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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

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2008 Annual Report

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IV. Financial Statements and Notes

Deposit Insurance Fund (DIF) – Cont.

13. Disclosures About the Fair Value of Financial Instruments
Financial assets recognized and measured at fair value on a recurring basis at each reporting date include cash equivalents (Note 2) and the investment in U.S. Treasury obligations (Note 3). The following table presents the DIF’s financial assets measured at fair value as of December 31, 2008.

Assets Measured at Fair Value at December 31, 2008
Dollars in Thousands
Fair Value Measurements Using
  Quoted Prices
in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total Assets at Fair Value
Total Assets at Fair Value
Cash equivalents
(Special U.S. Treasuries)1
$1,011,430 $0 $0 $1,011,430
Investment in U.S. Treasury Obligations (Available-for-Sale)2 27,859,080 0 0 27,859,080
Total Assets $28,870,510 $0 $0 $28,870,510
(1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the U.S. Bureau of Public Debt.

(2) The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal government entities.

Some of the DIF’s financial assets and liabilities are not recognized at fair value but are recorded at amounts that approximate fair value due to their short maturities and/or comparability with current interest rates. Such items include interest receivable on investments, assessment receivables, other
short-term receivables, and accounts payable and other liabilities.

The net receivables from resolutions primarily include the DIF’s subrogated claim arising from payments to insured depositors. The receivership and conservatorship assets that will ultimately be used to pay the corporate subrogated claim are valued using discount rates that include consideration of market risk. These discounts ultimately affect the DIF’s allowance for loss against the net receivables from resolutions. Therefore, the corporate subrogated claim indirectly includes the effect of discounting and should not be viewed as being stated in terms of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by valuation of receivership and conservatorship assets (see Note 4), such 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 a fair 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 and conservatorship payments to the DIF on the s­ubrogated claim does not necessarily correspond with the timing of collections on receivership and conservatorship assets. Therefore, the effect of discounting used by receiverships and conservatorships should not necessarily be viewed as producing an estimate of fair value for the net receivables from resolutions.

There is no readily available market for assets and liabilities associated with systemic risk transactions (see Note 14).

Last Updated 08/8/2009

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