View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal Deposit Insurance Corporation
A nnual Report

1996




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 o f 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 FD IC ’s long and continuing tradition o f public
service is supported and sustained by a highly skilled ana
diverse workforce that responds rapidly and successfully
to changes in the financial environment.




/




FDIC
Federal Deposit Insurance Corporation
Washington, DC 20429

Office of the Chairman

August 12. 1997

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 subm it its Annual Report
for the calendar year 1996.

Sincerely,

Andrew C. Hove. Jr.

Acting Chairman

T he President of the U.S. Senate
T he Speaker of th e U.S. H ouse of R epresentatives




Overview
C hairm an’s Statement

2

Highlights

5

Condition o f the FD IC’s Funds

8

State o f the Banking and Thrift Industries

11

Board of Directors

14

Organization Chart/Officials

16

Operations

of t h e C o r p o r a t i o n

Supervision and Enforcement

18

Failed Institutions

24

Consumer Protection Activities

28

Significant Court Cases

32

Internal Operations

34

Regulations

and L e g i s l a t i o n

Regulations Adopted and Proposed

38

Significant Legislation Enacted

44

Financial

Statements

Bank Insurance Fund (BIF)

49

Savings Association Insurance Fund (SAIF)

65

FSLIC Resolution Fund (FRF)

79

Statistical

Tables

N umber and Deposits o f BIF-Insured Banks Closed, 1934-96

107

Recoveries and Losses on Disbursements — BIF, 1934-96

108

Income and Expenses — BIF, 1933-96

109

Insured Deposits and the BIF, 1934-96

110

FDIC-Insured Institutions Closed During 1996

111

Income and Expenses — SAIF, 1989-96

111

Insured Deposits and the SAIF, 1989-96

111

Insured Thrifts Taken O ver or Closed, 1989-96

112

For M o r e

Information

Sources of Information

115

Regional Offices

116

M ajor Speeches and Selected Testimony

117

Index

118







Chairman's Statement

For the Federal Deposit Insurance
Corporation, 1996 was a year of
accomplishment both in putting the
problems of the past behind us and
in preparing this Corporation for the
future.

Moreover, in capitalizing the SAIF
and repairing its flaws, Congress gave
the FDIC the freedom to look ahead
to anticipate future problems for the
banking industry, rather than simply
to react when problems occur.

In the 1980s and early 1990s, the
greatest banking crisis since the early
1930s dictated our actions, internally
and externally. From 1980 through
1994, the men and women o f the
Corporation managed the failures of
1,617 banks, either by closing them or
assisting them to stay open. As o f the
end of 1996, the FDIC had liquidated
almost all of the $317 billion in assets
that the failed banks held. As a result
of its actions, the FDIC protected
the deposits of tens of millions of
Americans. Our goal is to achieve
stability in the financial system, and
the Corporation, in the banking crisis,
achieved that goal with the dedication
and professionalism that has character­
ized the FDIC since its creation three
generations ago.

Conditions in the industry also gave
the FDIC the freedom necessary
to prepare for the future. In 1996,
commercial banks earned a record
$52.4 billion, exceeding $50 billion
in annual earnings for the first time.
Return on assets (ROA) at commercial
banks averaged 1.19 percent. Average
R O A — a basic yardstick o f profit­
ability— has exceeded one percent
for the commercial banking industry
for four consecutive years. Historically,
an ROA of one percent or higher
has marked superior performance in
banking.

In the past tw o-and-a-half years, the
Corporation has changed its focus to
help banks stay open and serve their
customers and communities. This new
mission has required adjustments in
how we supervise banks, how we use
technology, and how we manage our­
selves. In 1996, we were able to turn
our full attention to our new mission
after Congress in September addressed
the last significant issue remaining
from the banking and thrift crisis:
capitalization o f the Savings
Association Insurance Fund (SAIF).
In capitalizing the SAIF, Congress
repaired a structural defect in the
deposit insurance system that threat­
ened not only that insurance fund, but
the strength o f the deposit insurance
system as well. The legislation assured
Americans that their deposits would
continue to be protected — that the
words “insured by the FDIC” would
continue to provide certainty in an
uncertain financial world, as they have
for three generations of Americans.




Only five banks insured by the Bank
Insurance Fund (BIF) and one thrift
insured by the SAIF failed in 1996.
The BIF had net income of $ 1.4 billion
in 1996, while the SAIF had net income
o f $5.5 billion for the year, primarily
resulting from a one-time special
assessment of $4.5 billion on SAIF
members to fully capitalize the fund.
A t year-end, the BIF held $26.9 billion
and the SAIF $8.9 billion, for a com ­
bined total o f $35.8 billion, the largest
reserves in FDIC history.
While we were working with Congress,
the other bank regulators, and the
Administration to address the problems
o f the SAIF, we continued to initiate
and carry out significant reforms to
prepare ourselves for the future.
In early 1996 we announced new efforts
to monitor and assess existing and
emerging risks at insured institutions,
in part by developing a tiered-examination approach that targets the level
o f risk and risk management practices

2

at specific institutions. The new efforts
at risk assessm ent are designed to
enhance the FDIC’s traditional approach
so that we can respond to new and
emerging risks more quickly and more
effectively. As part o f those new efforts,
we began developing specific guide­
lines for examiners on how to factor
relevant economic and other data into
their risk evaluations o f specific insti­
tutions. W hile full-scope examinations
will continue to be performed, these
guidelines w ill focus exam iner
resources into areas o f a bank that
present the most risk. Ultimately, the
guidelines will cover 14 areas ranging
from management o f the loan portfolio
to electronic banking.
We implemented similar examination
procedures for interest rate risk in
October. To assist bankers in preparing
for exam inations using the new
guidelines on interest rate risk, we
co-sponsored 10 seminars around the
country with the Independent Bankers
Association o f America, providing
training to the more than 1,000 bankers
who participated.
A major source of data for our new
approach to examinations is our newly
created Division of Insurance, which
achieved full-scale operations in 1996.
The new division analyzes data we
have collected, as well as economic
and financial data from other public
and private sources, to give the FDIC
a comprehensive perspective on the
industry and the trends that affect it.
Along with its staff in Washington,
the new division has analysts and
economists in each of our eight regions
to monitor regional and local trends
and conditions.

As the year drew to a close, our
economists began to circulate three
draft papers on the causes of bank
failures in the 1980s and early 1990s.
These three papers, which would be
presented at an FDIC symposium in
January 1997, discussed the major
findings of a systematic analysis we
undertook two years ago on the causes
of the 1,617 bank failures from 1980
through 1994. The report o f our
“History of the Eighties” project—
to be published in late 1997— will
tell us what went wrong in the 1980s
and will give us a significant point
of departure for future research and
assessments of risk to the banking
industry and to the deposit insurance
funds.
Reflecting the heightened emphasis
on risk assessment, the FDIC Board in
December adopted the new interagency
“CAM ELS" rating system for assessing
the soundness of financial institutions.
Along with capital (C), asset quality (A),
management (M), earnings (E), and
liquidity (L), the banking agencies
added a sixth component to the rating
— “S’" for sensitivity to market risk.
In October, the FDIC also became the
first federal banking agency to disclose
the individual components of the
composite rating to banks in order
to inform management more precisely
where im provements in performance
are needed. In doing so, we were adopt­
ing the practice of several state bank
supervisors. A dynamic dual banking
system allows us to learn from each
other.
Two years ago, the FDIC adopted
the first corporate strategic plan in
its history, as the first step in an effort
to manage the Corporation the way
a business is managed. To implement
the goals o f the strategic plan, the men
and women of the FDIC developed an
operating plan consisting of 189 short­
term projects as o f year-end. O f these




C h a irm a n Ricki H e ife r

projects, 85 were completed by the
end o f 1996, 32 were either merged
into other projects or discontinued
as unnecessary; 38 remained active at
year-end and 23 were moved to business
plans, the latest element in the FDIC
planning process. Business plans are
developed to cover day-to-day opera­
tions. Today, every division and office
at the FDIC has a business plan, and
no activity is budgeted— or paid
fo r— unless it has been approved in
the operating plan or in a business plan.
In initiating and carrying out reforms
to improve the quality and effectiveness
o f our work, we have structured a
decision-making process that promotes
efficiency, and we have become more
effective in anticipating and responding
to change. As part o f this effort, in
1996 we established a board-level
Audit Committee to make certain that
standards o f sound financial m anage­
ment are met; we created an Office of
Internal Control M anagem ent to assure
that operational problems are discovered
and addressed quickly; and we restruc­
tured our budget process to impose
stronger overall financial accountability
by linking budget decisions to planning.

3

In 1996 the FDIC also prepared for
the future by making a commitment
to leveraging technology to improve
the quality and efficiency of our bank
examinations, as well as to enhance
our communications with the public.
During the year, our examiners began
to use an automated system called
ALERT that extracts loan information
from bank databases and allows exam­
iners to review the loan data offsite.
ALERT reduces the amount o f time
that examiners spend transcribing data,
time that they can use more produc­
tively in doing analyses. We have
trained examiners from 29 state bank­
ing departments to use the ALERT
system. In cooperation with the Federal
Reserve System and the state bank
supervisors, we also began developing
an autom ated examination package
called GENESYS, which will allow
us to draw analytical data from either
FDIC or Federal Reserve mainframes
in a common form so that all our
examiners can use it. We plan to have
GENESYS completed and ready for
use in the first quarter o f 1998.

Our efforts to enhance communications
with the public through technology in
1996 centered on a greatly expanded
presence on the Internet. The Division
of Research and Statistics at the end
of the year began a new service on
the FD IC’s Web site, an electronic
Institution Directory (I.D.). This system
provides significant financial informa­
tion drawn from Call Report data for
every insured bank and thrift institution
in the country— 11,452 as o f year-end.
One example o f our success in man­
aging the Corporation the way that
businesses are managed was the devel­
opment in 1996 of a new, integrated
financial information management
system. The new system replaces 100
separate reporting systems and creates
a single automated general ledger
for all income and expense flows, a
ledger that will be used to make more
informed, and therefore better, man­
agerial decisions in the future. Few
other large governm ent agencies have
achieved this level o f integration for
their financial information systems.
In 1996, the FDIC also completed its
transfer o f staff and work from the
Resolution Trust Corporation—
in all, more than 2,000 employees and
$7.7 billion in assets to be liquidated—
with no disruptions in our operations at
the FDIC.
As part of the new budgeting process,
each of our divisions and offices ju sti­
fies its staffing levels by workload, and
1996 saw continued dramatic reductions
in the overall workload of the FDIC.
The book value o f assets in liquidation
at the FDIC peaked in m id-1992 at
$44.4 billion. As o f year-end 1996, they
stood at $8.7 billion— only one-fifth of
the 1992 levels— despite $7.7 billion
in Resolution Trust Corporation (RTC)
assets transferred to the FDIC at the end
of 1995, when the RTC sunset occurred.
A bout $4.4 billion o f the assets in liq­
uidation on our books at year-end were
those assets transferred from the RTC,
with the remaining $4.3 billion repre­
senting assets from FDIC liquidations.




Staffing size correlates closely with
expenses at the FDIC. In the aftermath
of the banking crisis of the late 1980s
and early 1990s, FDIC staffing peaked
in mid-1993 at 15,611. It has been
difficult, but necessary, to tell many
employees who served the FDIC and
this country well during the banking
crisis that we no longer have jobs for
them. We have sought to be as humane
as possible in this process by offering
generous cash buyouts, direct job
placement assistance, and opportunities
to compete for the limited number
o f jobs open in other parts of the
Corporation. The FDIC has been and
will continue to be exceedingly well
served by the professionalism and
dedication of its staff.
As o f year-end 1996, staffing was
down to 9,151, a reduction o f 6,460
positions, or 41 percent from the peak,
despite the approximately 2,000 RTC
employees transferred to the FDIC in
connection with the sunset of the RTC
at the end of 1995. In 1996 alone,
staffing declined by 2,705 or 23 percent.
The level o f dow nsizing we have
experienced at the FDIC is largely
unprecedented in governm ent.
M ost o f the reduction since 1993 came
from the Division of Resolutions and
Receiverships (DRR), form erly the
D ivision o f D epositor and A sset
Services (D A S) and the Division of
Resolutions (DOR), before those two
divisions were merged in December of
1996. The staff o f those two divisions
peaked at 6,966 in mid-1993, but their
combined total declined to 1,819 as of
year-end 1996.

expenses in 1996 were $1,127 billion,
not counting RTC-work related expenses
o f $579 million, which are covered by
funds appropriated by the Congress.
By the end of the year 2000, we project
that $1.5 billion in assets o f failed
financial institutions will need to be
liquidated and the FDIC will have a
total staff of approximately 6,600. None
of the reductions in staff will come
at the expense of bank safety and
soundness. More than half o f the staff
projected for the year 2000 will be in
our Division of Supervision and our
Division of Compliance and Consumer
Affairs, the FD IC’s examination
divisions.
The FDIC is stronger today than it has
ever been. Its financial resources are
greater— and its range o f expertise
w ider— than at any time in its history.
In creating the FDIC, our governm ent
made a promise to the American people:
they would have a haven o f security
and certainty in the uncertain financial
world. We have kept the promise for
three generations o f Americans. Our
parents and grandparents had faith
in the Federal Deposit Insurance
Corporation. Throughout 1996, we
prepared ourselves well— operationally,
managerially, and technologically— so
that our children will find that they,
too, can have faith in the promise of
security that the FDIC offers.

Ricki Heifer
Chairman

The reduction in workload and staffing
levels were accompanied by significant
reductions in FDIC expenses, which
peaked in 1993 at $2,003 billion. FDIC

Chairman Heifer left the agency
on June 1, 1997. A successor had not
been named so Vice Chairman Hove
began a third term as Acting Chairman.

4

Highlights

January 29______________________

S e le c te d S ta tis tic s
D o l l a r s

in

m i l l i o n s

For the year ended D ecem ber 31
1996

1995

1994

B ank Insurance Fund
Financial Results
Revenue
Operating Expenses
Insurance Losses and Expenses
Net Income
Insurance Fund Balance
Fund as a Percentage of Insured Deposits
S elected Statistics
Total BIF-Member Institutions
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Totasl Assets of Failed Institutions
Number of A ctive Failed Institution Receiverships

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

S
$

9,822
86
7,000
5
183
408

$ 4,089
471
12
3,606
$ 25,454
1.30%

6,467
423
(2,682)
8,726
$ 21,848
1.15%

$

10,242
151
$ 20,160
6
S
753
590

10,759
264
$ 42,213
13
$ 1,392
802

Joseph H. Neely, former Mississippi
banking commissioner, was sworn in
as a mem ber o f the FDIC Board o f
Directors. His appointment brought
the Board to its full membership of
five directors for the first time since
August 1992 (see Pages 14, 43).

February 6
The FDIC Board streamlined and
simplified audit and reporting require­
ments for certain sound, well-managed
banks. These amendments implemented
provisions o f a 1994 law promoting
regulatory relief as well as the FD IC ’s
own recom mendations to eliminate
unnecessary requirements (see Page 38).

Savings A ssociation Insurance Fund

February 9

Financial Results
Revenue
Operating Expenses
Insurance Losses and Expenses

At an FDIC symposium on derivatives,
Chairman Heifer announced new efforts
to monitor and assess risk at insured
institutions. The efforts are designed
to enhance the FDIC’s traditional
approach to risk assessment allowing
the agency to respond more quickly
and efficiently to emerging risks.
As part o f those efforts, the FDIC
developed specific guidelines for
examiners on how to factor relevant
economic and other data into their risk
evaluations of specific institutions
(see Page 19).

insurance Fund Balance
Fund as a Percentage of Insured Deposits
S elected Statistics
Total SAIF-Member Institutions
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Totasl Assets of Failed Institutions
Number of Active Failed Institution Receiverships

*

$

$

S
s

5,502
63
(92)
5,531
8,888
1.30%

$ 1,140
40
1321)
1,421
$ 3,358
0.47%

1,630
31
6,000
1
35
2

1,728
42
$ 10,862
2‘
S
456

$

$

1,215
20
414
781
1,937
0.28%

1,844
54
$ 30,630
2
137
$

r

r

Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

■

Savings institutions and commercial banks. Does not include Resolution Trust Corporation (RTC) conservatorships.

*

No SAIF-insured institutions that failed in 1995 or prior were the financial responsibility of the SAIF.
The RTC was responsible for the resolution and related costs of SAIF-insured institutions that failed before
July 1,1995. The SAIF became responsible for resolutions thereafter.

T

This represents the receivership for Heartland Federal Savings and Loan Association, Ponca City, Oklahoma,
which was closed on October 8,1993. Although this is a SAIF receivership, any financial burden w ill be borne
by the FSLIC Resolution Fund (FRF). The number of active failed thrift receiverships for the FRF was: 33 in 1996
(excluding 435 former RTC receiverships); 62 in 1995; and 76 in 1994.




5

March 14

June 17

September 12

The FDIC reported that commercial
banks earned $48.8 billion in 1995,
surpassing by 9.4 percent the previous
record o f $44.6 billion in 1994, accord­
ing to preliminary data. The jum p
in earnings resulted primarily from
increased interest and fee income. In
1996, bank earnings reached a new
record of $52.4 billion (see Pages 2, 11).

Continuing its efforts to reduce
burdensome regulations for banks
and the public, the FDIC took steps to
streamline rules and policies in areas
such as capital standards and securities
registration requirements (see Page 22).

The FDIC held a public hearing on
stored-value cards, Internet banking
and other electronic payment systems.
Issues discussed included whether
stored-value cards should be entitled
to federal deposit insurance as they
become more widely used; what types
of disclosures an institution should
provide to consumers; and safety and
soundness concerns (see Page 31).

July 16___________________________
A pril 8
The first results of a new examiner
reporting system showed that loan
underwriting standards remained stable
at a group o f 2,001 FDIC-supervised
institutions that were examined
during the 12-month period ending
in February. However, in just over
10 percent of the institutions reviewed,
FDIC examiners reported that under­
writing standards were characterized
by higher-than-normal risk. The FDIC
plans to release its evaluation o f loan
underwriting trends semiannually
(see Pages 20-21).

The FD IC ’s Legal Division issued
guidance to help banks and thrifts
decide whether the stored-value cards
they issue qualify for federal deposit
insurance. In a General Counsel opinion
letter, the FDIC concluded that in most
cases stored-value cards are not pro­
tected by deposit insurance. The FDIC
separately asked for comment on
whether the agency should, by future
regulation, determine that stored-value
cards are entitled to deposit insurance
depending on their general usage
(see Page 31).

August 9
M a y 13___________________________
Chairman Heifer announced the agency
is taking a series o f steps to improve
bank and thrift compliance with dis­
closure guidelines for mutual funds
and other uninsured investment
products. The action followed a year­
long study on the sale of investment
products at banks that found a gap
exists between regulatory guidelines
and actual employee performance for
a number of banks (see Pages 29-30).




The first institution insured by the
Savings Association Insurance Fund
(SAIF) failed since the FDIC assumed
responsibility from the Resolution
Trust Corporation for these institutions
on July 1, 1995. No other SAIF-member institution was closed during the
year although an “Oakar” institution,
one where deposits are insured by both
the Bank Insurance Fund (BIF) and
the SAIF, was closed on June 14
(see Pages 24, 111).

6

Septem ber 30
Congress approved legislation supported
by the FDIC to put the SAIF on sound
footing. The President signed the
legislation into law the same day.
Under the new law, the thrift industry
paid a one-time special assessment
of $4.5 billion to capitalize the SAIF,
while banks will bear part o f the pay­
ments on the Financing Corporation
(FICO) bonds sold from 1987 to 1989
to shore up the form er Federal Savings
and Loan Insurance Corporation. BIFmem ber institutions will pay one-fifth
the rate paid by SAIF members for the
first three years or until the funds are
merged. A fter January 1, 2000, BIF
and SA IF m em bers will share the
FICO paym ents on a pro-rata basis
(see Pages 2, 8, 44).

October 8

December 8

December 20

Im plementing the new SAIF law, the
FDIC Board set a special assessment
of 65.7 basis points on institutions that
pay assessments to the SAIF in order
to capitalize the fund at its Designated
Reserve Ratio of 1.25 percent of insured
deposits effective October 1, 1996.
The special assessment was collected
electronically on N ovem ber 27.
With the SA IF now capitalized,
the B oard also proposed to reduce
SAIF assessm ent rates, retroactive
to O ctober 1, 1996 (see Page 8).

To handle the reduced levels of
resolutions and liquidation work
projected over the next several years
more effectively, the FDIC created
the new Division of Resolutions and
Receiverships (DRR). The new divi­
sion represents a merger o f the
Division o f Depositor and Asset
Services and the Division of
Resolutions (see Pages 4, 24, 34).

The FDIC Board adopted the intera­
gency Federal Financial Institutions
Examination Council’s revised
“CAM ELS” rating system for assessing
the soundness o f financial institutions
on a uniform basis. A sixth component
was added to the previous “CAM EL”
rating system — “S” for sensitivity to
market risk. Also, the FDIC in October
became the first federal banking agency
to disclose individual component
ratings to banks (see Pages 3, 20).

Decem ber 10_____________________
October 29

______

Responding to the FD IC ’s declining
workload, Deputy to the Chairman and
Chief Operating Officer Dennis F. Geer
outlined for employees the Corpora­
tion’s plans for downsizing in 1997
and subsequent years. He also
announced a number of measures
intended to cushion the impact of
staff reductions, such as a new buyout
program and expanded outplacement
assistance. During the first buyout
program — offered to FDIC and
Resolution Trust Corporation employees
from N ovem ber 1995 through
January 1996— over 900 em ployees
took buyouts (see Pages 4, 34).




The FDIC unveiled a new service
called “Institution Directory,” which
enables the public to obtain information
about individual banks and savings
institutions via the Internet. The service
is available on the FD IC ’s home page
at www.fdic.gov (see Pages 4, 115).

Decem ber 11______________________
The Board lowered SAIF assessment
rates and widened the rate spread in
order to avoid collecting more than is
needed to maintain the SAIF's capital­
ization at 1.25 percent of insured
deposits and to improve the effective­
ness o f the risk-based assessm ent
system. SAIF-insured institutions will
pay the same rate for deposit insurance
as BIF-insured institutions (see Page 10).
The Board also approved the Corpora­
tion’s 1997 budget of $1.62 billion,
down $221 million or 13.6 percent
from the $1.84 billion authorized in
1996. The budget reduction reflected the
continued im pact o f the Corporation’s
downsizing efforts.

7

Condition of the FDIC's Funds

The FDIC administers two deposit
insurance funds— the Bank Insurance
Fund (BIF) and the Savings Association
Insurance Fund (SAIF). The FDIC
also manages a third fund, the FSLIC
Resolution Fund (FRF), which fulfills
the obligations of the former Federal
Savings and Loan Insurance Corporation
(FSLIC). The FRF assum ed responsi­
bility for the Resolution Trust
C orporation’s (RTC) assets and
obligations on January 1, 1996.
For more information about the three
funds, see Pages 49 through 93.

Fund B a la n c e 1992-1996
(year-end)
■ Savings Association Insurance Fund
■ Bank Insurance Fund

The major development of the year
was the passage o f legislation to
put the SAIF on sound footing, as
described below.

Deposit Insurance Funds A ct of
1996______________________________
With the recapitalization o f the BIF in
May 1995, the FDIC Board of Directors
lowered the assessment rates for BIFassessable deposits, creating a signifi­
cant disparity in the assessment rates
paid to the BIF and the SAIF. This
disparity created incentives for institu­
tions to move deposits from the
SA IF to the BIF, which in turn raised
the question o f w hether a shrinking
SA IF-assessable deposit base could
continue paying the interest on
Financing C orporation (FICO) debt
and also capitalize the SAIF.
To address the financial problems
of the SAIF, Congress passed the
Deposit Insurance Funds Act o f 1996
(DIFA), which becam e law on
Septem ber 30, 1996. The DIFA
required the FDIC to impose a one­
time special assessment to capitalize
the SAIF on October 1, 1996, at the
statutorily required Designated
Reserve Ratio (DRR) o f 1.25 percent
of insured deposits. The FDIC Board




Note:
More details appear in the tables in the back of this Annual Heport.

set the special assessment at 65.7 cents
per $100 o f SAIF-assessable deposits.
W ith the SA IF fully capitalized,
the Board approved a reduction in
SA IF assessm ent rates effective
O ctober 1,1996.
The DIFA also eliminated the $ 1,000
minimum semiannual assessment and
separated the FICO assessment from
the SAIF assessment. The amount that
the FICO assesses on the deposits of
individual institutions is now added
to the amount institutions pay for
deposit insurance according to the
FD IC ’s risk-related assessment rate
schedules. At the same time, the new
law expanded the FICO assessment
base to include all FDIC-insured insti­
tutions, beginning January 1,1997. The
DIFA specified that the FICO rate for
BIF-assessable deposits be one-fifth
the rate for SAIF-assessable deposits
until the insurance funds are merged,
or the end of 1999, whichever occurs
first. The FICO assessment will then
be shared pro rata by all insured insti­

8

tutions. The FICO assessment rates for
the first semiannual period o f 1997
were approved by the FDIC Board on
December 11, 1996, at an annual rate
o f 1.30 cents per $100 of BIF-assess­
able deposits and 6.48 cents per $100
o f SAIF-assessable deposits. For more
information about the new law, see
Page 44.

Bank Insurance Fund____________
With banks experiencing another
record-breaking year o f profitability
and only a handful o f bank failures,
1996 was another positive year for
the BIF. These favorable conditions
enabled the FDIC Board to set the
lowest average assessment rate in the
history of FDIC insurance, with the
average 1996 annual BIF assessment

rate being 0.2 cents per $100 o f assess­
able deposits, down from 12 cents
per $100 in 1995. In recent years,
the BIF has climbed steadily from a
negative balance of $7 billion in 1991
to $26.9 billion in 1996, its third
consecutive record year-end high.
The 1996 year-end balance represents
a 5.5 percent increase over the 1995
balance of $25.5 billion. The reserve
ratio increased from 1.30 to 1.34 per­
cent of insured deposits during 1996.

In s u ra n c e Fund R eserve R atios 1992-1996 (year-end)
Percent of Insured Deposits___________________________________
■ Savings Association Insurance Fund
■ Bank Insurance Fund
1992

1993

1.25

For the first semiannual assessment
period of 1996, the Board lowered the
rates from a range o f four to 31 cents
annually per $100 o f assessable
deposits, to a range o f 0 to 27 cents
per $100. With this drop in the rate
schedule, the highest-rated institutions
(93.4 percent of BIF-insured institu­
tions) paid only the $1,000 minimum
assessment for the first semiannual
assessment period o f 1996. Depending
on their risk classification, other insti­
tutions paid between three and 27 cents
per $ 100 of assessable deposits. The




1995

ta rg e t

t

1.00

BIF-insured deposits grew by 2.8 per­
cent in 1996. In the first half of the
year, deposits increased by less than
1 percent (annualized), but jum ped
by 5.1 percent (annualized) during the
second half. About half o f the growth
in the second half of the year was due
to a provision of the DIFA concerning
certain “Oakar” institutions (institutions
that are members of one insurance fund,
but hold deposits insured by the other
fund). The new law caused some
SAIF-assessable deposits held by these
institutions to become BIF-assessable
deposits. The strong deposit growth
in the second half of 1996 slowed
the increase in the reserve ratio for
the year.

1994

Percent
1.50

.75
.50

ib
"

.25

ir

-.20
Note:
Insured deposit amounts are estimates. More details appear in the tables in the back of this Annual Report.

Board approved the same rate schedule
for the second semiannual period o f
1996, when 94.4 percent of BIF-insured
institutions were in the lowest-risk
category. The FDIC collected the
fourth-quarter assessment before the
DIFA eliminated the minimum assess­
ment. As a result, the FDIC refunded
$4.4 million o f revenue collected, plus
interest.
For the first time since 1986, interest
on U.S. Treasury obligations ($1.3 bil­
lion) surpassed assessment revenue
($73 million) as the primary source
o f revenue fueling the B IF’s growth.
This was a direct result o f the lowered
assessment rate schedule and the
concentration of institutions in the
lowest-risk category. Interest income
was 77 percent o f total BIF revenue,
while assessment revenue was only
four percent.

9

Bank failures continued to be minimal,
with only five BIF-insured failures in
1996 and failed-bank assets totaling
$183 million. One failure was an
Oakar institution, which had a portion
of its deposits insured by the SAIF.
In 1995, six BIF-insured banks with
$753 million in assets failed. Estimated
insurance losses in 1996 were
$43 million, the lowest since 1980
when 11 banks failed with insurance
losses totaling $31 million. Estimated
losses from 1995 BIF failures were
$104 million.
Investments in U.S. Treasury obligations
continued to be the main components
o f the B IF’s total assets, at 81 percent,
rising slightly from 79 percent during

the previous year. The B IF’s financial
position continued to im prove as cash
and investments at year-end were
53 times the B IF’s total liabilities, up
from 30 times the B IF ’s total liabilities
in 1995.

Savings Association Insurance
Fund ____________________________
With the special assessment adding
$4.5 billion to the SAIF on October 1,
the fund ended the year with a balance
of $8.9 billion, a 165 percent rise over
the $3.4 billion balance at year-end
1995. The SA IF’s reserve ratio grew
from .47 percent to 1.30 percent of
insured deposits during 1996. Insured
deposits shrank by 4.0 percent during
1996; without the Oakar provision
in the DIFA noted previously, insured
deposits would only have shrunk by
0.7 percent.
W ith the SAIF fully capitalized, the
Board voted on December 11 to lower
the fund’s annual assessment rates from
a range o f 23 to 31 cents per $100 of
assessable deposits, to a range o f 0
to 27 cents per $100. Based on year-end
1996 deposit data, this insurance
premium reduction is expected to save
the industry more than $1.6 billion a
year. Because the SAIF became fully
capitalized on October 1, 1996, the
FDIC refunded the fourth quarter pay­
ments that had been made under the




old rate schedule, less the amounts
payable to FICO and needed to main­
tain the risk-based assessment system.
To that end, the Board established a
dual set of rates for the final quarter
o f 1996. The Board set an interim rate
schedule of 18 to 27 cents per $100 of
assessable deposits for SAIF-member
savings associations in the fourth quar­
ter. The SAIF-assessable deposits of
“Sasser” institutions (savings associa­
tions that converted to a bank charter,
but remained members of the SAIF)
and BIF-member Oakar institutions
were not subject to the FICO assess­
ment during 1996. Accordingly, the
Board applied the new 1997 rates to
these institutions from October 1,1996,
forward. These rates ranged from
0 to 27 cents per $100 o f assessable
deposits.
Apart from the special assessment,
the SAIF realized $727 million in net
assessment income in 1996. Interest
income for 1996 was only $254 million
(five percent of total revenue), but is
likely to rise significantly as the SAIF
earns interest on its newly capitalized
fund balance. As in 1995, failures
continued to be a minimal expense in
1996. Only one SAIF-insured institution
failed, with an estimated loss to the
SAIF o f $14 million.

FSUC Resolution Fund____________
The FRF was established by law in
1989 to assume the remaining assets
and obligations o f the former FSLIC
arising from thrift failures before
January 1, 1989. Congress placed this
new fund under the m anagement of
the FDIC when it abolished the FSLIC
on August 9, 1989.

10

Congress authorized $827 million in
appropriations to the FRF in fiscal year
1995, of which $636 million was still
available at calendar year-end 1996.
The FRF only uses appropriated funds
when other sources o f funds are insuf­
ficient. During 1996, funds generated
from asset collections and interest
income provided sufficient funding so
that appropriated funds were not needed.
The FRF assum ed responsibility for
all RTC assets and obligations on
January 1, 1996. As the FRF’s manager,
the FDIC will sell the rem aining assets
and settle the obligations o f the RTC as
it has done for the FSLIC. RTC assets
in liquidation totaled $4.4 billion at
year-end 1996, down from $7.7 billion
at year-end 1995. The FRF also man­
ages the reserves set aside to support
the sale of securities collateralized by
RTC assets. These “credit enhancement
reserves” dropped from $6.8 billion in
1995 to $5.8 billion. Borrowings from
the Federal Financing Bank declined
from $10.5 billion to $4.6 billion as
of year-end 1996.

State of the Banking and Thrift Industries

Insured commercial banks and savings
institutions enjoyed strong earnings
during 1996. Commercial bank profits
reached record levels for the fifth
consecutive year. Thrift industry earn­
ings would have set a new record, if
not for a one-time special assessment
to capitalize the Savings Association
Insurance Fund (SAIF). Loan growth
continued to show strength at banks
and thrifts, helping to increase net
interest income. Both industries also
increased average capitalization levels
in 1996. Savings institutions continued
to benefit from lower levels of troubled
loans, while the asset quality picture
was mixed for commercial banks. Only
five insured commercial banks and
one savings institution failed during
the year, the lowest number of failures
since 1972. The follow ing is an
overview of conditions in these two
industries.

A n n u a l R eturn on A ssets (ROA)
F D IC -ln s u re d In s titu tio n s 1934-1996____________
■ Commercial Banks
■ Savings Institutions
1934

40

45

50

55

60

65

70

75

80

85

90

96

S avin gs in s titu tio n da ta no t a v a ila b le p rio r to 1947.

Commercial Banks
Com m ercial banks reported record
net income o f $52.4 billion in 1996, an
increase of $3.6 billion, or 7.5 percent,
over the previous record in 1995.
Banks registered three o f their four
highest quarterly earnings totals ever
during 1996. The industry’s return on
assets (RO A)— a basic yardstick of
industry perform ance— was 1.19 per­
cent. This is up from 1.17 percent in
1995, and just below the all-time high
of 1.20 percent set in 1993. This also
marks the fourth consecutive year that
industry ROA has exceeded one per­
cent. Prior to 1993. insured commercial
banks’ ROA had never reached the
one-percent benchmark. Earnings
strength was widespread, with more
than two-thirds of all commercial
banks (69 percent) registering ROAs
o f one percent or higher in 1996.




