Mission

The FDIC, an independent agency created 

by the Congress, contributes to stability and

public confidence in the nation’s financial 

system by insuring deposits, examining 

and supervising financial institutions, and

managing receiverships.

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.

In its unique role as deposit insurer of banks

and savings associations, and in cooperation

with the other state and federal regulatory

agencies, the FDIC promotes the safety and

soundness of the U.S. financial system and the

insured depository institutions by identifying,

monitoring and addressing risks to the deposit

insurance funds.

The FDIC promotes public understanding 

and the development of sound public policy

by providing timely and accurate financial

and economic information and analyses. It

minimizes disruptive effects from the failure

of banks and savings associations. It assures

fairness in the sale of financial products and

the provision of financial services.

The FDIC’s long and continuing tradition 

of excellence in public service is supported 

and sustained by a highly skilled and diverse

workforce that continuously monitors and

responds rapidly and successfully to changes

in the financial environment.
Vision

The FDIC is an organization dedicated 

to identifying, analyzing and addressing

existing and emerging risks in order to promote

stability and public confidence in the nation's

financial system. Financial Stewardship

The FDIC is committed to being a responsible

fiduciary in its efforts to provide insured 

institutions the best value for their contributions to the insurance funds.

Effectiveness

The FDIC’s reputation rests on its professionalism, its adherence to the highest ethical 

standards, and its skilled and dedicated 

workforce.

Responsiveness

The FDIC responds rapidly, innovatively, and

effectively to risks to the financial system. 

It works effectively with other federal and

state supervisors to achieve consistency in

policy and regulation. It seeks and considers

information from the Congress, the financial

institution industry, individuals seeking and

receiving financial services, and others outside

the FDIC in the development of policy. The

FDIC seeks to minimize regulatory burden

while fulfilling its statutory responsibilities.

Teamwork

The FDIC promotes and reinforces a corporate

perspective and challenges its employees 

to work cooperatively across internal and

external organizational boundaries.

Fairness

The FDIC treats everyone fairly and equitably.

It exercises its responsibilities with care and

impartiality, promotes a work environment

that is free of discrimination and values 

diversity, and adheres to equal opportunity

standards.

Service

The FDIC’s long and continuing tradition

of public service is supported and sustained

by a highly skilled and diverse workforce that

responds rapidly and successfully to change. 

Integrity

The FDIC performs its work with the highest

integrity, requiring the agency to be, among

other things, honest and fair. The FDIC can

accommodate the honest difference of opinion;

it cannot accommodate the compromise 

of principle. Integrity is measured in terms 

of what is right and just, standards to which

the FDIC is committed.

●

●

●

●

Values

The FDIC has identified seven core values that guide corporate operations. The values reflect the

ideals that the FDIC expects all of its employees to strive for as they accomplish the tasks needed

to fulfill the mission. 

●

●

●
February 13, 2004

Sirs,

In accordance with:

● the provisions of section 17(a) of the Federal Deposit Insurance Act,

● the Chief Financial Officers Act of 1990, Public Law 101-576, and

● the Government Performance and Results Act of 1993,

the Federal Deposit Insurance Corporation is pleased to submit its 

2003 Annual Report.

Sincerely,

Donald E. Powell

Chairman

The President of the United States

The President of the United States Senate

The Speaker of the United States House of Representatives

Federal Deposit Insurance Corporation

550 17th St. NW Washington DC, 20429 Office of the Chairman
Message from the Chairman 4

Message from the Chief Financial Officer 8

I. Management’s Discussion and Analysis 10

Operations of the Corporation – The Year in Review 10

Insurance 10

Supervision and Consumer Protection 14

Receivership Management 18

Operational Efficiency and Effectiveness 19

Financial Highlights 22

Deposit Insurance Fund Performance 22

Operating Expenses 23

Investment Spending 24

II. Performance Results Summary 26

Summary of 2003 Performance Results by Program 26

2003 Budget and Expenditures by Program 28

Performance Results by Program and Strategic Goal 29

Multi-Year Performance Trend 34

Program Evaluation 40

III. Financial Statements and Notes 42

Bank Insurance Fund (BIF) 42

Savings Association Insurance Fund (SAIF) 62

FSLIC Resolution Fund (FRF) 84

GAO’s Audit Opinion 98

Management’s Response 103

Overview of the Industry 104

IV. Management Controls 106

Material Weaknesses 107

High Vulnerability Issues 107

Matters for Continued Monitoring 108

Internal Controls and Risk Management Program 110

V. Appendixes 112

A. Key Statistics 112

B. More About the FDIC 124

C. Office of Inspector General’s Assessment of the Management 

and Performance Challenges Facing the FDIC 131

Glossary of Acronyms 133
1

Message 

from the 

Chairman

Donald E. Powell 

James Kegley

Our Priorities

★ Stability

★ Sound Policy

★ Stewardship
5

On behalf of the Federal Deposit Insurance Corporation (FDIC), I am pleased 

to present the 2003 Annual Report. During 2003, our focus was to promote 

the stability of the financial services industry, develop and effectively articulate

sound policy, and research and administer corporate operations in a manner 

consistent with good stewardship of the deposit insurance funds. It gives me

great pleasure to highlight just a few of our major achievements in 2003:

● We established an inter-divisional Risk Analysis Center (RAC) to identify, 

quantify, and respond more quickly and effectively to existing and emerging 

risks to the deposit insurance funds. The RAC allows us to better coordinate 

risk-monitoring efforts and action plans among the various business units of 

the FDIC. It brings together economists, bank examiners, financial analysts 

and others involved in assessing risk to the banking industry and the deposit 

insurance funds.

● We continued to expand the Money Smart program to promote financial 

literacy among low and moderate-income Americans outside of the financial 

mainstream. The Money Smart curriculum is now available in English, 

Spanish, Chinese and Korean. Since the rollout of Money Smart a little over 

two years ago, we have trained over 5,000 volunteer instructors and taught 

over 100,000 people. The FDIC has taken the lead in establishing partnerships

with community groups and bankers to link services such as applying for 

Earned Income Tax Credit (EITC) funds, offering free tax preparation services 

and other incentives to promote and provide financial education. As a result 

of these partnerships, we have seen nearly 14,000 previously unbanked 

consumers establish new bank accounts. In 2003, we were honored to receive

the Partnership for Public Service’s prestigious Service to America Business

and Commerce medal for our efforts in this area. 

● We established the Center for Financial Research (CFR) to encourage and 

support innovative research on topics that are important to the FDIC’s role 

as deposit insurer and bank supervisor. The CFR is a partnership between 

the FDIC and the academic community, with prominent scholars integrally 

involved in managing and directing its research program. The research 

sponsored by the CFR will explore key developments affecting the banking 

industry, risk measurement and management methods, regulatory policy 

and other topics of interest to the FDIC and the larger financial community. 

The CFR provides financial support for researchers outside of the FDIC to 

undertake relevant projects in selected program areas, and provides a forum 

for exchanging ideas among regulators, academicians and financial industry 

representatives. The CFR will be organizing research roundtables, workshops 

and discussion groups on issues critical to the business of the FDIC. 

● We joined with other regulators in a multi-year interagency effort under 

the leadership of FDIC Vice Chairman John Reich to eliminate outdated or 

unnecessary regulations that impose costly, time-consuming burdens on the 

banking industry, in accordance with the Economic Growth and Regulatory 

Paperwork Reduction Act (EGRPRA). During the past year the federal banking

agencies issued an EGRPRA Federal Register notice seeking industry and 

public comment on the regulatory review program and the first set of 

regulations subject to this review. 
● We reached an agreement with our Federal Financial Institutions Examination 

Council (FFIEC) partners to build and implement a new internet-based Central 

Data Repository (CDR) for Call Reporting and other regulatory reports. The 

CDR will employ cutting edge technology based on the XBRL (Extensible 

Business Reporting Language) data standard. This system will reduce the 

reporting burden on the industry while simultaneously providing high quality, 

more timely data to regulators, financial institutions and the public. 

● Again this year, we made progress toward the enactment of comprehensive 

deposit insurance reform legislation that would combine the deposit insurance

funds, give the FDIC greater managerial control over the combined funds 

and protect the level of deposit insurance coverage by indexing it to inflation. 

I testified before the House Financial Services Committee and the Senate 

Banking Committee in support of the FDIC’s deposit insurance reform 

proposals. The House passed reform legislation in April by a vote of 411 

to 11. The FDIC will continue to focus attention on this important issue 

during the second session of the 108th Congress.

● We completed implementation of an internet portal, FDICconnect, to facilitate

the electronic exchange of information between the FDIC and its insured 

institutions and began to make initial use of it for the electronic filing of 

branch applications by insured institutions and Beneficial Ownership Reports 

by directors, officers, and principal shareholders of insured financial institutions. 

In addition, quarterly assessment invoices were made available to insured 

institutions for the first time through FDICconnect. 

● We completed a comprehensive Information Technology (IT) Program 

Assessment and named a Chief Information Officer (CIO) who will provide 

leadership in improving our IT program. The new CIO will ensure that our 

corporate-wide information technology needs are met in a cost-effective 

manner, and that our information systems meet the highest security standards.

● We appointed the FDIC’s first Chief Learning Officer and five Deans to provide

leadership for our new Corporate University (CU). The CU was established 

to help our employees keep pace with changes in the banking industry, broaden

their perspectives, sharpen their job skills, and enhance their leadership 

expertise. 

6
7

As Chairman, I will continue to work diligently with the dedicated men and

women of the FDIC to support the stability of the banking industry, promote

sound banking policy, and be an effective steward of the insurance funds. The

FDIC has helped to provide financial stability in the U.S. banking industry for 

70 years, and in that time, not one penny of federally-insured depositors’ money

has ever been lost. We are proud of that accomplishment and committed to 

continuing that record in 2004.

Sincerely,

Donald E. Powell
1

Message 

from the 

Chief 

Financial

Officer

Steven O. App 

I am pleased to present the FDIC’s 2003

Annual Report, which provides our stakeholders with meaningful financial and 

program performance information and 

summarizes our success in meeting our

2003 goals and objectives. The FDIC is 

dedicated to providing timely, reliable and

useful information to our stakeholders. To

that end, I am especially proud that this

report and the annual financial statements

audits were produced for the first time 

within the new financial reporting benchmark for all Cabinet-level agencies, 45 days

after the end of the fiscal year. 

Financial highlights during 2003 include:

● The Bank Insurance Fund (BIF) increased by $1.7 billion to $33.8 billion, and 

the Savings Association Insurance Fund (SAIF) increased by $493 million to 

$12.2 billion, compared to $1.6 billion and $812 million, respectively, in 2002.

● Assessment income declined for both funds in 2003, and interest earned 

on the funds suffered from the continuing low interest rate environment. 

The interest earned on the BIF declined by $162 million, or ten percent, 

and the interest earned on the SAIF declined by $32 million, or six percent. 

● Both the BIF and the SAIF reported unrealized losses on available-for-sale 

securities in 2003 of $10 million and $7 million, respectively, following a large 

accumulation of unrealized gains in 2002 of $566 million and $192 million, 

respectively. These unrealized losses were largely due to the fact that interest

rates increased and reached a plateau in late 2003 after dropping sharply 

in 2002 and early 2003. Despite the modest unrealized losses in 2003, 

cumulative unrealized gains in the funds remained high at $802 million in 

the BIF and $274 million in the SAIF.

● Although assessments, interest revenue, and unrealized gains declined in 

2003 for both funds, this was more than offset in the BIF and partially offset 

in the SAIF by a reduction in the estimated losses for future failures of 

$830 million and $87 million, respectively. The overall reduction was primarily 

the result of an improvement in the loss reserve calculation methodology 

and the improved financial condition of a few large troubled institutions.

Efforts to reduce operating costs continued in 2003. The Board of Directors

approved a 2004 Corporate Operating Budget that was $5 million lower than 

the 2003 Corporate Operating Budget, despite absorbing higher cost for salaries

and benefits on a per capita basis, and inflation in non-personnel cost. However,

total estimated spending is projected to rise by $90 million to $1.2 billion, in

2004, because of higher spending on several major capital investment projects

that are now underway. That investment spending will in most cases reduce

future operating costs.

A strong capital investment management program is critical to attaining the

Corporation’s business goals. In late 2002, the Capital Investment Review

Committee (CIRC) was established to review major proposed investment 

projects before their submission to the Board of Directors and to oversee 

those projects for which the Board approves funding. 
9

Highlights of some of the FDIC’s major capital investment projects during 

2003 follow:

● Construction began in September to expand FDIC’s Seidman Center 

office complex and training center in Northern Virginia with completion 

scheduled for early 2006. Compared to the projected costs of continued 

leasing in downtown Washington, DC, the project will save the FDIC an 

estimated $78 million over 20 years on a net present value basis.

● Under the auspices of the Federal Financial Institutions Examination Council, 

an inter-agency project was initiated to consolidate and streamline the 

collection, editing, and publication of quarterly bank financial reports through 

a Central Data Repository (CDR). 

● A new enterprise solution was approved to better manage failed bank and 

thrift asset-servicing functions. The Asset Servicing Technology Enhancement

Project (ASTEP) will permit the Corporation to replace obsolete systems 

and maximize the use of outsourcing while maintaining centralized asset 

management information through the use of “middleware.”

To keep pace in an ever-changing technological environment, the Corporation

conducted a comprehensive review of its information technology program. 

The review focused on information technology process improvements, sourcing

strategies and organizational structure. The FDIC also worked to strengthen its

information security program by developing additional policies and procedures

and initiating a more extensive self-assessment program. 

The U.S. General Accounting Office (GAO) issued unqualified opinions on the

FDIC’s 2003 financial statements audits of the BIF, SAIF, and the Federal Savings

and Loan Insurance Corporation Resolution Fund (FRF). This is the twelfth consecutive year the Corporation received unqualified opinions for all three funds.

The FDIC evaluated its risk management and internal control systems in accordance with the reporting requirements of the Federal Managers’ Financial Integrity

Act of 1982 (FMFIA) and GAO internal control standards. I can provide you with

reasonable assurance, based on these assessments, that the Corporation’s risk

management and internal control systems, taken as a whole, are in conformance

with the standards prescribed by GAO and that the objectives of FMFIA have

been achieved. No material weaknesses were found in the FDIC’s system of

internal controls that would affect the accuracy of the financial statements. 

The FDIC will continue in 2004 to meet its statutory, regulatory and fiduciary

responsibilities through sound financial management and a strong risk management and internal control program. 

Sincerely,

Steven O. App
1

Operations of the

Corporation – 

The Year in Review

As the FDIC marked its 70th anniversary in 2003, it continued to ensure

the stability of the nation’s financial

services industry – the Corporation’s

original mandate in 1933. Much has

changed for the FDIC over seven

decades, including the tools it uses

to conduct bank examinations, the

way it markets failed bank assets,

and the manner in which it assesses

risk to the deposit insurance funds.

However, what has remained 

constant are the reliability of deposit

insurance and the public’s confidence

in the FDIC and the nation’s financial

system. 

During 2003, the FDIC continued 

to strive to meet the challenges of

an ever-evolving banking industry –

challenges associated with globalization, advances in technology and

industry consolidation. The FDIC 

provided leadership on important

economic and policy issues, working

to enact deposit insurance reform

legislation, and holding symposia for

policymakers, regulators and others

to engage in dialogue on significant

public policy concerns. It also continued to monitor emerging risks to 

the deposit insurance funds, while

improving its internal operations to

better meet the challenges of the

future. 

Highlights of the Corporation’s 2003

accomplishments are presented

below for each of its three major

business lines–Insurance, Supervision

and Consumer Protection, and

Receivership Management. 

I. Management’s

Discussion

and Analysis

Insurance

The FDIC insures bank and savings

association deposits. As insurer, the

FDIC must continually evaluate how

changes in the economy, the financial

markets and the banking system

affect the adequacy and the viability

of the deposit insurance funds. During

2003, the FDIC sought to enhance

its risk analysis and management,

promote sound public policies, and

resolve failed institutions in a timely

manner.

Enhanced Risk Analysis 

and Management

The FDIC employs a robust, integrated risk analysis process that 

was strengthened by several initiatives in 2003. The Risk Analysis

Center (RAC) was established 

in March. Located at the FDIC’s

headquarters in Washington, DC, 

the RAC brings together economists,

bank examiners, financial analysts,

and others involved in assessing 

risks to the banking industry and the

insurance funds. Under the auspices

of the RAC, individuals from these

various disciplines work together 

to monitor and analyze economic,

financial, regulatory and supervisory

trends, and their potential implications

for the continued financial health of

the banking industry and the deposit

insurance funds. Comprehensive

solutions are developed to address

risks identified during this process. 

The principle of a coordinated

approach to analyzing and addressing

risks also extends to Regional Risk

Committees (RRCs), which have

operated for a number of years, 

but were formally chartered in

January 2003. Each of the FDIC’s 

six regional offices has an RRC that

meets regularly, engaging individuals

from various disciplines to analyze

and address the unique risks facing

the region. 
In January 2003, the National Risk

Committee (NRC) was chartered to

provide a forum for executive leadership to consider and coordinate risk

management activities across the

FDIC. The RAC and RRCs provide

data and reports to the NRC to support policy and resource allocation

decisions of the NRC. Among other

things, the NRC is responsible for

ensuring that the FDIC takes appropriate actions to address identified

risks and that these risks and FDIC’s

actions are effectively communicated

to internal and external audiences.

Improved Financial Risk

Management Practices

In 2003, the FDIC hired an independent, outside consultant to review 

the FDIC’s financial risk management

practices. This review focused 

particularly on the methodology 

and processes used by the interdivisional Financial Risk Committee

(FRC), which is responsible for 

recommending quarterly the amount

of the BIF and SAIF contingent 

liability for anticipated bank and 

thrift failures. The final report,

Strengthening Financial Risk

Management at the FDIC, reflects

the FDIC’s commitment to ensuring

that our methods and procedures

remain effective and represent

industry best practices. The report

provided meaningful suggestions 

to enhance the overall accuracy,

robustness and transparency of 

the FDIC’s contingent loss-reserving

process. It also laid out a road map

to follow in developing next-generation tools and organizational practices

for managing risk at the FDIC. 

The consultant’s recommendations

span three overlapping time periods

(Horizons 1, 2, and 3). The FDIC

implemented Horizon 1 recommendations in September 2003. The

results of the implementation of

these recommendations are reflected

in our audited 2003 financial 

statements. The Horizon 1 recommendations include:

● Limiting subjective deviations 

from average expected failure 

rates to a range around the recent,

historical average, and developing

explicit guidelines for when the 

FRC may elect to deviate from 

the average,

● Incorporating the asset and liability

compositions of failing banks and 

thrifts into expected loss rates, 

and

● Adopting a set of more formal 

operating procedures for the FRC.

The FDIC will implement Horizon 2

recommendations throughout 2004.

The Horizon 2 recommendations

include:

● Accelerating development of a 

new integrated model for financial

risk management. The FDIC has 

already developed a prototype 

loss distribution model that will be

the centerpiece of the integrated

fund model and will be used by 

the FRC in 2004 to establish the 

contingent liability for anticipated 

failures. A paper describing the 

prototype model was presented 

at the Finance and Banking: 

New Perspectives conference 

in December 2003, and 

● Building a more integrated risk 

management organization by 

enhancing outputs, operations 

and feedback mechanisms of 

the FRC and RAC.

Horizon 3 improvements include

building capabilities such as realtime risk management, programs 

for hedging or reinsurance, and the 

ability to rapidly conduct scenario

analyses. The FDIC will annually

assess whether to implement

Horizon 3 capabilities.

FDIC Center for Financial Research

The Corporation established the

Center for Financial Research (CFR)

in late 2003 to promote research that

would provide meaningful insights into

developments in deposit insurance,

the financial services sector, prudential supervision, risk measurement

and management, regulatory policy

and related topics that are of interest

to the FDIC, the financial services

industry, academia and policymakers.

The CFR will be a partnership

between the FDIC and the academic

community with prominent scholars

actively engaged in overseeing and

11

Art Murton, Mike Zamorski, Mitchell Glassman, and

Chairman Powell officially open the RAC.
12

directing its research program. The

CFR will carry out its mission through

an agenda of research, analysis,

forums and conferences that 

encourages and facilitates an ongoing

dialogue that incorporates industry,

academic and public-sector perspectives. The CFR will support highquality original research by sponsoring relevant research program lines

and soliciting rigorous analysis of 

the issues within five program areas.

These programs will be under the

leadership of program coordinators

who are drawn largely from the 

outside academic community. 

Input will also be obtained from 

six prominent economists who 

will serve as Senior Fellows. 

The CFR will sponsor a Visiting

Research Fellows Program to provide

support for residence scholars for

defined time periods. The CFR will

also organize visits and encourage

interaction and collaboration between

outside scholars and FDIC staff on

subjects of mutual interest. 

New International Capital

Standards

The FDIC continues to actively participate in the Basel Committee on

Banking Supervision’s (BCBS) efforts

to update and revise the 1988 Basel

Capital Accord. Such revisions are

necessary to align capital standards

with advances in banks’ risk measurement and management practices,

while continuing to assure that these

banks maintain adequate capital

reserves. In addition to the BCBS,

the FDIC is active on a number of

global supervisory groups, including

the Capital Task Force, the Accord

Implementation Group, the Risk

Management Group, and various

subgroups and task forces that 

seek to enhance risk management

practices.

The FDIC invested significant

resources on several fronts during

2003 to ensure that the new capital

rules, when final, will be compatible

with the Corporation’s roles as 

both deposit insurer and supervisor. 

Significant work has been performed,

both internationally and domestically,

to assure that the new Accord is

implemented efficiently, that effective

supervisory oversight will continue,

and that these new rules will not

create unintended and potentially

harmful consequences.

Ensuring the adequacy of capital

requirements under the new Accord

was the FDIC’s main priority during

2003. The FDIC published a study

suggesting that over time and on

average, risk-based capital requirements under the new Accord would

probably decline substantially relative

to the 1988 Accord. In 2004, the

FDIC will seek to ensure that any

reductions in capital requirements

reflect bank risk profiles rather 

than specific statistical modeling

assumptions. The BCBS has established a goal of issuing a final rule 

in mid-2004, with implementation

slated for January 2007.

Deposit Insurance Reform

The FDIC continued to give priority

attention to enactment of comprehensive deposit insurance reform

legislation throughout 2003. Legislation containing major elements

of the deposit insurance reform 

proposals developed by the FDIC

over the past three years was 

introduced in both the House of

Representatives and the Senate.

FDIC Chairman Powell testified in

support of deposit insurance reform

proposals on February 26 before the

Senate Banking Committee and on

March 4 before the House Financial

Services Committee.

The FDIC’s recommendations, which

were summarized in the testimony,

include:

● Merging the Bank Insurance Fund

(BIF) and the Savings Association 

Insurance Fund (SAIF).

● Granting the FDIC’s Board of 

Directors the flexibility to manage 

a combined deposit insurance 

fund. Under the present system, 

statutorily-mandated methods of 

managing the size of the BIF and 

SAIF may cause large premium 

swings and could force the FDIC 

to charge the highest premiums 

during difficult economic times 

when the industry can least afford 

it. Currently, safer institutions 

subsidize riskier institutions 

unnecessarily while new entrants 

and growing institutions avoid 

paying premiums. To correct 

these problems, the FDIC recommended that the Congress give 

the Board of Directors the 

discretion to:

● Manage the combined fund 

within a range.

● Price deposit insurance 

according to risk at all times 

and for all insured institutions.

● Grant a one-time initial

assessment credit to recognize 

institutions’ past contributions 

to the fund and create an 

ongoing system of assessment

credits to prevent the fund 

from growing too large.

● Indexing deposit insurance coverage to ensure that basic account 

coverage is not eroded over time 

by inflation.
13

The House passed H.R. 522, the

Federal Deposit Insurance Reform

Act of 2003, on April 2 by a vote 

of 411 to 11. Although the Senate

Banking Committee held a hearing

on deposit insurance reform in

February, it did not act on a deposit

insurance bill during the year. Enactment of deposit insurance reform

will remain a priority of the FDIC 

during 2004. 

FFIEC Central Data Respository 

The FDIC provided leadership for 

a new interagency initiative with 

the Federal Reserve Board and the

Office of the Comptroller of the

Currency under the auspices of the

FFIEC, to consolidate the collection,

editing and publication of quarterly

bank financial reports into a Central

Data Repository (CDR). The CDR will

be implemented during the fourth

quarter of 2004 and will be accessible

to regulators, financial institutions

and the public. This initiative will be

undertaken in cooperation with the

industry and will employ cutting-edge

technology based on the Extensible

Business Reporting Language (XBRL)

standard to define data standards

and streamline the collection and 

validation of the data. The first

reports are expected to be filed

under the new system beginning

with the September 2004 Call Report.

Future of Banking Study

The FDIC conducted a study on the

future of banking during 2003 that

focused on underlying trends in the

economy and the banking industry,

and their implications for different

sectors of the industry and for bank

regulators in the future. FDIC analysts

explored policy issues that included

the mixing of banking and commerce,

regulatory reorganization, consumer

privacy, the role of banks in light 

of the increased importance of nonbank competitors, and the potential

effects of financial services industry

consolidation on small business and

local economies. As part of the study,

FDIC analysts met with representatives from the banking industry and

the regulatory community throughout the year to discuss their views

on the direction of the industry. The

results of the study will be presented

at a conference in 2004 and published

following this conference. The FDIC’s

Advisory Committee on Banking

Policy, formed in 2002 to provide

advice and recommendations relating

to the FDIC’s mission, will also be

reviewing the study. 

Reduced Regulatory Burden

On June 3, 2003, under the leadership

of FDIC’s Vice Chairman John Reich,

the federal thrift and bank regulatory

agencies launched a cooperative,

three-year effort to review all of their

regulations (129 in all) that impose

some burden on the industry. The

purpose of the review, which is mandated by the Economic Growth and

Regulatory Paperwork Reduction Act

of 1996 (EGRPRA), is to identify and

eliminate any regulatory requirements

that are outdated, unnecessary or

unduly burdensome. As a former

community banker, Vice Chairman

Reich understands bankers’ concerns

regarding the extent of regulatory

burden and believes that, with the

assistance of bankers, meaningful

changes can be made. For the purposes of this review, the agencies

categorized their regulations into 

12 separate groups. Every six months,

new groups of regulations will be

published for comment, giving bankers

and others an opportunity to identify

regulatory requirements they believe

are no longer needed. The agencies

will then analyze the comments 

and propose amendments to their

regulations where appropriate.

On June 15, 2003, the agencies

issued the first three groups of 

regulations for comment: Applications

and Reporting, Powers and Activities,

and International Banking. During the

90-day comment period, 17 letters

were received containing more than

150 individual recommendations for

burden reduction. Staff is reviewing

and analyzing all of these recommendations with an eye towards reducing

regulatory burden wherever possible.

If necessary, legislative changes 

may be proposed.

Determined to cut red tape and reduce regulatory burden are (l to r), 

OTS Director James Gilleran, Jim McLaughlin of the American Bankers

Association, Harry Doherty of America’s Community Bankers, 

FDIC Vice Chairman John Reich and Ken Guenther of the Independent

Community Bankers of America.
14

As a part of the regulatory burden

reduction effort, the FDIC hosted

five banker outreach meetings during

2003 to facilitate industry awareness

of the EGRPRA project and to listen

to bankers’ comments, complaints

and suggestions on regulatory 

burden. These meetings were

attended by more than 250 bankers.

Chairman Powell, Vice Chairman

Reich, Federal Reserve Board

Governor Mark Olson and Comptroller

John D. Hawke were featured

speakers at the meetings. Project

staff from each of the federal banking

regulatory agencies as well as regional

representatives of the major industry

trade groups attended each of the

meetings. Outreach sessions were

held in Orlando, St. Louis, Denver,

San Francisco and New York. 

Ten major regulatory issues emerged

from the outreach sessions that

appeared to be of the greatest 

concern to bankers:

● Bank Secrecy Act, including 

Suspicious Activity Reports (SARs)

and Currency Transaction Reports

(CTRs) 

● USA PATRIOT Act and “Know 

Your Customer” Requirements

● Withdrawal Limits on Money 

Market Deposit Accounts 

(Regulation D)

● Home Mortgage Disclosure Act 

(HMDA)

● Community Reinvestment Act 

(CRA)

● Truth-in-Lending Act (Regulation Z)

and the Real Estate Settlement 

Procedures Act (RESPA)

● Three-Day Right of Rescission 

● Extensions of Credit to Insiders 

(Regulation O)

● Flood Insurance

● Privacy Notices

The EGRPRA project will give particular attention to these concerns as 

it moves forward.

The FDIC maintains an interagency 

web site on EGRPRA: www.egrpra.gov.

This site contains the agendas and

discussion topics from the outreach

meetings, as well as a summary 

of the issues raised and potential

solutions offered by the participants.

Comments received during the first

comment period are also posted 

on the web site. 

Resolution of Failed Institutions 

During 2003, the FDIC resolved

three financial institution failures.

These failed institutions had a 

total of $1.10 billion in assets and

$908.6 million in deposits. Within

one business day after each failure,

the FDIC had issued payout checks

to insured depositors, or worked

with open institutions to ensure 

that depositors had access to their

insured funds. (See the accompanying table on page 18 for details about

liquidation activities.)

Supervision and Consumer

Protection

Supervision and consumer protection

are the cornerstones of the FDIC’s

efforts to ensure the stability of 

and public confidence in the nation’s

financial system. At year-end 2003,

the Corporation was the primary federal regulator for 5,340 FDIC-insured,

state-chartered institutions that are

not members of the Federal Reserve

System (generally referred to as

“State Nonmember” institutions).

Through safety and soundness, consumer compliance, and Community

Reinvestment Act (CRA) examinations of these FDIC-supervised 

institutions, the FDIC assesses their

operating condition, management

practices and policies as well as their

compliance with applicable laws and

regulations. The FDIC also educates

bankers and consumers on matters

of interest to bank customers and

addresses consumers’ questions 

and concerns.

Safety and Soundness

Examinations

During 2003, the Corporation conducted 2,421 statutorily required

safety and soundness examinations.

