Message from the Chair

Sheila C. Bair

Sheila C. Bair, Chairman, 

Federal Deposit Insurance Corporation

As an agency created during the Great Depression, the FDIC has a unique 

understanding of the importance of restoring public confidence during periods 

of stress. Clearly, 2008 was no exception. Problems in the financial markets had 

shaken the public’s confidence in financial institutions. By fall, these problems were affecting most segments of the economy. After resolving just a handful of bank failures 

for several years, 25 insured institutions failed in 2008, the most since 

the end of the last banking crisis in 1993. The number of banks on 

the problem list rose to 252 at the end of last year, a sign that 

2009 will be another challenging year for the banking industry 

as well as the economy. 

During 2008, the FDIC took a number of unprecedented steps in concert 

with other federal agencies to bolster public confidence in our banking system. Difficult choices were necessary during difficult times to restore 

confidence and stability to the financial markets. The FDIC played a 

vital role by providing stability to our banking and financial system 

through our unique responsibilities and perspectives as deposit 

insurer, regulator, and receiver.

Higher deposit i

In early October, President Bush signed the Emergency Economic 

Stabilization Act of 2008 (EESA), temporarily raising the basic limit 

on deposit insurance from $100,000 to $250,000 per depositor 

through December 31, 2009. This measure also created the $700 

billion Troubled Asset Relief Program (TARP) to help strengthen 

the financial sector.

The increased deposit insurance coverage provided vital 

reassurance to depositors and needed liquidity to banks. 

This helped make sure that otherwise viable institutions did not have to be closed because of runs on 

uninsured deposits.

We moved quickly to implement the coverage increase. 

We updated our Web site virtually overnight as well 

as EDIE — our Electronic Deposit Insurance 

Estimator — to reflect the changes. Our Call Center 

handled tens of thousands of phone calls from 

concerned consumers wanting to know whether 

their money was safe. I commend our staff for 

their hard work and quick response.

Daniel Rosenbaum/The New York Times/Redux

F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N 
Affordable mo

The FDIC was also at the forefront of efforts to address the cause of much of our economic distress — 

unaffordable home mortgages. As the deposit insurer and receiver for failed insured institutions, the 

FDIC has a special insight into the problems created for homeowners, banks, and our communities by 

unaffordable mortgages. Throughout the year, the FDIC advocated streamlined and sustainable loan 

modifications as a critical tool to arrest the growing number of foreclosures that continued to drive down 

home prices in 2008.

Applying workout procedures for troubled loans is something the FDIC has been doing since the 1980s. 

Our experience from resolving failing banks has been that performing loans yield greater returns than 

non-performing loans. We applied this experience at IndyMac Federal Bank. After the FDIC was appointed 

as conservator in July, we created a successful program to systematically help struggling homeowners 

modify their mortgages to make them affordable.

Through the end of 2008, more than 33,000 loan modification offers were mailed to IndyMac borrowers. 

These offers provided affordable payments to borrowers based on a streamlined protocol using a 

combination of interest rate reductions, term or amortization extensions, and principal forbearance. 

Through the end of the year, IndyMac had completed the requisite verification of income for more than 

8,512 homeowners with thousands more in process. On average, their monthly payments were reduced 

by more than $480.

Based on our work at IndyMac, we designed a “Loan-Mod-In-A-Box” program guide. It is a prototype for a 

nationwide affordable loan program that we hope will be used to turn back the tide of foreclosures and keep 

struggling borrowers in their homes, taking pressure off the housing market where prices are down an average of 25 percent from a mid-2006 peak.

Unfortunately, loan modifications by other servicers failed to keep pace with rising delinquencies. As a 

result, the FDIC worked to encourage greater efforts to achieve modifications throughout 2008. Loan guarantees can be used as an incentive for servicers to modify loans — a move we have strongly encouraged for 

some time. Throughout 2008, the FDIC advocated programs to achieve more loan modifications.

Temporary Liquidity

In mid-October, we launched the Temporary Liquidity Guarantee Program (TLGP). We designed this voluntary program to provide liquidity to the wholesale lending market and to free up funding for banks to 

make loans to creditworthy businesses and consumers. It has two key features. First, it guarantees certain 

new, senior unsecured debt issued by banks or thrifts and bank holding companies, as well as most thrift 

holding companies. Second, it provides a full guarantee of all deposits in noninterest-bearing transaction 

accounts (primarily payment-processing accounts, such as for business payrolls).

All eligible entities (banks, thrifts, and qualifying holding companies) were automatically enrolled in the 

program but had an opportunity to opt-out. Eighty-seven percent of insured depository institutions stayed 

in the transaction account program, while 56 percent of eligible entities remained in the debt guarantee 

program. At the end of the year, nearly $224 billion in debt had been issued under this program.

Fees for the debt guarantee program range from 50 to 100 basis points on an annualized basis, depending 

on the term of the debt. Fees for the transaction account program are 10 basis points on covered deposits 

that are not otherwise insured. 

This program required the FDIC to use its statutory authority to take action to mitigate potential systemic 

risks. The program was implemented after a recommendation from the FDIC Board of Directors and the 

Board of Governors of the Federal Reserve System and a determination by the Secretary of the Treasury, in 

consultation with the President. The TLGP is a fee-based program and does not rely upon the taxpayer or 

the Deposit Insurance Fund (DIF). 

 2 0 0 8 A n n u l R e p or
In my view, the TLGP was a major factor in the steady progress we saw by the end of the year in reducing 

risk premiums in the interbank lending market. Given the success of the program, we put in place a limited 

extension of the TLGP debt guarantee program in early 2009; however, we intend to end new debt issuances 

under the program by October 31, 2009. 

DIF restoration plan and oth

In other actions during the year, we adopted a restoration plan for the DIF. The plan increases the rates 

banks pay for deposit insurance and makes new adjustments to better reflect the risk banks pose to the DIF. 

The plan was necessary because a sharp increase in loss provisions lowered the reserve ratio below the 

required statutory level.

We also simplified deposit insurance rules for revocable trust accounts. These reforms to the rules covering 

so-called “payable-on-death” accounts and more formal revocable trust accounts, as well as for mortgage 

servicing accounts should result in faster deposit insurance determinations for failed banks, a must for preserving public confidence in the banking system.

On top of these extraordinary measures, the FDIC faced the largest bank failure in American history — 

Washington Mutual Bank (WaMu) with $300 billion in assets. All of WaMu’s deposits and substantially all 

its liabilities were transferred to an acquirer at no cost to the insurance fund, no loss of depositor funds and 

with little disruption to customers. 

75 years of the

In mid-June, the FDIC celebrated 75 years of service as the world’s oldest public deposit insurer. We marked 

the date with a press conference, national advertisements promoting deposit insurance awareness and 

launched a series of programs renewing public awareness of bank deposit insurance, which proved very 

timely as the financial turmoil widened.

We held panel discussions across the country with local experts from industry, community groups and the 

media to discuss methods for improving financial education for consumers and promote greater awareness 

of the FDIC. We distributed nationally aired television, radio and print public service announcements reassuring the public about the safety of FDIC insured accounts. We created a public exhibit in our Washington 

headquarters lobby tracing the FDIC’s history and explaining our role in the national economy.

FDIC comes 

Throughout 2008, the staff of the FDIC worked tirelessly to respond to the challenges facing the banking 

system. It takes every employee, from every corner of the agency, to fulfill our critical mission. I am grateful 

for their hard work and dedication and I am proud of their efforts to preserve confidence in the banking 

industry and help stabilize our financial system. 

Sincerely,

Sheila C. Bair

F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N