IV. Financial Statements and Notes
Deposit Insurance Fund

60

Deposit Insurance Fund
61

 F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n

 Deposit Insurance Fund Balance Sheet at December 31 

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

Assets

 Cash and cash equivalents $ 4,244,547 $ 2,953,995

 Investment in U.S. Treasury obligations, net: (Note 3) 

Held-to-maturity securities 38,015,174 37,184,214

Available-for-sale securities 8,572,800 8,958,566

 Assessments receivable, net (Note 7) 244,581 0

 Interest receivable on investments and other assets, net 768,292 747,715

 Receivables from resolutions, net (Note 4) 808,072 538,991

 Property and equipment, net (Note 5) 351,861 376,790

Total Assets	 $ 53,005,327 $ 50,76

Liabilities

 Accounts payable and other liabilities $ 151,857 $ 154,283

Postretirement benefit liability (Note 11) 116,158 129,906

 Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 124,276 110,775

Litigation losses 200,000 200,000

Total Liabilities	 592,291 594,964

 Commitments and off-balance-sheet exposure (Note 12)

Fund Balance

 Accumulated net income 52,034,503 49,929,226

 Unrealized gain on available-for-sale securities, net (Note 3) 358,908 233,822

 Unrealized postretirement benefit gain (Note 11) 19,625 2,259

Total Fund Balance	 52,413,036 50,165,307

Total Liabilities and Fund Balance	 $ 53,005,327 $ 50,7

The accompanying notes are an integral part of these financial statements.

Deposit Insurance Fund
Deposit Insurance Fund

62

 F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n

 Deposit Insurance Fund Statement of Income and Fund Balance for the Years Ended December 31 

 D o l l a r s i n T h o u s a n d s 

2007 2006

Revenue

Interest on U.S. Treasury obligations $ 2,540,061 $ 2,240,723

 Assessments (Note 7) 642,928 31,945

 Exit fees earned (Note 8) 0 345,295

Other revenue 13,244 25,565

Total Revenue	 3,196,233 2,643,528

Expenses and Losses

 Operating expenses (Note 9) 992,570 950,618

 Provision for insurance losses (Note 10) 95,016 (52,097)

Insurance and other expenses 3,370 5,843

Total Expenses and Losses	 1,090,956 904,364

Net Income	 2,105,277 1,739,164

 Unrealized gain/(loss) on available-for-sale securities, net (Note 3) 125,086 (172,718)

 Unrealized postretirement benefit gain (Note 11) 17,366 2,259

Comprehensive Income 2,247,729 1,568,705

Fund Balance - Beginning	 50,165,307 48,596,602

Fund Balance - Ending	 $ 52,413,036 $ 50,1

The accompanying notes are an integral part of these financial statements.
63

 F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n

 Deposit Insurance Fund Statement of Cash Flows for the Years Ended December 31 

 D o l l a r s i n T h o u s a n d s 

2007 2006

Operating Activities

Net Income:	 $ 2,105,277 $ 1,739,164

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of U.S.Treasury obligations 571,267 599,274

Treasury inflation-protected securities (TIPS) inflation adjustment (313,836) (109,394)

Depreciation on property and equipment 63,115 52,919

Loss on retirement of property and equipment 153 0

Provision for insurance losses 95,016 (52,097)

Terminations/adjustments of work-in-process accounts 0 433

Exit fees earned 0 (345,295)

Unrealized gain on postretirement benefits 17,366 0

Change in Operating Assets and Liabilities:

Decrease in unamortized premium and discount of U.S. Treasury obligations (restricted) 0 1,359

(Increase) in assessments receivable, net (244,581) 0

(Increase) in interest receivable and other assets (20,442) (14,635)

(Increase) /Decrease in receivables from resolutions (350,309) 147,258

(Decrease) in accounts payable and other liabilities (39,580) (166,822)

(Decrease)/Increase in postretirement benefit liability (13,748) 129,906

Increase in exit fees and investment proceeds held in escrow 0 3,639

Net Cash Provided by Operating Activities	 1,869,698 1,985,709

Investing Activities

 Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 6,401,000 5,955,000

Maturity of U.S. Treasury obligations, available-for-sale 1,225,000 845,000 

 Used by:

Purchase of property and equipment (1,607) (11,721)

Purchase of U.S. Treasury obligations, held-to-maturity (7,706,117) (9,050,372)

Purchase of U.S. Treasury obligations, available-for-sale (497,422) 0

Net Cash Used by Investing Activities	 (579,146) (2,262,093)

Net Increase/(Decrease) in Cash and Cash Equivalents	 1,290,552 (276,384)

Cash and Cash Equivalents - Beginning	 2,953,995 3,230,379

Cash and Cash Equivalents - Ending	 $ 4,244,547 $ 2

 The accompanying notes are an integral part of these financial statements.

Deposit Insurance Fund
Deposit Insurance Fund

64

Notes to the 

Financial Statements 

December 31, 2007 

and 2006

1Legislation 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 the operations 

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. 

An active institution’s primary federal supervisor is generally determined by the 

institution’s charter type. Commercial and savings banks are supervised by the 

FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve 

Board, while thrifts are supervised by the Office of Thrift Supervision. 

The Deposit Insurance Fund (DIF) was established on March 31, 2006, as a result 

of the merger of the Bank Insurance Fund (BIF) and the Savings Association 

Insurance Fund (SAIF). The FDIC is the administrator of the DIF and the FSLIC 

Resolution Fund (FRF). These funds are maintained separately to carry out their 

respective mandates.

The DIF is an insurance fund responsible for protecting insured bank and thrift 

depositors from loss due to institution failures. 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 Resolution Trust Corporation. 

Recent Legislation

The Federal Deposit Insurance Reform Act of 2005 (Title II, Subtitle B of Public 

Law 109-171, 120 Stat. 9) and the Federal Deposit Insurance Reform Conforming 

Amendments Act of 2005 (Public Law 109-173, 119 Stat. 3601) were enacted 

in February 2006. Pursuant to this legislation (collectively, the Reform Act), the 

BIF and the SAIF were merged as discussed above. Additionally, as a result of 

the Reform Act, the FDIC immediately increased coverage for certain retirement 

accounts to $250,000 and required the deposit of funds into the DIF for SAIFmember exit fees that had been restricted and held in escrow. Furthermore, the 

Reform Act: 1) provides the FDIC with greater discretion to charge insurance 

assessments and to impose more sensitive risk-based pricing; 2) annually permits 

the designated reserve ratio to vary between 1.15 and 1.50 percent of estimated 

insured deposits, thereby eliminating the statutorily fixed designated reserve ratio 

of 1.25 percent; 3) generally requires the declaration and payment of dividends 

from the DIF if the reserve ratio of the DIF equals or exceeds 1.35 percent of 

estimated insured deposits at the end of a calendar year; 4) grants a one-time 

assessment credit for each eligible insured depository institution or its successor 

based on an institution’s proportionate share of the aggregate assessment base 
65

of all eligible institutions at December 31, 1996; and 5) allows the FDIC to increase 

all deposit insurance coverage, under certain circumstances, to reflect inflation 

every five years beginning January 1, 2011. See Note 7 for additional discussion 

on the reforms related to Assessments.

Operations of the DIF

The primary purpose of the DIF is to: 1) insure the deposits and protect the 

depositors of DIF-insured institutions and 2) resolve DIF-insured failed institutions 

upon appointment of FDIC as receiver in a manner that will result in the least 

possible cost to the DIF. 

The DIF is primarily funded from: 1) interest earned on investments in U.S. Treasury 

obligations and 2) deposit insurance assessments. Additional funding sources, 

if necessary, are borrowings from the U.S. Treasury, Federal Financing Bank, 

Federal Home Loan Banks, and insured depository institutions. The FDIC 

has borrowing authority from the U.S. Treasury up to $30 billion and a Note 

Purchase Agreement with the Federal Financing Bank not to exceed $40 billion 

to enhance 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 U.S. Treasury. The MOL for the DIF was $83.6 billion and $79.7 billion 

as of December 31, 2007 and 2006, respectively.

