Expenses for assets acquired from assisted banks and terminated
Interest and other insurance expenses
Total Expenses and Losses
Net (Loss) Income
Unrealized (loss)/gain on available-for-sale securities, net (Note 3)
Comprehensive (Loss) Income
Fund Balance - Beginning
Fund Balance - Ending
The accompanying notes are an integral part of
these financial statements.
Federal Deposit Insurance
Insurance Fund Statements of Cash Flows for the Years Ended December 31
Dollars in Thousands
Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations
Recoveries from bank resolutions
Recoveries on conversion of benefit plan
Recoveries from assets acquired from
assisted banks and terminated receiverships
Cash used by:
Disbursements for bank resolutions
Disbursements for assets acquired from assisted banks and
Net Cash Provided by Operating Activities (Note 15)
Cash Flows From Investing Activities
Cash provided by:
Maturity of U.S. Treasury obligations, held-to-maturity
Maturity and sale of U.S. Treasury obligations, available-for-sale
Cash used by:
Purchase of property and equipment
Purchase of U.S. Treasury obligations, held-to-maturity
Purchase of U.S. Treasury obligations, available-for-sale
Net Cash (Used by) Provided by Investing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
The accompanying notes are an integral part of these financial
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and 1998
Legislative History and Operations of the Bank Insurance Fund
The U.S. Congress created the Federal Deposit Insurance
Corporation (FDIC) through enactment of the Banking Act of 1933. The FDIC was created to
restore and maintain public confidence in the nations banking system.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) was
enacted to reform, recapitalize, and consolidate the federal deposit insurance system. The
FIRREA created the Bank Insurance Fund (BIF), the Savings Association Insurance Fund
(SAIF), and the FSLIC Resolution Fund (FRF). It also designated the FDIC as the
administrator of these funds. All three funds are maintained separately to carry out their
The BIF and the SAIF are insurance funds responsible for protecting insured bank and
thrift depositors from loss due to institution failures. The FRF is a resolution fund
responsible for winding up the affairs of the former Federal Savings and Loan Insurance
Corporation (FSLIC) and liquidating the assets and liabilities transferred from the former
Resolution Trust Corporation (RTC).
Pursuant to FIRREA, an active institutions insurance fund membership and primary
federal supervisor are generally determined by the institutions charter type.
Deposits of BIF-member institutions are generally insured by the BIF; BIF members are
predominantly commercial and savings banks supervised by the FDIC, the Office of the
Comptroller of the Currency, or the Federal Reserve Board. Deposits of SAIF-member
institutions are generally insured by the SAIF; SAIF members are predominantly thrifts
supervised by the Office of Thrift Supervision.
In addition to traditional banks and thrifts, several other categories of institutions
exist. The Federal Deposit Insurance Act (FDI Act), Section 5(d)(3), provides that a
member of one insurance fund may, with the approval of its primary federal supervisor,
merge, consolidate with, or acquire the deposit liabilities of an institution that is a
member of the other insurance fund without changing insurance fund status for the acquired
deposits. These institutions with deposits insured by both insurance funds are referred to
as Oakar financial institutions. The FDI Act, Section 5(d)(2)(G), allows SAIF-member
thrifts to convert to a bank charter and retain their SAIF membership. These institutions
are referred to as Sasser financial institutions. The Home Owners Loan Act (HOLA),
Section 5(o), allows BIF-member banks to convert to a thrift charter and retain their BIF
membership. These institutions are referred to as HOLA thrifts.
The Competitive Equality Banking Act of 1987
established the Financing Corporation (FICO) as a mixed-ownership government corporation
whose sole purpose was to function as a financing vehicle for the FSLIC.
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA) made changes to the FDICs
assessment authority (see Note 8) and borrowing authority. The FDICIA also requires the
FDIC to: 1) resolve failing institutions in a manner that will result in the least
possible cost to the deposit insurance funds and 2) maintain the insurance funds at 1.25
percent of insured deposits or a higher percentage as circumstances warrant.
