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2011 ANNUAL REPORT F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N Mission The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system by: ★★ insuring deposits, ★★ examining and supervising financial institutions for safety and soundness and consumer protection, and ★★ managing receiverships. Vision The FDIC is a recognized leader in promoting sound public policies, addressing risks in the nation’s financial system, and carrying out its insurance, supervisory, consumer protection, and receivership management responsibilities. Values The FDIC and its employees have a tradition of distinguished public service. Six core values guide us in accomplishing our mission: 1. Integrity We adhere to the highest ethical and professional standards. 2. Competence We are a highly skilled, dedicated, and diverse workforce that is empowered to achieve outstanding results. 3. Teamwork We communicate and collaborate effectively with one another and with other regulatory agencies. 4. Effectiveness We respond quickly and successfully to risks in insured depository institutions and the financial system. 5. Accountability We are accountable to each other and to our stakeholders to operate in a financially responsible and operationally effective manner. 6. Fairness We respect individual viewpoints and treat one another and our stakeholders with impartiality, dignity, and trust. 2011 ANNUAL REPORT office of the acting chairman Federal Deposit Insurance Corporation 550 17th Street NW, Washington, DC 20429 Office of the Acting Chairman April 30, 2012 Dear Sir, In accordance with: ★★the provisions of section 17(a) of the Federal Deposit Insurance Act, ★★the Chief Financial Officers Act of 1990, Public Law 101-576, ★★the Government Performance and Results Act of 1993 (as amended) and the GPRA Modernization Act of 2010, ★★the provisions of Section 5 (as amended) of the Inspector General Act of 1978, and ★★the Reports Consolidation Act of 2000, The Federal Deposit Insurance Corporation (FDIC) is pleased to submit its 2011 Annual Report (also referred to as the Performance and Accountability Report), which includes the audited financial statements of the Deposit Insurance Fund (DIF) and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF). In accordance with the Reports Consolidation Act of 2000, the FDIC assessed the reliability of 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 of independent financial statement audits, the FDIC can provide reasonable assurance that the objectives of Section 2 (internal controls) and Section 4 (financial management systems) of the Federal Managers’ Financial Integrity Act of 1982 have been achieved, and that the FDIC has no material weaknesses. However, the U.S. Government Accountability Office did identify a significant control deficiency in the loss-share area. The FDIC has efforts underway to address the deficiency. We are committed to maintaining effective internal controls corporate-wide in 2012. Sincerely, Martin J. Gruenberg Acting Chairman The President of the United States The President of the United States Senate The Speaker of the United States House of Representatives 2 table of contents 2011 ANNUAL REPORT table of contents Message from the Acting Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1. Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The Year in Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Supervision and Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Resolutions and Receiverships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Effective Management of Strategic Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2. Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Deposit Insurance Fund Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Corporate Operating Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Investment Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 3. Performance Results Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Summary of 2011 Performance Results by Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2011 Budget and Expenditures by Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Performance Results by Program and Strategic Goal . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Prior Years’ Performance Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4. Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Deposit Insurance Fund (DIF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 FSLIC Resolution Fund (FRF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Government Accountability Office’s Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Management’s Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Overview of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 5. Corporate Management Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Management Report on Final Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 6. Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 A. Key Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 B. More About the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 C. Office of Inspector General’s Assessment of the Management and Performance Challenges Facing the FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 3 FDIC by the numbers INSURING DEPOSITS. EXAMINING INSTITUTIONS. MANAGING RECEIVERSHIPS. EDUCATING CONSUMERS. In its unique role as deposit insurer of banks and savings associations, and in cooperation with the other state and federal regulatory agencies, the FDIC promotes the safety and soundness of the U.S. financial system and insured depository institutions by identifying, monitoring, and addressing risks to the Deposit Insurance Fund (DIF). The FDIC promotes public understanding and the development of sound public policy by providing timely and accurate financial and economic information and analyses. It minimizes disruptive effects from the failure of financial institutions. It assures fairness in the sale of financial products and the provision of financial services. The FDIC’s long and continuing tradition of excellence in public service is supported and sustained by a highly skilled and diverse workforce that continuously monitors and responds rapidly and successfully to changes in the financial environment. At the FDIC, we are working together to be the best. FDIC by the Numbers 0 21,684 INSURED DEPOSIT DOLLARS LOST DEPOSIT INSURANCE LIMIT CONSUMER COMPLAINTS AND INQUIRIES ANSWERED 9 92 9,269 $250,000 106 WITH OVER LANGUAGES FOR MONEY SMART CURRICULUM 7,357 INSURED DEPOSITORY INSTITUTIONS FAILED BANKS RESOLVED 171,591 INTERNATIONAL VISITS TO THE FDIC 825 48 VISITORS REPRESENTING DEPOSIT INSURANCE COVERAGE INQUIRIES ANSWERED NEW BANK ACCOUNTS OPENED THROUGH THE ALLIANCE FOR ECONOMIC INCLUSION JURISDICTIONS 121,800 FDIC AUTHORIZED FULL-TIMEEQUIVALENT EMPLOYEES 9 277,000 ELECTRONIC DEPOSIT INSURANCE ESTIMATOR USER SESSIONS BANKS PARTICIPATING IN THE MODEL SAFE ACCOUNT PILOT PROGRAM MESSAGE FROM THE acting CHAIRMAN 2011 ANNUAL REPORT Message from the acting Chairman I am pleased consistent with sound underwriting. Prudent loan growth to present is a necessary condition for a stronger economy. the Federal Deposit Insurance Corporation’s (FDIC) 2011 Annual Report. I assumed my duties as Acting Chairman on July 9, 2011, upon the departure of Chairman Sheila C. Bair at the end of her term. Although challenges related to the recovery remain, the FDIC is well positioned to carry out its primary mission of upholding public confidence in the nation’s financial system by protecting insured depositors. During 2011, the FDIC insured a record $7.0 trillion of deposits in over half a billion accounts at more than 7,000 institutions, with no losses of insured funds. Other notable achievements during 2011, discussed in further detail below, include returning the DIF to a positive balance, largely completing the core rulemaking necessary to carry out the FDIC’s During 2011, our nation’s banking system continued responsibilities under the Dodd-Frank Wall Street to make gradual but steady progress in recovering from Reform and Consumer Protection Act (Dodd-Frank) the financial market turmoil and severe recession that and implementing the FDIC’s new authorities related to unfolded from 2007 through 2009. Over the past two systemic resolutions, launching a series of initiatives to years, the banking industry has undergone a difficult deepen our understanding of the unique role community process of balance sheet strengthening. Capital has been banks perform in our nation’s economy, and continuing increased, asset quality has improved, and banks have our work to expand access to mainstream financial bolstered their liquidity. The industry is now in a much services to all Americans. better position to support the economy through expanded lending. However, levels of troubled assets and problem banks are still high. And while the economy is showing signs of improvement, downside risks remain a concern. A great strength of the agency is its highly dedicated and motivated workforce. The FDIC’s employees understand the agency’s mission and how it relates to what they do. In 2011 the FDIC was ranked number one on the Best Places Despite these challenges, bank performance indicators to Work in the Federal Government list of 33 large agencies, did improve during 2011, particularly in terms of industry moving up two positions from 2010. This recognition earnings and improved credit quality of loans on the is a tribute to the commitment and dedication of the books of FDIC-insured institutions. The number of FDIC workforce and to the leadership of former FDIC institutions on the FDIC’s problem bank list declined for Chairman Sheila Bair. three consecutive quarters, the Deposit Insurance Fund (DIF) moved into positive territory, and significantly fewer banks failed in 2011 compared to 2010. However, most of the improvement in earnings over the last two years has been the result of lower loan-loss provisions reflecting improved credit quality. Sustainable bank industry earnings gains will depend on increased lending, Strengthening the Deposit insurance fund and Resolving Failed Banks The FDIC has made significant progress in rebuilding the Deposit Insurance Fund (DIF) and achieving the goals set by Dodd-Frank reforms. In 2010, the FDIC Board approved a comprehensive, long-term plan for fund 5 MESSAGE FROM THE acting CHAIRMAN management based on the new law and an FDIC historical analysis of DIF losses. Additionally, the DIF balance—the net worth of the fund—rose to $11.8 billion at the end of 2011 compared with negative $7.4 billion a year earlier. Assessment revenue and fewer bank failures drove growth in the fund balance. Progress on the Resolution of Systemically Important Financial Institutions The Dodd-Frank Act included far-reaching changes to make financial regulation more effective in addressing systemic risks. The law greatly expanded the FDIC’s While 2010 was the peak year for problem and failed authority to resolve systemically important financial institutions, substantial work remained in 2011, with an institutions (SIFIs). additional 92 failures, continuing post-failure receivership management, more examination hours because of the elevated number of problem institutions, and staffing up for new responsibilities under Dodd-Frank. One of the FDIC’s top priorities has been preparing for a resolution of a large SIFI. The FDIC was given significant new responsibilities under the Dodd-Frank Act to resolve SIFIs. Specifically, these include an Orderly Liquidation Accordingly, the FDIC’s authorized workforce for 2011 Authority to resolve the largest and most complex bank stood at 9,269 full-time equivalent positions compared holding companies and non-bank financial institutions, with 9,029 the year before. The FDIC Board approved if necessary, and a requirement for resolution plans for a 2011 Corporate Operating Budget of just under $3.9 covered financial companies that will give regulators billion, a slight decrease from 2010. additional tools with which to manage the failure of large, For 2012, the Board reduced the budget by 15.4 percent complex enterprises. to $3.3 billion and reduced authorized staffing by 6 In late 2010, the FDIC established the Office of percent to 8,704 positions in anticipation of a substantial Complex Financial Institutions (OCFI), to carry out drop in failure activity in the years ahead. The FDIC also three core functions: announced plans to close two of three temporary satellite offices, which had been established to address crisisrelated workload. The Irvine, California, office closed in January 2012 and the Schaumburg, Illinois, office is set to close in September 2012. Contingent resources ★★Monitor risk within and across these large, complex firms from the standpoint of resolution; ★★Conduct resolution planning and the development of strategies to respond to potential crisis situations; and are included in the budget to ensure readiness should economic conditions unexpectedly deteriorate. ★★Coordinate with regulators overseas regarding the significant challenges associated with crossDuring 2011, the FDIC continued using strategies border resolution. instituted in 2009, including the use of loss-share agreements, to protect the depositors and customers During 2011, OCFI began developing its own resolution of failed institutions at the least cost to the DIF. The plans in order to be ready to resolve a failing systemic FDIC actively marketed failing institutions, and the vast financial company. These internal FDIC resolution plans, majority were sold to healthier entities. These strategies developed pursuant to the Orderly Liquidation Authority, preserved banking relationships in many communities provided under Title II of Dodd-Frank, apply many of while providing depositors and customers with the same powers that the FDIC has long used to manage uninterrupted access to essential banking services. failed-bank receiverships to a failing SIFI. If the FDIC is appointed as receiver of such an institution, it will be required to carry out an orderly liquidation in a 6 MESSAGE FROM THE acting CHAIRMAN 2011 ANNUAL REPORT manner that maximizes the value of the company’s assets if community banks were not there. Community banks and ensures that creditors and shareholders appropriately also play a crucial role in extending credit and providing bear any losses. The goal will be to close the institution financial services in rural communities, small towns, and without putting the financial system at risk. inner-city neighborhoods. In many of those localities, if This internal resolution planning work is the foundation of the FDIC’s implementation of its new responsibilities under the Dodd-Frank Act. Developing a credible capacity to place a SIFI into an orderly resolution process is essential to subjecting these companies to meaningful market discipline. Without this capability, these institutions—which by definition pose a risk to the financial system—create an expectation of public support to avert failure. That distorts the financial marketplace, giving these institutions a competitive advantage that allows them to take on even greater risk and creating an unlevel playing field for other financial institutions that are not perceived as benefiting from not for the community bank there would be no easy access to an insured financial institution. There is a clear public interest in maintaining a strong community bank sector in the U.S. financial system. The first of the FDIC’s initiatives in this area was a national conference in early 2012 on the Future of Community Banking. Following on the conference, the FDIC plans to hold a series of roundtables with groups of community bankers in each of the FDIC’s six regions around the country during 2012. The FDIC’s most senior executives and I will attend each roundtable to hear first hand about the concerns of bankers and what the FDIC can do to respond to those concerns. potential public support. There is a very strong public As part of the initiatives, the FDIC’s Division of Insurance interest in the FDIC developing the capability to carry out and Research is undertaking a comprehensive review its new systemic resolution responsibilities in a credible of the evolution of community banking in the United and effective way. States over the past twenty-five years, to identify the key challenges facing community banks as well as stories of Community Banking Initiatives Launched successful community bank business models, and draw In late 2011, the FDIC established a series of initiatives conclusions from that analysis that may be useful for focusing on the future of community banking in the community banks going forward. The agency is also United States. The FDIC is the lead federal regulator for undertaking a review of the bank examination process the majority of community banks in the United States and for both risk management and compliance supervision, the insurer of all. As such, the FDIC has a responsibility and the process for promulgating and releasing to use its resources to gain a better understanding of the rulemakings and guidance, to identify potential process challenges facing community banks and to share that and communication improvements while maintaining understanding with the banks as well as the general public. supervisory standards. Community banks play a crucial role in the financial Protecting Consumers and Expanding Access to Banking Services system of the United States. Community banks with assets of less than $1 billion account for a little more than ten percent of the banking assets in our country, but provide nearly forty percent of all the small loans that insured financial institutions make to businesses and farms. Given the labor intensive, highly customized nature of many small business loans, it is not clear that large institutions would easily fill that critical credit need Deposit insurance is essentially about making people feel secure about putting their money into financial institutions. However, accessing insured financial institutions has proven elusive for millions of people in our country. 7 MESSAGE FROM THE acting CHAIRMAN In 2009, pursuant to a statutory provision, the FDIC high-priced sources of emergency credit, such as payday partnered with the Census Bureau to conduct the first loans or fee-based overdrafts. national survey ever undertaken of who is unbanked and underbanked in the United States. It found that 7 percent of U.S. households do not have bank accounts, and another nearly 18 percent who may have an account still utilize non-bank financial services such as check cashers and payday lenders, which are frequently more expensive. Taken together, this means that nearly a quarter of American households are underserved by the mainstream banking system, and the proportions are significantly higher for low-income and minority households. The Census Bureau will now conduct this survey on behalf The Advisory Committee is now nearing completion of a pilot program called Model Safe Accounts to evaluate how banks can offer safe, low-cost transactional and savings accounts that are responsive to the needs of underserved consumers. Participating banks are in the process of testing the model accounts, which feature electronic debitcard based accounts with low fees and low minimum balance requirements. The intention of the pilot program is to help banks better understand the benefits and feasibility of offering such products. of the FDIC every two years. The second survey was The Advisory Committee will continue to meet during conducted in mid-2011, and the findings will be released 2012 and a focus of the Committee and the FDIC going during 2012. forward will be the potential role that technology and In response to this issue, the FDIC has undertaken initiatives at both the local and national level. innovation, particularly mobile banking, can play in expanding access to mainstream financial services. At the local level, the FDIC’s Alliance for Economic The FDIC: An Enduring Symbol of Confidence Inclusion (AEI) has organized coalitions of financial The year 2011 marked a turning point for American institutions, community organizations, local government banking, as the number of bank failures declined, industry officials, and other partners in communities across the earnings grew, and balance sheets improved. There country to bring unbanked and underserved households appear to be reasonable prospects for continued recovery into the financial mainstream by expanding access to in 2012, although this is dependent on the pace of the basic retail financial services, including savings accounts, U.S. economic growth and financial conditions in global affordable remittance products, small-dollar loan markets, notably developments in Europe. programs, targeted financial education programs, and asset-building programs. These partnerships are currently operating in 14 communities nationwide, and the FDIC These are still challenging times for our nation and for the FDIC. Our workforce remains committed to carrying plans to expand the program further during 2012. out our mission. I am very grateful to the hard-working, At the national policy level, the FDIC’s Advisory done during the financial crisis to maintain the stability of Committee on Economic Inclusion—composed of the U.S. financial system and put it on the road to recovery. bankers, community and consumer organizations, and academics—also explores ways to bring the unbanked into dedicated men and women of the FDIC for all they have Sincerely, the financial mainstream. The Committee has pursued a number of initiatives since it was formed in 2007. One of the initial projects it recommended—the Small-Dollar Loan Pilot Program—demonstrated that banks can offer safe, affordable small-dollar loans as an alternative to 8 Martin J. Gruenberg MESSAGE FROM THE chief financial officer 2011 ANNUAL REPORT Message from the chief financial officer I am pleased to present the Federal Deposit Insurance Corporation’s (FDIC) 2011 Annual Report (also referred to as the Performance and Accountability 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. For the twentieth consecutive year, the U.S. Government Accountability Office (GAO) issued unqualified audit opinions for the two funds administered by the FDIC: the Deposit Insurance Fund (DIF) and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF). These unqualified audit opinions validate our efforts to ensure that the financial statements of the funds for which we are stewards are fairly presented. I applaud the hard work and dedication of the FDIC staff. The year 2011 marked a turning point for the DIF, as the balance increased from negative $7.4 billion at the end of 2010, to positive $11.8 billion at the end of 2011. The turnaround in the DIF was due to the decrease in the number of bank failures, from 157 in 2010 to 92 in 2011. While the decrease in bank failures is a positive trend, 92 bank failures is still more than the total number of bank failures that occurred between 1995 and 2008. Financial Results for 2011 For 2011, the DIF’s comprehensive income totaled $19.2 billion compared to comprehensive income of $13.5 billion during 2010. This $5.7 billion year-over-year increase was primarily due to a $3.6 billion decrease in the provision for insurance losses and $2.6 billion in revenue from DGP fees previously held as systemic risk deferred revenue, partially offset by a year-to-date net change in the fair value of available-for-sale securities of $284 million (U.S. Treasury obligations and trust preferred securities) and a $112 million decrease in assessments earned. The provision for insurance losses was negative $4.4 billion for 2011, compared to negative $848 million for 2010. The negative provision for 2011 primarily resulted from a reduction in the contingent loss reserve due to the improvement in the financial condition of institutions that were previously identified to fail, and a reduction in the estimated losses for institutions that have failed in prior years. The DIF’s total liquidity declined by $3.8 billion, or 8 percent, to $42.4 billion during 2011. The decrease was primarily the result of disbursing $11.9 billion to fund both current and prior years’ bank failures during 2011. However, it should be noted that 58 of the 92 current year failures were resolved as cash-conserving sharedloss transactions requiring substantially lower initial resolution payments thus helping to mitigate the decline in DIF’s liquidity balance. Moreover, during 2011, the DIF received $8.9 billion in dividends and other payments from its receiverships, which helped to mitigate the DIF liquidity’s decline. Under 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 GAO and provides reasonable assurance that the related objectives are being met. In 2012, our focus will be on maintaining strong corporate management controls, effective cost and risk management, and continued implementation of DoddFrank. The FDIC will continue its important role of identifying and addressing risks to the insurance fund, and providing Congress, other regulatory agencies, insured depository institutions, and the public with critical and timely information and analyses on the financial condition of both the banking industry and FDIC-managed funds. Sincerely, Steven O. App 9 FDIC Senior Leaders Seated (left to right): Acting Chairman Martin Gruenberg, Former Chairman Shelia Bair, Director Thomas Curry. First Row (left to right): Arleas Upton Kea, James Angel, Jr., Mark Pearce, Thom Terwilliger, Craig Jarvill. Second Row (left to right): James Wigand, Fred Carns, Jon Rymer, Russell Pittman, Sandra Thompson, Alice Goodman. Third Row (left to right): Jesse Villarreal, Bret Edwards, Steven App, Andrew Gray, Cottrell Webster, Paul Nash. Not pictured: Michael Krimminger, D. Michael Collins, Stephen Quick. 10 management’s discussion and analysis 2011 ANNUAL REPORT 1. Management’s discussion and analysis The Year in Review D uring 2011, the FDIC continued to Long-Term Comprehensive Fund Management Plan pursue an ambitious agenda in meeting As a result of the Dodd-Frank Act revisions to its its responsibilities. The FDIC continued fund management authority, the FDIC developed a implementation of Dodd-Frank, issued guidance, and comprehensive, long-term management plan for the piloted programs designed to help consumers. The DIF designed to reduce pro-cyclicality and achieve FDIC also enhanced risk management procedures and moderate, steady assessment rates throughout economic created a branch to manage risks of mid tier insured and credit cycles while also maintaining a positive fund depository institutions (IDIs), which further strengthened balance even during a banking crisis. The plan was supervisory and consumer protection programs. finalized in rulemakings adopted in December 2010 Highlighted in this section are the FDIC’s 2011 accomplishments in each of its major business lines— Insurance, Supervision, Consumer Protection, and Receivership Management—as well as its program support areas. Insurance and February 2011. Setting the Designated Reserve Ratio Using historical fund loss and simulated income data from 1950 to the present, the FDIC analyzed how high the reserve ratio would have had to have been before the onset of the two crises that occurred since the late 1980s to have maintained both a positive fund balance The FDIC insures bank and savings association deposits. As and stable assessment rates throughout the period. The insurer, the FDIC must continually evaluate and effectively analysis concluded that a moderate, long-term average manage how changes in the economy, the financial markets, industry assessment rate would have been sufficient to and the banking system affect the adequacy and the have prevented the fund from becoming negative during viability of the Deposit Insurance Fund (DIF). the crises, though the fund reserve ratio would have had State of the Deposit Insurance Fund to exceed 2.0 percent before the onset of the crises. Estimated losses to the DIF were $7.9 billion from failures Therefore, under provisions in the Federal Deposit occurring in 2011 and were lower than losses from failures Insurance Act that require the FDIC Board to set the in each of the previous three years. The fund balance Designated Reserve Ratio (DRR) for the DIF annually, became positive in the second quarter of 2011 following the FDIC Board adopted in December 2010 a DRR of seven quarters of negative balances. Assessment revenue 2.0 percent for 2011 and voted in December 2011 to and fewer anticipated bank failures drove the increase in maintain a 2.0 percent DRR for 2012. The FDIC views the the fund balance. The fund reserve ratio rose to positive 2.0 percent DRR as a long-term goal and as the minimum 0.17 percent at December 31, 2011 from negative 0.12 level needed to withstand future crises of the magnitude percent at the beginning of the year. of past crises. The 2.0 percent DRR should not be viewed as a cap on the fund. The FDIC’s analysis shows that a reserve ratio higher than 2.0 percent would increase the 11 management’s discussion and analysis chance that the fund will remain positive during a future New Assessment Base economic and banking downturn similar to or more Dodd-Frank requires the FDIC to amend its regulations severe than past crises. to define the assessment base as average consolidated total assets minus average tangible equity, rather than total Long-Term Assessment Rate Schedules and Dividend Policies domestic deposits (which, with minor adjustments, it has Once the reserve ratio reaches 1.15 percent, assessment assessment base for banker’s banks and custodial banks. rates can be reduced to a moderate level. Therefore, under The FDIC finalized these changes to the assessment base its statutory authority to set assessments, in February in February 2011, and they became effective April 1, 2011. 2011, the FDIC Board adopted a lower assessment rate schedule to take effect when the fund reserve ratio exceeds 1.15 percent. To increase the probability that the fund reserve ratio will reach a level sufficient to withstand a future crisis, the FDIC also suspended dividends indefinitely when the fund reserve ratio exceeds 1.5 percent. In lieu of dividends, the FDIC Board adopted progressively lower assessment rate schedules when the reserve ratio exceeds 2.0 percent and 2.5 percent. These lower assessment rate schedules serve much the same function as dividends, but provide more stable and Dodd-Frank also requires that, for at least five years, the FDIC must make available to the public the reserve ratio and the DRR using both estimated insured deposits and the new assessment base. As of December 31, 2011, the FDIC estimates that the reserve ratio would have been 0.10 percent using the new assessment base (compared to 0.17 percent using estimated insured deposits) and that the 2.0 percent DRR using estimated insured deposits would have been 1.2 percent using the new assessment base. predictable effective assessment rates. Conforming Changes to Risk-Based Premium Rate Adjustments Restoration Plan The changes to the assessment base necessitated changes In October 2010, under the comprehensive plan, the FDIC adopted a Restoration Plan to ensure that the reserve ratio reaches 1.35 percent by September 30, 2020, as required by the Dodd-Frank Act. The Act also requires that the FDIC offset the effect on institutions with less than $10 billion in assets of increasing the reserve ratio from 1.15 percent to 1.35 percent. The FDIC will promulgate a rulemaking that implements this requirement at a later date to better take into account prevailing industry conditions at the time of the offset. Change in the Deposit Insurance Assessment Rules The Dodd-Frank Act also required the FDIC to adopt a rule revising the deposit insurance assessment base. The final rule implementing the requirement, adopted in February 2011, also made conforming changes to the deposit insurance assessment system. In addition, the rule substantially revised the assessment system applicable to 12 been since 1935). The Act allows the FDIC to modify the large IDIs. to existing risk-based assessment rate adjustments. The previous assessment rate schedule incorporated adjustments for types of funding that either pose heightened risk to the DIF or that help to offset risk to the DIF. Because the magnitude of these adjustments and the cap on the adjustments had been calibrated to a domestic deposit assessment base, the rule changing the assessment base also recalibrated the unsecured debt and brokered deposit adjustments. Since secured liabilities are now included in the assessment base, the rule eliminated the secured liability adjustment. The assessment rate of an institution is also adjusted upwards if it holds unsecured debt issued by other IDIs. The issuance of unsecured debt by an IDI usually lessens the potential loss to the DIF if an institution fails; however, when the debt is held by other IDIs, the overall risk in the system is not reduced. management’s discussion and analysis 2011 ANNUAL REPORT Conforming Changes to Assessment Rates the proposed large bank pricing rule that was finalized in The new assessment base under Dodd-Frank, defined as February 2011 (discussed below) along with the change average consolidated total assets minus average tangible in the assessment base. The initial base rates for all equity, is larger than the previous assessment base, defined institutions range from 5 to 35 basis points. as total domestic deposits (with minor adjustments). Applying the current rate schedule to the new assessment base would have resulted in larger total assessments than had been previously collected. Accordingly, the rule The initial base assessment rates, range of possible rate adjustments, and minimum and maximum total base rates are shown in the table below. changing the assessment base also established new rates Changes to the assessment base, assessment rate that took effect in the second quarter of 2011. These adjustments, and assessment rates took effect April 1, rates resulted in collecting nearly the same amount of 2011. As explained above, the rate schedule will decrease assessment revenue under the new base as under the when the reserve ratio reaches 1.15, 2.0, and 2.5 percent. previous rate schedule using the domestic deposit base. The new rate schedule also incorporates the changes from Current Initial and Total Base Assessment Rates1 Risk Category I Risk Category II Risk Category III Risk Category IV Large and Highly Complex Institutions Initial base assessment rate 5–9 14 23 35 5–35 Unsecured debt adjustment2 (4.5)–0 (5)–0 (5)–0 (5)–0 (5)–0 Brokered deposit adjustment …… 0–10 0–10 0–10 0–10 Total Base Assessment Rate 2.5–9 9–24 18–33 30–45 2.5–45 1 Total base assessment rates do not include the depository institution debt adjustment. 2 The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an IDI’s initial base assessment rate; thus, for example, an IDI with an initial base assessment rate of 5 basis points would have a maximum unsecured debt adjustment of 2.5 basis points and could not have a total base assessment rate lower than 2.5 basis points. 13 management’s discussion and analysis Changes to the Large Bank Assessment System The rule also authorizes the FDIC to adjust an The FDIC continued its efforts to improve risk institution’s total score by as much as 15 points, up or differentiation and reduce pro-cyclicality in the deposit down. The FDIC proposed in April 2011 and adopted insurance assessment system by issuing a final rule in in September 2011 guidelines that describe the process February 2011. The rule revises the assessment system the FDIC follows to determine whether to make an applicable to large IDIs to better reflect risk at the time a adjustment, to determine the size of any adjustment, and large institution assumes the risk, to better differentiate to notify an institution of an adjustment and how large it large institutions during periods of good economic will be. conditions, and to better take into account the losses that the FDIC may incur if such an institution fails. The rule became effective April 1, 2011. The rule eliminates risk categories for large institutions. As required by Dodd-Frank, the FDIC no longer uses longterm debt issuer ratings to calculate assessment rates for large institutions. The rule combines CAMELS1 ratings and financial measures into two scorecards—one for most large institutions and another for the remaining very large institutions that are structurally and operationally complex or that pose unique challenges and risks in case of failure (highly complex institutions). In general, a highly complex institution is an institution (other than a credit card bank) with more than $50 billion in total assets that is controlled by a parent or intermediate parent company with more than $500 billion in total assets, or a processing bank or trust company with at least $10 billion in total assets. Both scorecards use quantitative measures that are readily available and useful in predicting an institution’s longterm performance to produce two scores—a performance score and a loss severity score—that are combined into a total score and converted to an initial assessment rate. The performance score measures an institution’s financial performance and its ability to withstand stress. The loss severity score quantifies the relative magnitude of potential losses to the FDIC in the event of the Effect of Implementing Changes to Assessment Base, Assessment Rates, and Large Bank Assessment System Consistent with the intent of Congress, the change to the assessment base resulted in an increase in the share of overall assessments paid by large institutions, which rely less on domestic deposits for their funding than do smaller banks. For the second quarter of 2011, when the changes to the assessment base and other assessment system changes described above became effective, banks with more than $10 billion in assets accounted for approximately 80 percent of assessments, up from 70 percent in the first quarter and commensurate with the increase in their share of the assessment base. Second quarter assessments for banks with less than $10 billion in assets were 33 percent lower in aggregate than first quarter assessments. Temporary Liquidity Guarantee Program On October 14, 2008, the FDIC announced and implemented the Temporary Liquidity Guarantee Program (TLGP). The TLGP consisted of two components: (1) the Transaction Account Guarantee Program (TAGP), an FDIC guarantee in full of noninterest-bearing transaction accounts; and (2) the Debt Guarantee Program (DGP), an FDIC guarantee of certain newly issued senior unsecured debt. institution’s failure. 1 14 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). management’s discussion and analysis 2011 ANNUAL REPORT The TAGP initially guaranteed in full all domestic or accrued $152 million in estimated losses resulting noninterest-bearing transaction deposits held at from six participating entities defaulting on debt issued participating banks and thrifts through December 31, under the DGP. The majority of these estimated losses 2009. The deadline was extended twice and expired on ($112 million) arose from banks with outstanding DGP December 31, 2010. notes that failed in 2011 and were placed into receivership. Under the DGP, the FDIC initially guaranteed in full, through maturity or June 30, 2012, whichever came first, The FDIC expects to pay an additional $682 thousand in interest payments on defaulting notes in 2012. the senior unsecured debt issued by a participating entity The FDIC collected $1.2 billion in fees under the TAGP. between October 14, 2008, and June 30, 2009. In 2009 the Cumulative estimated TAGP losses on failures as of issuance period was extended through October 31, 2009. December 31, 2011, totaled $2.2 billion. The FDIC’s guarantee on each debt instrument also was extended in 2009 to the earlier of the stated maturity date of the debt or December 31, 2012. Program Statistics Over the course of the DGP’s existence, 122 entities issued TLGP debt. At its peak, the DGP guaranteed almost $345.8 billion of debt outstanding (see chart below). As of December 31, 2011, the total amount of remaining FDICguaranteed debt outstanding was $167.4 billion. The FDIC collected $10.4 billion in fees and surcharges Overall, TLGP fees are expected to exceed the losses from the program. From inception of the TLGP, it has been FDIC’s policy to recognize revenue to the DIF for any deferred revenue not absorbed by losses upon expiration of the TLGP guarantee period (December 31, 2012) or earlier for any portion of guarantee fees determined in excess of amounts needed to cover potential losses. As of December 31, 2011, $2.6 billion in TLGP assets were transferred to the DIF. If fees are insufficient to cover the costs of the program, the difference will be made up through a systemic risk special assessment. under the DGP. As of December 31, 2011, the FDIC paid Outstanding TLGP Debt by Month 15 management’s discussion and analysis Temporary Unlimited Coverage for NoninterestBearing Transaction Accounts Under the Dodd-Frank Act Large Bank Programs Dodd-Frank provides temporary unlimited deposit (FDIC-supervised) IDIs, back-up supervision of non- insurance coverage for noninterest-bearing transaction FDIC-supervised IDIs, and resolution planning. For accounts from December 31, 2010, through December large IDIs, these responsibilities often present unique 31, 2012, regardless of the balance in the account and the and complex challenges. The FDIC’s ability to analyze ownership capacity of the funds. This coverage essentially and respond to risks in these institutions is of particular replaced the TAGP, which expired on December 31, 2010, importance, as they make up a significant share of the and is available to all depositors, including consumers, banking industry’s assets. The Large Bank Program’s businesses, and government entities. The coverage is objectives are achieved through two primary centralized separate from, and in addition to, the standard insurance groups that work extensively with the FDIC and the other coverage provided for a depositor’s other accounts held at bank and thrift regulators. The FDIC’s responsibilities for IDIs include deposit insurance, primary supervision of state nonmember an FDIC-insured bank. A noninterest-bearing transaction account is a deposit account in which interest is neither accrued nor paid, depositors are permitted to make transfers and withdrawals, and the bank does not reserve the right to require advance notice of an intended withdrawal. Office of Complex Financial Institutions The Office of Complex Financial Institutions (OCFI) was created in 2010 to focus on the expanded responsibilities of the FDIC by Dodd-Frank. The OCFI is responsible for oversight and monitoring of large, systemically important financial institutions (SIFIs) Similar to the TAGP, the temporary unlimited coverage and for resolution strategy development and planning. also includes trust accounts established by an attorney During 2011, OCFI began to carry out its new statutory or law firm on behalf of clients, commonly known as responsibilities to monitor risks in these large SIFIs, IOLTAs, or functionally equivalent accounts. Money conduct resolution planning to respond to potential crisis market deposit accounts (MMDAs) and NOW accounts situations, and coordinate with foreign regulators on are not eligible for this temporary unlimited insurance significant cross-border resolution issues. coverage, regardless of the interest rate and even if no interest is paid. In 2011, OCFI established its complex financial institution monitoring program and engaged in continuous review, As of December 31, 2011, insured institutions had $1.4 analysis, examination and assessment of key risks and trillion in domestic noninterest-bearing transaction control issues at institutions with assets over $100 billion. accounts above the basic coverage limit of $250,000 per This work is being accomplished both off- and on-site at account. This amount is fully insured until the end of 2012 designated complex financial institutions throughout the under Dodd-Frank. United States. The FDIC is working with other federal regulators to analyze and gain a solid understanding of the risk measurement and management practices of these institutions and assessing the potential risks these companies pose to financial stability. In addition, off-site financial analysts complete the monitoring function by providing subject matter expertise in analyzing complex financial institution’s key business lines and potential 16 management’s discussion and analysis 2011 ANNUAL REPORT critical areas of risk. These efforts ensure that the FDIC for completeness and compliance with rule requirements. has established advance in-depth institutional knowledge The overall focus will be on the covered company’s strategy required to identify and evaluate risks in financial for orderly resolution, including an assessment of its institutions that are designated as systemically important. resolvability and its analysis of potential impediments to Substantial progress has been made in developing implementing a resolution in an orderly manner. resolution planning and implementation capabilities Also in 2011, OCFI commenced activities to manage its within OCFI to meet the expanded responsibilities and global outreach, communication and coordination with authorities under Dodd-Frank, including completing appropriate domestic and foreign financial supervisory, regulations governing these responsibilities. In July 2011, regulatory and resolution authorities and representatives the FDIC approved a final rule implementing the Orderly of financial institutions for the purpose of planning and Liquidation Authority that provides the authority to executing the resolution of globally active SIFIs. The resolve SIFIs. During 2011 OCFI established its internal International Coordination Group of OCFI maintains close, frameworks for SIFI resolution under Title II of Dodd- collaborative relations with key international stakeholders Frank, and began developing the capabilities necessary to to facilitate effective domestic and global cooperation on implement such resolutions. Additionally, OCFI revised matters relating to cross-border resolution for all covered and built out specific resolution plans for the largest institutions. OCFI actively participates in the Financial domestic SIFIs. In 2011, the FDIC adopted two rules Stability Board’s (FSB) Cross-Border Crisis Management regarding resolution plans (living wills) that covered Working Groups and supports related policy development financial institutions will be required to prepare. The first initiatives by the FSB’s Resolution Steering Group. rule, which implements requirements of the Dodd-Frank Act, became final and was published jointly with the Federal Mid Tier Bank Branch Reserve Board in the Federal Register on November 1, 2011, The FDIC established a Mid Tier Bank Branch (MTB) and was effective on November 30, 2011. It requires bank within its Division of Risk Management and Supervision holding companies with total consolidated assets of $50 in January 2011. MTB is responsible for monitoring billion or more and certain nonbank financial companies the risk management supervision of IDIs with total designated by the Financial Stability Oversight Council assets of $10 billion to $100 billion. For large FDIC- for supervision by the Federal Reserve Board to develop, supervised institutions, the supervision programs are maintain, and periodically submit plans for their rapid staffed and administered at the regional office level. and orderly resolution under the Bankruptcy Code, in the MTB provides oversight and examination and analytical event they experience material financial distress. Under the support to ensure consistency in FDIC’s large bank rule, covered companies with nonbank U.S. assets greater supervisory programs. MTB examination specialists than $250 billion are required to submit initial plans by also provide examination support when the FDIC July 1, 2012. A second rule, (issued as an Interim Final exercises its backup authority at these large institutions. Rule on September 14, 2011, and adopted in final form on MTB is also responsible for managing nationwide risk January 17, 2012) requires IDIs with assets greater than $50 management programs including the Large Insured billion to submit plans for resolution under the Federal Depository Institution (LIDI) Program, the interagency Deposit Insurance Act. OCFI, working in partnership with Shared National Credit Program, and certain initiatives the Federal Reserve, has been developing structure and established under the Dodd-Frank Act such as resolution guidance for the initial Dodd-Frank rule submissions, so planning for banking companies with total assets from that these submissions may be more effectively evaluated $50 billion to $100 billion. 