Net interest margins narrowed slightly
for the fourth consecutive year, but
remained wide by historical standards.
Earnings also received a boost from
higher noninterest income (such as
fees and service charges). The largest
contribution to the improvement in
industry earnings, in fact, was non­
interest income, which was $11.1 billion
higher than in 1995. Net interest income
was $8.6 billion higher, and gains
from sales o f securities were up by
$573 million. Together, these im prove­
ments outweighed the $3.6 billion
increase in loan-loss provisions and
an $11.0 billion rise in overhead

11

expenses. Low er deposit insurance
premiums helped limit the rise in over­
head costs. Commercial banks paid
approximately $3 billion less for
deposit insurance coverage in 1996
than in 1995, and roughly $5.5 billion
less than in 1994. These savings were
offset som ewhat by a one-time special
assessment on deposits insured by the
SAIF as required by the SAIF capital­
ization law. Commercial banks’ share
o f this assessment totaled approximately
$1 billion, which meant a $650 million
reduction in after-tax net income.
Banks continued to increase the share
o f loans in their asset portfolios, as
the overall rate of asset growth slowed
for the second consecutive year. Total
assets of commercial banks increased
by 6.2 percent ($266 billion) in 1996,
after increasing by 7.5 percent in 1995
and 8.2 percent in 1994. At the end o f
1996, net loans and leases accounted
for 60.2 percent o f total assets, up
from 59.1 percent at the end o f 1995.

C re d it Card Losses and
P e rs o n a l B a n k ru p tc y F ilin g s 1984-1996 (by quarter)__________
■ Personal Bankruptcy Filings (thousands)
■ Credit Card Charge-Off Rates

at year-end. Retained earnings con­
tributed $13.6 billion of the increase
in equity, as banks paid out 74 percent
of their earnings in dividends to stock­
holders in 1996.
The number of commercial banks
reporting financial results fell to 9,528
at year-end, reflecting a net decline of
412 institutions during 1996. Mergers
absorbed 554 commercial banks in
1996, while 146 new commercial
banks were chartered. The number
o f commercial banks on the FD IC ’s
“problem list" fell from 144 to 82
during the year, and assets of “problem”
banks declined from $16.8 billion to
$5.1 billion.

N et
C harge-O ff
Rate

%

6
5
4
3
2
1

Savings Institutions_______________

0
Sources: B a n k ru p tc ie s -A d m in is tra tiv e O ffice o f the U nite d S tates Courts; C harg e-O ff R ate s-C om m ercial Bank Call Reports

C om m ercial and industrial loans
increased by $48.5 billion (7.3 percent)
in 1996. while credit card loans grew
by $15.6 billion (7.2 percent). Loans
for real estate construction and devel­
opment increased by $7.7 billion
(11.2 percent). In contrast to the growth
in loans, banks’ securities holdings
declined by $10.2 billion (1.3 percent)
in 1996.
Asset quality indicators presented
a mixed picture in 1996. Noncurrent
loans— those that were 90 days or
more past due on scheduled payments
or in nonaccrual status— declined
by $874 million during the year due
to a $3.3 billion increase in net loan
charge-offs. At the same time, delin­
quent loans— with scheduled payments
30 to 89 days past due— increased
by 15.1 percent. Consumer loans
remained a focal point for asset quality




concerns. Net charge-offs of credit-card
loans totaled $9.5 billion in 1996,
accounting for 61.1 percent o f all loan
charge-offs. In contrast to most other
loan categories, noncurrent consumer
loans increased by $1.1 billion during
the year.
The industry’s reserve coverage ratio
rose to a record level o f $1.82 in
reserves for every dollar o f noncurrent
loans at year-end. A t the same time,
the ratio of reserves to total loans
declined for the fourth consecutive
year, to 1.91 percent. This is the lowest
level for this ratio since the first quarter
o f 1987. Total equity capital of com ­
mercial banks increased by $25.7 billion
in 1996, to 8.20 percent of total assets

12

Savings institutions insured by the
FDIC earned just over $7 billion in
1996, for an annual ROA of 0.70 per­
cent. This was $611 million less than
the record earnings of $7.6 billion reg­
istered in 1995, when the industry’s
ROA was 0.77 percent. Earnings for
1996 were lower than in 1995 at
almost three out of every four savings
institutions (72.6 percent). The decline
in earnings can be traced to the special
assessment on SAIF deposits, which
cost thrifts $3.5 billion, or $2.2 billion
in after-tax earnings. This one-time
cost helped raise the industry’s total
noninterest expenses to $25.7 billion,
an increase of $3.9 billion over 1995.
Absent the special SAIF assessment,
thrift industry earnings would have set
a new record in 1996.

Net interest margins widened at savings
institutions in 1996, after declining in
each of the previous two years. This
improvement in margins contributed
to the rise in net interest income, which
was $1.6 billion higher than in 1995.
Total assets of insured savings institu­
tions increased by only $2.5 billion
(0.2 percent) in 1996, as charter
conversions and acquisitions by com ­
mercial banks resulted in the transfer
of more than $43 billion in assets from
the thrift industry to the banking indus­
try. Sales of securities produced gains
of $901 million in 1996, almost twice
the $463 million reported in 1995.
Noninterest income was $388 million
(5.5 percent) higher. These revenue
improvements were outweighed by
the $3.9 billion rise in noninterest
expenses. In addition, loan-loss provi­
sions at insured savings institutions
rose by $385 million.

At the end o f 1996, there were 1,924
savings institutions, a net decline of
106 thrifts during the year. This marks
the first time since 1937 that there have
been few er than 2,000 insured thrifts.
Only one insured savings institution
failed in 1996, the smallest number
since 1962. The number of savings
institutions on the FD IC’s “problem
list” declined from 49 to 35 during
1996. Assets o f “problem ” thrifts
fell from $14 billion to $7 billion.
For more information about problem
institutions by fund membership,
not by financial institution type,
see Page 5.

Despite the lack of overall growth
in thrift assets, total loans increased
by $33.6 billion (5.1 percent). This
increase was mirrored by a $26.2 billion
decline in securities holdings and a
$5.3 billion decline in other assets.
M ost of the increase in loans occurred
in residential mortgage loans, although
consum er loans and commercial and
industrial loans also registered strong
percentage increases. On the liability
side, thrifts reduced their deposits by
$13.9 billion, and increased their non­
deposit borrowings by $18.4 billion.




13

Board of Directors

Ricki Heifer_______________________

A ndrew C, Hove, Jr.

Joseph H. N e e ly

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

Mr. Hove was appointed to a second
term as Vice Chairman of the FDIC
in 1994. He served as Acting Chairman
from August 1992 until the confirma­
tion o f Ricki Heifer as the Chairman
in O ctober 1994. Prior to his first
appointm ent as Vice C hairm an in
1990, Mr. Hove was Chairm an and
Chief Executive Officer of the Minden
Exchange Bank & Trust Company,
Minden, Nebraska, where he served
in every departm ent during his
30 years with the bank.

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

Ms. Heifer has held positions in all
branches of the federal government.
From 1985 to 1992, she was the chief
international lawyer for the Board
o f Governors o f the Federal Reserve
System. Prior to working at the Federal
Reserve Board, she served nearly two
years as Senior Counsel for international
finance at the U.S. Treasury Department.
From 1978 to 1979, she was Counsel
to the Judiciary Committee of the
U.S. Senate. She also clerked for
U.S. Court of Appeals Judge John
M inor Wisdom.
Bom in North Carolina and raised
in Tennessee, Ms. Heifer graduated
magna cum laude from Vanderbilt
University with a B.A. and from the
University of North Carolina with an
M.A. She graduated with honors from
the University of Chicago Law School
and served as Associate Editor o f the
Law Review. Ms. Heifer is a member
of the American Law Institute, the
Council on Foreign Relations, and the
Visiting Committee of the University
o f Chicago Law School. She is past
Chairman o f the Committee on
International Banking and Finance
of the American Bar Association.
Ms. H eifer’s various civic activities
include serving as a member o f the
board o f directors of the Girl Scouts
of the USA.

Also involved in local government,
Mr. Hove was elected M ayor of Minden
from 1974 until 1982 and was M inden’s
Treasurer from 1962 until 1974.
Other civic activities included serving
as President o f the M inden Chamber
of Commerce, President of the South
Platte United Chambers of Commerce
and positions associated with the
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 o f the University
o f Wisconsin-Madison Graduate School
o f Banking. A fter serving as a
U.S. naval officer and naval aviator
from 1956 to 1960, Mr. Hove was in
the Nebraska National Guard until 1963.

On March 14, 1997, Chairm an H eifer
announced her intention to leave the
agency on June 1. A successor had
not been appointed by that date, and
Vice Chairman Hove began a third
term as Acting Chairman.




14

Mr. N eely’s banking experience began
in 1977 with the Grenada Sunburst
Banking System in Grenada, Mississippi,
where he worked in the lending area.
In 1980, he continued his community
banking service at M erchants National
Bank o f Vicksburg, Mississippi,
where he ultimately served as Senior
Vice President before being named
Comm issioner o f the Departm ent of
Banking and Consumer Finance for
the State of M ississippi in 1992. As
Commissioner, Mr. Neely was the
prim ary regulator and supervisor
o f state-chartered bank and thrift
institutions, as well as state-chartered
credit unions and consum er finance
com panies.
Throughout his career, Mr. Neely has
been active in community affairs and
has held a number o f civic leadership
positions.
A native o f Grenada, Mississippi,
Mr. Neely received his B.S. and
M.B.A. degrees from the University
of Southern Mississippi. He also
is a graduate o f the Stonier Graduate
School o f Banking, Rutgers University;
The School of Bank Marketing,
University of Colorado; and the School
of Bank M anagem ent and Strategic
Planning, University o f Georgia.
Mr. Neely also served on the faculty
of the M ississippi School of Banking.

Eugene A. Ludwig

N icolas P. Retsinas

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

Mr. Retsinas was appointed D irector
of the O ffice o f Thrift Supervision
(OTS) by President Clinton on
O ctober 10,1996, follow ing the
resignation o f Acting D irector
Jonathan L. Fiechter. As OTS
Director, Mr. R etsinas is also an
FDIC B oard member.

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.




W hile with OTS, Mr. Retsinas
continues to serve as Assistant
Secretary for Housing-Federal Housing
Comm issioner at the U.S. Department
of Housing and Urban Development
(HUD). He was appointed to the HUD
post in 1993 following his nomination
by President Clinton and confirmation
by the Senate. He also serves on the
Federal Housing Finance Board, the
Board o f the Neighborhood Reinvest­
ment Corporation, and the Advisory
Board o f the Community Development
Financial Institutions Fund.
Mr. Retsinas was Executive Director of
the Rhode Island Housing and Mortgage
Finance Corporation from 1987 to
1993, and in 1991 also served as
Director o f Policy for the Governor of
Rhode Island. He also was an Adjunct
Assistant Professor in Urban Studies at
Brown University. Mr. Retsinas
received a B.A. in economics from
New York University and an M.A. in
city planning from Harvard University.

David Hathcox

Prior to becom ing C om ptroller,
Mr. Ludwig was 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.

FDIC Board of Directors
(seated l-t)
Joseph H. Neely. Rick, Heifer and Andrew C Hove, Jr.
(standing i-rj:
Eugene A. Ludwig afitf Nicolas R Retsinas

Organization Chart
as of December 31,1996




16




Supervision and Enforcement

The FDIC at year-end 1996 was
the primary federal regulator of 5,785
state-chartered banks that are not
members of the Federal Reserve System
and 590 state-chartered savings banks.
The FDIC also has back-up supervisory
responsibility for insurance purposes
over the remaining 5,077 federally
insured banks and savings associations.
The Division o f Supervision (DOS)
leads the FD IC ’s supervisory efforts
in conjunction with other divisions and
offices. This is accomplished by exam­
ining institutions, developing regulations
and issuing enforcement actions. The
examination and supervision o f institu­
tions also includes on-site examinations
and off-site analyses to detect poor risk
management or excessive risk-taking
by institutions before problems occur.
Given the continued good health of
the banking industry in 1996, the
FDIC took the opportunity to initiate
a num ber o f projects to enhance the
supervisory process and reduce the
regulatory burden on the industry.

Supervisory Initiatives
The FDIC continued to develop a
more dynamic supervisory approach
that combines traditional examination
methods with new initiatives. In
1996, DOS reorganized its operations,
continued automating its examination




function, developed new examination
procedures and supervisory policies
for emerging technologies, and focused
on interest rate risk.
Consolidation in the banking industry
is changing the geographic composi­
tion o f the industry. In response, DOS
is making changes in its field structure
and its approach to examinations. O f
particular interest is the start of a case
manager approach to supervision,
first announced in 1995. Under this
approach, case managers will oversee
all the risk analysis and examination
functions for an entire bank or banking
company, regardless of the number of
regions where its subsidiary banks and
branches operate. Previously, supervi­
sion o f multi-state banking organiza­
tions was broken down by geographic
region, with the possibility of more
than one FDIC regional office respon­
sible for oversight o f the organization.
The new approach makes monitoring
o f banks and their affiliates more
effective and efficient, and provides
institutions and other regulators with
a single point of contact when dealing
with the FDIC. The case manager
will be assisted by a core group o f
“specialists” with expertise in six
areas: information systems, trusts,
capital markets, accounting, fraud
and investigations, and training.

18

As part of the preparation for interstate
banking, the FDIC continued to partic­
ipate in a State-Federal Working Group
on Interstate Supervision. Other mem­
bers o f the group include the Federal
Reserve System and state regulators,
under the sponsorship o f the Conference
o f State Bank Supervisors. The work­
ing group’s purpose is to minimize
conflicts and duplication among state
and federal regulators in the supervision
o f state-chartered banks that operate
in more than one state. The group is
working toward shared technologies
and common application forms. Also
in 1996, the FDIC and Federal Reserve
signed an agreement with all the state
banking departments concerning federal-state cooperation and coordination.
In addition to the challenges and
opportunities o f consolidation and
interstate banking, the industry is
becoming more global. In response,
DOS created an international branch
that consolidates into one unit the
FD IC’s functions and expertise involv­
ing foreign banks. The branch will
intensify the FD IC ’s focus on interna­
tional bank supervisory matters while
enabling better coordination with other
agencies and greater involvement in
the international Basle Committee on
Banking Supervision. The unit will
monitor the activities of foreign banks
operating in the U.S. and the activities
of U.S. banks operating abroad. Foreign
banks operating in the U.S. are a
significant presence and monitoring
these institutions is a key responsibility
of the branch. At year-end 1996,
foreign banking organizations
operating in this country had more
than $ 1 trillion in assets, almost
one-fifth o f the total assets in the
U.S. banking industry.

Chairman Heifer (r) joins FDIC officials and others
attending the agency's February symposium on
derivatives.

FDIC E x a m in a tio n s 1994-1996
1996
Safety and Soundness:
State Nonmember Banks
Savings Banks
National Banks
State M em ber Banks
Savings Associations
Subtotal
Consumer and Civil Rights
Trust Departments
Data Processing Facilities
Total

DOS continued development of
automation tools that will enable
examiners to conduct a significant
amount of analysis off-site, thereby
minimizing examiner time spent in a
financial institution. The Automated
Loan Examination Review Tool
(ALERT), a software package in use
since M ay after being field tested in
late 1995, gives examiners the ability
to collect loan data from institutions
electronically, load the information
into an application and select loans for
on-site review. W hile ALERT enhances
the review o f a bank’s loan portfolio,
the FDIC is developing the General
Examination System (GENESYS) to
automate the preparation of the entire
examination report. As now envisioned,
the GENESYS software package would
allow examiners to access electronically
financial information and prior exami­
nation reports o f an institution for
use in the current examination report,
automate certain loan review functions,
provide earnings analysis and forecast­
ing, and automate securities pricing.
It also will provide examiners with
enhanced “dial-in” capability to access
the FDIC mainframe computer and




1995

1994

2,789
297
2
7
3,106
2,033
637
1,681

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

3,931
386
11
3
9
4,340
3,528
684
1,882

7,457

9,004

10,434

11

the Internet, enabling staff to commu­
nicate more readily and to access
information not previously available.
The GENESYS system is expected
to be in use in early 1998.
In addition to automating portions of
the review process, the FDIC has taken
a num ber o f steps to im prove the
quality and efficiency of examinations.
The FDIC now provides a minimum
two-week notice of an upcoming safety
and soundness examination to bankers
and savings association executives.
This advance notice gives bankers
more time to prepare for an examination
and to respond to pre-examination
requests for information from the FDIC.
Also, certain traditionally on-site
examination procedures (such as the
review o f written policies and proce­
dures, the reconciliation of major
asset and liability categories and the
verification o f key financial data) are
now being conducted off-site. In 1996,
about 30 percent o f the total examina­
tion hours were spent outside o f banks,
compared to 12 percent two years
ago. The FDIC also is minimizing the
rotation o f examiners to other jobs
during the examination of an institution,
thereby reducing the disruptions
to institutions during an on-site
examination.

19

In 1996, the FDIC and the other federal
banking agencies issued a joint policy
statement providing guidance on
managing interest rate risk. The policy
statement emphasizes each institution’s
responsibility to develop and refine
management practices that are appro­
priate and effective for its exposure to
changes in interest rates. The agencies
elected not to pursue a standardized
measure and explicit capital charge for
interest rate risk due to concerns about
the burden, accuracy and complexity
o f that kind o f approach. However, in
conjunction with the joint policy state­
ment, the FDIC issued new procedures
for examining interest rate risk. These
procedures will more clearly focus
supervisory attention on institutions
with higher potential risk profiles and,
for the majority of small institutions,
shift a significant portion o f the
interest rate risk examination off-site.
DOS also continued creating “decision
flow charts” for examiners to use
when reviewing other major risk areas,
such as loans, securities, earnings
performance, funds management and
management performance. The new
examination guidelines provide specific
management and control standards that
financial institutions are expected to
maintain. The decision flow charts are
designed so that an examiner can work
through a core analysis to determine
the presence o f significant risks or
deficiencies. If the examiner determines
that risks are not adequately managed,
then the scope of the examination
would be expanded. This format focus­
es examiners on key aspects o f risk
assessment and provides standard pro­
cedures for efficiency and consistency.

R is k -R e la te d Prem ium s_________________________________________________
The follow ing tables show the number and percentage of institutions insured by the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to their risk classification as of
December 31,1996. Each institution is categorized based on its capitalization and a supervisory subgroup
rating (A, B, or C), which is generally determined by on-site examinations. Assessment rates are basis
points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups*
A
W e ll C apitalized:
Assessment Rate
Number of Institutions
A dequately C apitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

B

C

0
9,362 (95.0%)

3
304 (3.1%)

17
57 (0.6%)

3
84 (0.9%)

10
17(0.2% )

24
15(0.2% )

10
0 (0.0%)

24
2 (0.0%)

27
11 (0.1%)

23
1,466 (89.9%)

26
113(6.9% )

29
19(1.2% )

26
9 (0.6%)

29
10(0.6%)

30
9 (0.6%)

29
0 (0.0%)

30
2(0.1% )

31
2(0.1% )

SAIF Supervisory Subgroups'
W e ll C apitalized:
Assessment Rate
Number of Institutions
A dequately Capitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

*

BIF data exclude 88 SAIF-member "Oakar" institutions that hold BIF-insured deposits. The asessment rate reflects
the rate for BIF-assessable deposits, which remained the same throughout 1996. For the first three quarters of
1996, a minimum quarterly payment of $500 was collected from institutions classified as "1 A." This requirement
was rescinded for the fourth quarter.

■

SAIF data exclude 779 BIF-member Oakar institutions that hold SAIF-insured deposits. The assessment rate
reflects the rate paid by SAIF members on SAIF-assessable deposits through September 30,1996. A special
one-time assessment was collected for the purpose of capitalizing the SAIF as of October 1. BIF-member Oakars
and “Sassers" were subject to an annual rate schedule of 0-27 basis points as of October 1, while SAIF members
were not subject to this schedule until January 1,1997. Due to FICO funding requirements, SAIF members paid
on an interim schedule of 18-27 basis points for the fourth quarter of 1996.




DOS has taken steps to identify and
monitor risk associated with emerging
technologies, Such as Internet banking,
electronic cash and stored-value card
systems. New examination procedures
on electronic banking were developed
in 1996 and implemented in May 1997
after examiner training on pertinent
risks and issues. Since 1995, the FDIC
has sponsored an interagency working
group that shares information and
ideas on supervisory issues relating
to electronic banking.
The FDIC and the other banking regu­
lators in December approved a change
to the Uniform Financial Institution
Rating System (UFIRS), commonly
referred to as the CAM EL system,
used to rate the condition of banks.
CAM EL originally was comprised
o f five com ponents— capital, asset
quality, management, earnings and
liquidity. The revision adds a sixth
component — “S” for sensitivity
to market risks. This change marks the
first major revision to the rating system
since it was adopted in 1979.
In October, the FDIC became the first
of the federal banking regulators to
disclose to a bank its rating for each
CAMEL component. Previously, only
the overall or composite rating for the
entire institution was disclosed to the
institution’s board of directors. Starting
in 1997, the FDIC also will begin
to reveal the new “S” com ponent
to FDIC-supervised institutions.
The other regulators plan to disclose
the individual components to their
institutions as well.
Throughout 1996, DOS stepped up
efforts to gather and analyze informa­
tion about loan underwriting practices
by having FDIC examiners complete
a special questionnaire after each
examination. This process, started in
1995, is designed to help the FDIC
monitor emerging risks in the banking
system, identify troublesome under­
writing trends across the country and

20

FDIC A p p lic a tio n s 1994-1996
D eposit Insurance
Approved
Denied
N e w Branches
Approved
Branches
Remote Service Facilities
Denied
M ergers
Approved
Denied
Requests for Consent to Serve*
Approved
Section 19
Section 32
Denied
Section 19
Section 32
N otices of Change in Control
le tte rs of Intent Not to Disapprove
Disapproved
Conversions of Insurance Coverage*
Approved
Denied
Brokered D eposit W aiv e rs
Approved
Denied
Savings A ssociation A ctivities
Approved
Denied
State Bank A ctivities/Investm ents*
Approved
Denied
Conversions of M utual Institutions
Non-Objection
Objection

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

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

1994
106
103
3
1,715
1,713
1,017
696
2
451
451
0
1,364
1,357
127
1,230
7
1
6
50
50
0
10
10
0
42
42
0
7
7
0
118
118
0
14
9
5

*

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

■

Applications to convert from the SAIF 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 w ith the FDIC.




21

direct supervisory efforts. The results
o f the questionnaires are expected to
be released twice a year. Few problems
were noted in 1996. DOS is actively
monitoring potential problem areas.
The FDIC published in May an Advance
Notice o f Proposed Rulemaking seek­
ing industry opinion on restructuring
and streamlining banking agency
regulations for securities transactions.
Several actions resulted. For example,
the FDIC and the other banking
agencies issued a proposed rule in
December that would require bank
employees who sell securities to take
the same qualification examination
as other brokers. The FDIC also
began field testing new examination
procedures for reviewing whether
proper disclosures about nondeposit
investment products are being given
to customers. For more information
on the sale of mutual funds at banks,
see Pages 29 through 30.
DOS also has developed a partnership
with the Division of Insurance (DOI),
which was created by the Board in
1995 to analyze risks to the deposit
insurance funds from a more compre­
hensive perspective than in the past.
DOI identifies and monitors emerging
and existing risks by drawing on a
wide variety of sources o f information,
including other FDIC divisions, other
bank regulatory agencies, other gov­
ernm ent economic statistics and analy­
ses, and data from the private sector.
DOI then works with DOS to translate
the results into guidance for FDIC
examiners. Under the agency’s riskrelated premium system, managed by
DOI, the CAM EL ratings assigned by
DOS are an important component for
determining the premium rates paid by
insured institutions.

In addition, the FD IC’s Division of
Research and Statistics (DRS), in
cooperation with other divisions and
offices, continued a major study of the
1980s and early 1990s that focuses on
the causes of bank failures. The study,
expected to be issued in late 1997, ana­
lyzes the effectiveness o f regulatory
tools designed to prevent bank failures
and limit insurance losses. (The study
was the subject o f an FDIC-sponsored
symposium on January 16, 1997, with
academic and other participants.) Using
data and information developed for the
study, DRS is assisting DOS in devel­
oping new warning systems and new
modeling tools for predicting problem
institutions and failures.

the leadership o f FDIC Board member
Joseph H. Neely, the Office o f Policy
Development and the Office of the
Executive Secretary, the FDIC’s regu­
latory review during 1995 and 1996
resulted in staff recom mendations to
rescind or revise 71 percent o f the
120 internal and interagency regulations
and policy statem ents. Specific
recom mendations from 1996 included:

Reduced Regulatory Burden
The Riegle Community Development
and Regulatory Improvement Act of
1994 (CDRI) requires an interagency
effort to reduce the cost and burden of
regulations on the banking industry. As
part o f that effort, the FDIC reviewed
120 rules and policy statements to
determine whether they are necessary
to ensure a safe and sound banking
system or to protect consumers. Under




•

Establishing procedures to ensure
that regulations undergo a rigorous
cost/benefit analysis before they
are issued;

•

Proposing simplification o f the
deposit insurance regulations;

•

Coordinating and streamlining
the FD IC ’s regulatory applications
procedures;

•

Proposing simplification o f
deposit insurance assessments;

•

Proposing to remove inconsisten­
cies in how regulators assign
risk-based capital requirements
to certain assets;

•

Revising auditing program
regulations and policies; and

•

Rescinding outmoded or obsolete
statements of policy.

The FDIC expects to complete its
recommendations on the remainder of
the regulations and policy statements
by September o f 1997. The FDIC,
along with the Federal Reserve Board,
the O ffice o f the Com ptroller o f the
Currency and the Office o f Thrift
Supervision, submitted a Joint Report
to Congress in September 1996 detailing
the progress made in the review effort.
For more information on regulatory
action taken in 1996, see Pages 38
through 43.

Proposing revision o f the FD IC ’s
fair housing regulations;

•

•

Proposing revision of regulations
regarding securities o f state chartered nonmem ber insured
banks;

Mike Jenkins llj and Ray Brennan, both of
the Division of Supervision, and Alice Beshara of
the Division of Compliance and Consumer Affairs
played key roles in the FDIC's efforts to streamline
examination procedures.

C om pliance, E n forcem ent and O ther R elated Legal A ctio n s 1994-1996

___________________

19
96

19
94

186

Total N um ber of A ctions Initia te d by the FDIC

19
95
146

161

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

1

0

3

0
3
17

7
1
16

2
2
9

Sec. 8 b C ease-and -D esist A ctions
Notices of Charges Issued
Consent Orders

3
16

2
27 *

1
41

Sec. 8e R em oval/P rohibition of D irector or Officer
Notices of Intention to Remove/Prohibit
Consent Orders

7
60

7
35

17
33

1

1

0

Civil M oney P en alties Issued
Sec.7a Call Report Penalties
Sec.8 i Civil M oney Penalties

19
19

20
9

17
10

Sec. 10c Orders of Investigation

11

8

9

Sec. 19 D enials of S ervice A fter C rim inal Conviction

1

2

1

Sec. 32 N otices Disapproving O fficer or D irector

0

4

5

6
0
162

5
0
320

3
0
258

8,201

19,503

14,132

22

2

8

Sec. 8g S uspension/Rem oval W hen Charged W ith Crime

Truth in Lending A ct R eim bursem ent A ctions
Denials of Requests fo r Relief
Grants of Relief
Banks M aking Reim bursem ent"
C rim inal R eferrals Involving Open Institutions*
Other A ctions N ot Listed

*

One action included a Section 8c Temporary Order.

■

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




23

Enforcement
DOS works closely with the Legal
Division to initiate supervisory
enforcement actions against FDICsupervised institutions and their
employees. The number o f enforce­
ment actions initiated by the FDIC
in 1996 totaled 186, about half the
356 actions initiated just five years
ago. This is indicative o f continued
improvement in the banking industry.
Another sign of the improved condi­
tions in the banking industry is that,
for the second straight year, no
“prompt corrective actions” (such as
early intervention when an insured
institution’s capital condition is eroding)
were initiated by the FDIC.

Failed Institutions

The FDIC has the unique mission o f
protecting depositors of insured banks
and savings associations. No depositor
within the insured limit o f $100,000
has ever experienced a loss in an
FDIC-insured institution due to a fail­
ure. The FDIC protects depositors by
managing the Bank Insurance Fund
(BIF) and the Savings Association
Insurance Fund (SAIF).

F a ile d In s titu tio n s 1995-1996

In most cases, a depository institution
is closed by its chartering authority
when it fails to meet prescribed capital
requirements or is insolvent. The state
is the chartering authority for state
banks and savings associations, the
Office of the Comptroller o f the
Currency for national banks, and the
Office of Thrift Supervision for federal
savings associations. The FDIC works
closely with all chartering authorities
when dealing with institutions in
danger of failing.
The FDIC is responsible for resolving
a failing bank or savings association by
using the least-costly method. Staff
gathers data about the failing institu­
tion, estimates the potential loss from a
liquidation, solicits and evaluates bids
from potential acquirers, and recom­
mends the least-costly resolution to the
FD IC’s Board of Directors.




______1995

1
1
0
1
2

4
1
1
0
0

Total

On July 1, 1995, the FDIC was given
the responsibility for handling SAIFinsured institutions that close.
Previously, the Resolution Trust
Corporation (RTC) performed this
function, which it took over from the
form er Federal Savings and Loan
Insurance Corporation (FSLIC) on
August 9, 1989. The FDIC also man­
ages the remaining assets and liabilities
o f the form er FSLIC and the former
RTC.

1996
BIF-lnsured:
California
Connecticut
Hawaii
Pennsylvania
Texas

5

6

SAIF-insured: •
California

1

0

Total

1

0

*

The FDIC became responsible for failed SAIF-insured institutions on July 1,1995.

To handle the reduced levels of resolu­
tions and liquidation activity projected
for the near term more efficiently, the
FDIC in December combined the two
divisions that handle the bulk o f failed
bank and thrift activity. The new
Division of Resolutions and
Receiverships (DRR) will handle the
responsibilities o f the former Division
of Resolutions and the Division of
Depositor and Asset Services. For
more information on this new
division, see Page 34.

Protecting Depositors
During 1996, the FDIC resolved six
institutions — five insured by the BIF
and one insured by the SAIF. One of
the BIF-insured institutions, however,
also had a portion of its deposits
insured by the SAIF (this is known as
an “Oakar" institution). The five BIFinsured failures, with combined assets
o f $183 million, were the fewest bank
failures since 1974 when there were
four. The one SAIF-insured institution
that closed, with total assets o f
$35 million, was the first SAIF-insured

24

failure since the FDIC took over that
responsibility from the RTC. In the
approximately six years the RTC was
in operation, it resolved 747 failed
SAIF-insured savings associations.
“Purchase-and-assumption” (P&A)
transactions were used to resolve all
six failures in 1996. In a P&A transac­
tion, some o f the assets o f the failed
bank or thrift are acquired by another
institution along with all deposits, or
ju st those within the $100,000 insur­
ance limit. In two o f the six failures,
all deposits were assumed. In the
rem aining four, the acquiring institu­
tion assumed only the insured deposits:
depositors with balances above the
$100,000 insurance limit will receive
a proportionate share of the proceeds
from the liquidation of the failed insti­
tution’s assets. (If a buyer for a failing
institution is not found, the FDIC is
responsible for making payments to
the insured depositors o f the failed
institution. Payments are often made
as soon as the next business day.)
To ease the burden on uninsured
depositors, the FDIC may authorize
advance dividends soon after an insti­
tution fails. The advance dividend is
based on the estim ated value of the

receivership. The FDIC made advancedividend payments o f $4 million to
uninsured depositors in two o f the four
failures in 1996 in which uninsured
deposits were not assumed. This repre­
sented approximately 60 percent o f the
uninsured deposits in those cases.
Generally, an advance dividend is not
paid in cases in which the value of the
failed institution cannot be reasonably
determined.
W hen appropriate, as assets are liqui­
dated, DRR makes subsequent divi­
dend payments to uninsured depositors
and general creditors o f failed banks,
including payments to the FDIC as a
creditor for advancing funds for the
payment of insured deposits at the time
of an institution’s failure. Total divi­
dend payments during 1996 totaled
$10.2 billion, which includes payments
to creditors o f institutions that failed
in prior years. For more information
about the resolution of the six failures
of 1996, see the table on Page 111.
DRR in 1996 unveiled the Standard
Asset Valuation Estimation (SAVE)
project, which provides consistent asset
valuation methodology in the resolution
and liquidation process by employing
standard discounted cash flow models
and valuation assumptions to the valua­
tion of assets. SAVE methodology
was used to calculate loss reserve
estimations for assets held by the BIF,
the SAIF, and the FSLIC Resolution
Fund (FRF) as a part of the FDIC
year-end 1996 financial statements.

Asset Disposition_________________
Assets rem aining after resolution are
liquidated by DRR in an orderly man­
ner and the proceeds are used to pay,
to the extent possible, uninsured
depositors and any rem aining creditors.




L iq u id atio n H ig h lig h ts 1994-1996
Dollars

in b i l l i o n s
1996
5
$ 0 .2
1
$ 0 .0 *
$ 6 .6
$ 8 .7

Total Failed Banks
Assets of Failed Banks
Total Failed Savings Associations
Assets of Failed Savings Associations
Net C ollections*
Total Assets in Liquidation (year-end)*
*

1995

1994

6
$ 0.8
3*
$ 6.3
$ 16.6
$ 1 8 .0

13
$ 1.4
64*
$ 14.9
$ 25 6
$ 3 9 .6

The FDIC assumed responsibility for resolving failed savings associations from the Resolution Trust Corporation
(RTC) on July 1,1995. All savings association failures in 1994 and 1995 were resolved by the RTC.

*

Only one SAIF-insured institution failed in 1996, w ith assets totaling $35 million.

*

Also includes assets from thrifts resolved by the former Federal Savings and Loan Insurance Corporation (FSLIC)
and the RTC. These assets are serviced by the FDIC as well as by asset management contractors and
national servicers.

The FD IC ’s ability to provide incen­
tives for healthy institutions to assume
deposits and purchase assets o f failed
banks and savings associations allows
a 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. As a result of
this effort, approximately 36 percent
($78 million out o f $218 million) of
the six failed institutions’ assets were
sold at the time of closing.

In 1996, DRR also began providing
for-sale information on assets retained
from failures on the FD IC’s Internet
home page (w ww .fdic.gov). The
inform ation includes: dates when
loans and real estate will be offered for
sale; lists o f available real estate; and
individual assets that have been sold.
DRR successfully settled, sold or
otherwise resolved a significant por­
tion of its asset inventory from failed
institutions during the year as follows:

25

•

The FDIC reduced the book value
o f the combined FDIC/RTC assets
in liquidation by 51.7 percent, to
$8.7 billion from $18.0 billion.
Net collections for all funds
totaled about $6.6 billion.

•

2,045 real estate properties, which
were sold for a total of $352.8
million, yielded a recovery of
94.7 percent of the average
appraised value.

•

17,112 loans and other assets,
totaling $ 4 .1 billion in book
value, were sold in sealed-bid
offerings and other sales initiatives.

