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Federal Deposit Insurance Corpo rat ion




In its unique role as deposit insurer o f banks
and savings associations, and in cooperation
w ith th e other state and federal regulatory
agencies, the Federal Deposit Insurance
Corporation (FDIC) prom otes the safe ty
and soundness o f th e U.S. fin a n c ia l system
a n d th e in s u re d d e p o s ito ry in s titu tio n s by

identifying, m onitoring and addressing risks
to th e d e p o s it in s u ra n ce fu n d.

The FDIC prom otes public understanding
and the developm ent of sound public policy
by providing tim e ly and accurate finan cial
and econom ic inform ation and analyses.
It m inim izes disruptive effects from the
fa ilu re o f banks and savings associations.
It assures fairness in th e sale of finan cial
products and the provision o f finan cial
services.
The FDIC's long and continuing tra d itio n of
excellence in public service is supported and
sustained by a highly skilled and diverse
w orkforce th a t continuously m onitors and
responds rapidly and successfully to changes
in the finan cial environm ent.

The Federal D ep osit Insurance C orporation
(FDIC) is an independent agency created by
th e Congress th a t m aintains th e s ta b ility and
public confidence in the nation's finan cial
system by in su ring de p o sits, exam in ing and
supervising financial institutions, and managing
receiverships.

V is io n

V alu es

The FDIC is a leader in developing and
im plem enting sound public policies, identifying
and addressing ne w and existin g risks in
the nation's finan cial system , and e ffectively
and e ffic ie n tly carrying ou t its insurance,
supervisory, and receivership m anagem ent

The FDIC and its em ployees have a long and continuing tra d itio n of distinguished public service.
Six core values guide FDIC em ployees as they strive to fu lfill the C orporation's m ission and vision:

responsibilities.




Integrity

Effectiveness

FDIC em ployees adhere to the highest ethical
standards in the perform ance of th e ir duties
and responsibilities.

The FDIC responds quickly and successfully to
id e n tifie d risks in insured finan cial in stitution s
and in the broader financial system.

Competence

Financial Stewardship

The FDIC m aintains a highly skilled, dedicated,
and diverse w orkforce.

The FDIC acts as a responsible fiduciary,
consistently operating in an e ffic ie n t and
cost-effe ctive m anner on behalf of insured
finan cial in stitu tio n s and other stakeholders.

Teamwork
FDIC em ployees w o rk c o o p e ra tiv e ly w ith
one an oth er and w ith em ployees in other
re g u la to ry agencies to accom plish the
C orporation's m ission.

Fairness
The FDIC tre a ts all em ployees, insured
finan cial in stitution s, and other stakeholders
w ith im p a rtia lity and m utual respect.




Federal D e p o s it Insu rance C orp o ra tio n

550 17th Street, NW Washington, DC 20429

Office of the Chairman

February 15, 2007

Dear Sir/Madam,
In accordance with:
• the provisions o f section 17(a) o f the Federal Deposit Insurance Act,
• the C hief Financial Officers Act o f 1990, Public Law 101-576,
• the Government Performance and Results Act o f 1993,
• the provisions o f Section 5 (as amended) o f the Inspector General Act o f 1978, and
• the Reports Consolidation Act o f 2000,
the Federal Deposit Insurance Corporation (FDIC) is pleased to submit its 2006 Annual Report
(also referred to as the Performance and Accountability Report), which includes the audited
financial statements o f the Deposit Insurance Fund and the Federal Savings and Loan Insurance
Corporation Resolution Fund.
In accordance with the Reports Consolidation Act o f 2000, the FDIC completed an assessment
o f the reliability o f the performance data contained in this report. No material inadequacies were
found and the data are considered to be complete and reliable.
Based on internal management evaluations, and in conjunction with the results o f independent
financial statement audits, the FDIC can provide reasonable assurance that the objectives
o f Section 2 (internal controls) and Section 4 (financial m anagement systems) o f the Federal
M anagers’ Financial Integrity Act o f 1982 have been achieved, and that the FDIC has no
material w eaknesses. A dditionally, the U.S. G overnm ent A ccountability Office did not
identify any significant deficiencies in the FD IC ’s internal controls for 2006. We are
com m itted to m aintaining our effective internal controls corporate-w ide in 2007.
Sincerely,

C
Sheila C. Bair
Chairman

The President o f the United States
The President o f the United States Senate
The Speaker o f the U nited States House o f Representatives

Message from the Chairman
Message from the Chief Financial Officer
I.

4
10

M a n a g e m e n t's D is c u s s io n an d A n a ly s is

12

The Year in Review
Insurance
Supervision and Consumer Protection
Receivership Management
Effective Management of Strategic Resources
II.

12
12
16
25
26

F in a n c ia l H ig h lig h ts

30

Deposit Insurance Fund Performance
Corporate Operating Budget Spending
Investment Spending

30
32
35

III. P e rfo rm a n c e R e s u lts S u m m a ry

36

Summary of 2006 Performance Results by Program
2006 Budget and Expenditures by Program
Performance Results by Program and Strategic Goal
Prior Years Performance Results
Program Evaluation

36
38
39
45
60

IV. F in a n c ia l S ta te m e n ts an d N o te s

62

Deposit Insurance Fund (DIF)
FSLIC Resolution Fund (FRF)
Government Accountability Office's Audit Opinion
Management's Response
Overview of the Industry
V.

62
82
96
101
102

M a n a g e m e n t C o n tro l

104

Enterprise Risk Management
Material Weaknesses
Management Report of Final Actions
V I. A p p e n d ic e s




104
104
105
108

A. Key Statistics
B. More About the FDIC
C. Office of Inspector General's Assessment of
the Management and Performance Challenges Facing the FDIC

108
118
126

2006 Annual Report

M essage fro m the Chairman




•

Sheila C. Bair

I am pleased to present the Federal Deposit Insurance Corporation’s (FDIC) 2006
Annual Report (also referred to as the Performance and Accountability Report).
The condition of the banking and thrift industry continues to be healthy and
profitable and 2006 saw continuation of the longest period in the Corporation's
73-year history without a failure of an FDIC-insured institution-a record 31 months.
Nevertheless, we continued in 2006 to actively pursue our mission of ensuring
the stability of and public confidence in the nation's financial system.
The past year was a particularly significant one for the FDIC. On February 8, 2006,
President Bush signed into law the Federal Deposit Insurance Reform Act of
2005, culminating a lengthy, multi-year effort by the FDIC, the Administration,
and the Congress to make sweeping improvements to the federal deposit
insurance system. The law requires the FDIC to make fundamental changes
in its deposit insurance policies and business processes in 2006 and 2007, and
we are well on our way toward full compliance with the provisions of that Act.
We focused much of our attention during 2006 on three high priority areas
of activity: (1) addressing significant policy issues, (2) maintaining a strong
supervisory program, and (3) concentrating our efforts on promoting economic
inclusion. I would like to share with you some of our major successes during
2006 and some of our challenges for 2007 and beyond.
Policy Challenges
In accordance with the requirements of the deposit insurance reform statute,
the FDIC in early 2006 merged the Bank Insurance Fund and the Savings
Association Insurance Fund into the new Deposit Insurance Fund, and adopted
new regulations increasing coverage for certain retirement plan deposits from
$100,000 to $250,000. This was the first major change in deposit insurance
coverage since 1980. The reform statute also provided the FDIC Board of
Directors (Board) with greater flexibility to manage the Deposit Insurance Fund.
The Board adopted final rules on a new assessment system that will make
assessments more risk-sensitive and distribute the assessment burden more
fairly across insured institutions, and it established new premium rates effective
for deposit insurance beginning January 1, 2007. In addition, the Board adopted
final rules on the distribution and use of $4.7 billion in one-time assessment
credits, a temporary plan for the allocation of future dividends, and a designated
reserve ratio. In 2007, the FDIC will complete and issue guidance on how limited
adjustments may be made in the pricing of deposit insurance for large banks
and publish an advance notice of proposed rulemaking seeking comment about
how to implement a permanent dividend system.
Capital reform was a major area of focus in 2006. The FDIC continued to
work with the other federal regulators and to participate actively on the Basel
Committee on Banking Supervision, and many of its subgroups, in planning for
the implementation of the new Basel II capital framework. The Board approved
in September 2006 the publication of a notice of proposed rulemaking (NPR),
jointly with the Federal Reserve Board, the Office of the Comptroller of the
Currency and the Office of Thrift Supervision, seeking comment on draft
regulations to implement the advanced approaches of the Basel II Accord.
As a result of the findings in the fourth quantitative impact study (QIS-4), which




examined the potential impact that the Basel II capital framework might have
on the minimum risk-based capital requirements of a select group of financial
institutions, safeguards were incorporated into the Basel II NPR to protect
against an unacceptable decline in minimum risk-based capital requirements.
On December 5, 2006, the Board also approved the publication of a second NPR
seeking comment on draft regulations to implement a new capital framework,
referred to as Basel IA, which banks that do not use the Basel II capital framework
may opt to apply. The Basel IA NPR was also issued jointly with the Federal
Reserve Board, the Office of the Comptroller of the Currency and the Office
of Thrift Supervision.
Both draft regulations represent an effort to enhance the risk sensitivity of the
existing risk-based capital framework while maintaining safety and soundness
within the banking and thrift industry. Throughout the interagency deliberations on
both Basel II and Basel IA, the FDIC has maintained an unwavering commitment
to the maintenance of strong capital requirements and to the principle that any
changes to these requirements should have a minimal impact on competitive
equity among banks of all sizes. In 2007, the FDIC will continue to provide leader­
ship in this effort. It will explore the potential of using simplified approaches as an
alternative to the advanced approaches in the Basel II Accord and, with the other
banking agencies, work to achieve consensus on the overall package of regulatory
capital changes for final publication.
Another significant policy challenge is presented by the continuing consolidation
in the banking industry. While this presents challenges for all federal banking
regulators, it poses unique issues for the FDIC because of its multiple roles as
regulator, deposit insurer, and receiver. Fortunately, the banking industry and
our largest banks are strong and have made many improvements to their risk
management processes in recent years. Even so, the FDIC must be prepared
to respond to instability in any size insured institution. To meet these challenges,
the FDIC continues to enhance its capabilities to protect insured depositors
and maintain stability in our banking system. Some of the initiatives involved in
this ongoing process are contingency planning exercises, system and process
improvements for determination of deposit insurance claims and management
of failing bank assets, consultations with domestic and international regulators,
improvements to the FDIC's supervisory program for larger banks, and the
designation of internal and external expertise to focus on larger bank issues.
This effort will continue and evolve as the challenges change in the future.
Matters that received significant public interest in 2006 included applications
to the FDIC for deposit insurance filed by commercial companies for proposed
industrial loan companies (ILCs). To obtain the public's insight on the issues,
on July 28, 2006, the FDIC placed a six-month moratorium, ending on
January 31, 2007, on ILC deposit insurance applications and change in control
notices to give the FDIC time to assess developments in the ILC industry; to
determine whether any emerging safety and soundness or policy issues exist;
and to evaluate whether statutory, regulatory or policy changes need to be made
in the oversight of these institutions. The moratorium also allowed FDIC time
to further evaluate the various issues, facts and arguments raised in connection

5




with the ILC industry, and to assess whether statutory or regulatory changes
or revised standards and procedures for ILC applications and supervision are
needed to protect the Deposit Insurance Fund or important Congressional
objectives. In August, the FDIC Board requested public comment on a broad
range of ILC-related issues. During the 45-day comment period that ended
on October 10, 2006, we received more than 12,600 comments which were
carefully and thoroughly evaluated.
Supervisory Program
In addition to managing an unusually large policy agenda, the FDIC also continued
to administer strong and effective supervisory programs in 2006 in both the
risk management and compliance areas. The FDIC performed 2,388 safety and
soundness examinations, 1,959 compliance and Community Reinvestment Act
exams and 3,052 specialty exams.
During the year, the FDIC enhanced the quality of fair lending examinations
through the use of residential mortgage pricing data. This year represented the
first opportunity for the FDIC to use pricing data collected by financial institutions
pursuant to the 2004 changes to the Home Mortgage Disclosure Act. Also in
2006, the FDIC established the Large Bank Program to address challenges
associated with supervising and insuring the deposits of large and complex
institutions. In addition, the FDIC completed and issued guidance on concen­
trations in commercial real estate. This guidance provides supervisory criteria
to assist in identifying institutions with significant concentrations of commercial
real estate.
Further, the FDIC became increasingly concerned with the expansion of nontraditional mortgage products and the potential risk posed by these products to the
DIF. To address these concerns, the FDIC implemented certain enhancements to
the supervisory oversight of nontraditional mortgage banking activities and, with
the other financial institution regulatory agencies, developed and issued guidance
to address the growing risks in these loan products.
During the year, the FDIC conducted a comprehensive review of the compliance
examination program's workload and resources. Based on workload projections,
we identified the need for additional staffing in this area. In December, the Board
authorized 72 new examiner positions to be phased in over a three-year period
with the majority added in 2007. This will result in an increase of human resources
dedicated to the compliance and CRA examination areas.
Reflecting our com m itm ent to provide current and consistent guidance for
examiners and banking organizations to comply w ith the Bank Secrecy Act
(BSA) and Anti-Money Laundering (AML) requirements, we worked closely with
the other federal banking regulators to revise the Federal Financial Institutions
Examination Council (FFIEC) BSA/AML Examination Manual. The FFIEC BSA/AML
Working Group, which the FDIC chairs, collaborated with other federal banking
agencies and the Financial Crimes Enforcement Network (FinCEN) on the revision
project.




Promoting Economic Inclusion
The FDIC has long been committed to bringing all segments of society into the
financial mainstream. This year, the Board approved the establishment of the
FDIC Advisory Committee on Economic Inclusion to provide the FDIC with advice
and recommendations on important initiatives focused on expanding access to
banking services by underserved populations. The Committee members repre­
sent a broad cross section of interests from the banking industry, state regulatory
authorities, government, academia, consumer and public advocacy organizations,
community-based groups and others impacted by banking-related practices.
This year, the FDIC took tw o important steps to focus attention on the need
for affordable small-dollar loan products. First, the FDIC released Affordable
Small-Dollar Loan Guidelines for public comment. The guidelines explore several
aspects of product development, including affordability, streamlined underwriting
and savings. Second, the FDIC hosted a conference in December on meeting
the needs of military personnel and their families, who are frequently turning to
high-cost providers for short-term loans and other financial services. The banks
that attended the conference developed a template for an affordable, small
denomination loan product with a savings component. We will continue to
work with the industry to find ways to promote both affordable short-term
loan products and creative ways to encourage savings.
To reach an even wider audience of unbanked and underbanked with our
successful Money Smart financial education program, this year the curriculum
was released in Russian, large print and Braille. Release of the Braille and
large-print versions was the first time that a financial education program has
been specifically targeted for individuals with visual impairments. The FDIC also
completed development of a Spanish-language version of our online Electronic
Deposit Insurance Estimator and a Spanish-language video on federal deposit
insurance coverage.
As part of our ongoing effort to help combat identity theft, we continued to take
a leadership role in consumer education initiatives and released an online training
tool called Don't Be an Online Victim: How to Guard Against Internet Thieves and
Electronic Scams. The training tool is available through the FDIC's Web site and
via disc.
In 2006, we continued to analyze the economies adversely affected by Gulf Coast
hurricanes and worked closely with banks and consumers to address issues
of concern. We also worked closely with other federal and state regulatory
agencies to issue guidance outlining examination procedures for assessing the
financial condition of institutions adversely affected by the hurricanes. The FDIC,
working jointly with NeighborWorks® America, released a homeownership and
financial counseling guide called Navigating the Road to Housing Recovery in the
Gulf Coast. This guide was a focal point of an FDIC/NeighborWorks® Gulf Coast
Housing Summit held in New Orleans in October that was attended by bankers,
housing experts, homeownership counselors and others.




Conclusion
Finally, I am pleased to note that we were able to enhance our efforts in each
of our major business lines during 2006 while maintaining strong fiscal discipline.
As detailed elsewhere in the report, the FDIC has had an extraordinary record
of controlling its operating expenses over the past five years. Spending against
the FDIC's operating budget in 2006 was 18 percent lower than it was in 2002,
due primarily to a 27 percent reduction in the Corporation's staffing and limited
resolution and receivership management activities during that period. These
staff reductions completed more than a decade of downsizing that followed
the Corporation's rapid workforce buildup to address the banking crisis of the
late 1980s and early 1990s. I am indebted to my predecessor, Donald Powell,
for his efforts to move the FDIC past the difficult era of downsizing, and for
leaving me with a revitalized workforce that is eager and willing to address the
new and emerging challenges to the safety and stability of our banking system.
Our agenda for 2007 will be full of challenges. Along with continuing to
implement the changes brought about by deposit insurance reform, we will
focus our energies on continuing to ensure the safety and soundness of our
banking system, the effectiveness of our consumer protection efforts and the
efficiency of our internal operations.
On a personal note, I would like to say that I am honored to serve as the 19th
Chairman of the FDIC. Having been sworn in as Chairman on June 26, 2006,
I clearly joined the FDIC at a critical - but exciting - time for the agency and
the industry. I look forward to working alongside our outstanding Board and
the dedicated employees of the FDIC as we face the challenges of the future
together.

Sincerely,

Sheila C. Bair




Sheila C. Bair becom es FDIC Chairman
as Executive Secretary Robert Feldman
adm inisters th e oath and D eputy to
th e Chairman Alice Goodman holds
the Bible.

2006 Annual Report

M essage fro m the C h ief Financial Officer • Steven O. App


http://fraser.stlouisfed.org/
10
Federal Reserve Bank of St. Louis

I am pleased to join Chairman Bair in presenting our 2006 Annual Report. The
report covers financial and program performance information and summarizes
our successes for the year. The FDIC takes pride in providing timely, reliable
and meaningful information to its many stakeholders.
As a result of the passage of deposit insurance reform legislation, the Bank
Insurance Fund and the Savings Association Insurance Fund were merged
on March 31, 2006, to create the Deposit Insurance Fund (DIF). Overall, the
combined fund remained financially sound throughout the year and I can proudly
report that the U.S. Government Accountability Office (GAO), for the fifteenth
consecutive year, issued unqualified audit opinions on the annual financial
statements for both funds administered by the FDIC - the DIF and the
Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund.
These unqualified audit opinions validate our efforts to ensure that the financial
statements of the funds for which we are stewards are fairly presented. This
achievement also exemplifies the hard work and dedication of the FDIC staff.
FDIC's financial highlights during 2006 include:
In 2006, DIF's comprehensive income totaled $1.6 billion compared to $1.1 billion
in 2005, a year-over-year increase of approximately 44 percent. Excluding
the recognition of exit fees earned of $345 million (a one-time adjustment),
comprehensive income rose by $133 million from a year ago. This year-over-year
increase is primarily due to a decrease in the unrealized loss on available-for-sale
(AFS) securities of $348 million, which was offset by decreases in both interest
earned on U.S. Treasury obligations of $101 million and the negative provision
for insurance losses of $108 million.
The significantly lower unrealized loss on AFS securities primarily resulted from:
1) a smaller total market value of AFS securities, 2) a lower average duration
for the AFS securities, and 3) a smaller increase in the market yields of the AFS
securities. However, the lower unrealized loss was partially offset by a decrease
in interest revenue on U.S. Treasury obligations that resulted from lower inflation
compensation on Treasury Inflation-Protected Securities.
During 2006, we continued our efforts to control costs and to prudently manage
the funds administered by the FDIC. Annual budgeted operating expenditures
in 2006 totaled approximately $973 million, which represents a decline of
$17 million (1.7 percent) from 2005. As Chairman Bair indicates in her message,
the FDIC has an exceptional record of controlling its budgeted operational
spending, which declined by $216 million (18 percent) from 2002 to 2006. The
FDIC Board of Directors, on December 5, 2006, approved a 2007 Corporate
Operating Budget totaling $1.1 billion, a modest 4.6 percent increase over
the 2006 budget, largely due to the cost of employee pay increases negotiated
for 2007.
Capital investment spending also declined substantially in 2006 to $25 million. In
2006, we completed tw o major investment projects, the Virginia Square Phase II
building and the New Financial Environment (NFE) (an integrated state-of-the-art
financial system), reducing to three the inventory of active investment projects.
This is down from a high of ten active projects in 2003 and 2004. In late 2006,




the FDIC Board approved a new investment project, an insurance claims
determination system. It is the first new investment project approved since
2003. Investment spending is projected to total between $19 million and
$23 million in 2007.
We are especially proud of our staff for the successful completion of Virginia
Square Phase II - an outstanding facility that should serve the Corporation well
for years to come. The project was completed on time and under budget, and
has begun to yield substantial cost savings for the FDIC. We are also beginning
to explore how to leverage the enhanced capabilities of the NFE to continue
to improve our financial and cost management.
In accordance with the requirements of the Federal Managers' Financial Integrity
Act of 1982, the FDIC's management conducted its annual assessment and
concluded that the system of internal controls, taken as a whole, complies
with internal control standards prescribed by the GAO and provides reasonable
assurance that the related objectives are being met.
Looking ahead to 2007, the FDIC will continue to work toward sound management
of the Corporation's financial and other resources.

Sincerely,

Steven O. App

2006 Annual Report

I. M anagem ent’s D iscussion and Analysis
•

T h e Y e a r in R e v ie w

In s u ra n c e

During 2006, the FDIC faced many
high-profile policy issues, ranging
from deposit insurance reform, to
capital reform, to the appropriate
role of industrial loan companies.
In addressing these issues the
Corporation published numerous
notices of proposed rulemaking
throughout the year, seeking
comment from the public and
issued final rules to implement
most of the components of deposit
insurance reform legislation enacted
early in the year. The Corporation also
maintained its emphasis on a strong
supervisory program, and pursued
financial education and outreach
initiatives focusing primarily on those
adversely affected by Hurricanes
Katrina and Rita and those not
participating in the banking system.
For the second year in a row, there
were no insured institution failures,
reflecting the continued strong health
of the banking and thrift industry.

The FDIC insures bank and savings
association deposits. As insurer, the
FDIC must continually evaluate and
effectively manage how changes in
the economy, the financial markets
and the banking system affect the
adequacy and the viability of the
deposit insurance fund.

Highlighted in this section are the
Corporation's 2006 accomplishments
in each of its three major business
lines - Insurance; Supervision
and Consumer Protection; and
Receivership Management - as
well as its program support areas.

•


http://fraser.stlouisfed.org/
12
Federal Reserve Bank of St. Louis

Deposit Insurance Reform
In February 2006, the President
signed into law the Federal Deposit
Insurance Reform Act of 2005
and the Federal Deposit Insurance
Reform Conforming Amendments
Act of 2005. These new statutes
instituted most of the key changes
in the deposit insurance system that
the FDIC had been pursuing for the
previous five years. The Reform Act:
•

Merges the Bank Insurance Fund
(BIF) and the Savings Association
Insurance Fund (SAIF) into the
new Deposit Insurance Fund (DIF).
Permits the FDIC's Board of
Directors to price deposit insurance
according to risk for all insured
institutions, regardless of the level
of the reserve ratio.

Grants a one-time initial assess­
ment credit of approximately
$4.7 billion to recognize institu­
tions’ past contributions to the
combined fund.

•

Establishes a range for the
Designated Reserve Ratio (DRR)
of 1.15 percent to 1.50 percent,
and allows the FDIC to manage
the reserve ratio within this range.
Also requires that, if the reserve
ratio falls below 1.15 percent or
is expected to do so within six
months, the FDIC must adopt
a restoration plan that provides
that the DIF will return the reserve
ratio to 1.15 percent within five
years.

•

Generally mandates dividends
to the industry of one-half of any
amount above the 1.35 percent
level and of all amounts in the
fund above the 1.50 percent
level.

•

Increases the coverage limit for
certain retirement accounts to
$250,000 but leaves the basic
insurance limit for other deposits
at $100,000.

•

Indexes both coverage limits for
inflation, and allows the FDIC
(in conjunction with the National
Credit Union Administration) to
increase the limits every five years
beginning January 1, 2011, if
warranted.

President George W . Bush in the Oval O ffice,
signs th e Federal D eposit Insurance Reform
A c t o f 2005. Signing ce rem o n y participants
(I to r): Rep. Spencer Bachus, Sen. Tim Johnson,
Sen. Paul Sarbanes, Sen. Richard Shelby,
Rep. M ike Oxley, Rep. Darlene Hooley,
Sen. M ike Enzi, and M artin Gruenberg,
Vice Chairm an - FDIC.

On November 2, 2006, after
considering comments on an NPR
published in July 2006, the Board
adopted a final rule setting the DRR
at 1.25 percent. The Board also
adopted tw o final rules governing
assessments after considering
comments on NPRs published in
May and July 2006. One of these
rules makes operational changes to
the assessment system. Under that
rule, assessments will be determined
and collected after the end of each
quarter, which will permit consider­
ation of more current supervisory
information and capital data. Among
its other provisions, the rule requires
larger institutions to use average
daily deposit balances as the basis
for assessments.

Implementation of deposit insurance
reform was a major initiative for the
FDIC in 2006. On March 14, 2006,
the Board adopted an interim
final rule implementing the sub­
stantive changes to the FDIC's
insurance coverage rules, effective
April 1, 2006. (A final rule was
adopted on September 5, 2006.) In
addition, the FDIC merged the BIF
and SAIF into the newly-created DIF,
effective March 31, 2006, prior to
the statutory deadline effective
date of July 1, 2006.
On October 10, 2006, after con­
sidering comments on a notice of
proposed rulemaking (NPR) published
in May 2006, the Board adopted a
final rule governing the distribution
and use of the $4.7 billion one-time
assessment credit. After considering
comments on another NPR published
in May 2006, the FDIC Board also
adopted on October 10, 2006,
a temporary final rule governing
dividends from the DIF. Under this
temporary rule, any dividend will be
distributed based upon an institution's
portion of the December 31, 1996,
assessment base. In 2007, the FDIC
will undertake a more comprehensive
rulemaking on dividends to replace
the temporary rule.




The other rule establishes new
assessment rates based on four
new risk categories. Effective
January 1, 2007, assessment rates
will range from 5 to 7 basis points
for Risk Category I institutions
and will be 10 basis points for Risk
Category II institutions, 28 basis
points for Risk Category III institutions
and 43 basis points for Risk Category
IV institutions. Base assessment

rates range from 2 to 4 basis points
for Risk Category I institutions and
are 7 basis points for Risk Category II
institutions, 25 basis points for Risk
Category III institutions and 40 basis
points for Risk Category IV institutions.
The Board retains the flexibility to
adjust rates in the future, within
limits, w ithout further notice-andcomm ent rulemaking.
In addition to the extensive rulemaking required in conjunction
with the implementation of deposit
insurance reform, fundamental
changes were made in the FDIC's
business functions including
modification to major application
systems such as the Risk-Related
Premium System, Electronic Deposit
Insurance Estimator, the Corporate
Business Information System
and the Assessment Information
Management System. As part of the
implementation, the FDIC also made
available online new tools such as
the One-Time Assessment Credit
Search Tool and the Assessment Rate
Calculator for insured institutions.
System changes in support of
deposit insurance reform will
continue in 2007.

E a c h d e p o s i t o r i n s u r e d t o a t le a s t $ 1 0 0 , 0 0 0

Backed by
the fu ll faith
and credit
ofthe
United States
government

^ 11
*1 1

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f

FDIC
Federal Deposit Insurance C orporation*www.fdic.gov

The n e w FDIC official teller sign reflects changes
fro m deposit insurance reform.

13

Risk-Related Premiums
The accompanying table shows the
number and percentage of institutions
insured by the Deposit Insurance
Fund (DIF) as of September 30, 2006,
according to risk classifications
effective for the second semi-annual
assessment period of 2006. Each
institution is categorized based on
its capital group (1, 2, or 3) and
supervisory subgroup (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.
Capital Standards
The FDIC, as insurer, has a substantial
interest in ensuring that bank capital
regulation effectively serves its func­
tion of safeguarding the federal bank
safety net against excessive loss.
During 2006, the FDIC participated
on the Basel Committee on Banking
Supervision and many of its sub­
groups. The FDIC also participated in
various U.S. regulatory efforts aimed
at interpreting international standards
and establishing sound policy and
procedures for implementing these
standards.
One of the FDIC's key objectives
has been to ensure the adequacy
of insured institutions' capital under
Basel II. In 2006, the FDIC devoted
substantial resources to domestic and
international efforts to ensure that the
new capital rules are designed and
implemented appropriately. These
efforts included the publication in
September 2006 of an NPR seeking
comment on draft rules for Basel II
and revisions to the Market Risk
Rule and the continued development
of examination guidance, which is
intended to provide the industry
with regulatory perspectives on
implementation.


http://fraser.stlouisfed.org/
14
Federal Reserve Bank of St. Louis

R is k -R e la te d Prem ium s

Capital Group
1. Well Capitalized:
Assessment Rate
Number of Institutions
Assessment Rate
Number of Institutions
3. Undercapitalized:
Assessment Rate
Number of Institutions

The findings of the fourth quantitative
impact study (QIS-4), which were
completed in 2005, suggested that,
without modification, the Basel II
framework could result in a significant
decline in minimum risk-based capital
requirements. As a result, several
safeguards were incorporated into
the Basel II NPR to protect against
a significant decline in minimum riskbased capital requirements. These
safeguards included a one-year delay
in the targeted effective date of the
regulation, a longer transition period,
limitations on the amount that riskbased capital at individual banks
could decline during the transition
period, the retention of the U.S.
leverage ratio and Prompt Corrective
Action requirements, and a 10 percent
downward limit on the aggregate
reduction in minimum risk-based
capital that could result from the
implementation of Basel II. Through
continuing on-site and off-site reviews
of all FDIC-supervised institutions
that have indicated possible plans
to operate under the new Basel
Capital Accord, the Corporation has
confirmed that those institutions are
making satisfactory progress towards
meeting the expected requirements.

S u p e r v i s o r y Ri s k S u b g r o u p
B
C

A
0
8,324 (95.1%)

3
345 (4.0%)

17
38 (0.4%)

3
39 (0.5%)

10
3 (0.0%)

24
1 (0.0%)

10
2 (0.0%)

24
0 (0.0%)

27
3 (0.0%)

The FDIC is actively involved in efforts
to revise the existing risk-based capital
standards for those banks that will
not be subject to Basel II. These
efforts, referred to as Basel IA, are
intended to modernize the risk-based
capital rules for non-Basel II banks to
ensure that the framework remains a
relevant and reliable measure of the
risks present in the banking system
and to minimize potential competitive
inequities that may arise between
banks that adopt Basel II and those
banks that remain under the existing
capital rules. The revisions proposed
in the Basel IA NPR are anticipated
to be finalized by domestic bank and
thrift regulatory authorities in 2007
for implementation in January 2008.
The Basel IA NPR was published
in the Federal Register for public
comment in December 2006.
Regulatory Burden Reduction
Pursuant to Section 2222 of the
Economic Growth and Regulatory
Paperwork Reduction Act of 1996
(EGRPRA), federal banking regula­
tors are required to review existing
regulations to identify and eliminate

those that are outdated, unnecessary
or unduly burdensome on insured
depository institutions. An interagency
EGRPRA work group completed
a comprehensive three-year review
in 2006, analyzing the comments
received on the last sets of regulations
and publishing a summary of those
comments. The interagency working
group also prepared a report to
Congress, which identified significant
issues raised during the public
comment period.
The Financial Services Regulatory
Relief Act of 2006 was enacted into
law in October 2006. This Act requires
the SEC and FRB to jointly issue a rule
to implement the exceptions to the
definition of broker in accordance with
section 3(a)(4)(F) of the Securities
Exchange Act of 1934, permits the
Federal Reserve to pay interest on
balances kept at the Federal Reserve
Banks, increases the Federal Reserve
Board's flexibility in setting certain
reserve requirements, reduces some
redundant bank filing requirements
and makes numerous changes
designed to enhance banking agency
efficiency and effectiveness. The
new law also expands eligibility for
inclusion in the 18-month safety
and soundness examination cycle to
insured institutions with CAMELS1
"1" ratings with up to $500 million
in assets (an increase from the
previous threshold of $250 million).
Congress subsequently enacted
legislation expanding eligibility for
the 18-month examination cycle to
insured institutions with CAMELS "2“
ratings up to $500 million in assets.

Center for Financial Research
The FDIC’s Center for Financial
Research (CFR) co-sponsored two
research conferences during 2006.
The 16th annual Derivatives Securities
and Risk Management Conference,
which the FDIC co-sponsored with
Cornell University's Johnson Graduate
School of Management and the
University of Houston's Bauer College
of Business, was held in April 2006.
In addition, the CFR and the Journal
for Financial Services Research (JFSR)
sponsored their sixth annual research
conference in September 2006.
The conference attracted academics
from U.S. and foreign universities,
U.S. and foreign bank supervisors,
congressional staff, consultants and
bankers. As a part of the conference,
the CFR sponsored a symposium
entitled "U.S. Implementation of
Basel II," at which academics and
U.S. and foreign bank regulators
presented 12 research papers
analyzing the potential effects
of the new capital standards.
In addition to these conferences,
the CFR and Harvard University
jointly sponsored a brainstorming
symposium to advance research on
consumer finance in October 2006.
Individuals from academia, businesses,
public policy, consumer advocacy and
philanthropy groups discussed and
proposed a research agenda in the
field of consumer finance.

Thirteen CFR working papers were
completed and published in 2006 on
topics dealing with risk measurement,
capital allocation, deposit insurance,
community development or
regulations related to these topics.
The CFR Senior Fellows met in
January 2006 to discuss ongoing
CFR research on Basel II, deposit
insurance reform, developments in
the area of consumer finance and
CFR activities for the coming year.
Central Data Repository
The FDIC continued to leverage its
investment in the Federal Financial
Institutions Examination Council's
(FFIEC) Central Data Repository (CDR).
The CDR streamlines the collection,
validation and publication of financial
institutions' Call Report data. The
CDR was used to successfully collect
Call Report data from approximately
8,000 reporting institutions for each
quarter of 2006. The FFIEC also began
work during 2006 on enhancing the
CDR to publish data to the public and
produce bank performance reports,
and an interagency team began work
on modifications that will increase
the flexibility of the CDR to process
additional data series.
The FDIC also continued to lead
in the promulgation of the CDR's
underlying financial reporting stan­
dard, XBRL (extensible Business
Reporting Language), to increase
financial transparency. Early in 2006,
the FDIC formed an XBRL Advisory
Group to build upon the success of
the CDR program. Leveraging the
FDIC's demonstrated expertise and

1 [h e C A M ! IS com p et ite ra tin g re: resen ts she adequacy it C apua! She q u a lity of A sse ts, the r.a p a b ilit o f M a n a g e m e n t, the q u a lity and leeel of Earni rgs, th e a d eq uacy of Liq; Irlhy, and the S e n s itivity
to m a rke t risk, and ranges fro m 11" [s tro n g e s t! to ' 5' [w e a k e s t!