The number and total assets of

FDIC-supervised institutions identified

as “problem” institutions (defined as

having a composite CAMELS1 rating

of “4” or “5”) decreased during

2003. As of December 31, 2003, 

73 institutions with total assets of

$8.2 billion had been identified as

problem institutions, compared to 

84 institutions with total assets of

$12.8 billion on December 31, 2002.

These changes represent a decrease

of 13.1 percent and 35.9 percent in

the number and assets of problem

institutions, respectively. During

2003, 58 institutions were removed

from problem institution status 

due to composite rating upgrades,

mergers, consolidations or sales, and

47 were newly identified as problem

institutions. The FDIC is required 

to conduct follow-up examinations 

of all designated problem institutions

within 12 months of the last examination. As of December 31, 2003, 

all follow-up examinations for problem

institutions had been performed on

schedule.

The CAMELS composite rating represents the adequacy of Capital, the quality of Assets, the capability of Management, the

quality and level of Earnings, the adequacy of Liquidity, and the Sensitivity to market risk, and ranges from “1” (strongest) to

“5” (weakest).

1
15

Compliance and Community

Reinvestment Act (CRA)

Examinations 

The FDIC conducted1,610comprehensive compliance-CRA examinations,

307 compliance-only examinations2

,

and two CRA-only examinations in

2003, compared to 1,334 comprehensive compliance-CRA examinations,

493 compliance-only examinations,

and 13 CRA-only examinations in

2002. One institution was assigned 

a composite “4” rating for compliance as of year-end 2003. None were

assigned a composite “5” rating. The

“4” rated institution has entered into

a Memorandum of Understanding

(MOU) with the FDIC to correct 

compliance issues. The ratings for

institutions with CRA-only examinations were rated “Satisfactory.” 

(See the accompanying table for

details about the FDIC Examinations.)

Examination Program Efficiencies

The FDIC continues to implement

measures to improve efficiency by

maximizing the use of risk-focused

examination procedures at wellmanaged banks that meet certain 

criteria. The Maximum Efficiency,

Risk-Focused, Institution Targeted

(MERIT) Program provides for the

use of risk-focused safety and

soundness examination procedures

at FDIC-supervised institutions with

assets of $250 million or less that

are well-managed, well-capitalized

and meet other program criteria. 

This program helps ensure that the

FDIC’s resources are focused on

those institutions that pose the

greatest risk to the insurance funds,

while preserving the integrity of 

the examination process. 

The FDIC refocused its compliance

examination approach during the

second half of 2003. The revised

process evaluates a financial institution’s compliance management 

system through a review of policies

and procedures and discussions with

staff from the institution. Examiners

place emphasis on how well the

institution’s own compliance 

management system is working 

to identify emerging risks, monitor

changes to laws and regulations,

ensure employees understand 

their responsibilities, incorporate

compliance into business operations,

review those operations to ensure

compliance with applicable laws 

and regulations, and take effective

corrective actions when necessary.

Based on risks identified in the 

compliance management system,

examiners pinpoint areas for further

evaluation using transaction testing.

USA PATRIOT Act

Since the enactment of the 

USA PATRIOT Act (Uniting and

Strengthening America by Providing

Appropriate Tools Required to

Intercept and Obstruct Terrorism Act

of 2001), the FDIC has participated

in numerous interagency working

groups to draft revisions to the 

Bank Secrecy Act as required by 

the USA PATRIOT Act and to develop

interpretive guidance for the financial

services industry. In May 2003, the

FDIC, in conjunction with other 

regulatory agencies, jointly issued 

a final rule to implement Section 326

of the USA PATRIOT Act. Section

326 requires financial institutions to

implement a customer identification

program to verify the identity of 

customers opening new accounts.

The FDIC has taken steps to educate

its examination staff and members

of the banking industry on the USA

PATRIOT Act at outreach events,

training conferences and seminars.

To assist financial institutions in their

efforts to comply with the Bank

Secrecy Act and the USA PATRIOT

Act, the FDIC publicly released its

examination procedures for the Bank

Secrecy Act in October 2003. 

Compliance-only examinations are conducted for most institutions at or near the mid-point between comprehensive CRA-compliance examinations under the Gramm-Leach-Bliley Act of 1999, which amended the Community Reinvestment Act of 1977.

CRA examinations at small financial institutions with aggregate assets of $250 million or less are subject to a CRA examination

no more than once every five years if they receive a CRA rating of “Outstanding” and no more than once every four years if they

receive a CRA rating of “Satisfactory.”

2

2003 2002 2001

Safety and Soundness:

State Nonmember Banks 2,182 2,290 2,300

Savings Banks 231 229 241

Savings Associations 0 0 0

National Banks 5 10 16

State Member Banks 3 5 9

Subtotal - Safety and Soundness Examinations 2,421 2,534 2,566

CRA/Compliance Examinations:

Compliance-Community Reinvestment Act 1,610 1,334 709

Compliance-only 307 493 1,465

CRA-only 2 13 5

Subtotal CRA/Compliance Examinations 1,919 1,840 2,179

Specialty Examinations:

Trust Departments 501 524 466

Data Processing Facilities 2,304 1,681 1,625

Subtotal-Specialty Examinations 2,805 2,205 2,091

Total 7,145 6,579 6,836

FDIC Examinations 2001-2003
16

To facilitate industry cooperation with

law enforcement authorities in their

ongoing investigation of terrorist

activities through the implementation

of Section 314(a) of the USA PATRIOT

Act, the FDIC also worked with 

other federal banking regulators 

to incorporate point-of-contact 

information as a required item in 

the Call Report, beginning with the

March 2003 Call Report. The FDIC 

is the only banking regulator to use

this mechanism thus far to provide

current point-of-contact information

to the Financial Crimes Enforcement

Network (FinCEN) to aid in its 

distribution of Section 314(a) 

information-sharing requests.

The Director’s Corner

The FDIC and the other banking

agencies frequently publish and issue

guidance for insured institutions and

their officers and directors to use 

to fulfill their responsibilities. This

useful and practical information 

was made available during the first

quarter of 2003, when the FDIC

established the “Director’s Corner” 

on its external Web site. This site

includes items such as Interagency

Policy Statements, Supervisory

Guidance, and Financial Institution

Letters on the topics of Corporate

Governance Practices, Auditing and

Internal Controls, Accounting Practices

and the Allowance for Loan and

Lease Losses, and other areas of

interest to bank directors. 

Payday Lending

In January 2003, the FDIC published

for public review and comment draft

examination guidelines for state 

nonmember institutions that offer

payday loans. More than 1,000 comments were received and considered

prior to implementing final guidelines

in July 2003. Necessitated by the

high-risk nature of the business line

and the substantial growth of the

product, the final guidelines identify

the key safety and soundness and

consumer protection issues that

examiners will consider when 

evaluating payday lending during

examinations. The FDIC’s guidelines,

while similar in many respects to

those issued by other financial 

institution regulatory agencies, are

more explicit on the applicability of

the expanded interagency guidance

to sub-prime lending programs, 

capital requirements, allowance for

loan and lease losses, classifications,

accounting for accrued interest and

fees and recoveries, and lending

concentrations.

Money Smart Financial 

Literacy Program 

One of the Corporation’s top priorities

in 2003 was the continued promotion

of financial education through its

Money Smart Program. The FDIC 

was awarded the prestigious Service

to America Business and Commerce

medal in October 2003 for its efforts

in promoting financial literacy using

the Money Smart curriculum. 

These medals honor people and

organizations that have shown 

a strong commitment to public 

service and have made a significant

contribution in their field of government that is innovative, high-impact

and critical for the nation.

Since its introduction in July 2001,

the Money Smart program has 

generated a great deal of interest.

Primarily designed to help adults

with little or no banking experience

develop positive relationships with

insured depository institutions, 

the program has been widely cited 

in over 100 national and local 

publications. Requests for the 

program have been received from

Mexico, Thailand and Canada. During

2003, the FDIC continued to expand

DSC Money Smart team members (l to r): Pam Bronson, Joan Lok, Kip Child,

Jacqui Gordon, Cathie Davis, Teresa Perez, Jim Pilkington, and Clinton Vaughn

join Chairman Powell and team leader Nelson Hernandez on stage to accept

the Service to America Business and Commerce medal.
17

the public’s access to Money Smart

by translating the program into

Chinese and Korean and expanding

membership in the Money Smart

Alliance. By year-end 2003, the FDIC

had trained over 5,000 volunteer

instructors, taught over 100,000 

consumers and supplied more than

111,000 copies of the Money Smart

training curriculum to various groups,

including government, community,

financial and faith-based organizations.

Consumer Complaints 

and Inquiries

The FDIC investigates and responds

to complaints and inquiries from 

consumers, financial institutions 

and other parties about potential 

violations of consumer protection

and fair lending laws, as well as

deposit insurance matters. As of

December 31, 2003, the FDIC had

received 8,026 complaints, of which

4,047 were against state-chartered

nonmember banks. Approximately

fifty percent of the state nonmember

bank consumer complaints concerned

credit card accounts. The most 

frequent complaints involved loan

denials, billing disputes and account

errors, terms and conditions, collection practices, reporting of erroneous

information, and credit card fees 

and service charges. The FDIC’s 

centralized Consumer Response

Center (CRC) is responsible for

investigating all types of consumer

complaints about FDIC-supervised

institutions and for answering 

consumer inquiries about consumer

protection laws and banking practices. 

During 2003, the FDIC received over

100,000 inquiries from consumers and

members of the banking community.

The FDIC Central Call Center serves

as the primary telephone point of

contact for questions on deposit

insurance coverage from the banking

community and the public. (For more

information on the Call Center, which

can be reached at 1-877-ASK-FDIC,

or 1-877-275-3342, toll free, see

page 129.)

Corporate Governance

The FDIC has long recognized the

importance of good corporate governance in maintaining the integrity

and stability of the nation’s banking

system. The Sarbanes-Oxley Act of

2002 (Act) imposes new reporting,

corporate governance, and auditor

independence requirements on 

companies including insured depository institutions and bank and thrift

holding companies with securities

registered under the federal securities

laws. In response to questions about

the applicability of the Act to insured

depository institutions that are not

public companies, the FDIC issued

comprehensive guidance in March

2003, describing significant provisions of the Act and related rules 

of implementation adopted by the

Securities and Exchange Commission.

The guidance explained how adopting

sound corporate governance practices

outlined in the Act may benefit 

banking organizations, including

those that are not public companies,

and how several of the Act’s requirements mirror existing banking agency

policy guidance related to corporate

governance.

Defense Secretary Donald Rumsfeld and FDIC Chairman Donald Powell

agree, at a meeting at the Pentagon, to make Money Smart training

available to 1.4 million servicemen and servicewomen worldwide.
18

Receivership Management

The FDIC has the unique mission of

protecting the depositors of insured

banks and savings associations.

Since FDIC’s inception over 70 years 

ago, no depositor has ever experienced a loss of insured deposits 

at an FDIC-insured institution due to

a failure. The FDIC protects insured

depositors by prudently managing

the BIF and the SAIF and using the

assets of the funds to make insured

depositors whole at the time of 

institution failure. Once an institution

is closed by its chartering authority –

the state for state-chartered institutions, the OCC for national banks, 

or the OTS for federal savings 

associations –the FDIC is responsible

for the resolution of the failed bank

or savings association. FDIC staff 

gathers data about the troubled 

institution, estimates the potential

loss due to its failure, solicits 

and evaluates bids from potential

acquirers, and then recommends 

the least costly resolution transaction

to the FDIC’s Board of Directors. 

Protecting Insured Depositors

Through Asset Marketing

The FDIC’s ability to attract healthy

FDIC-insured institutions to assume

deposits and to purchase the assets

of failed banks and savings associations ensures that depositors have

prompt access to their insured

deposits, minimizes the disruption 

to the customers and the community,

and allows a fair portion of the failed

institution’s assets to be returned to

the private sector almost immediately.

Assets remaining after the resolution

transaction are liquidated by the

FDIC in an orderly manner, and the

proceeds are used to pay creditors,

uninsured depositors (depositors

whose accounts exceed the $100,000

deposit insurance limits), and 

reimburse the insurance fund that

funded the resolution transaction. 

In 2003, the FDIC again met its goal

of marketing 85 percent of a failed

institution’s marketable assets within

90 days of the institution’s failure. 

During 2003, the FDIC resolved

three BIF-insured institution failures.

Southern Pacific Bank, Torrance,

California, with total assets of $1.052

billion, was closed on February 7.

Southern Pacific’s insured deposits

and a large portion of its assets 

were sold to another FDIC-insured

institution. First National Bank of

Blanchardville, Blanchardville,

Wisconsin, with total assets of

$35.5 million, failed on May 9, 

and all insured deposits were sold 

to another FDIC-insured institution.

Pulaski Savings Bank, Philadelphia,

Pennsylvania, with total assets of

$8.9 million, failed on November 14,

and all insured deposits were sold 

to another FDIC-insured institution.

(See the accompanying table above

for details about liquidation activities.)

The FDIC initiated a number of 

projects in 2003 to better manage

and leverage its resources to meet

potential challenges in the resolution

of future financial institution failures.

These projects are in the areas of

processing depositor claims, franchise

and asset marketing, asset valuation

and sales, asset servicing, receivership operations and management,

information systems, planning and

communication, cost containment,

and field operations. W.

W.Reid

2003 2002 2001

Total Resolved Banks 3 10 3

Assets of Resolved Banks $ 1.10 $ 2.50 $ .05

Total Resolved Savings Associations 0 1 1

Assets of Resolved Savings Associations $ 0 $ .05 $ 2.18

Net Collections from Assets in Liquidation●$ 1.70 $ 1.84 $ .31

Total Assets in Liquidation●$ .81 $ 1.24 $ .57

Total Dividends Paid●$ 1.06 $ 2.12 $ .46

Iincludes activity from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the Resolution

Trust Corporation. 

Dollars in billions

Liquidation Highlights 2001-2003

●
19

Lessons Learned Symposium

The FDIC, in association with the

SW Graduate School of Banking and

Southern Methodist University’s Cox

School of Business, presented the

Lessons Learned from Recent Bank

Failures symposium on October 24.

This conference served as a forum

for academics, regulators and industry

participants to present analyses 

and to debate the causes and costs

of recent bank failures. Presentations

and discussions centered on the root

causes of recent bank failures, the

impact of new banking activities 

on bank failures, and the costs 

of recent bank failures.

Customer Service Center 

In order to help consumers needing

assistance with matters arising from

failed financial institutions, the FDIC

also operates a Customer Service

Center with staff dedicated to handling records research and collateral

releases. During 2003, FDIC staff

responded to nearly 86,000 inquiries

and was recognized for Outstanding

Customer Service provided through

expanded e-Government initiatives 

at the President’s Quality Awards 

for their innovative work and rapid

response time in this area. The records

research staff reviews the historical

records of failed financial institutions

in order to answer customer questions

on deposit accounts, loan transaction

histories, tax suits for delinquent 

real estate, and other issues. The

collateral release staff researches

and determines ownership of collateral securing loans of failed financial 

institutions in order to provide a

release of lien, assignment or reconveyance to the borrower. This staff

successfully handled over 17,000

collateral release inquiries in 2003.

Finally, the Customer Service Call

Center handled over 85,000 calls

asking for information or assistance.

Terminations

The FDIC, as receiver, manages 

the receivership estate and the 

subsidiaries of failed insured financial

institutions with the goal of achieving

an expeditious and orderly termination.

The oversight and prompt termination

of receiverships help to preserve

value for the uninsured depositors

and creditors by reducing overhead

and other holding costs. For that 

reason, the FDIC has established 

a target of terminating 75 percent 

of receiverships within three years 

of the failure date. The goal would

have been achieved in 2003 except

for outstanding professional liability

claims and other impediments. At

year-end 2003, three receiverships

remained active from the seven

receiverships established following

institution failures in 2000. These

three receiverships could not be 

terminated due to the existence 

of ongoing professional liability 

litigation and non-asset defensive

litigation. These cases continue 

to be vigorously pursued through

appropriate negotiations and 

litigation proceedings. 

Operational Efficiency 

and Effectiveness

Although the FDIC is not subject to

the President’s Management Agenda

(PMA), it has given priority attention

to continuing efforts to improve

operational efficiency and effectiveness, consistent with the PMA.

Major initiatives pursued in this area 

during 2003 are outlined below. 

Managing Human Capital

The FDIC has been downsizing 

its workforce for a decade, as the 

residual workload from the banking

and thrift crises has gradually been

completed. FDIC staffing, including

staff assigned to the Resolution

Trust Corporation, has declined from

approximately 23,000 in 1993 to

about 5,300 at the end of 2003. In

mid-2003, a reduction in force was

implemented to address 43 identified

surplus positions that remained 

following aggressive efforts in 2002

and early 2003 to align staffing with

current workload through voluntary

measures. Like other organizations,

the Corporation will continue to review

its work processes and employ 

technology and other means to

improve operational efficiency,

potentially resulting in excess 

positions. The Corporation expects

to be able to address future surplus

positions, in most instances, through

a continuing process of carefully

managing resources.

The demands placed on the Corporation by a rapidly changing external

environment require a more dynamic

and strategic approach to managing

the Corporation’s human capital in

order to ensure that the FDIC has
20

the skills and staff necessary to 

fulfill its mission in the future. 

The Corporation is in the process 

of revamping its compensation 

program to place greater emphasis

on performance-based incentives. 

A new executive classification and

pay program was implemented 

in 2003 that ties all future pay

increases to performance against

specific measurable objectives. 

The Corporation also implemented 

a new Corporate Success Award 

program that differentiates annual

pay increases for the rest of the

workforce on the basis of performance. A comprehensive review of

the Corporation’s human resource

management processes identified

opportunities to provide increased

flexibility in both the recruitment 

and retention of employees and 

the management of employee 

performance. Implementation of the

recommendations from that review

began in 2003 and will continue in

2004. In addition, the Corporation

began to analyze staffing alternatives

to ensure that it continues to have

the skills it needs in its workforce 

as it deals with a large number of

retirements expected over the next

five to seven years. 

Key Positions Filled – 

Chief Economist, Chief Accountant,

and Chief Information Officer

In February 2003, the FDIC named

the Corporation’s Chief Economist

and Chief Accountant. The Chief

Economist will develop and communicate the FDIC’s perspective on 

a wide range of economic and risk

management issues. The Chief

Accountant will spearhead FDIC

accounting policy development 

(for banks in the U.S. and abroad),

establish regulatory financial reporting

requirements, and review depository

institutions’ accounting for specific

transactions. The Chief Accountant

will also participate in developing the

FDIC’s regulations and supervisory

policies on capital adequacy and

auditing programs and oversee the

FDIC’s securities registration and 

disclosure function under federal

securities laws. In November 2003,

the FDIC filled the vacant Chief

Information Officer (CIO) position.

The CIO will play a crucial role in

overseeing the transformation of the

Corporation’s Division of Information

Resources Management into a more

agile and customer-focused strategic

partner.

Corporate University

In June 2003, the FDIC Chairman

appointed the agency’s first Chief

Learning Officer to head the new

Corporate University (CU). The CU

represents a departure from traditional

training approaches and will provide

a continual learning environment for

FDIC employees. It will use numerous

tools and techniques to prepare them

for a changing banking, economic

and regulatory landscape. The CU

provides opportunities for employees

to enhance their sense of corporate

identity while learning more about

the FDIC’s major program areas 

of Insurance, Supervision and

At their official induction as Deans of the FDIC Corporate University (l to r): Erica Cooper, School of

Leadership Development; Fred Carns, School of Insurance; Nancy Hall, School of Supervision and

Consumer Protection; James Wigand, School of Resolutions and Receiverships; and Miguel Torrado,

School of Corporate Operations. CLO Dave Cooke joined in welcoming the new Deans.
21

transactions were activated to

enable institutions to conduct 

business online with the FDIC. 

These transactions included filing 

of new branch applications by 

insured institutions, collection of 

information for the 2003 summary

of deposits, public retrieval of 

beneficial ownership reports, 

and access to bank assessment 

invoices. 

● In June 2003, FDIC implemented 

the Assessment Information 

Management System (AIMS II), 

which calculates, collects and 

accounts for the quarterly assessment premiums paid by financial 

institutions. The FDIC issues 

over 9,000 invoices quarterly 

and captures a full history of 

assessment-related transactions. 

The assessment function is vital 

to the FDIC, and the improvements

realized by putting this system in 

place have made the Corporation 

more efficient. Assessment 

invoices are now made available 

to insured institutions using 

FDICconnect.

● FDIC partnered with several 

external organizations to emphasize the importance of robust 

information security programs 

to financial institutions. These 

organizations included the Federal

Bureau of Investigation, the 

Financial and Banking Information 

Infrastructure Committee, Financial

Crimes Enforcement Network, and

the Critical Infrastructure Protection

Project of George Mason University

School of Law. In partnership 

with these organizations, the FDIC

sponsored a series of cybersecurity symposia and helped 

to identify and develop a set 

of best practices for cyber-security

for use in financial institutions.

Consumer Protection, and Receivership Management. Further, the CU will

be a leader in leveraging technology 

to improve the efficiency and effectiveness of all Corporate training.

Information Technology Initiatives

To keep pace with an ever-evolving

financial services industry, the FDIC

is utilizing technology to bring stakeholders information in a more timely,

secure manner. Efforts have focused

on improving the FDIC’s public web

site, securing ways to facilitate 

electronic communication with stakeholders, and streamlining examination

efforts through more efficient means

of collecting and disseminating data.

The FDIC also completed in 2003 

a comprehensive review of its

Information Technology (IT) program.

That review evaluated the cost 

and performance of the current 

IT program, identified future skill

requirements and alternative sourcing

strategies, and recommended a new

organizational and staffing structure

to begin to transform the IT organization into a strategic partner with the

Corporation’s major business units

over the next two to three years.

Significant IT-related accomplishments

in 2003 include:

● Considerable progress was 

made in the development and 

implementation of a new Enterprise

Architecture (EA) to guide the 

Corporation’s future IT efforts. 

By following the EA program, 

the FDIC will be able to deploy 

new systems more quickly, reduce

risks normally inherent in largescale systems, and forecast 

system development budgets 

and schedules more accurately, 

thus reducing system development

and support costs. The EA program

will also emphasize security and 

enhance e-government capabilities.

● The FDIC’s public Web site 

(www.fdic.gov) was redesigned 

to make use of the agency’s 

online services faster and easier 

for bankers, financial analysts, 

consumers and others. Products 

and services available on the 

Web site include resources for 

bankers about their requirements 

for safe operations and compliance

with consumer protection laws, 

data about individual banks

and the banking industry, useful 

information for consumers about 

deposit insurance and rights as 

depositors and borrowers, and 

updates on FDIC press releases.

● FDIC achieved several successes 

with FDICconnect, a secure Web 

site developed to facilitate electronic communication with 

insured financial institutions. 

During 2003, twelve business 
22

Improved Information Security

In response to a reportable condition

on information security weaknesses

identified in the GAO’s audit of 

the Corporation’s 2002 financial

statements, the FDIC continued to

give priority attention in 2003 to its

information security management

program. Major program accomplishments in 2003 included the following:

● Updated policies on contractor 

and outside agency security were

issued, and contractor security 

requirements were added to the 

Acquisition Policy Manual. Security

audits of local outside contractor 

sites were also conducted.

● Security performance measures 

were identified and tracked through

quarterly performance reports to 

senior FDIC management.

The annual Federal Information 

Security Management Act audit 

conducted by the OIG noted significant improvement in the FDIC’s 

information security program during 

the prior 12 months. The audit 

assigned an overall “limited 

assurance” rating, but identified 

only one area that was assigned a

“minimal/no assurance” rating,

down from three in 2002. Efforts 

to improve all areas of information

security will continue in 2004.

Financial Highlights

Deposit Insurance Fund

Performance 

The FDIC administers two deposit

insurance funds –the Bank Insurance

Fund (BIF) and the Savings

Association Insurance Fund (SAIF) –

and manages the FSLIC Resolution

Fund (FRF), which fulfills the obligations of the former Federal Savings

and Loan Insurance Corporation

(FSLIC) and the former Resolution

Trust Corporation (RTC). The following summarizes the condition 

of the FDIC’s insurance funds. 

(See the accompanying tables 

on FDIC-Insured Deposits, Insurance

Fund Reserve Ratios and Risk-Related

Premiums on the following pages.)

The BIF reported comprehensive

income (net income plus current

period unrealized gains/losses on

available-for-sale securities) of 

$1.7 billion for the twelve months

ending December 31, 2003, compared to $1.6 billion for the same

period in the prior year. During

2003, estimated losses for future

and actual failures, as well as litigation, decreased by $832 million, and

operating expenses decreased by

$16 million. However, these decreases

in losses and expenses were partially

offset by significant reductions in

unrealized gains on available-for-sale

securities ($576 million) and lower

interest revenue on U.S. Treasury 

obligations ($162 million). As of

December 31, 2003, the fund 

balance was $33.8 billion, up from

$32.1 billion at year-end 2002. 

BIF’s contingent liability for anticipated

failures declined by $830 million, 

or 82 percent, to $178 million for 

the year. This overall reduction in 

the reserves is primarily the result 

of improvements in the loss reserve

methodology and an improvement in

the financial condition of a few large

troubled institutions.

The SAIF reported comprehensive

income of $493 million for the twelve

months, ending December 31, 2003,

compared to $812 million for the

same period in the prior year. This

difference of $318 million was primarily due to a decrease in unrealized

gains on available-for-sale securities

of $198 million, a slight reduction 

in interest revenue of $32 million, and

a reduction in the estimated losses

for future failures of $55 million. As 

of December 31, 2003, the fund 

balance was $12.2 billion, up from

$11.7 billion at year-end 2002.
23

SAIF’s contingent liability for anticipated

failures decreased by $87 million,

or 96 percent, to $3 million for the

year. The overall reduction is the

result of improvements in the 

loss reserve methodology and 

the improved financial condition 

of a few large troubled institutions.

As of December 31, 2003, SAIF’s

current liabilities totaled less than one

percent of the fund balance. 

Operating Expenses

Corporate Operating Budget expenses

totaled $1,008.2 million in 2003,

including $968.6 million for ongoing

operations and $39.6 million for

receivership funding. These 

expenses represented approximately

98 percent of the approved budget

for ongoing operations and 53 percent of the approved budget for

receivership funding. Receivership

funding expenses were down 

significantly from 2002 because

of the smaller number of insured

institution failures.

SAIF-Insured

BIF-Insured

3,000

2,500

2,000

1,500

1,000

500

0

Source: Commercial Bank Call Reports and Thrift Financial Reports

1960 70 80 90 2000

FDIC-Insured Deposits (estimated 1960-2003)

Dollars in billions

03

The Board of Directors approved a

2004 Corporate Operating Budget of

approximately $1.1 billion, including

just over $1.0 billion for ongoing

operations. The level of approved

spending in the 2004 budget remains

virtually the same as that in 2003

due to continuing efforts to identify

operational efficiencies and control

costs. The Corporate Operating

Budget includes funding for a 

number of major new initiatives,

including the Corporate University

and the Center for Financial

Research. 

The 2004 budget includes, for the

first time, estimated funding requirements ($35 million) for litigation

expenses projected to be incurred

on behalf of the FDIC by the 

U.S. Department of Justice. These

expenses have not previously been

included in the annual Corporate

Operating Budget, but were

expensed directly to the appropriate

receivership accounts. This change

will increase the transparency of 

the Corporation’s financial reporting.
24

Investment Spending 

The FDIC has a disciplined process

for reviewing proposed new capital

investment projects and managing

the implementation of approved 

projects. Most of the projects in 

the current investment portfolio 

are major IT systems initiatives.

Proposed projects are carefully

reviewed to ensure that they are

consistent with the Corporation’s

enterprise architecture and include

an appropriate return on investment

for the insurance funds. The process

also enables the FDIC to be aware of

risks to the major capital investment

projects and facilitates appropriate,

timely intervention to address these

risks throughout the development

process. An investment portfolio 

performance review of the major

capital investments is provided 

to the FDIC Board of Directors 

quarterly. During 2003, the Board 

of Directors approved two new

investment projects: (1) Legal

Information Management System -

$3.2 million and (2) Asset Servicing

Technology Enhancement Project -

$31.8 million.

1.45

1.40

1.35

1.30

1.25 (target ratio)

0

12/99 12/00 12/01 3/02 6/02 9/02 12/02 3/03 6/03 9/03 

Insurance Fund Reserve Ratios Percent of Insured Deposits

BIF

SAIF
25

Risk-Related Premiums

The following tables show the number and percentage of institutions insured by the Bank Insurance 

Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to risk classifications effective

for the first semiannual assessment period of 2003. Each institution is categorized based on its 

capitalization and a supervisory subgroup rating (A, B, or C), which is generally determined by on-site

examinations. Assessment rates are basis points, cents per $100 of assessable deposits, per year.

BIF Supervisory Subgroups●

ABC

Well Capitalized:

Assessment Rate 0 3 17

Number of Institutions 7,400 (91.8%) 470 (5.8%) 82 (1.0%)

Adequately Capitalized:

Assessment Rate 3 10 24

Number of Institutions 82 (1.0%) 8 (0.1%) 13 (0.2%)

Undercapitalized:

Assessment Rate 10 24 27

Number of Institutions 0 (0.0%) 2 (0.0%) 1 (0.0%)

SAIF Supervisory Subgroups■

Well Capitalized:

Assessment Rate 0 3 17

Number of Institutions 1,092 (91.5%) 81 (6.8%) 13 (1.1%)

Adequately Capitalized:

Assessment Rate 3 10 24

Number of Institutions 4 (0.3%) 1 (0.1%) 3 (0.3%)

Undercapitalized:

Assessment Rate 10 24 27

Number of Institutions 0 (0.0%) 0 (0.0%) 0 (0.0%)

BIF data exclude SAIF-member “Oakar” institutions that hold BIF-insured deposits. The assessment rate reflects the rate 

for BIF-assessable deposits, which remained the same throughout 2002.

SAIF data exclude BIF-member “Oakar” institutions that hold SAIF-insured deposits. The assessment rate reflects the rate

for SAIF-assessable deposits, which remained the same throughout 2002.