Receivership Operations

The FDIC is responsible for managing and disposing of the assets of failed 

institutions in an orderly and efficient manner. The assets held by receivership 

entities, and the claims against them, are accounted for separately from DIF 

assets and liabilities to ensure that receivership proceeds are distributed in 

accordance with applicable laws and regulations. Accordingly, income and 

expenses attributable to receiverships are accounted for as transactions 

of those receiverships. Receiverships are billed by the FDIC for services 

provided on their behalf.
Deposit Insurance Fund

66

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). These statements do not include reporting

for assets and liabilities of closed banks and thrifts for which the FDIC acts as 

receiver. Periodic and final accountability reports of the FDIC’s activities as receiver 

are furnished to courts, supervisory authorities, and others as required.

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, the estimated losses for 

anticipated failures and litigation, and the postretirement benefit obligation. 

Cash Equivalents

Cash equivalents are short-term, highly liquid investments with original 

maturities of three months or less. Cash equivalents consist primarily 

of Special U.S. Treasury Certificates. 

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 U.S. Treasury must approve all such investments in 

excess of $100,000. The Secretary has granted 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.

DIF’s investments in U.S. Treasury obligations are either classified as heldto-maturity or available-for-sale based on the FDIC’s assessment of funding 

needs. Securities designated as held-to-maturity are shown at amortized cost. 

Amortized cost is the face value of securities plus the unamortized premium or 

less the unamortized discount. Amortizations are computed on a daily basis from 

the date of acquisition to the date of maturity, except for callable U.S. Treasury 

securities, which are amortized to the first call date. Securities designated as 

available-for-sale are shown at market value, which approximates fair value. 

Unrealized gains and losses are included in Comprehensive Income. Realized 

gains and losses are included in the Statement of Income and Fund Balance 

as components of Net Income. Income on both types of securities is calculated 

and recorded on a daily basis using the effective interest method. 
67

Revenue Recognition for Assessments

Prior to 2007, insurance assessments were fully paid in advance on the last 

day of each quarter for the next quarter and recorded as unearned assessment 

revenue. One-third of the amount was recognized monthly as assessment 

income during the quarter in accordance with GAAP.

The Reform Act granted the FDIC discretion in the manner assessments are 

determined and collected from insured depository institutions. As a result, 

the FDIC now collects deposit insurance premiums at the end of the quarter 

following the period of insurance coverage. Consequently, assessment revenue 

for the insured period is recognized 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. 

The estimated revenue amounts are adjusted when actual premiums are collected 

at quarter end. Total assessment income recognized for the year includes

estimated revenue for the October-December assessment period. See Note 7 

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 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.

Disclosure about Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) issued Statement of Financial 

Accounting Standards (SFAS) No. 157, Fair Value Measurements, in September 

2006. SFAS No. 157 defines fair value, establishes a framework for measuring 

fair value in GAAP, and expands disclosures about fair value measurements. The 

Statement does not require any new fair value measurements. FDIC will adopt 

SFAS No. 157 effective January 1, 2008, on a prospective basis. Management does 

not expect the Statement to have a material impact on the financial statements.

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.
Deposit Insurance Fund

68

3Investment in U.S. Treasury Obligations, Net

As of December 31, 2007 and 2006, investments in U.S. Treasury obligations, 

net, were $46.6 billion and $46.1 billion, respectively. As of December 31, 2007, 

the DIF held $9.6 billion 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). Additionally, the DIF held $4.3 billion of callable 

U.S. Treasury bonds at December 31, 2007. Callable U.S. Treasury bonds may 

be called five years prior to the respective bonds’ stated maturity on their 

semi-annual coupon payment dates upon 120 days notice. 

▼

 U.S. Treasury Obligations at December 31, 2007 

 D o l l a r s i n T h o u s a n d s 

	 	 Net	 Unrealized	 Unrealized

	 	 Yield at 	 Face	 Carrying	 Holding	 Holding	 Mark

Maturity●

Purchase	 Value	 Amount	 Gains	 Losses	 Val

Held-to-Maturity

U. S. Treasury notes and bonds

 Within 1 year 4.49% $ 5,600,000 $ 5,651,699 $ 30,313 $ (469) $ 5,681,543

 After 1 year thru 5 years 4.50% 12,920,000 13,310,856 416,031 0 13,726,887

 After 5 years thru 10 years 4.81% 11,550,000 12,856,888 764,723 0 13,621,611

 After 10 years 5.02% 3,500,000 4,626,945 286,889 0 4,913,834

U. S. Treasury inflation-protected securities

 Within 1 year 3.86% 258,638 258,620 349 0 258,969 

 After 1 year thru 5 years 3.16% $ 1,288,950 $ 1,310,166 $ 52,927 $ 0 $ 1,363,093

Total	 $ 35,117,588	 $ 38,015,174	 $ 1,551,232	 $ (

Available-for-Sale

U. S. Treasury notes and bonds

 After 1 year thru 5 years 4.79% $ 500,000 $ 498,260 $ 10,100 $ 0 $ 508,360

U. S. Treasury inflation-protected securities

 Within 1 year 3.92% 1,700,545 1,700,397 2,325 0 1,702,722

 After 1 year thru 5 years 3.75% 6,004,277 6,015,235 346,483 0 6,361,718

Total	 $ 8,204,822	 $ 8,213,892 	 $ 358,908

Total Investment in U.S. Treasury Obligations, Net

Total	 $ 43,322,410	 $ 46,229,066	 $ 1,910,140	 $ (46

 For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

 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 2.2 percent, based on figures issued by the Congressional Budget Office and 

 Blue Chip Economic Indicators in early 2007.

 All unrealized losses occurred as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until maturity. As a result, 

 all unrealized losses are considered temporary. However, all of the $469 thousand reported as total unrealized losses is recognized as unrealized losses occurring over 

 a period of 12 months or longer with a market value of $1.1 billion applied to the affected securities.

●

▼

■

■
69

 U.S. Treasury Obligations at December 31, 2006

 D o l l a r s i n T h o u s a n d s 

	 	 Net	 Unrealized	 Unrealized

	 	 Yield at 	 Face	 Carrying	 Holding	 Holding	 Mark

Maturity●

Purchase	 Value	 Amount	 Gains	 Losses	 Val

Held-to-Maturity

U. S. Treasury notes and bonds

 Within 1 year 4.58% $ 6,401,000 $ 6,448,905 $ 3,389 $ (20,704) $ 6,431,590

 After 1 year thru 5 years 4.47% 15,500,000 16,276,424 91,703 (196,635) 16,171,492

 After 5 years thru 10 years 4.68% 9,025,000 9,690,085 36,025 (42,270) 9,683,840

 After 10 years 5.01% 2,445,000 3,247,814 57,589 (3,227) 3,302,176

U. S. Treasury inflation-protected securities

After 1 year thru 5 years 3.83% 926,751 926,844 21,185 0 948,029

 After 5 years thru 10 years 2.41% 568,345 594,142 0 (778) 593,364

Total	 	 $ 34,866,096	 $ 37,184,214	 $ 209,891	 $ (263,614)

▼

Available-for-Sale

U. S. Treasury notes and bonds

 Within 1 year 3.85% $ 1,225,000 $ 1,269,835 $ 0 $ (9,208) $ 1,260,627

U. S. Treasury inflation-protected securities

 After 1 year thru 5 years 3.80% 7,443,478 7,454,909 243,030 0 7,697,939

Total	 	 $ 8,668,478	 $ 8,724,744 	 $ 243,030	 $ 

Total Investment in U.S. Treasury Obligations, Net

Total	 	 $ 43,534,574	 $ 45,908,958	 $ 452,921	 $ (272,822)

 For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

 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 2.2 percent, based on figures issued by the Congressional Budget Office and 

 Blue Chip Economic Indicators in early 2006.

 All unrealized losses occurred as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until maturity. As a result, 

 all unrealized losses are considered temporary. However, of the $273 million reported as total unrealized losses, $237 million is recognized as unrealized losses occurring 

 over a period of 12 months or longer with a market value of $13.3 billion applied to the affected securities.

●

▼

■

■

As of December 31, 2007 and 2006, the unamortized premium, net of the unamortized discount, was $2.9 billion and 

$2.4 billion, respectively.
Deposit Insurance Fund

70

4 Receivables From Resolutions, Net

The receivables from resolutions include payments made by the DIF to cover 

obligations to insured depositors, advances to receiverships for working capital, 

and administrative expenses paid on behalf of receiverships. Any related allowance 

for loss represents the difference between the funds advanced and/or obligations 

incurred and the expected repayment. Assets held by DIF receiverships are the 

main source of repayment of the DIF’s receivables from closed banks and thrifts. 

