Legislative
History
The U.S. Congress
created the Federal Deposit Insurance Corporation (FDIC) through enactment of the Banking
Act of 1933. The FDIC was created to restore and maintain public confidence in the
nations banking system. More
recently, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) was enacted to reform, recapitalize and consolidate the federal deposit insurance
system. The FIRREA created the Bank Insurance Fund (BIF), the Savings Association
Insurance Fund (SAIF) and the FSLIC Resolution Fund (FRF). It also designated the FDIC as
the administrator of these three funds. All three funds are maintained separately to carry
out their respective mandates.
The BIF and SAIF are insurance funds
responsible for protecting depositors in operating banks and thrift institutions from loss
due to failure of the institution. The FRF is a resolution fund responsible for winding up
the affairs of the former Federal Savings and Loan Insurance Corporation (FSLIC) and
liquidating the assets and liabilities transferred from the former Resolution Trust
Corporation (RTC).
Pursuant to FIRREA, an active
institutions insurance fund membership and primary federal supervisor are generally
determined by the institutions charter type. Deposits of BIF-member institutions are
mostly insured by the BIF; BIF members are predominantly commercial and savings banks
supervised by the FDIC, the Office of the Comptroller of the Currency, or the Federal
Reserve. Deposits of SAIF-member institutions are mostly insured by the SAIF; SAIF members
are predominantly thrifts supervised by the Office of Thrift Supervision (OTS). The Oakar
amendment to the Federal Deposit Insurance Act (FDI Act) allows BIF and SAIF members to
acquire deposits insured by the other insurance fund without changing insurance fund
coverage for the acquired deposits.
Other significant legislation
includes the Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). These acts made changes to
the FDICs assessment authority (see Note 10) and borrowing
authority (see Operations of the BIF
below). The FDICIA also requires the FDIC to: 1) resolve troubled institutions in a manner
that will result in the least possible cost to the deposit insurance funds and 2) maintain
the insurance funds at 1.25 percent of insured deposits or a higher percentage as
circumstances warrant.
Recent
Legislation
The Deposit Insurance
Funds Act of 1996 (DIFA 1996) was enacted to provide for: 1) the capitalization of the
SAIF to its designated reserve ratio of 1.25 percent by means of a one-time special
assessment on SAIF-insured deposits; 2) the expansion of the assessment base for payments
of the interest on obligations issued by the Financing Corporation (FICO) to include all
FDIC-insured institutions, i.e., banks and thrifts; 3) beginning January 1, 1997, the
imposition of a FICO assessment rate for BIF-assessable deposits that is one-fifth of that
paid by SAIF-assessable deposits; 4) the payment of the approximately $790 million annual
FICO interest obligation on a pro rata basis between banks and thrifts on the earlier of
December 31, 1999 or the date on which the last savings association ceases to exist; 5)
the refund of amounts in the BIF in excess of the designated reserve ratio with such
refund not to exceed the previous semi-annual assessment; 6) authorization of BIF
assessments only if needed to maintain the fund at the designated reserve ratio; and 7)
the merger of the BIF and the SAIF on January 1, 1999, if no insured depository
institution is a savings association on that date.
The FICO, established under the
Competitive Banking Act of 1987, is a mixed-ownership government corporation whose sole
purpose was to function as a financing vehicle for the FSLIC.
Operations of the BIF
The primary purpose of
the BIF is to: 1) insure the deposits and protect the depositors of BIF-insured banks and
2) resolve failed banks, including managing and liquidating their assets. In addition, the
FDIC, acting on behalf of the BIF, examines state-chartered banks that are not members of
the Federal Reserve System and provides and monitors assistance to troubled banks.
The BIF is primarily funded from the
following sources:1) interest earned on investments in U.S. Treasury obligations; 2) BIF
assessment premiums; 3) income earned on and funds received from the management and
disposition of assets acquired from failed banks; and 4) U.S. Treasury and Federal
Financing Bank (FFB) borrowings, if necessary.
The 1990 OBR Act established the
FDICs authority to borrow working capital from the FFB on behalf of the BIF and the
SAIF. The FDICIA increased the FDICs authority to borrow for insurance losses from
the U.S. Treasury, on behalf of the BIF and the SAIF, from $5 billion to $30 billion.