15

leadership in the field, the group will
expand the use of XBRL technologies
and promote their use among other
FDIC business partners. Internal and
external collaboration Web sites were
established to allow the exchange
of information and to disseminate
lessons learned.
Risk Analysis Center
The Risk Analysis Center (RAC)
was established in 2003 to provide
information about current and
emerging risk issues. It is staffed
with employees on detail from each
of the FDIC's three business lines.
The RAC uses interdivisional teams to
analyze selected risk areas and carry
out special projects which culminate
in presentations and reports regard­
ing these risk issues. The activities
of the RAC are guided by the National
Risk Committee, which is chaired by
the Chief Operating Officer. In 2006,
major projects of the RAC focused
on collateralized debt obligations,
operational risk, and the housing
sector/alternative mortgage products.
The RAC also reported to the National
Risk Committee on a variety of other
topics, including economic conditions,
industry risk exposure, credit under­
writing practices, and consumer
protection issues.
Other Risk Identification Activities
During 2006, the FDIC continued to
research and analyze trends in the
banking sector, financial markets,
and the overall economy to identify
emerging risks to the banking industry
and the DIF. The identified risks were
highlighted throughout the year in
presentations and written reports.
The FDIC prepared summary analyses


http://fraser.stlouisfed.org/
16
Federal Reserve Bank of St. Louis

semiannually on the condition of large
insured financial institutions, mainly
based on information provided by
FDIC examiners and these institutions'
primary federal regulators. Institutionspecific concerns were directed to
FDIC regional offices for appropriate
action. Additionally, the FDIC contin­
ued to analyze the regional economies
adversely affected by hurricanes
Katrina and Rita throughout the year.
The FDIC published a variety of
studies in quarterly FDIC Outlook
issues and periodic FYI reports that
addressed a range of current topics in
the banking sector, financial markets
and the economy. In addition, quarterly
FDIC State Profiles were released
for each state during 2006. The FDIC
also published the Quarterly Banking
Profile, which discusses current
conditions, trends and changes in
the performance of insured institu­
tions, and Supervisory Insights, which
discusses implementation of regula­
tory policy, shares best practices and
communicates emerging issues in
bank supervision.
Throughout the year, the FDIC con­
ducted numerous outreach activities
addressing economic and banking
risk analysis. Presentations were
made to financial institutions and
related trade groups, bank directors'
colleges, community groups, foreign
visitors and other regulators. The
FDIC also sponsored a roundtable
discussion that addressed possible
scenarios for the next recession.

S u p e rv is io n and
C o n s u m e r P ro te c tio n

Supervision and consumer protection
are cornerstones of the FDIC's efforts
to ensure the stability of and public
confidence in the nation's financial
system. The FDIC's supervision
program promotes the safety and
soundness of FDIC-supervised
insured depository institutions,
protects consumers' rights, and
promotes community investment
initiatives. In addition to carrying out
its established examination program
and other supervisory activities, the
FDIC initiated in 2006 a substantial
expansion of its programs to promote
economic inclusion and confronted
difficult policy issues regarding
industrial loan companies.
Examination Program
The FDIC's strong bank examination
program is the core component of
its supervisory program. At year-end
2006, the Corporation was the primary
federal regulator for 5,237 FDICinsured state-chartered institutions
that are not members of the Federal
Reserve System (generally referred
to as "state nonmember'' institutions).
Through safety and soundness,
consumer compliance and the
Community Reinvestment Act (CRA),
and various specialty examinations,
the FDIC assesses their operating
condition, management practices
and policies, and compliance with
applicable laws and regulations.
The FDIC also educates bankers
and consumers on matters of
interest and addresses consumers'
questions and concerns.

In 2006, the Corporation conducted
2,388 statutorily-required safety and
soundness examinations, including
a review of Bank Secrecy Act com­
pliance, and all required follow-up
examinations for FDIC-supervised
problem institutions within prescribed
time frames. The FDIC also conducted
1,959 CRA/Compliance examinations
(777 joint compliance-CRA examina­
tions, 1,177 compliance-only examina­
tions,2 and five CRA-only examinations)
and 3,052 specialty examinations. All
compliance/CRA examinations were
also conducted within the time frames
established by FDIC policy, including
required follow-up examinations
of problem institutions. The accom­
panying table compares the number
of examinations conducted in 2004,
2005 and 2006 by type.
As of December 31, 2006, there
were 51 insured institutions with
total assets of $8.5 billion designated
as problem institutions for safety
and soundness purposes (defined as
those institutions having a composite
CAMELS3 rating of "4 " or "5"),
compared to the same number of
problem institutions with total assets
of $6.6 billion on December 31, 2005.
This constituted a 28.7 percent yearover-year increase in the total assets
in problem institutions. During 2006,
38 institutions with aggregate assets
of $4.7 billion were removed from the
list of problem financial institutions,
while 38 institutions with aggregate
assets of $7.8 billion were added
to the list of problem financial
institutions. The FDIC is the primary
federal regulator for 27 of the 51
problem institutions.
2

3

FDIC E xa m in atio n s 2 0 0 4 - 2 0 0 6

2006
Safety and Soundness:
State Nonmember Banks
Savings Banks
Savings Associations
National Banks
State M em ber Banks
Subtotal - Safety and Soundness Examinations
CRA/Compliance Examinations:
Compliance-Community Reinvestment Act
Compliance-only
CRA-only
Subtotal CRA/Compliance Examinations
Specialty Examinations:
Trust Departments
Data Processing Facilities
Subtotal-Specialty Examinations
Total

During 2006, the Corporation issued
the following formal and informal
corrective actions to address safety
and soundness concerns: 29 Cease
and Desist Orders; one Written
Agreement; and 146 Memoranda
of Understanding. Of these actions
issued, eight Cease and Desist
Orders, one Written Agreement and
21 Memoranda of Understanding
were issued based on apparent
violations of the Bank Secrecy Act.
As of December 31, 2006, four
FDIC-supervised institutions were
assigned a "4 " rating for compliance;
no institutions were assigned a "5 "
rating. All of the "4"-rated institutions
were examined in 2006, and

2005

2004

2,184
201
2
0
1
2,388

2,198
199
1
0
1
2,399

2,276
236
0
0
3
2,515

777
1,177
5
1,959

815
1,198
7
2,020

1,459
673
4
2,136

468
2,584
3,052

450
2,708
3,158

534
2,570
3,104

7,399

7,577

7,755

Memoranda of Understanding are
currently being finalized to address
the FDIC's examination findings.
In addition, the FDIC developed and
began using new screening tools in
2006 to identify those FDIC-supervised
institutions w ith mortgage lending
disparities, based upon "higher rate"
pricing information supplied by these
institutions under the Home Mortgage
Disclosure Act (HMDA), and to assess
whether the disparities in loan pricing
and denial rates resulted from
discriminatory lending or reflected
other factors, such as creditworthi­
ness, underwriting or other nondiscriminatory criteria.4 Compliance
examinations were scheduled for
all of the institutions with identified
lending disparities to determine

Compiiance-only examinations are conducted for most institutions at or near the mid-point between joint compliance-CRA examinations under the Community Reinvestment Act of 1977, as amended
by the Gramm-Leach-Bliley Act of 1999. CRA examinations of financial institutions w ith aggregate assets of $250 million or less are subject to a CRA examination no more than once every five years
if they receive a CRA rating of "Outstanding" and no more than once every four years if they receive a CRA rating of "Satisfactory" on their most recent examination.
The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the quality and level of Earnings, the adequacy of Liquidity, and the
Sensitivity to market risk, and ranges from "1" (strongest) to "5" (weakest).

4 The Federal Reserve Board began requiring covered institutions to report "higher rate” pricing information in their HMDA reports in 2004.




17

whether those disparities were
the result of discriminatory lending.
Although those examinations
indicated that the majority of the
institutions were not engaging in
discriminatory lending, a small number
of institutions were referred to
the U.S. Department of Justice for
engaging in an apparent pattern and
practice of discriminatory lending.
Large Complex Financial
Institution Program
The FDIC's Large Bank Program was
established to address the unique
challenges associated with supervis­
ing and insuring the deposits of large
and complex institutions. A significant
share of the assets and insured
deposits of the banking industry are
today held in a small number of large
institutions. The Program ensures
a consistent approach to large bank
supervision and risk analysis on a
national basis by compiling key data
and performing analyses of largebank operations for use by various
FDIC divisions and offices and by
providing specialists to support
supervisory activities for large banks.
In 2006, guidelines were developed
to enhance the FDIC's risk-monitoring
program for large banks with assets
greater than $50 billion. Monitoring
and assessment activities also
continued in 2006 to ensure internal
and industry preparedness for the
implementation of Basel II. Training
on credit and operational risk was
conducted for regional and interagency
personnel, and numerous "supervisory
working group " meetings were held
with foreign regulatory authorities
to address Basel II home-host and
cross-border issues.


http://fraser.stlouisfed.org/
18
Federal Reserve Bank of St. Louis

Industrial Loan Companies
In 2006, an application for deposit
insurance filed by a very large retailer
on behalf of a proposed Utah industrial
loan company (ILC) generated
significant public interest. In April,
the FDIC held three days of public
hearings on the application. Nearly
70 representatives of financial
institutions, trade associations,
advocacy groups, the retailer, and
others made presentations at
the hearing. In addition, the FDIC
received w ritten statements from
16 parties who did not request an
opportunity to present during the
hearings.
As a result of that interest as well as
congressional interest and reviews by
the GAO and OIG, the FDIC initiated
a comprehensive policy review of
ILCs. On July 28, 2006, the Board
imposed a moratorium extending
through January 31, 2007, on the
acceptance, approval, or denial of
deposit insurance applications and
change in control notices submitted
by, or on behalf of, any ILC. The
purpose of the moratorium was to
permit the Corporation to evaluate
industry developments; the various
issues, facts and arguments raised

regarding the ILC charter; whether
there are emerging safety and sound­
ness issues or policy issues involving
ILCs or other risks to the insurance
fund; and whether statutory, regulatory
or policy changes should be made in
the FDIC's oversight of ILCs in order
to protect the Deposit Insurance
Fund or important congressional
objectives.
The FDIC believes that public partici­
pation provides valuable insight into
the issues presented by the recent
trends and changes in the ILC
industry. Accordingly, in order to
obtain the public's insights, the FDIC
invited comments on the ILC industry
during a 45-day period that ended
on October 10, 2006. In its Request
for Public Comment, the FDIC posed
12 questions that sought public
input on various topics, including the
current legal framework of ILCs as
well as the possible benefits, risks
and supervisory issues associated
with ILCs. At year-end 2006, eight
ILC-related applications for deposit
insurance and tw o change in control
notices were pending.

Promoting Economic Inclusion
The FDIC pursued a number of
new initiatives in 2006 to promote
broader access to banking services by
traditionally underserved populations
and to ensure adequate consumer
protection in the provision of these
services.

and other partners to bring those
currently unbanked and underserved
into the financial mainstream. The
AEI will focus on expanding banking
services in all underserved markets,
including low- and moderate-income
neighborhoods, minority communities
and rural areas.

Advisory C om m ittee
on Economic Inclusion

A ffordable S m all-D oilar Loan
Guidelines

On November 2, 2006, the FDIC
announced the establishment of an
Advisory Committee on Economic
Inclusion. The Committee will provide
the FDIC with advice and recom­
mendations on important initiatives
focused on expanding access to
banking services by underserved
populations. It will also explore ways
to encourage the banking industry
to adopt suitable products and
marketing strategies to compete
with alternative high-cost providers.
The Committee members will
represent a cross section of interests
from the banking industry, state
regulatory authorities, government,
academia, consumer or public
advocacy organizations, communitybased groups and others impacted
by banking-related practices.

To help meet consumer demand
for affordable small-dollar loans, the
FDIC issued a draft of its Affordable
Small-Dollar Loan Guidelines, targeted
to the banking industry, for public
comm ent on December 4, 2006.
Many consumers with bank accounts
turn to high-cost payday or other
non-bank lenders because they are
accessible and can quickly provide
small loans to cover unforeseen
circumstances. The draft guidelines
suggest ways the banking industry
can make affordable short-term loan
products more accessible to these
customers, helping to build long-term,
profitable multiple-account relation­
ships. The guidelines focus on
product development and under­
writing, and include information
on tools such as consumer financial
education and savings that may
address longer term financial issues.
The FDIC expects to finalize the
guidelines in early 2007.

Alliance for Economic Inclusion

In 2006, the FDIC created the
Alliance for Economic Inclusion (AEI),
a broad-based coalition of banks,
community organizations, foundations,
educators, and local, state, and federal
agencies in each of the FDIC’s six
regions. The goal of the AEI initiative
is to work with financial institutions




M ilita ry Bank Initiative

In late 2006, the FDIC began working
closely w ith the banking industry
to explore ways to make affordable
short-term loan products more
accessible to military personnel who
frequently turn to high-cost providers
for their financial services needs and
to encourage individual and house­
hold savings by these borrowers.
The FDIC established contact with
the Association of Military Banks of

America (AMBA) and more than 125
banks located near military bases.
Many of these banks have indicated
a willingness to work w ith the
FDIC in developing and providing
an affordable small-denomination
loan product, possibly with a savings
component.
The FDIC hosted a conference with
these banks in December 2006 in
Washington, DC, to provide informa­
tion and share ideas on successful
product and marketing strategies
for consumers in the military.
Approximately 60 banks and more
than 150 other participants - including
press, bankers, trade associations
and representatives of the Department
of Defense - attended the conference
on "Affordable, Responsible Loans
for the Military: Programs and
Prototypes."The program was
organized with the assistance of the
AMBA and featured Congressman
Barney Frank and Kelvin Boston, host
of PBS' Moneywise. The main focus
of the event was the discussion of
loan products targeted to or that have
features that would benefit military
borrowers. Following a discussion
of regulatory issues, the participants
attended workshops aimed at
developing an affordable loan tem ­
plate. The FDIC intends to distribute
this template to FDIC-supervised
institutions in 2007 for use as a
possible prototype in developing
their own affordable loan programs.

N ontraditional M o rtgag e Products

In 2006, the FDIC became increas­
ingly concerned with the expansion
of nontraditional mortgage products
and the potential risk posed by these
products to the DIF. While these
products, which are also referred to
as "alternative" or "exotic" mortgage
loans, have been available for many
years, the number of institutions
offering them has expanded rapidly
in recent years. To address these
concerns, the FDIC implemented
certain enhancements to the
supervisory oversight of nontraditional
mortgage banking activities and,
w ith the other financial institution
regulatory agencies, developed and
issued guidance to address the
growing risks associated with these
loan products. The agencies are
concerned that some borrowers
may not fully understand the risks
of these products. The agencies
are also concerned about the lack
of principal amortization and the
potential for negative amortization.
Moreover, institutions are increasingly
combining these loans with other
features that may compound risk.
The guidance covers three primary
areas: loan terms and underwriting
standards, portfolio and risk man­
agement practices, and consumer
protection issues. It focuses on
qualification standards for borrowers,
and portfolio management and
communication with consumers and
makes clear that the FDIC and the
other regulatory agencies expect
institutions to effectively assess
and manage the risks posed by
nontraditional mortgage products.




Erica Bovenzi and
Sandra Thom pson at
a c o m m u n ity bank
fo ru m in N e w Orleans.

The guidance recommends that pro­
motional materials and other product
descriptions provide consumers with
full and balanced information about
the costs, terms, features and risks particularly payment shock and
negative amortization - of non­
traditional mortgage products. To help
consumers shop wisely and decide
whether such a product is right for
them, the FDIC also published infor­
mation about nontraditional mortgages
in its quarterly FDIC Consumer News
and joined the other regulatory
agencies in publishing a consumer
handbook on interest-only and
payment-option mortgages.
Guidance on Concentrations in
Commercial Real Estate Lending
The federal banking regulatory
agencies (agencies) recognized that
financial institutions serve a vital role
in their communities by supplying
credit for business and real estate
development. Flowever, the agencies
have observed that commercial real
estate (CRE) concentrations have
been rising over the past several
years and may expose institutions

to earnings and capital volatility in
the event of economic downturn.
To address these concerns, the
agencies published for comment
the proposed interagency Guidance
on Concentrations in Commercial
Real Estate Lending, Sound Risk
Management Practices (CRE
Guidance) on January 10, 2006.
After carefully reviewing over
4,400 comment letters, the agen­
cies issued the final CRE Guidance
on December 12, 2006. The CRE
Guidance reminded institutions
that strong underwriting standards,
portfolio management practices, and
capital levels are important elements
of a sound CRE lending program.
Hurricane Recovery Assistance
Since the Gulf Coast hurricanes of
2005, the FDIC has worked with
other federal and state regulatory
agencies to address policy issues
that arose due to the severity and

counseling program will assist
individuals to plan carefully and
make informed decisions to avoid
costly mistakes at this difficult time
in their lives. The FDIC envisions that
the counseling program will become
a template for consumers to "navigate
the road to housing recovery" in
other areas of the country following
major natural disasters or other
catastrophic events.
Vice Chairm an Gruenberg
at a Gulf Coast fo ru m in
N e w Orleans.

scale of those events. In 2006, the
agencies issued examiner guidance
that outlines examination procedures
for assessing the financial condition
of institutions adversely affected
by the hurricanes. Working through
the Federal Financial Institutions
Examination Council (FFIEC), the
agencies also published and distrib­
uted to insured financial institutions
a booklet entitled Lessons Learned
from Hurricane Katrina: Preparing
Your Institution for a Catastrophic
Event. This booklet compiles the
experiences of bank officials in
the aftermath of these hurricanes
and offers insights to those who
are responsible for devising and
implementing an institution's
disaster recovery and business
continuity plans.
In October 2006, the FDIC and
NeighborWorks® America jointly
released a new homeownership
and financial counseling guide called
Navigating the Road to Housing
Recovery in the Gulf Coast. The




guide is designed for evacuees who
are now beginning to receive federal
and state financial assistance to
rebuild or relocate. It was a focal
point of tw o conferences held in
late 2006, the "Gulf Coast Flousing
Summit-Strategies for Redeveloping
Communities and Rebuilding Lives,"
jointly sponsored by the FDIC
and NeighborWorks® America in
New Orleans, LA, and another
housing conference sponsored by
Back Bay Mission in Biloxi, MS.
More than 400 bankers, housing
experts, homeownership counselors
and others attended the tw o confer­
ences to discuss local issues, match
development resources with needs,
and learn more about the "just-intim e" counseling program.
The FDIC, in cooperation with
NeighborWorks® and an array of
local partners, will schedule trainthe-trainer sessions through early
2007 to develop 300 potential home­
ownership counselors. Counselor
trainees will be drawn from banks,
churches, government agencies,
employers, nonprofits and other
groups working w ith hurricane
evacuees. This comprehensive

Minority Depository Institutions
The FDIC has long recognized the
importance of minority depository
institutions in promoting the economic
viability of minority and underserved
communities. As a reflection of the
FDIC's com m itm ent to minority
depository institutions, the FDIC
issued a "Policy Statement Regarding
Minority Depository Institutions" on
April 9, 2002. The policy statement
implements an outreach program
designed to preserve and encourage
minority ownership of financial
institutions.
Since the adoption of that policy
statement, the FDIC has maintained
contact with various minority deposi­
tory institution trade associations;
met periodically with the other federal
banking regulators to discuss initiatives
underway at the FDIC and identify
opportunities for the federal banking
agencies to work together to assist
minority institutions; held regional
outreach meetings and five Minority
Bankers Roundtables; and extended
offers to each FDIC-supervised
minority depository institution to
meet and discuss issues of interest.
In August 2006, the FDIC hosted the
first "National Minority Depository
Institution Conference" in Miami, FL,

with attendance from more than
100 bankers; representatives from
the Office of the Comptroller of the
Currency, the Federal Reserve and
the Office of Thrift Supervision; and
several private-sector and industry
trade group representatives. The con­
ference addressed topics of interest
to the minority banking community,
with particular emphasis on a shared
commitment to expanding financial
services available to minority and
underserved communities; developing
coalitions to improve minority
community infrastructures by
partnering with organizations such
as NeighborWorks® America; and
fostering a better understanding
by the regulatory community of the
unique challenges minority depository
institutions face. A second national
conference is planned for 2007.
During 2006, an FDIC task force also
assisted three minority institutions
headquartered in New Orleans, LA,
and severely impacted by Hurricane
Katrina in improving their liquidity
by securing $22 million in deposit
pledges from Utah-based ILCs.
The ILCs also provided $123,000 in
direct cash donations to assist these
institutions in meeting the housing
and other needs of their employees.
Homeland Security
The FDIC has taken a leadership role
in ensuring that the financial sectora critical part of the infrastructure of
the United States-is prepared for a
financial emergency. As a member of
the Financial and Banking Information
Infrastructure Committee (FBIIC), the




FDIC has sponsored a series of out­
reach meetings titled "Protecting the
Financial Sector: A Public and Private
Partnership." During 2006, these
Homeland Security meetings were
held in 22 cities across the United
States. These meetings provided
members of the financial sector
with the opportunity to communicate
with senior government officials, law
enforcement personnel, emergency
management personnel and private
sector leaders about emergency
preparedness. Homeland Security
meetings are planned for 11 cities
in 2007.
Bank Secrecy Act
The FDIC chairs the FFIEC Bank
Secrecy Act/Anti-Money Laundering
(BSA/AML) Working Group. Under
the auspices of the BSA/AML
Working Group, the FDIC, the
other federal banking agencies, and
FinCEN updated the FFIEC BSA/AML
Examination Manual in July 2006.
The revised manual reflects the
ongoing commitment of the federal
banking agencies and FinCEN to
provide current and consistent guid­
ance on risk-based policies, proce­
dures, and processes for banking
organizations to comply with the
BSA and safeguarding operations
from money laundering and terrorist
financing. Following the release of
the manual, the FDIC coordinated
and hosted four interagency confer­
ence calls for the banking industry
and examination staff regarding
changes to the manual. Over 1,500
examiners and 10,650 bankers and
industry representatives participated
in those outreach events. During
2006, the FDIC also participated in
more than 145 additional industry
outreach and regulatory training
events nationwide relating to
BSA/AML topics.

The FDIC continued in 2006 to play
a critical role in the international
fight against money laundering
and terrorist financing. Its efforts
included the following:
•

With the other federal banking
agencies, negotiated and
signed an information-sharing
memorandum of understanding
(MOU) with the Office of Foreign
Assets Control (OFAC) in April
2006.

•

Conducted AMLVCounter-Financing
of Terrorism (CFT) training for
20 central bank representatives
from Afghanistan, Iraq, Kenya,
South Africa, and Yemen in
September 2006.

•

Provided guidance and resources
for the international AML/CFT
financial system assessments
and training. The FDIC participated
in reviews of South Africa's
existing AML policies and Paraguay
draft AML legislation; provided
technical assistance in Bosnia
to evaluate AM L controls and
existing legislation; delivered
a presentation at the Eurasian
Group (Financial Action Task
Force-style regional body)
seminar in Russia; and provided
guidance to the Russian central
bank, financial intelligence
unit, and legislature regarding
amendments to Russia's AML
law.

•

•

Continued to enhance the skills
of its BSA/AML subject-matter
experts, w ith 34 BSA/AML
subject-matter experts attaining
certification during 2006 under
the Association of Certified
Anti-Money Laundering Specialist
certification program.
Conducted AML examination
training courses for representatives
from the Albanian financial intel­
ligence unit, the Indian financial
intelligence unit, and Malaysian
government officials.

Cyber Fraud and Financial Crimes
The FDIC continued to take a leader­
ship role in consumer education
initiatives related to identity theft
w ith a public education campaign
that included sponsoring identity
theft symposia focusing on
e-commerce. The symposia, held
in San Francisco, CA, Mesa, AZ,
and Miami Beach, FL, brought
together representatives from
federal and state governments,
industry, consumer and community
organizations, and law enforcement
to discuss issues related to identity
theft and e-commerce.
Other major accomplishments during
2006 in combating identity theft
included the following:
• Assisted financial institutions
in identifying and shutting down
approximately 900 "phishing"
Web sites. The term "phishing"as in fishing for confidential
information-refers to a scam
that encompasses fraudulently
obtaining and using an individual's
personal or financial information.




•

Issued 342 special alerts of
reported cases of counterfeit
or fraudulent bank checks.

•

Released an online training tool
entitled "D on't Be an On-line
Victim: How to Guard Against
Internet Thieves and Electronic
Scams" (available through the
FDIC's Web site and on CD-ROM).

•

Participated in the President's
Identity Theft Task Force and five
of its primary subgroups.

Office of International Affairs
Increasing globalization and inter­
dependence heighten the potential
for financial and economic instability
to transcend national geographic
boundaries. The promotion of sound,
stable banking systems abroad is
a key ingredient for greater global
prosperity and stability which, in turn,
will benefit the U.S. financial system
and the banking public. The FDIC
created the Office of International
Affairs in 2006 to coordinate the
FDIC's international activities with
a focus on building strong relation­
ships w ith foreign regulators and
deposit insurers, other U.S. govern­
ment entities and international
organizations. The programs over­
seen by the office provide training,
expert consultation, and technical
assistance to foreign deposit insurers,
bank supervisory authorities and
other foreign government agencies
to support the development and
maintenance of effective deposit
insurance programs and stable,
sound banking systems worldwide.

Consumer Complaints
and Inquiries
The FDIC investigates consumer
complaints about FDIC-supervised
institutions and answers inquiries
from the public about consumer
protection laws and banking practices.
In 2006, the FDIC received 9,652
written complaints, of which 3,442
were against state nonmember insti­
tutions. The Corporation responded
to over 97 percent of these complaints
within corporate timeliness standards.
The FDIC also responded to 3,870
written and 4,188 telephone inquiries
from consumers and members of the
banking community about consumer
protection issues.
In April 2006, the FDIC hosted the
first Interagency Consumer Affairs
Conference in Arlington, VA,
with approximately 140 attendees,
including representatives from
the Federal Reserve Board, Office
of Thrift Supervision, Office of
the Comptroller of the Currency,
National Credit Union Administration,
and the Federal Trade Commission.
Discussions included best practices
for investigating and responding
to consumer complaints, banking
practices, and financial trends that
have and will continue to challenge
consumers in 2006 and beyond.
Deposit Insurance Education
An important part of the FDIC's role
in insuring deposits and protecting
the rights of depositors is its respon­
sibility to ensure that bankers and
consumers have access to accurate
information about the FDIC's deposit
insurance rules. The FDIC has an
extensive deposit insurance education
program consisting of seminars for
bankers, electronic tools for estimating
deposit insurance coverage, and

23

w ritten and electronic information
targeting both bankers and consumers.
The FDIC also responds directly to
inquiries from bankers and the public
about deposit insurance. During
2006, the FDIC responded to over
86,134, or 99 percent, of written and
telephone inquiries from bankers and
consumers about the FDIC's deposit
insurance program and insurance
coverage issues within the time
frames established by policy. This
was an increase of approximately
34 percent over the number of
inquiries received in 2005, in large
part due to the enactment of new
coverage limits as part of deposit
insurance reform.
Following enactment of deposit
insurance reform legislation, the
FDIC initiated a multi-pronged effort
to inform the public and banking
industry about the increase in coverage
for retirement savings. As part of this
effort, the FDIC updated its numerous
publications and educational tools
for consumers and bankers on FDIC
insurance coverage, including updated
editions of Insuring Your Deposits,
the FDIC's basic deposit insurance
brochure for consumers; Your Insured
Deposit, the FDIC's comprehensive
deposit insurance guide; and
the Electronic Deposit Insurance
Estimator (EDIE), the FDIC's userfriendly Internet application that helps
bank customers calculate insurance
coverage on their deposit accounts
at FDIC-insured institutions. The
FDIC also published other promotional
materials, including a special edition
of the FDIC Consumer News that
included information on the new
coverage limits, and worked with


http://fraser.stlouisfed.org/
24
Federal Reserve Bank of St. Louis

the banking industry, national
consumer organizations and the
media to publicize the availability
of this information. More than 8,200
bankers participated in a series of
national teleconferences on the new
coverage limits conducted by the
FDIC during the summer of 2006. In
addition, the FDIC used a variety of
formats to conduct 28 seminars for
financial institution employees and
consumer organizations on changes
to deposit insurance coverage rules
that were effective on April 1, 2006.
In 2006, the FDIC also completed
development of Spanish-language
versions of tw o of its most popular
educational resources for consumers
and bankers, a Spanish language
version of EDIE (available on the
FDIC's Web site beginning in early
2007) and a 30-minute Spanishlanguage video for bank employees
and customers (now available on
the FDIC's Web site) that provides
an overview of the FDIC's rules and
requirements for deposit insurance
coverage, with specific emphasis on
the most common account owner­
ship categories used by individuals
and families.
The FDIC continued publication of
its quarterly consumer newsletter,
FDIC Consumer News, which covers
a wide range of financial topics of
interest to consumers. Three special
age-based issues of FDIC Consumer
News - for seniors, young adults
and teens - were published during
the year. The how-to financial guide
for seniors won an Achievement in
Consumer Education Award from
the National Association of Consumer
Agency Administrators. Current and
past issues of FDIC Consumer News
are available online at
www.fdic.aov/consumernews.

Financial Education and
Community Development
Five years ago, the FDIC-recognizing
the need for enhanced financial
education across the countryinaugurated its award-winning
Money Smart curriculum, which
is now available in seven languages
as well as in a computer-based
instruction version. In 2006, the
FDIC introduced the Russian
language, large print and Braille
versions of M oney Smart. The large
print and Braille versions are the
first financial education program
specifically targeted for individuals
with visual impairments. Since its
inception, over 864,000 individuals
(including approximately 207,000
in 2006) have participated in Money
Smart classes and approximately
128,000 of these participants have
subsequently established new
banking relationships.
During 2006, the FDIC also under­
took 370 community development,
technical assistance and outreach
activities. These activities were
designed to promote: awareness of
investment opportunities to financial
institutions, access to capital within
communities, knowledge-sharing
among the public and private sector,
and wealth building opportunities for
families. Representatives throughout
the financial industry and their stake­
holders collaborated with FDIC on a
broad range of initiatives structured
to meet local and regional needs
for financial products and services,
credit, asset-building, affordable
housing, small business and
micro-enterprise development
and financial education.

R e c e iv e rs h ip M a n a g e m e n t

L iq u id atio n H ig h lig h ts 2 0 0 4 - 2 0 0 6
Dollars

The FDIC has the unique mission
of protecting depositors of insured
banks and savings associations.
No depositor has ever experienced
a loss on the insured amount of their
deposit in an FDIC-insured institution
due to a failure. Once an institution
is closed by its chartering authority the state for state-chartered institu­
tions, the Office of the Comptroller of
the Currency (OCC) for national banks
and the Office of Thrift Supervision
(OTS) for federal savings associations the FDIC is responsible for resolving
that failed bank or savings association.
The FDIC gathers data about the
troubled institution, estimates the
potential loss to the insurance fund
from various resolution alternatives,
solicits and evaluates bids from
potential acquirers, and recommends
the least-costly resolution method
to the FDIC's Board of Directors.
Resolving Financial Institution
Failures
For the second consecutive calendar
year, there was no failure of an insured
depository institution in 2006, further
extending the longest period in the
history of the FDIC during which
no insured institution fa ile d -a
record 31 months. The Corporation's
remaining receivership management
workload also continued to decline.
The accompanying chart provides
liquidation highlights and trends
for the past three years.




in

billions

(e xce p t w h e re n oted)
2006"

Total Resolved Banks
Assets of Resolved Banks
Total Resolved Savings Associations
Assets of Resolved Savings Associations
Net Collections from Assets in Liquidation"
Total Assets in Liquidation"
Total Dividends Paid"
jSavings Over Cost of Liquidation'

$
S
$
S
$
$

0
0.00
0
0.00
0.17
0.35
0.17
0

$
$
$
$
$
$

2005*
0
0.00
0
0.00
0.37
0.44
0.44
0

$
$
$
$
$
$11.6

2004
3
0.15
1
0.01
0.38
0.61
0.38
m illion

• No failures in 2005 and 2006.
• Includes activity from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the
Resolution Trust Corporation.
'L east Cost Test Savings.

Large Bank Contingency Planning
The FDIC must ensure that it has
the tools and strategies necessary to
fulfill its missions as deposit insurer
and receiver for all insured banks and
thrifts. As the banking industry has
become more concentrated and
as larger insured institutions have
grown significantly, the FDIC has
undertaken a number of concrete
steps to enhance its capabilities
to manage the resolution of a large
bank. Some of the initiatives involved
in this ongoing process are contin­
gency planning exercises, system
and process improvements for
determination of deposit insurance
claims and management of failing
bank assets, consultations with
domestic and international regula­
tors, improvements to the FDIC's
supervisory program for larger
banks, and the designation of
internal and external expertise to
focus on larger bank issues. The
Claims Administration System
(CAS), described in the following
section, is one of these initiatives.
This effort will continue and evolve
as the challenges change in the
future.

Claims Modernization Project
The FDIC is taking advantage of the
hiatus in resolution activity by mod­
ernizing the way it determines the
insurance status of depositors in the
event of failure by streamlining its
business processes and modernizing
the internal systems used to facilitate
a deposit insurance determination
through improved use of current
technology. This includes development
and implementation of a new
insurance determination system
called the Claims Administration
System (CAS) to be implemented
in 2008, which will provide an
integrated solution that will meet the
current and future deposit insurance
determination needs of the FDIC.
The new system will minimize the
potential for FDIC losses, reduce any
spillover effects that could lead to
systemic risks, preserve franchise
value, and produce deposit insurance
results in a timely manner in order to
quickly provide funds to claimants.

The Corporation is also seeking
cooperation from the largest insured
institutions to assist in the insurance
determination process in the event
of failure. During 2006, the FDIC
reviewed 28 comment letters received
in response to an advance notice of
proposed rulemaking (ANPR) pub­
lished in December 2005, requesting
input on three options that could be
applied to the largest 145 insured
institutions. Based on this review,
a new ANPR was published in
December 2006, seeking comment
on a new option and strategy for
this purpose. The FDIC is currently
awaiting comments on this revised
proposal.
Receivership Management
The FDIC, as receiver, manages failed
banks and their subsidiaries with the
goal of expeditiously winding up their
affairs. The oversight and prompt
termination of receiverships help
to preserve value for the uninsured
depositors and other creditors by
reducing overhead and other holding
costs. Once the assets of a failed
institution have been sold and all
impediments to termination have
been resolved, the FDIC makes the
final distribution of any proceeds and
terminates the receivership estate.
In 2006, the number of receiverships
under management was reduced by
15.4 percent (from 65 to 55), while
the book value of assets under man­
agement was reduced by 20.2 percent
(from $441 million to $352 million).
The ten receiverships terminated
in 2006 were all terminated within
90 days of the resolution of all
impediments.

Professional Liability Recoveries
The FDIC works to identify potential
claims against directors and officers,
accountants, appraisers, attorneys
and other professionals who may
have contributed to the failure of
an insured financial institution. Once
a claim is deemed viable and costeffective to pursue, the FDIC initiates
legal action against the appropriate
parties. The FDIC strives to make a
decision to close or pursue 80 per­
cent of all potential claims within
18 months of the failure date.5
During 2006, the FDIC recovered
approximately $36.2 million from
these professional liability suits. In
addition, as part of the sentencing
process for those convicted of criminal
wrongdoing against failed institutions,
the court may order a defendant to
pay restitution to the receivership.
The FDIC, working in conjunction
with the U.S. Department of Justice,
collected approximately $10.5 million
in criminal restitution payments during
the year. The FDIC's caseload at the
end of 2006 included investigations,
lawsuits and ongoing settlement
collections involving 13 claims and
95 other active collection matters,
down from 127 at the beginning
of 2006. At the end of 2006, there
were 814 pending restitution orders,
down from 995. This includes
orders won by the former Resolution
Trust Corporation for which the
FDIC assumed responsibility on
January 1, 1996.

