IV. Financial Statements and Notes
Deposit Insurance Fund (DIF)
Deposit Insurance Fund Balance Sheet at December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Assets |
Cash and cash equivalents |
$27,076,606 |
$ 54,092,423 |
Cash and cash investments - restricted - systemic risk (Note 16) (Includes cash/cash equivalents of $5,030,369 at December 31, 2010 and $6,430,589 at December 31, 2009) |
6,646,968 |
6,430,589 |
Investment in U.S. Treasury obligations, net (Note 3) |
12,371,268 |
5,486,799 |
Assessments receivable, net (Note 9) |
217,893 |
280,510 |
Receivables and other assets - systemic risk (Note 16) |
2,269,422 |
3,298,819 |
Trust preferred securities (Note 5) |
2,297,818 |
1,961,824 |
Interest receivable on investments and other assets, net |
259,683 |
220,588 |
Receivables from resolutions, net (Note 4) |
29,532,545 |
38,408,622 |
Property and equipment, net (Note 6) |
416,065 |
388,817 |
Total Assets |
$81,088,268 |
$110,568,991 |
|
Liabilities |
Accounts payable and other liabilities |
$514,287 |
$273,338 |
Unearned revenue - prepaid assessments (Note 9) |
30,057,033 |
42,727,101 |
Liabilities due to resolutions (Note 7) |
30,511,877 |
34,711,726 |
Deferred revenue - systemic risk (Note 16) |
9,054,541 |
7,847,447 |
Postretirement benefit liability (Note 13) |
165,874 |
144,952 |
Contingent liabilities for: |
|
|
Anticipated failure of insured institutions (Note 8) |
17,687,569 |
44,014,258 |
Systemic risk (Note 16) |
149,327 |
1,411,966 |
Litigation losses (Note 8) |
300,000 |
300,000 |
Total Liabilities |
88,440,508 |
131,430,788 |
Commitments and off-balance-sheet exposure (Note 14) |
Fund Balance |
Accumulated Net (Loss) |
(7,696,428) |
(21,001,312) |
Unrealized Gain on U.S. Treasury investments, net (Note 3) |
26,698 |
142,127 |
Unrealized postretirement benefit Loss (Note 13) |
(18,503) |
(2,612) |
Unrealized Gain on trust preferred securities (Note 5) |
335,993 |
0 |
Total Fund Balance |
(7,352,240) |
(20,861,797) |
|
Total Liabilities and Fund Balance |
$81,088,268 |
$110,568,991 |
The accompanying notes are an integral part of these financial statements. |
Revenue |
Interest on U.S. Treasury obligations |
$204,871 |
$704,464 |
Assessments (Note 9) |
13,610,436 |
17,717,374 |
Systemic risk revenue (Note 16) |
(672,818) |
1,721,626 |
Realized gain on sale of securities |
0 |
1,389,285 |
Other revenue (Note 10) |
237,425 |
3,173,611 |
Total Revenue |
13,379,914 |
24,706,360 |
|
Expenses and Losses |
Operating expenses (Note 11) |
1,592,641 |
1,271,099 |
Systemic risk expenses (Note 16) |
(672,818) |
1,721,626 |
Provision for insurance losses (Note 12) |
(847,843) |
57,711,772 |
Insurance and other expenses |
3,050 |
4,447 |
Total Expenses and Losses |
75,030 |
60,708,944 |
|
Net Income (Loss) |
13,304,884 |
(36,002,584) |
Unrealized Loss on U.S. Treasury investments, net |
(115,429) |
(2,107,925) |
Unrealized postretirement benefit Loss (Note 13) |
(15,891) |
(27,577) |
Unrealized Gain on trust preferred securities (Note 5) |
335,993 |
0 |
Comprehensive Income (Loss) |
13,509,557 |
(38,138,086) |
|
Fund Balance - Beginning |
(20,861,797) |
(17,276,289) |
|
Fund Balance - Ending |
$(7,352,240) |
$(20,861,797) |
The accompanying notes are an integral part of these financial statements. |
Deposit Insurance Fund Statement of Cash Flows for the Years Ended December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Operating Activities |
Net Income (Loss): |
$13,304,884 |
$(36,002,584) |
Adjustments to reconcile net loss to net cash (used by) provided by operating activities: |
|
Amortization of U.S. Treasury obligations |
(5,149) |
210,905 |
Treasury inflation-protected securities inflation adjustment |
(23,051) |
10,837 |
Gain on sale of U.S. Treasury obligations |
0 |
(1,389,285) |
Depreciation on property and equipment |
68,790 |
70,488 |
Loss on retirement of property and equipment |
620 |
924 |
Provision for insurance losses |
(847,843) |
57,711,772 |
Unrealized Loss on postretirement benefits |
(15,891) |
(27,577) |
Guarantee termination fee from Citigroup |
0 |
(1,961,824) |
|
Change in Operating Assets and Liabilities: |
Decrease in assessments receivable, net |
62,617 |
737,976 |
(Increase) Decrease in interest receivable and other assets |
(34,194) |
192,750 |
(Increase) in receivables from resolutions |
(16,607,671) |
(60,229,760) |
Decrease (Increase) in receivable - systemic risk |
1,029,397 |
(2,160,688) |
Increase in accounts payable and other liabilities |
240,949 |
140,740 |
Increase in postretirement benefit liability |
20,922 |
30,828 |
(Decrease) in contingent liabilities - systemic risk |
(1,262,639) |
(25,672) |
(Decrease) Increase in liabilities due to resolutions |
(4,199,849) |
29,987,265 |
(Decrease) Increase in unearned revenue - prepaid assessments |
(12,670,068) |
42,727,101 |
Increase in deferred revenue - systemic risk |
1,203,936 |
5,769,567 |
Net Cash (Used by) Provided by Operating Activities |
(19,734,240) |
35,793,763 |
|
Investing Activities |
Maturity of U.S. Treasury obligations |
21,558,000 |
6,382,027 |
Sale of U.S. Treasury obligations |
0 |
15,049,873 |
Investing Activities Used by: |
Purchase of property and equipment |
(96,659) |
(91,468) |
Purchase of U.S. Treasury obligations |
(96,659) |
(91,468) |
Net Cash (Used by) Provided by Investing Activities |
(8,681,797) |
21,340,432 |
|
Net (Decrease) Increase in Cash and Cash Equivalents |
<(28,416,037) |
57,134,195 |
Cash and Cash Equivalents - Beginning |
60,523,012 |
3,388,817 |
Unrestricted Cash and Cash Equivalents - Ending |
27,076,606 |
54,092,423 |
Restricted Cash and Cash Equivalents - Ending |
5,030,369 |
6,430,589 |
Cash and Cash Equivalents - Ending |
$32,106,975 |
$60,523,012 |
The accompanying notes are an integral part of these financial statements. |
Notes to the Financial Statements Deposit Insurance Fund December 31, 2010 and 2009
1. Legislation and Operations of the Deposit Insurance Fund
Overview
The Federal Deposit Insurance Corporation (FDIC) is the
independent deposit insurance agency created by Congress in 1933 to
maintain stability and public confidence in the nation’s banking
system. Provisions that govern theoperations of the FDIC are generally
found in the Federal Deposit Insurance (FDI) Act, as
amended (12 U.S.C. 1811, et seq). In carrying
out the purposes of the FDI Act, as amended, the
FDIC insures the deposits of banks and savings
associations (insured depository institutions),
and in cooperation with other federal and state
agencies promotes the safety and soundness of
insured depository institutions by identifying,
monitoring and addressing risks to the Deposit
Insurance Fund (DIF). An active institution’s
primary federal supervisor is generally determined
by the institution’s charter type. Commercial and
savings banks are supervised by either the FDIC,
the Office of the Comptroller of the Currency,
or the Federal Reserve Board, while savings
associations (known as “thrifts”) are supervised
by the Office of Thrift Supervision (OTS). (See
“Recent Legislation” below for certain OTS
functional responsibilities to be transferred to the
FDIC in the future.)
The FDIC is the administrator of the DIF and is
responsible for protecting insured bank and thrift depositors from loss
due to institution failures. The FDIC is required by 12 U.S.C. 1823(c)
to resolve troubled institutions in a manner that will result in the
least possible cost to DIF unless a systemic risk determination is made
that compliance with the least-cost test would have serious adverse
effects on economic conditions or financial stability and any action or
assistance taken under the systemic risk determination would avoid or
mitigate such adverse effects. A systemic risk
determination under this statutory provision can only be invoked by the
Secretary of the Treasury, in consultation with the President, and upon
the written recommendation of two-thirds of both the FDIC Board of
Directors and the Board of Governors of the Federal Reserve System.
Until passage of recent legislation (see “Recent Legislation” below), a
systemic risk determination could permit open bank assistance. As
explained below, such open bank assistance is no longer available. The
systemic risk provision requires the FDIC to recover any related losses
to the DIF through one or more special assessments from all insured
depository institutions and, with the concurrence of the Secretary of
the Treasury, depository institution holding companies (see Note 16).
The FDIC is also the administrator of the FSLIC
Resolution
Fund (FRF). The FRF is a resolution fund responsible for the sale of
remaining assets and satisfaction of liabilities associated with the
former Federal Savings and Loan Insurance Corporation (FSLIC) and the
former Resolution Trust Corporation. The DIF and the FRF are maintained
separately to fund their respective mandates of the FDIC.