●

■
1

Summary of 2003 Performance Results by Program

The FDIC successfully achieved 27 of the 30 annual performance targets 

established in its 2003 Annual Performance Plan (two performance targets 

were not met and one was not applicable due to Congress not enacting deposit

insurance reform during 2003). Key accomplishments by program are highlighted

below. There were no instances where 2003 performance had a material adverse

effect on successful achievement of the FDIC’s mission or its strategic goals

and objectives with respect to its major program responsibilities. In addition,

2003 performance results were considered in the development of the FDIC’s

2004 Annual Performance Goals. 

The Office of Inspector General (OIG) has shared its view of the most significant

challenges the Corporation is confronting and has acknowledged the numerous

actions underway to address these issues. (See Appendix C for a list of these

challenges.) Management is committed to addressing each of the issues 

identified by the OIG.

II. Performance

Results

Summary
27

Program Area Performance Results

Insurance ● Resolved three failed insured institutions, providing depositors with timely access to insured 

deposits in each case. For all of the failures, depositors had uninterrupted and continuous access 

to insured deposits as the deposits were assumed by an acquiring entity. 

● Secured approval of deposit insurance reform legislation by the House of Representatives. 

Although the full Senate failed to act on the legislation before adjournment, the Corporation 

will continue to pursue deposit insurance reform in the second session of the 108th Congress.

● Completed risk assessments for all large insured depository institutions and followed up on 

all identified concerns referred for examination or other supervisory action.

● Improved the accuracy and efficiency of off-site risk identification models.

● Published economic and banking information and analysis:

● Quarterly editions of FDIC Outlook

● Quarterly editions of the FDIC Banking Review

● Twelve FYI electronic bulletins

● Four editions of the FDIC Quarterly Banking Profile (QBP)

● Semiannual FDIC Report on Underwriting Practices

● Semiannual Report on Underwriting Practices by Region

● Quarterly editions of the FDIC State Profiles

● Quarterly editions of the Real Estate Data System

● Semiannual Survey of Real Estate Trends

Supervision and ● Conducted 2,421 safety and soundness examinations. This included all statutorily-required 

Consumer Protection safety and soundness examinations, except for a small number deferred due to pending mergers.

● Conducted 1,919 compliance and Community Reinvestment Act examinations in accordance 

with FDIC policy.

Receivership ● Contacted all known and qualified potential bidders in each of the three institution failures 

Management in 2003.

l ● Marketed 98 percent or more of marketable assets of two of the three failed financial institutions 

within 90-days of failure. (For the remaining institution, the 90-day time frame had not expired 

at year-end.)

● Terminated four receiverships.
2003 Budget and Expenditures by Program

The FDIC budget for 2003 totaled $1.113 billion. Excluding $132 million for

Corporate General and Administrative expenditures, budget amounts were 

allocated to corporate programs and related goals as follows: $174 million, 

or 16 percent, to the Insurance program; $578 million, or 52 percent, to the

Supervision and Consumer Protection program; and $229 million, or 21 percent,

to the Receivership Management program. 

Actual expenditures for the year totaled $1.035 billion. Excluding $126 million 

for Corporate General and Administrative expenditures, actual expenditures

were allocated to programs as follows: $110 million, or 11 percent, to the

Insurance program; $575 million, or 56 percent, to the Supervision and

Consumer Protection program; and $224 million, or 22 percent, to the

Receivership Management program. 

28

Expenditures

Budget

$ 600

500

400

300

200

100

0

Insurance Supervision and Receivership General 

Program Consumer Protection Management and

Program Program Administrative 

2003 Expenditures and Budget (Support Allocated) 

Dollars in Millions
29

Performance Results by Program and Strategic Goal

Insurance Program Results

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

Annual Performance Goal Indicator Target Results

1. Respond promptly to financial Number of business days after If the failure occurs on Achieved.

institution closings and emerging institution failure by which a Friday the target is one 

issues. depositors will have access business day.

to insured funds either through 

transfer of deposits to successor If the failure occurs on any Achieved.

insured depository institution other day of the week, the 

or depositor payout. target is two business days.

2. Identify and address risks to the Assess risks posed by large Assess risk in 100 percent Achieved.

insurance funds. insured depository institutions. of large insured depository

institutions and adopt 

appropriate strategies.

Identify and follow up on concerns Identify and follow up on Achieved.

referred for examination or other 100 percent of referrals.

action (i.e., contact the insured 

institutions or primary supervisor).

Disseminate data and analyses Analyses are included in Achieved.

on current issues and risks regular publications or as 

affecting the banking industry ad hoc reports on a timely 

to bankers, supervisors, basis.

stakeholders, and the public.

Conduct industry outreach Achieved.

aimed at the banking 

community and industry trade 

groups to discuss current 

trends and concerns and to 

inform bankers about available 

FDIC resources.

3. Maintain sufficient and reliable Maintain and improve the Update and expand data Achieved.

information on insured depository Research Information System availability in RIS.

institutions. (RIS), which serves as the 

foundation of most analysis and 

statistical reporting for the FDIC.

Develop a more efficient Determine Call Report Achieved.

approach to bank data collection Modernization system 

and management. development approach; 

prepare migration plan for the 

implementation of data editing, 

storage and distribution facility 

for Call Report data; complete 

reconciliation of bank structure

databases; and implement 

standard business rules and 

data definitions for Call Report 

information. 
Insurance Program Results (continued)

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

Annual Performance Goal Indicator Target Results

4. Maintain and improve the deposit Continue to pursue changes in Work with Congress to Not Achieved

insurance system. the deposit insurance system in develop and pass a reform (see pages

accordance with proposals package. 12 & 13.)

submitted to Congress in 2002.

Develop final pricing Achieved.

recommendations and 

implementation plans for 

inclusion in a notice-andcomment rulemaking during 

2003.

If deposit insurance reform Not 

is passed, implement Applicable.

legislation in a timely manner.

Develop and analyze baseline Achieved.

data of implemented

modification results.

Continue to identify and review Assess improvements to Achieved.

possible modifications to the Risk the objective screens for the

Related Premium System (RRPS). RRPS that identify financial 

institutions engaging in 

excessive risk taking, such 

as certain types of credit, 

market, and operational risk.

Make appropriate changes Review discrepancies between Achieved.

to the current methodology projected failed assets and 

for projecting losses in failing actual failed assets by applying

financial institutions and sophisticated analytical 

establishing related loss techniques to examine the 

reserves for the deposit effectiveness of the loss 

insurance funds. projection model and adjust 

the methodology for projecting

losses accordingly.

Perform comprehensive Achieved.

review of all aspects of

the reserving process and 

methodology and implement 

enhancements as necessary.

30
31

Insurance Program Results (continued)

Strategic Goal: Insured depositors are protected from loss without recourse to taxpayer funding.

Annual Performance Goal Indicator Target Results

Maintain fund adequacy. Set assessment rates to Achieved.

maintain the insurance funds 

at or above the designated 

reserve ratio, or to return them

to the designated reserve ratio

if they fall below it, as required 

by statue. If deposit insurance 

reform legislation becomes law 

in 2003, promulgate rules and 

regulations establishing criteria 

for replenishing the deposit 

insurance fund when it falls 

below the low end of the 

range.

Conduct a study on the Determine the implications of Achieved.

“Future of Banking.” major trends for the evolution 

of the industry, development 

of regulatory policy and 

management of the deposit 

insurance funds. 

Enhance FDIC’s ties to the Establish an FDIC Center Achieved.

academic community and for Financial Research.

upgrade and provide greater 

visibility to the Corporation’s 

research activities.

5. Provide educational information Enhance the existing Electronic Issue a new version of the Achieved.

to insured depository institutions Deposit Insurance Estimator EDIE (Banker version) that

and their customers to help them (EDIE) Banker version. accommodates corporate and

understand the rules for determining organization accounts as well 

the amount of insurance coverage as any changes to the deposit

on deposit accounts. insurance rules that may be 

adopted.
32

Supervision and Consumer Protection Program Results 

Strategic Goal: FDIC-supervised institutions are safe and sound.

Annual Performance Goal Indicator Target Results

1. Conduct on-site safety and soundness Conduct required examinations One hundred percent of Achieved.

examinations to assess an FDIC- in accordance with statue and required examinations are

supervised insured depository FDIC policy. conducted on time.

institution’s overall financial condition, 

management practices and polices, 

and compliance with applicable 

regulations.

2. Take prompt supervisory actions to The number of months between Follow-up examination Achieved.

address problems found during the last examination of a problem conducted within 12 months

FDIC examination of FDIC-supervised bank and follow-up examination. of completing the prior

institutions identified as problem examination.

insured depository institutions. 

Monitor FDIC-supervised insured 

depository institutions’ compliance 

with formal and informal enforcement 

actions.

Strategic Goal: Consumers’ rights are protected and FDIC-supervised institutions invest in their communities.

1. Provide effective outreach and Additions to the Money Smart By December 31, 2003, Achieved.

technical assistance on topics related Alliance and the number of cumulative totals of 400 

to CRA, fair lending, and community Money Smart curricula provided. Money Smart Alliance 

development. members and 40,000 

Money Smart curricula 

provided.

Outreach activities and technical Conduct or participate in 125 Achieved.

assistance. Money Smart events, technical

assistance efforts (examination 

support), or banker/community 

outreach activities related to 

CRA, fair lending, or community 

development.

2. Effectively meet the statutory mandate Timely responses to written Ninety percent of written Achieved.

to investigate and respond to complaints. complaints are responded 

consumer complaints about FDIC- to within time frames

supervised financial institutions. established by policy.

3. Conduct comprehensive and Conduct required examinations One hundred percent of Achieved.

compliance-only examinations in accordance with FDIC policy. required examinations are

in accordance with FDIC conducted within time frames

examination frequency policy. established by FDIC policy.
33

Supervision and Consumer Protection Program Results (continued)

Strategic Goal: Consumers’ rights are protected and FDIC-supervised institutions invest in their communities.

Annual Performance Goal Indicator Target Results

4. Take prompt supervisory actions and Timely follow-up examination A follow-up examination Achieved.

monitor all institutions rated “4” or “5” and related activity confirm or related activity is conducted

for compliance to address problems whether the institution is within 12 months from the

identified during compliance in compliance with the date of a formal enforcement

examinations. enforcement action. action.

Receivership Management Program Results 

Strategic Goal: Recovery to creditors of receiverships is achieved.

1. Market failing institutions to all known List of qualified and interested Contact all known qualified Achieved.

qualified and interested potential bidders. and interested bidders.

bidders.

2. Value, manage, and market assets of Failed institutions’ assets Eighty-five percent of book Achieved.

failed institutions and their subsidiaries marketed. value of a failed institution’s 

in a timely manner to maximize net marketable assets are 

return. marketed within 90 days 

of failure.

3. Manage the receivership estate and Timely termination of new Terminate 75 percent of Not Achieved 

its subsidiaries toward an orderly receiverships. receiverships managed through (see page 19).

termination. the Receivership Oversight 

Program within three years 

of the failure date.

4. Conduct investigations into all Percentage of investigated claim For 80 percent of all claim Achieved.

potential professional liability claim areas for which a decision has areas, a decision is made to

areas in all failed insured depository been made to close or pursue close or pursue the claim.

institutions, and decide to close the claim within 18 months

or pursue each claim as promptly after the failure date.

as possible, considering the size 

and complexity of the institution.
34

Multi-Year Performance Trend

Depositor Payouts in Instance of Failure

Annual Goal 2000 Results 2001 Results 2002 Results 2003 Results 2004 Goal

Insured deposits are transferred Timely payments Annual goal Annual goal Annual goal Annual goal

to successor insured depository made to all revised revised revised revised

institution or depositor payouts depositors of the (see below). (see below). (see below). (see below).

are begun within three days seven insured 

of insured depository institution depository 

failure. institutions that 

failed in 2000.

FDIC is prepared to deal with Annual goal was Timely payments Timely payments Timely payments The FDIC responds

all financial institution closings not established made to all made to all made to all promptly to

and emerging issues. in 2000. depositors of the depositors of the depositors of the financial institution

(Revised – 2001) four insured 11 insured three insured closings and

depository depository depository emerging issues.

institutions that institutions that institutions that

failed in 2001. failed in 2002. failed in 2003.

Legislation on Legislation on 

deposit insurance deposit insurance

reform was reform was passed

introduced in the in the House and 

House and the is pending in the 

Senate. Senate.

Risk Classifications

Maintain and improve the Reserve ratio Reserve ratio Reserve ratio Reserve ratio Maintain and

deposit insurance system. maintained at or maintained. FDIC maintained at or maintained at or improve the

above the statutory published its final above the statutory above the statutory deposit insurance

mandate of recommendations ratio of1.25 percent. ratio of 1.25 percent. system.

1.25 percent. for deposit Chairman testified Chairman testified

insurance reform. before the Senate before the Senate

Banking Committee Banking Committee

in support of deposit in support of deposit

insurance reform. insurance reform.

Risk Identification and Reporting

Identify and address risks Economic trends Developed several Significant progress Significant progress Identify and

to the insurance funds. and emerging risks approaches to credit made in improving made in improving address risks 

were identified, risk that will be the accuracy and the accuracy and to the insurance

monitored and incorporated into efficiency of off-site efficiency of off-site funds.

addressed through Virtual Supervisory risk identification risk identification

the publication of Information On the models. Risk models. Risk 

surveys, guidance Net system. Risk assessments of assessments of 

and reports, and assessments of all large insured all large insured

outreach programs. all large insured depository depository

depository institutions (LIDIs) institutions (LIDIs)

institutions (LIDIs) were completed were completed

were completed in compliance in compliance

in compliance with program with program

with program requirements. requirements.

requirements.
35

Safety and Soundness Examinations

Annual Goal 2000 Results 2001 Results 2002 Results 2003 Results 2004 Goal

Conduct on-site safety and Conducted 2,568 Conducted 2,575 Conducted 2,534 Conducted 2,421 Conduct on-site

soundness examinations to or 97 percent or 97 percent or 98 percent required safety safety and

assess an FDIC-supervised of required safety of required safety of required safety and soundness soundness

insured depository institution’s and soundness and soundness and soundness examinations examinations to

overall financial condition, examinations.●examinations.●examinations. in accordance assess an FDICmanagement practices and with FDIC policy. supervised insured

policies, and compliance with depository

applicable regulations. institution’s overall

financial condition, ●

Note: From 2000-2001, the totals management 

reflect examinations initiated during practices and 

the year. This will vary slightly from policies, and 

the chart on page 15, which displays compliance with 

examinations completed during applicable 

these years. regulations. 

Safety and Soundness Enforcement Actions

Take prompt supervisory actions On average, Sixty-seven Eighty-four Seventy-three Take prompt 

to address problems identified examination reports institutions institutions institutions and effective 

during the FDIC examination were processed designated as designated as designated as supervisory actions

of FDIC-supervised institutions and mailed to problem (composite problem (composite problem (composite to address 

identified as problem insured institutions within “4” or “5” rated). “4” or “5” rated). “4” or “5” rated). problems identified

depository institutions. Monitor 44 days of receipt Fifty-six were Forty-eight were Fifty-eight with total during the FDIC

FDIC-supervised insured in regional office. removed from removed from assetsof$6.98billion examination of

depository institutions’ Target is 45 days. problem status problem status were removed from FDIC-supervised

compliance with formal and and 76 added. and 63 added. problem status and institutions 

informal enforcement actions. 47 with total assets identified as

Evaluations changed of $4.99 billion were problem insured

to monitor added. Additionally, depository

migration of FDIC issued the institutions. Monitor

troubled banks. following formal FDIC-supervised

and informal insured depository

enforcement actions: institutions’ 

40Cease and Desist compliance with

Orders and 157 formal and informal

Memorandums of enforcement

Understanding. actions.

Compliance Examinations

Conduct comprehensive and Conducted 2,257 Conducted 2,179 Conducted 1,840 Conducted 1,919 Conduct

compliance-only examinations examinations. comprehensive, comprehensive, comprehensive, comprehensive 

in accordance with FDIC There were three compliance-only, compliance-only, compliance-only, and complianceexamination frequency policy. delinquent and CRA and CRA and CRA only, and CRA

examinations at examinations in examinations in examinations in examinations in

the end of 2000. accordance with accordance with accordance with accordance with

FDIC policy. FDIC policy. FDIC policy. FDIC examination

There were no There were no There were no frequency policy.

delinquencies delinquencies delinquencies

in 2001. in 2002. in 2003.
36

CRA Outreach

Annual Goal 2000 Results 2001 Results 2002 Results 2003 Results 2004 Goal

Effective outreach, technical One pilot forum Annual goal Annual goal Annual goal Annual goal

assistance and training are on financial literacy revised revised revised revised

provided on topics related to and predatory (see below). (see below). (see below). (see below).

the Community Reinvestment lending was held 

Act (CRA) and community in each region.

development. 

Provide effective outreach and Annual goal was Conducted 25 Money Smart The FDIC supplied Provide effective

technical assistance on topics not established Money Smart classes attended more than 111,000 outreach and

related to CRA, fair lending, in 2000. workshops with by approximately copies of Money technical 

and community development. over 600 2,800 participants. Smart curricula assistance on 

(Revised – 2001) participants. to organizations. topics related

The FDIC initiated to CRA, fair

65 public outreach lending, and

initiatives, community

111 Community development.

Development 

activities, and

67 Technical 

Assistance 

activities.

Compliance Enforcement Actions

Prompt supervisory actions For institutions on Six of seven Eight of nine The only “4” Prompt and

are taken and monitored on all average rated a institutions had institutions rated institution effective 

institutions rated “4” or “5” composite “4” either been entered into a entered into supervisory

for compliance. or “5,” the FDIC examined in Memorandum of a Memorandum actions are taken

conducted all the preceding Understanding of Understanding and monitored on 

follow-up 12 months or (MOU) with the (MOU) with the all institutions

examinations within were still within FDIC and the ninth FDIC. rated “4” or “5”

the targeted time the 12 month time was in the process for compliance.

frame of 12 months frame between of reviewing the

from the issuance examinations. One recommended

date of a formal institution was MOU at year-end.

enforcement action. pending resolution

for safety and 

soundness reasons, 

and the compliance

examination was 

deferred pending 

resolution.
37

Consumer Complaints and Inquiries

Annual Goal 2000 Results 2001 Results 2002 Results 2003 Results 2004 Goal

Effectively respond to written One hundred FDIC sent 612 Annual goal Annual goal Annual goal

complaints and inquires related percent of the survey cards to revised revised revised

to deposit insurance and FDIC’s responses consumers and (see below). (see below). (see below).

consumer protection laws. to the 6,736 written bankers who 

complaints and contacted the

inquiries received Washington Office

were made within concerning inquiries

targeted average and complaints. 

turnaround time Eighty four 

frames. (14 percent) of the

cards were returned

to the FDIC. Sixtytwo percent of the

responses rated the

FDIC as “excellent” 

in timeliness of 

response.

Meet the statutory mandate Annual goal was Annual goal was FDIC received FDIC received Effectively meet

to investigate and respond not established not established 8,368 consumer 8,010 consumer the statutory

to consumer complaints in 2000. in 2001. complaints, closing complaints, closing mandate 

about FDIC-supervised 95 percent of them. 99 percent of them. to investigate 

financial institutions. Of the complaints Of the complaints and respond 

(Revised – 2002) closed, 94 percent closed, 94 percent to consumer 

were closed within were closed within complaints about 

policy time frames. policy time frames. FDIC-supervised

financial institutions.

Asset Management

Market 80 percent of a failed Ninety-five percent Annual goal Annual goal Annual goal Annual goal

institution’s assets to franchise of failed institutions’ revised revised revised revised

and nonfranchise investors assets were (see below). (see below). (see below). (see below).

within 90 days of resolution. marketed within 

90 days, thus

exceeding the target

of 80 percent.

Value, manage, and market Annual goal was For three For all 11 For all three Value, manage,

assets of the failed institutions not established institutions that institutions that institutions that and market assets 

and their subsidiaries in in 2000. failed, the FDIC failed at least failed, at least of the failed

a timely manner to maximize marketed 100 per- 87 percent of all 98 percent of all institutions and 

net return. (Revised – 2001) cent of the market- marketable assets marketable assets their subsidiaries

able assets. The were marketed were marketed in a timely manner

remaining institution within the 90-day within the 90 day to maximize

was placed into time frame, thus time frame, thus net return.

conservatorship. exceeding the exceeding the

Loanpools,servicing target of 85 percent. target of 85 percent.

operations, and 

residuals that 

totaled in excess 

of the 80 percent 

target were 

marketed within the 

90-day time frame.
38

Least-Cost Resolution

Annual Goal 2000 Results 2001 Results 2002 Results 2003 Results 2004 Goal

Market to all known qualified There were seven There were four There were 11 There were three Market to all 

and interested potential failures in 2000. failures in 2001. failures in 2002. failures in 2003. known qualified 

assuming institutions. One hundred One hundred One hundred One hundred and interested

percent of the percent of the percent of the percent of the potential

qualified potential qualified potential qualified potential qualified bidders assuming

bidders were bidders were bidders were were contacted. institutions.

contacted. contacted. contacted.

Professional Liability Claims

Investigations are conducted A decision to close Annual goal Annual goal Annual goal Annual goal

into all potential professional or pursue each revised revised revised revised

liability claim areas in all failed claim was made (see below). (see below). (see below). (see below).

insured depository institutions within 18 months

and a decision to close or after the failure date

pursue each claim will be for 100 percent

made within 18 months after of all investigations.

the failure date in 80 percent 

of all investigations.

Conduct investigations into all Annual goal was Five of nine Two of six Four of ten Conduct 

potential professional liability not established institutions that institutions that institutions that investigations of 

claim areas in all failed insured in 2000. reached the reached the reached the all potential

depository institutions. Decide 18-month 18-month milestone 18-month milestone professional

to close or pursue each claim milestone had during 2002 had during 2003 had liability claim areas

as promptly as possible, 100 percent of 100 percent of 100 percent of in all failed insured

considering the size and professional liability professional liability professional liability depository

complexity of the institution. investigations investigations investigations institutions. Decide

(Revised – 2001) completed. completed. The completed. to close or pursue

other four The other six each claim as

institutions had at institutions had at promptly as 

least 80 percent least 80 percent possible, 

of professional of professional considering the 

liability liability size and

investigations investigations complexity of

completed, completed, the institution.

meeting meeting

the goal of the goal of

80 percent. 80 percent.
39

Receivership Terminations

Annual Goal 2000 Results 2001 Results 2002 Results 2003 Results 2004 Goal

Achieve a 35 percent reduction One hundred fifty-six Annual goal Annual goal Annual goal Annual goal

in the number of active receiverships were revised revised revised revised

receiverships in 2000. terminated, thus (see below). (see below). (see below). (see below).

achieving the goal 

of 156.

Manage the receivership estate Annual goal was Fifty-two out of For the eight For the seven Manage the

and its subsidiaries toward an not established the 76 targeted failures from 1999 failures that receivership

orderly termination. in 2000. receiverships were that matured in occurred during estate and its

(Revised – 2001) terminated in 2001. 2002, the FDIC 2000 that matured subsidiaries 

In mid-2001, the terminated six in 2003, the FDIC toward an 

target of 76 receiverships, terminated four orderly

terminations was meeting the target receiverships, termination.

revised to 36. The to terminate below the target 

pace of termination 75 percent within to terminate

was slowed by three years of 75 percent within

impediments that failure. three years of

represented material failure.

financial or legal 

risks to the FDIC.
40

Program Evaluation

During 2003, the FDIC completed evaluations of programs designed to achieve the strategic 

objectives set forth in the Insurance Program area of the FDIC’s 2001-2006 Strategic Plan.

The program evaluation of each strategic objective included a list of issues to be evaluated, 

background context of the evaluation, analysis of programs and actions to achieve the objective, 

evaluation methodology, and findings. The following section highlights the issues evaluated 

and summarizes the results of this evaluation. 

Strategic Customers of failed insured depository institutions have timely access to insured funds 

Objective and financial services.

Issues evaluated Do customers have timely access to insured funds?

Do customers of failed insured depository institutions have timely access to financial services?

Findings The FDIC has appropriate procedures in place to ensure that customers have timely access 

to insured funds and financial services. If an institution failure occurs on a Friday, FDIC’s target 

for access to insured funds by customers is one business day. If a failure occurs on any other 

day of the week, the target is two business days. When an institution fails, the FDIC fulfills 

its role as insurer by either facilitating the transfer of the institution’s insured deposits to an 

assuming institution or by paying insured depositors directly. If an institution failure occurs, 

the FDIC ensures its customers timely access to financial services, such as automated teller 

machines, safe deposit boxes and wire services. From January 2003 to December 2003, there 

were three bank failures. In all cases, an acquiring institution assumed insured deposits and 

re-opened for business the Monday morning immediately following the Friday failure.

The FDIC has a wide array of materials available to provide timely financial information to 

customers of failed institutions. These materials are available through the FDIC Web site 

(www.fdic.gov) with an Electronic Deposit Insurance Estimator (EDIE) and the FDIC’s toll free 

number (877-ASK-FDIC). The FDIC’s diligence in promoting financial education is also evident 

in its outreach seminars, workshops, and its award-winning Money Smart program. All of these 

initiatives provide methods for consumers to have timely access to financial education.

Strategic The FDIC promptly identifies and responds to potential risks to the 

Objective insurance funds.

Issues evaluated How does the FDIC identify and respond to potential risks to the insurance funds?

Findings The FDIC monitors the condition of the financial services industry and projects insured financial 

institution failures as well as associated resolution costs. Risks posed by large insured institutions

are assessed through two supervisory programs: the Dedicated Examiner program, which covers 

the largest eight depository institutions, and the Large Insured Depository Institution (LIDI) 

program, which covers remaining institutions with over $10 billion in assets. The results of these 

risk assessments are communicated to FDIC regional and divisional management. The Risk 

Analysis Center receives the summary data and analysis results of the LIDI process, which 

is then provided to the Financial Risk and National Risk Committees for their purposes. 

Also, the FDIC identifies and follows up on concerns referred for examination or other action 

through an Off-site Review Program. 

The FDIC disseminates data and analyses on current issues and risks affecting the banking 

industry to bankers, supervisors, stakeholders and the public. Analyses are included in regular 

publications available on the FDIC’s Web site.

★

★

★
41

Program Evaluation (continued)

Strategic The deposit insurance funds and system remain viable.

Objective

Issues evaluated What actions has the FDIC taken to improve the deposit insurance system?

Findings The FDIC continues to pursue enactment of deposit insurance reform legislation. Under the 

reform proposals, the BIF and SAIF will be merged, and the FDIC’s ability to manage the 

combined fund and price premiums properly to reflect risk will improve.

During 2003, the FDIC developed a study on the future of banking. The study focused on 

underlying trends in the economy and the banking industry, and their implications for different 

sectors of the industry and for bank regulators in the future.

The FDIC established a Center for Financial Research (CFR) to encourage and support innovative 

research on topics that are important to the FDIC’s role as deposit insurer and bank supervisor. 

The CFR will explore key developments affecting the banking industry, risk measurement and 

management methods, regulatory policy and related topics of interest to the FDIC and the larger 

financial community.

Copies of the complete Insurance Program Evaluation Report may be obtained from: 

The FDIC Public Information Center 

801 17th Street, NW 

Room 100 

Washington, DC 20434 

Copies may also be requested by: 

telephone: 202-416-6940, 

fax: 202-416-2076, or 

e-mail: publicinfo@fdic.gov.
1

III. Financial

Statements

and Notes

Bank Insurance 

Fund

December 31, 2003

and 2002
43

BIF

Bank Insurance Fund

Federal Deposit Insurance Corporation

Bank Insurance Fund Balance Sheets at December 31 

Dollars in Thousands 

2003 2002

Assets

Cash and cash equivalents $ 2,544,281 $ 4,606,896

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

Held-to-maturity securities 16,293,073 16,709,665

Available-for-sale securities 14,209,773 10,823,593

Interest receivable on investments and other assets, net 550,999 483,674

Receivables from bank resolutions, net (Note 4) 511,089 505,395

Property and equipment, net (Note 5) 287,380 303,084

Total Assets $ 34,396,595 $ 33,432,307

Liabilities 

Accounts payable and other liabilities $ 231,441 $ 148,573

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 178,266 1,008,097

Litigation losses and other 204,693 225,297

Total Liabilities 614,400 1,381,967

Commitments and off-balance-sheet exposure (Note 11)

Fund Balance

Accumulated net income 32,979,898 31,238,171

Unrealized gain on available-for-sale securities, net (Note 3) 802,297 812,169

Total Fund Balance 33,782,195 32,050,340

Total Liabilities and Fund Balance $ 34,396,595 $ 33,432,307

The accompanying notes are an integral part of these financial statements.
44

Federal Deposit Insurance Corporation

Bank Insurance Fund Statements of Income and Fund Balance for the Years Ended December 31 

Dollars in Thousands 

2003 2002

Revenue

Interest on U.S. Treasury obligations $ 1,530,014 $ 1,692,381

Assessments (Note 7) 80,159 84,030

Other revenue 15,831 19,474

Total Revenue 1,626,004 1,795,885

Expenses and Losses

Operating expenses (Note 8) 805,496 821,136

Provision for insurance losses (Note 9) (928,468) (86,970)

Insurance and other expenses 7,249 16,451

Total Expenses and Losses (115,723) 750,617

Net Income 1,741,727 1,045,268

Unrealized (loss) /gain on available-for-sale securities, net (9,872) 566,247

Comprehensive Income 1,731,855 1,611,515

Fund Balance - Beginning 32,050,340 30,438,825

Fund Balance - Ending $ 33,782,195 $ 32,050,340

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

BIF

45

Federal Deposit Insurance Corporation

Bank Insurance Fund Statements of Cash Flows for the Years Ended December 31 

Dollars in Thousands 

2003 2002

Operating Activities

Provided by:

Interest on U.S. Treasury obligations $ 1,794,002 $ 1,858,852

Recoveries from bank resolutions 1,034,311 1,116,406

Assessments 80,496 81,971

Miscellaneous receipts 112,263 22,607

Used by:

Operating expenses (753,617) (742,270)

Disbursements for bank resolutions (935,602) (2,168,187)

Miscellaneous disbursements (31,861) (38,311)

Net Cash Provided by Operating Activities (Note 13) 1,299,992 131,068

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 3,890,000 3,625,000

Maturity of U.S. Treasury obligations, available-for-sale 1,690,000 1,150,000

Used by:

Purchase of property and equipment (42,669) (49,647)

Purchase of U.S. Treasury obligations, held-to-maturity (3,659,868) 0

Purchase of U.S. Treasury obligations, available-for-sale (5,240,070) (1,686,138)

Net Cash (Used by) Provided by Investing Activities (3,362,607) 3,039,215

Net (Decrease)/Increase in Cash and Cash Equivalents (2,062,615) 3,170,283

Cash and Cash Equivalents - Beginning 4,606,896 1,436,613

Cash and Cash Equivalents - Ending $ 2,544,281 $ 4,606,896

The accompanying notes are an integral part of these financial statements.
11. Operations of the Bank 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,

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. The FDIC is the administrator of the Bank Insurance Fund (BIF), the

Savings Association Insurance Fund (SAIF), and the FSLIC Resolution Fund

(FRF), which are maintained separately to carry out their respective mandates.

