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 79

4 Chapter Four

Financial Statement

and Not

Deposit Insurance Fund (DIF)

2008 2007

Assets

Cash and cash equivalents – unrestricted $1,011,430 $4,244,547 

Cash and cash equivalents – restricted – systemic risk (Note 14)

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

2,377,387 0

 Held-to-maturity securities 0 38,015,174

 Available-for-sale securities 27,859,080 8,572,800

Assessments receivable, net (Note 8) 1,018,486 244,581

Receivable – systemic risk (Note 14) 1,138,132 0

Interest receivable on investments and other assets, net 405,453 768,292

Receivables from resolutions, net (Note 4) 15,765,465 808,072

Property and equipment, net (Note 5) 368,761 351,861

Total Assets $49,944,194 $53,005,327

Liabilities

Accounts payable and other liabilities $185,079 $151,857

Liabilities due to resolutions (Note 6)

Guarantee obligations – systemic risk (Note 14)

4,671,980

2,077,880

0

0

Postretirement benefit liability (Note 11)

Contingent liabilities for: (Note 7)

114,124 116,158

 Anticipated failure of insured institutions 23,981,204 124,276

 Systemic risk (Note 14) 1,437,638 0

 Litigation losses 200,000 200,000

Total Liabilities 32,667,905 592,291

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

Fund Balance

Accumulated net income 15,001,272 52,034,503

Unrealized gain on available-for-sale securities, net (Note 3) 2,250,052 358,908

Unrealized postretirement benefit gain (Note 11) 24,965 19,625

Total Fund Balance 17,276,289 52,413,036

Total Liabilities and Fund Balance $49,944,194 $53,005,327

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

Deposit Insurance Fund Balance She

Dollars in Thousands
80 2 0 0 8 A n n u l R e p or

2008 2007

Revenu

Interest on U.S. Treasury obligations $2,072,317 $2,540,061

Assessments (Note 8) 2,964,518 642,928

Systemic risk revenue (Note 14) 1,463,537 0

Realized gain on sale of securities 774,935 0

Other revenue 31,017 13,244

Total Revenue 7,306,324 3,196,2

Expenses and Losse

Operating expenses (Note 9) 1,033,490 992,570

Systemic risk expenses (Note 14) 1,463,537 0

Provision for insurance losses (Note 10) 41,838,835 95,016

Insurance and other expenses 3,693 3,370

Total Expenses and Losses 44,339,555 1,090,9

Net (Loss) Income (37,033,231) 2,105,27

Unrealized gain on available-for-sale securities, net (Note 3) 1,891,144 125,086

Unrealized postretirement benefit gain (Note 11) 5,340 17,366

Comprehensive (Loss) Income (35,136,747) 2,247,72

Fund Balance – Beginning 52,413,036 50,165,307

Fund Balance – Ending $17,276,289 $52,413,0

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

Deposit Insurance Fund Statement of 

for the Years Ended D

Dollars in Thousands
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 81

CHAPTER 4 ★ Financ

2008 2007

Operating Activitie

Net (Loss) Income: $(37,033,231) $2,105,277

Adjustments to reconcile net income to net cash provided by 

operating activities:

Amortization of U.S. Treasury obligations 457,289 571,267 

Treasury inflation-protected securities (TIPS) inflation adjustment (271,623) (313,836)

Gain on sale of U.S. Treasury obligations (774,935) 0

Depreciation on property and equipment 55,434 63,115

Loss on retirement of property and equipment 447 153 

Provision for insurance losses 41,838,835 95,016 

Unrealized gain on postretirement benefits 5,340 17,366 

Systemic risk expenses (2,352) 0

Change In Operating Assets and Liabiliti

(Increase) in assessments receivable, net (773,905) (244,581)

Decrease/(Increase) in interest receivable and other assets 402,225 (20,442

(Increase) in receivables from resolutions (28,283,491) (350,309)

(Increase) in receivable – systemic risk (21,285) 0

(Decrease) in accounts payable and other liabilities (34,667) (39,580

(Decrease) in postretirement benefit liability (2,034) (13,748

Increase in guarantee obligations – systemic risk 2,377,387 0 

Net Cash (Used by) Provided by Operating Activities (22,060,566)

Investing Activities

Provided by

Maturity of U.S. Treasury obligations, held-to-maturity 3,304,350 6,401,000

Maturity of U.S. Treasury obligations, available-for-sale 3,930,226 1,225,000

Sale of U.S. Treasury obligations 13,974,732 0

Used by

Purchase of property and equipment (4,472) (1,607)

Purchase of U.S. Treasury obligations, held-to-maturity 0 (7,706,117)

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

Net Cash Provided by (Used by) Investing Activities 21,204,836 (57

Net (Decrease)/Increase in Cash and Cash Equivalents (855,730) 1,

Cash and Cash Equivalents - Beginning 4,244,547 2,95

Unrestricted Cash and Cash Equivalents – Ending 1,011,430 4,244,547

Restricted Cash and Cash Equivalents –Ending 2,377,387 0

Cash and Cash Equivalents - Ending $3,388,817 $4,

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

Deposit Insurance Fund Statem

for the Years Ended D

Dollars in Thousands
82 2 0 0 8 A n n u l R e p or

1.	 Legislation and

Operations of th

Deposit Insurance Fund

Overvie

The Federal Deposit Insurance Corporation (FDIC) 

is the independent deposit insurance agency 

created by Congress in 1933 to maintain stability 

and public confidence in the nation’s banking 

system. Provisions that govern the operations of the 

FDIC are generally found in the Federal Deposit 

Insurance (FDI) Act, as amended, (12 U.S.C. 1811, 

et seq.) In carrying out the purposes of the FDI 

Act, as amended, the FDIC insures the deposits of 

banks and savings associations (insured depository 

institutions), and in cooperation with other federal 

and state agencies promotes the safety and 

soundness of insured depository institutions by 

identifying, monitoring and addressing risks to the 

deposit insurance fund. An active institution’s 

primary federal supervisor is generally determined 

by the institution’s charter type. Commercial and 

savings banks are supervised by the FDIC, the 

Office of the Comptroller of the Currency, or the 

Federal Reserve Board, while thrifts are supervised 

by the Office of Thrift Supervision. 

The FDIC is the administrator of the Deposit 

Insurance Fund (DIF). The DIF is responsible for 

protecting insured bank and thrift depositors from 

loss due to institution failures. The FDIC is 

required by 12 U.S.C. 1823(c) to resolve troubled 

institutions in a manner that will result in the least 

possible cost to the deposit insurance fund unless a 

systemic risk determination is made that 

compliance with the least-cost test would have 

serious adverse effects on economic conditions or 

financial stability and any action or assistance 

taken under the systemic risk determination would 

avoid or mitigate such adverse effects. The systemic 

risk provision requires the FDIC to recover any 

related losses to the DIF through one or more 

emergency special assessments from all insured 

depository institutions. See Note 14 for a detailed 

explanation of 2008 systemic risk transactions. 

The FDIC is also the administrator of the FSLIC 

Resolution Fund (FRF). 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. The DIF and the FRF are maintained 

separately to carry out their respective mandates.

Recent Legislatio

The Emergency Economic Stabilization Act of 2008 

(EESA), legislation to help stabilize the financial 

markets, was enacted on October 3, 2008, and 

significantly affects the FDIC. The legislation 

requires that the FDIC participate, through a consultation role, in the establishment of the troubled 

asset relief program (known as TARP) and provides 

that the FDIC is eligible to act as an asset manager 

for residential mortgage loans and residential mortgage-backed securities on a reimbursable basis. 

In addition, the legislation identifies the FDIC as a 

Federal property manager with respect to mortgage 

loans and mortgage-backed securities held by any 

bridge depository institution pursuant to section 

11(n) of the FDI Act. As a Federal property manager, the FDIC is responsible for implementing a 

plan that maximizes assistance for homeowners and 

encourages servicers to take advantage of programs 

to minimize foreclosures for the affected assets.

The legislation also directly affects the FDIC as 

deposit insurer by providing for 1) a temporary 

increase in FDIC deposit insurance coverage from 

$100,000 to $250,000 from the date of enactment of 

the legislation through December 31, 2009 and 2) a 

temporary removal of limitations on borrowing in 

sections 14(a) and 15(c) of the FDI Act for purposes 

of carrying out the increase in the maximum 

deposit insurance amount for the duration of the 

increased coverage. EESA expressly provides that 

the temporary deposit insurance increase is not to 

be taken into account by the FDIC in setting 

assessments under section 7(b) of the FDI Act. (See 

Note 15, Subsequent Events – Legislative Update.)

The Federal Deposit Insurance Reform Act of 2005 

(Title II, Subtitle B of Public Law 109-171, 120 Stat. 

9) and the Federal Deposit Insurance Reform 

Conforming Amendments Act of 2005 (Public Law 

109-173, 119 Stat. 3601) were enacted in February 

2006. Pursuant to this legislation (collectively, the 

Reform Act), the Bank Insurance Fund and the 

Savings Association Insurance Fund were merged 

into the DIF, and the FDIC permanently increased 

coverage for certain retirement accounts to 
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 83

CHAPTER 4 ★ Financ

$250,000. Additionally, the Reform Act: 1) provides 

the FDIC with greater discretion to charge insurance assessments and to impose more sensitive 

risk-based pricing; 2) annually permits the 

designated reserve ratio (DRR) to vary between 

1.15 and 1.50 percent of estimated insured deposits; 

3) generally requires the declaration and payment 

of dividends from the DIF if the reserve ratio of the 

DIF equals or exceeds 1.35 percent of estimated 

insured deposits at the end of a calendar year; 4) 

grants a one-time assessment credit for each 

eligible insured depository institution or its 

successor based on an institution’s proportionate 

share of the aggregate assessment base of all eligible 

institutions at December 31, 1996; and 5) allows the 

FDIC to increase all deposit insurance coverage, 

under certain circumstances, to reflect inflation 

every five years beginning January 1, 2011. See 

Note 8 for additional discussion on the reforms 

related to assessments. (See Note 15, Subsequent 

Events – Legislative Update.)

Operations of the DI

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

deposits and protect the depositors of DIF-insured 

institutions and 2) resolve DIF-insured failed institutions upon appointment of FDIC as receiver in a 

manner that will result in the least possible cost to 

the DIF. 

The DIF is primarily funded from: 1) interest 

earned on investments in U.S. Treasury obligations 

and 2) deposit insurance assessments. Additional 

funding sources, if necessary, are borrowings from 

the U.S. Treasury, Federal Financing Bank (FFB), 

Federal Home Loan Banks, and insured depository 

institutions. The FDIC has borrowing authority 

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

Purchase Agreement with the FFB not to exceed 

$100 billion to enhance DIF’s ability to fund deposit 

insurance obligations. (See Note 15, Subsequent 

Events – Legislative Update.)

A statutory formula, known as the Maximum 

Obligation Limitation (MOL), limits the amount of 

obligations the DIF can incur to the sum of its cash, 

90 percent of the fair market value of other assets, 

and the amount authorized to be borrowed from 

the U.S. Treasury. The MOL for the DIF was $69.0 

billion and $83.6 billion as of December 31, 2008 

and 2007, respectively. The EESA of 2008 provides 

that, in connection with the new, temporary 

increase in the basic deposit insurance coverage 

limit from $100,000 to $250,000, the FDIC may 

borrow from the U.S. Treasury to carry out the 

increase in the maximum deposit insurance 

amount without regard to the MOL or the 

$30 billion limit.

Receivership and Conservators

Operation

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 and conservatorship entities, and the 

claims against them, are accounted for separately 

from DIF assets and liabilities to ensure that 

receivership and conservatorship proceeds are 

distributed in accordance with applicable laws and 

regulations. Accordingly, income and expenses 

attributable to receiverships and conservatorships 

are accounted for as transactions of those entities. 