Pursuant to the enactment of the Dodd-Frank Wall Street
Reform
and Consumer Protection Act (Dodd-Frank Act) on July 21, 2010 (see
“Recent Legislation” below), the FDIC is the manager of the Orderly
Liquidation Fund (OLF). Established as a separate fund in the U.S.
Treasury (Treasury), the OLF is inactive and unfunded until the FDIC is
appointed as receiver for a covered financial company (a failing
financial company, such as a bank holding company or nonbank financial
company for which a systemic risk determination has been made as set
forth in section 203 of the Dodd-Frank Act). At the commencement of an
orderly liquidation of a covered financial company, the FDIC may borrow
funds required by the receivership from the Treasury, up to the Maximum
Obligation Limitation for each covered financial company and in
accordance with an Orderly Liquidation and Repayment Plan. Borrowings
will be deposited in the OLF and repaid to the Treasury with the
proceeds of asset sales. If such
proceeds are insufficient, any remaining shortfall must be recovered
from assessments imposed on financial companies as specified in the
Dodd-Frank Act.
Recent Legislation
The Dodd-Frank Act (Public Law 111-203) provides
comprehensive
reform of the supervision and regulation of the financial services
industry. Under this legislation, the FDIC’s new responsibilities
include: 1) broad authority to liquidate failing systemic financial
firms in an orderly manner as manager of the newly created OLF; 2)
issuing regulations, jointly with the Federal Reserve Board (FRB),
requiring that nonbank financial companies supervised by the FRB and
bank holding companies with assets equal to or exceeding $50 billion
provide the FRB, the FDIC, and the Financial Stability Oversight
Council (FSOC) a plan for their rapid and orderly resolution in the
event of material financial distress or failure; 3) serving as a voting
member of the FSOC; 4) back-up examination authority for nonbank
financial companies supervised by the FRB and bank holding companies
with at least $50 billion in assets; 5) back-up enforcement actions
against depository institution holding companies if their conduct or
threatened conduct poses a risk of loss to the DIF; and 6) federal
oversight of state-chartered thrifts upon the transfer of such
authority from OTS (between 12 and 18 months after enactment of the
Dodd-Frank Act, currently set for July 21, 2011).
The Dodd-Frank Act limits the systemic risk determination
authority under 12 U.S.C. 1823(c) to DIF-insured depository
institutions for which the FDIC has been appointed receiver and
requires that any action taken or assistance provided under this
authority must be for the purpose of winding up the insured depository
institution in receivership. Under Title XI of the Act, the FDIC is
granted new authority to establish a widely available program to
guarantee obligations of solvent insured depository institutions or
solvent
depository institution holding companies (including affiliates) upon
systemic determination of a liquidity event during times of severe
economic distress. This program would not be DIF-funded; it would be
funded by fees and assessments paid by all participants in the program.
If fees are insufficient to cover losses or expenses, the FDIC must
impose a special assessment on participants as necessary to cover the
insufficiency. Any excess funds at the end of the liquidity event
program would be deposited in the General Fund of the Treasury.
The new law also makes changes related to the FDIC’s
deposit
insurance mandate. These changes include a permanent increase in the
standard deposit insurance amount to $250,000 (retroactive to January
1, 2008) and unlimited deposit insurance coverage for non-interest
bearing transaction accounts for two years, from December 31, 2010 to
the end of 2012. Additionally, the legislation changes the assessment
base (from a deposits-based formula to one based on assets) and
establishes new reserve ratio requirements
(see Notes 9).
Operations of the DIF
The primary purposes of the DIF are to: 1) insure the deposits and
protect the depositors of DIF-insured institutions and 2) resolve
failed DIF-insured institutions upon appointment of the FDIC as
receiver, in a manner that will result in the least possible cost to
the DIF (unless a systemic risk determination is made).
The DIF is primarily funded from deposit insurance assessments. Other available
funding sources, if necessary, are borrowings from the Treasury, the
Federal Financing Bank (FFB), Federal Home Loan Banks, and insured
depository institutions. The FDIC has borrowing authority of $100
billion from the Treasury and a Note Purchase Agreement with the FFB
not to exceed $100 billion to enhance the DIF’s ability to fund deposit
insurance obligations.
A statutory formula, known as the Maximum Obligation Limitation (MOL), limits the amount of obligations the DIF
can incur to the sum of its cash, 90 percent of the fair market value
of other assets, and the amount authorized to be borrowed from the
Treasury. The MOL for the DIF was $106.3 billion and $118.2 billion as
of December 31, 2010 and 2009, respectively.
Operations of Resolution Entities
The FDIC is responsible for managing and disposing of the assets of
failed institutions in an orderly and efficient manner. The assets held
by receiverships, pass-through conservatorships and bridge institutions
(collectively, resolution entities), and the claims against them, are
accounted for separately from DIF assets and liabilities to ensure that
proceeds from these entities are distributed in accordance with
applicable laws and regulations. Accordingly, income and expenses
attributable to resolution entities are accounted for as transactions
of those entities. Resolution entities are billed by the FDIC for
services provided on their behalf.
2. Summary of Significant Accounting Policies
General
These financial statements pertain to the financial position, results
of operations, and cash flows of the DIF and are presented in
conformity with U.S. generally accepted accounting principles (GAAP).
As permitted by the Federal Accounting Standards Advisory Board’s
Statement of Federal Financial Accounting Standards 34, The Hierarchy
of Generally Accepted Accounting Principles, Including the Application
of Standards Issued by the Financial Accounting Standards Board, the
FDIC prepares financial statements in conformity with standards
promulgated by the Financial Accounting Standards Board (FASB). These
statements do not include reporting for assets and liabilities of
resolution entities because these entities are legally separate and
distinct, and the DIF does not have any ownership interests in them.
Periodic and final accountability reports of resolution entities are
furnished to courts, supervisory authorities, and others upon request.
Use of Estimates
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. The more significant
estimates include the assessments receivable and associated revenue;
the allowance for loss on receivables from resolutions (including
loss-share agreements); liabilities due to resolutions; the estimated
losses for anticipated failures, litigation, and representations and
warranties; guarantee obligations for the Temporary Liquidity Guarantee
Program and structured transactions; the valuation of trust preferred
securities; and the postretirement benefit obligation.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments consisting
primarily of U.S. Treasury Overnight Certificates.
Investment in U.S. Treasury Obligations
DIF funds are required to be invested in obligations of the United
States or in obligations guaranteed as to principal and interest by the
United States. The Secretary of the Treasury must approve all such
investments in excess of $100,000 and has granted the FDIC approval to
invest DIF funds only in U.S. Treasury obligations that are purchased
or sold exclusively through the Bureau of the Public Debt’s Government
Account Series (GAS) program.
The DIF’s investments in U.S. Treasury
obligations are classified as available-for-sale. Securities designated
as available-for-sale are shown at fair value. Unrealized gains and
losses are reported as other comprehensive income. Realized gains and
losses are included in the Statement of Income and Fund Balance as
components of net income. Income on securities is calculated and
recorded on a daily basis using the effective interest or straight-line
method depending on the maturity of the security.
Revenue Recognition for Assessments
Assessment revenue is recognized for the quarterly period of insurance
coverage based on an estimate. The estimate is derived from an
institution’s risk-based assessment rate and assessment base for the
prior quarter adjusted for the current quarter’s available assessment
credits, any changes in supervisory examination and debt issuer ratings
for larger institutions, and a modest deposit insurance growth factor.
At the subsequent quarter-end, the estimated revenue amounts are
adjusted when actual assessments for the covered period are determined
for each institution. (See Note 9 for additional information on
assessments.)
Capital Assets and Depreciation
The FDIC buildings are depreciated on a straight-line basis over a 35 to
50 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 useful 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 useful 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.
Disclosure about Recent Relevant Accounting Pronouncements
- Accounting Standards Update (ASU) No.
2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest
Entities, modified Accounting Standards
Codification (ASC) Topic 810, Consolidation,
to incorporate the provisions of former
Statement of Financial Accounting Standards
(SFAS) No. 167, Amendments to FASB
Interpretation No. 46(R), effective for reporting
periods beginning after November 15, 2009.
The provisions of ASC 810 require that an
enterprise make qualitative assessments of
its relationship with a variable interest entity
(VIE) based on the enterprise’s 1) power to
direct the activities that most significantly
impact the economic performance of the
VIE and 2) obligation to absorb losses of
the VIE or the right to receive benefits
from the VIE that could potentially be
significant to the VIE. If the relationship
causes the variable interest holder to have
both of these characteristics, the enterprise is
considered the primary beneficiary and must
consolidate the VIE. During 2010, selected
FDIC receiverships engaged in structured
transactions, some of which resulted in
the issuance of note obligations that were
guaranteed by the FDIC in its corporate
capacity (see Note 8). In accordance with
the provisions of ASC 810, an analysis of
each structured transaction was performed
to determine whether the terms of the legal
agreements extended rights that would cause
the FDIC in its corporate capacity to be
characterized as the primary beneficiary. The
conclusion of these analyses was that the FDIC in its corporate
capacity did not have the power to direct the significant activities of
any entity with which it was involved at December 31, 2010 and
therefore, there is no current consolidation requirement for the DIF
2010 financial statements. In making that determination, consideration
was given to which, if any, activities were significant to each VIE.
