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2008 Annual Report



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IV. Financial Statements and Notes

Deposit Insurance Fund (DIF)

Deposit Insurance Fund Balance Sheet at December 31
Dollars in Thousands
  2008 2007
Assets
Cash and cash equivalents – unrestricted $1,011,430 $4,244,547
Cash and cash equivalents – restricted – systemic risk (Note 14) 2,377,387 0
Investment in U.S. Treasury obligations, net: (Note 3)
   Held-to-maturity securities 0 38,015,174
   Available-for-sale securities 27,859,080 8,572,800
Assessments receivable, net (Note 8) 1,018,486 244,581
Receivable – systemic risk (Note 14) 1,138,132 0
Interest receivable on investments and other assets, net 405,453 768,292
Receivables from resolutions, net (Note 4) 15,765,465 808,072
Property and equipment, net (Note 5) 368,761 351,861
Total Assets $49,944,194 $53,005,327
 
Liabilities
Accounts payable and other liabilities $185,079 $151,857
Liabilities due to resolutions (Note 6) 4,671,980 0
Guarantee obligations – systemic risk (Note 14) 2,077,880 0
Postretirement benefit liability (Note 11) 114,124 116,158
Contingent liabilities for: (Note 7)    
   Anticipated failure of insured institutions 23,981,204 124,276
   Systemic risk (Note 14) 1,437,638 0
   Litigation losses 200,000 200,000
Total Liabilities 32,667,905 592,291
Commitments and off-balance-sheet exposure (Note 12)    
Fund Balance
Accumulated net income 15,001,272 52,034,503
Unrealized gain on available-for-sale securities, net (Note 3) 2,250,052 358,908
Unrealized postretirement benefit gain (Note 11) 24,965 19,625
Total Fund Balance 17,276,289 52,413,036
Total Liabilities and Fund Balance $49,944,194 $53,005,327
The accompanying notes are an integral part of these financial statements.

Deposit Insurance Fund Statement of Income and Fund Balance for the Years Ended December 31
Dollars in Thousands
  2008 2007
Revenue
Interest on U.S. Treasury obligations $2,072,317 $2,540,061
Assessments (Note 8) 2,964,518 642,928
Systemic risk revenue (Note 14) 1,463,537 0
Realized gain on sale of securities 774,935 0
Other revenue 31,017 13,244
Total Revenue 7,306,324 3,196,233
Expenses and Losses
Operating expenses (Note 9) 1,033,490 992,570
Systemic risk expenses (Note 14) 1,463,537 0
Provision for insurance losses (Note 10) 41,838,835 95,016
Insurance and other expenses 3,693 3,370
Total Expenses and Losses 44,339,555 1,090,956
     
Net (Loss) Income (37,033,231) 2,105,277
Unrealized gain on available-for-sale securities, net (Note 3) 1,891,144 125,086
Unrealized postretirement benefit gain (Note 11) 5,340 17,366
     
Comprehensive (Loss) Income (35,136,747) 2,247,729
     
Fund Balance – Beginning 52,413,036 50,165,307
     
Fund Balance – Ending $17,276,289 $52,413,036
The accompanying notes are an integral part of these financial statements.

 