•

In an effort to make the resolution
process more efficient, the FDIC
developed the Joint Asset Marketing
(JAM) project. The goal o f JAM is to
increase competition in the resolution
process by inviting parties not bidding
on a failing institution’s deposits to
purchase assets o f the bank or savings
association at the time o f resolution.
This is expected to increase sales
o f assets at resolution, lowering the
ultimate cost of the resolution.

The FDIC reduced the number of
receiverships managed by DRR
by 249 to 879 (715 active and
164 in termination status).

At year-end 1996, DRR was managing
30 assistance agreements and two of
the form er RTC’s asset management
and disposition agreements (AMDAs).
The FDIC sometimes uses assistance
agreements to resolve troubled or fail­
ing institutions. Although not used in
1996, assistance is generally either a
one-time cash payment o f capital or
on-going payments over a period of
tim e to cover losses incurred by the
assuming bank on certain assets it took
from the failing institution. O f these
32 agreements, five involved open
bank assistance, 11 involved loss-shar­
ing agreements, five comprised other
types o f assistance, two were AMDA
limited partnership agreements and
nine were Interim Capital Assistance
A greements the RTC entered into with
minority institutions. DRR also moni­
tored the general partner’s compliance
with terms of 22 Judgment, Deficiency
and Charge-off (JDC) partnerships, in
w hich the FDIC is the limited partner
and the general partner is from the pri­
vate sector. The JDC partnership pro­
gram places hard-to-collect assets in
the private sector where they can be
worked to maximize value.
W hen the RTC’s unfinished work was
transferred to the FDIC at the end of
1995, the FDIC assumed responsibility
for the RTC affordable housing pro­
gram. The combined program was
revised in 1996 to meet standards for
asset disposition set forth in the FDIC
Improvement Act o f 1991. The revised
program includes: a 90-day period
during which all single and multifamily
properties designated as affordable




housing are marketed exclusively to
eligible individuals or organizations;
an expanded clearinghouse program
to provide property lists to potential
buyers; and a technical assistance pro­
gram to advise nonprofit organizations
and public agencies when purchasing
multifamily properties.
During 1996, the FDIC sold more than
3,266 affordable housing units from
failed thrifts and banks for $39.9 million
under this program. Sales included
46 multifamily and 455 single-family
properties. Since 1990, the FDIC and
RTC programs have had cumulative
sales o f more than 123,900 affordable
housing units for $1.8 billion.
In addition, 32 state housing agencies
and nonprofit organizations, acting
under a memorandum o f understanding
with the FDIC, m onitor 38,567 rental
units for low- and very low-income
households to ensure that purchasers
are making units available to these
households at adjusted rents as specified
in the purchase agreement. These
units originally were sold under the
FDIC/RTC affordable housing program.

FSLIC Resolution Fund
The FDIC, through the FSLIC
Resolution Fund (FRF), is responsible
for managing and monitoring assistance
agreements the former FSLIC entered
into prior to August 9,1989. The FRF
also is responsible for disposing of all
remaining assets and liabilities of the
form er RTC, which were transferred
to the FDIC on January 1,1996. The
FRF, as successor to the FSLIC, receives
federally appropriated funds. In 1994,
the FRF was allocated $827 million,
which is available until expended.
O f that amount, $636 million was
still available.

26

DRR, which is responsible for managing
the assets and liabilities of the FRF,
reduced the num ber o f form er FSLIC
open cases to four from seven. The
assistance agreements o f the three
closed cases were terminated before
the contracted expiration dates. Other
“early terminations” are expected to
be closed out before the contracted
expiration dates. These early termina­
tions are expected to yield a cost
savings o f $1.1 million. Covered assets
from the former FSLIC (those for which
acquirers were guaranteed against
loss and/or guaranteed a certain yield)
at year-end 1996 were reduced to
$261,000 from $108 million through
sales and other adjustments. In addi­
tion, DRR is responsible for adminis­
tering 24 terminated FRF agreements
from the former FSLIC that have out­
standing issues and 42 agreements
that require monitoring and collecting
tax benefits still due to the FRF. About
$39.7 million in tax benefits were
realized by the FRF in 1996.
Besides covered assets owned by others,
the FDIC is responsible for liquidating
FRF assets and liabilities that have
been transferred to the FDIC. At yearend 1996, the FRF portfolio o f assets
in liquidation from the form er FSLIC
had a book value of $476 million, down
from $1.5 billion at the end of 1995,
despite the purchase of $534 million
in assets during 1996 related to the
early terminations. FRF net liquidation
collections totaled $571 million for
the form er FSLIC in 1996.

The FRF also is responsible for dispos­
ing of the assets rem aining from failed
thrift institutions of the former RTC,
managing the reserves (credit enhance­
ments reserves) set aside to support
the sale of securities collateralized by
RTC assets, and repaying the RTC’s
debt from the Federal Financing Bank
(FFB). At year-end 1996, the FRF
portfolio of assets in liquidation from
the former RTC had a book value of
$4.4 billion, down from $7.7 billion at
the end of 1995. During the same time
period, reserves dropped from $6.8 bil­
lion to $5.8 billion, and FFB borrow­
ings were reduced from $10.5 billion
to $4.6 billion. The FDIC expects to
recover sufficient funds from the RTC's
receivership assets to cover the approx­
imately $5 billion in RTC-corporate
liabilities remaining at year-end.

appropriate, sends suspicious activity
reports (SARs) to the Department
o f Justice. During 1996, a total o f 93
new SARs were generated. In addition,
the FDIC collected $25.5 million in
criminal restitution.
Also during 1996, the Legal Division
and DRR recovered $154.7 million
from professional liability settlements
or judgm ents. The FD IC ’s caseload at
the end o f the year included investiga­
tions, lawsuits and settlement collec­
tions involving 244 institutions. This
caseload includes RTC cases the FDIC
assumed on January 1,1996.

The FRF will continue until all of its
assets are sold or liquidated and all of
its liabilities are satisfied. Any rem ain­
ing funds will revert to the Department
of the Treasury.

Professional Liability Recoveries




!es Paisons

The FD IC ’s Legal Division and DRR
work together to identify claims
against directors and officers, accoun­
tants, appraisers, attorneys and other
professionals who may have contributed
to the failure of an insured financial
institution. The Corporation investigates
the circumstances surrounding the
failure of every institution and, when

A J. Felton, a veteran of more than 40 years
w ith General Motors, oversees failed banks and
liq u id a te activities for the FDIC In the western

C h iite s i S t a t e ? .

•-

Consumer Protection Activities

under the new streamlined standards
on January 1, 1996. Large institutions
began gathering data for the new
performance tests on January 1, 1996,
but their first reports o f the data were
not due until M arch 1, 1997. The
new performance evaluations for large
institutions will begin in July 1997.
Institutions received free computer
software from the FDIC to assist them
in collecting the CRA loan data.

Along with promoting the safety and
soundness of FDIC-insured institutions,
the FDIC has a strong consumer
protection role. The agency protects
depositors of failed institutions, as
described in the previous chapter.
Also, primarily through its Division
of Compliance and Consumer Affairs
(DCA), the FDIC enforces regulations
im plementing consum er protection and
civil rights laws, such as:
•

•

The Community Reinvestment
Act (CRA), which encourages
federally insured lenders to help
meet the credit needs of their
communities;
The Truth in Lending Act, which
requires accurate disclosures of
interest rates and finance charges
so that loan applicants can
comparison-shop for a mortgage
or other consum er loan;

•

The Equal Credit Opportunity
Act, which promotes the equal
availability of credit to all credit­
worthy applicants, regardless of
such factors as race, color or
religion;

•

The Home Mortgage Disclosure
Act, which requires that regulated
lenders report annually on their
mortgage-related activity as a
way to detect possible lending
discrimination;




•

•

The Truth in Savings Act, which
requires institutions to disclose
fees, interest rates and other
account terms so that consumers
can compare deposit accounts
offered by different institutions;
and
The Fair Credit Reporting Act,
which establishes procedures
for correcting mistakes on a
consum er’s credit file and requires
that a credit file only be provided
for legitimate business purposes.

The FDIC also helps educate bankers
and consumers in areas that include
fair lending, community reinvestment
and deposit insurance.

Community Reinvestment Act
Reform
The FDIC continued working with the
other federal bank and thrift regulatory
agencies to implement an April 1995
final rule amending a regulation relating
to the Community Reinvestment Act.

To educate bankers about the new rule,
DCA staff in 1996 conducted 24 train­
ing sessions, attended by more than
1,500 bankers. Staff reached another
2,000 bankers through 35 speaking
engagements.
In October, the FDIC distributed
to FDIC-supervised institutions an
interagency guide on the revised
CRA regulations. The publication,
Interagency Questions and Answers
Regarding Community Reinvestment,
answers questions on CRA im plem en­
tation that regulators have been asked
m ost frequently by bankers, and
consolidates other related information
available to the public.

Compliance Examinations
DCA’s role includes examining FDICsupervised banks for compliance
with consum er protection laws. DCA
conducted 2,033 such examinations in
1996. As a result o f these or previous
examinations, 162 banks reimbursed
nearly $1.6 million to 6,387 consumers
during 1996 for violations of the Truth
in Lending Act regarding incorrect
disclosures.

The revised CRA regulation emphasizes
evaluations o f an institution based on
actual lending, investment, and service.
In general, the regulation establishes
different performance tests for different
types of institutions— large institutions,
small institutions, and wholesale and
limited-purpose institutions. Small
institutions began to be evaluated

Bankers and representatives of the Cheyenne River
Sioux Tribe discussed new lending opportunities
at a meeting co-sponsored by the FDIC's
Kansas City regional office.

DCA began new examination proce­
dures designed to streamline the
examination process. For example,
the division developed an off-site
“pre-examination planning” program
to reduce the amount of time examiners
spend on-site at an institution. This
effort involves examiners gathering
material, analyzing the information,
and developing the scope of the exam
before beginning the on-site exam ina­
tion. Since the pre-examination planning
program was put in place, about
25 percent of the examination hours
have been spent outside of the financial
institutions.
To monitor the new examination pro­
cedures’ effectiveness, a follow-up
examination questionnaire was devel­
oped for banks examined under the
new guidelines. The banks’ comments
are reviewed quarterly to highlight
areas where DCA can reinforce or
redirect its examination or training
efforts. Many banker responses have
noted improvement in DCA’s examina­
tions, including better communication
and more notice of upcoming examina­
tions (up to two months before the
start of the examination).
DCA issued in August the revised
FDIC Compliance Examination
M anual, which includes descriptions
o f the many modifications in examina­
tion procedures and regulatory changes
such as CRA. The manual also is
available through the Internet on the
FDIC home page (www.fdic.gov).




DCA in 1996 also implemented new
“mapping” software to help examiners
review banks’ fair lending and CRA
lending performances. This software
gives examiners easy access to current
census, Home M ortgage Disclosure
Act and other demographic data.

Community Outreach____________
The FDIC frequently meets with com ­
munity and consum er groups, bankers,
citizens and governm ent officials to
exchange information about CRA and
fair lending issues. FDIC community
outreach activities in 1996 included a
forum held in California to identify
roadblocks to community development
lending, and a focus group in Georgia
to prom ote communication between
community representatives and
bankers following claims o f lending
discrimination.
Other outreach efforts encouraged
community development in low- and
moderate-income areas and lending
for minority-owned small businesses.
One example was a series of meetings
between bankers and representatives
of the Cheyenne River Sioux tribe that
was co-sponsored by the FDIC and
the South Dakota Bankers Association.

Deposit Insurance Training________
The staff o f an insured institution
generally is a custom er’s first source
of information about FDIC deposit
insurance. In 1996, DCA and the
FD IC ’s Legal Division hosted a num­
ber o f seminars aimed at teaching bank
employees about what deposit insurance
does and does not cover, and how
to explain coverage to consumers
accurately and clearly. The seminar
“textbook,” The Financial Institution
Em ployee’ Guide to Deposit Insurance,
s

29

was revised in late 1996 in response to
feedback from seminar participants and
other users. The guide contains materi­
al for institution staff to conduct their
own deposit insurance training, includ­
ing a draft script and sample tests on
both deposit insurance and nondeposit
investment products, which are not
covered by FDIC deposit insurance.
The guide, which is available on
the Internet, was distributed to all
FDIC-insured financial institutions
in N ovember 1996.
Many financial institutions recently
began offering their customers a range
o f nondeposit investment products
such as mutual funds, annuities and
securities. Sales activities for nonde­
posit investment products should
ensure that customers are clearly and
fully informed o f the nature and risks
o f the products. In May 1996, the
FDIC released the results o f a year­
long study on the marketing and sales
practices used by insured institutions
to sell nondepsoit investment products.
The study examined whether the dis­
closure requirements for these products
were being followed as outlined in the
Interagency Statement on Retail Sales
o f Nondeposit Investment Products,
issued in 1994 by the four federal bank
and thrift regulatory agencies. The
study found that, for a number of
banks, a gap exists between regulatory
guidelines and actual employee perfor­
mance. More than one-fourth o f the
1,194 FDIC-insured banks surveyed
failed to make basic disclosures
as required under the Interagency
Statement.

Largely as a result of the survey find­
ings, the FDIC has undertaken a series
of projects concerning the sale o f non­
deposit investm ent products by FDICinsured financial institutions, including:
•

Establishing regulatory standards
for bank securities representatives
that are consistent with the profes­
sional qualification requirements
for broker/dealers and registered
representatives,

•

Designing training packages for
bank employees involved in the
sale of nondeposit investment
products,

•

Improving the process for handling
consum er complaints about non­
deposit investm ent products,

•

Expanding examination guidance
to better assess bank compliance
with regulations and guidelines
concerning these products, and

•

Creating a training program for
bank examiners to prepare them
to implement the new examination
procedures.




W hile many related projects are in
their formative stages, the FDIC com ­
pleted several important objectives in
1996. For example, DC A employees
who respond to inquiries from the
public through the FD IC’s Consumer
Call Center were trained to handle
consum er complaints about nondeposit
investment products. DC A also drafted
and field-tested examination guidance.
In addition, the FDIC drafted two
proposed rules— one on recordkeeping
and confirmation requirements for
certain securities transactions (see
Page 43) and the other on testing
and licensing requirements for bank
employees involved in the retail sales
o f nondeposit investment products
(see Page 43). Finally, DCA prepared
a pamphlet informing consumers about
the inform ation they should receive
before purchasing a nondeposit
investm ent product from a financial
institution. The pam phlet, which is
expected to be published in 1997,
elaborates on guidance about nonde­
posit investm ent products published
in the 1994 FDIC brochure Insured
or N ot Insured.

Responses to Complaints
and Inquiries
DCA maintains a toll-free telephone
number for its Consumer Call Center
(800-934-3342 or 202-942-3100),
which handles inquiries from consumers
and bankers about deposit insurance
and consum er protection laws. The
Call Center also accommodates TTY
systems for the deaf (800-925-4618

or 202-942-3147). Nearly 80,000 calls
were handled by the Call Center in
1996 consisting o f over 40,200 calls
to the automated recording o f informa­
tion, and another 39,100 calls answered
directly by staff in DCA’s W ashington
and eight regional offices. W hile most
of the calls were inquiries on deposit
insurance coverage, a large number
concerned bank com pliance with
consumer protection laws. If consumers
believed their banks had violated
a consum er protection law, DCA
instructed them on how and where
to file a form al com plaint.
DCA also answered 6,381 written
complaints and inquiries from con­
sumers and bank personnel. M ost
written inquiries from consumers and
bankers dealt with deposit insurance
coverage. O f the consum er inquiries
that related to consum er protection
laws, most concerned the Fair Credit
Reporting Act. As for written com ­
plaints, nearly half from consumers
involved credit cards, with the most
common involving the bank’s reason
for denial, billing disputes and customer
service problems. A significant number
of complaints for deposit accountrelated issues and compliance with
the Equal Credit Opportunity Act
also were received from consumers.
W hile DCA assists consumers with
specific questions about deposit insur­
ance and consum er protection laws and
complaints against FDIC-insured insti­
tutions, the Office of the Ombudsman
provides guidance to consumers on
where to get information throughout
the agency, and acts as an impartial
third party to assist consumers and
bankers who have had problems
working with the agency. The year-old
Om budsm an's office is independent
of other FDIC program areas and is
a neutral and confidential source o f
assistance for consumers, bankers
and FDIC employees with questions
or concerns about the Corporation.

Stan Jackson of the Washington office is among
the front-line employees of the Ombudsman's
office helping to answer questions and address
concerns about the FDIC.

The Ombudsman office’s marketing
and outreach efforts in 1996 emphasized
its accessibility and advocacy for a
fair process. Banker outreach was
conducted through mailings, brochures,
conferences and articles explaining
the office’s role. Ombudsman staff
attended about 110 events, including
state and national banking conferences
and FDIC-sponsored meetings.
The office also participated in more
than 15 annual conferences, such as
the National Consum ers’ Week event,
sponsored by the U.S. Office o f
Consumer Affairs, and consumerrelated groups and associations.
The FDIC Office of Legislative Affairs
also coordinated with other divisions
and offices in responding to 1,663
written inquiries from members o f
Congress in 1996. Many o f these
inquiries dealt with constituent prob­
lems in areas such as truth in lending,
fair credit, and bank compliance with
consum er protection laws.

On-Line Consumer Information
The FDIC continued its outreach
efforts through its Internet home page,
providing the public with ready access
to FDIC consumer information, press
releases, statistics on banking and
other public material. New information
is continually added to the home page
as it becomes available. Links to other
federal agencies and other sources of
information have been included on the
home page to enhance its usefulness.
Listings of banks examined by the
FDIC for CRA compliance and
schedules of future CRA examinations
are also now available. Frequently
requested brochures on topics such as
equal credit opportunity and fair credit
reporting are scheduled to be added
in 1997.




Separately or through the FDIC home
page, the public can also send messages
to DCA requesting answers to specific
questions about deposit insurance,
fair lending rules and other consumer
protections. The consum er mailbox
address is consumer@ fdic.gov.

Electronic B anking___________
Financial institutions are increasingly
expanding into electronic banking
activities. Examples include storedvalue cards, Internet banking, and
electronic cash systems. The FDIC
is working to stay abreast o f these
emerging technologies, as well as
their implications for the industry
and consumers.
In 1996, the FDIC received both formal
and informal requests for guidance
on whether funds represented by
stored-value cards constituted “deposits”
within the meaning o f the Federal
Deposit Insurance Act. A stored-value
card contains financial information
electronically stored on a magnetic
strip or computer chip and can be used
to buy goods and services. In response
to those requests, the FDIC Board of
Directors on July 16 approved General
Counsel Opinion No. 8. The General
Counsel concluded that in most cases
stored-value cards are not protected by
deposit insurance because the issuing
institution would typically maintain a

single pooled account to hold the funds
represented by all their customers’
stored-value cards. However, a banking
institution could design a stored-value
card in such a way that the underlying
funds would be insured if the program
met certain statutory requirements. For
example, systems in which the funds
underlying the stored value remain
credited to a custom er's account until
the payee makes a claim on the funds
w ould appear to be deposits under
the law.
The FDIC Board also decided to seek
public comment on stored-value cards
and a variety o f electronic payment
issues, including concerns raised by
Internet banking and the use o f elec­
tronic cash. The agency held a day-long
public hearing on September 12 that
drew a wide spectrum o f participants,
including representatives from the
banking and technology industries,
community groups, and other regulatory
agencies. Topics discussed ranged
from expanding technologies being
tested or in use in other countries,
to concerns on security and privacy
issues. Separately, the Board received
written comments on whether the
agency should, by future regulation,
determine that stored-value cards are
entitled to deposit insurance.

Bankers, civic leaders, consumers and other
witnesses gave FDIC officials their views
on electronic money and banking at a
September 12 hearing.

Significant Court Cases

The FDIC’s wide-ranging legal activities
include matters relating to the supervi­
sion of FDIC-insured institutions, the
resolution of failed banks and savings
associations, the liquidation o f assets,
and the pursuit of liability claims against
failed institution officers, directors
and professionals. The Legal Division,
working closely with other divisions
and offices, was involved in several
noteworthy court cases in 1996. Most
involved failed institutions and “stan­
dards of care” that the FDIC uses when
pursuing professional liability claims
against officers and directors of failed
institutions.

G o o d w ill_________________________
In the early 1980s, many savings
associations had “regulatory goodwill”
on their books as a result o f taking
over troubled thrifts from the Federal
Home Loan Bank Board (FHLBB),
the predecessor to the Office o f Thrift
Supervision (OTS). The FHLBB
granted the use of goodwill in lieu
o f providing money as an incentive
for healthy thrifts to take over troubled
institutions. The goodwill, carried as
an asset on the books of the surviving
institution, lessened the impact of
the merger with a troubled thrift. The
FHLBB allowed savings associations
to keep this regulatory goodwill on
the books for up to 40 years. However,
when Congress passed the Financial
Institutions Reform, Recovery, and
Enforcement Act o f 1989 (FIRREA).
it reduced that period to five years.
M any open thrifts and investors in
failed thrifts with goodwill on their
books responded by suing the govern­
ment for breach o f contract.




One of the cases made it to the
U.S. Supreme Court in 1996. In July,
the Court decided in W instar v. United
States that changes in the methods of
calculating regulatory capital, including
restrictions on the use o f goodwill,
resulted in a breach o f contract, making
the institution eligible for recoveries
from the United States Government.
As a result, more than 120 cases
pending against the U.S. in the Court
o f Federal Claims were eligible for
recoveries, including approximately
50 cases involving failed institutions.
The Court of Federal Claims announced
plans to begin hearing cases involving
goodwill claims in the spring o f 1997.
In November of 1996, the FDIC
petitioned the Court o f Federal Claims
to allow the agency to intervene and
be substituted as plaintiff in 45 o f the
cases involving 38 failed institutions,
based on the FD IC’s assertion that it
owned the vast majority o f the claims
and that it is the real party entitled to
pursue any recovery. In the summer,
the FDIC had successfully joined as
plaintiff in two other goodwill cases.
(In February 1997, the Court of
Federal Claims ruled that the FDIC
may intervene in the 45 cases, but it
could not substitute for, or replace,
the other plaintiffs.)

Entitlement to Deposit Insurance
In 1993, recipients o f a new bank char­
ter in M ichigan filed an application
with the FDIC for deposit insurance.
On June 21, 1994, and two subsequent
occasions, the FDIC Board of Directors
denied the group’s application for
deposit insurance because o f concerns
about one of the proposed directors
and officers. In a previous banking
position, the individual mixed the
bank’s assets with his personal assets,
and demonstrated a continuing inability
to identify and understand conflicts
o f interest. In N ovember 1996, in

32

the case of A nderson v. FDIC, the
U.S. D istrict Court for the Eastern
D istrict o f M ichigan granted the
F D IC ’s request for a summary
judgm ent and dism issed the case.
A t year-end, the organizers filed an
appeal with the U.S. Court of Appeals
for the Sixth Circuit in Cincinnati, Ohio.
The case is o f im portance because it
raises issues concerning the FD IC’s
discretion to grant or deny applications
for deposit insurance.

D'Oench Duhme___________________
In 1942, the Supreme Court in D ’Oench,
Duhme & Co. v. FDIC established a
broad rule protecting the FDIC against
any arrangements, including oral or
secret agreements, that are likely to
m islead bank examiners in their review
o f a bank’s records. Then, in 1950,
Congress established strict approval
and recording requirements that, if not
met, barred any claim attempting to
diminish the interest o f the FDIC in
assets acquired from a failed bank.
Between 1950 and 1989, the courts
applied both D ’Oench and the statute
in tandem, with the federal commonlaw rule from D ’Oench barring claims
even where the statute might not.
A fter enactment o f FIRREA in 1989,
however, the D istrict o f Colum bia
Circuit in FDIC v. M urphy and the
U.S.Court of Appeals for the Eighth
Circuit in St. Louis, M issouri, in FDIC
v. DiVall concluded that FIRREA
displaced the federal common-law
rule, and that FIRREA provided the
FDIC all the protections to which it
is entitled in this area.

In M ay 1996, the U.S.Court o f Appeals
for the Eleventh Circuit in Atlanta in
Motorcity of Jacksonville, Ltd. v. FDIC
disagreed with the M urphy and DiVall
decisions and barred claims under
the broad rule established in D ’Oench,
w hich the court found survived the
enactment of FIRREA.
In July 1996, the plaintiff in Motorcity
asked the Supreme Court to resolve
this apparent disagreement among
the circuits. The FDIC opposed review
by the Supreme Court. It argued that
the issue o f FIRREA’s impact on the
D ’Oench doctrine need not be resolved
because the alleged agreement to
mislead the FDIC examiners was
entered into before FIRREA was
enacted.
(On January 21, 1997, the Supreme
Court sent the case back to the Eleventh
Circuit for reconsideration in light
o f its January 14, 1997, opinion in
Atherton v. FDIC, an RTC professional
liability suit involving related, but
distinguishable, federal common-law
issues.)

SBC sued First Union for alleged
breaches o f contract and tortious
actions that occurred in the six months
before the two Southeast banks were
closed. The trustee also alleged that
First Union violated the terms of the
agreement by having discussions with
the FDIC and other federal regulators.
The trustee also alleged that these
acts ultimately caused Southeast to
be placed into receivership. The FDIC,
in its corporate capacity, intervened
because the resolution o f this action
could limit the F D IC ’s ability to
adm inister properly its insurance
program.

The Eleventh Circuit affirmed the
dismissal on September 3, 1996, holding
that the alleged actions of First Union
were not the proximate cause of the
banks’ failure. In addition, the Eleventh
Circuit held that federal regulators were
entitled to the inform ation allegedly
given to them by First Union. (The
trustee filed a petition appealing
the case to the Supreme Court on
February 7, 1997.)

In April 1995, the U.S. District Court
in Miami dismissed the trustee’s claims.
The court found that the claims were
premised on alleged harm to the two
Southeast banks, not the holding
company, and therefore it was the
FDIC, not the trustee, who owned the
claims. The district court also concluded
that all of First Union’s communications
with the federal regulators were
permitted under the “federally assisted
regulatory transactions” provision
o f the confidentiality agreement.

Brandt v. FDIC____________________

Mitchell Crawley

In March 1991, Southeast Bank
Corporation (SBC), the holding
company that owns all o f the stock
of Southeast Bank, N.A. and Southeast
Bank of West Florida, agreed to make
the banks’ financial information
available to First Union National Bank
to evaluate a possible merger.
The agreement also prohibited First
U nion from publicly disclosing the
financial information and the negotia­
tions taking place. Although the agree­
m ent specifically provided that this
prohibition did not apply to “federally
assisted transactions,” the trustee for




legal Division counsels Scott Watson (I) and
Jerry Madden, shown outside the U.S.Supreme
Court, spearheaded the FDIC's efforts to preserve
the "DOench Duhme" doctrine and related
statutory protections.

Internal Operations

Building on the groundwork laid in
the previous year, the FDIC in 1996
continued to focus on organizational
and operational efficiency, making
significant strides in preparing for the
Corporation’s future. A strong banking
industry and the projected continued
decline in the FDIC’s workload dictated
a realignm ent of key functional areas
and further staff reductions throughout
the Corporation.

Focus on Planning and Efficie ncy
Over the past two years, the Corporation
has established a com prehensive,
corporate-w ide planning process
to guide its major decisions and
activities. The Board o f Directors in
1995 approved a five-year strategic
plan— the first in the Corporation’s
history— that provides the foundation
for this new corporate planning process.
The plan provides a clear strategic
vision for the FDIC, emphasizing its
responsibility to identify and address
potential problems within the financial
industry that might cause losses to the
insurance funds. An annual Corporate
Operating Plan also was instituted in
1995 for senior management to define
and monitor specific projects that
contribute to the strategic plan. During
the past two years, 189 Corporate
Operating Plan projects were initiated
(including 36 new projects in 1996),




and 85 were completed. Among them
were the design and implementation of
new systems to increase the efficiency
of the examination process (see Page 19)
and approval of a procedure to ensure
that proposed regulations undergo a
thorough cost-benefit analysis before
they are issued (see Page 22).
To complete the planning process,
an annual Business Plan was initiated
in April 1996. Together, the Business
Plan and the Corporate Operating Plan
provide the framework for the FDIC
to carry out its mission, pursue its
goals and objectives, and measure
performance. A quarterly reporting
mechanism will begin in 1997 to
provide regular feedback to senior
management on the Corporation's
performance against measurable
performance indicators. During 1996,
each FDIC division and office also
developed annual plans for achieving
division and office objectives, and
the 1997 budget process for the first
time was integrated with the business
planning process.

Dow nsizing and Consolidation
The Corporation continued to shrink
the size o f its workforce substantially
during 1996 because of reduced
workload. Total FDIC staffing was
reduced by approximately 23 percent,
from 11,856 on December 31,1995
(including more than 2,000 RTC
em ployees transferred to the
FDIC on that date), to 9,151 on
December 31, 1996. This was accom ­
plished primarily through the expiration
o f term and temporary appointments,
and the second phase o f the highly
successful buyout program. The

34

program was open to alm ost 7,000
FDIC and RTC em ployees from
November 1995 through January 1996.
Approximately 300 employees applied
for buyouts during the first phase and
were required to leave the Corporation
by D ecember 31, 1995. About 600
em ployees applied during the second
phase and m ost left the C orporation
at various times during 1996. Both
phases of the buyout program
saved the Corporation an estim ated
$97.5 million in employee-related costs.
On O ctober 29, 1996, the Corporation
announced plans for further downsizing,
with a target of reducing total staffing
to between 6,500 and 6,600 employees
by D ecember 31, 2000. This announce­
ment was the culmination o f a com ­
prehensive six-month review that
projected resolutions and asset liquida­
tion workload will remain at historically
low levels for at least the next several
years. One related action was the
Board’s decision in D ecember of 1996
to merge the Division of Depositor
and Asset Services and the Division
of Resolutions into a new Division of
Resolutions and Receiverships (DRR),
and to consolidate DRR field operations
by the end o f 1999. DRR and related
legal and other support activities in
nine regional and field offices will
be consolidated into the FD IC ’s Dallas
office over the next three years. DRR
staffing nationwide will be reduced
from 1,819 at year-end 1996 to approx­
imately 500 by December 31,2000.
Legal Division staffing is also expected
to decline dramatically, from 1,306
at year-end 1996 to about 600 by
D ecember 31, 2000.
Also, a new buyout program was
offered to about 2,500 employees in
November 1996 to minimize the number
o f employees who would have to be
involuntarily separated as a result of
staffing reductions in DRR. the Legal
Division, and other divisions and
offices. The new buyout program
was specifically targeted to those

Number of Officials and Employees of the FDIC 1995-1996 (year-end)
Total

W ashington

R e g io n a l/F ie ld

1996

1995

1996

1995

1996

1995

Executive Offices"
Division of Supervision
Division of Compliance and Consumer Affairs
Division of Depositor and Asset Services'
Division of Resolutions*
Division of Resolutions and Receiverships"
Legal Division
Division of Finance
Division of Information Resources Management
Office of Research and Statistics
Division of Insurance*
Division of Adm inistration
Office of Inspector General’
Office of Equal Opportunity
Office of the Ombudsman
Office of Internal Control Management

137
2,572
588
N /A
N /A
1,819
1,306
726
552
85
41
895
285
64
65
16

96
3,055
463
2,623
233
N /A
1,298
629
499
51
1
592
173
34
66
N /A

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

96
149
40
129
81
N /A
435
279
352
51
1
386
156
28
3
N /A

0
2.418
537
N /A
N /A
1,608
788
398
118
0
13
418
93
13
42
0

0
2,906
423
2,494
152
N /A
863
350
147
0
0
206
17
6
63
N /A

Subtotal-FD IC '
Resolution Trust Corporation

9,151
N /A

9,813
2,043

2,705
N /A

2,186
1,065

6,446
N /A

7,627
978

Total

9,151

11,856

2,705

3,251

6,446

8,605

*

Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Financial Officer, Chief Operating Officer, Deputy to the Chairman for Policy, Executive Secretary,
Corporate Communications, Legislative Affairs, and Policy Development.

■

In December 1996, the Division of Depositor and Asset Services and the Division of Resolutions were merged to create the new Division of Resolutions and Receiverships.

4

The only employee in the Division of Insurance in 1995 was its director, named on October 30.

T

Year-end staffing for 1995 has been revised from the figures shown in the 1995 Annual Report.

°

The year-end 1995 RTC staffing totals include employees who were organizationally transferred from the RTC to the FDIC in spring/summer 1995, but who continued to work
exclusively on RTC functions throughout 1995. The RTC totals also include certain FDIC employees in Chicago who were dedicated to RTC functions early in 1995,
and who worked exclusively on these RTC functions for the balance of 1995.

organizations, occupations, and
locations within the Corporation that
are projected to have excess staffing.
(The buyout application period closed
on February 28, 1997, and more
than 400 participating employees are
expected to leave the Corporation
over the ensuing six months). For more
information on downsizing, see Page 4.
The Corporation also initiated in late
1996 a number o f jo b placement and
training initiatives designed to cushion
the impact of the DRR field consolida­
tions. For example, a training program
was established to help employees
become bank examiners in the Division




o f Supervision or compliance examiners
in the Division of Compliance and
Consumer Affairs. The Corporation’s
Career Transition and Outplacement
Program was also expanded to include
individualized jo b search assistance
to help eligible employees find
employment outside o f the FDIC.

Audits, Investigations and Reviews
The Office o f Inspector General (OIG)
continued to perform independent
audits, investigations and other activities
related to corporate and receivership
programs and operations. The O IG ’s
mission is to promote economy and
efficiency and to detect and prevent
fraud and abuse.

35

The F D IC ’s first Presidentially
appointed Inspector General,
Gaston L. Gianni, Jr., took office in
April 1996. The Inspector General Act,
as amended by the RTC Completion
Act o f 1993, requires that the Inspector
General be appointed by the President
and confirmed by the Senate. The
Inspector General keeps the FDIC
Board of Directors and the Congress
apprised of fraud and serious problems
in corporate programs and operations.

For the 12-month period ending
September 30, 1996 (the O IG ’s report­
ing period to Congress), the office
issued 153 audit and evaluation reports
with questioned costs totaling more
than $59 m illion and with various
recom mendations to improve corporate
programs and operations. OIG investiga­
tive activities nationwide resulted in
nearly $10 million in fines, restitutions
and recoveries. Indictments or criminal
charges were brought against 51 indi­
viduals, while 29 individuals were
convicted and 25 individuals or entities
were sentenced.
The OIG continued its program o f
contractor reviews— a joint initiative
with FDIC management to properly
close out contracts in a timely manner.
U nder the Inspector General Act, as
amended, the OIG also implemented
procedures to review all draft corporate
directives, policies and procedural
manuals, and proposed legislation and
regulations before they are issued.
In May, the FDIC established the
Office o f Internal Control Management
(OICM) to focus more closely on
internal controls and audit resolution
activities. This initiative supports the




strategic goal o f maintaining a strong,
effective internal control program.
OICM works with each division and
office to ensure that internal control
matters receive appropriate attention
at the corporate level. The office is
the Corporation’s liaison with the
U.S. General Accounting Office,
the OIG, and a new Audit Committee,
which the Board of Directors established
in 1996 to assist with oversight of
the Corporation’s financial reporting,
internal control and audit processes.