The BIF and the SAIF are insurance funds responsible for protecting insured

bank and thrift depositors from loss due to institution failures. These insurance

funds must be maintained at not less than 1.25 percent of estimated insured

deposits or a higher percentage as circumstances warrant. 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. 

An active institution’s insurance fund membership and primary federal supervisor

are generally determined by the institution’s 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 SAIFmember 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. 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. 

In addition, SAIF-member thrifts can convert to a bank charter and retain 

their SAIF membership. These institutions are referred to as Sasser financial

institutions. Likewise, BIF-member banks can convert to a thrift charter and

retain their BIF membership.

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 BIF-insured failed institutions

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

possible cost to the BIF. In addition, the FDIC, acting on behalf of the BIF, 

examines state-chartered banks that are not members of the Federal Reserve

System. 

Bank Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2003

and 2002
Bank Insurance Fund

47

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

obligations and 2) deposit insurance assessments. Additional funding sources

are U.S. Treasury and Federal Financing Bank (FFB) borrowings, if necessary.

The FDIC has borrowing authority from the U.S. Treasury up to $30 billion for

insurance purposes on behalf of the BIF and the SAIF. 

A statutory formula, known as the Maximum Obligation Limitation (MOL), limits

the amount of obligations the BIF can incur to the sum of its cash, 90% of the

fair market value of other assets, and the amount authorized to be borrowed

from the U.S. Treasury. The MOL for the BIF was $57.0 billion and $56.7 billion

as of December 31, 2003 and 2002, 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 BIF

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.

Recent Legislative Initiatives

In April 2001, FDIC issued recommendations for deposit insurance reform. The

FDIC recommendations included merging BIF and SAIF and improving FDIC’s ability

to manage the merged fund by permitting the FDIC Board of Directors to price

insurance premiums properly to reflect risk, to set the reserve ratio in a range

around 1.25 percent, establish a system for providing credits, rebates and surcharges, and to eliminate the SAIF exit fee reserve. FDIC also recommended that

Congress consider indexing deposit insurance coverage for inflation. During the

107th Congress (2001-2002), hearings were held in the House and Senate and 

legislation was introduced containing major elements of FDIC’s deposit insurance

reform proposals. The legislation was not enacted prior to congressional adjournment. During the 108th Congress (2003 - 2004), the House and Senate are again

considering deposit insurance reform legislation. If Congress enacts deposit 

insurance reform legislation that contains the above recommendations, the new

law would have a significant impact on the BIF and SAIF. FDIC management,

however, cannot predict which provisions, if any, will ultimately be enacted.

BIF
2

48

2. Summary of Significant Accounting Policies

General

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

and cash flows of the BIF 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 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 loss on receivables from bank

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

BIF 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 BIF 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.

BIF’s investments in U.S.Treasury obligations are either classified as heldto-maturity or available-for-sale. 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

anticipated 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 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. 
Bank Insurance Fund

BIF

49

Cost Allocations Among Funds

Operating expenses not directly charged to the BIF, the SAIF, and the FRF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

Capital Assets and Depreciation

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.

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.

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.

Reclassifications

Reclassifications have been made in the 2002 financial statements to conform 

to the presentation used in 2003.
U.S. Treasury Obligations at December 31, 2003 

Dollars in Thousands 

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity●

Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 5.05% $ 3,365,000 $ 3,449,985 $ 65,110 $ (275) $ 3,514,820

After 1 year thru 5 years 5.66% 9,985,000 10,244,862 830,414 0 11,075,276

After 5 years thru 10 years 5.42% 1,910,000 1,976,450 191,954 0 2,168,404

Treasury Inflation-Indexed

After 5 years thru 10 years 3.82% 620,450 621,776 78,947 0 700,723

Total $ 15,880,450 $ 16,293,073 $ 1,166,425 $ (275) $ 17,459,223 

▼

3

50

3. Investment in U.S. Treasury Obligations, Net

As of December 31, 2003 and 2002, the book value of investments in

U.S. Treasury obligations, net, was $30.5 billion and $27.5 billion, respectively. 

As of December 31, 2003, the BIF held $6.4 billion of Treasury inflation-indexed

securities (TIIS). These securities are indexed to increases or decreases in the

Consumer Price Index for All Urban Consumers (CPI-U). Additionally, the BIF

held $6.8 billion of callable U.S. Treasury bonds at December 31, 2003. 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. 

Available-for-Sale

Within 1 year 2.31% $ 5,810,000 $ 6,050,064 $ 32,642 $ (230) $ 6,082,476

After 1 year thru 5 years 4.68% 1,995,000 2,229,143 114,071 0 2,343,214

Treasury Inflation-Indexed

After 1 year thru 5 years 3.88% 1,225,321 1,215,319 139,813 0 1,355,132

After 5 years thru 10 years 3.75% 3,887,611 3,912,950 516,001 0 4,428,951

Total $ 12,917,932 $ 13,407,476 $ 802,527 $ (230) $ 14,209,773

Total Investment in U.S. Treasury Obligations, Net

Total $ 28,798,382 $ 29,700,549 $ 1,968,952 $ (505) $ 31,668,996

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 TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2003.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity within the coming year. As a result, all losses are considered temporary and will be eliminated upon redemption of the securities.

●

▼

■

■
51

BIF

Bank Insurance Fund

U.S. Treasury Obligations at December 31, 2002 

Dollars in Thousands 

Net Unrealized

Yield at Face Carrying Holding Market

Maturity●Purchase Value Amount Gains Value

Held-to-Maturity

Within 1 year 5.98% $ 2,690,000 $ 2,737,188 $ 63,325 $ 2,800,513

After 1 year thru 5 years 6.24% 10,265,000 10,401,894 1,169,295 11,571,189

After 5 years thru 10 years 5.39% 2,895,000 2,961,035 370,281 3,331,316

Treasury Inflation-Indexed

After 5 years thru 10 years 3.82% 607,987 609,548 68,169 677,717

Total $ 16,457,987 $ 16,709,665 $ 1,671,070 $ 18,380,735

Available-for-Sale

Within 1 year 5.31% $ 1,390,000 $ 1,389,723 $ 27,614 $ 1,417,337

After 1 year thru 5 years 4.91% 3,355,000 3,595,734 235,538 3,831,272

Treasury Inflation-Indexed

After 5 years thru 10 years 3.78% 5,010,245 5,025,967 549,017 5,574,984

Total $ 9,755,245 $ 10,011,424 $ 812,169 $ 10,823,593

Total Investment in U.S. Treasury Obligations, Net

Total $ 26,213,232 $ 26,721,089 $ 2,483,239 $ 29,204,328

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 TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2002.

▼

●

▼

As of December 31, 2003 and 2002, the unamortized premium, net of the

unamortized discount, was $902 million and $508 million, respectively.
Receivables From Bank Resolutions, Net at December 31 

Dollars in Thousands 

2003 2002

Receivables from closed banks $ 4,914,901 $ 6,055,613

Allowance for losses (4,403,812) (5,550,218) 

Total $ 511,089 $ 505,395 

4

52

4. Receivables From Bank Resolutions, Net

The receivables from bank resolutions include payments made by the BIF 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 BIF receiverships are the main source of repayment of the BIF’s receivables from closed

banks. As of December 31, 2003, there were 31 active receiverships, including 

three failures in the current year, with assets at failure of $1.1 billion and BIF

outlays of $889 million. 

As of December 31, 2003 and 2002, BIF receiverships held assets with 

a book value of $756 million and $1.1 billion, respectively (including cash, 

investments, and miscellaneous receivables of $436 million and $479 million 

at December 31, 2003 and 2002, respectively). The estimated cash recoveries

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

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s 

type and quality. Resultant recovery estimates are extrapolated to the nonsampled assets in order to derive the allowance for loss on the receivable.

These estimated recoveries are regularly evaluated, but remain subject to 

uncertainties because of potential changes in economic and market conditions.

Such uncertainties could cause the BIF’s actual recoveries to vary from the 

level currently estimated. 

As of December 31, 2003, an allowance for loss of $4.4 billion, or 90% of the

gross receivable, was recorded. Of the remaining 10% of the gross receivable,

the amount of credit risk is limited since over three-fourths of the receivable

will be repaid from receivership cash and investments.
5

6

Bank Insurance Fund

BIF

5. Property and Equipment, Net

The depreciation expense was $55 million and $47 million for 2003 and 2002,

respectively.

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The BIF records a contingent liability and a loss provision for banks (including

Oakar and Sasser financial 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 

historical loss rates to groups of institutions with certain shared characteristics.

In addition, institution-specific analysis is performed on those banks where 

failure is imminent absent institution management resolution of existing 

problems. As of December 31, 2003 and 2002, the contingent liabilities for

anticipated failure of insured institutions were $178 million and $1.0 billion,

respectively. 

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

additional risk in the financial services industry that could result in a material loss

to the BIF should potentially vulnerable financial institutions ultimately fail. This

risk is evidenced by the level of problem bank assets and the presence of various

high-risk banking business models that are particularly vulnerable to adverse 

economic and market conditions. Due to the uncertainty surrounding future 

economic and market conditions, there are other banks for which the risk of 

failure is less certain, but still considered reasonably possible. As a result of

these risks, the FDIC believes that it is reasonably possible that the BIF could

incur additional estimated losses up to $2.2 billion.

53

Property and Equipment, Net at December 31 

Dollars in Thousands 

2003 2002 

Land $ 37,352 $ 37,352 

Buildings (includes construction-in-process) 180,187 171,362

Application software (includes work-in-process) 177,111 155,196

Furniture, fixtures, and equipment 97,682 98,497 

Accumulated depreciation (204,952) (159,323)

Total $ 287,380 $ 303,084
7

54

The accuracy of these estimates will largely depend on future economic and

market conditions. The FDIC’s Board of Directors has the statutory authority to

consider the contingent liability from anticipated failures of insured institutions

when setting assessment rates.

Litigation Losses

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

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 $111.3 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 resolutions, representations and warranties, and guarantees are 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 $7.4 billion 

as of December 31, 2003. The contingent liability from all outstanding claims

asserted in connection with representations and warranties was zero and 

$11.6 million at December 31, 2003 and 2002, respectively.

In addition, future losses on representations and warranties, and guarantees

could be incurred over the remaining life of the loans sold, which is generally 

20 years or more. Consequently, the FDIC believes it is possible that additional

losses may be incurred by the BIF 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 BIF from 

outstanding contracts with unasserted representation and warranty claims.

7. Assessments

In compliance with provisions of the FDI Act, as amended, the FDIC uses a riskbased 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 based

on capital ratios and supervisory examination data. The majority of the financial

institutions are not assessed. Of those assessed, the assessment rate averaged

approximately 20 cents and 22 cents per $100 of assessable deposits for 2003

and 2002, respectively. During 2003 and 2002, $80 million and $84 million were

collected from BIF-member institutions, respectively. On November 4, 2003, 
8

Bank Insurance Fund

BIF

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

2004. The Board reviews assessment rates semiannually to ensure that funds

are available to satisfy the BIF’s obligations. If necessary, the Board may impose

more frequent rate adjustments or emergency special assessments.

The FDIC is required 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 warrant). If the reserve ratio falls below the

DRR, the FDIC is required to set semiannual assessment rates that are sufficient

to increase the reserve ratio to the DRR not later than one year after such rates

are set, or in accordance with a recapitalization schedule of fifteen years or less.

As of September 30, 2003, the BIF reserve ratio was 1.31 percent of estimated

insured deposits. 

Assessments are also levied on institutions for payments of the interest 

on obligations issued by the Financing Corporation (FICO). The FICO was

established as a mixed-ownership government corporation to function solely

as a financing vehicle for the 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 BIF 

and is separate from the regular assessments. The FDIC, as administrator 

of the BIF and the SAIF, acts solely as a collection agent for the FICO. During

2003 and 2002, $627 million and $621 million, respectively, were collected

from BIF-member institutions and remitted to the FICO.

8. Operating Expenses

Operating expenses were $805 million for 2003, compared to $821 million for

2002. The decrease of $16 million is primarily attributable to lower salary/benefit

expenses resulting from the workforce reduction programs in 2002. 

During 2002, the FDIC offered voluntary employee buyout incentives to a majority

of its employees and conducted a reduction-in-force (RIF) in 2002 and 2003 

in an effort to reduce identified staffing excesses and skill imbalances. As 

a result, approximately 750 employees left by December 31, 2003. Termination

benefits included compensation of fifty percent of employee’s current base

salary and locality adjustment for voluntary departures. The total cost of this buyout was $33.1 million for 2002, with BIF’s pro rata share totaling $28.9 million,

which is included in the “Salaries and benefits” category in the chart below, as

well as the “Separation Incentive Payment” line item in Note 10. Through 2003,

BIF paid $20.8 million of this compensation benefit and the remaining unpaid

amount is recorded as a liability in the “Accounts payable and other liabilities”

line item.

55
9

56

9. Provision for Insurance Losses

Provision for insurance losses was a negative $928 million for 2003 and a negative

$87 million for 2002. The following chart lists the major components of the 

provision for insurance losses.

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2003 2002

Salaries and benefits $ 555,683 $ 599,930

Outside services 81,851 77,935

Travel 41,773 37,880

Buildings and leased space 61,582 60,613

Equipment (not capitalized) 15,111 14,923

Depreciation of property and equipment 54,947 47,042

Other 20,689 20,560

Services billed to receiverships (26,140) (37,747)

Total $ 805,496 $ 821,136

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2003 2002

Valuation Adjustments:

Closed banks $ (108,309) $ 616,844

Open bank assistance and other assets 2,534 6,006

Total Valuation Adjustments (105,775) 622,850

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (829,831) (902,903)

Litigation losses 345 180,458

Other contingencies 6,793 12,625

Total Contingent Liabilities Adjustments (822,693) (709,820)

Total $ (928,468) $ (86,970)
10

Bank Insurance Fund

BIF

10. Employee Benefits

Pension Benefits, Savings Plans and Postemployment 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 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.

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred

401(k) savings plan with matching contributions up to five percent. The BIF pays

its share of the employer’s portion of all related costs.

Postretirement Benefits Other Than Pensions

The FDIC provides certain life and dental insurance coverage for its eligible

retirees, the retirees’ beneficiaries, and covered dependents. Retirees eligible 

for life 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. Dental coverage is provided to all retirees eligible for an 

immediate annuity.

Prior to 2003, the BIF funded its liability for postretirement benefits other than

pensions directly to a separate entity, which was established to restrict the funds

and to provide for the accounting and administration of these benefits. As of

January 1, 2003, the FDIC changed its funding policy for these benefits and

eliminated the separate entity in order to simplify the investment, accounting,

and reporting for the obligation. The change does not impact any benefit 

entitlements to employees and retirees or the accrual of this liability pursuant 

57

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

Dollars in Thousands 

2003 2002

Civil Service Retirement System $ 7,740 $ 13,365

Federal Employees Retirement System (Basic Benefit) 29,477 30,366

FDIC Savings Plan 17,397 18,956

Federal Thrift Savings Plan 12,066 12,235

Separation Incentive Payment (see note 8) 91 29,085

Total $ 66,771 $ 104,007
11

58

to the provisions of SFAS No. 106. The BIF received $89 million, of the total

$103 million, as its proportionate share of the plan assets and recognized 

a liability of $90 million, of the total $104 million, in the “Accounts payable 

and other liabilities” line item on its Balance Sheets. 

The net cumulative effect of this accounting change for the periods prior 

to 2003 was $787 thousand which is included in the “Insurance and other

expenses” line item on BIF’s Statements of Income and Fund Balance. In addition

to the cumulative effect, the BIF’s expense for such benefits in 2003 was 

$11 million, which is included in the current year operating expenses. In the

absence of the accounting change, BIF would have recognized an expense 

of $6 million.

At December 31, 2003, the BIF’s net postretirement benefit liability recognized 

in the “Accounts payable and other liabilities” line item in the Balance Sheet

was $98 million. At December 31, 2002, the BIF’s net postretirement benefit

asset recognized in the “Interest receivable on investments and other assets,

net” line item in the Balance Sheet was $130 thousand. Key actuarial assumptions used in the accounting for the plan include the discount rate, the rate of

compensation increase, and the dental coverage trend rate.

11. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The BIF’s allocated share of the FDIC’s lease commitments totals $124 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 FDIC’s

future lease commitments is based upon current relationships of the workloads

among the BIF and the SAIF. 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 $38 million and $37 million

for the years ended December 31, 2003 and 2002, respectively.

Leased Space Commitments

Dollars in Thousands 

2004 2005 2006 2007 2008 2009/Thereafter

$ 37,345 $ 32,666 $ 22,484 $ 13,652 $ 8,887 $ 9,052
Bank Insurance Fund

BIF

Off-Balance-Sheet Exposure:

Asset Securitization Guarantees

As part of the FDIC’s 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. One deal terminated

in 2003 with a cumulative gain to the BIF of $6 million. Although the remaining

term of the limited guaranty for the last deal is 23 years, this deal will be evaluated

for possible termination in 2004. As of December 31, 2003 and 2002, the maximum

off-balance-sheet exposure was $81 million and $202 million, respectively.

Deposit Insurance

As of September 30, 2003, deposits insured by the BIF totaled approximately

$2.5 trillion. This would be the accounting loss if all depository institutions

were to fail and the acquired assets provided no recoveries.

59
12

60

12. 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, due to their short 

maturities and/or comparability with current interest rates.

The net receivables from bank resolutions primarily include the BIF’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 BIF’s 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.
13

BIF

13. Supplementary Information Relating to the Statements

of Cash Flows

Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31

Dollars in Thousands 

2003 2002

Net Income $ 1,741,727 $ 1,045,268

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

Income Statement Items:

Amortization of U.S. Treasury obligations 455,628 217,742 

TIIS inflation adjustment (115,150) (110,679)

Depreciation on property and equipment 54,947 47,484

Retirement of property and equipment 852 2,149

Change in Assets and Liabilities:

(Increase) Decrease in interest receivable on investments and other assets (67,460) 63,688

(Increase) in receivables from bank resolutions (5,694) (426,239)

Increase in accounts payable and other liabilities 85,577 14,218

(Decrease) in contingent liabilities for anticipated failure of insured institutions (829,831) (902,903)

(Decrease) Increase in contingent liabilities for litigation losses and other (20,604) 180,340

Net Cash Provided by Operating Activities $ 1,299,992 $ 131,068

Bank Insurance Fund

61
1

Savings 

Association 

Insurance 

Fund

December 31, 2003

and 2002
SAIF

Savings Association Insurance Fund

63

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Balance Sheets at December 31

Dollars in Thousands 

2003 2002

Assets

Cash and cash equivalents $ 827,141 $ 1,907,353

Cash and other assets: Restricted for SAIF-member exit fees (Note 3) 

(Includes cash and cash equivalents of $231.9 million and $187.7 million

at December 31, 2003 and 2002, respectively) 319,286 311,864

Investment in U.S. Treasury obligations, net: (Note 4)

Held-to-maturity securities 6,823,709 5,726,840

Available-for-sale securities 4,152,048 3,769,576

Interest receivable on investments and other assets, net 188,189 153,320

Receivables from thrift resolutions, net (Note 5) 273,242 287,855

Total Assets $ 12,583,615 $ 12,156,808

Liabilities

Accounts payable and other liabilities $ 20,540 $ 7,100

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 3,192 90,493

Litigation losses 532 613

SAIF-member exit fees and investment proceeds held in escrow (Note 3) 319,286 311,864

Total Liabilities 343,550 410,070

Commitments and off-balance-sheet exposure (Note 11)

Fund Balance

Accumulated net income 11,965,776 11,465,716

Unrealized gain on available-for-sale securities, net (Note 4) 274,289 281,022

Total Fund Balance 12,240,065 11,746,738

Total Liabilities and Fund Balance $ 12,583,615 $ 12,156,808

The accompanying notes are an integral part of these financial statements.
64

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Statements of Income and Fund Balance for the Years Ended December 31

Dollars in Thousands 

2003 2002

Revenue

Interest on U.S. Treasury obligations $ 532,474 $ 564,259 

Assessments (Note 7) 14,594 23,783 

Other revenue 192 779 

Total Revenue 547,260 588,821 

Expenses and Losses

Operating expenses (Note 8) 129,584 124,363 

Provision for insurance losses (Note 9) (82,489) (156,494) 

Insurance and other expenses 105 751 

Total Expenses and Losses 47,200 (31,380) 

Net Income 500,060 620,201 

Unrealized (loss)/gain on available-for-sale securities, net (6,733) 191,613

Comprehensive Income 493,327 811,814 

Fund Balance - Beginning 11,746,738 10,934,924 

Fund Balance - Ending $ 12,240,065 $ 11,746,738 

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

65

Savings Association Insurance Fund

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Statements of Cash Flows for the Years Ended December 31

Dollars in Thousands 

2003 2002

Operating Activities

Provided by:

Interest on U.S. Treasury obligations $ 620,842 $ 576,192

Assessments 15,327 23,709

Entrance and exit fees, including interest on exit fees (Note 3) 4,305 15,811

Recoveries from thrift resolutions 13,419 1,126,940

Miscellaneous receipts 15,344 73

Used by:

Operating expenses (130,495) (125,159)

Disbursements for thrift resolutions (6,541) (119,993)

Miscellaneous disbursements (108) (103)

Net Cash Provided by Operating Activities (Note 13) 532,093 1,497,470

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 1,170,000 1,070,000

Maturity of U.S. Treasury obligations, available-for-sale 575,000 150,000

Used by:

Purchase of U.S. Treasury obligations, held-to-maturity (2,305,056) 0

Purchase of U.S. Treasury obligations, available-for-sale (1,008,066) (970,813)

Net Cash (Used by) Provided by Investing Activities (1,568,122) 249,187

Net (Decrease)/Increase in Cash and Cash Equivalents (1,036,029) 1,746,657

Cash and Cash Equivalents - Beginning 2,095,081 348,424

Unrestricted Cash and Cash Equivalents - Ending 827,141 1,907,353

Restricted Cash and Cash Equivalents - Ending 231,911 187,728

Cash and Cash Equivalents - Ending $ 1,059,052 $ 2,095,081

The accompanying notes are an integral part of these financial statements.
1

1. Operations of the Savings Association 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,

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. FDIC is the administrator of the Savings Association Insurance Fund

(SAIF), the Bank Insurance Fund (BIF), and the FSLIC Resolution Fund (FRF),

which are maintained separately to carry out their respective mandates. The

SAIF and the BIF are insurance funds responsible for protecting insured thrift

and bank depositors from loss due to institution failures. These insurance funds

must be maintained at not less than 1.25 percent of estimated insured deposits

or a higher percentage as circumstances warrant. 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. 

An active institution’s insurance fund membership and primary federal supervisor

are generally determined by the institution’s charter type. Deposits of SAIF-member

institutions are generally insured by the SAIF; SAIF members are predominantly

thrifts supervised by the Office of Thrift Supervision (OTS). 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.

In addition to traditional thrifts and banks, several other categories of institutions

exist. 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. 

In addition, SAIF-member thrifts can convert to a bank charter and retain their

SAIF membership. These institutions are referred to as Sasser financial institutions.

Likewise, BIF-member banks can convert to a thrift charter and retain their 

BIF membership. 

Operations of the SAIF

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

the depositors of SAIF-insured institutions and 2) resolve SAIF-insured failed

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

in the least possible cost to the SAIF.

Savings

Association

Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2003

and 2002
SAIF

Savings Association Insurance Fund

67

The SAIF is primarily funded from: 1) interest earned on investments in 

U.S.Treasury obligations and 2) deposit insurance assessments. Additional 

funding sources are borrowings from the U.S.Treasury, the Federal Financing

Bank (FFB), and the Federal Home Loan Banks, if necessary. The FDIC has 

borrowing authority from the U.S.Treasury up to $30 billion for insurance 

purposes on behalf of the SAIF and the BIF. 

A statutory formula, known as the Maximum Obligation Limitation (MOL), limits

the amount of obligations the SAIF can incur to the sum of its cash, 90% of the

fair market value of other assets, and the amount authorized to be borrowed

from the U.S.Treasury. The MOL for the SAIF was $20.3 billion and $19.9 billion

as of December 31, 2003 and 2002, 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 SAIF

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.

Recent Legislative Initiatives

In April 2001, FDIC issued recommendations for deposit insurance reform. The

FDIC recommendations included merging SAIF and BIF and improving FDIC’s

ability to manage the merged fund by permitting the FDIC Board of Directors 

to price insurance premiums properly to reflect risk, to set the reserve ratio in a

range around 1.25 percent, establish a system for providing credits, rebates and

surcharges, and to eliminate the SAIF exit fee reserve. FDIC also recommended

that Congress consider indexing deposit insurance coverage for inflation. During

the 107th Congress (2001-2002), hearings were held in the House and Senate

and legislation was introduced containing major elements of FDIC’s deposit 

insurance reform proposals. The legislation was not enacted prior to congressional adjournment. During the 108th Congress (2003 - 2004), the House and

Senate are again considering deposit insurance reform legislation. If Congress

enacts deposit insurance reform legislation that contains the above recommendations, the new law would have a significant impact on the SAIF and BIF. 

FDIC management, however, cannot predict which provisions, if any, will 

ultimately be enacted.
2

68

2. Summary of Significant Accounting Policies

General

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

and cash flows of the SAIF 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 loss on receivables from thrift

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

SAIF 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 SAIF 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.

SAIF’s investments in U.S. Treasury obligations are either classified as heldto-maturity or available-for-sale. 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 

anticipated 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 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. 
3

SAIF

Savings Association Insurance Fund

69

Cost Allocations Among Funds

Operating expenses not directly charged to the SAIF, the BIF, and the FRF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

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.

Reclassifications

Reclassifications have been made in the 2002 financial statements to conform 

to the presentation used in 2003.

3. Cash and Other Assets: Restricted for SAIF-Member Exit Fees 

The SAIF collects entrance and exit fees for conversion transactions when an

insured depository institution converts from the BIF to the SAIF (resulting in an

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

approved by the FDIC’s Board of Directors (Board) and published in the Federal

Register on March 21, 1990, directed that exit fees paid to the SAIF be held in

escrow. 

The FDIC and the Secretary of the Treasury will determine when it is no longer

necessary to escrow such funds for the payment of interest on obligations 

previously issued by the FICO. These escrowed exit fees are invested in 

U.S.Treasury securities pending determination of ownership. The interest earned

is also held in escrow. There were no conversion transactions during 2003 and

2002 that resulted in an entrance/exit fee to the SAIF.

Cash and Other Assets: Restricted for SAIF-Member Exit Fees at December 31

Dollars in Thousands 

2003 2002

Cash and cash equivalents $ 231,911 $ 187,728

Investment in U.S. Treasury obligations, net 86,471 122,402

Interest receivable on U.S. Treasury obligations 904 1,734

Total $ 319,286 $ 311,864
U.S. Treasury Obligations at December 31, 2002 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized

Yield at Face Carrying Holding Market

Maturity Purchase Value Amount Gains Value

Within 1 year 6.59% $ 35,000 $ 34,986 $ 222 $ 35,208

After 1 year thru 5 years 5.45% 64,000 66,830 6,298 73,128

After 5 years thru 10 years 4.99% 20,000 20,586 2,108 22,694

Total $ 119,000 $ 122,402 $ 8,628 $ 131,030 

70

As of December 31, 2003 and 2002, the unamortized premium, net of the

unamortized discount, was $2.5 million and $3.4 million, respectively.

U.S. Treasury Obligations at December 31, 2003 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized

Yield at Face Carrying Holding Market

Maturity Purchase Value Amount Gains Value

Within 1 year 5.79% $ 20,000 $ 20,267 $ 683 $ 20,950

After 1 year thru 5 years 5.20% 64,000 66,204 5,349 71,553

Total $ 84,000 $ 86,471 $ 6,032 $ 92,503 
4

71

4. Investment in U.S.Treasury Obligations, Net

As of December 31, 2003 and 2002, the book value of investments in 

U.S.Treasury obligations, net, was $11.0 billion and $9.5 billion, respectively.

As of December 31, 2003, the SAIF held $2.2 billion of Treasury inflation-indexed

securities (TIIS). These securities are indexed to increases or decreases in the

Consumer Price Index for All Urban Consumers (CPI-U). Additionally, the SAIF

held $2.5 billion of callable U.S.Treasury bonds at December 31, 2003. 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.

Savings Association Insurance Fund

SAIF
Available-for-Sale

Within 1 year 3.15% $ 1,360,000 $ 1,413,730 $ 16,265 $ (99) $ 1,429,896

After 1 year thru 5 years 4.43% 655,000 756,058 34,530 0 790,588

Treasury Inflation-Indexed

After 1 year thru 5 years 4.11% 280,564 276,009 34,278 0 310,287

After 5 years thru 10 years 3.79% 1,429,352 1,431,962 189,315 0 1,621,277

Total $ 3,724,916 $ 3,877,759 $ 274,388 $ (99) $ 4,152,048

Total Investment in U.S. Treasury Obligations, Net

Total $ 10,383,948 $ 10,701,468 $ 766,796 $ (221) $ 11,468,043

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 TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2003.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity within the coming year. As a result, all losses are considered temporary and will be eliminated upon redemption of the securities.