17 management’s discussion and analysis The LIDI Program remains the primary instrument for was attended by over 120 participants. Experts discussed off-site monitoring of IDIs with $10 billion or more in a range of topics including government support and bank total assets. The LIDI Program provides a comprehensive behavior, measuring risk, bank performance and lending, process to standardize data capture and reporting through and CEO compensation. nationwide quantitative and qualitative risk analysis of large and complex institutions. The LIDI Program was refined in 2011 to better quantify risk, to provide a more prospective assessment of large institutions’ vulnerability to both asset and funding stress, and to more closely align with the large bank deposit insurance pricing program. The comprehensive LIDI Program is essential to effective large bank supervision by capturing information on risks, determining the need for supervisory action, and supporting large bank insurance assessment decisions and resolution planning efforts. As of December 31, 2011, the LIDI Program encompassed 112 institutions with total assets of $11.0 trillion. Center for Financial Research The Center for Financial Research (CFR) is responsible for eight CFR working papers were completed and made public on topics including global retail lending, foreclosure trends, systemic risk, and the use of credit default swaps. International Outreach Throughout 2011, the FDIC played a leading role among international standard-setting, regulatory, supervisory, and multi-lateral organizations by contributing to the development of policies with respect to reducing the moral hazard and other risks posed by SIFIs. Among the institutions the FDIC collaborated with, were the Basel Committee on Banking Supervision (BCBS), the FSB, and the International Association of Deposit Insurers (IADI). encouraging and supporting innovative research on topics Key to the international collaboration was the ongoing that are important to the FDIC’s role as deposit insurer dialogue among the FDIC Chairman, Acting Chairman, and bank supervisor. During 2011, the CFR co-sponsored other senior FDIC leaders and a number of senior two major research conferences. financial regulators from the United Kingdom (UK) The CFR organized and sponsored the 21st Annual Derivatives Securities and Risk Management Conference jointly with Cornell University’s Johnson Graduate School of Management and the University of Houston’s Bauer College of Business. The conference was held in March 2011 at the Seidman Center and attracted over 100 researchers from around the world. Conference presentations were on topics including options markets, derivatives pricing, fixed income markets, volatility risk premiums, sovereign risk and commodity markets. The CFR also organized and sponsored the 11th Annual Bank Research Conference jointly with The Journal for Financial Services Research (JFSR) in September 2011. The conference theme, Lessons from the Crisis, focused on the recent financial crisis included 13 paper presentations and 18 In addition to conferences, workshops and symposia, about the implementation of Dodd-Frank, Basel III, compensation policies, and how changes in the US financial regulations compare to regulatory developments in the UK and Europe. In light of the large crossborder operations, the primary areas of discussion and collaboration were development of recovery and resolution plans for SIFIs, the FDIC’s plans for executing a SIFI resolution, and the importance of cross-border coordination in the event a SIFI becomes distressed. The FDIC participated in Governors and Heads of Supervision and BCBS meetings and the supporting work streams, task forces, and Policy Development Group meetings to address the BCBS’s work to calibrate and finalize the implementation of Basel III, monitor the new leverage ratio and liquidity standards, and complete work on the treatment of counterparty credit risk and management’s discussion and analysis 2011 ANNUAL REPORT determination of surcharges on globally systemically The key objectives of the review are threefold: to take important banks (G-SIBs). In addition to Basel III capital stock of members’ deposit insurance systems using, as a and liquidity reforms, the FDIC also participated in benchmark, the Core Principles; to identify any planned the BCBS initiatives related to surveillance standards, changes in national systems in response to the crisis; and remuneration, supervisory colleges, operational risk, to identify lessons on implementing deposit insurance accounting issues, corporate governance, the fundamental reforms. In May 2011, the SCSI appointed a review team review of the trading book, and credit ratings and headed by the Deputy Chief Executive of the Hong securitization. Other major issues in these work streams Kong Monetary Authority, which included the FDIC’s include the recalibration of risk weights for securitization Director of Division of Insurance and Research. The FDIC exposures, the comprehensive review of capital charges for completed the questionnaire addressing key features trading positions, and the imposition of a capital charge of the U.S. deposit insurance system, reforms recently for exposures to central counterparties. undertaken, and the status of implementing the Core Under the leadership of the FDIC Vice Chairman, who also serves as the President of IADI and the Chairman of its Executive Council, IADI made significant progress Principles. The SCSI discussed the preliminary FSB report on December 13–14, 2011, and presented the report to the FSB in early 2012. in advancing the 2009 IADI and the BCBS Core Principles Senior FDIC officials participated in meetings of the FSB for Effective Deposit Insurance Systems (Core Principles). The Resolution Steering Group (ReSG), and on September IADI and the BCBS released a Methodology for assessing 26, 2011, the FDIC hosted a meeting of the ReSG at the compliance with the Core Principles in December 2010. Seidman Center. With input from the various working The development of the Methodology was a collaborative groups, the ReSG prepared a number of documents effort led by IADI in partnership with the BCBS, the for consideration by the FSB and G20 Leaders. These International Monetary Fund (IMF), the World Bank, documents covered a range of subjects relating to the European Forum of Deposit Insurers (EFDI), and cross‑border resolutions including the Key Attributes of the European Commission (EC). Early in 2011, the Core Effective Resolution Regimes for Financial Institutions, which Principles and Methodology were officially recognized by covered such areas as cross-border cooperation agreements, the IMF and the World Bank to assess the effectiveness resolvability assessments, recovery and resolution plans, of deposit insurance systems in the Financial Sector and temporary stays on early termination rights. The Assessment Program (FSAP), where the IMF and World Key Attributes document was released as a consultative Bank undertake comprehensive analyses of countries’ document for public comment in July, and in November financial sectors. Subsequently, in February 2011, the 2011, was presented to the G20 Leaders Summit in FSB approved the Core Principles and Methodology for Cannes, France, as part of the overall recommendations to inclusion in their Compendium of Key Standards for address threats to global financial stability. Sound Financial Systems. The official recognition of the Core Principles and Methodology by the IMF, the World Bank, and the FSB represent an important milestone in the acceptance of the role of effective systems of deposit insurance in maintaining financial stability. In continuing support of the Association of Supervisors of Banks of the Americas (ASBA) mission and strategic development, the FDIC participated in ASBA’s Board and technical committee meetings throughout 2011, led three technical assistance training missions in 2011, hosted The FSB Standing Committee on Standards the XIV ASBA Annual Assembly and Conference, and Implementation (SCSI) agreed in late 2010 to conduct a established a secondment program for ASBA members. thematic peer review of G20 deposit insurance systems. Under the newly created secondment program, up to four 19 management’s discussion and analysis ASBA members per year will be selected to participate in ★★The FDIC provided speakers to ASBA for several a ten-week developmental program at the FDIC wherein technical seminars including Credit Risk Analysis, the selected officials will get an “insider’s view” of key Supervision of Operational Risk, and Financial Division of Risk Management Supervision (RMS) policy Institution Analysis Training. and operational systems. In recognition of the FDIC’s leadership in the Association, the General Assembly elected FDIC’s Director of RMS to serve a two-year term as Vice Chairman. ★★The FDIC hosted 106 visits with over 825 visitors from approximately 48 jurisdictions in 2011. In addition to several meetings with UK officials, the FDIC met with representatives from the Bank of Canada, Canada Department of Finance, the Office of the Superintendent of Financial Institutions, and the Canada Deposit Insurance Corporation. The purpose of the meeting with the Canadians was to discuss living wills and the resolution process for A delegation from Ukraine visits the FDIC’s Dallas Regional Office to learn about franchise and asset marketing and other bank resolution topics. Delegation members with FDIC staff, from left: Sergii Naboka, Roman Rym, Andrii Olenchyk, Nataliia Lapaieva, and Liudmyla Lashchuk, all of the Deposit Guarantee Fund, Ukraine; George Fitz, DRR; Oleksii Tkachenko, National Bank of Ukraine; Jim Gallager, DRR; and Bob Carpenter, Legal. large complex financial institutions. The heads of the Indonesia Deposit Insurance Corporation, the Fondo Interbancario di Tutela dei Depositi (FITD) from Italy, the Instituto para la Protección de Ahorro Bancario (IPAB) from Mexico, and other senior staff from their respective agencies visited the FDIC for multi-day The FDIC continued to provide technical assistance study tours. The delegations met with senior FDIC through training, consultations, and briefings to foreign management and staff to learn about FDIC policies and bank supervisors, deposit insurance authorities, and other procedures in a range of areas, including public affairs, governmental officials, including the following: bank resolutions, and fund management. ★★The FDIC, on behalf of IADI, provided the content and ★★June 1, 2011, marked the four-year anniversary of the technical subject matter expertise in the development secondment program agreed upon by the Financial of a tutorial on the Core Principles, which was released Services Volunteer Corps (FSVC) and the FDIC to through the Financial Stability Institute’s (FSI) place one or more FDIC employees full-time in FSVC’s Connect online system. The FDIC led the development Washington, DC, office. In 2011, the FDIC provided of the IADI training seminar on “Deposit Insurance support to several projects supporting the Central Assessments and Fund Management” and hosted the Bank of Iraq’s (CBI) bank supervision program. The IADI executive training seminar. Working with the IADI support included multiple training sessions, as well as Core Principles Working Group, the FDIC designed a commentary addressing strategic recommendations and led workshops on conducting assessments of the and an overview of the effectiveness of the current bank Core Principles. The design included development of supervisory program. Under the FDIC’s guidance, the a Handbook for Conducting an Assessment, applying the CBI has begun to build the technical skills needed for methodology approved by the IADI and BCBS. The effective regulation of Iraq’s banks. In addition, the training seminars were held in Washington, DC; Tirana, FDIC welcomed two examiners from the Central Bank Albania; Basel, Switzerland; and Abuja, Nigeria. of Russia to shadow FDIC examiners during the onsite examination of a commercial bank in Texas. This 20 management’s discussion and analysis 2011 ANNUAL REPORT shadowing assignment provided the Russians a unique ★★During 2011, the FDIC provided subject matter experts opportunity to observe a U.S. bank examination and to to participate in 17 FSI seminars around the world. The develop new skills in their risk analysis toolkit. topics included implementation of an international ★★As an additional element of its leadership role in promoting effective bank supervision practices, the FDIC provides technical assistance, training, and consultations to international governmental banking regulators in the area of Information Technology (IT) examinations. The FDIC sent two IT examiners to Serbia on December 5–9, 2011. The IT examiners participated in an assessment of the National Bank of Serbia’s IT Supervision Program. The assessment included banking practices, applicable regulations, and staff skill levels. This assessment will be used to identify and prioritize measures needed to strengthen and improve the IT supervision program in Serbia. The engagement was organized by the World Bank as part of a larger program to strengthen independent banking in Serbia. ★★In 2011, the FDIC hosted the China Banking Regulatory leverage ratio, effective macro prudential tools, stress testing, supervising credit risk, SIFI and bank resolutions, governance, accounting, deposit insurance, and risk-based supervision. Supervision and Consumer Protection 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 IDIs, protects consumers’ rights, and promotes community investment initiatives. Examination Program The FDIC’s strong bank examination program is the core of its supervisory program. As of December 31, 2011, the FDIC was the primary federal regulator for 4,626 Commission (CRBC) to provide an overview of the IT FDIC-insured, state-chartered institutions that were examination process and the roles and responsibilities not members of the Federal Reserve System (generally of the FDIC in the US bank regulatory environment. referred to as “state nonmember” institutions). Through ★★ As part of IPAB’s visit in September 13, 2011, Acting Chairman Gruenberg and IPAB Executive Secretary Mr. José Luis Ochoa signed a technical assistance memorandum of understanding (MOU) that formally establishes a collaborative and cooperative relationship between the FDIC and IPAB. An MOU for technical assistance was also established with the Deposit Guarantee Fund (DGF) of Ukraine that provides for risk management (safety and soundness), consumer compliance and Community Reinvestment Act (CRA), and other specialty examinations, the FDIC assesses an institution’s 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 consumer questions and concerns. ongoing communication with the DGF as they await As of December 31, 2011, the FDIC conducted 2,712 the passage of a new law granting the DGF expanded statutorily required risk management (safety and powers to resolve problem banks and serve as receiver of soundness) examinations, including a review of Bank the failed bank estates. Secrecy Act (BSA) compliance, and all required follow-up examinations for FDIC-supervised problem institutions within prescribed time frames. The FDIC also conducted 1,757 statutorily required CRA/compliance examinations (825 joint CRA/compliance examinations, 921 complianceonly examinations, and 11 CRA-only examinations) and 21 management’s discussion and analysis 6,002 specialty examinations. As of December 31, 2011, Risk Management all CRA/compliance examinations were conducted within As of December 31, 2011, there were 813 insured the time frame established by policy. The following table institutions with total assets of $319.4 billion designated compares the number of examinations, by type, conducted as problem institutions for safety and soundness purposes from 2009 through 2011. (defined as those institutions having a composite CAMELS rating of “4” or “5”), compared to the 884 FDIC Examinations 2009 – 2011 problem institutions with total assets of $390.0 billion 2011 2010 2009 decline in the number of problem institutions, and a 13 Risk Management (Safety and Soundness): State Nonmember Banks percent decrease in problem institution assets. In 2011, 2,477 2,488 2,398 227 225 203 Savings Associations 3 0 1 National Banks 1 3 0 were added to the list. Superior Bank, Birmingham, State Member Banks 4 4 2 Alabama, was the largest failure in 2011, with $3.0 billion 2,712 2,720 2,604 Savings Banks Subtotal—Risk Management Examinations Compliance/Community Reinvestment Act 196 institutions with aggregate assets of $83.2 billion were removed from the list of problem financial institutions, while 156 institutions with aggregate assets of $77 billion in assets. The FDIC is the primary federal regulator for 533 of the 813 problem institutions, with total assets of $175.4 billion and $319.4 billion, respectively. CRA/Compliance Examinations: During 2011, the FDIC issued the following formal 825 914 1,435 921 854 539 11 12 7 1,757 1,780 1,981 466 465 493 Data Processing Facilities 2,802 2,811 2,780 institutions within 12 months of the last examination. Bank Secrecy Act 2,734 2,813 2,698 As of October 31, 2011, all follow-up examinations for Compliance-only CRA-only Subtotal—CRA/Compliance Examinations Trust Departments Subtotal—Specialty Examinations Total and informal corrective actions to address safety and soundness concerns: 146 Consent Orders, and 297 MOUs. Of these actions, 15 Consent Orders and 17 MOUs were issued based, in part, on apparent violations of the Bank Specialty Examinations: 22 on December 31, 2010. This constituted a 5 percent Secrecy Act. The FDIC is required to conduct follow-up examinations of all state nonmember institutions designated as problem problem institutions were performed on schedule. 6,002 6,089 5,971 10,471 10,589 10,556 management’s discussion and analysis 2011 ANNUAL REPORT Compliance average CMP for HMDA and Flood Insurance violations As of December 31, 2011, 51 insured state nonmember was $8,400. institutions, about 1 percent of all supervised institutions, having total assets of $37.0 billion were rated “4” or “5” for Bank Secrecy Act/Anti-Money Laundering consumer compliance purposes. As of December 31, 2011, The FDIC pursued a number of BSA, Counter-Terrorist all follow-up examinations for problem institutions were Financing (CFT), and Anti-Money Laundering (AML) performed on schedule. initiatives in 2011. Overall, banks demonstrated strong consumer compliance The FDIC conducted an Advanced International AML and programs. The most significant consumer protection issue CFT training session in 2011 for twenty-seven financial that emerged from the 2011 compliance examinations sector supervisors and regulatory staff from Ethiopia, involved banks’ failure to adequately monitor third- Ghana, Kenya, Nigeria, and Tanzania. The training party vendors. As a result, we found violations involving focused on AML/CFT controls, the AML examination unfair or deceptive acts or practices, resulting in process, customer due diligence, suspicious activity consumer restitution and civil money penalties. The monitoring, and foreign correspondent banking. The violations involved a variety of issues including failure to session also included presentations from the Federal disclose material information about new products being Bureau of Investigation (FBI), the Financial Crimes offered, deceptive marketing and sales practices, and Enforcement Network (FinCEN), the Drug Enforcement misrepresentations about the costs of products. In many Administration (DEA), and U.S. Immigration and instances, the violations were the result of banks entering Customs Enforcement (ICE). Topics addressed by invited into new product markets through third-parties without speakers included combating terrorist financing, trade- maintaining sufficient oversight of vendors’ activities. based money laundering, bulk cash smuggling and During 2011, the FDIC issued the following formal and informal corrective actions to address compliance concerns: 38 Consent Orders, 111 MOUs, and 163 Civil investigations, law enforcement use of BSA information, and the role of financial intelligence units in detecting and investigating illegal activities. Money Penalties (CMPs). In certain cases, the Consent Additionally, the FDIC met with several foreign officials Orders issued by the FDIC contain requirements for from Pakistan, at the request of the FinCEN, to provide institutions to pay restitution in the form of refunds an overview of the FDIC and the AML examination to consumers for different violations of laws. During process used in the United States. The FDIC also met 2011, over $11 million was refunded to consumers by with eleven foreign officials from United Arab Emirates institutions subject to Consent Orders. These refunds as a part of the U.S. Department of State’s International primarily related to unfair or deceptive practices by Visitor Leadership Program to discuss the FDIC’s AML institutions, mainly related to different credit card Supervisory Program. programs, as discussed above. In the case of CMPs, institutions pay penalties to the U.S. Minority Depository Institution Activities The preservation of Minority Depository Institutions Treasury. Approximately 90 percent of the CMPs involved (MDIs) remains a high priority for the FDIC. In 2011, the repeated errors in the submission of required data under FDIC continued to seek ways to improve communication the Home Mortgage Disclosure Act (HMDA) or statutorily and interaction with MDIs and to respond to the concerns mandated penalties for violations of the regulations of minority bankers. Many of the MDIs took advantage of entitled Loans in Areas Having Special Flood Hazards. The the technical assistance offered by the FDIC, requesting 23 management’s discussion and analysis technical assistance on a number of bank supervision The FDIC held conference calls and banker roundtables issues, including but not limited to, the following: with MDIs in the geographic regions. Topics of ★★MDI Policy Statement and Program ★★Small Business Lending Fund ★★Deposit insurance assessments ★★FDIC Overdraft Guidance ★★Guidance on prepaid cards ★★Application process for change of control and shelf-charter applications ★★Filing branch and merger applications ★★Monitoring commercial real estate (CRE) concentrations discussion for the calls included both compliance and risk management, and additional discussions included the economy, overall banking conditions, deposit insurance assessments, accounting, and other bank examination issues. Capital and Liquidity Rulemaking and Guidance OTC Derivatives Margin and Capital NPR In April 2011, the FDIC, along with the other federal banking agencies, the Farm Credit Administration, and the Federal Housing Finance Agency (FHFA), published a proposed rule intended to enhance the stability of the financial system by preventing certain large financial firms from entering into uncollateralized derivatives exposures with each other. This proposed rule would implement certain ★★Reducing adversely classified assets ★★Maintaining adequate liquidity ★★Compliance issues ★★Community Reinvestment Act (CRA) requirements contained in Sections 731 and 764 of the Dodd-Frank Act, which provides that the largest and most active participants in the over-the-counter (OTC) derivatives market, that is, those designated as swaps dealers or major swaps participants by the Commodity Futures Trading Commission (CFTC) or the Securities Exchange Commission The FDIC continued to offer the benefit of having an (SEC), to collect initial margin and variation margin. Final examiner or a member of regional office management rulemaking is expected to be completed in 2012. return to FDIC-supervised MDIs from 90 to 120 days after an examination to help management understand Retail Foreign Exchange Transactions and implementing examination recommendations, or In May 2011, the FDIC Board of Directors approved the to discuss other issues of interest. Several MDIs took publication of a Notice of Proposed Rulemaking (NPR) advantage of this initiative in 2011. Also, the FDIC that proposed disclosure, recordkeeping, capital and regional offices held outreach training efforts and margin, reporting, business conduct, and documentation educational programs for MDIs. requirements on certain retail foreign currency A major highlight in 2011 was the biannual Interagency MDI Conference. The 2011 conference was held on June 14–16, 2011 in New York City. The conference theme was Preserving the Future of Minority Depository Institutions, and the activities included a session where potential investors in financial institutions had an opportunity to meet with senior managers and directors of MDIs attending the conference. 24 transactions entered into between FDIC-supervised institutions and retail customers. The FDIC proposed these requirements in response to Section 742 of DoddFrank. In July 2011, the FDIC issued final regulations. management’s discussion and analysis 2011 ANNUAL REPORT Advanced Approaches Floor Final Rule Volcker Rule NPR In June 2011, the FDIC, along with the other federal In October 2011, the FDIC, along with the other federal banking agencies, approved a final rule to implement banking agencies, and the SEC, published a joint NPR to certain requirements of Section 171 of Dodd-Frank. implement the provisions of Section 619 of Dodd-Frank, Section 171 requires that the agencies’ generally applicable which restricts the ability of banking entities to engage in capital requirements serve as a floor for other capital proprietary trading and limits investments in hedge funds requirements the agencies may establish and, specifically, and private equity funds. Final rulemaking is expected to as a permanent floor for the advanced approaches risk- be completed in 2012. based capital rule. Stress Testing Guidance In June 2011, the FDIC along with the other federal banking agencies, issued proposed guidance on stress testing by banking organizations with more than $10 billion in total consolidated assets. The proposed guidance highlights the importance of stress testing as an ongoing risk management practice that supports a banking organization’s forward-looking assessment of its risks, and provides principles that a banking organization should follow to develop, implement, and maintain an effective stress testing framework. Counterparty Credit Risk Guidance In July 2011, the FDIC, along with the other federal banking agencies, issued guidance to clarify supervisory expectations and sound practices for an effective counterparty credit risk management framework. The guidance was issued primarily for banks with significant derivatives portfolios and emphasizes that such banks should use appropriate reporting metrics and limits systems, have well-developed and comprehensive stress testing, and maintain systems that facilitate measurement and aggregation of counterparty credit risk throughout the organization. The agencies believe this guidance will address deficiencies exposed during the financial crisis by reinforcing sound practices related to the management and ongoing monitoring of counterparty exposure limits and concentration risks. Depositor and Consumer Protection Rulemaking and Guidance SAFE Act In January 2011, the FDIC along with the other federal banking agencies, issued an update related to the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). The update reminded mortgage loan originators of the requirement to register with the Nationwide Mortgage Licensing System and Registry within 180 days of the date the Registry began accepting federal registrations. Overdraft Guidance In March 2011, the FDIC hosted a teleconference to discuss the 2010 Overdraft Payment Program Supervisor Guidance (Guidance) that was issued in November 2010. The Guidance encouraged institutions to monitor and oversee usage of overdraft payment programs to address the risks related to excessive and inappropriate use of automated overdraft programs as forms of highcost, short-term credit. The teleconference was held to address many examination and implementation issues based on discussions with, and questions received from, FDIC-supervised institutions. The FDIC also published written answers to a series of Frequently Asked Questions concurrently with the teleconference. Examiners began monitoring banks’ efforts to address the risks identified in the Guidance in July 2011. The FDIC will continue to monitor banks’ efforts to manage risks of automated programs and assess the efficacy of the Guidance. 25 management’s discussion and analysis Examination Procedures structures can misalign incentives and induce excessive In August 2011, the FDIC issued revised examination risk-taking at financial organizations. Importantly, this procedures incorporating the model privacy notice. The interagency proposal will apply across all types of financial Gramm-Leach-Bliley Act requires financial institutions institutions, limiting the opportunity for regulatory to provide initial and annual notices to consumers with arbitrage. Per section 956, financial institutions with whom they have ongoing customer relationships to total assets less than $1.0 billion are exempt from this explain how nonpublic personal information is collected provision. Final rulemaking is expected to be completed and shared. Financial institutions may use a model privacy in 2012. notice issued by the federal banking agencies and the National Credit Union Administration, the Federal Trade Commission, the CFTC, and the SEC to comply with this requirement. In December 2011, the FDIC, along with the other federal banking agencies, issued revised examination procedures for the regulations that implement the Truth in Lending Act (TILA). TILA requires various disclosures relating to the cost of consumer credit as well as several other requirements relating to credit for individual, In May 2011, the FDIC published a special foreclosure edition of Supervisory Insights. This edition describes lessons learned from an interagency review of foreclosure practices at the 14 largest residential mortgage servicers, and includes examples of effective mortgage servicing practices derived from these lessons. consumer, or household purposes including residential Regulatory Relief real estate loans. During 2011, the FDIC issued 31 Financial Institutions Other Guidance Issued During 2011, the FDIC issued and participated in the issuance of other guidance in several areas as described below. Incentive-Based Compensation On April 14, 2011, the FDIC joined the other federal banking agencies, and the SEC and FHFA in issuing a joint NPR that would implement section 956 of DoddFrank (Enhanced Compensation Structure Reporting). Section 956 requires the participating agencies, as defined, to jointly: (a) prescribe regulatory reporting standards for incentive-based compensation and (b) prohibit incentive-based compensation that is “excessive” or “could lead to material financial loss” at a covered institution. Implementing this proposed rule would address a key safety and soundness issue that contributed to the recent financial crisis─that poorly designed compensation 26 Regulatory Actions Related to Foreclosure Activities by Large Servicers and Practical Implications for Community Banks Letters (FILs) that provided guidance to help financial institutions and facilitate recovery in areas damaged by hurricanes, wildfires, tornadoes, flooding, and other natural disasters. In addition, FIL-60-2001 dated August 26, 2011, reminded institutions how to prepare for business continuity during significant storms. Other Policy Matters Study on Core Deposits and Brokered Deposits As required by Section 1506 of Dodd-Frank, the FDIC completed a study on the use of core and brokered deposits and provided a written report to Congress on its findings on July 8, 2011. The FDIC solicited comments from the banking industry and the public in preparing this study. The FDIC received approximately 75 written comments and organized a roundtable discussion with representatives from bank trade groups, bank regulators, deposit brokers, banks that use brokered deposits, and the academic community. Discussions on the issues were also management’s discussion and analysis 2011 ANNUAL REPORT held with the FDIC Advisory Committee on Community Banking and in several separate meetings with banks, trade groups, and other interested parties. In addition, the FDIC undertook a statistical analysis of core and brokered deposits and conducted a literature review of academic studies on core and brokered deposits. The study ★★supports partnerships to promote consumer access and use of banking services ★★advances financial education and literacy ★★facilitates partnerships to support community and small business development. evaluated the definitions of core and brokered deposits brokered deposit statute, which defines brokered deposits FDIC Survey of Banks’ Efforts to Serve the Unbanked and Underbanked and prevents failing banks from increasing their brokered The FDIC is committed to ensuring that consumers have deposits and taking on more risk in an effort to grow out access to basic banking and other financial services, and of their troubles. to developing more and better data about unbanked and recommended that Congress not amend or repeal the and underbanked households, including factors that Small Business Lending Forum hinder them from fully utilizing the mainstream financial On January 13, 2011, the FDIC hosted a forum on system. In line with this commitment, Congress mandated “Overcoming Obstacles to Small Business Lending.” The in Section 7 of the Federal Deposit Insurance Reform forum fostered communication among policymakers, Conforming Amendments Act of 2005 (Reform Act), regulators, small business owners, lenders, and other that the FDIC conduct periodic surveys of banks’ efforts stakeholders regarding ways in which credit can be made to bring individuals and families into the conventional more accessible to the small business sector. In addition to finance system. identifying common obstacles small businesses currently face, forum participants also assessed existing efforts and suggested additional policies to ensure that creditworthy small businesses have access to the credit they need to grow, create jobs, and help fuel the economic recovery. The FDIC addressed the key issues raised at the forum, including small businesses’ demand for credit, banks’ supply of credit, and bank regulators’ approaches to evaluating small business loans. Consequently, during 2011 and part of 2012, the FDIC will conduct a second set of nationwide surveys of households and FDIC-IDIs (banks survey) to assess efforts to serve unbanked and underbanked individuals and families. The first phase of the bank survey will gather information from a sample of bank headquarters and a second phase will collect data at the branch level. The 2011 survey focused on banks’ basic transaction and savings account programs, auxiliary product and service Promoting Economic Inclusion offerings, and financial education and outreach efforts. The FDIC has a strong commitment to promoting The results will complement the previously collected data consumer access to a broad array of banking products to meet consumer financial needs. To promote financial access to responsible and sustainable products offered by IDIs, the FDIC: and will help banks improve their abilities to meet the diverse financial needs of U.S. households. The survey also helps to inform the public about the FDIC’s continuing economic inclusion efforts. ★★conducts research into the unbanked and underbanked ★★engages in research and development on models of products meeting needs of lower-income consumers 27 management’s discussion and analysis Model Safe Account Pilot The FDIC began a one-year pilot program in January Safe Mortgage Lending in Low- and Moderate-Income (LMI) Communities 2011 to determine the feasibility of IDIs offering safe, In early 2011, the FDIC Chairman’s Advisory Committee low-cost transactional and savings accounts to help meet on Economic Inclusion held a public meeting at the needs of the 25 percent of U.S. households that are headquarters and discussed principles for responsible unbanked and underbanked. These accounts are FDIC low- and moderate-income (LMI) mortgage lending, insured and are covered under consumer protection laws the impact of the housing crisis on LMI families, and and regulations, such as Regulation E (Electronic Funds potential future market structures to safely serve LMI Transfer), in the same way as traditional deposit accounts. borrowers. In addition, FDIC researchers presented two Through the pilot, nine participating institutions are papers at widely attended conferences, analyzing some offering electronic deposit accounts with product features of the outcomes of the mortgage crisis on housing identified in the FDIC Model Safe Accounts Template. mobility, and trends in mortgage refinancing among These accounts do not allow for overdraft or nonsufficient low-income households. funds fees. At the completion of the pilot, in early 2012, the FDIC will report on the findings and lessons learned. Partnerships to Promote Consumer Access: Alliance for Economic Inclusion Affordable Small-Dollar Loan Guidelines and Pilot Program The goal of the FDIC’s Alliance for Economic Inclusion The FDIC continued to promote the results of the FDIC community organizations; local, state, and federal Small-Dollar Loan Pilot. In May 2011, the FDIC hosted agencies; and other partners in select markets, to a meeting of the FFIEC CRA subcommittee to examine launch broad-based coalitions to bring unbanked and opportunities to enhance understanding of small-dollar underserved consumers into the financial mainstream. lending among regulated institutions and to promote consistent emphasis in CRA examinations. The meeting, attended by senior staff from the banking regulatory agencies, CSBS, the New York State Banking Department, and the National Credit Union Administration, reviewed the findings from the FDIC research and pilot, and related outreach and education work. On September 22, 2011, (AEI) initiative is to collaborate with financial institutions; The FDIC expanded its AEI efforts during 2011 to increase measurable results in the areas of new bank accounts, small-dollar loan products, and the delivery of financial education to underserved consumers. Specifically, during 2011: ★★More than 494 banks and organizations joined AEI FDIC offered testimony on the FDIC’s Small-Dollar nationwide, bringing the total number of AEI members Loan Pilot at a hearing of the House Financial Services to 1,613. The 2011 figure represents a 44 percent growth Committee Subcommittee on Financial Institutions over the AEI membership base at the end of 2010. and Consumer Credit entitled “An Examination of the Availability of Credit for Consumers.” In addition, results from the pilot were discussed at several conferences throughout the year, including the Microfinance USA Conference in New York at the Association of Military Bankers of America, and in media interviews. ★★At least 171,591 consumers opened a bank account as a result of AEI efforts, an increase of 138 percent over the number of new accounts opened during 2010. Combined, more than 404,591 bank accounts have been opened through the AEI program. ★★Approximately 87,476 consumers received financial education through the AEI, bringing the total number of consumers educated to 270,476. The 2011 figure is a 28 56 percent improvement over the 2010 figure. management’s discussion and analysis 2011 ANNUAL REPORT Also, twenty-four banks were in the process of offering or Bank On initiative towards shared objectives. For example, developing small-dollar loans, and seventeen AEI banks FDIC provided technical assistance on recruitment from were providing deposit accounts consistent with the FDIC the financial services industry for Bank On/Save Up Kansas Model Safe Account Template through the AEI at the end City, Missouri, which is a local effort to market savings of 2011. To facilitate broader economic inclusion, FDIC and checking accounts to the unbanked and underbanked leads AEI members in other work appropriate to the needs that was launched on June 4, 2011, conducted in of the local market. For example, the 4th Annual AEI Small collaboration with the Kansas City AEI. FDIC staff also Business Conference in New Orleans reached more than provided technical, marketing, and financial education 200 entrepreneurs, bankers, and small business resource product support for the new Bank On Chicago initiative, providers, while the Los Angeles AEI promoted small and the Bank On Los Angeles initiative conducted under business development through two guides (one to help the FDIC AEI umbrella. small businesses save money by “greening” their business and the other to help gain access to the export market). During 2011, FDIC also expanded the geographic reach of the AEI program. Initially in fourteen markets, the FDIC began the formation of AEI initiatives in three additional markets: Milwaukee, Wisconsin; the Appalachian region of West Virginia; and the Metro Detroit/Southeast Michigan area. These markets were selected because of their sizable concentrations of unbanked and Advancing Financial Education The FDIC’s award-winning Money Smart curriculum has reached more than 2.75 million consumers in the ten years since its launch in 2001. During 2011, the FDIC reached approximately 265,000 consumers with Money Smart. The curriculum is currently available in instructor-led versions to teach adults and young adults, as well as in self-paced computer-based and audio versions. underbanked households. In collaboration with the The FDIC expanded its financial education efforts Wisconsin Women's Business Initiative Corporation, during 2011 through a multi-part strategy that included FDIC launched the Milwaukee AEI initiative on January making available timely, high-quality financial education 19, 2011, consisting of twenty-one financial institutions products, sharing best practices, and working through and community-based partners. And on December partnerships to reach consumers. 19, 2011, the FDIC and the United Way of Southeast Michigan launched the Southeast Michigan AEI coalition. The launch was attended by forty-eight financial institutions and community-based organizations, including the Consulate of Mexico and Bank On Detroit representatives. The FDIC collaborated with the West Virginia Development Office and Appalachian Regional Commission on the AEI proposal for launch in West Virginia during 2012. Recognizing the growing role of entrepreneurs in the economy, the Money Smart program started its second decade by expanding the reach of the curriculum to small businesses. During 2011, the FDIC collaborated with the Small Business Administration on the development of a new instructor-led financial education curriculum for small businesses. It consists of ten modules that introduce prospective or current small businesses to basic strategies to manage a small business effectively from a financial Additionally, the FDIC provided program guidance and standpoint. The pilot curriculum is being refined in technical assistance in the development, launch, and the advance of an early 2012 launch. expansion of 26 Bank On programs. In AEI markets where there is a Bank On initiative, FDIC and its AEI partners generally collaborate with representatives from the 29 management’s discussion and analysis version of its instructor-led Money Smart for Young Adults Partnerships to Support Community and Small Business Development financial education curriculum. The updated curriculum Through training and technical assistance to diverse reflects changes to the financial landscape such as organizations that use the Money Smart program, the amendments to the rules pertaining to credit cards, the FDIC emphasizes the importance of pairing education overdraft opt-in rule, and information on financing with access to appropriate banking products and services. higher education and instructional best practices since the Approximately 1,200 organizations are members of curriculum’s release in 2008. the FDIC’s Money Smart Alliance, 1,205 practitioners On February 10, 2011, the FDIC released an enhanced On November 7, 2011, the FDIC released the Money Smart curriculum for the first time in Haitian-Creole and Hindi, making the instructor-led curriculum available attended the 61 train-the-trainer workshops conducted during 2011, and the FDIC worked with many additional organizations to promote financial education. in nine languages, in addition to the large-print and During 2011, the FDIC expanded on its new2 partnership Braille versions. Also, on this date, updated versions of with the National Credit Union Administration and the Chinese, English, Haitian-Creole, Hindi, Hmong, the U.S. Department of Education to promote financial Korean, Russian, Spanish, and Vietnamese language education and access for low- and moderate-income versions of Money Smart were released. These updated students. The FDIC focused its work through this curriculums reflect the enhancements made to the English partnership by promoting financial education and language version of Money Smart released in November access resources to the U.S. Department of Education’s of 2010, which include the addition of a new module on grantees by participating in both national and four financial recovery. regional/state conferences to conduct workshops to Improvements were also made to the self-paced versions of Money Smart. The Money Smart Computer-Based Instructions (CBI) was rewritten and significantly reach managers of Federal TRIO Programs3 and Gear-UP programs that reach low- and moderate-income students and their families. enhanced. For example, the new CBI includes ageappropriate tracks for adults and young adults aligned with the respective updated instructor-led curriculums. Originally launched in 2004, the new CBI also incorporates new technological enhancements and best practices in instructional design, such as a game-based design and new tools for users to retrieve previously earned certificates of completion of modules. The new CBI was piloted during 2011 with key partners in advance of a first quarter 2012 launch. 30 2 This partnership began on November 15, 2010. 