Both are billed by the FDIC for services provided 

on their behalf.

2.	 Summary of Signific

Accounting Polici

General

These financial statements pertain to the financial 

position, results of operations, and cash flows of the 

DIF and are presented in conformity with U.S. 

generally accepted accounting principles (GAAP). 

These statements do not include reporting for 

assets and liabilities of closed banks and thrifts for 

which the FDIC acts as receiver or conservator. 

Periodic and final accountability reports of the 

FDIC’s activities as receiver or conservator are 

furnished to courts, supervisory authorities, and 

others as required.

Use of Estima

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 
84 2 0 0 8 A n n u l R e p or

significant estimates include the assessments 

receivable and associated revenue, the allowance for 

loss on receivables from resolutions, the estimated 

losses for anticipated failures, systemic risk and 

litigation, and the postretirement benefit obligation. 

Cash Equivale

Cash equivalents are short-term, highly liquid 

investments consisting primarily of U.S. Treasury 

Overnight Certificates.

Investment in U.S. Treas

Obligation

DIF funds are required to be invested in obligations 

of the United States or in obligations guaranteed as 

to principal and interest by the United States; the 

Secretary of the U.S. Treasury must approve all 

such investments in excess of $100,000. The 

Secretary has granted approval to invest DIF funds 

only in U.S. Treasury obligations that are purchased 

or sold exclusively through the Bureau of the Public 

Debt’s Government Account Series (GAS) program.

DIF’s investments in U.S. Treasury obligations are 

classified as available-for-sale. Securities designated 

as available-for-sale are shown at market value, 

which approximates fair value. Unrealized gains 

and losses are reported as other comprehensive 

income. Realized gains and losses are included in 

the Statement of Income and Fund Balance as 

components of Net Income. Income on securities is 

calculated and recorded on a daily basis using the 

effective interest method. 

Prior to 2008, DIF’s investments in U.S. Treasury 

obligations were classified as either held-to-maturity or available-for-sale based on the FDIC’s 

assessment of funding needs. Securities designated 

as held-to-maturity were shown at amortized cost. 

Amortized cost is the face value of securities plus 

the unamortized premium or less the unamortized 

discount. Amortizations were computed on a daily 

basis from the date of acquisition to the date of 

maturity, except for callable U.S. Treasury securities, which were amortized to the first call date.

See Note 3 for an explanation of the transfer of 

DIF’s held-to-maturity securities to the availablefor-sale category.

Revenue Recognition for Assessme

The FDIC collects deposit insurance premiums 

from each insured depository institution at the end 

of the quarter following the period of insurance 

coverage. As a result, assessment revenue for the 

insured period is recognized based on an estimate. 

The estimate is derived from an institution’s riskbased assessment rate and assessment base for the 

prior quarter; adjusted for the current quarter’s 

available assessment credits, any changes in 

supervisory examination and debt issuer ratings for 

larger institutions, and a modest deposit insurance 

growth factor. 

The estimated revenue amounts are adjusted when 

actual premiums are collected at quarter end. Total 

assessment income recognized for the year includes 

estimated revenue for the October-December 

assessment period. See Note 8 for additional 

information on assessments.

Capital Assets and Depreciatio

The FDIC buildings are depreciated on a straightline basis over a 35 to 50 year estimated life. 

Leasehold improvements are capitalized and 

depreciated over the lesser of the remaining life of 

the lease or the estimated useful life of the 

improvements, if determined to be material. 

Capital assets depreciated on a straight-line basis 

over a five-year estimated life include mainframe 

equipment; furniture, fixtures, and general 

equipment; and internal-use software. Personal 

computer equipment is depreciated on a 

straight-line basis over a three-year estimated life.

Disclosure about Recent Accounti

Pronouncement

Effective as of January 1, 2008, DIF adopted 

Statement of Financial Accounting Standards 

(SFAS) No. 157, Fair Value Measurements, on a 

prospective basis. The Statement defines fair value, 

establishes a framework for measuring fair value, 

outlines a fair value hierarchy based on the inputs 

to valuation techniques used to measure fair value, 

and expands financial statement disclosures about 

fair value measurements. 

SFAS No. 157 defines fair value as the price that 

would be received to sell an asset or paid to transfer 

a liability (an exit price) in an orderly transaction 
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 85

CHAPTER 4 ★ Financ

between market participants at the measurement 

date. In measuring fair value, the Standard requires 

the use of fair value valuation techniques consistent 

with the market, income, and/or cost approach. The 

Statement establishes a three-level hierarchy for 

inputs used in measuring fair value that maximizes 

the use of observable inputs and minimizes the use 

of unobservable inputs. Assets and liabilities are 

classified within this hierarchy in their entirety 

based on the lowest level of any input that is significant to the fair value measurement. See Note 13 for 

specifics regarding fair value measurements.

In February 2007, the Financial Accounting 

Standards Board issued SFAS No. 159, The Fair 

Value Option for Financial Assets and Financial 

Liabilities - Including an Amendment of FASB 

Statement No. 115. SFAS No. 159 creates a fair value 

option allowing, but not requiring, an entity to 

irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial 

assets and financial liabilities with changes in fair 

value recognized in earnings as they occur. The 

Statement requires entities to separately display the 

fair value of those assets and liabilities for which 

the entity has chosen to use fair value on the face of 

the balance sheet. As of December 31, 2008, the 

FDIC has currently chosen not to elect the fair 

value option for any items that are not already 

required to be measured at fair value in accordance 

with GAAP.

Related Part

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.

3. 	 Investment in

U.S. Treasu

Obligations, 

As of December 31, 2008 and 2007, investments in 

U.S. Treasury obligations, net, were $27.9 billion 

and $46.6 billion, respectively. As of December 31, 

2008, the DIF held $2.7 billion of Treasury 

inflation-protected securities (TIPS). These 

securities are indexed to increases or decreases in 

the Consumer Price Index for All Urban 

Consumers (CPI-U). Additionally, the fair value of 

callable U.S. Treasury bonds held at December 31, 

2008 is $3.0 billion. 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.

In June 2008, the Corporation transferred all of 

DIF’s held-to-maturity investments to the availablefor-sale category. Management determined that it 

no longer had the positive intent and ability to hold 

its investment in securities classified as held-tomaturity for an indefinite period of time because of 

significant actual and potential resolution-related 

outlays for DIF-insured institutions. The securities 

transferred had a total amortized cost of $34.5 

billion, fair value of $36.1 billion, and unrealized 

gains of $1.6 billion, which were recorded as other 

comprehensive income at the time of transfer.

For the year ended December 31, 2008, availablefor-sale securities were sold for total proceeds 

of $14.1 billion. The gross realized gains on these 

sales totaled $775 million. To determine gross 

r­ealized gains, the cost of securities sold is based o

specific identification. Net unrealized holding gains 

on available-for-sale securities of $1.9 billion are 

included in other comprehensive income. 
86 2 0 0 8 A n n u l R e p or

U.S. Treasury Obligations at

Dollars in Thousands

Maturity(a

Yield at

Purchase(b) Face Valu

Ne

Carryin

Amount

Unrealize

Holdin

Gains

Unrealize

Holdin

Losses(c) Fair Value

Available-for-Sale

U.S. Treasury notes and bon

Within 1 year 4.25% $6,192,000 $6,350,921 $130,365 $0 $6,481,286

After 1 year through 5 years 4.72% 9,503,000 9,451,649 1,030,931 0 10,482,580

After 5 years through 10 years 4.79% 6,130,000 7,090,289 1,142,753 0 8,233,042

U.S. Treasury inflation-protected securiti

Within 1 year 3.82% 726,550 726,561 0 (5,627) 720,934 

After 1 year through 5 years 3.14% 1,973,057 1,989,608 0 (48,370) 1,941,238 

Total Investment in U.S. Treasury Obligations, Net

Total $24,524,607 $25,609,028 $2,304,049 $(53,997) $27,859,080

(a) 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.

(b) For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a

long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on figures 

issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2008. 

(c) The unrealized losses on the U.S. Treasury inflation-protected securities (TIPS) is attributable to the two month delay in adjusting TIPS’ 

principal for changes in the November and December Consumer Price Index for all Urban Consumers. As the losses occurred over a period

less than a year and the December 31, 2008 unrealized losses converted to unrealized gains by February 28, 2009, the FDIC does no

consider these securities to be other than temporarily impaired at December 31, 2008
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 87

CHAPTER 4 ★ Financ

U.S. Treasury Obligations at

Dollars in Thousands

Maturity(a

Yield at

Purchase(b) Face Valu

Ne

Carryin

Amount

Unrealize

Holdin

Gains

Unrealize

Holdin

Losses(c)

Marke

Value

Held-to-Maturity

U.S. Treasury notes and bon

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

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

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

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

U.S. Treasury inflation-protected securiti

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

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

Total $35,117,588 $38,015,174 $1,551,232 $(469) $39,565,937

Available-for-Sale

U.S. Treasury notes and bon

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

U.S. Treasury inflation-protected securiti

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

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

Total $8,204,822 $8,213,892 $358,908 $ 0 $8,572,800

Total Investment in U.S. Treasury Obligations, Net

Total $43,322,410 $46,229,066 $1,910,140 $(469) $48,138,737

(a) 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.

(b) For TIPS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIPS include a

long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2 percent, based on figures 

issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2007.

(c) All unrealized losses occurred as a result of changes in market interest rates. FDIC had the ability and intent to hold the related securities

until maturity. As a result, all unrealized losses are considered temporary. However, all of the $469 thousand reported as total unrealized 

losses is recognized as unrealized losses occuring over a period of 12 months or longer with a market value of $1.1 billion applied to the 

affected securities.

As of December 31, 2008 and 2007, the unamortized premium, net of the unamortized discount, was $1.1 

billion and $2.9 billion, respectively.
88 2 0 0 8 A n n u l R e p or

4.	 Receivables Fro

Resolutions, 

The receivables from resolutions include payments 

made by the DIF to cover obligations to insured 

depositors, advances to receiverships and conservatorships for working capital, and administrative 

expenses paid on behalf of receiverships and 

conservatorships. Any related allowance for loss 

represents the difference between the funds 

advanced and/or obligations incurred and the 

expected repayment. Assets held by DIF 

receiverships and conservatorships are the main 

source of repayment of the DIF’s receivables from 

resolutions. As of December 31, 2008, there were 41 

active receiverships, including 25 from institution 

failures that occurred in the current year, and one 

active conservatorship resulting from the IndyMac 

Bank resolution. 

As of December 31, 2008 and 2007, DIF receiverships and conservatorships held assets with a book 

value of $45.8 billion and $1.2 billion, respectively 

(including cash, investments, and miscellaneous 

receivables of $5.1 billion and $363 million, 

respectively). The large increase in DIF receivership 

and conservatorship assets is due to the 2008 

failures. These comprised $40.2 billion or 99% of 

the current $40.7 billion in assets in liquidation 

book values. Due to the sudden increase of 

receivership and conservatorship assets since May 

2008, the FDIC modified its process of computing 

the allowance for loss.

For those receiverships established prior to May 

2008, the estimated cash recoveries from the 

management and disposition of assets that are used 

to derive the allowance for losses were based on a 

sampling of receivership assets in liquidation. 

Sampled assets were generally valued by estimating 

future cash recoveries, net of applicable liquidation 

cost estimates, and then discounted using current 

market-based risk factors applicable to a given 

asset’s type and quality. Resultant recovery 

estimates were extrapolated to the non-sampled 

assets in order to derive the allowance for loss on 

the receivable.

Estimated cash recoveries on those receiverships 

and conservatorships established since May 2008 

are based on asset recovery rates derived from 

several sources including: actual or pending 

institution-specific asset liquidation data; failed 

institution-specific asset valuation data; aggregate 

asset valuation data on several recently failed or 

troubled institutions; and empirical asset recovery 

data based on failures as far back as 1990. The 

resulting estimated cash recoveries are then used to 

derive the allowance for loss on the receivables 

from these resolutions. Ninety-nine percent of total 

receivership assets in liquidation were valued by 

this methodology.