As of December 31, 2007, there were 22 active receiverships, including three 

failures in the current year. 

As of December 31, 2007 and 2006, DIF receiverships held assets with 

a book value of $1.2 billion and $655 million, respectively (including cash, 

investments, and miscellaneous receivables of $363 million and $348 million 

at December 31, 2007 and 2006, respectively). The estimated cash recoveries 

from the management and disposition of assets that are used to derive the 

allowance for losses are based on a sampling of receivership assets in liquidation.

Sampled assets were generally valued by estimating future cash recoveries, 

net of applicable liquidation cost estimates, and then discounted using current 

market-based risk factors applicable to a given asset’s type and quality. Resultant 

recovery estimates were extrapolated to the non-sampled assets in order to 

derive the allowance for loss on the receivable. Estimated asset recoveries are 

regularly evaluated, but remain subject to uncertainties because of potential 

changes in economic and market conditions. Such uncertainties could cause 

the DIF’s actual recoveries to vary from current estimates.

As of December 31, 2007, the DIF allowance for loss was $4.18 billion, representing 

84 percent of the gross receivable. Of the remaining 16 percent of the gross 

receivable, the amount of credit risk is limited since 60 percent of the $808 million 

net receivable will be repaid from receivership cash, investments, and a promissory 

note fully secured by a letter of credit. The majority of the remaining 40 percent 

will be repaid from assets classified as or supported by real estate mortgages. 

Although estimated asset recoveries are regularly evaluated, the impact of any 

additional credit risk exposure, due to ongoing conditions in the housing market, 

is uncertain at this time.

 Receivables From Resolutions, Net at December 31 

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

 Receivables from closed banks $ 4,991,003 $ 4,650,025 

 Allowance for losses (4,182,931) (4,111,034) 

Total	 $ 808,072 $ 
71

6

5 Property and Equipment, Net

The depreciation expense was $63 million and $53 million for December 31, 2007 

and 2006, respectively.

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 within one year of the reporting date, absent 

some favorable event such as obtaining additional capital or merging, when 

the liability becomes probable and reasonably estimable.

The contingent liability is derived by applying expected failure rates and loss 

rates to institutions based on supervisory ratings, balance sheet characteristics, 

and projected capital levels. In addition, institution-specific analysis is performed 

on those institutions where failure is imminent absent institution management 

resolution of existing problems, or where additional information is available 

that may affect the estimate of losses. As of December 31, 2007 and 2006, 

the contingent liabilities for anticipated failure of insured institutions were 

$124.3 million and $110.8 million, respectively, including an estimated liability 

for one small institution that failed on January 25, 2008. 

In addition to these recorded contingent liabilities, the FDIC has identified 

additional risk in the financial services industry that could result in an additional 

loss 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 up to approximately $1.7 billion. 

The actual losses if any will largely depend on future economic and market 

conditions and could differ materially from this estimate.

 Property and Equipment, Net at December 31 

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

 Land $ 37,352 $ 37,352 

Buildings (including leasehold improvements) 276,626 284,871 

 Application software (includes work-in-process) 145,693 232,206

 Furniture, fixtures, and equipment 71,138 145,635 

 Accumulated depreciation (178,948) (323,274)

Total	 $ 351,861 $ 
Deposit Insurance Fund

72

During 2007, an increasingly difficult economic and credit environment challenged 

the soundness and profitability of some FDIC-insured institutions. The downturn 

in housing markets led to asset-quality problems and volatility in financial markets, 

which hurt banking industry performance and threatened the viability of some 

institutions that had significant exposure to higher risk residential mortgages. 

It is uncertain how long the effects of this downturn will last. While supervisory 

and market data suggest that the banking industry will continue to experience 

elevated levels of stress over the coming year, as of September 30, 2007, 

99% of insured institutions met the highest regulatory capital (“well capitalized”) 

standard. The FDIC continues to evaluate the risks to affected institutions in 

light of evolving economic conditions; however, the impact of such risks on 

the insurance fund cannot be reasonably estimated at this time.

Litigation Losses

The DIF records an estimated loss for unresolved legal cases to the extent that 

those losses are considered probable and reasonably estimable. In addition to 

the $200 million recorded as probable, the FDIC has determined that losses 

from unresolved legal cases totaling $0.6 million are reasonably possible.

Other Contingencies

Representations and Warranties

As part of the FDIC’s efforts to maximize the return from the sale of assets 

from bank and thrift resolutions, representations and warranties, and guarantees 

were offered on certain loan sales. In general, the guarantees, representations, 

and warranties on loans sold relate to the completeness and accuracy of loan 

documentation, the quality of the underwriting standards used, the accuracy 

of the delinquency status when sold, and the conformity of the loans with 

characteristics of the pool in which they were sold. The total amount of loans 

sold subject to unexpired representations and warranties, and guarantees was 

$8.1 billion as of December 31, 2007. There were no contingent liabilities from 

any of the outstanding claims asserted in connection with representations and 

warranties at December 31, 2007 and 2006, respectively.

In addition, future losses could be incurred until the contracts offering the 

representations and warranties, and guarantees have expired, some as late 

as 2032. Consequently, the FDIC believes it is possible that additional losses 

may be incurred by the DIF from the universe of outstanding contracts with 

unasserted representation and warranty claims. However, because of the 

uncertainties surrounding the timing of when claims may be asserted, the 

FDIC is unable to reasonably estimate a range of loss to the DIF from 

outstanding contracts with unasserted representation and warranty claims.
73

7Assessments

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) 

required the FDIC to establish a risk-based assessment system, charging higher 

rates to those insured depository institutions that posed greater risks to the 

DIF. To arrive at a risk-based assessment for a particular institution, the FDIC 

placed each institution in one of nine risk categories based on capital ratios and 

supervisory examination data. Based on FDIC’s evaluation of the institutions 

under the risk-based premium system and due to the limitations imposed by 

the Deposit Insurance Funds Act of 1996 (DIFA) and the health of the banking 

and thrift industries, most institutions were not charged an assessment for 

a number of years. In addition, the FDIC was required by statute to maintain 

the insurance funds at a designated reserve ratio (DRR) of not less than 

1.25 percent of estimated insured deposits (or a higher percentage as 

circumstances warranted). 

Effective January 1, 2007, the Reform Act continues to require a risk-based 

assessment system and allows the FDIC discretion in defining risk. By regulation, 

the FDIC has consolidated the number of assessment risk categories from nine 

to four. The four new categories continue to be defined based upon supervisory 

and capital evaluations. Other significant changes mandated by the Reform Act 

and the implementing regulations: 

• require payment of assessments by all insured depository institutions,

eliminating the restriction on assessments for the best-rated institutions;

• grant a one-time assessment credit of approximately $4.7 billion to certain

eligible insured depository institutions (or their successors) based on the 

assessment base of the institution as of December 31, 1996, as compared

to the combined aggregate assessment base of all eligible institutions; 

• establish a range for the DRR from 1.15 to 1.50 percent of estimated insured

deposits and eliminate the fixed DRR of 1.25 percent. The FDIC is required

to annually publish the DRR and has, by regulation, set the DRR at 1.25 percent for 2008. As of September 30, 2007, the DIF reserve ratio was 1.22% 

of estimated insured deposits; 

• require the FDIC to adopt a DIF restoration plan to return the reserve ratio 

to 1.15 percent generally within five years, if the reserve ratio falls below 

1.15 percent or is expected to fall below 1.15 percent within six months;

• require the FDIC to annually determine if a dividend should be paid, based 

on the statutory requirement generally to declare dividends if the reserve 

ratio exceeds 1.35 percent at the end of a calendar year. The Reform Act 

permits dividends for one-half of the amount required to maintain the reserve 

ratio at 1.35 percent when the reserve ratio is between 1.35 and 1.50 percent

and all amounts required to maintain the reserve ratio at 1.50 percent when 

the reserve ratio exceeds 1.50 percent. 
Deposit Insurance Fund

74

The assessment rate averaged approximately 5.4 cents and .05 cents per $100 

of assessable deposits for 2007 and 2006, respectively. At December 31, 2007, 

the “Assessments Receivable, net” line item of $245 million represents the 

estimated gross premiums due from insured depository institutions for the 

fourth quarter of the year, net of $708 million in estimated one-time assessment 

credits. The actual deposit insurance assessments for the fourth quarter will 

be billed and collected at the end of the first quarter of 2008. During 2007 and 

2006, $643 million and $32 million were recognized as assessment income from 

institutions, respectively.

