primarily
consist of Special U.S. Treasury Certificates.




Investments in U.S. Treasury obligations are recorded pursuant to the
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities.”
SFAS No. 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 shown at amortized cost.
Amortized cost is the face value of securities plus the unamortized
premium or less the unamortized discount. Amortizations are com­
puted on a daily basis from the date of acquisition to the date of
maturity. Securities designated as available-for-sale are shown at fair
value with unrealized gains and losses included in Comprehensive
Income. Realized gains and losses are included in the Statements of
Income and Fund Balance as components of Net Income. Interest on
both types of securities is calculated on a daily basis and recorded
monthly using the effective interest method. The BIF does not desig­
nate any securities as trading.

Allowance for Losses on Receivables From Bank
Resolutions and Assets Acquired from Assisted Banks and
Terminated Receiverships
The BIF records a receivable for the amounts advanced and/or obli­
gations incurred for resolving failing and failed banks. The BIF also
records as an asset the amounts paid for assets acquired from assist­

37

BANK INSURANCE FUND

BIF
ed banks and terminated receiverships. Any related allowance for
loss represents the difference between the funds advanced and/or
obligations incurred and the expected repayment. The latter is based
on estimates of discounted cash recoveries from the assets of assist­
ed or failed banks, net of all applicable estimated liquidation costs.

Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated
to all funds administered by the FDIC using workload-based-allocation percentages. These percentages are developed during the
annual corporate planning process and through supplemental func­
tional analyses.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and admin­
istration of 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 BIF’s unfunded net postretirement benefits liability is pre­
sented in the BIF's Statements of Financial Position.

Disclosure About Recent Accounting Standard
Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, “Employers’ Disclosures about Pensions and
Other Postretirement Benefits.” The Statement standardizes the dis­
closure requirements for pensions and other postretirement benefits to
the extent practicable. Although changes in the BIF’s disclosures for
postretirement benefits have been made, the impact is not material.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.” This
Statement requires the development or purchase cost of internal-use
software to be treated as a capital asset. The FDIC adopted this
Statement effective January 1,1 99 8. This asset is presented in the
“ Property and equipment, net” line item in the BIF’s Statements of
Financial Position (see Note 6).
Other recent pronouncements are not applicable to the financial
statements.

Cash received by the BIF is invested in U.S. Treasury obligations with
maturities exceeding three months unless cash is needed to meet the
liquidity needs of the fund. The BIF’s current portfolio includes secu­
rities classified as held-to-maturity and available-for-sale. The BIF
also invests in Special U.S. Treasury Certificates that are included in
the “Cash and cash equivalents” line item.


38


Depreciation
The FDIC has designated the BIF as administrator of property and
equipment used in its operations. Consequently, the BIF includes the
cost of these assets in its financial statements and provides the nec­
essary funding for them. The BIF charges the other funds usage fees
representing an allocated share of its annual depreciation expense.
These usage fees are recorded as cost recoveries, which reduce
operating expenses.
Prior to January 1, 1998, only buildings owned by the Corporation
were capitalized and depreciated. On January 1,1 9 9 8 , FDIC began
capitalizing the development and purchase cost of internal-use soft­
ware in accordance with the requirements of SOP 98-1. The FDIC also
began to capitalize the cost of furniture, fixtures, and general equip­
ment. These costs were expensed in prior years on the basis that the
costs were immaterial. The expanded capitalization policy had no
material impact on the financial position or operations of the BIF.
The Washington, D.C. office buildings and the L. William Seidman
Center 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 estimated life.
Leasehold improvements are capitalized and depreciated over the
lesser of the remaining life of the lease or the estimated useful life of
the improvements, if determined to be material. Capital assets depre­
ciated on a straight-line basis over a five-year estimated life include
mainframe equipment; furniture, fixtures, and general equipment; and
internal-use software. Personal computer equipment is depreciated
on a straight-line basis over a three-year estimated life.

Related Parties
The nature of related parties and a description of related party trans­
actions are disclosed throughout the financial statements and foot­
notes.

Reclassifications
Reclassifications have been made in the 1998 financial statements to
conform to the presentation used in 1999.

In 1999, the FDIC purchased $1.9 billion (adjusted par value) of
Treasury inflation-indexed securities (TIIS) for the BIF. Unlike a tradi­
tional Treasury security, the par value of a TIIS is indexed to and
increases with the Consumer Price Index (CPI). Hence, these securi­
ties provide a measure of protection for the BIF in the event of unan­
ticipated inflation.

BANK INSURANCE FUND

U.S. Treasury Obligations at December 31,1999
Dollars in Thousands

Maturity

Stated
Yield at
Purchase (a)

Face
Value

Amortized
Cost

Unrealized
Holding
Gains

Unrealized
Holding
Losses

$

$

(2,468)
(32,331)
(17,217)
(374,526)
$ (426.542)

$ 2,562,298
6,644,482
5,053,524
9,349,832
$23,610,136

$

(94L
(7,001)
(6,391)
(67,329)
$ (80.815)

$

431,160
624,661
447,863
2,784,726
$ 4.288.410

$(507,357)

$27,898,546

Market
Value

H eld-to-M aturity
Less than
one year
1-3 years
3-5 years
5-10 years
Total

6.02%
6.06%
6.45%
5.88%

$ 2,561,679
6,669,580
5,052,441
9,665,955
$ 23.949,655

$ 2,560,000
6,540,000
4,805,000
9,439,053
$23,344,053

$

3,087
7,233
18,300
58,403
87.023

Available-for-Sale
Less than
one year
1-3 years
3-5 years
5-10 years
Total

5.62%
5.36%
6.00%
5.15%

$

431,206
631 l662
454.254
2,852,055
$ 4,369.177

$

430,000
625,000
445,000
2,977,452
$ 4.477.452

$

$

48
0
0
0
48

Total Investm ent in U.S. Treasury Obligations, Net
Total

$28,318,832

$27,821,505

$

87,071

(a) For Treasury inflation-indexed securities (TIIS), the yields in the above table include their stated real yields at purchase, not their effective yields. Effective yields on TIIS would
include the stated real yield at purchse plus an inflation adjustment of 2.6%,which was the latest year-over-year increase in the CPI as reported by the Bureau of Labor Statistics
on December 14,1999. These effective yields are 6.44% and 6.70% for TIIS classified as held-to-maturity and available-for-sale, respectively.

U.S. Treasury Obligations at December 31,1998
Dollars in Thousands

Maturity

Stated
Yield at
Purchase

Face
Value

Amortized
Cost

Unrealized
Holding
Gains

Unrealized
Holding
Losses

$

$

Market
Value

H eld-to-M aturity
Less than
one year
1-3 years
3-5 years
5-10 years
Total

5.57%
6.04%
6.19%
6.01%

$ 2,120,000
5,525,000
5,965,000
10,295,000
$23,905,000

$ 2,133,448
5,564,524
6,345,044
10,566,047
$ 24.609,063

10,597
148,112
322,126
864,116
$1,344,951

0
0
0
0
0

$ 2,144,045
5,712,636
6,667,170
11,430,163
$25,954,014

$

$

$

$

$

0
0
0

$

0

$27,470,646

Available-for-Sale
Less than
one year
1-3 years
Total

5.09%
5.63%

$

940,000
550,000
$ 1,490.000

$

946,726
558,991
$ 1.505,717

$

4,947
5,968
10,915

951,673
564,959
$ 1.516,632

Total Investm ent in U.S. Treasury O bligations, Net
Total




825,395,000

$26,114,780

$1,355,866

39

BANK INSURANCE FUND

BIF
There were no available-for-sale securities sold during 1999. One
available-for-sale security was sold during 1998, which resulted in a
realized gain of $224 thousand. Proceeds from this sale were $186
million. This gain was included in the “ Other revenue" line item. The
cost of the security sold was determined on a specific identification
basis.
As of December 3 1 ,1 9 9 9 and 1998, the book value of Investment in
U.S. Treasury obligations net, is $28.2 billion and $26.1 billion,

The bank resolution process takes different forms depending on the
unique facts and circumstances surrounding each failing or failed
institution. Payments for institutions that fail are made to cover obli­
gations to insured depositors and represent claims by the BIF against
the receiverships’ assets. There were seven bank failures in 1999
and three in 1998, with assets at failure of $1.4 billion and $370 mil­
lion, respectively, and BIF outlays of $1.2 billion and $286.1 million,
respectively.
As of December 31, 1999 and 1998, the FDIC, in its receivership
capacity for BIF-insured institutions, held assets with a book value of
$1.9 billion and $1.6 billion, respectively (including cash and miscel­
laneous receivables of $524 million and $480 million at December

respectively. The book value is computed by adding the amortized
cost of the held-to-maturity securities to the market value of the available-for-sale securities.
As of December 31, 1999, the unamortized premium, net of the
unamortized discount, was $497 million. As of December 31,1998,
the unamortized premium, net of the unamortized discount, was $720
million.

3 1 ,1 9 9 9 and 1998, respectively). These assets represent a signifi­
cant source of repayment of the BIF’s receivables from bank resolu­
tions. The estimated cash recoveries from the management and dis­
position of these assets that are used to derive the allowance for loss­
es are based in part on a statistical sampling of receivership assets.
The sample was constructed to produce a statistically valid result.
These estimated recoveries are regularly evaluated, but remain sub­
ject to uncertainties because of potential changes in economic con­
ditions. These factors could cause the BIF’s and other claimants’
actual recoveries to vary from the level currently estimated.

Receivables from Bank Resolutions, Net at December 31
Dollars in Thousands

1999
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


40


$

105,655
(4,196)

101,459
15,673,843
(15,032,291)

$

641,552
743,011

1998
$

112,045
(10,727)
101,318

18,656,746
(18,010,116)
646,630
$ 747,948

BANK INSURANCE FUND

BIF
R tS X H H H H H H
5. Assets Acquired from Assisted Banks and Terminated Recewi^ships, Jlet
The BIF has acquired 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 to estimate cash recoveries
from these assets, which is used to derive the related allowance for
losses, is similar to that for receivables from bank resolutions (see
Note 4). The estimated cash recoveries are based upon a statistical

sampling of the assets but only include expenses for the disposition
of the assets.
The BIF recognizes revenue and expenses on these acquired assets.
Revenue consists primarily of interest earned on assets in liquidation
and gain on the sale of owned real estate. Expenses are recognized
for the management and liquidation of these assets.

Assets Acquired from Assisted Banks and Terminated Receiverships, Net at December 31
Dollars in Thousands

1999
Assets acquired from assisted banks and terminated receiverships
Allowance for losses
Total

$
$

1998

105,136
(84,386)
20,750

$

169,712
(142,339)

$

27,373

.

6 Property and Equipment,
Pronertv and Enuinment. Net at December 31 .

_

_

...... _ ..... _ _
..

_ _ .

Dollars in Thousands

1999
Land
Buildings
PC/LAN/WAN equipment
Application software
Mainframe equipment
Furniture, fixtures, and general equipment
Telephone equipment
Work in Progress - Application software
Accumulated depreciation
Total

$

29,631
159,188
27,748
29,671
5,569
10,596
1,771
48,961
(53,095)
$ 260,040

1998

$

29,631
152,078
15.612
1.892
354
764
460
49,630
(40,806)
$

209,615

The depreciation expense was $12.3 million and $3.7 million for 1999 and 1998, respectively.

7. Contingent Liabilities for:
Anticipated Failure of Insured Institutions
The BIF records a contingent 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, when the liability becomes probable and reasonably
estimable.




The contingent liabilities for anticipated failure of insured institutions
as of December 3 1 ,1999 and 1998, were $307 million and $32 mil­
lion, respectively. The contingent liability is derived in part from esti­
mates of recoveries from the management and disposition of the
assets of these probable bank failures. Therefore, these estimates
are subject to the same uncertainties as those affecting the BIF’s
receivables from bank resolutions (see Note 4).

BANK INSURANCE FUND

BIF
Several recent bank failures have involved some degree of fraud,
which adds uncertainty to estimates of loss and recovery rates. These
uncertainties, along with potential changes in economic conditions,
could affect the ultimate cost to the BIF from probable failures.
In addition to these recorded contingent liabilities, the FDIC has
recently identified a small number of additional BIF-insured financial
institutions that are likely to fail in the near future unless institution
management can resolve existing problems. If these institutions fail,
they may collectively cause a material loss to the BIF, but the amount
of potential loss is not estimable at this time.
There are other banks where the risk of failure is less certain, but still
considered reasonably possible. Should these banks fail, the BIF
could incur additional estimated losses ranging from $1 million to
$205 million.
The accuracy of these estimates will largely depend on future eco­
nomic conditions. The FDIC's Board of Directors (Board) has the
statutory authority to consider the contingent liability from anticipated
failures of insured institutions when setting assessment rates.

Year 2000 Anticipated Failures
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 timely manner.
In May 1997, the federal financial institution regulatory agencies
developed a program to conduct uniform reviews of all FDIC-insured
institutions’ Year 2000 readiness. The program assessed the five key
phases of an institution’s Year 2000 conversion efforts: 1) awareness,
2) assessment, 3) renovation, 4) validation, and 5) implementation.
The reviews classified each institution as Satisfactory, Needs
Improvement, or Unsatisfactory. Performance was defined as
Satisfactory when Year 2000 weaknesses were minor in nature and
could be readily corrected within the program management frame­
work.

ment, to include multiple Year 2000 on-site examination results, insti­
tution capital levels and supervisory examination composite ratings,
and other institution past and current financial characteristics. Based
on data updated through December 31,1999, all BIF-insured institu­
tions have received a Satisfactory rating. As a result of this assess­
ment, we conclude that, as of December 31, 1999, there are no
probable or reasonably possible losses to the BIF from Year 2000 fail­
ures.

Assistance Agreements
The contingent 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.

Litigation Losses
The BIF records an estimated loss for unresolved legal cases to the
extent those losses are considered probable and reasonably
estimable. In addition to the amount recorded as probable, the FDIC
has determined that losses from unresolved legal cases totaling $83
million are reasonably possible.

Asset Securitization Guarantees
As part of the FDIC’s efforts to maximize the return from the sale or
disposition of 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 maximum. In exchange for backing the lim­
ited guarantees, the BIF received assets from the receiverships in an
amount equal to the expected exposure under the guarantees. At
December 31, 1999 and 1998, the BIF had a contingent liability
under the guarantees of $2.5 million and $7.1 million, respectively.
The maximum off-balance-sheet exposure under the limited guaran­
tees is presented in Note 12.

In order to assess exposure to the BIF from Year 2000 potential fail­
ures, the FDIC evaluated all information relevant to such an assess­

The 1990 OBR Act removed caps on assessment rate increases and
authorized the FDIC to set assessment rates for BIF members semi­
annually, to be applied against a member’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 BIF-member institutions as needed to ensure that funds are
available to satisfy the BIF’s obligations; 3) required the FDIC to build
and maintain the reserves in the insurance funds to 1.25 percent of




42

insured deposits; and 4) authorized the FDIC to increase assessment
rates more frequently than semiannually and impose emergency spe­
cial assessments as necessary to ensure that funds are available to
repay U.S. Treasury borrowings, Since May 1995, the BIF has main­
tained a capitalization level at or higher than the DRR of 1.25 percent
of insured deposits. As of December 31,1999, the capitalization level
for BIF is 1.36 percent of estimated insured deposits.

BANK INSURANCE FUND

BIF
The DIFA (see Note 1) provided, among other things, for the elimina­
tion of the mandatory minimum assessment formerly provided for in
the FDI Act. It also provided for the expansion of the assessment base
for payments of the interest on obligations issued by the FICO to
include all FDIC-insured institutions (including banks, thrifts, and
Oakar and Sasser financial institutions). It also made the FICO
assessment separate from regular assessments, effective on January
1,1997.
BIF-insured banks began paying a FICO assessment on January 1,
1997. The FICO assessment rate on BIF-assessable deposits is onefifth the rate for SAIF-assessable deposits. The annual FICO interest
obligation of approximately $790 million will be paid on a pro rata
basis between banks and thrifts on the earlier of January 1, 2000, or
the date on which the last savings association ceases to exist.
The FICO assessment has no financial impact on the BIF. The FICO
assessment is separate from the regular assessments and is imposed

■

on banks and thrifts, not on the insurance funds. The FDIC, as admin­
istrator of the BIF and the SAIF, is acting solely as a collection agent
for the FICO. During 1999 and 1998, $364 million and $341 million,
respectively, was collected from banks and remitted to the FICO.
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 assessment for a particular institution, the FDIC
places each institution in one of nine risk categories, using a two-step
process based first on capital ratios and then on other relevant infor­
mation. The assessment rate averaged approximately 0.11 cents and
0.8 cents per $100 of assessable deposits for 1999 and 1998,
respectively. On November 8 ,1999, the Board voted to retain the BIF
assessment schedule at the annual rate of 0 to 27 cents per $100 of
assessable deposits for the first semiannual period of 2000. The
Board reviews premium rates semiannually.

:.... ■ # 1111®
■

Provision for insurance losses was $1.2 billion and a negative $38
million for 1999 and 1998, respectively. The large provision in 1999
was largely attributed to recognizing losses of $838 million for the
resolution of current year bank failures. In 1998, the negative provi-

sion resulted primarily from decreased losses expected for assets in
liquidation. The following chart lists the major components of the pro­
vision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31

... . ...

Dollars in Thousands

Valuation Adjustments:
Open bank assistance
Closed banks
Assets acquired from assisted banks and terminated receiverships
Total Valuation Adjustments
Contingent Liabilities;
Anticipated failure of insured institutions
Assistance aqreements
Litiqation losses
Asset securitization guarantees
Total Contingent Liabilities
Total




1999
$

(6,280)
325,836
(10,977)
308,579

849,000
8,792
2,294
84
860,170
$1,168,749

1998
$

$

(2,431)
(53,926)
2,222
(54,135)
29,000
(8,322)
8,801
(13,043)
16,436
(37,699)

43

BANK INSURANCE FUND

BIF
Eligible FDIC employees (permanent and term employees with
appointments exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal Employees
Retirement System (FERS). The CSRS is a defined benefit plan, which
is offset with the Social Security System in certain cases. Plan ben­
efits are determined on the basis of years of creditable service and
compensation levels. The CSRS-covered employees also can con­
tribute to the tax-deferred Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic defined benefit
plan that provides benefits based on years of creditable service and
compensation levels, Social Security benefits, and the TSP. Automatic
and matching employer contributions to the TSP are provided up to
specified amounts under the FERS.

Although the BIF contributes a portion of pension benefits for eligible
employees, it does not account for the assets of either retirement sys­
tem. 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 Management (OPM).
Eligible FDIC employees also may participate in a FDIC-sponsored
tax-deferred 401 (k) savings plan with matching contributions. The
BIF pays its share of the employer's portion of all related costs.
The BIF’s pro rata share of the Corporation’s liability to employees for
accrued annual leave is approximately $38.2 million and $38.4 mil­
lion at December 3 1 ,1 9 9 9 and 1998, respectively.

During 1998, there was an open season that allowed employees to
switch from CSRS to FERS. This did not have a material impact on
BIF's operating expenses for 1998.

Pension Benefits and Savings Plans Expenses lor the Years Ended December 31
Dollars in Thousands

CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employees Retirement System (Basic Benefit)
FDIC Savinqs Plan
Federal Thrift Savinqs Plan
Total

On January 2, 1998, the BIF’s obligation under SFAS No. 106,
“Employers' Accounting for Postretirement Benefits Other Than
Pensions,” for postretirement health benefits was reduced when over
6,500 FDIC employees enrolled in the Federal Employees Health
Benefits (FEHB) Program for their future health insurance coverage.
The OPM assumed the BIF’s obligation for postretirement health ben­
efits for these employees at no initial enrollment cost.
In addition, legislation was passed that allowed the remaining 2,600
FDIC retirees and near-retirees (employees within five years of retire­
ment) in the FDIC health plan to also enroll in the FEHB Program for
their future health insurance coverage, beginning January 1,1999.


44


1999
$

$

0
10,270
28,449
17,215
11,018
66,952

1998

$

1,166
10,477
27,857
17,534
10,991

$

68,025

The OPM assumed the BIF’s obligation for postretirement health ben­
efits for retirees and near retirees for a fee of $150 million. The OPM
is now responsible for postretirement health benefits for all FDIC
employees and covered retirees. The FDIC will continue to be obligat­
ed for dental and life insurance coverage for as long as the programs
are offered and coverage is extended to retirees.
OPM’s assumption of the health care obligation constituted both a
settlement and a curtailment as defined by SFAS No. 106. This con­
version resulted in a gain of $201 million to the BIF in 1998.

BANK INSURANCE FUND

BIF
Postretirement Benefits Other Than Pensions
Dollars in Thousands

1999

Funded Status at December 31
Fair value of plan assets (a)
Less: Benefit obliqation
Under Funded Status of the Plan
Accrued benefit liability recoqnized in the
Statements of Financial Position

1998

$

71,286
75,275
3,989

$

67,539
67,539
0

$

3,989

$

0

$

2,468
1,111

$

1,111

(1,942)
6,299
6.299

4.50%
4.50%
3.00%

4.50%
4.50%
4.00%

$

Expenses and Cash Flows fo r the Period Ended December 31
Net periodic benefit cost
Employer contributions
Benefits paid
Weighted-Average Assumptions at December 31
Discount rate
Expected return on plan assets
Rate of compensation increase

$

(a) Invested in U,S. Treasury obligatioiis

Total dental coverage trend rates were assumed to be 7% per
year, inclusive of general inflation. Dental costs were assumed to

be subject to an annual cap of $2,000.

Commitments

based upon current relationships of the workloads among the BIF, the
SAIF, and the FRF. Changes in the relative workloads could cause the
amounts allocated to the BIF in the future to vary from the amounts
shown below. The BIF recognized leased space expense of $41.5
million and $47.7 million for the years ended December 31, 1999
and 1998, respectively.

Leases
The BIF's allocated share of the FDIC’s lease commitments totals
$150.9 million for future years. The lease agreements contain esca­
lation clauses resulting in adjustments, usually on an annual basis.
The allocation to the BIF of the FDIC’s future lease commitments is

Lease Commitments
Dollars in Thousands

2000

2001

2002

2003

2004

2005

$39,487

$34,718

$33,322

$23,043

$13,261

$7,085

Off-Balance-Sheet Exposure
Asset Securitization Guarantees
As discussed in Note 7, the BIF provided certain limited guarantees to
facilitate securitization transactions. The table below gives the maxi-




mum off-balance-sheet exposure the BIF has under these guarantees.