Estimated asset recoveries are regularly evaluated, 

but remain subject to uncertainties because of 

potential changes in economic and market conditions. Recent economic uncertainties could cause 

the DIF’s actual recoveries to vary significantly 

from current estimates. 

Financial instruments that potentially subject the 

DIF to concentrations of credit risk are receivables 

from resolutions. The main source of repayment of 

DIF’s receivables from resolutions are assets held by 

DIF receiverships. Excluding the assets of the 

IndyMac Bank resolution (see below), the majority 

of the $15.0 billion in assets in liquidation are concentrated in commercial loans ($2.8 billion), 

commercial real estate ($6.2 billion), and residential 

loans ($2.6 billion), which were primarily retained 

from institutions that failed in 2008. Eighty-six 

percent of the assets in these three asset types were 

retained from failed banks located in Nevada ($4.0 

billion), Texas ($2.9 billion), Georgia ($2.2 billion), 

and Arkansas ($.9 billion). The assets of the 

IndyMac Federal Bank, FSB conservatorship are 

excluded from this analysis since the FDIC signed a 

letter of intent at year-end 2008 to sell the banking 

operations of IndyMac Federal Bank to a thrift 

holding company (see below).

Receivables From R

Net at Dece

Dollars in Thousands

2008 2007

Receivables from 

closed banks $27,389,467 $4,991,003

Receivables from 

operating banks 9,406,278 0

Allowances for losses (21,030,280) (4,182,931)

Total $15,765,465 $808,072
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 89

CHAPTER 4 ★ Financ

interest of cash flows in a separate $2.4 billion portfolio of mostly construction loans.

In addition, the FDIC offered representations and 

warranties on loan sales from the conservatorship. 

The total amount of loans sold subject to representations and warranties was $3.2 billion. No 

contingent liabilities associated with these representations and warranties were recorded at December 

31, 2008. However, future losses could be incurred 

through the expiration date of the contracts offering the representations and warranties, some as late 

as 2048. Furthermore, because of the uncertainties 

surrounding the timing of when claims may be 

asserted, the FDIC is unable to reasonably estimate 

a range of loss to the DIF from outstanding 

contracts with unasserted representation and 

warranty claims. The FDIC believes it is possible 

that additional losses may be incurred by the DIF 

from the universe of outstanding contracts with 

unasserted representation and warranty claims. 

5.	 Property an

Equipment, 

The depreciation expense was $55 million and 

$63 million for December 31, 2008 and 2007, 

respectively.

IndyMac Federal Ban

On July 11, 2008, IndyMac Bank, FSB, Pasadena, 

CA was closed by the Office of Thrift Supervision, 

with the FDIC named receiver. IndyMac Bank was 

the third largest insolvency in FDIC history with 

$28.0 billion in total assets at failure. The FDIC 

transferred the insured deposits and substantially 

all the assets of the failed bank to IndyMac Federal 

Bank, FSB, a newly-chartered federal institution 

that the FDIC operated as a conservator to maximize the value of the institution for a future sale. 

Through December 31, 2008, the DIF disbursed 

$5.8 billion to fund the obligations to insured 

depositors of IndyMac Bank and $9.4 billion to the 

conservatorship to fund its operations under a $12 

billion line of credit. These amounts are included in 

the chart above in the receivables from closed banks 

and operating banks, respectively. Additionally, DIF 

recorded a $10.7 billion allowance for loss against 

these receivables. 

On December 31, 2008, the FDIC signed a letter of 

intent to sell the banking operations of IndyMac 

Federal Bank to a thrift holding company 

controlled by IMB Management Holdings LP, a 

limited partnership, for $13.9 billion. On March 19, 

2009, the FDIC completed the sale of IndyMac 

Federal Bank, FSB, to One West Bank, FSB (One 

West), a newly formed Pasadena, California-based 

federal savings bank organized by IMB HoldCo 

LLC. One West purchased all deposits and 

approximately $20.7 billion in assets at a discount 

of $4.7 billion. The FDIC retained the remaining 

assets for later disposition. 

The sale includes a provision wherein the IndyMac 

receiver will share losses on a $13 billion portfolio 

of whole mortgage loans with the buyer fully 

assuming the first 20 percent of losses after which 

the receiver will share 80 percent for the next 10 

percent of losses and 95 percent thereafter, with the 

buyer responsible for the remainder. The shared 

loss agreement will expire on the earlier of: 1) 10 

years, 2) the date the buyer liquidates the portfolio, 

or 3) when the remaining outstanding balance 

reaches 10 percent of the closing date balances. The 

liability for loss sharing is accounted for by the 

IndyMac receiver and is considered in the determination of the DIF’s allowance for loss of $10.7 

billion against the corporate receivable from this 

resolution. The FDIC will also retain an 80 percent 

Property and 

Net at Dece

Dollars in Thousands

2008 2007

Land $37,352 $37,352

Buildings (including 

leasehold 

improvements) 281,401 276,626

Application

software (includes 

work-in-process) 173,872 145,693

Furniture, fixtures, 

and equipment 84,574 71,138

Accumulated 

depreciation (208,438) (178,948)

Total $368,761 $351,861
90 2 0 0 8 A n n u l R e p or

6.	 Liabilities Due

to Resolutio

As of December 31, 2008, DIF recorded liabilities 

totaling $4.7 billion to three receiverships 

(IndyMac Bank, Downey Savings & Loan, and PFF 

Bank & Trust) representing the value of assets 

transferred from the receiverships to the acquirer/

conservator for use in funding the deposits 

assumed by the acquirer/conservator.

7.	 Contingent Liabilities for

Anticipated Failure of Insured

Institutions

The DIF records a contingent liability and a loss 

provision for DIF-insured institutions that are 

likely to fail within one year of the reporting date, 

absent some favorable event such as obtaining 

additional capital or merging, when the liability 

becomes probable and reasonably estimable.

The contingent liability is derived by applying 

expected failure rates and loss rates to institutions 

based on supervisory ratings, balance sheet characteristics, and projected capital levels. In addition, 

institution-specific analysis is performed on those 

institutions where failure is imminent absent institution management resolution of existing problems, 

or where additional information is available that 

may affect the estimate of losses. Due to the rapid 

deterioration in industry conditions, the FDIC 

modified the process of establishing the loss reserve 

by identifying vulnerable institutions deemed likely 

to have failure risks similar to those on the problem 

bank list based on certain financial ratios and other 

risk measures. The FDIC also increased loss rates 

for institutions included in the reserve to reflect the 

results of recent valuations of loan portfolios of 

imminent failures and current year resolutions. As 

of December 31, 2008 and 2007, the contingent liabilities for anticipated failure of insured institutions 

were $24.0 billion and $124.3 million, respectively. 

In addition to these recorded contingent liabilities, 

the FDIC has identified risk in the financial 

services industry that could result in an additional 

loss to the DIF should potentially vulnerable 

insured institutions ultimately fail. As a result of 

these risks, the FDIC believes that it is reasonably 

possible that the DIF could incur additional 

estimated losses up to approximately $25.1 billion. 

The actual losses, if any, will largely depend on 

future economic and market conditions and could 

differ materially from this estimate.

During 2008, financial market disruptions evolved 

into a crisis that challenged the soundness and 

profitability of some FDIC-insured institutions. 

Declining housing and equity prices, financial 

market turmoil, and deteriorating economic 

conditions exerted significant stress on banking 

industry performance and threatened the viability 

of some institutions, particularly those that had 

significant exposure to higher risk residential 

mortgages or residential construction loans. In 

2008, 25 banks with combined assets of about $361 

billion failed. It is uncertain how long and how 

deep this downturn will be. Supervisory and market data suggest that the banking industry will 

continue to experience elevated levels of stress over 

the coming year. The FDIC continues to evaluate 

the ongoing risks to affected institutions in light of 

the deterioration in economic and financial conditions, and the effect of such risks will continue to 

put stress on the resources of the insurance fund.

Litigation Losses

The DIF records an estimated loss for unresolved 

legal cases to the extent that those losses are 

considered probable and reasonably estimable. The 

FDIC recorded a probable litigation loss of $200 

million and has determined that there are no 

reasonably possible losses from unresolved cases.

Other Contingenc

Representations and Warranties

As part of the FDIC’s efforts to maximize the 

return from the sale of assets from bank and thrift 

resolutions, representations and warranties, and 

guarantees were offered on certain loan sales. In 

general, the guarantees, representations, and warranties on loans sold relate to the completeness and 

accuracy of loan documentation, the quality of the 

underwriting standards used, the accuracy of the 

delinquency status when sold, and the conformity 

of the loans with characteristics of the pool in 

which they were sold. With the exception of the 

IndyMac resolution described in Note 4, there were 
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 91

CHAPTER 4 ★ Financ

no loans sold subject to representations and 

warranties, and guarantees during 2008. As of 

December 31, 2008, the total amount of loans sold 

subject to unexpired representations and 

warranties, and guarantees was $8.1 billion. There 

were no contingent liabilities from any of the 

outstanding claims asserted in connection with 

representations and warranties at December 31, 

2008 and 2007, respectively.

In addition, future losses could be incurred until 

the contracts offering the representations and 

warranties, and guarantees have expired, some as 

late as 2032. Consequently, the FDIC believes it is 

possible that additional losses may be incurred by 

the DIF from the universe of outstanding contracts 

with unasserted representation and warranty 

claims. However, because of the uncertainties 

surrounding the timing of when claims may be 

asserted, the FDIC is unable to reasonably estimate 

a range of loss to the DIF from outstanding 

contracts with unasserted representation and 

warranty claims.

Purchase and Assumptio

Indemnification

In connection with Purchase and Assumption 

agreements for resolutions in 2008 and 2007, FDIC 

in its receivership capacity generally indemnifies 

the purchaser of a failed institution’s assets and 

liabilities in the event a third party asserts a claim 

against the purchaser unrelated to the explicit 

assets purchased or liabilities assumed at the time 

of failure. The FDIC in its Corporate capacity is a 

secondary guarantor if and when a receiver is 

unable to pay. These indemnifications generally 

extend for a term of six years after the date of 

institution failure. The FDIC is unable to estimate 

the maximum potential liability for these types of 

guarantees as the agreements do not specify a maximum amount and any payments are dependent 

upon the outcome of future contingent events, the 

nature and likelihood of which cannot be 

determined at this time. During 2008 and 2007, the 

FDIC in its Corporate capacity has not made any 

indemnification payments under such agreements 

and no amount has been accrued in the accompanying financial statements with respect to these 

indemnification guarantees (see Note 15).

8.	 Assessments

Effective January 1, 2007, the Reform Act requires 

payment of assessments by all insured depository 

institutions and continues to require a risk-based 

assessment system. The Act allows the FDIC discretion in defining risk and, by regulation, the FDIC 

has established several assessment risk categories 

based upon supervisory and capital evaluations. 

Other significant changes mandated by the Reform 

Act and the implementing regulations included: 

granting a one-time assessment credit of 

approximately $4.7 billion to certain eligible 

insured depository institutions (or their successors) based on the assessment base of the 

institution as of December 31, 1996, as compared 

to the combined aggregate assessment base of all 

eligible institutions; 

establishing a range for the DRR from 1.15 to 

1.50 percent of estimated insured deposits. The 

FDIC is required to annually publish the DRR 

and has set the DRR at 1.25 percent for 2009. As 

of December 31, 2008, the DIF reserve ratio was 

0.36 percent of estimated insured deposits;

requiring the FDIC to adopt a DIF restoration 

plan to return the reserve ratio to 1.15 percent generally within five years, if the reserve 

ratio falls below 1.15 percent or is expected 

to fall below 1.15 percent within six months. 