The Deposit Insurance Funds Act of 1996 (DIFA) was enacted to provide for: 1) the
capitalization of the SAIF to its designated reserve ratio (DRR) of 1.25 percent by means
of a one-time special assessment on SAIF-insured deposits; 2) the expansion of the
assessment base for payments of the interest on obligations issued by the FICO to include
all FDIC-insured banks and thrifts; 3) beginning January 1, 1997, the imposition of a FICO
assessment rate on BIF-assessable deposits that is one-fifth of the rate for
SAIF-assessable deposits through the earlier of December 31, 1999, or the date on which
the last savings association ceases to exist; 4) the payment of the annual FICO interest
obligation of approximately $790 million on a pro rata basis between banks and thrifts on
the earlier of January 1, 2000, or the date on which the last savings association ceases
to exist; 5) authorization of BIF assessments only if needed to maintain the fund at the
DRR; 6) the refund of amounts in the BIF in excess of the DRR with such refund not to
exceed the previous semiannual assessment; 7) assessment rates for SAIF members not lower
than the assessment rates for BIF members with comparable risk; and 8) the merger of the
BIF and the SAIF on January 1, 1999, if no insured depository institution is a savings
association on that date. As of December 31, 1999, Congress did not enact legislation to
either merge the BIF and the SAIF or to eliminate the thrift charter.
The Gramm-Leach-Bliley Act (GLBA), (Public Law 106-102), was enacted on November 12,
1999, in order to modernize the financial service industry that includes banks,
brokerages, insurers, and other financial services providers. The GLBA will, among other
changes, lift restrictions on affiliations among banks, securities firms, and insurance
companies. It will also expand the financial activities permissible for financial holding
companies and insured depository institutions, their affiliates and subsidiaries. The GLBA
provides for a greater degree of functional regulation of securities and insurance
activities conducted by banks and their affiliates. The GLBA also governs affiliations of
thrifts that are in financial holding companies and provides for functional regulation of
such thrifts affiliates.
Recent Legislative Initiatives
Congress continues to focus on legislative proposals that would affect the
deposit insurance funds. Some of these proposals, such as the merger of the BIF and the
SAIF and the rebate of the insurance funds, may have a significant impact on the BIF and
the SAIF, if enacted into law. However, these proposals continue to vary and FDIC
management cannot predict which provisions, if any, will ultimately be enacted.
Operations of the BIF
The primary purpose of the BIF is to: 1) insure the deposits and protect the
depositors of BIF-insured institutions and 2) resolve failed institutions, including
managing and liquidating their assets. In addition, the FDIC, acting on behalf of the BIF,
examines state-chartered banks that are not members of the Federal Reserve System.
Further, the FDIC can also provide assistance to failing banks and monitor compliance with
The BIF is primarily funded from the following sources: 1) interest earned on
investments in U.S. Treasury obligations and 2) BIF assessment premiums. Additional
funding sources are U.S. Treasury and Federal Financing Bank (FFB) borrowings, if
necessary. The 1990 OBR Act established the FDICs authority to borrow working
capital from the FFB on behalf of the BIF and the SAIF. The FDICIA increased the
FDICs authority to borrow for insurance losses from the U.S. Treasury, on behalf of
the BIF and the SAIF, from $5 billion to $30 billion.
The FDICIA also established a limitation on obligations that can be incurred by the
BIF, known as the maximum obligation limitation (MOL). At December 31, 1999, the MOL for
the BIF was $51.8 billion.
The FDIC is responsible for managing and disposing of the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership entities,
and the claims against them, are accounted for separately from BIF assets and liabilities
to ensure that liquidation proceeds are distributed in accordance with applicable laws and
regulations. Also, the income and expenses attributable to receiverships are accounted for
as transactions of those receiverships. Liquidation expenses paid by the BIF on behalf of
the receiverships are recovered from those receiverships.
Summary of Significant Accounting Policies
financial statements pertain to the financial position, results of operations, and cash
flows of the BIF and are presented in accordance with generally accepted accounting
principles (GAAP). These statements do not include reporting for assets and liabilities of
closed banks for which the FDIC acts as receiver or liquidating agent. Periodic and final
accountability reports of the FDICs activities as receiver or liquidating agent are
furnished to courts, supervisory authorities, and others as required.