The FDICIA also established a
limitation on obligations that can be incurred by the BIF, known as the maximum obligation
limitation (MOL). At December 31, 1996, the MOL for the BIF was $49 billion. |
General
These financial statements pertain to the financial position, results of
operations and cash flows of the BIF and are presented in accordance with generally
accepted accounting principles (GAAP). These statements do not include reporting for
assets and liabilities of closed banks for which the BIF acts as receiver or liquidating
agent. Periodic and final accountability reports of the BIFs activities as receiver
or liquidating agent are furnished to courts, supervisory authorities and others as
required. Use
of Estimates
The preparation of the
BIFs financial statements in conformity with GAAP requires FDIC management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates. Where it is
reasonably possible that changes in estimates will cause a material change in the
financial statements in the near term, the nature and extent of such changes in estimates
have been disclosed.
Cash and
Cash Equivalents
The BIF considers cash
equivalents to be short-term, highly liquid investments with original maturities of three
months or less.
U.S.
Treasury Obligations
Securities are intended
to be held to maturity and are shown at book value. Book value is the face value of
securities plus the unamortized premium or less the unamortized discount. Amortizations
are computed on a daily basis from the date of acquisition to the date of maturity.
Interest is calculated on a daily basis and recorded monthly using the effective interest
method.
Allowance
for Losses on Receivables from Bank Resolutions and Investment in Corporate Owned Assets
The BIF records as a
receivable the amounts advanced and/or obligations incurred for resolving troubled and
failed banks. The BIF also records as an asset the amounts advanced for investment in
corporate owned assets. Any related allowance for loss represents the difference between
the funds advanced and/or obligations incurred and the expected repayment. The latter is
based on estimates of discounted cash recoveries from assets of assisted or failed banks,
net of all estimated liquidation costs.
Litigation
Losses
The BIF accrues, as a
charge to current period operations, an estimate of probable losses from litigation. The
FDICs Legal Division recommends these estimates on a case-by-case basis. The
litigation loss estimates related to the BIF in its corporate capacity are included in the
Estimated liabilities for: Litigation losses. The litigation loss estimates
related to receiverships are included in the allowance for losses for Receivables
from bank resolutions, net.
Receivership
Operations
The FDIC is responsible
for controlling and disposing of the assets of failed institutions in an orderly and
efficient manner. The assets, and the claims against them, are accounted for separately to
ensure that liquidation proceeds are distributed in accordance with applicable laws and
regulations. Also, the income and expenses attributable to receiverships are accounted for
as transactions of those receiverships. Liquidation expenses incurred by the BIF on behalf
of the receiverships are recovered from those receiverships.
Cost
Allocations Among Funds
Certain operating
expenses (including personnel, administrative and other indirect expenses) not directly
charged to each fund under the FDICs management are allocated on the basis of the
relative degree to which the operating expenses were incurred by the funds. The cost of
furniture, fixtures and equipment purchased by the FDIC on behalf of the three funds under
its administration is allocated among these funds on a pro rata basis. The BIF expenses
its share of these allocated costs at the time of acquisition because of their immaterial
amounts.
Postretirement
Benefits Other Than Pensions
The FDIC established an
entity to provide the accounting and administration of postretirement benefits on behalf
of the BIF, the SAIF and the FRF. The BIF funds its liabilities for these benefits
directly to the entity.
Disclosure
about Recent Financial AccountingStandards Board Pronouncements
The Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities in June 1996, effective for transactions occurring
after December 31, 1996. The BIF will generally be unaffected by its provisions since most
transactions subject to SFAS 125 occur at the receivership level and not at the fund
level. To the extent that the BIF may be affected, the FDICs current accounting
practices are consistent with the rules contained in SFAS 125. Other recent pronouncements
issued by the FASB have been adopted or are either not applicable or not material to the
financial statements.
Depreciation
The FDIC has designated
the BIF administrator of buildings owned and used in its operations. Consequently, the BIF
includes the cost of these assets in its financial statements and provides the necessary
funding for them. The BIF charges other funds a rental fee representing an allocated share
of its annual depreciation expense.
The Washington, D.C., office
buildings and the L. William Seidman Center in Arlington, Virginia, are depreciated on a
straight-line basis over a 50-year estimated life. The San Francisco condominium offices
are depreciated on a straight-line basis over a 35-year estimated life.