On October 7, 2008, the FDIC established a 

Restoration Plan for the DIF (see Note 15);

requiring the FDIC to annually determine if a 

dividend should be paid, based on the statutory 

requirement generally to declare dividends if the 

reserve ratio exceeds 1.35 percent at the end of a 

calendar year. The Reform Act permits dividends 

for one-half of the amount required to maintain 

the reserve ratio at 1.35 percent when the reserve 

ratio is between 1.35 and 1.50 percent and all 

amounts required to maintain the reserve ratio at 

1.50 percent when the reserve ratio exceeds 1.50 

percent. On December 2, 2008, the FDIC issued 

a final rule specifying that the FDIC Board will 

declare any dividend on or before May 10th of 

the year following the calendar year-end trigger, 

subject to statutory factors limiting or suspending the dividend. Dividends declared will be 

offset against the June 30th assessment payment 

and any remaining dividend amount will result 

in a payment to the depository institution.

 ́

 ́

 ́

 ́
92 2 0 0 8 A n n u l R e p or

Assessments continue to be levied on institutions 

for payments of the interest on obligations issued 

by the FICO. The FICO was established as a mixedownership government corporation to function 

solely as a financing vehicle for the FSLIC. The 

annual FICO interest obligation of approximately 

$790 million is paid on a pro rata basis using the 

same rate for banks and thrifts. The FICO 

assessment has no financial impact on the DIF and 

is separate from deposit insurance assessments. The 

FDIC, as administrator of the DIF, acts solely as a 

collection agent for the FICO. During 2008 and 

2007, $785 million each year was collected and 

remitted to the FICO.

9.	 Operating Expen

Operating expenses were $1 billion for 2008, 

compared to $993 million for 2007. The chart below 

lists the major components of operating expenses.

The assessment rate averaged approximately 4.18 

cents and .93 cents per $100 of assessable deposits 

for 2008 and 2007, respectively. At December 31, 

2008, the “Assessments Receivable, net” line item of 

$1.02 billion represents the estimated gross premiums due from insured depository institutions for 

the fourth quarter of the year, net of $144 million in 

estimated one-time assessment credits. The actual 

deposit insurance assessments for the fourth 

quarter was billed and collected at the end of the 

first quarter of 2009. During 2008 and 2007, $2.96 

billion and $643 million, respectively, were 

recognized as assessment income from institutions.

Of the $4.7 billion in one-time assessment credits 

granted, $200 million (4.3 percent) remained as of 

December 31, 2008. The use of assessment credits is 

limited to no more than 90 percent of the gross 

assessments for assessment periods that provide 

deposit insurance coverage through 2010. Credits 

are restricted for institutions that are not adequately 

capitalized or exhibit financial, operational or 

compliance weaknesses. The credits can only be 

used to offset future deposit insurance assessments 

and, therefore, do not represent a liability to the 

DIF. They are transferable among institutions, do 

not expire, and cannot be used to offset Financing 

Corporation (FICO) payments.

dif assessments Re

Years Ended Dece

Dollars in Thousands

2008 2007

Gross assessments $4,410,455 $3,730,886

Less: One-time 

assessment credits 

applied (1,445,937) (3,087,958)

Assessment

Revenue $2,964,518 $642,92

Operating Expen

Years Ended Dece

Dollars in Thousands

2008 2007

Salaries and benefits $702,040 $640,294

Outside services 159,170 137,812

Travel 67,592 55,281

Buildings and 

leased space 53,630 61,377

Software/Hardware 

maintenance 29,312 28,542

Depreciation of

property and 

equipment 55,434 63,115

Other 32,198 23,640

Services billed to 

receiverships (59,608) (17,491)

Services billed to 

conservatorships (6,278) 0

Total $1,033,490 $992,570
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 93

CHAPTER 4 ★ Financ

10.	 Provision fo

Insurance Losses

Provision for insurance losses was $41.8 billion for 

2008 and $95 million for 2007. The following chart 

lists the major components of the provision for 

insurance losses.

11.	 Employee Benefit

Pension Benefits and Savings 

Eligible FDIC employees (permanent and term 

employees with appointments exceeding one year) 

are covered by the federal government retirement 

plans, either the Civil Service Retirement System 

(CSRS) or the Federal Employees Retirement 

System (FERS). Although the DIF contributes a 

portion of pension benefits for eligible employees, it 

does not account for the assets of either retirement 

system. The DIF also does not have actuarial data 

for accumulated plan benefits or the unfunded 

liability relative to eligible employees. These 

amounts are reported on and accounted for by the 

U.S. Office of Personnel Management (OPM).

Eligible FDIC employees also may participate in a 

FDIC-sponsored tax-deferred 401(k) savings plan 

with matching contributions up to five percent. 

Under the Federal Thrift Savings Plan (TSP), FDIC 

provides FERS employees with an automatic 

contribution of 1 percent of pay and an additional 

matching contribution up to 4 percent of pay. CSRS 

employees also can contribute to the TSP. However, 

CSRS employees do not receive agency matching 

contributions.

Postretirement Benefit

Other Than Pensi

The DIF has no postretirement health insurance 

liability, since all eligible retirees are covered by the 

Federal Employees Health Benefit (FEHB) program. 

FEHB is administered and accounted for by the 

OPM. In addition, OPM pays the employer share of 

the retiree’s health insurance premiums.

The FDIC provides certain life and dental insurance coverage for its eligible retirees, the retirees’ 

beneficiaries, and covered dependents. Retirees 

eligible for life and dental insurance coverage are 

those who have qualified due to: 1) immediate 

enrollment upon appointment or five years of 

participation in the plan and 2) eligibility for an 

immediate annuity. The life insurance program 

provides basic coverage at no cost to retirees and 

allows converting optional coverages to direct-pay 

plans. For the dental coverage, retirees are 

responsible for a portion of the dental premium. 

Pension Benefi

Plans Expenses  fo

Ended Decemb

Dollars in Thousands

2008 2007

Civil Service 

Retirement System $6,204 $6,698

Federal Employees

Retirement System 

(Basic Benefit) 44,073 40,850

FDIC Savings Plan 21,786 21,00

Federal Thrift 

Savings Plan 16,659 15,938

Severance Pay 0 59

Total $88,722 $84,553

Provision for Insurance

for the Years Ended D

Dollars in Thousands

2008 2007

Valuation Adjustments

Closed banks 

and thrifts $17,974,530 $81,229

Other assets 7,377 286

Total Valuation 

Adjustments $17,981,907 $81,515

Contingent Liabilities Adjustments

Anticipated failure of 

insured institutions 23,856,928 13,501

Total Contingent 

Liabilities 

Adjustments 23,856,928 13,501

Total $41,838,835 $95,016
94 2 0 0 8 A n n u l R e p or

The FDIC has elected not to fund the postretirement life and dental benefit liabilities. As a result, 

the DIF recognized the underfunded status (difference between the accumulated postretirement 

benefit obligation and the plan assets at fair value) 

as a liability. Since there are no plan assets, the 

plan’s benefit liability is equal to the accumulated 

postretirement benefit obligation. At December 31, 

2008 and 2007, the liability was $114.1 million and 

$116.2 million, respectively, which is recognized in 

the “Postretirement benefit liability” line item on 

the Balance Sheet. The cumulative actuarial gains/

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

plan provisions that increase or decrease benefits) 

were $25.0 million and $19.6 million at December 

31, 2008 and 2007, respectively. These amounts are 

reported as accumulated other comprehensive 

income in the “Unrealized postretirement benefit 

gain” line item on the Balance Sheet. 

The DIF’s expenses for postretirement benefits for 

2008 and 2007 were $7.7 million and $7.2 million, 

respectively, which are included in the current and 

prior year’s operating expenses on the Statement of 

Income and Fund Balance. The changes in the 

actuarial gains/losses and prior service costs/credits 

for 2008 and 2007 of $5.3 million and $17.4 million, 

respectively, are reported as other comprehensive 

income in the “Unrealized postretirement benefit 

gain” line item. Key actuarial assumptions used in 

the accounting for the plan include the discount 

rate of 6.5 percent, the rate of compensation 

increase of 4.10 percent, and the dental coverage 

trend rate of 7.0 percent. The discount rate of 

6.5 percent is based upon rates of return on 

high-quality fixed income investments whose cash 

flows match the timing and amount of expected 

benefit payments.

12.	 Commitments an

Off-Balance-She

Exposur

Commitments

Leased Space

The FDIC’s lease commitments total $130 million 

for future years. The lease agreements contain 

escalation clauses resulting in adjustments, usually 

on an annual basis. The DIF recognized leased 

space expense of $21 million and $22 million for 

the years ended December 31, 2008 and 2007, 

respectively.

Off-Balance-Sheet Expos

Deposit Insurance

As of December 31, 2008, the estimated insured 

deposits for DIF were $4.8 trillion. This estimate is 

derived primarily from quarterly financial data 

submitted by insured depository institutions to the 

FDIC. This estimate represents the accounting loss 

that would be realized if all insured depository 

institutions were to fail and the acquired assets 

provided no recoveries.

Leased Space C

Dollars in Thousands

2009 2010 2011 2012 2013

2014/

Thereafter

$24,608 $52,251 $21,750 $14,975 $9,195 $7,037
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 95

CHAPTER 4 ★ Financ

13.	 Disclosures About the Fair Value of Financial Instruments

Financial assets recognized and measured at fair value on a recurring basis at each reporting date include 

cash equivalents (Note 2) and the investment in U.S. Treasury obligations (Note 3). The following table 

presents the DIF’s financial assets measured at fair value as of December 31, 2008.

Assets Measured at Fair Value at

Dollars in Thousands

Fair Value Measurements Using

Quoted Pri

in Active

Markets fo

Identical Assets

(Level 1)

Significan

Othe

Observabl

Inputs (Level 2)

Significan

Unobservabl

Inputs (Level 3)

Total Assets at

Fair Value

Assets

Cash equivalents 

(Special U.S. Treasuries)1 $1,011,430 $0 $0 $1,011,430 

Investment in U.S. Treasury Obligations 

(Available-for- Sale)2 27,859,080 0 0 27,859,080

Total Assets $28,870,510 $0 $0 $28,870,510

(1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest 

rates established by the U.S. Bureau of Public Debt

(2) The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal 

government entities.
96 2 0 0 8 A n n u l R e p or

Some of the DIF’s financial assets and liabilities are 

not recognized at fair value but are recorded at 

amounts that approximate fair value due to their 

short maturities and/or comparability with current 

interest rates. Such items include interest receivable 

on investments, assessment receivables, other 

short-term receivables, and accounts payable and 

other liabilities.

The net receivables from resolutions primarily 

include the DIF’s subrogated claim arising from 

payments to insured depositors. The receivership 

and conservatorship assets that will ultimately be 

used to pay the corporate subrogated claim are 

valued using discount rates that include consideration of market risk. These discounts ultimately 

affect the DIF’s allowance for loss against the net 

receivables from resolutions. Therefore, the corporate subrogated claim indirectly includes the effect 

of discounting and should not be viewed as being 

stated in terms of nominal cash flows.

Although the value of the corporate subrogated 

claim is influenced by valuation of receivership and 

conservatorship assets (see Note 4), such valuation 

is not equivalent to the valuation of the corporate 

claim. Since the corporate claim is unique, not 

intended for sale to the private sector, and has no 

established market, it is not practicable to estimate 

a fair 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 and conservatorship payments to the 

DIF on the s­ubrogated claim does not necessaril

correspond with the timing of collections on 

receivership and conservatorship assets. Therefore, 

the effect of discounting used by receiverships and 

conservatorships should not necessarily be viewed 

as producing an estimate of fair value for the net 

receivables from resolutions.

There is no readily available market for assets and 

liabilities associated with systemic risk transactions 

(see Note 14).