●

▼

■

72

U.S. Treasury Obligations at December 31, 2003 (Unrestricted)

Dollars in Thousands

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 2.86% $ 1,670,000 $ 1,742,136 $ 12,009 $ (122) $ 1,754,023

After 1 year thru 5 years 5.59% 3,185,000 3,250,611 284,578 0 3,535,189

After 5 years thru 10 years 5.54% 1,575,000 1,603,674 169,813 0 1,773,487

Treasury Inflation-Indexed

After 1 year thru 5 years 3.86% 229,032 227,288 26,008 0 253,296

Total $ 6,659,032 $ 6,823,709 $ 492,408 $ (122) $ 7,315,995 

● ▼ ■
SAIF

U.S. Treasury Obligations at December 31, 2002 (Unrestricted)

Dollars in Thousands

Net Unrealized

Yield at Face Carrying Holding Market

Maturity Purchase Value Amount Gains Value

Held-to-Maturity

Within 1 year 6.23% $ 535,000 $ 541,662 $ 12,242 $ 553,904

After 1 year thru 5 years 5.91% 2,880,000 2,941,199 317,167 3,258,366

After 5 years thru 10 years 5.78% 2,030,000 2,021,651 298,277 2,319,928

Treasury Inflation-Indexed

After 5 years thru 10 years 3.85% 224,432 222,328 23,917 246,245

Total $ 5,669,432 $ 5,726,840 $ 651,603 $ 6,378,443

Available-for-Sale

Within 1 year 5.77% $ 475,000 $ 473,317 $ 9,660 $ 482,977

After 1 year thru 5 years 4.81% 1,235,000 1,342,263 82,983 1,425,246

Treasury Inflation-Indexed

After 5 years thru 10 years 3.84% 1,675,573 1,672,974 188,379 1,861,353

Total $ 3,385,573 $ 3,488,554 $ 281,022 $ 3,769,576

Total Investment in U.S. Treasury Obligations, Net

Total $ 9,055,005 $ 9,215,394 $ 932,625 $ 10,148,019

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 TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2002.

●

▼

Savings Association Insurance Fund

73

As of December 31, 2003 and 2002, the unamortized premium, net of the

unamortized discount, was $317.5 million and $160.4 million, respectively.

● ▼
5

74

5. Receivables From Thrift Resolutions, Net

The receivables from thrift resolutions include payments made by the SAIF 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 SAIF

receiverships are the main source of repayment of the SAIF’s receivables from

closed thrifts. During 2003, there were no thrift failures, leaving two active

receiverships. 

As of December 31, 2003 and 2002, SAIF receiverships held assets with 

a book value of $449 million and $490 million, respectively (including cash, 

investments, and miscellaneous receivables of $117 million and $93 million 

at December 31, 2003 and 2002, respectively). The estimated cash recoveries

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

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s type

and quality. Resultant recovery estimates are extrapolated to the non-sampled

assets in order to derive the allowance for loss on the receivable. These estimated

recoveries are regularly evaluated, but remain subject to uncertainties because

of potential changes in economic and market conditions. Such uncertainties could

cause the SAIF’s actual recoveries to vary from the level currently estimated.

At December 31, 2003, about 99% of the SAIF’s $273 million net receivable 

will be repaid from assets related to the Superior receivership (which failed in

July 2001), primarily, cash, investments, and a promissory note arising from 

a settlement with the owners of the failed institution. The credit risk related to

the promissory note is limited since half of the outstanding note is secured by 

a letter of credit and the remaining half is subject to the creditworthiness of 

the payor of the note. Annual monitoring of the creditworthiness of the payor 

is performed and currently indicates a low risk of non-performance.

Receivables From Thrift Resolutions, Net at December 31 

Dollars in Thousands 

2003 2002

Receivables from closed thrifts $ 709,389 $ 721,572

Allowance for losses (436,147) (433,717) 

Total $ 273,242 $ 287,855 
SAIF

6

Savings Association Insurance Fund

75

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The SAIF records a contingent liability and a loss provision for thrifts (including

Oakar and Sasser financial 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 

historical loss rates to groups of institutions with certain shared characteristics. 

In addition, institution-specific analysis is performed on those thrifts where failure

is imminent absent institution management resolution of existing problems. 

As of December 31, 2003 and 2002, the contingent liabilities for anticipated 

failure of insured institutions were $3 million and $90 million, respectively. 

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

risk in the financial services industry that could result in a material loss to the

SAIF should potentially vulnerable financial institutions ultimately fail. This risk 

is evidenced by the level of problem thrift assets and the presence of various

high-risk banking business models that are particularly vulnerable to adverse 

economic and market conditions. Due to the uncertainty surrounding future 

economic and market conditions, there are other thrifts for which the risk 

of failure is less certain, but still considered reasonably possible. As a result 

of these risks, the FDIC believes that it is reasonably possible that the SAIF

could incur additional estimated losses up to $143 million.

The accuracy of these estimates will largely depend on future economic and

market conditions. The FDIC’s Board of Directors has the statutory authority to

consider the contingent liability from anticipated failures of insured institutions

when setting assessment rates.

Litigation Losses

The SAIF 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 $53.4 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

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 
7

76

unexpired representations and warranties, and guarantees was $5.2 billion 

as of December 31, 2003. SAIF did not establish a liability for all outstanding

claims asserted in connection with representations and warranties because 

the receiverships have sufficient funds to pay for such claims.

In addition, future losses on representations and warranties, and guarantees

could be incurred over the remaining life of the loans sold, which is generally 

20 years or more. Consequently, the FDIC believes it is possible that additional

losses may be incurred by the SAIF 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 SAIF from outstanding

contracts with unasserted representation and warranty claims.

7. Assessments

In compliance with provisions of the FDI Act, as amended, the FDIC uses 

a risk-based assessment system that charges higher rates to those institutions

that pose greater risks to the SAIF. To arrive at a risk-based assessment for a

particular institution, the FDIC places each institution in one of nine risk categories

based on capital ratios and supervisory examination data. The majority of the

financial institutions are not assessed. Of those assessed, the assessment rate

averaged approximately 14 cents and 26 cents per $100 of assessable deposits

for 2003 and 2002, respectively. During 2003 and 2002, $15 million and $24 million

were collected from SAIF-member institutions, respectively. On November 4, 2003,

the Board voted to retain the SAIF assessment schedule at the annual rate of 

0 to 27 cents per $100 of assessable deposits for the first semiannual period of

2004. The Board reviews assessment rates semiannually to ensure that funds

are available to satisfy the SAIF’s obligations. If necessary, the Board may

impose more frequent rate adjustments or emergency special assessments. 

The FDIC is required 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 warrant). If the reserve ratio falls below 

the DRR, the FDIC is required to set semiannual assessment rates that are 

sufficient to increase the reserve ratio to the DRR not later than one year 

after such rates are set, or in accordance with a recapitalization schedule 

of fifteen years or less. As of September 30, 2003, the SAIF reserve ratio 

was 1.40 percent of estimated insured deposits.

Assessments are also levied on institutions for payments of the interest 

on obligations issued by the Financing Corporation (FICO). The FICO was 

established as a mixed-ownership government corporation to function solely 

as a financing vehicle for the 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 SAIF 

and is separate from the regular assessments. The FDIC, as administrator 

of the SAIF and the BIF, acts solely as a collection agent for the FICO. During 

2003 and 2002, $162 million and $161 million, respectively, were collected 

from SAIF-member institutions and remitted to the FICO.
SAIF

8

Savings Association Insurance Fund

77

8. Operating Expenses

Operating expenses totaled $130 million for 2003 compared to $124 million for

2002. Salaries and benefits expenses are lower due to the workforce reduction

programs in 2002. The chart below lists the major components of operating

expenses.

During 2002, the FDIC offered voluntary employee buyout incentives to a majority

of its employees and conducted a reduction-in-force (RIF) in 2002 and 2003 

in an effort to reduce identified staffing excesses and skill imbalances. As a

result, approximately 750 employees left by December 31, 2003. Termination

benefits included compensation of fifty percent of the employee’s current 

base salary and locality adjustment for voluntary departures. The total cost 

of this buyout was $33.1 million for 2002, with SAIF’s pro rata share totaling

$4.2 million, which is included in the “Salaries and benefits” category in the

chart below, as well as the “Separation Incentive Payment” line item in Note 10.

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2003 2002

Salaries and benefits $ 87,963 $ 92,192

Outside services 15,038 12,196

Travel 5,801 5,473

Buildings and leased space 12,132 10,163

Equipment 9,374 7,858

Other 3,189 2,254

Services billed to receiverships (3,913) (5,773)

Total $ 129,584 $ 124,363
78

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2003 2002

Valuation Adjustments:

Closed thrifts $ 4,684 $ (10,113)

Total Valuation Adjustments 4,684 (10,113)

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (87,301) (142,507)

Litigation losses 128 (3,874)

Total Contingent Liabilities Adjustments (87,173) (146,381)

Total $ (82,489) $ (156,494)

99. Provision for Insurance Losses

Provision for insurance losses was a negative $82 million for 2003 and a negative

$156 million for 2002. In both 2003 and 2002, the negative provision was 

primarily due to lower estimated losses for anticipated failures which resulted

from the improved financial condition of a few large thrifts. The following chart

lists the major components of the provision for insurance losses.
SAIF

10

Savings Association Insurance Fund

79

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

Dollars in Thousands 

2003 2002

Civil Service Retirement System $ 1,258 $ 1,715

Federal Employees Retirement System (Basic Benefit) 4,682 4,765

FDIC Savings Plan 2,788 2,951

Federal Thrift Savings Plan 1,900 1,913

Separation Incentive Payment (see Note 8) 14 4,276

Total $ 10,642 $ 15,620

10. Employee Benefits

Pension Benefits, Savings Plans and Postemployment 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 SAIF contributes a portion of pension

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

retirement system. The SAIF 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. 

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred

401(k) savings plan with matching contributions up to five percent. The SAIF

pays its share of the employer’s portion of all related costs.
80

Postretirement Benefits Other Than Pensions

The FDIC provides certain life and dental insurance coverage for its eligible

retirees, the retirees’ beneficiaries, and covered dependents. Retirees eligible 

for life 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. Dental coverage is provided to all retirees eligible for an

immediate annuity.

Prior to 2003, the SAIF funded its liability for postretirement benefits other 

than pensions directly to a separate entity, which was established to restrict 

the funds and to provide for the accounting and administration of these benefits. 

As of January 1, 2003, the FDIC changed its funding policy for these benefits

and eliminated the separate entity in order to simplify the investment, accounting,

and reporting for the obligation. The change does not impact any benefit entitlements to employees and retirees or the accrual of this liability pursuant to 

the provisions of SFAS No.106. The SAIF received $14 million, of the total 

$103 million, as its proportionate share of the plan assets and recognized 

a liability of $14 million, of the total $104 million, in the “Accounts payable 

and other liabilities” line item on its Balance Sheets. 

The net cumulative effect of this accounting change for the periods prior to 

2003 was a negative $43 thousand which is included in the “Insurance and

other expenses” line item on the SAIF’s Statements of Income and Fund

Balance. In addition to the cumulative effect, the SAIF’s expense for such 

benefits in 2003 was $1 million, which is included in the current year operating

expenses. In the absence of the accounting change, the SAIF would have 

recognized an expense of $925 thousand. 

At December 31, 2003 and 2002, the SAIF’s net postretirement benefit liability

recognized in the “Accounts payable and other liabilities” line item in the

Balance Sheet was $15 million and $145 thousand, respectively. Key actuarial

assumptions used in the accounting for the plan include the discount rate, the

rate of compensation increase, and the dental coverage trend rate.
11

SAIF

Savings Association Insurance Fund

81

11. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The SAIF’s allocated share of the FDIC’s lease commitments totals $19.4 million

for future years. The lease agreements contain escalation clauses resulting in

adjustments, usually on an annual basis. The allocation to the SAIF of the FDIC’s

future lease commitments is based upon current relationships of the workloads

among the SAIF and the BIF. Changes in the relative workloads could cause 

the amounts allocated to the SAIF in the future to vary from the amounts 

shown below. The SAIF recognized leased space expense of $7.9 million and

$6.5 million for the years ended December 31, 2003 and 2002, respectively. 

Off-Balance-Sheet Exposure:

Deposit Insurance

As of September 30, 2003, deposits insured by the SAIF totaled approximately

$868 billion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

Leased Space Commitments

Dollars in Thousands 

2004 2005 2006 2007 2008 2009/Thereafter

$ 5,849 $ 5,117 $ 3,522 $ 2,138 $ 1,392 $ 1,418
82

1212. 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 4 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 thrift resolutions primarily include the SAIF’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 SAIF’s allowance for loss against the net receivables from

thrift 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 5), 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 SAIF 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 thrift 

resolutions.
Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31

Dollars in Thousands 

2003 2002

Net Income $ 500,060 $ 620,201

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

Income Statement Items:

Amortization of U.S. Treasury obligations (unrestricted) 155,993 47,333

TIIS inflation adjustment (38,943) (37,429)

Change in Assets and Liabilities:

Decrease in amortization of U.S. Treasury obligations (restricted) 931 811

(Increase) Decrease in entrance and exit fees receivable, including interest receivable 

on investments and other assets (34,040) 5,317

Decrease in receivables from thrift resolutions 14,613 997,295

Increase (Decrease) in accounts payable and other liabilities 13,440 (1,011)

(Decrease) in contingent liability for anticipated failure of insured institutions (87,301) (142,507)

(Decrease) in contingent liability for litigation losses (82) (5,029)

Increase in exit fees and investment proceeds held in escrow 7,422 12,489

Net Cash Provided by Operating Activities $ 532,093 $ 1,497,470

1313. Supplementary Information Relating to the Statements of

Cash Flows

Savings Association Insurance Fund

83
1

FSLIC

Resolution 

Fund

December 31, 2003

and 2002
FRF

85

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Balance Sheets at December 31

Dollars in Thousands 

2003 2002

Assets

Cash and cash equivalents $ 3,278,532 $ 3,618,330

Receivables from thrift resolutions and other assets, net (Note 3) 198,432 251,929

Total Assets $ 3,476,964 $ 3,870,259

Liabilities 

Accounts payable and other liabilities $ 19,381 $ 14,408

Contingent liabilities for litigation losses and other (Note 4) 1,169 546

Total Liabilities 20,550 14,954

Resolution Equity (Note 6)

Contributed capital 126,377,851 126,827,821

Accumulated deficit (122,962,936) (123,015,273)

Unrealized gain on available-for-sale securities, net (Note 3) 41,499 42,757

Accumulated deficit, net (122,921,437) (122,972,516)

Total Resolution Equity 3,456,414 3,855,305

Total Liabilities and Resolution Equity $ 3,476,964 $ 3,870,259

The accompanying notes are an integral part of these financial statements.
86

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2003 2002

Revenue

Interest on U.S. Treasury obligations $ 32,902 $ 46,835

Realized gain on investment in securitization-related assets acquired 

from receiverships (Note 3) 756 352,486

Other revenue 16,849 33,756

Total Revenue 50,507 433,077

Expenses and Losses

Operating expenses 27,828 45,684

Provision for losses (Note 5) (57,832) (149,359)

Expenses for goodwill settlements and litigation (Note 4) 15,324 40,351

Other expenses 12,850 5,856

Total Expenses and Losses (1,830) (57,468)

Net Income 52,337 490,545

Unrealized loss on available-for-sale securities, net (Note 3) (1,258) (263,590)

Comprehensive Income 51,079 226,955

Accumulated Deficit - Beginning (122,972,516) (123,199,471)

Accumulated Deficit - Ending $ (122,921,437) $ (122,972,516)

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

87

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2003 2002

Operating Activities

Provided by:

Interest on U.S.Treasury obligations $ 32,902 $ 46,835

Recoveries from thrift resolutions 115,437 316,439

Miscellaneous receipts 39,079 32,607

Used by:

Operating expenses (31,643) (44,421)

Disbursements for thrift resolutions (11,842) (30,373)

Disbursements for goodwill settlements and judgments (30) (21,459)

Disbursements for goodwill litigation expenses (35,274) (18,892)

Miscellaneous disbursements (4,286) (9,119)

Net Cash Provided by Operating Activities (Note 8) 104,343 271,617

Investing Activities

Investment in securitization-related assets acquired from receiverships 5,829 1,101,525

Net Cash Provided by Investing Activities 5,829 1,101,525

Financing Activities

Provided by:

U.S.Treasury payments for goodwill settlements 30 21,459

Used by:

Payments to Resolution Funding Corporation (Note 6) (450,000) (1,266,667)

Net Cash Used by Financing Activities (449,970) (1,245,208)

Net (Decrease)/Increase in Cash and Cash Equivalents (339,798) 127,934

Cash and Cash Equivalents - Beginning 3,618,330 3,490,396

Cash and Cash Equivalents - Ending $ 3,278,532 $ 3,618,330

The accompanying notes are an integral part of these financial statements.
11. Legislative 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 in1933 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. 

The FIRREA was enacted to reform, recapitalize, and consolidate the federal

deposit insurance system. In addition to the FRF, FIRREA created the Bank

Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). It 

also designated the FDIC as the administrator of these funds. All three funds

are maintained separately to carry out their respective mandates.

The FIRREA created the RTC to manage and resolve all thrifts previously 

insured by the FSLIC for which a conservator or receiver was appointed during

the period January 1,1989, through August 8,1992. Resolution responsibility

was subsequently extended and ultimately transferred from the RTC to 

the SAIF on July 1, 1995. 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.

FSLIC

Resolution 

Fund

Notes to the 

Financial 

Statements 

December 31, 2003

and 2002
2

FRF

FSLIC Resolution Fund

89

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 FRFFSLIC 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. An executive-level Steering Committee was established in 2003

to facilitate the FRF dissolution. Some of the issues and items that remain open

in FRF are: 1) criminal restitution orders (generally have from 5 to 10 years

remaining); 2) litigation claims and judgments obtained against officers and directors

and other professionals responsible for causing thrift losses (judgments generally

vary from 5 to 10 years); 3) numerous assistance agreements entered into by

the former FSLIC (FRF could continue to receive tax sharing benefits through

year 2020); 4) goodwill and Guarini litigation (no final date for resolution has been

established; see Note 4); and 5) environmentally impaired owned real estate

assets. 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 realize substantial recoveries from item 3 ranging from $235 million

to $760 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.

2. 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.
90

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.

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 investment in securitization-related assets acquired from receiverships is

adjusted to fair value at each reporting date using a valuation model that estimates

the present value of estimated expected future cash flows discounted for market

and credit risks. Additionally, the credit enhancement reserves, which resulted

from swap transactions, are valued by applying a historical loss rate to estimate

loss amounts (see Note 3).

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 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.

Cost Allocations Among Funds

Operating expenses not directly charged to the FRF, the BIF, and the SAIF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

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.

Reclassifications

Reclassifications have been made in the 2002 financial statements to conform 

to the presentation used in 2003.
3

FRF

FSLIC Resolution Fund

91

3. 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 FSLIC and SAIF-insured institutions are a

significant source of repayment of the FRF’s receivables from thrift resolutions.

As of December 31, 2003, 52 of the 850 FRF receiverships remain active primarily

due to unresolved litigation, including Goodwill and Guarini matters. 

As of December 31, 2003 and 2002, FRF receiverships held assets with 

a book value of $215 million and $290 million, respectively (including cash,

investments, and miscellaneous receivables of $114 million and $146 million 

at December 31, 2003 and 2002, respectively). The estimated cash recoveries

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

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s type

and quality. Resultant recovery estimates are extrapolated to the non-sampled

assets in order to derive the allowance for loss on the receivable. These estimated

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 the level currently estimated. 

Investment in Securitization-Related Assets Acquired from Receiverships

This investment is classified as available-for-sale with unrealized gains and losses

included in Resolution Equity. Realized gains and losses are recorded based

upon the difference between the proceeds at termination of the deal and the

book value of the investment and are included as components of Net Income.

As of December 31, 2003, this investment includes credit enhancement

reserves valued at $69 million and residual certificates valued at $21 million.

The last securitization deal, valued at $60 million (including $39 million in credit

enhancement reserves and $21 million in residual certificates), is expected to

terminate in 2004. The remaining $30 million in credit enhancement reserves

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

securities in exchange for single-family mortgage loans. The former 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 2018. 
92

Gross receivables from thrift resolutions and the investment in securitizationrelated assets subject the FRF to credit risk. An allowance for loss of $22.8 billion,

or 99.6% of the gross receivable, was recorded as of December 31, 2003. Of

the remaining 0.4% of the gross receivable, over three-fourths of the receivable

is expected to be repaid from receivership cash, investments, and pledged cash

reserves. The credit risk related to the pledged cash reserves is limited since the

majority of these assets are evaluated annually and have experienced minimal

losses.

The value of the investment in securitization-related assets is influenced by 

the economy of the area relating to the underlying loans. Of this investment,

$42.4 million of the underlying mortgages are located in California and 

$27.2 million of loans are located in New Jersey. No other state accounted 

for a material portion of the investment.

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

Dollars in Thousands 

2003 2002

Receivables from closed thrifts $ 22,940,793 $ 27,636,213

Allowance for losses (22,846,309) (27,504,909)

Receivables from Thrift Resolutions, Net 94,484 131,304

Investment in securitization-related assets acquired from receiverships $ 90,272 $ 98,114

Other assets 13,676 22,511

Total $ 198,432 $ 251,929
4

93

4. 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. In addition to

the amount recorded as probable, the FDIC has determined that losses from

unresolved legal cases totaling $39 million are reasonably possible.

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 61 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. Under the analysis set forth in the OLC opinion, 

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. 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 lawsuits comprising the Goodwill Litigation are against the United States

and as such are defended by the DOJ. On December 1, 2003, 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 the response 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,

FSLIC Resolution Fund

FRF
94

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 liabilities

for the Goodwill Litigation should have no impact on the financial condition 

of the FRF-FSLIC. 

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

$33.3 million and $17.5 million to DOJ for fiscal years 2004 and 2003, respectively. DOJ returns any unused fiscal year funding to the FRF unless special 

circumstances warrant these funds be carried over and applied against current

fiscal year charges. In April 2003, DOJ returned $20 million of unused fiscal 

year funds. At September 30, 2003, DOJ had $19.9 million in unused funds 

that were applied against FY 2004 charges of $53.2 million.

Guarini Litigation

Paralleling the goodwill cases are eight 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.

To date, there have been liability determinations in six of the eight “Guarini”

cases. The United States Court of Federal Claims has entered an award for 

the plaintiffs in three of these cases and appeals have been filed by DOJ. 

A decision on liability has not been made in the seventh case, and the eighth

case was settled during 2002 for $20 thousand. 

The FDIC believes that it is possible that substantial amounts may be paid from

the FRF-FSLIC as a result of the judgments and settlements from the “Guarini

litigation.”However, because the litigation of damages computation is still 

ongoing, the amount of the damages is not estimable at this time. 

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

most likely been paid off or refinanced due to the current interest rate climate 

or the period for filing claims has expired. However, there is no reporting 

mechanism to determine the aggregate amount of remaining loans. Therefore,

the FDIC is unable to provide an estimate of maximum exposure to the FRF.

Based on the above and our history of claims processed, the FDIC believes that

any future representation and warranty liability to the FRF would be minimal.
FRF

6

5

FSLIC Resolution Fund

5. Provision for Losses

The provision for losses was a negative $58 million and a negative $149 million

for 2003 and 2002, respectively. In 2003, the negative provision was primarily

due to lower estimated losses for assets in liquidation and recoveries of net tax

benefits sharing from assistance agreements. The negative provision in 2002

was primarily due to the recoveries of net tax benefits sharing from assistance

agreements. 

6. 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.

Contributed Capital

To date, the FRF-FSLIC and the former RTC received $43.5 billion and $60.1 billion

from the U.S. Treasury, respectively. These payments were used to fund losses

from thrift resolutions prior to July 1, 1995. Additionally, the FRF-FSLIC issued

$670 million in capital certificates to the FICO 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, 2003, the

FRF-RTC has returned $4.556 billion to the U.S. Treasury and made payments 

of $4.572 billion to the REFCORP. These actions serve to reduce contributed

capital.

95

Resolution Equity at December 31, 2003

Dollars in Thousands 

FRF

FRF-FSLIC FRF-RTC Consolidated

Contributed capital - beginning $ 44,178,484 $ 82,649,337 $ 126,827,821

Add: U.S. Treasury payments for goodwill settlement 30 0 30

Less: REFCORP payments 0 (450,000) (450,000)

Contributed capital - ending 44,178,514 82,199,337 126,377,851

Accumulated deficit (41,241,633) (81,721,303) (122,962,936)

Less: Unrealized gain on available-for-sale securities 0 41,499 41,499

Accumulated deficit, net (41,241,633) (81,679,804) (122,921,437)

Total $ 2,936,881 $ 519,533 $ 3,456,414
7

96

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 $11.4 billion, whereas 

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

dissolution dates.

7. Employee 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

pro rata share of pension-related expenses was $2.2 million and $4.6 million, 

as of December 31, 2003 and 2002, respectively. 

Postretirement Benefits Other Than Pensions

Beginning in 2003, the FRF no longer records a liability for the postretirement

benefits of life and dental insurance as a result of FDIC’s change in funding 

policy for these benefits and elimination of the separate entity. In implementing

this change, management decided not to allocate either the plan assets or the

revised net accumulated postretirement benefit obligation (a long-term liability)

to FRF due to the expected dissolution of the Fund in the short-term. However,

FRF does continue to pay its proportionate share of the yearly claim expenses

associated with these benefits. 
FRF

8

FSLIC Resolution Fund

8. Supplementary Information Relating to the 

Statements of Cash Flows

97

Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31

Dollars in Thousands 

2003 2002

Net Income $ 52,337 $ 490,545

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

Change in Assets and Liabilities:

Decrease (Increase) in receivables from thrift resolutions and other assets 46,410 (213,791)

Increase (Decrease) in accounts payable and other liabilities 4,973 (379)

Increase (Decrease) in contingent liabilities for litigation losses and other 623 (4,758)

Net Cash Provided by Operating Activities $ 104,343 $ 271,617
98

To the Board of Directors

The Federal Deposit Insurance Corporation

We have audited the balance sheets as of December 31, 2003 and 2002, for the

three funds administered by the Federal Deposit Insurance Corporation (FDIC),

the related statements of income and fund balance (accumulated deficit), and

the statements of cash flows for the years then ended. In our audits of the Bank

Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF), and the

FSLIC Resolution Fund (FRF), we found

● the financial statements of each fund are presented fairly, in all material 

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

● although certain internal controls should be improved, FDIC had effective 

internal control over financial reporting (including safeguarding of assets) and 

compliance with laws and regulations; and 

● no reportable noncompliance with the laws and regulations that we tested.

The following sections discuss our conclusions in more detail. They also present

information on (1) the scope of our audits, (2) a reportable condition1 related to

information system control weaknesses, and (3) our evaluation of FDIC management’s comments on a draft of this report.

The financial statements, including the accompanying notes, present fairly, in all

material respects, in conformity with U.S. generally accepted accounting principles, BIF’s financial position as of December 31, 2003 and 2002, and the results

of its operations and its cash flows for the years then ended.

Reportable conditions involve matters coming to the auditor’s attention that in the auditor’s judgment,

should be communicated because they represent significant deficiencies in the design or operation of

internal control and could adversely affect FDIC’s ability to meet the control objectives described in this

report.

Opinion on BIF’s 

Financial Statements

1
99

The financial statements, including the accompanying notes, present fairly, in 

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

principles, SAIF’s financial position as of December 31, 2003 and 2002, and 

the results of its operations and its cash flows for the years then ended.

The financial statements, including the accompanying notes, present fairly, in 

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

principles, FRF’s financial position as of December 31, 2003 and 2002, and 

the results of its operations and its cash flows for the years then ended.

Although certain internal controls should be improved, FDIC management maintained, in all material respects, effective internal control over financial reporting

(including safeguarding assets) and compliance as of December 31, 2003, that

provided reasonable but not absolute assurance that misstatements, losses, or

noncompliance material in relation to FDIC’s financial statements would be prevented or detected on a timely basis. Our opinion is based on criteria established

under 31 U.S.C. 3512 (c), (d) [Federal Managers’ Financial Integrity Act (FMFIA)].

Our work identified weaknesses in FDIC’s information system controls, which

we describe as a reportable condition in a later section of this report. The

reportable condition in information system controls, although not considered

material, represents a significant deficiency in the design or operation of internal

control that could adversely affect FDIC’s ability to meet its internal control

objectives. Although the weaknesses did not materially affect the 2003 financial

statements, misstatements may nevertheless occur in other FDIC-reported

financial information as a result of the internal control weaknesses.

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 selected

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 selected

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

Opinion on SAIF’s 

Financial Statements

Opinion on FRF’s 

Financial Statements

Opinion on Internal Control

Compliance with Laws 

and Regulations

Objectives, Scope, and 

Methodology
100

● 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

● 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 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;

● obtained an understanding of 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 selected provisions of the Federal Deposit Insurance 

Act, as amended, and the Chief Financial Officers Act of 1990.

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.
101

We did not test compliance with all laws and regulations applicable to FDIC. 

We limited our tests of compliance to those deemed applicable to the financial

statements for the year ended December 31, 2003. 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.

FDIC management provided comments on a draft of this report. They are 

discussed and evaluated in a later section of this report and are reprinted in

appendix I.

In connection with the funds’ financial statement audits, we reviewed FDIC’s

information system controls. Effective information system controls are essential

to safeguarding financial data, protecting computer application programs, 

providing for the integrity of system software, and ensuring continued computer

operations in case of unexpected interruption. These controls include the 

corporatewide security management program, access controls, system software,

application development and change control, segregation of duties, and service

continuity controls.

Although FDIC made substantial progress during the past year it has not yet fully

implemented a comprehensive corporatewide security management program.

An effective program includes establishing a central security function, assessing

risk, establishing policies, raising user security awareness of prevailing risks, 

and routinely testing and evaluating the effectiveness of established controls.