45

BANK INSURANCE FUND

BIF
Asset Securitization Guarantees at December 31
Dollars in Thousands

1999

1998

448,881
(32,716)
(2,477)

Maximum exposure’under the limited guarantees...............
Less: Guarantee claims paid (inception-to-date)
Less: Amount of exposure recognized as a contingent liability (see Note 7)

413,688

Maximum Off-Balance-Sheet Exposure Under the Limited Guarantees

Deposit Insurance

481,313
(27,253)
(7,141)

$

446,919

purchase of any or all of the “ unexpired putbacks” at any time prior
to expiration. The FDIC’s estimate of the volume of assets subject to
repurchase under existing agreements is $4.5 million. The actual
amount subject to repurchase should be significantly lower because
the estimate does not reflect subsequent collections on or sales of
assets kept by the acquirer. It also does not reflect any decrease due
to acts by the acquirers which might disqualify assets from repur­
chase eligibility. Repurchase eligibility is determined by the FDIC
when the acquirer initiates the asset putback procedures. The FDIC
projects that a total of $132 thousand in book value of assets will be
putback.

As of December 31, 1999, deposits insured by the BIF totaled
approximately $2.2 trillion. This would be the accounting loss if all
depository institutions were to fail and the acquired assets provided
no recoveries.

Asset Putbacks
Upon resolution of a failed bank, the assets are placed into receiver­
ship and may be sold to an acquirer under an agreement that certain
assets may be resold, or “putback,” to the receivership. The values
and time limits for these assets to be putback are defined within each
agreement. It is possible that the BIF could be called upon to fund the

make repayments to the BIF is largely influenced by the economy of
the area in which they are located. The BIF’s estimated maximum
exposure to possible accounting loss for these assets is shown in the
table below.

As of December 31 ,19 99 , the BIF had $15.8 billion in gross receiv­
ables from bank resolutions and $105.1 million in gross assets
acquired from assisted banks and terminated receiverships. An
allowance for loss of $15.0 billion and $84.4 million, respectively, has
been recorded against these assets. The liquidating entities' ability to

Concentration of Credit Risk at December 31,1999
Dollars in Millions

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

$

Total

$ 160


http://fraser.stlouisfed.org/
46
Federal Reserve Bank of St. Louis

160

Southwest

Northeast

$

106
20

391

126

$ 391

Midwest

0

$

0

$

$

5

$

5

Central

West

Total

$ 81

$ 743

$

0
0

1

21

$

o

$82

$ 764

0

BANK INSURANCE FUND

BIF
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 bbligations is disclosed in Note 3 and is based on cur­
rent market prices. The carrying 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.
The net receivables from bank resolutions primarily include the BIF’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 con­
sideration of market risk. These discounts ultimately affect the BIF’s
allowance for loss against the net receivables from bank resolutions.
Therefore, the corporate subrogated claim indirectly includes the
effect of discounting and should not be viewed as being stated in
terms of nominal cash flows.
Although the value of the corporate subrogated claim is influenced by
valuation of receivership assets (see Note 4), such receivership valu­
ation is not equivalent to the valuation of the corporate claim. Since
the corporate claim is unique, not intended for sale to the private sec­

tor, 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 BIF
on the subrogated claim does not necessarily correspond with the
timing of collections on receivership assets. Therefore, the effect of
discounting used by receiverships should not necessarily be viewed
as producing an estimate of market value for the net receivables from
bank resolutions.
The majority of the net assets acquired from assisted banks and ter­
minated receiverships (except real estate) is comprised of various
types of financial instruments, including investments, loans and
accounts receivables. Like receivership assets, assets acquired from
assisted banks and terminated receiverships are valued using dis­
count rates that include consideration of market risk. However, assets
acquired from assisted banks and terminated receiverships do not
involve the unique aspects of the corporate subrogated claim, and
therefore the discounting can be viewed as producing a reasonable
estimate of fair market value.

Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31
Dollars in Thousands

1999
$ (106,445)

Net Income

1998
$ 1,308,723

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Income Statement Items:
Provision for insurance losses________________________
Amortization of U.S. Treasury obliqations
TIIS inflation adjustment
Gain on sale of investments
Gain on conversion of benefit plan
Depreciation on property and equipment
Retirement of capitalized equipment

________________________________ 1,168,749______
164,880
(26,930)
0
0
12,288
4,476

Change in Assets and Liabilities:
Decrease (Increase) in interest receivable on investments and other assets
(Increase) Decrease in receivables from bank resolutions
Decrease in assets acquired from assisted banks and terminated receiverships
(Decrease) in accounts payable and other liabilities
(Decrease) in continqent liabilities for anticipated failure of insured institutions
(Decrease) in continqent liabilities for assistance aqreements
(Decrease) in continqent liabilities for litiqation losses
(Decrease) in continqent liabilities for asset securitization quarantees
Net Cash Provided by Operating Activities



________(37,699)
133,705
0
(224)
(200,532)
3,745
0

188,322
(311,671)
17,599
(45,219)
(574,000)
(13,007)
(14,595)
(4,748)
$

(7,033)
417,444
31,129
(26,416)
(8,000)
(8,505)
0
(7,531)

459,699

$ 1,598,806
47

BANK INSURANCE FUND

BIF
State of Readiness
The FDIC, as administrator for the BIF, conducted a corporate-wide
effort to ensure that all FDIC information systems were Year 2000
compliant. This meant that systems must accurately process date
and time data in calculations, comparisons, and sequences after
December 31,1999 , and be able to correctly deal with leap-year cal­
culations in 2000. An oversight committee comprised of FDIC divi­
sion management directed the Year 2000 effort.
The FDIC’s Division of Information Resources Management (DIRM) led
the Year 2000 effort, under the direction of the oversight committee.
The internal Year 2000 team used a structured approach and rigor­
ous program management as described in the U.S. General
Accounting Office’s (GAO) Year 20 0 0 Computing Crisis: An
Assessment Guide. This methodology consisted of five phases under
the overall umbrellas of Program and Project Management. The FDIC

Year 2000 Effect on Internal Systems
On January 1, 2000, all FDIC systems were operating normally as a
result of a corporate-wide effort to ensure that all FDIC information
systems were Year 2000 compliant prior to December 31,1999. No
internal system failures have occurred and none are anticipated (see
Note 16).




48

completed ail of the recommended GAO phases: Awareness,
Assessment, Renovation, Validation, and Implementation.
As a precautionary measure, the FDIC developed a Year 2000
Rollover Weekend Strategy to monitor the information systems during
the transition into the year 2000. Contingency plans were in place for
mission-critical application failures and for other systems. No major
problems were anticipated due to the extensive planning and valida­
tion that occurred (see Note 17).

Year 2000 Estimated Costs
Year 2000 compliance expenses for the BIF are estimated at $45.4
million and $34.7 million at December 3 1 ,1 9 9 9 and 1998, respec­
tively. These expenses are reflected in the “ Operating expenses" line
of the BIF’s Statements of Income and Fund Balance.

Year 2000 Effect on Anticipated Failures
As of May 5, 2000, no banks had failed due to Year 2000 related
problems and none are anticipated. Refer to “Contingent Liabilities
for: Year 2000 Anticipated Failures” (see Note 7).

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
Federal Deposit Insurance Corporation
Savings Association Insurance Fund Statements of Financial Position at December 31
Dollars in Thousands

Assets
Cash and cash equivalents
Cash and other assets: Restricted for SAIF-member exit fees (Note 3)
(Includes cash and cash equivalents of $23.3 million and $55.2 million
at December 31, 1999 and December 31, 1998, respectively)
Investment in U.S. Treasury obligations, net (Note 4)
(Market value of investments at December 31, 1999 and December 31, 1998
was $9.8 billion and $9.4 billion, respectively)
Interest receivable on investments and other assets, net
Receivables from thrift resolutions, net (Note 5)
Total Assets
Liabilities
Accounts payable and other liabilities
Contingent liability for anticipated failure of insured institutions (Note 6)
SAIF-member exit fees and investment proceeds held in escrow (Note 3)
Total Liabilities
Commitments and off-balance-sheet exposure (Note 10)
Fund Balance
Accumulated net income
Unrealized (loss)/qain on available-for-sale securities, net (Note 4}
Total Fund Balance
Total Liabilities and Fund Balance
The accompanying notes are an integral part of these financial statements.




1998

1999
$

146,186

$

666,736

268,490

253,790

9,979,572
153,558
62,244
$10,610,050

9,061,786
140,699
8,857
$10,131,868

$

$

4,888
56,000
268,490
329,378

7,247
31,000
253,790
292,037

10,312,416
(31,744)
10,280,672

9,835,577
4,254
9,839,831

$10,610,050

$10,131,868

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
Federal Deposit Insurance Corporation
~
Savings Association Insurance Fund Statements of Income and Fund Balance for the Years Ended December 31
Dollars in Thousands

1999

Revenue
Interest on U.S. Treasury obligations
Assessments (Note 7)
Gain on conversion of benefit plan (Note 9)
Other revenue
Total Revenue

$

585,830
15,116
0
49
600,995

1998
$

562,750
15,352
5,464

293
583,859

Expenses and Losses
Operatinq expenses
Provision for insurance losses
Other insurance expenses
Total Expenses and Losses

92,882
30,648
626
124,156

84,628
31,992
9
116,629

Net Income
Unrealized (loss)/qain on avallable-for-sale securities, net (Note 4)

476,839
(35,998)

467,230
4,286

Comprehensive Income

440,841

471,516

9,839,831

9,368,315

$10,280,672

$ 9,839,831

Fund Balance - Beginning
Fund Balance - Ending
The accompanying noles are an integral part of these financial statements.


50


SAVINGS ASSOCIATION INSURANCE FUND

SAIF
Statements of Cash Flows for the Years Ended December 31
Dollars in Thousands

Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations
Assessments
Entrance and exit fees, including interest on exit fees (Note 3)
Recoveries from thrift resolutions
Recoveries from conversion of benefit plan
Miscellaneous receipts
Cash used by:
Operatinq expenses
Disbursements for thrift resolutions
Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 12)
Cash Flows From Investing Activities
Cash provided by:
Maturity of U.S. Treasury obligations, held-to-maturity
Maturity of U.S. Treasury obligations, available-for-sale
Cash used by:
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) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Unrestricted Cash and Cash Equivalents - Ending
Restricted Cash and Cash Equivalents - Ending
Cash and Cash Equivalents - Ending

1998

1999
$

606,244
15,384
15,487
5,775
2,264
46

$

597,596
13,991
10,306
1,119
0
67

(91,789)
(64,494)
(306)
488,611

(85,248)
(5,414)
0
532,417

1,635,000
425,000

1,840,000
0

(1,326,004)
(1,775,103)
(1,041,107)

(1,402,352)
(438,225)

(552,496)

531,840

721,984

190,144

146,186

666,736

23,302

55,248

169,488

721,984

(577)

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




51

SAVINGS ASSOCIATION INSURANCE FUND
NOTES

SAIF

TO

THE

FINANCIAL

STATEMENTS

December 3 1 ,1 9 9 9 and 1998

1, Legislative History and Operations of the Savings Association Insurance Fund
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 (FDIC) as the administrator of
these funds. All three funds are maintained separately to carry out
their respective mandates.
The SAIF and the BIF are insurance funds responsible for protecting
insured thrift and bank depositors from loss due to institution failures.
The FRF is a resolution fund responsible for winding up the affairs of
the former 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 ,19 89 through June 30,
1995) or the FSLIC (prior to 1989).
Pursuant to FIRREA, an active institution’s insurance fund member­
ship 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
of BIF-member institutions are generally insured by the BIF; BIF mem­
bers are predominantly commercial and savings banks supervised by
the FDIC, the Office of the Comptroller of the Currency, or the Federal
Reserve Board.
In addition to traditional thrifts and banks, several other categories of
institutions exist. The Federal Deposit Insurance Act (FDI Act), Section
5(d)(3), provides that a member of one insurance fund may, with the
approval of its primary federal supervisor, merge, consolidate with, or
acquire the deposit liabilities of an institution that is a member of the
other insurance fund without changing insurance fund status for the
acquired deposits. These institutions with deposits insured by both
insurance funds are referred to as Oakar financial institutions. The
FDI Act, Section 5(d)(2)(G), allows SAIF-member thrifts to convert to a
bank charter and retain their SAIF membership. These institutions are
referred to as Sasser financial institutions. The Home Owners’ Loan
Act (HOLA), Section 5(o), allows BIF-member banks to convert to a
thrift charter and retain their BIF membership. These institutions are
referred to as HOLA thrifts.


52


Other Significant Legislation
The Competitive Equality Banking Act of 1987 established the
Financing Corporation (FICO) as a mixed-ownership government cor­
poration whose sole purpose was to function as a financing vehicle
for the FSLIC.
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and
the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) made changes to the FDIC’s assessment authority (see Note
7) and borrowing authority. The FDICIA also requires the FDIC to: 1)
resolve failing institutions in a manner that will result in the least pos­
sible cost to the deposit insurance funds and 2) maintain the insur­
ance funds at 1.25 percent of insured deposits or a higher percent­
age as circumstances warrant.
The Deposit Insurance Funds Act of 1996 (DIFA) was enacted to pro­
vide for: 1) the capitalization of the SAIF to its designated reserve ratio
(DRR) 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 thrifts and banks; 3) beginning January 1,1997, the
imposition of a FICO assessment rate on SAIF-assessable deposits
that is five times the rate for BIF-assessable deposits through the ear­
lier of December 31, 1999, or the date on which the last savings
association ceases to exist; 4) the payment of the annual FICO inter­
est obligation of approximately $790 million on a pro rata basis
between thrifts and banks on the earlier of January 1, 2000, or the
date on which the last savings association ceases to exist; 5) author­
ization of SAIF assessments only if needed to maintain the fund at the
DRR; 6) the refund of amounts in the SAIF in excess of the DRR with
such refund not to exceed the previous semiannual assessment; 7)
assessment rates for SAIF members not lower than the assessment
rates for BIF members with comparable risk; and 8) the merger of the
SAIF and the BIF on January 1,1999, if no insured depository insti­
tution is a savings association on that date. As of December 31,
1999, Congress did not enact legislation to either merge the SAIF and
the BIF or to eliminate the thrift charter.
The DIFA required the establishment of a Special Reserve of the SAIF
if, on January 1 ,1 9 9 9 , the reserve ratio exceeded the DRR of 1.25
percent. The reserve ratio exceeded the DRR by approximately 0.14
percent on January 1,1999. As a result, $978 million was placed in
a Special Reserve of the SAIF and was administered by the FDIC. On
November 12, 1999, the Gramm-Leach-Bliley Act (GLBA), (Public
Law 106-102), was enacted which eliminated the SAIF Special
Reserve.

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
The GLBA was enacted in order to modernize the financial services
industry that includes banks, brokerages, insurers, and other financial
service providers. The GLBA will, among other changes, lift restric­
tions on affiliations among banks, securities firms, and insurance
companies. It will also expand the financial activities permissible for
financial holding companies and insured depository institutions, their
affiliates and subsidiaries. The GLBA provides for a greater degree of
functional regulation of securities and insurance activities conducted
by banks and their affiliates. The GLBA also governs affiliations of
thrifts that are in financial holding companies and provides for func­
tional regulation of such thrifts’ affiliates.

Recent Legislative Initiatives
Congress continues to focus on legislative proposals that would affect
the deposit insurance funds. Some of these proposals, such as the
merger of the SAIF and the BIF and the rebate of the insurance funds,
may have a significant impact on the SAIF and the BIF, if enacted into
law. Flowever, these proposals continue to vary and FDIC manage­
ment cannot predict which provisions, if any, will ultimately be enact­
ed.

Operations of the SAIF
The primary purpose of the SAIF is to: 1) insure the deposits and pro­
tect the depositors of SAIF-insured institutions and 2) resolve failed
SAIF-insured institutions including managing and liquidating their
assets. In this capacity, the SAIF has financial responsibility for all

SAIF-insured deposits held by SAIF-member institutions and by BIFmember banks designated as Oakar financial institutions.
The SAIF is primarily funded from the following sources: 1) interest
earned on investments in U.S. Treasury obligations and 2) SAIF
assessment premiums. Additional funding sources are borrowings
from the U.S. Treasury, the Federal Financing Bank (FFB), and the
Federal Home Loan Banks, if necessary. The 1990 OBR Act estab­
lished the FDIC’s authority to borrow working capital from the FFB on
behalf of the SAIF and the BIF. The FDICIA increased the FDIC’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 billion. The FDI­
CIA also established a limitation on obligations that can be incurred
by the SAIF, known as the maximum obligation limitation (MOL). At
December 31,1999 , the MOL for the SAIF was $16.7 billion.

Receivership Operations
The FDIC is responsible for managing and disposing of the assets of
failed institutions in an orderly and efficient manner. The assets held
by receivership entities, and the claims against them, are accounted
for separately from SAIF assets and liabilities to ensure that liquida­
tion proceeds are distributed in accordance with applicable laws and
regulations. Also, the income and expenses attributable to receiver­
ships are accounted for as transactions of those receiverships.
Liquidation expenses paid by the SAIF on behalf of the receiverships
are recovered from those receiverships.

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 accor­
dance with generally accepted accounting principles (GAAP). These
statements do not include reporting 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 FDIC’s activities
as receiver or liquidating agent are furnished to courts, supervisory
authorities, and others as required.

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. Where it is
reasonably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature and
extent of such changes in estimates have been disclosed.

Cash Equivalents
Cash equivalents are short-term, highly liquid investments with origi­




nal maturities of three months or less. Cash equivalents primarily
consist of Special U.S. Treasury Certificates.

Investments in U.S. Treasury Obligations
Investments in U.S. Treasury obligations are recorded pursuant to the
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities.”
SFAS No. 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 shown at amortized cost.
Amortized cost is the face value of securities plus the unamortized
premium or less the unamortized discount. Amortizations are com­
puted on a daily basis from the date of acquisition to the date of
maturity. Securities designated as available-for-sale are shown at fair
value with unrealized gains and losses included in Comprehensive
Income. Realized gains and losses are included in the Statements of
Income and Fund Balance as components of Net Income. Interest on
both types of securities is calculated on a daily basis and recorded
monthly using the effective interest method. The SAIF does not des­
ignate any securities as trading.

53

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
Allowance for Losses on Receivables from Thrift
Resolutions

Disclosure About Recent Accounting Standards
Pronouncements

The SAIF records a receivable for the amounts advanced and/or obli­
gations incurred for resolving failing and failed thrifts. Any related
allowance for loss represents the difference between the funds
advanced and/or obligations incurred and the expected repayment.
The latter is based on estimates of discounted cash recoveries from
the assets of assisted or failed thrifts, net of all estimated liquidation
costs.

In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, “ Employers’ Disclosures about Pensions and
Other Postretirement Benefits.” The Statement standardizes the dis­
closure requirements for pensions and other postretirement benefits
to the extent practicable. Although changes in the SAIF's disclosures
for postretirement benefits have been made, the impact is not mate­
rial.

Cost Allocations Among Funds

Other recent pronouncements are not applicable to the financial
statements.

Operating expenses not directly charged to the funds are allocated to
all funds administered by the FDIC using workload-based-allocation
percentages. These percentages are developed during the annual
corporate planning process and through supplemental functional
analyses.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and admin­
istration of postretirement benefits on behalf of the SAIF, the BIF, and
the FRF. Each fund pays its liabilities for these benefits directly to the
entity. The SAIF’s unfunded net postretirement benefits liability is pre­
sented in the SAIF’s Statements of Financial Position.

The SAIF collects 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 (result­
ing in an exit fee). Regulations approved by the FDIC’s Board of
Directors (Board) and published in the Federal Register on March 21,
1990, directed 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 payment of inter­
est on obligations previously issued by the FICO. These escrowed exit

Related Parties
The nature of related parties and a description of related party trans­
actions are disclosed throughout the financial statements and foot­
notes.

Reclassifications
Reclassifications have been made in the 1998 financial statements to
conform to the presentation used in 1999.

fees are invested in U.S. Treasury securities pending determination of
ownership. The interest earned is also held in escrow. There were no
conversion transactions during 1999 and 1998 that resulted in an
exit fee to the SAIF.
As of December 31,1999, the unamortized premium, net of unamor­
tized discount, was $6.0 million. As of December 31, 1998, the
unamortized premium, net of the unamortized discount, was $3.4
million.

Cash and Other Assets: Restricted for SAIF-Member Exit Fees at December 31
Dollars in Thousands

Cash and cash equivalents
Investment in U.S. Treasury obliqations, net
Interest receivable on U.S. Treasury obliqations
Exit fees receivable
Total


54


$

$

1999
23,302
239,975
4,529
684
268,490

$

$

1998
55,248
193,350
4,190
1,002
253,790

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
---- -------------- -------------

U.S. Treasury Obligations, Net at December 31,1999 (Restricted for SAIF-Member Exit Fees)
Dollars in Thousands

Maturity

Stated
Yield at
Purchase

Face
Value

Unrealized
Holding
Gains

Amortized
Cost

Unrealized
Holding
Losses

Market
Value

1-3 years
3-5 years
5-10 years
Total

5.90%
6.30%
5.20%

$ 115,000
55,000
64,000
$ 234,000

$

115,336
56,131
68,508
239,975

$

$

0
217
0
217

03

Held-to-Maturity
$

(582)
(5,265)
$(6,723)

$ 114,460
55,766
63,243
$ 233,469

U.S. Treasury Oblinations. Net at December 31. 1998 (Restricted for SAIF-Member Exit Fees)
Dollars in Thousands

Maturity

Stated
Yield at
Purchase

Face
Value

Unrealized
Holding
Gains

Amortized
Cost

Unrealized
Holding
Losses

Market
Value

Heid-to-Maturity
1-3 years
3-5 years
5-10 years
Total

5.52%
6.12%
5.69%

$

15,000
135,000
40,000
$ 190,000

$

$

15,359
134,722
43,269
193,350

Cash received by the SAIF is invested in U.S. Treasury obligations with
maturities exceeding three months unless cash is needed to meet the
liquidity needs of the fund. The SAIF’s current portfolio includes secu­
rities classified as held-to-maturity and available-for-sale. The SAIF
also invests in Special U.S. Treasury Certificates that are included in
the “Cash and cash equivalents” line item.
In 1999, the FDIC purchased $935.7 million (adjusted par value) of
Treasury inflation-indexed securities (TIIS) for the SAIF. Unlike a tra­
ditional Treasury security, the par value of a TIIS is indexed to and
increases with the Consumer Price Index (CPI). Hence, these securi­
ties provide a measure of protection for the SAIF in the event of unan­
ticipated inflation.