Often, the right to service collateral, to liquidate collateral or to
unilaterally dissolve the LLC or trust was determined to be the most
significant activity. In other cases, it was determined that there were
no significant ongoing activities and that the design of the entity was
the best indicator of which party was the primary beneficiary. The
results of each analysis identified a party other than the FDIC in its
corporate capacity as the primary beneficiary. In the future, the FDIC
in its corporate capacity may become the primary beneficiary upon the
activation of provisional contract rights that extend to the
corporation if payments are made on guarantee claims. Ongoing analyses
will be required in order to monitor implications for ASC 810
provisions.
- ASU No. 2009-16, Accounting for Transfers of Financial
Assets modified ASC Topic 860, Transfers and Servicing, to incorporate
the provisions of former SFAS No. 166, Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140, effective for
reporting periods beginning after November 15, 2009. The provisions of
ASC 860 remove the concept of a qualifying special purpose entity,
change the requirements for derecognizing financial assets and require
additional disclosures about a transferor’s continuing involvement with
transferred assets. The DIF has not engaged in any transfers of
financial assets or
financial liabilities; thus, there is no current impact to these
financial statements for 2010.
- ASU No. 2010-06, Fair Value Measurements and Disclosures
(Topic 820) – Improving Disclosures about Fair Value Measurements,
requires enhanced disclosures for significant transfers into and out of
Level 1 (measured using quoted prices in active markets) and Level 2
(measured using other observable inputs) of the fair value measurement
hierarchy. These disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009. The required
disclosures are included in Note 15. Separate disclosure of the gross
purchases, sales, issuances, and settlements activity for Level 3
(measured using unobservable inputs) fair value measurements will
become effective for fiscal years beginning after December 15, 2010.
Currently, the additional disclosures are not expected to impact the
DIF.
Other recent accounting pronouncements have been deemed to be not
applicable or material to the financial statements as presented.
3. Investment in U.S. Treasury Obligations, Net
As of December 31, 2010 and 2009, investments in U.S. Treasury
obligations, net, were $12.4 billion and $5.5 billion, respectively. As
of December 31, 2010 and 2009, the DIF held $2.0 billion and $2.1
billion, respectively, of Treasury Inflation-Protected Securities
(TIPS). These securities are indexed to increases or decreases in the
Consumer Price Index for All Urban Consumers (CPI-U).
Total Investment in U.S. Treasury Obligations, Net at December 31, 2010 |
Dollars in Thousands |
Maturity |
Yield at Purchase (a) |
Face Value |
Net Carrying Amount |
Unrealized Holding Gains |
Unrealized Holding Losses |
Fair Value
|
U.S. Treasury notes and bonds |
Within 1 year |
0.73% |
$3,000,000 |
$3,052,503 |
$2,048 |
$(31) |
$3,054,520 |
U.S. Treasury Inflation-Protected Securities |
Within 1 year |
3.47% |
1,375,955 |
1,375,967 |
1,391 |
0 |
1,377,358 |
After 1 year through 5 years |
2.41% |
615,840 |
621,412 |
22,381 |
0 |
643,793 |
U.S. Treasury bills |
Within 1 year |
0.19% |
7,300,000 |
7,294,688 |
909 |
0
|
7,295,597 |
Total |
|
$12,291,795 |
$12,344,570 |
$26,729 |
$(31) |
$12,371,268 |
(a) For TIPS, the yields in the
above table are stated at their real yields at purchase, not their
effective yields. Effective yields on TIPS include a long-term annual
inflation assumption as measured by the CPI-U. The long-term CPI-U
consensus forecast is 1.8 percent, based on figures issued by the
Congressional Budget Office and Blue Chip Economic Indicators
in early 2010.
Total Investment in U.S. Treasury Obligations, Net at December 31, 2009 |
Dollars in Thousands |
Maturity |
Yield at Purchase (a) |
Face Value |
Net Carrying Amount |
Unrealized Holding Gains |
Unrealized Holding
Losses |
Fair Value |
U.S. Treasury notes and bonds |
Within 1 year |
5.04% |
$3,058,000 |
$3,062,038 |
$ 48,602 |
$0 |
$3,110,640 |
After 1 year through 5 years |
4.15% |
300,000 |
302,755 |
11,648 |
0 |
314,403 |
U.S. Treasury Inflation-Protected Securities |
After 1 year through 5 years |
3.14% |
1,968,744 |
1,979,879 |
81,877 |
0 |
2,061,756 |
Total |
|
$5,326,744 |
$5,344,672 |
$142,127 |
$0 |
$5,486,799 |
(a) For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 1.8 percent, based on figures issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2010.
4. Receivables from Resolutions, Net
Receivables from Resolutions, Net at December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Receivables from closed banks |
$115,896,763 |
$98,647,508 |
Allowance for losses |
(86,364,218) |
(60,238,886) |
Total |
$29,532,545 |
$38,408,622 |
The receivables from resolutions include payments made
by the
DIF to cover obligations to insured depositors (subrogated claims),
advances to resolution entities for working capital, and administrative
expenses paid on behalf of resolution entities. Any related allowance
for loss represents the difference between the funds advanced and/or
obligations incurred and the expected repayment. Estimated future
payments on losses incurred on assets sold to an acquiring institution
under a loss-share agreement are factored into the computation of the
expected repayment. Assets held by DIF resolution entities (including
structured transaction-related assets; see Note 8) are the main source
of repayment of the DIF’s receivables from resolutions.
As of December 31, 2010, there were 336 active
receiverships which include 157 established in 2010. As of December 31,
2010 and 2009, DIF resolution entities held assets with a book value of
$49.9 billion and $49.3 billion, respectively (including cash,
investments, and miscellaneous receivables of $22.9 billion and $7.7
billion, respectively). Ninety-nine percent of the current asset book
value of $49.9 billion are held by resolution entities
established since 2008.
Estimated cash recoveries from the management
and disposition of assets that are used to
determine the allowance for losses were based
on asset recovery rates from several sources
including: actual or pending institution-specific
asset disposition data, failed institution-specific asset valuation
data, aggregate asset valuation data
on several recently failed or troubled institutions,
sampled asset valuation data, and empirical asset
recovery data based on failures as far back as 1990.
Methodologies for determining the asset recovery
rates incorporate estimating future cash recoveries,
net of applicable liquidation cost estimates, and
discounting based on market-based risk factors
applicable to a given asset’s type and quality. The
resulting estimated cash recoveries are then used
to derive the allowance for loss on the receivables
from these resolutions.
For failed institutions resolved using a whole
bank purchase and assumption transaction with
an accompanying loss-share agreement, the
projected future loss-share payments, recoveries,
and monitoring costs on the covered assets sold
to the acquiring institution under the agreement
are considered in determining the allowance for
loss on the receivables from these resolutions.
The loss-share cost projections are based on the
covered assets’ intrinsic value which is determined
using financial models that consider the quality
and type of covered assets, current and future
market conditions, risk factors and estimated
asset holding periods. For year-end 2010 financial
reporting, the loss-share cost estimates were
updated for the majority (62% or 137) of the 222
active loss-share agreements; the remaining 85
were already based on recent loss estimates. The
updated loss projections for the larger loss-share
agreements were primarily based on new third-party
valuations estimating the cumulative loss of
loss-share covered assets. For the smaller loss-share
agreements, the loss projections were based on a
financial model that applies recent aggregate asset
valuation recovery rates against current loss-share
covered asset balances.
Note that estimated asset recoveries are regularly
evaluated during the year, but remain subject
to uncertainties because of potential changes in
economic and market conditions. Continuing
economic uncertainties could cause the DIF’s
actual recoveries to vary significantly from current
estimates.
Whole Bank Purchase and Assumption Transactions with
Loss-Share Agreements
Since the beginning of 2008, the FDIC resolved
223 failures using a Whole Bank Purchase and
Assumption resolution transaction with an
accompanying loss-share agreement on assets
purchased by the financial institution acquirer.
The acquirer typically assumes all of the deposits
and purchases essentially all of the assets of a
failed institution. The majority of the commercial
and residential loan assets are purchased under a
loss-share agreement, where the FDIC agrees to
share in future losses and recoveries experienced
by the acquirer on those assets covered under the
agreement. Loss-share agreements are used by
the FDIC to keep assets in the private sector and
minimize disruptions to loan customers.
Losses on the covered assets are shared between
the acquirer and the FDIC in its capacity as
receiver of the failed institution when losses occur
through the sale, foreclosure, loan modification,
or write-down of loans in accordance with the
terms of the loss-share agreement. The majority
of the agreements cover a five- to 10-year period
with the receiver covering 80 percent of the losses
incurred by the acquirer up to a stated threshold
amount (which varies by agreement) and the
acquiring bank covering 20 percent. Typically, any
losses above the stated threshold amount will be
reimbursed by the receiver at 95 percent of the
losses booked by the acquirer. (For agreements
executed after March 26, 2010, the threshold
was eliminated and generally 80% of all losses are
covered by the receiver.) As mentioned above, the
estimated loss-share liability is accounted for by
the receiver and is included in the calculation of
the DIF’s allowance for loss against the corporate
receivable from the resolution. As loss-share claims
are asserted and proven, DIF receiverships will
satisfy these loss-share payments using available
liquidation funds and/or by drawing on amounts
due from the DIF for funding the deposits
assumed by the acquirer (see Note 7).
Through December 31, 2010, DIF receiverships
are estimated to pay approximately $38.8 billion
over the duration of these loss-share agreements
on approximately $193.0 billion in total covered
assets at the inception date of these agreements.