Of the $4.7 billion in one-time assessment credits granted, $1.6 billion (34 percent) 

remained as of December 31, 2007. The use of assessment credits is limited to 

no more than 90 percent of the gross assessments for assessment periods that 

provide deposit insurance coverage in years 2008 through 2010. Credits are also 

restricted when the reserve ratio is less than 1.15 percent and for institutions 

that are not adequately capitalized or exhibit financial, operational or compliance 

weaknesses. The credits can only be used to offset future deposit insurance 

assessments and, therefore, do not represent a liability to the DIF. They are 

transferable among institutions, do not expire, and cannot be used to offset 

Financing Corporation (FICO) payments.

Assessments continue to be levied on institutions for payments of the interest 

on obligations issued by the FICO. The FICO was established as a mixed-ownership 

government corporation to function solely as a financing vehicle for the FSLIC. 

The annual FICO interest obligation of approximately $790 million is paid on a 

pro rata basis using the same rate for banks and thrifts. The FICO assessment 

has no financial impact on the DIF and is separate from deposit insurance 

assessments. The FDIC, as administrator of the DIF, acts solely as a collection 

agent for the FICO. During 2007 and 2006, $785 million and $788 million, 

respectively, were collected and remitted to the FICO.

 Assessments Revenue for the Year Ended December 31

 D o l l a r s i n T h o u s a n d s 

	 	 2007

 Gross assessments $ 3,730,886

 Less: One-time assessment credits applied (3,087,958)

Assessments Revenue $ 
75

9

8Exit Fees Earned

From the early to mid-1990s, the SAIF collected entrance and exit fees for 

conversion transactions when an insured depository institution converted from 

the BIF to the SAIF (resulting in an entrance fee) or from the SAIF to the BIF 

(resulting in an exit fee). The exit fees and interest earned were held in escrow 

pending determination of ownership. As a result, the SAIF did not recognize exit 

fees or any interest earned as revenue. The Reform Act removed the restriction 

on SAIF-member exit fees held in escrow and the funds were deposited into the 

general (unrestricted) fund of the DIF. The exit fees plus earned interest, a total 

of $345 million, were recognized as revenue at their carrying value for 2006.

Operating Expenses

Operating expenses were $993 million for 2007, compared to $951 million for 

2006. The chart below lists the major components of operating expenses.

 Operating Expenses for the Years Ended December 31

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

 Salaries and benefits $ 640,294 $ 619,452

 Outside services 137,812 124,045

 Travel 55,281 49,408

 Buildings and leased space 61,377 65,929

 Software/Hardware maintenance 28,542 27,139

 Depreciation of property and equipment 63,115 52,919

 Other 23,640 22,124

 Services billed to receiverships (17,491) (10,398)

Total $ 992,570 $ 
Deposit Insurance Fund

76

11

10Provision for Insurance Losses

Provision for insurance losses was a positive $95 million for 2007 and a negative 

$52 million for 2006. The following chart lists the major components of the 

provision for insurance losses.

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), 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, 

CSRS employees do not receive agency matching contributions.

 Provision for Insurance Losses for the Years Ended December 31

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

Valuation Adjustments

 Closed banks and thrifts $ 81,229 $ (152,776)

 Other assets 286 (4,230)

Total Valuation Adjustments	 81,515 (157,006)

Contingent Liabilities Adjustments:

 Anticipated failure of insured institutions 13,501 105,409

 Litigation losses 0 (500)

Total Contingent Liabilities Adjustments	 13,501 104,909

Total $ 95,016 $ (5
77

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 

coverages to direct-pay plans. For the dental coverage, retirees are responsible 

for a portion of the dental premium.

The DIF 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, 2007 and 2006, the liability was $116.2 million and $129.9 million, 

respectively, which is recognized in the “Postretirement benefit liability” line 

item on the Balance Sheet. The cumulative actuarial gains/losses (changes 

in assumptions and plan experience) and prior service costs/credits (changes 

to plan provisions that increase or decrease benefits) were $19.6 million and 

$2.3 million at December 31, 2007 and 2006, respectively. These amounts 

are reported as accumulated other comprehensive income in the “Unrealized 

postretirement benefit gain” line item on the Balance Sheet. 

 Pension Benefits and Savings Plans Expenses for the Years Ended December 31

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

 Civil Service Retirement System $ 6,698 $ 6,808

 Federal Employees Retirement System (Basic Benefit) 40,850 38,915

 FDIC Savings Plan 21,008 20,681

 Federal Thrift Savings Plan 15,938 15,328

 Severance Pay 59 39

Total	 $ 84,553 $ 
Deposit Insurance Fund

78

12

The DIF’s expenses for postretirement benefits for 2007 and 2006 were 

$7.2 million and $9.0 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 gains/losses and prior service costs/credits for 

2007 and 2006 of $17.4 million and $2.3 million, respectively, are reported as 

other comprehensive income in the “Unrealized postretirement benefit gain” 

line item. Key actuarial assumptions used in the accounting for the plan include 

the discount rate of 6 percent, the rate of compensation increase of 3.45 percent, 

and the dental coverage trend rate of 6.10 percent. The discount rate of 6 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. For 

the year ended December 31, 2007, the discount rate was increased by 

1.25 percent from the rate used in 2006, resulting in a decrease in the benefit 

liability of $24.3 million.

Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The FDIC’s lease commitments total $63.7 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 $22 million and 

$30 million for the periods ended December 31, 2007 and 2006, respectively.

Off-Balance-Sheet Exposure:

Deposit Insurance

As of September 30, 2007, the estimated insured deposits for DIF were 

$4.2 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.

 Leased Space Commitments

 D o l l a r s i n T h o u s a n d s 

	 2008	 2009	 2010	 2011	 2012	 2013/Thereafter

	 $ 18,855	 $ 15,529	 $ 11,165	 $ 8,488	 $ 5,9
79

13 Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at fair 

value. The fair market value of the investment in U.S. Treasury obligations is 

disclosed in Note 3 and is based on current market prices. The carrying amount 

of interest receivable on investments, short-term receivables, and accounts 

payable and other liabilities approximates their fair market value, due to their 

short maturities and/or comparability with current interest rates.

The net receivables from resolutions primarily include the DIF’s 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 DIF’s allowance for loss against the net receivables from resolutions. Therefore, 

the corporate subrogated claim indirectly includes the effect of discounting and 

should not be viewed as being stated in terms of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by valuation 

of receivership 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 a 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 DIF 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 resolutions.
FSLIC Resolution Fund

80
81

 F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n

FSLIC Resolution Fund Balance Sheet at December 31

 D o l l a r s i n T h o u s a n d s 

2007 2006

Assets

 Cash and cash equivalents $ 3,617,133 $ 3,616,466

 Receivables from thrift resolutions and other assets, net (Note 3) 34,812 36,730

 Receivables from U.S. Treasury for goodwill judgments (Note 4) 35,350 251,827

Total Assets	 $ 3,687,295 

Liabilities

 Accounts payable and other liabilities $ 4,276 $ 5,497 

 Contingent liabilities for litigation losses and other (Note 4) 35,350 279,327

Total Liabilities	 39,626 284,824

Resolution Equity (Note 5)

 Contributed capital 127,417,582 127,453,996

 Accumulated deficit (123,769,913) (123,833,797)

Total Resolution Equity	 3,647,669 3,620,199

Total Liabilities and Resolution Equity	 $ 3,687,295 $

The accompanying notes are an integral part of these financial statements.
FSLIC Resolution Fund

82

 F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n

FSLIC Resolution Fund Statement of Income and Accumulated Deficit for the Years Ended December 31

 D o l l a r s i n T h o u s a n d s 

2007 2006

Revenue

 Interest on U.S. Treasury obligations $ 156,034 $ 151,648

 Other revenue 31,558 17,650

Total Revenue 187,592 169,298

Expenses and Losses

 Operating expenses 3,364 12,002

 Provision for losses (10,135) (19,257)

 Goodwill/Guarini litigation expenses (Note 4) 195,939 411,056

 Recovery of tax benefits (68,217) (34,783)

