Bank Insurance Fund
Bank
Insurance Fund Statements of Financial Position
at December 31 |
Dollars in Thousands |
ell |
2001 |
2000 |
Assets |
Cash and cash
equivalents |
$1,436,613 |
$156,396 |
Investment
in U.S. Treasury obligations, net: (Note 3) |
Held-to-maturity
securities |
20,477,568 |
22,510,892 |
Available-for-sale
securities |
9,685,367 |
7,421,597 |
Interest receivable
on investments and other assets, net |
547,101 |
564,398 |
Receivables
from bank resolutions, net (Note 4) |
79,155 |
349,589 |
Property and
equipment, net (Note 5) |
303,969 |
303,438 |
Total Assets |
$32,529,773 |
$31,306,310 |
Liabilities |
Accounts
payable and other liabilities |
$134,990 |
$165,972 |
Contingent
liabilities for: (Note 6) |
Anticipated
failure of insured institutions |
1,911,000 |
141,355 |
Litigation
losses |
37,123 |
21,922 |
Other
contingencies |
7,835 |
1,839 |
Total
Liabilities |
2,090,948 |
331,088 |
Commitments and off-balance-sheet exposure
(Note 10) |
Fund Balance |
Accumulated
net income |
30,192,903 |
30,755,569 |
Unrealized
gain on available-for-sale securities, net (Note 3) |
245,922 |
219,653 |
Total
Fund Balance |
30,438,825 |
30,975,222 |
Total Liabilities
and Fund Balance |
$32,529,773 |
$31,306,310 |
The accompanying notes are an integral
part of these financial statements. |
Bank
Insurance Fund Statements of Income and Fund Balance for the Years
Ended
December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Revenue |
Interest on
U.S. Treasury obligations |
$1,834,768 |
$1,827,404 |
Assessments
(Note 7) |
47,777 |
45,091 |
Realized gain
on sale of U.S. Treasury obligations |
78,227 |
0 |
Other revenue |
35,964 |
33,369 |
Total Revenue |
1,996,736 |
1,905,864 |
Expenses and Losses |
Operating
expenses |
785,855 |
772,918 |
Provision
for insurance losses (Note 8) |
1,756,321 |
(152,962) |
Interest
and other insurance expenses |
17,226 |
25,289 |
Total
Expenses and Losses |
2,559,402 |
645,245 |
Net (Loss)/Income |
(562,666) |
1,260,619 |
Unrealized
gain on available-for-sale securities, net
(Note 3) |
26,269 |
300,420 |
Comprehensive
(Loss)/Income |
(536,397) |
1,561,039 |
Fund Balance - Beginning |
30,975,222 |
29,414,183 |
Fund Balance - Ending |
$30,438,825 |
$30,975,222 |
The accompanying notes are an integral
part of these financial statements. |
Bank Insurance
Fund Statements of Cash Flows for the Years Ended December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Cash Flows
From Operating Activities |
Cash
provided by: |
Interest
on U.S. Treasury obligations |
$1,913,936 |
$1,775,552 |
Recoveries
from bank resolutions |
368,603 |
755,936 |
Assessments |
47,075 |
48,518 |
Miscellaneous
receipts |
38,422 |
58,349 |
Cash
used by: |
Operating
expenses |
(729,635) |
(742,733) |
Disbursements
for bank resolutions |
(84,651) |
(388,276) |
Miscellaneous
disbursements |
(21,696) |
(24,968) |
Net
Cash Provided by Operating Activities (Note 13) |
1,532,054 |
1,482,378 |
Cash Flows
From Investing Activities |
Cash
provided by: |
Maturity
of U.S. Treasury obligations, held-to-maturity |
3,320,000 |
2,560,000 |
Maturity
and sale of U.S. Treasury obligations, available-for-sale |
2,398,572 |
430,000 |
Cash
used by: |
Purchase
of property and equipment |
(61,189) |
(60,761) |
Purchase
of U.S. Treasury obligations, held-to-maturity |
(1,418,875) |
(1,239,157) |
Purchase
of U.S. Treasury obligations, available-for-sale |
(4,490,345) |
(3,180,519) |
Net
Cash Used by Investing Activities |
(251,837) |
(1,490,437) |
Net Increase (Decrease)
in Cash and Cash Equivalents |
1,280,217 |
(8,059) |
Cash and Cash Equivalents
- Beginning |
156,396 |
164,455 |
Cash and Cash Equivalents
- Ending |
$1,436,613 |
$156,396 |
The accompanying notes are an integral
part of these financial statements. |
NOTES TO THE FINANCIAL STATEMENTS
December 31,
2001 and 2000
|
|
1.