$

$

335
6,550
2,156
9,041

$

$

0
0
0
0

$

15,694
141,272
45,425
$ 202,391

As of December 3 1 ,1999 and 1998, the book value of Investment in
U.S. Treasury obligations, net is $10.0 billion and $9.1 billion, respec­
tively. The book value is computed by adding the amortized cost of
the held-to-maturity securities to the market value of the availablefor-sale securities.
As of December 31,1999, the unamortized premium, net of unamor­
tized discount, was $130.5 million. As of December 31,1 9 9 8 , the
unamortized premium, net of the unamortized discount, was $152.5
million.

55

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
U.S. Treasury Obligations, Net at December 31,1999 (Unrestricted)
Dollars in Thousands

Maturity

Stated
Yield at
Purchase (a)

Face
Value

Amortized
Cost

Unrealized
Holding
Gains

Unrealized
Holding
Losses

Market
Value

H eld-to-M aturity
Less than
one year
1-3 years
3-5 years
5-10 vears
Total

5.93%
5.97%
6.34%
5.61%

$1,630,000
2,915,000
705,000
2,713.214
$7,963,214

$ 1,631,605
2,937,618
739,940
2.771.691
$ 8.080.854

$

$

1,020
280
2,131
5.896
9.327

$ (1,154)
(14,021)
(4,218)
(126.467)
$(145,860)

$1,631,471
2,923,877
737,853
2,651.120
$7,944,321

$

(14)
(1,046)
(2,151)
(28,555)
$(31,766)

$ 150,387
80,050
253,687
1.414.594
$1,898,718

$(177,626)

$9,843,039

Available-for-Sale
Less than
one year
1-3 years
3-5 vears
5-10 vears
Total

5.62%
5.17%
6.28%
5.03%

$ 150,000
80,000
240,000
1.447.582
$1,917,582

$

150,379
81,096
255,838
1.443.149
$ 1,930.462

$

$

22
0
0
0
22

Total Investm ent in U.S. Treasury Obligations, Net

$9,880,796

Total

$10,011,316

$

9,349

(a) For Treasury inflation-indexed sec unties (TIIS), the yields in the above table include their stated real yields at purchase, not their effective yields. Effective yields on TIIS would include the stated real
yield at purchase plus an inflation adjustm ent of 2.6% . which was the latest year-over-year increase in the CPI as reported by the Bureau of Labor Statistics on December 1 4 ,1 9 9 9 . These effectiveyields are 6 47% and 6.71% tor TIIS classified as held To-maturity and available-for-sale. respectively.

U.S. Treasury Obligations, Net at December 31,1998 (Unrestricted)
Dollars in Thousands

Maturity

Stated
Yield at
Purchase

Face
Value

Amortized
Cost

5.82%
5.96%
6.04%
6.00%

$1,490,000
3.585,000
1.640,000
1,615,000
$8,330,000

Unrealized
Holding
Losses

Market
Value

H eld-to-M aturity

||1 | | || | Ilf Jfll | §I. I
Less than
one vear
1-3 years
3-5 years
5-10 years
Total

Unrealized
Holding
Gains

$ 1,496,779
3,609,527
1,703,669
1,664,974
$ 8,474,949

$

8,790
88,035
76,027
117,633
$ 290,485

$

0
0
0
0
0

$1,505,569
3,697,562
1,779,696
1,782,607
$8,765,434

$

$
$

0
0
0

$ 376,012
210,825
$ 586,837

$

0

$9,352,271

$

Available-for-Sale
Less than
one year
1-3 years
Total

5.55%
5.61%

$ 370,000
205,000
$ 575,000

$
$

373,840
208,743
582,583

$

2,172
2,082
4.254

Total Investm ent in U.S. Treasury Obligations, Net

Total


56


$8,905,000

$ 9,057,532

$ 294,739

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
S, Receivables from Thrift Best utions, Net
The thrift resolution process takes different forms depending on the
unique facts and circumstances surrounding each failing or failed
institution. Payments for institutions that fail are made to cover obli­
gations to insured depositors and represent claims by the SAIF
against the receiverships’ assets. There was one thrift failure in 1999
with assets at failure of $63 million and SAIF outlays of $63 million,
and no thrift failures in 1998.
As of December 31, 1999 and 1998, the FDIC, in its receivership
capacity for SAIF-insured institutions, held assets with a book value
of $114.0 million and $46.1 million, respectively (including cash and
miscellaneous receivables of $104.0 million and $45.7 million at

December 3 1 ,1 9 9 9 , and 1998, respectively). These assets repre­
sent a significant source of repayment of the SAIF’s receivables from
thrift resolutions. The estimated cash recoveries from the manage­
ment and disposition of these assets that are used to derive the
allowance for losses are based in part on a statistical sampling of
receivership assets. The sample was constructed to produce a sta­
tistically valid result. These estimated recoveries are regularly evalu­
ated, but remain subject to uncertainties because of potential
changes in economic conditions. These factors could cause the
SAIF’s and other claimants’ actual recoveries to vary from the level
currently estimated.

6. Contingent Liabilities for:
Anticipated Failure of Insured Institutions
The SAIF records a contingent 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, when the liability becomes probable and reasonably
estimable.
The contingent liabilities for anticipated failure of insured institutions
as of December 3 1 ,1 9 9 9 and 1998, were $56 million and $31 mil­
lion, respectively. The contingent liability is derived in part from esti­
mates of recoveries from the management and disposition of the
assets of these probable thrift failures. Therefore, these estimates are
subject to the same uncertainties as those affecting the SAIF’s receiv­
ables from thrift resolutions (see Note 5). Consequently, this could
affect the ultimate cost to the SAIF from probable failures.
There are other thrifts where the risk of failure is less certain, but still
considered reasonably possible. Should these thrifts fail, the SAIF
could incur additional estimated losses ranging from $1 million to
$87 million.
The accuracy of these estimates will largely depend on future eco­
nomic conditions. The Board has the statutory authority to consider
the contingent liability from anticipated failures of insured institutions
when setting assessment rates.

Year 2000 Anticipated Failures
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.




In May 1997, the federal financial institution regulatory agencies
developed a program to conduct uniform reviews of all FDIC-insured
institutions’ Year 2000 readiness. The program assessed the five key
phases of an institution’s Year 2000 conversion efforts: 1) awareness,
2) assessment, 3) renovation, 4) validation, and 5) implementation.
The reviews classified each institution as Satisfactory, Needs
Improvement, or Unsatisfactory. Performance was defined as
Satisfactory when Year 2000 weaknesses were minor in nature and
could be readily corrected within the program management frame­
work.
In order to assess exposure to the SAIF from Year 2000 potential fail­
ures, the FDIC evaluated all information relevant to such an assess­
ment, to include multiple Year 2000 on-site examination results, insti­
tution capital levels and supervisory examination composite ratings,
and other institution past and current financial characteristics. Based
on data updated through December 31,1999 , all SAIF-insured insti­
tutions have received a Satisfactory rating. As a result of this assess­
ment, we conclude that, as of December 31, 1999, there are no
probable or reasonably possible losses to the SAIF from Year 2000
failures.

Litigation Losses
The SAIF records an estimated loss for unresolved legal cases to the
extent those losses are considered probable and reasonably
estimable. For 1999 and 1998, no legal cases were deemed proba­
ble in occurrence. The FDIC has determined that losses from unre­
solved legal cases totaling $620 thousand are reasonably possible.

57

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
The 1990 OBR Act removed caps on assessment rate increases and
authorized the FDIC to set assessment rates for SAIF members semi­
annually, to be applied against a member’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 SAIF-member institutions as needed to ensure that funds are
available to satisfy the SAIF’s obligations; 3) required the FDIC to build
and maintain the reserves in the insurance funds to 1.25 percent of
insured deposits; and 4) authorized the FDIC to increase assessment
rates more frequently than semiannually and impose emergency spe­
cial assessments as necessary to ensure that funds are available to
repay U.S. Treasury borrowings.
The DIFA (see Note 1) provided, among other things, for the capital­
ization of the SAIF to its DRR of 1 .25 percent by means of a one-time
special assessment on SAIF-insured deposits. The SAIF achieved its
required capitalization by means of a $4.5 billion special assessment
effective October 1,1996. Since October 1996, the SAIF has main­
tained a capitalization level at or higher than the DRR of 1.25 percent
of insured deposits. As of December 31,1999, the capitalization level
for the SAIF is 1 .45 percent of estimated insured deposits.
The DIFA provided for the elimination of the mandatory minimum
assessment formerly provided for in the FDI Act. It also provided for
the expansion of the assessment base for payments of the interest on

m

: f.

The FICO assessment has no financial impact on the SAIF. The FICO
assessment is separate from the regular assessments and is imposed
on thrifts and banks, not on the insurance funds. The FDIC, as admin­
istrator of the SAIF and the BIF, is acting solely as a collection agent
for the FICO. During 1999 and 1998, $426 million and $446 million,
respectively, was collected from SAIF-member institutions and remit­
ted to the FICO.
The FDIC uses a risk-based assessment system that charges higher
rates to those institutions that pose greater risks to the SAIF. To arrive
at a risk-based assessment for a particular institution, the FDIC
places each institution in one of nine risk categories, using a two-step
process based first on capital ratios and then on other relevant infor­
mation. The assessment rate averaged approximately 0.20 cents and
0.21 cents per $100 of assessable deposits for 1999 and 1998,
respectively. On November 8, 1999, the Board voted to retain the
SAIF assessment schedule at the annual rate of 0 to 27 cents per
$100 of assessable deposits for the first semiannual period of 2000.
The Board reviews premium rates semiannually.

fiM IK

Eligible FDIC employees (permanent and term employees with
appointments exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal Employees
Retirement System (FERS). The CSRS is a defined benefit plan, which
is offset with the Social Security System in certain cases. Plan ben­
efits are determined on the basis of years of creditable service and
compensation levels. The CSRS-covered employees also can con­
tribute to the tax-deferred Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic defined benefit
plan that provides benefits based on years of creditable service and
compensation levels, Social Security benefits, and the TSP. Automatic
and matching employer contributions to the TSP are provided up to
specified amounts under the FERS.
During 1998, there was an open season that allowed employees to
switch from CSRS to FERS. This did not have a material impact on
SAIF’s operating expenses for 1998.


58


obligations issued by the FICO to include all FDIC-insured institutions
(including thrifts, banks, and Oakar and Sasser financial institutions).
It also made the FICO assessment separate from regular assess­
ments, effective on January 1,1997.

Although the SAIF contributes a portion of pension benefits for eligi­
ble employees, it does not account for the assets of either retirement
system. The SAIF 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 Management (0PM).
Eligible FDIC employees also may participate in a FDIC-sponsored
tax-deferred 401 (k) savings plan with matching contributions. The
SAIF pays its share of the employer’s portion of all related costs.
The SAIF’s pro rata share of the Corporation's liability to employees
for accrued annual leave is approximately $4.4 million at both
December 3 1 ,1 9 9 9 and 1998.

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
Pension Benefits and Savings PI ans Expenses for the Years Ended December 31
Dollars in Thousands

1999

CSRS/FERS Disability Fund
Civil Service Retirement System_________________
Federal Employees Retirement System (Basic Benefit)
FDIC Savings Plan__________________
Federal Thrift Savings Plan
Total

On January 2, 1998, the SAIF’s obligation under SFAS No. 106,
“Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” for postretirement health benefits was reduced when over
6,500 FDIC employees enrolled in the Federal Employees Health
Benefits (FEHB) Program for their future health insurance coverage.
The OPM assumed the SAIF’s obligation for postretirement health
benefits for these employees at no initial enrollment cost. In addition,
legislation was passed that allowed the remaining 2,600 FDIC
retirees and near-retirees (employees within five years of retirement)
in the FDIC health plan to also enroll in the FEHB Program for their

1998

140
1,242
3,002
1,947
1,176
7,507

1,276
3,268
2,029
1,267

7,840

future health insurance coverage, beginning January 1 ,1 9 9 9 . The
OPM assumed the SAIF’s obligation for postretirement health bene­
fits for retirees and near retirees for a fee of $3.7 million. The OPM
is now responsible for postretirement health benefits for all FDIC
employees and covered retirees. The FDIC will continue to be obli­
gated for dental and life insurance coverage for as long as the pro­
grams are offered and coverage is extended to retirees.
OPM's assumption of the health care obligation constituted both a
settlement and a curtailment as defined by SFAS No. 106. This con­
version resulted in a gain of $5.5 million to the SAIF in 1998.

Postretirement Benefits Other Than Pensions
Dollars in Thousands

1999

1998

Funded Status at December 31
Fair value of plan assets (a)
Less: Benefit obligation
Under Funded Status of the Plans

$

5,160
5,833

$

$

673

$

5,048
5,048
0

Accrued benefit liability recognized in the
Statements of Financial Position

$

673

$

0

$

483
129
129

$

1,516
718
718

Expenses and Cash Flows for the Period Ended December 31
Net periodic benefit cost
Employer contributions
Benefits paid
Weighted-Average Assumptions at December 31
Discount rate
Expected return on plan assets
Rate of compensation increase

4.50%
4.50%
3.00%

4.50%
4.50%
4.00%

(a) Invested in

Total dental coverage trend rates were assumed to be 7% per year,
inclusive of general inflation. Dental costs were assumed to be




subject to an annual cap of $2,000.

59

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
is an

-Balfsnftfe Slieei

1 pcssure

Commitments
Leases
The SAIF’s allocated share of the FDIC’s lease commitments totals
$17.5 million for future years. The lease agreements contain escala­
tion clauses resulting in adjustments, usually on an annual basis. The
allocation to the SAIF of the FDIC’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 could cause
the amounts allocated to the SAIF in the future to vary from the
amounts shown below. The SAIF recognized leased space expense
of $5.7 million and $4.8 million for the years ended December 31,
1999 and 1998, respectively.

Lease Commitments
Dollars in Thousands

2000

2001

2002

2003

2004

2005

$4,576

$4,023

$3,861

$2,670

$1,537

$821

Off-Balance-Sheet Exposure
Deposit Insurance
As of December 31, 1999, deposits insured by the SAIF totaled
approximately $711 billion. This would be the accounting loss if all
depository institutions were to fail and the acquired assets provided
no recoveries.

Asset Putbacks
Upon resolution of a failed thrift, the assets are placed into receiver­
ship and may be sold to an acquirer under an agreement that certain
assets may be resold, or “putback,” to the receivership. The values
and time limits for these assets to be putback are defined within each

agreement. It is possible that the SAIF could be called upon to fund
the purchase of any or all of the “unexpired putbacks” at any time
prior to expiration. The FDIC’s estimate of the volume of assets sub­
ject to repurchase under the existing agreements is $40.1 million.
The actual amount subject to repurchase should be significantly
lower because the estimate does not reflect subsequent collections
on or sales of assets kept by the acquirer. It also does not reflect any
decrease due to acts by the acquirers which might disqualify assets
from repurchase eligibility. Repurchase eligibility is determined by
the FDIC when the acquirer initiates the asset putback procedures.
The FDIC projects that a total of $443 thousand in book value of
assets will be putback.

About the Fair Mvlm of Fmaneiaiilsfrumeiifs;
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 Notes 3 and 4 and is based on cur­
rent market prices. The carrying 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. As explained in
Note 3, entrance and exit fees receivables are net of discounts calcu­
lated using an interest rate comparable to U.S. Treasury Bill or
Government bond/note rates at the time the receivables are accrued.
The net receivables from thrift resolutions primarily include the SAIF’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 consid­
eration of market risk. These discounts ultimately affect the SAIF’s
allowance for loss against the net receivables from thrift resolutions.
Therefore, the corporate subrogated claim indirectly includes the effect




60

of discounting and should not be viewed as being stated in terms of
nominal cash flows.
Although the value of the corporate subrogated claim is influenced by
valuation of receivership assets (see Note 5), such receivership valua­
tion 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 interest­
ed party to profit from these assets because of credit and other risks.
In addition, the timing of receivership payments to the SAIF on the sub­
rogated claim does not necessarily correspond with the timing of col­
lections on receivership assets. Therefore, the effect of discounting
used by receiverships should not necessarily be viewed as producing
an estimate of market value for the net receivables from thrift resolu­
tions.

SAVINGS ASSOCIATION INSURANCE FUND

SAIF
12. Supplementary Information Relating to the Statements of Cash Flows
Reconciliation ol Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31
Dollars in Thousands

1999
Net Income

$

476,839

1998
$

467,230

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Income Statement Items:
Provision for insurance losses
Amortization of U.S. Treasury obligations (unrestricted)
TIIS inflation adjustment
Gain on conversion of benefit plan

30,648
51,708
(11,818)
0

31,992
41,198
0
5,464

Change In Assets and Liabilities:
Decrease in amortization of U.S. Treasury obligations (restricted)
(Increase) in entrance and exit fees receivable, including interest receivable on investments and other assets
(Increase) in receivables from thrift resolutions
(Decrease) in accounts payable and other liabilities
(Decrease) in contingent liability for anticipated failure of insured institutions__
Increase in exit fees and investment proceeds held in escrow

808
(13.500)
(41,450)
(2,325)
(17,000)
14,701

304
(20,187)
(4,700)
(3,126)
0
14,242

Net Cash Provided by Operating Activities

488,611

$

$

532,417

13. Year 2000 Issues
State of Readiness
The FDIC, as administrator for the SAIF, conducted a corporate-wide
effort to ensure that all FDIC information systems were Year 2000
compliant. This meant that systems must accurately process date
and time data in calculations, comparisons, and sequences after
December 31,1999 , and be able to correctly deal with leap-year cal­
culations in 2000. An oversight committee comprised of FDIC divi­
sion management directed the Year 2000 effort.
The FDIC’s Division of Information Resources Management (DIRM) led
the Year 2000 effort, under the direction of the oversight committee.
The internal Year 2000 team used a structured approach and rigor­
ous program management as described in the U.S. General
Accounting Office’s (GAO) Year 2000 Computing Crisis: An
Assessment Guide. This methodology consisted of five phases under
the overall umbrellas of Program and Project Management. The FDIC

completed all of the recommended GAO phases: Awareness,
Assessment, Renovation, Validation, and Implementation.
As a precautionary measure, the FDIC developed a Year 2000
Rollover Weekend Strategy to monitor the information systems during
the transition into the year 2000. Contingency plans were in place for
mission-critical application failures and for other systems. No major
problems were anticipated due to the extensive planning and valida­
tion that occurred (see Note 14).

Year 2000 Estimated Costs
Year 2000 compliance expenses for the SAIF are estimated at $6.5
million and $4.4 million at December 3 1 ,1 9 9 9 and 1998, respec­
tively. These expenses are reflected in the “Operating expenses” line
of the SAIF's Statements of Income and Fund Balance.

14. Subsequent Events
Year 2000 Effect on Internal Systems
On January 1, 2000, all FDIC systems were operating normally as a
result of a corporate-wide effort to ensure that all FDIC information
systems were Year 2000 compliant prior to December 31,1999. No
internal system failures have occurred and none are anticipated (see
Note 13).



Year 2000 Effect on Anticipated Failures
As of May 5, 2000, no thrifts had failed due to Year 2000 related
problems and none are anticipated. Refer to "Contingent Liabilities
for: Year 2000 Anticipated Failures” (see Note 6).




FSLIC RESOLUTION FUND

FRF
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statements of Financial Position at December 31

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

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

Dollars in Thousands

1999

Assets
Cash and cash equivalents
Receivables from thrift resolutions, net (Note 3)
Investment in securitization related assets acquired from receiverships (Note 4)
Assets acquired from assisted thrifts and terminated receiverships, net (Note 5)
Other assets, net (Note 6)
Total Assets

$

2,948,138
1,366,344
2,675,374
34,407
7,159

1998
$

4,631,379
1,516,565
4,424,237
64,101
40,721

$ 7,031,422

$ 10,677,003

$

$

Liabilities
Accounts payable and other liabilities
Liabilities from thrift resolutions (Note 7)
Contingent liabilities for: (Note 8)
Assistance aqreements
Litiqation losses
Total Liabilities
Commitments and concentration of credit risk (Note 13 and Note 14)

73,620
296,817

40,396
202,836

4,751
1,445

4,852
18,340

376,633

266,424

131,328,499
(124,913,461)
239,751
(124,673,710)

135,490,742
(125,320,868)
240,705
(125,080,163)

6,654,789

10,410,579

$ 7,031,422

$ 10,677,003

Resolution Equity (Note 10)
Contributed capital
Accumulated deficit
Unrealized qain on available-for-sale securities, net (Note 4)
Accumulated deficit, net
Total Resolution Equity
Total Liabilities and Resolution Equity
The accompanying notes are an integral part of these financial statements.




63

FSLIC RESOLUTION FUND

FRF
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statements of Income and Accumulated Deficit for the Years Ended December 31
Dollars in Thousands

Interest on securitization related assets acquired from receiverships
Interest on U.S. Treasury obliqations
Interest on advances and subroqated claims
Gain on conversion of benefit plan (Note 12)
Revenue from assets acquired from assisted thrifts and terminated receiverships
Limited partnership equity interests and other revenue
Realized qain on investment in securitization related assets acquired from receiverships (Note 4)
Total Revenue

1998

1999

Revenue
$

104,232
108,001
19,033
0
25,476
23,787
93,113
373,642

$

262,962
109,045
212,645
39,297
40,124
28,879
49,642
742,594

Expenses and Losses
Operatinq expenses
Provision for losses (Note 9)
Expenses for qoodwill settlements and litiqation
Expenses for assets acquired from assisted thrifts and terminated receiverships
Interest expense on Federal Financinq Bank debt and other notes payable
Other expenses
Realized loss on investment in securitization related assets acquired from receiverships (Note 4)
Total Expenses and Losses

83,317
(278.267L
80,921
15,664
2,240
4,410
57,950
(33,765)

56,336
(1,176,165)
154,492
19,652
22,413
3,834
4,239
(915,199)

Net Income
Unrealized (loss)/qain on available-for-sale securities, net (Note 4)

407,407
(954)

1,657,793
199,692

Comprehensive Income

406,453

1,857,485

(125,080,163)

(126,937,648)

$ (124,673,710)

$ (125,080,163)

Accumulated Deficit - Beginning
Accumulated Deficit - Ending___________________
The accompanying notes are an integral part of these financial statements.




