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Annual
Report

protecting
depositors
a n d the




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.




1994
Annual
Report

Federal
Deposit
Insurance
Corporation




FDIC Insurance Corporation
Federal Deposit
W ashington. DC 2 0 4 2 9




Office of the Chairman

July 17, 1995

Sirs:
In accordance with the provisions o f section 17 (a)
o f the Federal Deposit Insurance Act,
the Federal Deposit Insurance Corporation
is pleased to submit its Annual Report
for the calendar year 1994.

Sincerelv.

Ricki Heifer
Chairman

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




1 9

9 4

Table
of
Contents




O ve rvie w

Chairman’s Statement
The State of the Banking Industry
Condition of the Insurance Funds
Board of Directors
Organization Chart
Officials
Regional Offices

2
4
6
8
10
11
12

Operations
o f the
Corporation

Highlights
Selected Statistics
Supervision and Enforcement
Bank Supervision, 1934-1994 (A Historical Overview)
Consumer Protection Activities
Failures and Resolutions
Bank Failures, 1934-1994 (A Historical Overview)
Asset Disposition
Asset Disposition, 1934-1994 (A Historical Overview)
Internal Operations

17
19
20
25
27
30
34
36
38
40

Regulations
and Legislation

Regulations Adopted and Proposed
Significant Legislation Enacted

45
52

Financial
Statements

Bank Insurance Fund (BIF)
Savings Association Insurance Fund (SAIF)
FSLIC Resolution Fund (FRF)

57
79
95

Statistical
Tables

Number and Deposits of Banks Closed
1934-1994
BIF-Insured Banks Closed
During 1994
Recoveries and Losses on Disbursements, BIF
1934-1994
Income and Expenses, BIF
1934-1994
Insured Deposits and the BIF
1934-1994
Income and Expenses, SAIF
1989-1994
Insured Deposits and the SAIF
1989-1994

125
126
127
128
129
130
130

1 9

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Chairm an's
Statem ent
The banking crisis of recent years is now
behind us. After reporting repeated record
earnings, the banking industry as a whole last
year was in the best financial condition it has
ever experienced.

broaden its focus and increase its expertise to
understand and address these risks. It must
work effectively with financial institutions
to ensure they have controls in place for
monitoring and limiting risks.

Thirteen banks insured by the FDIC Bank
Insurance Fund (BIF) failed in 1994, compared
to the historical high of 206 in 1989. These
13 banks held about $1.4 billion in assets,
compared to the historical high of $63 billion
in failed bank assets in 1991. As of
Decem ber 31, 1994, the BIF had a balance
of $21.8 billion. It was expected to hold
reserves of $1.25 for every $100 of insured
deposits, a target m andated by Congress,
during the second quarter o f 1995.

By the end of 1994, we had begun to shift the
FDIC from an organization skilled in crisis
managem ent to an organization dedicated
to crisis prevention, which is to say an
organization dedicated to identifying and
addressing risks to the banking industry and
the deposit insurance funds.

Main Challenges

W e began developing a strategic plan.
This will be the first formal, corporate-wide
strategic plan that the FDIC has adopted
in its 61-year history.

Given the end of the banking crisis, the
FDIC faces some of the same challenges as
the military faces when war ends and peace
begins.
One of these challenges is the need to cut our
costs to reflect the greatly improved health
of the banking industry.

In 1994,1 began several initiatives that will
lead us toward an FDIC that is dedicated to
identifying and addressing risk so that we can
keep banks open instead of closing them.

I created an internal task force on capital
markets to analyze the potential risks posed
by capital markets activities and instruments,

In 1994, we began to reshape our workforce.
Staff levels at the FDIC declined dramatically.
From a historical high of 15,585 employees
in the second quarter of 1993, staffing
declined to 11,627 employees at year-end
1994, which is about 25 percent in just six
quarters. In 1994 alone, staff was reduced
by 2,592, or 18 percent.

Given the changes in the financial marketplace
over the past decade, banks and savings associa­
tions are exposed to types and levels of risk
different from anything the financial system
has ever experienced. New categories of risk
seem to emerge every day. The FDIC must




Barbara Ries

A second, and greater, challenge is to redefine
our mission and our role from closing failed
banks to keeping banks open and operating in
a safe and sound manner.

FDIC C h airm an
Ricki Heifer

such as financial derivatives, and to make
recommendations on the ways the FDIC can
be better prepared to analyze and address the
potential risks that these instruments pose to
individual institutions, the banking system,
and the insurance funds. The task force will
begin reporting its findings and recommenda­
tions to me in the spring of 1995.
We began processing data on bank failures
from the past 15 years into a form that will
enable us to develop more effective models
for predicting bank failures and to have a
better understanding of what factors lead to
losses to the insurance funds.

To protect the insurance funds and to retain the
public’s trust, the FDIC must make unbiased
judgments and we must act upon them with­
out fear or favor. Independence gives us
credibility and legitimacy.
The integrity of the insurance funds rests
ultimately on the integrity of the people
who manage them and who assess the risks
in the financial system to which the funds
are exposed. Attempts to compromise our
independence are necessarily attempts to
compromise the FDIC’s ability to do its job.

A H istory o f Service
We developed a new survey of examiners
on credit underwriting practices of banks in
our eight supervisory regions. This survey
may serve as an "early warning" system for
banking problems.
I should emphasize that the focus on risk cuts
another way: to eliminating or reducing regula­
tion where it no longer reflects risk to the insur­
ance funds. I have asked the FDIC staff to
identify regulations that are not necessary
from the perspective of safety and soundness
or are not otherwise mandated by the Congress.

F D IC Independence
I am determined to keep the FDIC an independent
agency, in fact as well as name. As the deposit
underwriter for all banks and savings associa­
tions, the FDIC must be able to make under­
writing decisions independently. We also have
the responsibility to assure that the institutions
we insure are operated in a safe and sound
manner.
The FDIC’s independence often has been tested,
but it has never been compromised. Congress
has made it clear that the FDIC should have the
necessary power to protect the deposit insurance
funds, and by extension, the American taxpayer,
from the kinds of losses that depleted the BIF
and that decimated the savings and loan fund
in the 1980s.




Throughout our more than 60 years of distin­
guished service to the nation, in calm and in
crisis, the FDIC has provided the public with
solid grounds for confidence in the banking
system. In a changing banking environment,
the FDIC has represented continuity. In a
financial system built on risk, the FDIC has
afforded security. W e at the FDIC can say
with pride that no bank depositor has lost a
penny of money that we have insured and
that no U.S. taxpayer has paid a single cent
for this protection.
At the FDIC, three generations of men and
women have worked to build this record of
distinguished service. W e have all benefitted
from their devotion to the public interest and
their high standards of professionalism in a job
that promises much hard work, but little glory.
It is an honor for me to serve with them and,
particularly, to serve with my predecessor,
Andrew C. Hove, Jr., Acting FDIC Chairman
from August 1992 to October 1994.

Ricki Heifer
Chairman

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The State
o f the
Banking
Industry
Insured commercial banks and savings institu­
tions posted a third consecutive year of solid
earnings in 1994. Commercial bank earnings
set a new record in 1994 primarily due to
strong loan growth and continued improvement
in credit quality. Thrift industry profits, while
high by recent standards, were kept below their
1993 level by restructuring charges and the
absence of any securities gains. Both industries
were able to strengthen their balance sheets
in 1994 by increasing capital and reducing
troubled assets. These improvements increase
the likelihood of continued favorable earnings
in the near future. The following is an over­
view of conditions in these two segments of
the financial industry.

were profitable in 1994. The main sources of
improved earnings were higher net interest in­
come and lower provisions for future loan losses.
A $7.3 billion increase in net interest income
was attributable to strong growth in interestearning assets, particularly loans, which helped
offset a slight decline in net interest margins.
Loans grew by $208.4 billion (9.7 percent) in
1994 — the largest dollar increase of any year
in the industry’s history and the largest percentage
increase since the 14.5 percent growth in 1984.
Provisions for future loan losses totaled
$10.9 billion in 1994, a decrease of $5.9 billion
from 1993 and the lowest full-year total since
1983. Noncurrent loans and other real estate
owned shrank by 31.7 percent, to $40.3 billion,
which is the lowest level since 1983. At
the end of 1994, troubled assets represented
1.01 percent of industry assets, the lowest pro­
portion in the 13 years that banks have reported
noncurrent loan amounts. Although reserves
for future loan losses declined for the fourth
consecutive year, the more substantial reduction
in noncurrent loans meant that the industry’s
"coverage ratio" of reserves to noncurrent
loans rose to $ 1.69 in reserves for every
$1.00 of noncurrent loans.

Com m ercial Banks
Insured commercial banks reported record net
income of $44.7 billion in 1994, an increase of
3.7 percent from the $43.1 billion earned in 1993.
The average return on assets (ROA) was 1.15
percent in 1994, down from 1.20 percent the
year before. These are the only two years in
the history of the FDIC that commercial banks
have posted an average ROA above one percent.
More than 96 percent of all commercial banks
Bank Insurance Fun d (B I F ) Problem Institutions. 1990-1994

e a r-in d i

1994
Total BIF-Member Institutions
Problem Institutions
Total Assets of Problem Institutions ($ billion)
i Institutions as Percent of Total

1993

1992

1991

1990

10,809
264

11,331

11,852

12,343
1,089
610
8.8

12,788
1,046

$

42
2.4

$

472
269
4.2

$

464
7.2

409
8.2

Changes in BIF Problem Institution List, 1990-1994
261

505

648

121

415

499

(208)

(384)

(233)

43

447

456

53

Deletions
Additions
Net Change

H H I3 8 4 H
(63)

I Savings Association Insurance Fu n d (S A I F ) P roblem Institutions, 1990-1994 (Y e a r-e n d )*
1,847

Problem Institutions
Total Assets of Problem Institutions ($ billion)
Problem Institutions as Percent of Total

$

1,993

54

Total SAIF-Member Institutions

1* 1211

100

31
2.9

$

65
5.0

1

$

128
9.8

$

209
14.9

*BIF-member institutions are predominantly commercial banks supervised by one of the three federal banking agencies,
and SAIF-m ember institutions are predominantly savings institutions supervised by the Office of Thrift Supervision.




2,546

2,269
337

207

446
$

231
17.5

Equity capital, a basic measure of the industry’s
net worth, experienced a net increase of
$15.7 billion in 1994. This is a marked
reduction from the $33.1 billion increase
posted in 1993. However, the year-end 1994
total reflected an $ 11.5 billion deduction for
unrealized losses in banks’ "available-for-sale"
securities, due to a new accounting rule that
took effect in 1994. Higher dividend payments
were another reason capital growth slowed in
1994. Banks paid $28.1 billion in dividends
in 1994, an increase of $6.1 billion over 1993.
Net retained earnings of $ 16.6 billion were
$4.4 billion less than in 1993. Also affecting
capital growth was the fact that almost all
insured commercial banks already exceeded
the most stringent capital requirements, with
98.4 percent being "well capitalized" at yearend based on regulatory capital requirements.
The number of insured commercial banks fell
to 10,450 at the end of 1994, a net reduction
of 508 during the year. Only 50 new bank
charters were issued, the fewest since 1943.
Mergers and consolidations accounted for a
reduction of 550 banks. Only 11 commercial
banks failed during the year, the fewest since
10 failed in 1981. The number of commercial
banks on the FDIC’s "problem list" declined
for the third consecutive year, shrinking by
179 banks and $209 billion in assets, to 247
banks with assets of $33 billion at year-end.

Savings Institutions
At the end of 1994 there were 2,152 privatesector savings institutions* insured by the FDIC.
Together, these institutions held assets totaling
just over $ 1 trillion, or 20 percent of all assets
of FDIC-insured depository institutions. Total
assets for the industry increased by $7.8 billion
during 1994, the first annual increase in assets
since 1988.
Net income for 1994 was $6.4 billion, a decline
of $431 million from 1993. Earnings were
helped by a $1.9 billion decline in provisions
for future loan losses, but this improvement
was largely offset by a $ 1.7 billion drop in net




interest income. Securities sales, which pro­
duced $400 million in gains in 1993, yielded
$28 million in net losses in 1994 due to higher
interest rates. Extraordinary losses were
$433 million greater than in 1993, as a number
of large institutions took charges to strengthen
their balance sheets. Although more than
93 percent of all savings institutions reported
a net profit for the year, one of every four
large thrifts (those with more than $5 billion
in assets) lost money.
Asset quality continued to improve. Troubled
assets fell from 2.10 percent of industry assets
at the end of 1993 to 1.38 percent at the end of
1994. Net loan losses were almost one-quarter
lower in 1994 than in 1993. Reserves for future
loan losses declined by more than 11 percent
in 1994, but due to the much greater shrinkage
in troubled assets, savings institutions held
81 cents in reserves for each dollar of noncurrent loans at year-end, up from 65 cents
at the end of 1993. The number of insured
savings institutions fell by 110 in 1994, to
2,152 at year-end. Acquisitions by commercial
banks and conversions to commercial bank
charters absorbed 80 savings institutions,
and consolidation within the thrift industry
accounted for most of the remaining reduction.
Only four savings institutions failed in 1994,
down from eight in 1993. Of the four, two
were Savings Association Insurance Fund
members and were resolved by the Resolution
Trust Corporation.
A total of 71 savings institutions (54 insured
by the SAIF and 17 insured by the BIF)
with combined assets of $40 billion were on
the FDIC’s "problem list" at year-end 1994.
This was a sharp improvement from yearend 1993, when 146 savings institutions
(100 SAIF-insured, 46 BIF-insured) with
combined assets of $92 billion were on the
"problem list."

*Figures do not include m em ber institutions o f the Savings
Association Insurance Fund (SAIF) in Resolution Trust
Corporation conservatorship, and one SAIF-m em ber
self-liquidating institution.

1 9

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Condition
o f the
Insurance
Funds
The following is an overview of the two deposit
insurance funds administered by the FDIC,
along with a third fund fulfilling the obligations
of the former Federal Savings and Loan
Insurance Corporation (FSLIC).

Bank Insurance Fund
With the continuing recovery of the banking
industry and institutions’ earnings at record
levels, 1994 was another positive year for the
Bank Insurance Fund (BIF). After dipping
to a record year-end low in 1991 (a negative
$7 billion), the BIF grew to a record high of
$21.8 billion at the close of 1994. That repre­
sents a 66 percent increase from the year-end
1993 balance of $13.1 billion. The previous
year-end high was $18.3 billion in 1987.
The FDIC is required to publish a recapitaliza­
tion schedule showing the BIF reaching the
statutory target of 1.25 percent of insured depos­
its within 15 years from the date of publication.
The Division of Research and Statistics (DRS)
staff monitors economic and industry conditions
to determine if an adjustment to the recapitaliza­
tion schedule or the range of premium assess­
ment rates is warranted.
The year-end 1994 BIF balance represents 1.15
percent of insured deposits, just 10 basis points

shy of the 1.25 percent level mandated by
Congress. This level of capitalization is expected
to be achieved during mid-year 1995.
The BIF’s growth of $8.7 billion in 1994 was
composed primarily of assessment revenue of
$5.6 billion and a reduction of $2.9 billion in the
provision for insurance losses. Only 13 banks
with $1.4 billion in assets and $139 million in
estimated losses to the BIF were closed during
1994 — the lowest level of bank failures since
1981. The BIF’s assessment revenues have
exceeded its outlays for expenses and insurance
losses for the past three years.
The composition of the assets in the fund
changed significantly in 1994. The major por­
tion of the assets over the past few years had




been the money owed to the Corporation from
failed bank receiverships. As these receivables
were reduced through the sale of assets and
other recoveries from failed banks, they became
a smaller portion of the B IF’s assets and fund
liquidity increased dramatically. The result was
that, by year-end 1994, the major part of the
B IF’s assets consisted of investments in U.S.
Treasury obligations. Cash and investments
increased to 62 percent of total assets at yearend, from 29 percent at year-end 1993. The
interest from these investm ents will be an
im portant and growing com ponent of the
BIF’s future operating income. For more
information about the BIF, see the financial
statements that begin on Page 57.

Savings Association Insurance Fund
The Savings Association Insurance Fund
(SAIF), which the FDIC administers primarily
to protect depositors of thrift institutions, grew
to $1.9 billion at year-end 1994. This repre­
sents a 58 percent increase over the $1.2 billion
balance at year-end 1993.
The SAIF’s reserves equaled 0.28 percent of
insured deposits, up from 0.17 percent at yearend 1993. As with the BIF, the SAIF’s desig­
nated reserve ratio is 1.25 percent of insured
deposits, as mandated by Congress. Based on
industry deposit levels at year-end 1994, the
SAIF would require an additional $6.7 billion
to reach that mandated level. DRS staff assisted
the FDIC Chairman’s Office, the Treasury
Departm ent and the congressional banking
committees by analyzing a variety of "what if'
scenarios regarding SAIF recapitalization.
SAIF’s growth has been slow for several
reasons. One factor was the diversion of SAIF
assessments to pay for the federal cleanup of
the thrift industry. From 1989 through 1992,
nearly all assessment income was used to pay
various cleanup costs, including interest on
bonds issued by the Financing Corporation
(FICO). Since then, approximately 40 percent
of the SAIF’s assessment income has continued
to be used for the FICO bond payments.

Interest payments are required until the FICO
bonds mature in the years between 2017 and
2019. Still another factor limiting the SAIF’s
growth was a continuing decline in thrift in­
dustry deposits, which are used to determine
premium income.
Many variables make it difficult to predict
accurately when the SAIF will be fully capital­
ized, but that date is several years away. Given
the likely recapitalization of the BIF in 1995,
it is possible that insurance rates for BIF-insured
institutions will be reduced some time that
year. This would mean a disparity between
what BIF- and SAIF-insured institutions pay
for deposit insurance because, by law, the FDIC
Board of Directors must set premiums for each
fund separately based on the circumstances
facing each fund. At year-end, FDIC staff was
exploring the agency’s options under the law,
the disparate rates of recapitalization of the
two insurance funds, and the likely effects on the
thrift industry of a rate disparity. On July 1,1995,
the SAIF is scheduled to assume from the
Resolution Trust Corporation the authority
for handling failing savings institutions.
For more inform ation about the SAIF,
see the financial statements that begin on
Page 79.

FS LIC Resolution Fund
The FSLIC Resolution Fund (FRF) was estab­
lished by law in 1989 to assume the remaining
assets and obligations of the former FSLIC.
Congress placed the FRF under the management
of the FDIC.
The FRF’s internal sources of cash, primarily
from liquidating failed thrift assets, were
adequate to cover the fund’s disbursements
for the year, making new congressional appro­
priations unnecessary for the first time since
the FRF’s inception. The FRF has $827 million
of appropriated funding available on an
ongoing basis to meet any future cash
shortfalls. For more information, see the
financial statements for the FRF that begin
on Page 95.




Insurance Assessm ents
On December 20,1994, the Board of Directors
approved a final rule that will make the process
of calculating and collecting deposit insurance
premiums more efficient and less burdensome.
The new rule, effective April 1, 1995, puts the
burden of calculating assessments on the FDIC
rather than on each institution. In addition,
the current paper-based collection process
will be replaced with assessments collected
electronically via direct debits through the
Automated Clearing House network. Each
institution’s semiannual insurance assessment
will be paid in quarterly installments, based
on an invoice prepared by the FDIC. This
new rule follows a successful pilot project
on electronic collection started in 1994 that
involved 183 financial institutions and nearly
$400 m illion in assessm ent collections.
For more details about this rule, see Page 45.
FDIC staff will continue to look at the assess­
ment system to make refinements as needed.
For example, the FDIC sought preliminary
comments and suggestions on the variety of
approaches to defining the assessment base
used to determine the amount of insurance
premiums paid by each insured institution.
The current assessment base definition has
remained substantially the same since 1935.
The FDIC now is able to review the definition
because of recent changes in the law and other
developments, including the implementation
of risk-related deposit insurance premiums.
Substantial additional analyses are contemplated
before changes in the definition of the assess­
ment base could be proposed or considered.
For more details about this Advance Notice
of Proposed Rulemaking, see Page 50.

Board o f
Directors
R icki Heifer

A n d re w C. Hove, Jr.

Ms. Heifer became the 16th Chairman of the
Federal Deposit Insurance Corporation (FDIC)
on October 7, 1994, and the first woman to
head a federal banking agency. Before her
appointment by President Clinton, Ms. Heifer
had been a partner in the Washington office
of the law firm of Gibson, Dunn & Crutcher
specializing in banking and finance.

Mr. Hove was appointed for a second term
as Vice Chairman of the FDIC in 1994. He
served as Acting Chairman from August 1992,
following the death of William Taylor, until the
confirmation of Ricki Heifer as the Chairman
in October 1994. Prior to his first appointment
as Vice Chairman in 1990, 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. Heifer has held positions in all branches
of the federal government and in the private
sector. From 1985 to 1992, she was the chief
international lawyer for the Board of Governors
of the Federal Reserve System. Prior to work­
ing at the Federal Reserve Board, she served
two years as senior counsel for international
finance at the Treasury Department. From
1978 to 1979 she was counsel to the Judiciary
Committee of the U.S. Senate.
Bom in North Carolina and raised in Tennes­
see, Ms. Heifer graduated with honors from
Vanderbilt University with a B.A. and from
the University of North Carolina with an M. A.
She clerked for U.S. Court of Appeals Judge
John Minor W isdom after graduating with
honors from the University of Chicago Law
School. She is a member of the American
Law Institute, the Council on Foreign Relations,
and the Visiting Committee of the University
of Chicago Law School. She is past chairman
of the Committee on International Banking
and Finance of the American Bar Association.
Ms. Heifer’s various civic activities include
membership on the board of the Girl Scouts
of the USA.




Also involved in local government, Mr. Hove
was elected Mayor of Minden from 1974 until
1982 and was M inden’s Treasurer from 1962
until 1974.
Other civic activities included 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 WisconsinMadison Graduate School of Banking. After
serving as a U.S. Naval Officer and Naval
Aviator from 1956-60, Mr. Hove was in the
Nebraska National Guard until 1963.

Eugene A . Lu d w ig

Jonathan L. Fiechter

Mr. Ludwig became the 27th Comptroller
of the Currency on April 5, 1993. As the
Comptroller, Mr. Ludwig also serves as an
FDIC Board member.

Mr. Fiechter has been Acting Director of
the Office of Thrift Supervision (OTS) since
December 1992 and has spent the past 24
years in government service. As Acting
Director of the OTS, Mr. Fiechter also serves
as an FDIC Board member.

Prior to becoming Comptroller, Mr. Ludwig
had been with the law firm of Covington
and Burling in Washington, DC, since 1973,
where he specialized in intellectual property
law, banking and international trade. He
became a partner in 1981.
Mr. Ludwig earned his B.A. magna cum laude
from Haverford College in Pennsylvania. He
also received a Keasbey scholarship to attend
Oxford University, where he earned a B.A.
and M.A. Mr. Ludwig holds an LL.B. from
Yale University, where he served as editor of
the Yale Law Journal and chairman of Yale
Legislative Services.

Prior to becoming Acting Director of the OTS,
Mr. Fiechter was one of two deputy directors
of the agency. In that capacity, he was respon­
sible for overseeing the OTS’s Washington, DC,
operations and the closing of nonviable thrifts.
Mr. Fiechter came to the OTS in 1987 from
the Office of the Comptroller of the Currency,
which he joined in 1978. At the OCC,
Mr. Fiechter served as Deputy Comptroller
in charge of research.
Mr. Fiechter began his government service
in 1971 in the Office of the Secretary at the
U.S. Treasury Department, working on issues
related to international finance, Treasury debt
policy and financial institutions reform.
A graduate of Rockford College, Rockford,
Illinois, Mr. Fiechter has done graduate work
in economics at the University of Virginia.

(seated)
Ricki Heifer
(standing l-r) Eugene A . Ludw ig
A n d re w C. Hove, Jr.
Jonathan L. Fiechter




1 9

9 4

Organization
Chart




7 9

9 4

Officials




Leslie A. Woolley Deputy to the Chairman for Policy
Dennis F. Geer Acting Chief Operating Officer; Deputy to the Chairman
William A. Longbrake Chief Financial Officer; Deputy for Financial Policy
William F. Kroener, III General Counsel
John W. Stone Executive Director for Compliance, Resolutions and Supervision
Stanley J. Poling Director, Division of Supervision
Robert H. Hartheimer Acting Director, Division of Resolutions
Paul L. Sachtleben Director, Division of Compliance and Consumer Affairs
John F. Bovenzi Director, Division of Depositor and Asset Services
William R. Watson Director, Division of Research and Statistics
Steven A. Seelig Director, Division of Finance
Carmen J. Sullivan Director, Division of Information Resources Management
Roger A. Hood Deputy to the Vice Chairman
Thomas E. Zemke Deputy to the Director (Comptroller of the Currency)
Walter B. Mason

Deputy to the Director (Office of Thrift Supervision)

James A. Renick Acting Inspector General
Robert E. Feldman Acting Executive Secretary
Johnnie B. Booker Director, Office of Equal Opportunity
Alan J. Whitney Director, Office of Corporate Communications
Jane Sartori Director, Office of Training and Educational Services
Alice C. Goodman Director, Office of Legislative Affairs
Alfred P. Squerrini Director. Office of Personnel Management
James A. Watkins Director, Office of Corporate Services

1 9

9 4

Regional
Offices
Division o f Supervision (DOS)
Division o f Compliance and Consumer Affairs (DCA)
Atlanta

Dallas

New York

Lyle V. Helgerson
Regional Director/DOS

Kenneth 1. Walker
Regional Director/DOS

Nicholas J. Ketcha Jr.
Regional Director/DOS

Scott M. Polakoff
Regional Manager/DCA

Thomas P. Anderson
Regional Manager/DCA

Jack P. Hauprich
Regional Manager/DCA

1201 W. Peachtree Street, NE
Suite 1600
Atlanta, GA 30309
(404) 525-0308
~~

1910 Pacific Avenue
Suite 1900
Dallas, TX 75201
(214) 220-3342_______

452 Fifth Avenue
19th Floor
New York, NY 10018
(212) 704-1200___________

Alabama, Florida, Georgia,
North Carolina, South Carolina,
Virginia, W est Virginia

Colorado, New Mexico,
Oklahoma, Texas

Delaware, D istrict o f Columbia,
M aryland, New Jersey,
New York, Pennsylvania,
Puerto Rico, Virgin Islands

1Boston

1|H Kansas City

S H San Francisco

Paul H. Wiechman
Regional Director/DOS

James O. Leese
Regional Director/DOS

George J. Masa
Regional Director/DOS

Jimmy R. Loyless
Regional Manager/DCA

John P. Misiewicz
Regional Manager/DCA

Robert J. Carmona
Regional Manager/DCA

200 Lowder Brook Drive
Suite 3100
Westwood, MA 02090
(617) 320-1600

2345 Grand Avenue
Suite 1500
Kansas City, MO 64108
(816) 234-8000

25 Ecker Street
Suite 2300
San Francisco, CA 94105
(415)546-0160

Connecticut, Maine,
Massachusetts, New Hampshire,
Rhode Island, Vermont

Iowa, Kansas, Minnesota,
Missouri, Nebraska,
North Dakota, South Dakota

Alaska, Arizona, California,
Guam, Hawaii, Idaho, Montana,
Nevada, Oregon, Utah,
Washington, Wyoming

Chicago

Memphis

Simona L. Frank
Regional Director/DOS

Cottrell L. Webster
Regional Director/DOS

David K. Mangian
Regional Manager/DCA

Sylvia J. Plunkett
Regional Manager/DCA

500 W. Monroe Street
Suite 3600
Chicago, IL 60661
(312)382-7500

5100 Poplar Avenue
Suite 1900
Memphis, TN 38137
(901)685-1603

Illinois, Indiana, M ichigan, Ohio,
W isconsin

Arkansas, Kentucky, Louisiana,
M ississippi, Tennessee




1

Division of Division of Depositor and Asset Services (DAS)
1Northeast Service Center

1■

Southeast Service Center

1 ■ Southwest Service Center

Gary P. Bowen

Keith W. Seibold

G. Michael Newton

Regional Director

Regional Director

Regional Director

111 Founders Plaza
East Hartford, CT 06108
(203) 290-2000

1201 W. Peachtree Street. NE
Suite 1800
Atlanta, GA 30309
(404) 817-2500

5080 Spectrum Drive
Suite 1000E
Dallas, TX 75248
(214) 991-0039

Connecticut, Maine,
Massachusetts, New Hampshire,
New Jersey, New York,
Pennsylvania, Puerto Rico,
Rhode Island, Vermont,
Virgin Islands

Alabama, Delaware,
District of Columbia, Florida,
Georgia, Kentucky, Maryland,
Mississippi, North Carolina,
South Carolina, Tennessee,
Virginia, West Virginia

Arkansas, Colorado, Louisiana,
New Mexico, Oklahoma, Texas

Midwest Service Center

Western Service Center

Bart L. Federici

Sandra A. Waldrop

Regional Director

Regional Director

500 West Monroe_________
Suite 3200
Chicago, IL 60661_________
(312)382-6000____________

Four Park Plaza___________
Suite 500
Irvine, CA 92714
~
(714) 263-7100

Illinois, Indiana, Iowa, Kansas,
Michigan, M innesota, Missouri,
Nebraska, North Dakota, Ohio,
South Dakota, W isconsin

1

Alaska, Arizona, California,
Hawaii, Idaho, Guam, Montana,
Nevada, Oregon, Utah,
W ashington, Wyoming

Division o f Resolutions (DOR)
1Northeast Region

jjlH Central Region

j§IB Western Region

Paul F. Doiron

Daniel L. Walker

Michael J. Paulson

Regional Manager

Regional Manager

Regional Director

200 Lowder Brook Drive
Suite 3100
Westwood, MA 02090
(617)320-1600

1910 Pacific Avenue
Suite 1700
Dallas, TX 75201
(214)754-0098

25 Ecker Street
Suite 800
San Francisco, CA 94105
(415) 546-0160

Connecticut, Delaware,
District of Columbia, Maine,
Maryland, Massachusetts,
New Hampshire, New Jersey,
New York, Pennsylvania,
Puerto Rico, Rhode Island,
Vermont, Virginia
Virgin Islands

Alabama, Arkansas, Florida,
Georgia, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana,
Michigan, Minnesota,
Mississippi, Missouri, Nebraska,
North Carolina, North Dakota,
Ohio, Oklahoma, South Carolina,
South Dakota, Tennessee, Texas,
West Virginia, Wisconsin

Alaska, Arizona, California,
Colorado, Guam, Hawaii, Idaho,
Montana, Nevada, New Mexico,
Oregon, Utah, Washington,
Wyoming




1







Operations
of the
Corporation




1 9

9 4

H ighlights
Ja n u a ry 25

M arch 31

The FDIC announced steps to help rebuild
areas affected by California’s Northridge
earthquake by encouraging banks in the state
to work constructively with borrowers experi­
encing difficulties due to conditions beyond
their control. Other initiatives included tempo­
rary waivers of certain regulatory requirements.

No banks failed in the first three months
of 1994, the first quarterly period without
a failure since the second quarter of 1978.

February 8

In response to growing concerns over conver­
sions of mutual savings banks to stock owner­
ship, the FDIC adopted an interim rule that will
enable the agency for the first time to review
all conversion applications. Some concerns
are that a mutual institution’s Board or other
insiders may set the stock offering price well
below the true value, obtain more than a fair
share of the stock subscription or receive
excessive compensation packages.
February 15

Regulators issued uniform guidance on mutual
fund sales by banks and thrifts to ensure that
customers are fully informed that the products
are not FDIC-insured and involve other risks,
including possible loss of principal.
M arch 14

Deloitte & Touche, an accounting firm,
agreed to pay $75.2 million to the FDIC
and $236.8 million to the Resolution Trust
Corporation (RTC) to settle claims based on
alleged accounting and auditing failures at
banks and savings associations. The settlement
resolved 18 pending suits as well as all other
potential FDIC and RTC claims.

Ju n e 17

The FDIC imposed fines against six lending
institutions for late or inaccurate submissions
of data used by federal regulators to check for
possible mortgage loan discrimination. The
fines were the first imposed by a financial
institution regulatory agency under the Home
Mortgage Disclosure Act.
J u ly 7

The FDIC placed The Meriden Trust and Safe
Deposit Company, Meriden, Connecticut,
in receivership in the agency’s first exercise
of self-appointment powers granted by Congress
in 1991. It marked the first time the FDIC,
not a chartering authority, closed a bank.

17
J u ly 19

The FDIC announced steps intended to help
rebuild areas in the Southeast damaged by
floods. The measures were similar to those
announced January 25 to help areas in
California affected by an earthquake.
J u ly 20

A new brochure, Insured or Not Insured—
A Guide to What Is and Is Not Protected by
FDIC Insurance, was made available to all
insured financial institutions and the public
free of charge. Mutual funds, Treasury securi­
ties and safe deposit boxes are discussed as
not being FDIC-insured.

M arch 17

In its first securitized loan offering, the FDIC
sold $762 million in performing commercial
real estate loans. The loans included an FDIC
guaranty for a limited amount of credit losses
and interest rate risk, with subsequent losses
borne by the holders of the securities.




August 3

The agency published a guide to help bankers
and others detect and prevent illegal lending
discrimination. The 56-page guide, Side By
Side - A Guide to Fair Lending, includes
suggestions for bankers on implementing
successful fair lending programs.

August 9

N ovem ber 7

The Bank Insurance Fund (BIF) increased to
$17.5 billion at mid-year 1994. This was a
turnaround of $24.5 billion since year-end
1991, when the fund had a negative $7 billion
balance. The BIF had a balance of $ 13.1 billion
at year-end 1993.

A special FDIC task force was created to analyze
and make recommendations regarding the
potential risks posed to banks by derivatives
and other investment products. The task force
is developing strategies to manage these risks
and respond to potential problem situations.

Peat Marwick, an accounting firm, agreed to
pay $58.5 million to the FDIC and $128 million
to the RTC to settle claims based on alleged
accounting and auditing failures at banks and
savings associations. The settlement resolved
seven pending suits and all claims for professional
work the accounting firm did for financial insti­
tutions that failed on or before April 4, 1994.
A u g u s t 30

The FDIC created the Division of Compliance
and Consumer Affairs (DCA) to expand the
agency's long-standing commitment to consumer,
civil rights and fair housing laws.
Septem ber 26

The four federal regulators of banks and thrifts
issued for public comment a revised proposal
to change the way institutions are evaluated
under the Community Reinvestment Act (CRA).
The proposal addresses concerns raised in pub­
lic comments on a proposal in December 1993,
while retaining the basic structure and objectives
of the previous plan.

N ovem ber 9

The new Chairman, Vice Chairman and senior
staff of the FDIC began development of a
five-year strategic plan for the Corporation.
Decem ber 13

The FDIC plans to establish an early warning
system designed to identify any relaxation in
the underwriting standards for bank lending.
In early 1995, agency examiners will be asked
to report on the prevalence of specific lending
and investment practices that have led to diffi­
culties in the past, such as commercial real
estate loans based on unrealistic cash flow
projections.
The FDIC hired a market research firm to
begin testing whether banks and thrifts are
doing a good job explaining to consumers the
distinctions between FDIC-insured deposits
and uninsured products being offered for sale,
such as mutual funds, e survey is expected
to take six months.
Decem ber 20

O ctober 7

Ricki Heifer was sworn in as the 16th Chairman
of the FDIC and the first woman to head a federal
banking agency. Andrew C. Hove, Jr., who
served as the agency’s Acting Chairman since
August 20, 1992, was sworn in for a second
term as Vice Chairman.
O ctober 21

Ludlow Savings Bank, Ludlow, Massachusetts,
became the 13th, and last, failure of the year.
The last time fewer banks failed was in 1981
when 10 banks were closed.




The FDIC Board approved the use of an elec­
tronic collection process for deposit insurance
assessments. Under the new system, the FDIC
will compute the assessment owed each quarter
and directly debit the institution electronically
through the Automated Clearing House net­
work. The new system will go into effect in
the second half of 1995 after a pilot testing
program.

1 9

9 4

Selected
Statistics
Bank Insurance Kund
( Dollars in Millions I

1994
Financial Results
Revenue

6,467

$

Operating Expenses

For the year ended December 31
1993

6,431

$

423

■

0

0
13,223

8,726

Insurance Fund Balance

$

Fund as a Percentage of Insured Deposits

361

(7,180)

Effect of Accounting Change for Post-retirement Benefits*
Net Income

6,301

$

388 ;

(2,682)

Insurance Losses and Expenses

1992

21,848
1.15%

$

(1,197)
(210)
6,927

13,122

(101)

$

0.69%

(0.01)%

Selected Statistics
Total BIF-Member lnstitutions+

10,809

Problem Institutions

11,331
472

11,852

$ 269,201
41

$ 464,253
120

264

Total Assets of Problem Institutions

$

42,213

Institution Failures

13

Assisted Banking Organizations

0

Total Assets of Failed and Assisted Institutions
Number of Active Failed Institution Receiverships

1,392

$

$

802

856

0
3,539
877

2
44,232

$

972

Savings Association Insurance Fund
I Dollars in M illions)
For the year ended December 31
1994

1993

1992

Financial Results
Revenue

-

.

■

Operating Expenses
Insurance Losses and Expenses

$
‘

1,215

'

924

$

20
414

Effect of Accounting Change for Post-retirement Benefits0

0

0

Funding Transfer from the FS LIC Resolution Fund (FR F)
Net Income

0

$

30
17
0
877

Insurance Fund Balance

$

781
1,937

Fund as a Percentage of Insured Deposits

$

0.28%

1,156

179
39
(15)
(5)
35
185

$

0.17%

279
0.04%

Selected Statistics
Total SAlF-M em ber Institutions*

1,847

Problem Institutions
Total Assets of Problem Institutions
Institution Failures*

$

30,630

Total Assets of Failed Institutions

$

2
137

1,993
100

54

Number of Active Failed Institution Receiverships

1’

$ 65,162
9
$

6,132
1"

2,121
207
$

128,000

$

59
44,197
0

*New reporting item required by the Financial Accounting Standards Board for 1992. See Note 14 to the BIF Financial Statements.
Com m ercial banks, savings banks and U.S. branches of foreign banks.
“New reporting item required by the Financial Accounting Standards Board for 1992. See Note 11 to the S A IF Financial Statements.
‘ Commercial banks, savings institutions and Resolution Trust Corporation (R T C ) conservatorships.
'N o SAIF-insured institutions that failed were the financial responsibility of the SAIF. Th e R T C is responsible for the resolution and
related costs of SAIF-insured institutions that fail before July 1, 1995. Th e S A IF is responsible for resolutions thereafter.
>This represents the receivership for Heartland Federal Savings and Loan Association, Ponca City, Oklahoma, which was closed on
October 8 , 1993. See Note 6 to the SA IF Financial Statements.
Note: the number of active failed thrift receiverships for the F R F was: 76 in 1994; 83 in 1993; and 91 in 1992.




1 9

9 4

Supervision
and
Enforcem ent
The banking industry’s third straight year of
record high earnings and capital, coupled with
declining levels of troubled assets, has allowed
the FDIC to further streamline and strengthen
supervisory operations. At the same time, how­
ever, the FDIC in 1994 used this relatively calm
period to explore ways to expand the agency’s
early warning systems that help identify poten­
tial risks in bank lending and other investment
activities before they become problems for
individual institutions or the banking system.

Identifying, C ontrolling Risks

20

The FDIC is the primary federal regulator
of about 6,400 state-chartered banks that are
not members of the Federal Reserve System
as well as about 600 state-chartered savings
banks. The FDIC also has back-up supervisory
responsibility for safety and soundness purposes
over all federally insured banks and savings
associations. The Division of Supervision
(DOS) leads the FDIC’s supervisory efforts,
in conjunction with other Divisions and Offices.
With the banking industry healthy, the FDIC
placed new emphasis on developing ways to
better recognize problems at an early stage.
The goal is to be prepared to act decisively
to protect depositors, minimize disruptions in
financial markets and reduce deposit insurance
costs before risks reach the magnitude of those
that led to hundreds of bank failures in the 1980s.

The most recent financial practices that raise
concerns are related to the risks posed by
"derivatives" and other financial instruments.
Derivatives include: (1) interests in collateral­
ized mortgage obligations (CMOs) and real
estate mortgage investment conduits (REMICs);
(2) structured note obligations usually issued
by government agencies with yields or princi­
pal redemption schedules that vary with an
independent index or are derived from complex
formulas; and (3) off-balance-sheet derivative
contracts, such as swaps, options and futures.
The value of these instruments fluctuates with
the value or level of some underlying asset
or index. These securities and contracts can
expose an institution to losses from both
credit and market risk.
Regulatory attention to derivatives has been
directed to individual institutions as well as
the banking system as a whole. The FDIC
supervision staff monitors these markets daily.
DOS specialists advise regional and field
offices on capital market and derivative issues
as they arise. DOS is continually developing
and updating its directives to the industry and
to examiners.
Chairman Heifer in November established
a special task force to understand, address
and respond to the risks posed to the deposit
insurance funds by capital market instruments.
The internal task force is expected to develop
recommendations in 1995.

1 l)K

Kviim inations
1992-1994
1994

1993

1992
4,258

Safety and Soundness:
3,931

4,439

Savings Banks

386

375

188

National Banks

11

255

309

Stale Nonmember Banks

State Member Banks

3

Savings Associations

9

Subtotal

92
?>!M i l
5,684

4,340

62
■ ■ M i
5,627
■•HmtSim o cec A*,-

Trust Departments

3,528
684

Data Processinq Facilities

1,882

782
1,910

.. I 668
1,506

10,434

12,125

11.356

Consumer and Civil Rights

Total




3,749

V'iM*

Other actions undertaken by the FDIC in
1994 to address concerns about derivatives
and interest rate risk included:
•

Participating with representatives from the
"Group of 10" industrialized nations in the
development of proposed new capital treat­
ments for m arket risk associated with
derivatives and other trading instruments;

•

Amending risk-based capital standards to
recognize the benefits of "bilateral netting
agreements" that reduce credit risk in
interest rate and exchange rate contracts;

•

Issuing guidance to examiners on structured
notes, derivatives and interest rate risk;

•

Revising the quarterly Report of Condition
and Income (Call Report) for the purpose
of gathering better information on each
bank’s participation in derivatives markets;

•

Participating in interagency initiatives
on how to incorporate interest rate risk
when evaluating capital adequacy; and

•

Analyzing the potential for systemic risk
from derivatives as part of the President’s
Working Group on Financial Markets, a
high-level government task force established
following the stock market decline in 1987.

The FD IC’s effort to improve the quality of
supervision is illustrated by several other
initiatives during 1994:
•

Conducting periodic surveys of examiners
to identify changes in underwriting stan­
dards. FDIC field personnel will be asked
to report on the prevalence of specific
lending and investment practices that have
led to difficulties in the past.

•

Use by all federal bank and thrift regulators
of the same examination report forms for
key information and conclusions. This
change is expected to make examinations
more uniform and to promote consistency
in the way institutions are supervised.




•

Automation upgrades that will allow field
examiners to communicate electronically
with headquarters and other FDIC staff
and to access key inform ation from the
F D IC ’s database. As a result, staff can
plan examinations with the most current
information available.