Legislative History and Operations of the Bank Insurance Fund
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.
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
funds. All three funds are maintained separately to carry out their respective
mandates.
The BIF and the SAIF are insurance funds responsible for protecting insured
bank and thrift depositors from loss due to institution failures. 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 generally 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 Board. Deposits of SAIF-member institutions are
generally insured by the SAIF; SAIF members are predominantly thrifts
supervised by the Office of Thrift Supervision.
In addition to traditional banks and thrifts, several other categories
of institutions exist. The Federal Deposit Insurance Act (FDI Act), Section
5(d)(3), provides that a member of one insurance fund may, with the approval
of its primary federal supervisor, merge, consolidate with, or acquire
the deposit liabilities of an institution that is a member of the other
insurance fund without changing insurance fund status for the acquired
deposits. These institutions with deposits insured by both insurance funds
are referred to as Oakar financial institutions. The FDI Act, Section
5(d)(2)(G), allows SAIF-member thrifts to convert to a bank charter and
retain their SAIF membership. These institutions are referred to as Sasser
financial institutions. The Home Owners Loan Act (HOLA), Section
5(o), allows BIF-member banks to convert to a thrift charter and retain
their BIF membership. These institutions are referred to as HOLA thrifts.
Other Significant
Legislation
The Competitive Equality Banking Act of 1987 established the Financing
Corporation (FICO) as a mixed-ownership government corporation whose sole
purpose was to function as a financing vehicle for the FSLIC.
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act), the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and the
Deposit Insurance Funds Act of 1996 (DIFA) made changes to the FDICs
assessment authority (see Note 7) and borrowing authority.
The FDICIA also requires the FDIC to: 1) resolve failing 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
estimated insured deposits or a higher percentage as circumstances warrant.
The Gramm-Leach-Bliley Act (GLBA) was enacted on November 12, 1999, in
order to modernize the financial services industry (banks, brokerages,
insurers, and other financial services providers). The GLBA lifts restrictions
on affiliations among banks, securities firms, and insurance companies.
It also expands the financial activities permissible for financial holding
companies and insured depository institutions, their affiliates and subsidiaries.
Recent Legislative Initiatives
Legislation on deposit insurance reform was introduced during February
2002 in the House and Senate. The legislative proposals include merging
BIF and SAIF, modifying restrictions on charging risk-based insurance
premiums, implementing assessment credits and rebates, changing the designated
reserve ratio from a fixed 1.25 percent of estimated insured deposits
to a range, increasing deposit insurance coverage for all accounts (including
higher coverage for retirement accounts), and indexing the insurance limit
to inflation. These provisions may have a significant impact on the BIF
and the SAIF, if enacted into law. FDIC management cannot predict which
provisions, if any, will ultimately be enacted.
Operations of the BIF
The primary purpose of the BIF is to: 1) insure the deposits and protect
the depositors of BIF-insured institutions and 2) resolve failed institutions,
including managing and disposing of 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.
The BIF is primarily funded from: 1) interest earned on investments in
U.S. Treasury obligations and 2) deposit insurance assessments. Additional
funding sources are 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 established a limitation on obligations that can be incurred
by the BIF, known as the Maximum Obligation Limitation (MOL). As of December
31, 2001 and December 31, 2000, the MOL for the BIF was $55.4 billion
and $53.2 billion, respectively.