FSLIC RESOLUTION FUND

FRF
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statements of Cash Flows for the Years Ended December 31
Dollars in Thousands

1999________________________________________
Cash Flows From Operating Activities_________________________________________________
Cash provided by:
Interest on U.S. Treasury obligations_________________________________________________$_
108,001
Interest on securitization related assets acquired from receiverships______________________________ 111,159
Recoveries from thrift resolutions________________________________
_________ 592,198
Recoveries from limited partnership equity interests ______________________
_________ 80,046
Recoveries from assets acquired from assisted thrifts and terminated receiverships
103,699
Recoveries on conversion of benefit gton____________________________________________________ 28,332
Miscellaneous r e c e i p t s _________________________________________________________ 8,166

$

109,045
243,134
890,566
188,801
48,580
__0_
1,383

Cash used by:
(97,299)_________
(78,526)
Operating expenses_______________________ ___________________________
Interest paid on notes payable__________________________________________________ ______________ 0___________
(29,997)
Disbursements for thrift resolutions
_______________________________ (82,069)____________________ (177,365)
Disbursements for goodwill settlements and litigation expenses_________________________________ (80,921) ___________________ (154,492)
Disbursements for assets acquired from assisted thrifts and terminated receiverships
(40,690)
(26,952)
Miscellaneous disbursements_________________________________________________________________(6)_______________________ (220)

Net Cash Provided by Operating Activities (Note 16)_________________________________ 730,616________________ 1,013,957
Cash Flows From Investing Activities
Cash provided by:
Investment in securitization related assets acquired from receiverships, available-for-sale
1,752,917
Cash used for:
Purchase of investment in securitization related assets acquired from receiverships,
available-for-sale
___________
_______0____
Net Cash Provided by Investing Activities_____________________________________________LZ!?2,917__________

2,408,667

(25,425)
2,383,242

Cash Flows From Financing Activities
Cash provided by:
U.S. Treasury payments for goodwill settlements________________________________________ _______ 1,000

_______________________ ^

Cash used ton________
Return of U.S. Treasury payments (Note 10)
. .
(4,167,774)________ ___
___ (3,020)
Repayments of Federal Financing Bank borrowings________________ ____ ___________________________ 0 ___________________ (838,412)
Repayments of indebtedness from thrift resolutions__________________________ _____________________ 0____________________ (31,559)

Net Cash Used by Financing Activities______ (4,166,774)
Nrt (Decrease) Increase in Cash and Cash Equivalents

(872,991)
______ _____________________ (1,683,241)

2,524,208

Cash and Cash Equivalents - Beginning______________________________________________ 4,631,379__________________ 2,107,171
Cash and Cash Equivalents - Ending______________________________________________ $

2,948,138______________ $

4,631,379

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




65

FSLIC RESOLUTION FUND
NOTES

FRF

TO

THE

FINANCIAL

December 3 1 ,1 9 9 9 and 1998

Legislative History
The U.S. Congress created the Federal Savings and Loan Insurance
Corporation (FSLIC) through the enactment of the National Housing
Act of 1934. The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, cre­
ated the FSLIC Resolution Fund (FRF), and transferred the assets and
liabilities of the FSLIC to the FRF (except those assets and liabilities
transferred to the Resolution Trust Corporation (RTC)), effective on
August 9,1 98 9. The FRF is responsible for winding up the affairs of
the former FSLIC.
The FIRREA was enacted to reform, recapitalize, and consolidate the
federal deposit insurance system. In addition to the FRF, FIRREA cre­
ated the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF). It also designated the Federal Deposit
Insurance Corporation (FDIC) as the administrator of these funds. All
three funds are maintained separately to carry out their respective
mandates.
The FIRREA also created the RTC to manage and resolve all thrifts
previously insured by the FSLIC for which a conservator or receiver
was appointed during the period January 1,1989, through August 8,
1992. The FIRREA established the Resolution Funding Corporation
(REFCORP) to provide part of the initial funds used by the RTC for thrift
resolutions. Additionally, funds were appropriated for RTC resolutions
pursuant to FIRREA, the RTC Funding Act of 1991, the RTC
Refinancing, Restructuring and Improvement Act of 1991, and the
RTC Completion Act of 1993.
The RTC’s resolution responsibility was extended through subsequent
legislation from the original termination date of August 8, 1992.
Resolution responsibility transferred from the RTC to the SAIF on July
1,1995.
The RTC Completion Act of 1993 (RTC Completion Act) terminated the
RTC as of December 31,1995 . All remaining assets and liabilities of
the RTC were transferred to the FRF on January 1,1996. Today, the
FRF consists of two distinct pools of assets and liabilities: one com­
posed of the assets and liabilities of the FSLIC transferred to the FRF
upon the dissolution of the FSLIC on August 9 ,1 9 8 9 (FRF-FSLIC), and
the other composed of the RTC assets and liabilities transferred to the
FRF on January 1 ,1 9 9 6 (FRF-RTC). The assets of one pool are not
available to satisfy obligations of the other.
The RTC Completion Act requires the FDIC to return to the U.S.
Treasury any funds that were transferred to the RTC pursuant to the
RTC Completion Act but not needed by the RTC. The RTC Completion




66

STATEMENTS

Act made available approximately $18 billion worth of additional fund­
ing. The RTC actually drew down $4.6 billion. During 1999, the FRFRTC returned $4.2 billion to the U.S. Treasury.
The FDIC must transfer to the REFCORP the net proceeds from the
FRF’s sale of RTC assets, after providing for all outstanding RTC lia­
bilities. Any such funds transferred to the REFCORP pay the interest
on the REFCORP bonds issued to fund the early RTC resolutions. Any
such payments benefit the U.S. Treasury, which would otherwise be
obligated to pay the interest on the bonds (see Note 10).

Operations of the FRF
The FRF will continue operations until all of its assets are sold or oth­
erwise liquidated and all of its liabilities are satisfied. Any funds
remaining in the FRF-FSLIC will be paid to the U.S. Treasury. Any
remaining funds of the FRF-RTC will be distributed to the U.S.
Treasury to repay RTC Completion Act appropriations and to the REF­
CORP to pay the interest on the REFCORP bonds.
The FRF has been primarily funded from the following sources: 1) U.S.
Treasury appropriations; 2) amounts borrowed by the RTC from the
Federal Financing Bank (FFB); 3) amounts received from the issuance
of capital certificates to REFCORP; 4) funds received from the man­
agement and disposition of assets of the FRF; 5) the FRF’s portion of
liquidating dividends paid by FRF receiverships; and 6) interest
earned on Special U.S. Treasury Certificates purchased with proceeds
of 4) and 5). If these sources are insufficient to satisfy the liabilities
of the FRF, payments will be made from the U.S. Treasury in amounts
necessary, as appropriated by Congress, to carry out the objectives of
the FRF.
Public Law 103-327 provided $827 million in funding to be available
until expended to facilitate efforts to wind up the resolution activity of
the FRF-FSLIC. The FRF received $165 million under this appropria­
tion on November 2, 1995. In addition, Public Law 104-208 and
Public Law 105-61 authorized the use by the U.S. Department of
Justice (DOJ) of $26.1 million and $33.7 million, respectively, from
the original $827 million in funding, thus reducing the amount avail­
able to be expended to $602.2 million. The funding made available
to DOJ covers the reimbursement of reasonable expenses of litigation
incurred in the defense of claims against the United States arising
from the goodwill litigation cases.
Additional goodwill litigation expenses incurred by DOJ are paid
directly from the FRF-FSLIC based on a Memorandum of
Understanding (MOU) dated October 2 ,1 9 9 8 , between the FDIC and
DOJ. Under the terms of the MOU, the FRF-FSLIC paid $79.1 million

FSLIC RESOLUTION FUND

FRF
and $51.2 million to DOJ for fiscal years 1999 and 1998, respec­
tively. Separate funding for goodwill judgments and settlements is
available through Public Law 106-113 (see Note 8).

Receivership Operations
The FDIC is responsible for managing and disposing of the assets of
failed institutions in an orderly and efficient manner. The assets held

by receivership entities, and the claims against them, are accounted
for separately from FRF assets and liabilities to ensure that liquidation
proceeds are distributed in accordance with applicable laws and reg­
ulations. Also, the income and expenses attributable to receiverships
are accounted for as transactions of those receiverships. Liquidation
expenses incurred by the FRF on behalf of the receiverships are
recovered from those receiverships.

I
General
These financial statements pertain to the financial position, results of
operations, and cash flows of the FRF and are presented in accor­
dance with generally accepted accounting principles (GAAP). These
statements do not include reporting 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 FDIC’s activities
as receiver or liquidating agent are furnished to courts, supervisory
authorities, and others as required.

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. Where it is
reasonably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature and
extent of such changes in estimates have been disclosed.

Cash Equivalents
Cash equivalents are short-term, highly liquid investments with origi­
nal maturities of three months or less. Cash equivalents primarily
consist of Special U.S. Treasury Certificates.

Investment in Securitization Related Assets Acquired from
Receiverships
The investment in securitization related assets acquired from
receiverships is recorded pursuant to the provisions of the Statement
of Financial Accounting Standards (SFAS) No. 115, “Accounting for
Certain Investments in Debt and Equity Securities.” SFAS No. 115
requires that securities be classified in one of three categories: heldto-maturity, available-for-sale, or trading. The investment in securiti­
zation related assets acquired from receiverships is classified as
available-for-sale and is shown at fair value with unrealized gains and
losses included in Resolution Equity. Realized gains and losses are
included in the Statements of Income and Accumulated Deficit as
components of Net Income. The FRF does not have any securities
classified as held-to-maturity or trading.




Allowance for Losses on Receivables from Thrift
Resolutions and Assets Acquired from Assisted Thrifts and
Terminated Receiverships
The FRF records a receivable for the amounts advanced and/or obli­
gations incurred for resolving troubled and failed thrifts. The FRF also
records as an asset the amounts paid for assets acquired from assist­
ed thrifts and terminated receiverships. Any related allowance for
loss represents the difference between the funds advanced and/or
obligations incurred and the expected repayment. The latter is based
on estimates of discounted cash recoveries from the assets of assist­
ed or failed thrift institutions, net of all applicable estimated liquida­
tion costs. Estimated cash recoveries also include dividends and
gains on sales from equity instruments acquired in resolution trans­
actions.

Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated to
all funds administered by the FDIC using workload-based-allocation
percentages. These percentages are developed during the annual
corporate planning process and through supplemental functional
analyses.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and admin­
istration of postretirement benefits on behalf of the FRF, the BIF, and
the SAIF. Each fund pays its liabilities for these benefits directly to the
entity. The FRF's unfunded net postretirement benefits liability is pre­
sented in FRF’s Statements of Financial Position.

Disclosure About Recent Accounting Standard
Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, “Employers’ Disclosures about Pensions and
Other Postretirement Benefits.” The Statement standardizes the dis­
closure requirements for pensions and other postretirement benefits
to the extent practicable. Although changes in the FRF’s disclosures
for postretirement benefits have been made, the impact is not mate­
rial.

67

FSUC RESOLUTION FUND

FRF
Other recent pronouncements are not applicable to the financial
statements.

Wholly Owned Subsidiary
The Federal Asset Disposition Association (FADA) is a wholly owned
subsidiary of the FRF. The FADA was placed in receivership on
February 5,1990. The investment in the FADA is accounted for using
the equity method and is included in the “Other assets, net” line item
(see Note 6). Final judgment on the remaining litigation was made on
December 16 ,1 9 9 8 . FADA was terminated with a final liquidating
dividend by December 31,1999 .

Related Parties
Limited Partnership Equity Interests. Former RTC receiverships were
holders of limited partnership equity interests as a result of various
RTC sales programs that included the National Land Fund, Multiple
Investor Fund, N-Series, and S-Series programs. The majority of the
limited partnership equity interests have been transferred from the
receiverships to the FRF. These assets are included in the
"Receivables from thrift resolutions, net” line item in the FRF’s
Statements of Financial Position. 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 1998 financial statements to
conform to the presentation used in 1999.

Restatement
The credit enhancement escrow accounts included in the “Investment
in securitization related assets acquired from receiverships” have
been restated to conform with SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities” and to reflect the related
impact on each primary financial statement. The change is due to
interpretations in the FASB’s recently issued special report, “A Guide
to Implementation of Statement 125 on Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” and
to recognize the investment characteristics of the credit enhancement
escrow accounts.
Additionally, corrections were made for immaterial offsetting errors
relating to the purchase price of the credit enhancement escrow
accounts and the residual certificates and to the associated gain or
loss calculations. The impact of these restatements on the January
1,1998 accumulated deficit is a reduction of $35.3 million.

3, feesivaifles from Thrift Resolutions, let
The thrift resolution process took different forms depending on the
unique facts and circumstances surrounding each failing or failed
institution. Payments for institutions that failed were made to cover
obligations to insured depositors and represent claims by the FRF
against the receiverships’ assets. Payments to prevent a failure were
made to operating institutions when cost and other criteria were met.
As of December 31, 1999 and 1998, the FDIC, in its receivership
capacity for the former FSLIC and SAIF-insured institutions, held
assets with a book value of $2.1 billion and $2.6 billion, respectively
(including cash and miscellaneous receivables of $1.5 billion and

$1,6 billion at December 3 1 ,1 9 9 9 and 1998, respectively). These
assets represent a significant source of repayment of the FRF’s
receivables from thrift resolutions. The estimated cash recoveries
from the management and disposition of these assets that are used
to derive the allowance for losses are based in part on a statistical
sampling of receivership assets. The sample was constructed to pro­
duce a statistically valid result. These estimated recoveries are reg­
ularly evaluated, but remain subject to uncertainties because of
potential changes in economic conditions. These factors could cause
the FRF’s and other claimants’ actual recoveries to vary from the level
currently estimated.

Receivables from Thrift Resolutions, Net at December 31
Dollars in Thousands

Assets from open thrift assistance
Allowance for losses

Net Assets From Open Thrift Assistance
Receivables from closed thrifts
Allowance for losses

Net Receivables From Closed Thrifts
Total




68

$

1999
437,265
(385,537)
51,728

51,720,279
(50,405,663)
1,314,616
$1,366,344

1998
$

529,123
(386,935)

142,188
72,874,857
(71,500,480)

1,374,377
$ 1,516,565

FSLIC RESOLUTION FUND

FRF
Representations and Warranties
The RTC provided guarantees, representations, and warranties on
approximately $107 billion in unpaid principal balance of loans sold
and approximately $132 billion in unpaid principal balance of loans
under servicing right contracts that had been sold. In general, the
guarantees, representations, and warranties on loans sold related to
the completeness and accuracy of loan documentation, the quality of
the underwriting standards used, the accuracy of the delinquency sta­
tus when sold, and the conformity of the loans with characteristics of
the pool in which they were sold. The representations and warranties
made in connection with the sale of servicing rights were limited to
the responsibilities of acting as a servicer of the loans. Future losses
on representations and warranties could significantly increase or

decrease over the remaining life of the loans that were sold, which
could be as long as 20 years.
The FRF includes estimates of corporate losses related to the receiver­
ships’ representations and warranties as part of the FRF's allowance
for loss valuation. The allowance for these estimated losses was $30
million and $81 million as of December 3 1 ,1999 and 1998, respec­
tively. There are additional amounts of representation and warranty
claims that are considered reasonably possible. As of December 31,
1999, the amount is estimated at $339 million. The contingent liabil­
ity for representations and warranties associated with loan sales that
involved assets acquired from assisted thrifts and terminated receiver­
ships are included in “Accounts payable and other liabilities” ($4 mil­
lion and $5 million for 1999 and 1998, respectively).

4. Investment in Securitization Related Assets Acquired from Receiverships
In order to maximize the return from the sale or disposition of assets,
the RTC engaged in numerous securitization transactions. The RTC
sold $42.4 billion of receivership, conservatorship, and corporate
loans to various trusts that issued regular pass-through certificates
through its mortgage-backed securities program.
A portion of the proceeds from the sale of the certificates was placed
in credit enhancement escrow accounts (escrow accounts) to cover
future credit losses with respect to the loans underlying the certifi­
cates. In addition, the escrow accounts were established to increase
the likelihood of full and timely distributions of interest and principal
to the certificate holders and thus increase the marketability of the
certificates. The FRF’s exposure from credit losses on loans sold
through the program is limited to the balance of the escrow accounts.
The FRF is entitled to any proceeds remaining in the escrow accounts
at termination of the securitization transactions. The FRF also
receives periodic returns of portions of the escrow account balances
during the life of the transactions, if the trustee deems the funds held
to be excessive.
As part of the securitization transactions, the receiverships received a
participation in the residual pass-through certificates (residual certifi­
cates) issued through its mortgage-backed securities program. The

residual certificates entitle the holder to any cash flow from the sale
of collateral remaining in the trust after the regular pass-through cer­
tificates and actual termination expenses are paid.
The escrow accounts were transferred from the receiverships to the
FRF for $5.7 billion. This transfer was offset by amounts owed by the
receiverships to the FRF. The residual certificates were transferred
from the receiverships to the FRF for $1.4 billion. This transfer was
also offset by amounts owed by the receiverships to the FRF.
The FRF received $910 million in proceeds from terminations during
1999 and $1.2 billion during 1998. Realized gains and losses are
recorded based upon the difference between the proceeds at termi­
nation of the deal and the cost of the original investment. Realized
gains and losses are calculated on both the escrow account and the
related residual certificate. Unrealized gains and losses are comput­
ed on a quarterly basis using a cash flow model that calculates the
estimated fair value of the assets at termination. This model is updat­
ed with current data supplied by the trustees, which includes prepay­
ment speed, delinquency rates, and market pricing. Additionally, the
FRF earned interest income on the investment in securitization relat­
ed assets acquired from receiverships of $104.2 million during 1999
and $263 million during 1998.

Investment in Securitization Related Assets Acquired from Receiverships at December 31,1999
Dollars in Thousands

Credit enhancement escrow accounts
Residual certificates
Total




Cost
$ 1,563,722
871,901
$2,435,623

Unrealized
Holding
Gains
$ 249.185
111,817
$ 361,002

Unrealized
Holding
Losses
$ (121,251)
0
$ (121,251)

Fair
Value
$ 1,691,656
983,718
$ 2,675,374

FSLIC RESOLUTION FUND

FRF
Investment in Securitization Related Assets Acquired from Receiverships at December 31,1998
Dollars in Thousands

Credit enhancement escrow accounts
Residual certificates
Total

Cost
$ 2,996,584
1,186,948
$4,183,532

Unrealized
Holding
Gains
$ 278,179
80,887
$ 359,066

Unrealized
Holding
Losses
$ (115,183)
(3,178)
$ (118,361)

Fair
Value
$3,159,580
1,264,657
$4,424,237

The FRF’s assets acquired from assisted thrifts and terminated
receiverships include:

based upon a statistical sampling of the assets but only include
expenses for the disposition of the assets.

1) assets the former FSLIC and the former RTC purchased from fail­
ing or failed thrifts and 2) assets the FRF acquired from receiverships
and purchased under assistance agreements. The methodology to
estimate cash recoveries from these assets, which are used to derive
the related allowance for losses, is similar to that for receivables from
thrift resolutions (see Note 3). The estimated cash recoveries are

The FRF recognizes revenue and expenses on these acquired assets.
Revenue consists primarily of proceeds from professional liability
claims, interest earned on loans, gain on the sale of owned assets,
and other liquidation income. Expenses are recognized for the man­
agement and liquidation of these assets.

Assets Acquired from Assisted Thrifts and Terminated Receiverships, Net at December 31
Dollars jn Thousands

1999
148,584
(114,177)
34,407

Assets acquired from assisted thrifts and terminated receiverships
Allowance for losses
Total

1998
216,006
(151,905)
64,101

Other Assets, Net at December 31
Dollars in Thousands

Investment in FADA (Note 2)
Allowance for loss
Investment in FADA, Net
Accounts receivable
Due from other qovernment entities
Other Receivables
Total


70


1999
$

$

0
0
0
7,159
0
7,159
7,159

$

$

1998
15,000
(11,074)
3,926
33,200
3,595
36,795
40,721

FSLIC RESOLUTION FUND

FRF
7. Liabilities from Thrift Resolutions
The FSLIC issued promissory notes and entered into assistance
agreements to prevent the default and subsequent liquidation of cer­
tain insured thrift institutions. These notes and agreements required
the FSLIC to provide financial assistance over time. Pursuant to FIRREA, the FRF assumed these obligations. Notes payable and obliga­

tions for assistance agreements are presented in the “Liabilities from
thrift resolutions” line item. Estimated future assistance payments
are included in the “Contingent liabilities for: Assistance agreements”
line item (see Note 8).

Liabilities from Thrift Resolutions at December 31
Dollars in Thousands

Assistance agreement notes payable
Interest payable
Other liabilities to thrift institutions
Estimated cost associated with liquidating assets
Total

1999
62,360
4,156
6,801
223,500
296,817
$

$

1998
62,360
994
10,982
128,500
202,836
$

$

8. Contingent Liabilities for:
Assistance Agreements
The contingent liabilities for assistance agreements are $4.8 million
and $4.9 million at December 3 1 ,1 99 9 and 1998, respectively. The
liability represents an estimate of future assistance payments to
acquirers of troubled thrift institutions. There were 28 and 33 assis­
tance agreements outstanding as of December 3 1 ,1 9 9 9 and 1998,
respectively. The last agreement is scheduled to expire in July 2000.

Litigation Losses
The FRF records an estimated loss for unresolved legal cases to the
extent those losses are considered probable and reasonably
estimable. In addition to the amount recorded as probable, the FDIC
has determined that losses from unresolved legal cases totaling
$141.3 million are reasonably possible.

Additional Contingency
In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme
Court held that when it became impossible following the enactment
of FIRREA in 1989 for the Federal Flome Loan Bank Board to perform
certain agreements to count goodwill toward regulatory capital, the
plaintiffs were entitled to recover damages from the United States. To
date, approximately 120 lawsuits have been filed against the United
States based on alleged breaches of these agreements (Goodwill
Litigation).
On July 23 ,1 9 9 8 , the U.S. Treasury determined, based on an opin­
ion of the DOJ’s Office of Legal Counsel (OLC) dated July 22,1998,
that the FRF is legally available to satisfy all judgments and settle­
ments in the Goodwill Litigation involving supervisory action or assis­
tance agreements. The U.S. Treasury further determined that the FRF




is the appropriate source of funds for payments of any such judg­
ments and settlements.
The OLC opinion concluded that the nonperformance of these agree­
ments was a contingent liability that was transferred to the FRF on
August 9,1989, upon the dissolution of the FSLIC. Under the analy­
sis set forth in the OLC opinion, as liabilities transferred on August 9,
1989, these contingent liabilities for future nonperformance of prior
agreements with respect to supervisory goodwill were transferred to
the FRF-FSLIC, which is that portion of the FRF encompassing the
obligations of the former FSLIC. The FRF-RTC, which encompasses
the obligations of the former RTC and was created upon the termina­
tion of the RTC on December 31 ,1 9 9 5 , is not available to pay any
settlements or judgments arising out of the Goodwill Litigation.
The lawsuits comprising the Goodwill Litigation are against the United
States and as such are defended by the DOJ. On January 31,2000,
the DOJ informed the FDIC that, in the approximately 100 remaining
cases which are in litigation at the trial court level, “it is too early to
predict the extent of any litigation risk.” The DOJ notes that this
uncertainty arises, in part, from the existence of significant unre­
solved issues pending at the appellate or trial court level, as well as
the unique circumstances of each case.
The FDIC believes that it is probable that additional amounts, possi­
bly substantial, may be paid from the FRF-FSLIC as a result of judg­
ments and settlements in the Goodwill Litigation. Flowever, based on
the response from the DOJ, the FDIC is unable to estimate a range of
loss to the FRF-FSLIC from the Goodwill Litigation, or determine
whether any such loss would have a material effect on the financial
condition of the FRF-FSLIC.