14.	 Systemic R

Transactions

The FDIC resolves troubled institutions in the least 

costly manner to the DIF as required by 12 U.S.C. 

1823 (c) unless a systemic risk determination is 

made that compliance with the least-cost test would 

have serious adverse effects on economic conditions 

or financial stability and any action or assistance 

taken under the systemic risk determination would 

avoid or mitigate such adverse effects. A systemic 

risk determination can only be invoked by the 

Secretary of the U.S. Treasury, in consultation with 

the President, and upon the written recommendation of two-thirds of the FDIC Board of Directors 

and two-thirds of the Board of Governors of the 

Federal Reserve System. 

Any loss incurred by the DIF as a result of actions 

taken or assistance provided pursuant to a systemic 

risk determination must be recovered from all 

insured depository institutions through one or 

more emergency special assessments. The special 

assessment will be based on the amount of each 

insured depository institution’s average total assets 

during the assessment period, minus the sum of the 

amount of the institution’s average total tangible 

equity and the amount of the institution’s average 

total subordinated debt. 

Pursuant to a systemic risk determination invoked 

during 2008, the FDIC established the Temporary 

Liquidity Guarantee Program (TLGP) for insured 

depository institutions and certain holding 

companies. The FDIC received consideration in 

exchange for guarantees issued under the TLGP.

The DIF has recognized a liability for the noncontingent fair value of the obligation the FDIC 

has undertaken to stand ready to perform over the 

term of the guarantees in accordance with FASB 

Interpretation No. 45, Guarantor’s Accounting and 

Disclosure Requirements for Guarantees, Including 

Indirect Guarantees of Indebtedness of Others 

(FIN 45). Pursuant to FIN 45, at inception, the fair 

value of the non-contingent obligation is measured 

at the amount of consideration received in exchange 

for issuing the guarantee. This liability is reported 

as “Guarantee obligations-systemic risk” and any 

related asset received as consideration is designated 

for systemic risk on the balance sheet. As guarantee 
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 97

CHAPTER 4 ★ Financ

expenses are incurred (including contingent 

liabilities), the DIF will reduce the recorded 

non-contingent liability and recognize an offsetting 

amount as revenue. Revenue recognition will also 

occur during the term of the guarantee if a supportable and documented analysis has determined that 

the consideration and any related interest/dividend 

income received exceeds the projected systemic risk 

losses. Any remaining consideration at the end of 

the term of the guarantee will be recognized as 

income to the DIF.

Temporary Liquidity

Guarantee Progr

The FDIC established the TLGP on October 14, 

2008 in an effort to counter the system-wide crisis 

in the nation’s financial sector. The TLGP consists 

of two components: (1) the Debt Guarantee 

Program, and (2) the Transaction Account 

Guarantee Program. Eligible entities were permitted to irrevocably opt out of the TLGP entirely or 

either component no later than December 5, 2008. 

The final rule for the program was published in the 

Federal Register on November 26, 2008 and codified in part 370 of title 12 of the Code of Federal 

Regulations (12 CFR Part 370). 

Debt Guarantee Program

The Debt Guarantee Program (DGP) guarantees 

newly-issued senior unsecured debt up to 

prescribed limits issued by insured depository 

institutions and certain holding companies between 

October 14, 2008 and June 30, 2009, with the guarantee expiring on or before June 30, 2012. (See Note 

15, “Subsequent Events – TGLP” for extensions and 

other modification of the DGP.) Generally with 

specified exceptions, the maximum amount of outstanding debt guaranteed under the debt guarantee 

program is limited to 125 percent of the par value 

of an entity’s senior unsecured debt on September 

30, 2008 or, if applicable, two percent of its consolidated total liabilities as of September 30, 2008. 

Fees for participation in the DGP depend on the 

maturity of debt issued. The cost of the guarantee 

to insured depository institutions is 50 basis points 

for debt with maturities of 180 days or less, 75 basis 

points for debt with maturities of 181 days to 364 

days, and 100 basis points for debt with maturities 

365 days or greater. Other eligible entities are 

required to pay an additional 10 basis points if, as 

of September 30, 2008, the combined assets of all 

insured depository institutions affiliated with such 

entity represent less than 50 percent of consolidated 

holding company assets. 

The FDIC’s payment obligation under the DGP will 

be triggered by a payment default. In the event of 

default, the FDIC will continue to make scheduled 

principal and interest payments under the terms of 

the debt instrument through its maturity. The debtholder or representative must assign to the FDIC 

the right to receive any and all distributions on the 

guaranteed debt from any insolvency proceeding, 

including the proceeds of any receivership or bankruptcy estate, to the extent of payments made under 

the guarantee. 

Debt guarantee fees collected during 2008 of $2.2 

billion are included in the “Cash and cash equivalents – restricted – systemic risk” line item and 

recognized as “Guarantee obligations-systemic 

risk” on the Balance Sheet. As of December 31, 

2008, the total amount of guaranteed debt outstanding is $224 billion. If all eligible entities issued 

debt up to the program’s allowable limit, the maximum exposure would be $940 billion. At this time, 

the program has been operating for a relatively 

short time and no losses have yet been incurred. 

The FDIC continuously evaluates the financial 

condition and prospects of eligible entities through 

its supervisory process. The program is adjusted as 

appropriate based on each institution’s profile.

Upon notification to the FDIC no later than 

December 5, 2008, a participating entity could elect 

to issue senior unsecured non-guaranteed debt with 

maturities beyond June 30, 2012, at any time, in any 

amount, and without regard to the guarantee limit. 

This election required a nonrefundable fee equal to 

37.5 basis points applied to the outstanding amount 

of the entity’s eligible senior unsecured debt as of 

September 30, 2008 with a maturity date on or 

before June 30, 2009. As of December 31, 2008, the 

FDIC collected nonrefundable fees of $195 million 

and reflected a receivable of $974 million in the 

“Receivable – systemic risk” line item. The 

nonrefundable fees are designated for TLGP 

expected losses and payments.

Transaction Account Guarantee Program

The Transaction Account Guarantee Program 

(TAG) provides unlimited coverage for non-interest 
98 2 0 0 8 A n n u l R e p or

Systemic Risk Activity at

 Dollars in Thousan

Cash and cas

equivalents -

Restricted 

Systemic R

Receivable 

Systemic R

Guarantee

obligations -

Systemic R

Contingen

Liability -

Systemic R

Systemic Ris

Revenue

Expense

Debt guarantee fees

collected $ 2,229,875 $ (2,229,875)

Non-guaranteed debt fees 

collected 194,695 (194,695)

Debt guarantee fees

receivable 53,336 (53,336)

Receivable for fees on 

senior unsecured nonguaranteed debt 973,534 (973,534)

Receivable for TAG fees 89,977 (89,977)

Receivable for non-interest 

bearing transaction 

accounts of failures in 2008 (44,831) 44,831 

Estimated losses for noninterest bearing transaction

accounts of failures in 2008 (23,546) 23,546 23,546 

Contingent liability for 

non-interest bearing 

transaction accounts for 

anticipated failures 1,437,638 (1,437,638) 1,437,638 

Reimbursement to DIF for

TLGP operating expenses 

incurred (2,352) 2,352 2,352 

Totals $ 2,377,387 $ 1,138,132 $ (2,077,881)a $ (1,437,638) $ 1,463,536a

a) The total does not equal the line item due to rounding.

bearing transaction accounts held by insured 

depository institutions until December 31, 2009. 

Beginning November 13, 2008, each participating 

entity will pay an annualized 10 basis point TAG 

fee on all deposit amounts exceeding the fully 

insured limit (generally $250,000). The TAG fees 

will be collected along with a participating entity’s 

quarterly deposit insurance payment and will be 

earmarked for TLGP expected losses and payments.

Upon the failure of a participating insured depository institution, the FDIC will pay the guaranteed 

claims of depositors for funds in a non-interest 

bearing transaction account as soon as possible in 

accordance with regulations governing the payment 
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 99

CHAPTER 4 ★ Financ

of insured deposits. Upon payment of such claims, 

the FDIC will be subrogated to the claims of 

depositors against the failed entity.

At December 31, 2008, the “Receivable – systemic 

risk” line item includes $90 million of estimated 

TAG fees due from insured depository institutions. 

This receivable was collected at the end of the first 

quarter of 2009. At December 31, 2008, the TLGP 

contingent liability associated with non-interest 

bearing transaction accounts for the anticipated 

failure of insured institutions participating in the 

TAG is $1.4 billion. During 2008, the DIF recorded 

estimated losses of $23.5 million for non-interest 

bearing transaction accounts of the 2008 failures. 

Both amounts are recorded as “Systemic risk 

expenses” and a corresponding amount of guarantee fees was recognized as “Systemic risk revenue.”

As of December 31, 2008, the maximum estimated 

exposure under the TAG is $680 billion.

15.	 Subsequent Eve

Amendment to FDIC Restoration

Due to the extraordinary circumstances of the 

current enormous strains on banks and the 

financial system as well as the likelihood of a 

prolonged and severe economic recession, a Notice 

of FDIC Amended Restoration Plan was issued on 

March 4, 2009, amending its Restoration Plan 

initially adopted on October 7, 2008 (see Note 8 for 

additional discussion on establishing a DIF 

restoration plan). The period of the Plan is extended 

to seven years (December 31, 2015) and the FDIC is 

adopting assessment rates that will reflect this 

extended period accordingly. At least semiannually 

the FDIC will adjust assessment rates, if needed to 

ensure that the fund reserve ratio reaches 1.15 percent within the seven-year period.

Risk-Based Assessment

On February 27, 2009, the Board approved for issuance a final rule on Assessments amending the 

risk-based assessment system to: 1) make it fairer 

and more sensitive to risk, 2) improve the way the 

risk-based assessment system differentiates risk 

among insured institutions, 3) increase deposit 

insurance assessment rates (initial base assessment 

rates at 12 to 45 basis points) to raise assessment 

revenue to help meet the requirements of the 

Restoration Plan, and 4) make technical and other 

changes to the rules governing the risk-based 

assessment system.

Emergency Special Assessm

On March 3, 2009, an interim rule was issued that 

imposes an emergency special assessment equal to 

20 basis points of an institution’s assessment base 

on June 30, 2009, with collection on September 30, 

2009, in order to raise assessment revenue to help 

meet the requirements of the Restoration Plan. 

FDIC projects that the combination of regular 

quarterly assessments and the 20 basis points special assessment will prevent the fund reserve ratio 

from falling to a level that would adversely affect 

public confidence or to a level close to zero or negative. However, the FDIC and the Congress 

simultaneously pursued an increase in FDIC’s 

borrowing authority with the U.S. Treasury 

(currently $30 billion), which could allow the FDIC 

to substantially reduce the special assessment below 

the proposed rate of 20 basis points (see Legislative 

Update below).

FDIC recognizes that there is considerable 

uncertainty about its projections for losses and 

insured deposit growth, and, therefore, of future 

fund reserve ratios. To further ensure that the fund 

reserve ratio does not decline to a level that could 

undermine public confidence in federal deposit 

insurance, the interim rule would also permit the 

Board to impose an emergency special assessment 

of up to 10 basis points on all insured depository 

institutions whenever, after June 30, 2009, the 

reserve ratio of the DIF is estimated to fall to a level 

that the Board believes would adversely affect 

public confidence or to a level which shall be close 

to zero or negative. The earliest possible date for 

such a special assessment is September 30, 2009, 

with collection on December 31, 2009.
100 2 0 0 8 A n n u l R e p or

Systemic Risk Transacti

Assistance to Citigroup

On January 15, 2009, the U.S. Treasury, the FDIC 

and the Federal Reserve executed a final agreement to provide guarantees, liquidity access, and 

capital to Citigroup. Under the agreement, the 

U.S. Treasury will invest $20 billion in Citigroup 

from the Troubled Asset Relief Program. In addition, the Treasury and the FDIC will provide 

protection against the possibility of unusually 

large losses on an asset pool of loans and securities backed by residential and commercial real 

estate and other such assets that would remain on 

the balance sheet of Citigroup. 