This performance target did not apply in 2006, because no failures occurred during the 18-month period prior to the start of the year.


http://fraser.stlouisfed.org/
26
Federal Reserve Bank of St. Louis

Protecting Insured Depositors
Although the FDIC's focus in recent
years has shifted from resolving
large numbers of failed institutions
to addressing existing and emerging
risks in insured depository institutions,
the FDIC continues to protect deposi­
tors and other stakeholders of those
institutions that fail. The FDIC's
ability to attract healthy institutions
to assume deposits and purchase
assets of failed banks and savings
associations minimizes the disruption
to customers and allows some assets
to be returned to the private sector
immediately. Assets remaining
after resolution are liquidated by the
FDIC in an orderly manner, and the
proceeds are used to pay creditors,
including depositors whose accounts
exceeded the insured limit. During
2006, the FDIC paid dividends of
80.2 percent of the deposit amount
exceeding the insured limit, which
represents an increase of 2.3 percent
from 2005.

E ffe c tiv e M a n a g e m e n t
o f S tra te g ic R esources

The FDIC recognizes that it must
effectively manage its human,
financial, and technological resources
in order to successfully carry out its
mission and meet the performance
goals and targets set forth in its
annual performance plan. The
Corporation must align these strategic
resources with its mission and goals
and deploy them where they are
most needed in order to enhance
its operational effectiveness and
minimize potential financial risks to
the DIF. Major accomplishments in
improving the Corporation's opera­
tional efficiency and effectiveness
during 2006 are described on the
following pages.

Human Capital Management
The FDIC's employees are its most
important resource. The intellectual
capital supplied by FDIC employees
is the single most important contri­
butor to achieving the Corporation's
mission of maintaining public
confidence in our nation's financial
system. As such, the FDIC strives
to be the best employer within the
financial regulatory community and
pursues human capital programs
and strategies that will enable it to
attract, develop and retain a highly
skilled, diverse, and results-oriented
workforce.
The FDIC has a human capital frame­
work that guides its human capital
activities. Using this framework as
a guide, the Corporation continues
to develop and maintain a workforce
that is highly functional and crosstrained in multiple disciplines and
stands ready to redirect its attention
and efforts in response to changes
in the banking industry or changes
in workload priorities.
During 2006, the FDIC completed
the last of its currently-planned
workforce restructuring activities.
Through the strategic use of
voluntary early retirement authority
and voluntary separation incentive
payments, most of the remaining
restructuring was accomplished
voluntarily. The Corporation also
completed a very successful internal
placement process that reassigned
remaining surplus staff to vacancies
in other FDIC organizations.




Corporate Em ployee Program

Development and implementation
of the new Corporate Employee
Program (CEP) continued in 2006.
The program emphasizes crosstraining of employees at all levels
to provide greater flexibility to be able
to respond to changes in workload as
well as unexpected external events.
During the past year, the primary focus
was on the implementation of a new
recruiting strategy for entry-level
employees and refinement of the
first-year training program under
which new employees are exposed
to each of the Corporation's three
major business lines. By the end
of 2006, almost 200 employees
had begun the three-year career
internship and training program that
is the core component of the CEP
and will in the future constitute the
primary source of new employees
for the Corporation's business
divisions.

and training requirements for this
specialty will be evaluated. As these
and other programs are implemented,
a database of FDIC employee skills
will track and monitor the availability of
specialized human capital resources.
Corporate University expanded its
support of external certificate pro­
grams to provide staff the opportunity
to build skills as well as earn profes­
sional credentials. The FDIC now pays
exam fees and preparation class fees
for eligible students pursuing the
following external certificate programs:
•

Certified Anti-Money Laundering
Specialist (CAMS);

•

Certified Fraud Examiner (CFE);

•

Certified Information Systems
Auditor® (CISA®);

•

Certified Regulatory Compliance
Manager (CRCM);

•

Chartered Financial Analyst®
(CFA®); and

•

Financial Risk Manager® (FRM®).

Em ployee Learning and G row th

The Corporation emphasizes contin­
uous employee learning and growth.
During 2006, the Corporation finalized
plans for the 2007 implementation
of the new Professional Learning
Account program that will give
employees a greater role in planning
their career development and provide
substantially increased funding for
external training. The Corporation
also began to increase its emphasis
on industry-recognized professional
certifications and completed pilot
tests of two new internally-developed
certificate programs covering Bank
Secrecy Act/Anti-Money Laundering,
and Resolutions and Receivership
Claims. A career path for large com­
plex bank specialists will be explored,

Succession M an ag em en t

The FDIC will have the opportunity
over the next decade to substantially
reshape its workforce in conjunction
with the projected retirements of
a large number of employees from
the "baby boom" generation. To
proactively plan for and address
these projected retirements, the
FDIC developed tw o succession
management programs in 2006:
the Executive Talent Review and
the Corporate Executive Development
Program. These programs were
designed to assess executive lead­
ership strength, identify potential
skill set shortages or gaps and then
institute strategies for closing these
gaps, including rigorous leadership

development programs. In late
2006, the FDIC's senior leadership
conducted an initial "talent review"
of all of its executive managers to
determine where there may be gaps
in the availability and skills of quali­
fied successors for key executive
positions. This process identified a
number of "at risk" positions - those
in which the incumbents were likely
to leave in the near future with no
or few obvious internal candidates
available to replace them. In 2007,
the Corporation will develop strate­
gies to fill these potential succession
gaps for positions with a high risk
of loss in the near term. The talent
review process will also be extended
to assess potential succession in
management gaps for supervisory
and managerial positions as well as
senior technical professionals.
Pa y-for-Performance

In January 2006, the FDIC began
implementation of the new 20062009 Compensation Agreement that
had been negotiated with its employee
union during 2005. This included
a revised pay-for-performance (PFP)
system that provides for graduated
base pay increases and potential
lump sum bonuses based exclusively
on assessments of total employee
performance. The PFP system is
entirely performance-based; only
those employees who meet all
of their performance standards
are eligible for pay increases.
Em ployee Engagem ent

The FDIC's human capital programs
and strategies are continually evalu­
ated to ensure that the FDIC remains
an employer of choice and that all
employees feel engaged and aligned
with the Corporation's mission critical
functions. To help assess workload




alignment and employee engagement,
all FDIC employees were encouraged
to participate in the 2006 Federal
Human Capital Survey administered by
the Office of Personnel Management.
This survey provides relative measures
of employee satisfaction and engage­
ment on a number of dimensions.
In 2007, the FDIC will analyze the
results and implement action plans
to address any potential issues that
employees identify as inhibitors to
strong employee engagement.
Management of
Financial Resources
The FDIC's operational expenses
are largely paid from the DIF, and
the Corporation seeks to operate
in a consistently efficient and cost
effective manner in order to fulfill its
fiduciary responsibilities. To that end,
the Corporation engages annually
in a rigorous planning and budgeting
process that is designed to ensure
that budgeted resources are properly
aligned with projected workload
and business priorities. In 2006, the
FDIC continued to enhance the cost
management information available
to managers in conjunction with the
implementation of the New Financial
Environment, its new accounting
system. In 2007, the FDIC will con­
tinue to explore how best to utilize
this enhanced cost management data
to promote good stewardship of the
Corporation's resources.
Managing Facility-Related Costs
In the first quarter of 2006, the
Corporation completed construction
of its Virginia Square Phase II facility
in Arlington, VA. The project was

completed on time and under budget.
Approximately 800 employees in three
leased facilities in Washington, DC,
were relocated to the expanded
facility in Arlington. Successful
completion of this initiative to build
and relocate staff to owned space will
save the Corporation an estimated
$89 million (net present value) over
20 years, compared to the projected
cost of extending the previous
leasing agreements.
Information Technology
Management
Information technology (IT) resources
are one of the most valuable assets
available to the FDIC in fulfilling its
corporate mission. The FDIC operates
a nationwide computing network
and maintains approximately 270
application systems through which
employees perform their duties.
IT Transformation

For the past several years, the
Corporation has been engaged
in a major effort to transform and
improve its IT program. In 2006,
the IT program continued to evolve
as it continued to implement key
elements of its transformation plan:
•

The organization fully adopted the
Rational Unified Process® as its
new system development life cycle
methodology and customized it
to meet the FDIC's unique IT
project environment.

• The Division of Information
Technology (DIT) adopted a new
internal control framework based
upon the international standard
known as CobiT (Control Objectives
for Information and Related
Technology).

•

DIT continued implementing a
new sourcing strategy in which
it partnered w ith the private
sector and other federal agencies
to provide IT support services
using performance-based, resultsdriven contracts.

E-Exam Programs

In 2006, the FDIC also implemented
an e-Exam Policy, including related
security procedures, for use in
conducting examination activities
at institutions utilizing an electronic
exchange of documents/data with
the FDIC. A significant component
of the e-Exam Policy involves the
flexibility to increase the amount of
examination work conducted off-site.
Factors considered in the decision
to utilize this program include the
type and extent of the information
available, the institution's risk profile,
and management's willingness to
transfer examination documents
electronically.
E-Governm ent

The FDIC continued to collect quality
and timely information in 2006 with
the use of FDICconnecf, the secure
Web site that facilitates electronic
communication with FDIC-insured
institutions. In 2006, over 400,000
transactions were completed
by financial institutions using
FDICconnecf.
Central Data Repository

The Federal Financial Institutions
Examination Council (FFIEC), which
includes the FDIC, won a 2006 award
from Government Computer News




for outstanding and innovative use of
IT in government for the successful
launch of the new Central Data
Repository (CDR) to collect Call
Report data using XBRL (extensible
Business Reporting Language). The
CDR project was also awarded the
Chief Information Officer's Top 100
award for its outstanding work using
XBRL for financial reporting.
Enhanced Inform ation Security
Program

The FDIC's information security
program seeks to proactively assure
the integrity, confidentiality and
availability of corporate information
requiring an ongoing commitment by
employees throughout the organiza­
tion. In 2006, the information security
program continued its ongoing cycle
for assessing risks, developing
and implementing effective security
procedures and monitoring the
effectiveness of those procedures.
Corporate Privacy Program
The FDIC continued to enhance its
IT Privacy Program in 2006 with an
emphasis on protecting personally
identifiable information (PII) from
unauthorized use, access, disclosure
or sharing, and protecting associated
information systems from unauthor­
ized access, modification, disruption
or destruction. Initiatives undertaken
during the year included the following:
•

Developing an overarching privacy
directive.

•

Developing a strategy for the
protection of Pll processed,
stored, transmitted or accessed
by FDIC contractors, and ensuring
appropriate assessment of the
security of data.

•

Continuing the review and reme­
diation of Pll in FDIC application
systems.

•

Identifying all contracts that
process or use Pll or other
sensitive information, ensuring
that updated privacy and nondis­
closure clauses are included.

•

Continuing to participate in the
Office of Management and Budget
Privacy Work Group.

Emergency Preparedness Program
During 2006, the FDIC continued
work on its Emergency Preparedness
Program, and made improvements to
the Emergency Response Plan (ERP)
and Business Continuity Plan (BCP).
Completed initiatives included the
development of a computer-based
instruction module on emergency
preparedness for all FDIC personnel
to be activated in early 2007; expan­
sion and improvement of FDIC
alternate site facilities; expansion
of FDIC emergency notification
systems to all regional and area
offices; revision of both the ERP
and BCP; and participation in the
Federal government's Forward
Challenge simulation exercise.
Other accomplishments included
the conduct of additional classroom
training on emergency preparedness
for employees, contractors and
floor marshals; shelter-in-place
and evacuation drills; and tabletop
exercises at all headquarters and
regional office locations. Disaster
recovery testing of FDIC's key
information technology resources
was also performed.

Federal Deposit Insurance Corporation

II. Financial H ighlights
D e p o s it In s u ra n c e Fund
P e rfo rm a n c e

FD IC -D IF Insured D eposits ( e s t im a t e d 1 9 6 0 - 2 0 0 6 ) *
D o l l a r s

The FDIC administers the Deposit
Insurance Fund (DIF) and the FSLIC
Resolution Fund (FRF), which fulfills
the obligations of the former
Federal Savings and Loan Insurance
Corporation (FSLIC) and the former
Resolution Trust Corporation (RTC).
The following summarizes the
condition of the DIF. (See the
accompanying tables on FDIC-DIF
Insured Deposits on this page and
DIF Insurance Fund Reserve Ratios
on the following page.)
For the year 2006, DIF's comprehen­
sive income totaled $1.6 billion
compared to $1.1 billion in 2005,
a year-over-year increase of approxi­
mately 44 percent. Excluding the
recognition of exit fees earned of
$345 million (a one-time adjustment),
comprehensive income rose by
$133 million from a year ago. This
year-over-year increase is primarily
due to a decrease in the unrealized
loss on available-for-sale (AFS) securi­
ties of $348 million, which was offset
by decreases in both interest earned
on U.S. Treasury obligations of
$101 million and the negative
provision for loss of $108 million.
(See the accompanying chart on
Selected Statistics on page 32.)




in

b i l l i o n s

1960_______________ 1970_______________ 1980_______________ 1990_______________ 2000

|
4,000
3,500
3.000
2.500

2.000
1.500
1,000
500

0
* All amounts are year-end except 2006 is at 9/30/06.
From 1989 through 2005, amounts represent the sum of separate BIF and SAIF amounts.
Source: Commercial Bank Call Reports and Thrift Financial Reports.

The significantly lower unrealized loss
on AFS securities primarily resulted
from: 1) a smaller total market value
of AFS securities, 2) a lower average
duration for the AFS securities, and
3) a smaller increase in the market
yields of the AFS securities. Flowever,
the lower unrealized loss was partially
offset by a decrease in interest
revenue on U.S. Treasury obligations
that resulted from lower inflation
compensation on Treasury InflationProtected Securities.

2006

DIF In s u ran ce Fund R eserve R atios (F u n d B a la n c e s a s a P e rc e n t o f In s u re d D e p o s its )

1.40
1.35

3/03

6/03

9/03 12/03 3/04 6/04 9/04 12/04 3/05 6/05

Prior to 2006, amounts represent the sum of separate BIF and SAIF amounts.




9/05 12/05 3/06

6/06

9/06

S e le c te d S ta tis tic s D e p o sit In s u ran ce Fund
D o l l a r s

in

m i l l i o n s
For the years ended December 31
2006

Financial Results
Revenue
|0 p e ra tin g Expenses
Insurance and other expenses
Net Income
Comprehensive Income
Insurance Fund Balance
Fund as a Percentage of Insured Deposits

S

2,644
951
(46)
1,739
1,569
S 50,165
1.22%’

Selected Statistics
Total DIF-M em ber Institutions*
Problem Institutions
Total Assets of Problem Institutions
$
Institution Failures
Total Assets of Current Year Failed Institutions
$
Number of A ctive Failed Institution Receiverships

8,743 T
47 ’
3,983 T
0
0
25

2005

$

2,421
966
(156)
1,611
1,090
$ 48,597
1.25%

$

8,832
52
6,607

0

0

$

27

2004

$

2,240
941
(334)
1,633
1,485
$ 47,507
1.31%

8,975
80
$ 28,250
4
$
166
34

T As of September 30,2006.
* Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

C o rp o ra te O p e ra tin g B u d g et
S p e n d in g

The FDIC has had an exceptional
record of controlling operating
costs over the past five years, and
2006 was no exception. Corporate
Operating Budget expenses totaled
$973 million in 2006, including $961
million for ongoing operations and
$12 million for receivership funding.
During the five-year period from
2002 through 2006, the FDIC's
annual Corporate Operating Budget
expenses declined from $1,189 million
to $973 million, a reduction of
$216 million, or 18 percent, despite




the effects of inflation on the FDIC's
costs. That reduction was primarily
attributable to significant reductions in
staffing as well as a steady reduction
in resolutions and receivership activi­
ties resulting from the historically
low number of bank failures.
Cost Reductions Realized
through Staff Reductions
Salary and benefits costs represent
more than 60 percent of the FDIC's
annual Corporate Operating Budget.
Because compensation costs are so
significant, the FDIC has engaged in
a continuing effort to realign staffing

to reflect reduced workload require­
ments as it has moved past the
banking and thrift crisis. Total FDIC
staffing fell from 6,167 at the
beginning of 2002 to 4,476 at yearend 2006, a 27 percent reduction
over five years. As a result, spending
for salaries and benefits decreased
by 15 percent, from $737 million in
2002 to $626 million in 2006, despite
an increase of 17.7 percent in the
salaries of individual employees
during this period.

FDIC Staffing and Operating Expenses

$ Millions

■ Operating Expenses
■ Staff

Total Interest Revenue vs. Operating and Investment Budget Spending

$ Millions

jm .

■ Total Interest Revenue

A Continuing Record
of Prudent Stewardship
Two comparisons illustrate the FDIC's
prudent stewardship of the insurance
and resolution funds over the past
five years.
The FDIC relies primarily upon
interest earned on the investments
of the insurance and resolution funds
for its operations. It is notable that
the Corporation has reduced its oper­
ational spending even as the interest
earned on the funds has increased




$2,303

2.09b

2.148

2,440

2,392

■ Total Budget Spending

$1,130

1.035

1:112

1.052

998

significantly. As a result, the FDIC's
annual spending has dramatically
declined as a percentage of interest
revenue on the DIF and FRF. The
aggregate interest revenue of the
DIF and FRF grew to $2,392 million
in 2006, while combined operating
and investment budget spending
fell to 42 percent of interest revenue,
down from 52 percent in 2002.

industry over the past five years. The
banking and thrift industry's deposit
insurance assessment base rose by
approximately 39 percent during this
period, from $4.6 trillion in 2002 to
approximately $6.4 trillion in 2006.
During that same period, the FDIC's
operating budget spending decreased
by 18 percent. As a result, the FDIC's
operating budget spending represented

The Corporation's prudent steward­
ship of the funds can also be seen
when operating budget spending
is compared to the growth of the

33

As the Assessment Base Increased


http://fraser.stlouisfed.org/
34
Federal Reserve Bank of St. Louis

Operating Budget Spending Declined, and as a Result. . .

$ Biillions

....lJW:

2002

Spending 8“ d9et

2 0 03

2004

20 05

2006

$1.189

1.008

1.004

0.990

0.973

Spending has Declined Significantly as a Percentage
of the Assessment Base.

Eeawtaae.

2005
Percent Spending
to Assessment Base

2006

only 0.0152 percent of the average
deposit insurance assessment base
in 2006, compared to 0.0258 percent
of the average deposit insurance
assessment base in 2002.
These comparisons demonstrate
the good value provided to the
banking industry through the FDIC's
continuing commitment to prudent
stewardship of the DIF.
2007 Corporate Operating Budget
Although its staffing realignment
was essentially completed in 2006,
the FDIC will continue to emphasize
control of spending in 2007 and
future years. In December 2006,
the Board of Directors approved a
2007 Corporate Operating Budget
of approximately $1,107 billion,
including $1,032 billion for ongoing
operations. The approved 2007
budget is 4.6 percent higher than
the 2006 Corporate Operating Budget.
This limited budget increase was
required for negotiated employee
pay increases and included funding
for a number of major new initiatives,
including additional staff for com­
pliance examinations and other
supervision functions, as well as




increased funding for employee train­
ing, enhanced IT security and privacy
programs, and completion of system
changes required to support the
implementation of deposit insurance
reform. The Corporation realigned its
spending priorities and reduced costs
in other areas to address these priority
initiatives while limiting the size of
the overall 2007 budget increase.
In 2007 and future years, the FDIC
will continue to rigorously review
its workload and staffing and seek
operational efficiencies through
continuous improvement of its
business processes.

In v e s tm e n t S p e n d in g

The FDIC instituted a separate
Investment Budget in 2003. It has
a disciplined process for reviewing
proposed new investment projects
and managing the construction and
implementation of approved projects.
Most of the projects in the current
investment portfolio are major IT
system initiatives. Proposed IT projects
are carefully reviewed to ensure
that they are consistent w ith the
Corporation's enterprise architecture.
The project approval and monitoring
processes also enable the FDIC to
be aware of risks to the major capital
investment projects and facilitate
appropriate, timely intervention to
address these risks throughout the
development process. An investment
portfolio performance review is
provided to the FDIC's Board of
Directors quarterly.

The Corporation undertook significant
capital investments during the 20032006 period, including construction
of a major expansion of its Virginia
Square facility and the implementa­
tion of 11 major new IT systems.
Investment spending totaled $222
million during this period, peaking at
$108 million in 2004. Spending for
investment projects in 2006 totaled
approximately $25 million. During
2006, the Corporation completed
both the New Financial Environment
(NFE) and Virginia Square Phase II
investment projects.
In 2007, investment spending will
total an estimated $19 million to
$23 million. The Board of Directors
approved one major new investment
project for insurance determination,
the Claims Administration System,
in late 2006.

2006 Annual Report

III. Performance Results Summary


http://fraser.stlouisfed.org/
36
Federal Reserve Bank of St. Louis

S u m m a ry o f 2 0 0 6 P e rfo rm a n c e R esu lts by P ro g ra m

The FDIC successfully achieved 27 of the 32 annual performance targets
established in its 2006 Annual Performance Plan. Five performance targets
related to the resolution of failed institutions were not applicable, because there
were no insured institution failures in 2006. There were no instances in which
2006 performance had a material adverse effect on successful achievement
of the FDIC's mission or its strategic goals and objectives regarding its major
program responsibilities.
Key accomplishments by program are highlighted in the table on the following
page.

Program Area

Insurance

Performance Results
• Successfully implemented deposit insurance reform legislation.
• Established new deposit insurance assessment rates, effective January 1, 2007, and a target
Designated Reserve Ratio of 1.25, in accordance with the provisions of deposit insurance reform
legislation.
• Implemented new assessment credit and dividend systems, in accordance with the provisions
of deposit insurance reform legislation.
• Disseminated updated educational information and tools to consumers and bankers on changes
in deposit insurance coverage limits.
• Completed risk assessments for all large insured depository institutions and followed up on all
identified concerns through off-site review and analysis.
• Conducted and published analysis on the effects of Hurricanes Katrina and Rita.
• Published numerous economic and banking information and analyses, through FDIC Outlook,
FYI electronic bulletins, and Center for Financial Research Working Papers.
• Completed reviews of the effectiveness of the reserving methodology.
• No financial institution failures occurred during 2006.

Supervision and
Consumer Protection

• Conducted 2,388 safety and soundness examinations, including required follow-up examinations
of problem institutions, within prescribed time frames.
• Conducted 1,959 compliance and Community Reinvestment Act examinations, including
prescribed follow-up examination of problem institutions, within prescribed time frames.
• Performed off-site reviews of 925 institutions.
• Published Notices of Proposed Rulemaking for Basel II and IA, and continued other analytical
and preparatory activities related to the implementation of these new capital regulations.
• Completed advanced certification requirements for more than 10 percent of BSA/AML subjectmatter experts.
• Conducted 370 outreach and technical assistance events for bankers and community groups
to promote awareness of community investment opportunities, access to capital, knowledgesharing between the public and private sectors, and wealth building opportunities for families.
• Continued to disseminate the award-winning Money Smart financial education curriculum in
multiple languages, adding 157 Money Smart Alliance members; distributing an additional
121,768 copies of the curriculum; and training approximately 207,000 more individuals with
the curriculum.

Receivership
Management




• Terminated 10 of the 65 (15.4 percent) failed financial institution receiverships existing at the
beginning of the year.
• Secured approval for and began work on a new Claims Administration System (to be implemented
in 2008).
• No institution reached the 18-month milestone for professional liability claim investigation in 2006.

2 0 0 6 B u d g e t an d E x p e n d itu re s by P ro g ra m
(Excluding Investments)

The FDIC budget for 2006 totaled $1,050 billion. Excluding $146 million for
Corporate General and Administrative expenditures, budget amounts were
allocated to corporate programs and related goals as follows: $158 million,
or 15 percent, to the Insurance program; $557 million, or 53 percent, to the
Supervision and Consumer Protection program; and $189 million, or 18 percent,
to the Receivership Management program.
Actual expenditures for the year totaled $973 million. Excluding $147 million for
Corporate General and Administrative expenditures, actual expenditures were
allocated to programs as follows: $166 million, or 17 percent, to the Insurance
program; $548 million, or 56 percent, to the Supervision and Consumer
Protection program; and $112 million, or 12 percent, to the Receivership
Management program.




2006 Budget and E xp en d itu res (Support A llo c a te d )
Dollars

in

Millions

■ Budget
■ Expenditures

insurance
Program

Supervision and
Consumer Protection
Program

Receivership
Management
Program

General
and
A dm inistrative

P e rfo rm a n c e R e s u lts by P ro g ra m and S tr a te g ic G o al
2 0 0 6 In s u ra n c e P ro g ra m R esu lts

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal

3.

Results

Respond promptly to all financial
institution closings and emerging
issues.

Number of business days after
institution failure that depositors
have access to insured funds
either through transfer of
deposits to successor insured
depository institution or
depositor payout.

If the failure occurs on
a Friday, the target is one
business day.

Not
Applicable.
No failures
in 2006.
See pg. 25.

If a failure occurs on any
other day of the week, the
target is tw o business days.

Not
Applicable.
No failures
in 2006.
See pg. 25.

Review comments received
from the advance notice of
proposed rulemaking on
Large-Bank Deposit Insurance
Determination Modernization,
consult with stakeholders,
and make a determination
on how to proceed.

Achieved.
See pgs.
25-26.

Insurance risks posed by large
insured depository institutions.

Assess the insurance risks in
100 percent of large insured
depository institutions and
adopt appropriate strategies.

Achieved.
See pg. 37.

Concerns referred for
examination or other action.

2.

Target

Enhancement of FDIC capabilities
to make a deposit insurance
determination for a large-bank
failure.

1.

Indicator

Identify and follow up on
100 percent of issues raised
through off-site review and
analysis.

Achieved.
See pg. 37.

Scope and timeliness of
information dissemination on
identified or potential issues
and risks.

Results of research and
analyses are disseminated
in a timely manner through
regular publications, ad hoc
reports and other means.

Achieved.
See pgs.
15-16.

Identify and address risks to the
insurance funds.

Disseminate data and analyses
on issues and risks affecting the
financial services industry to bankers,
supervisors, the public and other
stakeholders.




Industry outreach activities
Achieved.
are undertaken to inform
See pgs.
bankers and other stakeholders 15-16, 19.
about current trends, concerns
and other available FDIC
resources.

2 0 0 6 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal
4.

Indicator

Target

Results

Maintain and improve the deposit
insurance system.

Implementation of deposit
insurance reform.

Develop and implement an
assessment credit and
dividends system and a new
deposit insurance pricing
system.

Achieved.
See pg. 13.




Implement deposit insurance
Achieved.
reform legislation in accordance See pgs.
with statutorily prescribed
12-13.
time frames.
Loss reserves.

Enhance the effectiveness
of the reserving methodology
by applying sophisticated
analytical techniques to review
variances between projected
losses and actual losses, and
by adjusting the methodology
accordingly.

Achieved.
See pg. 37.

Fund adequacy.

Set assessment rates to
maintain the insurance fund
reserve ratio between 1.15
and 1.50 percent of estimated
insured deposits.

Achieved.
See pg. 13.

2 0 0 6 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal
5.

Indicator

Target

Provide educational information
to insured depository institutions
and their customers to help them
understand the rules for determining
the amount of insurance coverage
on deposit accounts.

Utility of educational tools
available to bankers and
consumers.

Update Insuring Your Deposits Achieved.
See pg. 24.
(basic deposit insurance
brochure for consumers),
Your Insured Deposit
(comprehensive deposit
insurance brochure), and EDIE
(Electronic Deposit Insurance
Estimator) on the FDIC Web
site to reflect changes resulting
from enactment of deposit
insurance reform legislation.




Results

Develop and make available to Achieved.
the public an updated Spanish See pg. 24.
language version of EDIE
reflecting deposit insurance
reform.
Develop and make available to Achieved.
the public a Spanish language See pg. 24.
version of the FDIC's 30-minute
video on deposit insurance
coverage.
Respond to 90 percent of
inquiries from consumers
and bankers about FDIC
deposit insurance coverage
within time frames established
by policy.

Achieved.
See pg. 23.

Respond to 90 percent of
written inquiries within time
frames established by policy.

Achieved.
See pg. 23.

2 0 0 6 Supervision and C onsum er P rotectio n Program Results
Strategic Goal: FDIC-supervised institutions are safe and sound.
Annual Performance Goal

Indicator

Target

Results

1.

Conduct on-site risk management
examinations to assess the overall
financial condition, management
practices and policies, and compliance
with applicable laws and regulations
of FDIC-supervised depository
institutions.

Percentage of required
examinations conducted in
accordance with statutory
requirements and FDIC policy.

One hundred percent of
required risk management
examinations (including a
review for Bank Secrecy Act
(BSA) compliance) are
conducted on schedule.

Achieved.
See pg. 17.

2.

Take prompt and effective supervisory
action to address issues identified
during the FDIC examination of FDICsupervised institutions that receive
a composite Uniform Financial
Institutions Rating of "4" or "5" (problem
institutions.) Monitor FDIC-supervised
insured depository institutions'
compliance with formal and informal
enforcement actions.

Percentage of follow-up
examinations of problem
institutions conducted within
required time frames.

One hundred percent of
follow-up examinations are
conducted within 12 months
of completion of the prior
examination.

Achieved.
See pg. 17.

3.

Increase regulatory knowledge to
keep abreast of current issues related
to money laundering and terrorist
financing.

Certification of BSA/AML
subject-matter experts.

At least 10 percent of BSA/AML Achieved.
subject-matter experts
See pg. 23.
nationwide are certified under
the Association of Certified
Anti-Money Laundering
Specialists certification
program.

4.

More closely align regulatory capital
with risk in large or multinational
banks.

Continuation of preparatory
activities related to the
implementation of the new
Basel Capital Accord (Basel II).

Publish a Notice of Proposed
Rulemaking (NPR).

Achieved.
See pg. 14.

Participate in the continuing
Achieved.
analysis of the projected results See pg. 14.
of the new capital regime.

5.

More closely align regulatory capital
with risk in banks not subject to
Basel II capital rules.

Development of a revised
capital framework proposal
for institutions not subject
to Basel II.

Develop a Notice of Proposed
Rulemaking (NPR) for public
issuance.

Achieved.
See pg. 14.

6.

Ensure that FDIC-supervised
institutions that plan to operate under
the new Basel Capital Accord are
making satisfactory progress toward
meeting required qualification
standards.

Percentage of on-site
examinations or off-site
analyses performed.

On-site examinations or offsite analyses are performed
for all FDIC-supervised banks
that intend to operate under
Basel II to ensure that they
are effectively working toward
meeting required qualification
standards.

Achieved.
See pg. 14.




2 0 0 6 Supervision and C onsum er P ro te ctio n Program Results (continued)
Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in their communities.
:
Annual Performance Goal
Indicator
Target
Results
7.

Conduct CRA and compliance
examinations in accordance with
the FDIC's examination frequency
policy.

Percentage of examinations
conducted in accordance with
required time frames.

One hundred percent of
required examinations are
conducted within time frames
established by FDIC policy.

Achieved.
See pg. 17.

8.

Take prompt and effective supervisory
action to monitor and address
problems identified during compliance
examinations of FDIC-supervised
institutions that receive a "4 " or "5 "
rating for compliance with consumer
protection and fair lending laws.

Percentage of follow-up
examinations or related
activities conducted within
required time frames.

One hundred percent of
follow-up examinations
or related activities are
conducted within 12 months
from the date of a formal
enforcement action to
confirm that the institution
is in compliance with the
enforcement action.

Achieved.
See pg. 17.

9.

Provide effective outreach and
technical assistance on topics
related to the CRA, fair lending,
and community development.

Number of individuals taking
a Money Smart class or using
the self-paced curriculum.

200,000 additional individuals
are taught using the
Money Smart curriculum.

Achieved.
See pg. 24.

Number of outreach activities
conducted, including technical
assistance activities.

125 technical assistance
(examination support) efforts
or banker/community outreach
activities are conducted
related to CRA, fair lending,
or community development.

Achieved.
See pg. 24.

Timely responses to written
complaints.

Responses are provided
to 90 percent of written
complaints within time frame
established by policy.

Achieved.
See pg. 23.

10. Effectively meet the statutory
mandate to investigate and respond
to consumer complaints about FDICsupervised financial institutions.




2 0 0 6 Receivership M an a g e m e n t Program Results
Strategic Goal: Recovery to creditors of receivership is achieved.
Annual Performance Goal

Indicator

Target

Results

1.

Market failing institutions to all known
qualified and interested potential
bidders.

List of qualified and interested
bidders.

Contact all known qualified
and interested bidders.

Not
Applicable.
No failures
in 2006.
See pg. 25.

2.

Value, manage, and market assets of
failed institutions and their subsidiaries
in a timely manner to maximize net
return.

Percentage of failed institution's
assets marketed.

Ninety percent of the book
value of a failed institution's
marketable assets are
marketed within 90 days
of failure.

Not
Applicable.
No failures
in 2006.
See pg. 26.

3.

Manage the receivership estate and
its subsidiaries toward an orderly
termination.

Timely termination of new
receiverships.

Terminate all receiverships
within 90 days of the
resolution of all impediments.

Achieved.
See pg. 26.

4.

Conduct investigations into all
potential professional liability claim
areas in all failed insured depository
institutions and decide as promptly
as possible to close or pursue each
claim, considering the size and
complexity of the institution.

Percentage of investigated
claim areas for which a decision
has been made to close or
pursue the claim.

For 80 percent of all claim
areas, a decision is made
to close or pursue claims
within 18 months of the
failure date.

Not
Applicable.
No failures
in 2006.
See pg. 26.




P r io r Y e a rs P e r f o r m a n c e R e s u lts
(excerpted fro m th e 2005 Annual Report)

P age n u m b e rs re fe r to th e 2 0 0 5 re p o rt

2 0 0 5 Insurance Program Results
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal

Results

Respond promptly to all financial
institution closings and emerging
issues.

Number of business days after
institution failure by which
depositors will have access to
insured funds either through
transfer of deposits to successor
insured depository institution
or depositor payout.

If the failure occurs on a
Friday the target is one
business day.

Not
Applicable.
No failures
in 2005.

If the failure occurs on any
other day of the week, the
target is tw o business days.

Not
Applicable.
No failures
in 2005.

Insurance risks posed by large
insured depository institutions.

Assess the insurance risks in
100 percent of large insured
depository institutions and
adopt appropriate strategies.

Achieved.
See pg. 29.

Identify and follow up on
100 percent of referrals.

Achieved.
See pg. 29.

Dissemination of data and
analyses on issues and risks
affecting the banking industry
to bankers, supervisors, the
public, and other stakeholders.

Results of research and
analyses are disseminated
in a timely manner through
regular publications, ad hoc
reports and other means.

Achieved.
See pg. 29.

Industry outreach activities
are undertaken to inform
bankers and other
stakeholders about current
trends and concerns and
available FDIC resources.