Related
Parties
The nature of related
parties and a description of related party transactions are disclosed throughout the
financial statements and footnotes.
Reclassifications
Reclassifications have
been made in the 1995 financial statements to conform to the presentation used in 1996. |
All cash received by the BIF is
invested in U.S. Treasury obligations with maturities exceeding three months unless the
cash is used: 1) to defray operating expenses; 2) for outlays related to assistance to
banks and liquidation activities; or 3) for investments in U.S. Treasury one-day special
certificates which are cash equivalents. |
. |
|
|
|
|
|
Maturity |
Yield
at
Purchase |
Book
Value |
Unrealized
Holding
Gains |
Unrealized
Holding
Losses |
Market
Value |
Face
Value |
|
Less than
one year |
6.02% |
|
|
|
|
|
1-3 years |
5.62% |
8,339,386 |
8,499 |
(37,429) |
8,310,456 |
8,320,000 |
3-5 years |
6.10% |
4,811,582 |
21,306 |
(30,560) |
4,802,328 |
4,770,000
|
5-10 years |
6.51% |
3,127,436 |
38,415 |
(328) |
3,165,523 |
3,100,000 |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
. |
|
|
|
|
|
Maturity |
Yield
at
Purchase |
Book
Value |
Unrealized
Holding
Gains |
Unrealized
Holding
Losses |
Market
Value |
Face
Value |
|
Less
than
one year(a) |
5.53% |
|
|
|
|
|
1-3
years |
5.88% |
12,318,436 |
147,762 |
(24,776) |
12,441,422 |
12,350,000 |
3-5
years |
5.59% |
1,693,196 |
15,613 |
0 |
1,708,809 |
1,690,000 |
Total |
|
|
|
|
|
|
|
(a)
Includes a $400 million Treasury note which matured on Sunday, December 31, 1995.
Settlement occurred on the next business day, January 2, 1996. |
|
In 1996, the unamortized discount,
net of unamortized premium, was $93 million. In 1995, the unamortized premium, net of
umamortized discount, was $28 million. |
The FDIC resolution process results
in different types of transactions depending on the unique facts and circumstances
surrounding each failing or failed institution. Payments to prevent a failure are made to
operating institutions when cost and other criteria are met. Such payments may facilitate
a merger or allow a troubled institution to continue operations. Payments for institutions
that fail are made to cover the institutions obligation to insured depositors and
represent a claim by the BIF against the receiverships assets. The FDIC, as receiver for failed banks,
engages in a variety of strategies at the time of failure to maximize the return from the
sale or disposition of assets and to minimize realized losses. A failed bank acquirer can
purchase selected assets at the time of resolution and assume full ownership, benefit and
risk related to such assets. The receiver may also engage in other types of transactions
as circumstances warrant. As described in Note 2, an allowance for loss is established
against the receivable from bank resolutions.
As of December 31, 1996 and 1995,
the BIF, in its receivership capacity, held assets with a book value of $7 billion and $10
billion, respectively. These assets represent a significant source of repayment of
receivables from bank resolutions. The estimated cash recoveries from the management and
disposition of these assets (excluding cash and miscellaneous receivables of $3.9 billion
at December 31, 1996 and $2.1 billion at December 31, 1995) used to derive the allowance
for losses are based in part on a statistical sampling of receivership assets. The
potential sampling error is not material to the BIFs financial statements. These
estimated recoveries are regularly evaluated, but remain subject to uncertainties because
of changing economic conditions. These factors could affect the BIFs and other
claimants actual recoveries from the level currently estimated. |
|
|
|
|
December
31, 1996 |
December
31, 1995 |
|
Assets from Open
Bank Assistance |
|
|
Allowance for losses
(Note 9) |
(49,580) |
(57,405) |
|
92,687
|
100,595 |
|
Receivables from
Closed Banks |
23,563,609
|
25,073,165 |
Allowance for losses
(Note 9) |
(19,315,142) |
(21,030,720) |
|
4,248,467
|
4,042,445 |
|
Total |
|
|
|
|
|
|
The BIF acquires assets in certain
troubled and failed bank cases by either purchasing an institutions assets outright
or purchasing the assets under the terms specified in each resolution agreement. In
addition, the BIF can purchase assets remaining in a receivership to facilitate
termination. The majority of corporate owned assets are real estate and mortgage loans. The methodology used to derive the allowance
for losses for corporate owned assets is the same as that for receivables from bank
resolutions.