To date, 158 receiverships have made loss-share
payments totaling $8.3 billion.
Concentration of Credit Risk
Financial instruments that potentially subject the
DIF to concentrations of credit risk are receivables
from resolutions. The repayment of DIF’s
receivables from resolutions is primarily influenced
by recoveries on assets held by DIF receiverships
and payments on the covered assets under loss-sharing
agreements. The majority of the $184.4
billion in remaining assets in liquidation ($27.0
billion) and current loss-share covered assets
($157.4 billion) are concentrated in commercial
loans ($104.4 billion), residential loans ($56.3
billion), and structured transaction-related assets
as described in Note 8 ($12.8 billion). Most of the
assets in these asset types originated from failed
institutions located in California ($53.4 billion),
Florida ($20.8 billion), Illinois ($15.7 billion),
Puerto Rico ($15.3 billion), and Alabama
($14.6 billion).
5. Trust Preferred
Securities
On January 15, 2009, subject to a systemic risk
determination, the Treasury, the FDIC and the
Federal Reserve Bank of New York executed
terms of a guarantee agreement with Citigroup to
provide loss protection on a pool of approximately
$301.0 billion of assets that remained on the
balance sheet of Citigroup.
In consideration for its portion of the loss-share
guarantee at inception, the FDIC received $3.025
billion of Citigroup’s preferred stock (Series G).
On July 30, 2009, all shares of preferred stock
initially received were exchanged for 3,025,000
Citigroup Capital XXXIII trust preferred securities
(TruPs) with a liquidation amount of $1,000 per
security and a distribution rate of 8 percent per
annum payable quarterly. The principal amount is due in 2039. The
Treasury initially received
$4.034 billion in preferred stock for its loss-share
protection and received an equivalent, aggregate
amount of $4.034 billion in trust preferred
securities at the time of the exchange for TruPs.
On December 23, 2009, Citigroup terminated
the loss-share agreement citing improvements in
its financial condition and in financial market
stability. The FDIC incurred no loss from the
guarantee prior to termination of the agreement.
In connection with the early termination of the
guarantee program, the Treasury and the FDIC
agreed that Citigroup would reduce the combined
$7.1 billion liquidation amount of the TruPs by
$1.8 billion. Pursuant to an agreement between
the Treasury and the FDIC, TruPs held by the
Treasury were reduced by $1.8 billion and the
FDIC initially retained all of its TruPs holdings
of $3.025 billion. The FDIC will transfer an
aggregate liquidation amount of $800 million in
TruPs to the Treasury, plus any related interest,
less any payments made or required to be made
by the FDIC for guaranteed debt instruments
issued by Citigroup or any of its affiliates under
the Temporary Liquidity Guarantee Program
(TLGP; see Note 16). This transfer will occur
within five days of the date on which no Citigroup
debt remains outstanding under the TLGP. The
fair value of these TruPs and related interest are
recorded as systemic risk assets as described in
Note 16.
The remaining $2.225 billion (liquidation
amount) of TruPs held by the FDIC is classified
as available-for-sale debt securities in accordance
with FASB ASC Topic 320, Investments – Debt
and Equity Securities. Upon termination of
the guarantee agreement, the DIF recognized
revenue in 2009 of $1.962 billion for the fair
value of the TruPs (see Note 10). At December
31, 2010, the fair value of the TruPs was $2.298
billion (see Note 15). An unrealized holding gain
of $336 million in 2010 is included in other
comprehensive income.
6. Property and Equipment, Net
Property and Equipment, Net at December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Land |
$37,352 |
$37,352 |
Buildings (including leasehold improvements) |
312,173 |
295,265 |
Application software (includes work-in-process) |
122,736 |
179,479 |
Furniture, fixtures, and equipment |
144,661 |
117,430 |
Accumulated depreciation |
(200,857) |
(240,709) |
Total |
$416,065 |
$388,817 |
The depreciation expense was $69 million and $70 million for 2010 and 2009, respectively.
7. Liabilities Due to Resolutions
As of December 31, 2010 and 2009, the DIF
recorded liabilities totaling $30.4 billion and
$34.5 billion to resolution entities representing
the agreed-upon value of assets transferred from
the receiverships, at the time of failure, to the
acquirers/bridge institutions for use in funding
the deposits assumed by the acquirers/bridge
institutions. Eighty-nine percent of these liabilities
are due to failures resolved under a whole bank
purchase and assumption transaction, most with
an accompanying loss-share agreement. The DIF
satisfies these liabilities either by directly sending
cash to the receiverships to fund loss-share and
other expenses or by offsetting receivables from
resolutions when a receivership declares a dividend.
In addition, there was $80 million and $150
million in unpaid deposit claims related to
multiple receiverships as of December 31, 2010
and 2009, respectively. The DIF pays these
liabilities when the claims are approved.
8. Contingent Liabilities for:
Anticipated Failure of Insured Institutions
The DIF records a contingent liability and a loss
provision for DIF-insured institutions that are
likely to fail, absent some favorable event such as
obtaining additional capital or merging, when the
liability is probable and reasonably estimable. The
contingent liability is derived by applying expected
failure rates and loss rates to institutions based on
supervisory ratings, balance sheet characteristics,
and projected capital levels.
The banking industry continued to face significant
problems in 2010. The slowly recovering
economic and credit environment challenged the
soundness of many DIF-insured institutions. The
ongoing weakness in housing and commercial
real estate markets led to continuing asset
quality problems, which hurt banking industry
performance and weakened many institutions
with significant portfolios of residential and
commercial mortgages. Despite the challenging
conditions evident in certain business lines and
markets, the losses to the DIF from failures that
occurred in 2010 fell short of the amount reserved
at the end of 2009, as the aggregate number and
size of institution failures in 2010 were less than
anticipated. The removal from the reserve of
banks that did fail in 2010, as well as projected
favorable trends in bank supervisory downgrade
and failure rates and the smaller size of institutions
that remain troubled, all contribute to a decline
by $26.3 billion to $17.7 billion in the contingent
liability for anticipated failures of insured
institutions at the end of 2010.
In addition to these recorded contingent
liabilities, the FDIC has identified risk in the
financial services industry that could result in
additional losses to the DIF should potentially
vulnerable insured institutions ultimately fail. As
a result of these risks, the FDIC believes that it
is reasonably possible that the DIF could incur
additional estimated losses of up to approximately
$24.5 billion. The actual losses, if any, will largely depend on future
economic and market
conditions and could differ materially from this
estimate.
During 2010, 157 banks with combined assets of
$93.2 billion failed. Supervisory and market data
suggest that the banking industry will continue to
experience elevated levels of stress over the coming
year. The FDIC continues to evaluate the ongoing
risks to affected institutions in light of the existing
economic and financial conditions, and the extent
to which such risks will continue to put stress on
the resources of the insurance fund.
Litigation Losses
The DIF records an estimated loss for unresolved
legal cases to the extent that those losses are
considered probable and reasonably estimable.
Probable litigation losses of $300 million were
recorded for both December 31, 2010 and 2009,
and the FDIC has determined that there are no
reasonably possible losses from unresolved cases.
Other Contingencies
IndyMac Federal Bank Representation andIndemnification Contingent Liability
On March 19, 2009, the FDIC as receiver of
IndyMac Federal Bank (IMFB) and certain
subsidiaries (collectively, sellers) sold substantially
all of the assets of IMFB and the respective
subsidiaries, including mortgage loans and
mortgage loan servicing rights, to OneWest Bank
and its affiliates. To maximize sale returns, the
sellers made certain customary representations
regarding the assets and have certain obligations
to indemnify the acquirers for losses incurred
as a result of breaches of such representations,
losses incurred as a result of the failure to obtain
contractual counterparty consents to the sale,
and third party claims arising from pre-sale acts
and omissions of the sellers or the failed bank.
Although the representations and indemnifications
were made by or are obligations of the sellers,
the FDIC, in its corporate capacity, guaranteed
the receivership’s indemnification obligations
under the sale agreements. The representations
relate generally to ownership of and right to
sell the assets; compliance with applicable law
in the origination of the loans; accuracy of the
servicing records; validity of loan documents;
and servicing of the loans serviced for others.
Until the period for asserting claims under these
arrangements have expired and all indemnification
claims quantified and paid, losses could continue
to be incurred by the receivership and, in
turn, the DIF either directly, as a result of the
FDIC corporate guaranty of the receivership’s
indemnification obligations, or indirectly, as a
result of a reduction in the receivership’s assets
available to pay the DIF’s claims as subrogee for
insured accountholders. The acquirers’ rights to
assert actual and potential breaches extend out to
March 19, 2019 for the Fannie Mae and Ginnie
Mae reverse mortgage servicing portfolios (unpaid
principal balance of $21.7 billion at December 31,
2010 and 2009), March 19, 2014 for the Fannie
Mae, Freddie Mac and Ginnie Mae mortgage
servicing portfolios (unpaid principal balance of
$45.3 billion at December 31, 2010 compared to
$62.1 billion at December 31, 2009), and March
19, 2011 for the remaining (private) mortgage
servicing portfolio and whole loans (unpaid
principal balance of $74.2 billion at December
31, 2010 compared to $104.4 billion at
December 31, 2009).