2.

Target

Concerns referred for
examination or other action.

1.

Indicator

Achieved.
See pgs.
10-11.

Identify and address risks to the
insurance funds.

3.

Maintain sufficient and reliable
information on insured depository
institutions.

Quality and timeliness of bank
data.

Implement a modernized
Call Reporting process
during the second Call
Reporting period in 2005.

Not
Achieved.
See pg. 11.

4.

Maintain and improve the deposit
insurance system.

Deposit Insurance Reform.

Provide information and
analysis to Congressional
committees in support of
deposit insurance reform
legislation.

Achieved.
See pgs.
8-9.

Obtain legislative support
for a proposed assessment
credit and rebate system
and a new deposit insurance
pricing system.

Achieved.
See pgs.
8-9.




2 0 0 5 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Results

When deposit insurance
reform is enacted, implement
legislation in accordance
with statutorily prescribed
time frames.

Not
Applicable.
Legislation
enacted
Feb. 8, 2006.

Enhance the effectiveness
of the reserving methodology
by applying sophisticated
analytical techniques to
review variances between
projected losses and actual
losses, and by adjusting the
methodology accordingly.

Achieved.
See pg. 29.

Fund adequacy.

Set assessment rates to
maintain the insurance funds
at the designated reserve ratio
(DRR), or return them to the
DRR if they fall below it,
as required by statute.

Achieved.
See pg. 37.

When deposit insurance
reform legislation is enacted,
promulgate rules and
regulations establishing
criteria for replenishing the
Deposit Insurance Fund when
it falls below the low end of
the range.

4.

Target

Loss Reserves.

Annual Performance Goal

Indicator

Not
Applicable.
Legislation
enacted
Feb. 8, 2006.

Maintain and improve the deposit
insurance system, (continued)

Enhance the working prototype Achieved.
of the integrated fund model
See pg. 29.
for financial risk management.
5.

Provide educational information to
insured depository institutions and
their customers to help them
understand the rules for determining
the amount of insurance coverage
on deposit accounts.




Utility of educational tools
developed for bankers and
consumers.

Update the consumer version
of the EDIE (Electronic
Deposit Insurance Estimator)
located on the FDIC’s
Web site.

Achieved.
See pg. 18.

2 0 0 5 Supervision and C onsum er P ro te ctio n Program Results
Strategic Goal: FDIC-supervised institutions are safe and sound.
Annual Performance Goal

Indicator

Target

Results

1.

Conduct on-site risk management
examinations to assess an FDICsupervised insured depository
institution's overall financial condition,
management practices and policies,
and compliance with applicable laws
and regulations.

Percentage of required
examinations conducted in
accordance with statutory
requirements and FDIC policy.

One hundred percent of
required safety and soundness
examinations (including a
review for BSA compliance)
are conducted on schedule.

Achieved.
See pg. 13.

2.

Take prompt and effective supervisory
actions to address problems found
during the FDIC examination of FDICsupervised institutions that receive
a composite Uniform Financial
Institutions Rating of "4" or "5"
(problem institutions). Monitor
FDIC-supervised insured depository
institutions' compliance with formal
and informal enforcement actions.

Percentage of follow-up
examinations conducted
within required time frames.

One hundred percent of
follow-up examinations are
conducted within 12 months
of completion of the prior
examination.

Achieved.
See pg. 13.

3.

Increase industry and regulatory
awareness of emerging/high-risk
areas.

Number of trained BSA/AML
subject-matter experts.

The number of trained
BSA/AML subject-matter
experts increased to 300.

Achieved.
See pg. 15.

Advanced training is
completed for all BSA/AML
subject-matter experts.

Achieved.
See pg. 39.

Number of industry outreach
sessions on BSA/AML/Counter
Financing of Terrorism (CFT)
issues.

At least one outreach session
per region.

Achieved.
See pg. 15.

Completion of preparatory
activities for implementation of
the new Basel Capital Accord.

Notice of Proposed Rulemaking (NPR) and associated
examination guidance for
implementing the new Basel
Capital Accord are published
for comment.

Achieved.
See pg. 10.

Quantitative Impact Study 4
is completed.

Achieved.
See pg. 9.

........

4.

More closely align regulatory capital
with risk in large or multinational
banks.




2 0 0 5 Supervision and C onsum er P ro te ctio n Program Results (continued)
Strategic Goal: FDIC-supervised institutions are safe and sound.
■

Annual Performance Goal

Indicator

Target

Results

5.

Ensure that FDIC-supervised
institutions that plan to operate
under the new Basel Capital Accord
are making satisfactory progress
toward meeting required qualification
standards.

Percentage of on-site
examinations or off-site
analyses performed.

On-site examinations or offAchieved.
See pg. 9.
site analyses are performed
for all FDIC-supervised banks
that intend to operate under
Basel II to ensure that they
are effectively working toward
meeting required qualification
standards.

6.

Provide effective outreach and
technical assistance on topics
related to the CRA, fair lending,
and community development.

Number of Money Smart
Alliance members.

200 additional members
are added to the
Money Smart Alliance.

Achieved.
See pg. 38.

Number of Money Smart
curricula distributed.

20.000 additional copies of
the Money Smart curricula
are distributed.

Achieved.
See pg. 38.

200.000 additional individuals
are taught using the
Money Smart curricula.

Achieved.
See pg. 38.

Number of outreach activities
conducted with technical
assistance.

125 technical assistance
(examination support) efforts
or banker/community outreach
activities are conducted
related to CRA, fair lending,
or community development.

Achieved.
See pg. 38.

7.

Effectively meet the statutory
mandate to investigate and respond
to consumer complaints about FDICsupervised financial institutions.

Tmely responses to
written complaints.

Responses are provided
to 90 percent of written
complaints within time
frames established by policy.

Achieved.
See pg. 17.

8.

Conduct CRA and compliance
examinations in accordance with
the FDIC's examination frequency
policy.

Percentage of examinations
conducted within required
time frames.

One hundred percent of
required examinations are
conducted within time frames
established by FDIC policy.

Achieved.
See pg. 13.

9.

Take prompt and effective
supervisory action to monitor
and address problems identified
during compliance examinations
of FDIC-supervised institutions
that receive a "4 " or "5 " rating
for compliance with consumer
protection and fair lending laws.

Percentage of follow-up
examinations or related
activities conducted within
required time frames.

Achieved.
One hundred percent of
follow-up examinations or
See pg. 39.
related activities are conducted
within 12 months from the
date of a formal enforcement
action to confirm that the
institution is in compliance
with the enforcement action.




2 0 0 5 Receivership M an a g e m e n t Program Results
Strategic Goal: Recovery to creditors of receiverships is achieved.
■■■■■■■■■■■■■■■■■■■■■■■■■■■
Annual Performance Goal
Indicator

Target

Results

1.

Market failing institutions to all
known qualified and interested
potential bidders.

List of qualified and interested
bidders.

Contact all known qualified
and interested bidders.

Not
Applicable.
No failures
in 2005.

2.

Value, manage, and market assets
of failed institutions and their
subsidiaries in a timely manner
to maximize net return.

Percentage of failed institution's
assets marketed.

Ninety percent of book
value of a failed institution's
marketable assets are
marketed within 90 days
of failure.

Not
Applicable.
No failures
in 2005.

3.

Manage the receivership estate
and its subsidiaries toward an orderly
termination.

Timely termination of new
receiverships.

Inactivate 75 percent of
receiverships managed
through the Receivership
Oversight Program within
three years of the failure
date.

Not
Achieved.
See pg. 40.

4.

Conduct investigations into all
potential professional liability
claim areas in all failed insured
depository institutions and decide
as promptly as possible to close
or pursue each claim, considering
the size and complexity of the
institution.

Percentage of investigated
claim areas for which a
decision has been made
to close or pursue the claim.

For 80 percent of all claim
areas, a decision is made
to close or pursue the claim
within 18 months after the
failure date.

Achieved.
See pg. 40.




P r io r Y e a rs P e r f o r m a n c e R e s u lts
(excerpted from the 2004 Annual Report) P age n u m b e rs re fe r to th e 2 0 0 4 re p o rt
2 0 0 4 Insurance Program Results
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal
1.

2.

Indicator

Target

Results

Respond promptly to all financial
institution closings and emerging
issues.

Number of business days after
institution failure by which
depositors will have access
to insured funds either through
transfer of deposits to successor
insured depository institution
or depositor payout.

If the failure occurs on a Friday
the target is one business day.

Achieved.
See pg. 19.

If the failure occurs on any
other day of the week, the
target is tw o business days.

Not
Applicable.
All failures
occured on
a Friday.

Assess risks posed by large
insured depository institutions.

Assess risks in 100 percent
of large insured depository
institutions and adopt
appropriate strategies.

Achieved.
See pg. 11.

Identify and address risks to
the insurance funds.

Identify and follow up on
Identify and follow up on
concerns referred for examination 100 percent of referrals.
or other action (i.e., contact the
insured institution or primary
supervisor).
Disseminate data and analyses
on current issues and risks
affecting the banking industry
to bankers, supervisors,
stakeholders, and the public.

3.

Maintain sufficient and reliable
information on insured depository
institutions.




Achieved.
See pg. 12.

Analyses are included in
regular publications or as ad
hoc reports on a timely basis.

Achieved.
See pg. 11.

Maintain quality and timeliness
of bank data.

Implement a modernized
Call Reporting process
by December 31, 2004.

Conduct industry outreach
Achieved.
activities aimed at the banking See pg. 11.
community and industry trade
groups to discuss current
trends and concerns and to
inform bankers about available
FDIC resources.
Not
Achieved.
See pg. 11.

2 0 0 4 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal
4.

Indicator

Target

Results

Maintain and improve the
deposit insurance system.

Pursuit of changes to the
deposit insurance system
is in accordance with proposals
submitted to the Congress.

Provide information and
analysis to Congressional
committees in support of
deposit insurance reform
legislation.

Achieved.
See pgs.
8-9.

Develop and obtain the
necessary support for a
proposed assessment credit
and rebate system and a
new deposit insurance pricing
system.

Achieved.
See pgs.
8-9.

When deposit insurance
reform is enacted, implement
legislation in accordance with
statutorily prescribed time
frames.

Not
Applicable.
Legislation
not enacted
in 2004.

Review discrepancies between
projected failed assets and
actual failed assets by applying
sophisticated analytical
techniques to examine the
effectiveness of the loss
projection model and adjust
the methodology for projecting
losses accordingly.

Achieved.
See pgs.
8-9.




Make appropriate changes
to the current methodology
for projecting losses in
failing financial institutions
and establishing related loss
reserves for the deposit
insurance funds.

Achieved.
Implement enhancements to
See pgs.
the reserving process and
8-9.
methodology in accordance
with recommendations from
a comprehensive 2003 review.
Maintain fund adequacy.

Set assessment rates to
maintain the insurance funds
at the designated reserve ratio,
or return them to the
designated reserve ratio if
they fall below it, as required
by statute.

Achieved.
See pgs.
8-9.

If deposit insurance reform
legislation becomes law in
2004, promulgate rules and
regulations establishing
criteria for replenishing the
deposit insurance fund when
it falls below the low end of
the range.

Not
Applicable.
Legislation
not enacted
in 2004.

51

2 0 0 4 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

5.

Results

Develop a working prototype
of a new, integrated fund
model for financial risk
management.

Achieved.
See pgs.
8-9.

Host conference, present
findings from the study and
obtain feedback from scholars
and industry representatives
and other interested parties.

Not
Achieved.
See pg. 28.

Maintain quality and visibility
of the Corporation's banking
research activities.

4.

Target

Conduct a conference
on the "Future of Banking."

Annual Performance Goal

Indicator

Implement an FDIC Center
for Financial Research
with enhanced ties to the
academic community.

Achieved.
See pg. 10.

Utility of educational tools
developed for bankers and
consumers.

Develop a CD-ROM and
Internet-based resource for
bankers on the deposit
insurance rules.

Achieved.
See pg. 18.

Indicator

Target

Results

Percentage of required
examinations in accordance
with statutory requirements
and FDIC policy.

One hundred percent of
required examinations are
conducted on time.

Achieved.
See pg. 12.

Follow-up examination
of problem banks.

Follow-up examination is
conducted within 12 months
of completion of the prior
examination.

Achieved.
See pg. 12.

Maintain and improve the
deposit insurance system,
(continued)

Provide educational information to
insured depository institutions and
their customers to help them
understand the rules for determining
the amount of insurance coverage
on deposit accounts.

2 0 0 4 Supervision and C onsum er P ro te ctio n Program Results
Strategic Goal: FDIC-supervised institutions are safe and sound.
Annual Performance Goal
1. Conduct on-site risk management
examinations to assess an FDICsupervised insured depository
institution's overall financial condition,
management practices and policies,
and compliance with applicable laws
and regulations.
2.

Take prompt supervisory actions to
address problems found during the
FDIC examination of FDIC-supervised
institutions identified as problem
insured depository institutions. Monitor
FDIC-supervised insured depository
institutions' compliance with formal
and informal enforcement actions.




2 0 0 4 Supervision and C onsum er P ro te ctio n Program Results (continued)
Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in their communities.
Annual Performance Goal

Target

Results

Provide effective outreach and
technical assistance on topics related
to CRA, fair lending, and community
development.

Additions to the Money Smart
Alliance and the number
of Money Smart curriculum
provided.

Add an additional 200
Money Smart Alliance
Members.

Achieved.
See pg. 15.

Provide an additional 20,000
copies of Money Smart
curriculum.

Achieved.
See pg. 15.

Reach an additional 200,000
individuals.

Achieved.
See pg. 15.

Outreach activities and
technical assistance.

1.

Indicator

Conduct or participate in 125
technical assistance efforts
(examination support) or
banker/community outreach
activities related to CRA,
fair lending, or community
development.

Achieved.
See pg. 15.

2.

Effectively meet the statutory
mandate to investigate and respond
to consumer complaints about
FDIC-supervised financial institutions.

Timely responses to
written complaints.

Ninety percent of written
complaints are responded to
within time frames established
by policy.

Achieved.
See pg. 17.

3.

Conduct comprehensive and
compliance-only examinations in
accordance with FDIC examination
frequency policy.

Conduct required examinations
in accordance with FDIC policy.

One hundred percent of
required examinations are
conducted within time frames
established by FDIC policy.

Achieved.
See pg. 12.

4.

Take prompt supervisory actions
and monitor institutions rated
"4 " or "5 " for compliance to
address problems identified
during compliance examinations.

Timely follow-up examinations
and related activity.

Follow-up examination or
related activity is conducted
within 12 months from the
date of a formal enforcement
action to confirm that the
institution is in compliance
with the enforcement action.

Achieved.
See pg. 12.




2 0 0 4 R eceivership M an a g e m e n t Program Results
Strategic Goal: Recovery to creditors of receiverships is achieved.
Annual Performance Goal

Indicator

Target

Results

Market failing institutions to all
known qualified and interested
potential bidders.

List of qualified and
interested bidders.

Contact all known qualified
and interested bidders.

Achieved.
See pg. 19.

2.

Value, manage, and market assets
of failed institutions and their
subsidiaries in a timely manner
to maximize net return.

Percentage of failed institution's
assets marketed.

Eighty-five percent of book
value of a failed institution’s
marketable assets are
marketed within 90 days
of failure.

Achieved.
See pg. 19.

3.

Manage the receivership estate
and its subsidiaries toward an
orderly termination.

Timely termination of
new receiverships.

Terminate 75 percent of
Achieved.
receiverships managed
See pg. 20.
through the Receivership
Oversight Program within
three years of the failure date.

4.

Conduct investigations into all
potential professional liability claim
areas in all failed insured depository
institutions and decide as promptly as
possible to close or pursue each ciaim,
considering the size and complexity
of the institution.

Percentage of investigated
claim areas for which a decision
has been made to close or
pursue the claim.

For 80 percent of all claim
areas, a decision is made
to close or pursue the claim
within 18 months after the
failure date.

1.




Achieved.
See pg. 19.

P r io r Y e a rs P e r f o r m a n c e R e s u lts
(excerpted from the 2003 Annual Report) Page n u m b e rs re fe r to th e 2 0 0 3 re p o rt
2 0 0 3 Insurance Program Results
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal
1.

2.

Indicator

Target

Results

Respond promptly to financial
institution closings and emerging
issues.

Number of business days
after institution failure by
which depositors will have
access to insured funds
either through transfer of
deposits to successor insured
depository institution or
depositor payout.

If the failure occurs on a
Friday, the target is one
business day.

Achieved.

If the failure occurs on any
other day of the week, the
target is tw o business days.

Achieved.

Assess risks posed by large
insured depository institutions.

Assess risks in 100 percent
of large insured depository
institutions and adopt
appropriate strategies.

Achieved.

Identify and follow up
on concerns referred for
examination or other action
(i.e., contact the insured
institutions or primary
supervisor).

Identify and follow up on
100 percent of referrals.

Achieved.

Disseminate data and analyses
on current issues and risks
affecting the banking industry
to bankers, supervisors,
stakeholders, and the public.

Analyses are included in
regular publications or as ad
hoc reports on a timely basis.

Achieved.

Identify and address risks to the
insurance funds.




Conduct industry outreach
Achieved.
aimed at the banking
community and industry trade
groups to discuss current
trends and concerns and to
inform bankers about available
FDIC resources.

2 0 0 3 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal

4.

Target

Results

Maintain sufficient and reliable
information on insured depository
institutions.

Maintain and improve the
Research Information System
(RIS), which serves as the
foundation of most analysis
and statistical reporting for
the FDIC.

Update and expand data
availability in RIS.

Achieved.

Develop a more efficient
approach to bank data collection
and management.

3.

Indicator

Determine Call Report
Achieved.
Modernization system
development approach;
prepare migration plan for the
implementation of data editing,
storage and distribution facility
for Call Report data; complete
reconciliation of bank structure
databases; and implement
standard business rules and
data definitions for Call Report
information.

Continue to pursue changes
in the deposit insurance
system in accordance with
proposals submitted to
Congress in 2002.

Work with Congress to
develop and pass a reform
package.

Maintain and improve the
deposit insurance system.




Develop final pricing
recommendations and
implementation plans for
inclusion in a notice-andcomment rulemaking during
2003.

Not
Achieved.
See pgs.
12-13.
Achieved.

If deposit insurance reform is
passed, implement legislation
in a timely manner.
Develop and analyze baseline
data of implemented
modification results.
Continue to identify and review
possible modifications to the
Risk-Related Premium System
(RRPS).

Not
Applicable.

Achieved.

Assess improvements
to the objective screens for
the RRPS that identify financial
institutions engaging in
excessive risk taking, such
as certain types of credit,
market, and operational risks.

Achieved.

2 0 0 3 Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.
Annual Performance Goal
4.

Indicator

Target

Maintain and improve the
deposit insurance system,
(continued)

Make appropriate changes
to the current methodology
for projecting losses in
failing financial institutions
and establishing related
loss reserves for the
deposit insurance funds.

Review discrepancies between Achieved.
projected failed assets and
actual failed assets by applying
sophisticated analytical
techniques to examine the
effectiveness of the loss
projection model and adjust
the methodology or projecting
losses accordingly.

Results

Perform comprehensive review Achieved.
of all aspects of the reserving
process and methodology and
implement enhancements as
necessary.
Maintain fund adequacy.

Conduct a study on the
"Future of Banking."

Provide educational information
to insured depository institutions
and their customers to help them
understand the rules for determining
the amount of insurance coverage
on deposit accounts.




Determine the implications of
major trends for the evolution
of the industry, development
of regulatory policy and
management of the deposit
insurance funds.

Achieved.

Enhance FDIC's ties to the
academic community and
upgrade and provide greater
visibility to the Corporation's
research activities.
5.

Set assessment rates to
Achieved.
maintain the insurance funds
at or above the designated
reserve ratio, or to return them
to the designated reserve ratio
if they fall below it, as required
by statute. If deposit insurance
reform legislation becomes law
in 2003, promulgate rules and
regulations establishing criteria
for replenishing the deposit
insurance fund when it falls
below the low end of the range.

Establish an FDIC Center
for Financial Research.

Achieved.

Enhance the existing
Electronic Deposit
Insurance Estimator (EDIE)
Banker version.

Issue a new version of the
EDIE (Banker version) that
accommodates corporate and
organization accounts as well
as any changes to the deposit
insurance rules that may be
adopted.

Achieved.

57

2 0 0 3 Supervision and C onsum er P rotectio n Program Results
Strategic Goal: FDIC-supervised institutions are safe and sound.
Annual Performance Goal

Indicator

Target

Results

1.

Conduct on-site safety and soundness
examinations to assess an FDIC-supervised insured depository institution's
overall financial condition, management
practices and policies, and compliance
with applicable regulations.

Conduct required examinations
in accordance with statute
and FDIC policy.

One hundred percent
of required examinations
are conducted on time.

Achieved.

2.

Take prompt supervisory actions
to address problems found during
the FDIC examination of FDICsupervised institutions identified
as problem insured depository
institutions. Monitor FDICsupervised insured depository
institution's compliance with formal
and informal enforcement actions.

The number of months
between last examination
of a problem bank and
follow-up examination.

Follow-up examination
conducted within 12 months
of completing the prior
examination.

Achieved.

Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in their communities.
Annual Performance Goal

Target

Results

Provide effective outreach and
technical assistance on topics
related to CRA, fair lending, and
community development.

Additions to the Money Smart
Alliance and the number of
Money Smart curricula provided.

By December 31, 2003,
cumulative totals of 400
M oney Smart Alliance
members and 40,000 Money
Smart curricula provided.

Achieved.

Outreach activities and
technical assistance.

1.

Indicator

Conduct or participate in 125
Achieved.
Money Smart events, technical
assistance efforts (examination
support), or banker/community
outreach activities related
to CRA, fair lending, or
community development.

2.

Effectively meet the statutory
mandate to investigate and respond
to consumer complaints about FDICsupervised financial institutions.

Timely responses to written
complaints.

Ninety percent of written
complaints are responded to
within time frames established
by policy.

Achieved.

3.

Conduct comprehensive and
compliance-only examinations
in accordance w ith FDIC examination
frequency policy.

Conduct required examinations
in accordance with FDIC policy.

One hundred percent of
required examinations are
conducted within time frames
established by FDIC policy.

Achieved.




2 0 0 3 Supervision and C onsum er P ro te ctio n Program Results (continued)
Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in their communities.
Annual Performance Goal
4.

Indicator

Target

Results

Take prompt supervisory actions
and monitor all institutions rated
" 4 " or "5 " for compliance to
address problems identified
during compliance examinations.

Tmely follow-up examination
and related activity confirm
whether the institution
is in compliance with the
enforcement action.

A follow-up examination
or related activity is
conducted within 12 months
from the date of a formal
enforcement action.

Achieved.

Target

Results

2 0 0 3 Receivership M an a g e m e n t Pro gram Results
Strategic Goal: Recovery to creditors of receiverships is achieved.
s m m m m : -.^jwMaMiiiaMiBiHiHWisiBgstaaiiwiBMHggiii^
Indicator
Annual Performance Goal

mm

1.

Market failing institutions to all
known qualified and interested
potential bidders.

List of qualified and interested
bidders.

Contact all known qualified
and interested bidders.

Achieved.

2.

Value, manage, and market assets
of failed institutions and their
subsidiaries in a timely manner
to maximize net return.

Failed institutions' assets
marketed.

Eighty-five percent of book
value of a failed institution's
marketable assets are
marketed within 90 days
of failure.

Achieved.

3.

Manage the receivership estate and
its subsidiaries toward an orderly
termination.

Tmely termination of new
receiverships.

Terminate 75 percent of
receiverships managed
through the Receivership
Oversight Program within
three years of the failure
date.

Not
Achieved.
See pg. 19.

4.

Conduct investigations into all
potential professional liability claim
areas in all failed insured depository
institutions, and decide to close or
pursue each claim as promptly as
possible, considering the size and
complexity of the institution.

Percentage of investigated claim
areas for which a decision has
been made to close or pursue
the claim within 18 months
after the failure date.

For 80 percent of all claim
areas, a decision is made
to close or pursue the
claim.

Achieved.







The Corporation's 2006 Annual Performance Plan indicated that the FDIC would
pursue the following Program Evaluation agenda in 2006:
D u r in g 2 0 0 6 , c o n s id e r a b le c o r p o r a t e r e s o u r c e s w i l l b e d e v o t e d
t o i m p l e m e n t i n g b o t h p r o g r a m c h a n g e s n e c e s s it a t e d b y
D e p o s it I n s u r a n c e R e f o r m a n d t h e s e v e r a l c h a n g e s in t h e
a u t o m a t e d s y s t e m s s u p p o r t i n g r e l a t e d a c t i v i t i e s . In a d d i t i o n ,
O E R M ( t h e O f f ic e o f E n t e r p r i s e R is k M a n a g e m e n t ) w i l l le a d
o r p a r t ic ip a t e in p r o g r a m e v a l u a t io n a c t iv it ie s in s u c h a r e a s a s :
r is k m a n a g e m e n t o v e r s ig h t o n t h e d e v e lo p m e n t o f n e w
a u t o m a t e d s y s te m s s u p p o r t in g o u r m a jo r p r o g r a m s ;
d e t e r m i n i n g t h e c o n t i n u i n g e f f e c t iv e n e s s o f p r o g r a m a r e a s
t h a t e x p e r ie n c e d s i g n i f i c a n t d o w n s i z i n g in 2 0 0 5 ; c o n t i n u i n g
i m p l e m e n t a t i o n o f b a la n c e d s c o r e c a r d s t h r o u g h o u t t h e
C o r p o r a t i o n ; a n d c o n t i n u i n g o u r p a r t i c i p a t i o n in p e r f o r m a n c e
m a n a g e m e n t a n d m o n i t o r i n g e f f o r t s a t t h e d i v i s i o n / o f f i c e le v e l.

As expected, the implementation of deposit insurance reform became the
central focus of OERM's program evaluation efforts throughout 2006. In order
to comply with the requirements of the Federal Deposit Insurance Reform
Act of 2005 and the related Federal Deposit Insurance Reform Conforming
Amendments Act of 2005, the FDIC had to analyze current business processes
and operations in several program areas and to implement major changes in
these programs by the end of the year. OERM program evaluation staff provided
significant support in the documentation and analysis of current business
processes.
In conjunction with the implementation of these program changes, the legislation
also required the FDIC and the Government Accountability Office (GAO) to conduct
a series of specific studies and targeted reviews/audits. M ost significantly,
the GAO was required to conduct an evaluation of the FDIC's overall structure
and mission, w ith particular emphasis on the Corporation's frameworks for
corporate governance, human capital management and risk management.
This comprehensive, nine-month review encompassed all major FDIC programs
and included operations at headquarters, regional and field offices. The review
resulted in only tw o relatively minor recommendations, thus providing FDIC
management with additional independent affirmation of the effectiveness of its
existing corporate programs. The FDIC will complete its three studies in early
2007, covering "Accounting for Loss Contingencies: The FDIC's Policies and
Practices 1992-2004," "An Evaluation of Further Possible Changes to the Deposit
Insurance System," and "An Evaluation of the Denominator of the Reserve Ratio."
The studies are scheduled to be delivered to Congress by February 15, 2007.




Independent internal control staff in key divisions also continued to carry
out traditional program and operational evaluations in 2006. These included
continuing reviews of the Division of Supervision and Consumer Protection's
regional and field office operations to ensure consistency and integrity of the
FDIC's examination programs; and a review of payment and other controls
in the Division of Resolutions and Receiverships to ensure the continued
effectiveness and control of operations in the wake of the significant staff
reductions made in 2005. OERM also continued its review of the Office of
Diversity and Economic Opportunity to identify ways to improve the accuracy
and timeliness of reporting.

Federal Dep os it Insurance Corpo rat ion

IV. Financial Statements and Notes
D eposit Insurance F und


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62
Federal Reserve Bank of St. Louis

Deposit Insurance Fund (combined BIF and SAIF fo r 2005 -

Federal

Deposit

Insurance

Note 2)

Corporation

Deposit Insurance Fund Balance Sheet at December 31
Dollars

in T h o u s a n d s

2006

2005

Assets

Cash and cash equivalents
Cash and other assets: Restricted for SAIF-member exit fees (Note 8)

$

2,953,995

$

3,209,444

0

341,656

37,184,214

34,253,237

8,958,566
747,715
538,991
376,790

9,987,223
737,566
533,474
378,064

$ 50,760,271

S 49,440,664

$

$

(Includes cash and cash equivalents o f $20.9 million a t December 31, 2005)
Investment in U.S. Treasury obligations, net: (Note 3)

Held-to-maturity securities
Available-for-sale securities
Interest receivable on investments and other assets, net
Receivables from resolutions, net (Note 4)
Property and equipment, net (Note 5)
Total Assets

Liabilities

Accounts payable and other liabilities
Postretirement benefit liability (Note 11)

154,283
129,906

296,540
0

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions
Litigation losses
SAIF-member exit fees and investment proceeds held in escrow (Note 8)
Total Liabilities

110,775
200,000

5,366
200,500

0

341,656

594,964

844,062

49,929,226
233,822

48,190,062
406,540

Commitments and off-balance-sheet exposure (Note 12)

Fund Balance

Accumulated net income
Unrealized gain on available-for-sale securities, net (Note 3)
Unrealized postretirement benefit gain (Note 11)
Total Fund Balance

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




2,259

0

50,165,307

48,596,602

S 50,760,271

S 49,440,664

Deposit Insurance Fund (combined BIF and SAIF fo r 2005 -

Federal

Deposit

Insurance

Note 2)

Corporation

Deposit Insurance Fund Statement of Income and Fund Balance for the Years Ended December 31
Dollars

in T h o u s a n d s

2005

2006
Revenue

Interest on U.S. Treasury obligations
Exit fees earned (Note 8)
Assessments (Note 7)
Other revenue

$

2,240,723

$

2,341,505

0

345,295
31,945
25,565

60,884
18,073

2,643,528

2,420,462

Operating expenses (Note 9)
Provision for insurance losses (Note 10)
Insurance and other expenses

950,618
(52,097)
5,843

965,652
(160,170)
3,821

Total Expenses and Losses

904,364

809,303

Net Income

1,739,164

1,611,159

Unrealized loss on available-for-sale securities, net
Unrealized postretirement benefit gain

(172,718)
2,259

(521,350)

Comprehensive Income

1,568,705

1,089,809

48,596,602

47,506,793

$ 50,165,307

$ 48,596,602

Total Revenue

Expenses and Losses

Fund Balance - Beginning

Fund Balance - Ending
The accompanying notes are an integral part o f these financial statements.




0

Deposit Insurance Fund (combined BIF and SAIF fa r 2005 -

Federal

Deposit

Insurance

Note 2)

Corporation

Deposit insurance Fund Statement of Cash Flows for the Years Ended December 31
Dollars

in T h o u s a n d s

2006

2005

1,739,164

$ 1,611,159

599,274
(109,394)
52,919
(52,097)
433
(345,295)

834,118
(345,023)
56,006
(160,170)
178
0

1,359

(6,565)
5,590
348,173
27,145
0
(182)

Operating Activities
Net Income:

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of U.S.Treasury obligations
Treasury inflation-protected securities (TIPS) inflation adjustment
Depreciation on property and equipment
Provision for insurance losses
Terminations/adjustments of work-in-process accounts
Exit fees earned

$

Change in Operating Assets and Liabilities:

Decrease/(lncrease) in unamortized premium
and discount of U.S. Treasury obligations (restricted)
(Increasel/Decrease in interest receivable and other assets
Decrease in receivables from resolutions
(Decrease)/lncrease in accounts payable and other liabilities
Increase in postretirement benefit liability
(Decrease) in contingent liabilities for litigation losses

(14,635)
147,258
(166,822)
129,906
0
3,639

28,556

1,985,709

2,398,985

5,955,000
845,000

8,220,000
1,830,000

(11,721)
(9,050,372)

(47,197)
(11,693,984)

(2,262,093)

(1,691,181)

Net (Decrease)/lncrease in Cash and Cash Equivalents

(276,384)

707,804

Cash and Cash Equivalents - Beginning

3,230,379

2,522,575

Unrestricted Cash and Cash Equivalents - Ending

2,953,995

3,209,444

0

20,935

$ 2,953,995

S 3,230,379

Increase in exit fees and investment proceeds held in escrow
Net Cash Provided by Operating Activities
Investing Activities
Provided by:

M aturity of U.S.Treasury obligations, held-to-maturity
M aturity of U.S.Treasury obligations, available-for-sale
Used by:

Purchase of property and equipment
Purchase of U.S.Treasury obligations, held-to-maturity
Net Cash Used by Investing Activities

Restricted Cash and Cash Equivalents - Ending
Cash and Cash Equivalents - Ending
The accompanying notes are an integral part of these financial statements.




Fin an ci al S t a t e m e n t s and Not es

Deposit Insurance Fund
Notes to the
Financial Statements
D e c e m b e r 31, 2006
and 20 05


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66
Federal Reserve Bank of St. Louis

1. L e g is la tio n an d O p e ra tio n s o f th e D e p o s it In s u ra n c e Fund

Overview
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit
insurance agency created by Congress in 1933 to maintain stability and public
confidence in the nation's banking system. Provisions that govern the operations
of the FDIC are generally found in the Federal Deposit Insurance (FDD Act, as
amended, (12 U.S.C. 1811, etseq). In carrying out the purposes of the FDI Act,
as amended, the FDIC insures the deposits of banks and savings associations
(insured depository institutions), and in cooperation with other federal and state
agencies promotes the safety and soundness of insured depository institutions
by identifying, monitoring and addressing risks to the deposit insurance fund.
An active institution's primary federal supervisor is generally determined by the
institution's charter type. Commercial and savings banks are supervised by the
FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve
Board, while thrifts are supervised by the Office of Thrift Supervision.
The Deposit Insurance Fund (DIF) was established on March 31, 2006 as a result
of the merger of the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF) pursuant to the recently enacted deposit insurance reform
legislation. The FDIC is the administrator of the DIF and the FSLIC Resolution
Fund (FRF). These funds are maintained separately to carry out their respective
mandates.
The DIF is an insurance fund responsible for protecting insured bank and thrift
depositors from loss due to institution failures. The FRF is a resolution fund
responsible for the sale of remaining assets and satisfaction of liabilities
associated with the former Federal Savings and Loan Insurance Corporation
and the Resolution Trust Corporation.
Recent Legislation
The Federal Deposit Insurance Reform Act of 2005 (Reform Act [Title II, Subtitle B
of Public Law 109-171, 120 Stat. 91) was enacted on February 8, 2006. Companion
legislation, the Federal Deposit Insurance Reform Conforming Amendments Act
of 2005 (Public Law 109-173, 119 Stat. 3601), was enacted on February 15, 2006.
In addition to merging the BIF and the SAIF, the legislation: 1) requires the
deposit of funds into the DIF for SAIF-member exit fees that had been restricted
and held in escrow; 2) provides FDIC with greater discretion to charge insurance
assessments and to impose more sensitive risk-based pricing; 3) annually permits
the designated reserve ratio to vary between 1.15 and 1.50 percent of estimated
insured deposits, thereby eliminating the statutorily fixed designated reserve
ratio of 1.25 percent; 4) generally requires the declaration and payment of
dividends from the DIF if the reserve ratio of the DIF equals or exceeds
1.35 percent of estimated insured deposits at the end of a calendar year;
5) grants a one-time assessment credit for each eligible insured depository




institution or its successor based on an institution's proportionate share of the
aggregate assessment base of all eligible institutions at December 31, 1996; and
6) immediately increases coverage for certain retirement accounts to $250,000
and allows the FDIC to increase all deposit insurance coverage, under certain
circumstances, to reflect inflation every five years beginning January 1, 2011.
See Note 7 for a more detailed discussion of these reforms.
Operations of the DIF
The primary purpose of the DIF is to: 1) insure the deposits and protect the
depositors of DIF-insured institutions and 2) resolve DIF-insured failed institutions
upon appointment of FDIC as receiver in a manner that will result in the least
possible cost to the DIF.
The DIF is primarily funded from: 1) interest earned on investments in
U.S. Treasury obligations and 2) deposit insurance assessments. Additional
funding sources, if necessary, are borrowings from the U.S. Treasury, Federal
Financing Bank, Federal Home Loan Banks, and insured depository institutions.
The FDIC has borrowing authority from the U.S. Treasury up to $30 billion for
insurance purposes on behalf of the DIF. On December 15, 2006, the FDIC
entered into a Note Purchase Agreement with the Federal Financing Bank
in an amount not exceeding $40 billion. The Note Purchase Agreement,
if needed, will enhance DIF's ability to fund large deposit insurance obligations
and deal with large institution resolutions.
A statutory formula, known as the Maximum Obligation Limitation (MOL), limits
the amount of obligations the DIF can incur to the sum of its cash, 90 percent of
the fair market value of other assets, and the amount authorized to be borrowed
from the U.S. Treasury. The MOL for the DIF was $79.7 billion and $78.2 billion
as of December 31, 2006 and 2005, respectively.
Receivership Operations
The FDIC is responsible for managing and disposing of the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership
entities, and the claims against them, are accounted for separately from DIF
assets and liabilities to ensure that receivership proceeds are distributed in
accordance with applicable laws and regulations. Accordingly, income and
expenses attributable to receiverships are accounted for as transactions
of those receiverships. Receiverships are billed by the FDIC for services
provided on their behalf.