Using Technology to
Improve Communication
The Corporation’s commitment to
using technology to improve comm u­
nication inside and outside the agency
was evidenced by the Internet’s wide­
spread use during 1996. Customers
of FDIC Internet offerings included
bankers, regulators, financial analysts,
journalists, stockbrokers, scholars,
consumers and others who want quick
and easy access to the FD IC ’s public
information. The range o f FDIC publi­
cations accessible through the Internet
(www.fdic.gov) expanded considerably
during 1996 to include FDIC “financial
institution letters” (notices to the
industry about proposed or new

rules and procedures), press releases,
speeches by the FDIC Chairman,
congressional testimony, manuals,
descriptions of banking laws, lists
o f asset information, and banking
statistics.

FDIC/RTC Transition
Following the sunset of the RTC
at the end o f 1995, the FDIC in 1996
absorbed the rem aining assets and
other w orkload of the RTC, and made
substantial progress in these areas.
The FDIC disposed o f approximately
$3.3 billion (book value) o f the
$7.7 billion (book value) in RTC
assets that were transferred to the
FDIC. Over 2,000 RTC employees
were also successfully integrated into
the FDIC workforce. In addition, the
FDIC largely completed implementing
50 RTC “best practices,” 21 RTC
management goals and reforms, and
49 RTC autom ated systems, as recom ­
mended by an FDIC/RTC Transition
Task Force that identified operational
differencies between the two agencies.
The rem aining recommendations will
be implemented in 1997.
Also based on the recom mendations
o f the Task Force, the Corporation
completed the developm ent of a new
autom ated general ledger system, the
Financial Information Management
System. This new system, implemented
on January 1,1997, consolidates the
general ledgers o f the FDIC and
the RTC, and greatly im proves the
Corporation’s financial management
and analysis capabilities.

Sylvia Sloan chairs an agency-wide committee
to help employees like M atthew Lipinski find new
jobs (including through Internet searches) and learn
new career skills.




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

Final Rules
Foreign Banks
The FDIC amended Part 346 of its
regulations governing the operation of
state-licensed U.S. branches o f foreign
banks. The amendments, required by
Section 107 of the Riegle-Neal
Interstate Banking and Branching
Efficiency Act o f 1994, are intended
to ensure that foreign banks do not
receive an unfair competitive advantage
over U.S. banks in domestic retail
deposit taking. This final rule amends
the regulations to restrict the amount
and types of initial deposits to less
than $100,000 that can be accepted
by an uninsured state-licensed branch
of a foreign bank.
A pproved: F e b ru a ry 6 ,1 9 9 6
Published: F e b ru a ry 1 4,1996

Annual Audit and Reporting
Requirements
The FDIC amended Part 363 o f its
regulations to implement various
provisions o f the Riegle Community
D evelopm ent and Regulatory
Improvement Act of 1994 and otherwise
provide relief from audit and reporting
requirements for certain sound and
well-managed banks. The purpose of
this rule is to eliminate duplicative
reporting requirements, and to stream­
line and reformat specific procedures
that independent accountants must
perform to help regulators determine
compliance with designated laws.
A pproved: F e b ru a ry 6, 1996
P ub lish ed : F e b ru a ry 2 1 ,1 9 9 6

Suspicious Activity Reports
Executive Benefits
The FDIC amended Parts 303 and 359
of its regulations to prohibit troubled
holding companies, banks and thrifts
from making “golden parachute”
payments, with certain exceptions.
Golden parachutes typically are large
cash payments to executives who resign
just before an institution is closed or
sold. The purpose of this rule is to
prevent the improper disposition of
an institution’s assets and to protect
the safety and soundness of institutions
and the federal deposit insurance
funds.
A pproved: F e b ru a ry 6 ,1 9 9 6
Published: F e b ru a ry 15,1996




The FDIC amended Part 353 of its
regulations on the reporting of known
or suspected criminal and suspicious
activities by insured state nonmember
banks. The rule requires the use of
the uniform interagency Suspicious
Activity Report (SAR) to report
potential violations o f federal criminal
law as well as suspicious transactions
related to money laundering offenses
and violations o f the Bank Secrecy
Act. The new SAR substantially reduces
the reporting burden of financial
institutions by significantly increasing
the reporting thresholds for offenses
by non-bank employees. There also
is a $5,000 threshold for reporting
suspicious transactions related to money
laundering and violations of the Bank
Secrecy Act. Additionally, criminal
referrals will be subm itted to the
Financial Crimes Enforcement Network
of the Department o f the Treasury
rather than to multiple federal agencies.
The other financial regulatory agencies
and the Departm ent o f Treasury issued
similar rules.
A pproved: F e b ru a ry 6 ,1 9 9 6
P ublish ed : F e b ru a ry 16, 1996

38

Contractor Conflicts of Interest
The FDIC, with concurrence o f the
U.S. Office of Government Ethics,
amended Part 366 o f its regulations
by adopting an interim rule governing
contractor conflicts o f interest. The
interim rule implements provisions
o f the Resolution Trust Corporation
Completion Act o f 1993 requiring
the FDIC to prescribe regulations to
ensure that contractors meet minimum
standards. The rules also prohibit
contracts with certain entities.
A p p roved: F e b ru a ry 2 7 ,1 9 9 6
P ublish ed : M arc h 11,1996

Adm inistrative Procedures________
The FDIC amended Part 308 o f its
regulations regarding Uniform Rules
of Practice and Procedure. The purpose
of the final rule is to clarify certain
provisions and to increase the efficiency
and fairness of administrative hearings.
The bank and thrift regulatory agencies
are required by Section 916 o f the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA)
to develop uniform rules and proce­
dures for administrative hearings. The
areas affected by this rulemaking are
largely administrative, such as service
o f papers, construction of time limits
and amended pleadings.
A pproved: A pril 3, 1996
P ublished: M ay 6 ,1 9 9 6

Final Rules
Community Reinvestment Act
The FDIC, with the other bank and
thrift regulatory agencies, am ended
Part 345 o f its regulations to make
technical corrections to certain portions
of the joint final rule regarding the
Community Reinvestment Act (CRA),
which promotes efforts by financial
institutions to help meet the credit
needs of their entire communities.
This rule corrects a cross reference
to Small Business Administration regu­
lations, which were recently amended.
This rule makes no substantive change
to the existing regulation.
A pproved: A pril 3 ,1 9 9 6
Published: M ay 10,1996

Standards for FDIC Employment
The FDIC amended Part 336 of its
regulations concerning employee
responsibilities and conduct. This rule
implements requirements contained
in Section 19 o f the Resolution Trust
Corporation Completion A ct of 1993,
which prohibits certain persons from
being employed by or providing
services to the FDIC.

A gricultural Loan Loss
Amortization____________________
The FDIC, as part o f its review o f all
rules and policy statements, removed
its regulation governing agricultural
loan loss amortization. This action
is needed to eliminate the regulation
when it becomes obsolete on
January 1,1999.
A p p ro v ed : Ju n e 17,1996
P ublish ed : Ju ly 1, 1996

Securities Purchases by Family
M em bers of FDIC Employees
The FDIC, with concurrence of the
U.S. Office o f Government Ethics,
amended its standards for employee
conduct (5 CFR Part 3201) to allow
em ployees’ spouses and minor
children to purchase otherwise prohib
ited securities when they are acquired
as part o f compensation packages in
connection with employment. The
amendment was made retroactive
to May 25, 1995.
A p p roved: Ju ly 1, 1996
P ublished: Ju ly 9 ,1 9 9 6

A pproved: M ay 1 4 ,1996
P ublished: Ju n e 6, 1996




Public Observation of M eetings
The FDIC made technical amendments
to Part 311 of its regulations regarding
public observation of meetings o f its
Board o f Directors.
A p p roved: Ju ly 1 6,1996
P ublished: Ju ly 24, 1996

M anagem ent Interlocks
The FDIC, together with the other
bank and thrift regulatory agencies,
amended Part 348 of its regulations
regarding management interlocks.
With certain exceptions, these rules
prohibit bank management officials
from simultaneously serving in a
similar capacity with other financial
institutions. The revisions implement
statutory changes that were mandated
by the Riegle Community Development
and Regulatory Improvement Act o f
1994 (CDRI), and also streamline and
clarify the rules. CDRI removed the
agencies’ broad authority to exempt
otherwise impermissible interlocks and
replaced it with the authority to exempt
interlocks under more narrow circum ­
stances. The Act also required a depos­
itory institution with a "grandfathered"
interlock to apply for an extension
o f the grandfathered period if the
organization wanted to keep the
interlock in place.
A p p roved: Ju ly 16, 1996
P u b lis h e d :

39

A u g u s t 2, 1996

Final Rules
Privacy Act
The FDIC made m inor and technical
amendments to its Privacy Act regula­
tions (Part 310), which relate to the
collection, maintenance, use and
dissemination of personal information
by governm ent agencies. The amend­
ments delete outm oded terms and
otherwise update and clarify the
regulations.
A pproved: A ugust 13, 1996
Published: A ugust 23, 1996

Safety and Soundness
The FDIC, together with the other
bank and thrift regulatory agencies,
amended Part 364 o f its regulations
concerning standards for safety and
soundness. The guidelines were
amended to include asset quality and
earnings standards, and were adopted
pursuant to the Federal Deposit
Insurance A ct as amended by the
CDRI. The guidelines as amended
gave the agencies greater flexibility
to use more comprehensive qualitative
standards, rather than rigid quantitative
standards.
A pproved: A ugust 13, 1996
P ublished: A ugu st 27, 1996




Loans in Areas Having
Special Flood Hazards

Applications Regarding
Bank C learing A gencies

The FDIC, together with the other
bank and thrift regulatory agencies,
the Farm Credit Administration and the
National Credit Union Administration,
amended Part 339 of its regulations
to expand requirements for loans in
areas having special flood hazards.
This final rule establishes new escrow
requirements for flood insurance
premiums, provides authority for
lenders to purchase flood insurance
on behalf of a borrower who would
not purchase the policy when
requested (with the cost passed along
to the borrower), and makes other
changes to implement the National
Flood Insurance Reform Act
o f 1994.

The FDIC, as part o f its regulatory
relief efforts, deleted its rules pertain­
ing to applications for a stay or review
o f actions o f bank clearing agencies
(Part 342) and replaced them with new,
more concise regulations (Part 308).
The changes are intended to streamline
the FD IC’s regulations while m ain­
taining uniformity among the other
banking agencies and the Securities
and Exchange Commission.

A pproved: A ugust 13,1996
P ub lish ed : A ugust 29, 1996

The FDIC, with the concurrence of
the U.S. Office o f G overnment Ethics
(OGE), removed an interim supple­
mental financial disclosure regulation
for FDIC employees. The OGE deter­
mined that agencies obtaining its written
approval for supplemental financial
disclosure forms are not required to
have separate regulations.

M a rk e t Risk______________________
The FDIC, together with the Federal
Reserve Board and the Office o f the
Comptroller of the Currency, amended
Part 325 of its regulations regarding
risk-based capital requirements to
incorporate a new measure for market
risk. The new measurement covers
debt and equity positions in an institu­
tion’s trading account and foreign
exchange and commodity positions
wherever located. The effect o f the
final rule is that any bank or bank
holding company regulated by the
agencies with significant exposure
to market risk must measure that risk
using its own internal “value-at-risk”
model, subject to parameters contained
in the rule, and hold a commensurate
amount o f capital.
A p p roved: A ugust 1 3,1996
Pub lish ed : S ep tem b er 6, 1996

40

A p p roved: A ugust 13, 1996
P ublished: S ep tem b er 13, 1996

Employee Disclosure
Requirements

A pproved: S ep tem b er 10, 1996
P u b lish ed : S ep tem b er 3 0 ,1 9 9 6

Final Rules
SAIF Assessments
The FDIC issued a final rule imposing
a special assessment on institutions
that pay assessments to the Savings
Association Insurance Fund (SAIF),
as required by the Deposit Insurance
Funds Act of 1996. That Act requires
that the assessment, which was calcu­
lated to be 65.7 cents for every $100
of deposits, is to be applied against
SAIF-assessable deposits held as of
March 31, 1995. This final rule provides
for certain discounts and exemptions
related to the special assessment, and
for the FDIC to establish guidelines for
identifying institutions classified as
“weak” and thereby exempt from the
special assessment. The rule also adjusts
the base for computing the regular
semiannual assessments paid by certain
institutions, in accordance with the law.
Approved: October 8, 1996
Published: October 16,1996

Civil M oney Penalty
The FDIC, as required by the Debt
Collection Improvement Act o f 1996,
amended Part 308 o f its rules and
regulations to increase civil money
penalties by the rate o f inflation using
a form ula prescribed by the law.
Any increase in a penalty will apply
only to violations that occur after
November 12, 1996.

Assessments for
"Oakar" Institutions

Suspension and
Exclusion of Contracts

The FDIC amended Part 327 of its
regulations governing assessments
by adopting provisions that pertain to
so-called Oakar institutions: institutions
that belong to one insurance fund but
hold deposits that are treated as insured
by the other insurance fund. This rule
refines the procedures for determining
the amount of deposits acquired and
for attributing the deposits to the Bank
Insurance Fund (BIF) and the SAIF. In
addition, the rule eliminates weaknesses
in the FD IC’s procedures for attributing
deposits to the two funds, and for
computing the growth o f the amounts.

The FDIC amended Part 367 o f its
regulations concerning contracts and
contractors pursuant to Section 12
o f the Federal Deposit Insurance Act.
This rule sets procedures for the sus­
pension and/or exclusion o f contractors
who have violated conflicts o f interest
regulations or have otherwise acted
in an improper manner. The rule
also applies to subcontractors, key
employees, management officials and
affiliated business entities of FDIC
contractors.
Approved: December 11,1996
Published: December 30, 1996

Approved: November 26, 1996
Published: December 10, 1996

Loans to Examiners
SAIF Premium Rates
With the capitalization o f the SAIF on
September 30, 1996, the FDIC lowered
the rates on assessments paid to the
fund and widened the spread of the
rates. The changes are intended to
avoid collecting more than needed
to maintain the SA IF’s capitalization
at 1.25 percent o f insured deposits,
and improve the effectiveness o f the
risk-based assessment system.

The FDIC amended its regulations
concerning standards o f ethical conduct
to allow bank examiners to obtain loans
from banks in the locations where they
work, except for the location of the
field office. Previously, it was necessary
for examiners to seek credit from
banks outside their regions.
Approved: December 11,1996
Published: January 27, 1997

Approved: December 11,1996
Published: December 24, 1996




Sally Kearney

Approved: October 2 9,1996
Published: November 1 2,1996

Cindi Bonnette o f the Division o f Supervision,
Chairman o f an FDIC task force on new banking
technology, w ith com m ittee m em ber Jay Goiter
o f the Division of Research and Statistics,

Proposed Rules
Government Securities Sales

Securities Disclosures

Economically Depressed Regions

The FDIC, with the Federal Reserve
Board and the Office o f the Comptroller
o f the Currency, issued for public
comm ent a proposed rule to amend
Part 368 of its regulations concerning
sales of government securities by bank
brokers or dealers. The proposed rule
would establish standards concerning
recom mendations to customers and
the conduct of business.

The FDIC issued for public comment
a proposed rule to amend Part 335 o f
its regulations concerning securities
of nonmem ber insured banks. The
proposal seeks to incorporate through
cross-reference the corresponding
regulations of the Securities and
Exchange Commission (SEC). This
would ensure that the FD IC ’s regula­
tions remain substantially similar
to the SEC’s regulations, as required
by law.

The FDIC issued for public comment
a proposed rule to amend Part 357
o f its regulations that designates certain
economically depressed regions. The
proposed change would add guidance
to allow applicants to evaluate their
situations before formally applying
for assistance. The proposed rule also
would withdraw a previously proposed
amendment published in 1992.

A pproved: A pril 4, 1996
Published: A pril 25, 1996




A p p roved: Ju ly 1 6 ,1 9 9 6
P u b lish ed : A ug u st 6 ,1 9 9 6

A pproved: Ju n e 17, 1996
P ublished: Ju n e 28, 1996

A ctivities and Investments
of Insured State Banks____________
C ollateralized Transactions_______
The FDIC, together with the other
bank and thrift regulatory agencies,
issued for public comm ent a proposed
rule to amend Part 325 of its regula­
tions concerning risk-based capital for
collateralized transactions. The effect
o f the proposal would be to allow
banks, bank holding companies and
savings associations to hold less capital
for certain transactions collateralized
by cash or qualifying securities. The
proposed rule would implement part
of Section 303 of the CDRI.
A pproved: Ju n e 17, 1996
P ublished: A ugust 16,1996

The FDIC issued for public comment
a proposed rule to streamline Part 362
of its regulations concerning activities
and investments of insured state banks.
Currently, insured state banks are
required to file an application with
the FDIC to engage in activities that
are not perm issible for national banks.
The proposed rule would streamline
the approval process for banks meeting
certain criteria. Banks that do not meet
the criteria would continue to file
under the current rules.
A pproved: A ugust 13,1996
P ublish ed : A ug u st 2 3 ,1 9 9 6

Fair Housing Advertising
and Recordkeeping
The FDIC issued for public comment
a proposed rule amending Part 338 of
its regulations by giving insured state
nonmem ber banks more flexibility in
using fair housing posters and advertis­
ing slogans. It also would remove the
FD IC’s recordkeeping requirements
that serve as a substitute monitoring
program permitted by Regulation B
of the Federal Reserve Board.
A pproved: S ep tem b er 1 0,1996
P ublished: S ep tem b er 20, 1996

42

Advance Notice
of P r o p o s e d R u l e m a k i n o

P r o p o s e d R u l e s _____________
Recordkeeping and Confirmation
Requirements for Securities
Transactions______________________
The FDIC proposed an amendment of
Part 344 o f its regulations concerning
recordkeeping and confirm ation
requirements for securities transactions.
The regulations currently in effect
were issued in 1979, and the types o f
securities activities occurring on bank
premises have changed significantly.
Among other things, the proposed rule
w ould exempt from the FD IC’s record­
keeping and confirmation requirements
those cases in which the customer has
a direct contractual agreement with a
broker/dealer whose relationship is
fully disclosed to the customer. Also,
the proposal would require certain
financial institution directors to report
personal investment transactions.
Approved: December 11,1996
Published: December 2 4 ,1 9 9 6




Qualification Requirements
for Certain Securities Transactions

Sim plification
of Deposit Insurance Rules

The FDIC, together with the Office
o f the Comptroller o f the Currency
and the Federal Reserve Board, issued
for public comment a proposed rule
to amend Part 342 of its regulations
concerning the sale o f securities. The
proposed rule would require banks
to file a notice with the appropriate
federal banking agency and establish
professional qualification requirements
for bank employees that are consistent
with those for broker/dealers and
registered representatives under the
Securities Exchange Act and the rules
of the securities industry’s self-regulatory organizations. The proposed rule
would require bank employees to
register with the appropriate banking
agency, take and pass a proficiency
examination to become a bank securi­
ties representative and meet continuing
education requirements.

The FDIC asked for public comment
on whether and how its deposit
insurance rules (Part 330) should be
clarified, simplified or streamlined.
If the Board finds modifications to
be warranted, it will propose specific
amendments for further public
comment.
Approved: M ay 14, 1996
Published: May 22 ,1 9 9 6

Approved: December 11, 1996
Published: December 30, 1996

Joseph H.Neeiy, shown here being sw orn in as
a Board mem ber on January 29, w as later tapped
by Chairman H eifer (c) to lead the agency's efforts
to reduce regulatory burden. Also shown, a t left,
are Board members Flechter and Hove.

Significant Legislation Enacted

Several bills o f significance to the
FDIC and insured depository institutions
were enacted during 1996. From the
FD IC ’s standpoint, the most significant
legislation fully capitalized the Savings
Association Insurance Fund (SAIF),
one of the two insurance funds admin­
istered by the FDIC. This Act and
other new laws that im pact the FDIC
and insured depository institutions are
described in this chapter.

•

Omnibus Legislation______________
On Septem ber 30, 1996, an omnibus
bill (P.L. 104-208) was enacted
containing several laws of interest
to the FDIC.

•

The D eposit Insurance Funds Act
o f 1996:
•

•

•

Capitalizes the SAIF on
October 1, 1996, through a
one-time special assessment
based on SAIF-assessable
deposits held on March 31, 1995,
in the amount necessary to
achieve the fund’s designated
reserve ratio o f $1.25 for every
$100 of insured deposits.
Exempts weak institutions and
various other defined institutions
from the special assessment
and reduces SAIF-assessable
deposits at certain institutions
for purposes o f calculating the
special assessment.
Separates assessments for
Financing Corporation (FICO)
bonds (those issued by the
governm ent corporation created
in 1987 to recapitalize the
form er Federal Savings and Loan
Insurance Corporation) from the
regular SAIF assessments starting
January 1, 1997.




•

Requires banks insured by the
Bank Insurance Fund (BIF)
to begin sharing FICO bond
payments. The rate on BIFassessable deposits will be
one-fifth the rate imposed on
SAIF-assessable deposits for the
first three years beginning on
January 1, 1997, unless the last
savings association ceases to exist
before that date. Thereafter, all
FDIC-insured institutions will
share the FICO assessm ent on a
pro rata basis, regardless o f which
fund insures their deposits.
Directs the FDIC and the other
federal banking and thrift agencies
to take appropriate actions to
prevent insured depository institu­
tions from shifting deposits to
evade SAIF assessments.

•

•

Requires the FDIC and other
federal bank regulatory agencies
to review their regulations period­
ically and eliminate requirements
for unnecessary internal policies.

•

Directs each federal banking
agency to coordinate examinations
and consult with each other, to
resolve inconsistencies in recom ­
mendations to be given to an
institution, and to consider
appointing an examiner-in-charge
to ensure consultation takes place.

•

Provides in cases of coordinated
examinations of institutions with
state-chartered subsidiaries that
the lead agency could be the state
chartering agency.

•

Requires reports from all banking
regulators on actions taken to
eliminate duplicative or inconsis­
tent accounting or reporting
requirem ents in statements or
reports from regulated institutions.

•

Reduces regulatory burden under
a number o f consum er protection
statutes, including the Home
M ortgage Disclosure Act, Truth
in Lending Act, Real Estate
Settlement Procedures Act,
Equal Credit Opportunity Act,
and Fair Housing Act.

•

Amends the Comprehensive
Environm ental Response,
Compensation, and Liability
A ct of 1980, excluding lenders
from liability under certain
circumstances.

•

Reforms consumer credit reporting
laws to provide consumers with
additional protections in areas
such as protecting privacy and
correcting mistakes.

Provides for the merger of the BIF
and the SAIF on January 1, 1999,
if no savings association exists
on that date.

The Economic Growth and Regulatory
Paperwork Reduction A ct o f 1996
modified numerous regulatory require­
ments and procedures affecting federal
regulatory agencies, financial institu­
tions and consumers. This law:
•

•

Streamlines application and
notice requirements in a number
o f areas, such as nonbanking
acquisitions by well-managed
and well-capitalized bank holding
companies.
Allows a 60-day period (with
a 30-day extension) for FDIC
consideration o f completed
applications from a state bank
or its subsidiary to engage in
an activity that is not permissible
for a national bank, but does not
provide for automatic approval
if the FDIC does not act on an
application within the time period.
Raises the threshold for small
banks to be examined every
18 months from $175 million
in total assets to as much as
$250 million in total assets.

44

Sm all Business Regulatory
Enforcement Fairness A ct of 1996
The Small Business Regulatory
Enforcement Fairness Act of 1996
(RL. 104-121) was enacted on
M arch 29, 1996, as part of the
Contract With America Advancement
Act of 1996. Provisions affect govern­
ment regulation of small businesses,
which may in some instances include
financial institutions with less than
$100 million in assets. The law also
establishes a congressional review
process for certain regulations.
The new law requires that agencies
produce and make available additional
materials to assist small businesses
in complying with new regulations
promulgated under the Regulatory
Flexibility Act. Also, each agency
must establish a program for respond­
ing to concerns o f small businesses,
Each agency that regulates the activities
o f small businesses must establish
a policy or program not later than
March 29, 1997, providing for the
reduction or waiver o f civil penalties
for violations o f statutory or regulatory
requirements, subject to exceptions
the agency may establish. The agency
may, under appropriate circumstances,
consider ability to pay in determining
penalties against small businesses.




The law also provides that before
certain rules can take effect, the
agency promulgating the rule must
submit a report to Congress and the
Comptroller General including any
cost-benefit analysis and actions taken
under the Regulatory Flexibility Act.
A rule may not take effect or continue
in effect if Congress enacts a joint
resolution o f disapproval and the
President signs the resolution.

industry, and bank regulatory programs.
One provision allows both spouses
to contribute up to $2,000 to an
Individual Retirement Account (IRA),
even if one spouse does not work
outside the home. Other provisions
authorize financial institutions meeting
certain criteria to qualify as Subchapter
S corporations, create financial asset
securitization investm ent trusts
(FASITs), and repeal the reserve
method o f accounting for bad debts
by thrift institutions.

Debt Collection Improvement Act
Another omnibus bill (P.L. 104-134),
enacted on April 26, 1996, contains
the Debt Collection Im provement Act
o f 1996. This law amends a number
o f statutes related to debt collection
and electronic funds transfer of federal
payments. In general, the law requires
that all “federal payments” ultimately
be made by electronic funds transfer
unless a waiver is obtained. It also
enhances the federal governm ent’s
ability to collect delinquent debts
from people who are owed money
by another government agency.

Electronic FOIA___________________
The Electronic Freedom of Information
Act Amendments o f 1996 (P.L. 104-231),
enacted on October 19, 1996, requires
the disclosure of agency records in an
electronic format, where feasible, when
requested under procedures established
by the Freedom of Information Act.

FDIC Contractor Regulations
The Office o f Government Ethics
Authorization Act of 1996 (P.L. 104-179),
enacted on August 8, 1996, extended
the operations o f the Office of
Government Ethics (OGE) for an
additional three years. One provision
eliminates the statutory requirement
for OGE concurrence in FDIC regula­
tions concerning the conduct o f
independent contractors retained by
the FDIC and relating to conflicts of
interest, ethical responsibilities, and
the use of confidential information.

M itc h e ll C ra w le y

The omnibus legislation includes
other miscellaneous provisions also
of interest to the FDIC or depository
institutions, including authorizing the
FSLIC Resolution Fund to reimburse
the Department of Justice for various
legal expenses.

Bank and Thrift Taxation________
The Small Business Job Protection
Act o f 1996 (P.L. 104-188), enacted
on August 20, 1996, contains several
changes to the tax code that could
affect small businesses, the banking

The FDIC's push to recapitalize the Savings
Association Insurance Fund w as successful,
in part, due to the w ork o f many a t the agency,
including A lice Goodman and Eric Spitler of
the O ffice of Legislative Affairs.










Bank Insurance Fund

Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Financial Position
Dollars

in T h o u s a n d s
December 31,1996

December 31,1995

Assets
Cash and cash equivalents

$

258,132

$

22,083,494

Investments in U.S. Treasury obligations, net (Note 3)
(Market value of investments at December 31,1996 and
December 31,1995 was $22.1 billion, and $20.9 billion respectively)

531,308
20,762,046

384,824

Receivables from bank resolutions, net (Note 4)

406,804

4,341,154

Interest receivable on investments and other assets, net

4,143,040

63,406

180,293

148,400

Investment in corporate owned assets, net (Note 5)
Property and buildings, net (Note 6)

151,740

S

27,279,410

$

26,175,231

$

Total Assets

240,185

$

224,626

Liabilities and the Fund Balance
Accounts payable and other liabilities
Estimated liabilities for: (Notes 8 and 9)
Anticipated failure of insured institutions

75,000

Assistance agreements

50,817

55,941

Asset securitization guarantees
Litigation losses

44,279

126,151

14,750

35,815
721,533

Total Liabilities

279,000

425,031

Commitments and contigencies (Notes 13 and 14)
Fund Balance
Total Liabilities and the Fund Balance

$

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




49

26,854,379
27,279,410

S

25,453,698
26,175,231

Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Income and the Fund Balance
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

For the Year Ended
December 31,1995

Revenue
Assessments (Note 10)

$

Interest on U.S. Treasury investments

72,662

$

2,906,943

1,267,134
69,879

Revenue from corporate owned assets
Other Revenue (Note 7)
Total Revenue

1,068,395
58,585

245,585

55,176

1,655,260

4,089,099

Operating expenses

505,299

Reduction in provision for insurance losses (Note 9)

(325,206)

470,625
(33,167)

73,819

73,599

Expenses and Losses

Corportate owned asset expenses
Interest and other insurance expenses

667

Fund Balance - Ending

$

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




50

3,605,916

25,453,698

Fund Balance - Beginning

483,183

1,400,681

Net Income

(27,874)

254,579

Total Expenses and Losses

21,847,782

26,854,379

S

25,453,698

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

in T h o u s a n d s
For the Year Ended
December 31,1996

For the Year Ended
December 31,1995

Cash Flows from Operating Activities
Cash Provided from:
Assessments

$

Interest on U.S. Treasury investments

73,961

$

2,796,114

1,303,629

875,226

Recoveries from bank resolutions

624,502

5,059,751

Recoveries from corporate owned assets

355,913

211,691

34,329

36,084

Miscellaneous receipts
Cash used for:
Operating expenses

(489,372)

(442,101)

Disbursements for bank resolutions

(632,930)

(1,596,391)

Disbursements for corporate owned assets

(205,775)
(16,810)

(159,299)
(23,929)

1,047,447

6,757,146

7,550,000

3,830,000

(8,870,623)
(1,320,623)

(11,675,925)
(7,845,925)

0

(1,369)
(1,369)

Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 16)
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
Cash Flows from Financing Activities
Cash used for:
Repayments of indebtedness incurred from bank resolutions
Net Cash Used by Financing Activities
Net Decrease in Cash and Cash Equivalents

0
(273,176)

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

$

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




51

531,308
258,132

(1,090,148)
1,621,456
$

531,308

Notes to the Financial Statements
Bank Insurance Fund
December 31,1996

and

1995

1. Legislative History and Operations of the Bank Insurance Fund

assessment on SAIF-insured deposits; 2) the expansion o f the
assessment base for payments of the interest on obligations
issued by the Financing Corporation (FICO) to include all
FDIC-insured institutions, i.e., banks and thrifts; 3) begin­
ning January 1, 1997, the imposition o f a FICO assessment
rate for BIF-assessable deposits that is one-fifth o f that paid
by SAIF-assessable deposits; 4) the payment of the approxi­
mately $790 million annual FICO interest obligation on a
pro rata basis between banks and thrifts on the earlier of
December 31, 1999 or the date on which the last savings
association ceases to exist; 5) the refund o f amounts in the
BIF in excess o f the designated reserve ratio with such
refund not to exceed the previous semi-annual assessment;
6) authorization of BIF assessments only if needed to maintain
the fund at the designated reserve ratio; and 7) the merger
of the BIF and the SAIF on January 1, 1999, if no insured
depository institution is a savings association on that date.

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.
More recently, the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA) was enacted to
reform, recapitalize and consolidate the federal deposit insur­
ance system. The FIRREA created the Bank Insurance Fund
(BIF), the Savings Association Insurance Fund (SAIF) and
the FSLIC Resolution Fund (FRF). It also designated the FDIC
as the administrator o f these three funds. All three funds are
maintained separately to carry out their respective mandates.
The BIF and SAIF are insurance funds responsible for pro­
tecting depositors in operating banks and thrift institutions
from loss due to failure o f the institution. The FRF is a
resolution fund responsible for winding up the affairs of
the form er Federal Savings and Loan Insurance Corporation
(FSLIC) and liquidating the assets and liabilities transferred
from the former Resolution Trust Corporation (RTC).

The FICO, established under the Competitive Banking A ct of
1987, is a mixed-ownership governm ent corporation whose
sole purpose was to function as a financing vehicle for the
FSLIC.

Pursuant to FIRREA, an active institution’s insurance fund
membership and primary federal supervisor are generally
determined by the institution’s charter type. Deposits of
BIF-member institutions are mostly insured by the BIF; BIF
members are predominantly commercial and savings banks
supervised by the FDIC, the Office of the Comptroller o f the
Currency, or the Federal Reserve. Deposits o f SAIF-member
institutions are mostly insured by the SAIF; SAIF members
are predominantly thrifts supervised by the Office of Thrift
Supervision (OTS). The O akar amendment to the Federal
Deposit Insurance Act (FDI Act) allows BIF and SAIF
members to acquire deposits insured by the other insurance
fund without changing insurance fund coverage for the
acquired deposits.

Operations of the BIF
The primary purpose o f the BIF is to: 1) insure the deposits
and protect the depositors o f BIF-insured banks and
2) resolve failed banks, including managing and liquidating
their assets. In addition, the FDIC, acting on behalf 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 primarily funded from the following sources:
1) interest earned on investments in U.S. Treasury obliga­
tions; 2) BIF assessment premiums; 3) income earned on
and funds received from the management and disposition of
assets acquired from failed banks; and 4) U.S. Treasury and
Federal Financing Bank (FFB) borrowings, if necessary.

Other significant legislation includes the Omnibus Budget
Reconciliation A ct o f 1990 (1990 OBR Act) and the Federal
Deposit Insurance Corporation Im provement Act of 1991
(FDICIA). These acts made changes to the FDIC’s assessment
authority (see Note 10) and borrowing authority (see “Opera­
tions of the B IF ’ below). The FDICIA also requires the FDIC
to: 1) resolve troubled institutions in a manner that will result
in the least possible cost to the deposit insurance funds and
2) maintain the insurance funds at 1.25 percent o f insured
deposits or a higher percentage as circumstances warrant.

The 1990 OBR Act established the FD IC ’s authority to
borrow working capital from the FFB on behalf of the BIF
and the SAIF. The FDICIA increased the FD IC ’s authority
to borrow for insurance losses from the U.S. Treasury,
on behalf of the BIF and the SAIF, from $5 billion to
$30 billion.
The FDICIA also established a limitation on obligations that
can be incurred by the BIF, known as the maximum obliga­
tion limitation (MOL). A t D ecember 31, 1996, the M OL for
the BIF was $49 billion.