While FDIC has done much to establish a computer security management 

program, FDIC only recently established a program to test and evaluate its 

computer control environment, and the program did not adequately address 

all key areas. For example, the program did not include adequate provisions to

ensure that (1) all key computer resources supporting FDIC’s financial environment are routinely reviewed and tested as appropriate, (2) weaknesses detected

are analyzed for systemic solutions, (3) corrective actions are independently 

tested, or (4) newly identified weaknesses or emerging security threats are

incorporated into the test and evaluation process. A mature comprehensive

ongoing program of tests and evaluations of controls would enable FDIC to 

better identify and correct security problems, such as those found in our review.

In our current review, we continued to identify information system control weaknesses that increased the risk of unauthorized disclosure of critical FDIC financial

and sensitive personnel and bank information, disruption of critical operations,

and loss of assets. Such weaknesses affected FDIC’s ability to adequately

ensure that users only had the access needed to perform their assigned duties

and its network was sufficiently protected from unauthorized users. The risk 

created by these weaknesses are compounded because FDIC does not have a

comprehensive monitoring program to identify unusual or suspicious access

activities.

Reportable Condition
102

We determined that other management controls mitigated the effect of 

the information system control weaknesses on the preparation of the funds’ 

financial statements. Because of their sensitive nature, the details surrounding

these weaknesses are being reported separately to FDIC management, along

with recommendations for corrective actions.

In commenting on a draft of this report, FDIC’s Chief Financial Officer (CFO) 

was pleased to receive unqualified opinions on BIF’s, SAIF’s, and FRF’s 2003

and 2002 financial statements. FDIC’s CFO also acknowledged both the current

status as well as the substantial progress made during 2003 on the information

system weaknesses we identified. FDIC said it would continue efforts to

strengthen its ongoing information security program during 2004.

David M. Walker

Comptroller General of the United States

January 30, 2004

FDIC Comments and Our Evaluation
103

Federal Deposit Insurance Corporation

550 17th St. NW Washington DC, 20429 Deputy to the Chairman & Chief Financial Officer

February 9, 2004

Mr. David M. Walker 

Comptroller General of the United States

U. S. General Accounting Office

441 G Street, NW

Washington, DC 20548

Re: FDIC Management Response on the 

GAO 2003 Financial Statements Audit Report

Dear Mr. Walker:

Thank you for the opportunity to comment on the U. S. General Accounting Office’s (GAO)

draft audit report titled, Financial Audit: Federal Deposit Insurance Corporation Funds’

2003 and 2002 Financial Statements, GAO-04-429. The report presents GAO’s opinions

on the calendar year 2003 financial statements of the Bank Insurance Fund (BIF), the

Savings Association Insurance Fund (SAIF), and the Federal Savings and Loan Insurance

Corporation Resolution Fund (FRF). The report also presents GAO’s opinion on the 

effectiveness of FDIC’s internal controls as of December 31, 2003 and GAO’s evaluation 

of FDIC’s compliance with applicable laws and regulations.

We are pleased to accept GAO’s unqualified opinions on the BIF, SAIF, and FRF financial

statements and to note that there were no material weaknesses identified during the 2003

audits. The GAO reported that: the funds’ financial statements were presented fairly and in

conformity with U. S. generally accepted accounting principles; FDIC had effective internal

control over financial reporting (including safeguarding of assets) and compliance with laws

and regulations; and there were no instances of noncompliance with selected provisions of

laws and regulations.

GAO identified the need to improve internal control over FDIC’s information systems (IS)

and issued a reportable condition. Although GAO identified weaknesses in FDIC’s IS 

controls, the audit team noted that significant improvements had been made during the past

year, and that the weaknesses did not materially affect the 2003 financial statements. 

We acknowledge GAO’s assessment of both the status and the substantial progress made 

in addressing the IS control environment. During 2003, FDIC’s accomplishments included

implementation of a recurring IS controls self assessment program, implementation of 

more stringent contractor personnel clearance and site security policies and procedures, 

and establishment of an aggressive patch management program. The FDIC will continue

efforts to strengthen its ongoing, comprehensive information security program during 2004. 

If you have any questions or concerns, please let me know.

Sincerely,

Steven O. App

Deputy to the Chairman and Chief Financial Officer

Appendix I
Overview of the Industry 

Through the first three quarters of

2003, insured commercial banks 

and savings institutions were on a

record earnings pace, as a recovering

economy and favorable interest-rate

environment created conditions 

conducive to strong performance.

The 9,237 commercial banks and

savings institutions insured by the

FDIC earned $89.9 billion in the first

three quarters of 2003, a $9.6 billion

(12.0 percent) improvement over 

the same period of 2002. Lower

expenses for loan losses at large

banks were a major contributor to

the improvement in earnings. Strong

growth in consumer-related assets

led by mortgage refinancings helped

boost net interest income. Growth 

in noninterest revenues and higher

gains on sales of securities and

other assets also contributed to the

improvement in revenues. These

positive developments helped offset

narrower net interest margins.

Commercial banks earned $76.1 billion

in the first three quarters of the year,

up $7.6 billion (11.2 percent) from

the first three quarters of 2002. More

than half of all the 7,812 insured

commercial banks – 57.6 percent –

reported higher earnings, and only

5.4 percent were unprofitable, 

compared to 6.3 percent a year 

earlier. Their return on assets (ROA),

a basic yardstick of earnings 

performance, was 1.39 percent, up

from 1.37 percent in the same period

of 2002. Provisions for loan losses

were $8.9 billion (25.3 percent)

lower than in the first three quarters

of 2002, while noninterest income

was $10.1 billion (7.9 percent) higher.

Net interest income was only 

$1.9 billion (1.1 percent) higher, 

as commercial banks’ average net

interest margin fell to 3.81 percent,

from 4.11 percent in 2002. Gains 

on sales of securities were up by 

$1.1 billion (26.7 percent), as lower 

interest rates caused the values of 

fixed-rate securities to appreciate. 

Lower interest rates also stimulated 

demand for mortgage loans, particularly

loans to refinance existing mortgages.

Residential mortgage-related assets,

including 1- 4 family residential 

mortgage loans and mortgagebacked securities, increased by

$184 billion (9.9 percent) during the

first nine months of 2003, accounting for almost half (46.3 percent) of

the total growth in commercial bank

assets. After deteriorating for the

three previous years, banks’ assetquality indicators showed improvement in each of the first three quarters of 2003. Through the first nine

months of the year, net loan chargeoffs were $5.3 billion (16.0 percent)

lower than in the same period of

2002. Almost three-quarters of the

improvement ($3.8 billion, or 71.4

percent) consisted of lower losses

reported by large banks on loans to

commercial and industrial borrowers. 

The nation’s 1,425 insured savings

institutions also benefited from 

the strong demand for residential

mortgage loans. Thrifts’ earnings 

for the first three quarters of 2003

totaled $13.7 billion, an improvement

of $2.0 billion (16.8 percent) over the

same period in 2002. The average

ROA of 1.29 percent was well above

the 1.20 percent registered a year

earlier. More than half of all savings

institutions – 57.7 percent – reported

higher earnings for the first three

quarters. The main sources of the

earnings improvement were higher

noninterest income, which was 

$2.7 billion (32.3 percent) above the

level of a year earlier, and increased

gains on sales of securities and

other assets, which were up by 

$1.6 billion (41.1 percent). Net interest

income increased by only $602 million

(2.0 percent), as the average net

interest margin fell from 3.48 percent

to 3.29 percent. Loan-loss provisions

were $372 million (14.9 percent)

below the year-earlier level, while net

loan charge-offs were $566 million

(35.3 percent) higher. Noninterest

expenses were $2.1 billion (9.5 percent) higher than in the first three

quarters of 2002.

The FDIC administers two deposit

insurance funds – the Bank Insurance

Fund (BIF) and the Savings Association

Insurance Fund (SAIF) – and manages

the FSLIC Resolution Fund (FRF),

which fulfills the obligations of the

former Federal Savings and Loan

Insurance Corporation (FSLIC) 

and the former Resolution Trust

Corporation (RTC). The following

summarizes the condition of the

FDIC’s insurance funds.

104
105

Deposit insurance assessment rates

remained unchanged from 2002 for

both the BIF and the SAIF, ranging

from 0 to 27 cents annually per $100

of assessable deposits. Under the

assessment rate schedule, 92.0 percent of BIF-member institutions 

and 91.5 percent of SAIF-member

institutions were in the lowest riskassessment category and paid no

deposit insurance assessment for

the first semiannual period of 2004.

Deposits insured by the FDIC 

totaled $3.4 trillion at the end of

September 2003. Estimated insured

deposits rose by $27.8 billion

(0.8 percent) during the first three

quarters of the year, as total deposits

at FDIC-insured institutions increased

by $282.6 billion (5.1 percent), and

savings deposits at insured commercial banks grew by $223.9 billion

(11.0 percent).

During the first three quarters of

2003, deposits insured by the BIF

increased by $20.0 billion, or 

0.8 percent, to $2.55 trillion. The 

BIF balance was $33.5 billion at the

end of September, or 1.31 percent 

of estimated insured deposits. This

was up from the year-earlier reserve

ratio of 1.25 percent, as deposits

insured by BIF increased by 

$34.7 billion and the BIF fund 

balance increased by $2.1 billion.

The reserve ratio of the SAIF 

was 1.40 percent at the end of

September, up from 1.39 percent a

year earlier. The balance of the SAIF

surpassed the $12 billion level in

2003, and stood at $12.2 billion 

on September 30. Estimated SAIFinsured deposits totaled $868 billion

at the end of the third quarter, having

grown 0.9 percent during the first

nine months of the year. 

Continued strong growth in assets,

combined with the relatively slow

growth of insured deposits, meant

that insured institutions continued 

to rely increasingly on other funding

alternatives. Insured deposits funded

38.1 percent of industry assets at

the end of September, compared 

to 40.4 percent a year earlier. At the

end of 1991, insured deposits funded

60.2 percent of the total assets of

insured banks and savings institutions.
As part of the Corporation’s continued commitment to establish and maintain

effective and efficient internal controls, FDIC management routinely conducts

ongoing reviews of internal accounting and administrative control systems. 

The results of these reviews, as well as consideration of audits, evaluations and

reviews conducted by the U.S. General Accounting Office (GAO), the Office of

Inspector General (OIG) and other outside entities, are used as a basis for the

FDIC’s reporting on the condition of the Corporation’s internal controls.

The FDIC’s standards incorporate the GAO’s Standards for Internal Controls 

in the Federal Government. Good internal control systems are essential for

ensuring the proper conduct of FDIC business and the accomplishment of 

management objectives by serving as checks and balances against undesired

action.

The FDIC’s management concludes that the system of internal accounting 

and administrative controls at the FDIC, taken as a whole, complies with internal

control standards prescribed by the GAO and provides reasonable assurance

that the related objectives are being met. This standard reflects the fact that all

internal control systems, no matter how well designed, have inherent limitations

and should not be relied upon to provide absolute assurance, and that control

systems may vary over time because of changes in conditions.

The Corporation’s evaluation processes, the OIG audits and evaluations, and 

the GAO financial statements audits have identified certain areas where existing

internal controls should be improved. FDIC management uses the chart below 

in the evaluation process to determine the appropriate classification for these

areas.

Effectiveness of Internal Controls 

Controls are Controls are 

Controls not working not working as 

are as intended, intended and 

working but mitigating minor/no mitigating

Risks as intended controls exist controls exist 

High OK High Vulnerability Material Weakness

Medium OK OK High Vulnerability or

Matter for Continued 

Monitoring 

Low OK OK Warrants 

Further Review 

High, Medium, and Low are measured on how potentially critical the area or operation is to achieving

the mission and objectives of the Corporation. Additionally, consideration is given to the risk to the

Corporation, absent the area or operation.

1

IV. Management

Controls

●

●

●

●
107

Material Weaknesses

For purposes of this report, FDIC

management considers a weakness

material if it:

● Violates statutory or regulatory 

requirements;

● Significantly weakens safeguards 

against waste, loss, unauthorized 

use or misappropriation of funds, 

property or other assets;

● Significantly impairs the mission 

of the FDIC;

● Fosters a conflict of interest;

● Deprives the public of needed 

services; or

● Merits the attention of the 

Chairman, the FDIC Board of 

Directors or Congress.

To determine the existence of 

material weaknesses, the FDIC has

assessed the results of management

evaluations and external audits of

the Corporation’s risk management

and internal control systems conducted in 2003, as well as management actions taken to address

issues identified in these audits and

evaluations. Based on this assessment and application of the above

criteria, the FDIC concludes that no

material weaknesses existed within

the Corporation’s operations for 

2002 and 2003.

High Vulnerability Issues

For purposes of this report, FDIC

management has designated a high

vulnerability issue as a high-risk or

medium-risk area with identified 

deficiencies and ineffective internal

controls with minor or no mitigating

controls. These areas warrant special

attention of management, with the

need to strengthen controls. The

FDIC identified Information System

Security as a high vulnerability issue

for 2002 and 2003.

Adequate information system security

is critical to the FDIC’s accomplishment of its mission. Adequate controls

are designed to provide the assurance

that:

● The systems developed, enhanced

and maintained provide the support

necessary to carry out the 

objectives of the program area 

and provide needed information 

on a timely basis;

● Resources are used efficiently;

● Adequate security prevents 

unauthorized access to and 

manipulation of sensitive data;

● Data quality is preserved; and

● Operations continue in the event 

of a disaster.

The FDIC continues its efforts to

improve the information security 

program and operations, but continual management attention is needed.

While some challenges are amenable

to near-term resolution, others can

only be addressed by a concerted,

continuing effort, resulting in progress

over a longer period of time.

The overall assessment included in

the OIG’s report entitled Independent

Evaluation of the FDIC’s Information

Security Program – 2003 concludes

that the Corporation established and

implemented management controls

that provided limited assurance of

adequate security over its information

resources. Of the ten management

control areas tested, only one was

rated with a control assurance level

of “minimal/no assurance” in the

implementation of controls category.

But even in this area (Contractor and

Outside Agency Security), the OIG

noted that the FDIC has made significant progress since the OIG’s 2002

security evaluation. 
Notably, the FDIC has made considerable progress in mitigating contractor

security-related risk compared to 

last year. Specifically, in the past

year, the FDIC has updated its policy

on connecting off-site contractor

facilities to the corporate network

and ensuring contractors are disconnected from the network when the

contract expires, and has initiated 

a much more aggressive program 

to monitor and audit office activities

and connections. Current plans entail

inspection of contractor facilities to

review security issues and concerns.

By August 2003, all the sites connected to the FDIC network had

been reviewed. Beginning in 2004,

this approach will be expanded to

include at least one scheduled and

one unannounced review at each of

the off-site contractor locations.

The FDIC made improvements 

in other areas as well. In 2002,

Performance Measurement and

Capital Planning/Investment Control

were two areas that the OIG reported

as having no assurance of adequate

security. For 2003, these areas were

upgraded to “limited assurance,” as 

a result of continuous efforts made

during the year. In 2003, the FDIC

initiated a more extensive selfassessment program to continuously

monitor and improve the Information

Security Program by identifying risks

and internal control deficiencies. As

such, the FDIC entered into a twoyear agreement with an independent

contractor to assist with this initiative.

Matters for Continued

Monitoring

For purposes of this report, matters

for continued monitoring are mediumrisk areas with ineffective internal

controls with minor or no mitigating

controls in place, posing medium 

risk to the Corporation. These 

areas warrant continued monitoring 

of corrective actions through 

completion.

The Corporation’s evaluation and

assessment process identified 

four matters that warrant continued

monitoring. Three of these matters

(numbers 2 - 4 below) were also

included in the 2002 Annual Report.

1. Systems Development Project 

Management

The Corporation is engaged in several

multi-million dollar large scale development projects, including the New

Financial Environment (NFE) and the

Central Data Repository (CDR). As

noted by the OIG, without effective

project management, the FDIC runs

the risk that corporate requirements

and user needs may not be met in 

a timely, cost-effective manner. For

instance, the OIG reviewed the 

project control framework for the

NFE and determined that a formally

defined integrated framework for the

project was needed. OIG felt that it

would be difficult to ensure accountability and a corporate approach on

the project without this integrated

framework. They further determined

that improvements were needed 

in scope management, project 

oversight, and time management. 

If corrective actions undertaken by

the FDIC are not completed promptly,

the project is less likely to be deployed

on schedule, which may increase

overall project costs. 

NFE will provide an integrated financial system that focuses on datasharing, state-of-the-art computing

technology, and the ability to grow

and change with the Corporation’s

future financial management and

information needs. Given the scope

and complexity of the overall project,

current delays from the original

aggressive schedule, and control

deficiencies identified by leadership

and reinforced in the OIG’s audit

report number 03-045 entitled 

New Financial Environment Scope

Management Controls, it is appropriate to maintain a heightened level 

of attention and focus on this major

corporate initiative.

108
109

Also, at the FDIC’s request, the 

OIG is reviewing issues that could

impact the cost and timely completion of the CDR project. The FDIC,

the Office of the Comptroller of the

Currency (OCC), and the Federal

Reserve Board (FRB), collectively

referred to as the Federal Financial

Institutions Examination Council

(FFIEC) Call Agencies, want to

improve the collection and management of the consolidated reports of

condition and income (Call Reports)

and publication of the Uniform Bank

Performance Reports. This project

presents potential risks and challenges

as a result of the reliance on new

technology and involvement of 

multiple agencies. 

Additional audits are being planned

for other large system-development

efforts like Virtual Supervisory

Information on the Net (ViSION).

ViSION is an internet-based data 

system that provides the FDIC and

staff of the other federal banking

agencies and state authorities

access to supervisory information

about financial institutions. Phase IV

of this project has experienced

delays and potentially presents risks

to timely and efficient data resource

and reporting needs. Therefore, the

FDIC will continue to focus heightened attention on this major initiative

as well.

By continuing management focus 

on large scale system-development

efforts, the FDIC can strengthen its

internal controls and mitigate risks

that could hinder the Corporation

from successfully achieving its goals

and objectives.

2. Contractor Oversight

Maintaining strong internal controls

and effective oversight of contracting

activities is critical to the FDIC’s 

success. The Corporation’s exposure

to risk is greater with increased

reliance on outsourcing, if those 

contracts are not properly managed.

The FDIC is working to improve 

contract-management practices,

including possible consolidation of

the large number of existing contracts into fewer, larger, long-term

contracts. This would substantially

reduce the number of outstanding

contractual relationships, thus 

allowing contract managers to focus

on a more manageable number of

contracts. Also, the FDIC strengthened its contract-management function by developing and implementing

25 Web-based training courses for

contract oversight managers and

technical monitors.

In prior years, the FDIC implemented

results-oriented contracting structures

for multi-year, complex high-dollarvalue contracts, that linked contractor

compensation with performance 

and greatly decreased contract

administration risk. In 2003, greater

emphasis (2003 Procurement Plan

approved by the FDIC Board of

Directors) was placed on awarding

more consolidated, performance

based contracting vehicles that will

further enhance contractor performance and gain greater administrative

efficiencies and contracting oversight.

The FDIC currently awards and

administers over 50 percent of 

all contracting actions to support

Information Technology (IT) activities

within the Corporation. Other major

system initiatives, in addition to 

NFE, CDR, and ViSION, include the

Assessment Information Management

System II (AIMS II), and the Corporate

Human Resources Information

System (CHRIS).

AIMS II is the platform that provides

the FDIC with a flexible robust tool

to efficiently track deposit insurance

assessments levied since the creation of the BIF and SAIF in 1989. It

takes into account any changes

pending deposit insurance reform

legislation might require, including

possible credits or refund calculations. AIMS II is in production and

produced the last three quarterly

insurance invoices in 2003.
110

CHRIS is an integrated human

resources processing and information

system that will bring together many

functions and data that now reside 

in multiple, stand-alone systems.

CHRIS is being implemented incrementally utilizing a phased approach

over a four-year period. The FDIC is

currently planning the implementation

of the fourth phase, which should 

be in production in early 2005. 

A major non-systems related procurement effort now underway is

the construction of Phase II of the

Seidman Center (Virginia Square

Phase II). This is a project that

involves the addition of a two-tower

office building and multi-purpose

facility at the FDIC’s existing Virginia

Square campus. The new buildings

will accommodate staff presently

housed at three leased locations in

Washington, DC, and will save the

FDIC an estimated $78 million 

(in net present value terms) over a

20 year period. In September 2003,

the FDIC broke ground for this new

facility, which is expected to be

occupied in 2006.

3. Risk Designation

Levels/Background Investigations

The FDIC adopted the risk designation system established by the 

U.S. Office of Personnel Management

to provide corporate officials with a

systematic, consistent and uniform

way of determining the risk levels 

of its positions. The risk designation

system requires FDIC officials to

designate risk levels for every position

in the Corporation to determine the

type of background investigations

required. In 2003, the FDIC revised

its directive entitled “Security Policy

and Procedures for FDIC Contractors

and Subcontractors,” which 

provides guidance and procedures

for contractor risk-level designations 

and background investigations. The

Corporation has implemented the

revised requirements in this directive.

Additionally, the FDIC has revised 

its circular on “Personnel Suitability

Program,” which will give current

guidance on conducting the positionbased background investigations 

discussed above.

4. Business Continuity Plan

Business continuity planning helps 

to minimize the potential negative

impacts of adverse developments

affecting the Corporation and allows

the FDIC to continue meeting missioncritical requirements. During 2003, 

a series of tabletop exercises and

security taskforce meetings were

held to evaluate current response

plans and capabilities. Based on 

the results of these drills, response

plans were revised to include lessons

learned from the changing security

environment. 

Another related effort involved 

disaster recovery testing. One disaster

recovery test was conducted in

2003, with several others planned

for 2004 and beyond. Results of the

2003 test revealed a need to update

the call listing of essential personnel

and to issue new guidelines and 

procedures to be utilized for disaster

recovery purposes. 

Internal Controls and Risk

Management Program

FDIC Circular 4010.3, “FDIC Internal

Control Programs and Systems,”

outlines steps necessary to remain

in compliance with provisions of 

the Chief Financial Officers Act by

establishing FDIC internal control

objectives, describing internal 

control standards, and identifying

and monitoring risk management

internal control programs and 

systems. The process focuses on

areas of high risk to provide reasonable assurance that the following

objectives are met:

● Programs are efficiently and 

effectively carried out in 

accordance with applicable 

laws and management policies;

● Assets are safeguarded against 

waste, loss, unauthorized use 

or misappropriation;
111

● Systems are established to 

alert management of potential 

weaknesses;

● Obligations and costs comply 

with applicable laws; and

● Revenues and expenditures 

applicable to the FDIC’s 

operations are recorded and 

properly accounted for, so that 

accounts and reliable financial 

and statistical reports may be 

prepared and accountability 

of assets may be maintained.

Division and office directors are

required to submit a certification

statement annually, addressed to 

the Chairman asserting that their

internal control systems: (1) comply

with the FDIC’s internal control 

standards and (2) provide reasonable

assurance that the FDIC internal 

control objectives are achieved. The

certification statement also reports

whether material weaknesses, high

vulnerability issues, or matters for

continued monitoring exist in the

internal control systems and, if 

so, provides a description of the 

deficiency and planned corrective

action(s). These certification statements are used as support for the

Corporation’s Statements on Internal

Accounting and Administrative

Controls.
V. Appendixes

Appendix A –

Key Statistics

For the year ended December 31

2003 2002 2001

Bank Insurance Fund

Financial Results 

Revenue $ 1,626 $ 1,796 $ 1,997

Operating Expenses 805 821 786

Insurance Losses and Expenses (921) (70) 1,774

Net Income/(Loss) 1,742 1,045 (563)

Comprehensive Income/(Loss) 1,732 1,611 (536)

Insurance Fund Balance $ 33,782 $ 32,050 $ 30,439

Fund as a Percentage of Insured Deposits 1.31% 1.27% 1.26%

Selected Statistics

Total BIF-Member Institutions●8,043 8,171 8,326

Problem Institutions 103 124 90

Total Assets of Problem Institutions $ 29,371 $ 34,000 $ 32,000

Institution Failures 3 10 3

Total Assets of Current Year Failed Institutions $ 1,097 $ 2,508 $ 54

Number of Active Failed Institution Receiverships 31 37 36

Savings Association Insurance Fund

Financial Results 

Revenue $ 547 $ 589 $ 733

Operating Expenses 130 124 102

Insurance Losses and Expenses (83) (155) 462

Net Income 500 620 169

Comprehensive Income 493 812 176

Insurance Fund Balance $ 12,240 $ 11,747 $ 10,935

Fund as a Percentage of Insured Deposits 1.40% 1.37% 1.36%

Selected Statistics

Total SAIF-Member Institutions ■1,194 1,244 1,287

Problem Institutions 13 24 24

Total Assets of Problem Institutions $ 933 $ 8,000 $ 8,000

Institution Failures 0 1 1

Total Assets of Current Year Failed Institutions $ 0 $ 50 $ 2,180

Number of Active Failed Institution Receiverships 2 3 3

▼ As of September 30, 2003.

● Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

■ Savings institutions and commercial banks.

Selected Statistics

Dollars in millions

▼

▼

▼

▼

▼

▼

▼

▼
113

Number of Insured Banks Deposits of Insured Banks

1

Without With Without With

Disbursements Disbursements Disbursements Disbursements

Year Total by FDIC by FDIC Total by FDIC by FDIC Assets

Number and Deposits of BIF-Insured Banks Closed Because of Financial Difficulties, 1934 through 20031

Dollars in Thousands

Total 2,113 19 2,094 $ 217,723,839 $ 4,298,814 $ 213,425,025 $ 258,418,418

2003 3 – 3 903,504 – 903,504 1,096,724

2002 10 – 10 2,124,501 – 2,124,501 2,507,565

2001 3 – 3 49,926 – 49,926 54,470

2000 6 – 6 311,950 – 311,950 378,088

1999 7 – 7 1,268,151 – 1,268,151 1,423,819

1998 3 – 3 335,076 – 335,076 370,400

1997 1 – 1 26,800 – 26,800 25,921

1996 5 – 5 168,228 – 168,228 182,502

1995 6 – 6 632,700 – 632,700 753,024

1994 13 1 12 1,236,488 – 1,236,488 1,392,140

1993 41 – 41 3,132,177 – 3,132,177 3,539,373

1992 120 10 110 41,150,898 4,257,667 36,893,231 44,197,009

1991 124 – 124 53,751,763 – 53,751,763 63,119,870

1990 168 – 168 14,473,300 – 14,473,300 15,660,800

1989 206 – 206 24,090,551 – 24,090,551 29,168,596

1988 200 – 200 24,931,302 – 24,931,302 35,697,789

1987 184 – 184 6,281,500 – 6,281,500 6,850,700

1986 138 – 138 6,471,100 – 6,471,100 6,991,600

1985 120 – 120 8,059,441 – 8,059,441 8,741,268

1984 79 – 79 2,883,162 – 2,883,162 3,276,411

1983 48 – 48 5,441,608 – 5,441,608 7,026,923

1982 42 – 42 9,908,379 – 9,908,379 11,632,415

1981 10 – 10 3,826,022 – 3,826,022 4,859,060

1980 10 – 10 216,300 – 216,300 236,164

1979 10 – 10 110,696 – 110,696 132,988

1978 7 – 7 854,154 – 854,154 994,035

1977 6 – 6 205,208 – 205,208 232,612

1976 16 – 16 864,859 – 864,859 1,039,293

1975 13 – 13 339,574 – 339,574 419, 950

1974 4 – 4 1,575,832 – 1,575,832 3,822,596

1973 6 – 6 971,296 – 971,296 1,309,675

1972 1 – 1 20,480 – 20,480 22,054

1971 6 – 6 132,058 – 132,058 196,520

1970 7 – 7 54,806 – 54,806 62,147

1969 9 – 9 40,134 – 40,134 43,572

1968 3 – 3 22,524 – 22,524 25,154

1967 4 – 4 10,878 – 10,878 11,993

1966 7 – 7 103,523 – 103,523 120,647

1965 5 – 5 43,861 – 43,861 58,750

1964 7 – 7 23,438 – 23,438 25,849

1963 2 – 2 23,444 – 23,444 26,179

1962 1 1 0 3,011 3,011 0 N/A

1961 5 – 5 8,936 – 8,936 9,820

1960 1 – 1 6,930 – 6,930 7,506

1959 3 – 3 2,593 – 2,593 2,858

1958 4 – 4 8,240 – 8,240 8,905

1957 2 1 1 11,247 10,084 1,163 1,253

1956 2 – 2 11,330 – 11,330 12,914

1955 5 – 5 11,953 – 11,953 11,985

1954 2 – 2 998 – 998 1,138

1953 4 2 2 44,711 26,449 18,262 18,811

1952 3 – 3 3,170 – 3,170 2,388

1951 2 – 2 3,408 – 3,408 3,050

1950 4 – 4 5,513 – 5,513 4,005

1949 5 1 4 6,665 1,190 5,475 4,886

1948 3 – 3 10,674 – 10,674 10,360

1947 5 – 5 7,040 – 7,040 6,798

1946 1 – 1 347 – 347 351

1945 1 – 1 5,695 – 5,695 6,392

1944 2 – 2 1,915 – 1,915 2,098

1943 5 – 5 12,525 – 12,525 14,058

1942 20 – 20 19,185 – 19,185 22,254

1941 15 – 15 29,717 – 29,717 34,804

1940 43 – 43 142,430 – 142,430 161,898

1939 60 – 60 157,772 – 157,772 181,514

1938 74 – 74 59,684 – 59,684 69,513

1937 77 2 75 33,677 328 33,349 40,370

1936 69 – 69 27,508 – 27,508 31,941

1935 26 1 25 13,405 85 13,320 17,242

1934 9 – 9 1,968 – 1,968 2,661

Does not include institutions that received FDIC assistance and were not closed. Also does not include institutions insured by the Savings Association Insurance Fund (SAIF), which was 

established by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
114

Deposit Payoff Cases2 All Cases1

Number Estimated Number Estimated

of Additional Estimated of Additional Estimated

Year Banks Disbursements Recoveries Recoveries Losses Banks Disbursements Recoveries Recoveries Losses