Deposit Insurance Fund


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68
Federal Reserve Bank of St. Louis

2 . S u m m a ry o f S ig n ific a n t A c c o u n tin g P o lic ie s

General
These financial statements pertain to the financial position, results of operations,
and cash flows of the DIF and are presented in conformity with U.S. generally
accepted accounting principles (GAAP). These statements do not include reporting
for assets and liabilities of closed banks and thrifts for which the FDIC acts as
receiver. Periodic and final accountability reports of the FDIC's activities as
receiver are furnished to courts, supervisory authorities, and others as required.
Merger of the Funds
The merger of the BIF and SAIF into the newly established DIF was accounted
for by combining the carrying value of each Fund's assets and liabilities. Since
this merger results in a new reporting entity, financial results of the newly
formed DIF were retrospectively applied as though they had been combined at
the beginning of the reporting year as well as for full prior year periods reported
for comparative purposes.
Use of Estimates
Management makes estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. Where it is reasonably possible that changes
in estimates will cause a material change in the financial statements in the near
term, the nature and extent of such changes in estimates have been disclosed.
The more significant estimates include allowance for loss on receivables from
resolutions, the estimated losses for anticipated failures and litigation, and the
postretirement benefit obligation.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments w ith original
maturities of three months or less. Cash equivalents consist primarily
of Special U.S. Treasury Certificates.
Investment in U.S. Treasury Obligations
DIF funds are required to be invested in obligations of the United States or
in obligations guaranteed as to principal and interest by the United States; the
Secretary of the U.S. Treasury must approve all such investments in excess
of $100,000. The Secretary has granted approval to invest DIF funds only in
U.S. Treasury obligations that are purchased or sold exclusively through the
Bureau of the Public Debt's Government Account Series (GAS) program.
DIF's investments in U.S. Treasury obligations are either classified as heldto-maturity or available-for-sale. Securities designated as held-to-maturity are
shown at amortized cost. Amortized cost is the face value of securities plus
the unamortized premium or less the unamortized discount. Amortizations are




computed on a daily basis from the date of acquisition to the date of maturity,
except for callable U.S. Treasury securities, which are amortized to the first call
date. Securities designated as available-for-sale are shown at market value, which
approximates fair value. Unrealized gains and losses are included in Comprehen­
sive Income. Realized gains and losses are included in the Statement of Income
and Fund Balance as components of Net Income. Income on both types of securi­
ties is calculated and recorded on a daily basis using the effective interest method.
Capital Assets and Depreciation
The FDIC buildings are depreciated on a straight-line basis over a 35 to 50 year
estimated life. Leasehold improvements are capitalized and depreciated over
the lesser of the remaining life of the lease or the estimated useful life of the
improvements, if determined to be material. Capital assets depreciated on a
straight-line basis over a five-year estimated life include mainframe equipment;
furniture, fixtures, and general equipment; and internal-use software. Personal
computer equipment is depreciated on a straight-line basis over a three-year
estimated life.
Disclosure about Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 158, Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans - an amendment
o f FASB Statements No. 87, 88, 106, and 132<R). For FDIC's postretirement
benefits other than pensions, this pronouncement amends the recognition
and disclosure requirements of SFAS No. 106 and SFAS No. 132(R).
The pronouncement requires recognition of: 1) the funded status of the plan as
an asset or liability, 2) the cumulative actuarial gains/losses and prior service costs/
credits as accumulated comprehensive income, and 3) the changes in the actuarial
gains/losses and prior service costs/credits for the period as other comprehensive
income. The FDIC adopted SFAS No. 158 for the 2006 calendar year financial
statements. As a result, the FDIC recognized the underfunded status (difference
between the accumulated postretirement benefit obligation and the plan assets
at fair value) as a liability and the cumulative actuarial gains/losses and prior
service costs/credits are shown as accumulated other comprehensive income
on the Balance Sheet. In addition, the changes in the actuarial gains/losses and
prior service costs/credits for the period are recognized as other comprehensive
income on the Statement of Income and Fund Balance. Prior to this change, the
net postretirement benefit obligation (comprised of both the underfunded status
and unrecognized actuarial gains/losses and prior service costs/credits) was
recognized as a liability on the Balance Sheet.
Retrospective application is not permitted or required by the Statement. See
Note 11 for specifics regarding postretirement benefits other than pensions.
Related Parties
The nature of related parties and a description of related party transactions are dis­
cussed in Note 1 and disclosed throughout the financial statements and footnotes.

69

Deposit Insurance Fund
3 . In v e s tm e n t in U .S . T re a s u ry O b lig a tio n s , N e t

As of December 31, 2006 and 2005, the book value of investments in U.S.
Treasury obligations, net, was $46.1 billion and $44.2 billion, respectively. As
of December 31, 2006, the DIF held $9.2 billion of Treasury inflation-protected
securities (TIPS). These securities are indexed to increases or decreases in the
Consumer Price Index for All Urban Consumers (CPI-U). Additionally, the DIF
held $6.1 billion of callable U.S. Treasury bonds at December 31, 2006. Callable
U.S. Treasury bonds may be called five years prior to the respective bonds' stated
maturity on their semi-annual coupon payment dates upon 120 days notice.
U.S. Treasury Obligations at December 31, 2006
Dollars

in T h o u s a n d s

Maturity*

Yield at
Purchase’

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

6,448,905

S

Unrealized
Market
Value

Holding
Losses"

Held-to-Maturity
U . S. Treasury notes and bonds
W ith in 1 year

4.58%

A fte r 1 year thru 5 years

4.47%

A fte r 5 years thru 10 years

4.68%

A fte r 10 years

$

5.01%

6,401,000

$

15,500,000

3,389

S

(20,704)

$

6,431,590

16,276,424

91,703

(196,635)

16,171,492

9,025,000

9,690,085

36,025

(42,270)

9,683,840

2,445,000

3,247,814

57,589

(3,227)

3,302,176

U. S. Treasury inflation-protected securities
A fte r 1 year thru 5 years

3.83%

926,751

926,844 *

21,185

0

948,029

A fte r 5 years thru 10 years

2.41%

568,345

594,142

0

(778)

593,364

$ 34,866,096

S 37,184,214

$ 209,891

S (263,614)

$ 37,130,491

$

$

$

(9,208)

$

1,260,627

$

(9,208)

$

8,958,566

$

(272,822)

Total

Available-for-Sale
U^S. Treasury notes and bonds
W ith in 1 year

3.85%

$

1,225,000

1,269 ,83 5

0

U. S. Treasury inflation-protected securities
A fte r 1 year thru 5 years
Total

3.80%

7,443,478
$

8,668,478

7,454,909

243,030

S 8,724,744

$ 243,030

0

7,697,939

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

S 43,534,574

$ 45,908,958

$ 452,921

$ 46,089,057

* For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to firs t call date.
T For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a long-term annual inflation
assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on figures issued by the Congressional Budget Office and Blue Chip
Economic Indicators in early 2006.
" A ll unrealized losses occurred as a result of changes in market interest rates. FDIC has the ab ility and intent to hold the related securities until maturity. As a result,
all unrealized losses are considered temporary. However, of the $273 m illion reported as total unrealized losses, $237 m illion is recognized as unrealized losses occurring
over a period of 12 months or longer w ith a market value of $13.3 billion applied to the affected securities.


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70
Federal Reserve Bank of St. Louis

U.S. Treasury Obligations at December 31, 2005
Dol l ar s

in T h o u s a n d s

Maturity*

Yield at
Purchase’

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

5,942,398

$

Unrealized
Market
Value

Holding
Losses'

Held-to-Maturity
U . S. Treasury notes and bonds

W ithin 1 year
A fter 1 year thru 5 years
A fter 5 years thru 10 years
A fter 10 years

5.19%
4.47%
4.53%
4.72 %

$

5,920,000
18,680,000
5,350,000
1,420,000

$

19,872,850
5,674,953
1,848,524

29,554
219,864

(18,187)
(187,672)
(13,184)

5,953,765
19,905,042
5,724,347

0

1,880,192

0
S (219,043)

955,296
$ 34,418,642

$

62,578
31,668

$

U. S. Treasury inflation-protected securities

A fter 1 year thru 5 years

3.83%

Total

914,596
$ 32,284,596

914,512
~ T 34,253,237

S

384,448

40,784

898,720

$

1,324,055

696
4,967

5,122,414
2,235,494

280,679
143,516

Available-for-Sale
U . S. Treasury notes and bonds

W ithin 1 year
A fter 1 year thru 5 years

3.71%
3.86%

$

845,000
1,225,000

$

$

(6,870)
(16,448)

$

892,546
1,312,574

U. S. Treasury inflation-protected securities

A fter 1 year thru 5 years
A fter 5 years thru 10 years
Total

3.97%
3.39%

5,119,864
2,225,975
s

9,415,839

9,580,683

s

$ 43,833,920

s

$

0
0

429,858

$

(23,318)

814,306

$

(242,361)

5,403,093
2,379,010
S

9,987,223

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

$ 41,700,435

S 44,405,865

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.
For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a long-term annual inflation
assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on figures issued by the Congressional Budget Office and Blue Chip
Economic Indicators in early 2005.
A ll unrealized losses occurred as a result of changes in market interest rates. FDIC has the ab ility and intent to hold the related securities until maturity. As a result,
all unrealized losses are considered temporary. However, of the $242 m illion reported as total unrealized losses, $116 m illion is recognized as unrealized losses occurring




As of December 31, 2006 and 2005, the unamortized premium, net of the
unamortized discount, was $2.4 billion and $2.1 billion, respectively.

Deposit Insurance Fund


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Federal Reserve Bank of St. Louis

4 . R e c e iv a b le s Fro m R e s o lu tio n s , N e t

The receivables from resolutions include payments made by the DIF to cover
obligations to insured depositors, advances to receiverships for working capital,
and administrative expenses paid on behalf of receiverships. Any related
allowance for loss represents the difference between the funds advanced
and/or obligations incurred and the expected repayment. Assets held by DIF
receiverships are the main source of repayment of the DIF's receivables from
closed banks and thrifts. As of December 31, 2006, there were 25 active
receiverships, with no failures in the current year.
As of December 31, 2006 and 2005, DIF receiverships held assets with
a book value of $655 million and $745 million, respectively (including cash,
investments, and miscellaneous receivables of $348 million and $370 million
at December 31, 2006 and 2005, respectively). The estimated cash recoveries
from the management and disposition of these assets that are used to derive
the allowance for losses are based on a sampling of receivership assets in
liquidation. Assets in the judgmental sample, which represents 97 percent of
the asset book value for all active DIF receiverships, are generally valued by
estimating future cash recoveries, net of applicable liquidation cost estimates,
and then discounting these net cash recoveries using current market-based risk
factors based on a given asset's type and quality. Resultant recovery estimates
are extrapolated to the non-sampled assets in order to derive the allowance for
loss on the receivable. These estimated recoveries are regularly evaluated, but
remain subject to uncertainties because of potential changes in economic and
market conditions. Such uncertainties could cause the DIF's actual recoveries
to vary from the level currently estimated.
As of December 31, 2006, the DIF allowance for loss was $4.1 billion. The
allowance for loss is equivalent to 88 percent of the gross receivable. Of
the remaining 12 percent of the gross receivable, the amount of credit risk
is limited since 89.1 percent of the receivable will be repaid from receivership
cash, investments, and a promissory note fully secured by a letter of credit.

5 . P ro p e rty an d E q u ip m e n t, N e t

Property and Equipment, Net at December 31
Dollars

in T h o u s a n d s

2006

2005

37,352

37,352

284,871
259,744
161,127
(323,274)

272,861
241,424
140,728
(273,789)

Retirements

(43,030)

(40,512)

Total

376,790

378,064

Land
Buildings (includes construction-in-process)
Application software (includes work-in-process)
Furniture, fixtures, and equipment
Accumulated depreciation




The depreciation expense was $53 million and $56 million for December 31, 2006
and 2005, respectively.

6 . C o n tin g e n t L ia b ilitie s fo r:

Anticipated Failure of Insured Institutions
The DIF records a contingent liability and a loss provision for DIF-insured
institutions that are likely to fail within one year of the reporting date, absent
some favorable event such as obtaining additional capital or merging, when
the liability becomes probable and reasonably estimable.
The contingent liability is derived by applying expected failure rates and loss
rates to institutions based on supervisory ratings, balance sheet characteristics,
and projected capital levels. In addition, institution-specific analysis is performed
on those institutions where failure is imminent absent institution management
resolution of existing problems, or where additional information is available
that may affect the estimate of losses. As of December 31, 2006 and 2005,
the contingent liabilities for anticipated failure of insured institutions were
$110.8 million and $5.4 million, respectively.
In addition to these recorded contingent liabilities, the FDIC has identified
additional risk in the financial services industry that could result in an additional
loss to the DIF should potentially vulnerable insured institutions ultimately fail.
This risk results from the presence of various high-risk banking business activities
that are particularly vulnerable to adverse economic and market conditions. Due
to the uncertainty surrounding such conditions in the future, there are institutions
other than those with losses included in the contingent liability for which the risk
of failure is less certain, but still considered reasonably possible. As a result of
these risks, the FDIC believes that it is reasonably possible that the DIF could
incur additional estimated losses up to approximately $0.6 billion.

73

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Federal Reserve Bank of St. Louis

The accuracy of these estimates will largely depend on future economic and
market conditions. The FDIC's Board of Directors has the statutory authority to
consider the contingent liability from anticipated failures of insured institutions
when setting assessment rates.
Litigation Losses
The DIF records an estimated loss for unresolved legal cases to the extent that
those losses are considered probable and reasonably estimable. In addition to
the amount recorded as probable, the FDIC has determined that losses from
unresolved legal cases totaling $0.6 million are reasonably possible.
Other Contingencies
Representations an d W arranties

As part of the FDIC’s efforts to maximize the return from the sale of assets
from bank and thrift resolutions, representations and warranties, and guarantees
were offered on certain loan sales. In general, the guarantees, representations,
and warranties on loans sold relate to the completeness and accuracy of loan
documentation, the quality of the underwriting standards used, the accuracy
of the delinquency status when sold, and the conformity of the loans with
characteristics of the pool in which they were sold. The total amount of loans
sold subject to unexpired representations and warranties, and guarantees was
$8.1 billion as of December 31, 2006. There were no contingent liabilities from
any of the outstanding claims asserted in connection with representations and
warranties at December 31, 2006 and 2005, respectively.
In addition, future losses could be incurred until the contracts offering the
representations and warranties, and guarantees have expired, some as late
as 2032. Consequently, the FDIC believes it is possible that additional losses
may be incurred by the DIF from the universe of outstanding contracts with
unasserted representation and warranty claims. However, because of the
uncertainties surrounding the timing of when claims may be asserted,
the FDIC is unable to reasonably estimate a range of loss to the DIF
from outstanding contracts with unasserted representation and warranty
claims.

7 . A s sess m en ts

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required the FDIC to establish a risk-based assessment system, charging
higher rates to those insured depository institutions that posed greater risks
to the DIF. To arrive at a risk-based assessment for a particular institution, the
FDIC placed each institution in one of nine risk categories based on capital ratios
and supervisory examination data. Based on FDIC's evaluation of the institutions
under the risk-based premium system and due to limitations imposed by the




Deposit Insurance Funds Act of 1996 (DIFA) and the continued health of the
banking and thrift industries, most institutions were not charged an assessment
for a number of years. In addition, the FDIC was required by statute to maintain
the insurance funds at a designated reserve ratio (DRR) of not less than 1.25
percent of estimated insured deposits (or a higher percentage as circumstances
warranted). Of the institutions assessed, the assessment rate averaged approxi­
mately 5 cents and 10 cents per $100 of assessable deposits for 2006 and 2005,
respectively. During 2006 and 2005, $32 million and $61 million were recognized
as assessment income from institutions, respectively.
The assessment process will significantly change as of January 1, 2007.
The Reform Act (enacted in February 2006) and the implementing regulations
(published in November 2006):
•

provide the FDIC with greater discretion to charge insurance assessments,
eliminate the cap on assessments for the best-rated institutions, and provide
that no insured institution may be barred from the lowest risk category solely
because of its size. By regulation, the FDIC has placed each institution into
one of four risk categories for risk-based assessment purposes, so that all
insured depository institutions will be required to pay assessments;

•

establish a range for the DRR from 1.15 to 1.50 percent of estimated
insured deposits and eliminate the fixed DRR of 1.25 percent. The FDIC
is required to annually publish the DRR and has, by regulation, set the
DRR at 1.25 percent for 2007;

•

grant a one-time assessment credit of approximately $4.7 billion to certain
eligible insured depository institutions (or their successors) based on the
assessment base of the institution as of December 31, 1996, as compared
to the combined aggregate assessment base of all eligible institutions; and

•

require the FDIC to annually determine if a dividend should be paid, based
on the statutory requirements generally to declare dividends if: 1) the reserve
ratio of the DIF exceeds 1.50 percent of estimated insured deposits, for the
full amount in excess of the amount required to maintain the reserve ratio
at 1.50 percent, or 2) if the reserve ratio equals or exceeds 1.35 percent of
estimated insured deposits but is no greater than 1.50 percent, for one-half
of the amount in excess of the amount required to maintain the reserve
ratio at 1.35 percent.

Assessments continue to be levied on institutions for payments of the interest
on obligations issued by the Financing Corporation (FICO). The FICO was
established as a mixed-ownership government corporation to function solely
as a financing vehicle for the FSLIC. The annual FICO interest obligation of
approximately $790 million is paid on a pro rata basis using the same rate
for banks and thrifts. The FICO assessment has no financial impact on the DIF
and is separate from deposit insurance assessments. The FDIC, as administrator
of the DIF, acts solely as a collection agent for the FICO. During 2006 and 2005,
$788 million and $780 million, respectively, were collected and remitted to the
FICO.

Deposit Insurance Fund


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76
Federal Reserve Bank of St. Louis

8 . E x it Fees E arned

From the early to mid-1990s, the SAIF collected entrance and exit fees for
conversion transactions when an insured depository institution converted 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 FDIC's Board of Directors
(Board) and published in the Federal Register on March 21, 1990, directed that:
1) exit fees paid to the SAIF be held in escrow, and 2) the Board and the
Secretary of the Treasury will determine when it is no longer necessary to
escrow such funds for the payment of interest on obligations previously issued
by the FICO. These escrowed exit fees were invested in U.S. Treasury securities
pending determination of ownership. The interest earned was also held in
escrow and as a result of the above, the SAIF did not recognize exit fees or
any interest earned as revenue.
The recent deposit insurance legislation removed the restriction on SAIFmember exit fees held in escrow and the funds were deposited into the general
(unrestricted) fund of the DIF. The exit fees plus earned interest, a total of
$345 million, are recognized as revenue at their carrying value on the Income
Statement for 2006 and are classified on the Balance Sheet as a combination
of Cash and cash equivalents, Investments in U.S. Treasury obligations, net,
and Interest receivable on investments. At December 31, 2005, the exit fees
and earned interest are shown on the Balance Sheet line items of Cash and
other assets: Restricted for SAIF-member exit fees (an asset) and SAIF-member
exit fees and investment proceeds held in escrow (a liability).

9 . O p e r a t in g E x p e n s e s

Operating expenses were $951 million for 2006, compared to $966 million for
2005. The chart below lists the major components of operating expenses.

Operating Expenses for the Years Ended December 31
Dollars

in T h o u s a n d s

2006

2005

$ 619,452

$ 645,418

124,045

113,416

Travel
Buildings and leased space

49,408
65,929

Software/Hardware maintenance
Depreciation of property and equipment
Other

27,139
52,919
22,124

45,732
71,480
33,366

Services billed to receiverships

(10,398)

(21,708)

S 950,618

S 965,652

Salaries and benefits
Outside sen/ices

Total

55,989
21,959

1 0 . P r o v is io n f o r In s u r a n c e L o ss es

P ro v is io n fo r in s u ra n c e lo s s e s w a s a n e g a tiv e $ 5 2 m illio n fo r 2 0 0 6 a n d a n e g a tiv e
$ 1 6 0 m illio n fo r 2 0 0 5 . T h e fo llo w in g c h a rt lis ts th e m a jo r c o m p o n e n ts o f th e
p ro v is io n fo r in s u ra n c e lo s s e s .

Provision for Insurance Losses for the Years Ended December 31
Dollars

in T h o u s a n d s

2006

2005

Other assets

(152,776)
(4,230)

$ (159,421)
3,762

Total Valuation Adjustments

(157,006)

(155,659)

105,409

(4,852)

(500)

200

Valuation Adjustments:

Closed banks and thrifts

$

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions
Litigation losses
Other contingencies
Total Contingent Liabilities Adjustments
Total




0

141

104,909

(4,511)

$ (52,097)

S (160,170)

Deposit Insurance Fund
1 1 . E m p lo y e e B e n e fits

Pension Benefits, Savings Plans and Postemployment Benefits
Eligible FDIC employees (permanent and term employees with appointments
exceeding one year) are covered by the federal government retirement plans,
either the Civil Service Retirement System (CSRS) or the Federal Employees
Retirement System (FERS). Although the DIF contributes a portion of pension
benefits for eligible employees, it does not account for the assets of either
retirement system. The DIF also does not have actuarial data for accumulated
plan benefits or the unfunded liability relative to eligible employees. These
amounts are reported on and accounted for by the U.S. Office of Personnel
Management.
Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred
401 (k) savings plan with matching contributions up to five percent. Under
the Federal Thrift Savings Plan (TSP), FDIC provides FERS employees with
an automatic contribution of 1 percent of pay and an additional matching
contribution up to 4 percent of pay. CSRS employees also can contribute
to the TSP. However, CSRS employees do not receive agency matching
contributions.
Prior to 2006, the FDIC reduced its workforce with a voluntary buyout program,
and to a lesser extent, reduction-in-force actions resulting in separation or
severance payments. The 2006 and 2005 related costs for these reductions
are included in the "Operating expenses" line item in the Income Statement.
I Pension Benefits, Savings Plans Expenses and Postemployment Benefits for the Years Ended December 31
Dollars

in T h o u s a n d s

2006
Civil Service Retirement System
Federal Employees Retirement System (Basic Benefit)
FDIC Savings Plan
Federal Thrift Savings Plan
Separation Incentive Payment
Severance Pay

Total




$

6,808
38,915
20,681
15,328
0

2005
$

7,632
38,458
20,886
15,228
22,371

39

2,733

S 81,771

S 107,308




Postretirement Benefits Other Than Pensions
The FDIC provides certain life and dental insurance coverage for its eligible
retirees, the retirees' beneficiaries, and covered dependents. Retirees eligible
for 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. The life insurance program provides
basic coverage at no cost to retirees and allows converting optional coverages
to direct-pay plans. Dental coverage is provided to all retirees eligible for an
immediate annuity.
At December 31, 2006, the DIF's accumulated postretirement benefit obligation,
representing the underfunded status of the plan, was $129.9 million, which
is recognized in the "Postretirement benefit liability" line item on the Balance
Sheet. The cumulative actuarial gains/losses (changes in assumptions and plan
experience) and prior service costs/credits (changes to plan provisions that
increase or decrease benefits) was $2.3 million at December 31, 2006, which is
reported as accumulated other comprehensive income in the "Unrealized post­
retirement benefit gain" line item on the Balance Sheet. At December 31, 2005,
the net postretirement benefit liability (the underfunded status adjusted for
any unrecognized actuarial gains/losses and prior service costs/credits) of
$126.7 million is recognized in the "Accounts payable and other liabilities"
line item.
The DIF's expense for postretirement benefits in 2006 and 2005 was $9.0 million
and $10.3 million, respectively, which is included in the current and prior year's
operating expenses on the Statement of Income and Fund Balance. The changes
in the actuarial gains/losses and prior service costs/credits for 2006 of $2.3 million
are reported as other comprehensive income in the "Unrealized postretirement
benefit gain" line item. Key actuarial assumptions used in the accounting for the
plan include the discount rate of 4.75 percent, the rate of compensation increase
of 4.00 percent, and the dental coverage trend rate of 6.70 percent. See Note 2
regarding the recent issuance of a relevant FASB accounting pronouncement.

Deposit Insurance Fund
1 2 . C o m m itm e n ts an d O ff-B a la n c e -S h e e t E xp osure

Commitments:
Leased Space

The FDIC's lease commitments total $62.9 million for future years. The lease
agreements contain escalation clauses resulting in adjustments, usually on an
annual basis. The DIF recognized leased space expense of $30 million and
$39 million for the periods ended December 31, 2006 and 2005, respectively.
Leased Space Commitments
Dollars

in T h o u s a n d s

2007

2008

2009

2010

S 21,491

$ 15,723

S 13,552

$ 6,334




2011______

S 3,727

2012/Thereafter

S 2,026

Off-Balance-Sheet Exposure:
Deposit Insurance

As of September 30, 2006, the estimated insured deposits for DIF were
$4.1 trillion. This estimate is derived primarily from quarterly financial data
submitted by insured depository institutions to the FDIC. This estimate
represents the accounting loss that would be realized if all insured depository
institutions were to fail and the acquired assets provided no recoveries.




13. D isc lo su res A b o u t th e F air V a lu e o f Fin an cial In s tru m e n ts

Cash equivalents are short-term, highly liquid investments and are shown
at fair value. The fair market value of the investment in U.S. Treasury
obligations is disclosed in Note 3 and is based on current market prices. The
carrying amount of interest receivable on investments, short-term receivables,
and accounts payable and other liabilities approximates their fair market value,
due to their short maturities and/or comparability with current interest rates.
The net receivables from resolutions primarily include the DIF's subrogated claim
arising from payments to insured depositors. The receivership assets that will
ultimately be used to pay the corporate subrogated claim are valued using discount
rates that include consideration of market risk. These discounts ultimately affect
the DIF's allowance for loss against the net receivables from 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.
A lt h o u g h t h e v a lu e o f t h e c o r p o r a te s u b r o g a te d c la im is in flu e n c e d b y v a lu a tio n
o f r e c e iv e r s h ip a s s e ts (s e e N o te 4 ), s u c h r e c e iv e r s h ip v a lu a tio n is n o t e q u iv a le n t
t o t h e v a lu a tio n o f t h e c o r p o r a te c la im . S in c e t h e c o r p o r a te c la im is u n iq u e , n o t
in te n d e d f o r s a le t o t h e p r iv a te s e c to r , a n d h a s n o e s ta b lis h e d m a r k e t, it is n o t
p r a c tic a b le t o e s t im a t e it s f a ir m a r k e t v a lu e .

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

F p rl p r a 1 D p n n s i t I n s n r a n r p H n r n n r a t i n n

FSLIC Resolution F und


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Federal Reserve Bank of St. Louis

Federal

Deposit

Insurance

Corporation

FSLIC R esolution Fund Balance S h e et at D ecem ber 31
Dollars

in T h o u s a n d s
2006

2005

Assets

Cash and cash equivalents
Receivables from th rift resolutions and other assets, net (Note 3)

$

3,616,466
36,730

Total Assets

$

3,602,703
38,746

251,827

Receivables from U.S. Treasury for goodwill judgments (Note 4)

$

0

3,905,023

S

3,641,449

5,497

$

Liabilities

Accounts payable and other liabilities

$

7,799

Contingent liabilities for litigation losses and other (Note 4)

279,327

257,503

Total Liabilities

284,824

265,302

127,453,996
(123,833,797)

127,007,441
(123,631,294)

3,620,199

3,376.147

Resolution Equity (Note 5)

Contributed capital
Accumulated deficit
Total Resolution Equity

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




S

3,905,023

s

3,641,449

FSLIC Resolution Fund
Federal

Deposit

Insurance

Corporation

FSLIC Resolution Fund S ta te m e n t of Incom e and A ccum ulated Deficit for th e Years Ended D ecem ber 31
Dollars

in T h o u s a n d s
2006

2005

151,648

98,260

17,650

24,176

169,298

122.436

Operating expenses
Provision for losses

12,002
(19,257)

24,626
(16,112)

G oodwill/Guarini litigation expenses (Note 4)

411,056

975,598

Recovery of tax benefits

(34,783)

(45,946)

2,783

10,333

371,801

948,499

Revenue

Interest on U.S. Treasury obligations
Other revenue
Total Revenue

Expenses and Losses

Other expenses
Total Expenses and Losses

Net (Loss)

(202,503)

Accumulated Deficit - Beginning

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




(826,063)

(123,631,294)

$

(123,833,797)

(122,805,231)

$

(123,631,294)

Federal

Deposit

Insurance

Corporation

FSLIC R esolution Fund S ta te m e n t of Cash Flow s for th e Years Ended D ecem ber 31
Dollars

in T h o u s a n d s

2006

2005

Operating Activities
Net (Loss)

$

Adjustments to reconcile net (loss) to net cash (used by) operating activities:
Provision for losses

(202,503)

$

(826,063)

(19,257)

(16,112)

21,273
(2,302)

59,630
2,196

Change in Assets and Liabilities:

Decrease in receivables from th rift resolutions and other assets
(DecreaseI/Increase in accounts payable and other liabilities

21,824

257,104

(180,965)

(523,245)

U.S.Treasury payments for goodwill litigation

194,728

624,564

Net Cash Provided by Financing Activities

194,728

624,564

Increase in contingent liabilities for litigation losses and other
Net Cash (Used by) Operating Activities

Financing Activities
Provided by:

13,763

Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
The accompanying notes are an integral part o f these financial statements.




S

101,319

3,602,703

Net Increase in Cash and Cash Equivalents

3,501,384

3,616,466

$

3,602,703

Fi n an ci a l S t a t e m e n t s and N o t es

FSLIC Resolution Fund
Notes to the
Financial Statements
D e c e m b e r 31, 20 06
and 2005

1. L e g is la tiv e H is to ry an d O p e ra tio n s /D is s o lu tio n
o f th e FSLIC R e s o lu tio n Fund

Legislative History
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit
insurance agency created by Congress in 1933 to maintain stability and public
confidence in the nation's banking system. Provisions that govern the operations
of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act,
as amended, (12 U.S.C. 1811, et seq). In carrying out the purposes of the
FDI Act, as amended, the FDIC insures the deposits of banks and savings
associations, and in cooperation with other federal and state agencies promotes
the safety and soundness of insured depository institutions by identifying,
monitoring and addressing risks to the deposit insurance funds established in
the FDI Act, as amended. In addition, FDIC is charged with responsibility for the
sale of remaining assets and satisfaction of liabilities associated with the former
Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution
Trust Corporation (RTC).
The U.S. Congress created the FSLIC through the enactment of the National
Housing Act of 1934. The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, created the
FSLIC Resolution Fund (FRF), and transferred the assets and liabilities of the
FSLIC to the FRF-except those assets and liabilities transferred to the RTCeffective on August 9, 1989. Further, the FIRREA established the Resolution
Funding Corporation (REFCORP) to provide part of the initial funds used by
the RTC for thrift resolutions.
The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC
as of December 31, 1995. All remaining assets and liabilities of the RTC were
transferred to the FRF on January 1, 1996. Today, the FRF consists of tw o
distinct pools of assets and liabilities: one composed of the assets and liabilities
of the FSLIC transferred to the FRF upon the dissolution of the FSLIC (FRFFSLIC), and the other composed of the RTC assets and liabilities (FRF-RTC).
The assets of one pool are not available to satisfy obligations of the other.
Pursuant to the Federal Deposit Insurance Reform Act of 2005, the Bank
Insurance Fund and the Savings Association Insurance Fund were merged into
a new fund, the Deposit Insurance Fund (DIF). The FDIC is the administrator
of the FRF and the DIF. These funds are maintained separately to carry out their
respective mandates.

v


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Federal Reserve Bank of St. Louis




Operations/Dissolution of the FRF
The FRF will continue operations until all of its assets are sold or otherwise
liquidated and all of its liabilities are satisfied. Any funds remaining in the
FRF-FSLIC will be paid to the U.S. Treasury. Any remaining funds of the
FRF-RTC will be distributed to the REFCORP to pay the interest on the
REFCORP bonds. In addition, the FRF-FSLIC has available until expended
$602.2 million in appropriations to facilitate, if required, efforts to wind up
the resolution activity of the FRF-FSLIC.
The FDIC has conducted an extensive review and cataloging of FRF's remaining
assets and liabilities and is continuing to explore approaches for concluding
FRF’s activities. An executive-level Steering Committee was established in 2003
to facilitate the FRF dissolution. Some of the issues and items that remain
open in FRF are: 1) criminal restitution orders (generally have from 5 to 10 years
remaining to enforce); 2) collections of settlements and judgments obtained
against officers and directors and other professionals responsible for causing
or contributing to thrift losses (generally have from 6 months to 12 years
remaining to enforce); 3) numerous assistance agreements entered into by the
former FSLIC (FRF could continue to receive tax-sharing benefits through year
2008); 4) goodwill and Guarini litigation (no final date for resolution has been
established; see Note 4); and 5) environmentally impaired owned real estate
assets. The FDIC is considering whether enabling legislation or other measures
may be needed to accelerate liquidation of the remaining FRF assets and
liabilities. The FRF could realize substantial recoveries from the tax-sharing
benefits, criminal restitution orders and professional liability claims ranging
from $165 million to $271.4 million; however, any associated recoveries are
not reflected in FRF's financial statements given the significant uncertainties
surrounding the ultimate outcome.
Receivership Operations
The FDIC is responsible for managing and disposing of the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership
entities, and the claims against them, are accounted for separately from FRF
assets and liabilities to ensure that receivership 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. Receiverships are billed by the FDIC for services
provided on their behalf.