3 The Federal TRIO Programs (TRIO) are federal outreach and student services programs designed to identify and provide services for individuals from disadvantaged backgrounds. management’s discussion and analysis 2011 ANNUAL REPORT Recognizing the importance of small business growth and job creation as an essential component in America’s economic recovery, the FDIC continued its emphasis on facilitating small-business development, expansion, and recovery. In 2011, the FDIC and the SBA co-sponsored 28 small-business information, resource, and capacitybuilding seminars. The events provided information and resources to over 2,276 small business owners, entrepreneurs, banking professionals, and others. The FDIC also continued to help consumers and the banking industry avoid unnecessary foreclosures and Vice Chairman Martin J. Gruenberg makes a point during the sixth Community Bank Advisory Committee meeting. stop foreclosure “rescue” scams that promise false hope Leading Community Development focused its foreclosure mitigation efforts in three areas: The FDIC hosted its sixth Community Bank Advisory to consumers at risk of losing their homes. The FDIC ★★Direct outreach to consumers with information, Committee meeting in May 2011. Fourteen members, education, counseling, and referrals. During 2011, in most of them heads of community banks throughout the collaboration with NeighborWorks®America, the FDIC nation, discussed trends and issues involving community sponsored eight events at which 7,392 homeowners banking and the future of this sector. attended, 68 counseling organizations provided direct FDIC community affairs staff is located in each of the FDIC’s regions nationwide and lead a range of community services and 18 loan servicers participated. ★★Industry outreach and education targeted to development activities. In 2011, the FDIC undertook lenders, loan servicers, local governmental agencies, over 676 community development, technical assistance, housing counselors, and first responders (faith- financial education, and outreach activities and events. based organizations, advocacy organizations, social These activities were designed to promote awareness service organizations, etc.). During 2011, the FDIC of investment opportunities to financial institutions, co-hosted one major loan modification scam outreach access to capital within communities, knowledge-sharing event in collaboration with NeighborWorks®America among the public and private sector, and wealth-building and supported several ongoing loan modification scam opportunities for families. campaigns. These outreach activities are targeted to local The FDIC collaborated with the Office of Comptroller of the Currency and Federal Reserve Banks to conduct 35 CRA/Community Development roundtables to help agencies and nonprofits that have the capacity to educate stakeholders. These activities resulted in more than 35,372 scam complaint calls since the campaign began. financial institutions learn how to more effectively meet community credit needs and promote compliance with CRA regulations. 31 management’s discussion and analysis ★★Support for capacity-building initiatives to help expand the quantity and quality of foreclosure counseling assistance that is available within the industry. Working closely with NeighborWorks®America and other national and local counselors and intermediaries, the FDIC supported industry efforts to build the capacity of housing counseling agencies. The FDIC facilitated ★★Issued a risk advisory to examiners describing the risks of mobile banking. ★★Held an Emerging Technology Risk Analysis Center Event on January 12, 2011, with five industry experts who discussed emerging technologies and associated risks that may affect the banking industry. ★★Established an intra-divisional FDIC Payments Risk the development of a new course, Marketing Your Working Group to strengthen awareness of current Neighborhood for Stabilization and Revitalization that was and emerging payments-related supervisory issues. offered at two NeighborWorks training institutes Representatives from all examination disciplines are to approximately twenty-one homeownership participating in the Working Group. professionals. Also, more than 1,680 participants from 1,071 organizations completed six community stabilization e-learning courses offered through NeighborWorks®America sponsored by FDIC. These e-learning courses include the new Introduction to Affordable Housing launched on October 10, 2011. Information Technology, Cyber Fraud, and Financial Crimes The FDIC, jointly with the U.S. Department of Justice, sponsored a Financial Crimes Conference in May 2011 that focused on all types of financial fraud, and how the ★★Assisted financial institutions in identifying and shutting down “phishing” websites. 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 28 Special Alerts to FDIC-supervised institutions on reported cases of counterfeit or fraudulent bank checks. ★★Issued 4 Consumer Alerts pertaining to e-mails law enforcement community and regulators can respond and telephone calls fraudulently claiming to be from effectively to fraud. Other major accomplishments during the FDIC. 2011 in promoting information technology (IT) security and combating cyber fraud and other financial crimes included the following: ★★Issued, in conjunction with the FFIEC, the Supplement The FDIC conducts IT examinations of financial institutions and technology service providers (TSP). These examinations ensure that institutions and TSPs have implemented adequate risk management practices for to Authentication in an Internet Banking Environment the confidentiality, integrity, and availability of sensitive, guidance, which strengthens the controls banks use to material, and critical information assets. The result of protect online banking transactions. the examination is a FFIEC Uniform Rating System for ★★Issued revised guidance describing potential risks associated with relationships with third-party entities that process payments for telemarketers, online businesses, and other merchants. Information Technology (URSIT) rating. In 2011, the FDIC conducted 2,802 IT examinations at financial institutions and TSPs. Further, as part of its ongoing supervision process, the FDIC monitors significant events, such as data breaches and natural disasters that may affect financial institution operations or customers. 32 management’s discussion and analysis 2011 ANNUAL REPORT Consumer Complaints and Inquiries between the FDIC and the CFPB, the FDIC investigated The FDIC investigates consumer complaints concerning 576 of the 935 complaints and referred the remaining 359 FDIC-supervised institutions and answers inquiries from to the CFPB. the public about consumer protection laws and banking The FDIC provided substantial resources to the CFPB practices. As of December 31, 2011, the FDIC received 12,942 written complaints, of which 5,997 involved complaints against state nonmember institutions. The FDIC responded to over 98 percent of these complaints within time frames established by corporate policy, and acknowledged 100 percent of all consumer complaints and inquiries within fourteen days. The FDIC also responded to 2,608 written inquiries, of which 484 involved state nonmember institutions. In addition, the FDIC responded to 6,134 telephone calls from the public and members of the banking community, of which 4,293 concerned state nonmember institutions. Coordination with the Consumer Financial Protection Bureau Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) began operations on July 21, 2011. The CFPB was given primary supervisory responsibility for certain enumerated consumer protection laws and regulations for institutions with assets over $10 billion, and their affiliates. The FDIC coordinated with the CFPB throughout 2011 to ensure during 2011 on a temporary basis. The FDIC helped the CFPB develop its consumer complaint processing functions, enforcement program, and community affairs program. Under a cooperative agreement between the FDIC and the CFPB, FDIC employees were also offered voluntary transfer opportunities to become permanent CFPB employees. A total of forty-one FDIC employees transferred to the CFPB as of July 2011. Public Awareness of Deposit Insurance Coverage The FDIC provides a significant amount of education for consumers and the banking industry on the rules for deposit insurance coverage. An important part of the FDIC’s deposit insurance mission is ensuring that bankers and consumers have access to accurate information about the FDIC’s rules for deposit insurance coverage. The FDIC has an extensive deposit insurance education program consisting of seminars for bankers, electronic tools for estimating deposit insurance coverage, and written and electronic information targeted for both bankers and consumers. an orderly transfer of forty-one institutions to the CFPB’s In 2011, the FDIC continued its efforts to educate consumer protection jurisdiction. The FDIC continues bankers and consumers about the rules and requirements to work with the CFPB to implement other requirements, for FDIC insurance coverage. The FDIC conducted including simultaneous examinations for other laws, seventeen telephone seminars for bankers on deposit such as the CRA, for which the FDIC retains primary insurance coverage, reaching an estimated 57,000 bankers responsibility for all state chartered, nonmember banks, participating at over 16,000 bank locations throughout including those with assets over $10 billion. the country. The FDIC also updated its deposit insurance Between July 21 and December 31, 2011, the FDIC received 935 complaints involving FDIC-supervised banks under the jurisdiction of the CFPB. Under the agreement coverage publications and educational tools for consumers and bankers, including brochures, resource guides, videos, and the Electronic Deposit Insurance Estimator (EDIE). 33 management’s discussion and analysis During 2011, the FDIC received and answered To minimize disruption to the local community, the approximately 119,300 telephone deposit insurance- resolution process must be performed quickly and as related inquiries from consumers and bankers. The FDIC smoothly as possible. There are three basic resolution Call Center addressed 86,700 of these inquiries, and methods: purchase and assumption transactions, deposit insurance coverage subject matter experts handled deposit payoffs, and Deposit Insurance National Bank the other 32,600. In addition to telephone inquiries about (DINB) assumptions. deposit insurance coverage, the FDIC received 2,500 written inquiries from consumers and bankers. Of these inquiries, 99 percent received responses within two weeks, as required by corporate policy. Resolutions and Receiverships 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 his or her deposit in an FDIC-insured institution due to a failure. Upon closure of an institution typically by its chartering authority—the state for state-chartered institutions, and the Office of the Comptroller of the Currency (OCC) for national banks, and federal savings associations4—the FDIC is appointed receiver, and the FDIC is responsible for resolving the failed bank or savings association. The purchase and assumption (P&A) transaction is the most common resolution method used for failing institutions. In a P&A transaction, a healthy institution purchases certain assets and assumes certain liabilities of the failed institution. A variety of P&A transactions can be used. Since each failing bank situation is different, P&A transactions provide flexibility to structure deals that result in the highest value for the failed institution. For each possible P&A transaction, the acquirer may either acquire all or only the insured portion of the deposits. Loss sharing may be offered by the receiver in connection with a P&A transaction. In a loss-share transaction, the FDIC as receiver agrees to share losses on certain assets with the acquirer. The FDIC usually agrees to absorb a significant portion (for example, 80 percent) of future losses on assets that have been designated as “shared loss assets” for a specific period of time (for example, five to The FDIC employs a variety of business practices to ten years). The economic rationale for these transactions resolve a failed institution. These business practices are is that keeping shared loss assets in the banking sector typically associated with either the resolution process or can produce a better net recovery than would the FDIC’s the receivership process. Depending on the characteristics immediate liquidation of these assets. of the institution, the FDIC may recommend several of these practices to ensure the prompt and smooth payment of deposit insurance to insured depositors, to minimize the impact on the DIF, and to speed dividend payments to creditors of the failed institution. The resolution process involves valuing a failing Deposit payoffs are only executed if a bid for a P&A transaction does not meet the least-cost test or if no bids are received, in which case the FDIC, in its corporate capacity as deposit insurer, makes sure that the customers of the failed institution receive the full amount of their insured deposits. institution, marketing it, soliciting and accepting bids for the sale of the institution, determining which bid is least costly to the insurance fund, and working with the acquiring institution through the closing process. 4 34 OCC assumed this responsibility from the Office of Thrift Supervision (OTS) on July 21, 2011. management’s discussion and analysis 2011 ANNUAL REPORT The Banking Act of 1933 authorizes the FDIC to establish The following chart provides a comparison of failure a DINB to assume the insured deposits of a failed bank. activity over the last three years. A DINB is a new national bank with limited life and powers that allows failed bank customers a brief period Failure Activity 2009–2011 of time to move their deposit account(s) to other insured Dollars in Billions institutions. Though relatively seldom used, a DINB allows for a failed bank to be liquidated in an orderly fashion, minimizing disruption to local communities and Total Institutions 2011 2010 2009 92 157 140 financial markets. Total Assets of Failed Institutions* $34.9 $92.1 $169.7 The receivership process involves performing the closing Total Deposits of Failed Institutions* $31.1 $79.5 $137.1 $7.9 $22.3 $37.1 functions at the failed institution, liquidating any remaining failed institution assets, and distributing any proceeds of the liquidation to the FDIC and other creditors of the receivership. In its role as receiver, the Estimated Loss to the DIF *Total assets and total deposits data are based on the last Call Report filed by the institution prior to failure. FDIC has used a wide variety of strategies and tools to manage and sell retained assets. These include, but are Asset Management and Sales not limited to asset sale and/or management agreements, As part of its resolution process, the FDIC makes every structured transactions, and securitizations. effort to sell as many assets as possible to an assuming Financial Institution Failures institution. Assets that are retained by the receivership are evaluated; for 95 percent of the failed institutions, at During 2011, there were 92 institution failures, compared least 90 percent of the book value of marketable assets are to 157 failures in 2010. For the institutions that failed, marketed for sale within 90 days of an institution’s failure the FDIC successfully contacted all known qualified and for cash sales and 120 days for structured sales. interested bidders to market these institutions. The FDIC also made insured funds available to all depositors within Structured sales for 2011 totaled $2.8 billion in unpaid one business day of the failure if it occurred on a Friday principal balances from commercial real estate and and within two business days if the failure occurred on residential loans acquired from various receiverships. any other day of the week. There were no losses on insured These transactions often involved FDIC-guaranteed and deposits, and no appropriated funds were required to pay nonguaranteed purchase money debt and equity in a insured deposits. limited liability company shared between the respective receivership that contributed the assets to the sale and the successful purchaser. Cash sales of assets for the year totaled $1.1 billion in book value. In addition to structured and cash sales, FDIC also use securitizations to dispose of bank assets. In 2011, securitization sales totaled $1.1 billion. 35 management’s discussion and analysis As a result of our marketing and collection efforts, is made, the FDIC terminates the receivership. In 2011, the book value of assets in inventory decreased by $6.1 the number of receiverships under management increased billion (23 percent) in 2011. The following chart shows the by 27 percent, due to the increase in failure activity. The beginning and ending balances of these assets by following chart shows overall receivership activity for the asset type. FDIC in 2011. Assets in Inventory by Asset Type Receivership Activity Dollars in Millions Active Receiverships as of 01/01/11* Assets in Inventory 01/01/11 Assets in Inventory 12/31/11 $2,376 $1,225 56 31 Commercial Loans 1,029 585 Real Estate Mortgages 5,683 2,208 Other Assets/Judgments 2,103 1,396 Owned Assets 2,086 1,007 881 290 12,784 14,171 $26,998 $20,913 Asset Type Securities Consumer Loans Net Investments in Subsidiaries Structured and Securitized Assets Total New Receiverships Receiverships Terminated Active Receiverships as of 12/31/11* 344 92 5 431 *Includes five FSLIC Resolution Fund receiverships. Minority and Women Outreach In 2011, the FDIC awarded 1,936 contracts. Of these, 558 contracts (29 percent) were awarded to Minority- and Women-Owned Businesses (MWOBs). The total dollar value of contracts awarded was $1.4 billion, of which $417 million (29 percent) was awarded to MWOBs, compared to 24 percent for all of 2010. In addition, engagements of Minority- and Women-Owned Law Firms (MWOLFs) were 30 percent of all engagements; total payments of $23 million to MWOLFs were 17 percent of all payments to The FDIC uses contractors extensively to manage and sell outside counsel, compared to 10 percent for all of 2010. the assets of failed institutions. Multiple improvements Policy modifications and contracting procedures have also were made to controls over contractor costs and the resulted in the following changes and/or new initiatives: quality of their deliverables, including the development of invoice review checklists, a standard contractor performance evaluation review process, and a series of peer-to-peer reviews. Receivership Management Activities 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 the final distribution of any proceeds 36 ★★The Office of Minority and Women Inclusion (OMWI) participates on contracting Technical Evaluation Panels as a voting member. ★★The FDIC entered into an MOU with the U.S. Small Business Administration to participate in their 8(a) Program in May 2011. ★★The FDIC issues some contracts on a regional basis, or allows contractors to bid on a subset of a contract, rather than requiring them to bid on the entire contract, in order to allow MWOBs and small businesses to be more competitive. management’s discussion and analysis 2011 ANNUAL REPORT In 2011, the FDIC exhibited at 18 procurement-specific issues, as well as post-bid management oversight and the trade shows to provide participants with the FDIC’s document reporting process. general contracting procedures, prime contractors’ contact information, and possible upcoming solicitations. Prime contractors are reminded of the FDIC’s emphasis on MWOB participation and are encouraged to subcontract or partner with MWOBs. The FDIC also exhibited at seven non-procurement events where contracting information was provided. In addition, the FDIC’s Legal Division was represented at trade shows where information was provided to MWOLFs about outside counsel opportunities and how to enter into cocounsel arrangements with majority firms. The FDIC piloted a Small Investor Program (SIP) in 2011 to increase MWOB participation in accordance with Section 342 of Dodd-Frank. The SIP is geared towards marketing distressed loans under the structured sales program to smaller investors, many of whom are MWOBs. The SIP offers smaller-sized asset pools than a typical multi-bank structured loan sale. For this program, a pool of loans would typically be drawn from a single receivership resulting in the loan pool being secured by collateral in a more concentrated geographical area than would be found in a traditional, nationwide or regional FDIC personnel frequently met with MWOBs and multibank structured sale. The FDIC also adjusted the MWOLFs in one-on-one meetings to discuss contracting structure of the SIP to make offerings more accessible opportunities at the FDIC. MWOBs are encouraged to to smaller investors and to increase participation while register in the FDIC’s Contractor Resource List, which maintaining a level playing field for all investors. is an online self registration system that can be accessed through the FDIC’s website by any firm interested in doing business with the FDIC. FDIC personnel use the Contractor Resource List to develop source lists for solicitations. As a result of the Asset Purchaser, Investor, and Minority In 2012, as the FDIC winds down the operations of failed institutions and liquidates residual assets, the FDIC will continue to encourage and foster diversity and the inclusion of MWOBs in its procurement activities, outside counsel engagements, and asset sales programs. Depository Institutions Outreach seminars conducted Protecting Insured Depositors in 2010, the FDIC developed an Investor Match Program The FDIC’s ability to attract healthy institutions to (IMP). The IMP was launched in September 2011 to assume deposits and purchase assets of failed banks and encourage and facilitate interaction between small savings associations at the time of failure minimizes the investors, asset managers and large investors to bring disruption to customers and allows assets to be returned sources of capital together with the expertise needed to the private sector immediately. Assets remaining to participate in structured sales transactions. Two after resolution are liquidated by the FDIC in an orderly structured transactions workshops for Minority- and manner, and the proceeds are used to pay creditors, Women-Owned Investors and Asset Managers were held including depositors whose accounts exceeded the in New York, New York and Irvine, California. insurance limit. During 2011, the FDIC paid dividends of Information was presented on how structured $12 million to depositors whose accounts exceeded the transactions are planned and conducted, including an insured limit(s). introduction and overview on the structured transactions process and bidder qualification procedures. In addition, speakers highlighted some key features of transaction documents, their experience in dealing with tax-related 37 management’s discussion and analysis Professional Liability and Financial Crimes Recoveries FDIC staff works to identify potential claims against Effective Management of Strategic Resources The FDIC recognizes that it must effectively manage directors, officers, fidelity bond insurance carriers, its human, financial, and technological resources appraisers, attorneys, accountants, mortgage loan brokers, to successfully carry out its mission and meet the title insurance companies, securities underwriters, performance goals and targets set forth in its annual securities issuers, and other professionals who may performance plan. The FDIC must align these strategic have contributed to the failure of an IDI. Once a claim resources with its mission and goals and deploy them is deemed meritorious and cost-effective to pursue, where they are most needed to enhance its operational the FDIC initiates legal action against the appropriate effectiveness and minimize potential financial risks to parties. During 2011, the FDIC recovered $240.4 million the DIF. Major accomplishments in improving the from professional liability claims/settlements. The FDIC FDIC’s operational efficiency and effectiveness during also authorized lawsuits related to 30 failed institutions 2011 follow. against 264 individuals for director and officer liability with damage claims of $5.1 billion. The FDIC also Human Capital Management authorized 19 other lawsuits for fidelity bond, liability The FDIC’s human capital management programs are insurance, attorney malpractice, appraiser malpractice, designed to recruit, develop, reward, and retain a highly and RMBS claims. There also were 189 residential skilled, cross-trained, diverse, and results-oriented mortgage malpractice and fraud lawsuits pending as of workforce. In 2011, the FDIC stepped up workforce year-end. At the end of 2011, the FDIC’s caseload included planning and development initiatives that emphasized 52 professional liability lawsuits (up from 27 at year-end hiring the additional skill sets needed to address 2010) and 1,811 open investigations (down from 2,750) at requirements of Dodd-Frank, especially as it related to year-end 2010. the oversight of systemically important financial In addition, as part of the sentencing process for those convicted of criminal wrongdoing against institutions that later failed, a court may order a defendant to pay restitution or to forfeit funds or property to the receivership. The FDIC, working in conjunction with the U.S. Department of Justice, collected $3,633,426 from criminal restitutions and forfeitures during the year. At year-end, there were 5,192 active restitution and forfeiture orders (up from 4,895 at year-end 2010). This includes 294 FSLIC Resolution Fund orders, i.e., orders inherited from the Federal Savings and Loan Insurance Corporation on August 10, 1989, and orders inherited from the Resolution Trust Corporation on January 1, 1996. institutions. Workforce planning also addressed the need to start winding down bank closure activities in the next few years, based on the decrease in the number of financial institution failures and institutions in atrisk categories. The FDIC also deployed a number of strategies to more fully engage all employees in advancing its mission. Succession Management In 2011, the FDIC expanded its education and training curriculum for employees in the business lines and support functions, and for leadership development. Additionally, classroom learning and development opportunities were supplemented and supported with the expansion of e-learning, simulations, electronic performance support systems, job aids, and tool kits to quickly facilitate work processes and overall efficiencies. The FDIC also engaged in a number of knowledge 38 management’s discussion and analysis 2011 ANNUAL REPORT management initiatives to capture lessons learned and In response to the requirements of Dodd-Frank, the FDIC best practices during the financial crisis, in support of worked with the Office of the Comptroller of the Currency future corporate readiness. (OCC), the Office of Thrift Supervision (OTS), and the The FDIC continues to expand leadership development opportunities to all employees, including newly hired employees. This curriculum takes a holistic approach, aligning leadership development with critical corporate goals and objectives, and promotes the desired corporate culture. By developing employees across the span of their careers, the FDIC builds a culture of leadership and further promotes a leadership succession strategy. The Consumer Financial Protection Bureau (CFPB) to close the OTS and transfer the OTS employees to the other agencies. In addition, certain employees from the Federal banking agencies were transferred to the CFPB. When the OTS closed on July 21, 2011, the FDIC received ninetyfive of its employees. Also, as part of the transfer under Dodd-Frank, the FDIC became the primary regulator for 61 state-chartered thrifts. final course of the new leadership curriculum, which As the numbers of failed financial institutions increased consists of five core courses, was launched in November during 2009 and 2010, the FDIC fully staffed two 2011. Four new electives were also delivered in 2011. temporary satellite offices on both the West Coast and the Additionally, the FDIC formalized its Master’s of Business Administration (MBA) program for Corporate Managers and Executive Managers, in conjunction with the University of Massachusetts. Two candidates were selected for the 2011–2014 class. Strategic Workforce Planning and Readiness The FDIC used various employment strategies in 2011 to meet the need for additional human resources resulting from the number of failed financial institutions and the volume of additional examinations. Among these strategies, the FDIC reemployed over 200 retired FDIC examiners, attorneys, resolutions and receiverships specialists, and support personnel, and hired employees of failed institutions in temporary and term positions. The FDIC also recruited mid-career examiners who had developed their skills in other organizations, recruited loan review specialists and compliance analysts from the private sector, and redeployed current FDIC employees East Coast to bring resources to bear in especially hard-hit areas. The West Coast Temporary Satellite Office opened in Irvine, California, in early spring of 2009 and as of yearend 2011 had 308 employees. The East Coast Temporary Satellite Office opened in Jacksonville, Florida, in the fall of 2009 and as of the end of 2011, had 383 employees. In January 2010, the FDIC Board authorized opening a third satellite office for the Midwest in Schaumburg, Illinois. During 2010, the office was established and, as of the end of 2011, had 255 employees. The FDIC also increased resolutions and receiverships staff in the Dallas regional office. Almost all of the employees in these new offices were hired on a nonpermanent basis to handle the temporary increase in bank-closing and asset management activities expected over the two to four years, beginning in 2009. The use of term appointments will allow the FDIC staff to return to an adjusted normal size once the crisis is over without the disruptions that reductions in permanent staff would cause. with the requisite skills from other parts of the agency. 39 management’s discussion and analysis During 2011, plans were formulated, based on projections took a proposal to the Board in December related to the of a drop in the numbers of bank failures in 2012 and organizational structure of the new Office. The Board beyond, to begin the orderly closing of the temporary subsequently approved this proposal for a small (15 staff) satellite offices, beginning with the Irvine office in organization that would work with other Divisions and January 2012. The Midwest Office is scheduled to close Offices to assess, manage and mitigate risks to the FDIC in September 2012, and the East Coast Office will close in the following major areas: no earlier than the fourth quarter of 2013. The FDIC will provide transition services to the departing temporary and term employees. In addition, a number of these employees may be hired as permanent staff to complete the FDIC’s adjusted core staffing requirements. The FDIC continued to build workforce flexibility and readiness by increasing its entry-level hiring into the Corporate Employee Program (CEP). The CEP is a multiyear development program designed to cross-train new employees in FDIC major business lines. In 2011, 130 ★★Open bank risks associated with the FDIC’s role as principal regulator of certain financial institutions and the provider of deposit insurance to all insured depository institutions. ★★Closed bank risks associated with the FDIC management of risks associated with assets in receivership, including loss share arrangements and limited liability corporations. ★★Economic and financial risks which are created for the new business line employees (1,012 hired since program FDIC and its insured institutions by changes in the inception in 2005) entered this multi-discipline program. macroeconomic and financial environment. The CEP continued to provide a foundation across the full spectrum of the FDIC’s business lines, allowing for greater flexibility to respond to changes in the financial services industry and in meeting the FDIC’s human ★★Policy and regulatory risks arising in the legislative arena and those created by FDIC’s own policy initiatives. ★★Internal structure and process risks associated with capital needs. As in years past, the program continued carrying out ongoing FDIC operations, including to provide FDIC flexibility as program participants were human resource management, internal controls, and called upon to assist with both bank examination and audit work carried out by both OIG and GAO. bank closing activities based on the skills they obtained through their program requirements and experiences. As anticipated, participants are also successfully earning activities of the FDIC as they are perceived by a range their commissioned bank examiner and resolutions and of external factors. receiverships credentials, having completed their three to four years of specialized training in field offices across the country. The FDIC had approximately 240 commissioned participants by the end of 2011. These individuals are well-prepared to lead examination and resolutions and receiverships activities on behalf of the FDIC. Corporate Risk Management In January of 2011, the FDIC Board authorized the creation of an Office of Corporate Risk Management and the recruitment of a Chief Risk Officer (CRO). That position was filled in August of 2011, and the new CRO 40 ★★Reputational risk associated with all of the The Board also approved the creation of an Enterprise Risk Committee, chaired by the CRO, to replace the existing National Risk Committee and to broaden the mandate of this high level management committee to include both external and internal risks facing the FDIC. This Committee will help enhance senior management’s focus on risk, and support the preparation of quarterly reports to the Board on the risk profile of the institution. management’s discussion and analysis 2011 ANNUAL REPORT Acting Chairman Martin J. Gruenberg, shown here accepting the awards for the first-place ranking and most improved agency on the list of Best Places to Work in the Federal Government®, with (from left) Arleas Upton Kea, Ira Kitmacher, Pamela Mergen, and Nancy Hughes. Employee Engagement Employee Learning and Development The FDIC continually evaluates its human capital The FDIC has a strong commitment to the learning programs and strategies to ensure that it remains an and development of all employees that is embedded in employer of choice and that all of its employees are its core values. Through its learning and development fully engaged and aligned with the mission. The FDIC programs, the FDIC creates opportunity, enriches career uses the Federal Employee Viewpoint Survey mandated development, and grows employees and future leaders. by Congress to solicit information from employees. A New employees can more quickly and thoroughly corporate Culture Change Initiative was instituted in 2008 assume their job functions and assist with examination to address issues resulting from the 2007 survey. and resolution activities through the use of innovative The Culture Change Initiative has continued to gain momentum, and significant progress is being made toward completing the goals identified in the Culture Change Strategic Plan. As evidenced of the progress learning solutions. To prepare new and existing employees for the challenges ahead, the FDIC has streamlined existing courses, promoted blended learning, and created online, just-in-time toolkits and job aids. made under the Culture Change Initiative, the FDIC was In support of business requirements, the FDIC provided recognized in the 2011 “Best Places to Work” rankings as its examiners with several new learning and development being the most improved federal agency and the overall opportunities. “High Stakes Communication: number one best place to work in the Federal government, Communicating with Resilience in Tough Situations,” based on the results of the 2010 Federal Employee was created to provide examiners with strategies and Viewpoint Survey. examples to enhance their skills in communicating with bank management during board and exit meetings. The video-based course was delivered to all examiners in 2011. The FDIC also increased the length of two of its core 41 management’s discussion and analysis examiner schools, Loan Analysis School and Compliance Management School, to provide more content, instructor Information Technology Management In today’s rapidly changing business environment, feedback, and practice time for application. In addition technology is frequently the foundation for achieving to developing new training, the FDIC anticipates a 20 many FDIC business goals, especially those addressing percent increase in organic growth for examiner training efficiency and effectiveness in an industry where timely in 2012. and accurate communication and data are paramount for In support of knowledge and succession management, supervising institutions, resolving institution failures, and the FDIC is focused on capturing, maintaining, and documenting best practices and lessons learned from bank closing activity over the past two years. Capturing this information now is strategically important to ensure corporate readiness, while at the same time maintaining effectiveness as experienced employees retire and the temporary positions created to support the closing activity expire. The FDIC maintains its commitment to establish and maintain an effective solution to capture, maintain, and document best practices to help identify and develop future training and learning opportunities. In 2011, the FDIC provided its employees with approximately 170 instructor-led courses and 1,100 webbased courses to support various mission requirements. Approximately 12,000 instructor-led courses and 17,200 web-based courses were completed. monitoring associated risks in the marketplace. Strengthening the FDIC’s Privacy Program The FDIC has a well-established Privacy Program that works to maintain privacy awareness and promote transparency and public trust. Privacy and the protection of Sensitive Information (SI), such as personally identifiable information (PII), are integral to accomplishing the mission of the FDIC in both the banking industry and among U.S. consumers. The Privacy Program is a critical part of the FDIC’s business operations. In response to the surge in bank closings associated with the crisis, the FDIC completed the third of three in-depth assessments of the bank closing process to identify and address risks to the privacy and security of bank-customer SI. The recommended action items stemming from In 2011, the FDIC received two prestigious awards the third assessment will be incorporated into FDIC’s for its learning and development programs. The strategic objectives for 2012. In addition, during 2011, the Leadership Development Award from the Training FDIC improved the agency’s monitoring of the enterprise Officers Consortium recognized the FDIC’s network to identify at-risk privacy data and prevent the comprehensive leadership development curriculum, loss of that information, particularly Social Security which includes learning opportunities for employees at numbers. The FDIC proactively conducted unannounced all levels. The Learning Team received the Gold Award privacy assessments of headquarter offices to assess any from Human Capital Media, recognizing the FDIC’s potentially unsecured SI. These walk-throughs were excellence in the design and delivery of employee instrumental in improving employee and management development programs, including both technical awareness regarding proper privacy safeguards in the training and leadership development. workplace. Further, the FDIC initiated an annual review of the agency’s digital library to identify, monitor, reduce, and secure documents containing sensitive data. 42 management’s discussion and analysis 2011 ANNUAL REPORT As with information security, the banking crisis has Establishing a Business Intelligence Service Center resulted in an increased reliance on third-party vendors The recent financial crisis has magnified the FDIC’s need that process significant amounts of SI in support of bank to collect, validate, aggregate, and analyze data from closings. To ensure this PII is protected in accord with internal and external sources, and to securely share this the FDIC’s privacy requirements, the agency performed information via reports and dashboards with authorized vendor assessments of their controls over this sensitive cross-organizational decision makers. As a result, the information. In addition, the FDIC held its annual Privacy FDIC established a Business Intelligence Service Center Clean-up Day for employees and contractors to reduce (BISC) to provide expert technical advice and assistance to the volume of sensitive information held by the agency line of business users in the acquisition, management, and and therefore reduce the risk to internal and external analysis of data from internal and external sources; deliver individuals, and the FDIC. The FDIC also conducted Business Intelligence (BI) technical solutions, contribute an in-depth review of the FDIC’s thirty-two Privacy Act to the enterprise data architecture, and facilitate corporate System of Record Notices (SORNs) and provided the information sharing and management strategy. Since the results to the FDIC Board of Directors. BISC group was established in early 2011, the demand for BI project support has increased. Projects being conducted IT Support for Regulatory Reform by the FDIC include Strategic Workforce Planning, Large The FDIC established a program designed to identify Complex Financial Institutions Liquidity Monitoring IT-related tasks needed to support the implementation and Reporting, Qualified Financial Contracts Analysis, of the requirements of Dodd-Frank. As of October 20, Limited Liability Corporation Data Management, and 2011, twenty IT-related initiatives supporting Dodd-Frank Risk Share Assessment Management (the Chairman’s requirements had been approved by the related IT Steering Dashboard). The BISC team also provides primary Committee. Of the approved projects, thirteen have been technical support for multiple corporate BI tools that completed and two are in progress. Additional projects support the Executive Resource Information Portal and have been identified for 2012 and are being considered the Office of Complex Financial Institution’s Liquidity under the normal budgeting process. Monitoring and Reporting. 43 financial highlights 2011 ANNUAL REPORT 2. financial highlights Deposit Insurance Fund Performance T he 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 The provision for insurance losses was negative $4.4 billion for 2011, compared to negative $848 million for 2010. The negative provision for 2011 primarily resulted from a reduction in the contingent loss reserve due to the improvement in the financial condition of institutions that were previously identified to fail, and a reduction in the estimated losses for institutions that have failed in DIF. (See the accompanying graphs on FDIC-Insured prior years. Deposits and Insurance Fund Reserve Ratios on the The DIF’s total liquidity declined by $3.8 billion, or 8 following page.) percent, to $42.4 billion during 2011. The decrease was For 2011, the DIF’s comprehensive income totaled $19.2 primarily the result of disbursing $11.9 billion to fund billion compared to comprehensive income of $13.5 billion during 2010. This $5.7 billion year-over-year increase was primarily due to a $3.6 billion decrease in the provision for insurance losses and $2.6 billion in revenue from DGP fees previously held as systemic risk deferred revenue, partially offset by a year-to-date net change in the fair value of available-for-sale securities of $284 million (U.S. Treasury obligations and trust preferred securities) and a $112 million decrease in assessments earned. both current and prior years’ bank failures during 2011. However, it should be noted that 58 of the 92 current year failures were resolved as cash-conserving sharedloss transactions requiring substantially lower initial resolution payments thus helping to mitigate the decline in DIF’s liquidity balance. Moreover, during 2011, the DIF received $8.9 billion in dividends and other payments from its receiverships, which helped to mitigate the DIF liquidity’s decline. 45 financial highlights Estimated DIF Insured Deposits $7,000 6,000 Dollars in Billions 5,000 4,000 3,000 2,000 1,000 0 SEP-08 DEC-08 MAR-09 JUN-09 SEP-09 DEC-09 MAR-10 JUN-10 SEP-10 DEC-10 MAR-11 JUN-11 SEP-11 DEC-11 SOURCE: Commercial Bank Call and Thrift Financial Reports Note: Beginning in the fourth quarter of 2010, estimated insured deposits include the entire balance of noninterest-bearing transaction accounts. Deposit Insurance Fund Reserve Ratios Fund Balances as a Percent of Insured Deposits 1.2 0.9 0.6 0.3 0.0 -0.3 -0.6 46 SEP-08 DEC-08 MAR-09 JUN-09 SEP-09 DEC-09 MAR-10 JUN-10 SEP-10 DEC-10 MAR-11 JUN-11 SEP-11 DEC-11 financial highlights 2011 Deposit Insurance Fund Selected Statistics Dollars in Millions For the years ended December 31 2011 2010 2009 Financial Results Revenue $16,342 $13,380 $24,706 1,625 1,593 1,271 Insurance and Other Expenses (includes provision for loss) (4,541) (1,518) 59,438 Net Income (Loss) 19,257 13,305 (36,003) Comprehensive Income (Loss) 19,179 13,510 (38,138) $11,827 $(7,352) $(20,862) Operating Expenses Insurance Fund Balance Fund as a Percentage of Insured Deposits (reserve ratio) 0.17 % (0.12) % (0.39) % Selected Statistics Total DIF-Member Institutions1 Problem Institutions Total Assets of Problem Institutions 7,357 7,657 8,012 813 884 702 $319,432 $390,017 $402,782 92 157 140 $34,923 $92,085 $169,709 426 336 179 Institution Failures Total Assets of Failed Institutions in Year2 Number of Active Failed Institution Receiverships 1 Commercial banks and savings institutions. Does not include U.S. insured branches of foreign banks. 2 Total Assets data are based upon the last call report filed by the institution prior to failure. Corporate Operating Budget The FDIC segregates its corporate operating budget and expenses into two discrete components: ongoing budget for receivership funding for the year. (The numbers above in this paragraph will not agree with the DIF and FRF financial statements due to differences in how items operations and receivership funding. The receivership are classified.) funding component represents expenses resulting from The Board of Directors approved a 2012 Corporate financial institution failures and is, therefore, largely Operating Budget of approximately $3.28 billion, driven by external forces, while the ongoing operations consisting of $1.78 billion for ongoing operations and component accounts for all other operating expenses $1.50 billion for receivership funding. The level of 2012 and tends to be more controllable and estimable. ongoing operations budget is approximately $106 million Corporate Operating expenses totaled $2.82 billion in (6.3 percent) higher than the 2011 ongoing operations 2011, including $1.55 billion in ongoing operations and budget, while the 2012 receivership funding budget is $1.27 billion in receivership funding. This represented roughly $702 million (31.9 percent) lower than the 2011 approximately 93 percent of the approved budget for receivership funding budget. Although savings in this area ongoing operations and 58 percent of the approved are being realized, the 2012 receivership funding budget 47 financial highlights allows for resources for contractor support as well as non- address these risks throughout the development process. permanent staffing for DRR, the Legal Division, and other An investment portfolio performance review is provided organizations should workload in these areas require an to the FDIC’s Board of Directors quarterly. immediate response. The FDIC undertook significant capital investments during the 2003–2011 period, the largest of which was Investment Spending the expansion of its Virginia Square office facility. Other The FDIC instituted a separate Investment Budget in projects involved the development and implementation 2003. It has a disciplined process for reviewing proposed of major IT systems. Investment spending totaled $274 new investment projects and managing the construction million during this period, peaking at $108 million in and implementation of approved projects. Proposed IT 2004. Spending for investment projects in 2011 totaled projects are carefully reviewed to ensure that they are approximately $8 million. In 2012, investment spending is consistent with the FDIC’s enterprise architecture. The project approval and monitoring processes also enable the estimated at $12 million. FDIC to be aware of risks to the major capital investment projects and facilitate appropriate, timely intervention to Investment Spending 2003–2011 Dollars in Millions $120 100 80 60 40 20 0 48 2003 2004 2005 2006 2007 2008 2009 2010 2011 performance results summary 2011 ANNUAL REPORT 3. performance results summary Summary of 2011 Performance Results by Program T he FDIC successfully achieved 38 of the 43 the successful achievement of the FDIC’s mission or annual performance targets established in its its strategic goals and objectives regarding its major 2011 Annual Performance Plan. Five targets program responsibilities. were deferred to a future date. There were no instances in which 2011 performance had a material adverse effect on Additional key accomplishments are noted below. Program Area Performance Results Insurance ★★Updated the FDIC Board of Directors on loss, income, and reserve ratio projections for the Deposit Insurance Fund at the April and October meetings. ★★Briefed the FDIC Board of Directors in April and October on progress in meeting the goals of the Restoration Plan. Based upon current fund projections, no changes to assessment rate schedules were necessary. ★★Completed reviews of the recent accuracy of the contingent loss reserves. ★★Hosted a risk management symposium, “Don’t Bet the Farm: Assessing the Boom in U.S. Farmland Prices” for agricultural lenders and other experts in agricultural finance to discuss risks associated with the escalating price of U.S. farmland during the past decade. ★★Researched and analyzed emerging risks and trends in the banking sector, financial markets, and the overall economy to identify issues affecting the banking industry and the deposit insurance fund. ★★Provided policy research and analysis to FDIC leadership in support of the implementation of financial industry regulation, as well as support for testimony and speeches. ★★Published economic and banking information and analyses through the FDIC Quarterly, FDIC Quarterly Banking Profile (QBP), FDIC State Profiles, and the Center for Financial Research Working Papers. 