The asset pool amount that is included in the lossshare agreement is $300.8 billion. Citigroup is 

solely responsible for the first $39.5 billion of 

losses incurred on the covered asset pool. Asset 

pool losses exceeding $39.5 billion will be split 

with 10 percent to Citigroup and 90 percent to the 

Treasury up to the first $5 billion, and 10 percent 

to Citigroup and 90 percent to the FDIC for the 

next $10 billion. If losses exceed the maximum 

amounts provided by Treasury and the FDIC, 

Citigroup can request borrowing from the Federal 

Reserve Bank of New York for 90 percent of the 

remaining values of the pool of assets through a 

non-recourse loan. The term of the loss-share 

guarantee is 10 years for residential assets and 5 

years for non-residential assets.

In consideration for its portion of the loss-share 

guarantee, the FDIC received 3,025 shares of 

Citigroup’s designated cumulative perpetual preferred stock (Series G), with a liquidation 

preference of $1,000,000 per share, for a total of 

$3.025 billion. Quarterly dividends are payable to 

the FDIC at a rate of 8 percent annually.

Assistance to Bank of America

On January 16, 2009, the U.S. Treasury, the FDIC 

and the Federal Reserve reached agreement in 

principle to provide guarantees, liquidity access, 

and capital to Bank of America. It was announced 

that the U.S. Treasury would purchase $20 billion 

in Bank of America preferred stock under the 

Troubled Asset Relief Program. In addition, the 

Treasury and the FDIC would provide protection 

against the possibility of unusually large losses on 

an asset pool of approximately $118 billion of loans 

and securities backed by residential and commercial real estate and other such assets that would 

remain on the balance sheet of Bank of America. 

For additional losses not covered by Treasury or the 

FDIC, Bank of America could receive funding 

through a non-recourse loan from the Federal 

Reserve Bank of New York. 

Bank of America will be solely responsible for the 

first $10 billion of losses incurred on the covered 

asset pool. Asset pool losses exceeding $10 billion 

will be split with 10 percent to Bank of America 

and 90 percent to the Treasury and FDIC. The 

Treasury and the FDIC will cover their share of 

losses pro rata in proportions of 75 percent for 

Treasury and 25 percent for the FDIC. The FDIC 

exposure to loss is capped at $2.5 billion and the 

Treasury exposure is capped at $7.5 billion. If losses 

exceed the maximum amounts provided by the 

FDIC and the Treasury, Bank of America can 

request borrowing from the Federal Reserve Bank 

of New York for 90 percent of additional loss 

amounts incurred on the pool of assets. The term 

of the loss-share guarantee is 10 years for residential assets and 5 years for non-residential assets.

In consideration for its portion of the loss-share 

guarantee, the FDIC will receive a projected liquidation preference amount of $1 billion in Bank of 

America preferred stock and warrants. The preferred stock will have an 8 percent dividend rate.

Temporary Liquidity Guarantee Program

Mandatory Convertible D

On February 27, 2009, the FDIC issued an interim 

rule with request for comments to modify the debt 

guarantee component of the TLGP to include 

certain issuances of mandatory convertible debt 

(MCD). (See Note 14 for further details on the 

TLGP.) Currently, the TLGP regulation, at Section 

370.2(e)(5) of Title 12 of the Code of Federal 

Regulations, precludes a FDIC guarantee for any 

“convertible debt.” The amendment provides for the 

FDIC to guarantee newly issued senior unsecured 

debt with a feature that mandates conversion of the 

debt into common shares of the issuing entity at a 

specified date no later than the expiration date of 

the FDIC’s guarantee. The MCD must be newly 
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 101

CHAPTER 4 ★ Financ

issued on or after February 27, 2009, and must 

provide for the mandatory conversion of the debt 

instrument into common shares of the issuing 

entity on a specified date that is on or before June 

30, 2012. The amount of the guarantee fee for the 

FDIC’s guarantee of MCD is based on the time 

period from issuance of the MCD until its 

mandatory conversion date.

Amendment of the TLGP to Extend the 

Guarantee Program (DGP) and to Imp

Surcharges on Assessments for Certain D

Issued on or after April 1, 2009

An Interim Rule with request for comments, issued 

on March 23, 2009, amends the TLGP by providing 

a limited four-month extension of the DGP for 

insured depository institutions participating in the 

DGP as well as other participating entities (bank 

and certain savings and loan holding companies 

and certain FDIC-approved affiliates). The interim 

rule permits entities that participate in the 

extended DGP to issue FDIC-guaranteed debt from 

June 30, 2009 through October 31, 2009 and 

extends the FDIC guarantee, set to expire no later 

than June 30, 2012 under the existing program, to 

no later than December 31, 2012 for debt issued on 

or after April 1, 2009. 

The interim rule also imposes surcharges on 

assessments for certain FDIC-guaranteed debt 

issued on or after April 1, 2009. The limited 

extension, coupled with the surcharge provisions, is 

intended to facilitate an orderly transition period 

for participating institutions to return to the nonguaranteed debt market and to reduce the potential 

for market disruption when the TLGP ends. 

Legacy Loans Progr

On March 23, 2009, the FDIC and the U.S. 

Treasury announced the creation of the Legacy 

Loans Program (LLP) as part of the Public-Private 

Investment Program (a program to address the 

challenge of legacy (distressed or troubled) assets). 

Legacy assets are comprised of real estate loans held 

directly on the books of insured banks and thrifts. 

The assets have created uncertainty on the balance 

sheets of insured banks and thrifts, compromising 

their ability to raise capital and their willingness to 

increase lending. 

To cleanse insured banks and thrifts balance sheets 

of troubled legacy loans and reduce the overhang of 

uncertainty associated with these assets, the LLP 

attempts to attract private capital to purchase eligible legacy loans from participating insured banks 

and thrifts through the provision of FDIC debt 

guarantees and Treasury equity co-investment. 

Thus, the program is intended to boost private 

demand for distressed assets that are currently held 

by insured banks and thrifts and facilitate 

market-priced sales of troubled assets. 

The FDIC will provide oversight for the formation, 

funding, and operation of a number of PublicPrivate Investment Funds (PPIFs) that will 

purchase assets from insured banks and thrifts. 

The Treasury and private investors will invest 

equity capital in Legacy Loans PPIFs and the FDIC 

will provide a guarantee for debt financing issued 

by the PPIFs to fund asset purchases. The FDIC’s 

guarantee will be collateralized by the purchased 

assets and the FDIC will receive a fee in return for 

its guarantee. On March 26, 2009, the FDIC 

requested comments from interested parties on the 

critical aspects of the proposed LLP.

Supervisory Capital Assessm

Progra

As part of U.S. Treasury’s Capital Assistance 

Program, the federal bank regulatory agencies have 

conducted forward-looking economic assessments 

of the 19 largest U.S. bank holding companies 

(assets greater than $100 billion). These assessments 

are known as the Supervisory Capital Assessment 

Program (SCAP). The agencies worked with the 

institutions to estimate the range of possible future 

losses and the resources to absorb such losses over a 

two-year period. 

On May 7, 2009, a detailed summary of the results 

of the SCAP was released in which the supervisory 

agencies identified the potential losses, resources 

available to absorb losses, and resulting capital 

buffer needed for the 19 participating bank holding 

companies. Any institution needing to augment its 

capital buffer will have until June 8, 2009 to 

develop a detailed capital plan and until November 

9, 2009 to implement that capital plan.
102 2 0 0 8 A n n u l R e p or

Financial Stability 

In an effort to address the foreclosure problems, the 

Administration developed the Homeowner 

Affordability and Stability Plan (HASP) as part of 

the President’s broad strategy to move the economy 

back on track. The three key elements of the plan 

are: 1) allowing 4 million to 5 million homeowners 

with little equity in their homes to refinance into 

less expensive mortgages; 2) a $75 billion program 

to keep 3 million to 4 million homeowners out of 

foreclosure; and 3) a doubling of the government’s 

commitment to Fannie Mae and Freddie Mac to 

$400 billion. 

Legislative Upda

Helping Families Save Their Homes Act of 2009, was 

enacted on May 20, 2009. This legislation provides 

for: extending the FDIC’s deposit insurance coverage at $250,000 until 2013, extending the generally 

applicable time limit from 5 years to 8 years for an 

FDIC Restoration Plan to rebuild the reserve ratio 

of the DIF, permanently increasing the FDIC’s 

authority to borrow from the U.S. Treasury from 

$30 billion to $100 billion, and if necessary, up to 

$500 billion through 2010, and allowing FDIC to 

charge systemic risk special assessments by rulemaking on both insured depository institutions 

and depository institution holding companies 

(see Note 1).

Purchase and Assumptio

Indemnification

In late March 2009, the FDIC was named in a lawsuit in its corporate and receivership capacities 

and could be subject to potential losses of approximately $4 billion as a result of an indemnification 

clause in a purchase and assumption agreement 

associated with the resolution of Washington 

Mutual Bank on September 25, 2008. The 

Washington Mutual Receiver currently has 

approximately $1.9 billion and the remaining 

exposure of $2.1 billion would be borne by the 

DIF. As of December 31, 2008, the DIF has not 

recorded a provision for this matter as the 

ultimate outcome of this litigation cannot 

presently be determined (see Note 7).

2009 Failures Through May 20, 20

Through May 20, 2009, 33 insured institutions 

failed with total losses to the DIF estimated to be 

$4.5 billion. These estimated losses were included 

in the December 31, 2008, contingent liability for 

anticipated failures. 
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 103

CHAPTER 4 ★ Financ

FSLIC Resolution Fund Balance 

Dollars in Thousands

2008 2007

Assets

Cash and cash equivalents $3,467,227 $3,617,133

Receivables from thrift resolutions and other assets, net (Note 3) 34,952 34,812

Receivables from U.S. Treasury for goodwill judgments (Note 4) 142,305 35,350

Total Assets $3,644,484 $3,687,295

Liabilities

Accounts payable and other liabilities $8,066 $4,276

Contingent liabilities for litigation losses and other (Note 4) 142,305 35,350

Total Liabilities 150,371 39,626

Resolution Equity (Not

Contributed capital 127,442,179 127,417,582 

Accumulated deficit (123,948,066) (123,769,913)

Total Resolution Equity 3,494,113 3,647

Total Liabilities and Resolution Equity $3,644,484 $3,687

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

FSLIC Resolution Fund 
104 2 0 0 8 A n n u l R e p or

FSLIC Resolution Fund Statement of 

for the Years Ended D

Dollars in Thousands

2008 2007

Revenu

Interest on U.S. Treasury obligations $56,128 $156,034 

Other revenue 7,040 31,558 

Total Revenue 63,168 187,5

Expenses and Losse

Operating expenses 3,188 3,364 

Provision for losses (891) (10,135)

Goodwill/Guarini litigation expenses (Note 4) 254,247 195,939

Recovery of tax benefits (26,846) (68,217)

Other expenses 11,623 2,757

Total Expenses and Losses 241,321 123,7

Net (Loss)/Income (178,153) 63,88

Accumulated Deficit - Beginning (123,769,913) (123,833,797)

Accumulated Deficit - Ending $(123,948,066) $(123,769,91

The accompanying notes are an integral part of these financial statements.
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 105

CHAPTER 4 ★ Financ

FSLIC Resolution Fund Sta

for the Years Ended D

Dollars in Thousands

2008 2007

Operating Activitie

Net (Loss)/Income $(178,153) $63,884 

Adjustments to reconcile net (loss)/income to net cash 

used by operating activities:

Provision for losses (891) (10,135)

Change in Operating Assets and Liabilit

Decrease in receivables from thrift resolutions and other assets 751 12,053

Increase/(Decrease) in accounts payable and other liabilities 3,791 (1,221

Increase/(Decrease) in contingent liabilities for litigation losses and other 106,954 (243,977

Net Cash Used by Operating Activities (67,548) (1

Financing Activities

Provided by

U.S. Treasury payments for goodwill litigation (Note 4) 142,642 405,063

Used by

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

Net Cash (Used)/Provided by Financing Activities (82,358) 18

Net (Decrease)/Increase in Cash and Cash Equivalents (149,9

Cash and Cash Equivalents - Beginning 3,617,133 3,61

Cash and Cash Equivalents - Ending $3,467,227 $3,

The accompanying notes are an integral part of these financial statements.
106 2 0 0 8 A n n u l R e p or

1.	 Legislative Histo

and Operation

Dissolution of the

FSLIC Resolution 

Legislative Histo

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 fund established in the FDI 

Act, as amended. In addition, FDIC is charged 

with responsibility for the sale of remaining assets 

and satisfaction of liabilities associated with the 

former Federal Savings and Loan Insurance 

Corporation (FSLIC) and the Resolution Trust 

Corporation (RTC). 