The BIF recognizes income and
expenses on these assets. Income consists primarily of the portion of collections on
performing mortgages related to interest earned. Expenses are recognized for administering
the management and liquidation of these assets. |
|
|
|
|
December
31, 1996 |
December
31, 1995 |
|
Investment
in corporate owned assets |
|
|
Allowance for losses (Note 9) |
(810,052) |
(759,463) |
Total
|
|
|
|
|
|
|
|
|
|
|
December
31, 1996 |
December
31, 1995 |
|
Land |
|
|
Office buildings |
151,442
|
151,442 |
Accumulated depreciation |
(32,673) |
(29,333) |
Total |
|
|
|
|
|
|
|
|
|
|
For
the Year Ended
December 31, 1996 |
For the
Year Ended
December 31, 1995 |
|
Interest on subrogated claims and
advances |
|
|
Income from assistance transactions |
5,980 |
9,234 |
Other miscellaneous income |
8,734 |
8,171 |
Total |
|
|
|
|
|
|
The interest on subrogated claims
and advances to financial institutions includes $205 million in post-insolvency interest.
There are a number of BIF receiverships that have residual funds remaining after paying
all regular claims. Once those claims have been paid, the BIF and other claimants are
eligible to receive interest on their claims against the receivers on a pro rata basis.
Due to the uncertainty of collection, post-insolvency interest is recognized when
received. |
Anticipated
Failure of Insured Institutions
The BIF records an
estimated liability and loss provision for banks that are likely to fail in the
foreseeable future (absent some favorable event such as obtaining additional capital or
merging). The estimated liability and corresponding reduction in provision for insurance
losses are recorded in the period when the liability is deemed probable and reasonably
estimable. The estimated
liabilities for anticipated failure of insured institutions as of December 31, 1996 and
1995, were $75 million and $279 million, respectively. The estimated liability is derived
in part from estimates of recoveries from the management and disposition of the assets of
these probable bank failures. Therefore, they are subject to the same uncertainties as
those affecting the BIFs receivables from bank resolutions (see Note
4). This could affect the ultimate costs to the BIF from probable bank failures.
There are other banks where the risk
of failure is less certain, but still considered reasonably possible. Should these banks
fail the BIF would incur additional losses of about $160 million.
The accuracy of these estimates will
largely depend on future economic conditions. In addition, FDIC considers probable losses
in setting assessment rates and, as circumstances warrant, may increase assessment rates
to recover some or all losses due to anticipated bank failures.
Assistance
Agreements
The estimated liabilities for assistance agreements resulted from several large
transactions where problem assets were purchased by an acquiring institution under an
agreement that calls for the FDIC to absorb credit losses and to pay related costs for
funding and asset administration plus an incentive fee.
Asset
Securitization Guarantee
As part of the FDICs efforts to maximize the return from the sale or disposition of
assets and minimize losses from bank resolutions, the FDIC has securitized some
receivership assets. To facilitate the securitizations, the FDICs BIF provided
Limited Guarantees to cover certain losses on the securitized assets up to a specified
maximum. In exchange for backing the limited guarantee, the BIF received assets from the
receiverships in an amount equal to the expected exposure under the guarantee. The deals
were initially structured so that the BIF would neither profit nor suffer a loss as a
result of the limited guarantees.
At December 31, 1996 and 1995, the
BIF had an estimated liability under the guarantees of $44 million and $126 million,
respectively.