Use of Estimates
FDIC management makes estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from these
estimates. Where it is reasonably possible that changes in estimates will cause a material
change in the financial statements in the near term, the nature and extent of such changes
in estimates have been disclosed.
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less. Cash equivalents primarily consist of Special U.S.
Investments in U.S. Treasury Obligations
Investments in U.S. Treasury obligations are recorded pursuant to the Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS No. 115 requires that securities be classified
in one of three categories: held-to-maturity, available-for-sale, or trading. Securities
designated as held-to-maturity are shown at amortized cost. Amortized cost is the face
value of securities plus the unamortized premium or less the unamortized discount.
Amortizations are computed on a daily basis from the date of acquisition to the date of
maturity. Securities designated as available-for-sale are shown at fair value with
unrealized gains and losses included in Comprehensive Income. Realized gains and losses
are included in the Statements of Income and Fund Balance as components of Net Income.
Interest on both types of securities is calculated on a daily basis and recorded monthly
using the effective interest method. The BIF does not designate any securities as trading.
Allowance for Losses on Receivables From Bank
Resolutions and Assets Acquired from Assisted Banks and Terminated Receiverships
The BIF records a receivable for the amounts advanced and/or obligations
incurred for resolving failing and failed banks. The BIF also records as an asset the
amounts paid for assets acquired from assisted banks and terminated receiverships. Any
related allowance for loss represents the difference between the funds advanced and/or
obligations incurred and the expected repayment. The latter is based on estimates of
discounted cash recoveries from the assets of assisted or failed banks, net of all
applicable estimated liquidation costs.
Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated to all funds
administered by the FDIC using workload-based-allocation percentages. These percentages
are developed during the annual corporate planning process and through supplemental
Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and administration of
postretirement benefits on behalf of the BIF, the SAIF, and the FRF. Each fund pays its
liabilities for these benefits directly to the entity. The BIFs unfunded net
postretirement benefits liability is presented in the BIFs Statements of Financial
Disclosure About Recent
Accounting Standard Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits." The Statement standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable. Although changes in the
BIFs disclosures for postretirement benefits have been made, the impact is not
In March 1998, the American Institute of Certified Public Accountants issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This Statement requires the development or purchase cost
of internal-use software to be treated as a capital asset. The FDIC adopted this Statement
effective January 1, 1998. This asset is presented in the "Property and equipment,
net" line item in the BIFs Statements of Financial Position (see Note 6).
Other recent pronouncements are not applicable to the financial statements.
The FDIC has designated the BIF as administrator of property and equipment used
in its operations. Consequently, the BIF includes the cost of these assets in its
financial statements and provides the necessary funding for them. The BIF charges the
other funds usage fees representing an allocated share of its annual depreciation expense.
These usage fees are recorded as cost recoveries, which reduce operating expenses.
Prior to January 1, 1998, only buildings owned by the Corporation were capitalized and
depreciated. On January 1, 1998, FDIC began capitalizing the development and purchase cost
of internal-use software in accordance with the requirements of SOP 98-1. The FDIC also
began to capitalize the cost of furniture, fixtures, and general equipment. These costs
were expensed in prior years on the basis that the costs were immaterial. The expanded
capitalization policy had no material impact on the financial position or operations of
The Washington, D.C. office buildings and the L. William Seidman Center in Arlington,
Virginia, are depreciated on a straight-line basis over a 50-year estimated life. The San
Francisco condominium offices are depreciated on a straight-line basis over a 35-year
estimated life. Leasehold improvements are capitalized and depreciated over the lesser of
the remaining life of the lease or the estimated useful life of the improvements, if
determined to be material. Capital assets depreciated on a straight-line basis over a
five-year estimated life include mainframe equipment; furniture, fixtures, and general
equipment; and internal-use software. Personal computer equipment is depreciated on a
straight-line basis over a three-year estimated life.
The nature of related parties and a description of related party transactions
are disclosed throughout the financial statements and footnotes.
Reclassifications have been made in the 1998 financial statements to conform to
the presentation used in 1999.
received by the BIF is invested in U.S. Treasury obligations with maturities exceeding
three months unless cash is needed to meet the liquidity needs of the fund. The BIFs
current portfolio includes securities classified as held-to-maturity and
available-for-sale. The BIF also invests in Special U.S. Treasury Certificates that are
included in the "Cash and cash equivalents" line item.