While the numbers of enforcement actions
and problem banks have decreased, the vol­
ume and complexity of applications processed
have increased. This is due largely to requests
from savings associations for FDIC approval
to convert from mutual to stock form of
ownership (see description following) or for
deposit insurance for new institutions created
as part of a mutual-to-stock conversation.
In addition, under 1991 amendments to the
Federal Deposit Insurance Act, there has been
a large increase in applications for state banks
to engage in activities not permissible for
national banks. (See the applications table on
the next page for more details.)

M utua l-to-S tock Conversions
In recent years a num ber of mutually
owned state savings banks have converted
to stockholder-owned state savings banks.
Public and congressional concerns related
to inconsistent state and federal standards,
and the potential for abuse in the conversion
process, prom pted the FDIC to become
more involved in the process during 1994.
In February, the FDIC issued guidance and
regulations addressing the conversion of state
savings banks from mutual to stock ownership.
Advance notice of an institution’s conversion
plans now must be submitted to the FDIC. If
a conversion plan raises concerns about safety
and soundness, violations of law or possible
breaches of fiduciary duty, the FDIC will
object to the transaction. The new rules also
include protections in areas such as the setting
of the value of the initial stock offering, requir­
ing depositors’ votes to approve the conversion,
and preventing windfall profits to management.
The FDIC also reviews requests for deposit

insurance for reorganizations o f a m utual
savings association’s conversion to owner­
ship by a mutual holding company, a form of
mutual-to-stock conversion. The FDIC Board
in 1994 considered 22 notices of conversion
of mutual institutions and objected to five.

Reduced Regulatory Burden
As part of its ongoing efforts to eliminate
unnecessary or excessive regulatory burden,
the agency amended its rules on real estate
appraisals in order to reduce costs and encour­
age lending without compromising safety and
soundness. The revised rules reduced the
number of loans requiring an appraisal by a
certified or licensed appraiser and simplified
the standards for conducting required appraisals.
The FDIC continued to implement regulations
that reduce regulatory burden by linking super­
vision more closely to risk by, for example:
•

Coordinating examinations with state
and other federal regulators to eliminate
supervisory overlap and to extend the
examination cycle for institutions with
less than $100 million in total assets that
are rated " 1" or "2" under the interagency
CAMEL rating system;

•

Continuing the risk-based insurance
program whereby well-capitalized and
well-managed institutions are charged
considerably less for deposit insurance
than institutions that are undercapitalized
and exhibit other weaknesses;

•

•

Exem pting w ell-capitalized and wellmanaged institutions from prohibitions,
restrictions or application requirements for
undercapitalized institutions; and
Permitting well-run institutions to identify
a portion of small- and medium-sized
business and farm loans that would be
evaluated by examiners solely on perfor­
mance criteria, not loan documentation
and other technical matters.




F D I C A p p lic a tio n s
1 992-1994
1994
Deposit Insurance

“

1993

ToS—
103
3
1,715
1,713
1,017
696

89
89
0
1 224

1992

85
84
A p p r o v e c f lH H H B H H B H M B H H
1
w s tm m
.n a a a
QCM
New Branches
994
Approved
1,223
B r a n c H M — 1—
—
P H
637
786
437
Remote Service Facilities
357
1
Denied
2
0
326
Mergers
451
359
451
326
358
Approved
SHH
Denied
0 .
0
1
1,772
1,810
Requests for Consent to S e r f l H M H 1,364
1,788
Approved •. H S f H S K f f l S B B M H I 1,357
1,759
127
93
99
- Section
Section 32
1,230
1,660
1,695
7
Denied
13
22
1
1
Section 19
Section 32
6
12
- 211
79
Notices of Change in C o n t r f l M B B H
50
56
Letters of Intent Not to DisapprovB—
50
56
74
Disapproved
0
0
5
C onversions of Insurance Coverage^
10
7
16
7
16
Approved
10
Denied
0
0
0
Brokered Deposit W aivers —
i w
42
68
124
64
119
Approved
42
0
4
5
H BH sd ■
7
Savings Association Activities
6
42
42
7
M H H N M i
0
—
—
n w w M iii—
■ —
■
o
■ H H I
State Bank A c tiv itle s / ln v e s tm e n tj^ H
118
583
2
■■■■M i
Approved
581
2
0
2
0
Denied
M « ■
H I E M H tS " I
22
Conversions of Mutual I n s titu t io a f lH
Mnn-Ohinr'tinn
17
■
■
H
inum wujeuuun
iioBBHRiBBBBBHBI
M H lil

* Under Section 19 of the Federal Deposit insurance Act, an insured
institution must receive FD IC approval before employing a person convicted
of dishonesty or breach of trust. Under Section 32, the FDIC must approve
any change of directors or senior executive officers at a state nonmember
bank that has been chartered less than two years, has undergone a change
of control within two years, is not in compliance with capital requirements, or
otherwise is in a troubled condition.
+ Applications to convert from the SA IF to the BIF or vice versa.
° Section 24 of the FDI Act in general precludes an insured state bank from
engaging in an activity not permissible for a national bank and requires
notices be filed with the FDIC. Th e large number of applications and notices
during 1993 results primarily from banks that wished to continue holding
"grandfathered " equity investments.
^ A r m u r a m l i r Q m a n i in 1 QQ/1 f n r h a n lr c t n n rn \/W e c il/ 'h n n t in o

In issuing and implementing the many banking
rules required by law, the FDIC has sought to
fashion the least intrusive and least burdensome
regulations possible to achieve the purposes
intended by Congress. Flexible but effective
regulations and guidelines were developed
or were under consideration by the FDIC in
1994 in areas such as independent audits,
real estate lending, and safety and soundness
standards. The FDIC coordinated with the
other federal regulators on such measures
as uniform interagency application forms
and, as noted earlier, uniform examination
report forms.
Progress to reduce regulatory burden also
extended to legislation. The Riegle Community
Development and Regulatory Improvement
Act of 1994 includes provisions that require
the banking agencies to consider the benefit
and burden of new regulations and to review
existing regulations and policies to improve
efficiency and reduce unnecessary costs.

Risk-Related Prem ium s
Th e following table shows the number and percentage of institutions insured
by the Bank Insurance Fund (BIF) and the Savings Association Insurance
Fund (SA IF), according to their risk classification and insurance assessment
rate, as of December 31,1994.
- v:
r
' ..
Supervisory Groups

A

B

c

Well Capitalized:
$H w a m ro * $

Rate
b if

9,820 (91 % )

SAIF

2,268 ( 88 % )

79 (1 % )

S AIF

•

3 7 (1 % )

$

0.30/S100

29 (0% )

47 (0% )

22 ( 1 % )

41 (2 % )

$

■

3 4 (1 % )

0.29/$100

$

0.30/$100

$

0.31/$100

BIF

2 ( 0% )

1 (0 % )

34 (0% )

SAIF

0 (0% )

0 (0 % )

11 ( 0 % )

: 'V

.

Average assessment rate: 23.3 cents per $100 of domestic deposits for
BIF members; 23.8 cents per $100 of domestic deposits for S A IF members.

:-

Note: BIF data exclude 51 insured branches of foreign banks and include
56 SAIF-member “Oakar” institutions that hold BIF-insured deposits. SAIF
data include 719 BIF-member “Oakar" institutions that also hold SAIF-insured
denosits. S A IF nernfintanfis do not add tn 100 nernent due tn roundinn




As interest rates rose during 1994 and certain
securities recommended by bank investment
advisers depreciated in value, some banks or
holding companies bought the securities from
the money market funds at a loss to themselves
in order to maintain the stability of those
mutual funds. While none of these purchases
was large enough to adversely affect the insti­
tutions, the FDIC expressed concern for the
precedent that might have been set and how
large purchases in the future would be treated.

Significant Enforcem ent A ctio n s

4.;

Undercapitalized:
Rate

The FDIC has supervisory concerns about
any contingent liability that might arise from
banks participating in the sale of non-deposit
products, such as mutual funds and annuities,
and the potential impact such liability might
have on the safety of insured institutions. This
issue was exemplified in instances involving
banks and bank holding companies that act as
investment advisers to money market mutual
funds.

168 ( 2 % )

V:. : 153 ( 6% )

‘ ,’-Y

Investm ent A d vis o ry Concerns

0.29/S100
H M H P fi

'«• S I S .
Adequately Capitalized:
Rate
' $ E M fo io o
0.29/$100
$
BIF

Chairman Heifer has asked the staff to review
all outstanding regulations of the FDIC to
identify areas where the regulation is unnec­
essary for safety and soundness purposes,
to protect bank custom ers, or to ensure the
effective functioning of the market. This review
will be conducted every five years.

The FDIC’s supervisory enforcement tools
include terminations of insurance, cease-anddesist orders, and actions to remove or prohibit
individuals from the banking industry. In 1994,
the FDIC took its first enforcement actions
under regulations finalized in late 1993 citing
violations of the statutory prohibition against
insured state-chartered banks engaging in
activities and holding investments that are
impermissible for a national bank. The Legal
Division and DOS work together in pursuing
all enforcement actions. (See the enforcement
actions table on the next page for more details.)

Two court cases from 1994 involving enforce­
ment actions are particularly noteworthy:
•

•

Grubb v. FDIC
This case involved the removal of a director
from a bank, pursuant to Section 8(e) of the
Federal Deposit Insurance Act. The direc­
tor challenged the removal and brought
the matter before the 10th Circuit Court
of Appeals. The FDIC initiated removal
proceedings against the director due to his
involvement in numerous extensions of
credit to himself that constituted violations
of law restricting and limiting extensions
of credit to insiders. The director, who had
repaid some of the criticized extensions of
credit to him self, argued in the appellate
court that the removal and prohibition
sanction was too harsh. The FDIC was
able to show that the director had been
warned over a substantial period of time
to cease the criticized practice. Conse­
quently, the court ruling that the director
had demonstrated a "willful" disregard
for the safety and soundness of the bank
provides additional insight on this topic.
In re Doolin Security Savings Bank, FSB,
New Martinsville, West Virginia
Doolin, disputing its risk-based deposit
assessment rating, withheld a portion of
its deposit insurance premium. The FDIC
initiated insurance termination proceed­
ings for Doolin’s violation of Section 7
of the Federal Deposit Insurance Act. The
FDIC Board affirmed an administrative
law judge’s recommended decision and
issued a termination of insurance order
to Doolin. Doolin appealed the matter
to the 4th Circuit, and obtained a stay on
the term ination order. Oral arguments
were made. At year-end, the court had
not yet ruled.




( (impliaiK'F, 1 ntoi'H'iiuiit and O th e r R ila U d lo y a l Actions. 1992-1994

1994
Sect. 8 (a) Term ination of Insurance Orders:
Notices to Primary Regulator
•Notices of Hearing
Orders Accepting Voluntary Termination Issued
'Insurance Termination Orders Issued
Sect. 8 (b ) Cease-and-Desist Orders:
Notices of Charges Issued
•Orders Issued With Notice
Orders Issued Without Notice
,
•Sect. 8 (c) Temporary Orders
Sect. 8 (e) Removal/Prohibition of Director or Officer:

1993 1992

3
1

4

40
24

2
1
2

2
1

2
3

t ? « «

11
8

1
7
41

67

0

2

21
14
148
5

47
iNOiices issu ed
1/
17
20
'Orders Issued With Notice
23
30
23
Orders Issued Without Notice
33
44
27
Sect. 8 (g ) Suspension/Rem oval for Felony
0
0
2
2
Sect. 8 (p ) Term in. of I n j i n t B i f O w i O T (N o Deposits)
11
17
Sect. 8 (q) Termin. of Insurance Orders (Deposits Assumed) 9
8
7
Civil M oney Penalties Issued
10
15
13
Sect. 5 (e) Cross-guaranty Assessments/W aivers:
'
Notices of Assessment of Liability Issued
0
2
5
Waivers Issued
1
4
3
Sect. 7 (j) Notices Disapproving Acquisition/Control
0
4
0
Sect. 19 Requests to Serve After Criminal Conviction:
Denials Issued
1 ‘
1
1
'Final Orders After Hearing Issued
1
0
1
Sect. 32 Notices of Addition of Officer/Director:
B M W
Notices of Disapproval Issued
5
20
11
•Rulings on Appeal Issued
0
14
3
Regulation Z Requests for Relief from Reimbursement:
111181
Orders Denying Relief Issued
3
3
10
•Reconsiderations of Orders Denying Relief
0
3
1
Orders Granting Relief Issued
'
-• r
0
0
0
Prom pt Corrective Action:
Dismissal Notice
0
3
•Dismissal Directive
0
0
Capital Plan Notice
. •
,
.
0
2
0
Capital Plan Directive
1 i?
N o tice of Intent to R e c la ssify

•Order of Final Disposition as to Reclassification
Supervisory Notice
•Supervisory Directive
Supervisory Directive-Immediate
Self Appointment-Conservator
Self Appointment-Receiver
Other A ctions Not Listed A bove
Total Num ber of Actions Initiated by FDIC

0
A
U

0
A
u

5
4
1
0
1
9

7

144

.

3

-

0
0
0

“
-

5

10

228

338

•Not counted as separate proceedings and therefore not included in total
actions initiated.
*Recently enacted enforcement power. No data available for 1992.

.■
"Y
'

1 9

9 4

Bank Supervision
1934-1994
The current system of federal bank supervision
traces its beginning to 1863, when national
banks were authorized under the National
Currency Act (which became the National
Bank Act in 1864). The newly formed Office
of the Com ptroller of the Currency was
empowered to supervise national banks and
was generally credited with more effective
supervision than were the existing state super­
visory systems. Most banks soon became
subject to the more stringent federal supervision
when the taxation of state bank notes prompted
many institutions to switch from state to
federal charters. By the late 1800s, however,
state banking systems had rebounded and the
overall quality of state supervision improved
significantly. In 1863, only five states
examined banks regularly; by 1914, every
state performed this function.
Despite improvements in the overall quality
of bank supervision, intermittent high rates
of failure continued. These failures often
resulted in contractions in credit and the
money supply, which prolonged recovery
from recessionary periods. In 1913, as a
response to this problem . Congress created
the Federal Reserve System. State banks were
given the option of Federal Reserve member­
ship, which permitted direct federal supervi­
sion of state banks for the first time. Thus, by
year-end 1913, the bank regulatory apparatus
included two federal agencies as well as the
state supervisory systems. This situation
was particularly noteworthy considering that
government regulation o f businesses other
than banks at that time was extremely limited.
Initially, however, the Federal Reserve was
more concerned with its responsibilities as the
central bank, and it was not until the 1930s
that it examined banks regularly.
Under the political compromise that led to the
creation of the FDIC in 1933, no supervisory
authority was taken away from existing federal
or state agencies. The FDIC became the third
federal bank regulatory agency, with primary
supervisory responsibility for about 6,800
insured state banks that were not members
of the Federal Reserve System. In addition




to the supervisory goals of the other federal
and state banking agencies, the FDIC had the
more clearly defined goal of minimizing the
risk of loss to the deposit insurance fund, but
that role was more limited than it is today.

The Early Years
The financial debacle of the 1930s and the
cautious atmosphere that subsequently charac­
terized banking and the regulatory environment
significantly influenced the FDIC’s examina­
tion policies during its first several decades.
Bank examiners reviewed bank balance sheets
in a comprehensive manner, focusing particular
attention on problem loans even when their
potential impact on the insurance fund was
likely to be minimal.
During the years following World W ar II, the
economy was relatively strong, loan losses
were modest and bank failures were rare. In
the 1960s and 1970s, though, bank competition
began to increase, and so, too, did the exposure
of the insurance fund. The analysis of individ­
ual loans became coupled to assessment of the
risk exposure associated with overall bank
loan and investment policies.

The '70s and '80s
Beginning in the late 1970s, the frequency
of on-site FDIC examinations, particularly for
well-managed banks, was reduced, and greater
reliance was placed on the off-site analysis of
financial reports submitted by banks. The
goal was to direct scarce examiner resources
to dealing with existing and potential problem
situations. The FDIC’s supervisory role also
expanded to include monitoring compliance
with a growing body of consumer protection
laws.
The 1980s brought dramatic changes to both
bank profits and bank supervision itself. In an
environment of prolonged economic expansion
and increasingly volatile interest rates, the
industry experienced one lending disaster

25

after another. The decade began with crises in
agriculture and loans to lesser developed
countries. As the decade progressed, unrepaid
energy loans began to take their toll, leading
to the downfall of some major banks, including
Continental Illinois in Chicago and First
RepublicBank in Texas. As the decade came
to a close, highly leveraged transactions and
commercial real estate loans depleted the
capital structures of some major banks in the
East and the Far West. The number of troubled
and failed institutions rose to post-Depression
highs.
The FDIC’s Division of Supervision (DOS)
responded to the challenge of the 1980s
by:
•

Strengthening off-site monitoring through
new data analysis systems;

•

Greatly expanding the examination staff,
with the number of field examiners
increasing to 3,130 in 1992 from 1,389
in 1984; and

•

Examining banks more frequently, as
5,627 safety and soundness examinations
were conducted in 1992 compared to
3,339 in 1984.

Legislation enacted in response to the severe
banking problems of the 1980s radically
changed bank supervision. The Financial
Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) assigned to the FDIC
a new role as insurer of savings associations
with accompanying back-up supervisor
responsibilities. In exercising this authority,
the FDIC either independently examined or
participated in the examination of every savings
institution insured by the Savings Association
Insurance Fund (SAIF) in the first year or so
after FIRREA.




Supervision Today
Today, the FDIC relies primarily on the reports
of the Office of Thrift Supervision for infor­
mation on savings associations, just as it relies
on the Comptroller o f the Currency and the
Federal Reserve for information on national and
state member banks. Under a long-established
relationship with state bank supervisory
authorities, the FDIC alternates examinations
with the state, or the FDIC and the state conduct
them simultaneously to reduce unnecessary
burden on the bank.
The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) empha­
sized increased supervision to reduce risk to
the insurance funds. FDICIA’s statutory
provisions directly affecting bank supervision
include: "prompt corrective action" measures
to be taken when an insured institution’s
capital falls below prescribed levels, increased
examination frequency, and mandated standards
for safety and soundness, real estate lending,
and interest rate risk management.
In response to a growing emphasis on consumer
protection, including community reinvestment
and fair lending, the FDIC in 1994 separated
the compliance function from DOS and created
the new Division of Compliance and Consumer
Affairs (DCA). DCA has its own cadre of
managers and examiners to conduct examina­
tions for compliance with a wide range of
consumer protection matters.

1 9

9 4

Consum er
Protection
A ctivitie s
Insuring bank and thrift deposits up to the
$100,000 limit is the most visible of the FDIC’s
consumer protection activities. (See the Fail­
ures and Resolutions chapter for information
on how the FDIC protected failed bank deposi­
tors in 1994.) However, the FDIC has a strong
consumer protection responsibility in other
areas as well.
Along with other agencies, the FDIC enforces
regulations that promote sound banking prac­
tices and compliance with consumer protection
and civil rights laws. These protections
include: prohibitions against discriminatory
lending practices; initiatives to prevent unfair
or deceptive practices in deposit-taking or
lending; and rules that encourage institutions
to help meet the credit needs of their local
communities, consistent with safe and sound
operations.

N e w D ivision Created
In August of 1994, the FDIC established
the Division of Compliance and Consumer
Affairs (DCA) to consolidate the compliance
examination function of the Division of
Supervision (DOS) with the duties of the
former Office of Consumer Affairs (OCA).
For many years, DOS conducted examinations
for compliance with fair lending and other
consumer laws and regulations, and also
was responsible for initiating consumer-related
enforcement actions. OCA managed commu­
nity outreach efforts and served as a resource
for consumers, examiners and financial insti­
tutions in such matters as fair lending and
community development. Both DOS and
OCA contributed to areas such as developing
consumer protection rules and responding to
consumer complaints and inquiries.
Consolidating these activities within DCA
highlights the FD IC's commitment to expand­
ing the agency’s community affairs activities
and meeting its statutory responsibilities
to consum ers in an effective and efficient
manner.




Fair Lending
In August of 1994, the FDIC published a
56-page "self-help guide" to compliance with
fair lending laws, entitled Side By Side — A
Guide to Fair Lending. It suggests various ways
that an institution can compare its treatment
of loan applicants, detect and prevent illegal
lending discrimination, improve customer
service and meet fair lending goals. More
than 30,000 copies o f this publication were
distributed to financial institutions, trade
groups and other interested parties.
As part of its outreach program, the FDIC
sponsored or co-sponsored several training
conferences, roundtable discussions and
meetings on the Community Reinvestment
Act (CRA), community development and fair
lending initiatives. The sessions helped open
communication lines between the FDIC,
financial institution officials, consumer
advocates and community leaders.
In April, the FDIC joined with nine other
agencies, including the Department of Justice
and the Department of Housing and Urban
Development, in adopting a uniform policy
statement on discrimination in lending. The
statement is intended to provide clear and
consistent guidance to all lenders on matters
such as what constitutes illegal lending
discrimination, how it can be prevented,
and how the agencies will remedy abuses.
Starting in June, the FDIC became the first
financial institution regulatory agency to order
lending institutions to pay fines for late or
inaccurate submissions of Home Mortgage
Disclosure Act (HMDA) data. Lenders subject
to HMDA are required to report on the out­
come of home mortgage applications. These
data, combined with other information about
an institution’s lending activities, can be
useful in detecting lending discrimination.
Penalties were imposed in 1994 against 31
institutions for late or inaccurate reporting
of 1992 and 1993 mortgage lending data.
The penalties totaled $79,500 and averaged
$2,565 per institution.

27

In 1994, various statistical analyses and
interpretation of the HMDA data were carried
out by the Division of Research and Statistics
(DRS) in support of DC A policy formulation
and monitoring for lending bias.

C R A Reform
The FDIC continued working with the other
federal bank and thrift regulatory agencies
on proposed revisions to the Community
Reinvestment Act (CRA), which encourages
banks and thrifts to meet the credit needs of
their communities.
The proposed revisions, the most extensive
under consideration since the law was enacted
in 1977, are intended to develop more objec­
tive, performance-based assessment standards
that would minimize regulatory burdens
while encouraging lending to creditworthy
borrowers.
In December of 1993, the agencies issued for
public comment a CRA proposal that would
have substituted a more performance-based
evaluation system for the 12 assessment factors
in the existing CRA regulation. Under the
proposal, the agencies would evaluate an
institution based on results of actual lending,
service and investment performance, rather
than on the processes used to achieve those
results. The agencies received more than
6,700 written comments on the 1993 proposal,
with the FDIC alone receiving nearly 2,400.
In October of 1994, the agencies issued a
revised proposal that addressed concerns
raised in the public comments while retaining
the basic structure and objectives of the 1993
proposal. Many of the revisions would make
the performance tests more flexible and more
meaningful, simplify data reporting require­
ments and increase the importance of commu­
nity development lending. The comments
received on the revised proposal — about
7,100 by the agencies combined and 2,100
by the FDIC alone — were being evaluated
at year-end with a goal toward issuing a final
regulation in the spring of 1995.




Sales o f M utual Funds and
O ther Nondeposit Investm ents
The recent period of low interest rates caused
many depositors to consider the potentially
higher returns offered by mutual funds and
annuities. FDIC-insured institutions increasingly
became involved by directly selling these unin­
sured products in their lobbies and allowing
third parties to sell these products on bank
premises. Various efforts were undertaken
by the FDIC and other regulators reaffirming
their belief that customers must be fully in­
formed about the risks associated with mutual
funds and other nondeposit investment products.
On February 15, 1994, the four federal bank
and thrift regulatory agencies issued a joint
statement that banks and thrifts should:
•

Advertise and disclose that nondeposit
investment products are not insured by the
FDIC, are not guaranteed by the bank and
may be subject to loss of principal;

•

Sell these products in a location separate
from the area where deposits are taken;

•

Ensure that investment sales personnel
are properly qualified and trained; and

•

Ensure that sales personnel recommend
investments that are suitable for the
individual customer.

In April, DOS issued guidelines for examiners
and the industry about how to evaluate
compliance with the interagency statement on
nondeposit investm ent sales. At year-end,
the FDIC and other federal bank and thrift
regulators had completed an agreem ent with
the National Association of Securities Dealers
to share information where appropriate.
In order to assess compliance with the inter­
agency guidelines and to better understand
what might be leading to customer confusion,
the FDIC in December 1994 announced the
hiring of a market research firm to study
banks’ sales practices. Starting in early 1995,

trained representatives of Market Trends, Inc.,
based in Bellevue, Washington, will call or
visit FDIC-insured institutions and pose as
consumers asking typical questions about
mutual funds, annuities and other nondeposit
investments. It is expected that 3,000 to 4,000
branches will be contacted during the six-month
study. The statistically verifiable random
survey, which was developed by the FDIC, is
not intended to be used as an enforcement tool
against individual institutions. However, if
significant problems are found at an FDICsupervised institution, the FDIC will seek
appropriate corrective measures. Problems
found at other institutions will be referred to
their primary regulator for follow-up.
To further reduce customer confusion, the
FDIC published in July a free brochure entitled
Insured or Not Insured — A Guide to What Is
and Is Not Protected by FDIC Insurance.
The brochure lists what is and is not insured,
advises purchasers to obtain definitive informa­
tion and explains the difference between FDIC
coverage of deposits and certain other types
of insurance from other sources that may be
available on non-deposit products. At year-end,
about seven million of the brochures had been
provided to institutions and individuals.

Responses to Consum er Inquiries
The Division of Compliance and Consumer
Affairs maintains a toll-free 24-hour telephone
hotline (1-800-934-3342 or 202-898-3773 in
the Washington, DC, area) to handle complaints
and inquiries from the public. More than
55,000 telephone calls were made to DCA’s
Washington headquarters and eight regional
offices. As in the past, the majority of the
calls dealt with deposit insurance issues. The
number of calls received during 1994 was
dramatically lower than the 90,700 in 1993,
mirroring the significant decline in the
number of bank failures during 1994.
DCA responded to approximately 6,100 written
consumer complaints and inquiries during 1994.
The FDIC’s Office of Legislative Affairs (OLA)




coordinated with other Divisions and Offices
on responses to nearly 2,400 written inquiries
from members of Congress, most on behalf
of constituents wanting to know about FDIC
policies and practices. Many inquiries of OLA
raised consumer-related issues such as financial
institution compliance with consumer protec­
tion laws, questions about deposit insurance
coverage and bank or thrift disputes with
individual consumers over services and prices.
Inquiries and complaints involving failed
institutions generally are handled by the
Division of Depositor and Asset Services.
Its activities are described in the Failures and
Resolutions chapter.

O ther Educational Efforts
The FDIC continues to offer a variety of
publications to consumers on topics that include
fair lending, the Community Reinvestment
Act and the deposit insurance rules.
FDIC Consumer News, a quarterly newsletter
started in November of 1993 by the FDIC’s
Office of Corporate Communications in
conjunction with other Divisions and Offices,
continued to be well-received by consumers,
bankers and the media. Using this publication,
the FDIC’s goal is to provide timely and ongo­
ing assistance in plain English about consumer
protection laws and regulations, the deposit
insurance rules and many other topics.
The FDIC in 1994 also expanded its efforts to
make consumer information available to the
public electronically. After an initial testing
period, the FDIC entered the "information
highway" by going on-line with the worldwide
computer network known as the Internet. FDIC
offerings available on the Internet include:
banking industry statistics; consumer publica­
tions; FDIC press releases; and lists of real
estate and other assets available for sale to the
public from the FDIC. This information can
be accessed on the Internet via the FDIC’s
"gopher" address (fdic.sura.net 71) or through
its World Wide Web address (www.fdic.gov).

1 9

9 4

Failures
and
Resolutions
The heart of the FD IC’s mission is to protect
depositors of insured banks and savings associ­
ations. No depositor has ever suffered a loss
of insured funds from the failure of an FDICinsured institution. The FDIC manages the
Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF) but
currently is responsible for resolving only
those institutions with deposits insured by the
BIF. The Resolution Trust Corporation (RTC)
is responsible for resolving SAIF-insured
institutions through June 30, 1995, after which
the FDIC will assume this responsibility. The
FDIC also manages the assets and liabilities
of the Federal Savings and Loan Insurance
Corporation (FSLIC) Resolution Fund (FRF).

30

During 1994, the num ber and size o f failures
o f B IF -insured institutions continued to
decline. Thirteen commercial and savings
banks failed in 1994 with assets of $1.4 billion,
including eight failures in California. These
are the fewest failures since 1981, when
10 banks failed. In contrast, in 1993, a total
of 41 banks with $3.5 billion in assets failed.
In 1992, there were 120 bank failures with
$44.2 billion in assets, and two institutions
were given financial assistance under
Section 13(c) of the Federal Deposit
Insurance Act.

An institution can be closed by its chartering
authority when it is insolvent, critically under­
capitalized or is unable to meet deposit outflows.
The chartering authority — the state for statechartered institutions, the Comptroller of the
Currency for national banks, or the Office of
Thrift Supervision for federal savings associa­
tions — informs the FDIC when one of its
insured institutions is going to be closed. The
FDIC begins to arrange the best resolution —
one that is the least costly to the insurance fund
(as required by the FDIC Improvement Act of
1991) and the least disruptive for customers.

The FDIC in 1994 arranged for the insured
deposits at each of the 13 failed banks to be
assumed by other institutions, thereby avoid­
ing any direct "payouts" of insured deposits.
As in recent years, however, some of the 1994
bank failures involved losses for depositors
with funds in excess of the $100,000 insur­
ance limit. In eight of the 13 failures during
1994, or 62 percent of the cases, depositors
received less than 100 cents on each dollar
above the $100,000 insurance limit at the
time of closing; these depositors are likely
to receive further distributions as their failed
banks’ assets are liquidated by the FDIC.
Eighty-five percent of the failures in 1993
involved an initial loss for uninsured deposi­
tors at the time of closing. In 1992, this figure
was 55 percent.

The FDIC’s Division of Resolutions (DOR)
works with other Divisions to gather informa­
tion about the failing institution, estimate the
potential loss from a liquidation, solicit and
evaluate bids from potential acquirers, and
recommend the least costly resolution to the
FDIC’s Board of Directors. If a buyer for a
failing institution is not found, the Division of
Depositor and Asset Services (DAS) is responsi­
ble for making insurance payments to closed
bank depositors as soon as possible, often as
early as the next business day following a
failure, and for managing the receivership
functions, including selling the remaining
assets and paying creditors o f the failed bank.
The Legal Division assists DOR and DAS
for these various duties and, where merited,
pursues claims against individuals whose
misconduct led to the failure of an institution.




Protecting Depositors

To reduce the hardship on uninsured depositors,
the FDIC often makes "advance dividend"
payments soon after the bank’s closing. Pay­
ments typically are between 50 and 80 percent
of the uninsured amounts. The advance divi­
dend is based on the FDIC’s estimated recov­
eries from liquidating the failed bank’s assets.
The FDIC made a total of $8.3 million in such
payments to uninsured depositors who suffered
losses in the eight bank failures in 1994.
The FDIC does not pay an advance dividend
in cases where the value of the failed
institution’s assets cannot be reasonably
determ ined at closing.

Where appropriate, as assets are liquidated,
DAS makes dividend payments to uninsured
depositors and general creditors of failed
banks, including payments to the FDIC as
a creditor for advancing payments for
insured deposits at the time of bank failures.
Dividend payments during 1994 totaled
$7.2 billion for bank failures that year and
previous years.
Failed Banks*
1992-1994
1994

1993

1992

Arizona
Arkansas

0

0

3

0

0

California

8

19

1
M

H H

Colorado
Connecticut

;-.v"Y

Florida
Georgia

0
0

Iowa

0

Kansas H H H H H H
Louisiana

o y

2
2

0

Illinois
Indiana

10
2

0
0

0
0

Hawaii

1
1

2
0

District of Columbia

M

Maryland

—

0

S8USBSHR8!

2

•Y.

0
0

1

0

Vr

1

Montana

m

1 i.

2

MS

Missouri

IS

*

0
0

Mississippi

t l
o
1

2

I

0
0

1

r

•

1

0

Y . .J ,

0

New Jersey

0

H

K

New York
North Carolina

0
0
o

1
1

0

IS S H i
0

0

0

—

0
o

0
0

1

0

10
1

29*

New Hampshire

Y ; r-:

|i f 1

Rhode Island
Texas

Q' ■ .. |1
L '

0

Vermont
Virginia
Washington

0
M iiiiiiSiiiiiiEjisi!

Total

0
13

3
5

2
g
2°
—

1
-j

2

41

120

0

•Commercial and savings banks insured by the Bank Insurance Fund.
Excludes open bank assistance transactions.
+ Includes five bank subsidiaries of First Exchange Corporation,
Cape Girardeau, Missouri.
“One institution based in Rhode Island but chartered in Massachusetts
(Attleboro Pawtucket Savings Bank, Pawtucket, Rhode Island) is counted
as a Massachusetts bank failure,
includes 20 bank subsidiaries of First City Bancorporation, Houston, Texas.




To recover all or part of the losses in liquidat­
ing or aiding a troubled insured institution, the
FDIC was authorized by law in 1989 to seek
reimbursement from other commonly controlled
insured institutions. The FDIC used this
"cross-guaranty" authority on several occasions
in 1994.

—

0

Hi

Cross-Guaranty Transactions

1 ;
2

0
W

0

Massachusetts
Minnesota

Oklahoma I B
Pennsylvania
Puerto Rico

As an additional service after closings, DAS
provides community assistance in the form
of an ombudsman program. In 1994, the
program handled 90,000 inquiries and 2,000
complaints in connection with the approxi­
mately 900 active receiverships the FDIC
oversees. Inquiries ranged from routine
questions to more complex matters such as
lien and mortgage releases, claims and deposit
questions and information about properties
available for purchase. Complaints related to
such matters as debt settlements, foreclosures,
litigation, asset sales and servicing disputes.
For a list of 1994 bank failures and their
resolution, see Table B in the back of this
Annual Report.

Coastal Savings Bank
Portland, Maine
Coastal Savings Bank, with $160 million
in assets, was part of the same two-bank
holding company structure as Suffield
Bank, Suffield, Connecticut, which was
declared insolvent in 1991 at an estimated
cost to the Bank Insurance Fund of $90
million. The FDIC exercised its cross­
guaranty authority against Coastal and,
in November of 1994, agreed to release
its claim in exchange for a $9 million
interest-bearing, two-year promissory
note — collateralized by 100 percent
of Coastal’s stock — from the holding
company, First Coastal Corporation.
Thus, the FDIC is able to recoup part
of its loss while allowing the institution
to continue to serve its community.
This agreement was approved by First
Coastal Corporation shareholders on
January 31, 1995.

31

Meriden Trust
and Safe Deposit Company
Meriden, Connecticut
Meriden Trust was an affiliate of Central
Bank of Meriden. Both institutions were
owned by Cenvest, Inc. Meriden Trust had
total assets of approximately $3.4 million
and primarily operated a trust department
that managed $180 million in over 500
accounts. Meriden was an insured
institution based on past deposit activities
although it no longer made loans or took
deposits from the public. It did, however,
maintain two accounts from related
institutions. The FDIC determined it was
in the best interest of the Bank Insurance
Fund to assess Meriden Trust for the
$152 million loss from the failure of
Central Bank. Cenvest challenged the
FDIC in court, partly on the basis that
Meriden Trust was not an insured deposi­
tory institution. The U.S. District Court in
Connecticut ruled in favor of the FDIC on
June 30, 1994. On July 7, 1994, the FDIC
closed Meriden Trust, marking the first
time the FDIC closed an insured institution
and appointed itself as receiver under
powers granted by Congress in 1991
(in contrast to being appointed receiver
by the chartering authority). The bank
reopened as an FDIC-owned "bridge
bank," which was later sold in November
for $7.8 million. This money will be used
by the FDIC to offset losses incurred from
the resolution of Central Bank. As of
year-end, Cenvest’s appeal of the district
court decision was still pending.
Maine National Bank
Portland, Maine
A cross-guaranty assessment was
levied against Maine National for the
January 6, 1991, failure of its affiliate,
Bank o f New England, N.A., Boston.
The cross-guaranty assessment rendered
M aine National insolvent, and it was
closed by its chartering authority on
January 6, 1991. The trustee for the hold­
ing company of the bank sued the FDIC,
arguing that the assessment was the taking




of property without just compensation in
violation o f the Fifth Amendment. The
U.S. Court of Federal Claims in W ashing­
ton, DC, found there would be a taking of
property without compensation by the FDIC
because Maine National could not have
reasonably expected it would be liable for
Bank of New England’s debts, unless the
FDIC could establish that Maine National
did not operate as a corporation independent
from the Bank of New England. The FDIC
has appealed this decision. Several other
cross-guaranty assessment cases at yearend 1994 await the outcome of this appeal.

Resolution Strategies
The FDIC uses several strategies to dispose
of the assets and liabilities of a closed bank,
either at the time of closing (as described later
in this chapter) or after they have been retained
by the FDIC for a period of time (see the
Asset Disposition chapter for more details).
At the time of closing, acquirers typically pay
a premium to acquire a failed bank’s deposits
and certain assets, primarily loans. This type
of resolution is referred to as a "purchase and
assumption" (P&A) transaction. The least
desirable resolution option for the FDIC is a
payout — a direct payment of insured deposits
to depositors, with the FDIC retaining primar­
ily all of the assets for later sale. It is considered
least desirable because it normally is more
costly and causes the most disruption to
customers of the failed institution. The FDIC
also may offer a loss-sharing arrangement,
in which the agency typically agrees to pay
80 percent of losses on loans later charged
off while the acquirer assumes the other
20 percent. Loss-sharing is intended to give
the acquirer an incentive to manage problem
assets prudently and to address acquirers’
concerns about unanticipated losses in the
loan portfolio. As of December 31, 1994,
approximately $6.5 billion of assets owned
by acquiring institutions were covered by
loss-sharing agreements. No loss-sharing
transactions were entered into in 1994.

The FDIC may use its bridge bank authority
to take interim control o f a failed bank. In
these cases, the bank is closed and a new
federally chartered institution is operated under
FDIC control until a sale can be completed.
This method was used in the M eriden Trust
failure discussed earlier.
The FDIC may provide "shared equity" in a
resolution, in some form of preferred stock or
debt, to help the acquiring bank capitalize its
new assets for a limited time. These capital
instruments are issued at risk-adjusted rates
and are structured with incentives for early
redemption. Both the BIF and the FSLIC
Resolution Fund own such securities. The
FDIC did not provide any capital instruments
in 1994; however, DOR which is responsible for
managing and selling these capital instruments
for the FDIC, sold $42 million during 1994
from six prior resolution transactions.
The FDIC’s efforts to dispose of assets at the
time of closing resulted in the immediate
return to the private sector of approximately
a third of the assets from the 13 banks that
failed during 1994 (about $400 million out of
the $1.4 billion total). Otherwise, these assets
would have been retained by the FDIC for
disposition.
At year-end, DOR was managing 51 assistance
agreements nationwide. O f these, 16 involve
open bank assistance transactions, 23 involve
loss-sharing agreements with 15 different
acquirers, 10 comprise other types of assistance
and the remaining two are limited partnership
agreements.

FS LIC Resolution Fund
The FSLIC Resolution Fund (FRF) is charged
with carrying out agreements that the former
FSLIC entered into before August 9, 1989.
The FRF receives federally appropriated funds
and Congress provided $827 million to fund
the FRF for fiscal year 1995. Previous appro­
priations were $15.9 billion in fiscal year 1992,
$2.6 billion in fiscal 1993 and $1.2 billion in




fiscal 1994 (none of which was used in 1994).
The FRF’s main mission is to manage acquir­
ing institutions’ orderly disposition of "covered
assets" within the terms o f the assistance
agreements. Currently, the largest use of
FRF funds continues to be the payment
of contractual assistance to acquiring
institutions.
Much of the FD IC’s focus on the FRF has
been the orderly and early termination of FSLIC
agreements. The last agreement is scheduled
to terminate in December 1998.
DOR, which is responsible for managing the
assets and liabilities of the FRF, reduced the
fund’s active cases during the calendar year
to 11 from 20. O f the nine cases closed, five
assistance agreements were terminated before
the expiration dates in the contracts. These
"early terminations" are expected to yield cost
savings of $13 million. Covered assets were
reduced to $1.0 billion from $2.4 billion through
asset sales and other adjustments. Additionally,
DOR is responsible for administering 43 termi­
nated FRF agreements that have outstanding
issues, and 45 agreem ents that require the
monitoring of tax benefits due the FRF
beyond the contractual term ination of the
agree-ments. During 1994, approximately
$135 m illion in tax benefits were realized
by the FRF.
Separate from the assistance agreements are
the FRF assets managed by DAS. At year-end
1994, the FRF portfolio of assets in liquidation
had a book value of $1.8 billion, down from
$2.7 billion at the end of 1993. FRF net liquida­
tion collections totaled $843 million in 1994.
The FRF will receive the remaining assets and
liabilities of the Resolution Trust Corporation
when it closes at year-end 1995 as scheduled.
The FRF will continue until all of its assets
are sold or otherwise liquidated, and all of its
liabilities are satisfied. If any funds remain,
they will revert to the U.S. Treasury.

1 9

9 4

Bank Failures
1934-1994
In the years before the Federal Deposit
Insurance Corporation was created, bank
failures were widespread. On average, more
than 600 banks per year failed between 1921
and 1929. By 1933, bank failures had reached
a zenith o f 4,000 institutions for the year. On
June 16, President Roosevelt signed the Bank­
ing Act of 1933, creating the FDIC and estab­
lishing a safety net that would build confidence
for the nation’s bank depositors. The FDIC
began insuring deposits on January 1, 1934.

400 bank failures. Directly following the
end of World W ar II, it was believed that the
United States would again plunge into economic
depression, and the nation’s banks would
begin to fail in large numbers. Instead, the
country began its longest economic boom
and the banking industry settled into a 30-year
period of calmness and stability. Between
1945 and 1974, just 114 insured banks were
closed, about four per year.