Other expenses 2,757 2,783

Total Expenses and Losses	 123,708 371,801

Net Income/(Loss)	 63,884 (202,503)

Accumulated Deficit - Beginning	 (123,833,797) (123,631,294)

Accumulated Deficit - Ending	 $ (123,769,913) $ (12

The accompanying notes are an integral part of these financial statements.
83

 F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n

FSLIC Resolution Fund Statement of Cash Flows for the Years Ended December 31

 D o l l a r s i n T h o u s a n d s 

2007 2006

Operating Activities

Net Income/(Loss)	 $ 63,884 $ (2

Adjustments to reconcile net income/(loss) to net cash (used by) operating activities:

Provision for losses (10,135) (19,257)

Change in Operating Assets and Liabiliti

Decrease in receivables from thrift resolutions and other assets 12,053 21,273

(Decrease) in accounts payable and other liabilities (1,221) (2,302)

(Decrease)/Increase in contingent liabilities for litigation losses and other (243,977) 21,824

Net Cash Used by Operating Activities	 (179,396) (180,965)

Financing Activities	

Provided 

U.S.Treasury payments for goodwill litigation (Note 4) 405,063 194,728

 Used by:

Payments to Resolution Funding Corporation (Note 5) (225,000) 0

Net Cash Provided by Financing Activities 180,063 194,728

Net Increase in Cash and Cash Equivalents	 667 13,763

Cash and Cash Equivalents - Beginning	 3,616,466 3,602,703

Cash and Cash Equivalents - Ending	 $ 3,617,133 $ 3

The accompanying notes are an integral part of these financial statements.
FSLIC Resolution Fund

84

Notes to the

Financial Statements

December 31, 2007 

and 2006

1Legislative History and Operations/Dissolution 

of the FSLIC Resolution Fund

Legislative History

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 the operations 

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, 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 funds established in 

the FDI Act, as amended. In addition, FDIC is charged with responsibility for the 

sale of remaining assets and satisfaction of liabilities associated with the former 

Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution 

Trust Corporation (RTC). 

The U.S. Congress created the FSLIC through the enactment of the National 

Housing Act of 1934. The Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, created the 

FSLIC Resolution Fund (FRF), and transferred the assets and liabilities of the 

FSLIC to the FRF–except those assets and liabilities transferred to the RTC–

effective on August 9, 1989. Further, the FIRREA established the Resolution 

Funding Corporation (REFCORP) to provide part of the initial funds used by 

the RTC for thrift resolutions.

The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC 

as of December 31, 1995. All remaining assets and liabilities of the RTC 

were transferred to the FRF on January 1, 1996. Today, the FRF consists 

of two distinct pools of assets and liabilities: one composed of the assets 

and liabilities of the FSLIC transferred to the FRF upon the dissolution of the 

FSLIC (FRF-FSLIC), and the other composed of the RTC assets and liabilities 

(FRF-RTC). The assets of one pool are not available to satisfy obligations 

of the other.

Pursuant to the Federal Deposit Insurance Reform Act of 2005, the Bank 

Insurance Fund and the Savings Association Insurance Fund were merged 

into a new fund, the Deposit Insurance Fund (DIF). The FDIC is the administrator 

of the FRF and the DIF. These funds are maintained separately to carry out 

their respective mandates.
85

Operations/Dissolution of the FRF

The FRF will continue operations until all of its assets are sold or otherwise 

liquidated and all of its liabilities are satisfied. Any funds remaining in the 

FRF-FSLIC will be paid to the U.S. Treasury. Any remaining funds of the 

FRF-RTC will be distributed to the REFCORP to pay the interest on the 

REFCORP bonds. In addition, the FRF-FSLIC has available until expended 

$602.2 million in appropriations to facilitate, if required, efforts to wind up 

the resolution activity of the FRF-FSLIC. 

The FDIC has conducted an extensive review and cataloging of FRF’s remaining 

assets and liabilities and is continuing to explore approaches for concluding 

FRF’s activities. Some of the issues and items that remain open in FRF are: 

1) criminal restitution orders (generally have from 5 to 10 years remaining to 

enforce); 2) collections of settlements and judgments obtained against officers 

and directors and other professionals responsible for causing or contributing 

to thrift losses (generally have from 6 months to 12 years remaining to 

enforce); 3) numerous assistance agreements entered into by the former 

FSLIC (FRF could continue to receive tax-sharing benefits through year 2013); 

and 4) goodwill litigation (no final date for resolution has been established; 

see Note 4). The FDIC is considering whether enabling legislation or other 

measures may be needed to accelerate liquidation of the remaining FRF assets 

and liabilities. The FRF could potentially realize substantial recoveries from the 

tax-sharing benefits, criminal restitution orders and professional liability claims 

of up to $400 million; however, any associated recoveries are not reflected in 

FRF’s financial statements given the significant uncertainties surrounding the 

ultimate outcome.

Receivership Operations

The FDIC is responsible for managing and disposing of the assets of failed 

institutions in an orderly and efficient manner. The assets held by receivership 

entities, and the claims against them, are accounted for separately from FRF 

assets and liabilities to ensure that receivership proceeds are distributed 

in accordance with applicable laws and regulations. Also, the income and 

expenses attributable to receiverships are accounted for as transactions 

of those receiverships. Receiverships are billed by the FDIC for services 

provided on their behalf.
FSLIC Resolution Fund

86

Summary of Significant Accounting Policies

General

These financial statements pertain to the financial position, results of operations, 

and cash flows of the FRF and are presented in conformity with U.S. generally 

accepted accounting principles (GAAP). These statements do not include 

reporting for assets and liabilities of closed thrift institutions for which the 

FDIC acts as receiver. Periodic and final accountability reports of the FDIC’s 

activities as receiver are furnished to courts, supervisory authorities, and 

others as required.

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 allowance for losses on receivables 

from thrift resolutions and the estimated losses for litigation.

Provision for Losses

The provision for losses represents the change in the valuation of the receivables 

from thrift resolutions and other assets.

Fair Value of Financial Instruments

Cash equivalents, which consist of Special U.S. Treasury Certificates, are shortterm, highly liquid investments with original maturities of three months or less 

and are shown at fair value. The carrying amount of short-term receivables and 

accounts payable and other liabilities approximates their fair market value, due 

to their short maturities.

The net receivable from thrift resolutions is influenced by the underlying valuation 

of receivership assets. This corporate receivable is unique and the estimate 

presented is not necessarily indicative of the amount that could be realized 

in a sale to the private sector. Such a sale would require indeterminate, but

substantial, discounts for an interested party to profit from these assets because 

of credit and other risks. Consequently, it is not practicable to estimate its fair 

market value.

Other assets primarily consist of credit enhancement reserves, which are valued 

by performing projected cash flow analyses using market-based assumptions 

(see Note 3).

2
87

Disclosure About Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) issued Statement of Financial 

Accounting Standards (SFAS) No. 157, Fair Value Measurements, in September 

2006. SFAS No. 157 defines fair value, establishes a framework for measuring 

fair value in GAAP, and expands disclosures about fair value measurements. The 

Statement does not require any new fair value measurements. FDIC will adopt 

SFAS No. 157 effective January 1, 2008, on a prospective basis. Management 

does not expect the Statement to have a material impact on the financial 

statements.

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.

Receivables From Thrift Resolutions and Other Assets, Net

Receivables From Thrift Resolutions

The receivables from thrift resolutions include payments made by the FRF to 

cover obligations to insured depositors, advances to receiverships for working 

capital, and administrative expenses paid on behalf of receiverships. Any related 

allowance for loss represents the difference between the funds advanced and/or 

obligations incurred and the expected repayment. Assets held by the FDIC in its 

receivership capacity for the former RTC are a significant source of repayment of 

the FRF’s receivables from thrift resolutions. As of December 31, 2007, 13 of 

the 850 FRF receiverships remain active primarily due to unresolved litigation, 

including goodwill matters. 

As of December 31, 2007 and 2006, FRF receiverships held assets with a book

value of $22 million and $33 million, respectively (including cash, investments, and 

miscellaneous receivables of $18 million and $26 million at December 31, 2007 

and 2006, respectively). The estimated cash recoveries from the management 

and disposition of these assets are used to derive the allowance for losses. 