FSLIC Resolution Fund


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2 . S u m m a ry o f S ig n ific a n t A c c o u n tin g P o lic ie s

General
These financial statements pertain to the financial position, results of operations,
and cash flows of the FRF and are presented in conformity with U.S. generally
accepted accounting principles (GAAP). These statements do not include
reporting for assets and liabilities of closed thrift institutions for which the
FDIC acts as receiver. Periodic and final accountability reports of the FDIC's
activities as receiver are furnished to courts, supervisory authorities, and
others as required.
Use of Estimates
Management makes estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. Where it is reasonably possible that changes
in estimates will cause a material change in the financial statements in the near
term, the nature and extent of such changes in estimates have been disclosed.
The more significant estimates include allowance for losses on receivables
from thrift resolutions and the estimated losses for litigation.
Provision for Losses
The provision for losses represents the change in the valuation of the recievables
from thrift resolutions and other assets.
Fair Value of Financial Instruments
Cash equivalents, which consist of Special U.S. Treasury Certificates, are short­
term, highly liquid investments with original maturities of three months or less
and are shown at fair value. The carrying amount of short-term receivables and
accounts payable and other liabilities approximates their fair market value, due
to their short maturities.
The net receivable from thrift resolutions is influenced by the underlying valuation
of receivership assets. This corporate receivable is unique and the estimate
presented is not necessarily indicative of the amount that could be realized
in a sale to the private sector. Such a sale would require indeterminate, but
substantial, discounts for an interested party to profit from these assets because
of credit and other risks. Consequently, it is not practicable to estimate its fair
market value.
Other assets primarily consist of credit enhancement reserves, which are valued
by performing projected cash flow analyses using market-based assumptions
(see Note 3).




Disclosure About Recent Accounting Pronouncements
Recent accounting pronouncements have been adopted or deemed to be not
applicable to the financial statements as presented.
Related Parties
The nature of related parties and a description of related party transactions are
discussed in Note 1 and disclosed throughout the financial statements and
footnotes.
Reclassifications
Reclassifications have been made in the 2005 financial statements to conform
to the presentation used in 2006.

3 . R e c e iv a b le s From T h r ift R e s o lu tio n s a n d O th e r A s s e ts , N e t

Receivables From Thrift Resolutions
The receivables from thrift resolutions include payments made by the FRF to
cover obligations to insured depositors, advances to receiverships for working
capital, and administrative expenses paid on behalf of receiverships. Any related
allowance for loss represents the difference between the funds advanced and/or
obligations incurred and the expected repayment. Assets held by the FDIC in its
receivership capacity for the former FSLIC and SAIF-insured institutions are a
significant source of repayment of the FRF's receivables from thrift resolutions.
As of December 31, 2006, 20 of the 850 FRF receiverships remain active primarily
due to unresolved litigation, including goodwill matters.
As of December 31, 2006 and 2005, FRF receiverships held assets with
a book value of $33 million and $139 million, respectively (including cash,
investments, and miscellaneous receivables of $26 million and $113 million
at December 31, 2006 and 2005, respectively). The estimated cash recoveries
from the management and disposition of these assets that are used to derive
the allowance for losses are based on a sampling of receivership assets in
liquidation. Assets in the judgmental sample, which represents 96 percent of
the asset book value for all active FRF receiverships, are generally valued by
estimating future cash recoveries, net of applicable liquidation cost estimates,
and then discounting these net cash recoveries using current market-based risk
factors based on a given asset's type and quality. Resultant recovery estimates
are extrapolated to the non-sampled assets in order to derive the allowance for
loss on the receivable. These estimated recoveries are regularly evaluated, but
remain subject to uncertainties because of potential changes in economic and
market conditions. Such uncertainties could cause the FRF's actual recoveries
to vary from the level currently estimated.

FSLIC Resolution Fund
Other Assets
Other assets primarily include credit enhancement reserves valued at S20.2 million
and $16.7 million as of December 31, 2006 and 2005, respectively. The credit
enhancement reserves resulted from swap transactions where the former RTC
received mortgage-backed securities in exchange for single-family mortgage
loans. The RTC supplied credit enhancement reserves for the mortgage loans in
the form of cash collateral to cover future credit losses over the remaining life
of the loans. These reserves may cover future credit losses through 2020.

I R eceivables From T h rift Resolutions and O th er Assets, N e t at D ecem ber 31
Dollars

in T h o u s a n d s
2006

Receivables from closed thrifts

$

Allowance for losses

11,308,460
(11,299,448)

Receivables from Thrift Resolutions, Net




15,086

27,718
S

36,730

16,080,789
(16,065,703)

9,012

Other assets
Total

2005

$

23,660
$

38,746

Gross receivables from thrift resolutions subject the FRF to credit risk. An
allowance for loss of $11.3 billion, or 99.9 percent of the gross receivable,
was recorded as of December 31, 2006. Of the remaining 0.1 percent of the
gross receivable, 65 percent is expected to be repaid from receivership cash
and investments.




4 . C o n tin g e n t L ia b ilitie s fo r:

Litigation Losses
The FRF records an estimated loss for unresolved legal cases to the extent
those losses are considered probable and reasonably estimable. In addition to
the amount recorded as probable, the FDIC has determined that losses from
unresolved legal cases totaling $3 million are reasonably possible.
Additional Contingency
G oo d w ill Litigation

In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme Court
held that when it became impossible following the enactment of FIRREA
in 1989 for the federal government to perform certain agreements to count
goodwill toward regulatory capital, the plaintiffs were entitled to recover
damages from the United States. Approximately 26 remaining cases are
pending against the United States based on alleged breaches of these
agreements.
On July 22, 1998, the Department of Justice's (DOJ's) Office of Legal Counsel
(OLC) concluded that the FRF is legally available to satisfy all judgments and
settlements in the goodwill litigation involving supervisory action or assistance
agreements. OLC determined that nonperformance of these agreements was
a contingent liability that was transferred to the FRF on August 9, 1989, upon
the dissolution of the FSLIC. On July 23, 1998, the U.S. Treasury determined,
based on OLC's opinion, that the FRF is the appropriate source of funds for
payments of any such judgments and settlements. The FDIC General Counsel
concluded that, as liabilities transferred on August 9, 1989, these contingent
liabilities for future nonperformance of prior agreements w ith respect to
supervisory goodwill were transferred to the FRF-FSLIC, which is that portion
of the FRF encompassing the obligations of the former FSLIC. The FRF-RTC,
which encompasses the obligations of the former RTC and was created upon
the termination of the RTC on December 31, 1995, is not available to pay any
settlements or judgments arising out of the goodwill litigation.
The goodwill lawsuits are against the United States and as such are defended
by the DOJ. On November 15, 2006, the DOJ again informed the FDIC that it
is "unable at this time to provide a reasonable estimate of the likely aggregate
contingent liability resulting from the Winstar-re\ated cases." This uncertainty
arises, in part, from the existence of significant unresolved issues pending
at the appellate or trial court level, as well as the unique circumstances of
each case.

FSLIC Resolution Fund


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The FDIC believes that it is probable that additional amounts, possibly substantial,
may be paid from the FRF-FSLIC as a result of judgments and settlements in
the goodwill litigation. Based on the representations from the DOJ, the FDIC
is unable to estimate a range of loss to the FRF-FSLIC from the goodwill litigation.
However, the FRF can draw from an appropriation provided by Section 110
of the Department of Justice Appropriations Act, 2000 (Public Law 106-113,
Appendix A, Title I, 113 Stat. 1501A-3, 1501A-20) such sums as may be
necessary for the payment of judgments and compromise settlements in the
goodwill litigation. This appropriation is to remain available until expended.
Because an appropriation is available to pay such judgments and settlements,
any liability for the goodwill litigation should have a corresponding receivable
from the U.S. Treasury and therefore have no net impact on the financial
condition of the FRF-FSLIC.
The FRF paid $194.7 million as a result of judgments and settlements in four
goodwill cases for the year ended December 31, 2006, compared to $624.6
million for seven goodwill cases for the year ended December 31, 2005. As
described above, the FRF received appropriations from the U.S. Treasury to
fund these payments. At December 31, 2006, the FRF accrued a $251.8 million
contingent liability and offsetting receivable from the U.S. Treasury for judgments
in tw o additional cases that were fully adjudicated as of year end. These funds
were paid in January 2007.
In addition, the FRF-FSLIC pays the goodwill litigation expenses incurred by
DOJ based on a Memorandum of Understanding (MOU) dated October 2, 1998,
between the FDIC and DOJ. Under the terms of the MOU, the FRF-FSLIC paid
$17.5 million and $18.3 million to DOJ for fiscal years (FY) 2007 and 2006,
respectively. DOJ returns any unused fiscal year funding to the FRF unless
special circumstances warrant these funds be carried over and applied against
current fiscal year charges. At September 30, 2006, DOJ had an additional
$3.4 million in unused fiscal year 2006 funds that were applied against
FY 2007 charges of $20.9 million.
Guarini Litigation

Paralleling the goodwill cases are similar cases alleging that the government
breached agreements regarding tax benefits associated with certain FSLICassisted acquisitions. These agreements allegedly contained the promise of
tax deductions for losses incurred on the sale of certain thrift assets purchased
by plaintiffs from the FSLIC, even though the FSLIC provided the plaintiffs with
tax-exempt reimbursement. A provision in the Omnibus Budget Reconciliation
Act of 1993 (popularly referred to as the "Guarini legislation") eliminated the
tax deductions for these losses.
Eight Guarini cases were originally filed seeking damages relating to the
government's elimination of certain tax deductions. Seven of those eight cases
have now concluded. One case settled in 2002 for $20,000, and a second case
concluded in 2004 with no damage award. Judgments were paid in four cases
in 2005 and 2006 for a total of $152.6 million. In a seventh case settled in 2006
for $99 million, the settlement agreement further obligates the FRF-FSLIC as a




guarantor for all tax liabilities in the event the settlement amount is determined
by tax authorities to be taxable. The maximum potential exposure under this
guarantee through 2009 is approximately $81 million. After reviewing relevant
case law in relation to the nature of the settlement, the FDIC believes that it is
very unlikely the settlement will be subject to taxation. Therefore, the FRF is not
expected to fund any payment under this guarantee and no liability has been
recorded. The eighth Guarini case is currently before the U.S. Court of Federal
Claims for consideration of one remaining issue.
The FDIC has established a contingent liability of approximately $27.5 million for
the remaining Guarini litigation loss exposure.
Representations and Warranties
As part of the RTC's efforts to maximize the return from the sale of assets from
thrift resolutions, representations and warranties, and guarantees were offered
on certain loan sales. The majority of loans subject to these agreements have
been paid off, refinanced, or the period for filing claims has expired. The FDIC's
estimate of maximum potential exposure to the FRF is $30 million based on an
assessment of remaining portfolio balances still covered by representations and
warranties. No claims in connection with representations and warranties have
been asserted since 1998 on the remaining open agreements. Because of the
age of the remaining portfolio and lack of claim activity, the FDIC does not expect
new claims to be asserted in the future. Consequently, the financial statements
at December 31, 2006 and 2005 do not include a liability for these agreements.

FSLIC Resolution Fund
5 . R e s o lu tio n E q u ity

As stated in the Legislative History section of Note 1, the FRF is comprised of
tw o distinct pools: the FRF-FSLIC and the FRF-RTC. The FRF-FSLIC consists
of the assets and liabilities of the former FSLIC. The FRF-RTC consists of the
assets and liabilities of the former RTC. Pursuant to legal restrictions, the tw o
pools are maintained separately and the assets of one pool are not available
to satisfy obligations of the other.
The following table shows the contributed capital, accumulated deficit, and
resulting resolution equity for each pool.
I R e s o lu t io n E q u it y a t D e c e m b e r 3 1 , 2 0 0 6

Dollars

in T h o u s a n d s
FRF-FSLIC

Contributed capital - beginning

$

44,808,104

Add: U.S.Treasury payments fo r goodwill litigation

82,199,337

$

127,007,441

446,555

0

446,555

82,199,337

127,453,996

(42,212,338)

Accumulated deficit




$

45,254,659

Contributed capital - ending

Total

FRF
Consolidated

FRF-RTC

$

3,042,321

(81,621,459)
S

577,878

(123,833,797)
$

3,620,199

Contributed Capital
The FRF-FSLIC and the former RTC received $43.5 billion and $60.1 billion
from the U.S. Treasury, respectively, to fund losses from thrift resolutions
prior to July 1, 1995. Additionally, the FRF-FSLIC issued $670 million in capital
certificates to the Financing Corporation (a mixed-ownership government
corporation established to function solely as a financing vehicle for the FSLIC)
and the RTC issued $31.3 billion of these instruments to the REFCORP. FIRREA
prohibited the payment of dividends on any of these capital certificates. Through
December 31, 2006, the FRF-RTC has returned $4,556 billion to the U.S. Treasury
and made payments of $4,572 billion to the REFCORP. These actions serve to
reduce contributed capital.
During 2006, the FRF-FSLIC recieved $194.7 million for U.S. Treasury payments for
goodwill litigation and established a receivable for $251.8 million (see Note 4).
Accumulated Deficit
The accumulated deficit represents the cumulative excess of expenses over
revenue for activity related to the FRF-FSLIC and the FRF-RTC. Approximately
$29.8 billion and $87.9 billion were brought forward from the former FSLIC and
the former RTC on August 9, 1989, and January 1, 1996, respectively. The FRFFSLIC accumulated deficit has increased by $12.4 billion, whereas the FRF-RTC
accumulated deficit has decreased by $6.3 billion, since their dissolution dates.




6. Em ployee Benefits

Pension Benefits
Eligible FDIC employees (permanent and term employees with appointments
exceeding one year) are covered by the federal government retirement plans,
either the Civil Service Retirement System (CSRS) or the Federal Employees
Retirement System (FERS), 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 or the unfunded liability relative to eligible employees. These
amounts are reported on and accounted for by the U.S. Office of Personnel
Management. The FRF's pension-related expenses were $850 thousand and
$2.9 million for 2006 and 2005, respectively.
Postretirement Benefits Other Than Pensions
The FRF no longer records a liability for the postretirement benefits of life and
dental insurance as a result of FDIC's change in funding policy for these benefits
and elimination of the separate entity formerly used to account for such estimated
future costs. In implementing this change, management decided not to allocate
either the plan assets or the revised net accumulated postretirement benefit
obligation (a long-term liability) to the FRF due to the expected dissolution of the
FRF. However, the FRF does continue to pay its proportionate share of the yearly
claim expenses associated with these benefits.

i

GAO
^ ^ ^ A c c o u n ta b lllty ★ Integrity » Reliability

United States Government Accountability Office
W ashington, D.C. 20548

To the Board of Directors
The Federal Deposit Insurance Corporation
We have audited the balance sheets as o f December 31, 2006, and
2005, for the two funds administered by the Federal Deposit Insurance
Corporation (FDIC), the related statements o f income and fund balance
(accumulated deficit), and the statements o f cash flows for the years then
ended. In our audits o f the Deposit Insurance Fund (DIF) and the FSLIC
Resolution Fund (FRF), we found
• the financial statements o f each fund are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting
principles;
• FDIC had effective internal control over financial reporting and
compliance with laws and regulations for each fund; and
• no reportable noncompliance with laws and regulations we tested.
The following sections discuss our conclusions in more detail. They also
present information on the scope o f our audits and our evaluation of
FDIC management’s comments on a draft of this report.

Opinion on DIF's
Financial Statements


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The financial statements, including the accompanying notes, present
fairly, in all material respects, in conformity with U.S. generally accepted
accounting principles, DIF’s financial position as o f December 31, 2006,
and 2005, and the results o f its operations and its cash flows for the years
then ended.
As discussed in note 1 to DIF’s financial statements, on February 8, 2006,
the President signed into law the Federal Deposit Insurance Reform Act
of 2005 (the Act). Among its provisions, the Act called for the merger of
the Bank Insurance Fund (BIF) and Savings Association Insurance Fund
(SAIF) into a single deposit insurance fund. In accordance with the Act,
on March 31. 2006, FDIC established the DIF with the merger o f the
BIF and SAIF. As further discussed in note 2 to DIF’s financial statements,
the merger resulted in a new reporting entity. The financial results of
the newly formed DIF were retrospectively applied as though they had
been combined at the beginning o f the reporting year as well as for prior
periods presented for comparative purposes.

Opinion on FRF's
Financial Statements

The financial statements, including the accompanying notes, present
fairly, in all material respects, in conformity with U.S. generally accepted
accounting principles, FR F’s financial position as of December 31, 2006,
and 2005, and the results o f its operations and its cash flows for the years
then ended.

Opinion on Internal
Control

FDIC management maintained, in all material respects, effective internal
control over financial reporting (including safeguarding assets) and
compliance as of December 31, 2006, that provided reasonable assurance
that misstatements, losses, or noncompliance material in relation to
FDIC’s financial statements for each fond would be prevented or detected
on a tim ely basis. Our opinion is based on criteria established under
31 U.S.C. 3512 (c), (d) [commonly known as the Federal M anagers’
Financial Integrity Act (FMF1A)].




In our prior year audit,1 we reported on weaknesses we identified in
FDIC’s information system controls, which we considered to be a reportable condition.2 Specifically, FDIC had implemented a new financial
system May 2005 and, in doing so, did not ensure that controls were
adequate to accommodate its new systems environment.

1 GAO, Financial Audit: Federal Deposit Insurance Corporation Funds’2005
and 2004 Financial Statements, GAO-06-146 (Washington, D.C.: Mar. 2, 2006).
Reportable conditions involve matters coming to the auditor’s attention that,
in the auditor’s judgment, should be communicated because they represent
significant deficiencies in the design or operation of internal control and could
adversely affect FDIC’s ability to meet the control objectives described in this
report. In May 2006, the American Institute of Certified Public Accountants
(AICPA) issued Statement on Auditing Standard (SAS) 112, which became
effective for audits of financial statements for periods ending on or after
December 15, 2006. SAS 112 established standards and provides guidance
on the auditor’s responsibilities for identifying, evaluating, and communicating
matters related to an entity’s internal control over financial reporting identified
in an audit of financial statements. Under the new SAS, the auditor is required
to communicate control deficiencies that are significant deficiencies or material
weaknesses in internal controls. A significant deficiency is a control deficiency,
or combination of deficiencies, that adversely affects the entity’s ability to initiate,
authorize, record, process, or report financial data reliably in accordance with
generally accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the entity’s financial statements that is more
than inconsequential will not be prevented or detected. As a result of SAS 112,
the term reportable condition is no longer used.

97

During 2006, FDIC corrected many of these weaknesses and implemented
mitigating or compensating controls to provide protection for the corpora­
tion’s financial and sensitive information in the new systems environment.
These improvements enabled us to conclude that the remaining issues
related to information systems controls do not constitute a significant
deficiency. However, continued management commitment to an effective
information security program will be essential to ensure that the corpo­
ration’s financial and sensitive information will be adequately protected.
In light o f the evolving nature o f information security, and with new
exposures and threats continuing to develop, the corporation’s information
security program will need to dynamically adapt to address changing
information security challenges. As FDIC continues to enhance its new
financial system, which is based on an integrated financial management
software package, the corporation’s reliance on controls implemented in
the single, integrated financial system will increase. The continued effec­
tiveness o f FDIC’s controls will be dependent on sound implementation
o f the integrated financial management software and its operations.
We did identify control deficiencies during our 2006 audits that we do
not consider to be significant deficiencies. We will be reporting separately
to FDIC management on these matters.

Compliance with Laws
and Regulations

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

Objectives, Scope, and
Methodology

FDIC management is responsible for (1) preparing the annual financial
statements in conformity with U.S. generally accepted accounting prin­
ciples; (2) establishing, maintaining, and assessing internal control to
provide reasonable assurance that the broad control objectives of FMFIA
are met; and (3) complying with applicable laws and regulations.


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Federal Reserve Bank of St. Louis

We are responsible for obtaining reasonable assurance about whether
(1) the financial statements are presented fairly, in all material respects,
in conformity with U.S. generally accepted accounting principles; and
(2) management maintained effective internal control, the objectives of
which are the following:
• financial reporting— transactions are properly recorded, processed,
and summarized to permit the preparation of financial statements in
conformity with U.S. generally accepted accounting principles; and
assets are safeguarded against loss from unauthorized acquisition, use,
or disposition; and




• compliance with laws and regulations— transactions are executed in
accordance with laws and regulations that could have a direct and
material effect on the financial statements.
We are also responsible for testing compliance with selected provisions
of laws and regulations that could have a direct and material effect on the
financial statements.
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 o f the financial statements;
• obtained an understanding o f internal control related to financial
reporting (including safeguarding assets) and compliance with laws
and regulations;
• tested relevant internal controls over financial reporting and compliance,
and evaluated the design and operating effectiveness o f internal control;
• considered FDIC’s process for evaluating and reporting on internal
control based on criteria established by FMFIA; and
• tested compliance with certain laws and regulations, including
selected provisions o f the Federal Deposit Insurance Act, as amended,
the Federal Deposit Insurance Reform Act o f 2005, and the Chief
Financial Officers Act o f 1990.
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 controls over financial reporting and compliance.
Because o f inherent limitations in internal control, misstatements due
to error or fraud, losses, or noncompliance 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 o f changes in conditions or that the degree of compliance with
controls may deteriorate.
We did not test compliance with all laws and regulations applicable to
FDIC. We limited our tests o f compliance to those laws and regulations
that could have a direct and material effect on the financial statements for
the year ended December 31, 2006. We caution that noncompliance may
occur and not be detected by these tests and that such testing may not be
sufficient for other purposes.

99

We performed our work in accordance with U.S. generally accepted
government auditing standards.

FDIC Comments and
Our Evaluation




In commenting on a draft of this report, FD IC’s Chief Financial Officer
(CFO) was pleased to receive unqualified opinions on the DIF and FRF
financial statements and to note that there were no material weaknesses
identified during the 2006 audits. FD IC’s CFO appreciated that we
recognized the improvements that FDIC made over the past year to its
information systems environment. Also, the CFO stated that FD IC’s
sustained commitment to enhancing information systems controls
adequately addressed the concerns that we highlighted in the prior year
report and enabled us to conclude that the remaining issues related to
such controls do not constitute a significant deficiency. Finally, the CFO
stated that FDIC’s goal is to maintain an effective information security
program going forward, and has pledged to work diligently to resolve
control issues that we identified during the 2006 audits, as well as any
that may arise in the future.
The complete text o f FDIC’s comments is reprinted in appendix I.

David M. Walker
Comptroller General
o f the United States

January 31, 2007

A p pen d ix I

FDIC

Federal D e p o s it Insu rance C orp o ra tio n

550 17th Street, NW Washington, DC 20429

Deputy to the Chairman and Chief Financial Officer

February 8, 2007
Mr. David M. Walker
Comptroller General o f the United States
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548
Re: FDIC M anagement Response on the GAO 2006 Financial Statements Audit Report
Dear Mr. Walker:
Thank you for the opportunity to comment on the U.S. Government Accountability O ffice’s
(GAO) draft audit report titled, Financial Audit: Federal Deposit Insurance Corporation
Funds’ 2006 and 2005 Financial Statements, GAO-07-371. The report presents G A O ’s
opinions on the calendar year 2006 and 2005 financial statements o f the Deposit Insurance Fund
(DIF) and the Federal Savings and Loan Insurance Corporation Resolution Fund (FRF). The
report also presents G A O ’s opinion on the effectiveness o f FD IC ’s internal controls as o f
D ecem ber 31, 2006, and G A O ’s evaluation o f FD IC ’s com pliance w ith selected laws and
regulations.
We are pleased to accept G A O ’s unqualified opinions on the DIF and the FRF financial state­
ments and to note that there were no material weaknesses identified during the 2006 audits. The
GAO reported that the funds’ financial statements were presented fairly, in all material respects,
in conformity with U.S. generally accepted accounting principles; FDIC had effective internal
control over financial reporting and compliance with laws and regulations for each fund; and
there were no instances o f noncompliance with laws and regulations that were tested.
In addition, we appreciate that GAO recognized the improvements that FDIC m ade over the
past year to its information systems environment. We believe that our sustained commitment
to enhancing information systems controls adequately addressed the concerns that GAO high­
lighted in the prior year report, thus enabling GAO to conclude that the rem aining issues related
to such controls do not constitute a significant deficiency. Our goal is to maintain an effective
information security program going forward. Accordingly, we will work diligently to resolve
any control issues that GAO identified during its 2006 audits, as well as any that may arise in
the future.
We look forward to continuing our cooperative working relationship with the GAO in the com­
ing year. O ur collaborative efforts and open communication at all levels o f our organizations
should ensure continued success. I f you have any questions or concerns, please do not hesitate
to contact me.
Sincerely,

Deputy to the Chairman and
C hief Financial Officer




O v e rv ie w o f th e In d u s try

The 8,743 FDIC-insured commercial
banks and savings institutions that
filed financial results for the first
three quarters of 2006 reported
year-to-date net income of $112.4
billion (excludes 12 U.S. branches of
foreign banks). This was $10.6 billion
(10.4 percent) more than the industry
reported for the first three quarters
of 2005, and represented the largest
three-quarter earnings total ever
reported by the industry. The improve­
ment in earnings reflected strong
growth in loans and other interestbearing investments, very good
asset quality, and higher noninterest
income at larger institutions. More
than half of all insured institutions—
56.8 percent - reported earnings
increases for the first three quarters
of 2006, but the percentage of
institutions that were unprofitable
increased to 6.9 percent, from
5.8 percent in the first three quarters
of 2005.
Profitability, as measured by return
on assets (ROA), remained very high
by historic standards. For the first
three quarters of 2006, the industry
ROA was 1.33 percent, the same as
in the first three quarters of 2005,
and the third-highest ever registered
for a nine-month period. Earnings
growth was led by increased non­
interest income. Total noninterest




income grew by $17.6 billion
(10.5 percent) compared to the
same period in 2005. Income from
trading was $3.9 billion (34.6 percent)
higher than a year earlier, securitization
income was $2.5 billion (14.1 percent)
higher, and income from investment
banking increased by $1.6 billion
(20.8 percent). Net interest income
was $16.0 billion higher than in the
same period of 2005, but this repre­
sented only a 6.7 percent increase,
while interest-earning assets grew
by 9.7 percent. The relatively slug­
gish growth in net interest income
reflected narrower net interest
margins caused by rising short-term
interest rates and a flattening yield
curve. Improvements in asset quality
also provided a boost to earnings in
2006. Provisions for loan and lease
losses were $1.8 billion (8.1 percent)
lower than in 2005, as net charge-offs
declined by $3.6 billion (16.0 percent).
Lower gains on sales of securities
and other assets (down $2.5 billion, or
58.3 percent), and higher noninterest
expenses (up $18.0 billion, or 7.6 per­
cent) limited the improvement in
earnings.
Asset growth at insured institutions
remained very robust in 2006. For
the 12 months ended September
30, 2006, total assets of FDIC-insured
institutions grew by $1.1 trillion
(9.9 percent). Loans and leases
accounted for more than half of
the growth in assets (56.2 percent),
while growth in securities accounted
for almost one-tenth of the increase
in total assets (9.6 percent). Loans

to commercial borrowers accounted
for two-thirds of the growth in total
loans, with loans to commercial and
industrial (C&l) borrowers, real estate
construction and development loans,
and loans secured by nonfarm nonresidential properties registering the
biggest increases. Residential mort­
gage loans had the largest increase
of any single loan category, growing
by $158 billion (7.8 percent).
Deposit growth was also strong in
2006, but it did not keep pace with
the rapid growth in assets. Total
deposits increased by $609.5 billion
(8.7 percent) between September
30, 2005, and September 30, 2006,
but this growth represented only
57.7 percent of insured institutions'
funding needs. Nondeposit liabilities
increased by $315 billion (12.0 per­
cent) during this period, and equity
capital grew by $132.5 billion
(12.1 percent). Merger-related
goodwill accounted for almost onethird ($43.1 billion, or 32.6 percent)
of the total increase in equity capital.
More than 99 percent of all insured
institutions met or exceeded the
highest regulatory capital require­
ments as of September 30.

Asset quality indicators remained
very positive in 2006. At mid-year,
the percentage of loans and leases
that were noncurrent (90 days or
more past due or in nonaccrual status)
reached the lowest level in the 23
years that all insured institutions
have reported noncurrent loan data.
The industry's net charge-off rate
was also at a historical low level in
2006. At the end of the third quarter,
the number of institutions on the
FDIC's "Problem List" stood at 47,
the lowest level in the 36 years for
which data are available.




2006 Annual Report

V M anagem ent Control
.
E n te rp ris e R isk M a n a g e m e n t

The Office of Enterprise Risk Manage­
ment, under the auspices of the
Chief Financial Officer organization,
is responsible for corporate oversight
of internal control and enterprise risk
management (ERM). This includes
ensuring that the FDIC's operations
and programs are effective and
efficient and that internal controls
are sufficient to minimize exposure
to waste and mismanagement. The
FDIC recognizes the importance of a
strong risk management and internal
control program and has adopted a
more proactive and enterprise-wide
approach to managing risk. This
approach focuses on the identifica­
tion and mitigation of risk consis­
tently and effectively throughout the
Corporation, with emphasis on those
areas/issues most directly related to
our overall missions. As an indepen­
dent government corporation, the
FDIC has different requirements than
the mainstream federal government;
nevertheless, its ERM program seeks
to comply w ith the spirit of the
following standards, among others:
•

Federal Managers' Financial
Integrity Act (FMFIA);

•

Chief Financial Officers Act
(CFO Act);

•

Government Performance
and Results Act (GPRA);

•

Federal Information Security
Management Act (FISMA); and

•

OMB Circular A-123.


http://fraser.stlouisfed.org/
104
Federal Reserve Bank of St. Louis

The CFO Act extends to the FDIC
the FMFIA requirements for estab­
lishing, evaluating and reporting on
internal controls. The FMFIA requires
agencies to annually provide a
statement of assurance regarding
the effectiveness of management,
administrative and accounting
controls, and financial management
systems.
The FDIC has developed and imple­
mented management, administrative
and financial system controls that
reasonably ensure that:
•

Programs are efficiently and
effectively carried out in
accordance with applicable
laws and management policies;

•

Programs and resources are
safeguarded against waste,
fraud and mismanagement;

•

Obligations and costs comply
with applicable laws; and

•

Reliable, complete, and timely
data are maintained for decision­
making and reporting purposes.

The FDIC's control standards incorpo­
rate the Government Accountability
Office's (GAO) Standards for Internal
Control in the Federal Government.
Good internal control systems are
essential for ensuring the proper
conduct of FDIC business and the
accomplishment of management
objectives by serving as checks and
balances against undesirable actions
or outcomes.

As part of the Corporation's continued
commitment to establish and maintain
effective and efficient internal controls,
FDIC management routinely conducts
reviews of internal control systems.
The results of these reviews, as well
as consideration of the results of
audits, evaluations and reviews
conducted by the GAO, the Office
of Inspector General (OIG) and
other outside entities, are used as
a basis for the FDIC's reporting on
the condition of the Corporation's
internal control activities.

M a te ria l W eakn esse s

Material weaknesses are control
shortcomings in operations or systems
that, among other things, severely
impair or threaten the organization's
ability to accomplish its mission or
to prepare timely, accurate financial
statements or reports. The short­
comings are of sufficient magnitude
that the Corporation is obliged to
report them to external stakeholders.

To determine the existence of material
weaknesses, the FDIC has assessed
the results of management evaluations
and external audits of the Corporation's
risk management and internal control
systems conducted in 2006, as well
as management actions taken to
address issues identified in these
audits and evaluations. Based on this
assessment and application of other
criteria, the FDIC concludes that no
material weaknesses existed within
the Corporation's operations for 2006.
This is the ninth consecutive year
that the FDIC has not had a material
weakness; however, FDIC manage­
ment will continue to focus on high
priority areas, including various
aspects of deposit insurance reform,
IT systems security, contract acquisi­
tion management, the New Financial
Environment, emergency response
plan, privacy, and records manage­
ment, among others. The FDIC will
also address all control issues raised
by GAO related to its 2006 financial
statement audit report.




M a n a g e m e n t R ep o rt
on Final A c tio n s

As required under amended Section 5
of the Inspector General Act of 1978,
the tables on the following pages
provide information on final action
taken by management on audit
reports for the federal fiscal year
period, October 1, 2005, through
September 30, 2006.

Table 1
Management Report
on Final Action on Audits
with Disallowed Costs
For Fiscal Year 2006
(October 1, 2005-September 30, 2006)

Audit Reports

Number
of
Reports

Disallowed
Costs
(000's)

A. Management decisions-final action
not taken at beginning of period

2

$

1,969

B. Management decisions made
during the period

1

$

46

C. Total reports pending final action
during the period (A and B)

3

$ 2,015

D. Audit reports on which final action
was taken during the period:
1. Recoveries:
a. Collections and offsets
b. Other
2. Write-offs
3. Total of 1(a), 1(b), and 2

3
0
2
3*

36
$
0
$
$ 1,982
$ 2,018

E. Audit reports needing final action
at the end of the period

0

$

0

• Tw o reports have both collections and w rite -o ffs , th u s th e to ta l o f 1 (a), 1 (b), and 2 is three.
A C ollections fo r one report in line D1(a) w a s m ore than th e am ou n t disallow ed in line B fo r th a t report;
th u s line D3 exceeds line C.

Table 2
Management Report
on Final Action on Audits
with Recommendations
to Put Funds to Better Use
For Fiscal Year 2006
(October 1, 2005-September 30, 2006)




Audit Reports

Number
of
Reports

Funds Put to
Better Use
(000's)

A. Management decisions-final action
not taken at beginning of period

0

$

0

B. Management decisions made
during the period

0

$

0

C. Total reports pending final action
during the period (A and B)

0

$

0

D. Final Action taken during the period:
1. Value of recommendations
implemented (completed)
2. Value of recommendations that
management concluded should not or
could not be implemented or completed
3. Total of 1 and 2

0

$

0

0
0

$
$

0
0

E. Audit reports needing final action
at the end of the period

0

S

0

Table 3
Audit Reports Without Final Actions But With Management Decisions Over One Year Old
For Fiscal Year 2006 (October 1, 2005-September 30, 2006)
M a n a g e m e n t A c t i o n in P r o c e s s
Report Number
and Issue Date
1.

03-007
11-27-02

OIG Audit Finding

Management Action

The OIG made recommendations
for improvements in the FDIC's
internal network controls.

FDIC is working to secure sensitive data
in conjunction with implementation of the
enterprise encryption project.

Disallowed
Costs
$

0

$

0

Expected completion date: 1st quarter 2007.

2.

3.

4.

04-019
04-30-04

05-031
09-08-05

05-036
09-21-05




The OIG identified best practices that
should be associated with the System
Development Life Cycle methodology
and related control framework that
will be adopted by the Corporation.