As of December 31, 2010, the IndyMac
receivership has paid $2.8 million in approved
claims and has accrued an additional $2.6 million
liability for claims asserted but unpaid. The FDIC
believes it is likely that additional losses will be
incurred, however quantifying the contingent
liability associated with the representations and
the indemnification obligations is subject to a
number of uncertainties, including 1) borrower
prepayment speeds, 2) the occurrence of borrower
defaults and resulting foreclosures and losses, 3)
the assertion by third party investors of claims
with respect to loans serviced for them, 4) the
existence and timing of discovery of breaches
and the assertion of claims for indemnification
for losses by the acquirer, 5) the compliance by
the acquirer with certain loss mitigation and
other conditions to indemnification, 6) third
party sources of loss recovery (such as title companies and insurers),
7) the ability of the
acquirer to refute claims from investors without
incurring reimbursable losses, and 8) the cost
to cure breaches and respond to third party
claims. Because of these and other uncertainties
that surround the liability associated with
indemnifications and the quantification of
possible losses, the FDIC has determined that
while additional losses are probable, the amount is
not estimable.
Purchase and Assumption Indemnification
In connection with purchase and assumption
agreements for resolutions, the FDIC in its
receivership capacity generally indemnifies the
purchaser of a failed institution’s assets and
liabilities in the event a third party asserts a claim
against the purchaser unrelated to the explicit
assets purchased or liabilities assumed at the time
of failure. The FDIC in its corporate capacity is a
secondary guarantor if and when a receivership is
unable to pay. These indemnifications generally
extend for a term of six years after the date of
institution failure. The FDIC is unable to estimate
the maximum potential liability for these types
of guarantees as the agreements do not specify
a maximum amount and any payments are
dependent upon the outcome of future contingent
events, the nature and likelihood of which cannot
be determined at this time. During 2010 and
2009, the FDIC in its corporate capacity made no
indemnification payments under such agreements
and no amount has been accrued in the
accompanying financial statements with respect to these
indemnification guarantees.
FDIC Guaranteed Debt of Structured Transactions
During 2009and 2010, the FDIC as receiver used
three types of structured transactions to dispose of
certain performing and non-performing residential
mortgage loans, commercial loans, construction
loans, and mortgage backed securities held by
the receiverships. The three types of structured
transactions are: 1) limited liability companies
(LLCs), 2) securitizations, and 3) structured sale
guaranteed notes (SSGNs).
LLCs
Under the LLC structure, the FDIC, as receiver,contributes a pool of assets to a newly-formed LLC and offers for sale, through a competitive bid process, some of the equity in the LLC. The day-to-day management of the LLC is transferred to
the highest bidder along with the purchased equity
interest. The FDIC, in its corporate capacity,
guarantees notes issued by the LLCs. In exchange
for the guarantee, the DIF receives a guarantee fee
in either a lump-sum, up-front payment based on
the estimated duration of the note or a monthly
payment based on a fixed percentage multiplied by
the outstanding note balance. The terms of these
guarantees generally stipulate that all cash flows
received from the entity’s collateral be used in the
following order to: 1) pay operational expenses of
the entity, 2) pay FDIC its contractual guarantee
fee, 3) pay down the guaranteed notes (or, if
applicable, fund the related defeasance account
for payoff of the notes at maturity), and 4) pay
the equity investors. If the FDIC is required to
perform under these guarantees, it acquires an
interest in the cash flows of the LLC equal to
the amount of guarantee payments made plus
accrued interest thereon. As mentioned above,
this interest is senior to all equity interests and
thus will be reimbursed, in full, prior to equity
holders receiving a return on investment. Once
all expenses have been paid, the guaranteed
notes have been satisfied, and FDIC has been
reimbursed for any guarantee payments, the equity
holders receive any remaining cash flows.
Private investors purchased a 40 or 50 percent
ownership interest in the LLC structures for $1.6
billion in cash and the LLCs issued notes of $4.4
billion to the receiverships to partially fund the
purchase of the assets. The receiverships hold the
remaining 50 or 60 percent equity interest in the
LLCs and, in most cases, the guaranteed notes.
The FDIC in its corporate capacity guarantees the
timely payment of principal and interest for the
notes. The terms of the note guarantees extend
until the earliest of 1) payment in full of the notes
or 2) two years following the maturity date of the notes. The note with the longest term matures
in 2020. In the event of note payment default by
a LLC, the FDIC in its corporate capacity can
take one or more of the following remedies: 1)
accelerate the payment of the unpaid principal
amount of the notes; 2) sell the assets held as
collateral; or 3) foreclose on the equity interests of
the debtor.
Securitizations and SSGNs
Securitizations and SSGNs (collectively, “Trusts”)
are transactions in which certain assets or
securities from failed institutions are pooled into
a trust structure. The Trusts issued senior notes,
subordinate notes, and owner trust certificates
collateralized by the mortgage-backed securities or
loans that are transferred to the Trusts.
Private investors purchased the senior notes
issued by the Trusts for $4.6 billion in cash. The
receiverships hold 100 percent of the subordinate
notes and owner trust certificates (“OTCs”).
The FDIC in its corporate capacity guarantees
the timely payment of principal and interest for
the senior notes. The terms of these guarantees
generally stipulate that all cash flows received from
the entity’s collateral be used in the following
order to: 1) pay operational expenses of the
entity, 2) pay FDIC its contractual guarantee
fee, 3) pay interest on the guaranteed notes, 4)
pay down the guaranteed notes, and 5) pay the
holders of the subordinate notes and owner trust
certificates. If the FDIC is required to perform
under its guarantees, it acquires an interest in the
cash flows of the trust equal to the amount of
guarantee payments made plus accrued interest
thereon. As mentioned above, this interest is
senior to all interests of subordinate note holders
and OTC holders and thus will be reimbursed,
in full, prior to these holders receiving a return
on any remaining investment. Once all expenses
have been paid, the guaranteed notes have been
satisfied, and FDIC has been reimbursed for any
guarantee payments, the subordinate note holders
and OTC holders receive the remaining cash flows.
All Structured Transactions
Through December 31, 2010, the receiverships
have transferred a portfolio of loans with an
unpaid principal balance of $16.4 billion and
mortgage-backed securities with a book value of
$6.8 billion to the LLCs and Trusts which have
issued notes guaranteed by the FDIC. To date,
the DIF has collected guarantee fees totaling $128
million and recorded a receivable for additional
guarantee fees of $170 million, included in the
“Interest receivable on investments and other
assets, net” line item. All guarantee fees are
recorded as deferred revenue, included in the
“Accounts payable and other liabilities” line item,
and recognized as revenue primarily on a straightline
basis over the term of the notes. At December
31, 2010, the amount of deferred revenue
recognized on the balance sheet was $249 million.
The DIF records no other structured transaction
related assets or liabilities on its balance sheet.
The estimated loss on the guarantees to the DIF
is based on the discounted present value of the
expected guarantee payments by the FDIC,
reimbursements to the FDIC for guarantee
payments, and guarantee fee collections. Under
both a base case and a more stressful modeling
scenario, the cash flows from the LLC/Trust
assets provide sufficient coverage to fully pay
the debts by their maturity dates. Therefore, the
estimated loss to the DIF from these guarantees
is zero. To date, FDIC in its corporate capacity
has not provided, and does not intend to provide,
any form of financial or other support to a Trust
or LLC that it was not previously contractually
required to provide.
As of December 31, 2010, the maximum exposure
to loss is $8.3 billion, the sum of all outstanding
debt issued by LLCs and Trusts that is guaranteed
by the FDIC in its corporate capacity. The
$8.3 billion is comprised of $4.2 billion issued
by LLCs, $3.8 billion issued by SSGNs, and
$.3 billion issued by the securitization. Some
transactions have established defeasance accounts
to pay off the notes at maturity. A total of $756
million has been deposited into these accounts.
9. Assessments
The Dodd-Frank Act, enacted on July 21, 2010,
provides for significant DIF assessment and
capitalization reforms. As a result, the FDIC
issued proposed regulations and adopted a new
Restoration Plan. The following presents the
required DIF reforms and the related FDIC
actions taken to:
- define the assessment base generally as average consolidated total assets minus average tangible equity (the new assessment base).
- To amend its regulations, the FDIC issued a proposed rulemaking to redefine the assessment base used for calculating deposit insurance assessments from adjusted domestic deposits to average consolidated total assets minus average tangible equity (measured as Tier 1 capital).
- annually establish and publish a designated reserve ratio (DRR) at the statutory minimum percentage of not less than 1.35 percent of estimated insured deposits or the comparable percentage of the new assessment base. In addition, the FDIC must annually determine if a dividend should be paid, based on the statutory requirement generally to declare dividends if the DIF reserve ratio exceeds 1.50 percent of estimated insured deposits. The Board of Directors is given sole discretion to suspend or limit dividends and must prescribe relevant regulations.
- In order to implement these requirements, the FDIC proposed a comprehensive long-range plan for deposit insurance fund management with the intent of maintaining a positive fund balance and moderate, steady assessment rates. The proposed rulemaking would set the DRR at 2 percent as a long-term minimum goal and adopt a lower assessment rate schedule when the reserve ratio reaches 1.15. To increase the probability that the fund reserve ratio will reach a level sufficient to withstand a future crisis, the proposed rulemaking would suspend dividends permanently when the fund reserve ratio exceeds 1.5 percent and, in lieu of dividends, adopt lower assessment rate schedules when the reserve ratio reaches 2 percent and 2.5 percent so that average rates would decline about 25 percent and 50 percent, respectively. In December 2010, the FDIC issued a final rule related to the DRR portion of the proposed rulemaking, setting the DRR at 2 percent effective on January 1, 2011.