Problem s Emerge
The Early Years

34

The agency began operating at a time when
faith in the safety of banks had reached a low
mark, exacerbating the economic stresses of
the Great Depression. Over the decades since
then, depositors of failed banks have received
their funds through the efforts of the FDIC.
On July 3, 1934, as a jubilant crowd waited
outside an East Peoria, IL, bank, newsreel
and other cameras captured a historical event
inside. Mrs. Lydia Lobsiger, accompanied by
her daughter and three-year-old granddaughter,
received the first check from the FDIC for the
reimbursement of deposit funds. Legal wran­
gling by stockholders of Fond du Lac State
Bank, East Peoria, IL, over the appointment of
a receiver when it was closed on May 25, 1934,
prolonged Mrs. Lobsiger’s wait for her
$ 1,250 by five weeks before the FDIC was
able to return the badly needed money. While
Mrs. Lobsiger’s $1,250 may seem a small
sum today, 60 years ago it was half of the
$2,500 insurance limit. It was all she had.
Much has changed since Mrs. Lobsiger received
that first check when the FDIC was just six
months old. Today, when a bank closes, the
FDIC is immediately appointed receiver and
depositors receive their funds with little or
no delay. The FDIC now insures deposits
for up to $100,000, which is 40 times the
original limit.
In the early years of the FDIC, as the nation’s
economy continued to struggle, banks continued
to fail. In its first decade, the FDIC handled




The FDIC handled its first comparatively
large failures in the early 1970s, as banking
became increasingly competitive and the
economic environment became less stable.
The mid-70s saw an increase in the number of
bank failures following the OPEC oil embargo
of 1973 and the recession of 1973-75. Thirteen
banks were closed in 1975 because of financial
difficulties, the first time since World War II
that the annual bank failure count reached
double digits.
As bank troubles grew throughout the 1980s,
the FDIC met its most severe test since the
1930s. From 1977 through 1981, a total of
43 banks were closed because of financial
difficulties — about eight per year. For 1982
alone, the figure jum ped to 42. From 1982
to 1988, a total of 811 banks failed, an average
of 116 a year. The boom-bust cycle o f three
economic sectors — agriculture, energy and
real estate — contributed largely to the collapse
of these institutions.
The next wave of difficulties after the oil
crisis and recession of the ’70s hit the heart­
land of America. Agricultural banks began
to have problems by 1984, as the value of
farmers’ land — their main asset — plunged.
Farm debt had doubled between 1976 and
1981, and interest rates spiraled upward,
imposing higher debt servicing requirements
on farmers. Those banks in which agricultural
loans amounted to 25 percent or more of total
loans experienced large loan losses, and many
began to fail as farmers who had used rising

real estate values to finance operations had
trouble repaying loans. Between 1982 and
the end of 1988, a total 245 agricultural
banks failed.
At just about the same time, problems began in
the "oil-patch" states. The possibility of everincreasing oil prices implied strong economic
growth for energy-related industries. Many
banks had increased lending to businesses that
stood to benefit from these trends, principally
oil and gas producers, construction firms, and
real estate developers. These banks were
caught short after oil prices, which peaked in
1981, began falling.
Energy-related lending and the difficulties it
encountered contributed to the collapse of a
nationwide real-estate boom. The problems
began in Texas and spread to other "oil-patch"
states, and included Alaska and Colorado.
A total of 566 non-agricultural banks failed
between 1982 and 1988.

Failures Today
In the late ’80s, real estate problems began
to develop outside of the energy states — in
the Northeast, Southeast and, to some extent,
California. In a four-year span covering
1989-92, a total o f 618 banks failed due to a
variety of factors. Since then, the failure rate
has dropped off considerably. Forty-one
banks failed in 1993, and in 1994, only 13
banks failed — a 14-year low. Eight of the
13 failures were small institutions in California,
four were in the Northeast and none were in
the "oil-patch" states.
Throughout its 60-year history of insuring
deposits, the FDIC, which began as a tempo­
rary agency, has proved its value by protecting
depositors at 2,069 insured banks that have
failed, and 80 others that received assistance
from the FDIC to keep them from closing.
The FDIC remains today the symbol of
banking confidence.




1 9

9 4

A sset
Disposition
Affordable Housing

The FDIC’s ability to provide incentives for
healthy institutions to assume deposits and
purchase assets o f failed banks allows a
significant portion of assets to be returned to
the private sector immediately. The remaining
assets are retained by the FDIC for later sale,
loan workouts or other disposition. The Divi­
sion of Depositor and Asset Services (DAS)
is responsible for this function. During 1994,
DAS successfully settled, sold or otherwise
resolved a significant portion o f its asset
inventory from failed institutions, as follows:
•

•

36

Under the FDIC’s Affordable Housing Program,
created by a 1991 law, single-family properties
have been sold successfully to qualified buyers
in need of affordable housing. The program
provides assistance in the form of credits or
grants to low- and moderate-income house­
holds to buy eligible homes from the FDIC’s
inventory. The credits or grants can be used
to pay for closing costs, down-paym ent
assistance or discounts in a way that provides
the most benefit to the purchaser.

The book value of assets in liquidation was
reduced about 40 percent during the year,
to $16.7 billion from $28 billion. Gross
collections totaled about $8.9 billion.

With a congressional appropriation of $7 million
for fiscal year 1994, the qualified buyers were
assisted with the purchase of 681 one-to-four
family properties. In addition, the program
sold 10 multi-family properties, consisting of
286 units, to non-profit organizations and public
agencies that provide rental housing to low-income households. Notable transactions include:

5,319 real estate properties, which were
sold for a total of $1.2 billion, yielded
a recovery of 91 percent of the average
appraised value.
DAS sold $762 million of performing
commercial mortgage loans through
securitization. The FDIC provided purchas­
ers a partial guaranty backed by the Bank
Insurance Fund (BIF) to cover credit losses.
Net cash proceeds, after expenses, were
$746 million or 98 percent of book value.

The donation of a six-unit apartment build­
ing in Kansas City, MO, to a non-profit
group for rehabilitation and use as transitional
housing for homeless people or permanent
housing for low-income senior citizens.
The gift of a single-family property in
Atlanta, Georgia, to Habitat for Humanity,
which will house out-of-state volunteers
working on the construction of 100 homes
in the Atlanta area. After the work is com­
pleted, the property will be rehabilitated
and sold to a low-income household.

Over 63,780 loans and other assets, totaling
$4.6 billion in book value, were sold in
sealed bid offerings and other asset market­
ing events. Net sales proceeds represented
101 percent of the appraised value.

I i(|ui(i;ilii)ii Highlights
1<W2-1‘W 4
(D o llars in Billions)

1994
1993

1992 0®^;

$

13
41

120

gl

- \

Total
Collections^

Assets of
Failed Banks*

Total
Failed Banks*

1.4
3.5

44.2

$
.

g '

‘

&

H

Total Assets in
Liquidation (year-end)+
$

8.9
12.9

|

15.1 f a —

16.7
28.0 |

4 3 .3 ■

•Excludes open bank assistance transactions. Th e 1993 items exclude one SAIF-insured failure resolved by the
Resolution Trust Corporation.
+lndudes assets from failed banks and from failed thrifts formerly insured by the Federal Savings and Loan Insurance Corporation.
These assets are serviced by the FD IC as well as by asset management contractors and national servicers.




The FDIC also reached an agreement with
the Resolution Trust Corporation (RTC) to
lay the groundwork for consolidating the two
agencies’ affordable housing programs in
1995. Aspects of this agreement relating to
property marketing and sales already are being
implemented to help the FDIC better reach
eligible buyers. For example, the FDIC began
using RTC underwriters to provide sellerfinancing on single-family properties in the
FDIC’s affordable housing inventory. Also,
to assist low-income households requiring
rental housing, the FDIC began working with
RTC staff to help market eligible multi-family
properties to non-profit organizations and
public agencies under an RTC sales program.

•

Sunshine Development, Inc. v. FDIC
A case clarifying the ability of the FDIC
to foreclose on collateral held by a failed
bank’s borrower who filed bankruptcy.
In this case, the FDIC as liquidating
agent for First Service Bank for Savings,
Leom inister, MA, was granted relief
from the automatic stay by the bankruptcy
court. The FDIC moved to foreclose on
the collateral. On the debtor’s request,
however, the bankruptcy court reimposed
the stay and the district court affirmed.
On appeal, the U.S. Court of Appeals for
the First Circuit ruled that the courts had
no authority to reimpose the bankruptcy
automatic stay because reimposing the
stay would interfere with the FD IC’s
collection on failed bank assets.

•

Connecticut v. FDIC
A case involving a state’s claim that it,
and not the FDIC, was entitled to a failed
bank’s "dormant accounts" (deposit accounts
that had no activity for many years). At
issue were unclaimed deposits at Citytrust
of Bridgeport, CT, which failed in 1991.
The state contended it was entitled to FDIC
insurance coverage on these accounts
based in part on an ownership claim under
Connecticut’s abandoned property law.
In May 1994, the U.S. District Court in
Hartford ruled in favor of the FDIC. The
court found that federal law, which gives
depositors of failed banks 18 months to
claim their funds, pre-empted state law
treatment of abandoned property. The
court also ruled that Connecticut did not
comply with the FDIC’s receivership
claims process. This favorable ruling
was significant for the FDIC because the
agency at year-end faced similar suits by
New York and Massachusetts involving
45 failed banks.

Significant C ou rt Cases
Among its services, the FDIC’s Legal Division
provides legal support to DAS for recovering
and liquidating the assets of failed institutions.
During 1994, the Legal Division handled
several significant cases involving claims
and litigation related to asset disposition,
including:
•

FDIC as Receiver of Merchants Bank
v. Knights Lodging, Inc.
A case upholding the FDIC’s special pow­
ers under the Crime Control Act of 1990
to prohibit people who borrowed from a
failed bank from fraudulently shielding
their assets from the FDIC. In this case,
officials of a hotel franchising business had
pledged stock in their company in order
to receive $28 m illion in loans from
Merchants Bank of Kansas City, MO. After
the bank failed in 1992, these borrowers
fraudulently transferred their company’s
most valuable assets to a successor
company, rendering the FDIC’s collateral
virtually worthless. At the FDIC’s request,
the U.S. District Court in Kansas City
appointed a trustee to take control of both
companies to avoid further dissipation of
the assets while the FDIC seeks recoveries
for the failed bank’s receivership.




A sset Disposition
1934-1994
Before Congress established the FDIC in 1933,
the Comptroller of the Currency was named
receiver for failed national banks and state
banking authorities for failed state banks. But
depositors received their funds slowly and
communities suffered from the rapid disposition
("dumping") of assets of the failed bank. The
FDIC, in contrast, was expected to pay depositors
quickly and without dumping assets.
The sale o f assets from failed banks originally
was handled by the New and Closed Bank
Division. It was renamed the Division of
Liquidation in 1936, and in 1993 it was
renamed the Division of Depositor and Asset
Services (DAS) to reflect its commitment to
serving the public. DAS has operated under
a wide variety o f economic conditions over
the last 60 years, resulting in several different
approaches to asset disposition. The Division
has two basic requirements: to dispose of
assets without upsetting local markets, and
to maximize returns from disposing of closed
institutions’ assets. The factors and methods
used to decide when to hold versus sell assets,
or litigate versus compromise, have evolved
in response to the circumstances of the times.

Changing with the Times
Until the 1970s, banks that failed were generally
small, with under $100 million in assets. Long­
term performing assets were generally retained
by the? FDIC. In the 1970s, with the first large
bank failures (over $100 million in assets)
brought about by the real estate-related reces­
sion, the FDIC began selling those long-term
performing assets, not only because they are the
most marketable type of asset, but also because
the FDIC developed a policy to return assets to
the private sector as soon as possible. Moreover,
the FD IC’s investment portfolio was intended
to be limited to U.S. Treasury securities.
To further these goals, the Division contracted
with a third-party national mortgage servicer
in 1984 to handle performing residential mort­
gage loans from failed banks in 1981-1983.
In 1985, the vast majority of those performing




mortgage loans were sold in a private sale and
obtained a 15-20 percent higher recovery than
for similar loans that the FDIC serviced directly.
This philosophy continued in the '90s as the
FDIC held bulk sales of performing residential
and commercial mortgage loans, including
the FDIC’s first public securitization sale of
$762 million in performing commercial real
estate loans in 1994. In 1992, the FDIC also
contracted with an outside servicer to handle
the sale of nonperforming small loans (under
$50,000 in size) and performing consumer
loans. The vast majority of those assets were
disposed of in bulk sales within 18 months.
Nonperforming loans and foreclosed real
estate owned (REO) held prior to the mid-1980s
generally have been managed by FDIC person­
nel located in field offices. Reflecting the
workload over several decades, the Division’s
personnel levels have fluctuated from year to
year, from a post-Depression high of 1,600
in 1942 to a staff of about 30 in the post-war
early 1950s, to more than 6,600 in 1993.
Before 1983, the FDIC managed the asset
disposition process from Washington, with
individual field liquidation sites established
in areas experiencing the highest number of
failed banks. The sites were kept open as long
as necessary to resolve receiverships. In 1983,
to cope with the highest bank failure rate since
1939, the Division decentralized its manage­
ment and decision-making process, creating
five area offices where liquidation sites could
be consolidated for economies of scale and
faster decision-making in resolving assets.
A sixth area office was opened in 1984 as
failures continued to set records. Additionally,
the FDIC for the first time arranged for problem
assets from a resolution ($5.1 billion acquired
from Continental Illinois National Bank,
Chicago) to be managed by a private institution
rather than be managed directly by the FDIC.
The development of the Liquidation Asset
M anagement Information System (LAMIS),
a computerized system supporting collection
activity, servicing and delinquency analysis,
also improved asset management. A nationwide

automated asset marketing system and investor
profile database were developed to enhance the
FDIC’s ability to sell assets in bulk to specially
targeted markets. Personnel in the field were
given increased delegated authority in order
to expedite the disposition process so that by
1988, only about one percent of all credit
decisions required approval by Washington.

W orkload Increases
By 1987, managing over $11 billion in assets,
the FDIC began to emphasize settlements and
other alternatives over litigation in problem
loan situations. The Division experimented
with public auctions for selling loans and used
national publications to advertise the availabil­
ity of large REO properties for sale. Teams
of asset-marketing specialists were formed to
aggressively seek potential purchasers of loans
and real estate. In 1988, the Division conducted
public auctions of large real estate properties
as well as whole site liquidation sales, resulting
in the closing of two liquidation sites.
In 1989, the influx of assets that came to the
FDIC from the FSLIC as a result of legislation
and from increased bank failures, forced the
FDIC to again reevaluate its liquidation pro­
cesses. The FDIC turned to more third-party
asset managers and formed the Assistance
Transaction Branch, now known as the Contrac­
tor Oversight and Management Branch, to
oversee their disposition efforts. The Division
established specialized REO sales offices and
initiated a telemarketing system to provide
information to investors.
The value o f assets managed by the FDIC
peaked in 1991 at $44.8 billion, with $13.3
billion of the total managed by third-party
contractors. Bulk sales of 143,000 assets
resulted in receipts of $1.5 billion. In December
1991, the FDIC held its first nationwide auction
by satellite of large REO commercial properties,
selling 115 properties for $240 million. In 1992,
over 105,000 loans were sold for $3.3 billion,
and the FDIC held its second national REO
auction, selling 218 properties for $412 million.




Private-Sector Involvement
Since 1991, efforts have focused on keeping
assets in the private sector and providing
loss protection. The FDIC began entering
into loss-sharing arrangements for disposing
of assets in bank failures of over $500 million
in assets, agreeing to cover 80-to-85 percent
of subsequent losses on those assets for three
to five years. Loss-sharing arrangements
provided an incentive for the private sector
to acquire assets at the time of failure, and
acquirers were able to continue meeting the
credit needs o f the borrower, thus addressing
concerns about causing a "credit crunch."
Recoveries also were shared with the FDIC.
Loss-sharing agreements to date have kept
$18.5 billion in assets in the private sector.
During 1993, a total of 136,000 loans were
sold for $3.3 billion. The first two bulk sales
of nonperforming commercial real estate loans
were conducted on a pilot basis. Traditionally
the FDIC disposed o f nonperforming loans
through restructuring, workouts, compromise
or litigation. The Division initiated its smallasset sales policy in an effort to free up staff
to focus on the larger nonperforming loans
where the bulk of the Division’s loss exposure
exists. Small assets, previously defined as
under $25,000, were redefined as those under
$250,000. The disposition policy was to sell
those small nonperforming assets within nine
months of acquisition. A t that time, approxi­
mately 82 percent of the loans fell within this
category; yet they constituted only 17 percent
of the dollar exposure to the Corporation.
The Division has moved and continues to move
toward consolidating field sites into five area
service centers as well as downsizing its staff
as the workload decreases.
The FDIC’s philosophy and approach to asset
disposition have evolved since its inception,
balancing its goals to maximize returns to
the receiverships and the insurance funds, and
minimize expenses, while at the same time
serving the needs of its customers and the
public.

1 9

9 4

Internal
Operations
Throughout the FDIC, staff efforts have
focused on planning for change and
implementing new initiatives that affect
how the agency does business.

The most recent reductions at the FDIC are due
primarily to the improved health of the banking
industry and the subsequent sharp decline in
the number of bank failures. The Division of
Depositor and Asset Services (DAS), which is
responsible for most of the agency’s work in
liquidating failed bank assets, reduced its staff
by one-third. DAS had 3,796 permanent
employees at year-end 1994, compared to 5,664
a year earlier. Also, 4,874 temporary liquida­
tion-graded employees in the Southeast,
Southwest, Western and Northeastern Service
Center regions competed through a negotiated
selection procedure for 3,300 temporary jobs
to extend beyond January 1995. DAS also re­
duced the number of field locations to 10 from
19 at year-end 1993.

Issues that predominated in 1994 included
the downsizing of offices due to a decreased
workload from bank failures, and the transfer
to the FDIC of Resolution Trust Corporation
(RTC) operations and personnel.
In November, Leslie W oolley was appointed
Deputy to the Chairman for Policy. This new
position was established to focus on external
policy matters relating to Congress, the
banking com m unity and the general public.

D o w nsizin g

40

To reduce excess staffing of permanent em­
ployees and to trim relocation costs, a buyout
was offered to targeted groups of employees
corporate-wide in late summer. Seventy-two
FDIC employees accepted the offer, including
47 who otherwise would have been relocated.
The average cost of the buyout was about half
the average relocation costs to the Corporation.

Nationwide employment at the FDIC decreased
18 percent during the year, to 11,627. RTC
staffing declined by 13 percent, to 5,899.
FDIC staffing has been on the decline after
reaching a historical high o f 15,585 in the
second quarter o f 1993.
N u m b e r of Officials and l-.mplot ees of the F D I C
1993 - 1994 (Y e a r-e n d )

W ashington

Total

Reglonal/Fleld

1994

Division of Depositor and Asset Services
Legal Division
Division of Compliance and Consumer Affairs*
Division of Finance
Division of Information Resources Management

1994

1993

1994

178

217

9

3,971

169
159
79

186

3,369
3,796

Executive Offices**
Division of Supervision*

1993

1,531
OQQ
■■■■■■
692

5,664
1,994
s m s

548

Division of Research and Statistics

o ess
820
351

60

58
325 M

434
24
311

178
86
459
■ ■ o H
297

ii

1993
31

-3,21
3,717
1,097

■ ■

3,793
5,578 |
1,535

373
381

0
523
0

382
60

351
58

166
0

74

69

179

0
256
20

Division of Resolutions

253 ■ ■ ■

Office of Inspector General

192

195

192

175

0

Office of Personnel Management

196

220

185

214

11

31

39

31

i 383
11,627

14,219

Office o f M f e l ■ ■ r t u n i M M M M . 1 :
Office of Corporate Services
! S U M
S
Subtotal, FDIC
Resolution Trust Corporation
Total

H

365

■

39 H
216

- ‘ "'209 M M
2,309
2,328

0

■ ■ ■

6
0 ■

174

149

9,316

11,891

5,899

6,775

1,649

1,576

4,250

5,199

17,526

20,994

3,958

3,904

13,568

17,090

'Executive Offices include the Offices of the Chairman, Vice Chairman, Director (Appointive), Executive Secretary, Corporate
Communications, Legislative Affairs, and Training and Educational Services. Th e 1993 total includes the Office of Consumer Affairs.
+ In August 1994, the FDIC announced the merger of the former Office of Consumer Affairs and the compliance examination function
from the Division of Supervision into a new Division of Compliance and Consumer Affairs.




Assistance in this downsizing effort was
provided by the Office of Corporate Services
(primarily involving the closing of DAS field
offices and the consolidation of personnel into
five regional Service Centers) and the Office
of Training and Educational Services (which
offered nearly 300 classes on topics like career
planning, job searches and stress management
for liquidation staff and attorneys).
As a result of efforts to streamline, consolidate
and reduce its operations, the FDIC was able
to cut spending by nine percent below its 1994
budget. The agency spent $1.78 billion for
salaries, outside contracting, facilities, travel
and other expenses for such activities as
examining banks and thrifts, enforcing banking
laws, insuring deposits and liquidating failed
banks. This compares to the approved budget
of $1.95 billion.
Looking ahead to continued downsizing, the
FDIC Board in December approved a 1995
budget of $1.49 billion, or 16 percent below
1994 spending levels.
In a related development, the FDIC and the
National Treasury Employees Union (NTEU)
created a joint Senior Executive Council that
negotiated issues regarding pay and benefits,
downsizing, and other matters. The NTEU
represents approximately 56 percent of FDIC
employees nationwide.

FD IC -R T C Transition
The FDIC and RTC made significant progress
in planning for the return of RTC employees
to the FDIC. This is related to the transfer of
RTC operations and employees by year-end
1995, as mandated by a 1993 law.
Transition leaders at the two agencies estab­
lished jo in t com m ittees, task forces and
working groups that gave FDIC and RTC
representatives equal responsibility in the
development of transition strategies. The FDIC
also continued to accept available permanent
employees of the RTC as vacancies occurred.




A total of 132 permanent employees of the
RTC returned to the FDIC during the year.
Each placement was coordinated to ensure
that ongoing needs o f the RTC were
addressed. Also, a freeze on permanent
hiring that began at the FDIC in 1992
remained in effect in 1994 to make room
for personnel returning from the RTC. At
year-end 1994, there were 1,428 perm anent
RTC employees, down from 1,615 at yearend 1993.

M inority- and
W om en-O w ned Businesses
The FDIC continued its work with minorityand women-owned businesses (MWOBs).
These efforts included the awarding of contracts
to MWOBs for a variety of goods and services,
and the use of minority- and women-owned
law firms as outside counsel.
As a result of national and regional outreach
efforts, the FDIC achieved considerable
success in awarding contracts to MWOBs
in 1994.
O f the more than 31,000 FDIC contracts
awarded during the year in areas other than
legal affairs, MWOBs received 9,489 (about
30 percent of the total) valued at about
$74.3 million (about 26 percent of the total
dollar amount). Even while FDIC office
closings and the trend toward doing more
work in-house reduced the number of all
such contracts awarded in 1994 compared
to 1993, the agency increased the total
dollar share of those awarded to MWOBs
by three percent.
Regarding the use o f outside legal counsel,
the FDIC increased the percentage of fees
and expenses paid to minority- and womenowned law firms to 22.2 percent, from
15 percent in 1993. That represents an
increase o f $1.4 m illion, to a total of
$17.8 million, even while total expenses
for outside counsel costs decreased by
$25.4 million.

The FDIC also provides training and technical
assistance to expand and preserve minorityowned banking institutions. In 1994, the
FDIC provided guidance in areas such as
financial reports, consumer affairs, civil rights
and accounting. The FDIC also designated
Minority Banking Coordinators to participate
in an array of activities, including guidance
to minorities regarding the acquisition of
financial institutions.

Training Initiatives
The Office of Training and Educational Services
began a "Management Excellence Program,"
announced in 1993, that changes the way
hundreds of FDIC managers share ideas and
information, and helps them be more effective
managers.
The program provides training in 20 success
factors specially designed for the FDIC. Each
participant is evaluated by supervisors and
subordinate based on these 20 factors. The
program also prom otes cross-divisional
discussions that resulted in several innovations.
A total of 355 FDIC officials received this
training in 1994, and another 800 are expected
to participate in 1995.
Separately, the FDIC updated the training
and performance evaluation procedures for its
examiners, and created a committee to guide
future initiatives in examiner training and
performance.







Regulations
and
Legislation




Final
Rules
Mutual-to-Stock Conversions

Real Estate Appraisals

The FDIC amended Parts 303 and 333 of its
regulations to address concerns about some
aspects of mutual savings banks’ conversions
to stock ownership. Under the new rule, the
FDIC requires advance notice of an institution’s
conversion plans and will object to the proposed
conversion if it raises concerns about safety
and soundness, violations of law, or possible
breaches of fiduciary duty. The new rule,
which includes elements of an interim rule
adopted in February 1995, also adds investor
protections and allows for preferences to local
depositors. Effective January 1, 1995.

The FDIC, along with the other federal bank
and thrift regulators, agreed to amendments
to its rules on real estate appraisals that are
intended to reduce costs and encourage lending
without diminishing safe and sound banking
practices. Included in the revised Part 323
are provisions that increase the threshold to
$250,000 from $100,000 for loans that: require
a real estate appraisal by a certified or licensed
appraiser; exempt from appraisal requirements
business loans of $ 1 million or less where the
sale of, or rental income derived from, real
estate is not the primary source of repayment;
expand and clarify other exemptions from
appraisal requirements; and reduce and simplify
the standards for conducting appraisals.
Effective June 7, 1994.

Approved:

November 22, 1994

Published:

Federal Register
November 30, 1994

Approved:

May 3, 1994

Published:

Federal Register
June 7, 1994

Collection of Assessments
The FDIC amended Part 327 of its regulations
to provide for the quarterly collection of deposit
insurance premiums by direct debit through
the Automated Clearing House network. Under
the amendments, effective April 1, 1995, the
FDIC will calculate the quarterly amount due
from each institution based on data provided
by the institution in its most recent Report of
Condition. The rule will ease the burden on
institutions and improve the efficiency of the
collection process. The assessments regulation
also included an amendment clarifying the
obligation of acquiring institutions to pay
assessments from institutions that terminate
their insured status.
Approved:
Published:




December 20, 1994
Federal Register
December 29, 1994

Multifamily Housing Loans
The FDIC adopted changes to the agency’s
risk-based capital standards (Part 325) that are
intended to facilitate prudent lending for multi­
family housing. This rule implements Section
618(b) of the Resolution Trust Corporation
Refinancing, Restructuring and Improvement
Act of 1991. The rule lowers to 50 percent from
100 percent the "risk weight" accorded loans
secured by multifamily residential properties
that meet certain criteria as well as securities
collateralized by such loans. The rule also
addresses the treatment of loss-sharing arrange­
ments on sales of multifamily housing loans.
Effective January 27, 1994.
Approved:

December 14, 1993

Published:

Federal Register
January 27, 1994

Branch Relocations
The FDIC amended Part 303 of its regulations
to define the term "branch relocation" for pur­
poses of application and publication require­
ments. The amendment defines a branch
relocation in the same terms as the FDIC’s
policy statement on branch closings and reduces
the number of times a relocation application
must be published in a general circulation news­
paper. In the new definition, the term applies
only to the moving of a branch to another site
in the immediate community. A relocation
outside the immediate comm unity will be
treated as a separate branch closing and
request to establish a new branch. Automated
teller machines are not affected by this rule.
Effective March 2, 1994.
Approved:

January 24, 1994

Published:

Federal Register
January 31, 1994

Remote Service Facilities
The FDIC adopted an amendment to Part 303
of its regulations, which relates to applications
and publication requirements to establish or
relocate remote service facilities. The intended
effect of the amendment is to lessen the regula­
tory burden on state nonmember banks by
reducing the number of days an institution
must wait for approval of its application and
by eliminating, in most cases, the need to pub­
lish notice of the application. To utilize these
expedited procedures, the bank’s Community
Reinvestment Act (CRA) rating must be at
least "Satisfactory," and there can be no pro­
tests to the application on file with the FDIC.
Approved:

August 9, 1994

Published:

Federal Register
August 23, 1994




Depository Institution
Investment Contracts
The FDIC amended Part 327 of its regulations
governing computation of the base on which
deposit insurance premiums are assessed.
Under the rule, certain liabilities under deposi­
tory institution investment contracts, including
Bank Investment Contracts or "BICs," are
excluded from the base, thereby reducing
assessment payments for affected institutions.
Effective July 11, 1994.
Approved:

May 24, 1994

Published:

Federal Register
June 9, 1994

Foreign Banks
The FDIC implemented Section 202(a) of
the Federal Deposit Insurance Corporation
Improvement Act of 1991 by requiring foreign
banks, with certain exceptions, to obtain ap­
proval from the FDIC and the Federal Reserve
Board for an insured state branch to engage in
or continue an activity that is not permissible
for a federally licensed branch of a foreign
bank. The amendment to Part 346 also provides
guidelines for an insured branch that is
required to divest or cease an activity.
Approved:
Published:

November 22, 1994
Federal Register
November 28, 1994

Unsafe and Unsound Banking Practices
The FDIC amended Section 337.3 of its regu­
lations to except loans that are fully secured
by certain types of collateral from the general
limit on "other purpose" loans to executive
officers of insured nonmember banks.
Approved:

December 20, 1994

Published:

Federal Register
December 28, 1994

Concentrations of Credit
and Nontraditional Activities
The FDIC amended Part 325 of its regulations
to identify two types of risks — from concen­
trations of credit and from nontraditional activ­
ities — as important factors in assessing an
institution’s overall capital adequacy. No math­
ematical formulas or explicit capital requirements
were adopted; rather, a case-by-case approach
will be used. Effective January 17, 1995.
Approved:

August 9, 1994

Published:

Federal Register
December 15, 1994

Bilateral Netting
The FDIC amended its risk-based capital stan­
dards (Part 325) to recognize the risk-reducing
benefits of qualifying bilateral netting contracts,
implementing a recent revision to the Basle
Accord signed by bank supervisors worldwide.
Under the rule, state nonmember banks may
net positive and negative mark-to-market
values of interest and exchange rate contracts
in determining the current exposure portion of
the credit equivalent amount of such contracts
to be included in risk-weighted assets.
Approved:

December 20, 1994

Published:

Federal Register
December 28, 1994

Merger Applications
The FDIC amended Part 303 of its regulations
for publishing notice of an application under
the Bank Merger Act. The revised regulation
requires applicants to publish only twice during
the statutory 10-day period, and in non-emergency situations publication is required only
three times at two-week intervals. The regula­
tion also clarifies the rules on the public comment
period. Effective December 28, 1994.
Approved:
Published:

December 20, 1994
Federal Register
December 28, 1994

Securities of Nonmember Insured Banks
Section 12(i) of the Securities Exchange Act
of 1934 requires that the FDIC issue regulations
similar to those of the Securities and Exchange
Commission or publish its reasons for not
doing so. The SEC has amended its Exchange
Act regulations relating to small-business
initiatives, executive compensation disclosure,
and regulation of communications among
shareholders. The FDIC amended Part 335
of its regulations to incorporate those changes.
Approved:

December 20, 1994

Published:

Federal Register
December 29, 1994




Delegations of Authority
The FDIC adopted amendments to Parts 303
and 338 of its regulations concerning delega­
tions of authority and other technical amend­
ments to reflect the duties and powers of the
FDIC’s new Division of Compliance and
Consumer Affairs. The new Division was
created by combining the FDIC’s Office of
Consumer Affairs and the compliance unit of
the Division of Supervision. The amendments
provide officials of the new division with
appropriate delegated authority and make
other technical and conforming changes.
Approved:
Published:

September 27, 1994
Federal Register
October 19, 1994

Proposed
Rules
Community Reinvestment Act

M anagement Official Interlocks

The FDIC, the Federal Reserve Board, the
Office of the Comptroller of the Currency
and the Office of Thrift Supervision agreed
to seek public comment on a revised proposal
to change the way institutions are evaluated
under the Community Reinvestment Act
(CRA). This proposed amendment to Part 345
modifies one issued in December 1993. The
revised proposal would provide guidance to
financial institutions on the nature and extent
of their CRA obligation, and the methods of
performance assessment and enforcement.
The proposed procedures seek to emphasize
performance, promote consistency in assess­
ments and reduce unnecessary compliance
burdens.

The FDIC issued proposed exemptions from
Part 348 of its regulation prohibiting manage­
ment official interlocks. The amendment
would provide an exemption from the general
prohibition against any management interlock
between two depository institutions, depository
holding companies or their affiliates located in
a relevant metropolitan statistical area (RMSA)
or other community if their combined share of
the total deposits in the RMSA or community
is under 20 percent.

Approved:

Federal Register
October 7, 1994

February 22, 1994

Published:

Federal Register
April 20, 1994

September 26, 1994

Published:

Approved:

Derivatives and Other
Off-Balance-Sheet Contracts
The FDIC issued proposed changes to its riskbased capital standards (Part 325) that would
expand the factors used in calculating an
institution’s future exposure from derivatives
and other off-balance-sheet contracts. In addi­
tion, under the proposal, institutions would be
permitted to recognize a reduction in potential
future exposure for transactions subject to
qualifying bilateral netting arrangements.
Approved:

September 27, 1994

Published:

Federal Register
October 19, 1994




Risk-Based Capital
The FDIC, along with the Office of the Comp­
troller of the Currency, the Federal Reserve
Board and the Office of Thrift Supervision,
issued a joint proposal for changes regarding
risk-based capital (Part 325). The proposed
rule would limit the amount of risk-based
capital for "recourse arrangements" and "direct
credit substitutes" where the maximum expo­
sure is contractually less than the risk-based
charge. The proposal would also require
the same risk-based capital treatm ent for
recourse arrangements and certain direct credit
substitutes that present equivalent risk. Along
with its proposal, the Board also issued an
Advance Notice of Proposed Rulemaking
(For more details, see Page 50).
Approved:

April 12, 1994

Published:

Federal Register
May 25, 1994

Ethical Standards

Contractor Conflicts of Interest

The FDIC proposed to issue regulations (Part
336) for its employees that would supplement
the Standards of Ethical Conduct for Employ­
ees of the Executive Branch issued by the
Office of Government Ethics. The proposed
rule would expand: prohibitions on borrowing
and extensions of credit; prohibitions on the
ownership of certain financial interests; prohi­
bitions on the purchase of property controlled
by the FDIC or Resolution Trust Corporation;
limitations on dealings with former employers
and clients; disqualification requirements
relating to employment of family members
outside the Corporation; and limitations on
outside employment activities.

The FDIC proposed adoption of a new regula­
tion, Part 366, that would implement provisions
of the Resolution Trust Corporation Completion
Act (the Completion Act). The Completion
Act amended section 12 of the Federal Deposit
Insurance Act to prohibit certain persons and
companies from entering into contracts or
providing services to the FDIC and directed
the FDIC to prescribe regulations for those who
enter into contracts with the FDIC governing
conflicts of interest, ethical responsibilities,
and the use of confidential information.

Approved:

June 14, 1994

Published:

Federal Register
July 12, 1994

Uniform Rules of Practice and Procedure
The FDIC proposed to amend a provision of
the Uniform Rules of Practice and Procedure
(Part 308) pertaining to ex parte contracts.
The proposal is intended to clarify that the rules
relating to ex parte communications conform
to the requirements of the Administrative
Procedure Act. In particular, the proposed
amendment would clarify that the ex parte
provisions apply to communications between
interested persons "outside the agency" and
the agency head rather than to intra-agency
communications which are governed by
a different provision of the APA requiring
a separation of functions within the agency.
Approved:
Published:




November 22, 1994
Federal Register
November 29, 1994

Approved:

June 14, 1994

Published:

Federal Register
June 24, 1994

7 9 9 4

A dvanced
Notice o f
Proposed
Rulem aking
Assessments

Risk-Based Capital

The FDIC approved the publication of an
advance notice of proposed rulemaking to
Part 327 to solicit comments on whether the
deposit insurance assessment base should be
redefined and, if so, how. Because of recent
changes in the law and other developments,
the FDIC believes that it is desirable to review
whether the assessm ent base definition,
substantially the same since 1935, should be
revised. The FDIC will consider the comments
received to determine whether to propose
specific changes for additional public comment.

In conjunction with a proposed rule issued on
risk-based capital for recourse arrangements
(see Page 48), the FDIC Board of Directors
issued an advance notice of proposed rulemak­
ing on the possible use of private-sector credit
ratings when assigning risk weights for certain
securitizations under Part 325.

Approved:

September 27, 1994

Published:

Federal Register
October 5, 1994

50




Approved:

April 12, 1994

Published:

Federal Register
May 25, 1994

1 9

9 4

Other
A ctio n s
Rapid Growth

Conflicts of Interest

The FDIC rescinded Section 304.6 of its regu­
lations, which required insured banks, with the
exception of so-called "bankers’ banks," to
give notice to the FDIC of any planned rapid
growth through the solicitation of fully insured
deposits obtained through brokers or affiliates.
Also deleted are the section's requirements
for advance notice before soliciting fully insured
deposits outside a bank’s normal trade area,
or secured borrowings, including repurchase
agreements. The change is intended to lessen
the regulatory burden on banks, which are also
required to comply with other rules that address
risks resulting from rapid growth.

The FDIC withdrew a proposed rule to Part 356
governing business dealings other than exten­
sions of credit between an insured nonmember
bank and its directors, executive officers,
principal shareholders and related interests.
Several factors led to the withdrawal of the
proposed rule, including an intervening federal
statute (the FDIC Improvement Act of 1991)
and its required regulations that address many
of the concerns contained in the proposal. The
Board may revisit the issue at a later date if
necessary.

September 27, 1994

Published:

Federal Register
October 6, 1994

Capital Maintenance — FASB 115
The FDIC decided not to proceed with a
proposal to include net unrealized holding
gains (losses) on available-for-sale securities
in Tier 1 capital. Instead, the FDIC adopted
only technical wording changes to conform
the language in its leverage and risk-based
capital standards to the terminology used in
the Financial Accounting Standards Board’s
(FASB) Statement of Financial Accounting
Standards No. 115. For regulatory capital
purposes, this rule continues to require net
unrealized holding losses on available-for-sale
equity securities with readily determinable
fair values to be deducted in determining the
amount of Tier 1 capital. All other net unreal­
ized holding gains (losses) on available-for-sale
securities are excluded from the definition
of Tier 1 capital.
Approved:
Published:




December 20, 1994
Federal Register
December, 28, 1994

December 20, 1994

Published:
Approved:

Approved:

Federal Register
December 28, 1994

1 9

9 4

Significant
Legislation
Enacted
Three bills of significance to the FDIC were
enacted during 1994 — two added to the
authorities of banking institutions and one
provided funding for certain FDIC activities.
The agency’s Office of Legislative Affairs, in
conjunction with other FDIC Divisions and
Offices, worked with the FDIC’s leadership
and with Congress in the development of these
new statutes and on other legislation affecting
the FDIC and the institutions it insures.

•

Call Report Simplification
Requires the federal banking agencies to
adopt a single form for the filing of core
Call Report information and permits the
filing of Call Reports electronically.

•

Regulatory Appeals Process
Directs the federal banking agencies
to establish an internal appeals process
to review material supervisory
determ inations.

Riegle C o m m u n ity Developm ent and
Regulatory Im provem ent A c t o f 1994

•

Agency Ombudsman
Directs the federal banking agencies to
appoint an ombudsman to act as liaison
between the agency and any person
affected by the agency’s regulatory
activities.

•

Alternative Dispute Resolution
Directs the federal banking agencies
to implement a pilot program for using
alternative means to resolve disputes.

•

Holding Company Audit Requirements
Allows certain audit and reporting require­
ments to be satisfied at the holding company
level for certain CAMEL 1- and 2-rated
institutions.

The Riegle Community Development and Reg­
ulatory Improvement Act of 1994 (P.L. 103-325)
was signed into law by President Clinton on
Septem ber 23, 1994. The Act authorizes
funding for community development financial
institutions, provides regulatory and paperwork
relief for financial institutions, encourages
development of secondary markets for loans
to small businesses, revises flood insurance
programs and makes changes to money
laundering reporting requirements.
The following provisions of the Act are likely
to have the greatest impact on the FDIC:
Streamlining of Existing Regulations
Requires the federal banking agencies to
review and eliminate outmoded regulations
and policies within two years.

•

•

Duplicative Filings
Directs the federal banking agencies to
work together to eliminate requests for
duplicative information.

•

•

Coordinated and Unified Examinations
Directs the federal banking agencies to
coordinate their examinations and develop
a system for selecting a lead agency to
m anage unified examinations.

Modification of Regulatory Provisions
Allows the federal banking agencies to
establish safety and soundness standards
relating to operational and managerial
areas, asset quality, earnings and stock
valuation by guideline instead of
regulation.

•

Depository Institution Mergers
Reduces the 30-day post-approval waiting
period for depository institution mergers
and only requires the federal banking
agencies to file a competitive factors
report if the merger raises any competi­
tiveness issues.

•

•

Revised Examination Schedule
Extends examination schedules for small
CAMEL 1- and 2-rated institutions to
every 18 months, from every 12 months.




C ollateralization o f Public D eposits

Prohibits the FDIC from invalidating
collateralization agreements involving
certain public deposits.

Credit Card Accounts Receivables
Allows the FDIC to waive its right to
repudiate an institution’s sale of its credit
card accounts receivables.
Liability on Foreign Deposits
Limits a bank’s liability for deposits in a
foreign branch in cases of war, insurrec­
tion, civil strife or sovereign action by the
country in which the branch is located.
Insider Lending
Eliminates certain restrictions on loans
to an institution’s executive officers and
other insiders.
Revision of Capital Standards
Requires the federal banking agencies
to take into account the size and activities
of an institution in revising its risk-based
capital standards.

•

Money Laundering Schemes
Requires the federal banking agencies
to review and enhance training and
examination procedures to improve the
identification of money laundering
schemes involving depository institutions.

Riegle-Neal Interstate Banking
and Branching Efficiency A c t o f 1994
The Riegle-Neal Interstate Banking and Branch­
ing Efficiency Act of 1994 (P.L. 103-328)
was signed into law by President Clinton
on September 29, 1994. The Act authorizes
interstate banking and branching to U.S. and
foreign banks over a three-year period.
The following provisions of the Act are likely
to have the greatest impact on the FDIC:
•

Management Interlocks
Extends for an additional five years the
"grandfather" period for exceptions to the
general prohibition against management
interlocks.

Interstate Banking
Authorizes a bank holding company
to acquire a bank located in any state
beginning one year after enactment.

•

Interstate Branching
Authorizes an insured bank, beginning
June 1, 1997, to merge across state lines
unless the affected states have "opted out"
of interstate branching by enacting laws
that prohibit interstate branching. Alterna­
tively, states may enact laws permitting
interstate branching prior to June 1, 1997.

•

De Novo Branching
Authorizes an insured bank to establish a
de novo out-of-state branch if the host state
expressly permits interstate branching
through the establishment of de novo
branches.

•

Branching by Foreign Banks
Authorizes foreign banks to branch to
the same extent as U.S. banks.

•

State Cooperative Agreements
Authorizes state bank supervisors to enter
into cooperative agreements to facilitate
state supervision of out-of-state state banks.

Agency Consideration
of Completed Applications
Requires the federal banking agencies to
take final action on completed applications
within a year of receipt.
Data Collection
Directs the FDIC to minimize the burden
on well capitalized institutions in connec­
tion with the collection of deposit data.
Regulations Relating to
Transfers of Assets with Recourse
Requires the banking agencies to review
regulations relating to transfers of assets
with recourse and issue new regulations
that better reflect exposure to credit risk.
Flood Insurance
Requires the federal banking agencies to
examine institutions for compliance with
the national flood insurance program.




State Examination
and Enforcement Authority
Authorizes the state bank supervisor of a
host state to examine and take enforcement
action against a branch operated in the
host state of an out-of-state bank.
Branch Closings in
Interstate Banking Operations
Requires the appropriate federal banking
agency to consult with community
organizations regarding the proposed
closing by an interstate bank of a branch
in a low- or moderate-income area.
Prohibition Against
Deposit Production Offices
Requires the federal banking agencies to
prescribe uniform regulations prohibiting
a bank from engaging in interstate branch­
ing primarily for the purpose of deposit
production.
CRA Evaluation
of Banks with Interstate Branches
Requires the appropriate federal banking
agency to prepare a written evaluation
o f an interstate institution’s overall
Com munity Reinvestm ent Act (CRA)
perform ance and a separate written
evaluation o f the institution’s CRA
perform ance in each state in which it
maintains a branch.
Statute of Limitations
Permits the FDIC and the Resolution
Trust Corporation, as receiver or conser­
vator of a failed depository institution, to
revive claims for intentional misconduct
and fraud that had expired under a state
statute of limitations within five years
of the appointment of the receiver or
conservator.