The U.S. Congress created the FSLIC through the 

enactment of the National Housing Act of 1934. 

The Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA) abolished the 

insolvent FSLIC, created the FSLIC Resolution 

Fund (FRF), and transferred the assets and liabilities of the FSLIC to the FRF-except those assets 

and liabilities transferred to the RTC-effective on 

August 9, 1989. Further, the FIRREA established 

the Resolution Funding Corporation (REFCORP) 

to provide part of the initial funds used by the 

RTC for thrift resolutions.

The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC as of December 31, 

1995. All remaining assets and liabilities of the 

RTC were transferred to the FRF on January 1, 

1996. Today, the FRF consists of two distinct pools 

of assets and liabilities: one composed of the assets 

and liabilities of the FSLIC transferred to the FRF 

upon the dissolution of the FSLIC (FRF-FSLIC), 

and the other composed of the RTC assets and liabilities (FRF-RTC). The assets of one pool are not 

available to satisfy obligations of the other.

The FDIC is the administrator of the FRF and the 

Deposit Insurance Fund. These funds are maintained separately to carry out their respective 

mandates.

Operations/Dissolution of the F

The FRF will continue operations until all of its 

assets are sold or otherwise liquidated and all of 

its liabilities are satisfied. Any funds remaining in 

the FRF-FSLIC will be paid to the U.S. Treasury. 

Any remaining funds of the FRF-RTC will be distributed to the REFCORP to pay the interest on 

the REFCORP bonds. In addition, the FRF-FSLIC 

has available until expended $602.2 million in 

appropriations to facilitate, if required, efforts to 

wind up the resolution activity of the FRF-FSLIC. 

The FDIC has conducted an extensive review and 

cataloging of FRF’s remaining assets and liabilities 

and is continuing to explore approaches for concluding FRF’s activities. Some of the issues and 

items that remain open in FRF are: 1) criminal 

restitution orders (generally have from 4 to 9 years 

remaining to enforce); 2) collections of settlements 

and judgments obtained against officers and directors and other professionals responsible for causing 

or contributing to thrift losses (generally have up to 

11 years remaining to enforce); 3) numerous assistance agreements entered into by the former FSLIC 

(FRF could continue to receive tax-sharing benefits 

through year 2013); 4) goodwill litigation (no final 

date for resolution has been established; see Note 

4); and 5) affordable housing program monitoring 

(requirements can exceed 25 years). The FRF could 

potentially realize substantial recoveries from the 

tax-sharing benefits of up to $320 million; however, 

any associated recoveries are not reflected in FRF’s 

financial statements given the significant uncertainties surrounding the ultimate outcome.
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 107

CHAPTER 4 ★ Financ

Receivership Operati

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 Signific

Accounting Polici

General

These financial statements pertain to the financial 

position, results of operations, and cash flows of 

the FRF and are presented in conformity with U.S. 

generally accepted accounting principles (GAAP). 

These statements do not include reporting for 

assets and liabilities of closed thrift institutions 

for which the FDIC acts as receiver. Periodic and 

final accountability reports of the FDIC’s activities 

as receiver are furnished to courts, supervisory 

authorities, and others as required.

Use of Estima

Management makes estimates and assumptions 

that affect the amounts reported in the financial 

statements and accompanying notes. Actual results 

could differ from these estimates. Where it is reasonably possible that changes in estimates will 

cause a material change in the financial statements 

in the near term, the nature and extent of such 

changes in estimates have been disclosed. The 

more significant estimates include allowance for 

losses on receivables from thrift resolutions and 

the estimated losses for litigation.

Provision for Losse

The provision for losses represents the change in 

the valuation of the receivables from thrift resolutions and other assets.

Disclosure about Rece

Accounting Pronouncemen

1) The Financial Accounting Standards 

Board (FASB) issued Statement of Financial 

Accounting Standards (SFAS) No. 157, Fair Value 

Measurements, in September 2006. SFAS No. 157 

defines fair value, establishes a framework for 

measuring fair value in GAAP, and expands 

disclosures about fair value measurements.

2) In February 2007, the Financial Accounting 

Standards Board issued SFAS No. 159, The Fair 

Value Option for Financial Assets and Financial 

Liabilities - Including an Amendment of FASB 

Statement No. 115. SFAS No. 159 creates a fair 

value option allowing, but not requiring, an entity 

to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial 

assets and financial liabilities with changes in fair 

value recognized in earnings as they occur. 

Management has chosen not to elect the fair 

value option for any items that are not already 

required to be measured at fair value in accordance 

with GAAP.

Related Part

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.
108 2 0 0 8 A n n u l R e p or

3.	 Receivables Fro

Thrift Resolutio

and Other Assets,

Receivables From Thrift Resoluti

The receivables from thrift resolutions include 

payments made by the FRF to cover obligations to 

insured depositors, advances to receiverships for 

working capital, and administrative expenses paid 

on behalf of receiverships. Any related allowance 

for loss represents the difference between the 

funds advanced and/or obligations incurred and 

the expected repayment. Assets held by the FDIC 

in its receivership capacity for the former RTC are a 

significant source of repayment of the FRF’s receivables from thrift resolutions. As of December 31, 

2008, 8 of the 850 FRF receiverships remain active 

primarily due to unresolved litigation, including 

goodwill matters. 

As of December 31, 2008 and 2007, FRF receiverships held assets with a book value of $20 million 

and $22 million, respectively (including cash, 

investments, and miscellaneous receivables of 

$17 million and $18 million at December 31, 2008 

and 2007, respectively). The estimated cash recoveries from the management and disposition of these 

assets are used to derive the allowance for losses. 

The FRF receivership assets are valued by discounting projected cash flows, net of liquidation costs 

using current market-based risk factors applicable 

to a given asset’s type and quality. These estimated 

asset recoveries are regularly evaluated, but 

remain subject to uncertainties because of potential changes in economic and market conditions. 

Such uncertainties could cause the FRF’s actual 

recoveries to vary from current estimates. 

Other Asset

Other assets primarily include credit enhancement 

reserves valued at $21.2 million and $20.2 million 

as of December 31, 2008 and 2007, respectively. The 

credit enhancement reserves resulted from swap 

transactions where the former RTC received mortgage-backed securities in exchange for single-family 

mortgage loans. The RTC supplied credit enhancement reserves for the mortgage loans in the form of 

cash collateral to cover future credit losses over the 

remaining life of the loans. These reserves may 

cover future credit losses through 2020.

Receivables Fr

Resolutions and Ot

Net at Dece

Dollars in Thousands

2008 2007

Receivables from 

closed thrifts $5,725,450 $8,367,078

Allowance for losses (5,717,740) (8,359,347)

Receivables fro

Thrift Resolutions, Net 7,710 7

Other assets 27,242 27,081

Total $34,952 $34,812
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 109

CHAPTER 4 ★ Financ

4.	 Contingen

Liabilities for:

Litigation Losses

The FRF records an estimated loss for unresolved 

legal cases to the extent those losses are considered 

probable and reasonably estimable. As of December 

31, 2008 and 2007, respectively, $142.3 million and 

$35.4 million were recorded as probable losses. 

Additionally, at December 31, 2008, the FDIC has 

determined that there are no losses from unresolved 

legal cases considered to be reasonably possible.

In December 2008, FDIC concluded a 13 1⁄2 year 

old legal case (FDIC v. Hurwitz) arising from the 

December 30, 1988 failure of United Savings 

Association of Texas. In August 2005, the District 

Court ordered sanctions against the FDIC in the 

amount of $72 million. However, in August 2008, 

the Fifth Circuit Court of Appeals reversed $57 

million of the sanctions, but remanded the remaining $15 million to the District Court to determine 

what portion should be paid. Subsequently, in 

November 2008, an agreement was reached 

between the parties, whereas the FDIC would 

pay $10 million to settle the case. On December 17, 

2008, the settlement agreement was fully executed 

and the settlement funds were paid. The $10 million payment is recognized in the “Other expenses” 

line item.

Additional Contingen

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 13 remaining cases are pending 

against the United States based on alleged breaches 

of these agreements.

On July 22, 1998, the Department of Justice’s 

(DOJ’s) Office of Legal Counsel (OLC) concluded 

that the FRF is legally available to satisfy all judgments and settlements in the goodwill litigation 

involving supervisory action or assistance agreements. OLC determined that nonperformance 

of these agreements was a contingent liability that 

was transferred to the FRF on August 9, 1989, upon 

the dissolution of the FSLIC. On July 23, 1998, the 

U.S. Treasury determined, based on OLC’s opinion, 

that the FRF is the appropriate source of funds for 

payments of any such judgments and settlements. 

The FDIC General Counsel concluded that, as 

liabilities transferred on August 9, 1989, these 

contingent liabilities for future nonperformance 

of prior agreements with respect to supervisory 

goodwill were transferred to the FRF-FSLIC, 

which is that portion of the FRF encompassing the 

obligations of the former FSLIC. The FRF-RTC, 

which encompasses the obligations of the former 

RTC and was created upon the termination of the 

RTC on December 31, 1995, is not available to pay 

any settlements or judgments arising out of the 

goodwill litigation. 

The goodwill lawsuits are against the United States 

and as such are defended by the DOJ. On December 

16, 2008, the DOJ again informed the FDIC that it 

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

resulting from the Winstar-related cases.” This 

uncertainty arises, in part, from the existence of 

significant unresolved issues pending at the appellate or trial court level, as well as the unique 

circumstances of each case. 
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The FDIC believes that it is probable that additional 

amounts, possibly substantial, may be paid from 

the FRF-FSLIC as a result of judgments and 

settlements in the goodwill litigation. Based on 

representations from the DOJ, the FDIC is unable 

to estimate a range of loss to the FRF-FSLIC from 

the goodwill litigation. However, the FRF can draw 

from an appropriation provided by Section 110 of 

the Department of Justice Appropriations Act, 2000 

(Public Law 106-113, Appendix A, Title I, 113 Stat. 

1501A-3, 1501A-20) such sums as may be necessary 

for the payment of judgments and compromise 

settlements in the goodwill litigation. This appropriation is to remain available until expended. 

Because an appropriation is available to pay such 

judgments and settlements, any liability for goodwill litigation should have a corresponding 

receivable from the U.S. Treasury and therefore 

have no net impact on the financial condition of 

the FRF-FSLIC. 

The FRF paid $142.6 million as a result of judgments and settlements in four goodwill cases for 

the year ended December 31, 2008, compared to 

$405.1 million for six goodwill cases for the year 

ended December 31, 2007. As described above, the 

FRF received appropriations from the U.S. Treasury 

to fund these payments. At December 31, 2008, the 

FRF accrued a $142.3 million contingent liability 

and offsetting receivable from the U.S. Treasury for 

judgments in three additional cases that were fully 

adjudicated as of year end. 