In 1999, the FDIC purchased $1.9 billion (adjusted par
value) of Treasury inflation-indexed securities (TIIS) for the BIF. Unlike a traditional
Treasury security, the par value of a TIIS is indexed to and increases with the Consumer
Price Index (CPI). Hence, these securities provide a measure of protection for the BIF in
the event of unanticipated inflation.
U.S. Treasury Obligations at December 31, 1999
Dollars in Thousands
Stated Yield at Purchase (a)
Less than one year
Less than one year
Total Investment in U.S. Treasury Obligations, Net
(a) For Treasury inflation-indexed securities (TIIS), the yields in the above table
include their stated real yields at purchase, not their effective yields. Effective yields
on TIIS would include the stated real yield at purchse plus an inflation adjustment of
2.6%, which was the latest year-over-year increase in the CPI as reported by the Bureau of
Labor Statistics on December 14,1999. These effective yields are 6.44% and 6.70% for TIIS
classified as held-to-maturity and available-for-sale, respectively.
U.S. Treasury Obligations at December 31, 1998
Dollars in Thousands
Stated Yield at Purchase
Unrealized Holding Gains
Unrealized Holding Losses
than one year
Less than one year
Total Investment in U.S. Treasury Obligations, Net
were no available-for-sale securities sold during 1999. One available-for-sale security
was sold during 1998, which resulted in a realized gain of $224 thousand. Proceeds from
this sale were $186 million. This gain was included in the "Other revenue" line
item. The cost of the security sold was determined on a specific identification basis.
As of December 31, 1999 and 1998, the book value
of Investment in U.S. Treasury obligations net, is $28.2 billion and $26.1 billion,
respectively. The book value is computed by adding the amortized cost of the
held-to-maturity securities to the market value of the available-for-sale securities.
As of December 31, 1999, the unamortized
premium, net of the unamortized discount, was $497 million. As of December 31, 1998, the
unamortized premium, net of the unamortized discount, was $720 million.
The bank resolution process
takes different forms depending on the unique facts and circumstances surrounding each
failing or failed institution. Payments for institutions that fail are made to cover
obligations to insured depositors and represent claims by the BIF against the
receiverships assets. There were seven bank failures in 1999 and three in 1998, with
assets at failure of $1.4 billion and $370 million, respectively, and BIF outlays of $1.2
billion and $286.1 million, respectively.
As of December 31, 1999 and 1998, the FDIC, in its receivership capacity for BIF-insured
institutions, held assets with a book value of $1.9 billion and $1.6 billion, respectively
(including cash and miscellaneous receivables of $524 million and $480 million at December
31, 1999 and 1998, respectively). These assets represent a significant source of repayment
of the BIFs receivables from bank resolutions. The estimated cash recoveries from
the management and disposition of these assets that are used to derive the allowance for
losses are based in part on a statistical sampling of receivership assets. The sample was
constructed to produce a statistically valid result. These estimated recoveries are
regularly evaluated, but remain subject to uncertainties because of potential changes in
economic conditions. These factors could cause the BIFs and other claimants
actual recoveries to vary from the level currently estimated.
Receivables from Bank Resolutions, Net at December 31
The BIF has acquired
assets from certain troubled and failed banks by either purchasing an institutions
assets outright or purchasing the assets under the terms specified in each resolution
agreement. In addition, the BIF can purchase assets remaining in a receivership to
facilitate termination. The methodology to estimate cash recoveries from these assets,
which is used to derive the related allowance for losses, is similar to that for
receivables from bank resolutions (see
Note 4). The estimated cash recoveries are based upon a statistical sampling of the
assets but only include expenses for the disposition of the assets.
The BIF recognizes revenue and expenses on these acquired
assets. Revenue consists primarily of interest earned on assets in liquidation and gain on
the sale of owned real estate. Expenses are recognized for the management and liquidation
of these assets.