The FRF receivership assets are valued by discounting projected cash flows, 

net of liquidation costs using current market-based risk factors applicable to a 

given asset’s type and quality. These estimated asset recoveries are regularly 

evaluated, but remain subject to uncertainties because of potential changes 

in economic and market conditions. Such uncertainties could cause the FRF’s 

actual recoveries to vary from current estimates. 

3
FSLIC Resolution Fund

88

4

Other Assets

Other assets primarily include credit enhancement reserves valued at $20.2 million 

as of December 31, 2007 and 2006. The credit enhancement reserves resulted 

from swap transactions where the former RTC received mortgage-backed securities 

in exchange for single-family mortgage loans. The RTC supplied credit enhancement 

reserves for the mortgage loans in the form of cash collateral to cover future credit 

losses over the remaining life of the loans. These reserves may cover future credit 

losses through 2020.

Contingent Liabilities for:

Litigation Losses

The FRF records an estimated loss for unresolved legal cases to the 

extent those losses are considered probable and reasonably estimable. As 

of December 31, 2007 and 2006, respectively, $35.4 million and $279.3 million 

were recorded as probable losses. Additionally, at December 31, 2007, the 

FDIC has determined that losses from unresolved legal cases totaling $3 million 

are reasonably possible.

Receivables From Thrift Resolutions and Other Assets, Net at December 31

 D o l l a r s i n T h o u s a n d s 

	 	 2007 2006

 Receivables from closed thrifts $ 8,367,078 $ 11,308,460

 Allowance for losses (8,359,347) (11,299,448)

Receivables from Thrift Resolutions, Net	 7,731 9,012

 Other assets 27,081 27,718

Total	 $ 34,8
89

Additional Contingency

Goodwill Litigation

In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme Court 

held that when it became impossible following the enactment of FIRREA 

in 1989 for the federal government to perform certain agreements to count 

goodwill toward regulatory capital, the plaintiffs were entitled to recover 

damages from the United States. Approximately 19 remaining cases are 

pending against the United States based on alleged breaches of these 

agreements.

On July 22, 1998, the Department of Justice’s (DOJ’s) Office of Legal Counsel 

(OLC) concluded that the FRF is legally available to satisfy all judgments and 

settlements in the goodwill litigation involving supervisory action or assistance 

agreements. OLC determined that nonperformance of these agreements was 

a contingent liability that was transferred to the FRF on August 9, 1989, upon 

the dissolution of the FSLIC. On July 23, 1998, the U.S. Treasury determined, 

based on OLC’s opinion, that the FRF is the appropriate source of funds for 

payments of any such judgments and settlements. The FDIC General Counsel 

concluded that, as liabilities transferred on August 9, 1989, these contingent 

liabilities for future nonperformance of prior agreements with respect to 

supervisory goodwill were transferred to the FRF-FSLIC, which is that portion 

of the FRF encompassing the obligations of the former FSLIC. The FRF-RTC, 

which encompasses the obligations of the former RTC and was created upon 

the termination of the RTC on December 31, 1995, is not available to pay any 

settlements or judgments arising out of the goodwill litigation. 

The goodwill lawsuits are against the United States and as such are defended 

by the DOJ. On January 3, 2008, the DOJ again informed the FDIC that it 

is “unable at this time to provide a reasonable estimate of the likely aggregate 

contingent liability resulting from the Winstar-related cases.” This uncertainty 

arises, in part, from the existence of significant unresolved issues pending 

at the appellate or trial court level, as well as the unique circumstances of 

each case. 

The FDIC believes that it is probable that additional amounts, possibly substantial, 

may be paid from the FRF-FSLIC as a result of judgments and settlements in 

the goodwill litigation. Based on representations from the DOJ, the FDIC is 

unable to estimate a range of loss to the FRF-FSLIC from the goodwill litigation. 

However, the FRF can draw from an appropriation provided by Section 110 

of the Department of Justice Appropriations Act, 2000 (Public Law 106-113, 

Appendix A, Title I, 113 Stat. 1501A-3, 1501A-20) such sums as may be 

necessary for the payment of judgments and compromise settlements in the 

goodwill litigation. This appropriation is to remain available until expended. 

Because an appropriation is available to pay such judgments and settlements, 

any liability for goodwill litigation should have a corresponding receivable from 

the U.S. Treasury and therefore have no net impact on the financial condition 

of the FRF-FSLIC. 
FSLIC Resolution Fund

90

The FRF paid $405.1 million as a result of judgments and settlements in six 

goodwill cases for the year ended December 31, 2007, compared to $194.7 million 

for four goodwill cases for the year ended December 31, 2006. As described 

above, the FRF received appropriations from the U.S. Treasury to fund these 

payments. At December 31, 2007, the FRF accrued a $35.4 million contingent 

liability and offsetting receivable from the U.S. Treasury for judgments in two 

additional cases that were fully adjudicated as of year end. These funds were 

paid in January 2008. 

In addition, the FRF-FSLIC pays the goodwill litigation expenses incurred by 

DOJ based on a Memorandum of Understanding (MOU) dated October 2, 1998, 

between the FDIC and DOJ. Under the terms of the MOU, the FRF-FSLIC paid 

$11.4 million and $17.5 million to DOJ for fiscal years (FY) 2008 and 2007, 

respectively. As in prior years, DOJ carried over and applied all unused funds 

toward current FY charges. At September 30, 2007, DOJ had an additional 

$5.6 million in unused FY 2007 funds that were applied against FY 2008 

charges of $17 million.

Guarini Litigation

Paralleling the goodwill cases are similar cases alleging that the government 

breached agreements regarding tax benefits associated with certain FSLICassisted acquisitions. These agreements allegedly contained the promise of 

tax deductions for losses incurred on the sale of certain thrift assets purchased 

by plaintiffs from the FSLIC, even though the FSLIC provided the plaintiffs with 

tax-exempt reimbursement. A provision in the Omnibus Budget Reconciliation 

Act of 1993 (popularly referred to as the “Guarini legislation”) eliminated the 

tax deductions for these losses.

Eight Guarini cases were originally filed seeking damages relating to the 

government’s elimination of certain tax deductions. The last of these eight 

cases concluded in 2007 with a settlement of $23 million being paid. In a 

case settled in 2006, the settlement agreement further obligates the FRFFSLIC as a guarantor for all tax liabilities in the event the settlement amount

is determined by tax authorities to be taxable. The maximum potential 

exposure under this guarantee through 2009 is approximately $81 million. 

After reviewing relevant case law in relation to the nature of the settlement, 

the FDIC believes that it is very unlikely the settlement will be subject to taxation. 

Therefore, the FRF is not expected to fund any payment under this guarantee 

and no liability has been recorded.
91

5

Representations and Warranties

As part of the RTC’s efforts to maximize the return from the sale of assets from 

thrift resolutions, representations and warranties, and guarantees were offered 

on certain loan sales. The majority of loans subject to these agreements have 

been paid off, refinanced, or the period for filing claims has expired. The 

FDIC’s estimate of maximum potential exposure to the FRF is $18.7 million. 

No claims in connection with representations and warranties have been asserted 

since 1998 on the remaining open agreements. Because of the age of the 

remaining portfolio and lack of claim activity, the FDIC does not expect new 

claims to be asserted in the future. Consequently, the financial statements at 

December 31, 2007 and 2006 do not include a liability for these agreements.

Resolution Equity

As stated in the Legislative History section of Note 1, the FRF is comprised 

of two distinct pools: the FRF-FSLIC and the FRF-RTC. The FRF-FSLIC consists 

of the assets and liabilities of the former FSLIC. The FRF-RTC consists of the 

assets and liabilities of the former RTC. Pursuant to legal restrictions, the two 

pools are maintained separately and the assets of one pool are not available 

to satisfy obligations of the other.

The following table shows the contributed capital, accumulated deficit, and 

resulting resolution equity for each pool.

Resolution Equity at December 31, 2007

 D o l l a r s i n T h o u s a n d s 

FRF

FRF-FSLIC	 FRF-RTC	 Consolidated

Contributed capital - beginning $ 45,254,659 $ 82,199,337 $ 127,453,996

 Add: U.S. Treasury payments/receivable for goodwill litigation 188,586 0 188,586

 Less: REFCORP payments 0 (225,000) (225,000)

Contributed capital - ending	 45,443,245	 81,974,337	 127,417,582

Accumulated deficit (42,185,100) (81,584,813) (123,769,913)

Total	 $ 3,258,145	 $ 389,
FSLIC Resolution Fund

92

Contributed Capital

The FRF-FSLIC and the former RTC received $43.5 billion and $60.1 billion 

from the U.S. Treasury, respectively, to fund losses from thrift resolutions 

prior to July 1, 1995. Additionally, the FRF-FSLIC issued $670 million in capital 

certificates to the Financing Corporation (a mixed-ownership government 

corporation established to function solely as a financing vehicle for the FSLIC) 

and the RTC issued $31.3 billion of these instruments to the REFCORP. 