During 1996 the BIF returned to
receiverships $91.6 million in cash (including interest of $8.4 million) received for
backing the limited guarantee. The BIF made this refund as a result of lowering the
estimate of expected exposure under one of the guarantees. The following chart summarizes
the BIFs remaining potential exposure under the guarantees. |
|
|
|
|
Maximum
Exposure Under
the Guarantee Obligations |
Guarantee
Claims Paid
through December 31 |
Maximum
Remaining
Potential Obligations
at December 31 |
|
1996 |
$481,313 |
$8,651 |
$472,662 |
1995 |
$247,748 |
$2,406 |
$245,342 |
|
Litigation
Losses
The BIF records an estimated loss for unresolved legal cases to the extent those losses
are considered to be probable in occurrence and reasonably estimable in amount. In
addition to the amount recorded, the FDICs Legal Division has determined that losses
from unresolved legal cases totaling $307 million are reasonably possible. This includes
$18 million in losses for the BIF in its corporate capacity and $289 million in losses for
the BIF related to receiverships (see Note 2). |
The reduction in provision for
insurance losses includes the normal, recurring changes in estimates for prior year,
current, and anticipated bank resolutions. In the following charts, transfers include
reclassifications from Estimated Liabilities for: anticipated failure of insured
institutions to Closed banks. Terminations represent final adjustments
to the estimated cost figures for those bank resolutions that were completed. |
|
|
|
|
|
|
|
|
Provision for Insurance Losses |
|
|
|
|
Beginning
Balance 01/01/96 |
Current
Year |
Prior
Years |
Total |
Net
Cash Payments |
Adjustments/
Transfers/ Terminations |
Ending
Balance 12/31/96 |
|
Allowance for Losses: |
|
|
|
|
|
|
Open bank assistance |
|
|
|
|
|
|
|
Corporate owned assets |
759
|
0 |
51
|
51
|
0 |
0 |
810
|
Closed banks |
21,031
|
(95) |
(33) |
(128) |
0 |
(1,588) |
19,315
|
Total Allowance for Losses |
21,847
|
(95) |
14
|
(81) |
0 |
(1,591) |
20,175
|
|
|
|
|
|
|
|
|
Estimated Liabilities for: |
|
|
|
|
|
|
Anticipated failure of insured institutions |
279
|
(204) |
0 |
(204) |
0 |
0 |
75
|
Assistance agreements |
56
|
0 |
(4) |
(4) |
(1) |
0 |
51
|
Asset securitization guarantee |
126
|
(15) |
0 |
(15) |
(81) |
14
|
44
|
Litigation losses |
36
|
0 |
(21) |
(21) |
0 |
0 |
15
|
Total Estimated Liabilities |
497
|
(219) |
(25) |
(244) |
(82) |
14
|
185
|
Reduction in
Provision
for Insurance Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
Insurance Losses |
|
|
|
|
Beginning
Balance
01/01/95 |
Current
Year |
Prior
Years |
Total |
Net Cash
Payments |
Adjustments/
Transfers/ Terminations |
Ending
Balance 12/31/95 |
|
Allowance for Losses: |
|
|
|
|
|
|
|
Open bank assistance |
|
|
|
|
|
|
|
Corporate owned assets |
660 |
0 |
99 |
99 |
0 |
0 |
759 |
Closed banks |
22,354 |
(52) |
464 |
412 |
0 |
(1,735) |
21,031 |
Total Allowance for Losses |
24,170 |
(52) |
423 |
371 |
0 |
(2,694) |
21,847 |
|
|
|
|
|
|
|
|
Estimated Liabilities for: |
|
|
|
|
|
|
|
Anticipated failure of insured institutions |
875 |
131 |
(570) |
(439) |
0 |
(157) |
279 |
Assistance agreements |
163 |
0 |
14 |
14 |
(101) |
(20) |
56 |
Asset securitization guarantee |
128 |
0 |
0 |
0 |
(2) |
0 |
126 |
Litigation losses |
15 |
0 |
21 |
21 |
0 |
0 |
36 |
Total Estimated Liabilities |
1,181 |
131 |
(535) |
(404) |
(103) |
(177) |
497 |
|
|
|
|
|
|
|
|
Increase/(Reduction)
in
Provision for Insurance Losses |
|
|
|
|
|
|
|
The 1990 OBR Act removed caps on
assessment rate increases and authorized the FDIC to set assessment rates for BIF members
semiannually, to be applied against a members average assessment base. The FDICIA:
1) required the FDIC to implement a risk-based assessment system; 2) authorized the FDIC
to increase assessment rates for BIF-member institutions as needed to ensure that funds
are available to satisfy the BIFs obligations; and 3) authorized the FDIC to
increase assessment rates more frequently than semiannually and impose emergency special
assessments as necessary to ensure that funds are available to repay U.S. Treasury
borrowings. In May 1995, the
BIF reached the FDICIA mandated capitalization level of 1.25 percent of insured deposits.