Assets Acquired from Assisted Banks and Terminated
Receiverships, Net at December 31
Dollars in Thousands
Assets acquired from assisted banks and terminated
The BIF records a contingent liability and a loss
provision for banks (including Oakar and Sasser financial institutions) that are likely to
fail, absent some favorable event such as obtaining additional capital or merging, when
the liability becomes probable and reasonably estimable.
The contingent liabilities for anticipated failure of
insured institutions as of December 31, 1999 and 1998, were $307 million and $32 million,
respectively. The contingent liability is derived in part from estimates of recoveries
from the management and disposition of the assets of these probable bank failures.
Therefore, these estimates are subject to the same uncertainties as those affecting the
BIFs receivables from bank resolutions (see Note 4).
Several recent bank failures have involved some degree of
fraud, which adds uncertainty to estimates of loss and recovery rates. These
uncertainties, along with potential changes in economic conditions, could affect the
ultimate cost to the BIF from probable failures.
In addition to these recorded contingent liabilities, the
FDIC has recently identified a small number of additional BIF-insured financial
institutions that are likely to fail in the near future unless institution management can
resolve existing problems. If these institutions fail, they may collectively cause a
material loss to the BIF, but the amount of potential loss is not estimable at this time.
There are other banks where the risk of failure is less
certain, but still considered reasonably possible. Should these banks fail, the BIF could
incur additional estimated losses ranging from $1 million to $205 million.
The accuracy of these estimates will largely depend on
future economic conditions. The FDICs Board of Directors (Board) has the statutory
authority to consider the contingent liability from anticipated failures of insured
institutions when setting assessment rates.
The BIF is also subject to a potential loss from
banks that may fail if they are unable to become Year 2000 compliant in a timely manner.
In May 1997, the federal financial institution regulatory agencies developed a program to
conduct uniform reviews of all FDIC-insured institutions Year 2000 readiness. The
program assessed the five key phases of an institutions Year 2000 conversion
efforts: 1) awareness, 2) assessment, 3) renovation, 4) validation, and 5) implementation.
The reviews classified each institution as Satisfactory, Needs Improvement, or
Unsatisfactory. Performance was defined as Satisfactory when Year 2000 weaknesses were
minor in nature and could be readily corrected within the program management framework.
In order to assess exposure to the BIF from Year 2000
potential failures, the FDIC evaluated all information relevant to such an assessment, to
include multiple Year 2000 on-site examination results, institution capital levels and
supervisory examination composite ratings, and other institution past and current
financial characteristics. Based on data updated through December 31, 1999, all
BIF-insured institutions have received a Satisfactory rating. As a result of this
assessment, we conclude that, as of December 31, 1999, there are no probable or reasonably
possible losses to the BIF from Year 2000 failures.
The contingent liabilities for assistance
agreements resulted from several large transactions where problem assets were purchased by
an acquiring institution under an agreement that calls for the FDIC to absorb credit
losses and pay related costs for funding and asset administration, plus an incentive fee.
The BIF records an estimated loss for unresolved
legal cases to the extent those losses are considered probable and reasonably estimable.
In addition to the amount recorded as probable, the FDIC has determined that losses from
unresolved legal cases totaling $83 million are reasonably possible.
As part of the FDICs efforts to maximize the
return from the sale or disposition of assets from bank resolutions, the FDIC has
securitized some receivership assets. To facilitate the securitizations, the BIF provided
limited guarantees to cover certain losses on the securitized assets up to a specified
maximum. In exchange for backing the limited guarantees, the BIF received assets from the
receiverships in an amount equal to the expected exposure under the guarantees. At
December 31, 1999 and 1998, the BIF had a contingent liability under the guarantees of
$2.5 million and $7.1 million, respectively. The maximum off-balance-sheet exposure under
the limited guarantees is presented in Note 12.
The 1990 OBR Act removed caps on assessment rate
increases and authorized the FDIC to set assessment rates for BIF members semiannually, to
be applied against a members average assessment base. The FDICIA: 1) required the
FDIC to implement a risk-based assessment system; 2) authorized the FDIC to increase
assessment rates for BIF-member institutions as needed to ensure that funds are available
to satisfy the BIFs obligations; 3) required the FDIC to build and maintain the
reserves in the insurance funds to 1.25 percent of insured deposits; and 4) authorized the
FDIC to increase assessment rates more frequently than semiannually and impose emergency
special assessments as necessary to ensure that funds are available to repay U.S. Treasury
borrowings. Since May 1995, the BIF has maintained a capitalization level at or higher
than the DRR of 1.25 percent of insured deposits. As of December 31, 1999, the
capitalization level for BIF is 1.36 percent of estimated insured deposits.