Recent Legislation
The Deposit Insurance Funds Act of 19% (DIFA1996) was enacted
to provide for 1) the capitalization of the SAIF to its designated
reserve ratio of 1.25 percent by means of a one-time special




52

BI F

2. Summary of Significant Accounting Policies

basis. The litigation loss estimates related to the BIF in its
corporate capacity are included in the “Estimated liabilities
for: Litigation losses.” The litigation loss estimates related
to receiverships are included in the allowance for losses for
“Receivables from bank resolutions, net.”

General
These financial statements pertain to the financial position,
results o f operations and cash flows o f the BIF and are
presented in accordance with generally accepted accounting
principles (GAAP). These statements do not include report­
ing for assets and liabilities of closed banks for which the
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.

Receivership Operations
The FDIC is responsible for controlling and disposing of
the assets o f failed institutions in an orderly and efficient
manner. The assets, and the claims against them, 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 of the receiverships are recovered from those
receiverships.

Use of Estimates
The preparation of the BIF’s financial statements in
conformity with GAAP requires FDIC management to make
estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from these estimates. W here it is reason­
ably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature
and extent o f such changes in estimates have been disclosed.

Cost Allocations Am ong Funds
Certain operating expenses (including personnel, administra­
tive and other indirect expenses) not directly charged to each
fund under the FD IC ’s management are allocated on the
basis o f the relative degree to which the operating expenses
were incurred by the funds. The cost of 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 of these
allocated costs at the time o f acquisition because o f their
immaterial amounts.

Cash and Cash Equivalents
The BIF considers cash equivalents to be short-term, highly
liquid investments with original maturities of three months
or less.
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 prem ium 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.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting
and administration o f postretirem ent benefits on behalf of
the BIF, the SAIF and the FRF. The BIF funds its liabilities
for these benefits directly to the entity.

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 resolving troubled and
failed 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 estimates of dis­
counted cash recoveries from assets o f assisted or failed
banks, net o f all estim ated liquidation costs.

Disclosure about Recent Financial Accounting
Standards Board Pronouncements
The Financial Accounting Standards Board (FASB) issued
Statement o f Financial Accounting Standards (SFAS) No.
125, “Accounting for Transfers and Servicing o f Financial
Assets and Extinguishment o f Liabilities” in June 1996,
effective for transactions occurring after D ecember 31, 1996.
The BIF will generally be unaffected by its provisions since
most transactions subject to SFAS 125 occur at the
receivership level and not at the fund level. To the extent
that the BIF may be affected, the FD IC ’s current accounting
practices are consistent with the rules contained in SFAS
125. Other recent pronouncements issued by the FASB have
been adopted or are either not applicable or not material to
the financial statements.

Litigation Losses
The BIF accrues, as a charge to current period operations,
an estimate of probable losses from litigation. The FD IC ’s
Legal Division recommends these estimates on a case-by-case




53

BI F

Depreciation
The FDIC has designated the BIF administrator o f buildings
owned and used in its operations. Consequently, the BIF
includes the cost of these assets in its financial statements
and provides the necessary funding for them. The BIF
charges other funds a rental fee representing an allocated
share of its annual depreciation expense.

The San Francisco condominium offices are depreciated
on a straight-line basis over a 35-year estimated life.

The Washington, D.C., office buildings and the L. W illiam
Seidman Center in Arlington, Virginia, are depreciated
on a straight-line basis over a 50-year estimated life.

Reclassifications
Reclassifications have been made in the 1995 financial state­
ments to conform to the presentation used in 1996.

Related Parties
The nature of related parties and a description of related
party transactions are disclosed throughout the financial
statements and footnotes.

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

All cash received by the BIF is invested in U.S. Treasury
obligations with maturities exceeding three months unless
the cash is used: 1) to defray operating expenses;

2) for outlays related to assistance to banks and liquidation
activities; or 3) for investm ents in U.S. Treasury one-day
special certificates which are cash equivalents.

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

in T h o u s a n d s

M aturity

Y ield
at
Purchase

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

6.02%
5.62%
6.10%

5-10 years

Book
Value

6.51%

$

5,805,090
8,339,386
4,811,582

$

3,127,436
$ 22,083,494

Total

U nrealized
Holding
Gains
15,032
8,499
21,306

U nrealized
Holding
Losses

M a rk e t
V alue

S

(6,934)
(37,429)
(30,560)

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

3,100,000

$

(75,251)

$22,091,495

$ 21,990,000

U nrealized
Holding
Losses

M a rk e t
V alue

38,415
$

83,252

(328)

Face
Value
$

5,800,000
8,320,000
4,770,000

U.S. Treasury Obligations at Decem ber 31,1995
Dollars

in T h o u s a n d s

M aturity
Less than one y e a r ^
1-3 years
3-5 years
Total

Y ield
at
Purchase
5.53%
5.88%
5.59%

Book
V alue

U nrealized
Holding
Gains

$

6,750,414
12,318,436
1,693,196

$

19,934
147,762
15,613

$

(5,262)
(24,776)
0

$ 6,765,086
12,441,422
1,708,809

$

20,762,046

$ 183,309

$

(30,038)

$20,915,317

Face
V alue
$

s

6,750,000
12,350,000
1,690,000
20,790,000

(a) Includes a $400 million Treasury note which matured on Sunday, December 31,1995. Settlement occurred on the next business day, January 2,1996.

In 1996, the unamortized discount, net of unamortized premium, was $93 million. In 1995, the unamortized premium,
net o f umam ortized discount, was $28 million.




54

BI F

4. R ec eiva b les from B ank Resolutions, N et

The FDIC resolution process results in different types of
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
merger or allow a troubled institution to continue operations.
Payments for institutions that fail are made to cover the
institution’s obligation to insured depositors and represent
a claim by the BIF against the receiverships’ assets.

described in Note 2, an allowance for loss is established
against the receivable from bank resolutions.
As o f December 31, 1996 and 1995, the BIF, in its receiver­
ship capacity, held assets with a book value o f $7 billion and
$10 billion, respectively. These assets represent a significant
source of repaym ent o f receivables from bank resolutions.
The estimated cash recoveries from the management and
disposition o f these assets (excluding cash and miscellaneous
receivables o f $3.9 billion at December 31, 1996 and
$2.1 billion at December 31. 1995) used to derive the
allowance for losses are based in part on a statistical sampling
o f receivership assets. The potential sampling error is not
material to the B IF’s financial statements. These estimated
recoveries are regularly evaluated, but remain subject to
uncertainties because o f changing economic conditions.
These factors could affect the B IF’s and other claim ants’
actual recoveries from the level currently estimated.

The FDIC, as receiver for failed banks, engages in a variety
o f strategies at the time o f failure to maximize the return
from the sale or disposition of assets and to minimize realized
losses. A failed bank acquirer can purchase selected assets
at the time o f resolution and assume full ownership, benefit
and risk related to such assets. The receiver may also engage
in other types of transactions as circumstances warrant. As

R ec eiva b les from B ank R esolutions, N et
Dollars

in T h o u s a n d s
December 31,1996

Assets from Open Bank Assistance

$

Allowance for losses (Note 9)

142,267

December 31,1995
$

158,000

(49,580)

(57,405)

92,687

100,595

Receivables from Closed Banks

23,563,609

25,073,165

Allowance for losses (Note 9)

(19,315,142)

(21,030,720)

4,248,467

4,042,445

Total

$

4,341,154

S

4,143,040

5. Investm en t in C orporate O w ned A ssets, N et
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 reso­
lution agreement. In addition, the BIF can purchase assets
remaining in a receivership to facilitate termination. The
majority of corporate owned assets are real estate and
mortgage loans.




The methodology used to derive the allowance for losses for
corporate owned assets is the same as that for receivables
from bank resolutions.
The BIF recognizes income and expenses on these assets.
Income consists primarily of the portion o f collections on
performing mortgages related to interest earned. Expenses
are recognized for administering the management and
liquidation o f these assets.

55

BI F

Investm en t in C orporate O w n ed A ssets, N et
Dollars

in T h o u s a n d s
December 31,1996

Investment in corporate owned assets

$

Allowance for losses (Note 9)

873,458

December 31,1995
$

939,756
(759,463)

(810,052)

Total

S

63,406

$

180,293

6. Property and B uilding s, N et
Dollars

in T h o u s a n d s
December 31,1996

Land

$

Office buildings

29,631

December 31,1995
$

Accumulated depreciation
Total

$

(32,673)
148,400

29,631
151,442

151,442
$

(29,333)
151,740

7. O ther Revenue
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Interest on subrogated claims and advances

$

230,871

S

8,734
245,585

Income from assistance transactions

$

The interest on subrogated claims and advances to financial
institutions includes $205 million in post-insolvency interest.
There are a number o f BIF receiverships that have residual
funds rem aining after paying all regular claims. Once those

37,771
9,234

5,980

Other miscellaneous income
Total




For the Year Ended
December 31,1995

$

8,171
55,176

claims have been paid, the BIF and other claimants are
eligible to receive interest on their claims against the receivers
on a pro rata basis. Due to the uncertainty o f collection,
post-insolvency interest is recognized when received.

56

BIF

8. Estimated Liabilities for:

Anticipated Failure o f Insured Institutions
The BIF records an estimated liability and loss provision for
banks that are likely to fail in the foreseeable future (absent
some favorable event such as obtaining additional capital
or merging). The estimated liability and corresponding
reduction in provision for insurance losses are recorded
in the period when the liability is deemed probable and
reasonably estimable.

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 part of the FDIC’s efforts to maximize the return from the
sale or disposition o f assets and minim ize losses from bank
resolutions, the FDIC has securitized some receivership
assets. To facilitate the securitizations, the FD IC ’s BIF
provided Limited Guarantees to cover certain losses on the
securitized assets up to a specified maximum. In exchange
for backing the limited guarantee, the BIF received assets
from the receiverships in an amount equal to the expected
exposure under the guarantee. The deals were initially
structured so that the BIF would neither profit nor suffer
a loss as a result of the limited guarantees.

The estimated liabilities for anticipated failure o f insured
institutions as o f D ecember 31, 1996 and 1995, were
$75 million and $279 million, respectively. The estimated
liability is derived in part from estimates o f recoveries from
the management and disposition of the assets of these proba­
ble bank failures. Therefore, they are subject to the same
uncertainties as those affecting the BIF’s receivables from
bank resolutions (see Note 4). This could affect the ultimate
costs to the BIF from probable bank failures.
There are other banks where the risk o f failure is less
certain, but still considered reasonably possible. Should
these banks fail the BIF would incur additional losses o f
about $160 million.

At December 31, 1996 and 1995, the BIF had an estimated
liability under the guarantees o f $44 million and $126 million,
respectively.

The accuracy o f these estimates will largely depend on future
economic conditions. In addition, FDIC considers probable
losses in setting assessment rates and. as circumstances
warrant, may increase assessment rates to recover some
or all losses due to anticipated bank failures.

During 1996 the BIF returned to receiverships $91.6 million
in cash (including interest o f $8.4 million) received for back­
ing the limited guarantee. The BIF made this refund as a
result of lowering the estimate o f expected exposure under
one of the guarantees. The following chart summarizes the
B IF’s remaining potential exposure under the guarantees.

Asset Securitization Guarantees (cumulative inception-to-date balances)
D o l l a r s in T h o u s a n d s
Maximum Exposure Under
the Guarantee Obligations

Guarantee Claims Paid
through December 31

Maximum Remaining Potential
Obligations at December 31

$481,313
$247,748

$8,651
$2,406

$472,662
$245,342

1996
1995

determined that losses from unresolved legal cases totaling
$307 million are reasonably possible. This includes $18 mil­
lion in losses for the BIF in its corporate capacity and
$289 million in losses for the BIF related to receiverships
(see Note 2).

Litigation Losses
The BIF records an estim ated loss for unresolved legal cases
to the extent those losses are considered to be probable in
occurrence and reasonably estimable in amount. In addition
to the amount recorded, the FD IC ’s Legal Division has




57

BIF

9. Analysis of Changes in A llow ance for Losses and Estimated Liabilities

for: anticipated failure o f insured institutions” to “Closed
banks.” Terminations represent final adjustments to the
estimated cost figures for those bank resolutions that were
completed.

The reduction in provision for insurance losses includes the
normal, recurring changes in estimates for prior year, current,
and anticipated bank resolutions. In the following charts,
transfers include reclassifications from “Estimated Liabilities

Analysis of Changes in A llow ance for Losses and Estimated Liabilities
Dollars

-

1996

in M i l l i o n s
Beginning
B alance
01/01/96

A llo w a n c e for Losses:
Open bank assistance
Corporate owned assets
Closed banks
Total A llo w a n c e for Losses
Estim ated Liabilities for:
Anticipated failure of insured institutions
Assistance agreements
Asset securitization guarantee
Litigation losses
Total Estim ated Liabilities

$

57
759
21,031
21,847

Provision for Insurance Losses
Current
Prior
Total
Year
Years
$

0
0
(95)
(95)

$

(4)
51
(33)
14

S

(4)
51
(128)
(81)

(204)
0
(15)
0
(219)

0
(4)
0
(21)
(25)

$ (3 1 4 )

S (11)

Ending
B alance
12/31/96

$

$

(204)
(4)
(15)
(21)
(244)

0
0
0
0

$

(3)
0
(1,588)
(1,591)

50
810
19,315
20,175

$ (3 2 5 )

279
56
126
36
497

Reduction in Provision
for Insurance Losses

A djustm ents/
N e t Cash
Transfers/
Payments Term inations

0
(1)
(81)
0
(82)

0
0
14
0
14

75
51
44
15
185

Analysis of Changes in A llow ance for Losses and Estimated Liabilities -1995
Dollars

in M i l l i o n s

A llo w a n c e for Losses:
Open bank assistance
Corporate owned assets
Closed banks
Total A llo w a n c e for Losses
Estim ated L iabilities for:
Anticipated failure of insured institutions
Assistance agreements
Asset securitization guarantee
Litigation losses
Total Estim ated Liabilities
lncrease/(R eduction) in
Provision for Insurance Losses




Beginning
B alance
01/01/95

$ 1,156
660
22,354
24,170

Provision for Insurance Losses
Current
Prior
Year
Years
Total

$

$

$(140)
99
464
423

$ (140)
99
412
371

131
0
0
0
131

875
163
128
15
1,181

0
0
(52)
(52)

(570)
14
0
21
(535)

(439)
14
0
21
(404)

79

$(112)

S (33)

58

A djustm ents/
N et Cash
Transfers/
Payments Term inations

Ending
B alance
12/31/95

$

S

0
0
0
0

$ (959)
0
(1,735)
(2,694)

0

(157)

(101)
(2)
0
(103)

(20)
0
0
(177)

57
759
21,031
21,847

279
56
126
36
497

BIF

10. Assessments

The 1990 OBR Act removed caps on assessment rate increases
and authorized the FDIC to set assessment rates for BIF
members semiannually, to be applied against a m em 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 BIF’s obligations; and 3) authorized
the FDIC to increase assessm ent rates more frequently than
semiannually and impose emergency special assessments as
necessary to ensure that funds are available to repay U.S.
Treasury borrowings.

the date on which the last savings association ceases to exist,
the approximately $790 million annual FICO interest obliga­
tion will be paid on a pro rata basis between banks and thrifts.
The FICO assessment will have no financial effect on the
BIF since the FICO claim will be assessed separately from
the regular assessment, and the FICO assessment is imposed
on banks and not on the BIF. The FDIC as administrator of
the BIF is acting solely as an agent for the FICO to collect
and rem it the FICO assessment to the FICO.
The FDIC uses a risk-based assessment system that charges
higher rates to those institutions that pose greater risks to
the BIF. To arrive at a risk-based assessment for a particular
institution, the FDIC places each institution in one of nine
risk categories using a two-step process based first on capital
ratios and then on other relevant information. The FDIC
Board o f Directors (Board) reviews premium rates semiannu­
ally. The average assessment rate for 1996 was 0.24 cents
per $100 of insured deposits.

In M ay 1995, the BIF reached the FDICIA mandated capital­
ization level of 1.25 percent of insured deposits.
The DIFA 1996 (see Note 1) provided, among other things,
for the elimination o f the mandatory minimum assessment
formerly provided for in the FDI Act, and for the expansion
of the assessment base for payments on the interest on oblig­
ations issued by FICO to include all FDIC-insured institutions,
including banks. Beginning January 1, 1997, banks will start
paying a FICO-assessment. The FICO-assessment rate on BIFassessable deposits will be one-fifth of the rate paid on SAIFassessable deposits. On the earlier of December 31, 1999, or

On November 26, 1996, the FDIC Board of Directors voted
to retain the BIF assessment schedule of 0 to 27 cents per
$100 of insured deposits (annual rates) for the first semiannual
period o f 1997.

11. Pension Benefits, Savings Plans, Postemployment Benefits and Accrued Annual 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, which is offset with the Social Security
System in certain cases. Plan benefits are determined on the
basis of years o f creditable service and compensation levels.
The CSRS-covered employees also can contribute to the
tax-deferred Federal Thrift Savings Plan (TSP).

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 for 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.
Due to a substantial decline in the FD IC ’s workload, the
Corporation developed a staffing reduction program, a
component o f which is a voluntary separation incentive plan,
or buyout. To date, two corporate-wide buyout plans have
been offered to eligible employees. The first buyout plan
did not have a material financial effect on the BIF, and
management believes the second buyout plan will also not
have a material financial effect on the fund.

The FERS is a three-part plan consisting o f a basic defined
benefit plan that provides benefits based on years of
creditable service and compensation levels, Social Security
benefits and the TSP. Automatic and matching employer
contributions to the TSP are provided up to specified
amounts under the FERS.
Eligible FDIC employees also may participate in an FDICsponsored tax-deferred savings plan with matching
contributions. The BIF pays its share o f the em ployer’s
portion of all related costs.




The liability to employees for accrued annual leave
is approximately $38.9 million and $43.4 million at
December 31, 1996 and 1995, respectively.

59

BI F

P ension B enefits and Savings P lans Expenses
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Civil Service Retirement System

$

9,113

For the Year Ended
December 31,1995
$

9,411

Federal Employee Retirement System (Basic Benefit)

34,989

36,741

FDIC Savings Plan
Federal Thrift Savings Plan
Total

19,474

20,545

12,195
75,771

10,264
S 76,961

$

12. P o s tre tire m en t B enefits 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 of
participation in the plan and 2) eligibility for an immediate
annuity. Dental coverage is provided to all retirees eligible
for an immediate annuity.

direct-pay plans. Dental care is underwritten by Connecticut
General Life Insurance Company and provides coverage at
no cost to retirees.
The BIF expensed $6.1 million and $18.8 million for net
periodic postretirem ent benefit costs for the years ended
December 31, 1996 and 1995, respectively. For measurement
purposes for 1996, the FDIC assumed the following: 1) a
discount rate o f 5.75 percent; 2) an average long-term rate of
return on plan assets of 5.75 percent; 3) an increase in health
costs in 1996 of 10.75 percent (inclusive o f general inflation
of 3.00 percent), decreasing to an ultimate rate in 2000 of
7.75 percent; and 4) an increase in dental costs for 1997 and
thereafter o f 4.00 percent (in addition to general inflation).
Both the assumed discount rate and health care cost rate have
a significant effect on the amount o f the obligation and
periodic cost reported.

The FDIC is self-insured for hospital/medical, prescription
drug, mental health and chemical dependency coverage.
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 adminis­
tered 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.

If the health care cost rate was increased one percent,
the accumulated postretirement benefit obligation as of
December 31, 1996, would have increased by 20.4 percent.
The effect o f this change on the aggregate o f service and
interest cost for 1996 would be an increase of 26.2 percent.

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




60

BI F

N et Periodic Postretirement Benefit Cost
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

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

$

15,575

For the Year Ended
December 31,1995
$

22,574

Interest cost on accumulated postretirement benefit obligation

16,258

14,706

Net total of other components

(7,369|

(3,567)

Return on plan assets
Total

$

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

(18,402)
6,062

$

(14,907)
18,806

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

Accum ulated Postretirem ent Benefit Obligation and Funded Status
Dollars

in T h o u s a n d s
December 31,1996

Retirees

$

136,730

December 31,1995
$

79,370

12,724

22,401

Other active participants

152,993

Total Obligation
Less: Plan assets at fair value (a)
(Over) Funded Status

302,447
335,439
(32,992)

182,408
284,179
317,037
(32,858)

Unrecognized prior service cost

46,136

57,242

Unrecognized net gain
Postretirement Benefit Liability
Recognized in the Statements of Financial Position

26,846

11,954

Fully eligible active plan participants

$

39,990

$

36,338

(a) Invested in U.S. Treasury instruments

13. Commitments

The BIF’s allocated share o f FD IC ’s lease commitments
totals $138.8 million for future years. The lease agreements
contain escalation clauses resulting in adjustments, usually
on an annual basis. The allocation to the BIF o f FD IC's
future lease commitments is based upon current relationships
of the workloads among BIF, SAIF and FRF. Changes in

the relative workloads among the three funds in future years
could change the amount o f FD IC’s lease payments which
will be allocated to BIF. The BIF recognized leased space
expense o f $39.9 million and $42.7 million for the years
ended December 31, 1996 and 1995, respectively.

Leased Space Fees
Dollars

in T h o u s a n d s
1997

1998

1999

2000

2001

2002 and Thereafter

$38,355

$25,004

$19,390

$16,597

$15,748

$23,742




61

BIF

14. Concentration of Credit Risk

respectively, has been recorded against these receivables.
The receivables arose from bank resolutions. The B IF’s
maximum exposure to possible accounting loss for these
receivables is shown in the table below.

As o f December 31, 1996, the BIF had $23.7 billion and
$873 million in gross receivables from bank resolutions
and investment in corporate owned assets, respectively.
An allowance for loss of $19.4 billion and $810 million,

Concentration of Credit Risk at Decem ber 31,1996
Dollars

in M i l l i o n s
Southeast

Receivables from bank resolutions, net and
Investment in corporate owned assets, net

Southwest

Northeast

M idw est

Central

West

Total

$ 89

$ 297

$ 3,145

$ 230

$ 8

$ 631

$ 4,400

(a) The net receivable excludes $2.3 million and $1.9 million, respectively, of the SAIF's allocated share of maximum credit loss exposure from the resolutions of Olympic National
Bank, Los Angeles, CA, and the First National Bank of the Panhandle, Panhandle, TX. There is no risk that the SAIF w ill not meet these obligations.

Insured Deposits
As o f December 31, 1996, the total deposits insured by the BIF
is approximately $2 trillion. This would be the accounting

loss if all depository institutions fail and the assets acquired
as a result of the resolution process provided no recoveries.

15. 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
3 and is based on current market prices. The carrying amount
of interest receivable on investments, short-term receivables,
accounts payable and liabilities incurred from bank
resolutions approximates their fair market value. This is
due to their short maturities or comparisons with current
interest rates.

the corporate claim. Since the corporate claim is unique, not
intended for sale to the private sector, and has no established
market, it is not practicable to estimate its fair market value.
The FDIC believes that a sale to the private sector o f the
corporate claim would require indeterminate, but substantial
discounts for an interested party to profit from these assets
because o f credit and other risks. In addition, the timing of
receivership payments to the BIF on the subrogated claim
do not necessarily correspond with the timing of collections
on receivership assets. Therefore the effect o f discounting
used by receiverships should not necessarily be viewed as
producing an estimate o f market value for the net receivables
from bank resolutions.

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

The majority o f the net investment in corporate owned assets
(except real estate) is comprised o f various types o f financial
instruments (investments, loans, accounts receivable, etc.)
acquired from failed banks. Like receivership assets, corporate
owned assets are valued using discount rates which include
consideration of market risk. However, corporate owned assets
do not involve the unique aspects of the corporate subrogated
claim, and therefore the discounting can be viewed as
producing a reasonable estim ate o f fair market value.

Although the value of the corporate subrogated claim
is influenced by valuation of receivership assets, such
receivership valuation is not equivalent to the valuation of




62

BI F

16. Supplementary Information Relating to the Statements of Cash Flows

Reconcilation of N et Income to N et Cash Provided by Operating Activities
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Net Income

S

1,400,681

For the Year Ended
December 31,1995
$

3,605,916

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Income Statement Items:
(325,206)

(33,167)

Amortization of U.S. Treasury securities

(826)

(19,266)

Depreciation on buildings

3,339

3,339

21,981

(146,102)

(66,359)

3,659,128

Reduction in provision for insurance losses

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

66,298

(37,452)

Increase (Decrease) in accounts payable and other liabilities

15,560

(112,148)

0

(157,000)

(721)

(4,048)

(Decrease) in estimated liabilities for anticipated failure of insured institutions
(Decrease) in estimated liabilities for assistance agreements
(Decrease) in estimated liabilities for asset securitization guarantees

(2,054)

(67,300)

Net Cash Provided by Operating Activities

$

1,047,447

$

6,757,146

D W nW H M M W B M nB B M I

17. Subsequent Events

In the first quarter o f 1997, management negotiated with the
National Treasury Employees Union (NTEU) a change in
employee health benefits. This change involves a conversion
from the FDIC health plan to the Federal Employees Health
Benefits (FEHB) plan. This conversion will involve all
employees with five or more years until retirement eligibility.




Assum ing enabling legislation is also passed, the conversion
will also affect all retirees and employees within five years
o f retirement. M anagem ent does not expect the conversion,
which will become effective on January 1, 1998, to result
in an accounting loss to the BIF.

63




Savings Association Insurance Fund

Federal Deposit Insurance Corporation
Savings Association Insurance Fund Statements of Financial Position
Dollars

in T h o u s a n d s
December 31,1996

December 31,1995

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

$

Investment in U.S. Treasury obligations, net (Note 3)
(Market value of investments at December 31,1996
and December 31,1995 was $8.7 billion and $2.8 billion, respectively)

387,953

$

911,810

8,764,092

3,517

Interest receivable on investment and other assets
Receivables from thrift resolutions, net (Note 5)

8,821

124,534

Entrance and exit fees receivable, net (Note 4)

2,832,919

48,634

$

S

51
3,802,235

$

Total Assets

19,266
9,299,362

179,367

$

117,628

Liabilities and the Fund Balance
Accounts payable and other liabilities
Estimated liability for anticipated failure of
insured institutions (Note 6)

4,000
183,367

111,000
228,628

227,574

Total Liabilities

215,760

Commitments and contingencies (Notes 11 and 12)
SAIF-Member Exit Fees and Investment Proceeds
Held in Escrow (Note 4)

8,888,421

Fund Balance
S

Total Liabilities and the Fund Balance
The accompanying notes are an integral part of these financial statements.




65

9,299,362

3,357,847
S

3,802,235

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

in T h o u s a n d s
For the Year Ended
December 31,1996

For the Year Ended
December 31,1995

Revenue
Assessments (Note 7)

$

Interest on U.S. Treasury investments

5,221,560

$

970,027
169,101

253,868
26,256

788

5,501,684

1,139,916

Operating expenses

62,618

39,777

Reduction in provision for insurance losses

(91,636)

(321,000)

Other revenue (Note 8)
Total Revenue
Expenses and Losses

128

7

(28,890)

(281,216)

Net Income

5,530,574

1,421,132

Fund Balance - Beginning

3,357,847

1,936,715

Interest and other insurance expenses
Total Expenses and Losses

Fund Balance - Ending

S

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




66

8,888,421

$

3,357,847

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

in T h o u s a n d s
For the Year Ended
December 31,1996

For the Year Ended
December 31,1995

Cash Flows from Operating Activities
Cash provided from:
Assessments

$

5,293,722

$

1,060,829

192,053

Interest on exit fees

152,622

7,739

Interest on U.S. Treasury investments

8,449

6,000

Miscellaneous receipts

17,149

367

Recoveries from thrift resolutions

29,757

24,478

Entrance and exit fee collections (Note 4)

437

Cash used for:
Operating expenses

(78,726)

(18,487)

Reimbursements to the FSLIC Resolution Fund for thrift resolutions

(33,137)

(15,881)

(500)

(1,142)

(49)
5,411,947

1
1,233,734

1,885,000

1,385,000

(7,820,804)

(1,787,124)

(5,935,804)

(402,124)

(523,857)
911,810

831,610
80,200

Disbursements for thrift resolutions
Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 14)
Cash Flows from Investing Activities
Cash provided from:
Maturity and sale of U.S. Treasury obligations
Cash used for:
Purchase of U.S. Treasury obligations
Net Cash Used by Investing Activities
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending

S

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




67

387,953

S

911,810

Notes to the Financial Statements
Savings Association Insurance Fund
December

31,1996

and

1995

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

with Section 5(d)(2)(G) of the Federal Deposit Insurance Act
(FDI Act). “Oakar” banks are described in a following
section, “Operations o f the SAIF” .

Legislative History
The Financial Institutions Reform, Recovery, and
Enforcem ent 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 D eposit Insurance Corporation (FDIC) as
the administrator o f these three funds. All three funds
are maintained separately to carry out their respective
mandates.

Other significant legislation includes the Omnibus Budget
Reconciliation Act o f 1990 (1990 OBR Act) and the Federal
Deposit Insurance Corporation Im provement Act of 1991
(FDICIA). These acts made changes to the FD IC ’s assess­
ment authority (see Note 7) and borrowing authority
(see “Operations of the SAIF” below). The FDICIA also
requires the FDIC to: 1) resolve troubled institutions in
a manner that will result in the least possible cost to the
deposit insurance funds; and 2) maintain the insurance
funds at 1.25 percent o f insured deposits or a higher
percentage as circumstances warrant.

The SAIF and the BIF are insurance funds responsible for
protecting depositors in operating banks and thrift institu­
tions from loss due to failure o f the institution. The FRF is
a resolution fund responsible for winding up the affairs of
the form er Federal Savings and Loan Insurance Corporation
(FSLIC) and liquidating the assets and liabilities transferred
from the form er Resolution Trust Corporation (RTC).

Recent Legislation
The Deposit Insurance Funds Act o f 1996 (DIFA 1996)
was enacted to provide for: 1) the capitalization o f the
SAIF to its designated reserve ratio o f 1.25 percent by means
o f a one-time special assessment on SAIF-insured deposits;
2) the expansion o f the assessment base for payments of
the interest on obligations issued by the FICO to include all
FDIC-insured institutions, i.e., banks and thrifts; 3) begin­
ning January 1, 1997, the imposition of a FICO assessment
rate for SAIF-assessable deposits that is five times the rate
for BIF-assessable deposits; 4) the paym ent o f the approxi­
mately $790 million annual FICO interest obligation on a
pro rata basis between banks and thrifts on the earlier o f
December 31, 1999 or the date on which the last savings
association ceases to exist; 5) authorization o f assessments
only if needed to maintain the SAIF at the designated reserve
ratio; and 6) the merger of the BIF and the SAIF on
January 1, 1999, if no insured depository institution is
a savings association on that date.

Pursuant to the Resolution Trust Corporation Completion Act
o f 1993 (1993 RTC Act), resolution responsibility transferred
from the RTC to the SAIF on July 1, 1995. Prior to that
date, thrift resolutions were the responsibility o f the RTC
(January 1, 1989 through June 30, 1995) or the FSLIC
(prior to 1989).
Pursuant to FIRREA, an active institution’s insurance fund
membership and primary federal supervisor are generally
determined by the institution’s charter type. Deposits of
S A IF -m em ber institutions are m ostly insured by the SA IF;

SAIF members are predominantly thrifts supervised by
the Office o f Thrift Supervision (OTS). Deposits o f BIFmem ber institutions are mostly insured by the BIF;
BIF members are predominantly commercial and savings
banks supervised by the FDIC, the Office o f the Comptroller
o f the Currency, or the Federal Reserve.

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

The Financing Corporation (FICO), established under the
Competitive Equality Banking Act o f 1987, is a mixedownership governm ent corporation whose sole purpose was
to function as a financing vehicle for the FSLIC. Effective
D ecember 12, 1991, as provided by the Resolution Trust
Corporation Refinancing, Restructuring and Improvement
Act of 1991 (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 “Sasser” and
BIF-m ember “Oakar” banks) are subject to draws by FICO
for paym ent o f interest on their outstanding debt through
maturity of this debt in 2019. “Sasser” banks are SAIF
members that converted to a state bank charter in accordance




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

68

SAIF
The O akar bank provisions are found in Section 5(d)(3)
of the FDI Act. The provisions allow, with approval of
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 BIF-insured
deposits and assessed at the BIF assessment rate. In addition,
any losses resulting from the failure of these institutions are
to be allocated between the BIF and the SAIF based on the
respective dollar amounts of the institution’s BIF-insured
and SAIF-insured deposits.

and 6) borrowings from Federal Home Loan Banks, the
U.S. Treasury and the Federal Financing Bank (FFB).
The 1993 RTC Act places significant restrictions on funding
from sources 4) and 5) above. Among other restrictions, before
appropriated funds from either source are used, the FDIC
must certify to Congress that: 1) SAIF-insured institutions
are unable to pay premiums sufficient to cover insurance
losses or to repay amounts borrowed from the U.S. Treasury
without adversely affecting their ability to raise and maintain
capital or to maintain the assessm ent base and 2) an increase
in premiums could reasonably be expected to result in
greater losses to the government.

The SAIF is primarily funded from the following sources:
1) SAIF assessments from BIF-m ember O akar banks;
2) other SAIF assessments that are not required for the FICO,
including assessments from Sasser banks; 3) interest earned
on unrestricted investments in U.S. Treasury obligations;
4) U.S. Treasury payments not to exceed $8 billion for losses
for fiscal years 1994 through 1998 contingent upon appropri­
ations from the U.S. Treasury; 5) U.S. Treasury payments
from unused appropriations to the RTC for losses for two years
after the date o f the RTC termination, December 31, 1995;

The 1990 OBR Act established the FD IC’s authority to
borrow working capital from the FFB on behalf of the SAIF
and the BIF. FDICIA increased the FD IC’s authority to
borrow for insurance losses from the U.S. Treasury, on behalf
o f the SAIF and the BIF, from $5 billion to $30 billion.
The FDICIA also established a limitation on obligations
that can be incurred by the SAIF, known as the maximum
obligation limitation (MOL). A t December 31, 1996, the
MOL for the SAIF was $16.9 billion.

2. Summary of Significant Accounting Policies

U.S. Treasury Obligations
Securities are intended to be held to maturity and are shown
at book value. Book value is the face value of 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 of maturity. Interest is calculated on a
daily basis and recorded monthly using the effective interest
method.