FSLIC RESOLUTION FUND

FRF
Section 110 of the Department of Justice Appropriations Act, 2000
(Public Law 106-113, Appendix A, Title 1,113 Stat. 1501A -3 ,1501A20) provides to the FRF-FSLIC such sums as may be necessary for
the payment of judgments and compromise settlements in the
Goodwill Litigation, to remain available until expended. Even if the

Goodwill Litigation judgments and compromise settlements were to
exceed other available resources of the FRF-FSLIC, an appropriation
is available to pay such judgments and settlements. In these cir­
cumstances, any liabilities for the Goodwill Litigation should have no
material impact on the financial condition of the FRF-FSLIC.

S. Provision for Losse
The provision for losses was a negative $278 million and a negative
$1.2 billion for 1999 and 1998, respectively. In both years, the neg­
ative provision resulted primarily from decreased losses expected for

assets in liquidation. The following chart lists the major components
of the negative provision for losses.

Provision for Losses for the Years Ended December 31
Dollars in Thousands

Valuation Adjustments:
Open thrift assistance
Recovery of tax benefits
Closed thrifts
Estimated cost associated with liquidatinq assets
Assets acquired from assisted thrifts and terminated receiverships
Investment in securitization related assets acquired from receiverships
Miscellaneous receivables
Total Valuation Adjustments
Contingent Liabilities:
Litiqation losses
Total Contingent Liabilities
Total

1999
$

10,092
(110,061)
(284,699)
95,000
15,907
16,357
0
(257,404)

(20,863)
(20,863)
$ (278,267)

1998
$

12,514
(115,401)
(1,150,567)
128,500
(66,709)
0
(42)
(1,191,705)

15,540
15,540
$(1,176,165)

10* llesolution Equity
As stated in the Legislative History section of Note 1, the FRF is com­
prised of two distinct pools: the FRF-FSLIC and the FRF-RTC. The
FRF-FSLIC consists of the assets and liabilities of the former FSLIC.
The FRF-RTC consists of the assets and liabilities of the former RTC.
Pursuant to legal restrictions, the two pools are maintained separate­

ly and the assets of one pool are not available to satisfy obligations
of the other.
The following table shows the contributed capital, accumulated
deficit, and resulting resolution equity for each pool.

Resolution Equity at December 31,1999
Dollars in Thousands

Contributed capital - beqinninq

FRF-FSLIC
$ 44,156.000

FRF-RTC
$ 91,334,742

FRF
Consolidated
$ 135,490,742

Less: U.S. Treasury repayments
Contributed capital - ending
Accumulated deficit
Less: Unrealized loss on available-for-sale securities
Accumulated deficit, net
Total

0
44,157,000
(41,929,682)
0
(41,929,6821
$ 2,227,318

(4,167,774)
87,171,499
(82,743,074)
(954)
(82,744,028)
$ 4,427,471

(4,167,774)
131,328,499
(124,672,756)
(954)
(124,673,710)
$
6,654,789


72


FSLIC RESOLUTION FUND

FRF
■

■

■

■

Resolution Equity at December 31,1998
Dollars in Thousands

Contributed capital
Accumulated deficit
Less: Unrealized qain on available-for-sale securities
Accumulated deficit, net
Total

Contributed Capital
To date, the FRF-FSLIC and the former RTC received $43.5 billion and
$60.1 billion from the U.S. Treasury, respectively. These payments
were used to fund losses from thrift resolutions prior to July 1,1995.
Additionally, the FRF-FSLIC issued $670 million in capital certificates
to the FICO and the RTC issued $31.3 billion of these instruments to
the REFCORP. FIRREA prohibited the payment of dividends on any of
these capital certificates.
The FRF-FSLIC’s contributed capital at December 3 1,1999 , includes
$1 million received from the U.S. Treasury to fund a current year
goodwill litigation settlement (see Note 8). The FRF-RTC’s contributed
capital at December 3 1 ,1 9 9 9 , includes an adjustment of $4.5 mil­
lion that relates to prior year appropriations.

Accumulated Deficit
The accumulated deficit represents the cumulative excess of expens­
es over revenue for activity related to the former FSLIC and the for­

FRF-FSLIC
$ 44,156,000
(42,057,685)
0
(42,057,685)
$ 2,098,315

FRF-RTC
$91,334,742
__ (83,222,170)
199,692
(83,022,478)
$ 8,312,264

FRF
Consolidated
$ 135,490,742
(125,279,855)
199,692
(125,080,163)
$ 10,410,579

mer RTC ($29.7 billion and $87.9 billion were brought forward from
the FSLIC and RTC, respectively).

Resolution Equity Restrictions
FRF-RTC: The former RTC drew down $4.6 billion of the approxi­
mately $18 billion made available by the RTC Completion Act. The
RTC Completion Act requires the FDIC to deposit in the general fund
of the U.S. Treasury any funds transferred to the RTC but not needed
by the RTC. The FDIC returned $4.2 billion to the U.S. Treasury on
behalf of the FRF-RTC, pursuant to the RTC Completion Act, during
1999.
In addition, the FDIC must transfer net proceeds from the sale of RTC
assets to pay interest on the REFCORP bonds, after providing for all
outstanding RTC liabilities. Any such payments benefit the U.S.
Treasury, which would otherwise be obligated to pay the interest on
the bonds (see Note 1).

11. Pension Benefits, Savings Plans, and Accrued Annual Leave
Eligible FDIC employees (permanent and term employees with
appointments exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal Employees
Retirement System (FERS). The CSRS is a defined benefit plan, which
is offset with the Social Security System in certain cases. Plan ben­
efits are determined on the basis of years of creditable service and
compensation levels. The CSRS-covered employees also can con­
tribute to the tax-deferred Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic defined benefit
plan that provides benefits based on years of creditable service and
compensation levels, Social Security benefits, and the TSP. Automatic
and matching employer contributions to the TSP are provided up to
specified amounts under the FERS.




During 1998, there was an open season that allowed employees to
switch from CSRS to FERS. This did not have a material impact on
FRF’s operating expenses for 1998.
Although the FRF contributes a portion of pension benefits for eligible
employees, it does not account for the assets of either retirement sys­
tem. The FRF 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 Management (OPM).
Eligible FDIC employees also may participate in a FDIC-sponsored
tax-deferred 401 (k) savings plan with matching contributions. The
FRF pays its share of the employer’s portion of all related costs.
The FRF’s pro rata share of the Corporation's liability to employees for
accrued annual leave is approximately $6.9 million and $5.4 million
at December 3 1 ,1 9 9 9 and 1998, respectively.

73

FSUC RESOLUTION FUND

FRF

1

Pension Benefits and Savings Plans Expenses for the Years Ended December 31
Dollars in Thousands

CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employees Retirement System (Basic Benefit)
FDIC Savinqs Plan
Federal Thrift Savinqs Plan
Total

$

$

0
1,367
4,687
2,619
1,767

10,440

$

$

308
1,382
4,438
2,619
1,675

10,422

On January 2, 1998, the FRF’s obligation under SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions,” for postretirement health benefits was reduced when over
6,500 FDIC employees enrolled in the Federal Employees Health
Benefits (FEHB) Program for their future health insurance coverage.
The 0PM assumed the FRF’s obligation for postretirement health
benefits for these employees at no initial enrollment cost.

their future health insurance coverage, beginning January 1 ,1 9 9 9 .
The 0PM assumed the FRF’s obligation for postretirement health
benefits for retirees and near retirees for a fee of $32 million. The
OPM is now responsible for postretirement health benefits for all FDIC
employees and covered retirees. The FDIC will continue to be obligat­
ed for dental and life insurance coverage for as long as the programs
are offered and coverage is extended to retirees.

In addition, legislation was passed that allowed the remaining 2,600
FDIC retirees and near-retirees (employees within five years of retire­
ment) in the FDIC health plan to also enroll in the FEHB Program for

The OPM’s assumption of the health care obligation constituted both
a settlement and a curtailment as defined by SFAS No. 106. This
conversion resulted in a gain of $39 million to the FRF in 1998.

Postretiremen! Benefits Other Than Pensions
Dollars in Thousands

Funded Status at December 31
Fair value of plan assets (a)
Less: Benefit obliqation
Under Funded Status of the Plans
Accrued benefit liability recoqnized in the Statements of Financial Position
Expenses and Cash Flows for the Period Ended December 31
Net periodic benefit cost
Employer contributions
Benefits paid
Weighted-Averaqe Assumptions at December 31
Discount rate
Expected return on plan assets
Rate of compensation increase

1999

$

14,994
16,130'
1,136

$

14,337
14,337
0

$

1,136

$

0

$

563
202

$

(91?)
886

$


74


$

202

886

4.50%
4.50%
3.00%

4.50%
4.50%
4.00%

fa) invested in U.S. Treasury obligations.

Total dental coverage trend rates were assumed to be 7% per
year, inclusive of general inflation. Dental costs were assumed to

1998

be subject to an annual cap of $2,000.

FSLIC RESOLUTION FUND

FRF
Letters of Credit

Leases

The RTC had adopted special policies that included honoring out­
standing conservatorship and receivership collateralized letters of
credit. This enabled the RTC to minimize the impact of its actions on
capital markets. In most cases, these letters of credit were issued by
thrifts that later failed and were used to guarantee tax-exempt bonds
issued by state and local housing authorities or other public agencies
to finance housing projects for low and moderate income individuals
or families. As of December 3 1 ,1 9 9 9 and 1998, securities pledged
as collateral to honor these letters of credit totaled $7.6 million and
$21.4 million, respectively. The FRF estimated corporate losses relat­
ed to the receiverships’ letters of credit as part of the allowance for
loss valuation. The allowance for these losses was $1.1 million and
$6.3 million as of December 3 1 ,1 9 9 9 and 1998, respectively.

The FRF’s allocated share of the FDIC’s lease commitments totals
$22.6 million for future years. The lease agreements contain escala­
tion clauses resulting in adjustments, usually on an annual basis. The
allocation to the FRF of the FDIC’s future lease commitments is based
upon current relationships of the workloads among the FRF, the BIF,
and the SAIF. Changes in the relative workloads could cause the
amounts allocated to the FRF in the future to vary from the amount
shown below. The FRF recognized leased space expense of $7.2 mil­
lion and $6.3 million for the years ended December 31, 1999 and
1998, respectively.

Lease Commitments
Dollars in Thousands

2000

2001

2002

2003

2004

2005

$5,738

$5,095

$5^001

$3,439

$2,036

$1,253

1 4 . 1 sseeiitraiicsi! <sl Sredit Risk
As of December 3 1,1999 , the FRF had gross receivables from thrift
resolutions totaling $52.2 billion, gross assets acquired from assist­
ed thrifts and terminated receiverships totaling $149 million, and an
investment in securitization related assets acquired from receiver­
ships totaling $2.7 billion. The allowance for loss against receivables
from thrift resolutions totaled $51.0 billion, and the allowance against
the assets acquired from assisted thrifts and terminated receiverships
totaled $114 million.

Cash recoveries may be influenced by economic conditions. Similarly,
the value of the investment in securitization related assets acquired
from receiverships can be influenced by the economy of the area
relating to the underlying loans and other assets. Accordingly, the
FRF’s maximum exposure to possible accounting loss is the recorded
(net of allowance) value and is also shown in the table below.

Concentration of Credit Risk at December 31.1999
Dollars in Millions

Receivables from thrift resolutions, net
Assets acquired from assisted thrifts and
terminated receiverships, net
Investment in securitization related assets
acquired from receiverships
Total




Southeast
$ 184

Southwest
$
33

0
489
$ 673

Northeast
$ 876

Midwest
$ 151

Central
$ 31

33

$

1

0

0

313
379

288
$1,165

80
$ 231

67
$ 98

West
$ 91

Total
$1,366

0

34

1,438
$1,529

2,675
$4,075

75

FSLIC RESOLUTION FUND

FRF
Cash equivalents are short-term, highly liquid investments and are
shown at current value. The carrying amount of short-term receiv­
ables and accounts payable and other liabilities approximates their
fair market value. This is due to their short maturities or comparisons
with current interest rates.
The net receivables from thrift resolutions primarily include the FRF’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 con­
sideration of market risk. These discounts ultimately affect the FRF’s
allowance for loss against the net receivables from thrift resolutions.
Therefore, the corporate subrogated claim indirectly includes the
effect of discounting and should not be viewed as being stated in
terms of nominal cash flows.
Although the value of the corporate subrogated claim is influenced by
valuation of receivership assets (see Note 3), such receivership valu­
ation is not equivalent to the valuation of the corporate claim. Since
the corporate claim is unique, not intended for sale to the private sec­
tor, 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
FRF on the subrogated claim does not necessarily correspond with
the timing of collections on receivership assets. Therefore, the effect
of discounting used by receiverships should not necessarily be viewed
as producing an estimate of market value for the net receivables from
thrift resolutions.
The majority of the net assets acquired from assisted thrifts and ter­
minated receiverships (except real estate) is comprised of various
types of financial instruments, including investments, loans, and
accounts receivable. Like receivership assets, assets acquired from
assisted thrifts and terminated receiverships are valued using dis­
count rates that include consideration of market risk. However, assets
acquired from assisted thrifts and terminated receiverships do not
involve the unique aspects of the corporate subrogated claim, and
therefore the discounting can be viewed as producing a reasonable
estimate of fair market value.
The investment in securitization related assets acquired from
receiverships is adjusted to fair value at each reporting date using a
valuation model that estimates the present value of estimated expect­
ed future cash flows discounted for the various risks involved, includ­
ing both market and credit risks, as well as other attributes of the
underlying assets (see Note 4).

Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31
Dollars in Thousands

1999
Net Income

$

1998

407,407

$ 1,657,793

0
(278,267)
0
4,531

18,068
(1,176,165)
(39,297)
0

437,750
(21,365)
13,788
35,680
34,710
0
92,414
3,968
0

2,307,756
(1,415,155)
61,928
(389,691)
(125,545)
(28,950)
130,794
13,897
. . . . . .........
(1,476)

730,616

$ 1,013,957

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Income Statement Items:
Interest on Federal Financinq Bank borrowings
Provision for losses
Gain on conversion of benefit plan
Prior year appropriation adjustments
Change in Assets and Liabilities:
Decrease in receivables from thrift resolutions
Increase in securitization related assets acquired from receiverships
Decrease in assets acquired from assisted thrifts and terminated receiverships
Decrease (Increase) in other assets
Increase (Decrease) in accounts payable and other liabilities
(Decrease) in accrued interest on notes payable
(Decrease) Increase in liabilities from thrift resolutions
Increase in continqent liabilities for litiqation losses
(Decrease) in continqent liabilities for assistance aqreements
Net Cash Provided by Operating Activities


http://fraser.stlouisfed.org/
76
Federal Reserve Bank of St. Louis

$

FSLIC RESOLUTION FUND

FRF
Noncash Investing Activity
The FRF acquired securitization residual certificates through a noncash
purchase from its receiverships. This noncash transaction valued at
$1.4 billion was applied to amounts owed by FRF receiverships which
1?

!f » ,

2

»

resulted in a reduction to the “Receivables from thrift resolutions, net”
line item and an increase in the “Investment in securitization related
assets acquired from receiverships” line item (see Note 4).

* •

State of Readiness
The FDIC, as administrator for the FRF, conducted a corporate-wide
effort to ensure that all FDIC information systems were Year 2000
compliant. This meant that systems must accurately process date
and time data in calculations, comparisons, and sequences after
December 31,1999, and be able to correctly deal with leap-year cal­
culations in 2000. An oversight committee comprised of FDIC divi­
sion management directed the Year 2000 effort.
The FDIC’s Division of Information Resources Management (DIRM) led
the Year 2000 effort, under the direction of the oversight committee.
The internal Year 2000 team used a structured approach and rigor­
ous program management as described in the U.S. General
Accounting Office’s (GAO) Year 20 0 0 Computing Crisis: An
Assessment Guide. This methodology consisted of five phases under

the overall umbrellas of Program and Project Management. The FDIC
completed all of the recommended GAO phases: Awareness,
Assessment, Renovation, Validation, and Implementation.
As a precautionary measure, the FDIC developed a Year 2000
Rollover Weekend Strategy to monitor the information systems during
the transition into the year 2000. Contingency plans were in place for
mission-critical application failures and for other systems. No major
problems were anticipated due to the extensive planning and valida­
tion that occurred (see Note 18).

Year 2000 Estimated Costs
Year 2000 compliance expenses for the FRF are estimated at $1.3
million and $2.1 million at December 31, 1999 and 1998, respec­
tively. These expenses are reflected in the “ Operating expenses” line
of the FRF’s Statements of Income and Accumulated Deficit.

18, Siilseipfiit Events
Year 2000 Effect on Internal Systems
On January 1, 2000, all FDIC systems were operating normally as a
result of a corporate-wide effort to ensure that all FDIC information
systems were Year 2000 compliant prior to December 31,1999. No
internal system failures have occurred and none are anticipated (see
Note 17).




77

k GA O

Accountability « Integrity • Reliability____________

C om ptroller G eneral
o f tne United States

United States General Accounting Office
Washington, D.C. 20548

B-283439
To the Board of Directors
Federal Deposit Insurance Corporation

We have audited the statements of financial position as of December 31, 1999 and
1998, for the three funds administered by the Federal Deposit Insurance
Corporation (FDIC), the related statements of income and fund balance (accumu­
lated deficit), and the statements of cash flows for the years then ended. In our
audits of the Bank Insurance Fund (BIF), the Savings Association Insurance Fund
(SAIF), and the FSLIC Resolution Fund (FRF), we found
• the financial statements of each fund are presented fairly, in conformity with
generally accepted accounting principles;
• although certain internal controls should be improved, FDIC had effective inter­
nal control over financial reporting (including safeguarding of assets) and com­
pliance with laws and regulations; and
• no reportable noncompliance with the laws and regulations that we tested.
The following sections discuss our conclusions in more detail. They also present
information on (1) the scope of our audits, (2) a reportable condition1related to
information systems control noted during our 1999 audits, (3) the current status
of the goodwill litigation cases, (4) the current status of FRF’s liquidation activi­
ties, and (5) our evaluation of the Corporation’s comments on a draft of this
report.
Opinion on Bank Insurance Fund’s Financial Statements

The financial statements and accompanying notes present fairly, in all material
respects, in conformity with generally accepted accounting principles, the Bank
Insurance Fund’s financial position as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years then ended.
Opinion on Savings Association Insurance Fund’s Financial Statements

The financial statements and accompanying notes present fairly, in all material
respects, in conformity with generally accepted accounting principles, the Savings
Association Insurance Fund’s financial position as of December 31, 1999 and
1998, and the results of its operations and its cash flows for the years then ended.
R ep orta b le conditions involve matters com ing to the auditor’s attention that, in the auditor’s judgment, should
be communicated because they represent significant deficiencies in the design o r operation of
internal control and could adversely affect FDIC’s ability to m eet the control objectives described in this
report.