The DIFA (see Note 1) provided, among other
things, for the elimination of the mandatory minimum assessment formerly provided for in
the FDI Act. It also provided for the expansion of the assessment base for payments of the
interest on obligations issued by the FICO to include all FDIC-insured institutions
(including banks, thrifts, and Oakar and Sasser financial institutions). It also made the
FICO assessment separate from regular assessments, effective on January 1, 1997.
BIF-insured banks began paying a FICO assessment on
January 1, 1997. The FICO assessment rate on BIF-assessable deposits is one-fifth the rate
for SAIF-assessable deposits. The annual FICO interest obligation of approximately $790
million will be paid on a pro rata basis between banks and thrifts on the earlier of
January 1, 2000, or the date on which the last savings association ceases to exist.
The FICO assessment has no financial impact on the
BIF. The FICO assessment is separate from the regular assessments and is imposed on banks
and thrifts, not on the insurance funds. The FDIC, as administrator of the BIF and the
SAIF, is acting solely as a collection agent for the FICO. During 1999 and 1998, $364
million and $341 million, respectively, was collected from banks and remitted to the FICO.
The FDIC uses a risk-based assessment system that charges
higher rates to those institutions that pose greater risks to the BIF. To arrive at a
risk-based assessment for a particular institution, the FDIC places each institution in
one of nine risk categories, using a two-step process based first on capital ratios and
then on other relevant information. The assessment rate averaged approximately 0.11 cents
and 0.8 cents per $100 of assessable deposits for 1999 and 1998, respectively. On November
8, 1999, the Board voted to retain the BIF assessment schedule at the annual rate of 0 to
27 cents per $100 of assessable deposits for the first semiannual period of 2000. The
Board reviews premium rates semiannually.
Provision for insurance losses was $1.2 billion and a negative $38 million for 1999
and 1998, respectively. The large provision in 1999 was largely attributed to recognizing
losses of $838 million for the resolution of current year bank failures. In 1998, the
negative provision resulted primarily from decreased losses expected for assets in
liquidation. The following chart lists the major components of the provision for insurance
Provision for Insurance Losses
for the Years Ended December 31
Dollars in Thousands
acquired from assisted banks and terminated receiverships
failure of insured institutions
10. Pension Benefits, Savings Plans, and Accrued Annual
Eligible FDIC employees (permanent
and term employees with appointments exceeding one year) are covered by either the Civil
Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). The
CSRS is a defined benefit plan, which is offset with the Social Security System in certain
cases. Plan benefits are determined on the basis of years of creditable service and
compensation levels. The CSRS-covered employees also can contribute to the tax-deferred
Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic
defined benefit plan that provides benefits based on years of creditable service and
compensation levels, Social Security benefits, and the TSP. Automatic and matching
employer contributions to the TSP are provided up to specified amounts under the FERS.
During 1998, there was an open season that allowed employees to switch from CSRS to
FERS. This did not have a material impact on BIFs operating expenses for 1998.
Although the BIF contributes a portion of pension benefits for eligible employees, it
does not account for the assets of either retirement system. The BIF also does not have
actuarial data for accumulated plan benefits or the unfunded liability relative to
eligible employees. These amounts are reported on and accounted for by the U.S. Office of
Personnel Management (OPM).
Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred 401(k)
savings plan with matching contributions. The BIF pays its share of the employers
portion of all related costs.
The BIFs pro rata share of the Corporations liability to employees for
accrued annual leave is approximately $38.2 million and $38.4 million at December 31, 1999
and 1998, respectively.