Receivership Operations
The FDIC is responsible for managing and disposing of the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership
entities, and the claims against them, are accounted for separately from
BIF assets and liabilities to ensure that receivership proceeds are distributed
in accordance with applicable laws and regulations. Also, the income and
expenses attributable to receiverships are accounted for as transactions
of those receiverships. Expenses paid by the BIF on behalf of the receiverships
are recovered from those receiverships.
2. Summary of Significant Accounting Policies
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 FDIC acts as receiver. Periodic and final accountability reports
of the FDICs activities as receiver are furnished to courts, supervisory
authorities, and others as required.
Use of Estimates
FDIC management makes estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. Where it is reasonably possible that
changes in estimates will cause a material change in the financial statements
in the near term, the nature and extent of such changes in estimates have
been disclosed.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less. Cash equivalents consist primarily
of Special U.S. Treasury Certificates.
Investments in U.S. Treasury Obligations
BIF investments in U.S. Treasury obligations are either classified as
held-to-maturity or available-for-sale. Securities designated as held-to-maturity
are shown at amortized cost. Amortized cost is the face value of securities
plus the unamortized premium or less the unamortized discount. Amortizations
are computed on a daily basis from the date of acquisition to the date
of maturity, except for callable U.S. Treasury securities, which are amortized,
to the first anticipated call date. Securities designated as available-for-sale
are shown at market value, which approximates fair value. Unrealized gains
and losses are included in Comprehensive Income. Realized gains and losses
are included in the Statements of Income and Fund Balance as components
of Net Income. Interest on both types of securities is calculated on a
daily basis and recorded monthly using the effective interest method.
Allowance for Losses on Receivables From Bank Resolutions
The BIF records a receivable for the amounts advanced and/or obligations
incurred for resolving failing and failed banks. 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 the assets of assisted or failed banks,
net of all applicable estimated liquidation costs.
Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated to
all funds administered by the FDIC using workload-based-allocation percentages.
These percentages are developed during the annual corporate planning process
and through supplemental functional analyses.
Disclosure About Recent Accounting Pronouncements
Recent accounting pronouncements were evaluated and deemed to be not applicable
to the financial statements as presented.
Depreciation
The FDIC has designated the BIF as administrator of property and equipment
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 the other funds usage fees representing an allocated
share of its annual depreciation expense. These usage fees are recorded
as cost recoveries, which reduce operating expenses.
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. Leasehold improvements
are capitalized and depreciated over the lesser of the remaining life
of the lease or the estimated useful life of the improvements, if determined
to be material. Capital assets depreciated on a straight-line basis over
a five-year estimated life include mainframe equipment; furniture, fixtures,
and general equipment; and internal-use software. Personal computer equipment
is depreciated on a straight-line basis over a three-year estimated life.
Related Parties
The nature of related parties and a description of related party transactions
are discussed in Note 1 and disclosed throughout the
financial statements and footnotes.
Reclassifications
Reclassifications have been made in the 2000 financial statements to conform
to the presentation used in 2001.
3. Investment in U.S. Treasury Obligations, Net
Cash not required to meet the liquidity needs of the BIF is invested
in U.S. Treasury obligations with maturities exceeding three months. As
of December 31, 2001 and December 31, 2000, the book value of investments
in U.S. Treasury obligations, net, was $30.2 billion and $29.9 billion,
respectively. The book value is computed by adding the amortized cost
of the held-to-maturity securities to the market value of the available-for-sale
securities. As of December 31, 2001, the FDIC held $5.5 billion of Treasury
inflation-indexed securities (TIIS) for the BIF. These securities are
indexed to increases or decreases in the Consumer Price Index (CPI).