- return the reserve ratio to 1.35 percent of estimated insured deposits by September 30, 2020.
- To comply with this mandate, the FDIC adopted a new Restoration Plan that provides for the following: 1) the period of the Restoration Plan is extended from the end of 2016 to September 30, 2020; 2) the FDIC will maintain the current schedule of assessment rates, foregoing the uniform 3 basis point increase previously scheduled to take effect on January 1, 2011; 3) institutions may continue to use assessment credits without additional restriction during the term of the Restoration Plan; 4) the FDIC will pursue rulemaking in 2011 regarding the method that will be used to offset the effect on small institutions (less than $10 billion in assets) of the statutory requirement that the fund reserve ratio increase from 1.15 percent to 1.35 percent by September 30, 2020; and 5) at least semiannually, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease rates, following notice-and-comment rulemaking, if required.
In addition, the FDIC issued a proposed
rulemaking to revise the assessment system
applicable to large insured depository institutions
(IDIs) to better capture risk at the time an IDI
assumes the risk, to better differentiate IDIs
during periods of good economic and banking
conditions based on how they would fare during periods of stress or
economic downturns, and
to better take into account the losses that the
FDIC may incur if such an IDI fails. Specifically,
proposed changes include eliminating risk
categories and the use of long-term debt issuer
ratings for large IDIs and combining CAMELS
ratings and forward-looking financial measures
into two scorecards: one for most large IDIs
and another for large IDIs that are structurally
and operationally complex or that pose unique
challenges and risks in case of failure (highly
complex IDIs).
Assessment Revenue
The assessment rate averaged approximately 17.72
cents per $100 and 23.32 cents per $100 of the
assessment base, as defined in part 327.5(b) of
FDIC Rules and Regulations, for 2010 and 2009,
respectively. During 2010 and 2009, $13.6 billion
and $17.7 billion were recognized as assessment
revenue from institutions. For those institutions
that did not prepay assessments as described
below, the “Assessments receivable, net” line
item of $218 million represents the estimated
premiums due from IDIs for the fourth quarter of
2010. The actual deposit insurance assessments for
the fourth quarter will be billed and collected at
the end of the first quarter of 2011.
During 2009, the FDIC implemented actions
to supplement DIF’s revenue through a special
assessment and its liquidity through prepaid
assessments from IDIs:
On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment on each IDI’s total assets minus Tier 1 capital as reported in its report of condition as of June 30, 2009. The special assessment of $5.5 billion was collected on September 30, 2009.
On November 12, 2009, the FDIC adopted a
final rule to address the DIF’s liquidity needs
to pay for projected near-term failures and
to ensure that the deposit insurance system
remained industry-funded. Pursuant to the
final rule, on December 30, 2009, a majority
of IDIs prepaid estimated quarterly risk-basedassessments of $45.7
billion for the period
October 2009 through December 2012.
An institution’s quarterly risk-based deposit
insurance assessment thereafter is offset by
the amount prepaid until that amount is
exhausted or until June 30, 2013, when any
amount remaining would be returned to
the institution. At December 31, 2010, the
remaining prepaid amount of $30.1 billion is
included in the “Unearned revenue – prepaid
assessments” line item on the Balance Sheet.
Prepaid assessments were
mandatory for
all institutions, but the FDIC exercised
its discretion as supervisor and insurer to
exempt an institution from the prepayment
requirement if the FDIC determined that the
prepayment would adversely affect the safety
and soundness of the institution.
Reserve Ratio
As of December 31, 2010, the DIF reserve ratio was -0.12 percent of estimated insured deposits.
Assessments Related to FICO
Assessments continue to be levied on institutions
for payments of the interest on obligations issued
by the Financing Corporation (FICO). The FICO
was established as a mixed-ownership government
corporation to function solely as a financing vehicle
for the former 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 2010 and 2009, approximately
$796 million and $784 million, respectively, was
collected and remitted to the FICO.
10. Other Revenue
Other Revenue for the Years Ended December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Guarantee termination fees |
$0 |
$2,053,825 |
Dividens and interest on Citigroup trust preferred securities |
177,675 |
231,227 |
Guarantee fees for structured transactions |
44,557 |
3,465 |
Debt guarantee surcharges |
0 |
871,746 |
Other |
15,193 |
13,348 |
Total |
$237,425 |
$3,173,611 |
Guarantee Termination Fees and Dividends and Interest on TruPs
Bank of America
In January 2009, the FDIC, the Treasury, and
the Federal Reserve Bank of New York (federal
parties) signed a Summary of Terms (Term
Sheet) with Bank of America to guarantee or
lend against a pool of up to $118.0 billion of
financial instruments owned by Bank of America.
In May 2009, prior to completing definitive
documentation, Bank of America announced
its intention to terminate negotiations with
respect to the loss-share guarantee arrangement
contemplated in the Term Sheet. Bank of
America paid a termination fee of $425 million to
compensate the federal parties for the guarantee
from the date of the signing of the Term Sheet
through the termination date. Of this amount,the FDIC received and
recognized revenue of $92
million for the DIF in 2009. No losses were borne
by the FDIC prior to the termination.
Citigroup
In connection with the termination of a loss-share
agreement with Citigroup on December 23,
2009 (see Note 5), the DIF recognized revenue
of $1.962 billion for the fair value of the trust
preferred securities received as consideration for
the guarantee. The DIF recognized $178 million
and $231 million of dividends and interest on the
securities for 2010 and 2009, respectively.
Guarantee Fees for Structured Transactions
The FDIC in its corporate capacity participated
in structured transactions as guarantor of the
principal and interest due on certain notes
issued by related limited liability companies and
Trusts (see Note 8). The transactions were formed
to maximize recoveries on assets purchased by
these entities from receiverships. In exchange for
the guarantees, the DIF receives guarantee fees
that are recognized as revenue over the
term of each guarantee on a straight line basis.
The DIF recognized revenue in the amount of
$45 million and $3 million during 2010 and
2009, respectively.
Surcharges on FDIC-Guaranteed Debt
The DIF collected a surcharge on all debt issued
under the Temporary Liquidity Guarantee
Program (TLGP) after March 31, 2009 in an
effort to provide an incentive for all participants to
return to the non-guaranteed debt market. Unlike
other TLGP fees (see Note 16), which are reserved
for projected TLGP losses, the surcharges collected
were deposited into the DIF. During 2009, the
DIF collected surcharges in the amount of $872
million. No surcharges were collected in 2010.
11. Operating Expenses
Operating expenses were $1.6 billion for 2010,
compared to $1.3 billion for 2009. The chart below
lists the major components of operating expenses.
Operating Expenses for the Years Ended December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Salaries and benefits |
$1,184,523 |
$901,836 |
Outside services |
360,880 |
244,479 |
Travel |
111,110 |
97,744 |
Buildings and leased space |
85,137 |
65,286 |
Software/Hardware maintenance |
50,575 |
40,678 |
Depreciation of property and equipment |
68,790 |
70,488 |
Other |
35,384 |
37,563 |
Services reimbursed by TLGP |
(242) |
(3,613) |
Services billed to resolution entities |
(303,516) |
(183,362) |
Total |
$1,592,641 |
$1,271,099 |
12. Provision for Insurance Losses
Provision for insurance losses was a negative $848
million for
2010, compared to a positive $57.7 billion for 2009. The 2010 negative
provision is primarily due to lower-than-anticipated loss estimates at
time of failure for banks that have failed and leveling off of
estimated losses to the DIF from banks expected to fail. 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 |
|
2010 |
2009 |
Valuation Adjustments |
Closed banks and thrifts |
$25,483,252 |
$37,586,603 |
Other assets |
(4,406) |
(7,885) |
Total Valuation Adjustments |
25,478,846 |
37,578,718 |
|
Contingent Liabilities Adjustments |
Anticipated failure of insured institutions |
(26,326,689) |
20,033,054 |
Litigation |
0 |
100,000 |
Total Contingent Liabilities Adjustments |
(26,326,689) |
20,133,054 |
Total |
$(847,843) |
$57,711,772 |
13. Employee Benefits
Pension Benefits and Savings Plans
Eligible FDIC employees (permanent and term
employees with appointments exceeding one year)
are covered by the federal government retirement
plans, either the Civil Service Retirement System
(CSRS) or the Federal Employees Retirement
System (FERS). Although the DIF contributes a
portion of pension benefits for eligible employees,
it does not account for the assets of either
retirement system. The DIF 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 (OPM).
Eligible FDIC employees also may participate in a
FDIC-sponsored tax-deferred 401(k) savings plan
with matching contributions up to five percent.
Under the Federal Thrift Savings Plan (TSP),
the FDIC provides FERS employees with an
automatic contribution of 1 percent of pay and an
additional matching contribution up to 4 percent
of pay. CSRS employees also can contribute to
the TSP, however, they do not receive agency
matching contributions.
Pension Benefits and Savings Plans Expenses for the Years Ended December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Civil Service Retirement System |
$6,387 |
$6,401 |
Federal Employees Retirement System (Basic Benefit) |
78,666 |
56,451 |
FDIC Savings Plan |
30,825 |
25,449 |
Federal Thrift Savings Plan |
28,679 |
20,503 |
Total |
$144,557 |
$108,804 |
Postretirement Benefits Other Than Pensions
The DIF has no postretirement health insurance
liability since all eligible retirees are covered by
the Federal Employees Health Benefit (FEHB)
program. FEHB is administered and accounted
for by the OPM. In addition, OPM pays the
employer share of the retiree’s health insurance
premiums.