The DIFA 1996 (see Note
1) provided, among other things, for the elimination of the mandatory minimum
assessment formerly provided for in the FDI Act, and for the expansion of the assessment
base for payments on the interest on obligations issued by FICO to include all
FDIC-insured institutions, including banks. Beginning January 1, 1997, banks will start
paying a FICO-assessment. The FICO-assessment rate on BIF-assessable deposits will be
one-fifth of the rate paid on SAIF-assessable deposits. On the earlier of December 31,
1999, or the date on which the last savings association ceases to exist, the approximately
$790 million annual FICO interest obligation will be paid on a pro rata basis between
banks and thrifts.
The FICO assessment will have no
financial effect on the BIF since the FICO claim will be assessed separately from the
regular assessment, and the FICO assessment is imposed on banks and not on the BIF. The
FDIC as administrator of the BIF is acting solely as an agent for the FICO to collect and
remit the FICO assessment to the FICO.
The FDIC uses a risk-based
assessment system that charges higher rates to those institutions that pose greater risks
to the BIF. To arrive at a risk-based assessment for a particular institution, the FDIC
places each institution in one of nine risk categories using a two-step process based
first on capital ratios and then on other relevant information. The FDIC Board of
Directors (Board) reviews premium rates semiannually. The average assessment rate for 1996
was 0.24 cents per $100 of insured deposits.
On November 26, 1996, the FDIC Board
of Directors voted to retain the BIF assessment schedule of 0 to 27 cents per $100 of
insured deposits (annual rates) for the first semiannual period of 1997. |
Eligible FDIC employees (i.e., all
permanent and temporary employees with appointments exceeding one year) are covered by
either the Civil Service Retirement System (CSRS) or the Federal Employee Retirement
System (FERS). The CSRS is a defined benefit plan, which is offset with the Social
Security System in certain cases. Plan benefits are determined on the basis of years of
creditable service and compensation levels. The CSRS-covered employees also can contribute
to the tax-deferred Federal Thrift Savings Plan (TSP). The FERS is a three-part plan consisting of a
basic defined benefit plan that provides benefits based on years of creditable service and
compensation levels, Social Security benefits and the TSP. Automatic and matching employer
contributions to the TSP are provided up to specified amounts under the FERS.
Eligible FDIC employees also may
participate in an FDIC-sponsored tax-deferred savings plan with matching contributions.
The BIF pays its share of the employers portion of all related costs.
Although the BIF contributes a
portion of pension benefits for eligible employees, it does not account for the assets of
either retirement system. The BIF also does not have actuarial data for accumulated plan
benefits or the unfunded liability relative to eligible employees. These amounts are
reported and accounted for by the U.S. Office of Personnel Management.
Due to a substantial decline in the
FDICs workload, the Corporation developed a staffing reduction program, a component
of which is a voluntary separation incentive plan, or buyout. To date, two corporate-wide
buyout plans have been offered to eligible employees. The first buyout plan did not have a
material financial effect on the BIF, and management believes the second buyout plan will
also not have a material financial effect on the fund.
The liability to employees for
accrued annual leave is approximately $38.9 million and $43.4 million at December 31, 1996
and 1995, respectively. |
|
|
|
|
For
the Year Ended
December 31, 1996 |
For the
Year Ended
December 31, 1995 |
|
Civil Service Retirement System |
|
|
Federal Employee Retirement System
(Basic Benefit) |
34,989 |
36,741 |
FDIC Savings Plan |
19,474 |
20,545 |
Federal Thrift Savings Plan |
12,195 |
10,264 |
Total |
|
|
|
|
|
|
The FDIC provides certain health,
dental and life insurance coverage for its eligible retirees, the retirees
beneficiaries and covered dependents. Retirees eligible for health and/or life insurance
coverage are those who have qualified due to: 1) immediate enrollment upon appointment or
five years of participation in the plan and 2) eligibility for an immediate annuity.
Dental coverage is provided to all retirees eligible for an immediate annuity. The FDIC is self-insured for
hospital/medical, prescription drug, mental health and chemical dependency coverage.