Management is in the process of reviewing
closure documentation.

The OIG made recommendations
to establish an organizational policy
and system-specific procedures
to ensure proper configuration
management of operating system
software.

Management is in the process of reviewing
closure documentation,

The OIG made a recommendation
to research the General Services
Administration's (GSA's) e-Travel
Programs and determine whether
the travel services available under
the programs could improve or
replace the FDIC's current travel
program.

Management is in the process of reviewing the
benefits of each of GSA's e-Travel programs.
Additionally, management will review other
commercial travel processing systems along
with FDIC's travel system to determine the
feasibility of adding capabilities available in
GSA's programs.

Expected completion date: 1st quarter 2007.

$ 0

Expected completion date: 1st quarter 2007.

Expected completion date: 3rd quarter 2007.

$ 0

8

Federal Dep os it Insurance Corpo rat ion

VI. Appendices
A p p e n d ix A - K ey S ta tis tic s
FDIC E xp e n d itu re s 1 9 9 6 -2 0 0 6
Dollars

in

Millions

■ FDIC
■ RTC
$ 2.000

1,500

1.000

500

0
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Note:
Resolution Trust Corporation (RTC) expenditures became the responsibility of the FDIC on January 1,1996.


http://fraser.stlouisfed.org/
108
Federal Reserve Bank of St. Louis

The FDIC's Strategic Plan and Annual Performance Plan provide
the basis for annual planning and budgeting for needed resources.
The 2006 aggregate budget (for corporate, receivership and
investment spending) was $1.09 billion, while actual expenditures
for the year were $1.00 billion, about $55 million less than 2005
expenditures.
Over the past ten years, the FDIC's expenditures have varied
in response to workload. During the past decade, expenditures
generally declined due to decreasing resolution and receivership
activity. Total expenditures increased in 2002 due to an increase
in receivership-related expenses.
The largest component of FDIC spending is for costs associated
w ith staffing. Staffing decreased by 1 percent in 2006, from
4,514 employees at the beginning of the year to 4,476 at the
end of the year.

2006

E stim ated Insured Deposits and th e D epo sit Insurance Fund, D ecem b er 3 1 , 1 9 3 4 , th ro ug h S ep tem b e r 3 0 , 2 0 0 6 1
Dollars

in m i l l i o n s

D e p o s it s in In s u r e d I n s t it u t io n s

Year

Insurance
Coverage

Total
D om e stic
D eposits

E s tim a te d
Insu red
D eposits 2

In s u r a n c e F u n d a s a P e r c e n ta g e o f
P erc en tag e
o f In su red
D eposits

D eposit
Insurance
Fund

Total
D om e stic
D eposits

E s tim a te d
Insu red
Deposits

2006

$ 100,000

$ 6,4 3 9,4 16

$ 4,0 9 4,7 65

6 3.6

S 4 9,991.9

0.78

1.22

2005
2004
2003
2002
2001
2000
1999
1998
1997

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

6,168,146
5,686,680
5,182,016
4,857,327
4,481,888
4,149,355
3,802,744
3,747,809
3,507,493

3,890,911
3,623,713
3,451,117
3,387,799
3,210,727
3,054,360
2,868,881
2,850,227
2,746,006

63.1
63.7
66.6
69.7
71.6
73.6
75.4
76.1
78.3

48,596.6
47,506.8
46,022.3
43,797.0
41,373.8
41,733.8
39,694.9
39,452.1
37,660.8

0.79
0.84
0.89
0.90
0.92
1.01
1.04
1.05
1.07

1.25
1.31
1.33
1.29
1.29
1.37
1.38
1.38
1.37

1996
1995
1994
1993
1992
1991
1990
1989
1988

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

3,350,856
3,318,513
3,184,636
3,220,109
3,273,180
3,330,738
3,415,668
3,414,066
2,330,768

2,690,537
2,663,560
2,588,686
2,602,043
2.675,081
2,734,073
2,759,640
2,756,757
1,750,259

80.3
80.3
81.3
80.8
81.7
82.1
80.8
80.7
75.1

35,742.8
28,811.5
23,784.5
14,277.3
178.4
(6,934.0)
4,062.7
13,209.5
14,061.1

1.07
0.87
0.75
0.44
0.01
(0.21)
0.12
0.39
0.60

1.33
1.08
0.92
0.55
0.01
(0.25)
0.15
0.48
0.80

1987
1986
1985
1984
1983
1982
1981
1980
1979

100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
40,000

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

1,658,802
1,634,302
1,503,393
1,389,874
1,268,332
1,134,221
988,898
948,717
808,555

75.3
75.4
76.1
76.9
75.0
73.4
70.2
71.6
65.9

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

0.83
0.84
0.91
0.92
0.91
0.89
0.87
0.83
0.80

1.10
1.12
1.19
1.19
1.22
1.21
1.24
1.16
1.21

1978
1977
1976
1975
1974
1973
1972
1971
1970

40,000
40,000
40,000
40,000
40,000
20,000
20,000
20,000
20,000

1,145,835
1,050,435
941,923
875,985
833,277
766,509
697,480
610,685
545,198

760,706
692,533
628,263
569,101
520,309
465,600
419,756
374,568
349,581

66.4
65.9
66.7
65.0
62.5
60.7
60.2
61.3
64.1

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

0.77
0.76
0.77
0.77
0.73
0.73
0.74
0.78
0.80

1.16
1.15
1.16
1.18
1.18
1.21
1.23
1.27
1.25

1969
1968
1967
1966
1965
1964
1963
1962
1961

20,000
15,000
15,000
15,000
10,000
10,000
10,000
10,000
10,000

495,858
491,513
448,709
401,096
377,400
348,981
313,304
297,548
281,304

313,085
296,701
261,149
234,150
209,690
191,787
177,381
170,210
160,309

63.1
60.2
58.2
58.4
55.6
55.0
56.6
57.2
57.0

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

0.82
0.76
0.78
0.81
0.80
0.82
0.85
0.84
0.84

1.29
1.26
1.33
1.39
1.45
1.48
1.50
1.47
1.47

1960
1959
1958
1957
1956
1955
1954
1953
1952

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

260,495
247,589
242,445
225,507
219,393
212,226
203,195
193,466
188,142

149,684
142,131
137,698
127,055
121,008
116,380
110,973
105,610
101,841

57.5
57.4
56.8
56.3
55.2
54.8
54.6
54.6
54.1

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

0.85
0.84
0.81
0.82
0.79
0.77
0.76
0.75
0.72

1.48
1.47
1.43
1.46
1.44
1.41
1.39
1.37
1.34

1951
1950
1949
1948
1947
1946
1945
1944
1943

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

178,540
167,818
156,786
153,454
154,096
148,458
157,174
134,662
111,650

96,713
91,359
76,589
75,320
76,254
73,759
67,021
56,398
48,440

54.2
54.4
48.8
49.1
49.5
49.7
42.4
41.9
43.4

1,282.2
1,243.9
1,203.9
1,065.9
1,006.1
1,058.5
929.2
804.3
703.1

0.72
0.74
0.77
0.69
0.65
0.71
0.59
0.60
0.63

1.33
1.36
1.57
1.42
1.32
1.44
1.39
1.43
1.45

5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000

89,869
71,209
65,288
57,485
50,791
48,228
50,281
45,125
40,060

32,837
28,249
26,638
24,650
23,121
22,557
22,330
20,158
18,075

36.5
39.7
40.8
42.9
45.5
46.8
44.4
44.7
45.1

616.9
553.5
496.0
452.7
420.5
383.1
343.4
306.0
291.7

0.69
0.78
0.76
0.79
0.83
0.79
0.68
0.68
0.73

1.88
1.96
1.86
1.84
1.82
1.70
1.54
1.52
1.61

1942
1941
1940
1939
1938
1937
1936
1935
1934 3

1 For 2006, the numbers are as of September 30, and prior years reflect December 31.
2 Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits w ere estimated using percentages
determined from the June 30 Call Reports.
3 Initial coverage was $2,500 from January 1 to June 30, 1934.




109

Incom e and Expenses, D ep o sit Insurance Fund, fro m Beginning o f O peratio ns,
S ep tem b e r 11, 1 9 3 3 , th ro u g h D ecem b er 3 1 , 2 0 0 6

In c o m e

E xp e n s es a n d Losses

Year

Total

A s sessm ent
Inco m e

A s sessm ent
C redits

In v e s tm e n t
a n d O th e r
Sources

Total

S 107,192.5

S 6 2,2 66 .9

$ 6,709.1

$ 5 2,223.7

E ffective
A ssessm ent
R a te 1

Total

Provision
fo r
Losses

S 58,125.1

$ 3 6 ,0 9 6 .8

A d m in is tra tiv e
and O p era tin g
Expenses2
$ 14,841.7

In te re s t
and O th e r
Insu rance
Expenses

Funding
T ransfer fro m
th e FSLIC
R eso lutio n Fund

N e t In c o m e /
(Loss)

$ 7 ,1 9 2 .6

$13 9.5

$ 4 9,206.9

2 00 6

2 ,6 4 3 .5

3 1.9

0.0

2 ,6 1 1 .6

0 .0005%

9 04.3

(52.1)

9 5 0 .6

5 .8

0

1 ,739.2

2005
2004
2003
2002
2001
2000
1999
1998

2,420.5
2,240.4
2,174.0
1,795.9
2,729.7
2,569.9
2,416.6
2,584.3

60.6
104.3
95.2
108.0
82.8
64.1
48.3
36.7

0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0

2,359.9
2,136.1
2,078.8
2,276.9
2,646.9
2,505.8
2,368.3
2,547.6

0.0010%
0.0019%
0.0019%
0.0022%
0.0019%
0.0016%
0.0013%
0.0010%

809.5
607.6
(67.7)
719.6
3,123.4
945.2
2,047.0
817.5

(160.2)
(353.4)
(1,010.5)
(243.0)
2,199.3
28.0
1,199.7
(5.7)

966.2
941.3
935.5
945.1
887.9
883.9
823.4
782.6

3.5
19.7
7.3
17.5
36.2
33.3
23.9
40.6

0
0
0
0
0
0
0
0

1,611.0
1,632.8
2,241.7
1,076.3
(393.7)
1,624.7
369.6
1,766.8

1997
1996
1995
1994
1993
1992
1991
1990
1989

2,165.6
7,157.3
5,229.1
7,682.0
7,356.8
6,480.5
5,887.0
3,856.3
3,496.6

38.7
5,294.7
3,876.9
6,722.6
6,684.3
5,759.8
5,254.5
2,873.3
1,885.0

0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0

2,126.9
1,862.6
1,352.2
959.4
672.5
720.7
632.5
983.0
1,611.6

0.0015%
0.1627%
0.1242%
0.2185%
0.2146%
0.1807%
0.1605%
0.0867%
0.0001 %

247.3
353.6
202.2
(1,825.1)
(6,744.4)
(596.8)
16,925.3
13,059.3
4,352.2

(505.7)
(417.2)
(354.2)
(2,459.4)
(7,660.4)
(2,274.7)
15,496.2
12,133.1
3,811.3

677.2
568.3
510.6
443.2
418.5
614.83
326.1
275.6
219.9

75.8
202.5
45.8
191.1
497.5
1,063.1
1,103.0
650.6
321.0

0
0
0
0
0
35.4
42.4
56.1
5.6

1,918.3
6,803.7
5,026.9
9,507.1
14,101.2
7,112.7
(10,995.9)
(9,146.9)
(850.0)

1988
1987
1986
1985
1984
1983
1982
1981
1980

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

1,773.0
1,696.0
1,516.9
1,433.4
1,321.5
1,214.9
1,108.9
1,039.0
951.9

0.0
0.0
0.0
0.0
0.0
164.0
96.2
117.1
521.1

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

0.0833%
0.0833%
0.0833%
0.0833%
0.0800%
0.0714%
0.0769%
0.0714%
0.0370%

7,588.4
3,270.9
2,963.7
1,957.9
1,999.2
969.9
999.8
848.1
83.6

6,298.3
2,996.9
2,827.7
1,569.0
1,633.4
675.1
126.4
320.4
(38.1)

223.9
204.9
180.3
179.2
151.2
135.7
129.9
127.2
118.2

1,066.2
69.1
(44.3)
209.7
214.6
159.1
743.5
400.5
3.5

0
0
0
0
0
0
0
0
0

(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

1979
1978
1977
1976
1975
1974
1973
1972
1971

1,090.4
952.1
837.8
764.9
689.3
668.1
561.0
467.0
415.3

881.0
810.1
731.3
676.1
641.3
587.4
529.4
468.8
417.2

524.6
443.1
411.9
379.6
362.4
285.4
283.4
280.3
241.4

734.0
585.1
518.4
468.4
410.4
366.1
315.0
278.5
239.5

0.0333%
0.0385%
0.0370%
0.0370%
0.0357%
0.0435%
0.0385%
0.0333%
0.0345%

93.7
148.9
113.6
212.3
97.5
159.2
108.2
59.7
60.3

(17.2)
36.5
20.8
28.0
27.6
97.9
52.5
10.1
13.4

4.1
9.1
3.5
3.9
2.2
2.1
1.3
6.05
0.0

0
0
0
0
0
0
0
0
0

996.7
803.2
724.2
552.6
591.8
508.9
452.8
407.3
355.0

1970
1969
1968
1967
1966
1965
1964
1963
1962

382.7
335.8
295.0
263.0
241.0
214.6
197.1
181.9
161.1

369.3
364.2
334.5
303.1
284.3
260.5
238.2
220.6
203.4

210.0
220.2
202.1
182.4
172.6
158.3
145.2
136.4
126.9

223.4
191.8
162.6
142.3
129.3
112.4
104.1
97.7
84.6

0.0357%
0.0333%
0.0333%
0.0333%
0.0323%
0.0323%
0.0323%
0.0313%
0.0313%

46.0
34.5
29.1
27.3
19.9
22.9
18.4
15.1
13.8

3.8
1.0
0.1
2.9
0.1
5.2
2.9
0.7
0.1

0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0

0
0
0
0
0
0
0
0
0

336.7
301.3
265.9
235.7
221.1
191.7
178.7
166.8
147.3




106.8
103.3
89.3
180.44
67.7
59.2
54.4
49.6
46.9
42.2
33.5
29.0
24.4
19.8
17.7
15.5
14.4
13.7

continued on n ex t page

Incom e and Expenses, D epo sit Insurance Fund, fro m B eginning o f O perations,
S ep tem b e r 11, 1 9 3 3 , th ro u g h D e ce m b er 3 1 , 2 0 0 6 (continued)
Dollars

in

Millions
In c o m e

E xp e n s es a n d Losses

Year

Total

A s sessm ent
Inco m e

Assessm ent
C redits

In v e s tm e n t
and O th e r
Sources

1961
1960
1959
1958
1957
1956
1955
1954
1953
1952

147.3
144.6
136.5
126.8
117.3
111.9
105.8
99.7
94.2
88.6

188.9
180.4
178.2
166.8
159.3
155.5
151.5
144.2
138.7
131.0

115.5
100.8
99.6
93.0
90.2
87.3
85.4
81.8
78.5
73.7

73.9
65.0
57.9
53.0
48.2
43.7
39.7
37.3
34.0
31.3

0.0323%
0.0370%
0.0370%
0.0370%
0.0357%
0.0370%
0.0370%
0.0357%
0.0357%
0.0370%

1951
1950
1949
1948
1947
1946
1945
1944
1943

83.5
84.8
151.1
145.6
157.5
130.7
121.0
99.3
86.6

124.3
122.9
122.7
119.3
114.4
107.0
93.7
80.9
70.0

70.0
68.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0

29.2 :
30.6
28.4
26.3
43.1
23.7
27.3
18.4
16.6

0.0370%
0.0370%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%

69.1
62.0
55.9
51.2
47.7
48.2
43.8
20.8
7.0

56.5
51.4
46.2
40.7
38.3
38.8
35.6
11.5
0.0

0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0

12.6
10.6
9.7
10.5
9.4
9.4
8.2
9.3
7.0

0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
N/A

1942
1941
1940
1939
1938
1937
1936
1935
1933/4

E ffective
Assessm ent
R a te 1

Funding
Transfer fro m
th e FSLIC
R eso lutio n Fund

N e t In c o m e /
(Loss)

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

132.5
132.1
124.4
115.2
107.6
102.5
96.8
91.9
86.9
80.8

Total

14.8
12.5
12.1
11.6
9.7
9.4
9.0
7.8
7.3
7.8
5
!

A d m in is tra tiv e
and O p era tin g
E xpenses2

In te res t
and O th e r
Insurance
Expenses

P rovision
fo r
Losses

1.6
0.1
0.2
0.0
0.1
0.3
0.3
0.1
0.1
0.8

6.6
7.8
6.4
7.0
9.9
10.0
9.4
9.3
9.8

0.0
1.4
0.3
0.7
0.1
0.1
0.1
0.1
0.2

6.6
6.4
6.1
6.3*
9.8
9.9
9.3
9.2 |
9.6

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

76.9
77.0
144.7
138.6
147.6
120.7
111.6
90.0
76.8

10.1
10.1
12.9
16.4
11.3
12.2
10.9
11.3
10.0

0.5
0.6
3.5
7.2
2.5
3.7
2.6
2.8
0.2

9.6
9.5
9.4
9.2
8.8
8.5
8.3
8.5
9.8

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

59.0
51.9
43.0
34.8
36.4
36.0
32.9
9.5
(3.0)

13.2
12.4
11.9
11.6
9.6
9.1
8.7
7.7
7.2
7.0

1 The effective rates from 1950 through 1984 vary from the statutory rate of 0.0833 percent due to assessment credits provided in those years. The statutory rate increased to 0.12 percent
in 1990 and to a m inimum o f 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 percent. 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.
2

These expenses, which are presented as operating expenses in the Statements o f Income and Fund Balance, pertain to the FDIC in its corporate capacity only and do n o t include
costs that are charged to the failed bank receiverships that are managed by the FDIC. The receivership expenses are presented as part of the "Receivables from Resolutions, net" line
on the Balance Sheets. The information presented in the "FDIC Expenditures" table on page 108 of this report shows the aggregate (corporate and receivership) expenditures of the FDIC.

3 Includes $210 million for the cumulative effect of an accounting change for certain postretirement benefits.
4 Includes $105.6 million net loss on government securities.
5 This amount represents interest and other insurance expenses from 1933 to 1972.
6 Includes the aggregate amount of $80.6 million of interest paid on capital stock between 1933 and 1948.




Recoveries and Losses by th e D epo sit Insurance Fund on D isb u rsem ents fo r th e P ro tec tio n o f D epo sito rs,
1 9 3 4 th ro u g h 2 0 0 6
Dollars

in

Thousands


http://fraser.stlouisfed.org/
112
Federal Reserve Bank of St. Louis

A ll C a s e s 1

Y ear

N um ber
of
B a n k s/
T h rifts

Total
Assets

Total
Deposits

D isbursem en ts

Recoveries

E s tim a te d
A d d itio n a l
Recoveries

E s tim a te d
Losses

Total

2 ,2 3 4

S 3 01 ,40 0,4 69

$ 2 4 6 ,3 6 7 ,3 0 3

S 1 14,990,538

S 7 6,0 73 ,36 0

S 5 54,078

$ 3 8,3 63 ,10 0

2 00 6

0

0

0

0

0

0

0

2005
2004
2003
2002
2001
2000

0
4
3
11
4
7 I

0
165,866
1,096,724
2,557,811 !
2,234,253
407,618

0
145,885
903,504
2,175,043
1,610,474
340,533

0
138,895
883,772
2,068,519
1,605,147
297,313

0
133,905
681,532
1,570,551
1,057,206
265,175

0
1,167
132,255
106,623
268,182
0

0
3,823
69,985
391,345
279,759
32,138

1999
1998
1997
1996
1995
1994
1993

8
3
1
6
6
13
42

1,486,775
370,400
25,921
215,078
753,024
1,392,140
4,405,373

1,331,578
335,076
26,800
200,973
632,700
1,236,488
3,827,177

1,307,045
286,678
25,546
201,533
609,043
1,224,769
3,841,658

662,773
52,248
20,520
140,937
524,571
1,045,718
3,198,503

28,614
8,312
0
0
0
0
902

615,658
226,118
5,026
60,596
84,472
179,051
642,253

1992
1991
1990
1989
1988
1987
1986

122
127
169
207
280
203
145

44,231,922
63,203,713
15,676,700
29,168,596
70,065,789
9,366,300
7,710,400

41,184,366
53,832,141
14,488,900
24,090,551
45,499,102
8,399,500
7,056,700

14,175,372
21,196,493
10,817,419
11,445,829
12,163,006
5,037,871
4,790,969

10,506,358
15,197,510
8,034,946
5,248,247
5,244,866
3,015,215
3,015,252

1,038
2,586
4,399
0
0
0
0

3,667,976
5,996,397
2,778,074
6,197,582
6,918,140
2,022,656
1,775,717

1985
1984
1983
1982
1981
1980
1934-79

120
80
48
42
10
11
562

8,741,268
3,276,411
7,026,923
11,632,415
4,863,898
244,117
11,081,034

8,059,441
2,883,162
5,441,608
9,908,379
3,829,936
221,302
8,705,984

2,920,687
7,696,215
3,807,082
2,275,150
888,999
152,355
5,133,173

1,913,452
6,056,061
2,400,044
1,106,579
107,221
121,675
4,752,295

0
0
0
0
0
0
0

1,007,235
1,640,154
1,407,038
1,168,571
781,778
30,680
380,878

E s tim a te d
Losses
$ 2 8 ,3 4 9 ,1 5 8

D e p o s it A s s u m p tio n C a s e s

Year

Num ber
of
B a nk s/
Thrifts

Total
Assets

Total
Deposits

Disbursem ents

Recoveries

E s tim a te d
A d d itio n a l
Recoveries

Total

1,484

$ 2 22 ,59 5,8 70

$ 1 85 ,20 1,9 55

$ 8 7,4 24 ,79 8

S 58,6 24 ,84 5

S 4 50 ,79 5

2006

0

0

0

0

0

0

0

2005
2004
2003
2002
2001
2000

0
3
3
6
4
7

0
150,520
1,096,724
569,332
2,234,253
407,618

0
132,880
903,504
511,782
1.610,474
340,533

0
132,781
883,772
483,461
1,605,147
297,313

0
127,791
681,532
338,759
1,057,206
265,175

0
1,167
132,255
7,739
268,182
0

0
3,823
69,985
136,963
279,759
32,138

1999
1998
1997
1996
1995
1994
1993

8
3
1
6
6
13
37

1,486,775
370,400
25,921
215,078
753,024
1,392,140
4,098,618

1,331,578
335,076
26,800
200,973
632,700
1,236,488
3,556,005

1,307,045
286,678
25,546
201,533
609,043
1,224,769
3,580,297

662,773
52,248
20,520
140,937
524,571
1,045,718
3,035,754

28,614
8,312
0
0
0
0
902

615,658
226,118
5,026
60,596
84,472
179,051
543,641

1992
1991
1990
1989
1988
1987
1986

95
103
148
174
164
133
98

42,147,689
61,593,332
13,138,300
26,811,496
34,421,089
4,311,700
5,657,100

39,132,496
52,274,435
12,215,600
21,931,451
23,652,902
4,020,700
5,217,200

12,280,562
19,938,700
8,629,084
9,326,725
9,180,495
2,773,202
3,476,140

9,103,936
14,410,415
6,390,785
3,985,855
4,232,545
1,613,502
2,209,924

1,038
2,586
0
0
0
0
0

3,175,588
5,525,699
2,238,299
5,340,870
4,947,950
1,159,700
1,266,216

1985
1984
1983
1982
1981
1980
1934-79

87
62
35
25
5
7
251

2,235,182
1,905,924
3,194,452
681,025
4,808,042
218,332
8,671,804

2,000,044
1,603.923
2,275,313
552,436
3,778,486
199,846
5,528,330

1,631,166
1,373,198
2,893,969
268,372
79,208
138,623
4,797,969

0
0
0
0
0
0
0

535,565
431,524
1,043,416
54,794
7,850
28,375
356,082

;

1,095,601
941,674
1,850,553
213,578
71,358
110,248
4,441,887

i

Recoveries and Losses by th e D epo sit Insurance Fund on D isb u rsem ents fo r th e P ro tec tio n o f D epo sito rs,
1 9 3 4 th ro ug h 2 0 0 6 (continued)
Dollars

in

Thousands

D e p o s it P a y o f f C a s e s 2
Num ber
of
B a nk s/
Thrifts

Total
Assets

Total
D eposit

Disbursem ents

Recoveries

E s tim a te d
A d d itio n a l
Recoveries

E s tim a te d
Losses

Total

609

S 18,6 87 ,25 0

S 17,157,091

S 15,9 35 ,38 4

$ 1 1 ,2 4 8 ,6 4 0

$ 103,283

S 4,583,461

2006

0

0

0

0

0

0

0

2005
2004

0

Year

1

0
i

0

2003

j

2002

1

0

15,346

i

:

0

0

0

0

0

1 3 ,0 0 5

6,114

6,114

0

0

0

0

o

|

o

0

5

1 ,988,479

1,663,261

1,585,058

1,231,792

98,884

254,382

2001

0

0

0

0

0

0

0

2000

0

0

0

0

0

0

0

1999
1998
1997
1996
1995
1994
1993

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

0

0

0

0

0

0

0

0

5

306,755

271,172

261,361

162,749

0

98,612

2 , 0 4 9 ,3 2 0

1,526,538
2,522,500
2,280,100
1 ,276,700
2,539,000
1,334,500

2,018,402
1,477,328
2,257,700
2,086,100
1,278,400
2,260,800
1,253,900

1,893,324
1,251,676
2,183,400
2,116,556
1,252,160
2,103,792
1,155,981

1,401,186
784,002
1,641,564
1,262,140
822,612
1,401,000
739,659

0
0
4,399
0
0
0

492,138
467,674
537,437
854,416
429,548
702,792
416,322

610,156
855,568
164,037
585,418
51,018
17,832
563,983

548,986
784,597
160,998
538,917
47,536
16,454
479,535

523,789
791,838
148,423
277,240
35,736
13,732
335,204

411,175
699,483
122,484
206,247
34,598
11,427
310,408

0
0
0
0
0
0
0

112,614
92,355
25,939
70,993
1,138
2,305
24,796

1992
1991
1990
1989
1988
1987
1986

i

1985 I
1984
1983
1982
1981
1980
1934-79

25
21 |
20 :

32
36
51
40
29
16
9
7
2

3
307

:

0

0

0

A s s is ta n c e T r a n s a c tio n s

Year

Num ber
of
B a nk s/
T h rifts

T otal
Assets

Total
D eposits

Disbursem ents

Total

141

S 6 0,1 17 ,34 9

$ 44,0 08 ,25 7

2006

0

0

0

2005
2004
2003
2002
2001
2000

0
0
0
0
0 :
0

0
0
0
0
0
0

0
0
0
0

1999
1998
1997
1996
1995
1994
1993

0
0
0
0
0
0
0

1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1934-79

Recoveries

E s tim a te d
A d d itio n a l
Recoveries

E s tim a te d
Losses

$ 11,6 30 ,35 6

$ 6,1 9 9,8 75

$0

$ 5,430,481

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
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
0
0
0
0
0
0

2
3
1i
1;
80
19
7 ]

34,913
83,843
15,900
77,000
34,368,000
2,515,600
718,800

33,468
80,378
15,600
73,000
20,567,800
2,118,000
585,600

1,486
6,117
4,935
2,548
1,730,351
160,877
158,848

1,236
3,093
2,597
252
189,709
713
65,669

0
0
0
0
0
0
0

250
3,024
2,338
2,296
1,540,642
160,164
93,179

4
2
4
10
3
1
4

5,895,930
514,919
3,668,434
10,365,972
4,838
7,953
1,845,247

5,510,411
494,642
3,005,297
8,817,026
3,914
5,002
2,698,119

765,732
5,531,179
764,690
1,729,538
774,055
0
0

406,676
4,414,904
427,007
686,754
1,265
0
0

0
0
0
0
0
0
0

359,056
1,116,275
337,683
1,042,784
772,790
0
0




i

o

:

o

i

i

1Totals do not include dollar amounts for
the 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.
Note:
Beginning w ith the 1997 Annual Report,
the number of banks in the Assistance
Transactions column for 1988 was changed
from 21 to 80 and the number of banks
in the All Cases column was changed from
221 to 280 to reflect that one assistance
transaction encompassed 60 institutions.
Also, certain 1982, 1983, 1989 and 1992
resolutions previously reported in either
the Deposit Payoff or Deposit Assumption
categories w ere reclassified.

113

N u m b er, Assets, D epo sits, Losses, and Loss to Funds o f Insured T h rifts
Taken O ver or Closed Because o f Financial D iffic u ltie s , 1 9 8 9 th ro u g h 1 9 95
Dollars

in

Thousands

Y e a r2

E s tim a te d
Receivership
Loss3

Total

Assets

D eposits

Total

748

S 3 95 ,01 7,4 06

S 3 18 ,3 2 8 ,7 7 0

S 7 5,0 60 ,21 9

S 8 1,6 21 ,45 9

1995
1994
1993

2
2
10

423,819
136,815
7,178,794

414,692
127,508
5,708,253

28,192
11,472
267,595

27,750
14,599
65,212

59
144
213
318

44,196,946
78,898,904
129,662,498
134,519,630

34,773,224
65,173,122
98,963,962
113,168,009

3,220,731
8,426,188
16,017,169
47,088,872

3,765,968
8,957,761
19,212,063
49,578,106

1992
1991
1990
1989 5

Loss to Funds4

1 Prior to July 1,1995, all th rift closings were the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was term inated on December 31,1995, and all assets and liabilities
transferred to the FSLIC Resolution Fund (FRF), all the results of the th rift closing activity from 1989 through 1995 are now reflected on FRF's books.
2 Year is the year of failure, not the year of resolution.
3

The estimated losses represent the projected loss at the fund level from receiverships for unreimbursed subrogated claims of the FRF and unpaid advances to receiverships from
the FRF
4

The Loss to Funds represents the total resolution cost of the failed thrifts in the FRF-RTC funds, which includes corporate revenue and expense items such as interest expense
on Federal Financing Bank debt, interest expense on escrowed funds, and interest revenue on advances to receiverships, in addition to the estim ated losses for receiverships.

5 Total for 1989 excludes nine failures of the form er FSLIC.




This page left blank intentionally.




115




FDIC A c tio n s on F in a n c ia l In s titu tio n s A p p lic a tio n s 2 0 0 4 -2 0 0 6

2006
Deposit Insurance
Approved
Denied
New Branches
Approved
Denied
Mergers
Approved
Denied
Requests for Consent to Serve*
Approved
Section 19
Section 32
Denied
Section 19
Section 32
Notices of Change in Control
Letters of Intent Not to Disapprove
Disapproved
Brokered Deposit Waivers
Approved
Denied
Savings Association Activities'
Approved
Denied
State Bank Activities/Investments’
Approved
Denied
Conversions of Mutual Institutions
Non-Objection
Objection

2005

2004

142
142
0
1,257
1,257
0
229
229
0
138
138
11
127
0
0
0
3
2
1
26
26
0
33
33
0
14
14
0
9
9
0

219
219
0
1,575
1,575
0
286
286
0
170
170
13
157
0
0
0
9
9
0
40

176
176
0
1,447
1,447
0
311
311
0
301
301
13
288
0
0
0
18
18
0
32
32
0
70
70
0
27
27
0
12
12
0

40
0
59
59
0
18
18
0
11

11
0

* Under Section 19 of the Federal Deposit Insurance (FDI) 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 also approve any change
of directors or senior executive officers at a state nonmember bank that is not in compliance with capital requirements
or is otherwise in troubled condition.
" Amendments to Part 303 of the FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.
In 1998, Part 303 changed the Delegations of Authority to act upon applications.
T Section 24 of the FDI Act, in general, precludes a federally insured state bank from engaging in an activity not
permissible for a national bank and requires notices to be filed w ith the FDIC.




C om pliance, Enforcem ent and Other Related Legal A ctions 2 0 0 4 -2 0 0 6

2006

2005

2004

192

217

0

0

2
3

2
11

0
2
38

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

0
29

0
20

0
28

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

3
89

2
73

3
58

0

0

1

Civil Money Penalties Issued
Sec. 7a Call Report Penalties
Sec. 8 i Civil M oney Penalties

0
93

0
69

0
68

Sec. 10c Orders of Investigation

17

15

15

0

0

1

0

0

0
0
78

0
0
73

Total Number of Actions Initiated by the FDIC

244

Termination of Insurance
Involuntary Termination
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition
Voluntary Termination
Sec. 8a By Order Upon Request
1
0
Sec. 8p No Deposits
Sec. 8q Deposits Assumed

Sec. 8g Suspension/Removal When Charged With Crime

Sec. 19 Denials of Service After Criminal Conviction

0

Sec. 32 Notices Disapproving Officer/Director's Request for Review 0
Truth-in-Lending Act Reimbursement Actions
Denials of Requests fo r Relief
Grants of Relief
Banks Making Reim bursem ent’
Suspicious Activity Reports (Open and closed institutions)"
Other Actions Not Listed7

0

2
110
119,384
5

102,080
0

83,453
3

'These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total
number of actions initiated.
'O ther Actions Not Listed includes W ritten Agreements, Section 19 Waiver grants. Section 8(e) Modifications, and similar
actions in which orders are issued.

117

2006 Annual Report

A p p e n d ix B - M o re A b o u t th e FD IC

FD IC B o ard o f D ire c to rs

Martin J. Gruenberg, Sheila C. Bair, Chairman (seated),
John C. Dugan, Thomas J. Curry, and John M. Reich (standing, left to right)

S h e ila C. B air

Sheila C. Bair was sworn in as the
19th Chairman of the Federal Deposit
Insurance Corporation (FDIC) on
June 26, 2006. She was appointed
Chairman for a five-year term, and
as a member of the FDIC Board of
Directors through July 2013.
Before her appointment to the FDIC,
Ms. Bair was the Dean's Professor
of Financial Regulatory Policy for the
Isenberg School of Management at
the University of MassachusettsAmherst since 2002. Other career

http://fraser.stlouisfed.org/
118
Federal Reserve Bank of St. Louis

experience includes serving as
Assistant Secretary for Financial
Institutions at the U.S. Department
of the Treasury (2001 to 2002),
Senior Vice President for Government
Relations of the New York Stock
Exchange (1995 to 2000), a
Commissioner and Acting Chairman
of the Commodity Futures Trading
Commission (1991 to 1995), and
Research Director, Deputy Counsel
and Counsel to Senate Majority
Leader Robert Dole (1981 to 1988).

While an academic, Chairman Bair
also served on the FDIC's Advisory
Committee on Banking Policy.
Chairman Bair's prior work focused
heavily on the banking sector. As
the Assistant Treasury Secretary
for Financial Institutions, she was
charged with helping to develop the
Administration's positions on banking
policy issues. She worked closely
with Treasury's own banking
regulatory bureaus, the Office of

M a r tin J. G ru e n b e rg

T h o m a s J. C u rry

the Comptroller of the Currency and
the Office of Thrift Supervision, as
well as the Federal Reserve Board
and the FDIC. Ms. Bair's teaching
and research at the University of
Massachusetts also dealt extensively
with banking and related issues.