Appropriations
Congress appropriated funds for specific
activities of the FDIC as part of the Departments
of Veterans Affairs and Housing and Urban
Development and Independent Agencies
Appropriations Act of 1995 (P.L. 103-327).
One such appropriation involves the obligations
of the former Federal Savings and Loan Insur­
ance Corporation (FSLIC). The Financial
Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) created the FSLIC
Resolution Fund (FRF), which is managed
by the FDIC, to assume most of the assets and
liabilities of the FSLIC. In the fiscal year 1995
appropriation, Congress appropriated $827
million, available to the FDIC as manager of
FRF until the money is expended.
Separately, the Federal Deposit Insurance
Corporation Improvement Act of 1991
(FDICIA) required the FDIC to carry out an
affordable housing program. The 1991 law
also authorized annual appropriations to cover
any losses under the program (but not to exceed
$30 million in any fiscal year) and for any
other costs of the program. For fiscal year 1995,
Congress appropriated $15 million to pay for
any losses resulting from the sale of properties
under the program and for all administrative
and holding costs.




Financial
Statements




Bank Insurance Fund

Federal Deposit Insurance Corporation
1 Bank Insurance Fund Statements of Income and the Fund Balance
For the Year Ended
December 31

Dollars in Thousands
1994

1993

$ 5,590,644

$ 5,784,277

Interest on U.S. Treasury obligations

521,473

165,130

Revenue from corporate-owned assets

140,821

258,858

Other revenue

214,086

222,536

6,467,024

6,430,801

423,196

388,464

Revenue
Assessments (Note 11)

Total Revenue
Expenses and Losses
Operating expenses
Provision for insurance losses (Note 10)

(2,873,419)

(7,677,400)

137,632

Interest and other insurance expenses (Note 12)

190,641

53,493

Corporate-owned asset expenses

306,861

Total Expenses and Losses

(2,259,098)

(6,791,434)

Net Income

8,726,122

13,222,235

13,121,660

(100,575)

Fund Balance (Deficit) - Beginning
Fund Balance - Ending

$21,847,782

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




$13,121,660

Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Financial Position
December 31

Dollars in Thousands
1994

1993

Assets
Cash and cash equivalents (Note 3)

$ 1,621,456

$

483,239

12,896,856

5,308,476

260,702

80,776

8,327,517

13,220,628

Investment in corporate-owned assets, net (Note 6)

242,628

726,584

Property and buildings, net (Note 7)

155,079

158,418

$23,504,238

$ 19,978,121

$

$

Investment in U.S. Treasury obligations, net (Note 4)
Interest receivable on investments and other assets
Receivables from bank resolutions, net (Note 5)

Total Assets
Liabilities and the Fund Balance
Accounts payable and other liabilities

393,222

191,831

81,945

3,345,736

Anticipated failure of insured institutions

875,000

2,972,000

Assistance agreements

163,164

326,383

Asset securitization guarantee

128,417

0

Litigation losses

14,708

20,511

Total Liabilities

1,656,456

6,856,461

Liabilities incurred from bank resolutions (Note 8)
Estimated Liabilities for: (Note 9)

Commitments and contingencies (Notes 15 and 16)
21,847,782

13,121,660

$23,504,238

$ 19,978,121

Fund Balance
Total Liabilities and the Fund Balance

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




B ank Insurance Fund

Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Cash Flows
Dollars in Thousands

For the Year Ended
December 31
1994

1993

$ 5,709,912

$ 5,789,779

458,606

160,697

5,355,542

8,739,202

694,401

1,241,305

18,433

32,927

Cash Flows from Operating Activities
Cash provided from:
Assessments
Interest on U.S. Treasury obligations
Recoveries from bank resolutions
Recoveries from corporate-owned assets
Miscellaneous receipts
Cash used for:
Operating expenses
Interest paid on liabilities incurred from bank resolutions
Disbursements for bank resolutions
Disbursements for corporate-owned assets
Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 19)

(451,961)

(538,081)

0

(169,872)

(2,796,204)

(4,198,035)

(173,601)

(368,564)

(45,386)

(15,779)

8,769,742

10,673,579

800,000

1,700,000

Cash Flows from Investing Activities
Cash provided from:
Maturity of U.S. Treasury obligations
Cash used for:
Purchase of U.S. Treasury obligations
Net Cash Used by Investing Activities

(8,431,525)

(5,322,969)

(7,631,525)

(3,622,969)

0

(10,160,000)

0

(10,160,000)

1,138,217

(3,109,390)

Cash Flows from Financing Activities
Cash used for:
Repayments of Federal Financing Bank borrowings
Net Cash Used by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
The accompanying notes are an integral part of these financial statements.




3,592,629

483,239
$ 1,621,456

$

483,239

Notes to Financial Statements
Bank Insurance Fund
December 31, 1994 and 1993

1. Legislative History and O perations of the Bank Insurance Fund
Legislative History
The U.S. Congress created the Federal Deposit
Insurance Corporation (FDIC) through enactment
o f the Banking Act o f 1933. The FDIC was
created to restore and maintain public confidence
in the nation's banking system.
M ore recently, the Financial Institutions Reform,
Recovery, and Enforcement Act o f 1989
(FIRREA) was enacted to reform , recapitalize and
consolidate the federal deposit insurance system.
The FIRREA created the Bank Insurance Fund
(BIF), the Savings Association Insurance Fund
(SAIF) and the FSLIC Resolution Fund (FR F). It
also designated the FDIC as the administrator of
these three funds.
The BIF insures the deposits o f all BIF-member
institutions (normally commercial or savings
banks) and the SAIF insures the deposits o f all
SAIF-member institutions (normally thrifts). The
FRF is responsible for winding up the affairs of
the form er Federal Savings and Loan Insurance
Corporation (FSLIC). All three funds are
maintained separately to carry out their respective
mandates.
Other legislation includes the Omnibus Budget
Reconciliation Act o f 1990 (1990 Act) and the
Federal Deposit Insurance Corporation
Improvement Act o f 1991 (FDICIA). These acts
made changes to the F D IC 's assessment authority
(see Note 11) and borrowing authority (see
"Operations o f the BIF" below). The FDICIA also
requires the FDIC to resolve troubled institutions
in a manner that will result in the least possible
cost to the deposit insurance funds and provide a
schedule for bringing the reserves in the insurance
funds to 1.25 percent o f insured deposits.
Operations of the BIF
The prim ary purpose of the BIF is to: 1) insure the
deposits and protect the depositors o f insured




banks and 2) finance the resolution o f failed banks,
including managing and liquidating their assets. In
addition, the FDIC, acting on behalf o f the BIF,
examines state-chartered banks that are not
members o f the Federal Reserve System and
provides and monitors assistance to troubled
banks.
The BIF is funded from the following sources: 1)
BIF-member assessment premiums; 2) interest
earned on investments in U.S. Treasury
obligations; 3) income earned on and ftmds
received from the management and disposition o f
assets acquired from failed banks; and 4) U.S.
Treasury and Federal Financing Bank (FFB)
borrowings.
The 1990 Act established the F D IC 's authority to
borrow working capital from the FFB on behalf of
the BIF and the SAIF. The FDICIA increased the
FD IC 's authority to borrow for insurance losses
from the U.S. Treasury, on behalf o f the BIF and
the SAIF, from $5 billion to $30 billion.
The FDICIA also established a limitation on
obligations that can be incurred by the BIF known
as the maximum obligation limitation (M O L).
Under the M OL, the BIF cannot incur any
additional obligation if its total obligations exceed
the sum of: 1) the B IF's cash and cash
equivalents; 2) the amount equal to 90 percent o f
the fair market value o f the B IF's other assets; and
3) the total amount authorized to be borrowed
from the U.S. Treasury, excluding FFB
borrowings.
For purposes o f calculating the M OL, the FD IC 's
total U.S. Treasury borrowing authority was
allocated between the BIF and the SAIF based
upon the projected borrowing needs o f the
respective funds. Since the SAIF did not have
primary resolution authority for thrifts or projected
borrowing needs as o f December 31, 1994, none
o f the U.S. Treasury borrowing authority was
allocated to the SAIF. At December 31, 1994, the
MOL for the BIF was $51.6 billion.

Bank Insurance Fund

2. Sum m ary of Significant Accounting Policies
General
These financial statements pertain to the financial
position, results o f operations and cash flows of
the BIF and are presented in accordance with
generally accepted accounting principles. These
statements do not include reporting for assets and
liabilities o f closed banks for which the BIF acts as
receiver or liquidating agent. Periodic and final
accountability reports o f the B IF's activities as
receiver or liquidating agent are furnished to
courts, supervisory authorities and others as
required.
U .S. Treasury Obligations
Securities are intended to be held to maturity and
are shown at book value. Book value is the face
value o f securities plus the unamortized premium
or less the unamortized discount. Amortizations
are computed on a daily basis from the date of
acquisition to the date o f maturity. Interest is
calculated on a daily basis and recorded monthly
using the effective interest method.
Allowance for Losses on Receivables from
Bank Resolutions and Investment in
Corporate-Owned Assets
The BIF records as a receivable the amounts
advanced and/or obligations incurred for assisting
and closing banks. The BIF also records as an
asset the amounts advanced for investment in
corporate-owned assets. 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 the
estimated cash recoveries from the assets o f
assisted or failed banks, net o f all estimated
liquidation costs. Estimated cash recoveries also
include dividends and gains on sales from equity
instruments acquired in resolution transactions.
Escrowed Funds from Resolution Transactions
In various resolution transactions, the BIF paid
the acquirer the difference between failed bank
liabilities assumed and assets purchased, plus or
minus any premium or discount. The BIF
considered the amount o f the deduction for assets
purchased to be funds held on behalf o f the
receivership (an obligation). The funds remained
in escrow and accrued interest until such time as
the receivership used the funds to: 1) repurchase
assets under asset putback options;




2) pay preferred and secured claims; 3) pay
receivership expenses; or 4) pay dividends.
The FDIC policy o f holding escrowed funds was
terminated during 1994. The BIF continues to pay
the acquirer the difference between failed bank
liabilities assumed and assets purchased, plus or
minus any premium or discount. The BIF then
pays the receivership for the assets purchased by
the assuming institution, plus or minus the
premium or discount paid.
Litigation Losses
The BIF accrues, as a charge to current period
operations, an estimate o f probable losses from
litigation against the BIF in both its corporate and
receivership capacities. The F D IC 's Legal Division
recommends these estimates on a case-by-case
basis. The litigation loss estimates related to
receiverships are included in the allowance for
losses for receivables from bank resolutions.
Receivership Administration
The FDIC is responsible for controlling and
disposing o f the assets o f failed institutions in an
orderly and efficient manner. The assets, and the
claims against those assets, are accounted for
separately to ensure that liquidation proceeds are
distributed in accordance with applicable laws and
regulations. Also, the income and expenses
attributable to receiverships are accounted for as
transactions o f those receiverships. Liquidation
expenses incurred by the BIF on behalf o f the
receiverships are recovered from those
receiverships.
Cost Allocations Among Funds
Certain operating expenses (including personnel,
administrative and other indirect expenses) not
directly charged to each fund under the FD IC 's
management are allocated on the basis o f the
relative degree to which the operating expenses
were incurred by the funds. The cost o f furniture,
fixtures and equipment purchased by the FDIC on
behalf o f the three funds under its administration is
allocated among these funds on a pro rata basis.
The BIF expenses its share o f these allocated costs
at the time o f acquisition because o f their
immaterial amounts.

Postretirement Benefits Other T han Pensions
The FDIC adopted the requirements of the
Statement o f Financial Accounting Standards
(SFAS) No. 106, "Em ployer's Accounting for
Postretirement Benefits Other Than Pensions" in
1992. This standard mandates the accrual method
o f accounting for postretirement benefits other than
pensions based on actuarially determined costs to
be recognized during employees' years o f active
service. This was a significant change from the
F D IC 's previous policy o f recognizing these costs
in the year the benefits were provided (i.e., the
cash basis).
The FDIC elected to immediately recognize the
accumulated postretirement benefit liability
(transition obligation). The transition obligation
represents that portion o f future retiree benefit
costs related to service already rendered by both
active and retired employees up to the date of
adoption.
The FDIC established an entity to provide the
accounting and administration o f these benefits on
behalf o f the BIF, the SAIF, the FRF and the
Resolution Trust Corporation (RTC). The BIF
funds all o f its liabilities for these benefits directly
to the entity.

Depreciation
The FDIC has designated the BIF administrator
o f facilities owned and used in its operations.
Consequently, the BIF includes the cost o f these
facilities in its financial statements and provides the
necessary funding for them. The BIF charges other
funds sharing the facilities a rental fee representing
an allocated share o f its annual depreciation
expense.
The W ashington, DC 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 straightline basis over a 35-year estimated life.
Related Parties
The nature o f related parties and a description of
related party transactions are disclosed throughout
the financial statements and footnotes.
Reclassifications
Reclassifications have been made in the 1993
financial statements to conform to the presentation
used in 1994.

3. C ash and C ash Equivalents
The BIF considers cash equivalents to be
short-term, highly liquid investments with original
maturities o f three months or less. In 1994, cash
restrictions included $12.3 million for health

insurance payable and $737 thousand for funds
held in trust. In 1993, cash restrictions included
$13.8 million for health insurance payable and
$3.2 million for funds held in trust.

Cash and Cash Equivalents
Dollars in Thousands
Cash
One-day special Treasury certificates

December
1994
$
18,227
$
1,603,229

Total

$ 1,621,456




31
1993
52,999
430,240

$ 483,239

Bank Insurance Fund

1 4. Investm ent in U .S. T reasu ry O bligations
All cash received by the BIF is invested in U.S.
Treasury obligations unless the cash is: 1) used to
defray operating expenses; 2) used for outlays

related to assistance to banks and liquidation
activities; or 3) invested in one-day special
Treasury certificates.

U .S. Treasury Obligations at December 31, 1994
Dollars in Thousands
Maturity
Less than
one year
1-3 years
3-5 years

Description
U.S. Treasury
Notes & Bills
U.S. Treasury
Notes
U.S. Treasuiy
Notes

Yield
at Purchase

Book
Value

Market
Value

Face
Value

4.83%

$ 3,821,758

$ 3,775,131

$ 3,830,000

5.37%

8,034,591

7,763,422

8,000,000

1,040,507

945,562
$12,484,115

$12,830,000

4.72%

$ 12,896,856

Total

1,000,000

U .S. Treasury Obligations at December 31,1993
Dollars in Thousands
Maturity
Less than
one year
1-3 years
3-5 years
Total

Description
U.S. Treasury
Notes
U.S. Treasury
Notes
U.S. Treasury
Notes

Yield
at Purchase
3.38%

Book
Value
$

906,328

Market
Value
$

906,573

Face
Value
$

900,000

4.02%

2,292,267

2,286,586

2,200,000

4.59%

2,109,881
$ 5,308,476

2,091,443
$ 5,284,602

2,000,000
$ 5,100,000

The unamortized premium, net of unamortized discount, for 1994 and 1993 was $66.9 million and
$208.5 million, respectively.




5. Receivables from Bank Resolutions, Net
The FDIC resolution process results in different
types o f transactions depending on the unique facts
and circumstances surrounding each failing or
failed institution. Payments to prevent a failure are
made to operating institutions when cost and other
criteria are met. Such payments may facilitate a
m erger or allow a troubled institution to continue
operations. Payments for institutions that fail are
made to cover insured depositors' claims and
represent a claim against the receivership's assets.

of assets covered by the terms o f the loss-sharing
agreement. The receiver absorbs the majority of
the losses incurred and shares in the acquirer's
future recoveries o f previously charged-off assets.
Failed bank assets can also be retained by the
receiver to either be managed and disposed o f by
in-house FDIC liquidation staff or managed and
liquidated by contracted private-sector servicers
with oversight from the FDIC.

In an effort to maximize the return from the sale or
disposition o f assets and to minimize realized
losses from bank resolutions, the FDIC, as
receiver for failed banks, engages in,a variety of
strategies to dispose o f assets held by the banks at
time o f failure.

As stated in Note 2, the allowance for losses on
receivables from bank resolutions represents the
difference between amounts advanced and/or
obligations incurred and the expected repayment.
This is based upon the estimated cash recoveries
from the management and disposition o f the assets
o f the assisted or failed bank, net o f all estimated
liquidation costs.

A failed bank acquirer can purchase selected assets
at the time o f resolution and assume full
ownership, benefit and risk related to such assets.
In certain cases, the receiver offers a period of
time during which an acquirer can sell assets back
to the receivership at a specified value (i.e., an
asset "putback" option). The receiver can also
enter into a loss-sharing arrangement with an
acquirer whereby, for specified assets and in
accordance with individual contract term s, the two
parties share in credit losses and certain qualifying
expenses. These arrangements typically direct that
the receiver pay to the acquirer a specified
percentage o f the losses triggered by the charge-off

As o f December 31, 1994 and 1993, the BIF, in
its receivership capacity, held assets with a book
value o f $18.3 billion and $30.1 billion,
respectively. The estimated cash recoveries from
the sale o f these assets (excluding cash and
miscellaneous receivables o f $4.2 billion in 1994
and $7.0 billion in 1993) are regularly evaluated,
but remain subject to uncertainties because of
changing economic conditions. These factors could
reduce the claimants' (including the B IF's) actual
recoveries upon the sale o f these assets from the
level o f recoveries currently estimated.




Bank Insurance Fund

Receivables from Bank Resolutions, Net
Dollars in Thousands

December 31
1994

Assets from Open Bank Assistance:
Redeemable preferred stock

$

Subordinated debt instruments
Notes receivable

993,500

1993
$

51,045

22,037

124,000
62,037

29,773

33,593

229,525

180,000

119,500

Other open bank assistance
Deferred settlem ent<)
a
Accrued interest receivable
Allowance for losses (Note 10)

1,865

1,921
(1,155,680)

(215,446)
237,094

240,576
Receivables from Closed Banks:
Loans and related assets
Resolution transactions

1,528,443

Deferred settlem ent(b)

35,158,476
25,000

13,561
0

Capital instruments
Depositors' claims unpaid

1,376,597

28,873,864
25,000

18,758

(22,353,927)
8,086,941

Allowance for losses (Note 10)

Total

$

(403,901)
(23,191,396)
12,983,534

8,327,517

$

13,220,628

(a )

The December 31, 1993 deferred settlement reflected in the Assets from Open Bank Assistance was netted in the
statements of financial position line item "Liabilities incurred from bank resolutions" in the 1993 BIF financial statements.
During the term of the assistance to the institution, it became apparent that the BIF would receive a recovery because
gains exceeded losses on the sale of the assets covered by the agreement. Therefore, this recovery (referred to as a
deferred settlement in the agreement) was reclassified as an asset to properly reflect the present character of the
transaction.

(h> Proceeds from the sale of equity investments related to the Continental Bank, Chicago, IL were deferred in 1993 and
recognized in 1994.

6. Investment in Corporate-Owned Assets, Net
The BIF acquires assets in certain troubled and
failed bank cases 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 majority o f corporate-owned
assets are real estate and m ortgage loans.




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

Investment in Corporate-Owned Assets, Net
December 31

Dollars in Thousands
Investment in corporate-owned assets
Allowance for losses (Note 10)

$ 902,304
(659,676)

1993
$ 1,468,399
(741,815)

Total

$ 242,628

$

1994

726,584

I 7. P roperty and Buildings, Net
December 31

Dollars in Thousands

1994
Land
Office buildings

$

29,631
151,442

Accumulated depreciation

1993
$

(25,994)

Total

$

155,079

29,631
151,442
(22,655)

$

158,418

8. Liabilities Incurred from Bank Resolutions
The FDIC resolution process can provide different
types o f transactions depending on the unique facts
and circumstances surrounding each failing or

failed institution. The BIF can assume certain
liabilities that require future payments over a
specified period o f time.

Liabilities Incurred from Bank Resolutions
Dollars in Thousands

December 31
1994

Escrowed funds from resolution transactions (Note 2)

$

Funds held in trust
Depositors' claims unpaid

737
13,561

Note indebtedness

1,389

Accrued interest/other liabilities
Total

54,410

1993
3,314,003
$
3,195
18,758
1,266

11,848
$

8,514

81,945

$ 3,345,736

The BIF's liabilities of $82 million are considered current liabilities and should mature within the following
year.




Bank Insurance Fund

9. Estimated Liabilities for:
Anticipated Failure of Insured Institutions
The BIF records an estimated loss for banks that
have not yet failed but have been identified by the
regulatory process as likely to fail within the
foreseeable future as a result o f regulatory
insolvency (equity less than 2 percent o f assets).
This includes banks that were solvent at year-end,
but which have adverse financial trends and, absent
some favorable event (such as obtaining additional
capital or a merger), are likely to fail in the future.
The FDIC relies on this finding regarding
regulatory insolvency as the determining factor in
defining the existence o f the "accountable event"
that triggers loss recognition under generally
accepted accounting principles.
The FDIC cannot predict the precise timing and
cost o f bank failures. An estimated liability and a
corresponding reduction in the fund balance are
recorded in the period in which the liability is
deemed probable and reasonably estimable. It
should be noted, however, that future assessment
revenues will be available to the BIF to recover
some or all o f these losses and that their amounts
have not been reflected as a reduction in the losses.
The estimated liabilities for anticipated failure of
insured institutions as o f December 31, 1994 and
1993, were $875 million and $3 billion,
respectively. The estimated liability is derived in
part from estimates o f recoveries from the sale of
the assets o f these probable bank failures. As such,
they are subject to the same uncertainties as those
affecting the B IF 's receivables from bank
resolutions (see Note 5). This could understate the
ultimate costs to the BIF from probable bank
failures.
The FDIC estimates that banks with combined
assets o f approximately $6 billion may fail in 1995
and 1996 at an estimated loss o f $900 million to
BIF. O f this amount, the BIF has recognized a loss
o f $875 million for those failures considered
likely. The further into the future projections of
bank failures are made, the greater the uncertainty
o f banks failing and the magnitude o f the loss
associated with those failures. The accuracy o f
these estimates will largely depend on future
economic conditions, particularly in the real estate
markets, and the level o f future interest rates.




Assistance Agreements
The estimated liabilities for assistance agreements
resulted from several large transactions where
problem assets were purchased by an acquiring
institution under an agreement that calls for the
FDIC to absorb credit losses and to pay related
costs for funding and asset administration plus an
incentive fee.
Asset Securitization Guarantee
As stated in Note 5, the FDIC engages in a variety
o f strategies to maximize the return from the sale
or disposition o f failed bank assets and to minimize
realized losses from bank resolutions. Pursuant to
these goals, the FDIC entered into its first
securitization transaction in August 1994.
The securitization transaction was accomplished
through the creation o f a real estate mortgage
investment conduit (REMIC), a trust, which
purchases the loans to be securitized from one or
more institutions for which the FDIC acts as a
receiver or purchases loans owned by the
Corporation. The loans in the trust are pooled and
stratified and the resulting cash flow is directed into a
number of different classes of pass-through
certificates. The regular pass-through certificates are
sold to the public through licensed brokerage houses.
The largest contributing receivership retains residual
pass-through certificates which are entitled to any
remaining cash flows from the trust after obligations
to regular pass-through holders have been met.
To increase the likelihood o f full and timely
distributions o f interest and principal to the holders
o f the regular pass-through certificates, and thus
the marketability o f such certificates, the BIF has
agreed to provide a credit enhancement through a
limited guarantee to cover future credit losses with
respect to the loans underlying the certificates.
The FDIC securitization involved the following
structure: 1) approximately 1,800 performing
commercial mortgages from nearly 200 failed banks
were sold to a REMIC (FDIC REMIC Trust 1994 C1); 2) the REMIC in turn sold approximately $759
million in 11 classes o f securities backed by the
commercial mortgages; and 3) the investors received
a limited guarantee backed by the BIF which covers
credit losses and other shortfalls due to credit defaults
up to a maximum of $248 million.

In exchange for backing the limited guarantee, the
BIF received REMIC securities and a portion o f
the proceeds from the sale o f the commercial
mortgages. The net present value (NPV) o f the
assets received was priced to equal the NPV o f the
expected exposure under the guarantee so that the
BIF neither profits nor suffers a loss as a result of
providing the limited guarantee.
At December 31, 1994, the BIF has a liability of
$128 million under the guarantee and assets o f
$128 million representing the REMIC securities
and the portion o f the mortgage sales proceeds
received. For years after 1994, changes in the
estimates o f the value o f the REM IC securities and

the expected exposure under the guarantee will be
recognized in net income in the period in which the
changes are made.
Cash receipts from the REMIC securities,
mortgages sales proceeds received and cash
payments o f guarantee claims are reflected in the
Statement o f Cash Flows under the line items
"Miscellaneous receipts" and "Miscellaneous
disbursements," respectively. Income related to
the REMIC securities is recorded in the "Other
revenue" line item. The chart below summarizes
the B IF's remaining obligation under the guarantee.

Asset Securitization Guarantee________________________________________________________________
Dollars in Millions
Maximum Guarantee

Guarantee Claims Paid

Maximum Remaining Obligation

______ Obligation____________ through December 31, 1994___________ at December 31, 1994
$248

$0

Litigation Losses
The BIF records an estimated loss for unresolved
legal cases to the extent those losses are considered
to be both probable in occurrence and reasonably
estimable in amount. In addition, the FD IC 's
Legal Division has determined that losses from




$248_____________
unresolved legal cases totaling $710 million are
reasonably possible. This includes $63 million in
losses for the BIF in its corporate capacity and
$647 million in losses for the BIF in its
receivership capacity (see Note 2).

Bank Insurance Fund

10. Analysis of Changes in Allowance for Losses and Estimated Liabilities
Provision for insurance losses includes the
estimated losses for bank resolutions that occurred
during the year for which an estimated loss was
not established and loss adjustments for bank
resolutions that occurred in prior years. It also
includes an estimated loss for banks that have not
yet failed but have been identified by the
regulatory process as likely to fail (see Note 9).
These are referred to as estimated liabilities for
anticipated failure o f insured institutions.

In the following charts, transfers include
reclassifications from the line item "Estimated
Liabilities for anticipated failure o f insured
institutions" to the line items o f "Total Allowance
for Losses." Terminations represent final
adjustments to the estimated cost figures for those
bank resolutions that were completed and for
which the operations o f the receivership ended.

Analysis of Changes in Allowance for Losses and Estimated Liabilities - 1994

Dollars in Millions

Beginning
Balance
01/01/94

Provision for Insurance Losses
Prior
Current
Year
Years
Total

Net Cash
Payments

Ending
Balance
12/31/94

Adjustments/
Transfers/
Terminations

Allowance for Losses:
Open bank assistance
Coiporate-owned assets

$

215

$

0

(421) $

(421)

(236)

(82)
(229)

(82)
(465)

0

(372)

22,354

(236)

(732)

(968)

3

987

24.170

406

(2,128)

0

(375)

875

0

(177)

(1,722)
(177)

0

0

742

0

Closed banks

23,191

Total Allowance for Losses

24,148

2,972
326
0
21

0

3,319

406

$

$

3
0

$

1,359
0

$

1,156
660

Estimated Liabilities for:
Anticipated failure of
insured institutions
Assistance agreements
Asset securitization guarantee
Litigation losses

Total Estimated Liabilities
Provision for
Insurance Losses




$

170

(37)

51

163

0

0

128

128

(6)

(6)

0

0

15

(2,311)

(1,905)

$ (3,043) $ (2,873)

(37)

(196)

1,181

Analysis of Changes in Allowance for Losses and Estimated Liabilities - 1993

Dollars in Millions

Beginning
Balance
01/01/93

Provision for Insurance Losses
Prior
Current
Year
Total
Years

Adjustments/
Transfers/
Net Cash
Payments Terminations

Ending
Balance
12/31/93

Allowance for Losses:
Open bank assistance
Corporate-owned assets

$ 2,203

$ 40

425

0

$

(890)
317

$

(850)

$ 19

$

215

317

0

$(1,157)
0
(81)

23,191

742

Closed banks

23,397

(224)

99

(125)

0

Total Allowance for Losses

26,025

(184)

(474)

(658)

19

(1,238)

24,148

10,782
388

818

(7,873)

(7,055)

0

(755)

2,972

0

34

34

(97)

1

326

19

0

2

2

0

0

11,189

818

Estimated Liabilities for:
Anticipated failure of
insured institutions
Assistance agreements
Litigation losses

Total Estimated Liabilities

Provision for
Insurance Losses__________________________ $ 634

(7,837)

(7,019)

(97)

(754)

21

3,319

$(8,311) $ (7,677)

11. Assessments
The 1990 Act removed caps on assessment rate
increases and authorized the FDIC to set
assessment rates for the BIF members
semiannually, to be applied against a m em ber'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 B IF's obligations; and 3)
authorized the FDIC to increase assessment rates
more frequently than semiannually and impose
emergency special assessments as necessary to
ensure that funds are available to repay U.S.
Treasury borrowings.
On September 15, 1992, the F D IC 's Board o f
Directors agreed on a transitional risk-based
assessment system that charges higher rates to




those banks that pose greater risks to the BIF.
Under the new rule, beginning in 1993, each bank
paid an assessment rate o f between 23 cents and 31
cents per $100 o f domestic deposits, depending on
its risk classification. To arrive at a risk-based
assessment for a particular bank, the FDIC placed
each bank in one o f nine risk categories using a
two-step process based first on capital ratios and
then on other relevant inform ation. The Board
reviews premium rates semiannually. For calendar
year 1994, the assessment rate averaged
approximately 23.8 cents per $100 o f domestic
deposits.
As o f December 31, 1994, the B IF 's reserve ratio
is 1.15 percent o f insured deposits.
Recapitalization to a 1.25 percent ratio is required
by the FDICIA (see Note 1).

B ank Insurance Fund

12. Interest and O ther Insurance Expenses
August 6, 1993. Other insurance expenses are
incurred by the BIF as a result o f payments to
insured depositors in closed bank payoff activity
and the administration o f assistance transactions.

The BIF incurs interest expense on funds borrowed
to finance its resolution activity. In 1994, the BIF
did not incur interest expense on funds borrowed
from FFB because all borrowings were repaid on
Interest and Other Insurance Expenses
Dollars in Thousands

For the Year Ended
December 31
1994

Interest Expense for:
Escrowed funds from resolution transactions (Note 2)
FFB borrowings

$

1993

54,033

$204,969

0
54,033

507

Insurance Expense for
Resolution transactions
Assistance transactions

96,895
301,864

1,570

(1,047)
(540)

Total

$

3,427
4,997

53,493

$306,861

1 13. Pension Benefits, Savings Plans and A ccrued A nnual Leave
Eligible FDIC employees (i.e., all permanent and
temporary employees with appointments exceeding
one year) are covered by either the Civil Service
Retirement System (CSRS) or the Federal
Employee Retirement System (FERS). The CSRS
is a defined benefit plan offset with the Social
Security System in certain cases. Plan benefits are
determined on the basis o f years o f creditable
service and compensation levels. The CSRScovered employees also can participate in the taxdeferred Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting o f a basic
defined benefit plan that provides benefits based on
years o f creditable service and 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.




Eligible FDIC employees may also participate in
an FDIC-sponsored tax-deferred savings plan with
matching contributions. The BIF pays its share of
the em ployer's portion o f all related costs.
Although the BIF contributes a portion o f pension
benefits for eligible employees, it does not account
for the assets o f either retirement system. The BIF
also does not have actuarial data with respect to
accumulated plan benefits or the unfunded liability
relative to eligible employees. These amounts are
reported and accounted for by the U .S. Office of
Personnel Management.
The liability to employees for accrued annual leave
is approximately $40.3 million and $38 million at
December 31, 1994 and 1993, respectively.

71

Pension Benefits and Savings Plans Expenses
Dollars in Thousands

For the Year Ended
December 31
$ 9,988

1994

1993
$ 8,890

Federal Employee Retirement System (Basic Benefit)

32,410

29,254

FDIC Savings Plan

21,603

16,267

Federal Thrift Savings Plan

10,513

8,742

Civil Service Retirement System

Total

$ 74,514

$ 63,153

14. Postretirement Benefits Other than Pensions
The FDIC provides certain health, dental and life
insurance coverage for its eligible retirees, the
retirees' beneficiaries and covered dependents.
Retirees eligible for health and/or life insurance
coverage are those who have qualified due to: 1)
immediate enrollment upon appointment or five
years o f participation in the plan and 2) eligibility
for an immediate annuity. Dental coverage is
provided to all retirees eligible for an immediate
annuity.
The FDIC converted to self-insured health
coverage for hospital/medical, prescription drug,
mental health and chemical dependency during
M arch 1994. Additional risk protection was
purchased from Aetna Life Insurance Company
through stop-loss and fiduciary liability insurance.
All claims are administered on an administrative
services only basis with the hospital/medical claims
administered by Aetna Life Insurance Company,
the mental health and chemical dependency claims
administered by OHS Foundation Health Psychcare
Inc., and the prescription drug claims administered
by Caremark. Health insurance coverage was
previously provided as a comprehensive fee-forservice program underwritten by Blue Cross/Blue
Shield o f the National Capital Area, with hospital
coverage and a major medical wraparound.




The life insurance program , underwritten by
Metropolitan Life Insurance Company, provides
basic coverage at no cost to retirees and allows
converting optional coverages to direct-pay plans.
Dental care is underwritten by Connecticut General
Life Insurance company and provides coverage at
no cost to retirees.
The BIF expensed $23 million and $49 million for
net periodic postretirement benefit costs for the
years ended December 31, 1994 and 1993,
respectively. For measurement purposes, the FDIC
assumed the following: 1) a discount rate o f 6
percent; 2) an increase in health costs in 1994 of
12.5 percent, decreasing down to an ultimate rate
in 1998 o f 8 percent; and 3) an increase in dental
costs for 1994 and thereafter o f 8 percent. Both the
assumed discount rate and health care cost rate
have a significant effect on the amount o f the
obligation and periodic cost reported.
If the health care cost rate were increased one
percent, the accumulated postretirement benefit
obligation as o f December 31, 1994, would have
increased by 16.6 percent. The effect o f this
change on the aggregate o f service and interest cost
for 1994 would be an increase o f 26.3 percent.

B ank Insurance Fund

Net Periodic Postretirement Benefit Cost
For the Year Ended

Dollars in Thousands

December 31
1994
1993
$ 24,180

$ 30,274

Interest cost on accumulated postretirement benefit obligation

13,741

15,549

Amortization of prior service cost

(7,768)
3,086

(1,222)
4,339
39

Service cost (benefits attributed to employee service during the year)

Amortization of loss
Return on plan assets

(10,242)
$ 22,997

Total
As stated in Note 2, the FDIC established an entity
to provide accounting and administration on behalf
o f the BIF, the SAIF, the FRF and the RTC. The

$48,979

BIF funds its liability and these funds are being
managed as "plan assets."

Accumulated Postretirement Benefit Obligation by Participant
December 31
1994
1993
$ 62,920
$ 65,956

Dollars in Thousands
Retirees
Fully eligible active plan participants
Other active participants

14,928
208,291

12,383
209,638

Total Obligation

286,139
265,642

287,977

$ 20,497

$ 17,445

Less: Plan assets at fair value (a)

270,532

Postretirement Benefit Liability Included in
the Statements of Financial Position
(a)
Consists of U.S. Treasury investments
| 15. Com m itm ents
Leases
The BIF currently is sharing in the F D IC 's leased
space. The B IF's allocated share o f lease
commitments totals $180 million for future years.
The lease agreements contain escalation

clauses resulting in adjustments, usually on an
annual basis. The BIF recognized leased space
expense o f $50.9 million and $46.8 million for the
years ended December 31, 1994 and 1993,
respectively.

Leased Space Fees
Dollars in Thousands
1995

1996

1997

1998

1999

2000

$56,083

$38,408

$37,013

$22,151

$15,440

$10,915




Asset Putbacks
Upon resolution o f a failed bank, the assets are
placed into receivership and may be sold to an
acquirer under an agreement that certain assets
may be "putback," or resold, 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 purchase o f any or all o f the "unexpired
putbacks" at any time prior to expiration. The
FD IC 's estimate o f the volume o f assets subject to
repurchase under existing agreements is $406

million (see Note 16). The actual amount subject
to repurchase should be significantly lower because
the estimate does not reflect subsequent collections
on or sales o f 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 o f $51 million in book value o f assets
will be putback.

16. C oncentration of C redit Risk
The BIF is counterparty to a group o f financial
instruments with entities located throughout
regions o f the United States experiencing problems
in both loans and real estate. The B IF 's maximum

exposure to possible accounting loss, should each
counterparty to these instruments fail to perform
and any underlying assets prove to be o f no value,
is shown as follows:

Concentration of Credit Risk at December 31, 1994
Dollars in Millions
South­
east
Receivables from
bank resolutions, net
Corporate-owned
assets, net
Asset putback agreements
(off-balance sheet)
Total

South­
west

North­
east

Mid­
west

Central

West

$136

$1,195

$5,918

$283

$33

$759

2

135

33

0

27

46

0
$138

0
$1,330

405
$6,356

0
$283

0
$60

1
$806

Total
$8,324 (a)
243
406 (b)
$8,973

(a)

The net receivable excludes $126 thousand and $3.3 million, respectively, of the SAIF's allocated share of maximum
credit loss exposure from the resolutions of Southeast Bank, N.A., Miami, FL, and Olympic National Bank, Los Angeles,
CA. There is no risk that the SAIF will not meet these obligations.
^ See Note 15 Commitments - Asset Putbacks.

In su red Deposits
As o f December 31, 1994, the total deposits
insured by the BIF is approximately $1.9 trillion.
This would be the accounting loss if all depository




institutions fail and if any assets acquired as a
result o f the resolution process provide no
recovery.

B ank Insurance Fund

17. Disclosures about the Fair Value of Financial Instruments
Cash equivalents are short-term, highly liquid
investments and are shown at current value. The
fair market value o f the investment in U.S.
Treasury obligations is disclosed in Note 4 and is
based on current market prices. The carrying
amount o f interest receivable on investments,
accounts payable and liabilities incurred from bank
resolutions approximates their fair market value
due to their short maturities or comparisons with
current interest rates.
It is not practicable to estimate the fair market
value o f net receivables from bank resolutions.
These assets are unique, not intended for sale to
the private sector, and have no established market.
The FDIC believes that a sale to the private sector
would require indeterminate, but substantial
discounts for an interested party to profit from
these assets because o f credit and other risks. A
discount of this proportion would significantly
increase the cost o f bank resolutions to the BIF.
Comparisons with other financial instruments do
not provide a reliable measure o f their fair market
value. Due to these and other factors, the FDIC
cannot determine an appropriate market discount
rate and, thus, is unable to estimate fair market
value on a discounted cash flow basis. As shown in
Note 5, the carrying amount is the estimated cash
recovery value which is the original amount
advanced (and/or obligations incurred) net o f the
estimated allowance for loss.

The majority o f the net investment in corporateowned assets, (except real estate) is comprised o f
various types o f financial instruments
(investments, loans, accounts receivable, etc.)
acquired from failed banks. As with net
receivables from bank resolutions, it is not
practicable to estimate fair market values. Cash
recoveries are primarily from the sale o f poor
quality assets. They are dependent upon market
conditions which vary over time and can occur
unpredictably over many years following
resolution. Since the FDIC cannot reasonably
predict the timing o f these cash recoveries, it is
unable to estimate fair market value on a
discounted cash flow basis. As shown in Note 6,
the carrying amount is the estimated cash recovery
value which is the original amount advanced
(and/or obligations incurred) net o f the estimated
allowance for loss.
As stated in Note 9, the carrying amount o f the
estimated liability for anticipated failure o f insured
institutions is the total o f estimated losses for
banks that have not failed, but the regulatory
process has identified as likely to fail within the
foreseeable future. It does not consider discounted
future cash flows because the FDIC cannot predict
the timing o f events with reasonable accuracy. For
this reason, the FDIC considers the total estimate
of these losses to be the best measure o f their fair
market value.

18. Disclosure about Recent Financial Accounting S tan d ard s B oard Pronouncem ents
The FDIC has adopted Statement of Financial
Accounting Standards No. 112, "Employer's
Accounting for Postemployment Benefits." This
statement requires employers to recognize the
obligation to provide benefits to former or inactive
employees after employment but before retirement.
The maximum potential post-employment obligation
due to accrued but unused annual leave is shown
under Note 13. There are no other material
obligations due to post-employment benefits.
In May 1993, the Financial Accounting Standards
Board issued Statement o f Financial Accounting
Standards No. 114, "Accounting by Creditors for
Impairment o f a L oan." Most o f the BIF assets
are specifically outside the scope o f Statement No.
114. These assets are valued through alternative
methods or do not meet the definition o f a loan



within the meaning o f the Statement. Any assets
which may be subject to Statement No. 114 are
expected to be immaterial either because of
insignificant book value or because any potential
adjustment to the carrying value as a result of
applying Statement No. 114 would be immaterial.
The FDIC has adopted Statement o f Financial
Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity
Securities." This statement expands the use o f fair
market value accounting for securities that have
readily determinable fair market values but retains
the use o f the amortized cost method for
investments in debt securities that the reporting
enterprise has the positive intent and ability to hold
to maturity. Adoption o f this statement did not
have a material effect on the BIF.

75

19. Supplementary Information Relating to the Statements of Cash Flows
As stated in the Summary o f Significant
Accounting Policies (see Note 2, Escrowed Funds
fro m Resolution Transactions), prior to April 20,
1994, the BIF paid the acquirer the difference
between failed bank liabilities assumed and assets
purchased, plus or minus any premium or
discount. The BIF considered the assets purchased

portion o f this transaction to be a non-cash
adjustment. Accordingly, for the Statements o f
Cash Flows presentation, cash outflows for bank
resolutions excludes $3.7 billion in 1993 for assets
purchased. As o f April 20, 1994, these asset
purchases are cash transactions.

Reconciliation of Net Income to Net Cash Provided by Operating Activities
Dollars in Thousands

Net Income

For the Year Ended
December 31
1994
1993
$ 8,726,122

$ 13,222,235

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Income Statement Items:
Provision for insurance losses
Amortization o f U .S . Treasury securities
Interest on Federal Financing Bank borrowings
Depreciation on buildings

(2,873,419)
43,145
0
3,339

(7,677,400)
6,715
(72,977)
3,339

Change in Assets and Liabilities:
(Increase) decrease in interest receivable on investments and other assets
Decrease in receivables from bank resolutions

(179,994)
5,779,569

24,913
15,757,688

Decrease in corporate-owned assets

566,472

418,321

Increase (decrease) in accounts payable and other liabilities

201,390

(216,563)

(Decrease) in liabilities incurred from bank resolutions
(Decrease) in liability for anticipated failure o f insured institutions
Increase (decrease) in liabilities for assistance agreements
Increase in liability for asset securitization guarantee

Total




(3,263,790)

(9,941,584)

(375,000)

(755,000)

13,479

(96,108)

128,429

0

$ 8,769,742

$ 10,673,579

B ank Insurance Fund

20. Subsequent Events
On January 31, 1995, the FDIC Board o f
Directors issued for public comment substantive
proposed changes in its risk-related insurance
premium system, the rate structure o f which would
result in a significant reduction in the rates paid by
well-capitalized and well-managed banks. Under
the proposal, the best rated institutions (about 90%
o f the nearly 11,000 BIF insured institutions)
would pay four cents per $100 o f domestic
deposits, a substantial reduction from their current




23 cents per $100. The weakest institutions would
continue to pay 31 cents per $100. If adopted,
BIF insured institutions, on average, would be
expected to pay approximately 4.5 cents per $100,
compared to the current 23.8 cents per $100. This
proposed reduction would take place when the BIF
reaches the designated reserve ratio o f 1.25 percent
o f insured deposits.

