Federal Deposit
Insurance Corporation

2008 Annual Report

IV. Financial Statements and Notes

Deposit Insurance Fund (DIF) – Cont.

8. Assessments
Effective January 1, 2007, the Reform Act requires payment of assessments by all insured depository institutions and continues to require a risk-based assessment system. The Act allows the FDIC discretion in defining risk and, by regulation, the FDIC has established several assessment risk categories based upon supervisory and capital evaluations. Other significant changes mandated by the Reform Act and the implementing regulations included:

• granting a one-time assessment credit of approximately $4.7 billion to certain eligible insured depository institutions (or their successors) based on the assessment base of the institution as of December 31, 1996, as compared to the combined aggregate assessment base of all eligible institutions;
• establishing a range for the DRR from 1.15 to 1.50 percent of estimated insured deposits. The FDIC is required to annually publish the DRR and has set the DRR at 1.25 percent for 2009. As of December 31, 2008, the DIF reserve ratio was 0.36 percent of estimated insured deposits;
• requiring the FDIC to adopt a DIF restoration plan to return the reserve ratio to 1.15 percent generally within five years, if the reserve ratio falls below 1.15 percent or is expected to fall below 1.15 percent within six months. On October 7, 2008, the FDIC established a Restoration Plan for the DIF (see Note 15);
• requiring the FDIC to annually determine if a dividend should be paid, based on the statutory requirement generally to declare dividends if the reserve ratio exceeds 1.35 percent at the end of a calendar year. The Reform Act permits dividends for one-half of the amount required to maintain the reserve ratio at 1.35 percent when the reserve ratio is between 1.35 and 1.50 percent and all amounts required to maintain the reserve ratio at 1.50 percent when the reserve ratio exceeds 1.50 percent. On December 2, 2008, the FDIC issued a final rule specifying that the FDIC Board will declare any dividend on or before May 10th of the year following the calendar year-end trigger, subject to statutory factors limiting or suspending the dividend. Dividends declared will be offset against the June 30th assessment payment and any remaining dividend amount will result in a payment to the depository institution.

The assessment rate averaged approximately 4.18 cents and .93 cents per $100 of assessable deposits for 2008 and 2007, respectively. At December 31, 2008, the “Assessments Receivable, net” line item of $1.02 billion represents the estimated gross premiums due from insured depository institutions for the fourth quarter of the year, net of $144 million in estimated one-time assessment credits. The actual deposit insurance assessments for the fourth quarter was billed and collected at the end of the first quarter of 2009. During 2008 and 2007, $2.96 billion and $643 million, respectively, were recognized as assessment income from institutions.

Of the $4.7 billion in one-time assessment credits granted, $200 million (4.3 percent) remained as of December 31, 2008. The use of assessment credits is limited to no more than 90 percent of the gross assessments for assessment periods that provide deposit insurance coverage through 2010. Credits are restricted for institutions that are not adequately capitalized or exhibit financial, operational or compliance weaknesses. The credits can only be used to offset future deposit insurance assessments and, therefore, do not represent a liability to the DIF. They are transferable among institutions, do not expire, and cannot be used to offset Financing Corporation (FICO) payments.

Assessments continue to be levied on institutions for payments of the interest on obligations issued by the FICO. The FICO was established as a mixed-ownership government corporation to function solely as a financing vehicle for the FSLIC. The annual FICO interest obligation of approximately $790 million is paid on a pro rata basis using the same rate for banks and thrifts. The FICO assessment has no financial impact on the DIF and is separate from deposit insurance assessments. The FDIC, as administrator of the DIF, acts solely as a collection agent for the FICO. During 2008 and 2007, $785 million each year was collected and remitted to the FICO.