The FDIC provides certain life and dental
insurance coverage for its eligible retirees, the
retirees’ beneficiaries, and covered dependents.
Retirees eligible for life and dental 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. The life insurance
program provides basic coverage at no cost to
retirees and allows converting optional coverage to
direct-pay plans. For the dental coverage, retirees
are responsible for a portion of the dental premium.
The FDIC has elected not to fund the
postretirement life and dental benefit liabilities.
As a result, the DIF recognized the underfunded
status (difference between the accumulated
postretirement benefit obligation and the plan
assets at fair value) as a liability. Since there
are no plan assets, the plan’s benefit liability
is equal to the accumulated postretirement
benefit obligation. At December 31, 2010 and
2009, the liability was $166 million and $145
million, respectively, which is recognized in the
“Postretirement benefit liability” line item on the
Balance Sheet. The cumulative actuarial losses
(changes in assumptions and plan experience) and
prior service costs (changes to plan provisions that
increase benefits) were $19 million and $3 million
at December 31, 2010 and 2009, respectively.
These amounts are reported as accumulated
other comprehensive income in the “Unrealized
postretirement benefit loss” line item on the
Balance Sheet.
The DIF’s expenses for postretirement benefits for
2010 and 2009 were $9 million and $8 million,
respectively, which are included in the current and
prior year’s operating expenses on the Statement of Income and Fund
Balance. The changes in
the actuarial losses and prior service costs for
2010 and 2009 of $16 million and $28 million,
respectively, are reported as other comprehensive
income in the “Unrealized postretirement benefit
loss” line item. Key actuarial assumptions used in
the accounting for the plan include the discount
rate of 5.0 percent, the rate of compensation
increase of 4.1 percent, and the dental coverage
trend rate of 7.0 percent. The discount rate of
5.0 percent is based upon rates of return on
high-quality fixed income investments whose cash
flows match the timing and amount of expected
benefit payments.
14. Commitments and Off-Balance-Sheet Exposure
Commitments:
Leased Space
The FDIC’s lease commitments total $204 million
for future years. The lease agreements contain
escalation clauses resulting in adjustments, usually
on an annual basis. The DIF recognized leased
space expense of $45 million and $29 million for
the years ended December 31, 2010 and 2009,
respectively.
Leased Space Commitments |
Dollars in Thousands |
2011 |
2012 |
2013 |
$54,086 |
$48,047 |
$37,005 |
2014 |
2015 |
2016/Thereafter |
$28,035 |
$19,731 |
$17,229 |
Off-Balance-Sheet Exposure:
Deposit Insurance
As of December 31, 2010, the estimated insured
deposits for DIF were $6.2 trillion. This estimate
is derived primarily from quarterly financial data
submitted by insured depository institutions to
the FDIC. This estimate represents the accounting
loss that would be realized if all insured depository institutions were
to fail and the acquired assets provided no recoveries. The amount of
$6.2
trillion includes noninterest-bearing transaction
accounts that received coverage under the Dodd-Frank Act beginning on December 31, 2010 to
the end of 2012.
15. 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), the investment
in U.S. Treasury obligations (Note 3) and trust
preferred securities (Note 5). The following tables
present the DIF’s financial assets measured at fair
value as of December 31, 2010 and 2009.
Assets Measured at Fair Value at December 31, 2010 |
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 |
Assets |
Cash and cash equivalents (Special U.S. Treasuries)¹ |
$27,076,606 |
|
|
$27,076,606 |
Available for Sale Debt Securities |
Investment in U.S. Treasury Obligations² |
12,371,268 |
|
|
12,371,268 |
Trust preferred securities |
|
$2,297,818 |
|
2,297,818 |
Trust preferred securities held for UST (Note 16) |
|
826,182 |
|
826,182 |
Total Assets |
$39,447,874 |
$3,124,000 |
$0 |
$42,571,874 |
(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.
In exchange for prior loss-share guarantee coverage provided to Citigroup as described in Note 5, the FDIC and the Treasury received TruPs. At December 31, 2010, the fair value of the securities in the amount of $3.124 billion was classified as a Level 2 measurement based on an FDIC developed model using observable market data for traded Citigroup securities to determine the expected present value of future cash flows. Key inputs include market yields on U.S. Dollar interest rate swaps and discount rates for default, call and liquidity risks that are derived from traded Citigroup securities and modeled pricing
relationships.
Assets Measured at Fair Value at December 31, 2009 |
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 |
Assets |
Cash and cash equivalents (Special U.S. Treasuries)¹ |
$54,092,423 |
|
|
$54,092,423 |
Available for Sale Debt Securities |
Investment in U.S. Treasury Obligations² |
5,486,799 |
|
|
5,486,799 |
Trust preferred securities |
|
|
$1,961,824 |
1,961,824 |
Trust preferred securities held for UST (Note 16) |
|
|
705,375 |
705,375 |
Total Assets |
$59,579,222 |
$0 |
$2,667,199 |
$62,246,421 |
(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.
At December 31, 2009 the fair value of the TruPs
in the amount of $2.667 billion was classified
as a Level 3 measurement and was derived from
a proprietary valuation model developed by
the Treasury to estimate the value of financial
instruments obtained as consideration for actions
taken to stabilize the financial system under the
Troubled Asset Relief Program. The change in
fair value classification from Level 3 to Level 2
between 2009 and 2010 was due to a greater
reliance on observable inputs. The table below
reconciles the beginning and ending Level 3
balances for 2010.
Fair Value Measurements Using Unobservable Inputs (Level 3) - Trust Preferred Securities at December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Beginning balance |
$2,667,199 |
$0 |
Total gains or losses |
0 |
0 |
Transfers in and/or out of Level 3 |
(2,667,199) |
2,667,199 |
Total |
$0 |
$2,667,199 |
(a) The Corporation’s policy is to recognize Level 3 transfers as of the beginning of the reporting period.
(b) The transfer from Level 3 to Level 2 was due to adoption of observable market data for these securities.
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, accounts payable
and other liabilities.
The net receivables from resolutions primarily
include the DIF’s subrogated claim arising from
obligations to insured depositors. The resolution
entity 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 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 resolution
entity 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 resolution entity payments to the DIF on the
subrogated claim does not necessarily correspond
with the timing of collections on resolution entity
assets. Therefore, the effect of discounting used
by resolution entities 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 guarantees
associated with systemic risk (see Note 16).
16. Systemic Risk
Transactions
Pursuant to systemic risk determinations, the FDIC established
the Temporary Liquidity Guarantee Program (TLGP) for insured depository
institutions, designated affiliates and certain holding companies
during 2008, and provided loss-share guarantee assistance to Citigroup
on a pool of covered assets in 2009, which was subsequently terminated
as described in Note 5. The FDIC
received consideration in exchange for guarantees issued under the TLGP
and guarantee assistance provided to Citigroup.
At inception of the
guarantees, the DIF recognized a liability for the non-contingent fair
value of the obligation the FDIC has undertaken to stand ready to
perform over the term of the guarantees. As required by FASB ASC 460,
Guarantees, this non-contingent liability was measured at the amount of
consideration received in exchange for issuing the guarantee. As
systemic risk expenses are incurred (including contingent liabilities
and valuation allowances), the DIF will reduce deferred revenue and
recognize an offsetting amount as systemic risk revenue. Revenue
recognition will also occur during the term of the guarantee if a
supportable and documented analysis has determined that the
consideration and any related interest/dividend income received exceeds
the projected systemic risk losses. Any deferred revenue not absorbed
by losses during the guarantee period will be recognized as revenue to
the DIF.
Temporary Liquidity Guarantee Program
The FDIC established the TLGP on October 14, 2008 in an
effort
to counter the system-wide crisis in the nation’s financial sector. The
TLGP consists of two components: 1) the Debt Guarantee Program (DGP),
and 2) the Transaction Account Guarantee Program (TAG). The program is
codified in part 370 of title 12 of the Code of Federal Regulations (12
CFR Part 370).
Debt Guarantee Program
The DGP permitted participating entities to issue
FDIC-guaranteed senior unsecured debt through October 31, 2009. The
FDIC’s guarantee for all such debt expires on the earliest of the
conversion date for mandatory convertible debt, the stated date of
maturity, or December 31, 2012.
All fees for participation in the DGP
are reserved for possible TLGP losses. Through the end of the debt
issuance period, the DIF collected $8.3 billion of guarantee fees and
fees of $1.2 billion from participating entities that elected to issue
senior unsecured
non-guaranteed debt. The fees are included in the “Cash and investments
– restricted – systemic risk” line item and recognized as “Deferred
revenue-systemic risk” on the Balance Sheet.
Additionally, as described in Note 5, the FDIC holds $800
million (liquidation amount) of Citigroup TruPs (and any related
interest) as security in the event payments are required to be made by
the DIF for guaranteed debt instruments issued by Citigroup or any of
its affiliates under the TLGP. At December 31, 2010, the fair value of
these securities totaled $826 million, and was determined using the
valuation methodology described in Note 15 for other Citigroup TruPs
held by the DIF. There is an offsetting liability in “Deferred Revenue-
Systemic Risk”, representing amounts to be transferred to the Treasury
or, if necessary, paid for guaranteed debt instruments issued by
Citigroup or its affiliates under the TLGP. Consequently, there is no
impact on the fund balance to the DIF.