During 2001, FDIC purchased $1.1 billion of callable U.S. Treasury securities
for the BIF. These securities are designated as either held-to-maturity
or available-for-sale, with the premiums being amortized to the first
call date. Callable U.S. Treasury bonds may be called five years prior
to the respective bonds stated maturity on their semi-annual coupon
payment dates upon 120 days notice. On February 15, 2002, $525 million
of these securities were called at par, with no loss to the BIF.
In 2001, the BIF reported a gross realized gain of $78 million on the
sale of securities designated as available-for-sale. Proceeds from the
sales were $1.5 billion. Specific identification was used to determine
cost of the securities sold in computing the realized gain.
U.S. Treasury
Obligations at December 31, 2001 |
Dollars in Thousands |
Maturity |
Yield at Purchase
(a) |
Face Value |
Net Carrying
Amount |
Unrealized
Holding Gains |
Unrealized
Holding Losses |
Market Value |
Held-to-Maturity |
Within
1 year |
5.77% |
$3,625,000 |
$3,666,801 |
$71,147 |
$(25) |
$3,737,923 |
After
1 year through 5 years |
6.40% |
10,345,000 |
10,516,640 |
752,345 |
(2,193) |
11,266,792 |
After
5 years through 10 years |
5.24% |
6,101,008 |
6,294,127 |
208,045 |
0 |
6,502,172 |
Total |
empty
cell |
$20,071,008 |
$20,477,568 |
$1,031,537 |
$(2,218) |
$21,506,887 |
Available-for-Sale |
Within
1 year |
4.57% |
$1,050,000 |
$1,056,197 |
$10,721 |
$0 |
$1,066,918 |
After
1 year through 5 years |
5.54% |
3,385,000 |
3,454,666 |
156,271 |
0 |
3,610,937 |
After
5 years through 10 years |
3.78% |
4,911,545 |
4,928,582 |
103,950 |
(25,020) |
5,007,512 |
Total |
empty
cell |
$9,346,545 |
$9,439,445 |
$270,942 |
$(25,020) |
$9,685,367 |
Total
Investment in U.S. Treasury Obligations, Net |
Total |
empty
cell |
$29,417,553 |
$29,917,013 |
$1,302,479 |
$(27,238) |
$31,192,254 |
(a) For TIIS,
the yields in the above table include their real yields at purchase,
not their effective yields. Effective yields on TIIS include a weighted
average of Bloombergs calculation of yield with a long-term
inflation assumption of 2.5% annually, as measured by the Consumer
Price Index (CPI). |
U.S. Treasury
Obligations at December 31, 2000 |
Dollars in Thousands |
Maturity |
Yield at Purchase
(a) |
Face Value |
Net Carrying
Amount |
Unrealized
Holding Gains |
Unrealized
Holding Losses |
Market Value |
Held-to-Maturity |
Within
1 year |
5.73% |
$3,320,000
(b) |
$3,324,498 |
$8,686 |
$(598) |
$3,332,586 |
After
1 year through 5 years |
6.37% |
10,620,000 |
10,898,837 |
367,352 |
(169) |
11,266,020 |
After
5 years through 10 years |
5.64% |
8,068,506 |
8,287,557 |
266,541 |
(26,826) |
8,527,272 |
Total |
empty
cell |
$22,008,506 |
$22,510,892 |
$642,579 |
$(27,593) |
$23,125,878 |
Available-for-Sale |
Within
1 year |
5.73% |
$925,000 |
$925,962 |
$1,493 |
$(1,053) |
$926,402 |
After
1 year through 5 years |
6.35% |
2,125,000 |
2,126,357 |
67,223 |
0 |
2,193,580 |
After
5 years through 10 years |
4.80% |
4,254,527 |
4,149,625 |
151,990 |
0 |
4,301,615 |
Total |
empty
cell |
$7,304,527 |
$7,201,944 |
$220,706 |
$(1,053) |
$7,421,597 |
Total Investment
in U.S. Treasury Obligations, Net |
Total |
empty
cell |
$29,313,033 |
$29,712,836 |
$863,285 |
$(28,646) |
$30,547,475 |
(a) For TIIS,
the yields in the above table include their real yields at purchase,
not their effective yields. Effective yields on TIIS include a weighted
average of Bloombergs calculation of yield with a long-term
inflation assumption of 2.5% annually, as measured by the Consumer
Price Index (CPI).