Pension Benefits and Savings Plans Expenses for the
Years Ended December 31
Dollars in Thousands
CSRS/FERS Disability Fund
Civil Service Retirement System
Federal Employees Retirement System (Basic Benefit)
On January 2, 1998, the BIFs obligation
under SFAS No. 106, "Employers Accounting for Postretirement Benefits Other
Than Pensions," for postretirement health benefits was reduced when over 6,500 FDIC
employees enrolled in the Federal Employees Health Benefits (FEHB) Program for their
future health insurance coverage. The OPM assumed the BIFs obligation for
postretirement health benefits for these employees at no initial enrollment cost.
addition, legislation was passed that allowed the remaining 2,600 FDIC retirees and
near-retirees (employees within five years of retirement) in the FDIC health plan to also
enroll in the FEHB Program for their future health insurance coverage, beginning January
1, 1999. The OPM assumed the BIFs obligation for postretirement health benefits for
retirees and near retirees for a fee of $150 million. The OPM is now responsible for
postretirement health benefits for all FDIC employees and covered retirees. The FDIC will
continue to be obligated for dental and life insurance coverage for as long as the
programs are offered and coverage is extended to retirees.
OPMs assumption of the health care obligation constituted both a settlement and a
curtailment as defined by SFAS No. 106. This conversion resulted in a gain of $201 million
to the BIF in 1998.
Postretirement Benefits Other Than Pensions
Dollars in Thousands
Funded Status at December 31
Fair value of plan assets (a)
Less: Benefit obligation
Under Funded Status of the Plan
Accrued benefit liability recognized in the Statements of
Expenses and Cash Flows for
the Period Ended December 31
Net periodic benefit cost
at December 31
Expected return on plan assets
ate of compensation increase
(a) Invested in U.S. Treasury obligations.
Total dental coverage trend rates were assumed to be
7% per year, inclusive of general inflation. Dental costs were assumed to be subject to an
annual cap of $2,000.
The BIFs allocated share of the FDICs lease commitments totals $150.9 million
for future years. The lease agreements contain escalation clauses resulting in
adjustments, usually on an annual basis. The allocation to the BIF of the FDICs
future lease commitments is based upon current relationships of the workloads among the
BIF, the SAIF, and the FRF. Changes in the relative workloads could cause the amounts
allocated to the BIF in the future to vary from the amounts shown below. The BIF
recognized leased space expense of $41.5 million and $47.7 million for the years ended
December 31, 1999 and 1998, respectively.
Dollars in Thousands
Asset Securitization Guarantees
As discussed in Note 7, the BIF provided
certain limited guarantees to facilitate securitization transactions. The table below
gives the maximum off-balance-sheet exposure the BIF has under these guarantees.
Securitization Guarantees at December 31
Dollars in Thousands
Maximum exposure under the limited guarantees
Less: Guarantee claims paid (inception-to-date)
Less: Amount of exposure recognized as a contingent
liability (see Note 7)
Maximum Off-Balance-Sheet Exposure Under the Limited Guarantees
As of December 31, 1999, deposits insured by the BIF totaled approximately $2.2 trillion.
This would be the accounting loss if all depository institutions were to fail and the
acquired assets provided no recoveries.
Upon resolution of a failed bank, the assets are placed into receivership and may be sold
to an acquirer under an agreement that certain assets may be resold, or
"putback," to the receivership. The values and time limits for these assets to
be putback are defined within each agreement. It is possible that the BIF could be called
upon to fund the purchase of any or all of the "unexpired putbacks" at any time
prior to expiration. The FDICs estimate of the volume of assets subject to
repurchase under existing agreements is $4.5 million. The actual amount subject to
repurchase should be significantly lower because the estimate does not reflect subsequent
collections on or sales of assets kept by the acquirer. It also does not reflect any
decrease due to acts by the acquirers which might disqualify assets from repurchase
eligibility. Repurchase eligibility is determined by the FDIC when the acquirer initiates
the asset putback procedures. The FDIC projects that a total of $132 thousand in book
value of assets will be putback.
Concentration of Credit Risk
As of December 31, 1999,
the BIF had $15.8 billion in gross receivables from bank resolutions and $105.1 million in
gross assets acquired from assisted banks and terminated receiverships. An allowance for
loss of $15.0 billion and $84.4 million, respectively, has been recorded against these
assets. The liquidating entities ability to make repayments to the BIF is largely
influenced by the economy of the area in which they are located. The BIFs estimated
maximum exposure to possible accounting loss for these assets is shown in the table below.