Martin J. Gruenberg was sworn in
as Vice Chairman of the FDIC Board
of Directors on August 22, 2005.
Upon the resignation of Chairman
Donald Powell, he served as Acting
Chairman from November 15, 2005,
to June 26, 2006.

Thomas J. Curry took office on
January 12, 2004, as a member of
the Board of Directors of the Federal
Deposit Insurance Corporation for
a six-year term. Mr. Curry serves as
Chairman of the FDIC's Assessment
Appeals Committee.

Ms. Bair has served as a member
of several professional and non­
profit organizations, including the
Insurance Marketplace Standards
Association, Women in Flousing
and Finance, Center for Responsible
Lending, NASD Ahead-of-the-Curve
Advisory Committee, Massachusetts
Savings Makes Cents, American Bar
Association, Exchequer Club, and
Society of Children's Book Writers
and Illustrators.

Mr. Gruenberg joined the Board after
broad congressional experience in
the financial services and regulatory
areas. He served as Senior Counsel
to Senator Paul S. Sarbanes (D-MD)
on the staff of the Senate Committee
on Banking, Housing, and Urban
Affairs from 1993 to 2005.
Mr. Gruenberg advised the Senator
on all issues of domestic and interna­
tional financial regulation, monetary
policy and trade. He also served
as Staff Director of the Banking
Committee's Subcommittee on
International Finance and Monetary
Policy from 1987 to 1992. Major
legislation in which Mr. Gruenberg
played an active role during his
service on the Committee includes
the Financial Institutions Reform,
Recovery, and Enforcement Act of
1989 (FIRREA), the Federal Deposit
Insurance Corporation Improvement
Act of 1991 (FDICIA), the GrammLeach-Bliley Act, and the SarbanesOxley Act of 2002.

Mr. Curry also serves as the
Chairman of the NeighborWorks®
America Board of Directors.
NeighborWorks® America is a
national nonprofit organization
chartered by Congress to provide
financial support, technical assis­
tance, and training for communitybased neighborhood revitalization
efforts.

Five months after becoming
Chairman, Ms. Bair was named
to The Wall Street Journal magazine
Smart Money's (November 2006)
"Power 30" list - the magazine's
lineup of the 30 most influential
people in investing. Chairman Bair
has also received several honors
for her published work on financial
issues, including her educational
writings on money and finance
for children, and for professional
achievement. Among the honors
she has received are: Distinguished
Achievement Award, Association
of Education Publishers (2005);
Personal Service Feature of the Year,
and Author of the Month Awards,
Highlights Magazine for Children
(2002, 2003 and 2004); and The
Treasury Medal (2002). Her first
book - Rock, Brock and the Savings
Shock, a publication for children was published in 2006.
Chairman Bair received a bachelor's
degree from Kansas University and
a J.D. from Kansas University
School of Law. She is married
to Scott P Cooper and has tw o
.
children.



Mr. Gruenberg holds a J.D. from
Case Western Reserve Law School
and an A.B. from Princeton University,
Woodrow Wilson School of Public
and International Affairs.

Prior to joining the FDIC's Board
of Directors, Mr. Curry served five
Massachusetts Governors as the
Commonwealth's Commissioner of
Banks from 1990 to 1991 and from
1995 to 2003. He served as Acting
Commissioner from February 1994 «
to June 1995. He previously served
as First Deputy Commissioner and
Assistant General Counsel within the
Massachusetts Division of Banks. He
entered state government in 1982 as
an attorney with the Massachusetts
Secretary of State's Office.
Director Curry served as the
Chairman of the Conference of State
Bank Supervisors from 2000 to 2001.
He served tw o terms on the State
Liaison Committee of the Federal
Financial Institutions Examination
Council, including a term as
Committee chairman.
He is a graduate of Manhattan College
(summa cum laude), where he
was elected to Phi Beta Kappa. He
received his law degree from the
New England School of Law.

119

J o h n C. D u g an

John C. Dugan was sworn in as the
29th Comptroller of the Currency
on August 4, 2005. In addition to
serving as a director of the FDIC,
Comptroller Dugan also serves as
a director of the Federal Financial
Institutions Examination Council
and NeighborWorks® America.
Prior to his appointment as
Comptroller, Mr. Dugan was a partner
at the law firm of Covington &
Burling, where he chaired the firm 's
Financial Institutions Group. He
specialized in banking and financial
institution regulation. He also served
as outside counsel to the ABA
Securities Association.
He served at the Department of
Treasury from 1989 to 1993 and
was appointed assistant secretary
for domestic finance in 1992. In
1991, he oversaw a comprehensive
study of the banking industry that
formed the basis for the financial
modernization legislation proposed
by the administration of the first
President Bush. From 1985 to 1989,
Mr. Dugan was minority counsel
and minority general counsel for the
U.S. Senate Committee on Banking,
Housing, and Urban Affairs.
Among his professional and vol­
unteer activities before becoming
Comptroller, he served as a director
of Minbanc, a charitable organization
whose mission is to enhance profes­
sional and educational opportunities
for minorities in the banking industry.
He was also a member of the
American Bar Association's commit­
tee on banking law, the Federal Bar
Association's section of financial
institutions and the economy,
and the District of Columbia Bar
Association's section of corpora­
tions, finance, and securities laws.


http://fraser.stlouisfed.org/
120
Federal Reserve Bank of St. Louis

A graduate of the University of
Michigan in 1977 with an A.B. in
English literature, Mr. Dugan also
earned his J.D. from Harvard Law
School in 1981.

J o h n M . R eich

John M. Reich was sworn in
August 9, 2005, as Director of the
Office of Thrift Supervision (OTS).
The President nominated Mr. Reich
to be OTS Director on June 7, 2005,
and the Senate confirmed his
nomination on July 29, 2005. In this
capacity, Mr. Reich w ill continue to
serve as a member of the Board
of Directors of the FDIC.
Prior to joining OTS, Mr. Reich
served as Vice Chairman of the
Board of Directors of the Federal
Deposit Insurance Corporation
(FDIC) since November 2002. He
has been a member of the FDIC
Board since January 2001. He also
served as Acting Chairman of the
FDIC from July to August 2001.
Prior to coming to Washington, DC,
Mr. Reich spent 23 years as a
community banker in Illinois and
Florida, including ten years as
President and CEO of the National
Bank of Sarasota, in Sarasota, Florida.
Mr. Reich also served 12 years on
the staff of U.S. Senator Connie Mack
(R-FL), before joining the FDIC.
From 1998 through 2000, he was
Senator Mack's Chief of Staff,
directing and overseeing all of the
Senator's offices and committee
activities, including those at the
Senate Banking Committee.

Mr. Reich's community service
includes serving as Chairman of
the Board of Trustees of a public
hospital facility in Ft. Myers, FL, and
Chairman of the Board of Directors
of the Sarasota Family YMCA. He
has also served as a Board member
for a number of civic organizations,
and was active for many years in
youth baseball programs.
Mr. Reich holds a B.S. degree from
Southern Illinois University and an
M.B.A. from the University of South
Florida. He is also a graduate of
Louisiana State University's School
of Banking of the South.

FDIC O rg a n iz a tio n C h a rt/O ffic ia ls

as o f D ecem ber 31, 2006_______




121

Corporate Staffing

6,000
4.000
2.000
- --------------------------0

1II!!■■■■■
1 997

Staffing

1998

1999

2000

2001

2002

2003

2004

2005

2006

7,793

7,359

7,266

6,452

6,167

5,430

5,311

5,078

4,514

4,476

Note:
All staffing totals reftectyear-enc I balances.


http://fraser.stlouisfed.org/
122
Federal Reserve Bank of St. Louis

N u m b er of O ffic ia ls and Em ployees of the FDIC 2005-2006 (year-end)

Washington

Total

Regional/Field

2006

2005

2006

2005

2006

2005

Executive Offices"
Division of Supervision and Consumer Protection
Division of Resolutions and Receiverships
Legal Division
Division of Finance
Division of Information Technology'
Division of Insurance and Research
Division of Adm inistration
Office of Inspector General
Office of Diversity and Economic Opportunity
Office of the Ombudsman
Office of Enterprise Risk Management
Corporate University

39
2,517
231
413
161
274
185
311
124
28
12
11
170

37
2,541
235
433
175
270
178
349
127
31
12
11
115

39
195
57
263
161
214
152
207
91
28
10
11
38

37
198
61
274
209
146
232
95
31
10
11
37

0
2,322
174
150
0
60
33
104
33
0
2
0
132

0
2,343
174
159
0
61
32
117
32
0
2
0
78

Total

4,476

4,514

1,466

1,516

3,010

2,998

'

7 r:

’ Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Legislative Affairs, Public Affairs
and International Affairs.
’ Division of Information Resources Management was renamed to Division of Information Technology on September 4.2005.




Sources of Information

Home Page on the Internet

FDIC Call Center

www.fdic.gov

Phone:

A wide range of banking, consumer
and financial information is available
on the FDIC's Internet home page.
This includes the FDIC's Electronic
Deposit Insurance Estimator (EDIE),
which estimates an individual's
deposit insurance coverage; the
Institution D irectory-financial
profiles of FDIC-insured institutions;
Community Reinvestment Act
evaluations and ratings for institutions
supervised by the FDIC; Call Reportsbanks' reports of condition and
income; and M oney Smart, a
training program to help individuals
outside the financial mainstream
enhance their money management
skills and create positive banking
relationships. Readers also can
access a variety of consumer
pamphlets, FDIC press releases,
speeches and other updates on
the agency's activities, as well as
corporate databases and customized
reports of FDIC and banking industry
information.


http://fraser.stlouisfed.org/
124
Federal Reserve Bank of St. Louis

877-275-3342
(877-ASK FDIC)
703-562-2222

Hearing
Impaired: 800-925-4618

Office of the Ombudsman
3501 Fairfax Drive
Room E-2022
Arlington, VA 22226
■■■■■■■■■■■■■■■■■■■■
■■■■■■■■■■■■■■■■■■■■
Phone: 877-275-3342
(877-ASK FDIC)
Fax:

The FDIC Call Center in Washington, DC,
is the primary telephone point of
contact for general questions from
the banking community, the public and
FDIC employees. The Call Center
directly, or in concert w ith other FDIC
subject-m atter experts, responds to
questions about deposit insurance and
other consumer issues and concerns,
as well as questions about FDIC
programs and activities. The Call
Center also makes referrals to other
federal and state agencies as needed.
Hours of operation are 8:00 a.m. to
8:00 p.m. Eastern Time. Information
is also available in Spanish. Recorded
information about deposit insurance
and other topics is available 24 hours
a day at the same telephone number.

Public Information Center
3501 Fairfax Drive
Room E-1002
Arlington, VA 22226
Phone: 877-275-3342
(877-ASK FDIC), or
703-562-2200
Fax:

703-562-2296

E-mail: publicinfo@fdic.gov
FDIC publications, press releases,
speeches and Congressional
testimony, directives to financial
institutions, policy manuals and other
documents are available on request
or by subscription through the
Public Information Center. These
documents include the Quarterly
Banking Profile, FDIC Consumer
News and a variety of deposit
insurance and consumer pamphlets.

703-562-6057

E-mail: ombudsman@fdic.gov
The Office of the Ombudsman (0 0 )
is an independent, neutral and con­
fidential resource and liaison for the
banking industry and the general
public. The 0 0 responds to inquiries
about the FDIC in a fair, impartial
and timely manner. It researches
questions and complaints primarily
from bankers. The 0 0 also
recommends ways to improve
FDIC operations, regulations and
customer service.

Regional and Area Offices

A tlanta Regional O ffice

Chicago Regional Office

Dallas Regional Office

10 Tenth Street, NE
Suite 800
Atlanta, Georgia 30309
(678) 916-2200

500 West Monroe Street
Suite 3500
Chicago, Illinois 60661
(312) 382-7500

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

Alabama
Florida
Georgia
North Carolina
South Carolina

Illinois
Indiana
Kentucky
Michigan
Ohio

Colorado
New Mexico
Oklahoma
Texas

Virginia
West Virginia

Wisconsin

M e m p h is Area Office

Kansas City Regional Office

New York Regional Office

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

2345 Grand Boulevard
Suite 1200
Kansas City, Missouri 64108
(816) 234-8000

20 Exchange Place
4th Floor
New York, New York 10005
(917) 320-2500

Arkansas
Louisiana
Mississippi
Tennessee

Iowa
Kansas
Minnesota
Missouri
Nebraska

Delaware
District of Columbia
Maryland
New Jersey
New York
Pennsylvania

North Dakota
South Dakota




Puerto Rico
Virgin Islands

B o s to n Area Office

15 Braintree Hill Office Park
Suite 100
Braintree, Massachusetts 02184
(781) 794-5500
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont

San Francisco Regional Office
25 Ecker Street
Suite 2300
San Francisco, California 94105
(415) 546-0160
Alaska
Arizona
California
Guam
Hawaii
Idaho

Montana
Nevada
Oregon
Utah
Washington
Wyoming

A p p e n d ix C - O ffic e o f In s p e c to r G e n e ra l's A s s e s s m e n t
o f th e M a n a g e m e n t and P e rfo rm a n c e C h a lle n g e s F acing th e F D IC

In keeping with the Reports Consolidation Act, the OIG has identified the
following management and performance challenges facing the Corporation*
Each of the challenges we have identified is marked by one or more of the
following characteristics:
1. It is important to the achievement of the FDIC mission and the
strength of the nation's financial system.
2. It directly impacts consumers of financial services.
3. It involves significant resources, expenditures, or fiduciary
responsibility.
The following challenges reflect the OIG's view of the Corporation's overall
program and operational responsibilities; industry, economic, and technological
trends; areas of congressional interest; relevant laws and regulations; the
Corporation's priorities and corresponding corporate performance and
Government Performance and Results Act goals; and the ongoing activities
to address the issues involved.
Identifying and Mitigating Risks
to the Insurance Funds


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Federal Reserve Bank of St. Louis

As of the end of the third quarter of 2006, the FDIC insured $4,095 trillion in
deposits in 8,755 institutions. According to FDIC projections, if the current
trend of industry consolidation continues, the banks the FDIC directly
supervises will likely represent a smaller and smaller portion of the financial
exposure it faces as deposit insurer. In fact, as of June 30, 2006, the ten
largest FDIC-insured institutions controlled 44 percent of total insured assets
and 42 percent of total insured deposits. The FDIC is the primary federal
regulator for none of these institutions. The Corporation is also working to
maintain strong regulatory capital standards under the Basel Accord and has
been implementing major reforms in deposit insurance over the past ten
months. Given these circumstances, the Corporation faces several
challenges:
Assessing Risks in Large Banks:

To effectively fulfill its fundamental responsibilities as deposit insurer, the
Corporation must ensure its large-bank program provides ready access to
the information it needs to effectively identify and assess risks that large insti­
tutions, including those it does not supervise, pose to the Deposit Insurance
Fund (DIF). Effectively communicating and coordinating with the other primary
federal banking regulators is central to the Corporation's ability to meet this
challenge. Moreover, given the inherent complexity of these large institutions,
the FDIC must have or develop the capability to assess the risks associated
with these institutions, which are different from those found in smaller banks.
To strengthen its oversight of large banks, the Corporation has implemented
some key programs: the Large Insured Depository Institutions program,
Dedicated Examiner program, and Off-site Review program. The FDIC
participates with the other federal regulators in the Shared National Credit
program.

Under the Reports Consolidation Act, the OIG is required to identify the most significant management and
performance challenges facing the Corporation and provide its assessment to the Corporation fo r inclusion
in its annual perform ance and a ccountability report (annual report). The OIG conducts th is assessm ent
yearly and id e n tifie s a number of specific areas of challenge facing the Corporation a t the tim e.

M aintaining S trong Regulatory Capital Standards:

The FDIC and other regulators have evaluated policy options to ensure that
large institutions and the industry as a whole maintain adequate capital and
reserves under Basel II. The intent of Basel II is to more closely align regula­
tory capital with risk in large or multinational banks. In conjunction with the
transition to Basel II, the FDIC and the other federal bank regulatory agencies
are pursuing a more risk-sensitive capital framework for the institutions
that are not subject to or that opt out of Basel II. This new Basel IA capital
framework seeks to minimize potential inequities between large and small
banks resulting from Basel II implementation while maintaining adequate
capital levels and avoiding undue burden on the affected institutions.
In 2007, the federal bank regulatory agencies will review comments received
in response to Basel II and Basel IA notices of proposed rulemaking, complete
rulemaking for Basel IA, and eventually seek to make final rules for Basel II.
Im plem enting Deposit Insurance Reform:

On February 8, 2006, President Bush signed into law the FDI Reform Act
of 2005, prompting sweeping changes in the federal deposit insurance
system. The Congress gave the Corporation nine months to implement most
of the provisions of the legislation, and the Corporation has worked diligently
to do so. In October 2006, the Board of Directors approved a final rule to
implement a one-time assessment credit to banks and thrifts. The credit will
be used to offset future assessments charged by the FDIC and will recognize
contributions that certain institutions made to capitalize the funds during the
first half of the 1990s. In November 2006, the Board also adopted a final rule
on the pricing structure and approved a more risk-sensitive framework for
the 95 percent of insured institutions that are well capitalized and well
managed.
Ensuring Institution Safety and
Soundness Through Effective
Examinations, Enforcement, and
Follow-Up




Supervision is a cornerstone of the FDIC's efforts to ensure stability and
public confidence in the nation's financial system. As of September 30, 2006,
the FDIC was the primary federal regulator for 5,237 institutions. The FDIC
performs risk management, information technology, trust, and other types
of examinations of FDIC-supervised insured depository institutions. As part
of risk management examinations, the FDIC also ensures that institutions
comply with the regulatory requirements of the Bank Secrecy Act. The
Corporation's system of supervisory controls must identify and effectively
address financial institution activities that are unsafe, unsound, illegal,
or improper before the activities cause a drain on the insurance funds.
Specific challenges related to this core FDIC mission include:
M aintaining an Effective Exam ination an d Supervision Program:

The FDIC has adopted a risk-focused approach to examinations to minimize
regulatory burden and direct its resources to those areas that carry the
greatest potential risk. The FDIC must also ensure that financial institutions
have adequate corporate governance structures relative to the bank's size,
complexity, and risk profile to prevent financial losses and maintain confidence
in those entrusted w ith operating the institutions. The FDIC's follow-up
processes must be effective to ensure institutions are promptly complying
with supervisory actions that arise as a result of the FDIC's examination
process.

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Granting Insurance to and Supervising Industrial Loan Companies:

The FDIC is the primary federal regulator for a number of industrial loan
companies (ILCs), which are limited-charter depository institutions. ILCs
may be owned by commercial firms, and these parents may not be
subject to consolidated supervision by a federal banking regulator. As of
September 30, 2006, there were 58 operating ILCs with aggregate total
assets of $177 billion. The FDIC must establish and maintain effective
controls in its processes for granting insurance to, supervising, and examin­
ing ILCs, taking into consideration the relationship between the ILC and its
parent company and the effect of such a relationship on the ILC. This is
particularly important when the ILC’s holding company is not subject to the
scope of consolidated supervision, consolidated capital requirements, or
enforcement actions imposed on parent organizations subject to the Bank
Company Holding Act.
In July 2006, the FDIC placed a six-month moratorium on ILC deposit insurance
applications and change of control notices. The Corporation wanted time to
assess developments in the ILC industry; determine whether any emerging
safety and soundness or policy issues exist; and evaluate whether statutory,
regulatory, or policy changes needed to be made in the oversight of these
institutions. While the moratorium is set to expire at the end of January,
a number of congressional representatives have voiced concern over mixing
banking and commerce and have urged the Corporation to extend its freeze
on granting industrial loan charters to commercial applicants. This issue will
continue to require FDIC attention.
Contributing to Public Confidence
in Insured Depository Institutions


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Federal Reserve Bank of St. Louis

Guarding A gainst Financial Crimes in Insured Institutions:

All financial institutions are at risk of being used to facilitate or being victimized
by criminal activities including money laundering and terrorist financing. Such
activities serve to undermine public confidence in the nation's financial system.
The Corporation is faced with developing and implementing programs to
minimize the extent to which the institutions it supervises are involved in
or victims of financial crimes and other abuse. Increased reliance by both
financial institutions and non-financial institution lenders on third-party brokers
has also created opportunities for increased real-estate frauds, including
property flipping and other mortgage frauds. Examiners must be alert to the
possibility of multiple types of fraudulent activity in financial institutions, which
is inherently difficult because fraud is both purposeful and hard to detect.
Part of the FDIC's overall responsibility and authority to examine banks for
safety and soundness is the responsibility for examining state-chartered
non-member financial institutions for compliance with the Bank Secrecy Act
(BSA). The BSA requires financial institutions to keep records and file reports
on certain financial transactions. FDIC-supervised institutions must establish
and maintain procedures to assure and m onitor compliance w ith BSA
requirements. An institution's level of risk for potential money laundering
determines the necessary scope of the BSA examination. In a related
vein, the U.S. Department of the Treasury's Office of Foreign Assets Control
(OFAC) promulgates, develops, and administers economic and trade sanctions
such as trade embargoes, blocked assets controls, and other commercial and
financial restrictions under the provisions of various laws. Generally, OFAC
regulations prohibit financial institutions from engaging in transactions with
the governments of, or individuals or entities associated with, foreign
countries against which federal law imposes economic sanctions. Sanctions

can also be used against international drug traffickers, terrorists, or foreign
terrorist organizations, regardless of national affiliation. A challenge for the
FDIC is to provide effective supervision of compliance with OFAC regulations
by FDIC-supervised institutions.
In its role as supervisor, the FDIC also analyzes data security threats,
occurrences of bank security breaches, and incidents of electronic crime
that involve financial institutions. Misuse and misappropriation of personal
information are emerging as major developments in financial crime. Despite
generally strong controls and practices by financial institutions, methods for
stealing personal data and committing fraud with that data are continuously
evolving. The FDIC must continue its work in assuring the security of
customer data against such criminal activity to help maintain the public's
trust and confidence in the banking system.
Protecting and Educating
Consumers and Ensuring
Compliance Through Effective
Examinations, Enforcement,
and Follow-up




The FDIC protects consumers through its oversight of a variety of statutory
and regulatory requirements aimed at safeguarding consumer privacy and
preventing unfair and unscrupulous banking practices. Through community
outreach efforts and technical assistance, the FDIC encourages lenders to
work with members of their local communities in meeting the communities'
credit needs and to serve the unbanked and underbanked members of their
communities. Specific challenges include:
Safeguarding the Privacy o f Consumer Inform ation:

The FDIC implements regulations and conducts regularly scheduled exam­
inations to verify that institutions comply w ith laws designed to protect
personal information, which serve to guard against the growing threat of
identity theft. The FDIC evaluates the adequacy of financial institutions'
programs for securing customer data and may pursue informal or formal
supervisory action if it finds a deficiency. Banks are increasingly using
third-party servicers to provide support for core information and transaction
processing functions and these servicers may operate domestically
or abroad. Notwithstanding such reliance, the obligations of a financial
institution to protect the privacy and security of customer information
under U.S. laws and regulations remain in full effect. Thus, an added
challenge for the Corporation in examining and enforcing compliance
w ith consumer privacy and protection laws exists because the FDIC
expects institutions to effectively manage the risks and adequately
oversee the third-party service providers.
Prom oting Fairness and Inclusion in the Delivery o f Inform ation,
Products, and Services to Consumers an d Com munities:

FDIC Chairman Bair has stressed the importance of economic inclusion and
has expressed concern that market mechanisms are not working as well
as they should for low-to-moderate income families who must often pay
high amounts for basic financial services that others obtain at far less
cost. Many people lack the financial skills needed to analyze and compare
products and their prices. Oftentimes the problem is the lack of disclosures
that describe a product and its true costs in fair and simple terms. Another
factor could be linked to aspects of safety and soundness regulation that
could unnecessarily deter banks from serving the needs of their communities
or create conditions that favor high-cost products. To address these
concerns, in addition to the FDIC's existing Money Smart program, the
Corporation is undertaking tw o new initiatives— a military lending initiative

129

and a newly created Advisory Committee on Economic Inclusion. As the
Chairman has pointed out, continuing dialogue among consumer advocates,
regulators, and the banking industry is key to the challenge of closing the
gap between what the unbanked and underbanked pay for credit and what
those in the mainstream pay. The challenge is to balance the need for
regulation while avoiding inappropriate or undue interference in legitimate
business activities.
Ensuring Compliance w ith Laws and Regulations and Follow -up on
Violations:

The FDIC has supervisory responsibilities for ensuring that the financial
institutions it supervises comply with fair lending, disclosure, and various
other consumer protection laws and regulations. The compliance examina­
tion is the primary means by which the FDIC determines the extent to
which a financial institution is complying with these requirements. Over
20 consumer protection laws and related regulations are addressed by
compliance examinations, including the Home Mortgage Disclosure Act, Fair
Housing Act, Truth in Lending Act, Equal Credit Opportunity Act, and Fair
and Accurate Credit Transaction Act. The FDIC also conducts Community
Reinvestment Act examinations. The FDIC conducts visitations and
investigations to review the compliance posture of newly chartered
institutions coming under FDIC supervision or to follow up on an institution's
progress on corrective actions. Investigations are used to follow up on
a particular consumer’s inquiries or complaints. The compliance program,
including examination and follow-up supervisory attention on violations and
other program deficiencies, helps to ensure that consumers and businesses
obtain the benefits and protections afforded them by law. In instances
where repeat violations occur, the FDIC must remain vigilant in ensuring
appropriate corrective actions are taken.
Being Ready for Potential
Institution Failures


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Federal Reserve Bank of St. Louis

The FDIC is responsible for the resolution of failed banks or savings associations.
The Corporation is required by law to protect taxpayers by prudently
managing the Deposit Insurance Fund and to protect insured depositors by
using the assets of the fund to pay insured deposits at the time of institution
failure. The trend toward few er failures over the past fe w years changes
the nature of the challenge for the FDIC. The Corporation is exploring new
strategies for planning for failing and failed institutions, including large or
multiple bank failures. Catastrophic events such as the multiple hurricanes
that occurred during 2005 - which can threaten institution stability - also
underscore the need for the Corporation's readiness to respond.
Given the industry's increase in merger and acquisition activity, banks are
becoming more geographically diverse and complex, and institutions are
much larger than they have been historically. As a result, the FDIC could
potentially face the challenge of handling a failing institution with a significantly
larger number of insured deposits than it has had to in the past. The FDIC
Board is soliciting comments on proposed improvements to the process of
determining the insurance status of depositors of larger institutions in the
event of a failure to facilitate the related deposit insurance claims process.
The FDIC has also been developing a new claims determination system.
The Corporation's ability to rapidly determine the insured status of deposit
accounts is essential to resolving bank failures in the most cost-effective
and least disruptive manner.

Promoting Sound Governance
and Managing and Protecting Human,
Financial, Information Technology,
Physical, and Procurement Resources




The FDIC must practice sound governance and effectively manage and utilize a
number of critical strategic resources in order to carry out its mission success­
fully, particularly its human, financial, information technology (IT), physical, and
procurement resources. The FDIC Board of Directors plays a critical role in this
regard, and FDIC management has emphasized its stewardship responsibilities
in its strategic planning process. A number of key management activities pose
challenges to corporate leadership and managers, as discussed below:
Corporate Governance and Enterprise Risk M anagem ent:

The FDIC is managed by a five-person Board of Directors, all of whom are
appointed by the President and confirmed by the Senate, with no more than
three being from the same political party. At least one Board member must
have State bank supervisory experience. The Board includes the Directors
of the Office of the Comptroller of the Currency and the Office of Thrift
Supervision. Given the inevitability of relatively frequent changes in the
Board make-up, it is essential that a strong and sustainable governance
process is in place and that Board members have and share the information
needed at all times to make sound policy and management decisions.
As an important part of its governance process, the FDIC has established
a risk management and internal control program. In the spirit of OMB
Circular A-123, the Corporation has committed to adopting an enterprise
risk management approach to identifying and analyzing risks on an integrated,
corporate-wide basis. Revised OMB Circular A-123, which became
effective for fiscal year 2006, requires a strengthened process for conducting
management's assessment of the effectiveness of internal control over
financial reporting. The circular also emphasizes the need for agencies to
integrate and coordinate internal control assessments with other internal
control-related activities, and ensure that an appropriate balance exists
between the strength of controls and the relative risk associated with
particular programs and operations.
Hum an Capital M anagem ent:

In the past several years, the FDIC has undergone significant restructuring
and downsizing in response to changes in the industry, technological advances,
and business process improvements and, as with many government agencies,
the FDIC anticipates a high level of retirement in the next five years. Amidst
such change, the Corporation formulated a human capital strategy to guide
the FDIC through the rest of this decade. The FDIC Corporate University
was created to play a key role in training, developing, and maintaining a
highly skilled, professional workforce to carry out the FDIC mission. One
of the initiatives it sponsors is the Corporate Employee Program, designed
to help create a more adaptable permanent workforce that reflects a more
collaborative and corporate approach to meeting critical mission functions.
Additionally, developing new leaders and engaging in succession planning
pose a challenge. In this regard, the Corporation has developed an Executive
Candidate Development Program that it plans to pilot to identify high-potential
employees to develop for future executive management positions. The
Corporation also piloted a Talent Review Program this year that focused
on executive succession management needs and executive development
needs. Finally, in an age of identity theft risks, another challenge in human
capital management is to maintain effective controls to protect personal
employee-related information that the Corporation possesses. The appointment
of a chief privacy officer and implementation of a privacy program have been
positive steps in addressing that challenge.

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Financial M anagem ent:

The FDIC's operating expenses are largely paid from the insurance fund, and
consistent with sound corporate governance principles, the Corporation must
continuously seek to be efficient and cost-conscious. Because about 65 per­
cent of the FDIC's budget costs are personnel-related, a challenge to the
Corporation is to ensure that budgeted resources are properly aligned with
workload. The Board approved a $1.1 billion Corporate Operating Budget
for 2007, approximately 4.6 percent higher than for 2006. The approved
budget provides funding for additional compliance examiners, increased
employee training, enhanced IT security and privacy programs, and completion
of systems changes required to support the implementation of deposit
insurance reform.
With respect to capital investments, effective planning and management
of IT and non-IT capital investments are mandated by Congress and by the
Office of Management and Budget for most federal agencies. Although many
of these laws and executive orders are not legally binding on the FDIC, the
Corporation recognizes that they constitute sound business practices and
has decided to voluntarily adopt them in whole, or in part. The underlying
financial management challenge facing the FDIC is to carry out approved
investment projects on time and within budget, while realizing anticipated
benefits. The Corporation's 2007 spending on multi-year investment projects
separately approved by the Board is expected to be approximately $19 million
to $23 million.
The Corporation is continuing to implement its New Financial Environment,
intended to meet current and future financial management and financial
information needs; improve corporate financial business processes; and
redirect resources from transaction processing to analysis, risk management,
and decision support.
Inform ation Technology M anagem ent:

The FDIC seeks to maximize its IT resources to improve the efficiency and
effectiveness of its operational processes. The Corporation operates a nation­
wide computing network and maintains more than 250 application systems
for staff to carry out their responsibilities. To address IT management challenges,
the FDIC must focus on the capital planning and investment processes
for IT and maximize the effectiveness of the Chief Information Officer
Council and Program Management Office, both of which play a continuing
role in reviewing the portfolio of approved IT projects and other initiatives.
The Corporation has also employed a new system development life cycle
methodology to enhance its ability to effectively and efficiently manage
IT project resources. It must also continue to enhance its Enterprise
Architecture program by identifying duplicative resources/investments and
opportunities for internal and external collaboration to promote operational
improvements and cost-effective solutions to business requirements.
The establishment of an integrated and streamlined e-government
infrastructure is a key component of the Corporation's target EA. In this
regard, the Corporation has initiated a number of major projects designed
to improve internal operations, communications, and service to members
of the public, business, and other government entities. The challenge is to
ensure that such projects are consistent with e-government principles and
implementing guidance from the Office of Management and Budget.




IT and Physical Security:

To achieve its mission, the FDIC relies on automated information systems
to collect, process, and store vast amounts of banking and other sensitive
information. Much of this information is used by financial regulators,
academia, and the public to monitor bank performance, develop regulatory
policy, and to research and analyze important banking issues. Ensuring the
integrity, availability, and appropriate confidentiality of this information in
an environment of increasingly sophisticated security threats and global
connectivity requires a strong records management program and a
correspondingly effective enterprise-wide information security program.
As a result of focused attention over the last several years, the FDIC has
made significant progress in improving its information security program and
practices. However, continued management attention is needed in certain
key security control areas such as enterprise architecture, configuration
management, access controls, and audit and accountability controls.
In light of past terrorist-related disruptions and, more recently, adverse
impacts of natural disasters, the importance of corporate disaster recovery
and business continuity planning has been underscored and elevated to
an enterprise-wide level. The FDIC must be sure that its emergency
response plans provide for the safety and physical security of its personnel
and ensure that its business continuity planning and disaster recovery
capability keep critical business functions operational during any emergency.
Threats to public health such as a pandemic influenza could also put the
Corporation's internal emergency preparedness to the test. In its role as a
regulator, the Corporation has also joined with the other financial regulatory
agencies in issuing an interagency advisory to financial institutions and their
technology service providers to raise awareness regarding the threat of a
pandemic influenza outbreak and its potential impact on the delivery of
critical financial services.
Procurem ent M anagem ent:

Over the past fe w years, the FDIC has increased its reliance on outsourcing
for services such as IT infrastructure support, IT application system devel­
opment, and facilities maintenance. As of March 2006, in fact, the value of
the FDIC's active contracts totaled over $1.6 billion. The Corporation has also
downsized and reduced its contracting staff over the same tim e frame,
which has posed challenges to contract administration activities. Given this
environment, effective and efficient processes and related controls for
identifying needed goods and services, acquiring them, and monitoring
contractors after the contract award must be in place and operate well. Also,
a number of new contracting vehicles and approaches have been implemented.
For example, the Corporation combined approximately 40 IT-related contracts
into one contract with multiple vendors for a total program value of $555 million
over ten years. Also, for the first time, the FDIC is using a large technical
infrastructure contract through the General Services Administration (GSA)
valued at over $340 million. Along w ith the expected benefits of these
contracts come challenges. The Corporation has not previously outsourced
a procurement process to GSA, and both new contracts are performancebased, requiring different oversight mechanisms and strategies than the
time and materials contracts that the Corporation has historically used.

133


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134
Federal Reserve Bank of St. Louis




135


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Federal Reserve Bank of St. Louis

Cover Photograph and Book Design: FDIC/DOA/CSB/Graphic Design Unit

Federal
D e p o s it
In s u ra n c e
C o rp o ra tio n




This Annual Report was produced
by talented and dedicated staff.
To these individuals, w e would
like to offer our sincere thanks
and appreciation. Special recognition
is given to the following individuals
for their contributions:
Sam Collicchio
Pearline Crosland
Jannie F. Eaddy
Barbara Glasby
Patricia Hughes
Mia Jordan
Robert Nolan
Michelle W atson




t

Federal D e p o s it In su ran ce C o rp o ra tio n
550 17th Street, NW
W ashington, DC 20429-9990

FDIC - 003 - 2007

a

• ’

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