(b) Includes one Treasury note totaling
$200 million which matured on Sunday, December 31, 2000. Settlement
occurred on the next business day, January 2, 2001. |
As of
December 31, 2001 and 2000, the unamortized premium, net of the unamortized
discount, was $499 million and $400 million, respectively.
4. Receivables from Bank Resolutions, Net
The bank resolution process takes different forms depending on the unique
facts and circumstances surrounding each failing or failed institution.
Payments for institutions that fail are made to cover obligations to insured
depositors and represent claims by the BIF against the receiverships
assets. There were three bank failures in 2001 and six in 2000, with assets
at failure of $54 million and $378 million, respectively, and BIF outlays
of $49.5 million and $301.7 million, respectively.
Assets held by the FDIC in its receivership capacity for closed BIF-insured
institutions are the main source of repayment of the BIFs receivables
from closed banks. As of December 31, 2001 and 2000, BIF receiverships
held assets with a book value of $154.6 million and $510.9 million, respectively
(including cash and miscellaneous receivables of $71.9 million and $337
million at December 31, 2001 and 2000, respectively). The estimated cash
recoveries from the management and disposition of these assets that are
used to derive the allowance for losses are based in part on a statistical
sampling of receivership assets. These estimated recoveries are regularly
evaluated, but remain subject to uncertainties because of potential changes
in economic conditions. Such uncertainties could cause the BIFs
and other claimants actual recoveries to vary from the level currently
estimated.
Receivables
from Bank Resolutions, Net at December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Receivables from closed banks |
$5,368,970 |
$9,083,357 |
Allowance for losses |
(5,289,815) |
(8,733,768) |
Total |
$79,155 |
$349,589 |
5. Property and Equipment, Net
Property
and Equipment, Net at December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Land |
$29,631 |
$29,631 |
Buildings |
175,265 |
168,996 |
Application software (includes work-in-process) |
131,104 |
109,975 |
Furniture, fixtures, and equipment |
93,593 |
76,729 |
Accumulated depreciation |
(125,624) |
(81,893) |
Total |
$303,969 |
$303,438 |
The depreciation expense was $44.7
million and $28.8 million for 2001 and 2000, respectively.
6. Contingent Liabilities for:
Anticipated
Failure of Insured Institutions
The BIF records a contingent liability and a loss provision for banks
(including Oakar and Sasser financial institutions) that are likely to
fail within one year of the reporting date, absent some favorable event
such as obtaining additional capital or merging, when the liability becomes
probable and reasonably estimable.
The contingent liability is derived by applying expected failure rates
and historical loss rates to groups of institutions with certain shared
characteristics. In addition, institution-specific analysis is performed
on those banks where failure is imminent absent institution management
resolution of existing problems. As of December 31, 2001 and 2000, the
contingent liabilities for anticipated failure of insured institutions
were $1.9 billion and $141 million, respectively.
In addition to these recorded contingent liabilities, the FDIC has identified
increasing risk in the financial services industry that could result in
a material loss to the BIF should the potentially vulnerable financial
institutions ultimately fail. This risk is evidenced by higher levels
of problem bank assets, deteriorating credit quality, weaker supervisory
ratings, and the increased presence of various new banking business models
that have not been tested in a recession.
Due to increased risk in the industry and uncertainty surrounding future
economic and financial conditions, there are other banks for which the
risk of failure is less certain, but still considered reasonably possible.
Should these banks fail, the BIF could incur additional estimated losses
up to $5.1 billion.