77

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Savings A ssociation Insurance Fund

Federal Deposit Insurance Corporation
Savings Association Insurance Fund Statements of Income and the Fund Balance
Dollars in Thousands

For the Year Ended
December 31
_______________________________________________________________ 1994__________________ 1993
Revenue
Assessments (Note 8)
Interest on U.S. Treasury obligations

$1,132,102

$

897,692

82,942

25,305

32

48

213

471

1,215,289

923,516

20,303

30,283

Provision for insurance losses (Note 9)

414,000

16,531

Total Expenses and Losses

434,303

46,814

Net Income

780,986

876,702

1,155,729

279,027

$1,936,715

$ 1,155,729

Entrance fees (Note 5)
Other revenue
Total Revenue
Expenses and Losses
Operating expenses

Fund Balance - Beginning
Fund Balance - Ending

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




Federal Deposit Insurance Corporation
Savings Association Insurance Fund Statements of Financial Position
December 31

Dollars in Thousands
1994

1993

Assets
Cash and cash equivalents, including restricted amounts
o f $19,004 for 1994 and $3,285 for 1993 (Note 3)

$

Investment in U .S. Treasury obligations, net (Note 4)

80,200

$

15,735

2,422,230

1,263,608

Entrance and exit fees receivable, net (Note 5)

35,692

60,655

Interest receivable on investments and other assets

38,863

28,038

6,892

174,948

$2,583,877

$ 1,542,984

Receivables from thrift resolutions, net (Note 6)

Total Assets
Liabilities and the Fund Balance
Accounts payable and other liabilities
Due to the FSLIC Resolution Fund (Note 6)
Liabilities incurred from thrift resolutions

$

5,617

$

3,875

6,812

175,507

0

932

432,000

18,000

444,429

198,314

202,733

188,941

1,936,715

1,155,729

$2,583,877

$ 1,542,984

Estimated liability for anticipated failures of
insured institutions (Note 7)

Total Liabilities
Commitments and contingencies (Notes 12 and 13)

SAIF-Member Exit Fees and Investment
Proceeds Held in Escrow (Note 5)
Fund Balance
Total Liabilities and Fund Balance
The accompanying notes are an integral part o f these financial statements.




Savings A ssociation Insurance Fund

Federal Deposit Insurance Corporation
Savings Association Insurance Fund Statements of Cash Flows
Dollars in Thousands

For the Year Ended
December 31
1994

1993

Cash Flows from Operating Activities
Cash provided from:
Assessments

$

1,132,914

$

911,071

61,085

Miscellaneous receipts

2,133

602

Recoveries from thrift resolutions

18,645

169,919

Recoveries from "Oakar" bank resolutions

7,182

1,469

Operating expenses funded by the FSLJC Resolution Fund

31,605

0

Entrance and exit fee collections (Note 5)

4,406

31,144

Interest on exit fees

16,415

6,984

Interest on U .S . Treasury obligations

620

Cash used for:
Operating expenses

(14,581)
(166,958)

Disbursements for thrift resolutions

(121)

(1,864)

Reimbursement to the FSLIC Resolution Fund for thrift resolution

(43,047)

(3,182)

Disbursements for "Oakar" bank resolutions

0

Miscellaneous disbursements

0

Net Cash Provided by Operating Activities (Note 16)

(3,700)

(ID

1,220,714

942,016

220,420

51,305

Cash Flows from Investing Activities
Cash provided from:
Maturity and sale o f U .S . Treasury obligations

Cash used for:
Purchase o f U .S. Treasury obligations

(1,376,669)

(1,156,249)

Net Cash Used by Investing Activities

(1,318,737)

(1,267,432)

Net Increase (Decrease) in Cash and Cash Equivalents

64,465

(325,416)

Cash and Cash Equivalents - Beginning

15,735

341,151

Cash and Cash Equivalents - Ending

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




$

80,200

$

15,735

Notes to Financial Statements
Savings Association Insurance Fund
December 31, 1994 and 1993

1. Legislative History and O perations of the Savings Association Insurance Fund
Legislative History
The Financial Institutions Reform, Recovery, and
Enforcement Act o f 1989 (FIRREA) was enacted
to reform , recapitalize and consolidate the federal
deposit insurance system. The FIRREA created the
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 o f these three funds. The SAIF
insures the deposits o f all SAIF-member
institutions (normally thrifts). The BIF insures the
deposits o f all BIF-member institutions (normally
commercial or savings banks) and the FRF is
responsible for winding up the affairs o f the
former Federal Savings and Loan Insurance
Corporation (FSLIC ). All three funds are
maintained separately to carry out their respective
mandates.
The FIRREA created the Resolution Trust
Corporation (RTC), which manages and resolves
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 Resolution Trust Corporation
Refinancing, Restructuring and Improvement Act
o f 1991 (1991 RTC Act) extended the R TC ’s
general resolution responsibility through
September 30, 1993, and beyond that date for
those institutions previously placed under RTC
control.
The Resolution Trust Corporation Completion Act
o f 1993 (1993 RTC Act) enacted December 17,
1993, extended the R TC 's general resolution
responsibility through a date between January 1,
1995, and July 1, 1995. The Chairman o f the
Thrift Depositor Protection Oversight Board
selected July 1, 1995 as the date for transferring
resolution responsibility from the RTC to the
SAIF.
The Financing Corporation (FICO), established
under the Competitive Equality Banking Act o f
1987, is a mixed-ownership government
corporation whose sole purpose was to function as
a financing vehicle for the FSLIC. Effective
December 12, 1991, as provided by the 1991 RTC
Act, the FIC O 's ability to serve as a financing
vehicle for new debt was terminated. Assessments
paid on SAIF-insured deposits (excluding "Oakar"




and "Sasser" banks) are subject to draws by FICO
for payment o f interest on their outstanding debt
through maturity o f this debt in 2019. "Sasser"
banks are savings associations that are SAIF
members and which convert to a state bank charter
in accordance with Section 5(d)(2)(G) o f the FDI
Act. "Oakar" banks are described under
"Operations o f the SAIF" below.
Other legislation includes the Omnibus Budget
Reconciliation Act o f 1990 (1990 Act) and the
Federal Deposit Insurance Corporation
Improvement Act o f 1991 (FDICIA). These acts
made changes to the F D IC 's assessment authority
(see Note 8) and borrowing authority (see
"Operations o f the SAIF" below). The FDICIA
also requires the FDIC to resolve troubled
institutions in a manner that will result in the least
possible cost to the deposit insurance funds and to
build the reserves in the insurance funds to 1.25
percent o f insured deposits.
Operations of the SAIF
The prim ary purpose o f the SAIF is to insure the
deposits and to protect the depositors o f insured
thrift institutions. In this capacity, the SAIF
currently has financial responsibility for: 1) all
federally insured depository institutions that
became members o f the SAIF after August 8,
1989, for which the RTC does not have resolution
authority and 2) all deposits insured by the SAIF
that are held by BIF-member banks, so-called
"Oakar" banks, created pursuant to the "Oakar
amendment" provisions found in Section 5(d)(3) of
the Federal Deposit Insurance Act. On July 1,
1995 the SAIF will assume resolution
responsibility for all SAIF-member depository
institutions that had not been previously placed
under the RTC control.
The "Oakar amendment" provisions referred to
above allow, with approval o f the appropriate
federal regulatory authority, any insured
depository institution to merge, consolidate or
transfer the assets and liabilities o f an acquired
institution without changing insurance coverage for
the acquired deposits. Such acquired deposits
continue to be either SAIF-insured deposits and
assessed at the SAIF assessment rate or BIFinsured deposits and assessed at the BIF
assessment rate. In addition, any losses resulting
from the failure o f these institutions are to be

Savings A ssociation Insurance Fund

allocated between the BIF and the SAIF based on
the respective dollar amounts o f the institution's
BIF-insured and SAIF-insured deposits.

assessment base and 2) an increase in premiums
could reasonably be expected to result in greater
losses to the government.

The SAIF is funded from the following sources:
1) reimbursement by the FRF o f administrative
and supervisory expenses incurred between August
9, 1989, and September 30, 1992 (the final
reimbursement was funded in 1993); 2) SAIFmember assessments from "Oakar" banks; 3) other
SAIF assessments that are not required for the
FICO including assessments from "Sasser" banks;
4) interest earned on investments in U.S. Treasury
obligations purchased with unrestricted funds;
5) U.S. Treasury payments not to exceed $8
billion for losses for fiscal years 1994 through
1998 contingent upon appropriations from the U.S.
Treasury for that purpose; 6) U.S. Treasury
payments from unused appropriations to the RTC
for losses for two years after the date the RTC is
terminated; 7) Federal Home Loan Bank
borrowings; and 8) U.S. Treasury and Federal
Financing Bank (FFB) borrowings.

The 1990 Act established the F D IC 's authority to
borrow working capital from the FFB on behalf o f
the BIF and the SAIF. FDICIA increased the
F D IC 's authority to borrow for insurance losses
from the U.S. Treasury, on behalf o f the BIF and
the SAIF, from $5 billion to $30 billion.

The 1993 RTC Act places significant restrictions
on funding from sources 5) and 6) above. Before
appropriated funds from either source are used, the
FDIC must certify to Congress that, among other
restrictions: 1) SAIF-insured institutions are unable
to pay premiums sufficient to cover insurance
losses without adversely affecting their ability to
raise and maintain capital or to maintain the

The FDICIA also established a limitation on
obligations that can be incurred by the SAIF,
known as the maximum obligation limitation
(MOL). Under the M OL, the SAIF cannot incur
any additional obligations if its total obligations
exceed the sum o f : 1) the SA IF's cash and cash
equivalents; 2) the amount equal to 90 percent of
the fair-market value o f the SA IF's other assets;
and 3) the total amount authorized to be borrowed
from the U.S. Treasury, excluding FFB
borrowings.
For purposes o f calculating the M OL, the F D IC 's
total U .S. Treasury borrowing authority was
allocated between the BIF and the SAIF based
upon the projected borrowing needs o f the
respective funds. Since the SAIF did not have
primary resolution authority for thrifts or projected
borrowing needs as o f December 31, 1994, none
o f the U.S. Treasury borrowing authority was
allocated to the SAIF. At December 31, 1994, the
M OL for the SAIF was $2.4 billion.

2. Sum m ary of Significant Accounting Policies
General
These financial statements pertain to the financial
position, results o f operations and cash flows of
the SAIF and are presented in accordance with
generally accepted accounting principles. These
statements do not include reporting for assets and
liabilities o f closed thrifts for which the SAIF acts
as receiver or liquidating agent. Periodic and final
accountability reports o f the SA IF's activities as
receiver or liquidating agent are furnished to
courts, supervisory authorities and others as
required.
U .S. Treasury Obligations
Securities are intended to be held to maturity and
are shown at book value. Book value is the face
value o f securities plus the unamortized premium




or less the unamortized discount. Amortizations
are computed on a daily basis from the date of
acquisition to the date o f maturity. Interest is
calculated on a daily basis and recorded monthly
using the effective interest method.
Escrowed Funds from Resolution Transactions
A thrift operating under a FSLIC assistance
agreement was placed into SAIF receivership in
1993 and sold. Since these transactions were
executed in order to terminate the assistance
agreement, the FRF funded SA IF's payment to the
acquirers (the difference between failed thrift
liabilities assumed and assets purchased, plus or
minus any premium or discount). The SAIF
considered the amount o f the deduction for assets
purchased to be funds held on behalf o f the
receivership (an obligation). The funds remained

83

in escrow and accrued interest until such time as
the receivership used the funds to: 1) repurchase
assets under asset put options; 2) pay preferred and
secured claims; 3) pay receivership expenses; or 4)
pay dividends (see Note 6). The FDIC policy of
holding escrowed funds was terminated in 1994,
Litigation Losses
The SAIF accrues, as a charge to current period
operations, an estimate o f probable losses from
litigation against the SAIF in its corporate and
receivership capacities. The F D IC 's Legal Division
recommends these estimates on a case-by-case
basis.
Receivership Administration
The FDIC is responsible for controlling and
disposing o f the assets o f failed thrift institutions
placed in SAIF receivership in an orderly and
efficient manner. The assets, and the claims
against those assets, are accounted for separately to
ensure that liquidation proceeds are distributed in
accordance with applicable laws and regulations.
Liquidation expenses incurred by the SAIF on
behalf o f its receivership are recovered from the
receivership.
Cost Allocations Among Funds
Certain operating expenses (including personnel,
administrative and other indirect expenses) not
directly charged to each fund under the F D IC 's
management are allocated on the basis o f the
relative degree to which the operating expenses
were incurred by the funds.
The FDIC includes the cost o f facilities used in
operations in the B IF's financial statements. The
BIF charges the SAIF a rental fee representing an
allocated share o f its annual depreciation. The cost
o f furniture, fixtures and equipment purchased by
the FD IC on behalf o f the three funds under its
administration is allocated among these funds on a

pro rata basis. The SAIF expenses its share of
these allocated costs at the time o f acquisition
because o f their immaterial amounts.
Postretirement Benefits Other Than Pensions
The FDIC adopted the requirements o f the
Statement o f Financial Accounting Standards
(SFAS) No. 106, "Em ployer's Accounting for
Postretirement Benefits Other Than Pensions" in
1992. This standard mandates the accrual method
of accounting for postretirement benefits other than
pensions based on actuarially determined costs to
be recognized during employees' years o f active
service. This was a significant change from the
FD IC 's previous policy o f recognizing these costs
in the year the benefits were provided (i.e., the
cash basis).
The FDIC elected to immediately recognize the
accumulated postretirement benefit liability
(transition obligation). The transition obligation
represents that portion o f future retiree benefits
costs related to service already rendered by both
active and retired employees up to the date SFAS
No. 106 was adopted.
The FDIC established an entity to provide the
accounting and administration o f these benefits on
behalf o f the BIF, the SAIF, the FRF and the
RTC. The SAIF funds all o f its liabilities for these
benefits directly to the entity.
Related Parties
The nature o f related parties and descriptions o f
related party transactions are disclosed throughout
the financial statements and footnotes.
Reclassifications
Reclassifications have been made in the 1993
Financial Statements to conform to the presentation
used in 1994.

3. Cash and Cash Equivalents
The SAIF considers cash equivalents to be short­
term , highly liquid investments with original
maturities o f three months or less. Substantially all
the restricted cash is comprised o f the SAIF exit
fees collected plus interest earned on exit fees.
These funds have been restricted to meet any
potential obligation o f the SAIF to the FICO




(see Note 5). In 1994, cash restrictions included
$104 thousand for health insurance payable and
$18.9 million for exit fee and related interest
collections. In 1993, cash restrictions included
$317 thousand for health insurance payable and
$2,968 million for exit fee and related interest
collections.

Savings A ssociation Insurance Fund

Cash and Cash Equivalents
December 31

Dollars in Thousands

1994
$

Cash

1,871

1993
$

351

78,329

Total

15,384

$ 80,200

One-day special Treasury certificates

$ 15,735

4. Investment in U .S. Treasury Obligations
All cash received by the SAIF is invested in U.S.
Treasury obligations unless the cash is: 1) to
defray operating expenses; 2) used for
outlays related to liquidation activities; or 3)
invested in one-day special Treasury certificates.
In 1994, $145 million was restricted for exit fee
and related interest collections invested in U.S.
Treasury notes. In 1993, $122 million was
restricted for exit fee and related interest
collections invested in U.S. Treasury notes.

During 1994, the SAIF sold debt securities
classified as held-to-maturity. The book value of
the securities sold was $170 million and the
realized loss was $289 thousand. The sale was
compelled by the need to transfer to the FRF funds
which were retained by the SAIF in error and
subsequently invested. This need was an isolated,
non-recurring, and unusual event which could not
have been reasonably anticipated.

U.S. Treasury Obligations at December 31, 1994
Dollars in Thousands
Maturity

Description

Less than
one year
1-3 years

U.S. Treasury
Notes
U.S. Treasury
Notes

Yield
at Purchase
4.4%

Book
Value
$1,380,705

Market
Value

Face
Value

$ 1,366,503

$ 1,385,000

$1,041,525
$ 1,017,402
$2,422,230
$ 2,383,905
In 1994, the unamortized discount, net of unamortized premium, was $7.8 million.

$ 1,045,000
$ 2,430,000

Total




5.8%

U.S. Treasury Obligations at December 31, 1993
Dollars in Thousands
Maturity
Less than
one year
1-3 years

Book
Value

Yield
at Purchase

Description
U.S. Treasury
Notes
U.S. Treasury
Notes

3.2%

$

52,160

Market
Value
$

Face
Value

52,240

4.0%
$ 1.211.448
$ 1,212,956
Total
$ 1,265,196
$ 1,263,608
In 1993, the unamortized premium, net of unamortized discount, was $1.8 million.

$

51,801

$ 1,210,000
$ 1,261,801

j 5. Entrance and Exit Fees Receivable. Net

86

The SAIF receives entrance and exit fees for con­
version transactions when an insured depository
institution converts from the BIF to the SAIF
(resulting in an entrance fee) or from the SAIF to
the BIF (resulting in an exit fee). Regulations
approved by the F D IC 's Board o f Directors and
published in the Federal Register on M arch 21,
1990,
directed that exit fees paid to the
held in escrow. The FDIC and the Secretary o f the
Treasury will determine when it is no longer
necessary to escrow such funds for the payment of
interest on obligations previously issued by the
FICO. These escrowed exit fees are invested in
Treasury securities pending determination of
ownership. Interest on these investments was $6.5
million and $3 million for 1994 and 1993,
respectively.
The SAIF records entrance fees as revenue after
the BIF-to-SAIF conversion transaction. However,
due to the requirement that the SAIF exit fees be

held in an escrow account, the SAIF does not
recognize exit fees or related interest earned as
revenue. Instead, the SAIF recognizes a SAIFto-BIF conversion transaction by establishing a
receivable from the institution and a corresponding
escrow account entry to recognize the potential
payment to the FICO. As exit fee proceeds are
SAIF be the receivable is reduced while the
received,
escrow remains pending the determination o f
funding requirements for interest payments on the
FIC O 's obligations.
Within specified parameters, the regulations allow
an institution to pay its entrance/exit fees interest
free, in equal annual installments over a period of
not more than five years. When an institution
elects such a payment plan, the SAIF records the
entrance or exit fee receivable at its present value.
The discount rates used to determine the present
value o f the funds for 1994 and 1993 were 3
percent and 4 percent, respectively.

Entrance and Exit Fees Receivable, Net -1994
Dollars in Thousands

Entrance fees

Beginning
Balance
01/01/94
$
3

New
Receivables
$
32

60,652

998

Exit fees
Total




$

60,655

$

1,030

Collections
$
(31,115)
$

(31,144)

Net Change
Unamortized
Discount
$
0

Ending
Balance
12/31/94
$
6

5,151

35,686

$

5,151

$

35,692

Savings A ssociation Insurance Fund

Entrance and Exit Fees Receivable, Net -1993
Dollars in Thousands

Entrance fees

Beginning
Balance
New
01/01/93_____ Receivables
0
48
$
$
84,896

Exit fees
Total

$

84,896

Net Change
Unamortized
Collections______Discount
(45) $
0
$

1,946
$

1,994

5,370

(31,560)
$

(31,605)

$

Ending
Balance
12/31/93
3
$
60,652

5,370

$

60,655

6. Receivables from T hrift Resolutions, Net
The Heartland Federal Savings and Loan
Association (Heartland), Ponca City, Oklahoma,
was a SAIF-insured institution that became party to
a 10-year assistance agreement with the FSLIC
upon the failure o f its predecessor, Frontier
Federal Savings and Loan Association, in 1988.
FSLIC obligations were assumed by the FRF upon
the enactment o f the FIRREA in 1989. Section 32
o f the assistance agreement effectively gave the
FRF sole equity interest in Heartland. Section 2.13
o f the agreement entitled "Additional Operating
Terms and Conditions" gave the FD IC , as
manager o f the FR F, authority to take such action
as might be necessary to effect the acquisition of
Heartland. The FDIC determined that the value of
the F R F 's equity interest in Heartland would be
maximized and total assistance cost would be
minimized by a termination o f the assistance
agreement and sale o f Heartland, thereby returning
it to the private sector. To effect the sale, a
receiver was appointed for Heartland for the
purpose o f transferring assets and liabilities to the
acquirers.
Technically, Heartland was not a "failing
institution" because o f its well-capitalized
condition, which resulted from the government
assistance provided. Heartland's Board o f
Directors consented to the Office o f Thrift

Supervision's appointment o f the FDIC (SAIF) as
receiver on October 8, 1993. The FDIC was
appointed receiver because, at that time, R TC 's
authority to resolve FSLIC-insured thrifts had not
yet been extended by the RTC Completion Act.
Because Heartland was not failing, all uninsured
depositors and general trade creditors were paid in
full, leaving only the FRF as sole creditor.
Payment to the acquirers o f Heartland to cover
insured depositors' claims was funded by the FRF
and represents a claim against the receivership's
assets. The receiver reimburses the FRF as claims
are satisfied through the liquidation process. As of
December 31, 1994, the receiver owes the FRF
$6.8 million.
As o f December 31, 1994 and 1993, the SAIF, in
its receivership capacity, held assets with a book
value o f $53 million and $249 million,
respectively. Estimated cash recoveries from the
management and disposition o f assets (excluding
cash and miscellaneous receivables o f $38 million
in 1994 and $177 million in 1993) are regularly
evaluated, but ultimate recoveries remain uncertain
because o f changing economic conditions. Any
loss as a result o f reduced recoveries will be borne
by the FRF.

7. Estim ated Liabilities for:
Anticipated Failure of Insured Institutions
The SAIF records an estimated loss for thrifts as
well as "Oakar" and "Sasser" banks that have not
yet failed but have been identified by the
regulatory process as likely to fail within the
foreseeable future as a result o f regulatory
insolvency (equity less than 2% o f assets). This
includes institutions that were solvent at year-end,




but which have adverse financial trends and, absent
some favorable event (such as obtaining additional
capital or a merger), are likely to fail in the future.
The FDIC relies on this finding regarding
regulatory insolvency as the determining factor in
defining the existence o f the "accountable event"
that triggers loss recognition under generally
accepted accounting principles.

87

The FDIC cannot predict the precise timing and
cost o f thrift or "Oakar" or "Sasser" bank failures.
An estimated liability and a corresponding
reduction in the fund balance are recorded in the
period in which the liability is deemed probable
and reasonably estimable. It should be noted,
however, that future assessment revenues will be
available to the SAIF to recover some or all of
these losses and that these amounts have not been
reflected as a reduction in the losses.
For the year ending December 31, 1993, the SAIF was
responsible for establishing an estimated liability for
thrifts chartered after August 8, 1989, and for "Oakar"
banks. For 1993, the RTC was responsible for other
thrift institutions. At year end 1994, the SAIF
established an estimated liability for those estimated
failures deemed probable and reasonably estimable after
it assumes resolution authority (see Note 1).
The FDIC estimates that thrifts with combined assets of
approximately $5 billion may fail between July 1, 1995

(the date SAIF assumes resolution responsibility)
and December 31, 1996 at an estimated cost o f
$750 million to SAIF. O f this amount, the SAIF
has recognized a loss o f $432 million for those
failures considered likely. The further into the
future projections o f thrift failures are made, the
greater the uncertainty o f thrifts failing and the
magnitude o f the loss associated with those
failures. The accuracy o f these estimates will
largely depend on future economic conditions,
particularly in the real estate markets and the level
o f future interest rates.
Litigation Losses
The SAIF records an estimated loss for unresolved
legal cases to the extent those losses are considered
to be both probable in occurrence and reasonably
estimable in amount. In addition, the F D IC 's
Legal Division has determined that losses from
unresolved legal cases totaling $12 million are
reasonably possible.

8. Assessments
The FICO has priority over the SAIF for receiving
and utilizing SAIF-member assessments to ensure
availability o f funds for interest on FIC O 's debt
obligations. Accordingly, the SAIF recognized as
assessment revenue only that portion o f SAIFmember assessments not required by the FICO.
Assessments on the SAIF-insured deposits held by
"Oakar" or "Sasser" are not subject to draws by
FICO and, thus, retained in SAIF.
The 1990 Act removed caps on assessment rate
increases and authorized the FDIC to set
assessment rates for the SAIF members
semiannually, to be applied against a m em ber'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 SA IF's obligations; and 3) authorized FDIC to
increase assessment rates more frequently than
semiannually and impose emergency special
assessments as necessary to ensure that funds are
available to repay U.S. Treasury borrowings.
On September 15, 1992, the F D IC 's Board of
Directors agreed on a transitional risk-based
assessment system that charges higher rates to
those thrifts that pose greater risks to the SAIF.




Under the new rule, beginning in January 1993,
each thrift paid an assessment rate o f between 23
cents and 31 cents per $100 o f domestic deposits,
depending on its risk classification. To arrive at a
risk-based assessment for a particular thrift, the
FDIC placed each thrift in one o f nine risk
categories using a two-step process based first on
capital ratios and then on other relevant
information. The Board reviews premium rates
semiannually. For calendar year 1994, the
assessment rate averaged approximately 24.2 cents
per $100 o f domestic deposits.
As o f December 31, 1994, the SA IF's reserve
ratio is .28 percent o f insured deposits.
Recapitalization to a 1.25 percent ratio is required
by the FDICIA (see Note 1).
Secondary Reserve Offset
The FIRREA authorized insured thrifts to offset
against any assessment premiums their pro rata
share o f amounts that were previously part o f the
FSLIC 's "Secondary Reserve." The Secondary
Reserve represented premium prepayments that
insured thrifts were required by law to deposit with
the FSLIC during the period 1961 through 1973 to
quickly increase the FSLIC 's insurance reserves to
absorb losses if the regular assessments were
insufficient.

Savings A ssociation Insurance Fund

The Secondary Reserve offset reduces the gross
SAIF-member assessments due from certain
individual institutions, thereby reducing the
assessment premiums available to the FICO and
the SAIF. In 1994, the SAIF paid $11 million in

refunds to institutions due secondary reserve
credits that had previously been acquired through
an unassisted merger. The remaining Secondary
Reserve credit was $427 thousand and $2 million
for 1994 and 1993, respectively.

SAIF Assessments
Dollars in Thousands

SAIF assessments from thrifts
Less: Secondary Reserve offset/refunds
Cash received for prior period assessments
(a)
FICO assessment

For the Year Ended
December 31
1994
1993
$1,301,499
(14,318)

(221,404)

0

(18,439)

(596,000)

(779,214)

Plus: Assessment receivables outstanding

0

(2,265)

570,427

690,369

SAIF assessments from Sasser banks
SAIF assessments from "Oakar" banks - current period

5,269

1,453

Less: Prepaid Assessments
SAIF-Member Assessments Earned, (Net)

$1,584,215

99,895

66,179

341,838

261,086

Total
$1,132,102
$ 897,692
(a)
In 1994, there was a one-time reduction of $185 million to the FICO assessment because of cash held by
FICO.
I 9. Provision for Insurance Losses
Dollars in Thousands

SAIF's allocated share of recovery from failure of
Southeast Bank, N.A., Miami, FL
Estimated loss for anticipated failure of insured institutions (see Note 7)
Total




For the Year Ended
December 31
1994
1993
$

0

$ (1,469)

414,000

18,000

$ 414,000

$ 16,531

10. Pension Benefits, Savings Plans and Accrued Annual Leave
Eligible FDIC employees (i.e., all permanent and
temporary employees with an appointment
exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal
Employee Retirement System (FERS). The CSRS
is a defined benefit plan offset with the Social
Security System in certain cases. Plan benefits are
determined on the basis o f years o f creditable
service and compensation levels. The CSRScovered employees also can participate in the taxdeferred federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting o f a basic
defined benefit plan that provides benefits based on
years o f creditable service and 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.

Eligible FDIC employees may also participate in
an FDIC-sponsored tax-deferred savings plan with
matching contributions. The SAIF pays its share of
the em ployer's portion o f all related costs.
Although the SAIF contributes a portion of
pension benefits for eligible employees, it does not
account for the assets o f either retirement system.
The SAIF also does not have actuarial data with
respect to accumulated plan benefits or the
unfunded liability relative to eligible employees.
These amounts are reported and accounted for by
the U.S. Office o f Personnel Management.
The liability to employees for accrued annual leave
is approximately $685 thousand and $756 thousand
at December 31, 1994 and 1993, respectively.

Pension Benefits and Savings Plans Expenses
Dollars in Thousands

For the Year Ended
December 31
1994
$ 329

1993
$ 1,628

Federal Employee Retirement System (Basic Benefit)

663

1,146

FDIC Savings Plan

436

663

Federal Thrift Savings Plan

202

337

$ 1,630

$ 3,774

Civil Service Retirement System

Total




Savings A ssociation Insurance Fund

11. Postretirement Benefits Other than Pensions
The FDIC provides certain health, dental and life
insurance coverage for its eligible retirees, the
retirees' beneficiaries and covered dependents.
Retirees eligible for health and/or life insurance
coverage are those who have qualified due to: 1)
immediate enrollment upon appointment or five
years o f participation in the plan and 2) eligibility
for an immediate annuity. Dental coverage is
provided to all retirees eligible for an immediate
annuity.
The FDIC converted to self-insured health
coverage for hospital/medical, prescription drug,
mental health and chemical dependency during
March 1994. Additional risk protection was
purchased from Aetna Life Insurance company
through stop-loss and fiduciary liability insurance.
All claims are administered on an administrative
services only basis with the hospital/medical claims
administered by Aetna Life Insurance Company,
the mental health and chemical dependency claims
administered by OHS Foundation Health Psychcare
Inc., and the prescription drug claims administered
by Caremark. Health insurance coverage was
previously provided as a comprehensive fee-forservice program underwritten by Blue Cross/Blue
Shield o f the National Capital Area, with hospital
coverage and a major medical wraparound.

The life insurance program , underwritten by
Metropolitan Life Insurance Company, provides
basic coverage at no cost to retirees and allows
converting optional coverages to direct-pay plans.
Dental care is underwritten by Connecticut General
Life Insurance company and provides coverage at
no cost to retirees.
The SAIF expensed $587 thousand and $1.9
million for such net periodic postretirement benefit
costs for the years ended December 31, 1994 and
1993, respectively. F or measurement purposes, the
FDIC assumed the following: 1) a discount rate of
6 percent; 2) an increase in health costs in 1994 of
12.5 percent, decreasing down to an ultimate rate
in 1998 o f 8 percent; and 3) an increase in dental
costs in 1994 and thereafter o f 8 percent. Both the
assumed discount rate and health care cost rate
have a significant effect on the amount o f the
obligation and periodic cost reported.
If the health care cost rate were increased one
percent, the accumulated postretirement benefit
obligation as o f December 31, 1994, would have
increased by 16.6 percent. The effect o f this
change on the aggregate o f service and interest cost
for 1994 would be an increase o f 26.3 percent.

Net Periodic Postretirement Benefit Cost
Dollars in Thousands

For the Year Ended
December 31

Service cost (benefits attributed to employee service during the year)
Interest cost on accumulated postretirement benefit obligation

$

349
(197)
78
(257)

Amortization of prior service cost
Amortization of loss
Return on plan assets
Total
As stated in Note 2, the FDIC established an entity
to provide accounting and administration on behalf
o f the BIF, the SAIF, the FRF and the RTC in




1994
614

$

587

1993
$1,195
613
(48)
171
2
$1,933

1993. The SAIF funds its liability and these funds
are being managed as "plan assets."

Accumulated Postretirement Benefit Obligation by Participant
Dollars in Thousands

December 31
1994
1993
$ 1,580
$ 1,852

Retirees
Fully eligible active plan participants

375
5,231

Less: Plan assets at fair value

(a)

Postretirement Benefit Liability Included in
the Statements of Financial Position
(a)

$

8,086

6,671

Total Obligation

5,887

7,186

Other active participants

347

7,680

515

$

406

Consists of U.S. Treasury investments

12. Com m itm ents
The SAIF currently is sharing the F D IC 's leased
space. The SA IF's allocated share o f lease
commitments totals $3.1 million for future years.
The agreements contain escalation clauses resulting

in adjustments, usually on an annual basis. The
SAIF recognized leased space expense o f $1.1
million and $1.7 million for the years ended
December 31, 1994 and 1993, respectively.

Leased Space Fees
Dollars in Thousands
1995
1996
$1,009
$683

1997

1998

1999

2000

$652

$384

$240

$172

13. Concentration of Credit Risk
The SAIF is counterparty to financial instruments
with entities located in two regions o f the United
States experiencing problems in both loans and real
estate. The SA IF's maximum exposure to possible
accounting loss for these instruments is $126
thousand for Southeast Bank, N .A ., Miami,
Florida, and $3.3 million for Olympic National
Bank, Los Angeles, California.

Insured Deposits
As o f December 31, 1994, the total deposits
insured by the SAIF is approximately $693 billion.
This would be the accounting loss if all the
depository institutions fail and if any assets
acquired as a result o f the resolution process
provide no recovery, and to the extent these losses
are not covered by the RTC.

14. Disclosures about the Fair Value of Financial Instruments
Cash equivalents are short-term, highly liquid
investments and are shown at current value. The
fair market value o f the investment in U.S.
Treasury obligations is disclosed in Note 4 and is
based on current market prices. The carrying
amount due from the FSLIC Resolution Fund,
short-term receivables, and accounts payable and




other liabilities approximates their fair market
value due to their short maturities. As explained in
Note 5, entrance and exit fees receivable are net of
discounts calculated using an interest rate
comparable to U.S. Treasury Bill or Government
bond/note rates at the time the receivables are
accrued.

Savings A ssociation Insurance Fund

It is not practicable to estimate the fair market
value o f net receivables from thrift resolutions.
These assets are unique, not intended for sale to
the private sector and have no established market.
The FDIC believes that a sale to the private sector
would require indeterminate, but substantial
discounts for an interested party to profit from
these assets because o f credit and other risks. A
discount o f this proportion would significantly
increase the cost o f thrift or "Oakar" or "Sasser"
bank resolutions to the SAIF. Comparisons with
other financial instruments do not provide a
reliable measure o f their fair market value. Due to
these and other factors, the FDIC cannot determine
an appropriate market discount rate and, thus, is

unable to estimate fair market value on a
discounted cash flow basis.
As stated in Note 7, the carrying amount o f the
estimated liability for anticipated failure o f insured
institutions is the total o f estimated losses for
thrifts as well as "Oakar" and "Sasser" banks that
have not failed, but the regulatory process has
identified as likely to fail within the foreseeable
future. It does not consider discounted future cash
flows because the FDIC cannot predict the timing
o f events with reasonable accuracy. For this
reason, the FDIC considers the total estimate of
these losses to be the best measure o f their fair
market value.

15. Disclosure about Recent Financial Accounting S tandards B oard Pronouncem ents
The FDIC has adopted SFAS No. 112,
"Employer's Accounting for Postemployment
Benefits." This statement requires employers to
recognize the obligation to provide benefits to
former or inactive employees after employment but
before retirement. The maximum potential post­
employment obligation due to accrued but unused
annual leave is shown under Note 10. There are no
other material obligations due to post-employment
benefits.
In May 1993, the Financial Accounting Standards
Board issued SFAS No. 114, "Accounting by
Creditors for Impairment o f a L oan." Most o f the
SAIF assets are specifically outside the scope o f
Statement No. 114. These assets are valued
through alternative methods or do not meet the
definition o f a loan within the meaning o f the




Statement. Any assets which may be subject to
Statement No. 114 are expected to be immaterial
either because o f insignificant book value or
because any potential adjustment to the carrying
value as a result o f applying Statement No. 114
would be immaterial.
The FDIC has adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities." This statement expands the use
o f fair market value accounting for securities that
have readily determinable fair market values but
retains the use o f the amortized cost method for
investments in debt securities that the reporting
enterprise has the positive intent and ability to hold
to maturity. Adoption o f this statement did not
have a material effect on the SAIF.

93

16. Supplementary Information Relating to the Statements of Cash Flows
As stated in the Summary o f Significant
Accounting Policies (see Note 2, Escrowed Funds
fro m Resolution Transactions), prior to April 20,
1994, the FDIC paid the acquirer the difference
between failed thrift liabilities assumed and assets
purchased, plus or minus any premium or
discount. The SAIF considered the assets

purchased portion o f this transaction to be a non­
cash adjustment. Accordingly, for the Statements
o f Cash Flows presentation, cash outflows for
thrift resolutions excludes $932 thousand in 1993
for assets purchased. As o f April 20, 1994, these
asset purchases are cash transactions.

Reconciliation of Net Income to Net Cash Provided by Operating Activities
Dollars in Thousands

$

Net Income

For the Year Ended
December 31
1994
1993
780,986
$ 876,702

Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Income Statement Items:
Provision for insurance losses
Amortization o f U .S. Treasury securities (unrestricted)
Loss on sale o f U .S. Treasury securities

414,000
(2,646)
289

16,531
37
0

Change in Assets and Liabilities:
(Increase) Decrease in amortization o f U.S. Treasury
Decrease in entrance and exit fees receivable
(Increase) Decrease in interest receivable and other assets
Decrease (Increase)
Increase (Decrease)
(Decrease) Increase
(Decrease) Increase

in
in
in
in

receivables from thrift resolutions
accounts payable and other liabilities
amount due to the FSLIC Resolution Fund
liabilities incurred from thrift resolutions

(Decrease) in estimated liabilities for anticipated failure
o f insured institutions
Increase in exit fees and investment proceeds held in escrow
Total




(17)

3,787

24,963

24,241

(10,824)
168,056
1,743

18,611
(174,948)
(6,453)

(168,696)
(932)

175,396

0
13,792
$ 1,220,714

932
(3,700)
10,880
$ 942,016

FSLIC R esolution Fund
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statements of Income and Accumulated Deficit

!
For the Year Ended
December 31
1994
1993

Dollars in Thousands

Revenue
Assessments

$

0

$

(63)

Interest on U.S. Treasury obligations

77,191

26,768

Revenue from corporate-owned assets

115,280

181,298

Other revenue

275,779

47,280

Total Revenue

468,250

255,283

Operating expenses

15,535

34,908

Interest expense

37,624

57,080

Corporate-owned asset expenses

66,394

53,461

(363,812)

860,425

10,355

9,505

Total Expenses and Losses

(233,904)

1,015,379

Net Income (Loss)

702,154

(760,096)

(44,427,696)

(43,667,600)

$ (43,725,542)

$ (44,427,696)

Expenses and Losses

Provision for losses (Note 10)
Other expenses

Accumulated Deficit - Beginning
Accumulated Deficit - Ending

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




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

Dollars in Thousands
1994

1993

Assets
Cash and cash equivalents (Note 3)

$

$

1,603,931

1,054,107

2,238,065

370,177

577,161

6,812

168,960

13,191

38,898

$ 2,722,835

T 4,627,015

Receivables from thrift resolutions, net (Note 4)
Investment in corporate-owned assets, net (Note 5)
Due from the Savings Association Insurance Fund (Note 6)
Other assets, net (Note 7)
Total Assets

1,278,548

Liabilities
Accounts payable and other liabilities

$

13,262

$

106,391

2,164,438

3,596,908

277,577

1,290,412

Litigation losses

2,100

70,000

Total Liabilities

2,457,377

5,063,711

Contributed capital

43,991,000

43,991,000

Accumulated deficit

(43,725,542)

(44,427,696)

265,458

(436,696)

Liabilities incurred from thrift resolutions (Note 8)
Estimated Liabilities for: (Note 9)
Assistance agreements

Commitments and contingencies (Notes 14 and 15)
Resolution Equity (Note 11)

Total Resolution Equity
Total Liabilities and Resolution Equity
The accompanying notes are an integral part of these financial statements.




$ 2,722,835

$ 4,627,015

FSLIC R esolution Fund
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statements of Cash Flows
Dollars in Thousands

For the Year Ended
December 31
1994

1993

Cash Flows from Operating Activities
Cash provided from:
Assessments

$

0

$

(63)

77.191

29,662

2,019,635

1,846,163

416,987

393,804

4,722

80,513

Operating expenses

(19,053)

(60,797)

Interest paid on indebtedness incurred from thrift resolutions

(28,620)

(50,267)

(2,077,535)

(2,477,719)

(222,037)

(327,712)

(2,578)

(43,871)

Interest on U.S. Treasury obligations
Recoveries from thrift resolutions
Recoveries from corporate-owned assets
Miscellaneous receipts
Cash used for:

Disbursements for thrift resolutions
Disbursements for corporate-owned assets
Miscellaneous disbursements
Net Cash Provided by (Used by) Operating Activities Before
Funding Transfer
Funding transfer to the Savings Association Insurance Fund
Net Cash Provided by (Used by) Operating Activities (Note 18)

168,712

(610,287)

0

(7,182)

168,712

(617,469)

Cash Flows from Financing Activities
Cash provided from:
U.S. Treasury payments

0

1,963,000

Cash used for:
Payments of indebtedness incurred from thrift resolutions

(494,095)

(1,529,178)

Net Cash (Used by) Provided by Financing Activities

(494,095)

433,822

Net Decrease in Cash and Cash Equivalents

(325,383)

(183,647)

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

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




1,603,931

1,787,578

$ 1,278,548

$ 1,603,931

Notes to Financial Statements
FSLIC Resolution Fund
December 31, 1994 and 1993

1. Legislative History and O perations of the FSLIC Resolution Fund
Legislative History
The Financial Institutions Reform, Recovery, and
Enforcement Act o f 1989 (FIRREA) was enacted
to reform , recapitalize and consolidate the federal
deposit insurance system. The FIRREA created the
FSLIC Resolution Fund (FRF), the Bank
Insurance Fund (BIF), and the Savings
Association Insurance Fund (SAIF). It also
designated the Federal Deposit Insurance
Corporation (FDIC) as the administrator o f these
three funds. The FRF is responsible for winding
up the affairs o f the form er Federal Savings and
Loan Insurance Corporation (FSLIC ). The BIF
insures the deposits o f all BIF-member institutions
(normally commercial or savings banks) and the
SAIF insures the deposits o f all SAIF-member
institutions (normally thrifts). All three funds are
maintained separately to carry out their respective
mandates.

for the FSLIC. Effective December 12, 1991, as
provided by the 1991 RTC Act, the FIC O 's ability
to serve as a financing vehicle for new debt was
terminated.

The FIRREA created the Resolution Trust
Corporation (RTC), which manages and resolves
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 Resolution Trust Corporation
Refinancing, Restructuring and Improvement Act
o f 1991 (1991 RTC Act) extended the R TC 's
general resolution responsibility through
September 30, 1993, and beyond that date for
those institutions previously placed under the
R TC 's control.

The FRF is funded from the following sources, to
the extent funds are needed, in this order: 1)
income earned on and proceeds from the
disposition o f assets o f the FRF and 2) liquidating
dividends and payments made on claims received
by the FRF from receiverships to the extent such
funds are not required by the REFCORP or the
FICO. If these sources are insufficient to satisfy
the liabilities o f the FRF, payments will be made
from the U.S. Treasury in amounts necessary, as
are appropriated by the Congress, to carry out the
purpose o f the FRF. To facilitate efforts to wind
up the resolution activity o f the FR F, Public Law
103-327 provides $827 million in funding to be
available until expended.