Deposit Insurance Fund Statement of Cash Flow for the Years Ended December 31
Dollars in Thousands
  2008 2007
Operating Activities
Net (Loss) Income: $(37,033,231) $2,105,277
Adjustments to reconcile net income to net cash provided by operating activities:    
Amortization of U.S. Treasury obligations 457,289 571,267
Treasury inflation-protected securities (TIPS) inflation adjustment (271,623) (313,836)
Gain on sale of U.S. Treasury obligations (774,935) 0
Depreciation on property and equipment 55,434 63,115
Loss on retirement of property and equipment 447 153
Provision for insurance losses 41,838,835 95,016
Unrealized gain on postretirement benefits 5,340 17,366
Systemic risk expenses (2,352) 0
Change In Operating Assets and Liabilities:
(Increase) in assessments receivable, net (773,905) (244,581)
Decrease/(Increase) in interest receivable and other assets 402,225 (20,442)
(Increase) in receivables from resolutions (28,283,491) (350,309)
(Increase) in receivable – systemic risk (21,285) 0
(Decrease) in accounts payable and other liabilities (34,667) (39,580)
(Decrease) in postretirement benefit liability (2,034) (13,748)
Increase in guarantee obligations – systemic risk 2,377,387 0
Net Cash (Used by) Provided by Operating Activities (22,060,566) 1,869,698
Investing Activities
Provided by:    
Maturity of U.S. Treasury obligations, held-to-maturity 3,304,350 6,401,000
Maturity of U.S. Treasury obligations, available-for-sale 3,930,226 1,225,000
Sale of U.S. Treasury obligations 13,974,732 0
     
Used by:    
Purchase of property and equipment (4,472) (1,607)
Purchase of U.S. Treasury obligations, held-to-maturity 0 (7,706,117)
Purchase of U.S. Treasury obligations, available-for-sale 0 (497,422)
Net Cash Provided by (Used by) Investing Activities 21,204,836


(579,146)
Net (Decrease)/Increase in Cash and Cash Equivalents (855,730) 1,290,552
     
Cash and Cash Equivalents - Beginning 4,244,547 2,953,995
Unrestricted Cash and Cash Equivalents – Ending 1,011,430 4,244,547
Restricted Cash and Cash Equivalents – Ending 2,377,387 0
     
Cash and Cash Equivalents - Ending $3,388,817 $4,244,547
The accompanying notes are an integral part of these financial statements.

1. Legislation and Operations of the Deposit Insurance Fund
Overview
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit insurance agency created by Congress in 1933 to maintain stability and public confidence in the nation’s banking system. Provisions that govern the operations of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as amended, (12 U.S.C. 1811, et seq.) In carrying out the purposes of the FDI Act, as amended, the FDIC insures the deposits of banks and savings associations (insured depository institutions), and in cooperation with other federal and state agencies promotes the safety and soundness of insured depository institutions by identifying, monitoring and addressing risks to the deposit insurance fund. An active institution’s primary federal supervisor is generally determined by the institution’s charter type. Commercial and savings banks are supervised by the FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board, while thrifts are supervised by the Office of Thrift Supervision.

The FDIC is the administrator of the Deposit Insurance Fund (DIF). The DIF is responsible for protecting insured bank and thrift depositors from loss due to institution failures. The FDIC is required by 12 U.S.C. 1823(c) to resolve troubled institutions in a manner that will result in the least possible cost to the deposit insurance fund unless a systemic risk determination is made that compliance with the least-cost test would have serious adverse effects on economic conditions or financial stability and any action or assistance taken under the systemic risk determination would avoid or mitigate such adverse effects. The systemic risk provision requires the FDIC to recover any related losses to the DIF through one or more emergency special assessments from all insured depository institutions. See Note 14 for a detailed explanation of 2008 systemic risk transactions.

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 Resolution Trust Corporation. The DIF and the FRF are maintained separately to carry out their respective mandates.

Recent Legislation
The Emergency Economic Stabilization Act of 2008 (EESA), legislation to help stabilize the financial markets, was enacted on October 3, 2008, and significantly affects the FDIC. The legislation requires that the FDIC participate, through a consultation role, in the establishment of the troubled asset relief program (known as TARP) and provides that the FDIC is eligible to act as an asset manager for residential mortgage loans and residential mortgage-backed securities on a reimbursable basis.

In addition, the legislation identifies the FDIC as a Federal property manager with respect to mortgage loans and mortgage-backed securities held by any bridge depository institution pursuant to section 11(n) of the FDI Act. As a Federal property manager, the FDIC is responsible for implementing a plan that maximizes assistance for homeowners and encourages servicers to take advantage of programs to minimize foreclosures for the affected assets.