The accuracy of these estimates will largely depend on future economic
conditions. The FDIC's Board of Directors has the statutory authority
to consider the contingent liability from anticipated failures of insured
institutions when setting assessment rates.
Litigation Losses
The BIF records an estimated loss for unresolved legal cases to the extent
that those losses are considered probable and reasonably estimable. In
addition to the amount recorded as probable the FDIC has determined that
losses totaling $74 million from unresolved legal cases are reasonably
possible.
Additionally, two cases are currently pending before the U.S. Court of
Federal Claims against the United States for actions taken by the FDIC
in supervising two BIF-insured, state chartered mutual savings banks.
These cases allege that the FDICs conduct in supervising these institutions
breached agreements, which in turn caused state regulators to close these
institutions. Although the court has yet to rule on whether any agreements
were breached, the BIF has conservatively recorded a small probable loss
for one of the cases. At this time, it is not possible to estimate a potential
loss to the BIF from the second case.
Other Contingencies
Representations and Warranties
As part of the FDICs efforts to maximize the return
from the sale of assets from bank resolutions, representations and warranties,
and guarantees were offered on loan sales. The total amount of loans sold
subject to representations and warranties, and guarantees were $5.1 billion
as of December 31, 2001. The estimated losses for the contingent liability
from all outstanding claims asserted in connection with representations
and warranties was $1.5 million at December 31, 2001.
In addition, future losses on representations and warranties, and guarantees
could be incurred over the remaining life of the loans sold, which is
generally 20 years. Consequently, the FDIC believes it is possible that
additional losses may be incurred by the BIF from the universe of outstanding
contracts with unasserted representation and warranty claims. However,
because of the uncertainties surrounding the timing of when claims may
be asserted, the FDIC is unable to reasonably estimate a range of loss
to the BIF from outstanding contracts with unasserted representation and
warranty claims.
7. Assessments
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;
3) required the FDIC to build and maintain the reserves in the insurance
funds to 1.25 percent of estimated insured deposits; and 4) 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.
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 assessment rate averaged approximately 0.14 cents per $100 of assessable
deposits for both 2001 and 2000. On October 23, 2001, the Board voted
to retain the BIF assessment schedule at the annual rate of 0 to 0.27
cents per $100 of assessable deposits for the first semiannual period
of 2002. The Board reviews premium rates semiannually.
As stated above, the FDICIA requires the FDIC to maintain the insurance
funds at a designated reserve ratio (DRR) of 1.25 percent of estimated
insured deposits (or a higher percentage as circumstances warrant). As
of December 31, 2001, the BIF was 1.26 percent of estimated insured deposits.
The FDICIA authorizes and mandates BIF assessments if needed to maintain
the fund at the DRR or to return the fund to the DRR if it falls below
the DRR. The FDIC is required to set semiannual assessment rates that
are sufficient to increase the reserve ratio to the DRR not later than
one year after such rates are set, or in accordance with a recapitalization
schedule of fifteen years or less.
The DIFA provided, among other things, for the elimination of the mandatory
minimum assessment formerly provided for in the FDI Act. It also provided
for the expansion of the assessment base for payments of the interest
on obligations issued by the FICO to include all FDIC-insured institutions
(including banks, thrifts, and Oakar and Sasser financial institutions),
and it made the FICO assessment separate from regular assessments, effective
on January 1, 1997.
BIF-insured banks began paying a FICO assessment on January 1, 1997.
From January 1, 1997, through December 31, 1999, the FICO assessment rate
on BIF-assessable deposits was one-fifth the rate for SAIF-assessable
deposits. Beginning on January 1, 2000, the annual FICO interest obligations
of approximately $790 million are paid on a pro rata basis using the same
rate for banks and thrifts.