The Resolution Trust Corporation Completion Act
o f 1993 (1993 RTC Act), enacted December 17,
1993, extended the R TC 's general resolution
responsibility through a date between January 1,
1995 and July 1, 1995. The Chairman o f the Thrift
Depositor Protection Oversight Board selected July
1, 1995 as the date for transferring resolution
responsibility from the RTC to the SAIF.
The Resolution Funding Corporation (REFCORP)
was established by the FIRREA to provide funds
to the RTC for use in thrift resolutions. The
Financing Corporation (FICO), established under
the Competitive Equality Banking Act o f 1987, is a
mixed-ownership government corporation whose
sole purpose was to function as a financing vehicle




Operations of the FRF
The primary purpose o f the FRF is to liquidate the
assets and contractual obligations o f the now
defunct FSLIC. The FRF will complete the
resolution o f all thrifts that failed before January 1,
1989, or were assisted before August 9, 1989. The
FIRREA provided that the RTC manage any
receiverships resulting from thrift failures that
occurred after December 31, 1988, but prior to the
enactment o f the FIRREA. There are five such
receiverships that affect the FRF financial
statements because the FRF remains financially
responsible for the losses associated with these
resolution cases.

The 1993 RTC Act amended the termination date
of the RTC from December 31, 1996, to no later
than December 31, 1995. All assets and liabilities
of the RTC will be transferred to the FRF, after
which any future net proceeds from the sale of
such assets will be transferred to the REFCORP
for interest payments after satisfaction o f any
outstanding liabilities o f the RTC. The FRF will
continue until all o f its assets are sold or otherwise
liquidated and all o f its liabilities are satisfied.
Upon the dissolution o f the FR F, any funds
remaining will be paid to the U.S. Treasury.

FSLIC R esolution Fund
2. Sum m ary of Significant Accounting Policies
General
These financial statements pertain to the financial
position, results o f operations and cash flows of
the FRF and are presented in accordance with
generally accepted accounting principles. These
statements do not include reporting for assets and
liabilities o f closed insured thrift institutions for
which the FRF acts as receiver or liquidating
agent. Periodic and final accountability reports of
the F R F 's activities as receiver or liquidating agent
are furnished to courts, supervisory authorities and
others as required.
Allowance for Losses on Receivables from Thrift
Resolutions and Investment in CorporateOwned Assets
The FRF records as a receivable the amounts
advanced and/or obligations incurred for assisting
and closing thrift institutions. The FRF also
records as an asset the amounts advanced for
investment in corporate-owned assets. 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 the estimated cash recoveries from the
assets o f the assisted or failed thrift institution, net
o f all estimated liquidation costs.
Estimated Liabilities for
Assistance Agreements
The FRF establishes an estimated liability for
probable future assistance payable to acquirers of
troubled thrifts under its financial assistance
agreements. Such estimates are presented on a
discounted basis.
Litigation Losses
The FRF accrues, as a charge to current period
operations, an estimate o f probable losses from
litigation against the FRF in both its corporate and
receivership capacities. The F D IC 's Legal Division
recommends these estimates on a case-by-case
basis. The litigation loss estimates related to
receiverships are included in the allowance for
losses for receivables from thrift resolutions.
Receivership Administration
The FDIC is responsible for controlling and
disposing o f the assets o f failed institutions in an
orderly and efficient manner. The assets, and the
claims against those assets, are accounted for
separately to ensure that liquidation proceeds are
distributed in accordance with applicable laws and



regulations. Also, the income and expenses
attributable to receiverships are accounted for as
transactions o f those receiverships. Liquidation
expenses incurred by the FRF on behalf o f the
receiverships are recovered from those
receiverships.
Cost Allocations Among Funds
Certain operating expenses (including personnel,
administrative and other indirect expenses) not
directly charged to each fund under the F D IC 's
management are allocated on the basis o f the
relative degree to which the operating expenses
were incurred by the funds.
The FDIC includes the cost o f facilities used in
operations in the B IF 's financial statements. The
BIF charges the FRF a rental fee representing an
allocated share o f its annual depreciation. The cost
o f furniture, fixtures and equipment purchased by
the FDIC on behalf o f the three funds under its
administration is allocated among these funds on a
pro rata basis. The FR F expenses its share o f these
allocated costs at the time o f acquisition because of
their immaterial amounts.
Postretirement Benefits Other Than Pensions
The FDIC adopted the requirements o f the
Statement o f Financial Accounting Standards
(SFAS) No. 106, "Em ployer's Accounting for
Postretirement Benefits Other Than Pensions" in
1992. This standard mandates the accrual method
of accounting for postretirement benefits other than
pensions based on actuarially determined costs to
be recognized during employees' years o f active
service. This was a significant change from the
FD IC 's previous policy o f recognizing these costs
in the year the benefits were provided (i.e., the
cash basis).
The FDIC elected to immediately recognize the
accumulated postretirement benefit liability
(transition obligation). The transition obligation
represents that portion o f future retiree benefit
costs related to service already rendered by both
active and retired employees up to the date o f
adoption.
The FDIC established an entity to provide the
accounting and administration o f these benefits on
behalf o f the BIF, the SAIF, the FRF, and the
RTC. The FRF funds all o f its liabilities for these
benefits directly to the entity.

W holly Owned Subsidiary
The Federal Asset Disposition Association
(FADA) is a wholly owned subsidiary o f the FRF.
The FADA was placed in receivership on February
5, 1990. However, due to outstanding litigation, a
final liquidating dividend to the FRF will not be
made until such time as the FA D A 's litigation
liability is settled or dismissed. The investment in
the FADA is accounted for using the equity
method and is included in the line item "Other
assets, net" (Note 7). As o f December 31, 1994,
the value o f the investment has been adjusted for
projected expenses relating to the liquidation o f the
FADA. The FA D A 's estimate of probable
litigation losses is $3.3 million. Accordingly, a

$3.3 million litigation loss has been recognized as
a reduction in the value o f the F R F 's investment in
the FADA. There are no additional litigation losses
considered reasonably possible as o f December 31,
1994.
Related Parties
The nature o f related parties and descriptions of
related party transactions are disclosed throughout
the financial statements and footnotes.
Reclassifications
Reclassifications have been made in the 1993
financial statements to conform to the presentation
used in 1994.

3. Cash and Cash Equivalents
The FRF considers cash equivalents to be
short-term, highly liquid investments with original
maturities o f three months or less. In 1994, cash
restrictions included $317 thousand for health

insurance payable and $821 thousand for funds
held in trust. In 1993, cash restrictions included
$1 million for health insurance payable and $2.7
million for funds held in trust.

Cash and Cash Equivalents
Dollars in Thousands

100

December 31
1994

Cash

$

One-day special Treasury certificates
Total

_ _ _ _

4,182

1993
$

34,483

1,274,366

1,569,448

$ 1,278,548

$ 1,603,931

4. Receivables from Thrift Resolutions, Net
As o f D ecem ber 31, 1994 and 1993, the FR F, in
its receivership capacity, held assets with a book
value o f $947 m illion and $1.8 billion,
respectively. The estim ated cash recoveries from
the sale o f these assets (excluding cash and
m iscellaneous receivables o f $168 m illion in
1994 and $226 m illion in 1993) are regularly
evaluated, but rem ain subject to uncertainties
because o f changing econom ic conditions. These
factors could reduce the F R F 's actual recoveries
upon the sale o f these assets from the level o f
recoveries currently estim ated.




During 1993, the F D IC 's Board o f Directors
delegated to the RTC the authority to execute
partnership agreements on behalf o f the FDIC.
Under that authority, the FDIC secured a limited
partnership interest in two partnerships, Mountain
AMD and Brazos Partners, in order to achieve a
least cost resolution. During 1994, the FRF
collected its entire interest in the Brazos Partners
Limited Partnership. In addition, funds in excess
o f the original investment continue to be collected
by the FRF and are recorded in the line item
"Other Revenue." The FRF has a remaining
interest o f $29.6 million in the Mountain AMD
Limited Partnership, as o f December 31, 1994.

FSLIC R esolution Fund
Receivables from T h rift R esolutions, Net
D ollars in T housands

D ecem ber 31
1994

Assets from O pen T h rift Assistance:
Collateralized loans

$

360,000

1993
$

380,000

151,958

125,153

65,000
29,624

Other loans
Capital instruments

65,000

429,628

Accrued interest receivable
Allowance for losses (Note 10)

972,915
470,955

4,717

Interest in limited partnerships
Preferred stock from assistance transactions

2,992
(423,296)

(423,296)
617,631

1,593,719

9,114,230

9,677,150

Receivables from Closed T hrifts:
Resolution transactions
Collateralized advances/loans

289,494

305,264

Other receivables

218,918

210,795

Allowance for losses (Note 10)

(9,186,166)

(9,548,863)

436,476
T otal

644,346

$ 1,054,107

$ 2,238,065

5. Investm ent in C orporate-O w ned Assets, Net
The F R F 's investment in corporate-owned assets is
comprised o f amounts that: 1) the FSLIC paid to
purchase assets from troubled or failed thrifts and
2) the FRF pays to acquire receivership assets,
terminate receiverships and purchase covered
assets. The majority o f these assets are real estate
and mortgage loans.

The FRF recognizes income and expenses on these
assets. Income consists primarily o f the portion of
collections on performing mortgages related to
interest earned. Expenses are recognized for
administering the management and liquidation of
these assets.

Investm ent in C orporate-O w ned Assets, Net
D ollars in T housands
Investment in corporate-owned assets
Allowance for losses (Note 10)
Total




Decem ber 31
1994
$ 3,444,413

1993
$ 3,565,463

(3,074,236)
$

370,177

(2,988,302)
$

577,161

101

6. Due from the Savings Association Insurance Fund
The Heartland Federal Savings and Loan
Association (Heartland), Ponca City, Oklahoma,
was a SAIF-insured institution that became party to
a 10-year Assistance Agreement with the FSLIC
upon the failure o f its predecessor, Frontier
Federal Savings and Loan Association, in 1988.
FSLIC obligations were assumed by the FRF upon
the enactment o f the FIRREA in 1989. Section 32
o f the Assistance Agreement effectively gave the
FRF sole equity interest in Heartland. Section 2.13
o f the agreement entitled "Additional Operating
Terms and Conditions" gave the FD IC , as
manager o f the FRF, authority to take such action
as might be necessary to effect the acquisition of
Heartland. The FDIC determined that the value of
the F R F 's equity interest in Heartland would be
maximized and total assistance cost would be
minimized by a termination o f the Assistance
Agreement and sale o f Heartland, thereby
returning it to the private sector. To effect the sale,
a receiver was appointed for Heartland for the
purpose o f transferring assets and liabilities to the
acquirers.

102

Technically, Heartland was not a "failing
institution" because o f its well-capitalized
condition, which resulted from the government
assistance provided. Heartland's Board of
Directors consented to the Office o f Thrift
Supervision's appointment o f the FDIC (SAIF) as
receiver on October 8, 1993. The FDIC was
appointed receiver because, at the time, R TC 's
authority to resolve FSLIC-insured thrifts had not
yet been extended by the RTC Completion Act.
Because Heartland was not failing, all uninsured
depositors and general trade creditors were paid in
full, leaving only the FRF as sole creditor.
Payment to the acquirers o f Heartland to cover
insured depositors' claims was funded by the FRF
and represents a claim against the receivership's
assets. The receiver reimburses the FRF as claims
are satisfied through the liquidation process. As of
December 31, 1994 and 1993, the receiver owes
the FRF $6.8 million and $169 million, respectively

1 7. O th er Assets, Net
Dollars in Thousands

December 31
1994

Investment in FADA (Note 2)
Allowance for losses (Note 10)

$ 25,000

1993
$25,000

(12,375)

(11,258)

12,625

13,742

Accounts receivable

230

158

Due from other government entities

336

24,998
$38,898

Investment in FADA, Net

Total

$ 13,191

8. Liabilities In cu rred from T hrift Resolutions
The FSLIC issued promissory notes and entered
into assistance agreements in order to prevent the
default and subsequent liquidation o f certain
insured thrift institutions. These notes and
agreements required the FSLIC to provide
financial assistance over time. Under the FIRREA,
the FRF assumed these obligations. The FRF
presents its notes payable and its obligation for




assistance agreement payments incurred but not yet
paid as a component o f the line item "Liabilities
incurred from thrift resolutions." Estimated future
assistance payments under its assistance
agreements are presented as a component o f the
line item "Estimated liabilities for: Assistance
agreements" (see Note 9).

FSLIC R esolution Fund
Liabilities Incurred from Thrift Resolutions
December 31

Dollars in Thousands

1993

1994
Notes payable to Federal Home Loan Banks/U.S. Treasury

$

360,000

$

380,000

725

Capital instruments

725

189,360

Total

109,830

$2,164,438

Other liabilities to thrift institutions

7,983

81,379

Accrued interest

2,414,915

2,931

Accrued assistance agreement costs

683,455

1,530,043

Assistance agreement notes

$3,596,908

Maturities of Liabilities
Dollars in Thousands
1995

1996

1997

1998

$2,006,638

$31,560

$31,560

$94,680

9. Estimated Liabilities for:
Assistance Agreements
The "Estimated liabilities for: Assistance
agreements" line item represents, on a discounted
basis, an estimate o f future assistance payments to
acquirers o f troubled thrift institutions. The
nominal dollar amount of this line item before
discounting was $294 million and $1.3 billion, as
o f December 31, 1994 and 1993, respectively. The
discount rates applied as o f December 31, 1994
and 1993, was 6.3 percent and 3.5 percent,
respectively, based on U.S. money rates for
federal funds.
Future assistance stems from the F R F 's obligation
to: 1) fund losses inherent in assets covered under
the assistance agreements (e.g., by subsidizing
asset write-downs, capital losses and goodwill
amortization) and 2) supplement the actual yield
earned from covered assets as necessary for the
acquirer to achieve a specified yield (the
"guaranteed yield"). Estimated total assistance
costs recognized for current assistance agreements
with institutions involving covered assets include
estimates for the loss expected on the assets based
on their appraised values. The FRF is obligated to
fund any losses sustained by the institutions on the
sale o f the assets. If all underlying assets prove to
be o f no value, the possible cash requirements and
the accounting loss could be as high as $1.1 billion
(see Note 15). The costs and related cash




requirements associated with the maintenance o f
covered assets are calculated using an applicable
cost o f funds rate and would change
proportionately with any change in market rates.
The RTC, on behalf o f the FRF, had authority to
modify, renegotiate or restructure the 1988 and
1989 assistance agreements with FSLIC-assisted
institutions with terms more favorable to the FRF.
This authority ended June 30, 1993. In accordance
with a 1991 RTC Board Resolution, any FSLICassisted institution placed in RTC conservatorship
or receivership is subject to revised termination
procedures.
The number o f assistance agreements outstanding
as o f December 31, 1994 and 1993, were 54 and
71, respectively. The last agreement is scheduled
to expire in December 1998.
The estimated liabilities for assistance agreements
are affected by several factors, including
adjustments to expected notes payable, the terms of
the assistance agreements outstanding and, in
particular, the marketability o f the related covered
assets. The variable nature o f the FRF assistance
agreements will cause the cost requirements to
fluctuate. This fluctuation will impact both the
timing and amount o f eventual cash flows.
Although the "Estimated liabilities for: Assistance

7 03

agreements" line item is presented on a discounted
basis, the following schedule details the projected

timing o f the future cash flows as o f December 31,
1994, before discounting.

Estimated Assistance Payments
Dollars in Thousands
1995

1996

1997

1998/Thereafter

$219,516

$30,093

$2,416

$42,217

Litigation Losses
The FRF records an estimated loss for unresolved
legal cases to the extent those losses are considered
to be both probable in occurrence and reasonably
estimable in amount. In addition, the FD IC 's
Legal Division has determined that losses from
unresolved legal cases totaling $292 million are
reasonably possible. This includes $279 million in
losses for the FRF in its corporate capacity and
$13 million in losses for the FRF in its
receivership capacity (see Note 2). In addition,
during the 1980s, FSLIC Assistance Agreements
provided certain institutions with supervisory
goodwill incident to their acquisition o f failed
thrifts. Subsequently, FIRREA required the
imposition o f minimum capital requirements on

thrifts and limited the use o f supervisory goodwill
to meet these capital requirements. There are
currently approximately 50 cases pending resulting
from the elimination o f supervisory goodwill.
FDIC expects additional suits to be filed. To date,
one o f these cases has resulted in a final judgm ent
o f $6 million against FDIC, which FDIC paid
from FRF in accordance with the court's order.
This $6 million is included in the $279 million
disclosed above as reasonably possible. FDIC
believes that judgments in such cases are more
properly paid from the Judgement Fund, a
permanent, indefinite appropriation established by
31 U .S.C . 1304. The extent to which FRF will be
the source for paying other judgements in such
cases is uncertain.

10. Analysis of Changes in Allowance for Losses and Estimated Liabilities
In the following charts, transfers include
reclassifications from the line item "Estimated
liabilities for: Assistance agreements" to the line
item "Liabilities incurred from thrift resolutions"
for notes payable and related accrued assistance




agreement costs. Terminations represent final
adjustments to the estimated cost figures for those
thrift resolutions that were completed and for
which the operations o f the receivership ended.

FSLIC R esolution Fund
Analysis of Changes in Allowance for Losses and Estimated Liabilities - 1994
Dollars in Millions

Allowance for Losses:
Open thrift assistance
Closed thrifts
Corporate-owned assets

Beginning
Balance
01/01/94
$

423

Provision
for
Losses
$

0

Net
Cash
Payments

Transfers/
Terminations

Ending
Balance
12/31/94

$

$

$

0

0

423
9,186
3,074

9,549
2,988

Litigation losses

0
1

0
0

(7)
0

12

(46)

0

(237)

12,695

1,290

Estimated Liabilities for:
Assistance agreements

(230)
0

12,978

Total Allowance for Losses:

0
0

7
11

Due from the SAIF
Investment in FADA

(133)
86

(320)

70

Total Estimated Liabilities

(1,424)

2

1,360

Provision for Losses_______________________ $

732

0

278

(70)

(1,424)

(318)

0

2

662

280

(364)

Dollars in Millions

Allowance for Losses:
Open thrift assistance
Closed thrifts
Corporate-owned assets
Due from the SAIF
Investment in FADA
Total Allowance for Losses
Estimated Liabilities for:
Assistance agreements
Litigation losses
Total Estimated Liabilities
Provision for Losses




105
Beginning
Balance
01/01/93
$

972

Provision
for
Losses
$

9,919

106
(273)

Net
Cash
Payments

Transfers/
Terminations

Ending
Balance
12/31/93

$

$

$

0
0

(655)

423
9,549

2,971

17

0

(97)
0

0
10

7
1

0
0

0
0

13,872

(142)

0

(752)

12,978

2,347

1,075
(73)

(1,496)

(636)
70

1,290

1,002

(1,496)

(566)

1,360

73
2,420
$

860

0

2,988
7
11

70

11. Resolution Equity
The Accumulated Deficit includes $7.5 billion in
non-redeemable capital certificates and redeemable
capital stock issued by the FSLIC. Capital
instruments have been issued by the FSLIC and the
FRF to the FICO as a means o f obtaining capital.
Effective December 12, 1991, the FIC O 's

authority to issue obligations as a means of
financing for the FRF was terminated (see Note 1).
Furtherm ore, the implementation o f the FIRREA,
in effect, has removed the redemption
characteristics o f the capital stock issued by the
FSLIC.

Resolution Equity
1994

Dollars in Thousands

Beginning
Balance
01/01/94
Contributed capital

Dollars in Thousands

$

(436,696)

Accumulated deficit
Total

$

702,154

Net Income

$ 42,028,000

$

$

0

0

$ 43,991,000

0

702,154

1993
Beginning
Balance
01/01/93

Contributed capital

0

$

(44,427,696)

Accumulated deficit
Total

Net Income

$ 43,991,000

Ending
Balance
12/31/94

Treasury
Payments

$

0

(43,725,542)
$

Ending
Balance
12/31/93

Treasury
Payments
$ 1,963,000

(43,667,600)

(760,096)
$(760,096)

$ 1,963,000

$ 43,991,000

0

$ (1,639,600)

265,458

(44,427,696)
$

(436,696)

12. Pension Benefits, Savings Plans and Accrued Annual Leave
Eligible FDIC employees (i.e., all permanent and
temporary employees with an appointment
exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal
Employee Retirement System (FERS). The CSRS
is a defined benefit plan offset with the Social
Security System in certain cases. Plan benefits are
determined on the basis o f years o f creditable
service and compensation levels. The CSRScovered employees also can participate in the taxdeferred Federal Thrift Savings Plan (TSP) .
The FERS is a three-part plan consisting o f a basic
defined benefit plan that provides benefits based on
years o f creditable service and 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.
Eligible FDIC employees may also participate in
an FDIC-sponsored tax-deferred savings plan with
matching contributions. The FRF pays its share of
the em ployer's portion o f all related costs.
Although the FRF contributes a portion o f pension
benefits for eligible employees, it does not account
for the assets o f either retirement system. The FRF
also does not have actuarial data with respect to
accumulated plan benefits or the unfunded liability
relative to eligible employees. These amounts are
reported and accounted for by the U .S. Office of
Personnel Management.
The liability to employees for accrued annual leave
is approximately $3.2 million and $2.3 million at
December 31, 1994 and 1993, respectively.

FSLIC R esolution Fund
Pension Benefits and Savings Plans Expenses
For the Year Ended
December 31
1994
1993

Dollars in Thousands

$

Civil Service Retirement System

548

$

577

Federal Employee Retirement System (Basic Benefit)

2,222

2,383

FDIC Savings Plan

1,520

1,267

725

734

Federal Thrift Savings Plan
Total

$

5,015

$

4,961

I 13. Postretirem ent Benefits O ther than Pensions
The FDIC provides certain health, dental and life
insurance coverage for its eligible retirees, the
retirees' beneficiaries and covered dependents.
Retirees eligible for health and/or life insurance
coverage are those who have qualified due to: 1)
immediate enrollment upon appointment or five
years o f participation in the plan and 2) eligibility
for an immediate annuity. Dental coverage is
provided to all retirees eligible for an immediate
annuity.
The FDIC converted to self-insured health
coverage for hospital/medical, prescription drug,
mental health and chemical dependency during
March 1994. Additional risk protection was
purchased from Aetna Life Insurance Company
through stop-loss and fiduciary liability insurance.
All claims are administered on an administrative
services only basis with the hospital/medical claims
administered by Aetna Life Insurance Company,
the mental health and chemical dependency claims
administered by OHS Foundation Health Psychcare
Inc., and the prescription drug claims administered
by Caremark. Health insurance coverage was
previously provided as a comprehensive fee-forservice program underwritten by Blue Cross/Blue
Shield o f the National Capital Area, with hospital
coverage and a major medical wraparound.




The life insurance program , underwritten by
Metropolitan Life Insurance Company, provides
basic coverage at no cost to retirees and allows
converting optional coverages to direct-pay plans.
Dental care is underwritten by Connecticut General
Life Insurance company and provides coverage at
no cost to retirees.
The FRF expensed $1.4 million and $2.8 million
for net periodic postretirement benefit costs for the
years ended December 31, 1994 and 1993,
respectively. For measurement purposes, the FDIC
assumed the following: 1) a discount rate o f 6
percent; 2) an increase in health costs in 1994 of
12.5 percent, decreasing down to an ultimate rate
in 1998 o f 8 percent; and 3) an increase in dental
costs in 1994 and thereafter o f 8 percent. Both the
assumed discount rate and health care cost rate
have a significant effect on the amount o f the
obligation and periodic cost reported.
If the health care cost rate were increased one
percent, the accumulated postretirement benefit
obligation as o f December 31, 1994, would have
increased by 16.6 percent. The effect o f this
change on the aggregate o f service and interest cost
for 1994 would be an increase o f 26.3 percent.

107

Net Periodic Postretirement Benefit Cost
Dollars in Thousands

For the Year Ended
December 31
1994
1993
$ 1,464

$ 1,702

832

874

(470)

(69)

Amortization o f loss

187

244

Return on plan assets

(634)

Service cost (benefits attributed to employee service during the year)
Interest cost on accumulated postretirement benefit obligation
Amortization o f prior service cost

$1 ,3 7 9

Total
As stated in Note 2, the FDIC established an entity
to provide accounting and administration on behalf
o f the BIF, the SAIF, the FRF and the RTC. The

2
$2,753

FRF funds its liability and these funds are being
managed as "plan assets."

Accumulated Postretirement Benefit Obligation by Participant
December 31

Dollars in Thousands

1994

1993

$ 3,895

$7,937

924

469

12,892

2,497

17,711

10,903

16,442

Retirees

10,125

Fully eligible active plan participants
Other active participants
Total Obligation
Less: Plan assets at fair value

(a)

Postretirement Benefit Liability Included in
the Statements of Financial Position
(a)

$ 1,269

$

778

Consists o f U.S. Treasury investments

14. Com mitm ents
The FRF currently is sharing in the F D IC 's leased
space. The F R F 's allocated share o f lease
commitments totals $8.2 million for future years.
The lease agreements contain escalation clauses
resulting in adjustments, usually on an annual

basis. The FRF recognized leased space expense of
$8.9 million for each o f the years ended December
31, 1994 and 1993, respectively.

Leased Space Fees
Dollars in Thousands
1995

1996

1997

1998

1999

2000

$2,656

$1,786

$1,673

$1,007

$614

$443




FSLIC R esolution Fund
15. C oncentration of C redit Risk
The FRF is counterparty to a group o f financial
instruments with entities located throughout
regions o f the United States experiencing problems
in both loans and real estate. The F R F 's maximum

exposure to possible accounting loss, should each
counterparty to these instruments fail to perform
and any underlying assets prove to be o f no value,
is shown as follows:

Concentration of Credit Risk at December 31, 1994
Dollars in Millions
South­
east
Receivables from
thrift resolutions, net
Investment in
corporate-owned assets,net
Due from the SAIF
Assistance agreements
covered assets, net of
estimated capital loss
(off-balance sheet)
Total

South­
west

North­
east

$114

$ 300

$7

$7

$ 42

$584

$1,054

4
0

193
7

1
0

0
0

37
0

135
0

370
7

0
$118

1,005
$1,505

0
$8

0
$7

85
$164

14
$733

1,104
$2,535

Mid­
west

Central

West

Total

16. Disclosures about the Fair Value of Financial Instruments
Cash equivalents are short-term, highly liquid
investments and are shown at current value. The
carrying amount o f accounts payable, liabilities
incurred from thrift resolutions and the estimated
liabilities for assistance agreements approximates
their fair market value due to their short maturities
or comparisons with current interest rates.
It is not practicable to estimate fair market values
of net receivables from thrift resolutions. These
assets are unique, not intended for sale to the
private sector and have no established market. The
FDIC believes that a sale to the private sector
would require indeterminate, but substantial
discounts for an interested party to profit from
these assets because o f credit and other risks. A
discount o f this proportion would significantly
increase the cost o f thrift resolutions to the FRF.
Comparisons with other financial instruments do
not provide a reliable measure o f their fair market
value. Due to these and other factors, the FDIC
cannot determine an appropriate market discount
rate and, thus, is unable to estimate fair market
value on a discounted cash flow basis. As shown in




Note 4, the carrying amount is the estimated cash
recovery value, which is the original amount
advanced (and/or obligations incurred) net o f the
estimated allowance for loss.
The majority o f the net investment in corporateowned assets (except real estate) is comprised of
various types o f financial instruments
(investments, loans, accounts receivable, etc.)
acquired from failed thrifts. As with net
receivables from thrift resolutions, it is not
practicable to estimate fair market values. Cash
recoveries are primarily from the sale o f poor
quality assets. They are dependent upon market
conditions which vary over time, and can occur
unpredictably over many years following
resolution. Since the FDIC cannot reasonably
predict the timing o f these cash recoveries, it is
unable to estimate fair market value on a
discounted cash flow basis. As shown in Note 5,
the carrying amount is the estimated cash recovery
value, which is the original amount advanced
(and/or obligations incurred) net o f the estimated
allowance for loss.

109

17. Disclosure about Recent Financial Accounting S tandards Board Pronouncem ents
The FDIC has adopted SFAS No. 112,
"Em ployer's Accounting for Postemployment
Benefits." This statement requires employers to
recognize the obligation to provide benefits to
form er or inactive employees after employment but
before retirement. The maximum potential post­
employment obligation due to accrued but unused
annual leave is shown under Note 12. There are no
other material obligations due to post-employment
benefits.
In May 1993, the Financial Accounting Standards
Board issued SFAS No. 114, "Accounting by
Creditors for Impairment o f a Loan." M ost o f the
FRF assets are specifically outside the scope of
Statement No. 114, These assets are valued
through alternative methods, or do not meet the
definition o f a loan within the meaning o f the

Statement. Any assets which may be subject to
Statement No. 114 are expected to be immaterial
either because o f insignificant book value or
because any potential adjustment to the carrying
value as a result o f applying Statement No. 114
would be immaterial.
The FDIC has adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities." This statement expands the use
o f fair market value accounting for securities that
have readily determinable fair market values but
retains the use o f the amortized cost method for
investments in debt securities that the reporting
enterprise has the positive intent and ability to hold
to maturity. Adoption o f this statement did not
have a material effect on the FRF.

18. Supplem entary Inform ation Relating to the Statem ents of C ash Flows

110

Non-cash financing activities for the year ended
December 31, 1994, include collateralized loans
guaranteed by the FRF decreasing $20 million (see
Note 4). Non-cash financing activities for the year

ended December 31, 1993, include: 1) canceled
notes payable (NWCs) of $6.5 million; and
2) collateralized loans guaranteed by the FRF
decreased $90 million (see Note 4).

Reconciliation of Net Income to Net Cash Provided by Operating Activities
For the Year Ended
December 31
1994
1993

Dollars in Thousands

Net Income (Loss)

$

702,154

$

(760,096)

Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used by) Operating Activities___________
Income Statement Items:____________________________________________________________________
Provision for losses

(363,812)

860,425

Change in Assets and Liabilities:
1,342,743

Decrease in receivables from thrift resolutions

974,482

Decrease (increase) in investment in corporate-owned assets

121,049

(49,660)

Decrease (increase) in due from the SAIF

162,149

(175,508)

(1,638)

Decrease in accounts payable and other liabilities




(29,310)

(1,700,804)

Decrease in liabilities from thrift resolutions
Net Cash Provided by (Used by) Operating Activities

79,592

(93,129)

(Increase) decrease in other assets

$

168,712

(1,517,394)
$

(617,469)




C o m p tro ller G eneral
o f th e U nited S ta te s
Washington, D.C. 20548

B-259232
March

31,

1995

T o the B o a r d of
Federal Deposit

Directors
Insurance

Corporation

W e h a v e a u d i t e d t h e s t a t e m e n t s of f i n a n c i a l p o s i t i o n as of
D e c e m b e r 31, 1 9 9 4 a n d 1 9 93 , o f t h e t h r e e f u n d s a d m i n i s t e r e d
b y the F ederal D e p o s i t Ins u r a n c e C o r p o r a t i o n (FDIC), the
r e l a t e d s t a t e m e n t s of i n c o m e and fund b a l a n c e ( a c c u m u l a t e d
d e f i c i t ) , and s t a t e m e n t s of c a s h flows for t h e y e a r s t h e n
ended.
In o u r a u d i t s of t h e B a n k I n s u r a n c e F u n d ( B I F ) , t h e
S a v i n g s A s s o c i a t i o n I n s u r a n c e F u n d (SAIF), a n d t h e F e d e r a l
S a v i n g s a n d L o a n I n s u r a n c e C o r p o r a t i o n (FSLIC) R e s o l u t i o n
F u n d (F R F ) , w e f o u n d
--

the financial statements,
in all m a t e r i a l respects;

taken

as

a whole,

were

reliable

-- F D I C m a n a g e m e n t f a i r l y s t a t e d t h a t i n t e r n a l c o n t r o l s i n
p l a c e o n D e c e m b e r 31, 1 9 9 4 , w e r e e f f e c t i v e i n s a f e g u a r d i n g
a s s e t s a g a i n s t u n a u t h o r i z e d a c g u i s i t i o n , use, or
d i s p o s i t i o n , a s s u r i n g t h e e x e c u t i o n of t r a n s a c t i o n s in
accordance with management's authority and with provisions
of s e l e c t e d laws and r e g u l a t i o n s that h a v e a d i r e c t and
material effect on the financial statements, and assuri ng
t h a t t h e r e w e r e no m a t e r i a l m i s s t a t e m e n t s in t h e f i n a n c i a l
s t a t e m e n t s of t h e t h r e e f u n d s a d m i n i s t e r e d b y F D I C ; a n d
--

no repor t a b l e
tested.

noncompliance

with

laws

and

regulations

we

D u r i n g o u r a u d i t s of t h e 1 9 9 3 f i n a n c i a l s t a t e m e n t s o f t h e
t h r e e f u n d s , 1 w e i d e n t i f i e d a m a t e r i a l w e a k n e s s 2 in FDIC ' s
i nte r n a l a c c o u n t i n g c o n t r o l s o v e r its p r o c e s s for e s t i m a t i n g
r e c o v e r i e s it w i l l r e a l i z e o n t h e m a n a g e m e n t a n d d i s p o s i t i o n
of B I F ' s a n d F R F's i n v e n t o r y of f a i l e d i n s t i t u t i o n assets.
T his w e a k n e s s a d v e r s e l y a f f e c t e d FDIC's a b i l i t y to en s u r e
that consistent and sound methodologies were used and proper
d o c u m e n t a t i o n was m a i n t a i n e d to e s t i m a t e r e c o v e r i e s o n f a i l e d
institution assets.
In a d d i t i o n t o t h i s m a t e r i a l w e a k n e s s ,
w e i d e n t i f i e d o t h e r w e a k n e s s e s in F D I C ' s i n t e r n a l c o n t r o l s
w h i c h , w h i l e n o t m a t e r i a l r e p o r t a b l e c o n d i t i o n s , a f f e c t e d its
a b i l i t y to e n s u r e that inte r n a l c o n t r o l o b j e c t i v e s w e r e
achieved.
W e m a d e a n u m b e r of r e c o m m e n d a t i o n s to a d d r e s s
e a c h of t h e w e a k n e s s e s i d e n t i f i e d in o u r 1993 a u d i t s .
f i n a n c i a l Audit: Federal Depo s i t I n surance C o r p o r a t i o n ' s
1 9 9 3 a n d 1 9 9 2 F i n a n c i a l S t a t e m e n t s (G A O / A I M D - 9 4 - 135, J u n e
19 9 4 ) .

24,

2A m a t e r i a l w e a k n e s s is a r e p o r t a b l e c o n d i t i o n i n w h i c h t h e
d e s i g n o r o p e r a t i o n of t h e c o n t r o l s d o e s n o t r e d u c e t o a
re l a t i v e l y low level the r isk that losses, noncomp l i a n c e , or
m i s s t a t e m e n t s in a m o u n t s that w o u l d b e m a t e r i a l in r e l a t i o n
to the financial statements ma y occur and not be detected
p r o m p t l y b y e m p l o y e e s in t h e n o r m a l c o u r s e o f t h e i r a s s i g n e d
duties.
Reportable conditions involve matters coming to our
a t t e n t i o n r e l a t i n g to s i g n i f i c a n t d e f i c i e n c i e s in t h e d e s i g n
o r o p e r a t i o n of i n t e r n a l c o n t r o l s t h at, in t h e a u d i t o r ' s
j u d g m e n t , c o u l d a d v e r s e l y a f f e c t a n e n t i t y ' s a b i l i t y t o (1)
s a f e g u a r d a s sets a g a i n s t loss from u n a u t h o r i z e d a c q u i s i t i o n ,
u s e , o r d i s p o s i t i o n , (2) e n s u r e t h e e x e c u t i o n o f t r a n s a c t i o n s
i n a c c o r d a n c e w i t h l a w s a n d r e g u l a t i o n s , a n d (3) p r o p e r l y
record, process, and sum m a r i z e tra n s a c t i o n s to p e r m i t the
p r e p a r a t i o n of f i n a n c i a l s t a t e m e n t s .
Reportable conditions
wh i c h are not considered material weaknesses nevertheless
r e p r e s e n t d e f i c i e n c i e s in t h e d e s i g n o r o p e r a t i o n o f i n t e r n a l
c o n t r o l s and n e e d to be c o r r e c t e d b y m a n a g e m e n t .

In c o n d u c t i n g o u r 1 9 9 4 a u d i t s , w e f o u n d t h a t F D I C c o n t i n u e d
to mak e p r o gress to address the internal cont r o l w e a k n e s s e s
id entified during our previous audits.
FDIC's actions during
1994 p a r t i a l l y r e s o l v e d t h e o n e w e a k n e s s c o n s i d e r e d m a t e r i a l
to t h e e x t e n t t h a t w e no l o n g e r c o n s i d e r it t o b e m a t e r i a l .
In a d d i t i o n , F D I C ' s a c t i o n s d u r i n g 1994 a d e q u a t e l y a d d r e s s e d
on e of the t h r e e o t h e r w e a k n e s s e s i d e n t i f i e d d u r i n g o u r 1993
a u d i t s .3
W h i l e F D I C c o n t i n u e s to impr o v e its s y s t e m of i n t e r n a l
controls, further improvements are needed.
O u r 1994 a u d i t s
c o n t i n u e d to ident i f y weaknesses, though not c o n s i d e r e d
m a t e r i a l , in c o n t r o l s o v e r F D I C ' s p r o c e s s for e s t i m a t i n g
recoveries from failed institution assets, do c u m e n t a t i o n used
to s u p p o r t the e s t i m a t e d r e c o v e r i e s f rom f a i l e d i n s t i t u t i o n
assets, a n d o v e r s i g h t of e n t i t i e s c o n t r a c t e d t o s e r v i c e a n d
liquidate assets from failed financial institutions.
In
addi t i o n , w e c o n t i n u e d to i d e n t i f y w e a k n e s s e s in F D I C ' s t i m e
and attendance processes.
D u r i n g o u r 1994 audits, w e n o t e d c o n t i n u e d i m p r o v e m e n t in the
c o n d i t i o n of the n a t i o n ' s b a n k s a n d s a v i n g s a s s o c i a t i o n s .
T h e i m p r o v e d c o n d i t i o n of the b a n k i n g industry, a n d the
h i g h e r p r e m i u m s B I F - m e m b e r i n s t i t u t i o n s h a v e p a i d in t h e last
s e v e r a l years, h a v e r e s u l t e d in a n a c c e l e r a t i o n of B I F ' s
recapitalization.
Given BIF's current condition and short­
t e r m o u t l o o k , it is l i k e l y t h a t t h e F u n d w i l l r e a c h i t s
d e s i g n a t e d c a p i t a l i z a t i o n l e v e l in 1995.
Currently, FDIC
p l a n s to l o w e r p r e m i u m r ates c h a r g e d to B I F - m e m b e r
i n s t i t u t i o n s w h e n B I F a c h i e v e s its d e s i g n a t e d r a t i o of
reserves to insured deposits.
While the improved condition
of t h e n a t i o n ' s t h r i f t s a n d h i g h e r p r e m i u m s h a v e h e l p e d
i m p r o v e S A I F ' s con d i t i o n , it r e m a i n s t h i n l y c a p i t a l i z e d .
S A I F is n o t e x p e c t e d t o r e a c h f u l l c a p i t a l i z a t i o n u n t i l 2 0 0 2 ,
and thus remains vulnerable to financial institution
failures.
Additionally, a significant premium rate
d i f f e r e n t i a l b e t w e e n B I F a n d S A I F w i l l d e v e l o p i n 1 9 9 5 if
F D I C l o w e r s B I F r a t e s as s o o n a s B I F a t t a i n s i t s d e s i g n a t e d
rese r v e ratio.
This differential could have an adverse
i m p a c t on t h e t h r i f t i n d u s t r y a n d SAIF.
OPINION ON

_

-

—

112




Bank

FINANCIAL

Insurance

STATEMENTS

Fund

In o u r o p i n i o n , t h e f i n a n c i a l s t a t e m e n t s a n d a c c o m p a n y i n g
n o t e s p r e s e n t fairly, in c o n f o r m i t y w i t h g e n e r a l l y a c c e p t e d
a c c o u n t i n g p r i n c i p l e s , in all m a t e r i a l resp e c t s , t h e B a n k
I n s u r a n c e F u n d ' s f i n a n c i a l p o s i t i o n a s o f D e c e m b e r 31, 1 9 9 4
a n d 1 9 93, a n d t h e r e s u l t s o f i t s o p e r a t i o n s a n d i t s c a s h
flows for the y ears t hen ended.
As d i s c u s s e d in n o t e 9 of B IF's f i n a n c i a l s t a t e m e n t s , d u r i n g
1994, F D I C s e c u r i t i z e d a p o r t i o n of B I F ' s p o r t f o l i o of
pe rfo rmi ng loans acquired from failed financial institutions.
T h i s s e c u r i t i z a t i o n w a s in the form of a Real E s t a t e M o r t g a g e
I n v e s t m e n t C o n d u i t (REMIC) T r u s t 1 9 9 4 - C 1 (Trust).
To
f a c i l i t a t e t h e s a l e of c e r t i f i c a t e s i s s u e d b y the T r u s t a n d
to m a x i m i z e the r e t u r n o n the s a l e of the asse t s , BIF
p r o v i d e d a l i m i t e d g u a r a n t y to c o v e r c e r t a i n l o s s e s o n the
loans.
S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n (SEC) r e g u l a t i o n s
r e q u i r e d t h e T r u s t to fi l e an A n n u a l R e p o r t ( F o r m 10-K) w i t h
t h e S E C w i t h i n 90 d a y s a f t e r t h e f i n a n c i a l y e a r - e n d a s p a r t
of the s e c u r i t i z a t i o n t r a n s a c t i o n .
Because of the limited
g u a r a n t y p r o v i d e d b y BIF, t h e T r u s t w a s r e q u i r e d t o i n c l u d e
B I F ' s 1994 a u d i t e d fina n c i a l s t a t e m e n t s as a n e x h i b i t in the
SEC filing, i n cluding the a u d itor's opinion.
At FDIC's
r e q u e s t , o n M a r c h 15, 199 5 , w e p r o v i d e d a s e p a r a t e o p i n i o n
l etter on BIF's financial statements to FDIC to f a c i l i t a t e
t h e T r u s t ' s SEC filing.
3O u r 1 9 9 3 a u d i t r e p o r t a l s o i d e n t i f i e d a w e a k n e s s i n F D I C ' s
g e n e r a l c o n t r o l s o v e r its i n f o r m a t i o n s y s t e m s m a i n f r a m e
c o m p u t e r , w h i c h w a s a l s o d i s c u s s e d in o u r 1992 a u d i t r e p o r t .
H o w e v e r , p r i o r t o t h e i s s u a n c e of o u r 1993 a u d i t r e p o r t , F D I C
took corrective actions which fully addressed this weakness.