Concentration of Credit Risk at December 31, 1999
Dollars in Millions
Receivables from bank resolutions, net
Assets acquired from assisted banks and terminated
Disclosures About the Fair Value of Financial Instruments
Cash equivalents are short-term,
highly liquid investments and are shown at current value. The fair market value of the
investment in U.S. Treasury obligations is disclosed in Note 3 and is based on current
market prices. The carrying amount of interest receivable on investments, short-term
receivables, and accounts payable and other liabilities approximates their fair market
value. This is due to their short maturities or comparisons with current interest rates.
net receivables from bank resolutions primarily include the BIFs subrogated claim
arising from payments to insured depositors. The receivership assets that will ultimately
be used to pay the corporate subrogated claim are valued using discount rates that include
consideration of market risk. These discounts ultimately affect the BIFs allowance
for loss against the net receivables from bank resolutions. Therefore, the corporate
subrogated claim indirectly includes the effect of discounting and should not be viewed as
being stated in terms of nominal cash flows.
Although the value of the corporate subrogated claim is influenced by valuation of
receivership assets (see Note 4),
such receivership valuation is not equivalent to the valuation of the corporate claim.
Since the corporate claim is unique, not intended for sale to the private sector, and has
no established market, it is not practicable to estimate its fair market value.
The FDIC believes that a sale to the private sector of the corporate claim would
require indeterminate, but substantial discounts for an interested party to profit from
these assets because of credit and other risks. In addition, the timing of receivership
payments to the BIF on the subrogated claim does not necessarily correspond with the
timing of collections on receivership assets. Therefore, the effect of discounting used by
receiverships should not necessarily be viewed as producing an estimate of market value
for the net receivables from bank resolutions.
The majority of the net assets acquired from assisted banks and terminated
receiverships (except real estate) is comprised of various types of financial instruments,
including investments, loans and accounts receivables. Like receivership assets, assets
acquired from assisted banks and terminated receiverships are valued using discount rates
that include consideration of market risk. However, assets acquired from assisted banks
and terminated receiverships do not involve the unique aspects of the corporate subrogated
claim, and therefore the discounting can be viewed as producing a reasonable estimate of
fair market value.
The FDIC, as
administrator for the BIF, conducted a corporate-wide effort to ensure that all FDIC
information systems were Year 2000 compliant. This meant that systems must accurately
process date and time data in calculations, comparisons, and sequences after December 31,
1999, and be able to correctly deal with leap-year calculations in 2000. An oversight
committee comprised of FDIC division management directed the Year 2000 effort.
The FDICs Division of Information
Resources Management (DIRM) led the Year 2000 effort, under the direction of the oversight
committee. The internal Year 2000 team used a structured approach and rigorous program
management as described in the U.S. General Accounting Offices (GAO) Year 2000
Computing Crisis: An Assessment Guide. This methodology consisted of five phases under the
overall umbrellas of Program and Project Management. The FDIC completed all of the
recommended GAO phases: Awareness, Assessment, Renovation, Validation, and Implementation.
As a precautionary measure, the FDIC developed a
Year 2000 Rollover Weekend Strategy to monitor the information systems during the
transition into the year 2000. Contingency plans were in place for mission-critical
application failures and for other systems. No major problems were anticipated due to the
extensive planning and validation that occurred (see Note 17).
Year 2000 Estimated
Year 2000 compliance expenses for the BIF are
estimated at $45.4 million and $34.7 million at December 31, 1999 and 1998, respectively.
These expenses are reflected in the "Operating expenses" line of the BIFs
Statements of Income and Fund Balance.
On January 1, 2000, all FDIC systems
were operating normally as a result of a corporate-wide effort to ensure that all FDIC
information systems were Year 2000 compliant prior to December 31, 1999. No internal
system failures have occurred and none are anticipated (see Note 16).
Year 2000 Effect on Anticipated Failures
As of May 5, 2000, no banks had failed due to Year 2000 related problems and none are
anticipated. Refer to "Contingent Liabilities for: Year 2000 Anticipated
Failures" (see Note 7).