The FICO assessment has no financial impact on the BIF. The FICO assessment
is separate from the regular assessments and is imposed on banks and thrifts,
not on the insurance funds. The FDIC, as administrator of the BIF and
the SAIF, is acting solely as a collection agent for the FICO. During
2001 and 2000, $627 million and $635 million, respectively, was collected
from banks and remitted to the FICO.
8. Provision for Insurance Losses
Provision for insurance losses was $1.8 billion for 2001 and negative
$153 million for 2000. The following chart lists the major components
of the provision for insurance losses.
Provision
for Insurance Losses for the Years Ended December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Valuation
Adjustments: |
Open
bank assistance |
$(856) |
$(2,956) |
Closed
banks |
(41,106) |
(20,098) |
Other
assets |
(72) |
336 |
Total
Valuation Adjustments |
(42,034) |
(22,718) |
Contingent
Liabilities Adjustments: |
Anticipated
failure of insured institutions |
1,776,645 |
(133,645) |
Litigation
losses |
16,095 |
3,964 |
Other
contingencies |
5,615 |
(563) |
Total
Contingent Liabilities Adjustments |
1,798,355 |
(130,244) |
Total |
$1,756,321 |
$(152,962) |
9. Employee Benefits
Pension
Benefits and Savings Plans
Eligible FDIC employees (permanent and term employees with appointments
exceeding one year) are covered by either the Civil Service Retirement
System (CSRS) or the Federal Employees 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.
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 on and accounted for by the U.S. Office of Personnel Management.
Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred
401(k) savings plan with matching contributions. The BIF pays its share
of the employers portion of all related costs.
Pension
Benefits and Savings Plans Expenses for the Years Ended December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Civil Service Retirement System |
$11,205 |
$11,503 |
Federal Employees Retirement
System (Basic Benefit) |
29,562 |
30,454 |
FDIC Savings Plan |
18,254 |
19,202 |
Federal Thrift Savings Plan |
11,871 |
12,154 |
Total |
$70,892 |
$73,313 |
Accrued Annual Leave
The BIFs pro rata share of the Corporations liability to employees
for accrued annual leave is approximately $35.3 million and $36.0 million
at December 31, 2001 and 2000, respectively.
Postretirement Benefits Other Than Pensions
The FDIC provides certain dental and life insurance coverage for its eligible
retirees, the retirees beneficiaries, and covered dependents. Retirees
eligible for life insurance coverage are those who have qualified due
to: 1) immediate enrollment upon appointment or five years of participation
in the plan and 2) eligibility for an immediate annuity. Dental coverage
is provided to all retirees eligible for an immediate annuity. The life
insurance program provides basic coverage at no cost to retirees and allows
converting optional coverages to direct-pay plans. Dental coverage is
provided to all retirees eligible for an immediate annuity and at no cost
to retirees. At December 31, 2001 and 2000, the BIFs prepaid postretirement
benefit cost recognized in the Interest receivable on investments
and other assets, net line item in the Statements of Financial Position
was $3.6 million.
10. Commitments and Off-Balance-Sheet Exposure
Commitments:
Leases
The BIFs allocated share of the FDICs lease commitments totals
$132 million for future years. The lease agreements contain escalation
clauses resulting in adjustments, usually on an annual basis. The allocation
to the BIF of the FDICs future lease commitments is based upon current
relationships of the workloads among the BIF, the SAIF, and the FRF. Changes
in the relative workloads could cause the amounts allocated to the BIF
in the future to vary from the amounts shown below. The BIF recognized
leased space expense of $38.5 million and $38.1 million for the years
ended December 31, 2001 and 2000, respectively.
Lease Commitments |
Dollars in Thousands |
2002 |
2003 |
2004 |
2005 |
2006 |
2007/Thereafter |
$38,250 |
$29,322 |
$20,451 |
$15,012 |
$13,172 |
$15,749 |
Off-Balance-Sheet
Exposure:
Asset Securitization Guarantees
As part of the FDICs efforts to maximize the return from the sale
or disposition of assets from bank resolutions, the FDIC has securitized
some receivership assets. To facilitate the securitizations, the BIF provided
limited guarantees to cover certain losses on the securitized assets up
to a specified maximum. In exchange for backing the limited guarantees,
the BIF received assets from the receiverships in an amount equal to the
expected exposure under the guarantees. The table below gives the maximum
off-balance-sheet exposure the BIF has under these guarantees.