FIRREA prohibited the payment of dividends on any of these capital certificates. 

Through December 31, 2007, the FRF-RTC has returned $4.556 billion to the 

U.S. Treasury and made payments of $4.797 billion to the REFCORP. Subsequent 

to year-end, FRF-RTC paid an additional $225 million to the REFCORP on 

January 10, 2008. These actions serve to reduce contributed capital.

FRF-FSLIC received $405.1 million in U.S. Treasury payments for goodwill litigation 

in 2007. Furthermore, $35.4 million and $251.8 million were accrued for as 

receivables at year-end 2007 and 2006, respectively. The effect of this activity 

was an increase in contributed capital of $188.6 million in 2007.

Accumulated Deficit

The accumulated deficit represents the cumulative excess of expenses over 

revenue for activity related to the FRF-FSLIC and the FRF-RTC. Approximately 

$29.8 billion and $87.9 billion were brought forward from the former FSLIC 

and the former RTC on August 9, 1989, and January 1, 1996, respectively. 

The FRF-FSLIC accumulated deficit has increased by $12.4 billion, whereas 

the FRF-RTC accumulated deficit has decreased by $6.3 billion, since their 

dissolution dates.
93

6Employee Benefits

Pension Benefits

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 FRF contributes a portion of pension 

benefits for eligible employees, it does not account for the assets of either 

retirement system. The FRF 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. The FRF’s pension-related expenses were $252 thousand and 

$850 thousand for 2007 and 2006, respectively. 

Postretirement Benefits Other Than Pensions

The FRF no longer records a liability for the postretirement benefits of life and 

dental insurance (a long-term liability), due to the expected dissolution of the FRF. 

The liability is recorded by the DIF. However, the FRF does continue to pay its 

proportionate share of the yearly claim expenses associated with these benefits. 
94

Opinion on DIF's

Financial Statements

To the Board of Directors

The Federal Deposit Insurance Corporation

In accordance with Section 17 of the Federal Deposit Insurance Act, 

as amended, we are responsible for conducting audits of the financial 

statements of the two funds administered by the Federal Deposit 

Insurance Corporation (FDIC). In our audits of the Deposit Insurance 

Fund’s (DIF) and the FSLIC Resolution Fund’s (FRF) financial 

statements for 2007 and 2006, we found

• the financial statements as of and for the years ended 

December 31, 2007, and 2006, are presented fairly, in all 

material respects, in conformity with U.S. generally accepted 

accounting principles;

• FDIC had effective internal control over financial reporting 

(including safeguarding assets) and compliance with laws and 

regulations for each fund; and

• no reportable noncompliance with laws and regulations we 

tested.

The following sections discuss in more detail (1) these conclusions; 

(2) our audit objectives, scope, and methodology; and (3) agency 

comments and our evaluation.

The financial statements, including the accompanying notes, present 

fairly, in all material respects, in conformity with U.S. generally 

accepted accounting principles, DIF’s assets, liabilities, and fund 

balance as of December 31, 2007, and 2006, and its income and fund 

balance and its cash flows for the years then ended.

As discussed in note 6 to DIF’s financial statements, FDIC’s insured 

financial institutions faced increased challenges in 2007. The downturn 

in housing markets led to asset-quality problems and volatility 

in financial markets, which hurt banking industry performance and 
95

threatened the viability of some institutions that had significant 

exposure to higher-risk residential mortgages. It is uncertain how 

long the effects of this downturn will last. In addition to a recorded 

estimated liability of $124 million as of December 31, 2007, for 

the anticipated failure of some DIF insured institutions, FDIC has 

identified additional risk that could result in a further estimated loss 

to the DIF of $1.7 billion should potentially vulnerable insured 

institutions ultimately fail. FDIC continues to evaluate the risks to 

affected institutions in light of evolving economic conditions, but 

the impact of such risks on the DIF cannot be reasonably estimated 

at this time. Actual losses, if any, will largely depend on future 

economic and market conditions and could differ materially from 

FDIC’s estimates.

The financial statements, including the accompanying notes, present 

fairly, in all material respects, in conformity with U.S. generally 

accepted accounting principles, FRF’s assets, liabilities, and resolution

equity as of December 31, 2007, and 2006, and its income and 

accumulated deficit and its cash flows for the years then ended.

FDIC management maintained, in all material respects, effective 

internal control over financial reporting (including safeguarding 

assets) and compliance as of December 31, 2007, that provided 

reasonable assurance that misstatements, losses, or noncompliance 

material in relation to the financial statements for each fund would 

be prevented or detected on a timely basis. Our opinion is based 

on criteria established under 31 U.S.C. 3512 (c), (d), commonly 

known as the Federal Managers’ Financial Integrity Act (FMFIA).

We did identify certain control deficiencies during our 2007 

audits. However, we do not consider these control deficiencies 

to be significant deficiencies.1 We will be reporting separately 

to FDIC management on these matters.

Opinion on FRF's

Financial Statements

Opinion on Internal

Control

1

A significant deficiency is a control deficiency, or combination of deficiencies, that adversely 

affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably 

in accordance with generally accepted accounting principles such that there is more than a remote 

likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected.
96

Our tests for compliance with selected provisions of laws and 

regulations disclosed no instances of noncompliance that would 

be reportable under U.S. generally accepted government auditing 

standards. However, the objective of our audits was not to provide an 

opinion on overall compliance with laws and regulations. Accordingly, 

we do not express such an opinion. 

FDIC management is responsible for (1) preparing the annual financial 

statements in conformity with U.S. generally accepted accounting 

principles; (2) establishing, maintaining, and assessing internal 

control to provide reasonable assurance that the broad control 

objectives of FMFIA are met; and (3) complying with applicable 

laws and regulations.

We are responsible for obtaining reasonable assurance about whether 

(1) the financial statements are presented fairly, in all material 

respects, in conformity with U.S. generally accepted accounting 

principles, and (2) management maintained effective internal control, 

the objectives of which are the following:

1. financial reporting–transactions are properly recorded, processed,

and summarized to permit the preparation of financial statements 

in conformity with U.S. generally accepted accounting principles, 

and assets are safeguarded against loss from unauthorized acquisition,

use, or disposition, and 

2. compliance with laws and regulations–transactions are executed 

in accordance with laws and regulations that could have a direct 

and material effect on the financial statements.

We are also responsible for testing compliance with selected provisions 

of laws and regulations that could have a direct and material effect 

on the financial statements.

In order to fulfill these responsibilities, we 

• examined, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements;

• assessed the accounting principles used and significant estimates 

made by management;

• evaluated the overall presentation of the financial statements;

Compliance with Laws 

and Regulations

Objectives, Scope, and 

Methodology
97

• obtained an understanding of the entity and its operations, including 

its internal control related to financial reporting (including safeguarding assets) and compliance with laws and regulations;

• tested relevant internal controls over financial reporting and 

compliance, and evaluated the design and operating effectiveness 

of internal control;

• considered FDIC’s process for evaluating and reporting on 

internal control based on criteria established by FMFIA; and

• tested compliance with certain laws and regulations, including 

selected provisions of the Federal Deposit Insurance Act, as 

amended, and the Federal Deposit Insurance Reform Act of 2005.

We did not evaluate all internal controls relevant to operating 

objectives as broadly defined by FMFIA, such as those controls 

relevant to preparing statistical reports and ensuring efficient 

operations. We limited our internal control testing to controls over 

financial reporting and compliance. Because of inherent limitations 

in internal control, misstatements due to error or fraud, losses, or 

noncompliance may nevertheless occur and not be detected. We 

also caution that projecting our evaluation to future periods is 

subject to the risk that controls may become inadequate because 

of changes in conditions or that the degree of compliance with 

controls may deteriorate.