The FDIC’s payment obligation under the DGP is triggered
by a
payment default. In the event of default, the FDIC will continue to
make scheduled principal and interest payments under the terms of the
debt instrument through its maturity, or in the case of mandatory
convertible debt, through the mandatory conversion date. The debtholder
or representative must assign to the FDIC the right to receive any and
all distributions on the guaranteed debt from any insolvency
proceeding, including the proceeds of any receivership or bankruptcy
estate, to the extent of payments made under the guarantee.
Since inception of the
program, $618 billion in total guaranteed debt has been issued. Through
December 31, 2010, the FDIC has paid $8 million in claims for principal
and interest arising from guaranteed debt default by three debt
issuers. Sixty-six financial entities (39 insured depository
institutions and 27 affiliates and holding companies) had $267.1
billion in guaranteed debt outstanding at year end. This reported
outstanding debt at year end is derived from data submitted by
debtholders. At December 31, 2010 the contingent
liability for this guarantee of $149
million is included in the “Contingent liability for
systemic risk” line item. The FDIC believes that
it is reasonably possible that additional estimated
losses of approximately $545 million could
occur under the DGP. Given the magnitude of
outstanding debt and the uncertainty surrounding
future possible losses, the FDIC believes it is
appropriate to continue its current practice of
deferring income recognition for the remaining
$9.1 billion of “Deferred Revenue-Systemic Risk.”
Transaction Account Guarantee Program
The Transaction Account Guarantee Program,
implemented under the TLGP, provided unlimited
coverage through December 31, 2010 for noninterest
bearing transaction accounts held by
insured depository institutions on all deposit
amounts exceeding the fully insured limit of
$250,000. During 2010 and 2009, the FDIC
collected TAG fees of $481 million and $639
million, respectively, which are earmarked for
TLGP possible losses and payments. At December
31, 2010, the “Receivables and other assets –
systemic risk” line item includes $50 million of
estimated TAG fees due from insured depository
institutions on March 31, 2011.
Upon the failure of a participating insured
depository institution, payment of guaranteed
claims of depositors with non-interest bearing
transaction accounts were funded with TLGP
restricted cash. The FDIC is subrogated to these
claims of depositors against the failed entity,
and dividend payments by the receivership are
deposited back into TLGP restricted accounts.
Since inception of the TAG, covered claims were
estimated to be $8.8 billion with estimated losses
of $2.3 billion as of December 31, 2010.
Systemic Risk Activity at December 31, 2010 |
Dollars in Thousands |
|
Cash and investments - restricted - systemic risk (1) |
Receivables and other assets - systemic risk |
Deferred revenue - systemic risk |
Contingent liability - systemic risk |
Revenue/Expenses - systemic risk |
Balance at 01-01-10 |
$6,430,589 |
$3,298,819 |
$(7,847,447) |
$(1,411,966) |
|
TAG fees collected |
480,781 |
(187,541) |
(293,240) |
|
|
DGP assessments collected |
3 |
|
(3) |
|
|
Receivable for TAG fees |
|
50,235 |
(50,235) |
|
|
Receivable for TAG accounts at failed institutions |
|
(493,128) |
|
|
|
Dividends and overnight interest on TruPs held for UST |
|
63,856 |
(63,856) |
|
|
Market value adjustment on TruPs held for UST |
|
120,807 |
(120,807) |
|
|
Estimated losses for TAG accounts at failed institutions |
|
(583,626) |
583,626 |
|
$583,626 |
Provision for TLGP losses in future failures |
|
|
(1,262,639) |
1,262,639 |
(1,262,639) |
Guaranteed debt obligations paid |
(7,970) |
|
7,970 |
|
5,953 |
U.S. investment interest collected |
12,063 |
|
(12,063) |
|
|
Interest receivable on U.S. Treasury obligations |
720 |
|
(720) |
|
|
Amortization of U.S. Treasury obligations |
2,191 |
|
(2,191) |
|
|
Accrued interest purchased |
(6,822) |
|
6,822 |
|
|
Unrealized gain on U.S. Treasury obligations |
247 |
|
247 |
|
|
TLGP operating expenses |
|
|
489 |
|
242 |
Reimbursement to DIF for TAG claims and TLGP operating expenses incurred |
(264,834) |
|
|
|
|
Totals |
$6,646,968 |
$2,269,422 |
$(9,054,541) |
$(149,327) |
$(672,818) |
(1) As of December 31, 2010, the fair value of investments in U.S. Treasury obligations held by TLGP was $1.6 billion. An unrealized gain of $247 thousand is reported in the “Deferred revenue - systemic risk” line item.
17. Subsequent Events
Subsequent events have been evaluated through
March 14, 2011, the date the financial statements
are available to be issued.
2011 Failures through March 14, 2011
Through March 14, 2011, 25 insured institutions
failed in 2011 with total losses to the DIF
estimated to be $1.8 billion.
Assessments
On February 7, 2011, the FDIC adopted a Final
Rule, Assessments, Large Bank Pricing, which
becomes effective on April 1, 2011. The Rule
amends 12 CFR 327 to implement revisions
to the FDI Act made by the Dodd-Frank Act
to: 1) redefine the assessment base used for
calculating deposit insurance assessments; 2)
change the assessment rate adjustments; 3)
lower the initial base rate schedule and the total
base rate schedule for all insured depository
institutions to collect approximately the same
revenue for the DIF under the new assessment
base as would have been collected under the
former assessment base; 4) provide progressively
lower assessment rate schedules when the reserve
ratio of the DIF reaches certain enumerated
levels and suspend dividends indefinitely; and 5)
change the risk-based assessment system for large
insured depository institutions (generally, those
institutions with at least $10 billion in
total assets).
During the last
quarter of 2010, FDIC issued
three Notices of Proposed Rulings (NPRs)
in order to propose revisions to the FDI Act,
as amended (see Note 9). This Final Rule
encompasses all of the proposals contained in the
NPRs, except the proposal setting the Designated
Reserve Ratio (DRR), which was covered in the
DRR Final Rule issued in December 2010.
FSLIC Resolution Fund
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Balance Sheet at December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Assets |
Cash and cash equivalents |
$3,547,907 |
$3,470,125 |
Receivables from thrift resolutions and other assets, net (Note 3) |
23,408 |
32,338 |
Receivables from U.S. Treasury for goodwill litigation (Note 4) |
323,495 |
405,412 |
Total Assets |
$3,894,810 |
$3,907,875 |
|
Liabilities |
Accounts payable and other liabilities |
$2,990 |
$2,972 |
Contingent liabilities for goodwill litigation (Note 4) |
323,495 |
405,412 |
Total Liabilities |
326,485 |
408,384 |
Resolution Equity (Note 5) |
Contributed capital |
127,792,696 |
127,847,696 |
Accumulated deficit |
(124,224,371) |
(124,348,205) |
Total Resolution Equity |
3,568,325 |
3,499,491 |
|
Total Liabilities and Resolution Equity |
$3,894,810 |
$3,907,875 |
The accompanying notes are an integral part of these financial statements.
FSLIC Resolution Fund
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statement of Income and Accumulated Deficit for the Years Ended December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Revenue |
Interest on U.S. Treasury obligations |
$3,876 |
$3,167 |
Other revenue |
9,393 |
5,276 |
Total Revenue |
13,269 |
8,443 |
|
Expenses and Losses |
Operating expenses |
3,832 |
4,905 |
Provision for losses |
(945) |
2,051 |
Goodwill litigation expenses (Note 4) |
(53,266) |
408,997 |
Recovery of tax benefits |
(63,256) |
(10,279) |
Other expenses |
3,070 |
2,908 |
Total Expenses and Losses |
(110,565) |
408,582 |
|
NetIncome (Loss) |
123,834 |
(400,139) |
|
Accumulated Deficit - Beginning |
(124,348,205) |
(123,948,066) |
|
Accumulated Deficit - Ending |
$(124,224,371) |
$(124,348,205) |
The accompanying notes are an integral part of these financial statements.
FSLIC Resolution Fund
Federal Deposit Insurance Corporation
FSLIC Resolution Fund Statement of Cash Flows for the Years Ended December 31 |
Dollars in Thousands |
|
2010 |
2009 |
Operating Activities |
Net Income (Loss) |
$123,834 |
$(400,139) |
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |
|
|
Provision for losses |
(945) |
2,051 |
|
Change in Operating Assets and Liabilities: |
Decrease in receivables from thrift resolutions and other assets |
9,875 |
563 |
Increase (Decrease) in accounts payable and other liabilities |
18 |
(5,094) |
(Decrease) Increase in contingent liabilities for goodwill litigation |
(81,917) |
263,107 |
Net Cash Provided (Used) by Operating Activities |
50,865 |
(139,512) |
|
Financing Activities |
Provided by: |
U.S. Treasury payments for goodwill litigation (Note 4) |
26,917 |
142,410 |
Net Cash Provided by Financing Activities |
26,917 |
142,410 |
|
NetIncrease in Cash and Cash Equivalents |
77,782 |
2,898 |
Cash and Cash Equivalents - Beginning |
3,470,125 |
3,467,227 |
Cash and Cash Equivalents - Ending |
$3,547,907 |
$3,470,125 |
The accompanying notes are an integral part of these financial statements.
|