Recoveries and Losses by the Bank Insurance Fund on Disbursements for the Protection of Depositors, 

1934 through 2003

Dollars in Thousands

continued on next page

Total 2,224 111,307,051 72,294,084 512,972 38,499,995 608 16,142,756 11,227,291 162,109 4,753,356

2003 3 887,703 654,705 129,617 103,381 0000 0

2002 10 2,031,376 1,235,284 236,344 559,748 5 1,585,246 998,412 162,054 424,780

2001 3 48,676 40,165 2,721 5,790 0000 0

2000 6 268,730 230,174 9,725 28,831 0000 0

1999 7 1,244,453 416,848 118,926 708,679 0000 0

1998 3 286,594 53,152 3,167 230,275 0000 0

1997 1 25,546 20,520 0 5,026 0000 0

1996 5 169,386 130,729 0 38,657 0000 0

1995 6 609,045 524,515 58 84,472 0000 0

1994 13 1,224,769 1,045,686 32 179,051 0000 0

1993 41 1,797,302 1,150,863 198 646,241 5 261,203 159,268 0 101,935

1992 122 14,172,884 10,502,090 1,711 3,669,083 25 1,890,869 1,398,731 0 492,138

1991 127 21,412,652 15,271,553 5,015 6,136,084 21 1,468,407 1,000,733 0 467,674

1990 169 10,816,599 8,040,376 1,975 2,774,248 20 2,182,580 1,648,969 0 533,611

1989 207 11,445,829 5,244,819 3,428 6,197,582 32 2,116,556 1,262,140 0 854,416

1988 280 12,163,006 5,244,866 0 6,918,140 36 1,252,160 822,612 0 429,548

1987 203 5,037,871 3,015,160 55 2,022,656 51 2,103,792 1,400,945 55 702,792

1986 145 4,790,969 3,015,252 0 1,775,717 40 1,155,981 739,659 0 416,322

1985 120 2,920,687 1,913,452 0 1,007,235 29 523,789 411,175 0 112,614

1984 80 7,696,215 6,056,061 0 1,640,154 16 791,838 699,483 0 92,355

1983 48 3,807,082 2,400,044 0 1,407,038 9 148,423 122,484 0 25,939

1982 42 2,275,150 1,106,579 0 1,168,571 7 277,240 206,247 0 70,993

1981 10 888,999 107,221 0 781,778 2 35,736 34,598 0 1,138

1980 11 152,355 121,675 0 30,680 3 13,732 11,427 0 2,305

1979 10 90,489 74,372 0 16,117 3 9,936 9,003 0 933

1978 7 548,568 512,927 0 35,641 1 817 613 0 204

1977 6 26,650 20,654 0 5,996 0000 0

1976 17 599,397 561,532 0 37,865 3 11,416 9,660 0 1,756

1975 13 332,046 292,431 0 39,615 3 25,918 25,849 0 69

1974 5 2,403,277 2,259,633 0 143,644 0000 0

1973 6 435,238 368,852 0 66,386 3 16,771 16,771 0 0

1972 2 16,189 14,501 0 1,688 1 16,189 14,501 0 1,688

1971 7 171,646 171,430 0 216 5 53,767 53,574 0 193

1970 7 51,566 51,294 0 272 4 29,265 28,993 0 272

1969 9 42,072 41,910 0 162 4 7,596 7,513 0 83

1968 3 6,476 6,464 0 12 0000 0

1967 4 8,097 7,087 0 1,010 4 8,097 7,087 0 1,010

1966 7 10,020 9,541 0 479 1 735 735 0 0

1965 5 11,479 10,816 0 663 3 10,908 10,391 0 517

1964 7 13,712 12,171 0 1,541 7 13,712 12,171 0 1,541

1963 2 19,172 18,886 0 286 2 19,172 18,886 0 286

1962 000000000 0

1961 5 6,201 4,700 0 1,501 5 6,201 4,700 0 1,501

1960 1 4,765 4,765 0 0 1 4,765 4,765 0 0

1959 3 1,835 1,738 0 97 3 1,835 1,738 0 97

1958 4 3,051 3,023 0 28 3 2,796 2,768 0 28

1957 1 1,031 1,031 0 0 1 1,031 1,031 0 0

1956 2 3,499 3,286 0 213 1 2,795 2,582 0 213

1955 5 7,315 7,085 0 230 4 4,438 4,208 0 230

1954 2 1,029 771 0 258 0000 0

1953 2 5,359 5,359 000000 0

1952 3 1,525 733 0 792 0000 0

1951 2 1,986 1,986 000000 0

1950 4 4,404 3,019 0 1,385 0000 0

1949 4 2,685 2,316 0 369 0000 0

1948 3 3,150 2,509 0 641 0000 0

1947 5 2,038 1,979 0 59 0000 0

1946 1 274 274 000000 0

1945 1 1,845 1,845 000000 0

1944 2 1,532 1,492 0 40 1 404 364 0 40

1943 5 7,230 7,107 0 123 4 5,500 5,377 0 123

1942 20 11,684 10,996 0 688 6 1,612 1,320 0 292

1941 15 25,061 24,470 0 591 8 12,278 12,065 0 213

1940 43 87,899 84,103 0 3,796 19 4,895 4,313 0 582

1939 60 81,828 74,676 0 7,152 32 26,196 20,399 0 5,797

1938 74 34,394 31,969 0 2,425 50 9,092 7,908 0 1,184

1937 75 20,204 16,532 0 3,672 50 12,365 9,718 0 2,647

1936 69 15,206 12,873 0 2,333 42 7,735 6,397 0 1,338

1935 25 9,108 6,423 0 2,685 24 6,026 4,274 0 1,752

1934 9 941 734 0 207 9 941 734 0 207
115

Assistance Transactions1 Deposit Assumption Cases

Number Estimated Number Estimated

of Additional Estimated of Additional Estimated

Year Banks Disbursements Recoveries Recoveries Losses Banks Disbursements Recoveries Recoveries Losses

Recoveries and Losses by the Bank Insurance Fund on Disbursements for the Protection of Depositors, 

1934 through 2003 (continued)

Dollars in Thousands

1

2

Total 1,475 83,533,939 54,866,918 350,863 28,316,158 141 11,630,356 6,199,875 0 5,430,481

2003 3 887,703 654,705 129,617 103,381 0000 0

2002 5 446,130 236,872 74,290 134,968 0000 0

2001 3 48,676 40,165 2,721 5,790 0000 0

2000 6 268,730 230,174 9,725 28,831 0000 0

1999 7 1,244,453 416,848 118,926 708,679 0000 0

1998 3 286,594 53,152 3,167 230,275 0000 0

1997 1 25,546 20,520 0 5,026 0000 0

1996 5 169,386 130,729 0 38,657 0000 0

1995 6 609,045 524,515 58 84,472 0000 0

1994 13 1,224,769 1,045,686 32 179,051 0000 0

1993 36 1,536,099 991,595 198 544,306 0000 0

1992 95 12,280,529 9,102,123 1,711 3,176,695 2 1,486 1,236 0 250

1991 103 19,938,128 14,267,727 5,015 5,665,386 3 6,117 3,093 0 3,024

1990 148 8,629,084 6,388,810 1,975 2,238,299 1 4,935 2,597 0 2,338

1989 174 9,326,725 3,982,427 3,428 5,340,870 1 2,548 252 0 2,296

1988 164 9,180,495 4,232,545 0 4,947,950 80 1,730,351 189,709 0 1,540,642

1987 133 2,773,202 1,613,502 0 1,159,700 19 160,877 713 0 160,164

1986 98 3,476,140 2,209,924 0 1,266,216 7 158,848 65,669 0 93,179

1985 87 1,631,166 1,095,601 0 535,565 4 765,732 406,676 0 359,056

1984 62 1,373,198 941,674 0 431,524 2 5,531,179 4,414,904 0 1,116,275

1983 35 2,893,969 1,850,553 0 1,043,416 4 764,690 427,007 0 337,683

1982 25 268,372 213,578 0 54,794 10 1,729,538 686,754 0 1,042,784

1981 5 79,208 71,358 0 7,850 3 774,055 1,265 0 772,790

1980 7 138,623 110,248 0 28,375 1000 0

1979 7 80,553 65,369 0 15,184 0000 0

1978 6 547,751 512,314 0 35,437 0000 0

1977 6 26,650 20,654 0 5,996 0000 0

1976 13 587,981 551,872 0 36,109 1000 0

1975 10 306,128 266,582 0 39,546 0000 0

1974 4 2,403,277 2,259,633 0 143,644 1000 0

1973 3 418,467 352,081 0 66,386 0000 0

1972 000001000 0

1971 1 117,879 117,856 0 23 1000 0

1970 3 22,301 22,301 000000 0

1969 5 34,476 34,397 0 79 0000 0

1968 3 6,476 6,464 0 12 0000 0

1967 000000000 0

1966 6 9,285 8,806 0 479 0000 0

1965 2 571 425 0 146 0000 0

1964 000000000 0

1963 000000000 0

1962 000000000 0

1961 000000000 0

1960 000000000 0

1959 000000000 0

1958 1 255 255 000000 0

1957 000000000 0

1956 1 704 704 000000 0

1955 1 2,877 2,877 000000 0

1954 2 1,029 771 0 258 0000 0

1953 2 5,359 5,359 000000 0

1952 3 1,525 733 0 792 0000 0

1951 2 1,986 1,986 000000 0

1950 4 4,404 3,019 0 1,385 0000 0

1949 4 2,685 2,316 0 369 0000 0

1948 3 3,150 2,509 0 641 0000 0

1947 5 2,038 1,979 0 59 0000 0

1946 1 274 274 000000 0

1945 1 1,845 1,845 000000 0

1944 1 1,128 1,128 000000 0

1943 1 1,730 1,730 000000 0

1942 14 10,072 9,676 0 396 0000 0

1941 7 12,783 12,405 0 378 0000 0

1940 24 83,004 79,790 0 3,214 0000 0

1939 28 55,632 54,277 0 1,355 0000 0

1938 24 25,302 24,061 0 1,241 0000 0

1937 25 7,839 6,814 0 1,025 0000 0

1936 27 7,471 6,476 0 995 0000 0

1935 1 3,082 2,149 0 933 0000 0

1934 000000000 0

Totals do not include dollar amounts for the five open bank assistance transactions between 1971 and 1980. Excludes eight transactions prior to 1962 that required no disbursements. 

Also, disbursements, recoveries, and estimated additional recoveries do not include working capital advances to and repayments by receiverships.

Includes insured deposit transfer cases.

Note: Beginning with the 1997 Annual Report the number of banks in the Assistance Transactions column for 1988 was changed from 21 to 80 and the number of banks in the All Cases 

column was changed from 221 to 280 to reflect that one assistance transaction encompassed 60 institutions. Also, certain 1982, 1983, 1989 and 1992 resolutions previously reported 

in either the Deposit Payoff or Deposit Assumption categories were reclassified.
116

Income Expenses and Losses

Investment Effective Provision Administrative Interest and

Assessment Assessment and Other Assessment for and Operating Other Insur. Net Income/

Year Total Income Credits Sources Rate1 Total Losses Expenses2 Expenses (Loss)

Income and Expenses, Bank Insurance Fund, from Beginning of Operations, 

September 11, 1933, through December 31, 2003

Dollars in Millions

continued on next page

Total $ 87,129.1 $ 53,424.8 $ 6,709.1 $ 40,413.4 $ 54,148.9 $ 36,192.5 $ 10,966.1 $ 6,996.3 $ 32,980.2

2003 1,626.0 80.2 0.0 $ 1,545.8 0.0020% (115.7) (928.5) 805.5 7.3 1,741.7

2002 1,795.9 84.0 0.0 1,711.9 0.0022% 750.6 (87.0) 821.1 16.5 1,045.3

2001 1,996.7 47.8 0.0 1,948.9 0.0014% 2,559.4 1,756.3 785.9 17.2 (562.7)

2000 1,905.9 45.1 0.0 1,860.8 0.0014% 645.2 (153.0) 772.9 25.3 1,260.7

1999 1,815.6 33.3 0.0 1,782.3 0.0011% 1,922.0 1,168.7 730.4 22.9 (106.4)

1998 2,000.3 21.7 0.0 1,978.6 0.0008% 691.5 (37.7) 697.6 31.6 1,308.8

1997 1,615.6 24.7 0.0 1,590.9 0.0008% 177.3 (503.7) 605.2 75.8 1,438.3

1996 1,655.3 72.7 0.0 1,582.6 0.0024% 254.6 (325.2) 505.3 74.5 1,400.7

1995 4,089.1 2,906.9 0.0 1,182.2 0.1240% 483.2 (33.2) 470.6 45.8 3,605.9

1994 6,467.0 5,590.6 0.0 876.4 0.2360% (2,259.1) (2,873.4) 423,2 191.1 8,726.1

1993 6,430.8 5,784.3 0.0 646.5 0.2440% (6,791.4) (7,677.4) 388.5 497.5 13,222.2

1992 6,301.5 5,587.8 0.0 713.7 0.2300% (625.8) (2,259.7) 570.8 1,063.1 6,927.3

1991 5,790.0 5,160.5 0.0 629.5 0.2125% 16,862.3 15,476.2 284.1 1,102.0 (11,072.3)

1990 3,838.3 2,855.3 0.0 983.0 0.1200% 13,003.3 12,133.1 219.6 650.6 (9,165.0)

1989 3,494.6 1,885.0 0.0 1609.6 0.0833% 4,346.2 3,811.3 213.9 321.0 (851.6)

1988 3,347.7 1,773.0 0.0 1,574.7 0.0833% 7,588.4 6,298.3 223.9 1,066.2 (4,240.7)

1987 3,319.4 1,696.0 0.0 1,623.4 0.0833% 3,270.9 2,996.9 204.9 69.1 48.5

1986 3,260.1 1,516.9 0.0 1,743.2 0.0833% 2,963.7 2,827.7 180.3 (44.3) 296.4

1985 3,385.4 1,433.4 0.0 1,952.0 0.0833% 1,957.9 1,569.0 179.2 209.7 1,427.5

1984 3,099.5 1,321.5 0.0 1,778.0 0.0800% 1,999.2 1,633.4 151.2 214.6 1,100.3

1983 2,628.1 1,214.9 164.0 1,577.2 0.0714% 969.9 675.1 135.7 159.1 1,658.2

1982 2,524.6 1,108.9 96.2 1,511.9 0.0769% 999.8 126.4 129.9 743.5 1,524.8

1981 2,074.7 1,039.0 117.1 1,152.8 0.0714% 848.1 320.4 127.2 400.5 1,226.6

1980 1,310.4 951.9 521.1 879.6 0.0370% 83.6 (38.1) 118.2 3.5 1,226.8

1979 1,090.4 881.0 524.6 734.0 0.0333% 93.7 (17.2) 106.8 4.1 996.7

1978 952.1 810.1 443.1 585.1 0.0385% 148.9 36.5 103.3 9.1 803.2

1977 837.8 731.3 411.9 518.4 0.0370% 113.6 20.8 89.3 3.5 724.2

1976 764.9 676.1 379.6 468.4 0.0370% 212.3 28.0 180.4 3.9 552.6

1975 689.3 641.3 362.4 410.4 0.0357% 97.5 27.6 67.7 2.2 591.8

1974 668.1 587.4 285.4 366.1 0.0435% 159.2 97.9 59.2 2.1 508.9

1973 561.0 529.4 283.4 315.0 0.0385% 108.2 52.5 54.4 1.3 452.8

1972 467.0 468.8 280.3 278.5 0.0333% 59.7 10.1 49.6 6.0 407.3

1971 415.3 417.2 241.4 239.5 0.0345% 60.3 13.4 46.9 0.0 355.0

1970 382.7 369.3 210.0 223.4 0.0357% 46.0 3.8 42.2 0.0 336.7

1969 335.8 364.2 220.2 191.8 0.0333% 34.5 1.0 33.5 0.0 301.3

1968 295.0 334.5 202.1 162.6 0.0333% 29.1 0.1 29.0 0.0 265.9

1967 263.0 303.1 182.4 142.3 0.0333% 27.3 2.9 24.4 0.0 235.7

1966 241.0 284.3 172.6 129.3 0.0323% 19.9 0.1 19.8 0.0 221.1

1965 214.6 260.5 158.3 112.4 0.0323% 22.9 5.2 17.7 0.0 191.7

1964 197.1 238.2 145.2 104.1 0.0323% 18.4 2.9 15.5 0.0 178.7

1963 181.9 220.6 136.4 97.7 0.0313% 15.1 0.7 14.4 0.0 166.8

1962 161.1 203.4 126.9 84.6 0.0313% 13.8 0.1 13.7 0.0 147.3

4

3

5
117

Income Expenses and Losses

Income and Expenses, Bank Insurance Fund, from Beginning of Operations, 

September 11, 1933, through December 31, 2003 (continued)

Dollars in Millions

The effective rates from 1950 through 1984 vary from the statutory rate of 0.0833 percent due to assessment credits provided in those years. The statutory rate increased to 0.12 

percent in 1990 and to a minimum of 0.15 percent in 1991. The effective rates in 1991 and 1992 vary because the FDIC exercised new authority to increase assessments above the 

statutory rate when needed. Beginning in 1993, the effective rate is based on a risk-related premium system under which institutions pay assessments in the range of 0.23 percent 

to 0.31 percent. In May 1995, the BIF reached the mandatory recapitalization level of 1.25%. As a result, the assessment rate was reduced to 4.4 cents per $100 of insured deposits 

and assessment premiums totaling $1.5 billion were refunded in September 1995.

These expenses, which are presented as operating expenses in the Statements of Income and Fund Balance, pertain to the FDIC in its corporate capacity only and do not include costs 

that are charged to the failed bank receiverships that are managed by the FDIC. The receivership expenses are presented as part of the "Receivables from Bank Resolutions, net" line 

on the Balance Sheets. The narrative and graph presented in the "Corporate Planning and Budget" section of this report (next page) show the aggregate (corporate and receivership) 

expenditures of the FDIC.

Includes $210 million for the cumulative effect of an accounting change for certain postretirement benefits.

Includes $105.6 million net loss on government securities.

This amount represents interest and other insurance expenses from 1933 to 1972.

Includes the aggregate amount of $80.6 million of interest paid on Capital Stock between 1933 and 1948.

1

2

3

4

5

6

1

6

Total $ 87,129.1 $ 53,424.8 $ 6,709.1 $ 40,413.4 $ 54,148.9 $ 36,192.5 $ 10,966.1 $ 6,996.3 $ 32,980.2

1961 147.3 188.9 115.5 73.9 0.0323% 14.8 1.6 13.2 0.0 132.5

1960 144.6 180.4 100.8 65.0 0.0370% 12.5 0.1 12.4 0.0 132.1

1959 136.5 178.2 99.6 57.9 0.0370% 12.1 0.2 11.9 0.0 124.4

1958 126.8 166.8 93.0 53.0 0.0370% 11.6 0.0 11.6 0.0 115.2

1957 117.3 159.3 90.2 48.2 0.0357% 9.7 0.1 9.6 0.0 107.6

1956 111.9 155.5 87.3 43.7 0.0370% 9.4 0.3 9.1 0.0 102.5

1955 105.8 151.5 85.4 39.7 0.0370% 9.0 0.3 8.7 0.0 96.8

1954 99.7 144.2 81.8 37.3 0.0357% 7.8 0.1 7.7 0.0 91.9

1953 94.2 138.7 78.5 34.0 0.0357% 7.3 0.1 7.2 0.0 86.9

1952 88.6 131.0 73.7 31.3 0.0370% 7.8 0.8 7.0 0.0 80.8

1951 83.5 124.3 70.0 29.2 0.0370% 6.6 0.0 6.6 0.0 76.9

1950 84.8 122.9 68.7 30.6 0.0370% 7.8 1.4 6.4 0.0 77.0

1949 151.1 122.7 0.0 28.4 0.0833% 6.4 0.3 6.1 0.0 144.7

1948 145.6 119.3 0.0 26.3 0.0833% 7.0 0.7 6.3 0.0 138.6

1947 157.5 114.4 0.0 43.1 0.0833% 9.9 0.1 9.8 0.0 147.6

1946 130.7 107.0 0.0 23.7 0.0833% 10.0 0.1 9.9 0.0 120.7

1945 121.0 93.7 0.0 27.3 0.0833% 9.4 0.1 9.3 0.0 111.6

1944 99.3 80.9 0.0 18.4 0.0833% 9.3 0.1 9.2 0.0 90.0

1943 86.6 70.0 0.0 16.6 0.0833% 9.8 0.2 9.6 0.0 76.8

1942 69.1 56.5 0.0 12.6 0.0833% 10.1 0.5 9.6 0.0 59.0

1941 62.0 51.4 0.0 10.6 0.0833% 10.1 0.6 9.5 0.0 51.9

1940 55.9 46.2 0.0 9.7 0.0833% 12.9 3.5 9.4 0.0 43.0

1939 51.2 40.7 0.0 10.5 0.0833% 16.4 7.2 9.2 0.0 34.8

1938 47.7 38.3 0.0 9.4 0.0833% 11.3 2.5 8.8 0.0 36.4

1937 48.2 38.8 0.0 9.4 0.0833% 12.2 3.7 8.5 0.0 36.0

1936 43.8 35.6 0.0 8.2 0.0833% 10.9 2.6 8.3 0.0 32.9

1935 20.8 11.5 0.0 9.3 0.0833% 11.3 2.8 8.5 0.0 9.5

1933/4 7.0 0.0 0.0 7.0 N/A 10.0 0.2 9.8 0.0 (3.0)

Investment Effective Provision Administrative Interest and

Assessment Assessment and Other Assessment for and Operating Other Insur. Net Income/

Year Total Income Credits Sources Rate Total Losses Expenses2 Expenses (Loss)
118

FDIC

RTC

$ 2,500

2,000

1,500

1,000

500

0

1994 95 96 97 98 99 2000 01 02 03

FDIC Expenditures 1994-2003

The FDIC’s Strategic Plan and Annual Performance Plan provide

the basis for annual planning and budgeting for needed resources.

The 2003 aggregate budget (for corporate, receivership and 

investment spending) was $1.1 billion, while actual expenditures 

for the year were $1.04 billion, about $154 million less than 

2002 expenditures.

Over the past 10 years, the FDIC’s expenditures have varied

in response to workload. During the past decade, expenditures

generally declined due to decreasing resolution and receivership

activity, although they temporarily increased in 1996 in conjunction

with the absorption of the Resolution Trust Corporation (RTC) and

its residual operations and workload. Total expenditures increased

in 2002 due to an increase in receivership-related expenses. 

The largest component of FDIC spending is for the costs associated

with staffing. Staffing decreased by just over 2 percent 

in 2003, from 5,430 employees at the beginning of the year 

to 5,311 at the end of the year.

Corporate Planning and Budget

Dollars in Millions

Note:

Resolution Trust Corporation (RTC) expenditures became the responsibility of the FDIC on January 1, 1996.
119

Deposits in Insured Banks ($ millions) Insurance Fund as a Percentage of

1

2003 $ 100,000 $ 4,090,423 $ 2,547,889 62.3 $ 33,461.8 0.82 1.31

2002 100,000 $ 3,867,096 2,527,948 65.4 32,050.3 0.83 1.27

2001 100,000 3,584,610 2,408,878 67.2 30,438.8 0.85 1.26

2000 100,000 3,326,745 2,301,604 69.2 30,975.2 0.93 1.35

1999 100,000 3,038,385 2,157,536 71.0 29,414.2 0.97 1.36

1998 100,000 2,996,396 2,141,268 71.5 29,612.3 0.99 1.38

1997 100,000 2,785,990 2,055,874 73.8 28,292.5 1.02 1.38

1996 100,000 2,642,107 2,007,447 76.0 26,854.4 1.02 1.34

1995 100,000 2,575,966 1,952,543 75.8 25,453.7 0.99 1.30

1994 100,000 2,463,813 1,896,060 77.0 21,847.8 0.89 1.15

1993 100,000 2,493,636 1,906,885 76.5 13,121.6 0.53 0.69

1992 100,000 2,512,278 1.945,623 77.4 (100.6) (0.00) (0.01)

1991 100,000 2,520,074 1,957,722 77.7 (7,027.9) (0.28) (0.36)

1990 100,000 2,540,930 1,929,612 75.9 4,044.5 0.16 0.21

1989 100,000 2,465,922 1,873,837 76.0 13,209.5 0.54 0.70

1988 100,000 2,330,768 1,750,259 75.1 14,061.1 0.60 0.80

1987 100,000 2,201,549 1,658,802 75.3 18,301.8 0.83 1.10

1986 100,000 2,167,596 1,634,302 75.4 18,253.3 0.84 1.12

1985 100,000 1,974,512 1,503,393 76.1 17,956.9 0.91 1.19

1984 100,000 1,806,520 1,389,874 76.9 16,529.4 0.92 1.19

1983 100,000 1,690,576 1,268,332 75.0 15,429.1 0.91 1.22

1982 100,000 1,544,697 1,134,221 73.4 13,770.9 0.89 1.21

1981 100,000 1,409,322 988,898 70.2 12,246.1 0.87 1.24

1980 100,000 1,324,463 948,717 71.6 11,019.5 0.83 1.16

1979 40,000 1,226,943 808,555 65.9 9,792.7 0.80 1.21

1978 40,000 1,145,835 760,706 66.4 8,796.0 0.77 1.16

1977 40,000 1,050,435 692,533 65.9 7,992.8 0.76 1.15

1976 40,000 941,923 628,263 66.7 7,268.8 0.77 1.16

1975 40,000 875,985 569,101 65.0 6,716.0 0.77 1.18

1974 40,000 833,277 520,309 62.5 6,124.2 0.73 1.18

1973 20,000 766,509 465,600 60.7 5,615.3 0.73 1.21

1972 20,000 697,480 419,756 60.2 5,158.7 0.74 1.23

1971 20,000 610,685 374,568 61.3 4,739.9 0.78 1.27

1970 20,000 545,198 349,581 64.1 4,379.6 0.80 1.25

1969 20,000 495,858 313,085 63.1 4,051.1 0.82 1.29

1968 15,000 491,513 296,701 60.2 3,749.2 0.76 1.26

1967 15,000 448,709 261,149 58.2 3,485.5 0.78 1.33

1966 15,000 401,096 234,150 58.4 3,252.0 0.81 1.39

1965 10,000 377,400 209,690 55.6 3,036.3 0.80 1.45

1964 10,000 348,981 191,787 55.0 2,844.7 0.82 1.48

1963 10,000 313,304 177,381 56.6 2,667.9 0.85 1.50

1962 10,000 297,548 170,210 57.2 2,502.0 0.84 1.47

1961 10,000 281,304 160,309 57.0 2,353.8 0.84 1.47

1960 10,000 260,495 149,684 57.5 2,222.2 0.85 1.48

1959 10,000 247,589 142,131 57.4 2,089.8 0.84 1.47

1958 10,000 242,445 137,698 56.8 1,965.4 0.81 1.43

1957 10,000 225,507 127,055 56.3 1,850.5 0.82 1.46

1956 10,000 219,393 121,008 55.2 1,742.1 0.79 1.44

1955 10,000 212,226 116,380 54.8 1,639.6 0.77 1.41

1954 10,000 203,195 110,973 54.6 1,542.7 0.76 1.39

1953 10,000 193,466 105,610 54.6 1,450.7 0.75 1.37

1952 10,000 188,142 101,841 54.1 1,363.5 0.72 1.34

1951 10,000 178,540 96,713 54.2 1,282.2 0.72 1.33

1950 10,000 167,818 91,359 54.4 1,243.9 0.74 1.36

1949 5,000 156,786 76,589 48.8 1,203.9 0.77 1.57

1948 5,000 153,454 75,320 49.1 1,065.9 0.69 1.42

1947 5,000 154,096 76,254 49.5 1,006.1 0.65 1.32

1946 5,000 148,458 73,759 49.7 1,058.5 0.71 1.44

1945 5,000 157,174 67,021 42.4 929.2 0.59 1.39

1944 5,000 134,662 56,398 41.9 804.3 0.60 1.43

1943 5,000 111,650 48,440 43.4 703.1 0.63 1.45

1942 5,000 89,869 32,837 36.5 616.9 0.69 1.88

1941 5,000 71,209 28,249 39.7 553.5 0.78 1.96

1940 5,000 65,288 26,638 40.8 496.0 0.76 1.86

1939 5,000 57,485 24,650 42.9 452.7 0.79 1.84

1938 5,000 50,791 23,121 45.5 420.5 0.83 1.82

1937 5,000 48,228 22,557 46.8 383.1 0.79 1.70

1936 5,000 50,281 22,330 44.4 343.4 0.68 1.54

1935 5,000 45,125 20,158 44.7 306.0 0.68 1.52

1934 5,000 40,060 18,075 45.1 291.7 0.73 1.61

Total Estimated Percentage Deposit Total Estimated

Insurance Domestic Insured of Insured Insurance Domestic Insured

Year Coverage Deposits Deposits Deposits Fund Deposits Deposits

Estimated Insured Deposits and the Bank Insurance Fund, December 31,1934, through September 30, 2003 

2 3

4

2

3

4

1

For 2003, the numbers are as of September 30, and prior years reflect December 31.

Starting in 1990, deposits in insured banks exclude those deposits held by Bank Insurance Fund members that are insured by the Savings Association Insurance Fund and include those

deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund.

Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits were estimated using percentages 

determined from the June 30 Call Reports.