49 performance results summary Program Area Performance Results Insurance (continued) ★★Answered 99 percent of written inquiries from consumers and bankers about FDIC deposit insurance coverage within 14 days. ★★Operated the Electronic Deposit Insurance Estimator (EDIE), which had 277,000 user sessions in 2011. ★★Amended FDIC’s deposit insurance resource materials for consumers and bankers to reflect the changes implemented by Section 627 of Dodd-Frank repealing Federal Reserve Regulation Q by updating: XXFDIC’s EDIE to reflect the Dodd-Frank Act changes and updated the English and Spanish tutorial for EDIE, XXFDIC Overview Video on Deposit Insurance Coverage for consumers and new bank employees, and XXFDIC’s consumer and banker brochures on deposit insurance coverage. These resources are available on the FDIC’s website with the video also available on the FDIC’s YouTube channel and downloadable for multimedia applications. 50 performance results summary 2011 ANNUAL REPORT Program Area Performance Results Supervision and Consumer Protection ★★Conducted 2,734 Bank Secrecy Act examinations, including required follow-up examinations and visitations. ★★Worked with other federal banking regulators and the Basel Committee on Banking Supervision to develop proposals to strengthen capital and liquidity requirements. ★★Published the Supervisory Insights journal to contribute to and promote sound principles and best practices for bank supervision; including a Special Foreclosure Edition that discussed lessons learned from the review of foreclosure practices. ★★Among other releases, issued Financial Institution Letters (FILs) on (1) registering as a municipal advisor under the Securities and Exchange Commission’s new rule. In addition, 23 disaster relief FILs were issued; (2) supervisory guidance on the Advanced Measurement Approach; and (3) proposed guidance on stress testing for banking organizations with more than $10 billion in total consolidated assets. ★★Issued an Interim Final Rule regarding resolution plans required for IDIs with $50 billion or more in total assets. ★★Adopted a final rule on resolution plan requirements per section 165 of Dodd-Frank. ★★Began formulating resource plans for resolution of large insured depository institutions in conjunction with the other banking regulatory agencies. ★★Revised the HMDA fair lending screening procedures to provide a broader set of information in support of efforts to identify institutions with significant compliance risks. ★★Developed an award that recognized financial institutions that were instrumental in the development of bank products that provide financial services to low- and moderateincome individuals. ★★Among other releases, issued FILs providing guidance on (1) registration of residential mortgage loan originators; (2) the FDIC’s new address for filing consumer complaints; and (3) retail foreign exchange transactions. ★★Conducted a teleconference call for the industry to review and discuss the FDIC’s 2010 Overdraft Payment Program Supervisory Guidance, and participated in several industry outreach events to discuss the guidance. ★★Completed the transfer of supervisory responsibility for state-chartered thrifts on July 21, 2011. ★★Transferred ninety-five OTS employees to FDIC on July 21, 2011. ★★Issued the revised Circular 1431.1, “Preparing and Issuing Financial Institution Letters”, on March 31, 2011. ★★Completed a review of all recurring questionnaires and information requests to the industry and delivered a written report to the Office of the Chairman on June 30, 2011. Reorganized the external website so that bankers can locate Application, Notices & Filings more easily on the website as well as identify which forms can be completed through FDICconnect. The Notification of Performance of Bank Services form is scheduled to be released on FDICconnect on December 30, 2011. 51 performance results summary Program Area Performance Results Receivership Management ★★Completed on-site field work for reviews of 100 percent of the loss share and LLC agreements active as of December 31, 2010, to ensure full compliance with the terms and conditions of the agreements. Reviewed the final review reports and implemented an action plan to address the reports’ findings and recommendations for 75 percent of the loss-share reviews and 50 percent of the LLC reviews, including all reviews of agreements totaling more than $1.0 billion (gross book value). ★★Terminated at least 75 percent of new receiverships that are not subject to loss-share agreements, structured sales, or other legal impediments within three years of the date of failure. ★★Made final decisions for 82 percent of all investigated claim areas that were within 18 months of the institution’s failure date. 2011 Budget and Expenditures by Program (Excluding Investments) The FDIC budget for 2011 totaled $3.88 billion. Excluding Actual expenditures for the year totaled $2.8 billion. $213 million, or 6 percent, for Corporate General Excluding $167 million, or 6 percent, for Corporate and Administrative expenditures, budget amounts General and Administrative expenditures, actual were allocated to corporate programs as follows: $262 expenditures were allocated to programs as follows: $234 million, or 7 percent, to the Insurance program; $984 million, or 8 percent, to the Insurance program; $875 million, or 25 percent, to the Supervision and Consumer million, or 31 percent, to the Supervision and Consumer Protection program; and $2.4 billion, or 62 percent, to the Protection program; and $1.5 billion, or 55 percent, to the Receivership Management program. Receivership Management program. 2011 Budget and Expenditures (Support Allocated) Dollars in Millions $3,000 BUDGET EXPENDITURES 2,500 2,000 1,500 1,000 500 0 52 INSURANCE PROGRAM SUPERVISION AND CONSUMER PROTECTION PROGRAM RECEIVERSHIP MANAGMENT PROGRAM GENERAL AND ADMINISTRATIVE performance results summary 2011 ANNUAL REPORT Performance Results by Program and Strategic Goal 2011 Insurance Program Results Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding. # 1 2 3 Annual Performance Goal Respond promptly to all financial institution closings and related emerging issues. Indicator target Results Number of business days after an institution failure that depositors have access to insured funds either through transfer of deposits to the successor insured depository institution or depositor payout. Depositors have access to insured funds within one business day if the failure occurs on a Friday. Achieved. See pg. 35. Depositors have access to insured funds within two business days if the failure occurs on any other day of the week. Achieved. See pg. 35. Insured depositor losses resulting from a financial institution failure. There are no depositor losses on insured deposits. Achieved. See pg. 35. No appropriated funds are required to pay insured depositors. Achieved. See pg. 35. Disseminate data and analyses on issues and risks affecting the financial services industry to bankers, supervisors, the public, and other stakeholders on an ongoing basis. Scope and timeliness of information dissemination on identified or potential issues and risks. Disseminate results of research and analyses in a timely manner through regular publications, ad hoc reports, and other means. Achieved. See pg. 49. Undertake industry outreach activities to inform bankers and other stakeholders about current trends, concerns, and other available FDIC resources. Achieved. See pg. 49. Set assessment rates to restore the insurance fund reserve ratio to the statutory minimum of 1.35 percent of estimated insured deposits by September 30, 2020. Update assessment projections and recommended changes. Provide updated fund projections to the FDIC Board of Directors by June 30, 2011, and December 31, 2011. Achieved. See pg. 49. Recommend changes to deposit insurance assessment rates for the DIF to the FDIC Board as necessary. Achieved. See pg. 49. Demonstrated progress in achieving the goals of the Restoration Plan. Provide updates to the FDIC Board by June 30, 2011, and December 31, 2011. Achieved. See pg. 49. 53 performance results summary 2011 Insurance Program Results Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding. # 4 5 54 Annual Performance Goal Expand and strengthen the FDIC’s participation and leadership role in supporting robust international deposit insurance and banking systems. 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. Indicator Scope of information sharing and assistance available to international governmental bank regulatory and deposit insurance entities. Timeliness of responses to deposit insurance coverage inquiries. Initiatives to increase public awareness of deposit insurance coverage changes. target Results Undertake outreach activities to inform and train foreign bank regulators and deposit insurers. Achieved. See pgs. 18-21. Foster strong relationships with international banking regulators and associations that promote sound banking supervision and regulation, failure resolutions, and deposit insurance practices. Achieved. See pgs. 18-21. Lead the International Association of Deposit Insurers training on the methodology for assessing compliance with implementation of the Core Principles for Effective Deposit Insurance Systems. Achieved. See pg. 19. Respond within two weeks to 95 percent of written inquires from consumers and bankers about FDIC deposit insurance coverage. Achieved. See pg. 33. Conduct at least 12 telephone or inperson seminars for bankers on deposit insurance coverage. Achieved. See pg. 33. performance results summary 2011 ANNUAL REPORT 2011 Supervision and Consumer Protection Program Results Strategic Goal: FDIC-insured 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 FDICsupervised depository institutions. Percentage of required examinations conducted in accordance with statutory requirements and FDIC policy. Conduct 100 percent of required risk management examinations within the time frames prescribed by statue and FDIC policy. Achieved. See pg. 21. 2 For all institutions that are assigned a composite Uniform Financial Institutions Rating of 3, 4, or 5, conduct on-site visits within six months after implementation of a corrective program. Ensure during these visits and subsequent examinations that the institution is fulfilling the requirements of the corrective program that has been implemented and that the actions taken are effectively addressing the underlying concerns identified during the examination. Percentage of followup examinations and on-site visits of 3-, 4-, or 5-rated institutions conducted within required time frames. Conduct 100 percent of required on-site visits within six months after implementation of a corrective program. Achieved. See pg. 22. 55 performance results summary 2011 Supervision and Consumer Protection Program Results Strategic Goal: FDIC-insured institutions are safe and sound. # 3 4 56 Annual Performance Goal Indicator Target Results Complete the transfer of personnel and supervisory responsibility for statechartered thrifts from the Office of Thrift Supervision to the FDIC in accordance with approved plans and statutory requirements. Transfer of personnel and supervisory responsibility for statechartered thrifts from OTS to the FDIC. Complete the transfer of supervisory responsibility for state-chartered thrifts by July 21, 2011. Achieved. See pg. 51. Identify the OTS employees to be transferred and complete the transfer of those employees to the FDIC no later than 90 days after July 21, 2011. Achieved. See pg. 51. Assist in protecting the infrastructure of the U.S. banking system against terrorist financing, money laundering and other financial crimes. Percentage of required examinations conducted in accordance with statutory requirements and FDIC policy. Conduct 100 percent of required Bank Secrecy Act examinations within the time frames prescribed by statute and FDIC policy. Achieved. See pg. 21. performance results summary 2011 ANNUAL REPORT 2011 Supervision and Consumer Protection Program Results Strategic Goal: FDIC-insured institutions are safe and sound. # 5 6 Annual Performance Goal More closely align regulatory capital with risk and ensure that capital is maintained at prudential levels. Identify and address risks in financial institutions designated as systemically important. Indicator Target Results Implementation by the federal banking agencies of capital floors for banking organizations in accordance with the requirements of Section 171 of DFA. Complete by June 30, 2011, the final rule addressing capital floors for banking organizations. Achieved. See pg. 25. Issuance by the federal banking agencies of proposed rules to implement Basel III regulatory capital enhancements. Complete by September 30, 2011, the Basel III Notice of Proposed Rulemaking (NPR) for the new definition of capital, the July 2009 enhancements to resecuritizations risk weights, and securitization disclosures. Deferred. Complete by September 30, 2011, the Basel NPR for the new leverage ratio. Deferred. Complete by September 30, 2011, the Basel NPR for the new liquidity requirements. Deferred. Complete by December 31, 2011, the final rule on the Market Risk Amendment (includes finalizing alternatives to the use of credit ratings in accordance with DFA requirements). Deferred. Complete by September 30, 2011, the NPR for the Standardized Framework. Deferred. Establish an ongoing FDIC monitoring program for all covered financial institutions. Achieved. See pgs. 16-17. Complete rulemaking to establish (with the Board of Governors of the Federal Reserve System) criteria for resolution plans to be submitted by systemically important institutions. Achieved. See pg. 17. Establishment of institution monitoring and resolution planning programs for systemically important institutions. 57 performance results summary 2011 Supervision and Consumer Protection Program Results Strategic Goal: FDIC-insured institutions are safe and sound. # 7 Annual Performance Goal Facilitate more effective regulatory compliance so as to reduce regulatory burden on the banking industry, where appropriate, while maintaining the independence and integrity of the FDIC’s risk management and consumer compliance supervisory programs. Indicator Target Results Issuance of revised corporate directive. Issue by March 31, 2011, a revised corporate directive on the issuance of Financial Institution Letters (FILs) that includes a requirement that all FILs contain an informative section as to their applicability to smaller institutions (total assets under $1 billion). Achieved. See pg. 51. Completion of review of recurring questionnaires and information requests. Complete by June 30, 2011, a review of all recurring questionnaires and information requests to the industry and submit a report to FDIC management with recommendations on improving efficiency and ease of use, including a scheduled plan for implementing these revisions. Carry out approved recommendations in accordance with the plan. Achieved. See pg. 51. Strategic Goal: Consumers’ rights are protected and FDIC-supervised institutions invest in their communities. 8 58 Conduct on-site CRA and compliance examinations to assess compliance with applicable laws and regulations by FDICsupervised depository institutions. Percentage of examinations conducted in accordance with the time frames prescribed by FDIC policy. Conduct 100 percent of required examinations within the time frames established by FDIC policy. Achieved. See pgs. 21-22. performance results summary 2011 ANNUAL REPORT 2011 Supervision and Consumer Protection Program Results Consumers’ rights are protected institutions invest in their communities. Strategic Goal: FDIC-insured institutions are safeand andFDIC-supervised sound. # Annual Performance Goal Indicator Target Results 9 Take prompt and effective supervisory action to monitor and address problems identified during compliance examinations of FDICsupervised institutions that receive an overall 3, 4, or 5 rating for compliance with consumer protection and fair lending laws. Percentage of followup examinations or on-site visits of 3-, 4-, and 5-rated institutions conducted within required time frames. For all institutions that are assigned a compliance rating of 3, 4, or 5, conduct follow-up examinations or on-site visits within 12 months to ensure that each institution is fulfilling the requirements of any corrective programs that have been implemented and that the actions taken are effectively addressing the underlying concerns identified during the examination. Achieved. See pg. 22. 10 Complete the transfer of personnel and supervisory responsibility for compliance examinations of FDIC supervised institutions with more than $10 billion in assets and their affiliates from the FDIC to the new Consumer Financial Protection Bureau (CFPB) in accordance with statutory requirements. Transfer from the FDIC to the CFPB of personnel and supervisory responsibility for FDIC-supervised institutions with more than $10 billion in assets and their affiliates. Complete by July 21, 2011, the transfer of supervisory responsibility from the FDIC to the CFPB. Achieved. See pg. 33. Effectively investigate and respond to written consumer complaints and inquiries about FDIC-supervised financial institutions. Timely responses to written consumer complaints and inquiries. Respond to 95 percent of written consumer complaints and inquiries within time frames established by policy, with all complaints and inquiries receiving at least an initial acknowledgement within two weeks. 11 Identify the FDIC employees to be transferred to the CFPB and transfer them in accordance with established time frames. Achieved. See pg. 33. Achieved. See pg. 33. 59 performance results summary 2011 Supervision and Consumer Protection Program Results Strategic Goal: Consumers’ are protected institutions invest in their communities. FDIC-insuredrights institutions are safeand andFDIC-supervised sound. # 12 60 Annual Performance Goal Establish, in consultation with the FDIC’s Advisory Committee on Economic Inclusion and other regulatory agencies, national objectives and methods for reducing the number of unbanked and underbanked individuals. Indicator Completion of initiatives to facilitate progress in improving the engagement of low- and moderateincome individuals with mainstream financial institutions. Target Results Launch the FDIC Model Safe Accounts Pilot, begin data collection on the accounts from banks, and start reporting on results of the pilot. Achieved. See pg. 28. Continue to promote the results of the FDIC Small-Dollar Loan Pilot, and research opportunities for bringing small-dollar lending programs to scale, including exploring a test of employer-based lending using the federal workforce. Achieved. See pg. 28. Engage in efforts to support safe mortgage lending in low- and moderateincome communities. Achieved. See pg. 28. performance results summary 2011 ANNUAL REPORT 2011 Receivership Management Program Results Strategic Goal: Resolutions are orderly and receiverships are managed effectively. # Annual Performance Goal Indicator Target Results 1 Market failing institutions to all known qualified and interested potential bidders. Scope of qualified and interested bidders solicited. Contact all known qualified and interested bidders. Achieved. See pg. 35. 2 Value, manage, and market assets of failed institutions and their subsidiaries in a timely manner to maximize net return. Percentage of the assets marketed for each failed institution. For at least 95 percent of insured institution failures, market at least 90 percent of the book value of the institution’s marketable assets within 90 days of the failure date (for cash sales) or 120 days of the failure date (for structured sales). Achieved. See pg. 35. 3 Manage the receivership estate and its subsidiaries toward an orderly termination. Timely termination of new receiverships. Terminate at least 75 percent of new receiverships that are not subject to loss share agreements, structured sales, or other legal impediments within three years of the date of failure. Achieved. See pg. 52. 4 Complete reviews of all loss share and Limited Liability Corporation (LLC) agreements to ensure full compliance with the terms and conditions of the agreements. Percentage of reviews of loss share and LLC agreements completed and action plans implemented. Complete on-site field work for reviews of 100 percent of the loss share and LLC agreements active as of December 31, 2010, to ensure full compliance with the terms and conditions of the agreements. Achieved. See pg. 52. Review the final report and implement an action plan to address the report’s finding and recommendations for 75 percent of the loss share reviews and 50 percent of the LLC reviews, including all reviews of agreements totaling more than $1.0 billion (gross book value). Achieved. See pg. 52. 61 performance results summary 2011 Receivership Management Program Results Strategic Goal: Resolutions are orderly and receiverships are managed effectively. # 5 62 Annual Performance Goal Conduct investigations into all potential professional liability claim areas for 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. Indicator Percentage of investigated claim areas for which a decision has been made to close or pursue the claim. Target For 80 percent of all claim areas, make a decision to close or pursue professional liability claims within 18 months of the failure of an insured depository institution. Results Achieved. See pg. 52. performance results summary 2011 ANNUAL REPORT Prior Years’ Performance Results Refer to the respective full Annual Report of prior years for more information on performance results for those years. Minor wording changes may have been made to reflect current goals and targets. (Shaded areas indicate no such target existed for that respective year.) Insurance Program Results Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding. Annual Performance Goals and Targets 2010 2009 2008 1. Respond promptly to all financial institution closings and related emerging issues. Depositors have access to insured funds within one business day if the failure occurs on a Friday. Achieved. Achieved. Achieved. Depositors have access to insured funds within two business days if the failure occurs on any other day of the week. Achieved. Achieved. Achieved. Complete rulemaking/review comments received in response to the Advance Notice of Proposed Rulemaking on Large-Bank Deposit Insurance Determination Modernization. Achieved. There are no depositor losses on insured deposits. Achieved. Achieved. Achieved. No appropriated funds are required to pay insured depositors. Achieved. Achieved. Achieved. 2. Identify and address risks to the Deposit Insurance Fund (DIF). Assess the insurance risks in large (all for 2008-2009) insured depository institutions and adopt appropriate strategies. Achieved. Achieved. Identify and follow up on all material issues raised through off-site review and analysis. Achieved. Achieved. Identify and analyze existing and emerging areas of risk, including non-traditional and subprime mortgage lending, declines in housing market values, mortgagerelated derivatives/collateralized debt obligations (CDOs), hedge fund ownership of insured institutions, commercial real estate lending, international risk, and other financial innovations. Achieved. Achieved. Address potential risks from cross-border banking instability through coordinated review of critical issues and, where appropriate, negotiate agreements with key authorities. Achieved. 3. Disseminate data and analyses on issues and risks affecting the financial services industry to bankers, supervisors, the public, and other stakeholders. Disseminate results of research and analyses in a timely manner through regular publications, ad hoc reports, and other means. Achieved. Achieved. Achieved. Industry outreach activities are undertaken to inform bankers and other stakeholders about current trends, concerns, and other available FDIC resources. Achieved. Achieved. Achieved. 63 performance results summary Insurance Program Results Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding. Annual Performance Goals and Targets 2010 2009 2008 4. Effectively administer temporary financial stability programs. Provide liquidity to the banking system by guaranteeing noninterest-bearing transaction deposit account and new senior unsecured debt issued by eligible institutions under the TLGP. Achieved. Implement an orderly phase-out of new guarantees under the program when the period for issuance of new debt expires. Achieved. Substantially complete by September 30, 2009, the review of and recommendations to the Department of Treasury on CPP applications from FDIC-supervised institutions. Achieved. Expeditiously implement procedures for the LLP, including the guarantee to be provided for debt issued by Public Private Investment Funds, and provide information to financial institutions and private investors potentially interested in participating. Achieved. Expeditiously implement procedures to review the use of CPP funds, TLGP guarantees, and other resources made available under financial stability programs during examinations of participating FDIC-supervised institutions. Achieved. 5. Set assessment rates to restore the insurance fund reserve ratio to the statutory minimum of at least 1.15% of estimated insured deposits by year-end 2016, in accordance with the Amended Restoration Plan. Provide updated fund projections to the FDIC Board of Directors by June 30, 2010, and December 31, 2010. Achieved. Recommend deposit insurance assessment rates for the DIF to the FDIC Board as necessary. Achieved. Provide updates to the FDIC Board by June 30, 2010, and December 31, 2010. Achieved. 6. Maintain and improve the deposit insurance system. 64 Adopt and implement revisions to the pricing regulations that provide for greater risk differentiation among insured depository institutions reflecting both the probability of default and loss in the event of default. Achieved. Revise the guidelines and enhance the additional risk measures used to adjust assessment rates for large institutions. Achieved. Review the effectiveness of the new pricing regulations that were adopted to implement the reform legislation. Achieved. Enhance the additional risk measures used to adjust assessment rates for large institutions. Achieved. Develop a final rule on a permanent dividend system. Achieved. performance results summary 2011 ANNUAL REPORT Insurance Program Results Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding. Annual Performance Goals and Targets 2010 2009 2008 Ensure/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. Achieved. Set assessment rates to maintain the insurance fund reserve ratio between 1.15 and 1.50 percent of estimated insured deposits. Restore to 1.15 percent by year-end 2015. Achieved. Not Achieved. Monitor progress in achieving the restoration plan. Achieved. 7. 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. Conduct at least three sets of Deposit Insurance Seminar/teleconferences (per quarter in 2009) for bankers. Achieved. Achieved. Conduct outreach events and activities to support a deposit insurance education program that features the FDIC 75th anniversary theme. Achieved. Assess the feasibility of (and if feasible, define the requirements for) a consolidated Electronic Deposit Insurance Estimator (EDIE) application for bankers and consumers (to be developed in 2009). Achieved. Respond to 90 percent of inquiries from consumers and bankers about FDIC deposit insurance coverage within time frames established by policy. Achieved. Respond to 90 percent of written inquiries from consumers and bankers about FDIC deposit insurance coverage within two weeks. Achieved. Enter into deposit insurance education partnerships with consumer organizations to educate consumers. Achieved. Expand avenues for publicizing deposits insurance rules and resources to consumers through a variety of media. Achieved. 8. Expand and strengthen the FDIC’s participation and leadership role in providing technical guidance, training, consulting services, and information to international governmental banking and deposit insurance organizations; and in supporting robust international deposit insurance systems. Undertake outreach activities to inform and train foreign bank regulators and deposit insurers. Achieved. Achieved. Achieved. Foster strong relationships with international banking regulators and associations that promote sound banking supervision and regulation, failure resolutions and deposit insurance practices. Achieved. Achieved. Achieved. Develop methodology for assessing compliance with implementation of the Core Principles for Effective Deposit Insurance Systems. Achieved. 65 performance results summary Supervision and Consumer Protection Program Results Strategic Goal: FDIC-supervised institutions are safe and sound. Annual Performance Goals and Targets 2010 2009 2008 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. One hundred percent of required risk management examinations are conducted on schedule. Achieved. Achieved. Achieved. 2. Take prompt and effective supervisory action to address unresolved problems identified during the FDIC examination of FDICsupervised institutions that receive a composite Uniform Financial Institutions Rating of “3”, “4”, or “5” (problem institution). Monitor FDIC-supervised insured depository institutions’ compliance with formal and informal enforcement actions. One hundred percent of required on-site visits are conducted within six months of completion of the prior examination to confirm that the institution is fulfilling the requirements of the corrective program. Achieved. One hundred percent of follow-up examinations are conducted within 12 months of completion of the prior examination to confirm that identified problems have been corrected. Achieved. Achieved. Achieved. 3. Assist in protecting the infrastructure of the U.S. banking system against terrorist financing, money laundering and other financial crimes. One hundred percent of required Bank Secrecy Act (BSA) examinations are conducted Achieved on schedule. Achieved. Achieved. 4. More closely align regulatory capital with risk in large or multinational banks while maintaining capital at prudential levels. Develop options for refining Basel II that are responsive to lessons learned from the 2007-2008 market turmoil. Achieved. Conduct analyses of early results of the performance of new capital rules in light of recent financial turmoil as information becomes available. Achieved. Achieved. Working domestically and internationally, develop improvements to regulatory capital requirements based on the experience of the recent financial market turmoil. Achieved. 5. More closely align regulatory capital with risk and ensure that capital is maintained at prudential levels. 66 Complete by December 31, 2010, the rulemaking for implementing the Standardized Approach for an appropriate subset of U.S. banks. Deferred. Complete by December 31, 2010, the rulemaking for amending the floors for banks that calculate their risk-based capital requirements under the Advanced Approaches Capital rule to ensure capital requirements meet safety-and-soundness objectives. Not Achieved. Complete by December 31, 2010, the rulemaking for implementing revisions to the Market Risk Amendment of 1996. Deferred. performance results summary 2011 ANNUAL REPORT Supervision and Consumer Protection Program Results Strategic Goal: FDIC-supervised institutions are safe and sound. Annual Performance Goals and Targets Complete by December 31, 2010, the rulemaking for implementing revisions to regulatory capital charges for resecuritizations and asset-backed commercial paper liquidity facilities. 2010 2009 2008 Deferred. 6. More closely align regulatory capital with risk in banks not subject to Basel II capital rules while maintaining capital at prudential levels. Finalize a regulatory capital framework based on the Basel II “Standardized Approach” as an option for U.S. banks not required to use the new advanced approaches. Achieved. 7. Ensure that FDIC-supervised institutions that plan to operate under the new Basel II Capital Accord are well positioned to respond to the new capital requirements. Performed on-site examinations or off-site analyses of all FDIC-supervised banks that have indicated a possible intention to operate under Basel II to ensure that they are effectively working toward meeting required qualification standards. Not Applicable. 8. Reduce regulatory burden on the banking industry while maintaining appropriate consumer protection and safety and soundness safeguards. Complete and evaluate options for refining the current risk-focused approach used in the conduct of BSA/AML examinations to reduce the burden they impose on FDICsupervised institutions. Achieved. Strategic Goal: Consumers’ rights are protected and FDIC-supervised institutions invest in their communities. Annual Performance Goals and Targets 2010 2009 2008 1. Conduct on-site CRA and compliance examinations to assess compliance with applicable laws and regulations by FDIC-supervised depository institutions and in accordance with the FDIC’s examination frequency policy. One hundred percent of required examinations are conducted on schedule. Achieved. Achieved. Achieved. 2. Take prompt and effective supervisory action to monitor and address problems identified during compliance examinations of FDIC-supervised institutions that received an overall “3”, “4”, or “5” rating for compliance with consumer protection and fair lending laws. One hundred percent of follow-up examinations or visitations are conducted within 12 months from the date of a formal enforcement action to confirm compliance with the prescribed enforcement action. Achieved. Not Achieved. Achieved. 67 performance results summary Supervision and Consumer Protection Program Results Strategic Goal: FDIC-supervised institutions are safe and sound. Annual Performance Goals and Targets 2010 2009 2008 3. Determine the need for changes in current FDIC practices for following up on significant violations of consumer compliance laws and regulations identified during examinations of banks for compliance with consumer protection and fair lending laws. Complete a review of the effectiveness of the 2007 instructions issued on the handling of repeat instances of significant violations identified during compliance examinations. Achieved. 4. Scrutinize evolving consumer products, analyze their current or potential impact on consumers and identify potentially harmful or illegal practices. Promptly institute a supervisory response program across FDIC-supervised institutions when such practices are identified. Proactively identify and respond to harmful or illegal practices associated with evolving consumer products. Achieved. Achieved. Develop and implement new supervisory response programs across all FDICsupervised institutions to address potential risks posed by new consumer products. Achieved. 5. Provide effective outreach related to the CRA, fair lending, and community development. Conduct 50 in 2009 (125 in prior years) technical assistance (examination support) efforts or banker/community outreach activities related to CRA, fair lending, and community development. Achieved. Achieved. Evaluate the Money Smart initiative and curricula for necessary updates and enhancements, such as games for young people, information on elder financial abuse, and additional language versions, if needed. Achieved. Initiate the longitudinal survey project to measure the effectiveness of the Money Smart for Young Adults curriculum. Achieved. Release a “Young Adult” version of the Money Smart curriculum. Achieved. Distribute at least 10,000 copies of the “Young Adult” version of Money Smart. Achieved. Analysis of survey results is disseminated within six months of completion of the survey through regular publications, ad hoc reports, and other means. Achieved. Provide technical assistance, support, and consumer outreach activities in all six FDIC regions to at least eight local NeighborWorks® America affiliates or local coalitions that are providing foreclosure mitigation counseling in high need areas. 68 Achieved. Achieved. performance results summary 2011 ANNUAL REPORT Supervision and Consumer Protection Program Results Strategic Goal: FDIC-supervised institutions are safe and sound. Annual Performance Goals and Targets 2010 2009 2008 6. Continue to expand the FDIC’s national leadership role in development and implementation of programs and strategies to encourage and promote broader economic inclusion within the nation’s banking system. Expand the number of AEI coalitions by two. Achieved. Analyze quarterly data submitted by participating institutions to identify early trends and potential best practices. Achieved. Achieved. Open 27,000 new bank accounts. Achieved. Initiate new small-dollar loan products in 32 financial institutions. Achieved. Initiate remittance products in 32 financial institutions. Achieved. Reach 18,000 consumers through financial education initiatives. Achieved. 7. Educate consumers about their rights and responsibilities under consumer protection laws and regulations. Expand the use of media, such as the Internet, videos, and MP3 downloads, to disseminate information to the public on their rights and responsibilities as consumers. Achieved. 8. Effectively investigate and respond to written consumer complaints and inquiries about FDIC-supervised financial institutions. Responses are provided to 95 percent (90 percent for 2008) of written complaints and inquiries within time frames established by policy, with all complaints and inquiries receiving at least an initial acknowledgment within two weeks. Achieved. Achieved. Achieved. 9. Establish, in consultation with the FDIC’s Advisory Committee on Economic Inclusion and other regulatory agencies, national objectives and methods for reducing the number of unbanked and underbanked individuals. Facilitate completion of final recommendation on the initiatives identified in the Advisory Committee’s strategic plan. Achieved. Implement, or establish plans to implement, Advisory Committee recommendations approved by the FDIC for further action, including new research, demonstration and pilot projects, and new and revised supervisory and public policies. Achieved. 69 performance results summary Receivership Management Program Results Strategic Goal: Recovery to creditors of receiverships is achieved. Annual Performance Goals and Targets 2010 2009 2008 1. Market failing institutions to all known qualified and interested potential bidders. Contact all known qualified and interested bidders. Achieved. Achieved. Achieved. 2. Value, manage, and market assets of failed institutions and their subsidiaries in a timely manner to maximize net return. Ninety percent of the book value of a failed institution’s marketable assets is marketed within 90 days of failure. Achieved. Achieved. For at least 95 percent of insured institution failures, market at least 90 percent of the book value of the institution’s marketable assets within 90 days of the failure date (for cash sales) or 120 days of the failure date (for structured sales). Achieved. Implement enhanced reporting capabilities from the Automated Procurement System. Achieved. Ensure that all newly designated oversight managers and technical monitors receive training in advance of performing contract administration responsibilities. Achieved. Optimize the effectiveness of oversight managers and technical monitors by restructuring work assignments, providing enhanced technical support, and improving supervision. Achieved. Identify and implement program improvements to ensure efficient and effective management of the contract resources used to perform receivership management functions. Achieved. 3. Manage the receivership estate and its subsidiaries toward an orderly termination. Terminate all receiverships within 90 days of the resolution of all impediments. Terminate within three years of the date of failure, at least 75 percent of new receiverships that are not subject to loss-share agreements, structured sales, or other legal impediments. Achieved. Achieved. Achieved. 4. Conduct investigations into all potential professional liability claim areas for 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. For 80 percent of all claim areas, a decision is made to close or pursue claims within 18 months of the failure date. 70 Achieved. Achieved. Achieved. financial statements and notes 2011 ANNUAL REPORT 4. financial statements and notes 71 Financial statements and notes Deposit Insurance Fund (DIF) Federal Deposit Insurance Corporation Deposit Insurance Fund Balance Sheet at December 31 Dollars in Thousands 2011 2010 Assets Cash and cash equivalents Cash and investments - restricted - systemic risk (Note 16) (Includes cash/cash equivalents of $1,627,073 at December 31, 2011 and $5,030,369 at December 31, 2010) Investment in U.S. Treasury obligations, net (Note 3) Trust preferred securities (Note 5) Assessments receivable, net (Note 9) $3,277,839 $27,076,606 4,827,319 6,646,968 33,863,245 12,371,268 2,213,231 2,297,818 282,247 217,893 1,948,151 2,269,422 488,179 259,683 28,548,396 29,532,545 401,915 416,065 $75,850,522 $81,088,268 $374,164 $514,287 Unearned revenue - prepaid assessments (Note 9) 17,399,828 30,057,033 Liabilities due to resolutions (Note 7) 32,790,512 30,511,877 117,027 29,334 6,639,954 9,054,541 187,968 165,874 6,511,321 17,687,569 Systemic risk (Note 16) 2,216 119,993 Litigation losses (Note 8) 1,000 300,000 64,023,990 88,440,508 11,560,990 (7,696,428) Receivables and other assets - systemic risk (Note 16) Interest receivable on investments and other assets, net Receivables from resolutions, net (Note 4) Property and equipment, net (Note 6) Total Assets Liabilities Accounts payable and other liabilities Debt Guarantee Program liabilities - systemic risk (Note 16) Deferred revenue - systemic risk (Note 16) Postretirement benefit liability (Note 13) Contingent liabilities for: Anticipated failure of insured institutions (Note 8) Total Liabilities Commitments and off-balance-sheet exposure (Note 14) Fund Balance Accumulated Net Income (Loss) Accumulated Other Comprehensive Income Unrealized gain on U.S. Treasury investments, net (Note 3) 47,697 26,698 Unrealized postretirement benefit loss (Note 13) (33,562) (18,503) Unrealized gain on trust preferred securities (Note 5) Total Accumulated Other Comprehensive Income 251,407 335,993 265,542 344,188 11,826,532 (7,352,240) $75,850,522 $81,088,268 Total Fund Balance Total Liabilities and Fund Balance 72 The accompanying notes are an integral part of these financial statements. financial statements and notes 2011 ANNUAL REPORT Deposit Insurance Fund (DIF) Federal Deposit Insurance Corporation Deposit Insurance Fund Statement of Income and Fund Balance for the Years Ended December 31 Dollars in Thousands 2011 2010 $13,498,587 $13,610,436 127,621 204,871 Systemic risk revenue (Note 16) (131,141) (672,818) Other revenue (Note 10) 2,846,929 237,425 16,341,996 13,379,914 Operating expenses (Note 11) 1,625,351 1,592,641 Systemic risk expenses (Note 16) (131,141) (672,818) (4,413,629) (847,843) 3,996 3,050 Total Expenses and Losses (2,915,423) 75,030 Net Income 19,257,419 13,304,884 20,999 (115,429) Unrealized postretirement benefit loss (Note 13) (15,059) (15,891) Unrealized (loss) gain on trust preferred securities (Note 5) (84,587) 335,993 Revenue Assessments (Note 9) Interest on U.S. Treasury obligations Total Revenue Expenses and Losses Provision for insurance losses (Note 12) Insurance and other expenses Other Comprehensive Income Unrealized gain (loss) on U.S. Treasury investments, net Total Other Comprehensive (Loss) Income (78,647) 204,673 Comprehensive Income 19,178,772 13,509,557 Fund Balance - Beginning (7,352,240) (20,861,797) $11,826,532 $(7,352,240) Fund Balance - Ending The accompanying notes are an integral part of these financial statements. 73 Financial statements and notes Deposit Insurance Fund (DIF) Federal Deposit Insurance Corporation Deposit Insurance Fund Statement of Cash Flows for the Years Ended December 31 Dollars in Thousands 2011 2010 $19,257,419 $13,304,884 Amortization of U.S. Treasury obligations 388,895 (5,149) Treasury Inflation-Protected Securities inflation adjustment (25,307) (23,051) 77,720 68,790 Operating Activities Net Income: Adjustments to reconcile net income to net cash (used by) operating activities: Depreciation on property and equipment Loss on retirement of property and equipment 1,326 620 (4,413,629) (847,843) (15,059) (15,891) (64,354) 62,617 (227,962) (34,194) (5,802,003) (16,607,671) 321,271 1,029,397 (140,123) 240,949 22,094 20,922 (Decrease) in contingent liabilities - systemic risk (117,777) (1,289,957) (Decrease) in contingent liabilities - litigation losses (276,000) 0 Increase (Decrease) in liabilities due to resolutions 2,278,635 (4,199,849) 87,693 27,318 (Decrease) in unearned revenue - prepaid assessments (12,657,206) (12,670,068) (Decrease) Increase in deferred revenue - systemic risk (2,399,644) 1,203,936 Net Cash (Used by) Operating Activities (3,704,011) (19,734,240) 12,976,273 21,558,000 (64,896) (96,659) (36,409,429) (30,143,138) Net Cash (Used by) Investing Activities (23,498,052) (8,681,797) Net (Decrease) in Cash and Cash Equivalents (27,202,063) (28,416,037) 32,106,975 60,523,012 Unrestricted Cash and Cash Equivalents - Ending 3,277,839 27,076,606 Restricted Cash and Cash Equivalents - Ending 1,627,073 5,030,369 $4,904,912 $32,106,975 Provision for insurance losses Unrealized Loss on postretirement benefits Change in Operating Assets and Liabilities: (Increase) Decrease in assessments receivable, net (Increase) in interest receivable and other assets (Increase) in receivables from resolutions Decrease in receivables - systemic risk (Decrease) Increase in accounts payable and other liabilities Increase in postretirement benefit liability Increase in Debt Guarantee Program liabilities - systemic risk Investing Activities Provided by: Maturity of U.S. Treasury obligations Used by: Purchase of property and equipment Purchase of U.S. Treasury obligations Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending 74 The accompanying notes are an integral part of these financial statements. financial statements and notes 2011 ANNUAL REPORT Notes to the Financial Statements Deposit Insurance Fund December 31, 2011 and 2010 1. Legislation and Operations of the Deposit Insurance Fund Overview triggered by the Secretary of the Treasury, in consultation with the President, and upon the written recommendation of two-thirds of both the FDIC Board of Directors and the Board of Governors of the Federal Reserve System. The Federal Deposit Insurance Corporation (FDIC) Until passage of the Dodd-Frank Wall Street Reform and is the independent deposit insurance agency created Consumer Protection Act (Dodd-Frank Act) on July 21, by Congress in 1933 to maintain stability and public 2010 (see “Recent Legislation” below), a systemic risk confidence in the nation’s banking system. Provisions that determination would have permitted open bank assistance govern the operations of the FDIC are generally found to an individual insured depository institution (IDI). As in the Federal Deposit Insurance (FDI) Act, as amended explained below, such open bank assistance is no longer (12 U.S.C. 1811, et seq). In carrying out the purposes of available. The systemic risk provision requires the FDIC the FDI Act, the FDIC, as administrator of the Deposit to recover any related losses to the DIF through one or Insurance Fund (DIF), insures the deposits of banks and more special assessments from all IDIs and, with the savings associations (insured depository institutions). concurrence of the Secretary of the Treasury, depository In cooperation with other federal and state agencies, institution holding companies (see Note 16). the FDIC promotes the safety and soundness of insured depository institutions by identifying, monitoring and addressing risks to the DIF. Commercial banks, savings banks and savings associations (known as “thrifts”) are supervised by either the FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board. The FDIC is also the administrator of the FSLIC Resolution Fund (FRF). 