General
These financial statements pertain to the financial position,
results o f operations and cash flows o f the SAIF and are
presented in accordance with generally accepted accounting
principles (GAAP). These statements do not include report­
ing for assets and liabilities of closed thrift institutions for
which the SAIF acts as receiver or liquidating agent. Periodic
and final accountability reports o f the SAIF’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
The SAIF records as a receivable the amounts advanced
and/or obligations incurred for resolving troubled and failed
thrifts. Any related allowance for loss represents the differ­
ence between the funds advanced and/or obligations incurred
and the expected repayment. The latter is based on the
estimates of discounted cash recoveries from assets of
assisted or failed thrifts, net of all estim ated liquidation
costs.

Use of Estimates
The preparation o f the SA IF’s financial statements in con­
formity with GAAP require FDIC management to make
estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from these estimates. W here it is reason­
ably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature
and extent of such changes in estimates have been disclosed.

Litigation Losses
The SAIF accrues, as a charge to current period operations,
an estimate o f probable losses from litigation. The FD IC’s
Legal Division recommends these estimates on a case-bycase basis. Any litigation loss estimates related to the SAIF

Cash and Cash Equivalents
The SAIF considers cash and cash equivalents to be short­
term, highly liquid investments with original maturities of
three months or less.




69

SAIF

in its corporate capacity would be included in “Estimated
liabilities for: Litigation losses.” Any litigation loss estimates
related to receiverships would be included in the allowance
for losses for “Receivables from thrift resolutions, net.”

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting
and administration o f postretirem ent benefits on behalf o f the
SAIF, the BIF and the FRF. The SAIF funds its liabilities for
these benefits directly to the entity.

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

Disclosure about Recent Financial Accounting
Standards Board Pronouncements
The Financial Accounting Standards Board (FASB) issued
Statement o f Financial Accounting Standards (SFAS) No.
125, “Accounting for Transfers and Servicing o f Financial
Assets and Extinguishment o f Liabilities” in June 1996,
effective for transactions occurring after D ecember 31, 1996.
The SAIF will generally be unaffected by its provisions since
most transactions subject to SFAS 125 occur at the receiver­
ship level and not at the fund level. To the extent that the
SAIF may be affected, the FD IC ’s current accounting prac­
tices are consistent with the rules contained in SFAS 125.
Other recent pronouncements issued by the FASB have
been adopted or are either not applicable or not material
to the financial statements.

Cost Allocations Among Funds
Certain operating expenses (including personnel, administra­
tive and other indirect expenses) not directly charged to each
fund under the FD IC ’s management are allocated on the
basis of the relative degree to which the operating expenses
were incurred by the funds.

Related Parties
The nature of related parties and descriptions of related party
transactions are disclosed throughout the financial statements
and footnotes.

The FDIC includes the cost o f buildings used in operations
in the B IF’s financial statements. The BIF charges SAIF a
rental fee representing an allocated share of its annual depre­
ciation. The cost o f furniture, fixtures and equipment pur­
chased by the FDIC on behalf of 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 tim e o f acquisition because o f their immaterial amounts.

Reclassifications
Reclassifications have been made in the 1995 financial
statements to conform to the presentation used in 1996.

3. Investm en t in U.S. T reasury O b ligations, N et
All cash received by the SAIF is invested in U.S. Treasury
obligations with maturities exceeding three months unless the
cash is used: 1) to defray operating expenses; 2) for outlays
related to liquidation activities; or 3) for investments in
U.S. Treasury one-day special certificates which are cash

equivalents. In both 1996 and 1995, $190 million were
restricted and invested in U.S. Treasury notes (see Note 4).
The related interest earned on these invested funds was also
held as restricted funds.

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

in T h o u s a n d s

M aturity
Less than one year
1-3 years
3-5 years
T o ta l




Y ield
at
Purchase

Book
Value

U nrealized
H olding
Gains

5.7%
5.9%
6.0%

$ 1,740,792
3,305,270
3,718,030

$

3,276
6,930
0

$

0
8,326
21,546

$

1,744,069
3,303,873
3,696,484

$

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

$ 8,764,092

S

10,206

S

29,872

S

8,744,426

S

8,700,000

70

U nrealized
Holding
Losses

M a rk e t
Value

Face
V alue

SAIF

U.S. Treasury O b ligations at D ec em b e r 3 1,1 9 9 5
Dollars

in T h o u s a n d s
Yield
at
Purchase

Book
V alue

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

5.8%
57%
5.4%

$1785,035
588,968
458,916

Total

U nrealized
Holding
Losses

$

6,708
5,744
1,584

$

535
0
0

$

1,791,208
594,712
460,500

$

1,785,000
590,000
450,000

$2,832,919

M aturity

U nrealized
Holding
Gains

$

14,036

$

535

S

2.846,420

S

2,825,000

M a rk e t
Value

Face
Value

In 1996, the unamortized premium, net o f unamortized discount, was $64.1 million. In 1995, the unamortized premium, net
of unamortized discount, was $7.9 million.

4. Entrance and E xit Fees R ec eiva b le, N et

The SAIF receives entrance and exit fees for conversion
transactions when an insured depository institution converts
from the BIF to the SAIF (resulting in an entrance fee)
or from the SAIF to the BIF (resulting in an exit fee).
Regulations approved by the FD IC ’s Board o f Directors
and published in the Federal Register on March 21, 1990,
directed that exit fees paid to the SAIF be 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 o f interest on obligations previously issued
by the FICO. These escrowed exit fees are invested in
U.S. Treasury securities pending determination o f ownership.
The interest earned is also held in escrow. Interest on these
investments was $11.1 million and $9.1 million for 1996 and
1995, respectively. Restricted assets included: $31 million

in cash and cash equivalents, $190 million o f investments
in U.S. Treasury obligations, net, and $7 million in exit fees
and interest receivable. For 1995, restricted assets included:
$12.5 million in cash and cash equivalents, $190 million of
investments in U.S. Treasury obligations, net, and $13 million
in exit fees and interest receivable.
W ithin specified parameters, the regulations allow an institu­
tion to pay its entrance/exit fees interest free, in equal annual
installments over a maximum period o f not more than five
years. W hen an institution elects such a payment plan, the
SAIF records the entrance or exit fee receivable at its present
value. The discount rate used to determine the present value
o f the funds for 1996 and 1995 was 5 percent and 3 percent,
respectively.

Entrance and E xit Fees R ec eiva b le, N et - 1996
Dollars

in T h o u s a n d s
Beginning
B alance
01/01/96

N ew
R eceivables

C ollections

Entrance fees
Exit fees

$

11
8,810

$

0
442

$

(8)
(5,992)

$

0
254

$

Total

$ 8,821

$

442

$ (6,000)

$

254

$ 3 ,5 17




71

N e t Change
Unam ortized
Discount

Ending
B alance
12/31/96
3
3,514

SAIF

Entrance and E xit Fees R ec eiva b le, N e t -1 9 9 5
Dol l ar s in Thous ands
Beginning
B alan ce
01/01/95

Entrance fees
Exit fees
Total

$

New
R eceivables

6
35,686

$

$ 35,692

$

11
1,117

1,128

C ollections
S

16)
(29,751)

$ (29,757)

Ending
B alan ce
12/31/95

N e t Change
Unam ortized
Discount

$

0
1,758

$

11
8,810

S 1,758

$ 8,821

5. R ec eiva b les from T h rift R esolutions, N et

The FDIC resolution process results in different types of
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
merger 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 receiver­
ships’ assets. For 1996, one thrift failed, and was resolved
in a transaction whereby an acquirer purchased certain assets
and assumed the insured deposits o f the failed thrift.

warrant. As described in Note 2, the allowance for losses is
established against the receivable from thrift resolutions.
As of December 31, 1996 and 1995, the SAIF, in its receiver­
ship capacity, held assets with a book value of $78.2 and
$37.2 million, respectively. These assets represent a signifi­
cant source of repayment of receivables from thrift resolutions.
The estimated cash recoveries from the management and
disposition o f these assets (excluding cash and miscellaneous
receivables o f $42.3 million at D ecember 31,1996 and
$30.9 million at D ecember 31,1995) used to derive the
allowance for losses are based in part on a statistical sampling
o f receivership assets. The potential sampling error is not
m aterial to the SA IF’s financial statements. These estimated
recoveries are regularly evaluated, but remain subject to
uncertainties because o f changing economic conditions.
These factors could affect the SAIF’s and other claim ants’
actual recoveries from the level currently estimated.

The FDIC, as receiver for failed thrifts, engages in a variety
of strategies at the time o f failure to maximize the return from
the m anagement and disposition of assets and to minimize
realized losses. A failed thrift acquirer can purchase selected
assets at the tim e o f resolution and assume full ownership,
benefit and risk related to such assets. The receiver may
also engage in other types of transactions as circumstances

6. Estim ated L ia b ilitie s for:

Anticipated Failure of Insured Institutions
The SAIF records an estimated liability and loss provision
for thrifts as well as Oakar and Sasser banks that are likely to
fail in the foreseeable future (absent some favorable event
such as obtaining additional capital or merging). The esti­
mated liability and corresponding reduction in the fund bal­
ance are recorded in the period when the liability is deemed
probable and reasonably estimable.

subject to the same uncertainties as those affecting the SAIF’s
receivables from thrift resolutions (see Note 5). This could
affect the ultimate costs to the SAIF from probable failures.

The estimated liabilities for anticipated failure o f insured
institutions as of December 31, 1996 and 1995, were $4 mil­
lion and $111 million, respectively. The estimated liability
is derived in part from estimates o f recoveries from the sale
of the assets o f these probable failures. Therefore, they are

The accuracy o f these estimates will largely depend on future
economic conditions. In addition, FDIC considers probable
losses in setting assessm ent rates and, as circumstances
warrant, may increase assessment rates to recover some or
all losses due to anticipated thrift failures.




There are other institutions where the risk o f failure is less
certain, but still considered reasonably possible. Should these
institutions fail the SAIF would incur additional losses of
about $20 million.

72

SAIF
Litigation Losses
As stated in Note 2, the SAIF records an estimated loss for
unresolved legal cases to the extent those losses are consid­
ered to be probable in occurrence and reasonably estimable
in amount. For 1996 and 1995, FDIC identified no legal

cases that met the criteria for recognition in the financial
statements. The FD IC ’s Legal Division has determined that
losses from unresolved legal cases totaling $7 million and
$11 million are reasonably possible at December 31, 1996
and 1995, respectively.

7. Assessments

1990 OBR Act removed caps on assessm ent rate increases
and authorized the FDIC to set assessment rates for 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 SAIF’s obligations; 3) required the FDIC to build
the reserves in the insurance funds to 1.25 percent o f insured
deposits; and 4) authorized the FDIC to increase assessment
rates more frequently than semiannually and impose emer­
gency special assessments as necessary to ensure that funds
are available to repay U.S. Treasury borrowings.

Beginning in 1997, the FICO assessm ent will have no finan­
cial effect on the SAIF since the FICO claim will be assessed
separately from the regular assessment, and the FICO assess­
m ent is imposed on thrifts and not on the SAIF. The FDIC as
administrator of the SAIF is acting solely as an agent for the
FICO to collect and rem it the FICO assessment to the FICO.
The FDIC uses a risk-based assessment system that charges
higher rates to those institutions that pose greater risks to the
SAIF. To arrive at a risk-based assessment for a particular
institution, the FDIC places each institution in one o f nine
risk categories using a two-step process based first on capital
ratios and then on other relevant information. The FDIC Board
of Directors (Board) reviews premium rates semiannually.

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

From 1993 through 1995, each thrift paid an assessment rate
of between 23 and 31 cents per $100 o f domestic deposits,
depending on risk classification.
In December, 1996, the Board lowered SAIF assessment
rates to a range o f 0 to 27 cents per $100 o f insured deposits
(annual rates). The new rates, which are identical to
those previously approved for BIF members, were effective
October 1, 1996 for Sasser and O akar institutions, and
effective on January 1,1997 for all other SAIF-insured
institutions. For calendar year 1996, the assessment rate
averaged approximately 20.4 cents per $ 100 o f domestic
deposits. As of December 31,1996, the SAIF’s reserve
ratio is 1.30 percent of insured deposits.

Prior to January 1,1997, the FICO had priority over the
SAIF for receiving and utilizing SAIF 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 of SAIF assessments not required by the
FICO. Assessments on the SAIF-insured deposits held by
BIF-member Oakar or SAIF-member Sasser institutions prior
to January 1,1997 were not subject to draws by FICO and,
thus, were retained in SAIF in their entirety. FICO assess­
ments collected during 1996 and 1995 were $808 million
and $718 million, respectively.

The SAIF refunded $219 million (includes $2.9 million
in interest) to Sasser/Oakar banks during the fourth quarter
o f 1996. Refunds were necessary because fourth quarter
assessment rates were set prior to SA IF’s capitalization.
Total assessment revenue for 1996 and 1995 was $5.2 billion
and $970 million, respectively. 1996 assessm ent revenue
includes the one-time special assessm ent o f $4.5 billion
required to capitalize SAIF.

The DIFA 1996 expanded the assessment base for payments
of the interest on obligations issued by the FICO to include
all FDIC-insured institutions, (including banks, thrifts,
Oakars and Sassers), and made the FICO assessment separate
from regular assessments, effective January 1,1997.




73

SAIF

8. O ther R evenue
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Interest on subrogated claims

$

24,476

For the Year Ended
December 31,1995
$

0

1,780

Other miscellaneous income
Total

S

788

26,256

S 788

are eligible to receive interest on their claims against the
receivers on a pro rata basis. Due to the uncertainty of
collection, post-insolvency interest is recognized when
received.

The interest on subrogated claims represents post-insolvency
interest. There is an Oakar bank receivership that has
residual funds remaining after paying all claimants. Once
claimants have been paid, the SAIF and other claimants

9. Pension Benefits, Savings Plans, Postemployment Benefits and Accrued Annual Leave

Although the SAIF contributes a portion of pension
benefits for eligible employees, it does not account for
the assets of either retirement system. The SAIF also
does not have actuarial data for accumulated plan benefits
or the unfunded liability relative to eligible employees.
These amounts are reported and accounted for by the
U.S. Office of Personnel Management.

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, which is offset with the
Social Security System in certain cases. Plan benefits are
determined on the basis of years of creditable service and
compensation levels. The CSRS-covered employees also
can contribute to the tax-deferred Federal Thrift Savings
Plan (TSP).

Due to a substantial decline in the FD IC ’s workload,
the Corporation developed a staffing reduction program,
a component of which is a voluntary separation incentive
plan, or buyout. To date, two corporate-wide buyout
plans have been offered to eligible employees. The first
buyout plan did not have a material financial effect on
the SAIF, and management believes the second buyout
plan will also not have a material financial effect on the
fund.

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

The liability to employees for accrued annual leave
is approximately $4,031 million and $757 thousand
at December 31, 1996 and 1995, respectively.

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




74

SAI F

Pension Benefits and Savings Plans Expenses
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1995

Civil Service Retirement System
Federal Employee Retirement System (Basic Benefit)

$

613
1,821

FDIC Savings Plan

For the Year Ended
December 31,1995
$

1,111

895

641

Federal Thrift Savings Plan
$

Total

549
1,394
486

4,186

$

3,324

10. P o stretirem en t B enefits Other than Pensions

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

direct-pay plans. Dental care is underwritten by Connecticut
General Life Insurance Company and provides coverage at
no cost to retirees.
The SAIF expensed $168 thousand and $226 thousand for
net periodic postretirem ent benefit costs for the years ended
December 31, 1996 and 1995, respectively. For measurement
purposes, the FDIC assumed the following: 1) a discount rate
o f 5.75 percent; 2) an average long-term rate o f return on
plan assets of 5.75 percent; 3) an increase in health costs in
1997 o f 9.75 percent, decreasing to an ultim ate rate in the
year 2000 o f 7.75 percent; and 4) an increase in dental costs
in 1996 and thereafter of 4 percent (in addition to general
inflation). Both the assumed discount rate and health care
cost rate have a significant effect on the amount o f the
obligation and periodic cost reported.

The FDIC is self-insured for hospital/medical, prescription
drug, mental health and chemical dependency coverage.
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 adminis­
tered 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.

If the health care cost rate was increased one percent, the
accumulated postretirement benefit obligation as of
December 31, 1996, would have increased by 20.4 percent.
The effect of this change on the aggregate of service and
interest cost for 1996 would be an increase of 26.2 percent.

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

N e t P erio d ic P o s tretirem ent B en e fit Cost
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1995
$

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

$

431

457

Net total of other components

281

(204)

Interest cost on accumulated postretirement benefit obligation

(68)

(517)

Return on plan assets
$

Total




432

For the Year Ended
December 31,1995

75

168

(418)
$

226

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

Accum ulated Postretirement Benefit Obligation and Funded Status
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Retirees

$

For the Year Ended
December 31,1995

3,686

$

2,230
629

Fully eligible active plan participants
Other active participants

343
4,125

5,124

Total Obligation

8,154

7,983

Less: Plan assets at fair value

9,421

8,904

(Over) Funded Status

(1,267)

Unrecognized prior service cost

1,280

(921)
1,305

Unrecognized net gain

745

Postretirement Benefit Liability Recognized
in the Statements of Financial Position

$

273

758

S

657

|a) Invested in U.S. Treasury instruments

11. Com m itm ents

The SAIF’s allocated share of FD IC ’s lease commitments
totals $10.1 million for future years. The lease agreements
contain escalation clauses resulting in adjustments, usually
on an annual basis. The allocation to the SAIF o f FD IC ’s
future lease commitments is based upon current relationships
of the workloads among SAIF, BIF and FRF. Changes in

the relative workloads among the three funds in future
years could change the amount o f the FD IC ’s lease payments
which will be allocated to SAIF. The SAIF recognized
leased space expense o f $2.2 million and $1.6 million for
the years ended D ecember 31, 1996 and 1995, respectively.

Leased Space Fees
Dollars

in T h o u s a n d s
1997

1998

1999

2000

2001

2002/Thereafter

$2,862

$1,982

$1,468

$1,225

$1,119

$1,492




76

SAI F
12. C oncentration of C red it Risk

Insured Deposits
As of December 31, 1996, the total deposits insured by the
SAIF is approximately $682 billion. This would be the

accounting loss if all the depository institutions fail and the
assets acquired as a result o f the resolution process provided
no recoveries.

13. D isclosures about the Fair V alu e of F in a n cia l Instrum ents

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 3
and is based on current market prices. The carrying amount
o f interest receivable on investments, short-term receivables,
and accounts payable and other liabilities approximates their
fair market value. This is due to their short maturities or com­
parison with current interest rates. As explained in Note 4,
entrance and exit fees receivable are net of discounts calculated
using an interest rate comparable to U.S. Treasury Bill or
G overnment bond/note rates at the time the receivables are
accrued.

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

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




77

SAIF

14. Supplementary Information Relating to the Statements of Cash Flows

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

in T h o u s a n d s
For the Year Ended
December 31,1996
$

Net Income

5,530,574

For the Year Ended
December 31,1995
$

1,421,132

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Income Statement Items:
Provision for insurance losses

(91,636)

(321,000)

4,788

Amortization of U.S. Treasury securities (unrestricted)

(8,114)

Change in Assets and Liabilities:
(Increase) in amortization of U.S. Treasury securities (restricted)

(157)

(450)

Decrease in entrance and exit fees receivable

5,305

26,871

(Increase) in interest receivable on investments and other assets

(75,900)

(Increase) Decrease in receivables from thrift resolutions

(33,260)

(9,771)
6,841

Increase in accounts payable and other liabilities

60,419

105,198°

Increase in exit fees and investment proceeds held in escrow

11,814

Net Cash Provided by Operating Activities

S

5,411,947

13,027
S

1,233,734

(a) SAIF Transferred $169 million to the FRF

15. Subsequent Events

In the first quarter o f 1997, m anagement negotiated with the
National Treasury Employees Union (NTEU) a change in
employee health benefits. This change involves a conversion
from the FDIC health plan to the Federal Employees Health
Benefits (FEHB) plan. This conversion will involve all
employees with five or more years until retirement eligibility.




Assuming enabling legislation is also passed, the conversion
will also affect all retirees and employees within five years
of retirement. M anagem ent does not expect the conversion,
which will become effective on January 1, 1998, to result in
an accounting loss to the SAIF.

78

FSUC Resolution Fund

Federal Deposit Insurance Corporation
FSUC Resolution Fund Statements of Financial Position
Dollars

in T h o u s a n d s
December 31,1996

January 1,1996

Assets
Cash and cash equivalents

$

$

1,511,254

Receivables from thrift resolutions, net (Note 3)

1,103,921
4,454,776

Securitization Reserve Fund (Note 14)

5,804,062

0

182,827

1,005,147

Investment in corporate owned assets, net (Note 4)
Other assets, net (Note 5)

12,876,647

6,747

Total Assets

S

10,366

11,552,333

S

154,347

$

15,403,414

Liabilities
Accounts payable and other liabilities

$

204,991

4,617,147

Liabilities incurred from thrift resolutions (Note 6)

10,498,042

143,725

Notes payable - Federal Financing Bank borrowings (Note 7)

248,539

Estimated Liabilities for: (Note 8)
Assistance agreements

16,120

81,340

Litigation losses

39,294

163,636

4,970,633

11,196,548

Contributed capital

135,501,023

135,501,248

Accumulated deficit

(128,919,323)

(131,294,382)

Total Liabilities
Commitments and contingencies (Notes 14 and 15)
Resolution Equity (Note 10)

Total Resolution Equity
Total Liabilities and Resolution Equity

S

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




79

6,581.700
11,552,333

$

4,206,866
15,403,414

Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statem ent of Income and Accum ulated D eficit
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Revenue
$

Interest on Securitization Reserve Fund

82,103
26,452
228,274

Interest on U.S. Treasury investments
Revenue from corporate owned assets

54,600

Limited partnership revenue (Note 11)
Interest on advances and other revenue

127,117

Total Revenue

518,546

Expenses and Losses
26,074

Operating expenses

386,064

Interest expense on FFB debt and other notes payable

128,826

Corporate owned asset expenses

(2,400,366)

Reduction in provision for losses (Note 9)

2,889

Other expenses
Total Expenses and Losses

(1,856,513)
2,375,059

Net Income

(131,294,382)

Accumulated Deficit - Beginning

$ (128,919,323)

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




80

Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statem ent of Cash Flows
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Cash Flows from Operating Activities
Cash provided from:
$

Interest on U.S. Treasury investments

26,541
6,152,927

Recoveries from thrift resolutions

95,067

Recoveries from securitization reserve

608,620

Recoveries from corporate owned assets
Miscellaneous receipts
Cash used for:

12,174

Operating expenses

(42,882)

Interest paid on notes payable

(352,767)

Disbursements for thrift resolutions

(772,301)

Disbursements for corporate owned assets

(169,463)
(19,714)

Miscellaneous disbursements
Net Cash Provided by Operating Activities (Note 17)

5,538,202

Cash Flows from Financing Activities
Cash used for:
(5,913,975)

Repayments of Federal Financing Bank borrowings

(31,560)

Payments of indebtedness incurred from thrift resolutions
Net Cash Used for Financing Activities

(5,945,535)
(407,333)

Net Decrease in Cash and Cash Equivalents

1,511,254

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

$

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




81

1,103,921

Notes to the Financial Statements
FSLIC Resolution Fund
December

31,1996

and

1995

1. Legislative History and Operations of the FSLIC Resolution Fund

Legislative History
The U.S. Congress created the Federal Savings and Loan
Insurance Corporation (FSLIC) through the enactment of
the National Housing A ct of 1934.

transferred to the REFCORP pay the interest on the REFCORP
bonds issued to fund the early RTC resolutions. Any such
payments benefit the Treasury, which would otherwise be
obligated to pay the interest on the bonds.

The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA) abolished the insolvent FSLIC, created
the FSLIC Resolution Fund (FRF), and transferred the assets
and liabilities o f the FSLIC to the FRF (except those assets
and liabilities transferred to the RFC), effective August 9, 1989.
The FRF is responsible for winding up the affairs o f the
former FSLIC.

Operations o f the FRF
The FRF will continue until all o f its assets are sold or other­
wise liquidated and all of its liabilities are satisfied. Upon the
dissolution o f the FRF, any funds remaining (after payments
to REFCORP, if any) will be paid to the U.S. Treasury.
The FRF has been primarily funded from the following
sources: 1) U.S. Treasury appropriations; 2) amounts borrowed
by the RTC from the Federal Financing Bank (FFB); 3) funds
received from the management and disposition o f assets of
the FRF; 4) the FR F’s portion of liquidating dividends paid
by FRF receiverships; and 5) interest earned on one-day
U.S. Treasury investments purchased with proceeds o f 3) and
4). 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 Congress, to carry
out the objectives of the FRF.

FIRREA was enacted to reform, recapitalize and consolidate
the federal deposit insurance system. In addition to the FRF,
FIRREA created the Resolution Trust Corporation (RTC),
the Bank Insurance Fund (BIF), and the Savings Association
Insurance Fund (SAIF). FIRREA also designated the Federal
Deposit Insurance Corporation (FDIC) as the administrator
of the FRF, BIF, and SAIF. All three funds are maintained
separately to carry out their respective mandates.
The RTC was created to manage and resolve all thrifts
previously insured by the FSLIC for which a conservator
or receiver was appointed during the period January 1,1989,
through August 8, 1992. In order to provide funds to the
RTC for use in thrift resolutions, FIRREA established the
Resolution Funding Corporation (REFCORP).

To facilitate efforts to wind up the resolution activity o f the
FRF, Public Law 103-327 provides $827 million in funding
to be available until expended. The FRF received $165 million
under this appropriation on November 2, 1995. In addition,
Public Law 104-208 authorized the use by the Departm ent
o f Justice o f $26.1 million o f the original $827 million in
funding, thus reducing the amount available to be expended
to $635.9 million.

RTC’s resolution responsibility was extended through
subsequent legislation from the original termination date of
August 8, 1992. Resolution responsibility transferred from
the RTC to the SAIF on July 1, 1995.

FIRREA established an Inspector General for the RTC and
authorized appropriations necessary for the operation o f the
Office of the Inspector General (OIG). These appropriated
funds are used to offset the operating expenses incurred by
the OIG, which totalled $1.6 million during 1996. The appro­
priation authority expired as of September 30, 1996. The
OIG received $152.3 million o f appropriated funds from
the U.S. Treasury since it was established.

The RTC Completion Act o f 1993 (1993 RTC Act) terminated
the RTC as o f D ecember 31, 1995. All rem aining assets
and liabilities of the RTC were transferred to the FRF on
January 1, 1996. The FDIC must transfer to the REFCORP
the net proceeds from the FR F’s sale o f RTC assets, once
all liabilities o f the RTC have been paid. Any such funds

2. Summary of Significant Accounting Policies

General
These financial statements pertain to the financial position,
results o f operations and cash flows o f the FRF and are
presented in accordance with generally accepted accounting
principles (GAAP). 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 o f the FRF’s activities
as receiver or liquidating agent are furnished to courts,
supervisory authorities and others as required.

82

FRF
The statutorily-mandated merger of the RTC into the FRF as
of January 1, 1996 resulted in a significant, one-time transfer
o f assets and liabilities. For this reason, providing compara­
tive information would be impractical on a fully consistent
basis of accounting. Accordingly, we have presented FRF
financial statements for 1996 only.

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 of those receiverships.
Liquidation expenses incurred by the FRF on behalf of
the receiverships are recovered from those receiverships.

Use o f Estimates
The preparation o f the FR F’s financial statements in confor­
mity with GAAP requires FDIC management to make
estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from these estimates. W here it is reason­
ably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature
and extent of such changes in estimates have been disclosed.

Cost Allocations Among Funds
Certain operating expenses (including personnel, administra­
tive and other indirect expenses) not directly charged to each
fund under the FD IC’s management are allocated on the
basis of the relative degree to which the operating expenses
were incurred by the funds.
The FDIC includes the cost o f buildings used in operations
in the B IF’s financial statements. The BIF charges the FRF
a rental fee representing an allocated share of its annual
depreciation. The cost o f furniture, fixtures and equipment
purchased by the FDIC on behalf of the three funds under
its administration is allocated among these funds on a
pro rata basis. The FRF expenses its share o f these allocated
costs at the time of acquisition because of their immaterial
amounts.

Cash and Cash Equivalents
The FRF considers cash equivalents to be short-term, highly
liquid investments with original maturities of three months
or less.
Allowance for Losses on Receivables from Thrift
Resolutions and Investment in Corporate Owned Assets
The FRF records as a receivable the amounts advanced and/or
obligations incurred for resolving troubled and failed thrifts.
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 estimates o f discounted cash recoveries
from the assets o f assisted or failed thrift institutions, net
of all estimated liquidation costs. Estimated cash recoveries
also include dividends and gains on sales from equity instru­
ments acquired in resolution transactions.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting
and administration of postretirem ent benefits on behalf of
the FRF, the BIF, and the SAIF. The FRF funds its liabilities
for these benefits directly to the entity.
Disclosure about Recent Financial Accounting
Standards Board Pronouncements
The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125,
“Accounting for Transfers and Servicing of Financial Assets
and Extinguishment o f Liabilities” in June 1996, effective
for transactions occurring after D ecember 31, 1996. The
FRF will generally be unaffected by its provisions since
most transactions subject to SFAS 125 occur at the receiver­
ship level and not at the fund level. To the extent that the
FRF may be affected, the FDIC’s current accounting practices
are consistent with the rules contained in SFAS 125. Other
recent pronouncements issued by the FASB have been
adopted or are either not applicable or not material to the
financial statements.

Estimated Liabilities for Assistance Agreements
The FRF establishes an estimated liability for probable future
assistance payable to acquirers o f troubled thrifts under its
financial assistance agreements.
Litigation Losses
The FRF accrues, as a charge to current period operations,
an estim ate o f probable losses from litigation. The FD IC ’s
Legal Division recommends these estimates on a case-by-case
basis. The litigation loss estimates related to the FRF in its
corporate capacity are included in the “Estimated liability
for: Litigation losses.” The litigation loss estimates related
to receiverships are included in the allowance for losses for
“Receivables from thrift resolutions, net.”

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 the FADA’s litigation is settled
or dismissed. The investment in the FADA is accounted for
using the equity method and is included in “Other assets,
net” (Note 6).

Receivership Operations
The FDIC is responsible for controlling and disposing of the
assets of failed institutions in an orderly and efficient manner.
The assets, and the claims against them, are accounted for




83

FRF
Lim ited Partnership Equity Interests. Form er RTC receiver­
ships were holders o f limited partnership equity interests as
a result o f various RTC sales programs which included the
National Land Fund. M ultiple Investor Fund, N-Series and
S-Series programs.

Related Parties
National Judgements, Deficiencies, and Charge-offs Joint
Venture Program. The former RTC purchased assets from
receiverships, conservatorships, and their subsidiaries to
facilitate the sale and/or transfer o f selected assets to several
Joint Ventures in which the former RTC retained a financial
interest.

The nature of other related parties and descriptions o f other
related party transactions are disclosed throughout the
financial statements and footnotes.

3. Receivables from Thrift Resolutions, Net

As o f December 31 and January 1, 1996, the FRF, in its
receivership capacity, held assets with a book value of
$7.3 and $20.5 billion, respectively. These assets represent
a significant source of repayment o f receivables from thrift
resolutions. The estim ated cash recoveries from the m anage­
ment and disposition o f these assets (excluding cash and mis­
cellaneous receivables o f $2.9 billion at D ecember 31,1996
and $12.6 billion at January 1,1996) used to derive the

allowance for losses are based in part on a statistical sampling
of receivership assets. The potential sampling error is not
material to the FR F’s financial statements. These estimated
recoveries are regularly evaluated, but remain subject to
uncertainties because o f changing economic conditions.
These factors could affect the FRF’s and other claim ants’
actual recoveries from the level currently estimated.

Receivables from Thrift Resolutions, Net
Dollars

in T h o u s a n d s

December 31,1996

January 1,1996

Assets from Open Thrift Assistance:
Collateralized advances/loans

$

Notes receivable
Subordinated debt instruments
Capital instruments

45,154

$

46,054
130,420

64,790
17,920
65,001
1,016,186
2,851

Preferred stock
Interest receivable
Allowance for losses (Note 9)

14,301
65,001
417, 733
3,369

(444,873)

(446,514)

767,029

230,364

73,205,133

86,158,346

6,685,111

7,359,370

Receivables from Closed Thrifts:
Depositor claims paid
Collateralized advances/loans
Other receivables

324,041

Allowance for losses (Note 9)

371,901

94,801

Accrued interest, net

253,385

(76,621,339)




84

12,646,283

4,454,776

Total

(81,496,719)

3,687,747

12,876,647

FRF

4. Investm ent in C orporate O w ned A ssets, N et

The FRF’s investment in corporate owned assets is comprised
of amounts that: 1) the former FSLIC and the form er RTC
paid to purchase assets from troubled or failed thrifts and
2) the FRF pays to acquire receivership assets, terminate
receiverships and purchase assets covered under assistance
agreements. The majority o f these assets are real estate and
mortgage loans.

The methodology used to derive the allowance for losses for
corporate owned assets is the same as that for receivables
from thrift resolutions.
The FRF recognizes income and expenses on these assets.
Income consists primarily of the portion of collections on
performing mortgages related to interest earned. Expenses
are recognized for administering the management and
liquidation o f these assets.

Investm en t in C orporate O w ned A ssets, N et
Dollars

in T h o u s a n d s
December 31,1996

Investment in corporate owned assets

$

3,570,852

S

Allowance for losses (Note 9)
Total

(3,388,025)
182,827

January 1,1996
$

4,240,285

S

(3,235,138)
1,005,147

5. Other A ssets, N et
Dollars

in T h o u s a n d s
December 31,1996

Investment in FADA (Note 2)

$

January 1,1996

Allowance for loss (Note 9)

15,000
(11,074)

Investment in FADA, Net

3,926

3,926

527

5,994

Accounts receivable
Due from other government entities
Total

$

2,294
6,747

$

15,000
(11,074)

446
S

10,366

6. L ia b ilitie s Incu rred from T h rift R esolutions

The FSLIC issued promissory notes and entered into
assistance agreements 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. Notes payable and obligations for
assistance agreement payments incurred but not yet paid
are in “Liabilities incurred from thrift resolutions.” Estimated
future assistance payments are included in “Estimated
liabilities for: Assistance agreem ents” (see Note 8).

85

FRF

Liabilities Incurred from Thrift Resolutions
Dollars

in T h o u s a n d s

December 31,1996
Capital instruments
Assistance agreement notes payable

$

725
126,240

January 1,1996
$

725
157,800

1,856

Total

$

2,600

14,904

Interest payable
Other liabilities to thrift institutions

87,414

143,725

$

248,539

M aturities of Liabilities
Dollars

in T h o u s a n d s

1998

1997
$

49,045

$

94,680

7. Notes Payable - Federal Financing Bank Borrowings

payable carries a floating rate of interest which is adjusted
quarterly. FFB establishes the interest rate which ranged
between 5.5% and 5.18% during 1996. As o f D ecember 31
and January 1,1996, there were $4.6 billion and $10.5 billion,
respectively, in borrowings and accrued interest outstanding
from the FFB. As o f December 31, 1995, the RTC’s authority
to receive additional borrowings from the FFB ceased.