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 

$4.3 million and $11.4 million to DOJ for fiscal 

years (FY) 2009 and 2008, respectively. As in prior 

years, DOJ carried over and applied all unused 

funds toward current FY charges. At September 30, 

2008, DOJ had an additional $5.3 million in unused 

FY 2008 funds that were applied against FY 2009 

charges of $9.6 million. 

Guarini Litigation

Paralleling the goodwill cases are similar cases 

alleging that the government breached agreements 

regarding tax benefits associated with certain 

FSLIC-assisted 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.

The last of the original eight Guarini cases concluded in 2007 with a settlement of $23 million 

being paid. Additionally, a case settled in 2006 further obligates the FRF-FSLIC as a guarantor for all 

tax liabilities in the event the settlement amount is 

determined by tax authorities to be taxable. The 

maximum potential exposure under this guarantee 

is approximately $81 million. However, the FDIC 

believes that it is very unlikely the settlement will 

be subject to taxation. More definitive information 

may be available during late 2009 or early 2010, 

after the IRS completes its Large Case Program 

audit on the institution’s 2006 returns. Therefore, 

the FRF is not expected to fund any payment under 

this guarantee and no liability has been recorded. 

Representations and Warrant

As part of the RTC’s efforts to maximize the return 

from the sale of assets from thrift resolutions, representations and warranties, and guarantees were 

offered on certain loan sales. The majority of loans 

subject to these agreements have been paid off, refinanced, or the period for filing claims has expired. 

The FDIC’s estimate of maximum potential exposure to the FRF is $18.7 million. No claims in 

connection with representations and warranties 

have been asserted since 1998 on the remaining 

open agreements. Because of the age of the remaining portfolio and lack of claim activity, the FDIC 

does not expect new claims to be asserted in the 

future. Consequently, the financial statements at 

December 31, 2008 and 2007, do not include a liability for these agreements.
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 111

CHAPTER 4 ★ Financ

5.	 Resolution Equ

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 Capi

The FRF-FSLIC and the former RTC received $43.5 

billion and $60.1 billion from the U.S. Treasury, 

respectively, to fund losses from thrift resolutions 

prior to July 1, 1995. Additionally, the FRF-FSLIC 

issued $670 million in capital certificates to the 

Financing Corporation (a mixed-ownership government corporation established to function solely 

as a financing vehicle for the FSLIC) and the RTC 

issued $31.3 billion of these instruments to the 

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

December 31, 2008, the FRF-RTC has returned 

$4.556 billion to the U.S. Treasury and made payments of $5.022 billion to the REFCORP. These 

actions serve to reduce contributed capital. 

FRF-FSLIC received $142.6 million in U.S. 

Treasury payments for goodwill litigation in 2008. 

Furthermore, $142.3 million and $35.4 million 

were accrued for as receivables at year-end 2008 

and 2007, respectively. The effect of this activity 

was an increase in contributed capital of $249.6 

million in 2008.

Accumulated Deficit

The accumulated deficit represents the cumulative 

excess of expenses over revenue for activity 

related to the FRF-FSLIC and the FRF-RTC. 

Approximately $29.8 billion and $87.9 billion 

were brought forward from the former FSLIC and 

the former RTC on August 9, 1989, and January 1, 

1996, respectively. The FRF-FSLIC accumulated 

deficit has increased by $12.5 billion, whereas the 

FRF-RTC accumulated deficit has decreased by 

$6.3 billion, since their dissolution dates.

Resolution Equity at Dec

Dollars in Thousands

FRF-FSLIC F

FR

Consolidate

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

Add: U.S. Treasury payments/receivable for goodwill litigation 249,597 0 249,597

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

Contributed capital - ending 45,692,842 81,749,337 127,442,17

Accumulated deficit (42,367,645) (81,580,421) (123,948,066)

Total $3,325,197 $168,916 $3,494,113
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6.  Employee Benef

Pension Benefit

Eligible FDIC employees (permanent and term 

employees with appointments exceeding one year) 

are covered by the federal government retirement 

plans, either the Civil Service Retirement System 

(CSRS) or the Federal Employees Retirement 

System (FERS). Although the FRF contributes a 

portion of pension benefits for eligible employees, 

it does not account for the assets of either retirement system. The FRF also does not have actuarial 

data for accumulated plan benefits or the unfunded 

liability relative to eligible employees. These 

amounts are reported on and accounted for by the 

U.S. Office of Personnel Management. The FRF’s 

pension-related expenses were $169 thousand and 

$252 thousand for 2008 and 2007, respectively. 

Postretirement Benefits Ot

Than Pensio

The FRF no longer records a liability for the 

postretirement benefits of life and dental insurance 

(a long-term liability), due to the expected dissolution of the FRF. The liability is recorded by the 

DIF. However, the FRF does continue to pay its 

proportionate share of the yearly claim expenses 

associated with these benefits. 

7.	 Disclosures About the

Fair Value of Financial

Instruments

The financial asset recognized and measured at fair 

value on a recurring basis at each reporting date is 

cash equivalents. The following table presents the 

FRF’s financial asset measured at fair value as of 

December 31, 2008.

Some of the FRF’s financial assets and liabilities 

are not recognized at fair value but are recorded at 

amounts that approximate fair value due to their 

short maturities and/or comparability with current interest rates. Such items include other 

short-term receivables and accounts payable and 

other liabilities.

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

assets. This corporate receivable is unique and the 

estimate presented is not necessarily indicative of 

the amount that could be realized in a sale to the 

private sector. Such a sale would require indeterminate, but substantial, discounts for an interested 

party to profit from these assets because of credit 

and other risks. Consequently, it is not practicable 

to estimate its fair value.

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

projected cash flow analyses using market-based 

assumptions (see Note 3).

Assets Measured at Fair Value at

Dollars in Thousands

Fair Value Measurement U

Quoted Pri

in Active

Markets fo

Identical Assets

(Level 1)

Significan

Othe

Observabl

Inputs (Level 2)

Significan

Unobservabl

Inputs (Level 3)

Total Assets at

Fair Value

Assets

Cash equivalents (Special U.S. Treasuries)1 $ 3,467,227 $ 0 $ 0 $ 3,467,227

(1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the U.S. Bureau of 

Public Debt.
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GOVERNMENT ACCOUNTABILI
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MANAG
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Overview of the Industr

The 8,305 FDIC-insured commercial banks and 

savings institutions that reported financial results 

at the end of 2008 had total net income of $10.2 

billion, a decline of $89.8 billion (89.8 percent) 

from the $100 billion that the industry earned 

in 2007. This is the smallest annual net income 

total for the industry since 1989. The primary 

cause of the decline in earnings was increased provisions for loan losses, which were $105.2 billion 

(152 percent) higher than in 2007. Insured institutions set aside $174.4 billion for losses in 2008, up 

from $69.2 billion a year earlier. Loss provisions 

absorbed 30.9 percent of the industry’s net 

operating revenue (net interest income plus total 

noninterest income) in 2008, compared to only 

11.8 percent in 2007. Almost three out of every 

four insured institutions (73.9 percent) reported 

increased loss provisions in 2008. 

Failures and merger transactions had a significant 

effect on the industry’s income and expense totals 

for 2008. Sizable losses incurred by a number of 

large institutions that failed or were acquired before 

the end of 2008 were not carried forward to fullyear results. If these losses had been included in 

the industry’s results for the year, the industry 

would have reported a net loss in 2008.

The average return on assets (ROA) for 2008 was 

0.08 percent, considerably below the 0.81 percent 

average of a year earlier. More than two-thirds of 

all institutions (68 percent) reported year-over-year 

ROA declines. Only 37 percent of institutions 

reported higher net income, and 23.6 percent 

reported net losses for the year. During 2007, 

only 12.1 percent were unprofitable.

In addition to the higher expenses for loan-loss 

provisions, industry earnings in 2008 were held 

down by reduced noninterest income, which was 

$25.6 billion (11 percent) lower than in 2007. The 

largest contributors to the decline in noninterest 

income were a negative $5.8-billion swing in trading 

revenues, from a positive $4.1 billion in 2007 to a 

negative $1.8 billion in 2008, and a $5.8-billion 

(27.4-percent) decline in securitization income. 

Most of the decline in trading revenue and 

securitization occurred at a few large institutions. 

A majority of insured institutions (59 percent) 

reported increased noninterest income in 2008. 

Net income was also negatively affected by realized losses on securities and other assets, which 

totaled $15.0 billion, compared to net losses of 

$1.4 billion a year ago. Finally, expenses for goodwill impairment and other intangible asset 

charges were $12.6 billion (67.8 percent) greater 

than a year earlier.

One of the few positive trends in industry earnings 

was net interest income, which increased by $5 billion (1.4 percent). The average net interest margin 

(NIM) in 2008 was 3.18 percent, below the 3.29 

percent average of a year earlier; this is the lowest 

full-year NIM for the industry since 1984. A majority of institutions – 57.4 percent – reported lower 

NIMs in 2008. The improvement in net interest 

income was attributable to a 4.1-percent increase in 

the industry’s interest-bearing assets during 2008.

Asset quality indicators worsened in 2008. The 

amount of loans and leases that were noncurrent 

(90 days or more past due or in nonaccrual status) 

increased by $120.1 billion (108.5 percent); at the 

end of the year, the percent of the industry’s total 

loans and leases that were noncurrent stood at 2.93 

percent, the highest level since 1992. Noncurrent 1-

4 family residential mortgage loans increased by 

$48.4 billion in 2008, while noncurrent real estate 

construction and development loans rose by $30.2 

billion. Noncurrent levels increased in all other 

major loan categories as well.

Net charge-offs of loans and leases totaled 

$99.5 billion, more than double the $44.1 billion 

that insured institutions charged off during 2007. 

Residential real estate loans and construction and 

development loans led the rise in charge-offs. Net 

charge-offs of home equity lines of credit were 

$6.9 billion higher than in 2007, while charge-offs 

of other loans secured by 1-4 family residential 

properties increased by $12 billion. Net charge-offs 

of real estate construction and development loans 

were up by $13.7 billion. While loans secured by 

real estate led the rise in charge-off activity, all of 

the other major loan categories had higher chargeoffs as well. The net charge-off rate for the industry 

in 2008 was 1.28 percent, the highest annual rate 

since 1991.
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CHAPTER 4 ★ Financ

Asset growth slowed in 2008. Total assets of 

insured institutions increased by $813.2 billion 

(6.2 percent), led by a $499.3-billion increase in 

balances due from Federal Reserve banks. The 

total amount of loan and lease balances declined by 

$31.3 billion in 2008, the first time since 1993 that 

reported balances have had a 12-month decline. 

Closed-end real estate loans secured by 1-4 family 

residential properties declined by $196.6 billion 

(8.8 percent) during the 12-month period, while 

real estate construction and development loans fell 

by $39.3 billion (6.2 percent). Most other loan categories posted moderate increases. Only 57.1 percent 

of the increase in industry assets ($464.0 billion) 

consisted of interest-earning assets.

Total deposits increased by $620.3 billion (7.4 percent), with interest-bearing deposits in domestic 

offices rising by $351.9 billion (6.2 percent), and 

domestic noninterest-bearing deposits growing by 

$231.6 billion (19.4 percent). Deposits in foreign 

offices increased by $36.7 billion (2.4 percent) during 

this period. Nondeposit liabilities were up by 

$244.1 billion (7.5 percent). 

The number of insured commercial banks and 

savings institutions on the FDIC’s “Problem List” 

rose from 76 institutions with $22 billion in assets 

to 252 institutions with $159 billion in assets in 

2008. This is the largest number of “problem” institutions since the middle of 1995, and the largest 

amount of assets since the end of 1993. At the end 

of 2008, more than 97 percent of all FDIC-insured 

institutions, representing more than 98 percent of 

all insured institution assets, met or exceeded the 

highest federal regulatory capital standards.
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