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Chief Financial Officer's (CFO) Report to the Board

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Summary Trends and Results - Fourth Quarter 2008

Financial Results Comments
I. Financial Statements

The Temporary Liquidity Guarantee Program (TLGP) will have no financial impact to the DIF. Any losses incurred by the DIF will be recovered first from fees collected from institutions participating in the TLGP and second (only if TLGP revenue proves insufficient) from systemic risk based assessments imposed on all insured depository institutions. The 2008 financial results of the TLGP are summarized below.

  • The FDIC collected $2.425 billion of guarantee fees from participating institutions on newly issued senior unsecured debt under the Debt Guarantee Program (DGP) in 2008 and recorded a $974 million receivable for fees under this program at year-end.
  • The total amount of guaranteed debt outstanding is $224 billion as of December 31, 2008. If all eligible entities issued debt up to the program’s allowable limit, the maximum loss exposure would be $940 billion. The FDIC cannot reliably estimate the future losses associated with the DGP at this time since the program has been operating for a relatively short time and no losses have yet been incurred.
  • The FDIC recorded a $665 million contingent liability associated with non-interest bearing transaction accounts for the anticipated failure of insured institutions participating in the Transaction Account Guarantee Program (TAG) as of December 31, 2008.
  • During 2008, the FDIC paid the guaranteed claims of depositors under the TAG program in the amount of $70 million upon the failure of ten participating institutions.
II. Investments
  • The DIF investment portfolio’s amortized cost (book value) decreased dramatically by $23.889 billion during 2008, and totaled $26.580 billion on December 31, 2008. The decline was primarily the result of funding 25 failed institution resolutions during 2008. At year end, the DIF investment portfolio yield was 4.59 percent, down 13 basis points from its December 31, 2007, yield of 4.72 percent. The yield decline stemmed largely from the sale of higher yielding securities during the third and fourth quarters. In addition, the DIF ended the year with a relatively high overnight investment balance of $971 million, earning ultra-low yields. The relatively high year-end overnight investment balance was largely attributable to the receipt of $867 million in assessment revenue on December 30, 2008.
  • The newly established Debt Guarantee Program investment portfolio totaled $2.425 billion on December 31, 2008, with all funds invested in overnight investments.
  • Conventional Treasury market yields declined dramatically during the fourth quarter of 2008. The deepening economic crisis and financial market turmoil prompted a flight to quality with burgeoning investor demand for Treasury securities; the yield declines also reflect the fact that during the fourth quarter, the Federal Open Market Committee (FOMC) cut the federal funds target rate three times, reducing it from 2 percent to a range of zero to 25 basis points. During the first quarter of 2009, Treasury yields are expected to continue to be volatile as market participants gauge whether financial and economic market turmoil is subsiding, prompting Treasury prices to fall with corresponding higher Treasury market yields; or whether financial and economic market turmoil is deepening, prompting further flight-to-quality Treasury price rallies and corresponding lower Treasury yields.
III. Budget
  • Approximately $1.05 billion was spent in the Ongoing Operations component of the 2008 Corporate Operating Budget, which was $12 million (1 percent) below the budget for the year. Spending in the Outside Services - Personnel expense category, which was approximately $11 million below the annual budget, accounted for most of this variance.
  • Approximately $150.5 million was spent in the Receivership Funding component of the 2008 Corporate Operating Budget, which exceeded the approved annual budget by $0.5 million (0.3 percent). More than half of the annual spending occurred during the fourth quarter, although the majority (53 percent) was for continuing receivership management workload associated with failures that occurred during the first nine months of the year.
  • Authorized staffing increased by 19 percent, from 4,810 at the beginning of the year to 5,721 at the end of 2008. This increase was attributable primarily to increased resolution and receivership management activity and the elevated examination workload that resulted from a rise in the number of troubled institutions. In December 2008, the Board approved a further increase in authorized staffing for 2009, to 6,269. Approximately 78 percent of the additional positions approved for 2008 and 2009 are non-permanent.

Last Updated 03/16/2009

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