We did not test compliance with all laws and regulations applicable 

to FDIC. We limited our tests of compliance to those laws and 

regulations that could have a direct and material effect on the financial 

statements for the year ended December 31, 2007. We caution that 

noncompliance may occur and not be detected by these tests and that 

such testing may not be sufficient for other purposes.

We performed our work in accordance with U.S. generally accepted 

government auditing standards.
98

FDIC Comments and 

Our Evaluation

In commenting on a draft of this report, FDIC’s Chief Financial 

Officer (CFO) reported the agency was pleased to receive unqualified 

opinions on the DIF and FRF financial statements and that GAO 

did not identify any material weaknesses or significant deficiencies 

during the 2007 audits. FDIC’s CFO also expressed appreciation for 

GAO’s recognition of FDIC’s accomplishments during the 2007 audit 

year. The CFO added that FDIC is dedicated to promoting the highest 

standard of financial management and that FDIC will work diligently 

to sustain that focus. Furthermore, the CFO added that continued 

improvements in operations remain a priority for FDIC.

The complete text of FDIC’s comments is reprinted in appendix I.

David M. Walker

Comptroller General

of the United States

February 4, 2008
99

Federal Deposit Insurance Corporation

550 17th Street, NW Washington, DC 20429 9990 Deputy to the Chairman and Chief Financial Officer

Appendix I

February 4, 2008

Mr. David M. Walker

Comptroller General of the United States

U.S. Government Accountability Office

441 G Street, NW

Washington, DC 20548

Re: FDIC Management Response on the GAO 2007 Financial Statements Audit Report

Dear Mr. Walker:

Thank you for the opportunity to comment on the U.S. Government Accountability Office’s 

(GAO) draft audit report titled, Financial Audit: Federal Deposit Insurance Corporation 

Funds’ 2007 and 2006 Financial Statements, GAO-08-416. The report presents GAO’s 

opinions on the calendar year 2007 and 2006 financial statements of the Deposit Insurance 

Fund (DIF) and the Federal Savings and Loan Insurance Corporation Resolution Fund (FRF). 

The report also presents GAO’s opinion on the effectiveness of the Federal Deposit Insurance 

Corporation’s (FDIC’s) internal control over financial reporting and compliance with laws and 

regulations for each of the funds as of December 31, 2007, and GAO’s evaluation of FDIC’s 

compliance with selected laws and regulations.

We are pleased that FDIC received unqualified opinions on its financial statements for the sixteenth 

consecutive year and that there were no material weaknesses or significant deficiencies identified 

during the 2007 audits. The GAO reported that the funds’ financial statements were presented 

fairly, in all material respects, in conformity with U.S. generally accepted accounting principles; 

FDIC had effective internal control over financial reporting and compliance with laws and 

regulations for each fund; and there was no reportable noncompliance with laws and regulations 

that were tested.

We appreciate GAO’s recognition of our accomplishments during the 2007 audit year. As 

always, our management team is dedicated to promoting the highest standard of financial 

management, and we will work diligently to sustain that focus. Continued improvements 

in operations remain a priority for FDIC.

In addition, I want to recognize the GAO’s support throughout the audit and to acknowledge 

you and the GAO staff for your efforts and dedication in working with FDIC again this year 

to meet the accelerated reporting deadline for our audited financial statements. We look forward 

to continuing this productive and successful relationship in the coming year.

If you have any questions or concerns, please do not hesitate to contact me.

Sincerely,

Steven O. App

Deputy to the Chairman and

Chief Financial Officer 
100

Overview of the Industry

The 8,560 FDIC-insured commercial 

banks and savings institutions that 

filed financial results for the first 

nine months of 2007 reported net 

income of $100.7 billion, a decline 

of 10.7 percent compared to the 

first nine months of 2006. This is the 

first year-over-year decline in industry 

earnings in seven years. The decline 

in earnings was caused by sharply 

higher expenses for bad loans, weakness in market-sensitive noninterest 

revenues, and narrower net interest 

margins. Fewer than half of all 

institutions – 49.5 percent – reported 

year-over-year increases in net income, 

and the percentage of institutions 

with negative net income for the 

first nine months of the year rose 

to 10.2 percent, up from 7.0 percent 

a year earlier.

The average return on assets (ROA) 

for the first nine months was 

1.11 percent, down from 1.33 percent 

for the same period of 2006. This 

is the lowest nine-month industry 

ROA since 1996. More than 60 percent of insured institutions had lower 

ROAs in 2007 than in 2006. Insured 

institutions set aside $37.1 billion 

in provisions for loan and lease 

losses during the first nine months 

of 2007, an increase of $17.2 billion 

(86.8 percent) compared to the same 

period in 2006. The industry’s total 

noninterest income increased by only 

$1.3 billion (0.7 percent), as income 

from securitization activities fell 

by $3.6 billion (18.4 percent), and 

gains on sales of loans declined 

by $1.8 billion (32.5 percent). 

Total noninterest expenses were 

$11.2 billion (4.4 percent) higher, 

led by a $5.7-billion (5.0-percent) 

increase in salary and benefit 

expenses.

One of the positive trends in income 

and expenses was the $10.3-billion 

(4.0-percent) year-over-year increase 

in net interest income. A difficult 

interest-rate environment characterized by a flat yield curve contributed 

to a decline in the industry’s net 

interest margin. The average margin 

fell from 3.43 percent in the first 

three quarters of 2006 to 3.32 percent 

for the first three quarters of 2007. 

However, the industry’s interestearning assets grew by 7.5 percent 

from the end of September 2006 

through the end of September 2007, 

helping to boost net interest income.

Signs of asset quality deterioration 

were clearly evident in 2007. For 

the 12 months ended September 30, 

total noncurrent loans and leases –

those that were 90 days or more 

past due or in nonaccrual status –

increased by $30.4 billion (57.9 percent). Loans secured by real estate 

properties accounted for 92 percent 

($28.0 billion) of the increase in noncurrent loans. Residential mortgage 

loans accounted for more than half 

($15.4 billion) of the increase in 

noncurrent loans, while noncurrent 

real estate construction and development loans increased by $8.4 billion 

(283 percent). Net charge-offs of 

loans and leases totaled $27.9 billion 

in the first three quarters of 2007, an 

increase of $9.3 billion (49.7 percent) 

over the same period in 2006. Loans 

to individuals other than credit 

cards had the largest year-over-year 

increase, rising by $2.2 billion 

(53.8 percent). Net charge-offs of 

loans to commercial and industrial 

(C&I) borrowers were $1.8 billion 

(84.6 percent) higher, and net chargeoffs of credit card loans increased 

by $1.5 billion (15.5 percent). Net 

charge-offs of residential mortgage 

loans increased by $1.4 billion 

(137.5 percent). At the end of 

September 2007, 65 institutions 

were on the FDIC’s “Problem List,” 

up from a 36-year low of 47 “problem” 

institutions a year earlier. 

Asset growth slowed in 2007, but 

remained strong by historic standards. 

During the 12 months ended 

September 30, total assets of insured 

institutions increased by $954 billion 

(8.1 percent). Loans and leases 

accounted for more than half of 

the increase in total assets, rising 

by $527 billion (7.4 percent). Loans 

to C&I borrowers increased by 

$208.8 billion (17.7 percent), real 

estate construction and development 

loans rose by $71.4 billion (13.1 percent), and real estate loans secured 

by nonfarm nonresidential properties 

grew by $53.6 billion (6.1 percent). 
101

Growth in deposits did not keep pace 

with the increase in total assets. In 

the 12 months ended September 30,

total deposits of insured institutions 

increased by $603.6 billion (8.0 percent). During that period, growth in 

foreign office deposits (up $336.6 

billion, or 30.5 percent) surpassed 

growth in domestic office deposits 

(up $267.0 billion, or 4.1 percent). 

Nondeposit liabilities increased by 

$246.5 billion (8.4 percent), and 

equity capital rose by $103.5 billion 

(8.5 percent). Merger-related goodwill 

accounted for almost two-thirds 

(63 percent) of the increase in equity. 

At the end of September 2007, more 

than 99 percent of all FDIC-insured 

institutions met or exceeded the 

highest regulatory capital standards4.

4 For purposes of Prompt Corrective Action, FDIC-insured institutions are generally considered “well capitalized,“ the highest category, if they have a total risk-based capital ratio of 10.0 percent 

 or greater, a Tier 1 risk-based capital ratio of 6.0 percent or greater, and a leverage ratio of 5.0 percent or greater.