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 (FSLIC) and the former Resolution Trust Corporation. The DIF The FDIC, through administration of the DIF, is and the FRF are maintained separately by the FDIC to responsible for protecting insured bank and thrift support their respective functions. depositors from loss due to institution failures. The FDIC is required by section 13 of the FDI Act to resolve troubled institutions in a manner that will result in the least possible cost to the DIF. This section permits an exception if a systemic risk determination demonstrates that compliance with the least-cost test would have serious adverse effects on economic conditions or financial stability and that any action or assistance pursued under the systemic risk determination would avoid or mitigate such adverse effects. A systemic risk determination under this statutory provision can only be Pursuant to the enactment of the Dodd-Frank Act, the FDIC is the manager of the Orderly Liquidation Fund (OLF). Established as a separate fund in the U.S. Treasury (Treasury), the OLF is inactive and unfunded until the FDIC is appointed as receiver for a covered financial company (a failing financial company, such as a bank holding company or nonbank financial company for which a systemic risk determination has been made as set forth in section 203 of the Dodd-Frank Act). At the commencement of an orderly liquidation of a covered 75 Financial statements and notes financial company, the FDIC may borrow funds required the purpose of winding up the IDI in receivership. Under by the receivership from the Treasury, up to the Maximum Title XI of the Dodd-Frank Act, the FDIC is granted Obligation Limitation for each covered financial new authority to establish a widely available program company and in accordance with an Orderly Liquidation to guarantee obligations of solvent IDIs or solvent and Repayment Plan. Borrowings will be repaid to the depository institution holding companies (including Treasury with the proceeds of asset sales. If such proceeds affiliates) upon the systemic determination of a liquidity are insufficient, any remaining shortfall must be recovered event during times of severe economic distress. This from assessments imposed on financial companies as program would not be funded by the DIF but rather specified in the Dodd-Frank Act. by fees and assessments paid by all participants in Recent Legislation expenses, the FDIC must impose a special assessment on The Dodd-Frank Act (Public Law 111-203) provides participants as necessary to cover the shortfall. Any excess comprehensive reform of the supervision and regulation funds at the end of the liquidity event program would be of the financial services industry. Under this legislation, deposited in the General Fund of the Treasury. the FDIC’s responsibilities include 1) liquidating failing systemically important financial firms in an orderly manner as manager of the newly created OLF; 2) issuing regulations, jointly with the Federal Reserve Board (FRB), requiring that nonbank financial companies supervised by the FRB and bank holding companies with assets equal to or exceeding $50 billion provide the FRB, the FDIC, and the Financial Stability Oversight Council (FSOC) a plan for their rapid and orderly resolution in the event of material financial distress or failure; 3) serving as a voting member of the FSOC; 4) undertaking backup examination authority for nonbank financial companies supervised by the FRB and bank holding companies with at least $50 billion in assets; 5) bringing backup enforcement actions against depository institution holding companies if their conduct or threatened conduct poses a risk of loss to the DIF; and 6) providing federal oversight of state-chartered thrifts, beginning upon the transfer of such authority The Dodd-Frank Act also made changes related to the FDIC’s deposit insurance mandate. These changes include a permanent increase in the standard deposit insurance amount to $250,000 (retroactive to January 1, 2008) and unlimited deposit insurance coverage for noninterestbearing transaction accounts for two years, from December 31, 2010, to the end of 2012. Additionally, the legislation changed the assessment base from a depositsbased formula to one based on assets and established new reserve ratio requirements (see Note 9). Operations of the DIF The primary purposes of the DIF are to 1) insure the deposits and protect the depositors of IDIs and 2) resolve failed IDIs upon appointment of the FDIC as receiver, in a manner that will result in the least possible cost to the DIF (unless a systemic risk determination is made). from the Office of Thrift Supervision (which occurred on The DIF is primarily funded from deposit insurance July 21, 2011). assessments. Other available funding sources, if necessary, The Dodd-Frank Act limits the systemic risk determination authority under section 13 of the FDI Act to IDIs for which the FDIC has been appointed receiver. As amended by the Dodd-Frank Act, the FDI Act now requires that any action taken or assistance provided pursuant to a systemic risk determination must be for 76 the program. If fees are insufficient to cover losses or are borrowings from the Treasury, the Federal Financing Bank (FFB), Federal Home Loan Banks, and IDIs. The FDIC has borrowing authority of $100 billion from the Treasury and a Note Purchase Agreement with the FFB, not to exceed $100 billion, to enhance the DIF’s ability to fund both deposit insurance and Temporary Liquidity Guarantee Program (TLGP) obligations. financial statements and notes 2011 ANNUAL REPORT A statutory formula, known as the Maximum Obligation accountability reports of resolution entities are Limitation (MOL), limits the amount of obligations the furnished to courts, supervisory authorities, and others DIF can incur to the sum of its cash, 90 percent of the fair upon request. market value of other assets, and the amount authorized to be borrowed from the Treasury. The MOL for the DIF Use of Estimates was $114.4 billion and $106.3 billion as of December 31, Management makes estimates and assumptions that 2011 and 2010, respectively. affect the amounts reported in the financial statements Operations of Resolution Entities and accompanying notes. Actual results could differ from these estimates. Where it is reasonably possible The FDIC is responsible for managing and disposing of that changes in estimates will cause a material change the assets of failed institutions in an orderly and efficient in the financial statements in the near term, the nature manner. The assets held by receiverships, pass-through and extent of such potential changes in estimates have conservatorships, and bridge institutions (collectively, been disclosed. The more significant estimates include resolution entities), and the claims against them, are the assessments receivable and associated revenue; accounted for separately from DIF assets and liabilities to the allowance for loss on receivables from resolutions ensure that proceeds from these entities are distributed (including shared-loss agreements); liabilities due to in accordance with applicable laws and regulations. resolutions; the estimated losses for anticipated failures, Accordingly, income and expenses attributable to litigation, and representations and warranties; guarantee resolution entities are accounted for as transactions of obligations for the TLGP and structured transactions; those entities. Resolution entities are billed by the FDIC the valuation of trust preferred securities; and the for services provided on their behalf. postretirement benefit obligation. 2. Summary of Significant Accounting Policies General These financial statements pertain to the financial position, results of operations, and cash flows of the Cash Equivalents Cash equivalents are short-term, highly liquid investments consisting primarily of U.S. Treasury Overnight Certificates. Investment in U.S. Treasury Obligations DIF and are presented in conformity with U.S. generally DIF funds are required to be invested in obligations of the accepted accounting principles (GAAP). As permitted United States or in obligations guaranteed as to principal by the Federal Accounting Standards Advisory Board’s and interest by the United States. The Secretary of the Statement of Federal Financial Accounting Standards Treasury must approve all such investments in excess of 34, The Hierarchy of Generally Accepted Accounting Principles, $100,000 and has granted the FDIC approval to invest Including the Application of Standards Issued by the Financial DIF funds only in U.S. Treasury obligations that are Accounting Standards Board, the FDIC prepares financial purchased or sold exclusively through the Bureau of the statements in conformity with standards promulgated Public Debt’s Government Account Series program. by the Financial Accounting Standards Board (FASB). These statements do not include reporting for assets and liabilities of resolution entities because these entities are legally separate and distinct, and the DIF does not have any ownership interests in them. Periodic and final The DIF’s investments in U.S. Treasury obligations are classified as available-for-sale. Securities designated as available-for-sale are shown at fair value. Unrealized gains and losses are reported as other comprehensive income. Realized gains and losses are included in the Statement of 77 Financial statements and notes Income and Fund Balance as components of net income. (VIEs). The FDIC conducts a qualitative assessment of Income on securities is calculated and recorded on a daily its relationship with each VIE as required by Accounting basis using the effective interest or straight-line method Standards Codification (ASC) Topic 810, Consolidation, depending on the maturity of the security. modified by Accounting Standards Update (ASU) No. Revenue Recognition for Assessments 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. These assessments Assessment revenue is recognized for the quarterly period are conducted to determine if the FDIC in its corporate of insurance coverage based on an estimate. The estimate capacity has 1) power to direct the activities that most is derived from an institution’s risk-based assessment rate significantly impact the economic performance of the and assessment base for the prior quarter adjusted for VIE and 2) an obligation to absorb losses of the VIE or the current quarter’s available assessment credits, certain the right to receive benefits from the VIE that could changes in supervisory examination ratings for larger potentially be significant to the VIE. When a variable institutions, and a modest assessment base growth factor. interest holder has met both of these characteristics, At the subsequent quarter-end, the estimated revenue the enterprise is considered the primary beneficiary amounts are adjusted when actual assessments for the and must consolidate the VIE. In accordance with the covered period are determined for each institution provisions of ASC 810, an assessment of the terms of the (see Note 9). legal agreement for each VIE was conducted to determine whether any of the terms had been activated or modified 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 useful 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 useful life. Reporting on Variable Interest Entities 78 in a manner which would cause the FDIC in its corporate capacity to be characterized as a primary beneficiary. In making that determination, consideration was given to which, if any, activities were significant to each VIE. Often, the right to service collateral, to liquidate collateral, or to unilaterally dissolve the limited liability company (LLC) or trust was determined to be the most significant activity. In other cases, it was determined that the structured transactions did not include such significant activities and that the design of the entity was the best indicator of which party was the primary beneficiary. The results of each analysis identified a party other than the FDIC in its corporate capacity as the primary beneficiary. The conclusion of these analyses was that the FDIC in FDIC receiverships engaged in structured transactions, its corporate capacity has not engaged in any activity some of which resulted in the issuance of note obligations that would cause the FDIC in its corporate capacity to that were guaranteed by the FDIC in its corporate capacity be characterized as a primary beneficiary to any VIE with (see Note 8, Contingent Liabilities for: FDIC Guaranteed which it was involved at December 31, 2011 and 2010. Debt of Structured Transactions). As the guarantor of Therefore, consolidation is not required for the 2011 and note obligations for several structured transactions, 2010 DIF financial statements. In the future, the FDIC in the FDIC in its corporate capacity is the holder of a its corporate capacity may become the primary beneficiary variable interest in a number of variable interest entities upon the activation of provisional contract rights that financial statements and notes 2011 ANNUAL REPORT extend to the Corporation if payments are made on guarantee claims. Ongoing analyses will be required in order to monitor consolidation implications under ASC 810. 3. Investment in U.S. Treasury Obligations, Net As of December 31, 2011 and 2010, investments in U.S. Treasury obligations, net, were $33.9 billion and $12.4 billion, respectively. As of December 31, 2011 and 2010, The FDIC’s involvement with VIEs, in its corporate the DIF held $5.0 billion and $2.0 billion, respectively, of capacity, is fully described in Note 8. Treasury Inflation-Protected Securities (TIPS), which are indexed to increases or decreases in the Consumer Price Related Parties Index for All Urban Consumers (CPI-U). The nature of related parties and a description of relatedparty transactions are discussed in Note 1 and disclosed throughout the financial statements and footnotes. Disclosure about Recent Relevant Accounting Pronouncements Recent accounting pronouncements have been deemed to be not applicable or material to the financial statements as presented. Reclassification Reclassifications have been made in 2010 financial statements to conform to the presentation used in 2011. 79 Financial statements and notes Total Investment in U.S. Treasury Obligations, Net at December 31, 2011 Dollars in Thousands Maturity yield at purchasea face value Net Carrying Amount unrealized holding gains unrealized holding losses fair value U.S. Treasury notes and bonds Within 1 year 0.27% $24,500,000b $24,889,547 $17,842 $(93) $24,907,296 After 1 year through 5 years 0.93% 3,900,000 3,923,428 38,778 0 3,962,206 1,200,000 1,537,664 659 (8) 1,538,315 U.S. Treasury Inflation-Protected Securities Within 1 year 0.51% After 1 year through 5 years -0.92% Total 3,050,000 3,464,909 0 (9,481) 3,455,428 $32,650,000 $33,815,548 $57,279 $(9,582)c $33,863,245 (a) 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 1.8 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2011. (b) Includes one Treasury note totaling $1.8 billion which matured on Saturday, December 31, 2011. Settlement occurred on the next business day, January 3, 2012. (c) All unrealized losses occurred as a result of temporary changes in market interest rates. These unrealized losses occurred over a period of less than a year. Unrealized losses related to the TIPS have converted to unrealized gains by January 31, 2012, and unrealized losses related to the U.S. Treasury notes and bonds existed on just one security that matured with no unrealized loss on January 31, 2012, and thus the FDIC does not consider these securities to be other than temporarily impaired at December 31, 2011. Total Investment in U.S. Treasury Obligations, Net at December 31, 2010 Dollars in Thousands Maturity yield at purchasea face value Net Carrying Amount unrealized holding gains unrealized holding losses fair value $3,000,000 $3,052,503 $2,048 $(31) $3,054,520 U.S. Treasury notes and bonds Within 1 year 0.73% U.S. Treasury Inflation-Protected Securities Within 1 year 3.47% 1,375,955 1,375,967 1,391 0 1,377,358 After 1 year through 5 years 2.41% 615,840 621,412 22,381 0 643,793 0.19% 7,300,000 7,294,688 909 0 7,295,597 $12,291,795 $12,344,570 $26,729 $(31) $12,371,268 U.S. Treasury bills Within 1 year Total b (a) 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 1.8 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2010. (b) All unrealized losses occurred as a result of temporary changes in market interest rates. The unrealized loss on one security occurred over a period of less than a year and converted to an unrealized gain by January 31, 2011, and thus the FDIC does not consider the security to be other than temporarily impaired at December 31, 2010. 80 financial statements and notes 2011 ANNUAL REPORT 4. Receivables from Resolutions, Net specific asset disposition data, failed institution-specific asset valuation data, aggregate asset valuation data on Receivables from Resolutions, Net at December 31 several recently failed or troubled institutions, sampled Dollars in Thousands based on failures as far back as 1990. Methodologies asset valuation data, and empirical asset recovery data 2011 Receivables from closed banks 2010 for determining the asset recovery rates incorporate estimating future cash recoveries, net of applicable liquidation cost estimates, and discounting based on $121,369,428 $115,896,763 Allowance for losses (92,821,032) (86,364,218) type and quality. The resulting estimated cash recoveries Total $28,548,396 $29,532,545 are then used to derive the allowance for loss on the market-based risk factors applicable to a given asset’s receivables from these resolutions. The receivables from resolutions include payments made For failed institutions resolved using a whole bank by the DIF to cover obligations to insured depositors purchase and assumption transaction with an (subrogated claims), advances to resolution entities for accompanying SLA, the projected future shared-loss working capital, and administrative expenses paid on payments, recoveries, and monitoring costs on the behalf of resolution entities. Any related allowance for covered assets sold to the acquiring institution under the loss represents the difference between the funds advanced agreement are considered in determining the allowance and/or obligations incurred and the expected repayment. for loss on the receivables from these resolutions. The Estimated future payments on losses incurred on assets shared-loss cost projections are based on the covered sold to an acquiring institution under a shared-loss assets’ intrinsic value which is determined using financial agreement (SLA) are factored into the computation of models that consider the quality, condition and type of the expected repayment. Assets held by DIF resolution covered assets, current and future market conditions, entities (including structured transaction-related assets; risk factors and estimated asset holding periods. For see Note 8) are the main source of repayment of the DIF’s year-end 2011 financial reporting, the shared-loss cost receivables from resolutions. estimates were updated for the majority (85% or 235) of As of December 31, 2011, there were 426 active receiverships, including 92 established in 2011. As of December 31, 2011 and 2010, DIF resolution entities held assets with a book value of $71.4 billion and $80.4 billion, respectively (including $50.5 billion and $53.4 billion, respectively of cash, investments, receivables due from the DIF, and other receivables). Ninety-nine percent of the current asset book value of $71.4 billion is held by resolution entities established since 2008. Estimated cash recoveries from the management and the 278 active shared-loss agreements; the remaining 43 were already based on recent loss estimates. The updated shared-loss cost projections for the larger agreements were primarily based on new third-party valuations estimating the cumulative loss of covered assets. The remaining agreements were stratified by receivership age. A random sample of banks within each age stratum was selected for new third-party loss estimations, and valuation results from the sample banks were aggregated and extrapolated to banks within the like age stratum based on asset type and performance status. disposition of assets that are used to determine the allowance for losses are based on asset recovery rates from several sources including actual or pending institution- 81 Financial statements and notes Note that estimated asset recoveries are regularly As of December 31, 2011, 249 receiverships have made evaluated during the year, but remain subject to shared-loss payments totaling $16.2 billion. In addition, uncertainties because of potential changes in economic DIF receiverships are estimated to pay an additional and market conditions. Continuing economic amount of $26.6 billion over the duration of these SLAs uncertainties could cause the DIF’s actual recoveries to on $135.0 billion in total remaining covered assets. vary significantly from current estimates. Concentration of Credit Risk Whole Bank Purchase and Assumption Transactions with Shared-Loss Agreements Financial instruments that potentially subject the DIF Since the beginning of 2008, the FDIC resolved 281 resolutions. The repayment of the DIF’s receivables failures using whole bank purchase and assumption from resolutions is primarily influenced by recoveries resolution transactions with accompanying SLAs on on assets held by DIF receiverships and payments on the assets purchased by the financial institution acquirer. covered assets under SLAs. The majority of the $155.9 The acquirer typically assumes all of the deposits billion in remaining assets in liquidation ($20.9 billion) and purchases essentially all of the assets of a failed and current shared-loss covered assets ($135.0 billion) institution. The majority of the commercial and are concentrated in commercial loans ($83.1 billion), residential loan assets are purchased under an SLA, residential loans ($52.5 billion), securities ($3.4 billion), where the FDIC agrees to share in future losses and and structured transaction-related assets as described recoveries experienced by the acquirer on those assets in Note 8 ($14.2 billion). Most of the assets in these covered under the agreement. SLAs are used by the FDIC asset types originated from failed institutions located in to keep assets in the private sector and to minimize California ($43.7 billion), Florida ($18.1 billion), Illinois disruptions to loan customers. ($13.2 billion), Puerto Rico ($13.1 billion), Georgia ($12.8 Losses on the covered assets are shared between the to concentrations of credit risk are receivables from billion) and Alabama ($12.7 billion). acquirer and the FDIC in its receivership capacity of the failed institution when losses occur through the sale, foreclosure, loan modification, or write-down of loans in accordance with the terms of the SLA. The majority of the agreements cover a five- to 10-year period with the receiver covering 80 percent of the losses incurred by the acquirer and the acquiring bank covering 20 percent. Prior to March 26, 2010, most SLAs included a threshold amount, above which the receiver covered 95 percent of the losses incurred by the acquirer. As mentioned above, the estimated shared-loss liability is accounted for by the receiver and is included in the calculation of the DIF’s allowance for loss against the corporate receivable from the resolution. As shared-loss claims are asserted and proven, DIF receiverships satisfy these shared-loss payments using available liquidation funds and/or by drawing on amounts due from the DIF for funding the deposits assumed by the acquirer (see Note 7). 82 5. Trust Preferred Securities Pursuant to a systemic risk determination, the Treasury, the FDIC, and the Federal Reserve Bank of New York executed terms of a guarantee agreement on January 15, 2009 with Citigroup to provide loss protection on a pool of approximately $301.0 billion of assets that remained on the balance sheet of Citigroup. In consideration for its portion of the shared-loss guarantee at inception, the FDIC received $3.025 billion of Citigroup’s preferred stock. All shares of the preferred stock were subsequently converted to Citigroup Capital XXXIII trust preferred securities (TruPs) with a liquidation amount of $1,000 per security and a distribution rate of 8 percent per annum payable quarterly. The principal amount is due in 2039. financial statements and notes 2011 ANNUAL REPORT On December 23, 2009, Citigroup terminated the guarantee agreement, citing improvements in its financial condition. The FDIC incurred no loss from the guarantee prior to the termination of the agreement. In connection with the early termination of the agreement, the FDIC 6. Property and Equipment, Net Property and Equipment, Net at December 31 Dollars in Thousands 2011 2010 Land $37,352 $37,352 Buildings (including leasehold improvements) 316,129 312,173 Application software (includes work-inprocess) 130,718 122,736 Furniture, fixtures, and equipment 159,120 144,661 in TruPs to the Treasury, plus any related interest, less any Accumulated depreciation (241,404) (200,857) payments made or required to be made under the TLGP Total $401,915 $416,065 agreed to reduce its portion of the $3.025 billion in TruPs by $800 million. However, pursuant to an agreement between the Treasury and the FDIC, the Treasury agreed to return $800 million in TruPs on behalf of the FDIC from its portion of Citigroup TruPs holdings received as a result of the shared-loss agreement. The FDIC has retained the $800 million of Citigroup TruPs as security in the event payments are required to be made by the DIF for guaranteed debt instruments issued by Citigroup and its affiliates under the TLGP (see Note 16). The FDIC will transfer an aggregate liquidation amount of $800 million within five days of the date on which no Citigroup debt remains outstanding under the TLGP. The fair value of these TruPs and related interest are recorded as systemic risk assets (see Note 16). The remaining $2.225 billion (liquidation amount) of TruPs held by the FDIC is classified as available-for-sale The depreciation expense was $78 million and $69 million for 2011 and 2010, respectively. 7. Liabilities Due to Resolutions debt securities in accordance with FASB ASC Topic 320, As of December 31, 2011 and 2010, the DIF recorded Investments – Debt and Equity Securities. At December 31, liabilities totaling $32.7 billion and $30.4 billion to 2011, the fair value of the TruPs was $2.213 billion (see resolution entities representing the agreed-upon value Note 15). An unrealized holding gain of $251 million is of assets transferred from the receiverships, at the time included in accumulated other comprehensive income. of failure, to the acquirers/bridge institutions for use in funding the deposits assumed by the acquirers/bridge institutions. Ninety-one percent of these liabilities are due to failures resolved under whole-bank purchase and assumption transactions, most with an accompanying SLA. The DIF satisfies these liabilities either by directly sending cash to the receivership to fund shared-loss and other expenses or by offsetting receivables from resolutions when the receivership declares a dividend. In addition, there was $80 million in unpaid deposit claims related to multiple receiverships as of December 31, 2011 and 2010. The DIF pays these liabilities when the claims are approved. 83 Financial statements and notes 8. Contingent Liabilities for: Anticipated Failure of Insured Institutions fail. As a result of these risks, the FDIC believes that it is reasonably possible that the DIF could incur additional estimated losses of up to $10.2 billion for year-end 2011 The DIF records a contingent liability and a loss provision as compared to $24.5 billion for year-end 2010. The for DIF-insured institutions that are likely to fail, absent actual losses, if any, will largely depend on future some favorable event such as obtaining additional capital economic and market conditions and could differ or merging, when the liability is probable and reasonably materially from this estimate. 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. During 2011, 92 banks failed with combined assets at the date of failure of $36.6 billion. Supervisory and market data suggest that while the financial performance of the banking industry should continue to improve over the coming year, The banking industry continued recovering in 2011. The ongoing asset quality problems and limited opportunities industry recorded total net income of $119.5 billion for for earnings growth will continue to result in an elevated all of 2011, an increase of nearly 40 percent from 2010 net level of stress for the industry. The FDIC continues to income. The improvement in industry earnings continued evaluate the ongoing risks to affected institutions in light to be driven by declining loan loss provisions, with full- of the existing economic and financial conditions, and the year provisions at their lowest level in four years. At the extent to which such risks will continue to put stress on the same time, the pace of U.S. economic growth slowed, resources of the insurance fund. unemployment remained at historically high levels, and real estate markets exhibited ongoing weaknesses in Litigation Losses many parts of the country. These factors have slowed the The DIF records an estimated loss for unresolved legal improvement in asset quality and contributed to keeping cases to the extent that those losses are considered the number of problem institutions and failures well probable and reasonably estimable. During 2011, the above historic norms. Notwithstanding these challenges, contingent liability declined by $299 million to $1 the losses to the DIF from failures that occurred in 2011 million due primarily to a payment of $276 million for fell short of the amount reserved at the end of 2010, as the a judgment of one legal case for which an allowance was aggregate number and size of institution failures in 2011 previously recorded. As of December 31, 2011 and 2010, were less than anticipated. The removal from the reserve of the FDIC has determined that there are no reasonably banks that did fail in 2011, as well as projected favorable possible losses from unresolved cases. trends in bank supervisory downgrade and failure rates and the smaller size of institutions that remain troubled, Other Contingencies all contributed to a decline by $11.2 billion to $6.5 billion in the contingent liability for anticipated failures of IndyMac Federal Bank Representation and Indemnification Contingent Liability insured institutions at the end of 2011. On March 19, 2009, the FDIC as receiver of IndyMac In addition to these recorded contingent liabilities, the FDIC has identified risk in the financial services industry that could result in additional losses to the DIF should potentially vulnerable insured institutions ultimately 84 Federal Bank (IMFB) and certain subsidiaries (collectively, sellers) sold substantially all of the assets of IMFB and the respective subsidiaries, including mortgage loans and mortgage loan servicing rights, to OneWest Bank and its affiliates. To maximize sale returns, the sellers financial statements and notes 2011 ANNUAL REPORT made certain representations customarily made by principal balance of $62.0 billion at December 31, 2011 commercial parties regarding the assets and agreed to compared to $74.2 billion at December 31, 2010) expired indemnify the acquirers for losses incurred as a result on March 19, 2011. As of the expiration date of this claim of breaches of such representations, losses incurred as a period, notices relating to potential defects were received, result of the failure to obtain contractual counterparty but they require review to determine whether a valid defect consents to the sale, and third party claims arising from exists and, if so, the identification and costing of possible pre-sale acts and omissions of the sellers or the failed cure actions. It is highly unlikely that all of these potential bank. Although the representations and indemnifications defects will result in losses. were made by or are obligations of the sellers, the FDIC, in its corporate capacity, guaranteed the receivership’s indemnification obligations under the sale agreements. The representations relate generally to ownership of and right to sell the assets; compliance with applicable law in the origination of the loans; accuracy of the servicing records; validity of loan documents; and servicing of the loans serviced for others. Until the periods for asserting claims under these arrangements have expired and all indemnification claims quantified and paid, losses could continue to be incurred by the receivership and, in turn, As of December 31, 2011, the IndyMac receivership has paid $5 million in approved claims and has accrued an additional $2 million liability for claims asserted but unpaid. Alleged breaches of origination and servicing representations exist, and review and evaluation is in process for approximately $275 to $345 million in reasonably possible liabilities. In addition, potential losses relating to origination and servicing representations, which currently cannot be determined, may be incurred under other agreements with investors. the DIF, either directly, as a result of the FDIC corporate The FDIC believes it is likely that additional losses guaranty of the receivership’s indemnification obligations, will be incurred, however quantifying the contingent or indirectly, as a result of a reduction in the receivership’s liability associated with the representations and the assets available to pay the DIF’s claims as subrogee for indemnification obligations is subject to a number of insured accountholders. The acquirers’ rights to assert uncertainties, including (1) borrower prepayment speeds; claims to recover losses incurred as a result of breaches of (2) the occurrence of borrower defaults and resulting loan seller representations extend out to March 19, 2019 foreclosures and losses; (3) the assertion by third party for the Fannie Mae and Ginnie Mae reverse mortgage investors of claims with respect to loans serviced for them; servicing portfolios (unpaid principal balance of $16.7 (4) the existence and timing of discovery of breaches billion at December 31, 2011 compared to $21.7 billion and the assertion of claims for indemnification for at December 31, 2010), and March 19, 2014 for the losses by the acquirer; (5) the compliance by the acquirer Fannie Mae, Freddie Mac and Ginnie Mae mortgage with certain loss mitigation and other conditions to servicing portfolios (unpaid principal balance of $38.5 indemnification; (6) third party sources of loss recovery billion at December 31, 2011 compared to $45.3 billion (such as title companies and insurers); (7) the ability of the at December 31, 2010). The acquirers’ rights to assert acquirer to refute claims from investors without incurring claims to recover losses incurred as a result of other third reimbursable losses; and (8) the cost to cure breaches and party claims (including due to pre-March 19, 2009 acts respond to third party claims. Because of these and other or omissions) and breaches of servicer representations, uncertainties that surround the liability associated with including liability with respect to the Fannie Mae, Ginnie indemnifications and the quantification of possible losses, Mae and Freddie Mac portfolios as well as the private the FDIC has determined that, while additional losses are mortgage servicing portfolio and whole loans (unpaid probable, the amount is not estimable. 85 Financial statements and notes Purchase and Assumption Indemnification the DIF receives a guarantee fee in either 1) a lump-sum, In connection with purchase and assumption up-front payment based on the estimated duration of the agreements for resolutions, the FDIC in its receivership note or 2) a monthly payment based on a fixed percentage capacity generally indemnifies the purchaser of a failed multiplied by the outstanding note balance. The terms institution’s assets and liabilities in the event a third of these guarantee agreements generally stipulate that party asserts a claim against the purchaser unrelated to all cash flows received from the entity’s collateral be used the explicit assets purchased or liabilities assumed at the to pay, in the following order, 1) operational expenses time of failure. The FDIC in its corporate capacity is a of the entity, 2) the FDIC’s contractual guarantee fee, 3) secondary guarantor if a receivership is unable to pay. the guaranteed notes (or, if applicable, fund the related These indemnifications generally extend for a term of defeasance account for payoff of the notes at maturity), six years after the date of institution failure. The FDIC is and 4) the equity investors. If the FDIC is required to unable to estimate the maximum potential liability for perform under these guarantees, it acquires an interest these types of guarantees as the agreements do not specify in the cash flows of the LLC equal to the amount of a maximum amount and any payments are dependent guarantee payments made plus accrued interest thereon. upon the outcome of future contingent events, the nature Once all expenses have been paid, the guaranteed notes and likelihood of which cannot be determined at this have been satisfied, and the FDIC has been reimbursed for time. During 2011 and 2010, the FDIC in its corporate any guarantee payments, the equity holders receive any capacity made no indemnification payments under such remaining cash flows. agreements, and no amount has been accrued in the accompanying financial statements with respect to these indemnification guarantees. ownership interest in the LLC structures for $1.6 billion in cash and the LLCs issued notes of $4.4 billion to the FDIC Guaranteed Debt of Structured Transactions receiverships to partially fund the purchase of the assets. The FDIC as receiver uses three types of structured equity interest in the LLCs and, in most cases, the transactions to dispose of certain performing and non- guaranteed notes. The FDIC in its corporate capacity performing residential mortgage loans, commercial loans, guarantees the timely payment of principal and interest construction loans, and mortgage-backed securities due on the notes. The terms of the note guarantees extend held by the receiverships. The three types of structured until the earlier of 1) payment in full of the notes or 2) transactions are 1) limited liability companies (LLCs), 2) two years following the maturity date of the notes. The securitizations, and 3) structured sale of guaranteed note with the longest term matures in 2020. In the event notes (SSGNs). of note payment default, the FDIC as guarantor is entitled LLCs Under the LLC structure, the FDIC in its receivership capacity contributes a pool of assets to a newly-formed LLC and offers for sale, through a competitive bid process, some of the equity in the LLC. The day-to-day management of the LLC is transferred to the highest bidder along with the purchased equity interest. In many instances, the FDIC in its corporate capacity guarantees notes issued by the LLCs. In exchange for a guarantee, 86 Since 2009, private investors purchased a 40- to 50-percent The receiverships hold the remaining 50- to 60-percent to exercise or cause the exercise of certain rights and remedies including: 1) accelerating the payment of the unpaid principal amount of the notes; 2) selling the assets held as collateral; or 3) foreclosing on the equity interests of the debtor. financial statements and notes 2011 ANNUAL REPORT Securitizations and SSGNs of $9.7 billion. To date, the DIF has collected guarantee Securitizations and SSGNs (collectively, “trusts”) are fees totaling $203 million and recorded a receivable for transactions in which certain assets or securities from additional guarantee fees of $106 million, included in failed institutions are pooled and transferred into a trust the “Interest receivable on investments and other assets, structure. The trusts issue 1) senior and/or subordinated net” line item on the Balance Sheet. All guarantee fees are debt instruments and 2) owner trust or residual recorded as deferred revenue, included in the “Accounts certificates collateralized by the underlying mortgage- payable and other liabilities” line item, and recognized as backed securities or loans. revenue primarily on a straight-line basis over the term of Since 2010, private investors purchased the senior notes issued by the trusts for $5.3 billion in cash. The receiverships hold 100 percent of the subordinated debt instruments and owner trust or residual certificates. The the notes. At December 31, 2011, the amount of deferred revenue recorded was $134 million. The DIF records no other structured-transaction-related assets or liabilities on its balance sheet. FDIC in its corporate capacity guarantees the timely The estimated loss to the DIF from the guarantees is payment of principal and interest due on the senior notes, derived from an analysis of the discounted present the latest maturity of which is 2050. In exchange for the value of the expected guarantee payments by the FDIC, guarantee, the DIF receives a monthly payment based on reimbursements to the FDIC for guarantee payments, and a fixed percentage multiplied by the outstanding note guarantee fee collections. Under both a base case and a balance. These guarantee agreements generally stipulate more stressful modeling scenario, the cash flows from the that all cash flows received from the entity’s collateral LLC or trust assets provide sufficient coverage to fully pay be used to pay, in the following order, 1) operational the debts. Therefore, the estimated loss to the DIF from expenses of the entity, 2) the FDIC’s contractual guarantee these guarantees is zero. To date, the FDIC in its corporate fee, 3) interest on the guaranteed notes, 4) principal of the capacity has not provided, and does not intend to provide, guaranteed notes, and 5) the holders of the subordinated any form of financial or other type of support to a trust notes and owner trust or residual certificates. If the FDIC or LLC that it was not previously contractually required is required to perform under its guarantees, it acquires an to provide. interest in the cash flows of the trust equal to the amount of guarantee payments made plus accrued interest thereon. Once all expenses have been paid, the guaranteed notes have been satisfied, and the FDIC has been reimbursed for any guarantee payments, the subordinated note holders and owner trust or residual certificates holders receive the remaining cash flows. All Structured Transactions with FDIC Guaranteed Debt Through December 31, 2011, the receiverships have transferred a portfolio of loans with an unpaid principal balance of $16.4 billion and mortgage-backed securities with a book value of $7.7 billion to 14 LLCs and 8 trusts. The LLCs and trusts subsequently issued notes guaranteed by the FDIC in an original principal amount As of December 31, 2011, the maximum loss exposure is $3.7 billion for LLCs and $3.9 billion for trusts, representing the sum of all outstanding debt guaranteed by the FDIC in its corporate capacity. Some transactions have established defeasance accounts to pay off the notes at maturity. A total of $2.2 billion has been deposited into these accounts. 