Working capital was made available to the RTC under an
agreem ent with the Federal Financing Bank (FFB) to fund
the resolution of thrifts and for use in the RTC’s high-cost
funds replacement and emergency liquidity programs. The
outstanding note matures on January 1,2010; however, all
or any portion o f the outstanding principal amount may be
repaid anytime as excess funds become available. The note

8. Estimated Liabilities for:

occurrence and reasonably estimable in amount. In addition,
the FD IC’s Legal Division has determined that losses from
unresolved legal cases totaling $265 million are reasonably
possible. This includes $12 million in losses for the FRF
in its corporate capacity and $253 million in losses for the
FRF related to receiverships (see Note 2).

Assistance Agreements
The “Estimated liabilities for: Assistance agreements” repre­
sents, on a discounted basis, an estimate o f future assistance
payments to acquirers of troubled thrift institutions. The dollar
amount before discounting was $18 million and $91 million,
as of December 31 and January 1,1996, respectively. The
discount rates applied as of December 31 and January 1, 1996
were 5.6 percent and 5.5 percent, respectively, based on
U.S. money rates for federal funds.

There exists an additional category o f contingencies with
respect to FRF that arises from supervisory goodwill and
other capital forbearances granted to the acquirers of troubled
thrifts by the Federal Home Loan Bank Board in the 1980’s.
Subsequently, FIRREA imposed minimum capital requirements
on thrifts and limited the use of supervisory goodwill
and other forbearances to m eet these capital requirements.
There are currently approximately 120 cases pending
which result from the elimination of supervisory goodwill
and forbearances.

The number o f assistance agreements outstanding as of
December 31 and January 1, 1996 were 36 and 47, respectively.
The last agreement is scheduled to expire in July 2000.
Litigation Losses
The FRF records an estimated loss for unresolved legal cases
to the extent those losses are considered to be probable in




86

FRF
To date, one of these cases litigated in the district court
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. There is a second district court case to which FDIC
is a party defendant where a judgm ent of $26.9 million
(plus post judgm ent interest) has been entered and for which
a reserve has been established (the judgm ent is on appeal to

the court of appeals). The rem ainder o f these cases are pend­
ing in the Court o f Federal Claims with the United States as
the named defendant. FDIC believes that judgm ents in such
cases are properly paid from the Judgm ent Fund, a perm a­
nent, indefinite appropriation established by 31 U.S.C. 1304.
However, whether and the extent to which FRF will be the
source for paying other judgm ents in such cases is uncertain.

9. A nalysis of C hanges in A llo w a n c e for Losses and E stim ated L ia b ilitie s

In the following charts, transfers primarily include reclassifi­
cations from “Estimated liabilities for: Assistance agreements”
to “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.

A nalysis of Changes in A llo w a n c e for Losses and Estim ated L iab ilitie s
Dollars

in M i l l i o n s
Beginning
Balance
01/01/%

Provision
for
Losses

Net Cash
Payments

Ending
Balance
12/31/96

Adjustments/
Transfers/
Terminations

Allowance for Losses:
Open thrift assistance

$

Closed thrifts

446

$

(745)

81,496
3,222
11

$

0

$

743

$

444

76,621

256

0

(89)

3,389

0

0

0

11

(92)

0

580

502

(2,214)

0

(2,008)

80,967

81
164

Total Allowance for Losses

(3,242)

85,189

Investment in FADA
Securitization Credit Reserve

0

14

Corporate owned assets

(1,633)

(53)

(5)

(7)

16

(124)

0

0

40

Estimated Liabilities for:
Assistance agreements
Litigation losses
Total Estimated Liabilities

$

245

Purchase Discount Valuation

(177)

(9)

Provision for Losses




$

$ (2,400)

87

$

(5)

S

(7)

$

56

FRF

10. R esolution Equity
Dollars

in T h o u s a n d s

Contributed capital

Beginning
Balance
01/01/96

Accumulated deficit
Total

Net Income

$ 135,501,248

$

0

$

2,375,059
2,375,059

(131,294,382)
$

4,206,866

Ending
Balance
12/31/96

Obligated
OIG Funds
$

$ 135,501,023

0

$

(225)

(128,919,323)

(225)

S

6,581,700

■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■

11. Limited Partnership Revenue

However, funds in excess o f the original investment continue
to be collected by the FRF. As o f December 31, 1996,
Limited Partnership Revenue is $54.6 million.

During 1993, in order to achieve a least cost resolution,
the FRF secured a limited partnership interest in two partner­
ships, Mountain AMD and Brazos Partners. The FRF has
collected its entire original investment in the partnerships.

■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■Hi

12. Pension Benefits, Savings Plans and Accrued Annual Leave

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

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

Although the FRF contributes a portion of pension benefits
for eligible employees, it does not account for the assets of
either retirement system. The FRF also does not have actuarial
data for accumulated plan benefits o r the unfunded liability
relative to eligible employees. These amounts are reported
and accounted for by the U.S. Office o f Personnel M anage­
ment. The liability to employees for accrued annual
leave is approximately $13.7 million and $26.1 million
at D ecember 31 and January 1,1996, respectively.

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




88

FRF

Pension Benefits and Savings Plans Expenses
D o l l a r s in T h o u s a n d s

For the Year Ended
December 31,1996

Civil Service Retirement System

$

Federal Employee Retirement System (Basic Benefit)

2,534
13,391

FDIC Savings Plan

7,463

Federal Thrift Savings Plan

4,369

Total

$

27,757

13. Postretirement Benefits Other Than Pensions

direct-pay plans. Dental care is underwritten by Connecticut
General Life Insurance Company and provides coverage at
no cost to retirees.

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 FRF expensed $3.1 million for net periodic postretire­
m ent benefit costs for the year ended December 31, 1996.
For measurem ent purposes, the FDIC assumed the following:
1) a discount rate o f 5.75 percent; 2) an average long-term
rate of return on plan assets o f 5.75 percent; 3) an increase
in health costs in 1996 of 10.75 percent (inclusive o f general
inflation o f 3.00 percent), decreasing to an ultimate rate in
the year 2000 of 7.75 percent; and 4) an increase in dental
costs in 1996 and thereafter o f 4.00 percent (in addition to
general inflation). Both the assumed discount rate and health
care cost rate have a significant effect on the amount o f the
obligation and periodic cost reported.

The FDIC is self-insured for hospital/medical, prescription
drug, mental health and chemical dependency coverage.
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 adminis­
tered 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.

If the health care cost rate was increased one percent,
the accumulated postretirem ent benefit obligation as of
December 31, 1996, would have increased by 20.4 percent.
The effect o f this change on the aggregate o f service and
interest cost for 1996 would be an increase o f 26.2 percent.

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




89

FRF

N et Periodic Postretirem ent Benefit Cost
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

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

$

Interest cost on accumulated postretirement benefit obligation

6,621
3,102

Net total of other components

(3,132)

Return on plan assets

(3,511)

Total

S

As stated in Note 2, the FDIC established an entity to pro­
vide accounting and administration on behalf of the FRF, the

3,080

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

Accum ulated Postretirement Benefit Obligation and Funded Status
Dollars

in T h o u s a n d s
December 31,1996

Retirees

$

Fully eligible active plan participants

23,602

January 1,1996
$

15,143

2,196

4,274
34,801

Other active participants

26,409

Total Obligation

52,207

54,218

Less: Plan assets at fair value (a)

64,002

60,491

(Over) Funded Status

(11,795)

(6,273)

19,61.3

19,396

11,412

4,051

Unrecognized prior service cost
Unrecognized net gain
Postretirement Benefit Liability Recognized in the
Statements of Financial Position

$

19,230

$

17,174

(a) Invested in U.S. Treasury instruments

14. Commitments

Securitization Reserve Fund
In order to maximize the return from the sale or disposition
o f assets and to minimize the realized loss, RTC engaged in
numerous securitization transactions. Through 1996, the RTC
sold through its mortgage-backed securities program $42.4
billion of receivership, conservatorship and Corporate loans to
various trusts which issued regular pass-through certificates.

pass-through certificates, and thus the marketability o f such
certificates, a portion of the proceeds from the sale o f the
certificates was placed in credit enhancement reserve funds
(reserve funds) to cover future credit losses with respect to
the loans underlying the certificates. The reserve funds’
structure limits the receivership exposure from credit losses
on loans sold through the FRF securitization program to
the balance of the reserve funds. The initial balances o f the
reserve funds are reduced for claims paid and recovered
reserves.

To increase the likelihood of full and timely distributions
o f interest and principal to the holders o f the regular




90

FRF

In October 1996, the reserve funds and related allowance to
cover future estim ated losses on the reserve were transferred
from the receiverships to FRF in its corporate capacity. The
$5.4 billion transferred to FRF was exactly offset by amounts
owed by the receiverships to FRF; thus, there was no change
in FR F’s net assets as a result o f this transaction.

and warranties could significantly increase or decrease over
the remaining life o f the loans that were sold, which could
be as long as 20 years.
Letters of Credit
The RTC had adopted special policies for outstanding con­
servatorship and receivership collateralized letters o f credit.
These policies enabled the RTC to minimize the impact of
its actions on capital markets. In most cases, these letters
of credit were used to guarantee tax exempt bonds issued
by state and local housing authorities or other public agencies
to finance housing projects for low and moderate income
individuals or families. As o f December 31, 1996, there were
pledged securities as collateral o f $130 million to honor these
letters of credit. The corporation established an estimated
liability against this pledged collateral o f $25 million.

Through December 1996, the amount of claims paid was
approximately 14% o f the initial reserve funds. At
December 31 and January 1, 1996, reserve funds related
to the RTC securitization program totalled $6.3 billion
and $6.8 billion, respectively. At December 31 and
January 1, 1996, the allowance for estimated future losses
which would be paid from the securitization fund totalled
$.5 billion and $1.1 billion, respectively.
Representations and Warranties
The RTC provided guarantees, representations and warranties
on approximately $114 billion in unpaid principal balance
of loans sold and approximately $157 billion in unpaid
principal balance of loans under servicing right contracts
which had been sold.

Leases
The FR F’s allocated share o f FD IC’s lease commitments
totals $61.9 million for future years. The lease agreements
contain escalation clauses resulting in adjustments, usually
on an annual basis. The allocation to the FRF of FD IC’s
future lease commitments is based upon current relationships
o f the workloads among FRF, BIF and SAIF. Changes in the
relative workloads among the three funds in future years could
change the amount o f FD IC ’s lease payments which will be
allocated to FRF. The FRF recognized leased space expense
o f $32.8 million for the year ended December 31, 1996.

In 1996, the FRF estimated Corporate losses related to the
representations and warranties claims as part o f the FR F's
allowances for losses. The allowance for these losses was
$494 and $810 million as of December 31, 1996 and
January 1,1996, respectively. Future losses on representations

Leased S pace Fees
Dollars

in T h o u s a n d s
1997

1998

1999

2000

2001

2002/Thereafter

$16,139

$8,797

$7,623

$7,623

$7,890

$13,848




91

FRF

15. Concentration of Credit Risk

As of December 31, 1996, the FRF had $81.3 and $3.6 billion
in gross receivables from thrift resolutions and investment in
corporate owned assets, respectively. An allowance for loss
of $76.9 and $3.4 billion, respectively, has been recorded
against these receivables. O f the total receivables, $29 billion
was attributable to institutions in Texas, $11.4 billion was
attributable to institutions located in California, $5.7 billion
was attributable to institutions located in Florida and

$5.1 billion was attributable to institutions located in Arizona.
The liquidating entities’ ability to make repayments to FRF
is largely influenced by the economy o f the area in which
they are located.
Additionally, the FRF had $13 million in assistance agreement
covered assets, net of estimated capital loss.

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 of
short-term receivables, accounts payable, liabilities incurred
from thrift resolutions and the estim ated liabilities for assis­
tance agreements approximates their fair market value. This
is due to their short maturities or comparisons with current
interest rates.

The FDIC believes that a sale to the private sector o f the
corporate claim would require indeterminate, but substantial
discounts for an interested party to profit from these assets
because of credit and other risks. In addition, the timing of
receivership payments to the FRF on the subrogated claim do
not necessarily correspond with the timing o f collections on
receivership assets. Therefore the effect of discounting used
by receiverships should not necessarily be viewed as produc­
ing an estimate o f market value for the net receivables from
thrift resolutions.

The net receivable from thrift resolutions primarily involves
the FR F’s subrogated claim arising from payments to insured
depositors. The receivership assets which will ultimately be
used to pay the corporate subrogated claim are valued using
discount rates which include consideration of market risk.
These discounts ultimately affect the FRF’s allowance for
loss against the net receivable from thrift resolutions. There­
fore the corporate subrogated claim indirectly includes the
effect of discounting and should not be viewed as being
stated in terms of nominal cash flows.

Like the corporate subrogated claim, the securitization credit
reserves involve an asset which is unique, not intended for
sale to the private sector, and has no established market.
There, it is not practicable to estimate the fair market value
o f the securitization credit reserves. These reserves are carried
at their net realizable value which is the book value o f the
reserves less the related allowance for loss (see Note 14).

Although the value of the corporate subrogated claim is
influenced by valuation o f receivership assets, such receiver­
ship valuation is not equivalent to the valuation of the
corporate claim. Since the corporate claim is unique, not
intended for sale to the private sector, and has no established
market, it is not practicable to estimate its fair market
value.




The majority o f the net investment in corporate owned assets
(except real estate) is comprised o f various types of financial
instruments (investments, loans, accounts receivable, etc.)
acquired from failed thrifts. Like receivership assets, corporate
owned assets are valued using discount rates which include
consideration o f market risk. However, corporate owned
assets do not involve the unique aspects of the corporate
subrogated claim, and therefore the discounting can be viewed
as producing a reasonable estim ate of fair market value.

92

FRF

17. Supplementary Information Relating to the Statements of Cash Flows

R econciliation of N et Income to N et Cash (Used by) Provided by Operating A ctivities
Dollars

in T h o u s a n d s
For the Year Ended
December 31,1996

Net Income

$

2,375,059

Adjustments to Reconcile Net Income to Net Cash (Used by) Provided by Operating Activities
Income Statement Item:
33,080

Increase in accrued interest on notes payable
Provision for losses

(2,400,365)
(225)

OIG income recognized
Change in Assets and Liabilities:

10,055,201

Decrease in receivables from thrift resolutions
(Increase) in securitization reserve fund

(5,712,446)
575,502

Decrease in investment in corporate owned assets

(5,403)

(Increase) in other assets
(Decrease) in accounts payable and other liabilities

(41,676)

(Decrease) in liabilities incurred from thrift resolutions

(73,253)

Increase in estimated liabilities for assistance agreements
Net Cash (Used by) Provided by Operating Activities

S

732,728
5,538,202

18. Subsequent Events

In the first quarter o f 1997, management negotiated with the
National Treasury Employees Union (NTEU) a change in
employee health benefits. This change involves a conversion
from the FDIC health plan to the Federal Employees Health
Benefits (FEHB) plan. This conversion will involve all
employees with five or more years until retirement eligibility.




Assuming enabling legislation is also passed, the conversion
will also affect all retirees and employees within five years
o f retirement. M anagem ent does not expect the conversion,
which will become effective on January 1,1998, to result
in an accounting loss to the FRF.

93




U nited S ta te s
G e n e ra l A cco u n tin g O ffice
W ash in g to n , D.C. 20548
A cco u n tin g a n d In fo rm a tio n
M an a g e m e n t D iv isio n

To the Board of Directors
Federal Deposit Insurance Corporation
We have audited the statements of financial position as of
December 31, 1996 and 1995, of the two deposit insurance
funds administered by the Federal Deposit Insurance
Corporation (FDIC), the related statements of income and
fund balance, and the statements of cash flows for the years
then ended. We have also audited the statements of
financial position as of December 31, 1996, and January 1
,
1996, of the FSLIC Resolution Fund, which is also
administered by FDIC, and the related statement of income
and accumulated deficit and the statement of cash flows for
the year ended December 31, 1996.
In our audits of the Bank Insurance Fund (BIF) , the Savings
Association Insurance Fund (SAIF), and the FSLIC Resolution
Fund (FRF), we found
—

the financial statements of each fund were reliable in
all material respects;

—

although certain internal controls should be improved,
FDIC management fairly stated that internal controls in
place on December 31, 1996, were effective in
safeguarding assets from material loss, assuring material
compliance with relevant laws and regulations, and
assuring that there were no material misstatements in the
financial statements of the three funds administered by
FDIC; and

-- no reportable noncompliance with laws and regulations we
tested.
The following sections discuss our conclusions in more
detail. They also discuss (1) the scope of our audits,
(2) additional information including recent legislation
affecting SAIF and an update on the current status of FRF
liquidation activities and funding, (3) FDIC' progress in
s
addressing reportable conditions1 identified during our 1995
audits, and reportable conditions identified during our 1996
audits, (4) recommendations from our 1996 audits, and
(5) the Corporation's comments on a draft of this report and
our evaluation.

1
Reportable conditions involve matters coming to the
auditor's attention relating to significant deficiencies in
the design or operation of internal controls that, in the
auditor's judgment, could adversely affect an entity's
ability to (1) safeguard assets against loss from
unauthorized acquisition, use, or disposition, (2) ensure
the execution of transactions in accordance with
management's authority and in accordance with laws and
regulations, and (3) properly record, process, and summarize
transactions to permit the preparation of financial
statements and to maintain accountability for assets. A
material weakness is a reportable condition in which the
design or operation of the internal controls does not reduce
to a relatively low level the risk that losses,
noncompliance, or misstatements in amounts that would be
material in relation to the financial statements may occur
and not be detected within a timely period by employees in
the normal course of their assigned duties.

94




OPINION ON BANK INSURANCE FUND'S

FINANCIAL STATEMENTS
The financial statements and accompanying notes present
fairly, in all material respects, in conformity with
generally accepted accounting principles, the Bank Insurance
Fund's financial position as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for the
years then ended.
OPINION ON SAVINGS ASSOCIATION INSURANCE
FUND'S FINANCIAL STATEMENTS
The financial statements and accompanying notes present
fairly, in all material respects, in conformity with
generally accepted accounting principles, the Savings
Association Insurance Fund's financial position as of
December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended.
OPINION ON FSLIC RESOLUTION FUND'S
FINANCIAL STATEMENTS
The financial statements and accompanying notes present
fairly, in all material respects, in conformity with
generally accepted accounting principles, the FSLIC
Resolution Fund's financial position as of December 31,
1996, and January 1, 1996, and the results of its operations
and its cash flows for the year ended December 31, 1996.
As discussed in notes 1 and 2 of FRF1 financial statements,
s
on January 1, 1996, FRF assumed responsibility for
liquidating the assets and satisfying the obligations of the
Resolution Trust Corporation (RTC). This statutorily2
mandated merger resulted in a significant one-time transfer
of assets and liabilities into FRF on January 1, 1996. For
this reason, FDIC concluded that providing year-end 1995
comparative information on FRF would not be practical on a
fully consistent basis of accounting, and therefore only
presented FRF1 financial statements for 1996.
s
Additionally, the transfer of RTC1 assets and liabilities
s
into FRF required FDIC to make certain adjustments and
reclassifications to 1996 opening balances on FRF•
s
statement of financial position to ensure consistent
treatment in presentation. For this reason, certain amounts
on FRF1 January 1, 1996, statement of financial position
s
will not be readily traceable to the combined year-end 1995
balances reported on FRF1 and RTC1 statements of financial
s
s
position.

2
The Resolution Trust Corporation was created by the
Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 (FIRREA) to manage and resolve all troubled savings
associations that were previously insured by FSLIC and for
which a conservator or receiver was appointed during the
period January 1, 1989, through August 8, 1992. This period
was extended to September 30, 1993, by the Resolution Trust
Corporation Refinancing, Restructuring, and Improvement Act
of 1991 and was further extended on December 17, 1993, to a
date not earlier than January 1, 1995, nor later than July
1, 1995, by the Resolution Trust Corporation Completion Act
of 1993 (RTC Completion Act). The RTC Completion Act stated
that the final date would be determined by the Chairperson
of the Thrift Depositor Protection Oversight Board. On
December 5, 1994, the Chairperson made the determination
that RTC would continue to resolve failed thrift
institutions through June 30, 1995. Finally, the RTC
Completion Act required RTC to terminate its operations no
later than December 31, 1995.

95




As discussed in note 8 of FRF's financial statements, there
are approximately 120 pending lawsuits which stem from
legislation that resulted in the elimination of supervisory
goodwill and other forbearances from regulatory capital.
These lawsuits assert various legal claims including breach
of contract or an uncompensated taking of property resulting
from the FIRREA provisions regarding minimum capital
requirements for thrifts and limitations as to the use of
supervisory goodwill to meet minimum capital requirements.
One case has resulted in a final judgment of $6 million
against FDIC, which was paid by FRF, and another case to
which FDIC is a party defendant and where a judgment of
$26.9 million (plus post judgment interest) has been entered
is currently on appeal. FDIC has established a reserve on
FRF's financial statements for this second judgment. The
remainder of these cases are pending in the Court of Federal
Claims with the United States as the named defendant.
On July 1, 1996, the United States Supreme Court concluded
that the government is liable for damages in three other
cases, consolidated for appeal to the Supreme Court, in
which the changes in regulatory treatment required by FIRREA
led the government to not honor its contractual obligations.
However, because the lower courts had not determined the
appropriate measure or amount of damages, the Supreme Court
returned the cases to the Court of Federal Claims for
further proceedings. As of May 20, 1997 -- the end of our
fieldwork — only one of these three cases had gone to
trial, and the trial was still ongoing. Until the amount of
damages are determined by the court the amount of additional
costs from these three cases is uncertain. Further, with
respect to the other pending cases, the outcome of each case
and the amount of any possible damages will depend on the
facts and circumstances, including the wording of agreements
between thrift regulators and acquirers of troubled savings
and loan institutions.
As discussed in note 8 of FRF's financial statements, FDIC
believes that judgments in such cases are properly paid from
the Judgment Fund.3 The extent to which FRF will be the
source for paying other judgments in such cases is
uncertain.
OPINION ON FDIC MANAGEMENT'S ASSERTIONS
ABOUT THE EFFECTIVENESS OF INTERNAL CONTROLS
For the three funds administered by FDIC, we evaluated FDIC
management's assertions about the effectiveness of its
internal controls designed to
-- safeguard assets against loss from unauthorized
acquisition, use, or disposition;
—

assure the execution of transactions in accordance with
provisions of selected laws and regulations that have a
direct and material effect on the financial statements of
the three funds; and

—

properly record, process, and summarize transactions to
permit the preparation of reliable financial statements
and to maintain accountability for assets.

3
The Judgment Fund is a permanent, indefinite appropriation
established by 31 U.S.C. Sec. 1304, and is administered by
the Department of the Treasury.

96




FDIC management fairly stated that those controls in place
on December 31, 1996, provided reasonable assurance that
losses, noncompliance, or misstatements material in relation
to the financial statements would be prevented or detected
on a timely basis. FDIC management made this assertion
based on criteria established under the Federal Managers'
Financial Integrity Act of 1982 (FMFIA). FDIC management,
in making its assertion, also fairly stated the need to
improve certain internal controls.
Our work also identified the need to improve certain
internal controls, as described in a later section of this
report. These weaknesses in internal controls, although not
considered material weaknesses, represent significant
deficiencies in the design or operation of internal controls
which could have adversely affected FDIC's ability to fully
meet the internal control objectives listed above. While
these weaknesses did not significantly affect the financial
statements of the three funds, misstatements may
nevertheless occur in other FDIC-reported financial
information on the funds as a result of these internal
control weaknesses. These weaknesses are discussed in
detail in a later section of this report.
COMPLIANCE WITH LAWS
AND REGULATIONS
Our tests for compliance with selected provisions of laws
and regulations disclosed no instances of noncompliance that
would be reportable under generally accepted government
auditing standards. However, the objective of our audits
was not to provide an opinion on overall compliance with
laws and regulations. Accordingly, we do not express such
an opinion.
OBJECTIVES. SCOPE. AND METHODOLOGY
FDIC1 management is responsible for
s
—

preparing the annual financial statements in conformity
with generally accepted accounting principles;

—

establishing, maintaining, and evaluating the internal
control to provide reasonable assurance that the broad
control objectives of FMFIA are met; and

-- complying with applicable laws and regulations.
We are responsible for obtaining reasonable assurance about
whether (1) the financial statements are free of material
misstatement and presented fairly, in all material respects,
in conformity with generally accepted accounting principles
and (2) FDIC management's assertion about the effectiveness
of internal controls is fairly stated, in all material
respects, based upon the criteria established under FMFIA.
We are also responsible for testing compliance with selected
provisions of laws and regulations and for performing
limited procedures with respect to certain other information
in FDIC' annual financial report.
s
In order to fulfill these responsibilities, we
-- examined, on a test basis, evidence supporting the
amounts and disclosures in the financial statements;
-- assessed the accounting principles used and significant
estimates made by management;
—

evaluated the overall presentation of the financial
statements;

97




—

obtained an understanding of the internal control
related to safeguarding assets, compliance with laws and
regulations, including the execution of transactions in
accordance with management's authority, and financial
reporting;

-- tested relevant internal controls over safeguarding,
compliance, and financial reporting and evaluated
management's assertion about the effectiveness of
internal controls; and
—

tested compliance with selected provisions of the Federal
Deposit Insurance Act, as amended; the Chief Financial
Officers Act of 1990; and the Federal Home Loan Bank Act,
as amended.

We did not evaluate all internal controls relevant to
operating objectives as broadly defined by FMFIA, such as
those controls relevant to preparing statistical reports and
ensuring efficient operations. We limited our internal
control testing to those controls necessary to achieve the
objectives outlined in our opinion on management's assertion
about the effectiveness of internal controls. Because of
inherent limitations in any internal control, losses,
noncompliance, or misstatements may nevertheless occur and
not be detected. We also caution that projecting our
evaluation to future periods is subject to the risk that
controls may become inadequate because of changes in
conditions or that the degree of compliance with controls
may deteriorate.
We conducted our audits between July 1996 and May 1997. Our
audits were conducted in accordance with generally accepted
government auditing standards.
ADDITIONAL INFORMATION ON
SAIF ' CAPITALIZATION AND
S
FRF ' LIQUIDATION ACTIVITIES
S
The following sections discuss (1) the affect of 1996
legislation on SAIF's capitalization and (2) FRF'
s
liquidation activities and status of funding at year-end
1996.
1996 Legislation Resulted
in S A X F 's C a p i t a l i z a t i o n

In our 1995 audit report, we noted that a significant
differential in premium rates charged by BIF and SAIF
developed in 1995 after BIF achieved its designated
capitalization level and FDIC lowered premium rates charged
to BIF-insured institutions.4 We reported that, absent a
legislative solution, this premium rate differential would
likely remain for many years. We noted that, while SAIF's
reserves continued to increase during 1995, its ratio of
reserves to insured deposits was still substantially below
its designated capitalization level. We also noted that
such a differential in premium rates could result in further
decreases to SAIF' assessment base beyond those already
s
being experienced. We reported that this could jeopardize
the stability of the Fund and increase the risk of a default
on the thrift industry's obligation to pay the annual

4 had previously reported on the potential for a
We
significant differential in premium rates to develop between
BIF and SAIF in 1995, as well as the potential consequences
of such a differential, in Deposit Insurance Funds:
Analysis of Insurance Premium Disparity Between Banks and
Thrifts (GAO/AIMD-95-84, March 3, 1995).

98




interest on 30-year bonds issued by the Financing
Corporation (FICO) in an earlier attempt to resolve the
thrift crisis of the 1980s.5
As discussed in notes 1 and 7 of SAIF' financial
s
statements, on September 30, 1996, the Congress enacted the
Deposit Insurance Funds Act of 1996 (DIFA). DIFA included
provisions to capitalize SAIF to its designated ratio of
reserves to insured deposits. SAIF was fully capitalized
through a special assessment totaling $4.5 billion against
SAIF-assessable deposits. The special assessment was
sufficient to increase SAIF's reserves to the Fund's
designated reserve ratio of $1.25 for each $100 of insured
deposits effective as of October 1, 1996. DIFA also
provided that banks bear part of the cost of the future
annual FICO bond interest, which previously had been paid
from SAIF-member assessments. The DIFA provisions resulting
in the capitalization of SAIF and the spreading of the
annual FICO bond interest between banks and thrifts
effectively addressed the insurance premium disparity
between BIF and SAIF. The legislation also provides for the
merger of BIF and SAIF on January 1, 1999, if no thrift
institution exists on that date.6
Status of FRF' Liquidation
s
Activities and Funding
As discussed earlier, on January 1, 1996, FRF assumed
responsibility for the assets and liabilities of the former
RTC. During 1996, FDIC continued its liquidation activities
for FSLIC-related assets and liabilities, as well as those
of the former RTC. As shown in table 1, the majority of
FRF1 losses from liquidation activities have been realized
s
as of December 31, 1996.
Table 1:

FRF1 Realized and Unrealized Losses as of
s
December 31. 1996 (Dollars in billions)

Realized losses
Unrealized losses
Total realized and
unrealized losses

FRF-RTC
$82.5
3.9

FRF-FSLIC
$41.5
1.0

Total FRF
$124.0
4.9

$86.4

$42.5

$128.9

Losses are realized when failed financial institution assets
at receiverships are disposed of and the proceeds from the
asset dispositions are not sufficient to repay amounts

5
FICO was established in 1987 to recapitalize the Federal
Savings and Loan Insurance Fund, the former insurance fund
for thrifts. FICO was funded mainly through the issuance of
public debt offerings which were initially limited to $10.8
billion but were later effectively capped at $8.2 billion by
the RTC Refinancing, Restructuring, and Improvement Act of
1991. Neither FICO's bond obligations or the interest on
these obligations are obligations of the United States nor
are they guaranteed by the United States. The annual FICO
interest obligation, on average, equals approximately $780
million.
6
The Deposit Insurance Funds Act directs the Secretary of
the Treasury to conduct a study of issues relevant to
developing a common charter for all insured depository
institutions and the abolition of separate and distinct
charters between banks and savings associations, and to make
recommendations with respect to establishing a common
charter.

99




disbursed by FRF to receiverships and are recorded on FRF1
s
financial statements as receivables from thrift resolutions.
Losses are also realized when assets FRF purchases from
terminating receiverships (investments in corporate-owned
assets) are later disposed of for less than the price FRF
paid when it purchased the assets from the receiverships.
Uncertainties still exist with regard to the unrealized
losses, as the amount will not be known with certainty until
all remaining assets and liabilities are liquidated.
In total, the Congress made available $149.2 billion in
funding to cover liabilities and losses associated with the
former FSLIC and RTC resolution activities, of which
$105 billion was made available to the former RTC.7 Of the
$105 billion in funding available, $91.3 billion was
received by RTC through December 31, 1995, the date of RTC'
s
termination, to cover losses and expenses associated with
failed institutions from its caseload. FRF received
$44.2 billion to cover the liabilities and losses associated
with the former FSLIC activities. In total, $13 5.5 billion
was received to cover liabilities and losses associated with
the former FSLIC and RTC resolution activities.
As shown in table 2, after reducing the total amount of
funding received by the amount of estimated funds needed,
$6.6 billion in available funds will remain.
Table 2:

Estimated Unused Funds After Completion of FRF 1
s
Liquidation Activities (Dollars in billions)
FRF-RTC

FRF-FSLIC

Total FRF

$91.3

$44 .
2

$135.5

Less: estimated funds
needed

86.4

Estimated unused funds

$ 4.9

42.5
$ 1.7

$

Total funds received

128.9
6.6

The final amount of unused funds will not be known with
certainty until all of FRF's remaining assets and
liabilities are liquidated. Further, $13.7 billion in loss
funds not received by RTC prior to RTC’ termination are
s
available until December 31, 1997, for losses incurred by
the SAIF, if the conditions set forth in the Resolution
Trust Corporation Completion Act are met.8 Also, according
to the act, unused loss funds will be returned to the
general fund of the Treasury.

7
FIRREA provided an initial $50 billion to RTC. The
Resolution Trust Corporation Funding Act of 1991 provided an
additional $30 billion. The Resolution Trust Corporation
Refinancing, Restructuring, and Improvement Act of 1991
provided $25 billion in December 1991, which was only
available for obligation until April 1, 1992. In December
1993, the RTC Completion Act removed the April 1, 1992,
deadline, thus making the balance of the $25 billion that
was not obligated prior to April 1, 1992, $18.3 billion,
available to RTC for resolution activities.
8
The RTC Completion Act makes available to SAIF, during the
2-year period beginning on the date of RTC1 termination,
s
any of the $18.3 billion in appropriated funds made
available by the RTC Completion Act and not needed by RTC.
However, prior to receiving such funds, FDIC must first
certify, among other things, that SAIF cannot fund insurance
losses through industry premium assessments or Treasury
borrowings without adversely affecting the health of its
member institutions and causing the government to incur
greater losses.

100




REPORTABLE CONDITIONS

The following sections discuss (1) FDIC's progress in
addressing reportable conditions identified during our 1995
audits and (2) reportable conditions found during our 1996
audits.
Progress on Weaknesses
Identified in Previous Audits
In our 1995 audit report on the three funds administered by
FDIC, we identified reportable conditions which affected
FDIC's ability to ensure that internal control objectives
were achieved.9 These weaknesses related to FDIC's internal
controls designed to ensure that (1) estimated recoveries
for failed institution assets were determined in accordance
with FDIC's estimation methodology, were supported by asset
file information, and incorporated the impact of events
through year-end, (2) time and attendance reporting
procedures were effective, and (3) electronic data
processing controls were effective. During 1996, FDIC's
actions addressed the weaknesses we identified in our 1995
audit report.
For example, during our 1995 audits, we identified
weaknesses in FDIC1 controls to ensure that recovery
s
estimates for assets acquired from failed financial
institutions complied with FDIC's revised asset recovery
estimation methodology, including being supported by asset
file documentation, and weaknesses in the cut-off date for
asset recovery information used by FDIC in its year-end
allowance for loss estimation process. FDIC's
implementation of the Standard Asset Valuation Estimation
methodology and related Asset Loss Reserve project in 1996
have addressed our previously identified weaknesses
surrounding FDIC's use of noncurrent asset recovery values
and the lack of adherence to its asset recovery estimation
methodology. Additionally, although we continued to find
instances where relevant file documentation was not always
used in estimating asset recovery values during our 1996
audits, these problems did not affect the financial
statements, and appear to be a result of first-year
implementation issues. We will continue to review
individual asset recovery estimates during 1997.
During our 1995 audits, we also continued to identify
weaknesses in FDIC's time and attendance reporting process.
We reported that we had continued to identify deficiencies
in adherence to required procedures in preparing time and
attendance reports, separation of duties between timekeeping
and data entry functions, and reconciliation of payroll
reports to time cards. During 1996, FDIC implemented new
time and attendance reporting procedures to address these
deficiencies. The new procedures were intended to
streamline and improve the time and attendance reporting
process by focusing accountability for verifying the
accuracy of time reports with supervisors, segregating the
timekeeping and data entry functions, and redefining post­
audit responsibilities for time and attendance reporting.
We found that the implementation of these new procedures
effectively addressed the internal control issues we
identified in the time and attendance reporting process in
our prior year audits.
During our 1995 audits, we also identified a weakness
related to FDIC' electronic data processing general
s
controls. This weakness, because of its sensitive nature,
financial Audit; Federal Deposit Insurance Corporation’
s
1995 and 1994 Financial Statements (GAO/AIMD-96-89, July 15,
1996) .