The legislation also directly affects the FDIC as deposit insurer by providing for 1) a temporary increase in FDIC deposit insurance coverage from $100,000 to $250,000 from the date of enactment of the legislation through December 31, 2009 and 2) a temporary removal of limitations on borrowing in sections 14(a) and 15(c) of the FDI Act for purposes of carrying out the increase in the maximum deposit insurance amount for the duration of the increased coverage. EESA expressly provides that the temporary deposit insurance increase is not to be taken into account by the FDIC in setting assessments under section 7(b) of the FDI Act. (See Note 15, Subsequent Events – Legislative Update.)

The Federal Deposit Insurance Reform Act of 2005 (Title II, Subtitle B of Public Law 109-171, 120 Stat. 9) and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (Public Law 109-173, 119 Stat. 3601) were enacted in February 2006. Pursuant to this legislation (collectively, the Reform Act), the Bank Insurance Fund and the Savings Association Insurance Fund were merged into the DIF, and the FDIC permanently increased coverage for certain retirement accounts to $250,000. Additionally, the Reform Act: 1) provides the FDIC with greater discretion to charge insurance assessments and to impose more sensitive risk-based pricing; 2) annually permits the designated reserve ratio (DRR) to vary between 1.15 and 1.50 percent of estimated insured deposits; 3) generally requires the declaration and payment of dividends from the DIF if the reserve ratio of the DIF equals or exceeds 1.35 percent of estimated insured deposits at the end of a calendar year; 4) grants a one-time assessment credit for each eligible insured depository institution or its successor based on an institution’s proportionate share of the aggregate assessment base of all eligible institutions at December 31, 1996; and 5) allows the FDIC to increase all deposit insurance coverage, under certain circumstances, to reflect inflation every five years beginning January 1, 2011. See Note 8 for additional discussion on the reforms related to assessments. (See Note 15, Subsequent Events – Legislative Update.)

Operations of the DIF
The primary purpose of the DIF is to: 1) insure the deposits and protect the depositors of DIF-insured institutions and 2) resolve DIF-insured failed institutions upon appointment of FDIC as receiver in a manner that will result in the least possible cost to the DIF.

The DIF is primarily funded from: 1) interest earned on investments in U.S. Treasury obligations and 2) deposit insurance assessments. Additional funding sources, if necessary, are borrowings from the U.S. Treasury, Federal Financing Bank (FFB), Federal Home Loan Banks, and insured depository institutions. The FDIC has borrowing authority from the U.S. Treasury up to $30 billion and a Note Purchase Agreement with the FFB not to exceed $100 billion to enhance DIF’s ability to fund deposit insurance obligations. (See Note 15, Subsequent Events – Legislative Update.)

A statutory formula, known as the Maximum Obligation Limitation (MOL), limits the amount of obligations the DIF can incur to the sum of its cash, 90 percent of the fair market value of other assets, and the amount authorized to be borrowed from the U.S. Treasury. The MOL for the DIF was $69.0 billion and $83.6 billion as of December 31, 2008 and 2007, respectively. The EESA of 2008 provides that, in connection with the new, temporary increase in the basic deposit insurance coverage limit from $100,000 to $250,000, the FDIC may borrow from the U.S. Treasury to carry out the increase in the maximum deposit insurance amount without regard to the MOL or the $30 billion limit.

Receivership and Conservatorship Operations
The FDIC is responsible for managing and disposing of the assets of failed institutions in an orderly and efficient manner. The assets held by receivership and conservatorship entities, and the claims against them, are accounted for separately from DIF assets and liabilities to ensure that receivership and conservatorship proceeds are distributed in accordance with applicable laws and regulations. Accordingly, income and expenses attributable to receiverships and conservatorships are accounted for as transactions of those entities. Both are billed by the FDIC for services provided on their behalf.

 


Last Updated 08/8/2009 communications@fdic.gov