9. Assessments The Dodd-Frank Act, enacted on July 21, 2010, provides for significant assessment and capitalization reforms for the DIF. In response, the FDIC implemented several changes to the assessment system and developed a comprehensive, long-term fund management plan. The 87 Financial statements and notes plan is designed to restore and maintain a positive fund consolidated total assets minus average tangible equity balance for the DIF even during a banking crisis and (measured as Tier 1 capital); 2) change the assessment achieve moderate, steady assessment rates throughout any rate adjustments; 3) lower the initial base rate schedule economic cycle. Summarized below are actions taken to and the total base rate schedule for all IDIs to collect implement assessment system changes and provisions of approximately the same revenue for the DIF as would the comprehensive plan. have been collected under the old assessment base; 4) New Restoration Plan suspend dividends indefinitely, and, in lieu of dividends, adopt lower assessment rate schedules when the reserve In October 2010, the FDIC adopted a new Restoration ratio reaches 1.15 percent, 2 percent, and 2.5 percent; and Plan to ensure that the ratio of the DIF fund balance to 5) change the risk-based assessment system for large IDIs estimated insured deposits (reserve ratio) reaches 1.35 (generally, those institutions with at least $10 billion in percent by September 30, 2020. The new Plan provides total assets). Specifically, the final rule eliminates risk for the following: 1) the period of the Restoration Plan categories and the use of long-term debt issuer ratings is extended from the end of 2016 to September 30, 2020; for large institutions and combines CAMELS ratings 2) institutions may continue to use assessment credits and certain forward-looking financial measures into two without additional restriction during the term of the scorecards: one for most large institutions and another for Restoration Plan; 3) the FDIC will pursue rulemaking large institutions that are structurally and operationally regarding the method that will be used to offset the effect complex or that pose unique challenges and risks in case on small institutions (less than $10 billion in assets) of failure (highly complex institutions). of requiring that the reserve ratio reach 1.35 percent by September 30, 2020, rather than 1.15 percent by the Assessment Revenue end of 2016; and 4) at least semiannually, the FDIC will Annual assessment rates averaged approximately update its loss and income projections for the fund and, 17.6 cents per $100 and 17.7 cents per $100 of the if needed, increase or decrease assessment rates, following assessment base for the first quarter of 2011 and all notice-and-comment rulemaking, if required. of 2010, respectively. Beginning in the second quarter Designated Reserve Ratio of 2011, the assessment base changed to average total consolidated assets less average tangible equity (with In December 2011, the FDIC adopted a final rule certain adjustments for banker’s banks and custodial maintaining the designated reserve ratio (DRR) at 2 banks), as required by the Dodd-Frank Act. The FDIC percent, effective January 1, 2012. The FDIC views the 2 implemented a new assessment rate schedule at the same percent DRR as maintaining the DIF at a level that can time to conform to the larger assessment base. The annual withstand substantial losses, consistent with the FDIC’s assessment rate averaged approximately 11.1 cents per comprehensive, long-term fund management plan. $100 of the assessment base for the last three quarters of 2011. Calculation of Assessment 88 In December 2009, a majority of IDIs prepaid $45.7 billion In February 2011, the FDIC adopted a final rule, of estimated quarterly risk-based assessments to address effective on April 1, 2011, amending part 327 of title 12 the DIF’s liquidity need to pay for projected near-term of the Code of Federal Regulations to 1) redefine the failures and to ensure that the deposit insurance system assessment base used for calculating deposit insurance remained industry-funded. The prepaid assessments assessments from adjusted domestic deposits to average cover the insurance period from October 2009 through financial statements and notes 2011 ANNUAL REPORT December 2012. An institution’s quarterly risk-based deposit insurance assessment thereafter is offset by the 10. Other Revenue amount prepaid until the amount is exhausted or until Other Revenue for the Years Ended December 31 June 30, 2013, when any amount remaining is to be Dollars in Thousands returned to the institution. At December 31, 2011, the 2011 remaining prepaid amount of $17.4 billion is included in the “Unearned revenue - prepaid assessments” line item on the Balance Sheet. Prepaid assessments were mandatory for all institutions, but the FDIC exercised its discretion as supervisor and insurer to exempt an institution from the prepayment requirement if the FDIC determined that the prepayment Temporary Liquidity Guarantee Program revenue (Note 16) the institution. Reserve Ratio Other As of December 31, 2011, the DIF reserve ratio was 0.17 Total percent of estimated insured deposits. $2,569,579 $0 178,000 177,675 92,229 44,557 7,121 15,193 $2,846,929 $237,425 Dividends and interest on Citigroup trust preferred securities Guarantee fees for structured transactions would adversely affect the safety and soundness of 2010 Assessments Related to FICO Temporary Liquidity Guarantee Program Revenue Assessments continue to be levied on institutions for Pursuant to a systemic risk determination in October payments of the interest on obligations issued by the 2008, the FDIC established the TLGP (see Note 16). In Financing Corporation (FICO). The FICO was established exchange for guarantees issued under the TLGP, the as a mixed-ownership government corporation to FDIC received fees that were set aside, as deferred revenue, function solely as a financing vehicle for the former FSLIC. for potential TLGP losses. As losses occur, the FDIC The annual FICO interest obligation of approximately recognizes the loss as a systemic risk expense and offsets $790 million is paid on a pro rata basis using the same the loss by recognizing an equivalent portion of the rate for banks and thrifts. The FICO assessment has no deferred revenue as systemic risk revenue. This accounting financial impact on the DIF and is separate from deposit practice isolates systemic risk activities from the normal insurance assessments. The FDIC, as administrator of the operating activities of the DIF. DIF, acts solely as a collection agent for the FICO. During 2011 and 2010, approximately $795 million and $796 million, respectively, was collected and remitted to the FICO. From inception of the TLGP, it has been FDIC’s policy to recognize revenue to the DIF for any deferred revenue not absorbed by losses upon expiration of the TLGP guarantee period (December 31, 2012) or earlier for any portion of guarantee fees determined in excess of amounts needed to cover potential losses. During 2011, the DIF recognized revenue of $2.6 billion for fees held as deferred revenue (see Note 16). In the unforeseen event a debt default occurs greater than the remaining amount held as deferred revenue, to the extent needed, any amount 89 Financial statements and notes previously recognized as revenue to the DIF will be returned to the TLGP. 12. Provision for Insurance Losses Provision for insurance losses was negative $4.4 billion for 2011, compared to negative $848 million for 2010. 11. Operating Expenses The negative provision for 2011 primarily resulted from Operating expenses were $1.6 billion for both 2011 and 2010. The chart below lists the major components of operating expenses. a reduction in the contingent loss reserve due to the improvement in the financial condition of institutions that were previously identified to fail and a reduction in the estimated losses for institutions that have failed in prior years. The following chart lists the major Operating Expenses for the Years Ended December 31 components of the provision for insurance losses. Dollars in Thousands 2011 2010 $1,320,991 $1,184,523 Outside services 342,502 360,880 Travel 115,135 111,110 Salaries and benefits Buildings and leased space Software/Hardware maintenance 90 Dollars in Thousands 2011 2010 $6,786,643 $25,483,252 (1,024) (4,406) 6,785,619 25,478,846 Valuation Adjustments 93,630 58,981 85,137 50,575 Closed banks and thrifts Other assets Total Valuation Adjustments Depreciation of property and equipment 77,720 68,790 Other 46,652 35,142 Subtotal 2,055,611 1,896,157 Services billed to resolution entities (430,260) (303,516) $1,625,351 $1,592,641 Total Provision for Insurance Losses for the Years Ended December 31 Contingent Liabilities Adjustments Anticipated failure of insured institutions (11,176,248) (26,326,689) (23,000) 0 Total Contingent Liabilities Adjustments (11,199,248) (26,326,689) Total $(4,413,629) $(847,843) Litigation financial statements and notes 2011 ANNUAL REPORT Postretirement Benefits Other Than Pensions 13. Employee Benefits Pension Benefits and Savings Plans The DIF has no postretirement health insurance liability Eligible FDIC employees (permanent and term employees since all eligible retirees are covered by the Federal with appointments exceeding one year) are covered by Employees Health Benefits (FEHB) program. The FEHB is the federal government retirement plans, either the administered and accounted for by the OPM. In addition, Civil Service Retirement System (CSRS) or the Federal OPM pays the employer share of the retiree’s health Employees Retirement System (FERS). Although the insurance premiums. DIF contributes a portion of pension benefits for eligible employees, it does not account for the assets of either The FDIC provides certain life and dental insurance retirement system. The DIF also does not have actuarial coverage for its eligible retirees, the retirees’ beneficiaries, data for accumulated plan benefits or the unfunded and covered dependents. Retirees eligible for life and liability relative to eligible employees. These amounts dental insurance coverage are those who have qualified are reported on and accounted for by the U.S. Office of due to 1) immediate enrollment upon appointment or Personnel Management (OPM). five years of participation in the plan and 2) eligibility for an immediate annuity. The life insurance program Eligible FDIC employees also may participate in a FDIC- provides basic coverage at no cost to retirees and allows sponsored tax-deferred 401(k) savings plan with matching converting optional coverage to direct-pay plans. For the contributions up to 5 percent. Under the Federal Thrift dental coverage, retirees are responsible for a portion of Savings Plan (TSP), the FDIC provides FERS employees the dental premium. with an automatic contribution of 1 percent of pay and an additional matching contribution up to 4 percent of pay. The FDIC has elected not to fund the postretirement CSRS employees also can contribute to the TSP, but they life and dental benefit liabilities. As a result, the DIF do not receive agency matching contributions. recognized the underfunded status (the difference between the accumulated postretirement benefit Pension Benefits and Savings Plans Expenses for the Years Ended December 31 obligation and the plan assets at fair value) as a liability. Dollars in Thousands is equal to the accumulated postretirement benefit Civil Service Retirement System 2011 2010 $6,140 $6,387 obligation. At December 31, 2011 and 2010, the liability was $188 million and $166 million, respectively, which is recognized in the “Postretirement benefit liability” line Federal Employees Retirement System (Basic Benefit) 95,846 78,666 FDIC Savings Plan 36,645 30,825 Federal Thrift Savings Plan 33,910 28,679 $172,541 $144,557 Total Since there are no plan assets, the plan’s benefit liability item on the Balance Sheet. The cumulative actuarial losses (changes in assumptions and plan experience) and prior service costs (changes to plan provisions that increase benefits) were $34 million and $19 million at December 31, 2011 and 2010, respectively. These amounts are reported as accumulated other comprehensive income in the “Unrealized postretirement benefit loss” line item on the Balance Sheet. 91 Financial statements and notes The DIF’s expenses for postretirement benefits for 2011 and 2010 were $12 million and $9 million, respectively, which are included in the current and prior year’s operating expenses on the Statement of Income and Fund 14. Commitments and Off-Balance-Sheet Exposure Commitments: Balance. The changes in the actuarial losses and prior Leased Space service costs for 2011 and 2010 of $15 million and $16 The FDIC’s lease commitments total $199 million for million, respectively, are reported as other comprehensive future years. The lease agreements contain escalation income in the “Unrealized postretirement benefit clauses resulting in adjustments, usually on an annual loss” line item. Key actuarial assumptions used in the basis. The DIF recognized leased space expense of $56 accounting for the plan include the discount rate of 4.5 million and $45 million for the years ended December 31, percent, the rate of compensation increase of 4.1 percent, 2011 and 2010, respectively. and the dental coverage trend rate of 6.0 percent. The discount rate of 4.5 percent is based upon rates of Leased Space Commitments return on high-quality fixed income investments whose Dollars in Thousands cash flows match the timing and amount of expected benefit payments. 2012 2013 2014 2015 2016 $52,773 $44,950 $32,294 $25,807 $22,679 2017/ Thereafter $20,918 Off-Balance-Sheet Exposure: Deposit Insurance As of December 31, 2011, estimated insured deposits for the DIF were $7.0 trillion. This estimate is derived primarily from quarterly financial data submitted by IDIs to the FDIC. This estimate represents the accounting loss that would be realized if all IDIs were to fail and the acquired assets provided no recoveries. Included in this estimate was approximately $1.4 trillion of noninterestbearing transaction deposits that exceeded the basic coverage limit of $250,000 per account, which received coverage under the Dodd-Frank Act beginning on December 31, 2010 to the end of 2012. 92 financial statements and notes 2011 ANNUAL REPORT 15. Disclosures About the Fair Value of Financial Instruments equivalents (Note 2), the investment in U.S. Treasury obligations (Note 3) and trust preferred securities (Note Financial assets recognized and measured at fair value on a recurring basis at each reporting date include cash 5). The following tables present the DIF’s financial assets measured at fair value as of December 31, 2011 and 2010. Assets Measured at Fair Value at December 31, 2011 Dollars in Thousands Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Assets Cash equivalents1 Available-for-Sale Debt Securities Investment in U.S. Treasury obligations2 Trust preferred securities Significant Unobservable Inputs (Level 3) $3,266,631 $37,129,876 Total Assets at Fair Value $3,266,631 33,863,245 Trust preferred securities held for UST (Note 16) Total Assets Significant Other Observable Inputs (Level 2) $2,213,231 33,863,245 2,213,231 795,769 795,769 $3,009,000 $0 $40,138,876 (1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the U.S. Bureau of Public Debt. (2) The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal government entities. 93 Financial statements and notes In exchange for prior shared-loss guarantee coverage Citigroup securities to determine the expected present provided to Citigroup, the FDIC and the Treasury received value of future cash flows. Key inputs include market TruPs (see Note 5). At December 31, 2011, the fair value yields on U.S. dollar interest rate swaps and discount of the securities in the amount of $3.009 billion was rates for default, call, and liquidity risks that are derived classified as a Level 2 measurement based on an FDIC- from traded Citigroup securities and modeled developed model using observable market data for traded pricing relationships. Assets Measured at Fair Value at December 31, 2010 Dollars in Thousands Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Assets Cash equivalents1 Available-for-Sale Debt Securities Investment in U.S. Treasury obligations2 Trust preferred securities Trust preferred securities held for UST (Note 16) Total Assets Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $27,083,918 $27,083,918 12,371,268 $39,455,186 Total Assets at Fair Value $2,297,818 12,371,268 2,297,818 826,182 826,182 $3,124,000 $0 $42,579,186 (1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the U.S. Bureau of Public Debt. (2) The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal government entities. 94 financial statements and notes 2011 ANNUAL REPORT Some of the DIF’s financial assets and liabilities are not recognized at fair value but are recorded at amounts that approximate fair value due to their short maturities and/ or comparability with current interest rates. Such items include interest receivable on investments, assessments receivable, other short-term receivables, accounts payable, and other liabilities. The net receivables from resolutions primarily include the DIF’s subrogated claim arising from obligations to insured depositors. The resolution entity 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 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. 16. Systemic Risk Transactions Pursuant to a systemic risk determination, the FDIC established the TLGP for IDIs, designated affiliates and certain holding companies on October 14, 2008, in an effort to counter the system-wide crisis in the nation’s financial sector. The program is codified in part 370 of title 12 of the Code of Federal Regulations. The FDIC received fees in exchange for guarantees issued under the TLGP and set aside, as deferred revenue, all fees for potential TLGP losses. At inception of the guarantees, the DIF recognized a liability for the non-contingent fair value of the obligation the FDIC assumed over the term of the guarantees. In accordance with FASB ASC 460, Guarantees, this non-contingent liability was measured at the amount of consideration received in exchange for issuing the guarantee. As systemic risk expenses are incurred, the DIF will reduce deferred revenue and Although the value of the corporate subrogated claim is recognize an offsetting amount as systemic risk revenue. influenced by valuation of resolution entity assets (see Not later than the end of the guarantee period (December Note 4), such valuation is not equivalent to the valuation 31, 2012), any deferred revenue not absorbed by losses of the corporate claim. Since the corporate claim is during the guarantee period will be recognized as revenue unique, not intended for sale to the private sector, and has to the DIF. no established market, it is not practicable to estimate a fair value. At its inception, the TLGP consisted of two components: 1) the Transaction Account Guarantee Program (TAG) The FDIC believes that a sale to the private sector of and 2) the Debt Guarantee Program (DGP). The TAG the corporate claim would require indeterminate, but provided unlimited coverage for noninterest-bearing substantial, discounts for an interested party to profit transaction accounts held by IDIs on all deposit amounts from these assets because of credit and other risks. In exceeding the fully insured limit of $250,000 through addition, the timing of resolution entity payments to December 31, 2010. During its existence, the FDIC the DIF on the subrogated claim does not necessarily collected TAG fees of $1.2 billion. Total subrogated claims correspond with the timing of collections on resolution arising from obligations to depositors with noninterest- entity assets. Therefore, the effect of discounting used bearing transaction accounts were $8.8 billion, with by resolution entities should not necessarily be viewed as estimated losses of $2.2 billion. producing an estimate of fair value for the net receivables from resolutions. The DGP permitted participating entities to issue FDICguaranteed senior unsecured debt through October 31, There is no readily available market for guarantees 2009. The FDIC’s guarantee for all such debt expires associated with systemic risk (see Note 16). on the earliest of the conversion date for mandatory convertible debt, the stated date of maturity, or December 31, 2012. Through the end of the debt issuance period, 95 Financial statements and notes the DIF collected $8.3 billion of guarantee fees and fees debt outstanding at December 31, 2011. This compares of $1.2 billion from participating entities that elected to to $267.1 billion in guaranteed debt outstanding at issue senior unsecured non-guaranteed debt. The fees December 31, 2010. Reported outstanding debt is derived are included in the “Cash and investments - restricted from data submitted by debt issuers. - systemic risk” line item and recognized as “Deferred revenue - systemic risk” on the Balance Sheet. $117 million for debt guarantee obligations that were Additionally, the FDIC holds $800 million (liquidation paid in early 2012 as scheduled under the terms of the amount) of Citigroup TruPs on behalf of the Treasury debt instruments. This liability is presented in the “Debt (and any related interest) as security in the event payments Guarantee Program liabilities – systemic risk” line item. are required to be made by the DIF for guaranteed debt The DIF has also recorded a contingent liability of $2 instruments issued by Citigroup or any of its affiliates million in the “Contingent liability for systemic risk” line under the TLGP (see Note 5). At December 31, 2011, the item for probable additional guaranteed debt obligations. fair value of these securities totaled $796 million, and was The FDIC believes that it is also reasonably possible that determined using the valuation methodology described in additional estimated losses of approximately $93 million Note 15 for other Citigroup TruPs held by the DIF. There could be incurred under the DGP. is an offsetting liability in the “Deferred revenue -systemic risk” line item, representing amounts to be transferred to the Treasury or, if necessary, paid for guaranteed debt instruments issued by Citigroup or its affiliates under the TLGP. Consequently, there is no impact on the fund balance of the DIF. The DIF may recognize revenue before the end of the guarantee period for the portion of guarantee fees that was determined to exceed amounts needed to cover potential losses. During 2011, the DIF recognized revenue of $2.6 billion for a portion of DGP guarantee fees previously held as systemic risk deferred revenue (see Note The FDIC’s payment obligation under the DGP is triggered 10). The $2.6 billion relates to fees on debt guarantees that by a payment default. In the event of default, the FDIC have expired. In addition, the DIF transferred an equal will continue to make scheduled principal and interest amount of “Cash and investments - restricted - systemic payments under the terms of the debt instrument through risk” to the DIF’s cash and investments. In the unforeseen its maturity, or in the case of mandatory convertible debt, event a debt default occurs greater than the remaining through the mandatory conversion date. The debtholder amount held as deferred revenue, to the extent needed, or representative must assign to the FDIC the right to any amount previously recognized as revenue to the DIF receive any and all distributions on the guaranteed debt will be returned to the TLGP. from any insolvency proceeding, including the proceeds of any receivership or bankruptcy estate, to the extent of payments made under the guarantee. Because of uncertainties surrounding the outlook for the economy and financial markets, there remains a possibility that the TLGP could incur a loss that would absorb some Since inception of the program, $618.0 billion in total or all of the remaining guarantee fees. Therefore, it is guaranteed debt has been issued. Through December appropriate to continue the practice of deferring revenue 31, 2011, the FDIC has paid $35 million in claims for recognition for the remaining $5.7 billion of “Deferred principal and/or interest arising from the default of revenue - systemic risk” (which excludes the liability of guaranteed debt obligations of six debt issuers. Fifty- $925 million to Treasury for the fair value and related nine financial entities (33 IDIs and 26 affiliates and interest of the Citigroup TruPs). holding companies) had $167.4 billion in guaranteed 96 At December 31, 2011, the DIF recognized a liability of financial statements and notes 2011 ANNUAL REPORT Systemic Risk Activity at December 31, 2011 Dollars in Thousands Balance at 01-01-11 TAG fees collected DGP assessments collected Cash and investments - restricted systemic risk1 Receivables and other assets systemic risk Deferred revenue systemic risk $6,646,968 $2,269,422 $(9,054,541) 41,419 (50,235) 8,816 3 Debt Guarantee Program liabilities systemic risk $(29,334) Contingent liability systemic risk Revenue/ Expenses systemic risk $(119,993) (3) Receivable for TAG fees Receivable for TAG accounts at failed institutions (424,628) Dividends and overnight interest on TruPs held for UST 64,029 (64,029) Fair value adjustment on TruPs held for UST (30,413) 30,413 Estimated losses for TAG accounts at failed institutions 119,976 (119,976) 117,027 Realized losses not yet paid (27,433) 27,433 (2,569,579) 2,569,579 U.S. investment interest collected 66,640 (66,640) Interest receivable on U.S. Treasury obligations 55,880 (55,880) Amortization of U.S. Treasury obligations (71,262) 71,262 Accrued interest purchased (43,983) 43,983 439 (439) Transfer of excess TLGP funds to the DIF Unrealized gain on U.S. Treasury obligations Totals 87,693 117,777 (117,777) 27,433 152 TLGP operating expenses Receipts of receivership's dividends (87,693) (147,111) Provision for DGP losses Guaranteed debt obligations paid $(119,976) (8,514) 728,227 $4,827,319 $1,948,151 $(6,639,954) $(117,027) $(2,216) $(131,141) (1) As of December 31, 2011, the fair value of investments in U.S. Treasury obligations held by TLGP was $3.1 billion. An unrealized gain of $439 thousand is reported in the “Deferred revenue - systemic risk” line item. 97 Financial statements and notes 17. Subsequent Events Subsequent events have been evaluated through April 11, 2012, the date the financial statements are available to be issued. 2012 Failures through April 11, 2012 Through April 11, 2012, 16 insured institutions failed in 2012 with total losses to the DIF estimated to be $1.3 billion. 98 financial statements and notes 2011 ANNUAL REPORT FSLIC Resolution Fund (FRF) Federal Deposit Insurance Corporation FSLIC Resolution Fund Balance Sheet at December 31 Dollars in Thousands 2011 2010 $3,533,410 $3,547,907 65,163 23,408 356,455 323,495 $3,955,028 $3,894,810 $3,544 $2,990 356,455 323,495 359,999 326,485 Contributed capital 127,875,656 127,792,696 Accumulated deficit (124,280,627) (124,224,371) Total Resolution Equity 3,595,029 3,568,325 $3,955,028 $3,894,810 Assets Cash and cash equivalents Receivables from thrift resolutions and other assets, net (Note 3) Receivables from U.S. Treasury for goodwill litigation (Note 4) Total Assets Liabilities Accounts payable and other liabilities Contingent liabilities for goodwill litigation (Note 4) Total Liabilities Resolution Equity (Note 5) Total Liabilities and Resolution Equity The accompanying notes are an integral part of these financial statements. 99 Financial statements and notes FSLIC Resolution Fund (FRF) Federal Deposit Insurance Corporation FSLIC Resolution Fund Statement of Income and Accumulated Deficit for the Years Ended December 31 Dollars in Thousands 2011 2010 Revenue Interest on U.S. Treasury obligations $1,361 $3,876 Other revenue 3,257 9,393 Total Revenue 4,618 13,269 Operating expenses 4,660 3,832 Provision for losses (8,578) (945) Goodwill litigation expenses (Note 4) 82,960 (53,266) (18,373) (63,256) 205 3,070 60,874 (110,565) (56,256) 123,834 (124,224,371) (124,348,205) $(124,280,627) $(124,224,371) Expenses and Losses Recovery of tax benefits Other expenses Total Expenses and Losses Net (Loss) Income Accumulated Deficit - Beginning Accumulated Deficit - Ending The accompanying notes are an integral part of these financial statements. 100 financial statements and notes 2011 ANNUAL REPORT FSLIC Resolution Fund (FRF) Federal Deposit Insurance Corporation FSLIC Resolution Fund Statement of Cash Flows for the Years Ended December 31 Dollars in Thousands 2011 2010 $(56,256) $123,834 Operating Activities Net (Loss) Income Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities: Provision for losses (8,578) (945) (33,177) 9,875 554 18 Increase (Decrease) in contingent liabilities for goodwill litigation 32,960 (81,917) Net Cash (Used) Provided by Operating Activities (64,497) 50,865 U.S. Treasury payments for goodwill litigation (Note 4) 50,000 26,917 Net Cash Provided by Financing Activities 50,000 26,917 (14,497) 77,782 3,547,907 3,470,125 $3,533,410 $3,547,907 Change in Operating Assets and Liabilities: (Increase) Decrease in receivables from thrift resolutions and other assets Increase in accounts payable and other liabilities Financing Activities Provided by: Net (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending The accompanying notes are an integral part of these financial statements. 101 Financial statements and notes Notes to the Financial Statements FSLIC Resolution Fund December 31, 2011 and 2010 1. Legislative History and Operations/Dissolution of the FSLIC Resolution 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, the FDIC, as administrator of the Deposit Insurance Fund (DIF), insures the deposits of banks and savings associations (insured depository institutions). In cooperation with other federal and state agencies, the FDIC promotes the safety and soundness of insured depository institutions by identifying, monitoring and addressing risks to the DIF. Commercial banks, savings banks and savings associations (known as “thrifts”) are supervised by either the FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board. In addition, the FDIC, through administration of the FSLIC Resolution Fund (FRF), is responsible for the sale of remaining assets and satisfaction of liabilities associated with the former Federal Savings and Loan Insurance Corporation (FSLIC) and the former Resolution Trust Corporation (RTC). The DIF and the transferred to the RTC-effective 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 two 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 (FRF-FSLIC), 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. 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 million in appropriations to facilitate, if required, efforts to wind up the resolution activity of the FRF-FSLIC. FRF are maintained separately by the FDIC to support The FDIC has conducted an extensive review and their respective mandates. cataloging of FRF’s remaining assets and liabilities. 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 FRF, and transferred the assets and liabilities 102 of the FSLIC to the FRF-except those assets and liabilities Some of the issues and items that remain open in FRF are 1) criminal restitution orders (generally have from 1 to 12 years remaining to enforce); 2) collections of settlements and judgments obtained against officers and directors and other professionals responsible for financial statements and notes 2011 ANNUAL REPORT causing or contributing to thrift losses (generally have statements in conformity with standards promulgated from 2 months to 7 years remaining to enforce, unless the by the Financial Accounting Standards Board (FASB). judgments are renewed, which will result in significantly These statements do not include reporting for assets and longer periods for collection for some judgments); 3) a few liabilities of receivership entities because these entities assistance agreements entered into by the former FSLIC are legally separate and distinct, and the FRF does not (FRF could continue to receive or refund overpayments of have any ownership interests in them. Periodic and tax benefits sharing through 2014); 4) goodwill litigation final accountability reports of receivership entities are (no final date for resolution has been established; see furnished to courts, supervisory authorities, and others Note 4); and 5) affordable housing program monitoring upon request. (requirements can exceed 25 years). The FRF could potentially realize recoveries from tax benefits sharing of Use of Estimates up to approximately $36 million; however, any associated Management makes estimates and assumptions that recoveries are not reflected in FRF’s financial statements affect the amounts reported in the financial statements given the significant uncertainties surrounding the and accompanying notes. Actual results could differ ultimate outcome. from these estimates. Where it is reasonably possible that Receivership Operations changes in estimates will cause a material change in the financial statements in the near term, the nature and The FDIC is responsible for managing and disposing of extent of such changes in estimates have been disclosed. the assets of failed institutions in an orderly and efficient The more significant estimates include the allowance manner. The assets held by receivership entities, and the for losses on receivables from thrift resolutions and the claims against them, are accounted for separately from estimated losses for litigation. FRF assets and liabilities to ensure that receivership proceeds are distributed in accordance with applicable Cash Equivalents laws and regulations. Also, the income and expenses Cash equivalents are short-term, highly liquid investments attributable to receiverships are accounted for as consisting primarily of U.S. Treasury Overnight transactions of those receiverships. Receiverships are billed Certificates. by the FDIC for services provided on their behalf. Provision for Losses 2. Summary of Significant Accounting Policies General These financial statements pertain to the financial position, results of operations, and cash flows of the The provision for losses represents the change in the estimation of the allowance for losses related to the receivables from thrift resolutions and other assets. Related Parties FRF and are presented in accordance with U.S. generally The nature of related parties and a description of related accepted accounting principles (GAAP). As permitted party transactions are discussed in Note 1 and disclosed by the Federal Accounting Standards Advisory Board’s throughout the financial statements and footnotes. Statement of Federal Financial Accounting Standards 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board, the FDIC prepares financial 103 Financial statements and notes Disclosure about Recent Relevant Accounting Pronouncements Recent accounting pronouncements have been deemed to be not applicable or material to the financial statements as presented. 3. Receivables From Thrift Resolutions and Other Assets, Net 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 cash reserves, which may cover future credit losses through 2020, are valued by estimating credit losses on the underlying loan portfolio and then discounting cash flow projections using marketbased rates. Receivables From Thrift Resolutions Most of the remaining amount in other assets is a The receivables from thrift resolutions include payments receivable of $44 million for recoveries from tax benefit made by the FRF to cover obligations to insured sharing as of December 31, 2011. Recoveries from tax depositors, advances to receiverships for working benefit sharing represents receipts based on the realization capital, and administrative expenses paid on behalf of of tax savings from entities that either entered into receiverships. Any related allowance for loss represents the assistance agreements with the former FSLIC, or have difference between the funds advanced and/or obligations subsequently purchased financial institutions that had incurred and the expected repayment. Assets held by the prior agreements with the FSLIC. In 2011, the FRF FDIC in its receivership capacity for the former RTC are refunded $26 million in tax benefit sharing recoveries that a significant source of repayment of the FRF’s receivables were received in a prior year. from thrift resolutions. As of December 31, 2011, five of the 850 FRF receiverships remain active until their goodwill litigation or liability-related impediments are resolved. During 2011, the receivables from closed thrifts Receivables From Thrift Resolutions and Other Assets, Net at December 31 Dollars in Thousands and related allowance for losses decreased by $4.0 billion due to three receiverships that were terminated during 2010 the year. Receivables from closed thrifts $1,800,417 $5,763,949 The FRF receiverships held assets with a book value of Allowance for losses (1,797,154) (5,762,186) $15 million and $18 million as of December 31, 2011 and 2010, respectively (which primarily consist of cash, Receivables from Thrift Resolutions, Net 3,263 1,763 investments, and miscellaneous receivables). At December Other assets 61,900 21,645 31, 2011, $12 million of the $15 million in assets in the Total $65,163 $23,408 FRF receiverships was cash held for non-FRF, third party creditors. Other Assets Other assets include credit enhancement reserves valued at $14 million and $17 million as of December 31, 2011 and 2010, respectively. The credit enhancement reserves resulted from swap transactions where the former RTC 104 2011 financial statements and notes 2011 ANNUAL REPORT 4. Contingent Liabilities for: Goodwill 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. 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 should have a corresponding receivable from the U.S. Treasury and therefore have no net impact on the financial condition of the FRF-FSLIC. For the year ended December 31, 2011, the FRF paid $50 million as a result of a settlement in one goodwill case compared to $27 million for four goodwill cases in 2010. The FRF received appropriations from the U.S. Treasury to fund these payments. As of December 31, 2011, five remaining cases are pending against the United States based on alleged breaches of the agreements stated above. Of the five remaining cases, a contingent liability and an offsetting receivable of $356 million and $323 million was recorded for one case as of December 31, 2011 and 2010, respectively. This case is currently before the lower court pending remand following appeal and is still considered active. U.S. Treasury determined, based on OLC’s opinion, that The FDIC believes that it is reasonably possible that the the FRF is the appropriate source of funds for payments FRF could incur additional estimated losses for two of the of any such judgments and settlements. The FDIC five remaining cases of up to $268 million. The plaintiff General Counsel concluded that, as liabilities transferred in one case was awarded $205 million by the Court of on August 9, 1989, these contingent liabilities for future Federal Claims, and this case is currently on appeal. The nonperformance of prior agreements with respect to remaining $63 million is additional damages contended supervisory goodwill were transferred to the FRF-FSLIC, by the plaintiff to the $356 million contingent liability for which is that portion of the FRF encompassing the the one case mentioned in the previous paragraph. For obligations of the former FSLIC. The FRF-RTC, which the three remaining active cases, the FDIC is unable to encompasses the obligations of the former RTC and was estimate a range of loss to the FRF-FSLIC. No awards were created upon the termination of the RTC on December 31, given to the plaintiffs in these three cases by the appellate 1995, is not available to pay any settlements or judgments courts. Two cases are currently on appeal, and the other arising out of the goodwill litigation. case is fully adjudicated but the Court of Federal Claims is The FRF can draw from an appropriation provided by considering awarding litigation costs to the United States. Section 110 of the Department of Justice Appropriations In addition, the FRF-FSLIC pays the goodwill litigation Act, 2000 (Public Law 106-113, Appendix A, Title I, expenses incurred by the DOJ, the entity that defends 113 Stat. 1501A-3, 1501A-20) such sums as may be these lawsuits against the United States, based on a necessary for the payment of judgments and compromise Memorandum of Understanding (MOU) dated October settlements in the goodwill litigation. This appropriation 2, 1998, between the FDIC and the DOJ. FRF-FSLIC pays is to remain available until expended. Because an in advance the estimated goodwill litigation expenses. appropriation is available to pay such judgments and Any unused funds are carried over and applied toward settlements, any estimated liability for goodwill litigation the next fiscal year (FY) charges. In 2011, FRF-FSLIC did 105 Financial statements and notes not provide any additional funding to the DOJ because have been asserted since 1998 on the remaining open the unused funds from FY 2011 were sufficient to cover agreements. Because of the age of the remaining portfolio estimated FY 2012 expenses of $2.6 million. and lack of claim activity, the FDIC does not expect new Guarini Litigation Paralleling the goodwill cases were similar cases alleging claims to be asserted in the future. Consequently, the financial statements at December 31, 2011 and 2010, do not include a liability for these agreements. that the government breached agreements regarding tax benefits associated with certain FSLIC-assisted 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. All eight of the original Guarini cases have been settled. However, a case settled in 2006 further obligates the FRFFSLIC as a guarantor for all tax liabilities in the event the settlement amount is determined by tax authorities to 5. Resolution Equity As stated in the Legislative History section of Note 1, the FRF is comprised of two distinct pools: the FRF-FSLIC and the FRF-RTC. The FRF-FSLIC consists of the assets and liabilities of the former FSLIC. The FRF-RTC consists of the assets and liabilities of the former RTC. Pursuant to legal restrictions, the two pools are maintained 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. be taxable. The maximum potential exposure under this guarantee is approximately $81 million. However, the Resolution Equity at December 31, 2011 FDIC believes that it is very unlikely the settlement will be Dollars in Thousands subject to taxation. More definitive information may be FRF-FSLIC FRF-RTC FRF Consolidated Contributed capital beginning $46,043,359 $81,749,337 $127,792,696 Add: U.S. Treasury payments/ receivable for goodwill litigation 82,960 0 82,960 46,126,319 81,749,337 127,875,656 (42,702,916) (81,577,711) (124,280,627) $3,423,403 $171,626 $3,595,029 available during 2012, after the Internal Revenue Service (IRS) completes its Large Case Program audit on the affected entity’s 2006 returns; this audit remains ongoing. As of December 31, 2011, no liability has been recorded. The FRF does not expect to fund any payment under this guarantee. 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 Accumulated deficit maximum potential exposure to the FRF is zero. No Total claims in connection with representations and warranties 106 Contributed capital ending financial statements and notes 2011 ANNUAL REPORT Contributed Capital Accumulated Deficit The FRF-FSLIC and the former RTC received $43.5 billion The accumulated deficit represents the cumulative excess and $60.1 billion from the U.S. Treasury, respectively, of expenses and losses over revenue for activity related to to fund losses from thrift resolutions prior to July 1, the FRF-FSLIC and the FRF-RTC. Approximately $29.8 1995. Additionally, the FRF-FSLIC issued $670 million billion and $87.9 billion were brought forward from the in capital certificates to the Financing Corporation (a former FSLIC and the former RTC on August 9, 1989, and mixed-ownership government corporation established to January 1, 1996, respectively. The FRF-FSLIC accumulated function solely as a financing vehicle for the FSLIC) and deficit has increased by $12.9 billion, whereas the FRF- the RTC issued $31.3 billion of these instruments to the RTC accumulated deficit has decreased by $6.3 billion, REFCORP. FIRREA prohibited the payment of dividends since their dissolution dates. on any of these capital certificates. $4.6 billion to the U.S. Treasury and made payments 6. Disclosures About the Fair Value of Financial Instruments of $5.0 billion to the REFCORP. These actions serve to The financial assets recognized and measured at fair Through December 31, 2011, the FRF-RTC has returned reduce contributed capital. The most recent payment to the REFCORP was in January of 2008 for $225 million. value on a recurring basis at each reporting date are cash equivalents and credit enhancement reserves. FRF-FSLIC received $50 million in U.S. Treasury The following table presents the FRF’s financial assets payments for goodwill litigation in 2011. Furthermore, measured at fair value as of December 31, 2011 and 2010. $356 million and $323 million were accrued for as receivables at year-end 2011 and 2010, respectively. The effect of this activity was an increase in contributed capital of $83 million in 2011. Assets Measured at Fair Value at December 31, 2011 Dollars in Thousands Fair Value Measurements Using Quoted Prices in active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets at Fair Value Assets Cash equivalents1 $3,377,203 Credit enhancement reserves2 Total Assets $3,377,203 $14,431 $3,377,203 $14,431 14,431 $0 $3,391,634 (1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the U.S. Bureau of Public Debt. Cash equivalents are included in the “Cash and cash equivalents” line item. (2) Credit enhancement reserves are valued by performing projected cash flow analyses using market-based assumptions (see Note 3). 107 Financial statements and notes Assets Measured at Fair Value at December 31, 2010 Dollars in Thousands Fair Value Measurements Using Quoted Prices in active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets at Fair Value Assets Cash equivalents1 $3,397,440 Credit enhancement reserves2 Total Assets $3,397,440 $17,378 $3,397,440 $17,378 17,378 $0 $3,414,818 (1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the U.S. Bureau of Public Debt. Cash equivalents are included in the “Cash and cash equivalents” line item. (2) Credit enhancement reserves are valued by performing projected cash flow analyses using market-based assumptions (see Note 3). Some of the FRF’s financial assets and liabilities are not corporate receivable is unique and the estimate presented recognized at fair value but are recorded at amounts that is not necessarily indicative of the amount that could be approximate fair value due to their short maturities and/ realized in a sale to the private sector. Such a sale would or comparability with current interest rates. Such items require indeterminate, but substantial, discounts for an include other short-term receivables and accounts payable interested party to profit from these assets because of and other liabilities. credit and other risks. Consequently, it is not practicable The net receivable from thrift resolutions is influenced by the underlying valuation of receivership assets. This 108 to estimate its fair value. financial statements and notes 2011 ANNUAL REPORT Government Accountability Office’s Audit Opinion 109 Financial statements and notes Government Accountability Office’s Audit Opinion (continued) 110 financial statements and notes 2011 ANNUAL REPORT 111 Financial statements and notes Government Accountability Office’s Audit Opinion (continued) 112 financial statements and notes 2011 ANNUAL REPORT 113 Financial statements and notes Government Accountability Office’s Audit Opinion (continued) 114 financial statements and notes 2011 ANNUAL REPORT 115 Financial statements and notes Government Accountability Office’s Audit Opinion (continued) 116 financial statements and notes 2011 ANNUAL REPORT 117 Financial statements and notes appendix I management’s response 118 financial statements and notes 2011 ANNUAL REPORT management’s response (continued) 119 Financial statements and notes Overview of the Industry The 7,357 FDIC-insured commercial banks and savings institutions that filed financial results at year-end 2011 reported net income of $119.5 billion for the year, an increase of $34.0 billion compared with full year 2010. This is the highest annual earnings total since 2006, when insured institutions reported $145.2 billion in net income. The year-over-year improvement was made possible by large reductions in provisions for loan and lease losses, reflecting an improving trend in credit quality. The improvement in earnings was fairly widespread; more than A problematic interest-rate environment characterized by historically low short-term interest rates contributed to a decline in the industry’s net interest margin. The average margin fell from 3.76 percent in 2010 to 3.60 percent in 2011. Narrower spreads between the yields on interest-earning assets and the costs of funding those assets combined with weak growth in earning assets to produce the year-over-year decline in net interest income. The greatest margin declines occurred at the largest banks, where much of the growth in interest-earning assets consisted of low-yield investments, such as balances with two out of every three insured institutions – 66.9 percent – Federal Reserve banks. reported higher net income than in 2010. Fewer than one An improving trend in asset quality indicators that began in seven institutions – 15.5 percent – reported a net loss for in the second half of 2010 continued through the end of the year, the lowest proportion since 2007. Reduced loss 2011. For the twelve months ended December 31, total provisioning expenses made up for a year-over-year decline noncurrent loans and leases – those that were 90 days in the industry’s revenues. Net operating revenue (the sum or more past due or in nonaccrual status – fell by $53.5 of net interest income and total noninterest income) was billion (14.9 percent). All major loan categories registered $12.8 billion lower than in 2010. improvements, with loans secured by real estate properties The average return on assets (ROA) rose to 0.88 percent accounting for more than two-thirds (68 percent) of the from 0.65 percent a year earlier. This is the highest full year ROA for the industry since 2006. More than 59 percent of insured institutions had higher ROAs in 2011 than in 2010. Insured institutions set aside $76.9 billion in provisions for loan and lease losses during 2011, a reduction of $81.1 billion (51.3 percent) compared to 2010. The industry’s total noninterest income declined by $5.3 billion (2.3 percent), as income from asset servicing fell by $8.0 billion (48.6 percent), gains on loan sales dropped by $4.8 billion (43.0 percent), and income from service charges on deposit accounts declined by $2.2 billion (5.9 percent). These declines were partially offset by a $2.2 billion (9.5 percent) increase in trading income. Net interest income was $7.5 billion (1.7 percent) lower than in 2010. Total noninterest expenses were $19.8 billion (5.1 percent) higher. total decline in noncurrent loan balances. Noncurrent real estate construction and development loans declined by $19.3 billion, while balances of loans to commercial and industrial (C&I) borrowers that were noncurrent fell by $11.7 billion. Noncurrent real estate loans secured by nonfarm nonresidential properties declined by $6.1 billion, and noncurrent residential mortgage balances dropped by $5.6 billion. Net charge-offs of loans and leases (NCOs) totaled $113.0 billion in 2011, a $74.7 billion decline from 2010. This is the fourth consecutive year that industry charge-offs exceeded $100 billion. Credit card loan NCOs had the largest year-over-year decline, falling by $27.9 billion. NCOs of real estate construction loans were $11.8 billion lower, C&I NCOs were down by $9.8 billion, and residential mortgage NCOs fell by $8.3 billion. At the end of 2011, there were 813 institutions on the FDIC’s “Problem List,” down from 884 “problem” institutions at the beginning of the year. 120 financial statements and notes 2011 ANNUAL REPORT Asset growth picked up in 2011, funded by strong deposit inflows. During the 12 months ended December 31, total assets of insured institutions increased by $564.4 billion (4.2 percent). Cash and balances due from depository institutions (including balances with Federal Reserve banks) accounted for $298.4 billion (52.9 percent) of the growth in assets. Securities portfolios rose by $182.6 billion (6.8 percent). Net loans and leases increased by $130.8 billion, as C&I loan balances rose by $160.9 billion (13.6 percent). Balances fell in most other major loan categories in 2011. The largest declines occurred in real estate construction and development loans, where balances fell by $81.4 billion (25.3 percent), and in home equity lines of credit, which declined by $33.5 billion (5.3 percent). Banks reduced their reserves for loan losses by $40.5 billion (17.5 percent) during 2011, while increasing their equity capital by $68.0 billion (4.6 percent). Growth in deposits outpaced the increase in total assets in 2011. Deposits in domestic offices of insured institutions increased by $881.9 billion (11.2 percent), while deposits in foreign offices fell by $121.4 billion (7.8 percent). A large portion of the increase in domestic deposits occurred in noninterest-bearing transaction accounts with balances greater than $250,000 that are fully insured until the end of 2012. Balances in these accounts increased by $569.1 billion (56 percent) during the year. Nondeposit liabilities fell by $255.6 billion (10.7 percent), as banks reduced their Federal Home Loan Bank advances by $59.1 billion (15.3 percent), Fed funds purchased declined by $72.5 billion (60.9 percent), securities sold under repurchase agreements dropped by $30.3 billion (6.6 percent), and other secured borrowings fell by $76.4 billion (19.6 percent). 