Additional risk protection was purchased from Aetna Life Insurance Company through
stop-loss and fiduciary liability insurance. All claims are administered on an
administrative services only basis with the hospital/medical claims administered by Aetna
Life Insurance Company, the mental health and chemical dependency claims administered by
OHS Foundation Health Psychcare Inc., and the prescription drug claims administered by
Caremark.
The life insurance program,
underwritten by Metropolitan Life Insurance Company, provides basic coverage at no cost to
retirees and allows converting optional coverages to direct-pay plans. Dental care is
underwritten by Connecticut General Life Insurance Company and provides coverage at no
cost to retirees.
The BIF expensed $6.1 million and
$18.8 million for net periodic postretirement benefit costs for the years ended December
31, 1996 and 1995, respectively. For measurement purposes for 1996, the FDIC assumed the
following: 1) a discount rate of 5.75 percent; 2) an average long-term rate of return on
plan assets of 5.75 percent; 3) an increase in health costs in 1996 of 10.75 percent
(inclusive of general inflation of 3.00 percent), decreasing to an ultimate rate in 2000
of 7.75 percent; and 4) an increase in dental costs for 1997 and thereafter of 4.00
percent (in addition to general inflation). Both the assumed discount rate and health care
cost rate have a significant effect on the amount of the obligation and periodic cost
reported.
If the health care cost rate was
increased one percent, the accumulated postretirement benefit obligation as of December
31, 1996, would have increased by 20.4 percent. The effect of this change on the aggregate
of service and interest cost for 1996 would be an increase of 26.2 percent. |
|
|
|
|
For
the Year Ended
December 31, 1996 |
For
the Year Ended
December 31, 1995 |
|
Service cost (benefits attributed to employee
service during the year) |
|
|
Interest cost on accumulated postretirement
benefit obligation |
16,258
|
14,706
|
Net total of other components |
(7,369) |
(3,567) |
Return on plan assets |
(18,402) |
(14,907) |
Total |
|
|
|
|
|
|
As stated in Note 2, the FDIC
established an entity to provide accounting and administration on behalf of the BIF, the
SAIF, and the FRF. The BIF funds its liability and these funds are being managed as
plan assets. |
|
|
|
|
December
31, 1996 |
December
31, 1995 |
|
Retirees |
|
|
Fully eligible active plan participants |
12,724
|
22,401 |
Other active participants |
152,993
|
182,408 |
Total Obligation |
302,447
|
284,179 |
Less: Plan assets at fair value (a) |
335,439
|
317,037 |
(Over) Funded Status |
(32,992) |
(32,858) |
Unrecognized prior service cost |
46,136
|
57,242 |
Unrecognized net gain |
26,846
|
11,954 |
Postretirement Benefit
Liability Recognized in the Statements of Financial Position |
|
|
(a) Invested in U.S. Treasury instruments |
|
|
|
The BIFs allocated share of
FDICs lease commitments totals $138.8 million for future years. The lease agreements
contain escalation clauses resulting in adjustments, usually on an annual basis. The
allocation to the BIF of FDICs future lease commitments is based upon current
relationships of the workloads among BIF, SAIF and FRF. Changes in the relative workloads
among the three funds in future years could change the amount of FDICs lease
payments which will be allocated to BIF. The BIF recognized leased space expense of $39.9
million and $42.7 million for the years ended December 31, 1996 and 1995, respectively. |
|
|
|
1997 |
1998 |
1999 |
2000 |
2001 |
2002 and
Thereafter |
|
$38,355 |
$25,004 |
$19,390 |
$16,597 |
$15,748 |
$23,742 |
|
As of December 31, 1996, the BIF
had $23.7 billion and $873 million in gross receivables from bank resolutions and
investment in corporate owned assets, respectively. An allowance for loss of $19.4 billion
and $810 million, respectively, has been recorded against these receivables. The
receivables arose from bank resolutions. The BIFs maximum exposure to possible
accounting loss for these receivables is shown in the table below. |
|
|
|
|
|
|
|
|
|
Southeast
|
Southwest
|
Northeast
|
Midwest |
Central |
West |
Total |
|
Receivables from
bank resolutions, net and Investment in corporate owned assets, net |
$
89 |
$
297 |
$
3,145 |
$
230 |
$
8 |
$
631 |
$ 4,400 |
|
(a) The
net receivable excludes $2.3 million and $1.9 million, respectively, of the SAIFs
allocated share of maximum credit loss exposure from the resolutions of Olympic National
Bank, Los Angeles, CA, and the First National Bank of the Panhandle, Panhandle, TX. There