101




was communicated in a separate correspondence to FDIC
management, along with our recommendations for corrective
action. During 1996, FDIC took action which effectively
addressed the issue we raised in this separate
correspondence. Additionally, in our final audit of the
Resolution Trust Corporation's (RTC) 1995 financial
statements,1 we identified weaknesses related to general
0
controls over RTC' computerized information systems which
s
required corrective actions. During our 1996 audits, we
found that FDIC took action to address a number of these
general control weaknesses. Several other general control
related issues had not been fully addressed by FDIC at the
time of completion of our 1996 audits. However, we believe
the issues are not significant enough to be considered a
reportable condition.
Reportable Conditions
Identified In 1996
The following reportable conditions represent significant
deficiencies in FDIC's internal controls and should be
corrected by FDIC management.
1. Controls over the integrity of information used to
calculate the allowance for losses on receivables from
resolution activities and investment in corporate-owned
assets need to be improved. Specifically, FDIC did not have
effective procedures in place to ensure that data used in
the calculation of the year-end allowance for losses was
adequately reviewed for accuracy prior to inclusion in the
year-end calculation.
FDIC estimates recoveries on assets acquired from failed
financial institutions and uses these estimates to calculate
the allowance for losses on receivables from resolution
activities and investment in corporate-owned assets. FDIC
uses multiple data sources to calculate the estimated
recoveries from these assets. Much of the data are gathered
from decentralized sources and some of the operations
performed on the data are handled in a decentralized manner.
Consequently, it is critical that procedures be in place to
ensure the accuracy and quality of the data and that such
procedures clearly require review for accuracy and quality
of the data used in the year-end allowance for losses
calculation. However, during our 1996 audits, we found
deficiencies in FDIC's procedures for reviewing the compiled
data and the related calculations. As a result, FDIC
management did not consistently have assurance that the
estimated recoveries were properly recorded, processed, and
reliable.
For example, FDIC personnel made errors in calculating the
estimated recoveries for a portfolio of equity investments.
The resulting error of about $97 million was not detected by
FDIC. In addition, FDIC made a number of errors in the
process of updating the June 30, 1996, estimated recoveries
for assets maintained at failed institution receiverships.
The estimated recoveries for many of these assets were
erroneously changed and some were inadvertently deleted. In
addition, FDIC did not always follow its procedures for
discounting recovery estimates during its update process,
resulting in improper discount rates being used to derive
the updated values for a number of assets. Finally, we also
found instances where FDIC personnel did not review the
integrity of the estimated recoveries on securities assets
prior to including these recoveries in the allowance for
losses calculations.

1 Financial Audit: Resolution Trust Corporation's 1995 and
0
1994 Financial Statements (GAO/AIMD-96-123, July 2, 1996).

102




The nature of these errors was such that, had an effective
process been in place for reviewing the compiled data and
related calculations, FDIC could have identified and
corrected the errors. The errors we identified generally
caused estimated asset recoveries to be understated and the
related allowance for losses to be overstated at
December 31, 1996. While the effect of these misstatements
was not material, misstatements in future financial
statements could occur if corrective action is not taken.
FDIC has proposed enhanced review procedures for 1997 which,
if properly implemented, should reduce the risk of future
errors or misstatements. We will assess the effectiveness
of these review procedures during our 1997 audits.
2. FDIC' oversight of asset servicers contracted to manage
s
and dispose of failed financial institution assets needs to
be strengthened. During our 1996 audits, we found that FDIC
had limited assurance that contracted asset servicers
properly safeguarded failed institution assets and
accurately reported financial information to FDIC because of
deficiencies in FDIC' contractor oversight program.
s
Specifically, FDIC1 contractor oversight personnel did not
s
always ensure that (1) contracted asset servicers have
adequate controls over daily collections and bank
reconciliations, (2) servicers' fees and reimbursable
expenses are valid, accurate and complete, and
(3) servicers' loan system calculations relating to the
allocation of principal and interest are accurate.
As of December 31, 1996, approximately $4.8 billion of the
$8.7 billion (about 55 percent) in FDIC's inventory of
failed financial institution assets was serviced by
contracted asset servicers. These servicers accounted for
over $3.7 billion of the $5.9 billion (about 63 percent) in
FDIC's collections during 1996 related to asset management
and disposition activities. Consequently, it is critical
that FDIC maintain an effective contractor oversight
program.
FDIC attributes some of the problems noted above to
reorganizations and realignments of responsibilities as a
result of the merging of RTC activities into FDIC during
1996 coupled with the continued downsizing of the
Corporation. Division of Finance (DOF) officials informed
us that they intend to implement a full visitation program
which will include oversight procedures addressing each of
the deficiencies noted above. DOF anticipates having its
revised visitation program begin operation in July 1997.
Additionally, DOF and the Division of Resolutions and
Receiverships (DRR) have established a task force to develop
Memorandums of Understanding to more clearly define their
oversight roles, with concurrence from the Division of
Administration. We will assess the adequacy of FDIC's
corrective actions during our 1997 audits.
In addition to the weaknesses discussed above, we noted
other less significant matters involving FDIC's system of
internal accounting controls and its operations which we
will be reporting separately to FDIC.
RECOMMENDATIONS
To address weaknesses identified in this year's audits in
the process for calculating the allowance for losses on
receivables from resolution activities and investment in
corporate-owned assets, we recommend that the Chairman of
the Federal Deposit Insurance Corporation direct the heads
of the Division of Resolutions and Receiverships and the
Division of Finance to implement formal procedures for
reviewing data used in the allowance for losses
calculations. Such procedures should provide for

103




—

a thorough review of all data elements used in the
allowance for loss calculations to ensure that the data
are accurate, current, and reliable; and

—

a clear designation and assignment of review
responsibilities to ensure that all major sources of data
used in the calculations are reviewed and verified.

To address weaknesses identified in this year's audits in
contracted asset servicer oversight, we recommend that the
Chairman of the Federal Deposit Insurance Corporation direct
the heads of the Division of Resolutions and Receiverships
and Division of Finance to enhance their contractor
oversight program to ensure that their procedures for
overseeing contracted asset servicers are followed. Such
procedures should ensure
—

routine monitoring of contracted asset servicers'
controls over daily collections, such as opening mail
containing monetary items under dual control, the
preparation and maintenance of control totals, and the
reconciliation of collections processed and deposited to
the control totals;

—

routine review of contracted asset servicers' bank
reconciliations to ensure no unresolved differences exist
between the servicers' reported cash balances and those
reflected on the servicers' bank statements, and to
ensure that funds collected are remitted to FDIC in
accordance with contractual requirements;

-- routine verification of the validity, accuracy, and
completeness of contracted asset servicers' fees and
reimbursable expenses; and
-- verification that contracted asset servicers are
accurately applying loan payments between principal and
interest.
CORPORATION COMMENTS
AND OUR EVALUATION
In commenting on a draft of this report, FDIC acknowledged
the internal control weaknesses cited in the report and
commented on initiatives it has underway to address the
issues raised regarding the allowance for losses calculation
and oversight of contracted asset servicers. We plan to
evaluate the adequacy and effectiveness of these corrective
actions as part of our 1997 financial audits.
FDIC * comments also discuss the changing environment the
s
Corporation faced during 1996 and continues to face today,
the condition of FDIC-insured institutions and the deposit
insurance funds, and progress made by the Corporation in
addressing internal control weaknesses identified in our
1995 financial audits.

J l/
Robert W. Gramling
\J
Director, Corporate Audits
and Standards
May 20, 1997

104

^







Number and Deposits of BIF-lnsured Banks Closed
B e c a u s e o f F in a n c ia l D iffic u ltie s , 1 9 3 4 th ro u g h 1 9 9 6 1
(D ollars in Thousands)
Number of
Insured Banks

Total

Total

2,080

1996
1995
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

by FDIC
19

5
6
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

5

3
5
1
1
2
5
20
15
43
60
74
77
69
26
9

Total

2,061

$212,703,931
168,228
632,700
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

5

2
4
3
2

4

With
disbursements
by FDIC
5
6
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

Without
disbursements
Year

Deposits of
Insured Banks

1
...

...

2
2
3
2
4
4
3
5
1
1
2
5
20
15
43
60
74
75
69
25

Without

With

disbursements
by FDIC

disbursements
by FDIC

$4,298,814

4,257,667

3,011

10,084
...
26,449

1,190

...

...

328
85

$252,561,431

$168,228
632,700
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

$182,502
753,024
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

’ 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.




107

Assets

$208,405,117

R e c o v e rie s a n d L o s s e s b y th e B a n k In s u ra n c e F u n d
o n D is b u rs e m e n ts fo r th e P ro te c tio n o f D e p o s ito rs , 1 9 3 4 th ro u g h 1 9 9 6
(D o lla rs in T h o u s a n d s )
1

ALL CA SES1
of
Year

D epo sit payoff case s 2

banks

ments

Additional
Recoveries

of

Estimated

Recoveries

Disburse­

Estimated

No.

Estimated

No.

Losses

Year

banks

Additional

ments

Recoveries

Estimated

Recoveries

Disburse­

Losses

Total

2,132

$104,408,655

$63,121,249

$3,371,389

$37,916,017

Total

601

$14,452,967

$9,560,337

$349,741

$4,542,889

1996

5

169,433

0

126,195

43,238

1996

0

$0

$0

$0

$0

1995

6

717,799

447,410

144,109

126,280

1995

0

0

0

0

1994

13

1,224,797

778,456

226,540

219,801

1994

0

0

0
0

1993

41

1,757,147

863,071

216,948

677,128

1993

5

261,069

152,127

0

1992

122

12,868,690

8,295,907

930,485

3,642,298

1992

24

1,786,457

1,174,965

102,174

509,318

1991

127

20,638,267

14,309,415

295,246

6,033,606

1991

21

1,468,407

888,506

92,115

487,786

0

0

108,942

1990

169

10,813,349

7,849,353

124,542

2,839,454

1990

20

2,182,583

1,411,472

29,802

741,309

1989

207

11,445,179

5,050,868

207,925

6,186,386

1989

31

2,116,556

1,227,542

106,496

782,518

1988

221

12,183,656

4,332,871

1,005,553

6,845,232

1988

36

1,252,160

816,055

6,187

429,918

1987

203

5,037,871

2,995,573

19,429

2,022,869

1987

51

2,103,792

1,390,533

10,044

703,215

1986

145

4,717,669

2,983,661

11,255

1,722,753

1986

40

1,155,981

735,910

2,923

417,148

1985

120

2,920,886

1,701,751

17,552

1,201,583

1985

29

523,789

407,408

0

116,381

1984

80

7,696,215

5,506,306

0

2,189,909

1984

16

791,838

670,935

0

120,903

1983

48

3,768,020

2,240,432

709

1,526,879

1983

9

148,423

122,484

0

25,939

1982

42

2,275,150

829,794

44,902

1,400,454

1982

7

277,240

205,879

0

71,361

1981

10

888,999

69,326

0

819,673

1981

2

35,736

34,598

0

1,138

1980

11

152,355 _____ 114,760

0

37,595

1980

3

13,732

11,515

0

2,217

0

380,878

1934-79

307

335,204

310,408

0

24,796

1934-79 3

562

5,133,173

______

4,752,295

A s sista n c e tra n s ac tio n s 1

D epo sit assum ption cases
No.

Estimated

of
Year

Disburse­

banks

ments

No.

Additional
Recoveries

Estimated

Recoveries

Losses

Estimated

of
Year

Disburse­

banks

Additional

ments

Estimated

Recoveries

Recoveries

Losses

Total

1,451

$79,136,013

$48,826,354

$2,928,961

$27,380,698

Total

80

$10,819,675

$4,734,558

$92,687

$5,992,430

1996

5

$169,433

$0

$126,195

$43,238

1996

0

$0

$0

$0

$0

1995

6

717,799

447,410

144,109

126,280

1995

0

0

0

0

0

1994

13

1,224,797

778,456

226,540

219,801

1994

0

0

0

0

0

1993

36

1,496,078

710,944

216,948

568,186

1993

0

1992

96

11,081,031

7,120,742

828,311

3,131,978

1992

2

1991

103

19,164,135

13,420,363

201,763

5,542,009

1991

1990

148

8,628,265

6,437,799

94,740

2,095,726

1990

1989

175

9,326,075

3,823,266

101,429

5,401,380

1988

164

9,180,495

3,362,590

975,266

1987

133

2,773,202

1,604,327

1986

98

3,402,840

2,186,319

1985

87

1,631,365

990,262

0

0

0

0

0

1,202

200

0

1,002

3

5,725

546

1,368

3,811

1

2,501

82

0

2,419

1989

1

2,548

60

0

2,488

4,842,639

1988

21

1,751,001

154,226

24,100

1,572,675

9,385

1,159,490

1987

19

160,877

713

0

160,164

4,275

1,212,246

1986

7

158,848

61,432

4,057

93,359

641,103

1985

4

765,732

304,081

17,552

444,099
1,636,183

1984

62

1,373,198

940,375

0

432,823

1984

2

5,531,179

3,894,996

0

1983

36

3,533,179

2,099,741

0

1,433,438

1983

3

86,418

18,207

709

67,502

1982

26

418,321

325,165

0

93,156

1982

9

1,579,589

298,750

44,902

1,235,937

1981

5

79,208

33,463

0

45,745

1981

3

774,055

1980

7
251

138,623

103,245

0

35,378

1980

1 N/A

4,797,969

4,441,887

0

356,082

1934-79

1934-79

4

1,265

o

0

'Totals do not indude dollar amounts for five open bank assistance transactions between 1971 and 1980. Excludes eight transactions prior to 1962 that
required no disbursements. Also, disbursements, recoveries, and estimated additional recoveries do not include working capital advances to and repayments
by receiverships.
2 Includes insured deposit transfer cases.
* For detail of years 1934 through 1979, refer to Table C of the 1994 Annual Report.




108

772,790

0
N/A

N/A

N/A
0

0

In c o m e a n d E x p e n s e s , B a n k In s u r a n c e F u n d , b y Y e a r,
fro m B e g in n in g o f O p e r a tio n s , S e p te m b e r 1 1 ,1 9 3 3 , t h r o u g h D e c e m b e r 3 1 ,1 9 9 6
(Dollars in Millions)
Income

Year
Total
1996
1995
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

Expenses and Losses

Investment
Assessment Assessment and Other
Income
Credits
Sources
$74,373.0
1,655.3
4,089.1
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

'

$53,088.0
72.7
2,906.9
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
5874
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

$6,709.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
“0.0
0.0
0.0
0.0
0.0
070
164.0
96.2
117.1
521.1
524.6
443.1
411.9
379.6
362.4
2854
283.4
280.3
241.4
210.0
220.2
202.1
182.4
172.6
158.3
14572
136.4
126.9
115.5
100.8
9976
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

$27,994.1
1,582.6
1,182.2
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
^8 .4
26.3
43.1
23.7
27.3
18.4
16.6
12.6
10.6
9.7
10.5
9.4
9.4
8.2
9.3
7.0

Effective
Assessment
Rate1

I

0.0024%
0.1240%
0.2360%
0.2440%
0.2300%
0.2125%
0.1200%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
o:o8oo%
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%
0.08333T
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

Deposit Insurance
Losses and
Expenses
$47,518.6
254.6
483.2
(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
1^99.2
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
11.3
10.0

$41,771.1
(250.7)
12.6
(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
10075
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

Administrative
and Operating
Expenses
$5,747.5
505.3
470.6
423.2
388.5
570.8
284.1
219.6
21379
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^
29.0
24.4
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
67T~
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

Net Income/
(Loss)
$26,854.4
1,400.7
3,605.9
8,726.1
13,222.2
6,927.3
(11,072.4)
(9,165.0)
(851.6T
(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
^08 .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)

1The 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 and to a minimum of 0.15 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. In May 1995, the BIF reached
the mandatory recapitalization level of 1.25%. As a result, the assessment rate was reduced to 4.4 cents per $100 of insured deposits and assessment
premiums totaling $1.5 billion were refunded in September 1995.




109

Insured Deposits and the Bank Insurance Fund, December 31, 1934, through 1996

Year1

Insurance
Coverage

1996
1995
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

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

(D olla rs in M illio n s)
Percentage of
Insured Deposits

Deposits in Insured Banks
Insured2
Total
$2,642,107
$2,576,581
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
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
48,228
50,281
45,125
40,060

$2,007,447
$1,952,543
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
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
20,158
18,075

76.0
75.8
77.0
76.5
77.4
77.7
75.9
76.0
75.1
75.3
75.4
76.1
76.9
75.0
73.4
70.2
71.6
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
54.8
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
42.9
45.5
46.8
44.4
44.7
45.1

Deposit Insurance
Fund
$26,854.4
$25,453.7
21,847.8
13,121.6
(100.6)
(7,027.9)
4,044.5
13,209.5
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
306.0
291.7

Insurance Fund as a Percentage of
Total
Insured
Deposits
Deposits
1.02
0.99
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
0.84
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

1.34
1.30
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

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




110

F D IC - In s u re d In s titu tio n s C lo s e d D u rin g 199 6
(Dollars in Thousands)
N um ber
of
D eposit
A cco un ts

Bank
Class

N am e and Location

Total
A ssets

F DIC
D isburse­
ments

Total
D eposits

D ate of
C lo sing or
A cq u isitio n

E stim ated
L o ss1

R eceiver/
A ssum ing Bank
and Location

Only
Metrobank
Phiadelphia, PA

N

1,800

$35,009

$33,630

$33,566

$10,900

03/0 8/96

Jefferson Bank
Haverford, PA

First National Bank of the Panhandle
Panhandle, TX

N

7,400

$62,722

$57,905

$59,124

$17,835 2

06/1 4/96

Sun Bank
Sunray, T X
The Plains National Bank of W est Texas
Lubbock, TX

$12,741

$10,250

$10,250

Peoples Bank and Trust
Borger, TX

$21,134

$18,788

$18,803

Fairfield First Bank & Trust Company
Southport, CT

$50,896

$47,655

$47,690

Commonwealth Thrift and Loan
Torrance, CA

NM

370

$1,400

08/16/96

Frontier State Bank
Redondo Beach, CA

PurchiM and A ium otion - All Dtpoiita
Boatmen's First National Bank of Amarillo
Amarillo, T X
$9,800

07/12/96

Norwalk Savings Society
Norwalk, C T

PurchiM and Aitumption - Insured Deposits flnbt
Union Federal Bank
Los Angeles, CA

FSB

C o d es f o r B ank C lass:

NM

Dean W itter Trust, Federal Savings Bank
Jersey City, NJ

1,000

State-chartered bank that is n ot a member of the Federal Reserve System.

N

National bank.

FSB

Federal Savings Bank

’ Estimated losses are as of 12/31/96. Estimated losses are routinely adjusted with updated information from new appraisals and asset sales, which ultimately
affect the asset values and projected recoveries.

1 Excludes $766,000 in losses allocable to the Savings Association Insurance Fund since this was an Oakar bank.

Income and Expenses, Savings A ssociation Insurance Fund, by Year,
from Beginning o f Operations, A ugu st 9, 1989, through December 31, 1996
(Dollars in Thousands)
In c o m e

E xp en ses and Losses

In v es tm e n t

E ffec tiv e

Provision

In tere st

A d m in is tra tive

A ss es sm e n t

an d O th er

A s s es sm e n t

fo r

& O th e r Ins.

and O p e ratin g

fro m th e F S U C

So u rc es

R ate

Losses

Exp en ses

Ex p en s es

R eso lu tion Fund

$ 3 00 ,9 72
6 2 .6 1 8

Year

Total

Incom e

Total
1996

$9,073,691
5,501,684

$8,5 05 ,18 5
5,22 1,5 60

$ 5 6 8 ,5 0 6
28 0,12 4

1 9 95

169,889

T o tal

0 .20 4%

$3 2 4 ,7 6 8
(28 ,89 0)

$23,064
(91 ,63 6)

$732
128

Fun din g T ran s fe r
N et In c om e/
(L o s s)

$ 1 39 ,4 98
0

$8,888,421
5 ,5 3 0,5 74

0

1,421.132

1.139.916

97 0,02 7

0 .23 4%

(28 1.2 16 )

(32 1,0 00 )

0

1994

1,215,289

1,132,102

83 ,1 87

0 .24 4%

43 4 ,3 0 3

41 4,00 0

0

2 0 ,3 0 3

0

78 0,98 6

1 9 93

92 3.51 6

89 7,69 2

2 5 ,8 2 4

0 .2 5 0 %

4 6 ,8 1 4

16,531

0

3 0 ,2 83

0

87 6 ,7 0 2

1992

178,643

172,079

6,5 6 4

0 .2 3 0 %

28 ,9 82

(14 ,94 5)

4 3 ,9 3 2

35,446

185,107

1991

96,446

93 ,5 30

2,9 1 6

0 .23 0%

6 3 ,0 8 5

20 ,1 14

4 2 ,3 6 2

42 ,3 62

7 5 ,7 2 3

1 9 90

18,195

18,195

0

0 .20 8%

56 ,0 88

0

0

56 ,0 88

56,088

18,195

2

0

2

0 .20 8%

5,602

0

0

•

5,602

2

1 9 89 ~

(5)
609

'

•

In sured D ep o sits an d th e S avin gs A sso c ia tio n In su ran ce Fund, D ece m b er 31, 1989, th ro u g h 1996

In su ran ce Fund as a P ercentage of

(D o lla r s in M illio n s )
Insu ran ce
Y e a r1

D ep o sits in Insured In stitu tio n s

C o verag e

Total

In su red 1

P ercen tag e of

D ep o sit Insu ran ce

Total

Insured

In su red D eposits

Fund

D eposits

Deposits

1996

$100,000

$708,749

$683,090

96.4

$8,888.4

1.25

1.30

1995
1994

$100,000
100,000

$742,467
720,823

$711,017
692,626

95 8
96.1

$3,357.8
1,936.7

0.45
0.27

0.47
0.28

1993

100,000

726,473

695,158

95.7

1,155.7

0.16

0.17

1992

100,000

760,902

729,458

95.9

279.0

0.04

1991

100,000

810,664

776,351

95.8

93.9

0.01

0.01

18.2

0.00

0.00

0.0

0.00

0.00

1990

100,000

874,738

830,028

949

1989

100,000

948,144

882,920

93.1

0.04

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.
* 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.




111

N u m b e r , A s s e t s , D e p o s it s , a n d L o s s e s o f In s u r e d T h r if t s T a k e n O v e r o r C lo s e d
B e c a u s e o f F in a n c ia l D iffic u ltie s , 1 9 8 9 th ro u g h 1 9 9 6 1
_______________________________________

(Dollars in Thousands)
Assets

Deposits

Estimated
Loss

Year

Total

Total

748

$402,606,260

$315,472,700

1996
1995

1
2

35,140

32,189

14,000

426,291

407,752

65,824

1994

2

128,859

124,531

1993

9

6,105,039

4,824,789

1992

59

44,924,135

33,734,454

20,199
600,834
5,062,374

1991

144

79,033,696

64,845,422

11,040,409

1990

213

130,198,650

98,630,892

21,675,852

1989

318

141,754,450

112,872,671

51,633,829

$90,113,321

’ Prior to July 1,1995, all thrift closings were the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was terminated on
December 31, 1995, and all assets and liabilities transferred to the FSLIC Resolution Fund (FRF), all the results of thrift closing activity from
1989 through 1995 are now reflected on FRF's books. The Savings Association Insurance Fund (SAIF) became responsible for all thrifts closed
after June 30,1995; there has been only one such failure.




112




I'll;!',;




Sources of Information

Public Information Center

Office of the Ombudsman

Home Page on the Internet

801 17th Street, NW
Washington, DC 20434

550 17th Street, NW
W ashington, DC 20429

http ://w w w. fd ic. go v

Phone:

800-276-6003
202-416-6940

Phone:

800-250-9286 or
202-942-3500

Fax:

202-416-2076

Fax:

202-942-3040 or
202-942-3041

Internet: publicinfo@ fdic.gov

Internet: ombudsman@ fdic.gov
FDIC publications, press releases,
speeches and Congressional testimony,
directives to financial institutions and
other documents are available through
the Public Inform ation Center. These
docum ents include the Q uarterly
Banking Profile, Statistics on Banking
and a variety o f consum er pamphlets.

The Office o f the Ombudsman
responds to inquiries about the FDIC
in a fair, impartial, confidential and
timely manner. It researches questions
and com plaints from bankers, the
public and FDIC employees. The Office
also recommends ways to improve
FDIC operations, regulations and
customer service.

A wide range o f banking, consumer
and financial information, including
the FD IC ’s Q uarterly Banking Profile,
the Institution Directory, and Statistics
on Banking, as well as a variety of
consum er pamphlets are available on
the FD IC ’s home page on the Internet.
Readers can also access FDIC press
releases, recently delivered speeches,
and other updates on FDIC activities.

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

800-934-3342 or
202-942-3100

Fax:

202-942-3427 or
202-942-3098

Internet: consumer@ fdic.gov




H anking
on iht *
h n .n t c t

W .W .R eid

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

Don Inscoe of the Division of Research and
Statistics briefs bankers on the "Institution
Directory," a site on the FDIC’s Internet home
page that Contains key financial data on individual
FDIC-insured institutions.

Regional Offices

D i v i s i o n of S u p e r v i s i o n ( D O S ) / D i v i s i o n of C o m p l i a n c e a n d C o n s u m e r A f f a i r s ( D C A )
Atlanta_______________________

D allas____________________

N e w York

1201 West Peachtree Street, NE
Suite 1600
Atlanta, Georgia 30309
404-817-1300

1910 Pacific Avenue
Suite 1900
Dallas, Texas 75201
214-220-3342

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

Alabama
Florida
Georgia
North Carolina

Colorado
New Mexico

South Carolina
Virginia
West Virginia

Oklahoma
Texas

Delaware
District of Columbia
Maryland
New Jersey

New York
Pennsylvania
Puerto Rico
Virgin Islands

Kansas City__________________
Boston_________________________
200 Lowder Brook Drive
Suite 3100
Westwood, Massachusetts 02090
617-320-1600

Connecticut
Maine
Massachusetts

New Hampshire
Rhode Island
Vermont

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

Iowa
Kansas
Minnesota
Missouri

Nebraska
North Dakota
South Dakota

___

M em phis_________
Chicago___________________
500 West M onroe Street
Suite 3600
Chicago, Illinois 60661
312-382-7500

Illinois
Indiana
Michigan




Ohio
Wisconsin

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

Alaska
Arizona
California
Guam
Hawaii
Idaho

Montana
Nevada
Oregon
Utah
Washington
Wyoming

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

Arkansas
Kentucky
Louisiana

Mississippi
Tennessee

I DOS: E xam ines and supervises
™ state-chartered banks th at a re not
m em bers o f the Federal Reserve
System. Provides inform ation about
sound banking practices.
DCA: E xam ines FD IG -supervised
banks for com pliance w ith co n su m er
protection laws. Inform s b an k ers and
the public about deposit in su ran ce
and o th er co n su m er protections.

116

M ajor Speeches and Selected Testimony
by Chairman Heifer

Text o f these and other statements are
available from the Public Information
Center listed on Page 115 or on the
FD IC’s home page on the Internet at
www.fdic.gov.




Speeches________________________

Congressional Testimony

February 9
A t the FDIC Capital Markets
Symposium, on supervisory concerns
over the increased use o f derivatives,
and new initiatives to assess risk in
general.

M arch 13
Before the House Committee on
Banking and Financial Services, on
risk assessment.

March 12
To A m erica’s Community Bankers, on
the problems facing the Savings
Association Insurance Fund.
April 2
To an interagency meeting o f federal
banking supervisors, on steering a
moderate course in bank supervision.
O ctober 5
To the American Bankers Association,
on the state of the banking industry.
October 28
To Am erica's Community Bankers, on
issues related to developing a new
banking charter.

March 19
Before the House Committee on
Banking and Financial Services, on the
Savings Association Insurance Fund.
April 30
Before the House Committee on
Banking and Financial Services, on
realignm ent of the current federal
financial institution regulatory
structure.
June 26
Before the House Committee on
Banking and Financial Services’
Subcommittee on Capital Markets,
Securities, and Government Sponsored
Enterprises, on the FDIC’s survey of
bank sales o f nondeposit investment
products, such as mutual funds and
annuities.
September 12
Before the House Committee on
Banking and Financial Services’
Subcommittee on Capital Markets,
Securities, and Government Sponsored
Enterprises, on credit card lending and
other consum er credit.

117

Index

A

E

Affordable Housing Program

26

Electronic Banking

Applications Processing:

44

Enforcement Actions:

FDIC Applications, 1994-96

21

4, 25-27, 36

23

Compliance, Enforcem ent and
Other Related Legal Actions, 1994-96

Assessments (see Deposit Insurance Premiums)
Asset Disposition

20, 31

Examinations:

23

2-3,1 9 -2 0 , 21, 28-29, 30, 44

FDIC Examinations, 1994-96

19

B
Bank Insurance Fund (BIF):

2, 8-10, 24, 25, 41, 44

Highlights

5

Financial Statements

F
Failed Institutions:

24-27

BIF-insured Institutions Closed During 1996

49-63

111

20

24

Liquidation Highlights

Risk-Related Premiums

Failed Institutions by State, 1995-96

25

SAIF-insured Institutions Closed During 1996

C

Federal Deposit Insurance Corporation:

“CAM ELS” (see Examinations)
Case Managers

Board o f Directors

18

Comm ercial Banks (Financial Performance):
Annual Return on Assets

111

Highlights

2,11-12

16

Regional Offices

28, 29, 31, 39

116

Sources of Information

28-31

Community Reinvestment A ct (CRA)

5-7

Organization Chart/Officials

2,11

Community and Consumer Protection

14-15

115

117

8 ,1 0 , 24, 26, 44

FSLIC Resolution Fund (FRF):

Congressional Testimony

Federal Savings and Loan
Insurance Corporation (FSLIC)

7, 8, 10, 25, 26-27, 45

D

Financial Statements

Deposit Insurance Funds Act

8, 44

Deposit Insurance Premiums:

8 -9 ,1 0 , 21, 41, 44

Risk-Related Premiums
Depositor Protection

20

Downsizing




Financial Institutions Reform, Recovery,
and Enforcem ent Act o f 1989 (FIRREA)
Financing Corporation (FICO)

32, 33, 38
8 ,1 0 , 44

24-25

Director and Officer Liability
(see Professional Liability Recoveries)
D ’Oench Duhme

79-93

G
General Accounting Office (GAO)
32-33

Goodwill

95-105
32

4, 34-35

H
Heifer, Ricki
Hove, Andrew (Skip) C., Jr.

2-4, 1 4 ,1 5 ,1 6 , 18, 43
1 4 ,1 5 ,1 6 , 43

s

I
Institution Directory

4 ,1 1 5

Insurance, Division of

Savings Association Insurance Fund (SAIF):

3 ,2 1

Internet

Highlights

4, 20, 31, 36,115

Interstate Banking

2 ,1 0 ,1 1 ,1 2 ,
25, 4 1 ,4 4

Financial Statements

18

Risk-Related Premiums
Saving Institutions (Financial Performance):

L
Legislation Enacted in 1996

44-45

Litigation

32-33

Ludwig, Eugene A.

Annual Return on Assets

15, 16

4,, 34-35
35
25

Statistical Tables:

Income and Expenses, BIF,
1933-96

Regulations Adopted and Proposed
Regulatory Relief

22, 39, 40, 43, 44
4, 7, 8 ,1 0 , 24, 26, 27,
33, 34, 36

Resolutions and Receiverships, Division o f

4, 24, 34
1 5 ,1 6

111
111

Insured Deposits and the SAIF,
1989-96

38-43

110

Income and Expenses, SAIF,
1989-96

R

109

FDIC-Insured Institutions
Closed During 1996

27

108

Insured Deposits and the BIF,
1934-96

Professional Liability Recoveries

107

Recoveries and Losses by the BIF on
Disbursements for the Protection o f Depositors,
1934-96

30, 31, 115

P




11

Num ber and Deposits o f BIF-insured Banks
Closed, 1934-96

Ombudsman, Office of the

Risk Assessment

12-13

117

Standard Asset Valuation Estimation (SAVE)
1 4 ,1 5 , 16, 43

0

Retsinas, Nicolas P.

20

Staffing:

N

Resolution Trust Corporation (RTC)

65-78

Speeches

Number o f FDIC Officials and Employees,
1995-96
Neely, Joseph H.

5

111

N um ber, A ssets, D eposits, and L osses

o f Insured Thrifts Taken Over or Closed,
1989-96

2-3, 19-20, 21

Strategic Plan

112
3, 34

Stored-Value Cards (see Electronic Banking)
Supervision

119

18-23




Not es










Published
by:

The Office of
Corporate Communications
Robert M. Garsson, Jr.
Director
Elizabeth R. Ford
Assistant Director
Jay Rosenstein
Editor-in-Chief
David Barr
M ajorie C. Bradshaw
Co-Editors

Design, Production and Typesetting
by:

The Division of Administration
Design Group
Addie Hargrove
Chief, Graphics, Printing
and Distribution Unit
Sam Collicchio
Art Director/Designer
Kim Briscoe
Typesetting o f Financial Statements
Sam Collicchio
M itchell Crawley
Cover Photography

Production
of the

Financial Statements
by:
James E. Anderson
Chief,
Financial Statements Section
The Division of Finance




Federal

Deposit

Insurance

550 17th Street, NW
Washington, D 20429-9990
C

Corporation

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