78




B-283439

Opinion on FSLIC Resolution Fund’s Financial Statements

The financial statements and accompanying notes present fairly, in all material
respects, in conformity with generally accepted accounting principles, the FSLIC
Resolution Fund’s financial position as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years then ended.
As discussed in note 8 of FRF’s financial statements, a contingency exists from
approximately 100 lawsuits pending in the United States Court of Federal Claims
concerning the counting of goodwill assets as part of regulatory capital. Based on
information currently available, a reasonable estimate cannot be made regarding
future losses and settlements related to these cases. Information on the current
status of the goodwill cases is presented later in this report.
Opinion on Internal Control

Although certain internal controls should be improved, FDIC management main­
tained, in all material respects, effective internal control over financial reporting
and compliance as of December 31, 1999, that provided reasonable assurance that
misstatements, losses, or noncompliance, material in relation to the Corporation’s
financial statements would be prevented or detected on a timely basis. FDIC
management asserted that its internal control was effective based on criteria
established under the Federal Managers’ Financial Integrity Act (FMFIA) of 1982.
In making its assertion, FDIC management also fairly stated the need to improve
certain internal controls.
Our work identified the need to improve information systems control, as
described in a later section of this report. The weakness in information systems
control, although not considered material, represents a significant deficiency in
the design or operations of internal control that could adversely affect FDIC’s abil­
ity to meet its internal control objectives as described later in this report.
Although the weakness did not materially affect the 1999 financial statements,
misstatements may nevertheless occur in other FDIC-reported financial informa­
tion as a result of the internal control weakness.
Compliance W ith Laws and Regulations

Our tests for compliance with selected provisions of laws and regulations disclosed
no instances of noncompliance that would be reportable under generally accepted
government auditing standards. However, the objective of our audits was not to
provide an opinion on overall compliance with laws and regulations. Accordingly,
we do not express such an opinion.
Objectives, Scope, and Methodology

FDIC’s management is responsible for
• preparing the annual financial statements in conformity with generally accepted
accounting principles;
• establishing, maintaining, and assessing internal control to provide reasonable

79

B-283439

assurance that the broad control objectives of FMFIA are met; and
• complying with applicable laws and regulations.
We are responsible for obtaining reasonable assurance about whether (1) the
financial statements are presented fairly, in all material respects, in conformity
with generally accepted accounting principles; and (2) management maintained
effective internal control, the objectives of which are
• financial reporting-transactions are properly recorded, processed, and summa­
rized to permit the preparation of financial statements in conformity with gener­
ally accepted accounting principles, and assets are safeguarded against loss from
unauthorized acquisition, use, or disposition; and
• compliance with laws and regulations—
transactions are executed in accordance
with laws and regulations that could have a direct and material effect on the
financial statements.
We are also responsible for testing compliance with selected provisions of laws
and regulations that have a direct and material effect on the financial statements
and for performing limited procedures with respect to certain other information
appearing in FDIG’s 1 9 9 9 Annual Report and 1 9 9 9 Chief Financial Officers Act
Report.
In order to fulfill these responsibilities, we
• examined, on a test basis, evidence supporting the amounts and disclosures in
the financial statements;
• assessed the accounting principles used and significant estimates made by man­
agement;
• evaluated the overall presentation of the financial statements;
• obtained an understanding of internal control related to financial reporting,
including safeguarding assets, and compliance with laws and regulations, includ­
ing the execution of transactions in accordance with managements authority;
• tested relevant internal controls over financial reporting, including safeguarding
assets, and compliance; evaluated the design and operating effectiveness of
internal control; and evaluated management’s assertion about the effectiveness
of internal control;
• considered FDIG’s process for evaluating and reporting on internal control based
on criteria established by FMFIA; and
• tested compliance with selected provisions of the Federal Deposit Insurance Act,
as amended; the Chief Financial Officers Act of 1990; and the Federal Home
Loan Bank Act, as amended.
We did not evaluate all internal controls relevant to operating objectives as broad­
ly defined by FMFIA, such as those controls relevant to preparing statistical
reports and ensuring efficient operations. We limited our internal control testing
to controls over financial reporting and compliance. Because of inherent limita­
tions in internal control, misstatements due to error or fraud, losses, or noncom­
pliance may nevertheless occur and not be detected. We also caution that pro­




80




B-283439
jecting our evaluation to future periods is subject to the risk that controls may
become inadequate because of changes in conditions or that the degree of compli­
ance with controls may deteriorate.
We did not test compliance with all laws and regulations applicable to FDIC. We
limited our tests of compliance to those which we deemed applicable to the finan­
cial statements for the year ended December 31, 1999. We caution that noncom­
pliance may occur and not be detected by these tests and that such testing may
not be sufficient for other purposes.
We conducted our audits from July 1999 through May 2000. We did our work in
accordance with generally accepted government auditing standards.
FDIC provided comments on a draft of this report. FDIC’s comments are dis­
cussed and evaluated in a later section of this report.
Reportable Condition

As part of the financial statement audits, we reviewed FDIC’s information systems
(IS) general controls. The primary objectives of IS general controls are to safe­
guard data, protect computer application programs, prevent system software from
unauthorized access, and ensure continued computer operations in case of unex­
pected interruption. IS general controls include corporatewide security program
planning and management, access controls, system software, application software
development and change controls, segregation of duties, and service continuity
controls. The effectiveness of application controls2is dependent on the effective­
ness of general controls. Both IS general controls and application controls must
be effective to help ensure the reliability, appropriate confidentiality, and avail­
ability of critical automated information.
In performing our tests, we found FDIC’s IS general controls to be ineffective. We
identified weaknesses in FDIC’s corporatewide security program, access controls,
segregation of duties, and service continuity. The weaknesses in IS general con­
trols significantly impair the effectiveness of FDIC’s application controls, including
financial systems. We considered the effect of the information system control
weaknesses and determined that other management controls mitigated their effect
on the financial statements. FDIC recognizes the significance of the IS general
control issues and has begun planning and initiating corrective actions. Because
of their sensitive nature, the details surrounding these weaknesses and vulnerabil­
ities are being communicated to FDIC management, along with our recommenda­
tions for corrective action, through separate correspondence.
In addition to these weaknesses, we identified less significant matters involving
FDIC’s system of internal accounting control that we will be reporting in a sepa­
rate correspondence to FDIC management.
Current Status o f the G oodw ill Litigation Cases

As discussed in note 8 of FRF’s financial statements, a contingency exists from the
goodwill-related lawsuits against the United States government pending in the
-Application controls consist o f the structure, policies, and procedures that apply to separate, individual systems, such as accounts payable and general ledger systems.

81

B-283439
United States Court of Federal Claims. These lawsuits assert that certain agree­
ments were breached when Congress enacted, and the Office of Thrift Supervision
implemented, the Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA), which affected the thrift industry. The legislation changed the compu­
tation for regulatory capital requirements, thereby eliminating the special
accounting treatment previously allowed for goodwill assets acquired when institu­
tions merged with or acquired failing thrifts. The changes in regulatory treatment
of goodwill assets caused some institutions to fall out of capital compliance. In
such cases, institutions had to take action to meet capital requirements or they
were subject to regulatory action.
On July 1, 1996, the United States Supreme Court concluded that the government
is liable for damages in three cases, consolidated for appeal to the Supreme Court,
in which the changes in regulatory treatment required by FIRREA led the govern­
ment to not honor its contractual obligations related to the accounting treatment
of goodwill assets. The cases were then referred back to the Court of Federal
Claims for trials to determine the amount of damages. On July 23, 1998, the
Department of the Treasury determined, based on an opinion of the Department
of Justice, that FRF is legally available to satisfy all judgments and settlements in
the goodwill litigation involving supervisory action or assistance agreements, in
which the former Federal Savings and Loan Insurance Corporation (FSLIC) was a
party to those agreements. Treasury further determined that FRF is the appropri­
ate source of funds for payment of any such judgments and settlements.
During 1999, damage awards in three significant goodwill-related cases were
decided. On April 9, 1999, the Court of Federal Claims ruled that the federal gov­
ernment must pay Glendale Federal Bank $908.9 million for breaching the con­
tract that allowed the thrift to count goodwill toward regulatory capital. The
plaintiffs were seeking up to $2 billion in damages. On April 16, 1999, the Court
of Federal Claims awarded $23 million in damages to California Federal Bank,
which had been seeking more than $1 billion in damages. On September 30, 1999,
the Court of Federal Claims awarded approximately $5 million to LaSalle Talman
Bank, which had been seeking more than $1.2 billion in damages. All parties in
these cases have appealed. Subsequent to December 31, 1999, the Court of
Federal Claims awarded $21.5 million to Landmark Land Company, which had
been seeking approximately $750 million in damages in its supervisory goodwill
ease against the government. All parties in the Landmark Land case have
appealed.
Because of the appeals and differences in awarding damages in the cases thus far,
the final outcome in the cases and the amount of any possible damages remain
uncertain. With regard to the approximately 100 remaining cases at the trial
court level, the outcome of each case and the amount of any possible damages
remain uncertain. However, FDIC has concluded that it is probable that FRF will
be required to pay additional, possibly substantial, amounts as a result of future
judgments and settlements. Because of the uncertainties surrounding the cases,
such losses are currently not estimable.




82




B-283439

Current Status of FRF’s Liquidation Activities

FDIC, as administrator of FRF, is responsible for liquidating the assets and liabili­
ties of the former Resolution Trust Corporation (RTC),3as well as the former
FSLIC’s assets and liabilities. FDIC continues to make significant progress in liq­
uidating FRF’s assets. As of December 31, 1999, FRF held total assets valued at
$7.0 billion. Of that total, $2.9 billion was held in cash and cash equivalents, with
$4.1 billion in assets remaining to be liquidated. These asset levels represent a
significant decrease from the prior year, as shown in table 1.
Table 1: FRF's Assets as of December 31, 1999 and 1998

(Dollars in billions)
_________________________________1999________________ 1998________________ (Decrease)

Cash and cash equivalents
$2.9
$ 4.6
($1-7)
Assets not yet liquidated______ 4A_________________6T_________________ ( 2.0)
Total Assets
$7.0
$10.7
($3.7)
The RTC Completion Act required the FDIC to return to the U.S. Treasury any
funds that were transferred to the RTC pursuant to the RTC Completion Act but
not needed by RTC. The RTC Completion Act made available $18.3 billion of
additional funding. Prior to RTC’s termination on December 31, 1995, RTC drew
down $4.6 billion of the $18.3 billion made available by the RTC Completion Act.
During 1999, FDIC returned $4.2 billion to the U.S. Treasury. Subsequent to
December 31,1999, FDIC made approximately $400 million in payments to the
U.S. Treasury, so that as of February 3, 2000, the full amount of the appropriation
transferred to RTC pursuant to the RTC Completion Act had been repaid.
After providing for all outstanding RTC liabilities, FDIC must transfer the net pro­
ceeds from the sale of RTC-related assets to the Resolution Funding Corporation
(REFCORP). Any funds transferred to REFCORP are used to pay the interest on
REFCORP bonds issued to provide funding for the early RTC resolutions. On
April 10, 2000, FDIC transferred $533 million to REFCORP. The payments to
REFCORP benefit the U.S. Treasury, which is otherwise obligated to pay the inter­
est on the bonds. The final amount of unused funds available for transfer to REF­
CORP will not be known with certainty until all of FRF’s remaining assets and lia­
bilities are liquidated.
Funds available in FRF-FSLIC will be used to pay future liabilities of the FRFFSLIC, including the contingency related to the goodwill litigation cases. Because
additional and possibly substantial amounts could be paid out of FRF-FSLIC for
the goodwill cases, FRF has been provided with an indefinite permanent appropri­
ation for the payment of judgments and settlements in the goodwill litigation.

'V }n January 1, 1996, FRF assumed responsibility tor ail remaining assets and liabilities o f the form er RTC.


http://fraser.stlouisfed.org/
84
Federal Reserve Bank of St. Louis

B-283439

Corporation Comments and O u r Evaluation

In commenting on a draft of this report, FDIC acknowledged the IS control weak­
nesses, and stated a commitment to implementing a strong IS security program
for the FDIC and fostering an environment that makes all employees aware of
their security responsibilities. We plan to evaluate the effectiveness of FDIC’s cor­
rective actions in IS security as part of our audits of FDIC’s 2000 financial state­
ments.
FDIC also stated that it will continue to monitor the other matters discussed in
our report, including the status of the goodwill litigation cases and FRF’s liquida­
tion activities. We also plan to monitor these issues as a part of our 2000 audits.

David M. Walker
Comptroller General
of the United States
May 5, 2000

:* i i

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1

NUMBER AND DEPOSITS OF BIF-INSURED BANKS CLOSED
BECAUSE OF FINANCIAL DIFFICULTIES, 1934 THROUGH 19991
(D ollars in Thousands)

Number of
Insured Banks

Deposits of
Insured Banks

W ithout

With

W ithout

With

disbursements

disbursements

disbursements

disbursements

by FDIC

Total

TotalYear

by FDIC

by FDIC

$1,268,151

$1,268,151

$1,423,819

$335,076
26,800
168,228
632.700

$335,076
26,800
168,228
632,700

$370,400
25,921
182,502
753.024

12
41
110
124
168

1,236,488
3,132,177
41,150,898
53,751,763
14.473.300

1,236,488
3,132,177
36,893,231
53,751,763
14,473.300

1,392,140
3,539,373
44,197,009
63,119,870
15.660.800

206
200
184
138
120

206
200
184
138
120

24,090,551
24,931,302
6,281,500
6,471,100
8,059,441

24,090,551
24,931,302
6,281,500
6,471,100
8,059,441

29,168,596
35,697,789
6,850,700
6,991,600
8.741,268

1984
1983
1982
1981
1980

79
48
42
10
10

79
48
42
10
10

2,883,162
5,441,608
9,908,379
3,826,022
216,300

2,883,162
5,441,608
9,908,379
3,826,022
216,300

3,276,411
7,026,923
11,632,415
4,859,060
236.164

1979
1978
1977
1976
1975

10
7
6
16
13

10
7
6
16
13

110,696
854,154
205,208
864,859
339.574

110,696
854,154
205,208
864,859
339.574

132,988
994,035
232,612
1,039,293
419,950

1974
1973
1972
1971
1970

4
6
1
6
7

4
6
1
6
7

1,575,832
971,296
20,480
132,058
54.806

1,575,832
971,296
20,480
132,058
54,806

3,822,596
1,309,675
22,054
196,520
62.147

1969
1968
1967
1966
1965

9
3
4
7
5

9
3
4
7
5

40,134
22,524
10,878
103,523
43,861

40,134
22,524
10,878
103,523
43,861

43,572
25,154
11,993
120,647
58,750

1964
1963
1962
1961
1960

7
2
1
5
1

7
2
0
5
1

23,438
23,444
3,011
8,936
6,930

3,011

23,438
23,444
0
8,936
6,930

25,849
26,179
N/A
9,820
7,506

1959
1958
1957
1956
1955

3
4
2
2
5

3
4
1
2
5

2,593
8,240
11,247
11,330
11,953

10,084

2,593
8,240
1,163
11,330
11,953

2,858
8,905
1,253
12,914
11.985

1954
1953
1952
1951
1950

2
4
3
2
4

2
2
3
2
4

998
44,711
3,170
3,408
5,513

998
18,262
3,170
3,408
5,513

1,138
18,811
2,388
3,050
4,005

1949
1948
1947
1946
1945

5
3
5
1
1

4
3
5
1
1

6,665
10,674
7,040
347
5.695

5,475
10,674
7,040
347
5,695

4,886
10,360
6,798
351
6,392

1944
1943
1942
1941
1940

2
5
20
15
43

2
5
20
15
43

1,915
12,525
19,185
29,717
142,430

1,915
12,525
19,185
29,717
142.430

2,098
14,058
22,254
34,804
161.898

1939
1938
1937
1936
1935

60
74
77
69
26

60
74
75
69
25

157,772
59,684
33,677
27,508
13.405

157,772
59,684
33,349
27,508
13,320

181,514
69,513
40,370
31,941
17,242

1934

9

9

1,968

1,968

2,661

2,072

$214,333,958

1999
1998
1997
1996
1995

7

7

3
1
5
6

3
1
5
6

1994
1993
1992
1991
1990

13
41
120
124
168

1989
1988
1987
1986
1985

$4,298,814

Assets
$254,381,571

2,091

19

by FDIC

$210,035,144

Total

4,257,667

26,449

1,190

328
85

1 Does not include institutions insured by the Savings Association Insurance Fund (SAIF), which was established by the Financial Institutions Reform, Recovery, and
Enforcement Act
 of 1989.

86



RECOVERIES AND LOSSES RY THE DANK INSURANCE FUND
ON DISRURSEMENTS FOR THE PROTECTION OF DEPOSITORS, 1934 THROUGH 1999
(D ollars in Thousands)
A LL CASES 1

Year

Number
Of
banks

Total

2,202

Disburse-

Additional
Recoveries

Recoveries
107,971,371

D e p o s it p a y o f f c a s e s 2

69,413,408

581,915

Number
of

Estimated

Additional
Recoveries

DI £ £ 37,976,048

603

Recoveries

14,469,299

9,916,395

17,676

D e p o s it a s s u m p t i o n c a s e s
Number
of
banks

Estimated
Losses
4,535,228

1,458

Disburse­
ments

Recoveries

81,871,716

53,296,951

Additional
Recoveries
564,025

1

A s s is ta n c e tr a n s a c tio n s
Estimated
Losses

of
banks

28,010,740

Estimated
Additional

Disburse­
ments

141

Estimated

Recoveries

11,630,356

6,200,062

214

5,430,080

1999

7

1,234,278

11,082

384,771

838,425

0

0

0

0

0

7

1,234,278

11,082

384,771

838,425

0

0

0

0

1998

3

285,763

44,168

12,875

228,720

0

0

0

0

0

3

285,763

44,168

12,875

228,720

0

0

0

0

0

1997

1

25,546

19,670

1,099

4,777

0

0

0

0

0

1

25,546

19,670

1,099

4,777

0

0

0

0

0
0

0

1996

5

169,397

127,747

4,265

37,385

0

0

0

0

0

5

169,397

127,747

4,265

37,385

0

0

0

0

1995

6

609,045

521,871

3,144

84,030

0

0

0

0

0

6

609,045

521,871

3,144

84,030

0

0

0

0

0

1994

13

1,224,797

1,032,243

14,322

178,232

0

0

0

0

0

13

1,224,797

1,032,243

14,322

178,232

0

0

0

0

0

1993

41

1,797,297

1,145,335

4,043

647,919

5

261,203

159,321

90

101,792

36

1,536,094

986,014

3,953

546,127

0

0

0

0

0

1992

122

14,084,663

10,371,335

35,659

3,677,669

25

1,802,655

1,309,027

1,312

492,316

95

12,280,522

9,061,072

34,347

3,185,103

2

1,486

1,236

0

250

1991

127

21,412,647

15,134,723

92,013

6,185,911

21

1,468,407

989,193

10,026

469,188

103

19,938,123

14,142,437

81,987

5,713,699

3

6,117

3,093

0

3,024

1990

169

10,816,602

8,024,701

27,149

2,764,752

20

2,182,583

1,436,443

6,248

739,892

148

8,629,084

6,585,661

20,901

2,022,522

1

4,935

2,597

0

2,338

1989

207

11,445,829

5,246,366

2,361

6,197,102

32

2,116,556

1,262,729

0

853,827

174

9,326,725

3,983,385

2,361

5,340,979

1

2,548

252

0

2,296

1988

280

12,163,006

5,246,311

0

6,916,695

36

1,252,160

822,612

0

429,548

164

9,180,495

4,233,990

0

4,946,505

80

1,730,351

189,709

0

1,540,642

1987

203

5,037,871

3,015,215

0

2,022,656

51

2,103,792

1,401,589

0

702,203

133

2,773,202

1,612,913

0

1,160,289

19

160,877

713

0

160,164

1986

145

4,790,969

3,015,125

0

1,775,844

40

1,155,981

739,659

0

416,322

98

3,476,140

2,209,797

0

1,266,343

7

158,848

65,669

0

93,179

1985

120

2,920,687

1,913,454

0

1,007,233

29

523,789

411,175

0

112,614

87

1,631,166

1,095,603

0

535,563

4

765,732

406,676

0

359,056
1,116,275

1984

80

7,696,215

6,056,061

0

1,640,154

16

791,838

699,483

0

92,355

62

1,373,198

941,674

0

431,524

2

5,531,179

4,414,904

0

1983

48

3,807,082

2,400,231

214

1,406,637

9

148,423

122,484

0

25,939

35

2,893,969

1,850,553

0

1,043,416

4

764,690

427,194

214

337,282

0

1,168,571

7

277,240

206,247

0

70,993

25

268,372

213,578

0

54,794

10

1,729,538

686,754

0

1,042,784
772,790

1982

42

2,275,150

1,106,579

1981

10

888,999

107,221

0

781,778

2

35,736

34,598

0

1,138

5

79,208

71,358

0

7,850

3

774,055

1,265

0

1980

11

152,355

121,675

0

30,680

3

13,732

11,427

0

2,305

7

138,623

110,248

0

28,375

1

0

0

0

0

1979

10

90,489

74,372

0

16,117

3

9,936

9,003

0

933

7

80,553

65,369

0

15,184

0

0

0

0

0
0

1978

7

548,568

512,927

0

35,641

1

817

613

0

204

6

547,751

512,314

0

35,437

0

0

0

0

1977

6

26,650

20,654

0

5,996

0

0

0

0

0

6

26,650

20,654

0

5,996

0

0

0

0

0

1976

17

599,397

561,532

0

37,865

3

11,416

9,660

0

1,756

13

587,981

551,872

0

36,109

1

0

0

0

0
0

1975

13

332,046

292,431

0

39,615

3

25,918

25,849

0

69

10

306,128

266,582

0

39,546

0

0

0

0

1974

5

2,403,277

2,259,633

0

143,644

0

0

0

0

0

4

2,403,277

2,259,633

0

143,644

1

0

0

0

0

1973

6

435,238

368,852

0

66,386

3

16,771

16,771

0

0

3

418,467

352,081

0

66,386

0

0

0

0

0
0

1972

2

16,189

14,501

0

1,688

1

16,189

14,501

0

1,688

0

0

0

0

0

1

0

0

0

1971

7

171,646

171,430

0

216

5

53,767

53,574

0

193

1

117,879

117,856

0

23

1

0

0

0

0

1970

7

51,566

51,294

0

272

4

29,265

28,993

0

272

3

22,301

22,301

0

0

0

0

0

0

0

1969

9

42,072

41,910

0

162

4

7,596

7,513

0

83

5

34,476

34,397

0

79

0

0

0

0

0

1968

3

6,476

6,464

0

12

0

0

0

0

0

3

6,476

6,464

0

12

0

0

0

0

0

1967

4

8,097

7,087

0

1,010

4

8,097

7,087

0

1,010

0

0

0

0

0

0

0

0

0

0

1966

7

10,020

9,541

0

479

1

735

735

0

0

6

9,285

8,806

0

479

0

0

0

0

0

1965

5

11,479

10,816

0

663

3

10,908

10,391

0

517

2

571

425

0

146

0

0

0

0

0

1964

7

13,712

12,171

0

1,541

7

13,712

12,171

0

1,541

0

0

0

0

0

0

0

0

0

0

1963

2

19,172

18,886

0

286

2

19,172

18,886

0

286

0

0

0

0

0

0

0

0

0

0

1962

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1961

5

6,201

4,700

0

1,501

5

6,201

4,700

0

1,501

0

0

0

0

0

0

0

0

0

0

1960

1

4,765

4,765

0

0

1

4,765

4,765

0

0

0

0

0

0

0

0

0

0

0

0

1959

3

1,835

1,738

0

97

3

1,835

1,738

0

97

0

0

0

0

0

0

0

0

0

0

1958

4

3,051

3,023

0

28

3

2,796

2,768

0

28

1

255

255

0

0

0

0

0

0

0

1957

1

1,031

1,031

0

0

1

1,031

1,031

0

0

0

0

0

0

0

0

0

0

0

0

1956

2

3,499

3,286

0

213

1

2,795

2,582

0

213

1

704

704

0

0

0

0

0

0

0

1955

5

7,315

7,085

0

230

4

4,438

4,208

0

230

1

2,877

2,877

0

0

0

0

0

0

0

1954

2

1,029

771

0

258

0

0

0

0

0

2

1,029

771

0

258

0

0

0

0

0

1953

2

5,359

5,359

0

0

0

0

0

0

0

2

5,359

5,359

0

0

0

0

0

0

0

1952

3

1,525

733

0

792

0

0

0

0

0

3

1,525

733

0

792

0

0

0

0

0

1951

2

1,986

1,986

0

0

0

0

0

0

0

2

1,986

1,986

0

0

0

0

0

0

0

1950

4

4,404

3,019

0

1,385

0

0

0

0

0

4

4,404

3,019

0

1,385

0

0

0

0

0

1949

4

2,685

2,316

0

369

0

0

0

0

0

4

2,685

2,316

0

369

0

0

0

0

0

1948

3

3,150

2,509

0

641

0

0

0

0

0

3

3,150

2,509

0

641

0

0

0

0

0
0

1947

5

2,038

1,979

0

59

0

0

0

0

0

5

2,038

1,979

0

59

0

0

0

0

1946

1

274

274

0

0

0

0

0

0

0

1

274

274

0

0

0

0

0

0

0

1945

1

1,845

1,845

0

0

0

0

0

0

0

1

1,845

1,845

0

0

0

0

0

0

0

1944

2

1,532

1,492

0

40

1

404

364

0

40

1

1,128

1,128

0

0

0

0

0

0

0

1943

5

7,230

7,107

0

123

4

5,500

5,377

0

123

1

1,730

1,730

0

0

0

0

0

0

0

1942

20

11,684

10,996

0

688

6

1,612

1,320

0

292

14

10,072

9,676

0

396

0

0

0

0

0

1941

15

25,061

24,470

0

591

8

12,278

12,065

0

213

7

12,783

12,405

0

378

0

0

0

0

0

1940

43

87,899

84,103

0

3,796

19

4,895

4,313

0

582

24

83,004

79,790

0

3,214

0

0

0

0

0

1939

60

81,828

74,676

0

7,152

32

26,196

20,399

0

5,797

28

55,632

54,277

0

1,355

0

0

0

0

0

1938

74

34,394

31,969

0

2,425

50

9,092

7,908

0

1,184

24

25,302

24,061

0

1,241

0

0

0

0

0

1937

75

20,204

16,532

0

3,672

50

12,365

9,718

0

2,647

25

7,839

6,814

0

1,025

0

0

0

0

0

1936

69

15,206

12,873

0

2,333

42

7,735

6,397

0

1,338

27

7,471

6,476

0

995

0

0

0

0

0

1935

25

9,108

6,423

0

2,685

24

6,026

4,274

0

1,752

1

3,082

2,149

0

933

0

0

0

0

0

1934

9

941

734

0

207

9

941

734

0

207

0

0

0

0

0

0

0

0

0

0

'T o ta ls d o n o t in c lu d e d o lla r a m o u n ts f o r fiv e o p e n b a n k a s s is ta n c e tr a n s a c tio n s b e tw e e n 1 9 7 1 a n d 1 9 8 0 .