Savinas Association Insurance Fund
In o u r opinion, the fina n c i a l s t a t e m e n t s a n d a c c o m p a n y i n g
n o t e s p r e s e n t f a i r l y , in c o n f o r m i t y w i t h g e n e r a l l y a c c e p t e d
a c c o u n t i n g p r i n c i p l e s , in all m a t e r i a l resp e c t s , t h e S a v i n g s
A s s o c i a t i o n I n s u r a n c e F u n d ' s f i n a n c i a l p o s i t i o n as of
D e c e m b e r 31, 1 9 9 4 a n d 1993, a n d t h e r e s u l t s o f i t s o p e r a t i o n s
a n d it s c a s h f l o w s f o r t h e y e a r s t h e n e n d e d .
FSLIC

Resolution

Fund

In o u r o p i n i o n , t h e f i n a n c i a l s t a t e m e n t s a n d a c c o m p a n y i n g
n o t e s p r e s e n t f a i r l y , in c o n f o r m i t y w i t h g e n e r a l l y a c c e p t e d
a c c o u n t i n g p r i n c i p l e s , in all m a t e r i a l resp e c t s , t h e F S L I C
R e s o l u t i o n F u n d ' s f i n a n c i a l p o s i t i o n a s o f D e c e m b e r 31, 1 9 9 4
a n d 1993, a n d t h e r e s u l t s of its o p e r a t i o n s a n d its c a s h
flows for the y ears then ended.
As d i s c u s s e d in n o t e 9 of F RF's fina n c i a l s t a t e m e n t s , t h e r e
a r e a p p r o x i m a t e l y 50 p e n d i n g l a w s u i t s w h i c h s t e m f r o m
l e g i s l a t i o n t h a t r e s u l t e d in the e l i m i n a t i o n of s u p e r v i s o r y
goodwill from regulatory capital.
These lawsuits assert a
b r e a c h of c o n t r a c t or an u n c o m p e n s a t e d t a k i n g of p r o p e r t y
re sulting from the Financial Institutions Reform, Recovery,
a nd E n f o r c e m e n t A c t ' s (FIRREA) p r o v i s i o n s r e g a r d i n g m i n i m u m
c a p i t a l r e q u i r e m e n t s for t h r i f t s a n d l i m i t a t i o n s as to the
u s e of s u p e r v i s o r y g o o d w i l l to m e e t m i n i m u m c a p i t a l
requirements.
O n e c a s e has r e s u l t e d in a final j u d g m e n t of
$6 m i l l i o n a g a i n s t F D I C , w h i c h w a s p a i d b y F R F , a n d F D I C
e x p e c t s a d d i t i o n a l c a ses w i l l be filed.
While FDIC believes
t h a t j u d g m e n t s in s u c h c a s e s a r e m o r e p r o p e r l y p a i d f r o m t h e
J u d g m e n t F u n d , 4 the extent to w h i c h FRF w ill be the source
of p a y i n g s u c h j u d g m e n t s in s u b s e q u e n t g o o d w i l l c a s e s , as
w e l l as t h e a m o u n t s o f s u c h j u d g m e n t s , i s u n c e r t a i n .

OPINION ON FDIC MANAGEMENT'S
ASSERTI ONS ABOUT THE EFFECTIVENESS
OF FDIC'S INTERNAL CONTROLS
For the t h r e e funds a d m i n i s t e r e d by FDIC, we e v a l u a t e d
m a n a g e m e n t ' s a s s e r t i o n s a b o u t the e f f e c t i v e n e s s of its
i n t e r n a l c o n t r o l s d e s i g n e d to
against

--

safeguard assets
disposition;

--

a s s u r e t h e e x e c u t i o n of t r a n s a c t i o n s in a c c o r d a n c e w i t h
m a n a g e m e n t ' s a u t h o r i t y a n d w i t h p r o v i s i o n s of s e l e c t e d
laws a n d r e g u l a t i o n s t hat have a d i r e c t a n d m a t e r i a l
e f f e c t on the fina n c i a l s t a t e m e n t s of the t h r e e funds; a n d

-- p r o p e r l y r e c o r d , p r o c e s s ,
p e r m i t t h e p r e p a r a t i o n of
accordance with generally

unauthorized

acquisition,

FDIC

use,

or

a n d s u m m a r i z e t r a n s a c t i o n s to
f i n a n c i a l s t a t e m e n t s in
accepted accounting principles.

F D I C m a n a g e m e n t f a i r l y s t a t e d that t h o s e c o n t r o l s in e f f e c t
o n D e c e m b e r 31, 199 4 , p r o v i d e d r e a s o n a b l e a s s u r a n c e t h a t
losses, n o n c o m p l i a n c e , or m i s s t a t e m e n t s m a t e r i a l in r e l a t i o n
to the f i n a n c i a l s t a t e m e n t s of e a c h of t h e t h r e e funds w o u l d
be p r e v e n t e d or d e t e c t e d on a t i m e l y basis.
However, our
w o r k i d e n t i f i e d the need to i m p r o v e c e r t a i n i n t e r n a l
c o n t r o l s , w h i c h w e r e s u m m a r i z e d a b o v e a n d a r e d e s c r i b e d in
d e t a i l in a l a t e r s e c t i o n of this report.
These weaknesses
in i n t e r n a l c ontrols, a l t h o u g h not c o n s i d e r e d to b e m a t e r i a l ,
r e p r e s e n t s i g n i f i c a n t d e f i c i e n c i e s in the d e s i g n or o p e r a t i o n
of i n t e r n a l c o n t r o l s w h i c h c o u l d a d v e r s e l y a f f e c t F D I C ' s
a b i l i t y to m eet the internal control o b j e c t i v e s listed above.

‘T h e J u d g m e n t F u n d is a p e r m a n e n t , i n d e f i n i t e
e s t a b l i s h e d b y 31 U . S . C . S e c . 1 3 04.

appropriation




While FDIC management's assertions about the effectiveness
internal controls were reasonable, misstatements may
n e v e r t h e l e s s o c c u r in o t h e r F D I C - r e p o r t e d f i n a n c i a l
i n f o r m a t i o n on the three funds a d m i n i s t e r e d b y FDIC.
In
a d d i t i o n , b e c a u s e of i n h e r e n t l i m i t a t i o n s in a n y s y s t e m of
internal controls, losses, noncompliance, or m i s s t a t e m e n t s
m a y nev e r t h e l e s s o ccur and not be detected.

COMPLIANCE

WITH

LAWS

AND

of

REGULATIONS

O u r t e s t s for c o m p l i a n c e w i t h s i g n i f i c a n t p r o v i s i o n s of
s e l e c t e d laws a n d r e g u l a t i o n s d i s c l o s e d no i n s t a n c e s of
noncompliance that would be reportable under g e n erally
accepted government auditing standards.
FDIC's C o m p l i a n c e W ith the
Chief Financial Officers Act
T h e C h i e f F i n a n c i a l O f f i c e r s (CFO) A c t r e q u i r e s t h a t
g o v e r n m e n t c o r p o rations submit an annual s t a t e m e n t on
internal accounting and administrative controls, including
m a n a g e m e n t ' s a s s e s s m e n t of the e f f e c t i v e n e s s of t h e s e
cont r o l s , c o n s i s t e n t w i t h the r e q u i r e m e n t s of t h e F e d e r a l
M anagers' Fina n c i a l I n t e g r i t y Act.
The CFO Act also requires
that government corporations have their financial statements
audited annually and that corporations submit an annual
m a n a g e m e n t r e p o r t to the C ongress.
O u r a n n u a l a u d i t s of the t h r e e funds a d m i n i s t e r e d b y F D I C
s atisfy the act's auditing requirement.
Also, FDI C has
c o m p l e t e d its a s s e s s m e n t of i n t e r n a l a c c o u n t i n g a n d
a d m i n i s t r a t i v e c o n t r o l s f o r 1 9 9 4 a n d is i n t h e p r o c e s s o f
c o m p i l i n g the results.
FDIC anticipates issuing a management
r e p o r t o n t h e r e s u l t s of its 1994 i n t e r n a l c o n t r o l a s s e s s m e n t
b y J u n e 30, 199 5 , as r e q u i r e d b y t h e C F O A c t .

R E S P O N S I B I L I T I E S OF FDIC
M ANAGEMENT AND THE AUDITOR
FDIC

management

is

responsible

for

-- p r e p a r i n g t h e a n n u a l f i n a n c i a l s t a t e m e n t s o f B I F , S A I F ,
a n d F R F in c o n f o r m i t y w i t h g e n e r a l l y a c c e p t e d a c c o u n t i n g
principles;
--

establishing, maintaining, and assessing the Cor por ati on' s
i n t e r n a l c o n t r o l s t r u c t u r e to p r o v i d e r e a s o n a b l e a s s u r a n c e
t h a t i n t e r n a l c o n t r o l o b j e c t i v e s as d e s c r i b e d i n G A O ' s
S t a n d a r d s f o r I n t e r n a l C o n t r o l s in t h e F e d e r a l G o v e r n m e n t
are met; and

--

complying with

applicable

laws

and

regulations.

W e a r e r e s p o n s i b l e for o b t a i n i n g r e a s o n a b l e a s s u r a n c e a b o u t
w h e t h e r (1) t h e f i n a n c i a l s t a t e m e n t s o f e a c h o f t h e t h r e e
funds a r e free of m a t e r i a l m i s s t a t e m e n t a n d a r e p r e s e n t e d
f a i r l y in c o n f o r m i t y w i t h g e n e r a l l y a c c e p t e d a c c o u n t i n g
p r i n c i p l e s a n d (2) r e l e v a n t i n t e r n a l c o n t r o l s a r e i n p l a c e
and operating effectively.
W e are a l s o r e s p o n s i b l e for
t e s t i n g c o m p l i a n c e w i t h s i g n i f i c a n t p r o v i s i o n s of s e l e c t e d
laws and re g u l a t i o n s and for p e r f o r m i n g limi t e d p r o c e d u r e s
w i t h r e s p e c t to c e r t a i n o t h e r i n f o r m a t i o n in F D I C ' s a n n u a l
f i nancial report.
O u r a u d i t s w e r e c o n d u c t e d in a c c o r d a n c e w i t h g e n e r a l l y
accepted government auditing standards.
We believe our
a udits p r o v i d e a reas o n a b l e basis for our opinion.
FDIC com mented on our findings and conclusions r e g a rd ing the
r e p o r t a b l e c o n d i t i o n s d i s c u s s e d in t h i s r e p o r t .
FDIC's
c o m m e n t s a r e p r e s e n t e d a n d e v a l u a t e d in a l a t e r s e c t i o n of
t his report.




SIGNIFICANT MATTERS
T h e f o l l o w i n g s e c t i o n is p r o v i d e d t o h i g h l i g h t t h e c o n d i t i o n
a n d o u t l o o k of the b a n k i n g a n d t h r i f t i n d u s t r i e s a n d the
i n s u r a n c e funds.
In a d d i t i o n , w e d i s c u s s F D I C ' s p r o g r e s s i n
addressing internal control weaknesses identified during our
p r e v i o u s audits.
C o n d i t i o n of FDIC - I n s u r e d
Institutions Showed Continued
I m p r o v e m e n t i n 1994
D u r i n g 1994, t h e b a n k i n g a n d t h r i f t i n d u s t r i e s c o n t i n u e d
their strong performances.
Commercial banks reported record
p r o f i t s of $ 4 4 . 7 b i l l i o n in 1994, m a r k i n g t h e t h i r d
c o n s e c u t i v e y e a r of r e c o r d e arnings.
T h e m a i n s o u r c e s of
e a r n i n g s i m p r o v e m e n t in 1994 w e r e h i g h e r n e t i n t e r e s t i n c o m e
and lower loan-loss provisions.
T h e i n c r e a s e in net i n t e r e s t
i n c o m e w a s a t t r i b u t a b l e to s t r o n g g r o w t h in i n t e r e s t - b e a r i n g
assets, even though net interest margins we re s l i ght ly lower
t h a n i n 1993.
T h e c o n t i n u e d s t r o n g p e r f o r m a n c e of b a n k s w a s a l s o r e f l e c t e d
in t h e c o n t i n u e d r e d u c t i o n in t h e n u m b e r of b a n k s i d e n t i f i e d
b y F D I C as p r o b l e m ins t i t u t i o n s .
A t D e c e m b e r 31, 1 9 9 4 , 2 4 7
c o m m e r c i a l banks, w i t h t o tal a s s e t s of $33 b i l l i o n w e r e
i d e n t i f i e d b y FDIC as p r o b l e m i n s t i t u t i o n s , r e p r e s e n t i n g a
s i g n i f i c a n t i m p r o v e m e n t o v e r 1993 w h e n 426 c o m m e r c i a l b a n k s
w i t h a s s e t s of $242 b i l l i o n w e r e i d e n t i f i e d as p r o b l e m
institutions.
E l e v e n c o m m e r c i a l b a n k s f a i l e d d u r i n g 1994,
t h e f e w e s t n u m b e r o f f a i l u r e s i n a n y y e a r s i n c e 198 1 .
Sa v i n g s i n s t i t u t i o n s r e p o r t e d e a r n i n g s of $6.4 b i l l i o n for
1 9 94, d o w n f r o m t h e $ 6 . 8 b i l l i o n e a r n e d i n 1 9 9 3 .
Reduced net
interest margins, coupled with securities losses and
e x t r a o r d i n a r y l o s s e s c o n t r i b u t e d t o t h e r e d u c t i o n in
earnings.
H o w e v e r , t h e i n d u s t r y r e m a i n e d s t r o n g , as
r e f l e c t e d in the r e d u c t i o n in t r o u b l e d i n s t i t u t i o n s .
At
D e c e m b e r 31, 1 9 94, F D I C i d e n t i f i e d 71 s a v i n g s i n s t i t u t i o n s
w i t h a t o t a l o f $3 9 b i l l i o n i n a s s e t s a s p r o b l e m
i n s t i t u t i o n s , w h i c h w a s a s i g n i f i c a n t i m p r o v e m e n t o v e r 1993
w h e n 146 i n s t i t u t i o n s w i t h $92 b i l l i o n in a s s e t s w e r e
i d e n t i f i e d as p r o b l e m i n s t i t u t i o n s .
BIF's Capital Position
Is M u c h S t r o n g e r T h a n S A I F ' s
T h e s t r e n g t h e n e d c o n d i t i o n of the b a n k i n g i ndustry, c o u p l e d
with the relatively high insurance premiums that banks have
b e e n p a y i n g s i n c e 199 0 , h a s r e s u l t e d i n a s i g n i f i c a n t
i m p r o v e m e n t in B IF's fina n c i a l cond i t i o n .
A s o f D e c e m b e r 31,
1994, B I F ' s r e s e r v e s h a d i n c r e a s e d to a l m o s t $22 b i l l i o n , or
a b o u t 1.15 p e r c e n t of i n s u r e d depo s i t s .
The Fund will likely
r e a c h its d e s i g n a t e d r e s e r v e r a t i o of 1.25 p e r c e n t in 1995.
Al t h o u g h the thrift i n d ustry has als o
i m p r o vements o ver the past few years,
e x p e r i e n c e d a s i m i l a r i n c r e a s e in its
insured deposits.
A s o f D e c e m b e r 31,
of $1.9 b i l l i o n , o r a b o u t 0.28 p e r c e n t

experienced significant
SAIF has not
r a t i o of r e s e r v e s to
1994, S A I F h a d r e s e r v e s
of depo s i t s .

S A I F ' s c a p i t a l i z a t i o n has b e e n s l o w e d b y its members'
p r e m i u m s b e i n g u s e d to p a y for c e r t a i n o b l i g a t i o n s of the
thrift crisis, including interest on 30-year bonds issued by
t h e F i n a n c i n g C o r p o r a t i o n ( F I C O ) . 5 U n d e r c u r r e n t law, F I C O
h a s a u t h o r i t y to a s s e s s S A I F m e m b e r s to c o v e r its a n n u a l
interest expense, which will continue until the 30-year
r e c a p i t a l i z a t i o n b o n d s m a t u r e in t h e y e a r s 20 1 7 t h r o u g h 2019.
F D I C p r o j e c t i o n s for S A I F i n d i c a t e t h a t S A I F w i l l a t t a i n its
d e s i g n a t e d r e s e r v e r a t i o in t h e y e a r 2002, 7 y e a r s l a t e r t h a n
BIF.
However, s ignificant uncer t a i n t i e s r e l a t i n g to a sset
failure rates exist, and h i g h e r - t h a n - p r o j e c t e d failures c ould
5F I C O w a s e s t a b l i s h e d i n 1 9 8 7 t o r e c a p i t a l i z e t h e F e d e r a l
S a v i n g s and L o a n I n s u r a n c e Fund, the f o r m e r i n s u r a n c e fund
for thrifts.




delay
large

SAIF's capitalization.
Currently,
capital cush i o n to absorb the cost

SAIF does
of t h r i f t

not have a
failures.

A l t h o u g h it a p p e a r s t h a t SAIF c a n m a n a g e p r o j e c t e d failures,
t h e f a i l u r e of a s i n g l e l a rge i n s t i t u t i o n o r a h i g h e r - t h a n p r o j e c t e d l e v e l of f a i l u r e s c o u l d d e l a y S A I F ' s c a p i t a l i z a t i o n
a n d i n c r e a s e t h e r i s k of S A I F b e c o m i n g i n s o l v e n t .
A Significant Premium Rate
Di fferential Between Banks and
T h r i f t s C o u l d D e v e l o p in 1995
In r e s p o n s e t o B I F ' s i m p r o v e d f i n a n c i a l p o s i t i o n a n d i t s
c u r r e n t o u t l o o k , o n J a n u a r y 31, 1 9 9 5 , F D I C ' s B o a r d o f
D ir e c t o r s issued for public comm e n t a p r o p o s a l that w o u l d
signi fic ant ly reduce the average annual pr em i u m rates charged
to BIF-insured institutions.
Based on current projections
for BIF, F D I C ' s B o a r d of D i r e c t o r s c o u l d l o w e r p r e m i u m r ates
as e a r l y a s t h e S e p t e m b e r 1 9 9 5 p a y m e n t a f t e r i t d e t e r m i n e s
t h a t B I F h a s , i n fac t , a t t a i n e d t h e d e s i g n a t e d r e s e r v e r a t i o .
FDIC projects that BIF insurance pre m i u m rates will average 4
to 5 b a s i s p o i n t s 6 a f t e r BIF r e a c h e s its d e s i g n a t e d r e s e r v e
ratio.
FDIC's projections indicate that SAIF will continue charging
a v e r a g e p r e m i u m r a t e s o f 24 b a s i s p o i n t s , m o r e t h a n f i v e
times the p r o j e c t e d rate for B I F - i n s u r e d institutions, u ntil
S A I F r e a c h e s it s d e s i g n a t e d r e s e r v e r a t i o .
Therefore, a
s i g n i f i c a n t d i f f e r e n t i a l in p r e m i u m r a t e s c h a r g e d b y B I F a n d
S A I F w i l l d e v e l o p in 199 5 , if F D I C l o w e r s B I F r a t e s a s s o o n
as B I F r e a c h e s its d e s i g n a t e d r e s e r v e ratio.
T h e p r o j e c t e d p r e m i u m r a t e d i f f e r e n t i a l is l i k e l y t o h a v e a
s i g n i f i c a n t i m p a c t on the t h r i f t i n d u s t r y ' s c o s t s a n d its
ability to attract deposits.
Although uncertainties exist
r e g a r d i n g t h e e x t e n t of t h e im p a c t , t h e l o w e r c o s t of
i n s u r a n c e c o v e r a g e c o u l d m o t i v a t e b a n k s to i n c r e a s e i n t e r e s t
rates paid on deposits and improve cust ome r services in o rder
to c o m p e t e m o r e a g g r e s s i v e l y for depo s i t s .
Thrifts would
l i k e l y i n c u r a d d i t i o n a l c o s t s in t h e i r a t t e m p t t o m a t c h b a n k
actions and re m a i n co m p e t i t i v e w i t h banks for deposits.
The
c o s t i n c r e a s e as a p e r c e n t a g e o f e a r n i n g s w i l l b e g r e a t e r f o r
thrifts that d e p e n d heav i l y on d e p osits for fund i n g a n d have
low earnings.
T o r e d u c e t h e b u r d e n of a s i g n i f i c a n t c o s t d i s a d v a n t a g e in
r e l a t i o n to BIF members, SAIF memb e r s m a y be m o t i v a t e d to
r e p l a c e d e p o s i t s w i t h o t h e r s o u r c e s of f u n d i n g o r t a k e o t h e r
m e a s u r e s to a v o i d p a y i n g S A IF's h i g h e r p r e m i u m rates.
Recently, several large institutions with SAIF-insured
d e p o s i t s h a v e a n n o u n c e d p l a n s t o o b t a i n b a n k c h a r t e r s in a n
a t t e m p t to a void p a y i n g SAIF's higher p r e m i u m rates.
Thus,
the premium differential will likely m o tivate significant
f u t u r e s h r i n k a g e in S A I F ' s a s s e s s m e n t b a s e , t h e r e b y
i n c r e a s i n g the u n c e r t a i n t i e s s u r r o u n d i n g S AIF's future.
In o u r r e c e n t r e p o r t a n d r e l a t e d t e s t i m o n y o n t h e r e s u l t s of
o u r a n a l y s i s of the p o t e n t i a l p r e m i u m d i f f e r e n t i a l b e t w e e n
B I F a n d S A I F , 7 w e d i s c u s s in m o r e d e t a i l t h e i s s u e s a n d
risks associa ted with this potential pre m i u m differential.
W e a l s o d i s c u s s a n u m b e r of o p t i o n s to a d d r e s s t h e p o t e n t i a l
premium rate disparity.

60 n e h u n d r e d b a s i s p o i n t s a r e e q u i v a l e n t t o 1 p e r c e n t a g e
point.
In this context, the 4 to 5 b a s i s p o i n t s w o u l d
t r a n s l a t e i n t o a 4- t o 5 - c e n t p r e m i u m c h a r g e f o r e v e r y $ 1 0 0
in i n s u r e d deposits.
’D e p o s i t I n s u r a n c e F u n d s :
A n a l y s i s of I n s u r a n c e P r e m i u m
D i s p a r i t y B e t w e e n B a n k s a n d T h r i f t s ( G A O / A I M D - 9 5 - 8 4 , M a r c h 3,
1995), a nd D e p o s i t Ins u r a n c e Funds:
A n a l y s i s of I n s u r a n c e
Premium Disparity Between Banks and Thrifts (GAO/T-AIMD-95111, M a r c h 23, 1 9 95) .




FDIC Actions Address Several
Weaknesses Identified
Previous Audits

in

In o u r 1 9 9 3 f i n a n c i a l s t a t e m e n t a u d i t r e p o r t o n t h e t h r e e
funds a d m i n i s t e r e d by FDIC, w e i d e n t i f i e d a m a t e r i a l w e a k n e s s
in F D I C ' s i n t e r n a l a c c o u n t i n g c o n t r o l s o v e r its p r o c e s s for
e s t i m a t i n g r e c o v e r i e s it w i l l r e a l i z e o n t h e m a n a g e m e n t a n d
d i s p o s i t i o n of B IF's a n d F RF's i n v e n t o r y of f a i l e d
institution assets.
Specifically, FDIC lacked adequate
c o n t r o l s t o e n s u r e t h a t (1) s o u n d a n d c o n s i s t e n t
m e t h o d o l o g i e s wer e use d to e s t imate reco v e r i e s on failed
i n s t i t u t i o n a s s e t s a n d (2) a d e q u a t e d o c u m e n t a t i o n w a s
m a i n t a i n e d to s u p p o r t r e c o v e r y esti m a t e s .
This weakness
adversely affected FDIC's ability to ensure that transactions
of B IF a nd FRF w e r e p r o p e r l y recorded, proc e s s e d , a nd
s u m m a r i z e d to p e r m i t the p r e p a r a t i o n of f i n a n c i a l s t a t e m e n t s
in a c c o r d a n c e w i t h g e n e r a l l y a c c e p t e d a c c o u n t i n g p r i n c i p l e s .
F D I C ' s a c t i o n s d u r i n g 1994 p a r t i a l l y a d d r e s s e d t h e c o n c e r n s
i d e n t i f i e d in our 1993 a u d i t report.
In r e s p o n s e to
r e c o m m e n d a t i o n s in o u r 1 9 9 3 a u d i t r e p o r t , F D I C d e v e l o p e d a
p r o c e d u r e s h a n d b o o k to s u p p l e m e n t t h e D i v i s i o n of D e p o s i t o r
a n d A s s e t S e r v i c e s (DAS) C r e d i t M a n u a l .
This handbook was
d e v e l o p e d t o p r o v i d e m o r e u n i f o r m i t y in e s t i m a t i n g r e c o v e r y
amounts for failed instit u t i o n assets and to p r o v i d e a
s t a n d a r d format to d o c u m e n t the rat i o n a l e for t h e s e r e c o v e r y
estimates.
In o u r 1 9 9 4 a u d i t s , w e f o u n d t h a t a s s e t r e c o v e r y
estimates determined by contracted servicers were more
consistent with those determined by FDIC personnel.
However, w e c o n t i n u e d to find o t h e r w e a k n e s s e s in F D I C ' s
m e t h o d o l o g y to d e t e r m i n e r e c o v e r y e s t i m a t e s for f a i l e d
institution assets and documentation to support asset
recovery estimates.
Through substantive audit procedures, we
were able to satisfy ourselves that these w eaknesses did not
h a v e a m a t e r i a l e f f e c t on t h e f i n a n c i a l s t a t e m e n t s of the
t h r e e funds a d m i n i s t e r e d by FDIC.
Similarly, our audit
p r o c e d u r e s c o n d u c t e d in o u r 1 9 9 2 a n d 1 9 9 3 f i n a n c i a l a u d i t s
p r o v i d e d us w i t h r e a s o n a b l e a s s u r a n c e t h a t t h e s e w e a k n e s s e s
d i d n ot h ave a m a t e r i a l e f fect on the funds' fina n c i a l
statements.
B a s e d o n t h e r e s u l t s of o u r a u d i t s o v e r t h e l a s t
3 years and the p r o gress FDIC has m a d e thus far to addr e s s
our prior audit findings, we no longer consid er these
w e a k n e s s e s to be mate r i a l .
However, we do consider these
w e a k n e s s e s to be n o n m a t e r i a l r e p o r t a b l e c o n d i t i o n s as of
D e c e m b e r 31, 1994.
O u r r e p o r t o n o u r 1993 a u d i t s a l s o i d e n t i f i e d o t h e r
r eportable conditions which affected FDIC's ability to ensure
that internal control objectives were achieved.
These
w e a k n e s s e s i n v o l v e d F D I C ' s i n t e r n a l c o n t r o l s o v e r (1) t i m e
a n d a t t e n d a n c e r e p o r t i n g p r o c e s s e s , (2) r e c o n c i l i a t i o n a n d
v e r i f i c a t i o n of r e c o r d s for c o n t r a c t e d a s s e t s e r v i c e r s , a n d
(3) s a f e g u a r d i n g o f a s s e t s a n d r e p o r t i n g o f t r a n s a c t i o n s f o r
one contr act ed asset servicer.
D u r i n g 1 9 94, F D I C t o o k a c t i o n s t o a d d r e s s s o m e o f t h e s e
weaknesses.
Specifically, FDIC i m p roved p r o c e d u r e s at the
one contracted servicer with pervasive control weaknesses.
F D I C r e q u i r e d the s e r v i c e r to i m p l e m e n t a n a c c o u n t i n g s y s t e m
to a l l o w r e c o n c i l i a t i o n of s e r v i c e r a s s e t b a l a n c e s to F D I C ' s
i n f o r m a t i o n system.
In a d d i t i o n , t h e s e r v i c e r ' s i n t e r n a l
a u d i t o r s a n d F D I C v e r i f i e d the a c c u r a c y of t h e s e r v i c e r ' s
ma n u a l l y prepared monthly reports used to record asset
m a n a g e m e n t and d i s p o s i t i o n a c t i v i t y on FDIC's i n f o r m a t i o n
system.
As a r e s u l t of F D IC's actio n s , w e no l o n g e r
c o n s i d e r e d this to be a r e p o r t a b l e c o n d i t i o n as of
D e c e m b e r 31, 1994.
H owe v e r , F D I C has not f u l l y a d d r e s s e d o u r c o n c e r n s r e g a r d i n g
c o n t r o l s o v e r its t i m e a n d a t t e n d a n c e r e p o r t i n g p r o c e s s a n d
t h e v e r i f i c a t i o n of c o n t r a c t e d a s s e t s e r v i c e r r e c o r d s to
FDIC's information systems.
We c o n t i n u e d to find w e a k n e s s e s
in F D I C ' s i m p l e m e n t a t i o n of its t i m e a n d a t t e n d a n c e r e p o r t i n g
procedures.
Also, w h i l e FDIC has im p l e m e n t e d p r o c e d u r e s to
regularly reconcile asset balances reported by contracted




asset servicers to the Corporation's information system, FDIC
doe s not p r o p e r l y ve r i f y the a c c u r a c y of s e r v i c e r r e p o r t e d
monthly asset activity and balances.
Consequently, w e still
c o n s i d e r t h e s e w e a k n e s s e s t o b e r e p o r t a b l e c o n d i t i o n s as of
D e c e m b e r 31, 1994.
REPORTABLE

CONDITIONS

The following reportable conditions represent significant
d e f i c i e n c i e s in F D I C ' s i n t e r n a l c o n t r o l s a n d s h o u l d b e
corrected by FDIC management.
1.

C o n t r o l s to e n s u r e that s o u n d m e t h o d o l o g i e s a r e u s e d to
d e t e r m i n e r e c o v e r y e s timates for assets a c q u i r e d from
failed institutions are not wor kin g effectively.
Specifically, FDIC's methodology does not ensure that
estimates of recoveries from the m anagement and ,
d i s p o s i t i o n of t h e s e a s s e t s are r e a s o n a b l e a n d a r e b a s e d
on the most probable liquidation strategy.
These
e s t i m a t e s are u s e d b y F D I C to d e t e r m i n e t h e a l l o w a n c e for
losses on r e c e i vables from r e s o l u t i o n a c t i v i t y and
i n v e s t m e n t in c o r p o r a t e - o w n e d a s s e t s for the t h r e e funds.
Consequently, this weakness, w h i c h w a s als o i d e n t i f i e d
d u r i n g o u r 1993 a n d 1992 a u d i t s , c o u l d r e s u l t in f u t u r e
m i s s t a t e m e n t s to BIF's, SAIF's, and FRF's financial
s t a t e m e n t s if c o r r e c t i v e a c t i o n is n o t t a k e n b y F D I C
management.
We found that FDIC's guidance does not ensure that
e s t i m a t e s of r e c o v e r i e s on a s s e t s in l i q u i d a t i o n r e f l e c t
the asset's most probable liquidation strategy.
For
exam p l e , for loans c l a s s i f i e d as p e r f o r m i n g , F D I C ' s
g u i d a n c e requires the est i m a t e d recov e r i e s to be
c a l c u l a t e d as t h e o u t s t a n d i n g b o o k v a l u e o f t h e l o a n p l u s
4 quarters of interest.
We found that account officers
u sed this formula to e s t i m a t e recov e r i e s for loans
c l a s s i f i e d as p e r f o r m i n g w i t h a n t i c i p a t e d d i s p o s i t i o n s o f
less t h a n 1 year, a n d to o t h e r s w h e r e d i s p o s i t i o n w a s not
a n t i c i p a t e d for m ore than 1 year.
We also found that
a c c o u n t o f f i c e r s a p p l i e d this m e t h o d o l o g y in e s t i m a t i n g
recov e r i e s on n o n p e r f o r m i n g loans w h e r e the l i q u i d a t i o n
st r a t e g y was to re s t r u c t u r e the e x i s t i n g loan terms, even
th o u g h no p e r f o r m a n c e hist o r y e x i s t e d for the
re s t r u c t u r e d terms.
In s o m e c a s e s , s u c h n e g o t i a t i o n s
take several months or even years to complete.
We
q u e s t i o n the r e a s o n a b l e n e s s of this m e t h o d o l o g y to
e s t i m a t e r e c o v e r i e s for all loans c l a s s i f i e d as
p e r f o r m i n g , p a r t i c u l a r l y for loans t h a t a r e not
p e r f o r m i n g in a c c o r d a n c e w i t h t h e c o n t r a c t u a l t e r m s a n d
loans that m ay be restructured.
For these assets, a more
app ropriate metho dol ogy wo uld be to consi der the recov ery
value c onsistent with the asset's d i spo sit ion strategy.
Similarly, FDIC's g u i dance does not p r o v i d e s u f f i c i e n t
re c o v e r y e s t i m a t i o n crite r i a for some a sset d i s p o s i t i o n
strategies being pursued by account officers.
For
n o n p e r f o r m i n g loans where FDIC intends to for e c l o s e on
the underlying collateral, FDIC's guidance requires
i n c l u s i o n of o p e r a t i n g i n c o m e i n e s t i m a t i n g r e c o v e r i e s o n
these assets.
However, the guidance does not sp ecify
w h e t h e r t h i s m e t h o d t o e s t i m a t e t h e r e c o v e r y a m o u n t is
a p p l i c a b l e o n l y for assets w h e r e FDIC's legal r i g h t to
the income has bee n established.
To include this income
wo uld be inappropriate w ithout first es tab lis hin g the
legal r ight to such income.
In a d d i t i o n , F D I C ' s g u i d a n c e s p e c i f i c a l l y p r o h i b i t s t h e
u s e of p r e s e n t v a l u e t e c h n i q u e s to d e t e r m i n e a s s e t
recovery estimates.
M a n y of F D I C ' s f a i l e d i n s t i t u t i o n
assets have large balloon payments or are not eas ily
liquidated and often have significant payment streams
e x t e n d i n g b e y o n d 1 year.
U s e of p r e s e n t v a l u e t e c h n i q u e s
to e s t i m a t e r e c o v e r y a m o u n t s w o u l d a l l o w F D I C to
a p p r o x i m a t e ma r k e t values for failed i n s t i t u t i o n assets.
In addi t i o n , this w o u l d m a k e F D I C ' s m e t h o d o l o g y for
estimating asset recoveries consistent with accepted
i n d ustry p r a c t i c e for v a l u i n g d i s t r e s s e d assets.




W e a l s o f o und o t h e r p r o b l e m s in F D I C ' s a s s e t r e c o v e r y
e s t i m a t i o n p r o c e s s t h a t a r e a t t r i b u t a b l e t o t h e l a c k of
adequate guidance.
FDIC's guidance allows account
o f f i c e r s to a s s i g n to o n e a s s e t the e s t i m a t e d r e c o v e r i e s
for m u l t i p l e assets w i t h a common deb t o r (asset
relationship).
However, for m o s t a s s e t s w i t h a b o o k
value below $250,000, FDIC's asset m a nag eme nt infor mat ion
system automatically calculates the estimated r e covery
value based on recovery formulas.
For all ot her assets,
the estimated recoveries are individually determined by
account officers.
Consequently, by allowing account
o f f i c e r s to a t t r i b u t e a n a g g r e g a t e r e c o v e r y e s t i m a t e for
a s s e t r e l a t i o n s h i p s to one asset, F D I C ' s g u i d a n c e c r e a t e s
the p o tential for d o u b l e - c o u n t i n g recoveries.
We found
instances where account officers had recorded the
a g g r e g a t e r e c o v e r y for the asset r e l a t i o n s h i p on one
asset w ith out properly a djusting the ag gre gat e recove ry
to reflect formu l a - d e t e r m i n e d r e c o v e r y e s t i m a t e s for
c e r t a i n a s sets in the a s s e t r e l a t i o n s h i p .
In r e s p o n s e t o r e c o m m e n d a t i o n s i n o u r 1 9 9 3 a u d i t r e p o r t ,
in S e p t e m b e r 1994 F D I C s u p p l e m e n t e d t h e D A S C r e d i t M a n u a l
with a procedures handbook.
T h e s e r e v i s e d p r o c e d u r e s to
e s t i m a t e r e c o v e r i e s r e q u i r e two s u p e r v i s o r y r e v i e w s to
verify that recovery amounts were accurate and adequately
supported.
However, we found that these reviews were
c u r s o r y in n a t u r e and d i d not a l w a y s i d e n t i f y i n a c c u r a t e
or unsupported asset recovery estimates.
For assets that
were reviewed by sup ervisory level p e r s o n n e l , w e found
recovery amounts that contained mathematical errors,
outdated information, and unsupported account officer
opinion.
C o n t r o l s t o e n s u r e t h a t a d e q u a t e d o c u m e n t a t i o n is
m a i n t a i n e d to s u b s t a n t i a t e a s s e t r e c o v e r y e s t i m a t e s are
not w o r k i n g effectively.
In o u r p r e v i o u s a u d i t s , w e
f o und that e s t i m a t e s of r e c o v e r i e s on f a i l e d i n s t i t u t i o n
a s s e t s w e r e n o t a l w a y s s u p p o r t e d b y d o c u m e n t a t i o n in
a s s e t files m a i n t a i n e d by FDIC a nd s e r v i c e r p e rsonnel.
W h i l e FDIC c o ntinues to mak e progr e s s to addr e s s this
w e a k n e s s , w e f o u n d s i m i l a r d e f i c i e n c i e s d u r i n g o u r 1994
audits.
We c o n t i n u e d to find that asset r e c o v e r y e s t i m a t e s wer e
not always supported by current or complete
documentation. Specifically, we found that some recovery
es t imates w e r e b a s e d on o u t d a t e d d o c u m e n t a t i o n a l t h o u g h
current information was available.
We also found other
asset recovery estimates that were based on account
o f f i c e r opinions that c ould not be substantiated.
Additionally, we found that some policies wi th i n FDIC's
g u i d a n c e for d e t e r m i n i n g a s s e t r e c o v e r y e s t i m a t e s w e r e
not sup p o r t e d by d o c u m e n t e d h i storical dat a or o ther
e v i d e n t i a l data.
For example, FDIC's guidance requires
that the es t i m a t e d r e c o v e r y v alue for assets c l a s s i f i e d
as p e r f o r m i n g l o a n s b e b a s e d o n t h e a s s e t ' s o u t s t a n d i n g
b o o k v a l u e plus 4 q u a r t e r s of interest.
However, FDIC
w a s u n a b l e to p r o v i d e e v i d e n c e to s u p p o r t t h e c o n t e n t i o n
t h a t , in t h e a g g r e g a t e , t h e p o r t f o l i o o f p e r f o r m i n g l o a n s
will generate recoveries equal to the current book value
of the loans plus 4 q u a r t e r s of interest.
In addi t i o n ,
d u r i n g 1994, F D I C w a s n o t a b l e t o p r o v i d e e v i d e n c e t o
support the formulas used to e s t i m a t e recov e r i e s for
a s s e t s w i t h a b o o k v a l u e of less t h a n $ 250,000.
In
J a n u a r y 1 9 95, F D I C r e v i s e d t h e f o r m u l a s f o r t h e s e a s s e t s .
Howe v e r , w e w e r e u n a b l e to v e r i f y the r e a s o n a b l e n e s s of
the r e v i s e d formu l a s as p a r t of this y e a r ' s audit.
We
w i l l r e v i e w t h e s e f o r m u l a s a n d t h e u n d e r l y i n g s u p p o r t as
p a r t of o u r 1995 audits.
F D I C c o n t i n u e s to r e d u c e the n u m b e r of s t a f f r e s p o n s i b l e
for l i q u i d a t i n g f a iled i n s t i t u t i o n assets, a n d m a n y of
its t h i r d p a r t y s e r v i c i n g c o n t r a c t s a r e s c h e d u l e d to
te r m i n a t e du r i n g the next 2 years.
W e a k n e s s e s in file
d o c u m e n t a t i o n t h u s b e c o m e m o r e s i g n i f i c a n t as




r e s p o n s i b i l i t y f o r l i q u i d a t i n g t h e s e a s s e t s is
transferred between locations and account officers.
T h i s , in turn, i n c r e a s e s t h e r i s k t h a t e s t i m a t e s of
recov e r i e s ma y not be r e a s o n a b l e and b a s e d on the m ost
current and accurate information available.
In a d d i t i o n ,
u s e of p o l i c i e s t h a t are not p r o p e r l y s u p p o r t e d b y
h i s t o r i c a l o r o t h e r e v i d e n t i a l d a t a m a y r e s u l t in
unreasonable asset recovery estimates.
Internal accounting controls over third party entities
c o n t r a c t e d t o m a n a g e a n d d i s p o s e of f a i l e d i n s t i t u t i o n
assets did not ensure that assets were p r operly
safeguarded and that asset activity was properly reported
to FDIC.
During. 199 4 , w e f o u n d t h a t F D I C p e r f o r m e d
limited verification procedures on the balances and
activity reported by contracted asset servicers and did
not ensure that collections from failed institution
assets were properly safeguarded and reported.
FDIC does
not m a i n t a i n s u b s i d i a r y records for t hese assets, but
rather, relies on the c o n t r a c t e d servicers to m a i n t a i n
d e t a i l r e c o r d s a n d r e p o r t m o n t h l y a c t i v i t y to FDIC.
We found that FDIC did not routinely perform fundamental
v e r i f i c a t i o n p r o c e d u r e s of t h e a c t i v i t y a n d b a l a n c e s
reported by contracted asset s e r v i c e r s .
On a monthly
basis, FDIC records asset activity reported b y the
s e r v i c e r s on its a c c o u n t i n g system.
However, FDIC does
n o t a l w a y s v e r i f y the a c c u r a c y of this r e p o r t e d a c t i v i t y
to servicers' detail accounting records.
When
v erification procedures were performed, we found that the
p r o c e d u r e s w e r e limited.
For example, FDIC verified
l i m i t e d s a m p l e s of s e r v i c e r a c t i v i t y to s o u r c e d o c u m e n t s .
However, FDIC did not reconcile the total mont h l y
acti vit y to the servicers' a ccounting records.
If p r o p e r
v erification procedures had been performed, FDIC w o u l d
have identified that one servicer did not maintain a
general ledger system since the servicing contract's
i n c e p t i o n in N o v e m b e r 1992.
We identified similar
w e a k n e s s e s in o u r 1993 audits.
To address the weaknesses over contractor oversight
r e p o r t e d in o u r 1993 a u d its, F D I C ' s D i v i s i o n of F i n a n c e
a n d t h e C o n t r a c t o r O v e r s i g h t a n d M o n i t o r i n g B r a n c h (COMB)
of F D I C ' s D i v i s i o n of D e p o s i t o r a n d A s s e t S e r v i c e s
e x e c u t e d the L e t t e r of U n d e r s t a n d i n g of A c c o u n t i n g R o l e s
a n d R e s p o n s i b i l i t i e s of C A O G a n d C O M B to c l a r i f y
contractor oversight responsibilities.
This letter
outlined specific procedures, timing, and re por tin g
r e s p o n s i b i l i t i e s for o v e r s i g h t of c o n t r a c t e d a s s e t
servicers.
To implement certain re quirements of the
l e t t e r , t h e D i v i s i o n of F i n a n c e d e v e l o p e d p r o c e d u r e s to
v e r i f y , o n a q u a r t e r l y b a s i s , a s s e t s e r v i c i n g a c t i v i t y as
r e p o r t e d b y the servicers to the servicers' detail
records.
These control procedures were effective
N o v e m b e r 1994; h o w e v e r , t h e y w e r e n o t f u l l y i m p l e m e n t e d
b y D e c e m b e r 31, 1994.
Furthermore, these procedures
v e r i f y o n l y a l i m i t e d j u d g m e n t a l s a m p l e of s e r v i c e r
a c t i v i t y a n d do not a d d r e s s r e c o n c i l i a t i o n of t otal
mont hly asset activ ity to servicer records.
The
r e q u i r e m e n t s o f t h e l e t t e r o f u n d e r s t a n d i n g , if
effectively implemented, should ensure proper
s a f e g u a r d i n g of, a n d a c c o u n t a b i l i t y f o r , a s s e t b a l a n c e s
and activity reported by contracted asset servicers.
C o n t r a c t e d a s s e t s e r v i c e r s a c c o u n t e d f o r $9 b i l l i o n i n
c o l l e c t i o n s d u r i n g 1993 a n d 1994 a n d o v e r $ 1 3 . 8 b i l l i o n
since FDIC began contracting with third party servicers
i n 198 6 .
However, FDIC does not have adequa te procedures
to ensure that the servicers' d aily co lle ctions are
properly safeguarded and completely and accurately
recorded.
Spe c i f i c a l l y , t h r e e of e i g h t s e r v i c e r s w e
v i s i t e d in 1994 d i d not u s e m o r e t h a n o n e i n d i v i d u a l to
v e r i f y c o l l e c t i o n s r e c e i v e d (dual c o n t r o l ) , a n d f i v e of
eight did not reconcile collections p r o c essed and
dep osi ted to the daily collections.
These weaknesses
o v e r t h e c o l l e c t i o n p r o c e s s c o u p l e d w i t h t h e l a c k of




a d e q u a t e v e r i t i c a t i o n of a c t i v i t y r e c o r d e d b y t h e
contracted asset servicers could adversely affect the
r e l i a b i l i t y of r e c o r d e d a s s e t b a l a n c e s a n d s e r v i c e r
accountability.
4.