is no risk that the SAIF will not meet these obligations. |
|
Insured
Deposits
As of December 31, 1996, the total deposits insured by the BIF is approximately $2
trillion. This would be the accounting loss if all depository institutions fail and the
assets acquired as a result of the resolution process provided no recoveries. |
Cash equivalents are short-term,
highly liquid investments and are shown at current value. The fair market value of the
investment in U.S. Treasury obligations is disclosed in Note 3 and is
based on current market prices. The carrying amount of interest receivable on investments,
short-term receivables, accounts payable and liabilities incurred from bank resolutions
approximates their fair market value. This is due to their short maturities or comparisons
with current interest rates. The
net receivable from bank resolutions primarily involves the BIFs subrogated claim
arising from payments to insured depositors. The receivership assets which will ultimately
be used to pay the corporate subrogated claim are valued using discount rates which
include consideration of market risk. These discounts ultimately affect the BIFs
allowance for loss against the net receivable from bank resolutions. Therefore the
corporate subrogated claim indirectly includes the effect of discounting and should not be
viewed as being stated in terms of nominal cash flows.
Although the value of the corporate
subrogated claim is influenced by valuation of receivership assets, such receivership
valuation is not equivalent to the valuation of the corporate claim. Since the corporate
claim is unique, not intended for sale to the private sector, and has no established
market, it is not practicable to estimate its fair market value.
The FDIC believes that a sale to the
private sector of the corporate claim would require indeterminate, but substantial
discounts for an interested party to profit from these assets because of credit and other
risks. In addition, the timing of receivership payments to the BIF on the subrogated claim
do not necessarily correspond with the timing of collections on receivership assets.
Therefore the effect of discounting used by receiverships should not necessarily be viewed
as producing an estimate of market value for the net receivables from bank resolutions.
The majority of the net investment
in corporate owned assets (except real estate) is comprised of various types of financial
instruments (investments, loans, accounts receivable, etc.) acquired from failed banks.
Like receivership assets, corporate owned assets are valued using discount rates which
include consideration of market risk. However, corporate owned assets do not involve the
unique aspects of the corporate subrogated claim, and therefore the discounting can be
viewed as producing a reasonable estimate of fair market value. |
|
|
|
|
For
the Year Ended
December 31, 1996 |
For the
Year Ended
December 31, 1995 |
|
Net Income |
|
|
|
Adjustments to Reconcile Net
Income to Net Cash Provided by Operating Activities |
|
|
|
|
|
Income Statement Items: |
|
|
Reduction in provision for insurance
losses |
(325,206) |
(33,167) |
Amortization of U.S. Treasury
securities |
(826) |
(19,266) |
Depreciation on buildings |
3,339
|
3,339 |
|
|
|
Change in Assets and
Liabilities: |
|
|
Decrease (Increase) in interest
receivable on investments and other assets |
21,981
|
(146,102) |
(Increase) Decrease in receivables
from bank resolutions |
(66,359) |
3,659,128 |
Decrease (Increase) in corporate
owned assets |
66,298
|
(37,452) |
Increase (Decrease) in accounts
payable and other liabilities |
15,560
|
(112,148) |
(Decrease) in estimated liabilities
for anticipated failure of insured institutions |
0 |
(157,000) |
(Decrease) in estimated liabilities
for assistance agreements |
(721) |
(4,048) |
(Decrease) in estimated liabilities
for asset securitization guarantees |
(67,300) |
(2,054) |
|
Net Cash Provided by
Operating Activities |
|
|
|
In the first quarter of 1997,
management negotiated with the National Treasury Employees Union (NTEU) a change in
employee health benefits. This change involves a conversion from the FDIC health plan to
the Federal Employees Health Benefits (FEHB) plan. This conversion will involve all
employees with five or more years until retirement eligibility. Assuming enabling legislation is also passed,
the conversion will also affect all retirees and employees within five years of
retirement. Management does not expect the conversion, which will become effective on
January 1, 1998, to result in an accounting loss to the BIF. |
|