E x c lu d e s e ig h t tr a n s a c tio n s p r io r to 1 9 6 2 th a t r e q u ire d n o d is b u r s e m e n ts . A ls o , d is b u r s e ­

m e n ts , r e c o v e r ie s , a n d e s tim a te d a d d itio n a l r e c o v e r ie s d o n o t in c lu d e w o r k in g c a p ita l a d v a n c e s to a n d r e p a y m e n ts b y r e c e iv e r s h ip s .
2 In c lu d e s in s u r e d d e p o s it t r a n s fe r c a s e s .
N o te : B e g in n in g w ith t h e 1 9 9 7 A n n u a l R e p o r t th e n u m b e r o f b a n k s in th e A s s is ta n c e T r a n s a c tio n s c o lu m n f o r 1 9 8 8 w a s c h a n g e d fr o m 21 to 8 0 a n d th e n u m b e r o f b a n k s in th e A L L C A S E S c o lu m n
w a s c h a n g e d fr o m 2 2 1 to 2 8 0 t o r e fle c t th a t o n e a s s is ta n c e tr a n s a c tio n e n c o m p a s s e d 6 0 in s titu tio n s . A ls o , c e r ta in 1 9 8 2 , 1 9 8 3 , 1 9 8 9 , a n d 1 9 9 2 re s o lu tio n s p r e v io u s ly r e p o rte d in e ith e r th e D e p o s it
p a y o ff o r D e p o s it a s s u m p tio n c a te g o r ie s w e r e re c la s s ifie d .




87

INCOME AND EXPENSES. BANK INSURANCE FUND,
FROM BEGINNING OF OPERATIONS, SEPTEMBER 1 1 ,1 9 3 3 , THROUGH DECEMBER 3 1 ,1 9 9 9
(D ollars in M illions)
In c o m e

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

A ssessm ent A ssessm ent

E ff e c t iv e

a n d O th e r

C r e d it s

S o u rc e s

R a te 1

$ 7 9 ,8 0 4 .6

$ 5 3 ,1 6 7 .7

$ 6 ,7 0 9 .1

$ 3 3 ,3 4 6 .0

1999

1 ,8 1 5 .6

3 3 .3

0 .0

1 ,7 8 2 .3

1998

2 , 0 0 0 .3

2 1 .7

0 .0

1 ,9 7 8 .6

Year
T o ta l

T o ta l

T o ta l

A d m i n is t r a t iv e

I n te r e s t

fo r

A ssessm ent

In c o m e

P r o v i s io n

a n d O p e r a tin g

& O t h e r In s .

E xD enses2

E xpenses

Losses

$ 5 0 ,3 0 9 .4

$ 3 5 ,6 0 4 .7

$ 7 ,7 8 0 .7

0 .0 0 1 1 %

1 ,9 2 2 .0

1 ,1 6 8 .7

7 3 0 .4

6 9 1 .5

( 3 7 .7 )

6 9 7 .6

(L o s s )

2 2 .9

0 .0 0 0 8 %

N e t In c o m e /

3 1 .6

$ 6 ,9 3 0 .0

$ 2 9 ,4 9 5 .2
(1 0 6 .4 )
1 ,3 0 8 .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
1995

1 ,6 5 5 .3
4 ,0 8 9 .1

7 2 .7
2 ,9 0 6 .9

0 .0
0 .0

1 ,5 8 2 .6
1 ,1 8 2 .2

0 .0 0 2 4 %
0 .1 2 4 0 %

2 5 4 .6
4 8 3 .2

(3 2 5 .2 )
( 3 3 .2 )

5 0 5 .3
4 7 0 .6

7 4 .5
4 5 .8

1 ,4 0 0 .7
3 ,6 0 5 .9

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

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

1992

6 ,3 0 1 .5

5 ,5 8 7 .8

0 .0

7 1 3 .7

0 .2 3 0 0 %

( 6 2 5 .8 )

(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 %

2 8 4 .1

1 ,1 0 2 .0

(1 1 ,0 7 2 .3 )

3 . 8 3 8 .3

2 ,8 5 5 .3

0 .0

9 8 3 .0

0 .1 2 0 0 %

1 6 ,8 6 2 .3
1 3 ,0 0 3 .3

1 5 ,4 7 6 .2

1990

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

1986

3 ,2 6 0 .1

1 ,5 1 6 .9

0 .0

1 ,7 4 3 .2

0 .0 8 3 3 %

1 8 0 .3

3 .3 8 5 .4

1 .4 3 3 .4

0 .0

1 .9 5 2 .0

0 .0 8 3 3 %

2 ,9 6 3 .7
1 ,9 5 7 .9

2 ,8 2 7 .7

1985

1 .5 6 9 .0

1 7 9 .2

2 0 9 .7

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

1 5 9 .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

1981

2 ,0 7 4 .7

1 ,0 3 9 .0

1 1 7 .1

1 ,1 5 2 .8

0 .0 7 1 4 %

1 .3 1 0 .4

9 5 1 .9

5 2 1 .1

8 7 9 .6

0 .0 3 7 0 %

8 4 8 .1
8 3 .6

3 2 0 .4

1980
1979

1 ,0 9 0 .4

8 8 1 .0

5 2 4 .6

7 3 4 .0

0 .0 3 3 3 %

1978

9 5 2 .1

8 1 0 .1

4 4 3 .1

5 8 5 .1

0 .0 3 8 5 %

1 9 1 .1

8 ,7 2 6 .1

4 9 7 .5
3

1 3 ,2 2 2 .2

1 ,0 6 3 .1

6 ,9 2 7 .3

6 9 .1

4 8 .5

(4 4 .3 )

2 9 6 .4
1 .4 2 7 .5

1 2 9 .9

7 4 3 .5

1 2 7 .2

4 0 0 .5

1 ,2 2 6 .6

1 1 8 .2

3 .5

1 .2 2 6 .8

1 ,5 2 4 .8

(3 8 .1 )

9 3 .7

(1 7 .2 )

1 0 6 .8

4 .1

9 9 6 .7

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

1976

7 6 4 .9

6 7 6 .1

3 7 9 .6

4 6 8 .4

0 .0 3 7 0 %

2 8 .0

1 8 0 .4

1975

6 8 9 .3

6 4 1 .3

3 6 2 .4

4 1 0 .4

0 .0 3 5 7 %

2 1 2 .3
9 7 .5

2 7 .6

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

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

1972

4 6 7 .0

4 6 8 .8

2 8 0 .3

2 7 8 .5

0 .0 3 3 3 %

5 9 .7

10.1

4 9 .6

6 .0

1971

4 1 5 .3

4 1 7 .2

2 4 1 .4

2 3 9 .5

0 .0 3 4 5 %

6 0 .3

1 3 .4

4 6 .9

0 .0

1970

3 8 2 .7

3 6 9 .3

2 1 0 .0

2 2 3 .4

0 .0 3 5 7 %

4 6 .0

3 .8

4 2 .2

0 .0

3 3 6 .7

1969

3 3 5 .8

3 6 4 .2

2 2 0 .2

1 9 1 .8

0 .0 3 3 3 %

3 4 .5

1 .0

3 3 .5

0 .0

3 0 1 .3

2 0 2 .1

1 6 2 .6

1968

3 .5

7 2 4 .2

3 .9

5 5 2 .6

6 7 .7

2 .2

5 9 1 .8

5 9 .2

2.1

4

5 0 8 .9
4 5 2 .8
6

4 0 7 .3
3 5 5 .0

2 9 5 .0

3 3 4 .5

0 .0 3 3 3 %

2 9 .1

0.1

2 9 .0

0 .0

2 6 5 .9

1967

2 6 3 .0

3 0 3 .1

1 8 2 .4

1 4 2 .3

0 .0 3 3 3 %

2 7 .3

2 .9

2 4 .4

0 .0

2 3 5 .7

1966

2 4 1 .0

2 8 4 .3

1 7 2 .6

1 2 9 .3

0 .0 3 2 3 %

1 9 .9

0.1

1 9 .8

0 .0

2 2 1 .1

1965

2 1 4 .6

2 6 0 .5

1 5 8 .3

1 1 2 .4

0 .0 3 2 3 %

2 2 .9

5 .2

1 7 .7

0 .0

1 9 1 .7

0 .0 3 2 3 %

1 8 .4

2 .9

1 5 .5

0 .0

1 7 8 .7
1 6 6 .8

1964

1 9 7 .1

2 3 8 .2

1 4 5 .2

10 4 .1

1963

1 8 1 .9

2 2 0 .6

1 3 6 .4

9 7 .7

0 .0 3 1 3 %

1 5.1

0 .7

1 4 .4

0 .0

1962

1 6 1 .1

2 0 3 .4

1 2 6 .9

8 4 .6

0 .0 3 1 3 %

1 3 .8

0.1

1 3 .7

0 .0

1 4 7 .3

1961

1 4 7 .3

1 8 8 .9

1 1 5 .5

7 3 .9

0 .0 3 2 3 %

1 4 .8

1.6

1 3 .2

0 .0

1 3 2 .5

1960

1 4 4 .6

1 8 0 .4

1 0 0 .8

6 5 .0

0 .0 3 7 0 %

1 2 .5

0.1

1 2 .4

0 .0

1 3 2 .1

1959

1 3 6 .5

1 7 8 .2

9 9 .6

5 7 .9

0 .0 3 7 0 %

12.1

0 .2

1 1 .9

0 .0

1 2 4 .4

1958

1 2 6 .8

1 6 6 .8

9 3 .0

5 3 .0

0 .0 3 7 0 %

1 1 .6

0 .0

1 1 .6

0 .0

1 1 5 .2

1957

1 1 7 .3

1 5 9 .3

9 0 .2

4 8 .2

0 .0 3 5 7 %

9 .7

0.1

9 .6

0 .0

1 0 7 .6

1956

1 1 1 .9

1 5 5 .5

8 7 .3

4 3 .7

0 .0 3 7 0 %

9 .4

0 .3

9.1

0 .0

1 0 2 .5

1955

1 0 5 .8

1 5 1 .5

8 5 .4

3 9 .7

0 .0 3 7 0 %

9 .0

0 .3

8 .7

0 .0

9 6 .8

1954

9 9 .7

1 4 4 .2

8 1 .8

3 7 .3

0 .0 3 5 7 %

7 .8

0.1

7 .7

0 .0

9 1 .9

1953
1952

9 4 .2

1 3 8 .7

3 4 .0

0 .0 3 5 7 %

8 6 .9

7 3 .7

3 1 .3

0 .0 3 7 0 %

0.1
0 .8

0 .0

1 3 1 .0

7 .3
7 .8

7 .2

8 8 .6

7 .0

0 .0

8 0 .8

1951

8 3 .5

1 2 4 .3

7 0 .0

2 9 .2

0 .0 3 7 0 %

6 .6

0 .0

6 .6

0 .0

7 6 .9

1950

8 4 .8

1 2 2 .9

6 8 .7

3 0 .6

0 .0 3 7 0 %

7 .8

1 .4

6 .4

0 .0

7 7 .0

2 8 .4

0 .0 8 3 3 %

6.1

0 .0

1 4 4 .7

1949

7 8 .5

1 5 1 .1

1 2 2 .7

6 .4

0 .3

1948

1 4 5 .6

1 1 9 .3

0 .0

2 6 .3

0 .0 8 3 3 %

7 .0

0 .7

6 .3

0 .0

1 3 8 .6

1947

1 5 7 .5

1 1 4 .4

0 .0

4 3 .1

0 .0 8 3 3 %

9 .9

0.1

9 .8

0 .0

1 4 7 .6

1946

1 3 0 .7

1 0 7 .0

0 .0

2 3 .7

0 .0 8 3 3 %

1 0 .0

0.1

9 .9

0 .0

1 2 0 .7

1945

1 2 1 .0

9 3 .7

0 .0

2 7 .3

0 .0 8 3 3 %

9 .4

0.1

9 .3

0 .0

1 1 1 .6

1944

9 9 .3

8 0 .9

0 .0

1 8 .4

0 .0 8 3 3 %

9 .3

0.1

9 .2

0 .0

9 0 .0

1943

8 6 .6

7 0 .0

0 .0

1 6 .6

0 .0 8 3 3 %

9 .8

0 .2

9 .6

0 .0

7 6 .8

1942

6 9 .1

5 6 .5

0 .0

1 2 .6

0 .0 8 3 3 %

10.1

0 .5

9 .6

0 .0

5 9 .0

19 4 1

6 2 .0

5 1 .4

0 .0

1 0 .6

0 .0 8 3 3 %

10.1

0 .6

9 .5

0 .0

5 1 .9

1940

5 5 .9

4 6 .2

0 .0

9 .7

0 .0 8 3 3 %

1 2 .9

3 .5

9 .4

0 .0

4 3 .0

0 .0

7 .2

9 .2

1939

0 .0

s

5 1 .2

4 0 .7

1 0 .5

0 .0 8 3 3 %

1 6 .4

1938

4 7 .7

3 8 .3

0 .0

9 .4

0 .0 8 3 3 %

1 1 .3

2 .5

8 .8

0 .0

3 6 .4

1937

4 8 .2

3 8 .8

0 .0

9 .4

0 .0 8 3 3 %

1 2 .2

3 .7

8 .5

0 .0

3 6 .0

1936

4 3 .8

3 5 .6

0 .0

8 .2

0 .0 8 3 3 %

1 0 .9

2 .6

8 .3

0 .0

3 2 .9

1935

2 0 .8

1 1 .5

0 .0

9 .3

0 .0 8 3 3 %

1 1 .3

2 .8

8 .5

0 .0

9 .5

7 .0

0 .0

0 .0

7 .0

N /A

1 0 .0

0 .2

9 .8

0 .0

(3 .0 )

1 9 3 3 -3 4

0 .0

3 4 .8

The effective rates from 1950 through 1984 va ry from th e statutory rate o f 0.0833 percent due to a ssessm ent credits provided in those years. The
statutory rate increased to 0.12 percent in 1990 and to a m inim um o f 0.15 percent in 1991. The effective rates in 1991 and 1992 v a ry because the
FDIC exercised new authority to increase assessm ents above the statutory rate w hen needed. B eginning in 1993, th e effective rate is based on a
risk-related prem ium system under w hich institutions pay assessm ents in th e range o f 0.23 percent to 0.31 percent. In M ay 1995, the BIF reached the
m andatory recapitalization level o f 1.25% . A s a result, the a ssessm ent rate w as reduced to 4.4 cents per $100 o f insured deposits and assessm ent
p rem ium s totaling $1.5 billion w ere refunded in S eptem ber 1995.
2 These expenses, w hich are presented as operating expenses in the S tatem ents o f Incom e and Fund Balance, pertain to the FDIC in its corporate
capacity only and do not include costs that are charged to the failed bank receiverships th a t are m anaged by the FDIC. The receivership expenses
are presented as part o f the “R eceivables from Bank Resolutions, net” line on the S tatem ents o f Financial Position. The narrative and graph
presented in th e “C orporate Planning and Budget” section o f this report (next page) show the aggregate (corporate and receivership) expendi­
tures o f th e FDIC.
3 Includes $210 m illion fo r the cum ulative e ffect o f an accounting change fo r certain postretirem ent benefits.
4 Includes $105.6 m illion net loss on gove rn m e nt securities.
5 Includes $80.6 m illion o f interest paid on capital stock between 1933 and 1948.


88
6 This am
http://fraser.stlouisfed.org/ ount represents
Federal Reserve Bank of St. Louis

interest and oth e r insurance expenses from 1933 to 1972.

CORPORATE PLANNING AND BUDGET,
FDIC EXPENDITURES, 1990 - 1999

FDIC Expenditures Continue Downward Trend
Dollars in
Millions
2,500
2,000

-|

1,500 -

1,000

-

I
i

500 -

0

I
i

I

i l
1 1

11

i

l
i

i

-

1990

1991

1992

1993

1994

I FDIC

1995




1997

1998

1999

■ RTC

The FDIC’s Strategic Plan and Annual Performance Plan provide the
basis for annual planning and budgeting for needed resources. The
1999 aggregate budget (for corporate and receivership expenses)
was $1.22 billion, while actual expenditures for the year were $1.16
billion. The 1999 expenditures were four percent less than 1998
spending, resulting in the lowest FDIC spending level since 1990.
Over the past 10 years, the FDIC’s expenditures have risen and
declined in response to its corporate workload. From 1990 to
1993, costs increased as the FDIC became heavily involved with
resolving the banking crisis of the late 1980s and early 1990s.
Expenditures began to decline in 1994 due to decreasing resolution

1996

and receivership activity, but temporarily increased in 1996 in con­
junction with the absorption of Resolution Trust Corporation (RTC)
operations into the FDIC. Expenditures have decreased each year
since 1996.
The largest component of FDIC spending is for the costs associated
with staffing. The FDIC’s staff has continued to decline from a peak
of 15,611 in mid-1993 to 7,266 at the end of 1999. A further
decline to about 6,550 is expected by year-end 2000.

89

ESTIMATED INSURED DEPOSITS AND THE DANK INSURANCE FUND,
DECEMDER 3 1 ,1 9 3 4 , THROUGH DECEMDER 3 1 ,1 9 9 9
(D o lla rs In M illio n s )
Est. Deposits in Insured Banks
Year1

Insurance
Coverage

Total Domestic
Deposits

Insured z
Deposits

1999

$100,000

$3,038,385

1998
1997

100,000

2,996,396

$2,157,536
2,141,268

100,000
100,000

2,785,990
2,642,107

2,055,874
2,007,447

1996

Insurance Fund as a Percentage of
Percentage of
Insured Deposits

Deposit Insurance
Fund

Total
Domestic Deposits

Est. Insured
Deposits

71.0

$29,414.2

0.97

1.36

71.5
73.8

29,612.3
28,292.5
26,854.4

0.99
1.02

1.38

1.02

1.38
1.34
1.30

1995
1994

100,000

2.575.966

1,952,543

76.0
75.8

25,453.7

0.99

100,000

2,463,813

1,896,060

77.0

21,847.8

0.89

1.15

1993

100,000
100,000

2,493,636

1,906,885

76.5

13,121.6

0.53

0.69

2,512,278
2,520,074

1,945,623
1,957,722

77.4
77.7

(100.6)
(7,027.9)

(0.00)
(0.28)

(0.01)

100,000
100,000

2,540,930

1,929,612

75.9

100,000
100,000

2,465,922
2,330,768

1,873,837

76.0

4,044.5
13,209.5

0.16
0.54

75.1

14,061.1

0.60

100,000

2,201,549

1,750,259
1,658,802

18,301.8

1986

100,000

0.83
0.84

1985
1984
1983

100,000
100,000

2,167,596
1,974.512

75.3
75.4

1992
1991
1990
1989
1988
1987

1982
1981
1980
1979
1978
1977
1976
1975
1974

1,806,520

1,634,302
1,503,393
1,389,874

76.1

1,690,576
1,544,697
1,409,322

1,268,332
1,134,221
988,898

70.2

13,770.9
12,246.1

100,000
40,000

1,324.463

948.717

71.6

11,019.5

808,555
760,706

65.9
66.4

9,792.7

40,000

1,226,943
1,145,835

0.83
0.80

8,796.0

0.77

40,000
40,000

1,050,435
941,923

692,533
628,263

65.9
66.7

40,000

875,985
833,277

7,992.8
7,268.8
6,716.0

0.76
0.77
0.77

0.80
1.10
1.12
1.19
1.19
1.22
1.21
1.24
1.16
1.21
1.16
1.15
1.16

65.0
62.5
60.7

6,124.2

0.73

5,615.3

0.73

1.21

5,158.7
4,739.9

0.74

1.23

0.78

1.27

4,379.6

1.25
1.29

697,480

419,756

60.2

20,000

610,685

374,568

545,198
495,858

349,581
313,085

61.3
64.1

1969
1968

20,000
20,000
15,000

1967

15,000

491,513
448,709

296,701
261,149

1966

15,000

401,096

1965
1964

40,000
20,000

0.70

569,101

766,509

1970

0.89
0.87

100,000
100,000
100,000

20,000

1973

16,529.4
15,429.1

0.91
0.92
0.91

76.9
75.0
73.4

520,309
465,600

1972
1971

18,253.3
17,956.9

(0.36)
0.21

63.1
60.2

4,051.1
3,749.2

0.80
0.82
0.76

58.2

3,485.5

0.78

234,150

58.4

3,252.0

0.81

3,036.3
2,844.7
2,667.9

10.000

377.400

209.690

55.6

348,981
313,304

191,787

1963

10,000
10,000

55.0
56.6

1962
1961

10,000
10,000

297,548
281,304

1960
1959
1958

10,000
10,000
10,000

1957
1956
1955
1954

177,381
170,210

57.2

1.18
1.18

1.26
1.33
1.39

0.80

1.45

0.82
0.85
0.84

1.48
1.50

160,309

57.0

2,502.0
2,353.8

260,495
247,589
242,445

149,684
142,131
137,698

57.5
57.4
56.8

2,222.2
2,089.8
1,965.4

0.85
0.84
0.81

1.48
1.47
1.43

10,000

225,507

127,055

219,393
212,226
203,195
193,466
188,142

121,008
116,380
110,973

1.46
1.44
1.41

105,610
101,841

54.8
54.6
54.6
54.1

1,850.5
1,742.1
1,639.6
1,542.7
1,450.7

0.82
0.79
0.77

1953
1952
1951

10,000
10,000
10,000
10,000
10,000
10,000

56.3
55.2

1950
1949

10,000
5,000

96,713
91,359
76,589

54.2
54.4
48.8

1,363.5
1,282.2
1,243.9

1.39
1.37
1.34

178,540
167,818
156,786

0.76
0.75
0.72
0.72
0.74

1,203.9

0.77

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

49.7

1,058.5

0.71

1.44

1945

5,000

157,174

67,021

42.4

929.2

0.59

1.39

1944

5,000

134,662

41.9

804.3

0.60

1.43

1943

5,000

111,650

56,398
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

28,249

39.7

553.5

0.78

1.96

1940

5,000

65,288

26,638

40.8

496.0

0.76

1.86

1939
1938
1937

5,000
5,000

57,485
50,791

24,650
23,121

42.9
45.5

452.7
420.5

0.79
0.83

1.84
1.82

1936
1935
19343

0.84

1.47
1.47

1.33
1.36
1.57

5,000

48,228

22,557

46.8

1.70

50,281

22,330

44.4

383.1
343.4

0.79

5,000

0.68

1.54

5.000

45,125

20,158

44.7

306.0

0.68

1.52

5,000

40,060

18,075

45.1

291.7

0.73

1.61

1 Starting in 1990, deposits in insured banks exclude those deposits held by Bank insurance Fund members that are insured by the Savings Association Insurance Fund and
include those deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund.
2 Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits were estimated using
percentages determined from the June 30 Call Reports.
January 1 to June 30, 1934.