I m p l e m e n t a t i o n of F D I C ' s t i m e a n d a t t e n d a n c e r e p o r t i n g
procedures was not effective.
In r e s p o n s e t o o u r
recommendations from prior audits, FDIC d e v e loped and
implemented revised time and attendance reporting
p r o c e d u r e s d u r i n g 199 3 .
While we noted some
i m p r o v e m e n t s , o u r 1994 a u d i t s c o n t i n u e d t o fi n d
d e f i c i e n c i e s in a d h e r e n c e t o r e q u i r e d p r o c e d u r e s in
p r e p a r i n g t i m e a n d a t t e n d a n c e reports, s e p a r a t i o n of
duties between timekeeping and data entry functions, and
r e c o n c i l i a t i o n of p a y r o l l r e p o r t s to t i m e cards.
These
weaknesses could adversely affect FDIC's ability to
p r o p e r l y a l l o c a t e e x p e n s e s a m o n g t h e t h r e e funds.
C o n t i n u e d m o n i t o r i n g b y F D I C m a n a g e m e n t is n e e d e d t o
e n s u r e e f f e c t i v e i m p l e m e n t a t i o n of p r o c e d u r e s a n d
g u i d a n c e to address these weaknesses.

MORE ACTION
PRIOR AUDIT

NEEDED ON
RECOMMENDATIONS

W h i l e F D I C c o n t i n u e d to m a k e p r o g r e s s in 1994 to a d d r e s s the
i n t e r n a l c o n t r o l w e a k n e s s e s i d e n t i f i e d in o u r p r i o r audits,
F D I C has not f u lly i m p l e m e n t e d all of the r e c o m m e n d a t i o n s w e
m a d e in t h e s e audits.
Specifically, FDIC has not ensured
t h a t e s t i m a t e s of r e c o v e r i e s from the m a n a g e m e n t a n d
d i s p o s i t i o n o f f a i l e d i n s t i t u t i o n a s s e t s a r e (1) d e t e r m i n e d
u t i l i z i n g a p p r o p r i a t e m e t h o d o l o g i e s a n d (2) b a s e d o n c u r r e n t
and appropriate documentation.
A d d i tionally, FDIC has not
r e v i s e d its C r e d i t M a n u a l to p r o v i d e m o r e d e t a i l e d g u i d a n c e
on recovery estimation methods that take into consideration
(1) l i q u i d a t i o n s t r a t e g i e s a n d (2) d i s c o u n t i n g o f c a s h f l o w s
t hat e x t e n d b e y o n d 1 year.
Also, FDIC has not p r o m p t l y and
routinely reconciled asset balances reported by servicing
e n t i t i e s w i t h its fina n c i a l i n f o r m a t i o n s y s t e m r e c o r d s , has
not v e r i f i e d a n d d o c u m e n t e d the a c c u r a c y a n d c o m p l e t e n e s s of
b a l a n c e s a n d a c t i v i t y r e p o r t e d b y s e r v i c i n g e n t i t i e s to
s e r v i c e r records, and has not e n s u r e d tim e l y a n d a d e q u a t e
a u d i t c o v e r a g e of c e r t a i n c r i t i c a l a r eas of a s s e t s e r v i c i n g
o p e r a t i o n s t h r o u g h t h e u s e of a s s e t s e r v i c i n g e n t i t i e s '
internal audit departments and FDIC's site visitations.
In
addi t i o n , FDIC has not e n s u r e d t h a t r e v i s e d T i m e and
Attendance Reporting Directive requirements are effectively
implemented.
FDIC needs to c o n tinue p u r s u i n g c o r r e c t i v e
a c t i o n s to f u l l y s a t i s f y t h e s e r e c o m m e n d a t i o n s .

RECOMMENDATIONS
In a d d i t i o n t o p u r s u i n g f u r t h e r a c t i o n o n r e c o m m e n d a t i o n s
f rom our p r i o r audits, FDIC needs to take a c t i o n to addr e s s
t h e c o n c e r n s r a i s e d in o u r 1994 a u d i t s of t h e t h r e e funds.
S p e c i f i c a l l y , to a d d r e s s w e a k n e s s e s i d e n t i f i e d in t h i s y e a r ' s
a u d i t s in the area of s a f e g u a r d i n g a n d r e p o r t i n g c o n t r a c t e d
a s s e t s e r v i c e r s ' a c t i v i t y , w e r e c o m m e n d t h a t t h e C h a i r m a n of
the F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n d i r e c t t h e h e a d s of
the D i v i s i o n of F i n a n c e a n d the D i v i s i o n of D e p o s i t o r and
A s s e t S e r v i c e s to
--

--

,

i m p l e m e n t t h e p r o v i s i o n s of t h e O c t o b e r 1994 L e t t e r of
U n d e r s t a n d i n g o n A c c o u n t i n g R o l e s a n d R e s p o n s i b i l i t i e s of
C A O G a n d C O M B that r e q u i r e q u a r t e r l y v e r i f i c a t i o n of
s e r v i c e r a c t i v i t y to s o u r c e d o c u m e n t s a n d r e c o n c i l i a t i o n
of t otal m o n t h l y s e r v i c e r a c t i v i t y to s e r vicers'
a c c o u n t i n g records;
establish dual controls over
and establish control totals

the o p e n i n g of c o l l e c t i o n s
for d a i l y collections; and

reconcile collections deposited
c o l l e c t i o n c o ntrol totals.

or processed

to d a i l y




CORPORATION COMMENTS AND OUR EVALUATION
F D I C c o n c u r r e d w i t h s e v e r a l of o u r a u d i t f i n d i n g s r e g a r d i n g
its s y s t e m of inte r n a l c ontrols, but d i s a g r e e d w i t h others.
F o r s o m e of the w e a k n e s s e s w e i d e ntified, F D I C has i n d i c a t e d
that corrective actions were implemented subsequ ent to
D e c e m b e r 31, 1994.
W e w i l l e v a l u a t e t h e e f f e c t i v e n e s s of
t h e s e a c t i o n s a s p a r t of o u r 1 9 9 5 f i n a n c i a l s t a t e m e n t a u d i t s .
For other internal control w e a k n e s s e s we identified, FDIC
b e l i e v e s that its c u r r e n t p o l i c i e s a n d p r o c e d u r e s a r e
appropriate.
F D I C b e l i e v e s its m e t h o d o l o g y for e s t i m a t i n g r e c o v e r i e s for
f a i l e d i n s t i t u t i o n a s s e t s is a p p r o p r i a t e .
FDIC believes that
s p e c i f i c g u i d a n c e f o r e a c h p o s s i b l e s t r a t e g y f o r d i s p o s i n g of
t h e s e a s s e t s is n o t f e a s i b l e d u e t o t h e s i g n i f i c a n t n u m b e r o f
failed institution assets and the numerous strategies
a v a i l a b l e to d i s p o s e of t h e s e assets.
However, we found that FDIC's guidance does not ensure that
e s t i m a t e s of r e c o v e r i e s on t h e s e a s s e t s a p p r o x i m a t e
anticipated collections based on the d i s position strateqy
being pursued.
W h i l e w e a g r e e t h a t s p e c i f i c g u i d a n c e for all
p o s s i b l e d i s p o s i t i o n s t r a t e g i e s is n o t f e a s i b l e , t h e C r e d i t
Manual should c learly link the methods used to estim ate
r e c o v e r i e s to t h e s t r a t e g i e s b e i n g p u r s u e d to d i s p o s e of
these assets.
Additionally, we believe FDIC should consider
the u s e of p r e s e n t v a l u e tech n i q u e s , w h e n a p p r o p r i a t e , to
e s t i m a t e recov e r i e s for failed in s t i t u t i o n assets.
This
w o u l d be t t e r ap p r o x i m a t e the c o l l e c t i o n s a n t i c i p a t e d to be
r e a l i z e d u n d e r c e r t a i n d i s p o s i t i o n s t rategies that c o u l d be
p u r s u e d for t h e s e assets.
FDIC acknowledges that improvements can be made to v e r i f y the
a c c u r a c y of t h e a s s e t b a l a n c e s a n d a c t i v i t y r e p o r t e d b y t h i r d
pa rty se rvicing entities.
F D I C n o t e d that, s u b s e q u e n t to
D e c e m b e r 31, 199 4 , it f u l l y i m p l e m e n t e d t h e r e q u i r e m e n t s o f
the L e t t e r of U n d e r s t a n d i n g of A c c o u n t i n g R o l e s and
R e s p o n s i b i l i t i e s of C A O G and C O M B . W e w i l l e v a l u a t e the
e f f e c t i v e n e s s of t h e s e p r o c e d u r e s d u r i n g o u r 1995 audits.
Ad d i t i o n a l l y , F D I C a c k n o w l e d g e s the lack of a g e n e r a l l e d g e r
at o n e of its a s s e t s e r vicers, but b e l i e v e s t h a t the
a c c o u n t i n g s y s t e m i n u s e a t t h i s s e r v i c e r is a d e q u a t e .
Howe v e r , o u r r e v i e w of the s e r v i c i n g a g r e e m e n t b e t w e e n F D I C
a n d t h i s s e r v i c e r f o u n d t h a t it s p e c i f i c a l l y r e q u i r e s t h e u s e
of a g e n e r a l ledger.
A d d i t i o n a l l y , a g e n e r a l l e d g e r is a
f u n d a m e n t a l c o n t r o l to e n s u r e that t r a n s a c t i o n s a r e p r o p e r l y
r e c o r d e d and that assets are p r o p e r l y a c c o u n t e d for and
r e c o n c i l e d to s u b s i d i a r y records.
F D I C a l s o n o t e d that, p r i o r to year - e n d , c o r r e c t i v e a c t i o n s
w e r e t a k e n r e g a r d i n g c o n t r o l s o v e r c o l l e c t i o n a c t i v i t y at its
servicing entities.
However, we found that, t h r o u g h y e a r - e n d
199 4 , o n l y o n e s e r v i c e r e f f e c t i v e l y i m p l e m e n t e d c o n t r o l s o v e r
collections.
Additionally, we found that other servicers did
n o t c o n s i d e r it c o s t e f f e c t i v e t o i m p l e m e n t c h a n g e s i n t h e i r
c o l l e c t i o n s p r o c e s s d u e to the l i m i t e d t i m e r e m a i n i n g u n d e r
t h e i r s e r v i c i n g a g r e e m e n t s w i t h FDIC.
F D I C n o t e d that its D i v i s i o n of F i n a n c e a n d O f f i c e of
P e r s o n n e l M a n a g e m e n t a r e w o r k i n g t o g e t h e r to e n s u r e a d h e r e n c e
to the T i m e and A t t e n d a n c e R e p o r t i n g D i r e c t i v e .
A d d i t i o n a l l y , F D I C is w o r k i n g
attendance process.

C h a r l e s A. B o w s h e r
Comptroller General
of t h e U n i t e d S t a t e s
March

15,

1995

to

streamline

its

time

and




Statistical
Tables




T a b le A
Num ber and Deposits of BIF-Insured Banks Closed
Because of Financial Difficulties, 1934 through 1994

(Dollars in Thousands)
Num ber of

Deposits of

Insured Banks

Insured Banks

Without

With

W ithout

With

disbursem ents

disbursem ents

disbursem ents

disbursem ents

b y FDIC

by FDIC

by FDIC

by FDIC

Total

2,069

19

2,050

$211,903,003

$4,298,814

$207,604,189

$251,625,905

1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1952
1951
1950
1949
1948
1947
1946
1945
1944
1943
1942
1941
1940
1939
1938
1937
1936
1935
1934

13
41
120
124
168
206
200
184
138
120
79
48
42
10
10
10
7
6
16
13
4
6
1
6
7
9
3
4
7
5
7
2
1
5
1
3
4
2
2
5
2
4
3
2
4
5
3
5
1
1
2
5
20
15
43
60
74
77
69
26
9

1

12
41
110
124
168
206
200
184
138
120
79
48
42
10
10
10
7
6
16
13
4
6
1
6
7
9
3
4
7
5
7
2
0
5
1
3
4
1
2
5
2
2
3
2
4
4
3
5
1
1
2
5
20
15
43
60
74
75
69
25
9

1,236,488
3,132,177
41.150,898
53,751,763
14,473,300
24,090,551
24,931,302
6,281.500
6,471,100
8,059,441
2,883,162
5,441,608
9,908,379
3,826,022
216,300
110,696
854,154
205,208
864,859
339,574
1,575,832
971,296
20,480
132,058
54,806
40,134
22,524
10,878
103,523
43,861
23,438
23,444
3,011
8,936
6,930
2,593
8,240
11,247
11,330
11,953
998
44,711
3,170
3,408
5,513
6,665
10,674
7,040
347
5,695
1,915
12,525
19,185
29,717
142,430
157,772
59,684
33,677
27,508
13,405
1,968

0

1,236,488
3,132,177
36,893,231
53,751,763
14,473,300
24,090,551
24,931,302
6,281,500
6,471,100
8,059,441
2,883,162
5,441,608
9,908,379
3,826,022
216,300
110,696
854,154
205,208
864,859
339,574
1,575,832
971,296
20,480
132,058
54,806
40,134
22,524
10,878
103,523
43,861
23,438
23,444
0
8,936
6,930
2,593
8,240
1,163
11,330
11,953
998
18,262
3,170
3,408
5,513
5,475
10,674
7,040
347
5,695
1,915
12,525
19,185
29,717
142,430
157,772
59,684
33,349
27,508
13,320
1,968

1,392,140
3,539,373
44,197,009
63,119,870
15,660,800
29,168,596
35,697,789
6,850,700
6,991,600
8,741,268
3,276,411
7,026,923
11,632,415
4,859,060
236,164
132,988
994,035
232,612
1,039,293
419,950
3,822,596
1,309,675
22,054
196,520
62,147
43,572
25,154
11,993
120,647
58,750
25,849
26,179
N/A
9,820
7,506
2,858
8,905
1,253
12,914
11,985
1,138
18,811
2,388
3,050
4,005
4,886
10,360
6,798
351
6,392
2,098
14,058
22,254
34,804
161,898
181,514
69,513
40,370
31,941
17,242
2,661

Year

Total

10

Total

4,257,667

3,011

10,084

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.




Assets

125

Table B
BIF- Insured Banks Closed During 1994
(Dollars in Thousands)

Bank
Class

Name and Location

Number
of
Deposit
Accounts

Total
Assets

Total
Deposits

FDIC
Date of
Disburse­ Estimated Closing or
ments
Loss1
Acquisition

Receiver/
Assum ing Bank
and Location

Purchase and Assumption • Insured Deposits Only
Mechanics National Bank
Paramount, C A

N

14,410

$149,599

$134,907

$123,794

$23,600

04/01/94

Home Bank
Signal Hill, CA

Superior National Bank
Kansas City, KS

N

1,569

16,890

16,748

10,169

1,500

04/14/94

Citizens-Jackson County Bank
Warrensburg, MO

Pioneer Bank
Fullerton, C A

SM

4,300

107,042

93,008

97,697

27,300

07/08/94

Chino Valley Bank
Ontario, C A

Bank of San Pedro
San Pedro, C A

NM

10,300

117,044

99,492

103,926

28,800

07/15/94

Home Bank
Signal Hill, CA

CommerceBank
Newport Beach, C A

NM

4,563

119,170

109,703

129,348

12,700

07/29/94

California State Bank
West Covina, C A

Western Community Bank
Corona, C A

NM

5,545

46,755

41,711

42,454

7,600

07/29/94

Bank of San Bernadino
San Bernadino, C A

Bank of Newport
Newport Beach, CA

NM

18,901

144,272

138,359

138,563

17,200

08/12/94

Union Bank
San Francisco, CA

Capital Bank
Downey, CA

NM

12,717

77,610

70,777

73,343

5,800

08/26/94

Landmark Bank
La Habra, CA, and
Commerce National Bank
City of Commerce, C A

NM

6,810

30,108

28,619

28,623

800

05/06/94

Medford Savings Bank
Medford, MA

N

480

10,452

8,591

8,669

0

05/19/94

Metropolitan Bank
Oakland, C A

The Bank of Hartford, Inc.
Hartford, C T

SB

24,119

337,184

276,063

275,441

0

06/10/94

Eagle Federal Savings Bank
Bristol, C T »

Meriden Trust and Safe Deposit Company2
Meriden, C T

NM

0

3,363

0

0

0

07/07/94

Peoples Savings Bank of New Britain
New Britain, C T

Ludlow Savings Bank
Ludlow, MA

SB

41,028

232,651

218,510

217,325

13,700

10/21/94

Albany Savings Bank, FSB
Albany, NY

Purchase and Assumption - All Deposits
Commercial Bank and Trust Company
Lowell, MA
Barbary Coast National Bank
San Francisco, CA

126

Codes for Bank Class:

SM
NM
N
SB

State-chartered bank that is a member of the Federal Reserve System.
State-chartered bank that is not a member of the Federal Reserve System.
National bank.
Savings bank.

1

Estimated losses are as of 12/31/94. Estimated losses are routinely adjusted with updated information from new appraisals and asset sales, which ultimately affect
the asset values and projected recoveries.

2

Meriden Trust and Safe Deposit Company held no deposits. Substantially all assets and liabilities were transferred to a bridge bank, New Meriden Trust and Safe
Deposit Company, N.A. Bridge banks are full-service national banks established on an interim basis to assume the deposits, certain liabilities and substantially all
assets of the failed banks. New Meriden was subsequently acquired by Peoples Savings Bank of New Britain, New Britain, C T , on 10/18/94.




Table C
Recoveries and Losses by the Bank Insurance Fund
on Disbursem ents for the Protection of Depositors, 1934 through 1994

(Dollars in Thousands)
Deposit payoff cases2

A LL C A S E S 1
Estimated
Additional
Recoveries

Estimated
Losses

Year

No.
of
banks

Total

602

1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1934-71 3

0
5
24
21
20
32
36
51
40
29
16
9
7
2
3
3
1
0
3
3
0
3
1
293

Recoveries

Estimated
Additional
Recoveries

$14,442,502

$8,466,341

$1,568,111

$4,408,050

0
261,206
1,782,075
1,467,158
2,179,229
2,116,316
1,252,146
2,103,571
1,155,978
523,789
791,835
147,287
277,240
35,736
13,732
9,936
817
0
11,416
25,918
0
16,771
16,189
254,157

0
164,967
999,875
667,688
1,112,099
889,503
792,091
1,344,568
732,810
406,922
670,935
122,484
205,879
34,598

0
4,812
305,991
331,781
381,463
414,192
31,295
60,149
7,536
3,842
26,860
0
189
0
0
0
0
0
0
1
0
0
0
0

0
91,427
476,209
467,689
685,667
812,621
428,760
698,854
415,632
113,025
94,040
24,803
71,172
1,138
2,217
933
204
0
1,756
68
0
0
1,688
20,147

Year

No.
of
banks

Total

2,121

$103,481,170

$61,106,344

$5,843,460

$36,531,426

1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1934-71*

13
41
122
127
169
207
221
203
145
120
80
48
42
10
11
10
7
6
17
13
5
6
2
496

1,249,352
1,755,358
12,843,085
20,611,900
10,807,651
11,444,554
12,183,632
5,037,650
4,717,666
2,917,550
7,696,212
3,766,884
2,275,149
888,999
152,355
90,489
548,568
26,650
599,397
332,046
2,403,277
435,238
16,189
681,319

233,345
889,742
8,526,112
13,863,211
7,542,616
4,658,269
4,271,570
2,949,608
2,980,561
1,678,398
5,506,306
2,240,432
829,794
69,326
114,760
74,372
512,927
20,654
561,532
292,431
2,259,633
368,852
14,501
647,392

877,007
281,446
356,705
479,943
451,869
663,210
1,040,186
67,366
12,579
231,454
695,001
101,328
297,078
43,518
7,010
5,250
26,626
3,903
35,828
23,303
143,604
(1,101)
0
347

139,000
584,170
3,960,268
6,268,746
2,813,166
6,123,135
6,871,876
2,020,676
1,724,526
1,007,698
1,494,905
1,425,124
1,148,277
776,155
30,585
10,867
9,015
2,093
2,037
16,312
40
67,487
1,688
33,580

Year

No.
of
banks

Disburse­
ments

Total

1,439

$78,224,289

$47,928,581

$3,230,851

$27,064,857

Total

80

$10,814,379

$4,711,422

$1,044,498

$5,058,519

1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974

13
36
96
103
148
174
164
133
98
87
62
36
26
5
7
7
6
6
13
10
4

139,000
492,743
3,483,099
5,797,390
2,125,067
5,308,196
4,846,344
1,161,658
1,211,478
535,402
420,402
1,336,252
58,908
2,227
28,368
9,934
8,811
2,093
281
16,244
40

1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974

0
0
2
3
1
1
21
19
7
4
2
3
9
3
1
0
0
0
1
0
1

0
0
960
4,166
2,499
2,402
1,750,991
160,877
158,848
762,396
5,531,179
86,418
1,579,588
774,055
N/A
0
0
0
N/A
0
N/A

0
0
0
499
67
60
154,219
713
61,432
281,214
3,894,996
18,207
298,750
1,265
N/A
0
0
0
N/A
0
N/A

0
0
0
0
0
84
0
0
0
121,911
655,720
4,142
262,641
0
N/A
0
0
0
N/A
0
N/A

0
0
960
3,667
2,432
2,318
1,596,772
160,164
97,416
359,271
980,463
64,069
1,018,197
772,790
N/A
0
0
0
N/A
0
N/A

3
0
202

233,345
724,775
7,526,237
13,195,024
6,430,450
3,768,706
3,325,260
1,604,327
2,186,319
990,262
940,375
2,099,741
325,165
33,463
103,245
65,369
512,314
20,654
551,872
266,582
2,259,633
352,081
0
413,382

877,007
276,634
50,714
148,162
70,406
248,934
1,008,891
7,217
5,043
105,701
12,421
97,186
34,248
43,518
7,010
5,250
26,626
3,903
35,828
23,302
143,604

1973
1972
1934-713

1,249,352
1,494,152
11,060,050
19,140,576
8,625,923
9,325,836
9,180,495
2,773,202
3,402,840
1,631,365
1,373,198
3,533,179
418,321
79,208
138,623
80,553
547,751
26,650
587,981
306,128
2,403,277
418,467
0
427,162

(1.101:
0
347

67,487
0
13,433

1973
1972
1934-713

0
1
1

0
N/A
N/A

0
N/A
N/A

0
N/A
N/A

0
N/A
N/A

Disburse­
ments

Recoveries

Deposit assumption cases
Recoveries

Estimated
Additional
Recoveries

Disburse­
ments

11,515
9,003
613
0
9,660
25,849
0
16,771
14,501
234,010

Assistance transactions
Estimated
Losses

Year

No.
of
banks

Disburse­
ments

Recoveries

Estimated
Additional
Recoveries

1 Totals do not Include dollar amounts for five open bank assistance transactions before 1981. There were no open bank assistance transactions
before 1971.
2 Includes insured deposit transfer cases.
3 For detail of years 1934 through 1971, refer to Table C of the 1991 Annual Report.




Estimated
Losses

Estimated
Losses

127

Tab le D
Income and Expenses, Bank Insurance Fund, by Year,
from Beginning of Operations, September 11,1933, through December 31,1994
(Dollars in Millions)
Incom e
Investment
Assessment Assessment and Other
Income
Credits
Sources

Year
Total

128

Total
$68,628.6

$50,108.4

6,467.0
6,430.8
6,301.5
5,789.9
3,838.3
3,494.6
3,347.7
3,319.4
3,260.1
3,385.4
3,099.5
2,628.1
2,524 6
2,074 7
1,310.4
1,090.4
952.1
837.8
764 9
689.3
668.1
561.0
467.0
415.3
382 7
335.8
295.0
263.0
241.0
214.6
197.1
181.9
161.1
147.3
144.6
136.5
126.8
117.3
111.9
105 8
99.7
94.2
88.6
83.5
84.8
151.1
145.6
157.5
130.7
121.0
99.3
86.6
69.1
62.0
55.9
51.2
47.7
48.2
43 8
20.8
7.0

5,590.6
5,784.3
5,587.8
5,160.5
2,855.3
1,885.0
1,773.0
1,696.0
1,516.9
1,433.4
1,321.5
1,214.9
1,108.9
1,039.0
951.9
881.0
810.1
731.3
676.1
641.3
587.4
529.4
468.8
417.2
369.3
364 2
334.5
303.1
284.3
260.5
238.2
220.6
203 4
188 9
180.4
178.2
166.8
159.3
155.5
151.5
144.2
138.7
131.0
124.3
122.9
122.7
119.3
114.4
107.0
93.7
80.9
70.0
56.5
51.4
46.2
40.7
38.3
38.8
35.6
11.5
0.0

1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1952
1951
1950
1949
1948
1947
1946
1945
1944
1943
1942
1941
1940
1939
1938
1937
1936
1935
1933-34

$6,709.1
0.0
0.0
00
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
164.0
96.2
117.1
521.1
5246
443 1
411.9
379.6
362.4
285.4
283.4
280.3
241.4
210.0
220.2
202.1
182.4
172.6
158.3
145.2
136.4
126.9
115.5
100.8
99.6
93.0
90.2
87.3
85.4
81.8
78.5
73.7
70.0
68.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0

Effective
Assessment
Rate1

$25,229.3
876.4
646.5
713.7
629.4
983.0
1,609.6
1,574.7
1,623 4
1,743.2
1,952.0
1,778.0
1,577.2
1,511.9
1,152.8
879.6
734.0
585.1
518.4
468.4
410.4
366.1
315.0
278.5
239 5
223.4
191.8
162.6
142.3
129 3
112.4
104.1
97.7
84.6
73.9
65.0
57.9
53.0
48 2
43.7
39.7
37.3
34.0
31.3
29.2
30.6
28.4
26.3
43.1
23.7
27.3
18.4
16.6
126
10.6
9.7
10.5
9.4
9.4
8.2
9.3
7.0

Total
$46,780.8

0.2360%
0 2440%
0.2300%
0 2125%
0.1200%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0 0800%
0.0714%
0.0769%
0.0714%
0.0370%
0.0333%
0.0385%
0.0370%
0.0370%
0.0357%
0.0435%
0.0385%
0.0333%
0.0345%
0.0357%
0.0333%
0.0333%
0.0333%
0.0323%
0.0323%
0.0323%
0.0313%
0.0313%
0.0323%
0.0370%
0.0370%
0.0370%
0.0357%
0.0370%
0.0370%
0.0357%
0.0357%
0.0370%
0.0370%
0.0370%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
N/A

(2,259.1)
(6,791 4)
(625.8)
16,862 3
13,003.3
4,346.2
7,588.4
3,270.9
2,963.7
1,957.9
1,999 2
969.9
999.8
848.1
83.6
93.7
148.9
113.6
212.3
97.5
159.2
108.2
59.7
60.3
46 0
34.5
29.1
27.3
19.9
22 9
18.4
15.1
13.8
14.8
12.5
12.1
11.6
9.7
9.4
9.0
7.8
7.3
7.8
6.6
7.8
6.4
7.0
9.9
10.0
9.4
9.3
9.8
10.1
10.1
12.9
16.4
11.3
12.2
10.9
113
10.0

E x p e n se s a n d L o s s e s
Deposit Insurance Administrative
Losses and
and Operating
Expenses
Expenses
$42,009.2
(2,682.3)
(7,179.9)
(1,196.6)
16,578.2
12,783.7
4,132.3
7,364.5
3,066.0
2,783.4
1,778.7
1,848 0
834.2
869.9
720.9
(34.6)
(13.1)
45.6
24.3
31.9
29.8
100.0
53.8
10.1
13 4
3.8
1.0
0.1
2.9
0.1
5.2
2.9
0.7
0.1
1.6
0.1
0.2
0.0
0.1
0.3
0.3
0.1
0.1
0.8
0.0
1.4
0.3
0.7
0.1
0.1
0.1
0.1
0.2
0.5
0.6
3.5
7.2
2.5
3.7
2.6
2.8
0.2

Net Income/
(Loss)

$4,771.6
423.2
388.5
570 8
284.1
219.6
213.9
223.9
204.9
180.3
179.2
151.2
135.7
129.9
127.2
118.2
106.8
103.3
89.3
180.4
67.7
59.2
54.4
49.6
46.9
42.2
33.5
29.0
244
19.8
17.7
15.5
14.4
13.7
13.2
12.4
11.9
11.6
9.6
9.1
8.7
7.7
7.2
7.0
6.6
6.4
6.1
6.3
9.8
9.9
9.3
9.2
9.6
9.6
9.5
9.4
9.2
8.8
8.5
8.3
8.5
9.8

$21,847 8
8,726.1
13,222.2
6,927.3
(11,072.4)
(9,165.0)
(851.6)
(4,240.7)
48.5
296.4
1,427.5
1,100.3
1,658.2
1,524.8
1,226.6
1,226.8
996.7
803.2
724.2
552.6
591.8
508.9
452.8
407.3
355.0
336.7
301.3
265.9
235.7
221.1
191.7
178.7
166.8
147.3
132.5
132.1
124.4
115 2
107.6
102.5
96.8
91.9
86.9
80.8
76.9
77.0
144.7
138.6
147.6
120.7
111.6
90.0
76.8
59.0
51.9
43.0
34.8
36.4
36.0
32.9
9.5
(3.0)

1 The effective rates from 1950 through 1984 vary from the statutory rate of 0 0833 percent due to assessment credits provided in those years
The statutory rate increased to 0.12 percent in 1990 andtoaminimumof0.15 percent in 1991. The effective rates in 1991 and 1992 vary because
the FDIC exercised new authority to increase assessments above the statutory rate when needed. Beginning in 1993, the effective rate is based
on a risk-related premium system under which institutions pay assessments in the range of 0.23 percent to 0.31 percent.




Table E
Insured Deposits and the Bank Insurance Fund, December 31,1934 through 1994
Insurance Fund as a Percentage of

(Dollars in Millions)
Year1
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1952
1951
1950
1949
1948
1947
1946
1945
1944
1943
1942
1941
1940
1939
1938
1937
1936
1935
1934s

Insurance
Coverage
$100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
40,000
40,000
40,000
40,000
40,000
40,000
20,000
20,000
20,000
20,000
20,000
15,000
15,000
15,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000

Deposits in Insured Banks
Insured 2
Total
$2,463,813
2,493,636
2,512,278
2,520,074
2,540,930
2,465,922
2,330,768
2,201,549
2,167,596
1,974,512
1,806,520
1,690,576
1,544,697
1,409,322
1,324,463
1,226,943
1,145,835
1,050,435
941,923
875,985
833,277
766,509
697,480
610,685
545,198
495,858
491,513
448,709
401,096
377,400
348,981
313,304
297,548
281,304

Percentage of
Insured Deposits

$1,896,060
1,906,885
1,945,623
1,957,722
1,929,612
1,873,837
1,750,259
1,658,802
1,634,302
1,503,393
1,389,874
1,268,332
1,134,221
988,898
948,717
808,555
760,706
692,533
628,263
569,101
520,309
465,600
419,756
374,568
349,581
313,085
296,701
261,149
234,150
209,690
191,787
177,381
170,210
160,309
149,684
142,131
137,698
127,055
121,008
116,380
110,973
105,610
101,841
96,713

5,000
5,000

260,495
247,589
242,445
225,507
219,393
212,226
203,195
193,466
188,142
178,540
167,818
156,786
153,454
154,096
148,458
157,174
134,662
111,650
89,869
71,209
65,288
57,485
50,791

5,000
5,000

48,228
50,281

91,359
76,589
75,320
76,254
73,759
67,021
56,398
48,440
32,837
28,249
26,638
24,650
23,121
22,557
22,330

5,000
5,000

45,125
40,060

20,158
18,075

10,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000

77.0
76.5
77.4
77.7
75.9
760
75.1
75.3
75.4
76.1
76.9
75.0
73.4
70.2
71.6

Deposit Insurance
Fund
$21,847.8
13,121.6
(100.6)
(7,027.9)
4,044.5
13,209.5

42.9
45.5
46.8
44.4

14,061.1
18,301.8
18,253.3
17,956.9
16,529.4
15,429.1
13,770.9
12,246.1
11,019.5
9,792.7
8,796.0
7,992.8
7,268.8
6,716.0
6,124.2
5,615.3
5,158.7
4,739.9
4,379.6
4,051.1
3,749.2
3,485.5
3,252.0
3,036.3
2,844.7
2,667.9
2,502.0
2,353.8
2,222.2
2,089.8
1,965.4
1,850.5
1,742.1
1,639.6
1,542.7
1,450.7
1,363.5
1,282.2
1,243.9
1,203.9
1,065.9
1,006.1
1,058.5
929.2
804.3
703.1
616.9
553.5
496.0
452.7
420.5
383.1
343.4

44.7
45.1

306.0
291.7

65.9
66.4
65.9
66.7
65.0
62.5
60.7
60 2
61.3
64.1
63.1
60.2
58.2
58.4
55.6
55.0
56.6
57.2
57.0
57.5
57.4
56.8
56.3
55.2
548
54.6
54.6
54.1
54.2
54.4
48.8
49.1
49.5
49.7
42 4
41.9
43.4
36.5
39.7
40.8

Total
Deposits
0.89
0.53
(0.00)
(0.28)
0.16
0.54
0.60
0.83
0.84
0.91
0.92
0.91
0.89
0.87
0.83
0.80
0.77
0.76
0.77
0.77
0.73
0.73
0.74
0.78
0.80
0.82
0.76
0.78
0.81
0.80
0.82
0.85
0.84
0.84
0.85
084
0.81
0.82
0.79
0.77
0.76
0.75
0.72
0.72
0.74
0.77
0.69
0.65
0.71
0.59
0.60
0.63
0.69
0.78
0.76
0.79
0.83
0.79
0.68
0.68
0.73

Insured
Deposits
1.15
0.69
(0.01)
(0.36)
0.21
0.70
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
1.18
1.18
1.21
1.23
1.27
1.25
1.29
1.26
1.33
1.39
1.45
1.48
1.50
1.47
1.47
1.48
1.47
1.43
1.46
1.44
1.41
1.39
1.37
1.34
1.33
1.36
1.57
1.42
1.32
1.44
1.39
1.43
1.45
1.88
1.96
1.86
1.84
1.82
1.70
1.54
1.52
1.61

1

Starting in 1990, deposits in insured banks exclude those deposits held by Bank Insurance Fund members that are covered by the Savings
Association Insurance Fund.

2

Insured deposits are estimated based on deposit information submitted in the December 31 Call Reports (quarterly Reports of Condition and
Income) and Thrift Financial Reports submitted by insured institutions. Before 1991, insured deposits were estimated using percentages
determined from the June 30 Call Reports

3

Initial coverage was $2,500 from January 1 to June 30, 1934.




Table DD
Income and Expenses, Savings Association Insurance Fund, by Year,
from Beginning of Operations, August 9,1989, through December 31,1994
(Dollars in Thousands)

Year

Total

Incom e
Investment
Assessment and Other
Income
Sources

Total

$2,432,091

$2,313,598

1,215,289

1,132,102

83,187

1993
1992
1991
1990
1989

923,516
178,643
96,446
18,195
2

897,692
172,079
93,530
18,195
0

25,824
6,564
2,916
0
2

Expenses and Losses
Provision
Administrative
for
Interest
and Operating
Expenses
Losses
Expenses

Total

Funding Transfer
from the FSLIC
Resolution Fund

Net Income/
(Loss)

$634,874

$435,700

$604

$198,570

$139,498

$1,936,715

0.244%

434,303

414,000

0

20,303

0

0.250%
0.230%
0 230%
0.208%
0.208%

46,814
28,982
63,085
56,088
5,602

0
(5)
609
0
0

30,283
43,932
42,362
56,088
5,602

0
35,446
42,362
56,088
5,602

780,986
876,702
185,107
75,723
18,195
2

$118,493

1994

Effective
Assessment
Rate

16,531
(14,945)
20,114
0
0

Table EE
Insured Deposits and the Savings Association Insurance Fund, December 31,1989 through 1994

Insurance Fund as a Percentage of

(Dollars in Millions)
Insurance

Deposits in Insured Institutions

Year1

Total

1994

$100,000

$720,823

1993
1992
1991
1990
1989

130

Coverage

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

726,473
760,902
810,664
874,738
948,144

Insured
$692,626
695,158
729,458
776,351
830,028
882,920

Percentage of

Deposit Insurance

Total

Insured

Insured Deposits

Fund

Deposits

Deposits

96.1
95.7
95.9
95.8
94.9
93.1

$1,936.7
1,155.7
279.0
93.9
18.2
0.0

0.27
0.16
0.04
0.01
0.00

0.00

1 Starting in 1990, deposits in insured institutions exclude those deposits held by Savings Association Insurance Fund members that are covered by the Bank
Insurance Fund.
2 Insured deposits are estimated based on deposit information submitted in the December 31 Call Reports (quarterly Reports of Condition and Income) and
Thrift Financial Reports submitted by insured institutions. Before 1991, insured deposits were estimated using percentages determined from the June 30
Call Reports.




0.28
0.17
0.04
0.01

0.00
0.00

1 9

9 4

Index
M
A d v an ce D ividend P aym ents
A ffordable H ousing
P rogram

30

F ailed o r F ailing Institutions:
30-35
F ailed B anks by S tate, 1992-94
31
F ailed B anks, 19 34-94-T able A

3 6 -3 7 ,5 4

A pplications:
P rocessing

2 1 ,2 2 ,4 6 ,4 7 ,5 3

F D IC A p p lications,
1992-94

22

A ssessm en ts
(see: D ep o sit In surance P rem ium s)

O fficials
O rganization C hart
R egional O ffices

B____________________

21,52

C all R eports
C apital

6
19
57-77

5 ,2 1 ,4 5 ,4 7 ,4 8 ,5 0 ,5 1 ,5 3

C om m ercial B anks
(Financial P erform ance)
C o n su m er Protection:
C o m m unity
R ein v estm ent Act
E d u catio n E fforts
F air L ending
H om e M ortgage
D isclo su re A ct

4-5

1 8 ,28,48,54
29
27

27-28
C ro ss-G u aranty T ransactions 31-32

F D IC Im provem ent A ct o f 1991
(FD IC IA )

D erivatives

6 - 7 , 18, 23, 45, 50

26

F ederal S avings and L oan
Insurance C orporation (FS L IC )
(see: F S L IC R esolution F und)
F S L IC R esolution F und
(FR F):
F inancial S tatem ents

7 ,3 3 ,5 4
95-110
9

F iechter, Jonathan L,
F inancial Institutions R eform ,
R ecovery, and E nfo rcem en t A ct
o f 1989 (FIR R E A )

26

E xam inations:
F D IC E xam inations, 1992-94




21
20

P
P roblem Institutions:
5
B ank In surance F und P roblem
Institutions, 1990-94
4,19
S avings A ssociation Insurance
F und P roblem Institutions,
1990-94
4,19

22

R egulatory B urden
R eports o f C ondition and Incom e
(see: Call R eports)

R isk A nalysis

30,37,
40,41

2-3,18,20-21,26

2-3, 8,18, 20

H istorical O verview s:
A sset D isposition
B ank F ailures
B ank S upervision

H ove, A ndrew (S kip) C ., Jr.

8,18

29

L
L east-C o st R esolution
L egislation E nacted in 1994

S avings A ssociation In surance Fund
(SA IF):
6-7
H ighlights
19

79-94

F inancial S tatem ents

38
34
25

1
In tern et

22-23,45-51

111-122

H

30
52-54

L itigation

24,37

L oss-S haring

32,39

L udw ig, E ugene A.

31,52

O m budsm an P rogram

R ules and R egulations

H om e M ortgage D isclosure A ct
(see: C om m unity and C onsum er
P rotection)
E n fo rcem en t A ctivities:
23-24
C o m p lian ce, E nfo rcem en t and
O th er L egal A ctions, 1992-94
24

26

O ff-S ite M onitoring

R isk-R elated P rem ium s
23
(also see: Deposit Insurance Prem ium s)

G eneral A ccounting O ffice:
L ette r

7,20-21,48

17,21-22,45

R esolution T rust C orporation

G

H eifer. R icki
D eposit Insurance
P rem iu m s

17-19
11
10
12-13

H ighlights

1 7,18,23,28

M utual-to-S tock
C onversions

o

Federal D eposit Insurance Corporation:
8-9
B oard o f D irectors
F inancial S tatem ents
57-110

A sset D isp osition:
36-39
Liquidation Highlights. 1992-94
36

B ank In su rance F und (B IF):
H igh lig h ts
F inancial S tatem ents

125

F air L ending
(see:C om m unity and C o n su m er
P rotection)

M utual F unds

9

S aving Institutions
(Financial P erform ance)

5

S taffing:
D ow nsizing
N u m b er o f F D IC O fficials
and E m ployees, 1993-94

40-41
40

S tatistical T ables:
N um ber and D eposits o f B anks
C losed, 1934-94
B IF -in su red B anks C losed
o r A ssisted D uring 1994

125
126

R ecoveries and L osses by the
B IF on D isbursem ents to
P rotect D epositors, 1934-94
Incom e and E xpenses, BIF,
1933-94
Insured D eposits and the B IF,
1934-94

129

Incom e and E xpenses, SA IF,
1989-94

130

Insured D eposits and the SA IF,
1989-94
S upervision

127
128

130
20-26

131




934

9

9

4

The 1994
FDIC A nnual Report
Published
by:
The Office
of Corporate Communications




A lan J. W hitney
Director
C aryl A. A ustrian
Deputy Director
Jay Rosenstein
Senior W riter-Editor

Design,
Production
and
P rinting
by:
The Office
of Corporate Services

David B a rr
Associate Editor

Geoffrey L. W ade
Coordinator

F ra n k G resock
Assistant Editor

Sam Collicchio
Art Director/Designer


P-1400-103-94


Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429-9990

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