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