121 corporate management control 2011 ANNUAL REPORT 5. Corporate management control T he FDIC uses several means to maintain activity reports to all levels of management. Conscientious comprehensive internal controls, ensure the attention is also paid to the implementation of audit overall effectiveness and efficiency of operations recommendations made by the FDIC Office of the and otherwise comply as necessary with the following Inspector General, the GAO, the Treasury Department’s federal standards, among others: Special Inspector General for the TARP program and ★★Chief Financial Officers’ Act (CFO Act) ★★Federal Managers’ Financial Integrity Act (FMFIA) ★★Federal Financial Management Improvement Act (FFMIA) ★★Government Performance and Results Act (GPRA) ★★Federal Information Security Management Act (FISMA) other providers of external/audit scrutiny. The FDIC has received unqualified (clean) opinions on its financial statement audits for twenty consecutive years, and these and other positive results are reflective of the effectiveness of the overall management control program. Significantly, since the beginning of the financial crisis, the FDIC has expanded the range of issues receiving close management scrutiny to encompass crisis-related challenges. Several Program Management Organizations ★★OMB Circular A-123 ★★GAO’s Standards for Internal Control in the Federal Government (PMOs) were created to oversee such issues as shared-loss agreements, legacy loans, systemic resolution authority, the Temporary Liquidity Guarantee Program, contract management oversight, and resource management. For As a foundation for these efforts, the Corporate each area, key issues and risks were identified, action plans Management Control Branch in DOF [formerly the Office and performance metrics were developed as necessary, and of Enterprise Risk Management (OERM)] traditionally the Chairman was briefed at least monthly. In many cases, has overseen a corporate-wide program of relevant enhancements in operating procedures and automated activities by establishing policies and coordinating on systems of support were made as a direct result of this an ongoing basis with parallel management control heightened management attention. Particular attention units in each Division and Office in the FDIC. Broadly also was given to the training needs of the FDIC’s speaking, a coordinated effort has been made to expanded staff, to include training in supervisory skills, ensure that operational risks have been identified, with to help ensure the continuation of effective operations corresponding control needs being incorporated into and results. day-to-day operations. The program also imposes the need for comprehensive procedures to be documented, employees to be thoroughly trained and supervisors to be held accountable for performance and results. Compliance monitoring is carried out through periodic management reviews and by the distribution of various Similar plans for 2012 and beyond have been developed to ensure a smooth transition of operations as we move toward a post-crisis operating environment. Among other things, program evaluation activities in the coming year will focus not only on new responsibilities associated 123 corporate management control with the Dodd-Frank legislation and other internal organizational changes, but on the closing of temporary satellite offices and the downsizing of staffing in general. Continued emphasis and management scrutiny also will be applied to contracting oversight, the accuracy and integrity of transactions, and systems development efforts in general. Management Report on Final Actions As required under amended Section 5 of the Inspector General Act of 1978, the FDIC must report information on final action taken by management on certain audit reports. 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, 2010, through September 30, 2011. Table 1: Management Report on Final Action on Audits with Disallowed Costs for Fiscal Year 2011 Dollars in Thousands Audit Reports Number of Reports Disallowed Costs A. Management decisions – final action not taken at beginning of period 2 $25,148 B. Management decisions made during the period 4 $42,801 C. Total reports pending final action during the period (A and B) 6 $67,949 (a) Collections & offsets 5 $37,605 (b) Other 0 $0 2. Write-offs 3 $3,987 3. Total of 1(a), 1(b), & 2 51 $41,592 Audit reports needing final action at the end of the period 2 $31,4752 Final action taken during the period: 1. Recoveries: D. E. 124 1 Three reports have both collections and write-offs, thus the total of 1(a), 1(b), and 2 is five. 2 Amount collected in D3 included excess recoveries of $2.6 million not reflected in line E. corporate management control 2011 ANNUAL REPORT Table 2: Management Report on Final Action on Audits with Recommendations to Put Funds to Better Use for Fiscal Year 2011 Dollars in Thousands Number of Reports Audit Reports Funds Put To Better Use A. Management decisions – final action not taken at beginning of period 0 $0 B. Management decisions made during the period 1 $2,509 C. Total reports pending final action during the period (A and B) 1 $2,509 1. Value of recommendations implemented (completed) 1 $43 2. Value of recommendations that management concluded should not or could not be implemented or completed 1 $2,466 3. Total of 1 and 2 13 $2,509 Audit reports needing final action at the end of the period 0 $0 Final action taken during the period: D. E. 3 One report had both implemented and unimplemented values. Table 3: Audit Reports Without Final Actions But With Management Decisions Over One Year Old for Fiscal Year 2011 Management Action in Process Report No. and Issue Date AUD-11-001 11/30/2010 OIG Audit Finding KPMG recommends that the FDIC should complete the design and implementation of an agencywide continuous monitoring program that addresses continuous monitoring strategies for FDIC information systems. Management Action During 2011, the FDIC completed the design of the agency-wide continuous monitoring program and made significant progress in implementing that program. The Office of Inspector General’s Federal Information Security Management Act (FISMA) results confirmed that, “the FDIC made meaningful progress in developing an agency-wide continuous monitoring program.” Disallowed Costs $0 In addition, the OIG 2011 FISMA report further stated that the OIG was not issuing any new recommendations in the area of continuous monitoring management because, “the FDIC was working to fully implement a multi-year effort to address a recommendation in our prior-year security evaluation report required by FISMA.” The OIG will re-evaluate progress on the implementation of this program during the 2012 FISMA evaluation. Expected completion date: December 2012 125 appendices 2011 ANNUAL REPORT 6. Appendices FDIC Expenditures 2002-2011 Dollars in Millions $3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2004 2005 A. Key Statistics The FDICs Strategic Plan and Annual Performance Plan provide the basis for annual planning and budgeting for needed resources. The 2011 aggregate budget 2006 2007 2008 2009 2010 2011 Over the past decade the FDIC’s expenditures have varied in response to workload. After peaking in 2010, expenditure levels subsided in 2011, largely due to decreasing resolution and receivership activity. (for corporate, receivership, and investment spending) was $3.88 billion, while actual expenditures for the year were $2.83 billion, about $590 million less than 2010 expenditures. 127 appendices FDIC Actions on Financial Institutions Applications 2009–2011 2011 2010 2009 10 16 19 10 16 19 0 0 0 New Branches 442 461 521 Approved 442 459 521 0 2 0 206 182 190 206 182 190 0 0 0 876 839 503 875 839 503 Section 19 24 10 20 Section 32 851 829 483 1 0 0 Section 19 0 0 0 Section 32 1 0 0 21 33 18 21 33 18 Deposit Insurance Approved 1 Denied Denied Mergers Approved Denied Requests for Consent to Serve 2 Approved Denied Notices of Change in Control Letters of Intent Not to Disapprove Disapproved 0 0 0 84 66 35 83 65 34 1 1 1 30 31 39 30 31 39 0 0 0 9 3 2 Approved 9 3 2 Denied 0 0 0 Brokered Deposit Waivers Approved Denied Savings Association Activities 3 Approved Denied State Bank Activities/Investments 4 Conversion of Mutual Institutions 128 6 2 6 Non-Objection 6 2 6 Objection 0 0 0 1 Includes deposit insurance application filed on behalf of: (1) newly organized institutions, (2) existing uninsured financial services companies seeking establishment as an insured institution, and (3) interim institutions established to facilitate merger or conversion transactions, and applications to facilitate the establishment of thrift holding companies. 2 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 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. 3 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. 4 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 with the FDIC. 2011 Appendices ANNUAL REPORT Compliance, Enforcement, and Other Related Legal Actions 2009–2011 2011 2010 2009 550 758 551 0 0 0 Sec. 8a By Order Upon Request 0 0 0 Sec. 8p No Deposits 7 4 4 Sec. 8q Deposits Assumed 2 1 2 7 1 3 183 372 302 11 10 2 100 111 64 1 0 0 Sec. 7a Call Report Penalties 0 0 1 Sec. 8i Civil Money Penalties 193 212 154 5 8 0 29 15 10 10 24 12 1 0 0 0 0 0 Denials of Requests for Relief 0 0 0 Grants of Relief 0 0 0 Total Number of Actions Initiated by the FDIC Termination of Insurance Involuntary Termination Sec. 8a For Violations, Unsafe/Unsound Practices or Conditions Voluntary Termination Sec. 8b Cease-and-Desist Actions Notices of Charges Issued* Consent Orders Sec. 8e Removal/Prohibition of Director or Officer Notices of Intention to Remove/Prohibit Consent Orders Sec. 8g Suspension/Removal When Charged With Crime Civil Money Penalties Issued Sec. 8i Civil Money Penalty Notices of Assessment Sec. 10c Orders of Investigation Sec. 19 Waiver Orders Approved Section 19 Waiver Orders Denied Section 19 Waiver Orders Sec. 32 Notices Disapproving Officer/Director’s Request for Review Truth-in-Lending Act Reimbursement Actions Banks Making Reimbursement* Suspicious Activity Reports (Open and closed institutions)* Other Actions Not Listed 84 64 94 125,460 126,098 128,973 8 1 0 *These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total number of actions initiated. 129 appendices Estimated Insured Deposits and the Deposit Insurance Fund, December 31, 1934, through December 31, 2011 Dollars in Millions (except Insurance Coverage) Deposits in Insured Institutions 130 Insurance Fund as a Percentage of Year Insurance Coverage1 Total Domestic Deposits Est. Insured Deposits2 Percentage of Insured Deposits Deposit Insurance Fund Total Domestic Deposits Est. Insured Deposits 2011 $250,000 $8,779,282 $6,979,126 79.5 $11,826.5 0.13 0.17 2010 250,000 7,887,732 6,315,302 80.1 (7,352.2) (0.09) (0.12) 2009 250,000 7,705,353 5,407,757 70.2 (20,861.8) (0.27) (0.39) 2008 100,000 7,505,409 4,750,783 63.3 17,276.3 0.23 0.36 2007 100,000 6,921,678 4,292,211 62.0 52,413.0 0.76 1.22 2006 100,000 6,640,097 4,153,808 62.6 50,165.3 0.76 1.21 2005 100,000 6,229,823 3,891,000 62.5 48,596.6 0.78 1.25 2004 100,000 5,724,775 3,622,213 63.3 47,506.8 0.83 1.31 2003 100,000 5,224,030 3,452,606 66.1 46,022.3 0.88 1.33 2002 100,000 4,916,200 3,383,720 68.8 43,797.0 0.89 1.29 2001 100,000 4,565,068 3,216,585 70.5 41,373.8 0.91 1.29 2000 100,000 4,211,895 3,055,108 72.5 41,733.8 0.99 1.37 1999 100,000 3,885,826 2,869,208 73.8 39,694.9 1.02 1.38 1998 100,000 3,817,150 2,850,452 74.7 39,452.1 1.03 1.38 1997 100,000 3,602,189 2,746,477 76.2 37,660.8 1.05 1.37 1996 100,000 3,454,556 2,690,439 77.9 35,742.8 1.03 1.33 1995 100,000 3,318,595 2,663,873 80.3 28,811.5 0.87 1.08 1994 100,000 3,184,410 2,588,619 81.3 23,784.5 0.75 0.92 1993 100,000 3,220,302 2,602,781 80.8 14,277.3 0.44 0.55 1992 100,000 3,275,530 2,677,709 81.7 178.4 0.01 0.01 1991 100,000 3,331,312 2,733,387 82.1 (6,934.0) (0.21) (0.25) 1990 100,000 3,415,464 2,784,838 81.5 4,062.7 0.12 0.15 1989 100,000 3,412,503 2,755,471 80.7 13,209.5 0.39 0.48 1988 100,000 2,337,080 1,756,771 75.2 14,061.1 0.60 0.80 1987 100,000 2,198,648 1,657,291 75.4 18,301.8 0.83 1.10 1986 100,000 2,162,687 1,636,915 75.7 18,253.3 0.84 1.12 1985 100,000 1,975,030 1,510,496 76.5 17,956.9 0.91 1.19 1984 100,000 1,805,334 1,393,421 77.2 16,529.4 0.92 1.19 Appendices 2011 ANNUAL REPORT Estimated Insured Deposits and the Deposit Insurance Fund, December 31, 1934, through December 31, 2011 CONTINUED Dollars in Millions (except Insurance Coverage) Deposits in Insured Institutions Insurance Fund as a Percentage of Year Insurance Coverage1 Total Domestic Deposits Est. Insured Deposits2 Percentage of Insured Deposits Deposit Insurance Fund Total Domestic Deposits Est. Insured Deposits 1983 100,000 1,690,576 1,268,332 75.0 15,429.1 0.91 1.22 1982 100,000 1,544,697 1,134,221 73.4 13,770.9 0.89 1.21 1981 100,000 1,409,322 988,898 70.2 12,246.1 0.87 1.24 1980 100,000 1,324,463 948,717 71.6 11,019.5 0.83 1.16 1979 40,000 1,226,943 808,555 65.9 9,792.7 0.80 1.21 1978 40,000 1,145,835 760,706 66.4 8,796.0 0.77 1.16 1977 40,000 1,050,435 692,533 65.9 7,992.8 0.76 1.15 1976 40,000 941,923 628,263 66.7 7,268.8 0.77 1.16 1975 40,000 875,985 569,101 65.0 6,716.0 0.77 1.18 1974 40,000 833,277 520,309 62.4 6,124.2 0.73 1.18 1973 20,000 766,509 465,600 60.7 5,615.3 0.73 1.21 1972 20,000 697,480 419,756 60.2 5,158.7 0.74 1.23 1971 20,000 610,685 374,568 61.3 4,739.9 0.78 1.27 1970 20,000 545,198 349,581 64.1 4,379.6 0.80 1.25 1969 20,000 495,858 313,085 63.1 4,051.1 0.82 1.29 1968 15,000 491,513 296,701 60.4 3,749.2 0.76 1.26 1967 15,000 448,709 261,149 58.2 3,485.5 0.78 1.33 1966 15,000 401,096 234,150 58.4 3,252.0 0.81 1.39 1965 10,000 377,400 209,690 55.6 3,036.3 0.80 1.45 1964 10,000 348,981 191,787 55.0 2,844.7 0.82 1.48 1963 10,000 313,304 177,381 56.6 2,667.9 0.85 1.50 1962 10,000 297,548 170,210 57.2 2,502.0 0.84 1.47 1961 10,000 281,304 160,309 57.0 2,353.8 0.84 1.47 1960 10,000 260,495 149,684 57.5 2,222.2 0.85 1.48 1959 10,000 247,589 142,131 57.4 2,089.8 0.84 1.47 1958 10,000 242,445 137,698 56.8 1,965.4 0.81 1.43 1957 10,000 225,507 127,055 56.3 1,850.5 0.82 1.46 1956 10,000 219,393 121,008 55.2 1,742.1 0.79 1.44 131 appendices Estimated Insured Deposits and the Deposit Insurance Fund, December 31, 1934, through December 31, 2011 Dollars in Millions (except Insurance Coverage) CONTINUED Deposits in Insured Institutions 132 Insurance Fund as a Percentage of Year Insurance Coverage1 Total Domestic Deposits Est. Insured Deposits2 Percentage of Insured Deposits Deposit Insurance Fund Total Domestic Deposits Est. Insured Deposits 1955 10,000 212,226 116,380 54.8 1,639.6 0.77 1.41 1954 10,000 203,195 110,973 54.6 1,542.7 0.76 1.39 1953 10,000 193,466 105,610 54.6 1,450.7 0.75 1.37 1952 10,000 188,142 101,841 54.1 1,363.5 0.72 1.34 1951 10,000 178,540 96,713 54.2 1,282.2 0.72 1.33 1950 10,000 167,818 91,359 54.4 1,243.9 0.74 1.36 1949 5,000 156,786 76,589 48.8 1,203.9 0.77 1.57 1948 5,000 153,454 75,320 49.1 1,065.9 0.69 1.42 1947 5,000 154,096 76,254 49.5 1,006.1 0.65 1.32 1946 5,000 148,458 73,759 49.7 1,058.5 0.71 1.44 1945 5,000 157,174 67,021 42.6 929.2 0.59 1.39 1944 5,000 134,662 56,398 41.9 804.3 0.60 1.43 1943 5,000 111,650 48,440 43.4 703.1 0.63 1.45 1942 5,000 89,869 32,837 36.5 616.9 0.69 1.88 1941 5,000 71,209 28,249 39.7 553.5 0.78 1.96 1940 5,000 65,288 26,638 40.8 496.0 0.76 1.86 1939 5,000 57,485 24,650 42.9 452.7 0.79 1.84 1938 5,000 50,791 23,121 45.5 420.5 0.83 1.82 1937 5,000 48,228 22,557 46.8 383.1 0.79 1.70 1936 5,000 50,281 22,330 44.4 343.4 0.68 1.54 1935 5,000 45,125 20,158 44.7 306.0 0.68 1.52 1934 5,000 40,060 18,075 45.1 291.7 0.73 1.61 1 The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) temporarily provides unlimited coverage for non-interest bearing transaction accounts for two years beginning December 31, 2010. Coverage limits do not reflect temporary increases authorized by the Emergency Economic Stabilization Act of 2008. Coverage for certain retirement accounts increased to $250,000 in 2006. Initial coverage limit was $2,500 from January 1 to June 30, 1934. 2 Beginning in the fourth quarter 2010, estimates of insured deposits include the Dodd-Frank Act temporary unlimited coverage for non-interest bearing transaction accounts. Prior to 1989, figures are for the Bank Insurance Fund (BIF) only and exclude insured branches of foreign banks. For 1989 to 2005, figures represent sum of the BIF and Savings Association Insurance Fund (SAIF) amounts; for 2006 to 2011, figures are for DIF. Amounts for 1989 - 2011 include insured branches of foreign banks. Prior to year-end 1991, insured deposits were estimated using percentages determined from June Call and Thrift Financial Reports. Appendices 2011 ANNUAL REPORT Income and Expenses, Deposit Insurance Fund, from Beginning of Operations, September 11, 1933, through December 31, 2011 Dollars in Millions Income Year Total Expenses and Losses Assessment Assessment Investment Income Credits and Other Total $172,116.7 $115,379.3 $11,392.7 $68,718.9 Effective Assessment Rate¹ Provision for Ins. Losses Admin. and Operating Expenses2 Interest & Other Ins. Expenses Funding Transfer from the FSLIC Resolution Fund $161,430.1 $130,481.0 $21,356.9 $9,592.2 $139.5 $10,826.1 Total Net Income/ (Loss) 2011 $16,342.0 13,499.5 0.9 2,843.4 0.1110% (2,915.4) (4,413.6) 1,625.4 (127.2) 0 19,257.4 2010 13,379.9 13,611.2 0.8 (230.5) 0.1772% 75.0 (847.8) 1,592.6 (669.8) 0 13,304.9 2009 24,706.4 17,865.4 148.0 6,989.0 0.2330% 60,709.0 57,711.8 1,271.1 1,726.1 0 (36,002.6) 2008 7,306.3 4,410.4 1,445.9 4,341.8 0.0418% 44,339.5 41,838.8 1,033.5 1,467.2 0 (37,033.2) 2007 3,196.2 3,730.9 3,088.0 2,553.3 0.0093% 1,090.9 95.0 992.6 3.3 0 2,105.3 2006 2,643.5 31.9 0.0 2,611.6 0.0005% 904.3 (52.1) 950.6 5.8 0 1,739.2 2005 2,420.5 60.9 0.0 2,359.6 0.0010% 809.3 (160.2) 965.7 3.8 0 1,611.2 2004 2,240.3 104.2 0.0 2,136.1 0.0019% 607.6 (353.4) 941.3 19.7 0 1,632.7 2003 2,173.6 94.8 0.0 2,078.8 0.0019% (67.7) (1,010.5) 935.5 7.3 0 2,241.3 2002 1,795.9 107.8 0.0 2,276.9 0.0023% 719.6 (243.0) 945.1 17.5 0 1,076.3 2001 2,730.1 83.2 0.0 2,646.9 0.0019% 3,123.4 2,199.3 887.9 36.2 0 (393.3) 2000 2,570.1 64.3 0.0 2,505.8 0.0016% 945.2 28.0 883.9 33.3 0 1,624.9 1999 2,416.7 48.4 0.0 2,368.3 0.0013% 2,047.0 1,199.7 823.4 23.9 0 369.7 1998 2,584.6 37.0 0.0 2,547.6 0.0010% 817.5 (5.7) 782.6 40.6 0 1,767.1 1997 2,165.5 38.6 0.0 2,126.9 0.0011% 247.3 (505.7) 677.2 75.8 0 1,918.2 1996 7,156.8 5,294.2 0.0 1,862.6 0.1622% 353.6 (417.2) 568.3 202.5 0 6,803.2 1995 5,229.2 3,877.0 0.0 1,352.2 0.1238% 202.2 (354.2) 510.6 45.8 0 5,027.0 1994 7,682.1 6,722.7 0.0 959.4 0.2192% (1,825.1) (2,459.4) 443.2 191.1 0 9,507.2 1993 7,354.5 6,682.0 0.0 672.5 0.2157% (6,744.4) (7,660.4) 418.5 497.5 0 14,098.9 1992 6,479.3 5,758.6 0.0 720.7 0.1815% (596.8) (2,274.7) 614.83 1,063.1 35.4 7,111.5 1991 5,886.5 5,254.0 0.0 632.5 0.1613% 16,925.3 15,496.2 326.1 1,103.0 42.4 (10,996.4) 1990 3,855.3 2,872.3 0.0 983.0 0.0868% 13,059.3 12,133.1 275.6 650.6 56.1 (9,147.9) 1989 3,494.8 1,885.0 0.0 1,609.8 0.0816% 4,352.2 3,811.3 219.9 321.0 5.6 (851.8) 1988 3,347.7 1,773.0 0.0 1,574.7 0.0825% 7,588.4 6,298.3 223.9 1,066.2 0 (4,240.7) 133 appendices Income and Expenses, Deposit Insurance Fund, from Beginning of Operations, September 11, 1933, through December 31, 2011 CONTINUED Dollars in Millions Income Expenses and Losses Assessment Assessment Investment Income Credits and Other Effective Assessment Rate¹ Total Provision for Ins. Losses Admin. and Operating Expenses2 Interest & Other Ins. Expenses Funding Transfer from the FSLIC Resolution Fund Net Income/ (Loss) Year Total 1987 3,319.4 1,696.0 0.0 1,623.4 0.0833% 3,270.9 2,996.9 204.9 69.1 0 48.5 1986 3,260.1 1,516.9 0.0 1,743.2 0.0787% 2,963.7 2,827.7 180.3 (44.3) 0 296.4 1985 3,385.5 1,433.5 0.0 1,952.0 0.0815% 1,957.9 1,569.0 179.2 209.7 0 1,427.6 1984 3,099.5 1,321.5 0.0 1,778.0 0.0800% 1,999.2 1,633.4 151.2 214.6 0 1,100.3 1983 2,628.1 1,214.9 164.0 1,577.2 0.0714% 969.9 675.1 135.7 159.1 0 1,658.2 1982 2,524.6 1,108.9 96.2 1,511.9 0.0769% 999.8 126.4 129.9 743.5 0 1,524.8 1981 2,074.7 1,039.0 117.1 1,152.8 0.0714% 848.1 320.4 127.2 400.5 0 1,226.6 1980 1,310.4 951.9 521.1 879.6 0.0370% 83.6 (38.1) 118.2 3.5 0 1,226.8 1979 1,090.4 881.0 524.6 734.0 0.0333% 93.7 (17.2) 106.8 4.1 0 996.7 1978 952.1 810.1 443.1 585.1 0.0385% 148.9 36.5 103.3 9.1 0 803.2 1977 837.8 731.3 411.9 518.4 0.0370% 113.6 20.8 89.3 3.5 0 724.2 1976 764.9 676.1 379.6 468.4 0.0370% 212.3 28.0 4 180.4 3.9 0 552.6 1975 689.3 641.3 362.4 410.4 0.0357% 97.5 27.6 67.7 2.2 0 591.8 1974 668.1 587.4 285.4 366.1 0.0435% 159.2 97.9 59.2 2.1 0 508.9 1973 561.0 529.4 283.4 315.0 0.0385% 108.2 52.5 54.4 1.3 0 452.8 1972 467.0 468.8 280.3 278.5 0.0333% 65.7 10.1 49.6 6.05 0 401.3 1971 415.3 417.2 241.4 239.5 0.0345% 60.3 13.4 46.9 0.0 0 355.0 1970 382.7 369.3 210.0 223.4 0.0357% 46.0 3.8 42.2 0.0 0 336.7 1969 335.8 364.2 220.2 191.8 0.0333% 34.5 1.0 33.5 0.0 0 301.3 1968 295.0 334.5 202.1 162.6 0.0333% 29.1 0.1 29.0 0.0 0 265.9 1967 263.0 303.1 182.4 142.3 0.0333% 27.3 2.9 24.4 0.0 0 235.7 1966 241.0 284.3 172.6 129.3 0.0323% 19.9 0.1 19.8 0.0 0 221.1 1965 214.6 260.5 158.3 112.4 0.0323% 22.9 5.2 17.7 0.0 0 191.7 1964 197.1 238.2 145.2 104.1 0.0323% 18.4 2.9 15.5 0.0 0 178.7 1963 181.9 220.6 136.4 97.7 0.0313% 15.1 0.7 14.4 0.0 0 166.8 134 Appendices 2011 ANNUAL REPORT Income and Expenses, Deposit Insurance Fund, from Beginning of Operations, September 11, 1933, through December 31, 2011 CONTINUED Dollars in Millions Income Expenses and Losses Assessment Assessment Investment Income Credits and Other Effective Assessment Rate¹ Total Provision for Ins. Losses Admin. and Operating Expenses2 Interest & Other Ins. Expenses Funding Transfer from the FSLIC Resolution Fund Net Income/ (Loss) Year Total 1962 161.1 203.4 126.9 84.6 0.0313% 13.8 0.1 13.7 0.0 0 147.3 1961 147.3 188.9 115.5 73.9 0.0323% 14.8 1.6 13.2 0.0 0 132.5 1960 144.6 180.4 100.8 65.0 0.0370% 12.5 0.1 12.4 0.0 0 132.1 1959 136.5 178.2 99.6 57.9 0.0370% 12.1 0.2 11.9 0.0 0 124.4 1958 126.8 166.8 93.0 53.0 0.0370% 11.6 0.0 11.6 0.0 0 115.2 1957 117.3 159.3 90.2 48.2 0.0357% 9.7 0.1 9.6 0.0 0 107.6 1956 111.9 155.5 87.3 43.7 0.0370% 9.4 0.3 9.1 0.0 0 102.5 1955 105.8 151.5 85.4 39.7 0.0370% 9.0 0.3 8.7 0.0 0 96.8 1954 99.7 144.2 81.8 37.3 0.0357% 7.8 0.1 7.7 0.0 0 91.9 1953 94.2 138.7 78.5 34.0 0.0357% 7.3 0.1 7.2 0.0 0 86.9 1952 88.6 131.0 73.7 31.3 0.0370% 7.8 0.8 7.0 0.0 0 80.8 1951 83.5 124.3 70.0 29.2 0.0370% 6.6 0.0 6.6 0.0 0 76.9 1950 84.8 122.9 68.7 30.6 0.0370% 7.8 1.4 6.4 0.0 0 77.0 1949 151.1 122.7 0.0 28.4 0.0833% 6.4 0.3 6.1 0.0 0 144.7 1948 145.6 119.3 0.0 26.3 0.0833% 7.0 0.7 6.36 0.0 0 138.6 1947 157.5 114.4 0.0 43.1 0.0833% 9.9 0.1 9.8 0.0 0 147.6 1946 130.7 107.0 0.0 23.7 0.0833% 10.0 0.1 9.9 0.0 0 120.7 1945 121.0 93.7 0.0 27.3 0.0833% 9.4 0.1 9.3 0.0 0 111.6 1944 99.3 80.9 0.0 18.4 0.0833% 9.3 0.1 9.2 0.0 0 90.0 1943 86.6 70.0 0.0 16.6 0.0833% 9.8 0.2 9.6 0.0 0 76.8 1942 69.1 56.5 0.0 12.6 0.0833% 10.1 0.5 9.6 0.0 0 59.0 1941 62.0 51.4 0.0 10.6 0.0833% 10.1 0.6 9.5 0.0 0 51.9 1940 55.9 46.2 0.0 9.7 0.0833% 12.9 3.5 9.4 0.0 0 43.0 1939 51.2 40.7 0.0 10.5 0.0833% 16.4 7.2 9.2 0.0 0 34.8 1938 47.7 38.3 0.0 9.4 0.0833% 11.3 2.5 8.8 0.0 0 36.4 135 appendices Income and Expenses, Deposit Insurance Fund, from Beginning of Operations, September 11, 1933, through December 31, 2011 CONTINUED Dollars in Millions Income Expenses and Losses Assessment Assessment Investment Income Credits and Other Effective Assessment Rate¹ Total Provision for Ins. Losses Admin. and Operating Expenses2 Interest & Other Ins. Expenses Funding Transfer from the FSLIC Resolution Fund Net Income/ (Loss) Year Total 1937 48.2 38.8 0.0 9.4 0.0833% 12.2 3.7 8.5 0.0 0 36.0 1936 43.8 35.6 0.0 8.2 0.0833% 10.9 2.6 8.3 0.0 0 32.9 1935 20.8 11.5 0.0 9.3 0.0833% 11.3 2.8 8.5 0.0 0 9.5 1933-34 7.0 0.0 0.0 7.0 N/A 10.0 0.2 9.8 0.0 0 (3.0) 1 Figures represent only BIF-insured institutions prior to 1990, BIF- and SAIF-insured institutions from 1990 through 2005, and DIF-insured institutions beginning in 2006. After 1995, all thrift closings became the reponsibility of the FDIC and amounts are reflected in the SAIF. The effective assessment rate is calculated from annual assessment income (net of assessment credits), excluding transfers to the Financing Corporation (FICO), Resolution Funding Corporation (REFCORP) and FSLIC Resolution Fund, divided by the four quarter average assessment base. The effective rates from 1950 through 1984 varied from the statutory rate of 0.0833 percent due to assessment credits provided in those years. The statutory rate increased to 0.12 percent in 1990 and to a minimum of 0.15 percent in 1991. The effective rates in 1991 and 1992 varied because the FDIC exercised new authority to increase assessments above the statutory minimum rate when needed. Beginning in 1993, the effective rate was based on a risk-related premium system under which institutions paid 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, BIF assessment rates were reduced to a range of 0.04 percent to 0.31 percent of assessable deposits, effective June 1995, and assessments totaling $1.5 billion were refunded in September 1995. Assessment rates for the BIF were lowered again to a range of 0 to 0.27 percent of assessable deposits, effective the start of 1996. In 1996, the SAIF collected a one-time special assessment of $4.5 billion. Subsequently, assessment rates for the SAIF were lowered to the same range as the BIF, effective October 1996. This range of rates remained unchanged for both funds through 2006. As part of the implementation of the Federal Deposit Insurance Reform Act of 2005, assessment rates were increased to a range of 0.05 percent to 0.43 percent of assessable deposits effective at the start of 2007, but many institutions received a one-time assessment credit ($4.7 billion in total) to offset the new assessments. On December 16, 2008, the FDIC Board of Directors (the “Board”) adopted a final rule to temporarily increase assessment rates for the first quarter of 2009 to a range of 0.12 percent to 0.50 percent of assessable deposits. On February 27, 2009, the Board adopted a final rule effective April 1, 2009, setting initial base assessment rates to a range of 0.12 percent to 0.45 percent of assessable deposits. On June 30, 2009, a special assessment was imposed on all insured banks and thrifts, which amounted in aggregate to approximately $5.4 billion. For 8,106 institutions, with $9.3 trillion in assets, the special assessment was 5 basis points of each institution’s assets minus tier one capital; 89 other institutions, with assets of $4.0 trillion, had their special asssessment capped at 10 basis points of their second quarter assessment base. 2 These expenses, which are presented as operating expenses in the Statement of Income and Fund Balance, pertain to the FDIC in its corporate capacity only and do not include costs that are charged to the failed bank receiverships that are managed by the FDIC. The receivership expenses are presented as part of the “Receivables from Resolutions, net” line on the Balance Sheet. The narrative and graph presented in the “Corporate Planning and Budget” section of this report (page 127) show 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 a $106 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 $81 million of interest paid on capital stock between 1933 and 1948. 136 Appendices 2011 ANNUAL REPORT Number, Assets, Deposits, Losses, and Loss to Funds of Insured Thrifts Taken Over or Closed Because of Financial Difficulties, 1989 through 19951 Dollars in Thousands Year Total Assets Deposits Estimated Receivership Loss2 Total 748 $393,986,574 $317,501,978 $75,979,051 $81,577,711 1995 2 423,819 414,692 28,192 27,750 1994 2 136,815 127,508 11,472 14,599 1993 10 6,147,962 4,881,461 267,595 65,212 1992 59 44,196,946 34,773,224 3,287,038 3,832,275 1991 144 78,898,904 65,173,122 9,235,975 9,734,271 1990 213 129,662,498 98,963,962 16,063,752 19,258,646 19894 318 134,519,630 113,168,009 47,085,027 48,644,958 Loss to Funds3 1 Beginning in 1989 through July 1, 1995, all thrift closings were the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was terminated on December 31, 1995, and all assets and liabilities transferred to the FSLIC Resolution Fund (FRF), all the results of the thrift closing activity from 1989 through 1995 are now reflected on FRF’s books. Year is the year of failure, not the year of resolution. 2 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. 3 The Loss to Funds represents the total resolution cost of the failed thrifts in the FRF-RTC fund, 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 estimated losses for receiverships. 4 Total for 1989 excludes nine failures of the former FSLIC. 137 appendices FDIC-Insured Institutions Closed During 2011 Dollars in Thousands Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank Name and Location Bank Class Number of Deposit Accounts Total Assets1 SB = Savings Bank SI = Stock and Mutual Savings Bank Total Deposits1 SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location Purchase and Assumption – All Deposits The First National Bank of Davis Davis, OK N 2,334 $90,183 $68,331 $117,515 $25,925 03/11/11 The Pauls Valley National Bank Pauls Valley, OK Whole Bank Purchase and Assumption – All Deposits First Commercial Bank of Florida Orlando, FL SM 14,657 $578,638 $537,223 $532,370 $113,687 01/07/11 First Southern Bank Boca Raton, FL Legacy Bank Scottsdale, AZ NM 1,262 $136,446 $119,685 $115,300 $39,529 01/07/11 Enterprise Bank and Trust St. Louis, MO Oglethorpe Bank Brunswick, GA NM 8,414 $211,149 $201,369 $199,988 $77,875 01/14/11 Bank of the Ozarks Little Rock, AR Community South Bank and Trust Easley, SC NM 13,832 $340,986 $314,250 $321,432 $65,732 01/21/11 CertusBank, National Association Easley, SC The Bank of Asheville Asheville, NC NM 10,489 $204,925 $199,394 $194,360 $58,361 01/21/11 First Bank Troy, NC United Western Bank Denver, CO SA 6,388 $2,153,690 $1,535,194 $1,628,067 $372,785 01/21/11 First-Citizens Bank and Trust Company Raleigh, NC Evergreen State Bank Stoughton, WI NM 7,084 $193,694 $193,625 $37,690 01/28/11 MacFarland State Bank McFarland, WI First Community Bank Taos, NM SM 81,640 $2,188,154 $1,847,851 $1,815,138 $299,150 01/28/11 U.S. Bank, National Association Minneapolis, MN First State Bank Camargo, OK NM 1,528 $44,546 $41,204 $43,105 $35,122 01/28/11 Bank 7 Oklahoma City, OK American Trust Bank Roswell, GA NM 4,260 $238,205 $222,161 $225,382 $79,591 02/04/11 Renasant Bank Tupelo, MS Community First Bank Chicago, IL SM 1,404 $51,083 $49,504 $50,032 $17,456 02/04/11 Northbrook Bank and Trust Company Northbrook, IL 138 $240,949 Appendices 2011 ANNUAL REPORT FDIC-Insured Institutions Closed During 2011 Dollars in Thousands CONTINUED Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank SB = Savings Bank SI = Stock and Mutual Savings Bank SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Bank Class Number of Deposit Accounts Total Assets1 Total Deposits1 North Georgia Bank Watkinsville, GA NM 3,833 $153,172 $139,672 $137,002 $54,619 02/04/11 BankSouth Greensboro, GA Badger State Bank Cassville, WI NM 5,386 $83,828 $78,549 $77,786 $20,798 02/11/11 Royal Bank Elroy, WI N 9,588 $210,859 $205,285 $205,839 $19,065 02/11/11 Pacific Premier Bank Costa Mesa, CA Peoples State Bank Hamtramck, MI NM 21,775 $390,524 $389,868 $388,437 $134,570 02/11/11 First Michigan Bank Troy, MI Sunshine State Community Bank Port Orange, FL NM 8,387 $125,531 $116,715 $111,658 $34,884 02/11/11 Premier American Bank, N.A. Miami, FL Charter Oak Bank Napa, CA NM 2,416 $120,833 $105,309 $100,297 $25,905 02/18/11 Bank of Marin Novato, CA Citizens Bank of Effingham Springfield, GA NM 11,329 $214,275 $206,490 $208,501 $55,387 02/18/11 HeritageBank of the South Albany, GA Habersham Bank Clarkesville, GA NM 21,586 $387,681 $339,934 $342,242 $121,456 02/18/11 SCBT National Association Orangeburg, SC San Luis Trust Bank, FSB San Luis Obispo, CA SA 3,993 $332,596 $272,216 $272,049 $96,403 02/18/11 First California Bank Westlake Village, CA Valley Community Bank St. Charles, IL NM 6,176 $123,774 $124,179 $123,022 $30,277 02/25/11 First State Bank Mendota, IL Legacy Bank Milwaukee, WI SM 4,761 $190,418 $183,309 $199,694 $53,309 03/11/11 Seaway Bank and Trust Company Chicago, IL The Bank of Commerce Wood Dale, IL NM 3,139 $163,074 $161,379 $165,795 $47,322 03/25/11 Advantage National Bank Group Elk Grove Village, IL NM 1,601 $135,064 $128,573 $130,778 $39,818 04/08/11 N 6,870 $186,677 $182,441 $185,555 $32,523 04/08/11 Name and Location Canyon National Bank Palm Springs, CA Nevada Commerce Bank Las Vegas, NV Western Springs National Bank and Trust Western Springs, IL Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location City National Bank Los Angeles, CA Heartland Bank and Trust Company Bloomington, IL 139 appendices FDIC-Insured Institutions Closed During 2011 Dollars in Thousands CONTINUED Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank SB = Savings Bank SI = Stock and Mutual Savings Bank SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Bank Class Number of Deposit Accounts Total Assets1 Total Deposits1 Bartow County Bank Cartersville, GA NM 20,216 $314,019 $290,005 $290,241 $78,302 04/15/11 Hamilton State Bank Hoschton, GA Heritage Banking Group Carthage, MS NM 11,820 $228,328 $205,035 $205,753 $57,429 04/15/11 Trustmark National Bank Jackson, MS New Horizons Bank East Ellijay, GA NM 3,251 $103,055 $99,022 $99,562 $37,622 04/15/11 Citizens South Bank Gastonia, NC Nexity Bank Birmingham, AL NM 11,141 $757,574 $611,681 $609,677 $196,204 04/15/11 Alostar Bank of Commerce Birmingham, AL Rosemount National Bank Rosemount, MN N 2,887 $21,454 $20,980 $22,899 $8,986 04/15/11 Central Bank Stillwater, MN Superior Bank Birmingham, AL SA 110,217 $2,977,290 $2,736,201 $2,752,261 $276,107 04/15/11 Superior Bank, N.A. Birmingham, AL Community Central Bank Mount Clemens, MI NM 9,558 $451,683 $371,494 $359,734 $191,415 04/29/11 Talmer Bank & Trust Troy, MI Cortez Community Bank Brooksville, FL NM 2,751 $66,282 $65,439 $66,587 $26,709 04/29/11 Premier American Bank, N.A. Miami, FL First Choice Community Bank Dallas, GA NM 11,419 $291,196 $294,769 $295,306 $100,197 04/29/11 Bank of the Ozarks Little Rock, AR First National Bank of Central Florida Winter Park, FL N 7,247 $342,079 $308,784 $306,179 $53,519 04/29/11 Premier American Bank, N.A. Miami, FL The Park Avenue Bank Valdosta, GA SM 38,484 $849,409 $724,483 $694,752 $326,980 04/29/11 Bank of the Ozarks Little Rock, AR Coastal Bank Cocoa Beach, FL SA 3,880 $129,429 $123,950 $124,171 $20,561 05/06/11 Premier American Bank, N.A. Miami, FL Atlantic Southern Bank Macon, GA NM 22,000 $741,855 $707,643 $680,442 $279,539 05/20/11 CertusBank, N.A. Easley, SC First Georgia Banking Co. Franklin, GA NM 27,959 $730,981 $702,231 $672,275 $177,408 05/20/11 CertusBank, N.A. Easley, SC Name and Location 140 Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location Appendices 2011 ANNUAL REPORT FDIC-Insured Institutions Closed During 2011 Dollars in Thousands CONTINUED Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank SB = Savings Bank SI = Stock and Mutual Savings Bank SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Bank Class Number of Deposit Accounts Total Assets1 Total Deposits1 Summit Bank Burlington, WA NM 4,495 $142,729 $131,631 $127,373 $21,969 05/20/11 Columbia State Bank Tacoma, WA First Heritage Bank Snohomish, WA NM 9,427 $173,478 $163,303 $161,772 $41,368 05/27/11 Columbia State Bank Tacoma, WA Atlantic Bank and Trust Charleston, SC SA 3,996 $208,204 $191,614 $185,844 $44,145 06/03/11 First Citizens Bank and Trust Company, Inc. Columbia, SC First Commercial Bank of Tampa Bay Tampa, FL NM 2,163 $98,624 $92,641 $92,400 $34,940 06/17/11 Stonegate Bank Fort Lauderdale, FL McIntosh State Bank Jackson, GA NM 20,633 $339,929 $324,403 $312,588 $87,540 06/17/11 Hamilton State Bank Hoschton, GA Mountain Heritage Bank Clayton, GA NM 2,779 $103,716 $89,554 $91,032 $45,738 06/24/11 First American Bank and Trust Company Athens, GA Colorado Capital Bank Castle Rock, CO NM 7,078 $665,806 $635,202 $628,260 $287,099 07/08/11 First-Citizens Bank & Trust Company Raleigh, NC First Chicago Bank and Trust Chicago, IL SM 17,859 $896,864 $830,530 $834,519 $275,894 07/08/11 Northbrook Bank & Trust Company Northbrook, IL Signature Bank Windsor, CO NM 2,723 $62,518 $60,349 $61,752 $26,373 07/08/11 Points West Community Bank Julesburg, CO First Peoples Bank Port Saint Lucie, FL NM 8,323 $225,035 $207,621 $214,077 $12,387 07/15/11 Florida Community Bank, N.A. Miami, FL High Trust Bank Stockbridge, GA NM 2,440 $180,340 $177,221 $177,388 $70,381 07/15/11 Ameris Bank Moultrie, GA One Georgia Bank Atlanta, GA NM 1,861 $177,715 $158,123 $157,917 $48,939 07/15/11 Ameris Bank Moultrie, GA Summit Bank Prescott, AZ NM 2,455 $73,066 $67,471 $68,365 $15,428 07/15/11 The Foothills Bank Yuma, AZ Name and Location Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location 141 appendices FDIC-Insured Institutions Closed During 2011 Dollars in Thousands CONTINUED Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank SB = Savings Bank SI = Stock and Mutual Savings Bank SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Bank Class Number of Deposit Accounts Total Assets1 Total Deposits1 Bank of Choice Greeley, CO NM 33,194 $954,106 $818,670 $812,887 $216,810 07/22/11 Bank Midwest, N.A. Kansas City, MO Landmark Bank of Florida Sarasota, FL SM 7,972 $266,482 $244,362 $238,884 $38,542 07/22/11 American Momentum Bank Tampa, FL Southshore Community Bank Apollo Beach, FL NM 1,337 $41,252 $41,434 $42,091 $12,515 07/22/11 American Momentum Bank Tampa, FL BankMeridian, N.A. Columbia, SC N 3,650 $232,648 $209,737 $206,959 $69,114 07/29/11 SCBT National Association Orangeburg, SC Integra Bank, N.A. Evansville, IN N 140,008 $1,994,430 $1,693,592 $2,219,143 $205,874 07/29/11 Old National Bank Evansville, IN Name and Location Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location Virginia Business Bank Richmond, VA SM 581 $83,493 $72,955 $78,785 $21,523 07/29/11 Xenith Bank Richmond, VA Bank of Shorewood Shorewood, IL NM 6,681 $110,723 $104,021 $106,460 $29,692 08/05/11 Heartland Bank & Trust Company Bloomington, IL Bank of Whitman Colfax, WA SM 23,299 $548,570 $515,732 $498,979 $135,323 08/05/11 Columbia State Bank Tacoma, WA First National Bank of Olathe Olathe, KS N 27,367 $538,091 $524,290 $511,819 $119,472 08/12/11 Enterprise Bank & Trust Clayton, MO Public Savings Bank Huntingdon Valley, PA SB 904 $46,818 $45,770 $48,185 $14,982 08/18/11 Capital Bank, N.A. Rockville, MD First Choice Bank Geneva, IL NM 3,221 $141,016 $137,215 $131,111 $35,184 08/19/11 Inland Bank & Trust Oak Brook, IL First Southern National Bank Stateboro, GA N 8,873 $164,599 $159,673 $147,285 $43,901 08/19/11 Heritage Bank of the South Albany, GA Lydian Private Bank Palm Beach, FL SA 26,875 $1,700,117 $1,253,835 $1,277,109 $292,057 08/19/11 Sabadell United Bank, N.A. Miami, FL Creekside Bank Woodstock, GA NM 2,204 $102,338 $96,583 $98,591 $32,227 09/02/11 Georgia Commerce Bank Atlanta, GA Patriot Bank of Georgia Cumming, GA NM 2,468 $150,751 $140,612 $136,077 $48,986 09/02/11 Georgia Commerce Bank Atlanta, GA 142 Appendices 2011 ANNUAL REPORT FDIC-Insured Institutions Closed During 2011 Dollars in Thousands CONTINUED Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank SB = Savings Bank SI = Stock and Mutual Savings Bank SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Bank Class Number of Deposit Accounts Total Assets1 Total Deposits1 N 12,096 $296,841 $280,095 $248,052 $50,203 09/09/11 CharterBank West Point, GA Bank of the Commonwealth Norfolk, VA SM 20,383 $985,096 $901,845 $864,974 $268,111 09/23/11 Southern Bank & Trust Company Mount Olive, NC Citizens Bank of Northern California Nevada City, CA NM 16,248 $288,765 $253,079 $241,383 $41,053 09/23/11 Tri Counties Bank Chico, CA First International Bank Plano, TX NM 9,148 $239,916 $208,775 $205,505 $57,644 09/30/11 American First National Bank Houston, TX The RiverBank Wyoming, MN NM 31,327 $419,723 $384,120 $385,166 $74,971 10/07/11 Central Bank Stillwater, MN Sun Security Bank Ellington, MO NM 19,213 $351,492 $280,649 $282,436 $121,734 10/07/11 Great Southern Bank Springfield, MO Blue Ridge Savings Bank, Inc. Asheville, NC SB 5,503 $161,430 $159,628 $161,760 $41,985 10/14/11 Bank of North Carolina Thomasville, NC Country Bank Aledo, IL NM 6,476 $195,034 $180,835 $180,555 $67,225 10/14/11 Blackhawk Bank & Trust Milan, IL First State Bank Cranford, NJ NM 3,883 $191,852 $188,099 $190,497 $49,650 10/14/11 Northfield Bank Staten Island, NY Piedmont Community Bank Gray, GA NM 5,022 $198,993 $178,773 $177,419 $75,872 10/14/11 State Bank & Trust Company Macon, GA Community Banks of Colorado Greenwood Village, CO SM 52,119 $1,280,964 $1,239,630 $1,217,323 $227,340 10/21/11 Bank Midwest, N.A. Kansas City, MO Community Capital Bank Jonesboro, GA NM 4,032 $165,291 $157,808 $157,578 $66,293 10/21/11 State Bank & Trust Company Macon, GA Decatur First Bank Decatur, GA NM 8,213 $184,750 $172,042 $171,399 $36,898 10/21/11 Fidelity Bank Atlanta, GA Name and Location The First National Bank of Florida Milton, FL Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location 143 appendices FDIC-Insured Institutions Closed During 2011 Dollars in Thousands CONTINUED Codes for Bank Class: NM = State-chartered bank that is not a member of the Federal Reserve System N = National Bank SB = Savings Bank SI = Stock and Mutual Savings Bank SM = State-chartered bank that is a member of the Federal Reserve System SA = Savings Association Bank Class Number of Deposit Accounts Total Assets1 Total Deposits1 Old Harbor Bank Clearwater, FL NM 7,506 $209,048 $212,184 $211,246 $43,507 10/21/11 1st United Bank Boca Raton, FL All American Bank Des Plaines, IL NM 1,341 $34,800 $30,542 $32,075 $11,594 10/28/11 International Bank of Chicago Chicago, IL Mid City Bank, Inc. Omaha, NE NM 6,638 $106,075 $105,461 $102,662 $17,390 11/04/11 Premier Bank Purdum, NE SunFirst Bank Saint George, UT NM 4,862 $198,081 $169,135 $150,980 $53,230 11/04/11 Cache Valley Bank Logan, UT Community Bank of Rockmart Rockmart, GA NM 2,567 $62,383 $55,906 $57,481 $18,898 11/11/11 Century Bank of Georgia Cartersville, GA Central Progressive Bank Lacombe, LA NM 26,761 $383,132 $347,720 $346,598 $61,919 11/18/11 First NBC Bank New Orleans, LA Polk County Bank Johnston, IA NM 7,112 $91,580 $81,967 $82,181 $17,339 11/18/11 Grinnell State Bank Grinnell, IA Premier Community Bank of the Emerald Coast Crestview, FL NM 2,782 $125,976 $112,050 $111,322 $35,512 12/16/11 Summit Bank, N.A. Panama City, FL N 2,678 $162,872 $144,491 $145,903 $42,869 12/16/11 Washington Federal Seattle, WA Name and Location Western National Bank Phoenix, AZ Insured Date of Deposit Funding Estimated Closing and Other Loss to or Disbursements the DIF2 Acquisition Receiver/Assuming Bank and Location Insured Deposit Transfer/Purchase & Assumption Enterprise Banking Co. McDonough, GA NM 2,173 $99,461 $94,591 $106,020 $44,600 01/21/11 Federal Deposit Insurance Corporation FirsTier Bank Louisville, CO NM 10,399 $764,090 $718,797 $768,384 $270,815 01/28/11 Federal Deposit Insurance Corporation 1 Total Assets and Total Deposits data is based upon the last Call Report filed by the institution prior to failure. 2 Estimated losses are as of 12/31/11. Estimated losses are routinely adjusted with updated information from new appraisals and asset sales, which ultimately affect the asset values and projected recoveries. Represents the estimated loss to the DIF from deposit insurance obligations. This amount does not include the estimated loss allocable to the Transaction Account Guarantee and Debt Guarantee Program claims. 144 2011 Appendices ANNUAL REPORT Recoveries and Losses by the Deposit Insurance Fund on Disbursements for the Protection of Depositors, 1934 - 2011 Dollars in Thousands Bank and Thrift Failures1 Total Deposits3 Insured Deposit Funding and Other Disbursements $914,003,552 $685,069,066 92 34,922,997 20104 157 20094 Recoveries Estimated Additional Recoveries Estimated Losses $561,016,616 $390,577,746 $48,373,749 $122,065,121 31,071,862 31,531,359 910,708 22,675,379 7,945,272 92,084,987 79,548,141 82,172,287 49,268,600 9,999,848 22,903,839 140 169,709,160 137,067,132 135,863,380 85,330,857 11,800,273 38,732,250 20084 25 371,945,480 234,321,715 205,431,491 182,605,479 2,651,137 20,174,875 2007 3 2,614,928 2,424,187 1,917,408 1,368,679 343,954 204,775 2006 0 0 0 0 0 0 0 2005 0 0 0 0 0 0 0 2004 4 170,099 156,733 138,912 134,978 17 3,917 2003 3 947,317 901,978 883,772 812,933 8,192 62,647 2002 11 2,872,720 2,512,834 2,126,922 1,689,034 68,928 368,960 2001 4 1,821,760 1,661,214 1,605,191 1,128,577 180,378 296,236 2000 7 410,160 342,584 297,313 265,175 0 32,138 1999 8 1,592,189 1,320,573 1,307,226 711,758 4,584 590,884 1998 3 290,238 260,675 292,686 58,248 11,608 222,830 1997 1 27,923 27,511 25,546 20,520 0 5,026 1996 6 232,634 230,390 201,533 140,918 0 60,615 1995 6 802,124 776,387 609,043 524,571 0 84,472 1994 13 1,463,874 1,397,018 1,224,769 1,045,718 0 179,051 1993 41 3,828,939 3,509,341 3,841,658 3,209,012 0 632,646 1992 120 45,357,237 39,921,310 14,540,882 10,866,745 110 3,674,027 1991 124 64,556,512 52,972,034 21,499,236 15,656,282 629,341 5,213,613 1990 168 16,923,462 15,124,454 10,812,484 8,040,995 0 2,771,489 1989 206 28,930,572 24,152,468 11,443,281 5,247,995 0 6,195,286 1988 200 38,402,475 26,524,014 10,432,655 5,055,158 0 5,377,497 1987 184 6,928,889 6,599,180 4,876,994 3,014,502 0 1,862,492 1986 138 7,356,544 6,638,903 4,632,121 2,949,583 0 1,682,538 1985 116 3,090,897 2,889,801 2,154,955 1,506,776 0 648,179 Number of Banks / Thrifts Total Assets3 2,509 2011 Year 2 145 appendices Recoveries and Losses by the Deposit Insurance Fund on Disbursements for the Protection of Depositors, 1934 - 2011 CONTINUED Dollars in Thousands Bank and Thrift Failures1 146 Total Deposits3 Insured Deposit Funding and Other Disbursements Recoveries Estimated Additional Recoveries 2,962,179 2,665,797 2,165,036 1,641,157 0 523,879 44 3,580,132 2,832,184 3,042,392 1,973,037 0 1,069,355 1982 32 1,213,316 1,056,483 545,612 419,825 0 125,787 1981 7 108,749 100,154 114,944 105,956 0 8,988 1980 10 239,316 219,890 152,355 121,675 0 30,680 1934 – 1979 558 8,615,743 5,842,119 5,133,173 4,752,295 0 380,878 Year 2 Number of Banks / Thrifts Total Assets3 1984 78 1983 Estimated Losses Appendices 2011 ANNUAL REPORT Recoveries and Losses by the Deposit Insurance Fund on Disbursements for the Protection of Depositors, 1934 - 2011 CONTINUED Dollars in Thousands Assistance Transactions Bank and Thrift Failures1 Total Deposits3 Insured Deposit Funding and Other Disbursements $3,317,099,253 $1,442,173,417 0 0 20105 0 20095 Recoveries Estimated Additional Recoveries Estimated Losses $11,630,356 $6,199,875 $0 $5,430,481 0 0 0 0 0 0 0 0 0 0 0 8 1,917,482,183 1,090,318,282 0 0 0 0 20085 5 1,306,041,994 280,806,966 0 0 0 0 2007 0 0 0 0 0 0 0 2006 0 0 0 0 0 0 0 2005 0 0 0 0 0 0 0 2004 0 0 0 0 0 0 0 2003 0 0 0 0 0 0 0 2002 0 0 0 0 0 0 0 2001 0 0 0 0 0 0 0 2000 0 0 0 0 0 0 0 1999 0 0 0 0 0 0 0 1998 0 0 0 0 0 0 0 1997 0 0 0 0 0 0 0 1996 0 0 0 0 0 0 0 1995 0 0 0 0 0 0 0 1994 0 0 0 0 0 0 0 1993 0 0 0 0 0 0 0 1992 2 33,831 33,117 1,486 1,236 0 250 1991 3 78,524 75,720 6,117 3,093 0 3,024 1990 1 14,206 14,628 4,935 2,597 0 2,338 1989 1 4,438 6,396 2,548 252 0 2,296 1988 80 15,493,939 11,793,702 1,730,351 189,709 0 1,540,642 1987 19 2,478,124 2,275,642 160,877 713 0 160,164 1986 7 712,558 585,248 158,848 65,669 0 93,179 Number of Banks / Thrifts Total Assets3 154 20115 Year 2 147 appendices Recoveries and Losses by the Deposit Insurance Fund on Disbursements for the Protection of Depositors, 1934 - 2011 Dollars in Thousands CONTINUED Assistance Transactions Bank and Thrift Failures1 148 Insured Deposit Funding and Other Disbursements Estimated Additional Recoveries Year 2 Number of Banks / Thrifts Total Assets3 Total Deposits3 1985 4 5,886,381 5,580,359 765,732 406,676 0 359,056 1984 2 40,470,332 29,088,247 5,531,179 4,414,904 0 1,116,275 1983 4 3,611,549 3,011,406 764,690 427,007 0 337,683 1982 10 10,509,286 9,118,382 1,729,538 686,754 0 1,042,784 1981 3 4,838,612 3,914,268 774,055 1,265 0 772,790 1980 1 7,953,042 5,001,755 0 0 0 0 1934 – 1979 4 1,490,254 549,299 0 0 0 0 Recoveries Estimated Losses 1 Institutions closed by the FDIC, including deposit payoff, insured deposit transfer, and deposit assumption cases. 