Initial coverage was $2,500 from January 1 to June 30, 1934.
120

Income Expenses and Losses

Income and Expenses, Savings Association Insurance Fund, by Year, 

from Beginning of Operations, August 9, 1989, through December 31, 2003

Dollars in Thousands

Funding

Investment Interest Administrative Transfer

and Effective Provision and Other and from

Assessment Other Assessment for Insurance Operating the FSLIC Net Income/

Year Total Income Sources Rate Total Losses Expenses Expenses Resolut. Fund (Loss)

Total $ 13,341,739 $ 8,642,583 $ 4,699,156 $ 1,515,460 $ 468,750 $ 29,905 $ 1,016,805 $ 139,498 $ 11,965,777

2003 547,260 14,594 532,666 0.001% 47,200 (82,489) 105 129,584 0 500,060

2002 588,821 23,783 565,038 0.003% (31,380) (156,494) 751 124,363 0 620,201

2001 733,121 35,402 697,719 0.004% 564,083 443,103 19,389 101,591 0 169,038

2000 664,080 19,237 644,843 0.002% 300,018 180,805 8,293 110,920 0 364,062

1999 600,995 15,116 585,879 0.002% 124,156 30,648 626 92,882 0 476,839

1998 583,859 15,352 568,507 0.002% 116,629 31,992 9 84,628 0 467,230

1997 549,912 13,914 535,998 0.004% 69,986 (1,879) 0 71,865 0 479,926

1996 5,501,684 5,221,560 280,124 0.204% (28,890) (91,636) 128 62,618 0 5,530,574

1995 1,139,916 970,027 169,889 0.234% (281,216) (321,000) 0 39,784 0 1,421,132

1994 1,215,289 1,132,102 83,187 0.244% 434,303 414,000 0 20,303 0 780,986

1993 923,516 897,692 25,824 0.250% 46,814 16,531 0 30,283 0 876,702

1992 178,643 172,079 6,564 0.230% 28,982 (14,945) (5) 43,932 35,446 185,107

1991 96,446 93,530 2,916 0.230% 63,085 20,114 609 42,362 42,362 75,723

1990 18,195 18,195 0 0.208% 56,088 0 0 56,088 56,088 18,195

1989 2 0 2 0.208% 5,602 0 0 5,602 5,602 2

1

FDIC-Insured Institutions Closed During 2003

Dollars in Thousands

1

Number of Date of Receiver/

Name and Bank Deposit Total Total FDIC Estimated Closing or Assuming Bank

Location Class Accounts Assets Deposits Disbursements Loss Acquisition and Location

Bank Insurance Fund

Insured Deposit Transfer

First National Bank

of Blanchardville The Park Bank Blanchardville, WI N 3,635 $ 35,460 $ 28,901 $ 28,313 $ 9,245 05.09.03 Madison, WI

Purchase and Assumption - Insured Deposits

Pulaski Savings Bank Earthstar Bank

Philadelphia, PA SB 1,800 $ 8,976 $ 9,506 $ 9,506 $ 1,096 11.14.03 Southampton, PA

Insured Deposit Transfer - Asset Purchase

Southern Pacific Bank Beal Bank, S.S.B.

Torrance, CA NM 18,804 $ 1,052,288 $ 865,097 $ 851,385 $ 93,040 02.07.03 Plano, TX

Codes for N – NM – SB –

Bank Class: National bank State-chartered bank that is not Savings Bank 

a member of the Federal Reserve System 

Estimated losses are as of December 31, 2003. Estimated losses are routinely adjusted with updated information from new appraisals and asset sales, which ultimately affect the asset 

values and projected recoveries.
121

Deposits in Insured Institutions ($ Millions) Insurance Fund as a Percentage of 

Total Estimated Percentage of Deposit Total Estimated

Insurance Domestic Insured Insured Insurance Domestic Insured

Year2 Coverage Deposits Deposits Deposits Fund Deposits Deposits

For 2003, the numbers are as of September 30, and prior years reflect December 31.

Starting in 1990, deposits in insured institutions exclude those deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund and include 

those deposits held by Bank Insurance Fund members that are insured by the Savings Association Insurance Fund.

Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits were estimated using percentages 

determined from the June 30 Call Reports.

1

2

3

Estimated Insured Deposits and the Savings Association Insurance Fund, 

December 31, 1989, through September 30, 2003

2003 $ 100,000 $ 1,054,730 $ 867,562 82.3 $ 12,185.9 1.16 1.40

2002 100,000 990,231 860,351 86.9 11,746.7 1.19 1.37

2001 100,000 897,278 801,849 89.4 10,935.0 1.22 1.36

2000 100,000 822,610 752,756 91.5 10,758.6 1.31 1.43

1999 100,000 764,359 711,345 93.1 10,280.7 1.35 1.45

1998 100,000 751,413 708,959 94.4 9,839.8 1.31 1.39

1997 100,000 721,503 690,132 95.7 9,368.3 1.30 1.36

1996 100,000 708,749 683,090 96.4 8,888.4 1.25 1.30

1995 100,000 742,547 711,017 95.8 3,357.8 0.45 0.47

1994 100,000 720,823 692,626 96.1 1,936.7 0.27 0.28

1993 100,000 726,473 695,158 95.7 1,155.7 0.16 0.17

1992 100,000 760,902 729,458 95.9 279.0 0.04 0.04

1991 100,000 810,664 776,351 95.8 93.9 0.01 0.01

1990 100,000 874,738 830,028 94.9 18.2 0.00 0.00

1989 100,000 948,144 882,920 93.1 0.0 0.00 0.00

3

Estimated

Receivership

Year 2 Total Assets Deposits Loss Loss to Funds

Total 753 397,372,197 320,172,767 75,203,470 82,140,242

2003 0 0 0 0 0

2002 1 50,246 50,542 0 0

2001 1 2,179,783 1,670,802 436,000 436,000

2000 1 29,530 28,583 1,322 1,322

1999 1 62,956 63,427 1,194 1,194

1998 0 0 0 0 0

1997 0 0 0 0 0

1996 1 32,576 32,745 21,921 21,921

1995 2 423,819 414,692 28,192 27,784

1994 2 136,815 127,508 11,472 16,277

1993 10 7,178,794 5,708,253 269,720 67,536

1992 59 44,196,946 34,773,224 3,122,533 3,676,761

1991 144 78,898,704 65,173,122 8,422,180 9,026,510

1990 213 129,662,398 98,963,960 16,030,346 19,225,966

19895 318 134,519,630 113,165,909 46,858,590 49,638,971

Number, Assets, Deposits, Losses, and Loss to Funds of Insured Thrifts Taken Over 

or Closed Because of Financial Difficulties, 1989 through 20031

Dollars in Thousands

3 4

Prior to July 1, 1995, all thrift closings were the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was terminated on December 31, 1995, and all assets and liabilities 

transferred to the FSLIC Resolution Fund (FRF), all the results of the thrift closing activity from 1989 through 1995 are now reflected on FRF's books. The Savings Association Insurance 

Fund (SAIF) became responsible for all thrifts closed after June 30, 1995; there have been only five such failures. Additionally, SAIF was appointed receiver of one thrift (Heartland FSLA) 

on October 8, 1993, because, at that time, RTC's authority to resolve FSLIC-insured thrifts had not yet been extended by the RTC Completion Act.

Year is the year of failure, not the year of resolution.

The estimated losses represent the projected loss at the fund level from receiverships for unreimbursed subrogated claims of the FRF/SAIF and unpaid advances to receiverships from 

the FRF.

The Loss to Funds represents the total resolution cost of the failed thrifts in the SAIF and FRF-RTC funds, which includes corporate revenue and expense items such as interest expense 

on Federal Financing Bank debt, interest expense on escrowed funds, and interest revenue on advances to receiverships, in addition to the estimated losses for receiverships.

Total for 1989 excludes nine failures of the former FSLIC.

1

2

3

4

5

1
122

2003 2002 2001

Deposit Insurance 141 112 133

Approved 140 112 133

Denied 1 0 0

New Branches 1,227 1,285 1,010

Approved 1,227 1,285 1,010

Denied 0 0 0

Mergers 304 201 266

Approved 304 201 266

Denied 0 0 0

Requests for Consent to Serve●369 295 231

Approved 368 295 231

Section 19 13 12 19

Section 32 355 283 212

Denied 1 0 0

Section 19 0 0 0

Section 32 1 0 0

Notices of Change in Control 30 31 21

Letters of Intent Not to Disapprove 30 31 21

Disapproved 0 0 0

Brokered Deposit Waivers 28 33 21

Approved 28 33 21

Denied 0 0 0

Savings Association Activities■56 69 76

Approved 56 69 76

Denied 0 0 0

State Bank Activities/Investments▼19 26 29

Approved 19 26 29

Denied 0 0 0

Conversions of Mutual Institutions 7 4 4

Non-Objection 7 4 4

Objection 0 0 0

Under Section 19 of the Federal Deposit Insurance Act, an insured institution must receive FDIC approval before 

employing a person convicted of dishonesty or breach of trust. Under Section 32, the FDIC must approve any change 

of directors or senior executive officers at a state nonmember bank that is not in compliance with capital requirements 

or is otherwise in troubled condition.

Amendments to Part 303 of the FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.

Section 24 of the FDI Act, in general, precludes an insured state bank from engaging in an activity not permissible for

a national bank and requires notices be filed with the FDIC. 

FDIC Applications 2001-2003

●

■

▼
123

2003 2002 2001

Total Number of Actions Initiated by the FDIC 174 162 144

Termination of Insurance 

Involuntary Termination

Sec. 8a For Violations, Unsafe/Unsound Practices or Condition 0 0 0

Voluntary Termination 

Sec.8a By Order Upon Request 0 0 0

Sec.8p No Deposits 5 7 4

Sec.8q Deposits Assumed 12 7 6

Sec. 8b Cease-and-Desist Actions

Notices of Charges Issued 2 4 3

Consent Orders 33 44 33

Sec. 8e Removal/Prohibition of Director or Officer 

Notices of Intention to Remove/Prohibit 4 4 4

Consent Orders 31 15 11

Sec. 8g Suspension/Removal When Charged With Crime 0 0 0

Civil Money Penalties Issued

Sec.7a Call Report Penalties 0 1 4

Sec.8i Civil Money Penalties 55 65 71

Sec. 10c Orders of Investigation 20 7 7

Sec. 19 Denials of Service After Criminal Conviction 0 0 0

Sec. 32 Notices Disapproving Officer/Director’s Request for Review 1 0 0

Truth in Lending Act Reimbursement Actions

Denials of Requests for Relief 0 0 1

Grants of Relief 0 0 0

Banks Making Reimbursement ■96 106 189

Suspicious Activity Reports (Open and closed institutions)■62,179 42,123 28,750

Other Actions Not Listed 11 8 0

Two actions included Sec.8 (c) temporary orders.

These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total 

number of actions initiated.

Compliance, Enforcement and Other Related Legal Actions 2001-2003

●

●

■
124

In addition to his professional

experience as a banker, Mr. Powell

has served on numerous boards 

at universities, civic associations, 

hospitals and charities. 

Of note, Mr. Powell has served as

the Chairman of the Board of Regents

of the Texas A&M University System,

which has more than 90,000 students,

the Chairman of the Amarillo Chamber

of Commerce, and currently serves

on the Advisory Board of the 

George Bush School of Government

and Public Service. 

Mr. Powell has also served on the

Board of many other nonprofit, 

public and community organizations,

including the United Way, the

Harrington Regional Medical Center,

the City of Amarillo Housing Board,

and a number of other educational

institutions. 

He received his B.S. in economics

from West Texas State University and

is a graduate of The Southwestern

Graduate School of Banking at

Southern Methodist University.

Donald E. Powell

Don Powell was sworn in as the 

18th Chairman of the FDIC in 

August 2001. During his tenure he 

has worked to maintain the FDIC’s 

reputation of excellence while 

positioning the organization to 

meet the needs of a rapidly 

evolving banking industry.

Prior to being named Chairman of 

the FDIC by President George W. Bush, 

Mr. Powell – a life-long Texan – 

was President and CEO of The First 

National Bank of Amarillo, where he 

started his banking career in 1971. 

Appendix B–

More About the FDIC

James Kegley

On December 9, 2003, the U.S.Senate confirmed Thomas J. Curry, 

Commissioner of Banks for the Massachusetts Division of Banks, 

to be a member of the Board of Directors of the FDIC for a six-year term. 

On January 12, 2004, Mr. Curry was sworn in and the FDIC has a full 

five-member Board. for the first time since September 1998.

FDIC Board of Directors

Donald E. Powell, Chairman (seated), John M. Reich, John D. Hawke, Jr., James E. Gilleran (standing, left to right)

▼
125

John M. Reich 

Mr. Reich became Vice Chairman 

of the FDIC Board of Directors 

on November 15, 2002, and has

served as a Board member since

January 16, 2001. Following

Chairman Donna Tanoue’s resignation

in July 2001 and until Mr. Powell

took office in August 2001, Mr. Reich

was Acting Chairman of the FDIC.

Mr. Reich enjoyed a 23-year career

as a community banker in Illinois 

and Florida, the last 10 years of

which were as President and CEO 

of the National Bank of Sarasota,

Sarasota, FL.

Before joining the FDIC, Mr. Reich

served for 12 years on the staff of

U.S. Senator Connie Mack (R-FL).

From 1998 through 2000, he was

Senator Mack’s Chief of Staff, 

directing and overseeing all of the

Senator’s offices and committee

activities, including the Senate

Banking Committee. 

Mr. Reich’s substantial community

service includes serving as Chairman

of the Board of Trustees of a public

hospital facility in Ft. Myers, FL, and

Chairman of the Board of Directors

of the Sarasota Family YMCA. He

has also served as a Board member

for a number of civic organizations,

and was active for many years in

youth baseball programs.

Mr. Reich holds a B.S. degree from

Southern Illinois University and 

an M.B.A. from the University of 

South Florida. He is also a graduate

of Louisiana State University’s

School of Banking of the South.

John D. Hawke, Jr.

Mr. Hawke was sworn in as the 

28th Comptroller of the Currency on

December 8, 1998. After serving 10

months under a recess appointment,

he was sworn in for a full five-year term

on October 13, 1999. As Comptroller,

Mr. Hawke serves as an FDIC Board

member. 

Prior to his appointment as

Comptroller, Mr. Hawke served

for three and a half years as Under

Secretary of the Treasury for Domestic

Finance. Before joining Treasury, 

Mr. Hawke was a senior partner at the 

Washington, DC, law firm of Arnold 

& Porter, where he began as an associate in 1962. While there, he headed

the financial institutions practice, and

from 1987 to 1995, served as the 

firm’s Chairman. In 1975, he left the

firm to serve as General Counsel to

the Board of Governors of the Federal

Reserve System, returning in 1978.

Mr. Hawke graduated from Yale

University in 1954 with a B.A. in

English. From 1955 to 1957, he served

on active duty with the U.S. Air Force.

After graduating in 1960 from Columbia

University School of Law, where he

was Editor-in-Chief of the Columbia

Law Review, Mr. Hawke was a law

clerk for Judge E. Barrett Prettyman

on the U.S. Court of Appeals for 

the District of Columbia Circuit. From

1961 to 1962, he served as counsel to

the Select Subcommittee on Education

in the House of Representatives.

From 1970 to 1987, Mr. Hawke taught

courses on federal regulation of banking at Georgetown University Law

Center. He has also taught courses

on bank acquisitions and financial 

regulation, and served as the Chairman

of the Board of Advisors of the 

Morin Center for Banking Law Studies

in Boston. Mr. Hawke has written

extensively on matters relating to the

regulation of financial institutions. 

James E. Gilleran

Mr. Gilleran became Director of the

Office of Thrift Supervision (OTS) 

on December 7, 2001. As OTS

Director, Mr. Gilleran is also an 

FDIC Board member.

Mr. Gilleran was Chairman and CEO

of the Bank of San Francisco from

October 1994 until December 2000.

From 1989 to 1994, he was the

California State Banking Superintendent. He served as Chairman 

of the Conference of State Bank

Supervisors (CSBS) from 1993 to

1994, and was a member of the

CSBS’s Bankers Advisory Council

until 2000. 

Prior to his service as the California

Banking Superintendent, Mr. Gilleran

was managing partner of the

Northern California practice of the

public accounting firm KPMG Peat

Marwick. Before serving as managing

partner, he was in charge of KPMG’s

banking practice in the western

region of the U.S. He was with

KPMG from 1958 through 1987.

Mr. Gilleran has also been involved 

in a number of educational, civic and

charitable organizations, including

serving as Chairman of both the

American Red Cross of the 

San Francisco Bay Area and 

the Metropolitan YMCA.

Mr. Gilleran is a certified public

accountant and a member of the

American Institute of CPAs. He 

graduated from Pace University in

1955, and received his law degree

from Northwestern California

University in 1996. 
126

FDIC Organization Chart/Officials

as of December 31, 2003

Board of Directors

Donald E. Powell

John M. Reich

John D. Hawke, Jr.

James E. Gilleran

Office of the Chairman

Donald E. Powell

Chairman

Office of Inspector 

General

Gaston L. Gianni, Jr.

Inspector General

Deputy 

to the Chairman

John M. Brennan

Special Advisor 

to the Chairman

C.K.Lee

Chief 

Information Officer

Michael E. Bartell

Chief of Staff

Jodey C. Arrington

Deputy to the Chairman 

and Chief Operating Officer

John F. Bovenzi

Division of Insurance 

and Research

Arthur J. Murton

Director

Division of Resolutions 

and Receiverships

Mitchell L. Glassman

Director

Division of 

Administration

Arleas Upton Kea

Director

Office of Legislative 

Affairs

Alice C. Goodman

Director

Legal 

Division 

William F. Kroener, III

General Counsel

Division of Supervision 

and Consumer Protection

Michael J. Zamorski

Director

Division of Information 

Resources Management

Michael E. Bartell

Director

Office of Diversity and 

Economic Opportunity

D. Michael Collins

Director

Office of 

Public Affairs

Elizabeth Ford

Acting Director

Office of the 

Ombudsman

Cottrell L. Webster

Ombudsman

Division of 

Finance

Frederick S. Selby

Director

Office of Internal 

Control Management

Michael H. MacDermott

Acting Director

General

Counsel

William F. Kroener, III

Deputy to the Chairman 

and Chief Financial Officer

Steven O. App 
127

Corporate Staffing

24,000

21,000

18,000

15,000

12,000

9,000

6,000

3,000

0

RTC

FDIC

Total Staffing

Note:

All staffing totals reflect year-end balances.

The Resolution Trust Corporation (RTC) was fully staffed with FDIC employees and, until February 1992, the RTC was managed 

by the FDIC Board of Directors. Upon the RTC’s sunset at year-end 1995, all of its remaining workload and employees were 

transferred to the FDIC.

1994 95 96 97 98 99 2000 01 02 03

Staffing Trends 1994-2003

5,899 2,043 

11,627 9,813 9,151 7,793 7,359 7,266 6,452 6,167 5,430 5,311

17,526 11,856 9,151 7,793 7,359 7,266 6,452 6,167 5,430 5,311 
128

Total Washington Regional/ Field 

2003 2002 2003 2002 2003 2002

Executive Offices●41 45 40 44 1 1

Division of Supervision and Consumer Protection 2,797 2,811 188 176 2,609 2,635

Division of Resolutions and Receiverships 520 522 100 111 420 411

Legal Division 506 524 315 317 191 207

Division of Finance 205 229 205 229 0 0

Division of Information Resources Management 391 412 331 349 60 63

Division of Insurance and Research 186 187 156 157 30 30

Division of Administration▼424 475 281 321 143 154

Office of Inspector General 150 158 107 114 43 44

Office of Diversity and Economic Opportunity 33 34 33 34 0 0

Office of the Ombudsman 18 16 15 13 3 3

Office of Internal Control Management 14 17 14 17 0 0

Corporate University▼26 0 26 0 0 0

Total 5,311 5,430 1,811 1,882 3,500 3,548

Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Legislative Affairs, and 

Public Affairs.

Corporate University was established on February 3, 2003. The Corporate training function was previously in the Division of Administration.

Number of Officials and Employees of the FDIC 2002-2003 (year-end)

●

▼
129

Home Page on the Internet

www.fdic.gov

A wide range of banking, consumer

and financial information is available

on the FDIC’s Internet home page.

This includes the FDIC’s Electronic

Deposit Insurance Estimator, “EDIE,”

which estimates an individual’s

deposit insurance coverage; the

Institution Directory, financial 

profiles of FDIC-insured institutions;

Community Reinvestment Act 

evaluations and ratings for institutions

supervised by the FDIC; Call Reports,

banks’ reports of condition and

income; and Money Smart,

a training program to help adults 

outside the financial mainstream

enhance their money management

skills and create positive banking

relationships. Readers also can

access a variety of consumer 

pamphlets, FDIC press releases,

speeches and other updates on 

the agency’s activities, as well as

corporate databases and customized

reports of FDIC and banking industry

information.

FDIC Call Center

Phone: 877-275-3342 

(877-ASK FDIC)

202-736-0000 

Hearing

Impaired: 800-925-4618

The FDIC Call Center in Washington, DC,

is the primary telephone point of contact for general questions from the

banking community and the public.

The Call Center directly, or in concert

with other FDIC subject matter

experts, responds to questions about

deposit insurance and other consumer

issues and concerns, as well as 

questions about FDIC programs and

activities. The Call Center also makes

referrals to other federal and state

agencies as needed. Hours of 

operation are 8:00 a.m. to 8:00 p.m.

Eastern Time. Information is also available in Spanish. Recorded information

about deposit insurance and other 

topics is available 24 hours a day at

the same telephone number.

Public Information Center

801 17th Street, NW

Room 100

Washington, DC 20434

Phone: 877-275-3342 

(877-ASK FDIC)

202-416-6940 

Fax: 202-416-2076

E-mail: publicinfo@fdic.gov

FDIC publications, press releases,

speeches and Congressional 

testimony, directives to financial

institutions, policy manuals and other

documents are available on request

or by subscription through the 

Public Information Center. These

documents include the Quarterly

Banking Profile, Statistics on Banking,

Summary of Deposits and a variety

of consumer pamphlets.

Office of the Ombudsman

550 17th Street, NW

Washington, DC 20429

Phone: 877-275-3342 

(877- ASK FDIC)

Fax: 202-942-3040, or 

202-942-3041

E-mail: ombudsman@fdic.gov

The Office of the Ombudsman

responds to inquiries about the 

FDIC in a fair, impartial and timely

manner. It researches questions 

and complaints from bankers and the

public. The office also recommends

ways to improve FDIC operations,

regulations and customer service.

Sources of Information
Regional and Area Offices

San Francisco Regional Office

25 Ecker Street

Suite 2300

San Francisco, California 94105

(415) 546-0160

Alaska Montana

Arizona Nevada

California Oregon

Guam Utah

Hawaii Washington

Idaho Wyoming

Kansas City Regional Office

2345 Grand Boulevard

Suite 1200

Kansas City, Missouri 64108

(816) 234-8000

Iowa North Dakota

Kansas South Dakota

Minnesota 

Missouri

Nebraska

Dallas Regional Office

1910 Pacific Avenue

Suite 1900

Dallas, Texas 75201

(214 ) 754-0098

Colorado

New Mexico

Oklahoma

Texas

Memphis Area Office

5100 Poplar Avenue

Suite 1900

Memphis, Tennessee 38137

(901) 685-1603

Arkansas 

Louisiana 

Mississippi

Tennessee

Chicago Regional Office

500 West Monroe Street

Suite 3500

Chicago, Illinois 60661

(312) 382-7500

Illinois Wisconsin

Indiana 

Kentucky

Michigan 

Ohio

Atlanta Regional Office

10 Tenth Street, NE

Suite 800

Atlanta, Georgia 30309

(678) 916-2200

Alabama Virginia

Florida West Virginia

Georgia

North Carolina

South Carolina

New York Regional Office

20 Exchange Place

4th Floor

New York, New York 10005

(917) 320-2500

Delaware Puerto Rico

District of Columbia Virgin Islands

Maryland 

New Jersey

New York

Pennsylvania

Boston Area Office

15 Braintree Hill Office Park

Suite 100

Braintree, Massachusetts 02184

(781) 794-5500

Connecticut

Maine

Massachusetts 

New Hampshire

Rhode Island

Vermont

130
131

Appendix C – Office of Inspector General’s Assessment of the Management 

and Performance Challenges Facing the FDIC

The following chart shows the FDIC’s most significant management and performance challenges as identified by the 

Office of Inspector General (OIG):

Challenge Brief Description

1 Adequacy of Corporate Governance Corporate governance is generally defined as the fulfillment of the broad 

in Insured Depository Institutions stewardship responsibilities entrusted to the Board of Directors, Officers, 

and external and internal auditors of a corporation. A number of well-publicized

announcements of business failures, including financial institution failures, 

have raised questions about the credibility of accounting practices and 

oversight in the United States. These recent events have increased public 

concern regarding the adequacy of corporate governance and, in part, 

prompted passage of the Sarbanes-Oxley Act of 2002. The public’s 

confidence in the nation’s financial system can be shaken by deficiencies 

in the adequacy of corporate governance in insured depository institutions. 

2 Protection of Consumer Interests The FDIC’s mission is to maintain public confidence in the nation’s financial 

system. The availability of deposit insurance to protect consumer interests 

is a very visible way in which the FDIC accomplishes this mission. However, 

the FDIC also serves as an advocate for consumers through its oversight 

of a variety of statutory and regulatory requirements aimed at protecting 

consumers from unfair and unscrupulous banking practices. The FDIC is 

legislatively mandated to enforce various statutes and regulations regarding 

consumer protection and civil rights with respect to state-chartered,

nonmember banks and to encourage community investment initiatives 

by these institutions. 

3 Management and Analysis of Risks A primary goal of the FDIC under its insurance program is to ensure that its 

to the Insurance Funds deposit insurance funds do not require resuscitation by the U.S. Treasury.

Achieving this goal is a considerable challenge, given that the FDIC directly 

supervises only a portion of the insured depository institutions. The 

identification of risks to non-FDIC supervised institutions requires effective 

communication and coordination with the other federal banking agencies. 

The FDIC engages in an ongoing process of proactively identifying risks 

to the deposit insurance funds and adjusting the risk-based deposit insurance

premiums charged to the institutions. 

4 Effectiveness of Resolution One of the FDIC’s most important corporate responsibilities is planning 

and Receivership Activities and efficiently handling the franchise marketing of failing FDIC-insured 

institutions and providing prompt, responsive and efficient resolution 

of failed financial institutions. These activities maintain confidence and 

stability in our financial system.

5 Management of Human Capital Human capital issues pose significant elements of risk that interweave 

all the management and performance challenges facing the FDIC. The 

Corporation must work to fill key vacancies in a timely manner, engage 

in careful succession planning, and continue to conserve and replenish

the institutional knowledge and expertise that has guided the organization 

over the past years. 
132

Appendix C – Office of Inspector General’s Assessment of the Management 

and Performance Challenges Facing the FDIC (continued)

Challenge Brief Description

6 Management and Security Information technology (IT) continues to play an increasingly greater role 

of Information Technology (IT) in every aspect of the FDIC’s mission. As corporate employees carry out the 

Resources FDIC’s principal business lines of insuring deposits, examining and supervising 

financial institutions, and managing receiverships, they rely on information 

and corresponding technology as an essential resource. Information and 

analysis on banking, financial services and the economy form the basis for 

the development of public policies and promote public understanding and 

confidence in the nation’s financial system. IT is a critical resource that 

must be safeguarded.

7 Security of Critical Infrastructure To effectively protect critical infrastructure, the FDIC’s challenge in this 

area is to implement measures to mitigate risks, plan for and manage 

emergencies through effective contingency and continuity planning, 

coordinate protective measures with other agencies, determine resource 

and organization requirements, and engage in education and awareness 

activities. 

8 Management of Major Projects The FDIC has engaged in several multi-million dollar projects, such as the 

New Financial Environment, Central Data Repository, and Seidman Center 

Phase II Construction. Without effective project management, the FDIC

runs the risk that corporate requirements and user needs may not be met 

in a timely, cost-effective manner. 

9 Assessment of Corporate The Corporation has made significant progress in implementing the 

Performance Government Performance and Results Act of 1993 and needs to continue 

to address the challenges of developing more outcome-oriented performance

measures, linking performance goals and budgetary resources, implementing

processes to verify and validate reported performance data, and addressing 

crosscutting issues and programs that affect other federal financial institution

regulatory agencies. 

10 Cost Containment and As steward for the Bank Insurance Fund and Savings Association Insurance 

Procurement Integrity Fund, the FDIC seeks ways to limit the use of those funds. Therefore the 

Corporation must continue to identify and implement measures to contain

and reduce costs, either through more careful spending or assessing 

and making changes in business processes to increase efficiency. The 

Corporation has taken a number of steps to strengthen internal control 

and effective oversight. However, the OIG’s work in this area continues 

to show that further improvements are necessary to reduce risks such as the 

consideration of contractor security in acquisition planning, incorporation of 

information security requirements in FDIC contracts, oversight of contractor 

security practices, and compliance with billing guidelines.
133

Glossary of Acronyms 

A

AFS Available-for-Sale

B

BIF Bank Insurance Fund

C

CAMELS Capital, Assets, Management, Earnings, Liquidity, Sensitivity

CDR Central Data Repository

CFO Chief Financial Officer

CFOA Chief Financial Officers Act of 1990

CIRC Capital Investment Review Committee

CRA Community Reinvestment Act

F

FBIIC Financial and Banking Information Infrastructure Committee

FDIC Federal Deposit Insurance Corporation

FFIEC Federal Financial Institutions Examination Council

FFMIA Federal Financial Management Improvement Act of 1996

FinCEN Financial Crimes Enforcement Network

FMFIA Federal Managers’ Financial Integrity Act of 1982

FSLIC Federal Savings and Loan Insurance Corporation

FRF FSLIC Resolution Fund

G

GAAP Generally Accepted Accounting Principles

GAO U.S. General Accounting Office

GPRA Government Performance and Results Act of 1993

I

IT Information Technology

L

LIDI Large Insured Depository Institutions

M

MERIT Maximum Efficiency, Risk-Focused, Institution Targeted

MOU Memorandum of Understanding

O

OIG Office of Inspector General

R

RIS Research Information System

RTC Resolution Trust Corporation

S

SAIF Savings Association Insurance Fund
2003

This Annual Report was produced by talented 

and dedicated staff. To these individuals, we would 

like to offer our sincere thanks and appreciation. 

Special recognition is given to the following individuals 

for their contributions:

Marjorie C. Bradshaw

Sam Collicchio

Paul Covas

Alan Deaton

Jannie F. Eaddy

Barbara Glasby

Addie Hargrove

Patricia Hughes

Mia Jordan

Joan Spirtas

Federal

Deposit

Insurance

Corporation