 was $2,500 from
3 Initial coverage


INCOME AND EXPENSES, SAVINGS ASSOCIATION INSURANCE FUND, BY YEAR,
FROM BEGINNING OF OPERATIONS, AUGUST 9 ,1 9 8 9 , THROUGH DECEMBER 3 1 ,1 9 9 9
(Dollars in Thousands)
In c o m e

E xpenses and Losses
P ro v is io n

In v e stm e n t
A ssessm ent
Year

a nd O th e r
S o u rc e s

Rate

Total

Total

In te re s t

A d m in is tra tiv e

fo r

A ssessm ent

In com e

& O th e r Ins.

a nd O p e ra tin g

fro m th e FSLIC

L o sse s

E ffe c tiv e

E xp e n s e s

E xp e n s e s

R e s o lu tio n Fund

F u n d in g T ra n s fe r
N et In c o m e /

Total

$10,80 8,4 5 7

$ 8,549,567

$2,258,890

$635,539

$83,825

$1,367

$550,347

$139,498

$10,31 2,41 6

1999

60 0 ,995

15,116

585,879

0.002%

124,156

30,648

626

92,882

0

47 6,83 9

1998

58 3 ,859

15,352

568,507

0.002%

116,629

31,992

9

84,628

0

46 7 ,23 0

1997

54 9 ,912

13,914

535,998

0.004%

69,986

(1,879)

0

71,865

0

47 9 ,92 6

1996

5,50 1,68 4

5,221,560

280,124

0.204%

(28,890)

(91,636)

128

62,618

0

5 ,53 0,57 4

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

1993

92 3 ,516

897,692

25,824

0.250%

4 6 ,814

16,531

0

0.230%

28,982

(14,945)

0

7 80,986

30,283

0

87 6,70 2

4 3 ,932

20,303

35,446

185,107

4 2 ,362

42,362

75,7 23

1992

178,643

172,079

6,564

1991

96,446

93,530

2,916

0.230%

63,085

20,114

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

(5)
609

FDIC-INSURED INSTITUTIONS CLOSED DURING 1999
(D ollars in Thousands)
Num ber
of
D e p o s it
A c c o u n ts

Bank
C la ss

N a m e a n d L o c a tio n

T o ta l
A s s e ts

FD IC
D is b u r s e ­
m e n ts

T o ta l
D e p o s its

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

E s tim a te d
Loss i

A s s u m in g B a n k
a n d L o c a tio n

Bank Insurance Fund
P u r c h a s e a n d A s s u m p t io n - A ll D e p o s its
NM

1,500

$11,782

$11,082

$11,172

$0

03/26/99

S o u th C a ro lin a C o m m u n ity B a n k
C o lu m b ia , S C

SM

1,640

$13,354

$12,604

$12,602

$3,792

04/23/99

F irst N a tio n a l B a n k o f N e w M e x ic o
C la yto n , N M

E a s t T e x a s N a tio n a l Ban k
M a rs h a ll, T X

N

2,381

$112,632

$100,470

$109,151

$10,619

07/09/99

Fred o n ia S ta te B a n k
N a cogdoches, T X

P e o p le s N a tio n a l Ba n k o f C o m m e rce
M ia m i, FL

N

5,000

$35,181

$33,558

$33,566

$2,014

09/10/99

B o sto n B a n k o f C o m m e rc e

NM

18,146

$88,254

$81,268

$81,233

$0

12/10/99

C a th a y Bank,

V ic to ry S ta te B a n k
C o lu m b ia , S C
Z ia N e w M e x ic o B an k
T u c u m c a ri, N M

Boston, M A

G o ld e n C ity C o m m e rc ia l B a n k

Lo s A n g e le s, C A

N e w Y o rk , N Y
P u r c h a s e a n d A s s u m p tio n - In s u r e d D e p o s its
2,600

$116,756

$107,198

$105,575

$52,000

11/19/99

A ffin ity B a n k
V e n tu ra , C A

25,434

NM

P a c ific T h rift a n d L o a n C o m p a n y

$1,045,861

$921,971

$890,132

$770,000

09/01/99

A m e rib a n k, Incorpo rated
W e lc h , W V

W o o d la n d H ills, C A
Payout
N

F irst N a tio n a l B a n k o f K ey s to n e
K eysto ne , W V

Savings Association Insurance Fund

_______________
P u r c h a s e a n d A s s u m p tio n - A ll D e p o s its
O c e a n m a rk B a n k

I

N orth M ia m i B ea ch, F L

I

C o d e s fo r B a n k C la s s :

FSB

I
I

2,900

I

I

$62,956

I
I

$63,427

I
I

$62,662

I

I

NM =

FSB =




0 7 /0 9 /9 9 1

T h ird F S & L A o f Florida

I

N o rth M ia m i B e a c h - FL

S ta te -c h a rte r e d b a n k th a t is a m e m b e r o f th e F e d e ra l R e s e r v e S y s te m

N =

1 E s tim a te d lo s s e s a r e a s o f 1 2 /3 1 /9 9 .
a n d p r o je c te d r e c o v e r ie s .

I

S ta te - c h a rte r e d b a n k th a t is n o t a m e m b e r o f th e F e d e ra l R e s e r v e S y s te m

SM =

$1,343
I

N ational Bank
F e d e ra l S a vin g s Bank

E s tim a te d lo s s e s a r e r o u tin e ly a d ju s te d w ith u p d a te d in fo rm a tio n fro m n e w a p p r a is a ls a n d a s s e t s a le s , w h ic h u ltim a te ly a ffe c t th e a s s e t v a lu e s

91

ESTIMATED INSURED DEPOSITS AND THE SAVINGS ASSOCIATION INSURANCE FUND,
DECEMBER 3 1 ,1 9 8 9 , THROUGH DECEMBER 3 1 ,1 9 9 9
(Dollars in M illions)
E s t. D e p o s its in In s u r e d In s titu tio n s

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

In s u r a n c e
Y e a r1

T o ta l D o m e s tic

In s u r e 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

E s t. In s u r e d

C o v e ra g e

D e p o s its

D e p o s its

In s u r e d D e p o s its

Fund

D o m e s tic D e p o s its

D e p o s its

1999
1998
1997
1996
1995

$100,000
100,000
100,000
100,000
100,000

$764,359
751,413
721,503
708,749
742,547

$711,345
$708,959
690,132
683,090
711,017

93.1
94.4
95.7
96.4
95.8

$10,280.7
9,839.8
9,368.3
8,888.4
3,357.8

1.35
1.31
1.30
1.25
0.45

1.45
1.39
1.36
1.30
0.47

1994
1993
1992
1991
1990

100,000
100,000
100,000
100,000
100,000

720,823
726,473
760,902
810,664
874,738

692,626
695,158
729,458
776,351
830,028

96.1
95.7
95.9
95.8
94.9

1,936.7
1,155.7
279.0
93.9
18.2

0.27
0.16
0.04
0.01
0.00

0.28
0.17
0.04
0.01
0.00

1989

100,000

948,144

882,920

93.1

0.0

0.00

0.00

1 S tarting in 1990, deposits in insured institutions exclude those deposits held by Savings A ssociation Insurance Fund m em bers th a t are insured by the Bank
Insurance Fund and include those deposits held by Bank Insurance Fund m em bers that are insured by the S avings A ssociation Insurance Fund.
2 Estim ated insured deposits reflect d eposit inform ation as reported in the fourth quarter FD IC Q uarterly Banking Profile. Before 1991, insured deposits
w ere estim ated using percentages determ ined from the June 30 Call R eports.

NUMBER, ASSETS, DEPOSITS, LOSSES, AND LOSS TO FUNDS OF INSURED THRIFTS TAKEN OVER OR
_______________________
CLOSED BECAUSE OF FINANCIAL DIFFICULTIES, 1989 THROUGH 1999 1
(D o lla rs in T h o u s a n d s )

Estim ated
Y e a r2
Total

Total

Assets

R eceivership
Loss 3

Deposits

Loss to
Funds 4

750

$ 395,112,638

$ 318,422,840

$ 74,697,436

$ 82,766,593

1999

1

62,956

63,427

1,343

1,343

1998

0

0

0

0

0

1997

0

0

0

0

0

1996

1

32,576

32,745

21,222

21,222
36,068

1995

2

423,819

414,692

36,213

1994

2

136,815

127,508

11,478

14,606

1993

10

7,178,794

5,708,253

294,547

326,349
3,769,210

1992

59

44,196,946

34,773,224

3,122,362

1991

144

78,898,704

65,173,122

8,515,839

9,489,992

1990

213

129,662,398

98,963,960

16,195,857

19,494,475

19895

318

134,519,630

113,165,909

46,498,575

49,613,328

1 P rior to Ju ly 1, 1995, all thrift closings w ere the responsibility o f the Resolution Trust C orporation (RTC). Since the RTC w as term inated on D ecem ber 31, 1995,
and all assets and liabilities transferred to the FSLIC Resolution Fund (FRF), all the results o f the th rift closing activity from 1989 through 1995 are now reflected
on FRF's books. The Savings A ssociation Insurance Fund (SAIF) becam e responsible fo r all thrifts closed a fte r June 30, 1995; there have been only tw o such
failures. Additionally, SAIF w as appointed receiver o f one thrift (H eartland FSLA) on O ctober 8, 1993, because at th a t tim e, RTC's authority to resolve FSLICinsured thrifts had not ye t been extended by the RTC C om pletion Act.
2 Year is the ye ar o f failure, not the ye a r o f resolution.
3 The estim ated losses represent the projected loss at the fund level from receiverships for unreim bursed subrogated claim s o f the FR F/SAIF and unpaid
advances to receiverships from the FRF.
4 The Loss to Funds represents the total resolution cost o f the failed thrifts in the SAIF and FR F-R TC funds, w hich includes corporate revenue and expense item s
such as interest expense on Federal Financing Bank debt, interest expense on escrow ed funds, and interest revenue on advances to receiverships, in addition
to the estim ated losses fo r receiverships.
5 Total fo r 1989 excludes nine failures o f the fo rm e r FSLIC.




92




ORGANIZATION CHART AS OF DECEMBER 3 1 ,1 9 9 9

BOARD OF DIRECTORS

DONNA TANOUE
ANDREW C. HOVE, JR.
ELLEN SEIDMAN
JOHN D. HAWKE, JR.

.............................
OFFICE OF T HE CHAIRMAN

DONNA TANOUE
CHA RMAN

DEPUTY TO THE CHAIRMAN

CHIEF OF STAFF

JADINE NIELSEN

MARK P. JACOBSEN

OFFICE OF INSPECTOR GENERAL

CHIEF INFORMATION OFFICER

GASTON L. GIANNI, JR.

DONALD C. DEMITROS

INSPECTOR GENERAL

DEPUTY TO THE CHAIRMAN AND
CHIEF FINANCIAL OFFICER

DEPUTY TO THE CHAIRMAN AND
CHIEF OPERATING OFFICER

CHRIS M. SALE

JOHN F. BOVENZI


94


GENERAL COUNSEL

WILLIAM F. KROENER,

DIVISION OF COMPLIANCE
AND CONSUMER AFFAIRS

LEGAL DIVISION

WILLIAM F. KROENER, I

STEPHEN M. CROSS

GENERAL COUNSEL

DIRECTOR

DIVISION OF INFORMATION
RESOURCES MANAGEMENT

OFFICE OF THE EXECUTIVE
SECRETARY

DONALD C. DEMITROS

ROBERT E. FELDMAN

DIRECTOR

EXECUTIVE SECRETARY

W
DIVISION OF RESEARCH AND
STATISTICS

OFFICE OF DIVERSITY AND
ECONOMIC OPPORTUNITY

WILLIAM R. WATSON

D. MICHAEL COLLINS

________ DIRECTOR_________

DIRECTOR

OFFICE OF CORPORATE
COMMUNICATIONS

OFFICE OF LEGISLATIVE
AFFAIRS

JAMES P. BATTEY

ALICE C. GOODMAN

ACTING DIRECTOR

DIRECTOR

OFFICE OF THE
OMBUDSMAN

LESLIE R. CRAWFORD
ACTING OMBUDSMAN

FDIC STAFFING

Number of Officials and Employees of the FDIC 1998-1999 (year end)
Total
1999

1998

1999

Washington
1998

Regional/Field
1999
1998

Executive Offices*
Division of Supervision
Division of Compliance and Consumer Affairs
Division of Resolutions and Receiverships
Legal Division
Division of Finance
Division of Information Resources Manaqement
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

96
2,693
634
753
849
541
528
103
74
662
227
47
38
21

110
2,655
646
795
907
570
505
94
69
687
218
45
37
21

96
208
54
130
450
296
435
103
41
410
158
36
13
21

110
197
59
134
482
298
429
94
36
417
145
33
15
21

0
2,485
580
623
399
245
93
0
33
252
69
11
25
0

0
2,458
587
661
425
272
76
0
33
270
73
12
22
0

Total

7j266

7,359

2,451

2,470

4,815

4,889

* Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Operating Officer Chief Financial Officer, Chief Information Officer, Executive Secretary, Corporate Communications,
Lerjislative Affairs, and (for year-end 1998 only) Policy Development.




95

SOURCES OF INFORMATION

Public Information Center

O

801 17th Street, NW
Washington, DC 20434

550 17th Street, NW
Washington, DC 20429

Phone:

800-276-6003 or
202-416-6940

Phone:

800-250-9286 or
202-942-3500

Fax:

202-416-2076

Fax:

202-942-3040 or
202-942-3041

E-mail:

publicinfo@tdic.gov
E-mail:

ombudsman@fdic.gov

FDIC publications, press releases, speeches and Congressional tes­
timony, 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.

f l l o

u

i U

h

e

J

I m

^

^

..........

The Office of the Ombudsman responds to inquiries about the FDIC
in a fair, impartial and timely manner. It researches questions and
complaints from bankers, the public and FDIC employees on a confi­
dential basis. The office also recommends ways to improve FDIC
operations, regulations and customer service.

Division of Compliance and Consumer Affairs
550 17th Street, NW
Washington, DC 20429

Home Pane nn the Internet

Phone:

800-934-3342 or
202-942-3100

TDD/TTY:

800-925-4618 or
202-942-3147

Fax:

202-942-3427 or
202-942-3098

A wide range of banking, consumer and financial information is
available on the FDIC’s Internet home page. Information includes
the FDIC’s Electronic Deposit Insurance Estimator - ”EDIE” - which
estimates an individual’s deposit insurance coverage; the Institution
Directory - financial profiles of FDIC-supervised institutions;
Community Reinvestment Act evaluations and ratings for banks and
thrifts supervised by the FDIC; and Call Reports - banks’ reports of
condition and income. Readers also can access a variety of con­
sumer pamphlets, FDIC press releases, speeches and other updates
on the agency’s activities, as well as corporate databases and cus­
tomized reports of FDIC and banking industry information. Readers
will be interested in the fully searchable texts of “FDIC Law,
Regulations and Related Acts” and “ FDIC Enforcement Decisions
and Orders.” In 1999, the FDIC’s Internet site was redesigned, with
the addition of a new “card catalog” search facility.

Internet:
http://www.fdic.aov/consumers/auestions/customer/index.html
The Division of Compliance and Consumer Affairs responds to ques­
tions about deposit insurance and other consumer issues and con­
cerns, and offers a number of educational publications geared to
consumers.




96

..

http://www.fdic.aov

REGIONAL OFFICES

DOS:
Examines and supervises state-chartered banks that are not
members of the Federal Reserve System. Provides informa­
tion about sound banking practices.
I;
DCA:
Examines FDIC-supervised banks for compliance with
consumer protection laws and the Community Reinvestment Act.
Informs bankers and the public about deposit insurance and
other consumer protections.

Atlanta
One Atlantic Center
1201 West Peachtree Street, NE
Suite 1800
Atlanta, Georgia 30309
404-817-1300

Alabama
Florida
Georgia
North Carolina

South Carolina
Virginia
West Virginia

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

Iowa
Kansas
Minnesota
Missouri

Nebraska
North Dakota
South Dakota

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

Boston

Arkansas
Kentucky
Louisiana

15 Braintree Hill Office Park
Braintree, Massachusetts 02184
781-794-5500

N e ^ fo rk

Connecticut
Maine
Massachusetts

New Hampshire
Rhode Island
Vermont

500 West Monroe Street
Suite 3600
Chicago, Illinois 60661
312-382-7500

Illinois
Indiana
Michigan

Ohio
Wisconsin

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

Alaska
Arizona
California
Guam
Hawaii
Idaho

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




New York
Pennsylvania
Puerto Rico
Virgin Islands

San Francisco

Dallas

New Mexico

20 Exchange Place
New York, New York 10005
917-320-2500

Delaware
District of Columbia
Maryland
New Jersey

Chicago

Mississippi
Tennessee

Montana
Nevada
Oregon
Utah
Washington
Wyoming

Texas

97

INDEX

A
Applications, 1997-99 .................................................................. 28
Assessments (see Deposit Insurance Premiums)
Asset Disposition............................................................................ 24

Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) ....................................................................... 14
Federal Savings and Loan Insurance Corporation
Resolution Fund (FRF):...................................................... 23, 24
Financial Statem ents...........................................................63-77

B
Bank Insurance Fund (B IF):......................................................9, 23
H ig h lig h ts ................................................................................... 24
Financial S tatem ents...........................................................33-48
Risk-Related Prem ium s............................................................. 14

G
General Accounting Office (GAO) ..........................................78-84
Gramm-Leach-Bliley Act ............................................................. 29

H
C
Commercial Banks (Financial Performance):
Return on A s s e ts ....................................................................... 23

D
Deposit Insurance:
Coverage................................................................................. 9 ,1 9
Fund M anagem ent.....................................................................15
International Issues .................................................................. 26
Reform ................................................................................... 9-10
Risk Management .....................................................................13
Risks ...........................................................................................13
Deposit Insurance Premiums:
Pricing ................................................................................... 9 ,1 7
R e fo rm ...........................................................................................9
Risk-Related Premiums ............................................................. 9

E
Emerging T ren d s............................................................................ 25
Enforcement Actions .....................................................................27
Examinations, 1997-99 ................................................................29

F
Failed Institutions:
BIF-lnsured Institutions Closed During 1999 ........................ 91
First National Bank of Keystone, Keystone, WV ....................23
Liquidation H ig h lig h ts................................................................25
SAIF-lnsured Institutions Closed During 1999 ...................... 91
Federal Deposit Insurance Corporation (FDIC):
Board of D irectors............................................................. 7-8, 94
Corporate Planning and B u d g e t...............................................89
Organization C hart/O fficials......................................................94
Regional O ffices..........................................................................97
Sources of Information ............................................................. 96


http://fraser.stlouisfed.org/
98
Federal Reserve Bank of St. Louis

Hawke, John D., Jr. ..............................................................7 ,8 ,9 4
Hove, Andrew (Skip) C., Jr. ................................................. 7, 8, 94

Legislation Enacted in 1999 (see Gramm-Leach-Bliley Act)

Savings Association Insurance Fund (SAIF): .........................9, 23
Highlights ....................................................................................24
Financial Statem ents...........................................................49-61
Return on A s s e ts ....................................................................... 23
Risk-Related Prem ium s..............................................................14
Seidman, Ellen .....................................................................7, 8, 94
Staffing:
Number of FDIC Officials and Employees, 1998-99 ............ 95
Statistical Tables:
Number and Deposits of BIF-lnsured Banks Closed,
1934-99 ....................................................................................86
Recoveries and Losses by the BIF on Disbursements for the
Protection of Depositors, 1934-99 ....................................... 87
Income and Expenses, BIF, 1933-99 .....................................88
FDIC Expenditures, 1990-99 ....................................................89
Estimated Insured Deposits and the BIF, 1934-99 ...............90
Income and Expenses, SAIF, 1989-99 .................................. 91
FDIC-lnsured Institutions Closed During 1999 ...................... 91
Estimated Insured Deposits and the SAIF, 1989-99 ............ 92
Number, Assets, Deposits, and Losses of Insured Thrifts
Taken Over or Closed, 1989-99 ............................................ 92

Tanoue, Donna ..........................................7 ,9 -1 0 ,2 5 ,2 6 ,2 8 ,9 4

Year 2000 ...................................................................................... 26










Published by:
The Office of Public Affairs
Phil Battey
Director
Elizabeth R. Ford
Assistant Director
David Barr
Majorie C. Bradshaw
Jay Rosenstein
Co-Editors

Design, Production/Typesetting by:
The Division of Administration
Design and Printing Unit
Addie Hargrove
Chief, Design and Printing Unit
Patricia Hughes
Head, Design Group
Debbie Samek
Coordinator, Art Director/Designer

Production of the Financial Statements by:
The Division of Finance
Financial Statements Section
Samuel E. Forkkio
Chief
Johnny Brooks
Assistant Chief
Sherry R. Whitaker
Senior Accountant

DigitizedFederal Deposit Insurance Corporation • 550 17th Street • Washington, DC 20429-9990
for FRASER
http://fraser.stlouisfed.org/
P-1400-103-99
Federal Reserve Bank of St. Louis


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102