Asset
Securitization Guarantees at December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Maximum exposure under the limited guarantees |
$330,936 |
$406,690 |
Less: Guarantee claims paid (inception-to-date) |
(34,756) |
(33,730) |
Less: Amount of exposure recognized as a
contingent liability |
(3,966) |
(1,605) |
Maximum Off-Balance-Sheet Exposure Under
the Limited Guarantees |
$292,214 |
$371,355 |
Deposit Insurance
As of December 31, 2001, deposits insured by the BIF totaled approximately
$2.4 trillion. This would be the accounting loss if all depository institutions
were to fail and the acquired assets provided no recoveries.
11. Concentration of Credit Risk
Financial instruments that potentially subject the BIF to credit risk
consist primarily of gross receivables from bank resolutions totaling
$5.4 billion. The receivables from bank resolutions include payments made
to cover obligations to insured depositors, advances to receiverships
to provide working capital, and receivables for expenses paid by the BIF
on behalf of receiverships. Assets held by the FDIC in its receivership
capacity for closed BIF-insured institutions are the main source of repayment
of the BIF's receivables from closed banks. An allowance for loss of $5.3
billion, or 99% of the gross receivable, was recorded as of December 31,
2001. Of the remaining one percent of the gross receivable, the amount
of credit risk is limited since 59% of the receivership assets consist
of cash and cash equivalents.
12. Disclosures About the Fair Value of Financial Instruments
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, and accounts payable and other liabilities approximates
their fair market value, due to their short maturities and/or comparability
with current interest rates.
The net receivables from bank resolutions primarily include the BIFs
subrogated claim arising from payments to insured depositors. The receivership
assets that will ultimately be used to pay the corporate subrogated claim
are valued using discount rates that include consideration of market risk.
These discounts ultimately affect the BIFs allowance for loss against
the net receivables 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 (see Note 4), 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 does not necessarily correspond with the timing of collections on
receivership assets. Therefore, the effect of discounting used by receiverships
should not necessarily be viewed as producing an estimate of market value
for the net receivables from bank resolutions.
13. Supplementary Information Relating to the Statements
of Cash Flows
Reconciliation
of Net Income to Net Cash Provided by Operating Activities for the
Years Ended December 31 |
Dollars in Thousands |
|
2001 |
2000 |
Net (Loss)/Income |
$(562,666) |
$1,260,619 |
Adjustments
to Reconcile Net Income to Net Cash
Provided by Operating Activities |
Income
Statement Items: |
Amortization
of U.S. Treasury obligations |
160,763 |
128,875 |
TIIS
inflation adjustment |
(96,064) |
(93,204) |
Gain
on sale of U.S. Treasury obligations |
(78,227) |
0 |
Depreciation
on property and equipment |
44,723 |
28,799 |
Retirement
of capitalized equipment |
1,568 |
1,152 |
Change
in Assets and Liabilities: |
Decrease (Increase) in interest receivable on investments and
other assets |
17,273 |
(77,258) |
Decrease
in receivables from bank resolutions |
270,434 |
393,422 |
(Decrease) Increase in accounts payable and other liabilities |
(16,591) |
5,244 |
Increase
(Decrease) in contingent liabilities for anticipated failure of
insured institutions |
1,769,645 |
(165,645) |
Increase
(Decrease) in other contingencies |
5,995 |
(11,548) |
Increase
in contingent liabilities for litigation losses |
15,201 |
11,922 |
Net Cash Provided
by Operating Activities |
$1,532,054 |
$1,482,378 |
|