2 For 1990 through 2005, amounts represent the sum of BIF and SAIF failures (excluding those handled by the RTC); prior to1990, figures are only for the BIF. After 1995, all thrift closings became the responsibility of the FDIC and amounts are reflected in the SAIF. For 2006 to 2011, figures are for the DIF. 3 Assets and deposit data are based on the last Call Report or TFR filed before failure. 4 Includes amounts related to transaction account coverage under the Transaction Account Guarantee Program (TAG). The estimated losses as of 12/31/10 for TAG accounts in 2010, 2009, and 2008 are $571 million, $1,639 million, and $19 million, respectively. 5 Includes institutions where assistance was provided under a systemic risk determination. Any costs that exceed the amounts estimated under the least cost resolution requirement would be recovered through a special assessment on all FDIC-insured institutions. Appendices 2011 ANNUAL REPORT B. More About the FDIC FDIC Board of Directors Seated (left to right): John Walsh, Martin J. Gruenberg, Thomas J. Curry Martin J. Gruenberg 1993 to 2005. Mr. Gruenberg advised the Senator on Martin J. Gruenberg became the Acting Chairman of issues of domestic and international financial regulation, the FDIC upon the resignation of Chairman Sheila C. monetary policy and trade. He also served as Staff Bair on July 8, 2011. Mr. Gruenberg was sworn in as Vice Director of the Banking Committee’s Subcommittee Chairman of the FDIC Board of Directors on August on International Finance and Monetary Policy from 22, 2005. Upon the resignation of Chairman Donald 1987 to 1992. Major legislation in which Mr. Gruenberg Powell, he also served as Acting Chairman from November played an active role during his service on the Committee 15, 2005, to June 26, 2006. On November 2, 2007, Mr. includes the Financial Institutions Reform, Recovery, Gruenberg was named Chairman of the Executive Council and Enforcement Act of 1989 (FIRREA), the Federal and President of the International Association of Deposit Deposit Insurance Corporation Improvement Act of 1991 Insurers (IADI). (FDICIA), the Gramm-Leach-Bliley Act, and the SarbanesOxley Act of 2002. Mr. Gruenberg joined the FDIC Board after broad congressional experience in the financial services and Mr. Gruenberg holds a J.D. from Case Western regulatory areas. He served as Senior Counsel to Senator Reserve Law School and an A.B. from Princeton Paul S. Sarbanes (D-MD) on the staff of the Senate University, Woodrow Wilson School of Public and Committee on Banking, Housing, and Urban Affairs from International Affairs. 149 appendices Thomas J. Curry John Walsh Thomas J. Curry took office on January 12, 2004, as a John Walsh became Acting Comptroller of the Office of member of the Board of Directors of the Federal Deposit the Comptroller of the Currency (OCC) on August 15, Insurance Corporation. Mr. Curry served as Chairman 2010. He also served on the FDIC Board of Directors of the FDIC’s Assessment Appeals Committee and Case and as a board member of NeighborWorks®America. Mr. Review Committee. He also served as Chairman of the Walsh joined the OCC in October 2005 and previously Audit Committee and the Supervision Appeals Review served as Chief of Staff and Public Affairs. Committee for the latter half of 2011 and into 2012. Prior to joining the OCC, Mr. Walsh was the Executive Mr. Curry also serves as the Chairman of the Director of the Group of Thirty, a consultative group that NeighborWorks America Board of Directors. focuses on international economic and monetary affairs. NeighborWorks America is a national nonprofit He joined the Group in 1992, and became Executive organization chartered by Congress to provide Director in 1995. Mr. Walsh served on the Senate Banking financial support, technical assistance, and training for Committee from 1986 to 1992, and as an international community-based neighborhood revitalization efforts. economist for the U.S. Department of the Treasury from ® ® 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 1984 to 1986. Mr. Walsh also served with the Office of Management and Budget as an international program analyst, with the Mutual Broadcasting System, and in the U.S. Peace Corps in Ghana. Commissioner from February 1994 to June 1995. He Mr. Walsh holds a masters’ degree in public policy from previously served as First Deputy Commissioner and the Kennedy School of Government, Harvard University Assistant General Counsel within the Massachusetts (1978), and graduated magna cum laude from the Division of Banks. He entered state government in 1982 University of Notre Dame in 1973. He lives in Catonsville, as an attorney with the Massachusetts’ Secretary of Maryland, and is married with four children. State’s Office. Director Curry served as the Chairman of the Conference of State Bank Supervisors from 2000 to 2001. He served two terms on the State Liaison Committee of the Federal Financial Institutions Examination Council, including a term as Committee chairman. Subsequent Events Affecting the FDIC Board of Directors The following events occurred after year-end 2011. On January 4, 2012, Richard Cordray was sworn in as the first Director of the Consumer Financial Protection Bureau, and joined the FDIC Board of Directors. On April 9, 2012, He is a graduate of Manhattan College (summa cum Thomas Curry was sworn in as the 30th Comptroller laude), where he was elected to Phi Beta Kappa. He received of the Currency, succeeding John Walsh, and remains a his law degree from the New England School of Law. Board member. On April 16, 2012, Thomas Hoenig and Jeremiah Norton were sworn in as internal members of the Board. 150 Appendices 2011 ANNUAL REPORT FDIC Organization Chart/Officials As of December 31, 2011 Board of Directors vacant martin j. gruenberg thomas j. curry john walsh Office of the Chairman Vice Chairman martin j. gruenberg Acting Chairman martin j. gruenberg Deputy to the Chairman for Resolution and Legal Policy Special Advisor jesse villarreal, jr. vacant Deputy to the Chairman Chief of Staff kymberly copa (Acting) barbara ryan Office of Minority and Women Inclusion d. michael collins Director Office of Public Affairs Chief Information Officer/ Chief Privacy Officer andrew s. gray Director russell g. pittman Office of Inspector General Senior Advisor jon t. rymer Inspector General ellen lazar Chief Risk Officer Internal Ombudsman joanne G. dea (Detail) Stephen a. quick Deputy to the Chairman and Chief Financial Officer Steven O. App Office of Complex Financial Institutions Division of Depositor and Consumer Protection Division of Risk Management Supervision Division of Insurance and Research Division of Resolutions and Receiverships Office of International Affairs james wigand Director mark pearce Director sandra l. thompson Director arthur j. murton Director bret d. edwards Director fred s. carns Director General Counsel michael h. krimminger Deputy to the Chairman for External Affairs paul m. nash Division of Finance Division of Administration Legal Division Office of Legislative Affairs craig jarvill Director arleas upton kea Director michael h. krimminger General Counsel vacant Director Division of Information Technology russell g. pittman Director Corporate University thom h. terwilliger Chief Learning Officer & Director Office of the Ombudsman cottrell l. webster Ombudsman Office of Enterprise Risk Management james h. angel, jr. Director 151 appendices Corporate Staffing Staffing Trends 2002-2011 9,000 6,000 3,000 0 FDIC Year End Staffing 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 5,430 5,311 5,078 4,514 4,476 4,532 4,988 6,557 8,150 7,973 Note: 2008-2011 staffing totals reflect year-end full time equivalent staff. Prior to 2008, staffing totals reflect total employees on board. 152 Appendices 2011 ANNUAL REPORT Number of Employees by Division/Office 2010 and 2011 (Year-End)1 Total Division or Office Washington Regional/Field 2011 2010 2011 2010 2011 2010 0 3,648 0 378 0 3,270 2,900 0 168 0 2,732 0 819 1 95 1 724 0 Subtotal Supervision and Consumer Protection Divisions 3,719 3,649 263 379 3,456 3,270 Division of Resolutions and Receiverships 1,811 2,109 139 154 1,672 1,955 Legal Division 774 805 354 352 420 453 Division of Administration 431 430 243 265 188 165 Division of Information Technology 354 328 271 245 83 83 Corporate University 176 207 163 199 13 8 Division of Insurance and Research 185 203 134 173 51 30 Division of Finance 163 165 158 165 5 0 Office of Inspector General 117 128 77 92 40 36 Office of Complex Financial Institutions 115 1 64 1 51 0 Executive Offices2 55 55 55 55 0 0 Office of the Ombudsman 29 31 12 12 17 19 Office of Minority and Women Inclusion3 30 26 30 26 0 0 Office of Enterprise Risk Management 14 13 14 13 0 0 7,973 8,150 1,977 2,131 5,996 6,019 Division of Supervision and Consumer Protection Division of Risk Management Supervision Division of Depositor and Consumer Protection Total 1 The FDIC reports staffing totals using a full-time equivalent (FTE) methodology, which is based on an employee’s scheduled work hours. Division/Office staffing has been rounded to the nearest whole FTE. 2 Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Legislative Affairs, Public Affairs, International Affairs, Corporate Risk Management and External Affairs. 3 Previously the Office of Diversity and Economic Opportunity. 153 appendices Sources of Information FDIC Website Public Information Center www.fdic.gov 3501 Fairfax Drive A wide range of banking, consumer and financial information is available on the FDIC’s website. This includes the FDIC’s Electronic Deposit Insurance Estimator (EDIE), which estimates an individual's deposit insurance coverage; the Institution Directory, which contains financial profiles of FDIC-insured institutions; Community Reinvestment Act evaluations and ratings for institutions supervised by the FDIC; Call Reports, which are banks’ reports of condition and income; and Money 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. FDIC Call Center Phone: 877-275-3342 (877-ASK-FDIC) Room E-1021 Arlington, VA 22226 Phone: 877-275-3342 (877-ASK-FDIC) 703-562-2200 Fax: 703-562-2296 FDIC Online Catalog: https://vcart.velocitypayment.com/fdic/ E-mail: publicinfo@fdic.gov Publications such as FDIC Quarterly, Consumer News, and a variety of deposit insurance and consumer pamphlets are available at www.fdic.gov or may be ordered in hard copy through the FDIC online catalog. Other information, press releases, speeches and congressional testimony, directives to financial institutions, policy manuals, and FDIC documents are available on request through the Public Information Center. Hours of operation are 9:00 a.m. to 4:00 p.m., Eastern Time, Monday – Friday. 703-562-2222 Hearing Impaired: 800-925-4618 703-562-2289 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 with other FDIC subjectmatter 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 refers callers to other federal and state agencies as needed. Hours of operation are 8:00 a.m. to 8:00 p.m., Eastern Time, Monday – Friday, and 9:00 a.m. to 5:00 p.m., Saturday – Sunday. Recorded information about deposit insurance and other topics is available twenty-four hours a day at the same telephone number. As a customer service, the FDIC Call Center has many bilingual Spanish agents on staff and has access to a translation service able to assist with over forty different languages. 154 Office of the Ombudsman 3501 Fairfax Drive Room E-2022 Arlington, VA 22226 Phone: 877-275-3342 (877-ASK-FDIC) Fax: 703-562-6057 E-mail: ombudsman@fdic.gov The Office of the Ombudsman (OO) is an independent, neutral, and confidential resource and liaison for the banking industry and the general public. The OO responds to inquiries about the FDIC in a fair, impartial, and timely manner. It researches questions and fields complaints from bankers and bank customers. OO representatives are present at all bank closings to provide accurate information to bank customers, the media, bank employees, and the general public. The OO also recommends ways to improve FDIC operations, regulations, and customer service. Appendices 2011 ANNUAL REPORT Regional and Area Offices n Atlanta Regional Office n Dallas Regional Office 10 Tenth Street, NE 1601 Bryan Street Suite 800 Dallas, Texas 75201 Atlanta, Georgia 30309 (214) 754-0098 (678) 916-2200 Colorado Alabama New Mexico Florida Oklahoma Georgia Texas North Carolina South Carolina n Memphis Area Office Virginia 5100 Poplar Avenue West Virginia Suite 1900 n Chicago Regional Office 300 South Riverside Plaza Suite 1700 Chicago, Illinois 60606 (312) 382-6000 Memphis, Tennessee 38137 (901) 685-1603 Arkansas Louisiana Mississippi Tennessee Illinois Indiana n Kansas City Regional Office Kentucky 1100 Walnut Street Michigan Suite 2100 Ohio Kansas City, Missouri 64106 Wisconsin (816) 234-8000 Iowa Kansas Minnesota Missouri Nebraska North Dakota South Dakota 155 appendices n New York Regional Office n San FrancisCo Regional Office 350 Fifth Avenue 25 Jessie Street at Ecker Square Suite 1200 Suite 2300 New York, New York 10118 San Francisco, California 94105 (917) 320-2500 (415) 546-0160 Delaware Alaska District of Columbia Arizona Maryland California New Jersey Guam New York Hawaii Pennsylvania Idaho Puerto Rico Montana Virgin Islands Nevada Oregon n Boston Area Office Utah 15 Braintree Hill Office Park Washington Suite 100 Wyoming Braintree, Massachusetts 02184 (781) 794-5500 Connecticut Maine Massachusetts New Hampshire Rhode Island Vermont 156 Appendices 2011 ANNUAL REPORT C. Office of Inspector General’s Assessment of the Management and Performance Challenges Facing the FDIC As the FDIC and the banking industry emerge from Under the Reports Consolidation Act of 2000, the completed or sustained a number of new initiatives, Office of Inspector General (OIG) is required to identify responded to new demands, and played a key part in the most significant management and performance shaping bank regulation for the post-crisis period. Passage challenges facing the Corporation and provide its of the Dodd-Frank Act has presented new opportunities assessment to the Corporation for inclusion in the FDIC’s and challenges for the FDIC in its efforts to restore the annual performance and accountability report. The vitality and stability of the financial system, and the OIG conducts this assessment annually and identifies Corporation has met these head-on. Perhaps the biggest specific areas of challenge facing the Corporation uncertainty, and the backdrop against which the FDIC at the time. In identifying the challenges, the OIG will operate going forward, is whether the U.S. economy keeps in mind the Corporation’s overall program and can sustain current economic growth and what impact the operational responsibilities; financial industry, economic, outlook in Europe will have on the banking and financial and technological conditions and trends; areas of services industry in the months ahead. congressional interest and concern; relevant laws and the most severe crisis since the 1930s, the Corporation can take pride in having helped restore stability and confidence in the nation’s banking system. It has regulations; the Chairman’s priorities and corresponding CARRYING OUT NEW RESOLUTION AUTHORITY corporate goals; and the ongoing activities to address the Reforms under the Dodd-Frank Act involve far-reaching issues involved. changes designed to restore market discipline, internalize In looking at the recent past and the current environment and anticipating—to the extent possible—what the future holds, the OIG believes that the FDIC faces challenges in the areas listed below. While the Corporation will sustain its efforts to maintain public confidence and stability, particularly as it continues to implement key provisions and authorities of the Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), challenges will persist in other areas as well. We note in particular that the Corporation is continuing to carry out a massive resolution and receivership workload and at the same time is assuming a new resolution authority. Concurrently, the FDIC faces challenges in meeting its deposit insurance responsibilities, supervising financial institutions, protecting consumers, and managing its workforce and other corporate resources. It is conducting all of these activities in a corporate environment that has the costs of risk-taking, protect consumers, and make the regulatory process more attuned to systemic risks. The Dodd-Frank Act created the Financial Stability Oversight Council (FSOC), of which the FDIC is a voting member. The FSOC monitors sources of systemic risk and promulgates rules that will be implemented by the various financial regulators represented on the FSOC. The DoddFrank Act also established an independent Consumer Financial Protection Bureau (CFPB) within the Federal Reserve System; abolished the Office of Thrift Supervision (OTS) and transferred its supervisory responsibilities for federal and state-chartered thrift institutions and thrift holding companies to the Office of the Comptroller of the Currency (OCC), the FDIC, and the Federal Reserve System, respectively; and has given the FDIC significant new authorities to help address the risks in systemically important financial companies or institutions (SIFIs). substantially changed over the past year and one that To carry out its most critical responsibilities under the remains in constant flux. Dodd-Frank Act in an effective and credible manner, the FDIC established its Office of Complex Financial Institutions (OCFI). This office continues to establish 157 appendices itself and will face challenges during the upcoming year sections, and undertaking their new responsibilities as as it continues to evolve. New responsibilities for OCFI members of the FSOC. in connection with SIFIs include an Orderly Liquidation bank financial institutions, if necessary, and a requirement RESOLVING FAILED INSTITUTIONS AND MANAGING RECEIVERSHIPS for resolution plans that will give regulators additional In addition to the future challenges associated with tools with which to manage the failure of large, complex exercising this new resolution authority, the Corporation enterprises. The FDIC’s OCFI has taken steps in three key is currently dealing with a daunting resolution and areas over the past year to carry out these responsibilities— receivership workload. As of December 31, 2011, monitoring risk within and across these large, complex approximately 415 institutions had failed during the firms from the standpoint of resolution; conducting crisis, with total assets at inception of $664.3 billion. resolution planning and developing strategies to respond Estimated losses resulting from the failures total to potential crisis situations; and coordinating with approximately $86.3 billion. As of year-end 2011, the regulators overseas regarding the significant challenges number of institutions on the FDIC’s “Problem List” was associated with cross-border resolution. 813, with $319.4 billion in assets, indicating the potential Authority to resolve bank holding companies and non- OCFI has also been developing its own resolution plans in order to be ready to resolve a failing systemic financial company. These internal FDIC resolution plans— of more failures to come and corresponding challenges with regard to management and disposition of failed bank assets. developed pursuant to the Orderly Liquidation Authority, Franchise marketing activities are at the heart of the provided under Title II of the Dodd-Frank Act—apply FDIC’s resolution and receivership work, and as failures many of the same powers that the FDIC has long used persist, continue to challenge the Corporation. The FDIC to manage failed-bank receiverships to a failing SIFI. If must determine and pursue the least costly resolution the FDIC is appointed as receiver of such an institution, to the Deposit Insurance Fund (DIF) for each failing it will be required to carry out an orderly liquidation in a institution. Each failing institution is subject to the manner that maximizes the value of the company’s assets FDIC’s franchise marketing process, which includes and ensures that creditors and shareholders appropriately valuation, marketing, bidding and bid evaluation, and bear any losses. The goal is to close the institution without sale components. The FDIC is often able to market putting the financial system at risk. institutions such that all deposits, not just insured According to the Acting Chairman of the FDIC, this internal resolution planning work is the foundation of the deposits, are purchased by acquiring institutions, thus avoiding losses to uninsured depositors. FDIC’s implementation of its new responsibilities under Of special note, through purchase and assumption (P&A) the Dodd-Frank Act. In addition, the FDIC has largely agreements with acquiring institutions, the Corporation completed the extensive related rulemaking necessary has entered into 272 shared-loss agreements (SLA) to carry out its responsibilities under Dodd-Frank. involving about $209.4 billion in initial covered assets. Notwithstanding such progress, the coming months will Under these agreements, the FDIC agrees to absorb a be challenging for the FDIC and all of the regulatory portion of the loss—generally 80-95 percent—which may agencies as they work collaboratively to reposition be experienced by the acquiring institution with regard to themselves to carry out the mandates of the Dodd- those assets, for a period of up to 10 years. In addition, the Frank Act, continuing to develop rules to implement key FDIC has entered into 31 structured asset sales to dispose of about $25.4 billion in assets. Under these arrangements, 158 Appendices 2011 ANNUAL REPORT the FDIC retains a participation interest in future net if not timely and properly executed, can compromise the positive cash flows derived from third-party management integrity of FDIC programs and operations. of these assets. Other post-closing asset management activities will continue to require much FDIC attention. FDIC receiverships manage assets from failed institutions, mostly those that are not purchased by acquiring institutions through P&A agreements or involved in structured sales. As of year-end 2011, the FDIC was managing 426 receiverships holding about $28.5 billion in assets, mostly securities, delinquent commercial realestate and single-family loans, and participation loans. Post-closing asset managers are responsible for managing many of these assets and rely on receivership assistance contractors to perform day-to-day asset management functions. Since these loans are often sub-performing or nonperforming, workout and asset disposition efforts are intensive. ENSURING AND MAINTAINING THE VIABILITY OF THE DEPOSIT INSURANCE FUND Federal deposit insurance remains at the heart of the FDIC’s commitment to maintain stability and public confidence in the nation’s financial system. With enactment of the Emergency Economic Stabilization Act of 2008, the limit of the basic FDIC deposit insurance coverage was raised temporarily from $100,000 to $250,000 per depositor, through December 31, 2009. Such coverage was subsequently extended through December 31, 2013, and the Dodd-Frank Act made permanent the increase in the coverage limit to $250,000. It also provided deposit insurance coverage on the entire balance of non-interest bearing transaction accounts at all insured depository institutions until December 31, 2012. A priority and ongoing challenge for the FDIC is to The FDIC increased its permanent resolution and ensure that the DIF remains viable to protect all insured receivership staffing and significantly increased its reliance depositors. To maintain sufficient DIF balances, the FDIC on contractor and term employees to fulfill the critical collects risk-based insurance premiums from insured resolution and receivership responsibilities associated institutions and invests deposit insurance funds. with the ongoing FDIC interest in the assets of failed financial institutions. At the end of 2008, on-board resolution and receivership staff totaled 491, while onboard staffing as of November 30, 2011 was 1,858. As of year-end 2010, the dollar value of contracts awarded in the resolution and receivership functions accounted for approximately $2.4 billion of the total value of $2.6 billion. As of December 31, 2011, the dollar value of such contracts awarded for 2011 totaled $1.2 billion of a total $1.4 billion for all contracts. Since year-end 2007, the failure of FDIC-insured institutions has imposed total estimated losses of more than $86 billion on the DIF. The sharp increase in bank failures over the past several years caused the fund balance to become negative. The DIF balance turned negative in the third quarter of 2009 and hit a low of negative $20.9 billion in the following quarter. As the DIF balance declined, the FDIC adopted a statutorily required Restoration Plan and increased assessments to handle the high volume of failures and begin replenishing the fund. The significant surge in failed-bank assets and associated The FDIC increased assessment rates at the beginning contracting activities will continue to require effective and of 2009. In June 2009, the FDIC imposed a special efficient contractor oversight management and technical assessment that brought in additional funding from the monitoring functions. Bringing on so many contractors banking industry. Further, in December 2009, to increase and new employees in a short period of time can strain the FDIC’s liquidity, the FDIC required that the industry existing controls and administrative resources in such prepay almost $46 billion in assessments, representing areas as employee background checks, for example, which, over 3 years of estimated assessments. 159 appendices Since the FDIC imposed these measures, the DIF balance Industry-wide trends and risks are communicated to has steadily improved. It increased throughout 2010 the financial industry, its supervisors, and policymakers and stood at negative $1.0 billion as of March 31, 2011. through a variety of regularly produced publications During the second quarter of 2011, the fund rose to a and ad hoc reports. Risk-management activities include positive $3.9 billion. Under the Restoration Plan for the approving the entry of new institutions into the deposit DIF, the FDIC has put in place assessment rates necessary insurance system, off-site risk analysis, assessment of risk- to achieve a reserve ratio (the ratio of the fund balance to based premiums, and special insurance examinations and estimated insured deposits) of 1.35 percent by September enforcement actions. In light of increasing globalization 30, 2020, as the Dodd-Frank Act requires. FDIC analysis and the interdependence of financial and economic of the past two banking crises has shown that the DIF systems, the FDIC also supports the development and reserve ratio must be 2 percent or higher in advance of a maintenance of effective deposit insurance and banking banking crisis to avoid high deposit insurance assessment systems world-wide. rates when banking institutions are strained and least able to pay. Consequently, the FDIC established a 2-percent reserve ratio target as a critical component of its long-term fund management strategy. to the DIF lies with the FDIC’s Division of Insurance and Research (DIR), Division of Risk Management Supervision (RMS), Division of Resolutions and Receiverships, and The FDIC has also implemented the Dodd-Frank now OCFI. The FDIC’s new Chief Risk Officer will also Act requirement to redefine the base used for deposit play a key role in identifying risks, and his office will have a insurance assessments as average consolidated total assets greater role to play in the months ahead. To help integrate minus average tangible equity rather than an assessment the risk management process, the Board authorized the based on domestic deposits. The FDIC does not expect creation of an Enterprise Risk Committee, as a cross- this change to materially affect the overall amount of divisional body to coordinate risk assessment and response assessment revenue that otherwise would have been across the Corporation. Also, a Risk Analysis Center collected. However, as Congress intended, the change in monitors emerging risks and recommends responses to the assessment base will generally shift some of the overall the National Risk Committee. In addition, a Financial assessment burden from community banks to the largest Risk Committee focuses on how risks impact the DIF and institutions, which rely less on domestic deposits for their financial reporting. Challenges going forward will include funding than do smaller institutions. The result will be efficiently and effectively leveraging the risk insights of all a sharing of the assessment burden that better reflects involved in corporate risk management activities. each group’s share of industry assets. The FDIC estimates that aggregate premiums paid by institutions with less than $10 billion in assets will decline by approximately 30 percent, primarily due to the assessment base change. Over recent years, the consolidation of the banking industry resulted in fewer and fewer financial institutions controlling an ever-expanding percentage of the nation’s financial assets. The FDIC has taken a number of The FDIC, in cooperation with the other primary federal measures to strengthen its oversight of the risks to the regulators, proactively identifies and evaluates the risk and insurance fund posed by the largest institutions, and financial condition of every insured depository institution. its key programs have included the Large Insured The FDIC also identifies broader economic and financial Depository Institution Program, Dedicated Examiner risk factors that affect all insured institutions. The FDIC Program, Shared National Credit Program, and off-site is committed to providing accurate and timely bank data monitoring systems. related to the financial condition of the banking industry. 160 Primary responsibility for identifying and managing risks Appendices 2011 ANNUAL REPORT Importantly, with respect to the largest institutions, and About 670 federally chartered savings associations were their risk to the DIF, Title II of the Dodd-Frank Act will transferred to the OCC. As insurer, the Corporation also help address the notion of “Too Big to Fail.” The largest has back-up examination authority to protect the interests institutions will be subjected to the same type of market of the DIF for about 2,800 national banks, state-chartered discipline facing smaller institutions. Title II provides the banks that are members of the FRB, and those savings FDIC authority to wind down systemically important associations now regulated by the OCC. bank holding companies and non-bank financial companies as a companion to the FDIC’s authority to resolve insured depository institutions. As noted earlier, the FDIC’s new OCFI is now playing a key role in overseeing these activities. ENSURING INSTITUTION SAFETY AND SOUNDNESS THROUGH AN EFFECTIVE EXAMINATION AND SUPERVISION PROGRAM The Corporation’s supervision program promotes the safety and soundness of FDIC-supervised insured depository institutions. As of year-end 2011, the FDIC was the primary federal regulator for approximately 4,625 FDIC-insured, state-chartered institutions that are not members of the Federal Reserve Board (FRB)—generally referred to as “state non-member” institutions. As such, the FDIC is the lead federal regulator for the majority of community banks. The Acting Chairman has made it clear that one of the FDIC’s most important priorities is the future of community banks and the critical role they play in the financial system and the U.S. economy as a whole. The Corporation plans a number of upcoming initiatives to further its understanding of the challenges and opportunities facing community banks, including a conference, a study by DIR, and an assessment of both The examination of the institutions that it regulates is a critical FDIC function. Through this process, the FDIC assesses the adequacy of management and internal control systems to identify, measure, monitor, and control risks; and bank examiners judge the safety and soundness of a bank’s operations. The examination program employs risk-focused supervision for banks. According to examination policy, the objective of a risk-focused examination is to effectively evaluate the safety and soundness of the bank, including the assessment of risk management systems, financial condition, and compliance with applicable laws and regulations, while focusing resources on the bank’s highest risks. Part of the FDIC’s overall responsibility and authority to examine banks for safety and soundness relates to compliance with the Bank Secrecy Act (BSA), which requires financial institutions to develop and implement a BSA compliance program to monitor for suspicious activity and mitigate associated money laundering risks within the financial institution. This includes keeping records and filing reports on certain financial transactions. An institution’s level of risk for potential terrorist financing and money laundering determines the necessary scope of a Bank Secrecy Act examination. risk-management and compliance supervision practices to As noted earlier, the passage of the Dodd-Frank Act see if there are ways to make processes more efficient. brought about significant organizational changes to Historically, the Department of the Treasury (the OCC and the OTS) and the FRB have supervised other banks and thrifts, depending on the institution’s charter. The recent winding down of the OTS under the Dodd-Frank Act resulted in the transfer of supervisory responsibility for about 60 state-chartered savings associations to the FDIC, all of which are considered small and that will be absorbed into the FDIC’s existing supervisory program. the FDIC’s supervision program in the FDIC’s former Division of Supervision and Consumer Protection (DSC). That is, the FDIC Board of Directors approved the establishment of OCFI and a Division of Depositor and Consumer Protection. In that connection, DSC was renamed RMS. OCFI began its operations and is focusing on overseeing bank holding companies with more than $100 billion in assets and their corresponding insured 161 appendices depository institutions. OCFI is also responsible for inquiries about consumer laws and regulations and non-bank financial companies designated as systemically banking practices. important by FSOC. OCFI and RMS will coordinate closely on all supervisory activities for insured state nonmember institutions that exceed $100 billion in assets, and RMS is responsible for the overall Large Insured Depository Institution program. experiencing and implementing changes related to the Dodd-Frank Act that have direct bearing on consumer protections. As noted earlier, the Dodd-Frank Act established the new Consumer Financial Protection As noted earlier, with the number of institutions on Bureau within the FRB and transferred to this bureau the FDIC’s “Problem List” as of December 31, 2011 at the FDIC’s examination and enforcement responsibilities 813, there is a potential of more failures to come and an over most federal consumer financial laws for insured additional asset disposition workload. The FDIC is the depository institutions with over $10 billion in assets and primary federal regulator for 533 of the 813 problem their insured depository institution affiliates. Also during institutions, with total assets of $175.4 billion and $319.4 early 2011, the FDIC established its new Division of billion, respectively. Importantly, however, during the Depositor and Consumer Protection, responsible for the second quarter of 2011, the number of institutions on the Corporation’s compliance examination and enforcement Problem List fell for the first time in 19 quarters—from program as well as the depositor protection and consumer 888 to 865—and total assets of problem institutions and community affairs activities supporting that declined during the second quarter from $397 billion to program. These entities will face mutual challenges, and $372 billion. Maintaining vigilant supervisory activities coordination will be critical. of all institutions, including problem institutions, and applying lessons learned in light of the recent crisis will be critical to ensuring stability and continued confidence in the financial system going forward. PROTECTING AND EDUCATING CONSUMERS AND ENSURING AN EFFECTIVE COMPLIANCE PROGRAM The FDIC serves a number of key roles in the financial system and among the most important is its work in ensuring that banks serve their communities and treat consumers fairly. The FDIC carries out its role by providing consumers with access to information about their rights and disclosures that are required by federal laws and regulations and examining the banks where the FDIC is the primary federal regulator to determine the institutions’ compliance with laws and regulations governing consumer protection, fair lending, and community investment. As a means of remaining responsive to consumers, the FDIC’s Consumer Response 162 Currently and going forward, the FDIC will be Historically, turmoil in the credit and mortgage markets has presented regulators, policymakers, and the financial services industry with serious challenges. Many of these challenges persist, even as the economy shows signs of improvement. The FDIC has been committed to working with the Congress and others to ensure that the banking system remains sound and that the broader financial system is positioned to meet the credit needs of the economy, especially the needs of creditworthy households that may experience distress. Another important focus is financial literacy. The FDIC has promoted expanded opportunities for the underserved banking population in the United States to enter and better understand the financial mainstream. Economic inclusion continues to be a priority for the FDIC. A challenge articulated by the Acting Chairman as he looks to the future is to increase access to financial services for the unbanked and underbanked in the United States. Center investigates consumer complaints about FDIC- Consumers today are also concerned about data security supervised institutions and responds to consumer and financial privacy. Banks are increasingly using third- Appendices 2011 ANNUAL REPORT party servicers to provide support for core information The Corporation’s contracting level has also grown and transaction processing functions. The FDIC must significantly, especially with respect to resolution and continue to ensure that financial institutions protect receivership work. Contract awards in DRR totaled $2.4 the privacy and security of information about customers billion during 2010 and as of December 2011 totaled under applicable U.S. laws and regulations. $1.2 billion. To support the increases in FDIC staff and EFFECTIVELY MANAGING THE FDIC WORKFORCE AND OTHER CORPORATE RESOURCES contractor resources, the Board of Directors approved a $4.0 billion Corporate Operating Budget for 2011, down slightly from the 2010 budget the Board approved in The FDIC must effectively and economically manage December 2009. For 2012, the approved corporate budget and utilize a number of critical strategic resources was further reduced to $3.28 billion to support 8,704 and implement effective controls in order to carry staff. The FDIC’s operating expenses are paid from the out its mission successfully, particularly with respect DIF, and consistent with sound corporate governance to its human, financial, information technology (IT), principles, the Corporation’s financial management and physical resources. These resources have been efforts must continuously seek to be efficient and cost- stretched during the past years of the recent crisis, and conscious, particularly in a government-wide environment the Corporation will continue to face challenges as it that is facing severe budgetary constraints. seeks to return to a steadier state of operations. New responsibilities, reorganizations, and changes in senior leadership and in the makeup of the FDIC Board will continue to impact the FDIC workforce in the months ahead. Promoting sound governance and effective stewardship of its core business processes and human and physical resources will be key to the Corporation’s success. Opening new offices, rapidly hiring and training many new employees, expanding contracting activity, and training those with contract oversight responsibilities placed heavy demands on the Corporation’s personnel and administrative staff and operations. Now, as conditions seem a bit improved throughout the industry and the economy, a number of employees will be Of particular note, in response to the crisis, FDIC staffing released—as is the case in the two temporary satellite levels increased dramatically. The Board approved an offices referenced earlier─ and staffing levels will move authorized 2011 staffing level of 9,252 employees, up closer to a pre-crisis level, which may cause additional about 2.5 percent from the 2010 authorization of 9,029. disruption to ongoing operations and introduce new risks On a net basis, all of the new positions were temporary, to current workplaces and working environments. Among as were 39 percent of the total 9,252 authorized positions other challenges, pre- and post-employment checks for for 2011. Temporary employees were hired by the FDIC employees and contractors will need to ensure the highest to assist with bank closings, management and sale of standards of ethical conduct, and for all employees, failed bank assets, and other activities that were expected in light of a transitioning workplace, the Corporation to diminish substantially as the industry returns to more will seek to sustain its emphasis on fostering employee stable conditions. To that end, the FDIC opened three engagement and morale. temporary satellite offices (East Coast, West Coast, and Midwest) for resolving failed financial institutions and managing the resulting receiverships. The FDIC closed the West Coast Office in January 2012 and plans to close the Midwest Office in September 2012. From an IT perspective, amidst the heightened activity in the industry and economy, the FDIC is engaging in massive amounts of information sharing, both internally and with external partners. This is also true with respect to sharing of highly sensitive information with other members of the newly formed FSOC and with the Council 163 appendices itself. FDIC systems contain voluminous amounts The Board is now at its full five-member capacity for the of critical data. The Corporation needs to ensure the first time since July 2011. Given the relatively frequent integrity, availability, and appropriate confidentiality turnover on the Board and the new configuration of the of bank data, personally identifiable information (PII), current Board, it is essential that strong and sustainable and other sensitive information in an environment of governance and communication processes be in place increasingly sophisticated security threats and global throughout the FDIC. Board members, in particular, need connectivity. Continued attention to ensuring the physical to possess and share the information needed at all times security of all FDIC resources is also a priority. The FDIC to understand existing and emerging risks and to make needs to be sure that its emergency response plans provide sound policy and management decisions. 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. key component of governance at the FDIC. The FDIC’s numerous enterprise risk management activities need to consistently identify, analyze, and mitigate operational The FDIC is led by a five-member Board of Directors, all of risks on an integrated, corporate-wide basis. Additionally, whom are to be appointed by the President and confirmed such risks need to be communicated throughout the by the Senate, with no more than three being from the Corporation, and the relationship between internal and same political party. For much of the past year, the FDIC external risks and related risk mitigation activities should had in place three internal directors—the Chairman, Vice be understood by all involved. In that context, the new Chairman, and one independent Director—and two ex Office of Corporate Risk Management led by the FDIC’s officio directors, the Comptroller of the Currency and the first Chief Risk Officer will assess external and internal Director of OTS. With the passage of the Dodd-Frank Act, risks faced by the FDIC and will report to the FDIC the OTS no longer exists, and the Director of OTS has Chairman and periodically report back to the FDIC Board been replaced on the FDIC Board by the Director of the an important organizational change that should serve the Consumer Financial Protection Bureau, Richard Cordray. best interests of the Corporation. Former FDIC Chairman Sheila Bair left the Corporation when her term expired—in early July 2011. Vice Chairman Martin Gruenberg was serving as Acting Chairman as of the end of 2011, and had been nominated by the President to serve as Chairman. In March 2012, the Senate extended the Board term for Acting Chairman Gruenberg but did not vote on his nomination to be Chairman. The internal Director, Thomas Curry, nominated by the President to serve as Comptroller of the Currency, was confirmed as Comptroller in late March 2012 and currently occupies that position. Thomas Hoenig, nominated by the President to serve as Vice Chairman of the FDIC, was confirmed as a Board member in March 2012 and was sworn in, though not as Vice Chairman, in April 2012. Finally, Jeremiah Norton was confirmed by the Senate in March 2012 and sworn in as Board Member in April 2012. 164 Beyond the Board level, enterprise risk management is a 2011 Federal Deposit Insurance Corporation This Annual Report was produced by talented and dedicated staff. To these individuals, we would like to offer our sincere thanks and appreciation. Special recognition is given to the following individuals for their contributions. ★★ Jannie F. Eaddy ★★ Barbara Glasby ★★ Robert Nolan ★★ Patricia Hughes ★★ Financial Reporting Unit F E D E R A L D E P O S I T I N S U R A N C E 550 17th Street, NW Washington, DC 20429-9990 FDIC-003-2012 www.FDIC.GOV C O R P O R A T I O N